Looking Forward
2013 Annual Report
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® The TD logo and other trade-marks are the property of
The Toronto-Dominion Bank or a wholly-owned subsidiary,
in Canada and/or other countries.
2013 Snapshot
Year at a Glance
Performance Indicators
Group President and CEO’s Message
Chairman of the Board’s Message
MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL RESULTS
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Principal Subsidiaries
Ten-Year Statistical Review
Glossary
Shareholder and Investor Information
1
2
3
4
5
7
112
120
196
198
204
205
For more information, including a
video message from Ed Clark, see the
interactive TD Annual Report online
by scanning the QR code below or
visiting td.com/annual-report/ar2013
For information on TD’s commitments to the
community see the TD Corporate Responsibility
Report online by scanning the QR code below
or visiting td.com/corporate-responsibility
(2013 report available April 2014)
Shareholder and Investor Information
MARKET LISTINGS
The common shares of The Toronto-Dominion
Bank are listed for trading on the Toronto Stock
Exchange and the New York Stock Exchange
under the symbol “TD”. The Toronto-Dominion
Bank preferred shares are listed on the Toronto
Stock Exchange.
Further information regarding the Bank’s
listed securities, including ticker symbols and
CUSIP numbers, is available on our website at
www.td.com under Investor Relations/Share
Information or by calling TD Shareholder
Relations at 1-866-756-8936 or 416-944-6367
or by e-mailing tdshinfo@td.com.
AUDITORS FOR FISCAL 2013
Ernst & Young LLP
DIVIDENDS
Direct dividend depositing: Shareholders may
have their dividends deposited directly to any
bank account in Canada or the U.S. For this
service, please contact the Bank’s transfer agent
at the address below.
U.S. dollar dividends: Dividend payments sent
to U.S. addresses or made directly to U.S. bank
accounts will be made in U.S. funds unless
a shareholder otherwise instructs the Bank’s
transfer agent. Other shareholders can request
dividend payments in U.S. funds by contacting
the Bank’s transfer agent. Dividends will be
exchanged into U.S. funds at the Bank of Canada
noon rate on the fifth business day after the
record date, or as otherwise advised by the Bank.
Dividend information for 2013 is available at
www.td.com under Investor Relations/Share
Information. Dividends, including the amounts
and dates, are subject to declaration by the
Board of Directors of the Bank.
DIVIDEND REINVESTMENT PLAN
For information regarding the Bank’s dividend
reinvestment plan, please contact our transfer
agent or visit our website at www.td.com under
Investor Relations/Share Information/Dividends.
IF YOU
AND YOUR INQUIRY RELATES TO
PLEASE CONTACT
Are a registered shareholder (your name appears
on your TD share certificate)
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questions, address changes to the share register,
dividend bank account changes, the dividend
reinvestment plan, eliminating duplicate mailings
of shareholder materials or stopping (and
resuming) receiving annual and quarterly reports
Hold your TD shares through the Direct
Registration System in the United States
Missing dividends, lost share certificates, estate
questions, address changes to the share register,
eliminating duplicate mailings of shareholder
materials or stopping (and resuming) receiving
annual and quarterly reports
Transfer Agent:
CST Trust Company
P.O. Box 700, Station B
Montréal, Québec
H3B 3K3
1-800-387-0825 (Canada and US only)
or 416-682-3860
Facsimile: 1-888-249-6189
inquiries@canstockta.com or www.canstockta.com
Co-Transfer Agent and Registrar:
Computershare
P.O. Box 43006
Providence, Rhode Island, 02940-3006 or
250 Royall Street
Canton, Massachusetts 02021
1-866-233-4836
TDD for hearing impaired: 1-800-231-5469
Shareholders outside of U.S.: 201-680-6578
TDD Shareholders outside of U.S.: 201-680-6610
www.computershare.com
Beneficially own TD shares that are held in the
name of an intermediary, such as a bank, a trust
company, a securities broker or other nominee
Your TD shares, including questions regarding
the dividend reinvestment plan and mailings
of shareholder materials
Your intermediary
TD SHAREHOLDER RELATIONS
For all other shareholder inquiries, please contact
TD Shareholder Relations at 416-944-6367 or
1-866-756-8936 or e-mail tdshinfo@td.com.
Please note that by leaving us an e-mail or
voicemail message you are providing your
consent for us to forward your inquiry to the
appropriate party for response.
Shareholders may communicate directly with the
independent directors through the Chairman of
the Board, by writing to:
Chairman of the Board
The Toronto-Dominion Bank
P.O. Box 1
Toronto-Dominion Centre
Toronto, Ontario M5K 1A2
or you may send an e-mail c/o TD Shareholder
Relations at tdshinfo@td.com. E-mails addressed
to the Chairman received from shareholders and
expressing an interest to communicate directly
with the independent directors via the Chairman
will be provided to Mr. Levitt.
HEAD OFFICE
The Toronto-Dominion Bank
P.O. Box 1
Toronto-Dominion Centre
King St. W. and Bay St.
Toronto, Ontario M5K 1A2
Product and service information 24 hours a day,
seven days a week:
In Canada contact TD Canada Trust
1-866-567-8888
In the U.S. contact TD Bank,
America’s Most Convenient Bank
1-888-751-9000
French: 1-866-233-2323
Cantonese/Mandarin: 1-800-328-3698
Telephone device for the hearing impaired:
1-800-361-1180
General information:
Contact Corporate and Public Affairs
416-982-8578
Website: In Canada: www.td.com
In the U.S.: www.tdbank.com
E-mail: customer.service@td.com
(Canada only; U.S. customers can e-mail
customer service via www.tdbank.com)
ANNUAL MEETING
April 3, 2014
9:30 a.m. (Mountain)
Hyatt Regency Calgary
Calgary, Alberta
SUBORDINATED NOTES SERVICES
Trustee for subordinated notes:
Computershare Trust Company of Canada
Attention: Manager,
Corporate Trust Services
100 University Avenue, 11th Floor
Toronto, Ontario M5J 2Y1
Vous pouvez vous procurer des exemplaires en
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Affaires internes et publiques
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Toronto (Ontario) M5K 1A2
TD B ANK GRO UP ANNUAL REP ORT 2013 SHAREHOLDER AND I NVESTO R I NFORM ATIO N
205
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2013 Snapshot1
NET INCOME 2
available to common shareholders
(millions of Canadian dollars)
DILUTED EARNINGS
PER SHARE 2
(Canadian dollars)
RETURN ON RISK-
WEIGHTED ASSETS 2
(per cent)
Adjusted
Reported
Adjusted
Reported
Adjusted
Reported
TOTAL ASSETS 2
(billions of Canadian dollars)
$7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
$8
7
6
5
4
3
2
1
0
3.0%
2.5
2.0
1.5
1.0
0.5
0
$900
800
700
600
500
400
300
200
100
0
09
10
11
12
13
09
10
11
12
13
09
10
11
12
13
09
10
11
12
13
12.8% TD’s 5-year CAGR
(adjusted)
8.8% TD’s 5-year CAGR
(adjusted)
2.50% TD’s 2013 return on
risk-weighted assets
(adjusted)
$863 billion of total assets
at Oct. 31, 2013
DIVIDENDS PER SHARE
(Canadian dollars)
TOTAL SHAREHOLDER
RETURN
(5-year CAGR)
TD’S PREMIUM RETAIL
EARNINGS MIX
$3.5
3.0
2.5
2.0
1.5
1.0
0.5
0
15.2%
TD’s premium earnings
mix is built on a North
American retail focus –
a lower-risk business
with consistent earnings.
09
10
11
12
13
6.5% TD’s 5-year CAGR
3.0% Canadian peers
14.9% Canadian peers
(0.6)% U.S. peers
91% Retail
9% Wholesale
5-year CAGR
(22.2)% U.S. peers
5-year CAGR
1 Please see the footnotes on the next page for information on how these results
are calculated.
2 Based on Canadian Generally Accepted Accounting Principles (Canadian GAAP)
for 2009 – 2010 and International Financial Reporting Standards (IFRS) from
2011 – 2013. See next page for more information.
9%
26%
65%
Canadian Retail
U.S. Retail
Wholesale
TD BANK GROUP ANNUAL RE POR T 2 0 13 201 3 SNAPSHOT
1
Year at a Glance1
CEO succession to ensure
leadership continuity
TD maintained mobile banking
leadership position in Canada
TD increased its annual dividends
paid 12% from the previous year
TD board announced CEO succession following
Ed Clark’s 2014 retirement; Bharat Masrani
transitioned to Chief Operating Officer on July 1,
2013 and will become Group President & CEO
November 1, 2014.
Record retail adjusted
earnings of $6.5 billion
Record earnings contributions from
Canadian P&C, US P&C and Wealth
Management respectively.3
Ranking #1 for mobile subscribers accessing
financial services via their mobile devices.2
Including two additional dividend increases
paid in fiscal 2013.
TD to become the primary
credit card issuer for Aeroplan
TD will become the primary credit card issuer
for Aeroplan on January 1, 2014 and also
expects to acquire about half of the existing
CIBC Aeroplan credit card accounts.4
TD Bank, America’s Most
Convenient Bank® reaches
milestone in New York City
TD opened its 100th store in NYC this year
and ended the fiscal year with 108.
TD Wealth reported record
Client Assets
TD Securities improved its top-
three dealer rankings in Canada
TD Canada Trust named highest
in Customer Satisfaction
As of October 31, 2013, has $293 billion in
assets under administration and $257 billion
in assets under management.
Equity block trading remained #1, government
underwriting moved up to #3 from #4, and
corporate debt increased to #1 from #2 in the
previous year.5
Among the Big Five Retail Banks for the eighth
year in a row.6, 7
Key Financial Metrics
(millions of Canadian dollars, except where noted)
Results of operations
Total revenues – reported 8
Total revenues – adjusted 8
Net income – reported
Net income – adjusted
Financial positions at year-end (billions)
Total assets
Total deposits
Total loans net of allowance for loan losses
Per common share (Canadian dollars)
Diluted earnings – reported
Diluted earnings – adjusted
Dividend payout ratio – adjusted
Total shareholder return (1 year)
Closing market price (fiscal year end)
Financial ratios
Common Equity Tier 1 capital ratio 9
Tier 1 capital ratio 10
Total capital ratio 10
Efficiency ratio – reported 8
Efficiency ratio – adjusted 8
2013
2012
2011
$27,262
27,191
6,662
7,158
862.5
543.5
444.9
$25,546
25,677
6,471
7,075
811.1
487.8
408.8
6.91
7.45
43.3%
22.3%
6.76
7.42
38.7%
11.9%
95.64
81.23
9.0%
11.0%
14.2%
55.2%
52.8%
n.a.
12.6%
15.7%
54.8%
51.3%
$23,840
23,713
6,045
6,432
735.5
449.4
377.2
6.43
6.86
37.7%
5.7%
75.23
n.a.
13.0%
16.0%
54.7%
52.2%
1 Effective November 1, 2011, The Toronto-Dominion Bank (the “Bank” or “TD”) prepares
its consolidated financial statements in accordance with International Financial Reporting
Standards (IFRS), the current generally accepted accounting principles (GAAP), and refers
to results prepared in accordance with IFRS as the ”reported” results. The Bank also utilizes
non-GAAP financial measures to arrive at “adjusted” results (i.e. reported results excluding
“items of note”, net of income taxes) to assess each of its businesses and measure overall
Bank performance. See “How the Bank Reports” in the accompanying Management’s
Discussion and Analysis (MD&A) for further explanation, a list of the items of note and a
reconciliation of non-GAAP financial measures. The Bank’s financial results for fiscal 2011
have been presented in accordance with IFRS for comparative purposes in the Bank’s 2013
Annual Consolidated Financial Statements and MD&A (unless otherwise noted). Accordingly,
the calculation of growth rates include balances in accordance with Canadian GAAP for
the 2009 to 2010 financial years and balances in accordance with IFRS for 2011 to 2013.
“Five-year CAGR” is the compound annual growth rate calculated from 2008 to 2013 on
an adjusted basis.
Canadian peers include Royal Bank of Canada, Scotiabank, Bank of Montreal and Canadian
Imperial Bank of Commerce.
2 Comscore reporting current as of October 31, 2013 based on an audience of approximately
23 million Canadian mobile subscribers above the age of 13.
3 Reference to retail earnings include the total adjusted earnings of the Canadian Personal and
Commercial Banking, Wealth and Insurance and US Personal and Commercial Banking segments.
4 On September 16th 2013, TD, Aimia Inc., and Canadian Imperial Bank of Commerce (CIBC)
confirmed that they have signed agreements under which TD will become the primary issuer of
Aeroplan Visa credit cards on January 1, 2014. TD has also entered into an agreement to acquire
approximately 50% of the existing Aeroplan credit card portfolio from CIBC. The acquisition is
expected to close in the first quarter of fiscal 2014, subject to customary closing conditions.
5 These rankings are based on the 9 months ending September 30, 2013. Equity Block Trading
Rankings is based on IRESS Market Data. Corporate debt and government underwriting are
sourced from Bloomberg.
6 TD Canada Trust received the highest numerical score among the big five retail banks in the
proprietary J.D. Power and Associates 2013 Canadian Retail Banking Customer Satisfaction
StudySM. Study based on 21,815 total responses. Proprietary study results are based on
experiences and perceptions of consumers, and fielding was completed in May 2013. Your
experiences may vary. Visit jdpower.com.
U.S. peers include Citigroup, Bank of America, J.P. Morgan, Wells Fargo, PNC Financial and
7 Big 5 Retail banks includes Canadian peers: Royal Bank of Canada, Scotiabank, Bank of
U.S. Bancorp.
Montreal and CIBC plus TD.
For purposes of comparison with U.S. peers, dividends per share five-year compound
8 See footnote 1 for more information on “adjusted results”. Effective 2013, Insurance revenue
growth rate is calculated on a year-to-date basis from Q3 2008 to Q3 2013.
Total Shareholder Return based on Bloomberg for the period ended Oct. 31, 2013
“TD’s Premium Retail Earnings Mix” is based on adjusted results.
“Canadian Retail” earnings are the total adjusted earnings of the Canadian Personal and
Commercial Banking and Wealth and Insurance segments excluding the TD Ameritrade Holding
Corporation pickup. “U.S. Retail” earnings are the total adjusted earnings of U.S. Personal and
Commercial Banking segment and TD Ameritrade Holding Corporation pickup.
and Insurance claims and related expenses are presented on a gross basis. Comparative
amounts, including certain ratios, have been recast to conform with the current presentation.
9 Effective 2013, the Bank implemented the Basel III regulatory framework. As a result,
the Bank began reporting the Common Equity Tier 1 capital ratio in accordance with the
“all-in” methodology.
10 Effective 2013, amounts are calculated in accordance with the Basel III regulatory framework,
and are presented based on the “all-in” methodology. Prior to 2013, amounts were calculated
in accordance with the Basel II regulatory framework. Prior to 2012, amounts were based
on Canadian GAAP.
2
TD BANK GROU P AN NUAL REPO RT 20 13 YEAR A T A GLAN CE
Performance Indicators
Performance indicators focus effort, communicate our priorities and benchmark TD’s performance as we
strive to be The Better Bank. The following table highlights our performance against these indicators.
2013 PERFORMANCE INDICATORS
RESULTS 1
FINANCIAL
• Deliver above-peer-average total shareholder return2
• Grow earnings per share (EPS) by 7 to 10 %
• Deliver above-peer-average return on risk-weighted assets
BUSINESS OPERATIONS
• Grow revenue faster than expenses
• Invest in core businesses to enhance customer experience
CUSTOMER
• Improve Customer Experience Index (CEI)5 scores
• Invest in core businesses to enhance customer experience
EMPLOYEE
• Improve employee engagement score year-over-year
• Enhance the employee experience by:
– Listening to our employees
– Building employment diversity
– Providing a healthy, safe and flexible work environment
– Providing competitive pay, benefits and performance-
based compensation
– Investing in training and development
COMMUNITY
• Donate minimum of 1% of domestic pre-tax profits
• 22.3% vs. Canadian peer average of 24.2%
• 0.4% EPS growth (growth of 6.5% excluding Q3/13
Insurance charges)
• 2.50% (2.66% excluding Q3/13 insurance charges) vs.
Canadian peer average of 2.40%3
• Total revenue growth of 5.9% vs. total expense growth of 9.1%4
• Refer to “Business Segment Analysis” in the 2013 MD&A
for details
• CEI score 32.0% (target 32.6%)
• Refer to “Business Segment Analysis” in the 2013 MD&A
for details
• Employee engagement score6 was 4.17 in fall 2013 vs. 4.16
in fall 2012
• See TD’s 2013 Corporate Responsibility Report available
April 2014
• 1.3%7 or $50.9 million, in donations and community sponsorships
(five-year average) to charitable and not-for-profit organizations
in Canada vs. 1.3% or $45.3 million, in 2012
• Make positive contributions by:
– Supporting employees’ community involvement and
• US$22.89 million in donations and community sponsorships in the
U.S. vs. US$19.54 million in 2012
fundraising efforts
• £54,929 in donations and community sponsorships in the U.K.
– Supporting advancements in our areas of focus, which include
education and financial literacy, creating opportunities for
young people, creating opportunities for affordable housing
and the environment
vs. £64,023 in 2012
• $317,500 in domestic employee volunteer grants to 510 different
organizations
• $28.6 million, or 56.3% of our community giving, was directed
– Protecting and preserving the environment
to promote our areas of focus domestically
• $4.4 million distributed to 937 community environmental projects
through TD Friends of the Environment Foundation; an additional
$7.4 million from TD‘s community giving budget was used to
support environmental projects
1 Performance indicators that include an earnings component are based on TD’s full-
year adjusted results (except as noted) as explained in “How the Bank Reports” in
the Bank’s 2013 MD&A. For peers, earnings have been adjusted on a comparable
basis to exclude identified non-underlying items.
2 Total shareholder return is measured on a one-year basis from November 1, 2012,
to October 31, 2013.
4 Effective 2013, Insurance revenue and Insurance claims and related expenses are
presented on a gross basis. Comparative amounts have been restated to conform
with the current presentation.
5 CEI is a measurement program that tracks TD customers’ loyalty and advocacy.
6 Scale for employee engagement score is from one to five.
7 Calculated based on Canadian cash donations/five-year rolling average domestic
3 Return on risk-weighted assets measured year-to-date as at October 31, 2013,
net income before tax.
for comparison purposes. TD’s return on risk-weighted assets for 2013 was 2.50%
(2.66% excluding Q3/13 Insurance charges).
TD BANK GROUP ANNUAL RE POR T 2 0 13 PERFORM ANCE INDICATORS
3
Group President and CEO’s Message
TD continued to grow, sharpen its competitive edge, and extend its leadership position in 2013. Once again,
our retail-focused business model delivered strong performances despite continued challenges in our
operating environment. Our adjusted earnings of over $7.1 billion reflected record results in several
businesses – accounting for 85 per cent of our total earnings – which helped offset other areas impacted
by market volatility and extreme weather. We provided excellent value to our shareholders with two
dividend increases in 2013, representing an increase of 12% in dividends paid since last year. The market
rewarded our performance, as TD’s stock price closed the year at an all-time high. In December 2013,
we announced a stock dividend, which has the same effect as a two-for-one split of our common shares.
TD’s share price has increased 170% since the last stock split in 1999.
THE BETTER BANK IN 2013 AND BEYOND
TD’s diverse mix of revenue streams enabled us to weather a bumpy
operating environment this year, and our business model enabled us to
continue to invest for the future. Investments in the mobile and online
space are now helping TD define what it means to be The Better Bank
in the digital age. And we continue to stand out in the industry as the
best in customer service, with a number of impressive recognitions on
both sides of the border.
We had bumps of our own in 2013: in the immediate aftermath
of the Alberta floods, as well as with our auto insurance business in
Ontario. As always, the key is in the recovery. Have we learned from
these experiences? Can we get better at what we do, and how we
do it? In all instances, we can – and we will.
In 2013 we validated the competitive advantages we derive with our
better business model:
• Build our franchise around our customers’ wants and needs, deliver
better experiences, and make banking convenient.
• Stay true to the great traditions of banking, creating real value
in the real economy.
• Embrace values that foster a unique, inclusive performance culture
that attracts the best, and makes our people the best.
• Compete by managing risks better. And keep reinvesting in our
businesses, with a primary focus on organic growth.
HOW OUR BUSINESSES PERFORMED
Our Canadian retail bank delivered record adjusted earnings of
$3.8 billion for the year. We solidified our leadership position in credit
cards following this year’s announcement that TD will be the primary
issuer of Aeroplan Visa credit cards in 2014. TD Canada Trust earned
its eighth consecutive J.D. Power Award in customer satisfaction.
Our U.S. retail bank set a target of $1.6 billion in earnings by
2013. We delivered, and did so in a period of tough operating condi-
tions for banks. Much of our success stems from a better organic busi-
ness model, which has seen, for instance, TD become the fifth-largest
bank in New York City. J.D. Power also recognized our leadership in
retail banking customer satisfaction in Florida, and small business
banking customer satisfaction in the Northeast.
Our Wealth business, including TD Ameritrade, delivered record
earnings of $937 million. We completed the acquisition of Epoch
Holding Corporation, a successful asset management firm based in
New York. This strengthened our U.S. business, and expanded our
offering for our institutional and retail clients in Canada. For the fifth
consecutive year, TD Ameritrade grew its net new client assets at a
double-digit rate, faster than any of its publicly-traded peers.
Our Insurance business had a challenging year, delivering earnings of
$216 million. We faced charges resulting from a combination of severe
weather-related impacts and increased general insurance claims.
However the fundamentals of the business are strong, and we continue
to see Insurance as a key part of our strategy.
Our Wholesale business contributed $648 million this year, a
weaker result than last year due to lower security gains, continued
economic instability, which impacted corporate and investor activities.
We remain confident in following a strategy based on adding value
for our clients, integrated with TD’s brand and values, and growing
aggressively within our risk appetite.
LOOKING FORWARD
As you know, this is my last letter to shareholders. I want to thank you
for your continued confidence, and thank TD’s Board of Directors for
their generous support. But mostly I want to thank our employees who
have shown the world what it means to be TD.
All transitions involve change, and change is necessary. Great transi-
tions involve change with continuity of the things that matter, and
I am confident we will see a continuity of what makes TD great. My
successor, Bharat Masrani, has been my business partner almost since
the day I arrived at TD. Both Bharat and I know that without our great
leaders and fabulous team we would not have built The Better Bank.
We are extremely excited about our journey ahead.
Ed Clark
Group President and Chief Executive Officer
4
TD BANK GROU P AN NUAL REPO RT 20 13 GROU P PR ESID ENT AND CE O’S M ESSA GE
Chairman of the Board’s Message
While 2013 presented a challenging environment, TD continued to deliver on its vision to be The Better Bank,
thanks to strong leadership, a sound business model and a dedicated team of employees. TD reported
strong results in Canadian retail banking and Wealth in 2013, and hit an important milestone in the U.S.
personal and commercial bank, delivering adjusted earnings of US$1.6 billion in that business. Achieving
this goal was particularly impressive given regulatory changes that significantly impacted our U.S. personal
banking revenues in recent years. For the bank overall, results were flat to last year, mainly due to challenges
faced by the Insurance business. Nonetheless, TD was able to maintain a strong capital position and raised
the dividend on TD’s common shares twice in 2013.
CONTINUITY OF LEADERSHIP
In 2013, Ed Clark announced his decision to retire as Group President
and CEO on November 1, 2014. Ed’s leadership has been the driving
force behind the distinctive TD culture, focused on providing legendary
customer service and creating a unique and inclusive workplace, while
delivering value to shareholders. We are pleased that he will remain on
the board until the 2015 AGM.
Ed’s announcement came in the context of an ongoing succession
planning process overseen by the board. In addition to announcing that
Bharat Masrani would serve as Chief Operating Officer beginning July 1,
2013 and will become Group President and CEO on November 1, 2014,
we also announced a series of appointments that defined the senior
executive team who will lead the bank going forward. We are confident
that Bharat, along with the leadership team, will provide continuity of
our strategy, culture and values.
BOARD COMPOSITION
Former Chairman John Thompson retired from the board this year. We
thank him for his significant contributions over his 24 years as director,
including seven years as Chair. We are pleased to welcome David Kepler
to TD’s board. We expect to benefit from David’s many years of experi-
ence with large technology systems and operational risk management,
along with his broad senior executive background.
A PRIORITY ON CORPORATE GOVERNANCE
By continuing to place a high priority on robust corporate governance
practices, TD ensures our shareholders are well served through the
board’s counsel on matters that include risk management, strategy
and talent. TD continues to receive awards for corporate governance,
including this year’s Corporate Reporting Award of Excellence in the
Corporate Governance category from the Chartered Professional
Accountants Canada.
THE VIEW AHEAD
While the first-order effects of the financial crisis are behind us, its
consequences linger to create a challenging and highly competitive
operating environment. The board has confidence that TD’s leadership,
strategy and people will enable the bank to continue its high level of
performance for all stakeholders. I’d like to recognize the efforts of
TD’s employees across the enterprise, whose great work is a key
contributor to the bank’s success. TD employees show remarkable
commitment to our customers and communities, as demonstrated by
their outstanding efforts to help the Alberta communities that experi-
enced serious flooding in the summer of 2013.
On behalf of the board, I thank our shareholders for their ongoing
support. We look forward to continuing to earn your trust in 2014.
THE BOARD OF DIRECTORS
AND ITS COMMITTEES
Our directors as at December 4, 2013 are listed
below. Our Proxy Circular for the 2014 Annual
Meeting will set out the director candidates
proposed for election at the meeting and
additional information about each candidate
including education, other public board
memberships held in the past five years,
areas of expertise/experience, TD committee
membership, stock ownership and attendance
at Board and committee meetings.
William E. Bennett
Corporate Director and
former President and
Chief Executive Officer,
Draper & Kramer, Inc.,
Chicago, Illinois
Hugh J. Bolton
Non-Executive Chair
of the Board,
EPCOR Utilities Inc.,
Edmonton, Alberta
John L. Bragg
Chairman, President
and Co-Chief Executive
Officer,
Oxford Frozen Foods
Limited,
Oxford, Nova Scotia
Amy W. Brinkley
Consultant, AWB
Consulting, LLC
Charlotte,
North Carolina
W. Edmund Clark
Group President and
Chief Executive Officer,
The Toronto-Dominion
Bank,
Toronto, Ontario
Brian M. Levitt
Chairman of the Board
Colleen A. Goggins
Former Worldwide
Chairman,
Consumer Group,
Johnson & Johnson,
Princeton, New Jersey
David E. Kepler
Executive Vice President,
Business Services
Chief Sustainability
Officer and Chief
Information Officer
The Dow Chemical
Company
Midland, Michigan
Henry H. Ketcham
Executive Chairman,
West Fraser Timber
Co. Ltd.,
Vancouver,
British Columbia
Brian M. Levitt
Chairman of the Board,
The Toronto-Dominion
Bank and Non-Executive
Co-Chair,
Osler, Hoskin &
Harcourt LLP,
Montreal, Quebec
Harold H. MacKay
Counsel,
MacPherson Leslie &
Tyerman LLP,
Regina, Saskatchewan
Karen E. Maidment
Corporate Director
and former Chief
Financial and
Administrative Officer,
BMO Financial Group
Cambridge, Ontario
Irene R. Miller
Chief Executive Officer,
Akim, Inc.,
New York, New York
Nadir H. Mohamed
Former President and
Chief Executive Officer,
Rogers
Communications Inc.,
Toronto, Ontario
Wilbur J. Prezzano
Corporate Director and
Retired Vice Chairman,
Eastman Kodak
Company,
Charleston,
South Carolina
Helen K. Sinclair
Chief Executive Officer,
BankWorks Trading Inc.,
Toronto, Ontario
TD BANK GROUP ANNUAL REP O RT 20 1 3 C H AIR MA N OF TH E BOARD’ S MESSAGE
5
COMMITTEE
MEMBERS*
KEY RESPONSIBILITIES*
Corporate
Governance
Committee
Human Resources
Committee
Risk Committee
Audit Committee
Brian M. Levitt
(Chair)
William E. Bennett
Harold H. MacKay
Karen M. Maidment
Wilbur J. Prezzano
Wilbur J. Prezzano
(Chair)
Amy W. Brinkley
Henry H. Ketcham
Brian M. Levitt
Nadir H. Mohamed
Helen K. Sinclair
Karen E. Maidment
(Chair)
William E. Bennett
Hugh J. Bolton
Amy W. Brinkley
Colleen A. Goggins
David E. Kepler
Harold H. MacKay
Helen K. Sinclair
William E. Bennett**
(Chair)
Hugh J. Bolton**
John L. Bragg
Harold H. MacKay
Karen E. Maidment**
Irene R. Miller**
* As at December 4, 2013
** Designated Audit Committee Financial Expert
Responsibility for corporate governance of TD:
• Set the criteria for selecting new directors and the Board’s approach to director independence;
•
Identify individuals qualified to become Board members and recommend to the Board the director
nominees for the next annual meeting of shareholders;
Develop and, where appropriate, recommend to the Board a set of corporate governance principles,
including a code of conduct and ethics, aimed at fostering a healthy governance culture at TD;
•
• Review and recommend the compensation of the non-management directors of TD;
•
Satisfy itself that TD communicates effectively with its shareholders, other interested parties and the
public through a responsive communication policy;
• Facilitate the evaluation of the Board and Committees;
• Oversee an orientation program for new directors and continuing education for directors.
Responsibility for management’s performance evaluation, compensation and succession planning:
• Discharge, and assist the Board in discharging, the responsibility of the Board relating to leadership,
•
•
•
•
•
human resource planning and compensation as set out in this committee’s charter;
Set performance objectives for the CEO which encourage TD’s long-term financial success and regularly
measure the CEO’s performance against these objectives;
Recommend compensation for the CEO to the Board for approval, and determine compensation for
certain senior officers in consultation with independent advisors;
Oversee a robust talent planning process that provides succession planning for the CEO role and other
senior roles. Review candidates for CEO and recommend the best candidate to the Board as part of the
succession planning process for the position of CEO and periodically review TD’s organization structure
for alignment with business objectives and succession planning requirements;
Oversee the selection, evaluation, development and compensation of other members of senior management;
Produce a report on compensation for the benefit of shareholders, which is published in TD’s annual proxy
circular, and review, as appropriate, any other related major public disclosures concerning compensation.
Supervising the management of risk of TD:
•
Approve the Enterprise Risk Framework and related risk category frameworks and policies that establish
the appropriate approval levels for decisions and other measures to manage risk to which TD is exposed;
Review and recommend TD’s Risk Appetite Statement and related metrics for approval by the Board and
monitoring TD’s major risks as set out in the Enterprise Risk Framework;
Review TD’s risk profile against risk appetite metrics;
Provide a forum for “big-picture” analysis of an enterprise view of risk including considering trends and
emerging risks.
•
•
•
Supervising the quality and integrity of TD’s financial reporting:
•
•
•
Oversee reliable, accurate and clear financial reporting to shareholders;
Oversee internal controls – the necessary checks and balances must be in place;
Be directly responsible for the selection, compensation, retention and oversight of the work of the
shareholders’ auditor – the shareholders’ auditor reports directly to this committee;
Listen to the shareholders’ auditor, chief auditor, chief compliance officer and global anti-money
laundering officer, and evaluate the effectiveness and independence of each;
Oversee the establishment and maintenance of processes that ensure TD is in compliance with the laws
and regulations that apply to it, as well as its own policies;
Act as the Audit Committee and Conduct Review Committee for certain subsidiaries of TD that are
federally-regulated financial institutions and insurance companies;
Receive reports on and approve, if appropriate, certain transactions with related parties.
•
•
•
•
6
TD BANK GROU P AN NUAL REPO RT 20 13 CHAIR MA N OF THE BOA RD ’S M ESS AGE
Management’s Discussion and Analysis
This Management’s Discussion and Analysis (MD&A) is presented to enable readers to assess material
changes in the financial condition and operating results of TD Bank Group (TD or the Bank) for the year
ended October 31, 2013, compared with the corresponding period in the prior years. This MD&A should
be read in conjunction with our audited Consolidated Financial Statements and related Notes for the year
ended October 31, 2013. This MD&A is dated December 4, 2013. Unless otherwise indicated, all amounts
are expressed in Canadian dollars and have been primarily derived from the Bank’s annual Consolidated
Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS) as
issued by the International Accounting Standards Board (IASB). Note that certain comparative amounts
have been reclassified to conform to the presentation adopted in the current year.
FINANCIAL RESULTS OVERVIEW
Net Income
Revenue
Expenses
Taxes
Quarterly Financial Information
BUSINESS SEGMENT ANALYSIS
Business Focus
Canadian Personal and Commercial Banking
Wealth and Insurance
U.S. Personal and Commercial Banking
Wholesale Banking
Corporate
2012 FINANCIAL RESULTS OVERVIEW
Summary of 2012 Performance
2012 Financial Performance by Business Line
8
12
13
17
19
20
22
25
28
32
35
38
39
40
GROUP FINANCIAL CONDITION
Balance Sheet Review
Credit Portfolio Quality
Capital Position
Securitization and Off-Balance Sheet Arrangements
Related-Party Transactions
Financial Instruments
RISK FACTORS AND MANAGEMENT
Risk Factors That May Affect Future Results
Managing Risk
ACCOUNTING STANDARDS AND POLICIES
Critical Accounting Estimates
Current and Future Changes in Accounting Policies
Controls and Procedures
ADDITIONAL FINANCIAL INFORMATION
42
43
57
64
66
66
67
70
102
104
105
106
Additional information relating to the Bank, including the Bank’s Annual Information Form, is available on the Bank’s website at http://www.td.com, on SEDAR at
http://www.sedar.com, and on the U.S. Securities and Exchange Commission’s website at http://www.sec.gov (EDGAR filers section).
Caution Regarding Forward-Looking Statements
From time to time, the Bank makes written and/or oral forward-looking statements, including in this document, in other filings with Canadian regulators or the U.S.
Securities and Exchange Commission, and in other communications. In addition, representatives of the Bank may make forward-looking statements orally to analysts,
investors, the media and others. All such statements are made pursuant to the “safe harbour” provisions of, and are intended to be forward-looking statements under,
applicable Canadian and U.S. securities legislation, including the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not
limited to, statements made in this document, the Bank’s 2013 MD&A under the headings “Economic Summary and Outlook”, for each business segment “Business
Outlook and Focus for 2014” and in other statements regarding the Bank’s objectives and priorities for 2014 and beyond and strategies to achieve them, and the
Bank’s anticipated financial performance. Forward-looking statements are typically identified by words such as “will”, “should”, “believe”, “expect”, “anticipate”,
“intend”, “estimate”, “plan”, “may”, and “could”.
By their very nature, these forward-looking statements require the Bank to make assumptions and are subject to inherent risks and uncertainties, general and
specific. Especially in light of the uncertainty related to the physical, financial, economic, political, and regulatory environments, such risks and uncertainties – many of
which are beyond the Bank’s control and the effects of which can be difficult to predict – may cause actual results to differ materially from the expectations expressed
in the forward-looking statements. Risk factors that could cause such differences include: credit, market (including equity, commodity, foreign exchange, and interest
rate), liquidity, operational (including technology), reputational, insurance, strategic, regulatory, legal, environmental, capital adequacy, and other risks. Examples of
such risk factors include the general business and economic conditions in the regions in which the Bank operates; disruptions in or attacks (including cyber attacks)
on the Bank’s information technology, internet, network access or other voice or data communications systems or services; the evolution of various types of fraud
to which the Bank is exposed; the failure of third parties to comply with their obligations to the Bank or its affiliates relating to the care and control of information;
the impact of recent legislative and regulatory developments; the overall difficult litigation environment, including in the United States; changes to the Bank’s credit
ratings; changes in currency and interest rates; increased funding costs for credit due to market illiquidity and competition for funding; and the occurrence of natural
and unnatural catastrophic events and claims resulting from such events. We caution that the preceding list is not exhaustive of all possible risk factors and other
factors could also adversely affect the Bank’s results. For more detailed information, please see the “Risk Factors and Management” section of the 2013 MD&A,
as may be updated in subsequently filed quarterly reports to shareholders and news releases (as applicable) related to any transactions discussed under the heading
“Significant Events” in the relevant MD&A, which applicable releases may be found on www.td.com. All such factors should be considered carefully, as well as other
uncertainties and potential events, and the inherent uncertainty of forward-looking statements, when making decisions with respect to the Bank and we caution
readers not to place undue reliance on the Bank’s forward-looking statements.
Material economic assumptions underlying the forward-looking statements contained in this document are set out in the 2013 MD&A under the headings “Economic
Summary and Outlook”, and for each business segment, “Business Outlook and Focus for 2014”, each as updated in subsequently filed quarterly reports to shareholders.
Any forward-looking statements contained in this document represent the views of management only as of the date hereof and are presented for the purpose of
assisting the Bank’s shareholders and analysts in understanding the Bank’s financial position, objectives and priorities and anticipated financial performance as at and
for the periods ended on the dates presented, and may not be appropriate for other purposes. The Bank does not undertake to update any forward-looking statements,
whether written or oral, that may be made from time to time by or on its behalf, except as required under applicable securities legislation.
7
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS FINANCIAL RESULTS OVERVIEW
CORPORATE OVERVIEW
The Toronto-Dominion Bank and its subsidiaries are collectively known as
TD Bank Group. TD is the sixth largest bank in North America by branches
and serves over 22 million customers in four key businesses operating
in a number of locations in financial centres around the globe: Canadian
Personal and Commercial Banking, Wealth and Insurance, U.S. Personal
and Commercial Banking, and Wholesale Banking. TD also ranks among
the world’s leading online financial services firms, with approximately
8 million active online and mobile customers. TD had $862.5 billion in
assets on October 31, 2013. The Toronto-Dominion Bank trades under
the symbol “TD” on the Toronto and New York Stock Exchanges.
HOW THE BANK REPORTS
The Bank prepares its Consolidated Financial Statements in accordance
with IFRS, the current generally accepted accounting principles
(GAAP), and refers to results prepared in accordance with IFRS
as “reported” results. The Bank also utilizes non-GAAP financial
measures referred to as “adjusted” results to assess each of its busi-
nesses and to measure the overall Bank performance. To arrive at
adjusted results, the Bank removes “items of note”, net of income
taxes, from reported results. The items of note relate to items which
management does not believe are indicative of underlying business
performance. The Bank believes that adjusted results provide the
reader with a better understanding of how management views the
Bank’s performance. The items of note are listed in the table on the
following page. As explained, adjusted results are different from
reported results determined in accordance with IFRS. Adjusted results,
items of note, and related terms used in this document are not
defined terms under IFRS and, therefore, may not be comparable
to similar terms used by other issuers.
The following table provides the operating results – reported for the Bank.
T A B L E 1
OPERATING RESULTS – Reported
(millions of Canadian dollars)
Net interest income
Non-interest income1
Total revenue1
Provision for credit losses
Insurance claims and related expenses1
Non-interest expenses
Income before income taxes and equity in net income of an investment in associate
Provision for income taxes
Equity in net income of an investment in associate, net of income taxes
Net income – reported
Preferred dividends
Net income available to common shareholders and non-controlling interests in subsidiaries
Attributable to:
Non-controlling interests
Common shareholders
1 Effective 2013, Insurance revenue and Insurance claims and related expenses
are presented on a gross basis on the Consolidated Statement of Income.
Comparative amounts have been reclassified to conform with this presentation.
2013
$ 16,078
11,184
27,262
1,631
3,056
15,042
7,533
1,143
272
6,662
185
$ 6,477
2012
$ 15,026
10,520
25,546
1,795
2,424
13,998
7,329
1,092
234
6,471
196
$ 6,275
2011
$ 13,661
10,179
23,840
1,490
2,178
13,047
7,125
1,326
246
6,045
180
$ 5,865
$
105
6,372
$
104
6,171
$
104
5,761
8
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 2
NON-GAAP FINANCIAL MEASURES – Reconciliation of Adjusted to Reported Net Income
(millions of Canadian dollars)
2013
2012
2011
Operating results – adjusted
Net interest income1
Non-interest income2, 3
Total revenue
Provision for credit losses4
Insurance claims and related expenses3
Non-interest expenses5
Income before income taxes and equity in net income of an investment in associate
Provision for income taxes6
Equity in net income of an investment in associate, net of income taxes7
Net income – adjusted
Preferred dividends
Net income available to common shareholders and non-controlling interests in subsidiaries – adjusted
Attributable to:
Non-controlling interests in subsidiaries, net of income taxes
Net income available to common shareholders – adjusted
Adjustments for items of note, net of income taxes
Amortization of intangibles8
Fair value of derivatives hedging the reclassified available-for-sale securities portfolio9
Integration charges and direct transaction costs relating to U.S. Personal and Commercial Banking acquisitions10
Fair value of credit default swaps hedging the corporate loan book, net of provision for credit losses11
Integration charges, direct transaction costs, and changes in fair value of contingent consideration
relating to the Chrysler Financial acquisition12
Integration charges and direct transaction costs relating to the acquisition of the credit card portfolio of MBNA Canada13
Litigation and litigation-related charge/reserve14
Reduction of allowance for incurred but not identified credit losses15
Positive impact due to changes in statutory income tax rates16
Impact of Alberta flood on the loan portfolio17
Impact of Superstorm Sandy18
Restructuring charges19
Set-up costs in preparation for the previously announced affinity relationship with Aimia with respect to
Aeroplan Visa credit cards and the related acquisition of accounts20
Total adjustments for items of note
Net income available to common shareholders – reported
$ 16,078
11,113
27,191
1,606
3,056
14,363
8,166
1,334
326
7,158
185
6,973
105
6,868
(232)
57
–
–
–
(92)
(100)
–
–
(19)
–
(90)
$ 15,062
10,615
25,677
1,903
2,424
13,162
8,188
1,404
291
7,075
196
6,879
104
6,775
(238)
(89)
(9)
–
(17)
(104)
(248)
120
18
–
(37)
–
$ 13,661
10,052
23,713
1,490
2,178
12,373
7,672
1,545
305
6,432
180
6,252
104
6,148
(391)
128
(82)
13
(55)
–
–
–
–
–
–
–
(20)
(496)
$ 6,372
–
(604)
$ 6,171
–
(387)
$ 5,761
1 Adjusted net interest income excludes the following items of note: 2012 –
7 Adjusted equity in net income of an investment in associate excludes the following
$36 million ($27 million after tax) of certain charges against revenue related
to promotional-rate card origination activities, as explained in footnote 13.
2 Adjusted non-interest income excludes the following items of note: $71 million gain
due to change in fair value of derivatives hedging the reclassified available-for-sale
(AFS) securities portfolio, as explained in footnote 9; 2012 – $2 million loss due to
change in fair value of credit default swaps (CDS) hedging the corporate loan book,
as explained in footnote 11; $89 million loss due to change in fair value of derivatives
hedging the reclassified AFS securities portfolio; $3 million loss due to change in fair
value of contingent consideration relating to Chrysler Financial, as explained in
footnote 12, $1 million loss due to the impact of Superstorm Sandy, as explained
in footnote 18; 2011 – $19 million gain due to change in fair value of CDS hedging
the corporate loan book; $158 million gain due to change in fair value of derivatives
hedging the reclassified AFS securities portfolio; $50 million loss due to change in fair
value of contingent consideration relating to Chrysler Financial.
3 Effective 2013, Insurance revenue and Insurance claims and related expenses are
presented on a gross basis on the Consolidated Statement of Income. Compara-
tive amounts have been reclassified to conform with this presentation.
4 Adjusted provision for credit losses (PCL) excludes the following items of note:
2013 – $25 million due to the impact of the Alberta flood on the loan portfolio,
as explained in footnote 17; 2012 – $162 million in adjustments to allowance for
incurred but not identified credit losses in Canadian Personal and Commercial
Banking, as explained in footnote 15; $54 million due to the impact of Super-
storm Sandy, as explained in footnote 18.
5 Adjusted non-interest expenses exclude the following items of note: 2013 –
$272 million amortization of intangibles, as explained in footnote 8; $125 million
of integration charges and direct transaction costs relating to the acquisition of the
MBNA Canada credit card portfolio, as explained in footnote 13; $127 million of
litigation and litigation-related charges, as explained in footnote 14; $129 million
due to the initiatives to reduce costs, as explained in footnote 19; $27 million of
set-up costs in preparation for the affinity relationship with Aimia Inc. with respect to
Aeroplan credit cards, as explained in footnote 20; 2012 – $277 million amortization
of intangibles; $11 million of integration charges related to U.S. Personal and
Commercial Banking acquisitions, as explained in footnote 10; $24 million of integra-
tion charges and direct transaction costs relating to the Chrysler Financial acquisition,
as explained in footnote 12; $104 million of integration charges and direct transaction
costs relating to the acquisition of the MBNA Canada credit card portfolio;
$413 million of litigation and litigation related charges; $7 million due to the impact
of Superstorm Sandy, as explained in footnote 18; 2011 – $496 million amortization
of intangibles; $141 million of integration charges related to U.S. Personal and
Commercial Banking acquisitions; $37 million of integration charges and direct
transaction costs relating to the Chrysler Financial acquisition.
6 For a reconciliation between reported and adjusted provision for income taxes,
see the ‘Non-GAAP Financial Measures – Reconciliation of Reported to Adjusted
Provision for Income Taxes’ table in the “Income Taxes” section of this document.
items of note: 2013 – $54 million amortization of intangibles, as explained in
footnote 8; 2012 – $57 million amortization of intangibles; 2011 – $59 million
amortization of intangibles.
8 Amortization of intangibles primarily relates to the TD Banknorth acquisition in
2005 and its privatization in 2007, the acquisitions by TD Banknorth of Hudson
United Bancorp in 2006 and Interchange Financial Services in 2007, the Commerce
acquisition in 2008, the amortization of intangibles included in equity in net
income of TD Ameritrade, the acquisition of the credit card portfolio of MBNA
Canada in 2012, the acquisition of Target Corporation’s U.S. credit card portfolio in
2013, and the Epoch Investment Partners, Inc. acquisition in 2013. Amortization of
software is recorded in amortization of other intangibles; however, amortization
of software is not included for purposes of items of note, which only includes
amortization of other intangibles acquired as a result of asset acquisitions and
business combinations.
9 During 2008, as a result of deterioration in markets and severe dislocation in the
credit market, the Bank changed its trading strategy with respect to certain
trading debt securities. Since the Bank no longer intended to actively trade in
these debt securities, the Bank reclassified these debt securities from trading to
the AFS category effective August 1, 2008. As part of the Bank’s trading strategy,
these debt securities are economically hedged, primarily with CDS and interest
rate swap contracts. This includes foreign exchange translation exposure related
to the debt securities portfolio and the derivatives hedging it. These derivatives
are not eligible for reclassification and are recorded on a fair value basis with
changes in fair value recorded in the period’s earnings. Management believes that
this asymmetry in the accounting treatment between derivatives and the reclassified
debt securities results in volatility in earnings from period to period that is not
indicative of the economics of the underlying business performance in Wholesale
Banking. The Bank may from time to time replace securities within the portfolio
to best utilize the initial, matched fixed term funding. As a result, the derivatives
are accounted for on an accrual basis in Wholesale Banking and the gains and
losses related to the derivatives in excess of the accrued amounts are reported in
the Corporate segment. Adjusted results of the Bank exclude the gains and losses
of the derivatives in excess of the accrued amount.
10 As a result of U.S. Personal and Commercial Banking acquisitions, the Bank incurred
integration charges and direct transaction costs. Integration charges consist of
costs related to information technology, employee retention, external professional
consulting charges, marketing (including customer communication and rebranding),
integration-related travel costs, employee severance costs, the costs of amending
certain executive employment and award agreements, contract termination fees
and the write-down of long-lived assets due to impairment. Direct transaction
costs are expenses directly incurred in effecting a business combination and consist
primarily of finders’ fees, advisory fees, and legal fees. The first quarter of 2012
was the last quarter U.S. Personal and Commercial Banking included any further
integration charges or direct transaction costs as an item of note.
9
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
11 The Bank purchases CDS to hedge the credit risk in Wholesale Banking’s corporate
lending portfolio. These CDS do not qualify for hedge accounting treatment and
are measured at fair value with changes in fair value recognized in current period’s
earnings. The related loans are accounted for at amortized cost. Management
believes that this asymmetry in the accounting treatment between CDS and loans
would result in periodic profit and loss volatility which is not indicative of the
economics of the corporate loan portfolio or the underlying business performance
in Wholesale Banking. As a result, the CDS are accounted for on an accrual basis
in Wholesale Banking and the gains and losses on the CDS, in excess of the
accrued cost, are reported in the Corporate segment. When a credit event occurs
in the corporate loan book that has an associated CDS hedge, the PCL related to
the portion that was hedged through the CDS is netted against this item of note.
12 As a result of the Chrysler Financial acquisition in Canada and the U.S., the Bank
incurred integration charges and direct transaction costs. As well, the Bank expe-
rienced volatility in earnings as a result of changes in fair value of contingent
consideration. Integration charges consist of costs related to information technol-
ogy, employee retention, external professional consulting charges, marketing
(including customer communication and rebranding), integration-related travel
costs, employee severance costs, the costs of amending certain executive employ-
ment and award agreements, contract termination fees, and the write-down of
long-lived assets due to impairment. Direct transaction costs are expenses directly
incurred in effecting a business combination and consist primarily of finders’ fees,
advisory fees, and legal fees. Contingent consideration is defined as part of the
purchase agreement, whereby the Bank is required to pay additional cash consid-
eration in the event that amounts realized on certain assets exceed a pre-estab-
lished threshold. Contingent consideration is recorded at fair value on the date
of acquisition. Changes in fair value subsequent to acquisition are recorded in
the Consolidated Statement of Income. Adjusted earnings exclude the gains and
losses on contingent consideration in excess of the acquisition date fair value.
While integration charges and direct transaction costs related to this acquisition
were incurred for both Canada and the U.S., the majority of these charges relate
to integration initiatives undertaken for U.S. Personal and Commercial Banking.
The fourth quarter of 2012 was the last quarter U.S. Personal and Commercial
Banking included any further Chrysler Financial-related integration charges or
direct transaction costs as an item of note.
13 As a result of the acquisition of the credit card portfolio of MBNA Canada, as well
as certain other assets and liabilities, the Bank incurred integration charges and
direct transaction costs. Integration charges consist of costs related to information
technology, employee retention, external professional consulting charges, market-
ing (including customer communication, rebranding and certain charges against
revenue related to promotional-rate card origination activities), integration-related
travel costs, employee severance costs, the cost of amending certain executive
employment and award agreements, contract termination fees, and the write-
down of long-lived assets due to impairment. Direct transaction costs are
expenses directly incurred in effecting the business combination and consist
primarily of finders’ fees, advisory fees and legal fees. Integration charges and
direct transaction costs related to this acquisition are incurred by Canadian
Personal and Commercial Banking. The integration charges to date are higher
than what was anticipated when the transaction was announced. The elevated
spending is primarily due to additional costs incurred (other than the amounts
capitalized) to build out technology platforms for the business.
14 As a result of certain adverse judgments and settlements in the U.S. in 2012 and
after continued evaluation of this portfolio of cases throughout that year, the
Bank took prudent steps to determine, in accordance with applicable accounting
standards, that the litigation provision of $413 million ($248 million after tax)
was required. In 2013, the Bank further reassessed its litigation provisions and
determined that additional litigation and litigation-related charges of $97 million
($70 million after tax) and $30 million ($30 million after tax) were required
as a result of recent developments and settlements reached in the U.S.
15 Excluding the impact related to the credit card portfolio of MBNA Canada and
other consumer loan portfolios (which is recorded in Canadian Personal and
Commercial Banking), “Reduction of allowance for incurred but not identified credit
losses”, formerly known as “General allowance increase (release) in Canadian
Personal and Commercial Banking and Wholesale Banking” was $162 million
($120 million after tax) in fiscal 2012, all of which was attributable to the Whole-
sale Banking and non-MBNA related Canadian Personal and Commercial Banking
loan portfolios. Beginning in 2013, the change in the “allowance for incurred
but not identified credit losses” in the normal course of business is included in
Corporate segment net income and is no longer be recorded as an item of note.
16 This represents the impact of changes in the income tax statutory rate on net
deferred income tax balances.
17 In the third quarter of 2013, the Bank recorded a provision for credit losses of
$65 million ($48 million after tax) for residential loan losses from Alberta flooding.
In the fourth quarter of 2013, a provision of $40 million ($29 million after tax) was
released. The reduction in the provision reflects an updated estimate incorporating
more current information regarding the extent of damage, actual delinquencies in
impacted areas, and greater certainty regarding payments to be received under the
Alberta Disaster Recovery Program and from property and default insurance.
18 The Bank provided $62 million ($37 million after tax) in fiscal 2012 for certain
estimated losses resulting from Superstorm Sandy which primarily relate to an
increase in provision for credit losses, fixed asset impairments and charges against
revenue relating to fee reversals.
19 The Bank undertook certain measures commencing in the fourth quarter of 2013,
which are expected to continue through fiscal year 2014, to reduce costs in a
sustainable manner and achieve greater operational efficiencies. To implement
these measures, the Bank recorded a provision of $129 million ($90 million after
tax) for restructuring initiatives related primarily to retail branch and real estate
optimization initiatives.
20 On September 16, 2013, the Bank (i) confirmed that it had entered into an
agreement pursuant to which TD will become the primary issuer of Aeroplan
Visa credit cards commencing on January 1, 2014 (the “affinity relationship”);
and (ii) announced that the Bank will acquire approximately 50% of the existing
Aeroplan credit card portfolio from CIBC. During the fourth quarter of 2013,
in preparation for the affinity relationship with Aimia Inc. and the expected
acquisition of part of the CIBC credit card portfolio, the Bank incurred program
set-up costs related to information technology, external professional consulting,
marketing, training, and program management. These costs are included as an
item of note in the Canadian Personal and Commercial Banking segment.
T A B L E 3
RECONCILIATION OF REPORTED TO ADJUSTED EARNINGS PER SHARE (EPS)1
(Canadian dollars)
Basic earnings per share – reported
Adjustments for items of note2
Basic earnings per share – adjusted
Diluted earnings per share – reported
Adjustments for items of note2
Diluted earnings per share – adjusted
2013
$ 6.93
0.54
$ 7.47
$ 6.91
0.54
$ 7.45
2012
$ 6.81
0.66
$ 7.47
$ 6.76
0.66
$ 7.42
2011
$ 6.50
0.44
$ 6.94
$ 6.43
0.43
$ 6.86
1 EPS is computed by dividing net income available to common shareholders by the
weighted-average number of shares outstanding during the period.
2 For explanation of items of note, see the “Non-GAAP Financial Measures –
Reconciliation of Adjusted to Reported Net Income” table in the “Financial
Results Overview” section of this document.
T A B L E 4
AMORTIZATION OF INTANGIBLES, NET OF INCOME TAXES1
(millions of Canadian dollars)
Canada Trust
TD Bank, N.A.
TD Ameritrade (included in equity in net income of an investment in associate)
MBNA
Other
Software
Amortization of intangibles, net of income taxes
1 Amortization of intangibles, with the exception of software, are included as items
of note. For explanation of items of note, see the “Non-GAAP Financial Measures –
Reconciliation of Adjusted to Reported Net Income” table in the “Financial Results
Overview” section of this document.
10
2013
$
–
117
54
36
25
$ 232
176
$ 408
2012
$
–
122
57
33
26
$ 238
141
$ 379
2011
$ 168
134
59
–
30
$ 391
116
$ 507
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
ECONOMIC PROFIT AND RETURN ON COMMON EQUITY
The Bank’s methodology for allocating capital to its business segments
is aligned with the common equity capital requirements under Basel III
at a 7% Common Equity Tier 1 (CET1) ratio. The return measures for
business segments reflect a return on common equity methodology.
The Bank utilizes economic profit as a tool to measure shareholder
value creation. Economic profit is adjusted net income available to
common shareholders less a charge for average common equity. The
rate used in the charge for average common equity is the equity cost
of capital calculated using the capital asset pricing model. The charge
represents an assumed minimum return required by common share-
holders on the Bank’s common equity. The Bank’s goal is to achieve
positive and growing economic profit.
Adjusted return on common equity (ROE) is adjusted net income
available to common shareholders as a percentage of average common
equity. ROE is a percentage rate and is a variation of economic profit
which is a dollar measure. When ROE exceeds the equity cost of capital,
economic profit is positive.
Economic profit and adjusted ROE are non-GAAP financial measures
as these are not defined terms under IFRS. Readers are cautioned that
earnings and other measures adjusted to a basis other than IFRS do
not have standardized meanings under IFRS and, therefore, may not
be comparable to similar terms used by other issuers.
T A B L E 5
ECONOMIC PROFIT AND RETURN ON COMMON EQUITY
(millions of Canadian dollars, except as noted)
Average common equity
Average cumulative goodwill and other intangibles amortized, net of income taxes
Average common equity/Average invested capital
Rate charged for average common equity/Average invested capital
Charge for average common equity/Average invested capital
Net income available to common shareholders – reported
Items of note impacting income, net of income taxes2
Net income available to common shareholders – adjusted
Economic profit3
Return on common equity – adjusted/Return on invested capital
2013
Return on
common
equity
$ 45,676
n/a1
$ 45,676
2012
Return on
common
equity
$ 41,535
n/a1
$ 41,535
2011
Return on
invested
capital
$ 35,568
5,309
$ 40,877
9.0%
9.0%
9.0%
$ 4,111
$ 6,372
496
$ 6,868
$ 2,757
$ 3,738
$ 6,171
604
$ 6,775
$ 3,037
$ 3,679
$ 5,761
387
$ 6,148
$ 2,469
15.0%
16.3%
15.0%
1 Not applicable.
2 For explanations of items of note, see the “Non-GAAP Financial Measures –
Reconciliation of Adjusted to Reported net income” table in the “Financial
Results Overview” section of this document.
3 Economic profit is calculated based on average common equity. Prior to 2012,
economic profit was calculated based on average invested capital. Had this change
been done on a retroactive basis, economic profit for the Bank, calculated based
on average common equity, would have been $2,947 million for 2011.
SIGNIFICANT EVENTS IN 2013
Acquisition of Target Corporation’s U.S. Credit Card Portfolio
On March 13, 2013, the Bank, through its subsidiary, TD Bank USA,
N.A., acquired substantially all of Target Corporation’s existing U.S.
Visa and private label credit card portfolios (Target), with a gross
outstanding balance of $5.8 billion. TD Bank USA, N.A. also entered
into a seven-year program agreement under which it will become the
exclusive issuer of Target-branded Visa and private label consumer
credit cards to Target Corporation’s U.S. customers.
Under the terms of the program agreement, the Bank and Target
Corporation share in the profits generated by the portfolios. Target
Corporation is responsible for all elements of operations and customer
service, and bears most of the operating costs to service the assets.
The Bank controls risk management policies and regulatory compli-
ance, and bears all costs relating to funding the receivables for existing
Target Visa accounts and all existing and newly issued Target private
label accounts in the U.S. The Bank accounted for the purchase as an
asset acquisition. The results of the acquisition from the acquisition
date to October 31, 2013 have been recorded in the U.S. Personal
and Commercial Banking segment.
At the date of acquisition the Bank recorded the credit card receiv-
ables acquired at their fair value of $5.7 billion and intangible assets
totalling $98 million. The gross amount of revenue and credit losses
have been recorded on the Consolidated Statement of Income since
that date. Target Corporation shares in a fixed percentage of the
revenue and credit losses incurred. Target Corporation’s net share of
revenue and credit losses is recorded in Non-interest expenses on the
Consolidated Statement of Income and related receivables from, or
payables to, Target Corporation are recorded in Other assets or Other
liabilities, respectively, on the Consolidated Balance Sheet.
Acquisition of Epoch Investment Partners, Inc.
On March 27, 2013, the Bank acquired 100% of the outstanding equity of
Epoch Holding Corporation including its wholly-owned subsidiary Epoch
Investment Partners, Inc. (Epoch), a New York-based asset management
firm. Epoch was acquired for cash consideration of $674 million. Epoch
Holding Corporation shareholders received US$28 in cash per share.
The acquisition was accounted for as a business combination under the
purchase method. The results of the acquisition from the acquisition date
have been consolidated with the Bank’s results and are reported in the
Wealth and Insurance segment. As at March 27, 2013, the acquisition
contributed $34 million of tangible assets, and $9 million of liabilities.
The excess of consideration over the fair value of the acquired net assets
of $649 million has been allocated to customer relationship intangibles
of $149 million and goodwill of $500 million. Goodwill is not expected
to be deductible for tax purposes. For the year ended October 31, 2013,
the acquisition contributed $96 million to revenue and $2 million to
net income.
Sale of TD Waterhouse Institutional Services
On November 12, 2013, TD Waterhouse Canada Inc., a subsidiary of
the Bank, completed the sale of the Bank’s institutional services busi-
ness, known as TD Waterhouse Institutional Services, to a subsidiary
of National Bank of Canada. The transaction price was $250 million,
subject to certain price adjustment mechanisms. The effects of the sale
will be recorded in the first quarter of fiscal 2014.
11
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
Agreement with Aimia Inc. and Acquisition of certain CIBC
Aeroplan Credit Card Accounts
On August 12, 2013, the Bank and Aimia Inc. (Aimia) announced that
the Bank will become the primary credit card issuer for Aeroplan,
a loyalty program owned by Aimia, starting on January 1, 2014. On
September 16, 2013, the Bank, Aimia, and the Canadian Imperial Bank
of Commerce (CIBC) jointly announced agreements under which the
Bank will also acquire approximately 50% of CIBC’s existing Aeroplan
credit card portfolio, which will primarily include accounts held by
customers who do not have an existing retail banking relationship with
CIBC. The Bank expects to acquire approximately 550,000 cardholder
accounts, representing approximately $3 billion in card balances and
$20 billion in annual retail spend. The Bank will pay a purchase price
of par plus $50 million for the CIBC Aeroplan accounts. In addition,
the Bank will pay CIBC a further $112.5 million plus HST over three
years under a commercial subsidy agreement. Depending on the
migration of Aeroplan-branded credit card accounts between CIBC
and TD over the next five years, TD, Aimia, and CIBC have agreed to
make additional potential payments of up to $400 million. TD will be
responsible for, or entitled to receive, up to $300 million of these
potential payments.
Additionally, TD will make a $100 million upfront payment to Aimia
to assist in the development and maintenance of the new Distinction
program. The minimum miles purchase commitment is a five-year
volume commitment based on miles purchases by TD and CIBC. These
payments by TD, in aggregate, would not exceed $95 million. Also,
TD and Aimia will undertake a joint marketing spend of approximately
$140 million in the first four years of the program to support the new
Aeroplan Visa co-branded credit cards and program features.
The CIBC portfolio acquisition is subject to customary closing
conditions and is expected to close in the first quarter of fiscal 2014.
FINANCIAL RESULTS OVERVIEW
Net Income
AT A GLANCE OVERVIEW
• Reported net income was $6,662 million, an increase
of $191 million, or 3%, compared with last year.
• Adjusted net income was $7,158 million, an increase
of $83 million, or 1%, compared with last year.
Reported net income for the year was $6,662 million, an increase of
$191 million, or 3%, compared with $6,471 million last year. Adjusted
net income for the year was $7,158 million, an increase of $83 million,
or 1%, compared with $7,075 million last year. The increase in
adjusted net income was due to higher earnings in the Canadian
Personal and Commercial Banking and U.S. Personal and Commercial
Banking segments, partially offset by lower earnings in the Wealth and
Insurance and Wholesale Banking segments. Canadian Personal and
Commercial Banking net income increased primarily due to good
volume growth, favourable credit performance, and effective expense
management. U.S. Personal and Commercial Banking net income
increased primarily due to strong loan and deposit volume growth,
higher fee-based revenue, and gains on sales of securities and debt
securities classified as loans, partially offset by lower margins and
higher expenses to support business growth. Wealth and Insurance net
income decreased due to increased claims and related expenses in the
Insurance business, partially offset by higher fee-based revenue in the
Wealth business and higher earnings in TD Ameritrade. Wholesale
Banking net income decreased due to lower trading-related revenue
and lower security gains in the investment portfolio.
Reported diluted earnings per share for the year were $6.91 this year,
a 2% increase, compared with $6.76 last year. Adjusted diluted earnings
per share for the year were $7.45 compared with $7.42 last year.
Impact of Foreign Exchange Rate on U.S. Personal and
Commercial Banking and TD Ameritrade Translated Earnings
U.S. Personal and Commercial Banking earnings and the Bank’s share
of earnings from TD Ameritrade are impacted by fluctuations in the
U.S. dollar to Canadian dollar exchange rate compared with last year.
Depreciation of the Canadian dollar had a favourable impact on
consolidated earnings for the year ended October 31, 2013, compared
with last year, as shown in the table below.
IMPACT OF FOREIGN EXCHANGE RATE ON U.S.
PERSONAL AND COMMERCIAL BANKING AND
TD AMERITRADE TRANSLATED EARNINGS
T A B L E 6
(millions of Canadian dollars, except as noted)
U.S. Personal and Commercial Banking
Increased total revenue − reported
Increased total revenue − adjusted
Increased non-interest expenses − reported
Increased non-interest expenses − adjusted
Increased net income − reported, after tax
Increased net income − adjusted, after tax
TD Ameritrade
Increase in share of earnings, after tax
Increase in basic earnings per share –
reported (dollars)
Increase in basic earnings per share –
adjusted (dollars)
2013
vs. 2012
2012
vs. 2011
$ 114
114
74
76
22
23
$ 108
108
77
65
19
25
$
3
$
5
$ 0.03
$ 0.02
$ 0.04
$ 0.03
12
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL RESULTS OVERVIEW
Revenue
AT A GLANCE OVERVIEW
• Reported revenue1 was $27,262 million, an increase
of $1,716 million, or 7%, compared with last year.
• Adjusted revenue1 was $27,191 million, an increase
of $1,514 million, or 6%, compared with last year.
• Reported net interest income increased by $1,052 million,
or 7%, compared with last year.
• Adjusted net interest income increased by $1,016 million,
or 7%, compared with last year.
• Reported non-interest income1 increased by $664 million,
or 6%, compared with last year.
• Adjusted non-interest income1 increased by $498 million,
or 5%, compared with last year.
NET INTEREST INCOME
Net interest income for the year on a reported and adjusted basis was
$16,078 million, an increase of $1,052 million, or 7%, on a reported
basis, and an increase of $1,016 million, or 7%, on an adjusted basis.
The increase in adjusted net interest income was driven primarily by
increases in the U.S. Personal and Commercial Banking, Canadian
Personal and Commercial Banking, and Wholesale Banking segments.
U.S. Personal and Commercial Banking net interest income increased
primarily due to the inclusion of revenue from Target and strong loan
and deposit volume, partially offset by lower margin and loan accre-
tion. Canadian Personal and Commercial Banking net interest income
increased primarily due to good portfolio volume growth, partially
offset by lower margin. Wholesale Banking net interest income
increased primarily due to higher trading-related net interest income.
NET INTEREST INCOME
(millions of Canadian dollars)
$18,000
15,000
12,000
9,000
6,000
3,000
0
11
12
13
Reported
Adjusted
NET INTEREST MARGIN
Net interest margin declined by 3 basis points (bps) in the year to
2.20% from 2.23% last year. Lower margin in Canadian Personal
and Commercial Banking was partially offset by the higher margin
in U.S. Personal and Commercial Banking. The U.S. Personal and
Commercial Banking margin rose due to the impact of Target,
partially offset by core margin compression.
1 Effective 2013, Insurance revenue and Insurance claims and related expenses are
presented on a gross basis on the Consolidated Statement of Income. Comparative
amounts have been reclassified to conform with the current period presentation.
13
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS T A B L E 7
NET INTEREST INCOME ON AVERAGE EARNING BALANCES1, 2
(millions of Canadian dollars, except as noted)
Average
balance
Interest3
2013
Average
rate
Average
balance
Interest3
2012
Average
rate
Average
balance
Interest3
2011
Average
rate
Interest-earning assets
Interest-bearing deposits with Banks
Canada
U.S.
Securities
Trading
Canada
U.S.
Non-trading
Canada
U.S.
Securities purchased under reverse
repurchase agreements
Canada
U.S.
Loans
Mortgages4
Canada
U.S.
Consumer instalment and other personal
Canada
U.S.
Credit card
Canada
U.S.
Business and government4
Canada
U.S.
International
Total interest-earning assets
Interest-bearing liabilities
Deposits
Personal
Canada
U.S.
Banks
Canada
U.S.
Business and government5, 6
Canada
U.S.
Subordinated notes and debentures
Obligations related to securities sold short
and under repurchase agreements
Canada
U.S.
Liabilities for preferred shares
and capital trust securities
Securitization liabilities7
Other liabilities8
Canada
International
Total interest-bearing liabilities
Total net interest income
on average earning assets
2.78
1.65
1.31
2.11
0.87
0.32
3.47
4.63
5.71
5.00
$ 4,552 $
17,748
23
32
0.51% $ 8,950 $
0.18
13,580
41
42
0.46% $ 5,580 $
0.31
13,438
52
316
0.93%
2.35
54,384
16,781
1,398
321
20,551
66,675
336
1,384
2.57
1.91
1.63
2.08
48,342
13,201
18,855
66,089
1,332
231
288
1,671
2.76
1.75
1.53
2.53
40,561
8,948
1,129
148
16,157
61,497
212
1,299
24,207
31,422
230
94
0.95
0.30
25,944
27,025
249
90
0.96
0.33
22,145
24,016
193
77
176,856
41,744
5,390
1,710
91,729
26,206
4,718
1,016
3.05
4.10
5.14
3.88
163,016
36,910
93,622
22,568
14,582
4,697
1,828
834
12.54
17.76
14,128
1,043
5,141
1,671
5,270
1,018
1,699
124
3.15
4.53
5.63
4.51
12.03
11.89
145,052
32,947
5,040
1,524
93,667
17,288
5,348
864
8,139
855
965
109
11.86
12.75
1,243
43,025
1,340
33,452
62,402
719
$ 731,013 $ 22,616
32,287
29,451
59,101
1,111
2.89
1,362
4.01
1.15
898
3.09% $ 674,112 $ 22,238
26,412
25,295
51,144
1,045
3.44
1,525
4.62
1.52
1,063
3.30% $ 593,141 $ 20,909
3.96
6.03
2.08
3.53%
$ 168,369 $ 1,660
211
130,378
0.99% $ 160,947 $ 1,819
264
0.16
119,605
1.13% $ 150,802 $ 1,886
254
0.22
102,345
1.25%
0.25
6,134
6,565
11
14
118,671
111,787
8,523
1,119
1,248
447
40,874
37,534
1,879
50,591
472
102
154
927
0.18
0.21
0.94
1.12
5.24
1.15
0.27
8.20
1.83
4,984
5,278
113,066
88,962
11,509
28
10
1,303
1,226
612
37,875
30,161
432
96
2,253
53,032
174
1,026
0.56
0.19
1.15
1.38
5.32
1.14
0.32
7.72
1.93
3,983
5,622
27
12
89,675
78,879
12,403
1,046
1,150
663
26,333
23,797
367
71
2,811
52,823
208
1,235
0.68
0.21
1.17
1.46
5.35
1.39
0.30
7.40
2.34
79
5,563
19,966
94
$ 706,834 $ 6,538
5,523
17,964
78
1.42
0.47
144
0.92% $ 651,159 $ 7,212
6,185
17,848
89
1.41
0.80
240
1.11% $ 573,506 $ 7,248
1.44
1.34
1.26%
$ 731,013 $ 16,078
2.20% $ 674,112 $ 15,026
2.23% $ 593,141 $ 13,661
2.30%
1 Net interest income includes dividends on securities.
2 Geographic classification of assets and liabilities is based on the domicile of the
booking point of assets and liabilities.
3 Interest income includes loan fees earned by the Bank, which are recognized in net
interest income over the life of the loan through the effective interest rate method.
4 Includes trading loans that the Bank intends to sell immediately or in the near term
with a fair value of $24 million (2012 – $25 million, 2011 – $259 million) and
amortized cost of $24 million (2012 – $25 million, 2011 – $253 million), and loans
designated at fair value through profit or loss of $9 million (2012 – $13 million,
2011 – $14 million) and amortized cost of nil (2012 – nil, 2011 – $5 million).
5 Includes trading deposits with a fair value of $47,593 million (2012 – $38,774 million,
2011 – $29,613 million).
6 Includes marketing fees incurred on the TD Ameritrade Insured Deposit Accounts
of $821 million (2012 – $834 million, 2011 – $762 million).
7 Includes securitization liabilities designated at fair value through profit or loss of
$21,960 million (2012 – $25,324 million, 2011 – $27,725 million) and related amor-
tized cost of $21,757 million (2012 – $24,600 million, 2011 – $26,578 million).
Also includes securitization liabilities at amortized cost of $25,144 million
(2012 – $25,224 million, 2011 – $25,133 million).
8 Other liabilities includes asset-backed commercial paper and term notes with
an amortized cost of $5.1 billion (2012 – $4.6 billion, 2011 – $5.1 billion).
14
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
The table below presents an analysis of the change in net interest
income of volume and interest rate changes. In this analysis, changes
due to volume/interest rate variance have been allocated to average
interest rate.
T A B L E 8
ANALYSIS OF CHANGE IN NET INTEREST INCOME1, 2
(millions of Canadian dollars)
2013 vs. 2012
2012 vs. 2011
Favourable (unfavourable) due to change in
Favourable (unfavourable) due to change in
Average volume
Average rate
Net change Average volume
Average rate
Net change
Interest-earning assets
Interest-bearing deposits with banks
Canada
U.S.
Securities
Trading
Canada
U.S.
Non-trading
Canada
U.S.
Securities purchased under reverse repurchase agreements
Canada
U.S.
Loans
Mortgages3
Canada
U.S.
Consumer instalment and other personal
Canada
U.S.
Credit card
Canada
U.S.
Business and government3
Canada
U.S.
International
Total interest-earning assets
Interest-bearing liabilities
Deposits
Personal
Canada
U.S.
Banks
Canada
U.S.
Business and government4, 5
Canada
U.S.
Subordinated notes and debentures
Obligations related to securities sold
short and under repurchase agreements
Canada
U.S.
Liabilities for preferred shares and capital trust securities
Securitization liabilities6
Other liabilities7
Canada
International
Total interest-bearing liabilities
Total net interest income on average earning assets
$
(20)
13
$
2
(23)
$ (18)
(10)
$
32
3
$
(43)
(277)
$
(11)
(274)
166
62
26
14
(16)
14
436
219
(106)
164
55
435
(100)
28
22
(301)
(3)
(10)
(187)
(180)
(446)
(166)
74
275
370
185
65
$ 2,082
(238)
(207)
(244)
$ (1,704)
66
90
48
(287)
(19)
4
249
39
(552)
(2)
129
710
132
(22)
(179)
$ 378
216
70
36
97
33
10
624
183
(2)
264
710
24
(13)
13
40
275
23
3
(523)
(36)
(76)
(110)
24
(9)
203
83
76
372
56
13
101
147
(78)
154
734
15
233
251
91
$ 2,875
(167)
(414)
(256)
$ (1,546)
66
(163)
(165)
$ 1,329
$
(85)
(24)
$
244
77
$ 159
53
$ (127)
(43)
$
194
33
$
67
(10)
(6)
(2)
(65)
(315)
159
(34)
(24)
25
32
23
(2)
249
293
6
(6)
18
(5)
67
(1)
(27)
$ (367)
$ 1,715
–
77
$ 1,041
(663)
$
17
(4)
184
(22)
165
(40)
(6)
20
99
(1)
50
$ 674
$ 1,052
(6)
1
(274)
(147)
48
(161)
(19)
41
(5)
10
4
$ (678)
$ 2,197
$
$
5
1
17
71
3
96
(6)
(7)
214
1
92
714
(832)
(1)
2
(257)
(76)
51
(65)
(25)
34
209
11
96
36
$
$ 1,365
1 Geographic classification of assets and liabilities is based on the domicile of the
5 Includes marketing fees incurred on the TD Ameritrade Insured Deposit Accounts
booking point of assets and liabilities.
2 Interest income includes loan fees earned by the Bank, which are recognized in net
interest income over the life of the loan through the effective interest rate method.
3 Includes trading loans that the Bank intends to sell immediately or in the near term
with a fair value of $24 million (2012 – $25 million, 2011 – $259 million) and
amortized cost of $24 million (2012 – $25 million, 2011 – $253 million), and loans
designated at fair value through profit or loss of $9 million (2012 – $13 million,
2011 – $14 million) and amortized cost of nil (2012 – nil, 2011 – $5 million).
4 Includes trading deposits with a fair value of $47,593 million (2012 – $38,774 million,
2011 – $29,613 million).
of $821 million (2012 – $834 million, 2011 – $762 million).
6 Includes securitization liabilities designated at fair value through profit or loss of
$21,960 million (2012 – $25,324 million, 2011 – $27,725 million) and related amor-
tized cost of $21,757 million (2012 – $24,600 million, 2011 – $26,578 million).
Also includes securitization liabilities at amortized cost of $25,144 million
(2012 – $25,224 million, 2011 – $25,133 million).
7 Other liabilities includes asset-backed commercial paper and term notes with
an amortized cost of $5.1 billion (2012 – $4.6 billion, 2011 – $5.1 billion).
15
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
NON-INTEREST INCOME 1
Non-interest income for the year on a reported basis was $11,184 million,
an increase of $664 million, or 6%, compared with last year. Adjusted
non-interest income for the year was $11,113 million, an increase of
$498 million, or 5%, compared with last year. The increase in adjusted
non-interest income was primarily driven by increases in the Wealth
and Insurance and U.S. Personal and Commercial Banking segments,
partially offset by declines in the Wholesale Banking and Corporate
segments. Wealth and Insurance non-interest income increased
primarily due to higher fee-based revenue from asset growth and
the addition of Epoch in the Wealth business and premium growth in
the Insurance business, partially offset by the sale of the U.S. Insurance
business. U.S. Personal and Commercial Banking non-interest income
increased primarily due to higher fee-based revenue and gains on sales
securities and debt securities classified as loans. Wholesale Banking
non-interest income decreased primarily due to lower security gains
in the investment portfolio and lower mergers and acquisitions (M&A)
and advisory fees. Corporate segment non-interest income decreased
primarily due to lower gains from treasury and other hedging activities.
T A B L E 9
NON-INTEREST INCOME
(millions of Canadian dollars)
Investment and securities services
TD Waterhouse fees and commissions
Full-service brokerage and other securities services
Underwriting and advisory
Investment management fees
Mutual fund management
Total investment and securities services
Credit fees
Net securities gains
Trading income (loss)
Service charges
Card services
Insurance revenue1
Trust fees
Other income
Total
2013
2012
2011
% change
2013 vs. 2012
$
403
596
365
326
1,141
2,831
785
304
(281)
1,863
1,345
3,734
148
455
$ 11,184
$
384
562
437
241
997
2,621
745
373
(41)
1,775
1,039
3,537
149
322
$ 10,520
$
459
631
378
215
941
2,624
671
393
(127)
1,602
959
3,345
154
558
$ 10,179
5%
6
(16)
35
14
8
5
(18)
(585)
5
29
6
(1)
41
6%
1 Effective 2013, Insurance revenue and Insurance claims and related expenses are
presented on a gross basis on the Consolidated Statement of Income. Comparative
amounts have been reclassified to conform with the current period presentation.
TRADING-RELATED INCOME
Trading-related income is the total of net interest income on trading
positions, trading income (loss), and income from financial instruments
designated at fair value through profit or loss that are managed within
a trading portfolio. Trading-related income decreased by $76 million,
or 7% from 2012. The decrease was primarily in equity and other
portfolios, partially offset by an increase in interest rate and credit
portfolios compared to the prior year. Equity and other portfolios
decreased as the prior year included gains on trading positions that
were previously considered impaired. Interest rate and credit trading
improved on increased client activity in 2013.
The mix of trading-related income between net interest income
and trading income is largely dependent upon the level of interest
rates, which drives the funding costs of the Bank’s trading portfolios.
Generally, as interest rates rise, net interest income declines and trad-
ing income reported in non-interest income increases. Management
believes that the total trading-related income is the appropriate
measure of trading performance.
2013
$ 1,230
(281)
(6)
$ 943
$ 554
368
27
(6)
$ 943
2012
$ 1,050
(41)
10
$ 1,019
$ 534
374
101
10
$ 1,019
2011
$ 818
(127)
4
$ 695
$ 212
428
51
4
$ 695
T A B L E 1 0
TRADING-RELATED INCOME
(millions of Canadian dollars)
Net interest income
Trading income (loss)
Financial instruments designated at fair value through profit or loss1
Total trading-related income (loss)
By product
Interest rate and credit portfolios
Foreign exchange portfolios
Equity and other portfolios
Financial instruments designated at fair value through profit or loss1
Total trading-related income (loss)
1 Excludes amounts related to securities designated at fair value through profit
or loss that are not managed within a trading portfolio, but which have been
combined with derivatives to form economic hedging relationships.
1 Effective 2013, Insurance revenue and Insurance claims and related expenses are
presented on a gross basis on the Consolidated Statement of Income. Comparative
amounts have been reclassified to conform with the current period presentation.
16
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL RESULTS OVERVIEW
Expenses
AT A GLANCE OVERVIEW
• Reported non-interest expenses were $15,042 million, an
increase of $1,044 million, or 7%, compared with last year.
• Adjusted non-interest expenses were $14,363 million, an
EFFICIENCY RATIO 1
The efficiency ratio measures operating efficiency and is calculated
by taking the non-interest expenses as a percentage of total revenue.
A lower ratio indicates a more efficient business operation.
increase of $1,201 million, or 9%, compared with last year.
The reported efficiency ratio worsened to 55.2%, compared with
• Reported efficiency ratio1 worsened to 55.2% compared
with 54.8% last year.
• Adjusted efficiency ratio1 worsened to 52.8% compared
54.8% last year. The adjusted efficiency ratio worsened to 52.8%,
compared with 51.3% last year primarily due to lower revenue in
Wholesale Banking.
with 51.3% last year.
NON-INTEREST EXPENSES
Reported non-interest expenses for the year were $15,042 million, an
increase of $1,044 million, or 7%, compared with last year. Adjusted non-
interest expenses were $14,363 million, an increase of $1,201 million,
or 9%, compared with last year. The increase in adjusted non-interest
expenses was driven by increases in the U.S. Personal and Commercial
Banking, Wealth and Insurance, Canadian Personal and Commercial
Banking, and Corporate segments. U.S. Personal and Commercial
Banking expenses increased primarily due to increased expenses
related to Target, investments in new stores, and other planned
initiatives, partially offset by productivity gains. Wealth and Insurance
expenses increased primarily due to higher revenue-based variable
expenses and the addition of Epoch in the Wealth business, partially
offset by the sale of the U.S. Insurance business. Canadian Personal
and Commercial Banking expenses increased primarily due to higher
expenses from full year inclusion of MBNA, volume growth, merit
increases and investment in initiatives to grow the business, partially
offset by productivity gains. Corporate segment expenses increased
primarily due to higher pension and strategic initiative costs.
NON-INTEREST EXPENSES
(millions of Canadian dollars)
EFFICIENCY RATIO1
(percent)
$16,000
12,000
8,000
4,000
0
60%
50
40
30
20
10
0
11
12
13
11
12
13
Reported
Adjusted
Reported
Adjusted
1 Effective 2013, Insurance revenue and Insurance claims and related expenses are
presented on a gross basis on the Consolidated Statement of Income. Comparative
amounts, including certain ratios, have been recast to conform with the current
period presentation.
17
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS T A B L E 1 1
NON-INTEREST EXPENSES AND EFFICIENCY RATIO
(millions of Canadian dollars, except as noted)
Salaries and employee benefits
Salaries
Incentive compensation
Pension and other employee benefits
Total salaries and employee benefits
Occupancy
Rent
Depreciation
Property tax
Other
Total occupancy
Equipment
Rent
Depreciation
Other
Total equipment
Amortization of other intangibles
Marketing and business development
Restructuring costs
Brokerage-related fees
Professional and advisory services
Communications
Other expenses
Capital and business taxes
Postage
Travel and relocation
Other
Total other expenses
Total expenses
Efficiency ratio – reported1
Efficiency ratio – adjusted1
1 Effective 2013, Insurance revenue and Insurance claims and related expenses are
presented on a gross basis on the Consolidated Statement of Income. Comparative
amounts, including certain ratios, have been recast to conform with the current
period presentation.
2013
2012
2011
% change
2013 vs. 2012
$ 4,752
1,634
1,236
7,622
$ 4,647
1,561
1,033
7,241
$ 4,319
1,448
962
6,729
2%
5
20
5
755
330
65
306
1,456
216
188
443
847
521
685
129
317
1,010
281
704
324
57
289
1,374
210
184
431
825
477
668
–
296
925
282
659
306
56
264
1,285
218
161
422
801
657
593
–
320
944
271
147
201
186
1,640
2,174
$ 15,042
149
196
175
1,390
1,910
$ 13,998
154
177
172
944
1,447
$ 13,047
55.2%
52.8
54.8%
51.3
54.7%
52.2
7
2
14
6
6
3
2
3
3
9
3
100
7
9
–
(1)
3
6
18
14
7%
40bps
150
18
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL RESULTS OVERVIEW
Taxes
Reported total income and other taxes increased by $112 million,
or 5%, from 2012. Income tax expense, on a reported basis, was up
$51 million, or 5%, from 2012. Other taxes were up $61 million, or
6%, from 2012. Adjusted total income and other taxes were down
$9 million from 2012. Total income tax expense, on an adjusted basis,
was down $70 million, or 5%, from 2012.
The Bank’s effective income tax rate on a reported basis was 15.2%
for 2013, compared with 14.9% in 2012.
The Bank reports its investment in TD Ameritrade using the equity
method of accounting. TD Ameritrade’s tax expense of $168 million
in the year, compared to $131 million in 2012, was not part of the
Bank’s tax rate.
T A B L E 1 2
INCOME TAXES
(millions of Canadian dollars, except as noted)
Income taxes at Canadian statutory income tax rate
Increase (decrease) resulting from:
Dividends received
Rate differentials on international operations
Tax rate changes
Other
Provision for income taxes and effective
income tax rate – reported
2013
2012
$ 1,978 26.3%
$ 1,938
26.4%
$ 2,005
(253)
(488)
–
(94)
(3.4)
(6.5)
–
(1.2)
(262)
(481)
(18)
(85)
(3.6)
(6.6)
(0.2)
(1.1)
(214)
(468)
–
3
2011
28.1%
(3.0)
(6.6)
–
0.1
$ 1,143
15.2%
$ 1,092
14.9%
$ 1,326
18.6%
The Bank’s adjusted effective tax rate was 16.3% for 2013, compared
with 17.1% in 2012. The year-over-year decrease was largely due to a
relative size and nature of items of note.
T A B L E 1 3
NON-GAAP FINANCIAL MEASURES – Reconciliation of Reported to Adjusted Provision for Income Taxes
(millions of Canadian dollars, except as noted)
Provision for income taxes – reported
Adjustments for items of note: Recovery of (provision for) incomes taxes1, 2
Amortization of intangibles
Fair value of derivatives hedging the reclassified available-for-sale securities portfolio
Integration charges and direct transaction costs relating to U.S. Personal and Commercial Banking acquisitions
Fair value of credit default swaps hedging the corporate loan book, net of provision for credit losses
Integration charges, direct transaction costs, and changes in fair value of contingent consideration
relating to the Chrysler Financial acquisition
Integration charges and direct transaction costs relating to the acquisition of the credit card
portfolio of MBNA Canada
Litigation and litigation-related charge/reserve
Reduction of allowance for incurred but not identified credit losses
Positive impact due to changes in statutory income tax rates
Impact of Alberta flood on the loan portfolio
Impact of Superstorm Sandy
Restructuring charges
Set-up costs in preparation for the previously announced affinity relationship with Aimia with respect to
Aeroplan Visa credit cards and the related acquisition of accounts
Total adjustments for items of note
Provision for income taxes – adjusted
Other taxes
Payroll
Capital and premium
GST, HST and provincial sales
Municipal and business
Total other taxes
Total taxes – adjusted
Effective income tax rate – adjusted3
2013
$ 1,143
2012
$ 1,092
2011
$ 1,326
94
(14)
–
–
–
33
26
–
–
6
–
39
7
191
1,334
404
140
380
169
1,093
$ 2,427
96
–
2
2
10
36
165
(42)
18
–
25
–
–
312
1,404
383
141
352
156
1,032
$ 2,436
164
(30)
59
(6)
32
–
–
–
–
–
–
–
–
219
1,545
367
147
339
149
1,002
$ 2,547
16.3%
17.1%
20.1%
1 For explanations of items of note, see the “Non-GAAP Financial Measures –
Reconciliation of Adjusted to Reported Net Income” table in the “Financial
Results Overview” section of this document.
2 The tax effect for each item of note is calculated using the effective statutory
income tax rate of the applicable legal entity.
3 Adjusted effective income tax rate is the adjusted provision for income taxes
before other taxes as a percentage of adjusted net income before taxes.
19
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL RESULTS OVERVIEW
Quarterly Financial Information
FOURTH QUARTER 2013 PERFORMANCE SUMMARY
Reported net income for the quarter was $1,622 million, an increase
of $25 million, or 2%, compared with the fourth quarter last year.
Adjusted net income for the quarter was $1,821 million, an increase
of $64 million, or 4%, compared with the fourth quarter last year.
Reported diluted earnings per share for the quarter were $1.68,
compared with $1.66 in the fourth quarter last year. Adjusted diluted
earnings per share for the quarter were $1.90, compared with
$1.83 in the fourth quarter last year.
Revenue for the quarter was $7,001 million, an increase of $424 million,
or 6%, on a reported basis, and $7,018 million on an adjusted basis,
an increase of $403 million, or 6%, compared with the fourth quarter
last year. The increase in adjusted revenue was driven by increases in
the U.S. Personal and Commercial Banking and Wealth and Insurance
segments, partially offset by decreases in the Wholesale Banking and
Corporate segments. U.S. Personal and Commercial Banking revenue
increased primarily due to the inclusion of revenue from Target, strong
organic loan and deposit growth, partially offset by lower margins.
Wealth and Insurance revenue increased primarily due to fee-based
asset growth and the addition of Epoch in the Wealth business and
premium growth in the Insurance business, partially offset by the sale
of the U.S. Insurance business. Wholesale Banking revenue decreased
due to lower security gains in the investment portfolio partially offset
by higher trading-related revenue. Corporate segment revenue
decreased primarily due to lower gains from treasury and other
hedging activities.
Provision for credit losses for the quarter was $352 million, a decrease
of $213 million, or 38%, on a reported basis, and $392 million on an
adjusted basis, a decrease of $119 million, or 23%, compared with the
fourth quarter last year. The decrease was primarily driven by decreases
in the Canadian Personal and Commercial Banking and U.S. Personal
and Commercial Banking segments. Canadian Personal and Commercial
Banking PCL decreased primarily due to favourable credit performance,
lower bankruptcies, and elevated PCL in the fourth quarter last year
due to an adjustment related to past due accounts. U.S. Personal and
Commercial Banking PCL decreased primarily due to impact of the
new regulatory guidance recorded in the fourth quarter last year
and improved credit quality of commercial loans, partially offset by
provisions for credit card loans acquired from Target and increased
provisions in auto loans.
Non-interest expenses for the quarter were $4,157 million, an increase
of $551 million, or 15%, on a reported basis, and $3,883 million on an
adjusted basis, an increase of $390 million, or 11%, compared with the
fourth quarter last year. The increase in adjusted non-interest expenses
was primarily driven by an increase in U.S. Personal and Commercial
Banking due to increased expenses related to Target, investments in new
stores, and other growth initiatives, partially offset by productivity gains.
The Bank’s reported effective tax rate was 13.5% for the quarter,
compared with 10.4% in the same quarter last year. The year-over-year
increase was largely due to a decrease in earnings reported by our
subsidiaries operating in jurisdictions with lower tax rates. The Bank’s
adjusted effective tax rate was 15.0% for the quarter, compared with
12.3% in the same quarter last year. The year-over-year increase was
largely due to a decrease in earnings reported by our subsidiaries
operating in jurisdictions with lower tax rates.
QUARTERLY TREND ANALYSIS
The Bank has had solid underlying adjusted earnings growth over the
past eight quarters. Canadian Personal and Commercial Banking earn-
ings have been solid with good loan and deposit volume growth, the
acquisition of the credit card portfolio of MBNA Canada, and better
credit performance, partially offset by lower margins. U.S. Personal
and Commercial Banking earnings have benefited from strong organic
loan and deposit volume growth, elevated security gains, and Target,
partially offset by lower margins and higher expenses to support busi-
ness growth. Wealth and Insurance earnings have been negatively
impacted by unfavourable prior years’ claims development related to
the Ontario auto insurance market and higher claims from weather-
related events in the Insurance business, offset by higher fee-based
revenue in the Wealth business. The earnings contribution from the
Bank’s reported investment in TD Ameritrade has increased over the
past two years primarily due to higher base earnings in TD Ameritrade.
After a relatively strong 2012, Wholesale Banking earnings have been
trending downwards in 2013 primarily due to reduced security gains
and capital market activity.
The Bank’s earnings have seasonal impacts, principally the second
quarter being affected by fewer business days.
The Bank’s earnings are also impacted by market-driven events and
changes in foreign exchange rates.
20
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS T A B L E 1 4
QUARTERLY RESULTS
(millions of Canadian dollars, except as noted)
Net interest income
Non-interest income1
Total revenue
Provision for credit losses
Insurance claims and related expenses1
Non-interest expenses
Provision for (recovery of) income taxes
Equity in net income of an investment in associate,
net of income taxes
Net income – reported
Adjustments for items of note, net of income taxes2
Amortization of intangibles
Fair value of derivatives hedging the reclassified
available-for-sale securities portfolio
Integration charges and direct transaction costs relating
to U.S. Personal and Commercial Banking acquisitions
Fair value of credit default swaps hedging the corporate
loan book, net of provision for credit losses
Integration charges, direct transaction costs, and changes
in fair value of contingent consideration relating to the
Chrysler Financial acquisition
Integration charges and direct transaction costs relating to the
acquisition of the credit card portfolio of MBNA Canada
Litigation and litigation-related charge/reserve
Reduction of allowance for incurred but not identified credit losses
Positive impact due to changes in statutory income tax rates
Impact of Alberta flood on the loan portfolio
Impact of Superstorm Sandy
Restructuring charges
Set-up costs in preparation for the previously announced affinity
relationship with Aimia with respect to Aeroplan Visa credit cards
and the related acquisition of accounts
Total adjustments for items of note
Net income – adjusted
Preferred dividends
Net income available to common shareholders and
non-controlling interests in subsidiaries – adjusted
Attributable to:
Non-controlling interests – adjusted
Common shareholders – adjusted
(Canadian dollars, except as noted)
Basic earnings per share
Reported
Adjusted
Diluted earnings per share
Reported
Adjusted
Return on common equity – reported
Return on common equity – adjusted
(billions of Canadian dollars)
2013
For the three months ended
2012
Oct. 31
July 31
Apr. 30
Jan. 31
Oct. 31
July 31
Apr. 30
Jan. 31
$ 4,184
2,817
7,001
352
711
4,157
240
$ 4,146
2,939
7,085
477
1,140
3,764
252
$ 3,902
2,707
6,609
417
609
3,626
291
$ 3,846
2,721
6,567
385
596
3,495
360
$ 3,842
2,735
6,577
565
688
3,606
178
$ 3,817
2,669
6,486
438
645
3,471
291
$ 3,680
2,582
6,262
388
512
3,372
351
$ 3,687
2,534
6,221
404
579
3,549
272
81
1,622
75
1,527
57
1,723
59
1,790
57
1,597
62
1,703
54
1,693
61
1,478
59
15
–
–
–
14
30
–
–
(29)
–
90
59
(70)
–
–
–
24
–
–
–
48
–
–
58
22
–
–
–
30
–
–
–
–
–
–
56
(24)
–
–
–
24
70
–
–
–
–
–
60
35
–
–
3
25
–
–
–
–
37
–
59
59
–
–
(2)
6
25
77
(30)
(18)
–
–
–
9
–
1
3
30
–
(59)
–
–
–
–
60
45
9
1
5
24
171
(31)
–
–
–
–
20
199
1,821
49
–
61
1,588
38
–
110
1,833
49
–
126
1,916
49
–
160
1,757
49
–
117
1,820
49
–
43
1,736
49
–
284
1,762
49
1,772
1,550
1,784
1,867
1,708
1,771
1,687
1,713
27
$ 1,745
26
$ 1,524
26
$ 1,758
26
$ 1,841
26
$ 1,682
26
$ 1,745
26
$ 1,661
26
$ 1,687
$ 1.69
1.90
$ 1.59
1.65
$ 1.79
1.91
$ 1.87
2.01
$ 1.67
1.84
$ 1.79
1.92
$ 1.79
1.84
$ 1.56
1.87
1.68
1.90
13.3%
15.0%
1.58
1.65
12.5%
13.0%
1.78
1.90
14.8%
15.8%
1.86
2.00
15.3%
16.4%
1.66
1.83
14.0%
15.5%
1.78
1.91
15.3%
16.4%
1.78
1.82
16.2%
16.6%
1.55
1.86
14.0%
16.8%
Average earning assets
Net interest margin as a percentage of average earning assets
$ 748
$ 742
$ 723
$ 710
$ 689
$ 681
$ 667
$ 660
2.22%
2.22%
2.21%
2.15%
2.22%
2.23%
2.25%
2.22%
1 Effective 2013, Insurance revenue and Insurance claims and related expenses are
presented on a gross basis on the Consolidated Statement of Income. Comparative
amounts have been reclassified to conform with the current period presentation.
2 For explanations of items of note, see the “Non-GAAP Financial Measures –
Reconciliation of Adjusted to Reported Net Income” table in the “Financial
Results Overview” section of this document.
21
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
BUSINESS SEGMENT ANALYSIS
Business Focus
For management reporting purposes, the Bank’s operations and activities are organized around the
following operating business segments: Canadian Personal and Commercial Banking, Wealth and
Insurance, U.S. Personal and Commercial Banking, and Wholesale Banking.
Canadian Personal and Commercial Banking comprises Canadian
personal and business banking, TD Auto Finance Canada, as well as
the Canadian credit card business. Under the TD Canada Trust brand,
personal banking provides a full range of financial products and
services to nearly 14 million customers through its network of
1,179 branches and 2,845 automated banking machines and tele-
phone, internet and mobile banking. TD Commercial Banking serves
the needs of medium and large Canadian businesses by offering a
broad range of customized products and services to help business
owners meet their financing, investment, cash management, interna-
tional trade, and day-to-day banking needs. TD Auto Finance provides
flexible financing options to customers at point-of-sale for automotive
and recreational vehicle purchases through our auto dealer network.
TD Credit Card businesses, which includes Visa and the credit card
portfolio of MBNA Canada, provides an attractive line-up of credit
cards including co-branded and affinity credit card programs.
Wealth and Insurance comprises the Bank’s Wealth Management
and Insurance businesses globally, including operations in Canada,
the U.S. and Europe.
TD Wealth offers a wide range of wealth products and services
to a large and diverse set of retail and institutional clients in Canada,
the U.S. and Europe.
TD Wealth consists of Direct Investing, Advice-based, and Asset
Management businesses. Each of these businesses is focused on
providing an exceptional client experience aligned with the TD brand.
In the global Direct Investing business, TD has a leading market
share, providing a full set of offerings to retail clients in Canada and
the U.K. In the U.S., TD has an investment in TD Ameritrade, which is
the industry-leader in direct investing as measured by average trades
per day. TD’s North American Advice-based business includes financial
planning, full service brokerage, private banking and private invest-
ment counsel. In each case, TD’s Advice-based business is focused on
delivering a value proposition that is matched to our clients’ needs and
delivered in an integrated fashion. TD Asset Management (TDAM) is
a leading North American investment manager comprising both retail
(for example, mutual funds) and institutional capabilities. Our institu-
tional clients include leading pension funds, corporations, endowments
and foundations both in Canada and the U.S.
TD Insurance manufactures and distributes property and casualty insur-
ance and life and health insurance products in Canada. The property and
casualty business offers personal lines home and auto insurance through
direct distribution channels and is the number one direct writer, number
one affinity writer, number one bank insurer and number two personal
lines writer of property and casualty insurance in Canada. The life and
health insurance business offers authorized credit protection and travel
insurance products primarily through TD Canada Trust branches. It also
offers other simple life and health products such as term life, critical
illness, accident and sickness, and credit card balance protection
products through direct distribution channels.
U.S. Personal and Commercial Banking comprises the Bank’s retail
and commercial banking operations in the U.S. operating under the
brand TD Bank, America’s Most Convenient Bank. The retail operations
provide a full range of financial products and services through multiple
delivery channels, including a network of 1,317 stores located along the
east coast from Maine to Florida, telephone, mobile and internet bank-
ing and automated banking machines, allowing customers to have bank-
ing access virtually anywhere and anytime. U.S. Personal and Commercial
Banking also serves the needs of businesses, customizing a broad range
22
of products and services to meet their financing, investment, cash
management, international trade, and day-to-day banking needs.
Wholesale Banking provides a wide range of capital markets and
investment banking products and services including underwriting and
distribution of new debt and equity issues, providing advice on strategic
acquisitions and divestitures, and meeting the daily trading, funding
and investment needs of our clients. Operating under the TD Securities
brand, our clients include highly-rated companies, governments, and
institutions in key financial markets around the world. Wholesale Banking
is an integrated part of TD’s strategy, providing market access to TD’s
wealth and retail operations and providing wholesale banking solutions
to our partners and their customers.
The Bank’s other business activities are not considered reportable
segments and are, therefore, grouped in the Corporate segment. The
Corporate segment includes the impact of treasury and balance sheet
management activities, general provision for credit losses, tax items at
an enterprise level, the elimination of taxable equivalent and other inter-
company adjustments, and residual unallocated revenue and expenses.
Effective December 1, 2011, results of the acquisition of the credit
card portfolio of MBNA Canada (MBNA) are reported primarily in the
Canadian Personal and Commercial Banking and Wealth and Insurance
segments. Integration charges and direct transaction costs relating
to the acquisition of MBNA are reported in Canadian Personal and
Commercial Banking. The results of TD Auto Finance Canada are
reported in Canadian Personal and Commercial Banking. The results
of TD Auto Finance U.S. are reported in U.S. Personal and Commercial
Banking. Integration charges, direct transaction costs, and changes in
fair value of contingent consideration related to the Chrysler Financial
acquisition were reported in the Corporate segment.
Effective March 13, 2013, results of Target are reported in U.S.
Personal and Commercial Banking. Effective March 27, 2013, the
results of Epoch are reported in Wealth and Insurance.
Results of each business segment reflect revenue, expenses, assets,
and liabilities generated by the businesses in that segment. The Bank
measures and evaluates the performance of each segment based on
adjusted results where applicable, and for those segments the Bank
notes that the measure is adjusted. Net income for the operating busi-
ness segments is presented before any items of note not attributed to
the operating segments. For further details, see the “How the Bank
Reports” section in the MD&A. For information concerning the Bank’s
measures of economic profit and adjusted return on common equity,
which are non-GAAP financial measures, see the “Economic Profit
and Return on Common Equity” section. Segmented information also
appears in Note 31 to the 2013 Consolidated Financial Statements.
Net interest income within Wholesale Banking is calculated on a
taxable equivalent basis (TEB), which means that the value of non-
taxable or tax-exempt income including dividends, is adjusted to its
equivalent before-tax value. Using TEB allows the Bank to measure
income from all securities and loans consistently and makes for a more
meaningful comparison of net interest income with similar institutions.
The TEB increase to net interest income and provision for income taxes
reflected in Wholesale Banking results is reversed in the Corporate
segment. The TEB adjustment for the year was $332 million, compared
with $327 million last year.
As noted in Note 8 to the 2013 Consolidated Financial Statements,
the Bank continues to securitize retail loans and receivables, however
under IFRS, the majority of these loans and receivables remain
on-balance sheet.
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS The “Business Outlook and Focus for 2014” section for each segment,
provided on the following pages, is based on the Bank’s views and the
assumptions set out in the “Economic Summary and Outlook” section
and the actual outcome may be materially different. For more infor-
mation, see the “Caution Regarding Forward-Looking Statements”
section and the “Risk Factors That May Affect Future Results” section.
T A B L E 1 5
RESULTS BY SEGMENT
(millions of Canadian dollars)
Canadian Personal
and Commercial
Banking
Wealth and
Insurance
U.S. Personal
and Commercial
Banking
Wholesale
Banking
Corporate
2013
2012
2013
2012
2013
2012
2013
2012
$ 8,345 $ 8,023 $ 579
6,358
2,629
2,695
$ 583
5,860
$ 5,172 $ 4,663
1,468
1,957
$ 1,982
425
$ 1,805
849
$
2013
–
(251)
2012
2013
$ (48) $ 16,078 $ 15,026
10,520
(286) 11,184
Total
2012
Net interest income (loss)
Non-interest income (loss)1
Provision for (reversal of)
credit losses
Insurance claims and
related expenses1
Non-interest expenses
Income (loss) before provision
for income taxes
Provision for (recovery of)
income taxes
Equity in net income of an
investment in associate,
net of income taxes
Net income (loss) – reported
Adjustments for items of note,
net of income taxes2
Amortization of intangibles
Fair value of derivatives hedging
the reclassified available-for-sale
securities portfolio
Integration charges and direct
transaction costs relating to
U.S. Personal and Commercial
Banking acquisitions
Integration charges, direct
transaction costs, and changes
in fair value of contingent
consideration relating to the
Chrysler Financial acquisition
Integration charges and direct
transaction costs relating to the
acquisition of the credit card
portfolio of MBNA Canada
Litigation and litigation-related
charge/reserve
Reduction of the allowance for
incurred but not identified
credit losses
Positive impact due to changes
in statutory income tax rates
Impact of Alberta flood on
the loan portfolio
Impact of Superstorm Sandy
Restructuring charges
Set-up costs in preparation for
the previously announced affinity
relationship with Aimia with
respect to Aeroplan Visa credit
cards and the related acquisition
of accounts
Total adjustments for
items of note
Net income (loss) – adjusted
(billions of Canadian dollars)
Average common equity
Risk-weighted assets
929
1,151
–
–
779
779
26
47
(103)
(182) 1,631
1,795
–
5,136
–
4,988
3,056
2,821
2,424
2,600
–
4,550
–
4,125
–
1,541
–
1,570
–
994
–
715
3,056
15,042
2,424
13,998
4,975
4,513
1,060
1,419
1,800
1,227
840
1,037
(1,142)
(867) 7,533
7,329
1,321
1,209
153
261
273
99
192
157
(796)
(634) 1,143
1,092
–
3,654
–
3,304
246
1,153
209
1,367
–
1,527
–
1,128
–
648
–
880
26
(320)
25
272
(208) 6,662
234
6,471
–
–
–
–
–
–
–
–
92
104
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9
–
–
100
248
–
–
–
–
–
–
–
–
37
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
232
238
232
238
(57)
89
(57)
89
–
–
–
–
–
–
–
–
9
17
–
17
–
–
92
100
(120)
(18)
19
–
90
–
–
–
–
–
19
–
90
104
248
(120)
(18)
–
37
–
20
–
–
–
–
–
–
–
–
–
20
–
112
–
$ 3,766 $ 3,408 $ 1,153
104
–
$ 1,367
100
294
$ 1,627 $ 1,422
–
$ 648
–
$ 880
284
(36)
$
206
$
604
496
(2) $ 7,158 $ 7,075
$
7.8 $
82
7.7 $
78
6.1
17
$ 6.6
9
$ 18.9 $ 17.6
111
132
$ 4.2
47
$ 4.1
43
$ 8.7
8
$ 5.5 $ 45.7 $ 41.5
246
286
5
1 Effective 2013, Insurance revenue and Insurance claims and related expenses are
presented on a gross basis on the Consolidated Statement of Income. Comparative
amounts, including certain ratios, have been reclassified to conform with the
current period presentation.
2 For explanations of items of note, see the “Non-GAAP Financial Measures −
Reconciliation of Adjusted to Reported Net Income” table in the “Financial
Results Overview” section of this document.
23
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
ECONOMIC SUMMARY AND OUTLOOK
The Canadian economy is currently entrenched in a modest growth,
low inflation environment. After weak 1% growth in the second half
of 2012, the Canadian economy strengthened in the first half of 2013,
recording real GDP advances of 2.5% and 1.7% in the January-March
and April-June periods, respectively. Looking ahead, the Canadian
economy is expected to improve, but with moderate economic growth.
Specifically, domestic demand is likely to remain modest as both
consumers and governments restrain spending to focus on balancing
their finances. Consumers have already made progress slowing their
pace of debt accumulation as household credit growth has slowed to
its lowest pace in over a decade. A generally more subdued housing
sector will also contribute to modest growth in the domestic economy.
The Canadian housing market had shown renewed strength in 2013
after tighter mortgage restrictions slowed the market last year.
However, an erosion in affordability is expected to limit growth in sales
activity and prices for the foreseeable future. Residential construction
activity overall has slowed relative to last year, and that trend is likely
to continue over the next two years.
Inflation in Canada has been low, reflecting muted growth in 2012
combined with heightened competitive pressures in the retail market.
With excess capacity expected to persist over the coming quarters,
inflation pressures are expected to build very gradually. In this environ-
ment, the Bank of Canada is expected to keep short-term interest rates
at current levels until mid-2015, at which time a gradual increase is
likely to occur.
After a challenging 2012, the Canadian export sector has been
improving. A more notable increase is expected next year alongside
stronger growth in the United States and a depreciating Canadian
dollar. Once the export trend is more established, Canadian businesses
are also expected to expand their investment activity. Slumping profits
have held back capital expenditures recently, but profit growth is
forecast to resume over the near term.
The United States economy continues to make progress, as the
private sector gains momentum alongside its housing sector. However,
overall U.S. economic growth has been held back by tax increases and
government spending cuts. Despite these fiscal headwinds, job growth
has remained relatively strong and the unemployment rate is expected
to decline further over the next two years. Against this backdrop of
improving economic fundamentals, the U.S. Federal Reserve is expected
to reduce its extraordinary asset purchase program beginning early in
2014. Inflation has been subdued, and is expected to increase gradually
over the coming quarters. This is consistent with the expectation that
the U.S. Federal Reserve Board (U.S. Federal Reserve) is likely to leave
interest rates unchanged until the second half of 2015. Economic
growth in the United States is expected to continue to outpace growth
in Canada over the next several years.
NET INCOME – REPORTED BY BUSINESS SEGMENT
(as a percentage of total net income)
60%
50
40
30
20
10
0
11
12
13
11
12
13
11
12
13
11
12
13
NET INCOME – ADJUSTED BY BUSINESS SEGMENT
(as a percentage of total net income)
60%
50
40
30
20
10
0
11
12
13
11
12
13
11
12
13
11
12
13
Canadian Personal and Commercial Banking
Wealth and Insurance
U.S. Personal and Commercial Banking
Wholesale Banking
24
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS BUSINESS SEGMENT ANALYSIS
Canadian Personal and Commercial Banking
Canadian Personal and Commercial Banking comprises the Bank’s personal and business banking
businesses in Canada, TD Auto Finance Canada and Canadian credit cards. Canadian Personal and
Commercial Banking provides a full range of financial products and services to nearly 14 million customers.
$3,654
Reported
$3,766
Adjusted
NET INCOME
(millions of Canadian dollars)
46.5%
Reported
45.1%
Adjusted
EFFICIENCY RATIO
(percent)
$4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
50%
40
30
20
10
0
11
12
13
11
12
13
Reported
Adjusted
Reported
Adjusted
T A B L E 1 6
REVENUE
(millions of Canadian dollars)
Consumer lending
Real estate secured lending
Personal deposits
Business banking
Other1
Total
1 Other revenue includes internal commissions on sales of mutual funds and other
Wealth and Insurance products, and other branch services.
2013
$ 3,686
2,006
2,826
2,232
290
$ 11,040
2012
$ 3,594
1,901
2,809
2,170
178
$ 10,652
2011
$ 2,627
1,946
2,753
2,060
146
$ 9,532
25
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
BUSINESS HIGHLIGHTS
• Posted record adjusted earnings of $3,766 million, an increase
of 11% from 2012, and record adjusted efficiency ratio of
45.1%, in a challenging operating environment.
CHALLENGES IN 2013
• Low interest rate environment led to margin compression.
• Fierce competition for new customers from the major
Canadian banks and non-bank competitors.
• TD will become the primary issuer of Aeroplan Visa credit
• Slowing retail loan growth due to weak economic growth and
cards on January 1, 2014, and has agreed to acquire approxi-
mately 50% of the existing Aeroplan credit card portfolio
from CIBC.
• Strong chequing and savings deposit volume growth due to
a focus on acquiring and retaining core customer accounts.
• Retained the #1 position in personal deposit market share and
the #2 position in personal loan market share.
• Moved up to #1 position in Canadian credit card market share.
• Business Banking generated strong loan volume growth of 13%
and held the #2 positions in deposit and loan market share.
• Continued to focus on customer service and convenience by
investing in mobile and online banking, and opening 19 new
branches in 2013.
• TD is the most visited banking website in Canada. TD holds
the #1 position in the number of online banking and
mobile customers.
• Achieved external recognition as an industry leader in
customer service excellence with distinctions that included
the following:
– Ranked highest in customer satisfaction among the five major
Canadian banks for the eighth consecutive year by J.D. Power
and Associates, a global marketing information services firm.
The 2013 Canadian Retail Banking Customer Satisfaction
Study included responses from over 20,000 customers.
– TD Canada Trust earned the #1 spot in “Customer Service
Excellence” among the five major Canadian banks for the
ninth consecutive year according to global market research
firm Ipsos.
T A B L E 1 7
CANADIAN PERSONAL AND COMMERCIAL BANKING
(millions of Canadian dollars, except as noted)
Net interest income
Non-interest income
Total revenue – reported
Total revenue – adjusted
Provision for credit losses
Non-interest expenses – reported
Non-interest expenses – adjusted
Net income – reported
Adjustments for items of note, net of income taxes1
Integration charges and direct transaction costs relating to
the acquisition of the credit card portfolio of MBNA Canada
Set-up costs in preparation for the previously announced
affinity relationship with Aimia with respect to Aeroplan
Visa credit cards and the related acquisition of accounts
Net income – adjusted
Selected volumes and ratios
Return on common equity – reported2
Return on common equity – adjusted2
Margin on average earning assets (including securitized assets) – reported
Margin on average earning assets (including securitized assets) – adjusted
Efficiency ratio – reported
Efficiency ratio – adjusted
Number of Canadian retail stores
Average number of full-time equivalent staff
1 For explanations of items of note, see the “Non-GAAP Financial Measures −
Reconciliation of Adjusted to Reported Net Income” table in the “How We
Performed” section of this document.
rising consumer debt levels.
INDUSTRY PROFILE
The personal and business banking environment in Canada is very
competitive among the major banks as well as some strong regional
players. The increased competition makes it difficult to sustain market
share gains and distinctive competitive advantage over the long term.
Continued success depends upon delivering outstanding customer
service and convenience, disciplined risk management practices, and
good expense management.
OVERALL BUSINESS STRATEGY
The strategy for Canadian Personal and Commercial Banking is to:
• Consistently deliver a legendary customer experience in everything
we do.
• Be recognized as an extraordinary place to work.
• Build on the momentum of higher growth businesses.
• Make the customer and employee experience simple, fast and
easy in order to drive efficiency.
• Invest in the future to deliver top tier earnings performance
consistently.
2013
$ 8,345
2,695
11,040
11,040
929
5,136
4,984
$ 3,654
2012
$ 8,023
2,629
10,652
10,688
1,151
4,988
4,884
$ 3,304
2011
$ 7,190
2,342
9,532
9,532
824
4,433
4,433
$ 3,051
92
104
–
20
$ 3,766
–
$ 3,408
–
$ 3,051
46.8%
48.3%
2.81%
2.81%
46.5%
45.1%
42.9%
44.2%
2.82%
2.84%
46.8%
45.7%
36.9%
36.9%
2.76%
2.76%
46.5%
46.5%
1,179
28,301
1,168
30,354
1,150
29,815
2 Effective 2012, the Bank revised its methodology for allocating capital to its business
segments to align with the common equity capital requirements under Basel III at a
7% Common Equity Tier 1 ratio. The return measures for business segments will now
be return on common equity rather than return on invested capital. These changes
have been applied prospectively. Return on invested capital, which was used as the
return measure in prior periods, has not been restated to return on common equity.
