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Here
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2014 Annual Report
FSC Logo
® 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.
2014 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
4
5
6
8
119
127
215
217
224
225
For more information, including a
video message from Bharat Masrani, see
the interactive TD Annual Report online
by scanning the QR code below or
visiting td.com/annual-report/ar2014
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
(2014 report available April 2015)
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 2014
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 2014 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 30170
College Station, TX 77842-3170 or
211 Quality Circle, Suite 210
College Station, TX 77845
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
March 26, 2015
9:30 a.m. (Eastern)
Metro Toronto Convention Centre
Toronto, Ontario
SUBORDINATED NOTES SERVICES
Trustee for subordinated notes:
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Attention: Manager,
Corporate Trust Services
100 University Avenue, 11th Floor
Toronto, Ontario M5J 2Y1
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TD B ANK GRO UP ANNUAL REP ORT 2014 SHAREHOLDER AND I NVESTO R I NFORM ATIO N
225
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2014 Snapshot1
NET INCOME 2
available to common shareholders
(millions of Canadian dollars)
DILUTED EARNINGS
PER SHARE 2
(Canadian dollars)
RETURN ON RISK-
WEIGHTED ASSETS 2,3
(percent)
Adjusted
Reported
Adjusted
Reported
Adjusted
Reported
TOTAL ASSETS 2
(billions of Canadian dollars)
$8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
$5
4
3
2
1
0
3.0%
$1,000
2.5
2.0
1.5
1.0
0.5
0
800
600
400
200
0
10
11
12
13
14
10
11
12
13
14
10
11
12
13
14
10
11
12
13
14
11.6% TD’s 5-year CAGR
(adjusted)
9.8% TD’s 5-year CAGR
(adjusted)
2.53% TD’s 2014 return on
Common Equity Tier 1
Capital risk-weighted
assets (adjusted)
$945 billion of total assets
at October 31, 2014
DIVIDENDS PER SHARE
(Canadian dollars)
TOTAL SHAREHOLDER
RETURN
(5-year CAGR)
TD’S PREMIUM RETAIL
EARNINGS MIX4
$2.00
1.50
1.00
0.50
0
16.5%
TD’s premium earnings
mix is built on a North
American retail focus –
a lower-risk business
with consistent earnings.
10
11
12
13
14
8.6% TD’s 5-year CAGR
4.2% Canadian peers
5-year CAGR
14.2% Canadian peers
90% Retail
10% Wholesale
1 See the footnotes on page 2 for information on how these results are calculated.
2 Based on Canadian Generally Accepted Accounting Principles for 2010 and Interna-
tional Financial Reporting Standards (IFRS) as issued by the International Accounting
Standards Board (IASB) from 2011 to 2014. See page 2 for more information.
3 Effective 2013, amounts are calculated in accordance with the Basel III regula-
tory framework, and are presented on the “all-in” methodology. Prior to 2013,
amounts were calculated in accordance with the Basel II regulatory framework.
4 Based on adjusted results as defined in footnote 1 on page 2 and excludes
Corporate segment.
10%
25%
65%
Canadian Retail
U.S. Retail
Wholesale
TD BANK GROUP ANNUAL REP O RT 20 1 4 2 014 SNAPSHOT
1
Year at a Glance1
Record TD Adjusted Earnings
of $8.1 billion in 20142
TD announced record adjusted earnings for the
sixth consecutive year driven by record adjusted
earnings of $7.6 billion in our retail businesses
and a strong year in the Wholesale segment.
TD Canada Trust remains
Canadians’ choice for Banking4
TD ranked #1 in market share for
Day to Day Banking.
Strong TD Shareholder Returns3
TD shareholders benefited from a 20% Total
Shareholder Return (TSR) in fiscal 2014 and a
14% year-over-year increase in dividends paid.
TD Market Capitalization
reaches Milestone
TD’s market capitalization exceeded the
$100 billion milestone for the first time
in fiscal 2014.
Record Wealth Management
client assets5
As of October 31, 2014, clients of TD Wealth
and TD Ameritrade have entrusted us with
over $1.3 trillion in assets.
TD Securities showed strength in
its franchise origination business
Notable deals included: Nalcor Energy
Muskrat Falls Project – one of the largest bond
placements in Canadian history, at $5 billion;
PrairieSky Royalty’s $1.7 billion initial public
offering (IPO) – largest Canadian IPO in 14 years;
and World Bank – lead managed U.S. dollar
global transactions for the first time.
TD becomes Canada’s largest
Credit Card provider7
With the successful close of the Aeroplan
portfolio purchase, this year TD moved to the
#1 position in Canada from #6 in 5 years and
assumed the mass marketing rights to the
prestigious Aeroplan program.
TD maintained mobile banking
leadership position in Canada9
TD ranked #1 for the number of mobile
subscribers accessing financial services via
their mobile devices.
TD issues Green Bond
In March 2014, TD became the first
commercial bank in Canada to issue a
green bond. The $500 million three-year
bond supports the low carbon economy
in three areas: renewable and low carbon
energy; energy efficiency and management,
with a focus on green buildings; and green
infrastructure and sustainable land use.
TD Bank, America’s Most
Convenient Bank® reaches Store
Network Milestone6
TD Bank, America’s Most Convenient Bank
is a top 10 U.S. bank (by stores), opening
15 new stores in Manhattan this year, and
now has 124 locations in New York City.
TD continues to be a brand and
service leader in Canada8
TD named the Best Brand in Canada by
Interbrand. TD Canada Trust (TDCT) named
highest in Customer Satisfaction for the ninth
year in a row by J.D. Power in the Canadian
Retail Banking Study. TDCT also ranks highest
in the Canadian J.D. Power Small Business
Banking study for the first time and TD ranks
2nd in the J.D. Power Canadian Full Service
Investor study.
#TDTHANKSYOU Shows The
World That a Bank Can Care
TD turned ATMs into Automated Thanking
Machines to show its appreciation and create
very special experiences for customers. The
most powerful moments were captured on a
video that went on to garner worldwide media
attention and more than 18 million views.
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 to assess each of its businesses and to measure overall Bank
performance. To arrive at adjusted results, the Bank removes “items of note”,
net of income taxes, from reported results. See “How the Bank Reports” in the
accompanying 2014 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 calculation of growth rates include balances in accordance with
Canadian Generally Accepted Accounting Principles for the 2010 financial year
and balances in accordance with IFRS for 2011 to 2014.
Certain comparative amounts have been restated as a result of the adoption
of new and amended standards under IFRS (New IFRS Standards and Amend-
ments) which required retrospective application and to retrospectively reflect the
impact of the January 31, 2014, stock dividend, as further discussed in Note 4 and
Note 21 of the 2014 Consolidated Financial Statements, respectively, and due to
reclassifications to conform with the presentation adopted in the current period.
In addition, the Bank’s comparative segment results have been restated to reflect
the segment realignment which occurred on November 1, 2013, which is further
discussed in Note 31 of the 2014 Consolidated Financial Statements.
“Five-year CAGR” is the compound annual growth rate calculated from 2009
to 2014 on an adjusted basis.
2 Reference to retail earnings include the total adjusted earnings of the Canadian
Retail and U.S. Retail segments.
3 Total Shareholder Return based on Bloomberg for the one-year period ended
October 31, 2014.
4 Based on the Office of the Superintendent of Financial Institutions Canada (OSFI)
volumes as at September 30, 2014.
5 Client assets consists of TD Wealth $597 billion and TD Ameritrade $711 billion.
TD Ameritrade figures as of their year-end on September 30, 2014.
6 Based on SNL Financial rankings (as at October 31, 2014).
7 Canadian Market share of VISA and Mastercard outstanding balances based
on the Nilson report as at April 2014.
8 2014 Interbrand “Best Canadian Brands” ranking (September 2014).
TD Canada Trust received the highest numerical score among the big five
retail banks in the proprietary J.D. Power 2006-2014 Canadian Retail Banking
Customer Satisfaction StudiesSM. 2014 study based on 17,183 total responses and
measures opinions of consumers with their primary banking institution. Proprietary
study results are based on experiences and perceptions of consumers surveyed
May-June 2014. Your experiences may vary. Visit jdpower.com.
TD Canada Trust received the highest numerical score in the proprietary J.D.
Power 2014 Canadian Small Business Banking Satisfaction StudySM. Study based
on 1,348 total responses, measuring 5 financial institutions and measures opinions
of small business customers. Proprietary study results are based on experiences
and perceptions of customers surveyed in May-June 2014. Your experiences may
vary. Visit jdpower.com.
Canadian peers include Royal Bank of Canada, Scotiabank, Bank of Montreal,
9 Comscore reporting current as of September 30, 2014, based on an audience of
and Canadian Imperial Bank of Commerce.
approximately 24 million Canadian mobile subscribers above the age of 13.
Total Shareholder Return based on Bloomberg for the five-year period ending
October 31, 2014.
“TD’s Premium Retail Earnings Mix” is based on adjusted results and excludes
Corporate segment.
2
TD BANK GROU P AN NUAL REPO RT 20 14 YEAR A T A GLAN CE
Key Financial Metrics
(millions of Canadian dollars, except where noted)
Results of operations
Total revenues – reported
Total revenues – adjusted 1
Net income – reported
Net income – adjusted 1
Financial positions at year-end (billions of Canadian dollars)
Total assets
Total deposits
Total loans net of allowance for loan losses
Per common share (Canadian dollars, except where noted)
Diluted earnings – reported
Diluted earnings – adjusted1
Dividend payout ratio – adjusted 1
Total shareholder return (1 year) 2
Closing market price (fiscal year end) 3
Financial ratios
Common Equity Tier 1 Capital ratio 4,5,6
Tier 1 Capital ratio 4,5,6
Total Capital ratio 4,5,6
Efficiency ratio – reported
Efficiency ratio – adjusted
1 See footnote 1 on page 2.
2 Total Shareholder Return based on Bloomberg for the one year period ended
October 31 of the stated year.
3 Toronto Stock Exchange closing market price.
4 Prior to 2014, amounts have not been adjusted to reflect the impact of the New
IFRS Standards and Amendments.
5 Effective the third quarter of 2014, each capital ratio has its own risk-weighted
asset (RWA) measure due to the OSFI prescribed scalar for inclusion of the Credit
Valuation Adjustment (CVA). Effective the third quarter of 2014, the scalars for
inclusion of CVA for Common Equity Tier 1, Tier 1, and Total Capital RWA are
57%, 65%, and 77% respectively.
6 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.
2014
2013
2012
$29,961
29,681
7,883
8,127
944.7
600.7
478.9
$27,259
27,188
6,640
7,136
862.0
541.6
444.9
4.14
4.27
43.0%
20.1%
3.44
3.71
43.5%
22.3%
55.47
47.82
9.4%
9.0%
10.9
13.4
55.1
53.4
11.0
14.2
55.3
52.9
$25,546
25,677
6,460
7,064
811.1
487.8
408.8
3.38
3.71
38.7%
11.9%
40.62
n /a%
12.6
15.7
54.9
51.3
TD BANK GROUP ANNUAL REP O RT 20 1 4 Y EAR AT A GLANCE
3
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.
2014 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 assets3
BUSINESS OPERATIONS
• Grow revenue faster than expenses
• Invest in core businesses to enhance customer experience
CUSTOMER
• Improve Customer Experience Index (CEI)4 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
• 20.1% vs. Canadian peer average of 17.4%
• 15.1% EPS growth (8.4% after adding back the additional
insurance charges recorded last year)
• 2.53% vs. Canadian peer average of 2.29%3
• Total revenue growth of 9.2% vs. total expense growth of 10.2%
• Refer to “Business Segment Analysis” in the 2014 MD&A for details
• CEI score 33.6% (target 32.6%)
• Refer to “Business Segment Analysis” in the 2014 MD&A for details
• Employee engagement score5 was 4.20 in 2014 vs. 4.17 in 2013
• See TD’s 2014 Corporate Responsibility Report available April 2015
• 1.3% or $56.7 million, in donations and community sponsorships
(five-year average) to charitable and not-for-profit organizations
in Canada vs. 1.3%, or $50.9 million, in 20136
• Make positive contributions by:
– Supporting employees’ community involvement and
• US$22.3 million in donations and community sponsorships in the
U.S. vs. US$22.9 million in 2013
fundraising efforts
• £60,244 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. £54,929 in 2013
• $288,000 in domestic employee volunteer grants to 460 different
organizations
• $32.2 million, or 56.8%, of our community giving was directed
– Protecting and preserving the environment
to promote our areas of focus domestically
• $4.9 million distributed to 1065 community environmental
projects through TD Friends of the Environment Foundation;
an additional $8.4 million from TD‘s community giving budget
was used to support environmental projects
4 CEI is a measurement program that tracks TD customers’ loyalty and advocacy.
5 Scale for employee engagement score is from one to five.
6 Calculated based on Canadian cash donations/five-year rolling average domestic
net income before tax.
1 Performance indicators that include an earnings component are based on TD’s
full-year adjusted results (except as noted) as explained in footnote 1 on page 2.
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, 2013
to October 31, 2014.
3 Return on Common Equity Tier 1 Capital (CET1) risk-weighted assets (RWA)
measured year-to-date as at October 31, 2014, for comparison purposes. TD’s
return on CET1 risk-weighted assets for 2014 was 2.53%. Effective the third
quarter of 2014, each capital ratio has its own RWA measure due to OSFI
prescribed scalar for inclusion of the Credit Valuation Adjustment (CVA). Effective
the third quarter of 2014, the scalars for inclusion of CVA for CET1, Tier 1, and
Total Capital RWA are 57%, 65%, and 77%, respectively.
4
TD BANK GROU P AN NUAL REPO RT 20 14 PERF ORM ANCE INDIC ATORS
Group President and CEO’s Message
TD stood tall for all the right reasons in 2014.
It was a year of great performance set against a challenging economic backdrop. We overcame continued
pressures on our operating environment and delivered adjusted earnings of $8.1 billion with record results in
many of our businesses. Our retail businesses grew and took share on both sides of the border. We delivered
excellent value to shareholders with a total return of more than 20%, exceeding the Canadian peer average.
We achieved all this by facing our challenges head-on, seizing oppor-
tunities and competing to win, all while staying true to the principles
that define us, including:
• Providing our customers with the legendary service they deserve.
• Investing in our people so they can reach their full potential.
• Delivering long-term value to our shareholders.
• Making tangible contributions to the communities where
we live and work.
HOW OUR BUSINESSES PERFORMED
Our Canadian retail bank delivered record adjusted earnings of
$5.5 billion for the year. We welcomed approximately 540,000 new
Aeroplan customers to TD, and were again recognized as an industry
leader in customer service. Our Insurance business built on its funda-
mentals, and our Wealth business made innovative enhancements to
our leading direct investing platform and deepened client relationships
in our advice and asset management businesses.
Our U.S. retail bank outgrew the industry in what continues
to be a challenging operating environment for banks. We delivered
US$1.9 billion in adjusted earnings in 2014, including TD Ameritrade’s
contribution. Our performance reflects our strong fundamentals and
our differentiated customer-focused business model.
Our Wholesale business had a very strong year and contributed
$813 million. TD Securities saw broad-based performance across all
businesses with a continued focus on originations and client focused
strategies, and led notable deals including the Nalcor Energy Muskrat
Falls Project and PrairieSky, the largest Canadian IPO in 14 years.
We also took bold steps in executing on our mobile strategy
so we can be where our customers need us, when they need us.
We launched remote mobile deposit capture on both sides of the
border, and our Canadian banking app was ranked first by subscribers
accessing financial services on their mobile devices.
BUILDING THE BETTER BANK TODAY AND TOMORROW
In 2014, we continued to demonstrate that the fundamentals of our
business model give TD a competitive advantage to:
• Find ways to run our businesses efficiently, while investing
in the future.
• Grow our businesses in line with our risk appetite, and focus on
organic growth.
• Foster a culture where 85,000 colleagues, the heart and soul of TD,
are inspired to be their best every day.
This approach once again reinforced our position as leaders in
the industry and we received significant recognition on both sides
of the border for providing the best customer service and for being
a great workplace.
HERE FOR OUR CUSTOMERS
The theme of our report this year is Here for you. At TD, we start with
the customer in everything we do. Helping our customers plan for
the future, purchase a home, start a business, or save for their child’s
education – these are moments that matter in the lives of our custom-
ers and matter to us.
Being here for our customers and clients, at every stage, is what sets
TD apart: one customer at a time, one relationship at a time.
THE VIEW AHEAD
It is a privilege to take the reins from Ed Clark and to lead more than
85,000 extraordinary TD colleagues as we continue to build relationships
with our customers and deliver value to our shareholders.
Looking forward, even as the environment continues to change
around us, we will adapt, but we will never lose sight of what makes
us The Better Bank. I truly believe we have the right business model –
one that is diversified and built to perform – the right people, and a
powerful brand. I believe our best days are ahead of us and I look
forward to sharing them with all of you.
Thank you for your support.
Bharat Masrani
Group President and Chief Executive Officer
TD BANK GROUP ANNUAL REP O RT 20 1 4 GR OU P PR ESID EN T A ND CEO ’S MESSAG E
5
Chairman of the Board’s Message
TD Bank Group achieved strong financial results during a period of continued slow economic growth
in 2014. In spite of this challenging environment, TD again delivered record earnings and excellent value
to shareholders thanks to its better business model, strong leadership and dedicated employees. TD was
also named the most valuable brand in Canada, and one of the most admired companies in the world.
CEO SUCCESSION
Earlier in the year, we welcomed Bharat Masrani to the Board and to
the role of Group President and CEO on November 1, 2014. Bharat
brings a proven track record of performance and a tremendous
breadth of experience steeped in the culture and values shared by
the Board and Senior Executive Team. The Board has full confidence
in Bharat’s leadership and the ability of he and his management team
to drive TD’s success forward. We would also like to thank Ed Clark
for his leadership and contributions over the past 12 years as CEO and
a director, and wish him all the best.
CORPORATE GOVERNANCE
TD is committed to being a leader in corporate governance practices.
An important element of sound corporate governance is Board
renewal. In that regard, we were pleased to welcome two new direc-
tors to TD’s Board: Alan MacGibbon, formerly the Managing Partner
and Chief Executive of Deloitte & Touche LLP (Canada), and Global
Managing Director, Quality, Strategy and Communications for Deloitte
Touche Tohmatsu Limited, and Mary Jo Haddad, formerly the President
and Chief Executive Officer at The Hospital for Sick Children. Alan and
Mary Jo bring extensive executive experience, and we look forward to
their valuable contributions to TD’s Board.
LOOKING AHEAD
We expect the business environment will remain challenging in 2015.
TD has consistently shown it can adapt to the challenges of its environ-
ment, and we remain confident in the Bank’s management team and
its employees to continue to deliver for all of the Bank’s stakeholders.
I would like to extend my thanks to TD’s 85,000 employees for
their efforts in helping to deliver the Bank’s financial results, and for
their commitment to providing legendary service to our customers.
TD’s employees demonstrate that if you stand by our customers and
communities, you can deliver in the best interest of shareholders. The
Board is continually impressed with the efforts of TD’s employees to
make a positive impact in our communities, including initiatives such as
the TD United Way Employee Giving campaign, and various volunteer
activities. Their ongoing contributions to strengthen our communities
are truly admirable and help TD continue to build The Better Bank.
On behalf of the Board, I would also like to thank our shareholders
for your continued support. We look forward to continuing to work
on your behalf in 2015.
Brian M. Levitt
Chairman of the Board
THE BOARD OF DIRECTORS
AND ITS COMMITTEES
The Board of Directors as at December 3,
2014, its committees and key committees’
responsibilities are listed below. Our Proxy
Circular for the 2015 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
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
David E. Kepler
Executive Vice President,
The Dow Chemical
Company,
Midland, Michigan
Alan N. MacGibbon
Vice Chair,
Osler, Hoskin &
Harcourt LLP
Toronto, Ontario
Colleen A. Goggins
Corporate Director
and former
Worldwide Chairman,
Consumer Group,
Johnson & Johnson,
Princeton, New Jersey
Mary Jo Haddad
Corporate Director and
former President and
Chief Executive Officer,
The Hospital for
Sick Children
Toronto, Ontario
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 Vice 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
Bharat Masrani
Group President and
Chief Executive Officer,
The Toronto-Dominion
Bank,
Toronto, 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
6
TD BANK GROU P AN NUAL REPO RT 20 14 CHAIR MA N OF THE BOA RD ’S M ESS AGE
COMMITTEE
MEMBERS 1
KEY RESPONSIBILITIES 1
Corporate
Governance
Committee
Human Resources
Committee
Risk Committee
Audit Committee
Brian M. Levitt
(Chair)
William E. Bennett
Harold H. MacKay
Karen E. Maidment
Wilbur J. Prezzano
Wilbur J. Prezzano
(Chair)
Amy W. Brinkley
Mary Jo Haddad
Henry H. Ketcham
Brian M. Levitt
Nadir H. Mohamed
Helen K. Sinclair
Karen E. Maidment
(Chair)
William E. Bennett
Amy W. Brinkley
Colleen A. Goggins
David E. Kepler
Harold H. MacKay
Helen K. Sinclair
William E. Bennett2
(Chair)
John L. Bragg
Alan N. MacGibbon2
Karen E. Maidment2
Irene R. Miller2
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; and
• 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; and
• 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; and
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; and
Receive reports on and approve, if appropriate, certain transactions with related parties.
•
•
•
•
1 As at December 3, 2014
2 Designated Audit Committee Financial Expert
Additional information relating to the responsibilities of the Audit Committee in respect of the appointment
and oversight of the shareholder’s independent external auditor is included in the Bank’s 2014 Annual
Information Form.
TD BANK GROUP ANNUAL REP O RT 20 1 4 C H AIR MA N OF TH E BO ARD’S MESS AG E
7
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, 2014, compared with the corresponding period in the prior years. This MD&A
should be read in conjunction with the audited Consolidated Financial Statements and related Notes for
the year ended October 31, 2014. This MD&A is dated December 3, 2014. 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 Retail
U.S. Retail
Wholesale Banking
Corporate
2013 FINANCIAL RESULTS OVERVIEW
Summary of 2013 Performance
2013 Financial Performance by Business Line
9
13
14
18
20
21
23
26
30
34
37
38
39
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
41
41
57
65
67
67
68
71
101
104
106
107
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, including in the Management’s Discussion and Analysis (“2014 MD&A”) under the heading “Economic Summary and
Outlook”, for each business segment under headings “Business Outlook and Focus for 2015”, and in other statements regarding the Bank’s objectives and priorities
for 2015 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; the ability of the Bank to execute on key priorities,
including to successfully complete acquisitions and strategic plans and to attract, develop and retain key executives; 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 or
other criminal behaviour to which the Bank is exposed; the failure of third parties to comply with their obligations to the Bank or its affiliates, including relating to the
care and control of information; the impact of new and changes to current laws and regulations; the overall difficult litigation environment, including in the U.S.;
increased competition, including through internet and mobile banking; 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; changes to accounting policies and methods used by the Bank; and the occurrence of natural and
unnatural catastrophic events and claims resulting from such events. The Bank cautions 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 2014 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 the Bank
cautions 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 2014 MD&A under the headings “Economic
Summary and Outlook”, and for each business segment, “Business Outlook and Focus for 2015”, 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 state-
ments, whether written or oral, that may be made from time to time by or on its behalf, except as required under applicable securities legislation.
8
TD BANK GROUP ANNUAL REPORT 2014 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 more than 23 million customers in three key busi-
nesses operating in a number of locations in financial centres around
the globe: Canadian Retail, U.S. Retail and Wholesale Banking. TD also
ranks among the world’s leading online financial services firms, with
approximately 9.4 million active online and mobile customers. TD had
$945 billion in assets as at October 31, 2014. 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 businesses 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 disclosed in Table 2. 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 Bank implemented new and
amended standards under IFRS (New IFRS Standards and Amendments)
which required retrospective application, effective in fiscal 2014. As a
result, certain comparative amounts have been restated. For more
information refer to Note 4 of the 2014 Consolidated Financial
Statements.
The following table provides the operating results on a reported basis
for the Bank.
