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2011 Annual Report
The Better
Bank,
today and
tomorrow.

Table of contents

  • Page 1
    The Better Bank, today and tomorrow. 2011 Annual Report

  • Page 2
    ... 6 8 2011 Snapshot Year at a Glance Performance Indicators Group President and CEO's Message Chairman of the Board's Message MANAGEMENT'S DISCUSSION AND ANALYSIS FINANCIAL RESULTS Consolidated Financial Statements Notes to Consolidated Financial Statements Principal Subsidiaries Ten-Year Statistical...

  • Page 3
    2011 Snapshot NET INCOME available to common shareholders (millions of Canadian dollars) Adjusted Reported 1 EARNINGS PER SHARE (Canadian dollars) Adjusted Reported RETURN ON RISKWEIGHTED ASSETS (per cent) Adjusted Reported TOTAL ASSETS (billions of Canadian dollars) $6,300 5,250 4,200 $7 6 5 ...

  • Page 4
    ... at year-end Total assets Total deposits Total loans Per common share (Canadian dollars) Diluted earnings - reported Diluted earnings - adjusted Dividend payout ratio - adjusted Closing market price (Oct. 31, 2011) Total shareholder return Financial ratios Tier 1 capital ratio Total capital ratio Ef...

  • Page 5
    ... $4.7 million from TD's community giving budget was 6 used to support environmental projects CEI is a measurement program that tracks TD customers' loyalty and advocacy. Scale for employee engagement score is from one to five. Calculated based on Canadian Cash Donations/five-year rolling average...

  • Page 6
    ..., opening 24 new branches in Canada and 37 new stores in the U.S. We also completed our acquisition of Chrysler Financial to build out TD Auto Finance and acquired substantially all of MBNA Canada's credit card portfolio, broadening the North American reach of our card business. YEAR IN REVIEW Our...

  • Page 7
    ...grow long-term earnings. In 2011, this included investments in our phone, ATM and online banking capabilities, driving new product innovation and service and convenience improvements. Our service offering revolves around understanding what customers seek in their bank. For example, we're open longer...

  • Page 8
    ... proud of TD's leadership position in board governance, and your board remains committed to continuous improvement. We regularly review and update our practices. In fiscal 2011, we updated TD's executive compensation disclosure. I am pleased to share that the Canadian Coalition for Good Governance...

  • Page 9
    ... the public through a responsive communication policy; • Facilitate the evaluation of the Board and Committees; • Oversee an orientation program for new directors and continuing education for directors. Responsibility for management's performance evaluation, compensation and succession planning...

  • Page 10
    ... Wealth Management 30 U.S. Personal and Commercial Banking 33 Wholesale Banking 35 Corporate 2010 FINANCIAL RESULTS OVERVIEW 36 Summary of 2010 Performance 38 2010 Financial Performance by Business Line GROUP FINANCIAL CONDITION 40 Balance Sheet Review 41 Credit Portfolio Quality 53 Capital Position...

  • Page 11
    ... bank in North America by branches and serves approximately 20.5 million customers in four key businesses operating in a number of locations in key financial centres around the globe: Canadian Personal and Commercial Banking, including TD Canada Trust, TD Insurance, and TD Auto Finance Canada...

  • Page 12
    ...on the CDS in excess of the accrued cost. When a credit event occurs in the corporate loan book that has an associated CDS hedge, the PCL related to the portion that was hedged via the CDS is netted against this item of note. 10 TD BANK GROUP ANNUAL REPORT 2011 MANAGEMENT'S DISCUSSION AND ANALYSIS

  • Page 13
    ... net income available to common shareholders. Adjusted results, items of note, and related terms are discussed in the "How the Bank Reports" section. TABLE 5 ECONOMIC PROFIT AND RETURN ON INVESTED CAPITAL 2011 2010 2009 (millions of Canadian dollars) Average common equity Average cumulative...

  • Page 14
    ... position in securities, derivatives or other instruments using the Bank's own funds or capital, as opposed to client funds, with the overall objective of profiting from short-term movements in prices for the Bank's own account. In addition, proprietary trading businesses do not have formal market...

  • Page 15
    ... Accounting Principles contained in the Bank's annual report on Form 40-F for fiscal 2011 filed with the U.S. Securities and Exchange Commission (SEC) and available on the Bank's website at http://www. td.com/investor/index.jsp and at the SEC's website (http://www.sec.gov). Net income available...

  • Page 16
    ...loans designated as trading under the fair value option. As a result of the 2009 Amendments to CICA Handbook Section 3855, Financial Instruments - Recognition and Measurement, certain available-for-sale and held-tomaturity securities were reclassified to loans. 14 TD BANK GROUP ANNUAL REPORT 2011...

  • Page 17
    ... L E 10 TRADING-RELATED INCOME 2011 2010 2009 (millions of Canadian dollars) Net interest income Trading income (loss) Loans designated as trading under the fair value option1 Total trading-related income (loss) By product Interest rate and credit portfolios Foreign exchange portfolios Equity and...

  • Page 18
    ... NON-INTEREST EXPENSES AND EFFICIENCY RATIO 2011 vs. 2010 2011 2010 2009 % change (millions of Canadian dollars, except as noted) Salaries and employee benefits Salaries Incentive compensation Pension and other employee benefits Total salaries and employee benefits Occupancy Rent Depreciation...

  • Page 19
    ... statutory corporate tax rate in the current year and a $121 million charge related to an agreement with the Canada Revenue Agency last year. TD reports its investment in TD Ameritrade using the equity method of accounting. TD Ameritrade's tax expense of $148 million in the year, compared to $132...

  • Page 20
    ... market, trading and corporate lending revenue. The Bank's earnings have seasonal impacts, principally the second quarter being affected by fewer business days. The Bank's earnings are also impacted by market-driven events and changes in foreign exchange rates. 18 TD BANK GROUP ANNUAL REPORT 2011...