26
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
REVIEW OF FINANCIAL PERFORMANCE
Canadian Personal and Commercial Banking reported net income for
the year was a record $3,654 million, an increase of $350 million, or
11%, compared with last year. Adjusted net income for the year was
a record $3,766 million, an increase of $358 million, or 11%, compared
with last year. The increase in adjusted earnings was driven by good
volume growth, lower credit losses, and effective expense management.
The reported return on common equity for the year was 46.8%, while
the adjusted return on common equity was 48.3%, compared with
42.9% and 44.2%, respectively, last year.
Reported revenue for the year was $11,040 million, an increase of
$388 million, or 4%, compared with last year. Adjusted revenue for
the year was $11,040 million, an increase of $352 million, or 3%,
compared with last year. Net interest income growth was driven by
good portfolio volume growth, higher mortgage refinancing revenue,
and an additional month of MBNA, partially offset by lower margin on
average earning assets and the inclusion of the MBNA credit mark
releases last year. Personal lending volume growth slowed throughout
the year impacted by lower growth in the housing market, moderation
in household borrowing, and regulatory changes in the Canadian
market which tightened mortgage eligibility criteria. Business lending
growth was strong and market share increased. Compared with last
year, average real estate secured lending volume increased $8.9 billion,
or 4%. Auto lending average volume increased $0.3 billion, or 2%,
while all other personal lending average volumes were relatively flat.
Business loans and acceptances average volumes increased $5.2 billion,
or 13%. Average personal deposit volumes increased $6.3 billion, or
4%, due to strong growth in core chequing and savings volume,
partially offset by lower term deposit volume. Average business deposit
volumes increased $5.2 billion, or 8%. Reported margin on average
earning assets decreased 1 bp to 2.81%, while the adjusted margin on
average earning assets decreased 3 bps to 2.81%, due to a decline in
deposit margins from the low rate environment. Non-interest income
growth of 3% was driven by volume-related fee growth and the inclu-
sion of an additional month of MBNA.
PCL for the year was $929 million, a decrease of $222 million, or 19%,
compared with last year. Personal banking PCL was $882 million for
the year, a decrease of $206 million, or 19%, compared with last year
due primarily to better credit performance, enhanced collection strate-
gies, and lower bankruptcies. Business banking PCL was $47 million,
a decrease of $16 million, due to higher recoveries. Annualized PCL
as a percentage of credit volume was 0.30%, a decrease of 9 bps,
compared with last year. Net impaired loans were $882 million,
a decrease of $118 million, or 12%, compared with last year.
Reported non-interest expenses for the year were $5,136 million,
an increase of $148 million, or 3%, compared with last year. Adjusted
non-interest expenses for the year were $4,984 million, an increase of
$100 million, or 2%, compared with last year. Excluding the additional
month of MBNA, expenses increased $72 million, or 1%, compared with
last year, as volume growth, merit increases, and investment in initiatives
to grow the business were largely offset by productivity gains.
The average full-time equivalent (FTE) staffing levels decreased by
2,053, or 7%, compared with last year, primarily due to a transfer of
FTEs to the Corporate segment. Operating FTE declined by 2% due
to volume-related reductions and productivity gains. The reported
efficiency ratio was 46.5%, relatively flat compared with 46.8% in
the same period last year, while the adjusted efficiency ratio improved
to 45.1%, compared with 45.7% in the same period last year.
KEY PRODUCT GROUPS
Personal Banking
• Personal Deposits – TD delivered strong volume growth and main-
tained its market share position due to a focus on acquiring and
retaining core customer accounts. Market share in term deposits
declined as the business reduced growth from higher cost, non-
proprietary channels and fulfilled customer preference for other
investment products. The business was able to largely offset the
impact of the lower interest rate environment through pricing
and investment strategies.
• Consumer Lending – Volumes continued to grow but at a slower
pace than recent years. TD maintained its leadership position in
market share for real estate secured lending products, with a focus
on increasing customer retention rates.
• Credit Cards and Merchant Service – Growth in earnings continued in
2013 led by improved credit quality and volume growth. Management
focus was on continued growth, the MBNA integration, and the newly
announced Aeroplan agreement.
• TD Auto Finance Canada – The business was able to grow its
portfolio in a competitive market by producing financial solutions
for dealerships, developing flexible vehicle financing options, and
continuing its focus on service.
Business Banking
• Commercial Banking – Continued investments in customer-facing
resources in strategic markets resulted in new customer acquisition
that drove strong volume growth and market share gains. Higher
loan and deposit volume growth was partially offset by lower
margins. Credit losses decreased and are at the low end of
normalized levels.
• Small Business Banking – Continued investments in both deposit
and credit infrastructure to improve speed to market and customer
experience. Volume growth in the year was largely offset by
declining margins. Credit losses remained relatively stable.
BUSINESS OUTLOOK AND FOCUS FOR 2014
We will continue to focus on our legendary customer service
and convenience position across all channels. Our commitment
to invest across businesses positions us well for growth over the
long term. We expect earnings growth to moderate in 2014 as
credit loss rates stabilize. We expect the retail loan growth rate
to generally be in line with current year levels. Business lending
is expected to remain strong as we continue to focus on winning
market share. Over the next year we expect modest downward
pressure on margins, with quarterly margins bumping around
depending on product mix, seasonal factors or rate moves.
Credit loss rates should remain relatively stable; however, recent
low personal bankruptcy trends will likely normalize next year.
We plan to mitigate the impact of these pressures by focusing
on productivity and tightly managing expense growth. We will
continue the momentum in the credit cards business, including
executing on the new Aeroplan relationship.
Our key priorities for 2014 are as follows:
• Provide a legendary customer experience across all
distribution channels.
• Continue the growth momentum in our businesses, building
on platforms where we have made strategic investments.
• Deliver integrated service and advice in local markets, across
businesses and channels.
• Keep our focus on productivity to enhance customer
experience, employee satisfaction and shareholder value.
• Continue to increase employee engagement and be
recognized as an extraordinary place to work.
27
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS BUSINESS SEGMENT ANALYSIS
Wealth and Insurance
Wealth and Insurance comprises the Bank’s Wealth Management and Insurance businesses globally.
Through our Direct Investing, Advice-based, and Asset Management businesses, TD Wealth helps individual
and institutional clients protect, grow and successfully transition their wealth. TD Insurance provides advice
and insurance solutions to protect Canadians through home and auto, credit protection, travel, credit card
balance protection and other simple life and health products.
$1,153
NET INCOME
(millions of Canadian dollars)
$257
Assets under
Management
$293
Assets under
Administration
ASSETS UNDER MANAGEMENT AND
ASSETS UNDER ADMINISTRATION1,2
(billions of Canadian dollars)
$3,772
GROSS ORIGINATED
INSURANCE PREMIUMS
(millions of Canadian dollars)
$1,600
1,200
800
400
0
$300
250
200
150
100
50
0
$4,000
3,000
2,000
1,000
0
11
12
13
11 12 13
11 12 13
11
12
13
Assets under management
Assets under administration
T A B L E 1 8
REVENUE 3, 4
(millions of Canadian dollars)
Direct investing
Advice-based
Asset management
Insurance5
Total Wealth and Insurance5
2013
$ 818
1,223
1,071
3,825
$ 6,937
2012
$ 793
1,101
876
3,673
$ 6,443
2011
$ 893
1,056
830
3,439
$ 6,218
1 Assets under management: Assets owned by clients, but managed by the Bank
where the Bank makes investment selections on behalf of the client (in accordance
with an investment policy). In addition to the TD family of mutual funds, the Bank
manages assets on behalf of individuals, pension funds, corporations, institutions,
endowments and foundations.
2 Assets under administration: Assets owned by clients where the Bank provides
services of an administrative nature, such as the collection of investment income
and the placing of trades on behalf of the clients (where the client has made their
own investment selection).
3 Excludes the Bank’s investment in TD Ameritrade.
4 Certain revenue lines are presented net of internal transfers.
5 Effective 2013, Insurance revenue and Insurance claims and related expenses are
presented on a gross basis on the Consolidated Statement of Income. Comparative
amounts have been reclassified to conform with this presentation.
28
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
BUSINESS HIGHLIGHTS
• Wealth had record earnings in 2013 with net income of
$691 million and Insurance had earnings in 2013 of $216 million.
• The Canadian Direct Investing business sustained a market
leading position in both share of assets and trades and
continued to invest for the future with the launch of an
enhanced active trading platform. In the fourth quarter of
2013, TD announced the sale of the Canadian Institutional
Services business and closed the sale of the U.K. Institutional
Services business on November 13, 2013.
• Our Advice-based businesses in Canada achieved record Client
Experience Index (CEI) ratings and continued to gain market
share as measured by assets.
• TDAM, the manager of TD Mutual Funds, had record assets
under management of $257 billion. Several TD funds were
recognized by Lipper as the top fund in their respective
category over a three, five and ten-year time period.
• TD completed the acquisition of Epoch Investment Partners,
Inc., which had $38 billion in assets under management as
at October 31, 2013, up from $28 billion on close, inclusive
of $5 billion of assets previously managed by TDAM and
external sub-advisors. The addition of Epoch significantly
expanded TD’s North American investment management
footprint while strengthening Epoch’s existing franchise
and competitive advantage.
• TD Insurance gross originated insurance premiums grew 6%.
TD’s property and casualty Insurance business grew affinity
market premiums by 10% and retained the #1 direct writer
position in home and auto and the #2 in personal lines position.
• Ongoing focus on client experience in 2013 resulted in increase
in CEI ratings for TD Insurance.
• TD Insurance processed over 292,000 claims across Canada,
helping clients and their families in their times of need.
CHALLENGES IN 2013
• In our Wealth business, Direct Investing trading volumes
improved, but continued to be below historical norms, which
impacted the growth rate of Direct Investing revenue.
• Persistently low interest rate environment continued to limit
our ability to grow revenue on deposits.
• The property and casualty Insurance business experienced
unfavourable prior years’ claims development related primar-
ily to Ontario auto insurance, as well as higher claims costs
due to severe weather-related events, including the flood in
Southern Alberta and the Greater Toronto Area in the third
quarter of 2013. As a result, Insurance earnings declined
significantly year over year.
• Slowing lending volume growth in TD Canada Trust resulted
in reduced demand for authorized credit protection products
in the life and health insurance business.
INDUSTRY PROFILE
TD Wealth’s business operates in three geographic regions: Canada,
the U.S., and Europe. In Canada, the industry is extremely competitive
consisting of major banks, large insurance companies, and monoline
wealth management organizations (including mutual fund companies
and private wealth managers, asset managers and financial planners).
Given the level of competition in Canada, TD’s success lies in our abil-
ity to differentiate on client experience across all of our businesses and
channels by providing the right products, services, tools and solutions
to serve our clients’ needs.
In the U.S., the wealth management industry is large but competi-
tion is more fragmented, consisting of banks, insurance companies,
independent mutual fund companies, discount brokers, full service
brokers, and independent asset management companies. In our
Maine-to-Florida footprint, the Bank competes against both national
and regional banks and non-bank wealth organizations.
TD Ameritrade, in which TD has a substantial investment, competes
most directly with other direct investment firms. TD Ameritrade
remains a leader in this market by continuing to deliver world-class
direct investing capabilities to clients, including investor tools,
services and education.
In Europe, the industry is led by strong regional players with little
pan-European presence or brand. In the U.K., TD competes most
directly with other direct investment firms and institutional services
firms. In Europe, TD competes by providing focused multi-currency
and multi-exchange online direct investing services for retail investors.
TD Insurance operates in both the Canadian property and casualty
insurance, and the life and health insurance industries.
The property and casualty industry in Canada is a fragmented and
competitive market, consisting of both personal and commercial lines
writers. However, TD Insurance only offers personal lines (home and
auto) insurance products to clients. The personal lines property and
casualty industry uses both independent intermediaries and direct
channels to distribute products. TD Insurance only distributes
products through direct channels. In recent years, there has been a
growing trend by consumers to purchase home and auto insurance
through direct channels. TD Insurance partners with affinity groups
such as professional associations, universities and employer groups
to market personal lines insurance products, and is the largest affinity
writer in Canada.
The life and health insurance industry in Canada, and the reinsur-
ance market internationally, while more consolidated, is made up of
several larger competitors. TD Insurance competes as a Direct Life and
Health insurance provider offering a range of affordable and simple
insurance solutions, and through TD Canada Trust branches, offers
bank authorized credit protection products as part of the lending
process, and travel insurance.
OVERALL BUSINESS STRATEGY
Wealth
• Global Direct Investing builds on existing market leadership positions
by offering best-in-class capabilities, tools, service and investor
education, and by extending our comfort and convenience brand
with continued investment in intuitive functionality.
• The North American Advice-based business continues to grow by
enhancing the overall client experience and by providing comprehen-
sive investment and wealth planning services and solutions to help
retirees and pre-retirees protect, grow and transition their wealth.
• The Asset Management business continues to grow by creating
targeted product solutions that serve our institutional and retail
clients’ needs, and that align well with our distribution channels
and capabilities.
Insurance
The strategy for TD Insurance is to:
• Be the preferred insurer for TD Bank and affinity partner clients,
and the #1 direct writer in Canada.
• Deliver legendary sales, service and claims client experiences that
align to the TD brand.
• Offer simple insurance products that are easy to understand
and access.
• Continue to invest in well-run and efficient operations and
technology infrastructure.
29
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS T A B L E 1 9
WEALTH AND INSURANCE
(millions of Canadian dollars, except as noted)
Net interest income
Insurance revenue1
Income from financial instruments designated at fair value through profit or loss
Non-interest income – other
Total revenue1
Insurance claims and related expenses1
Non-interest expenses
Net income
Wealth
Insurance
TD Ameritrade
Total Wealth and Insurance
Selected volumes and ratio
Assets under administration – Wealth (billions of Canadian dollars)
Assets under management – Wealth (billions of Canadian dollars)2
Gross originated insurance premiums
Return on common equity3
Efficiency ratio1
Average number of full-time equivalent staff
2013
$ 579
3,734
(18)
2,642
6,937
3,056
2,821
907
691
216
246
$ 1,153
2012
$ 583
3,537
5
2,318
6,443
2,424
2,600
1,158
601
557
209
$ 1,367
2011
$ 542
3,345
(2)
2,333
6,218
2,178
2,616
1,107
566
541
207
$ 1,314
$ 293
257
3,772
18.9%
40.7%
$ 258
207
3,572
20.7%
40.4%
$ 237
189
3,326
25.3%
42.1%
11,610
11,930
11,984
1 Effective 2013, Insurance revenue and Insurance claims and related expenses are
presented on a gross basis on the Consolidated Statement of Income. Comparative
amounts, including certain ratios, have been recast to conform with the current
period presentation.
2 As at October 31, 2013, the Wealth assets under management includes $38 billion
related to Epoch.
3 Effective 2012, the Bank revised its methodology for allocating capital to its business
segments to align with the common equity capital requirements under Basel III at
a 7% Common Equity Tier 1 ratio. The return measures for business segments will
now be return on common equity rather than return on invested capital. These
changes have been applied prospectively. Return on invested capital, which was
used as the return measure in prior periods, has not been restated to return on
common equity.
REVIEW OF FINANCIAL PERFORMANCE
Wealth and Insurance net income for the year was $1,153 million, a
decrease of $214 million, or 16%, compared with last year, reflecting
lower earnings in the Insurance business, partially offset by higher
earnings in Wealth and TD Ameritrade. Wealth and Insurance net
income excluding TD Ameritrade was $907 million, a decrease of
$251 million, or 22%, compared with last year. The Bank’s reported
investment in TD Ameritrade generated net income for the year of
$246 million, an increase of $37 million, or 18%, compared with last
year, mainly driven by higher TD Ameritrade earnings. For its fiscal year
ended September 30, 2013, TD Ameritrade reported net income was
US$675 million, an increase of US$89 million, or 15%, compared with
last year, primarily driven by higher trading and fee-based revenue,
and increased investment gains. The return on common equity for the
year was 18.9% compared with 20.7% last year.
Revenue for the year was $6,937 million, an increase of $494 million,
or 8%, compared with last year. In the Wealth business, revenue
increased mainly from higher fee-based revenue from asset growth
and equity market appreciation, and the addition of Epoch. In the
Insurance business, revenue increased mainly from premium volume
growth, partially offset by the sale of the U.S. Insurance business.
Insurance claims and related expenses for the year were
$3,056 million, an increase of $632 million, or 26%, compared
with the last year, primarily due to unfavourable prior years’ claims
development related to the Ontario auto insurance market, and higher
claims associated with volume growth and weather-related events.
Non-interest expenses for the year were $2,821 million, an increase
of $221 million, or 9%, compared with last year. The increase was
primarily due to higher revenue-based variable expenses in the Wealth
business, the addition of Epoch, and increased costs to support busi-
ness growth in Wealth and Insurance, partially offset by decreased
expenses resulting from the sale of the U.S. Insurance business.
Assets under administration of $293 billion as at October 31, 2013
increased $35 billion, or 14%, compared with October 31, 2012. Assets
under management of $257 billion as at October 31, 2013 increased
$50 billion, or 24%, compared with October 31, 2012. These increases
were driven by market appreciation of the assets, the addition of Epoch
assets under management, and growth in new client assets.
Gross originated insurance premiums were $3,772 million, an increase
of $200 million, or 6%, compared with last year. The increase was
primarily due to organic business growth.
The average FTE staffing levels for the year decreased by 320,
or 3%, compared with last year primarily due to the sale of the U.S.
Insurance business. The efficiency ratio for the year was 40.7%,
relatively flat compared with last year.
TD AMERITRADE HOLDING CORPORATION
Refer to Note 11 of the Consolidated Financial Statements for further
information on TD Ameritrade.
30
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
KEY PRODUCT GROUPS
Global Direct Investing
• TD Waterhouse Direct Investing offers a comprehensive product
and service offering to self-directed retail investors. In Canada, TD
Waterhouse Direct Investing is the largest direct investing business
by assets under administration and also by trade volume. In Europe,
TD Direct Investing provides a broad range of products available for
trading and investing, including trading on U.K. and international
equities, with direct access to 17 markets.
North American Advice-based Business
• The Advice-based business is comprised of financial planning, full
service brokerage and private client services and is integrated with
our Canadian and U.S. Retail and Commercial Banking businesses.
The business provides investment solutions and advice, across differ-
ent client asset levels and product complexity, to meet our clients’
goals in protecting, growing and transitioning their wealth.
Asset Management
• TDAM is a leading investment manager, with deep retail and institu-
tional capabilities. In Canada, TD Mutual Funds is a leading mutual
fund business, providing a broadly diversified range of mutual funds
and professionally managed portfolios. TDAM’s institutional invest-
ment business has a leading market share in Canada and includes
clients of some of the largest pension funds, endowments and corpo-
rations in Canada. Epoch Investment Partners Inc., acquired in 2013,
manages $38 billion of assets as at October 31, 2013 for institutional
and high net worth clients primarily in the U.S. and Canada. All asset
management units work in close partnership with other TD businesses,
including the Advice-based business and Retail Banking, to align
products and services to ensure a legendary client experience.
Insurance
• TD’s property and casualty Insurance business is the largest direct
distribution insurer, and the second largest personal insurer in Canada
and the national leader in the affinity market offering home and
auto insurance to members of affinity groups such as professional
associations, universities and employer groups, and other clients,
through direct channels.
• TD’s life and health Insurance business offers credit protection and
travel insurance products mostly distributed through TD Canada
Trust branches. Other simple life and health insurance products
such as term life, critical illness, accident and sickness, and credit
card balance protection are distributed through direct channels.
BUSINESS OUTLOOK AND FOCUS FOR 2014
Building upon our market leading positions in the Wealth busi-
nesses, we plan to grow client assets, improve client experience
and expand our range of products, services and solutions, while
managing expenses prudently and investing in key capabilities
and processes. While general economic challenges may persist
in the short term, we believe that the Wealth businesses can
achieve solid earnings in the year ahead, and are well positioned
to benefit from long term demographic shifts.
While regulatory developments are creating uncertainties in
the Ontario auto insurance market, and severe weather-related
events in recent years will negatively impact the cost and
availability of reinsurance, we believe, despite these challenges,
the Insurance business has good long-term growth prospects.
We plan to continue to improve client experience, invest in
capabilities and improve efficiencies in our core operations.
Our key priorities for 2014 are as follows:
Wealth:
• Build on our leadership in the Global Direct Investing busi-
ness by introducing new client solutions and improving the
client experience.
• Grow share in our North American Advice-based business by
deepening our referral partnership with TD’s U.S. and Canadian
Personal and Commercial Banking segments, creating solutions
to address our clients’ individual investing needs, and enhanc-
ing the overall client experience.
• Leverage our premier asset management capabilities to
grow both our mutual funds and our institutional Asset
Management business.
Insurance:
• Review and enhance insurance products to ensure that they
are competitive, provide the protection our clients need, and
are easy to understand.
• Invest in robust systems and processes that are more client-
centric and operationally efficient, and that have a prudent
risk profile.
• Develop innovative and convenient ways for our clients to
access insurance products by phone, on-line, mobile and tablet.
• Work collaboratively with governments, regulators and
industry bodies to ensure the availability of affordable
home and auto insurance to Canadians.
31
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS BUSINESS SEGMENT ANALYSIS
U.S. Personal and Commercial Banking
Operating under the brand name, TD Bank, America’s Most Convenient Bank, U.S. Personal and
Commercial Banking offers a full range of banking services to nearly 8 million customers including
individuals, businesses, and governments.
$1,527
Reported
$1,627
Adjusted
NET INCOME
(millions of Canadian dollars)
63.8%
Reported
62.1%
Adjusted
EFFICIENCY RATIO
(percent)
$1,800
1,500
1,200
900
600
300
0
80%
60
40
20
0
11
12
13
11
12
13
Reported
Adjusted
Reported
Adjusted
T A B L E 2 0
ASSETS1
(millions of dollars)
Consumer loans
Business and government loans
Debt securities classified as loans
Investment securities
Other assets
Total
1 Excluding all goodwill and other intangibles.
Canadian dollars
October 31
2013
$ 56,238
53,996
2,459
33,065
4,662
$ 150,420
October 31
2012
$ 43,721
47,546
2,898
37,354
2,242
$ 133,761
October 31
2011
$ 35,004
43,057
3,804
43,562
2,695
$ 128,122
October 31
2013
$ 53,935
51,785
2,359
31,711
4,471
$ 144,261
October 31
2012
$ 43,765
47,594
2,901
37,391
2,244
$ 133,895
U.S. dollars
October 31
2011
$ 35,120
43,200
3,817
43,706
2,703
$ 128,546
32
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
BUSINESS HIGHLIGHTS
• Achieved record adjusted earnings of US$1,595 million, an
increase of 13%, in a challenging operating environment.
• Gained profitable market share in both loans and deposits
while maintaining strong credit quality.
• Grew loans organically by US$9 billion, or 10%, and deposits
by US$17 billion, or 10%, during a slow economic recovery.
• Continued to lead in customer service and convenience
with more store hours than competitors in our Maine-to-
Florida footprint.
• Continued to invest in growing the franchise.
• Asset quality has improved for the overall portfolio.
• Named the 2013 “Best Big Bank in America” by Money Magazine.
• Acquired Target Corporation’s U.S. credit card portfolio
in March 2013.
CHALLENGES IN 2013
• Regulatory and legislative changes have impacted the operat-
ing environment, TD Bank’s product offerings and earnings.
• Low interest rate environment and heightened competition
led to continued pressure on margins.
INDUSTRY PROFILE
The U.S. banking industry has experienced a significant amount of
consolidation over the past few years. The personal and business
banking environment in the U.S. is very competitive in all areas of
the business. U.S. banks are subject to vigorous competition from
other banks and financial institutions, including savings banks,
finance companies, credit unions, and other providers of financial
services. The keys to profitability are attracting and retaining
customer relationships over the long term with innovative conve-
nience and service brands within our operating footprint, effective
risk management, rational product pricing, use of technology to
deliver products and services for customers anytime and anywhere,
optimizing fee-based businesses, and effective control of operating
expenses. In the U.S., the wealth management industry is large but
competition is more fragmented, consisting of banks, insurance
companies, independent mutual fund companies, discount brokers,
full service brokers, and independent asset management companies.
In our Maine-to-Florida footprint, the Bank competes against both
national and regional banks and non-bank wealth organizations.
OVERALL BUSINESS STRATEGY
The strategy for U.S. Personal and Commercial Banking is to:
• Focus on retail and commercial banking in higher growth markets
along the U.S. Eastern Seaboard.
• Out-grow competitors through legendary service and convenience
and by delivering integrated banking services to the customer.
• Make customers proud to be associated with TD Bank.
• Be an extraordinary and inclusive place to work – attract, develop,
and retain top talent.
• Operate with excellence.
• Take only risks we understand and can manage and deploy capital
prudently within a well-defined risk appetite.
T A B L E 2 1
U.S. PERSONAL AND COMMERCIAL BANKING
(millions of dollars, except as noted)
Canadian dollars
U.S. dollars
Net interest income
Non-interest income
Total revenue – reported
Total revenue – adjusted
Provision for credit losses – loans
Provision for credit losses – debt securities classified as loans
Provision for credit losses – acquired credit-impaired loans1
Provision for credit losses – reported
Provision for credit losses – adjusted
Non-interest expenses – reported
Non-interest expenses – adjusted
Net income – reported
Adjustments for items of note2
Integration charges and direct transaction costs relating
to U.S. Personal and Commercial Banking acquisitions
Litigation and litigation-related charge/reserve
Impact of Superstorm Sandy
Net income – adjusted
Selected volumes and ratios
Return on common equity – reported3
Return on common equity – adjusted3
Margin on average earning assets (TEB)4
Efficiency ratio – reported
Efficiency ratio – adjusted
Number of U.S. retail stores
Average number of full-time equivalent staff
2013
$ 5,172
1,957
7,129
7,129
762
(32)
49
779
779
4,550
4,424
$ 1,527
–
100
–
$ 1,627
2012
$ 4,663
1,468
6,131
6,132
652
12
115
779
725
4,125
3,694
$ 1,128
9
248
37
$ 1,422
2011
$ 4,392
1,342
5,734
5,734
534
75
78
687
687
3,593
3,451
$ 1,188
82
–
–
$ 1,270
2013
$ 5,068
1,916
6,984
6,984
746
(31)
49
764
764
4,457
4,331
$ 1,495
–
100
–
$ 1,595
2012
$ 4,643
1,463
6,106
6,107
651
12
115
778
723
4,107
3,678
$ 1,123
9
247
37
$ 1,416
2011
$ 4,455
1,363
5,818
5,818
541
75
82
698
698
3,643
3,497
$ 1,205
84
–
–
$ 1,289
8.1%
8.6%
3.66%
63.8%
62.1%
6.4%
8.1%
3.60%
67.3%
60.2%
7.3%
7.8%
3.73%
62.7%
60.2%
8.1%
8.6%
3.66%
63.8%
62.1%
6.4%
8.1%
3.60%
67.3%
60.2%
7.3%
7.8%
3.73%
62.7%
60.2%
1,317
24,871
1,315
25,027
1,281
24,193
1,317
24,871
1,315
25,027
1,281
24,193
1 Includes all Federal Deposit Insurance Corporation (FDIC) covered loans and other
acquired credit-impaired loans.
2 For explanations of items of note, see the “Non-GAAP Financial Measures −
Reconciliation of Adjusted to Reported Net Income” table in the “Financial
Results Overview” section of this document.
3 Effective 2012, the Bank revised its methodology for allocating capital to its business
segments to align with the common equity capital requirements under Basel III at a
7% Common Equity Tier 1 ratio. The return measures for business segments will now
be return on common equity rather than return on invested capital. These changes
have been applied prospectively. Return on invested capital, which was used as the
return measure in prior periods, has not been restated to return on common equity.
4 Margin on average earning assets exclude the impact related to the TD Ameritrade
insured deposit accounts (IDA).
33
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
REVIEW OF FINANCIAL PERFORMANCE
U.S. Personal and Commercial Banking reported net income, in Canadian
dollar terms, for the year was $1,527 million, an increase of $399 million,
or 35%, compared with last year. Adjusted net income for the year
was $1,627 million, an increase of $205 million, or 14%, compared
with last year. In U.S. dollar terms, reported net income for the year
was US$1,495 million, an increase of US$372 million, or 33%, compared
with last year and adjusted net income was US$1,595 million, an increase
of US$179 million, or 13%. Results include activity related to the credit
card program agreement with Target Corporation subsequent to the
acquisition of approximately US$6 billion of credit card receivables on
March 13, 2013. Revenue and expenses related to Target are reported
on a gross basis on the Consolidated Statement of Income and non-
interest expenses include the Bank’s expenses related to the business,
and amounts due to Target Corporation under the credit card program
agreement. The increase in adjusted earnings was primarily due to
strong loan and deposit volume and higher fee-based revenue, and
increased gains on sales of securities and debt securities classified as
loans, partially offset by higher expenses to support growth and lower
margins. The reported return on common equity for the year was
8.1%, while the adjusted return on common equity was 8.6%,
compared with 6.4% and 8.1%, respectively, last year.
In U.S. dollar terms, adjusted revenue for the year was
US$6,984 million, an increase of US$877 million, or 14%, compared
with last year driven by the inclusion of revenue from Target, increased
loan and deposit volume, higher fee-based revenue, and gains on sales
of securities and debt securities classified as loans, partially offset by
lower margins and loan accretion. Excluding Target, average loans
increased by US$11 billion, or 13%, compared with last year with an
increase of US$7 billion, or 19%, in average personal loans and an
increase of US$4 billion, or 8%, in average business loans. In the current
year, US$6 billion in credit cards outstanding were added due to Target.
Average deposits increased US$17 billion, or 10%, compared with
prior year, including a US$9 billion increase in average deposits of
TD Ameritrade. Excluding the impact of TD Ameritrade IDAs, average
deposit volume increased by US$8 billion, or 7%. Margin on average
earning assets for the year was 3.66%, a 6 bps increase compared
with last year primarily due to the impact of Target, partially offset
by core margin compression.
Reported PCL for the year was US$764 million, a decrease of
US$14 million, or 2%, compared with last year. Adjusted PCL for the
year was US$764 million, an increase of US$41 million, or 6%, compared
with last year. Personal banking PCL was US$638 million, an increase
of US$247 million, or 63%, from the prior year due primarily to Target
and increased provisions in auto loans. Business banking PCL was
US$155 million, a decrease of US$165 million, or 52%, compared with
prior year reflecting improved credit quality in commercial loans. PCL
as a percentage of credit volume for loans excluding debt securities
classified as loans was 0.75%, a decrease of 3 bps, compared with last
year. Net impaired loans, excluding acquired credit-impaired loans and
debt securities classified as loans, as a percentage of total loans were
1.3% as at October 31, 2013, compared with 1.2% as at October 31,
2012. Acquired credit-impaired loans were US$2.3 billion as at
October 31, 2013 compared with US$3.8 billion as at October 31,
2012, while net impaired debt securities classified as loans were
US$0.9 billion as at October 31, 2013 compared with US$1.3 billion
as at October 31, 2012.
Reported non-interest expenses for the year were US$4,457 million,
an increase of US$350 million, or 9%, compared with last year. On an
adjusted basis, non-interest expenses were US$4,331 million, an increase
of US$653 million, or 18%, compared with last year due primarily to
increased expenses related to Target, investments in new stores and
other planned initiatives, partially offset by productivity gains.
The average FTE staffing levels for the year decreased by 156,
or 1%, reflecting efficiencies in store network operations including
optimization of store locations and planned declines in TD Auto
Finance U.S. The reported efficiency ratio for the year improved to
63.8%, compared with 67.3% last year, while the adjusted efficiency
ratio for the year worsened to 62.1%, compared with 60.2% last year.
34
KEY PRODUCT GROUPS
Personal Banking
• Personal Deposits – Our product offerings include a large variety
of chequing and savings products, along with money markets and
certificates of deposits. We continued to build on our reputation as
America’s Most Convenient Bank by opening 24 new stores in fiscal
2013. We delivered strong year-over-year growth driven by maturing
stores and a competitive product offering.
• Consumer Lending – Our principal product offerings of home equity
loans and lines of credit, credit cards, and auto loans offered
through a network of auto dealers continued to grow organically
and through strategic acquisitions. Loan loss rates have improved
over the prior year and remain in line with the industry.
• Residential Real Estate Secured Lending – We offer various mortgage
products, including fixed and variable rate loans, through our resi-
dential lending unit. We grew profitable market share and franchise
customers through higher originations, with strong credit quality,
during a tough economic environment. Store-based originations
are a key focus to leverage cross-selling opportunities.
• Small Business Banking and Merchant Services – We offer specialized
products designed for the small business including an array of deposit
products and loan products, including long term business mortgages,
lines of credit, credit cards, and small business loans. The Small
Business Banking group continues to be among the top ranked small
business lenders in most of our markets. Merchant Services offer
point-of-sale settlement solutions for debit and credit card transac-
tions, supporting over 17,000 business locations in our footprint.
Commercial Banking
• Commercial Banking – Commercial Banking provides commercial
customers with a comprehensive array of lending products and
ancillary services. We handle the financial needs of a wide range of
commercial customers including those with special borrowing needs
in discrete loan producing business units such as healthcare,
corporate real estate, asset based lending, equipment finance and
dealer commercial services. Commercial and industrial loan demand
increased significantly while commercial real estate demand remained
relatively low resulting in strong overall loan growth at competitive
spreads. Commercial loan volume growth significantly outperformed
peers. Loan losses continue to improve throughout the portfolio and
our overall asset quality remains better than the industry.
BUSINESS OUTLOOK AND FOCUS FOR 2014
For 2014, our assumption is for continued modest but variable
economic growth, and continued low short term interest rates,
while longer term rates will likely stay historically low, but with
some volatility. We expect competition for loans will remain
intense, credit will remain benign, and regulatory developments
will pose challenges. Earnings should be characterized by a
higher net interest margin as a result of the full year effect of
Target and reinvestment of assets at higher rates, offset by
lower levels of security gains and higher levels of provision for
credit losses. We should continue to outgrow our competition,
but loan growth will likely slow, largely due to lower levels of
mortgage refinancing. Moderating expense growth, while we
continue to invest in growth and regulatory compliance, will
remain a focus. Given these assumptions, we expect a challeng-
ing 2014 with modest growth in adjusted earnings.
Our key priorities for 2014 are as follows:
• Continue broad-based organic growth of loans and deposits,
while adhering to a conservative risk appetite.
• Continue to deliver convenient banking solutions and services
that exceed customer expectations.
• Continue business expansion by opening new stores in larger
markets such as New York, Florida, and Boston.
• Improve efficiency and productivity to counter the challenging
operating environment and drive long-term competitiveness.
• Broaden and deepen customer relationships through cross-
selling initiatives.
• Continue to optimize the balance sheet including possible
asset acquisitions.
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS BUSINESS SEGMENT ANALYSIS
Wholesale Banking
Wholesale Banking serves a diverse base of corporate, government, and institutional clients
in key global financial centres.
$648
NET INCOME
(millions of Canadian dollars)
$2,407
TOTAL REVENUE
(millions of Canadian dollars)
$47
RISK-WEIGHTED ASSETS
(billions of Canadian dollars)
$1,000
800
600
400
200
0
$3,000
2,500
2,000
1,500
1,000
500
0
$50
40
30
20
10
0
11
12
13
11
12
13
11
12
13
T A B L E 2 2
REVENUE
(millions of Canadian dollars)
Investment banking and capital markets
Corporate banking
Equity investments
Total
2013
$ 1,854
479
74
$ 2,407
2012
$ 1,987
448
219
$ 2,654
2011
$ 1,724
453
319
$ 2,496
35
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
BUSINESS HIGHLIGHTS
• Return on common equity of 15.6%.
• Solid performance across core businesses despite challenging
capital markets environment.
• Higher government and corporate fixed income underwriting
primarily due to improved new issue volumes.
• Simplifying the infrastructure model to be more efficient
and agile.
• Maintained top-three dealer status in Canada (for the nine-
month period ended September 30, 2013):
– #1 in equity block trading
– #1 in corporate debt underwriting
– #3 in government debt underwriting
– #3 in syndications (on rolling 12 month basis)
– #3 in equity underwriting (full credit-to-book runner)
CHALLENGES IN 2013
• Low interest rates and subdued markets led to reduced
trading opportunities.
a negative impact on investor confidence and affected the industry.
Low rates and volatility driven by market uncertainty and liquidity
concerns added downward pressure to asset prices, trading volumes
and investor activities causing wholesale banks to continue to focus on
client driven businesses and risk management. However, fixed income
government and corporate issuances were strong throughout the year.
Looking at the long term, wholesale businesses that have a diversified
client-focused business model, offer a wide range of products and
services, and exhibit effective cost management will be well positioned
as investor confidence returns and markets improve.
OVERALL BUSINESS STRATEGY
• Our goal is to enhance our client-centric franchise model and main-
tain a prudent risk profile by providing wholesale banking products
and services to high quality clients and counterparties in liquid and
transparent financial markets.
• We focus on meeting client needs by providing superior advice and
execution of client-driven transactions.
• In Canada, the strategic objective is to strengthen our position
• Global fiscal challenges caused investor uncertainty and
as a top investment dealer.
reduced volumes.
• Regulatory reform continued to apply pressure on
business activities.
INDUSTRY PROFILE
The wholesale banking sector in Canada is a mature market with
competition primarily coming from the Canadian banks, large global
investment firms, and independent niche dealers. Despite early signs
of gradual improvement in the markets in the first half of the year
driven by positive economic data and central banks stimulus, the
trading environment remained challenging in 2013. Headwinds such
as the uncertainty over the U.S. Federal Reserve’s tapering of asset
purchases, fiscal retrenchment and political uncertainty all had
• In the U.S., our objective is to extend the goals of the Canadian
franchise and leverage our network of U.S. businesses. We will also
continue to grow government fixed income, currency, commodities,
and origination businesses.
• Globally, we seek to extend the goals of our North American fran-
chise, including trading in liquid currencies, as well as underwriting,
distributing, and trading high quality fixed income products of
highly rated issuers.
• We support and enhance TD’s brand working in partnership with
other TD segments to offer premium products and services for our
collective client base.
T A B L E 2 3
WHOLESALE BANKING
(millions of Canadian dollars, except as noted)
Net interest income (TEB)
Non-interest income
Total revenue
Provision for credit losses
Non-interest expenses
Net income
Selected volumes and ratios
Trading-related revenue
Risk-weighted assets (billions of Canadian dollars) 1, 2
Return on common equity 3
Efficiency ratio
Average number of full-time equivalent staff
2013
$ 1,982
425
2,407
26
1,541
$ 648
2012
$ 1,805
849
2,654
47
1,570
$ 880
2011
$ 1,659
837
2,496
22
1,468
$ 815
$ 1,270
47
15.6%
64.0%
3,536
$ 1,334
43
21.2%
59.2%
3,553
$ 1,069
35
24.3%
58.8%
3,517
1 Prior to 2012, the amounts were calculated based on Canadian GAAP.
2 Effective 2013, amounts are calculated in accordance with the Basel III regulatory
framework, excluding Credit Valuation Adjustment (CVA) capital in accordance
with Office of the Superintendent of Financial Institutions Canada (OSFI) guidance,
and are presented based on the “all-in” methodology. In 2012, amounts were
calculated in accordance with the Basel II regulatory framework inclusive of Market
Risk Amendments. Prior to 2012, amounts were calculated in accordance with the
Basel II regulatory framework.
3 Effective 2012, the Bank revised its methodology for allocating capital to its business
segments to align with the common equity capital requirements under Basel III
inclusive of CVA capital at a 7% Common Equity Tier 1 rate. Prior to 2012, return
on invested capital was used as the return measure.
36
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
REVIEW OF FINANCIAL PERFORMANCE
Wholesale Banking net income for the year was $648 million, a decrease
of $232 million, or 26%, compared with last year. The decrease in
earnings was due to lower revenue and a higher effective tax rate,
partially offset by lower non-interest expenses. The return on common
equity for the year was 15.6%, compared with 21.2% last year.
Revenue for the year was $2,407 million, a decrease of $247 million,
or 9%, compared with last year. Revenue declined primarily due to
significantly lower security gains in the investment portfolio, lower trad-
ing-related revenue and M&A and advisory fees. This was partially offset
by higher debt underwriting and loan fees. Trading-related revenue was
lower as the prior year included trading gains that were previously
considered impaired and M&A fees decreased on lower industry wide
volumes. This was partially offset by increased debt underwriting fees on
improved client activity while capturing a higher market share. Loan fees
improved due to higher credit originations and volume growth.
PCL comprises specific provision for credit losses and accrual costs for
credit protection. The change in market value of the credit protection, in
excess of the accrual cost, is reported in the Corporate segment. PCL for
the year was $26 million, a decrease of $21 million, or 45%, compared
with last year. The decrease in PCL was primarily due to a loss on a single
name in the corporate lending portfolio in the prior year. PCL in the
current year primarily comprised the accrual cost of credit protection.
Non-interest expenses for the year were $1,541 million, a decrease
of $29 million, or 2%, compared with last year primarily due to lower
variable compensation commensurate with revenue.
Risk-weighted assets were $47 billion as at October 31, 2013,
an increase of $4 billion, or 9%, compared with October 31, 2012.
The increase was due to the implementation of the Basel III regu-
latory framework.
The average FTE staffing levels decreased by 17 compared with last year.
KEY PRODUCT GROUPS
Investment Banking and Capital Markets
• Investment banking and capital markets revenue, which includes
advisory, underwriting, trading, facilitation, and execution services,
decreased over last year. The decrease was primarily due to reduced
M&A fees on lower industry-wide volumes and lower trading-related
revenue as the prior year included trading gains that were previously
considered impaired.
Corporate Banking
• Corporate banking revenue which includes corporate lending,
trade finance and cash management services increased over last
year driven by higher fee revenue and solid loan volumes.
Equity Investments
• The equity investment portfolio, which we are in the process
of exiting, consists primarily of private equity investments. Equity
investment gains were significantly lower than the prior year.
BUSINESS OUTLOOK AND FOCUS FOR 2014
We are encouraged by the gradual improvement in capital
markets and the economy, but a combination of fiscal chal-
lenges in Europe and the U.S., slower commodity markets and
the impact of regulatory reform will affect trading conditions in
the medium term. The uncertainty over the U.S. Federal
Reserve’s tapering of asset purchases has created volatility in
the global markets. The instability in the macro-economic envi-
ronment impacts overall corporate and investor sentiment;
however, we expect that our strong franchise businesses will
continue to deliver solid results. We continue to stay focused on
serving our clients, being a valued counterparty, growing our
franchise, managing our risks and reducing expenses.
Our key priorities for 2014 are as follows:
• Continue to grow the franchise by broadening and deepening
client relationships.
• Be the top ranked investment dealer in Canada by increasing
our origination footprint and competitive advantage with
Canadian clients.
• Extend the goals of the Canadian franchise to the U.S.
• Be totally aligned to enterprise partners and their clients.
• Continue to invest in an efficient, effective and robust
infrastructure to adapt to industry and regulatory changes.
37
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS BUSINESS SEGMENT ANALYSIS
Corporate
Corporate segment provides centralized advice and counsel to key businesses and comprises the impact
of treasury and balance sheet management, general provisions for credit losses, tax items at an enterprise
level, the elimination of taxable equivalent and other intercompany adjustments, and residual unallocated
revenue and expenses.
T A B L E 2 4
CORPORATE
(millions of Canadian dollars)
Net income (loss) – reported
Adjustments for items of note: Decrease (increase) in net income1
Amortization of intangibles
Fair value of derivatives hedging the reclassified available-for-sale securities portfolio
Fair value of credit default swaps hedging the corporate loan book, net of provision for credit losses
Integration charges, direct transaction costs, and changes in fair value of contingent
consideration relating to the Chrysler Financial acquisition
Reduction of allowance for incurred but not identified credit losses2
Positive impact due to changes in statutory income tax rates
Impact of Alberta flood on the loan portfolio
Restructuring charges
Total adjustments for items of note
Net income (loss) – adjusted
Decomposition of items included in net gain (loss) – adjusted
Net corporate expenses
Other
Non-controlling interests
Net income (loss) – adjusted
2013
$ (320)
232
(57)
–
–
–
–
19
90
284
$ (36)
(508)
367
105
$ (36)
2012
$ (208)
238
89
–
17
(120)
(18)
–
–
206
(2)
$
(433)
327
104
(2)
$
2011
$ (323)
391
(128)
(13)
55
–
–
–
–
305
(18)
$
(367)
245
104
(18)
$
1 For explanation of items of note, see the “Non-GAAP Financial Measures –
Reconciliation of Adjusted to Reported Net Income” table in the “Financial
Results Overview” section of this document.
2 Beginning in 2013, the change in the “reduction of allowance for incurred but
not identified credit losses” in the normal course of business relating to Canadian
Personal and Commercial Banking and Wholesale Banking is included in Corporate
segment adjusted net income and is no longer be recorded as an item of note.
The Corporate segment reported net loss for the year was $320 million,
compared with a reported net loss of $208 million last year. The adjusted
net loss for the year was $36 million, compared with an adjusted net
loss of $2 million last year. The year-over-year change in the adjusted
net loss was primarily attributable to the increase in net corporate
expenses, lower gains from treasury and other hedging activities, partially
offset by the favourable impact of tax items and the reduction of the
allowance for incurred but not identified credit losses relating to the
Canadian loan portfolio.
CORPORATE MANAGEMENT
The Corporate segment’s mandate is to provide centralized advice
and counsel to our key businesses and to those who serve our global
customers directly. This includes support from a wide range of func-
tional groups, as well as the design, development, and implementation
of processes, systems, and technologies to ensure that the Bank’s key
businesses operate efficiently, reliably, and in compliance with all
applicable regulatory requirements.
The corporate management function of the Bank includes audit,
legal, anti-money laundering, compliance, corporate and public affairs,
regulatory relationships and government affairs, economics, enterprise
technology solutions, finance, treasury and balance sheet management,
people strategies, marketing, Office of the Ombudsman, enterprise
real estate management, risk management, global physical security,
strategic sourcing, global strategy, enterprise project management,
corporate environment initiatives, and corporate development.
The enterprise Direct Channels and Distribution Strategy group is
part of Corporate operations and is responsible for the online, phone,
and ABM/ATM channels, delivering a best-in-class experience across
TD’s North American businesses. The vision of the group is to create
an even more integrated, seamless, effortless, and legendary customer
experience for TD Bank, America’s Most Convenient Bank, TD Canada
Trust, and TD Wealth and Insurance.
Ensuring that the Bank stays abreast of emerging trends and
developments is vital to maintaining stakeholder confidence in the Bank
and to addressing the dynamic complexities and challenges from
changing demands and expectations of our customers, shareholders
and employees, governments, regulators, and the community at large.
38
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
2012 FINANCIAL RESULTS OVERVIEW
Summary of 2012 Performance
T A B L E 2 5
REVIEW OF 2012 FINANCIAL PERFORMANCE
(millions of Canadian dollars)
Net interest income (loss)
Non-interest income (loss)1
Total revenue1
Provision for (reversal of) credit losses
Insurance claims and related expenses1
Non-interest expenses
Net income (loss) before provision for income taxes
Provision for (recovery of) income taxes
Equity in net income of an investment in associate,
net of income taxes
Net income (loss) – reported
Adjustments for items of note, net of income taxes
Net income (loss) – adjusted
Canadian
Personal and
Commercial
Banking
Wealth and
Insurance
U.S.
Personal and
Commercial
Banking
Wholesale
Banking
Corporate
$ 8,023
2,629
10,652
1,151
–
4,988
4,513
1,209
–
$ 3,304
104
$ 3,408
$ 583
5,860
6,443
–
2,424
2,600
1,419
261
209
$ 1,367
–
$ 1,367
$ 4,663
1,468
6,131
779
–
4,125
1,227
99
–
$ 1,128
294
$ 1,422
$ 1,805
849
2,654
47
–
1,570
1,037
157
–
$ 880
–
$ 880
$
(48)
(286)
(334)
(182)
–
715
(867)
(634)
25
$ (208)
206
(2)
$
Total
$ 15,026
10,520
25,546
1,795
2,424
13,998
7,329
1,092
234
$ 6,471
604
$ 7,075
1 Effective 2013, Insurance revenue and Insurance claims and related expenses are
presented on a gross basis on the Consolidated Statement of Income. Comparative
amounts have been reclassified to conform with this presentation.
NET INTEREST INCOME
Net interest income for the year on a reported basis was $15,026 million,
an increase of $1,365 million, or 10%, compared with last year. On
an adjusted basis, net interest income was $15,062 million, an increase
of $1,401 million, or 10%, compared with last year. The increase
in adjusted net interest income was driven primarily by increases in
the Canadian Personal and Commercial Banking, U.S. Personal and
Commercial Banking and Wholesale Banking segments. Canadian
Personal and Commercial Banking net interest income increased
primarily due to the inclusion of MBNA, organic volume growth and
an additional calendar day, partially offset by lower margin on average
earning assets. U.S. Personal and Commercial Banking net interest
income increased mainly due to strong loan and deposit volume
growth, partially offset by lower margin on average earning assets.
Wholesale Banking net interest income increased largely due to higher
trading-related revenue.
NON-INTEREST INCOME
Non-interest income for the year on a reported basis was $10,520 million,
an increase of $341 million, or 3%, compared with last year. Adjusted
non-interest income for the year was $10,615 million, an increase of
$563 million, or 6%, compared with last year. The increase in adjusted
non-interest income was primarily driven by increases in the Canadian
Personal and Commercial Banking, Wealth and Insurance, and U.S.
Personal and Commercial Banking segments. Canadian Personal and
Commercial Banking non-interest income increased primarily due to
higher transaction volumes, the contribution from MBNA and fee
repricing. Wealth and Insurance non-interest income increased primar-
ily due to strong premium growth and the inclusion of MBNA in the
Insurance business and higher fee-based revenue from higher client
assets, partially offset by lower trading revenue in the Wealth business.
U.S. Personal and Commercial Banking non-interest income increased
due to higher fee-based revenue and gains on sales of securities,
partially offset by the impact of the Durbin Amendment and the
anticipated run-off in legacy Chrysler Financial revenue.
NON-INTEREST EXPENSES
Reported non-interest expenses for the year were $13,998 million,
an increase of $951 million, or 7%, compared with last year. Adjusted
non-interest expenses were $13,162 million, an increase of $789 million,
or 6%, compared with last year. The increase in adjusted non-interest
expenses was driven by increases in the Canadian Personal and
Commercial Banking, U.S. Personal and Commercial Banking and
Wholesale Banking segments. Canadian Personal and Commercial
Banking expenses increased primarily due to the acquisition of the
credit card portfolio of MBNA Canada, higher employee-related costs,
business initiatives and volume growth. U.S. Personal and Commercial
Banking expenses increased due to investments in new stores and
infrastructure, and the Chrysler Financial acquisition. Wholesale
Banking expenses increased primarily due to legal provisions in the
current year and higher variable compensation commensurate with
improved revenue.
INCOME TAX EXPENSE
Reported total income and other taxes decreased by $204 million, or
9%, from 2011. Income tax expense, on a reported basis, was down
$234 million, or 18%, from 2011. Other taxes were up $30 million,
or 3%, from 2011. Adjusted total income and other taxes were down
$111 million, or 4%, from 2011. Total income tax expense, on an
adjusted basis, was down $141 million, or 9%, from 2011.
The Bank’s effective income tax rate on a reported basis was 14.9%
for 2012, compared with 18.6% in 2011. The year-over-year decrease
was largely due to the reduction in the Canadian statutory corporate
tax rate and higher tax exempt dividend income from taxable Canadian
corporations.
The Bank reports its investment in TD Ameritrade using the equity
method of accounting. TD Ameritrade’s tax expense of $131 million
in the year, compared to $148 million in 2011, was not part of the
Bank’s tax rate reconciliation.
BALANCE SHEET
Factors Affecting Assets and Liabilities
Total assets were $811 billion as at October 31, 2012, an increase
of $76 billion, or 10%, from October 31, 2011. The net increase was
primarily due to a $32 billion increase in loans (net of allowance for
loan losses), a $29 billion increase in financial assets at fair value
and a $12 billion increase in securities purchased under reverse
repurchase agreements.
Financial assets at fair value increased $29 billion largely due
to an increase in trading securities in Wholesale Banking.
Securities purchased under reverse repurchase agreements
increased $12 billion driven by an increase in trade volumes in
Wholesale Banking.
39
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
Loans (net of allowance for loan losses) increased by $32 billion
primarily driven by increases in Canadian Personal and Commercial
Banking and U.S. Personal and Commercial Banking. The increase in
Canadian Personal and Commercial Banking was due to growth in
residential mortgages, the acquisition of the credit card portfolio of
MBNA Canada, and growth in business and government loans. U.S.
Personal and Commercial Banking loans increased primarily due to
growth in residential mortgages, business and government loans and
indirect auto loans.
Total liabilities were $762 billion as at October 31, 2012, an increase
of $71 billion, or 10%, from October 31, 2011. The net increase
was primarily due to a $38 billion increase in deposits, a $23 billion
increase in other liabilities and a $10 billion increase in financial
liabilities at fair value.
Financial liabilities at fair value increased $10 billion largely due
to an increase in trading deposits in Wholesale Banking.
Deposits increased $38 billion primarily due to an increase in personal
non-term deposits in Canadian Personal and Commercial Banking and
U.S. Personal and Commercial Banking and an increase in business and
government deposits across several segments.
Other liabilities increased $23 billion largely due to an increase in
obligations related to securities sold under repurchase agreements
and obligations related to securities sold short in Wholesale Banking.
Equity was $49 billion as at October 31, 2012, an increase of $5 billion,
or 11%, from October 31, 2011 primarily due to retained earnings
growth and higher common share capital due to additional common
share issuances through the dividend reinvestment plan and the exer-
cise of stock options.
2012 FINANCIAL RESULTS OVERVIEW
2012 Financial Performance by Business Line
Canadian Personal and Commercial Banking reported net income for
the year of $3,304 million, an increase of $253 million, or 8%, compared
with last year. Adjusted net income for the year was $3,408 million, an
increase of $357 million, or 12%, compared with last year. The increase
in adjusted earnings was driven by good volume growth, the acquisition
of MBNA, higher fee income, a lower tax rate, and an extra calendar day.
The reported return on common equity for the year was 42.9%, while
the adjusted annualized return on common equity was 44.2%.
Reported revenue for the year was $10,652 million, an increase of
$1,120 million, or 12%, compared with last year. Adjusted revenue for
the year was $10,688 million, an increase of $1,156 million, or 12%,
compared with last year. The addition of MBNA contributed 9 percent-
age points to both reported and adjusted year-over-year revenue
growth. Net interest income growth was driven by the inclusion of
MBNA, organic volume growth and an additional calendar day,
partially offset by lower margin on average earning assets. The net
interest income contribution from MBNA was elevated due to a one-
time benefit from better credit performance on acquired loans.
Personal lending volume growth slowed throughout the year impacted
by a slowing housing market and weaker consumer loan demand.
Business lending growth was strong leading to market share gains.
Compared with last year, average real estate secured lending volume
increased $12.5 billion, or 6%. Auto lending average volume increased
$1.2 billion, or 10%, while all other personal lending average volumes,
excluding MBNA, were relatively flat. Business loans and acceptances
average volumes increased $5 billion, or 14%. Average personal
deposit volumes increased $9.4 billion, or 7%, with a strong contribu-
tion from the new Investment Savings account. Average business
deposit volumes increased $6.3 billion, or 10%. Reported margin on
average earning assets increased 6 bps to 2.82%, while the adjusted
margin on average earning assets increased 8 bps to 2.84%, compared
with 2.76% last year due to the addition of MBNA. Excluding the
impact of MBNA, the margin on average earning assets decreased
12 bps to 2.64%, due to the impact of a low interest rate environ-
ment, portfolio mix, and competitive pricing. Non-interest income
growth of 12% was driven by higher transaction volumes, MBNA,
and repricing.
PCL for the year was $1,151 million, an increase of $327 million, or
40%, compared with last year. The increase in PCL was due primarily
to the addition of MBNA. Personal banking PCL was $1,088 million
for the year, an increase of $302 million, or 38%, compared with last
year. Excluding MBNA, personal banking PCL decreased $53 million,
reflecting strong credit quality and enhanced collection strategies.
Business banking PCL was $63 million, an increase of $26 million,
returning to a more normalized level, as the prior year had higher
recoveries. Annualized PCL as a percentage of credit volume excluding
MBNA was 0.28%, a decrease of 3 bps, compared with last year.
Net impaired loans were $1,000 million, an increase of $108 million,
or 12%, compared with last year.
Reported non-interest expenses for the year were $4,988 million,
an increase of $555 million, or 13%, compared with last year. Adjusted
non-interest expenses for the year were $4,884 million, an increase
of $451 million, or 10%, compared with last year. Excluding MBNA,
expenses increased $141 million, or 3%, compared with last year,
driven by higher employee-related costs, business initiatives, volume
growth, and one extra calendar day.
The average FTE staffing levels increased by 539, or 2%, compared
with last year driven by the addition of MBNA. Excluding MBNA, FTE
decreased by 855, or 3%, largely due to the transfer of FTEs to the
Corporate segment and volume-related productivity gains. The
reported efficiency ratio for the year worsened to 46.8%, while the
adjusted efficiency ratio improved to 45.7%, compared with 46.5%,
on both a reported and adjusted basis last year.
Wealth and Insurance net income for the year was $1,367 million,
an increase of $53 million, or 4%, compared with last year. The
increase in earnings was mainly due to growth in premiums and client
assets, the inclusion of MBNA and lower expenses, partially offset
by unfavourable prior years claims development and lower trading
volumes. Wealth and Insurance net income excluding TD Ameritrade
was $1,158 million, an increase of $51 million, or 5%, compared with
last year. The Bank’s reported investment in TD Ameritrade generated
net income for the year of $209 million, an increase of $2 million, or
1%, compared with last year, mainly driven by changes in the capital
allocation methodology resulting in lower net charges, largely offset by
lower TD Ameritrade earnings. For its fiscal year ended September 30,
2012, TD Ameritrade reported net income was US$586 million, a
decrease of US$52 million, or 8%, compared with last year, primarily
driven by lower trading revenue. The return on common equity for the
year was 20.7%.
Revenue for the year was $6,443 million, an increase of $225 million,
or 4%, compared with last year. In the Wealth business, a decrease in
trading revenue in the direct investing business was largely offset by
higher fee-based revenue driven by increased client assets in the advice-
based and asset management businesses. In the Insurance business,
revenue increased from strong premium growth and the inclusion of
MBNA. Net interest income increased driven primarily by higher
margins and client balances in the Wealth business.
40
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS Insurance claims and related expenses for the year were $2,424 million,
an increase of $246 million, or 11%, compared with last year. The
increase was primarily due to unfavourable prior years’ claims develop-
ment regarding the Ontario auto market and weather-related events.
During the latter part of 2012, the business experienced an increase in
prior years’ claims development in the Ontario auto insurance market
primarily related to pre-2011 accident years. Frequency and severity of
claims related to these accident years were worse than anticipated for
certain insurance coverage, translating into higher claims costs.
Non-interest expenses for the year were $2,600 million, a decrease
of $16 million, or 1%, compared with last year. The decrease was
primarily due to higher project expenses in 2011, prudent expense
management, and lower volumes in the Wealth business, partially
offset by increased expenses supporting business growth in both the
Wealth and Insurance businesses.
Assets under administration of $258 billion as at October 31, 2012
increased by $21 billion, or 9%, compared with October 31, 2011.
Assets under management of $207 billion as at October 31, 2012
increased by $18 billion, or 10%, compared with October 31, 2011.
These increases were primarily driven by net new client assets.
Gross originated insurance premiums were $3,572 million, an
increase of $246 million, or 7%, compared with last year. The increase
was primarily due to organic business growth.
The average FTE staffing levels and efficiency ratio for the year
remained relatively flat compared with last year.
U.S. Personal and Commercial Banking reported net income, in
Canadian dollar terms, for the year was $1,128 million, a decrease of
$60 million, or 5%, compared with last year. Adjusted net income for
the year was $1,422 million, an increase of $152 million, or 12%,
compared with last year. In U.S. dollar terms, reported net income for
the year was US$1,123 million, a decrease of US$82 million, or 7%,
compared with last year and adjusted net income was US$1,416 million,
an increase of US$127 million, or 10%. The increase in adjusted earn-
ings was primarily due to strong loan and deposit volume and higher
fee-based revenue, partially offset by higher expenses to support
growth, and the impact of the Durbin Amendment. Adjusted net
income for the current and prior year excluded integration and
restructuring charges relating to acquisitions, litigation reserves and
Superstorm Sandy. The reported return on common equity for the year
was 6.4%, while the adjusted return on common equity was 8.1%.
excluding debt securities classified as loans as a percentage of credit
volume was 0.84%, a decrease of 2 bps, compared with last year.
Net impaired loans, excluding acquired credit-impaired loans and debt
securities classified as loans, were US$1,059 million, a decrease of
US$84 million, or 7%, compared with last year due to continued
improvement in credit quality. Acquired credit-impaired loans were
US$3.8 billion as at October 31, 2012 compared with US$5.6 billion
as at October 31, 2011, while net impaired debt securities classified
as loans were US$1.3 billion compared with US$1.4 billion as at
October 31, 2011.
Reported non-interest expenses for the year were US$4,107 million,
an increase of US$464 million, or 13%, compared with last year. On
an adjusted basis, non-interest expenses were US$3,678 million, an
increase of US$181 million, or 5%, compared with last year due to
investments in new stores and infrastructure, and the Chrysler
Financial acquisition.
The average FTE staffing levels for the year increased by 834, or 3%,
compared with last year due to the Chrysler Financial acquisition and
new stores, partially offset by store closures and consolidations. The
reported efficiency ratio for the year worsened to 67.3%, compared
with 62.7% last year, while the adjusted efficiency ratio for the year
remained flat at 60.2%, compared with last year.
Wholesale Banking net income for the year was $880 million, an
increase of $65 million, or 8%, compared with last year. The increase
in earnings was due to stronger results in our core businesses, partially
offset by reduced securities gains in the investment portfolio. The
return on common equity for the year was 21.2%.
Wholesale Banking revenue is derived primarily from capital markets
services and corporate lending. Revenue for the year was $2,654 million,
an increase of $158 million, or 6%, compared with last year. Capital
markets revenue increased primarily due to improved fixed income and
credit trading, strong debt underwriting, and robust M&A revenue.
Fixed income and credit trading revenue increased due to increased
liquidity, tightening credit spreads and periods of elevated volatility in
the market. Debt underwriting fees remained strong throughout the
year. M&A revenue was higher aided by low interest rates, robust
banking markets and ongoing opportunities for consolidation. Partially
offsetting these improvements were lower security gains from the
investment portfolio and weaker equity trading and underwriting on
low industry-wide volumes and volatility.
In U.S. dollar terms, adjusted revenue for the year was
PCL comprises specific provision for credit losses and accrual costs
US$6,107 million, an increase of US$289 million, or 5%, compared
with last year driven by increased loan and deposit volume, higher fee-
based revenue, and gains on sales of securities, partially offset by the
impact of the Durbin Amendment and the anticipated run-off in legacy
Chrysler Financial revenue. Average loans increased by US$12 billion, or
17%, compared with last year with an increase of US$9 billion, or 31%
in average personal loans and an increase of US$3 billion, or 8% in aver-
age business loans. Average deposits increased US$17 billion, or 11%,
compared with prior year, including a US$10 billion increase in average
deposits of TD Ameritrade. Excluding the impact of TD Ameritrade IDAs,
average deposit volume increased by US$7 billion, or 7%. The margin
on average earning assets for the year decreased by 13 bps to 3.60%
compared with last year primarily due to the low interest rate environ-
ment and timing of cash flows on acquired portfolios.
Reported PCL for the year was US$778 million, an increase of
US$80 million, or 11%, compared with last year. Adjusted PCL for
the year was US$723 million, an increase of US$25 million, or 4%,
compared with last year due primarily to organic loan growth, the
acquired credit-impaired loan portfolios and the impact of new regula-
tory guidance on loans discharged in bankruptcies, partially offset by
improved asset quality. Personal banking PCL, excluding debt securities
classified as loans was US$391 million, an increase of US$131 million,
or 50%, from the prior year. Business banking PCL, excluding debt
securities classified as loans was US$320 million, a decrease of
US$43 million, or 12%, compared with prior year. PCL for loans
for credit protection. The change in market value of the credit
protection, in excess of the accrual cost, is reported in the Corporate
segment. PCL for the year was $47 million, an increase of $25 million,
compared with last year. The increase in PCL was primarily due to a
loss on a single name in the corporate lending portfolio. PCL in the
prior year primarily comprised the accrual cost of credit protection.
Non-interest expenses for the year were $1,570 million, an increase
of $102 million, or 7%, compared with last year primarily due to legal
provisions in the current year and higher variable compensation
commensurate with improved revenue.
Risk-weighted assets were $43 billion as at October 31, 2012, an
increase of $8 billion, or 23%, compared with October 31, 2011. The
increase was due to the implementation of the revised Basel II market
risk framework.
The average FTE staffing levels increased by 36, or 1%, compared
with last year.
Corporate segment reported net loss for the year was $208 million,
compared with a reported net loss of $323 million last year. The
adjusted net loss for the year was $2 million, compared with an
adjusted net loss of $18 million last year. The year-over-year change
in the adjusted net loss was due to higher net corporate expenses,
partially offset by the impact of favourable tax items, treasury and
other hedging activities and other items.
41
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS GROUP FINANCIAL CONDITION
Balance Sheet Review
AT A GLANCE OVERVIEW
• Total assets were $863 billion as at October 31, 2013, an increase
of $52 billion, or 6%, compared with October 31, 2012.
Financial assets at fair value decreased $23 billion largely due to a
reclassification from available-for-sale securities to held-to-maturity
securities and a decrease in derivative assets in Wholesale Banking.
T A B L E 2 6
SELECTED CONSOLIDATED BALANCE SHEET ITEMS
(millions of Canadian dollars)
Interest-bearing deposits with banks
Available-for-sale securities
Held-to-maturity securities
Loans (net of allowance for loan losses)
Trading deposits
Deposits
As at
October 31 October 31
2012
2013
$ 28,855 $ 21,692
98,576
79,541
29,961
–
444,922 408,848
47,593
38,774
543,476 487,754
FACTORS AFFECTING ASSETS AND LIABILITIES
Total assets were $863 billion as at October 31, 2013, an increase
of $52 billion, or 6%, from October 31, 2012. The net increase was
primarily due to a $36 billion increase in loans (net of allowance for
loan losses), a $30 billion increase in held-to-maturity securities, and
a $7 billion increase in interest-bearing deposits with banks, partially
offset by a $23 billion decrease in financial assets at fair value.
Interest-bearing deposits with banks increased $7 billion primarily
due to an increase in Wholesale Banking driven by higher U.S. Federal
Reserve deposits.
Held-to-maturity securities increased $30 billion due to a reclassifi-
cation from available-for-sale securities and an increase in securities
in the U.S. Personal and Commercial Banking segment.
Loans (net of allowance for loan losses) increased $36 billion
primarily driven by increases in the U.S. Personal and Commercial
Banking and Canadian Personal and Commercial Banking segments.
The increase in the U.S. Personal and Commercial Banking segment
was due to growth in credit card and business and government loans.
Target added $6 billion to total loans. The Canadian Personal and
Commercial Banking segment loans increased primarily due to growth
in residential mortgages and business and government loans.
Total liabilities were $811 billion as at October 31, 2013, an increase
of $49 billion, or 6%, from October 31, 2012. The net increase was
primarily due to a $56 billion increase in deposits, partially offset by
a $10 billion decrease in financial liabilities at fair value.
Financial liabilities at fair value decreased $10 billion largely due
to a decrease in derivative liabilities, partially offset by an increase
in trading deposits in Wholesale Banking.
Deposits increased $56 billion primarily due to an increase in personal
non-term and business and government deposits in the U.S. Personal
and Commercial Banking and Canadian Personal and Commercial
Banking segments and bank deposits in Wholesale Banking, partially
offset by a decrease in personal term deposits in Canadian Personal
and Commercial Banking.
Equity was $52 billion as at October 31, 2013, an increase of $3 billion,
or 6%, from October 31, 2012 primarily due to higher retained earnings.
42
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
GROUP FINANCIAL CONDITION
Credit Portfolio Quality
AT A GLANCE OVERVIEW
• Loans and acceptances net of allowance for loan losses was
$451 billion, an increase of $35 billion compared with last year.
• Impaired loans net of counterparty-specific and individually
insignificant allowances was $2,243 million, an increase of
$143 million compared with last year.
• Provision for credit losses was $1,631 million, compared with
$1,795 million in the prior year.
• Total allowance for loan losses increased by $211 million
to $2,855 million in 2013.
LOAN PORTFOLIO
Overall in 2013, the Bank’s credit quality remained stable despite
uncertain economic conditions. During 2013, the Bank increased its
credit portfolio by $35 billion, or 8%, from the prior year, largely due
to volume growth in the Canadian and U.S. Personal and Commercial
Banking segments and Target.
While the majority of the credit risk exposure is related to loans and
acceptances, the Bank also engaged in activities that have off-balance
sheet credit risk. These include credit instruments and derivative
financial instruments, as explained in Note 33 to the Consolidated
Financial Statements.
CONCENTRATION OF CREDIT RISK
The Bank’s loan portfolio continued to be dominated by Canadian and
U.S. residential mortgages, consumer instalment and other personal
loans, and credit cards, representing 72% of total loans net of coun-
terparty-specific and individually insignificant allowances, down from
73% in 2012. During the year, these portfolios increased by $22 billion,
or 7%, and totalled $326 billion at year end. Residential mortgages
represented 41% of the portfolio in 2013, consistent with 2012.
Consumer instalment and other personal loans, and credit cards were
31% of total loans net of counterparty-specific and individually insig-
nificant allowances in 2013, down from 32% in 2012.
The Bank’s business and government credit exposure was 27% of
total loans net of counterparty-specific and individually insignificant
allowances, up from 25% in 2012. The largest business and govern-
ment sector concentrations in Canada were the real estate and finan-
cial sectors, which comprised 5% and 2%, respectively. Real estate
was the leading U.S. sector of concentration and represented 3% of
net loans, consistent with 2012.
Geographically, the credit portfolio remained concentrated in
Canada. In 2013, the percentage of loans held in Canada was 74%,
down from 76% in 2012. The largest Canadian exposure was in
Ontario, which represented 42% of total loans net of counterparty-
specific and individually insignificant allowance for loan losses for
2013, down from 43% in 2012.
The balance of the credit portfolio was predominantly in the U.S.,
which represented 24% of the portfolio, up from 22% in 2012 primar-
ily due to volume growth in residential mortgages, consumer indirect
auto, business and government loans and Target. Exposures to debt
securities classified as loans, acquired credit-impaired loans, and other
geographic regions were limited. The largest U.S. exposures by state
were in New England and New York which represented 7% and 5%
of total loans net of counterparty-specific and individually insignificant
allowances, respectively, up from 6% and 4% in 2012.
43
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS T A B L E 2 7
LOANS AND ACCEPTANCES, NET OF COUNTERPARTY-SPECIFIC AND INDIVIDUALLY INSIGNIFICANT ALLOWANCES BY INDUSTRY SECTOR1, 2
(millions of Canadian dollars, except as noted)
As at
Percentage of total
Canada
Residential mortgages
Consumer instalment and other personal
HELOC
Indirect Auto
Other
Credit card
Total personal
Real estate
Residential
Non-residential
Total real estate
Agriculture
Automotive
Financial
Food, beverage, and tobacco
Forestry
Government, public sector entities, and education
Health and social services
Industrial construction and trade contractors
Metals and mining
Pipelines, oil, and gas
Power and utilities
Professional and other services
Retail sector
Sundry manufacturing and wholesale
Telecommunications, cable, and media
Transportation
Other
Total business and government
Total Canada
United States
Residential mortgages
Consumer instalment and other personal
HELOC
Indirect Auto
Other
Credit card
Total personal
Real estate
Residential
Non-residential
Total real estate
Agriculture
Automotive
Financial
Food, beverage, and tobacco
Forestry
Government, public sector entities, and education
Health and social services
Industrial construction and trade contractors
Metals and mining
Pipelines, oil, and gas
Power and utilities
Professional and other services
Retail sector
Sundry manufacturing and wholesale
Telecommunications, cable, and media
Transportation
Other
Total business and government
Total United States
International
Personal
Business and government
Total international
Total excluding other loans
Other loans
Debt securities classified as loans
Acquired credit-impaired loans 3
Total other loans
Total
Incurred but not identified allowance
Personal, business and government
Debt securities classified as loans
Total incurred but not identified allowance
Total, net of allowance
October 31 October 31 October 31 October 31 October 31 October 31
2011
2011
2012
2013
2012
2013
Counterparty-
specific and
individually
Gross insignificant
loans allowances
Net
loans
Net
loans
Net
loans
$ 164,389
$ 14 $ 164,375 $ 154,233 $ 142,282
36.3%
36.9%
36.8%
61,581
14,666
15,193
15,288
271,117
13,685
8,153
21,838
3,914
2,326
8,812
1,250
423
4,471
3,686
1,600
871
2,194
1,506
2,674
2,144
1,821
1,029
771
2,942
64,272
335,389
20,945
10,607
16,323
533
6,900
55,308
3,470
12,084
15,554
289
1,850
2,006
1,654
531
4,466
5,785
1,222
1,056
521
1,155
5,353
2,578
3,717
1,663
4,886
714
55,000
110,308
10
2,240
2,250
447,947
3,744
2,485
6,229
$ 454,176
20
25
52
115
226
61,561
14,641
15,141
15,173
270,891
64,732
13,942
14,525
14,165
261,597
65,518
13,581
15,333
8,042
244,756
12
2
14
–
1
1
2
–
2
1
6
5
7
–
5
26
5
1
1
4
81
307
13,673
8,151
21,824
3,914
2,325
8,811
1,248
423
4,469
3,685
1,594
866
2,187
1,506
2,669
2,118
1,816
1,028
770
2,938
64,191
335,082
12,462
7,250
19,712
3,237
1,444
6,416
1,073
378
4,784
3,327
1,489
770
2,235
1,184
2,403
1,959
1,644
1,004
715
1,934
55,708
317,305
10,730
5,898
16,628
2,749
1,249
8,232
1,043
388
4,210
2,960
1,332
634
1,849
1,082
1,824
2,024
1,491
908
537
2,511
51,651
296,407
20,937
17,349
12,478
8
16
4
1
13
42
10,591
16,319
532
6,887
55,266
12
20
32
–
2
1
1
1
3
12
8
1
–
–
14
11
3
7
4
–
100
142
3,458
12,064
15,522
289
1,848
2,005
1,653
530
4,463
5,773
1,214
1,055
521
1,155
5,339
2,567
3,714
1,656
4,882
714
54,900
110,166
10,101
13,463
489
1,085
42,487
2,997
10,797
13,794
275
1,538
1,953
1,321
410
3,276
4,941
1,086
999
829
1,116
4,379
2,294
3,055
1,175
3,559
1,080
47,080
89,567
9,630
9,739
447
880
33,174
3,064
9,404
12,468
229
1,271
2,725
1,227
316
2,389
4,269
1,097
893
801
968
2,868
2,311
2,626
1,049
2,838
1,357
41,702
74,876
–
–
–
449
10
2,240
2,250
447,498
11
2,653
2,664
409,536
12
3,520
3,532
374,815
6,332
173
5,500
117
290
11,832
$ 739 $ 453,437 $ 418,014 $ 386,647
4,809
3,669
8,478
3,571
2,368
5,939
2,018
98
2,116
1,496
149
1,645
$ 451,321 $ 416,071 $ 385,002
1,788
155
1,943
13.6
3.2
3.3
3.3
59.7
3.0
1.8
4.8
0.9
0.5
1.9
0.3
0.1
1.0
0.8
0.4
0.2
0.5
0.3
0.6
0.5
0.4
0.2
0.2
0.6
14.2
73.9
4.6
2.3
3.6
0.2
1.5
12.2
0.8
2.7
3.5
0.1
0.4
0.4
0.4
0.1
0.9
1.3
0.3
0.2
0.1
0.3
1.1
0.6
0.8
0.4
1.0
0.2
12.1
24.3
–
0.5
0.5
98.7
15.5
3.3
3.5
3.4
62.6
3.0
1.7
4.7
0.8
0.3
1.5
0.3
0.1
1.1
0.8
0.4
0.2
0.5
0.3
0.5
0.5
0.4
0.2
0.2
0.5
13.3
75.9
4.2
2.4
3.2
0.1
0.3
10.2
0.7
2.6
3.3
0.1
0.4
0.5
0.3
0.1
0.8
1.2
0.3
0.2
0.2
0.3
1.0
0.5
0.7
0.3
0.8
0.3
11.3
21.5
–
0.6
0.6
98.0
16.9
3.5
4.0
2.1
63.3
2.8
1.5
4.3
0.7
0.3
2.1
0.3
0.1
1.1
0.8
0.3
0.2
0.5
0.3
0.5
0.5
0.4
0.2
0.1
0.7
13.4
76.7
3.3
2.5
2.5
0.1
0.2
8.6
0.8
2.4
3.2
0.1
0.3
0.7
0.3
0.1
0.6
1.1
0.3
0.2
0.2
0.3
0.7
0.6
0.7
0.3
0.7
0.4
10.8
19.4
–
0.9
0.9
97.0
0.8
0.5
1.3
100.0%
1.1
0.9
2.0
100.0%
1.6
1.4
3.0
100.0%
Percentage change over previous year – loans and acceptances,
net of counterparty-specific and individually insignificant allowances
Percentage change over previous year – loans and acceptances, net of allowance
1 Primarily based on the geographic location of the customer’s address.
2 Certain comparative amounts have been reclassified to conform with the
presentation adopted in the current period.
8.5%
8.5%
8.1%
8.1%
10.4%
10.4%
3 Includes all FDIC covered loans and other acquired credit-impaired loans.
44
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 2 8
LOANS AND ACCEPTANCES, NET OF COUNTERPARTY-SPECIFIC AND INDIVIDUALLY INSIGNIFICANT ALLOWANCES BY GEOGRAPHY1, 2
(millions of Canadian dollars, except as noted)
As at
Percentage of total
October 31 October 31 October 31 October 31 October 31 October 31
2011
2012
2011
2013
2012
2013
Counterparty-
specific and
individually
Gross insignificant
loans allowances
Net
loans
Net
loans
Net
loans
$
9,702
48,894
188,601
60,394
27,798
335,389
5,318
6,809
29,526
20,290
20,777
8,222
19,366
110,308
752
1,498
2,250
447,947
6,229
$ 454,176
Canada
Atlantic provinces
British Columbia3
Ontario3
Prairies3
Québec
Total Canada
United States
Carolinas (North and South)
Florida
New England4
New Jersey
New York
Pennsylvania
Other
Total United States
International
Europe
Other
Total international
Total excluding other loans
Other loans
Total
Incurred but not identified allowance
Total, net of allowance
Percentage change over previous year –
loans and acceptances, net of counterparty-specific
and individually insignificant allowances for loan losses
Canada
United States
International
Other loans
Total
$
7 $
23
48,871
9,695 $
9,179 $ 8,542
47,564 46,197
235 188,366 177,947 164,732
56,453 53,687
26,162 23,249
307 335,082 317,305 296,407
60,370
27,780
24
18
4
7
49
37
16
15
14
5,314
6,802
29,477
20,253
20,761
8,207
19,352
142 110,166
3,259
4,567
1,686
2,635
25,891 23,201
15,026 12,034
15,646 12,119
5,776
18,438 17,425
89,567 74,876
6,740
–
–
–
752
1,498
2,250
1,239
1,425
2,664
1,582
1,950
3,532
449 447,498 409,536 374,815
290
8,478 11,832
$ 739 $ 453,437 $ 418,014 $ 386,647
5,939
2,116
1,645
$ 451,321 $ 416,071 $ 385,002
1,943
2013
2012
5.6%
7.1%
23.0
(15.5)
(29.9)
19.6
(24.6)
(28.3)
8.5%
8.1%
2011
9.3%
22.2
7.9
(18.3)
10.4%
2.1%
2.2%
2.2%
10.9
41.5
13.3
6.1
73.9
1.2
1.5
6.5
4.4
4.6
1.8
4.3
24.3
0.2
0.3
0.5
98.7
1.3
100.0%
11.4
42.6
13.5
6.2
75.9
0.8
1.1
6.2
3.6
3.8
1.6
4.4
21.5
0.3
0.3
0.6
98.0
2.0
12.0
42.6
13.9
6.0
76.7
0.4
0.7
6.0
3.1
3.1
1.5
4.6
19.4
0.4
0.5
0.9
97.0
3.0
100.0% 100.0%
1 Primarily based on the geographic location of the customer’s address.
2 Certain comparative amounts have been reclassified to conform with the
presentation adopted in the current period.
3 The territories are included as follows: Yukon is included in British Columbia; Nunavut
is included in Ontario; and Northwest Territories is included in the Prairies region.
4 The states included in New England are as follows: Connecticut, Maine, Massachusetts,
New Hampshire, and Vermont.
Loans authorized and amounts outstanding to Canadian and U.S. small
and mid-sized business customers are provided below.
T A B L E 2 9
LOANS TO SMALL AND MID-SIZED BUSINESS CUSTOMERS
(millions of Canadian dollars, except as noted)
Loan amount (dollars)
$0 – $24,999
$25,000 – $49,999
$50,000 – $99,999
$100,000 – $249,999
$250,000 – $499,999
$500,000 – $999,999
$1,000,000 – $4,999,999
Total1
1 Personal loans used for business purposes are not included in these totals.
Loans authorized
Amount outstanding
2013
2012
2011
2013
2012
2011
$
995 $ 1,095 $
425
956 $
624
990
1,258
1,952
3,951
5,537
5,046
7,167
5,792
9,355
31,212
16,074
$ 57,169 $ 54,044 $ 52,905 $ 36,409 $ 34,265 $ 33,170
365 $
493
1,035
3,596
5,109
6,377
19,434
387 $
539
1,140
3,738
5,070
5,982
17,409
1,104
2,129
5,723
7,145
8,810
28,138
1,359
2,340
5,980
7,092
8,455
26,584
45
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
Real Estate Secured Lending
Retail real estate secured lending includes mortgages and lines of
credit to North American consumers to satisfy financing needs ranging
from home purchases to refinancing. Credit policies and strategies are
aligned with the Bank’s risk appetite and meet all regulatory require-
ments. While the Bank retains first lien on the majority of properties
held as security, there is a small portion of loans with second liens, but
most of these are behind a TD mortgage that is in first position. Credit
policies in Canada ensure that the combined exposure of all uninsured
facilities on one property does not exceed 80% of the collateral value
at origination. Lending at a higher loan-to-value ratio is permitted by
legislation but requires default insurance. This insurance is contractual
coverage for the life of eligible facilities and protects the Bank’s real
estate secured lending portfolio against potential losses caused by
borrower default. The Bank also purchases default insurance on lower
loan-to-value ratio loans. The insurance is provided by either government-
backed entities or other approved private mortgage insurers.
The Bank regularly performs stress tests on its real estate lending
portfolio as part of its overall stress testing program. This is done with
a view to determine the extent to which the portfolio would be vulner-
able to a severe downturn in economic conditions. The effect of severe
changes in house prices, interest rates and unemployment levels are
among the factors considered when assessing the impact on credit
losses and the Bank’s overall profitability. A variety of portfolio segments
including dwelling type and geographical regions are examined during
the exercise to determine whether specific vulnerabilities exist. Based
on our most recent reviews, potential losses on all real estate secured
lending exposures are considered manageable.
T A B L E 3 0
REAL ESTATE SECURED LENDING1, 2
(millions of Canadian dollars,
except as noted)
Residential mortgages
Insured3
Uninsured
Home equity lines of credit
Insured3
Uninsured
As at
Total
Insured3
Uninsured
October 31, 2013
Canada
Atlantic provinces
British Columbia4
Ontario4
Prairies4
Quebec
Total Canada
United States
Total
Canada
Atlantic provinces
British Columbia4
Ontario4
Prairies4
Quebec
Total Canada
United States
Total
$
4,077
21,166
57,942
26,645
12,066
2.5% $ 1,076
9,896
20,940
6,628
3,953
12.9
35.3
16.2
7.3
0.7% $
6.0
12.7
4.0
2.4
698
4,209
13,697
5,821
2,300
1.1% $
6.8
22.2
9.5
3.7
774
7,454
17,635
6,768
2,225
1.3% $
12.1
28.7
11.0
3.6
4,775
25,375
71,639
32,466
14,366
2.1% $
11.2
31.7
14.4
6.4
1,850
17,350
38,575
13,396
6,178
0.8%
7.7
17.1
5.9
2.7
$ 121,896
74.2% $ 42,493
25.8% $ 26,725
43.3% $ 34,856
56.7% $ 148,621
65.8% $ 77,349
34.2%
603
$ 122,499
20,828
$ 63,321
9
$ 26,734
10,757
$ 45,613
612
31,585
$ 149,233
$ 108,934
2.3% $
$
3,515
19,946
62,977
23,144
10,490
12.9
40.9
15.0
6.8
682
6,833
20,008
4,030
2,622
0.4% $
4.4
13.0
2.6
1.7
780
4,912
15,085
6,985
2,479
1.2% $
7.6
23.3
10.8
3.8
771
7,420
17,278
6,828
2,215
1.2% $
11.5
26.7
10.5
3.4
4,295
24,858
78,062
30,129
12,969
2.0% $ 1,453
14,253
37,286
10,858
4,837
11.4
35.5
13.8
5.9
0.7%
6.5
17.0
5.0
2.2
October 31, 2012
$ 120,072
77.9% $ 34,175
22.1% $ 30,241
46.7% $ 34,512
53.3% $ 150,313
68.6% $ 68,687
31.4%
497
$ 120,569
17,428
$ 51,603
10
$ 30,251
10,302
$ 44,814
507
$ 150,820
27,730
$ 96,417
1 Geographic location based on the address of the property mortgaged.
2 Excludes loans classified as trading as the Bank intends to sell the loans immediately
or in the near term, and loans designated at fair value through profit or loss for
which no allowance is recorded.
3 Default insurance is contractual coverage for the life of eligible facilities whereby
the Bank’s exposure to real estate secured lending, all or in part, is protected
against potential losses caused by borrower default. It is provided by either
government-backed entities or other approved private mortgage insurers.
4 The territories are included as follows: Yukon is included in British Columbia; Nunavut
is included in Ontario; and Northwest Territories is included in the Prairies region.
The following table provides a summary of the Bank’s residential
mortgages by remaining amortization period. All figures are calculated
based on current customer payment behaviour in order to properly
reflect the propensity to prepay by borrowers. The current customer
payment basis accounts for any accelerated payments made to date
and projects remaining amortization based on existing balance
outstanding and current payment terms.
T A B L E 3 1
RESIDENTIAL MORTGAGES BY REMAINING AMORTIZATION1, 2
<5
years
5– <10
years
10– <15
years
15– <20
years
20– <25
years
25– <30
years
30– <35
years
>=35
years
As at
Total
Canada
United States
Total
Canada
United States
Total
10.8%
2.6
9.9%
9.8%
1.6
9.0%
4.3%
1.3
4.0%
8.2% 11.7% 24.6%
21.6
2.0
8.3
9.8% 10.6% 22.6%
8.9% 13.1% 18.5%
4.6%
1.9
4.3% 10.7% 11.9% 17.6%
25.9
2.2
9.9
October 31, 2013
26.0% 14.3%
63.1
30.2% 12.8%
1.1
0.1% 100.0%
–
100.0
0.1% 100.0%
October 31, 2012
25.9% 17.7%
56.2
29.0% 16.1%
2.3
1.5% 100.0%
–
100.0
1.4% 100.0%
1 Excludes loans classified as trading as the Bank intends to sell the loans immediately
or in the near term, and loans designated at fair value through profit or loss for
which no allowance is recorded.
2 Percentage based on outstanding balance.
46
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 3 2
UNINSURED AVERAGE LOAN-TO-VALUE: NEWLY ORIGINATED AND NEWLY ACQUIRED1, 2, 3
Canada
Atlantic provinces
British Columbia5
Ontario5
Prairies5
Quebec
Total Canada
United States
Total
Canada
Atlantic provinces
British Columbia5
Ontario5
Prairies5
Quebec
Total Canada
United States
Total
Residential Home equity
lines of credit4
mortgages
Total
October 31, 2013
72%
67
68
71
71
69%
67%
69%
72%
66
68
70
70
68%
65%
67%
62%
58
61
63
63
61%
66%
62%
70%
65
66
69
70
67%
67%
67%
October 31, 2012
69%
63
67
69
69
67%
65%
66%
71%
65
68
70
69
68%
65%
67%
1 Geographic location based on the address of the property mortgaged.
2 Excludes loans classified as trading as the Bank intends to sell the loans immediately
or in the near term, and loans designated at fair value through profit or loss for
which no allowance is recorded.
3 Based on house price at origination.
4 Home equity lines of credit loan-to-value includes first position collateral mortgage
if applicable.
5 The territories are included as follows: Yukon is included in British Columbia; Nunavut
is included in Ontario; and Northwest Territories is included in the Prairies region.
IMPAIRED LOANS
A loan is considered impaired when there is objective evidence that
there has been a deterioration of credit quality to the extent that the
Bank no longer has reasonable assurance as to the timely collection of
the full amount of principal and interest. Excluding debt securities clas-
sified as loans, FDIC covered loans and other acquired credit-impaired
loans, gross impaired loans increased $174 million, or 7% over 2012.
Gross impaired loan formations increased year over year by $283
million, primarily driven by Target.
In Canada, net impaired loans decreased by $127 million, or 12% in
2013 due to continued credit quality improvement in the personal and
commercial banking portfolios. Residential mortgages, consumer instal-
ment and other personal loans, and credit cards, generated impaired
loans net of counterparty-specific and individually insignificant allow-
ances of $815 million, a decrease of $95 million, or 10%, over 2012.
Business and government loans generated $100 million in net impaired
loans, a decrease of $32 million, or 24%, over 2012. Business and
government impaired loans were distributed across industry sectors.
In the U.S., net impaired loans increased by $270 million, or 26% in
2013. Residential mortgages, consumer instalment and other personal
loans, and credit cards, generated net impaired loans of $629 million,
an increase of $234 million, or 59%, over 2012, due primarily to
volume growth in real estate secured lending, indirect auto and Target.
Business and government loans generated $699 million in net impaired
loans, an increase of $36 million, or 5%, over 2012 due primarily to
volume growth. Business and government impaired loans were concen-
trated in the real estate sector as real estate is the largest sector of
US business loans. Geographically, 41% of total impaired loans net
of counterparty-specific and individually insignificant allowances were
generated in Canada and 59% in the U.S. Net impaired loans in Canada
were concentrated in Ontario, which represented 18% of total net
impaired loans, down from 24% in 2012. U.S. net impaired loans
were concentrated in New England and New Jersey, representing 19%
and 13%, respectively, of net impaired loans, compared with 18% and
12%, respectively, in 2012.
T A B L E 3 3
CHANGES IN GROSS IMPAIRED LOANS AND ACCEPTANCES
(millions of Canadian dollars)
Personal, business and government loans1, 2
Balance at beginning of year
Additions
Return to performing status, repaid or sold
Write-offs
Foreign exchange and other adjustments
Balance at end of year
2013
2012
2011
$ 2,518
4,539
(2,509)
(1,914)
58
$ 2,692
$ 2,493
4,256
(2,261)
(1,969)
(1)
$ 2,518
$ 2,535
3,610
(2,015)
(1,629)
(8)
$ 2,493
1 Excludes FDIC covered loans and other acquired credit-impaired loans. For additional
information refer to the “Exposure to Acquired Credit-Impaired Loans” discussion
and table in this section of the document and Note 7 to the 2013 Consolidated
Financial Statements.
2 Excludes debt securities classified as loans. For additional information refer to the
“Exposure to Non-Agency Collateralized Mortgage Obligations” section of this
document and Note 7 to the 2013 Consolidated Financial Statements.
47
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 3 4
IMPAIRED LOANS NET OF COUNTERPARTY-SPECIFIC AND INDIVIDUALLY INSIGNIFICANT ALLOWANCES BY INDUSTRY SECTOR1, 2, 3, 4
(millions of Canadian dollars, except as noted)
As at
Percentage of total
Canada
Residential mortgages5
Consumer instalment and other personal
HELOC
Indirect Auto
Other
Credit card
Total personal
Real estate
Residential
Non-residential
Total real estate
Agriculture
Automotive
Financial
Food, beverage, and tobacco
Forestry
Government, public sector entities, and education
Health and social services
Industrial construction and trade contractors
Metals and mining
Pipelines, oil, and gas
Power and utilities
Professional and other services
Retail sector
Sundry manufacturing and wholesale
Telecommunications, cable, and media
Transportation
Other
Total business and government
Total Canada
United States
Residential mortgages
Consumer instalment and other personal
HELOC
Indirect Auto
Other
Credit card
Total personal
Real estate
Residential
Non-residential
Total real estate
Agriculture
Automotive
Financial
Food, beverage, and tobacco
Forestry
Government, public sector entities, and education
Health and social services
Industrial construction and trade contractors
Metals and mining
Pipelines, oil, and gas
Power and utilities
Professional and other services
Retail sector
Sundry manufacturing and wholesale
Telecommunications, cable, and media
Transportation
Other
Total business and government
Total United States
International
Business and government
Total international
Total 2, 3
October 31 October 31 October 31 October 31 October 31 October 31
2011
2011
2012
2013
2012
2013
Counterparty-
specific and
individually
impaired insignificant
loans allowances
Gross
Net
impaired
loans
Net
impaired
loans
Net
impaired
loans
$ 448
$ 14
$ 434
$ 465
$ 596
19.3%
22.1%
28.9%
321
41
73
158
1,041
20
25
52
115
226
25
7
32
5
1
2
5
1
6
3
12
14
27
–
8
44
12
1
2
6
181
12
2
14
–
1
1
2
–
2
1
6
5
7
–
5
26
5
1
1
4
81
1,222
307
8
16
4
1
13
42
12
20
32
–
2
1
1
1
3
12
8
1
–
–
14
11
3
7
4
–
258
220
80
2
111
671
110
225
335
1
14
9
11
2
22
35
54
19
–
–
82
110
31
19
43
12
799
1,470
301
16
21
43
815
13
5
18
5
–
1
3
1
4
2
6
9
20
–
3
18
7
–
1
2
100
915
250
204
76
1
98
629
98
205
303
1
12
8
10
1
19
23
46
18
–
–
68
99
28
12
39
12
306
14
30
95
910
15
1
16
4
2
21
2
4
2
17
6
1
1
–
4
22
8
19
–
3
132
180
16
26
18
836
13.4
0.7
0.9
2.0
36.3
13
6
19
5
1
1
1
–
3
1
7
3
2
–
3
21
14
1
1
5
88
0.6
0.2
0.8
0.2
–
0.1
0.1
0.1
0.2
0.1
0.2
0.4
0.9
–
0.1
0.8
0.3
–
0.1
0.1
4.5
14.6
0.7
1.4
4.5
43.3
0.7
0.1
0.8
0.2
0.1
1.0
0.1
0.2
0.1
0.8
0.3
0.1
0.1
–
0.2
1.0
0.3
0.9
–
0.1
6.3
8.6
0.8
1.3
0.9
40.5
0.6
0.3
0.9
0.2
0.1
0.1
0.1
–
0.1
0.1
0.3
0.1
0.1
–
0.1
1.0
0.7
0.1
0.1
0.2
4.3
1,042
924
40.8
49.6
44.8
187
179
24
2
3
395
133
191
324
2
15
6
7
1
7
18
40
26
4
–
41
70
46
10
32
14
161
11.1
73
6
–
3
9.1
3.4
0.1
4.3
8.9
8.5
1.2
0.1
0.1
7.8
3.6
0.3
–
0.1
243
28.0
18.8
11.8
250
282
532
4.4
9.1
13.5
6.3
9.1
15.4
0.1
0.7
0.3
0.3
0.1
0.3
0.8
1.9
1.2
0.2
–
2.0
3.4
2.2
0.5
1.5
0.7
31.6
50.4
–
–
12.1
13.7
25.8
0.2
1.0
0.8
0.3
0.1
0.3
2.4
1.6
0.5
–
0.3
1.9
4.3
1.1
0.3
2.2
0.3
43.4
55.2
–
–
4
20
16
6
1
7
50
34
10
–
6
39
90
22
6
46
7
0.1
0.5
0.4
0.4
0.1
0.8
1.0
2.1
0.8
–
–
3.0
4.4
1.3
0.5
1.8
0.5
31.2
59.2
–
–
100
142
699
663
896
1,328
1,058
1,139
–
–
–
–
–
–
–
–
–
–
$ 2,692
$ 449
$ 2,243
$ 2,100
$ 2,063
100.0%
100.0%
100.0%
Net impaired loans as a % of common equity
4.77%
4.76%
5.27%
1 Primarily based on the geographic location of the customer’s address.
2 Excludes FDIC covered loans and other acquired credit-impaired loans. For addi-
tional information refer to the “Exposure to Acquired Credit-Impaired Loans”
discussion and table in this section of the document and Note 7 to the 2013
Consolidated Financial Statements.
3 Excludes debt securities classified as loans. For additional information refer to the
“Exposure to Non-Agency Collateralized Mortgage Obligations” section of this
document and Note 7 to the 2013 Consolidated Financial Statements.
4 Certain comparative amounts have been reclassified to conform with the presenta-
tion adopted in the current year.
5 Does not include trading loans with a fair value of $10,219 million as at October 31,
2013 (October 31, 2012 – $8,271 million) and amortized cost of $9,891 million as at
October 31, 2013 (October 31, 2012 – $7,918 million), and loans designated at fair
value through profit or loss of $9 million as at October 31, 2013 (October 31, 2012 –
$13 million). No allowance is recorded for trading loans or loans designated at fair
value through profit or loss.
48
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 3 5
IMPAIRED LOANS NET OF COUNTERPARTY-SPECIFIC AND INDIVIDUALLY INSIGNIFICANT ALLOWANCES FOR LOAN
LOSSES BY GEOGRAPHY1, 2, 3
(millions of Canadian dollars, except as noted)
As at
Percentage of total
October 31 October 31 October 31 October 31 October 31 October 31
2011
2012
2011
2012
2013
2013
Canada
Atlantic provinces
British Columbia4
Ontario4
Prairies4
Québec
Total Canada5
United States
Carolinas (North and South)
Florida
New England6
New Jersey
New York
Pennsylvania
Other
Total United States5
Total2
Counterparty-
specific and
individually
impaired insignificant
loans allowances
Gross
$
41
233
641
193
114
1,222
53
82
479
338
200
155
163
1,470
$ 2,692
$
7
23
235
24
18
307
4
7
49
37
16
15
14
142
$ 449
Net
impaired
loans
Net
impaired
loans
Net
impaired
loans
$
34
210
406
169
96
915
49
75
430
301
184
140
149
1,328
$ 2,243
$
26
202
509
185
120
1,042
23
38
369
252
137
91
148
1,058
$ 2,100
$
23
159
412
219
111
924
8
45
386
250
134
167
149
1,139
$ 2,063
1.5%
9.4
18.1
7.5
4.3
40.8
1.3%
9.6
24.2
8.8
5.7
49.6
2.2
3.4
19.2
13.4
8.2
6.2
6.6
59.2
1.1
1.8
17.6
12.0
6.5
4.4
7.0
50.4
100.0% 100.0%
1.1%
7.7
20.0
10.6
5.4
44.8
0.4
2.2
18.7
12.1
6.5
8.1
7.2
55.2
100.0%
Net impaired loans as a % of net loans7
0.50%
0.52%
0.56%
1 Primarily based on the geographic location of the customer’s address.
2 Excludes FDIC covered loans and other acquired credit-impaired loans. For additional
information refer to the “Exposure to Acquired Credit-Impaired Loans” discussion
and table in this section of the document and Note 7 to the 2013 Consolidated
Financial Statements.
3 Excludes debt securities classified as loans. For additional information refer to the
“Exposure to Non-Agency Collateralized Mortgage Obligations” section of this
document and Note 7 to the 2013 Consolidated Financial Statements.
4 The territories are included as follows: Yukon is included in British Columbia; Nunavut
is included in Ontario; and Northwest Territories is included in the Prairies region.
5 Does not include trading loans with a fair value of $10,219 million as at October 31,
2013 (October 31, 2012 – $8,271 million) and amortized cost of $9,891 million as
at October 31, 2013 (October 31, 2012 – $7,918 million), and loans designated at
fair value through profit or loss of $9 million as at October 31, 2013 (October 31,
2012 – $13 million). No allowance is recorded for trading loans or loans designated
at fair value through profit or loss.
6 The states included in New England are as follows: Connecticut, Maine, Massachu-
setts, New Hampshire, and Vermont.
7 Includes customers’ liability under acceptances.
ALLOWANCE FOR CREDIT LOSSES
Total allowance for credit losses consists of counterparty-specific and
collectively assessed allowances. The allowance is increased by the
provision for credit losses, and decreased by write-offs net of recoveries.
The Bank maintains the allowance at levels that management believes
is adequate to absorb incurred credit-related losses in the lending
portfolio. Individual problem accounts, general economic conditions,
loss experience, as well as the sector and geographic mix of the
lending portfolio are all considered by management in assessing the
appropriate allowance levels.
Counterparty-specific allowance
The Bank establishes counterparty-specific allowances for impaired
loans when the estimated realizable value of the loan is less than its
recorded value, based on the discounting of expected future cash flows.
Counterparty-specific allowances for credit losses are established to
reduce the book value of loans to their estimated realizable amounts.
During 2013, counterparty-specific allowances decreased by
$38 million, or 10%, resulting in a total counterparty-specific allowance
of $348 million. Excluding debt securities classified as loans, FDIC covered
loans and other acquired credit-impaired loans, counterparty-specific
allowances decreased by $19 million, or 11% from the prior year.
Collectively assessed allowance for individually insignificant
impaired loans
Individually insignificant loans, such as the Bank’s personal and small busi-
ness banking loans and credit cards, are collectively assessed for impair-
ment. Allowances are calculated using a formula that incorporates recent
loss experience, historical default rates, and the type of collateral pledged.
During 2013, the collectively assessed allowance for individually
insignificant impaired loans increased by $74 million, or 23%, resulting
in a total of $391 million. Excluding FDIC covered loans and other
acquired credit-impaired loans, the collectively assessed allowance
for individually insignificant impaired loans increased by $48 million,
or 19% from the prior year due primarily to the full year impact of the
acquisition of the MBNA Canada credit card portfolio in 2012.
Collectively assessed allowance for incurred but not
identified credit losses
The collectively assessed allowance for incurred but not identified
credit losses is established to recognize losses that management esti-
mates to have occurred in the portfolio at the balance sheet date for
loans not yet specifically identified as impaired. The level of collectively
assessed allowance for incurred but not identified losses reflects expo-
sures across all portfolios and categories. The collectively assessed
allowance for incurred but not identified credit losses is reviewed on
a quarterly basis using credit risk models and management’s judgment.
The allowance level is calculated using the probability of default (PD),
the loss given default (LGD) and the exposure at default (EAD) of the
related portfolios. The PD is the likelihood that a borrower will not be
able to meet its scheduled repayments. The LGD is the amount of the
loss the Bank would likely incur when a borrower defaults on a loan,
which is expressed as a percentage of exposure at default. EAD is the
total amount the Bank expects to be exposed to at the time of default.
49
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
For the non-retail portfolio, allowances are estimated using
borrower specific information. The LGD is based on the security and
structure of the facility; EAD is a function of the current usage, the
borrower’s risk rating, and the committed amount of the facility. For
the retail portfolio, the collectively assessed allowance for incurred but
not identified credit losses is calculated on a pooled portfolio level with
each pool comprising exposures with similar characteristics segmented,
for example by product type and PD estimate. Recovery data models
are used in the determination of the LGD for each pool. EAD is a func-
tion of the current usage and historical exposure experience at default.
As at October 31, 2013 the collectively assessed allowance for
incurred but not identified credit losses was $2,328 million, up from
$2,152 million as at October 31, 2012. Excluding debt securities
classified as loans, the collectively assessed allowance for incurred but
not identified credit losses increased by $233 million, or 12% from the
prior year primarily due to Target.
The Bank periodically reviews the methodology for calculating the
allowance for incurred but not identified credit losses. As part of this
review, certain revisions may be made to reflect updates in statistically
derived loss estimates for the Bank’s recent loss experience of its credit
portfolios, which may cause the Bank to provide or release amounts
from the allowance for incurred but not identified losses. Allowance
for credit losses are more fully described in Note 7 to the Consolidated
Financial Statements.
PROVISION FOR CREDIT LOSSES
The provision for credit losses is the amount charged to income to
bring the total allowance for credit losses, including both counter-
party-specific and collectively assessed allowances, to a level that
management considers adequate to absorb incurred credit-related
losses in the Bank’s loan portfolio. Provisions in the year are reduced
by any recoveries in the year.
The Bank recorded a total provision for credit losses of $1,631 million
in 2013, compared with a total provision of $1,795 million in 2012.
This amount comprised $1,481 million of counterparty-specific and
individually insignificant provisions and $150 million in collectively
assessed incurred but not identified provisions. The total provision for
credit losses as a percentage of net average loans and acceptances
decreased to 0.38% from 0.45% in 2012 largely due to improved
credit quality in the Canadian and U.S. commercial portfolios.
In Canada, residential mortgages, consumer instalment and other
personal loans, and credit cards, required counterparty-specific and
individually insignificant provisions of $865 million, an increase of
$134 million, or 18%, over 2012 due primarily to the full year impact
of MBNA in 2012. Business and government loans required counterparty-
specific and individually insignificant provisions of $74 million, a decrease
of $31 million, or 30%, over 2012 due primarily to improved credit
quality. Business and government counterparty-specific and individually
insignificant provisions were distributed across all industry sectors.
In the U.S., residential mortgages, consumer instalment and other
personal loans, and credit cards, required counterparty-specific and
individually insignificant provisions of $336 million, an increase of
$17 million, or 5%, over 2012. Business and government loans
required counterparty-specific and individually insignificant provisions
of $144 million, a decrease of $156 million, or 52%, over 2012
primarily due to the improved credit performance in the real estate
and financial sectors. Similar to impaired loans, the largest business
and government counterparty-specific and individually insignificant
provisions occurred in the real estate sector.
Geographically, 63% of counterparty-specific and individually insig-
nificant provisions were attributed to Canada and 32% to the U.S. in
2013. Canadian counterparty-specific and individually insignificant
provisions were concentrated in Ontario, which represented 50% of
total counterparty-specific and individually insignificant provisions, up
from 39% in 2012. U.S. counterparty-specific and individually insignifi-
cant provisions were concentrated in New England and New Jersey,
representing 8% and 5% of total counterparty-specific and individually
insignificant provisions, down from 13% and 6% respectively in 2012.
Table 36 provides a summary of provisions charged to the
Consolidated Statement of Income.
T A B L E 3 6
PROVISION FOR CREDIT LOSSES
(millions of Canadian dollars)
Provision for credit losses – counterparty-specific and individually insignificant
Provision for credit losses – counterparty-specific
Provision for credit losses – individually insignificant
Recoveries
Total provision for credit losses for counterparty-specific and individually insignificant
Provision for credit losses – incurred but not identified
Canadian Personal and Commercial Banking and Wholesale Banking
U.S. Personal and Commercial Banking
Other
Total provision for credit losses – incurred but not identified
Provision for credit losses
2013
2012
2011
$ 231
1,644
(394)
1,481
(53)
203
–
150
$ 1,631
$ 447
1,415
(287)
1,575
183
37
–
220
$ 1,795
$ 421
1,298
(264)
1,455
–
32
3
35
$ 1,490
50
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 3 7
PROVISION FOR CREDIT LOSSES BY INDUSTRY SECTOR1, 2
(millions of Canadian dollars, except as noted)
Percentage of total
October 31
2013
October 31
2012
October 31
2011
October 31
2013
October 31
2012
October 31
2011
Provision for credit losses – counterparty-specific
and individually insignificant
Canada
Residential mortgages3
Consumer instalment and other personal
HELOC
Indirect Auto
Other
Credit card
Total personal
Real estate
Residential
Non-residential
Total real estate
Agriculture
Automotive
Financial
Food, beverage, and tobacco
Forestry
Government, public sector entities, and education
Health and social services
Industrial construction and trade contractors
Metals and mining
Pipelines, oil, and gas
Professional and other services
Retail sector
Sundry manufacturing and wholesale
Telecommunications, cable, and media
Transportation
Other
Total business and government
Total Canada
United States
Residential mortgages
Consumer instalment and other personal
HELOC
Indirect Auto
Other
Credit card
Total personal
Real estate
Residential
Non-residential
Total real estate
Agriculture
Automotive
Financial
Food, beverage, and tobacco
Forestry
Government, public sector entities, and education
Health and social services
Industrial construction and trade contractors
Metals and mining
Pipelines, oil, and gas
Power and utilities
Professional and other services
Retail sector
Sundry manufacturing and wholesale
Telecommunications, cable, and media
Transportation
Other
Total business and government3
Total United States
Total excluding other loans
Other loans
Debt securities classified as loans
Acquired credit-impaired loans4
Total other loans
Total provision for credit losses – counterparty-specific
and individually insignificant
Provision for credit losses – incurred but not identified
Personal, business and government
Debt securities classified as loans
Total provision for credit losses – incurred but not identified
Total provision for credit losses
$
16
$
10
$
11
1.1%
0.6%
0.8%
15
128
221
485
865
(4)
1
(3)
3
2
–
4
–
1
(1)
14
–
10
3
33
5
(4)
4
3
74
939
11
54
166
54
51
336
–
35
35
(1)
2
1
1
1
12
10
6
6
(2)
(1)
24
24
13
3
(5)
15
144
480
1,419
13
49
62
21
131
261
308
731
12
2
14
2
4
6
1
1
–
1
13
6
–
9
16
8
19
3
2
105
836
22
93
111
48
45
319
72
66
138
1
3
22
5
–
7
7
19
3
1
2
7
26
21
8
18
12
300
619
1,455
6
114
120
13
136
283
322
765
(6)
2
(4)
–
2
1
5
–
2
–
13
(1)
(3)
12
24
–
(2)
7
2
58
823
17
59
41
49
48
214
70
60
130
–
1
8
1
–
1
4
22
9
(18)
3
25
20
7
4
9
26
252
466
1,289
85
81
166
1.0
8.6
14.9
32.8
58.4
(0.3)
0.1
(0.2)
0.2
0.1
–
0.3
–
0.1
(0.1)
1.0
–
0.7
0.2
2.2
0.3
(0.3)
0.3
0.2
5.0
63.4
0.7
3.7
11.2
3.7
3.4
22.7
–
2.4
2.4
(0.1)
0.1
0.1
0.1
0.1
0.7
0.7
0.4
0.4
(0.1)
(0.1)
1.6
1.6
0.9
0.2
(0.3)
1.0
9.7
32.4
95.8
0.9
3.3
4.2
1.3
8.3
16.6
19.6
46.4
0.8
0.1
0.9
0.1
0.2
0.4
0.1
0.1
–
0.1
0.8
0.4
–
0.6
1.0
0.5
1.2
0.2
0.1
6.7
53.1
1.4
5.9
7.1
3.0
2.9
20.3
4.6
4.2
8.8
0.1
0.2
1.4
0.3
–
0.4
0.4
1.2
0.2
0.1
0.1
0.4
1.7
1.3
0.5
1.1
0.8
19.0
39.3
92.4
0.4
7.2
7.6
0.9
9.3
19.5
22.1
52.6
(0.4)
0.1
(0.3)
–
0.1
0.1
0.4
–
0.1
–
0.9
(0.1)
(0.2)
0.9
1.6
–
(0.1)
0.5
0.1
4.0
56.6
1.2
4.0
2.8
3.4
3.3
14.7
4.8
4.1
8.9
–
0.1
0.5
0.1
–
0.1
0.3
1.5
0.6
(1.3)
0.2
1.7
1.4
0.5
0.3
0.6
1.8
17.3
32.0
88.6
5.8
5.6
11.4
$ 1,481
$ 1,575
$ 1,455
100.0%
100.0%
100.0%
195
(45)
150
214
6
220
$ 1,631
$ 1,795
45
(10)
35
$ 1,490
1 Primarily based on the geographic location of the customer’s address.
2 Certain comparative amounts have been reclassified to conform with the presentation
adopted in the current year.
3 Does not include trading loans with a fair value of $10,219 million as at October 31,
2013 (October 31, 2012 – $8,271 million) and amortized cost of $9,891 million as
at October 31, 2013 (October 31, 2012 – $7,918 million), and loans designated at
fair value through profit or loss of $9 million as at October 31, 2013 (October 31,
2012 – $13 million). No allowance is recorded for trading loans or loans designated
at fair value through profit or loss.
4 Includes all FDIC covered loans and other ACI loans.
51
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 3 8
PROVISION FOR CREDIT LOSSES BY GEOGRAPHY1
(millions of Canadian dollars, except as noted)
Percentage of total
October 31
2013
October 31
2012
October 31
2011
October 31
2013
October 31
2012
October 31
2011
Canada
Atlantic provinces
British Columbia2
Ontario2
Prairies2
Québec
Total Canada3
United States
Carolinas (North and South)
Florida
New England4
New Jersey
New York
Pennsylvania
Other
Total United States3
International
Other
Total international
Total excluding other loans
Other loans
Total counterparty-specific and individually insignificant provision
Incurred but not identified provision
Total provision for credit losses
$
24
56
739
72
48
939
17
28
120
74
61
22
158
480
–
–
1,419
62
1,481
150
$ 1,631
$
23
55
616
72
70
836
12
17
208
92
75
73
142
619
–
–
1,455
120
1,575
220
$ 1,795
$
23
53
631
66
50
823
11
31
147
111
65
52
49
466
–
–
1,289
166
1,455
35
$ 1,490
1.5%
3.4
45.3
4.4
3.0
57.6
1.0
1.7
7.4
4.5
3.7
1.4
9.7
29.4
–
–
87.0
3.8
90.8
9.2
100.0%
1.3%
3.0
34.3
4.0
3.9
46.5
0.7
0.9
11.6
5.1
4.2
4.1
7.9
34.5
–
–
81.0
6.7
87.7
12.3
100.0%
1.5%
3.6
42.3
4.4
3.4
55.2
0.7
2.1
9.9
7.4
4.4
3.5
3.3
31.3
–
–
86.5
11.2
97.7
2.3
100.0%
Provision for credit losses as a % of average
net loans and acceptances5
October 31
2013
October 31
2012
October 31
2011
Canada
Residential mortgages
Credit card, consumer instalment and other personal
Business and government
Total Canada
United States
Residential mortgages
Credit card, consumer instalment and other personal
Business and government
Total United States
International
Total excluding other loans
Other loans
Total counterparty-specific and individually insignificant provision
Incurred but not identified provision
Total provision for credit losses as a % of average
0.01%
0.80
0.12
0.29
0.06
1.07
0.28
0.48
–
0.33
0.85
0.34
0.03
0.01%
0.67
0.21
0.27
0.15
1.30
0.67
0.75
–
0.37
1.18
0.39
0.06
0.01%
0.74
0.13
0.30
0.16
1.16
0.66
0.71
–
0.37
1.34
0.41
0.01
net loans and acceptances
0.38%
0.45%
0.42%
4 The states included in New England are as follows: Connecticut, Maine, Massachusetts,
New Hampshire, and Vermont.
5 Includes customers’ liability under acceptances.
1 Primarily based on the geographic location of the customer’s address.
2 The territories are included as follows: Yukon is included in British Columbia; Nunavut
is included in Ontario; and Northwest Territories is included in the Prairies region.
3 Does not include trading loans with a fair value of $10,219 million as at October 31,
2013 (October 31, 2012 – $8,271 million) and amortized cost of $9,891 million as
at October 31, 2013 (October 31, 2012 – $7,918 million), and loans designated at
fair value through profit or loss of $9 million as at October 31, 2013 (October 31,
2012 – $13 million). No allowance is recorded for trading loans or loans designated
at fair value through profit or loss.
NON-PRIME LOANS
As at October 31, 2013 the Bank had approximately $2.4 billion
(October 31, 2012 – $2.3 billion), gross exposure to non-prime loans,
which primarily consists of automotive loans originated in Canada. The
credit loss rate, which is an indicator of credit quality and is defined as
the annual PCL divided by the average month-end loan balance, was
approximately 3.38% on an annual basis (October 31, 2012 – 3.57%).
