TD Bank 2006 Annual Report Download - page 20

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TD BANK FINANCIAL GROUP ANNUAL REPORT 2006 Management’s Discussion and Analysis
16
FINANCIAL RESULTS OVERVIEW
Net Income
AT A GLANCE OVERVIEW
•Reported net income was $4,603 million, up $2,374 million,
or 107%, from 2005.
•Adjusted net income was $3,376 million, up $515 million,
or 18%, from 2005.
Reported net income was $4,603 million, compared with
$2,229 million in 2005. Adjusted net income was $3,376 million,
compared with $2,861 million in 2005. The increase in reported
net income was significantly impacted by the dilution gain of
$1,665 million (net of income taxes) realized on the sale of
TD Waterhouse U.S.A. to Ameritrade. The remaining increase
is largely a result of overall improved results of our operating
segments compared with last year. Additionally in 2005 net
income was negatively impacted by the litigation charge due to
Enron-related claims. The improvement in adjusted net income
was driven by higher net income in each of our operating
segments, partially offset by a loss in the corporate segment.
Canadian Personal and Commercial Banking had a $264 million
increase in net income, compared with 2005 on strong volume
growth across most products and higher deposit margins. U.S.
Personal and Commercial Banking adjusted net income grew by
$97 million, largely due to the inclusion of a full year’s results of
TD Banknorth in 2006, compared with seven months last year.
Wealth Management delivered an increase of $158 million in
net income, mainly due to growth in assets under management
in the Canadian business and higher net income from the
investment in TD Ameritrade compared with net income from
TD Waterhouse U.S.A. in 2005. Wholesale Banking had an
increase in adjusted net income of $113 million, led by its
domestic franchise business, foreign exchange and energy
trading businesses, and robust security gains.
Reported diluted earnings per share were $6.34, compared
with $3.20 in 2005. Adjusted diluted earnings per share were
$4.66, an increase of 13%, compared with $4.14 in 2005. The
increase in diluted earnings per share was a result of the higher
adjusted net income, partially offset by the impact of an increase
in the average number of common shares outstanding. The aver-
age number of common shares outstanding on a diluted basis
was 723 million in 2006, compared with 696 million in 2005.
AMERITRADE AND TD WATERHOUSE U.S.A.
TRANSACTION – IMPACT ON REVENUE AND EXPENSES
As discussed on page 15, on January 24, 2006, the Bank sold its
U.S. brokerage business, TD Waterhouse U.S.A., to Ameritrade in
exchange for a minority stake in TD Ameritrade. The investment
in TD Ameritrade is accounted for using the equity method, and
the Bank’s share of net income is reported on the single line
“Equity in net income of associated company.” This accounting
treatment results in a reduction of both revenue and expenses
compared with last year, because 2005 included the revenue and
expenses of TD Waterhouse U.S.A.
U.S. GAAP (see Note 29 of the Consolidated Financial Statements)
Net income available to common shareholders under U.S. GAAP
was $4,559 million, compared with $4,581 million under
Canadian GAAP. The difference in net income available to com-
mon shareholders is primarily due to the net income impact of
the U.S. GAAP requirement to record guarantees issued by the
Bank as liabilities measured at fair value on the Consolidated
Balance Sheet. Other adjustments made to U.S. GAAP net income
primarily relate to reclasses between U.S. and Canadian GAAP and
they have no net income impact.
The Consolidated Statement of Comprehensive Income is a U.S.
GAAP requirement, with no current 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.