  • Page 21
    ... income tax rates Provision (release) of insurance claims General allowance increase (release) in Canadian Personal and Commercial Banking and Wholesale Banking Agreement with Canada Revenue Agency Integration charges relating to the Chrysler Financial acquisition Total adjustments for items of note...

  • Page 22
    ... of businesses, customizing a broad range of products and services to meet their financing, investment, cash management, international trade, and day-to-day banking needs. TD expanded its U.S. franchise in 2011 with the acquisition of Chrysler Financial's U.S. business operations. Wholesale Banking...

  • Page 23
    ... tax rates - Provision (release) of insurance claims - General allowance increase (release) in Canadian Personal and Commercial Banking and Wholesale Banking - Agreement with Canada Revenue Agency - Integration charges relating to the Chrysler Financial acquisition - Total adjustments for items of...

  • Page 24
    ...2013. NET INCOME BY BUSINESS SEGMENT (as a percentage of total net income) 70% 60 50 40 30 20 10 0 09 10 11 09 10 11 09 10 11 09 10 11 Canadian Personal and Commercial Banking Wealth Management U.S. Personal and Commercial Banking Wholesale Banking 22 TD BANK GROUP ANNUAL REPORT 2011 MANAGEMENT...

  • Page 25
    ...EFFICIENCY RATIO $4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 09 10 11 60% 50 40 30 20 10 0 09 10 11 TA B L E 16 REVENUE 2011 2010 2009 (millions of Canadian dollars) Personal deposits Consumer lending Business banking Real estate secured lending Insurance, net of claims Other1 Total...

  • Page 26
    ... share. The life and health insurance industry in Canada and the reinsurance market internationally are more consolidated featuring a few large players. OVERALL BUSINESS STRATEGY The strategy for Canadian Personal and Commercial Banking is to: • Integrate the elements of the comfortable customer...

  • Page 27
    ...products to meet client needs including travel insurance, term life insurance, critical illness, and mortgage, credit card and loan insurance. BUSINESS OUTLOOK AND FOCUS FOR 2012 Heading into 2012, Canadian Personal and Commercial Banking has good operating momentum - a leadership position in branch...

  • Page 28
    ... and the placing of trades on behalf of the clients (where the client has made their own investments selection). Excludes the Bank's investment in TD Ameritrade. Certain revenue lines are presented net of internal transfers. 26 TD BANK GROUP ANNUAL REPORT 2011 MANAGEMENT'S DISCUSSION AND ANALYSIS

  • Page 29
    ... Associates customer satisfaction survey results for 2011. • Our Advice businesses in Canada hit a milestone and exceeded $100 billion in AUA despite volatile markets, clients continued to choose to open new accounts with us increasing our asset growth. • TD Mutual Funds launched Target Return...

  • Page 30
    ... lines. The Bank's reported investment in TD Ameritrade generated $207 million of net income, an increase of $13 million, or 7%, compared with last year. The increase was driven by higher operating earnings in TD Ameritrade, partially offset by a stronger Canadian dollar. For its fiscal year ended...

  • Page 31
    ... a leading market share, is ranked number one in trades per day in the U.K., and has presence in Ireland and other areas of Europe. North American Advice-based Business • Integrated and closely aligned to Canadian and U.S. Personal and Commercial Banking segments, TD's advice-based businesses, (TD...

  • Page 32
    ...name, TD Bank, America's Most Convenient Bank, U.S. Personal and Commercial Banking offers a full range of banking services to more than 7 million customers including individuals, businesses, and governments. $1,255 (millions of Canadian dollars) 61% (percent) NET INCOME EFFICIENCY RATIO $1,500...

  • Page 33
    ... Net Income" table in this document. Average deposits and margin on average earning assets exclude the impact related to the TD Ameritrade insured deposit accounts (IDA). The IDA is described in Note 29 to the 2011 Consolidated Financial Statements. TD BANK GROUP ANNUAL REPORT 2011 MANAGEMENT...

  • Page 34
    ... York, Florida, Boston and Washington DC. • Manage controllable expenses closely given increased pressure on revenue. • Create a universal financial services institution by broadening and deepening customer relationships through cross-selling initiatives. 32 TD BANK GROUP ANNUAL REPORT 2011...

  • Page 35
    ...of ongoing lower levels of activity and further volatility in asset values. Looking longer term, wholesale banks that offer a wide range of products and services will be well positioned as investor confidence returns and markets improve. TD BANK GROUP ANNUAL REPORT 2011 MANAGEMENT'S DISCUSSION AND...

  • Page 36
    ..., and trading high quality fixed income products of highly rated issuers. • We support and enhance TD's brand with our high quality client base and by expanding the service offering to clients of our partners. TA B L E 25 WHOLESALE BANKING 2011 2010 2009 (millions of Canadian dollars, except...

  • Page 37
    ... confidence in the Bank and to addressing the dynamic complexities and challenges from changing demands and expectations of our customers, shareholders and employees, governments, regulators, and the community at large. TD BANK GROUP ANNUAL REPORT 2011 MANAGEMENT'S DISCUSSION AND ANALYSIS 35

  • Page 38
    ...- - 2010 FINANCIAL RESULTS OVERVIEW Summary of 2010 Performance TA B L E 28 REVIEW OF 2009 FINANCIAL PERFORMANCE 2010 Canadian Personal and Commercial Banking U.S. Personal and Commercial Banking (millions of Canadian dollars) Wealth Management Wholesale Banking Corporate Total Net interest...

  • Page 39
    ... agreements and a $6 billion increase in the market value of derivatives, driven by Wholesale Banking. Shareholders' equity increased by $4 billion primarily due to retained earnings growth and higher common share capital due to new share issuances. TD BANK GROUP ANNUAL REPORT 2011 MANAGEMENT...