The portfolio continues to perform as expected. These loans are
recorded at amortized cost.
52
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
SOVEREIGN RISK
The following table provides a summary of the Bank’s credit exposure
to certain European countries, including Greece, Italy, Ireland, Portugal
and Spain (GIIPS).
T A B L E 3 9
EXPOSURE TO EUROPE – Total Net Exposure by Country and Counterparty
(millions of Canadian dollars)
As at
Loans and Commitments1
Derivatives, Repos and Securities Lending2
Trading and Investment Portfolio3,4
Country
Corporate Sovereign
Financial
Total Corporate Sovereign
Financial
Total Corporate Sovereign
Financial
Total
Total Exposure5
GIIPS
Greece
Italy
Ireland
Portugal
Spain
Total GIIPS
Rest of Europe
France
Germany
Netherlands
Sweden
Switzerland
United Kingdom
Other6
Rest of Europe
Total Europe
GIIPS
Greece
Italy
Ireland
Portugal
Spain
Total GIIPS
Rest of Europe
France
Germany
Netherlands
Sweden
Switzerland
United Kingdom
Other6
Rest of Europe
Total Europe
$
– $
–
–
–
116
–
121
–
–
–
$ 116 $ 121
$
– $
2
–
–
47
$ 49 $
– $
123
–
–
163
286 $
– $
–
–
–
5
5 $
– $
–
–
–
–
– $
– $
3
12
3
13
31 $
–
3
12
3
18
36
$
– $
11
–
–
8
$ 19 $
– $
– $
1
–
–
–
1 $ 226 $
12
1
–
213
October 31, 2013
– $
24
1
–
221
246 $
–
150
13
3
402
568
435
923
417
–
787
1,240
110
–
327
158
44
–
7,590
155
$ 3,912 $ 8,274
$ 4,028 $ 8,395
49
50
404
80
86
238
40
484
1,300
979
124
873
9,068
305
1,338
2,903
696
45
707
3,344
566
$ 947 $ 13,133 $ 1,148 $ 2,496 $ 5,955 $ 9,599
$ 996 $ 13,419 $ 1,153 $ 2,496 $ 5,986 $ 9,635
1,141
722
257
22
707
2,784
322
137
1,931
148
23
–
107
150
60
250
291
–
–
453
94
2,112
5,148
5,943
1,184
264
82
188
56
3
27
144
79
1,878
4,895
5,041
707
–
490
1,579
152
65
846
474
237
4,748
151
3,934
9,351
7,618
1,353
1,844
5,382 17,794
2,680
1,809
$ 579 $ 14,590 $ 6,673 $ 21,842 $ 44,574
$ 598 $ 14,591 $ 6,899 $ 22,088 $ 45,142
$
$
– $
–
–
–
70
70
–
97
–
–
–
$ 97
$
– $
–
–
–
48
– $
97
–
–
118
$ 48 $ 215 $
– $
–
–
–
14
14 $
– $
–
–
–
–
– $
4
4 $
3
3
66
66
3
3
19
33
95 $ 109
$
– $
17
–
–
11
$ 28 $
– $
– $
2
–
–
1
3 $ 223 $
19
1
–
203
October 31, 2012
– $
38
1
–
215
254 $
4
138
67
3
366
578
393
659
369
–
529
1,439
15
$ 3,404
$ 3,474
–
185
–
–
–
483
59
$ 727
$ 824
24
80
260
4
76
216
25
417
924
629
4
605
2,138
99
1,260
2,245
768
80
969
3,015
544
$ 685 $ 4,816 $ 1,168 $ 1,820 $ 5,893 $ 8,881
$ 733 $ 5,031 $ 1,182 $ 1,820 $ 5,988 $ 8,990
779
816
460
80
969
2,466
323
366
1,167
25
–
–
73
189
115
262
283
–
–
476
32
1,907
4,103
6,068
782
328
54
124
53
1
31
101
13
1,690
3,929
4,721
380
–
64
2,002
3,584
7,272
7,465
866
1,902
4,891 10,044
2,823
2,180
$ 377 $ 12,786 $ 7,096 $ 20,259 $ 33,956
$ 405 $ 12,789 $ 7,319 $ 20,513 $ 34,534
163
50
1,294
401
297
4,726
165
1 Exposures include interest-bearing deposits with banks and are presented net
of impairment charges where applicable. There were no impairment charges for
European exposures as at October 31, 2013 or October 31, 2012.
2 Exposures are calculated on a fair value basis and are net of collateral. Total market
value of pledged collateral is $1.4 billion for GIIPS (October 31, 2012 – $0.9 billion)
and $28.2 billion for the rest of Europe (October 31, 2012 – $31.6 billion). Derivatives
are presented as net exposures where there is an ISDA master netting agreement.
3 Trading Portfolio exposures are net of eligible short positions. Deposits of $2.3 billion
(October 31, 2012 – $2.6 billion) are included in the Trading and Investment Portfolio.
4 The fair values of the GIIPS exposures in Level 3 in the Trading and Investment
Portfolio were not significant as at October 31, 2013 and October 31, 2012.
5 The reported exposures do not include $0.3 billion of protection the Bank
purchased through credit default swaps (October 31, 2012 – $0.3 billion).
6 Other European exposure is distributed across 13 countries (October 31, 2012 –
11 countries), each of which has a net exposure below $1.0 billion as at October 31,
2013 and October 31, 2012.
53
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 4 0
EXPOSURE TO EUROPE – Gross European Lending Exposure by Country
(millions of Canadian dollars)
Country
GIIPS
Greece
Italy
Ireland
Portugal
Spain
Total GIIPS
Rest of Europe
France
Germany
Netherlands
Sweden
Switzerland
United Kingdom
Other
Rest of Europe
Total Europe
GIIPS
Greece
Italy
Ireland
Portugal
Spain
Total GIIPS
Rest of Europe
France
Germany
Netherlands
Sweden
Switzerland
United Kingdom
Other
Rest of Europe
Total Europe
As at
Loans and Commitments
Indirect2
Total
October 31, 2013
$
–
1
–
–
100
$ 101
461
895
584
4
603
1,365
116
$ 4,028
$ 4,129
$
$
–
123
–
–
163
286
484
1,300
979
124
873
9,068
305
$ 13,133
$ 13,419
October 31, 2012
$
$
–
–
–
–
92
92
375
578
597
4
486
1,497
27
$ 3,564
$ 3,656
$
$
–
97
–
–
118
215
417
924
629
4
605
2,138
99
$ 4,816
$ 5,031
Direct1
$
–
122
–
–
63
$ 185
23
405
395
120
270
7,703
189
$ 9,105
$ 9,290
$
–
97
–
–
26
$ 123
42
346
32
–
119
641
72
$ 1,252
$ 1,375
1 Includes interest-bearing deposits with banks, funded loans and banker’s acceptances.
2 Includes undrawn commitments and letters of credit.
Of the Bank’s European exposure, approximately 98% (October 31,
2012 – 97%) is to counterparties in countries rated AAA/AA+ by either
Moody’s Investor Services (Moody’s) or Standard & Poor’s (S&P), with
the majority of this exposure to the sovereigns themselves and to well
rated, systemically important banks in these countries. Derivatives and
securities repurchase transactions are completed on a collateralized
basis. The vast majority of derivatives exposure is offset by cash collat-
eral while the repurchase transactions are backed largely by govern-
ment securities rated AA- or better by either Moody’s or S&P, and
cash. The Bank also takes a limited amount of exposure to well rated
corporate issuers in Europe where the Bank also does business with
their related entities in North America.
In addition to the European exposure identified above, the Bank
also has $4.9 billion (October 31, 2012 – $3.6 billion) of direct expo-
sure to supranational entities with European sponsorship, and indirect
exposure including $791 million (October 31, 2012 – $493 million)
of European collateral from non-European counterparties related to
repurchase and securities lending transactions that are margined daily,
and $7 million (October 31, 2012 – $20 million) invested in European
diversified investment funds.
As part of the Bank’s usual credit risk and exposure monitoring
processes, all exposures are reviewed on a regular basis. European
exposures are reviewed monthly or more frequently as circumstances
dictate and are periodically stress tested to identify and understand
any potential vulnerabilities. Based on the most recent reviews, all
European exposures are considered manageable.
54
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
EXPOSURE TO ACQUIRED CREDIT-IMPAIRED LOANS
Acquired credit-impaired (ACI) loans are generally loans with evidence
of credit quality deterioration since origination for which it is probable at
the purchase date that the Bank will be unable to collect all contractually
required principal and interest payments. Evidence of credit quality dete-
rioration as of the acquisition date may include statistics such as past
due status and credit scores. ACI loans are recorded at fair value upon
acquisition and the applicable accounting guidance prohibits carrying
over or recording allowance for loan losses in the initial accounting.
ACI loans were acquired through the acquisitions of FDIC-assisted
transactions, which include FDIC covered loans subject to loss sharing
agreements with the FDIC, South Financial, Chrysler Financial, and the
acquisitions of the credit card portfolios of MBNA Canada and Target.
The following table presents the unpaid principal balance, carrying
value, counterparty-specific allowance, allowance for individually
insignificant impaired loans and the net carrying value as a percentage
of the unpaid principal balance for ACI loans as at October 31, 2013
and October 31, 2012.
T A B L E 4 1
ACQUIRED CREDIT-IMPAIRED LOAN PORTFOLIO
(millions of Canadian dollars, except as noted)
FDIC-assisted acquisitions
South Financial
Other2
Total ACI loan portfolio
FDIC-assisted acquisitions
South Financial
Other2
Total ACI loan portfolio
Unpaid
principal
balance1
$ 836
1,700
105
$ 2,641
$ 1,070
2,719
283
$ 4,072
Carrying
value
$ 787
1,619
79
$ 2,485
$ 1,002
2,519
246
$ 3,767
Counterparty-
specific
allowance
Allowance for
individually
insignificant
impaired loans
$ 5
19
–
$ 24
$ 5
26
–
$ 31
$ 55
38
–
$ 93
$ 54
12
1
$ 67
As at
Carrying
Percentage of
value net of unpaid principal
balance
allowances
October 31, 2013
$ 727
1,562
79
$ 2,368
87.0%
91.9
75.2
89.7%
October 31, 2012
$ 943
2,481
245
$ 3,669
88.1%
91.2
86.6
90.1%
1 Represents contractual amount owed net of charge-offs since acquisition of the loan.
2 Other includes the ACI loan portfolios of Chrysler Financial and the credit card
portfolios of MBNA Canada and Target.
During the year ended October 31, 2013, the Bank recorded $49 million
of provision for credit losses on ACI loans (2012 – $114 million, 2011 –
$81 million). The following table provides key credit statistics by past
due contractual status and geographic concentrations based on ACI
loans unpaid principal balance.
T A B L E 4 2
ACQUIRED CREDIT-IMPAIRED LOANS – Key Credit Statistics
(millions of Canadian dollars, except as noted)
Past due contractual status
Current and less than 30 days past due
30-89 days past due
90 or more days past due
Total ACI loans
Geographic region
Florida
South Carolina
North Carolina
Other U.S./Canada
Total ACI loans
October 31, 2013
October 31, 2012
Unpaid principal balance1
Unpaid principal balance1
As at
$ 2,239
78
324
$ 2,641
$ 1,505
772
241
123
$ 2,641
84.8%
2.9
12.3
100.0%
57.0%
29.2
9.1
4.7
100.0%
$ 3,346
182
544
$ 4,072
$ 2,079
1,278
427
288
$ 4,072
82.2%
4.5
13.3
100.0%
51.0%
31.4
10.5
7.1
100.0%
1 Represents contractual amount owed net of charge-offs since acquisition of the loan.
EXPOSURE TO NON-AGENCY COLLATERALIZED
MORTGAGE OBLIGATIONS
As a result of the acquisition of Commerce Bancorp Inc., the Bank has
exposure to non-agency Collateralized Mortgage Obligations (CMOs)
collateralized primarily by Alt-A and Prime Jumbo mortgages, most
of which are pre-payable fixed-rate mortgages without rate reset
features. At the time of acquisition, the portfolio was recorded at fair
value, which became the new cost basis for this portfolio.
These debt securities are classified as loans and carried at amortized
cost using the effective interest rate method, and are evaluated for
loan losses on a quarterly basis using the incurred credit loss model.
The impairment assessment follows the loan loss accounting model,
where there are two types of allowances for credit losses, counterparty-
specific and collectively assessed. Counterparty-specific allowances
represent individually significant loans, such as the Bank’s business and
government loans and debt securities classified as loans, which are
assessed for whether impairment exists at the counterparty-specific
level. Collectively assessed allowances consist of loans for which
no impairment is identified on a counterparty-specific level and are
grouped into portfolios of exposures with similar credit risk characteris-
tics to collectively assess if impairment exists at the portfolio level.
The allowance for losses that are incurred but not identified as at
October 31, 2013 was US$94 million (October 31, 2012 – US$156 million).
The total provision for credit losses recognized in 2013 was a decrease
of US$30 million (2012 – US$12 million, 2011 – US$51 million).
55
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
The following table presents the par value, carrying value, allowance
for loan losses, and the net carrying value as a percentage of the par
value for the non-agency CMO portfolio as at October 31, 2013 and
October 31, 2012. As at October 31, 2013 the balance of the remain-
ing acquisition-related incurred loss was US$226 million (October 31,
2012 – US$315 million); this amount is reflected below as a compo-
nent of the discount from par to carrying value.
T A B L E 4 3
NON-AGENCY CMO LOANS PORTFOLIO
(millions of U.S. dollars, except as noted)
Non-Agency CMOs
Non-Agency CMOs
Par
value
Carrying
value
Allowance
for loan
losses
Carrying
value net of
allowance
As at
Percentage
of par
value
$ 2,075
$ 1,770
$ 260
$ 1,510
72.8%
October 31, 2013
$ 3,357
$ 2,830
$ 340
$ 2,490
74.2%
October 31, 2012
During the year ended October 31, 2013, the Bank sold US$520 million
of non-agency CMOs, which resulted in a net gain on sale of
US$106 million reported in Other income on the Bank’s Consolidated
Statement of Income.
During the second quarter of 2009, the Bank re-securitized a
portion of the non-agency CMO portfolio. As part of the on-balance
sheet re-securitization, new credit ratings were obtained for the
re-securitized securities that better reflect the discount on acquisition
and the Bank’s risk inherent on the entire portfolio. As a result,
13% of the non-agency CMO portfolio is now rated AAA for regulatory
capital reporting (October 31, 2012 – 14%). The net capital benefit
of the re-securitization transaction is reflected in the changes in RWA.
For accounting purposes, the Bank retained a majority of the beneficial
interests in the re-securitized securities resulting in no financial statement
impact. The Bank’s assessment of impairment for these reclassified
securities is not impacted by a change in the credit ratings.
T A B L E 4 4
NON-AGENCY ALT-A AND PRIME JUMBO CMO PORTFOLIO BY VINTAGE YEAR
Prime Jumbo
Amortized
cost
Fair
value
Amortized
cost
As at
Total
Fair
value
October 31, 2013
Amortized
cost
$
81
96
358
255
364
Alt-A
Fair
value
$
90
107
415
285
416
$ 85
30
30
134
171
$ 93
33
33
150
184
$ 1,154
$ 1,313
$ 450
$ 493
$ 142
295
538
313
478
$ 160
324
582
321
515
$ 148
99
170
233
230
$ 152
111
178
232
242
$ 1,766
$ 1,902
$ 880
$ 915
$ 183
140
448
435
600
$ 1,806
$ 166
126
388
389
535
$ 1,604
94
$ 1,510
October 31, 2012
$ 312
435
760
553
757
$ 2,817
$ 290
394
708
546
708
$ 2,646
156
$ 2,490
(millions of U.S. dollars)
2003
2004
2005
2006
2007
Total portfolio net of counterparty-specific and
individually insignificant credit losses
Less: allowance for incurred but not identified credit losses
Total
2003
2004
2005
2006
2007
Total portfolio net of counterparty-specific and
individually insignificant credit losses
Less: allowance for incurred but not identified credit losses
Total
56
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
GROUP FINANCIAL CONDITION
Capital Position
T A B L E 4 5
CAPITAL STRUCTURE AND RATIOS – Basel III 1
(millions of Canadian dollars, except as noted)
Common Equity Tier 1 Capital (CET1)
Common shares plus related contributed surplus
Retained earnings
Accumulated other comprehensive income
Common Equity Tier 1 Capital before regulatory adjustments
Common Equity Tier 1 capital regulatory adjustments
Goodwill (net of related tax liability)
Intangibles (net of related tax liability)
Deferred tax assets excluding those arising from temporary differences
Cash flow hedge reserve
Shortfall of provisions to expected losses
Gains and losses due to changes in own credit risk on fair valued liabilities
Defined benefit pension fund net assets (net of related tax liability)
Investment in own shares
Significant investments in the common stock of banking, financial and
insurance entities that are outside the scope of regulatory consolidation,
net of eligible short positions (amount above 10% threshold)
Total regulatory adjustments to Common Equity Tier 1
Common Equity Tier 1 Capital
Additional Tier 1 capital instruments
Directly issued capital instruments subject to phase out from Additional Tier 1
Additional Tier 1 instruments issued by subsidiaries and held by third parties subject to phase out
Additional Tier 1 capital instruments before regulatory adjustments
Additional Tier 1 capital instruments regulatory adjustments
Significant investments in the capital of banking, financial and insurance
entities that are outside the scope of regulatory consolidation,
net of eligible short positions
Total regulatory adjustments to Additional Tier 1 Capital
Additional Tier 1 capital
Tier 1 capital
Tier 2 capital instruments and provisions
Directly issued capital instruments subject to phase out from Tier 2
Tier 2 instruments issued by subsidiaries and held by third parties subject to phase out
Collective allowances
Tier 2 capital before regulatory adjustments
Tier 2 regulatory adjustments
Investment in own Tier 2 instruments
Significant investments in the capital of banking, financial and insurance
entities that are outside the scope of regulatory consolidation,
net of eligible short positions
Total regulatory adjustments to Tier 2 capital
Tier 2 capital
Total capital
Total risk-weighted assets
Capital Ratios2
Common Equity Tier 1 capital (as percentage of risk-weighted assets)
Tier 1 (as percentage of risk-weighted assets)
Total capital (as percentage of risk-weighted assets)
1 Capital position calculated using the ‘All-in’ methodology.
2 The “all-in” basis of regulatory reporting includes all of the regulatory
adjustments that will be required by 2019.
2013
Basel III
$ 19,341
24,565
3,166
47,072
(13,280)
(2,097)
(519)
(1,005)
(116)
(89)
(389)
(183)
(3,572)
(21,250)
25,822
5,524
552
6,076
(352)
(352)
5,724
31,546
7,564
297
1,472
9,333
(19)
(170)
(189)
9,144
40,690
$ 286,355
9.0%
11.0
14.2
57
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 4 5
CAPITAL STRUCTURE AND RATIOS – Basel II 1 (cont’d)
(millions of Canadian dollars, except as noted)
Tier 1 Capital
Common shares
Contributed surplus
Retained earnings
Fair value (gain) loss arising from changes in the institution’s own credit risk
Net unrealized foreign currency translation gains (losses) on investment in subsidiaries, net of hedging activities
Preferred shares2
Innovative instruments2
Adjustments for transition to measurement under IFRS
Net impact of eliminating one month reporting lag of U.S. entities3
Gross Tier 1 Capital
Goodwill and intangibles in excess of 5% limit
Net Tier 1 Capital
Securitization – gain on sales of mortgages
– other
50% shortfall in allowance4
50% substantial investments
Investment in insurance subsidiaries5
Net impact of eliminating one month reporting lag of U.S. entities3
Adjusted Net Tier 1 Capital
Tier 2 Capital
Innovative instruments
Subordinated notes and debentures (net of amortization and ineligible)
Eligible collective allowance (re-standardized approach)
Accumulated net after-tax unrealized gain on AFS equity securities in OCI
Securitization – other
50% shortfall in allowance4
50% substantial investments
Investment in insurance subsidiaries5
Net impact of eliminating one month reporting lag of U.S. entities3
Total Tier 2 Capital
Total Regulatory Capital
Regulatory Capital Ratios3
Tier 1 capital ratio6
Total capital ratio6
Assets-to-capital multiple
1 Prior to 2012, the amounts are calculated based on Canadian GAAP.
2 Effective 2012, in accordance with IAS 32, Financial Instruments: Presentation, the
Bank is required to classify certain classes of preferred shares and innovative Tier 1
capital investments as liabilities on the balance sheet. Prior to 2012, in accordance
with the CICA Handbook Section 3860, the Bank was required to classify certain
classes of preferred shares and innovative Tier 1 capital investments as liabilities on
the 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.
THE BANK’S CAPITAL MANAGEMENT OBJECTIVES:
The Bank’s capital management objectives are:
• To be an appropriately capitalized financial institution as determined by:
– The Bank’s Risk Appetite Statement;
– Capital requirements defined by relevant regulatory authorities; and,
– The Bank’s internal assessment of capital requirements consistent
with the Bank’s risk profile and risk tolerance levels.
• To have the most economically achievable weighted average cost
of capital (after tax), consistent with preserving the appropriate mix
of capital elements to meet targeted capitalization levels.
• To ensure ready access to sources of appropriate capital, at reason-
able cost, in order to:
– Insulate the Bank from unexpected events; and
– Support and facilitate business growth and/or acquisitions consis-
tent with the Bank’s strategy and risk appetite.
• To support strong external debt ratings, in order to manage the Bank’s
overall cost of funds and to maintain accessibility to required funding.
These objectives are applied in a manner consistent with the Bank’s over-
all objective of providing a satisfactory return on shareholders’ equity.
58
2012
Basel II
2011
Basel II
$ 18,525
196
21,763
(2)
(426)
3,394
3,700
387
–
47,537
(12,311)
35,226
–
(650)
(103)
(2,731)
(753)
–
30,989
26
11,198
1,142
99
(1,272)
(103)
(2,731)
(753)
–
7,606
$ 38,595
$ 18,301
281
24,339
–
(3,199)
3,395
3,705
–
(266)
46,556
(14,376)
32,180
(86)
(735)
(180)
(2,805)
(4)
133
28,503
26
11,253
940
35
(1,484)
(180)
(2,805)
(1,443)
133
6,475
$ 34,978
12.6%
15.7%
18.0
13.0%
16.0%
17.2
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.
CAPITAL SOURCES
The Bank’s capital is primarily derived from common shareholders and
retained earnings. Other sources of capital include the Bank’s preferred
shareholders, holders of innovative capital instruments, and holders of
the Bank’s subordinated debt.
CAPITAL MANAGEMENT
The Enterprise Capital Management department manages capital for the
Bank and is responsible for acquiring, maintaining, and retiring capital.
The Board of Directors oversees capital adequacy and management.
The Bank continues to hold sufficient capital levels to ensure that
flexibility is maintained to grow operations, both organically and
through strategic acquisitions. The strong capital ratios are the result
of the Bank’s internal capital generation, management of the balance
sheet, and periodic issuance of capital securities.
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
ECONOMIC CAPITAL
The Bank’s internal measure of required capital is called economic
capital or invested capital. Economic capital is comprised of both risk-
based capital required to fund losses that could occur under extremely
adverse economic or operational conditions and investment capital
that has been used to fund acquisitions or investments in fixed assets
to support future earnings growth.
The Bank uses internal models to determine how much risk-based
capital is required to support the enterprise’s risk and business expo-
sures. Characteristics of these models are described in the ‘Managing
Risk’ section. Within the Bank’s measurement framework, our objec-
tive is to hold risk-based capital to cover unexpected losses to a high
level of confidence and ratings standards. The Bank’s chosen internal
capital targets are well founded and consistent with our overall risk
profile and current operating environment.
Since November 1, 2007, the Bank has been operating its capital
regime under the Basel Capital Framework. Consequently, in addition
to addressing Pillar I risks covering credit risk, market risk and opera-
tional risk, the Bank’s economic capital framework captures other
material Pillar II risks including non-trading market risk for the retail
portfolio (interest rate risk in the banking book), additional credit risk
due to concentration (commercial and wholesale portfolios), and risks
classified as “Other”, namely business risk, insurance risk, and the
Bank’s investment in TD Ameritrade.
Please refer to the Risk-Weighted Assets section below for a break-
down of the Bank’s economic capital by business segment, and Pillar I
and Pillar II risks.
REGULATORY CAPITAL
Basel III Capital Framework
Changes in capital requirements approved by the Basel Committee on
Banking and Supervision (BCBS) are commonly referred to as Basel III.
These changes are intended to strengthen global capital rules with the
goal of promoting a more resilient global banking sector.
Under Basel III, total capital consists of three components, namely
CET1, Additional Tier 1 and Tier 2 capital. The sum of the first two
components is defined as Tier 1 capital. CET1 capital is mainly comprised
of common shares, retained earnings and accumulated other compre-
hensive income, and is the highest quality capital and the predominant
form of Tier 1 capital. CET1 capital includes regulatory adjustments
and deductions for items such as goodwill, other intangibles, amounts
by which capital items (that is, significant investments in CET1 capital
of financial institutions, mortgage servicing rights and deferred tax
assets from temporary differences) exceed allowable thresholds. Tier 2
capital is mainly comprised of subordinated debt, certain loan loss
allowances and minority interests in subsidiaries’ Tier 2 instruments.
Under Basel III, risk-weighted assets are higher, primarily as a result
of the 250% risk-weighted threshold items not deducted from CET1
capital, securitization exposures being risk weighted (previously
deducted from capital) and a new capital charge for credit risk related
to asset value correlation for financial institutions. Regulatory capital
ratios are calculated by dividing CET1, Tier 1 and Total capital by RWA.
OSFI’s Regulatory Target Ratios under Basel III on an “All-In” Basis
OSFI’s Capital Requirements under Basel III
In December 2012, OSFI released the final version of its Capital
Adequacy Requirements (CAR) Guideline. The guideline details how
the Basel III rules should apply to Canadian banks.
The final CAR Guideline postponed the CVA capital add-on charge
until January 1, 2014. OSFI has indicated there will be delays in the
implementation of Basel III standards in the U.S. and European Union
countries. The bilateral over-the-counter (OTC) derivative market is a
global market and given the significant impact of the CVA capital
add-on charge, OSFI believes a coordinated start with the two most
significant jurisdictions in the global derivatives market is warranted.
As a result, OSFI issued a letter on August 21, 2013 advising the CVA
capital charge will be phased in over a five year period beginning 2014
and will be based on two available options. Option 1 allows for a scalar
phase-in for the CVA capital add-on charge of 57% in 2014 for the
CET1 capital ratio calculation. This percentage would increase to 64%
for 2015 and 2016, 72% in 2017, 80% in 2018 and 100% in 2019.
A different set of scalar phase-in percentages would also apply for the
Tier 1 and Total capital ratios calculations. Option 2 allows for a scalar
phase-in for all the capital ratios based on the Total Capital ratio phase-
in percentages. OSFI also clarified that, although market risk hedges of
CVA are not recognized in the CVA capital charge, market risk hedges
of CVA used for the purposes of mitigating CVA risk, and managed as
such, are exempt from market risk capital requirements.
The CAR Guideline contains two methodologies for capital ratio
calculation: (i) the “transitional” method; and (ii) the “all-in” method.
Under the “transitional” method, changes in capital treatment for
certain items, as well as minimum capital ratio requirements, will
be phased in over the period from 2013 to 2019. Under the “all-in”
method, capital is defined to include all of the regulatory adjustments
that will be required by 2019, while retaining the phase-out rules for
non-qualifying capital instruments. The minimum CET1, Tier 1 and
Total capital ratios based on the “all-in” method are 4.5%, 6.0% and
8.0%, respectively. OSFI expected Canadian banks to include an addi-
tional capital conservation buffer of 2.5% in the first quarter of 2013,
effectively raising the CET1 minimum requirement to 7.0%. With the
capital conservation buffer, Canadian banks are required to maintain
a minimum Tier 1 capital ratio of 8.5% and a Total capital ratio of
10.5%, starting in the first quarter of 2014.
At the discretion of OSFI, a countercyclical common equity capital
buffer (CCB) within a range of 0-2.5% could be imposed. No CCB is
currently in effect.
In November 2011, the BCBS published the final rules on global
systemically important banks (G-SIBs). None of the Canadian banks
have been designated as a G-SIB. In March 2013, OSFI designated
six of the major Canadian banks as domestic systemically important
banks (D-SIBs), for which a 1% common equity capital surcharge will
be in effect from January 1, 2016. As a result, the six Canadian banks
designated as D-SIBs, including TD, will be required to meet an
“all-in” Pillar 1 target CET1 ratio of 8% commencing January 1, 2016.
Basel III Capital Ratios
Common Equity Tier 1 ratio
Tier 1 Capital ratio
Total Capital ratio
BCBS
minimum
4.5%
6.0%
8.0%
Capital OSFI Regulatory
Targets without
D-SIB surcharge
Conservation
buffer
2.5%
2.5%
2.5%
7.0%
8.5%
10.5%
Effective Date
January 1, 2013
January 1, 2014
January 1, 2014
D-SIB
surcharge
OSFI Regulatory
Targets with
D-SIB surcharge
1.0%
1.0%
1.0%
8.0%
9.5%
11.5%
Effective Date
January 1, 2016
January 1, 2016
January 1, 2016
With BCBS’s leverage ratio requirement pending Pillar 1 treatment on
January 1, 2018, OSFI continues to require Canadian banks to meet
its asset-to-capital (ACM) multiple test on a continuous basis. The
multiple is calculated on a Basel III “transitional basis”, by dividing
total assets, including specified off-balance sheet items, by total capital.
59
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
Capital Position and Capital Ratios
The Basel framework allows qualifying banks to determine capital
levels consistent with the way they measure, manage and mitigate
risks. It specifies methodologies for the measurement of credit, market,
and operational risks. The Bank uses the advanced approaches for the
majority of its portfolios which results in regulatory and economic
capital being more closely aligned than was the case under Basel I.
Since the U.S. banking subsidiaries (TD Bank, N.A. including South
Financial and Chrysler Financial) were not originally required by their
main regulators to convert to Basel II prior to being acquired by the
Bank, the advanced approaches are not yet being utilized for the
majority of assets in TD Bank, N.A.
For accounting purposes, IFRS is followed for consolidation of subsid-
iaries and joint ventures. For regulatory capital purposes, insurance
subsidiaries are deconsolidated and reported as a deduction from capital.
Insurance subsidiaries are subject to their own capital adequacy reporting
such as OSFI’s Minimum Continuing Capital Surplus Requirements and
Minimum Capital Test. Currently, for regulatory capital purposes, all the
entities of the Bank are either consolidated or deducted from capital and
there are no entities from which surplus capital is recognized.
Some of the Bank’s subsidiaries are individually regulated by either
OSFI or other regulators. Many of these entities have minimum capital
requirements which they must maintain and which may limit the
Bank’s ability to extract capital or funds for other uses.
Common Equity Tier 1 Capital
CET1 capital was $25,822 million as at October 31, 2013. Strong
earnings contributed to the majority of CET1 capital growth in the
year. Capital management funding activities during the year included
the common share issuance of $0.8 billion under the dividend rein-
vestment plan and stock option exercises. The growth in CET1 capital
is partially offset by the share buybacks in the year.
Tier 1 and Tier 2 Capital
Under Basel III, all of TD’s outstanding non-common Tier 1 and Tier 2
capital instruments are considered non-qualifying as regulatory capital,
subject to a 10 year phase-out period beginning in January 2013.
TD announced on February 7, 2011 that, based on OSFI’s February 4,
2011 advisory which outlined OSFI’s expectations 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, 2013,
there was $450 million in principal amount of TD Capital Trust IV
Notes – Series 2 issued and outstanding.
In November 2012 and in June 2013, the Bank redeemed $2.5 billion
and $900 million, respectively, of subordinated debentures which
qualified as Tier 2 regulatory capital. See Note 34 to the Bank’s
Consolidated Financial Statements for more details.
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 risk profile
and stated risk appetite of the Bank. 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 of Directors. At
October 31, 2013, the quarterly dividend was $0.85 per share, consistent
with the Bank’s current target payout range of 40-50% of adjusted
earnings. Cash dividends declared and paid during 2013 totalled
$3.24 per share (2012 – $2.89). For cash dividends payable on the Bank’s
preferred shares, see Notes 19, 21 and 37 to the Consolidated Financial
Statements. As at October 31, 2013, 917.5 million common shares were
outstanding (2012 – 916.1 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.
CAPITAL RATIOS
Capital ratios are measures of financial strength and flexibility. The
Bank’s capital ratios are calculated using OSFI’s guidelines which
are based on the capital adequacy rules included in Basel III. At the
consolidated level, the top corporate entity to which Basel III applies
is The Toronto-Dominion Bank.
OSFI measures the capital adequacy of Canadian banks according
to its instructions for determining risk-adjusted capital, RWA and off-
balance sheet exposures.
OSFI defines three primary ratios to measure capital adequacy, the
CET1 capital ratio, the Tier 1 capital ratio and the Total capital ratio.
OSFI sets target levels for Canadian banks as follows:
• The CET1 capital ratio is defined as CET1 regulatory capital divided
by RWA. OSFI has established a target CET1 capital ratio of 7%.
• The Tier 1 capital ratio is defined as Tier 1 regulatory capital divided
by RWA. OSFI has established a target Tier 1 capital ratio of 8.5%.
• The Total capital ratio is defined as total regulatory capital divided
by RWA. OSFI has established a target Total capital ratio of 10.5%.
As at October 31, 2013, the Bank’s CET1, Tier 1 and Total capital
ratios were 9.0%, 11.0% and 14.2%, respectively. Compared with the
Bank’s pro forma CET1 ratio of 8.2% as at October 31, 2012, the
October 31, 2013 CET1 ratio increased primarily as a result of strong
retained earnings growth, common share issuance through participation
in the Bank’s dividend reinvestment plan and exercise of stock options,
and reduction of RWA due to the exclusion of the CVA capital add-on
charge (refer to the “OSFI’s Capital Requirements under Basel III”
discussion). The CVA capital add-on charge represents approximately
31 bps, of which 57% (or 18bps) would be included in the 2014 CET1
ratio, per OSFI’s determined scalar phase-in. During the year, the Bank
generated approximately $4.2 billion of excess CET1 capital through
organic growth and balance sheet optimization activities. In 2013,
the Bank was able to fund acquisitions, support business growth, and
improve the Bank’s capital position largely without raising additional
capital. As at October 31, 2013, the Bank had an excess over OSFI’s all-in
regulatory minimum CET1 capital ratio of approximately $5.0 billion.
NORMAL COURSE ISSUER BID
On June 19, 2013, the Bank announced that the Toronto Stock
Exchange (TSX) and OSFI approved the Bank’s normal course issuer bid
to repurchase for cancellation up to 12 million of our common shares.
Purchases under the bid commenced on June 21, 2013 and will end
on June 20, 2014, such earlier date as the Bank may determine or such
earlier date as the Bank may complete its purchases pursuant to the
notice of intention filed with the TSX. As of October 31, 2013, the Bank
repurchased 9.0 million common shares under this bid at an average
price of $86.50 for a total amount of $780.2 million. The Bank did not
have a normal course issuer bid outstanding during fiscal 2012.
60
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS RISK-WEIGHTED ASSETS
Based on Basel III, RWA are calculated for each of credit risk, market
risk, and operational risk. Operational risk represents the risk of loss
resulting from inadequate or failed internal processes, people and
systems or from external events. The Bank’s RWA were as follows:
T A B L E 4 6
RISK-WEIGHTED ASSETS1
(millions of Canadian dollars)
Credit risk
Retail
Residential secured
Qualifying revolving retail
Other retail
Non-retail
Corporate
Sovereign
Bank
Securitization exposures
Equity exposures
Exposures subject to standardized
or IRB approaches
Adjustment to IRB RWA for scaling factor
Other assets not included in standardized
or IRB approaches
Total credit risk
Market risk
Trading book
Operational risk
Standardized approach
Total
Basel III
2013
Basel II
2012
$ 23,895
12,588
47,504
$ 22,220
12,816
38,175
99,608
3,340
12,198
10,894
885
89,222
2,827
9,969
7,302
1,148
210,912
5,463
183,679
5,012
23,177
239,552
12,589
201,280
11,734
12,033
35,069
$ 286,355
32,562
$ 245,875
1 Effective 2013, amounts are calculated in accordance with the Basel III regulatory
framework, and are presented based on the “all-in” methodology. Prior to 2013,
amounts were calculated in accordance with the Basel II regulatory framework.
Counterparty credit risk comprises exposures arising from OTC deriva-
tives. Non-counterparty credit risk includes loans and advances to retail
customers (individuals and small business), corporate entities (whole-
sale and commercial customers), banks and governments, as well as
holdings of debt, equity securities and other assets (including prepaid
expenses, deferred and current income taxes, land, building, equip-
ment and other depreciable property).
The Book size category consists of organic changes in book size
and composition (including new business and maturing loans) and,
for the fourth quarter of 2013, is mainly due to growth in derivatives
and corporate and commercial loans in our Wholesale and Business
Banking segments.
The Book quality category includes quality of book changes caused
by experience such as underlying customer behaviour or demographics,
including changes through model calibrations/realignments and, for
the fourth quarter of 2013, is mainly due to the update of non-retail
risk parameters and improvements in retail book quality.
The Model updates category relates to model implementation,
changes in model scope or any change to address model malfunctions.
The Methodology and policy category impacts are methodology
changes to the calculations driven by regulatory policy changes, such
as new regulations.
Foreign exchange movements are mainly due to a change in the
U.S. dollar foreign exchange rate on the U.S. portfolios in our U.S.
Personal and Commercial segment.
The Other category includes items not described in the above cate-
gories including changes in exposures not included under advance or
standardized methodologies (including prepaid expenses, current and
deferred income taxes, land, building, equipment and other deprecia-
ble property and other assets).
FLOW STATEMENT FOR RISK-WEIGHTED ASSETS –
Disclosure for market risk – Risk-weighted assets
movement by key driver
T A B L E 4 8
During the year, RWA increased $40.5 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 require securitization exposures to be risk weighted as
opposed to being deducted from capital, portion of threshold items
(for example, insurance investments, investment in TD Ameritrade and
deferred tax assets related to temporary difference) not deducted from
capital to be risk weighted at 250%, and a new capital charge for
credit risk related to asset value correlation for financial institutions
to be added, all of which increased RWA from Basel II.
(billions of Canadian dollars)
RWA, balance as at July 31, 2013
Movement in risk levels
Model updates
Methodology and policy
Acquisitions and disposals
Foreign exchange movements and other
Total RWA movement
RWA, balance as at October 31, 2013
1 Not meaningful.
$ 11.1
0.6
–
–
–
n/m1
0.6
$ 11.7
FLOW STATEMENT FOR RISK-WEIGHTED ASSETS –
Disclosure for non-counterparty credit risk and
counterparty credit risk – Risk-weighted assets
movement by key driver
T A B L E 4 7
(billions of Canadian dollars)
Non-counterparty
credit risk
Counterparty
credit risk
RWA, balance as at July 31, 2013
Book size
Book quality
Model updates
Methodology and policy
Acquisitions and disposals
Foreign exchange movements
Other
Total RWA movement
RWA, balance as at October 31, 2013
$ 229.7
1.4
(2.1)
(0.1)
–
–
1.9
0.2
1.3
$ 231.0
$ 8.2
0.7
(0.4)
–
–
–
0.1
–
0.4
$ 8.6
The Movement in risk levels category reflects changes in risk due to
position changes and market movements. An increasing contribution
to RWA was observed over the period which was primarily driven by
increases in treasury and agency bond positions in our U.S. portfolio,
and increases in energy and industrial bonds in our Canadian books.
The Model updates category reflects updates to the model to reflect
recent experience and changes in model scope.
The Methodology and policy category reflects methodology changes
to the calculations driven by regulatory policy changes.
Foreign exchange movements and other are deemed not meaningful
since RWA exposure measures are calculated in Canadian dollars.
Therefore, no foreign exchange translation is required.
61
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
The following chart provides a breakdown of the Bank’s regulatory
capital and economic capital. Regulatory Capital reflects the RWA
required for Pillar I risks only, namely credit, trading market risk and
operational risk. Economic capital reflects the Bank’s internal view
of capital required for risks captured under the regulatory framework
and includes those risks identified as Basel II Pillar II risks which are
not captured within the assessment of RWA. The Basel II Pillar II risks
include non-trading market risk for the retail portfolio (Interest Rate
Risk in the Banking Book), additional credit risk due to concentration
(commercial and wholesale portfolios), and risks classified as “Other,”
namely business risk, insurance risk, and the Bank’s investment in
TD Ameritrade. Economic capital is also assessed at a higher confidence
level which is consistent with the Bank’s overall target debt rating.
The differences between economic capital and regulatory capital in
the figure below are predominately due to the additional Pillar II risks
captured under economic capital and the variance in confidence level.
For additional information on the risks highlighted below, refer to
the “Managing Risk” section of this document.
TD Bank
Group
Credit Risk
Market Risk
Operational Risk
Other Risks
Credit Risk
Market Risk
Operational Risk
Other Risks
65%
5%
12%
18%
64%
10%
4%
22%
$ 239,552
Credit Risk
Market Risk
$ 11,734
Operational Risk $ 35,069
$ 7,977
Credit Risk
–
Market Risk
$
392
Operational Risk $
Corporate
Canadian Personal and
Commercial Banking
Wealth and
Insurance
U.S. Personal and
Commercial Banking
Wholesale
Banking
Credit Risk
Market Risk
Operational Risk
Other Risks
79%
3%
16%
2%
Credit Risk
Market Risk
Operational Risk
Other Risks
5%
1%
12%
82%
Credit Risk
Market Risk
Operational Risk
Other Risks
81%
6%
9%
4%
Credit Risk
Market Risk
Operational Risk
Other Risks
71%
13%
9%
7%
$ 66,263
Credit Risk
Market Risk
–
$
Operational Risk $ 16,071
$ 12,466
Credit Risk
Market Risk
–
$
Operational Risk $ 4,326
$ 121,650
Credit Risk
Market Risk
–
$
Operational Risk $ 10,052
$ 31,196
Credit Risk
Market Risk
$ 11,734
Operational Risk $ 4,228
Notes:
1) Wealth includes TD Ameritrade in Other Risks
2) RWA figures are in CDN $ millions
Economic Capital (%)
RWA (CDN$MM)
62
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS FUTURE CHANGES IN BASEL
Future Basel III Developments
In December 2012, BCBS published a consultative document proposing
a revised securitization framework. The proposal aims to enhance
current methodologies of calculating securitization RWA by making
them more risk sensitive and limiting over reliance on rating agencies.
The proposal would generally increase the risk weights of investments
in securitization exposures.
In June 2013, the BCBS issued an update to the Basel III leverage
ratio framework and related disclosure requirements. The leverage ratio
was initially announced in the Basel III framework in December 2010.
The leverage ratio is intended to serve as a supplementary measure to
the risk-based capital requirements, with the objective of constraining
the build-up of excess leverage in the banking sector. Implementation
of the Basel III leverage ratio requirement has begun with bank-level
reporting to OSFI and its components from January 1, 2013, and will
proceed with public disclosure starting January 1, 2015. Any final
adjustments to the definition and calibration of the Basel III leverage
ratio will be made by 2017, with a view to migrating to a Pillar 1 treat-
ment on January 1, 2018 based on appropriate review and calibration.
In July 2013, the BCBS issued an update to the final rules on G-SIBs,
originally published in November 2011. The update provides clarity
on the public disclosure requirements of the 12 indicators used in the
assessment methodology. As noted earlier, the six Canadian banks
that have been designated as D-SIBs are required by OSFI to publish,
at a minimum, the 12 indicators used in the G-SIB indicator-based
assessment framework by February 28, 2014.
In July 2013, the U.S. Federal Reserve, FDIC and the Office of the
Comptroller of the Currency (OCC) approved the adoption of the final
rule on the Basel III Capital framework to take effect January 1, 2014
for U.S. banking organizations that are required to follow the advanced
approaches, which includes the Bank’s U.S. bank subsidiaries.
T A B L E 4 9
OUTSTANDING EQUITY AND SECURITIES
EXCHANGEABLE/CONVERTIBLE INTO EQUITY1
(millions of shares/units, except as noted)
Common shares outstanding
Treasury shares – common
Total common shares
Stock options
Vested
Non-vested
Series O
Series P
Series Q
Series R
Series S2
Series T2
Series Y3
Series Z3
Series AA
Series AC
Series AE
Series AG
Series AI
Series AK
Total preferred shares – equity
Treasury shares – preferred
Total preferred shares
Capital Trust Securities (thousands of shares)
Trust units issued by TD Capital Trust II:
TD Capital Trust II Securities – Series 2012-14
Trust units issued by TD Capital Trust III:
TD Capital Trust III Securities – Series 2008
Debt issued by TD Capital Trust IV:
TD Capital Trust IV Notes – Series 1
TD Capital Trust IV Notes – Series 2
TD Capital Trust IV Notes – Series 3
As at
October 31 October 31
2012
2013
Number of Number of
shares/units shares/units
919.4
(1.9)
917.5
4.4
6.6
17.0
10.0
8.0
10.0
5.4
4.6
5.5
4.5
10.0
8.8
12.0
15.0
11.0
14.0
135.8
(0.1)
135.7
918.2
(2.1)
916.1
7.9
5.8
17.0
10.0
8.0
10.0
10.0
–
10.0
–
10.0
8.8
12.0
15.0
11.0
14.0
135.8
–
135.8
–
350.0
1,000.0
1,000.0
550.0
450.0
750.0
550.0
450.0
750.0
1 For further details, including the principal amount, conversion and exchange
features, and distributions, see Notes 19, 20, and 21 to the Consolidated
Financial Statements.
2 On July 31, 2013, the Bank converted 4.6 million of its 10 million non-cumulative
5-year Rate Reset Preferred Shares, Series S, on a one-for-one basis, into non-
cumulative Floating Rate Preferred Shares, Series T of the Bank.
3 On October 31, 2013, the Bank converted 4.5 million of its 10 million non-
cumulative 5-year Rate Reset Preferred Shares, Series Y, on a one-for-one basis,
into non-cumulative Floating Rate Preferred Shares, Series Z of the Bank.
4 On December 31, 2012, TD Capital Trust II redeemed all of its outstanding
securities at a redemption price of $1,000.
63
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
GROUP FINANCIAL CONDITION
Securitization and Off-Balance Sheet Arrangements
In the normal course of operations, the Bank engages in a variety of
financial transactions that, under IFRS, are either not recorded on the
Consolidated Balance Sheet or are recorded in amounts that differ
from the full contract or notional amounts. These off-balance sheet
arrangements involve, among other risks, varying elements of market,
credit, and liquidity risks which are discussed in the “Managing Risk”
section of this MD&A. Off-balance sheet arrangements are generally
undertaken for risk management, capital management, and funding
management purposes and include securitizations, contractual obliga-
tions, and certain commitments and guarantees.
SPECIAL PURPOSE ENTITIES
The Bank carries out certain business activities through arrangements
with special purpose entities (SPEs). We use SPEs to raise capital, obtain
sources of liquidity by securitizing certain of the Bank’s financial assets,
to assist our clients in securitizing their financial assets, and to create
investment products for our clients. Securitizations are an important
part of the financial markets, providing liquidity by facilitating investor
access to specific portfolios of assets and risks. See Note 2 to the
Consolidated Financial Statements for further information regarding
the accounting for SPEs.
Securitization of Bank-Originated Assets
The Bank securitizes residential mortgages, business and government
loans, personal loans, automobile loans, and credit card loans to
enhance its liquidity position, to diversify sources of funding and
to optimize the management of the balance sheet.
The Bank securitizes residential mortgages under the National
Housing Act Mortgage-Backed Securities (NHA MBS) program spon-
sored by the Canada Mortgage and Housing Corporation (CMHC).
The securitization of the residential mortgages with the CHMC does
not qualify for derecognition and remain on the Bank’s Consolidated
Balance Sheet. Additionally, the Bank securitizes personal loans, auto-
mobile loans, and credit card loans by selling them to Bank-sponsored
SPEs that are consolidated by the Bank. The Bank also securitizes U.S.
residential mortgages with U.S. government agencies which qualify for
derecognition and are removed from the Bank’s Consolidated Balance
Sheet. Certain automobile loans acquired by the Bank as part of the
acquisition of Chrysler Financial were originated in the U.S. and sold
to U.S. securitization structures. All other products securitized by the
Bank were originated in Canada and sold to Canadian securitization
structures. See Note 8 and Note 9 to the Consolidated Financial
Statements for further information.
T A B L E 5 0
EXPOSURES SECURITIZED BY THE BANK AS ORIGINATOR1
(millions of Canadian dollars)
Residential mortgage loans
Consumer instalment and other personal loans 2, 3
Credit card loans 3
Business and government loans
Total exposure
Residential mortgage loans
Consumer instalment and other personal loans 2, 3
Credit card loans 3
Business and government loans
Total exposure
1 Includes all assets securitized by the Bank, irrespective of whether they are on- or
off-balance sheet for accounting purposes, including those that did not qualify
for derecognition except for securitizations through U.S. government-sponsored
entities where we do not hold any resultant mortgage-backed securities.
2 Included in personal loans as at October 31, 2013 are nil of automobile loans acquired
as part of the Bank’s acquisition of Chrysler Financial (October 31, 2012 – $361 million).
Significant
unconsolidated SPEs
Significant
consolidated
SPEs
As at
Non-SPE third-parties
Securitized
assets
Carrying
value of
retained
interests
Securitized
assets
Securitized
assets
Carrying
value of
retained
interests
$ 23,157
–
–
35
$ 23,192
$ 21,176
–
–
79
$ 21,255
$ –
–
–
–
$ –
$ –
–
–
–
$ –
$
–
6,141
300
–
$ 6,441
$
–
5,461
1,251
–
$ 6,712
October 31, 2013
$ 16,229
–
–
2,322
$ 18,551
$ –
–
–
52
$ 52
October 31, 2012
$ 23,446
–
–
2,387
$ 25,833
$ –
–
–
53
$ 53
3 In securitization transactions that the Bank has undertaken for its own assets,
it has acted as an originating bank and retained securitization exposure from
a capital perspective.
Residential Mortgage Loans
The Bank securitizes residential mortgage loans through significant
unconsolidated SPEs and Canadian non-SPE third-parties. Residential
mortgage loans securitized by the Bank may give rise to full or partial
derecognition of the financial assets depending on the individual
arrangement of each transaction. In instances where the Bank either
fully or partially derecognizes residential mortgage loans, the Bank may
be exposed to the risks of transferred loans through retained interests.
As at October 31, 2013, the Bank has not recognized any retained
interests due to the securitization of residential mortgage loans on its
Consolidated Balance Sheet.
Consumer Instalment and Other Personal Loans
The Bank securitizes consumer instalment and other personal loans
through consolidated SPEs. The Bank consolidates the SPEs as they serve
as financing vehicles for the Bank’s assets, and the Bank is exposed to
the majority of the residual risks of the SPEs. As at October 31, 2013,
the SPEs issued $5.1 billion of issued commercial paper outstanding
(October 31, 2012 – $5.1 billion) and $1.0 billion of issued notes
outstanding (October 31, 2012 – $0.3 billion). As at October 31, 2013,
the Bank’s maximum potential exposure to loss for these conduits
was $6.1 billion (October 31, 2012 – $5.5 billion) of which $1.1 billion
of underlying consumer instalment and other personal loans was
government insured (October 31, 2012 – $1.1 billion).
64
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
Credit Card Loans
The Bank securitizes credit card loans through a consolidated SPE. On
December 1, 2011, the Bank acquired substantially all of the credit card
portfolio of MBNA Canada. As a result of the acquisition, the Bank has
consolidated the SPE as it serves as a financing vehicle for the Bank’s
assets, and the Bank is exposed to the majority of the residual risks of
the SPE. As at October 31, 2013, the consolidated SPE had $0.6 billion
of issued notes outstanding (October 31, 2012 – $1.3 billion). As at
October 31, 2013, the Bank’s maximum potential exposure to loss for
this SPE was $0.6 billion (October 31, 2012 – $1.3 billion).
Business and Government Loans
The Bank securitizes business and government loans through significant
unconsolidated SPEs and Canadian non-SPE third parties. Business and
government loans securitized by the Bank may be derecognized from
the Bank’s balance sheet depending on the individual arrangement
of each transaction. In instances where the Bank fully derecognizes
business and government loans, the Bank may be exposed to the risks
of transferred loans through retained interests. There are no expected
credit losses on the retained interests of the securitized business and
government loans as the mortgages are all government insured.
Securitization of Third Party-Originated Assets
Significant Consolidated SPE
The Bank has a securitization exposure to certain third party originated
assets through a consolidated SPE. The Bank consolidates the SPE since
it is wholly-funded by the Bank, and the Bank is exposed to the major-
ity of the risks of the SPE. As at October 31, 2013, the consolidated
SPE had $312 million (October 31, 2012 – nil) of assets secured by
underlying trade receivables, originated in the U.S. The weighted-
average life of these assets is 3.4 years. The Bank’s maximum potential
exposure to loss due to its funding of the SPE as at October 31, 2013
was $312 million (October 31, 2012 – nil). As at October 31, 2013,
the funding is provided primarily through a senior facility that has a
AAA rating from the credit rating agency. Further, as at October 31,
2013, the Bank had committed to provide an additional $53 million
in funding to the SPE.
Significant Non-Consolidated Special Purpose Entities
Multi-Seller Conduits
The Bank administers multi-seller conduits and provides liquidity facilities
as well as securities distribution services; it may also provide credit
enhancements. Third party-originated assets are securitized through
Bank-sponsored SPEs, which are not consolidated by the Bank. The Bank’s
maximum potential exposure to loss due to its ownership interest in
commercial paper and through the provision of liquidity facilities for
multi-seller conduits was $9.6 billion as at October 31, 2013 (October 31,
2012 – $7.5 billion). Further, as at October 31, 2013, the Bank had
committed to provide an additional $2.0 billion in liquidity facilities that
can be used to support future asset-backed commercial paper (ABCP) in
the purchase of deal-specific assets (October 31, 2012 – $2.2 billion).
All third-party assets securitized by the Bank’s non-consolidated
multi-seller conduits were originated in Canada and sold to Canadian
securitization structures. Details of the Bank-administered multi-seller,
ABCP conduits are as follows:
T A B L E 5 1
EXPOSURE TO THIRD PARTY-ORIGINATED ASSETS SECURITIZED BY BANK-SPONSORED CONDUITS
(millions of Canadian dollars, except as noted)
Residential mortgage loans
Credit card loans
Automobile loans and leases
Equipment loans and leases
Trade receivables
Total exposure
October 31, 2013
October 31, 2012
As at
Exposure and
ratings profile of
unconsolidated
SPEs
AAA1
$ 5,590
–
2,164
–
1,850
$ 9,604
Expected
weighted-
average life
(years)2
2.9
–
1.3
–
2.3
2.4
Exposure and
ratings profile of
unconsolidated
SPEs
AAA1
$ 4,613
–
1,657
19
1,221
$ 7,510
Expected
weighted-
average life
(years)2
2.8
–
1.3
0.4
1.7
2.3
1 The Bank’s total liquidity facility exposure only relates to ‘AAA’ rated assets.
2 Expected weighted-average life for each asset type is based upon each of the
conduit’s remaining purchase commitment for revolving pools and the expected
weighted-average life of the assets for amortizing pools.
As at October 31, 2013, the Bank held $1,717 million of ABCP issued
by Bank-sponsored multi-seller conduits within the Available-for-sale
securities and Trading loans, securities, and other categories on its
Consolidated Balance Sheet (October 31, 2012 – $128 million).
control processes in place to mitigate these risks. Certain commitments
still remain off-balance sheet. Note 29 to the Consolidated Financial
Statements provides detailed information about the maximum amount
of additional credit the Bank could be obligated to extend.
EXPOSURE TO THIRD PARTY SPONSORED CONDUITS
The Bank has exposure to U.S. third party-sponsored conduits arising
from providing liquidity facilities of $521 million as at October 31,
2013 (October 31, 2012 – $500 million) of which nil has been
drawn (October 31, 2012 – nil). The assets within these conduits are
comprised of individual notes backed by automotive loan receivables.
As at October 31, 2013, these assets have maintained ratings from
various credit rating agencies, ranging from AAA to AA.
The Bank no longer has any exposure to Canadian third party-
sponsored conduits in the form of margin funding facilities as at
October 31, 2013 (October 31, 2012 – not significant).
COMMITMENTS
The Bank enters into various commitments to meet the financing needs
of the Bank’s clients and to earn fee income. Significant commitments
of the Bank include financial and performance standby letters of credit,
documentary and commercial letters of credit and commitments to
extend credit. These products may expose the Bank to liquidity, credit
and reputational risks. There are adequate risk management and
Leveraged Finance Credit Commitments
Also included in ‘Commitments to extend credit’ in Note 29 to the
Consolidated Financial Statements are leveraged finance credit
commitments. Leveraged finance credit commitments are agreements
that provide funding to a wholesale borrower with higher levels of
debt, measured by the ratio of debt capital to equity capital of the
borrower, relative to the industry in which it operates. The Bank’s
exposure to leveraged finance credit commitments as at October 31,
2013 was not significant (October 31, 2012 – not significant).
GUARANTEES
In the normal course of business, the Bank enters into various guaran-
tee contracts to support its clients. The Bank’s significant types of
guarantee products are financial and performance standby letters of
credit, assets sold with recourse, credit enhancements, written options,
and indemnification agreements. Certain guarantees remain off-balance
sheet. See Note 29 to the Consolidated Financial Statements for further
information regarding the accounting for guarantees.
65
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
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, other-
wise stipulated under approved policy guidelines that govern all
employees. The amounts outstanding are as follows:
LOANS TO KEY MANAGEMENT PERSONNEL,
THEIR CLOSE FAMILY MEMBERS AND THEIR
RELATED ENTITIES
T A B L E 5 2
(millions of Canadian dollars)
Personal loans, including mortgages
Business loans
Total
As at
October 31 October 31
2012
2013
$
3
181
$ 184
$
6
201
$ 207
In addition, the Bank offers deferred share and other plans to non-
employee directors, executives, and certain other key employees. See
Note 25 to the 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 of TD Ameritrade’s Board of Directors including the
Bank’s Group President and Chief Executive Officer, its Executive Vice
President of Retail Banking, Products and Service, two independent
directors of TD, and a former independent director of TD. A descrip-
tion of significant transactions of the Bank and its affiliates with
TD Ameritrade is set forth below.
GROUP FINANCIAL CONDITION
Financial Instruments
Insured Deposit Account (formerly known as Money Market
Deposit Account) Agreement
The Bank is party to an 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
$821 million in 2013 (2012 – $834 million; 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 $70.4 billion in 2013
(2012 – $60.3 billion; 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 servicing fee of 25 basis
points on the aggregate average daily balance in the sweep accounts
(subject to an adjustment, based on a specified formula).
As at October 31, 2013, amounts receivable from TD Ameritrade were
$54 million (October 31, 2012 – $129 million). As at October 31, 2013,
amounts payable to TD Ameritrade were $103 million (October 31,
2012 – $87 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 process-
ing and production, and cash management services. The Bank accounts
for Symcor’s results using the equity method of accounting. During
fiscal 2013, the Bank paid $128 million (2012 – $128 million; 2011 –
$139 million) for these services. As at October 31, 2013, the amount
payable to Symcor was $10 million (October 31, 2012 – $10 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, 2013 and October 31, 2012.
As a financial institution, the Bank’s assets and liabilities are substantially
composed of financial instruments. Financial assets of the Bank include,
but are not limited to, cash, interest-bearing deposits, securities, loans
and derivative instruments, while financial liabilities include, but are not
limited to, deposits, obligations related to securities sold short, securiti-
zation liabilities, obligations related to securities sold under repurchase
agreements, derivative instruments and subordinated debt.
The Bank uses financial instruments for both trading and non-trad-
ing 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 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 certain available-for-sale securities recorded at
cost. Financial instruments classified as held-to-maturity, loans and
receivables, and other liabilities are carried at amortized cost using the
effective interest rate method. For details on how fair values of finan-
cial instruments are determined, refer to the “Critical Accounting
Estimates” – Determination of Fair Value section of this 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 poli-
cies 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.
66
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
RISK FACTORS AND MANAGEMENT
Risk Factors That May Affect Future Results
In addition to the risks described in the Managing Risk section, there
are numerous other risk factors, many of which are beyond the Bank’s
control and the effects of which can be difficult to predict, that could
cause our results to differ significantly from our plans, objectives
and estimates. All forward-looking statements, including those in this
MD&A, are, by their very nature, subject to inherent risks and uncer-
tainties, general and specific, which may cause the Bank’s actual
results to differ materially from the expectations expressed in the
forward-looking statements. Some of these factors are discussed
below and others are noted in the “Caution Regarding Forward-
Looking Statements” section of this MD&A.
TOP AND EMERGING RISKS THAT MAY AFFECT THE BANK
AND FUTURE RESULTS
TD considers it critical to regularly assess its operating environment
and highlight top and emerging risks. These are risks with a potential
to have a material effect on the Bank and where the attention of
senior leaders is focused due to the potential magnitude or immediacy
of their impact. Many of the risks are beyond the Bank’s control and
their effects, which can be difficult to predict, could cause our results
to differ significantly from our plans, objectives and estimates or could
impact the Bank’s reputation or sustainability of its business model.
Risks are identified, discussed, and actioned by senior risk leaders and
reported quarterly to the Risk Committee of the Board. Specific plans
to mitigate top and emerging risks are prepared, monitored and
adjusted as required.
General Business and Economic Conditions
The Bank, and customers of the Bank operate in Canada, the U.S., and
other countries. As a result, the Bank’s earnings are significantly affected
by the general business and economic conditions in these regions. These
conditions include short-term and long-term interest rates, inflation, fluc-
tuations in the debt and capital markets, real estate prices, employment
levels, consumer spending and debt levels, business investment, govern-
ment spending, exchange rates, sovereign debt risks, the strength of the
economy, threats of terrorism, civil unrest, the effects of public health
emergencies, the effects of disruptions to public infrastructure, natural
disasters and the level of business conducted in a specific region. For
example, in an economic downturn, corporate earnings, business invest-
ment and consumer spending, the demand for the Bank’s loan and other
products could be adversely affected and the provision for credit losses
could result in lower earnings. By conducting regular stress tests on its
portfolios, the Bank is better able to understand the likely impact of
many of these negative scenarios and better manage the risks.
Technology and Information Security Risk
Technology and information security risks for large financial institu-
tions like the Bank have increased in recent years. This is due, in part,
to the proliferation, sophistication and constant evolution of new
technologies and attack methodologies used by socio-political, nation
state, organized criminals, hackers and other external parties. The
increased risks are also a factor of our size and scale of operations,
our geographic footprint and our use of innovative technologies such
as our continued development of mobile and internet banking. Our
technologies, systems and networks, and those of our customers and
the third parties providing services to us, may be subject to attacks,
breaches or other compromises. These may include cyber attacks,
computer viruses, malicious software, phishing attacks or information
security breaches. Such incidents could result in, among other things,
financial loss, a loss of customer or business opportunities, disruption
to operations, misappropriation or unauthorized release of confidential
or personal information, litigation, regulatory penalties or intervention,
remediation or restoration cost, and reputational damage. The Bank
actively monitors, manages and continues to enhance the ability to
mitigate these technology and information security risks through
enterprise-wide programs, industry best practices, and robust threat
and vulnerability assessments and responses.
Evolution of Fraud
The Bank is routinely exposed to various types of fraud. The sophisti-
cation, complexity and materiality of these crimes is evolving quickly.
In deciding whether to extend credit or enter into other transactions
with customers or counterparties, the Bank may rely on information
furnished by or on behalf of such other parties including financial
statements and financial information. The Bank may also rely on the
representations of customers and counterparties as to the accuracy
and completeness of such information. In addition to the risk of mate-
rial loss that could result in the event of a financial crime, client and
market confidence in the Bank could be potentially impacted. TD has
invested in a coordinated approach to strengthen the Bank’s fraud
defenses and build upon existing practices in Canada and the U.S.
The Bank continues to introduce new capabilities and defenses that
will help achieve an enhanced position to combat more complex
fraud against the Bank.
Business Infrastructure and Third Party Service Providers
Third parties provide key services and components for the Bank’s busi-
ness infrastructure and operations. These include data communica-
tions, network access, payment processing, and financial instrument
settlements. Given the high volume of transactions the Bank processes
on a daily basis, it is reliant on such third party provided services as
well as its own information technology systems to successfully deliver
its products and services. The Bank’s information technology, internet,
network access or other systems and services could be subject to
failures or disruptions as a result of natural disasters or phenomena,
power or telecommunications disruptions, acts of terrorism or war,
physical or electronic break-ins, or similar events or disruptions. In
addition, each of the institutions providing these services or infrastruc-
ture components may be exposed to certain risks which could also
result in the failures or disruptions described above, and in turn
adversely affect the Bank’s operations. Such failure of or disruption
to one of TD’s major service providers could result in temporary
operational and liquidity concerns. They could also adversely affect the
Bank’s ability to deliver products and services to customers, damage
the Bank’s reputation, and otherwise adversely affect the Bank’s ability
to conduct business. The Bank has policies and procedures in place
governing third party relationships, including the systematic review
of significant third parties at the inception of a relationship as well
as subsequent periodic assessments. The Bank also manages service
provider and infrastructure disruptions risks through a robust business
continuity management (BCM) plan, its technology risk management
program and other contingency and resiliency plans.
67
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS Introduction of New and Changes to Current Laws
and Regulations
The introduction of new, and changes to current laws and regula-
tions, as well as the fiscal, economic and monetary policies of various
regulatory agencies in Canada and the U.S. and other countries inter-
nationally, and changes in their interpretation or implementation,
could adversely affect the Bank’s operations and profitability. Such
adverse effects may result from new or modified laws, regulations
or policies, and heightened expectations, limiting the products or
services the Bank can provide, impacting pricing or delivery and
increasing the ability of competitors to compete with its products and
services (including, in jurisdictions outside Canada, the favouring of
certain domestic institutions). In particular, the most recent financial
crisis resulted in, and could further result in, unprecedented and
considerable change to laws and regulations applicable to financial
institutions and the financial industry. The Bank’s failure to comply
with applicable laws and regulations could result in sanctions and
financial penalties that could adversely impact its earnings and its
operations and damage its reputation.
Dodd-Frank Wall Street Reform and Consumer Protection Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the
Dodd-Frank Act), was signed into law on July 21, 2010. It is a United
States federal law which creates significant structural reforms to the
financial services industry. The Dodd-Frank Act ultimately affects every
financial institution operating in the U.S., including the Bank, and due
to certain extraterritorial aspects of the Dodd-Frank Act, impacts the
Bank’s operations outside the U.S., including in Canada. The Dodd-
Frank Act mandates statutory changes and instructs U.S. federal bank-
ing and other regulatory agencies to conduct rule-making. Pursuant to
certain currently proposed rules, including the Volcker Rule, certain of
the Bank’s businesses could be negatively affected when the rules are
finalized. These effects under the Volcker Rule could include increased
costs associated with operational and market compliance and reduced
revenues. Other effects of the Volcker Rule may include loss of exemp-
tions for foreign registered funds and reduced competitive advantage
vis-a-vis non-bank affiliated funds which would not be subject to simi-
lar rules under the Dodd-Frank Act.
The Durbin Amendment contained in the Dodd-Frank Act authorizes
the Federal Reserve Board to issue regulations that set interchange fees
which are “reasonable and proportional” to the costs of processing
such transactions. In June 2011, the FRB issued final rules limiting
debit card interchange fees with a required implementation date of
October 1, 2011 and capped the fee at US21 cents per transaction
plus small amounts to cover fraud related expenses. On July 31, 2013,
the U.S. District Court for the District of Columbia ruled, among other
things, that the approach used by the FRB in setting the maximum
allowable interchange fee impermissibly included costs that were
specifically excluded by the Durbin Amendment. The decision has since
been stayed pending the outcome of its appeal and the current provi-
sions of the Durbin Amendment remain in place. Oral arguments have
been scheduled to be heard by the court in January 2014.
Where possible, the Bank has developed conformance plans, but
due to the size, scope, complexity of implementation and the lack of
regulatory certainty in a number of key sections of the Dodd-Frank
Act, the overall impact to the Bank and its businesses, including to
their financial performance and operations, currently remains unclear
and will not be known until the implementing regulations are fully
released and finalized. The Bank continues to closely monitor and
analyze the potential impact associated with the Dodd-Frank Act.
FATCA
The Foreign Account Tax Compliance Act (FATCA) is U.S. tax legisla-
tion which requires all non-US financial institutions to identify US
taxpayer-owned accounts and report information about those clients
to the Internal Revenue Service. Virtually all TD businesses and their
customers will be impacted from an operational perspective. Changes
to policies and procedures may be required which may impact how we
conduct business in certain segments and negatively impact our cost of
doing business. The government of Canada is currently negotiating an
intergovernmental agreement (IGA) with the government of the United
States respecting the implementation of FATCA in Canada. Due to the
current uncertainty regarding this agreement and the ultimate timing
and form of FATCA implementation, the overall impact to the Bank
remains unclear. The Bank has project teams in place and is in the
process of implementing compliance plans based on the U.S. FATCA
regulations published in 2013 as well as existing expectations of the
content of a U.S.-Canada IGA.
Basel III
The Basel III Liquidity standards require banks to meet the Liquidity
Coverage Ratio (LCR) starting in January 2015 and the Net Stable
Funding Ratio (NSFR) starting in January 2018. The Bank has been
managing its liquidity risk under a prudent framework and expects
to make modest adjustments in order to be compliant with the LCR
requirements in 2015. Additional costs may be incurred to achieve
compliance with the liquidity reforms, which has the potential to affect
the Bank’s funding costs. The Bank continues to monitor the develop-
ment of liquidity requirements from the national regulators globally
and ensures that its liquidity management and monitoring practices
evolve with the changing regulatory landscape. In addition, the Basel III
Leverage Ratio is a non-risk based ratio that acts as a supplementary
measure to the risk-based capital requirements, with the objective of
constraining the build-up of excess leverage in the banking sector. The
Leverage Ratio requirement is effective January 2018, with the public
disclosure beginning January 2015. Any final adjustments to the defini-
tion and calibration of the ratio requirement will be completed by
2017. The Bank continues to monitor and manage its capital and asset
levels to ensure compliance.
Principles for Effective Risk Data Aggregation
In January 2013, the Basel Committee on Banking Supervision (BCBS)
finalized their ‘Principles for Effective Risk Data Aggregation and
Reporting’. The principles provide guidelines for areas such as:
governance of risk data, architecture and infrastructure, accuracy,
completeness, timeliness, and adaptability of reporting. As a result,
the bank faces increased complexity with respect to operational
compliance and may incur increased compliance and operating costs.
The Bank has assessed itself against each of the principles at enterprise
and risk specific levels. Programs are in place to manage the enhance-
ment of Risk Data Aggregation.
Legal Proceedings
The Bank or its subsidiaries are from time to time named as defendants
or are otherwise involved in various class actions and other litigations
or disputes with third parties, including regulatory enforcement
proceedings, related to its businesses and operations. The Bank
manages and mitigates the risks associated with these proceedings
through a robust litigation management function. The Bank’s material
litigation and regulatory enforcement proceedings are disclosed in its
Consolidated Financial Statements. There is no assurance that the
volume of claims and the amount of damages and penalties claimed
in litigation, arbitration and regulatory proceedings will not increase
in the future. Actions currently pending against the Bank may result
in judgments, settlements, fines, penalties, disgorgements, injunctions,
business improvement orders or other results adverse to the Bank,
which could materially adversely affect the Bank’s business, financial
68
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS condition, results of operations, cash flows and capital; require mate-
rial changes in the Bank’s operations; or cause serious reputational
harm to the Bank. Moreover, some claims asserted against the Bank
may be highly complex, and include novel or untested legal theories.
The outcome of such proceedings may be difficult to predict or esti-
mate until late in the proceedings, which may last several years. In
addition, settlement or other resolution of certain types of matters
are subject to external approval, which may or may not be granted.
Although the Bank establishes accruals for these matters according
to accounting requirements, the amount of loss ultimately incurred
in relation to those matters may substantially differ from the amounts
accrued. As a participant in the financial services industry, the Bank
will likely continue to experience the possibility of significant litigation
and regulatory enforcement proceedings related to its businesses
and operations. For additional information relating to the Bank’s
material legal proceedings see Note 29 to the Consolidated
Financial Statements.
OTHER RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
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 (including technol-
ogy), reputational, insurance, strategic, legal and regulatory compli-
ance, and capital adequacy risks. While there can be no assurance
that the Bank’s framework to manage risk, including such framework’s
underlying assumptions and models, will be effective under all
conditions and circumstances, the Bank has established governance
processes for the Senior Executive Team (SET) and the Risk Committee
of the Board to review and update the framework annually.
Acquisitions and Strategic Plans
The Bank regularly explores opportunities to acquire other companies,
or parts of their businesses directly or indirectly through the acquisition
strategies of its subsidiaries. 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 subsidiary’s, ability to successfully complete
an acquisition is often subject to regulatory and other approvals, and
the Bank cannot be certain when or if, or on what terms and condi-
tions, 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, there would be an
impact on the Bank’s financial performance and the Bank’s earnings
could grow more slowly or decline. The Bank undertakes thorough
due diligence before completing an acquisition and closely monitors
integration activities and performance post acquisition.
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.
The Bank undergoes an annual human resource planning process
that facilitates the assessment of internal leadership capabilities and
potential talent needs. The Bank actively invests in the development
of employees in order to better meet future talent requirements.
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, S&P,
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. The Bank maintains
regular contact with each of the listed rating agencies.
Currency and Interest Rates
Currency and interest rate movements in Canada, the U.S., and other
jurisdictions in which the Bank does business impact the Bank’s finan-
cial position (as a result of foreign currency translation adjustments)
and its future earnings. For example, if the value of the Canadian
dollar rises against the U.S. dollar, the Bank’s investments and earnings
in the U.S. may be negatively affected, and vice versa. Changes in the
value of the Canadian dollar relative to the U.S. dollar may also affect
the earnings of the Bank’s small business, commercial, and corporate
clients in Canada. A change in the level of interest rates, or a
prolonged low interest rate environment, affects the interest spread
between the Bank’s deposits and loans and as a result impacts the
Bank’s net interest income. The Bank manages non-trading currency
and interest rate risk exposures in accordance with policies established
by the Risk Committee of the Board through its Asset Liability
Management framework, which is further discussed in the Managing
Risk section of this document.
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 2 to our
Consolidated Financial Statements. The Bank monitors accounting
developments; it also identifies and implements new accounting stan-
dards, interpretations and guidance issued by accounting standard
setters and regulatory bodies, as appropriate.
Level of Competition
The Bank currently operates in a highly competitive industry and
its performance is impacted by the level of competition. Customer
retention and attraction of new customers can be influenced by
many factors, such as the factors, pricing and distribution of prod-
ucts or services. Deterioration in these factors or a loss of market
share could adversely affect the Bank’s earnings. The Bank operates
in a global environment and laws and regulations that apply to
it may not universally apply to competitors in various jurisdictions
creating an uneven playing field that may favour certain domestic
institutions. In addition, other types of financial institutions, such
as insurance companies, as well as non-financial institutions are
increasingly offering products and services traditionally offered by
banks and through other distribution methods including internet
and mobile banking. This type of competition could adversely
impact the Bank’s earnings by reducing fee revenue and net
interest income. Each of the business segments of the Bank monitors
the competitive environment including reviewing and amending
customer acquisition and management strategies as appropriate.
The Bank has been investing in enhanced capabilities for our
customers to transact across all of our channels seamlessly, with
a particular emphasis on mobile banking capabilities for anytime,
anywhere convenience.
69
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS RISK FACTORS AND MANAGEMENT
Managing Risk
EXECUTIVE SUMMARY
Growing profitability in financial services involves selectively taking and
managing risks within TD’s risk appetite. Our goal is to earn a stable
and sustainable rate of return for every dollar of risk we take, while
putting significant emphasis on investing in our businesses to ensure
we can meet our future growth objectives.
TD’s Enterprise Risk Framework (ERF) reinforces TD’s risk culture,
which emphasizes transparency and accountability, and provides stake-
holders with a common understanding of how we manage risk. The
ERF addresses: 1) the nature of the risks to TD’s business strategy and
operations, 2) how TD defines the types of risk it is exposed to, 3) risk
management governance and organization, and 4) how TD manages
risk through processes that identify, measure, assess, control and
monitor risk. TD’s risk management resources and processes are
designed to both challenge and enable all our businesses to understand
the risks they face and to manage them within TD’s risk appetite.
RISKS INVOLVED IN OUR BUSINESSES
TD’s Risk Inventory describes the major risk categories and related
subcategories to which our businesses and operations could be exposed.
The Risk Inventory facilitates consistent risk identification and is the
starting point in developing risk management strategies and processes.
TD’s major risk categories are: Strategic Risk, Credit Risk, Market Risk,
Operational Risk, Insurance Risk, Liquidity Risk, Capital Adequacy Risk,
Legal and Regulatory Compliance Risk and Reputational Risk.
Major Risk Categories
Strategic
Risk
Credit
Risk
Market
Risk
Operational
Risk
Insurance
Risk
Liquidity
Risk
Capital
Adequacy
Risk
Legal and
Regulatory
Compliance
Risk
Reputational
Risk
RISK APPETITE
TD’s Risk Appetite Statement is the primary means used to communi-
cate how TD defines risk and determines the risks it is willing to take.
TD takes into account its governing objectives, as well as TD’s risk
philosophy and capacity to bear risk in defining its risk appetite.
TD’s Risk Appetite Statement is summarized as follows:
We take risks required to build our business, but only if those risks:
1. Fit our business strategy, and can be understood and managed.
2. Do not expose the enterprise to any significant single loss events;
we don’t ‘bet the Bank’ on any single acquisition, business, or product.
3. Do not risk harming the TD brand.
In applying its risk appetite, TD considers both current conditions in
which it operates and the impact that emerging risks will have on
TD’s strategy and risk profile. Adherence to enterprise risk appetite is
managed and monitored across TD and is based on a broad collection
of principles, policies, processes and tools, including risk appetite
statements and related metrics for major risk categories and the
business segments.
Risk Management is responsible for establishing practices and
processes to formulate, report, monitor, and review the application of
TD’s risk appetite and related metrics. The function also monitors and
evaluates the effectiveness of these practices and metrics. Key metrics
are reported regularly to senior management, the Board and the Risk
Committee of the Board (Risk Committee). Other metrics are tracked
on an ongoing basis by management, and escalated to senior manage-
ment and at the Board level, as required. TD measures management’s
performance against its risk appetite metrics; which is a key input into
the compensation decision process.
RISK CULTURE
TD’s risk culture is consistent with the Bank’s Risk Appetite Statement,
which embodies the tone at the top set by the Chief Executive Officer
(CEO) and Senior Executive Team and informs our mission, vision,
guiding principles and leadership profile. These governing objectives
describe the behaviours that TD seeks to foster in building a risk
culture where the only risks taken are those that can be understood
and managed. The Risk Appetite Statement helps us to be informed
risk takers and guides our decision making, allowing us to take appro-
priate risks. TD’s risk culture encourages open communication and
transparency on all aspects of the Risk Appetite Statement. Our
employees are empowered to challenge and escalate when they
believe we are operating outside of our risk appetite.
Risk culture is at the centre of the Bank’s ERF, as its implementation
is integral to establishing a risk and control environment that fosters
risk behavior aligned with TD’s risk appetite. The ERF provides a common
understanding of how TD manages risk by addressing four components
relating to 1) defining risk; 2) risk appetite, 3) risk governance, and
4) risk management processes. All of these components are integral
to successful risk management.
TD’s desired risk culture is reinforced by linking compensation to
management’s performance against the Bank’s risk appetite. In addition,
Risk Management’s independence from the line of business provides
objective oversight and challenge to promote and support the desired
behaviours that drive TD’s strong risk culture. Lastly, education and
communication on TD’s Risk Appetite Statement and the ERF take
place across the organization through enterprise risk communication
programs, employee orientation and training, and participation
in internal risk management conferences. These activities further
strengthen the risk culture by increasing awareness and knowledge
of TD’s expectations for risk taking.
70
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS WHO MANAGES RISK
Our risk governance structure emphasizes and balances strong central
oversight and control of risk with clear accountability for, and owner-
ship of, risk within each business unit. Under TD’s approach to risk
governance, the line of business owns the risk that it generates and is
responsible for assessing the risk, as well as designing and implement-
ing mitigating controls. The line of business also monitors and reports
on the ongoing effectiveness of its controls to safeguard TD from
exceeding its risk appetite.
TD’s risk governance model includes a senior management
committee structure designed to support transparent risk reporting
and discussion with overall risk and control oversight provided by the
Board and its committees (primarily the Audit and Risk Committees).
The CEO and SET determine TD’s long-term direction within the Bank’s
risk appetite and apply it to the businesses. Risk Management, headed
by the Group Head and Chief Risk Officer (CRO), sets enterprise risk
strategy and policy and provides independent oversight to support a
comprehensive and proactive risk management approach for TD. The
CRO, who is also a member of the SET, has direct access to the Risk
Committee. TD also employs a “three lines of defence” model to
describe the role of business segments (first line), governance, risk
and oversight functions, such as Risk Management, Anti-Money
Laundering (AML) and Compliance functions (second line), and Internal
Audit (third line) in managing risk across TD. The following section
provides an overview of the key roles and responsibilities involved
in risk management and are depicted in the diagram below.
Board of Directors
Audit Committee
Risk Committee
Chief Executive Officer
Senior Executive Team
CRO
Executive Committees
Enterprise Risk Management Committee (ERMC)
Asset/Liability & Capital
Committee (ALCO)
Operational Risk Oversight
Committee (OROC)
Disclosure
Committee
Reputational Risk
Committee (RRC)
Governance, Risk and Oversight Function
Business Segments
Internal
Audit
Canadian Personal and
Commercial Banking
Wealth and
Insurance
U.S. Personal and
Commercial Banking
Wholesale
Banking
Internal
Audit
The Board
The Board oversees TD’s strategic direction and the implementation of
an effective risk management culture and internal control framework
across the enterprise. It accomplishes its risk management mandate both
directly and through its committees, including the Risk Committee of the
Board and the Audit Committee. On an annual basis, the Board reviews
and approves TD’s Risk Appetite Statement and related metrics to ensure
ongoing relevance and alignment with TD’s strategy.
The Risk Committee
The Risk Committee is responsible for reviewing and challenging TD’s
Risk Appetite Statement prior to recommending for approval by the
Board annually. The Risk Committee oversees the management of TD’s
risk profile and performance against its risk appetite. In support of this
oversight, the Committee reviews, challenges, and approves enterprise
risk management policies that support compliance with TD’s risk
appetite, and monitors the management of risks and risk trends.
The Audit Committee
The Audit Committee, in addition to overseeing financial reporting,
assesses the adequacy and effectiveness of internal controls, including
controls over relevant enterprise risk management processes and the
activities of the Bank’s Global AML and Compliance groups.
Chief Executive Officer and Senior Executive Team
The CEO and the SET develop TD’s long-term strategic plan and direction
and also develop and recommend for Board approval TD’s risk appetite.
The SET manage enterprise risk in accordance with TD’s risk appetite and
consider the impact of emerging risks on TD’s strategy and risk profile.
This accountability includes identifying and reporting significant risks to
the Risk Committee.
71
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS Executive Committees
The CEO, in consultation with the CRO, designates TD’s Executive
Committees, which are chaired by SET members. The committees meet
regularly to oversee governance, risk, and oversight activities and to
review and monitor risk strategies and related risk activities and practices.
The ERMC, chaired by the CEO, oversees the management of major
enterprise governance, risk and control activities at TD and promotes
an integrated and effective risk culture. The following Executive
Committees have been established to manage specific major risks
based on the nature of the risk and related business activity:
• ALCO – chaired by the Group Head, Insurance, Credit Cards, and
Enterprise Strategy, oversees directly and through its standing
subcommittees the Risk Capital Committee, Global Liquidity Forum
and Enterprise Investment Committee, the management of TD’s
non-trading market risk and each of its consolidated liquidity,
funding, investments, and capital positions.
• OROC – chaired by the CRO, oversees the strategic assessment
of TD’s governance, control and operational risk structure.
• Disclosure Committee – chaired by the Group Head, Finance,
Sourcing, Corporate Communications and Chief Financial Officer,
ensures that appropriate controls and procedures are in place and
operating to permit timely, accurate, balanced and compliant
disclosure to regulators, shareholders and the market.
• RRC – chaired by the CRO, oversees that corporate or business
initiatives with significant reputational risk profiles have received
adequate review for reputational risk implications prior to imple-
mentation as well as matters escalated to the RRC under the
enterprise Reputational Risk policy.
Risk Management
The Risk Management function, headed by the CRO, provides indepen-
dent oversight of enterprise risk management, risk governance and
control, and is responsible for establishing risk management strategy,
policies and practices. Risk Management’s primary objective is to
support a comprehensive and proactive approach to risk management
that promotes a strong risk management culture. Risk Management
works with the business segments and other corporate oversight
groups to establish policies, standards, and limits that align with TD’s
risk appetite, and monitors and reports on existing and emerging risks
and compliance with TD’s risk appetite. There is an established frame-
work in place for the identification and assessment of top and emerg-
ing risks and there are clear procedures for when and how risk events
and issues are brought to the attention of senior management and the
Risk Committee.
Business Segments
Each business segment has a dedicated risk management function that
reports directly to a senior risk executive who in turn reports to the CRO.
This structure supports an appropriate level of central oversight while
emphasizing ownership and accountability for risk within the business
segment. Business management is responsible for recommending the
business-level risk appetite and metrics, which are reviewed and chal-
lenged as necessary by Risk Management and endorsed by the ERMC
and approved by the CEO, to align with TD’s risk appetite and manage
risk within approved risk limits as set out in TD policies.
Internal Audit
TD’s internal audit function provides independent assurance to the
Board of the effectiveness of risk management, control and governance
processes employed to ensure compliance with TD’s risk appetite.
Internal Audit reports on its evaluation to management and the Board.
Compliance
The mandate of TD’s Compliance Department is to manage compliance
risk across TD to align with the policies established and approved by
the Audit and Risk Committees. The Compliance Department is respon-
sible for establishing risk-based programs and standards to proactively
manage known and emerging compliance risk across TD by providing
independent oversight and delivering operational control processes to
comply with the applicable legislation and regulatory requirements.
Anti-Money Laundering
The Global AML group establishes a risk-based program and standards
to proactively manage known and emerging AML compliance risk
across the Bank. The AML group provides independent oversight and
delivers operational control processes to comply with the applicable
legislation and regulatory requirements. The line of business owns
AML Risk and is responsible for assessing the risk, as well as designing
and implementing mitigating controls.
Treasury and Balance Sheet Management
The Treasury and Balance Sheet Management (TBSM) group manages,
directs and reports on TD’s capital and investment positions, interest
rate risk, and liquidity and funding risk and the market risks of TD’s
non-trading bank activities. The Risk Management function oversees
TBSM’s capital and investment activities.
Three Lines of Defence
In order to further the understanding of responsibilities for risk
management, TD employs a “three lines of defence” model that
describes the role of the businesses, governance, risk and oversight
groups, and Internal Audit in managing risk across TD. The chart below
describes the respective accountabilities of each line of defence at TD.
THREE LINES OF DEFENCE
First Line
Identify and Control
Business Segment Accountabilities
• Manages and identifies risk in day-to-day activities owned by the line of business.
• Ensures activities are within TD’s risk appetite and risk management policies.
• Designs, implements and maintains effective internal controls within the line of business.
• Implements risk based approval processes for all new products, activities, processes and systems.
• Delivers training, tools and advice to support its accountabilities.
• Monitors and reports on risk profile.
Second Line
Governance, Risk & Oversight Functions Accountabilities
Set Standards and Challenge
• Establishes enterprise governance, risk and control strategies and practices.
• Provides oversight and independent challenge to the first line through review, inquiry and discussion.
• Develops and communicates governance, risk and control policies.
• Provides training, tools and advice to support the first line of defence in carrying out its accountabilities.
• Monitors and reports on compliance with risk appetite and policies.
Third Line
Internal Audit Accountabilities
Independent Assurance
• Verifies independently that TD’s ERF is operating effectively.
• Validates the effectiveness of the first and second lines of defence in fulfilling their mandates
and managing risk.
72
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS In support of a strong risk culture, TD applies the following principles
to how it manages risks:
• Enterprise-wide in Scope – Risk Management will span all areas
of TD, including third-party alliances and joint venture undertakings,
and all boundaries, both geographic and regulatory.
• Transparent and Effective Communication – Matters relating
to risk will be communicated and escalated in a timely, accurate,
and forthright manner.
• Enhanced Accountability – Risks will be explicitly owned,
understood, and actively managed by business management
and all employees, individually and collectively.
• Independent Oversight – Risk policies, monitoring, and reporting
will be established independently and objectively.
• Integrated Risk and Control Culture – Risk management disci-
plines will be integrated into TD’s daily routines, decision-making,
and strategy.
• Strategic Balance – Risk will be managed to an acceptable level of
exposure, recognizing the need to protect and grow shareholder value.
APPROACH TO RISK MANAGEMENT PROCESSES
TD’s approach to the risk management process is comprised of four
basic components: identification and assessment, measurement,
control, and monitoring and reporting.
Risk Identification and Assessment
Risk identification and assessment is focused on recognizing and
understanding existing risks, risks that may arise from new or evolving
business initiatives and emerging risks from the changing environment.
TD’s objective is to establish and maintain integrated risk identification
and assessment processes that enhance the understanding of risk
interdependencies, consider how risk types intersect, and support
the identification of emerging risk. To that end, TD’s Enterprise-Wide
Stress Testing (EWST) program enables senior management, the Board,
and its committees, to identify and assess enterprise-wide risks and
understand potential vulnerabilities for the Bank.
Risk Measurement
The ability to quantify risks is a key component of TD’s risk manage-
ment process. TD’s risk measurement process aligns with regulatory
requirements such as capital adequacy, leverage ratios, liquidity
measures, stress testing and maximum credit exposure guidelines
established by its regulators. Additionally, TD has a process in place
to quantify risks to provide accurate and timely measurements of the
risks it assumes.
In quantifying risk, TD uses various risk measurement methodologies,
including Value-at-Risk (VaR) analysis, scenario analysis, stress testing, and
limits. Other examples of risk measurements include credit exposures,
provision for credit losses, peer comparisons, trending analysis, liquidity
coverage, and capital adequacy metrics. TD also requires significant
business segments and corporate oversight functions to assess their own
key risks and internal controls annually through a structured strategic Risk
and Control Self-Assessment (RCSA) program and an ongoing process
RCSA program. Internal and external risk events are monitored to assess
whether TD’s internal controls are effective. This allows TD to identify,
escalate, and monitor significant risk issues as needed.
Risk Control
TD’s risk control processes are established and communicated through
Risk Committee and Management approved policies, and associated
management approved procedures, control limits and delegated
authorities which reflect TD’s risk appetite and risk tolerances.
TD’s approach to risk control also includes risk and capital assess-
ments to appropriately capture key risks in TD’s measurement and
management of capital adequacy. This involves the review, challenge,
and endorsement by senior management committees of the Internal
Capital Adequacy Assessment Process (ICAAP) and related economic
capital practices. At TD, performance is measured based on the
allocation of risk-based capital to businesses and the cost charged
against that capital.
Risk Monitoring and Reporting
TD monitors and reports on risk levels on a regular basis against
TD’s risk appetite and reports on risk monitoring activities to senior
management, the Board and its Committees, and appropriate execu-
tive and management committees. The ERMC, the Risk Committee,
and the Board also receive annual and periodic reporting on enter-
prise-wide stress testing and an annual update on TD’s ICAAP.
Complementing regular risk monitoring and reporting, ad hoc risk
reporting is provided to senior management, the Risk Committee, and
the Board as appropriate for new and emerging risk or any significant
changes to the Bank’s risk profile.
Enterprise-Wide Stress Testing
Enterprise-wide stress testing at TD is part of the long-term strategic,
financial, and capital planning exercise that helps validate the risk appe-
tite. TD’s EWST program involves the development, application, and
assessment of severe but plausible stress scenarios on earnings, capital,
and liquidity. It enables management to identify and articulate enter-
prise-wide risks and understand potential vulnerabilities that are relevant
to TD’s risk profile. Stress testing engages senior management in each
business segment, Finance, TBSM, Economics, and Risk Management.
As part of its 2013 program, TD evaluated two internally generated
macroeconomic stress scenarios covering a range of severities and
duration (details described below). The scenarios were constructed to
cover a wide variety of risk factors meaningful to TD’s risk profile and
covering both the North American and global economies. Stressed
macroeconomic variables such as unemployment, GDP, resale home
prices, and interest rates were forecasted over the stress horizon which
drives the assessment of impacts. In both scenarios evaluated in the
2013 program, TD’s businesses performed within acceptable levels and
the Bank remained adequately capitalized with management actions.
Results of the scenarios are reviewed by senior executives, incorpo-
rated in TD’s planning process and presented to the Risk Committee
and the Board.
Separate from the EWST program, the Bank also employs reverse
stress testing as part of a comprehensive Crisis Management Recovery
Planning program to assess potential mitigating actions and contingency
planning strategies. The scenario contemplates significantly stressful
events that would result in the Bank reaching the point of non-viability
in order to consider meaningful remedial actions for replenishing the
Bank’s capital and liquidity position.
ENTERPRISE-WIDE STRESS SCENARIOS
Extreme Scenario
Severe Scenario
• The scenario emanates from a European banking crisis resulting in a
run on deposits and implementation of capital control in select
European countries. Wholesale funding markets around the world
experience massive disruptions, as confidence in the banking system
rapidly deteriorates.
• The severe scenario is modeled from historical recessions that have
taken place in the United States and Canada. The recessions extend
four consecutive quarters followed by a modest recovery.
• Deterioration in key macroeconomic variables such as home prices
and unemployment align with historically observed recessions.
• External shocks to the Canadian economy would be consequential for
the household sector as home prices pull back from the current levels.
73
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS The following pages describe the key risks we face and how they
are managed.
Strategic Risk
Strategic risk is the potential for financial loss or reputational damage
arising from ineffective business strategies, improper implementation
of business strategies, or a lack of responsiveness to changes in
the business environment. Business strategies include merger and
acquisition activities.
WHO MANAGES STRATEGIC RISK
The CEO manages strategic risk supported by the members of the SET
and the ERMC. The CEO, together with the SET, defines the overall
strategy, in consultation with and subject to approval by the Board.
The Enterprise Strategy group, under the leadership of the Group
Head, Insurance, Credit Cards and Enterprise Strategy is charged with
developing TD’s overall long-term and short-term strategy with input
and support from senior executives across TD. In addition, each
member of the SET is responsible for establishing and managing long-
term and short-term strategies for their business areas (organic and
through acquisitions) and for ensuring such strategies are aligned with
the overall enterprise strategy and risk appetite. Each SET member is
also accountable to the CEO for monitoring, assessing, managing,
and reporting on the effectiveness and risks of their business strategies.
The ERMC oversees the identification and monitoring of significant
and emerging risks related to TD’s strategies and ensures that mitigat-
ing actions are taken where appropriate. The CEO reports to the Board
on the implementation of TD’s strategies, identifying the risks within
those strategies and explaining how they are managed.
HOW WE MANAGE STRATEGIC RISK
The strategies and operating performance of significant business units
and corporate functions are assessed regularly by the CEO and the rele-
vant members of the SET through an integrated financial and strategic
planning process, management meetings, operating/financial reviews,
and strategic business reviews. Our annual planning process considers
individual segment long-term and short-term strategies and associated
key initiatives and ensures alignment between segment-level and enter-
prise-level strategies and risk appetite. Once the strategy is set, regular
strategic business reviews conducted throughout the year ensure that
alignment is maintained in its implementation. The reviews include an
evaluation of the strategy of each business, the overall operating environ-
ment including competitive position, performance assessment, initiatives
for strategy execution, and key business risks. The frequency of strategic
business reviews depends on the risk profile and size of the business or
function. The overall state of Strategic Risk and adherence to TD’s risk
appetite is reviewed by the ERMC in the normal course. Additionally,
each material acquisition is assessed for its fit with our strategy and risk
appetite in accordance with our Due Diligence Policy. This assessment is
reviewed by the SET and Board as part of the decision process.
The shaded areas of this MD&A represent a discussion on risk manage-
ment policies and procedures relating to credit, market, and liquidity
risks as required under IFRS 7, which permits these specific disclosures
to be included in the MD&A. Therefore, the shaded areas which
include Credit Risk, Market Risk, and Liquidity Risk, form an integral
part of the audited Consolidated Financial Statements for the years
ended October 31, 2013 and 2012.
Credit Risk
Credit risk is the risk of loss if a borrower or counterparty in a transaction
fails to meet its agreed payment obligations.
Credit risk is one of the most significant and pervasive risks in bank-
ing. Every loan, extension of credit or transaction that involves the
transfer of payments between the Bank and other parties or financial
institutions exposes the Bank to some degree of credit risk.
Our primary objective is to be methodical in our credit risk assessment
so that we can better understand, select, and manage our exposures
to reduce significant fluctuations in earnings.
Our strategy is to ensure central oversight of credit risk in each
business, reinforcing a culture of transparency, accountability,
independence, and balance.
WHO MANAGES CREDIT RISK
The responsibility for credit risk management is enterprise-wide.
To reinforce ownership of credit risk, credit risk control functions
are integrated into each business but report to Risk Management
to ensure objectivity and accountability.
Each business segment’s credit risk control unit is primarily respon-
sible for credit decisions and must comply with established policies,
exposure guidelines and credit approval limits, and policy/limit excep-
tion procedures. It must also adhere to established standards of credit
assessment and obtain Risk Management’s approval for material
credit decisions.
Risk Management provides independent oversight of credit risk by
developing centralized policies that govern and control portfolio risks
and product-specific policies as required.
The Risk Committee oversees the management of credit risk and
annually approves major credit risk policies.
HOW WE MANAGE CREDIT RISK
The Bank’s Credit Risk Management Framework outlines the internal
risk and control structure to manage credit risk and includes risk appe-
tite, policies, processes as well as limits and governance. The Credit
Risk Management Framework is maintained by Risk Management and
supports alignment with the Bank’s risk appetite for credit risk.
Risk Management centrally approves all credit risk policies and credit
decisioning strategies, including policy and limit exception management
guidelines, as well as the discretionary limits of officers throughout the
Bank for extending lines of credit. All significant credit decisions are
escalated to Risk Management for approval or recommendation to the
Risk Committee of the Board.
Limits are established to monitor and control country risk, industry
risk, product, geographic and group exposure risks in the portfolios in
accordance with enterprise-wide policies.
In our Retail businesses, we use approved scoring techniques and
standards in extending, monitoring and reporting personal credit.
Credit scores and decision strategies are used in the origination and
ongoing management of new and existing retail credit exposures.
Scoring models and decision strategies utilize a combination of
borrower attributes, including employment status, existing loan expo-
sure and performance, size of total bank relationship as well as exter-
nal data such as credit bureau scores, to determine the amount of
credit we are prepared to extend retail customers and estimate future
credit performance. Established policies and procedures are in place to
govern the use and ongoing monitoring and assessment of the perfor-
mance of scoring models and decision strategies to ensure alignment
with expected performance results. Retail credit exposures approved
within the regional credit centres are subject to ongoing Retail Risk
Management review to assess the effectiveness of credit decisions and
risk controls as well as identify emerging or systemic issues and trends.
Material policy exceptions are tracked and reported to monitor portfo-
lio trends and identify potential weaknesses in underwriting guidelines
and strategies. Where unfavourable trends are identified, remedial
actions are taken to address those weaknesses.
74
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS Our Commercial Banking and Wholesale Banking businesses use credit
risk models and policies to establish borrower and facility risk ratings,
quantify and monitor the level of risk, and facilitate its management.
The businesses also use risk ratings to determine the amount of credit
exposure we are willing to extend to a particular borrower. Management
processes are used to monitor country, industry, and borrower or coun-
terparty risk ratings, which include daily, monthly, quarterly and annual
review requirements for credit exposures. The key parameters used in
our credit risk models are monitored on an ongoing basis.
Unanticipated economic or political changes in a foreign country
could affect cross-border payments for goods and services, loans, divi-
dends, trade-related finance, as well as repatriation of the Bank’s capi-
tal in that country. The Bank currently has credit exposure in a number
of countries, with the majority of the exposure in North America. We
measure country risk using approved risk rating models and qualitative
factors that are also used to establish country exposure guidelines
covering all aspects of credit exposure across all businesses. Country
risk ratings are managed on an ongoing basis and are subject to a
detailed review at least annually.
As part of our credit risk strategy, we set limits on the amount of
credit we are prepared to extend to specific industry sectors. We
monitor our concentration to any given industry to ensure that our
loan portfolio is diversified. We manage our risk using limits based on
an internal risk rating score that combines our industry risk rating
model and detailed industry analysis and we regularly review industry
risk ratings to ensure that those ratings properly reflect the risk of the
industry. We assign a maximum exposure limit or a concentration limit
to each major industry segment which is a percentage of our total
wholesale and commercial exposure.
We also set limits on the amount of credit we are prepared to extend
to a particular entity or group of entities (also referred to as “entity
risk”). All entity risk is approved by the appropriate decision-making
authority using limits based on the entity’s borrower risk rating and for
certain portfolios, the risk rating of the industry in which the entity
operates. This exposure is monitored on a regular basis.
From time-to-time, we may use credit derivatives to mitigate
industry concentration and borrower-specific exposure as part of
our portfolio risk management techniques.
The Basel Framework
The objective of the Basel Framework is to improve the consistency
of capital requirements internationally and make required regulatory
capital more risk-sensitive. Basel sets out several options which repre-
sent increasingly more risk-sensitive approaches to calculating credit,
market and operational risk and RWA.
Credit Risk and the Basel Framework
We received approval from OSFI to use the Basel Advanced Internal
Ratings Based (AIRB) Approach for credit risk, effective November 1,
2007. We use the AIRB Approach for all material portfolios, except
in the following areas:
• We have approved exemptions to use the Standardized Approach
for some small credit exposures in North America. Risk Management
reconfirms annually that this approach remains appropriate.
• We have received temporary waivers to use the Standardized Approach
for some small credit portfolios and the majority of our U.S. credit port-
folios. We are currently in the process of transitioning these portfolios
to the AIRB Approach.
To continue to qualify to use the AIRB Approach for credit risk, the
Bank must meet the ongoing conditions and requirements established
by OSFI and the Basel Framework. We regularly assess our compliance
with the Basel requirements.
Credit Risk Exposures subject to the AIRB Approach
The AIRB Approach to credit risk is used for all material portfolios except
in the areas noted in the “Credit Risk and the Basel Framework” section.
Banks that adopt the AIRB Approach to credit risk must report credit
risk exposures by counterparty type, each having different underlying
risk characteristics. These counterparty types may differ from the
presentation in the Bank’s Consolidated Financial Statements. The
Bank’s credit risk exposures are divided into two main portfolios, retail
and non-retail.
Risk Parameters
Under the AIRB Approach, credit risk is measured using the following
risk parameters: Probability of Default (PD) – the likelihood that the
borrower will not be able to meet its scheduled repayments within a
one year time horizon; Loss Given Default (LGD) – the amount of the
loss the Bank would likely incur when a borrower defaults on a loan,
which is expressed as a percentage of Exposure At Default (EAD) – the
total amount we are exposed to at the time of default. By applying
these risk parameters, we can measure and monitor our credit risk to
ensure it remains within pre-determined thresholds.
Retail Exposures
In the retail portfolio (individuals and small businesses), we manage
exposures on a pooled basis, using predictive credit scoring techniques.
There are three sub-types of retail exposures: residential secured (for
example, individual mortgages, home equity lines of credit), qualifying
revolving retail (for example, individual credit cards, unsecured lines of
credit and overdraft protection products), and other retail (for exam-
ple, personal loans including secured automobile loans, student lines
of credit, and small business banking credit products).
The Bank calculates RWA for its Canadian Retail exposures using the
AIRB approach. RWA for U.S. Retail exposures are currently reported
under the Standardized Approach. All Canadian Retail parameter
models (PD, EAD, and LGD) are based exclusively on the internal
default and loss performance history for each of the three retail expo-
sure sub-types. For each Canadian Retail portfolio, the Bank retains
performance history on a monthly basis at an individual account level
beginning in 2000; all available history, which includes the 2001 and
2008-2009 recessions in Canada, is used to ensure that the models’
output reflect an entire economic cycle.
Account-level PD, EAD, and LGD parameter models are built for
each product portfolio, and calibrated based on the observed account-
level default and loss performance for the portfolio.
Consistent with the Basel framework, the Bank defines default for
Canadian exposures as 90+ day delinquency/charge-off for all retail
credit portfolios. LGD estimates used in the RWA calculations reflect
economic losses, and as such, include direct and indirect costs as well
as any appropriate discount to account for time between default and
ultimate recovery. EAD estimates reflect the historically observed utili-
zation of undrawn credit limit prior to default. PD, EAD and LGD
models are calibrated using logistic and linear regression techniques.
Predictive attributes in the models may include account attributes (loan
size, interest rate, collateral where applicable); account’s previous
history and current status; an account’s age on books; customer’s
credit bureau attributes, and customer’s other holdings with the Bank.
For secured products such as residential mortgages, property charac-
teristics, loan-to-value ratios, and customer’s equity in the property
play a significant role in PD as well as in LGD models.
All risk parameter estimates are updated on a quarterly basis based
on the refreshed model inputs. Parameter estimation is fully automated
based on approved formulas and is not subject to manual overrides.
75
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS Exposures are then assigned to one of nine pre-defined PD segments
based on their estimated long-run average one-year PD. The following
tables map PD ranges to risk levels for all Retail AIRB exposures.
T A B L E 5 3
RETAIL ADVANCED IRB EXPOSURES – By Obligor Grade – Residential Secured
(millions of Canadian dollars, except as noted)
PD range
Exposure
at Default
Average PD Average LGD
RWAs
As at
Average risk
weighting
Low Risk
Normal Risk
Medium Risk
High Risk
Default
Total
Low Risk
Normal Risk
Medium Risk
High Risk
Default
Total
1
2
3
4
5
6
7
8
9
1
2
3
4
5
6
7
8
9
0.00 to 0.15%
0.16 to 0.41
0.42 to 1.10
1.11 to 2.93
2.94 to 4.74
4.75 to 7.99
8.00 to 18.20
18.21 to 99.99
100.00
0.00 to 0.15%
0.16 to 0.41
0.42 to 1.10
1.11 to 2.93
2.94 to 4.74
4.75 to 7.99
8.00 to 18.20
18.21 to 99.99
100.00
$ 61,021
21,733
14,937
5,643
1,271
825
945
551
267
$ 107,193
$ 33,263
19,419
14,679
14,385
2,315
1,710
1,582
1,007
292
$ 88,652
0.05%
0.26
0.65
1.72
3.70
6.00
11.66
35.14
100.00
0.88%
0.06%
0.25
0.68
1.80
3.74
5.94
11.42
39.62
100.00
1.68%
22.89%
24.43
24.62
24.73
24.57
24.15
21.44
18.28
20.73
23.53%
17.13%
15.93
16.47
15.31
16.62
17.59
17.52
16.93
16.35
16.46%
October 31, 2013
$ 1,894
2,544
3,407
2,463
876
719
960
544
533
$ 13,940
3.10%
11.71
22.81
43.65
68.92
87.15
101.59
98.73
199.63
13.00%
October 31, 2012
$
860
1,477
2,311
4,000
1,083
1,082
1,311
854
350
$ 13,328
2.59%
7.61
15.74
27.81
46.78
63.27
82.87
84.81
119.86
15.03%
T A B L E 5 4
RETAIL ADVANCED IRB EXPOSURES – By Obligor Grade – Qualifying Revolving Retail
(millions of Canadian dollars, except as noted)
PD range
Exposure
at Default
Average PD Average LGD
RWAs
As at
Average risk
weighting
1
2
3
4
5
6
7
8
9
1
2
3
4
5
6
7
8
9
0.00 to 0.15%
0.16 to 0.41
0.42 to 1.10
1.11 to 2.93
2.94 to 4.74
4.75 to 7.99
8.00 to 18.20
18.21 to 99.99
100.00
0.00 to 0.15%
0.16 to 0.41
0.42 to 1.10
1.11 to 2.93
2.94 to 4.74
4.75 to 7.99
8.00 to 18.20
18.21 to 99.99
100.00
$ 18,119
7,471
7,023
5,568
2,366
1,561
1,241
388
125
$ 43,862
$ 17,566
7,322
6,863
5,500
2,413
1,626
1,315
427
141
$ 43,173
0.05%
0.26
0.69
1.84
3.70
5.92
11.09
28.72
100.00
1.67%
0.05%
0.26
0.69
1.84
3.71
5.92
11.10
28.80
100.00
1.79%
83.82%
84.20
85.41
85.89
86.04
85.30
82.68
74.29
74.23
84.43%
84.00%
84.17
85.35
85.78
86.02
85.39
82.95
74.64
74.17
84.48%
October 31, 2013
$
525
820
1,714
2,865
2,025
1,809
2,002
820
8
$ 12,588
2.90%
10.98
24.41
51.45
85.59
115.89
161.32
211.34
6.40
28.70%
October 31, 2012
$
511
803
1,676
2,831
2,065
1,883
2,130
908
9
$ 12,816
2.91%
10.97
24.42
51.47
85.58
115.81
161.98
212.65
6.38
29.69%
Low Risk
Normal Risk
Medium Risk
High Risk
Default
Total
Low Risk
Normal Risk
Medium Risk
High Risk
Default
Total
76
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 5 5
RETAIL ADVANCED IRB EXPOSURES – By Obligor Grade – Other Retail
(millions of Canadian dollars, except as noted)
PD range
Exposure
at Default
Average PD Average LGD
RWAs
As at
Average risk
weighting
Low Risk
Normal Risk
Medium Risk
High Risk
Default
Total
Low Risk
Normal Risk
Medium Risk
High Risk
Default
Total
1
2
3
4
5
6
7
8
9
1
2
3
4
5
6
7
8
9
0.00 to 0.15%
0.16 to 0.41
0.42 to 1.10
1.11 to 2.93
2.94 to 4.74
4.75 to 7.99
8.00 to 18.20
18.21 to 99.99
100.00
0.00 to 0.15%
0.16 to 0.41
0.42 to 1.10
1.11 to 2.93
2.94 to 4.74
4.75 to 7.99
8.00 to 18.20
18.21 to 99.99
100.00
$ 7,174
5,470
10,527
5,379
2,212
1,728
1,487
320
168
$ 34,465
$ 7,247
5,364
7,059
5,235
2,209
1,668
1,464
315
146
$ 30,707
0.07%
0.26
0.81
1.87
3.74
5.95
10.88
28.98
100.00
2.36%
0.07%
0.26
0.72
1.86
3.74
5.97
10.82
28.27
100.00
2.42%
53.58%
53.64
60.19
52.80
53.14
51.78
53.50
54.95
50.11
55.36%
53.82%
53.86
53.80
52.28
52.90
52.66
52.17
54.85
48.93
53.34%
October 31, 2013
$
715
1,399
5,836
3,552
1,686
1,345
1,387
417
156
$ 16,493
9.97%
25.58
55.44
66.03
76.22
77.84
93.28
130.31
92.86
47.85%
October 31, 2012
$
722
1,376
3,271
3,417
1,677
1,322
1,331
408
145
$ 13,669
9.96%
25.65
46.34
65.27
75.92
79.26
90.92
129.52
99.32
44.51%
The risk discriminative and predictive power of the Bank’s retail credit
models is assessed against the most recently available 1-year default
and loss performance on a quarterly basis. All models are also subject
to a comprehensive independent validation prior to implementation
and on an annual basis as outlined in the Model Risk Management
section of this disclosure.
Long-run PD estimates are generated by including key economic
indicators, such as interest rates and unemployment rates and using
their long-run average over the credit cycle to estimate PD.
LGD estimates are required to reflect a downturn scenario.
Downturn LGD estimates are generated by using macroeconomic
inputs, such as changes in housing prices and unemployment rates
expected in an appropriately severe downturn scenario.
For unsecured products, downturn LGD estimates reflect the
observed lower recoveries for exposures defaulted during the recent
2008 – 2009 recession. For products secured by residential real estate
(such as mortgages and home equity lines of credit), downturn LGD
reflects the potential impact of a severe housing downturn. EAD
estimates similarly reflect a downturn scenario.
Non-retail Exposures
In the non-retail portfolio, we manage exposures on an individual
borrower basis, using industry and sector-specific credit risk models,
and expert judgment. We have categorized non-retail credit risk expo-
sures according to the following Basel II counterparty types: corporate
(wholesale and commercial customers), sovereign and bank. Under the
AIRB approach, CMHC-insured mortgages are considered sovereign
risk and therefore classified as non-retail.
The Bank evaluates credit risk for non-retail exposures by using both
a borrower risk rating (BRR) and facility risk rating (FRR). We use this
system for all corporate, sovereign and bank exposures. We determine
the risk ratings using industry and sector-specific credit risk models
that are based on internal historical data for the years of 1994 – 2012,
covering both Wholesale and Commercial lending experience. All
borrowers and facilities are assigned an internal risk rating that must be
reviewed at least once each year. External data such as rating agency
default rates or loss databases are used to validate the parameters.
Internal risk ratings (BRR and FRR) are key to portfolio monitoring
and management and are used to set exposure limits and loan pricing.
Internal risk ratings are also used in the calculation of regulatory
capital, economic capital, and incurred but not identified allowance
for credit losses. Consistent with the IRB approach to measure capital
adequacy at a 1-year risk horizon, the parameters are estimated to
a 12-month forward time horizon.
Borrower Risk Rating and PD
Each borrower is assigned a BRR that reflects the PD of the borrower
using proprietary models and expert judgment. In assessing borrower
risk, we review the borrower’s competitive position, financial perfor-
mance, economic and industry trends, management quality and access
to funds. Under the IRB approach, borrowers are grouped into BRR
grades that have similar PD. Use of projections for model implied risk
ratings is not permitted and BRRs may not incorporate a projected
reversal, stabilization of negative trends, or the acceleration of existing
positive trends. Historic financial results can however be sensitized to
account for events that have occurred, or are about to occur such as
additional debt incurred by a borrower since the date of the last set
of financial statements. In conducting an assessment of the BRR, all
relevant and material information must be taken into account and the
information being used must be current. Quantitative rating models
are used to rank order the expected through-the-cycle PD, and these
models are segmented into categories based on industry and borrower
size. The quantitative model output can be modified in some cases by
expert judgement, as prescribed within the Bank’s credit policies.
To calibrate PDs for each BRR band, the Bank computes yearly
transition matrices based on annual cohorts and then estimates
the average annual PD for each BRR. The PD is set at the average
estimation level plus an appropriate adjustment to cover statistical
and model uncertainty.
The calibration process for PD is a through-the-cycle approach.
77
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
Facility Risk Rating and LGD
The FRR maps to LGD and takes into account facility-specific character-
istics such as collateral, seniority ranking of debt, and loan structure.
Different FRR models are used based on industry and obligor size.
Where an appropriate level of historical defaults is available per model,
this data is used in the LGD estimation process. Data considered in the
calibration of the LGD model includes variables such as collateral cover-
age, debt structure, and borrower enterprise value. Average LGD and
the statistical uncertainty of LGD are estimated for each FRR grade. In
some FRR models, lack of historical data requires the model to output
a rank-ordering which is then mapped through expert judgement to
the quantitative LGD scale.
The IRB approach stipulates the use of downturn LGD, where the
downturn period, as determined by internal and/or external experi-
ence, suggests higher than average loss rates or lower than average
recovery, such as during an economic recession. To reflect this, aver-
age calibrated LGDs take into account both the statistical estimation
uncertainty and the higher than average LGDs experienced during
downturn periods.
Exposure At Default
The Bank calculates non-retail EAD by first measuring the drawn
amount of a facility, and then adding a potential increased utilization
at default, from the undrawn portion, if any. Usage Given Default
(UGD) is measured as the percentage of Committed Undrawn exposure
that would be expected to be drawn by a borrower defaulting in the
next year, in addition to the amount that already has been drawn by
the borrower. In the absence of credit mitigation effects or other
details, the EAD is set at the Drawn amount plus (UGD x Undrawn),
where UGD is a percentage between 0% and 100%.
