TD Bank 2011 Annual Report Download - page 61

TD BANK GROUP ANNUAL REPORT 2011 MANAGEMENT’S DISCUSSION AND ANALYSIS 59
GROUP FINANCIAL CONDITION
Related-party Transactions
TRANSACTIONS WITH OFFICERS AND DIRECTORS AND
THEIR AFFILIATES
The Bank makes loans to its officers and directors and their affiliates.
Loans to directors and officers are on market terms and conditions
unless, in the case of banking products and services for officers,
otherwise stipulated under approved policy guidelines that govern
all employees. The amounts outstanding are as follows:
(millions of Canadian dollars) 2011 2010
Personal loans, including mortgages $ 18 $ 11
Business loans 195 182
Total $ 213 $ 193
In addition, the Bank offers deferred share and other plans to non-
employee 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 corporations on terms
similar to those offered to non-related parties.
LOANS TO OFFICERS AND DIRECTORS
TABLE 49
TRANSACTIONS WITH EQUITY-ACCOUNTED INVESTEES
TD AMERITRADE
Pursuant to a Stockholders Agreement in relation to the Bank’s equity
investment in TD Ameritrade, the Bank designated five of twelve
members of TD Ameritrade’s Board of Directors, including our CEO
and two independent directors of TD.
Insured Deposit Account (formerly known as Money Market
Deposit Account) Agreement
The Bank is party to an insured deposit account (IDA) agreement with
TD Ameritrade, pursuant to which the Bank makes available to clients
of TD Ameritrade IDAs as designated sweep vehicles. TD Ameritrade
provides marketing and support services with respect to the IDA. The
Bank paid fees of $762 million in 2011 (2010 – $714 million; 2009 –
$654 million) to TD Ameritrade for the deposit accounts. The fee
paid by the Bank is based on the average insured deposit balance of
$48.4 billion in 2011 (2010 – $39.2 billion) with a portion of the fee
tied to the actual yield earned by the Bank on the investments, less the
actual interest paid to clients of TD Ameritrade, with the balance based
on an agreed rate of return. The Bank earns a flat fee of 25 basis
points and is reimbursed for the cost of FDIC insurance premiums.
As at October 31, 2011, amounts receivable from TD Ameritrade were
$97 million (2010 – $53 million). As at October 31, 2011, amounts
payable to TD Ameritrade were $84 million (2010 – $82 million).
TRANSACTIONS WITH SYMCOR
The Bank has a one-third ownership in Symcor Inc. (Symcor), a Canadian
provider of business process outsourcing services offering a diverse
portfolio of integrated solutions in item processing, statement
processing and production, and cash management services. The Bank
accounts for Symcor’s results using the equity method of accounting.
During the year, the Bank paid $139 million (2010 – $135 million;
2009 – $164 million) for these services. As at October 31, 2011, the
amount payable to Symcor was $12 million (2010 – $12 million).
GROUP FINANCIAL CONDITION
Financial Instruments
As a financial institution, the Bank’s assets and liabilities are substan-
tially composed of financial instruments. Financial assets of the Bank
include, but are not limited to, cash, interest-bearing deposits, securi-
ties, loans and derivative instruments, while financial liabilities include,
but are not limited to, deposits, obligations related to securities sold
short, obligations related to securities sold under repurchase agree-
ments, derivative instruments and subordinated debt.
The Bank uses financial instruments for both trading and non-trading
activities. The Bank typically engages in trading activities by the purchase
and sale of securities to provide liquidity and meet the needs of clients
and, less frequently, by taking proprietary trading positions with the
objective of earning a profit. Trading financial instruments include, but
are not limited to, trading securities, trading deposits, and trading
derivatives. Non-trading financial instruments include the majority of
the Bank’s lending portfolio, non-trading securities, hedging deriva-
tives and financial liabilities. In accordance with accounting standards
related to financial instruments, financial assets or liabilities classified
as trading, loans and securities designated as trading under the fair
value option, securities classified as available-for-sale and all derivatives
are measured at fair value in the Bank’s Consolidated Financial
Statements, with the exception of those available-for-sale securities
recorded at cost. Financial instruments classified as held-to-maturity,
loans and receivables, and other liabilities are carried at amortized cost
using the effective interest rate method. For details on how fair values
of financial instruments are determined, refer to the “Critical
Accounting Estimates” – Fair Value of Financial Instruments section of
this MD&A. The use of financial instruments allows the Bank to earn
profits in trading, interest and fee income. Financial instruments also
create a variety of risks which the Bank manages with its extensive risk
management policies and procedures. The key risks include interest
rate, credit, liquidity, market, and foreign exchange risks. For a more
detailed description on how the Bank manages its risk, refer to the
“Managing Risk” section of this MD&A.