TD Bank 2006 Annual Report Download - page 29

TD BANK FINANCIAL GROUP ANNUAL REPORT 2006 Management’s Discussion and Analysis 25
Canadian Personal and U.S. Personal and Wealth
Commercial Banking Commercial Banking Wholesale Banking Management Corporate
(millions of
Canadian dollars) 2006 2005 2004 2006 2005 2006 2005 2004 2006 2005 2004 2006 2005 2004
Net interest income (loss) $4,879 $4,342 $4,154 $1,290 $705 $479 $977 $1,581 $377 $643 $ 492 $(654)$(659) $(454)
Other income 2,573 2,361 2,066 490 299 1,792 1,011 615 1,883 2,103 2,098 1,554 115 104
Total revenue 7,452 6,703 6,220 1,780 1,004 2,271 1,988 2,196 2,260 2,746 2,590 900 (544) (350)
Provision for (reversal of)
credit losses 413 373 373 40 468 52 41 –––(112) (374) (800)
Non-interest expenses 4,086 3,773 3,650 1,087 549 1,312 1,325 1,289 1,575 2,083 2,047 667 1,052 1,021
Income before provision
for income taxes 2,953 2,557 2,197 653 451 891 611 866 685 663 543 345 (1,222) (571)
Provision for (benefit of)
income taxes 987 855 747 222 161 262 189 278 242 231 191 (839) (737) (413)
Non-controlling interests
in subsidiaries, net of
income taxes –– – 195 132 –– – –– – (11) – –
Equity in net income of
associated company,
net of income taxes ––– –––––147 ––(13) ––
Net income – reported 1,966 1,702 1,450 236 158 629 422 588 590 432 352 1,182 (485) (158)
Items of note, net of
income taxes ––– 19 –35 129 – –––(1,281) 503 253
Net income – adjusted $1,966 $1,702 $1,450 $ 255 $158$ 664 $ 551 $ 588 $ 590 $ 432 $ 352 $ (99)$ 18 $ 95
(billions of
Canadian dollars)
Risk-weighted assets $65$58$57 $32$25$34$ 33 $ 30 $5$9$9$5$4$5
RESULTS BY SEGMENT
TABLE 13
ECONOMICSUMMARYAND OUTLOOK
The Canadian economy turned in a healthy performance over
our fiscal year 2006. The strength was concentrated in the
domestic sector, with consumer spending being supported by a
30-year low unemployment rate and solid wage gains. Business
investment advanced quickly, reflecting solid corporate profit
growth and declining costs for imported machinery and equip-
ment when priced in Canadian dollars. The main factor holding
back economic growth was the sustained high exchange rate
that dampened exports and led to significant job losses in the
manufacturing sector. The robust domestic economy led the
Bank of Canada to raise rates seven times before moving to the
sidelines in the summer of 2006, with the result that interest
rates appear to have peaked at low levels by historical standards.
The U.S. economy expanded at a solid pace in 2006, but
economic and financial conditions became less supportive to
banking activities over the course of the year. Concerns about
the risk of inflation encouraged the U.S. Federal Reserve to lift its
benchmark Federal funds rate to 5.25%, resulting in a sustained
inversion in the U.S. yield curve that acted as a key catalyst to
cooling the overheated U.S. housing markets. As a consequence,
economic growth has slowed heading into 2007.
Looking ahead, the dominant theme for the coming year is
the lagged fallout from the U.S. housing-led economic slowdown
that will, in turn, dampen economic conditions in Canada.
However, we do not believe that the U.S. economy is headed
for a recession. The improvement in assets and liabilities on
corporate balance sheets, as well as continued fierce global
competition, will likely encourage further business investment.
U.S. exports are expected to be boosted by the weaker U.S.
dollar and the U.S. government shows no signs of restricting its
spending. The weakness in the consumer sector should also be
limited by the continuation of low unemployment, further wage
gains and lower energy prices. As a result, U.S. economic growth
is forecast to average 2.1% over 2007, down from 3.5 per cent
in 2006.
The weaker U.S. economy is expected to dampen Canadian
exports, but the domestic Canadian economy is likely to remain
robust. Consequently, Canadian economic growth is forecast
to slow to an average pace slightly above 2% in fiscal 2007.
The Canadian labour market is expected to remain strong, but
the pace of job creation will likely moderate. There is a major
regional dimension to the outlook, with Western Canada outper-
forming and Central Canada underperforming the national
average. We expect the Bank of Canada to lower interest rates in
the Spring of 2007. Bond yields have largely priced in the weaker
economic conditions, suggesting that the downside to long-term
interest rates is limited. The Canadian dollar is expected to
average between 85 and 90 U.S. cents, with the currency being
constrained by a pullback in commodity prices but supported
by a weakening in the U.S. dollar.