TD Bank 2012 Annual Report Download - page 33

TD BANK GROUP ANNUAL REPORT 2012 MANAGEMENT’S DISCUSSION AND ANALYSIS 31
BUSINESS HIGHLIGHTS
• Achieved record adjusted earnings of US$1,416 million, an
increase of 10%, in a challenging operating environment.
• Gained profitable market share on both loans and deposits
while maintaining strong credit quality.
• Grew loans organically by US$8 billion, or 12%, and
deposits by US$7 billion, or 8%, since last year, during
a slow economic recovery.
• Continued to lead in customer service and convenience
with more store hours than competitors in our Maine-
to-Florida footprint.
• Continued to invest in growing the franchise, adding
41 new stores in fiscal 2012.
• Asset quality has improved for the legacy portfolio.
• Recognized as “One of the Nation’s Best Banks”
by Money Magazine.
•
Announced agreement to acquire Target’s U.S. credit card port-
folio with an expected close date in the first half of fiscal 2013.
CHALLENGES IN 2012
• Regulatory and legislative changes have impacted the operat-
ing environment, TD Bank’s product offerings and earnings.
• Low interest rate environment led to additional pressure
on margins.
• Increased competition has led to pressure on margins.
INDUSTRY PROFILE
The U.S. banking industry has experienced a significant amount
of consolidation over the past few years. The personal and business
banking environment in the U.S. is very competitive in all areas of the
business. U.S. banks are subject to vigorous competition from other
banks and financial institutions, including savings banks, finance
companies, credit unions, and other providers of financial services.
The keys to profitability are attracting and retaining customer relation-
ships over the long term by owning the convenience and service brand
within our operating footprint, effective risk management, rational
product pricing, use of technology to deliver products and services
for customers anytime and anywhere, optimizing fee-based businesses,
and effective control of operating expenses.
OVERALL BUSINESS STRATEGY
The strategy for U.S. Personal and Commercial Banking is to:
• Continue to take market share while controlling expenses.
•
Evolve the business in response to regulatory changes – at appropriate
pace and cost.
• Implement franchise optimization e.g., wallet share in retail and
commercial businesses; productivity improvements.
• Continue the maturation of infrastructure including processes,
systems and controls to scale with business growth.
• Manage asset quality.
• Optimize balance sheet and capital structure and grow assets to
deploy excess liquidity such as the announced Target credit card
portfolio purchase to be completed in the first half of fiscal 2013.
(millions of dollars, except as noted) Canadian dollars
U.S. dollars
2012 2011 2012 2011
Net interest income $ 4,663 $ 4,392 $ 4,643 $ 4,455
Non-interest income 1,468 1,342 1,463 1,363
Total revenue – reported 6,131 5,734 6,106 5,818
Total revenue – adjusted 6,132 5,734 6,107 5,818
Provision for credit losses – loans 652 534 651 541
Provision for credit losses – debt securities classified as loans 12 75 12 75
Provision for credit losses – acquired credit-impaired loans1 115 78 115 82
Provision for credit losses – reported 779 687 778 698
Provision for credit losses – adjusted 725 687 723 698
Non-interest expenses – reported 4,125 3,593 4,107 3,643
Non-interest expenses – adjusted 3,694 3,451 3,678 3,497
Net income – reported 1,128 1,188 1,123 1,205
Adjustments for items of note2
Integration charges and direct transaction costs relating
to U.S. Personal and Commercial Banking acquisitions 9 82 9 84
Litigation reserve 248 – 247 –
Impact of Superstorm Sandy 37 – 37 –
Net income – adjusted $ 1,422 $ 1,270 $ 1,416 $ 1,289
Selected volumes and ratios
Return on common equity – reported3 6.4% 7.3% 6.4% 7.3%
Return on common equity – adjusted3 8.1 7.8 8.1 7.8
Margin on average earning assets (TEB)4 3.60% 3.73% 3.60% 3.73%
Efficiency ratio – reported 67.3 62.7 67.3 62.7
Efficiency ratio – adjusted 60.2 60.2 60.2 60.2
Number of U.S. retail stores 1,315 1,281 1,315 1,281
Average number of full-time equivalent staff 25,027 24,193 25,027 24,193
1 Includes all FDIC covered loans and other acquired credit-impaired loans.
2 For explanations of items of note, see the “Non-GAAP Financial Measures −
Reconciliation of Adjusted to Reported Net Income” table in the “Financial Results
Overview” 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.
4 Margin on average earning assets exclude the impact related to the TD Ameritrade
insured deposit accounts (IDA).
U.S. PERSONAL AND COMMERCIAL BANKING
TABLE 21