Given that UGD is largely driven by PD, UGD data is consolidated by
BRR up to 1 year prior to default. An average UGD is then calculated
for each BRR along with the statistical uncertainty of the estimates.
Historical UGD experience is studied for any downturn impacts,
similar to the LGD downturn analysis. The Bank has not found down-
turn UGD to be significantly different than average UGD, therefore,
the UGDs are set at the average calibrated level, per BRR grade, plus
an appropriate adjustment for statistical and model uncertainty.
Advanced IRB exposures are displayed in the following tables mapping
the Bank’s 20-point borrower risk rating scale to external ratings.
T A B L E 5 6
NON-RETAIL ADVANCED IRB EXPOSURES – By Obligor Grade – Corporate
Internal ratings
grade (BRR)
PD range
Exposure
at Default
Average
PD
Average
LGD
RWAs
Average risk External rating
equivalent
weighting
As at
0
1A
1B
1C
2A
2B
2C
3A
3B
3C
4A
4B
4C
5A
5B
5C
6
7
8
9
0
1A
1B
1C
2A
2B
2C
3A
3B
3C
4A
4B
4C
5A
5B
5C
6
7
8
9
0.00 to 0.01%
0.02 to 0.03
0.04 to 0.04
0.05 to 0.05
0.06 to 0.06
0.07 to 0.08
0.09 to 0.12
0.13 to 0.17
0.18 to 0.22
0.23 to 0.29
0.30 to 0.38
0.39 to 0.58
0.59 to 0.90
0.91 to 1.38
1.39 to 2.81
2.82 to 11.67
11.68 to 22.21
22.22 to 49.99
50.00 to 99.99
100.00
0.00 to 0.01%
0.02 to 0.03
0.04 to 0.04
0.05 to 0.05
0.06 to 0.07
0.08 to 0.10
0.11 to 0.14
0.15 to 0.20
0.21 to 0.26
0.27 to 0.33
0.34 to 0.42
0.43 to 0.64
0.65 to 0.96
0.97 to 1.45
1.46 to 2.88
2.89 to 11.30
11.31 to 23.27
23.28 to 55.12
55.13 to 99.99
100.00
$ 10,163
7,563
4,296
14,798
6,885
8,052
11,591
7,466
8,585
10,866
9,730
9,991
8,465
5,636
3,915
16,674
520
331
66
125
$ 145,718
$
9,881
6,673
8,211
16,333
5,091
7,592
13,778
8,000
8,840
10,143
5,826
5,843
7,903
4,503
3,527
12,603
516
342
74
177
$ 135,856
0.00%
0.03
0.04
0.05
0.06
0.07
0.09
0.13
0.18
0.23
0.30
0.39
0.59
0.91
1.39
2.82
11.68
22.22
50.00
100.00
0.73%
0.00%
0.03
0.04
0.05
0.06
0.08
0.11
0.15
0.21
0.27
0.34
0.43
0.65
0.97
1.46
2.89
11.31
23.28
55.13
100.00
0.74%
64.36%
1.90
13.17
9.65
16.90
26.43
29.33
34.80
31.07
32.66
20.19
21.97
21.59
19.77
28.54
10.65
25.04
38.06
27.24
57.88
23.69%
61.38%
2.51
6.36
6.51
19.37
21.33
27.40
28.57
22.64
32.53
30.54
29.21
22.09
20.86
27.75
11.96
23.92
30.67
18.58
57.51
22.66%
$
18
66
213
662
668
1,370
2,573
2,136
2,768
4,198
2,458
3,060
3,029
2,128
2,515
4,788
578
658
85
318
$ 34,289
$
14
40
163
389
505
942
2,893
2,098
2,212
4,170
2,480
2,408
3,061
1,835
2,148
4,024
534
554
60
535
$ 31,065
October 31, 2013
0.18% AAA/Aaa
AA+/Aa1
0.87
4.96
AA/Aa2
AA-/Aa3
4.47
A+/A1
9.70
A/A2
17.01
22.20
A-/A3
BBB+/Baa1
28.61
BBB/Baa2
32.24
BBB-/Baa3
38.63
BB+/Ba1
25.26
BB/Ba2
30.63
BB-/Ba3
35.78
B+/B1
37.76
B/B2
64.24
B-/B3
28.72
CCC+/Caa1
111.15
198.79
to CC/Ca
128.79
254.40
D
23.53%
October 31, 2012
0.14%
0.60
1.99
2.38
9.92
12.41
21.00
26.23
25.02
41.11
42.57
41.21
38.73
40.75
60.90
31.93
103.49
161.99
81.08
302.26
22.87%
AAA/Aaa
AA+/Aa1
AA/Aa2
AA-/Aa3
A+/A1
A/A2
A-/A3
BBB+/Baa1
BBB/Baa2
BBB-/Baa3
BB+/Ba1
BB/Ba2
BB-/Ba3
B+/B1
B/B2
B-/B3
CCC+/Caa1
to CC/Ca
D
(millions of Canadian dollars,
except as noted)
Investment Grade
Non Investment Grade
Watch and Classified
Impaired/Default
Total
Investment Grade
Non Investment Grade
Watch and Classified
Impaired/Default
Total
78
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 5 7
NON-RETAIL ADVANCED IRB EXPOSURES – By Obligor Grade – Sovereign
(millions of Canadian dollars,
except as noted)
Investment Grade
Non Investment Grade
Watch and Classified
Impaired/Default
Total
Investment Grade
Non Investment Grade
Watch and Classified
Impaired/Default
Total
Internal ratings
grade (BRR)
PD range
Exposure
at Default
Average
PD
Average
LGD
RWAs
Average risk External rating
equivalent
weighting
As at
0
1A
1B
1C
2A
2B
2C
3A
3B
3C
4A
4B
4C
5A
5B
5C
6
7
8
9
0
1A
1B
1C
2A
2B
2C
3A
3B
3C
4A
4B
4C
5A
5B
5C
6
7
8
9
0.00 to 0.01%
0.02 to 0.03
0.04 to 0.04
0.05 to 0.05
0.06 to 0.06
0.07 to 0.08
0.09 to 0.12
0.13 to 0.17
0.18 to 0.22
0.23 to 0.29
0.30 to 0.38
0.39 to 0.58
0.59 to 0.90
0.91 to 1.38
1.39 to 2.81
2.82 to 11.67
11.68 to 22.21
22.22 to 49.99
50.00 to 99.99
100.00
0.00 to 0.01%
0.02 to 0.03
0.04 to 0.04
0.05 to 0.05
0.06 to 0.07
0.08 to 0.10
0.11 to 0.14
0.15 to 0.20
0.21 to 0.26
0.27 to 0.33
0.34 to 0.42
0.43 to 0.64
0.65 to 0.96
0.97 to 1.45
1.46 to 2.88
2.89 to 11.30
11.31 to 23.27
23.28 to 55.12
55.13 to 99.99
100.00
$ 187,017
19,116
2,251
7,372
1,399
7,218
1,494
–
106
20
2
12
–
–
–
98
–
–
–
–
$ 226,105
$ 191,106
16,881
3,169
6,685
547
4,166
1,151
124
93
8
1
2
20
–
–
94
–
–
–
–
$ 224,047
0.00%
0.02
0.04
0.05
0.06
0.07
0.09
–
0.18
0.23
0.30
0.39
–
–
–
2.82
–
–
–
–
0.01%
0.00%
0.02
0.04
0.05
0.06
0.08
0.11
0.15
0.21
0.27
0.34
0.43
0.65
–
–
2.89
–
–
–
–
0.01%
18.13%
4.11
4.18
2.46
2.76
2.35
8.96
–
8.63
7.93
57.32
13.65
–
–
–
0.30
–
–
–
–
15.62%
11.90%
4.69
4.80
2.00
4.61
2.45
12.37
0.17
10.60
21.81
55.98
55.98
–
–
–
0.02
–
–
–
–
10.76%
$ 77
127
24
73
20
60
98
–
6
2
1
2
–
–
–
1
–
–
–
–
$ 491
$ 111
141
20
48
15
44
96
–
8
1
1
1
–
–
–
–
–
–
–
–
$ 486
October 31, 2013
0.04% AAA/Aaa
AA+/Aa1
0.66
AA/Aa2
1.07
AA-/Aa3
0.99
A+/A1
1.43
A/A2
0.83
6.56
A-/A3
BBB+/Baa1
–
BBB/Baa2
5.66
BBB-/Baa3
10.00
BB+/Ba1
50.00
BB/Ba2
16.67
BB-/Ba3
–
B+/B1
–
B/B2
–
B-/B3
1.02
CCC+/Caa1
–
–
to CC/Ca
–
–
0.22%
D
October 31, 2012
AAA/Aaa
AA+/Aa1
AA/Aa2
AA-/Aa3
A+/A1
A/A2
A-/A3
BBB+/Baa1
BBB/Baa2
BBB-/Baa3
BB+/Ba1
BB/Ba2
BB-/Ba3
B+/B1
B/B2
B-/B3
CCC+/Caa1
to CC/Ca
0.06%
0.84
0.63
0.72
2.74
1.06
8.34
–
8.60
12.50
100.00
50.00
–
–
–
–
–
–
–
–
0.22%
D
79
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 5 8
NON-RETAIL ADVANCED IRB EXPOSURES – By Obligor Grade – Bank
(millions of Canadian dollars,
except as noted)
Investment Grade
Non Investment Grade
Watch and Classified
Impaired/Default
Total
Investment Grade
Non Investment Grade
Watch and Classified
Impaired/Default
Total
Internal ratings
grade (BRR)
PD range
Exposure
at Default
Average
PD
Average
LGD
RWAs
Average risk External rating
equivalent
weighting
October 31, 2013
As at
0
1A
1B
1C
2A
2B
2C
3A
3B
3C
4A
4B
4C
5A
5B
5C
6
7
8
9
0
1A
1B
1C
2A
2B
2C
3A
3B
3C
4A
4B
4C
5A
5B
5C
6
7
8
9
0.00 to 0.01%
0.02 to 0.03
0.04 to 0.04
0.05 to 0.05
0.06 to 0.06
0.07 to 0.08
0.09 to 0.12
0.13 to 0.17
0.18 to 0.22
0.23 to 0.29
0.30 to 0.38
0.39 to 0.58
0.59 to 0.90
0.91 to 1.38
1.39 to 2.81
2.82 to 11.67
11.68 to 22.21
22.22 to 49.99
50.00 to 99.99
100.00
0.00 to 0.02%
0.03 to 0.03
0.04 to 0.04
0.05 to 0.05
0.06 to 0.07
0.08 to 0.10
0.11 to 0.14
0.15 to 0.20
0.21 to 0.26
0.27 to 0.33
0.34 to 0.42
0.43 to 0.64
0.65 to 0.96
0.97 to 1.45
1.46 to 2.88
2.89 to 11.30
11.31 to 23.27
23.28 to 55.12
55.13 to 99.99
100.00
$ 1,814
730
980
12,732
21,147
23,303
19,464
8,161
4,100
1,591
821
330
69
2
42
9
–
–
–
–
$ 95,295
$ 2,930
1,748
572
33,488
20,550
32,068
13,621
14,957
2,417
2,118
2,158
129
273
1
1
200
–
–
37
–
$ 127,268
0.01%
0.03
0.04
0.05
0.06
0.07
0.09
0.13
0.18
0.23
0.30
0.39
0.59
0.91
1.39
2.82
–
–
–
–
0.08%
0.01%
0.03
0.04
0.05
0.06
0.08
0.11
0.15
0.21
0.27
0.34
0.43
0.65
0.97
1.46
2.89
–
–
55.13
–
0.11%
57.29%
57.32
56.01
30.81
18.69
14.68
17.52
17.04
7.49
23.22
4.52
12.70
7.72
24.45
57.32
34.99
–
–
–
–
19.82%
65.28%
49.83
55.60
12.11
20.01
11.15
21.05
8.92
11.13
18.67
6.13
30.05
13.82
9.43
40.89
14.94
–
–
9.19
–
15.68%
$
47
121
170
1,589
1,850
1,936
2,474
1,119
259
328
43
47
11
1
63
8
–
–
–
–
$ 10,066
$
92
114
136
1,321
1,549
1,554
1,590
974
220
370
123
43
52
–
1
91
–
–
16
–
$ 8,246
2.59% AAA/Aaa
AA+/Aa1
AA/Aa2
AA-/Aa3
A+/A1
A/A2
A-/A3
BBB+/Baa1
BBB/Baa2
BBB-/Baa3
BB+/Ba1
BB/Ba2
BB-/Ba3
B+/B1
B/B2
B-/B3
CCC+/Caa1
to CC/Ca
16.58
17.35
12.48
8.75
8.31
12.71
13.71
6.32
20.62
5.24
14.24
15.94
50.00
150.00
88.89
–
–
–
–
D
10.56%
October 31, 2012
3.14%
6.52
23.78
3.94
7.54
4.85
11.67
6.51
9.10
17.47
5.70
33.33
19.05
–
100.00
45.50
–
–
43.24
–
6.48%
AAA/Aaa
AA+/Aa1
AA/Aa2
AA-/Aa3
A+/A1
A/A2
A-/A3
BBB+/Baa1
BBB/Baa2
BBB-/Baa3
BB+/Ba1
BB/Ba2
BB-/Ba3
B+/B1
B/B2
B-/B3
CCC+/Caa1
to CC/Ca
D
Lower risk weights apply where approved credit risk mitigants exist.
Loans that are more than 90 days past due receive a risk weight of
either 100% (residential secured) or 150% (all other).
For off-balance sheet exposures, specified credit conversion factors
are used to convert the notional amount of the exposure into a credit
equivalent amount.
Derivative Exposures
Credit risk on derivative financial instruments, also known as counter-
party credit risk, is the risk of a financial loss occurring as a result of
the failure of a counterparty to meet its obligation to the Bank. We
use the Current Exposure Method to calculate the credit equivalent
amount, which is defined by OSFI as the replacement cost plus an
amount for potential future exposure, to estimate the risk and determine
regulatory capital requirements for derivative exposures. The Global
Counterparty Credit group within Capital Markets Risk Management
is responsible for estimating and managing counterparty credit risk
in accordance with credit policies established by Risk Management.
Credit Risk Exposures subject to the Standardized Approach
Currently the Standardized Approach to credit risk is used primarily
for assets in the U.S. Personal and Commercial Banking portfolio. We
are currently in the process of transitioning this portfolio to the AIRB
Approach. Under the Standardized Approach, the assets are multiplied
by risk weights prescribed by OSFI to determine RWA. These risk
weights are assigned according to certain factors including counter-
party type, product type, and the nature/extent of credit risk mitiga-
tion. We use external credit ratings assigned by one or more of
Moody’s, S&P, and Fitch to determine the appropriate risk weight for
our exposures to Sovereigns (governments, central banks and certain
public sector entities) and Banks (regulated deposit-taking institutions,
securities firms and certain public sector entities).
We apply the following risk weights to on-balance sheet exposures
under the Standardized Approach:
Sovereign
Bank
Residential secured
Other retail (including small business entities)
Corporate
0%1
20%1
35% or 75%2
75%
100%
1 The risk weight may vary according to the external risk rating.
2 35% applied when loan to value <=80%, 75% when loan-to-value >80%.
80
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
The Bank uses various qualitative and quantitative methods to
measure and manage counterparty credit risk. These include statistical
methods to measure the current and future potential risk, as well as
conduct stress tests to identify and quantify exposure to extreme events.
We establish various limits including gross notional limits to manage
business volumes and concentrations. We regularly assess market condi-
tions and the valuation of underlying financial instruments. Counterparty
credit risk may increase during periods of receding market liquidity for
certain instruments. Capital Market Risk Management meets regularly
with Market and Credit Risk Management and Trading businesses to
discuss how evolving market conditions may impact our market risk
and counterparty credit risk.
The Bank actively engages in risk mitigation strategies through the
use of multi-product derivative master netting agreements, collateral
and other credit risk mitigation techniques. We may also execute
certain derivatives through a central clearing house which reduces
counterparty credit risk due to the ability to net offsetting positions
amongst counterparty participants that settle within clearing houses.
Derivative-related credit risks are subject to the same credit approval,
limit, monitoring, and exposure guideline standards that we use for
managing other transactions that create credit risk exposure. These
standards include evaluating the creditworthiness of counterparties,
measuring and monitoring exposures, including wrong-way risk
exposures, and managing the size, diversification, and maturity
structure of the portfolios.
There are two types of wrong-way risk exposures: general and
specific. General wrong-way risk arises when the probability of default
of the counterparties moves in the same direction as a given market
risk factor. Specific wrong-way risk arises when the exposure to a
particular counterparty moves in the same direction as the probability
of default of the counterparty due to the nature of the transactions
entered into with that counterparty. These exposures require specific
approval within the credit approval process. We measure and manage
specific wrong-way risk exposures in the same manner as direct loan
obligations and control them by way of approved credit facility limits.
As part of the credit risk monitoring process, management meets
on a periodic basis to review all exposures, including exposures result-
ing from derivative financial instruments to higher risk counterparties.
As at October 31, 2013, after taking into account risk mitigation
strategies, the Bank does not have material derivative exposure to any
counterparty considered higher risk as defined by the Bank’s credit
policies. In addition, the Bank does not have a material credit risk
valuation adjustment to any specific counterparty.
Validation of the Credit Risk Rating System
Credit risk rating systems and methodologies are independently
validated to verify that they remain accurate predictors of risk. The
validation process includes the following considerations:
• Risk parameter estimates – PDs, EADs, and LGDs are reviewed and
updated against actual loss experience to ensure estimates continue
to be reasonable predictors of potential loss.
• Model performance – Estimates continue to be discriminatory,
stable, and predictive.
• Data quality – Data used in the risk rating system is accurate,
appropriate, and sufficient.
• Assumptions – Key assumptions underlying the development of the
model remain valid for the current portfolio and environment.
Risk Management ensures that the credit risk rating system complies
with TD’s Model Risk Policy. At least annually, the Risk Committee is
informed of the performance of the credit risk rating system. The Risk
Committee must approve any material changes to TD’s credit risk
rating system.
Stress Testing
To determine the potential loss that could be incurred under a range
of adverse scenarios, we subject our credit portfolios to stress tests.
Stress tests assess vulnerability of the portfolios to the effects of severe
but plausible situations, such as an economic downturn or a material
market disruption.
Credit Risk Mitigation
The techniques we use to reduce or mitigate credit risk include written
policies and procedures to value and manage financial and non-financial
security (collateral) and to review and negotiate netting agreements.
The amount and type of collateral and other credit risk mitigation
techniques required are based on the Bank’s own assessment of the
borrower’s or counterparty’s credit quality and capacity to pay.
In the Retail and Commercial Banking businesses, security for loans
is primarily non-financial and includes residential real estate, real estate
under development, commercial real estate and business assets, such
as accounts receivable, inventory, fixed assets and automobiles. In the
Wholesale Banking business, a large portion of loans is to investment
grade borrowers where no security is pledged. Non-investment grade
borrowers typically pledge business assets in the same manner as
commercial borrowers. Common standards across the Bank are
used to value collateral, determine frequency of recalculation and
to document, register, perfect and monitor collateral.
We also use collateral and master netting agreements to mitigate
derivative counterparty exposure. Security for derivative exposures is
primarily financial and includes cash and negotiable securities issued by
highly rated governments and investment grade issuers. This approach
includes pre-defined discounts and procedures for the receipt, safe-
keeping, and release of pledged securities.
In all but exceptional situations, we secure collateral by taking
possession and controlling it in a jurisdiction where we can legally
enforce our collateral rights. Exceptionally, and when demanded by
our counterparty, we hold or pledge collateral with a third-party
custodian. We document third-party arrangements with a Custody
and Control Agreement.
From time-to-time, we may take guarantees to reduce the risk in
credit exposures. For credit risk exposures subject to AIRB, we only
recognize irrevocable guarantees for Commercial and Wholesale
Banking credit exposures that are provided by entities with a better risk
rating than that of the borrower or counterparty to the transaction.
The Bank makes use of credit derivatives to mitigate credit risk.
The credit, legal, and other risks associated with these transactions are
controlled through well-established procedures. Our policy is to enter
into these transactions with investment grade financial institutions and
transact on a collateralized basis. Credit risk to these counterparties is
managed through the same approval, limit and monitoring processes
we use for all counterparties for which we have credit exposure.
The Bank uses appraisals and automated valuation models (AVMs)
to support property values when adjudicating loans collateralized by
residential real property. These are computer-based tools used to esti-
mate or validate the market value of homes using market comparables
and price trends for local market areas. The primary risk associated
with the use of these tools is that the value of an individual property
may vary significantly from the average for the market area. We have
specific risk management guidelines addressing the circumstances
when they may be used and processes to periodically validate AVMs
including obtaining third party appraisals.
81
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS Gross Credit Risk Exposure
Gross credit risk exposure, also referred to as EAD, is the total amount
we are exposed to at the time of default of a loan and is measured
before counterparty-specific provisions or write-offs. Gross credit risk
exposure does not reflect the effects of credit risk mitigation and
includes both on- and off-balance sheet exposures. On-balance sheet
exposures consist primarily of outstanding loans, acceptances, non-
trading securities, derivatives, and certain other repo-style transactions.
Off-balance sheet exposures consist primarily of undrawn commitments,
guarantees, and certain other repo-style transactions.
Gross credit risk exposure for the two approaches we use to measure
credit risk is given in the following table:
T A B L E 5 9
GROSS CREDIT RISK EXPOSURE – Standardized and AIRB Approaches 1
(millions of Canadian dollars)
Retail
Residential secured
Qualifying revolving retail
Other retail
Total retail
Non-retail2
Corporate
Sovereign
Bank
Total non-retail
Gross credit risk exposures
October 31, 2013
As at
October 31, 2012
Standardized
AIRB
Total
Standardized
AIRB
Total
$ 25,671
–
41,225
66,896
69,411
24,783
16,827
111,021
$ 177,917
$ 251,809
43,862
34,465
330,136
145,718
81,489
95,295
322,502
$ 652,638
$ 277,480
43,862
75,690
397,032
215,129
106,272
112,122
433,523
$ 830,555
$ 22,463
–
32,921
55,384
61,052
20,470
16,461
97,983
$ 153,367
$ 234,240
43,173
30,707
308,120
135,856
78,459
127,268
341,583
$ 649,703
$ 256,703
43,173
63,628
363,504
196,908
98,929
143,729
439,566
$ 803,070
1 Gross credit risk exposures represent EAD and are before the effects of credit
risk mitigation. This table excludes securitization, equity and other credit risk-
weighted assets.
2 Effective 2013, non-retail exposures do not include OSFI “deemed” Qualifying
Central Counterparty (QCCP) exposures as these are instead included with “other
credit risk-weighted assets”, in accordance with the Basel III regulatory framework.
Prior to 2013, non-retail exposures included QCCP exposures, in accordance with
the Basel II regulatory framework.
Other Credit Risk Exposures
Non-trading Equity Exposures
Our non-trading equity exposures are at a level that represents less
than 5% of our combined Tier 1 and Tier 2 capital. As a result, we
use OSFI-prescribed risk weights to calculate our RWA on non-trading
equity exposures.
Securitization Exposures
For externally rated securitization exposures, we use both the
Standardized Approach and the Ratings Based Approach (RBA). Both
approaches assign risk weights to exposures using external ratings. We
use ratings assigned by one or more of Moody’s, S&P, Fitch and DBRS.
The RBA also takes into account additional factors including the time
horizon of the rating (long-term or short-term), the amount of detail
available on the underlying asset pool and the seniority of the position.
We use the Internal Assessment Approach (IAA) to manage the
credit risk of our exposures relating to ABCP securitizations that are
not externally rated.
Under the IAA, we consider all relevant risk factors in assessing the
credit quality of these exposures, including those published by the
Moody’s, S&P, Fitch and DBRS rating agencies. We also use expected
loss models and policies to quantify and monitor the level of risk, and
facilitate its management. Our IAA process includes our assessment
of the extent by which the enhancement available for loss protection
provides coverage of expected losses. The levels of stressed coverage
we require for each internal risk rating are consistent with the rating
agencies’ published stressed factor requirements for equivalent exter-
nal ratings by asset class.
All exposures are assigned an internal risk rating based on our
assessment, which must be reviewed at least once per year. Our ratings
reflect our assessment of risk of loss, consisting of the combined PD
and LGD for each exposure. The ratings scale we use corresponds to
the long term ratings scales used by the rating agencies.
Our IAA process is subject to all the key elements and principles
of our risk governance structure, and is managed in the same way
as outlined in this Credit Risk section.
We use the results of the IAA in all aspects of our credit risk
management including performance tracking, control mechanisms and
management reporting, and the calculation of capital. Under the IAA,
exposures are multiplied by OSFI-prescribed risk weights to calculate
RWA for capital purposes.
Market Risk
Trading Market Risk is the risk of loss in financial instruments or the
balance sheet due to adverse movements in market factors such as
interest and exchange rates, prices, credit spreads, volatilities, and
correlations from trading activities.
Non-Trading Market Risk is the risk of loss in financial instruments,
the balance sheet or in earnings, or the risk of volatility in earnings from
non-trading activities such as asset-liability management or investments,
predominantly from interest rate, foreign exchange and equity risks.
We are exposed to market risk in our trading and investment portfo-
lios, as well as through our non-trading activities. In our trading and
investment portfolios, we are active participants in the market, seeking
to realize returns for TD through careful management of our positions
and inventories. In our non-trading activities, we are exposed to
market risk through the everyday banking transactions that our
customers execute with us.
We comply with the Basel III market risk requirements as at October 31,
2013 using the Internal Model Method.
82
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
MARKET RISK LINKAGE TO THE BALANCE SHEET
The table below provides a breakdown of the Bank’s balance sheet
into assets and liabilities exposed to trading and non-trading market
risks. Market risk of assets and liabilities included in the calculation of
VaR and other metrics used for regulatory market risk capital purposes
is classified as Trading Market Risk.
T A B L E 6 0
MARKET RISK LINKAGE TO THE BALANCE SHEET
(millions of Canadian dollars)
Balance
Non-Trading
Trading
Sheet Market Risk Market Risk
Assets subject to market risk
Interest-bearing deposits with banks
Trading loans, securities, and other
Derivatives
Financial assets designated at fair value
Available-for-sale securities
Held-to-maturity securities
Securities purchased under reverse repurchase agreements
Loans
Customers’ liability under acceptances
Investment in TD Ameritrade
Other assets1
Assets not exposed to market risk
Total Assets
Liabilities subject to market risk
Trading deposits
Derivatives
Securitization liabilities at fair value
Other financial liabilities designated at fair value through profit or loss
Deposits
Acceptances
Obligations related to securities sold short
Obligations related to securities sold under repurchase agreements
Securitization liabilities at amortized cost
Subordinated notes and debentures
Liability for preferred shares
Liability for capital trust securities
Other liabilities1
Liabilities and Equity not exposed to market risk
Total Liabilities and equity
Assets subject to market risk
Interest-bearing deposits with banks
Trading loans, securities, and other
Derivatives
Financial assets designated at fair value
Available-for-sale securities
Held-to-maturity securities
Securities purchased under reverse repurchase agreements
Loans
Customers’ liability under acceptances
Investment in TD Ameritrade
Other assets1
Assets not exposed to market risk
Total Assets
Liabilities subject to market risk
Trading deposits
Derivatives
Securitization liabilities at fair value
Other financial liabilities designated at fair value through profit or loss
Deposits
Acceptances
Obligations related to securities sold short
Obligations related to securities sold under repurchase agreements
Securitization liabilities at amortized cost
Subordinated notes and debentures
Liability for preferred shares
Liability for capital trust securities
Other liabilities1
Liabilities and Equity not exposed to market risk
Total Liabilities and equity
$ 28,855
101,928
49,461
6,532
79,541
29,961
64,283
447,777
6,399
5,300
1,915
40,580
862,532
47,593
49,471
21,960
12
543,476
6,399
41,829
34,414
25,592
7,982
27
1,740
12,698
69,339
$ 862,532
$ 21,692
94,531
60,919
6,173
98,576
–
69,198
411,492
7,223
5,344
1,843
34,115
811,106
38,774
64,997
25,324
17
487,754
7,223
33,435
38,816
26,190
11,318
26
2,224
11,828
63,180
$ 811,106
1 Other assets and liabilities related to retirement benefits, insurance and special
purpose entity liabilities.
$
285
98,682
44,077
–
–
–
5,331
–
–
–
–
–
148,375
1,531
45,655
10,216
–
–
–
39,479
5,825
–
–
–
–
–
–
$ 102,706
$
199
86,759
54,983
–
–
–
9,340
–
–
–
–
–
151,281
1,500
60,494
9,355
–
–
–
31,079
10,232
–
–
–
–
–
–
$ 112,660
$ 28,570
3,246
5,384
6,532
79,541
29,961
58,952
447,777
6,399
5,300
1,915
–
673,577
46,062
3,816
11,744
12
543,476
6,399
2,350
28,589
25,592
7,982
27
1,740
12,698
–
$ 690,487
$ 21,493
7,772
5,936
6,173
98,576
–
59,858
411,492
7,223
5,344
1,843
–
625,710
37,274
4,503
15,969
17
487,754
7,223
2,356
28,584
26,190
11,318
26
2,224
11,828
–
$ 635,266
As at
October 31, 2013
Non-Trading Market Risk –
primary risk sensitivity
Interest rate
Interest rate
Equity, foreign exchange, interest rate
Interest rate
Foreign exchange, interest rate
Foreign exchange, interest rate
Interest rate
Interest rate
Interest rate
Equity
Interest rate
Interest rate
Foreign exchange, interest rate
Interest rate
Interest rate
Equity, interest rate
Interest rate
Interest rate
Interest rate
Interest rate
Interest rate
Interest rate
Interest rate
Interest rate
October 31, 2012
Interest rate
Interest rate
Equity, foreign exchange, interest rate
Interest rate
Foreign exchange, interest rate
Foreign exchange, interest rate
Interest rate
Interest rate
Interest rate
Equity
Interest rate
Interest rate
Foreign exchange, interest rate
Interest rate
Interest rate
Equity, interest rate
Interest rate
Interest rate
Interest rate
Interest rate
Interest rate
Interest rate
Interest rate
Interest rate
83
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
MARKET RISK IN TRADING ACTIVITIES
The overall objective of TD’s trading businesses is to provide wholesale
banking services, including facilitation and liquidity, to clients of the
Bank. TD must take risk in order to provide effective service in markets
where our clients trade. In particular, TD needs to hold inventory, act
as principal to facilitate client transactions, and underwrite new issues.
The Bank also trades in order to have in-depth knowledge of market
conditions to provide the most efficient and effective pricing and service
to clients while balancing the risks inherent in its dealing activities.
WHO MANAGES MARKET RISK IN TRADING ACTIVITIES
Primary responsibility for managing market risk in trading activities
lies with Wholesale Banking with oversight from Market Risk Control
within Risk Management. The Market Risk and Capital Committee
meets regularly to conduct a review of the market risk profile and
trading results of our trading businesses, recommends changes to risk
policies, reviews underwriting inventories, and the usage of capital and
assets in Wholesale Banking. The committee is chaired by the Senior
Vice President, Market Risk and Model Development, and includes
Wholesale Banking senior management.
There were no significant reclassifications between trading and
non-trading books during fiscal 2013.
HOW WE MANAGE MARKET RISK IN TRADING ACTIVITIES
Market risk plays a key part in the assessment of any trading business
strategy. We launch new trading initiatives or expand existing ones
only if the risk has been thoroughly assessed and is judged to be
within our risk appetite and business expertise, and if the appropriate
infrastructure is in place to monitor, control, and manage the risk. The
Trading Market Risk Framework outlines the management of trading
market risk and incorporates risk appetite, risk governance structure,
risk identification, measurement, and control. The Trading Market Risk
Framework is maintained by Risk Management and supports alignment
with TD’s Risk Appetite for trading market risk.
Trading Limits
We set trading limits that are consistent with the approved business
strategy for each business and our tolerance for the associated market
risk, aligned to TD’s market risk appetite. In setting limits, we take into
account market volatility, market liquidity, organizational experience
and business strategy. Limits are prescribed at the Wholesale Banking
level in aggregate, as well as at more granular levels.
The core market risk limits are based on the key risk drivers in the
business and includes notional limits, credit spread limits, yield curve
shift limits, price, and volatility limits.
Another primary measure of trading limits is VaR, which we use to
monitor and control overall risk levels and to calculate the regulatory
capital required for market risk in trading activities. VaR measures the
adverse impact that potential changes in market rates and prices could
have on the value of a portfolio over a specified period of time.
At the end of each day, risk positions are compared with risk limits,
and any excesses are reported in accordance with established market
risk policies and procedures.
Calculating VaR
The Bank computes total VaR on a daily basis by combining the General
Market Risk (GMR) and Idiosyncratic Debt Specific Risk (IDSR) associated
with the Bank’s trading positions.
GMR is determined by creating a distribution of potential changes
in the market value of the current portfolio using historical simulation.
TD values the current portfolio using the market price and rate changes
(for equity, interest rate, foreign exchange, credit, and commodity
products) of the most recent 259 trading days. GMR is computed as
the threshold level that portfolio losses are not expected to exceed
more than one out of every 100 trading days. A 1 day holding period
is used for GMR calculation, which is scaled up to ten days for regula-
tory capital calculation purposes.
IDSR measures idiosyncratic (single-name) credit spread risk for credit
exposures in the trading portfolio, using Monte Carlo simulation. The
IDSR model is based on the historical behaviour of 5-year idiosyncratic
credit spreads. Similar to GMR, IDSR is computed as the threshold level
that portfolio losses are not expected to exceed more than one out of
every 100 trading days. IDSR is measured for a 10 day holding period.
The graph below discloses daily one-day VaR usage and trading-
related revenue (TEB) within Wholesale Banking. Trading-related
revenue is the total of trading revenue reported in other income and
the net interest income on trading positions reported in net interest
income, and is reported on a taxable equivalent basis. For the year
ending October 31, 2013, there were 21 days of trading losses and
trading-related income was positive for 92% of the trading days.
Losses in the year did not exceed VaR on any trading day.
TOTAL VALUE-AT-RISK AND TRADING-RELATED REVENUE
(millions of Canadian dollars)
Trading-related Revenue
Total Value-at-Risk
$30
20
10
0
(10)
(20)
(30)
84
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O
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
VaR is a valuable risk measure but it should be used in the context
of its limitations, for example:
• VaR uses historical data to estimate future events, which limits
its forecasting abilities;
• it does not provide information on losses beyond the selected
confidence level; and
• it assumes that all positions can be liquidated during the holding
period used for VaR calculation.
We continuously improve our VaR methodologies and incorporate new
risk measures in line with market conventions, industry best practices
and regulatory requirements.
To mitigate some of the shortcomings of VaR we use additional
metrics designed for risk management and capital purposes. These
include Stressed VaR, Incremental Risk Charge, Stress testing framework,
as well as limits based on the sensitivity to various market risk factors.
Calculating Stressed VaR
In addition to VaR, TD also calculates Stressed VaR, which includes
Stressed GMR and Stressed IDSR. Stressed VaR is designed to measure
the adverse impact that potential changes in market rates and prices
could have on the value of a portfolio over a specified period of
stressed market conditions. Stressed VaR is determined using similar
techniques and assumptions in GMR and IDSR VaR. However, instead
of using the most recent 259 trading days (one year), the Bank uses a
selected year of stressed market conditions. In the last quarter of fiscal
2013, Stressed VaR was calculated using the one-year period that
began on February 1st, 2008. The appropriate historical one-year
period to use for Stressed VaR is determined on a quarterly basis.
Stressed VaR is a part of regulatory capital requirements.
Calculating the Incremental Risk Charge
The incremental risk charge (IRC) is applied to all instruments in the
trading book subject to migration and default risk. Migration risk repre-
sents the risk of changes in the credit ratings of the Bank’s exposures.
TD applies a Monte Carlo simulation with a one-year horizon and a 99.9%
confidence level to determine IRC, which is consistent with regulatory
requirements. IRC is based on a “constant level of risk” assumption,
which requires banks to assign a liquidity horizon to positions that are
subject to IRC. IRC is a part of regulatory capital requirements.
T A B L E 6 1
PORTFOLIO MARKET RISK MEASURES
(millions of Canadian dollars)
Interest rate risk
Credit spread risk
Equity risk
Foreign exchange risk
Commodity risk
Idiosyncratic debt specific risk
Diversification effect1
Total Value-at-Risk
Stressed Value-at-Risk (one day)
Incremental Risk Capital Charge (one year)
As at Average
High
$ 3.2
6.0
2.5
1.7
0.5
14.2
(12.8)
$ 15.3
$ 27.6
$ 185.6
$
9.7
6.0
3.6
1.4
0.9
16.5
(18.8)
$ 19.3
$ 32.0
$ 267.9
$ 19.2
10.9
8.8
5.8
2.3
23.6
n/m2
$ 26.9
$ 44.3
$ 369.6
2013
Low
As at
Average
High
$ 2.9
2.4
1.8
0.3
0.4
11.3
n/m2
$ 13.7
$ 22.4
$ 177.6
$
8.5
2.5
3.2
1.1
1.6
15.2
(15.5)
$ 16.6
$ 28.4
$ 247.8
$
8.6
7.4
3.5
2.3
1.0
23.7
(20.4)
$ 26.1
$ 47.7
$ 273.3
$ 18.5
14.7
6.2
7.4
2.4
39.4
n/m2
$ 41.1
$ 77.6
$ 387.6
2012
Low
$ 5.3
2.2
1.6
0.4
0.5
13.9
n/m2
$ 14.8
$ 26.0
$ 178.3
1 The aggregate VaR is less than the sum of the VaR of the different risk types due
2 Not meaningful. It is not meaningful to compute a diversification effect because
to risk offsets resulting from portfolio diversification.
the high and low may occur on different days for different risk types.
Average VaR and Stressed VaR decreased compared with the prior
year by $6.8 million and $15.7 million, respectively, with the largest
contributor being a decrease in idiosyncratic debt specific risk, which
was primarily driven by improvements in the quality of data underlying
the model. Average IRC was relatively flat compared with the prior
year, but has fluctuated during the year due to position changes.
Validation of VaR Model
TD uses a back-testing process to compare the actual and theoretical
profit and losses to VaR to ensure that they are consistent with the
statistical results of the VaR model. The theoretical profit or loss is
generated using the daily price movements on the assumption that
there is no change in the composition of the portfolio. Validation of
the IRC model must follow a different approach since the one-year
horizon and 99.9% confidence level preclude standard back-testing
techniques. Instead, key parameters of the IRC model such as transi-
tion and correlation matrices are subject to independent validation by
benchmarking against external study results or through analysis using
internal or external data.
Stress Testing
TD’s trading business is subject to an overall global stress test limit.
In addition, global businesses have stress test limits, and each broad
risk class has an overall stress test threshold. Stress scenarios are
designed to model extreme economic events, replicate worst-case
historical experiences, or introduce severe but plausible hypothetical
changes in key market risk factors. The stress testing program
includes scenarios developed using actual historical market data
during periods of market disruption, in addition to hypothetical
scenarios developed by Risk Management. The events we have
modeled include the 1987 equity market crash, the 1998 Russian
debt default crisis, the aftermath of September 11, 2001, the 2007
ABCP crisis, and the credit crisis of fall 2008.
Stress tests are produced and reviewed regularly with the Market
Risk and Capital Committee.
85
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
MARKET RISK IN OTHER WHOLESALE BANKING ACTIVITIES
We are also exposed to market risk arising from a legacy portfolio of
bonds and preferred shares held in TD Securities and in our remaining
merchant banking investments. Risk Management reviews and
approves policies and procedures, which are established to monitor,
measure, and mitigate these risks.
We are exposed to market risk when we enter into non-trading
banking transactions with our customers. These transactions primarily
include deposit taking and lending, which are also referred to as “asset
and liability” positions.
Asset/Liability Management
Asset/liability management deals with managing the market risks of
our traditional banking activities. Such market risks primarily include
interest rate risk and foreign exchange risk.
WHO IS RESPONSIBLE FOR ASSET/LIABILITY MANAGEMENT
The Treasury and Balance Sheet Management Department measures
and manages the market risks of our non-trading banking activities,
with oversight from the Asset/Liability and Capital Committee, which is
chaired by the Group Head Insurance, Credit Cards and Enterprise
Strategy, and includes other senior executives. The Risk Committee of
the Board periodically reviews and approves key asset/liability manage-
ment and non-trading market risk policies and receives reports on
compliance with approved risk limits.
HOW WE MANAGE OUR ASSET AND LIABILITY POSITIONS
When TD products are issued, risks are measured using a fully hedged
option-adjusted transfer-pricing framework that allows us to measure
and manage product risk within a target risk profile. The framework
also ensures that business segments engage in risk-taking activities
only if they are productive.
Managing Interest Rate Risk
Interest rate risk is the impact that changes in interest rates could
have on our margins, earnings and economic value. The objective of
interest rate risk management is to ensure that earnings are stable
and predictable over time. To this end, we have adopted a disciplined
hedging approach to managing the net interest income contribution
from our asset and liability positions, including a modeled maturity
profile for non-rate sensitive assets, liabilities and equity. Key aspects
of this approach are:
• Evaluating and managing the impact of rising or falling interest
rates on net interest income and economic value and developing
strategies to manage overall sensitivity to rates across varying
interest rate scenarios.
• Measuring the contribution of each TD product on a risk-adjusted,
fully-hedged basis, including the impact of financial options such
as mortgage commitments that are granted to customers.
• Developing and implementing strategies to stabilize net interest
income from all personal and commercial banking products.
We are exposed to interest rate risk when asset and liability principal and
interest cash flows have different payment or maturity dates. These are
called “mismatched positions.” An interest-sensitive asset or liability is
repriced when interest rates change, when there is cash flow from final
maturity, normal amortization, or when customers exercise prepayment,
conversion or redemption options offered for the specific product.
Our exposure to interest rate risk depends on the size and direction
of interest rate changes, and on the size and maturity of the mismatched
positions. It is also affected by new business volumes, renewals of loans
or deposits, and how actively customers exercise options, such as
prepaying a loan before its maturity date.
Interest rate risk exposure, after economic hedging activities, is
measured using various interest rate “shock” scenarios to estimate the
impact of changes in interest rates on the Bank. Two measures that
are used are Earnings at Risk (EaR) and Economic Value at Risk (EVaR).
EaR is defined as the change in net interest income over the next 12
months for an immediate and sustained 100 bps unfavourable interest
rate shock. EaR measures the extent to which the maturing and repric-
ing asset and liability cash flows are matched over the next 12-month
period and reflects how TD’s net interest income will change over that
period as a result of the interest rate shock. EVaR is defined as the
difference between the change in the present value of our asset port-
folio and the change in the present value of our liability portfolio,
including off-balance sheet instruments, resulting from an immediate
and sustained 100 bps unfavourable interest rate shock. EVaR
measures the relative sensitivity of asset and liability cash flow
mismatches to changes in long term interest rates. Closely matching
asset and liability cash flows reduces EVaR and mitigates the risk of
volatility in future interest income.
To the extent that interest rates are sufficiently low and it is not feasible
to measure the impact of a 100 bps decline in interest rates, EVaR and EaR
exposures will be calculated by measuring the impact of a decline in
interest rates where the resultant rate does not become negative.
The model used to calculate EaR and EVaR captures the impact of
changes to assumed customer behaviours, such as interest rate sensi-
tive mortgage prepayments, but does not assume any balance sheet
growth, change in business mix, product pricing philosophy or
management actions in response to changes in market conditions.
TD’s policy sets overall limits on EVaR and EaR which are linked to
capital and net interest income, respectively. These Board limits are
set consistent with TD’s enterprise risk appetite and are periodically
reviewed and approved by the Risk Committee of the Board.
Exposures against Board limits are routinely monitored and reported,
and breaches of these Board limits (if any) are escalated to both the
ALCO and the Risk Committee of the Board.
In addition to Board policy limits, book-level risk limits are set
for TBSM’s management of non-trading interest rate risk by Risk
Management. These book-level risk limits are set at a more granular
level than Board policy limits for EaR and EVaR, and developed to
be consistent with the overall Board Market Risk policy. Breaches
of these book-level risk limits (if any) are escalated to the ALCO
in a timely manner.
We regularly perform valuations of all asset and liability positions,
as well as off-balance sheet exposures. Our objective is to stabilize
interest income over time through disciplined asset/liability matching.
86
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS The interest rate risk exposures from products with closed (non-
optioned) fixed-rate cash flows are measured and managed separately
from products that offer customers prepayment options. We project
future cash flows by looking at the impact of:
• A target interest sensitivity profile for our core deposit portfolio.
• Our targeted investment profile on our net equity position.
• Liquidation assumptions on mortgages other than from embedded
pre-payment options.
The objective of portfolio management within the closed book is to
eliminate cash flow mismatches to the extent practically possible, so
that net interest income becomes more predictable. Product options,
whether they are freestanding options such as mortgage rate commit-
ments or embedded in loans and deposits, expose us to a significant
financial risk.
• Rate Commitments: We model our exposure from freestanding
mortgage rate commitment options using an expected funding
profile based on historical experience. Customers’ propensity to
fund and their preference for fixed or floating rate mortgage
products is influenced by factors such as market mortgage rates,
house prices and seasonality.
• Asset Prepayment: We model our exposure to written options
embedded in other products, such as the rights to prepay residential
mortgage loans, based on analysis of customer behaviour. Econometric
models are used to model prepayments and the effects of prepay-
ment behaviour to the Bank. In general mortgage prepayments are
also affected by non-market incentives such as mortgage age, house
prices and GDP growth. The combined impacts from these parame-
ters are also assessed to determine a core liquidation speed which
is independent of market incentives.
• Non Maturity Liabilities: We model our exposure to non-maturity
liabilities such as core deposits by assessing interest rate elasticity
and balance permanence using historical data and business judge-
ment. Fluctuations of non-maturity deposits can occur because of
factors such as interest rate movements, equity market movements
and changes to customer liquidity preferences.
To manage product option exposures we purchase options or use a
dynamic hedging process designed to replicate the payoff of a
purchased option. We also model the margin compression that would
be caused by declining interest rates on certain rate sensitive demand
deposit accounts.
Other market risks monitored on a regular basis include:
• Basis Risk: The Bank is exposed to risks related to various
market indices.
• Equity Risk: The Bank is exposed to equity risk through its equity-
linked GIC product offering. The exposure is managed by purchasing
options to replicate the equity payoff.
The following graph shows our interest rate risk exposure (as measured
by EVaR) on all non-trading assets, liabilities, and derivative instruments
used for interest rate risk management.
ALL INSTRUMENTS PORTFOLIO
Economic Value at Risk After-tax –
October 31, 2013 and October 31, 2012
(millions of Canadian dollars)
Q4 2013: $(31.0) million
Q4 2012: $(161.8) million
)
s
n
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(
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$150
50
(50)
(150)
(250)
(350)
(450)
(550)
(2.0)
(1.5)
(1.0)
(0.5)
0
0.5
1.0
1.5
2.0
Parallel interest rate shock (percentage)
The Bank uses derivative financial instruments, wholesale investments
and funding instruments and other capital market alternatives and,
less frequently, product pricing strategies to manage interest rate risk.
As at October 31, 2013, an immediate and sustained 100 basis point
increase in interest rates would have decreased the economic value of
shareholders’ equity by $31 million (October 31, 2012 – $161.8 million)
after tax. An immediate and sustained 100 bps decrease in Canadian
interest rates and a 25 bps decrease in U.S. interest rates would have
reduced the economic value of shareholders’ equity by $9.4 million
(October 31, 2012 – $ 80.5 million) after tax.
The following table shows the sensitivity of the economic value of
shareholders’ equity (after tax) by currency for those currencies where
TD has material exposure.
T A B L E 6 2
SENSITIVITY OF AFTER-TAX ECONOMIC VALUE
AT RISK BY CURRENCY
(millions of Canadian dollars)
October 31, 2013
October 31, 2012
Currency
Canadian dollar
U.S. dollar1
100 bps
increase
100 bps
decrease
100 bps
increase
100 bps
decrease
$ 9.5
(40.5)
$ (31.0)
$ (1.3) $
(8.1)
(14.5)
(147.3)
$ (9.4) $ (161.8)
$ (70.1)
(10.4)
$ (80.5)
1 EVaR sensitivity has been measured using a 25 bps rate decline for U.S. interest
rates, corresponding to an interest rate environment that is floored at zero percent.
87
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
For the EaR measure (not shown on the graph), a 100 basis point
increase in interest rates on October 31, 2013 would have increased
pre-tax net interest income by $562.0 million (October 31, 2012 –
$225.1 million increase) in the next 12 months. A 100 basis point
decrease in interest rates on October 31, 2013 would have decreased
pre-tax net interest income by $372.5 million (October 31, 2012 –
$187.9 million decrease) in the next 12 months. Over the last year,
the reported EaR exposures have grown due to an increasing portion
of permanent non-rate sensitive deposits being invested in a shorter
term maturity profile. This is consistent with net interest income manage-
ment strategies overseen by ALCO. Reported EaR remains consistent
with the Bank’s risk appetite and within established Board limits.
The following table shows the sensitivity of net interest income (pre-tax)
by currency for those currencies where TD has material exposure.
T A B L E 6 3
SENSITIVITY OF PRE-TAX EARNINGS AT RISK
BY CURRENCY
(millions of Canadian dollars)
October 31, 2013
October 31, 2012
Currency
Canadian dollar
U.S. dollar1
100 bps
increase
100 bps
decrease
100 bps
increase
$ 309.1
252.9
$ 562.0
$ (309.1) $ 171.8
53.3
$ (372.5) $ 225.1
(63.4)
100 bps
decrease
$ (171.8)
(16.1)
$ (187.9)
1 EaR sensitivity has been measured using a 25 bps rate decline for U.S. interest
rates, corresponding to an interest rate environment that is floored at zero percent.
Managing Non-trading Foreign Exchange Risk
Foreign exchange risk refers to losses that could result from changes in
foreign-currency exchange rates. Assets and liabilities that are denomi-
nated in foreign currencies have foreign exchange risk.
We are exposed to non-trading foreign exchange risk from our
investments in foreign operations. When our foreign currency assets are
greater or less than our liabilities in that currency, they create a foreign
currency open position. An adverse change in foreign exchange rates
can impact our reported net interest income and shareholders’ equity,
and also our capital ratios. Our objective is to minimize these impacts.
Minimizing the impact of an adverse foreign exchange rate change
on reported equity will cause some variability in capital ratios, due to
the amount of RWA that are denominated in a foreign currency. If the
Canadian dollar weakens, the Canadian-dollar equivalent of our RWA
in a foreign currency increases, thereby increasing our capital require-
ment. For this reason, the foreign exchange risk arising from the
Bank’s net investments in foreign operations is hedged to the point
where capital ratios change by no more than an acceptable amount
for a given change in foreign exchange rates.
Managing Investment Portfolios
The Bank manages a securities portfolio that is integrated into the
overall asset and liability management process. The securities portfolio
is managed using high quality low risk securities in a manner appropriate
to the attainment of the following goals: (i) to generate a targeted
credit of funds to deposits in excess of lending; (ii) to provide a suffi-
cient margin of liquid assets to meet unanticipated deposit and loan
fluctuations and overall funds management objectives; (iii) to provide
eligible securities to meet collateral requirements and cash management
operations; and (iv) to manage the target interest rate risk profile of
the balance sheet. Strategies for the investment portfolio are managed
based on the interest rate environment, balance sheet mix, actual
and anticipated loan demand, funding opportunities and the overall
interest rate sensitivity of the Bank. The Risk Committee reviews and
approves the Enterprise Investment Policy that sets out limits for
TD’s own portfolio.
WHY MARGINS ON AVERAGE EARNING ASSETS FLUCTUATE
OVER TIME
As explained above, the objective of our approach to asset/liability
management is to lock in margins on fixed-rate loans and deposits as
they are booked. It also offsets the impact of an instantaneous inter-
est-rate shock on the amount of net interest income to be earned over
time as a result of cash flow mismatches and the exercise of embedded
options. Despite this approach, however, the margin on average earn-
ing assets is subject to change over time for the following reasons:
• Margins earned on new and renewing fixed-rate products relative
to the margin previously earned on matured products will affect the
existing portfolio margin.
• The weighted-average margin on average earning assets will shift
as the mix of business changes.
• Changes in the prime Bankers’ Acceptances (BA) basis and the lag
in changing product prices in response to changes in wholesale
rates may have an impact on margins earned.
The general level of interest rates will affect the return we generate
on our modeled maturity profile for core deposits and the investment
profile for our net equity position as it evolves over time. The general
level of interest rates is also a key driver of some modeled option
exposures, and will affect the cost of hedging such exposures.
Our approach tends to moderate the impact of these factors over
time, resulting in a more stable and predictable earnings stream.
We use simulation modeling of net interest income to assess the
level and changes in net interest income to be earned over time under
various interest rate scenarios.
The model also includes the impact of projected product volume
growth, new margin and product mix assumptions.
Operational Risk
Operational risk is the risk of loss resulting from inadequate
or failed internal processes or systems or from human activities
or from external events.
Operating a complex financial institution exposes our businesses
to a broad range of operational risks, including failed transaction
processing and documentation errors, fiduciary and information
breaches, technology failures, business disruption, theft and fraud,
workplace injury and damage to physical assets as a result of internal
or outsourced business activities. The impact can result in significant
financial loss, reputational harm or regulatory censure and penalties.
Operational risk is embedded in all our business activities including
the practices for managing other risks such as credit, market and
liquidity risk. We must mitigate and manage operational risk so that
we can create and sustain shareholder value, successfully execute our
business strategies, operate efficiently and provide reliable, secure and
convenient access to financial services. We maintain a formal enter-
prise-wide operational risk management framework that emphasizes
a strong risk management and internal control culture throughout TD.
Under Basel, we use the Standardized Approach to operational risk
regulatory capital. Work is underway to build upon TD’s operational risk
management framework to meet the requirements of the Advanced
Measurement Approach for operational risk, and to proceed towards
implementation.
88
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
WHO MANAGES OPERATIONAL RISK
Operational Risk Management is an independent function that designs
and maintains TD’s overall operational risk management framework.
This framework sets out the enterprise-wide governance processes,
policies and practices to identify, assess, report, mitigate and control
operational risk. Risk Management ensures that there is appropriate
monitoring and reporting of our operational risk exposures to senior
management through the Operational Risk Oversight Committee, the
ERMC and the Risk Committee of the Board.
We also maintain program groups who oversee specific enterprise
wide operational risk policies that require dedicated mitigation and
control activities. These policies govern the activities of the Corporate
functions responsible for the management and appropriate oversight
over business continuity, supplier risk management, financial crime risk
management, project change management, technology risk manage-
ment, and information security.
The senior management of individual business units is responsible
for the day-to-day management of operational risk following our
established operational risk management policies. Within each busi-
ness segment and corporate area, an independent risk management
function uses the elements of the operational risk management frame-
work according to the nature and scope of the operational risks inher-
ent in the area. The senior executives in each business unit participate
in a Risk Management Committee that oversees operational risk
management issues and initiatives.
Ultimately, every employee has a role to play in managing opera-
tional risk. In addition to policies and procedures guiding employee
activities, training is available to all staff regarding specific types of
operational risks and their role in helping to protect the interests and
assets of TD.
HOW WE MANAGE OPERATIONAL RISK
The Operational Risk Management Framework outlines the internal risk
and control structure to manage operational risk and includes risk appe-
tite, policies, processes as well as limits and governance. The Operational
Risk Management Framework is maintained by Risk Management and
supports alignment with TD’s risk appetite for operational risk. The
framework incorporates sound industry practices and meets regulatory
requirements. Key components of the framework include:
Governance and Policy
Management reporting and organizational structures emphasize
accountability, ownership and effective oversight of each business
unit’s and each corporate area’s operational risk exposures. In addi-
tion, the expectations of the Risk Committee of the Board and senior
management for managing operational risk are set out by enterprise-
wide policies and practices.
Risk and Control Self-Assessment
Internal control is one of the primary lines of defence in safeguarding
our employees, customers, assets and information, and in preventing
and detecting errors and fraud. Annually, management undertakes
comprehensive assessments of key risk exposures and the internal
controls in place to reduce or offset these risks. Senior management
reviews the results of these evaluations to ensure that risk manage-
ment and internal controls are effective, appropriate and compliant
with our policies.
Operational Risk Event Monitoring
In order to reduce our exposure to future loss, it is critical that we
remain aware of and respond to our own and industry operational risks.
Our policies and processes require that operational risk events be iden-
tified, tracked and reported to the appropriate level of management to
ensure that we analyze and manage such risks appropriately and take
suitable corrective and preventative action. We also review, analyze
and benchmark TD against industry operational risk losses that have
occurred at other financial institutions using information acquired
through recognized industry data providers.
Risk Reporting
Risk Management, in partnership with senior management, regularly
monitors risk-related measures and the status of risk throughout the
Bank to report to the senior business management and the Risk
Committee of the Board. Operational risk measures are systematically
tracked, assessed and reported to ensure management accountability
and attention are maintained over current and emerging issues.
Insurance
To provide the Bank with additional protection from loss, Risk
Management actively manages a comprehensive portfolio of business
insurance and other risk mitigating arrangements. The type and level
of insurance coverage is continually assessed to ensure that both our
tolerance for risk and statutory requirements are met. This includes
conducting regular in-depth risk and financial analysis and identifying
opportunities to transfer our risk to third parties where appropriate.
In transferring risk through insurance, the Bank transacts with external
insurers that satisfy the Bank’s minimum financial rating requirements.
Technology and Information
Virtually all aspects of our business and operations use technology and
information to create and support new markets, competitive products
and delivery channels, and other business developments. The key risks
are associated with the operational availability, integrity, confidentiality,
and security of our information, systems and infrastructure. These
risks are actively managed through enterprise-wide technology risk
and information security management programs using industry best
practices and our operational risk management framework. These
programs include robust threat and vulnerability assessments, as well
as security and disciplined change management practices.
Business Continuity Management
During incidents that could disrupt our business and operations, Business
Continuity Management supports the ability of senior management
to continue to manage and operate their businesses, and provide
customers access to products and services. Our robust enterprise-wide
business continuity management program includes formal crisis
management protocols and continuity strategies. All areas of TD are
required to maintain and regularly test business continuity plans designed
to respond to a broad range of potential scenarios.
Supplier Management
A third party supplier/vendor is an entity whose business is to supply a
particular service or commodity. The benefits of leveraging third parties
include access to leading technology, specialized expertise, economies
of scale and operational efficiencies. While these relationships bring
benefits to our businesses and customers, we also need to manage
and minimize any risks related to the activity. We do this through
an enterprise-level third-party risk management program that guides
third-party activities and ensures the level of risk management and
senior management oversight is appropriate to the size, risk and
importance of the third-party arrangement.
Project Management
We have established a disciplined approach to project management
across the enterprise coordinated by our Enterprise Project Management
Office (EPMO). This approach involves senior management governance
and oversight of TD’s project portfolio and leverages leading industry
practices to guide TD’s use of standardized project management meth-
odology, defined project management accountabilities and capabilities,
and project portfolio reporting and management tools to support
successful project delivery.
89
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS Financial Crime
Detecting fraud and other forms of financial crime are very important to
the Bank. To do this we maintain extensive security systems, protocols
and practices to detect and mitigate financial crimes against the Bank.
Model Risk Management
The Bank views Model Risk as the risk of the misspecification or misuse
of models for pricing, risk management, credit scoring and for deter-
mining economic and regulatory capital resulting in adverse conse-
quences such as financial loss or incorrect business and strategic
decisions. The Bank manages this risk in accordance with management
approved model risk policies and supervisory guidance which captures
the entire life cycle of a model starting from proof of concept, devel-
opment, initial and ongoing validation, model implementation, usage
and ongoing performance monitoring. In cases where a model is
deemed obsolete or unsuitable for its originally intended purposes,
it is decommissioned in accordance with the Bank’s model risk policy.
Business segments identify the need for a new model and are respon-
sible for developing and documenting that model according to Bank
policy and regulatory standards. During model development all controls
with respect to code generation, acceptance testing, and usage are
established and documented to a level of detail and comprehensiveness
matching the materiality and complexity of the model. Once models are
implemented, business owners are responsible for ongoing performance
monitoring and usage in accordance with the Bank’s model risk policy
and to ensure there is no inappropriate practices/use.
Risk Management owns and maintains a centralized model inventory
and provides oversight of all models defined in the Bank’s model risk
policy and is responsible for formal model validation and approval of new
models before implementation and existing models on a pre-determined
schedule depending on regulatory requirements and materiality. The
validation process varies in rigour, depending on the model type and use
but generally includes:
• Assessment of the conceptual soundness of model methodologies
and underlying assumptions;
• Assessment of model risk associated with a model based on
complexity and materiality;
• Assessment of model sensitivity to model assumptions and changes
in data inputs including stress testing;
• Identification of limitations, proposal of model risk mitigation
mechanisms, and in the case of ongoing validation, assurance that
model performance and limitations are adequately monitored; and
• Regular oversight and periodic model reviews.
When appropriate, initial validation includes a benchmarking exercise
which may include the building of an independent model based on a
similar or alternative validation approach. The results of the benchmark
model are compared to the model being assessed. Comparable
performance further confirms the appropriateness of the model’s
methodology and its implementation.
At the conclusion of the validation process, a model will either be
approved for use, or should a model fail validation, require redevelop-
ment or other courses of action. Models identified as obsolete, or no
longer appropriate for use through changes in industry practices, the
business environment, or Bank strategies are subject to decommission-
ing. Model decommissioning responsibilities are shared between busi-
ness owners and Risk Management. To effectively mitigate model risk
in this phase, implementation of Risk Management approved interim
risk mitigation mechanisms is required before the model can be
decommissioned or replaced.
Insurance Risk
Insurance risk is the risk of financial loss due to actual experience
emerging differently from expectations in insurance product pricing
or reserving. Unfavourable experience could emerge due to adverse
fluctuations in timing, actual size and/or frequency of claims
(for example, catastrophic risk), mortality, morbidity, longevity,
policyholder behaviour, or associated expenses.
Insurance contracts provide financial protection by transferring
insured risks to the issuer in exchange for premiums. We are exposed
to insurance risk in our property and casualty insurance business, life
and health insurance business and reinsurance business.
WHO MANAGES INSURANCE RISK
Senior management within the insurance business units has primary
responsibility for managing insurance risk with oversight by the Chief
Risk Officer for Insurance who reports into Risk Management. The
Audit Committee of the Board acts as the Audit and Conduct Review
Committee for the Canadian Insurance company subsidiaries. The
Insurance company subsidiaries also have their own Boards of Directors,
as well as independent external appointed actuaries who provide
additional risk management oversight.
HOW WE MANAGE INSURANCE RISK
The Bank’s risk governance practices ensure strong independent
oversight and control of risk within the Insurance business. The Risk
Committee for the Insurance business provides critical oversight of
the risk management activities within the business. The Insurance Risk
Management Framework outlines the internal risk and control struc-
ture to manage insurance risk and includes risk appetite, policies,
processes as well as limits and governance. The Insurance Risk
Management Framework is maintained by Risk Management and
supports alignment with TD’s risk appetite for insurance risk.
The assessment of reserves for claim liabilities is central to the insur-
ance operation. TD engages in establishing reserves to cover estimated
future payments (including loss adjustment expenses) on all claims
arising from insurance contracts underwritten. The reserves cannot be
established with complete certainty, and represent management’s best
estimate for future claim payments. As such, TD regularly monitors
liability estimates against claims experience and adjusts reserves as
appropriate if experience emerges differently than anticipated.
Sound product design is an essential element of managing risk.
TD’s exposure to insurance risk is generally short term in nature as the
principal underwriting risk relates to automobile and home insurance
for individuals.
Insurance market cycles as well as changes in automobile insurance
legislation, the judicial environment, trends in court awards, climate
patterns and the economic environment may impact the performance
of the insurance business. Consistent pricing policies and underwriting
standards are maintained and compliance with such policies is moni-
tored by the Risk Committee for the Insurance business.
Automobile insurance is provincially legislated and as such, policy-
holder benefits may differ between provinces. There is also exposure
to geographic concentration risk associated with personal property
coverage. Exposure to insurance risk concentrations is managed
through established underwriting guidelines, limits, and authorization
levels that govern the acceptance of risk. Concentration risk is also
mitigated through the purchase of reinsurance.
Strategies are in place to manage the risk to our reinsurance busi-
ness. Underwriting risk on business assumed is managed through a
policy that limits exposure to certain types of business and countries.
The vast majority of treaties are annually renewable, which minimizes
long term risk. Pandemic exposure is reviewed and estimated annually.
90
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS Liquidity Risk
Liquidity risk is the risk that TD will be unable to meet a demand for
cash, or fund its obligations, as they come due. Demand for cash can
arise from deposit withdrawals, debt maturities, utilization of commit-
ments to provide credit or liquidity support and/or the need to pledge
additional collateral.
As a financial organization, we must ensure that we have continued
access to sufficient and appropriate funding to cover our financial
obligations as they come due, and to sustain and grow our businesses
under normal and stress conditions. In the event of a funding disruption,
we need to be able to continue operating without the requirement
to sell non-marketable assets and/or significantly altering our business
strategy. The process that ensures adequate access to funding, avail-
ability of liquid assets and/or collateral under both normal and stress
conditions is known as liquidity risk management.
HOW WE MANAGE LIQUIDITY RISK
Our overall liquidity requirement is defined as the amount of liquid
assets we need to hold to cover expected future cash flow requirements,
and prudent reserve against potential cash outflows in the event of a
capital markets disruption or other event that could affect our access to
funding. We do not rely on short-term wholesale funding for purposes
other than funding marketable securities or short-term assets.
To define the amount of liquidity that must be held at all times
for a specified minimum 90-day period, we use a conservative “Severe
Combined Stress” scenario that models potential liquidity requirements
and asset marketability during a crisis that has been triggered in the
markets specifically with respect to a lack of confidence in our ability to
meet obligations as they come due. We also assume loss of access to all
forms of external unsecured funding during the 90-day survival period.
In addition to this bank-specific event, the “Severe Combined
Stress” scenario also incorporates the impact of a stressed market-wide
liquidity event that results in a significant reduction in the availability
of both short- and long-term funding for all institutions, a significant
increase in our cost of funds and a significant decrease in the market-
ability of assets. We also calculate “required liquidity” for this scenario
related to the following conditions:
• 100% of all maturing unsecured wholesale and secured funding
coming due;
• Accelerated attrition or “run-off” of personal and commercial
deposit balances;
• Increased utilization of available credit facilities to personal,
commercial and corporate lending customers;
• Increased collateral requirements associated with downgrades in
TD’s credit rating and adverse movement in reference rates for all
derivative contracts; and
• Coverage of maturities related to Bank-sponsored funding programs,
such as the bankers’ acceptances we issue on behalf of clients and
short-term revolving asset-backed commercial paper (ABCP) channels.
TD’S LIQUIDITY RISK APPETITE
Liquidity risk has the potential to place TD in a highly vulnerable
position because, in the event that we cannot (or are perceived as
not being able to) meet our funding commitments and/or require-
ments, we would cease to operate as a going concern. Accordingly,
TD maintains a sound and prudent approach to managing our
potential exposure to liquidity risk, including targeting a 90-day
survival horizon under a combined bank-specific and market-wide
stress scenario, and a 365-day survival horizon under a pro-longed
bank-specific stress scenario that impacts the Bank’s access to unse-
cured wholesale funding. The resultant management strategies and
actions comprise an integrated liquidity risk management program
that ensures low exposure to identified sources of liquidity risk.
LIQUIDITY RISK MANAGEMENT RESPONSIBILITY
ALCO oversee our liquidity risk management program. It ensures there
is an effective management structure in place to properly measure and
manage liquidity risk. The Global Liquidity Forum (GLF), a subcommittee
of the ALCO, comprised of senior management from TBSM, Risk
Management, Finance, and Wholesale Banking, identifies and monitors
our liquidity risks. The GLF recommends actions to the ALCO to maintain
our liquidity positions within limits under normal and stress conditions.
The following treasury areas are responsible for measuring, monitoring
and managing liquidity risks for major business segments:
• TBSM is responsible for maintaining the Global Liquidity and Asset
Pledging Policy (GLAP) and associated limits, standards and processes
to ensure that consistent and efficient liquidity management
approaches are applied across all of our operations. TBSM also
manages and reports the combined Canadian Personal and
Commercial Banking (including domestic Wealth businesses);
Corporate segment and Wholesale Banking liquidity positions.
• U.S. TBSM is responsible for managing the liquidity position for
U.S. Personal and Commercial Banking operations.
• Other regional treasury-related operations, including those within
our insurance, foreign branches and/or subsidiaries are responsible
for managing their liquidity risk and positions.
• Management overseeing liquidity at the regional level policies and
liquidity risk management programs that are consistent with the
GLAP and are necessary to address local business conditions and/or
regulatory requirements.
• GLAP and regional policies are subject to review by the GLF and
approval by the ALCO.
• The Risk Committee of the Board frequently reviews reporting
of our enterprise liquidity position and approves Liquidity Risk
Management Framework and Board Policies annually.
91
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS TD’s liquidity policy stipulates that we must maintain sufficient “available
liquidity” to cover “required liquidity” at all times throughout the
“Severe Combined Stress” scenario. The liquid assets we include as
“available liquidity” must be currently marketable, of sufficient credit
quality and available-for-sale and/or pledging to be considered readily
convertible into cash over the 90-day survival horizon. Liquid assets
that we consider when determining the Bank’s “available liquidity”
are summarized in the following table, which does not include assets
held within TD’s insurance businesses as these assets are dedicated to
cover insurance liabilities and are not considered available to meet the
Bank’s general liquidity requirements:
T A B L E 6 4
SUMMARY OF LIQUID ASSETS BY TYPE AND CURRENCY1, 2
(billions of Canadian dollars, except as noted)
As at
Canadian government obligations
NHA MBS
Provincial government obligations
Corporate issuer obligations
Equities
Other marketable securities and/or loans
Total Canadian dollar-denominated
Cash and due from Banks
U.S. government obligations
U.S. federal agency obligations, including U.S.
federal agency mortgage-backed obligations
Other sovereign obligations
Corporate issuer obligations
Equities
Other marketable securities and/or loans
Total non-Canadian dollar-denominated
Total
Canadian government obligations
NHA MBS
Provincial government obligations
Corporate issuer obligations
Equities
Other marketable securities and/or loans
Total Canadian dollar-denominated
Cash and due from Banks
U.S. government obligations
U.S. federal agency obligations, including U.S.
federal agency mortgage-backed obligations
Other sovereign obligations
Corporate issuer obligations
Equities
Other marketable securities and/or loans
Total non-Canadian dollar-denominated
Total
Securities
received as
collateral from
securities
financing and
derivative
transactions
Bank-owned
liquid assets
Total liquid assets
Encumbered Unencumbered
liquid assets
liquid assets
October 31, 2013
$ 16.7
42.6
4.3
6.5
20.1
2.8
$ 93.0
20.6
1.7
26.0
27.4
41.7
8.0
6.0
$ 131.4
$ 224.4
$ 17.9
31.3
3.8
5.2
21.7
2.8
$ 82.7
11.4
4.3
30.4
24.7
32.8
3.7
8.1
$ 115.4
$ 198.1
$ 27.3
0.6
5.4
4.0
3.0
0.2
$ 40.5
–
28.6
4.9
23.8
2.6
1.7
5.5
$ 67.1
$ 107.6
$ 25.1
1.3
4.0
3.1
4.1
0.1
$ 37.7
–
24.2
2.7
24.8
2.6
1.8
9.3
$ 65.4
$ 103.1
$ 44.0
43.2
9.7
10.5
23.1
3.0
$ 133.5
20.6
30.3
30.9
51.2
44.3
9.7
11.5
$ 198.5
$ 332.0
$ 43.0
32.6
7.8
8.3
25.8
2.9
$ 120.4
11.4
28.5
33.1
49.5
35.4
5.5
17.4
$ 180.8
$ 301.2
13%
13
3
3
7
1
40%
6
9
9
16
13
3
4
60%
100%
14%
11
3
3
9
1
41%
3
9
11
16
12
2
6
59%
100%
$ 25.3
7.9
5.9
0.6
4.8
0.3
$ 44.8
0.5
28.6
7.7
3.1
5.1
0.8
5.8
$ 51.6
$ 96.4
$ 18.7
35.3
3.8
9.9
18.3
2.7
$ 88.7
20.1
1.7
23.2
48.1
39.2
8.9
5.7
$ 146.9
$ 235.6
October 31, 2012
$ 23.9
6.3
4.1
0.8
4.3
–
$ 39.4
–
26.3
7.1
1.8
2.9
1.1
10.3
$ 49.5
$ 88.9
$ 19.1
26.3
3.7
7.5
21.5
2.9
$ 81.0
11.4
2.2
26.0
47.7
32.5
4.4
7.1
$ 131.3
$ 212.3
1 Positions stated include gross asset values pertaining to secured borrowing/lending
2 Liquid assets include collateral received that can be rehypothecated
and reverse-repurchase/repurchase transactions.
or otherwise redeployed.
Liquid assets are held in The Toronto-Dominion Bank and multiple
domestic and foreign subsidiaries and branches and are summarized
in the table below:
T A B L E 6 5
SUMMARY OF UNENCUMBERED LIQUID ASSETS BY BANK, SUBSIDIARIES, AND BRANCHES
(billions of Canadian dollars)
The Toronto-Dominion Bank (Parent)
Major bank subsidiaries
Bank foreign branches
Other subsidiaries
Total
92
October 31
2013
$ 57.7
142.9
34.6
0.4
$ 235.6
As at
October 31
2012
$ 56.9
120.2
34.8
0.4
$ 212.3
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
TD’s monthly average liquid assets for the year ended October 31, 2013
are summarized in the table below:
T A B L E 6 6
SUMMARY OF AVERAGE LIQUID ASSETS BY TYPE AND CURRENCY1
(billions of Canadian dollars, except as noted)
Average for the year ended
Canadian government obligations
NHA MBS
Provincial government obligations
Corporate issuer obligations
Equities
Other marketable securities and/or loans
Total Canadian dollar-denominated
Cash and due from Banks
U.S. government obligations
U.S. federal agency obligations, including U.S.
federal agency mortgage-backed obligations
Other sovereign obligations
Corporate issuer obligations
Equities
Other marketable securities and/or loans
Total non-Canadian dollar-denominated
Total
Securities
received as
collateral from
securities
financing and
derivative
transactions2
Bank-owned
liquid assets
Total liquid assets
Encumbered Unencumbered
liquid assets2
liquid assets
October 31, 2013
$ 15.0
39.8
4.0
6.6
21.4
1.6
$ 88.4
19.0
3.0
25.7
25.2
37.0
5.3
7.5
$ 122.7
$ 211.1
$ 28.8
0.5
5.6
3.5
4.0
0.2
$ 42.6
–
28.6
5.2
20.9
2.4
1.8
8.0
$ 66.9
$ 109.5
$ 43.8
40.3
9.6
10.1
25.4
1.8
$ 131.0
19.0
31.6
30.9
46.1
39.4
7.1
15.5
$ 189.6
$ 320.6
14%
12
3
3
8
1
41%
6
10
10
14
12
2
5
59%
100%
$ 23.8
7.8
5.4
0.6
5.3
0.3
$ 43.2
0.1
29.9
7.8
2.5
4.9
1.1
8.2
$ 54.5
$ 97.7
$ 20.0
32.5
4.2
9.5
20.1
1.5
$ 87.8
18.9
1.7
23.1
43.6
34.5
6.0
7.3
$ 135.1
$ 222.9
1 Positions stated include gross asset values pertaining to secured borrowing/lending
2 Liquid assets include collateral received that can be rehypothecated
and reverse-repurchase/repurchase transactions.
or otherwise redeployed.
Average liquid assets held in The Toronto-Dominion Bank and multiple
domestic and foreign subsidiaries and branches are summarized in
following table:
T A B L E 6 7
SUMMARY OF AVERAGE UNENCUMBERED LIQUID ASSETS BY BANK, SUBSIDIARIES, AND BRANCHES
(billions of Canadian dollars)
The Toronto-Dominion Bank (Parent)
Major bank subsidiaries
Bank foreign branches
Other subsidiaries
Total
Average for the year ended
October 31, 2013
$ 60.0
131.0
31.5
0.4
$ 222.9
93
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
Unencumbered liquid assets are represented in a cumulative liquidity
gap framework with adjustments made for estimated market or trading
depth for each asset class, settlement timing and/or other identified
impediments to potential sale or pledging. In addition, the fair market
value of securities will fluctuate based on changes in prevailing interest
rates, credit spreads and/or market demand. Where appropriate, we
apply a downward adjustment to current market value reflective of
expected market conditions and investor requirements during the
“Severe Combined Stress” scenario. Overall, we expect the reduction
in current market value to be relatively low given the underlying high
credit quality and demonstrated liquidity of our liquid asset portfolio.
“Available liquidity” also includes our estimated borrowing capacity
through the Federal Home Loan Bank (FHLB) System in the U.S.
TD has access to the Bank of Canada’s emergency lending assistance
program, Federal Reserve Bank discount window in the U.S. and European
Central Bank standby liquidity facilities. TD does not consider borrowing
capacity at central banks as a source of available liquidity when
assessing liquidity positions.
T A B L E 6 8
CREDIT RATINGS
Ratings agency
Moody’s
S&P
Fitch
DBRS
Short-term
debt rating
P–1
A–1+
F1+
R–1 (high)
October 31, 20131
Senior long-term
debt rating and outlook
Aa1
AA–
AA–
AA
Stable
Stable
Stable
Stable
1 The above ratings are for The Toronto-Dominion Bank legal entity. A more exten-
sive listing, including subsidiaries’ ratings, is available on the Bank’s website at
http://www.td.com/investor/credit.jsp. Credit ratings are not recommendations
to purchase, sell or hold a financial obligation inasmuch as they do not comment
on market price or suitability for a particular investor. Ratings are subject to
revision or withdrawal at any time by the rating organization.
We regularly review the level of increased collateral our trading coun-
terparties would require in the event of a downgrade of TD’s credit
rating. We routinely hold liquid assets to ensure we are able to provide
additional collateral required by trading counterparties in the event of
a one-notch downgrade in our senior long-term credit ratings. Severe
downgrades could have an impact on “required liquidity” by requiring
the Bank to post additional collateral for the benefit of our trading
counterparties. The table below presents the additional collateral
payments that could have been called at the reporting date in the
event of one, two and three-notch downgrades of our credit ratings.
T A B L E 6 9
ADDITIONAL COLLATERAL REQUIREMENTS
FOR RATING DOWNGRADES 1
(billions of Canadian dollars)
Average for the year ended
One-notch downgrade
Two-notch downgrade
Three-notch downgrade
October 31 October 31
2012
2013
$ 0.4
0.7
0.9
$ 0.6
1.5
1.7
1 Comparative amounts have been restated to conform with the presentation
adopted in the current year.
Our surplus liquid-asset position for each business segment is calculated
by deducting “required liquidity” from “available liquidity”. TD does
not consolidate the surplus liquidity of U.S. Personal and Commercial
Banking with the positions of other segments due to investment
restrictions imposed by the U.S. Federal Reserve of funds generated
from deposit taking activities by member financial institutions. Surplus
liquidity domiciled in certain Wealth and Insurance subsidiaries are not
included in the liquidity position calculation for Canadian Personal and
Commercial Banking due to regulatory investment restrictions.
TD also maintains foreign branches in key global centres such as New
York, London and Singapore to support Wholesale Banking activities.
The Parent company routinely provides a guarantee of liquidity support
to all of its foreign branches and consolidated subsidiaries.
The ongoing measurement of business segment liquidity in accordance
with stress scenario related limits ensures there will be sufficient sources
of cash in a liquidity stress event. Additional stress scenarios are also
used to evaluate the potential range of “required liquidity” levels that
the Bank could encounter. We have liquidity contingency funding
plans (CFP) in place for each major business segment and local juris-
diction to document liquidity management actions and governance in
relation to stress events. CFP documentation is an integral component
of the Bank’s overall liquidity risk management program.
Credit ratings are important to our borrowing costs and ability to
raise funds. Rating downgrades could potentially result in higher financ-
ing costs and reduce access to capital markets, and could also affect our
ability to enter into routine derivative or hedging transactions.
Credit ratings and outlooks provided by rating agencies reflect their
views and are subject to change from time-to-time, based on a number
of factors including our financial strength, competitive position and
liquidity as well as factors not entirely within our control, including
the methodologies used by rating agencies and conditions affecting
the overall financial services industry.
94
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
In the course of the Bank’s day-to-day operations, securities and other
assets are pledged to obtain funding and participate in clearing and/or
settlement systems. A summary of encumbered and unencumbered
assets is presented below as they are represented on the Bank’s
Consolidated Balance Sheet:
T A B L E 7 0
ON BALANCE SHEET ENCUMBERED AND UNENCUMBERED ASSETS
(billions of Canadian dollars)
Cash and due from banks
Interest-bearing deposits with banks
Securities, trading loans, and other6
Derivatives
Securities purchased under reverse repurchase agreements
Loans, net of allowance for loan losses
Customers’ liability under acceptances
Investment in TD Ameritrade
Goodwill
Other intangibles
Land, buildings, equipment, and other depreciable assets
Current income tax receivable
Deferred tax assets
Other assets
Total
Encumbered1
Unencumbered
$
Pledged as
Collateral2
–
2.0
39.7
–
–
15.1
–
–
–
–
–
–
–
–
$ 56.8
Other3
–
$
1.5
25.6
–
–
55.1
–
–
–
–
–
–
–
–
$ 82.2
$
Available as
Collateral4
–
21.6
139.2
–
–
67.0
–
–
–
–
–
–
–
–
$ 227.8
$
Other5
3.6
3.8
13.3
49.5
64.3
307.7
6.4
5.3
13.3
2.5
4.6
0.6
1.6
19.2
$ 495.7
As at
October 31, 2013
Encumbered
Total Assets as a %
Assets of Total Assets
$
3.6
28.9
217.8
49.5
64.3
444.9
6.4
5.3
13.3
2.5
4.6
0.6
1.6
19.2
$ 862.5
–%
0.4
7.6
–
–
8.1
–
–
–
–
–
–
–
–
16.1%
1 Asset encumbrance has been analysed on an individual asset basis. Where a particular
asset has been encumbered and TD has holdings of the asset both on-balance sheet
and off-balance sheet, it is assumed for the purpose of this disclosure that the
on-balance sheet holding is encumbered ahead of the off-balance sheet holding.
2 Represents assets on the Bank’s Consolidated Balance Sheet that have been posted
externally to support the Bank’s liabilities and day-to-day operations including
securities related to repurchase agreements, securities lending, clearing and
payment systems and assets pledged for derivative transactions. Also includes
assets that have been pledged supporting FHLB activity.
3 Assets on the Bank’s Consolidated Balance Sheet supporting TD Bank funding
activities, assets pledged against securitization liabilities, assets held by consoli-
dated securitization vehicles or in pools for covered bond issuance, and assets
covering short sales.
Refer to Note 29 of the Consolidated Financial Statements “Pledged
Assets and Collateral” discussion for details on financial assets
accepted as collateral that the Bank is permitted to sell or repledge
in the absence of default.
FUNDING
TD has access to a wide variety of short- and long-term unsecured and
secured funding sources including securitization channels that it uses
to meet operational requirements. TD’s funding activities are conducted
in accordance with the GLAP Policy that requires, among other things,
assets be funded to the appropriate term.
Our primary approach to managing funding activities is to maximize
the use of deposits raised through retail and business banking chan-
nels. The following table illustrates the Bank’s large base of personal
and commercial, domestic Wealth and TD Ameritrade sweep deposits
(collectively P&C deposits) that make up over 70% of total funding.
Over 60%of these deposits are insured under various insurance deposit
regimes, including the Canada Deposit Insurance Corporation (CDIC)
and the Federal Deposit Insurance Corporation. The amount of stable
long-term funding provided by demand or non-specific maturity P&C
deposits is determined based on demonstrated balance permanence
under the “Severe Combined Stress” scenario.
4 Assets on the Bank’s Consolidated Balance Sheet that are considered readily
available in their current legal form to generate funding or support collateral
needs. This category includes reported FHLB assets that remain unutilized and
held-to-maturity securities that are available for collateral purposes however
not regularly utilized in practice.
5 Assets on the Bank’s Consolidated Balance Sheet that cannot be used to support
funding or collateral requirements in their current form. This category includes
those assets that are potentially eligible as funding program collateral (for example,
CMHC insured mortgages that can be securitized into NHA MBS).
6 Securities include trading loans, securities, and other, financial assets designated at fair
value through profit or loss, available-for-sale securities and held-to-maturity securities.
T A B L E 7 1
SUMMARY OF DEPOSIT FUNDING1
(billions of Canadian dollars)
2013
2012
P&C deposits – Canadian P&C
(including domestic Wealth businesses)
P&C deposits – U.S. P&C
Other deposits
Total
$ 260.5
200.0
2.2
$ 462.7
$ 247.9
172.4
2.6
$ 422.9
1 Comparative amounts have been restated to conform with the presentation
adopted in the current year.
95
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
The Bank maintains an active external funding program to provide
access to diversified funding sources, including asset securitization,
covered bonds and unsecured wholesale debt. Our wholesale funding
is diversified geographically, by currency and by distribution network.
The Bank maintains depositor concentration limits against short-term
wholesale deposits in effort not to excessively depend on one or small
groups of depositors for funding. The Bank further limits short-term
wholesale funding that can mature in a given time period in effort
to mitigate exposures to refinancing risk and asset liquidity risk during
a stress event. Responsibility for our funding activities is as follows:
• TBSM is responsible for meeting all TD long-term funding needs
related to mortgage or loan growth, corporate investments and
subsidiary capital requirements.
• Wholesale Banking is responsible for meeting short-term funding
and liquidity requirements relating to Wholesale Banking activities.
• ALCO reviews new external funding programs and strategies in
conjunction with its regular review of TD’s funding plan.
The Bank continues to explore all opportunities to access lower-cost
funding on a sustainable basis. Some liabilities are not considered
wholesale funding as they may be raised primarily for capital manage-
ment purposes (for example, subordinated debt) or to facilitate client
business (for example, deposits with the Bank). The following table
represents the various sources of funding obtained as at October 31,
2013 and October 31, 2012, respectively:
T A B L E 7 2
WHOLESALE FUNDING
(millions of Canadian dollars)
Certificates of Deposit
Commercial Paper
Bearer Deposit Note
Senior Unsecured Medium Term Notes
Covered Bonds
NHA MBS
Term Asset Backed Securities
Total
Of which:
Secured
Unsecured
Total
Less than
1 month months months
3 to 6 6 months Over 1 to
2 years
to 1 year
1 to 3
As at
October 31 October 31
2012
2013
Over
2 years
Total
Total
52 $
$ 14,940 $ 16,182 $ 18,248 $ 6,717 $
– $ 56,139 $ 42,616
5,289
–
2,494
–
23,290 17,832
14,588
10,442 10,012
6,273
47,552 51,214
25,985
1,535
1,000
$ 23,075 $ 21,967 $ 24,092 $ 19,241 $ 13,683 $ 47,846 $ 149,904 $ 130,992
–
–
6,103
2,084
5,444
–
291
614
1,296
2,085
7,936
302
2,829
54
–
–
2,902
–
4,147
388
1,303
–
1,937
360
925
1,571
–
–
3,348
–
8,192
2,627
1,662
$ 2,297 $ 2,902 $ 3,348 $ 10,323 $ 7,528 $ 33,258 $ 59,656 $ 62,761
20,778
90,248 68,231
$ 23,075 $ 21,967 $ 24,092 $ 19,241 $ 13,683 $ 47,846 $ 149,904 $ 130,992
14,588
20,744
19,065
8,918
6,155
We use residential real estate-secured securitization programs as a
primary source of funding. Excluding Wholesale Banking mortgage
aggregation business, our total 2013 mortgage-backed securities issuance
was $6.3 billion (2012 – $6.7 billion), and other real-estate secured
issuance using asset-backed securities was $1.0 billion (2012 – nil).
We continued to expand our long-term funding base by issuing
$13.4 billion of unsecured medium-term notes (2012 – $2.0 billion)
in various currencies and markets however did not issue covered bonds
during the year ended October 31, 2013 (2012 – $3.0 billion).
REGULATORY DEVELOPMENTS CONCERNING LIQUIDITY
In December 2010, the Basel Committee on Banking Supervision
(BCBS) issued a final framework document outlining two new liquidity
standards in addition to supplemental reporting metrics applicable to
all internationally active banks. The document prescribes the Liquidity
Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) as minimum
regulatory standards effective January 1, 2015 and January 1, 2018
respectively. In January 2013, the BCBS released its final rules for the
LCR. BCBS continues to assess NSFR guidelines, with planned imple-
mentation effective 2018. TD continues to evaluate the implications
of these requirements and develop strategies to align its liquidity risk
management framework with the regulatory standards.
MATURITY ANALYSIS OF ASSETS, LIABILITIES AND
OFF-BALANCE SHEET COMMITMENTS
Table 73 summarizes on- and off-balance sheet categories by remaining
contractual maturity. Off-balance sheet commitments include contractual
obligations to make future payments on operating and capital lease
commitments, certain purchase obligations and other liabilities. The
values of credit instruments reported below represent the maximum
amount of additional credit that the Bank could be obligated to extend
should contracts be fully utilized. Since a significant portion of guarantees
and commitments are expected to expire without being drawn upon,
the total of the contractual amounts is not representative of future
liquidity requirements. These contractual obligations have an impact
on TD’s short-term and long-term liquidity and capital resource needs.
The maturity analysis presented does not depict TD’s asset/liability
matching or exposure to interest rate risk. The maturity analysis also
differs from how the Bank evaluates the exposure it may have to
liquidity risk and its associated funding needs. TD ensures that assets
are appropriately funded to protect against borrowing cost volatility
and potential reductions to funding market availability (that is, we do
not fund illiquid long-term assets with short-term maturity borrowings).
TD utilizes stable P&C non-specific maturity deposits (chequing and
savings accounts) and P&C term deposits as the primary source of
long-term funding for the Bank’s non-trading assets. TD also funds the
stable balance of non-specific maturity revolving line of credit balances
with long-term funding sources. We conduct long-term funding activi-
ties based on the projected net growth for non-trading assets after
considering such items as new business volumes, renewals of both
term loans and term deposits, and how customers exercise options to
prepay and pre-redeem. TD targets terms-to-maturity for new funding
to match as closely as possible the resultant expected maturity profile
of its balance sheet. We also raise shorter-term unsecured wholesale
deposits to fund trading assets based on our internal estimates of
liquidity of these assets under stressed market conditions.
96
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 7 3
REMAINING CONTRACTUAL MATURITY
(millions of Canadian dollars)
As at
October 31, 2013
Less than
1 month
1 to 3
months
3 to 6
months
6 to 9
months
9 months
to 1 year
Over 1 to Over 2 to
5 years
2 years
Over No Specific
5 years Maturity
Total
Assets
Cash and due from banks
Interest-bearing deposits with banks
Trading loans, securities, and other1
Derivatives
Financial assets designated at fair value
through profit or loss
Available-for-sale securities
Held-to-maturity securities
Securities purchased under reverse
repurchase agreements
Loans
Residential mortgages
Consumer instalment and other personal
Credit card
Business and government
Debt securities classified as loans
Total loans
Allowance for loan losses
Loans, net of allowance for loan losses
Customers’ liability under acceptances
Investment in TD Ameritrade
Goodwill2
Other intangibles2
Land, buildings, equipment, and other
depreciable assets2
Current income tax receivable
Deferred tax assets
Other assets
Total assets
Liabilities
Trading deposits
Derivatives
Securitization liabilities at fair value
Other financial liabilities designated
at fair value through profit or loss
Deposits3, 4
Personal
Banks
Business and government
Total deposits
Acceptances
Obligations related to securities sold short1
Obligations related to securities sold under
repurchase agreements
Securitization liabilities at amortized cost
Provisions
Current income tax payable
Deferred tax liabilities
Other liabilities
Subordinated notes and debentures
Liability for preferred shares
Liability for capital trust securities
Equity
Total liabilities and equity
Off-balance sheet commitments
Purchase obligations
Operating lease commitments
Network service agreements
Automated teller machines
Contact center technology
Software licensing and
equipment maintenance
Credit and liquidity commitments
Financial and performance
standby letters of credit
$
3,581 $
– $
– $
– $
– $
22,811
2,087
5,658
180
3,470
293
402
4,113
2,588
636
4,284
831
350
2,844
1,887
539
4,373
862
214
2,919
1,543
138
3,185
1,379
– $
–
7,089
6,801
– $
–
– $
–
18,528 12,016
14,832 14,773
– $
4,940
3,581
28,855
49,147 101,928
49,461
–
911
1,097
548
739
1,851
412
2,132
5,873
2,825
527
693
22,725 34,033
11,804 12,386
175
1,835
–
6,532
79,541
29,961
33,159
16,337
7,290
5,171
2,013
260
53
–
–
64,283
1,194
1,014
–
17,832
–
20,040
–
20,040
4,927
–
–
–
1,842
1,376
–
3,886
–
7,104
–
7,104
1,381
–
–
–
4,552
2,147
–
3,340
635
10,674
–
10,674
91
–
–
–
7,725
2,375
–
4,382
41
14,523
–
14,523
–
–
–
–
6,219
2,700
–
3,090
–
12,009
–
12,009
–
–
–
–
893
28,099
–
31,175 108,098 25,015
8,895
10,460
–
–
31,745 32,682
8,059
1,868
307
50,001 168,835 68,460
–
50,001 168,835 68,460
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 185,820
62,126 119,192
22,222
22,222
11,783 116,799
3,744
96,131 447,777
(2,855)
(2,855)
93,276 444,922
6,399
5,300
13,297
2,493
–
5,300
13,297
2,493
–
–
–
10,836
4,635
583
1,588
19,173
$ 107,042 $ 37,976 $ 29,033 $ 27,035 $ 22,499 $ 75,397 $ 238,404 $ 143,483 $ 181,663 $ 862,532
–
–
–
1,100
–
–
–
1,122
4,635
–
1,588
4,977
–
–
–
416
–
583
–
190
–
–
–
300
–
–
–
123
–
–
–
109
$
9,991 $ 14,000 $ 15,056 $ 5,562 $ 1,609 $
5,430
1,896
1,627
2,401
1,938
3,529
2,425
2,619
2,719
2,385
156 $
807 $
412 $
6,868
1,962
13,648 14,816
2,506
4,662
– $ 47,593
49,471
–
21,960
–
2
4
1
1
1
3
–
–
–
12
5,288
9,412
22,931
37,631
4,927
689
8,461
3,056
13,167
24,684
1,381
605
9,116
3,729
4,058
16,903
91
1,481
6,778
255
2,825
9,858
–
156
6,366
37
3,181
9,584
–
777
9,180
14
8,824
18,018
–
2,603
12,666
25
21,844
34,535
–
9,649
27
150 261,744 319,749
20,523
3,968
105 126,269 203,204
282 391,981 543,476
6,399
41,829
–
17,343
–
8,526
27,990
40
6
–
–
13,079
–
–
–
–
682
34,414
1,428
25,592
41
696
134
134
–
321
993
28,913
149
7,982
–
27
–
1,740
51,973
–
$ 101,681 $ 54,065 $ 41,311 $ 22,844 $ 19,426 $ 34,221 $ 81,986 $ 40,095 $ 466,903 $ 862,532
14
15,794
3
–
–
2,874
–
–
–
–
–
–
563
–
321
4,722
–
–
–
51,973
–
3,023
29
–
–
901
7,833
27
1,740
–
73
3,482
3
–
–
1,053
–
–
–
–
4,201
517
23
–
–
3,546
–
–
–
–
775
730
21
–
–
1,209
–
–
–
–
679
578
7
–
–
536
–
–
–
–
$
64 $
2
9
–
6
129 $
4
20
–
193 $
7
28
–
192 $
7
45
–
190 $
7
46
–
732 $
–
78
–
69
6
24
7
32
1,838 $ 2,918 $
–
44
–
19
–
–
–
–
– $
–
–
–
6,256
27
270
–
–
163
Documentary and commercial letters of credit
Commitments to extend credit and liquidity5, 6
Non-consolidated SPE commitments
Commitments to liquidity facilities for ABCP
Pension commitments
Unrecognized net loss from past experience,
different from that assumed, and effects of
changes in assumptions7
$
180
41
11,675
1,007
66
10,806
2,022
36
6,379
2,497
14
3,676
1,485
24
4,056
3,788
3
8,414
5,022
15
40,395
502
1
2,655
–
–
1,410
16,503
200
89,466
–
561
226
237
187
4
765
–
–
1,980
– $
– $
– $
– $
– $
– $
– $
– $
726 $
726
1 Amount has been recorded according to the remaining contractual maturity of the underlying security.
2 For the purposes of this table, non-financial assets have been recorded as having ‘no specific maturity’.
3 As the timing of demand deposits and notice deposits is non-specific and callable by the depositor,
obligations have been included as having ‘no specific maturity’.
4 Includes $10 billion of covered bonds with remaining contractual maturities of $2 billion in ‘9 months
to 1 year’, $2 billion in ‘over 1 to 2 years’ and $6 billion in ‘over 2 to 5 years’.
5 Includes $82 million in commitments to extend credit to private equity investments.
6 Commitments to extend credit exclude personal lines of credit and credit card lines,
which are unconditionally cancellable at the Bank’s discretion at any time.
7 Includes unrecognized unvested plan amendment costs (credits).
97
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 7 3
REMAINING CONTRACTUAL MATURITY (cont’d)
(millions of Canadian dollars)
As at
October 31, 2012
Less than
1 month
1 to 3
months
3 to 6
months
6 to 9
months
9 months
to 1 year
Over 1 to
2 years
Over 2 to
5 years
Over No Specific
Maturity
5 years
Total
Assets
Cash and due from banks
Interest-bearing deposits with banks
Trading loans, securities, and other1
Derivatives
Financial assets designated at fair value
through profit or loss
Available-for-sale securities
Securities purchased under reverse
repurchase agreements
Loans
Residential mortgages
Consumer instalment and other personal
Credit card
Business and government
Debt securities classified as loans
Total loans
Allowance for loan losses
Loans, net of allowance for loan losses
Customers’ liability under acceptances
Investment in TD Ameritrade
Goodwill2
Other intangibles2
Land, buildings, equipment,
and other depreciable assets2
Current income tax receivable
Deferred tax assets
Other assets
Total assets
Liabilities
Trading deposits
Derivatives
Securitization liabilities at fair value
Other financial liabilities designated
at fair value through profit or loss
Deposits3, 4
Personal
Banks
Business and government
Total deposits
Acceptances
Obligations related to securities sold short1
Obligations related to securities sold under
repurchase agreements
Securitization liabilities at amortized cost
Provisions
Current income tax payable
Deferred tax liabilities
Other liabilities
Subordinated notes and debentures
Liability for preferred shares
Liability for capital trust securities
Equity
Total liabilities and equity
Off-balance sheet commitments
Purchase obligations
Operating lease commitments
Network service agreements
Automated teller machines
Contact center technology
Software licensing and
equipment maintenance
Credit and liquidity commitments
Financial and performance
standby letters of credit
Documentary and commercial letters of credit
Commitments to extend credit and liquidity5, 6
Non-consolidated SPE commitments
Commitments to liquidity facilities for ABCP
Pension commitments
Unrecognized net loss from past experience,
different from that assumed, and effects of
changes in assumptions
– $
– $
– $
1 $
$ 3,435 $
12,808
1,942
4,682
1,290
3,147
2,364
41
3,905
772
7,576
284
3,782
2,468
304
2,792
159
5,353
1,744
39
2,444
34
3,915
1,170
– $
–
8,114
5,438
– $
–
16,049
18,280 24,773
– $ 3,436
7,108 21,692
8,239 43,990 94,531
– 60,919
– $
9
207
2,032
1,945
12,376
2,329
485
23,534 42,020
51
6,173
1,897 98,576
25,181
23,964
7,683
4,080
3,898
1
1,998
–
2,393 69,198
4,752
1,320
–
12,932
70
19,074
–
19,074
4,670
–
–
–
2,442
1,026
–
4,384
292
8,144
–
8,144
2,500
–
–
–
5,180
2,021
–
3,753
69
11,023
–
11,023
52
–
–
–
7,371
1,909
–
3,655
50
12,985
–
12,985
1
–
–
–
5,948
2,448
–
3,509
41
11,946
–
11,946
–
–
–
–
517
2,868
24,487
9,253
–
7,385
1,087
98,727 23,265
25,619
–
– 172,172
7,360 66,971 117,927
– 15,358 15,358
24,854 25,155 15,414 101,041
4,994
42,212 149,717 58,648 97,743 411,492
(2,644)
42,212 149,717 58,648 95,099 408,848
7,223
–
–
5,344
– 12,311 12,311
2,217
–
–
5,344
–
–
–
–
–
–
–
–
(2,644)
2,217
–
–
–
–
–
–
–
7,117
4,402
439
883
6,028 14,914
$ 82,855 $ 50,171 $ 28,602 $ 26,958 $ 23,812 $ 70,337 $ 212,337 $ 134,311 $ 181,723 $ 811,106
–
–
–
430
–
–
–
137
4,402
–
883
–
–
–
251
–
439
–
170
–
–
–
414
–
–
–
214
–
–
–
153
$ 1,558 $ 12,326 $ 11,846 $ 5,457 $ 6,230 $
2,819
–
2,822
1,215
1,242
3,180
2,184
1,766
5,098
–
6,617
12,997
226 $
610 $
521 $
19,071 25,144
1,525
4,641
– $ 38,774
– 64,997
– 25,324
6
5
2
1
1
2
–
–
–
17
4,732
7,423
17,031
29,186
4,670
676
9,139
3,291
20,688
33,118
2,500
1,042
10,930
71
2,757
13,758
52
490
7,794
30
3,858
11,682
1
453
7,858
31
1,238
9,127
–
1,203
14,512
15
5,831
20,358
–
2,928
12,189
21
16,396
28,606
–
7,874
16
148 224,457 291,759
4,059 14,957
3 113,236 181,038
167 341,752 487,754
7,223
6,255 12,514 33,435
–
–
30,884
98
2
–
–
9,239
–
–
–
–
1,142 38,816
– 26,190
656
167
327
4,230 24,858
– 11,318
26
–
350
2,224
– 49,000 49,000
$ 81,417 $ 63,263 $ 32,197 $ 24,972 $ 24,071 $ 48,410 $ 76,788 $ 50,123 $ 409,865 $ 811,106
–
2,736
27
–
–
680
– 11,168
–
26
–
1,874
–
4,202
1,570
7
–
–
4,456
–
–
–
–
48
3,576
26
–
–
1,482
150
–
–
–
1,443
491
12
–
–
1,284
–
–
–
–
683
2,112
15
–
–
618
–
–
–
–
414
1,368
14
167
–
1,125
–
–
–
–
–
14,239
3
–
–
1,744
550
–
327
$
61 $
2
11
3
58
120 $
3
22
6
175 $
7
33
8
169 $
7
27
8
162 $
7
32
3
681 $
26
147
–
–
123
–
1,703 $ 2,665 $
18
12
9
24
94
–
–
–
–
–
– $ 5,736
52
–
395
–
28
–
–
215
106
68
14,165
1,027
96
10,074
1,828
53
5,238
2,095
38
3,972
1,836
7
3,159
2,575
3
7,757
5,240
14
33,229
1,095
–
2,722
– 15,802
279
–
1,544 81,860
–
566
526
271
270
612
–
–
–
2,245
$
– $
– $
– $
– $
– $
– $
– $
– $ 1,197 $ 1,197
1 Amount has been recorded according to the remaining contractual maturity of the
4 Includes $10 billion of covered bonds with remaining contractual maturities of $2 billion
underlying security.
2 For the purposes of this table, non-financial assets have been recorded as having
‘no specific maturity’.
3 As the timing of demand deposits and notice deposits is non-specific and callable
by the depositor, obligations have been included as having ‘no specific maturity’.
in ‘over 1 to 2 years’ and $8 billion in ‘over 2 to 5 years’.
5 Includes $247 million in commitments to extend credit to private equity investments.
6 Commitments to extend credit exclude personal lines of credit and credit card lines,
which are unconditionally cancellable at the Bank’s discretion at any time.
98
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
Capital Adequacy Risk
Capital adequacy risk is the risk of insufficient capital available in relation
to the amount of capital required to carry out the Bank’s strategy and/or
satisfy regulatory and internal capital adequacy requirements.
Capital is held to protect the viability of the Bank in the event of
unexpected financial losses. Capital represents the loss-absorbing
funding required to provide a cushion to protect depositors and other
creditors from unexpected losses.
Regulators prescribe minimum levels of capital that are referred to
as limits. Managing the capital levels of a financial institution exposes
our Bank to the risk of breaching regulatory capital limits.
WHO MANAGES CAPITAL ADEQUACY RISK
The Board of Directors have the ultimate responsibility for overseeing
adequacy of capital and capital management. The Board of Directors
reviews the adherence to capital limits and targets; reviews and
approves the annual capital plan and the Global Capital Management
Policy. The Risk Committee of the Board oversees management’s
actions to maintain an appropriate ICAAP framework, commensurate
with the Bank’s risk profile. The Chief Risk Officer ensures the Bank’s
ICAAP is effective in meeting capital adequacy requirements.
The ALCO establishes and maintains the Global Capital Management
Policy for effective and prudent management of the Bank’s capital
position and supports maintenance of adequate capital. It oversees
the allocation of capital limits for business segments and reviews
adherence to capital limits and targets.
Enterprise Capital Management is responsible for forecasting and
monitoring compliance with capital limits and targets, on a consolidated
basis. Enterprise Capital Management updates the capital forecast
and makes recommendations to the ALCO regarding capital issuance,
repurchase and redemption. Risk Capital Assessment, within Risk
Management, leads the ICAAP and Enterprise-Wide Stress Testing
(EWST) processes. Business segments are responsible for managing
to allocated capital limits.
HOW WE MANAGE CAPITAL ADEQUACY RISK
Capital resources are managed to ensure the Bank’s capital position
can support business strategies under both current and future business
operating environments. The Bank manages its operations within the
capital constraints defined by both internal and regulatory capital
requirements, ensuring that it meets the higher of these requirements.
Regulatory capital requirements represent minimum capital levels.
The Board of Directors determines capital targets in excess of capital
limits. The purpose of capital targets is to reduce the risk of a breach
of capital limits, due to an unexpected stress event, allowing manage-
ment the opportunity to react to declining capital levels before capital
limits are breached. The ALCO manages the Bank’s capital level above
the Board Capital Target, taking into account normal capital volatility
and strategic requirements. Capital limits and targets are defined in
the Global Capital Management Policy.
The Bank also determines its internal capital requirements through
the ICAAP process using models to measure the risk-based capital
required based on its own tolerance for the risk of unexpected losses.
This risk tolerance is calibrated to the required confidence level so that
the Bank will be able to meet its obligations, even after absorbing
worst case unexpected losses over a one year period, associated with
management’s target debt rating.
In addition, the Bank has a Capital Contingency Plan that is designed
to prepare management to ensure capital adequacy through periods of
Bank specific or systemic market stress. The Capital Contingency Plan
determines the governance and procedures to be followed if the Bank’s
consolidated capital levels are forecast to fall below capital limits or
targets. It outlines potential management actions that may be taken
to prevent such a breach from occurring.
A comprehensive periodic monitoring process is undertaken to
plan and forecast capital requirements. As part of the annual planning
process, business segments are allocated individual capital limits.
Capital usage is monitored and reported to the ALCO.
The Bank assesses the sensitivity of its forecast capital requirements
and new capital formations to various economic conditions through
its EWST process. The impacts of the EWST are applied to the capital
forecast and are considered in the determination of capital targets.
Legal and Regulatory Compliance Risk
Legal and Regulatory Compliance Risk is the risk associated with the
failure to meet the Bank’s legal obligations from legislative, regulatory
or contractual perspectives. This includes risks associated with the fail-
ure to identify, communicate and comply with current and changing,
laws, regulations, rules, self-regulatory organization standards and
codes of conduct.
Financial services is one of the most closely regulated industries,
and the management of a financial services business such as ours is
expected to meet high standards in all business dealings and transac-
tions. As a result, we are exposed to legal and regulatory compliance
risk in virtually all of our activities. Failure to meet regulatory and legal
requirements not only poses a risk of censure or penalty, and may lead
to litigation, but also puts our reputation at risk. Financial penalties,
and other costs associated with legal proceedings, and unfavourable
judicial or regulatory judgments may also adversely affect TD’s business,
results of operations and financial condition.
Regulatory compliance and legal risk differs from other banking risks,
such as credit risk or market risk, in that it is typically not a risk actively
or deliberately assumed by management in expectation of a return.
It occurs as part of the normal course of operating our businesses.
WHO MANAGES LEGAL AND REGULATORY COMPLIANCE RISK
Business segments and corporate areas are responsible for managing
day-to-day legal and regulatory compliance risk, while the Legal,
Compliance, Global Anti-Money Laundering and Regulatory Risk
(including Regulatory Relationships and Government Affairs) groups
assist them by providing advice and oversight.
The Compliance, Global Anti-Money Laundering and Regulatory
Risk groups establish risk-based programs and standards to proactively
manage known and emerging compliance risk. They also provide inde-
pendent oversight and deliver operational control processes to comply
with applicable legislation and regulatory requirements.
In addition, our Regulatory Risk groups also create and facilitate
communication with elected officials and regulators, monitor legisla-
tion and regulations, support business relationships with governments,
coordinate regulatory examinations, facilitate regulatory approvals of
new products, and advance the public policy objectives of TD.
Internal and external Legal counsel also work closely with the busi-
ness segments and corporate functions to identify areas of potential
legal and regulatory compliance risk, and actively manage them to
reduce TD’s exposure.
99
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS HOW WE MANAGE LEGAL AND REGULATORY
COMPLIANCE RISK
Our Code of Conduct and Ethics helps set the “tone at the top” for a
culture of integrity within our organization. The Code stipulates that
every business decision and action on TD’s behalf must be assessed in
light of what is right, legal and fair. The Code is supported by a number
of other policies, training programs and tools, and new employee or
director orientation materials, covering a variety of relevant topics, such
as anti-money laundering, privacy and anti-corruption practices. All
directors, officers and employees are required to attest annually that
they understand the Code and have complied with its provisions.
Business segments and corporate areas manage day-to-day legal
and regulatory compliance risk primarily by implementing appropriate
policies, procedures and controls. The Legal, Compliance, and Global
Anti-Money Laundering groups collectively assist them by:
• Communicating and advising on regulatory and legal requirements
and emerging compliance risks to each business unit as required,
including reviewing and approving new products that raise poten-
tially significant legal or regulatory compliance risks.
• Implementing or assisting with policies, procedures and training.
• Assessing regulatory and legislative requirements and compliance-
related risks using an independent risk-based approach.
• Independently monitoring and testing for adherence to certain
regulatory and legal requirements, as well as the effectiveness of
associated key internal controls.
• Tracking, escalating and reporting significant issues and findings
to senior management and the Board of Directors.
• Liaising with regulators, as appropriate, regarding new or revised
legislation, or regulatory guidance or regulatory examinations.
Our policies and processes also provide for the timely escalation of
potential or actual significant legal or regulatory issues to enable senior
management and the Board of Directors to effectively perform their
management and oversight responsibilities.
While it is not possible to completely eliminate legal risk, the Legal
Department also works closely with business segments and other
corporate areas to identify and manage risk associated with contractual
obligations and plays a gatekeeper function for unacceptable legal risk.
The Legal Department also manages litigation risk within the TD Risk
Appetite Statement.
Reputational Risk
Reputational risk is the potential that stakeholder impressions,
whether true or not, regarding the Bank’s business practices,
actions or inactions, will or may cause a decline in the institution’s
value, brand, liquidity or customer base.
A company’s reputation is a valuable business asset in its own right,
essential to optimizing shareholder value and, as such, is constantly at
risk. Reputational risk can arise as a consequence of any of the organi-
zation’s activities and cannot be managed in isolation from other
forms of risk. All risk categories can have an impact on reputation,
which in turn can impact the brand, earnings and capital.
WHO MANAGES REPUTATIONAL RISK
Ultimate responsibility for managing risks to TD’s reputation lies with
the SET and the executive committees that examine reputational risk
as part of their regular mandate. The enterprise Reputational Risk
Committee is the executive committee with enterprise-wide responsi-
bility for making decisions on reputational risks. The Committee’s
purpose is to ensure that new and existing business activities, transac-
tions, products or sales practices that are referred to it are reviewed at
a sufficiently broad and senior level so that the associated reputational
risk issues are fully considered.
In addition, every employee and representative of our organization
has a responsibility to contribute in a positive way to our reputation.
This means following ethical practices at all times, complying with
applicable policies, legislation and regulations and ensuring our stake-
holder interactions are positive. Reputational risk is most effectively
managed when every individual works continuously to protect and
enhance our reputation.
HOW WE MANAGE REPUTATIONAL RISK
Our enterprise-wide Reputational Risk Management Policy is approved
by the Risk Committee of the Board. This policy sets out the framework
under which each business unit is required to implement a reputational
risk policy and procedures. These include designating a business-level
committee to review reputational risk issues and to identify issues to be
brought to the enterprise Reputational Risk Committee.
We also have an enterprise-wide New Business and Product Approval
Policy with defined and documented processes to approve new products
and new business. This includes structured transactions in our Wholesale
business. These processes involve committees with representation from
the businesses and control functions, and include consideration of all
aspects of a new product, including reputational risk.
Environmental Risk
Environmental risk is the possibility of loss of strategic, financial, opera-
tional or reputational value resulting from the impact of environmental
issues or concerns within the scope of short-term and long-term cycles.
Management of environmental risk is an enterprise-wide priority.
Key environmental risks include: 1) direct risks associated with the
ownership and operation of our business, which includes management
and operation of company-owned or managed real estate, fleet, busi-
ness operations and associated services; 2) indirect risks associated
with the environmental performance or environmental events such
as changing climate patterns that may impact our retail customers
and of clients to whom TD provides financing or in which TD invests;
3) identification and management of emerging environmental regula-
tory issues; and 4) failure to understand and appropriately leverage
environment-related trends to meet customer and consumer demands
for products and services.
100
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS TD Ameritrade
HOW RISK IS MANAGED AT TD AMERITRADE
TD Ameritrade’s management is primarily responsible for managing
risk at TD Ameritrade under the oversight of TD Ameritrade’s Board,
particularly through its Risk Committee and Audit Committee of the
Board. TD monitors the risk management process at TD Ameritrade
through its participation in TD Ameritrade’s board and management
governance and protocols.
Pursuant to the Stockholders Agreement in relation to the Bank’s
equity investment in TD Ameritrade, the Bank designated five of
12 members of TD Ameritrade’s Board of Directors including the Bank’s
Group President and Chief Executive Officer, its Executive Vice President
of Retail Banking, Products and Services, two independent directors of
TD and a former independent director of TD. TD Ameritrade’s bylaws,
which state that the Chief Executive Officer’s appointment requires
approval of two-thirds of the Board, ensure the selection of TD
Ameritrade’s Chief Executive Officer attains the broad support of the
TD Ameritrade Board which currently would require the approval of at
least one director designated by TD. The Stockholders Agreement
stipulates that the Board committees of TD Ameritrade must include at
least two TD designated directors, subject to TD’s percentage owner-
ship in TD Ameritrade and certain other limited exceptions. Currently,
the directors we designate participate in a number of TD Ameritrade
Board committees, including chairing the Audit Committee and the HR
and Compensation Committee and participating in the Risk Committee
and Corporate Governance Committee.
The terms of the Stockholders Agreement provide for certain infor-
mation sharing rights in favour of TD to the extent TD requires such
information from TD Ameritrade to appropriately manage and evaluate
its investment and to comply with its legal and regulatory obligations.
Accordingly, management processes and protocols are aligned
between TD and TD Ameritrade to coordinate necessary intercompany
information flow. In addition to regular communication at the Chief
Executive Officer level, regular operating reviews with TD Ameritrade
permit TD to examine and discuss TD Ameritrade’s operating results
and key risks. As well, certain functions such as Internal Audit, Finance
and Compliance, have relationship protocols that allow for the sharing
of information on risk and control issues. TD has established a compli-
ance committee, pursuant to a U.S. federal supervisory letter, which
provides a holistic overview of key compliance issues and develop-
ments across all TD businesses in the U.S. including TD Ameritrade.
Risk issues are reported up to TD’s Risk Committee as required.