  • Page 40
    ...interest margin expansion due to effective treasury management strategies. The Bank's reported investment in TD Ameritrade generated $194 million of net income, a decrease of $58 million, or 23%, compared with last year. The decrease was driven by the translation effect of a stronger Canadian dollar...

  • Page 41
    ... last year. Net impaired loans includes assets originated by U.S. Personal and Commercial Banking, as well as assets acquired under an FDIC loss sharing agreement ("covered assets") that substantially reduce the risk of credit losses to the Bank. Net impaired loans, excluding debt securities classi...

  • Page 42
    ... non-cash collateral received in securities lending transactions also as described above. SELECTED CONSOLIDATED BALANCE SHEET ITEMS 2011 2010 (millions of Canadian dollars) Securities Securities purchased under reverse repurchase agreements Loans (net of allowance for loan losses) Deposits $ 192...

  • Page 43
    ... to the U.S. acquisitions. Exposure to other geographic regions was limited. The largest U.S. exposures by state were in New Jersey and New York, each of which represented 4% of total loans net of specific allowance, in line with 2010. TD BANK GROUP ANNUAL REPORT 2011 MANAGEMENT'S DISCUSSION AND...

  • Page 44
    ...to the financial sector. As a result of the 2009 Amendments to CICA Handbook Section 3855, certain available-for-sale and held-to-maturity securities were reclassified to loans. Includes all FDIC covered loans and other acquired credit-impaired loans. 42 TD BANK GROUP ANNUAL REPORT 2011 MANAGEMENT...

  • Page 45
    ...1 (millions of Canadian dollars, except as noted) 2010 Net loans 2009 Net loans 2011 Percentage of total 2010 2009 Canada Atlantic provinces British Columbia and territories2 Ontario2 Prairies2 Québec Total Canada United States Carolinas (North and South) Florida New England3 New Jersey New York...

  • Page 46
    ... Financial Statements. Excludes debt securities classified as loans. For additional information refer to the "Exposure to Non-agency Collaterized Mortgage Obligations" section of this document and Note 4 to the 2011 Consolidated Financial Statements. 44 TD BANK GROUP ANNUAL REPORT 2011 MANAGEMENT...

  • Page 47
    ... is to achieve consistent reporting across all operating business segments. Certain industry categories have been consolidated and certain amounts have been reclassified in line with accepted norms and thresholds for industry disclosure. TD BANK GROUP ANNUAL REPORT 2011 MANAGEMENT'S DISCUSSION AND...

  • Page 48
    ...millions of Canadian dollars, except as noted) 2009 Net impaired loans 2011 Percentage of total 2010 2009 Canada Atlantic provinces British Columbia3 Ontario3 Prairies3 Québec Total Canada4 United States Carolinas (North and South) Florida New England5 New Jersey New York Pennsylvania Other Total...

  • Page 49
    ...provides a summary of provisions charged to the Consolidated Statement of Income. TA B L E 36 PROVISION FOR CREDIT LOSSES 2011 2010 2009 (millions of Canadian dollars) Net new specifics (net of reversals) Recoveries Total specific provision Change in general allowance TD Financing Services Inc...

  • Page 50
    ...for industry disclosure. As a result of the 2009 Amendments to CICA Handbook Section 3855, certain available-for-sale and held-to-maturity securities were reclassified to loans. Includes all FDIC covered loans and other acquired credit-impaired loans. 48 TD BANK GROUP ANNUAL REPORT 2011 MANAGEMENT...

  • Page 51
    ... is recorded for trading loans or loans designated as trading under the fair value option. The states included in New England are as follows: Connecticut, Maine, Massachusetts, New Hampshire, and Vermont. Includes customers' liability under acceptances. TD BANK GROUP ANNUAL REPORT 2011 MANAGEMENT...

  • Page 52
    ... manageable. DIRECT CREDIT EXPOSURE TO EUROPE As at Oct. 31, 2011 Loans and Commitments1 Derivatives, Repos and Securities Lending2 Financial Trading and Investment Portfolio3 Financial Total (millions of Canadian dollars) Country Corporate Sovereign Financial Total Corporate Sovereign Total...

  • Page 53
    ... CREDIT-IMPAIRED LOAN PORTFOLIO As at Oct. 31, 2011 Unpaid principal balance1 Carrying value Specific allowance Carrying Percentage of value net of unpaid principal allowance balance (millions of Canadian dollars) FDIC-assisted acquisitions South Financial Chrysler Financial Total acquired credit...

  • Page 54
    ..., new credit ratings were obtained for the re-securitized securities that better reï¬,ect the discount on acquisition and the Bank's risk inherent on the entire portfolio. As a result, 54% of the non-agency CMO portfolio is now rated AAA for regulatory capital reporting. The net capital bene...

  • Page 55
    ..., 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. 6 When expected loss as calculated within...

  • Page 56
    ... common shares in Canada at a price of $76.50 per common share for gross cash consideration of $704 million. Tier 2 Capital During the year the Bank issued $1 billion of subordinated debentures; and redeemed two issues of subordinated debentures for a total of $1.5 billion. 54 TD BANK GROUP ANNUAL...

  • Page 57
    ...in the retail and commercial businesses in both Canada and the U.S., the acquisition of Chrysler Financial and higher operational risk capital, partially offset by the impact of a stronger Canadian dollar against the U.S. dollar. TD BANK GROUP ANNUAL REPORT 2011 MANAGEMENT'S DISCUSSION AND ANALYSIS...

  • Page 58
    ... amount of TD Capital Trust IV Notes - Series 2 issued and outstanding. TD's expectation is subject to a number of risk factors and assumptions outlined in the Bank's February 7th press release, which is available on the Bank's website at www.td.com. 56 TD BANK GROUP ANNUAL REPORT 2011 MANAGEMENT...

