TD Bank 2007 Annual Report Download - page 59

TD BANK FINANCIAL GROUP ANNUAL REPORT 2007 Management’s Discussion and Analysis 55
losses on investments in subsidiaries, partially offset by strong
earnings. Capital management funding activities during the
year consisted of the following: the Bank raised $288 million of
common shares during the year, including $85 million from the
dividend reinvestment plan; the Bank repurchased five million
common shares at a cost of $356 million in 2007 through a
normal course issuer bid; a subsidiary of the Bank issued
US$500 million REIT preferred stock; and TD Mortgage
Investment Corporation, a subsidiary of the Bank redeemed its
$350 million preferred shares, Series A. Subsequent to year-end,
on November 1, 2007, the Bank issued $250 million of its First
Preferred Shares, Series P. See Notes 12 and 13 to the Bank’s
Consolidated Financial Statements for more details.
Tier 2 Capital
During the year: the Bank redeemed Tier 2B subordinated
debentures for $500 million and for $550 million; a subsidiary
of the Bank redeemed US$342 million of Tier 2B junior
subordinated debentures; and the Bank issued $2.25 billion
and $1.8 billion of subordinated debentures, both qualifying
as Tier 2A capital. Subsequent to year-end, on November 1,
2007, the Bank issued $2.5 billion of subordinated debentures,
qualifying as Tier 2B capital. See Note 11 to the Bank’s
Consolidated Financial Statements for more details.
DIVIDENDS
The Bank’s dividend policy is approved by the Board of Directors.
During the year, the Bank increased its quarterly dividend
twice and as at October 31, 2007, the quarterly dividend was
$0.57 per share, consistent with the Bank’s current target
payout range of 35-45% of adjusted earnings. Cash dividends
declared and paid during 2007 totalled $2.11 per share
(2006 – $1.78; 2005 – $1.58). For cash dividends payable on
the Bank’s preferred shares, see Notes 12 and 13 to the Bank’s
Consolidated Financial Statements. As at October 31, 2007,
717.8 million common shares were outstanding (2006 –
717.4 million; 2005 – 711.8 million). The Bank’s ability to pay
dividends is subject to the Bank Act and the requirements of
OSFI. Note 13 to the Bank’s Consolidated Financial Statements
provides further details.
RATINGS
In March 2007 Standard & Poor’s (S&P) and Moody’s Investors
Service (Moody’s) upgraded the Bank’s long-term senior debt
rating to AA- and Aaa, respectively. As at October, 2007, the
Bank’s long-term ratings were: Fitch (AA-), Moody’s (Aaa),
DBRS (AA) and S&P (AA-).
CAPITAL RATIOS
Capital ratios are measures of financial strength and flexibility.
OSFI defines two primary ratios to measure capital adequacy,
the Tier 1 capital ratio and the Total capital ratio. OSFI sets
target levels for Canadian banks as follows:
• The Tier 1 capital ratio is defined as Tier 1 capital divided by
risk-weighted assets (RWA). OSFI has established a target Tier
1 capital requirement of 7%.
• The Total capital ratio is defined as total regulatory capital
divided by RWA. OSFI has established a target total capital
requirement of 10%.
The Bank’s Tier 1 and Total capital ratios were 10.3% and
13.0%, respectively, on October 31, 2007, compared with
12.0% and 13.1% on October 31, 2006. The year-over-year
change was influenced by several factors, including a decrease
in capital as described above, and increases in RWA. The Bank’s
investment in TD Ameritrade is deducted from total capital,
which has a material impact on the Total capital ratio. The Bank
exceeded its medium-term target for Tier 1 capital of 8–8.5%
as at October 31, 2007.
OSFI measures the capital adequacy of Canadian banks
according to its instructions for determining risk-adjusted
capital, RWA and off-balance sheet exposures. This approach
is based on the Bank for International Settlements’ (BIS)
agreed framework for achieving a more consistent way to
measure the capital adequacy and standards of banks engaged
in international business.
RISK-WEIGHTED ASSETS
RWA are determined by applying OSFI-prescribed risk-weights to
balance sheet assets and off-balance sheet financial instruments
according to credit risk of the counterparty. RWA also include an
amount for the market risk exposure associated with the Bank’s
trading portfolio. The Bank’s total RWA increased by $10.6 bil-
lion, or 7.5%, in 2007 from the prior year due to organic
growth in various business segments and in Wholesale Banking,
primarily due to an increase in corporate lending exposures.
TABLE 32 RISK-WEIGHTED ASSETS
(millions of Canadian dollars) 2007 2006 2005
Balance
Risk-
weighted
balance Balance
Risk-
weighted
balance Balance
Risk-
weighted
balance
Balance sheet assets
Cash resources and other $ 16,536 $ 3,053 $ 10,782 $ 1,905 $ 13,418 $ 2,435
Securities 123,036 4,984 124,458 4,792 108,096 4,955
Securities purchased under reverse repurchase agreements 27,648 2,237 30,961 1,562 26,375 559
Loans (net) 175,915 93,714 160,608 91,436 152,243 82,713
Customers’ liability under acceptances 9,279 9,279 8,676 8,676 5,989 5,896
Other assets 69,710 8,589 57,429 8,881 59,089 7,695
Total balance sheet assets $ 422,124 $ 121,856 $ 392,914 $ 117,252 $ 365,210 $ 104,253
Off-balance sheet assets
Credit instruments 20,015 14,818 13,419
Derivative financial instruments17,573 6,647 7,201
Total off-balance sheet assets 27,588 21,465 20,620
Total risk-weighted asset equivalent
– credit risk 149,444 138,717 124,873
– market risk 3,075 3,162 5,109
Total risk-weighted assets $ 152,519 $ 141,879 $ 129,982
1 Effective November 1, 2006, all derivative financial instruments are
recorded on balance sheet.