TD Bank 2006 Annual Report Download - page 109

TD BANK FINANCIAL GROUP ANNUAL REPORT 2006 Financial Results 105
The majority of insurance premiums, claims, and liabilities are
derived from the Bank’s property and casualty insurance business.
These premiums, net of reinsurance, are recognized as income
on a pro-rata basis over the terms of the policies. Claims are
expensed as incurred. Insurance-related liabilities, reported in
other liabilities, represent unpaid claims and estimates for losses
incurred but not yet reported, as determined by the appointed
actuary in accordance with accepted actuarial practice.
INSURANCE
NOTE 23
For management reporting purposes, the Bank’s operations and
activities are organized around the following operating business
segments: Canadian Personal and Commercial Banking, U.S.
Personal and Commercial Banking, Wholesale Banking and
Wealth Management.
The Canadian Personal and Commercial Banking segment
comprises the Bank’s personal and business banking in Canada
as well as the Bank’s global insurance operations (excluding the
U.S.) and provides financial products and services to personal,
small business, insurance, and commercial customers. The U.S.
Personal and Commercial Banking segment provides commercial
banking, insurance agency,wealth management, merchant
services, mortgage banking and other financial services in the
northeastern U.S. The Wholesale Banking segment provides
financial products and services to corporate, government, and
institutional customers. The Wealth Management segment
provides investment products and services to institutional and
retail investors and includes the Bank’sequity investment in
TD Ameritrade.
The Bank’s other business activities are not considered
reportable segments and are, therefore, grouped in the
Corporate segment. The Corporate segment includes activities
from the non-core lending portfolio, effects of asset securitiza-
tion programs, treasury management, general provisions for
credit losses, elimination of taxable equivalent adjustments,
corporate level tax benefits, and residual unallocated revenues,
expenses and taxes.
Results of each business segment reflect revenues, expenses,
assets and liabilities generated by the businesses in that segment.
Due to the complexity of the Bank, its management reporting
model uses various estimates, assumptions, allocations and risk-
based methodologies for funds transfer pricing, inter-segment
revenues, income tax rates, capital, indirect expenses and cost
transfers to measure business segment results. Transfer pricing
of funds is generally applied at market rates. Inter-segment
revenues are negotiated between each business segment and
approximate the value provided by the distributing segment.
Income tax expense or benefit is generally applied to each
segment based on a statutory tax rate and may beadjusted
for items and activities unique to each segment.
The Bank measures and evaluates the performance of each
segment based on adjusted earnings and, where applicable, the
Bank notes that the measure is adjusted. To arrive at adjusted
earnings, the Bank removes “items of note”, net of income tax,
from earnings prepared in accordance with GAAP.
Net interest income, primarily within Wholesale Banking, is
calculated on a taxable equivalent basis (TEB), which means that
the value of non-taxable or tax-exempt income, such as dividends,
is adjusted to its equivalent before-tax value. Using TEB allows the
Bank to measure income from all securities and loans consistently
and makes for amoremeaningful comparison of net interest
income with similar institutions. The TEB adjustment reflected in
the Wholesale Banking segment’s results is eliminated in the
Corporate segment.
SEGMENTED INFORMATION
NOTE 24
2006 2005 2004
Net earned premiums and fees $2,226 $2,118 $1,664
Claims and related expenses 1,330 1,292 1,071
$896 $826 $ 593