TD Bank 2006 Annual Report Download - page 39

TD BANK FINANCIAL GROUP ANNUAL REPORT 2006 Management’s Discussion and Analysis 35
(millions of Canadian dollars) 2006 2005 2004
Net interest income $ 479 $ 977 $1,581
Provision for credit losses 68 5241
Other income 1,792 1,011 615
Restructuring costs 50 43 (7)
Non-interest expenses 1,262 1,282 1,296
Income before provision for income taxes 891 611 866
Provision for income taxes 262 189 278
Net income – reported 629 422 588
Items of note, net of income taxes135 129 –
Net income – adjusted $ 664 $ 551 $ 588
Selected volumes and ratios
Risk-weighted assets (billions of Canadian dollars) $34 $33 $ 30
Economic profit (millions of Canadian dollars) $390 $229 $ 278
Return on invested capital 27.9% 22.3% 24.7%
Efficiency ratio – reported 57.8% 66.6% 58.7%
Efficiency ratio – adjusted 55.6% 59.9% 58.7%
KEY PRODUCT GROUPS
Investment Banking and Capital Markets
•Investment banking and capital markets revenues, which
include advisory,underwriting, trading, facilitation and execu-
tion services, increased 10% from $1,467 million in 2005 to
$1,621 million in 2006.
Equity Investments
•The equity investment portfolio, comprised public and private
equity, reported strong overall results in 2006 as revenue
increased by 42% from $255 million in 2005 to $363 million.
The increase was due to higher security gains.
Corporate Banking
•Corporate banking, which includes corporate lending, trade
finance and cash management services, had a revenue increase
of 8% from $266 million in 2005 to $287 million in 2006. This
increase was largely due to higher net interest income from
correspondent banking deposits and higher lending volumes.
ECONOMIC OUTLOOK
•Economic conditions are expected to support stable demand
for capital market and investment services in 2007.
•Corporate borrowing will likely be affected by lower business
confidence. However, business investment is expected to
remain robust and it may become increasingly difficult for com-
panies to finance investment from internally-generated funds.
•The continuation of relatively low interest rates should also be
supportive for business borrowing.
•Mergers and acquisitions may moderate, but the high cash
holdings of many companies suggest that the level of activity
will remain solid.
•Credit conditions are expected to weaken slightly. However,
the presence of strong corporate balance sheets should limit
the trend.
•Equity markets are unlikely to deliver the double digit gains
recorded in recent years and bonds are expected to return low
to mid single digit returns.
BUSINESS OUTLOOK AND FOCUS FOR 2007
In 2007, Wholesale Banking will continue to focus on
domestic client relationships, expanding its product and
service suite and operating with excellence. The segment
is expected to deliver a strong return on invested capital
in 2007 with areduced risk profile achieved through the
completion of repositioning of the exited businesses.
The domestic franchise benefited in 2006 from strong
equity markets and abenign credit environment. Key
priorities for 2007:
•Continue the momentum of building a top 3 dealer
franchise in Canada.
•Seek opportunities to grow proprietary trading in
scalable and liquid markets.
•Maintain superior rate of return on invested capital.
•Enhance the efficiency ratio through improved cost
control.
WHOLESALE BANKING
TABLE 16
1Items of note, net of income taxes include the following: 2006 – $35 mil-
lion related to restructuring charge; 2005 – $100 million related to loss on
structured derivative portfolios and $29 million related to restructuring
charge.