TD Bank 2005 Annual Report Download - page 22

TD BANK FINANCIAL GROUP ANNUAL REPORT 2005 Management’s Discussion and Analysis
18
(millions of Canadian dollars) 2005 vs 2004 2004 vs 2003
Favourable (unfavourable) due to change in Favourable (unfavourable) due to change in
Average Average Net Average Average Net
volume rate change volume rate change
Total earning assets $1,634 $10 $ 1,644 $335 $(405) $ (70)
Total interest-bearing liabilities (525) (884) (1,409) $(29) 435 406
Net interest income $1,109 $ (874) $ 235 $306 $ 30 $336
NET INTEREST MARGIN
The net interest margin declined by 17 basis points in 2005,
reaching 2.09%. This reflected spread compression on domestic
mortgages and deposits due to a change in product mix as vol-
ume growth continues to be weighted toward lower margin
products including real estate secured lending and guaranteed
investment savings accounts. The downward trend in margin
was less pronounced in the latter half of the year. As shown
in Table 5 the average rate paid on total liabilities increased by
28 basis points and the average rate received on total assets
increased by 7 basis points.
ANALYSIS OF CHANGE IN NET INTEREST INCOME
TABLE 4
FINANCIAL RESULTS OVERVIEW
Revenues
AT A GLANCE OVERVIEW
•Revenues increased by $1,241 million or 12% from 2004.
•Net interest income was up $235 million or 4%.
•Other income was up $1,006 million or 21%.
•TD Banknorth’s revenue was $1,004 million.
Total revenues were up $1,241 million or 12% from 2004,
reaching $11.9 billion. Canadian and U.S. revenues increased
6% and 68%, respectively. Revenue increases were driven by
both organic growth and the acquisition of TD Banknorth. The
revenue growth was positively impacted by net interest income
and fee income primarily due to TD Banknorth. Insurance
premiums and brokerage fee growth also had a favourable
impact on other income.
NET INTEREST INCOME
Net interest income was $6,008 million in 2005, a year-over-
year increase of $235 million or 4%. As shown in Table 4, while
higher asset volumes added $1,109 million to net interest
income in 2005, changes in rates reduced net interest income
by $874 million. The overall increase in net interest income pri-
marily related to our acquisition of TD Banknorth. The inclusion
of 7 months of net interest income from TD Banknorth con-
tributed $705 million. This was the first year that TD Banknorth
results were included in the Bank’s results. Net interest income in
Wealth Management’sdiscount brokerage business increased by
$151 million due to higher brokerage account spreads and bal-
ances. There was also an increase of $188 million of net interest
income in Canadian Personal and Commercial Banking due to
strong volume growth in real estate secured lending, core bank-
ing and business deposits, partially offset by a continued product
mix shift into lower margin products, including real estate
secured lending and guaranteed investment savings accounts.
Wholesale Banking experienced reduced trading related net
interest income in the equity and credit portfolios, largely due to
higher U.S. dollar cost of funds which more than doubled during
the year due to an increase in U.S. short-term interest rates. See
trading related income discussion on page 20. Net interest
income also decreased in the Corporate segment due to lower
non-core portfolio revenue and income earned on income tax
refunds in the prior year that did not recur.
050304
$7,000
0
6,000
5,000
4,000
3,000
2,000
1,000
Net interest income
(millions of Canadian dollars)