  • Page 59
    ... mortgages, personal loans, and commercial mortgages to enhance its liquidity position, to diversify sources of funding and to optimize the management of the balance sheet. All products securitized by the Bank were originated in Canada and sold to Canadian securitization structures or Canadian...

  • Page 60
    ... with recourse, credit enhancements, and indemnification agreements. Certain guarantees remain off-balance sheet. See Note 29 to the Consolidated Financial Statements for further information regarding the accounting for guarantees. 58 TD BANK GROUP ANNUAL REPORT 2011 MANAGEMENT'S DISCUSSION AND...

  • Page 61
    ... share and other plans to nonemployee directors, executives, and certain other key employees. See Note 23 and Note 28 to the 2011 Consolidated Financial Statements for more details. In the ordinary course of business, the Bank also provides various banking services to associated and other related...

  • Page 62
    .... These conditions include short-term and long-term interest rates, inï¬,ation, ï¬,uctuations in the debt and capital markets, consumer, debt levels, government spending, exchange rates, the strength of the economy, threats of terrorism, civil unrest, the effects of public health emergencies, the...

  • Page 63
    ... result in higher financing costs and reduce access to capital markets. A lowering of credit ratings may also affect the Bank's ability to enter into normal course derivative or hedging transactions and impact the costs associated with such transactions. TD BANK GROUP ANNUAL REPORT 2011 MANAGEMENT...

  • Page 64
    ... Team Executive Committees Enterprise Risk Management Committee Asset/Liability & Capital Committee Operational Risk Oversight Committee Disclosure Committee Reputational Risk Committee Internal Audit Risk Management Compliance Business Units 62 TD BANK GROUP ANNUAL REPORT 2011 MANAGEMENT...

  • Page 65
    ...of internal controls, including controls over relevant risk management processes. CEO and SET The CEO, the Group Head and Chief Risk Officer (CRO), and other members of the SET develop TD's long-term strategic direction and define TD's risk appetite and apply it to the businesses. They manage risk...

  • Page 66
    ... key business risks. The frequency of strategic business reviews depends on the risk profile and size of the business or function. The overall state of Strategic Risk and adherence to TD's risk appetite is reviewed by the ERMC in the normal course. 64 TD BANK GROUP ANNUAL REPORT 2011 MANAGEMENT...

  • Page 67
    ... daily, monthly, quarterly and annual review requirements for credit exposures. The key parameters used in our credit risk models are monitored on an ongoing basis. Unanticipated economic or political changes in a foreign country could affect cross-border payments for goods and services, loans...

  • Page 68
    ... commercial customers), sovereign and bank. In the retail portfolio (individuals and small businesses), we manage exposures on a pooled basis, using predictive credit scoring techniques. We have three sub-types of retail exposures: residential secured (e.g., individual mortgages, home equity lines...

  • Page 69
    ... and includes cash and negotiable securities issued by highly rated governments and investment grade issuers. The Treasury Credit group within Wholesale Banking is the central source of financial collateral processes. These processes include pre-defined discounts and procedures for the receipt...

  • Page 70
    ... securities to buy from and sell to investors, profiting from the spread between bid and ask prices. • Sales - We provide a wide variety of financial products to meet the needs of our clients, earning money on these products from mark-ups and commissions. 68 TD BANK GROUP ANNUAL REPORT 2011...

  • Page 71
    ... caused by market events around the U.S. Government debt rating downgrade. The graph below discloses daily VaR usage and trading-related revenue within Wholesale Banking. TOTAL VALUE-AT-RISK AND TRADING-RELATED INCOME (millions of Canadian dollars) Trading-related Income Total Value-at-Risk...

  • Page 72
    ... by $110.9 million (2010 - ($165.4) million) after tax. An immediate and sustained 100 bps decrease in interest rates would have reduced the economic value of shareholders' equity by $201.9 million (2010 - ($116.5) million) after tax. 70 TD BANK GROUP ANNUAL REPORT 2011 MANAGEMENT'S DISCUSSION AND...

  • Page 73
    ...equity (after tax) by currency for those currencies where TD has material exposure. from the Bank's net investments in foreign operations is hedged to the point where capital ratios change by no more than an acceptable amount for a given change in foreign exchange rates. Managing Available-for-sale...

  • Page 74
    ... for consolidating and reporting TD's global liquidity position and for managing the Canadian Personal and Commercial Banking and domestic Wealth Management liquidity positions. • Wholesale Banking, working closely with Trading Risk within Risk Management, is responsible for managing the...

  • Page 75
    ... hold from any single depositor in order not to rely excessively on one or a small group of customers as a source of funding. When deposit levels exceed these limits, the excess amount must be invested in highly liquid assets and, as a result, is not used to fund our Wholesale Banking requirements...

  • Page 76
    ...to the nature and scope of the operational risks the area is exposed to. The senior executives in each business unit participate in a Risk Management Committee that oversees operational risk management issues and initiatives. 74 TD BANK GROUP ANNUAL REPORT 2011 MANAGEMENT'S DISCUSSION AND ANALYSIS

  • Page 77
    ... insurance business units has primary responsibility for managing insurance risk with oversight by the Chief Risk Officer for Insurance who reports into Risk Management. The Audit Committee of the Board acts as the Audit and Conduct Review Committee for the Canadian Insurance company subsidiaries...

  • Page 78
    .... Currently, the directors we designate participate in a number of TD Ameritrade Board committees, including chairing the Audit Committee and the HR and Compensation Committee and participating in the Risk Committee and Corporate Governance Committee. 76 TD BANK GROUP ANNUAL REPORT 2011 MANAGEMENT...

