TD Bank 2012 Annual Report Download - page 28

TD BANK GROUP ANNUAL REPORT 2012 MANAGEMENT’S DISCUSSION AND ANALYSIS26
with 2.76% last year due to the addition of MBNA. Excluding the
impact of MBNA, the margin on average earning assets decreased
12 bps to 2.64%, due to the impact of a low interest rate environ-
ment, portfolio mix, and competitive pricing. Non-interest income
growth of 12% was driven by higher transaction volumes, MBNA,
and repricing.
PCL for the year was $1,151 million, an increase of $327 million, or
40%, compared with last year. The increase in PCL was due primarily
to the addition of MBNA. Personal banking PCL was $1,088 million
for the year, an increase of $302 million, or 38%, compared with last
year. Excluding MBNA, personal banking PCL decreased $53 million,
reflecting strong credit quality and enhanced collection strategies.
Business banking PCL was $63 million, an increase of $26 million,
returning to a more normalized level, as the prior year had higher
recoveries. Annualized PCL as a percentage of credit volume excluding
MBNA was 0.28%, a decrease of 3 bps, compared with last year. Net
impaired loans were $1,000 million, an increase of $108 million, or
12%, compared with last year.
Reported non-interest expenses for the year were $4,988 million,
an increase of $555 million, or 13%, compared with last year.
Adjusted non-interest expenses for the year were $4,884 million, an
increase of $451 million, or 10%, compared with last year. Excluding
MBNA, expenses increased $141 million, or 3%, compared with last
year, driven by higher employee-related costs, business initiatives,
volume growth, and one extra calendar day.
The average full-time equivalent (FTE) staffing levels increased by
539, or 2%, compared with last year driven by the addition of MBNA.
Excluding MBNA, FTE decreased by 855, or 3%, largely due to the trans-
fer of FTEs to the Corporate segment and volume-related productivity
gains. The reported efficiency ratio for the year worsened to 46.8%,
while the adjusted efficiency ratio improved to 45.7%, compared with
46.5%, on both a reported and adjusted basis last year.
KEY PRODUCT GROUPS
Personal Banking
• Personal Deposits – In 2012, the Bank was able to leverage the
introduction of the Investment Savings account and its market share
posi
tion to deliver strong volume growth. The low interest rate envi-
ronment led to significant pressure on margins. While competitive
pressure for accounts has been increasing, the Bank maintained its
leadership in market share and continued to grow net active accounts.
• Consumer Lending – Volumes continued to grow but at a slower pace
than recent years. The Bank maintained its leadership position in
market share for real estate secured lending products. The lower
growth rate can be attributed to new regulations for underwriting real
estate secured loans and consumer focus on managing debt levels.
• Credit Cards and Merchant Service – The business continued to
focus on growth and the integration of MBNA. Strong earnings
growth in 2012 was driven by the acquisition of MBNA, modest
volume growth, and improved credit quality.
• TD Auto Finance Canada – The business continued to leverage its
full spectrum origination capabilities which drove portfolio growth
during the year.
Business Banking
• Commercial Banking – Continued investment in customer-facing
resources and sales tools resulted in strong volume growth and
market share gains. On a percentage basis, credit and deposit
volumes grew by double digits. Credit losses increased over the
prior year to more normalized levels.
• Small Business Banking – The business continued to invest in sales
tools to better enable the retail sales force to serve customers.
Customer and average balance growth led to healthy deposit
volume growth.
BUSINESS OUTLOOK AND FOCUS FOR 2013
We will continue to build on our industry-leading customer
service and convenience position. We plan to open new branches
and commercial banking centres as well as roll out new tools and
services to enhance the customer experience. We expect the
overall operating environment to remain challenging. Earnings
growth in 2013 will be impacted by the low interest rate environ-
ment, more normalized contribution from MBNA, and slowing
retail volume growth. We anticipate interest rates will remain
at low levels, which will put additional pressure on margins and
revenue. The current year included an elevated MBNA contribu-
tion due to a non-recurring benefit from better credit perfor-
mance on acquired loans. We also expect retail volume growth
will continue to moderate due to slow economic growth, new
mortgage regulation, and weaker consumer loan demand. We
expect to partially offset some of these pressures by focusing on
increasing productivity and tightly managing expense growth.
Our key priorities for 2013 are as follows:
• Expand leadership in customer service and convenience across
all channels.
• Continue the growth momentum in our businesses, building
on platforms where we have made significant strategic
investments.
• Mitigate impact from slower growth operating environment
by improving productivity.
• Continue to increase employee engagement and be recognized
as an extraordinary place to work.