TD Bank 2005 Annual Report Download - page 43

TD BANK FINANCIAL GROUP ANNUAL REPORT 2005 Management’s Discussion and Analysis 39
(millions of Canadian dollars) 2005 2004 2003
Net interest income $643 $492 $ 421
Other income 2,103 2,098 1,873
Non-interest expenses beforeamortization of intangibles 2,083 2,047 2,234
Income beforeprovision for income taxes 663 543 60
Provision for income taxes 231 191 145
Net income (loss) – before amortization of intangibles $ 432 $ 352 $ (85)
Selected volumes and ratios
Assets under administration (billions of Canadian dollars) $ 314 $ 279 $ 259
Assets under management (billions of Canadian dollars) 130 117 107
Economic profit (loss) (millions of Canadian dollars) $ 116 $ 25 $ (476)
Return on invested capital – before amortization of intangibles 16.4% 13.0% (3.6)%
Efficiency ratio – before amortization of intangibles 75.9% 79.0% 97.4%
Average trades per day (thousands) 105 108 98
KEY PRODUCT GROUPS
TD Waterhouse Discount Brokerage
•Aleader in self-directed investing, serving customers in
Canada, the United States and the United Kingdom.
•The businesses continued to be challenged on trade volumes
which declined 3% from 2004.
•Revenue increased by $10 million as higher net interest income
due to higher deposit balances combined with higher spread
revenue more than offset the impact on revenue of declines in
trade volumes, lower commissions per trade and the impact on
U.S. results of the higher Canadian dollar. The decline in com-
missions per trade resulted from pricing pressures in the U.S.
and lower commissions per trade on U.S. transactions for the
Canadian discount brokerage operations.
•Expenses before the amortization of intangibles declined by
$49 million primarily due to cost control in the face of declining
volumes, the impact of foreign exchange on U.S. results partial-
ly offset by higher marketing expenses and the costs associated
with call centre closures in the U.S.
TD Asset Management
•TD mutual funds is the sixth largest mutual fund family in
Canada with $42 billion in assets under management at
October 31, 2005, an increase of 20% over 2004, resulting in
record earnings for the year. Revenue growth of 12% resulted
from this growth in assets, offset by trailer payments to internal
Wealth counterparties. Expenses before the amortization of
intangibles increased $21 million also due to the increase in
assets as trailer payments to the Bank and external sellers of
the Bank’sfunds increased over 2004. For the thirdyear in a
row, TD mutual funds was second in the industry in long term
sales at $5.0 billion.
•TD investment management is recognized as one of the
largest quantitative managers in the country. Services provided
include investment management to pension funds, corpora-
tions, institutions, endowments and foundations. Assets under
management increased by 12% compared with 2004. Revenue
increased 14% as the growth in assets generated higher
management fees.
Advice-Based Businesses
•TD Waterhouse Private Client Group includes trust services,
private banking and private investment counsel. Increases in
customer assets were responsible for a 12% or $20 million
increase in revenue year-over-year. Expenses before the amorti-
zation of intangibles were flat due to the offsetting impacts of
higher expenses due to growth in assets and the costs incurred
in 2004 related to the rebranding of private client services
under the TD Waterhouse banner.
•TD Waterhouse private investment advice provides full-service
brokerage services to its retail customers throughout Canada.
In 2005, assets under administration continued to grow result-
ing in a $42 million increase in revenue. Expenses before the
amortization of intangibles grew at 14% reflecting increases in
investment advisor compensation with the growth in commis-
sionable revenue.
•TD Waterhouse financial planning continues to aggressively
grow its client facing advisors with a 21% increase in the
number of planners and a 66% increase in assets under admin-
istration in 2005. As a result, revenues increased $24 million in
2005 while expenses grew $17 million as the investment in
growing the number of financial planners continues.
ECONOMIC OUTLOOK
•Economic conditions are expected to remain positive for Wealth
Management in 2006. Rising personal income and low unem-
ployment rates should encourage increased investing activity.
•The return on money market instruments is likely to rise in reac-
tion to Bank of Canada rate hikes in late 2005 and early 2006.
•Bond yields may rise during the monetary policy tightening, but
they are likely to retreat in reaction to slower economic growth
in late 2006.
•Foreign exchange volatility will continue, particularly with respect
to the U.S. dollar, which may impact investment strategies.
BUSINESS OUTLOOK AND FOCUS FOR 2006
The outlook is favourable for continued revenue growth in
2006 as the focus on diversifying the Wealth Management
revenue stream continues. Key priorities for 2006 are:
•Ensurethe successful closing and successful integration
of the TD Ameritrade transaction, including the realiza-
tion of revenue and expense synergies planned for the
upcoming year.
•Improve Wealth Management’s new client asset growth
by increasing the number of client facing advisors, both
through competitive hiring and training programs for
new and experienced advisors.
•Increase share of business with current customers by
enhancing and delivering new products, services and
solutions.
•Introduce an active-trader platform in Canada to target
the frequent trading customers in Wealth Management’s
discount brokerage business.
•Maintain a positive spread between revenue and expense
growth by aggressively managing costs through technol-
ogy investment and elimination of overlapping functions
and processes.
•Focus on growing a more stable revenue base by target-
ing fee-based and net interest revenues.
WEALTH MANAGEMENT
TABLE 16