  • Page 79
    ... over a period of time, and the controls and processes described above, support the reasonability of the valuation models. The valuations are also validated by past experience and through actual cash settlement under the contract terms. TD BANK GROUP ANNUAL REPORT 2011 MANAGEMENT'S DISCUSSION AND...

  • Page 80
    ...fair value is the result of a general reduction in market liquidity, change in interest rates or due to collectability issues with respect to the expected cash ï¬,ows over the life of the debt security. See Note 2 to the Consolidated Financial Statements for additional disclosures regarding the Bank...

  • Page 81
    ... of expected long-term return on plan assets, compensation increases, health care cost trend rate and discount rate are management's best estimates and are reviewed annually with the Bank's actuaries. The Bank develops each assumption using relevant experience in conjunction with market related data...

  • Page 82
    ... with the first quarter of 2012 Program Initiation and Planning Detailed Assessment Design and Solution Development Implementation Parallel Year Oct. 31, 2008 Oct. 31, 2009 Oct. 31, 2010 Oct. 31, 2011 Oct. 31, 2012 80 TD BANK GROUP ANNUAL REPORT 2011 MANAGEMENT'S DISCUSSION AND ANALYSIS

  • Page 83
    ... be effective for the interim and annual periods beginning Statements, including an IFRS opening Consolidated Balance Sheet, transitional reconciliations and related note disclosures. in the first quarter of fiscal 2012. TD BANK GROUP ANNUAL REPORT 2011 MANAGEMENT'S DISCUSSION AND ANALYSIS 81

  • Page 84
    ... systems and design processes to prepare an IFRS opening Consolidated Balance Sheet. • Determine a solution for capturing financial information under Canadian GAAP and IFRS during fiscal 2011. • Design, develop and test related process and technology changes. • Test other new processes and...

  • Page 85
    ...rm that has also audited the Consolidated Financial Statements of the Bank as of and for the year ended October 31, 2011. Their Report on Internal Controls under Standards of the Public Company Accounting Oversight Board (United States), included in the Consolidated Financial Statements expresses an...

  • Page 86
    ...of the 84 TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL RESULTS reviews the Consolidated Financial Statements and recommends them to the Board for approval. Other responsibilities of the Audit Committee include monitoring the Bank's system of internal controls over the financial reporting process and...

  • Page 87
    ...year period ended October 31, 2011 of The Toronto-Dominion Bank and our report dated November 30, 2011 expressed an unqualified opinion thereon. Ernst & Young LLP Chartered Accountants Licensed Public Accountants Toronto, Canada November 30, 2011 TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL RESULTS...

  • Page 88
    ... deposits with banks Securities (Note 3) Trading (Note 2) Available-for-sale Held-to-maturity Securities purchased under reverse repurchase agreements (Note 3) Loans (Note 4) Residential mortgages Consumer instalment and other personal Credit card Business and government (Note 2) Debt securities...

  • Page 89
    ... of an associated company, net of income taxes (Note 8) Net income Preferred dividends Net income available to common shareholders Average number of common shares outstanding (millions) (Note 26) Basic Diluted Earnings per share (dollars) (Note 26) Basic Diluted Dividends per share (dollars) Certain...

  • Page 90
    ... of $281 million (2010 - $447 million). Certain comparative amounts have been reclassified to conform with the presentation adopted in the current year. The accompanying Notes are an integral part of these Consolidated Financial Statements. 88 TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL RESULTS

  • Page 91
    ... assets Securities purchased under reverse repurchase agreements Net cash acquired (paid) for acquisitions (Note 8) Net cash from (used in) investing activities Effect of exchange rate changes on cash and due from banks Net increase in cash and due from banks Impact due to reporting-period...

  • Page 92
    ...Card services income including interchange income from credit and debit cards and annual fees, are recognized as earned, except for annual fees, which are recognized over a 12-month period. Service charges and trust fee income are recognized as earned. 90 TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL...

  • Page 93
    ... of the Bank for the twelve months ended October 31, 2011, 2010, and 2009. The one month impact of aligning the reporting period of U.S. entities has been included directly in retained earnings and not in the Consolidated Statement of Income. TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL RESULTS 91

  • Page 94
    ..., such as discounted cash ï¬,ow techniques. Market inputs used in the valuation techniques or underlying third-party vendor prices or broker quotes include benchmark and government yield curves, credit spreads, and trade execution data. 92 TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL RESULTS

  • Page 95
    ... market prices and values of inputs. Management consistently applies valuation models and controls over a period of time in the valuation process. The valuations are also validated by past experience and through actual cash settlement under the contract terms. TD BANK GROUP ANNUAL REPORT 2011...

  • Page 96
    ...millions of Canadian dollars) Carrying value 2011 Fair value Carrying value 2010 Fair value FINANCIAL ASSETS Cash and due from banks Interest-bearing deposits with banks Trading securities1 Government and government-related securities Other debt securities Equity securities Retained interests Total...

  • Page 97
    ...31, 2011 of nil (2010 - $18 million) and other debt securities as at October 31, 2011 of $1,986 million (2010 - $4,210 million). There were no significant transfers between Level 1 and Level 2 during the years ended October 31, 2011 and 2010. TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL RESULTS 95

  • Page 98
    ...2010 - $799 million) and derivative liabilities of $1,145 million (2010 - $1,182 million), both of which are measured using significant level 3 inputs, as at October 31, 2011, which have been netted on this table for presentation purposes only. 96 TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL RESULTS

  • Page 99
    ... Canadian issuers Other issuers Equity securities Common shares Retained interests Available-for-sale securities Other debt securities Corporate and other debt Debt securities reclassified from trading Loans4 FINANCIAL LIABILITIES Trading deposits Obligations related to securities sold short...