T A B L E 1
OPERATING RESULTS – Reported
(millions of Canadian dollars)
Net interest income
Non-interest income
Total revenue
Provision for credit losses
Insurance claims and related expenses
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
2014
$ 17,584
12,377
29,961
1,557
2,833
16,496
9,075
1,512
320
7,883
143
$ 7,740
2013
$ 16,074
11,185
27,259
1,631
3,056
15,069
7,503
1,135
272
6,640
185
$ 6,455
2012
$ 15,026
10,520
25,546
1,795
2,424
14,016
7,311
1,085
234
6,460
196
$ 6,264
$
107
7,633
$
105
6,350
$
104
6,160
9
TD BANK GROUP ANNUAL REPORT 2014 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)
2014
2013
2012
Operating results – adjusted
Net interest income1
Non-interest income2
Total revenue
Provision for credit losses3
Insurance claims and related expenses
Non-interest expenses4
Income before income taxes and equity in net income of an investment in associate
Provision for income taxes5
Equity in net income of an investment in associate, net of income taxes6
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 intangibles7
Integration charges and direct transaction costs relating to the acquisition of the credit card
portfolio of MBNA Canada8
Fair value of derivatives hedging the reclassified available-for-sale securities portfolio9
Set-up, conversion and other one-time costs related to affinity relationship with Aimia and acquisition
of Aeroplan Visa credit card accounts10
Impact of Alberta flood on the loan portfolio11
Gain on sale of TD Waterhouse Institutional Services12
Litigation and litigation-related charge/reserve13
Restructuring charges14
Impact of Superstorm Sandy15
Integration charges, direct transaction costs, and changes in fair value of contingent consideration
relating to the Chrysler Financial acquisition16
Reduction of allowance for incurred but not identified credit losses17
Positive impact due to changes in statutory income tax rates18
Fair value of credit default swaps hedging the corporate loan book, net of provision for credit losses19
Integration charges and direct transaction costs relating to U.S. Retail acquisitions20
Total adjustments for items of note
Net income available to common shareholders – reported
$ 17,584
12,097
29,681
1,582
2,833
15,863
9,403
1,649
373
8,127
143
7,984
107
7,877
(246)
(125)
43
(131)
19
196
–
–
–
$ 16,074
11,114
27,188
1,606
3,056
14,390
8,136
1,326
326
7,136
185
6,951
105
6,846
(232)
(92)
57
(20)
(19)
–
(100)
(90)
–
$ 15,062
10,615
25,677
1,903
2,424
13,180
8,170
1,397
291
7,064
196
6,868
104
6,764
(238)
(104)
(89)
–
–
–
(248)
–
(37)
–
–
–
–
–
(244)
$ 7,633
–
–
–
–
–
(496)
$ 6,350
(17)
120
18
–
(9)
(604)
$ 6,160
1 Adjusted net interest income excludes the following item of note: 2012 –
$36 million ($27 million after tax) of certain charges against revenue related to
promotional-rate card origination activities, as explained in footnote 8.
2 Adjusted non-interest income excludes the following items of note: $49 million gain
due to change in fair value of derivatives hedging the reclassified available-for-sale
(AFS) securities portfolio, as explained in footnote 9; $231 million gain due to the
sale of TD Waterhouse Institutional Services, as explained in footnote 12; 2013 –
$71 million gain due to change in fair value of derivatives hedging the reclassified
AFS securities portfolio; 2012 – $2 million loss due to change in fair value of credit
default swaps (CDS) hedging the corporate loan book, as explained in footnote 19;
$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 16, $1 million
loss due to the impact of Superstorm Sandy, as explained in footnote 15.
3 Adjusted provision for credit losses (PCL) excludes the following items of note:
$25 million release of the provision for the impact of the Alberta flood on the loan
portfolio, as explained in footnote 11; 2013 – $25 million due to the impact of the
Alberta flood on the loan portfolio; 2012 – $162 million in adjustments to allow-
ance for incurred but not identified credit losses in Canadian Retail, as explained
in footnote 17; $54 million due to the impact of Superstorm Sandy, as explained
in footnote 15.
4 Adjusted non-interest expenses exclude the following items of note: $286 million
amortization of intangibles, as explained in footnote 7; $169 million of integration
charges relating to the acquisition of the credit card portfolio of MBNA Canada, as
explained in footnote 8; $178 million of costs in relation to the affinity relationship
with Aimia and acquisition of Aeroplan credit card accounts, as explained in foot-
note 10; 2013 – $272 million amortization of intangibles; $125 million of integra-
tion charges and direct transaction costs relating to the acquisition of the MBNA
Canada credit card portfolio; $127 million of litigation and litigation-related
charges, as explained in footnote 13; $129 million due to the initiatives to reduce
costs, as explained in footnote 14; $27 million of set-up costs in preparation for
the affinity relationship with Aimia Inc. with respect to Aeroplan credit cards;
2012 – $277 million amortization of intangibles; $11 million of integration
charges related to U.S. Retail acquisitions, as explained in footnote 20; $24 million
of integration charges and direct transaction costs relating to the Chrysler Financial
acquisition, as explained in footnote 16; $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 15.
5 For a reconciliation between reported and adjusted provision for income taxes, see
the ‘Non-GAAP Financial Measures – Reconciliation of Reported to Adjusted Provi-
sion for Income Taxes’ table in the “Income Taxes” section of this document.
6 Adjusted equity in net income of an investment in associate excludes the following
items of note: $53 million amortization of intangibles, as explained in footnote 7;
2013 – $54 million amortization of intangibles; 2012 – $57 million amortization
of intangibles.
7 Amortization of intangibles relate primarily 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 acqui-
sition 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, the
Epoch Investment Partners, Inc. acquisition in 2013, and to the acquired Aeroplan
credit card portfolio in 2014. Amortization of software is recorded in amortization
of intangibles; however, amortization of software is not included for purposes of
items of note, which only includes amortization of intangibles acquired as a result
of asset acquisitions and business combinations.
8 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. Inte-
gration charges consist of costs related to information technology, employee reten-
tion, external professional consulting charges, marketing (including customer
communication and rebranding), integration related travel, employee severance
costs, consulting, and training. The Bank’s integration charges related to the MBNA
acquisition were higher than what were anticipated when the transaction was first
announced. The elevated spending was primarily due to additional costs incurred
(other than the amounts capitalized) to build out technology platforms for the busi-
ness. Integration charges related to this acquisition were incurred by the Canadian
Retail segment. The fourth quarter of 2014 is the last quarter Canadian Retail
included any further MBNA-related integration charges as an item of note.
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 cate-
gory 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
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
10 On December 27, 2013, the Bank acquired approximately 50% of the existing
Aeroplan credit card portfolio from the Canadian Imperial Bank of Commerce
(CIBC) and on January 1, 2014, the Bank became the primary issuer of Aeroplan
Visa credit cards. The Bank incurred program set-up, conversion and other one-
time costs related to the acquisition of the portfolio and related affinity agree-
ment, consisting of information technology, external professional consulting,
marketing, training, and program management as well as a commercial subsidy
payment of $127 million ($94 million after tax) payable to CIBC. These costs are
included as an item of note in the Canadian Retail segment. The third quarter of
2014 was the last quarter Canadian Retail included any further set-up, conversion
or other one-time costs related to the acquired Aeroplan credit card portfolio as
an item of note.
11 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. In the third quarter of 2014, the Bank released the remaining provi-
sion of $25 million ($19 million after tax). The release of the remaining provision
reflects low levels of delinquency and impairments to date, as well as a low
likelihood of future material losses within the portfolio.
12 On November 12, 2013, TD Waterhouse Canada Inc., a subsidiary of the Bank,
completed the sale of the Bank’s institutional services business, known as TD
Waterhouse Institutional Services, to a subsidiary of National Bank of Canada.
The transaction price was $250 million in cash, subject to certain price adjustment
mechanisms which were settled in the third and fourth quarters of 2014. On the
transaction date, a gain of $196 million after tax was recorded in the Corporate
segment in other income. The gain is not considered to be in the normal course
of business for the Bank.
13 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 assessed its litigation provisions and deter-
mined that additional litigation and litigation-related charges of $127 million
($100 million after tax) were required as a result of developments and settlements
reached in the U.S. in fiscal 2013.
14 The Bank undertook certain measures commencing in the fourth quarter of 2013,
which continued 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.
15 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.
16 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
experienced 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. Retail. The fourth quarter of 2012
was the last quarter U.S. Retail included any further Chrysler Financial-related
integration charges or direct transaction costs as an item of note.
17 Excluding the impact related to the credit card portfolio of MBNA Canada and
other consumer loan portfolios (which is recorded in Canadian Retail), “Reduction
of allowance for incurred but not identified credit losses”, formerly known as
“General allowance increase (release) in Canadian Retail and Wholesale Banking”
was $162 million ($120 million after tax) in fiscal 2012, all of which was attribut-
able to the Wholesale Banking and non-MBNA related Canadian Retail 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 recorded as an item of note.
18 This represents the impact of changes in the income tax statutory rate on net
deferred income tax balances.
19 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 peri-
od’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.
20 As a result of U.S. Retail 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, market-
ing (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. The first quarter of 2012 was the last quarter
U.S. Retail included any further integration charges or direct transaction costs
as an item of note.
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
2014
$ 4.15
0.13
$ 4.28
$ 4.14
0.13
$ 4.27
2013
$ 3.46
0.26
$ 3.72
$ 3.44
0.27
$ 3.71
2012
$ 3.40
0.33
$ 3.73
$ 3.38
0.33
$ 3.71
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.
11
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
2014
$ 115
53
37
14
27
246
236
$ 482
2013
$ 117
54
36
–
25
232
176
$ 408
2012
$ 122
57
33
–
26
238
141
$ 379
Adjusted return on common equity (ROE) is adjusted net income
available to common shareholders as a percentage of average
common equity.
Adjusted ROE is a non-GAAP financial measure as it is not a defined
term 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.
2014
2013
$ 49,495
7,633
244
7,877
$ 44,791
6,350
496
6,846
2012
$ 41,102
6,160
604
6,764
15.9%
15.3%
16.5%
Disposal 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
in cash, subject to certain price adjustment mechanisms. A pre-tax
gain of $231 million was recorded in the Corporate segment in other
income in the first quarter of 2014. An additional pre-tax gain of
$13 million was recorded in the Corporate segment subsequently,
upon the settlement of price adjustment mechanisms.
T A B L E 4
AMORTIZATION OF INTANGIBLES, NET OF INCOME TAXES1
(millions of Canadian dollars)
TD Bank, N.A.
TD Ameritrade (included in equity in net income of an investment in associate)
MBNA Canada
Aeroplan
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.
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.
Beginning November 1, 2013, capital allocated to the business segments
is based on 8% Common Equity Tier 1 (CET1) Capital which includes
an additional charge of 1% of risk-weighted assets (RWA) to account
for the Office of the Superintendent of Financial Institutions Canada
(OSFI) common equity capital surcharge for Domestic Systemically
Important Banks (D-SIBs), resulting in a CET1 Capital ratio minimum
requirement of 8% effective January 1, 2016. The return measures for
business segments reflect a return on common equity methodology.
T A B L E 5
RETURN ON COMMON EQUITY
(millions of Canadian dollars, except as noted)
Average common equity
Net income available to common shareholders – reported
Items of note impacting income, net of income taxes1
Net income available to common shareholders – adjusted
Return on common equity – adjusted
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.
SIGNIFICANT EVENTS IN 2014
Acquisition of certain CIBC Aeroplan Credit Card Accounts
On December 27, 2013, the Bank, Aimia Inc. (Aimia), and the Canadian
Imperial Bank of Commerce (CIBC) closed a transaction under which
the Bank acquired approximately 50% of CIBC’s existing Aeroplan
credit card portfolio, which primarily included accounts held by custom-
ers who did not have an existing retail banking relationship with CIBC.
The Bank accounted for the purchase as an asset acquisition. The results
of the acquisition have been recorded in the Canadian Retail segment.
The Bank acquired approximately 540,000 cardholder accounts with
an outstanding balance of $3.3 billion at a price of par plus $50 million
less certain adjustments for total cash consideration of $3.3 billion.
At the date of acquisition, the fair value of credit card receivables
acquired was $3.2 billion and the fair value of an intangible asset
for the purchased credit card relationships was $146 million.
In connection with the purchase agreement, the Bank agreed to pay
CIBC a further $127 million under a commercial subsidy agreement.
This payment was recognized as a non-interest expense in 2014.
12
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL RESULTS OVERVIEW
Net Income
AT A GLANCE OVERVIEW
• Reported net income was $7,883 million, an increase
of $1,243 million, or 19%, compared with last year.
• Adjusted net income was $8,127 million, an increase
of $991 million, or 14%, compared with last year.
Reported net income for the year was $7,883 million, an increase
of $1,243 million, or 19%, compared with $6,640 million last year.
Adjusted net income for the year was $8,127 million, an increase of
$991 million, or 14%, compared with $7,136 million last year. The
increase in adjusted net income was due to higher earnings in the
Canadian Retail, Wholesale Banking, and U.S. Retail segments, partially
offset by a decrease in the Corporate segment. Canadian Retail net
income increased primarily due to loan and deposit volume growth,
the acquisition of certain CIBC Aeroplan credit card accounts and the
related affinity agreement with Aimia, Inc. (collectively, “Aeroplan”),
strong wealth asset growth, and higher insurance earnings, partially
offset by higher expenses. Wholesale Banking net income increased
primarily due to higher revenue, partially offset by higher expenses
and a higher effective tax rate. U.S. Retail net income increased
primarily due to strong organic growth, favourable credit performance,
the acquisition of the credit card portfolio of Target and related
program agreement (collectively, “Target”), the acquisition of Epoch
Investment Partners, Inc. (Epoch), and the impact of foreign currency
translation, partially offset by lower gains on sales of securities and
debt securities classified as loans, and margin compression. Corporate
segment loss increased primarily due to higher net corporate expenses
as a result of ongoing investment in enterprise and regulatory projects
and productivity initiatives.
Reported diluted earnings per share for the year were $4.14, a 20%
increase, compared with $3.44 last year. Adjusted diluted earnings per
share for the year were $4.27, a 15% increase, compared with $3.71
last year. Excluding certain losses in insurance earnings due to addi-
tional losses last year as a result of strengthened reserves for general
insurance automobile claims and claims resulting from severe weather-
related events, diluted earnings per share for the year increased 13%
on a reported basis and increased 8% on an adjusted basis.
Impact of Foreign Exchange Rate on U.S. Retail Translated Earnings
U.S. Retail earnings, including the contribution from the Bank’s invest-
ment in TD Ameritrade, are impacted by fluctuations in the U.S. dollar
to Canadian dollar exchange rate.
Depreciation of the Canadian dollar had a favourable impact on
consolidated earnings for the year ended October 31, 2014, compared
with last year, as shown in the following table.
T A B L E 6
IMPACT OF FOREIGN EXCHANGE RATE
ON U.S. RETAIL TRANSLATED EARNINGS
(millions of Canadian dollars, except as noted)
U.S. Retail (including TD Ameritrade)
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
Increase in basic earnings per share –
reported (dollars)
Increase in basic earnings per share –
adjusted (dollars)
2014
vs. 2013
2013
vs. 2012
$ 570
570
370
370
143
143
$ 118
118
78
80
26
26
$ 0.08
$ 0.01
0.08
0.01
A one cent increase/decrease in the U.S. dollar to Canadian dollar
exchange rate would have decreased/increased total Bank annual net
income by approximately $23 million.
13
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL RESULTS OVERVIEW
Revenue
AT A GLANCE OVERVIEW
• Reported revenue was $29,961 million, an increase of
$2,702 million, or 10%, compared with last year.
• Adjusted revenue was $29,681 million, an increase of
$2,493 million, or 9%, compared with last year.
• Net interest income increased by $1,510 million, or 9%,
compared with last year.
• Reported non-interest income increased by $1,192 million,
or 11%, compared with last year.
• Adjusted non-interest income increased by $983 million,
or 9%, compared with last year.
NET INTEREST INCOME
Net interest income for the year on a reported and adjusted basis was
$17,584 million, an increase of $1,510 million, or 9%, compared with
last year. The increase in adjusted net interest income was primarily
driven by increases in the U.S. Retail, Canadian Retail, and Wholesale
Banking segments. U.S. Retail net interest income increased primarily
due to strong loan and deposit volume growth, the full year inclusion
of Target, and the impact of foreign currency translation. Canadian
Retail net interest income increased primarily due to good loan and
deposit volume growth and the inclusion of Aeroplan. Wholesale
Banking net interest income increased primarily due to higher trading-
related net interest income.
NET INTEREST MARGIN
Net interest margin declined by 1 basis point (bps) during the year
to 2.19%, compared with 2.20% last year. Lower margins in the
Canadian and U.S. Retail segments were primarily due to core margin
compression, partially offset by the inclusions of Aeroplan and Target.
NET INTEREST INCOME
(millions of Canadian dollars)
$18,000
15,000
12,000
9,000
6,000
3,000
0
12
13
14
Reported
Adjusted
14
TD BANK GROUP ANNUAL REPORT 2014 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)
2014
Average
balance
Interest3
Average
rate
Average
balance
Interest3
2013
Average
rate
Average
balance
Interest3
2012
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.
Securitization liabilities7
Other liabilities8,9
Canada
U.S.
International
Total interest-bearing liabilities
Total net interest income on
2.76
1.75
1.53
2.53
0.96
0.33
3.15
4.53
5.63
4.51
$
3,692 $
27,179
17
30
0.46% $ 4,552 $
0.11
17,748
23
32
0.51% $ 8,950 $
0.18
13,580
41
42
0.46%
0.31
55,383
18,424
23,169
76,245
1,367
333
377
1,370
2.47
1.81
1.63
1.80
54,390
16,781
1,398
321
20,554
66,675
336
1,384
2.57
1.91
1.63
2.08
48,342 1,332
231
13,201
18,855
288
66,089 1,671
29,665
35,232
288
62
0.97
0.18
24,207
31,422
230
94
0.95
0.30
25,944
27,025
249
90
188,664
45,787
90,512
29,272
17,984
7,200
5,571
1,713
4,499
1,058
2,245
1,287
2.95
3.74
4.97
3.61
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 5,141
36,910 1,671
93,622 5,270
22,568 1,018
12.48
17.88
14,582
4,697
1,828
834
12.54
17.76
14,128 1,699
124
1,043
12.03
11.89
44,512
41,233
68,898
1,449
1,495
767
$ 803,051 $ 23,928
1,243
43,025
3.26
1,340
33,452
3.63
1.11
718
62,180
2.98% $ 730,800 $ 22,615
32,287 1,111
2.89
29,451 1,362
4.01
1.15
898
59,101
3.09% $ 674,112 $ 22,238
3.44
4.62
1.52
3.30%
$ 172,897 $ 1,394
197
147,025
0.81% $ 168,369 $ 1,660
211
130,378
0.13
0.99% $ 160,947 $ 1,819
264
119,605
0.16
1.13%
0.22
5,898
7,682
145,233
125,375
7,964
18
16
1,540
1,065
412
43,334
42,682
41,745
535
122
777
0.31
0.21
1.06
0.85
5.17
1.23
0.29
1.86
6,134
6,565
11
14
120,426
111,787
8,523
1,270
1,248
447
40,874
37,534
50,591
472
102
927
0.18
0.21
1.05
1.12
5.24
1.15
0.27
1.83
4,984
5,278
28
10
113,066 1,303
88,962 1,226
612
11,509
432
37,875
30,161
96
53,032 1,026
0.56
0.19
1.15
1.38
5.32
1.14
0.32
1.93
5,652
29
32,077
88
1
179
$ 777,593 $ 6,344
82
5,625
1.56
3
72
3.45
0.56
94
19,766
0.82% $ 706,644 $ 6,541
249
7,624
1.46
3
152
4.17
0.48
144
17,964
0.93% $ 651,159 $ 7,212
3.27
1.97
0.80
1.11%
average earning assets
$ 803,051 $ 17,584
2.19% $ 730,800 $ 16,074
2.20% $ 674,112 $ 15,026
2.23%
1 Net interest income includes dividends on securities.
2 Geographic classification of assets and liabilities is based on the domicile of the
6 Includes marketing fees incurred on the TD Ameritrade Insured Deposit Accounts
(IDA) of $895 million (2013 – $821 million, 2012 – $834 million).
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 $37 million (2013 – $24 million, 2012 – $25 million) and
amortized cost of $36 million (2013 – $24 million, 2012 – $25 million), and loans
designated at fair value through profit or loss of $5 million (2013 – $9 million,
2012 – $13 million) and amortized cost of nil (2013 – nil, 2012 – nil).
5 Includes trading deposits with a fair value of $59 billion (2013 – $51 billion,
2012 – $39 billion).
7 Includes securitization liabilities designated at fair value through profit or loss
of $11 billion (2013 – $22 billion, 2012 – $25 billion) and related amortized cost
of $11 billion (2013 – $22 billion, 2012 – $25 billion). Also includes securitization
liabilities at amortized cost of $25 billion (2013 – $25 billion, 2012 – $25 billion).
8 Other liabilities includes asset-backed commercial paper and term notes with an
amortized cost of $5 billion (2013 – $5 billion, 2012 – $5 billion).
9 Certain comparative amounts have been reclassified to conform with the
presentation adopted in the current year.
15
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
The following table 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)
2014 vs. 2013
2013 vs. 2012
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.
Securitization liabilities6
Other liabilities7,8
Canada
U.S.
International
Total interest-bearing liabilities
Total net interest income on average earning assets
$
(5)
17
$
(1)
(19)
$
(6)
(2)
$
(20)
13
$
2
(23)
$
(18)
(10)
26
32
43
199
52
11
360
165
(62)
119
426
444
(57)
(20)
(2)
(213)
6
(43)
(179)
(162)
(157)
(77)
(9)
9
(31)
12
41
(14)
58
(32)
181
3
(219)
42
417
453
166
62
26
14
(16)
14
436
219
(106)
164
55
435
(100)
28
22
(301)
(3)
(10)
(187)
(180)
(446)
(166)
74
275
66
90
48
(287)
(19)
4
249
39
(552)
(2)
129
710
43
312
95
$ 2,277
163
(157)
(46)
$ (964)
206
155
49
$ 1,313
370
185
65
$ 2,082
(238)
(207)
(245)
$ (1,705)
132
(22)
(180)
$ 377
$
(44)
(27)
$ 310
41
$ 266
14
$
(85)
(24)
$
244
77
$ 159
53
–
(3)
(262)
(152)
29
(29)
(14)
159
(1)
2
(68)
$ (410)
$ 1,867
(7)
1
(8)
335
6
(34)
(6)
(9)
(5)
–
(17)
$ 607
$ (357)
(7)
(2)
(270)
183
35
(63)
(20)
150
(6)
(2)
(85)
(315)
159
(34)
(24)
32
23
(2)
118
293
6
(6)
18
67
17
(4)
33
(22)
165
(40)
(6)
99
(6)
2
(85)
$ 197
$ 1,510
65
2
(23)
$ (340)
$ 1,742
102
(2)
73
$ 1,011
(694)
$
167
–
50
$ 671
$ 1,048
1 Geographic classification of assets and liabilities is based on the domicile of the
5 Includes marketing fees incurred on the TD Ameritrade IDA of $895 million
booking point of assets and liabilities.
(2013 – $821 million, 2012 – $834 million).
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 $37 million (2013 – $24 million, 2012 – $25 million) and
amortized cost of $36 million (2013 – $24 million, 2012 – $25 million), and loans
designated at fair value through profit or loss of $5 million (2013 – $9 million,
2012 – $13 million) and amortized cost of nil (2013 – nil, 2012 – nil).
6 Includes securitization liabilities designated at fair value through profit or loss
of $11 billion (2013 – $22 billion, 2012 – $25 billion) and related amortized cost
of $11 billion (2013 – $22 billion, 2012 – $25 billion). Also includes securitization
liabilities at amortized cost of $25 billion (2013 – $25 billion, 2012 – $25 billion).
7 Other liabilities includes asset-backed commercial paper and term notes with an
amortized cost of $5 billion (2013 – $5 billion, 2012 – $5 billion).
8 Certain comparative amounts have been reclassified to conform with the
4 Includes trading deposits with a fair value of $59 billion (2013 – $51 billion,
presentation adopted in the current year.
2012 – $39 billion).
16
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
NON-INTEREST INCOME
Non-interest income for the year on a reported basis was
$12,377 million, an increase of $1,192 million, or 11%, compared
with last year. Adjusted non-interest income for the year was
$12,097 million, an increase of $983 million, or 9%, compared
with last year. The increase in adjusted non-interest income was
primarily driven by increases in the Canadian Retail, U.S. Retail, and
Corporate segments. Canadian Retail non-interest income increased
primarily due to wealth asset growth, higher volume-related fee
growth, the inclusion of Aeroplan, and higher insurance revenue.
U.S. Retail non-interest income increased primarily due to the full year
inclusions of Target and Epoch, and the impact of foreign currency
translation, partially offset by lower gains on sales of securities and
debt securities classified as loans. Corporate segment non-interest
income increased primarily due to the gains on sales of TD Ameritrade
shares in the current year.
T A B L E 9
NON-INTEREST INCOME1
(millions of Canadian dollars, except as noted)
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 (losses)
Trading income (losses)
Service charges
Card services
Insurance revenue
Trust fees
Other income (loss)
Total
2014
2013
2012
% change
2014 vs. 2013
$
412
684
482
413
1,355
3,346
845
173
(349)
2,152
1,552
3,883
150
625
$ 12,377
$
406
596
365
326
1,141
2,834
785
304
(279)
1,966
1,220
3,734
148
473
$ 11,185
$
384
562
437
241
997
2,621
745
373
(41)
1,849
942
3,537
149
345
$ 10,520
1%
15
32
27
19
18
8
(43)
(25)
9
27
4
1
32
11%
1 Certain comparative amounts have been reclassified to conform with the
presentation adopted in the current year.
