TD Bank 2009 Annual Report Download - page 36

TD BANK FINANCIAL GROUP ANNUAL REPORT 2009 MANAGEMENT’S DISCUSSION AND ANALYSIS32
BUSINESS HIGHLIGHTS
•Achieved revenue growth of 7%, on broad-based volume
growth and higher fee revenue.
•Ongoing investment in customer-facing areas with the objec-
tive of further improving customer service. Extended market
leadership position for the number of average branch hours by
exceeding peers’ average by 59% and continued to lead the
industry in new branch openings with 158 opened since 2004.
•
Achieved largest market share gains of five major Canadian
banks for business banking, year-over-year and for the cumu-
lative three year period.
•
Achieved external recognition as an industry leader in
customer service excellence with distinctions that included
the following:
– Rated #1 for “Customer Service Excellence” among Canada’s
five major banks by an independent market research firm,
Synovate1for the fifth year in a row.
– Ranked highest in overall customer satisfaction among the
five major Canadian banks for the fourth consecutive year
by J.D. Power and Associates2.
– Call centres recognized with the Highest Banking Industry
Customer Satisfaction Award by Service Quality Measure-
ment Group (SQM)3in 2009 and four of the past five years.
•
While TD Insurance revenue was lower due to higher claims
costs, insurance premiums grew 10%, retaining the #1 direct
writer position and increasing overall market share in Canada.
•
TD General Insurance and TD Life & Health surpassed
$2.8 billion of annual premiums collectively.
CHALLENGES IN 2009
•Changing cost of funds that began in the fourth quarter of
2007, continued to impact margins on prime-based products.
•Heightened competition continued from the major Canadian
banks and other competitors in residential mortgages, high-
yield savings accounts, and term deposits.
•Increased credit losses as a result of credit quality challenges
and higher bankruptcies and delinquencies.
•Increased insurance claims frequency from an unusually high
level of weather-related events, combined with higher aver-
age claims costs, particularly in Ontario automobile insurance,
resulted in higher loss ratios.
INDUSTRY PROFILE
The personal and business banking environment in Canada is very
competitive among the major banks with some strong regional play-
ers. The competition makes it difficult to sustain market share gains
and distinctive competitive advantages over the long term. Customers
expect more convenient and cost effective banking solutions. Continued
success depends upon outstanding customer service and convenience,
disciplined risk management practices, and expense management. The
Canadian property and casualty insurance industry features a relatively
large number of participants each with limited market share. The life
and health insurance industry in Canada and the reinsurance market
internationally are more consolidated featuring a few large players.
OVERALL BUSINESS STRATEGY
The strategy for Canadian Personal and Commercial Banking is
as follows:
•Integrate the elements of the comfortable customer experience
into everything we do.
•Be recognized as an extraordinary place to work.
•
Use our strengths to build out under-represented businesses.
•
Simplify activities to be an efficient revenue growth engine.
•
Invest in the future to deliver top tier earnings performance
consistently.
•
Establish the TD Insurance brand and build infrastructure for
future growth.
REVIEW OF FINANCIAL PERFORMANCE
Canadian Personal and Commercial Banking net income for the year
was a record $2,472 million, an increase of $48 million, or 2%, from
the prior year. Return on invested capital decreased from 29% last
year to 28% in 2009.
Revenue for the year was $9,449 million, an increase of $623 million ,
or 7%, compared with last year mainly due to strong net interest
income. The main contributor to revenue growth was solid broad-based
volume growth particularly in personal and business deposits and real
estate secured lending, which was partly offset by margin compression
mainly from deposits.
Compared with last year, real estate secured lending average volume
(including securitizations) grew by $18 billion, or 12%, credit card
lending volume grew by $1 billion, or 15%, and personal deposit
volume grew $15 billion, or 14%. Business deposits grew by $7 billion,
or 16%, and originated gross insurance premiums grew by $247 million,
or 10%. Personal loans grew by $3 billion, or 15%, and business loans
and acceptances grew by $7 billion, or 16%.
Margin on average earning assets decreased by 5 bps to 2.90%
compared with last year due to margin compression primarily from the
low overall level of interest rates.
Provision for credit losses (PCL) for the year was $1,155 million, an
increase of $389 million, or 51%, compared with last year. Personal
banking PCL was $1,065 million, an increase of $347 million, or 48%,
compared with last year, mainly due to higher loss rates on credit cards
and unsecured lines of credit. Business banking PCL was $90 million,
an increase of $42 million, or 88%, compared with the prior year
reflecting the weaker economic conditions. PCL as a percentage of
credit volume was 0.52%, increasing 14 bps from last year.
Non-interest expenses for the year were $4,725 million, an increase
of $203 million, or 4%, compared with last year. Higher employee
compensation, the full year inclusion of the U.S. insurance and credit
card businesses transferred to the segment in the third quarter of
2008, and investment in new branches contributed to the increase in
expenses. The average full-time equivalent (FTE) staffing levels increased
by 558, or 2%, from last year. This increase was due to the full year
inclusion of the U.S. insurance and credit card businesses and increases
in the insurance, business banking, and real estate secured lending
businesses. The efficiency ratio for the year improved to 50.0%
compared with 51.2% last year.
1The Synovate Best Banking Awards for 2009 were based on survey responses from
39,000 banking customers for the year ended August 2009, regionally and demo-
graphically representative of the entire Canadian population. Known as the
Customer Service Index, the survey has been in existence since 1987.
22009 results represented responses from 12,555 Canadian retail banking
customers, fielded in March and June 2009 by J.D. Power and Associates, a global
marketing information services firm. TD Canada Trust set the highest benchmark
scores across all seven major drivers of customer satisfaction: overall experience,
account set-up/product offerings, fees, account information, convenience/facility,
transaction methods, and problem resolution.
3SQM Group awards excellence in customer and employee satisfaction for the call
centre industry. Between October 1, 2008 and September 30, 2009, SQM tele-
phone surveyed 400 customers within two days of their call to the call centre to
understand their satisfaction with their service experience.