WHO MANAGES ENVIRONMENTAL RISK
The Executive Vice President Community, Environment and Chief
Marketing Officer holds senior executive accountability for environ-
mental management. The Executive Vice President is supported by
the Chief Environment Officer who leads the Corporate Environmental
Affairs team. The Corporate Environmental Affairs team is responsible
for developing environmental strategy, setting environmental perfor-
mance standards and targets, and reporting on performance. There
is also an enterprise-wide Environmental Steering Committee (ESC)
composed of senior executives from TD’s main business segments and
corporate functions. The ESC is responsible for approving environmen-
tal strategy and performance standards, and communicating these
throughout the business. TD’s business segments are responsible for
implementing the environmental strategy and managing associated
risks within their units.
HOW WE MANAGE ENVIRONMENTAL RISK
We manage environmental risks within the Environmental Management
System (EMS) which consists of three components: an Environmental
Policy, an Environmental Management Framework and Environmental
Procedures and Processes. Our EMS is consistent with the ISO 14001
international standard, which represents industry best practice.
Our Environmental Policy reflects the global scope of TD’s
environmental activities.
Within our Environmental Management Framework, we have identi-
fied a number of priority areas and have made voluntary commitments
relating to these.
Our environmental performance is publicly reported within our annual
Corporate Responsibility Report. Performance is reported according to the
Global Reporting Initiative (GRI) and is independently assured.
TD’s global operations maintained carbon neutral status in 2013.
We continued to make progress in meeting our voluntary environmental
commitments to 1) reduce our carbon emissions by 1 tonne/employee by
2015; and 2) reduce our North American paper usage by 20% by 2015
(relative to a 2010 baseline).
During 2013, TD applied our Environmental and Social Credit Risk
Management Procedures to credit and lending in the wholesale,
commercial and retail businesses. These procedures include assessment
of our clients’ policies, procedures and performance on material envi-
ronmental and related social issues, such as climate risk, biodiversity,
water risk, stakeholder engagement and free, prior and informed
consent of Aboriginal peoples. Within Wholesale Banking, sector-
specific guidelines have been developed for environmentally-sensitive
sectors. TD has been a signatory to the Equator Principles since 2007
and reports on Equator Principle projects within our annual Corporate
Responsibility Report.
TDAM is a signatory to the United Nations Principles for Responsible
Investment (UNPRI). Under the UNPRI, investors commit to incorporate
environmental and social issues into investment analysis and decision-
making. TDAM applies its Sustainable Investing Policy across its opera-
tions. The Policy provides information on how TDAM is implementing
the UNPRI.
We proactively monitor and assess policy and legislative developments,
and maintain an ‘open door’ approach with environmental and
community organizations, industry associations and responsible
investment organizations.
For more information on our environmental policy, management and
performance, please refer to our Corporate Responsibility Report, which
is available at our website: http://www.td.com/corporateresponsibility/.
101
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS ACCOUNTING STANDARDS AND POLICIES
Critical Accounting Estimates
The Bank’s accounting policies are essential to understanding its results
of operations and financial condition. A summary of the Bank’s significant
accounting policies and estimates are presented in the Notes to the
Consolidated Financial Statements. Some of the Bank’s policies require
subjective, complex judgments and estimates as they relate to matters
that are inherently uncertain. Changes in these judgments or estimates
could have a significant impact on the Bank’s Consolidated Financial
Statements. The Bank has established procedures to ensure that account-
ing policies are applied consistently and that the processes for changing
methodologies are well controlled and occur in an appropriate and
systematic manner. In addition, the Bank’s critical accounting policies are
reviewed with the Audit Committee on a periodic basis. Critical account-
ing policies that require management’s judgment and estimates include
accounting for impairments of financial assets, the determination of fair
value of financial instruments, accounting for derecognition, the valuation
of goodwill and other intangibles, accounting for employee benefits,
accounting for income taxes, accounting for provisions, accounting for
insurance, and the consolidation of special purpose entities.
ACCOUNTING POLICIES AND ESTIMATES
The Bank’s Consolidated Financial Statements have been prepared in
accordance with IFRS. For details of the Bank’s accounting policies and
significant judgments, estimates and assumptions under IFRS, see
Notes 2 and 3 to the Bank’s Consolidated Financial Statements.
Accounting Judgments, Estimates and Assumptions
The estimates used in the Bank’s accounting policies are essential to
understanding its results of operations and financial condition. Some of
the Bank’s policies require subjective, complex judgments and estimates
as they relate to matters that are inherently uncertain. Changes in these
judgments or estimates could have a significant impact on the Bank’s
Consolidated Financial Statements. The Bank has established procedures
to ensure that accounting policies are applied consistently and that the
processes for changing methodologies for determining estimates are well
controlled and occur in an appropriate and systematic manner.
IMPAIRMENT OF FINANCIAL ASSETS
Available-for-Sale Securities
Impairment losses are recognized on available-for-sale securities, if
there is objective evidence of impairment as a result of one or more
events that have occurred after initial recognition (a ‘loss event’) and
the loss event(s) results in a decrease in the estimated cash flows of the
instrument. The Bank individually reviews these securities at least quar-
terly for the presence of these conditions. For available-for-sale equity
securities, a significant or prolonged decline in fair value below cost is
considered objective evidence of impairment. For available-for-sale
debt securities, a deterioration of credit quality is considered objective
evidence of impairment. Other factors considered in the impairment
assessment include financial position and key financial indicators of the
issuer of the instrument, significant past and continued losses of the
issuer, as well as breaches of contract, including default or delinquency
in interest payments and loan covenant violations.
Held-to-Maturity Securities
Impairment losses are recognized on held-to-maturity securities if there
is objective evidence of impairment as a result of one or more events
that have occurred after initial recognition (a ‘loss event’) and the loss
event(s) results in a decrease in the estimated cash flows of the instru-
ment. The Bank reviews these securities at least quarterly for impair-
ment at the counter-party specific level. If there is no objective evidence
of impairment at the counter-party specific level then the security is
grouped with other held-to-maturity securities with similar credit risk
characteristics and collectively assessed for impairment, which considers
losses incurred but not identified. A deterioration of credit quality is
considered objective evidence of impairment. Other factors considered
in the impairment assessment include the financial position and key
financial indicators of the issuer, significant past and continued losses
of the issuer, as well as breaches of contract, including default or
delinquency in interest payments and loan covenant violations.
Loans
A loan (including a debt security classified as a loan) is considered
impaired when there is objective evidence that there has been a deteri-
oration of credit quality subsequent to the initial recognition of the
loan (a ‘loss event’) to the extent the Bank no longer has reasonable
assurance as to the timely collection of the full amount of principal
and interest. The Bank assesses loans for objective evidence of impair-
ment individually for loans that are individually significant, and collec-
tively for loans that are not individually significant. The allowance for
credit losses represents management’s best estimate of impairment
incurred in the lending portfolios, including any off-balance sheet
exposures, at the balance sheet date. Management exercises judgment
as to the timing of designating a loan as impaired, the amount of the
allowance required, and the amount that will be recovered once the
borrower defaults. Changes in the amount that management expects
to recover would have a direct impact on the provision for credit losses
and may result in a change in the allowance for credit losses.
If there is no objective evidence of impairment for an individual
loan, whether significant or not, the loan is included in a group of
assets with similar credit risk characteristics and collectively assessed
for impairment for losses incurred but not identified. In calculating
the probable range of allowance for incurred but not identified credit
losses, the Bank employs internally developed models that utilize
parameters for probability of default, loss given default and exposure
at default. Management’s judgment is used to determine the point
within the range that is the best estimate of losses, based on an
assessment of business and economic conditions, historical loss
experience, loan portfolio composition, and other relevant indicators
that are not fully incorporated into the model calculation. Changes
in these assumptions would have a direct impact on the provision for
incurred but not identified credit losses and may result in a change
in the related allowance for credit losses.
102
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS DETERMINATION OF FAIR VALUE
The fair value of financial instruments traded in active markets at the
balance sheet date is based on their quoted market prices. For all other
financial instruments not traded in an active market, fair value may be
based on other observable current market transactions involving the
same instrument, without modification or repackaging, or is based on
a valuation technique which maximizes the use of observable market
inputs. Observable market inputs may include interest rate yield curves,
foreign exchange rates, and option volatilities. Valuation techniques
include comparisons with similar instruments where observable market
prices exist, discounted cash flow analysis, option pricing models, and
other valuation techniques commonly used by market participants.
For certain complex or illiquid financial instruments, fair value is
determined using valuation techniques in which current market trans-
actions or observable market inputs are not available. Determining
which valuation technique to apply requires judgment. The valuation
techniques themselves also involve some level of estimation and judg-
ment. The judgments include liquidity considerations and model inputs
such as volatilities, correlation, spreads, discount rates, pre-payment
rates, and prices of underlying instruments. Any imprecision in these
estimates can affect the resulting fair value.
The inherent nature of private equity investing is that the Bank’s
valuation will change over time as the underlying investment matures
and an exit strategy is developed and realized. Estimates of fair value
may also fluctuate due to developments in the business underlying the
investment. Such fluctuations may be significant depending on the
nature of the factors going into the valuation methodology and the
extent of change in those factors.
Judgment is also used in recording fair value adjustments to model
valuations to account for measurement uncertainty when valuing complex
and less actively traded financial instruments. If the market for a complex
financial instrument develops, the pricing for this instrument may become
more transparent, resulting in refinement of valuation models.
An analysis of fair values of financial instruments and further details
as to how they are measured are provided in Note 5 to the Bank’s
Consolidated Financial Statements.
DERECOGNITION
Certain assets transferred may qualify for derecognition from the Bank’s
Consolidated Balance Sheet. To qualify for derecognition, certain key
determinations must be made. A decision must be made as to whether
the rights to receive cash flows from the financial assets has been
retained or transferred and the extent to which the risks and rewards
of ownership of the financial asset has been retained or transferred.
If the Bank neither transfers nor retains substantially all of the risks
and rewards of ownership of the financial asset, a decision must be
made as to whether the Bank has retained control of the financial
asset. Upon derecognition, the Bank will record a gain or loss on sale
of those assets which is calculated as the difference between the carry-
ing amount of the asset transferred and the sum of any cash proceeds
received, including any financial asset received or financial liability
assumed, and any cumulative gain or loss allocated to the transferred
asset that had been recognized in other comprehensive income. In
determining the fair value of any financial asset received, the Bank
estimates future cash flows by relying on estimates of the amount
of interest that will be collected on the securitized assets, the yield
to be paid to investors, the portion of the securitized assets that will
be prepaid before their scheduled maturity, expected credit losses,
the cost of servicing the assets and the rate at which to discount these
expected future cash flows. Actual cash flows may differ significantly
from those estimated by the Bank. Retained interests are classified as
trading securities and are initially recognized at relative fair value on
the Bank’s Consolidated Balance Sheet. Subsequently, the fair value of
retained interests recognized by the Bank is determined by estimating
the present value of future expected cash flows using management’s
best estimates of key assumptions including credit losses, prepayment
rates, forward yield curves and discount rates, and commensurate with
the risks involved. Differences between the actual cash flows and the
Bank’s estimate of future cash flows are recognized in income. These
assumptions are subject to periodic review and may change due to
significant changes in the economic environment.
GOODWILL AND OTHER INTANGIBLES
The fair value of the Bank’s cash-generating units (CGUs) is determined
from internally developed valuation models that consider various factors
and assumptions such as forecasted earnings, growth rates, price earn-
ings 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 calcula-
tions could influence the determination of the existence of impairment
and the valuation of goodwill. Management believes that the assump-
tions and estimates used are reasonable and supportable. Where possi-
ble, 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 to adjust net assets
and liabilities by CGU. These models consider various factors including
market risk, credit risk and operational risk, including investment capital
(comprised of goodwill and other intangibles). Any unallocated capital not
directly attributable to the CGUs is held within the Corporate segment.
The Bank’s capital oversight committees provide oversight to the Bank’s
capital allocation methodologies.
EMPLOYEE BENEFITS
The projected benefit obligation and expense related to the Bank’s
pension and non-pension post-retirement benefit plans are determined
using multiple assumptions that may significantly influence the value
of these amounts. Actuarial assumptions including expected long-term
return on plan assets, compensation increases, health care cost trend
rate, mortality rate, and discount rate are management’s best esti-
mates and are reviewed annually with the Bank’s actuaries. The Bank
develops each assumption using relevant historical experience of the
Bank in conjunction with market-related data and considers if the
market-related data indicates there is any prolonged or significant
impact on the assumptions. The discount rate used to measure plan
obligations is based on long-term high quality corporate bond yields
as at October 31. The expected long-term return on plan assets is
based on historical returns and future expectations for returns for each
asset class, as well as the target asset allocation of the fund. The other
assumptions are also long-term estimates. All assumptions are subject
to a degree of uncertainty. Differences between actual experience and
the assumptions, as well as changes in the assumptions resulting from
changes in future expectations, result in increases or decreases in the
pension and non-pension post-retirement benefit plans obligations
and expenses in future years.
103
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS INCOME TAXES
The Bank is subject to taxation in numerous jurisdictions. There are
many transactions and calculations in the ordinary course of business
for which the ultimate tax determination is uncertain. The Bank main-
tains provisions for uncertain tax positions that it believes appropriately
reflect the risk of tax positions under discussion, audit, dispute, or
appeal with tax authorities, or which are otherwise considered to
involve uncertainty. These provisions are made using the Bank’s best
estimate of the amount expected to be paid based on an assessment
of all relevant factors, which are reviewed at the end of each reporting
period. However, it is possible that at some future date, an additional
liability could result from audits by the relevant taxing authorities.
Deferred tax assets are recognized only when it is probable that
sufficient taxable profit will be available in future periods against
which deductible temporary differences may be utilized. The amount
of the deferred tax asset recognized and considered realizable could,
however, be reduced if projected income is not achieved due to vari-
ous factors, such as unfavourable business conditions. If projected
income is not expected to be achieved, the Bank would decrease its
deferred tax assets to the amount that it believes can be realized.
The magnitude of the decrease is significantly influenced by the Bank’s
forecast of future profit generation, which determines the extent to
which it will be able to utilize the deferred tax assets.
PROVISIONS
Provisions arise when there is some uncertainty in the timing or
amount of a loss in the future. Provisions are based on the Bank’s best
estimate of all expenditures required to settle its present obligations,
considering all relevant risks and uncertainties, as well as, when mate-
rial, the effect of the time value of money.
Many of the Bank’s provisions relate to various legal actions that the
Bank is involved in during the ordinary course of business. Legal provi-
sions require the involvement of both the Bank’s management and
legal counsel when assessing the probability of a loss and estimating
any monetary impact. Throughout the life of a provision, the Bank’s
management or legal counsel may learn of additional information that
may impact its assessments about the probability of loss or about the
estimates of amounts involved. Changes in these assessments may lead
to changes in the amount recorded for provisions. In addition, the
actual costs of resolving these claims may be substantially higher or
lower than the amounts recognized. The Bank reviews its legal provi-
sions on a case-by-case basis after considering, among other factors,
the progress of each case, the Bank’s experience, the experience of
others in similar cases, and the opinions and views of legal counsel.
Certain of the Bank’s provisions relate to restructuring initiatives
initiated by the Bank to reduce costs in a sustainable manner and
achieve greater operational efficiencies. Restructuring provisions
require management’s best estimate, including forecasts of economic
conditions. Throughout the life of a provision, the Bank may become
aware of additional information that may impact the assessment of
amounts to be incurred. Changes in these assessments may lead to
changes in the amount recorded for provisions.
INSURANCE
The assumptions used in establishing the Bank’s insurance claims and
policy benefit liabilities are based on best estimates of possible outcomes.
For property and casualty insurance, the ultimate cost of claims
liabilities is estimated using a range of standard actuarial claims
projection techniques in accordance with Canadian accepted actuarial
practices. The main assumption underlying these techniques is that a
company’s past claims development experience can be used to project
future claims development and hence ultimate claims costs. As such,
these methods extrapolate the development of paid and incurred losses,
average costs per claim and claim numbers based on the observed
development of earlier years and expected loss ratios. Additional quali-
tative judgment is used to assess the extent to which past trends may
or may not apply in the future, in order to arrive at the estimated ulti-
mate claims cost that present the most likely outcome.
For life and health insurance, actuarial liabilities consider all future
policy cash flows, including premiums, claims, and expenses required
to administer the policies.
The Bank’s mortality assumptions have been derived from a combi-
nation of its own experience and industry experience. Policyholders
may allow their policies to lapse by choosing not to continue to pay
premiums. The Bank bases its estimates of future lapse rates on previ-
ous experience when available, or industry experience. Estimates of
future policy administration expenses are based on the Bank’s previous
and expected future experience.
CONSOLIDATION OF SPECIAL PURPOSE ENTITIES
Management judgment is required when assessing whether the Bank
should consolidate an entity, particularly complex entities. An example of
such judgment is to determine whether an entity meets the definition of
an SPE, and if so, whether all the relevant facts and circumstances,
when considered together, would indicate that the Bank controls such
an SPE, including an analysis of the Bank’s exposure to the risks and
rewards of the SPE. These judgments are discussed further in Note 2
to the Bank’s Consolidated Financial Statements.
ACCOUNTING STANDARDS AND POLICIES
Current and Future Changes in Accounting Policies
CURRENT CHANGE IN ACCOUNTING POLICIES
The following amendment has been adopted by the Bank.
Presentation of Other Comprehensive Income
Effective November 1, 2012, the Bank adopted the amendments to IAS 1,
Presentation of Financial Statements (IAS 1), issued in June 2011, which
require entities to group items presented in other comprehensive income
on the basis of whether they might be reclassified to the Consolidated
Statement of Income in subsequent periods and items that will not be
reclassified to the Consolidated Statement of Income. The amendments
did not address which items are presented in other comprehensive income
and did not change the option to present items net of tax. The amend-
ments to IAS 1 were applied retrospectively and did not have a material
impact on the financial position, cash flows or earnings of the Bank.
FUTURE CHANGES IN ACCOUNTING POLICIES
The IASB continues to make changes to IFRS to improve the overall
quality of financial reporting. The Bank is actively monitoring all of the
IASB’s projects that are relevant to the Bank’s financial reporting and
accounting policies. Issued standards which are effective for the Bank
in the future are discussed in Note 4 to the Bank’s Consolidated
Financial Statements.
104
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS ACCOUNTING STANDARDS AND POLICIES
Controls and Procedures
DISCLOSURE CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the
participation of the Bank’s management, including the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the Bank’s
disclosure controls and procedures, as defined in the rules of the SEC
and Canadian Securities Administrators, as of October 31, 2013.
Based on that evaluation, the Bank’s management, including the Chief
Executive Officer and Chief Financial Officer, concluded that the Bank’s
disclosure controls and procedures were effective as of October 31, 2013.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING
The Bank’s management is responsible for establishing and maintaining
adequate internal control over financial reporting for the Bank. The
Bank’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records, that,
in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Bank; (2) provide reasonable assur-
ance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with IFRS, and that receipts
and expenditures of the Bank are being made only in accordance with
authorizations of the Bank’s management and directors; and (3) provide
reasonable assurance regarding prevention or timely detection of unau-
thorized acquisition, use or disposition of the Bank’s assets that could
have a material effect on the financial statements.
The Bank’s management has used the criteria established in 1992
Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission to assess, with
the participation of the Chief Executive Officer and Chief Financial
Officer, the effectiveness of the Bank’s internal control over financial
reporting. Based on this assessment management has concluded that
as at October 31, 2013, the Bank’s internal control over financial
reporting was effective based on the applicable criteria. The effective-
ness of the Bank’s internal control over financial reporting has been
audited by the independent auditors, Ernst & Young LLP, a registered
public accounting firm that has also audited the Consolidated Financial
Statements of the Bank as of and for the year ended October 31,
2013. Their Report on Internal Controls under Standards of the Public
Company Accounting Oversight Board (United States), included in the
Consolidated Financial Statements, expresses an unqualified opinion
on the effectiveness of the Bank’s internal control over financial
reporting as of October 31, 2013.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the year and quarter ended October 31, 2013, there have been
no changes in the Bank’s policies and procedures and other processes
that comprise its internal control over financial reporting, that have
materially affected, or are reasonably likely to materially affect, the
Bank’s internal control over financial reporting.
105
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS ADDITIONAL FINANCIAL INFORMATION
Unless otherwise indicated, all amounts are expressed in Canadian
dollars and have been primarily derived from the Bank’s annual
Consolidated Financial Statements, prepared in accordance with
International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB). Note that certain
comparative amounts have been reclassified to conform to the
presentation adopted in the current year.
T A B L E 7 4
LOAN PORTFOLIO – Loans Maturity
(millions of Canadian dollars)
Canada
Residential mortgages
Consumer instalment and other personal
HELOC
Indirect Auto
Other
Credit card
Total personal
Real estate
Residential
Non-residential
Total real estate
Total business and government (including real estate)
Total loans – Canada
United States
Residential mortgages
Consumer instalment and other personal
HELOC
Indirect Auto
Other
Credit card
Total personal
Real estate
Residential
Non-residential
Total real estate
Total business and government (including real estate)
Total loans – United States
Other International
Personal
Business and government
Total loans – Other international
Other loans
Debt securities classified as loans
Acquired credit-impaired loans
Total other loans
Total loans
Under 1 year
1 to 5 years Over 5 years
Total
Remaining term to maturity
October 31, 2013
As at
$ 21,286
$ 139,175
$ 3,928
$ 164,389
46,630
509
12,933
15,288
96,646
5,021
4,962
9,983
40,694
137,340
14,949
9,307
1,507
–
164,938
4,799
1,780
6,579
13,997
178,935
2
4,850
753
–
9,533
3,865
1,411
5,276
9,581
19,114
61,581
14,666
15,193
15,288
271,117
13,685
8,153
21,838
64,272
335,389
246
98
20,601
20,945
7,974
3,368
138
6,900
18,626
833
1,433
2,266
7,830
26,456
1
1,746
1,747
164
12,248
313
–
12,823
1,400
5,884
7,284
24,511
37,334
9
491
500
2,469
707
82
–
23,859
1,237
4,767
6,004
22,659
46,518
–
3
3
10,607
16,323
533
6,900
55,308
3,470
12,084
15,554
55,000
110,308
10
2,240
2,250
676
661
1,337
$ 166,880
1,200
867
2,067
$ 218,836
1,868
957
2,825
$ 68,460
3,744
2,485
6,229
$ 454,176
106
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 7 4
LOAN PORTFOLIO – Loans Maturity (cont’d)
(millions of Canadian dollars)
Canada
Residential mortgages
Consumer instalment and other personal
HELOC
Indirect Auto
Other
Credit card
Total personal
Real estate
Residential
Non-residential
Total real estate
Total business and government (including real estate)
Total loans – Canada
United States
Residential mortgages
Consumer instalment and other personal
HELOC
Indirect Auto
Other
Credit card
Total personal
Real estate
Residential
Non-residential
Total real estate
Total business and government (including real estate)
Total loans – United States
Other International
Personal
Business and government
Total loans – Other international
Other loans
Debt securities classified as loans
Acquired credit-impaired loans
Total other loans
Total loans
Under 1 year
1 to 5 years
Over 5 years
Remaining term to maturity
As at
Total
October 31, 2012
$ 25,530
$ 123,174
$ 5,543
$ 154,247
50,606
2,244
12,239
14,236
104,855
3,840
3,988
7,828
34,759
139,614
13,588
8,683
2,210
–
147,655
5,700
1,965
7,665
14,146
161,801
559
3,038
125
–
9,265
2,937
1,299
4,236
6,892
16,157
64,753
13,965
14,574
14,236
261,775
12,477
7,252
19,729
55,797
317,572
117
35
17,210
17,362
7,304
2,918
81
1,097
11,517
950
2,475
3,425
13,297
24,814
1
2,208
2,209
215
9,747
305
–
10,302
1,106
4,192
5,298
16,047
26,349
10
431
441
2,603
801
104
–
20,718
959
4,164
5,123
17,837
38,555
–
14
14
10,122
13,466
490
1,097
42,537
3,015
10,831
13,846
47,181
89,718
11
2,653
2,664
522
979
1,501
$ 168,138
1,604
1,734
3,338
$ 191,929
2,868
1,054
3,922
$ 58,648
4,994
3,767
8,761
$ 418,715
107
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 7 4
LOAN PORTFOLIO – Loans Maturity (cont’d)
(millions of Canadian dollars)
Canada
Residential mortgages
Consumer instalment and other personal
HELOC
Indirect Auto
Other
Credit card
Total personal
Real estate
Residential
Non-residential
Total real estate
Total business and government (including real estate)
Total loans – Canada
United States
Residential mortgages
Consumer instalment and other personal
HELOC
Indirect Auto
Other
Credit card
Total personal
Real estate
Residential
Non-residential
Total real estate
Total business and government (including real estate)
Total loans – United States
Other International
Personal
Business and government
Total loans – Other international
Other loans
Debt securities classified as loans
Acquired credit-impaired loans
Total other loans
Total loans
Under 1 year
1 to 5 years
Over 5 years
Remaining term to maturity
As at
Total
October 31, 2011
$ 51,358
$ 90,289
$
650
$ 142,297
56,758
2,032
12,524
8,094
130,766
4,607
3,349
7,956
35,360
166,126
8,770
8,311
2,031
–
109,401
4,254
1,384
5,638
10,795
120,196
3
3,264
825
–
4,742
1,877
1,166
3,043
5,565
10,307
65,531
13,607
15,380
8,094
244,909
10,738
5,899
16,637
51,720
296,629
83
32
12,380
12,495
6,473
2,897
115
892
10,460
1,363
1,551
2,914
12,115
22,575
2
2,703
2,705
270
6,477
221
–
7,000
1,090
4,440
5,530
15,846
22,846
10
801
811
2,911
367
113
–
15,771
648
3,452
4,100
13,892
29,663
–
16
16
9,654
9,741
449
892
33,231
3,101
9,443
12,544
41,853
75,084
12
3,520
3,532
1,297
1,891
3,188
$ 194,594
1,443
2,361
3,804
$ 147,657
3,771
1,308
5,079
$ 45,065
6,511
5,560
12,071
$ 387,316
T A B L E 7 5
LOAN PORTFOLIO – Rate Sensitivity
(millions of Canadian dollars)
Fixed Rate
Variable Rate
Total
October 31, 2013
October 31, 2012
October 31, 2011
1 to 5 years Over 5 years
1 to 5 years
Over 5 years
1 to 5 years
Over 5 years
$ 158,435
60,401
$ 218,836
$ 45,395
23,065
$ 68,460
$ 133,730
58,199
$ 191,929
$ 37,781
20,867
$ 58,648
$ 90,753
56,904
$ 147,657
$ 28,301
16,764
$ 45,065
As at
108
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
The change in the Bank’s allowance for credit losses for the years
ended October 31, 2013, October 31, 2012 and October 31, 2011
are shown in the following tables.
T A B L E 7 6
ALLOWANCE FOR CREDIT LOSSES
(millions of Canadian dollars, except as noted)
Allowance for loan losses – Balance at beginning of year
Provision for credit losses
Write-offs
Canada
Residential mortgages
Consumer instalment and other personal
HELOC
Indirect Auto
Other
Credit card
Total personal
Real estate
Residential
Non-residential
Total real estate
Total business and government (including real estate)
Total Canada
United States
Residential mortgages
Consumer instalment and other personal
HELOC
Indirect Auto
Other
Credit card
Total personal
Real estate
Residential
Non-residential
Total real estate
Total business and government (including real estate)
Total United States
Other International
Personal
Business and government
Total other international
Other loans
Debt securities classified as loans
Acquired credit-impaired loans1, 2
Total other loans
Total write-offs against portfolio
Recoveries
Canada
Residential mortgages
Consumer instalment and other personal
HELOC
Indirect Auto
Other
Credit card
Total personal
Real estate
Residential
Non-residential
Total real estate
Total business and government (including real estate)
Total Canada
1 Includes all FDIC covered loans and other ACI loans.
2 Other adjustments are required as a result of the accounting for FDIC covered
loans. For additional information, see “FDIC Covered Loans” section in Note 7
of the Bank’s Consolidated Financial Statements.
2013
$ 2,644
1,631
20
18
160
274
543
1,015
2
3
5
104
1,119
33
65
231
74
56
459
16
59
75
191
650
–
–
–
2012
$ 2,314
1,795
2011
$ 2,309
1,490
18
16
155
310
335
834
3
4
7
108
942
42
101
145
67
50
405
91
84
175
385
790
–
–
–
11
12
155
329
365
872
3
3
6
102
974
30
74
55
69
54
282
113
60
173
373
655
–
–
–
11
38
49
1,818
–
112
112
1,844
48
39
87
1,716
3
2
35
55
101
196
1
1
2
28
$ 224
4
3
20
51
46
124
1
1
2
25
$ 149
4
1
20
48
43
116
–
1
1
27
$ 143
109
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 7 6
ALLOWANCE FOR CREDIT LOSSES (cont’d)
(millions of Canadian dollars, except as noted)
United States
Residential mortgages
Consumer instalment and other personal
HELOC
Indirect Auto
Other
Credit card
Total personal
Real estate
Residential
Non-residential
Total real estate
Total business and government (including real estate)
Total United States
Other International
Personal
Business and government
Total other international
Other loans
Debt securities classified as loans
Acquired credit-impaired loans1, 2
Total other loans
Total recoveries on portfolio
Net write-offs
Disposals
Foreign exchange and other adjustments
Total allowance for credit losses
Less: Allowance for off-balance sheet positions3
Allowance for loan losses – Balance at end of year
Ratio of net write-offs in the period to average loans outstanding
2013
2012
2011
$
17
$
15
$
9
4
64
22
5
112
8
10
18
49
161
–
–
–
6
35
19
5
80
8
13
21
57
137
–
–
–
3
14
20
4
50
9
8
17
71
121
–
–
–
–
9
9
394
(1,424)
(41)
46
2,856
1
$ 2,855
–
1
1
287
(1,557)
–
20
2,572
(72)
$ 2,644
–
–
–
264
(1,452)
–
(28)
2,319
5
$ 2,314
0.33%
0.39%
0.40%
1 Includes all FDIC covered loans and other ACI loans.
2 Other adjustments are required as a result of the accounting for FDIC covered
loans. For additional information, see “FDIC Covered Loans” section in Note 7
of the Bank’s Consolidated Financial Statements.
3 The allowance for credit losses for off-balance sheet instruments is recorded
in Provisions on the Consolidated Balance Sheet.
T A B L E 7 7
AVERAGE DEPOSITS
(millions of Canadian dollars, except as noted)
Deposits booked in Canada1
Non-interest bearing demand deposits
Interest bearing demand deposits
Notice deposits
Term deposits
Total deposits booked in Canada
Deposits booked in the United States
Non-interest bearing demand deposits
Interest bearing demand deposits
Notice deposits
Term deposits
Total deposits booked in the United States
Deposits booked in the other international
Non-interest bearing demand deposits
Interest bearing demand deposits
Notice deposits
Term deposits
Total deposits booked in other international
Total average deposits
October 31, 2013
October 31, 2012
Average
balance
Total
interest
expense
Average
rate paid
Average
balance
Total
interest
expense
Average
rate paid
Average
balance
For the year ended
October 31, 2011
Total
interest
expense
Average
rate paid
$
4,050
35,768
144,463
108,893
293,174
$
–
443
459
1,888
2,790
–% $ 4,218
34,699
127,564
112,516
278,997
1.24
0.32
1.73
0.95
$
–
251
528
2,371
3,150
–% $ 3,622
29,725
113,982
97,131
244,460
0.72
0.41
2.11
1.13
$
–
136
482
2,341
2,959
7,544
897
170,255
70,034
248,730
–
3
1,222
248
1,473
–
0.33
0.72
0.35
0.59
5,742
504
149,300
58,299
213,845
–
1
1,243
256
1,500
–
0.20
0.83
0.44
0.70
3,923
59
130,038
52,826
186,846
–
–
1,180
236
1,416
10
2,757
28
9,435
12,230
$ 554,134
–
6
–
41
47
$ 4,310
–
–
2,802
0.22
26
–
7,912
0.43
0.38
10,740
0.78% $ 503,582
–
12
–
8
20
$ 4,670
–
–
2,310
0.43
31
–
8,847
0.10
0.19
11,188
0.93% $ 442,494
–
7
–
84
91
$ 4,466
–%
0.46
0.42
2.41
1.21
–
–
0.91
0.45
0.76
–
0.30
–
0.95
0.81
1.01%
1 As at October 31, 2013, deposits by foreign depositors in our Canadian bank offices
amounted to $7 billion (October 31, 2012 – $7 billion, October 31, 2011 – $3 billion).
110
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 7 8
DEPOSITS – Denominations of $100,000 or greater 1
(millions of Canadian dollars)
Canada
United States
Other international
Total
Canada
United States
Other international
Total
Canada
United States
Other international
Total
Within 3
months
3 months to
6 months
6 months to
12 months
Over 12
months
Remaining term to maturity
As at
Total
$ 25,229
41,589
11,141
$ 77,959
$ 32,421
27,605
8,907
$ 68,933
$ 19,970
33,264
5,321
$ 58,555
$ 5,196
15,634
4,504
$ 25,334
$ 4,885
13,537
127
$ 18,549
$ 5,339
7,998
371
$ 13,708
$ 8,695
7,974
77
$ 16,746
$ 8,524
12,876
17
$ 21,417
$ 7,989
6,524
17
$ 14,530
October 31, 2013
$ 34,281
1,684
18
$ 35,983
$ 73,401
66,881
15,740
$ 156,022
October 31, 2012
$ 26,869
1,741
–
$ 28,610
$ 72,699
55,759
9,051
$ 137,509
October 31, 2011
$ 28,737
2,028
33
$ 30,798
$ 62,035
49,814
5,742
$ 117,591
1 Deposits in Canada, U.S. and Other international include wholesale and retail deposits.
T A B L E 7 9
SHORT-TERM BORROWINGS
(millions of Canadian dollars, except as noted)
Obligations related to securities sold under repurchase agreements
Balance at year-end
Average balance during the year
Maximum month-end balance
Weighted-average rate at October 31
Weighted-average rate during the year
October 31
2013
October 31
2012
$ 34,414
46,234
$ 42,726
$ 38,816
42,578
$ 40,349
As at
October 31
2011
$ 25,991
32,603
$ 30,037
0.43%
0.45%
0.42%
0.58%
0.47%
0.57%
111
TD BANK GROUP ANNUAL REPORT 2013 MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL RESULTS
Consolidated Financial Statements
MANAGEMENT’S RESPONSIBILITY FOR
FINANCIAL INFORMATION
The management of The Toronto-Dominion Bank and its subsidiaries (the
“Bank”) is responsible for the integrity, consistency, objectivity and reliability
of the Consolidated Financial Statements of the Bank and related financial
information as presented. International Financial Reporting Standards as
issued by the International Accounting Standards Board, as well as the
requirements of the Bank Act (Canada) (“Bank Act”) and related regula-
tions have been applied and management has exercised its judgment and
made best estimates where appropriate.
The Bank’s accounting system and related internal controls are designed,
and supporting procedures maintained, to provide reasonable assurance
that financial records are complete and accurate and that assets are safe-
guarded against loss from unauthorized use or disposition. These supporting
procedures include the careful selection and training of qualified staff, the
establishment of organizational structures providing a well-defined division
of responsibilities and accountability for performance, and the communica-
tion of policies and guidelines of business conduct throughout the Bank.
Management has assessed the effectiveness of the Bank’s internal control
over financial reporting as at October 31, 2013 using the framework found
in Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission 1992 Framework.
Based upon this assessment, management has concluded that as at
October 31, 2013, the Bank’s internal control over financial reporting
is effective.
The Bank’s Board of Directors, acting through the Audit Committee
which is composed entirely of independent directors, oversees management’s
responsibilities for financial reporting. The Audit Committee reviews the
Consolidated Financial Statements and recommends them to the Board for
approval. Other responsibilities of the Audit Committee include monitoring
the Bank’s system of internal control over the financial reporting process
and making recommendations to the Board and shareholders regarding the
appointment of the external auditor.
The Bank’s Chief Auditor, who has full and free access to the Audit
Committee, conducts an extensive program of audits. This program
supports the system of internal control and is carried out by a professional
staff of auditors.
The Office of the Superintendent of Financial Institutions, Canada, makes
such examination and enquiry into the affairs of the Bank as deemed neces-
sary to ensure that the provisions of the Bank Act, having reference to the
safety of the depositors, are being duly observed and that the Bank is in
sound financial condition.
Ernst & Young LLP, the independent auditors appointed by the share-
holders of the Bank, have audited the effectiveness of the Bank’s internal
control over financial reporting as at October 31, 2013 in addition to audit-
ing the Bank’s Consolidated Financial Statements as of the same date.
Their reports, which expressed an unqualified opinion, can be found on the
following pages of the Consolidated Financial Statements. Ernst & Young
LLP have full and free access to, and meet periodically with, the Audit
Committee to discuss their audit and matters arising there from, such as,
comments they may have on the fairness of financial reporting and the
adequacy of internal controls.
W. Edmund Clark
Group President and
Chief Executive Officer
Toronto, Canada
December 4, 2013
Colleen M. Johnston
Group Head Finance, Sourcing
and Corporate Communications
and Chief Financial Officer
112
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
INDEPENDENT AUDITORS’ REPORTS OF REGISTERED PUBLIC
ACCOUNTING FIRM TO SHAREHOLDERS
Report on Financial Statements
We have audited the accompanying consolidated financial statements of The
Toronto-Dominion Bank, which comprise the Consolidated Balance Sheet as
at October 31, 2013 and 2012, and the Consolidated Statements of Income,
Comprehensive Income, Changes in Equity, and Cash Flows for the years
ended October 31, 2013, 2012, and 2011, and a summary of significant
accounting policies and other explanatory information.
Management’s responsibility for the consolidated
financial statements
Management is responsible for the preparation and fair presentation of
these consolidated financial statements in accordance with International
Financial Reporting Standards as issued by the International Accounting
Standards Board, and for such internal control as management determines
is necessary to enable the preparation of consolidated financial statements
that are free from material misstatement, whether due to fraud or error.
Auditors’ responsibility
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits. We conducted our audits in accordance
with Canadian generally accepted auditing standards and the standards
of the Public Company Accounting Oversight Board (United States). Those
standards require that we comply with ethical requirements and plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about
the amounts and disclosures in the consolidated financial statements.
The procedures selected depend on the auditors’ judgment, including
the assessment of the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error. In making those risk
assessments, the auditors consider internal control relevant to the entity’s
preparation and fair presentation of the consolidated financial statements in
order to design audit procedures that are appropriate in the circumstances.
An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial statements, evaluat-
ing the appropriateness of accounting policies used and the reasonableness
of accounting estimates made by management, as well as evaluating the
overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is
sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of The Toronto-Dominion Bank as
at October 31, 2013 and 2012, and its financial performance and its cash
flows for the years ended October 31, 2013, 2012 and 2011, in accordance
with International Financial Reporting Standards as issued by the Interna-
tional Accounting Standards Board.
Other matter
We have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), The Toronto-Dominion
Bank’s internal control over financial reporting as of October 31, 2013, based
on the criteria established in Internal Control-Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commis-
sion 1992 Framework and our report dated December 4, 2013 expressed an
unqualified opinion on The Toronto-Dominion Bank’s internal control over
financial reporting.
Ernst & Young LLP
Chartered Accountants
Licensed Public Accountants
Toronto, Canada
December 4, 2013
113
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS INDEPENDENT AUDITORS’ REPORT OF REGISTERED PUBLIC
ACCOUNTING FIRM TO SHAREHOLDERS
Report on Internal Control under Standards of the Public Company
Accounting Oversight Board (United States)
We have audited The Toronto-Dominion Bank’s internal control over
financial reporting as of October 31, 2013, based on criteria established
in Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission 1992 Framework
(the COSO criteria). The Toronto-Dominion Bank’s management is respon-
sible for maintaining effective internal control over financial reporting, and
for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Management’s Report on Internal
Control over Financial Reporting contained in the accompanying Manage-
ment’s Discussion and Analysis. Our responsibility is to express an opinion
on The Toronto-Dominion Bank’s internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was main-
tained in all material respects. Our audit included obtaining an understanding
of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effective-
ness of internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with International Financial Reporting Standards
as issued by the International Accounting Standards Board (“IFRS”). A
company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and disposi-
tions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with IFRS, and that receipts and expenditures
of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisi-
tion, use, or disposition of the company’s assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over financial report-
ing may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, The Toronto-Dominion Bank maintained, in all material
respects, effective internal control over financial reporting as of October 31,
2013, based on the COSO criteria.
We also have audited, in accordance with Canadian generally accepted
auditing standards and the standards of the Public Company Accounting
Oversight Board (United States), the Consolidated Balance Sheet of The
Toronto-Dominion Bank as at October 31, 2013 and 2012, and the
Consolidated Statements of Income, Comprehensive Income, Changes
in Equity, and Cash Flows for each of the years in the three-year period
ended October 31, 2013 of The Toronto-Dominion Bank and our report
dated December 4, 2013 expressed an unqualified opinion thereon.
Ernst & Young LLP
Chartered Accountants
Licensed Public Accountants
Toronto, Canada
December 4, 2013
114
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS Consolidated Balance Sheet
(millions of Canadian dollars, except as noted)
ASSETS
Cash and due from banks
Interest-bearing deposits with banks
Trading loans, securities, and other (Notes 5, 6)
Derivatives (Notes 5, 10)
Financial assets designated at fair value through profit or loss (Note 5)
Available-for-sale securities (Notes 5, 6)
Held-to-maturity securities (Note 6)
Securities purchased under reverse repurchase agreements (Note 5)
Loans (Note 7)
Residential mortgages
Consumer instalment and other personal
Credit card
Business and government
Debt securities classified as loans
Allowance for loan losses (Note 7)
Loans, net of allowance for loan losses
Other
Customers’ liability under acceptances
Investment in TD Ameritrade (Note 11)
Goodwill (Note 13)
Other intangibles (Note 13)
Land, buildings, equipment, and other depreciable assets (Note 14)
Current income tax receivable
Deferred tax assets (Note 27)
Other assets (Note 15)
Total assets
LIABILITIES
Trading deposits (Notes 5, 16)
Derivatives (Notes 5, 10)
Securitization liabilities at fair value (Notes 5, 8)
Other financial liabilities designated at fair value through profit or loss (Note 5)
Deposits (Note 16)
Personal
Banks
Business and government
Other
Acceptances
Obligations related to securities sold short (Note 5)
Obligations related to securities sold under repurchase agreements (Note 5)
Securitization liabilities at amortized cost (Note 8)
Provisions (Note 29)
Current income tax payable
Deferred tax liabilities (Note 27)
Other liabilities (Note 17)
Subordinated notes and debentures (Note 18)
Liability for preferred shares (Note 19)
Liability for capital trust securities (Note 20)
Total liabilities
EQUITY
Common shares (millions of shares issued and outstanding: Oct. 31, 2013 – 919.4, Oct. 31, 2012 – 918.2) (Note 21)
Preferred shares (millions of shares issued and outstanding: Oct. 31, 2013 – 135.8, Oct. 31, 2012 – 135.8) (Note 21)
Treasury shares – common (millions of shares held: Oct. 31, 2013 – (1.9), Oct. 31, 2012 – (2.1)) (Note 21)
Treasury shares – preferred (millions of shares held: Oct. 31, 2013 – (0.1), Oct. 31, 2012 – nil) (Note 21)
Contributed surplus
Retained earnings
Accumulated other comprehensive income (loss)
Non-controlling interests in subsidiaries (Note 22)
Total equity
Total liabilities and equity
The accompanying Notes are an integral part of these Consolidated Financial Statements.
October 31
2013
As at
October 31
2012
$
3,581
28,855
32,436
101,928
49,461
6,532
79,541
237,462
29,961
64,283
185,820
119,192
22,222
116,799
3,744
447,777
(2,855)
444,922
6,399
5,300
13,297
2,493
4,635
583
1,588
19,173
53,468
$ 862,532
$ 47,593
49,471
21,960
12
119,036
319,749
20,523
203,204
543,476
6,399
41,829
34,414
25,592
696
134
321
28,913
138,298
7,982
27
1,740
810,559
19,316
3,395
(145)
(2)
170
24,565
3,166
50,465
1,508
51,973
$ 862,532
$
3,436
21,692
25,128
94,531
60,919
6,173
98,576
260,199
–
69,198
172,172
117,927
15,358
101,041
4,994
411,492
(2,644)
408,848
7,223
5,344
12,311
2,217
4,402
439
883
14,914
47,733
$ 811,106
$ 38,774
64,997
25,324
17
129,112
291,759
14,957
181,038
487,754
7,223
33,435
38,816
26,190
656
167
327
24,858
131,672
11,318
26
2,224
762,106
18,691
3,395
(166)
(1)
196
21,763
3,645
47,523
1,477
49,000
$ 811,106
W. Edmund Clark
Group President and
Chief Executive Officer
William E. Bennett
Chair, Audit Committee
115
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
Consolidated Statement of Income
For the years ended October 31
(millions of Canadian dollars, except as noted)
Interest income
Loans
Securities
Interest
Dividends
Deposits with banks
Interest expense
Deposits
Securitization liabilities
Subordinated notes and debentures
Preferred shares and capital trust securities (Notes 19, 20)
Other
Net interest income
Non-interest income
Investment and securities services
Credit fees
Net securities gains (losses) (Note 6)
Trading income (losses) (Note 23)
Service charges
Card services
Insurance revenue (Note 24)
Trust fees
Other income (loss)
Total revenue
Provision for credit losses (Note 7)
Insurance claims and related expenses (Note 24)
Non-interest expenses
Salaries and employee benefits (Note 26)
Occupancy, including depreciation
Equipment, including depreciation
Amortization of other intangibles (Note 13)
Marketing and business development
Brokerage-related fees
Professional and advisory services
Communications
Restructuring (Note 29)
Other
Income before income taxes and equity in net income of an investment in associate
Provision for (recovery of) income taxes (Note 27)
Equity in net income of an investment in associate, net of income taxes (Note 11)
Net income
Preferred dividends
Net income available to common shareholders and non-controlling interests in subsidiaries
Attributable to:
Non-controlling interests in subsidiaries
Common shareholders
Weighted-average number of common shares outstanding (millions) (Note 28)
Basic
Diluted
Earnings per share (dollars) (Note 28)
Basic
Diluted
Dividends per share (dollars)
Certain comparative amounts have been reclassified to conform with the presentation
adopted in the current year.
The accompanying Notes are an integral part of these Consolidated Financial Statements.
2013
2012
2011
$ 18,514
$ 17,951
$ 17,010
2,965
1,048
89
22,616
4,310
927
447
154
700
6,538
16,078
2,831
785
304
(281)
1,863
1,345
3,734
148
455
11,184
27,262
1,631
3,056
7,622
1,456
847
521
685
317
1,010
281
129
2,174
15,042
7,533
1,143
272
6,662
185
3,259
940
88
22,238
4,670
1,026
612
174
730
7,212
15,026
2,621
745
373
(41)
1,775
1,039
3,537
149
322
10,520
25,546
1,795
2,424
7,241
1,374
825
477
668
296
925
282
–
1,910
13,998
7,329
1,092
234
6,471
196
$ 6,477
$ 6,275
2,720
810
369
20,909
4,466
1,235
663
208
676
7,248
13,661
2,624
671
393
(127)
1,602
959
3,345
154
558
10,179
23,840
1,490
2,178
6,729
1,285
801
657
593
320
944
271
–
1,447
13,047
7,125
1,326
246
6,045
180
$ 5,865
$
105
6,372
$
104
6,171
$
104
5,761
918.9
922.5
906.6
914.9
$
6.93
6.91
3.24
$
6.81
6.76
2.89
885.7
902.9
$
6.50
6.43
2.61
116
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
Consolidated Statement of Comprehensive Income
2013
$ 6,662
(493)
(250)
1,892
4
(4)
(737)
668
(1,559)
(479)
$ 6,183
$ 185
5,893
105
2012
$ 6,471
689
(163)
92
–
–
(54)
834
(1,079)
319
$ 6,790
$ 196
6,490
104
2011
$ 6,045
(246)
(122)
(796)
–
–
332
640
(738)
(930)
$ 5,115
$ 180
4,831
104
For the years ended October 31
(millions of Canadian dollars)
Net income
Other comprehensive income (loss), net of income taxes
Change in unrealized gains (losses) on available-for-sale securities1
Reclassification to earnings of net losses (gains) in respect of available-for-sale securities2
Net change in unrealized foreign currency translation gains (losses) on investments in foreign operations
Reclassification to earnings of net losses (gains) on investments in foreign operations3
Reclassification to earnings of net losses (gains) on hedges of investments in foreign operations4
Net foreign currency translation gains (losses) from hedging activities5
Change in net gains (losses) on derivatives designated as cash flow hedges6
Reclassification to earnings of net losses (gains) on cash flow hedges7
Comprehensive income (loss) for the year
Attributable to:
Preferred shareholders
Common shareholders
Non-controlling interests in subsidiaries
1 Net of income tax recovery in 2013 of $264 million (2012 – income tax provision
of $302 million; 2011 – income tax recovery of $35 million).
2 Net of income tax provision in 2013 of $157 million (2012 – income tax provision
of $74 million; 2011 – income tax provision of $31 million).
3 Net of income tax provision in 2013 of nil (2012 – income tax provision of nil;
2011 – income tax provision of nil).
4 Net of income tax provision in 2013 of $1 million (2012 – income tax provision
of nil; 2011 – income tax provision of nil).
5 Net of income tax recovery in 2013 of $264 million (2012 – income tax recovery
of $22 million;
2011 – income tax provision of $118 million).
6 Net of income tax provision in 2013 of $383 million (2012 – income tax provision
of $381 million; 2011 – income tax provision of $322 million).
7 Net of income tax provision in 2013 of $830 million (2012 – income tax provision
of $485 million; 2011 – income tax provision of $304 million).
All items presented in other comprehensive income will be reclassified to the
Consolidated Statement of Income in subsequent periods.
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
117
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
Consolidated Statement of Changes in Equity
For the years ended October 31
(millions of Canadian dollars)
Common shares (Note 21)
Balance at beginning of year
Proceeds from shares issued on exercise of stock options
Shares issued as a result of dividend reinvestment plan
Purchase of shares for cancellation
Proceeds from issuance of new shares
Balance at end of year
Preferred shares (Note 21)
Balance at beginning of year
Balance at end of year
Treasury shares – common (Note 21)
Balance at beginning of year
Purchase of shares
Sale of shares
Balance at end of year
Treasury shares – preferred (Note 21)
Balance at beginning of year
Purchase of shares
Sale of shares
Balance at end of year
Contributed surplus
Balance at beginning of year
Net premium (discount) on sale of treasury shares
Stock options (Note 25)
Other
Balance at end of year
Retained earnings
Balance at beginning of year
Net income attributable to shareholders
Common dividends
Preferred dividends
Net premium on repurchase of common shares
Share issue expenses
Balance at end of year
Accumulated other comprehensive income (loss)
Net unrealized gain (loss) on available-for-sale securities:
Balance at beginning of year
Other comprehensive income (loss)
Balance at end of year
Net unrealized foreign currency translation gain (loss) on investments in foreign
operations, net of hedging activities:
Balance at beginning of year
Other comprehensive income (loss)
Balance at end of year
Net gain (loss) on derivatives designated as cash flow hedges:
Balance at beginning of year
Other comprehensive income (loss)
Balance at end of year
Total
Non-controlling interests in subsidiaries
Balance at beginning of year
Net income attributable to non-controlling interests in subsidiaries
Other
Balance at end of year
Total equity
The accompanying Notes are an integral part of these Consolidated Financial Statements.
2013
2012
2011
$ 18,691
$ 17,491
297
515
(187)
–
19,316
3,395
3,395
(166)
(3,552)
3,573
(145)
(1)
(86)
85
(2)
196
(3)
(25)
2
170
21,763
6,557
(2,977)
(185)
(593)
–
24,565
1,475
(743)
732
(426)
1,155
729
2,596
(891)
1,705
3,166
1,477
105
(74)
1,508
253
947
–
–
18,691
3,395
3,395
(116)
(3,175)
3,125
(166)
–
(77)
76
(1)
212
10
(25)
(1)
196
18,213
6,367
(2,621)
(196)
–
–
21,763
949
526
1,475
(464)
38
(426)
2,841
(245)
2,596
3,645
1,483
104
(110)
1,477
$ 51,973
$ 49,000
$ 15,804
322
661
–
704
17,491
3,395
3,395
(91)
(2,164)
2,139
(116)
(1)
(59)
60
–
235
11
(34)
–
212
14,781
5,941
(2,316)
(180)
–
(13)
18,213
1,317
(368)
949
–
(464)
(464)
2,939
(98)
2,841
3,326
1,493
104
(114)
1,483
$ 44,004
118
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
Consolidated Statement of Cash Flows
For the years ended October 31
(millions of Canadian dollars)
Cash flows from (used in) operating activities
Net income before income taxes
Adjustments to determine net cash flows from (used in) operating activities
Provision for credit losses (Note 7)
Depreciation (Note 14)
Amortization of other intangibles (Note 13)
Net securities losses (gains) (Note 6)
Equity in net income of an investment in associate (Note 11)
Deferred taxes (Note 27)
Changes in operating assets and liabilities
Interest receivable and payable (Notes 15, 17)
Securities sold short
Trading loans and securities
Loans net of securitization and sales
Deposits
Derivatives
Financial assets and liabilities designated at fair value through profit or loss
Securitization liabilities
Other
Income taxes paid
Net cash from (used in) operating activities
Cash flows from (used in) financing activities
Change in securities sold under repurchase agreements
Issue of subordinated notes and debentures (Note 18)
Repayment of subordinated notes and debentures (Note 18)
Repayment or redemption of liability for preferred shares and capital trust securities (Notes 19, 20)
Translation adjustment on subordinated notes and debentures issued in a foreign
currency and other
Common shares issued (Note 21)
Repurchase of common shares (Note 21)
Sale of treasury shares (Note 21)
Purchase of treasury shares (Note 21)
Dividends paid
Distributions to non-controlling interests in subsidiaries
Net cash from (used in) financing activities
Cash flows from (used in) investing activities
Interest-bearing deposits with banks
Activities in available-for-sale securities (Note 6)
Purchases
Proceeds from maturities
Proceeds from sales
Activities in held-to-maturity securities (Note 6)
Purchases
Proceeds from maturities
Activities in debt securities classified as loans
Purchases
Proceeds from maturities
Proceeds from sales
Net purchases of premises, equipment, and other depreciable assets
Securities purchased (sold) under reverse repurchase agreements
Net cash acquired from (paid for) acquisitions (Note 12)
Net cash from (used in) investing activities
Effect of exchange rate changes on cash and due from banks
Net increase (decrease) in cash and due from banks
Cash and due from banks at beginning of year
Cash and due from banks at end of year
Supplementary disclosure of cash flow information
Amount of interest paid during the year
Amount of interest received during the year
Amount of dividends received during the year
Certain comparative amounts have been reclassified to conform with the
presentation adopted in the current year.
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
2013
2012
2011
$ 7,805
$ 7,563
$ 7,371
1,631
518
521
(304)
(272)
(362)
(425)
8,394
(7,397)
(33,820)
64,541
(4,068)
(364)
(3,962)
128
(869)
31,695
(4,402)
–
(3,400)
(483)
64
247
(780)
3,655
(3,638)
(2,647)
(105)
(11,489)
1,795
508
477
(373)
(234)
112
(236)
9,818
(21,178)
(27,836)
47,487
2,208
(1,952)
(2,265)
(2,069)
(1,296)
12,529
12,825
–
(201)
(11)
(24)
206
–
3,211
(3,252)
(1,870)
(104)
10,780
1,490
467
657
(393)
(246)
(147)
(143)
(74)
(9,658)
(31,293)
51,177
788
(2,085)
3,445
(2,647)
(2,076)
16,633
3,800
1,000
(1,694)
(665)
(12)
951
–
2,210
(2,223)
(1,835)
(104)
1,428
(7,163)
(676)
(1,880)
(60,958)
39,468
18,189
(11,836)
2,873
(721)
1,399
1,030
(751)
4,915
(6,543)
(20,098)
37
145
3,436
(64,861)
40,223
20,707
–
–
(213)
1,568
162
(827)
(12,217)
(6,839)
(22,973)
4
340
3,096
$ 3,581
$ 3,436
$ 6,928
21,533
1,018
$ 7,368
21,218
925
(63,658)
25,810
30,997
–
–
(291)
1,235
136
(301)
(6,323)
(3,226)
(17,501)
(38)
522
2,574
$ 3,096
$ 7,397
20,093
806
119
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
Notes to Consolidated Financial Statements
To facilitate a better understanding of the Bank’s Consolidated Financial Statements, significant accounting
policies, and related disclosures, a listing of all the notes is provided below.
NOTE TOPIC
1
2
3
PAGE
121
121
Nature of Operations
Summary of Significant Accounting Policies
Significant Accounting Judgments,
130
Estimates and Assumptions
132
Current and Future Changes in Accounting Policies
134
Fair Value of Financial Instruments
142
Securities
146
Loans, Impaired Loans and Allowance for Credit Losses
149
Transfers of Financial Assets
151
Special Purpose Entities
152
Derivatives
159
Investment in TD Ameritrade Holding Corporation
160
Significant Acquisitions
161
Goodwill and Other Intangibles
Land, Buildings, Equipment and Other Depreciable Assets 163
163
Other Assets
164
Deposits
165
Other Liabilities
165
Subordinated Notes and Debentures
166
Liability for Preferred Shares
166
Capital Trust Securities
167
Share Capital
170
Non-controlling Interests in Subsidiaries
171
Trading-Related Income
171
Insurance
174
Share-Based Compensation
175
Employee Benefits
179
Income Taxes
181
Earnings Per Share
Provisions, Contingent Liabilities, Commitments,
Guarantees, Pledged Assets, and Collateral
Related-Party Transactions
Segmented Information
Interest Rate Risk
Credit Risk
Regulatory Capital
Risk Management
Information on Subsidiaries
Subsequent Events
181
184
185
187
189
193
194
194
195
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
120
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
N O T E 1
NATURE OF OPERATIONS
CORPORATE INFORMATION
The Toronto-Dominion Bank is a bank chartered under the Bank Act.
The shareholders of a bank are not, as shareholders, liable for any
liability, act or default of the bank except as otherwise provided under
the Bank Act. The Toronto-Dominion Bank and its subsidiaries are
collectively known as TD Bank Group (“TD” or the “Bank”). The Bank
was formed through the amalgamation on February 1, 1955 of The
Bank of Toronto (chartered in 1855) and The Dominion Bank (chartered
in 1869). The Bank is incorporated and domiciled in Canada with its
registered and principal business offices located at 66 Wellington Street
West, Toronto, Ontario. TD serves customers in four key segments
operating in a number of locations in key financial centres around the
globe: Canadian Personal and Commercial Banking, Wealth and Insur-
ance, U.S. Personal and Commercial Banking, and Wholesale Banking.
BASIS OF PREPARATION
The accompanying Consolidated Financial Statements and accounting
principles followed by the Bank have been prepared in accordance
with International Financial Reporting Standards (IFRS), as issued by
the International Accounting Standards Board (IASB), including the
accounting requirements of the Office of the Superintendent of
Financial Institutions Canada (OSFI).
The preparation of financial statements requires that management
make estimates, assumptions and judgments regarding the reported
amount of assets, liabilities, revenue and expenses, and disclosure
of contingent assets and liabilities, as further described in Note 3.
Accordingly, actual results may differ from estimated amounts as
future confirming events occur.
The Consolidated Financial Statements of the Bank for the year
ended October 31, 2013 were approved and authorized for issue by
the Bank’s Board of Directors, in accordance with the recommendation
of the Audit Committee, on December 4, 2013.
The Bank’s Consolidated Financial Statements were previously
prepared in accordance with Canadian generally accepted accounting
principles (GAAP). The comparative figures for 2011 were restated to
reflect transitional adjustments to comply with IFRS.
Certain disclosures are included in the shaded sections of the
“Managing Risk” section of the MD&A in this report, as permitted by
IFRS, and form an integral part of the Consolidated Financial Statements.
Certain comparative amounts have been reclassified to conform with
the presentation adopted in the current year. The Consolidated Financial
Statements were prepared under a historical cost basis, except for
certain items carried at fair value as discussed below.
N O T E 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The Consolidated Financial Statements include the assets, liabilities,
results of operations, and cash flows of the Bank and its subsidiaries
including certain special purpose entities (SPEs) which it controls. The
Bank controls entities when it has the power to govern the financial
and operating policies of the entity, generally when the Bank owns,
directly or indirectly, more than half of the voting power of the entity.
The existence and effect of potential voting rights that are currently
exercisable or convertible are considered in assessing whether the Bank
controls an entity. The Bank’s Consolidated Financial Statements have
been prepared using uniform accounting policies for like transactions
and events in similar circumstances. All intercompany transactions,
balances and unrealized gains and losses on transactions are elimi-
nated on consolidation.
Subsidiaries
Subsidiaries are corporations or other legal entities controlled by the
Bank, generally through directly holding more than half of the voting
power of the entity. The existence and effect of potential voting rights
that are currently exercisable or convertible are considered in assessing
whether the Bank controls an entity. Subsidiaries are consolidated
from the date the Bank obtains control and continue to be consoli-
dated until the date when control ceases to exist.
Special Purpose Entities
SPEs are entities that are created to accomplish a narrow and well-
defined objective. SPEs may take the form of a corporation, trust,
partnership or unincorporated entity. SPEs often are created with legal
arrangements that impose limits on the decision-making powers of
their governing board, trustee or management over the operations
of the SPE.
Typically, SPEs may not be controlled directly through holding more
than half of the voting power of the entity. As a result, SPEs are
consolidated when the substance of the relationship between the Bank
and the SPE indicates that the SPE is controlled by the Bank. When
assessing whether the Bank has to consolidate an SPE, the Bank evalu-
ates a range of factors, including whether, in substance:
• The activities of the SPE are being conducted on the Bank’s behalf
according to its specific business needs so that the Bank obtains the
benefits from the SPE’s operations;
• The Bank has the decision-making powers to obtain the majority
of the benefits of the activities of the SPE;
• The Bank has rights to obtain the majority of the benefits of the
SPE and therefore may be exposed to risks arising from the activities
of the SPE; or
• The Bank retains the majority of the residual or ownership risk
related to the SPE or its assets in order to obtain the benefits from
its activities.
Consolidation conclusions need to be reassessed at the end of each
financial reporting period. The Bank’s policy is to consider the impact
on consolidation of all significant changes in circumstances, focusing
on the following:
• Substantive changes in ownership, such as the purchase of more
than an insignificant additional interest, or disposal of more than an
insignificant interest in an entity;
• Changes in contractual or governance arrangements of an entity;
• Additional activities undertaken, such as providing a liquidity facility
beyond the terms established originally, or entering into a transac-
tion that was not originally contemplated; or
• Changes in the financing structure of an entity.
121
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS Investments in Associates and Jointly Controlled Entities
Entities over which the Bank has significant influence are associates
and are accounted for using the equity method of accounting. Signifi-
cant influence is the power to participate in the financial and operating
policy decisions of an investee, but is not control or joint control over
these entities. Investments in associates are carried on the Consoli-
dated Balance Sheet initially at cost and increased or decreased to
recognize the Bank’s share of the profit or loss of the associate, capital
transactions, including the receipt of any dividends, and write-downs
to reflect impairment in the value of such entities. These increases or
decreases, together with any gains and losses realized on disposition,
are reported on the Consolidated Statement of Income. The Bank’s
equity share in TD Ameritrade’s earnings is reported on a one month
lag basis. The Bank takes into account changes in the subsequent
period that would significantly affect the results.
The proportionate consolidation method is used to account for
investments in which the Bank exercises joint control. Only the Bank’s
pro-rata share of assets, liabilities, revenue, and expenses is consolidated.
At each balance sheet date, the Bank assesses whether there is
any objective evidence that the investment in an associate or jointly
controlled entity is impaired. The Bank calculates the amount of
impairment as the difference between the higher of fair value or
value-in-use and its carrying value.
Non-controlling Interests
When the Bank does not own all of the equity of the subsidiary, the
minority shareholders’ interest is presented on the Consolidated
Balance Sheet as non-controlling interests in subsidiaries as a compo-
nent of total equity, separate from the equity of the Bank’s share-
holders. The income attributable to the minority interest holders, net
of tax, is presented as a separate line item on the Consolidated
Statement of Income.
CASH AND DUE FROM BANKS
Cash and due from banks consist of cash and amounts due from banks
which are issued by investment grade financial institutions. These
amounts are due on demand or have an original maturity of three
months or less.
REVENUE RECOGNITION
Revenue is recognized to the extent that it is probable that the
economic benefits will flow to the Bank and the revenue can be reliably
measured. Revenue associated with the rendering of services is recog-
nized by reference to the stage of completion of the transaction at the
end of the reporting period.
Investment and securities services income include asset management
fees, administration and commission fees, and investment banking
fees. Asset management fees and administration and commission fees
include income from investment management and related services,
custody and institutional trust services and brokerage services, which
are recognized as income over the period in which the related service
is rendered. Investment banking fees, including advisory fees, are
recognized as income when earned, and underwriting fees, are recog-
nized as income when the Bank has rendered all services to the issuer
and is entitled to collect the fee.
Credit fees include commissions, liquidity fees, restructuring fees,
and loan syndication fees and are recognized as earned.
Interest from interest-bearing assets and liabilities is recognized as
interest income using the effective interest rate (EIR). EIR is the rate
that discounts expected future cash flows for the expected life of the
financial instrument to its carrying value. The calculation takes into
account the contractual interest rate, along with any fees or incremen-
tal costs that are directly attributable to the instrument and all other
premiums or discounts.
Card services income including interchange income from credit and
debit cards and annual fees, is recognized as earned, except for annual
fees, which are recognized over a 12-month period. Service charges
and trust fee income are recognized as earned.
Revenue recognition policies related to financial instruments and
insurance are described in the accounting policies below.
FINANCIAL INSTRUMENTS OTHER THAN DERIVATIVES
Trading Assets and Trading Liabilities
Financial instruments are included within the trading portfolio if they
have been originated, acquired or incurred principally for the purpose
of selling or repurchasing in the near term, or they form part of a
portfolio of identified financial instruments that are managed together
and for which there is evidence of a recent actual pattern of short-
term profit-taking.
Included within the trading portfolio are trading securities, trading
loans, trading deposits, securitization liabilities at fair value, obligations
related to securities sold short, and physical commodities, as well as
certain financing-type commodities transactions that are recorded on
the Consolidated Balance Sheet as Securities purchased under reverse
repurchase agreements and Obligations related to securities sold under
repurchase agreements, respectively.
Trading portfolio assets and liabilities are recognized on a trade
date basis and are accounted for at fair value, with changes in fair
value as well as any gains or losses realized on disposal recognized in
trading income. Physical commodities are measured at fair value less
costs to sell. Transaction costs are expensed as incurred. Dividends
are recognized on the ex-dividend date and interest is recognized
on an accrual basis using the effective interest rate method (EIRM).
Both dividends and interest are included in interest income or
interest expense.
Designated at Fair Value through Profit or Loss
Certain financial assets and liabilities that do not meet the definition
of trading may be designated at fair value through profit or loss. To
be designated at fair value through profit or loss, financial assets or
liabilities must meet one of the following criteria: (1) the designation
eliminates or significantly reduces a measurement or recognition
inconsistency; (2) a group of financial assets or liabilities, or both, is
managed and its performance is evaluated on a fair value basis in
accordance with a documented risk management or investment strat-
egy; or (3) the instrument contains one or more embedded derivatives
unless: (a) the embedded derivative does not significantly modify the
cash flows that otherwise would be required by the contract; or (b) it is
clear with little or no analysis that separation of the embedded deriva-
tive from the financial instrument is prohibited. In addition, the fair
value through profit or loss designation is available only for those
financial instruments for which a reliable estimate of fair value can be
obtained. Once financial assets and liabilities are designated at fair
value through profit or loss, the designation is irrevocable.
Assets and liabilities designated at fair value through profit or loss
are carried at fair value on the Consolidated Balance Sheet, with
changes in fair value as well as any gains or losses realized on disposal
recognized in other income. Interest is recognized on an accrual basis
using the EIRM and is included in interest income or interest expense.
Available-for-Sale Securities
Financial instruments not classified as trading, designated at fair
value through profit or loss, held-to-maturity or loans, are classified as
available-for-sale and include equity securities and debt securities.
Available-for-sale securities are recognized on a trade date basis
and are carried at fair value on the Consolidated Balance Sheet with
changes in fair value recognized in other comprehensive income.
Gains and losses realized on disposal of instruments classified as
available-for-sale are calculated on an average cost basis and are
recognized in net securities gains (losses) in non-interest income.
Dividends are recognized on the ex-dividend date and interest income
is recognized on an accrual basis using the EIRM. Both dividends and
interest are included in interest income.
122
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS Impairment losses are recognized if there is objective evidence
of impairment as a result of one or more events that have occurred
(a ‘loss event’) and the loss event(s) results in a decrease in the esti-
mated future cash flows of the instrument. A significant or prolonged
decline in fair value below cost is considered objective evidence of
impairment for available-for-sale equity securities. A deterioration in
credit quality is considered objective evidence of impairment for avail-
able-for-sale debt securities. Qualitative factors are also considered
when assessing impairment for available-for-sale securities. When
impairment is identified, the cumulative net loss previously recognized
in other comprehensive income, less any impairment loss previously
recognized on the Consolidated Statement of Income, is removed from
other comprehensive income and recognized in net securities gains
(losses) in non-interest income.
If the fair value of a previously impaired equity security subsequently
increases, the impairment loss is not reversed through the Consolidated
Statement of Income. Subsequent increases in fair value are recog-
nized in other comprehensive income. If the fair value of a previously
impaired debt security subsequently increases and the increase can be
objectively related to an event occurring after the impairment was
recognized on the Consolidated Statement of Income, then the impair-
ment loss is reversed through the Consolidated Statement of Income.
An increase in fair value in excess of impairment recognized previously
on the Consolidated Statement of Income is recognized in other
comprehensive income.
Held-to-Maturity Securities
Debt securities with fixed or determinable payments and fixed maturity
dates, that do not meet the definition of loans and receivables, and
that the Bank intends and has the ability to hold to maturity are classi-
fied as held-to-maturity and are carried at amortized cost, net of
impairment losses. Securities classified as held-to-maturity are assessed
for objective evidence of impairment at the counterparty-specific level.
If there is no objective evidence of impairment at the counter-party
specific level then the security is grouped with other held-to-maturity
securities with similar credit risk characteristics and collectively assessed
for impairment, which considers losses incurred but not identified.
Interest income is recognized using the EIRM and is included in Interest
income on the Consolidated Statement of Income.
Loans and Allowance for Loan Losses
Loans
Loans are non-derivative financial assets with fixed or determinable
payments that the Bank does not intend to sell immediately or in the
near term and that are not quoted in an active market. Loans are
carried at amortized cost on the Consolidated Balance Sheet, net of
an allowance for loan losses, write-offs and unearned income, which
includes prepaid interest, loan origination fees and costs, commitment
fees, loan syndication fees, and unamortized discounts or premiums.
Interest income is recognized using the EIRM. The EIR is the rate
that exactly discounts estimated future cash flows over the expected
life of the loan. Loan origination fees and costs are considered to be
adjustments to the loan yield and are recognized in interest income
over the term of the loan.
Commitment fees are recognized in credit fees over the commit-
ment period when it is unlikely that the commitment will be called
upon; otherwise, they are recognized in interest income over the term
of the resulting loan. Loan syndication fees are recognized in credit
fees upon completion of the financing placement unless the yield on
any loan retained by the Bank is less than that of other comparable
lenders involved in the financing syndicate. In such cases, an appropri-
ate portion of the fee is recognized as a yield adjustment to interest
income over the term of the loan.
Loan Impairment and the Allowance for Credit Losses, Excluding
Acquired Credit-Impaired Loans
A loan (including a debt security classified as a loan) is considered
impaired when there is objective evidence that there has been a
deterioration of credit quality subsequent to the initial recognition
of the loan (a ‘loss event’) to the extent the Bank no longer has
reasonable assurance as to the timely collection of the full amount
of principal and interest. Indicators of impairment could include,
but are not limited to, one or more of the following:
• Significant financial difficulty of the issuer or obligor;
• A breach of contract, such as a default or delinquency in interest
or principal payments;
• Increased probability that the borrower will enter bankruptcy or
other financial reorganization; or
• The disappearance of an active market for that financial asset.
A loan will be reclassified back to performing status when it has
been determined that there is reasonable assurance of full and timely
repayment of interest and principal in accordance with the original
or revised contractual conditions of the loan and all criteria for the
impaired classification have been remedied. In cases where a borrower
experiences financial difficulties the Bank may grant certain conces-
sionary modifications to terms and conditions of a loan. Modifications
may include extension of amortization periods, rate reductions, principal
forgiveness, forbearance and other modifications intended to minimize
the economic loss and to avoid foreclosure or repossession of collateral.
If the modified loan’s estimated realizable value, discounted at the
original loan’s EIR has decreased as a result of the modification, addi-
tional impairment is recorded. Once modified, if management expects
full collection of payments under the revised loan terms, the loan is
no longer considered impaired.
The allowance for credit losses represents management’s best esti-
mate of impairment incurred in the lending portfolios, including any
off-balance sheet exposures, at the balance sheet date. The allowance
for loan losses, which includes credit-related allowances for residential
mortgages, consumer instalment and other personal, credit card, busi-
ness and government loans, and debt securities classified as loans, is
deducted from Loans on the Consolidated Balance Sheet. The allowance
for credit losses for off-balance sheet instruments, which relates to
certain guarantees, letters of credit and undrawn lines of credit, is
recognized in Provisions on the Consolidated Balance Sheet. Allowances
for lending portfolios reported on the balance sheet and off-balance
sheet exposures are calculated using the same methodology. The
allowance is increased by the provision for credit losses, and decreased
by write-offs net of recoveries and disposals. The Bank maintains both
counterparty-specific and collectively assessed allowances. Each quarter,
allowances are reassessed and adjusted based on any changes in
management’s estimate of the future cash flows estimated to be
recovered. Credit losses on impaired loans continue to be recognized
by means of an allowance for credit losses until a loan is written off.
A loan is written off against the related allowance for credit losses
when there is no realistic prospect of recovery. Non-retail loans are
generally written off when all reasonable collection efforts have been
exhausted, such as when a loan is sold, when all security has been
realized or when all security has been resolved with the receiver or
bankruptcy court. Non-real estate secured retail loans are generally
written off when contractual payments are 180 days past due, or
when a loan is sold. Real-estate secured retail loans are generally
written off when the security is realized.
123
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS Counterparty-Specific Allowance
Individually significant loans, such as the Bank’s medium-sized business
and government loans and debt securities classified as loans, are
assessed for impairment at the counterparty-specific level. The impair-
ment assessment is based on the counterparty’s credit ratings, overall
financial condition, and where applicable, the realizable value of the
collateral. Collateral is reviewed at least annually and when conditions
arise indicating an earlier review is necessary. An allowance, if applica-
ble, is measured as the difference between the carrying amount of the
loan and the estimated recoverable amount. The estimated recoverable
amount is the present value of the estimated future cash flows,
discounted using the loan’s original EIR.
Collectively Assessed Allowance for Individually Insignificant
Impaired Loans
Individually insignificant impaired loans, such as the Bank’s personal
and small business loans and credit cards, are collectively assessed for
impairment. Allowances are calculated using a formula that incorporates
recent loss experience, historical default rates which are delinquency
levels in interest or principal payments that indicate impairment, other
applicable currently observable data, and the type of collateral pledged.
Collectively Assessed Allowance for Incurred but Not Identified
Credit Losses
If there is no objective evidence of impairment for an individual loan,
whether significant or not, the loan is included in a group of assets
with similar credit risk characteristics and collectively assessed for
impairment for losses incurred but not identified. This allowance is
referred to as the allowance for incurred but not identified credit
losses. The level of the allowance for each group depends upon an
assessment of business and economic conditions, historical loss experi-
ence, loan portfolio composition, and other relevant indicators. Histori-
cal loss experience is adjusted based on current observable data to
reflect the effects of current conditions. The allowance for incurred but
not identified credit losses is calculated using credit risk models that
consider probability of default (loss frequency), loss given credit default
(loss severity), and exposure at default. For purposes of measuring the
collectively assessed allowance for incurred but not identified credit
losses, default is defined as delinquency levels in interest or principal
payments that would indicate impairment.
Acquired Loans
Acquired loans are initially measured at fair value which considers
incurred and expected future credit losses estimated at the acquisition
date and also reflects adjustments based on the acquired loan’s interest
rate in comparison to the current market rates. As a result, no allowance
for credit losses is recorded on the date of acquisition. When loans are
acquired with evidence of incurred credit loss where it is probable
at the purchase date that the Bank will be unable to collect all contrac-
tually required principal and interest payments, they are generally
considered to be acquired credit-impaired (ACI) loans.
Acquired performing loans are subsequently accounted for at amor-
tized cost based on their contractual cash flows and any acquisition
related discount or premium is considered to be an adjustment to the
loan yield and is recognized in interest income using the EIRM over the
term of the loan, or the expected life of the loan for acquired loans
with revolving terms. Credit related discounts relating to incurred
losses for acquired loans are not accreted. Acquired loans are subject
to impairment assessments under the Bank’s credit loss framework
similar to the Bank’s originated loan portfolio.
Acquired Credit-Impaired Loans
ACI loans are identified as impaired at acquisition based on specific risk
characteristics of the loans, including past due status, performance
history and recent borrower credit scores.
ACI loans are accounted for based on the present value of expected
cash flows as opposed to their contractual cash flows. The Bank deter-
mines the fair value of these loans at the acquisition date by discounting
expected cash flows at a discount rate that reflects factors a market
participant would use when determining fair value including manage-
ment assumptions relating to default rates, loss severities, the amount
and timing of prepayments, and other factors that are reflective of
current market conditions. With respect to certain individually significant
ACI loans, accounting is applied individually at the loan level. The
remaining ACI loans are aggregated provided that they are acquired
in the same fiscal quarter and have common risk characteristics.
Aggregated loans are accounted for as a single asset with aggregated
cash flows and a single composite interest rate.
Subsequent to acquisition, the Bank regularly reassesses and
updates its cash flow estimates for changes to assumptions relating to
default rates, loss severities, the amount and timing of prepayments
and other factors that are reflective of current market conditions.
Probable decreases in expected cash flows trigger the recognition of
additional impairment, which is measured based on the present value
of the revised expected cash flows discounted at the loan’s EIR as
compared to the carrying value of the loan. Impairment is recorded
through the provision for credit losses.
Probable and significant increases in expected cash flows would first
reverse any previously taken impairment with any remaining increase
recognized in income immediately as interest income. In addition, for
fixed-rate ACI loans the timing of expected cash flows may increase
or decrease which may result in adjustments through interest income
to the carrying value in order to maintain the inception yield of the
ACI loan.
If the timing and/or amounts of expected cash flows on ACI
loans were determined not to be reasonably estimable, no interest
is recognized.
Federal Deposit Insurance Corporation Covered Loans
Loans subject to loss share agreements with the Federal Deposit
Insurance Corporation (FDIC) are considered FDIC covered loans. The
amounts expected to be reimbursed by the FDIC are considered
separately as indemnification assets and are initially measured at fair
value. If losses on the portfolio are greater than amounts expected at
the acquisition date, an impairment loss is taken by establishing an
allowance for credit losses, which is determined gross, exclusive of
any adjustments to the indemnification assets.
Indemnification assets are subsequently adjusted for any changes in
estimates related to the overall collectability of the underlying loan
portfolio. Any additional impairment of the underlying loan portfolio
generally results in an increase of the indemnification asset through
the provision for credit losses. Alternatively, decreases in the expecta-
tion of losses of the underlying loan portfolio generally results in a
decrease of the indemnification asset through net interest income (or
through the provision for credit losses if impairment was previously
taken). The indemnification asset is drawn down as payments are
received from the FDIC pertaining to the loss share agreements.
FDIC covered loans are recorded in Loans on the Consolidated
Balance Sheet. The indemnification assets are recorded in Other assets
on the Consolidated Balance Sheet.
At the end of each loss share period, the Bank may be required to
make a payment to the FDIC if actual losses incurred are less than the
intrinsic loss estimate as defined in the loss share agreements. The
payment is determined as 20% of the excess between the intrinsic loss
estimate and actual covered losses determined in accordance with the
loss sharing agreement, net of specified servicing costs. The fair value
of the estimated payment is included in part of the indemnification
asset at the date of acquisition. Subsequent changes to the estimated
payment are considered in determining the adjustment to the indemni-
fication asset as described above.
124
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS Customers’ Liability under Acceptances
Acceptances represent a form of negotiable short-term debt issued by
customers, which the Bank guarantees for a fee. Revenue is recognized
on an accrual basis. The potential obligation of the Bank under accep-
tances is reported as a liability on the Consolidated Balance Sheet. The
Bank’s recourse against the customer in the event of a call on any of
these commitments is reported as an asset of the same amount.
Financial Liabilities Carried at Amortized Cost
Deposits
Deposits, other than deposits included in a trading portfolio, are
accounted for at amortized cost. Accrued interest on deposits,
calculated using the EIRM, is included in Other liabilities on the
Consolidated Balance Sheet.
Subordinated Notes and Debentures
Subordinated notes and debentures are accounted for at amortized
cost. Interest expense is recognized on an accrual basis using the EIRM.
Liability for Preferred Shares and Capital Trust Securities
The Bank classifies issued instruments in accordance with the
substance of the contractual arrangement. Issued instruments that are
mandatorily redeemable or convertible into a variable number of the
Bank’s common shares at the holder’s option are classified as liabilities
on the Consolidated Balance Sheet. Dividend or interest payments on
these instruments are recognized in interest expense.
Preferred shares that are not mandatorily redeemable or that are
not convertible into a variable number of the Bank’s common shares at
the holder’s option are classified and presented in Share Capital.
Guarantees
The Bank issues guarantee contracts that require payments to be made
to guaranteed parties based on: (i) changes in the underlying economic
characteristics relating to an asset or liability of the guaranteed party;
(ii) failure of another party to perform under an obligating agreement;
or (iii) failure of another third party to pay its indebtedness when due.
Financial standby letters of credit are financial guarantees that repre-
sent irrevocable assurances that the Bank will make payments in the
event that a customer cannot meet its obligations to third parties and
they carry the same credit risk, recourse and collateral security require-
ments as loans extended to customers. Performance standby letters of
credit are considered non-financial guarantees as payment does not
depend on the occurrence of a credit event and is generally related to
a non-financial trigger event. Financial and performance standby
letters of credit are initially measured and recorded at their fair value.
A guarantee liability is recorded on initial recognition at fair value
which is normally equal to the present value of the guarantee fees
received over the life of contract. The Bank’s release from risk is recog-
nized over the term of the guarantee using a systematic and rational
amortization method.
If a guarantee meets the definition of a derivative, it is carried at fair
value on the Consolidated Balance Sheet and reported as a derivative
asset or derivative liability at fair value. Guarantees that are considered
derivatives are a type of credit derivative which are over-the-counter
(OTC) contracts designed to transfer the credit risk in an underlying
financial instrument from one counterparty to another.
DERIVATIVES
Derivatives are instruments that derive their value from changes in
underlying interest rates, foreign exchange rates, credit spreads,
commodity prices, equities, or other financial or non-financial
measures. Such instruments include interest rate, foreign exchange,
equity, commodity and credit derivative contracts. The Bank uses these
instruments for trading and non-trading purposes to manage the risks
associated with its funding and investment strategies. Derivatives are
carried at their fair value on the Consolidated Balance Sheet.
The notional amounts of derivatives are not recorded as assets or
liabilities as they represent the face amount of the contract to which a
rate or price is applied to determine the amount of cash flows to be
exchanged in accordance with the contract. Notional amounts do not
represent the potential gain or loss associated with market risk and are
not indicative of the credit risk associated with derivatives.
Derivatives Held for Trading Purposes
The Bank enters into trading derivative contracts to meet the needs
of its customers, to enter into trading positions primarily to provide
liquidity and market-making related activities, and in certain cases, to
manage risks related to its trading portfolio. The realized and unreal-
ized gains or losses on trading derivatives are recognized immediately
in trading income (losses).
Derivatives Held for Non-trading Purposes
When derivatives are held for non-trading purposes and when the
transactions meet the hedge accounting requirements of IAS 39,
Financial Instruments: Recognition and Measurement (IAS 39), they
are classified by the Bank as non-trading derivatives and receive hedge
accounting treatment, as appropriate. Certain derivative instruments
that are held for economic hedging purposes, and do not meet the
hedge accounting requirements of IAS 39, are also classified as non-
trading derivatives with the change in fair value of these derivatives
recognized in non-interest income.
Hedging Relationships
Hedge Accounting
At the inception of a hedging relationship, the Bank documents the
relationship between the hedging instrument and the hedged item, its
risk management objective and its strategy for undertaking the hedge.
The Bank also requires a documented assessment, both at hedge
inception and on an ongoing basis, of whether or not the derivatives
that are used in hedging relationships are highly effective in offsetting
the changes attributable to the hedged risks in the fair values or cash
flows of the hedged items. In order to be considered effective, the
hedging instrument and the hedged item must be highly and inversely
correlated such that the changes in the fair value of the hedging
instrument will substantially offset the effects of the hedged exposure
to the Bank throughout the term of the hedging relationship. If a
hedging relationship becomes ineffective, it no longer qualifies for
hedge accounting and any subsequent change in the fair value of the
hedging instrument is recognized in Non-interest income on the
Consolidated Statement of Income.
Changes in fair value relating to the derivative component excluded
from the assessment of hedge effectiveness, is recognized immediately
in Non-interest income on the Consolidated Statement of Income.
When derivatives are designated as hedges, the Bank classifies them
either as: (i) hedges of the changes in fair value of recognized assets
or liabilities or firm commitments (fair value hedges); (ii) hedges of
the variability in highly probable future cash flows attributable to a
recognized asset or liability, or a forecasted transaction (cash flow
hedges); or (iii) hedges of net investments in a foreign operation
(net investment hedges).
Fair Value Hedges
The Bank’s fair value hedges principally consist of interest rate
swaps that are used to protect against changes in the fair value of
fixed-rate long-term financial instruments due to movements in
market interest rates.
Changes in the fair value of derivatives that are designated and
qualify as fair value hedging instruments are recognized in Non-interest
income on the Consolidated Statement of Income, along with changes
in the fair value of the assets, liabilities or group thereof that are
attributable to the hedged risk. Any change in fair value relating to the
ineffective portion of the hedging relationship is recognized immedi-
ately in non-interest income.
125
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS The cumulative adjustment to the carrying amount of the hedged
item (the basis adjustment) is amortized to the Consolidated Statement
of Income in net interest income based on a recalculated EIR over
the remaining expected life of the hedged item, with amortization
beginning no later than when the hedged item ceases to be adjusted
for changes in its fair value attributable to the hedged risk. Where the
hedged item has been derecognized, the basis adjustment is immedi-
ately released to Net interest income on the Consolidated Statement
of Income.
Cash Flow Hedges
The Bank is exposed to variability in future cash flows that are denomi-
nated in foreign currencies, as well as the variability in future cash
flows on non-trading assets and liabilities that bear interest at variable
rates, or are expected to be reinvested in the future. The amounts and
timing of future cash flows are projected for each hedged exposure on
the basis of their contractual terms and other relevant factors, includ-
ing estimates of prepayments and defaults.
The effective portion of the change in the fair value of the derivative
that is designated and qualifies as a cash flow hedge is recognized in
other comprehensive income. The change in fair value of the derivative
relating to the ineffective portion is recognized immediately in non-
interest income.
Amounts accumulated in other comprehensive income are reclassi-
fied to Net interest income on the Consolidated Statement of Income
in the period in which the hedged item affects income.
When a hedging instrument expires or is sold, or when a hedge no
longer meets the criteria for hedge accounting, any cumulative gain or
loss existing in other comprehensive income at that time remains in
other comprehensive income until the forecasted transaction impacts
the Consolidated Statement of Income. When a forecasted transaction
is no longer expected to occur, the cumulative gain or loss that was
reported in other comprehensive income is immediately reclassified to
Net interest income on the Consolidated Statement of Income.
Net Investment Hedges
Hedges of net investments in foreign operations are accounted for
similar to cash flow hedges. The change in fair value on the hedging
instrument relating to the effective portion is recognized in other
comprehensive income. The change in fair value of the hedging instru-
ment relating to the ineffective portion is recognized immediately on
the Consolidated Statement of Income. Gains and losses accumulated
in other comprehensive income are reclassified to the Consolidated
Statement of Income upon the disposal or partial disposal of the
investment in the foreign operation.
Embedded Derivatives
Derivatives may be embedded in other financial instruments (the host
instrument). Embedded derivatives are treated as separate derivatives
when their economic characteristics and risks are not closely related
to those of the host instrument, a separate instrument with the same
terms as the embedded derivative would meet the definition of a
derivative, and the combined contract is not held for trading or desig-
nated at fair value through profit or loss. These embedded derivatives,
which are bifurcated from the host contract, are recognized on the
Consolidated Balance Sheet as Derivatives and measured at fair value
with subsequent changes recognized in Non-interest income on the
Consolidated Statement of Income.
TRANSLATION OF FOREIGN CURRENCIES
The Bank’s Consolidated Financial Statements are presented in Cana-
dian dollars, which is the presentation currency of the Bank. Items
included in the financial statements of each of the Bank’s entities are
measured using their functional currency, which is the currency of the
primary economic environment in which they operate.
Monetary assets and liabilities denominated in a currency that
differs from an entity’s functional currency are translated into the
functional currency of the entity at exchange rates prevailing at the
balance sheet date. Non-monetary assets and liabilities are translated
at historical exchange rates. Income and expenses are translated into
an entity’s functional currency at average exchange rates prevailing
throughout the year. Translation gains and losses are included in
non-interest income except for available-for-sale equity securities
where unrealized translation gains and losses are recorded in other
comprehensive income until the asset is sold or becomes impaired.
Foreign-currency denominated subsidiaries are those with a func-
tional currency other than Canadian dollars. For the purpose of
translation into the Bank’s functional currency, all assets and liabilities
are translated at exchange rates in effect at the balance sheet date
and all income and expenses are translated at average exchange rates
for the period. Unrealized translation gains and losses relating to these
operations, net of gains or losses arising from net investment hedges
of these positions and applicable income taxes, are included in other
comprehensive income. Translation gains and losses accumulated
in other comprehensive income are recognized on the Consolidated
Statement of Income upon the disposal or partial disposal of the
investment in the foreign operation. The investment balance of foreign
entities accounted for by the equity method, including TD Ameritrade,
is translated into Canadian dollars using the closing rate at the end
of the period with exchange gains or losses recognized in other
comprehensive income.
OFFSETTING OF FINANCIAL INSTRUMENTS
Financial assets and liabilities are offset, with the net amount
presented on the Consolidated Balance Sheet, only if the Bank
currently has a legally enforceable right to set off the recognized
amounts, and intends either to settle on a net basis or to realize the
asset and settle the liability simultaneously. In all other situations,
assets and liabilities are presented on a gross basis.
DETERMINATION OF FAIR VALUE
The fair value of a financial instrument on initial recognition is normally
the transaction price, such as, the fair value of the consideration given
or received. The best evidence of fair value is quoted prices in active
markets, and is based on bid prices for financial assets, and offered
prices for financial liabilities. When financial assets and liabilities have
offsetting market risks, the Bank uses mid-market prices as a basis for
establishing fair values for the offsetting risk positions and applies the
bid or offered price to the net open position, as appropriate. When
there is no active market for the instrument, the fair value may be
based on other observable current market transactions involving the
same or similar instrument, without modification or repackaging, or is
based on a valuation technique which maximizes the use of observable
market inputs.
The Bank recognizes various types of valuation adjustments to
account for factors that market participants would use in determining
fair value which are not included in valuation techniques due to system
limitations or measurement uncertainty. Valuation adjustments reflect
the Bank’s assessment of factors that market participants would use in
pricing the asset or liability. These include, but are not limited to, the
unobservability of inputs used in the pricing model, or assumptions
about risk, such as creditworthiness of each counterparty and risk
premiums that market participants would require given the inherent
risk in the pricing model.
If there is a difference between the initial transaction price and the
value based on a valuation technique which includes observable
market inputs, the difference is referred to as inception profit or loss.
Inception profit or loss is recognized into income upon initial recogni-
tion of the instrument. When an instrument is measured using a valua-
tion technique that utilizes non-observable inputs, it is initially valued
126
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS at the transaction price, which is considered the best estimate of fair
value. Subsequent to initial recognition, any difference between the
transaction price and the value determined by the valuation technique
at initial recognition is recognized into income as non-observable
inputs become observable.
If the fair value of a financial asset measured at fair value becomes
negative, it is recognized as a financial liability until either its fair value
becomes positive, at which time it is recognized as a financial asset, or
until it is extinguished.
DERECOGNITION OF FINANCIAL INSTRUMENTS
Financial Assets
The Bank derecognizes a financial asset when the contractual rights to
that asset have expired. Derecognition may also be appropriate where
the contractual right to receive future cash flows from the asset have
been transferred, or where the Bank retains the rights to future cash
flows from the asset, but assumes an obligation to pay those cash
flows to a third party subject to certain criteria.
When the Bank transfers a financial asset, it is necessary to assess
the extent to which the Bank has retained the risks and rewards of
ownership of the transferred asset. If substantially all the risks and
rewards of ownership of the financial asset have been retained, the
Bank continues to recognize the financial asset and also recognizes
a financial liability for the consideration received. Certain transaction
costs incurred are also capitalized and amortized using EIRM. If
substantially all the risks and rewards of ownership of the financial
asset have been transferred, the Bank will derecognize the financial
asset and recognize separately as assets or liabilities any rights and
obligations created or retained in the transfer. The Bank determines
whether substantially all the risk and rewards have been transferred
by quantitatively comparing the variability in cash flows before and
after the transfer. If the variability in cash flows does not change
significantly as a result of the transfer, the Bank has retained substan-
tially all of the risks and rewards of ownership.
If the Bank neither transfers nor retains substantially all the risks and
rewards of ownership of the financial asset, the Bank derecognizes
the financial asset where it has relinquished control of the financial
asset. The Bank is considered to have relinquished control of the
financial asset where the transferee has the practical ability to sell the
transferred financial asset. Where the Bank has retained control of
the financial asset, it continues to recognize the financial asset to the
extent of its continuing involvement in the financial asset. Under these
circumstances, the Bank usually retains the rights to future cash flows
relating to the asset through a residual interest and is exposed to
some degree of risk associated with the financial asset.
The derecognition criteria are also applied to the transfer of part of
an asset, rather than the asset as a whole, or to a group of similar
financial assets in their entirety, when applicable. If transferring a part
of an asset, it must be a specifically identified cash flow, a fully propor-
tionate share of the asset, or a fully proportionate share of a specifically
identified cash flow.
Securitization
Securitization is the process by which financial assets are transformed
into securities. The Bank securitizes financial assets by transferring
those financial assets to a third party and as part of the securitization,
certain financial assets may be retained and may consist of an interest-
only strip and, in some cases, a cash reserve account (collectively
referred to as ‘retained interests’). If the transfer qualifies for derecog-
nition, a gain or loss is recognized immediately in other income after
the effects of hedges on the assets sold, if applicable. The amount of
the gain or loss is calculated as the difference between the carrying
amount of the asset transferred and the sum of any cash proceeds
received, including any financial asset received or financial liability
assumed, and any cumulative gain or loss allocated to the transferred
asset that had been recognized in other comprehensive income. To
determine the value of the retained interest initially recorded, the
previous carrying value of the transferred asset is allocated between
the amount derecognized from the balance sheet and the retained
interest recorded, in proportion to their relative fair values on the date
of transfer. Subsequent to initial recognition, as market prices are
generally not available for retained interests, fair value is determined
by estimating the present value of future expected cash flows using
management’s best estimates of key assumptions that market parti-
cipants would use in determining fair value. Refer to Note 3 for
assumptions used by management in determining the fair value of
retained interests. Retained interest is classified as trading securities
with subsequent changes in fair value recorded in trading income.
Where the Bank retains the servicing rights, the benefits of servicing
are assessed against market expectations. When the benefits of servicing
are more than adequate, a servicing asset is recognized. Servicing
assets are carried at amortized cost. When the benefits of servicing are
less than adequate, a servicing liability is recognized.
Financial Liabilities
The Bank derecognizes a financial liability when the obligation under
the liability is discharged, cancelled or expires. If an existing financial
liability is replaced by another financial liability from the same lender
on substantially different terms or where the terms of the existing
liability are substantially modified, the original liability is derecognized
and a new liability is recognized with the difference in the respective
carrying amounts recognized on the Consolidated Statement of Income.
Securities Purchased Under Reverse Repurchase Agreements,
Securities Sold Under Repurchase Agreements, and Securities
Borrowing and Lending
Securities purchased under reverse repurchase agreements involve the
purchase of securities by the Bank under agreements to resell the
securities at a future date. These agreements are treated as collateral-
ized lending transactions whereby the Bank takes possession of the
purchased securities, but does not acquire the risks and rewards of
ownership. The Bank monitors the market value of the purchased
securities relative to the amounts due under the reverse repurchase
agreements, and when necessary, requires transfer of additional
collateral. In the event of counterparty default, the agreements provide
the Bank with the right to liquidate the collateral held and offset the
proceeds against the amount owing from the counterparty.
Obligations related to securities sold under repurchase agreements
involve the sale of securities by the Bank to counterparties under
agreements to repurchase the securities at a future date. These agree-
ments do not result in the risks and rewards of ownership being
relinquished and are treated as collateralized borrowing transactions.
The Bank monitors the market value of the securities sold relative to
the amounts due under the repurchase agreements, and when neces-
sary, transfers additional collateral and may require counterparties
to return collateral pledged. Certain transactions that do not meet
derecognition criteria under IFRS are also included in obligations
related to securities sold under repurchase agreements. Refer to
Note 8 for further details.
Securities purchased under reverse repurchase agreements and
obligations related to securities sold under repurchase agreements are
initially recorded on the Consolidated Balance Sheet at the respective
prices at which the securities were originally acquired or sold, plus
accrued interest. Subsequently, the agreements are measured at amor-
tized cost on the Consolidated Balance Sheet, plus accrued interest.
Interest earned on reverse repurchase agreements and interest incurred
on repurchase agreements is determined using the EIRM and is
included in Interest income and Interest expense, respectively, on the
Consolidated Statement of Income.
127
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS In security lending transactions, the Bank lends securities to a counter-
party and receives collateral in the form of cash or securities. If cash
collateral is received, the Bank records the cash along with an obliga-
tion to return the cash as an obligation related to securities sold under
repurchase agreements on the Consolidated Balance Sheet. Where
securities are received as collateral, the Bank does not record the
collateral on the Consolidated Balance Sheet.
In securities borrowing transactions, the Bank borrows securities
from a counterparty and pledges either cash or securities as collateral.
If cash is pledged as collateral, the Bank records the transaction as
securities purchased under reverse repurchase agreements on the
Consolidated Balance Sheet. Securities pledged as collateral remain on
the Bank’s Consolidated Balance Sheet.
Where securities are pledged or received as collateral, security
borrowing fees and security lending income are recorded in Non-interest
expenses and Non-interest income, respectively, on the Consolidated
Statement of Income over the term of the transaction. Where cash is
pledged or received as collateral, interest received or incurred is deter-
mined using the EIRM and is included in Interest income and Interest
expense, respectively, on the Consolidated Statement of Income.
Commodities purchased or sold with an agreement to sell or repur-
chase the commodities at a later date at a fixed price, are also included
in securities purchased under reverse repurchase agreements and
obligations related to securities sold under repurchase agreements,
respectively, if the derecognition criteria under IFRS are not met. These
instruments are measured at fair value.
GOODWILL
Goodwill represents the excess purchase price paid over the net
fair value of identifiable assets and liabilities acquired in a business
combination. Goodwill is carried at its initial cost less accumulated
impairment losses.
Goodwill is allocated to a cash generating unit (CGU) or a group of
CGUs that is expected to benefit from the synergies of the business
combination, regardless of whether any assets acquired and liabilities
assumed are assigned to the CGU or group of CGUs. A CGU is the
smallest identifiable group of assets that generate cash flows largely
independent of the cash inflows from other assets or groups of assets.
Each CGU or group of CGUs, to which the goodwill is allocated,
represents the lowest level within the Bank at which the goodwill is
monitored for internal management purposes and is not larger than
an operating segment.
Goodwill is assessed for impairment at least annually and when
an event or change in circumstances indicates that the carrying
amount may be impaired. When impairment indicators are present,
the recoverable amount of the CGU or group of CGUs, which is the
higher of its estimated fair value less costs to sell and its value-in-use,
is determined. If the carrying amount of the CGU or group of CGUs
is higher than its recoverable amount, an impairment loss exists. The
impairment loss is recognized on the Consolidated Statement of
Income and is applied to the goodwill balance. An impairment loss
cannot be reversed in future periods.
INTANGIBLE ASSETS
The Bank’s intangible assets consist primarily of core deposit intangibles,
credit card related intangibles and software intangibles. Intangible
assets are initially recognized at fair value and are amortized over their
estimated useful lives (3 to 20 years) proportionate to their expected
economic benefits, except for software which is amortized over its
estimated useful life (3 to 7 years) on a straight-line basis.
The Bank assesses its intangible assets for impairment on a quarterly
basis. When impairment indicators are present, the recoverable
amount of the asset, which is the higher of its estimated fair value less
costs to sell and its value-in-use, is determined. If the carrying amount
of the asset is higher than its recoverable amount, the asset is written
down to its recoverable amount. An impairment loss is recognized on
the Consolidated Statement of Income in the period in which the
impairment is identified. Impairment losses recognized previously are
assessed and reversed if the circumstances leading to the impairment
are no longer present. Reversal of any impairment loss will not exceed
the carrying amount of the intangible asset that would have been
determined had no impairment loss been recognized for the asset in
prior periods.
LAND, BUILDINGS, EQUIPMENT, AND OTHER
DEPRECIABLE ASSETS
Land is recognized at cost. Buildings, computer equipment, furniture and
fixtures, other equipment and leasehold improvements are recognized
at cost less accumulated depreciation and provisions for impairment, if
any. Gains and losses on disposal are included in Non-interest income
on the Consolidated Statement of Income.
Properties or other assets leased under a finance lease are capital-
ized as assets and depreciated on a straight-line basis over the lesser
of the lease term and the estimated useful life of the asset.
The Bank records the obligation associated with the retirement of
a long-lived asset at fair value in the period in which it is incurred and
can be reasonably estimated, and records a corresponding increase
to the carrying amount of the asset. The asset is depreciated on a
straight-line basis over its remaining useful life while the liability is
accreted to reflect the passage of time until the eventual settlement
of the obligation.
Depreciation is recognized on a straight-line basis over the useful
lives of the assets estimated by asset category, as follows:
Asset
Useful Life
Buildings
Computer equipment
Furniture and fixtures
Other equipment
Leasehold improvements
15 to 40 years
3 to 7 years
3 to 15 years
5 to 8 years
Lesser of lease term plus one renewal and 15 years
The Bank assesses its depreciable assets for impairment on a quarterly
basis. When impairment indicators are present, the recoverable
amount of the asset, which is the higher of its estimated fair value less
costs to sell and its value-in-use, is determined. If the carrying value of
the asset is higher than its recoverable amount, the asset is written
down to its recoverable amount. An impairment loss is recognized on
the Consolidated Statement of Income in the period in which the
impairment is identified. Impairment losses recognized previously are
assessed and reversed if the circumstances leading to their impairment
are no longer present. Reversal of any impairment loss will not exceed
the carrying amount of the depreciable asset that would have been
determined had no impairment loss been recognized for the asset in
prior periods.
NON-CURRENT ASSETS HELD FOR SALE
Individual non-current assets (and disposal groups) are classified as
held for sale if they are available for immediate sale in their present
condition subject only to terms that are usual and customary for
sales of such assets (or disposal groups), and their sale must be highly
probable to occur within one year. For a sale to be highly probable,
management must be committed to a sales plan and initiate an active
program to market for the sale of the non-current assets (and disposal
groups). Non-current assets (and disposal groups) classified as held for
sale are measured at the lower of their carrying amount and fair value
less costs to sell on the Consolidated Balance Sheet. Subsequent to its
initial classification as held for sale, a non-current asset (and disposal
group) is no longer depreciated or amortized, and any subsequent
write-downs in fair value less costs to sell or such increases not in
excess of cumulative write-downs, are recognized on the Consolidated
Statement of Income.
128
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
SHARE-BASED COMPENSATION
The Bank grants share options to certain employees as compensation
for services provided to the Bank. The Bank uses a binomial tree-based
valuation option pricing model to estimate fair value for all share-
based compensation awards. The cost of the share options is based
on the fair value estimated at the grant date and is recognized as
compensation expense and contributed surplus over the service period
required for employees to become fully entitled to the awards. This
period is generally equal to the vesting period and includes a period
prior to the grant date. For the Bank’s share options, this period is
generally equal to five years. When options are exercised, the amount
initially recognized in the contributed surplus balance is reduced, with
a corresponding increase in common shares.
The Bank has various other share-based compensation plans where
certain employees are awarded cash payments equivalent to units of
the Bank’s common shares as compensation for services provided to
the Bank. The obligation related to share units is included in other
liabilities. Compensation expense is recognized based on the fair value
of the share units at the grant date adjusted for changes in fair value
between the grant date and the vesting date, net of the effects of
hedges, over the service period required for employees to become fully
entitled to the awards. This period is generally equal to the vesting
period and includes a period prior to the grant date. For the Bank’s
share units, this period is generally equal to four years.
EMPLOYEE BENEFITS
Defined Benefit Plans
Actuarial valuations are prepared at least every three years to deter-
mine the present value of the projected benefit obligation related to
the Bank’s principal pension and non-pension post-retirement benefit
plans. In periods between actuarial valuations, an extrapolation is
performed based on the most recent valuation completed. Pension and
non-pension post-retirement benefit expenses are determined based
upon separate actuarial valuations using the projected benefit method
pro-rated on service and management’s best estimates of expected
long-term return on plan assets, compensation increases, health care
cost trend rate, mortality rate, and discount rate, which are reviewed
annually with the Bank’s actuaries. The expense recognized includes
the cost of benefits for employee service provided in the current year,
interest expense on obligations, expected return on plan assets, the
cost of vested plan amendments, the amortization of the cost of
unvested plan amendments, and amortization of actuarial gains or
losses. The fair value of plan assets and the present value of the
projected benefit obligation are measured as at October 31. The net
defined benefit asset or liability represents the difference between the
cumulative expenses and recognized cumulative contributions and is
reported in other assets or other liabilities.
The cost of plan amendments are recognized in income immediately
if they relate to vested benefits. Otherwise, the cost of plan amend-
ments are deferred and amortized into income on a straight-line basis
over the vesting period, which is the period until the plan member
becomes unconditionally entitled to the benefits for the principal
pension plans and the expected average remaining period to full
eligibility for the principal non-pension post-retirement benefit plan.
The excess, if any, of the accumulated net actuarial gain or loss over
10% of the greater of the projected benefit obligation and the fair
value of plan assets for the Bank’s principal pension plans is recog-
nized in income on a straight-line basis over the expected average
remaining working lives of the active plan members. This is commonly
referred to as the corridor approach.
Prepaid pension assets recognized by the Bank are subject to a
ceiling which limits the asset recognized on the Consolidated Balance
Sheet to the amount that is recoverable through refunds of contribu-
tions or future contribution holidays. In addition, where a regulatory
funding deficit exists related to a defined benefit plan, the Bank is
required to record a liability equal to the present value of all future
cash payments required to eliminate that deficit.
Curtailment and settlement gains and losses are recognized in
income by the Bank when the curtailment or settlement occurs.
A curtailment occurs when the Bank is demonstrably committed to
materially reducing the number of employees covered by the plan,
or amending the terms of a defined benefit plan so that a significant
element of future service by current employees will no longer qualify
for benefits, or will qualify only for reduced benefits. A settlement
occurs when the Bank enters into a transaction that eliminates all
further legal or constructive obligation for part or all of the benefits
provided under a defined benefit plan.
Defined Contribution Plans
For defined contribution plans, annual pension expense is equal to the
Bank’s contributions to those plans.
INSURANCE
Premiums for short-duration insurance contracts, net of reinsurance,
primarily property and casualty, are deferred as unearned premiums
and reported in non-interest income on a pro rata basis over the terms
of the policies, except for contracts where the period of risk differs
significantly from the contract period. Unearned premiums are reported
in other liabilities, gross of premiums attributable to reinsurers. The
reinsurers’ share is recognized as an asset in other assets. Premiums
from life and health insurance policies are recognized as income when
due from the policyholder.
For property and casualty insurance, insurance claims and policy
benefit liabilities represent current claims and estimates for future
insurance policy claims, as determined by the appointed actuary in
accordance with accepted actuarial practices and are reported as other
liabilities. Expected claims and policy benefit liabilities are determined
on a case-by-case basis and consider such variables as past loss experi-
ence, current claims trends and changes in the prevailing social,
economic and legal environment. These liabilities are continually
reviewed and, as experience develops and new information becomes
known, the liabilities are adjusted as necessary. In addition to reported
claims information, the liabilities recognized by the Bank include a
provision to account for the future development of insurance claims,
including insurance claims incurred but not reported by policyholders
(IBNR). IBNR liabilities are evaluated based on historical development
trends and actuarial methodologies for groups of claims with similar
attributes. To recognize the uncertainty in establishing these best
estimates, to allow for possible deterioration in experience and to
provide greater comfort that the actuarial liabilities are sufficient
to pay future benefits, actuaries are required to include margins in
some assumptions. A range of allowable margins is prescribed by
the Canadian Institute of Actuaries relating to claims development,
reinsurance recoveries and investment income variables. The impact
of the margins is referred to as the provision for adverse deviation.
Expected claims and policy benefit liabilities are discounted using a
discount rate that reflects the current market assessments of the time
value of money and the risks specific to the obligation, as required by
Canadian accepted actuarial practices, and makes explicit provision
for adverse deviation. For life and health insurance, actuarial liabilities
represent the present values of future policy cash flows as determined
using standard actuarial valuation practices. Changes in actuarial
liabilities are reported in insurance claims and related expenses.
129
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS PROVISIONS
Provisions are recognized when the Bank has a present obligation
(legal or constructive) as a result of a past event, the amount of which
can be reliably estimated, and it is probable that an outflow of
resources will be required to settle the obligation.
Provisions are measured based on management’s best estimate
of the consideration required to settle the obligation at the end of
the reporting period, taking into account the risks and uncertainties
surrounding the obligation. If the effect of the time value of money is
material, provisions are measured at the present value of the expendi-
ture expected to be required to settle the obligation, using a discount
rate that reflects the current market assessments of the time value of
money and the risks specific to the obligation. The increase in provi-
sions due to the passage of time is recognized as interest expense.
INCOME TAXES
Income tax is comprised of current and deferred tax. Income tax
is recognized on the Consolidated Statement of Income except to
the extent that it relates to items recognized in other comprehensive
income or directly in equity, in which case the related taxes are
also recognized in other comprehensive income or directly in
equity, respectively.
Deferred tax is recognized on temporary differences between the
carrying amounts of assets and liabilities on the Consolidated Balance
Sheet and the amounts attributed to such assets and liabilities for tax
purposes. Deferred tax assets and liabilities are determined based on
the tax rates that are expected to apply when the assets or liabilities
are reported for tax purposes. Deferred tax assets are recognized only
when it is probable that sufficient taxable profit will be available in
future periods against which deductible temporary differences may
be utilized. Deferred tax liabilities are not recognized on temporary
differences arising on investments in subsidiaries, branches and associ-
ates, and interests in joint ventures if the Bank controls the timing of
the reversal of the temporary difference and it is probable that the
temporary difference will not reverse in the foreseeable future.
The Bank records a provision for uncertain tax positions if it is prob-
able that the Bank will have to make a payment to tax authorities
upon their examination of a tax position. This provision is measured at
the Bank’s best estimate of the amount expected to be paid. Provisions
are reversed to income in the period in which management determines
they are no longer required or as determined by statute.
N O T E 3
SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS
The estimates used in the Bank’s accounting policies are essential to
understanding its results of operations and financial condition. Some
of the Bank’s policies require subjective, complex judgments and
estimates as they relate to matters that are inherently uncertain.
Changes in these judgments or estimates could have a significant
impact on the Bank’s Consolidated Financial Statements. The Bank
has established procedures to ensure that accounting policies are
applied consistently and that the processes for changing methodolo-
gies for determining estimates are well controlled and occur in an
appropriate and systematic manner.
IMPAIRMENT OF FINANCIAL ASSETS
Available-for-Sale Securities
Impairment losses are recognized on available-for-sale securities if
there is objective evidence of impairment as a result of one or more
events that have occurred after initial recognition (a ‘loss event’) and
the loss event(s) results in a decrease in the estimated cash flows of
the instrument. The Bank individually reviews these securities at least
quarterly for the presence of these conditions. For available-for-sale
equity securities, a significant or prolonged decline in fair value below
cost is considered objective evidence of impairment. For available-
for-sale debt securities, a deterioration of credit quality is considered
objective evidence of impairment. Other factors considered in the
impairment assessment include financial position and key financial
indicators of the issuer of the instrument, significant past and continued
losses of the issuer, as well as breaches of contract, including default
or delinquency in interest payments and loan covenant violations.
Held-to-Maturity Securities
Impairment losses are recognized on held-to-maturity securities if there
is objective evidence of impairment as a result of one or more events
that have occurred after initial recognition (a ‘loss event’) and the loss
event(s) results in a decrease in the estimated cash flows of the instru-
ment. The Bank reviews these securities at least quarterly for impairment
at the counter-party specific level. If there is no objective evidence
of impairment at the counter-party specific level then the security is
grouped with other held-to-maturity securities with similar credit risk
characteristics and collectively assessed for impairment, which consid-
ers losses incurred but not identified. A deterioration of credit quality
is considered objective evidence of impairment. Other factors consid-
ered in the impairment assessment include the financial position and
key financial indicators of the issuer, significant past and continued
losses of the issuer, as well as breaches of contract, including default
or delinquency in interest payments and loan covenant violations.
Loans
A loan (including a debt security classified as a loan) is considered
impaired when there is objective evidence that there has been a dete-
rioration of credit quality subsequent to the initial recognition of the
loan (a ‘loss event’) to the extent the Bank no longer has reasonable
assurance as to the timely collection of the full amount of principal
and interest. The Bank assesses loans for objective evidence of impair-
ment individually for loans that are individually significant, and collec-
tively for loans that are not individually significant. The allowance for
credit losses represents management’s best estimate of impairment
incurred in the lending portfolios, including any off-balance sheet
exposures, at the balance sheet date. Management exercises judgment
as to the timing of designating a loan as impaired, the amount of the
allowance required, and the amount that will be recovered once the
borrower defaults. Changes in the amount that management expects
to recover would have a direct impact on the provision for credit losses
and may result in a change in the allowance for credit losses.
If there is no objective evidence of impairment for an individual loan,
whether significant or not, the loan is included in a group of assets with
similar credit risk characteristics and collectively assessed for impair-
ment for losses incurred but not identified. In calculating the probable
range of allowance for incurred but not identified credit losses, the
Bank employs internally developed models that utilize parameters for
probability of default, loss given default and exposure at default.
Management’s judgment is used to determine the point within the
range that is the best estimate of losses, based on an assessment
of business and economic conditions, historical loss experience,
130
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS loan portfolio composition, and other relevant indicators that are not
fully incorporated into the model calculation. Changes in these
assumptions would have a direct impact on the provision for incurred
but not identified credit losses and may result in a change in the
related allowance for credit losses.
FAIR VALUE MEASUREMENT
The fair value of financial instruments traded in active markets at the
balance sheet date is based on their quoted market prices. For all other
financial instruments not traded in an active market, fair value may
be based on other observable current market transactions involving
the same or similar instrument, without modification or repackaging,
or is based on a valuation technique which maximizes the use of
observable market inputs. Observable market inputs may include inter-
est rate yield curves, foreign exchange rates, and option volatilities.
Valuation techniques include comparisons with similar instruments
where observable market prices exist, discounted cash flow analysis,
option pricing models, and other valuation techniques commonly
used by market participants.
For certain complex or illiquid financial instruments, fair value is
determined using valuation techniques in which current market trans-
actions or observable market inputs are not available. Determining
which valuation technique to apply requires judgment. The valuation
techniques themselves also involve some level of estimation and judg-
ment. The judgments include liquidity considerations and model inputs
such as volatilities, correlations, spreads, discount rates, pre-payment
rates, and prices of underlying instruments. Any imprecision in these
estimates can affect the resulting fair value.