  • Page 100
    ...-observable market inputs. (millions of Canadian dollars) 2011 2010 Balance at beginning of year New transactions Recognized in the Consolidated Statement of Income during the year Balance at end of year $ 12 19 (7) $ 24 $ 19 11 (18) $ 12 98 TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL RESULTS

  • Page 101
    ... and government insured securities have been combined with derivatives to form economic hedging relationships. These securities are being held as part of the Bank's overall interest rate risk management strategy and have been designated as trading under the fair value option. The derivatives are...

  • Page 102
    ... cash ï¬,ows discounted at the asset's original effective interest rate. 2008 RECLASSIFICATION OF CERTAIN DEBT SECURITIES During 2008, the Bank changed its trading strategy with respect to certain trading debt securities as a result of deterioration in markets and severe dislocation in the credit...

  • Page 103
    ... $ 29,127 $ 192,538 $ 171,612 2 Represents contractual maturities. Actual maturities may differ due to prepayment privileges in the applicable contract. Trading securities include securities designated as trading under the fair value option. TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL RESULTS 101

  • Page 104
    ...-sale portfolio with a carrying value of $1,742 million (2010 - $2,004 million) do not have quoted market prices and are carried at cost. The fair value of these securities was $1,858 million (2010 - $2,172 million) and is included in the table above. 102 TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL...

  • Page 105
    ... Securities (millions of Canadian dollars) Less than 12 months Gross Fair unrealized value losses 12 months or longer Gross Fair unrealized value losses 2011 Total Gross Fair unrealized value losses Available-for-sale securities Government and government-related securities Canadian government debt...

  • Page 106
    ... default (loss frequency), loss given default (loss severity), and exposure at default. The general allowance, reviewed quarterly, reï¬,ects management's judgment of model and estimation risks as well as economic and credit market conditions. 104 TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL RESULTS

  • Page 107
    ...daily trading and lending activities and are not differentiated from other financial assets in the portfolios. The carrying value of loans renegotiated during the year ended October 31, 2011, that would otherwise have been impaired, was $82 million (2010 - $78 million). TD BANK GROUP ANNUAL REPORT...

  • Page 108
    ...for credit losses Foreign exchange and other Write-offs Recoveries adjustments Balance as at Oct. 31 2011 Specific allowance Residential mortgages Consumer instalment and other personal Credit card Business and government Debt securities classified as loans Acquired credit-impaired loans1,2 Total...

  • Page 109
    ... and other factors that are reï¬,ective of current market conditions. Probable decreases in expected cash ï¬,ows trigger the recognition of additional impairment, which is measured based on the present value of the expected cash ï¬,ows TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL RESULTS 107

  • Page 110
    ... carried at fair value with the changes in fair value recorded in trading income. The following table summarizes the Bank's securitization activity. In most cases, the Bank retained the responsibility for servicing the assets securitized. 108 TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL RESULTS

  • Page 111
    ... Bank's Consolidated Statement of Income. Securitization Gain (Loss) and Income on Retained Interests (millions of Canadian dollars) Residential mortgage loans Commercial Personal mortgage loans loans 2011 Residential mortgage loans Commercial Personal mortgage loans loans 2010 2009 Total Total...

  • Page 112
    ...as part of the on-going consolidation assessment process, as these purchases are considered reconsideration events. The inventory positions did not cause any change in consolidation conclusions during the years ended October 31, 2011 and 2010. 110 TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL RESULTS

  • Page 113
    ... value from underlying changes in interest rates, foreign exchange rates, credit spreads, commodity prices, equities, or other financial measures. Such instruments include interest rate, foreign exchange, equity, commodity and credit derivative contracts. The Bank uses these instruments for trading...

  • Page 114
    ... open position. Foreign exchange forwards are OTC contracts in which one counterparty contracts with another to exchange a specified amount of one currency for a specified amount of a second currency, at a future date or range of dates. 112 TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL RESULTS...

  • Page 115
    ...1,164 1,164 $ 10,307 $ 51,675 871 871 $ 8,011 $ 53,685 The average fair value of trading derivatives for the year ended October 31, 2010 was: positive $39,058 million and negative $41,736 million. Averages are calculated on a monthly basis. TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL RESULTS 113

  • Page 116
    ...2011 Derivatives held or issued for non-trading purposes Interest rate contracts Forward rate agreements Swaps Options written Options purchased Total interest rate contracts Foreign exchange contracts Forward contracts Swaps Cross-currency interest rate swaps Total foreign exchange contracts Credit...

  • Page 117
    ...(millions of Canadian dollars) 2011 2010 Interest rate contracts Foreign exchange contracts Credit derivatives Equity Other contracts Total 1 $ (93) (8) 41 (1) - $ (61) $ (247) (4) (14) 5 (2) $ (262) Amounts are recorded in non-interest income. TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL RESULTS...

  • Page 118
    ... and Exchange-Traded Derivatives (billions of Canadian dollars) Trading Over-the- Exchangecounter traded Total Nontrading Total Total 2011 2010 Notional Principal Interest rate contracts Futures Forward rate agreements Swaps Options written Options purchased Total interest rate contracts Foreign...

  • Page 119
    ...-trading credit derivatives, which are given financial guarantee treatment for credit risk capital purposes, are excluded in accordance with the guidelines of OSFI. The total positive fair value of the excluded contracts as at October 31, 2011 was $775 million (2010 - $604 million). TD BANK GROUP...

  • Page 120
    ... of Chrysler Financial as of the date of acquisition. Fair Value of Identifiable Net Assets Acquired (millions of Canadian dollars) Amount Assets acquired Cash and cash equivalents Loans1 Other assets Less: Liabilities assumed Fair value of identifiable net assets acquired Goodwill Total purchase...