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 increased by $33 million,
or 3%, compared with last year. The increase was primarily driven
by higher interest rate and credit trading on improved client activity
during the year.
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.
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.
2014
$ 1,337
(349)
(9)
$ 979
$ 601
385
2
(9)
$ 979
2013
$ 1,231
(279)
(6)
$ 946
$ 557
368
27
(6)
$ 946
2012
$ 1,050
(41)
10
$ 1,019
$ 534
374
101
10
$ 1,019
17
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL RESULTS OVERVIEW
Expenses
AT A GLANCE OVERVIEW
• Reported non-interest expenses were $16,496 million, an
increase of $1,427 million, or 9%, compared with last year.
• Adjusted non-interest expenses were $15,863 million, an
increase of $1,473 million, or 10%, compared with last year.
• Reported efficiency ratio improved to 55.1% compared with
55.3% last year.
• Adjusted efficiency ratio worsened to 53.4% compared with
52.9% last year.
EFFICIENCY RATIO
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.
The reported efficiency ratio was 55.1% compared with 55.3% last
year. The adjusted efficiency ratio worsened to 53.4%, compared with
52.9% last year. Expenses grew faster than revenue primarily due to
higher investments to support business growth and higher enterprise
and regulatory projects, and productivity initiatives.
NON-INTEREST EXPENSES
Reported non-interest expenses for the year were $16,496 million,
an increase of $1,427 million, or 9%, compared with last year.
Adjusted non-interest expenses were $15,863 million, an increase
of $1,473 million, or 10%, compared with last year. The increase
in adjusted non-interest expenses was driven by increases in the
U.S. Retail, Canadian Retail, and Corporate segments. U.S. Retail
non-interest expenses increased primarily due to the full year inclusion
of Target, investments to support business growth, and the impact
of foreign currency translation, partially offset by productivity gains.
Canadian Retail non-interest expenses increased primarily due
to higher employee-related costs including higher revenue-based
variable expenses in the wealth business, the inclusion of Aeroplan,
investments to support business growth, and volume growth, partially
offset by productivity gains. Corporate segment non-interest expenses
increased primarily due to ongoing investment in enterprise and
regulatory projects, and productivity initiatives.
NON-INTEREST EXPENSES
(millions of Canadian dollars)
EFFICIENCY RATIO
(percent)
$18,000
15,000
12,000
9,000
6,000
3,000
0
60%
50
40
30
20
10
0
12
13
14
12
13
14
Reported
Adjusted
Reported
Adjusted
18
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS T A B L E 1 1
NON-INTEREST EXPENSES AND EFFICIENCY RATIO1
(millions of Canadian dollars, except as noted)
2014
2013
2012
% change
2014 vs. 2013
Salaries and employee benefits
Salaries
Incentive compensation
Pension and other employee benefits
Total salaries and employee benefits
Occupancy
Rent
Depreciation
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 – reported
Efficiency ratio – adjusted
1 Certain comparative amounts have been reclassified to conform with the
presentation adopted in the current year.
$ 5,171
1,927
1,353
8,451
800
324
425
1,549
147
209
454
810
598
756
29
321
991
283
160
212
185
2,151
2,708
$ 16,496
$ 4,751
1,634
1,266
7,651
755
330
371
1,456
216
188
443
847
521
685
129
317
1,009
281
147
201
186
1,639
2,173
$ 15,069
$ 4,647
1,561
1,051
7,259
704
324
346
1,374
210
184
431
825
477
668
–
296
925
282
149
196
175
1,390
1,910
$ 14,016
9
18
7
10
6
(2)
15
6
(32)
11
2
(4)
15
10
(78)
1
(2)
1
9
5
(1)
31
25
9
55.1%
53.4
55.3%
52.9
54.9%
51.3
(20)bps
50
19
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL RESULTS OVERVIEW
Taxes
Reported total income and other taxes increased by $474 million, or
21%, compared with last year. Income tax expense, on a reported
basis, was up $377 million, or 33%, compared with last year. Other
taxes were up $97 million, or 9%, compared with last year. Adjusted
total income and other taxes were up $420 million from last year.
Total income tax expense, on an adjusted basis, was up $323 million,
or 24%, from last year.
The Bank’s effective income tax rate on a reported basis was 16.7%
for 2014, compared with 15.1% last year. The year-over-year increase
was largely due to business mix, offset by the resolution of certain
audit issues.
The Bank reports its investment in TD Ameritrade using the equity
method of accounting. TD Ameritrade’s tax expense of $198 million
in the year, compared to $168 million last year, 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
2014
2013
2012
$ 2,385
26.3%
$ 1,970
26.3%
$ 1,933
26.4%
(321)
(489)
–
(63)
(3.5)
(5.4)
–
(0.7)
(253)
(487)
–
(95)
(3.4)
(6.5)
–
(1.3)
(262)
(483)
(18)
(85)
(3.6)
(6.6)
(0.2)
(1.2)
$ 1,512
16.7%
$ 1,135
15.1%
$ 1,085
14.8%
The Bank’s adjusted effective tax rate for the year was 17.5%,
compared with 16.3% last year. The year-over-year increase was largely
due to business mix, offset by the resolution of certain audit issues.
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
Integration charges and direct transaction costs relating to the acquisition
of the credit card portfolio of MBNA Canada
Fair value of derivatives hedging the reclassified available-for-sale securities portfolio
Set-up, conversion and other one-time costs related to affinity relationship with
Aimia and acquisition of Aeroplan Visa credit card accounts
Impact of Alberta flood on the loan portfolio
Gain on sale of TD Waterhouse Institutional Services
Litigation and litigation-related charge/reserve
Restructuring charges
Impact of Superstorm Sandy
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 losses
Positive impact due to changes in statutory income tax rates
Fair value of credit default swaps hedging the corporate loan book, net of provision for credit losses
Integration charges and direct transaction costs relating to U.S. Retail acquisitions
Total adjustments for items of note
Provision for income taxes – adjusted
Other taxes
Payroll
Capital and premium
GST, HST, and provincial sales3
Municipal and business
Total other taxes
Total taxes – adjusted
Effective income tax rate – adjusted4
2014
$ 1,512
2013
$ 1,135
2012
$ 1,085
93
44
(6)
47
(6)
(35)
–
–
–
–
–
–
–
–
137
1,649
435
157
426
172
1,190
$ 2,839
94
33
(14)
7
6
–
26
39
–
–
–
–
–
–
191
1,326
404
140
380
169
1,093
$ 2,419
96
36
–
–
–
–
165
–
25
10
(42)
18
2
2
312
1,397
383
141
352
156
1,032
$ 2,429
17.5%
16.3%
17.1%
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 Goods and services tax (GST) and Harmonized sales tax (HST).
4 Adjusted effective income tax rate is the adjusted provision for income taxes
before other taxes as a percentage of adjusted net income before taxes.
20
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL RESULTS OVERVIEW
Quarterly Financial Information
FOURTH QUARTER 2014 PERFORMANCE SUMMARY
Reported net income for the quarter was $1,746 million, an increase
of $130 million, or 8%, compared with the fourth quarter last year.
Adjusted net income for the quarter was $1,862 million, an increase
of $47 million, or 3%, compared with the fourth quarter last year.
Reported diluted earnings per share for the quarter were $0.91,
compared with $0.84 in the fourth quarter last year. Adjusted
diluted earnings per share for the quarter were $0.98, compared
with $0.95 in the fourth quarter last year.
Revenue for the quarter was $7,452 million, an increase of
$452 million, or 6%, on a reported basis, and an increase of
$435 million, or 6%, on an adjusted basis, compared with the fourth
quarter last year. The increase in adjusted revenue was primarily
driven by increases in the Canadian Retail and U.S. Retail segments.
Canadian Retail revenue increased primarily due to good loan and
deposit volume growth, the inclusion of Aeroplan, wealth asset
growth, and insurance business growth. U.S. Retail revenue increased
due to the impact of foreign currency translation. In U.S. dollars, U.S.
Retail revenue decreased primarily due to lower accretion and lower
gains on sales of securities.
Provision for credit losses (PCL) for the quarter was $371 million,
an increase of $19 million, or 5%, on a reported basis, and a decrease
of $21 million, or 5%, on an adjusted basis, compared with the fourth
quarter last year. The decrease was primarily driven by a decrease in
the U.S. Retail segment partially offset by an increase in the Canadian
Retail segment. U.S. Retail PCL decreased primarily due to favourable
credit performance in auto loans. Canadian Retail PCL increased
primarily due to higher provisions in commercial lending and the inclu-
sion of Aeroplan, partially offset by favourable credit performance and
lower bankruptcies in personal banking.
Insurance claims and related expenses for the quarter were
$720 million on a reported and adjusted basis, an increase of $9 million,
or 1%, compared with the fourth quarter last year primarily due to
an increase in severe weather-related events and business growth,
partially offset by more favourable prior year claims development.
Reported non-interest expenses for the quarter were $4,331 million,
an increase of $167 million, or 4%, compared with the fourth quarter
last year. Adjusted non-interest expenses for the quarter were
$4,188 million, an increase of $298 million, or 8%, compared with the
fourth quarter last year. The increase in adjusted non-interest expenses
was primarily driven by increases in the Canadian Retail, U.S. Retail,
and Corporate segments, partially offset by a decrease in Wholesale
Banking. Canadian Retail non-interest expenses increased primarily due
to higher employee-related costs including higher revenue-based vari-
able expenses in the wealth business, investments to support business
growth, and the inclusion of Aeroplan, partially offset by productivity
gains. U.S. Retail non-interest expenses increased due to the impact
of foreign currency translation. In U.S. dollars, U.S. Retail non-interest
expenses decreased primarily due to productivity gains and lower
expenses related to Target, partially offset by higher employee-related
costs to support business growth. Corporate segment non-interest
expenses increased primarily due to ongoing investment in enterprise
and regulatory projects and productivity initiatives. Wholesale Banking
non-interest expenses decreased primarily due to expenses related to
the settlement of a commercial dispute in the fourth quarter last year.
The Bank’s reported effective tax rate was 18.2% for the quarter,
compared with 13.4% in the same quarter last year. The Bank’s
adjusted effective tax rate was 18.9% for the quarter, compared with
15.0% in the same quarter last year. The year-over-year increases were
largely due to lower tax-exempt dividend income from taxable
Canadian corporations and business mix.
QUARTERLY TREND ANALYSIS
The Bank has had solid underlying adjusted earnings growth over the
past eight quarters. Canadian Retail earnings have been strong with
good loan and deposit volume growth, higher fee-based revenue
driven by wealth asset growth, and the acquisition of Aeroplan. U.S.
Retail earnings have benefited from strong loan and deposit volume
growth, continued investments to support business growth, and the
acquisitions of Target and Epoch. Wholesale Banking earnings bene-
fited from improved trading and investment banking results driven by
strong client activity and favourable capital market conditions. The
earnings contribution from the Bank’s investment in TD Ameritrade has
increased over the past two years primarily due to higher base earnings
in TD Ameritrade driven by higher client assets and trading volumes.
The Bank’s earnings also benefited from the impact of foreign currency
translation over the past eight quarters.
21
TD BANK GROUP ANNUAL REPORT 2014 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 income
Total revenue
Provision for credit losses
Insurance claims and related expenses
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 taxes1
Amortization of intangibles
Integration charges and direct transaction costs relating to the
acquisition of the credit card portfolio of MBNA Canada
Fair value of derivatives hedging the reclassified available-for-sale
securities portfolio
Set-up, conversion and other one-time costs related to affinity
relationship with Aimia and acquisition of Aeroplan Visa
credit card accounts
Impact of Alberta flood on the loan portfolio
Gain on sale of TD Waterhouse Institutional Services
Litigation and litigation-related charge/reserve
Restructuring charges
Total adjustments for items of note
Net income – adjusted
Preferred dividends
Net income available to common shareholders and
2014
For the three months ended
2013
Oct. 31
Jul. 31
Apr. 30
Jan. 31
Oct. 31
Jul. 31
Apr. 30
Jan. 31
$ 4,457
2,995
7,452
371
720
4,331
370
86
1,746
$ 4,435
3,074
7,509
338
771
4,040
330
77
2,107
$ 4,391
3,044
7,435
392
659
4,029
447
80
1,988
$ 4,301
3,264
7,565
456
683
4,096
365
77
2,042
$ 4,183
2,817
7,000
352
711
4,164
238
81
1,616
$ 4,145
2,940
7,085
477
1,140
3,771
249
75
1,523
$ 3,901
2,706
6,607
417
609
3,632
289
57
1,717
$ 3,845
2,722
6,567
385
596
3,502
359
59
1,784
62
54
–
60
27
(24)
63
23
–
61
21
(19)
59
14
15
59
24
(70)
58
30
22
56
24
(24)
–
–
–
–
–
116
1,862
32
16
(19)
–
–
–
60
2,167
25
–
–
–
–
–
86
2,074
40
115
–
(196)
–
–
(18)
2,024
46
20
(29)
–
30
90
199
1,815
49
–
48
–
–
–
61
1,584
38
–
–
–
–
–
110
1,827
49
–
–
–
70
–
126
1,910
49
non-controlling interests in subsidiaries – adjusted
1,830
2,142
2,034
1,978
1,766
1,546
1,778
1,861
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, except as noted)
27
$ 1,803
27
$ 2,115
26
$ 2,008
27
$ 1,951
27
$ 1,739
26
$ 1,520
26
$ 1,752
26
$ 1,835
$ 0.92
0.98
$ 1.12
1.15
$ 1.05
1.09
$ 1.07
1.06
$ 0.84
0.95
$ 0.79
0.82
$ 0.89
0.95
$ 0.93
1.00
1.11
1.15
0.91
0.98
13.1% 16.3% 15.9% 16.4% 13.4% 12.8%
14.0
1.07
1.06
1.04
1.09
0.79
0.82
0.84
0.95
15.1
13.3
16.2
16.8
16.6
0.89
0.95
15.1%
16.1
0.93
1.00
15.6%
16.7
Average earning assets
Net interest margin as a percentage of average earning assets
$ 824
$ 806
$ 795
$ 787
$ 748
$ 742
$ 723
$ 709
2.15%
2.18%
2.26%
2.17%
2.22%
2.22%
2.21%
2.15%
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.
22
TD BANK GROUP ANNUAL REPORT 2014 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 Retail, U.S. Retail, and Wholesale Banking.
Canadian Retail provides a full range of financial products and
services to customers in the Canadian personal and commercial
banking businesses, including credit cards, auto finance, wealth,
and insurance businesses. Under the TD Canada Trust brand, personal
and small business banking provides a full range of financial products
and services to nearly 15 million customers through its network of
1,165 branches, 2,867 automated banking machines, telephone,
internet and mobile banking. 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, international trade, and
day-to-day banking needs. Auto Finance provides flexible financing
options to customers at point-of-sale for automotive and recreational
vehicle purchases through our auto dealer network. The credit card
business provides an attractive line-up of credit cards including
co-branded and affinity credit card programs. The wealth business
offers a wide range of wealth products and services to a large and
diverse set of retail and institutional clients in Canada and Europe
through the direct investing, advice-based, and asset management
businesses. The insurance business offers property and casualty
insurance, as well as life and health insurance products in Canada.
U.S. Retail comprises the Bank’s retail and commercial banking
operations operating under the brand TD Bank, America’s Most
Convenient Bank, and wealth management services in the U.S. The
retail banking operations provide a full range of financial products
and services through multiple delivery channels, including a network
of 1,318 stores located along the east coast from Maine to Florida,
telephone, mobile and internet banking and automated teller
machines (ATM). The commercial banking operations serves the needs
of businesses, customizing a broad range of products and services to
meet their financing, investment, cash management, international
trade, and day-to-day banking needs. Wealth management services
include advice-based and asset management businesses. The advice-
based business provides investment, trust and banking solutions and
advice, across different client asset levels and product complexity, to
meet our clients’ goals in protecting, growing and transitioning their
wealth. U.S. Retail works with TD Ameritrade to refer mass affluent
clients to TD Ameritrade for their direct investing needs. The asset
management business manages assets for institutional and high net
worth clients and provides sub-advisory services and includes Epoch
Investment Partners, Inc. The results of our equity investment in
TD Ameritrade are included in U.S. Retail and reported as equity
in net income of an investment in associate, net of income taxes.
Wholesale Banking provides a wide range of capital markets,
investment banking, and corporate banking products and services,
including underwriting and distribution of new debt and equity issues,
providing advice on strategic acquisitions and divestitures, and meet-
ing 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 intercompany adjustments, and residual unallocated
revenue and expenses.
The results of the credit card portfolio of MBNA Canada, acquired
on December 1, 2011, as well as the integration charges and direct
transaction costs related to the acquisition, are reported in the
Canadian Retail segment. The results of TD Auto Finance Canada
are reported in the Canadian Retail segment. The results of TD Auto
Finance U.S. are reported in the U.S. Retail segment. Integration
charges, direct transaction costs, and changes in fair value of contin-
gent consideration related to the Chrysler Financial acquisition are
reported in the Corporate segment. The results of the credit card
portfolio of Target Corporation and the related program agreement
(collectively “Target”), acquired on March 13, 2013, and the results of
Epoch Investment Partners, Inc. (Epoch), acquired on March 27, 2013,
are both reported in the U.S. Retail segment.
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
business segments is presented before any items of note not attributed
to the operating segments. For further details, see the “How the
Bank Reports” section of this document. For information concerning
the Bank’s measure of adjusted return on common equity, which is
a non-GAAP financial measure, see the “Return on Common Equity”
section. Segmented information also appears in Note 31 to the 2014
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 $428 million, compared
with $332 million last year.
As noted in Note 9 to the 2014 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.
The “Business Outlook and Focus for 2015” 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 information, see the “Caution Regarding Forward-Looking
Statements” section and the “Risk Factors That May Affect Future
Results” section.
23
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS T A B L E 1 5
RESULTS BY SEGMENT
(millions of Canadian dollars)
Net interest income (loss)
Non-interest income (loss)
Provision for (recovery of) credit losses
Insurance claims and related expenses
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 taxes1
Amortization of intangibles
Integration charges and direct transaction costs
relating to the acquisition of the credit card
portfolio of MBNA Canada
Fair value of derivatives hedging the reclassified
available-for-sale securities portfolio
Set-up, conversion and other one-time costs
elated to affinity relationship with Aimia
and acquisition of Aeroplan Visa credit
card accounts
Impact of Alberta flood on the loan portfolio
Gain on sale of TD Waterhouse
Institutional Services
Litigation and litigation-related charge/reserve
Restructuring charges
Total adjustments for items of note
Net income (loss) – adjusted
(billions of Canadian dollars)
Average common equity
CET1 Capital risk-weighted assets2,3
Canadian
Retail
U.S. Retail
Wholesale
Banking
Corporate
2014
2013
2014
2013
2014
2013
$ 9,538
9,623
946
2,833
8,438
6,944
1,710
$ 8,922
8,860
929
3,056
7,754
6,043
1,474
$ 6,000
2,245
676
–
5,352
2,217
412
$ 5,173
2,149
779
–
4,768
1,775
269
$ 2,210
470
11
–
1,589
1,080
267
$ 1,982
428
26
–
1,542
842
192
2013
2014
2014
$ (164) $
39
(76)
–
1,117
(1,166)
(877)
(3) $ 17,584 $ 16,074
11,185
1,631
3,056
15,069
7,503
1,135
12,377
1,557
2,833
16,496
9,075
1,512
(252)
(103)
–
1,005
(1,157)
(800)
Total
2013
–
5,234
–
4,569
305
2,110
246
1,752
–
813
–
650
15
(274)
26
(331)
320
7,883
272
6,640
–
125
–
131
–
–
92
–
20
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
246
232
246
232
–
–
125
(43)
(57)
(43)
–
(19)
–
19
131
(19)
92
(57)
20
19
–
–
–
256
$ 5,490
–
–
–
112
$ 4,681
–
–
–
–
$ 2,110
–
100
–
100
$ 1,852
–
–
–
–
$ 813
–
–
–
–
$ 650
(196)
–
–
(12)
$ (286) $
–
(196)
–
100
–
–
90
–
90
284
496
244
(47) $ 8,127 $ 7,136
$ 12.6
100
$ 10.8
93
$ 25.1
158
$ 22.0
138
$
4.7
61
$ 4.2
47
$
9.6
9
$
7.8 $ 52.0 $ 44.8
286
328
8
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 Prior to 2014, amounts have not been adjusted to reflect the impact of the New
IFRS Standards and Amendments.
3 Effective the third quarter of 2014, each capital ratio has its own risk-weighted
asset (RWA) measure due to the Office of the Superintendent of Financial Institu-
tions (OSFI) prescribed scalar for inclusion of the Credit Valuation Adjustment
(CVA). Effective the third quarter of 2014, the scalars for inclusion of CVA for
CET1, Tier 1, and Total Capital RWA are 57%, 65%, and 77% respectively.
24
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
ECONOMIC SUMMARY AND OUTLOOK
After accelerating in the April to June period of 2014, Canadian
economic growth has shown signs of moderating. Looking ahead,
quarterly gains in real gross domestic product (GDP) are likely to
run at a respectable but still modest 2 to 2.5% rate over the rest
of 2014 and in 2015.
Outside of Canada’s borders, economic conditions have been mixed.
Concerns about economic performances in emerging markets, Japan,
and the Eurozone have contributed to a sharp drop in crude oil prices,
which has dampened the near-term prospects of the Canadian energy
sector. In contrast, the U.S. economy has continued to deliver superior
economic growth relative to those of Canada and other major
advanced economies. The U.S. job market has been posting significant
increases, with private-sector job gains having exceeded 200,000 per
month for most of 2014. A continued recovery in job creation is
expected to push the U.S. unemployment rate lower over the next two
years. In line with a stronger labour market, the U.S. Federal Reserve
has completed its extraordinary monetary stimulus and is expected to
raise interest rates by the middle part of 2015.
Despite the impact of lower commodity prices on export earnings,
the Canadian export sector is expected to grow at a healthy rate,
helped by rising U.S. demand and the benefits to competitiveness of a
lower Canadian dollar, with the latter expected to weaken further over
the January to June period of 2015. As Canada’s export performance
improves, an increase in business confidence is expected to drive a
firming in capital spending, particularly for machinery and equipment.
Meanwhile, Canadian consumers have continued to increase
spending in the July to September period of 2014, especially for light
vehicles, which rose to record levels. Activity in the Canadian housing
sector has also shown marked strength for the second consecutive
calendar year quarter, both in terms of sales volumes and new
construction activity. Interest-sensitive purchases have continued to
benefit from low interest rates. That said, auto and home-related
purchases are expected to record more moderate gains over the near
term, as soft wage growth and elevated levels of household debt work
to restrain growth.
Although inflation has remained elevated in recent months, the rise
has likely been due to temporary factors. Over the very near term,
lower gasoline prices will put significant downward pressure on head-
line Consumer Price Index (CPI) inflation. Although job gains over the
past few months have been encouraging, a lack of wage pressures
points to persistent economic slack. In this environment, the Bank
of Canada is likely to leave interest rates unchanged. As economic
growth gradually picks up over the coming quarters and these tempo-
rary factors run their course, the upside risks to inflation will rise.
As a result, the Bank of Canada is expected to start gradually raising
interest rates in October 2015, but increases are expected to be more
modest than in the past.
NET INCOME – REPORTED BY BUSINESS SEGMENT
(as a percentage of total net income)
1
70%
60
50
40
30
20
10
0
12
13
14
12
13
14
12
13
14
NET INCOME – ADJUSTED BY BUSINESS SEGMENT
(as a percentage of total net income)
1
70%
60
50
40
30
20
10
0
12
13
14
12
13
14
12
13
14
Canadian Retail
U.S. Retail
Wholesale Banking
1 Amounts exclude Corporate segment.
25
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS BUSINESS SEGMENT ANALYSIS
Canadian Retail
Canadian Retail provides a full range of financial products and services to nearly 15 million customers
in the Canadian personal and commercial banking businesses, including credit cards, auto finance, wealth,
and insurance businesses.
$5,234
Reported
$5,490
Adjusted
NET INCOME
(millions of Canadian dollars)
44.0%
Reported
42.2%
Adjusted
EFFICIENCY RATIO
(percent)
$6,000
5,000
4,000
3,000
2,000
1,000
0
50%
40
30
20
10
0
12
13
14
12
13
14
Reported
Adjusted
Reported
Adjusted
T A B L E 1 6
REVENUE1
(millions of Canadian dollars)
Personal banking
Business banking
Wealth
Insurance
Total
1 Certain comparative amounts have been restated to conform with
current year presentation.
2014
$ 9,600
2,284
3,226
4,051
$ 19,161
2013
$ 8,808
2,232
2,917
3,825
$ 17,782
2012
$ 8,482
2,170
2,668
3,673
$ 16,993
26
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
BUSINESS HIGHLIGHTS
• Achieved record adjusted earnings of $5,490 million,
CHALLENGES IN 2014
• Sustained low interest rate environment contributed
and a record adjusted efficiency ratio of 42.2%.
to further deposit margin compression.
