TD Bank 2010 Annual Report Download - page 52

TD BANK GROUP ANNUAL REPORT 2010 MANAGEMENT’S DISCUSSION AND ANALYSIS50
(millions of Canadian dollars, except as noted) 2010 2009 2008
Basel II Basel II Basel II
Tier 1 capital
Common shares $ 16,639 $ 15,342 $ 13,199
Contributed surplus 305 336 392
Retained earnings 20,959 18,632 17,857
Net unrealized foreign currency translation gains (losses)
on investment in subsidiaries, net of hedging activities (2,901) (1,539) (1,633)
Preferred shares2 3,944 3,945 2,425
Innovative instruments2,3 3,844 4,588 2,765
Innovative instruments (ineligible for Tier 1 capital) – (743) –
Qualifying non-controlling interests in subsidiaries – 31 20
Gross Tier 1 capital 42,790 40,592 35,025
Goodwill and intangibles in excess of 5% limit (14,460) (15,015) (15,123)
Net impact of eliminating one month lag of U.S. entities4 (47) 57 1,642
Net Tier 1 capital 28,283 25,634 21,544
Securitization – gain on sales of mortgages (84) (84) (57)
– other (772) (1,128) –
50% shortfall in allowance5 (205) (110) (309)
50% substantial investments (2,855) (2,872) (71)
Other deductions (4) (4) (4)
Net impact of eliminating one month lag of U.S. entities4 23 (29) (424)
Adjusted net Tier 1 capital 24,386 21,407 20,679
Tier 2 capital
Innovative instruments in excess of Tier 1 limit – 743 –
Innovative instruments 27 – –
Subordinated notes and debentures (net of amortization and ineligible) 11,812 11,948 12,186
General allowance – standardized portfolios 915 877 490
Accumulated net after-tax unrealized gain on AFS equity securities in OCI 66 42 53
Securitization – other (1,762) (2,421) –
50% shortfall in allowance5 (205) (110) (309)
50% substantial investments6 (2,855) (2,872) (5,547)
Investment in insurance subsidiaries6 (1,333) (1,243) (1,198)
Other deductions (4) (4) (4)
Net impact of eliminating one month lag of U.S. entities4 23 (29) (1,002)
Total Tier 2 capital 6,684 6,931 4,669
Total regulatory capital $ 31,070 $ 28,338 $ 25,348
Regulatory capital ratios
Tier 1 capital ratio 12.2% 11.3% 9.8%
Total capital ratio 15.5 14.9 12.0
Assets-to-capital multiple 17.5 17.1 19.3
CAPITAL STRUCTURE AND RATIOS1
TABLE 33
GROUP FINANCIAL CONDITION
Capital Position
1
Numbers are in accordance with guidelines of the Office of the Superintendent
of Financial Institutions Canada (OSFI) based on Basel II.
2 In accordance with CICA Handbook Section 3863, Financial Instruments – Presenta-
tion, the Bank is required to classify certain classes of preferred shares and
innovative Tier 1 capital investments as liabilities on the balance sheet. For regulatory
capital purposes, these capital instruments continue to qualify for inclusion in
Tier 1 capital.
3 As the Bank is not the primary beneficiary of TD Capital Trust II and TD Capital
Trust IV, these are not consolidated by the Bank. However, they do qualify as Tier 1
regulatory capital.
4
Effective April 30, 2009, for accounting purposes, and effective October 31, 2008
for regulatory reporting purposes, the one month lag in reporting of TD Bank,
N.A., which includes TD Banknorth and Commerce financial position and results is
eliminated as the reporting period of TD Bank, N.A. was aligned with the rest of
the Bank. Prior to October 31, 2008, regulatory capital was calculated incorporating
TD Bank, N.A. assets on a one month lag. Further, effective October 31, 2008, for
regulatory purposes only, the Bank’s investment in TD Ameritrade is translated
using the period end foreign exchange rate of the Bank. Accordingly, with the
alignment of the reporting periods of TD Bank N.A., effective April 30, 2009, the
net impact relates to TD Ameritrade only.
5 When expected loss as calculated within the IRB approach exceeds total provisions,
the difference is deducted 50% from Tier 1 capital and 50% from Tier 2 capital.
When expected loss as calculated within the IRB approach is less than the total
provisions, the difference is added to Tier 2 capital.
6
Effective November 1, 2008, substantial investments held before January 1, 2007,
which were previously deducted from Tier 2 capital, are deducted 50% from
Tier 1 capital and 50% from Tier 2 capital. Insurance subsidiaries continue to be
deconsolidated and reported as a deduction from Tier 2 capital. Increases in the
investment value of insurance subsidiaries and/or substantial investments on or
after January 1, 2007 are subject to the 50% from Tier 1 capital and 50% from
Tier 2 capital deduction.