The inherent nature of private equity investing is that the Bank’s
valuation will change over time as the underlying investment matures
and an exit strategy is developed and realized. Estimates of fair value
may also fluctuate due to developments in the business underlying the
investment. Such fluctuations may be significant depending on the
nature of the factors going into the valuation methodology and the
extent of change in those factors.
For certain types of equity instruments fair value is assumed to
approximate carrying value where the range of reasonable valuation
techniques is significant and the probabilities of such valuation tech-
niques cannot be reasonably assessed. In such instances fair value may
not be reliably measured due to the equity instruments unique charac-
teristics, including trading restrictions or that quoted market prices
for similar securities are not available.
Judgment is also used in recording fair value adjustments to model
valuations to account for measurement uncertainty when valuing
complex and less actively traded financial instruments. If the market
for a complex financial instrument develops, the pricing for this
instrument may become more transparent, resulting in refinement of
valuation models.
An analysis of fair values of financial instruments and further details
as to how they are measured are provided in Note 5.
DERECOGNITION
Certain assets transferred may qualify for derecognition from the
Bank’s Consolidated Balance Sheet. To qualify for derecognition
certain key determinations must be made. A decision must be made as
to whether the rights to receive cash flows from the financial assets
has been retained or transferred and the extent to which the risks and
rewards of ownership of the financial asset has been retained or trans-
ferred. If the Bank neither transfers nor retains substantially all of the
risks and rewards of ownership of the financial asset, a decision must
be made as to whether the Bank has retained control of the financial
asset. Upon derecognition, the Bank will record a gain or loss on sale
of those assets which is calculated as the difference between the carry-
ing amount of the asset transferred and the sum of any cash proceeds
received, including any financial asset received or financial liability
assumed, and any cumulative gain or loss allocated to the transferred
asset that had been recognized in other comprehensive income. In
determining the fair value of any financial asset received, the Bank
estimates future cash flows by relying on estimates of the amount of
interest that will be collected on the securitized assets, the yield to be
paid to investors, the portion of the securitized assets that will be
prepaid before their scheduled maturity, expected credit losses, the
cost of servicing the assets and the rate at which to discount these
expected future cash flows. Actual cash flows may differ significantly
from those estimated by the Bank. Retained interests are classified as
trading securities and are initially recognized at relative fair value on
the Bank’s Consolidated Balance Sheet. Subsequently, the fair value of
retained interests recognized by the Bank is determined by estimating
the present value of future expected cash flows using management’s
best estimates of key assumptions including credit losses, prepayment
rates, forward yield curves and discount rates, that are commensurate
with the risks involved. Differences between the actual cash flows and
the Bank’s estimate of future cash flows are recognized in income.
These assumptions are subject to periodic review and may change due
to significant changes in the economic environment.
GOODWILL AND OTHER INTANGIBLES
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 to adjust net assets and liabilities by
CGU. These models consider various factors including market risk,
credit risk and operational risk, including investment capital (comprised
of goodwill and other intangibles). Any unallocated capital not directly
attributable to the CGUs is held within the Corporate segment. The
Bank’s capital oversight committees provide oversight to the Bank’s
capital allocation methodologies.
EMPLOYEE BENEFITS
The projected benefit obligation and expense related to the Bank’s
pension and non-pension post-retirement benefit plans are determined
using multiple assumptions that may significantly influence the value
of these amounts. Actuarial assumptions including expected long-term
return on plan assets, compensation increases, health care cost trend
rate, mortality rate, and discount rate are management’s best esti-
mates and are reviewed annually with the Bank’s actuaries. The Bank
develops each assumption using relevant historical experience of the
Bank in conjunction with market-related data and considers if the
market-related data indicates there is any prolonged or significant
impact on the assumptions. The discount rate used to measure plan
obligations is based on long-term high quality corporate bond yields as
at October 31. The expected long-term return on plan assets is based
on historical returns and future expectations for returns for each asset
class, as well as the target asset allocation of the fund. The other
assumptions are also long-term estimates. All assumptions are subject
to a degree of uncertainty. Differences between actual experiences
and the assumptions, as well as changes in the assumptions resulting
from changes in future expectations, result in increases or decreases in
the pension and non-pension post-retirement benefit plan obligations
and expenses in future years.
131
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS INCOME TAXES
The Bank is subject to taxation in numerous jurisdictions. There are
many transactions and calculations in the ordinary course of business
for which the ultimate tax determination is uncertain. The Bank main-
tains provisions for uncertain tax positions that it believes appropriately
reflect the risk of tax positions under discussion, audit, dispute, or
appeal with tax authorities, or which are otherwise considered to
involve uncertainty. These provisions are made using the Bank’s best
estimate of the amount expected to be paid based on an assessment
of all relevant factors, which are reviewed at the end of each reporting
period. However, it is possible that at some future date, an additional
liability could result from audits by the relevant taxing authorities.
Deferred tax assets are recognized only when it is probable that
sufficient taxable profit will be available in future periods against
which deductible temporary differences may be utilized. The amount
of the deferred tax asset recognized and considered realizable could,
however, be reduced if projected income is not achieved due to various
factors, such as unfavourable business conditions. If projected income
is not expected to be achieved, the Bank would decrease its deferred
tax assets to the amount that it believes can be realized. The magni-
tude of the decrease is significantly influenced by the Bank’s forecast
of future profit generation, which determines the extent to which it
will be able to utilize the deferred tax assets.
PROVISIONS
Provisions arise when there is some uncertainty in the timing or amount
of a loss in the future. Provisions are based on the Bank’s best estimate
of all expenditures required to settle its present obligations, considering
all relevant risks and uncertainties, as well as, when material, the effect
of the time value of money.
Many of the Bank’s provisions relate to various legal actions that the
Bank is involved in during the ordinary course of business. Legal provi-
sions require the involvement of both the Bank’s management and
legal counsel when assessing the probability of a loss and estimating
any monetary impact. Throughout the life of a provision, the Bank’s
management or legal counsel may learn of additional information that
may impact its assessments about the probability of loss or about the
estimates of amounts involved. Changes in these assessments may lead
to changes in the amount recorded for provisions. In addition, the
actual costs of resolving these claims may be substantially higher or
lower than the amounts recognized. The Bank reviews its legal provi-
sions on a case-by-case basis after considering, among other factors,
the progress of each case, the Bank’s experience, the experience of
others in similar cases, and the opinions and views of legal counsel.
Certain of the Bank’s provisions relate to restructuring initiatives
initiated by the Bank to reduce costs in a sustainable manner and
achieve greater operational efficiencies. Restructuring provisions
require management’s best estimate, including forecasts of economic
conditions. Throughout the life of a provision, the Bank may become
aware of additional information that may impact the assessment of
amounts to be incurred. Changes in these assessments may lead to
changes in the amount recorded for provisions.
INSURANCE
The assumptions used in establishing the Bank’s insurance claims and
policy benefit liabilities are based on best estimates of possible outcomes.
For property and casualty insurance, the ultimate cost of claims liabil-
ities is estimated using a range of standard actuarial claims projection
techniques in accordance with Canadian accepted actuarial practices.
The main assumption underlying these techniques is that a company’s
past claims development experience can be used to project future
claims development and hence ultimate claims costs. As such, these
methods extrapolate the development of paid and incurred losses,
average costs per claim and claim numbers based on the observed
development of earlier years and expected loss ratios. Additional quali-
tative judgment is used to assess the extent to which past trends may
or may not apply in the future, in order to arrive at the estimated
ultimate claims cost that present the most likely outcome.
For life and health insurance, actuarial liabilities consider all future
policy cash flows, including premiums, claims, and expenses required
to administer the policies.
The Bank’s mortality assumptions have been derived from a combi-
nation of its own experience and industry experience. Policyholders
may allow their policies to lapse by choosing not to continue to pay
premiums. The Bank bases its estimates of future lapse rates on previous
experience when available, or industry experience. Estimates of future
policy administration expenses are based on the Bank’s previous and
expected future experience.
CONSOLIDATION OF SPECIAL PURPOSE ENTITIES
Management judgment is required when assessing whether the Bank
should consolidate an entity, particularly complex entities. For instance,
given that SPEs may not be controlled directly through holding the
majority of voting rights, management judgment is required to assess
whether all the relevant facts and circumstances, when considered
together, would indicate that the Bank controls such an SPE, including
an analysis of the Bank’s exposure to the risks and rewards of the SPE.
These judgments are discussed further in Note 2.
N O T E 4
CURRENT AND FUTURE CHANGES IN ACCOUNTING POLICIES
CURRENT CHANGE IN ACCOUNTING POLICY
The following amendment has been adopted by the Bank.
Presentation of Other Comprehensive Income
Effective November 1, 2012, the Bank adopted the amendments
to IAS 1, Presentation of Financial Statements (IAS 1), issued in
June 2011, which require entities to group items presented in other
comprehensive income on the basis of whether they might be reclas-
sified to the Consolidated Statement of Income in subsequent periods
and items that will not be reclassified to the Consolidated Statement
of Income. The amendments did not address which items are
presented in other comprehensive income and did not change the
option to present items net of tax. The amendments to IAS 1 were
applied retrospectively and did not have a material impact on the
financial position, cash flows or earnings of the Bank.
FUTURE CHANGES IN ACCOUNTING POLICIES
The following standards have been issued, but are not yet effective on
the date of issuance of the Bank’s Consolidated Financial Statements.
The Bank is currently assessing the impact of the application of these
standards on the Consolidated Financial Statements and will adopt
these standards when they become effective.
Consolidation
The following new and amended guidance relates to consolidated
financial statements:
• IFRS 10, Consolidated Financial Statements (IFRS 10), which replaces
IAS 27, Consolidated and Separate Financial Statements (IAS 27),
and SIC-12, Consolidation – Special-Purpose Entities (SIC-12);
• IFRS 11, Joint Arrangements (IFRS 11);
• IFRS 12, Disclosure of Interests in Other Entities (IFRS 12);
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TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS • IFRS 10, 11, 12 (amendments), Consolidated Financial Statements,
Joint Arrangements and Disclosure of Interests in Other Entities:
Transition Guidance;
• IFRS 10, 11, 12 (amendments), Investment Entities; and
• IAS 27 (Revised 2011), Separate Financial Statements (IAS 27R),
which has been amended for conforming changes on the basis of
the issuance of IFRS 10 and IFRS 11.
The standards and amendments will result in a revised definition of
control that applies to all entities. Each of the above standards is
effective for annual periods beginning on or after January 1, 2013,
which will be November 1, 2013 for the Bank, and is to be applied
retrospectively, allowing for certain practical exceptions and transition
relief. The adoption of the above standards will require the Bank to
re-assess its consolidation analyses for all of its investees, including
but not limited to, its subsidiaries, associates, joint ventures, special
purpose entities (SPEs) and its involvement with other third party
entities. Additional detail on the implementation of these standards
is noted below.
Consolidated Financial Statements
The Bank’s adoption of IFRS 10 will result in the deconsolidation of
TD Capital Trust IV (Trust IV) which was previously consolidated by the
Bank. Upon deconsolidation of Trust IV, the TD Capital Trust IV Notes
(TD CaTS IV Notes) issued by Trust IV will be removed from the Bank’s
Consolidated Balance Sheet. This will result in a decrease to Liability
for capital trust securities of $1.75 billion which will be replaced with
an equivalent amount of deposit note liabilities issued by the Bank to
Trust IV, resulting in an increase to deposit note liabilities of $1.75
billion. The impact to the Bank’s opening equity will be a decrease of
approximately $11 million due to the interest rate differential between
the TD CaTS IV Notes and the deposit notes. Other than the deconsoli-
dation of Trust IV, IFRS 10 is not expected to have a material impact on
the financial position, cash flows, or earnings of the Bank.
Joint Arrangements
IFRS 11 replaces guidance previously provided in IAS 31 Interests
in Joint Ventures (IAS 31) and SIC-13 Jointly Controlled Entities –
Non-Monetary Contributions by Venturers. The new standard outlines
the principles relating to the accounting for joint arrangements which
are arrangements where two or more parties have joint control. It
also requires use of the equity method of accounting when accounting
for joint ventures as compared to proportionate consolidation which is
the current accounting policy choice adopted by the Bank under IAS
31. The adoption of IFRS 11 is not expected to have a material impact
on the financial position, cash flows or earnings of the Bank.
Disclosure of Interests in Other Entities
IFRS 12 requires enhanced disclosures about both consolidated entities
and unconsolidated entities in which an entity has involvement. The
objective of IFRS 12 is to present information so that financial state-
ment users may evaluate the basis of control, any restrictions on
consolidated assets and liabilities; risk exposures arising from involve-
ment with unconsolidated structured entities; non-controlling interest
holders’ involvement in the activities of consolidated entities; and the
Bank’s exposure to associates and joint ventures. The adoption of IFRS
12 is not expected to have a material impact on the consolidated
financial statements of the Bank; however the standard will result in
additional disclosures.
Fair Value Measurement
IFRS 13, Fair Value Measurement (IFRS 13), provides a single frame-
work for fair value measurement and applies when other IFRS’s require
or permit fair measurements or disclosures. The standard provides
guidance on measuring fair value using the assumptions that market
participants would use when pricing the asset or liability under current
market conditions. IFRS 13 is effective for annual periods beginning
on or after January 1, 2013, which will be November 1, 2013 for the
Bank, and is to be applied prospectively. This new standard is not
expected to have a material impact on the financial position, cash
flows or earnings of the Bank; however the standard will result in
additional fair value disclosures.
Employee Benefits
The amendments to IAS 19, Employee Benefits, issued in June 2011,
eliminate the corridor approach for actuarial gains and losses, requir-
ing the Bank to recognize immediately all actuarial gains and losses in
other comprehensive income. Net interest expense or income is calcu-
lated by applying the discount rate to the net defined benefit asset or
liability, and will be recorded in the Consolidated Statement of Income,
along with present and past service costs for the period. Plan amend-
ment costs will be recognized in the period of a plan amendment,
irrespective of its vested status. Furthermore, a termination benefit
obligation will be recognized when the Bank can no longer withdraw
the offer of the termination benefit, or when it recognizes related
restructuring costs.
The amendments to IAS 19 are effective for annual periods begin-
ning on or after January 1, 2013, which will be November 1, 2013 for
the Bank, and are to be applied retrospectively. On November 1, 2011,
the transition date, the amendments are expected to result in a
decrease in retained earnings of approximately $136 million, resulting
from the recognition of actuarial losses.
Once the Bank adopts the amendments to IAS 19, the following
approximate impacts are expected:
(millions of Canadian dollars)
Increase (decrease) in deferred tax assets
Increase (decrease) in defined benefit asset
Increase (decrease) in deferred tax liabilities
Increase (decrease) in defined benefit liability
Increase (decrease) in retained earnings1
Increase (decrease) in accumulated other
comprehensive income (loss)2
As at
October 31 October 31
2012
2013
$ 212
(450)
–
346
(578)
$ 372
(425)
–
842
(895)
(6)
–
For the years ended
October 31 October 31
2012
2013
Increase (decrease) in net income after tax
$ (22)
$ (11)
1 As at October 31, 2013, retained earnings includes the following: (a) $(136) million
(October 31, 2012 – $(136) million) adjustment on transition as at November 1,
2011; (b) $(409) million (October 31, 2012 – $(748) million) of unrecognized
actuarial gains (losses) which were elected to be reclassified from accumulated
other comprehensive income; (c) $(22) million (October 31, 2012 – $(11) million)
adjustment relating to net income after tax.
2 Includes cumulative translation adjustments.
Presentation and Disclosures – Offsetting Financial Assets and
Financial Liabilities
In December 2011, the IASB issued the following amendments related
to the offsetting of financial instruments:
• IFRS 7, Financial Instruments: Disclosures (IFRS 7), which provides
common disclosure requirements intended to help investors
and other users to better assess the effect or potential effect of
offsetting arrangements on a company’s financial position; and
• IAS 32, Financial Instruments: Presentation (IAS 32), which clarifies
the existing requirements for offsetting financial assets and
financial liabilities.
133
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
The IFRS 7 amendments are effective for annual periods beginning on
or after January 1, 2013, which will be November 1, 2013 for the
Bank. The IAS 32 amendments are effective for annual periods begin-
ning on or after January 1, 2014, which will be November 1, 2014 for
the Bank. Both amendments are to be applied retrospectively. The IFRS
7 amendments are not expected to have a material impact on the
consolidated financial statements of the Bank; however the standard
will result in additional disclosures. The IAS 32 amendments are not
expected to have a material impact on the financial position, cash
flows or earnings of the Bank.
Levies
In May 2013, the IFRS Interpretations Committee (IFRIC), with the
approval by the IASB, issued IFRIC 21, Levies (IFRIC 21). IFRIC 21
provides guidance on when to recognize a liability to pay a levy
imposed by government that is accounted for in accordance with
IAS 37, Provisions, Contingent Liabilities and Contingent Assets.
IFRIC 21 is effective for annual periods beginning on or after
January 1, 2014, which will be November 1, 2014 for the Bank,
and is to be applied retrospectively. The Bank is currently assessing
the impact of adopting this interpretation.
N O T E 5
FAIR VALUE OF FINANCIAL INSTRUMENTS
Certain financial instruments are carried on the balance sheet at their
fair value. These financial instruments include trading loans and securi-
ties, assets and liabilities designated at fair value through profit or loss,
instruments classified as available-for-sale, derivatives, certain securities
purchased under reverse repurchase agreements, certain deposits
classified as trading, securitization liabilities at fair value, obligations
related to securities sold short, and certain obligations related to secu-
rities sold under repurchase agreements. All other financial assets are
carried at amortized cost and the fair value is disclosed below.
METHODS AND ASSUMPTIONS
The Bank calculates fair values based on the following methods of
valuation and assumptions:
Government and Government-Related Securities
The fair value of Canadian government debt securities is primarily based
on quoted prices in active markets, where available. Where quoted
prices are not available, valuation techniques such as discounted cash
flow models may be used, which maximize the use of observable
inputs such as government yield curves.
The fair value of U.S. federal and state government, as well as
agency debt securities, is determined by reference to recent transac-
tion prices, broker quotes, or third-party vendor prices. Brokers or
third-party vendors may use a pool-specific valuation model to value
these securities. Observable market inputs to the model include To Be
Announced (TBA) market prices, the applicable indices, and metrics
such as the coupon, maturity, and weighted average maturity of the
pool. Market inputs used in the valuation model include, but are not
limited to, indexed yield curves and trading spreads.
Financial Instruments
IFRS 9, Financial Instruments (IFRS 9), reflects the IASB’s work on the
replacement of IAS 39, Financial Instruments: Recognition and
Measurement (IAS 39) and will be completed and implemented in
three separate phases: 1) Classification and measurement of financial
assets and liabilities; 2) Impairment methodology; and 3) Hedge
accounting. General hedge accounting requirements will be added as
part of phase 3 of the IFRS 9 project, while accounting for macro
hedging has been decoupled from IFRS 9 and will now be considered
and issued as a separate standard. The IASB decided in November
2013 to delay the mandatory effective date of IFRS 9 and to leave
open the mandatory effective date pending the finalization of the
impairment requirements. The Bank is currently monitoring the impact
of adopting IFRS 9, as well as any potential future amendments
thereto, including the proposed accounting for macro hedging.
Novation of Derivatives and Continuation of Hedge Accounting
In June 2013, the IASB issued amendments to IAS 39, Financial
Instruments: Recognition and Measurement which provides relief
from discontinuing hedge accounting when novation of a derivative
designated as a hedge accounting instrument meets certain criteria.
The IAS 39 amendments are effective for annual periods beginning on
or after January 1, 2014, which will be November 1, 2014 for the
Bank, and is to be applied retrospectively. The IAS 39 amendments are
not expected to have a material impact on the financial position, cash
flows or earnings of the Bank.
The fair value of residential mortgage-backed securities is primarily
determined using valuation techniques, such as the use of option-
adjusted spread (OAS) models which include inputs such as prepay-
ment rate assumptions related to the underlying collateral. Observable
inputs include, but are not limited to, indexed yield curves, and bid-ask
spreads. Other inputs may include volatility assumptions derived using
Monte Carlo simulations and take into account factors such as coun-
terparty credit quality, liquidity, and concentration.
Other Debt Securities
The fair value of corporate and other debt securities, including debt
securities reclassified from trading, is primarily based on broker quotes,
third-party vendor prices, or other valuation techniques, such as
discounted cash flow techniques. Market inputs used in the valuation
techniques or underlying third-party vendor prices or broker quotes
include benchmark and government yield curves, credit spreads, and
trade execution data.
Asset-backed securities are primarily fair valued using third-party
vendor prices. The third-party vendor employs a valuation model which
maximizes the use of observable inputs such as benchmark yield curves
and bid-ask spreads. The model also takes into account relevant data
about the underlying collateral, such as weighted average terms to
maturity and prepayment rate assumptions.
Equity Securities
The fair value of equity securities is based on quoted prices in active
markets, where available. Where quoted prices in active markets are
not readily available, such as for private equity securities, or there is
a wide bid-offer spread, fair value is determined based on quoted
market prices for similar securities or through valuation techniques,
including discounted cash flow analysis, and multiples of earnings
before taxes, depreciation, and amortization, and other relevant
valuation techniques.
134
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS If there are trading restrictions on the equity security held, a valua-
A credit risk valuation adjustment (CRVA) is recognized against the
tion adjustment is recognized against available prices to reflect the
nature of the restriction. However, restrictions that are not part of the
security held and represent a separate contractual arrangement that
has been entered into by the Bank and a third party should not impact
the fair value of the original instrument.
Retained Interests
The methods and assumptions used to determine fair value of retained
interests are described in Note 3.
Loans
The estimated fair value of loans carried at amortized cost, other than
debt securities classified as loans, reflects changes in market price
that have occurred since the loans were originated or purchased. For
fixed-rate performing loans, estimated fair value is determined by
discounting the expected future cash flows related to these loans at
current market interest rates for loans with similar credit risks. For
floating rate performing loans, changes in interest rates have minimal
impact on fair value since loans reprice to market frequently. On that
basis, fair value is assumed to approximate carrying value. The fair
value of loans is not adjusted for the value of any credit protection
the Bank has purchased to mitigate credit risk.
At initial recognition, debt securities classified as loans do not
include securities with quoted prices in active markets. When quoted
market prices are not readily available, fair value is based on quoted
market prices of similar securities, other third-party evidence or by
using a valuation technique that maximizes the use of observable
market inputs. If quoted prices in active markets subsequently become
available, these are used to determine fair value for debt securities
classified as loans.
The fair value of loans carried at fair value through profit or loss,
which includes trading loans and loans designated at fair value
through profit or loss, is determined using observable market prices,
where available. Where the Bank is a market maker for loans traded in
the secondary market, fair value is determined using executed prices,
or prices for comparable trades. For those loans where the Bank is not
a market maker, the Bank obtains broker quotes from other reputable
dealers, and corroborates this information using valuation techniques
or obtaining consensus or composite prices from pricing services.
Commodities
The fair value of physical commodities is based on quoted prices in
active markets, where available. The Bank also transacts in commodity
derivative contracts which can be traded on an exchange or in OTC
markets. The fair value determination of derivative financial instru-
ments is described below.
Derivative Financial Instruments
The fair value of exchange-traded derivative financial instruments is
based on quoted market prices. The fair value of OTC derivative financial
instruments is estimated using well established valuation techniques,
such as discounted cash flow techniques, the Black-Scholes model, and
Monte Carlo simulation. The valuation models incorporate prevailing
market rates and prices of underlying instruments with similar maturities
and characteristics.
Prices derived by using models are recognized net of valuation
adjustments. The inputs used in the valuation models depend on the
type of derivative and the nature of the underlying instrument and are
specific to the instrument being valued. Inputs can include, but are not
limited to, interest rate yield curves, foreign exchange rates, dividend
yield projections, commodity spot and forward prices, recovery rates,
volatilities, spot prices, and correlation.
model value of OTC derivatives to account for the uncertainty that
either counterparty in a derivative transaction may not be able to fulfill
its obligations under the transaction. In determining CRVA, the Bank
takes into account master netting agreements and collateral, and
considers the creditworthiness of the counterparty and the Bank itself,
in assessing potential future amounts owed to, or by the Bank.
In the case of defaulted counterparties, a specific provision is estab-
lished to recognize the estimated realizable value, net of collateral
held, based on market pricing in effect at the time the default is recog-
nized. In these instances, the estimated realizable value is measured by
discounting the expected future cash flows at an appropriate effective
interest rate immediately prior to impairment, after adjusting for the
value of collateral. The fair value of non-trading derivatives is deter-
mined on the same basis as for trading derivatives.
Deposits
The estimated fair value of term deposits is determined by discounting
the contractual cash flows using interest rates currently offered for
deposits with similar terms.
For deposits with no defined maturities, the Bank considers fair
value to equal carrying value, which is equivalent to the amount
payable on the balance sheet date.
For trading deposits, fair value is determined using discounted cash
flow valuation techniques which maximize the use of observable
market inputs such as benchmark yield curves and foreign exchange
rates. The Bank considers the impact of its own creditworthiness in the
valuation of these deposits by reference to observable market inputs.
Securitization Liabilities
The fair value of securitization liabilities is based on quoted market
prices or quoted market prices for similar financial instruments, where
available. Where quoted prices are not available, fair value is determined
using valuation techniques, which maximize the use of observable
inputs, such as Canada Mortgage Bond prices.
Obligations Related to Securities Sold Short
The fair value of these obligations is based on the fair value of the
underlying securities, which can include equity or debt securities. As
these obligations are fully collateralized, the method used to determine
fair value would be the same as that of the relevant underlying equity
or debt securities.
Securities Purchased Under Reverse Repurchase Agreements
and Obligations Related to Securities Sold under
Repurchase Agreements
Commodities purchased or sold with an agreement to sell or repurchase
them at a later date at a fixed price are carried at fair value on the
Consolidated Balance Sheet. The fair value of these agreements is
based on valuation techniques such as discounted cash flow models
which maximize the use of observable market inputs such as interest
rate swap curves and commodity forward prices.
Subordinated Notes and Debentures
The fair value of subordinated notes and debentures are based on
quoted market prices for similar issues or current rates offered to the
Bank for debt of equivalent credit quality and remaining maturity.
Liabilities for Preferred Shares and Capital Trust Securities
The fair value for preferred share liabilities and capital trust securities
are based on quoted market prices of the same or similar financial
instruments.
Carrying Value and Fair Value of Financial Instruments
The fair values in the following table exclude the value of assets that
are not financial instruments, such as land, buildings and equipment,
as well as goodwill and other intangible assets, including customer
relationships, which are of significant value to the Bank.
135
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS Financial Assets and Liabilities
(millions of Canadian dollars)
FINANCIAL ASSETS
Cash and due from banks
Interest-bearing deposits with banks
Trading loans, securities, and other
Government and government-related securities
Other debt securities
Equity securities
Trading loans
Commodities
Retained interests
Total trading loans, securities, and other
Derivatives
Financial assets designated at fair value through profit or loss
Available-for-sale securities
Government and government-related securities
Other debt securities
Equity securities1
Debt securities reclassified from trading
Total available-for-sale securities
Held-to-maturity securities2
Government and government-related securities
Other debt securities
Total held-to-maturity securities
Securities purchased under reverse repurchase agreements
Loans
Customers’ liability under acceptances
Other assets
FINANCIAL LIABILITIES
Trading deposits
Derivatives
Securitization liabilities at fair value
Other financial liabilities designated at fair value through profit or loss
Deposits
Acceptances
Obligations related to securities sold short
Obligations related to securities sold under repurchase agreements
Securitization liabilities at amortized cost
Other liabilities
Subordinated notes and debentures
Liability for preferred shares and capital trust securities
October 31, 2013
October 31, 2012
Carrying value
Fair value
Carrying value
Fair value
As at
$
3,581
28,855
$
3,581
28,855
$
3,436
21,692
$
3,436
21,692
$ 32,861
9,616
45,751
10,219
3,414
67
$ 101,928
49,461
6,532
$ 32,861
9,616
45,751
10,219
3,414
67
$ 101,928
49,461
6,532
$ 37,897
38,936
1,803
905
$ 79,541
$ 37,897
38,936
1,803
905
$ 79,541
$ 25,890
4,071
$ 29,961
$ 64,283
444,922
6,399
12,680
$ 25,875
4,075
$ 29,950
$ 64,283
445,935
6,399
12,680
$ 47,593
49,471
21,960
12
543,476
6,399
41,829
34,414
25,592
21,727
7,982
1,767
$ 47,593
49,471
21,960
12
544,951
6,399
41,829
34,414
25,864
21,727
8,678
2,277
$ 34,563
7,887
37,691
8,271
6,034
85
$ 94,531
60,919
6,173
$ 61,365
33,864
2,083
1,264
$ 98,576
$
–
–
$
–
$ 69,198
408,848
7,223
10,320
$ 38,774
64,997
25,324
17
487,754
7,223
33,435
38,816
26,190
18,489
11,318
2,250
$ 34,563
7,887
37,691
8,271
6,034
85
$ 94,531
60,919
6,173
$ 61,365
33,864
2,083
1,264
$ 98,576
$
–
–
$
–
$ 69,198
412,409
7,223
10,320
$ 38,774
64,997
25,324
17
490,071
7,223
33,435
38,816
26,581
18,489
12,265
2,874
1 As at October 31, 2013, the carrying values of certain available-for-sale equity
securities of $6 million (October 31, 2012 – $5 million) are assumed to approximate
fair value in the absence of quoted market prices in an active market.
2 Includes debt securities reclassified from available-for-sale to held-to-maturity.
Refer to Note 6, Securities for carrying value and fair value of the reclassified
debt securities.
Fair Value Hierarchy
IFRS requires disclosure of a three-level hierarchy for fair value
measurements based upon transparency of inputs to the valuation of
an asset or liability as of the measurement date. The three levels are
defined as follows:
Level 1: Fair value is based on quoted market prices in active markets
for identical assets or liabilities. Level 1 assets and liabilities generally
include debt and equity securities and derivative contracts that are
traded in an active exchange market, as well as certain Canadian and
U.S. Treasury bills and other Canadian and U.S. Government and
agency mortgage-backed securities, and certain securitization liabili-
ties, that are highly liquid and are actively traded in OTC markets.
Level 2: Fair value is based on observable inputs other than Level 1
prices, such as quoted market prices for similar (but not identical)
assets or liabilities in active markets, quoted market prices for identical
assets or liabilities in markets that are not active, and other inputs that
are observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities. Level 2 assets and
liabilities include debt securities with quoted prices that are traded less
frequently than exchange-traded instruments and derivative contracts
whose value is determined using valuation techniques with inputs that
are observable in the market or can be derived principally from or
corroborated by observable market data. This category generally
includes Canadian and U.S. Government securities, Canadian and U.S.
agency mortgage-backed debt securities, corporate debt securities,
certain derivative contracts, certain securitization liabilities, and certain
trading deposits.
Level 3: Fair value is based on non-observable inputs that are
supported by little or no market activity and that are significant to the
fair value of the assets or liabilities. Financial instruments classified
within Level 3 of the fair value hierarchy are initially fair valued at their
transaction price, which is considered the best estimate of fair value.
After initial measurement, the fair value of Level 3 assets and liabilities
is determined using valuation models, discounted cash flow methodol-
ogies, or similar techniques. This category generally includes retained
interests in certain loan securitizations and certain derivative contracts.
The following table presents the levels within the fair value hierarchy
for each of the financial assets and liabilities measured at fair value as
at October 31, 2013 and October 31, 2012.
136
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
Fair Value Hierarchy for Financial Assets and Liabilities Measured at Fair Value
(millions of Canadian dollars)
October 31, 2013
As at
October 31, 2012
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
FINANCIAL ASSETS
Trading loans, securities, and other
Government and government-related securities
Canadian government debt
Federal
Provinces
U.S. federal, state, municipal governments,
and agencies debt
Other OECD government guaranteed debt
Mortgage-backed securities
Other debt securities
Canadian issuers
Other issuers
Equity securities
Common shares
Preferred shares
Trading loans
Commodities
Retained interests
Derivatives
Interest rate contracts
Foreign exchange contracts
Credit contracts
Equity contracts
Commodity contracts
Financial assets designated at
fair value through profit or loss
Securities
Loans
Available-for-sale securities
Government and government-related securities
Canadian government debt
Federal
Provinces
U.S. federal, state, municipal governments,
and agencies debt
Other OECD government guaranteed debt
Mortgage-backed securities
Other debt securities
Asset-backed securities
Non-agency collateralized mortgage obligation portfolio
Corporate and other debt
Equity securities
Common shares1,2
Preferred shares
Debt securities reclassified from trading
Securities purchased under reverse
repurchase agreements
FINANCIAL LIABILITIES
Trading deposits
Derivatives
Interest rate contracts
Foreign exchange contracts
Credit contracts
Equity contracts
Commodity contracts
Securitization liabilities at fair value
Other financial liabilities designated
at fair value through profit or loss
Obligations related to securities sold short
Obligations related to securities sold
under repurchase agreements
$
304 $ 12,908
4,518
1
$
– $ 13,212 $ 3,556 $ 11,649
3,731
–
4,519
–
$
– $ 15,205
3,731
–
105
–
–
11,250
2,685
1,090
– 11,355
2,685
–
1,090
–
1,932
–
–
8,889
3,510
1,296
–
–
–
10,821
3,510
1,296
–
–
2,931
6,596
5
84
2,936
6,680
–
–
2,223
5,590
17
57
2,240
5,647
38,020
64
–
3,414
–
7,652
–
10,219
–
–
$ 41,908 $ 59,849
15 45,687
–
64
– 10,219
3,414
–
67
67
5,850
–
8,271
–
–
$ 171 $ 101,928 $ 43,286 $ 51,009
31,740
24
–
6,034
–
77
–
–
–
85
37,667
24
8,271
6,034
85
$ 236 $ 94,531
$
$
$
$
$
$
$
$
$
$
$
168
–
–
60
1 $ 25,690
14,106
60
8,131
263
229 $ 48,250
$
– $ 25,691 $
13 14,287
63
9,089
331
3
958
8
$ 982 $ 49,461 $
7 $ 38,605
13,116
140
37
–
7,755
–
131
379
278 $ 59,892
$
16
12
691
23
7 $ 38,619
13,272
49
8,446
533
$ 749 $ 60,919
670 $ 5,853
–
670 $ 5,853
–
– $ 9,329
2,588
–
–
–
–
–
–
–
15,176
7,986
2,810
29,320
963
8,634
197
30
–
222
–
677
227 $ 77,705
$
$
$
– $ 6,523 $
9
9 $ 6,532 $
9
603 $ 5,557
–
603 $ 5,557
–
– $ 9,329 $ 6,533 $ 4,322
2,503
–
2,588
–
– 15,176
7,994
8
2,810
–
125
–
–
29,530
17,208
1,142
$
$
$
– $ 6,160
13
13
13 $ 6,173
– $ 10,855
2,503
–
–
2
–
29,655
17,210
1,142
– 29,320
963
–
8,653
19
–
–
–
25,045
961
7,801
–
–
57
25,045
961
7,858
1,212
136
228
206
69
1,099
$ 1,603 $ 79,535 $ 6,855 $ 89,886
1,631
166
905
197
–
–
1,846
1,443
232
163
165
1,264
$ 1,830 $ 98,571
– $ 5,331
$
– $ 5,331 $
– $ 9,340
$
– $ 9,340
– $ 46,197
$ 1,396 $ 47,593 $
– $ 37,674
$ 1,100 $ 38,774
149
–
–
56
1 $ 22,789
15,535
355
8,892
266
206 $ 47,837
– $ 21,960
$
58 $ 22,848 $
12 15,696
358
1,350 10,242
327
3
5
$ 1,428 $ 49,471 $
– $ 21,960 $
$
8 $ 33,084
21,547
105
236
–
8,268
–
103
495
216 $ 63,630
– $ 25,324
14
11
1,011
11
$ 104 $ 33,196
21,666
247
9,279
609
$ 1,151 $ 64,997
– $ 25,324
$
$
–
– $
$ 17,698 $ 24,124
$
$
12 $
–
7 $ 41,829 $ 15,125 $ 18,289
12 $
– $
$
$
17 $
17
21 $ 33,435
$
– $ 5,825
$
– $ 5,825 $
– $ 10,232
$
– $ 10,232
1 As at October 31, 2013, the carrying values of certain available-for-sale equity
securities of $6 million (October 31, 2012 – $5 million) are assumed to approximate
fair value in the absence of quoted market prices in an active market.
2 As at October 31, 2013, common shares include the fair value of Federal Reserve
Stock and Federal Home Loan Bank stock of $930 million (October 31, 2012 –
$956 million) which are redeemable by the issuer at cost for which cost approximates
fair value. These securities cannot be traded in the market, hence these securities
have not been subject to sensitivity analysis of Level 3 financial assets and liabilities.
137
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
As at October 31, 2013, the Bank transferred $4 billion off-the run
treasury securities classified as trading and $4.2 billion classified as
available for sale from Level 1 to Level 2. In addition the Bank trans-
ferred $2.3 billion off-the-run treasury securities sold short from
level 1 to level 2. There were no significant transfers between level 1
and level 2 during the year ended October 31, 2012.
The following tables reconcile changes in fair value of all assets and
liabilities measured at fair value using significant Level 3 non-observable
inputs for the year ended October 31, 2013 and October 31, 2012.
Reconciliation of Changes in Fair Value for Level 3 Financial Assets and Liabilities
(millions of Canadian dollars)
Total realized and
unrealized gains (losses)
Movements
Transfers
Fair value
as at
Nov. 1,
2012
Included
in income1
Included
in OCI
Purchases
Issuances
Other2
Into
Level 3
Out of
Level 3
Fair value
as at
Change in
unrealized
gains
(losses) on
Oct. 31, instruments
still held3
2013
FINANCIAL ASSETS
Trading loans, securities, and other
Government and government-
related securities
Canadian government debt
Provinces
Other debt securities
Canadian issuers
Other issuers
Equity securities
Common shares
Preferred shares
Retained interests
Financial assets designated
at fair value through
profit or loss
Loans
Available-for-sale securities
Government and government-
related securities
Other OECD government
guaranteed debt
Other debt securities
Corporate and other debt
Equity securities
Common shares
Preferred shares
Debt securities reclassified
from trading
$
–
$
17
57
–
2
2
77
–
85
$ 236
–
–
6
$ 10
$
–
$ 182
$
–
$ (182)
$
–
$
–
$
–
$
–
–
–
–
–
–
–
79
339
134
88
–
$ 822
$
–
–
(111)
(369)
–
–
10
$ 10
(196)
(88)
(34)
$ (980)
22
67
–
–
–
$ 89
(4)
(12)
5
84
–
–
–
15
–
67
$ (16) $ 171
–
(2)
–
–
(13)
$ (15)
$
$
13
13
$
$
4
4
$
$
–
–
$
$
–
–
$
$
–
–
$
$
(8)
(8)
$
$
–
–
$
$
–
–
$
$
9
9
$ 1
$ 1
$
–
$
8
$
–
$
(2)
$
–
$
–
$
8
$
–
$
2
$
57
–
1
(3)
–
1,443
163
27
(1)
(7)
(21)
111
–
165
$ 1,830
11
$ 38
7
$ (24)
–
$ 119
$
–
–
–
–
–
(36)
–
(421)
(5)
(2)
$ (466)
59
–
54
$ 113
19
(4)
–
–
–
1,212
136
37
7
20
$ 60
(7)
228
$ (7) $ 1,603
Total realized and
unrealized losses (gains)
Movements
Transfers
Fair value
as at
Nov. 1,
2012
Included
in income1
Included
in OCI
Purchases
Issuances
Other2
Into
Level 3
Out of
Level 3
Fair value
as at
Change in
unrealized
losses
(gains) on
Oct. 31, instruments
still held3
2013
FINANCIAL LIABILITIES
Trading deposits
Derivatives4
Interest rate contracts
Foreign exchange contracts
Credit contracts
Equity contracts
Commodity contracts
Other financial liabilities
designated at fair value
through profit or loss
Obligations related to
securities sold short
$ 1,100
$ (24)
$ –
$
–
$ 375
$ (384)
$ 336
$ (7) $ 1,396
$ 46
$
97
(2)
(1)
320
(12)
$ 402
$ (32)
(1)
1
143
7
$ 118
$ –
–
–
–
–
$ –
$
–
–
–
(125)
–
$ (125)
$
–
–
–
180
–
$ 180
$
(7)
3
–
(125)
2
$ (127)
$
–
(1)
–
(1)
–
$ (2)
$
$
–
–
–
–
–
–
$
58
(1)
–
392
(3)
$ 446
$ (33)
1
2
141
(1)
$ 110
$
$
17
$ 14
$ –
$
–
$ 178
$ (197)
$
–
$
–
$
12
$ 1
21
$
–
$ –
$ (47)
$
–
$ 33
$
–
$
–
$
7
$
–
1 Gains (losses) on financial assets and liabilities are recognized in Net securities gains
4 As at October 31, 2013, consists of derivative assets of $982 million (November 1,
(losses), Trading income (losses), and Other income (loss) on the Consolidated
Statement of Income.
2 Consists of sales and settlements.
3 Changes in unrealized gains (losses) on available-for-sale securities are recognized
in accumulated other comprehensive income.
2012 – $749 million) and derivative liabilities of $1,428 million (November 1,
2012 – $1,151 million), which have been netted on this table for presentation
purposes only.
138
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
Reconciliation of Changes in Fair Value for Level 3 Financial Assets and Liabilities
(millions of Canadian dollars)
Total realized and
unrealized gains (losses)
Movements
Transfers
Fair value
as at
Nov. 1,
2011
Included
in income1
Included
in OCI
Purchases
Issuances
Other2
Into
Level 3
Out of
Level 3
Change in
unrealized
gains
(losses) on
instruments
still held3
Fair value
as at
Oct. 31,
2012
FINANCIAL ASSETS
Trading loans, securities, and other
Government and government-
related securities
Canadian government debt
Federal
Provinces
Other debt securities
Canadian issuers
Other issuers
Equity securities
Common shares
Trading loans
Retained interests
Financial assets designated
at fair value through
profit or loss
Loans
Available-for-sale securities
Government and government-
related securities
Other OECD government
guaranteed debt
Other debt securities
Corporate and other debt
Equity securities
Common shares
Preferred shares
Debt securities reclassified
from trading
FINANCIAL LIABILITIES
Trading deposits
Derivatives4
Interest rate contracts
Foreign exchange contracts
Credit contracts
Equity contracts
Commodity contracts
Other financial liabilities
designated at fair value
through profit or loss
Obligations related to
securities sold short
$
–
5
30
79
$
–
–
4
8
–
3
52
$ 169
–
–
17
$ 29
$ –
–
–
–
–
–
–
$ –
$
1
3
29
276
89
2
28
$ 428
$
–
–
–
–
–
–
9
$ 9
$
–
(10)
(52)
(272)
(12)
(8)
(21)
$ (375)
$ –
5
29
50
–
3
–
$ 87
$
(1) $
(3)
(23)
(84)
–
–
17
57
–
–
–
77
–
85
$ (111) $ 236
$ –
–
2
(4)
–
–
10
$ 8
$
$
8
8
$ 14
$ 14
$ –
$ –
$
$
–
–
$
$
–
–
$
$
(9)
(9)
$ –
$ –
$
$
–
–
$
$
13
13
$ 5
$ 5
$
–
$
–
$ –
$
2
$
–
$
–
$ –
$
–
$
2
$ –
24
1
1
1,524
190
114
(21)
158
$ 1,896
12
$ 106
(33)
47
13
$ 28
14
66
1
–
$ 83
$
–
–
–
–
–
(2)
45
(26)
57
1
(228)
(54)
(9)
$ (293)
–
–
–
–
1,443
163
(11)
39
22
$ 67
165
(31)
(57) $ 1,830
$
8
$ 37
Total realized and
unrealized (gains) losses
Movements
Transfers
Fair value
as at
Nov. 1,
2011
Included
in income1
Included
in OCI
Purchases
Issuances
Other2
Into
Level 3
Out of
Level 3
Change in
unrealized
(gains)
losses on
instruments
still held3
Fair value
as at
Oct. 31,
2012
$ 1,080
$ 16
$ –
$
–
$ 395
$ (392)
$ 1
$
81
(2)
10
343
1
$ 433
$ 10
–
(14)
(18)
(13)
$ (35)
$ –
–
–
–
–
$ –
$
5
–
–
(134)
–
$ (129)
$
–
–
–
187
–
$ 187
$
$
–
–
3
(59)
(1)
(57)
$ 1
–
(2)
1
–
$ –
$
$
$
–
–
–
2
–
1
3
$ 1,100
$ 26
$
97
(2)
(1)
320
(12)
$ 402
$ 15
–
(3)
(13)
(11)
$ (12)
$
$
27
$ (65)
$ –
$
–
$ 188
$ (135)
$ 2
$
–
$
17
$ (65)
2
$
–
$ –
$
(6)
$
–
$ 37
$ 2
$
(14) $
21
$ 5
1 Gains (losses) on financial assets and liabilities are recognized in Net securities
4 As at October 31, 2012, consists of derivative assets of $749 million (November 1,
gains (losses), Trading income (loss), and Other income (loss) on the Consolidated
Statement of Income.
2 Consists of sales and settlements.
3 Changes in unrealized gains (losses) on available-for-sale securities are recognized
in accumulated other comprehensive income.
2011 – $685 million) and derivative liabilities of $1,151 million (November 1,
2011 – $1,118 million), which have been netted on this table for presentation
purposes only.
139
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
Significant transfers into and out of Level 3 reflected in the table
above, occur mainly due to the following reasons:
• Transfers from Level 3 to Level 2 occur when techniques used for
valuing the instrument incorporate significant observable market
inputs or broker-dealer quotes which were previously not observable.
• Transfers from Level 2 to Level 3 occur when an instrument’s fair
value, which was previously determined using valuation techniques
with significant observable market inputs, is now determined using
valuation techniques with significant non-observable inputs.
Due to the unobservable nature of the inputs used to value Level 3
financial instruments there may be uncertainty about the valuation of
these instruments. The fair value of level 3 instruments may be drawn
from a range of reasonably possible alternatives. In determining the
appropriate levels for these unobservable inputs, parameters are chosen
so that they are consistent with prevailing market evidence and
management judgement.
Sensitivity Analysis of Level 3 Financial Assets and Liabilities
(millions of Canadian dollars)
FINANCIAL ASSETS
Trading loans, securities, and other
Equity securities
Common shares
Preferred shares
Retained interests
Derivatives
Interest rate contracts
Foreign exchange contracts
Equity contracts
Available-for-sale securities
Government and government related securities
Other OECD government guaranteed debt
Other debt securities
Corporate and other debt
Equity securities
Common shares
Preferred shares
Debt securities reclassified from trading
FINANCIAL LIABILITIES
Trading deposits
Derivatives
Interest rate contracts
Equity contracts
Other financial liabilities designated at fair value through profit or loss
Total
The following table summarizes the potential effect of using reason-
ably possible alternative assumptions for financial assets and financial
liabilities held, as at October 31, 2013 and October 31, 2012, that
are classified in Level 3 of the fair value hierarchy. For interest rate
derivatives, the Bank performed a sensitivity analysis on the unobserv-
able implied volatility. For credit derivatives, sensitivity was calculated
on unobservable credit spreads using assumptions derived from the
underlying bond position credit spreads. For equity derivatives, the
sensitivity is calculated by using reasonably possible alternative
assumptions by shocking dividends by 5%, correlation by 10%, or
the price of the underlying equity instrument by 10% and volatility
from (13)% to 33%. For trading deposits the sensitivity is calculated
by varying unobservable inputs which may include volatility, credit
spreads, and correlation.
October 31, 2013
Impact to net assets
As at
October 31, 2012
Impact to net assets
Decrease in
fair value
Increase in
fair value
Decrease in
fair value
Increase in
fair value
$ 1
–
5
6
–
–
30
30
1
2
45
7
4
59
$
1
–
2
3
–
–
35
35
1
–
18
7
4
30
$
4
–
7
11
2
–
36
38
–
2
97
8
4
111
$ 4
–
3
7
2
–
47
49
–
2
24
8
4
38
5
9
3
6
23
49
72
2
$ 174
17
42
59
2
$ 138
36
66
102
3
$ 268
26
50
76
3
$ 179
140
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
The best evidence of a financial instrument’s fair value at initial recog-
nition is its transaction price unless the fair value of the instrument
is evidenced by comparison with other observable current market
transactions in the same instrument (that is, without modification or
repackaging) or based on a valuation technique whose variables
include only data from observable markets. Consequently, the differ-
ence between the fair value using other observable current market
transactions or a valuation technique and the transaction price results
in an unrealized gain or loss at initial recognition.
The difference between the transaction price at initial recognition
and the value determined at that date using a valuation technique
is not recognized in income until the non-observable inputs in the
valuation technique used to value the instruments become observable.
The following table summarizes the aggregate difference yet to be
recognized in net income due to the difference between the transac-
tion price and the amount determined using valuation techniques with
non-observable market inputs at initial recognition.
(millions of Canadian dollars)
Balance as at beginning of year
New transactions
Recognized in the Consolidated Statement
of Income during the year
Balance as at end of year
2013
$ 48
32
(39)
$ 41
2012
$ 35
34
(21)
$ 48
FINANCIAL ASSETS AND LIABILITIES DESIGNATED
AT FAIR VALUE
Loans Designated at Fair Value through Profit or Loss
Certain business and government loans held within a trading portfolio
or economically hedged with derivatives are designated at fair value
through profit or loss if the relevant criteria are met. The fair value
of loans designated at fair value through profit or loss was $9 million
as at October 31, 2013 (October 31, 2012 – $13 million), which
represents their maximum credit exposure.
These loans are managed within risk limits that have been approved
by the Bank’s risk management group and are hedged for credit risk
with credit derivatives.
Securities Designated at Fair Value through Profit or Loss
Certain securities that support insurance reserves within certain of
the Bank’s insurance subsidiaries have been designated at fair value
through profit or loss. The actuarial valuation of the insurance reserve
is measured using a discount factor which is based on the yield of the
supporting invested assets, with changes in the discount factor being
recognized in the Consolidated Statement of Income. By designating
the securities at fair value through profit or loss, the unrealized gain or
loss on the securities is recognized in the Consolidated Statement of
Income in the same period as a portion of the income or loss resulting
from changes to the discount rate used to value the insurance liabilities.
In addition, certain government and government-insured securities
have been combined with derivatives to form economic hedging
relationships. These securities are being held as part of the Bank’s overall
interest rate risk management strategy and have been designated at fair
value through profit or loss. The derivatives are carried at fair value, with
the change in fair value recognized in non-interest income.
Securitization Liabilities at Fair Value
Securitization liabilities at fair value include securitization liabilities
classified as trading and those designated at fair value through profit
or loss. The fair value of a financial liability incorporates the credit risk
of that financial liability. The holders of the securitization liabilities are
not exposed to credit risk of the Bank and accordingly, changes in the
Bank’s own credit do not impact the determination of fair value.
The amount that the Bank would be contractually required to pay at
maturity for all securitization liabilities designated at fair value through
profit or loss was $123 million less than the carrying amount as at
October 31, 2013 (October 31, 2012 – $445 million less than the
carrying amount).
Other Liabilities Designated at Fair Value through Profit or Loss
The Bank issues certain loan commitments to customers to provide
a mortgage at a fixed rate. These commitments are economically
hedged with derivatives and other financial instruments where the
changes in fair value are recognized in non-interest income. The desig-
nation of these loan commitments at fair value through profit or loss
eliminates an accounting mismatch that would otherwise arise. Due
to the short term nature of these loan commitments, changes in the
Bank’s own credit do not have a significant impact on the determina-
tion of fair value.
Income (Loss) from Changes in Fair Value of Financial Assets
and Liabilities Designated at Fair Value through Profit or Loss
During the year ended October 31, 2013 the income (loss) repre-
senting net changes in the fair value of financial assets and liabilities
designated at fair value through profit or loss was $(129) million
(2012 – $(5) million).
141
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
N O T E 6
SECURITIES
RECLASSIFICATION OF CERTAIN DEBT SECURITIES –
TRADING TO AVAILABLE-FOR-SALE
During 2008, the Bank changed its trading strategy with respect to
certain debt securities as a result of deterioration in markets and
severe dislocation in the credit market. These debt securities were
initially recorded as trading securities measured at fair value with any
changes in fair value as well as any gains or losses realized on disposal
recognized in Trading income. Since the Bank no longer intended to
actively trade in these debt securities, the Bank reclassified these debt
securities from trading to available-for-sale effective August 1, 2008.
The fair value of the reclassified debt securities was $905 million
as at October 31, 2013 (October 31, 2012 – $1,264 million). For the
year ended October 31, 2013, net interest income of $62 million
after tax (year ended October 31, 2012 – $90 million after tax) was
recorded relating to the reclassified debt securities. The decrease in
fair value of these securities during the year ended October 31, 2013
of $25 million after tax (October 31, 2012 – increase of $26 million
after tax) was recorded in other comprehensive income. Had the Bank
not reclassified these debt securities, the change in the fair value of
these debt securities would have been included as part of trading
income, the impact of which would have resulted in a decrease in
net income for the year ended October 31, 2013 of $25 million after
tax (October 31, 2012 – increase of $26 million after tax). During the
year ended October 31, 2013, reclassified debt securities with a fair
value of $420 million (October 31, 2012 – $789 million) were sold or
matured, and $28 million after tax (October 31, 2012 – $23 million
after tax) was recorded in net securities gains during the year ended
October 31, 2013.
RECLASSIFICATIONS OF CERTAIN SECURITIES FROM
AVAILABLE-FOR-SALE TO HELD-TO-MATURITY
a) On March 1, 2013, the Bank reclassified certain debt securities total-
ling $11.1 billion from available-for-sale to held-to-maturity. For these
debt securities, the Bank’s strategy is to earn the yield to maturity to
aid in prudent capital management under Basel III. These debt secu-
rities were previously recorded at fair value, with changes in fair
value recognized in other comprehensive income. The reclassification
is a non-cash transaction that is excluded from the Consolidated
Statement of Cash Flows.
The fair value and carrying value of the reclassified debt securities
was $9.4 billion and $9.4 billion, respectively, as at October 31,
2013. The decrease in fair value of these securities recorded in other
comprehensive income from November 1, 2012 to February 28,
2013 was $20 million after tax (year ended October 31, 2012 –
increase in fair value of $106 million after tax). On the date of
reclassification, these debt securities had a weighted-average effec-
tive interest rate of 1.8% with expected recoverable cash flows, on
an undiscounted basis, of $11.3 billion. Subsequent to the date of
reclassification, the net unrealized gain recognized in other compre-
hensive income is amortized to interest income over the remaining
life of the reclassified debt securities using the EIRM. Had the Bank
not reclassified these debt securities, the change in the fair value
recognized in other comprehensive income for these debt securities
would have been a decrease of $81 million for the period March 1,
2013 to October 31, 2013. After the reclassification, the debt secu-
rities contributed the following amounts to net income.
(millions of Canadian dollars)
Net interest income1
Net income before income taxes
Provision for (recovery of) income taxes
Net income
For the period
March 1, 2013 to
October 31, 2013
$ 119
119
30
$ 89
1 Includes amortization of the net unrealized gains associated with these reclassi-
fied held-to-maturity securities and was included in other comprehensive
income on the date of reclassification.
b) On September 23, 2013, the Bank reclassified certain debt securities
totalling $9.9 billion from available-for-sale to held-to-maturity. For
these debt securities, the Bank’s strategy is to earn the yield to
maturity to aid in prudent capital management under Basel III. These
debt securities were previously recorded at fair value, with changes
in fair value recognized in other comprehensive income. The reclas-
sification is a non-cash transaction that is excluded from the Consol-
idated Statement of Cash Flows.
The fair value and carrying value of the reclassified debt securities
was $10.0 billion and $9.9 billion, respectively, as at October 31,
2013. The decrease in fair value of these securities recorded in other
comprehensive income from November 1, 2012 to September 22,
2013 was $158 million after tax (year ended October 31, 2012 –
increase in fair value of $59 million after tax). On the date of reclas-
sification, these debt securities had a weighted-average effective
interest rate of 1.9% with expected recoverable cash flows, on an
undiscounted basis, of $10.7 billion. Subsequent to the date of
reclassification, the net unrealized gain recognized in other compre-
hensive income is amortized to interest income over the remaining
life of the reclassified debt securities using the EIRM. Had the Bank
not reclassified these debt securities, the change in the fair value
recognized in other comprehensive income for these debt securities
would have been an increase of $37 million for the period Septem-
ber 23, 2013 to October 31, 2013. After the reclassification, the
debt securities contributed the following amounts to net income.
(millions of Canadian dollars)
Net interest income1
Net income before income taxes
Provision for (recovery of) income taxes
Net income
For the period
September 23, 2013 to
October 31, 2013
$ 19
19
7
$ 12
1 Includes amortization of the net unrealized gains associated with these reclassi-
fied held-to-maturity securities and was included in other comprehensive
income on the date of reclassification.
142
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
The remaining terms to contractual maturities of the securities held
by the Bank are as follows:
Securities Maturity Schedule
(millions of Canadian dollars)
As at
October 31 October 31
2012
2013
Within
1 year
Over 1
year to
3 years
Over 3
years to
5 years
Over 5
years to
10 years
Over 10
With no
specific
years maturity
Total
Total
Remaining terms to maturities1
Trading securities2
Government and government-related securities
Canadian government debt
Federal
Provinces
U.S. federal, state, municipal governments, and agencies debt
Other OECD government-guaranteed debt
Mortgage-backed securities
Residential
Commercial
Other debt securities
Canadian issuers
Other issuers
Equity securities
Common shares
Preferred shares
Retained interests
Total trading securities
Available-for-sale securities
Government and government-related securities
Canadian government debt
Federal
Provinces
U.S. federal, state, municipal governments, and agencies debt
Other OECD government-guaranteed debt
Mortgage-backed securities
Other debt securities
Asset-backed securities
Non-agency CMO
Corporate and other debt
Equity securities
Common shares
Preferred shares
Debt securities reclassified from trading
Total available-for-sale securities
Held-to-maturity securities
Government and government-related securities
Canadian government debt
Federal
U.S. federal, state, municipal governments, and agencies debt
Other OECD government guaranteed debt
Other debt securities
Asset-backed securities
Other issuers
Total held-to-maturity securities
Total securities
$ 4,664 $ 2,711 $ 2,072 $ 2,071 $ 1,694 $
549
1,666
175
1,063
685
14
1,707
2,242
1,803
723
1,330
192
477
5,432
501
4,519
– $ 13,212 $ 15,205
–
3,731
11,355 10,821
–
3,510
–
2,685
239
3
10,658
709
41
9,871
62
5
4,529
12
19
4,347
–
–
3,456
598
3,122
3,720
861
1,777
2,638
430
1,158
1,588
747
436
1,183
300
187
487
–
–
–
–
–
–
1,022
68
1,296
–
32,861 34,563
2,936
6,680
9,616
2,240
5,647
7,887
–
–
–
4
45,687 37,667
24
45,751 37,691
85
$ 14,382 $ 12,523 $ 6,123 $ 5,548 $ 3,968 $ 45,751 $ 88,295 $ 80,226
– 45,687
–
64
– 45,751
–
–
–
–
14
–
–
–
18
–
–
–
6
64
67
25
$ 5,041 $
175
177
5,568
22
10,983
206 $ 2,979 $ 1,043 $
540
1,769
1,933
922
5,370
1,417
2,117
371
1,866
8,750
448
5,545
122
–
7,158
60 $
8
5,568
–
–
5,636
2,588
– $ 9,329 $ 10,855
–
2,503
– 15,176 29,655
7,994 17,210
–
–
1,142
2,810
– 37,897 61,365
1,813
–
2,161
3,974
3,229
–
3,819
7,048
9,038
10,464
4,776
963
–
–
2,127
152
394
6,903 10,858 10,153
– 29,320 25,045
961
963
–
–
7,858
8,653
– 38,936 33,864
–
–
–
118
1,851
232
2,083
1,264
$ 15,075 $ 12,771 $ 15,827 $ 18,187 $ 15,846 $ 1,835 $ 79,541 $ 98,576
1,637
166
1,803
905
–
–
–
353
–
–
–
171
–
–
–
174
166
1,803
32
–
–
–
57
1,637
$
259 $
–
1,914
2,173
– $
–
7,002
7,002
– $
– $
– $
1,334
4,093
5,427
7,447
71
7,518
3,770
–
3,770
259 $
– $
– 12,551
– 13,080
– 25,890
–
–
–
–
–
773
773
2,946
–
–
–
–
$ 32,403 $ 33,045 $ 28,828 $ 32,351 $ 23,584 $ 47,586 $ 197,797 $ 178,802
1,239
–
2,832
–
–
4,071
– 29,961
1,098
–
1,098
8,616
141
1,310
1,451
6,878
–
749
749
7,751
–
–
–
3,770
1 Represents contractual maturities. Actual maturities may differ due to prepayment
privileges in the applicable contract.
2 Includes securities designated as fair value through profit or loss.
143
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
Unrealized Gains and Losses on Available-for-Sale Securities
The following tables summarize the unrealized gains and losses as at
October 31, 2013 and October 31, 2012.
Unrealized Securities Gains (Losses)
(millions of Canadian dollars)
October 31, 2013
As at
October 31, 2012
Costs/
Gross
amortized unrealized unrealized
(losses)
Gross
gains
cost1
Costs/
Gross
Fair amortized unrealized unrealized
(losses)
Gross
gains
cost1
value
Fair
value
Available-for-sale securities
Government and government-related securities
Canadian government debt
Federal
Provinces
U.S. federal, state, municipal governments, and agencies debt
Other OECD government guaranteed debt
Mortgage-backed securities
Other debt securities
Asset-backed securities
Non-agency collateralized mortgage obligation portfolio
Corporate and other debt
Equity securities
Common shares
Preferred shares
Debt securities reclassified from trading2
Total available-for-sale securities
Held-to-maturity securities
Government and government-related securities
Canadian government debt
Federal
U.S. federal, state, municipal governments, and agencies debt
Other OECD government guaranteed debt
Other debt securities
Asset-backed securities
Other issuers
Total held-to-maturity securities
Total securities
$ 9,301
2,569
14,971
7,978
2,791
37,610
29,252
948
8,471
38,671
1,557
152
1,709
835
$ 78,825
$
32
21
269
23
22
367
136
15
206
357
108
15
123
86
$ 933
$
(4) $ 9,329 $ 10,818
2,485
(2)
28,821
16,856
1,134
60,114
2,588
(64) 15,176
7,994
2,810
(80) 37,897
(7)
(3)
(68) 29,320
963
–
(24)
8,653
(92) 38,936
24,868
939
7,587
33,394
(28)
(1)
(29)
(16)
1,749
194
1,943
1,165
$ (217) $ 79,541 $ 96,616
1,637
166
1,803
905
$
38
18
865
360
8
1,289
222
22
294
538
117
38
155
130
$ 2,112
$
(1) $ 10,855
2,503
–
29,655
(31)
17,210
(6)
1,142
–
61,365
(38)
(45)
–
(23)
(68)
25,045
961
7,858
33,864
(15)
–
(15)
(31)
1,851
232
2,083
1,264
$ (152) $ 98,576
$
259
12,551
13,080
25,890
1,239
2,832
4,071
29,961
$ 108,786
$
–
44
29
73
8
9
17
90
$ 1,023
$
– $
259 $
(82) 12,513
(6) 13,103
(88) 25,875
$
–
–
–
–
–
–
–
–
$
– $
–
–
–
–
–
–
–
–
(13)
(13)
1,247
–
2,828
–
4,075
(101) 29,950
–
$ (318) $ 109,491 $ 96,616
–
–
–
$ 2,112
–
–
–
–
–
–
$ (152) $ 98,576
1 Includes the foreign exchange translation of amortized cost balances at the
period-end spot rate.
2 Includes the fair value of corporate and other debt securities, as at October 31,
2013 of $905 million (October 31, 2012 – $1,264 million).
144
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
In the following table, unrealized losses for available-for-sale securities
are categorized as “12 months or longer” if for each of the consecutive
12 months preceding October 31, 2013 and October 31, 2012, the fair
value of the securities was less than the amortized cost. If not, they
have been categorized as “Less than 12 months”.
Unrealized Loss Positions for Available-for-Sale Securities
(millions of Canadian dollars)
Available-for-sale securities
Government and government-related securities
Canadian government debt
Federal
Province
U.S. federal, state and municipal governments, and agencies debt
Other OECD government-guaranteed debt
Mortgage-backed securities
Residential
Other debt securities
Asset-backed securities
Corporate and other debt
Equity securities
Common shares
Preferred shares
Debt securities reclassified from trading
Total
Available-for-sale securities
Government and government-related securities
Canadian government debt – federal
U.S. federal, state and municipal governments, and agencies debt
Other OECD government-guaranteed debt
Other debt securities
Asset-backed securities
Corporate and other debt
Equity securities
Common shares
Preferred shares
Debt securities reclassified from trading
Total
Net Securities Gains (Losses)
(millions of Canadian dollars)
Net realized gains (losses)
Available-for-sale securities
Impairment losses
Available-for-sale securities1
Total
1 None of the write-downs for the year ended October 31, 2013, (2012 – nil) related
to debt securities in the reclassified portfolio as described in “Reclassification of
Certain Debt Securities – Trading to Available-for-Sale” above.
As at
October 31, 2013
Less than 12 months
12 months or longer
Total
Gross
Fair unrealized
losses
value
Gross
Fair unrealized
losses
value
Gross
Fair unrealized
losses
value
$
–
–
2,978
1,332
875
5,185
$
–
–
50
6
$ 1,552
325
706
602
$ 4 $ 1,552
325
2
3,684
14
1,934
1
3
59
–
3,185
–
21
875
8,370
8,465
1,363
9,828
44
11
55
648
605
1,253
24
13
37
9,113
1,968
11,081
59
115
174
–
$ 15,187
14
1
15
–
$ 129
22
–
22
85
$ 4,545
81
14
115
–
196
14
16
85
$ 88 $ 19,732
$
4
2
64
7
3
80
68
24
92
28
1
29
16
$ 217
October 31, 2012
$ 4,027
2,656
2,849
9,532
$ 1
17
6
24
$
–
869
–
869
$ – $ 4,027
3,525
14
2,849
–
10,401
14
295
421
716
10
15
25
2,201
395
2,596
35
8
43
2,496
816
3,312
18
–
18
–
$ 10,266
13
–
13
–
$ 62
40
–
40
179
$ 3,684
58
2
–
–
58
2
31
179
$ 90 $ 13,950
$ 1
31
6
38
45
23
68
15
–
15
31
$ 152
For the years ended October 31
2013
2012
2011
$ 312
$ 423
$ 416
(8)
$ 304
(50)
$ 373
(23)
$ 393
145
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
N O T E 7
LOANS, IMPAIRED LOANS AND ALLOWANCE FOR CREDIT LOSSES
The following table presents the Bank’s loans, impaired loans and
related allowances for credit losses.
Loans, Impaired Loans and Allowance for Credit Losses
(millions of Canadian dollars)
Neither
past due
nor
impaired
Past due
but not
impaired
$ 182,169 $ 2,459
5,648
112,528
1,299
20,620
112,779
1,354
$ 428,096 $ 10,760
$ 168,575 $ 2,355
5,645
111,063
922
14,230
1,530
95,893
$ 389,761 $ 10,452
Residential mortgages2,3,4
Consumer instalment and other personal5
Credit card
Business and government2,3,4
Debt securities classified as loans
Acquired credit-impaired loans
Total
Residential mortgages2,3,4
Consumer instalment and other personal5
Credit card
Business and government2,3,4
Debt securities classified as loans
Acquired credit-impaired loans
Total
Gross Loans
Allowance for loan losses1
As at
October 31, 2013
Individually
Counter- insignificant
impaired
Incurred
Total
but not allowance
for loan
losses
identified
loans credit losses
party
specific
Net
loans
Impaired
Total
$ 706 $ 185,334
737 118,913
269 22,188
980 115,113
$ 2,692 $ 441,548
3,744
2,485
$ 447,777
$ 679 $ 171,609
673 117,381
181 15,333
985 98,408
$ 2,518 $ 402,731
4,994
3,767
$ 411,492
$
–
–
–
151
$ 151
173
24
$ 348
$
–
–
–
168
$ 168
185
31
$ 384
$ 22
118
128
30
$ 298
–
93
$ 391
$ 27
118
83
22
$ 250
–
67
$ 317
$
65
541
714
698
$ 2,018
98
–
$ 2,116
$
50
430
605
703
$ 1,788
155
–
$ 1,943
$
87 $ 185,247
659 118,254
842
21,346
879 114,234
$ 2,467 $ 439,081
3,473
2,368
$ 2,855 $ 444,922
271
117
October 31, 2012
$
77 $ 171,532
548 116,833
14,645
688
97,515
893
$ 2,206 $ 400,525
4,654
3,669
$ 2,644 $ 408,848
340
98
1 Excludes allowance for off-balance sheet positions.
2 Excludes trading loans with a fair value of $10,219 million as at October 31, 2013
(October 31, 2012 – $8,271 million) and amortized cost of $9,891 million as at
October 31, 2013 (October 31, 2012 – $7,918 million), and loans designated at
fair value through profit or loss of $9 million as at October 31, 2013 (October 31,
2012 – $13 million). No allowance is recorded for trading loans or loans designated
at fair value through profit or loss.
3 Includes insured mortgages of $129,805 million as at October 31, 2013
(October 31, 2012 – $126,951 million).
4 As at October 31, 2013, impaired loans with a balance of $497 million did not
have a related allowance for loan losses (October 31, 2012 – $456 million). An
allowance was not required for these loans as the balance relates to loans that
are insured or loans where the realizable value of the collateral exceeded the
loan amount.
5 Includes Canadian government-insured real estate personal loans of $26,725 million
as at October 31, 2013 (October 31, 2012 – $30,241 million).
Foreclosed assets are repossessed non-financial assets where the Bank
gains title, ownership or possession of individual properties, such as
real estate properties, which are managed for sale in an orderly manner
with the proceeds used to reduce or repay any outstanding debt. The
Bank does not generally occupy foreclosed properties for its business
use. In order to determine the carrying value of foreclosed assets, the
Bank predominantly relies on third-party appraisals. Foreclosed assets
held for sale were $233 million as at October 31, 2013 (October 31,
2012 – $254 million) and was recorded in Other assets on the Consoli-
dated Balance Sheet.
The following table presents information related to the Bank’s
impaired loans.
Impaired Loans1
(millions of Canadian dollars)
Residential mortgages
Consumer instalment and other personal
Credit card
Business and government
Total
Residential mortgages
Consumer instalment and other personal
Credit card
Business and government
Total
1 Excludes acquired credit-impaired loans and debt securities classified as loans.
2 Represents contractual amount of principal owed.
146
Unpaid
principal
balance2
$ 759
834
269
1,179
$ 3,041
$ 722
744
181
1,639
$ 3,286
Carrying
value
$ 706
737
269
980
$ 2,692
$ 679
673
181
985
$ 2,518
As at
October 31, 2013
Related
allowance
for credit
losses
$ 22
118
128
181
$ 449
Average
gross
impaired
loans
$ 697
709
228
968
$ 2,602
October 31, 2012
$ 27
118
83
190
$ 418
$ 722
457
157
1,092
$ 2,428
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
The change in the Bank’s allowance for credit losses for the years
ended October 31, 2013 and October 31, 2012 are shown in the
following tables.
Allowance for Credit Losses
(millions of Canadian dollars)
Balance
as at
November 1
2012
Provision
for credit
losses
Write-offs
Recoveries
Disposals
Foreign
exchange
and other
adjustments
Balance
as at
October 31
2013
Counterparty-specific allowance
Business and government
Debt securities classified as loans
Total counterparty-specific allowance excluding acquired
credit-impaired loans
Acquired credit-impaired loans1,2
Total counterparty-specific allowance
Collectively assessed allowance for individually
insignificant impaired loans
Residential mortgages
Consumer instalment and other personal
Credit card
Business and government
Total collectively assessed allowance for individually
insignificant impaired loans excluding acquired
credit-impaired loans
Acquired credit-impaired loans1,2
Total collectively assessed allowance for individually
insignificant impaired loans
Collectively assessed allowance for incurred
but not identified credit losses
Residential mortgages
Consumer instalment and other personal
Credit card
Business and government
Debt securities classified as loans
Total collectively assessed allowance for incurred
but not identified credit losses
Allowance for credit losses
Residential mortgages
Consumer instalment and other personal
Credit card
Business and government
Debt securities classified as loans
Total allowance for credit losses excluding acquired
credit-impaired loans
Acquired credit-impaired loans1,2
Total allowance for credit losses
Less: Allowance for off-balance sheet positions3
Allowance for loan losses
$ 170
185
$ 159
13
$
(208)
(11)
$ 41
–
$ –
(22)
$ (11)
8
$ 151
173
355
31
386
27
118
83
22
172
13
185
27
638
536
59
(219)
(14)
(233)
(53)
(822)
(599)
(87)
250
67
1,260
36
(1,561)
(24)
41
5
46
20
182
106
36
344
4
317
1,296
(1,585)
348
50
452
671
824
155
2,152
77
570
754
1,016
340
2,757
98
2,855
211
$ 2,644
14
106
91
(16)
(45)
150
41
744
627
202
(32)
–
–
–
–
–
–
(53)
(822)
(599)
(295)
(11)
1,582
49
1,631
(2)
$ 1,633
(1,780)
(38)
(1,818)
–
$ (1,818)
–
–
–
–
–
–
20
182
106
77
–
385
9
394
–
$ 394
(22)
–
(22)
(3)
(11)
(14)
–
–
–
–
–
–
–
–
–
–
–
(19)
1
2
2
–
5
10
15
1
7
5
25
7
324
24
348
22
118
128
30
298
93
391
65
565
767
833
98
(19)
45
2,328
–
–
–
–
(41)
(41)
–
(41)
–
$ (41)
2
9
7
14
15
47
(1)
46
3
$ 43
87
683
895
1,014
271
2,950
117
3,067
212
$ 2,855
1 Includes all FDIC covered loans and other ACI loans.
2 Other adjustments are required as a result of the accounting for FDIC covered
loans. For additional information, see the “FDIC Covered Loans” section
in this Note.
3 The allowance for credit losses for off-balance sheet positions is recorded in
Provisions on the Consolidated Balance Sheet.
147
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
Allowance for Credit Losses
(millions of Canadian dollars)
Balance
as at
November 1
2011
Provision
for credit
losses
Write-offs
Recoveries
Disposals
Foreign
exchange
and other
adjustments
Balance
as at
October 31
2012
$ 188
179
$ 337
6
$
(377)
–
$ 46
–
$ –
–
$ (24)
–
$ 170
185
Counterparty-specific allowance
Business and government
Debt securities classified as loans
Total counterparty-specific allowance excluding acquired
credit-impaired loans
Acquired credit-impaired loans1,2
Total counterparty-specific allowance
Collectively assessed allowance for individually
insignificant impaired loans
Residential mortgages
Consumer instalment and other personal
Credit card
Business and government
Total collectively assessed allowance for individually
insignificant impaired loans excluding acquired
credit-impaired loans
Acquired credit-impaired loans1,2
Total collectively assessed allowance for individually
367
30
397
32
114
64
34
343
58
401
32
665
353
68
(377)
(60)
(437)
(60)
(794)
(385)
(116)
244
30
1,118
56
(1,355)
(52)
46
–
46
19
134
51
36
240
1
insignificant impaired loans
274
1,174
(1,407)
241
Collectively assessed allowance for incurred
but not identified credit losses
Residential mortgages
Consumer instalment and other personal
Credit card
Business and government
Debt securities classified as loans
Total collectively assessed allowance for incurred
but not identified credit losses
Allowance for credit losses
Residential mortgages
Consumer instalment and other personal
Credit card
Business and government
Debt securities classified as loans
Total allowance for credit losses excluding acquired
credit-impaired loans
Acquired credit-impaired loans1,2
Total allowance for credit losses
Less: Allowance for off-balance sheet positions3
Allowance for loan losses
30
405
312
1,030
149
1,926
62
519
376
1,252
328
2,537
60
2,597
283
$ 2,314
23
48
359
(216)
6
220
55
713
712
189
12
–
–
–
–
–
–
(60)
(794)
(385)
(493)
–
1,681
114
1,795
(74)
$ 1,869
(1,732)
(112)
(1,844)
–
$ (1,844)
–
–
–
–
–
–
19
134
51
82
–
286
1
287
–
$ 287
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$ –
(24)
3
(21)
4
(1)
–
–
3
32
35
(3)
(1)
–
10
–
355
31
386
27
118
83
22
250
67
317
50
452
671
824
155
6
2,152
1
(2)
–
(14)
–
(15)
35
20
2
$ 18
77
570
754
1,016
340
2,757
98
2,855
211
$ 2,644
1 Includes all FDIC covered loans and other ACI loans.
2 Other adjustments are required as a result of the accounting for FDIC covered
loans. For additional information, see the “FDIC Covered Loans” section in
this Note.
3 The allowance for credit losses for off-balance sheet positions is recorded in
Provisions on the Consolidated Balance Sheet.
LOANS PAST DUE BUT NOT IMPAIRED
A loan is classified as past due when a borrower has failed to make a
payment by the contractual due date, taking into account the grace
period, if applicable. The grace period represents the additional time
period beyond the contractual due date during which a borrower may
make the payment without the loan being classified as past due. The
grace period varies depending on the product type and the borrower.
The following table summarizes loans that are contractually past
due but not impaired as at October 31, 2013 and October 31, 2012.
U.S. Personal and Commercial Banking may grant a grace period
of up to 15 days. There were $2.0 billion as at October 31, 2013
(October 31, 2012 – $1.9 billion) of U.S. Personal and Commercial
Banking loans that were past due up to 15 days that are included
in the 1-30 days category in the following tables.
Loans Past Due but not Impaired1
(millions of Canadian dollars)
Residential mortgages
Consumer instalment and other personal
Credit card
Business and government
Total
Residential mortgages
Consumer instalment and other personal
Credit card
Business and government
Total
1 Excludes all ACI loans and debt securities classified as loans.
148
1-30
days
$ 1,560
4,770
956
974
$ 8,260
$ 1,370
4,752
695
1,186
$ 8,003
31-60
days
$ 785
695
216
325
$ 2,021
$ 821
705
144
289
$ 1,959
As at
October 31, 2013
61-89
days
$ 114
183
127
55
$ 479
Total
$ 2,459
5,648
1,299
1,354
$ 10,760
October 31, 2012
$ 164
188
83
55
$ 490
$ 2,355
5,645
922
1,530
$ 10,452
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
Collateral
As at October 31, 2013, the fair value of financial collateral held
against loans that were past due but not impaired was $172 million
(October 31, 2012 – $167 million). In addition, the Bank also holds
non-financial collateral as security for loans. The fair value of non-
financial collateral is determined at the origination date of the loan.
A revaluation of non-financial collateral is performed if there has been
a significant change in the terms and conditions of the loan and/or the
loan is considered impaired. Management considers the nature of the
collateral, seniority ranking of the debt, and loan structure in assessing
the value of collateral. These estimated cash flows are reviewed at
least annually, or more frequently when new information indicates
a change in the timing or amount expected to be received.
Gross Impaired Debt Securities Classified as Loans
As at October 31, 2013, impaired loans excludes $1.2 billion
(October 31, 2012 – $1.5 billion) of gross impaired debt securities
classified as loans. Subsequent to any recorded impairment, interest
income continues to be recognized using the EIR which was used
to discount the future cash flows for the purpose of measuring the
credit loss.
ACQUIRED CREDIT-IMPAIRED LOANS
ACI loans are comprised of commercial, retail and FDIC covered loans,
from the acquisitions of South Financial, FDIC-assisted, Chrysler Finan-
cial, and the acquisitions of the credit card portfolios of MBNA Canada
(MBNA) and Target Corporation (Target), with outstanding unpaid
principal balances of $6.3 billion, $2.1 billion, $874 million, $334
million, and $143 million, respectively, and fair values of $5.6 billion,
$1.9 billion, $794 million, $136 million, and $85 million, respectively
at the acquisition dates.
Acquired Credit-Impaired Loans
(millions of Canadian dollars)
As at
October 31 October 31
2012
2013
FDIC-assisted acquisitions
Unpaid principal balance1
Credit related fair value adjustments2
Interest rate and other related premium/(discount)
Carrying value
Counterparty-specific allowance3
Allowance for individually insignificant impaired loans3
Carrying value net of related allowance –
$ 836
(27)
(22)
787
(5)
(55)
$ 1,070
(42)
(26)
1,002
(5)
(54)
FDIC-assisted acquisitions4
727
943
South Financial
Unpaid principal balance1
Credit related fair value adjustments2
Interest rate and other related premium/(discount)
Carrying value
Counterparty-specific allowance3
Allowance for individually insignificant impaired loans3
Carrying value net of related allowance – South Financial
Other5
Unpaid principal balance1
Credit related fair value adjustments2
Interest rate and other related premium/(discount)
Carrying value
Allowance for individually insignificant impaired loans3
Carrying value net of related allowance – Other
Total carrying value net of related allowance –
1,700
(33)
(48)
1,619
(19)
(38)
1,562
105
(26)
–
79
–
79
2,719
(89)
(111)
2,519
(26)
(12)
2,481
283
(39)
2
246
(1)
245
Acquired credit-impaired loans
$ 2,368
$ 3,669
1 Represents contractual amount owed net of charge-offs since acquisition of the loan.
2 Credit related fair value adjustments include incurred credit losses on acquisition
and are not accreted to interest income.
3 Management concluded as part of the Bank’s assessment of the ACI loans that it
was probable that higher than estimated principal credit losses would result in a
decrease in expected cash flows subsequent to acquisition. As a result, counter-
party-specific and individually insignificant allowances have been recognized.
4 Carrying value does not include the effect of the FDIC loss sharing agreement.
5 Includes Chrysler Financial, MBNA, and Target.
FDIC COVERED LOANS
As at October 31, 2013, the balance of FDIC covered loans was
$787 million (October 31, 2012 – $1,002 million) and was recorded in
Loans on the Consolidated Balance Sheet. As at October 31, 2013, the
balance of indemnification assets was $81 million (October 31, 2012 –
$90 million) and was recorded in Other assets on the Consolidated
Balance Sheet.
N O T E 8
TRANSFERS OF FINANCIAL ASSETS
LOAN SECURITIZATIONS
The Bank securitizes loans to SPEs or non-SPE third parties. Most loan
securitizations do not qualify for derecognition since in certain circum-
stances, the Bank continues to be exposed to substantially all of the
prepayment, interest rate, and/or credit risk associated with the securi-
tized financial assets and has not transferred substantially all of the risk
and rewards of ownership of the securitized assets. Where loans do
not qualify for derecognition, the loan is not derecognized from the
balance sheet, retained interests are not recognized, and a securitization
liability is recognized for the cash proceeds received. Certain transaction
costs incurred are also capitalized and amortized using EIRM.
The Bank securitizes insured residential mortgages under the
National Housing Act Mortgage-Backed Securities (NHA MBS) program
sponsored by the Canada Mortgage and Housing Corporation (CMHC).
The MBS that are created through the NHA MBS program are sold to
the Canada Housing Trust as part of the Canada Mortgage Bond (CMB)
program and to third-party investors. The securitization of these
residential mortgages do not qualify for derecognition as the Bank
continues to be exposed to substantially all of the risks of the
residential mortgages.
The Bank securitizes U.S. originated and purchased residential mort-
gages with U.S. government agencies which qualify for derecognition
from the Bank’s Consolidated Balance Sheet. As part of the securitiza-
tion, the Bank retains the right to service the transferred mortgage
loans. The MBS that are created through the securitization are typically
sold to third-party investors.
The Bank also securitizes personal loans and business and govern-
ment loans to SPEs or non-SPEs. These securitizations may give rise to
full or partial derecognition of the financial assets depending on the
individual arrangement of each transaction.
In addition, the Bank transfers financial assets to certain consolidated
special purposes entities. See Note 9 for further details.
149
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
The following table summarizes the securitized asset types that
did not qualify for derecognition, along with their associated
securitization liabilities.
Financial Assets Not Qualifying for Derecognition Treatment as Part of the Bank’s Securitization Programs
((millions of Canadian dollars)
As at
Nature of transaction
Securitization of residential mortgage loans
Securitization of consumer instalment and other personal loans
Securitization of business and government loans
Other financial assets transferred related to securitization1
Total
Associated liabilities2
October 31, 2013
October 31, 2012
Fair
value
Carrying
amount
Fair
value
Carrying
amount
$ 39,227
–
21
6,911
$ 46,159
$ (47,370)
$ 38,936
–
21
6,832
$ 45,789
$ (47,104)
$ 44,305
361
33
4,961
$ 49,660
$ (50,666)
$ 43,746
361
32
4,960
$ 49,099
$ (50,548)
1 Includes asset-backed securities, asset-backed commercial paper, cash, repurchase
2 Includes securitization liabilities carried at amortized cost of $25,144 million
agreements, and Government of Canada securities used to fulfill funding
requirements of the Bank’s securitization structures after the initial securitization
of mortgage loans.
as at October 31, 2013 (October 31, 2012 – $25,224 million) and securitization
liabilities carried at fair value of $21,960 million as at October 31, 2013
(October 31, 2012 – $25,324 million).
The following table summarizes the residential mortgage loans subject
to continuing involvement accounting.
Securitized Residential Mortgage Loans Subject to Continuing Involvement Accounting
(millions of Canadian dollars)
As at
Original assets securitized
Assets which continue to be recognized
Associated liabilities
October 31, 2013
October 31, 2012
Fair
value
$ 458
458
(453)
Carrying
amount
$ 450
450
(448)
Fair
value
$ 892
892
(968)
Carrying
amount
$ 876
876
(966)
Other Financial Assets Not Qualifying for Derecognition
The Bank enters into certain transactions where it transfers previously
recognized financial assets, such as debt and equity securities, but
retains substantially all of the risks and rewards of those assets. These
transferred financial assets are not derecognized and the transfers are
accounted for as financing transactions. The most common transac-
tions of this nature are repurchase agreements and securities lending
agreements, in which the Bank retains substantially all of the associated
credit, price, interest rate, and foreign exchange risks and rewards
associated with the assets.
The following table summarizes the carrying amount of financial assets
and the associated transactions that did not qualify for derecognition,
as well as their associated financial liabilities.
Other Financial Assets Not Qualifying for Derecognition
(millions of Canadian dollars)
As at
October 31, 2013
October 31, 2012
Carrying amount of assets
Nature of transaction:
Repurchase agreements
Securities lending agreements
Total
Carrying amount of
associated liabilities1
$ 16,658
12,827
$ 29,485
$ 16,884
13,047
$ 29,931
$ 16,775
$ 17,062
1 Associated liabilities are all related to repurchase agreements.
Transferred financial assets that are derecognized in their
entirety but where the Bank has a continuing involvement
Continuing involvement may also arise if the Bank retains any contrac-
tual rights or obligations subsequent to the transfer of financial assets.
Certain business and government loans securitized by the Bank are
derecognized from the Bank’s Consolidated Balance Sheet. In instances
where the Bank fully derecognizes business and government loans,
the Bank may be exposed to the risks of transferred loans through a
retained interest. As at October 31, 2013, the fair value of retained
interests was $52 million (October 31, 2012 – $53 million). There are
no expected credit losses on the retained interests of the securitized
business and government loans as the mortgages are all government
insured. A gain or loss on sale of the loans is recognized immediately
in other income after considering the effect of hedge accounting on
the assets sold, if applicable. The amount of the gain or loss recognized
depends on the previous carrying values of the loans involved in the
transfer, allocated between the assets sold and the retained interests
based on their relative fair values at the date of transfer. The gain on
sale of the loans for the year ended October 31, 2013 was $2 million
(October 31, 2012 – $1 million). For the year ended October 31, 2013,
the trading income recognized on the retained interest was $2 million
(October 31, 2012 – $2 million).
Certain portfolios of U.S. residential mortgages originated by the
Bank are sold and derecognized from the Bank’s Consolidated Balance
Sheet. In instances where the Bank fully derecognizes these U.S.
residential mortgages, the Bank has a continuing involvement to
service those loans. As at October 31, 2013, the carrying value of
these servicing rights was $17 million (October 31, 2012 – $3 million)
and the fair value was $22 million (October 31, 2012 – $4 million).
A gain or loss on sale of the loans is recognized immediately in other
income. The gain on sale of the loans for the year ended October 31,
2013 was $41 million (October 31, 2012 – $1 million).
TRANSFER OF DEBT SECURITIES CLASSIFIED AS LOANS
The Bank sold $539 million of its non-agency collateralized mortgage
obligation securities with no continuing involvement resulting in a
gain on sale of $108 million for the year ended October 31, 2013. The
gain was recorded in Other income on the Consolidated Statement
of Income.
150
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
N O T E 9
SPECIAL PURPOSE ENTITIES
SIGNIFICANT CONSOLIDATED SPECIAL PURPOSE ENTITIES
A SPE is an entity that is created to accomplish a narrow and well-
defined objective. SPEs are consolidated when the substance of the
relationship between the Bank and the SPE indicates that the SPE is
controlled by the Bank. The Bank’s interests in consolidated SPEs
are discussed as follows:
Personal Loans
The Bank securitizes personal loans through consolidated SPEs to
enhance its liquidity position, to diversify its sources of funding and
to optimize management of its balance sheet. Where the SPEs are
created primarily for the Bank’s benefit and the Bank is exposed to the
majority of the residual risks of the SPEs, consolidation is required.
The Bank is restricted from accessing the SPE’s assets under the rele-
vant arrangements.
Credit Cards
The Bank securitizes credit card loans through an SPE. The Bank
acquired substantially all of the credit card portfolio of MBNA Canada
on December 1, 2011. As a result, the Bank has consolidated the
SPE as it serves as a financing vehicle for the Bank’s assets and the
Bank is exposed to the majority of the residual risks of the SPE.
The Bank is restricted from accessing the SPE’s assets under the rele-
vant arrangements.
Other Significant Consolidated SPEs
The Bank consolidates two other significant SPEs as they were created
primarily for the Bank’s benefit and the Bank is exposed to the majority
of the residual risks of the SPEs. One of the SPEs is funded by the Bank
and purchases senior tranches of securitized assets from the Bank’s
existing customers. Further, as at October 31, 2013, the Bank has
currently committed to provide an additional $53 million in funding
to the SPE.
The second SPE was created to guarantee principal and interest
payments in respect of covered bonds issued by the Bank. The Bank
sold assets to the SPE and provided a loan to the SPE to facilitate the
purchase. The Bank is restricted from accessing the SPE’s assets under
the relevant arrangements.
The following table presents information related to the Bank’s significant
consolidated SPEs.
Significant Consolidated SPEs
(millions of Canadian dollars)
Assets reported as loans1,2
Associated liabilities
Maximum exposure to loss
Assets reported as loans1,2
Associated liabilities
Maximum exposure to loss
Personal loans
Credit cards
Fair
value
$ 6,141
6,142
$ 5,461
5,404
Carrying
amount
$ 6,141
6,141
$ 6,141
$ 5,461
5,461
$ 5,461
Fair
value
$ 649
656
$ 1,251
1,276
Carrying
amount
$ 649
649
$ 649
$ 1,251
1,251
$ 1,251
As at
October 31, 2013
Fair
value
$ 11,588
10,621
Other
Carrying
amount
$ 11,603
10,443
$ 11,007
October 31, 2012
$ 12,766
10,287
$ 11,683
10,012
$ 10,544
1 The SPEs assets are comprised of loans which include cash and cash equivalents.
2 $1.1 billion of the underlying personal loans was government insured (October 31,
2012 – $1.1 billion).
SIGNIFICANT NON-CONSOLIDATED SPECIAL PURPOSE ENTITIES
The Bank holds interests in certain significant non-consolidated SPEs
where the Bank is not exposed to the majority of the residual risks
of the SPEs. The Bank’s interests in these non-consolidated SPEs are
as follows:
Multi-Seller Conduits
Multi-seller conduits (also referred to as customer securitization vehi-
cles) provide customers with alternate sources of financing through the
securitization of their assets. The customers sell their receivables to the
conduit and the conduit funds its purchase of the receivables through
issuance of short-term commercial paper to outside investors. Each
seller continues to service its assets and absorb first losses. The Bank
has no rights to the assets as they are owned by the conduit. The Bank
administers the conduits and provides liquidity facilities as well as secu-
rities distribution services; it may also provide credit enhancements.
The liquidity agreements are structured as loan facilities between the
Bank, as the sole liquidity lender, and the Bank-sponsored trusts. If a
trust experiences difficulty rolling over asset-backed commercial paper
(ABCP), the trust may draw on the loan facility, and use the proceeds
to pay maturing ABCP. The liquidity facilities cannot be drawn if a trust
is insolvent or bankrupt, preconditions that must be satisfied preceding
each advance (that is, draw-down on the facility). These preconditions
are in place so that the Bank does not provide credit enhancement
through the loan facilities to the trust.
From time to time, the Bank in its capacity as distribution agent
may hold commercial paper issued by the conduits. During the years
ended October 31, 2013 and 2012, no amounts of ABCP were
purchased pursuant to liquidity agreements. The Bank maintained
inventory positions of ABCP issued by multi-seller conduits as part of
its market-making and investment activities in ABCP. As at October 31,
2013, the Bank held $1,717 million (October 31, 2012 – $128 million)
of ABCP inventory, respectively, out of $9.6 billion (October 31,
2012 – $7.5 billion) total outstanding ABCP issued by the conduits.
The commercial paper held is classified as Trading or Available-for-
sale securities on the Consolidated Balance Sheet. The Bank earns
fees from the conduits which are recognized when earned. The Bank
monitors its ABCP inventory positions as part of the on-going consoli-
dation assessment process.
The Bank’s maximum potential exposure to loss due to its ownership
interest in commercial paper and through the provision of liquidity
facilities for multi-seller conduits was $9.6 billion as at October 31, 2013
(October 31, 2012 – $7.5 billion). Further, the Bank has committed to
an additional $2.0 billion (October 31, 2012 – $2.2 billion) in liquidity
facilities for ABCP that could potentially be issued by the conduits.
151
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
N O T E 1 0
DERIVATIVES
DERIVATIVE PRODUCT TYPES AND RISK EXPOSURES
The majority of the Bank’s derivative contracts are OTC transactions
that are privately negotiated between the Bank and the counterparty to
the contract. The remainder are exchange-traded contracts transacted
through organized and regulated exchanges and consist primarily of
options and futures.
Interest Rate Derivatives
The Bank uses interest rate derivatives, such as interest rate futures
and forwards, swaps, and options in managing interest rate risks.
Interest rate risk is the impact that changes in interest rates could have
on the Bank’s margins, earnings, and economic value. Changes in
interest rate can impact the market value of fixed rate assets and
liabilities. Further, certain assets and liabilities repayment rates vary
depending on interest rates.
Forward rate agreements are OTC contracts that effectively fix a
future interest rate for a period of time. A typical forward rate agree-
ment provides that at a pre-determined future date, a cash settlement
will be made between the counterparties based upon the difference
between a contracted rate and a market rate to be determined in the
future, calculated on a specified notional amount. No exchange of
principal amount takes place.
Interest rate swaps are OTC contracts in which two counterparties
agree to exchange cash flows over a period of time based on rates
applied to a specified notional amount. A typical interest rate swap
would require one counterparty to pay a fixed market interest rate in
exchange for a variable market interest rate determined from time
to time, with both calculated on a specified notional amount. No
exchange of principal amount takes place. Certain interest rate swaps
are transacted and settled through a clearing house which acts as a
central counterparty.
Interest rate options are contracts in which one party (the purchaser
of an option) acquires from another party (the writer of an option), in
exchange for a premium, the right, but not the obligation, either to
buy or sell, on a specified future date or series of future dates or
within a specified time, a specified financial instrument at a contracted
price. The underlying financial instrument will have a market price
which varies in response to changes in interest rates. In managing the
Bank’s interest rate exposure, the Bank acts as both a writer and
purchaser of these options. Options are transacted both OTC and
through exchanges. Interest rate futures are standardized contracts
transacted on an exchange. They are based upon an agreement to buy
or sell a specified quantity of a financial instrument on a specified
future date, at a contracted price. These contracts differ from forward
rate agreements in that they are in standard amounts with standard
settlement dates and are transacted on an exchange.
Foreign Exchange Derivatives
The Bank uses foreign exchange derivatives, such as futures, forwards
and swaps in managing foreign exchange risks. Foreign exchange risk
refers to losses that could result from changes in foreign currency
exchange rates. Assets and liabilities that are denominated in foreign
currencies have foreign exchange risk. The Bank is exposed to non-
trading foreign exchange risk from its investments in foreign operations
when the Bank’s foreign currency assets are greater or less than the
liabilities in that currency; they create foreign currency open positions.
Foreign exchange forwards are OTC contracts in which one counter-
party contracts with another to exchange a specified amount of one
currency for a specified amount of a second currency, at a future date
or range of dates.
Swap contracts comprise foreign exchange swaps and cross-currency
interest rate swaps. Foreign exchange swaps are transactions in which
a foreign currency is simultaneously purchased in the spot market and
sold in the forward market, or vice-versa. Cross-currency interest rate
swaps are transactions in which counterparties exchange principal and
interest cash flows in different currencies over a period of time. These
contracts are used to manage currency and/or interest rate exposures.
Foreign exchange futures contracts are similar to foreign exchange
forward contracts but differ in that they are in standard currency
amounts with standard settlement dates and are transacted on
an exchange.
Credit Derivatives
The Bank uses credit derivatives such as credit default swaps (CDS)
and total return swaps in managing risks of the Bank’s corporate loan
portfolio and other cash instruments. Credit risk is the risk of loss
if a borrower or counterparty in a transaction fails to meet its agreed
payment obligations. The Bank uses credit derivatives to mitigate
industry concentration and borrower-specific exposure as part of the
Bank’s portfolio risk management techniques. The credit, legal, and
other risks associated with these transactions are controlled through
well established procedures. The Bank’s policy is to enter into these
transactions with investment grade financial institutions. Credit risk to
these counterparties is managed through the same approval, limit and
monitoring processes that is used for all counterparties to which the
Bank has credit exposure.
Credit derivatives are OTC contracts designed to transfer the credit
risk in an underlying financial instrument (usually termed as a reference
asset) from one counterparty to another. The most common credit
derivatives are CDS (referred to as option contracts) and total return
swaps (referred to as swap contracts). In option contracts, an option
purchaser acquires credit protection on a reference asset or group of
assets from an option writer in exchange for a premium. The option
purchaser may pay the agreed premium at inception or over a period
of time. The credit protection compensates the option purchaser for
any deterioration in value of the reference asset or group of assets
upon the occurrence of certain credit events such as bankruptcy or
failure to pay. Settlement may be cash based or physical, requiring the
delivery of the reference asset to the option writer. In swap contracts,
one counterparty agrees to pay or receive from the other cash
amounts based on changes in the value of a reference asset or group
of assets, including any returns such as interest earned on these assets
in exchange for amounts that are based on prevailing market funding
rates. These cash settlements are made regardless of whether there
is a credit event.
Other Derivatives
The Bank also transacts in equity and commodity derivatives in both
the exchange and OTC markets.
Equity swaps are OTC contracts in which one counterparty agrees
to pay, or receive from the other, cash amounts based on changes in
the value of a stock index, a basket of stocks or a single stock. These
contracts sometimes include a payment in respect of dividends.
Equity options give the purchaser of the option, for a premium,
the right, but not the obligation, to buy from or sell to the writer
of an option, an underlying stock index, basket of stocks or single
stock at a contracted price. Options are transacted both OTC and
through exchanges.
152
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS Equity index futures are standardized contracts transacted on an
exchange. They are based on an agreement to pay or receive a cash
amount based on the difference between the contracted price level
of an underlying stock index and its corresponding market price level
at a specified future date. There is no actual delivery of stocks that
comprise the underlying index. These contracts are in standard
amounts with standard settlement dates.
Commodity contracts include commodity forwards, futures, swaps
and options, such as precious metals and energy-related products in
both OTC and exchange markets.
NOTIONAL AMOUNTS
The notional amounts are not recorded as assets or liabilities as
they represent the face amount of the contract to which a rate or
price is applied to determine the amount of cash flows to be
exchanged. Notional amounts do not represent the potential gain
or loss associated with market risk and are not indicative of the
credit risk associated with derivative financial instruments.
Fair Value of Derivatives
(millions of Canadian dollars)
Derivatives held or issued for trading purposes
Interest rate contracts
Futures
Forward rate agreements
Swaps
Options written
Options purchased
Total interest rate contracts
Foreign exchange contracts
Futures
Forward contracts
Swaps
Cross-currency interest rate swaps
Options written
Options purchased
Total foreign exchange contracts
Credit derivatives
Credit default swaps – protection purchased
Credit default swaps – protection sold
Total credit derivative contracts
Other contracts
Equity contracts
Commodity contracts
Total other contracts
Fair value – trading
Derivatives held or issued for non-trading purposes
Interest rate contracts
Forward rate agreements
Swaps
Options written
Options purchased
Total interest rate contracts
Foreign exchange contracts
Forward contracts
Swaps
Cross-currency interest rate swaps
Total foreign exchange contracts
Credit derivatives
Credit default swaps – protection purchased
Total credit derivative contracts
Other contracts
Equity contracts
Total other contracts
Fair value – non-trading
Total fair value
Average fair value
for the year1
October 31, 2013
Fair value as at
balance sheet date
October 31, 2012
Fair value as at
balance sheet date
Positive
Negative
Positive
Negative
Positive
Negative
$
2
20
25,788
–
704
26,514
–
4,775
1
8,213
–
208
13,197
8
23
31
7,917
429
8,346
48,088
–
4,152
–
19
4,171
946
–
1,449
2,395
$
–
19
23,842
697
–
24,558
–
3,994
1
14,051
241
–
18,287
61
14
75
9,002
412
9,414
52,334
–
2,255
8
–
2,263
451
–
1,229
1,680
6
6
223
223
$
2
26
21,663
–
586
22,277
–
3,125
–
8,631
–
190
11,946
3
57
60
7,302
331
7,633
41,916
–
3,397
–
17
3,414
648
–
1,693
2,341
3
3
1,452
1,452
8,024
$ 56,112
1,128
1,128
5,294
$ 57,628
1,787
1,787
7,545
$ 49,461
$
–
28
20,188
617
–
20,833
–
3,004
–
10,699
200
–
13,903
92
4
96
8,946
327
9,273
44,105
–
2,011
4
–
2,015
616
–
1,177
1,793
262
262
1,296
1,296
5,366
$ 49,471
$
4
25
32,058
–
850
32,937
–
3,259
179
7,293
–
186
10,917
17
16
33
7,168
533
7,701
51,588
–
5,657
7
18
5,682
1,304
–
1,051
2,355
16
16
1,278
1,278
9,331
$ 60,919
1 The average fair value of trading derivatives for the year ended October 31, 2012
was: positive $52,596 million and negative $59,272 million. Averages are
calculated on a monthly basis.
$
–
22
29,473
797
–
30,292
–
2,935
63
16,473
209
–
19,680
49
25
74
8,309
609
8,918
58,964
1
2,891
4
8
2,904
382
7
1,597
1,986
173
173
970
970
6,033
$ 64,997
153
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
The following table distinguishes the derivatives held or issued for
non-trading purposes between those that have been designated in
qualifying hedge accounting relationships and those which have
not been designated in qualifying hedge accounting relationships as
at October 31, 2013 and October 31, 2012.
Fair Value of Non-Trading Derivatives
(millions of Canadian dollars)
Derivative Assets
Derivatives in
qualifying
hedging
relationships
Fair
Value
Cash
Flow
Net
Investment
Derivatives
not in
qualifying
hedging
relationships
Derivatives in
qualifying
hedging
relationships
Total
Fair
Value
Cash
Flow
Net
Investment
As at
October 31, 2013
Derivative Liabilities
Derivatives
not in
qualifying
hedging
relationships
Total
– $
$
1,607
4
–
1,611
–
2,011
4
–
2,015
20
–
519
539
616
–
1,177
1,793
262
262
262
262
1,296
1,296
1,296
1,296
$ 3,708 $ 5,366
October 31, 2012
1 $
$
2,498
4
8
2,511
1
2,891
4
8
2,904
26
–
410
436
382
7
1,597
1,986
173
173
173
173
962
962
970
970
$ 4,082 $ 6,033
– $
$
2,533
–
17
2,550
–
3,397
–
17
3,414
$
– $
130
–
–
130
–
274
–
–
274
26
–
700
726
648
–
1,693
2,341
566
–
–
–
–
658
– 1,224
3
3
3
3
–
–
–
–
1,787
1,305
1,305
1,787
$ 4,584 $ 7,545
–
–
–
–
$ 130 $ 1,498
– $
$
2,626
7
18
2,651
–
5,657
7
18
5,682
–
$ – $
150 243
–
–
150 243
–
–
62
–
716
778
1,304
–
1,051
2,355
– 331
–
7
– 1,187
– 1,525
16
16
16
16
–
–
–
–
964
964
1,278
1,278
$ 4,409 $ 9,331
–
–
8
8
$ 150 $ 1,776
$
–
–
–
–
–
30
–
–
30
–
–
–
–
$ 30
$ –
–
–
–
–
25
–
–
25
–
–
–
–
$ 25
$ –
–
–
–
–
–
–
–
–
–
–
–
–
$ –
$ –
–
–
–
–
–
–
–
–
–
–
–
–
$ –
Derivatives held or issued for
non-trading purposes
Interest rate contracts
Forward rate agreements
Swaps
Options written
Options purchased
Total interest rate contracts
Foreign exchange contracts
Forward contracts
Swaps
Cross-currency interest rate swaps
Total foreign exchange contracts
Credit derivatives
Credit default swaps –
protection purchased
Total credit derivatives
Other contracts
Equity contracts
Total other contracts
Fair value – non-trading
$
– $
228
–
–
228
–
636
–
–
636
622
–
–
–
–
993
– 1,615
–
–
–
–
–
–
482
482
$ 228 $ 2,733
– $
–
$
138 2,893
–
–
138 2,893
–
–
– 1,242
–
–
–
335
– 1,577
–
–
–
–
–
–
314
314
$ 138 $ 4,784
Derivatives held or issued for
non-trading purposes
Interest rate contracts
Forward rate agreements
Swaps
Options written
Options purchased
Total interest rate contracts
Foreign exchange contracts
Forward contracts
Swaps
Cross-currency interest rate swaps
Total foreign exchange contracts
Credit derivatives
Credit default swaps –
protection purchased
Total credit derivatives
Other contracts
Equity contracts
Total other contracts
Fair value – non-trading
154
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
The following tables disclose the impact of derivatives and non-
derivative instruments designated in hedge accounting relationships and
the related hedged items, where appropriate, in the Consolidated
Statement of Income and in other comprehensive income (OCI) for the
years ended October 31, 2013, October 31, 2012 and October 31, 2011.
Fair Value Hedges
(millions of Canadian dollars)
Fair value hedges
Interest rate contracts
Other contracts2
Total income (loss)
Fair value hedges
Interest rate contracts2
Total income (loss)
Fair value hedges
Interest rate contracts2
Total (loss)
Amounts
recognized in
income on
derivatives1
Amounts
recognized in
income on
hedged items1
Amounts excluded
from the
Hedge assessment of hedge
effectiveness1
ineffectiveness1
For the years ended October 31
2013
$
$
277
13
290
$ (248)
(14)
$ (262)
$
$
129
129
$
$
(127)
(127)
$
$
102
102
$
$
(107)
(107)
$ 29
(1)
$ 28
$ 2
$ 2
$ (5)
$ (5)
$ (8)
–
$ (8)
2012
$ (1)
$ (1)
2011
$ 30
$ 30
1 Amounts are recorded in non-interest income.
2 Includes non-derivative instruments designated as hedging instruments in qualifying
foreign exchange fair value hedge accounting relationships (for example, foreign
denominated liabilities).
During the years ended October 31, 2013, October 31, 2012 and
October 31, 2011, the Bank did not recognize any net gain or loss in
earnings as a result of hedged firm commitments that no longer
qualified as fair value hedges.
Cash Flow and Net Investment Hedges
(millions of Canadian dollars)
Amounts
recognized in
OCI on derivatives1
Amounts
reclassified from
OCI into income1,2
For the years ended October 31
2013
Amounts excluded
from the
Hedge assessment of hedge
effectiveness3
ineffectiveness3
Cash flow hedges
Interest rate contracts
Foreign exchange contracts4
Other contracts
Total income (loss)
Net investment hedges
Foreign exchange contracts4
Cash flow hedges
Interest rate contracts
Foreign exchange contracts4
Other contracts
Total income (loss)
Net investment hedges
Foreign exchange contracts4
Cash flow hedges
Interest rate contracts
Foreign exchange contracts4
Other contracts
Total income (loss)
Net investment hedges
Foreign exchange contracts4
1 OCI is presented on a pre-tax basis.
2 Amounts are recorded in net interest income.
3 Amounts are recorded in non-interest income.
4 Includes non-derivative instruments designated as hedging instruments in qualifying
hedge accounting relationships (such as, foreign denominated liabilities).
$
(197)
962
305
$ 1,070
$ 1,167
944
287
$ 2,398
$ (1,001)
$
(5)
$ 1,263
(28)
108
$ 1,343
$ 1,611
(17)
102
$ 1,696
$
(76)
$
–
$ 1,902
129
38
$ 2,069
$ 1,670
132
61
$ 1,863
$
449
$
–
$ (3)
–
–
$ (3)
$ –
$ –
–
–
$ –
$ –
$ –
–
–
$ –
$ –
$ –
–
–
$ –
$ –
2012
$ –
–
–
$ –
$ 4
2011
$ –
–
–
$ –
$ 70
155
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
The following table indicates the periods when hedged cash flows in
designated cash flow hedge accounting relationships are expected to
occur as at October 31, 2013 and October 31, 2012.
Hedged Cash Flows
(millions of Canadian dollars)
Cash flow hedges
Cash inflows
Cash outflows
Net cash flows
Cash flow hedges
Cash inflows
Cash outflows
Net cash flows
As at
October 31, 2013
Within
1 year
Over 1 year Over 3 years
to 5 years
to 3 years
Over 5 years
to 10 years
Over 10
years
Total
$ 18,235
(1,485)
$ 16,750
$ 21,582
(7,276)
$ 14,306
$ 8,480
(6,731)
$ 1,749
$ 1,063
(389)
$ 674
$ 294
–
$ 294
$ 49,654
(15,881)
$ 33,773
October 31, 2012
$ 12,242
(2,128)
$ 10,114
$ 15,187
(5,214)
$ 9,973
$ 6,941
(4,743)
$ 2,198
$ 396
–
$ 396
$ 248
–
$ 248
$ 35,014
(12,085)
$ 22,929
Income related to interest cash flows is recognized using the effective
interest rate method over the life of the underlying instrument. Foreign
currency translation gains and losses related to future cash flows on
hedged items are recognized as incurred.
During the years ended October 31, 2013 and October 31, 2012,
there were no significant instances where forecasted hedged transac-
tions failed to occur.
The following table presents gains (losses) on non-trading derivatives
that have not been designated in qualifying hedge accounting relation-
ships for the years ended October 31, 2013, October 31, 2012 and
October 31, 2011. These gains (losses) are partially offset by gains
(losses) recorded on the Consolidated Statement of Income and on the
Consolidated Statement of Other Comprehensive Income on related
non-derivative instruments.
Gains (Losses) on Non-Trading Derivatives not Designated in
Qualifying Hedge Accounting Relationships1
(millions of Canadian dollars)
For the years ended October 31
Interest rate contracts
Foreign exchange contracts
Credit derivatives
Equity
Total
1 Amounts are recorded in non-interest income.
2013
2012
$ 69
(47)
(187)
4
$ (161)
$ (111)
(14)
(67)
3
$ (189)
2011
$ 140
(8)
41
(1)
$ 172
The following table discloses the notional principal amount of over-
the-counter and exchange-traded derivatives.
Over-the-Counter and Exchange-Traded Derivatives
(billions of Canadian dollars)
As at
October 31 October 31
2012
2013
Over-the-Counter1
Non
Trading
Clearing
house2
Clearing Exchange-
traded
house
Total
Non-
trading
Total
Total
Notional
Interest rate contracts
Futures
Forward rate agreements
Swaps
Options written
Options purchased
Total interest rate contracts
Foreign exchange contracts
Futures
Forward contracts
Swaps
Cross-currency interest rate swaps
Options written
Options purchased
Total foreign exchange contracts
Credit derivatives
Credit default swaps – protection purchased
Credit default swaps – protection sold
Total credit derivative contracts
Other contracts
Equity contracts
Commodity contracts
Total other contracts
Total
$
– $
–
61.4
110.7
904.2
1,777.9
30.4
–
29.6
–
1,888.6 1,025.6
$
$ 301.1 $ 301.1
–
172.1
– 2,682.1
42.1
11.7
10.1
39.7
322.9 3,237.1
1.1
– $ 301.1 $ 285.0
87.9
173.2
404.3 3,086.4 2,311.9
57.2
49.9
408.7 3,645.8 2,791.9
42.4
42.7
0.3
3.0
–
–
–
–
–
–
–
–
–
–
–
378.4
–
411.8
12.8
11.9
814.9
4.2
3.8
8.0
38.4
–
–
–
–
–
38.4
38.4
378.4
–
411.8
12.8
11.9
853.3
–
–
–
4.2
3.8
8.0
–
47.8
–
33.9
–
–
81.7
5.0
–
5.0
38.4
426.2
–
445.7
12.8
11.9
935.0
9.2
3.8
13.0
28.7
411.8
1.3
416.9
13.6
12.8
885.1
7.0
1.7
8.7
35.2
–
7.4
–
42.6
–
$ 1,888.6 $ 1,891.1
18.4
23.9
42.3
53.6
31.3
84.9
$ 403.6 $ 4,183.3
33.3
–
33.3
86.3
19.3
105.6
$ 528.7 $ 4,712.0 $ 3,791.3
86.9
31.3
118.2
1 Collateral held under a Credit Support Annex (CSA) to help reduce counterparty
credit risk is in the form of high quality and liquid assets such as cash and high
quality government securities. Acceptable collateral is governed by the Collateralized
Trading Policy.
2 Derivatives executed through a central clearing house reduces settlement risk
due to the ability to net settle offsetting positions. The Bank also receives
preferential capital treatment relative to those settled with non-central clearing
house counterparties.
156
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
The following table discloses the notional principal amount of over
the counter derivatives and exchange traded derivatives based on
their contractual terms to maturity.
Derivatives by Term to Maturity
(billions of Canadian dollars)
As at
October 31 October 31
2012
2013
Remaining term to maturity
Notional Principal
Interest rate contracts
Futures
Forward rate agreements
Swaps
Options written
Options purchased
Total interest rate contracts
Foreign exchange contracts
Futures
Forward contracts
Swaps
Cross-currency interest rate swaps
Options written
Options purchased
Total foreign exchange contracts
Credit derivatives
Credit default swaps – protection purchased
Credit default swaps – protection sold
Total credit derivative contracts
Other contracts
Equity contracts
Commodity contracts
Total other contracts
Total
Over
Over
Within 1 year to 3 years to 5 years to
10 years
1 year
3 years
5 years
Over
Over
10 years
Total
Total
$ 242.5 $
58.6
13.5
921.7
12.8
12.6
1,215.2 1,019.2
159.7
763.6
24.9
24.5
$
–
–
792.5
2.3
1.2
796.0
$
–
–
515.6
1.4
2.8
519.8
$
– $ 301.1 $ 285.0
87.9
–
173.2
93.0 3,086.4 2,311.9
57.2
42.4
49.9
42.7
95.6 3,645.8 2,791.9
1.0
1.6
15.4
378.6
–
97.4
10.3
9.8
511.5
22.9
34.7
–
144.8
2.5
2.1
207.0
0.1
12.7
–
100.1
–
–
112.9
1.3
0.2
1.5
3.3
0.5
3.8
3.6
2.2
5.8
–
0.1
–
85.4
–
–
85.5
1.0
0.9
1.9
–
0.1
–
18.0
–
–
18.1
38.4
426.2
–
445.7
12.8
11.9
935.0
–
–
–
9.2
3.8
13.0
28.7
411.8
1.3
416.9
13.6
12.8
885.1
7.0
1.7
8.7
55.1
19.9
75.0
21.1
10.1
31.2
$ 1,803.2 $ 1,261.2
10.5
1.1
11.6
$ 926.3
0.2
0.2
0.4
$ 607.6
–
–
–
86.3
19.3
105.6
$ 113.7 $ 4,712.0 $ 3,791.3
86.9
31.3
118.2
DERIVATIVE-RELATED RISKS
Market Risk
Derivatives, in the absence of any compensating upfront cash
payments, generally have no market value at inception. They obtain
value, positive or negative, as relevant interest rates, foreign exchange
rates, equity, commodity or credit prices or indices change, such that
the previously contracted terms of the derivative transactions have
become more or less favourable than what can be negotiated under
current market conditions for contracts with the same terms and the
same remaining period to expiry.
