TD Bank 2006 Annual Report Download - page 44

TD BANK FINANCIAL GROUP ANNUAL REPORT 2006 Management’s Discussion and Analysis
40
(millions of Canadian dollars) 2006 2005 2004
Net interest loss $(654) $(659) $(454)
Reversal of credit losses (112) (374) (800)
Other income 1,554 115 104
Non-interest expenses 667 1,052 1,021
Income (loss) before benefit of income taxes 345 (1,222) (571)
Benefit of income taxes (839) (737) (413)
Non-controlling interest in subsidiaries, net of tax (11) – –
Equity in net income of associated company,net of income taxes (13) – –
Net income – reported 1,182 (485) (158)
Items of note, net of income taxes1(1,281) 503 253
Net income (loss) – adjusted $ (99) $ 18 $ 95
CORPORATE MANAGEMENT
The corporate management function of the Bank comprises
audit, compliance, corporate and public affairs, economics,
enterprise technology solutions (information technology),
finance, human resources, legal, marketing, office of the
ombudsman, real estate, risk management and security.
Banking is an increasingly complex and challenging business.
The demands and expectations of our stakeholders – customers,
shareholders, employees, regulators, governments and the
community at large – are constantly changing. Ensuring the
Bank stays abreast of emerging trends and developments is
vital to maintaining stakeholders’ confidence in the Bank.
Those who serve our global customers most directly in our
four key businesses need strong and effective support from a
wide range of functional groups, so that they can remain
focused on the key priority of exceeding customer expectations.
Corporate management’s mandate is to provide centralized
advice and counsel and to design, establish and implement
processes, systems and technologies to ensure that the Bank’s
key businesses operate efficiently, reliably and in compliance with
all applicable regulations. To accomplish this, corporate manage-
ment endeavours to have the best people, processes and tools to
support our businesses, customers, employees and shareholders.
BUSINESS SEGMENT ANALYSIS
Corporate
The Corporate segment includes activities from
the non-core lending portfolio, effects of asset
securitization programs, treasury management,
general provisions for credit losses, elimination
of taxable equivalent adjustments, corporate level
tax benefits, and residual unallocated revenues,
expenses and taxes.
Corporate segment results for 2006 reflected a reported net
income of $1,182 million, compared with a reported net loss of
$485 million in 2005. On an adjusted basis, Corporate had a net
loss of $99 million for the year, compared with an adjusted net
income of $18 million last year. This year-over-year decrease was
driven by higher unallocated corporate expenses, securitization
losses, a declining non-core lending portfolio and lower earnings
on excess capital.
Included in the items of note was a $1,665 million after-tax
dilution gain on the sale of TD Waterhouse U.S.A. to Ameritrade,
partially offset by a $72 million after-tax dilution loss related to
the acquisition of Hudson by TD Banknorth. Also included in the
results was a general allowance release which was $25 million
($16 million after-tax) higher than in 2005, which more than
offset the initial set up of the specific allowance for credit card
and overdraft loans of $28 million ($18 million after-tax), that
resulted from a change in the provisioning methodology applied
by the Bank. The negative impact of scheduled reductions in the
income tax rate resulted in a decrease of $24 million in future
tax assets. Amortization of intangibles was lower by $41 million
($38 million after-tax). Corporate reported a $16 million ($10
million after-tax) lower negative impact related to accounting
guideline (AcG-13) that requires the Bank to mark-to-market the
value of credit protection on the corporate loan portfolio among
other economic hedges.
Prior year results included a $365 million ($238 million after-
tax) contingent litigation reserve and a $163 million tax charge
relating to the TD Waterhouse reorganization, which preceded
the 2006 Ameritrade transaction. Other expenses in 2005
included a $13 million preferred share redemption charge.
These charges were partially offset by gains of $229 million
($127 million after-tax) realized on specific non-core portfolio
loan recoveries from prior year sectoral provisions. The prior year
also reflected a $98 million tax benefit that included the benefit
from a court decision and a $30 million tax benefit as a result of
ahigher tax rate applied on sectoral provisions in 2004.
CORPORATE
TABLE 19
1Items of note, net of income taxes include the following: 2006 – $316
million related to amortization of intangibles, $1,665 million related to
dilution gain on Ameritrade transaction, net of costs, $72 million related
to dilution loss on the acquisition of Hudson by TD Banknorth, $7 million
related to hedging impact due to AcG-13, $39 million related to general
allowance release, $24 million related to other tax items and $18 million
related to initial set up of specific allowance for credit card and overdraft
loans; 2005 – $354 million related to amortization of intangibles, $17
million related to hedging impact due to AcG-13, $23 million related to
general allowance release, $127 million related to non-core portfolio loan
loss recoveries (sectoral related), $163 million tax charges related to reor-
ganizations, $98 million related to other tax items, $13 million related to
preferred share redemption and $238 million related to litigation charge;
2004 – $477 million related to amortization of intangibles, $50 million
related to hedging impact due to AcG-13, $43 million related to general
allowance release, $426 million related to non-core portfolio loan loss
recoveries (sectoral related) and $195 million related to litigation charge.