TD Bank 2009 Annual Report Download - page 63

TD BANK FINANCIAL GROUP ANNUAL REPORT 2009 MANAGEMENT’S DISCUSSION AND ANALYSIS 59
GROUP FINANCIAL CONDITION
Capital Position
(millions of Canadian dollars, except as noted) 2009 2008 2007
Basel II Basel II Basel I1
Tier 1 capital
Common shares $ 15,357 $ 13,241 $ 6,577
Contributed surplus 321 350 119
Retained earnings 18,632 17,857 15,954
Net unrealized foreign currency translation gains (losses)
on investment in subsidiaries, net of hedging activities (1,539) (1,633) (2,073)
Preferred shares23,945 2,425 974
Innovative instruments2,3 4,588 2,765 1,740
Innovative instruments (ineligible for Tier 1 capital) (743) ––
Qualifying non-controlling interests in subsidiaries 31 20 22
Gross Tier 1 capital 40,592 35,025 23,313
Goodwill and intangibles in excess of 5% limit (15,015) (15,123) (7,668)
Net impact of eliminating one month lag of U.S. entities457 1,642 n/a
Net Tier 1 capital 25,634 21,544 15,645
Securitization – gain on sales of mortgages (84) (57) n/a
– other (1,128) – n/a
50% shortfall in allowance5(110) (309) n/a
50% substantial investments (2,876) (71) n/a
Other deductions –(4) n/a
Net impact of eliminating one month lag of U.S. entities4(29) (424) n/a
Adjusted net Tier 1 capital 21,407 20,679 15,645
Tier 2 capital
Innovative instruments in excess of Tier 1 limit 743 ––
Subordinated notes and debentures (net of amortization and ineligible) 11,948 12,186 9,286
General allowance – standardized portfolios 877 490 1,092
Accumulated net after-tax unrealized gain on AFS equity securities in OCI 42 53 354
Securitization – other (2,421) – n/a
50% shortfall in allowance5(110) (309) n/a
50% substantial investments6(2,876) (5,547) (5,088)
Investment in insurance subsidiaries6(1,243) (1,198) (1,440)
Other deductions –(4) (55)
Net impact of eliminating one month lag of U.S. entities4(29) (1,002) n/a
Total Tier 2 capital 6,931 4,669 4,149
Total regulatory capital $ 28,338 $ 25,348 $ 19,794
Regulatory capital ratios
Tier 1 capital ratio 11.3% 9.8% 10.3%
Total capital ratio 14.9 12.0 13.0
Assets-to-capital multiple 17.1 19.3 19.7
CAPITAL STRUCTURE AND RATIOS
TABLE 33
1Effective November 1, 2007, the Bank implemented guidelines of the Office of
the Superintendent of Financial Institutions Canada (OSFI) based on Basel II.
Accordingly, the numbers for 2009 and 2008 are based on Basel II. The numbers
for 2007 are based on Basel I.
2In accordance with CICA Handbook Section 3863, Financial Instruments –
Presentation, 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.
3As 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.
4Effective 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 elim-
inated 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
period 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.
6Effective 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.
THE BANK’S OBJECTIVES:
•
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.
•To achieve the most economically achievable overall cost of capital,
consistent with preserving the appropriate mix of capital elements
to meet target capitalization levels.
•To maintain strong ratings with rating agencies.