TD Bank 2012 Annual Report Download - page 62

TD BANK GROUP ANNUAL REPORT 2012 MANAGEMENT’S DISCUSSION AND ANALYSIS60
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 at fair value through profit
or loss, 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 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” – Determination
of Fair Value section of the 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.
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 $834 million in 2012 (2011 – $762 million)
to TD Ameritrade for the deposit accounts. The fee paid by the Bank
is based on the average insured deposit balance of $60.3 billion in 2012
(2011 – $49.3 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 bps and is reimbursed for the
cost of FDIC insurance premiums.
As at October 31, 2012, amounts receivable from TD Ameritrade
were $129 million (October 31, 2011 – $97 million). As at October 31,
2012, amounts payable to TD Ameritrade were $87 million (October 31,
2011 – $84 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 $128 million (2011 – $139 million) for
these services. As at October 31, 2012, the amount payable to Symcor
was $10 million (October 31, 2011 – $12 million).
The Bank and two other shareholder banks have also provided
a $100 million unsecured loan facility to Symcor which was undrawn
as at October 31, 2012 and October 31, 2011.
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:
GROUP FINANCIAL CONDITION
Financial Instruments
(millions of Canadian dollars) October 31 October 31
2012 2011
Personal loans, including mortgages $ 6 $ 12
Business loans 201 195
Total $ 207 $ 207
In addition, the Bank offers deferred share and other plans to
non-
employee directors, executives, and certain other key employees.
See Note 25 and Note 29 to the 2012 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.
TRANSACTIONS WITH EQUITY-ACCOUNTED INVESTEES
TD AMERITRADE
Pursuant to the Stockholders Agreement in relation to the Bank’s
equity investment in TD Ameritrade, the Bank designated five of 12
members to TD Ameritrade’s Board of Directors including the Bank’s
CEO and two independent directors of TD. A description of significant
transactions of the Bank and its affiliates with TD Ameritrade is set
forth below.
LOANS TO KEY MANAGEMENT PERSONNEL,
THEIR CLOSE FAMILY MEMBERS AND THEIR
RELATED ENTITIES
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