• Recognized as an industry leader in customer service
• Fierce competition for new and existing customers from the
excellence with distinctions that included the following:
– Ranked “Highest in Customer Satisfaction Among the
Big Five Retail Banks”2 for the ninth consecutive year by
J.D. Power, a global marketing information services firm.
The 2014 Canadian Retail Banking Customer Satisfaction
Study included responses from over 17,000 customers who
use a primary financial institution for personal banking.
– TD Canada Trust retained the #1 spot in “Customer Service
Excellence” among the five major Canadian banks for the
tenth consecutive year according to global market research
firm Ipsos.
– TD Canada Trust was recognized as the “Highest in
Customer Satisfaction with Small Business Banking”3
by J.D. Power in the 2014 Canadian Small Business Banking
Customer Satisfaction Study.
• Continued to focus on customer service and convenience by
optimizing our branch network, and investing in our digital
channel experience, including mobile and online banking.
• Recorded strong chequing and savings deposit volume
growth due to a focus on acquiring and retaining core
customer accounts.
• TD Auto Finance Canada originated a record $8 billion of auto
loans in Canada in fiscal 2014.
• Business banking continued to generate strong loan volume
growth of 12%.
• The Canadian Cards business successfully assumed mass
marketing rights to the prestigious Aeroplan program
in Canada and completed the acquisition of approximately
50% of the existing Aeroplan credit card portfolio from CIBC.
• TD Asset Management, the manager of TD Mutual Funds,
had record long-term fund sales and record assets under
management.
• TD has maintained its strong market share4 in key products:
– TD is #1 in Canadian credit card market share.
– Retained the #1 position in personal deposit market share
and the #2 position in personal loan market share.
– Business banking held the #2 positions in deposit and loan
market share.
– The Direct Investing business maintained a market leading
position in both share of assets and trades.
– TD has the most online banking and mobile customers.
major Canadian banks and non-bank competitors.
• Challenging retail lending environment due to slow economic
growth and elevated consumer debt levels.
• The property and casualty insurance results were impacted
by severe winter conditions.
INDUSTRY PROFILE
The personal and business banking environment in Canada is very
competitive among the major banks as well as some strong regional
players and non-bank competitors. The strong competition makes it
difficult to sustain market share gains and distinctive competitive
advantage over the long term. Continued success depends upon deliv-
ering outstanding customer service and convenience, disciplined risk
management practices, and investment in customer products and
services. Business growth in the fiercely competitive wealth manage-
ment industry lies in the ability to differentiate on client experience by
providing the right products, services, tools, and solutions to serve our
clients’ needs. 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 competi-
tive market, consisting of both personal and commercial lines writers,
whereas the life and health insurance industry is made up of several
larger competitors.
OVERALL BUSINESS STRATEGY
The strategy for Canadian Retail is to:
• Consistently deliver a legendary customer experience
in everything we do.
• Be recognized as an extraordinary place to work.
• Make the customer and employee experience simple, fast,
and easy in order to drive efficiency.
• Strengthen our local market presence in our communities.
• Invest in the future to deliver top tier earnings performance
consistently.
2 TD Canada Trust received the highest numerical score among the big five retail
4 Market share ranking is based on most current data available from Canadian
banks in the proprietary J.D. Power 2006-2014 Canadian Retail Banking Customer
Satisfaction Studies.SM 2014 study based on 17,183 total responses and measures
opinions of consumers with their primary banking institution. Proprietary study
results are based on experiences and perceptions of consumers surveyed May-June
2014. Your experiences may vary. Visit jdpower.com
Bankers Association for Business Deposits and Loans as at June 2014, from public
financial disclosures for average credit card balances as at July 2014, from OSFI
for Personal Deposits and Loans as at August 2014, from comScore for number
of online banking and mobile customers as at September 2014, and from Investor
Economics for assets and trades metrics as at September 2014.
3 TD Canada Trust received the highest numerical score in the proprietary J.D. Power
2014 Canadian Small Business Banking Satisfaction Study.SM Study based on
1,348 total responses, measuring 5 financial institutions and measures opinions
of small business customers. Proprietary study results are based on experiences and
perceptions of customers surveyed in May-June 2014. Your experiences may vary.
Visit jdpower.com
27
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
2014
2013
$ 9,538
9,623
19,161
19,161
946
2,833
8,438
8,091
$ 5,234
$ 8,922
8,860
17,782
17,782
929
3,056
7,754
7,602
$ 4,569
2012
$ 8,606
8,387
16,993
17,029
1,151
2,424
7,485
7,381
$ 4,463
125
92
104
131
$ 5,490
20
$ 4,681
–
$ 4,567
41.7%
43.7
2.95
2.95
44.0
42.2
1,165
39,389
42.3%
43.3
2.92
2.92
43.6
42.7
1,179
39,535
41.3%
42.3
2.95
2.96
44.0
43.3
1,168
41,971
2 In 2014, the Bank conformed to a standardized definition of full-time equivalent
staff across all segments. The definition includes, among other things, hours for
overtime and contractors as part of its calculations. Results for periods prior to
2014 have not been restated.
Assets under administration increased $8 billion, or 3%, compared
with the last year, as growth from new client assets, market
appreciation, and the addition of the remaining interest in NatWest
Stockbrokers Limited,5 was partially offset by the sale of the
TD Waterhouse Institutional Services business. Assets under manage-
ment increased $25 billion, or 12%, mainly driven by growth from
market appreciation and new client assets.
PCL for the year was $946 million, an increase of $17 million, or
2% compared with last year. Personal banking PCL was $875 million,
a decrease of $7 million, or 1%, primarily due to better credit perfor-
mance and lower bankruptcies, partially offset by the addition of
Aeroplan. Business banking PCL was $71 million, an increase of
$24 million, primarily due to higher recoveries last year. Annualized
PCL as a percentage of credit volume was 0.29%, a decrease of 1 bps,
compared with last year. Net impaired loans were $834 million,
a decrease of $48 million, or 5%, compared with last year.
Insurance claims and related expenses were $2,833 million, a
decrease of $223 million, or 7%, compared with last year, primarily
due to additional losses last year as a result of strengthened reserves
for general insurance automobile claims and claims resulting from
severe weather-related events, partially offset by higher current year
claims driven by severe winter conditions, and business growth.
Reported non-interest expenses for the year were $8,438 million,
an increase of $684 million, or 9%, compared with last year. Adjusted
non-interest expenses for the year were $8,091 million, an increase of
$489 million, or 6%, compared with last year. The increase was driven
by higher employee-related costs including higher revenue-based vari-
able compensation in the wealth business, the addition of Aeroplan,
investments to grow the business, and volume growth, partially offset
by initiatives to increase productivity.
The reported efficiency ratio worsened to 44.0%, while the adjusted
efficiency ratio improved to 42.2%, compared with 43.6% and
42.7%, respectively, last year.
T A B L E 1 7
CANADIAN RETAIL
(millions of Canadian dollars, except as noted)
Net interest income
Non-interest income
Total revenue – reported
Total revenue – adjusted
Provision for credit losses
Insurance claims and related expenses
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, conversion and other one-time costs related to affinity relationship
with Aimia and acquisition of Aeroplan Visa credit card accounts
Net income – adjusted
Selected volumes and ratios
Return on common equity – reported
Return on common equity – adjusted
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 branches
Average number of full-time equivalent staff2
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.
REVIEW OF FINANCIAL PERFORMANCE
Canadian Retail net income for the year on a reported basis was
$5,234 million, an increase of $665 million, or 15%, compared with
last year. Adjusted net income for the year was $5,490 million, an
increase of $809 million, or 17%, compared with last year. The increase
in adjusted earnings was primarily due to loan and deposit volume
growth, the addition of Aeroplan, strong growth in assets under
management, a rebound in insurance earnings due to additional losses
last year as a result of strengthened reserves for general insurance
automobile claims and claims resulting from severe weather-related
events, partially offset by expense growth. The reported annualized
return on common equity for the year was 41.7%, while the adjusted
annualized return on common equity was 43.7%, compared with
42.3% and 43.3%, respectively, last year.
Canadian Retail revenue is derived from the Canadian personal
and commercial banking businesses, including credit cards, auto
finance, wealth and insurance businesses. Revenue for the year was
$19,161 million, an increase of $1,379 million, or 8%, compared with
last year. Net interest income increased $616 million, or 7%, driven
primarily by good loan and deposit volume growth, and the addition
of Aeroplan. Non-interest income increased $763 million, or 9%,
largely driven by wealth asset growth, higher volume-related fee
growth, the addition of Aeroplan, and higher insurance revenues.
Margin on average earning assets was 2.95%, an increase of 3 basis
points (bps), due to the addition of Aeroplan.
The personal banking business generated solid average lending
volume growth of $12.4 billion, or 5%. Average real estate secured
lending volume increased $7.9 billion, or 4%. Auto lending average
volume increased $1 billion, or 7%, while all other personal lending
average volumes increased $3.5 billion, or 11%, largely due to the
addition of Aeroplan. Business loans and acceptances average volume
increased $5.3 billion, or 12%. Average personal deposit volumes
increased $3.8 billion, or 3%, due to strong growth in core chequing
and savings accounts, partially offset by lower term deposit volume.
Average business deposit volumes increased $5 billion, or 7%.
5 As previously announced on July 8, 2014, the Bank completed the acquisition
of the remaining interest in NatWest Stockbrokers Limited from National
Westminster Bank plc.
28
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
Insurance
• Property and Casualty – TD is the largest direct distribution
insurer and the second largest personal insurer in Canada.
It is also the national leader in the affinity market offering home
and auto insurance to members of affinity groups such as profes-
sional associations, universities and employer groups, and other
customers, through direct channels. The business was able to
continue its strong premium growth while facing a challenging
winter weather season in 2014.
• Life and Health – offers credit protection and travel insurance
products mostly distributed through TD Canada Trust branches.
Other simple life and health insurance products, and credit card
balance protection are distributed through direct channels.
BUSINESS OUTLOOK AND FOCUS FOR 2015
The primary focus for 2015 will be to continue to deliver
legendary customer service and convenience across all channels.
Our commitment to continually invest in our businesses posi-
tions us well for future growth. We expect earnings growth to
moderate in 2015 due to a more challenging operating environ-
ment. We expect the personal loan growth rate to be in line
with current year levels. Business lending is forecasted to
remain strong as we maintain our focus on winning market
share. Wealth asset acquisition is expected to be strong;
however, benefits from market appreciation next year are
subject to capital markets performance. The outlook for insur-
ance is for good core premium growth; however claims will
depend on the frequency and severity of weather-related
events. Credit loss rates should remain relatively stable;
however, low personal bankruptcy trends will likely continue
to normalize. Over the next year we expect continued pressure
on margins due to the impact of the sustained low interest rate
environment, and competitive pricing in the market. We will
maintain our focus on productivity initiatives.
Our key priorities for 2015 are as follows:
• Provide a legendary customer experience across all
distribution channels.
• Focus on organic growth opportunities across our businesses.
• Deliver integrated service and advice in local markets, across
businesses, and channels.
• Invest in and grow our key businesses, and focus on emerging
payment and loyalty innovations.
• Accelerate our growth in the Wealth Advice channels and
introduce new client solutions in the Direct Investing business.
• Review and enhance insurance products to ensure that they
are competitive, provide the protection our clients need, and
are easy to understand.
• Keep our focus on productivity to enhance the customer
experience, employee satisfaction, and shareholder value.
KEY PRODUCT GROUPS
Personal Banking
• Personal Deposits – offers a full suite of chequing and savings
products to retail clients across Canada. In 2014, personal deposit
volume growth was solid, and TD maintained its market share
position by focusing on acquiring and retaining core customer
accounts. Market share in term deposits declined as the business
reduced originations from higher cost, non-proprietary channels,
and fulfilled customer needs with other investment products. The
business was able to largely offset the impact of the lower interest
rate environment through volume growth.
• Consumer Lending – offers a diverse range of financing products to
suit the needs of retail clients across Canada. In 2014, TD continued
to grow in lending volumes but at a slower pace than in recent
years and maintained its leadership position in market share for
real estate secured lending products, with a focus on increasing
customer retention rates and good risk management.
• Credit Cards and Merchant Services – offers a range of credit card
products including co-branded and affinity credit card programs.
In 2014, through its focus on the Aeroplan program, MBNA integra-
tion and continued expansion, the business achieved good volume
growth and maintained the number one position in credit card
market share.
• Auto Finance – offers automotive and recreational vehicle financing
through an extensive network of dealers across Canada. In 2014,
TD delivered good portfolio growth in a highly competitive market
by producing financial solutions for automotive and recreational
product dealerships, developing flexible vehicle financing options,
and continuing its focus on service.
Business Banking
• Commercial Banking – serves the needs of Canadian businesses
across a wide range of industries. In 2014, the business continued
to invest in customer-facing resources in strategic markets to drive
strong volume growth and market share gains.
• Small Business Banking – offers a wide range of financial products
and services to small businesses across Canada. In 2014, the busi-
ness continued to make investments in both deposit and credit
infrastructure to improve speed to market and customer experience.
Wealth
• Direct Investing – offers a comprehensive product and service offer-
ing to self-directed retail investors. TD maintained its leadership
position in assets under administration and trade volume in 2014.
In Europe, TD Direct Investing provides a broad range of products
available for trading and investing, including trading in U.K. and
international equities, with direct access to 17 markets.
• Advice-based business – offers financial planning, full service
brokerage, and private client services, across different portfolio
sizes and levels of product complexity, to help clients protect,
grow and transition their wealth. The advice-based wealth business
is integrated with the Canadian personal and commercial banking
businesses. In 2014, it generated good asset growth driven by new
assets and market appreciation.
• Asset Management – TD Asset Management (TDAM) is a leading
investment manager with deep retail and institutional capabilities.
TD Mutual Funds is a leading mutual fund business, providing
a broadly diversified range of mutual funds and professionally
managed portfolios. TDAM’s institutional investment business
has a leading market share in Canada and includes clients of some
of the largest pension funds, endowments, and corporations
in Canada. All asset management units work in close partnership
with other TD businesses, including the advice-based wealth
business and retail banking, to align products and services to
ensure a legendary client experience. 2014 was a record year
for assets under management and long-term fund sales.
29
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS BUSINESS SEGMENT ANALYSIS
U.S. Retail
Operating under the brand name, TD Bank, America’s Most Convenient Bank, U.S. Retail offers a full range
of financial products and services to more than 8 million customers in the Bank’s U.S. personal and
commercial banking businesses, including U.S. credit cards and auto finance, as well as its wealth business.
$2,110
Reported
$2,110
Adjusted
NET INCOME
(millions of Canadian dollars)
64.9%
Reported
64.9%
Adjusted
EFFICIENCY RATIO
(percent)
$2,400
2,000
1,600
1,200
800
400
0
80%
60
40
20
0
12
13
14
12
13
14
Reported
Adjusted
Reported
Adjusted
T A B L E 1 8
REVENUE
(millions of dollars)
Personal Banking
Business Banking
Wealth
Other1
Total
1 Other revenue consists primarily of revenue from investing activities.
Canadian dollars
October 31
2014
October 31
2013
October 31
2012
October 31
2014
October 31
2013
$ 4,685
2,353
330
877
$ 8,245
$ 3,778
2,094
202
1,248
$ 7,322
$ 2,899
2,357
111
866
$ 6,233
$ 4,297
2,158
303
805
$ 7,563
$ 3,701
2,051
198
1,223
$ 7,173
U.S. dollars
October 31
2012
$ 2,888
2,348
110
862
$ 6,208
30
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
BUSINESS HIGHLIGHTS
• Achieved record adjusted earnings of US$1,938 million
in a challenging operating environment.
• Continued to focus on providing legendary customer service
and convenience:
– Named the 2014 “Best Big Bank in America” by
Money Magazine.
– Continued to offer more store hours and increased
convenience in markets where we compete.
– Continued to invest in our digital channel experience,
including mobile and online banking.
• Gained profitable market share in both loans and deposits
while maintaining strong credit quality.
• Expanded and integrated wealth product offerings.
CHALLENGES IN 2014
• The sustained low interest rate environment contributed
to further margin compression.
• Slow economic growth created a challenging environment
for retail lending.
• We faced fierce competition for new and existing customers
INDUSTRY PROFILE
The U.S. banking industry is highly competitive and includes several
very large financial institutions as well as small community and
savings banks, finance companies, credit unions, and other providers
of financial services. The keys to profitability are attracting and retain-
ing customer relationships with legendary service and convenience,
continued investment in products, services and distribution channels
to meet customers’ evolving needs, rational product pricing, optimiz-
ing fee-based businesses, disciplined risk management, and effective
expense control. In the U.S., the wealth management industry is large
and consists of banks, insurance companies, independent mutual
fund companies, discount brokers, full service brokers, and indepen-
dent asset management companies. TD’s U.S. wealth business
competes against national and regional banks as well as non-bank
wealth organizations.
OVERALL BUSINESS STRATEGY
The strategy for U.S. Retail is to:
• Provide integrated banking services to customers across all of our
distribution channels, including digital, phone, ATM, and branch.
• Invest in the future, outgrow the competition, and deliver consistent
from U.S. banks and non-bank competitors.
top tier earnings performance.
• Regulatory and legislative changes had an impact on the
operating environment, TD’s product offerings, and the
Bank’s earnings.
• Deliver legendary service and convenience, and make customers
proud to be associated with TD.
• Operate with excellence, and make the customer and employee
experience simple, fast, and easy to drive efficiency.
• Only take risks we understand and can manage, and deploy capital
prudently within a well-defined risk appetite.
• Be recognized as an extraordinary and inclusive place to work by
attracting, developing, and retaining top talent.
• Strengthen our presence in the higher growth markets along the
U.S. Eastern Seaboard that comprise our U.S. footprint.
31
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 1 9
U.S. RETAIL1
(millions of dollars, except as noted)
Net interest income
Non-interest income
Total revenue
Provision for credit losses – loans
Provision for (recovery of) credit losses –
debt securities classified as loans
Provision for (recovery of) credit losses –
acquired credit-impaired loans2
Provision for credit losses – reported
Provision for credit losses – adjusted
Non-interest expenses – reported
Non-interest expenses – adjusted
U.S. Retail Bank net income – reported3
Adjustments for items of note4
Litigation and litigation-related charge/reserve
Impact of Superstorm Sandy
Integration charges and direct transaction costs relating
to U.S. Retail acquisitions
U.S. Retail Bank net income – adjusted3
Equity in net income of an investment in associate,
net of income taxes
Net income – reported
Net income – adjusted
Selected volumes and ratios
Return on common equity – reported
Return on common equity – adjusted
Margin on average earning assets (TEB)5
Efficiency ratio – reported
Efficiency ratio – adjusted
Number of U.S. retail stores
Average number of full-time equivalent staff6
2014
$ 6,000
2,245
8,245
694
Canadian dollars
2013
$ 5,173
2,149
7,322
762
2012
$ 4,663
1,570
6,233
652
2014
$ 5,503
2,060
7,563
636
2013
$ 5,070
2,103
7,173
746
U.S. dollars
2012
$ 4,643
1,565
6,208
651
(16)
(32)
12
(14)
(31)
12
(2)
676
676
5,352
5,352
1,805
–
–
–
1,805
305
$ 2,110
2,110
49
779
779
4,768
4,642
1,506
100
–
–
1,606
115
779
725
4,246
3,815
1,116
248
37
(1)
621
621
4,907
4,907
1,657
–
–
9
1,410
–
1,657
49
764
764
4,671
4,545
1,474
100
–
–
1,574
246
$ 1,752
1,852
209
$ 1,325
1,619
281
$ 1,938
1,938
241
$ 1,715
1,815
115
778
723
4,228
3,799
1,111
247
37
9
1,404
207
$ 1,318
1,611
8.4%
8.4
3.75
64.9
64.9
1,318
26,074
8.0%
8.4
3.66
65.1
63.4
1,317
25,247
6.3%
7.7
3.60
68.1
61.2
1,315
25,340
8.4%
8.4
3.75
64.9
64.9
1,318
26,074
8.0%
8.4
3.66
65.1
63.4
1,317
25,247
6.3%
7.7
3.60
68.1
61.2
1,315
25,340
1 Revenue and expenses related to Target are reported on a gross basis in the
Consolidated Statement of Income. Non-interest expenses include expenses related
to the business and amounts due to Target Corporation under the credit card
program agreement.
4 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.
5 Margin on average earning assets excludes the impact related to the
2 Includes all Federal Deposit Insurance Corporation (FDIC) covered loans and other
TD Ameritrade IDA.
acquired credit-impaired loans.
3 Results exclude the impact related to the equity in net income of the investment
in TD Ameritrade.
6 In 2014, the Bank conformed to a standardized definition of full-time equivalent
staff across all segments. The definition includes, among other things, hours for
overtime and contractors as part of its calculations. Results for periods prior to
2014 have not been restated.
REVIEW OF FINANCIAL PERFORMANCE
U.S. Retail net income for the year on a reported basis was
$2,110 million (US$1,938 million), which included net income of
$1,805 million (US$1,657 million) from the U.S. Retail Bank and
$305 million (US$281 million) from TD’s investment in TD Ameritrade.
U.S. Retail earnings of US$1,938 million on a reported basis were
up 13% compared with last year. U.S. Retail adjusted earnings
of US$1,657 million increased 5% due to strong organic growth,
excellent asset quality, and the full-year effect of acquisitions,
partially offset by lower security gains and margin compression.
The contribution from TD Ameritrade of US$281 million was up
17% compared with last year, primarily due to increased asset-based
and transaction-based revenue, partially offset by higher operating
expenses and lower investment gains. Canadian dollar earnings growth
benefited from a strengthening of the U.S. dollar during the year.
The reported annualized return on common equity for the year was
8.4%, compared to 8.0% last year. The adjusted annualized return
on common equity for the year was 8.4%, flat compared to last year.
Revenue for the year was US$7,563 million, an increase of
US$390 million, or 5%, compared with last year, primarily due to
increased loan and deposit volumes and the full-year impact of Target
and Epoch, partially offset by lower gains on sales of securities and
debt securities classified as loans. Average loan volumes increased
US$10 billion, or 10%, compared with last year, with a 9% increase
in personal loans and an 11% increase in business loans. Average
deposit volumes increased US$13 billion, or 7%, compared with prior
year driven by a 7% growth in personal deposits, 8% growth in busi-
ness deposits, and 6% growth in TD Ameritrade deposits. Margin on
average earning assets for the year was 3.75%, a 9 bps increase
compared with last year as higher loan margins from the full-year
impact of Target were partially offset by core margin compression
and lower accretion.
32
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
Wealth
• Advice-based business – provides private banking services,
investment advisory services, and trust services to retail and
institutional clients across different portfolio sizes and levels of
product complexity, to help clients protect, grow, and transition
their wealth. The advice-based business is integrated with the
U.S. personal and commercial banking businesses. In 2014, the
business made significant progress with its growth strategy.
• Asset Management – the U.S. asset management business is
comprised of the U.S. arm of TDAM’s institutional investment
business and Epoch Investment Partners Inc., acquired in 2013.
Both 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. In 2014, U.S. Retail grew its assets under management
and increased profitability largely due to the acquisition of Epoch
Investment Partners Inc.
BUSINESS OUTLOOK AND FOCUS FOR 2015
For 2015, our assumption is for continued modest but variable
economic growth and continued low interest rates with the
potential for modest increases in the second half of the calendar
year. We expect competition for loans and deposits to remain
intense, credit to remain benign, and the regulatory environ-
ment to be challenging as the complexity of the regulatory
framework continues to evolve and obligations on banks to
comply and adapt increase. Net interest margin is expected to
be relatively stable as loan repricing continues and accretion
benefits on acquired loans decline, but rate competition for new
loans subsides. Provision for credit losses is expected to begin
normalizing, as the high rate of recoveries in 2014 is not
expected to recur and the loan portfolio continues to grow.
Given these assumptions, we expect a challenging 2015 with
modest growth in adjusted earnings. We will continue to focus
on delivering legendary customer service and convenience
across all distribution channels, making the necessary invest-
ments to support future growth and regulatory compliance,
while maintaining our focus on productivity initiatives.
Our key priorities for 2015 are as follows:
• Provide a legendary customer experience across all
distribution channels.
• Focus on organic growth opportunities across our businesses.
• Deliver integrated service and advice in local markets, across
businesses, and channels.
• Invest in and grow our key businesses, continue to deepen
customer relationships, and focus on emerging payment and
loyalty innovations.
• Further optimize the balance sheet to meet increasing capital
requirements and position ourselves for growth opportunities.
• Continue to invest in an efficient, effective, and robust infra-
structure to adapt to industry and regulatory changes.
• Maintain our focus on productivity to enhance the customer
experience, employee satisfaction, and shareholder value.
TD AMERITRADE HOLDING CORPORATION
Refer to Note 12 of the Consolidated Financial Statements for further
information on TD Ameritrade.
PCL for the year was US$621 million, a decrease of US$143 million,
or 19%, compared with last year primarily due to broad-based
improvements in credit quality offset by volume-driven PCL growth.
