TD Bank 2009 Annual Report Download - page 65

TD BANK FINANCIAL GROUP ANNUAL REPORT 2009 MANAGEMENT’S DISCUSSION AND ANALYSIS 61
RISK-WEIGHTED ASSETS – BASEL II1
TABLE 34
(millions of Canadian dollars) 2009 2008
Credit risk
Retail
Residential secured $ 13,210 $ 9,214
Qualifying revolving retail 15,053 14,307
Other retail 25,527 22,430
Non-retail
Corporate 72,876 79,802
Sovereign 474 1,365
Bank 10,259 8,436
Securitization exposures 5,069 6,360
Equity exposures2
Equity exposures that are grandfathered –2,044
Equity exposures subject to simple risk weight method –4,834
Equity exposures subject to PD/LGD3approaches –388
Other 1,296 29
Exposures subject to standardized or IRB approaches 143,764 149,209
Adjustment to IRB RWA for scaling factor 4,730 5,119
Other assets not included in standardized
or IRB approaches 11,971 13,543
Net impact of eliminating one month
reporting lag on U.S. entities –9,681
Total credit risk 160,465 177,552
Market risk
Internal models approach – trading book 3,735 9,644
Operational risk
Basic indicator approach 7,882 7,090
Standardized approach 17,503 17,464
Total $ 189,585 $ 211,750
1Effective November 1, 2007, the Bank implemented OSFI’s guidelines based on
Basel II.
2Effective April 30, 2009, the Bank’s equity portfolio qualified for the Basel II
Framework’s equity materiality exemption.
3For definition of PD and LGD, see the Credit Risk section.
858.8 million common shares were outstanding (2008 – 810.1 million;
2007 – 717.8 million). The Bank’s ability to pay dividends is subject
to the Bank Act and the requirements of OSFI. See Note 18 to the
Consolidated Financial Statements for further details.
CAPITAL RATIOS
Capital ratios are measures of financial strength and flexibility. The
Bank’s capital ratios are calculated using OSFI’s guidelines which are
based on the capital adequacy rules included in Basel II. At the
consolidated level, the top corporate entity to which Basel II applies
is The Toronto-Dominion Bank.
OSFI measures the capital adequacy of Canadian banks according
to its instructions for determining risk-adjusted capital, RWA and
off-balance sheet exposures. OSFI defines two primary ratios to meas-
ure 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 regulatory capital divided
by RWA. OSFI has established a target Tier 1 capital ratio of 7%.
•
The Total capital ratio is defined as total regulatory capital divided
by RWA. OSFI has established a target Total capital ratio of 10%.
The Bank’s Tier 1 and Total capital ratios were 11.3% and 14.9%,
respectively, on October 31, 2009, compared with 9.8% and 12.0%,
respectively, on October 31, 2008. The year-over-year changes were
influenced by several factors, including the increase in capital
described above in Tier 1 capital and a decrease in RWA, largely in
Wholesale Banking. As at October 31, 2009, the Bank exceeded
its internal medium-term target for Tier 1 capital.
RISK-WEIGHTED ASSETS
Based on Basel II, RWA are calculated for each of credit risk, market
risk, and operational risk. Operational risk represents the risk of loss
resulting from inadequate or failed internal processes, people and
systems or from external events. The Bank’s RWA were as follows:
OUTSTANDING EQUITY AND SECURITIES
EXCHANGEABLE/CONVERTIBLE INTO EQUITY1
TABLE 35
(millions of shares/units, Oct. 31, 2009 Oct. 31, 2008
except as noted) Number of Number of
shares/units shares/units
Common shares outstanding 858.8 810.1
Stock options
Vested 19.6 23.0
Non-vested 6.3 4.5
Preferred shares – Class A:
Series M 14.0 14.0
Series N 8.0 8.0
Total preferred shares – liabilities 22.0 22.0
Series O 17.0 17.0
Series P 10.0 10.0
Series Q 8.0 8.0
Series R 10.0 10.0
Series S 10.0 10.0
Series Y 10.0 10.0
Series AA 10.0 10.0
Series AC 8.8 –
Series AE 12.0 –
Series AG 15.0 –
Series AI 11.0 –
Series AK 14.0 –
Total preferred shares – equity 135.8 75.0
Total preferred shares 157.8 97.0
Capital Trust Securities (thousands of shares)
Trust units issued by TD Capital Trust:
Capital Trust Securities Series 2009 900.0 900.0
Trust units issued by TD Capital Trust II:
TD Capital Trust II Securities – Series 2012-1 350.0 350.0
Trust units issued by TD Capital Trust III:
TD Capital Trust III Securities – Series 2008 1,000.0 1,000.0
Debt issued by TD Capital Trust IV:
TD Capital Trust IV Notes – Series 1 550.0 –
TD Capital Trust IV Notes – Series 2 450.0 –
TD Capital Trust IV Notes – Series 3 750.0 –
1For further details, including the principal amount, conversion and exchange
features, and distributions, see Notes 15, 16, and 18 to the Bank’s Consolidated
Financial Statements.
During the year, RWA decreased $22.2 billion primarily due to lower
market risk, a strategic decision to exit the public equity portfolio in
Wholesale Banking, and the impact of a stronger Canadian dollar
against the U.S. dollar, partially offset by organic growth in the retail
businesses in both Canada and the U.S.