TD Bank 2012 Annual Report Download - page 27

TD BANK GROUP ANNUAL REPORT 2012 MANAGEMENT’S DISCUSSION AND ANALYSIS 25
BUSINESS HIGHLIGHTS
•
Achieved record adjusted earnings of $3,408 million, an increase
of 12% from 2011, and record annual adjusted efficiency ratio
of 45.7%, in a challenging operating environment.
•
Successfully closed acquisition of MBNA, which made
a strong contribution to Canadian Personal and Business
Banking earnings.
• Strong deposit volume growth supported by the successful
launch of the new Investment Savings account.
• Business Banking generated strong volume growth of 14%
and launched two new products – Dealer Floor Plan Financing
and Equipment Financing.
• Held the #1 position in personal deposit market share and the
#2 position in personal loan market share.
• Continued to invest in growing the franchise and convenience
by opening 24 new branches in 2012 and adding branch hours.
• Achieved external recognition as an industry leader in
customer service excellence with distinctions that included
the following:
– Ranked highest in customer satisfaction among the five
major Canadian banks for the seventh consecutive year by
J.D. Power and Associates, a global marketing information
services firm. 2012 Canadian Retail Banking Customer
Satisfaction Study represented responses from nearly 12,000
customers, fielded in February and May 2012 by J.D. Power
and Associates. TD Canada Trust set the highest benchmark
scores across seven major drivers of customer satisfaction:
account activities, account information, facilities, product
offerings, fees, financial advisor, and problem resolution.
– TD Canada Trust earned the #1 spot in “Customer Service
Excellence” among the five major Canadian banks for the
eighth consecutive year according to global market
research firm Ipsos. The Ipsos 2012 Best Banking Awards,
previously known as Synovate Best Banking Awards were
based on survey responses from 43,202 households for the
year ended August 2012, regionally and demographically
representative of the Canadian population.
CHALLENGES IN 2012
• Low interest rate environment led to additional pressure
on margins.
• Heightened competition from the major Canadian banks and
other competitors.
• Slowing retail loan growth due to weak economic growth,
rising consumer debt levels and new mortgage regulation.
INDUSTRY PROFILE
The personal and business banking environment in Canada is very
competitive among the major banks as well as some strong regional
players. The increased competition makes it difficult to sustain market
share gains and distinctive competitive advantage over the long term.
Continued success depends upon delivering outstanding customer
service and convenience, disciplined risk management practices, and
expense management.
OVERALL BUSINESS STRATEGY
The strategy for Canadian Personal and Commercial Banking is to:
•
Integrate the comfortable customer experience into everything we do.
• Be recognized as an extraordinary place to work.
• Build on the momentum of higher growth businesses.
• Make the customer and employee experience simple, fast and easy
to drive efficiency.
• Invest in the future to deliver top tier earnings performance
consistently.
(millions of Canadian dollars, except as noted) 2012 2011
Net interest income $ 8,023 $ 7,190
Non-interest income 2,629 2,342
Total revenue – reported 10,652 9,532
Total revenue – adjusted 10,688 9,532
Provision for credit losses 1,151 824
Non-interest expenses – reported 4,988 4,433
Non-interest expenses – adjusted 4,884 4,433
Net income – reported $ 3,304 $ 3,051
Adjustments for items of note, net of income taxes2
Integration charges and direct transaction costs
relating to the acquisition of the credit card
portfolio of MBNA Canada 104 –
Net income – adjusted $ 3,408 $ 3,051
Selected volumes and ratios
Return on common equity – reported3 42.9% 36.9%
Return on common equity – adjusted3 44.2% 36.9%
Margin on average earning assets
(including securitized assets) – reported 2.82% 2.76%
Margin on average earning assets
(including securitized assets) – adjusted 2.84% 2.76%
Efficiency ratio – reported 46.8% 46.5%
Efficiency ratio – adjusted 45.7% 46.5%
Number of Canadian retail stores 1,168 1,150
Average number of full-time equivalent staff 30,354 29,815
1 Effective November 1, 2011, the Insurance business was transferred from Canadian
Personal and Commercial Banking to Wealth and Insurance. The 2011 results have
been restated accordingly.
2 For explanations of items of note, see the “Non-GAAP Financial Measures −
Reconciliation of Adjusted to Reported Net Income” table in the “How We
Performed” section of this document.
3 Effective the first quarter of 2012, the Bank revised its methodology for allocating
capital to its business segments to align with the future common equity capital
requirements under Basel III at a 7% Common Equity Tier 1 ratio. The return
measures for business segments will now be return on common equity rather than
return on invested capital. These changes have been applied prospectively. Return
on invested capital, which was used as the return measure in prior periods, has not
been restated to return on common equity.
REVIEW OF FINANCIAL PERFORMANCE
Canadian Personal and Commercial Banking reported net income
for the year of $3,304 million, an increase of $253 million, or 8%,
compared with last year. Adjusted net income for the year was
$3,408 million, an increase of $357 million, or 12%, compared with
last year. The increase in adjusted earnings was driven by good volume
growth, the acquisition of MBNA, higher fee income, a lower tax rate,
and an extra calendar day. The reported return on common equity for
the year was 42.9%, while the adjusted annualized return on common
equity was 44.2%.
Reported revenue for the year was $10,652 million, an increase of
$1,120 million, or 12%, compared with last year. Adjusted revenue
for the year was $10,688 million, an increase of $1,156 million, or
12%, compared with last year. The addition of MBNA contributed
9 percentage points to both reported and adjusted year over year
revenue growth. Net interest income growth was driven by the inclusion
of MBNA, organic volume growth and an additional calendar day,
partially offset by lower margin on average earning assets. The net
interest income contribution from MBNA was elevated due to a one
time benefit from better credit performance on acquired loans.
Personal lending volume growth slowed throughout the year impacted
by a slowing housing market and weaker consumer loan demand.
Business lending growth was strong leading to market share gains.
Compared with last year, average real estate secured lending volume
increased $12.5 billion, or 6%. Auto lending average volume increased
$1.2 billion, or 10%, while all other personal lending average volumes,
excluding MBNA, were relatively flat. Business loans and acceptances
average volumes increased $5 billion, or 14%. Average personal
deposit volumes increased $9.4 billion, or 7%, with a strong contribu-
tion from the new Investment Savings account. Average business
deposit volumes increased $6.3 billion, or 10%. Reported margin on
average earning assets increased 6 bps to 2.82%, while the adjusted
margin on average earning assets increased 8 bps to 2.84%, compared
CANADIAN PERSONAL AND
COMMERCIAL BANKING1
TABLE 17