Personal banking PCL was US$630 million, a decrease of US$8 million,
or 1%, compared with last year primarily due to lower provisions
on auto loans, partially offset by the full-year inclusion of Target
and other retail products. Business banking PCL was US$3 million,
a decrease of US$152 million, or 98%, compared with last year
reflecting improvements in credit quality and lower net charge
offs. Annualized adjusted PCL as a percentage of credit volume
for loans excluding debt securities classified as loans was 0.55%,
a decrease of 20 bps, compared with last year. Net impaired loans,
excluding acquired credit-impaired loans and debt securities classified
as loans, were US$1.2 billion, a decrease of US$64 million, or 5%,
compared with last year. Net impaired loans as a percentage of total
loans were 1.1% as at October 31, 2014, compared with 1.3% at
October 31, 2013. Net impaired debt securities classified as loans were
US$919 million at October 31, 2014, compared with US$985 million
at October 31, 2013.
Reported non-interest expenses for the year were US$4,907 million,
an increase of US$236 million, or 5%, compared with last year.
On an adjusted basis, non-interest expenses were US$4,907 million,
an increase of US$362 million, or 8%, compared with last year,
primarily due to increased expenses related to the full-year impact
of acquisitions, and investments to support business growth, partially
offset by productivity improvements. The reported efficiency ratio for
the year improved to 64.9%, compared with 65.1% last year, while
the adjusted efficiency ratio for the year was 64.9%, compared with
63.4% last year.
KEY PRODUCT GROUPS
Personal Banking
• Personal Deposits – offers a full suite of chequing and savings
products to retail customers along the U.S. Eastern Seaboard. In
2014, U.S. Retail continued to build on its reputation as America’s
Most Convenient Bank by opening 34 new stores and enhancing its
digital and phone channel capabilities. Strong year-over-year growth
in personal deposits was driven by maturing stores and a competi-
tive product offering. Enhancements to digital banking capabilities
resulted in record on-line account openings and double-digit growth
in the number of active users of digital banking services.
• Consumer Lending – offers a diverse range of financing products to
suit the needs of retail customers along the U.S. Eastern Seaboard.
In 2014, U.S. Retail continued to focus on growing profitable
market share by deepening customer relationships and acquiring
new customers through its stores and mortgage lending specialists,
while maintaining good risk management.
• Credit Cards Services – offers TD branded and private label credit
cards for retail and small business customers. Through its agreement
with Target Corporation, U.S. Retail provides co-branded Visa and
private label credit cards to Target’s U.S. customers. In 2014, U.S.
Retail saw robust new account growth fueled by its TD branded
product offerings as well as its private label card programs.
• Auto Finance – offers automotive financing and dealer commercial
services through a network of auto dealers throughout the U.S. In
2014, U. S. Retail focused on improving effectiveness in the delivery
of its services through a new priority dealer program and roll-out of
new product initiatives.
Business Banking
• Commercial Banking – serves the needs of U.S. businesses and
governments across a wide range of industries. In 2014, the busi-
ness saw improved asset quality and strong increases in loan volume
growth and significantly outperformed the industry.
• Small Business Banking – offers a wide range of financial products
and services to small businesses along the U.S. Eastern Seaboard.
In 2014, the business continued to be among the top ranked small
business lenders in its markets.
33
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS BUSINESS SEGMENT ANALYSIS
Wholesale Banking
Operating under the brand name TD Securities, Wholesale Banking provides a wide range of capital
markets, investment banking, and corporate banking products and services to corporate, government,
and institutional clients in key global financial centres.
$813
NET INCOME
(millions of Canadian dollars)
$2,680
TOTAL REVENUE
(millions of Canadian dollars)
$61
CET1 RWA
(billions of Canadian dollars)
$1,000
800
600
400
200
0
$3,000
2,500
2,000
1,500
1,000
500
0
$70
60
50
40
30
20
10
0
12
13
14
12
13
14
12
13
14
T A B L E 2 0
REVENUE
(millions of Canadian dollars)
Investment banking and capital markets
Corporate banking
Equity investments
Total
2014
$ 2,142
510
28
$ 2,680
2013
$ 1,857
479
74
$ 2,410
2012
$ 1,987
448
219
$ 2,654
34
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
BUSINESS HIGHLIGHTS
• Achieved earnings of $813 million and a return on common
equity of 17.5%.
• Delivered strong core revenue growth.
• Recorded a strong performance in M&A and underwriting.
• Significant lead deals for the year include:
– Nalcor Energy Muskrat Falls Project – One of the largest
bond placements in Canadian history, at $5 billion
– PrairieSky Royalty’s $1.7 billion initial public offering
(IPO) – Largest Canadian IPO in 14 years
– World Bank – Lead-managed U.S. Dollar Global transactions
for the first time
• Became the first bank in Canada to launch a Green Bond
to finance environmental initiatives.
• Maintained top-three dealer status in Canada (for the
nine-month period ended September 30, 2014):
– #1 in equity block trading
– #1 in equity block option trading
– #1 in government debt underwriting
– #2 in corporate debt underwriting
– #2 in syndications (on rolling twelve month basis)
CHALLENGES IN 2014
• The sustained low interest rate environment and low
volatility impacted client activities.
• Geopolitical challenges contributed to investor uncertainty.
• Regulatory changes had an impact on TD Securities’
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. Favourable market
conditions in 2014 contributed to an improved trading environment
and strong investment banking volumes. Equity markets remained
healthy with strong underwriting activity, particularly in the energy
sector. However, a challenging macro environment, geopolitical uncer-
tainty, regulatory reforms, and concerns over the timing of interest
rate increases continued to have a negative impact on investor confi-
dence and industry trading volumes. Wholesale banks have continued
to shift their focus to client-driven trading revenue and fee income
to reduce risk and preserve capital. Competition is expected to remain
intense for transactions with high quality counterparties, as securities
firms focus on prudent risk management. Longer 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 to achieve attractive returns
for shareholders.
OVERALL BUSINESS STRATEGY
• Extend our client-centric franchise model through superior advice
and execution.
• Strengthen our position as a top investment dealer in Canada.
• Support our North American franchise, and work with our business
partners to enhance TD’s brand.
• Maintain a prudent risk profile by focusing on high quality clients,
business activities.
counterparties, and products.
• Adapt to rapid industry and regulatory changes.
• Be an extraordinary and inclusive place to work by attracting,
developing, and retaining top talent.
T A B L E 2 1
WHOLESALE BANKING
(millions of Canadian dollars, except as noted)
Net interest income (TEB)
Non-interest income
Total revenue
Provision for (recovery of) credit losses
Non-interest expenses
Net income
Selected volumes and ratios
Trading-related revenue
Common Equity Tier 1 Capital risk-weighted assets (billions of dollars)1,2
Return on common equity
Efficiency ratio
Average number of full-time equivalent staff3
2014
2013
$ 2,210
470
2,680
11
1,589
$ 813
$ 1,982
428
2,410
26
1,542
$ 650
2012
$ 1,805
849
2,654
47
1,570
$ 880
$ 1,394
$ 1,273
61
17.5%
59.3
3,654
47
15.6%
64.0
3,536
$ 1,334
43
21.2%
59.2
3,553
1 Prior to 2014, amounts have not been adjusted to reflect the impact of the
New IFRS Standards and Amendments.
2 Effective the third quarter of 2014, each capital ratio has its own RWA measure
due to the OSFI prescribed scalar for inclusion of the CVA. Effective the third
quarter of 2014, the scalars for inclusion of CVA for CET1, Tier 1, and Total
Capital RWA are 57%, 65%, and 77%, respectively.
3 In 2014, the Bank conformed to a standardized definition of full-time equivalent
staff across all segments. The definition includes, among other things, hours for
overtime and contractors as part of its calculations. Results for periods prior to
2014 have not been restated.
35
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
REVIEW OF FINANCIAL PERFORMANCE
Wholesale Banking net income for the year was $813 million, an
increase of $163 million, or 25%, compared with last year. The
increase in earnings was due to higher revenue and lower PCL,
partially offset by higher non-interest expenses and a higher effective
tax rate. The return on common equity for the year was 17.5%,
compared with 15.6% last year.
Revenue for the year was $2,680 million, an increase of $270 million,
or 11%, compared with last year. Capital markets revenue increased
mainly due to improved trading-related revenue, robust equity and
debt underwriting, and stronger mergers and acquisitions (M&A)
activity. Trading-related revenue increased primarily due to improved
fixed income and equity trading that benefited from strong client
activity. Advisory and underwriting fees increased largely driven by
strong debt and equity markets, and our continued focus on origina-
tions and client focused strategies. In the fourth quarter of 2014, the
Bank implemented a funding valuation adjustment (FVA) in response
to growing evidence that market implied funding costs and benefits
are now considered in the pricing and fair valuation of uncollateralized
derivatives. The implementation of FVA resulted in a pre-tax additional
charge of $65 million recorded in the Wholesale segment. The Bank will
continue to monitor industry practice, and may refine the methodology
and the products to which FVA applies to as market practices evolve.
See Note 5 to the Bank’s 2014 Consolidated Financial Statements for
further information on FVA.
PCL is comprised of 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 $11 million, a decrease of $15 million
compared with last year, and consisted primarily of the accrual cost
of credit protection. PCL in the prior year consisted primarily of the
accrual cost of credit protection.
Non-interest expenses for the year were $1,589 million, an increase
of $47 million, or 3%, compared with last year. Non-interest expenses
increased primarily due to higher variable compensation commensu-
rate with revenue and the impact of foreign exchange translation,
partially offset by lower operating expenses.
CET1 risk-weighted assets were $61 billion as at October 31, 2014,
an increase of $14 billion, or 30%, compared with October 31, 2013.
The increase was primarily due to the inclusion of the Credit Valuation
Adjustment (CVA) capital charge.
KEY PRODUCT GROUPS
Investment Banking and Capital Markets
• Investment banking and capital markets – includes advisory,
underwriting, trading, facilitation, and execution services. Revenue
increased over last year, primarily due to higher trading-related
revenue from improved capital markets activity and strong advisory
and underwriting fees.
Corporate Banking
• Corporate banking – includes corporate lending, trade finance and
cash management services. Revenue increased over last year driven
by higher fee revenue and solid loan volumes.
Equity Investments
• Equity investment portfolio – consists primarily of private equity
investments, which has been almost fully exited. Equity investment
gains were lower than in the prior year.
BUSINESS OUTLOOK AND FOCUS FOR 2015
Overall, we are encouraged by the improvement in capital
markets and the global economy, which continues to show signs
of recovery. However, a combination of regulatory reforms,
uncertainty over the outlook for interest rates, and sustained
geopolitical risks will continue to affect our business. While
these headwinds will likely affect corporate and investor senti-
ment in the medium term, we believe our diversified, integrated
business model will continue to deliver solid results and grow
our franchise. We remain focused on growing and deepening
client relationships, being a valued counterparty, and managing
our risks and productivity in 2015.
Our key priorities for 2015 are as follows:
• Further strengthen alignment with our enterprise partners
and their clients.
• Continue to grow organically by broadening and deepening
client relationships.
• Be a 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. and
expand our service offerings to our North American clients.
• Continue to invest in an efficient, effective, and robust
infrastructure to adapt to industry and regulatory changes.
• Maintain our focus on productivity to enhance client
experience, employee satisfaction, and shareholder value.
36
TD BANK GROUP ANNUAL REPORT 2014 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 2
CORPORATE
(millions of Canadian dollars)
Net income (loss) – reported
Adjustments for items of note1
Amortization of intangibles
Fair value of derivatives hedging the reclassified available-for-sale securities portfolio
Impact of Alberta flood on the loan portfolio
Gain on the sale of TD Waterhouse Institutional Services
Restructuring charges
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
Total adjustments for items of note
Net income (loss) – adjusted
Decomposition of items included in net income (loss) – adjusted
Net corporate expenses
Other
Non-controlling interests
Net income (loss) – adjusted
2014
$ (274)
246
(43)
(19)
(196)
–
–
–
–
(12)
$ (286)
(727)
334
107
$ (286)
2013
$ (331)
232
(57)
19
–
90
–
–
–
284
(47)
$
(516)
364
105
(47)
$
2012
$ (208)
238
89
–
–
–
17
(120)
(18)
206
$
(2)
(433)
327
104
(2)
$
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
Retail and Wholesale Banking is included in the Corporate segment adjusted net
income and is no longer recorded as an item of note.
The Corporate segment reported net loss for the year was $274 million,
compared with a reported net loss of $331 million last year. The
adjusted net loss for the year was $286 million, compared with an
adjusted net loss of $47 million last year. The year-over-year change
in the adjusted net loss was primarily attributable to an increase in net
corporate expenses as a result of on-going investment in enterprise
and regulatory projects and productivity initiatives. Other items were
slightly unfavourable due to lower gains from treasury and other hedg-
ing activities and the reduction of the allowance for incurred but not
identified credit losses relating to the Canadian loan portfolio, largely
offset by the gain on sale of TD Ameritrade shares and favourable
impact of tax items.
The enterprise Direct Channels and Distribution Strategy group
is part of Corporate operations and is responsible for the digital,
phone, and 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 businesses.
Ensuring that the Bank stays abreast of emerging trends and devel-
opments is vital to maintaining stakeholder confidence in the Bank and
addressing the dynamic complexities and challenges from changing
demands and expectations of our customers, shareholders, employees,
governments, regulators, and the community at large.
BUSINESS OUTLOOK AND FOCUS FOR 2015
We expect Corporate segment losses to increase next year as
compared to 2014 due to higher expenses and a reduced level
of favourable tax items.
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 manage-
ment, corporate environment initiatives, and corporate development.
37
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
Canadian
Retail
$ 8,922
8,860
17,782
929
3,056
7,754
6,043
1,474
–
4,569
112
$ 4,681
U.S.
Retail
$ 5,173
2,149
7,322
779
–
4,768
1,775
269
246
1,752
100
$ 1,852
Wholesale
Banking
Corporate
$ 1,982
428
2,410
26
–
1,542
842
192
–
650
–
$ 650
$
(3)
(252)
(255)
(103)
–
1,005
(1,157)
(800)
26
(331)
284
(47)
$
Total
$ 16,074
11,185
27,259
1,631
3,056
15,069
7,503
1,135
272
6,640
496
$ 7,136
NON-INTEREST EXPENSES
Reported non-interest expenses for the year were $15,069 million,
an increase of $1,053 million, or 8%, compared with last year.
Adjusted non-interest expenses were $14,390 million, an increase
of $1,210 million, or 9%, compared with last year. The increase in
adjusted non-interest expenses was driven by increases in the U.S.
Retail, Canadian Retail, and Corporate segments. U.S. Retail expenses
increased primarily due to increased expenses related to Target, invest-
ments in new stores, and other planned initiatives, partially offset by
productivity gains. Canadian Retail expenses increased primarily due to
higher employee-related costs including higher revenue-based variable
expenses in the wealth business, investment in initiatives to grow the
business, and volume growth, partially offset by productivity gains.
Corporate segment expenses increased primarily due to higher pension
and strategic initiative costs.
INCOME TAX EXPENSE
Reported total income and other taxes increased by $111 million,
or 5%, from 2012. Income tax expense, on a reported basis, was up
$50 million, or 5%, from 2012. Other taxes were up $61 million, or
6%, from 2012. Adjusted total income and other taxes were down
$10 million from 2012. Total income tax expense, on an adjusted
basis, was down $71 million, or 5%, from 2012.
The Bank’s effective income tax rate on a reported basis was 15.1%
for 2013, compared with 14.8% 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.
2013 FINANCIAL RESULTS OVERVIEW
Summary of 2013 Performance
T A B L E 2 3
REVIEW OF 2013 FINANCIAL PERFORMANCE
(millions of Canadian dollars)
Net interest income (loss)
Non-interest income (loss)
Total revenue
Provision for (recovery of) credit losses
Insurance claims and related expenses
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
NET INTEREST INCOME
Net interest income for the year on a reported and adjusted basis was
$16,074 million, an increase of $1,048 million, or 7%, on a reported
basis, and an increase of $1,012 million, or 7%, on an adjusted basis.
The increase in adjusted net interest income was driven primarily by
increases in the U.S. Retail, Canadian Retail, and Wholesale Banking
segments. U.S. Retail net interest income increased primarily due
to the inclusion of revenue from Target and strong loan and deposit
volume growth, partially offset by lower core margin and loan
accretion. Canadian Retail net interest income increased primarily
due to good loan and deposit volume growth and higher mortgage
refinancing revenue, partially offset by lower margin. Wholesale
Banking net interest income increased primarily due to higher
trading-related net interest income.
NON-INTEREST INCOME
Non-interest income for the year on a reported basis was $11,185 million,
an increase of $665 million, or 6%, compared with last year. Adjusted
non-interest income for the year was $11,114 million, an increase of
$499 million, or 5%, compared with last year. The increase in adjusted
non-interest income was primarily driven by increases in the U.S. Retail
and Canadian Retail segments, partially offset by declines in the
Wholesale Banking and Corporate segments. U.S. Retail non-interest
income increased primarily due to the inclusion of revenue from Target
and Epoch, higher fee-based revenue, and higher gains on sales of
securities and debt securities classified as loans. Canadian Retail non-
interest income increased primarily due to wealth asset growth, higher
volume-related fee growth, and strong direct investing trading
volumes. Wholesale Banking non-interest income decreased primarily
due to lower security gains in the investment portfolio and lower M&A
and advisory fees. Corporate segment non-interest income decreased
primarily due to lower gains from treasury and other hedging activities.
38
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
Total liabilities were $811 billion as at October 31, 2013, an increase
of $48 billion, or 6%, from October 31, 2012. The net increase was
primarily due to a $54 billion increase in deposits, partially offset by
a $7 billion decrease in financial liabilities at fair value.
Financial liabilities at fair value decreased $7 billion largely due
to a decrease in derivative liabilities, partially offset by an increase
in trading deposits in Wholesale Banking.
Deposits increased $54 billion primarily due to increases in personal
non-term and business and government deposits in the U.S. Retail and
Canadian Retail segments and bank deposits in Wholesale Banking,
partially offset by a decrease in personal term deposits in the Canadian
Retail segment.
Equity was $51 billion as at October 31, 2013, an increase of
$3 billion, or 7%, from October 31, 2012, primarily due to higher
retained earnings.
BALANCE SHEET
Factors Affecting Assets and Liabilities
Total assets were $862 billion as at October 31, 2013, an increase
of $51 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.
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.
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. Retail segment.
Loans (net of allowance for loan losses) increased $36 billion
primarily driven by increases in the U.S. Retail and Canadian Retail
segments. The increase in the U.S. Retail segment was due to growth
in credit card and business and government loans. Target added
$6 billion to total loans. Canadian Retail segment loans increased
primarily due to growth in residential mortgages and business and
government loans.
2013 FINANCIAL RESULTS OVERVIEW
2013 Financial Performance by Business Line
Canadian Retail reported net income for the year was $4,569 million,
an increase of $106 million, or 2%, compared with last year. Adjusted
net income for the year was $4,681 million, an increase of $114 million,
or 2%, compared with last year. The increase in adjusted earnings was
primarily due to loan and deposit volume growth, higher wealth assets,
lower credit losses, and effective expense management, partially offset
by lower earnings in the insurance business. The reported annualized
return on common equity for the year was 42.3%, while the adjusted
annualized return on common equity was 43.3%, compared with
41.3% and 42.3%, respectively, last year.
Reported revenue for the year was $17,782 million, an increase of
$789 million, or 5%, compared with last year. Adjusted revenue for
the year was $17,782 million, an increase of $753 million, or 4%,
compared with last year. Adjusted net interest income increased
$280 million, or 3%, driven primarily by good loan and deposit volume
growth, higher mortgage refinancing revenue, partially offset by lower
margin on average earnings assets. Non-interest income increased
$473 million, or 6%, largely driven by wealth asset growth, higher
volume-related fee growth, strong direct investing trading volumes,
equity market appreciation, and higher insurance revenue. Reported
margin on average earning assets decreased 3 bps, while the adjusted
margin on average earning assets decreased 4 bps primarily due to
decline in deposit margins from the low interest rate environment.
Personal banking 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. 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 volume increased $5.2 billion,
or 13%, with market share gains. Average personal deposit volumes
increased $6.3 billion, or 4%, due to strong growth in core chequing
and savings accounts, partially offset by lower term deposit volume.
Average business deposit volumes increased $5.2 billion, or 8%.
Assets under administration increased $35 billion, or 14%, while
assets under management increased $8 billion, or 4%, compared with
last year, mainly driven by growth in new client assets for the period
and market appreciation.
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 strategies, 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.
Insurance claims and related expenses for the year were
$3,056 million, an increase of $632 million, or 26%, compared with
last year, primarily due to unfavourable prior years’ claims develop-
ment related to the Ontario auto insurance market, and higher claims
associated with volume growth and weather-related events.
Reported non-interest expenses for the year were $7,754 million,
an increase of $269 million, or 4%, compared with last year. Adjusted
non-interest expenses for the year were $7,602 million, an increase of
$221 million, or 3%, compared with last year. The increase was driven
by higher employee related costs including higher revenue-based
variable expenses in the wealth business, investment in initiatives
to grow the business, and volume growth, partially offset by initiatives
to increase productivity.
The average full-time equivalent (FTE) staffing levels decreased by
2,436, or 6%, compared with last year, primarily due to transfer of
FTEs to the corporate segment. The reported efficiency ratio worsened
to 43.6%, while the adjusted efficiency ratio worsened to 42.7%,
compared with 44.0% and 43.3%, respectively, in the same period
last year.
39
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS U.S. Retail reported net income, in Canadian dollar terms, for the year
was $1,752 million, an increase of $427 million, or 32%, compared
with last year. The increase in reported net income was primarily due
to strong loan and deposit growth, the Target and Epoch acquisitions,
gains on sales of securities and debt securities classified as loans and
lower litigation charges, partially offset by higher expenses to support
growth and lower margins. TD Ameritrade contributed $246 million in
net income, an increase of 18%, driven by higher transaction-based
and asset-based revenue.
Adjusted net income was US$1,815 million, an increase of
US$204 million, or 13%. 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.
U.S. Retail revenue is derived from personal banking, business
banking, investments, auto lending, credit cards, and wealth manage-
ment. Revenue for the year was US$7,173 million, an increase of
US$965 million, or 16%, compared with last year driven by the inclu-
sion 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. 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. 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$4,671 million,
an increase of US$443 million, or 10%, compared with last year.
On an adjusted basis, non-interest expenses were US$4,545 million,
an increase of US$746 million, or 20%, 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 93, flat
compared with last year. The reported efficiency ratio for the year
improved to 65.1%, compared with 68.1% last year, while the
adjusted efficiency ratio for the year worsened to 63.4%, compared
with 61.2% last year primarily driven by strong organic growth.
Wholesale Banking net income for the year was $650 million,
a decrease of $230 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 $2,410 million, a decrease of $244 million,
or 9%, compared with last year. Revenue declined primarily due to
significantly lower security gains in the investment portfolio, lower
trading-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 $1,542 million, a decrease
of $28 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
regulatory framework.
The average FTE staffing levels decreased by 17 compared
with last year.
Corporate segment reported net loss for the year was $331 million,
compared with a reported net loss of $208 million last year. The
adjusted net loss for the year was $47 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.
40
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS GROUP FINANCIAL CONDITION
Balance Sheet Review
AT A GLANCE OVERVIEW
• Total assets were $945 billion as at October 31, 2014, an increase
of $83 billion, or 10%, compared with October 31, 2013.
T A B L E 2 4
SELECTED CONSOLIDATED BALANCE SHEET ITEMS
(millions of Canadian dollars)
Assets
Interest-bearing deposits with banks
Available-for-sale securities
Held-to-maturity securities
Loans (net of allowance for loan losses)
Liabilities
Trading deposits
Deposits
As at
October 31 October 31
2013
2014
$ 43,773 $ 28,583
79,544
29,961
478,909 444,922
63,008
56,977
59,334
50,967
600,716 541,605
FACTORS AFFECTING ASSETS AND LIABILITIES
Total assets were $945 billion as at October 31, 2014, an increase
of $83 billion, or 10%, from October 31, 2013. The impact of foreign
currency translation added $19 billion, or 2%, to growth in total
assets. The net increase was primarily due to a $34 billion increase
in loans (net of allowance for loan losses), a $15 billion increase in
interest-bearing deposits with banks, an $11 billion increase in securi-
ties purchased under reverse repurchase agreements, and a $5 billion
increase in held-to-maturity securities (net of reclassification of
$22 billion from available-for-sale securities).
Interest-bearing deposits with banks increased $15 billion primarily
driven by higher U.S. Federal Reserve deposits.
Held-to-maturity securities increased $5 billion (net of reclassification
of $22 billion from available-for-sale securities) primarily due to net
purchases of securities in the U.S. Retail segment.
Securities purchased under reverse repurchase agreements
increased $11 billion primarily due to an increase in trade volumes
in Wholesale Banking.
Loans (net of allowance for loan losses) increased $34 billion
primarily driven by increases in the Canadian and U.S. Retail segments.
