TD Canada Trust
Review of financial performance for the year
TD Canada Trust reported modest 2% growth in cash basis earnings for 2002 following strong growth in earnings during 2001. This was a year of transition following the completion of the conversion of TD Bank and Canada Trust in August 2001. A number of post-conversion execution issues that affected our customer satisfaction were worked through during the year. In addition, a major program of branch mergers across the country disrupted the branch network. These factors hampered revenue growth, added to expenses and increased credit losses.
Total revenue grew 2% in 2002 compared with the prior year. Core deposits, business deposits, credit cards, creditor insurance, and home and auto insurance offered though TD Meloche Monnex were the main contributors to revenue growth. Revenue from term deposits, commercial lending and mutual fund sales decreased on lower volumes. Interest margins remained relatively stable throughout the year as a result of interest rate risk hedging programs. Average volume growth for 2002 was $4.5 billion or 4.5% for personal lending, $3.0 billion or 3.9% for personal deposits, $3.8 billion or 20.0% for business deposits and $169 million or 28% for TD Meloche Monnex insurance premiums while commercial lending contracted by $1.2 billion or 8.4%.
Growth in cash basis expenses was limited to 1% in 2002 compared with the prior year. Expenses in 2001 were impacted by costs associated with the conversion of the branch network and systems. During 2002, expense synergies were realized through branch mergers, however investments were made in customer service and process improvement initiatives following the conversions. Higher rates of expense growth were experienced in pension and benefit costs as well as in fast growing TD Meloche Monnex. The cash basis efficiency ratio for the year of 58.9%, an improvement of .7 percentage points over 2001, compares with our goal for the year of 58.5%.
The provision for credit losses for 2002 of $505 million was $125 million or 33% higher than 2001. Approximately half of this increase was from small business and commercial lending returning to more normal loss levels following low losses in 2001. Losses in 2002 also included the impact of processing and collection issues that arose following conversion.
During 2002, we experienced market share declines in mortgages, term deposits and mutual funds as a result of discount pricing by competitors, integration issues and branch mergers. By year end, this trend in market share had begun to stabilize. Efforts to address expected disruption caused by the integration were successful as evidenced by the improvement in our Retail Branch Customer Satisfaction Index (CSI). The CSI score improved by 4.4 percentage points from the start of the year to 84.4% and exceeded the pre-conversion level. With this improvement in customer satisfaction and the branch merger program substantially complete, we are well positioned to maintain and grow market share in a profitable manner going forward.