TD Bank 2009 Annual Report Download - page 30

TD BANK FINANCIAL GROUP ANNUAL REPORT 2009 MANAGEMENT’S DISCUSSION AND ANALYSIS26
FINANCIAL RESULTS OVERVIEW
Quarterly Financial Information
FOURTH QUARTER 2009 PERFORMANCE SUMMARY
Reported net income for the quarter was $1,010 million, a decrease
of $4 million, compared with the fourth quarter of 2008. Reported
diluted earnings per share were $1.12 for the quarter, compared with
$1.22 in the same quarter last year. Adjusted net income for the
quarter was $1,307 million, an increase of $642 million, or 97%,
compared with the same quarter last year. Adjusted diluted earnings
per share were $1.46 for the quarter, compared with $0.79 in the
fourth quarter of 2008.
Reported revenue was $4,718 million, an increase of $1,078 million,
or 30%, compared with the fourth quarter of 2008. Adjusted revenue
was $4,810 million, an increase of $1,407 million, or 41%, compared
with the fourth quarter of 2008, driven largely by the Wholesale
Banking and Canadian Personal and Commercial Banking segments.
Wholesale Banking revenue increased primarily due to higher trading-
related revenue, led by interest rate and credit trading. Canadian
Personal and Commercial Banking net interest income increased due
to strong volume growth across most banking products, particularly in
real-estate secured lending as well as personal and business deposits.
PCL was $521 million, an increase of $233 million, or 81%, from
the fourth quarter of 2008, largely due to increases in the Canadian
Personal and Commercial Banking and U.S. Personal and Commercial
Banking segments. Canadian Personal and Commercial Banking PCL
increased largely due to higher personal banking provisions. PCL in
U.S. Personal and Commercial Banking increased largely due to higher
commercial banking provisions.
Reported non-interest expenses were $3,095 million, an increase
of $728 million, or 31%, compared with the fourth quarter of 2008.
Adjusted non-interest expenses were $2,807 million, an increase of
$175 million, or 7%, compared with the fourth quarter of 2008,
largely driven by the U.S. Personal and Commercial Banking and
Wholesale Banking segments. U.S. Personal and Commercial Banking
non-interest expenses increased due to higher FDIC premiums, the
translation effect of the weaker Canadian dollar, and new store open-
ings. Wholesale Banking non-interest expenses increased primarily
due to higher variable compensation related to stronger results.
The Bank’s reported effective tax rate was 12% for the quarter,
compared with 2% in the same quarter last year. The current quarter
increase was mainly caused by higher earnings, a decrease in tax
exempt income, and a higher effective rate on international operations.
QUARTERLY TREND ANALYSIS
Over the previous eight quarters, the Bank has had solid underlying
earnings growth from its retail business segments. Canadian Personal
and Commercial Banking revenue has shown steady growth over
the past eight quarters as strong volume growth and steady margins
have more than offset a significant increase in PCL. U.S. Personal
and Commercial Banking revenue increased sharply in the third quarter
of 2008, reflecting the inclusion of Commerce. While the Bank’s U.S.
operations remain a positive outlier from a credit perspective, the
challenging economic conditions and reclassification of securities to
loans has caused the segment to recognize significantly higher PCL in
2009. The combination of increased credit costs and margin compres-
sion have offset solid loan and deposit growth and resulted in 2009
quarterly net income being below the level realized in the second
half of 2008. Wealth Management’s contribution to earnings started
to decline toward the latter part of 2008 as lower net interest income
and a decline in fee revenue more than offset strong transaction-related
volumes. However, the last two quarters of 2009 were stronger than
the first two quarters as equity markets strengthened. Challenging
economic conditions contributed to weaker Wholesale Banking earnings
throughout 2008, but earnings rebounded in 2009 driven by higher
client activity, wider margins, and increased liquidity in capital markets.
The Bank’s earnings have seasonal impacts, principally the second
quarter being affected by fewer business days.
The Bank’s earnings are also impacted by market-driven events,
transactions, and management actions. All four quarters of 2009
included restructuring and integration charges related to the Commerce
integration. The second, third, and fourth quarters of 2008 included
restructuring charges relating to the Commerce acquisition, while the
third and fourth quarters of 2008 benefited from the first time inclusion
of the Commerce earnings.
For a discussion on the fourth quarter 2009 results, see the “Fourth
Quarter 2009 Performance Summary” section.