TD Bank 2010 Annual Report Download - page 120

TD BANK GROUP ANNUAL REPORT 2010 FINANCIAL RESULTS118
DIVIDEND REINVESTMENT PLAN
The Bank offers a dividend reinvestment plan for its common share-
holders. Participation in the plan is optional and under the terms of
the plan, cash dividends on common shares are used to purchase
additional common shares. At the option of the Bank, the common
shares may be issued from the Bank’s treasury at an average market
price based on the last five trading days before the date of the dividend
payment, with a discount of between 0% to 5% at the Bank’s
discretion, or from the open market at market price. During the year,
a total of 7.7 million common shares were issued from the Bank’s
treasury with a 1% discount. In 2009, 8.8 million common shares
were issued from the Bank’s treasury with a 1% discount under the
dividend reinvestment plan.
DIVIDEND RESTRICTIONS
The Bank is prohibited by the Bank Act from declaring dividends on
its preferred or common shares if there are reasonable grounds for
believing that the Bank is, or the payment would cause the Bank to
be, in contravention of the capital adequacy and liquidity regulations
of the Bank Act or directions of OSFI. The Bank does not anticipate
that this condition will restrict it from paying dividends in the normal
course of business.
The Bank is also restricted from paying dividends in the event that
either Trust II, Trust III or Trust IV fails to pay semi-annual distributions or
interest in full to holders of their respective trust securities, TD CaTS II,
TD CaTS III and TD CaTS IV Notes. In addition, the ability to pay dividends
on common shares without the approval of the holders of the outstand-
ing preferred shares is restricted unless all dividends on the preferred
shares have been declared and paid or set apart for payment. Currently,
these limitations do not restrict the payment of dividends on common
shares or preferred shares.
5-Year Rate Reset Preferred Shares, Series AI
On March 6, 2009, the Bank issued 11 million non-cumulative 5-Year
Rate Reset Preferred Shares, Series AI for gross cash consideration of
$275 million. Quarterly non-cumulative cash dividends, if declared, will
be paid at a per annum rate of 6.25% for the initial period from and
including March 6, 2009 to but excluding July 31, 2014. Thereafter,
the dividend rate will reset every five years to equal the then five year
Government of Canada bond yield plus 4.15%. Holders of the Series AI
shares will have the right to convert their shares into non-cumulative
Floating Rate Class A Preferred Shares, Series AJ, subject to certain
conditions, on July 31, 2014, and on July 31 every five years thereafter
and vice versa. The Series AI shares are redeemable by the Bank for
cash, subject to regulatory consent, at $25.00 per share on July 31,
2014 and on July 31 every five years thereafter. The Series AI shares
qualify as Tier 1 capital of the Bank.
5-Year Rate Reset Preferred Shares, Series AK
On April 3, 2009, the Bank issued 14 million non-cumulative 5-Year
Rate Reset Preferred Shares, Series AK for gross cash consideration of
$350 million. Quarterly non-cumulative cash dividends, if declared, will
be paid at a per annum rate of 6.25% for the initial period from and
including April 3, 2009 to but excluding July 31, 2014. Thereafter, the
dividend rate will reset every five years to equal the then five year
Government of Canada bond yield plus 4.33%. Holders of the Series
AK shares will have the right to convert their shares into non-cumula-
tive Floating Rate Class A Preferred Shares, Series AL, subject to certain
conditions, on July 31, 2014, and on July 31 every five years thereafter
and vice versa. The Series AK shares are redeemable by the Bank for
cash, subject to regulatory consent, at $25.00 per share on July 31,
2014 and on July 31 every five years thereafter. The Series AK shares
qualify as Tier 1 capital of the Bank.
NORMAL COURSE ISSUER BID
The Bank did not have a normal course issuer bid outstanding during
fiscal 2009 or 2010.
For regulatory capital purposes, insurance subsidiaries continue to
be deconsolidated and reported as a deduction from Tier 2 capital.
Insurance subsidiaries are subject to their own capital adequacy report-
ing such as OSFI’s Minimum Continuing Capital Surplus Requirements
and the Minimum Capital Test. Currently, for regulatory capital
purposes, all the entities of the Bank are either consolidated or
deducted from capital and there are no entities from which surplus
capital is recognized.
During the year ended October 31, 2010, the Bank complied with
the OSFI guideline related to capital ratios and the assets-to-capital
multiple. This guideline is based on the “International Convergence of
Capital Measurement and Capital Standards – A Revised Framework”
(Basel II) issued by the Basel Committee on Banking Supervision. The
Bank’s regulatory capital position as at October 31 was as follows:
Regulatory Capital Position
(millions of Canadian dollars, except as noted) 2010 2009
Tier 1 capital $ 24,386 $ 21,407
Tier 1 capital ratio1 12.2% 11.3%
Total capital2 $ 31,070 $ 28,338
Total capital ratio3 15.5% 14.9%
Assets-to-capital multiple4 17.5 17.1
1
Tier 1 capital ratio is calculated as Tier 1 capital divided by risk-weighted assets (RWA).
2 Total capital includes Tier 1 and Tier 2 capital.
3 Total capital ratio is calculated as Total capital divided by RWA.
4
The assets-to-capital multiple is calculated as total assets plus off-balance sheet credit
instruments, such as certain letters of credit and guarantees, less investments in asso-
ciated corporations, goodwill and net intangibles, divided by Total adjusted capital.
OSFI’s target Tier 1 and Total capital ratios for Canadian banks are 7%
and 10%, respectively.
The Bank manages its capital under guidelines established by OSFI. The
regulatory capital guidelines measure capital in relation to credit, market
and operational risks. The Bank has various capital policies, procedures
and controls which it utilizes to achieve its goals and objectives.
The Bank’s objectives include:
• To provide sufficient capital to maintain the confidence of investors
and depositors, while providing the Bank’s common shareholders
with a satisfactory return;
• To be an appropriately capitalized institution, as measured internally,
defined by regulatory authorities and compared with the Bank’s
peers; and
• To achieve the most economically achievable overall cost of capital
consistent with preserving the appropriate mix of capital elements
to meet target capitalization levels.
The Bank’s Total capital consists of two tiers of capital approved under
OSFI’s regulatory capital guidelines.
Tier 1 capital includes items such as common shares and preferred
shares, retained earnings, contributed surplus, innovative capital
instruments and qualifying non-controlling interests in subsidiaries.
Tier 1 capital is reduced by items such as goodwill and net intangible
assets (in excess of the 5% limit), 50% of the shortfall in allowances
related to the Internal Ratings Based (IRB) approach portfolios, 50%
of substantial investments (not including insurance subsidiaries) and
deductions from securitization investments.
Tier 2 capital includes items such as the general allowance for
standardized portfolios and subordinated notes and debentures.
Tier 2 capital is reduced by items such as 50% of the shortfall in
allowances related to IRB approach portfolios, 50% of substantial
investments, 100% of investment in insurance subsidiaries and deduc-
tions from securitization investments.
REGULATORY CAPITAL
NOTE 19