  • Page 121
    ... sold the Bank its South Financial preferred stock and the associated warrant acquired under the Treasury's Capital Purchase Program and discharged all accrued but unpaid dividends on that stock for total cash consideration of approximately $134 million. The acquisitions were accounted for by...

  • Page 122
    ... are carried at fair value less costs to sell, with changes in fair value recorded in Non-interest income - Trading income in the Consolidated Statement of Income, and are reported for regulatory purposes to OSFI as cash and cash equivalents. 120 TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL RESULTS

  • Page 123
    ...) denominated in other foreign currencies. Term Deposits (millions of Canadian dollars) Within 1 year Over Over Over Over 1 year to 2 years to 3 years to 4 years to 2 years 3 years 4 years 5 years Over 5 years 2011 2010 Total Total Personal Banks Business and government Trading Total $ 10,031...

  • Page 124
    ... are as follows: Maturities (millions of Canadian dollars) 2011 2010 Within 1 year Over 1 year to 3 years Over 3 years to 4 years Over 4 years to 5 years Over 5 years Total 202 148 - - 11,320 $ 11,670 $ 208 210 148 - 11,940 $ 12,506 $ 122 TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL RESULTS

  • Page 125
    ... by Carolina First REIT on May 31, 2012. Each Series 2002C share may be automatically exchanged, without the consent of the holders, into a newly issued share of Series C preferred stock of TD Bank, N.A. on the occurrence of certain circumstances. TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL RESULTS...

  • Page 126
    ... securities, entitled to cumulative cash distributions payable quarterly at a variable rate per annum, reset quarterly, equal to three-month LIBOR plus 1.33%. Under certain circumstances, payment of distributions may be deferred for up to 20 124 TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL RESULTS

  • Page 127
    ... be reset to the Government of Canada yield plus 4.00%. These capital trusts are not consolidated by the Bank. The junior subordinated debentures issued to these capital trusts are reported in Subordinated Notes and Debentures. See Note 14. TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL RESULTS 125

  • Page 128
    ... Amount Number of shares 2009 Amount Common Shares Balance at beginning of year Proceeds from shares issued on exercise of stock options Shares issued as a result of dividend reinvestment plan Proceeds from issuance of new shares Shares issued on acquisitions Balance at end of year - common shares1...

  • Page 129
    ...30, 2014, and on April 30 every five years thereafter and vice versa. The Series AG shares are redeemable by the Bank for cash, subject to regulatory consent, at $25.00 per share on April 30, 2014 and on April 30 every five years thereafter. TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL RESULTS 127

  • Page 130
    ... 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 8.6 million common shares were issued from...

  • Page 131
    ...of Income. Trading-related income by product line depicts trading income for each major trading category. 2011 2010 2009 Net interest income (loss) Trading income (loss) Loans designated as trading under the fair value option1 Total By product Interest rate and credit portfolios Foreign exchange...

  • Page 132
    ... life of the award; and, dividends will be re-invested in additional units that will be paid at maturity. The number of such share units outstanding under these plans as at October 31, 2011 is 14 million (2010 - 12 million; 2009 - 11 million). 130 TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL RESULTS

  • Page 133
    ...service and management's best estimates of expected long-term return on plan assets, compensation increases, health care cost trend rate and discount rate, which are reviewed annually by the Bank's actuaries. The discount rate used to value liabilities is based on long-term corporate AA bond yields...

  • Page 134
    ...to the 401(k) plan. The amount of the matching contribution for fiscal 2011 was $29 million (2010 - $28 million; 2009 - $18 million). For the defined contribution plan, annual pension expense is equal to the Bank's contributions to the plan. 132 TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL RESULTS

  • Page 135
    ... 15 years preceding retirement. In addition, TD Auto Finance provides limited post-retirement benefit programs, including medical coverage and life insurance benefits to certain employees who meet minimum age and service requirements. As a result of the acquisition of Chrysler Financial on April...

  • Page 136
    ... in the Consolidated Balance Sheet (millions of Canadian dollars) 2011 2010 Other assets Principal pension plans Other pension and retirement plans CT defined benefit pension plan TD Banknorth defined benefit retirement plan TD Auto Finance retirement plans Other employee future benefits - net...

  • Page 137
    ... 2011 Consolidated Financial Statements. Future income tax assets and liabilities are determined based on the tax rates that are expected to apply when the Provision for (Recovery of) Income Taxes (millions of Canadian dollars) assets or liabilities are reported for tax purposes. The Bank records...

  • Page 138
    ... of diluted earnings per share excluded weighted-average options outstanding of 14,292 thousand with a weighted-average exercise price of $64.44 as the option price was greater than the average market price of the Bank's common shares. 136 TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL RESULTS

  • Page 139
    ...July 4, 2011, executive responsibilities for the TD Insurance business were moved from Group Head, Canadian Banking, Auto Finance, and Credit Cards, TD to the Group Head, Wealth Management, Insurance and Corporate Shared Services, TD. The Bank is currently finalizing its future reporting format and...

  • Page 140
    Results by Business Segment (millions of Canadian dollars) Canadian Personal and Commercial Banking Wealth Management U.S. Personal and Commercial Banking Wholesale Banking Corporate Total 2010 Net interest income Non-interest income Provision for (reversal of) credit losses Non-interest expenses...

  • Page 141
    ... that govern all employees. The amounts outstanding are as follows: Loans to Officers and Directors and their Associates (millions of Canadian dollars) 2011 2010 A description of significant transactions of the Bank and its affiliates with TD Ameritrade is set forth below. Insured Deposit Account...

  • Page 142
    ...make funds available for the financing needs of customers. The Bank's policy for requiring collateral security with respect to these contracts and the types of collateral security held is generally the same as for loans made by the Bank. Financial and performance standby letters of credit represent...