The potential for derivatives to increase or decrease in value as a
result of the foregoing factors is generally referred to as market risk.
This market risk is managed by senior officers responsible for the
Bank’s trading business and is monitored independently by the Bank’s
Risk Management.
Credit Risk
Credit risk on derivatives, also known as counterparty credit risk, is
the risk of a financial loss occurring as a result of the failure of a
counterparty to meet its obligation to the Bank. The Treasury Credit
area within Wholesale Banking is responsible for implementing and
ensuring compliance with credit policies established by the Bank for
the management of derivative credit exposures.
Derivative-related credit risks are subject to the same credit
approval, limit and monitoring standards that are used for managing
other transactions that create credit exposure. This includes evaluating
the creditworthiness of counterparties, and managing the size, diversi-
fication and maturity structure of the portfolios. The Bank actively
engages in risk mitigation strategies through the use of multi-product
derivative master netting agreements, collateral and other risk mitiga-
tion techniques. Master netting agreements reduce risk to the Bank by
allowing the Bank to close out and net transactions with counterpar-
ties subject to such agreements upon the occurrence of certain events.
The effect of these master netting agreements is shown in the table
below entitled ‘Credit Exposure of Derivatives’.
Also shown in the table entitled ‘Credit Exposure of Derivatives’, is
the current replacement cost, which is the positive fair value of all
outstanding derivatives, and represents the Bank’s maximum derivative
credit exposure. The credit equivalent amount is the sum of the current
replacement cost and the potential future exposure, which is calcu-
lated by applying factors supplied by OSFI to the notional principal
amount of the derivatives. The risk-weighted amount is determined by
applying standard measures of counterparty credit risk to the credit
equivalent amount.
157
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
Credit Exposure of Derivatives
(millions of Canadian dollars)
Interest rate contracts
Forward rate agreements
Swaps
Options purchased
Total interest rate contracts
Foreign exchange contracts
Forward contracts
Swaps
Cross-currency interest rate swaps
Options purchased
Total foreign exchange contracts
Other contracts
Credit derivatives
Equity contracts
Commodity contracts
Total other contracts
Total derivatives
Less: impact of master netting agreements
Total derivatives after netting
Less: impact of collateral
Net derivatives
Qualifying Central Counterparty (QCCP) Contracts2
Total
October 31, 2013
As at
October 31, 2012
Current
replacement
cost1
Credit
equivalent
amount
Risk-
weighted
amount
Current
replacement
cost1
Credit
equivalent
amount
$
26
24,460
604
25,090
$
14
31,331
746
32,091
$
3
16,773
440
17,216
$
26
37,714
866
38,606
$
43
60,209
980
61,232
3,656
–
10,321
190
14,167
60
8,721
271
9,052
48,309
37,918
10,391
4,998
5,393
37
$ 5,430
9,303
–
31,288
395
40,986
479
12,269
927
13,675
86,752
56,795
29,957
5,592
24,365
4,966
$ 29,331
2,174
–
11,955
126
14,255
277
1,168
280
1,725
33,196
21,562
11,634
3,523
8,111
866
$ 8,977
4,523
179
8,344
186
13,232
18
8,217
402
8,637
60,475
48,084
12,391
6,020
6,371
–
$ 6,371
10,021
298
28,408
447
39,174
290
11,904
1,048
13,242
113,648
78,727
34,921
6,191
28,730
–
$ 28,730
Risk-
weighted
amount
$
7
20,500
403
20,910
1,846
28
9,584
135
11,593
117
904
294
1,315
33,818
24,295
9,523
2,165
7,358
–
$ 7,358
1 Prior to 2013, exchange-traded instruments and non-trading credit derivatives,
which are given financial guarantee treatment for credit risk capital purposes, were
excluded in accordance with OSFI’s guidelines. The total positive fair value of the
excluded contracts as at October 31, 2012 was $444 million.
2 Effective the first quarter of 2013, risk-weighted assets (RWA) for OSFI “deemed”
QCCP derivative exposures are calculated in accordance with the Basel III regulatory
framework, which takes into account both trade exposures and default fund expo-
sures related to derivatives, and are presented based on the “all-in” methodology.
The amounts calculated are net of master netting agreements and collateral.
Current Replacement Cost of Derivatives
(millions of Canadian dollars,
except as noted)
By sector
Financial
Government
Other
Current replacement cost
Less: impact of master netting
agreements and collateral
Total current replacement cost
October 31
2013
$ 22,329
4,653
986
$ 27,968
By location of risk2
Canada
United States
Other international
United Kingdom
Europe – other
Other
Total Other international
Total current replacement cost
Canada1
October 31
2012
$ 25,670
5,852
1,544
$ 33,066
United States1
Other International1
October 31
2013
October 31
2012
October 31
2013
October 31
2012
October 31
2013
$ 12,476
1,217
1,063
$ 14,756
$ 7,263
6,223
1,165
$ 14,651
$ 5,482
9
94
$ 5,585
$ 11,868
591
299
$ 12,758
$ 40,287
5,879
2,143
$ 48,309
As at
Total
October 31
2012
$ 44,801
12,666
3,008
$ 60,475
42,916
$ 5,393
54,104
$ 6,371
October 31
2013
% mix
October 31
2012
% mix
50.0%
25.3
8.8
11.2
4.7
24.7
100.0%
42.4%
29.6
12.9
7.5
7.6
28.0
100.0%
October 31
2013
$ 2,694
1,367
473
603
256
1,332
$ 5,393
October 31
2012
$ 2,706
1,883
820
479
483
1,782
$ 6,371
1 Based on geographic location of unit responsible for recording revenue.
2 After impact of master netting agreements and collateral.
Certain of the Bank’s derivative contracts are governed by master
derivative agreements having provisions that may permit the Bank’s
counterparties to require, upon the occurrence of a certain contingent
event: (i) the posting of collateral or other acceptable remedy such as
assignment of the affected contracts to an acceptable counterparty; or
(ii) settlement of outstanding derivative contracts. Most often, these
contingent events are in the form of a downgrade of the senior debt
ratings of the Bank, either as counterparty or as guarantor of one of
the Bank’s subsidiaries. At October 31, 2013, the aggregate net liability
position of those contracts would require: (i) the posting of collateral
or other acceptable remedy totalling $51 million (October 31, 2012 –
$45 million) in the event of a one-notch or two-notch downgrade in
the Bank’s senior debt ratings; and (ii) funding totalling $4 million
(October 31, 2012 – $6 million) following the termination and settle-
ment of outstanding derivative contracts in the event of a one-notch
or two notch downgrade in the Bank’s senior debt ratings.
158
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
Certain of the Bank’s derivative contracts are governed by master
derivative agreements having credit support provisions that permit
the Bank’s counterparties to call for collateral depending on the net
mark-to-market exposure position of all derivative contracts governed
by that master derivative agreement. Some of these agreements may
permit the Bank’s counterparties to require, upon the downgrade of
the senior debt ratings of the Bank, to post additional collateral. As
at October 31, 2013 the fair value of all derivative instruments with
credit risk related contingent features in a net liability position was
$7.9 billion (October 31, 2012 – $14.3 billion). The Bank has posted
$6.3 billion (October 31, 2012 – $11.8 billion) of collateral for this
exposure in the normal course of business. As at October 31, 2013,
the impact of a one-notch downgrade in the Bank’s senior debt ratings
would require the Bank to post an additional $0.3 billion (October 31,
2012 – $0.6 billion) of collateral to that posted in the normal course of
business. A two-notch down grade in the Bank’s senior debt ratings
would require the Bank to post an additional $0.3 billion (October 31,
2012 – $1.4 billion) of collateral to that posted in the normal course
of business.
N O T E 1 1
INVESTMENT IN TD AMERITRADE HOLDING CORPORATION
The Bank has significant influence over TD Ameritrade and accounts
for its investment in TD Ameritrade using the equity method. As at
October 31, 2013, the Bank’s reported investment in TD Ameritrade
was 42.22% (October 31, 2012 – 45.37%) of the outstanding shares
of TD Ameritrade with a fair value of $6,606 million (October 31, 2012
– $3,878 million) based on the closing price of US$27.26 (October 31,
2012 – US$15.69) on the New York Stock Exchange.
On May 14, 2013, the Bank completed a private sale of 15 million
shares of its investment in TD Ameritrade. The shares were sold at a
price of US$21.72, a 4.5% discount to the closing market price of
US$22.74. The Bank realized a gain on the sale of these shares on
the Consolidated Statement of Income.
During the year ended October 31, 2013, TD Ameritrade did not
repurchase any shares (year ended October 31, 2012 – 7.4 million
shares). On August 6, 2010 and October 31, 2011, the Stockholders
Agreement was amended such that if the Bank’s ownership increases
above 45%: (i) the Bank has until January 24, 2014 to reduce its
ownership in TD Ameritrade to 45%; (ii) the Bank is required to
commence reduction of its ownership in TD Ameritrade and continue
its reduction as long as it can be executed at a price per share equal
to or greater than the Bank’s then-applicable average carrying value
per share of TD Ameritrade; and (iii) in connection with stock repur-
chases by TD Ameritrade, the Bank’s ownership interest in TD Ameri-
trade will not exceed 48%.
Pursuant to the Stockholders Agreement in relation to the Bank’s
equity investment in TD Ameritrade, the Bank designated five of
12 members of TD Ameritrade’s Board of Directors including the
Bank’s Group President and Chief Executive Officer, its Executive Vice
President of Retail Banking, Products and Services, two independent
directors of TD, and a former independent director of TD.
TD Ameritrade has no significant contingent liabilities to which the
Bank is exposed. During the year ended October 31, 2013 and October
31, 2012, TD Ameritrade did not experience any significant restrictions
to transfer funds in the form of cash dividends, or repayment of loans
or advances.
The condensed financial statements of TD Ameritrade, based on its
Consolidated Financial Statements, are provided as follows:
Condensed Consolidated Balance Sheets1
(millions of Canadian dollars)
Assets
Receivables from brokers, dealers, and clearing organizations
Receivables from clients, net
Other assets
Total assets
Liabilities
Payable to brokers, dealers, and clearing organizations
Payable to clients
Other liabilities
Total liabilities
Stockholders’ equity2
Total liabilities and stockholders’ equity
1 Customers’ securities are reported on a settlement date basis whereas the Bank
reports customers’ securities on a trade date basis.
2 The difference between the carrying value of the Bank’s investment in TD Ameritrade
and the Bank’s share of TD Ameritrade’s stockholders’ equity is comprised of
goodwill, other intangibles and the cumulative translation adjustment.
September 30
2013
September 30
2012
As at
$ 1,406
9,368
11,994
$ 22,768
$ 2,057
13,746
2,089
17,892
4,876
$ 22,768
$ 1,109
8,638
9,746
$ 19,493
$ 1,990
10,717
2,366
15,073
4,420
$ 19,493
159
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
Condensed Consolidated Statements of Income
(millions of Canadian dollars, except as noted)
Revenues
Net interest revenue
Fee-based and other revenues
Total revenues
Operating expenses
Employee compensation and benefits
Other
Total operating expenses
Other expense (income)
Pre-tax income
Provision for income taxes
Net income1
Earnings per share – basic (dollars)
Earning per share – diluted (dollars)
1 The Bank’s equity share of net income of TD Ameritrade is subject to adjustments
relating to amortization of intangibles, which are not included in the table above.
N O T E 1 2
SIGNIFICANT ACQUISITIONS
For the years ended September 30
2013
2012
2011
$ 477
2,332
2,809
704
1,031
1,735
(34)
1,108
421
$ 687
$ 1.25
$ 1.24
$ 452
2,209
2,661
695
1,025
1,720
28
913
322
$ 591
$ 1.08
$ 1.07
$ 485
2,240
2,725
667
1,024
1,691
31
1,003
373
$ 630
$ 1.11
$ 1.09
Acquisition of Epoch Investment Partners, Inc.
On March 27, 2013, the Bank acquired 100% of the outstanding
equity of Epoch Holding Corporation including its wholly-owned
subsidiary Epoch Investment Partners, Inc. (Epoch), a New York-based
asset management firm. Epoch was acquired for cash consideration
of $674 million. Epoch Holding Corporation shareholders received
US$28 in cash per share.
The acquisition was accounted for as a business combination under
the purchase method. The results of the acquisition from the acquisition
date have been consolidated with the Bank’s results and are reported
in the Wealth and Insurance segment. As at March 27, 2013, the
acquisition contributed $34 million of tangible assets, and $9 million
of liabilities. The excess of consideration over the fair value of the
acquired net assets of $649 million has been allocated to customer
relationship intangibles of $149 million and goodwill of $500million.
Goodwill is not expected to be deductible for tax purposes.
For the year ended October 31, 2013, the acquisition contributed
$96 million to revenue and $2 million to net income.
Acquisition of Target Corporation’s U.S. Credit Card Portfolio
On March 13, 2013, the Bank, through its subsidiary, TD Bank USA
N.A., acquired substantially all of Target Corporation’s existing U.S.
Visa and private label credit card portfolio, with a gross outstanding
balance of $5.8 billion. TD Bank USA N.A. also entered into a seven-
year program agreement under which it became the exclusive issuer
of Target-branded Visa and private label consumer credit cards to
Target Corporation’s U.S. customers.
Under the terms of the program agreement, the Bank and Target
Corporation share in the profits generated by the portfolios. Target
Corporation is responsible for all elements of operations and customer
service, and bears most of the operating costs to service the assets. The
Bank controls risk management policies and regulatory compliance and
bears all costs relating to funding the receivables for existing Target
Visa accounts and all existing and newly issued Target private label
accounts in the U.S. The Bank accounted for the purchase as an asset
acquisition. The results of the acquisition from the acquisition date have
been recorded in the U.S. Personal and Commercial Banking segment.
At the date of acquisition the Bank recorded the credit card receiv-
ables acquired at their fair value of $5.7 billion and intangible assets
totalling $98 million. The gross amount of revenue and credit losses
have been recorded on the Consolidated Statement of Income since
that date. Target Corporation shares in a fixed percentage of the reve-
nue and credit losses incurred. Target Corporation’s share of revenue
and credit losses is recorded in Non-interest expenses on the Consoli-
dated Statement of Income and related receivables from, or payables
to Target Corporation are recorded in Other assets or Other liabilities,
respectively, on the Consolidated Balance Sheet.
Acquisition of Credit Card Portfolio of MBNA Canada
On December 1, 2011, the Bank acquired substantially all of the credit
card portfolio of MBNA Canada, a wholly-owned subsidiary of Bank of
America Corporation, as well as certain other assets and liabilities for
cash consideration of $6,839 million.
The acquisition was accounted for as a business combination under
the purchase method. The results of the acquisition from the acquisi-
tion date have been consolidated with the Bank’s results and are
primarily reported in the Canadian Personal and Commercial Banking
and Wealth and Insurance segments.
The total amount of goodwill that is expected to be deductible for
tax purposes is nil. Subsequent to acquisition date, goodwill decreased
by $27 million to $93 million due to the refinement of various fair
value marks during the measurement period.
For the year ended October 31, 2012, the acquisition contributed
$811 million to revenue and $(15) million to net income.
The following table presents the estimated fair values of the assets
and liabilities acquired as of the date of acquisition.
Fair Value of Identifiable Net Assets Acquired
(millions of Canadian dollars)
Assets acquired
Loans1,2
Other assets
Intangible assets
Less: Liabilities assumed
Fair value of identifiable net assets acquired
Goodwill
Total purchase consideration
Amount
$ 7,361
275
458
8,094
1,348
6,746
93
$ 6,839
1 The acquisition included both acquired performing and acquired credit-impaired
loans. The estimated fair value of acquired performing loans reflects incurred
and future expected credit losses and the estimated fair value of acquired credit-
impaired loans reflects incurred credit losses at the acquisition date.
2 Gross contractual receivables amount to $7,820 million.
Acquisition of Chrysler Financial
On April 1, 2011, the Bank acquired 100% of the outstanding equity
of Chrysler Financial in Canada and the U.S. for cash consideration
of approximately $6,307 million, including contingent consideration.
The acquisition was accounted for as a business combination under
the purchase method. As part of the purchase agreement, the Bank
is required to pay additional cash consideration in the event that
amounts realized on certain assets exceed a pre-established threshold.
Contingent consideration is recognized immediately in the purchase
price equation at fair value and marked to market as amounts on
the assets are realized in the Consolidated Statement of Income.
160
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
Contingent consideration of $52 million was recognized as of the
acquisition date. Subsequent to the acquisition, the amounts realized
on these assets exceeded the threshold and the Bank was required to
pay additional cash consideration of $53 million, which was included
in the Consolidated Statement of Income. The results of Chrysler
Financial from the acquisition date have been consolidated with the
Bank’s results. The results of Chrysler Financial in the U.S. are reported
in the U.S. Personal and Commercial Banking segment. The results of
Chrysler Financial in Canada are reported in the Canadian Personal and
Commercial Banking segment.
Subsequent to the acquisition date, goodwill increased by $45 million
to $197 million, primarily due to the finalization of the fair values in the
purchase price equation. The total amount of goodwill that is expected
to be deductible for tax purposes is $275 million.
For the year ended October 31, 2011, the acquisition contributed
$273 million to revenue and $13 million to net income.
The following table presents the estimated fair values of the assets and
liabilities of Chrysler Financial as of the date of acquisition.
Fair Value of Identifiable Net Assets Acquired
(millions of Canadian dollars)
Assets acquired
Cash and cash equivalents
Loans1,2
Other assets
Less: Liabilities assumed
Fair value of identifiable net assets acquired
Goodwill
Total purchase consideration
Amount
$ 3,081
7,322
2,207
12,610
6,500
6,110
197
$ 6,307
1 The acquisition included both acquired performing and acquired credit-impaired
loans. The estimated fair value of acquired performing loans reflects incurred
and future expected credit losses and the estimated fair value of acquired credit-
impaired loans reflects incurred credit losses at the acquisition date.
2 Gross contractual receivables amount to $7,361 million.
N O T E 1 3
GOODWILL AND OTHER INTANGIBLES
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 to adjust net assets and liabilities by
CGU. These models consider various factors including market risk,
credit risk and operational risk, including investment capital (comprised
of goodwill and other 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 $8.3 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 are dependent on the risk
profile and capital requirements of each 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 five 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 9 times to 14 times.
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 recoverable amount of any
of the groups of CGUs to be less than its carrying amount.
Goodwill by Segment
(millions of Canadian dollars)
Canadian Personal
and Commercial
Banking
Wealth
and Insurance
U.S. Personal
and Commercial
Banking
Wholesale
Banking
Corporate
Carrying amount of goodwill as at November 1, 2011
Additions1
Disposals2
Foreign currency translation adjustments and other
Carrying amount of goodwill as at October 31, 2012
Gross amount of goodwill
Accumulated impairment losses
Carrying amount of goodwill as at November 1, 2012
Additions3
Disposals
Foreign currency translation adjustments and other
Carrying amount of goodwill as at October 31, 2013
Accumulated impairment losses
$ 726
46
–
–
$ 772
$ 772
–
$
$ 772
–
–
2
$ 774
–
$
$ 1,051
46
(68)
–
$ 1,029
$ 1,029
–
$
$ 1,029
500
–
27
$ 1,556
–
$
$ 10,330
–
–
30
$ 10,360
$ 10,360
–
$
$ 10,360
–
–
457
$ 10,817
–
$
$ 150
–
–
–
$ 150
$ 150
–
$
$ 150
–
–
–
$ 150
–
$
$ –
–
–
–
$ –
$ –
$ –
$ –
–
–
–
$ –
$ –
1 Primarily relates to goodwill arising from the acquisition of the credit card portfolio
of MBNA Canada.
2 Relates to the divestiture of the U.S. Insurance business.
3 Relates to goodwill arising from the acquisition of Epoch. See Note 12 for
further details.
Total
$ 12,257
92
(68)
30
$ 12,311
$ 12,311
–
$
$ 12,311
500
–
486
$ 13,297
–
$
161
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
October 31
2013
Carrying
amount of
goodwill
2013
Discount
rate1
October 31
2012
Carrying
amount of
goodwill
2012
Discount
rate1
$
774
10.9%
$
772
10.9%
1,090
466
11.3–12.4
10.7
566
463
11.7–15.0
11.1
150
13.8
150
15.9
10,817
$ 13,297
10.8%
10,360
$ 12,311
11.1%
Core
deposit
intangibles
Credit card
related
intangibles
Software
intangibles
Other
intangibles
$ 1,949
–
–
–
–
$ 1,949
$
–
–
–
–
$ 1,949
$ 900
–
–
193
(3)
$ 1,090
$
–
–
175
(34)
$ 1,231
$ 16
456
–
–
–
$ 472
$ 98
–
–
14
$ 584
$
5
–
–
42
–
$ 47
$
–
–
55
(2)
$ 100
$
812
395
11
–
(76)
$ 1,120
$
516
9
12
(89)
$ 1,526
$
$
$
$
242
17
–
198
(71)
352
4
5
234
(76)
511
$ 391
2
16
–
–
$ 377
$ 149
5
–
5
$ 526
$ 177
7
–
42
–
$ 212
$
4
–
42
–
$ 250
Total
$ 3,168
853
27
–
(76)
$ 3,918
$ 763
14
12
(70)
$ 4,585
$ 1,324
24
–
475
(74)
$ 1,701
$
8
5
506
(112)
$ 2,092
$ 859
$ 718
$ 425
$ 484
$
768
$ 1,015
$ 165
$ 276
$ 2,217
$ 2,493
The following table summarizes the groups of CGUs to which goodwill
has been allocated and its discount rate for impairment testing purposes:
Group of CGUs
(millions of Canadian dollars)
Canadian Personal and Commercial Banking
Canadian Banking
Wealth and Insurance
Wealth
Global Insurance
Wholesale
TD Securities
U.S. Personal and Commercial Banking
U.S. Personal and Commercial Banking
Total
1 Discount rates have been updated to reflect pre-tax amounts.
OTHER INTANGIBLES
The following table presents details of the Bank’s other intangibles
as at October 31, 2013 and October 31, 2012.
Other Intangibles
(millions of Canadian dollars)
Cost
At November 1, 2011
Additions
Disposals
Impairment
Foreign currency translation adjustments and other
At October 31, 2012
Additions
Disposals
Impairment
Foreign currency translation adjustments and other
At October 31, 2013
Amortization and impairment
At November 1, 2011
Disposals
Impairment
Amortization charge for the year
Foreign currency translation adjustments and other
At October 31, 2012
Disposals
Impairment
Amortization charge for the year
Foreign currency translation adjustments and other
At October 31, 2013
Net Book Value:
As at October 31, 2012
As at October 31, 2013
162
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
N O T E 1 4
LAND, BUILDINGS, EQUIPMENT AND OTHER DEPRECIABLE ASSETS
The following table presents details of the Bank’s land, buildings,
equipment, and other depreciable assets as at October 31, 2013 and
October 31, 2012.
Land, Buildings, Equipment and Other Depreciable Assets
(millions of Canadian dollars)
Cost
As at November 1, 2011
Additions
Reclassification of leased vehicles1
Acquisitions through business combinations
Disposals
Impairment losses
Foreign currency translation adjustments and other
As at October 31, 2012
Additions
Reclassification of leased vehicles1
Acquisitions through business combinations
Disposals
Impairment losses
Foreign currency translation adjustments and other
As at October 31, 2013
Accumulated depreciation and impairment/losses
As at November 1, 2011
Reclassification of leased vehicles1
Depreciation charge for the year
Disposals
Impairment losses
Foreign currency translation adjustments and other
As at October 31, 2012
Reclassification of leased vehicles1
Depreciation charge for the year
Disposals
Impairment losses
Foreign currency translation adjustments and other
As at October 31, 2013
Net Book Value:
As at October 31, 2012
As at October 31, 2013
Land
Buildings
Computer
equipment
Furniture,
fixtures and
other
depreciable
Leasehold
assets1 improvements
Total
$ 834
9
–
14
2
1
6
$ 860
$
5
–
–
–
–
(7)
$ 858
$
$
$
$
–
–
–
–
–
–
–
–
–
–
–
–
–
$ 2,179
189
–
78
4
10
–
$ 2,432
$ 148
–
–
–
–
88
$ 2,668
$ 678
–
92
3
2
(74)
$ 691
$
–
102
1
(6)
(11)
$ 787
$ 608
147
–
3
1
12
(76)
$ 669
$ 320
–
–
45
–
(158)
$ 786
$ 250
–
143
–
11
(97)
$ 285
$
–
165
44
–
(64)
$ 342
$ 1,460
316
(27)
7
2
36
(306)
$ 1,412
$ 125
–
2
66
–
(105)
$ 1,368
$ 750
(7)
162
2
17
(132)
$ 754
$
7
146
45
(2)
(150)
$ 714
$ 1,174
115
–
–
–
4
(14)
$ 1,271
$ 112
–
5
19
2
10
$ 1,377
$ 494
–
97
–
19
(60)
$ 512
$
–
99
13
(5)
(24)
$ 579
$ 6,255
776
(27)
102
9
63
(390)
$ 6,644
$ 710
–
7
130
2
(172)
$ 7,057
$ 2,172
(7)
494
5
49
(363)
$ 2,242
$
7
512
103
(13)
(249)
$ 2,422
$ 860
$ 858
$ 1,741
$ 1,881
$ 384
$ 444
$ 658
$ 654
$ 759
$ 798
$ 4,402
$ 4,635
1 Relates to returned or repossessed vehicles under the operating lease portfolio that
are reclassified from land, buildings, equipment and other depreciable assets to
other assets. Once in other assets these vehicles are typically sold through auction
houses within 30 days.
N O T E 1 5
OTHER ASSETS
Other Assets
(millions of Canadian dollars)
Amounts receivable from brokers, dealers and clients
Accounts receivable, prepaid expenses and other items1
Prepaid pension expense
Insurance-related assets, excluding investments
Accrued interest
Total
1 Includes foreclosed assets as at October 31, 2013 of $233 million (October 31,
2012 – $254 million) and FDIC indemnification assets as at October 31, 2013 of
$81 million (October 31, 2012 – $90 million).
October 31
2013
$ 9,183
6,815
506
1,409
1,260
$ 19,173
As at
October 31
2012
$ 5,756
6,090
426
1,417
1,225
$ 14,914
163
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
N O T E 1 6
DEPOSITS
Demand deposits are those for which the Bank does not have the right
to require notice prior to withdrawal. These deposits are in general
chequing accounts.
Notice deposits are those for which the Bank can legally require notice
The deposits are generally term deposits, guaranteed investment certif-
icates and similar instruments. The aggregate amount of term deposits
in denominations of $100,000 or more as at October 31, 2013 was
$156 billion (October 31, 2012 – $138 billion).
prior to withdrawal. These deposits are in general savings accounts.
Term deposits are those payable on a fixed date of maturity purchased
by customers to earn interest over a fixed period. The terms are from
one day to 10 years. Accrued interest on deposits, calculated using the
EIRM, is included in Other liabilities on the Consolidated Balance Sheet.
Certain deposit liabilities are classified as Trading deposits on
the Consolidated Balance Sheet and accounted for at fair value with
the change in fair value recognized in the Consolidated Statement
of Income.
Deposits by Type
(millions of Canadian dollars)
Personal
Banks1
Business and government2
Trading1
Total
Non-interest-bearing deposits included above
In domestic offices
In foreign offices
Interest-bearing deposits included above
In domestic offices
In foreign offices
U.S. federal funds deposited1
Total2,3
October 31
2013
As at
October 31
2012
Demand
$ 12,540
3,958
44,218
–
$ 60,716
Notice
Term
Total
Total
$ 249,204
10
82,051
–
$ 331,265
$ 58,005
16,555
76,935
47,593
$ 199,088
$ 319,749
20,523
203,204
47,593
$ 591,069
$ 291,759
14,957
181,038
38,774
$ 526,528
$
4,738
31,558
$
3,798
27,064
304,876
248,139
1,758
$ 591,069
287,516
207,383
767
$ 526,528
1 Includes deposits with the Federal Home Loan Bank.
2 As at October 31, 2013, includes $10 billion in deposits on the Consolidated
Balance Sheet relating to covered bondholders (October 31, 2012 – $10 billion).
3 As at October 31, 2013, includes deposits of $320 billion (October 31, 2012 –
$271 billion) denominated in U.S. dollars and $17 billion (October 31, 2012 –
$13 billion) denominated in other foreign currencies.
Deposits by Country
(millions of Canadian dollars)
Personal
Banks
Business and government
Trading
Total
Term Deposits
(millions of Canadian dollars)
Personal
Banks
Business and government
Trading
Total
Term Deposits due within a Year
(millions of Canadian dollars)
Personal
Banks
Business and government
Trading
Total
164
October 31
2013
As at
October 31
2012
Canada United States
International
Total
Total
$ 172,885
6,855
126,549
3,325
$ 309,614
$ 144,541
3,882
72,680
41,636
$ 262,739
$ 2,323
9,786
3,975
2,632
$ 18,716
$ 319,749
20,523
203,204
47,593
$ 591,069
$ 291,759
14,957
181,038
38,774
$ 526,528
Over
Over
Over
Within 1 year to 2 years to 3 years to 4 years to
5 years
3 years
1 year
2 years
4 years
Over
As at
October 31 October 31
2012
2013
Over
5 years
Total
Total
$ 36,009 $ 9,180 $ 6,815
15
8,824 11,920
204
$ 144,878 $ 18,174 $ 18,954
16,489
46,162
46,218
156
14
$ 2,977
5
4,746
202
$ 7,930
$ 2,874
5
5,178
401
$ 8,458
$ 150 $ 58,005 $ 67,302
27 16,555 10,898
105 76,935 67,802
412 47,593 38,774
$ 694 $ 199,088 $ 184,776
October 31
2013
As at
October 31
2012
Within
3 months
$ 13,749
12,468
36,098
23,991
$ 86,306
Over 3
months to
6 months
Over 6
months to
12 months
Total
Total
$ 9,116
3,729
4,058
15,056
$ 31,959
$ 13,144
292
6,006
7,171
$ 26,613
$ 36,009
16,489
46,162
46,218
$ 144,878
$ 40,453
10,846
45,572
37,417
$ 134,288
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
N O T E 1 7
OTHER LIABILITIES
Other Liabilities
(millions of Canadian dollars)
Amounts payable to brokers, dealers and clients
Accounts payable, accrued expenses and other items
Special purpose entity liabilities
Insurance-related liabilities
Accrued interest
Accrued salaries and employee benefits
Accrued benefit liability
Cheques and other items in transit
Total
October 31
2013
$ 8,908
2,863
5,743
5,586
1,076
2,286
1,369
1,082
$ 28,913
As at
October 31
2012
$ 5,952
2,705
5,696
4,824
1,466
2,030
1,308
877
$ 24,858
N O T E 1 8
SUBORDINATED NOTES AND DEBENTURES
Subordinated notes and debentures are direct unsecured obligations of
the Bank or its subsidiaries and are subordinated in right of payment
to the claims of depositors and certain other creditors. Redemptions,
cancellations, exchanges and modifications of subordinated deben-
tures qualifying as regulatory capital are subject to the consent and
approval of OSFI.
Under Basel III and OSFI’s revised Capital Adequacy Requirements
(CAR) Guideline, instruments that do not meet the Basel III require-
ments are considered non-qualifying as regulatory capital and are
subject to a 10-year phase-out period commencing January 1, 2013.
All of the Bank’s current subordinated debentures are non-qualifying
capital instruments and are subject to the phase-out period.
Subordinated Notes and Debentures
(millions of Canadian dollars, except as noted)
Maturity date
August 2014
November 2017
June 2018
April 2020
November 2020
September 20225
July 2023
May 2025
October 2104
December 2105
December 2106
Total
Interest
rate (%)
10.05
5.38
5.69
5.483
3.374
4.646
5.837
9.15
4.978
4.789
5.7610
Earliest par
redemption
date
–
November 20121
June 20132
April 2015
November 2015
September 2017
July 2018
–
October 2015
December 2016
December 2017
As at
October 31
2013
October 31
2012
$ 149
–
–
871
1,000
270
650
199
796
2,247
1,800
$ 7,982
$
150
2,444
898
875
998
270
650
199
784
2,250
1,800
$ 11,318
1 On November 1, 2012, the Bank redeemed all of its outstanding medium term
7 For the period to but excluding the earliest par redemption date and thereafter
notes at 100 per cent of the principal amount.
at a rate of 3-month Bankers’ Acceptance rate plus 2.55%.
2 On June 3, 2013, the Bank redeemed all of its outstanding medium term notes
8 For the period to but excluding the earliest par redemption date and thereafter
at 100 per cent of the principal amount.
resets every 5 years at a rate of 5-year Government of Canada yield plus 1.77%.
3 For the period to but excluding the earliest par redemption date and thereafter at
9 For the period to but excluding the earliest par redemption date and thereafter
a rate of 3-month Bankers’ Acceptance rate plus 2.00%.
4 For the period to but excluding the earliest par redemption date and thereafter
at a rate of 3-month Bankers’ Acceptance rate plus 1.25%.
5 Obligation of a subsidiary.
6 For the period to but excluding the earliest par redemption date and thereafter at
a rate of 3-month Bankers’ Acceptance rate plus 1.00%.
REPAYMENT SCHEDULE
The aggregate remaining maturities of the Bank’s subordinated notes
and debentures are as follows:
resets every 5 years at a rate of 5-year Government of Canada yield plus 1.74%.
10 For the period to but excluding the earliest par redemption date and thereafter
resets every 5 years at a rate of 5-year Government of Canada yield plus 1.99%.
Maturities
(millions of Canadian dollars)
Within 1 year
Over 1 year to 3 years
Over 3 years to 4 years
Over 4 years to 5 years
Over 5 years
Total
October 31
2013
$ 149
–
–
–
7,833
$ 7,982
As at
October 31
2012
$
–
150
–
–
11,168
$ 11,318
165
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
N O T E 1 9
LIABILITY FOR PREFERRED SHARES
The Bank classifies preferred shares that are mandatorily redeemable
or convertible into a variable number of the Bank’s common shares at
the holder’s option, as liabilities for reporting purposes. Dividend
payments on these preferred shares are recorded in interest expense.
Preferred shares that are not mandatorily redeemable or that are
not convertible into a variable number of the Bank’s common shares at
the holder’s option, are not classified as liabilities and are presented
in Note 21, Share Capital.
REIT PREFERRED STOCK
REIT Preferred Stock, Series 2000A Cumulative Fixed Rate
Preferred Shares
A real estate investment trust, Carolina First Mortgage Loan Trust
(Carolina First REIT), a subsidiary of TD Bank, N.A., issued the Series
2000A Cumulative Fixed Rate Preferred Shares (Series 2000A shares).
The Series 2000A shares are entitled to quarterly cumulative cash divi-
dends, if declared, at a per annum rate of 11.125% per Series 2000A
share. The Series 2000A shares are unsecured and mandatorily
redeemable by Carolina First REIT on January 31, 2031, subject to
receipt of any necessary regulatory consents. Each Series 2000A share
may be automatically exchanged, without the consent of the holders,
into a newly issued share of Series 2000A Cumulative Fixed Rate
Preferred Stock of TD Bank, N.A. on the occurrence of certain events.
The Series 2000A shares qualified as Tier 2 capital of the Bank under
Basel II. Under Basel III, the Series 2000A shares are considered non-
qualifying capital instruments subject to phase-out over 10 years
commencing January 2013.
As at October 31, 2013, 263 shares (October 31, 2012 – 263 shares),
for $27 million (October 31, 2012 – $26 million), were issued
and outstanding.
REIT Preferred Stock, Series 2002C Cumulative Variable Rate
Preferred Shares
On May 31, 2012, Carolina First REIT redeemed all of its outstanding
Series 2002C Cumulative Variable Rate Preferred Shares at par.
N O T E 2 0
CAPITAL TRUST SECURITIES
The Bank issues innovative capital securities through SPEs. The Bank
consolidates these SPEs and their securities are reported on the
Consolidated Balance Sheet as either Liability for capital trust securities
or Non-controlling interests in subsidiaries. The securities all qualified
as Tier 1 capital of the Bank under Basel II.Under Basel III, all the
Bank’s capital trust securities are considered non-qualifying capital
instruments subject to phase-out over 10 years commencing January
2013. On February 7, 2011, the Bank announced its expectation to
exercise a regulatory event redemption right in 2022 in respect of the
TD Capital Trust IV Notes–Series 2 outstanding at that time.
On September 17, 2008 TD Capital Trust III (Trust III), a closed-end
trust, issued TD Capital Trust III Securities – Series 2008 (TD CaTS III).
The proceeds from the issuance were invested in trust assets purchased
from the Bank. Each TD CaTS III may be automatically exchanged,
without the consent of the holders, into 40 non-cumulative Class A
First Preferred Shares, Series A9 of the Bank on the occurrence of
certain events.
On January 26, 2009, TD Capital Trust IV (Trust IV) issued TD Capital
Trust IV Notes – Series 1 due June 30, 2108 (TD CaTS IV-1) and TD
Capital Trust IV Notes – Series 2 due June 30, 2108 (TD CaTS IV-2) and
on September 15, 2009, issued TD Capital Trust IV Notes – Series 3
due June 30, 2108 (TD CaTS IV-3, and collectively TD CaTS IV Notes).
The proceeds from the issuances were invested in Bank deposit notes.
Each TD CaTS IV-1 and TD CaTS IV-2 may be automatically exchanged
into non-cumulative Class A First Preferred Shares, Series A10 of the
Bank and each TD CaTS IV-3 may be automatically exchanged into
non-cumulative Class A First Preferred Shares, Series A11 of the Bank,
in each case, without the consent of the holders, on the occurrence of
certain events. On each interest payment date in respect of which
certain events have occurred, holders of TD CaTS IV Notes will be
required to invest interest paid on such TD CaTS IV Notes in a new
series of non-cumulative Class A First Preferred Shares of the Bank.
166
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS Capital Trust Securities
(millions of Canadian dollars, except as noted)
Included in non-controlling
interests in subsidiaries on
the Consolidated Balance Sheet
TD Capital Trust III Securities – Series 2008
Included in Liability for Capital
Trust Securities on the
Consolidated Balance Sheet
TD Capital Trust II Securities – Series 2012-1
TD Capital Trust IV Notes – Series 1
TD Capital Trust IV Notes – Series 2
TD Capital Trust IV Notes – Series 3
South Financial Capital Trust 2007-I
Capital Securities
South Financial Preferred Trust 2007-II
Preferred Securities
South Financial Capital Trust 2007-III
Capital Securities
Thousands
of units
Distribution/Interest
payment dates
Annual
yield
At the option At the option October 31 October 31
2012
of the holder
of the issuer
2013
Redemption
date
Conversion
date
As at
1,000
June 30, Dec. 31
7.243%1 Dec. 31, 20132
$ 989
$ 981
350
550
450
750
75
17
30
2,222
June 30, Dec. 31
June 30, Dec. 31
June 30, Dec. 31
June 30, Dec. 31
Mar. 1, June 1,
Sep. 1, Dec. 1
Jan. 30, Apr. 30,
July 30, Oct. 30
Mar. 15, June 15,
Sep. 15, Dec. 15
6.792% Dec. 31, 20073
9.523%4
Jun. 30, 20145
10.000%6
Jun. 30, 20145
6.631%7 Dec. 31, 20145
Float
Sep. 1, 20128
Float Oct. 30, 20129
Float Sep. 15, 201210
At any time
$
–
550
450
740
–
–
$ 350
550
450
752
75
17
–
$ 1,740
30
$ 2,224
1 For the period to but excluding December 31, 2018, and thereafter at a rate of
one half of the sum of 6-month Bankers’ Acceptance rate plus 4.30%.
2 On the redemption date and on any distribution date thereafter, Trust III may,
with regulatory approval, redeem TD CaTS III in whole without the consent of the
holders.
3 On December 31, 2012, TD Capital Trust II redeemed all of its outstanding securi-
ties at a redemption price of $1,000.
4 For the period to but excluding June 30, 2019 and thereafter resets every 5 years
at a rate of 5-year Government of Canada yield plus 10.125%.
5 On or after the redemption date, Trust IV may, with regulatory approval, redeem
the TD CaTS IV-1, TD CaTS IV-2 or TD CaTS IV-3, respectively, in whole or in part,
without the consent of the holders.
6 For the period to but excluding June 30, 2039 and thereafter resets every 5 years
at a rate of 5-year Government of Canada yield plus 9.735%.
7 For the period to but excluding June 30, 2021 and thereafter resets every 5 years
at a rate of 5-year Government of Canada yield plus 4.00%.
8 On March 1, 2013, South Financial Capital Trust 2007-I redeemed all of its
outstanding securities at a redemption price of US$1,000.
9 On April 30, 2013, South Financial Capital Trust 2007-II redeemed all of its
outstanding securities at a redemption price of US$1,000.
10 On March 15, 2013, South Financial Capital Trust 2007-III redeemed all of its
outstanding securities at a redemption price of US$1,000.
N O T E 2 1
SHARE CAPITAL
COMMON SHARES
The Bank is authorized by its shareholders to issue an unlimited
number of common shares, without par value, for unlimited consider-
ation. The common shares are not redeemable or convertible. Dividends
are typically declared by the Board of Directors of the Bank on a
quarterly basis and the amount may vary from quarter to quarter.
PREFERRED SHARES
The Bank is authorized by its shareholders to issue, in one or more
series, an unlimited number of Class A First Preferred Shares, without
nominal or par value. Under Basel III, all the Bank’s current preferred
shares are considered non-qualifying capital instruments subject to
phase-out over 10 years commencing January 2013.
167
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
The following table summarizes the shares issued and outstanding as
at October 31, 2013 and October 31, 2012.
Common and Preferred Shares Issued and Outstanding and Treasury Shares Held
(millions of shares and millions of Canadian dollars)
October 31, 2013
October 31, 2012
Common Shares
Balance as at beginning of year
Proceeds from shares issued on exercise of stock options
Shares issued as a result of dividend reinvestment plan
Purchase of shares for cancellation
Proceeds from issuance of new shares
Balance as at end of year – common shares
Preferred Shares – Class A
Series O
Series P
Series Q
Series R
Series S1
Series T1
Series Y2
Series Z2
Series AA
Series AC
Series AE
Series AG
Series AI
Series AK
Balance as at end of year – preferred shares
Treasury shares – common3
Balance as at beginning of year
Purchase of shares
Sale of shares
Balance as at end of year – treasury shares – common
Treasury shares – preferred3
Balance as at beginning of year
Purchase of shares
Sale of shares
Balance as at end of year – treasury shares – preferred
Number
of shares
918.2
4.2
6.0
(9.0)
–
919.4
17.0
10.0
8.0
10.0
5.4
4.6
5.5
4.5
10.0
8.8
12.0
15.0
11.0
14.0
135.8
(2.1)
(41.7)
41.9
(1.9)
–
(3.4)
3.3
(0.1)
Amount
$ 18,691
297
515
(187)
–
$ 19,316
$
425
250
200
250
135
115
137
113
250
220
300
375
275
350
$ 3,395
$
$
$
$
(166)
(3,552)
3,573
(145)
(1)
(86)
85
(2)
Number
of shares
902.4
3.9
11.9
–
–
918.2
17.0
10.0
8.0
10.0
10.0
–
10.0
–
10.0
8.8
12.0
15.0
11.0
14.0
135.8
(1.4)
(40.3)
39.6
(2.1)
–
(2.9)
2.9
–
Amount
$ 17,491
253
947
–
–
$ 18,691
$
425
250
200
250
250
–
250
–
250
220
300
375
275
350
$ 3,395
$
$
$
$
(116)
(3,175)
3,125
(166)
–
(77)
76
(1)
1 On July 31, 2013, the Bank converted 4.6 million of its 10 million non-cumulative
5-year Rate Reset Preferred Shares, Series S, on a one-for-one basis, into non-
cumulative Floating Rate Preferred Shares, Series T of the Bank.
2 On October 31, 2013, the Bank converted 4.5 million of its 10 million non-
cumulative 5-year Rate Reset Preferred Shares, Series Y, on a one-for-one basis,
into non-cumulative Floating Rate Preferred Shares, Series Z of the Bank.
3 When the Bank purchases its own shares as a part of its trading business, they are
classified as treasury shares and the cost of these shares is recorded as a reduction
in equity.
Class A First Preferred Shares, Series O
On November 1, 2005, the Bank issued 17 million Class A First
Preferred Shares, Series O for gross cash consideration of $425 million.
Quarterly non-cumulative cash dividends, if declared, will be paid at a
per annum rate of 4.85% per Series O share. The Series O shares are
redeemable by the Bank, subject to regulatory consent, by payment
in cash of $26.00 per share if redeemed on or after November 1,
2010 and decreasing by $0.25 each 12-month period thereafter to
$25.00 per share if redeemed on or after October 31, 2014.
Class A First Preferred Shares, Series R
On March 12, 2008, the Bank issued 10 million Class A First Preferred
Shares, Series R for gross cash consideration of $250 million. Quarterly
non-cumulative cash dividends, if declared, will be paid at a per annum
rate of 5.60% per Series R share. The Series R shares are redeemable
by the Bank, subject to regulatory consent, by payment in cash of
$26.00 per share if redeemed on or after April 30, 2013 and decreasing
by $0.25 each 12-month period thereafter to $25.00 per share if
redeemed on or after April 30, 2017.
Class A First Preferred Shares, Series P
On November 1, 2007, the Bank issued 10 million Class A First
Preferred Shares, Series P for gross cash consideration of $250 million.
Quarterly non-cumulative cash dividends, if declared, will be paid at a
per annum rate of 5.25% per Series P share. The Series P shares are
redeemable by the Bank, subject to regulatory consent, by payment
in cash of $26.00 per share if redeemed on or after November 1,
2012 and decreasing by $0.25 each 12-month period thereafter to
$25.00 per share if redeemed on or after October 31, 2016.
Class A First Preferred Shares, Series Q
On January 31, 2008, the Bank issued 8 million Class A First Preferred
Shares, Series Q for gross cash consideration of $200 million. Quarterly
non-cumulative cash dividends, if declared, will be paid at a per annum
rate of 5.60% per Series Q share. The Series Q shares are redeemable
by the Bank, subject to regulatory consent, by payment in cash of
$26.00 per share if redeemed on or after January 31, 2013 and
decreasing by $0.25 each 12-month period thereafter to $25.00 per
share if redeemed on or after January 31, 2017.
168
5-Year Rate Reset Preferred Shares, Series S
On June 11, 2008, the Bank issued 10 million non-cumulative 5-Year
Rate Reset Preferred Shares, Series S for gross cash consideration of
$250 million. Quarterly non-cumulative cash dividends, if declared, will
be paid at a per annum rate of 5.00% for the initial period from and
including June 11, 2008 to but excluding July 31, 2013. Thereafter,
the dividend rate will reset every five years to equal the then five-year
Government of Canada bond yield plus 1.60%. Holders of the Series S
shares will have the right to convert all or any part of their shares into
non-cumulative Floating Rate Preferred Shares, Series T, subject to
certain conditions, on July 31, 2013, and on July 31 every five years
thereafter and vice versa. The Series S shares are redeemable by the
Bank for cash, subject to regulatory consent, at $25.00 per share on
July 31, 2013 and on July 31 every five years thereafter. On July 31,
2013, the Bank converted 4.6 million of its 10 million non-cumulative
5-Year Rate Reset Preferred Shares, Series S, on a one-for-one basis,
into non-cumulative Floating Rate Preferred Shares, Series T.
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
Floating Rate Preferred Shares, Series T
On July 31, 2013, the Bank issued 4.6 million non-cumulative Floating
Rate Preferred Shares, Series T in a gross amount of $115 million
through a one-for-one conversion of some of its non-cumulative
5-Year Rate Reset Preferred Shares, Series S. Floating rate non-cumula-
tive cash dividends, if declared, will be payable quarterly for the period
from and including July 31, 2013 to but excluding July 31, 2018. The
dividend rate for a quarterly period will be equal to the 90-day Govern-
ment of Canada Treasury Bill yield plus 1.60%. Holders of the Series T
shares will have the right to convert all or any part of their shares into
non-cumulative 5-Year Rate Reset Preferred Shares, Series S, subject to
certain conditions, on July 31, 2018, and on July 31 every five years
thereafter and vice versa. The Series T shares are redeemable by the
Bank for cash, subject to regulatory consent, at (i) $25.00 per share on
July 31, 2018 and on July 31 every five years thereafter, or (ii) $25.50
in the case of redemptions on any other date on or after July 31, 2013.
5-Year Rate Reset Preferred Shares, Series Y
On July 16, 2008, the Bank issued 10 million non-cumulative 5-Year
Rate Reset Preferred Shares, Series Y for gross cash consideration of
$250 million. Quarterly non-cumulative cash dividends, if declared, will
be paid at a per annum rate of 5.10% for the initial period from and
including July 16, 2008 to but excluding October 31, 2013. Thereafter,
the dividend rate will reset every five years to equal the then five-year
Government of Canada bond yield plus 1.68%. Holders of the Series Y
shares will have the right to convert their shares into non-cumulative
Floating Rate Preferred Shares, Series Z, subject to certain conditions,
on October 31, 2013, and on October 31 every five years thereafter
and vice versa. The Series Y shares are redeemable by the Bank for
cash, subject to regulatory consent, at $25.00 per share on October 31,
2013 and on October 31 every five years thereafter. On October 31,
2013, the Bank converted 4.5 million of its 10 million non-cumulative
5-Year Rate Reset Preferred Shares, Series Y, on a one-for-one basis,
into non-cumulative Floating Rate Preferred Shares, Series Z.
Floating Rate Preferred Shares, Series Z
On October 31, 2013, the Bank issued 4.5 million non-cumulative
Floating Rate Preferred Shares, Series Z in a gross amount of $113
million through a one-for-one conversion of some of its non-cumula-
tive 5-Year Rate Reset Preferred Shares, Series Y. Floating rate non-
cumulative cash dividends, if declared, will be payable quarterly for
the period from and including October 31, 2013 to but excluding
October 31, 2018. The dividend rate for a quarterly period will be
equal to the 90-day Government of Canada Treasury Bill yield plus
1.68%. Holders of the Series Z shares will have the right to convert all
or any part of their shares into non-cumulative 5-Year Rate Reset
Preferred Shares, Series Y, subject to certain conditions, on October
31, 2018, and on October 31 every five years thereafter and vice versa.
The Series Z shares are redeemable by the Bank for cash, subject to
regulatory consent, at (i) $25.00 per share on October 31, 2018 and
on October 31 every five years thereafter, or (ii) $25.50 in the case of
redemptions on any other date on or after October 31, 2013.
5-Year Rate Reset Preferred Shares, Series AA
On September 12, 2008, the Bank issued 10 million non-cumulative
5-Year Rate Reset Preferred Shares, Series AA for gross cash consider-
ation of $250 million. Quarterly non-cumulative cash dividends, if
declared, will be paid at a per annum rate of 5.00% for the initial
period from and including September 12, 2008 to but excluding
January 31, 2014. Thereafter, the dividend rate will reset every five
years to equal the then five-year Government of Canada bond yield
plus 1.96%. Holders of the Series AA shares will have the right to
convert their shares into non-cumulative Floating Rate Preferred
Shares, Series AB, subject to certain conditions, on January 31, 2014,
and on January 31 every five years thereafter and vice versa. The
Series AA shares are redeemable by the Bank for cash, subject to
regulatory consent, at $25.00 per share on January 31, 2014 and
on January 31 every five years thereafter.
5-Year Rate Reset Preferred Shares, Series AC
On November 5, 2008, the Bank issued 8.8 million non-cumulative
5-Year Rate Reset Preferred Shares, Series AC for gross cash consider-
ation of $220 million. Quarterly non-cumulative cash dividends, if
declared, will be paid at a per annum rate of 5.60% for the initial
period from and including November 5, 2008 to but excluding
January 31, 2014. Thereafter, the dividend rate will reset every five
years to equal the then five year Government of Canada bond yield
plus 2.74%. Holders of the Series AC shares will have the right to
convert their shares into non-cumulative Floating Rate Preferred
Shares, Series AD, subject to certain conditions, on January 31, 2014,
and on January 31 every five years thereafter and vice versa. The
Series AC shares are redeemable by the Bank for cash, subject to
regulatory consent, at $25.00 per share on January 31, 2014 and
on January 31 every five years thereafter.
5-Year Rate Reset Preferred Shares, Series AE
On January 14, 2009, the Bank issued 12 million non-cumulative 5-Year
Rate Reset Preferred Shares, Series AE for gross cash consideration of
$300 million. Quarterly non-cumulative cash dividends, if declared, will
be paid at a per annum rate of 6.25% for the initial period from and
including January 14, 2009 to but excluding April 30, 2014. Thereafter,
the dividend rate will reset every five years to equal the then five year
Government of Canada bond yield plus 4.37%. Holders of the Series
AE shares will have the right to convert their shares into non-cumula-
tive Floating Rate Class A Preferred Shares, Series AF, subject to certain
conditions, on April 30, 2014, and on April 30 every five years thereaf-
ter and vice versa. The Series AE shares are redeemable by the Bank for
cash, subject to regulatory consent, at $25.00 per share on April 30,
2014 and on April 30 every five years thereafter.
5-Year Rate Reset Preferred Shares, Series AG
On January 30, 2009, the Bank issued 15 million non-cumulative 5-Year
Rate Reset Preferred Shares, Series AG for gross cash consideration of
$375 million. Quarterly non-cumulative cash dividends, if declared, will
be paid at a per annum rate of 6.25% for the initial period from and
including January 30, 2009 to but excluding April 30, 2014. Thereafter,
the dividend rate will reset every five years to equal the then five year
Government of Canada bond yield plus 4.38%. Holders of the Series
AG shares will have the right to convert their shares into non-cumula-
tive Floating Rate Class A Preferred Shares, Series AH, subject to certain
conditions, on April 30, 2014, and on April 30 every five years thereaf-
ter and vice versa. The Series AG shares are redeemable by the Bank for
cash, subject to regulatory consent, at $25.00 per share on April 30,
2014 and on April 30 every five years thereafter.
5-Year Rate Reset Preferred Shares, Series AI
On March 6, 2009, the Bank issued 11 million non-cumulative 5-Year
Rate Reset Preferred Shares, Series AI for gross cash consideration of
$275 million. Quarterly non-cumulative cash dividends, if declared, will
be paid at a per annum rate of 6.25% for the initial period from and
including March 6, 2009 to but excluding July 31, 2014. Thereafter,
the dividend rate will reset every five years to equal the then five year
Government of Canada bond yield plus 4.15%. Holders of the Series AI
shares will have the right to convert their shares into non-cumulative
Floating Rate Class A Preferred Shares, Series AJ, subject to certain
conditions, on July 31, 2014, and on July 31 every five years thereafter
and vice versa. The Series AI shares are redeemable by the Bank for
cash, subject to regulatory consent, at $25.00 per share on July 31,
2014 and on July 31 every five years thereafter.
5-Year Rate Reset Preferred Shares, Series AK
On April 3, 2009, the Bank issued 14 million non-cumulative 5-Year
Rate Reset Preferred Shares, Series AK for gross cash consideration of
$350 million. Quarterly non-cumulative cash dividends, if declared, will
be paid at a per annum rate of 6.25% for the initial period from and
including April 3, 2009 to but excluding July 31, 2014. Thereafter, the
dividend rate will reset every five years to equal the then five year
169
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS Government of Canada bond yield plus 4.33%. Holders of the
Series AK shares will have the right to convert their shares into non-
cumulative Floating Rate Class A Preferred Shares, Series AL, subject to
certain conditions, on July 31, 2014, and on July 31 every five years
thereafter and vice versa. The Series AK shares are redeemable by the
Bank for cash, subject to regulatory consent, at $25.00 per share on
July 31, 2014 and on July 31 every five years thereafter.
based on the last five trading days before the date of the dividend
payment, with a discount of between 0% to 5% at the Bank’s discre-
tion, or from the open market at market price. During the year, a total
of 3.3 million common shares were issued from the Bank’s treasury at
a discount of 1% and 2.7 million common shares were issued from the
Bank’s treasury at a discount of 0% (2012 – 11.9 million shares at a
discount of 1%) under the dividend reinvestment plan.
NORMAL COURSE ISSUER BID
On June 19, 2013, the Bank announced that the Toronto Stock
Exchange (TSX) and OSFI approved the Bank’s normal course issuer
bid to repurchase for cancellation up to 12 million common shares.
Purchases under the bid commenced on June 21, 2013 and will end on
June 20, 2014, such earlier date as the Bank may determine or such
earlier date as the Bank may complete its purchases pursuant to the
notice of intention filed with the TSX. As of October 31, 2013, the
Bank repurchased 9.0 million common shares under this bid at an aver-
age price of $86.50 for a total amount of $780.2 million. The Bank did
not have a normal course issuer bid outstanding during fiscal 2012.
DIVIDEND REINVESTMENT PLAN
The Bank offers a dividend reinvestment plan for its common share-
holders. Participation in the plan is optional and under the terms of the
plan, cash dividends on common shares are used to purchase addi-
tional common shares. At the option of the Bank, the common shares
may be issued from the Bank’s treasury at an average market price
DIVIDEND RESTRICTIONS
The Bank is prohibited by the Bank Act from declaring dividends on
its preferred or common shares if there are reasonable grounds for
believing that the Bank is, or the payment would cause the Bank to
be, in contravention of the capital adequacy and liquidity regulations
of the Bank Act or directions of OSFI. The Bank does not anticipate
that this condition will restrict it from paying dividends in the normal
course of business.
The Bank is also restricted from paying dividends in the event that
either Trust III or Trust IV fails to pay semi-annual distributions or inter-
est in full to holders of their respective trust securities, TD CaTS III and
TD CaTS IV Notes. In addition, the ability to pay dividends on common
shares without the approval of the holders of the outstanding preferred
shares is restricted unless all dividends on the preferred shares have
been declared and paid or set apart for payment. Currently, these
limitations do not restrict the payment of dividends on common shares
or preferred shares.
N O T E 2 2
NON-CONTROLLING INTERESTS IN SUBSIDIARIES
Non-Controlling Interests in Subsidiaries
(millions of Canadian dollars)
REIT preferred stock, Series A
TD Capital Trust III Securities – Series 20081
Other
Total
1 Refer to Note 20 for a description of the TD Capital Trust III securities.
October 31
2013
$ 513
989
6
$ 1,508
As at
October 31
2012
$ 491
981
5
$ 1,477
REIT PREFERRED STOCK, FIXED-TO-FLOATING RATE
EXCHANGEABLE NON-CUMULATIVE PERPETUAL PREFERRED
STOCK, SERIES A
A real estate investment trust, Northgroup Preferred Capital Corporation
(Northgroup REIT), a subsidiary of TD Bank, N.A., issued 500,000 shares
of Fixed-to-Floating Rate Exchangeable Non-Cumulative Perpetual
Preferred Stock, Series A (Series A shares). Each Series A share is entitled
to semi-annual non-cumulative cash dividends, if declared, at a per
annum rate of 6.378% until October 17, 2017 and at a per annum
rate of three-month LIBOR plus 1.1725% payable quarterly thereafter.
The Series A shares are redeemable by Northgroup REIT, subject to
regulatory consent, at a price of US$1,000 plus a make-whole amount
at any time after October 15, 2012 and prior to October 15, 2017, and
at a price of US$1,000 per Series A share on October 15, 2017 and
every five years thereafter. The Series A shares qualified as Tier 1 capital
of the Bank under Basel II. Under Basel III, the Series A shares are
considered non-qualifying capital instruments subject to phase-out
over 10 years commencing January 2013. Each Series A share may be
automatically exchanged, without the consent of the holders, into a
newly issued share of preferred stock of TD Bank, N.A. on the occur-
rence of certain events.
170
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
N O T E 2 3
TRADING-RELATED INCOME
Trading assets and liabilities, including trading derivatives, certain secu-
rities and loans held within a trading portfolio that are designated at
fair value through profit or loss, trading loans and trading deposits, are
measured at fair value, with gains and losses recognized on the
Consolidated Statement of Income.
Trading-related income comprises Net interest income, Trading
income (losses), and income from financial instruments designated at
fair value through profit or loss that are managed within a trading
portfolio, all recorded on the Consolidated Statement of Income. Net
interest income arises from interest and dividends related to trading
assets and liabilities, and is reported net of interest expense and
income associated with funding these assets and liabilities in the table
below. Trading income (loss) includes realized and unrealized gains
and losses on trading assets and liabilities. Realized and unrealized
gains and losses on financial instruments designated at fair value
through profit or loss are included in Non-interest income on the
Consolidated Statement of Income.
Trading-related income excludes underwriting fees and commissions
on securities transactions, which are shown separately on the Consoli-
dated Statement of Income.
Trading-related income by product line depicts trading income for
each major trading category.
Trading-Related Income
(millions of Canadian dollars)
Net interest income (loss)
Trading income (loss)
Financial instruments designated at fair value through profit or loss1
Total
By product
Interest rate and credit portfolios
Foreign exchange portfolios
Equity and other portfolios
Financial instruments designated at fair value through profit or loss1
Total
1 Excludes amounts related to securities designated at fair value through profit or
loss that are not managed within a trading portfolio, but which have been
combined with derivatives to form economic hedging relationships.
N O T E 2 4
INSURANCE
For the years ended October 31
2013
$ 1,230
(281)
(6)
$ 943
$ 554
368
27
(6)
$ 943
2012
$ 1,050
(41)
10
$ 1,019
$ 534
374
101
10
$ 1,019
2011
$ 818
(127)
4
$ 695
$ 212
428
51
4
$ 695
INSURANCE RISK
Insurance risk is the risk of financial loss due to actual experience
emerging differently from expectations in insurance product pricing
or reserving. Unfavourable experience could emerge due to adverse
fluctuations in timing, actual size and/or frequency of claims (for
example, catastrophic risk), mortality, morbidity, longevity, policy-
holder behaviour, or associated expenses.
Insurance contracts provide financial protection by transferring
insured risks to the issuer in exchange for premiums. The Bank is
exposed to insurance risk through its property and casualty insurance
business, life and health insurance business and reinsurance business.
Senior management within the insurance business units has primary
responsibility for managing insurance risk with oversight by the Chief
Risk Officer for Insurance who reports into Risk Management. The
Audit Committee of the Board acts as the Audit and Conduct Review
Committee for the Canadian Insurance company subsidiaries. The
Insurance company subsidiaries also have their own Boards of Directors,
as well as independent external appointed actuaries who provide addi-
tional risk management oversight.
The Bank’s risk governance practices ensure strong independent
oversight and control of risk within the Insurance business. The Risk
Committee for the Insurance business provides critical oversight of the
risk management activities within the business. The Insurance Risk
Management Framework outlines the internal risk and control structure
to manage insurance risk and includes risk appetite, policies, processes
as well as limits and governance. The Insurance Risk Management
Framework is maintained by Risk Management and supports alignment
with the Bank’s risk appetite for insurance risk.
The assessment of reserves for claims liabilities is central to the
insurance operation. The Bank engages in establishing reserves to
cover estimated future payments (including loss adjustment expenses)
on all claims arising from insurance contracts underwritten. The
reserves cannot be established with complete certainty, and represent
management’s best estimate for future claim payments. As such, the
Bank regularly monitors liability estimates against claims experience
and adjusts reserves as appropriate if experience emerges differently
than anticipated. Claims liabilities are calculated in accordance with
the Bank’s insurance accounting policy. See Note 2 to the Bank’s
Consolidated Financial Statements for further details.
Sound product design is an essential element of managing risk. The
Bank’s exposure to insurance risk is generally short term in nature as
the principal underwriting risk relates to automobile and home insur-
ance for individuals.
Insurance market cycles as well as changes in automobile insurance
legislation, the judicial environment, trends in court awards, climate
patterns and the economic environment may impact the performance
of the Insurance business. Consistent pricing policies and underwriting
standards are maintained and compliance with such policies is moni-
tored by the Risk Committee for the Insurance business.
Automobile insurance is provincially legislated and as such, policy-
holder benefits may differ between provinces. There is also exposure to
geographic concentration risk associated with personal property cover-
age. Exposure to insurance risk concentrations is managed through
established underwriting guidelines, limits, and authorization levels
that govern the acceptance of risk. Concentration risk is also mitigated
through the purchase of reinsurance.
Strategies are in place to manage the risk to our reinsurance busi-
ness. Underwriting risk on business assumed is managed through a
policy that limits exposure to certain types of business and countries.
The vast majority of treaties are annually renewable, which minimizes
long term risk. Pandemic exposure is reviewed and estimated annually.
171
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
OTHER RELATED RISKS
Credit risk is managed through a counterparty credit policy. To mini-
mize interest rate and liquidity risks, investments supporting the net
provision for unpaid claims are matched in interest rate exposure.
INSURANCE REVENUE AND EXPENSES
The Bank is engaged in insurance businesses relating to property and
casualty insurance, life and health insurance, and reinsurance. Insur-
ance revenue is presented on the Consolidated Statement of Income
under Insurance revenue and expenses are presented under Insurance
claims and related expenses, including the impacts of claims and
reinsurance on the Consolidated Statement of Income.
Insurance Revenue and Insurance Claims and Related Expenses
(millions of Canadian dollars)
Earned Premiums
Gross
Reinsurance ceded
Net earned premiums
Fee income and other revenue
Insurance Revenue
Insurance Claims and Related Expenses
Gross
Reinsurance ceded
Insurance claims and related expenses
For the years ended October 31
2013
2012
2011
$ 4,253
836
$ 3,417
317
$ 3,734
$ 3,990
834
$ 3,156
381
$ 3,537
$ 3,273
217
$ 3,056
$ 2,771
347
$ 2,424
$ 3,722
753
$ 2,969
376
$ 3,345
$ 2,427
249
$ 2,178
INSURANCE LIABILITIES
Total insurance liabilities of $5,586 million are reported as at October 31,
2013 (October 31, 2012 – $ 4,824 million) as part of other liabilities
included in Note 17.
RECONCILIATION OF CHANGES IN LIABILITIES FOR PROPERTY
AND CASUALTY INSURANCE
For property and casualty insurance, the recognized liabilities are
comprised of a provision for unpaid claims (see section (a) below) and
unearned premiums (see section (b) below). The provision for unpaid
claims is established to reflect the estimate of the full amount of all
liabilities associated with the insurance premiums earned at the
balance sheet date, including insurance claims incurred but not
recorded. The ultimate amount of these liabilities will vary from the
best estimate made for a variety of reasons, including additional infor-
mation with respect to the facts and circumstances of the insurance
claims incurred. The unearned premiums represent the portion
of net written premiums that pertain to the unexpired term of the
policies in force.
(a) Movement in Provision for Unpaid Claims:
The following table presents movements in the property and casualty
insurance net provision for unpaid claims during the year.
Movement in Provision for Unpaid Claims
(millions of Canadian dollars)
Balance as at beginning of year
Claims costs for current accident year
Prior accident years claims development
(favourable) unfavourable
Increase (decrease) due to changes in assumptions:
Discount rate
Provision for adverse deviation
Claims and related expenses
Claims paid during the year for:
Current accident year
Prior accident years
Increase (decrease) other recoverables
Balance as at end of year
October 31, 2013
October 31, 2012
Gross
Reinsurance
Net
Gross
Reinsurance
$ 3,276
2,332
$ 275
87
$ 3,001
2,245
$ 2,796
2,012
$ 189
182
346
(65)
411
227
(80)
70
2,668
(1,011)
(985)
(1,996)
(9)
$ 3,939
1
–
23
(47)
(85)
(132)
(9)
$ 157
(81)
70
2,645
(964)
(900)
(1,864)
–
$ 3,782
(17)
37
2,259
(830)
(949)
(1,779)
–
$ 3,276
(26)
1
(1)
156
(7)
(63)
(70)
–
$ 275
Net
$ 2,607
1,830
253
(18)
38
2,103
(823)
(886)
(1,709)
–
$ 3,001
(b) Movement in Provision for Unearned Premiums:
The following table presents movements in the property and casualty
insurance net unearned premiums during the year.
Movement in Provision for Unearned Premiums
(millions of Canadian dollars)
Balance as at beginning of year
Written premiums
Earned premiums
Balance as at end of year
October 31, 2013
October 31, 2012
Gross
Reinsurance
Net
Gross
Reinsurance
$ 1,397
2,909
(2,800)
$ 1,506
$
$
–
70
(70)
–
$ 1,397
2,839
(2,730)
$ 1,506
$ 1,314
2,707
(2,624)
$ 1,397
$
$
–
61
(61)
–
Net
$ 1,314
2,646
(2,563)
$ 1,397
172
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
(c) Other Movements in Insurance Liabilities:
Other movements in insurance liabilities consists of changes in life and
health insurance policy benefit liabilities and other insurance payables
that were caused primarily by the aging of in force business and
changes in actuarial assumptions.
PROPERTY AND CASUALTY CLAIMS DEVELOPMENT
The following table shows the estimates of cumulative incurred claims
for the five most recent accident years, with subsequent developments
during the periods and together with cumulative payments to date.
The original reserve estimates are evaluated monthly for redundancy or
deficiency. The evaluation is based on actual payments in full or partial
settlement of claims and current estimates of claims liabilities for
claims still open or claims still unreported.
Incurred Claims by Accident Year
(millions of Canadian dollars)
Net ultimate claims cost at end of
accident year
Revised estimates
One year later
Two years later
Three years later
Four years later
Five years later
Current estimates of cumulative claims
Cumulative payments to date
Net undiscounted provision for unpaid claims
Effect of discount
Provision for adverse deviation
Net provision for unpaid claims
2008
and prior
2009
2010
2011
2012
2013
Total
Accident year
$ 3,335
$ 1,598
$ 1,742
$ 1,724
$ 1,830
$ 2,245
3,366
3,359
3,422
3,527
3,630
$ 3,630
$ (3,168)
462
1,627
1,663
1,720
1,763
1,764
1,851
1,921
1,728
1,823
1,930
$ 1,763
$ (1,526)
237
$ 1,921
$ (1,519)
402
$ 1,823
$ (1,271)
552
$ 1,930
$ (1,159)
771
$ 2,245
$ (964)
1,281
$ 3,705
(250)
327
$ 3,782
SENSITIVITY TO INSURANCE RISK
A variety of assumptions are made related to future level of claims,
policyholder behaviour, expenses and sales levels when products are
designed and priced as well as the determination of actuarial liabilities.
Such assumptions require a significant amount of professional judgment.
The insurance claims provision is sensitive to certain assumptions. It
has not been possible to quantify the sensitivity of certain assumptions
such as legislative changes or uncertainty in the estimation process.
Actual experience may differ from the assumptions made by the Bank.
For property and casualty insurance, the main assumption underlying
the claims liability estimates is that the Bank’s future claims development
will follow a similar pattern to past claims development experience.
Claims liabilities estimates are also based on various quantitative and
qualitative factors, including discount rate, margin for adverse deviation,
reinsurance, average claims costs including claims handling costs, aver-
age claims by accident year, and trends in claims severity and frequency
and other factors such as inflation, expected or in force government
pricing and coverage reforms and the level of insurance fraud.
Qualitative and other unforeseen factors could negatively impact
the Bank’s ability to accurately assess the risk of the insurance policies
that the Bank underwrites. In addition, there may be significant lags
between the occurrence of an insured event and the time it is actually
reported to the Bank and additional lags between the time of reporting
and final settlements of claims.
The following table outlines the sensitivity of the Bank’s claims
liabilities. The analysis is performed for reasonably possible movements
in the discount rate and in the margin for adverse deviation with all
other assumptions held constant, showing the impact on the consoli-
dated net income before income taxes, and the impact on equity in the
property and casualty insurance business. Movements in the assump-
tions may be non-linear.
Sensitivity of Critical Assumptions – Property and Casualty Insurance Contract Liabilities
(millions of Canadian dollars)
As at
Impact of an absolute change of 1% in key assumptions
Discount rate assumption used
Increase in assumption
Decrease in assumption
Margin for adverse deviation assumption used
Increase in assumption
Decrease in assumption
October 31, 2013
October 31, 2012
Impact on net
income (loss)
before
income tax
Impact on
equity
Impact on net
income (loss)
before
income tax
Impact on
equity
$ 102
(110)
(31)
31
$ 75
(81)
(23)
23
$ 76
(81)
(25)
25
$ 56
(59)
(18)
18
A 5% increase in the frequency of claims as at October 31, 2013
will decrease net income before tax and equity by $33 million and
$24 million, respectively. A 5% decrease in the frequency of claims
will increase income before tax and equity by the same amounts.
A 5% increase in the severity of claims as at October 31, 2013 will
decrease net income before tax and equity by $180 million and
$133 million, respectively. A 5% decrease in the severity of claims
will increase income before tax and equity by the same amounts.
For life and health Insurance, critical assumptions used in the measure-
ment of insurance contract liabilities are determined by the appointed
actuary. The processes used to determine critical assumptions are
as follows:
• Mortality, morbidity and lapse assumptions are based on industry
and historical company data.
• Expense assumptions are based on an annually updated expense
study that is used to determine expected expenses for future years.
• Asset reinvestment rates are based on projected earned rates,
and liabilities are calculated using the Canadian Asset Liability
Method (CALM).
A sensitivity analysis for possible movements in the life and health
insurance business assumptions was performed and the impact is not
significant to the Bank’s Consolidated Financial Statements.
173
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
CONCENTRATION OF INSURANCE RISK
Concentration risk is the risk resulting from large exposure to similar
risks that are positively correlated.
Risk associated with automobile, residential and other products may
vary in relation to the geographical area of the risk insured. Exposure
to concentrations of insurance risk, in terms of type of risk is mitigated
by ceding these risks through reinsurance contracts, as well as careful
selection and implementation of underwriting strategies, which is in
turn largely achieved through diversification by line of business and
geographical areas. For automobile insurance, legislation is in place at
a provincial level and this creates differences in the benefits provided
among the provinces.
As at October 31, 2013, for the property and casualty insurance
business, 71.9% of net written premiums were derived from automo-
bile policies (October 31, 2012 – 73.2%) followed by residential with
27.8% (October 31, 2012 – 26.5%). The distribution by provinces
show that business is mostly concentrated in Ontario with 61.6% of
net written premiums (October 31, 2012 – 62.1%). The Western prov-
inces represented 26.6% (October 31, 2012 – 25.4%) followed by
Quebec, 6.6% (October 31, 2012 – 7.5%) and the Atlantic provinces
with 5.2% (October 31, 2012 – 5.0%).
Concentration risk is not a major concern for the life and health
insurance business as it does not have a material level of regional
specific characteristics like those exhibited in the property and casualty
insurance business. Reinsurance is used to limit the liability on a single
claim. While the maximum claim could be $3.0 million (October 31,
2012 – $1.2 million), the majority of claims are less than $250 thou-
sand (October 31, 2012 – $250 thousand). Concentration risk is
further limited by diversification across uncorrelated risks. This limits
the impact of a regional pandemic and other concentration risks. To
improve understanding of exposure to this risk, a pandemic scenario is
tested annually.
N O T E 2 5
SHARE-BASED COMPENSATION
The Bank operates various share-based compensation plans. The Bank
uses the fair value method of accounting for all stock option awards.
Under the fair value method, the Bank recognizes compensation
expense based on the fair value of the options, which is determined
by using an option pricing model. The fair value of the options is
recognized as compensation expense and contributed surplus over the
service period required for employees to become fully entitled to
the award. The contributed surplus balance is reduced as the options
are exercised and the amount initially recorded for the options in
contributed surplus is credited to capital stock.
STOCK OPTION PLAN
The Bank maintains a stock option program for certain key employees
and non-employee directors. Non-employee directors have not been
granted stock options since December 2001. Options on common
shares are periodically granted to eligible employees of the Bank
under the plan for terms of seven or ten years and vest over a four-
year period. These options provide holders with the right to purchase
common shares of the Bank at a fixed price equal to the closing
market price of the shares on the day prior to the date the options
were issued. Under this plan, 14.1 million common shares have been
reserved for future issuance (October 31, 2012 – 15.6 million). The
outstanding options expire on various dates to December 13, 2022.
A summary of the Bank’s stock option activity and related information
for the years ended October 31 is as follows:
Stock Option Activity
(millions of shares and Canadian dollars)
Number outstanding, beginning of year
Granted
Exercised
Forfeited/cancelled
Number outstanding, end of year
Exercisable, end of year
2013
Weighted-
average
of shares exercise price
Number
13.7
1.7
(4.2)
(0.2)
11.0
$ 62.00
81.08
55.20
73.29
$ 67.79
2012
Weighted-
average
exercise price
$ 58.05
73.27
51.08
67.78
$ 62.00
Number
of shares
15.9
1.9
(3.9)
(0.2)
13.7
4.4
$ 59.34
7.9
$ 58.07
2011
Weighted-
average
exercise price
$ 57.68
73.25
49.14
57.79
$ 58.05
$ 56.32
Number
of shares
19.2
1.7
(4.9)
(0.1)
15.9
10.3
The weighted average share price for the options exercised in 2013 was
$86.52 (2012 – $80.22; 2011 – $78.61).
The following table summarizes information relating to stock options
outstanding and exercisable as at October 31, 2013.
Range of Exercise Prices
(millions of shares and Canadian dollars)
$39.80 – $46.15
$50.76 – $59.83
$61.08 – $65.98
$66.21 – $70.57
$72.27 – $81.08
174
Options outstanding
Options exercisable
Number of
shares
outstanding
Weighted-
average
remaining
contractual
life (years)
1.4
0.5
2.1
0.8
6.2
2.0
1.5
5.5
4.1
6.7
Weighted-
average
exercise
price
$ 42.50
57.01
65.21
69.16
75.18
Number of
shares
Weighted-
average
exercisable exercise price
1.4
0.5
0.5
0.8
1.2
$ 42.50
57.01
62.23
69.16
72.66
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
For fiscal 2013, the Bank recognized compensation expense for
stock option awards of $24.8 million (2012 – $22.1 million; 2011 –
$28.3 million). During 2013, 1.7 million (2012 – 1.9 million;
2011 – 1.7 million) options were granted by the Bank at a weighted-
average fair value of $15.65 per option (2012 – $14.52 per option;
2011 – $15.47 per option).
The following table summarizes the assumptions used for estimating
the fair value of options for the twelve months ended October 31,
2013, October 31, 2012 and October 31, 2011.
Assumptions Used for Estimating Fair Value of Options
(in Canadian dollars, except as noted)
2013
2012
Risk-free interest rate
Expected option life (years)
Expected volatility1
Expected dividend yield
Exercise price/Share price
2011
2.73%
1.43%
1.50%
6.3 years
6.3 years
6.2 years
27.23%
3.51%
$ 81.08
27.40%
3.40%
$ 73.27
26.60%
3.30%
$ 73.25
1 Expected volatility is calculated based on the average daily volatility measured over
a historical period corresponding to the expected option life.
OTHER SHARE-BASED COMPENSATION PLANS
The Bank operates restricted share unit and performance share unit
plans which are offered to certain employees of the Bank. Under these
plans, participants are awarded share units equivalent to the Bank’s
common shares that generally vest over three years. A liability is
accrued by the Bank related to such share units awarded and an incen-
tive compensation expense is recognized on the Consolidated State-
ment of Income over the service period required for employees to
become fully entitled to the award. At the maturity date, the partici-
pant receives cash representing the value of the share units. The final
number of performance share units will vary from 80% to 120% of the
initial number awarded based on the Bank’s total shareholder return
relative to the average of the North American peer group. Dividend
equivalents accrue and will be re-invested in additional units that will
be paid at maturity. The number of such share units outstanding under
these plans as at October 31, 2013 was 14 million (2012 – 14 million).
The Bank also offers deferred share unit plans to eligible employees
and non-employee directors. Under these plans, a portion of the
participant’s annual incentive award and/or maturing share units may
N O T E 2 6
EMPLOYEE BENEFITS
be deferred as share units equivalent to the Bank’s common shares.
The deferred share units are not redeemable by the participant until
termination of employment or directorship. Once these conditions
are met, the deferred share unit must be redeemed for cash no later
than the end of the next calendar year. Dividend equivalents accrue
to the participants in the form of additional units. As at October 31,
2013, 3.6 million deferred share units were outstanding (October 31,
2012 – 3.4 million).
Compensation expense for these plans is recorded in the year the
incentive award is earned by the plan participant. Changes in the value
of these plans are recorded, net of the effects of related hedges, on
the Consolidated Statement of Income. For the year ended October
31, 2013, the Bank recognized compensation expense, net of the
effects of hedges, for these plans of $336 million (2012 – $326
million; 2011 – $293 million). The compensation expense recognized
before the effects of hedges was $621 million (2012 – $429 million;
2011 – $353 million). The carrying amount of the liability relating to
these plans, based on the closing share price, was $1.5 billion at
October 31, 2013 (October 31, 2012 – $1.3 billion) and is reported in
Other liabilities on the Consolidated Balance Sheet.
EMPLOYEE OWNERSHIP PLAN
The Bank also operates a share purchase plan available to employees.
Employees can contribute any amount of their eligible earnings (net of
source deductions) to the Employee Ownership Plan. The Bank
matches 100% of the first $250 of employee contributions each year
and the remainder of employee contributions at 50% to an overall
maximum of 3.5% of the employee’s eligible earnings or $2,250,
whichever comes first. The Bank’s contributions vest once an employee
has completed two years of continuous service with the Bank. For the
year ended October 31, 2013, the Bank’s contributions totalled
$63 million (2012 – $61 million; 2011 – $59 million) and were
expensed as salaries and employee benefits. As at October 31, 2013,
an aggregate of 9.8 million common shares were held under the
Employee Ownership Plan (October 31, 2012 – 9.5 million). The shares
in the Employee Ownership Plan are purchased in the open market and
are considered outstanding for computing the Bank’s basic and diluted
earnings per share. Dividends earned on Bank common shares held by
the Employee Ownership Plan are used to purchase additional common
shares for the Employee Ownership Plan in the open market.
DEFINED BENEFIT PENSION AND OTHER POST-EMPLOYMENT
BENEFIT (OPEB) PLANS
The Bank’s principal pension plans, consisting of The Pension Fund
Society of The Toronto-Dominion Bank (the “Society”) and the
TD Pension Plan (Canada) (the “TDPP”), are defined benefit plans. In
addition, the Bank maintains other partially funded and non-funded
pension plans for eligible employees. The Society was closed to new
members on January 30, 2009 and the TDPP commenced on March 1,
2009. Benefits under the principal pension plans are determined based
upon the period of plan participation and the average salary of the
member in the best consecutive five years in the last 10 years of
combined plan membership.
Funding for the Bank’s principal pension plans is provided by contri-
butions from the Bank and members of the plans as applicable. In
accordance with legislation, the Bank contributes amounts determined
on an actuarial basis to the plans and has the ultimate responsibility
for ensuring that the liabilities of the plan are adequately funded over
time. The Bank’s contributions to the principal pension plans during
2013 were $340 million (2012 – $293 million). The 2013 contributions
were made in accordance with the actuarial valuation reports for fund-
ing purposes as at October 31, 2012 and October 31, 2011 for the
Society and TDPP, respectively. The 2012 contributions were made in
accordance with the actuarial valuation reports for funding purposes
as at October 31, 2011 for both of the principal pension plans. The
next valuation date for funding purposes is as at October 31, 2013
and October 31, 2014 for the Society and the TDPP, respectively.
The Bank also provides certain post-retirement benefits and post-
employment benefits (non-pension employee benefits), which are
generally non-funded. Non-pension employee benefit plans, where
offered, generally include health care and dental benefits. Employees
must meet certain age and service requirements to be eligible for post-
retirement benefits and are generally required to pay a portion of the
cost of the benefits. Employees eligible for post-employment benefits
are those on disability and child-care leave.
For the principal pension plans and the principal non-pension post-
retirement benefit plan, actuarial valuations are prepared at least every
three years to determine the present value of the accrued benefits.
Pension and non-pension post-retirement benefit expenses are deter-
mined based upon separate actuarial valuations using the projected
benefit method pro-rated on service and management’s best estimates
of expected long-term return on plan assets, compensation increases,
health care cost trend rate and discount rate, which are reviewed
annually by the Bank’s actuaries. The discount rate used to value liabili-
ties is based on long-term corporate AA bond yields as of the measure-
ment date. The expense includes the cost of benefits for the current
year’s service, interest expense on obligations, expected income on
plan assets based on fair values and the amortization of benefit plan
amendments, actuarial gains or losses and any curtailments. Plan
amendments are amortized on a straight-line basis over the average
vesting period of the benefits granted (4 years for the principal non-
pension post-retirement benefit plan). If the benefits granted vest
immediately (Society and TDPP), the full plan amendment is recognized
175
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
immediately. The excess, if any, of the net actuarial gain or loss over
10% of the greater of the projected benefit obligation and the fair
value of plan assets is amortized over the expected average remaining
service life of the active members (12 years for the Society, 11 years
for the TDPP, and 14 years for the principal non-pension post-retire-
ment benefit plan). The cumulative difference between expense and
contributions is reported in other assets or other liabilities.
INVESTMENT STRATEGY AND ASSET ALLOCATION
The primary objective of the Society and the TDPP is to achieve an
annualized real rate of return of 1.50% and 1.75%, respectively, over
rolling 10-year periods. The investment policies for the principal
pension plans are detailed below and exclude Pension Enhancement
Account (PEA) assets which are invested at the member’s discretion
in certain mutual funds. The investment policies and asset allocations as
at October 31 by asset category for the principal pension plans (exclud-
ing PEA assets) are as follows:
Investment Policy and Asset Allocation
Security
Debt
Equity
Alternative investments
Cash equivalents
Total
1 Not applicable (n/a)
October 31, 2013
Acceptable Range
October 31, 2013
Asset Allocation
As at
October 31, 2012
Asset Allocation
Society
58-72%
24-34.5
0-12.5
0-4
TDPP
44-56%
44-56
n/a1
n/a1
Society
TDPP
Society
58%
34
6
2
100%
49%
51
n/a1
n/a1
100%
60%
31
6
3
100%
TDPP
50%
50
n/a1
n/a1
100%
The objective of the investment policy of the Society is a balanced
portfolio. The acceptable range has changed since 2011 with the
strategy to reduce the allocation to equity instruments under the
investment policy over time.
Debt instruments generally must meet or exceed a credit rating of
BBB at the time of purchase and during the holding period. There are
no limitations on the maximum amount allocated to each credit
rating above BBB within the total debt portfolio.
Within the debt portfolio, the bond mandate managed to the DEX
Universe Bond Index, representing 10% to 29% of the total fund, may
be invested in bonds with a credit rating below BBB-. Debt instruments
that are rated BBB+ or lower, and debt instruments that are rated
below BBB-, must not exceed 25% and 10% of this mandate, respec-
tively. Also, debt instruments of non-government entities and debt
instruments of non-Canadian government entities must not exceed
80% and 20% of this mandate, respectively. Debt instruments of a
single non-government or non-Canadian government entity must not
exceed 10% of this mandate. Asset-backed securities must have a
minimum credit rating of AAA and must not exceed 25% of this
mandate. The remainder of the debt portfolio is not permitted to
invest in debt instruments of non-government entities.
The equity portfolio is broadly diversified primarily across medium
to large capitalization quality companies and income trusts with no
individual holding exceeding 10% of the equity portfolio or 10% of
the outstanding securities of any one company at any time. Foreign
equities and American Depository Receipts of similar high quality are
also included to further diversify the portfolio.
Alternative investments include hedge funds and private equities.
Derivatives can be utilized provided they do not create financial
leverage for the Society. The Society can invest in hedge funds, which
normally will employ leverage when executing their investment strategy.
Substantially all assets must have readily determinable fair values.
The Society was in compliance with its investment policy throughout
the year. As at October 31, 2013, the Society’s net assets included
private equity investments in the Bank and its affiliates which had a
fair value of $1 million (2012 – $1 million). The objective of the invest-
ment policy of the TDPP is a balanced portfolio.
The TDPP is not permitted to invest in debt instruments of non-
government entities. Debt instruments generally must meet or exceed
a credit rating of BBB at the time of purchase and during the holding
period. There are no limitations on the maximum amount allocated to
each credit rating above BBB within the total debt portfolio.
The equity portfolio is broadly diversified primarily across medium
to large capitalization quality companies and income trusts with no
individual holding exceeding 10% of the equity portfolio or 10% of
the outstanding securities of any one company at any time. Foreign
equities and American Depository Receipts of similar high quality are
also included to further diversify the portfolio.
176
Derivatives can be used provided they do not create financial lever-
age for the TDPP.
Substantially all assets must have readily determinable fair values.
The TDPP was in compliance with its investment policy throughout
the year.
RISK MANAGEMENT PRACTICES
The principal pension plans’ investments include financial instruments
which are exposed to various risks. These risks include market risk
(including foreign currency risk, interest rate risk, and price risk), credit
risk, and liquidity risk. The principal pension plans manage these finan-
cial risks in accordance with the Pension Benefits Standards Act, 1985,
applicable regulations, and the principal pension plans’ Statement of
Investment Policies and Procedures. The following are some specific
risk management practices employed by the principal pension plans:
• Monitoring credit exposure of counterparties
• Monitoring adherence to asset allocation guidelines
• Monitoring asset class performance against benchmarks
OTHER PENSION AND RETIREMENT PLANS
CT Pension Plan
As a result of the acquisition of CT Financial Services Inc. (CT), the
Bank sponsors a pension plan consisting of a defined benefit portion
and a defined contribution portion. The defined benefit portion was
closed to new members after May 31, 1987, and newly eligible
employees joined the defined contribution portion of the plan. Effective
August 18, 2002, the defined contribution portion of the plan was
closed to new contributions from the Bank or active employees, except
for employees on salary continuance and long-term disability, and
employees eligible for that plan became eligible to join the Society or
the TDPP for future service. Funding for the defined benefit portion is
provided by contributions from the Bank and members of the plan.
The Bank received regulatory approval to wind-up the defined
contribution portion of the plan effective April 1, 2011. After that
date, the Bank’s contributions to the defined contribution portion of
the plan ceased. The wind-up was completed on May 31, 2012.
TD Bank, N.A. Retirement Plans
TD Bank, N.A. and its subsidiaries maintain a defined contribution
401(k) plan covering all employees. Effective January 1, 2009 the plan
was amended to include annual core contributions from TD Bank, N.A.
for all employees and a transition contribution for certain employees.
The core and transition contributions to the plan for fiscal 2013 were
$42 million (2012 – $41 million; 2011 – $34 million). In addition, on
an ongoing basis, TD Bank, N.A., makes matching contributions to the
401(k) plan. The amount of the matching contribution for fiscal 2013
was $39 million (2012 – $37 million; 2011 – $29 million). Annual
expense is equal to the Bank’s contributions to the plan.
In addition, TD Bank, N.A. has a closed non-contributory defined
benefit retirement plan covering certain legacy TD Banknorth employees.
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
Supplemental retirement plans covering certain key officers and limited
post-retirement benefit programs provide medical coverage and life
insurance benefits to a closed group of employees and directors who
meet minimum age and service requirements. Effective December 31,
2008, benefits under the retirement and supplemental retirement
plans were frozen.
employee’s average salary during the consecutive five years in which the
employee’s salary was highest in the 15 years preceding retirement.
These defined benefit retirement plans were frozen as of April 1, 2012.
In addition, TD Auto Finance provides limited post-retirement benefit
programs, including medical coverage and life insurance benefits to
certain employees who meet minimum age and service requirements.
TD Auto Finance (legacy Chrysler Financial) Retirement Plans
TD Auto Finance has both contributory and non-contributory defined
benefit retirement plans covering certain permanent employees. The
non-contributory pension plan provides benefits based on a fixed rate
for each year of service. The contributory plan provides benefits to sala-
ried employees based on the employee’s cumulative contributions, years
of service during which employee contributions were made, and the
Supplemental Employee Retirement Plans
Supplemental employee retirement plans are partially funded by the
Bank for eligible employees.
The following table presents the financial position of the Bank’s princi-
pal pension plans, the principal non-pension post-retirement benefit
plan, and the Bank’s significant other pension and retirement plans.
Employee Benefit Plans’ Obligations, Assets and Funded Status
(millions of Canadian dollars, except as noted)
Principal
Pension Plans
Principal Non-Pension
Post-Retirement
Benefit Plan1
Other Pension and
Retirement Plans2
Change in projected benefit obligation
Projected benefit obligation at beginning of year
Obligations assumed upon acquisition
of Chrysler Financial
Service cost – benefits earned
Interest cost on projected benefit obligation
Members’ contributions
Benefits paid
Change in foreign currency exchange rate
Change in actuarial assumptions
Actuarial (gains) losses
Plan amendments
Curtailment3
Projected benefit obligation as at October 31
Change in plan assets
Plan assets at fair value at beginning of year
Assets acquired upon acquisition of Chrysler Financial
Expected return on plan assets4
Actuarial gains (losses)
Members’ contributions
Employer’s contributions
Change in foreign currency exchange rate
Benefits paid
General and administrative expenses
Plan assets at fair value as at October 31
Excess (deficit) of plan assets over
projected benefit obligation
Unrecognized net loss from past experience,
different from that assumed, and effects of
changes in assumptions
Unrecognized unvested plan amendment costs (credits)
Prepaid pension asset (accrued benefit liability)
Annual expense
Net employee benefits expense includes the following:
Service cost – benefits earned
Interest cost on projected benefit obligation
Expected return on plan assets4
Actuarial (gains) losses recognized in expense
Plan amendment costs (credits) recognized in expense
Curtailment (gains) losses3
Total expense
Actuarial assumptions used to determine the
annual expense (percentage)
Weighted-average discount rate for projected
benefit obligation
Weighted-average rate of compensation increase
Weighted-average expected long-term rate of return on
plan assets
Actuarial assumptions used to determine the projected
benefit obligation as at October 31 (percentage)
Weighted-average discount rate for projected
2013
2012
2011
2013
2012
2011
2013
2012
2011
$ 4,143 $ 3,141
$ 2,856
$ 526
$ 426
$ 419
$ 2,325
$ 2,055
$ 1,182
–
263
199
65
(193)
–
(136)
(3)
–
–
–
166
190
61
(180)
–
758
1
6
–
$ 4,338 $ 4,143
$ 3,743 $ 3,300
–
194
79
61
293
–
(180)
(4)
$ 4,177 $ 3,743
–
215
11
65
340
–
(193)
(4)
–
153
171
49
(137)
–
49
–
–
–
$ 3,141
$ 3,038
–
196
(33)
49
189
–
(137)
(2)
$ 3,300
–
17
24
–
(10)
–
1
(7)
–
–
$ 551
$
$
–
–
–
–
–
10
–
(10)
–
–
–
13
24
–
(10)
–
78
(5)
–
–
$ 526
$
$
–
–
–
–
–
10
–
(10)
–
–
–
12
23
–
(10)
–
(14)
(4)
–
–
$ 426
$
$
–
–
–
–
–
10
–
(10)
–
–
–
12
92
–
(100)
61
(204)
10
–
–
$ 2,196
$ 1,462
–
91
51
–
26
49
(100)
(4)
$ 1,575
–
17
101
–
(100)
2
283
7
(9)
(31)
$ 2,325
$ 1,374
–
90
61
–
38
1
(100)
(2)
$ 1,462
673
18
85
1
(77)
25
148
–
–
–
$ 2,055
$ 769
579
72
(11)
1
21
21
(77)
(1)
$ 1,374
$ (161) $
(400)
$ 159
$ (551)
$ (526)
$ (426) $ (621) $
(863)
$
(681)
583
–
763
–
$ 422 $ 363
82
–
$ 241
49
(17)
$ (519)
55
(22)
$ (493)
(18)
(28)
119
(7)
$ (472) $ (509) $
379
(9)
(493)
$ 267 $ 170
190
(194)
–
6
–
$ 281 $ 172
199
(215)
30
–
–
$ 155
171
(196)
–
–
–
$ 130
$ 17
24
–
–
(5)
–
$ 36
$ 13
24
–
–
(5)
–
$ 32
$ 12
23
–
–
(5)
–
$ 30
$
$
16
92
(91)
22
(2)
–
37
$
$
19
101
(90)
10
–
(31)
9
159
–
(522)
19
85
(72)
–
–
–
32
$
$
$
4.53%
2.82
5.72%
3.50
5.71%
3.50
4.50%
3.80
5.50%
3.50
5.60%
3.50
4.01%
1.37
4.99%
1.98
5.50%
2.14
5.56
5.71
6.39
n/a
n/a
n/a
6.33
6.67
6.73
benefit obligation
Weighted-average rate of compensation increase
4.82%
2.83
4.53%
2.82
5.72%
3.50
4.80%
3.50
4.50%
3.50
5.50%
3.50
4.75%
1.43
4.08%
1.86
4.99%
2.02
1 The rate of increase for health care costs for the next year used to measure the
expected cost of benefits covered for the principal non-pension post-retirement
benefit plan is 5.90%. The rate is assumed to decrease gradually to 3.70% by the
year 2028 and remain at that level thereafter.
2 Includes CT defined benefit pension plan, TD Banknorth defined benefit pension
earned after that date. Certain TD Auto Finance defined benefit pension plans
were frozen as of April 1, 2012 and no service credits can be earned after
March 31, 2012.
3 Certain TD Auto Finance retirement plans were curtailed during 2012.
4 The actual return on plan assets for the principal pension plans was $226 million
plan, certain TD Auto Finance retirement plans, and supplemental employee retire-
ment plans. Other plans operated by the Bank and certain of its subsidiaries are
not considered material for disclosure purposes. The TD Banknorth defined benefit
pension plan was frozen as of December 31, 2008 and no service credits can be
for the year ended October 31, 2013 (October 31, 2012 – $273 million; October 31,
2011 – $163 million). The Bank selected the expected long-term rate of return on
plan assets assumption of 5.50% net of fees and expenses (2012 – 5.75%; 2011 –
6.50%) for the Society and 6.20% (2012 – 5.25%; 2011 – 4.00%) for the TDPP.
177
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
In fiscal 2014, the Bank expects to contribute $376 million to its principal
pension plans, $18 million to its principal non-pension post-retirement
benefit plan, and $32 million to its other pension and retirement plans.
Future contribution amounts may change upon the Bank’s review of its
contribution levels during the fiscal year.
Assumptions relating to future mortality to determine the defined
benefit obligation and net benefit cost for the principal defined benefit
pension plans are as follows:
Assumed Life Expectancy at Age 65
(number of years)
Male aged 65 at measurement date
Female aged 65 at measurement date
Male aged 40 at measurement date
Female aged 40 at measurement date
2013
22.0
23.2
23.2
24.1
2012
21.0
22.1
22.8
23.1
2011
20.9
22.1
22.7
23.1
The following table provides the sensitivity of the projected benefit
obligation and the pension expense for the Bank’s principal pension
plans to the discount rate, the expected long-term return on plan
assets and the rates of compensation, as well as the sensitivity of the
Bank’s principal non-pension post-retirement benefit plan to the health
care cost initial trend rate assumption. For each sensitivity test, the
impact of a reasonably possible change in a single factor is shown with
other assumptions left unchanged.
As at
For the years ended
October 31
2013
October 31
2012
October 31
2013
October 31
2012
Obligation
Obligation
Expense
Expense
October 31
2011
Expense
4.82%
$ 949
(715)
n/a
n/a
n/a
2.83%
$ (225)
240
5.90%
$ (84)
107
4.53%
$ 920
(689)
n/a
n/a
n/a
2.82%
$ (234)
250
6.10%
(75)
95
$
4.53%
$ 175
(107)
5.56%
$ 39
(39)
2.82%
$ (58)
61
6.10%
(6)
16
$
5.72%
$ 94
(57)
5.71%
$ 34
(34)
3.50%
$ (29)
30
6.30%
(8)
$
8
5.71%
$ 54
(47)
6.39%
$ 31
(31)
3.50%
$ 27
(26)
6.50%
$ (6)
8
October 31
2013
As at
October 31
2012
$ 422
$ 363
15
69
–
506
519
70
144
440
196
1,369
$ (863)
9
53
1
426
493
65
136
418
196
1,308
$ (882)
Sensitivity of Key Assumptions
(millions of Canadian dollars, except as noted)
Impact of an absolute change of 1.0% in key assumptions
Discount rate assumption used
Decrease in assumption
Increase in assumption
Expected long-term return on assets assumption used
Decrease in assumption
Increase in assumption
Rates of compensation increase assumption used
Decrease in assumption
Increase in assumption
Health care cost initial trend rate assumption used1
Decrease in assumption
Increase in assumption
1 As at October 31, 2013 and October 31, 2012, and for the years ended October 31,
2013, October 31, 2012 and October 31, 2011, trending to 3.70% in 2028.
The Bank recognized the following amounts on the Consolidated
Balance Sheet as at October 31, 2013 and October 31, 2012.
Amounts Recognized in the Consolidated Balance Sheet
(millions of Canadian dollars)
Other assets
Principal pension plans
Other pension and retirement plans
CT defined benefit pension plan
TD Auto Finance retirement plans
Other employee benefits – net
Prepaid pension expense
Other liabilities
Principal non-pension post-retirement benefit plan
Other pension and retirement plans
TD Banknorth defined benefit retirement plans
TD Auto Finance retirement plans
Supplemental employee retirement plans
Other employee future benefits – net
Accrued benefit liability
Net amount recognized
178
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
N O T E 2 7
INCOME TAXES
The provision for (recovery of) income taxes is comprised of the following:
Provision for (Recovery of) Income Taxes
(millions of Canadian dollars)
Provision for income taxes – Consolidated Statement of Income
Current income taxes
Provision for (recovery of) income taxes for the current period
Adjustments in respect of prior years and other
Total current income taxes
Deferred income taxes
Provision for (recovery of) deferred income taxes related to the origination
and reversal of temporary differences
Effect of changes in tax rates
Recovery of income taxes due to recognition of previously unrecognized deductible
temporary differences and unrecognized tax losses of a prior period
Adjustments in respect of prior years and other
Total deferred income taxes
Total provision for income taxes – Consolidated Statement of Income
Provision for income taxes – Statement of Other Comprehensive Income
Current income taxes
Deferred income taxes
Income taxes – other non-income related items including business
combinations and other adjustments
Current income taxes
Deferred income taxes
Total provision for (recovery of) income taxes
Current income taxes
Federal
Provincial
Foreign
Deferred income taxes
Federal
Provincial
Foreign
Total provision for (recovery of) income taxes
Reconciliation to Statutory Income Tax Rate
(millions of Canadian dollars, except as noted)
Income taxes at Canadian statutory income tax rate
Increase (decrease) resulting from:
Dividends received
Rate differentials on international operations
Tax rate changes
Other – net
Provision for income taxes and effective income tax rate
For the years ended October 31
2013
2012
2011
$ 1,619
(114)
1,505
$ 999
(19)
980
$ 1,526
(53)
1,473
(390)
8
(2)
22
(362)
1,143
(699)
(392)
(1,091)
(17)
43
26
78
$
$ 353
245
191
789
(37)
(26)
(648)
(711)
78
$
161
(14)
(1)
(34)
112
1,092
172
(67)
105
6
21
27
$ 1,224
$ 604
412
142
1,158
(100)
(68)
234
66
$ 1,224
(152)
13
–
(8)
(147)
1,326
202
(132)
70
(61)
(69)
(130)
$ 1,266
$ 718
463
433
1,614
(50)
(28)
(270)
(348)
$ 1,266
$ 1,978
(253)
(488)
–
(94)
$ 1,143
2013
26.3%
(3.4)
(6.5)
–
(1.2)
15.2%
$ 1,938
(262)
(481)
(18)
(85)
$ 1,092
2012
26.4%
(3.6)
(6.6)
(0.2)
(1.1)
14.9%
$ 2,005
(214)
(468)
–
3
$ 1,326
2011
28.1%
(3.0)
(6.6)
–
0.1
18.6%
179
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
Deferred tax assets and liabilities are comprised of:
Deferred Tax Assets and Liabilities
(millions of Canadian dollars)
Deferred tax assets
Allowance for credit losses
Land, buildings, equipment, and other depreciable assets
Deferred (income) expense
Trading loans
Derecognition of financial assets and liabilities
Goodwill
Employee benefits
Losses available for carry forward
Tax credits
Other
Total deferred tax assets1
Deferred tax liabilities
Securities
Intangible assets
Goodwill
Land, buildings, equipment, and other depreciable assets
Pensions
Total deferred tax liabilities
Net deferred tax assets
Reflected on the Consolidated Balance Sheet as follows:
Deferred tax assets
Deferred tax liabilities
Net deferred tax assets
1 The amount of temporary differences, unused tax losses, and unused tax credits
for which no deferred tax asset is recognized on the Consolidated Balance Sheet
was $37 million as at October 31, 2013 (October 31, 2012 – nil), of which
$5 million is scheduled to expire within 5 years.
The movement in the net deferred tax asset for the years ended
October 31, 2013 and October 31, 2012 was as follows:
Deferred Income Tax Expense (Recovery)
(millions of Canadian dollars)
Consolidated
Other
Statement of Comprehensive
Income
Income
Business
Combinations
and Other
October 31
2013
Consolidated
Balance
Sheet
As at
October 31
2012
Consolidated
Balance
Sheet
$ 555
–
165
131
168
–
659
313
360
294
$ 2,645
$ 855
389
6
10
118
$ 1,378
$ 1,267
$ 1,588
321
$ 1,267
$ 530
7
199
192
187
7
671
285
184
265
$ 2,527
$ 1,457
419
–
–
95
$ 1,971
$ 556
$ 883
327
$ 556
2013
Total
Consolidated
Statement of
Income
Other
Comprehensive
Income
Business
Combinations
and Other
2012
Total
Deferred income tax expense
(recovery)
Allowance for credit losses
Land, buildings, equipment,
and other depreciable assets
Deferred (income) expense
Trading loans
Derecognition of financial
assets and liabilities
Goodwill
Employee benefits
Losses available for carry
forward
Tax credits
Other deferred tax assets
Securities
Intangible assets
Pensions
Total deferred income tax
expense (recovery)
$ (25)
$
–
$ –
$ (25)
$
(22)
$
–
$ –
$
(22)
17
34
61
74
13
12
(28)
(176)
(11)
(265)
(91)
23
–
–
–
(55)
–
–
–
–
–
(337)
–
–
–
–
–
–
–
–
–
–
(18)
–
61
–
17
34
61
19
13
12
(28)
(176)
(29)
(602)
(30)
23
(31)
(73)
74
4
33
(11)
(167)
(104)
(189)
553
(8)
53
–
–
–
86
–
–
–
–
–
(153)
–
–
50
–
–
–
–
–
–
–
(29)
–
–
–
19
(73)
74
90
33
(11)
(167)
(104)
(218)
400
(8)
53
$ (362)
$ (392)
$ 43
$ (711)
$ 112
$
(67)
$ 21
$ 66
Certain taxable temporary differences associated with the Bank’s
investments in subsidiaries, branches and associates, and interests
in joint ventures did not result in the recognition of deferred tax
liabilities as at October 31, 2013. The total amount of these temporary
differences was $30 billion as at October 31, 2013 (October 31,
2012 – $26 billion).
180
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
N O T E 2 8
EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income attribut-
able to common shareholders by the weighted-average number of
common shares outstanding for the period.
net income attributable to common shareholders and the weighted-
average number of shares outstanding for the effects of all dilutive
potential common shares that are assumed to be issued by the Bank.
Diluted earnings per share is calculated using the same method as
basic earnings per share except that certain adjustments are made to
The following table presents the Bank’s basic and diluted earnings
per share.
Basic and Diluted Earnings Per Share
(millions of Canadian dollars, except as noted)
Basic earnings per share
Net income attributable to common shareholders
Weighted-average number of common shares outstanding (millions)
Basic earnings per share (dollars)
Diluted earnings per share
Net income attributable to common shareholders
Effect of dilutive securities
Capital Trust II Securities – Series 2012-1
Preferred Shares – Series M and N
Net income available to common shareholders including impact of dilutive securities
Weighted-average number of common shares outstanding (millions)
Effect of dilutive securities
Stock options potentially exercisable (millions)1
TD Capital Trust II Securities – Series 2012-1 (millions)
Preferred Shares – Series M and N (millions)
Weighted-average number of common shares outstanding – diluted (millions)
Diluted earnings per share (dollars)1
1 For the years ended October 31, 2013, October 31, 2012 and October 31, 2011,
the computation of diluted earnings per share did not exclude any weighted-average
options where the option price was greater than the average market price of the
Bank’s common shares.
For the years ended October 31
2013
2012
2011
$ 6,372
918.9
$ 6.93
$ 6,171
906.6
$ 6.81
$ 5,761
885.7
$ 6.50
$ 6,372
$ 6,171
$ 5,761
3
–
$ 6,375
918.9
2.9
0.7
–
922.5
$ 6.91
17
–
$ 6,188
906.6
3.3
5.0
–
914.9
$ 6.76
17
25
$ 5,803
885.7
4.5
4.9
7.8
902.9
$ 6.43
N O T E 2 9
PROVISIONS, CONTINGENT LIABILITIES, COMMITMENTS, GUARANTEES, PLEDGED ASSETS, AND COLLATERAL
PROVISIONS
The following table summarizes the Bank’s provisions as at
October 31, 2013.
Provisions
(millions of Canadian dollars)
Balance as of November 1, 2011
Additions
Amounts used
Unused amounts reversed
Foreign currency translation adjustments and other
Balance as of October 31, 2012, before allowance for
credit losses for off-balance sheet instruments
Add: allowance for credit losses for off-balance sheet instruments1
Balance as of October 31, 2012
Balance as of November 1, 2012
Additions
Amounts used
Unused amounts reversed
Foreign currency translation adjustments and other
Balance as of October 31, 2013, before allowance for
credit losses for off-balance sheet instruments
Add: allowance for credit losses for off-balance sheet instruments1
Balance as of October 31, 2013
1 Please refer to Note 7, Loans, Impaired Loans and Allowance for Credit Losses
for further details.
Litigation Restructuring
$ 123
549
(377)
(6)
(3)
$ 5
–
(1)
–
–
Asset
Retirement
Obligations
$ 67
7
(9)
–
1
Other
$ 58
132
(96)
(4)
(1)
$ 286
$ 4
$ 66
$ 89
$ 286
251
(279)
(23)
9
$ 4
129
(28)
–
–
$ 66
7
–
(4)
–
$ 89
102
(105)
(22)
2
$ 244
$ 105
$ 69
$ 66
Total
$ 253
688
(483)
(10)
(3)
$ 445
211
$ 656
$ 445
489
(412)
(49)
11
$ 484
212
$ 696
181
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
LITIGATION
In the ordinary course of business, the Bank and its subsidiaries are
involved in various legal and regulatory actions, including class actions
and other litigation or disputes with third parties. Legal provisions are
established when it becomes probable that the Bank will incur an
expense and the amount can be reliably estimated. The Bank may incur
losses in addition to the amounts recorded when the loss is greater
than estimated by management, or for matters when an unfavourable
outcome is reasonably possible. The Bank considers losses to be
reasonably possible when they are neither probable nor remote. The
Bank believes the estimate of the aggregate range of reasonably possi-
ble losses, in excess of provisions, for its legal proceedings where it is
possible to make such an estimate, is from zero to approximately
$336 million as at October 31, 2013. This estimated aggregate range
of reasonably possible losses is based upon currently available informa-
tion for those proceedings in which the Bank is involved, taking into
account the Bank’s best estimate of such losses for those cases which
an estimate can be made. The Bank’s estimate involves significant
judgment, given the varying stages of the proceedings and the existence
of multiple defendants in many of such proceedings whose share of
liability has yet to be determined. The matters underlying the estimated
range will change from time to time, and actual losses may vary signifi-
cantly from the current estimate. For certain cases, the Bank does not
believe that an estimate can currently be made as many of them are in
preliminary stages and certain cases have no specific amount claimed.
Consequently, these cases are not included in the range.
In management’s opinion, based on its current knowledge and after
consultation with counsel, the Bank believes that the ultimate disposi-
tion of these actions, individually or in the aggregate, will not have a
material adverse effect on the consolidated financial condition or the
consolidated cash flows of the Bank. However, there are a number of
uncertainties involved in such proceedings, some of which are beyond
the Bank’s control, including, for example, the risk that the requisite
external approvals of a particular settlement may not be granted. As
such, there is a possibility that the ultimate resolution of those legal or
regulatory actions may be material to the Bank’s consolidated results
of operations for any particular reporting period.
The following is a description of the Bank’s material legal or
regulatory actions.
Rothstein Litigation
TD Bank, N.A. was named as a defendant in multiple lawsuits in state
and federal court in Florida related to an alleged US$1.2 billion Ponzi
scheme perpetrated by, among others, Scott Rothstein, a partner of
the Fort Lauderdale, Florida based law firm, Rothstein, Rosenfeldt and
Adler (“RRA”).
On July 11, 2013, the United States Bankruptcy Court for the South-
ern District of Florida confirmed a liquidation plan for the RRA bank-
ruptcy estate that includes a litigation bar order in favor of TD Bank,
N.A. (the “Bar Order”). TD Bank, N.A. and/or the Bank are or may be
the subject of other litigation or regulatory proceedings related to the
Rothstein fraud, although further civil litigation may be enjoined by the
Bar Order. The outcome of any such proceedings is difficult to predict
and could result in judgments, settlements, injunctions or other results
adverse to TD Bank, N.A. or the Bank. Two pending civil matters are
specifically exempted from the Bar Order.
First, TD Bank’s appeal of the verdict entered against it in the
lawsuit captioned Coquina Investments v. TD Bank, N.A. et al. will
continue. The jury in the Coquina lawsuit returned a verdict against
TD Bank, N.A. on January 18, 2012 in the amount of US$67 million,
comprised of US$32 million of compensatory damages and US$35million
of punitive damages. On August 3, 2012, the trial court entered an
order sanctioning TD Bank, N.A. and its former outside counsel,
Greenberg Traurig, for alleged discovery misconduct. The sanctions
order established certain facts relating to TD Bank, N.A.’s knowledge
of the Rothstein fraud and the unreasonableness of TD Bank, N.A.’s
monitoring and alert systems, and ordered TD Bank, N.A. and Greenberg
Traurig to pay the costs incurred by the plaintiff in bringing the sanc-
tions motions. The judgment and sanctions order have been appealed
to the United States Court of Appeals for the Eleventh Circuit.
Second, the Bar Order does not apply to a motion seeking sanctions
against TD Bank, N.A. filed by the plaintiffs in the matter captioned
Razorback Funding, LLC, et al. v. TD Bank, N.A., et al., which was
dismissed pursuant to a settlement agreement entered into between
the plaintiffs and TD Bank, N.A. in April 2012. TD Bank, N.A. has
opposed the motion for sanctions and denies the purported basis for
the motion.
Overdraft Litigation
TD Bank, N.A. was originally named as a defendant in six putative
nationwide class actions challenging the manner in which it calculates
and collects overdraft fees: Dwyer v. TD Bank, N.A (D. Mass.); Hughes
v. TD Bank, N.A. (D. N.J.); Mascaro v. TD Bank, N.A. (D. D.C.);
Mazzadra, et al. v. TD Bank, N.A. (S.D. Fla.); Kimenker v. TD Bank, N.A.
(D. N.J.); and Mosser v. TD Bank, N.A. (D. Pa.). These actions were
transferred to the United States District Court for the Southern District
of Florida and have now been dismissed or settled. Settlement
payments were made to class members in June 2013; the Court retains
jurisdiction over recipients and distributions.
On August 21 2013, TD Bank, N.A. was named as a defendant in
King, et al. v. Carolina First Bank n/k/a TD Bank, N.A. (D.S.C.), a puta-
tive nationwide class action filed in federal court in South Carolina
challenging overdraft practices at Carolina First Bank prior to its
merger into TD Bank, N.A. in September 2010, as well as the overdraft
practices at TD Bank, N.A. from August 16, 2010 to the present. On
October 25, 2013, TD Bank, N.A. filed a motion to dismiss in part
plaintiff’s complaint. This case is in its preliminary stages, and plaintiffs
have not claimed a specific damages amount.
