TD Bank 2009 Annual Report Download - page 125

TD BANK FINANCIAL GROUP ANNUAL REPORT 2009 FINANCIAL RESULTS 121
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 insurance subsidiaries and deductions from
securitization investments.
Effective April 30, 2009 for accounting purposes, and effective
October 31, 2008 for regulatory reporting purposes, the reporting
period of TD Bank, N.A., which includes TD Banknorth and Commerce,
was aligned with the rest of the Bank. Prior to April 30, 2009 and
October 31, 2008, the Bank’s financial statements and regulatory
capital, respectively, were calculated incorporating TD Bank, N.A. on
a one month lag.
Effective November 1, 2008, substantial investments held prior to
January 1, 2007, which were previously deducted from Tier 2 capital,
are deducted 50% from Tier 1 capital and 50% from Tier 2 capital.
For regulatory capital purposes, insurance subsidiaries continue to be
deconsolidated and reported as a deduction from Tier 2 capital. Insur-
ance subsidiaries are subject to their own capital adequacy reporting
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, 2009, 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) 2009 2008
Tier 1 capital $ 21,407 $ 20,679
Tier 1 capital ratio111.3% 9.8%
Total capital2$ 28,338 $ 25,348
Total capital ratio314.9% 12.0%
Assets-to-capital multiple417.1 19.3
1Tier 1 capital ratio is calculated as Tier 1 capital divided by risk-weighted
assets (RWA).
2Total capital includes Tier 1 and Tier 2 capital.
3Total capital ratio is calculated as Total capital divided by RWA.
4The 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 associated 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.
REGULATORY CAPITAL
NOTE 19
Accumulated Other Comprehensive Income (Loss), Net of Income Taxes
(millions of Canadian dollars) 200912008
Net unrealized gain (loss) on available-for-sale securities, net of cash flow hedges3$ 739 $ (1,409)
Net unrealized foreign currency translation loss on investments in subsidiaries,
net of hedging activities2,4 (1,539) (1,633)
Net gain on derivatives designated as cash flow hedges 1,815 1,393
Accumulated other comprehensive income (loss) balance as at October 31 $ 1,015 $ (1,649)
Comprehensive income is composed of the Bank’s net income and
other comprehensive income. Other comprehensive income consists
of unrealized gains and losses on available-for-sale securities, foreign
currency translation gains and losses on the net investment in self-
sustaining operations, net of net investment hedging activities, and
changes in the fair value of derivative instruments designated as cash
flow hedges, all net of income taxes.
The following table summarizes the Bank’s accumulated other
comprehensive income (loss), net of income taxes, as at October 31.
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
NOTE 20
1This includes the impact of reporting-period alignment of U.S. entities, as
explained in Note 1, and consists of the following: unrealized gains on available-
for-sale securities, net of hedging activities – $199 million; unrealized foreign
currency translation gains on investments in subsidiaries, net of hedging activities –
$166 million; and losses on derivatives designated as cash flow hedges –
$36 million.
2The Bank consolidated TD Bank, N.A. and reported the investment in TD Ameri-
trade using the foreign exchange rate as at September 30, 2008 as the results of
these operations are included on a one month lag basis. If the October 31, 2008
foreign exchange rate had been used, there would have been an increase in the
accumulated other comprehensive income of $3.347 billion, with a corresponding
increase in the Bank’s net assets.
3Includes impact of a transition adjustment on adoption of the 2009 Amendments
to CICA Handbook Section 3855, as explained in Note 1a), of $563 million.
4Includes impact of a transition adjustment on adoption of the 2009 Amendments
to CICA Handbook Section 3855, as explained in Note 1a), of $0.3 million.