TD Bank 2009 Annual Report Download - page 50

TD BANK FINANCIAL GROUP ANNUAL REPORT 2009 MANAGEMENT’S DISCUSSION AND ANALYSIS46
The Bank’s effective income tax rate, on a reported basis, was 13%
for 2008, compared with 18% in 2007. The tax reduction was primarily
due to a lower effective tax rate on international operations, which
includes the tax synergies related to the Commerce acquisition. On an
adjusted basis, the effective income tax rate was 14% for 2008,
compared with 20% in 2007.
BALANCE SHEET
FACTORS AFFECTING ASSETS AND LIABILITIES
Year-over-year comparison – October 31, 2008 vs. October 31, 2007
Total assets were $563 billion as at October 31, 2008, $141 billion,
or 33%, higher than October 31, 2007. The acquisition of Commerce
added $57.1 billion to total assets as at March 31, 2008.
Securities increased by $21 billion, or 17%, from 2007 levels due to
the acquisition of Commerce, partly offset by lower fair values due to
market declines.
Securities purchased under resale agreements increased by
$15 billion, or 53%, from 2007.
Loans (net of allowance for credit losses) at October 31, 2008 were
$220 billion, up $44 billion, or 25%, from the prior year of which
$18 billion related to the Commerce acquisition. Residential mortgages,
increased by $5 billion, or 8%, from 2007, attributable to strong
volume growth in Canadian Personal and Commercial Banking. Business
and government loans increased $26 billion, or 60%, largely due to
the Commerce acquisition and other growth in the U.S. Personal and
Commercial Banking, Canadian Personal and Commercial Banking
and Wholesale Banking segments. Consumer instalment and other
personal loans increased $12 billion, or 18%, largely due to volume
growth in the U.S. Personal and Commercial Banking and Canadian
Personal and Commercial Banking segments. Also contributing to the
increase was higher credit card loans which grew by $2 billion, or 30%.
Other assets were up $60 billion, or 76%, year-over-year. This was
primarily attributable to a $45 billion increase in the market value of
trading derivatives in Wholesale Banking. Additionally, goodwill and
other intangibles increased by $7.6 billion partially due largely to the
acquisition of Commerce.
Deposits were $376 billion, up $99 billion, or 36%, from October 31,
2007, of which $47 billion was due to the Commerce acquisition.
Personal deposits increased $45 billion due to underlying business
growth in Canadian Personal and Commercial Banking and the
Commerce acquisition. Business and government deposits increased
$56 billion due to underlying business growth in the Canadian
Personal and Commercial Banking and the Commerce acquisition.
Other liabilities increased by $28 billion or 24%. The growth was
primarily attributable to a $33 billion increase in derivatives due to
volatility in currency and interest rate markets, and widening of credit
spreads impacting the mark-to-market balances.
Subordinated notes and debentures were up by $3 billion,
compared with 2007, due to the issuance of medium-term notes of
$4 billion during the year, partially offset by redemptions and maturities
totalling $1 billion as part of the medium-term note program.
Liability for preferred shares and capital trust securities
remained relatively flat from 2007.
Non-controlling interests in subsidiaries increased by $1 billion
from 2007 due to the issuance of TD Capital Trust III Securities –
Series 2008.
Shareholders’ equity increased by $10 billion, or 48%, from the
prior year, primarily due to growth in retained earnings of $1.9 billion
and increased common shares of $6.7 billion due largely to net share
issuance primarily related to the purchase consideration for the
Commerce acquisition. In addition, the Bank preferred shares increased
by $1.5 billion due to issuance during the year.
2008 FINANCIAL RESULTS OVERVIEW
2008 Financial Performance
by Business Line
Canadian Personal and Commercial Banking reported record
earnings in 2008. Net income of $2,424 million for the year increased
by $171 million, or 8%, from the prior year. Return on invested capital
increased from 27.1% last year to 29.3% in 2008.
Revenue grew by $577 million, or 7%, over last year, mainly due to
strong net interest income and fee growth. The main contributor to
revenue growth was strong broad-based volume growth particularly in
real estate secured lending. Higher transaction-based fees, higher
insurance revenue, overall deposit and credit card account growth, and
inclusion of the U.S. businesses also contributed to revenue growth.
As compared with last year, real estate secured lending average
volume (including securitizations) grew by $14.4 billion, or 10%, credit
card lending volume grew by $1 billion, or 20%, and personal deposit
volume grew $8 billion or 8%. Business deposits grew by $4 billion, or
9%, and originated gross insurance premiums grew by $202 million,
or 8%. Personal loans grew by $2 billion, or 10%, and business loans
and acceptances grew by $3 billion, or 13%.
Margin on average earning assets was 2.95%, compared to 3.05%
last year. Margins were compressed by changing cost of funds that
began last year, notably the margins on prime-based lending products
and escalating competition for deposit accounts.
PCL increased by $158 million, or 26%, compared with last year.
Personal PCL of $718 million was $136 million higher than last year,
mainly due to volume growth and higher loss rates on credit cards.
Commercial and small business PCL was $48 million for the year, up
$22 million, compared with the prior year, mainly due to lower busi-
ness loan loss recoveries and reversals. PCL as a percentage of overall
lending volume was 0.38%, increasing 4 bps from last year.
Expenses increased by $266 million, or 6%, compared with last year.
Higher employee compensation expense, investments in new branches
and the inclusion of the U.S. businesses contributed to the increase in
expenses. Average staffing levels increased by 1,591 FTEs from last
year, mainly as a result of increases in branch network, insurance, and
the inclusion of personnel in U.S. businesses. The efficiency ratio for
the year improved slightly to 51.2% compared with 51.6% last year.
Wealth Management’s net income for 2008 was $769 million,
compared with $762 million in 2007, an increase of 1% which
primarily came from the higher contribution from TD Ameritrade as
the other Wealth Management businesses were negatively impacted
by market volatility. The return on invested capital for the year was
19.4%, compared with 20.0% in 2007.
Revenue of $2,328 million was $15 million, or 1%, higher than 2007.
The increase was primarily due to the inclusion of U.S. wealth manage-
ment businesses and higher trading volumes in online brokerage, due to
higher frequency of trading by active investors in these volatile markets
encouraged by strategic pricing changes introduced last year and growth
in client cash deposits. This increase was offset by lower commissions in
online brokerage due to the strategic price reductions introduced last
year, lower fees in the mutual funds business, and lower new issues and
transactional revenue in our advice-based businesses.