TD Bank 2005 Annual Report Download - page 25

TD BANK FINANCIAL GROUP ANNUAL REPORT 2005 Management’s Discussion and Analysis 21
FINANCIAL RESULTS OVERVIEW
Expenses
AT A GLANCE OVERVIEW
•Reported non-interest expenses increased by
$775 million.
•TD Banknorth expenses before amortization of
intangibles were $549 million.
•Enron related litigation provisions of $365 million.
•Restructuring charges of $43 million.
NON-INTEREST EXPENSES
Expenses include costs, such as salaries, occupancy and equip-
ment costs, amortization of intangibles and other operating and
non-operating expenses.
In 2005, we continued to tightly manage our cost base with a
clear focus on improving the efficiency of all our businesses. On
areported basis, expenses for fiscal 2005 were $8,782 million
compared with $8,007 million in fiscal 2004, up $775 million or
10%. The inclusion of results from the TD Banknorth acquisition
contributed $549 million to this expense increase. Expenses
before amortization of intangibles in fiscal 2005 were $8,236
million up from $7,381 million in 2004.
As shown in Table 9, salaries and employee benefits rose
$438 million or 12% during the year, reflecting a $290 million
or 13% increase in salaries, a $55 million or 5% increase in
incentive compensation and a $93 million or 21% increase in
pension and other employee benefits. Occupancy costs were
up $64 million or 11%. Equipment costs were up $47 million
or 8%. Occupancy and equipment costs increased due to the
inclusion of TD Banknorth results which operates 397 branches
and 556 automated banking machines. Professional and advisory
services expenses increased by $48 million or 11%, primarily
due to increased business development activity related to the
acquisition of TD Banknorth, the proposed transactions with
Ameritrade and Hudson United Bancorp. The increase in other
expenses was largely due to the recognition of approximately
$365 million of expense related to contingent litigation reserves
increases related to Enron, compared to $300 million the
previous year and increases in restructuring costs and marketing
and business development. The impact of the amortization of
intangibles on the Bank’sreported expenses was $546 million,
compared with $626 million in fiscal 2004.
Expenses in Canadian Personal and Commercial Banking
increased mainly due to very strong growth in the insurance
business, growth in compensation costs, increased marketing
costs and increased investments in systems development and
infrastructure. Also this was the first full year of expenses from
the Liberty Mutual acquisition. Expenses increased in Wealth
Management due to an increase in compensation costs in the
advisory businesses and higher mutual fund sales commissions,
driven by higher assets under management. The expense
increase was partially offset by the impact of foreign exchange
translation in TD Waterhouse U.S.A..Expenses in Wholesale
Banking increased primarily due to the recognition of $43 million
in restructuring costs relating to the global structured products
businesses. The restructuring costs are further explained in
Note 24 on page 104.
EFFICIENCY RATIO
The efficiency ratio measures the efficiency of operations.
The ratio is calculated by taking expenses as a percentage of
total revenue. A lower ratio indicates a more efficient business
operation.
On a reported basis, the Bank’s overall efficiency ratio
improved to 73.8% from 75.1% in 2004 and 84.8% in 2003.
The Bank’sconsolidated efficiency ratio is impacted by shifts in
its business mix. The efficiency ratio is viewed as a more rele-
vant measurefor Canadian Personal and Commercial Banking,
which had an efficiency ratio, before amortization of intangi-
bles of 56.3% this year compared with 58.7% in 2004 and
59.2% in 2003. The Bank’s efficiency ratio before amortization
of intangibles was 69.2% compared with 69.3% in 2004 and
77.0% in 2003.
050304
$10,000
8,000
6,000
4,000
2,000
0
Non-interest expenses
(millions of Canadian dollars)
Reported basis
Before amortization
of intangibles
050304
100%
80
60
40
20
0
Efficiency ratio
(percent)
Reported basis
Before amortization
of intangibles