The increase in the Canadian Retail segment was primarily due to
growth in residential mortgages and business and government loans.
The acquisition of Aeroplan added $3 billion to the credit card loan
portfolio. The increase in the U.S. Retail segment was primarily due to
growth in business and government loans and the impact of foreign
currency translation.
Total liabilities were $889 billion as at October 31, 2014, an increase
of $78 billion, or 10%, from October 31, 2013. The impact of foreign
currency translation added $19 billion, or 2%, to growth in total
liabilities. The net increase was primarily due to a $59 billion increase
in deposits, an $11 billion increase in obligations related to securities
sold under repurchase agreements, and an $8 billion increase in trad-
ing deposits, partially offset by an $11 billion decrease in securitization
liabilities at fair value.
Trading deposits increased $8 billion primarily due to issuances
of certificates of deposits in Wholesale Banking.
Deposits increased $59 billion primarily due to an increase in personal
non-term and business and government deposits in the Canadian
Retail and U.S. Retail segments and the impact of foreign currency
translation, partially offset by a decrease in personal term deposits
in the Canadian Retail segment.
Obligations related to securities sold under repurchase agreements
increased $11 billion primarily due to an increase in trade volumes in
Wholesale Banking.
Securitization liabilities at fair value decreased $11 billion primarily
due to maturities.
Equity was $56 billion as at October 31, 2014, an increase of $5 billion,
or 9%, from October 31, 2013. The increase was primarily due to higher
retained earnings and an increase in accumulated other comprehensive
income driven by higher cumulative translation adjustment gains as
a result of foreign currency translation, partially offset by redemption
of preferred shares.
GROUP FINANCIAL CONDITION
Credit Portfolio Quality
AT A GLANCE OVERVIEW
• Loans and acceptances net of allowance for loan losses was
$492 billion, an increase of $41 billion compared with last year.
• Impaired loans net of counterparty-specific and individually
insignificant allowances was $2,244 million, an increase of
$1 million compared with last year.
• Provision for credit losses was $1,557 million, compared with
$1,631 million in the prior year.
• Total allowance for loan losses increased by $173 million
to $3,028 million in 2014.
LOAN PORTFOLIO
Overall in 2014, the Bank’s credit quality remained stable despite
uncertain economic conditions. During 2014, the Bank increased
its credit portfolio by $41 billion, or 9%, from the prior year, largely
due to volume growth in the Canadian and U.S. Retail segments.
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.
41
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
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 70% of total loans net
of counterparty-specific and individually insignificant allowances, down
from 72% in 2013. During the year, these portfolios increased by
$21 billion, or 6%, and totalled $347 billion at year end. Residential
mortgages represented 40% of the portfolio in 2014, down from 41%
in 2013. Consumer instalment and other personal loans, and credit
cards were 30% of total loans net of counterparty-specific and individ-
ually insignificant allowances in 2014, down from 31% in 2013.
The Bank’s business and government credit exposure was 29% of
total loans net of counterparty-specific and individually insignificant
allowances, up from 27% in 2013. The largest business and govern-
ment sector concentrations in Canada were the real estate and
financial sectors, which comprised 5% and 2%, respectively. Real
estate was the leading U.S. sector of concentration and represented
4% of net loans, up marginally from 2013.
Geographically, the credit portfolio remained concentrated in
Canada. In 2014, the percentage of loans held in Canada was 72%,
down from 74% in 2013. The largest Canadian exposure was in
Ontario, which represented 41% of total loans net of counterparty-
specific and individually insignificant allowance for loan losses for
2014, down from 42% in 2013.
The balance of the credit portfolio was predominantly in the U.S.,
which represented 27% of the portfolio, up from 24% in 2013
primarily due to volume growth in residential mortgages, consumer
indirect auto, business and government loans. 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 Jersey which represented 7% and
5% of total loans net of counterparty-specific and individually
insignificant allowances, respectively, compared with 7% and 4%,
respectively, in 2013.
T A B L E 2 5
LOANS AND ACCEPTANCES, NET OF COUNTERPARTY-SPECIFIC AND INDIVIDUALLY INSIGNIFICANT
ALLOWANCES BY INDUSTRY SECTOR1
(millions of Canadian dollars, except as noted)
As at
Percentage of total
October 31
2014
October 31
2013
October 31
2012
October 31
2014
October 31
2013
October 31
2012
Counterparty-
specific and
individually
insignificant
allowances
Gross
loans
Net
loans
Net
loans
Net
loans
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
$ 175,125
$ 13
$ 175,112
$ 164,375
$ 154,233
35.4%
36.3%
36.9%
59,568
16,475
16,116
17,927
285,211
14,604
9,768
24,372
4,587
3,288
7,616
1,642
379
4,494
4,300
1,894
1,147
2,695
1,594
3,497
2,212
1,821
946
1,072
4,258
71,814
$ 357,025
19
22
43
105
202
12
2
14
1
–
–
1
–
2
2
6
1
5
–
26
11
10
1
2
–
82
$ 284
59,549
16,453
16,073
17,822
285,009
14,592
9,766
24,358
4,586
3,288
7,616
1,641
379
61,561
14,641
15,141
15,173
270,891
13,673
8,151
21,824
3,914
2,325
8,811
1,248
423
64,732
13,942
14,525
14,165
261,597
12,462
7,250
19,712
3,237
1,444
6,416
1,073
378
4,492
4,298
4,469
3,685
4,784
3,327
1,888
1,146
2,690
1,594
3,471
2,201
1,811
945
1,070
4,258
71,732
$ 356,741
1,594
866
2,187
1,506
2,669
2,118
1,816
1,028
770
2,938
64,191
$ 335,082
1,489
770
2,235
1,184
2,403
1,959
1,644
1,004
715
1,934
55,708
$ 317,305
12.0
3.3
3.3
3.6
57.6
3.0
2.0
5.0
0.9
0.7
1.5
0.3
0.1
0.9
0.9
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
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
0.7
0.5
0.4
0.2
0.2
0.9
14.6
72.2%
0.4
0.2
0.5
0.3
0.6
0.5
0.4
0.2
0.2
0.6
14.2
73.9%
0.4
0.2
0.5
0.3
0.5
0.5
0.4
0.2
0.2
0.5
13.3
75.9%
1 Primarily based on the geographic location of the customer’s address.
42
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 2 5
LOANS AND ACCEPTANCES, NET OF COUNTERPARTY-SPECIFIC AND INDIVIDUALLY INSIGNIFICANT
ALLOWANCES BY INDUSTRY SECTOR (continued) 1
(millions of Canadian dollars, except as noted)
As at
Percentage of total
October 31
2014
October 31
2013
October 31
2012
October 31
2014
October 31
2013
October 31
2012
Counterparty-
specific and
individually
insignificant
allowances
Gross
loans
Net
loans
Net
loans
Net
loans
$ 23,335
$
9
$ 23,326
$ 20,937
$ 17,349
4.7%
4.6%
4.2%
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 2
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
11,665
18,782
615
7,637
62,034
4,294
14,037
18,331
363
2,530
3,344
2,086
470
6,423
7,376
1,306
1,076
940
1,269
6,412
3,159
4,269
1,987
7,166
910
69,417
131,451
9
2,124
2,133
490,609
2,695
1,713
4,408
$ 495,017
19
5
2
94
129
6
14
20
–
1
2
1
1
1
5
6
1
–
–
9
9
12
2
2
2
74
203
–
–
–
487
213
97
310
$ 797
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 Includes all FDIC covered loans and other acquired credit-impaired loans.
2.4
3.8
0.1
1.5
12.5
0.9
2.8
3.7
0.1
0.5
0.7
0.4
0.2
1.2
1.5
0.3
0.2
0.2
0.3
1.2
0.6
0.9
0.4
1.3
0.3
14.0
26.5
–
0.5
0.5
99.2
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
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
0.5
0.3
0.8
100.0%
0.8
0.5
1.3
100.0%
1.1
0.9
2.0
100.0%
11,646
18,777
613
7,543
61,905
4,288
14,023
18,311
363
2,529
3,342
2,085
469
6,422
7,371
1,300
1,075
940
1,269
6,403
3,150
4,257
1,985
7,164
908
69,343
131,248
9
2,124
2,133
490,122
2,482
1,616
4,098
$ 494,220
2,172
59
2,231
$ 491,989
10,591
16,319
532
6,887
55,266
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
2,240
2,250
447,498
3,571
2,368
5,939
$ 453,437
2,018
98
2,116
$ 451,321
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
11
2,653
2,664
409,536
4,809
3,669
8,478
$ 418,014
1,788
155
1,943
$ 416,071
9.0%
8.5%
8.1%
9.0
8.5
8.1
43
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 2 6
LOANS AND ACCEPTANCES, NET OF COUNTERPARTY-SPECIFIC AND INDIVIDUALLY INSIGNIFICANT ALLOWANCES BY GEOGRAPHY1
(millions of Canadian dollars, except as noted)
As at
Percentage of total
October 31
2014
October 31
2013
October 31
2012
October 31
2014
October 31
2013
October 31
2012
Canada
Atlantic provinces
British Columbia2
Ontario2
Prairies2
Quebec
Total Canada
United States
Carolinas (North and South)
Florida
New England3
New Jersey
New York
Pennsylvania
Other
Total United States
International
Europe
Other
Total international
Total excluding other loans
Other loans
Total
Counterparty-
specific and
individually
insignificant
allowances
Gross
loans
$ 10,361
42,358
202,910
64,188
37,208
357,025
6,555
9,019
32,437
24,596
24,485
8,730
25,629
131,451
369
1,764
2,133
490,609
4,408
$ 495,017
$
7
20
221
21
15
284
13
14
64
45
30
18
19
203
–
–
–
487
310
$ 797
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
Net
loans
Net
loans
Net
loans
$ 10,354
42,338
202,689
64,167
37,193
356,741
6,542
9,005
32,373
24,551
24,455
8,712
25,610
131,248
369
1,764
2,133
490,122
4,098
$ 494,220
2,231
$ 491,989
$ 9,695
48,871
188,366
60,370
27,780
335,082
5,314
6,802
29,477
20,253
20,761
8,207
19,352
110,166
752
1,498
2,250
447,498
5,939
$ 453,437
2,116
$ 451,321
$ 9,179
47,564
177,947
56,453
26,162
317,305
3,259
4,567
25,891
15,026
15,646
6,740
18,438
89,567
1,239
1,425
2,664
409,536
8,478
$ 418,014
1,943
$ 416,071
2014
6.5%
19.1
(5.2)
(31.0)
9.0%
2013
5.6%
23.0
(15.5)
(29.9)
8.5%
2012
7.1%
19.6
(24.6)
(28.3)
8.1%
2.1%
8.6
41.0
13.0
7.5
72.2
1.3
1.8
6.5
5.0
4.9
1.8
5.2
26.5
0.1
0.4
0.5
99.2
0.8
100.0%
2.1%
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
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
0.2
0.3
0.5
98.7
1.3
100.0%
0.3
0.3
0.6
98.0
2.0
100.0%
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 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 in the following table.
T A B L E 2 7
LOANS TO SMALL AND MID-SIZED BUSINESS CUSTOMERS
(millions of Canadian dollars)
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
2014
$
978
1,026
2,010
5,668
7,637
10,287
34,737
$ 62,343
Loans authorized
Amount outstanding
2013
$
956
990
1,952
5,537
7,167
9,355
31,212
$ 57,169
2012
$
995
1,104
2,129
5,723
7,145
8,810
28,138
$ 54,044
2014
$
362
523
1,089
3,687
5,521
7,024
21,607
$ 39,813
2013
$
365
493
1,035
3,596
5,109
6,377
19,434
$ 36,409
2012
$
387
539
1,140
3,738
5,070
5,982
17,409
$ 34,265
1 Personal loans used for business purposes are not included in these totals.
44
TD BANK GROUP ANNUAL REPORT 2014 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 in Canada and
strategies are aligned with the Bank’s risk appetite and meet all regula-
tory requirements. 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
vulnerable 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 exam-
ined during the exercise to determine whether specific vulnerabilities
exist. Based on the Bank’s most recent reviews, potential losses on all
real estate secured lending exposures are considered manageable.
T A B L E 2 8
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, 2014
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
$
4,110
20,660
56,967
27,658
12,442
2.3% $ 1,398
11,408
26,371
9,067
5,044
11.8
32.5
15.8
7.1
0.8% $
6.5
15.1
5.2
2.9
649
3,720
12,226
5,267
2,035
1.1% $
6.2
20.6
8.8
3.4
822
7,278
18,394
6,873
2,304
1.4% $
12.2
30.9
11.5
3.9
4,759
24,380
69,193
32,925
14,477
2.0% $
10.4
29.5
14.0
6.2
2,220
18,686
44,765
15,940
7,348
0.9%
8.0
19.1
6.8
3.1
121,837
69.5
53,288
30.5
23,897
40.1
35,671
59.9
145,734
62.1
88,959
37.9
753
$ 122,590
23,034
$ 76,322
9
$ 23,906
11,791
$ 47,462
762
$ 146,496
34,825
$ 123,784
$
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
12.1
28.7
11.0
3.6
4,775
25,375
71,639
32,466
14,366
1.3% $
October 31, 2013
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
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 immedi-
ately 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 govern-
ment-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 2 9
RESIDENTIAL MORTGAGES BY REMAINING AMORTIZATION1,2
Canada
United States
Total
Canada
United States
Total
<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
11.9%
2.3
10.7%
4.3%
1.9
4.0%
7.7%
18.8
9.0%
11.7%
2.9
10.6%
27.9%
10.4
25.9%
27.6%
63.0
31.8%
8.9%
0.6
7.9%
–% 100.0%
100.0
0.1
0.1% 100.0%
October 31, 2014
10.8%
2.6
9.9%
4.3%
1.3
4.0%
8.2%
21.6
9.8%
11.7%
2.0
10.6%
24.6%
8.3
22.6%
26.0%
63.1
30.2%
14.3%
1.1
12.8%
0.1% 100.0%
–
100.0
0.1% 100.0%
October 31, 2013
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.
45
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 3 0
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, 2014
73%
68
69
72
71
70
70
70%
72%
67
68
71
71
69
67
69%
62%
59
61
63
62
61
65
62%
71%
65
67
70
70
68
68
68%
October 31, 2013
62%
58
61
63
63
61
66
62%
70%
65
66
69
70
67
67
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 immedi-
ately 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, Federal Deposit Insurance Corporation (FDIC) covered
loans, and other acquired credit-impaired loans, gross impaired loans
increased $39 million, or 1% compared to 2013. Gross impaired loan
formations increased year over year by $67 million.
In Canada, net impaired loans decreased by $82 million, or 9% in
2014 due to continued credit quality improvement in the retail bank-
ing portfolios. Residential mortgages, consumer instalment and other
personal loans, and credit cards, contributed impaired loans net of
counterparty-specific and individually insignificant allowances of
$779 million, a decrease of $36 million, or 4%, compared to 2013.
Business and government loans generated $54 million in net impaired
loans, a decrease of $46 million, or 46%, compared to 2013. Business
and government impaired loans were distributed across industry sectors.
In the U.S., net impaired loans increased by $83 million, or 6% in
2014. Residential mortgages, consumer instalment and other personal
loans, and credit cards, contributed net impaired loans of $789 million,
an increase of $160 million, or 25%, compared to 2013, due primarily
to volume growth in real estate secured lending, indirect auto and
Target. Business and government loans contributed $622 million in net
impaired loans, a decrease of $77 million, or 11%, compared to 2013.
Business and government impaired loans were concentrated in the real
estate sector, as real estate is the largest sector of U.S. business loans.
Geographically, 37% of total impaired loans net of counterparty-
specific and individually insignificant allowances were contributed by
Canada and 63% by the U.S. Net impaired loans in Canada were
concentrated in Ontario, which represented 16% of total net impaired
loans, down from 18% in 2013. U.S. net impaired loans were concen-
trated in New England and New Jersey, representing 19% and 15%,
respectively, of net impaired loans, compared with 19% and 13%,
respectively, in 2013.
T A B L E 3 1
CHANGES IN GROSS IMPAIRED LOANS AND ACCEPTANCES1
(millions of Canadian dollars)
Personal, business and government loans2,3
Impaired loans at beginning of period
Classified as impaired during the period
Transferred to not impaired during the period
Net repayments
Disposals of loans
Amounts written-off
Recoveries of loans and advances previously written-off
Foreign exchange and other movements
Impaired loans at end of year
2014
2013
2012
$ 2,692
4,613
(1,352)
(1,157)
(7)
(2,178)
–
120
$ 2,731
$ 2,518
4,546
(1,431)
(1,080)
(5)
(1,914)
–
58
$ 2,692
$ 2,493
4,312
(1,255)
(1,034)
(28)
(1,969)
–
(1)
$ 2,518
1 Certain comparative amounts have been restated to conform with the presentation
3 Excludes debt securities classified as loans. For additional information refer to
adopted in the current year.
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 8 to the
Consolidated Financial Statements.
the “Exposure to Non-Agency Collateralized Mortgage Obligations” section of this
document and Note 8 to the Consolidated Financial Statements.
46
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 3 2
IMPAIRED LOANS NET OF COUNTERPARTY-SPECIFIC AND INDIVIDUALLY INSIGNIFICANT ALLOWANCES
BY INDUSTRY SECTOR1,2,3
(millions of Canadian dollars, except as noted)
As at
Percentage of total
October 31
2014
October 31
2013
October 31
2012
October 31
2014
October 31
2013
October 31
2012
Counterparty-
specific and
individually
insignificant
allowances
Gross
impaired
loans
Net
impaired
loans
Net
impaired
loans
Net
impaired
loans
Canada
Residential mortgages4
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
$ 440
268
39
63
171
981
22
6
28
6
1
1
1
2
5
7
7
2
6
–
30
18
12
2
3
5
136
$ 1,117
$ 13
19
22
43
105
202
12
2
14
1
–
–
1
–
2
2
6
1
5
–
26
11
10
1
2
–
82
$ 284
$ 427
249
17
20
66
779
10
4
14
5
1
1
–
2
3
5
1
1
1
–
4
7
2
1
1
5
54
$ 833
$ 434
$ 465
19.0%
19.3%
22.1%
301
16
21
43
815
13
5
18
5
–
1
3
1
4
2
6
9
20
–
3
18
7
–
1
2
100
$ 915
306
14
30
95
910
15
1
16
4
2
21
2
4
2
17
6
1
1
–
4
22
8
19
–
3
132
$ 1,042
11.1
0.8
0.9
2.9
34.7
0.4
0.2
0.6
0.3
–
–
–
0.1
0.1
0.3
–
–
–
–
0.2
0.4
0.1
–
–
0.3
2.4
13.4
0.7
0.9
2.0
36.3
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
37.1%
40.8%
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
49.6%
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 8 to the 2014
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 8 to the 2014 Consolidated Financial Statements.
4 Excludes trading loans with a fair value of $10 billion as at October 31, 2014
(October 31, 2013 – $10 billion), and amortized cost of $10 billion as at October 31,
2014 (October 31, 2013 – $10 billion), and loans designated at fair value through
profit or loss of $5 million as at October 31, 2014 (October 31, 2013 – $9 million).
No allowance is recorded for trading loans or loans designated at fair value
through profit or loss.
47
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 3 2
IMPAIRED LOANS NET OF COUNTERPARTY-SPECIFIC AND INDIVIDUALLY INSIGNIFICANT ALLOWANCES
BY INDUSTRY SECTOR (continued) 1,2,3
(millions of Canadian dollars, except as noted)
As at
Percentage of total
October 31
2014
October 31
2013
October 31
2012
October 31
2014
October 31
2013
October 31
2012
Counterparty-
specific and
individually
insignificant
allowances
Gross
impaired
loans
Net
impaired
loans
Net
impaired
loans
Net
impaired
loans
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
Net impaired loans as a %
of common equity
$ 312
$
9
$ 303
$ 250
$ 187
13.5%
11.1%
8.9%
344
133
6
123
918
85
168
253
1
15
27
10
2
17
54
32
10
–
–
93
89
51
18
17
7
696
1,614
–
–
19
5
2
94
129
6
14
20
–
1
2
1
1
1
5
6
1
–
–
9
9
12
2
2
2
74
203
–
–
$ 2,731
$ 487
325
128
4
29
789
79
154
233
1
14
25
9
1
16
49
26
9
–
–
84
80
39
16
15
5
622
1,411
204
76
1
98
629
98
205
303
1
12
8
10
1
19
23
46
18
–
–
68
99
28
12
39
12
699
1,328
179
24
2
3
395
133
191
324
2
15
6
7
1
7
18
40
26
4
–
41
70
46
10
32
14
663
1,058
14.5
5.7
0.2
1.3
35.2
3.5
6.9
10.4
–
0.6
1.1
0.4
–
0.7
2.2
1.2
0.4
–
–
3.7
3.6
1.7
0.7
0.7
0.3
27.7
62.9
–
–
$ 2,244
–
–
$ 2,243
–
–
$ 2,100
–
–
100.0%
4.28%
4.83%
4.86%
9.1
3.4
0.1
4.3
28.0
4.4
9.1
13.5
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
–
–
8.5
1.2
0.1
0.1
18.8
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
–
–
100.0%
100.0%
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 8 to the 2014
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 8 to the 2014 Consolidated Financial Statements.
48
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 3 3
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
2014
October 31
2013
October 31
2012
October 31
2014
October 31
2013
October 31
2012
Canada
Atlantic provinces
British Columbia4
Ontario4
Prairies4
Quebec
Total Canada5
United States
Carolinas (North and South)
Florida
New England6
New Jersey
New York
Pennsylvania
Other
Total United States5
Total
Counterparty-
specific and
individually
insignificant
allowances
Gross
impaired
loans
Net
impaired
loans
Net
impaired
loans
$
40
196
588
157
136
1,117
81
110
490
373
235
165
160
1,614
$
7
20
221
21
15
284
13
14
64
45
30
18
19
203
$ 2,731
$ 487
$
33
176
367
136
121
833
68
96
426
328
205
147
141
1,411
$ 2,244
$
34
210
406
169
96
915
49
75
430
301
184
140
149
1,328
$ 2,243
Net
impaired
loans
$
26
202
509
185
120
1,042
23
38
369
252
137
91
148
1,058
$ 2,100
1.5%
7.8
16.3
6.1
5.4
37.1
3.0
4.3
19.0
14.6
9.1
6.6
6.3
62.9
100.0%
1.5%
9.4
18.1
7.5
4.3
40.8
2.2
3.4
19.2
13.4
8.2
6.2
6.6
59.2
100.0%
1.3%
9.6
24.2
8.8
5.7
49.6
1.1
1.8
17.6
12.0
6.5
4.4
7.0
50.4
100.0%
Net impaired loans as a % of net loans7
0.46%
0.50%
0.52%
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 8 to the 2014
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 8 to the 2014 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 Excludes trading loans with a fair value of $10 billion as at October 31, 2014
(October 31, 2013 – $10 billion), and amortized cost of $10 billion as at October 31,
2014 (October 31, 2013 – $10 billion), and loans designated at fair value through
profit or loss of $5 million as at October 31, 2014 (October 31, 2013 – $9 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,
Massachusetts, 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 recover-
ies and disposals. 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 manage-
ment in assessing the appropriate allowance levels.
Counterparty-specific allowance
The Bank establishes counterparty-specific allowances for individually
significant 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.
During 2014, counterparty-specific allowances increased by
$7 million, or 2%, resulting in a total counterparty-specific allowance of
$355 million. Excluding debt securities classified as loans, FDIC covered
loans and other acquired credit-impaired loans, counterparty-specific
allowances decreased by $17 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
business banking loans and credit cards, are collectively assessed for
impairment. Allowances are calculated using a formula that incorpo-
rates recent loss experience, historical default rates, and the type of
collateral pledged.
During 2014, the collectively assessed allowance for individually
insignificant impaired loans increased by $51 million, or 13%, resulting
in a total of $442 million. Excluding FDIC covered loans and other
acquired credit-impaired loans, the collectively assessed allowance
for individually insignificant impaired loans increased by $55 million,
or 18% from the prior year due primarily to the acquisition of the
Target credit card portfolio.
49
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
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.
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 credit risk 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 function of the current usage and historical exposure experi-
ence at default.
As at October 31, 2014 the collectively assessed allowance for
incurred but not identified credit losses was $2,505 million, up from
$2,328 million as at October 31, 2013. Excluding debt securities
classified as loans, the collectively assessed allowance for incurred
but not identified credit losses increased by $216 million, or 10%
from the prior year.
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 further described in Note 8 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 $1,557 million
in 2014, compared with a total provision of $1,631 million in 2013.
This amount comprised $1,484 million of counterparty-specific and
individually insignificant provisions and $73 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 0.33% from 0.38% in 2013 largely due to improved
credit quality in the Canadian personal 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 $789 million, a decrease of
$76 million, or 9%, compared to 2013. Business and government
loans required counterparty-specific and individually insignificant provi-
sions of $84 million, an increase of $10 million, or 14%, compared to
2013. 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 $562 million, an increase of
$226 million, or 67%, compared to 2013, primarily due to acquisition
of the Target credit card portfolio. Business and government loans
required counterparty-specific and individually insignificant provisions
of $20 million, a decrease of $124 million, or 86%, compared to 2013
primarily due to improved credit performance in the real estate and
financial sectors.
