TD Bank 2003 Annual Report Download - page 23

TD BANK FINANCIAL GROUP ANNUAL REPORT 2003 • Management’s Discussion and Analysis 21
Personal lending average volume, including securitization,
grew $7 billion or 7%, primarily from real estate secured
lending, and personal deposit volume grew $4 billion or 5%.
Business deposits grew by $3 billion or 13% and originated
gross domestic insurance premiums grew by $295 million or
27%. Business loans and acceptances contracted by $1 billion
or 6%. As of August 2003, our overall personal market share
(loans, deposits and mutual funds) was 21.05%, slightly
lower than the 21.25% in fourth quarter of 2002. We experi-
enced modest market share declines in personal lending and
personal deposits and increased share in mutual funds.
Margin on average earning assets decreased from 3.42%
to 3.28% due to a combination of rate environment, compet-
itive pricing and customer preference. Core deposit margins
narrowed from the impact of the low interest rate environment
while competitive pricing has reduced margins on mortgages
and term deposits. In addition, customer preference has
weighted volume growth toward lower margin products
such as the Guaranteed Investment Account and fixed-rate
mortgages and home equity lines of credit.
Credit quality improved over last year in personal lending
and remained strong in small business and commercial bank-
ing. Provision for credit losses decreased by $45 million or
9% reflecting the continued improvement in retail lending
processes. Provision for credit losses as a percent of lending
volume improved to .36% from .41% last year.
Cash basis expenses decreased by $38 million or 1% com-
pared with last year. Expense synergies from branch mergers
and from process improvements that were started following
the branch and systems conversions in 2002 contributed to
a 1,400 or 5% decrease in average full-time equivalent per-
sonnel over last year. The branch merger program is now
complete with 32 mergers carried out during 2003 following
238 mergers over the previous two years. These savings in
personnel costs were offset in part by increases in salaries
and employee benefits, severance costs and variable expenses
associated with strong volume growth in real estate secured
lending and insurance products. In addition, up-front costs
were incurred on the closure of 118 Wal-Mart in-store
branches towards the end of the year. As a result of the
actions taken to improve operational efficiency, the cash basis
efficiency ratio for the year improved to 58.8%, two percent-
age points better than last year.
Review of financial performance 2002
Personal and Commercial Banking reported modest 2%
growth in cash basis earnings in 2002 following strong
growth in earnings during 2001. Total revenue grew 2% in
2002 compared with 2001. Core deposits, business deposits,
credit cards and insurance were the main contributors to
revenue growth. Growth in cash basis expenses was limited
to 1% in 2002 compared with the prior year. Expenses in
2001 were impacted by costs associated with the conversion
of the branch network and systems. During 2002, expense
synergies were realized through branch mergers, however
investments were made in customer service and process
improvement initiatives following the conversions. Higher
rates of expense growth were experienced in pension and
benefit costs as well as in fast growing TD Meloche Monnex.
The cash basis efficiency ratio for 2002 was 60.7%, an
improvement of .8 percentage points over 2001. The provision
for credit losses for 2002 of $505 million was $125 million or
33% higher than 2001. Approximately half of this increase
was from small business and commercial lending returning to
more normal loss levels following low losses in 2001. Losses
in 2002 also included the impact of processing and collection
issues that arose following conversion.
Financial results of key product segments within
Personal and Commercial Banking
Real estate secured lending
•Offers mortgages and home equity secured lines of credit
through branches and other sales channels.
•Highlights for 2003 include:
– Growth of average real estate lending volumes of
$6 billion, a 7% increase over 2002 average volumes.
Improved new lending origination volume by 18% over
2002 and improved the mortgage retention rate by
four percentage points.
– Introduced industry leading automated property valua-
tion on both mortgages and home equity lines of credit
designed to both save the customer money and enhance
their real estate credit experience.
– Launched the new five year Best Rate Mortgage –a fixed
price “no haggle”product guaranteeing a comfortable
customer experience at market competitive rates.
– Strong migration from mortgages to home equity lines
of credit as customers responded to this superior product
and service offering.
Cash basis net income
(millions of dollars)
$1,277 million
01 02 03
$1,500
1,250
1,000
750
500
250
0
Cash basis efficiency ratio
(percent)
58.8 percent
01 02 03
70%
60
50
40
30
20
10
0
Economic profit
(millions of dollars)
$639 million
01 02 03
$700
500
600
400
300
200
100
0