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TD BANK FINANCIAL GROUP ANNUAL REPORT 2005 Management’s Discussion and Analysis
16
ECONOMIC PROFIT1
Economic profit increased by $170 million or 19% in 2005. The
increase was primarily due to Canadian Personal and Commercial
Banking earnings generating $228 million of growth in economic
profit. Strong volume growth across most personal and business
products particularly in insurance products, business deposits and
real estate secured lending drove the increase that was partially
offset by tightening margins. Wealth Management generated
$91 million of growth in economic profit largely driven by higher
discount brokerage spreads and cash balances. Partially offset-
ting the above-mentioned growth was an economic loss of $105
million in TD Banknorth that was acquired in 2005. In addition,
Wholesale Banking had a $49 million decline in economic profit
largely due to lower trading revenues from the interest and
credit portfolios.
TOTAL SHAREHOLDER RETURN
The total shareholder return was 16.9% compared to a Canadian
Bank peer average of 12.9%. The result was driven primarily by
appreciation of the Bank’s share price as the closing price of $55.70
on October 31, 2005 was $6.72 higher than a year earlier. In
addition the Bank paid quarterly dividends consistently throughout
the past year. Total quarterly dividends were $1.58 per common
share and included two dividend increases during the year.
DILUTED EARNINGS PER SHARE1
Diluted earnings per share growth was 10% for 2005. The
increase was the result of strong earnings in Canadian Personal
and Commercial Banking and Wealth Management. The diluted
earnings per share growth was due to stronger earnings and
the accretive acquisition of TD Banknorth. This acquisition on
March 1, 2005 resulted in the number of average common
shares outstanding increasing 6% during the year.
REVENUE GROWTH EXCEEDS EXPENSE GROWTH1
During 2005 each of our businesses had revenue growth that
exceeded expense growth with the exception of Wholesale
Banking. The differential between revenue and expense growth
for each of our businesses was: 5% Canadian Personal and
Commercial Banking (CP & CB), 4% Wealth Management (WM)
and (2%) Wholesale Banking (WB). Our U.S. Personal and
Commercial Banking business was acquired in 2005 and hence
does not have comparable growth information.
Canadian Personal and Commercial Banking and Wealth
Management experienced strong revenue growth throughout
2005 primarily in real estate secured lending, insurance and
discount brokerage spreads and cash balances. Prudent expense
management in these businesses contained expense growth to
reasonable levels. Wholesale Banking experienced lower trading
related revenues during the year compared to 2004. Current year
Wholesale Banking expenses werelower than 2004, however,
the decline did not fully offset the lower revenue impact.
RETURN ON RISK WEIGHTED ASSETS1
The Bank’s return on risk weighted assets was 2.33% compared
to the highest Canadian peer of 1.99%. Average risk-weighted
assets increased $14.2 billion or 14% from 2004 due largely
to TD Banknorth. While still maintaining a good risk profile, we
also experienced strong volume growth in real estate secured
lending and personal lending in Canadian Personal and
Commercial Banking.
1These shareholder indicators and financial measures are presented before
amortization of intangibles and excluding items of note (see Table 1 and
“How the Bank Reports”). Reported diluted earnings per share decreased
5.6%. On a reported basis the difference between revenue and expense
growth in Wholesale Banking was (12)% and there would be no change
in Canadian Personal and Commercial Banking and Wealth Management.
The return on risk weighted assets on a reported basis was 1.88%.
050304
$1,500
0
1,000
500
Economic profit1
(millions of Canadian dollars)
05
0304
60%
0
40
20
Totalshareholder return
(percent)
05
0304
$5
0
4
3
1
2
3%
0
1
2
Diluted earnings per share1
(Canadian dollars)
05
0304
$500
-750
250
Revenue growth vs expense growth gap1
(millions of Canadian dollars)
05
0304
Return on risk-weighted assets1
(percent)
CP & CB
WM
WB
0