Geographically, 59% of counterparty-specific and individually insig-
nificant provisions were attributed to Canada and 39% to the U.S.
in 2014. Canadian counterparty-specific and individually insignificant
provisions were concentrated in Ontario, which represented 46% of
total counterparty-specific and individually insignificant provisions,
down from 50% in 2013. U.S. counterparty-specific and individually
insignificant provisions were concentrated in New England and New
Jersey, representing 10% and 7%, respectively, of total counterparty-
specific and individually insignificant provisions, up from 8% and 5%
respectively in 2013.
The following table provides a summary of provisions charged to the
Consolidated Statement of Income.
T A B L E 3 4
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 Retail and Wholesale Banking
U.S. Retail
Other
Total provision for credit losses – incurred but not identified
Provision for credit losses
2014
2013
2012
$ 168
1,849
(533)
1,484
8
65
–
73
$ 1,557
$ 231
1,644
(394)
1,481
(53)
203
–
150
$ 1,631
$ 447
1,415
(287)
1,575
183
37
–
220
$ 1,795
50
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 3 5
PROVISION FOR CREDIT LOSSES BY INDUSTRY SECTOR1
(millions of Canadian dollars, except as noted)
For the years ended
Percentage of total
October 31
2014
October 31
2013
October 31
2012
October 31
2014
October 31
2013
October 31
2012
Provision for credit losses – counterparty-specific
and individually insignificant
Canada
Residential mortgages2
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 government2
Total United States
Total excluding other loans
Other loans
Debt securities classified as loans
Acquired credit-impaired loans3
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
$
15
$
16
$
10
1.0%
1.1%
0.6%
8
137
167
462
789
(1)
3
2
1
2
1
–
–
–
2
9
2
(2)
31
19
9
1
6
1
84
873
8
38
148
59
309
562
(7)
(4)
(11)
–
2
(13)
(1)
–
(1)
8
6
–
–
–
7
3
9
–
(2)
13
20
582
1,455
31
(2)
29
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
0.6
9.2
11.3
31.1
53.2
(0.1)
0.2
0.1
0.1
0.1
0.1
–
–
–
0.1
0.6
0.1
(0.1)
2.1
1.2
0.6
0.1
0.4
0.1
5.6
58.8
0.6
2.5
10.0
4.0
20.8
37.9
(0.5)
(0.3)
(0.8)
–
0.1
(0.9)
(0.1)
–
(0.1)
0.6
0.4
–
–
–
0.5
0.2
0.6
–
(0.1)
0.9
1.3
39.2
98.0
2.1
(0.1)
2.0
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
$ 1,484
$ 1,481
$ 1,575
100.0%
100.0%
100.0%
120
(47)
73
$ 1,557
195
(45)
150
$ 1,631
214
6
220
$ 1,795
1 Primarily based on the geographic location of the customer’s address.
2 Excludes trading loans with a fair value of $10 billion as at October 31, 2014
(October 31, 2013 – $10 billion), and amortized cost of $10 billion as at October 31,
2014 (October 31, 2013 – $10 billion), and loans designated at fair value through
profit or loss of $5 million as at October 31, 2014 (October 31, 2013 – $9 million).
No allowance is recorded for trading loans or loans designated at fair value
through profit or loss.
3 Includes all FDIC covered loans and other ACI loans.
51
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 3 6
PROVISION FOR CREDIT LOSSES BY GEOGRAPHY1
(millions of Canadian dollars, except as noted)
For the years ended
Percentage of total
October 31
2014
October 31
2013
October 31
2012
October 31
2014
October 31
2013
October 31
2012
Canada
Atlantic provinces
British Columbia2
Ontario2
Prairies2
Quebec
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
$
25
49
684
70
45
873
36
43
147
98
89
42
127
582
–
–
1,455
29
1,484
73
$ 1,557
$
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
1.6%
3.1
43.9
4.5
2.9
56.0
2.3
2.8
9.4
6.3
5.7
2.7
8.2
37.4
–
–
93.4
1.9
95.3
4.7
100.0%
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%
Provision for credit losses as a % of average
net loans and acceptances5
October 31
2014
October 31
2013
October 31
2012
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%
0.72
0.13
0.25
0.04
1.54
0.03
0.49
–
0.31
0.59
0.32
0.02
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
net loans and acceptances
0.33%
0.38%
0.45%
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; Nuna-
vut is included in Ontario; and Northwest Territories is included in the Prairies region.
3 Excludes trading loans with a fair value of $10 billion as at October 31, 2014
(October 31, 2013 – $10 billion), and amortized cost of $10 billion as at October 31,
2014 (October 31, 2013 – $10 billion), and loans designated at fair value through
profit or loss of $5 million as at October 31, 2014 (October 31, 2013 – $9 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, 2014, the Bank had approximately $2.4 billion
(October 31, 2013 – $2.4 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 3.70% on an annual basis (October 31, 2013 – 3.38%).
The portfolio continues to perform as expected. These loans are
recorded at amortized cost.
52
TD BANK GROUP ANNUAL REPORT 2014 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 7
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
$
$
$
– $
–
–
–
35
35
–
232
–
–
6
238
– $
5
–
–
65
70
–
237
–
–
106
343
–
–
14
–
–
14
$
– $
–
–
–
–
–
– $
3
417
–
32
452
–
3
431
–
32
466
$
– $
9
–
–
11
20
– $
12
–
–
3
15
– $
9
–
–
1
10
– $
30
–
–
15
45
–
270
431
–
153
854
October 31, 2014
40
481
474
954
145
416
76
–
–
854
1,772
1,568
137
107
4,380
2,644
$ 4,415 $ 2,882
609
88
1,587
159
988
427
177
101
1,052
198
3,496
156
313
69
1,198
8,222
$ 1,268 $ 8,565
133
320
362
–
19
567
162
1,563
$ 1,577
1,275
974
168
1,473
480
673
813
224
227
60
30
30
630
611
–
4,435
3,641
227
712
330
220
1,545
9,398
6,290
$ 1,545 $ 6,742 $ 9,864
1,792
6,094
2,932
621
–
704
1,734
13,877
3,887
118
93
9,511
137
220
5,375
606
36
1,401
539
4
1,824
74
68
13,073
4,241
197
2,867
75
33
651
37,938
5,790
$ 671 $ 13,892 $ 5,800 $ 20,363 $ 38,792
2,003
6,451
3,574
1,164
142
5,142
1,842
20,318
$
– $
–
–
–
116
116
–
121
–
–
–
121
$
$
– $
2
–
–
47
49
–
123
–
–
163
286
– $
–
–
–
5
5
– $
–
–
–
–
–
– $
3
12
3
13
31
–
3
12
3
18
36
$
– $
11
–
–
8
19
– $
1
–
–
–
1
– $
– $
12
1
–
213
226
24
1
–
221
246
–
150
13
3
402
568
October 31, 2013
–
435
327
923
417
158
44
–
–
787
7,590
1,240
155
110
3,912
8,274
$ 4,028 $ 8,395
49
50
404
80
86
238
40
947
484
1,300
979
124
873
9,068
305
13,133
$ 996 $ 13,419
1,338
60
2,903
250
291
696
45
–
707
–
3,344
453
566
94
1,148
9,599
$ 1,153 $ 2,496 $ 5,986 $ 9,635
1,141
722
257
22
707
2,784
322
5,955
137
1,931
148
23
–
107
150
2,496
1,878
4,895
5,041
707
–
490
1,579
14,590
3,934
152
82
9,351
65
188
7,618
56
846
1,353
474
3
1,844
237
27
17,794
4,748
144
2,680
151
79
579
44,574
6,673
$ 598 $ 14,591 $ 6,899 $ 22,088 $ 45,142
2,112
5,148
5,943
1,184
264
5,382
1,809
21,842
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, 2014, or October 31, 2013.
2 Exposures are calculated on a fair value basis and are net of collateral. Total market
value of pledged collateral is $5.6 billion for GIIPS (October 31, 2013 – $1 billion)
and $34.4 billion for the rest of Europe (October 31, 2013 – $28 billion). Deriva-
tives are presented as net exposures where there is an International Swaps and
Derivatives Association (ISDA) master netting agreement.
3 Trading Portfolio exposures are net of eligible short positions. Deposits of
$1.3 billion (October 31, 2013 – $2 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, 2014, and October 31, 2013.
5 The reported exposures do not include $0.2 billion of protection the Bank
purchased through credit default swaps (October 31, 2013 – $0.3 billion).
6 Other European exposure is distributed across 12 countries (October 31, 2013 –
13 countries), each of which has a net exposure below $1 billion as at October 31,
2014, and October 31, 2013.
53
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 3 8
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
Other3
Rest of Europe
Total Europe
GIIPS
Greece
Italy
Ireland
Portugal
Spain
Total GIIPS
Rest of Europe
France
Germany
Netherlands
Sweden
Switzerland
United Kingdom
Other3
Rest of Europe
Total Europe
As at
Loans and Commitments
Indirect2
Total
October 31, 2014
$
–
4
–
–
88
92
419
915
482
4
699
1,624
155
4,298
$ 4,390
$
–
237
–
–
106
343
609
1,587
988
177
1,052
3,496
313
8,222
$ 8,565
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
Direct1
$
–
233
–
–
18
251
190
672
506
173
353
1,872
158
3,924
$ 4,175
$
–
122
–
–
63
185
23
405
395
120
270
7,703
189
9,105
$ 9,290
1 Includes interest-bearing deposits with banks, funded loans, and
banker’s acceptances.
2 Includes undrawn commitments and letters of credit.
3 Other European exposure is distributed across 12 countries (October 31, 2013 –
13 countries), each of which has a net exposure including Loans and Commit-
ments, Derivatives, Repos and Securities Lending, and Trading and Investment
Portfolio below $1.0 billion as at October 31, 2014, and October 31, 2013.
Of the Bank’s European exposure, approximately 97%
(October 31, 2013 – 98%) 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 collateral while the repurchase transactions
are backed largely by government 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 $5.2 billion (October 31, 2013 – $4.9 billion) of direct expo-
sure to supranational entities with European sponsorship and indirect
exposure including $1.9 billion (October 31, 2013 – $791 million)
of European collateral from non-European counterparties related to
repurchase and securities lending transactions that are margined daily,
and $11 million (October 31, 2013 – $7 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 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
EXPOSURE TO ACQUIRED CREDIT-IMPAIRED LOANS
Acquired credit-impaired (ACI) loans are generally loans with evidence
of incurred credit loss where 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 deterioration as of the
acquisition date may include statistics such as past due status and credit
scores. ACI loans are initially recorded at fair value and, as a result,
no allowance for credit losses is recorded on the date of acquisition.
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 MBNA Canada, Target, and Aeroplan credit card
portfolios. The following table presents the unpaid principal balance,
carrying value, counterparty-specific allowance, allowance for individu-
ally insignificant impaired loans, and the net carrying value as a
percentage of the unpaid principal balance for ACI loans as at
October 31, 2014, and October 31, 2013.
T A B L E 3 9
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
$ 699
1,090
36
$ 1,825
$ 836
1,700
105
$ 2,641
Carrying
value
$ 660
1,046
7
$ 1,713
$ 787
1,619
79
$ 2,485
Counterparty-
specific
allowance
Allowance for
individually
insignificant
impaired loans
$ 2
6
–
$ 8
$ 5
19
–
$ 24
$ 49
40
–
$ 89
$ 55
38
–
$ 93
As at
Carrying
Percentage of
value net of unpaid principal
balance
allowances
October 31, 2014
$ 609
1,000
7
$ 1,616
87.1%
91.7
19.4
88.5%
October 31, 2013
$ 727
1,562
79
$ 2,368
87.0%
91.9
75.2
89.7%
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, Target, and Aeroplan.
During the year ended October 31, 2014, the Bank recorded a
recovery of $2 million in provision for credit losses on ACI loans
(2013 – provision for credit losses of $49 million, 2012 – provision
for credit losses of $114 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 0
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, 2014
October 31, 2013
Unpaid principal balance1
Unpaid principal balance1
As at
$ 1,540
60
225
$ 1,825
$ 1,101
535
143
46
$ 1,825
84.4%
3.3
12.3
100.0%
60.3%
29.3
7.9
2.5
100.0%
$ 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%
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 amor-
tized 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, including the
Bank’s 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 impair-
ment is identified on a counterparty-specific level and are grouped
into portfolios of exposures with similar credit risk characteristics to
collectively assess if impairment exists at the portfolio level.
The allowance for losses that are incurred but not identified
as at October 31, 2014, was US$52 million (October 31, 2013 –
US$94 million). The total provision for credit losses recognized in
2014 was a decrease of US$14 million (2013 – US$30 million decrease,
2012 – US$12 million increase).
55
TD BANK GROUP ANNUAL REPORT 2014 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, 2014, and
October 31, 2013. As at October 31, 2014, the balance of the
remaining acquisition-related incurred loss was US$187 million
(October 31, 2013 – US$226 million). This amount is reflected
in the following table as a component of the discount from par
to carrying value.
T A B L E 4 1
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
$ 1,748
$ 1,523
$ 241
$ 1,282
73.3%
October 31, 2014
$ 2,075
$ 1,770
$ 260
$ 1,510
72.8%
October 31, 2013
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 rated AAA for regulatory capital reporting
(October 31, 2013 – 13%). The net capital benefit of the re-securitiza-
tion 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 2
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
Amortized
cost
$
58
79
300
226
310
Alt-A
Fair
value
$
65
89
361
257
371
$ 64
24
23
113
137
$ 68
27
26
126
152
$ 973
$ 1,143
$ 361
$ 399
$
81
96
358
255
364
$
90
107
415
285
416
$ 85
30
30
134
171
$ 93
33
33
150
184
$ 1,154
$ 1,313
$ 450
$ 493
October 31, 2014
$ 133
116
387
383
523
$ 1,542
$ 122
103
323
339
447
$ 1,334
52
$ 1,282
October 31, 2013
$ 183
140
448
435
600
$ 1,806
$ 166
126
388
389
535
$ 1,604
94
$ 1,510
(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 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
GROUP FINANCIAL CONDITION
Capital Position
T A B L E 4 3
CAPITAL STRUCTURE AND RATIOS – BASEL III1,2
(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 Capital
Common Equity Tier 1 Capital
Additional Tier 1 Capital instruments
Directly issued qualifying Additional Tier 1 instruments plus stock surplus
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
consolidation, net of eligible short positions
Total regulatory adjustments to Tier 2 Capital
Tier 2 Capital
Total Capital
Risk-weighted assets3
Common Equity Tier 1 Capital
Tier 1 Capital
Total Capital
Capital Ratios and Multiples4
Common Equity Tier 1 Capital (as percentage of CET1 Capital risk-weighted assets)
Tier 1 Capital (as percentage of Tier 1 Capital risk-weighted assets)
Total Capital (as percentage of Total Capital risk-weighted assets)
Asset-to-capital multiple
2014
2013
$ 19,961
27,585
4,936
52,482
$ 19,341
24,565
3,166
47,072
(16,709)
(2,355)
(485)
(711)
(91)
(98)
(15)
(7)
(1,046)
(21,517)
30,965
1,001
3,941
444
5,386
(13,280)
(2,097)
(519)
(1,005)
(116)
(89)
(389)
(183)
(3,572)
(21,250)
25,822
–
5,524
552
6,076
(352)
(352)
5,034
35,999
(352)
(352)
5,724
31,546
6,773
237
1,416
8,426
7,564
297
1,472
9,333
–
(19)
(170)
(170)
8,256
44,255
(170)
(189)
9,144
40,690
$ 328,393
329,268
330,581
$ 286,355
286,355
286,355
9.4%
10.9
13.4
19.1
9.0%
11.0
14.2
18.2
1 Capital position calculated using the “all-in” methodology.
2 Prior to 2014, the amounts have not been adjusted to reflect the impact of the
New IFRS Standards and Amendments.
4 The “all-in” basis of regulatory reporting includes all of the regulatory adjustments
that will be required by 2019, except the asset-to-capital multiple which is calcu-
lated under “transitional” basis.
3 Effective the third quarter of 2014, each capital ratio has its own RWA measure
due to the OSFI prescribed scalar for inclusion of the CVA. Effective the third
quarter of 2014, the scalars for inclusion of CVA for CET1, Tier 1, and Total Capital
RWA are 57%, 65%, and 77% respectively.
57
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 4 4
CAPITAL STRUCTURE AND RATIOS – BASEL II
(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 shares1
Innovative instruments1
Adjustments for transition to measurement under IFRS
Gross Tier 1 Capital
Goodwill and intangibles in excess of 5% limit
Net Tier 1 Capital
Securitization – other
50% shortfall in allowance2
50% substantial investments
Investment in insurance subsidiaries
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 available-for-sale equity
securities in other comprehensive income
Securitization – other
50% shortfall in allowance2
50% substantial investments
Investment in insurance subsidiaries
Total Tier 2 Capital
Total Regulatory Capital
Regulatory Capital Ratios and Multiples
Tier 1 Capital ratio3
Total Capital ratio3
Asset-to-capital multiple
2012
$ 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
12.6%
15.7%
18.0
1 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. For regulatory capital
purposes, these capital instruments have been grandfathered by OSFI and continue
to be included in Tier 1 Capital.
2 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.
3 OSFI’s target Tier 1 and Total Capital ratios for Canadian banks are 7% and
10%, respectively.
58
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
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 (RAS);
– 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
consistent 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.
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 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 (the “Board”) 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.
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 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 of this document. Within the Bank’s measurement frame-
work, its objective 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
its 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
Capital requirements of the Basel Committee on Banking and
Supervision (BCBS) are commonly referred to as Basel III. 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 comprehensive
income, is the highest quality capital and the predominant form of
Tier 1 Capital. CET1 Capital also includes regulatory adjustments and
deductions for items such as goodwill, intangible assets, and 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.
Regulatory capital ratios are calculated by dividing CET1, Tier 1 and
Total Capital by their respective RWAs.6
OSFI’s Capital Requirements under Basel III
OSFI’s Capital Adequacy Requirements (CAR) guideline details how the
Basel III rules apply to Canadian banks.
Effective January 1, 2014, the CVA capital charge is phased in over
a five year period, given the 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 charge, OSFI believed a coordi-
nated start with the two most significant jurisdictions in the global
derivatives market was warranted. The CVA capital charge phase-in
is based on a scalar approach whereby a CVA capital charge of 57%
applies in 2014 for the CET1 calculation. This percentage will increase
to 64% for 2015 and 2016, 72% in 2017, 80% in 2018, and 100%
in 2019. A similar set of scalar phase-in percentages would also apply
for the Tier 1 and Total Capital ratio calculations.
Effective January 1, 2013, all newly issued non-common Tier 1 and
Tier 2 capital instruments must include non-viability contingent capital
(NVCC) provisions (NVCC Provisions) to qualify as regulatory capital.
NVCC Provisions require the conversion of non-common capital instru-
ments into a variable number of common shares of the Bank if OSFI
determines that the Bank is, or is about to become, non-viable and
that after conversion of the non-common capital instruments, the
viability of the Bank is expected to be restored, or if the Bank has
accepted or agreed to accept a capital injection or equivalent support
from a federal or provincial government without which the Bank
would have been determined by OSFI to be non-viable. Existing non-
common Tier 1 and Tier 2 capital instruments which do not include
NVCC Provisions are non-qualifying capital instruments and are subject
to a phase-out period which began in 2013 and ends in 2022.
6 Effective the third quarter of 2014, each capital ratio has its own RWA measure
due to the OSFI prescribed scalar for inclusion of the CVA. Effective the third
quarter of 2014, the scalars for inclusion of CVA for CET1, Tier 1 and Total Capital
RWA were 57%, 65% and 77% respectively.
59
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS The CAR guideline contains two methodologies for capital ratio
calculation: (1) the “transitional” method; and (2) the “all-in” method.
Under the “transitional” method, changes in capital treatment for
certain items, as well as minimum capital ratio requirements, are being
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% and
8%, respectively. OSFI expects Canadian banks to include an additional
capital conservation buffer of 2.5%, effectively raising the CET1 mini-
mum requirement to 7%. Including 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%.
At the discretion of OSFI, a countercyclical common equity capital
buffer (CCB) within a range of 0% to 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 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. In July 2013, the BCBS issued an update
to the final rules on G-SIBs. The update provided clarity on the public
disclosure requirements of the twelve indicators used in the assess-
ment methodology. As per OSFI’s draft Advisory issued February 2014,
the six Canadian banks that have been designated as D-SIBs are also
required by OSFI to publish, at a minimum, the twelve indicators used
in the G-SIB indicator-based assessment framework for 2014 year-end
data by no later than the date of the bank’s first quarter 2015 public
disclosure of shareholder financial data. Public disclosure of data for
year-ends subsequent to 2014 is required no later than the date of the
bank’s annual disclosure of shareholder financial data.
OSFI’s Regulatory Target Ratios under Basel III on an “All-In” Basis
Basel III Capital Ratios
Common Equity Tier 1
Capital ratio
Tier 1 Capital ratio
Total Capital ratio
BCBS
minimum
Capital OSFI Regulatory
Targets without
D-SIB surcharge
Conservation
buffer
Effective Date
D-SIB
surcharge
OSFI Regulatory
Targets with
D-SIB surcharge
Effective Date
4.5%
6.0
8.0
2.5%
2.5
2.5
7.0%
8.5
10.5
January 1, 2013
January 1, 2014
January 1, 2014
1.0%
1.0
1.0
8.0%
9.5
11.5
January 1, 2016
January 1, 2016
January 1, 2016
OSFI continues to require Canadian banks to meet the assets-to-capital
multiple (ACM) requirement until December 31, 2014, when it will be
replaced by the Basel III leverage ratio. The ACM is calculated on a
Basel III “transitional basis”, by dividing total assets, including specified
off-balance sheet items, by Total Capital.
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, National Association
(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
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
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.
As at October 31, 2014, the Bank’s CET1, Tier 1, and Total Capital
ratios were 9.4%, 10.9%, and 13.4%, respectively. Compared with
the Bank’s CET1 Capital ratio of 9.0% as at October 31, 2013, the
October 31, 2014, CET1 Capital 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, partially offset by an increase in RWAs across all busi-
ness segments including $6.2 billion CVA charge within Wholesale
Bank and U.S. Retail segments. The CVA capital add-on charge repre-
sents approximately 32 bps, of which 57% (or 18 bps) is included in
the 2014 CET1 Capital ratio, per OSFI’s determined scalar phase-in.
As at October 31, 2014, CET1, Tier 1, and Total Capital RWA include
57%, 65%, and 77%, of the CVA charge, respectively. During the
year, the Bank generated approximately $4.5 billion of CET1 Capital
through organic growth and balance sheet optimization activities.
In 2014, the Bank was able to fund acquisitions, support business
growth, and improve the Bank’s capital position largely without raising
additional capital.
Common Equity Tier 1 Capital
CET1 Capital was $31 billion as at October 31, 2014. 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 $538 million under the dividend reinvest-
ment plan and from stock option exercises. The growth in CET1
Capital is partially offset by share repurchases and the impact of
acquisitions during the year.
60
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
Tier 1 and Tier 2 Capital
Tier 1 Capital was $36 billion as at October 31, 2014, consisting
of CET1 Capital and Additional Tier 1 Capital of $31 billion and
$5 billion, respectively. Capital management funding activities during
the year consisted of the issuance of $500 million Non-cumulative
5-Year Rate Reset Preferred Shares, Series 1 and $500 million
Non-cumulative 5-Year Rate Reset Preferred Shares, Series 3, both
of which included NVCC Provisions to ensure loss absorbency at the
point of non-viability, and the redemption of $425 million Class A First
Preferred Shares, Series O and 5-Year Rate Reset Preferred Shares,
Series AA, Series AC, Series AE, Series AG, Series AI and Series AK,
totaling $1.8 billion. TD announced on February 7, 2011, that, based
on OSFI’s February 4, 2011, Advisory which outlined OSFI’s expecta-
tions regarding the use of redemption rights triggered by regulatory
event clauses in non-qualifying capital instruments, it expects to
exercise a regulatory event redemption right only in 2022 in respect
of the TD Capital Trust IV Notes – Series 2 outstanding at that time.
As of October 31, 2014, there was $450 million in principal amount
of TD Capital Trust IV Notes – Series 2 issued and outstanding.
NORMAL COURSE ISSUER BID
On June 19, 2013, the Bank announced that the Toronto Stock
Exchange (TSX) approved the Bank’s normal course issuer bid to repur-
chase, for cancellation, up to 24 million of the Bank’s common shares.
The bid commenced on June 21, 2013, and expired in accordance with
its terms in June 2014. During the year ended October 31, 2014, the
Bank repurchased 4 million common shares under this bid at an aver-
age price of $54.15 for a total amount of $220 million. During the year
ended October 31, 2013, the Bank repurchased 18 million common
shares under this bid at an average price of $43.25 for a total amount
of $780 million.