Glitnir Litigation
In January 2013, The Toronto-Dominion Bank (the Bank) was named as
a defendant in Glitnir HF v. The Toronto-Dominion Bank, an English
High Court proceeding issued by Glitnir HF, a former Icelandic bank.
The claim arises out of the Bank’s termination of derivatives transac-
tions following Glitnir’s bankruptcy during the Icelandic banking crisis
in October 2008. In particular, the claim concerns the appropriateness
of the foreign currency exchange rates, interest rates, and basis
spreads used by the Bank in its close-out calculation in respect of
Glitnir. The claim is scheduled to be heard in October 2014.
RESTRUCTURING
The Bank undertook certain measures commencing in the fourth quarter
of 2013, which are expected to continue through fiscal year 2014, to
reduce costs in a sustainable manner and achieve greater operational
efficiencies. To implement these measures, the Bank recorded a provi-
sion of $129 million for restructuring initiatives related primarily to
retail branch and real estate optimization initiatives.
COMMITMENTS
Credit-related Arrangements
In the normal course of business, the Bank enters into various commit-
ments and contingent liability contracts. The primary purpose of these
contracts is to make funds available for the financing needs of custom-
ers. The Bank’s policy for requiring collateral security with respect to
these contracts and the types of collateral security held is generally the
same as for loans made by the Bank.
Financial and performance standby letters of credit represent irrevo-
cable assurances that the Bank will make payments in the event that
a customer cannot meet its obligations to third parties and they carry
the same credit risk, recourse and collateral security requirements
as loans extended to customers. See the Guarantees section below
for further details.
182
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS Documentary and commercial letters of credit are instruments issued
on behalf of a customer authorizing a third party to draw drafts on the
Bank up to a certain amount subject to specific terms and conditions.
The Bank is at risk for any drafts drawn that are not ultimately settled
by the customer, and the amounts are collateralized by the assets to
which they relate.
Commitments to extend credit represent unutilized portions of
authorizations to extend credit in the form of loans and customers’
liability under acceptances. A discussion on the types of liquidity facilities
the Bank provides to its securitization conduits is included in Note 9.
The values of credit instruments reported below represent the maxi-
mum amount of additional credit that the Bank could be obligated to
extend should contracts be fully utilized.
Credit Instruments
(millions of Canadian dollars)
Financial and performance standby
letters of credit
Documentary and commercial letters of credit
Commitments to extend credit1
Original term to maturity of one year or less
Original term to maturity of more than one year
Total
As at
October 31 October 31
2012
2013
$ 16,503 $ 15,802
279
200
31,845
32,593
56,873
50,016
$ 106,169 $ 97,942
1 Commitments to extend credit exclude personal lines of credit and credit card lines,
which are unconditionally cancellable at the Bank’s discretion at any time.
In addition, the Bank is committed to fund $82 million (October 31,
2012 – $249 million) of private equity investments.
Long-term Commitments or Leases
The Bank has obligations under long-term non-cancellable leases for
premises and equipment. Future minimum operating lease commitments
for premises and for equipment, where the annual rental is in excess
of $100 thousand, is estimated at $768 million for 2014; $732 million
for 2015; $683 million for 2016; $617 million for 2017, $538 million
for 2018, and $2,918 million for 2019 and thereafter.
Future minimum finance lease commitments where the annual
payment is in excess of $100 thousand, is estimated at $32 million for
2014; $18 million for 2015; $12 million for 2016; $7 million for 2017;
$6 million for 2018; and $28 million for 2019 and thereafter.
The premises and equipment net rental expense, included under
Non-interest expenses in the Consolidated Statement of Income,
was $971 million for the year ended October 31, 2013 (2012 –
$914 million; 2011 – $877 million).
Pledged Assets and Collateral
In the ordinary course of business, securities and other assets are
pledged against liabilities or contingent liabilities, including repurchase
agreements, securitization liabilities, capital trust securities, and securi-
ties borrowing transactions. Assets are also deposited for the purposes
of participation in clearing and payment systems and depositories or to
have access to the facilities of central banks in foreign jurisdictions, or
as security for contract settlements with derivative exchanges or other
derivative counterparties. As at October 31, 2013, securities and other
assets with a carrying value of $133.9 billion (October 31, 2012 –
$144.1 billion) were pledged as collateral in respect of these transac-
tions. See Note 8, Transfer of Financial Assets, for further details.
Certain consumer instalment and other personal loan assets with a
carrying value of $11.6 billion (October 31, 2012 – $11.7 billion) were
also pledged with respect to covered bonds issued by the Bank.
Assets transferred by the Bank where the transferee has the right to
sell or repledge are as follows:
Assets that can be Repledged or Sold
(millions of Canadian dollars)
Trading loans, securities, and other
Other assets
Total
As at
October 31 October 31
2012
2013
$ 29,484 $ 29,929
120
$ 29,604 $ 30,049
120
In addition, the Bank may accept financial assets as collateral that
the Bank is permitted to sell or repledge in the absence of default.
These transactions are conducted under terms that are usual and
customary to standard lending, and security borrowing and lending
activities. As at October 31, 2013, the fair value of financial assets
accepted as collateral that the Bank is permitted to sell or repledge
in the absence of default was $19.8 billion (October 31, 2012 –
$18.0 billion). The fair value of financial assets accepted as collateral
that has been sold or repledged (excluding cash collateral) was
$3.3 billion as at October 31, 2013 (October 31, 2012 – $4.1 billion).
Assets Sold with Recourse
In connection with its securitization activities, the Bank typically makes
customary representations and warranties about the underlying assets
which may result in an obligation to repurchase the assets. These
representations and warranties attest that the Bank, as the seller, has
executed the sale of assets in good faith, and in compliance with
relevant laws and contractual requirements. In the event that they do
not meet these criteria, the loans may be required to be repurchased
by the Bank.
GUARANTEES
The following types of transactions represent the principal guarantees
that the Bank has entered into.
Assets Sold with Contingent Repurchase Obligations
The Bank sells mortgage loans to the TD Mortgage Fund (the ‘Fund’),
a mutual fund managed by the Bank. The mortgage loans are fully
collateralized by residential properties. The Bank continues to service
the mortgages. As part of its servicing responsibilities, the Bank has an
obligation to repurchase mortgage loans when they default for an
amount equal to their carrying amount. Losses on the repurchased
defaulted mortgages are recovered through realization of the security
on the loan and the government guarantee, where applicable. In addi-
tion, if the Fund experiences a liquidity event such that it does not
have sufficient cash to honour unit-holder redemptions, it has the
option to sell the mortgage loans back to the Bank at their fair value.
Generally, the term of these agreements do not exceed five years.
Credit Enhancements
The Bank guarantees payments to counterparties in the event that
third party credit enhancements supporting asset pools are insufficient.
Written Options
Written options are agreements under which the Bank grants the
buyer the future right, but not the obligation, to sell or buy at or by
a specified date, a specific amount of a financial instrument at a
price agreed when the option is arranged and which can be physically
or cash settled.
Written options can be used by the counterparty to hedge foreign
exchange, equity, credit, commodity and interest rate risks. The Bank
does not track, for accounting purposes, whether its clients enter into
these derivative contracts for trading or hedging purposes and has not
determined if the guaranteed party has the asset or liability related to
the underlying. Accordingly, the Bank cannot ascertain which contracts
are guarantees under the definition contained in the accounting guide-
line for disclosure of guarantees. The Bank employs a risk framework
to define risk tolerances and establishes limits designed to ensure that
losses do not exceed acceptable, pre-defined limits. Due to the nature
of these contracts, the Bank cannot make a reasonable estimate of the
potential maximum amount payable to the counterparties. The total
notional principal amount of the written options as at October 31,
2013 was $82 billion (October 31, 2012 – $94 billion).
183
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
Indemnification Agreements
In the normal course of operations, the Bank provides indemnification
agreements to various counterparties in transactions such as service
agreements, leasing transactions, and agreements relating to acquisi-
tions and dispositions. Under these agreements, the Bank is required
to compensate counterparties for costs incurred as a result of various
contingencies such as changes in laws and regulations and litigation
claims. The nature of certain indemnification agreements prevents the
Bank from making a reasonable estimate of the maximum potential
amount that the Bank would be required to pay such counterparties.
The Bank also indemnifies directors, officers and other persons, to
the extent permitted by law, against certain claims that may be made
against them as a result of their services to the Bank or, at the Bank’s
request, to another entity.
The table below summarizes as at October 31, the maximum potential
amount of future payments that could be made under guarantees
without consideration of possible recoveries under recourse provisions
or from collateral held or pledged.
Maximum Potential Amount of Future Payments
(millions of Canadian dollars)
As at
Financial and performance standby letters of credit
Assets sold with contingent repurchase obligations
Total
October 31 October 31
2012
2013
$ 16,503 $ 15,802
581
$ 16,844 $ 16,383
341
N O T E 3 0
RELATED PARTY TRANSACTIONS
Parties are considered to be related if one party has the ability to
directly or indirectly control the other party or exercise significant
influence over the other party in making financial or operational
decisions. The Bank’s related parties include key management person-
nel, their close family members and their related entities, subsidiaries,
associates, joint ventures, and post-employment benefit plans for
the Bank’s employees.
TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL, THEIR
CLOSE FAMILY MEMBERS AND THEIR RELATED ENTITIES
Key management personnel are those persons having authority and
responsibility for planning, directing and controlling the activities
of the Bank, directly or indirectly. The Bank considers certain of its
officers and directors and their affiliates to be key management
personnel. The Bank makes loans to its key management personnel,
their close family members and their related entities on market terms
and conditions with the exception of banking products and services
for key management personnel, which are subject to approved policy
guidelines that govern all employees.
Loans to Key Management Personnel, their Close Family
Members and their Related Entities
(millions of Canadian dollars)
As at
Personal loans, including mortgages
Business loans
Total
October 31 October 31
2012
2013
$ 3
181
$ 184
$
6
201
$ 207
COMPENSATION
The remuneration of key management personnel was as follows:
Compensation
(millions of Canadian dollars)
Short-term employee benefits
Post-employment benefits
Share-based payments
Total
For the years ended October 31
2013
$ 25
2
32
$ 59
2012
$ 23
1
32
$ 56
2011
$ 23
2
33
$ 58
In addition, the Bank offers deferred share and other plans to non-
employee directors, executives and certain other key employees.
See Note 25 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 SUBSIDIARIES, TD AMERITRADE
AND SYMCOR INC.
Transactions between the Bank and its subsidiaries meet the definition
of related party transactions. If these transactions are eliminated on
consolidation, they are not disclosed as related party transactions.
Transactions between the Bank, TD Ameritrade and Symcor also
qualify as related party transactions. Other than as described below,
during fiscal 2013, there were no significant transactions between the
Bank, TD Ameritrade and Symcor.
Other Transactions with TD Ameritrade and Symcor Inc.
i) TD AMERITRADE HOLDING CORPORATION
A description of significant transactions of the Bank and its affiliates
with TD Ameritrade is set forth below.
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 $821 million in 2013 (2012 – $834 million; 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
$70.4 billion in 2013 (2012 – $60.3 billion; 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 Ameri-
trade, with the balance based on an agreed rate of return. The Bank
earns a servicing fee of 25 basis points on the aggregate average
daily balance in the sweep accounts (subject to adjustment based on
a specified formula).
As at October 31, 2013, amounts receivable from TD Ameritrade
were $54 million (October 31, 2012 – $129 million). As at October 31,
2013, amounts payable to TD Ameritrade were $103 million (October 31,
2012 – $87 million).
ii) TRANSACTIONS WITH SYMCOR INC.
The Bank has 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
fiscal 2013, the Bank paid $128 million (2012 – $128 million; 2011 –
$139 million) for these services. As at October 31, 2013, the amount
payable to Symcor was $10 million (October 31, 2012 – $10 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, 2013 and October 31, 2012.
184
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
N O T E 3 1
SEGMENTED INFORMATION
For management reporting purposes, the Bank’s operations and activi-
ties are organized around four key business segments: Canadian
Personal and Commercial Banking (CAD P&C), Wealth and Insurance,
U.S. Personal and Commercial Banking (U.S. P&C), and Wholesale
Banking. The Bank’s other activities are grouped into the Corporate
segment. The results of TD Auto Finance Canada are reported in CAD
P&C. The results of TD Auto Finance U.S. are reported in U.S. P&C.
Integration charges, direct transaction costs, and changes in fair value
of contingent consideration relating to the Chrysler Financial acquisi-
tion are reported in the Corporate segment.
Effective December 1, 2011, the results of the credit card portfolio
of MBNA Canada are reported primarily in the CAD P&C and Wealth
and Insurance segments. Integration charges and direct transaction
costs relating to the acquisition of the credit card portfolio of MBNA
Canada are reported in the CAD P&C segment. Effective March 13,
2013, the results of the U.S. credit card portfolio of Target are
reported in the U.S. P&C segment and effective March 27, 2013, the
results of Epoch are reported in the Wealth and Insurance segment.
Executive responsibilities for the TD Insurance business were moved
from Group Head, Canadian Banking, Auto Finance, and Credit Cards,
to the Group Head, Wealth and Insurance and Corporate Shared
Services. Accordingly, effective November 1, 2011, the results of the
TD Insurance business were transferred from CAD P&C to Wealth
and Insurance. The prior period results have been restated retroactively
to 2011.
Effective July 1, 2013, the Group Head, U.S. Personal and Commer-
cial Banking became Chief Operating Officer, TD, and subsequently, on
November 1, 2014, is expected to become the Bank’s Group President
and Chief Executive Officer. Also effective July 1, 2013, the Group
Head, Wealth Management, Insurance and Corporate Shared Services
became Group Head, U.S. Personal and Commercial Banking. Executive
responsibilities for the Wealth Management business will be moved to
the Group Head, Canadian Banking and Auto Finance, TD, and the
Credit Cards and Insurance businesses will be moved to the Group
Head, Corporate Development, Enterprise Strategy and Treasury, TD.
The Bank is currently finalizing its future reporting format and will
update these results for segment reporting purposes effective the first
quarter of fiscal 2014. These changes will be applied retroactively in
all periods presented.
CAD P&C comprises the Bank’s personal and business banking in
Canada and provides financial products and services to personal, small
business, and commercial customers. Wealth and Insurance provides
insurance, investment products and services to institutional and retail
investors, and includes the Bank’s equity investment in TD Ameritrade.
U.S. P&C provides commercial banking, mortgage banking and other
financial services in the U.S., primarily in the Northeast and Mid-Atlan-
tic regions and Florida. Wholesale Banking provides financial products
and services to corporate, government, and institutional customers.
The Bank’s other activities are grouped into the Corporate segment.
The Corporate segment includes the effects of asset securitization
programs, treasury management, collective provision for credit losses
in CAD P&C and Wholesale Banking, elimination of taxable equivalent
adjustments and other management reclassifications, corporate level
tax items, and residual unallocated revenue and expenses.
The results of each business segment reflect revenue, expenses and
assets generated by the businesses in that segment. Due to the
complexity of the Bank, its management reporting model uses various
estimates, assumptions, allocations and risk-based methodologies for
funds transfer pricing, inter-segment revenue, income tax rates, capi-
tal, indirect expenses and cost transfers to measure business segment
results. Transfer pricing of funds is generally applied at market rates.
Inter-segment revenue is negotiated between each business segment
and approximates the fair value of the services provided. Income tax
provision or recovery is generally applied to each segment based on a
statutory tax rate and may be adjusted for items and activities unique
to each segment. Amortization of intangibles acquired as a result
of business combinations is included in the Corporate segment.
Accordingly, net income for business segments is presented before
amortization of these intangibles.
Net interest income within Wholesale Banking is calculated on a
taxable equivalent basis (TEB), which means that the value of non-
taxable or tax-exempt income, including dividends, is adjusted to its
equivalent before-tax value. Using TEB allows the Bank to measure
income from all securities and loans consistently and makes for a more
meaningful comparison of net interest income with similar institutions.
The TEB adjustment reflected in Wholesale Banking is reversed in the
Corporate segment.
The Bank purchases CDS to hedge the credit risk in Wholesale Bank-
ing’s corporate lending portfolio. These CDS do not qualify for hedge
accounting treatment and are measured at fair value with changes in
fair value recognized in current period’s earnings. The related loans
are accounted for at amortized cost. Management believes that this
asymmetry in the accounting treatment between CDS and loans would
result in periodic profit and loss volatility which is not indicative of
the economics of the corporate loan portfolio or the underlying busi-
ness performance in Wholesale Banking. As a result, the CDS are
accounted for on an accrual basis in Wholesale Banking and the gains
and losses on the CDS, in excess of the accrued cost, are reported in
the Corporate segment.
As discussed in Note 6, the Bank reclassified certain debt securities
from trading to the available-for-sale category effective August 1,
2008. As part of the Bank’s trading strategy, these debt securities are
economically hedged, primarily with CDS and interest rate swap
contracts. These derivatives are not eligible for reclassification and are
recorded on a fair value basis with changes in fair value recorded in
the period’s earnings. Management believes that this asymmetry in the
accounting treatment between derivatives and the reclassified debt
securities results in volatility in earnings from period to period that is
not indicative of the economics of the underlying business perfor-
mance in Wholesale Banking. As a result, the derivatives are accounted
for on an accrual basis in Wholesale Banking and the gains and losses
related to the derivatives, in excess of the accrued costs, are reported
in the Corporate segment.
185
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS The following table summarizes the segment results for the years ended
October 31, 2013, October 31, 2012, and October 31, 2011.
Results by Business Segment
(millions of Canadian dollars)
Net interest income (loss)
Non-interest income (loss)1
Provision for (reversal of) credit losses
Insurance claims and related expenses1
Non-interest expenses
Income (loss) before income taxes
Provision for (recovery of) income taxes
Equity in net income of an investment in
associate, net of income taxes
Net income (loss)
Total assets as at October 31
(billions of Canadian dollars)
Net interest income (loss)
Non-interest income (loss)1
Provision for (reversal of) credit losses
Insurance claims and related expenses1
Non-interest expenses
Income (loss) before income taxes
Provision for (recovery of) income taxes
Equity in net income of an investment in
associate, net of income taxes
Net income (loss)
Total assets as at October 31
(billions of Canadian dollars)
Net interest income (loss)
Non-interest income (loss)1
Provision for (reversal of) credit losses
Insurance claims and related expenses1
Non-interest expenses
Income (loss) before income taxes
Provision for (recovery of) income taxes
Equity in net income of an investment in
associate, net of income taxes
Net income (loss)
Total assets as at October 31
(billions of Canadian dollars)
For the years ended October 31
2013
Canadian
Personal and
Commercial
Banking
U.S.
Personal and
Commercial
Banking
Wealth and
Insurance
Wholesale
Banking
Corporate
$ 8,345
2,695
929
–
5,136
4,975
1,321
–
$ 3,654
$ 579
6,358
–
3,056
2,821
1,060
153
246
$ 1,153
$ 5,172
1,957
779
–
4,550
1,800
273
–
$ 1,527
$ 1,982
425
26
–
1,541
840
192
–
$ 648
$
–
(251)
(103)
–
994
(1,142)
(796)
26
(320)
$
Total
$ 16,078
11,184
1,631
3,056
15,042
7,533
1,143
272
$ 6,662
$ 290.3
$ 27.5
$ 239.1
$ 269.3
$ 36.3
$ 862.5
$ 8,023
2,629
1,151
–
4,988
4,513
1,209
–
$ 3,304
$ 583
5,860
–
2,424
2,600
1,419
261
209
$ 1,367
$ 4,663
1,468
779
–
4,125
1,227
99
–
$ 1,128
$ 1,805
849
47
–
1,570
1,037
157
–
$ 880
$
(48)
(286)
(182)
–
715
(867)
(634)
25
(208)
$
2012
$ 15,026
10,520
1,795
2,424
13,998
7,329
1,092
234
$ 6,471
$ 282.6
$ 26.4
$ 209.1
$ 260.7
$ 32.3
$ 811.1
$ 7,190
2,342
824
–
4,433
4,275
1,224
–
$ 3,051
$ 542
5,676
–
2,178
2,616
1,424
317
207
$ 1,314
$ 4,392
1,342
687
–
3,593
1,454
266
–
$ 1,188
$ 1,659
837
22
–
1,468
1,006
191
–
$ 815
$
(122)
(18)
(43)
–
937
(1,034)
(672)
39
(323)
$
2011
$ 13,661
10,179
1,490
2,178
13,047
7,125
1,326
246
$ 6,045
$ 258.5
$ 26.7
$ 198.7
$ 220.3
$ 31.3
$ 735.5
1 Effective 2013, Insurance revenue and Insurance claims and related expenses are
presented on a gross basis on the Consolidated Statement of Income. Comparative
amounts have been reclassified to conform with the current period presentation.
186
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
RESULTS BY GEOGRAPHY
For reporting of geographic results, segments are grouped into Canada,
United States and Other international. Transactions are primarily recorded
in the location responsible for recording the revenue or assets. This loca-
tion frequently corresponds with the location of the legal entity through
which the business is conducted and the location of the customer.
(millions of Canadian dollars)
Canada
United States
Other international
Total
Canada
United States
Other international
Total
Canada
United States
Other international
Total
For the years ended October 31
As at October 31
2013
2013
Total revenue1
Income before
income taxes
Net income
Goodwill
Total assets
$ 18,013
7,205
2,044
$ 27,262
$ 17,314
6,101
2,131
$ 25,546
$ 15,701
5,708
2,431
$ 23,840
$ 5,233
1,040
1,260
$ 7,533
$ 5,358
474
1,497
$ 7,329
$ 4,510
796
1,819
$ 7,125
$ 4,243
877
1,542
$ 6,662
2012
$ 4,294
472
1,705
$ 6,471
2011
$ 3,428
631
1,986
$ 6,045
$ 1,554
11,694
49
$ 13,297
$ 1,549
10,713
49
$ 12,311
$ 1,455
10,753
49
$ 12,257
$ 518,412
262,682
81,438
$ 862,532
2012
$ 498,449
241,996
70,661
$ 811,106
2011
$ 452,334
221,576
61,583
$ 735,493
1 Effective Q4 2013, Insurance revenue and Insurance claims and related expenses
are presented on a gross basis on the Consolidated Statement of Income.
Comparative amounts have been reclassified to conform with the current
period presentation.
N O T E 3 2
INTEREST RATE RISK
The Bank earns and pays interest on certain assets and liabilities. To
the extent that the assets, liabilities and financial instruments mature
or reprice at different points in time, the Bank is exposed to interest
rate risk. The following table details the balances of interest-rate
sensitive instruments by the earlier of the maturity or repricing date.
Contractual repricing dates may be adjusted according to management’s
estimates for prepayments or early redemptions that are independent
of changes in interest rates. Certain assets and liabilities are shown as
non-rate sensitive although the profile assumed for actual management
may be different. Derivatives are presented in the floating rate category.
The Bank’s risk management policies and procedures relating to credit,
market, and liquidity risks as required under IFRS 7 are outlined in
the shaded sections of the “Managing Risk” section of the MD&A in
this report.
187
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
Interest Rate Risk
(billions of Canadian dollars, except as noted)
Assets
Cash resources and other
Effective yield
Trading loans, securities, and other
Effective yield
Financial assets designated at fair value through profit or loss
Effective yield
Available-for-sale
Effective yield
Held-to-maturity
Effective yield
Securities purchased under reverse repurchase agreements
Effective yield
Loans
Effective yield
Other
Total assets
Liabilities and equity
Trading deposits
Effective yield
Other deposits
Effective yield
Securitization liabilities at fair value
Effective yield
Obligations related to securities sold short
Obligations related to securities sold under repurchase agreements
Effective yield
Securitization liabilities at amortized cost
Effective yield
Subordinated notes and debentures
Effective yield
Other
Equity
Total liabilities and equity
Net position
Assets
Cash resources and other
Effective yield
Trading loans, securities, and other
Effective yield
Financial assets designated at fair value through profit or loss
Effective yield
Available-for-sale
Effective yield
Securities purchased under reverse repurchase agreements
Effective yield
Loans
Effective yield
Other
Total assets
Liabilities and equity
Trading deposits
Effective yield
Other deposits
Effective yield
Securitization liabilities at fair value
Effective yield
Obligations related to securities sold short
Obligations related to securities sold under repurchase agreements
Effective yield
Securitization liabilities at amortized cost
Effective yield
Subordinated notes and debentures
Effective yield
Other
Equity
Total liabilities and equity
Net position
188
Floating Within 3 3 months
to 1 year
rate months
Total
within
1 year
Over 1
year to
5 years
Over
5 years
Non-
interest
sensitive
Total
As at
October 31, 2013
$
$
–
–%
– $
–%
0.3
$ 32.4
$ 25.3
$ 11.8 $ 49.7
$ 101.9
$ 10.5
$ 20.8
$
$
$
$
$
0.1
0.7
0.4
–
$
$
$
$
0.3%
6.0
1.6%
0.6
4.8%
7.4
0.3%
1.1
2.3%
2.2
$ 46.4
0.4%
$
$
$
0.8 $ 32.1
0.6%
9.0 $ 15.1
1.1%
2.0 $
2.9%
3.3
$
2.0%
2.6
3.6%
$ 39.5 $ 47.3
$ 21.2
$
$
0.9%
2.0 $
1.6%
7.2
0.2%
2.1%
3.1
$ 17.6
$
1.4%
2.1
1.9%
$ 55.8
2.9%
$ 0.5 $
3.0%
$ 10.4 $
2.2%
$ 9.3 $
2.1%
–
–%
$
$
0.1
$
6.5
0.6
$ 79.5
–
$ 30.0
6.4
$ 64.3
$ 15.3
$ 190.5
$ 47.4 $ 253.2
$ 157.5
$ 23.7 $ 10.5
$ 444.9
$ 55.9
$ 85.1
1.8%
$
–
$ 272.8
3.7%
$
– $ 55.9
$ 107.9 $ 465.8
3.6%
$
–
$ 226.3
3.9%
$
– $ 47.1
$ 55.7 $ 114.7
$ 103.0
$ 862.5
$
–
$ 25.6
$ 19.8 $ 45.4
$
0.2%
0.4%
0.7
0.6%
$ 0.4 $
2.1%
1.1
$ 47.6
$ 196.2
$ 53.9
$ 49.3 $ 299.4
$ 54.8
$ 1.6 $ 187.7
$ 543.5
$
–
$ 41.8
0.8
$
$
0.8%
4.4
0.9%
$
–
$ 27.7
$
$
$
$
–
–
0.4%
8.1
1.9%
–
–%
–
$
$ 55.9
$
1.5
$
–
$ 121.2
$ 294.7
$ (209.6) $ 151.6
0.9%
8.5 $ 12.9
1.0%
– $ 41.8
0.1 $ 28.6
0.4%
2.6 $ 10.7
1.5%
0.2 $
0.2
$
$
$
$
$
10.1%
1.0 $ 56.9
$
$
3.2
1.7 $
$ 83.2 $ 499.1
$ (33.3)
$ 24.7
$
$
$
1.7%
6.6
1.7%
–
–
–%
$ 12.0
$
1.9%
7.6
5.0%
0.7
$
$
1.2
$ 83.6
$ 142.7
2.1%
$ 2.5 $
2.6%
$
$
– $
– $
–%
$ 2.9 $
2.9%
$ 0.2 $
9.2%
–
$ 22.0
–
5.8
$ 41.8
$ 34.4
–
$ 25.6
–
$
8.0
– $ 30.0
$
$
– $ 47.6
$ 7.6 $ 272.2
$ 48.1 $ (157.5) $
$ 87.6
$ 52.0
$ 862.5
–
October 31, 2012
0.4 $ 24.9
1.3%
$
$
–
–%
– $
–%
0.2
$ 25.1
$ 13.1 $ 17.8
$ 24.2
$ 8.2 $ 44.3
$ 94.5
5.7
$ 18.8
$
0.2
0.5
$
$
0.3%
4.5
1.4%
0.5
0.6%
3.4
$ 46.3
1.0%
3.2
$ 45.8
0.4%
$
$
$
$
$
$
$
$
$
1.4
1.0%
0.4 $
1.8%
7.8 $ 57.5
2.0%
7.9 $ 56.9
0.3%
$
2.0%
4.0
2.7%
$ 26.0
$
2.5%
2.0
1.9%
8.2
$ 200.8
$ 40.0 $ 249.0
$ 134.3
$ 68.1
$ 89.3
1.7%
–
$
$ 316.7
2.4%
– $ 68.1
$
$ 69.6 $ 475.6
2.7%
–
$
$ 190.5
2.6%
$ 0.5 $
3.2%
$ 14.2 $
2.6%
0.3
$
6.2
0.9
$ 98.6
$
– $ 10.3
–%
$ 69.2
$ 20.1 $
3.7%
5.4
$ 408.8
– $ 40.6
$
$ 43.0 $ 102.0
$ 108.7
$ 811.1
$
–
$ 18.0
$ 19.4 $ 37.4
$
0.4%
0.4%
0.1
1.0%
$ 0.3 $
2.0%
1.0
$ 38.8
$ 193.4
$ 62.3
$ 36.6 $ 292.3
$ 49.6
$ 0.2 $ 145.7
$ 487.8
1.8%
6.0
$ 17.4
$
–
$ 33.4
1.2
$
$
1.1%
1.2
3.0%
$
–
$ 25.4
0.5%
$
$
–
$ 10.8
–
$
1.4%
–
–%
$
$
$
$
$
1.6%
4.8 $
1.5%
– $ 33.4
2.0 $ 28.6
0.2%
1.5 $ 12.3
1.1%
3.4 $
5.5%
3.4
$ 72.2
$
–
$ 300.2
$ (210.9)
0.4
$
$
0.5
$ 118.6
$ 198.1
0.8 $
– $ 72.6
$
$
1.3
$ 68.5 $ 487.3
1.1 $ (11.7)
$
2.0%
$ 1.5 $
1.6%
0.4
$ 25.3
$
$
– $
–
– $ 10.2
–%
$ 33.4
$ 38.8
$ 2.6 $
1.9%
$ 2.8 $
6.0%
–
$ 26.2
–
$ 11.3
$ 1.8 $ 26.1
$
– $ 45.5
$ 9.2 $ 228.9
$ 33.8 $ (126.9)
$ 100.5
$ 49.0
$ 811.1
–
$
$
$
1.7%
–
–
–%
$ 11.3
$
1.4%
5.1
4.8%
–
$
$
2.2
$ 85.7
$ 104.8
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
Interest Rate Risk by Category
(billions of Canadian dollars)
Canadian currency
Foreign currency
Net position
Canadian currency
Foreign currency
Net position
N O T E 3 3
CREDIT RISK
Within
3 months
3 months
to 1 year
Floating
rate
$ (177.4)
(32.2)
$ (209.6)
$ 110.7
40.9
$ 151.6
$ (133.3)
(77.6)
$ (210.9)
$ 122.5
75.6
$ 198.1
Total
within
1 year
$ (55.9)
22.6
$ (33.3)
$
(5.8)
(5.9)
$ (11.7)
Over 1
year to
5 years
$ 94.5
48.2
$ 142.7
$ 62.8
42.0
$ 104.8
Over
5 years
$ 12.1
36.0
$ 48.1
$ 4.8
29.0
$ 33.8
As at
October 31, 2013
Non-
interest
sensitive
$ (40.1)
(117.4)
$ (157.5)
Total
$ 10.6
(10.6)
–
$
October 31, 2012
$ 5.7
(5.7)
–
$
$
(56.1)
(70.8)
$ (126.9)
$ 10.8
13.9
$ 24.7
$ 5.0
(3.9)
$ 1.1
Concentration of credit risk exists where a number of borrowers or
counterparties are engaged in similar activities, are located in the
same geographic area or have comparable economic characteristics.
Their ability to meet contractual obligations may be similarly affected
by changing economic, political or other conditions. The Bank’s
portfolio could be sensitive to changing conditions in particular
geographic regions.
Concentration of Credit Risk
(millions of Canadian dollars, except as noted)
Canada
United States6
United Kingdom
Europe – other
International
Total
Loans and customers’ liability
under acceptances1
Credit instruments2,3
As at
Derivative financial
instruments4,5
October 31
2013
October 31
2012
October 31
2013
October 31
2012
October 31
2013
October 31
2012
74%
25
–
–
1
100%
76%
23
–
–
1
100%
50%
46
1
2
1
100%
52%
44
1
2
1
100%
39%
19
15
20
7
100%
32%
21
26
15
6
100%
$ 451,321
$ 416,071
$ 106,169
$ 97,942
$ 48,309
$ 60,475
1 Of the total loans and customers’ liability under acceptances, the only industry
4 As at October 31, 2013, the current replacement cost of derivative financial
segment which equalled or exceeded 5% of the total concentration as at October 31,
2013 was: Real estate 8% (October 31, 2012 – 8%).
2 As at October 31, 2013, the Bank had commitments and contingent liability
contracts in the amount of $106,169 million (October 31, 2012 – $97,942 million).
Included are commitments to extend credit totalling $89,466 million (October 31,
2012 – $81,861 million), of which the credit risk is dispersed as detailed in the
table above.
3 Of the commitments to extend credit, industry segments which equalled or
exceeded 5% of the total concentration were as follows as at October 31, 2013:
Financial institutions 17% (October 31, 2012 – 16%); pipelines, oil and gas 10%
(October 31, 2012 – 11%); power and utilities 8% (October 31, 2012 – 8%);
government, public sector entities and education 7% (October 31, 2012 – 10%);
sundry manufacturing and wholesale 7% (October 31, 2012 – 5%); telecom-
munications, cable and media 7% (October 31, 2012 – 6%); automotive 7%
(October 31, 2012 – 5%).
instruments amounted to $48,309 million (October 31, 2012 – $60,475 million).
Based on the location of the ultimate counterparty, the credit risk was allocated
as detailed in the table above. The table excludes the fair value of exchange
traded derivatives.
5 The largest concentration by counterparty type was with financial institutions
(including non-banking financial institutions), which accounted for 83% of the
total as at October 31, 2013 (October 31, 2012 – 74%). The second largest
concentration was with governments, which accounted for 12% of the total as
at October 31, 2013 (October 31, 2012 – 21%). No other industry segment
exceeded 5% of the total.
6 Debt securities classified as loans were 1% as at October 31, 2013 (October 31,
2012 – 1%) of the total loans and customers’ liability under acceptances.
189
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
The following table presents the maximum exposure to credit risk of
financial instruments, before taking account of any collateral held or
other credit enhancements.
Gross Maximum Credit Risk Exposure
(millions of Canadian dollars)
Cash and due from banks
Interest-bearing deposits with banks
Securities1
Trading
Government and government-insured securities
Other debt securities
Retained interest
Available-for-sale
Government and government-insured securities
Other debt securities
Held-to-maturity
Government and government-insured securities
Other debt securities
Securities purchased under reverse purchase agreements
Derivatives2
Loans
Residential mortgages
Consumer instalment and other personal
Credit card
Business and government
Debt securities classified as loans
Customers’ liability under acceptances
Other assets
Total assets
Credit instruments3
Unconditionally cancellable commitments to extend credit
relating to personal lines of credit and credit card lines
Total credit exposure
October 31
2013
As at
October 31
2012
$
2,455
28,855
$
2,361
21,692
32,861
9,616
67
37,897
38,936
25,890
4,071
64,283
86,752
185,709
118,523
21,380
115,837
3,473
6,399
12,635
795,639
106,169
34,563
7,887
85
61,365
33,864
–
–
69,198
113,648
172,075
117,369
14,670
100,080
4,654
7,223
10,278
771,012
97,942
177,755
$ 1,079,563
149,975
$ 1,018,929
1 Excludes equity securities.
2 The gross maximum credit exposure for derivatives is based on the credit equivalent
amount. The amounts exclude exchange traded derivatives and non-trading credit
derivatives. See Note 10.
3 The balance represents the maximum amount of additional funds that the Bank
could be obligated to extend should the contracts be fully utilized. The actual
maximum exposure may differ from the amount reported above. See Note 29.
Credit Quality of Financial Assets
The following table provides the on and off-balance sheet exposures
by risk-weight for certain financial assets that are subject to the stan-
dardized approach to credit risk. Under the standardized approach,
assets receive an OSFI-prescribed risk-weight based on factors including
counterparty type, product type, collateral, and external credit assess-
ments. These assets relate primarily to the Bank’s U.S. Personal and
Commercial Banking portfolio. Refer to the Managing Risk – Credit
Risk section of the MD&A for a discussion on the risk rating for the
standardized approach.
190
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
Financial Assets Subject to the Standardized Approach by Risk-Weights
(millions of Canadian dollars)
As at
October 31, 2013
0%
20%
35%
50%
75%
100%
150%
Total
Loans
Residential mortgages
Consumer instalment and other personal
Credit card
Business and government
Debt securities classified as loans
Total loans
Held-to-maturity
Securities purchased under reverse
repurchase agreements
Customers’ liability under acceptances
Other assets1
Total assets
Off-balance sheet credit instruments
Total
Loans
Residential mortgages
Consumer instalment and other personal
Credit card
Business and government
Debt securities classified as loans
Total loans
Held-to-maturity
Securities purchased under reverse
repurchase agreements
Customers’ liability under acceptances
Other assets1
Total assets
Off-balance sheet credit instruments
Total
$ 146 $
–
–
4,456
–
4,602
273 $ 19,080
3,858
100
–
–
–
1,832
–
571
2,776 22,938
–
– 11,440
213
$ – $ 1,649 $
60
– 24,095
–
– 13,987
2,797 44,505
–
9
–
–
– 42,528 44,787
–
–
–
$
3 $ 21,364
152 28,265
119 14,106
1,094 54,684
580
1,368 118,999
– 11,440
–
–
2,085
–
–
–
–
–
622
3,585
8,187 16,923 22,938
–
2,079
$ 8,187 $ 19,002 $ 22,938
–
–
–
–
–
–
1
32
–
1
1 42,528 44,820
279 16,643
–
$ 1 $ 42,807 $ 61,463
–
–
–
2,085
1
4,240
1,368 136,765
– 19,001
$ 1,368 $ 155,766
October 31, 2012
$ 160 $
–
–
3,010
–
3,170
–
176 $ 15,901
3,462
338
–
–
–
1,797
–
15
2,326 19,363
–
–
$
176
$ – $ 1,452 $
77
– 23,566
7,419
–
–
–
2,602 39,703
11
–
–
– 35,039 39,967
–
–
–
14
2 $ 17,867
154 27,597
7,433
1,225 48,337
26
1,395 101,260
–
–
–
1,998
–
712
–
–
4,016
7,186
15
–
–
–
5,036 19,363
–
1,942
$ 7,201 $ 6,978 $ 19,363
1 Other assets include amounts due from banks and interest-bearing deposits
with banks.
–
–
–
2
–
–
1
–
–
1 35,039 39,969
709 14,087
–
$ 1 $ 35,748 $ 54,056
–
–
–
1,998
2
4,729
1,395 107,989
– 16,753
$ 1,395 $ 124,742
191
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
The following tables provide the on and off-balance sheet exposures
by risk rating for certain non-retail and retail financial assets that are
subject to the Advanced Internal Rating Based (AIRB) approach to
credit risk in the Basel III Capital Accord. Under the AIRB approach,
assets receive a risk rating based on internal models of the Bank’s
historical loss experience (by counterparty type) and on other key risk
assumptions. Refer to the Managing Risk – Credit Risk section of the
MD&A for a discussion on the credit risk rating for non-retail and retail
exposures subject to the AIRB approach.
Non-Retail Financial Assets Subject to the AIRB Approach by Risk Rating
(millions of Canadian dollars)
As at
October 31, 2013
Investment
grade
Non-
investment
grade
Watch and
classified
Impaired/
defaulted
Loans
Residential mortgages1
Consumer instalment and other personal1
Business and government
Debt securities classified as loans
Total loans
Held-to-maturity
Securities purchased under reverse repurchase agreements
Customers’ liability under acceptances
Other assets2
Total assets
Off-balance sheet credit instruments
Total
Loans
Residential mortgages1
Consumer instalment and other personal1
Business and government
Debt securities classified as loans
Total loans
Held-to-maturity
Securities purchased under reverse repurchase agreements
Customers’ liability under acceptances
Other assets2
Total assets
Off-balance sheet credit instruments
Total
$ 107,232
26,728
27,167
2,504
163,631
18,521
52,711
3,191
25,930
263,984
58,886
$ 322,870
$ 107,374
30,221
23,590
3,829
165,014
–
64,026
3,584
18,148
250,772
52,388
$ 303,160
$
–
32
27,340
158
27,530
–
9,487
3,187
32
40,236
7,151
$ 47,387
$
–
35
21,979
433
22,447
–
3,174
3,576
39
29,236
6,247
$ 35,483
$
–
–
617
120
737
–
–
20
–
757
276
$ 1,033
$
–
–
679
318
997
–
–
51
–
1,048
201
$ 1,249
Total
$ 107,232
26,760
55,257
2,955
192,204
18,521
62,198
6,398
25,962
305,283
66,323
$ 371,606
$
–
–
133
173
306
–
–
–
–
306
10
$ 316
October 31, 2012
$
–
–
162
183
345
–
–
10
–
355
6
$ 361
$ 107,374
30,256
46,410
4,763
188,803
–
67,200
7,221
18,187
281,411
58,842
$ 340,253
1 Includes Canada Mortgage and Housing Corporation (CMHC) insured exposures
classified as sovereign exposure under Basel III and therefore included in the
non-retail category under the AIRB approach.
2 Other assets include amounts due from banks and interest-bearing deposits
with banks.
Retail Financial Assets Subject to the AIRB Approach by Risk Rating1
(millions of Canadian dollars)
As at
October 31, 2013
Loans
Residential mortgages2
Consumer instalment and other personal2
Credit card
Business and government3
Total loans
Held-to-maturity
Off-balance sheet credit instruments
Total
Loans
Residential mortgages2
Consumer instalment and other personal2
Credit card
Business and government3
Total loans
Held-to-maturity
Off-balance sheet credit instruments
Total
Low risk
Normal risk Medium risk
High risk
Default
Total
$ 27,357
24,509
1,073
403
53,342
–
35,589
$ 88,931
$ 25,770
11,510
970
334
38,584
–
20,597
$ 59,181
$ 23,310
26,538
2,420
2,967
55,235
–
13,747
$ 68,982
$ 15,508
25,177
2,282
2,349
45,316
–
17,191
$ 62,507
$ 4,736
9,020
2,919
2,255
18,930
–
3,936
$ 22,866
$ 3,946
17,401
2,894
2,349
26,590
–
6,299
$ 32,889
$ 1,661
3,813
1,651
1,153
8,278
–
921
$ 9,199
$ 1,541
5,693
1,720
1,187
10,141
–
1,218
$ 11,359
$ 160
287
53
80
580
–
4
$ 584
$ 57,224
64,167
8,116
6,858
136,365
–
54,197
$ 190,562
October 31, 2012
$ 166
293
59
75
593
–
4
$ 597
$ 46,931
60,074
7,925
6,294
121,224
–
45,309
$ 166,533
1 Credit exposures relating to the Bank’s insurance subsidiaries have been excluded.
The financial instruments held by the insurance subsidiaries are mainly comprised
of available-for-sale securities and securities designated at fair value through profit
or loss, which are carried at fair value on the Consolidated Balance Sheet.
2 Excludes CMHC insured exposures classified as sovereign exposure under Basel III
and therefore included in the non-retail category under the AIRB approach.
3 Business and government loans in the retail portfolio include small business loans.
192
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
N O T E 3 4
REGULATORY CAPITAL
The Bank manages its capital under guidelines established by OSFI.
The regulatory capital guidelines measure capital in relation to credit,
market and operational risks. The Bank has various capital policies,
procedures and controls which it utilizes to achieve its goals and
objectives.
The Bank’s capital management objectives are:
• To be an appropriately capitalized financial institution as
determined by:
– The Bank’s Risk Appetite Statement;
– Capital requirements defined by relevant regulatory authorities;
and,
– The Bank’s internal assessment of capital requirements consistent
with the Bank’s risk profile and risk tolerance levels.
• To have the most economically achievable weighted average cost of
capital (after tax), consistent with preserving the appropriate mix of
capital elements to meet targeted capitalization levels.
• To ensure ready access to sources of appropriate capital, at reason-
able cost, in order to:
– Insulate the Bank from unexpected events; or
– Support and facilitate business growth and/or acquisitions consis-
tent with the Bank’s strategy and risk appetite.
For accounting purposes, IFRS is followed for consolidation of
subsidiaries and joint ventures. For regulatory capital purposes, insur-
ance subsidiaries are deconsolidated and reported as a deduction from
capital. Insurance subsidiaries are subject to their own capital adequacy
reporting such as OSFI’s Minimum Continuing Capital Surplus Require-
ments and Minimum Capital Test. Currently, for regulatory capital
purposes, all the entities of the Bank are either consolidated or
deducted from capital and there are no entities from which surplus
capital is recognized.
Some of the Bank’s subsidiaries are individually regulated by either
OSFI or other regulators. Many of these entities have minimum capital
requirements which they must maintain and which may limit the Bank’s
ability to extract capital or funds for other uses.
During the year ended October 31, 2013, the Bank complied with
the OSFI guideline related to capital ratios and the assets-to-capital
multiple (ACM). This guideline is based on “A global regulatory
framework for more resilient banks and banking systems” (Basel III)
issued by the Basel Committee on Banking Supervision (BCBS). Up until
October 31, 2012, the guideline was based on the Basel II regulatory
framework. OSFI’s target CET1, Tier 1 and Total capital ratios for
Canadian banks are 7%, 8.5% and 10.5%, respectively.
• To support strong external debt ratings, in order to manage the
The Bank’s regulatory capital position as at October 31 was
Bank’s overall cost of funds and to maintain accessibility to required
funding.
as follows:
These objectives are applied in a manner consistent with the Bank’s over-
all objective of providing a satisfactory return on shareholders’ equity.
Regulatory Capital Position
(millions of Canadian dollars, except as noted)
Basel III Capital Framework
Changes in capital requirements approved by the Basel Committee on
Banking and Supervision (BCBS) are commonly referred to as Basel III.
These changes are intended to strengthen global capital rules with the
goal of promoting a more resilient global banking sector.
Under Basel III, total capital consists of three components, namely
Common Equity Tier 1 (CET1), Additional Tier 1 and Tier 2 capital. The
sum of the first two components is defined as Tier 1 capital. CET1
capital is mainly comprised of common shares, retained earnings and
accumulated other comprehensive income, is the highest quality capi-
tal and the predominant form of Tier 1 capital. CET1 capital includes
regulatory adjustments and deductions for items such as goodwill,
other intangibles, amounts by which capital items (such as, significant
investments in CET1 capital of financial institutions, mortgage servicing
rights and deferred tax assets from temporary differences) exceed
allowable thresholds. Tier 2 capital is mainly comprised of subordinated
debt, certain loan loss allowances and minority interests in subsidiaries’
Tier 2 instruments.
Under Basel III, risk-weighted assets are higher, primarily as a result
of the 250% risk-weighted threshold items not deducted from CET1
capital, securitization exposures being risk weighted (previously
deducted from capital) and a new capital charge for credit risk related
to asset value correlation for financial institutions. Regulatory capital
ratios are calculated by dividing CET1, Tier 1 and Total capital by RWA.
The BCBS is finalizing a leverage ratio requirement with planned
implementation in 2018, intended to serve as a supplementary
measure to the risk-based capital requirements, with the objective of
constraining excessive leverage.
Capital Position and Capital Ratios
The Basel framework allows qualifying banks to determine capital
levels consistent with the way they measure, manage and mitigate
risks. It specifies methodologies for the measurement of credit, market,
and operational risks. The Bank uses the advanced approaches for
the majority of its portfolios which results in regulatory and economic
capital being more closely aligned than was the case under Basel I.
Since the U.S. banking subsidiaries (TD Bank, N.A. including South
Financial and Chrysler Financial) were not originally required by their
main regulators to convert to Basel II prior to being acquired by the
Bank, the advanced approaches are not yet being utilized for the
majority of assets in TD Bank, N.A.
Common Equity Tier 11
Common Equity Tier 1 capital ratio1,2
Tier 1 capital3
Tier 1 capital ratio2,3,4
Total capital3,5
Total capital ratio2,3,6
Assets-to-capital multiple7,8
As at
October 31 October 31
2012
2013
$ 25,822
n/a
n/a
9.0%
$ 31,546 $ 30,989
11.0%
$ 40,690 $ 38,595
14.2%
18.2
15.7%
18.0
12.6%
1 Effective 2013, the Bank implemented the Basel III regulatory framework. As a
result, the Bank began reporting the measures, CET1 and CET1 capital ratio, in
accordance with the “all-in” methodology.
2 The final CAR Guideline postponed the Credit Valuation Adjustment (CVA) capital
add-on charge until January 1, 2014.
3 Effective 2013, amounts are calculated in accordance with the Basel III regulatory
framework, and are presented based on the “all-in” methodology. Prior to 2013,
amounts were calculated in accordance with the Basel II regulatory framework.
4 Tier 1 capital ratio is calculated as Tier 1 capital divided by risk-weighted assets
(RWA).
5 Total capital includes CET1, Tier 1 and Tier 2 capital.
6 Total capital ratio is calculated as Total capital divided by RWA.
7 The ACM is calculated as total assets plus off-balance sheet credit instruments,
such as certain letters of credit and guarantees, less investments in associated
corporations, goodwill and net intangibles, divided by Total capital.
8 Effective 2013, amounts are calculated in accordance with the Basel III regulatory
framework, and are presented based on the “transitional” methodology. Prior
to 2013, amounts were calculated in accordance with the Basel II regulatory
framework.
OSFI’s relief provision permits phase-in of the impact of IFRS in the
calculation of regulatory capital on a straight-line basis over five quar-
ters from November 1, 2011 to January 31, 2013. The IFRS transition
adjustment for regulatory capital is the difference between adjusted
net Tier 1 capital under Canadian GAAP and IFRS at October 31, 2011
and the impact has been fully phased in as at January 31, 2013. OSFI
has also provided IFRS transitional provisions for the ACM, which
allows for the exclusion of assets securitized and sold through CMHC-
sponsored programs prior to March 31, 2010 from the calculation
of ACM.
193
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
N O T E 3 5
RISK MANAGEMENT
The risk management policies and procedures of the Bank are provided
in the MD&A. The shaded sections of the “Managing Risk” section of
the MD&A relating to credit, market and liquidity risks are an integral
part of the 2013 Consolidated Financial Statements.
N O T E 3 6
INFORMATION ON SUBSIDIARIES
The following is a list of the directly or indirectly held significant
subsidiaries of the Bank.
Significant Subsidiaries1
North America
CT Financial Assurance Company
Meloche Monnex Inc.
Security National Insurance Company
Primmum Insurance Company
TD Direct Insurance Inc.
TD General Insurance Company
TD Home and Auto Insurance Company
TD Asset Management Inc.
TD Waterhouse Private Investment Counsel Inc.
TD Auto Finance (Canada) Inc.
TD Auto Finance Services Inc.
TD Equipment Finance Canada Inc.
TD Financing Services Home Inc.
TD Financing Services Inc.
TD Investment Services Inc.
TD Life Insurance Company
TD Mortgage Corporation
TD Pacific Mortgage Corporation
The Canada Trust Company
TD Securities Inc.
TD US P & C Holdings ULC
TD Bank US Holding Company
Epoch Investment Partners, Inc.3
TD Bank USA, National Association
TD Bank, National Association
TD Auto Finance LLC
TD Equipment Finance, Inc.
TD Private Client Wealth LLC
TD Wealth Management Services Inc.
TD Vermillion Holdings ULC
TD Financial International Ltd.
Canada Trustco International Limited
TD Reinsurance (Barbados) Inc.
TD Reinsurance (Ireland) Limited
Toronto Dominion International Inc.
TD Waterhouse Canada Inc.
TDAM USA Inc.
Toronto Dominion Holdings (U.S.A.), Inc.
TD Holdings II Inc.
TD Securities (USA) LLC
Toronto Dominion (Texas) LLC
Toronto Dominion (New York) LLC
Toronto Dominion Capital (U.S.A.), Inc.
International
TD Bank International S.A.
TD Bank N.V.
TD Ireland
TD Global Finance
TD Wealth Holdings (UK) Limited
TD Direct Investing (Europe) Limited
Toronto Dominion Australia Limited
Toronto Dominion Investments B.V.
TD Bank Europe Limited
Toronto Dominion Holdings (U.K.) Limited
TD Securities Limited
Toronto Dominion (South East Asia) Limited
Address of Head
or Principal Office2
Toronto, Ontario
Montreal, Quebec
Montreal, Quebec
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Oakville, Ontario
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Vancouver, British Columbia
Toronto, Ontario
Toronto, Ontario
Calgary, Alberta
Cherry Hill, New Jersey
New York, New York
Wilmington, Delaware
Wilmington, Delaware
Farmington Hills, Michigan
Cherry Hill, New Jersey
New York, New York
Cherry Hill, New Jersey
Calgary, Alberta
Hamilton, Bermuda
St. James, Barbados
St. James, Barbados
Dublin, Ireland
St. James, Barbados
Toronto, Ontario
Wilmington, Delaware
New York, New York
New York, New York
New York, New York
New York, New York
New York, New York
New York, New York
Luxembourg, Luxembourg
Amsterdam, The Netherlands
Dublin, Ireland
Dublin, Ireland
Leeds, England
Leeds, England
Sydney, Australia
London, England
London, England
London, England
London, England
Singapore, Singapore
Description
Insurance Company
Holding Company providing management services to subsidiaries
Insurance Company
Insurance Company
Insurance Company
Insurance Company
Insurance Company
Investment Counselling and Portfolio Management
Investment Counselling and Portfolio Management
Automotive Finance Entity
Automotive Finance Entity
Financial Leasing Entity
Mortgage Lender
Financial Services Entity
Mutual Fund Dealer
Insurance Company
Loan Company
Loan Company
Trust Company
Investment Dealer and Broker
Holding Company
Holding Company
Investment Counselling and Portfolio Management
U.S. National Bank
U.S. National Bank
Automotive Finance Entity
Financial Leasing Entity
Brokerage Service Entity
Insurance Agency
Holding Company
Holding Company
Intragroup Lending Company
Reinsurance Company
Reinsurance Company
Intragroup Lending Company
Investment Dealer
Investment Counselling and Portfolio Management
Holding Company
Holding Company
Securities Dealer
Financial Services Entity
Financial Services Entity
Small Business Investment Company
International Online Brokerage Services
Dutch Bank
Holding Company
Securities Dealer
Holding Company
Discount Brokerage
Securities Dealer
Holding Company
UK Bank
Holding Company
Securities Dealer
Merchant Bank
1 As at October 31, 2013, the Bank, either directly or through its subsidiaries, owned
100% of the entity and/or 100% of any issued and outstanding voting securities
and non-voting securities of all the entities listed above.
2 Each subsidiary is incorporated or organized in the country in which its head or
principal office is located, with the exception of Toronto Dominion Investments
B.V., a company incorporated in The Netherlands but with its principal office in the
United Kingdom.
3 Reflects ownership structure as at November 1, 2013.
194
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
SUBSIDIARIES WHERE THE BANK OWNS 50 PERCENT OR
LESS OF THE VOTING RIGHTS
The Bank also consolidates certain subsidiaries where it owns 50 per
cent or less of the voting rights. Most of those subsidiaries are SPEs
that are sponsored by the Bank for a variety of purposes. These subsid-
iaries are not included in the ‘Significant Subsidiaries’ table above.
In the normal course of business, the Bank becomes involved with
SPEs, primarily through the following types of transactions: asset secu-
ritizations, structured finance, commercial paper programs, mutual
funds, commercial real estate leasing and closed-end funds. The Bank’s
involvement includes transferring assets to the entities, entering into
derivative contracts with them, providing credit enhancement and
liquidity facilities, providing investment management and administra-
tive services, and holding ownership or other investment interests in
the entities. Refer to Note 9, Special Purpose Entities.
INVESTEES WHERE THE BANK OWNS MORE THAN HALF OF
THE VOTING RIGHTS
The Bank owns directly or indirectly more than half of the voting rights
of investees but does not have control over these investees when:
• Another investor has the power over more than half of the voting
rights by virtue of an agreement with the Bank; or
N O T E 3 7
SUBSEQUENT EVENTS
Sale of TD Waterhouse Institutional Services
On November 12, 2013, TD Waterhouse Canada Inc., a subsidiary of
the Bank, completed the sale of the Bank’s institutional services busi-
ness, known as TD Waterhouse Institutional Services, to a subsidiary
of National Bank of Canada. The transaction price was $250 million,
subject to certain price adjustment mechanisms. The effects of the
sale will be recorded in the first quarter of fiscal 2014.
• Another investor has the power to govern the financial and operating
policies of the investee under a statute or an agreement; or
• Another investor has the power to appoint or remove the majority
of the members of the board of directors or equivalent governing
body and the investee is controlled by that board or body, or when
another investor has the power to cast the majority of votes at
meetings of the board of directors or equivalent governing body
and control of the entity is by that board or body.
SUBSIDIARIES WITH RESTRICTIONS TO TRANSFER FUNDS
Certain of the Bank’s subsidiaries have regulatory requirements to fulfill,
in accordance with applicable law, in order to transfer funds, including
paying dividends to, repaying loans to, or redeeming subordinated
debentures issued to, the Bank. These customary requirements include,
but are not limited to:
• Local regulatory capital and/or surplus adequacy requirements;
• Basel requirements under Pillar I and Pillar II;
• Local regulatory approval requirements; and
• Local corporate and/or securities laws.
Stock Dividend
The Bank’s Board of Directors has declared a stock dividend of one
common share per each issued and outstanding common share,
which has the same effect as a two-for-one split of the common
share. Shareholders of record as at the close of business on January
23, 2014 are entitled to receive the stock dividend on the payment
date of January 31, 2014. In future periods, the Bank will present
earnings per share figures to give effect to the stock dividend. The
following table presents the pro forma effect on the Bank’s basic and
diluted earnings per share, as if the stock dividend was retroactively
applied to all periods presented.
Pro forma Basic and Diluted Earnings Per Share
(millions of Canadian dollars, except as noted)
Pro forma basic earnings per share
Net income attributable to common shareholders
Pro forma weighted-average number of common shares outstanding (millions)
Pro forma basic earnings per share (dollars)
Pro forma diluted earnings per share
Net income attributable to common shareholders
Pro forma effect of dilutive securities
Capital Trust II Securities – Series 2012-1
Preferred Shares – Series M and N
Pro forma net income available to common shareholders including impact of dilutive securities
Pro forma weighted-average number of common shares outstanding (millions)
Pro forma effect of dilutive securities
Stock options potentially exercisable (millions)1
TD Capital Trust II Securities – Series 2012-1 (millions)
Preferred Shares – Series M and N (millions)
Pro forma weighted-average number of common shares outstanding – diluted (millions)
Pro forma diluted earnings per share (dollars)1
1 For the years ended October 31, 2013, October 31, 2012 and October 31, 2011,
the computation of diluted earnings per share did not exclude any weighted-
average options where the option price was greater than the average market price
of the Bank’s common shares.
For the years ended October 31
2013
2012
2011
$ 6,372
1,837.9
3.47
$ 6,171
1,813.2
3.40
$ 5,761
1,771.4
3.25
6,372
6,171
5,761
3
–
6,375
1,837.9
5.7
1.5
–
1,845.1
3.46
$
17
–
6,188
1,813.2
6.5
10.0
–
1,829.7
3.38
$
17
25
5,803
1,771.4
9.1
9.9
15.5
1,805.9
3.21
$
195
TD BANK GROUP ANNUAL REPORT 2013 FINANCIAL RESULTS
PRINCIPAL SUBSIDIARIES1
North America
(millions of Canadian dollars)
North America
CT Financial Assurance Company
Meloche Monnex Inc.
Security National Insurance Company
Primmum Insurance Company
TD Direct Insurance Inc.
TD General Insurance Company
TD Home and Auto Insurance Company
TD Asset Management Inc.
TD Waterhouse Private Investment Counsel Inc.
TD Auto Finance (Canada) Inc.
TD Auto Finance Services Inc.
TD Equipment Finance Canada Inc.
TD Financing Services Home Inc.
TD Financing Services Inc.
TD Investment Services Inc.
TD Life Insurance Company
TD Mortgage Corporation
TD Pacific Mortgage Corporation
The Canada Trust Company
TD Securities Inc.
TD US P & C Holdings ULC
TD Bank US Holding Company
Epoch Investment Partners, Inc.3
TD Bank USA, National Association
TD Bank, National Association
TD Auto Finance LLC
TD Equipment Finance, Inc.
TD Private Client Wealth LLC
TD Wealth Management Services Inc.
TD Vermillion Holdings ULC
TD Financial International Ltd.
Canada Trustco International Limited
TD Reinsurance (Barbados) Inc.
TD Reinsurance (Ireland) Limited
Toronto Dominion International Inc.
TD Waterhouse Canada Inc.
TDAM USA Inc.
Toronto Dominion Holdings (U.S.A.), Inc.
TD Holdings II Inc.
TD Securities (USA) LLC
Toronto Dominion (Texas) LLC
Toronto Dominion (New York) LLC
Toronto Dominion Capital (U.S.A.), Inc.
1 Unless otherwise noted, The Toronto-Dominion Bank (the “Bank”), either directly
or through its subsidiaries, owns 100% of the entity and/or 100% of any issued
and outstanding voting securities and non-voting securities of the entities listed.
2 Each subsidiary is incorporated or organized in the country in which its head or
principal office is located, with the exception of Toronto Dominion Investments
B.V., a company incorporated in The Netherlands but with its principal office in
the United Kingdom.
3 Reflects ownership structure as at November 1, 2013.
As at October 31, 2013
Carrying value of shares
owned by the Bank
$ 127
1,589
703
1,193
1,302
2
34
93
54
52
10,753
1,520
28,069
18,262
2,139
11
1,845
Address of Head
or Principal Office2
Toronto, Ontario
Montreal, Quebec
Montreal, Quebec
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Oakville, Ontario
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Vancouver, British Columbia
Toronto, Ontario
Toronto, Ontario
Calgary, Alberta
Cherry Hill, New Jersey
New York, New York
Wilmington, Delaware
Wilmington, Delaware
Farmington Hills, Michigan
Cherry Hill, New Jersey
New York, New York
Cherry Hill, New Jersey
Calgary, Alberta
Hamilton, Bermuda
St. James, Barbados
St. James, Barbados
Dublin, Ireland
St. James, Barbados
Toronto, Ontario
Wilmington, Delaware
New York, New York
New York, New York
New York, New York
New York, New York
New York, New York
New York, New York
196196
TD BANK GROU P AN NUAL REPO RT 20 13 PRIN CIPAL SU BSIDIARIES
PRINCIPAL SUBSIDIARIES1
International
(millions of Canadian dollars)
International
NatWest Personal Financial Management Limited (50%)
NatWest Stockbrokers Limited (50%)
TD Bank International S.A.
TD Bank N.V.
TD Ireland
TD Global Finance
TD Luxembourg International Holdings
TD Ameritrade Holding Corporation (42.22%)3
TD Wealth Holdings (UK) Limited
TD Direct Investing (Europe) Limited
Toronto Dominion Australia Limited
Toronto Dominion Investments B.V.
TD Bank Europe Limited
Toronto Dominion Holdings (U.K.) Limited
TD Securities Limited
Toronto Dominion (South East Asia) Limited
1 Unless otherwise noted, The Toronto-Dominion Bank (the “Bank”), either directly
or through its subsidiaries, owns 100% of the entity and/or 100% of any issued
and outstanding voting securities and non-voting securities of the entities listed.
2 Each subsidiary is incorporated or organized in the country in which its head or
principal office is located, with the exception of Toronto Dominion Investments
B.V., a company incorporated in The Netherlands but with its principal office
in the United Kingdom.
3 TD Ameritrade Holding Corporation is not a subsidiary of the Bank as the Bank
does not control it. TD Luxembourg International Holdings and its ownership of
TD Ameritrade Holding Corporation is included given the significance of the
Bank’s investment in TD Ameritrade Holding Corporation.
Address of Head
or Principal Office2
London, England
London, England
Luxembourg, Luxembourg
Amsterdam, The Netherlands
Dublin, Ireland
Dublin, Ireland
Luxembourg, Luxembourg
Omaha, Nebraska
Leeds, England
Leeds, England
Sydney, Australia
London, England
London, England
London, England
London, England
Singapore, Singapore
As at October 31, 2013
Carrying value of shares
owned by the Bank
62
$
51
280
1,014
5,300
83
219
1,019
798
TD BANK GROUP ANNUAL RE POR T 2 0 13 PRIN C IPAL SUBSIDI AR IES
197197
Ten-year Statistical Review – IFRS1
Condensed Consolidated Balance Sheet
(millions of Canadian dollars)
ASSETS
Cash resources and other
Trading loans, securities and other2
Derivatives
Held-to-maturity securities
Securities purchased under reverse repurchase agreements
Loans, net of allowance for loan losses
Other
Total assets
LIABILITIES
Deposits
Trading deposits
Derivatives
Other
Subordinated notes and debentures
Liabilities for preferred shares and capital trust securities
Total liabilities
EQUITY
Common shares
Preferred shares
Treasury shares
Contributed surplus
Retained earnings
Accumulated other comprehensive income (loss)
Non-controlling interest in subsidiaries
Total equity
Total liabilities and equity
Condensed Consolidated Statement of Income – Reported
(millions of Canadian dollars)
Net interest income
Non-interest income3
Total revenue3
Provision for credit losses
Insurance claims and related expenses3
Non-interest expenses
Income before income taxes and equity in net income
of an investment in associate
Provision for income taxes
Equity in net income of an investment in associate, net of income taxes
Net income
Preferred dividends
Net income available to common shareholders and
non-controlling interests in subsidiaries
Attributable to:
Non-controlling interests in subsidiaries
Common shareholders
Condensed Consolidated Statement of Income – Adjusted
(millions of Canadian dollars)
Net interest income
Non-interest income3
Total revenue3
Provision for credit losses
Insurance claims and related expenses3
Non-interest expenses
Income before income taxes and equity in net income
of an investment in associate
Provision for income taxes
Equity in net income of an investment in associate, net of income taxes
Net income
Preferred dividends
Net income available to common shareholders and
non-controlling interests in subsidiaries
Attributable to:
Non-controlling interests in subsidiaries
Common shareholders
2013
2012
2011
$ 32,436
188,001
49,461
29,961
64,283
444,922
53,468
862,532
543,476
47,593
49,471
160,270
7,982
1,767
810,559
19,316
3,395
(147)
170
24,565
3,166
50,465
1,508
51,973
$ 25,128
199,280
60,919
–
69,198
408,848
47,733
811,106
487,754
38,774
64,997
157,013
11,318
2,250
762,106
18,691
3,395
(167)
196
21,763
3,645
47,523
1,477
49,000
$ 24,112
171,109
59,845
–
56,981
377,187
46,259
735,493
449,428
29,613
61,715
136,929
11,543
2,261
691,489
17,491
3,395
(116)
212
18,213
3,326
42,521
1,483
44,004
$ 862,532
$ 811,106
$ 735,493
2013
$ 16,078
11,184
27,262
1,631
3,056
15,042
7,533
1,143
272
6,662
185
2012
$ 15,026
10,520
25,546
1,795
2,424
13,998
7,329
1,092
234
6,471
196
2011
$ 13,661
10,179
23,840
1,490
2,178
13,047
7,125
1,326
246
6,045
180
$
6,477
$
6,275
$
5,865
$
105
6,372
$
104
6,171
$
104
5,761
2013
2012
$ 16,078
$ 15,062
11,113
27,191
1,606
3,056
14,363
8,166
1,334
326
7,158
185
10,615
25,677
1,903
2,424
13,162
8,188
1,404
291
7,075
196
2011
$ 13,661
10,052
23,713
1,490
2,178
12,373
7,672
1,545
305
6,432
180
$
6,973
$
6,879
$
6,252
$
105
6,868
$
104
6,775
$
104
6,148
1 Results prepared in accordance with GAAP are referred to as “reported”. Adjusted
results (excluding “items of note”, net of income taxes, from reported results)
and related terms are not defined terms under GAAP and therefore, may not be
comparable to similar terms used by other issuers. For further explanation, see
“How the Bank Reports” in the accompanying Management’s Discussion and
Analysis (MD&A).
2 Includes available-for-sale securities and financial assets designated at fair value
through profit or loss.
3 Effective 2013, Insurance revenue and Insurance claims and related expenses are
presented on a gross basis on the Consolidated Statement of Income. Compara-
tive amounts have been restated to conform with the current period presentation.
198198
TD BANK GROU P AN NUAL REPO RT 20 13 TEN- YEAR S TATIS TICAL RE VIEW
Ten-year Statistical Review – IFRS1
Reconciliation of Non-GAAP Financial Measures
(millions of Canadian dollars)
Net income available to common shareholders – reported
Adjustments for items of note, net of income taxes
Amortization of intangibles
Fair value of derivatives hedging the reclassified available-for-sale securities portfolio
Integration charges and direct transaction costs relating to U.S. P&C Banking acquisitions
Fair value of credit default swaps hedging the corporate loan book, net of provision
for credit losses
Integration charges, direct transaction costs, and changes in fair value of contingent
consideration relating to the Chrysler Financial acquisition
Integration charges and direct transaction costs relating to the acquisition of the
credit card portfolio of MBNA Canada
Litigation and litigation-related charge/reserve
Reduction of allowance for incurred but not identified credit losses
Positive impact due to changes in statutory income tax rates
Impact of Superstorm Sandy
Impact of Alberta flood on the loan portfolio
Restructuring charges
Set-up costs in preparation for the previously announced affinity relationship with Aimia
with respect to Aeroplan Visa credit cards and the related acquisition of accounts
2013
2012
2011
$ 6,372
$ 6,171
$ 5,761
232
(57)
–
–
–
92
100
–
–
–
19
90
20
238
89
9
–
17
104
248
(120)
(18)
37
–
–
–
604
391
(128)
82
(13)
55
–
–
–
–
–
–
–
–
387
$ 6,775
$ 6,148
Total adjustments for items of note
Net income available to common shareholders – adjusted
496
$ 6,868
Condensed Consolidated Statement of Changes in Equity
(millions of Canadian dollars)
Common shares
Preferred shares
Treasury shares
Contributed surplus
Retained earnings
Accumulated other comprehensive income (loss)
Non-controlling interests in subsidiaries
Total equity
Other Statistics – Reported
Per common share
Performance ratios
Asset quality
Capital ratios
Other
1 Basic earnings
2 Diluted earnings
3 Dividends
4 Book value
5 Closing market price
6 Closing market price to book value
7 Closing market price appreciation
8 Total shareholder return on common shareholders’ investment2
9 Return on total common equity
10 Return on risk-weighted assets3,4
11 Efficiency ratio5
12 Net interest margin
13 Common dividend payout ratio
14 Dividend yield6
15 Price earnings ratio7
16
Impaired loans net of counterparty-specific and individually
insignificant allowances as a % of net loans8,9
17 Net impaired loans as a % of common equity9
18 Provision for credit losses as a % of net average loans8,9
19 Common Equity Tier 1 capital ratio10
20 Tier 1 capital ratio3,4
21 Total capital ratio3,4
22 Common equity to total assets
23 Number of common shares outstanding (thousands)
24 Market capitalization (millions of Canadian dollars)
25 Average number of employees11
26 Number of retail outlets12
27 Number of retail brokerage offices
28 Number of automated banking machines
Other Statistics – Adjusted
Per common share
Performance ratios
1 Basic earnings
2 Diluted earnings
3 Return on total common equity
4 Return on risk-weighted assets3,4
5 Efficiency ratio5
6 Common dividend payout ratio
7 Price earnings ratio7
2013
2012
$ 19,316
$ 18,691
3,395
(147)
170
24,565
3,166
3,395
(167)
196
21,763
3,645
$ 50,465
$ 47,523
1,508
$ 51,973
1,477
$ 49,000
$
2013
6.93
6.91
3.24
51.31
95.64
1.86
17.7%
22.3
14.0%
2.43
55.2
2.20
46.7
3.7
13.9
0.50%
4.77
0.38
9.0%
11.0%
14.2
5.5
917,478
$ 87,748
78,748
2,547
110
4,734
$
2013
7.47
7.45
15.0%
2.50
52.8
43.3
12.8
$
2012
6.81
6.76
2.89
48.17
81.23
1.69
8.0%
11.9
14.9%
2.70
60.5
2.23
42.5
3.8
12.0
0.52%
4.76
0.43
n/a
12.6%
15.7
5.4
916,130
$ 74,417
78,397
2,535
112
4,739
$
2012
7.47
7.42
16.3%
2.83
51.3
38.7
10.9
2011
$ 17,491
3,395
(116)
212
18,213
3,326
$ 42,521
1,483
$ 44,004
$
2011
6.50
6.43
2.61
43.43
75.23
1.73
2.4%
5.7
16.2%
2.86
60.2
2.30
40.2
3.4
11.7
0.56%
5.27
0.39
n/a
13.0%
16.0
5.3
900,998
$ 67,782
75,631
2,483
108
4,650
$
2011
6.94
6.86
17.3%
2.95
52.2
37.7
11.0
1 Results prepared in accordance with GAAP are referred to as “reported”. Adjusted
results (excluding “items of note”, net of income taxes, from reported results)
and related terms are not defined terms under GAAP and therefore, may not
be comparable to similar terms used by other issuers. For further explanation,
see “How the Bank Reports” in the accompanying MD&A.
2 Return is calculated based on share price movement and dividends reinvested over
the trailing twelve month period.
3 Effective 2013, amounts are calculated in accordance with the Basel III regulatory
framework, and are presented based on the “all-in” methodology. Prior to 2013,
amounts were calculated in accordance with the Basel II regulatory framework.
4 Prior to 2012, amounts were calculated based on Canadian GAAP.
5 Effective 2013, Insurance revenue and Insurance claims and related expenses are
presented on a gross basis on the Consolidated Statement of Income. Comparative
amounts, including certain ratios, have been recast to conform with the current
period presentation.
6 Dividends paid during the year divided by average of high and low common share
prices for the year.
7 The price earnings ratio is computed using diluted net income per common share.
8 Includes customers’ liability under acceptances.
9 Excludes acquired credit-impaired loans and debt securities classified as loans. For
additional information on acquired credit-impaired loans, see the “Credit Portfolio
Quality” section of the 2013 MD&A. For additional information on debt securities
classified as loans, see the “Exposure to Non-agency Collateralized Mortgage
Obligations” discussion and tables in the “Credit Portfolio Quality” section of the
2013 MD&A.
10 Effective 2013, the Bank implemented the Basel III regulatory framework. As a
result, the Bank began reporting the measure, CET1 capital ratio, in accordance
with the “all-in” methodology.
11 Reflects the number of employees on an average full-time equivalent basis.
12 Includes retail bank outlets, private client centre branches, and estate and
trust branches.
TD BANK GROUP ANNUAL REP O RT 20 1 3 TEN -YEA R S TATISTI CAL REV IEW 199199
Ten-year Statistical Review – Canadian GAAP1
Condensed Consolidated Balance Sheet
(millions of Canadian dollars)
ASSETS
Cash resources and other
Securities
Securities purchased under reverse repurchase agreements
Loans (net of allowance for loan losses)
Other
Total assets
LIABILITIES
Deposits
Other
Subordinated notes and debentures
Liabilities for preferred shares and capital trust securities
Non-controlling interest in subsidiaries
EQUITY
Common shares
Preferred shares
Treasury shares2
Contributed surplus
Retained earnings
Accumulated other comprehensive income (loss)
2011
2010
2009
2008
2007
2006
2005
2004
$ 24,111
192,538
53,599
303,495
112,617
686,360
481,114
145,209
11,670
32
1,483
639,508
18,417
3,395
(116)
281
24,339
536
46,852
$ 21,710
171,612
50,658
269,853
105,712
619,545
429,971
132,691
12,506
582
1,493
577,243
16,730
3,395
(92)
305
20,959
1,005
42,302
Total liabilities and equity
$ 686,360
$ 619,545
$ 365,210
$ 311,027
Condensed Consolidated Statement of Income – Reported
(millions of Canadian dollars)
Net interest income
Non-interest income
Total revenue
Dilution gain on investment, net of cost
Provision for (reversal of) credit losses
Non-interest expenses
Income (loss) before income taxes, non-controlling interests in
subsidiaries and equity in net income of an associated company
Provision for (recovery of) income taxes
Non-controlling interests in subsidiaries, net of income taxes
Equity in net income of an associated company, net of income taxes
Net income
Preferred dividends
2011
$ 12,831
8,763
21,594
–
1,465
13,083
7,046
1,299
104
246
5,889
180
2010
$ 11,543
8,022
19,565
–
1,625
12,163
5,777
1,262
106
235
4,644
194
Net income available to common shareholders
$
5,709
$
4,450
$
2,953
$
3,774
$
3,977
$
4,581
$
2,229
$
2,232
Condensed Consolidated Statement of Income – Adjusted
(millions of Canadian dollars)
Net interest income
Non-interest income
Total revenue
Dilution gain on investment, net of cost
Provision for credit losses
Non-interest expenses
Income before income taxes, non-controlling interests in
subsidiaries and equity in net income of an associated company
Provision for income taxes
Non-controlling interests in subsidiaries, net of income taxes
Equity in net income of an associated company, net of income taxes
Net income
Preferred dividends
2011
$ 12,831
8,587
21,418
–
1,465
12,395
7,558
1,508
104
305
6,251
180
2010
$ 11,543
8,020
19,563
–
1,685
11,464
6,414
1,387
106
307
5,228
194
Net income available to common shareholders
$
6,071
$
5,034
$
4,549
$
3,754
$
4,169
$
3,354
$
2,861
$
2,485
531,540
400,720
373,282
$ 21,517
148,823
32,948
253,128
100,803
557,219
391,034
112,078
12,383
1,445
1,559
518,499
15,357
3,395
(15)
336
18,632
1,015
38,720
$ 557,219
2009
$ 11,326
6,534
17,860
–
2,480
12,211
3,169
241
111
303
3,120
167
2009
$ 11,326
7,294
18,620
–
2,225
11,016
5,379
923
111
371
4,716
167
$ 17,946
144,125
42,425
219,624
139,094
563,214
375,694
140,406
12,436
1,444
1,560
13,278
1,875
(79)
392
17,857
(1,649)
31,674
$ 563,214
2008
8,532
6,137
–
1,063
9,502
4,104
537
43
309
3,833
59
2008
8,532
5,840
–
1,046
9,291
4,035
554
43
375
3,813
59
$ 16,536
123,036
27,648
175,915
78,989
422,124
276,393
112,905
9,449
1,449
524
6,577
425
–
119
15,954
(1,671)
21,404
$ 422,124
2007
6,924
7,357
14,281
–
645
8,975
4,661
853
95
284
3,997
20
2007
6,924
7,148
14,072
–
705
8,390
4,977
1,000
119
331
4,189
20
$ 10,782
124,458
30,961
160,608
66,105
392,914
260,907
101,242
6,900
1,794
2,439
6,334
425
–
66
13,725
(918)
19,632
$ 392,914
2006
6,371
6,821
1,559
409
8,815
5,527
874
184
134
4,603
22
2006
6,371
6,862
–
441
8,260
4,532
1,107
211
162
3,376
22
$ 13,418
$
9,038
108,096
26,375
152,243
65,078
365,210
246,981
93,722
5,138
1,795
1,708
349,344
5,872
–
–
40
10,650
(696)
15,866
2005
6,008
5,951
11,959
–
55
8,844
3,060
699
132
2,229
–
–
2005
6,021
6,077
12,098
–
319
7,887
3,892
899
132
2,861
–
–
98,280
21,888
123,924
57,897
311,027
206,893
83,262
5,644
2,560
–
298,359
3,373
–
–
20
9,540
(265)
12,668
2004
5,773
4,928
10,701
–
(386)
8,052
3,035
803
2,232
–
–
–
2004
5,773
5,006
10,779
–
336
7,126
3,317
832
–
–
–
2,485
$
$
$
$
$
14,372
13,233
$
$
$
$
$
14,669
13,192
200200
TD BANK GROU P AN NUAL REPO RT 20 13 TEN- YEAR S TATIS TICAL RE VIEW
Condensed Consolidated Balance Sheet
(millions of Canadian dollars)
ASSETS
Securities
Cash resources and other
Securities purchased under reverse repurchase agreements
Loans (net of allowance for loan losses)
Subordinated notes and debentures
Liabilities for preferred shares and capital trust securities
Non-controlling interest in subsidiaries
Other
Total assets
LIABILITIES
Deposits
Other
EQUITY
Common shares
Preferred shares
Treasury shares2
Contributed surplus
Retained earnings
Accumulated other comprehensive income (loss)
Total liabilities and equity
$ 686,360
$ 619,545
Condensed Consolidated Statement of Income – Reported
(millions of Canadian dollars)
$ 12,831
$ 11,543
Net interest income
Non-interest income
Total revenue
Dilution gain on investment, net of cost
Provision for (reversal of) credit losses
Non-interest expenses
Income (loss) before income taxes, non-controlling interests in
subsidiaries and equity in net income of an associated company
Provision for (recovery of) income taxes
Non-controlling interests in subsidiaries, net of income taxes
Equity in net income of an associated company, net of income taxes
Net income
Preferred dividends
Net interest income
Non-interest income
Total revenue
Dilution gain on investment, net of cost
Provision for credit losses
Non-interest expenses
Income before income taxes, non-controlling interests in
subsidiaries and equity in net income of an associated company
Provision for income taxes
Non-controlling interests in subsidiaries, net of income taxes
Equity in net income of an associated company, net of income taxes
Net income
Preferred dividends
Condensed Consolidated Statement of Income – Adjusted
(millions of Canadian dollars)
$ 12,831
$ 11,543
$ 24,111
192,538
53,599
303,495
112,617
686,360
481,114
145,209
11,670
32
1,483
$ 21,710
171,612
50,658
269,853
105,712
619,545
429,971
132,691
12,506
582
1,493
639,508
577,243
18,417
3,395
(116)
281
24,339
536
46,852
2011
8,763
21,594
–
1,465
13,083
7,046
1,299
104
246
5,889
180
2011
8,587
21,418
–
1,465
12,395
7,558
1,508
104
305
6,251
180
16,730
3,395
(92)
305
20,959
1,005
42,302
2010
8,022
19,565
–
1,625
12,163
5,777
1,262
106
235
4,644
194
2010
8,020
19,563
–
1,685
11,464
6,414
1,387
106
307
5,228
194
2011
2010
2009
2008
2007
2006
2005
2004
$ 21,517
148,823
32,948
253,128
100,803
557,219
391,034
112,078
12,383
1,445
1,559
518,499
15,357
3,395
(15)
336
18,632
1,015
38,720
$ 557,219
2009
$ 11,326
6,534
17,860
–
2,480
12,211
3,169
241
111
303
3,120
167
$ 17,946
144,125
42,425
219,624
139,094
563,214
375,694
140,406
12,436
1,444
1,560
531,540
13,278
1,875
(79)
392
17,857
(1,649)
31,674
$ 563,214
$
2008
8,532
6,137
14,669
–
1,063
9,502
4,104
537
43
309
3,833
59
$ 16,536
123,036
27,648
175,915
78,989
422,124
276,393
112,905
9,449
1,449
524
400,720
6,577
425
–
119
15,954
(1,671)
21,404
$ 10,782
124,458
30,961
160,608
66,105
392,914
260,907
101,242
6,900
1,794
2,439
373,282
6,334
425
–
66
13,725
(918)
19,632
$ 13,418
108,096
26,375
152,243
65,078
365,210
246,981
93,722
5,138
1,795
1,708
349,344
5,872
–
–
40
10,650
(696)
15,866
$ 422,124
$ 392,914
$ 365,210
$
2007
6,924
7,357
14,281
–
645
8,975
4,661
853
95
284
3,997
20
$
2006
6,371
6,821
13,192
1,559
409
8,815
5,527
874
184
134
4,603
22
$
2005
6,008
5,951
11,959
–
55
8,844
3,060
699
132
–
2,229
–
$
9,038
98,280
21,888
123,924
57,897
311,027
206,893
83,262
5,644
2,560
–
298,359
3,373
–
–
20
9,540
(265)
12,668
$ 311,027
$
2004
5,773
4,928
10,701
–
(386)
8,052
3,035
803
–
–
2,232
–
Net income available to common shareholders
$
5,709
$
4,450
$
2,953
$
3,774
$
3,977
$
4,581
$
2,229
$
2,232
Net income available to common shareholders
$
6,071
$
5,034
$
4,549
$
3,754
$
4,169
$
3,354
$
2,861
$
2,485
2009
$ 11,326
7,294
18,620
–
2,225
11,016
5,379
923
111
371
4,716
167
$
2008
8,532
5,840
14,372
–
1,046
9,291
4,035
554
43
375
3,813
59
$
2007
6,924
7,148
14,072
–
705
8,390
4,977
1,000
119
331
4,189
20
$
2006
6,371
6,862
13,233
–
441
8,260
4,532
1,107
211
162
3,376
22
$
2005
6,021
6,077
12,098
–
319
7,887
3,892
899
132
–
2,861
–
$
2004
5,773
5,006
10,779
–
336
7,126
3,317
832
–
–
2,485
–
1 Results prepared in accordance with
GAAP are referred to as “reported”.
Adjusted results (excluding “items
of note”, net of income taxes, from
reported results) and related terms are
not defined terms under GAAP and
therefore, may not be comparable to
similar terms used by other issuers.
For further explanation, see “How the
Bank Reports” in the accompanying
MD&A. Adjusted results are presented
from 2004 to allow for sufficient years
for historical comparison. Adjusted
results shown for years prior to 2006
reflect adjustments for amortization
of intangibles and certain identified
items as previously disclosed by the
Bank for the applicable period, except
as noted. See the following page for
a reconciliation with reported results.
2 Effective 2008, treasury shares have
been reclassified from common and
preferred shares and are shown sepa-
rately. Prior to 2008, the amounts for
treasury shares were not reasonably
determinable.
TD BANK GROUP ANNUAL REP O RT 20 1 3 TEN -YEA R S TATISTI CAL REV IEW 201201
Ten-year Statistical Review – Canadian GAAP
Reconciliation of Non-GAAP Financial Measures
(millions of Canadian dollars)
Net income available to common shareholders – reported
Adjustments for items of note, net of income taxes
Amortization of intangibles
Reversal of Enron litigation reserve
Decrease/(Increase) in fair value of derivatives hedging the reclassified
available-for-sale debt securities portfolio
Gain relating to restructuring of VISA
TD Banknorth restructuring, privatization and merger-related charges
Integration and restructuring charges relating to U.S. P&C Banking acquisitions
Decrease/(Increase) in fair value of credit default swaps hedging the corporate loan book
Other tax items1
Provision for (release of) insurance claims
General allowance increase (release) in Canadian Personal and
Commercial Banking and Wholesale Banking
Settlement of TD Banknorth shareholder litigation
FDIC special assessment charge
Dilution gain on Ameritrade transaction, net of costs
Dilution loss on the acquisition of Hudson by TD Banknorth
Balance sheet restructuring charge in TD Banknorth
Wholesale Banking restructuring charge
Non-core portfolio loan loss recoveries (sectoral related)
Loss on structured derivative portfolios
Tax charge related to reorganizations
Preferred share redemption
Initial set up of specific allowance for credit card and overdraft loans
Litigation and litigation-related charge/reserve
Agreement with Canada Revenue Agency
Integration charges related to the Chrysler Financial acquisition
Total adjustments for items of note
2011
2010
$
5,709
$
4,450
2009
2008
2007
2006
2005
$
2,953
$
3,774
$
3,977
$
4,581
$
2,229
426
–
(134)
–
–
69
(13)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
14
362
467
–
(5)
–
–
69
4
(11)
(17)
(44)
–
–
–
–
–
–
–
–
–
–
–
–
121
–
584
Net income available to common shareholders – adjusted
$
6,071
$
5,034
$ 4,549
$
3,754
$
4,169
$
2,861
$
2,485
Condensed Consolidated Statement of Changes in Shareholders’ Equity
(millions of Canadian dollars)
Common shares
Preferred shares
Treasury shares2
Contributed surplus
Retained earnings
Accumulated other comprehensive income (loss)
Total shareholders’ equity
Other Statistics – Reported
Per common share
1 Basic earnings
2 Diluted earnings
3 Dividends
4 Book value
5 Closing market price
6 Closing market price to book value
7 Closing market price appreciation
8 Total shareholder return on common shareholders investment3
Performance ratios
9 Return on total common equity
10 Return on risk-weighted assets
11 Efficiency ratio4
12 Net interest margin
13 Common dividend payout ratio
14 Dividend yield5
15 Price earnings ratio6
Asset quality
Capital ratios
Other
Impaired loans net of specific allowance as a % of net loans7,8
16
17 Net impaired loans as a % of common equity8
18 Provision for credit losses as a % of net average loans7,8
19 Tier 1 capital ratio
20 Total capital ratio
21 Common equity to total assets
22 Number of common shares outstanding (thousands)
23 Market capitalization (millions of Canadian dollars)
24 Average number of employees9
25 Number of retail outlets10
26 Number of retail brokerage offices
27 Number of Automated Banking Machines
Other Statistics – Adjusted
Per common share
1 Basic earnings
2 Diluted earnings
Performance ratios
3 Return on total common equity
4 Return on risk-weighted assets
5 Efficiency ratio4
6 Common dividend payout ratio
7 Price earnings ratio6
202202
TD BANK GROU P AN NUAL REPO RT 20 13 TEN- YEAR S TATIS TICAL RE VIEW
2011
$ 18,417
3,395
(116)
281
24,339
536
$ 46,852
2010
$ 16,730
3,395
(92)
305
20,959
1,005
$ 42,302
$
2011
6.45
6.41
2.61
48.23
75.23
1.56
2.4%
5.7
14.5%
2.86
60.6
2.37
40.6
3.4
11.7
0.59%
4.07
0.48
13.0%
16.0
6.3
900,998
$ 67,782
75,631
2,483
108
4,650
$
2011
6.85
6.82
15.4%
2.95
57.9
38.1
11.0
$
2010
5.13
5.10
2.44
44.29
73.45
1.66
19.1%
23.4
12.1%
2.43
62.2
2.35
47.6
3.5
14.4
0.65%
4.41
0.63
12.2%
15.5
6.3
878,497
$ 64,526
68,725
2,449
105
4,550
$
2010
5.81
5.77
13.7%
2.63
58.6
42.1
12.7
1,596
(20)
192
$ 15,357
$ 13,278
$
$
6,334
$
5,872
$
3,373
$ 38,720
$ 31,674
$ 21,404
$ 15,866
$ 12,668
$
$
$
$
$
$
492
–
450
–
–
276
126
–
–
178
39
35
–
–
–
–
–
–
–
–
–
–
–
–
2009
3,395
(15)
336
18,632
1,015
2009
3.49
3.47
2.44
41.13
61.68
1.50
8.4%
13.6
8.4%
1.56
68.4
2.54
70.3
4.8
17.8
0.62%
4.41
0.92
11.3%
14.9
6.3
2009
5.37
5.35
12.9%
2.27
59.2
45.6
11.6
404
(323)
(118)
–
–
70
(107)
34
20
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2008
1,875
(79)
392
17,857
(1,649)
2008
4.90
4.87
2.36
36.78
56.92
1.55
(20.2)%
(17.1)
14.4%
2.22
64.8
2.22
49.0
3.8
11.7
0.35%
2.70
0.50
9.8%
12.0
5.3
2008
4.92
4.88
14.3%
2.18
64.6
49.3
11.6
353
–
–
(135)
43
–
(30)
(39)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2007
6,577
425
–
119
15,954
(1,671)
2007
5.53
5.48
2.11
29.23
71.35
2.44
9.6%
13.0
19.3%
2.69
62.8
2.06
38.1
3.0
13.0
0.20%
1.74
0.37
10.3%
13.0
5.0
2007
5.80
5.75
20.3%
2.80
59.6
36.4
12.4
316
–
–
–
–
–
(7)
24
–
(39)
–
–
72
19
35
–
–
–
–
18
–
–
–
(1,665)
(1,227)
$
3,354
2006
425
–
66
13,725
(918)
$ 19,632
2006
6.39
6.34
1.78
26.77
65.10
2.43
16.9%
20.3
25.5%
3.37
59.8
2.02
27.9
2.9
10.3
0.16%
1.41
0.25
12.0%
13.1
4.9
717,416
$ 46,704
51,147
1,705
208
3,256
$
2006
4.70
4.66
18.7%
2.46
62.4
38.1
14.0
354
–
–
–
–
–
(17)
(98)
–
(23)
–
–
–
–
–
29
(127)
100
163
13
–
238
–
–
632
2005
–
–
40
10,650
(696)
2005
3.22
3.20
1.58
22.29
55.70
2.50
13.7%
17.2
15.3%
1.88
74.0
2.09
49.3
3.0
17.4
0.14%
1.37
0.04
10.1%
13.2
4.3
711,812
$ 39,648
50,991
1,499
329
2,969
$
2005
4.17
4.14
19.6%
2.42
65.2
38.4
13.5
858,822
$ 52,972
65,930
2,205
190
4,197
810,121
$ 46,112
58,792
2,238
249
4,147
717,814
$ 51,216
51,163
1,733
211
3,344
$
$
$
2004
$
2,232
477
50
(43)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(426)
195
253
2004
–
–
20
9,540
(265)
2004
3.41
3.39
1.36
19.31
48.98
2.54
11.7%
15.1
18.5%
2.22
75.2
2.26
39.9
3.0
14.5
0.21%
2.14
(0.30)
12.6%
16.9
4.1
655,902
$ 32,126
42,843
1,034
256
2,407
$
2004
3.80
3.77
20.6%
2.39
66.1
35.8
13.0
Net income available to common shareholders – reported
Adjustments for items of note, net of income taxes
Amortization of intangibles
Reversal of Enron litigation reserve
Decrease/(Increase) in fair value of derivatives hedging the reclassified
available-for-sale debt securities portfolio
Gain relating to restructuring of VISA
TD Banknorth restructuring, privatization and merger-related charges
Integration and restructuring charges relating to U.S. P&C Banking acquisitions
Decrease/(Increase) in fair value of credit default swaps hedging the corporate loan book
Other tax items1
Provision for (release of) insurance claims
General allowance increase (release) in Canadian Personal and
Commercial Banking and Wholesale Banking
Settlement of TD Banknorth shareholder litigation
FDIC special assessment charge
Dilution gain on Ameritrade transaction, net of costs
Dilution loss on the acquisition of Hudson by TD Banknorth
Balance sheet restructuring charge in TD Banknorth
Wholesale Banking restructuring charge
Non-core portfolio loan loss recoveries (sectoral related)
Loss on structured derivative portfolios
Tax charge related to reorganizations
Preferred share redemption
Initial set up of specific allowance for credit card and overdraft loans
Litigation and litigation-related charge/reserve
Agreement with Canada Revenue Agency
Integration charges related to the Chrysler Financial acquisition
Total adjustments for items of note
Condensed Consolidated Statement of Changes in Shareholders’ Equity
(millions of Canadian dollars)
Common shares
Preferred shares
Treasury shares2
Contributed surplus
Retained earnings
Accumulated other comprehensive income (loss)
Total shareholders’ equity
Other Statistics – Reported
Per common share
Performance ratios
8 Total shareholder return on common shareholders investment3
1 Basic earnings
2 Diluted earnings
3 Dividends
4 Book value
5 Closing market price
6 Closing market price to book value
7 Closing market price appreciation
9 Return on total common equity
10 Return on risk-weighted assets
11 Efficiency ratio4
12 Net interest margin
13 Common dividend payout ratio
14 Dividend yield5
15 Price earnings ratio6
Asset quality
16
Impaired loans net of specific allowance as a % of net loans7,8
17 Net impaired loans as a % of common equity8
18 Provision for credit losses as a % of net average loans7,8
Capital ratios
19 Tier 1 capital ratio
20 Total capital ratio
Other
21 Common equity to total assets
22 Number of common shares outstanding (thousands)
23 Market capitalization (millions of Canadian dollars)
24 Average number of employees9
25 Number of retail outlets10
26 Number of retail brokerage offices
27 Number of Automated Banking Machines
Other Statistics – Adjusted
Per common share
1 Basic earnings
2 Diluted earnings
Performance ratios
3 Return on total common equity
4 Return on risk-weighted assets
5 Efficiency ratio4
6 Common dividend payout ratio
7 Price earnings ratio6
426
–
(134)
69
(13)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
14
362
2011
6.45
6.41
2.61
48.23
75.23
1.56
2.4%
5.7
14.5%
2.86
60.6
2.37
40.6
3.4
11.7
0.59%
4.07
0.48
13.0%
16.0
6.3
2011
6.85
6.82
15.4%
2.95
57.9
38.1
11.0
2011
2010
$ 18,417
$ 16,730
3,395
(116)
281
24,339
536
3,395
(92)
305
20,959
1,005
$ 46,852
$ 42,302
$
$
900,998
$ 67,782
75,631
2,483
108
4,650
878,497
$ 64,526
68,725
2,449
105
4,550
$
$
467
–
(5)
–
–
69
4
(11)
(17)
(44)
–
–
–
–
–
–
–
–
–
–
–
–
–
121
584
2010
5.13
5.10
2.44
44.29
73.45
1.66
19.1%
23.4
12.1%
2.43
62.2
2.35
47.6
3.5
14.4
0.65%
4.41
0.63
12.2%
15.5
6.3
2010
5.81
5.77
13.7%
2.63
58.6
42.1
12.7
Reconciliation of Non-GAAP Financial Measures
(millions of Canadian dollars)
2011
2010
$
5,709
$
4,450
2009
2008
2007
2006
2005
$
2,953
$
3,774
$
3,977
$
4,581
$
2,229
2004
$
2,232
492
–
450
–
–
276
126
–
–
178
39
35
–
–
–
–
–
–
–
–
–
–
–
–
404
(323)
(118)
–
–
70
(107)
34
20
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,596
(20)
353
–
–
(135)
43
–
(30)
–
–
(39)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
192
316
–
–
–
–
–
(7)
24
–
(39)
–
–
(1,665)
72
19
35
–
–
–
–
18
–
–
–
(1,227)
354
–
–
–
–
–
(17)
(98)
–
(23)
–
–
–
–
–
29
(127)
100
163
13
–
238
–
–
632
477
–
–
–
–
–
50
–
–
(43)
–
–
–
–
–
–
(426)
–
–
–
–
195
–
–
253
Net income available to common shareholders – adjusted
$
6,071
$
5,034
$ 4,549
$
3,754
$
4,169
$
3,354
$
2,861
$
2,485
2009
$ 15,357
3,395
(15)
336
18,632
1,015
$ 38,720
$
2009
3.49
3.47
2.44
41.13
61.68
1.50
8.4%
13.6
8.4%
1.56
68.4
2.54
70.3
4.8
17.8
0.62%
4.41
0.92
11.3%
14.9
6.3
858,822
$ 52,972
65,930
2,205
190
4,197
$
2009
5.37
5.35
12.9%
2.27
59.2
45.6
11.6
2008
$ 13,278
1,875
(79)
392
17,857
(1,649)
$ 31,674
$
2008
4.90
4.87
2.36
36.78
56.92
1.55
(20.2)%
(17.1)
14.4%
2.22
64.8
2.22
49.0
3.8
11.7
0.35%
2.70
0.50
9.8%
12.0
5.3
810,121
$ 46,112
58,792
2,238
249
4,147
$
2008
4.92
4.88
14.3%
2.18
64.6
49.3
11.6
$
2007
6,577
425
–
119
15,954
(1,671)
$ 21,404
$
2007
5.53
5.48
2.11
29.23
71.35
2.44
9.6%
13.0
19.3%
2.69
62.8
2.06
38.1
3.0
13.0
0.20%
1.74
0.37
10.3%
13.0
5.0
717,814
$ 51,216
51,163
1,733
211
3,344
$
2007
5.80
5.75
20.3%
2.80
59.6
36.4
12.4
2006
$
6,334
425
–
66
13,725
(918)
$ 19,632
$
2006
6.39
6.34
1.78
26.77
65.10
2.43
16.9%
20.3
25.5%
3.37
59.8
2.02
27.9
2.9
10.3
0.16%
1.41
0.25
12.0%
13.1
4.9
717,416
$ 46,704
51,147
1,705
208
3,256
$
2006
4.70
4.66
18.7%
2.46
62.4
38.1
14.0
$
2005
5,872
–
–
40
10,650
(696)
$
2004
3,373
–
–
20
9,540
(265)
$ 15,866
$ 12,668
$
2005
3.22
3.20
1.58
22.29
55.70
2.50
13.7%
17.2
15.3%
1.88
74.0
2.09
49.3
3.0
17.4
0.14%
1.37
0.04
10.1%
13.2
4.3
711,812
$ 39,648
50,991
1,499
329
2,969
$
2005
4.17
4.14
19.6%
2.42
65.2
38.4
13.5
$
2004
3.41
3.39
1.36
19.31
48.98
2.54
11.7%
15.1
18.5%
2.22
75.2
2.26
39.9
3.0
14.5
0.21%
2.14
(0.30)
12.6%
16.9
4.1
655,902
$ 32,126
42,843
1,034
256
2,407
$
2004
3.80
3.77
20.6%
2.39
66.1
35.8
13.0
1 For 2004, does not include the impact
of future tax increase of $17 million
reported in the report to shareholders
for the quarter ended January 31,
2004. For 2006, the impact of future tax
decreases of $24 million on adjusted
earnings is included in other tax items.
2 Effective 2008, treasury shares have been
reclassified from common and preferred
shares and are shown separately. Prior
to 2008, the amounts for treasury shares
were not reasonably determinable.
3 Return is calculated based on share price
movement and reinvested dividends over
the trailing twelve-month period.
4 The efficiency ratios under Canadian
GAAP for the years 2011 and before are
based on the presentation of Insurance
revenues being reported net of claims
and expenses.
5 Dividends paid during the year divided
by average of high and low common
share prices for the year.
6 The price earnings ratio is computed
using diluted net income per
common share.
7 Includes customers’ liability under
acceptances.
8 Excludes acquired credit-impaired loans
and debt securities classified as loans.
For additional information on acquired
credit-impaired loans, see the “Credit
Portfolio Quality” section of the 2013
MD&A. For additional information on
debt securities classified as loans, see the
“Exposure to Non-agency Collateralized
Mortgage Obligations” discussion and
tables in the “Credit Portfolio Quality”
section of the 2013 MD&A.
9 Reflects the number of employees on
an average full-time equivalent basis.
10 Includes retail bank outlets, private
client centre branches, and estate
and trust branches.
TD BANK GROUP ANNUAL REP O RT 20 1 3 TEN -YEA R S TATISTI CAL REV IEW 203203
GLOSSARY
Financial and Banking Terms
Adjusted Results: A non-GAAP financial measure used to assess each of the Bank’s
businesses and to measure the Bank’s overall performance.
Futures: Contracts to buy or sell a security at a predetermined price on a specified
future date.
Allowance for Credit Losses: Total allowance for credit losses consists of counter-
party-specific, collectively assessed allowance for individually insignificant impaired
loans, and collectively assessed allowance for incurred but not identified credit losses.
The allowance is increased by the provision for credit losses, and decreased by write-
offs net of recoveries. The Bank maintains the allowance at levels that management
believes are adequate to absorb credit-related losses in the lending portfolio.
Alt-A Mortgages: A classification of mortgages where borrowers have a clean
credit history consistent with prime lending criteria. However, characteristics about
the mortgage such as loan to value (LTV), loan documentation, occupancy status or
property type, etc., may cause the mortgage not to qualify under standard under-
writing programs.
Amortized Cost: The original cost of an investment purchased at a discount or
premium plus or minus the portion of the discount or premium subsequently taken
into income over the period to maturity.
Assets under Administration: Assets that are beneficially owned by customers
where the Bank provides services of an administrative nature, such as the collection
of investment income and the placing of trades on behalf of the clients (where the
client has made his or her own investment selection). These assets are not reported
on the Bank’s Consolidated Balance Sheet.
Assets under Management: Assets that are beneficially owned by customers,
managed by the Bank, where the Bank makes investment selections on behalf of
the client (in accordance with an investment policy). In addition to the TD family
of mutual funds, the Bank manages assets on behalf of individuals, pension funds,
corporations, institutions, endowments and foundations. These assets are not
reported on the Bank’s Consolidated Balance Sheet.
Asset-backed Securities (ABS): A security whose value and income payments are
derived from and collateralized (or “backed”) by a specified pool of underlying assets.
Average Common Equity: Average common equity is the equity cost of capital
calculated using the capital asset pricing model.
Average Earnings Assets: The average carrying value of deposits with banks, loans
and securities based on daily balances for the period ending October 31 in each
fiscal year.
Average Invested Capital: Average invested capital is equal to average common
equity plus the average cumulative after-tax amounts of goodwill and intangible
assets amortized as of the reporting date.
Carrying Value: The value at which an asset or liability is carried at on the Consoli-
dated Balance Sheet.
Collateralized Debt Obligation (CDO): Collateralized securities with multiple
tranches that are issued by special purpose entities (SPEs). Each tranche offers a
varying degree of risk and return to meet investor demand. In the event of a default,
interest and principal payments are made in order of seniority.
Common Equity Tier 1 (CET1): This is a primary Basel III capital measure comprised
mainly of common equity, retained earnings and qualifying non-controlling interest
in subsidiaries. Regulatory deductions made to arrive at the CET1 capital include
goodwill and intangibles, unconsolidated investments in banking, financial, and
insurance entities, deferred tax assets, defined benefit pension fund assets and
shortfalls in allowances.
CET1 Ratio: CET1 ratio represents the predominant measure of capital adequacy
under Basel III and equals CET1 capital divided by RWA.
Credit Valuation Adjustment (CVA): CVA represents an add-on capital charge
that measures credit risk due to default of derivative counterparties. This add-on
charge requires banks to capitalize for the potential changes in counterparty credit
spread for the derivative portfolios. As per OSFI’s Final Capital Adequacy Require-
ments (CAR) guideline, CVA capital add-on charge will be effective January 1, 2014.
Dividend Yield: Dividends paid during the year divided by average of high and low
common share prices for the year.
Economic Profit: A tool to measure shareholder value creation. Economic profit is
the Bank’s adjusted net income less preferred dividends and a charge for average
invested capital.
Efficiency Ratio: Non-interest expenses as a percentage of total revenue, the
efficiency ratio measures the efficiency of the Bank’s operations.
Effective Interest Rate: Discount rate applied to estimated future cash payments
or receipts over the expected life of the financial instrument (or, when appropriate),
a shorter period, to arrive at the net carrying amount of the financial asset or liability.
Fair Value: The amount of consideration that would be agreed upon in an arm’s
length transaction between knowledgeable, willing parties who are under no
compulsion to act.
Forward Contracts: Contracts that oblige one party to the contract to buy and the
other party to sell an asset for a fixed price at a future date.
204
TD BANK GROU P AN NUAL REPO RT 20 13 GLOSSA RY
Hedging: A risk management technique intended to mitigate the Bank’s exposure
to fluctuations in interest rates, foreign currency exchange rates, or other market
factors. The elimination or reduction of such exposure is accomplished by engaging
in capital markets activities to establish offsetting positions.
Impaired Loans: Loans where, in management’s opinion, there has been a deterio-
ration of credit quality to the extent that the Bank no longer has reasonable assurance
as to the timely collection of the full amount of principal and interest.
Mark-to-Market: A valuation that reflects current market rates as at the balance
sheet date for financial instruments that are carried at fair value.
Master Netting Agreements: Legal agreements between two parties that have
multiple derivative contracts with each other that provide for the net settlement of
all contracts through a single payment, in a single currency, in the event of default
or termination of any one contract.
Net Interest Margin: Net interest income as a percentage of average earning assets.
Notional: A reference amount on which payments for derivative financial instruments
are based.
Office of the Superintendent of Financial Institutions Canada (OSFI): The
regulator of Canadian federally chartered financial institutions and federally admin-
istered pension plans.
Options: Contracts in which the writer of the option grants the buyer the future
right, but not the obligation, to buy or to sell a security, exchange rate, interest
rate, or other financial instrument or commodity at a predetermined price at or
by a specified future date.
Prime Jumbo Mortgages: A classification of mortgages where borrowers have a
clean credit history consistent with prime lending criteria and standard mortgage
characteristics. However, the size of the mortgage exceeds the maximum size
allowed under government sponsored mortgage entity programs.
Provision for Credit Losses (PCL): Amount added to the allowance for credit
losses to bring it to a level that management considers adequate to absorb all credit
related losses in its portfolio.
Return on Common Shareholders’ Equity: Net income available to common
shareholders as a percentage of average common shareholders’ equity. A broad
measurement of a bank’s effectiveness in employing shareholders’ funds.
Return on Invested Capital (ROIC): A measure of shareholder value calculated
as adjusted net income less preferred dividends, divided by average invested capital.
Risk-weighted Assets (RWA): Assets calculated by applying a regulatory prede-
termined risk-weight factor to on and off-balance sheet exposures. The risk-weight
factors are established by the OSFI to convert on and off-balance sheet exposures
to a comparable risk level.
Securitization: The process by which financial assets, mainly loans, are transferred
to a trust, which normally issues a series of asset-backed securities to investors to
fund the purchase of loans.
Special Purpose Entities (SPEs): Entities that are created to accomplish a narrow
and well-defined objective. SPEs may take the form of a corporation, trust, partner-
ship, or unincorporated entity. SPEs are often created with legal arrangements that
impose limits on the decision-making powers of their governing board, trustees or
management over the operations of the SPE.
Swaps: Contracts that involve the exchange of fixed and floating interest rate payment
obligations and currencies on a notional principal for a specified period of time.
Taxable Equivalent Basis (TEB): A non-GAAP financial measure that increases
revenues and the provision for income taxes by an amount that would increase reve-
nues on certain tax-exempt securities to an equivalent before-tax basis to facilitate
comparison of net interest income from both taxable and tax-exempt sources.
Tier 1 Capital Ratio: Tier 1 capital represents the more permanent forms of capital,
consisting primarily of common shareholders’ equity, retained earnings, preferred
shares and innovative instruments. Tier 1 capital ratio is calculated as Tier 1 capital
divided by RWA.
Total Capital Ratio: Total capital is defined as the total of net Tier 1 and Tier 2
capital. Total capital ratio is calculated as total capital divided by RWA.
Total Shareholder Return (TSR): The change in market price plus dividends
paid during the year as a percentage of the prior year’s closing market price per
common share.
Value-at-Risk (VaR): A metric used to monitor and control overall risk levels and
to calculate the regulatory capital required for market risk in trading activities. VaR
measures the adverse impact that potential changes in market rates and prices could
have on the value of a portfolio over a specified period of time.
2013 Snapshot
Year at a Glance
Performance Indicators
Group President and CEO’s Message
Chairman of the Board’s Message
MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL RESULTS
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Principal Subsidiaries
Ten-Year Statistical Review
Glossary
Shareholder and Investor Information
1
2
3
4
5
7
112
120
196
198
204
205
For more information, including a
video message from Ed Clark, see the
interactive TD Annual Report online
by scanning the QR code below or
visiting td.com/annual-report/ar2013
For information on TD’s commitments to the
community see the TD Corporate Responsibility
Report online by scanning the QR code below
or visiting td.com/corporate-responsibility
(2013 report available April 2014)
Shareholder and Investor Information
MARKET LISTINGS
The common shares of The Toronto-Dominion
Bank are listed for trading on the Toronto Stock
Exchange and the New York Stock Exchange
under the symbol “TD”. The Toronto-Dominion
Bank preferred shares are listed on the Toronto
Stock Exchange.
Further information regarding the Bank’s
listed securities, including ticker symbols and
CUSIP numbers, is available on our website at
www.td.com under Investor Relations/Share
Information or by calling TD Shareholder
Relations at 1-866-756-8936 or 416-944-6367
or by e-mailing tdshinfo@td.com.
AUDITORS FOR FISCAL 2013
Ernst & Young LLP
DIVIDENDS
Direct dividend depositing: Shareholders may
have their dividends deposited directly to any
bank account in Canada or the U.S. For this
service, please contact the Bank’s transfer agent
at the address below.
U.S. dollar dividends: Dividend payments sent
to U.S. addresses or made directly to U.S. bank
accounts will be made in U.S. funds unless
a shareholder otherwise instructs the Bank’s
transfer agent. Other shareholders can request
dividend payments in U.S. funds by contacting
the Bank’s transfer agent. Dividends will be
exchanged into U.S. funds at the Bank of Canada
noon rate on the fifth business day after the
record date, or as otherwise advised by the Bank.
Dividend information for 2013 is available at
www.td.com under Investor Relations/Share
Information. Dividends, including the amounts
and dates, are subject to declaration by the
Board of Directors of the Bank.
DIVIDEND REINVESTMENT PLAN
For information regarding the Bank’s dividend
reinvestment plan, please contact our transfer
agent or visit our website at www.td.com under
Investor Relations/Share Information/Dividends.
IF YOU
AND YOUR INQUIRY RELATES TO
PLEASE CONTACT
Are a registered shareholder (your name appears
on your TD share certificate)
Missing dividends, lost share certificates, estate
questions, address changes to the share register,
dividend bank account changes, the dividend
reinvestment plan, eliminating duplicate mailings
of shareholder materials or stopping (and
resuming) receiving annual and quarterly reports
Hold your TD shares through the Direct
Registration System in the United States
Missing dividends, lost share certificates, estate
questions, address changes to the share register,
eliminating duplicate mailings of shareholder
materials or stopping (and resuming) receiving
annual and quarterly reports
Transfer Agent:
CST Trust Company
P.O. Box 700, Station B
Montréal, Québec
H3B 3K3
1-800-387-0825 (Canada and US only)
or 416-682-3860
Facsimile: 1-888-249-6189
inquiries@canstockta.com or www.canstockta.com
Co-Transfer Agent and Registrar:
Computershare
P.O. Box 43006
Providence, Rhode Island, 02940-3006 or
250 Royall Street
Canton, Massachusetts 02021
1-866-233-4836
TDD for hearing impaired: 1-800-231-5469
Shareholders outside of U.S.: 201-680-6578
TDD Shareholders outside of U.S.: 201-680-6610
www.computershare.com
Beneficially own TD shares that are held in the
name of an intermediary, such as a bank, a trust
company, a securities broker or other nominee
Your TD shares, including questions regarding
the dividend reinvestment plan and mailings
of shareholder materials
Your intermediary
TD SHAREHOLDER RELATIONS
For all other shareholder inquiries, please contact
TD Shareholder Relations at 416-944-6367 or
1-866-756-8936 or e-mail tdshinfo@td.com.
Please note that by leaving us an e-mail or
voicemail message you are providing your
consent for us to forward your inquiry to the
appropriate party for response.
Shareholders may communicate directly with the
independent directors through the Chairman of
the Board, by writing to:
Chairman of the Board
The Toronto-Dominion Bank
P.O. Box 1
Toronto-Dominion Centre
Toronto, Ontario M5K 1A2
or you may send an e-mail c/o TD Shareholder
Relations at tdshinfo@td.com. E-mails addressed
to the Chairman received from shareholders and
expressing an interest to communicate directly
with the independent directors via the Chairman
will be provided to Mr. Levitt.
HEAD OFFICE
The Toronto-Dominion Bank
P.O. Box 1
Toronto-Dominion Centre
King St. W. and Bay St.
Toronto, Ontario M5K 1A2
Product and service information 24 hours a day,
seven days a week:
In Canada contact TD Canada Trust
1-866-567-8888
In the U.S. contact TD Bank,
America’s Most Convenient Bank
1-888-751-9000
French: 1-866-233-2323
Cantonese/Mandarin: 1-800-328-3698
Telephone device for the hearing impaired:
1-800-361-1180
General information:
Contact Corporate and Public Affairs
416-982-8578
Website: In Canada: www.td.com
In the U.S.: www.tdbank.com
E-mail: customer.service@td.com
(Canada only; U.S. customers can e-mail
customer service via www.tdbank.com)
ANNUAL MEETING
April 3, 2014
9:30 a.m. (Mountain)
Hyatt Regency Calgary
Calgary, Alberta
SUBORDINATED NOTES SERVICES
Trustee for subordinated notes:
Computershare Trust Company of Canada
Attention: Manager,
Corporate Trust Services
100 University Avenue, 11th Floor
Toronto, Ontario M5J 2Y1
Vous pouvez vous procurer des exemplaires en
français du rapport annuel au service suivant :
Affaires internes et publiques
La Banque Toronto-Dominion
P.O. Box 1, Toronto-Dominion Centre
Toronto (Ontario) M5K 1A2
TD B ANK GRO UP ANNUAL REP ORT 2013 SHAREHOLDER AND I NVESTO R I NFORM ATIO N
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2013 Annual Report
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