TD Bank 2014 Annual Report Download - page 63

TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS 61
Tier 1 and Tier 2 Capital
Tier 1 Capital was $36 billion as at October 31, 2014, consisting
of CET1 Capital and Additional Tier 1 Capital of $31 billion and
$5 billion, respectively. Capital management funding activities during
the year consisted of the issuance of $500 million Non-cumulative
5-Year Rate Reset Preferred Shares, Series 1 and $500 million
Non-cumulative 5-Year Rate Reset Preferred Shares, Series 3, both
of which included NVCC Provisions to ensure loss absorbency at the
point of non-viability, and the redemption of $425 million Class A First
Preferred Shares, Series O and 5-Year Rate Reset Preferred Shares,
Series AA, Series AC, Series AE, Series AG, Series AI and Series AK,
totaling $1.8 billion. TD announced on February 7, 2011, that, based
on OSFI’s February 4, 2011, Advisory which outlined OSFI’s expecta-
tions regarding the use of redemption rights triggered by regulatory
event clauses in non-qualifying capital instruments, it expects to
exercise a regulatory event redemption right only in 2022 in respect
of the TD Capital Trust IV Notes – Series 2 outstanding at that time.
As of October 31, 2014, there was $450 million in principal amount
of TD Capital Trust IV Notes – Series 2 issued and outstanding.
Tier 2 Capital was $8.3 billion as at October 31, 2014. In August 2014,
the 10.05% subordinated notes of the Bank matured. There were no
other redemptions or issuances of Tier 2 Capital instruments in 2014.
INTERNAL CAPITAL ADEQUACY ASSESSMENT PROCESS
The Bank’s Internal Capital Adequacy Assessment Process (ICAAP)
is an integrated enterprise-wide process that encompasses the
governance, management, and control of risk and capital functions
within the Bank. It provides a framework for relating risks to capital
requirements through the Bank’s economic capital modeling and
stress testing practices which help inform the Bank’s overall capital
adequacy requirements.
The ICAAP is facilitated by Risk Management and is supported by
numerous functional areas who together help determine the Bank’s
internal capital adequacy assessment. This assessment ultimately
represents the capacity to bear risk in congruence with the Bank’s
risk profile and RAS. Risk Management leads the ICAAP and assesses
whether the Bank’s internal view of required capital is appropriate for
the Bank’s risks. Enterprise Capital Management monitors the overall
adequacy of the Bank’s available capital in relation to both internal
and regulatory capital requirements.
DIVIDENDS
The Bank’s dividend policy is approved by the Board. At October 31,
2014, the quarterly dividend was $0.47 per share, consistent with the
Bank’s current target payout range of 40 to 50% of adjusted earnings.
Cash dividends declared and paid during the year totalled $1.84 per
share (2013 – $1.62). For cash dividends payable on the Bank’s
preferred shares, see Notes 21 and 37 to the Consolidated Financial
Statements. As at October 31, 2014, 1,845 million common shares
were outstanding (2013 – 1,835 million). The Bank’s ability to pay
dividends is subject to the Bank Act (Canada) and the requirements
of OSFI. See Note 21 to the Consolidated Financial Statements for
further details on dividend restrictions.
NORMAL COURSE ISSUER BID
On June 19, 2013, the Bank announced that the Toronto Stock
Exchange (TSX) approved the Bank’s normal course issuer bid to repur-
chase, for cancellation, up to 24 million of the Bank’s common shares.
The bid commenced on June 21, 2013, and expired in accordance with
its terms in June 2014. During the year ended October 31, 2014, the
Bank repurchased 4 million common shares under this bid at an aver-
age price of $54.15 for a total amount of $220 million. During the year
ended October 31, 2013, the Bank repurchased 18 million common
shares under this bid at an average price of $43.25 for a total amount
of $780 million.
RISK-WEIGHTED ASSETS
Based on Basel III, RWA are calculated for each of credit risk, market
risk, and operational risk. Details of the Bank’s RWA is included in the
following table.
(millions of Canadian dollars) As at
October 31 October 31
2014 2013
Credit risk
Retail
Residential secured $ 25,910 $ 23,895
Qualifying revolving retail 12,016 12,588
Other retail 52,018 47,504
Non-retail
Corporate 118,571 99,608
Sovereign 3,999 3,340
Bank 11,949 12,198
Securitization exposures 12,014 10,894
Equity exposures 926 885
Exposures subject to standardized or IRB approaches 237,403 210,912
Adjustment to IRB RWA for scaling factor 5,842 5,463
Other assets not included in standardized
or IRB approaches 32,680 23,177
Total credit risk 275,925 239,552
Market risk
Trading book 14,376 11,734
Operational risk
Standardized approach 38,092 35,069
Total $ 328,393 $ 286,355
1 Effective the third quarter of 2014, each capital ratio has its own RWA measure
due to the OSFI prescribed scalar for inclusion of the CVA. Effective the third
quarter of 2014, the scalars for inclusion of CVA for CET1, Tier 1, and Total
Capital RWA are 57%, 65%, and 77% respectively.
During the year, RWA increased $42 billion, primarily due to higher
RWA requirements with transition to Basel III and organic growth in
the retail and commercial businesses in both Canada and the U.S.
The new rules required a capital charge add-on for derivatives credit
valuation adjustment effective January 1, 2014.
COMMON EQUITY TIER 1 CAPITAL
RISK-WEIGHTED ASSETS1
TABLE 45