TD Bank 2012 Annual Report Download - page 56

TD BANK GROUP ANNUAL REPORT 2012 MANAGEMENT’S DISCUSSION AND ANALYSIS54
1 Prior to 2012, the amounts are calculated based on Canadian GAAP.
2 In accordance with CICA Handbook Section 3860, the Bank is required to classify
certain classes of preferred shares and innovative Tier 1 capital investments as
liabilities on the Consolidated Balance Sheet. For regulatory capital purposes, these
capital instruments have been grandfathered by OSFI and continue to be included
in Tier 1 capital.
3
As at November 2011, the one month lag for Financial reporting has been
elimi
nated. In previous months, for accounting purposes, the Bank’s investment
in TD Ameritrade was translated using the month-end rate of TD Ameritrade’s
reporting period, which was on a one month lag. For regulatory purposes only,
the Bank’s investment in TD Ameritrade was translated using the period-end
foreign exchange rate of the Bank.
4 When expected loss as calculated within the Internal Risk Based (IRB) approach
exceeds total allowance for credit losses, the difference is deducted 50% from
Tier 1 capital and 50% from Tier 2 capital. When expected loss as calculated
within the IRB approach is less than the total allowance for credit losses, the
difference is added to Tier 2 capital.
5 Based on OSFI advisory letter dated February 20, 2007, 100% of investments
in insurance subsidiaries held prior to January 1, 2007 are deducted from Tier 2
capital. The 50% from Tier 1 capital and 50% from Tier 2 capital deduction was
deferred until 2012.
6 OSFI’s target Tier 1 and Total capital ratios for Canadian banks are 7% and 10%,
respectively.
(millions of Canadian dollars, except as noted) 2012 2011
Basel II Basel II
Tier 1 capital
Common shares $ 18,525 $ 18,301
Contributed surplus 196 281
Retained earnings 21,763 24,339
Fair value (gain) loss arising from changes in the institution’s own credit risk (2) –
Net unrealized foreign currency translation gains (losses) on investment in subsidiaries, net of hedging activities (426) (3,199)
Preferred shares2 3,394 3,395
Innovative instruments2 3,700 3,705
Adjustments for transition to measurement under IFRS 387 –
Net impact of eliminating one month reporting lag of U.S. entities3 – (266)
Gross Tier 1 capital 47,537 46,556
Goodwill and intangibles in excess of 5% limit (12,311) (14,376)
Net Tier 1 capital 35,226 32,180
Securitization – gain on sales of mortgages – (86)
– other (650) (735)
50% shortfall in allowance4 (103) (180)
50% substantial investments (2,731) (2,805)
Investment in insurance subsidiaries5 (753) (4)
Net impact of eliminating one month reporting lag of U.S. entities3 – 133
Adjusted net Tier 1 capital 30,989 28,503
Tier 2 capital
Innovative instruments 26 26
Subordinated notes and debentures (net of amortization and ineligible) 11,198 11,253
Eligible collective allowance (re-standardized approach) 1,142 940
Accumulated net after-tax unrealized gain on AFS equity securities in OCI 99 35
Securitization – other (1,272) (1,484)
50% shortfall in allowance4 (103) (180)
50% substantial investments (2,731) (2,805)
Investment in insurance subsidiaries5 (753) (1,443)
Net impact of eliminating one month reporting lag of U.S. entities3 – 133
Total Tier 2 capital 7,606 6,475
Total regulatory capital $ 38,595 $ 34,978
Regulatory capital ratios3
Tier 1 capital ratio6 12.6% 13.0%
Total capital ratio6 15.7% 16.0%
Assets-to-capital multiple 18.0 17.2
GROUP FINANCIAL CONDITION
Capital Position
CAPITAL STRUCTURE AND RATIOS1
TABLE 44