TD Bank 2014 Annual Report Download - page 178

TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS176
Condensed Consolidated Statements of Income
(millions of Canadian dollars, except as noted) For the years ended September 30
2014 2013 2012
Revenues
Net interest revenue $ 629 $ 477 $ 452
Fee-based and other revenues 2,756 2,332 2,209
Total revenues 3,385 2,809 2,661
Operating expenses
Employee compensation and benefits 823 704 695
Other 1,168 1,031 1,025
Total operating expenses 1,991 1,735 1,720
Other expense (income) 17 (34) 28
Pre-tax income 1,377 1,108 913
Provision for income taxes 524 421 322
Net income1 $ 853 $ 687 $ 591
Earnings per share – basic (dollars) $ 1.55 $ 1.25 $ 1.08
Earning per share – diluted (dollars) 1.54 1.24 1.07
1
The Bank’s equity share of net income of TD Ameritrade is subject to adjustments
relating to amortization of intangibles, which are not included.
INVESTMENT IN IMMATERIAL ASSOCIATES OR
JOINT VENTURES
Except for TD Ameritrade as disclosed above, no associate or joint
venture was individually material to the Bank as of October 31, 2014
or October 31, 2013. The carrying amount of the Bank’s investment in
individually immaterial associates and joint ventures during the period
was $2 billion (October 31, 2013 – $2 billion).
Individually immaterial associates and joint ventures consisted
predominantly of investments in private funds or partnerships that
make equity investments, provide debt financing or support community-
based tax-advantaged investments. The investments in these entities
generate a return primarily through the realization of U.S. federal and
state income tax credits, including Low Income Housing Tax Credits,
New Markets Tax Credits and Historic Tax Credits.
SIGNIFICANT ACQUISITIONS AND DISPOSALS
NOTE 13
The acquisition was accounted for as a business combination under
the purchase method. The results of the acquisition from the acquisition
date have been consolidated with the Bank’s results and are reported
in the U.S. Retail segment. As at March 27, 2013, the acquisition
contributed $34 million of tangible assets, and $9 million of liabilities.
The excess of consideration over the fair value of the acquired net
assets of $649 million has been allocated to customer relationship
intangibles of $149 million and goodwill of $500 million. Goodwill is
not deductible for tax purposes.
For the year ended October 31, 2013, the acquisition contributed
$96 million to revenue and $2 million to net income.
Acquisition of Target Corporation’s U.S. Credit Card Portfolio
On March 13, 2013, the Bank, through its subsidiary, TD Bank USA
N.A., acquired substantially all of Target Corporation’s existing U.S.
Visa and private label credit card portfolio, with a gross outstanding
balance of $5.8 billion. TD Bank USA N.A. also entered into a seven-
year program agreement under which it became the exclusive issuer
of Target-branded Visa and private label consumer credit cards to
Target Corporation’s U.S. customers.
Under the terms of the program agreement, the Bank and Target
Corporation share in the profits generated by the portfolios. Target
Corporation is responsible for all elements of operations and customer
service, and bears most of the operating costs to service the assets.
The Bank controls risk management policies and regulatory compli-
ance, and bears all costs relating to funding the receivables for existing
Target Visa accounts and all existing and newly issued Target private
label accounts in the U.S. The Bank accounted for the purchase as an
asset acquisition. The results of the acquisition from the acquisition
date have been recorded in the U.S. Retail segment.
At the date of acquisition the Bank recorded the credit card
receivables acquired at their fair value of $5.7 billion and intangible
assets totalling $98 million. The gross amount of revenue and credit
losses have been recorded on the Consolidated Statement of Income
since that date. Target Corporation shares in a fixed percentage of
the revenue and credit losses incurred. Target Corporation’s share of
Acquisition of certain CIBC Aeroplan Credit Card Accounts
On December 27, 2013, the Bank, Aimia Inc. (Aimia), and the Canadian
Imperial Bank of Commerce (CIBC) closed a transaction under which
the Bank acquired approximately 50% of CIBC’s existing Aeroplan
credit card portfolio, which primarily included accounts held by
customers who did not have an existing retail banking relationship
with CIBC. The Bank accounted for the purchase as an asset acquisi-
tion. The results of the acquisition have been recorded in the
Canadian Retail segment.
The Bank acquired approximately 540,000 cardholder accounts with
an outstanding balance of $3.3 billion at a price of par plus $50 million
less certain adjustments for total cash consideration of $3.3 billion.
At the date of acquisition, the fair value of credit card receivables
acquired was $3.2 billion and the fair value of an intangible asset for
the purchased credit card relationships was $146 million.
In connection with the purchase agreement, the Bank agreed to pay
CIBC a further $127 million under a commercial subsidy agreement.
This payment was recognized as a non-interest expense in 2014.
Disposal of TD Waterhouse Institutional Services
On November 12, 2013, TD Waterhouse Canada Inc., a subsidiary of
the Bank, completed the sale of the Bank’s institutional services busi-
ness, known as TD Waterhouse Institutional Services, to a subsidiary
of National Bank of Canada. The transaction price was $250 million in
cash, subject to certain price adjustment mechanisms. A pre-tax gain
of $231 million was recorded in the Corporate segment in other
income in the first quarter of 2014. An additional pre-tax gain of
$13 million was recorded in the Corporate segment subsequently,
upon the settlement of price adjustment mechanisms.
Acquisition of Epoch Investment Partners, Inc.
On March 27, 2013, the Bank acquired 100% of the outstanding
equity of Epoch Holding Corporation including its wholly-owned
subsidiary Epoch Investment Partners, Inc. (Epoch), a New York-based
asset management firm. Epoch was acquired for cash consideration
of $674 million. Epoch Holding Corporation shareholders received
US$28 in cash per share.