TD Bank 2006 Annual Report Download - page 36

TD BANK FINANCIAL GROUP ANNUAL REPORT 2006 Management’s Discussion and Analysis
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KEY PRODUCTS GROUPS
Community Banking
Community Banking offers abroad range of banking services
and products to individuals, business and governments through
branches, telephone banking and internet banking channels.
Products and services include loans and loan-related services for
commercial real estate, commercial businesses, residential real
estate and consumers, as well as a full array of deposit products
to individuals, businesses and governments, including chequing,
savings, money-market, term investment, merchant services and
cash management products designed to meet the needs of the
customer.
The Community Banking gross revenues which comprise the
majority of TD Banknorth’s revenues, amounted to $2.5 billion
on average loans of $27 billion and average deposits of $30
billion. The acquisition of Hudson, chequing and banking fees,
and strong asset quality had a favourable impact on the
performance.
Wealth Management and Investment Advisory Services
Wealth Management delivers wealth advisory, investment man-
agement and investment advisory services to both individuals
and businesses. Wealth Management revenues amounted to $74
million for the year, compared with $45 million for the seven
months ended September 30, 2005. Wealth management had
total assets under management (including both discretionary and
custodial investments) of $17.3 billion at September 30, 2006,
compared with $16.7 billion at September 30, 2005.
Insurance Agency
Insurance Agency provides insurance products and services to
individuals and businesses including Home Owners, Automobile,
Property and Casualty and Employee Benefits and is one of the
leading insurance agencies in the Northeastern U.S. Insurance
Agency revenues, which arepredominantly commissions earned
on sales of insurance products, amounted to $62 million for the
year, compared with $38 million for the seven months ended
September 30, 2005.
ECONOMIC OUTLOOK
•The U.S. economy is expected to experience a mid-business
cycle slowdown in the coming quarters, and the U.S. Northeast
is likely to participate in this moderation.
•The weakness is likely to be concentrated in housing and
consumer spending, implying softer demand for mortgage
loans and personal loans.
•Continued tight labour markets are expected to keep personal
income growth at a pace higher than inflation.
•Business revenues are likely to be constrained by weaker
economic conditions, impacting commercial deposit growth.
•Investment in machinery and equipment is expected to slow,
but remain solid. The more difficult economic times may boost
demand for inventory financing.
•The economic weakness is expected to pass and conditions are
expected to firm over the course of 2007. This should lead to
economic conditions that are more supportive to banking in the
final quarters of 2007 and in 2008.
BUSINESS OUTLOOK AND FOCUS FOR 2007
TD Banknorth expects to build on its strengths of provid-
ing superior customer service and fast, local decision
making. Net interest margins are expected to remain under
pressure until the yield curve steepens. Credit loss provi-
sions are still low by historic standards and are expected
to increase to approximately $17 million per quarter. Fee
income and operating expenses are expected to grow
modestly. The goal of U.S. Personal and Commercial
Banking is to achieve consistent earnings growth over
time. Key priorities for 2007 are:
•Subject to closing, integration of Interchange into the
TD Banknorth organization and complete rebranding
of all Interchange locations and attainment of post
acquisition revenue growth and cost reduction targets.
•Regain momentum in organic growth of commercial loans
and core deposits, while keeping strong credit quality
and competitive pricing.
•Manage expenses to support positive operating leverage.
•Improve efficiency by streamlining key business
processes.
•Optimization of the branch network.
(millions of Canadian dollars) 2006 20051
Net interest income $1,290 $ 705
Provision for credit losses 40 4
Other income 490 299
Non-interest expenses 1,087 549
Income before provision for income taxes 653 451
Provision for income taxes 222 161
Non-controlling interests in subsidiaries 195 132
Net income – reported 236 158
Items of note, net of income taxes219 –
Net income – adjusted $255 $158
Selected volumes and ratios
Average loans and acceptances (billions of Canadian dollars) $27 $24
Average deposits (billions of Canadian dollars) $30 $27
Economic loss (millions of Canadian dollars) $(239) $(105)
Return on invested capital 4.6% 5.4%
Return on tangible common equity3,4 29.0% 29.3%
Efficiency ratio – reported 61.1% 54.7%
Efficiency ratio – adjusted 62.9% 54.7%
Margin on average earning assets 3.97% 4.11%
U.S. PERSONAL AND COMMERCIAL BANKING
TABLE 15
1For the seven month period March 1, 2005 to September 30, 2005.
2Items of note, net of income taxes include the following:
2006 – $19 million related to Balance Sheet restructuring charge.
3Return on tangible equity is as reported by TD Banknorth on a stand
alone basis.
42005 return on tangible common equity is based on TD Banknorth’s 2005
full fiscal year results as reported by TD Banknorth on a stand alone basis.