TD Bank 2014 Annual Report Download - page 42

TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS40
U.S. Retail reported net income, in Canadian dollar terms, for the year
was $1,752 million, an increase of $427 million, or 32%, compared
with last year. The increase in reported net income was primarily due
to strong loan and deposit growth, the Target and Epoch acquisitions,
gains on sales of securities and debt securities classified as loans and
lower litigation charges, partially offset by higher expenses to support
growth and lower margins. TD Ameritrade contributed $246 million in
net income, an increase of 18%, driven by higher transaction-based
and asset-based revenue.
Adjusted net income was US$1,815 million, an increase of
US$204 million, or 13%. The increase in adjusted earnings was
primarily due to strong loan and deposit volume and higher fee-based
revenue, and increased gains on sales of securities and debt securities
classified as loans, partially offset by higher expenses to support
growth and lower margins.
U.S. Retail revenue is derived from personal banking, business
banking, investments, auto lending, credit cards, and wealth manage-
ment. Revenue for the year was US$7,173 million, an increase of
US$965 million, or 16%, compared with last year driven by the inclu-
sion of revenue from Target, increased loan and deposit volume,
higher fee-based revenue, and gains on sales of securities and debt
securities classified as loans, partially offset by lower margins and loan
accretion. Excluding Target, average loans increased by US$11 billion,
or 13%, compared with last year with an increase of US$7 billion,
or 19%, in average personal loans and an increase of US$4 billion,
or 8%, in average business loans. In the current year, US$6 billion in
credit cards outstanding were added due to Target. Average deposits
increased US$17 billion, or 10%, compared with prior year, including
a US$9 billion increase in average deposits of TD Ameritrade. Margin
on average earning assets for the year was 3.66%, a 6 bps increase
compared with last year primarily due to the impact of Target, partially
offset by core margin compression.
Reported PCL for the year was US$764 million, a decrease of
US$14 million, or 2%, compared with last year. Adjusted PCL for
the year was US$764 million, an increase of US$41 million, or 6%,
compared with last year. Personal banking PCL was US$638 million,
an increase of US$247 million, or 63%, from the prior year due
primarily to Target and increased provisions in auto loans. Business
banking PCL was US$155 million, a decrease of US$165 million, or
52%, compared with prior year reflecting improved credit quality in
commercial loans. PCL as a percentage of credit volume for loans
excluding debt securities classified as loans was 0.75%, a decrease of
3 bps, compared with last year. Net impaired loans, excluding acquired
credit-impaired loans and debt securities classified as loans, as
a percentage of total loans were 1.3% as at October 31, 2013,
compared with 1.2% as at October 31, 2012. Net impaired debt
securities classified as loans were US$0.9 billion as at October 31,
2013, compared with US$1.3 billion as at October 31, 2012.
Reported non-interest expenses for the year were US$4,671 million,
an increase of US$443 million, or 10%, compared with last year.
On an adjusted basis, non-interest expenses were US$4,545 million,
an increase of US$746 million, or 20%, compared with last year
due primarily to increased expenses related to Target, investments
in new stores and other planned initiatives, partially offset by
productivity gains.
The average FTE staffing levels for the year decreased by 93, flat
compared with last year. The reported efficiency ratio for the year
improved to 65.1%, compared with 68.1% last year, while the
adjusted efficiency ratio for the year worsened to 63.4%, compared
with 61.2% last year primarily driven by strong organic growth.
Wholesale Banking net income for the year was $650 million,
a decrease of $230 million, or 26%, compared with last year. The
decrease in earnings was due to lower revenue and a higher effective
tax rate, partially offset by lower non-interest expenses. The return
on common equity for the year was 15.6%, compared with 21.2%
last year.
Revenue for the year was $2,410 million, a decrease of $244 million,
or 9%, compared with last year. Revenue declined primarily due to
significantly lower security gains in the investment portfolio, lower
trading-related revenue and M&A and advisory fees. This was partially
offset by higher debt underwriting and loan fees. Trading-related
revenue was lower as the prior year included trading gains that were
previously considered impaired and M&A fees decreased on lower
industry wide volumes. This was partially offset by increased debt
underwriting fees on improved client activity while capturing a higher
market share. Loan fees improved due to higher credit originations
and volume growth.
PCL comprises specific provision for credit losses and accrual
costs for credit protection. The change in market value of the credit
protection, in excess of the accrual cost, is reported in the Corporate
segment. PCL for the year was $26 million, a decrease of $21 million,
or 45%, compared with last year. The decrease in PCL was primarily
due to a loss on a single name in the corporate lending portfolio in the
prior year. PCL in the current year primarily comprised the accrual cost
of credit protection.
Non-interest expenses for the year were $1,542 million, a decrease
of $28 million, or 2%, compared with last year primarily due to lower
variable compensation commensurate with revenue.
Risk-weighted assets were $47 billion as at October 31, 2013,
an increase of $4 billion, or 9%, compared with October 31, 2012.
The increase was due to the implementation of the Basel III
regulatory framework.
The average FTE staffing levels decreased by 17 compared
with last year.
Corporate segment reported net loss for the year was $331 million,
compared with a reported net loss of $208 million last year. The
adjusted net loss for the year was $47 million, compared with an
adjusted net loss of $2 million last year. The year-over-year change in
the adjusted net loss was primarily attributable to the increase in net
corporate expenses, lower gains from treasury and other hedging
activities, partially offset by the favourable impact of tax items and the
reduction of the allowance for incurred but not identified credit losses
relating to the Canadian loan portfolio.