  • Page 143
    ... (millions of Canadian dollars) 2011 2010 Financial and performance standby letters of credit Assets sold with contingent repurchase obligations Credit enhancements and other Total $ 14,428 1,357 176 $ 15,961 $ 14,057 1,510 242 $ 15,809 TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL RESULTS 141

  • Page 144
    ... yield Other deposits Effective yield Obligations related to securities sold short Obligations related to securities sold under repurchase agreements Effective yield Subordinated notes and debentures Effective yield Other Shareholders' equity Total liabilities and shareholders' equity Net position...

  • Page 145
    ...Maximum Credit Risk Exposure (millions of Canadian dollars) 2011 2010 Cash and due from banks Interest-bearing deposits with banks Securities1 Trading Government and government-insured securities Other debt securities Retained Interest Available-for-sale Government and government-insured securities...

  • Page 146
    ...100% 150% Total 2011 Loans Residential mortgages Consumer instalment and other personal Credit card Business and government Debt securities classified as loans Total loans Securities - held-to-maturity Securities purchased under reverse repurchase agreement Customers' liability under acceptances...

  • Page 147
    ... The financial instruments held by the insurance subsidiaries are mainly comprised of available-for-sale securities and securities designated as trading under the fair value option, which are carried at fair value on the Consolidated Balance Sheet. TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL RESULTS...

  • Page 148
    ... policies and procedures of the Bank are provided in the MD&A. The shaded sections of the "Managing Risk" section of the MD&A, relating to credit, market and liquidity risks are an integral part of the 2011 Consolidated Financial Statements. 146 TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL RESULTS

  • Page 149
    ...-bearing deposits with banks Available-for-sale Held-to-maturity Securities purchased under reverse repurchase agreements Loans Residential mortgages Consumer instalment and other personal Credit card Business and government Debt securities classified as loans Allowance for loan losses Loans, net...

  • Page 150
    ... differences of $2,947 million. As discussed in Note 34(f), this adjustment has no resulting net impact on equity. Certain comparative amounts have been reclassified to conform to the new IFRS presentation adopted on transition date. 148 TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL RESULTS

  • Page 151
    ... Other adjustments: Loan origination costs Consolidation Employee benefits Share-based payments Income taxes2 Equity securities classified as available-for-sale with no quoted market price Other Presentation differences: Non-controlling interests in subsidiaries Total effect of transition to IFRS...

  • Page 152
    ... a mortgage. As a result, upon transition to IFRS, available-for-sale securities have decreased and residential mortgages have increased. The total impact to the Bank's IFRS opening Consolidated Balance Sheet is disclosed in the table below: Impact of Derecognition of Financial Instruments (millions...

  • Page 153
    ... Bank's IFRS opening Consolidated Balance Sheet as at November 1, 2010 was a decrease to loans of $458 million and other assets of $88 million, an increase to deferred tax assets of $155 million, and a decrease to opening retained earnings of $391 million. TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL...

  • Page 154
    ...: Other Differences between Canadian GAAP and IFRS Under Canadian GAAP, the cost of share-based payments was recognized from the date awards were granted over the service period required for employees to become fully entitled to the award. 152 TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL RESULTS

  • Page 155
    ... and liabilities. At closing, the Bank will pay a premium of approximately $75 million on the portfolio, which is expected to total approximately $7.8 billion at December 1, 2011. The acquisition will be accounted for by the purchase method. TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL RESULTS 153

  • Page 156
    ... Investors Ltd. TD Securities Inc. TD US P & C Holdings ULC TD Bank US Holding Company Northgroup Sponsored Captive Insurance, Inc. TD Bank USA, National Association TD Bank, National Association TD Auto Finance LLC TD Insurance, Inc. TD Vermillion Holdings ULC TD Financial International Ltd. Canada...

  • Page 157
    ... Internaxx Bank S.A. NatWest Personal Financial Management Limited (50%) NatWest Stockbrokers Limited TD Ireland TD Global Finance TD Luxembourg International Holdings TD Ameritrade Holding Corporation (44.96%)1 TD Waterhouse Bank N.V. TD Wealth Holdings (UK) Limited TD Waterhouse Investor Services...

  • Page 158
    ...year Statistical Review Condensed Consolidated Balance Sheet (millions of Canadian dollars) 1 2011 Assets Cash resources and other Securities Securities purchased under reverse repurchase agreements Loans (net of allowance for loan losses) Other Total Assets Liabilities Deposits Other Subordinated...

  • Page 159
    ... Adjusted results (excluding "items of note", net of income taxes, from reported results) and related terms are not defined terms under GAAP and therefore, may not be comparable to similar terms used by other issuers. For further explanation, see "How the Bank Reports" in the accompanying Management...

  • Page 160
    ... share redemption Initial set up of specific allowance for credit card and overdraft loans Litigation charge Agreement with Canada Revenue Agency Integration charges related to the Chrysler Financial acquisition Total items of note Net income available to common shareholders - adjusted 2011...

  • Page 161
    ... Note 4 of the 2011 Consolidated Financial Statements. 8 Reï¬,ects the number of employees on an average full-time equivalent basis. 9 Includes retail bank outlets, private client centre branches, and estates and trusts branches. 1 TD BANK GROUP ANNUAL REPORT 2010 TEN-YEAR STATISTICAL REVIEW 159

  • Page 162
    ... change in market price plus dividends paid during the year as a percentage of the prior year's closing market price per common share. Value-at-Risk (VaR): A metric used to monitor and control overall risk levels and to calculate the regulatory capital required for market risk in trading activities...

  • Page 163
    ..., address changes to the share register, dividend bank account changes, the dividend reinvestment plan, eliminating duplicate mailings of shareholder materials or stopping (and resuming) receiving annual and quarterly reports PLEASE CONTACT Transfer Agent: CIBC Mellon Trust Company* P.O. Box...

  • Page 164
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