TD Bank 2001 Annual Report Download - page 32

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HOW WE PERFORMED IN 2001
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATING PERFORMANCE
Capital structure and ratios at year end
(millions of dollars) 2001 2000 1999
Tier 1 capital
Retained earnings $ 9,653 $ 9,039 $ 8,694
Common shares 2,259 2,060 2,006
Qualifying preferred shares 1,492 1,251 833
Non-controlling interest in subsidiaries 1,272 1,471 335
Less: goodwill and intangibles in excess of 5% limit (4,041) (4,458) (892)
Total Tier 1 capital 10,635 9,363 10,976
Tier 2 capital
Subordinated notes and debentures 4,892 4,883 3,217
Non-controlling interest in subsidiaries –185 –
General allowance for credit losses included in capital 1,112 862 753
Less: amortization of subordinated notes and debentures (545) (488) (346)
Total Tier 2 capital 5,459 5,442 3,624
Other deductions 985 762 150
Total regulatory capital $ 15,109 $ 14,043 $ 14,450
Capital ratios
To risk-weighted assets
Tier 1 capital 8.4% 7.2% 10.1%
Total regulatory capital 11.9 10.8 13.3
Assets to capital multiple1,2 18.3 18.4 15.0
Managing capital
OUR GOALS
We want to provide enough capital to maintain the confidence
of investors and depositors, while providing our common
shareholders with a satisfactory return.
Our goals are to:
• be an appropriately capitalized institution, as defined by
regulatory authorities and compared to our peers
• maintain strong ratings
• achieve the lowest overall cost of capital consistent with
preserving the appropriate mix of capital elements
• make sure that we have enough capital and the right type of
capital on hand or readily available at a reasonable cost to
help us expand and to protect us against unexpected events
• provide a satisfactory return to our common shareholders.
Where capital comes from
Most of our capital comes from common shareholders.
Who manages our capital
Group Finance manages capital for TD. They’re responsible
for acquiring, maintaining and retiring capital. Under the
Bank Act, the Board of Directors oversees most decisions
about capital.
HOW WE MANAGED OUR CAPITAL
Tier 1 capital
Retained earnings grew by $614 million during the year. In
addition, we issued $199 million of common stock, mainly as
part of our purchase of Newcrest.
Goodwill and net intangibles (above 5% of gross Tier 1
capital), which are deducted from capital for regulatory
purposes, decreased by $417 million during the year as a
result of amortization.
Tier 2 capital
Actions we took to manage our capital during the year
included:
•redeeming $750 million of debentures and issuing $800
million of replacement subordinated medium term notes
•exchanging $350 million of subordinated debt and $225
million of preferred shares of Canada Trust (previously
classified as non-controlling interest in subsidiaries on the
consolidated balance sheet) into respective amounts of
TD Bank debt and preferred shares, on substantially
identical terms
•redeeming $150 million of Canada Trust preferred shares,
(previously classified as non-controlling interest in
subsidiaries on the Consolidated balance sheet).
As a result of increasing our general allowance for credit
losses by $300 million during the year and the decision by the
regulator to permit an increased level of general allowances in
total capital, the amount of our general allowance that qualifies
for Tier 2 capital increased by $250 million.
Capital ratios
Since we acquired Canada Trust in 2000, we’ve made
significant progress in improving our regulatory capital ratios.
Our Tier 1 and total capital ratios were 8.4% and 11.9%,
respectively, on October 31, 2001 compared with 7.2% and
10.8% on October 31, 2000.
The Office of the Superintendent of Financial Institutions
Canada (OSFI) measures the capital adequacy of Canadian
banks according to its instructions for determining risk-adjusted
1Total assets plus off-balance sheet credit instruments such as letters of
credit and guarantees less investments in associated corporations and
goodwill and net intangibles divided by total regulatory capital.
2In 2000, the Bank’s authorized assets to capital multiple was increased
from 20 times to 23 times.