TD Bank 2005 Annual Report Download - page 21

TD BANK FINANCIAL GROUP ANNUAL REPORT 2005 Management’s Discussion and Analysis 17
(millions of Canadian dollars) 2005 2004 2003
Other Other Other
United Intern- United Intern- United Intern-
Canada States ational Total Canada States ational Total Canada States ational Total
Net interest income $3,860 $1,338 $810 $ 6,008 $3,849 $ 747 $1,177 $ 5,773 $3,579 $ 681 $1,177 $5,437
Other income 4,550 1,286 53 5,889 4,118 812 (47) 4,883 3,623 907 (106) 4,424
Total revenues 8,410 2,624 863 11,897 7,967 1,559 1,130 10,656 7,202 1,588 1,071 9,861
Provision for (reversal of)
credit losses 301 (222) (24) 55 (388) 2 – (386) 401 (150) (65) 186
Non-interest expenses 6,168 1,587 481 8,236 5,793 1,119 469 7,381 5,113 1,749 730 7,592
Provision for income taxes 475 483 (67) 891 721 175 56 952 523 12 68 603
Non-controlling interest – 132 – 132 ––––––––
Net income before
amortization of intangibles 1,466 644 473 2,583 1,841 263 605 2,709 1,165 (23) 338 1,480
Amortization of intangibles,
net of income taxes 349 5 – 354 473 4 – 477 491 – – 491
Net income – reported basis $1,117 $ 639 $473 $ 2,229 $1,368 $ 259 $ 605 $ 2,232 $ 674 $ (23) $ 338 $ 989
1Based on geographic location of unit responsible for recording revenue.
RESULTS BY GEOGRAPHIC SEGMENT1
TABLE 3
AT A GLANCE OVERVIEW
•Reported net income was $2,229 million, down $3 million
from the prior year.
•Earnings before amortization of intangibles decreased by
$126 million or 5%.
As illustrated in Table 1, reported net income was $2,229 million
in 2005, compared with reported net income of $2,232 million
in 2004 and $989 million in 2003. Net income before amortiza-
tion of intangibles was $2,583 million in 2005, compared with
$2,709 million in 2004 and $1,480 million in 2003.
Diluted earnings per share before amortization of intangibles
decreased by $.40 or 10% from a year ago. The decrease
was primarily due to lower earnings before amortization of
intangibles and the additional common shares outstanding
during the year. The average number of diluted common shares
was 697 million in fiscal 2005, compared to 659 million in 2004.
Net interest income increased $235 million or 4% from 2004
due to strong volume growth in real estate secured lending, credit
cards and personal and business deposits and the inclusion of
TD Banknorth’s results. Discount brokerage deposit spreads and
balances also experienced significant growth throughout the year.
Retail banking’s volume growth was partially offset by a weighting
towards lower margin products that included guaranteed invest-
ment accounts and real estate secured lending. Trading related
revenues from interest rate and credit portfolios that are reported
in net interest income were substantially down from the prior year.
Provision for credit losses of $55 million was up $441 million
compared to a net reversal of $386 million in 2004. During
the year the Bank recorded $352 million of new provisions,
$245 million of loan loss recoveries (mainly sectoral related) and
ageneral loan loss allowance release of $52 million. In 2004,
the Bank recorded $505 million of sectoral allowance reversals
that did not recur in 2005.
Other income increased $1,006 million or 21% from 2004
primarily due to strong premium revenue from insurance prod-
ucts, the inclusion of TD Banknorth’sresults, and growth in the
advice-based businesses.
Non-interest expenses increased $775 million or 10% primarily
due to the inclusion of TD Banknorth’s results. The litigation
charge due to Enron-related claims was $365 million, an increase
of $65 million over the prior year. Other expense increases
occurred in restructuring costs and compensation related items.
Non-controlling interest was $132 million compared to nil in
2004. Non-controlling interest is the result of approximately 55%
ownership in TD Banknorth.
Net income on a reported basis from Canadian operations
was $1,117 million, down $251 million from 2004. Net income
before amortization of intangibles from Canadian operations was
$1,466 million, down $375 million from 2004. This decrease in
net income from the prior year was largely due to provisions for
credit losses of $301 million compared to a reversal of $388 mil-
lion in 2004. The reversals in the prior year were largely related
to sectoral allowance releases. Canadian operation expenses
increased due to higher costs associated with the volume growth
in insurance, higher employee compensation in the advice-based
businesses and an increase of $65 million in the contingent
litigation charges for Enron-related claims over the $300 million
expensed in 2004. Revenue growth of $443 million resulted
from solid lending and deposit product volume growth and
consistently strong insurance revenues.
U.S. operations net income on a reported basis was $639
million, compared to $259 million in 2004. U.S. operations net
income before amortization of intangibles increased to $644
million from $263 million primarily due to the acquisition of
TD Banknorth in 2005. This acquisition contributed $158 million
of net income, $1,004 million of total revenues and $549 million
of expenses before amortization of intangibles to the Bank’s U.S.
operations. In addition, the decline in the provision for credit
losses of $224 million from the prior year was the result of U.S.
sectoral recoveries of $229 million.
Other international net income on a reported basis and
net income beforeamortization of intangibles decreased by
$132 million or 22% mainly reflecting lower net interest income
from trading.
U.S. GAAP (see Note 27 of the Consolidated Financial Statements)
Net income under U.S. GAAP was $2,089 million for fiscal 2005,
compared with $2,229 million under Canadian GAAP.The differ-
ence in net income is primarily due to the U.S. GAAP requirement
to report the change in fair value of all Canadian GAAP effective
hedges that arenot designated or do not qualify for hedge
accounting under U.S. GAAP and all ineffectiveness related to
effective hedges through the Consolidated Statement of Income.
The Consolidated Statement of Comprehensive Income is a
U.S. GAAP requirement, with no Canadian GAAP equivalent.
Changes in the Bank’s other comprehensive income are primarily
driven by the U.S. GAAP requirement to record unrealized gains
and losses on available for sale securities, changes in gains and
losses on derivative instruments designated as cash flow hedges
and unrealized foreign currency translation gains and losses
through the Consolidated Statement of Comprehensive Income.
FINANCIAL RESULTS OVERVIEW
Net Income