FINANCIAL RESULTS OVERVIEW Quarterly Financial Information
FOURTH QUARTER 2016 PERFORMANCE SUMMARY Reported net income for the quarter was $2,303 million, an increase of $464 million, or 25%, compared with the fourth quarter last year which included a restructuring charge of $243 million after tax and costs related to an acquisition in the strategic cards portfolio, which were reported as items of note. Adjusted net income for the quarter was $2,347 million, an increase of $170 million, or 8%, compared with the fourth quarter last year. Reported diluted EPS for the quarter was $1.20, compared with $0.96 in the fourth quarter last year. Adjusted diluted EPS for the quarter was $1.22, compared with $1.14 in the fourth quarter last year.
Reported revenue for the quarter was $8,745 million, an increase
of $698 million, or 9%, compared with the fourth quarter last year. All segments experienced increases in reported revenues. Corporate segment revenue increased due to the benefit of an acquisition in the strategic cards portfolio and higher revenue from treasury and balance sheet management activities. U.S. Retail revenue increased primarily due to higher loan and deposit volumes, the positive impact from an acquisition in the strategic cards portfolio, higher deposit margins, the benefit of the December 2015 Fed rate increase, customer account growth, and the favourable impact of foreign currency translation, partially offset by unfavourable hedging impact and lower loan margins. Canadian Retail revenue increased due to loan and deposit volume growth, wealth asset growth, higher fee-based revenue in personal and commercial banking, and changes in the fair value of investments supporting claims liabilities, partially offset by lower margins and lower insurance premiums. Wholesale Banking revenue increased primarily due to higher origination activity in debt and equity capital markets and higher fixed income trading revenues, partially offset by lower equity trading and advisory fees. Adjusted revenue for the quarter was $8,726 million, an increase of $630 million, or 8%, compared with the fourth quarter last year. PCL for the quarter was $548 million, an increase of $39 million,
or 8%, compared with the fourth quarter last year. The increase was primarily due to increases in the Canadian Retail and U.S. Retail segments, partially offset by decreases in the Wholesale Banking and Corporate segments. Canadian Retail PCL reflected higher commercial recoveries in the prior year and higher provisions in the auto lending portfolio. U.S. Retail PCL increased primarily due to the unfavourable impact of foreign currency translation, partially offset by lower personal banking PCL primarily related to the release of the South Carolina flooding reserve. Wholesale Banking PCL decreased primarily due to specific provisions in the oil and gas sector in the prior year. Corporate PCL decreased primarily due to provisions for incurred but not identified credit losses in the prior year.
Insurance claims and related expenses for the quarter were
$585 million, a decrease of $52 million, or 8%, compared with the fourth quarter last year, reflecting more favourable prior years’ claims development, less severe weather conditions and a change in mix of reinsurance contracts, partially offset by unfavourable current year claims experience and changes in the fair value of investments supporting claims liabilities.
Reported non-interest expenses for the quarter were $4,848 million, a decrease of $63 million, or 1%, compared with the fourth quarter last year. The decrease was primarily due to lower expenses in the Corporate segment, partially offset by increases in the Canadian Retail, U.S. Retail, and Wholesale Banking segments. Corporate non-interest expenses decreased due to restructuring charges in the prior year which were reported as an item of note, partially offset by the contribution from an acquisition in the strategic cards portfolio and ongoing investments in enterprise and regulatory projects. Canadian Retail non-interest expenses reflect business growth, higher investment in technology and higher employee-related expenses including revenue-based variable expenses in the wealth business, partially offset by productivity savings. U.S. Retail non-interest expenses increased primarily due to business initiatives including store optimization, volume growth, investments in front line employees, additional charges by the Federal Deposit Insurance Corporation (FDIC), and the unfavourable impact of foreign currency translation, partially offset by productivity savings. Wholesale Banking non-interest expenses increase reflected higher variable compensation and operating expenses. Adjusted non-interest expenses for the quarter were $4,784 million, an increase of $304 million, or 7%, compared with the fourth quarter last year. The Bank’s reported effective tax rate was 20.1% for the quarter, compared with 13.0% in the same quarter last year. The increase was largely due to an increase in taxes associated with the Bank’s insurance business, lower tax-exempt dividend income, and the tax impact associated with the restructuring charges in the same quarter last year. The Bank’s adjusted effective tax rate was 20.4% for the quarter, compared with 16.9% in the same quarter last year. The increase was largely due to an increase in taxes associated with the Bank’s insurance business and lower tax-exempt dividend income.
QUARTERLY TREND ANALYSIS
The Bank has had steadily increasing underlying earnings over the past eight quarters reflecting a consistent strategy, organic growth, expense discipline and investments to support future growth. Canadian Retail earnings reflect loan and deposit growth, higher fee based revenue in personal and business banking, wealth asset growth, and lower claims, with moderate expense growth. U.S. Retail earnings reflect loan and deposit growth, higher operating leverage and good credit quality. Wholesale Banking earnings reflect growth in trading revenue, underwriting, and corporate lending volumes. The Bank’s quarterly earnings are impacted by seasonality, the number of days in a quarter, the economic environment in Canada and the U.S., and foreign currency translation.
22 TD BANK GROUP ANNUAL REPORT 2016 MANAGEMENT’S DISCUSSION AND ANALYSIS
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