TD Bank 2006 Annual Report Download - page 32

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TD BANK FINANCIAL GROUP ANNUAL REPORT 2006 Management’s Discussion and Analysis
28
(millions of Canadian dollars) 2006 2005 2004
Net interest income $4,879 $4,342 $4,154
Provision for credit losses 413 373 373
Other income 2,573 2,361 2,066
Non-interest expenses 4,086 3,773 3,650
Income before provision for income taxes 2,953 2,557 2,197
Provision for income taxes 987 855 747
Net income – reported 1,966 1,702 1,450
Item of note, net of income taxes –– –
Net income – adjusted $1,966 $1,702 $1,450
Selected volumes and ratios
Average loans and acceptances (billions of Canadian dollars) $ 128 $ 117 $ 110
Average deposits (billions of Canadian dollars) $ 132 $ 124 $ 116
Economic profit (millions of Canadian dollars) $1,303 $1,038 $ 810
Return on invested capital 25.2% 23.1% 20.4%
Efficiency ratio 54.8% 56.3% 58.7%
Margin on average earning assets13.04%2.96% 3.05%
1Including securitized assets.
CANADIAN PERSONAL AND COMMERCIAL BANKING
TABLE 14
KEY PRODUCT GROUPS
Personal Banking
•Personal Deposits –Despite an increasingly competitive market
with a number of new entrants, the Bank improved upon its
leading market share position in 2006, outpacing the industry
on the strength of Chequing and Term growth while maintain-
ing Savings volumes. The continued focus on active chequing
accounts resulted in 4% annual growth.
•Consumer Lending –Volumes, excluding credit cards, were
relatively unchanged and reflected underlying core portfolio
growth that offset the scheduled wind-down of the Insurance
Company of British Columbia financing program. Credit card
purchase volume and outstanding balances increased 15% and
18%, respectively, over the previous year.
•Real Estate Secured Lending – The strong housing market drove
growth in new business, while customer retention continued
to improve, exceeding last year’s record highs. Volume growth
was slightly below estimated industry growth in a highly
competitive environment.
Business Banking
•Small Business Banking & Merchant Services – Customer
focus drove 5% growth in net new deposit accounts and
new borrowers in 2006.
•Commercial Banking – The continuation of a favourable credit
environment and investment in customer-facing resources
and the sales footprint resulted in stronger loan volumes and
growth in borrowers. Strong Commercial deposit growth con-
tinued, exceeding the growth rate achieved in 2005. The recent
trend of favourable loan losses persisted this year with losses
continuing below historic norms, similar to the levels of 2005.
Insurance
•TD Meloche Monnex aims to be the benchmark in the personal
automobile and home insurance industry in Canada. Premiums
grew 7% over 2005, retaining our #1 direct writer and #3
personal lines market share positions. The loss ratio increased
slightly from 68.6% in 2005 to 69.3% in 2006 on continued
sound underwriting practices and stable claims frequency. Loss
rates increased on regulatory and competitive driven premium
rate reductions and inflation-related increase in claims costs.
•TD Life Group is the leading provider of critical illness insurance
in Canada with over 400,000 customers covered.
Provision for credit losses (PCL) increased by $40 million,
or 11%, compared with last year. The acquisition of VFC
accounted for $18 million of the PCL increase. Commercial and
small business PCL was $21 million for the year, up $2 million,
compared with the prior year, on lower business loan recoveries,
and reversals, and higher write-offs. Personal PCL, excluding
VFC, of $374 million was $20 million higher than last year,
mainly due to robust credit card volume growth in 2006 and
higher write-offs on personal loans. PCL as a percent of lending
volume was at 0.25%, unchanged from last year.
Expenses increased by $313 million, or 8%, compared with
last year. The VFC acquisition accounted for $14 million of the
expense growth. Higher employee compensation and invest-
ments in new branches and infrastructure contributed to the
increase in expenses. The VFC acquisition added 148 employees
on a full-time equivalent (FTE) basis to average staffing levels
compared with last year. Average staffing levels increased by
382 FTEs from last year as a result of the new branch openings
and an expanded sales force. The efficiency ratio for the year
was 54.8%, a 150bps improvement over last year.