TD Bank 2012 Annual Report Download - page 138

TD BANK GROUP ANNUAL REPORT 2012 FINANCIAL RESULTS136
The acquisitions were accounted for by the purchase method. The
results from these acquisitions have been consolidated with the Bank’s
results for the years ended October 31, 2012, 2011, and 2010. The
results are included with TD Bank, N.A. and are reported in the U.S.
Personal and Commercial Banking segment. As at the acquisition dates,
the acquisitions contributed $2,198 million of net cash and cash equiv-
alents, $8,471 million of loans, $115 million of identifiable intangibles,
$3,994 million of other assets, $12,298 million of deposits and
$2,535 million of other liabilities to the Bank’s Consolidated Balance
Sheet. Included in loans is $2,127 million of covered loans. The
estimated fair value for loans reflects the expected credit losses at
the acquisition date.
Subsequent to the acquisition date, goodwill decreased by
$140 million to $257 million, primarily due to the completion of
the valuation of the loan portfolio.
GOODWILL AND OTHER INTANGIBLES
NOTE 12
The fair value of the Bank’s CGUs is determined from internally devel-
oped valuation models that consider various factors and assumptions
such as forecasted earnings, growth rates, price earnings multiples,
discount rates and terminal multiples. Management is required to use
judgment in estimating the fair value of CGUs and the use of different
assumptions and estimates in the fair value calculations could influence
the determination of the existence of impairment and the valuation
of goodwill. Management believes that the assumptions and estimates
used are reasonable and supportable. Where possible, fair values
generated internally are compared to relevant market information. The
carrying amounts of the Bank’s CGUs are determined by management
using risk based capital models (based on advanced approaches under
Basel III) to adjust net assets and liabilities by CGU. These models
consider various factors including market risk, credit risk and opera-
tional risk, including investment capital (comprised of goodwill and
intangibles). Any unallocated capital not directly attributable to the
CGUs
is held within the Corporate segment. As at the date of the last
impairment test, the amount of unallocated capital was $4.3 billion
and primarily related to available-for-sale securities and interest rate
swaps managed within the Corporate segment. The Bank’s capital
oversight committees provide oversight to the Bank’s capital
allocation methodologies.
Key Assumptions
The recoverable amount of each group of CGUs has been determined
based on its value-in-use. In assessing value-in-use, the estimated
future cash flows based on the Bank’s internal forecast are discounted
using an appropriate pre-tax discount rate.
The following were the key assumptions applied in the goodwill
impairment testing:
Discount Rate
The pre-tax discount rates used reflect current market assessment of
the risks specific to each group of CGUs and is dependent on the risk
profile and capital requirements of the group of CGUs.
Terminal Multiple
The earnings included in the goodwill impairment testing for each
operating segment were based on the Bank’s internal forecast, which
projects expected cash flows over the next four years. The pre-tax
terminal multiple for the period after the Bank’s internal forecast was
derived from the observable terminal multiples of comparable financial
institutions and ranged from 9x to 14x.
In considering the sensitivity of the key assumptions discussed
above, management determined that there is no reasonable possible
change in any of the above that would result in the carrying amount
of any of the groups of CGUs to exceed its recoverable amount.
Goodwill by Segment
(millions of Canadian dollars) Canadian Personal U.S. Personal
and Commercial Wealth and Commercial Wholesale
Banking and Insurance Banking Banking Corporate Total
Carrying amount of goodwill as at
November 1, 2010 $ 722 $ 1,060 $ 10,381 $ 150 $ – $ 12,313
Additions 4 – 1761 – – 180
Foreign currency translation adjustments
and other – (9) (227) – – (236)
Carrying amount of goodwill as at
October 31, 2011 $ 726 $ 1,051 $ 10,330 $ 150 $ – $ 12,257
Gross amount of goodwill $ 726 $ 1,051 $ 10,330 $ 150 $ – $ 12,257
Accumulated impairment losses $ – $ – $ – $ – $ – $ –
Carrying amount of goodwill as at
November 1, 2011 $ 726 $ 1,051 $ 10,330 $ 150 $ – $ 12,257
Additions 462 462 6 – – 98
Disposals – (68)3 – – – (68)
Foreign currency translation adjustments
and other – – 24 – – 24
Carrying amount of goodwill as at
October 31, 2012 $ 772 $ 1,029 $ 10,360 $ 150 $ – $ 12,311
Gross amount of goodwill $ 772 $ 1,029 $ 10,360 $ 150 $ – $ 12,311
1
Consists of goodwill arising from the acquisitions of Chrysler Financial, Riverside,
First Federal, AmericanFirst and South Financial.
2
Primarily relates to goodwill arising from the acquisition of MBNA Canada of
$93 million. See Note 11 for further details.
3
Relates to the divestiture of our U.S. insurance business.