TD Bank 2011 Annual Report Download - page 63

TD BANK GROUP ANNUAL REPORT 2011 MANAGEMENT’S DISCUSSION AND ANALYSIS 61
Accounting Policies and Methods Used by the Bank
The accounting policies and methods the Bank utilizes determine how
the Bank reports its financial condition and results of operations, and
they may require management to make estimates or rely on assump-
tions about matters that are inherently uncertain. Such estimates and
assumptions may require revisions, and these changes may materially
adversely affect the Bank’s results of operations and financial condi-
tion. Significant Accounting Policies are described in Note 1 to our
Consolidated Financial Statements. The Bank will transition from
Canadian GAAP to IFRS, effective for interim and annual periods
beginning in the first quarter of fiscal 2012. The transition to IFRS is
described in Note 34 to the Bank’s Consolidated Financial Statements.
BANK SPECIFIC FACTORS
Adequacy of the Bank’s Risk Management Framework
The Bank’s risk management framework is made up of various
processes and strategies for managing risk exposure and includes an
Enterprise Risk Appetite Framework. Types of risk to which the Bank
is subject include credit, market (including equity, commodity, foreign
exchange, and interest rate), liquidity, operational, reputational, insur-
ance, strategic, regulatory, legal, environmental, and other risks. There
can be no assurance that the Bank’s framework to manage risk, includ-
ing such framework’s underlying assumptions and models, will be
effective under all conditions and circumstances. If the Bank’s risk
management framework proves ineffective, whether because it does
not keep pace with changing Bank or market circumstances or other-
wise, the Bank could suffer unexpected losses and could be materially
adversely affected.
New Products and Services to Maintain or Increase Market Share
The Bank’s ability to maintain or increase its market share depends,
in part, on its ability to innovate and adapt products and services to
evolving industry standards and develop and/or expand its distribution
networks. There is increasing pressure on financial services companies
to provide products and services at lower prices as well as to increase
the convenience features, such as longer branch hours. This can
reduce the Bank’s net interest income and revenues from fee-based
products and services, increase the Bank’s expenses and, in turn, nega-
tively impact net income. In addition, the widespread adoption of new
technologies by the Bank could require the Bank to make substantial
expenditures to modify or adapt existing products and services without
any guarantee that such technologies could be deployed successfully.
These new technologies could be used in unprecedented ways by the
increasingly sophisticated parties who direct their attempts to defraud
the Bank or its customers through many channels. The Bank might not
be successful in introducing new products and services, achieving
market acceptance of its products and services, developing and
expanding distribution channels, and/or developing and maintaining
loyal customers.
Acquisitions and Strategic Plans
The Bank regularly explores opportunities to acquire other companies,
including financial services companies, or parts of their businesses
directly or indirectly through the acquisition strategies of its subsidiar-
ies. The Bank undertakes thorough due diligence before completing an
acquisition, but it is possible that unanticipated factors could arise and
there is no assurance that the Bank will achieve its financial or strategic
objectives, including anticipated cost savings, or revenue synergies
following acquisitions and integration efforts. The Bank’s, or a subsid-
iary’s, ability to successfully complete an acquisition is often subject to
regulatory and shareholder approvals, and the Bank cannot be certain
when or if, or on what terms and conditions, any required approvals
will be granted. The Bank’s financial performance is also influenced
by its ability to execute strategic plans developed by management. If
these strategic plans do not meet with success or there is a change in
strategic plans, it would impact the Bank’s financial performance and
the Bank’s earnings could grow more slowly or decline.
Ability to Attract, Develop and Retain Key Executives
The Bank’s future performance depends to a large extent on the avail-
ability of qualified people and the Bank’s ability to attract, develop and
retain key executives. There is intense competition for the best people
in the financial services sector. Although it is the goal of the Bank’s
management resource policies and practices to attract, develop, and
retain key executives employed by the Bank or an entity acquired by
the Bank, there is no assurance that the Bank will be able to do so.
Business Infrastructure
Third parties provide key components of the Bank’s business infrastruc-
ture such as voice and data communications and network access. Given
the high volume of transactions we process on a daily basis, the Bank is
reliant on such third party provided services as well as its own informa-
tion technology systems to successfully deliver its products and services.
Despite the Bank’s technology risk management program, contin-
gency and resiliency plans and those of its third party service providers,
disruptions in the Bank’s information technology, internet, network
access or other voice or data communication systems and services
could be subject to failures or disruptions as a result of natural disas-
ters, power or telecommunications disruptions, acts of terrorism or
war, physical or electronic break-ins, or similar events or disruptions.
Such failures, disruptions or breaches could adversely affect the Bank’s
ability to deliver products and services to customers, damage the
Bank’s reputation, and to otherwise adversely affect the Bank’s ability
to conduct business.
Changes to Our Credit Ratings
There can be no assurance that the Bank’s credit ratings and rating
outlooks from rating agencies such as Moody’s Investors Service,
Standard & Poor’s, Fitch Ratings, or DBRS will not be lowered or that
these ratings agencies will not issue adverse commentaries about the
Bank. Such changes could potentially 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.