RISK-WEIGHTED ASSETS
Based on Basel III, RWA are calculated for each of credit risk, market
risk, and operational risk. Details of the Bank’s RWA is included in the
following table.
T A B L E 4 5
COMMON EQUITY TIER 1 CAPITAL
RISK-WEIGHTED ASSETS1
Tier 2 Capital was $8.3 billion as at October 31, 2014. In August 2014,
the 10.05% subordinated notes of the Bank matured. There were no
other redemptions or issuances of Tier 2 Capital instruments in 2014.
(millions of Canadian dollars)
INTERNAL CAPITAL ADEQUACY ASSESSMENT PROCESS
The Bank’s Internal Capital Adequacy Assessment Process (ICAAP)
is an integrated enterprise-wide process that encompasses the
governance, management, and control of risk and capital functions
within the Bank. It provides a framework for relating risks to capital
requirements through the Bank’s economic capital modeling and
stress testing practices which help inform the Bank’s overall capital
adequacy requirements.
The ICAAP is facilitated by Risk Management and is supported by
numerous functional areas who together help determine the Bank’s
internal capital adequacy assessment. This assessment ultimately
represents the capacity to bear risk in congruence with the Bank’s
risk profile and RAS. Risk Management leads the ICAAP and assesses
whether the Bank’s internal view of required capital is appropriate for
the Bank’s risks. Enterprise Capital Management monitors the overall
adequacy of the Bank’s available capital in relation to both internal
and regulatory capital requirements.
DIVIDENDS
The Bank’s dividend policy is approved by the Board. At October 31,
2014, the quarterly dividend was $0.47 per share, consistent with the
Bank’s current target payout range of 40 to 50% of adjusted earnings.
Cash dividends declared and paid during the year totalled $1.84 per
share (2013 – $1.62). For cash dividends payable on the Bank’s
preferred shares, see Notes 21 and 37 to the Consolidated Financial
Statements. As at October 31, 2014, 1,845 million common shares
were outstanding (2013 – 1,835 million). The Bank’s ability to pay
dividends is subject to the Bank Act (Canada) and the requirements
of OSFI. See Note 21 to the Consolidated Financial Statements for
further details on dividend restrictions.
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
As at
October 31 October 31
2013
2014
$ 25,910 $ 23,895
12,588
12,016
47,504
52,018
118,571
3,999
11,949
12,014
926
99,608
3,340
12,198
10,894
885
237,403 210,912
5,463
5,842
32,680
23,177
275,925 239,552
14,376
11,734
38,092
35,069
$ 328,393 $ 286,355
1 Effective the third quarter of 2014, each capital ratio has its own RWA measure
due to the OSFI prescribed scalar for inclusion of the CVA. Effective the third
quarter of 2014, the scalars for inclusion of CVA for CET1, Tier 1, and Total
Capital RWA are 57%, 65%, and 77% respectively.
During the year, RWA increased $42 billion, primarily due to higher
RWA requirements with transition to Basel III and organic growth in
the retail and commercial businesses in both Canada and the U.S.
The new rules required a capital charge add-on for derivatives credit
valuation adjustment effective January 1, 2014.
61
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 4 6
FLOW STATEMENT FOR RISK-WEIGHTED ASSETS – Disclosure for non-counterparty credit risk and
counterparty credit risk – Risk-weighted assets movement by key driver
October 31, 2014
October 31, 2013
For the three months ended
Non-counterparty
credit risk
Counterparty Non-counterparty
credit risk
credit risk
Counterparty
credit risk
$ 249.1
4.0
(0.3)
(0.1)
–
–
5.2
0.1
8.9
$ 258.0
$ 16.4
1.3
–
–
–
–
0.2
–
1.5
$ 17.9
$ 246.1
5.8
(0.9)
(0.6)
–
–
(0.7)
(0.6)
3.0
$ 249.1
$ 17.6
(1.2)
–
–
–
–
–
–
(1.2)
$ 16.4
The Movement in risk levels category reflects changes in risk due
to position changes and market movements. Increases in Canadian
provincial bonds drove the increase in contribution to RWA.
The Model updates category reflects updates to the model to reflect
recent experience and changes in model scope. Updates to the Bank’s
model to incorporate changes to the treatment of TD’s own debt, and
improvements in the quality of the data underlying the model, drove
the changes.
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.
FLOW STATEMENT FOR RISK-WEIGHTED ASSETS
– Disclosure for operational risk – Risk-weighted
assets movement by key driver
T A B L E 4 8
(billions of Canadian dollars)
For the three months ended
RWA, balance at beginning of period
Revenue generation
RWA, balance at end of period
October 31
2014
$ 37.5
0.6
$ 38.1
July 31
2014
$ 36.7
0.8
$ 37.5
The movement in the Revenue generation category is mainly due
to an increase in gross income related to the U.S. Retail and Canadian
Retail segments.
(billions of Canadian dollars)
Common Equity Tier 1 Capital RWA, balance at beginning of period
Book size
Book quality
Model updates
Methodology and policy
Acquisitions and disposals
Foreign exchange movements
Other
Total RWA movement
Common Equity Tier 1 Capital RWA, balance at end of period
Counterparty credit risk comprises OTC derivatives, repo-style transac-
tions, trades cleared through central counterparties, and CVA RWA
(phased in at 57%). Non-counterparty credit risk includes loans and
advances to retail customers (individuals and small business), corporate
entities (wholesale and commercial customers), banks and govern-
ments, as well as holdings of debt, equity securities, and other assets
(including prepaid expenses, current and deferred income taxes, land,
building, equipment, 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 2014, is mainly due to growth in derivatives, corpo-
rate, and commercial loans in the Wholesale and U.S. Retail segments
and across various portfolios in the Canadian Retail segment.
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.
The Model updates category relates to model implementation,
changes in model scope, or any changes 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 the U.S.
Retail segment.
The Other category consists of items not described in the above
categories including changes in exposures not included under
advanced or standardized methodologies such as prepaid expenses,
current and deferred income taxes, land, building, equipment and
other depreciable 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 7
(billions of Canadian dollars)
RWA, balance at beginning of period
Movement in risk levels
Model updates
Methodology and policy
Acquisitions and disposals
Foreign exchange movements and other
Total RWA movement
RWA, balance at end of period
1 Not meaningful.
For the three months ended
October 31
2014
July 31
2014
$ 13.7
0.9
(0.2)
–
–
n/m1
0.7
$ 14.4
$ 12.8
0.7
0.2
–
–
n/m1
0.9
$ 13.7
62
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
ECONOMIC CAPITAL AND RISK WEIGHTED ASSETS BY SEGMENT
The following chart provides a breakdown of the Bank’s regulatory
capital and economic capital as at October 31, 2014. 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
and are described in the “Economic Capital” section of this document.
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 following
figure are predominately due to the additional Pillar II risks captured
under economic capital and the variance in confidence level. For addi-
tional information on the risks highlighted below, refer to the
“Managing Risk” section of this document.
Economic Capital (%)
Credit Risk
Market Risk
Operational Risk
Other Risks
66%
6%
11%
17%
TD Bank Group
CET1 RWA2
$ 275,925
Credit Risk
$ 14,376
Market Risk
Operational Risk $ 38,092
Corporate
Canadian Retail
U.S. Retail1
Wholesale Banking
• Personal Deposits
• Consumer Lending
• Credit Cards and
Merchant Services
• Auto Finance
• Commercial Banking
• Small Business Banking
• Direct investing
• Advice-based
Wealth Business
• Asset Management
• Insurance
• Personal Deposits
• Consumer Lending
• Credit Cards Services
• Auto Finance
• Commercial Banking
• Small Business Banking
• Advice-based
Wealth Business
• Asset Management
• TD Ameritrade
• Investment Banking
and Capital Markets
• Corporate Banking
• Equity Investments
• Treasury and Balance
Sheet Management
• Other Control Functions
Economic Capital (%)
Credit Risk
Market Risk
Operational Risk
Other Risks
65%
1%
17%
17%
Credit Risk
Market Risk
Operational Risk
Other Risks1
65%
5%
7%
23%
Credit Risk
Market Risk
Operational Risk
Other Risks
72%
16%
7%
5%
Credit Risk
Market Risk
Operational Risk
Other Risks
55%
6%
16%
23%
CET1 RWA2
$ 78,583
Credit Risk
Market Risk
$
–
Operational Risk $ 21,647
$ 146,328
Credit Risk
Market Risk
$
–
Operational Risk $ 11,432
$ 42,084
Credit Risk
Market Risk
$ 14,376
Operational Risk $ 4,497
Credit Risk
Market Risk
Operational Risk
$ 8,930
$
–
$ 516
1 U.S. Retail includes TD Ameritrade in Other Risks
2 Amounts are in millions of Canadian dollars
63
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS FUTURE CHANGES IN BASEL
Future Regulatory Capital Developments
In December 2013, BCBS published a second consultative document
proposing a revised securitization framework. The proposal aims to
enhance current methodologies for calculating securitization RWA by
making them more risk sensitive and limiting over-reliance on rating
agencies. While the second consultative document yields capital
requirements that are lower than those produced in the first consulta-
tive document, it would still generally increase the current risk weights
of securitization exposures.
In January 2014, the BCBS issued an update to the exposure
measure calculation and disclosure requirements of the Basel III lever-
age ratio framework. The leverage ratio was initially announced in the
Basel III framework in December 2010 and, similar to the ACM, is
intended to serve as a supplementary measure to risk-based capital
requirements, with the objective of constraining the build-up of excess
leverage in the banking sector. The January 2014 update made
changes to the exposure measure calculation which are expected to
result in a favourable impact to the Bank’s Basel III leverage ratio. In
July 2014, TD received its authorized leverage ratio from OSFI, which
has been communicated on a bilateral basis. In October 2014, OSFI
released its final guideline for the Leverage Ratio Requirements and
replaces the ACM with the leverage ratio on January 1, 2015. While
the Basel III leverage ratio has been reported to OSFI on a bilateral
basis since 2013, public disclosure of the ratio will commence as part
of TD’s first quarter 2015 reporting. The Bank expects to meet OSFI’s
authorized leverage ratio as at January 1, 2015.
On August 1, 2014, the Department of Finance released a public
consultation paper (the “Bail-in Consultation”) regarding a proposed
Taxpayer Protection and Bank Recapitalization regime (commonly
referred to as “bail-in”) which outlines their intent to implement a
comprehensive risk management framework for Canada’s D-SIBs. Refer
to the section on “Regulatory Developments Concerning Liquidity and
Funding” in this document for more details.
As part of adopting final Basel III rules in the U.S., effective
January 1, 2014, the Bank’s U.S. holding company and major U.S.
retail bank subsidiaries commenced reporting available regulatory
capital on a U.S. Basel III basis. RWA will continue to be reported
according to the U.S. general risk-based capital rules (namely
“Basel I”), until January 1, 2015, when the Bank’s U.S. holding
company and major U.S. retail bank subsidiaries will report both
available regulatory capital and RWA on a U.S. Basel III basis.
In February 2014, the U.S. Federal Reserve Board released final
rules on Enhanced Prudential Standards for large Foreign Bank
Organizations and U.S. Bank Holding Companies (BHCs). As a result
of these rules, TD will be required to consolidate 90% of its U.S. legal
entity ownership interests under a single top-tier U.S. Intermediate
Holding Company (IHC) by July 1, 2016, and consolidate 100% of its
U.S. legal entity ownership interest by July 1, 2017. The IHC will be
subject to the same extensive capital, liquidity, and risk management
requirements as large BHCs.
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 O2
Series P
Series Q
Series R
Series S3
Series T3
Series Y4
Series Z4
Series AA5
Series AC6
Series AE7
Series AG8
Series AI9
Series AK10
Series 111
Series 312
Total preferred shares – equity
Treasury shares – preferred
Total preferred shares
Capital Trust Securities (thousands of shares)
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
2013
2014
Number of Number of
shares/units shares/units
1,846.2 1,838.9
(3.9)
(1.6)
1,844.6 1,835.0
7.1
12.3
–
10.0
8.0
10.0
5.4
4.6
5.5
4.5
–
–
–
–
–
–
20.0
20.0
88.0
–
88.0
8.8
13.2
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
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 Note 21 to the Consolidated Financial Statements.
2 On October 31, 2014, the Bank redeemed all of its outstanding Class A First
Preferred Shares, Series O, at a redemption price of $25 per share.
3 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.
4 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.
5 On January 31, 2014, the Bank redeemed all of its outstanding 5-Year Rate
Reset Preferred Shares, Series AA, at a redemption price of $25 per share.
6 On January 31, 2014, the Bank redeemed all of its outstanding 5-Year Rate
Reset Preferred Shares, Series AC, at a redemption price of $25 per share.
7 On April 30, 2014, the Bank redeemed all of its outstanding 5-Year Rate
Reset Preferred Shares, Series AE, at a redemption price of $25 per share.
8 On April 30, 2014, the Bank redeemed all of its outstanding 5-Year Rate
Reset Preferred Shares, Series AG, at a redemption price of $25 per share.
9 On July 31, 2014, the Bank redeemed all of its outstanding 5-Year Rate
Reset Preferred Shares, Series AI, at a redemption price of $25 per share.
10 On July 31, 2014, the Bank redeemed all of its outstanding 5-Year Rate
Reset Preferred Shares, Series AK, at a redemption price of $25 per share.
11 On June 4, 2014, the Bank issued 20 million non-cumulative 5-Year Rate
Reset Preferred Shares, Series 1 (Series 1 shares) for gross cash consideration
of $500 million, which included NVCC Provisions to ensure loss absorbency at
the point of non-viability. If the NVCC Provisions were to be triggered, the maxi-
mum number of common shares that could be issued based on the formula for
conversion applicable to the Series 1 shares, and assuming there are no declared
and unpaid dividends on the Series 1 shares or Series 2 shares, as applicable,
would be 100 million.
12 On July 31, 2014, the Bank issued 20 million non-cumulative 5-Year Rate
Reset Preferred Shares, Series 3 (Series 3 shares) for gross cash consideration
of $500 million, which included NVCC Provisions to ensure loss absorbency at
the point of non-viability. If the NVCC Provisions were to be triggered, the maxi-
mum number of common shares that could be issued based on the formula for
conversion applicable to the Series 3 shares, and assuming there are no declared
and unpaid dividends on the Series 3 shares or Series 4 shares, as applicable,
would be 100 million.
64
TD BANK GROUP ANNUAL REPORT 2014 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
Bank’s 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 document. Off-balance sheet arrangements are
generally undertaken for risk management, capital management, and
funding management purposes and include securitizations, contractual
obligations, and certain commitments and guarantees.
STRUCTURED ENTITIES
TD carries out certain business activities through arrangements with
structured entities, including special purpose entities (SPEs). The Bank
uses SPEs to raise capital, obtain sources of liquidity by securitizing
certain of the Bank’s financial assets, to assist TD’s clients in securitiz-
ing their financial assets, and to create investment products for the
Bank’s 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 CMHC does
not qualify for derecognition and remain on the Bank’s Consolidated
Balance Sheet. Additionally, the Bank securitizes personal 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-sponsored entities which qualify for
derecognition and are removed from the Bank’s Consolidated Balance
Sheet. All other products securitized by the Bank were originated in
Canada and sold to Canadian securitization structures. See Notes 9 and
10 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)
Significant
unconsolidated SPEs
Significant
consolidated
SPEs
As at
Non-SPE third-parties
Residential mortgage loans
Consumer instalment and other personal loans2
Credit card loans2
Business and government loans
Total exposure
Residential mortgage loans
Consumer instalment and other personal loans2
Credit card loans2
Business and government loans
Total exposure
Securitized
assets
$ 23,796
–
–
2
$ 23,798
$ 23,157
–
–
35
$ 23,192
Carrying
value of
retained
interests
Securitized
assets
Securitized
assets
Carrying
value of
retained
interests
$ –
–
–
–
$ –
$ –
–
–
–
$ –
$
–
6,081
–
–
$ 6,081
–
$
6,141
300
–
$ 6,441
October 31, 2014
$ 9,765
–
–
2,031
$ 11,796
$ –
–
–
44
$ 44
October 31, 2013
$ 16,229
–
–
2,322
$ 18,551
$ –
–
–
52
$ 52
1 Includes all assets securitized by the Bank, irrespective of whether they are
on-balance or off-balance sheet for accounting purposes, except for securitizations
through U.S. government-sponsored entities.
2 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 derecogni-
tion of the financial assets depending on the individual arrangement
of each transaction. In instances where the Bank fully derecognizes
residential mortgage loans, the Bank may be exposed to the risks of
transferred loans through retained interests. As at October 31, 2014,
the Bank has not recognized any retained interests due to the securiti-
zation 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, the Bank has power
over the key economic decisions of the SPE, and the Bank is exposed to
the majority of the residual risks of the SPEs. As at October 31, 2014,
the SPEs had $4 billion of issued commercial paper outstanding
(October 31, 2013 – $5 billion) and $2 billion of issued notes
outstanding (October 31, 2013 – $1 billion). As at October 31, 2014,
the Bank’s maximum potential exposure to loss for these conduits
was $6 billion (October 31, 2013 – $6 billion) of which $1 billion
of underlying consumer instalment and other personal loans was
government insured (October 31, 2013 – $1 billion).
Credit Card Loans
The Bank securitizes credit card loans through a consolidated SPE as it
serves as a financing vehicle for the Bank’s assets; the Bank has power
over the key economic decisions of the SPE and is exposed to the
majority of the residual risks of the SPE. As at October 31, 2014, the
consolidated SPE had no issued notes outstanding as the remaining
notes matured during the third quarter of 2014 (October 31, 2013 –
$0.6 billion). As at October 31, 2014, the Bank’s maximum potential
exposure to loss for this SPE was nil (October 31, 2013 – $0.6 billion).
65
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
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 busi-
ness 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 Special Purpose Entities
The Bank has a securitization exposure to certain third-party originated
assets through a consolidated SPE. The Bank consolidates the SPE since
TD has power over the key economic decisions of the SPE, it is wholly-
funded by the Bank, and the Bank is exposed to the majority of the
risks of the SPE. As at October 31, 2014, the consolidated SPE had
$524 million (October 31, 2013 – $312 million) of assets secured by
underlying trade receivables originated in the U.S. The weighted-aver-
age life of these assets is 2.4 years (October 31, 2013 – 3.4 years).
The Bank’s maximum potential exposure to loss due to its funding
of the SPE as at October 31, 2014, was $524 million (October 31,
2013 – $312 million). As at October 31, 2014, the funding is
provided primarily through a senior facility that has an AA rating
from the credit rating agency. Further, as at October 31, 2014,
the Bank had committed to provide an additional $96 million
(October 31, 2013 – $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.
TD’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 $9.9 billion as at October 31, 2014
(October 31, 2013 – $9.8 billion). Further, as at October 31, 2014,
the Bank had committed to provide an additional $1.4 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, 2013 – $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 TD-administered multi-seller ABCP
conduits are included in the following table.
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, 2014
October 31, 2013
As at
Exposure and
ratings profile of
unconsolidated
SPEs
AAA1
$ 6,395
–
1,777
–
1,753
$ 9,925
Expected
weighted-
average life
(years)2
3.3
–
1.3
–
1.7
2.7
Exposure and
ratings profile of
unconsolidated
SPEs
AAA1,3
$ 5,701
–
2,208
–
1,887
$ 9,796
Expected
weighted-
average life
(years)2
2.9
–
1.3
–
2.3
2.4
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.
3 Certain comparative amounts have been restated to conform with the presentation
adopted in the current period.
As at October 31, 2014, the Bank held $1.3 billion 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, 2013 – $1.7 billion).
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 $564 million as at October 31, 2014
(October 31, 2013 – $521 million), of which nil has been drawn
(October 31, 2013 – nil). The assets within these conduits are
comprised of individual notes backed by automotive loan receivables.
As at October 31, 2014, these assets have maintained ratings from
various credit rating agencies, with a minimum rating of AA.
The Bank did not have any exposure to Canadian third party-
sponsored conduits in the form of margin funding facilities as at
October 31, 2014, and October 31, 2013.
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
theConsolidated 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, 2014, was
not significant (October 31, 2013 – 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.
66
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
GROUP FINANCIAL CONDITION
Related-Party Transactions
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
T A B L E 5 2
(millions of Canadian dollars)
Personal loans, including mortgages
Business loans
Total
As at
October 31 October 31
2013
2014
$
4
262
$ 266
$
3
181
$ 184
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
(1) TD AMERITRADE HOLDING CORPORATION
The Bank has significant influence over TD Ameritrade Holding
Corporation (TD Ameritrade) and accounts for its investment in
TD Ameritrade using the equity method. Pursuant to the Stockholders
Agreement in relation to the Bank’s equity investment in TD Ameritrade,
the Bank designated five of twelve members of TD Ameritrade’s Board
of Directors including the Bank’s Group President and Chief Executive
GROUP FINANCIAL CONDITION
Financial Instruments
Officer, its former Group President and Chief Executive Officer, two
independent directors of TD, and a former independent director of TD.
The following is a description of significant transactions of the Bank
and its affiliates with TD Ameritrade.
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 $895 million in 2014 (2013 – $821 million; 2012 –
$834 million) to TD Ameritrade for the deposit accounts. The fee paid by
the Bank is based on the average insured deposit balance of $80 billion
in 2014 (2013 – $70 billion; 2012 – $60 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 adjustment based on a specified formula).
As at October 31, 2014, amounts receivable from TD Ameritrade
were $103 million (October 31, 2013 – $54 million). As at October 31,
2014, amounts payable to TD Ameritrade were $104 million
(October 31, 2013 – $103 million).
(2) 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 process-
ing and production, and cash management services. The Bank accounts
for Symcor’s results using the equity method of accounting. During
fiscal 2014, the Bank paid $122 million (2013 – $128 million; 2012 –
$128 million) for these services. As at October 31, 2014, the amount
payable to Symcor was $10 million (October 31, 2013 – $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, 2014, and October 31, 2013.
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,
securitization 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
financial instruments are determined, refer to the “Critical Accounting
Estimates” – Determination of Fair Value section of this document. 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 document.
67
TD BANK GROUP ANNUAL REPORT 2014 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
TD 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,
fluctuations in the debt and capital markets, real estate prices, employ-
ment levels, consumer spending and debt levels, business investment,
government 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 infra-
structure, natural disasters and the level of business conducted in a
specific region. Management maintains an ongoing awareness of the
macroeconomic environment in which it operates and incorporates
potential material changes into the portfolio stress tests that are
conducted. As a result, the Bank is better able to understand the likely
impact of many of these negative scenarios and better manage the risks.
Executing on Key Priorities and Strategies
The Bank regularly has a number of priorities and strategies, including
as detailed in each segment’s “Business Segment Analysis” section
of this document, which may include large scale initiatives that are
at various stages of development or implementation. Examples include
new acquisitions, integration of recently acquired businesses, projects
to meet new regulatory requirements or enhancement of existing
technology. Risk can be elevated due to the size, scope, and complex-
ity of projects, the limited timeframes to complete the projects and
competing priorities for limited, specialized resources.
In respect of acquisitions, the Bank undertakes thorough due diligence
before completing an acquisition and closely monitors integration
activities and performance post acquisition. However, there is no
assurance that TD will achieve its objectives, including anticipated cost
savings, or revenue synergies following acquisitions and integration.
In general, while significant management attention is in place on the
governance, oversight, methodology, tools, and resources to manage
our priorities and strategies, our ability to execute on them are depen-
dent on a number of assumptions and factors. These include those set
out in the “Business Outlook” and “Risk Management” sections of
this document, as well as on disciplined resource and expense manage-
ment and our ability to implement (and the costs associated with the
implementation of) enterprise-wide programs to comply with new or
enhanced regulations or regulator demands, all of which may not be
in the Bank’s control and are difficult to predict.
If any of the Bank’s acquisition, strategic plans or priorities do not
meet with success, there could be an impact on the Bank’s operations
and financial performance and the Bank’s earnings could grow more
slowly or decline.
Technology and Information Security Risk
Technology and information security risks for large financial institutions
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 entities, organized
criminals, hackers and other external parties. The increased risks are
also a factor of our size and scale of operations, our geographic foot-
print, and our use of internet and telecommunications technologies to
conduct financial transactions, such as our continued development of
mobile and internet banking platforms. The Bank’s 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 such as targeted attacks
on banking systems and applications, malicious software, denial of
service attacks, phishing attacks and theft of data. The Bank actively
monitors, manages and continues to enhance its ability to mitigate
these technology and information security risks through enterprise-
wide programs, industry best practices, and robust threat and vulnera-
bility assessments and responses. It is possible that the Bank, or those
with whom the Bank does business, may not anticipate or implement
effective measures against all such risks, particularly because the
techniques used change frequently and risks can originate from a wide
variety of sources that have also become increasingly sophisticated.
As such, with any attack, breach or compromise of technology or
information systems, hardware or related processes, the Bank may
experience, among other things, financial loss, a loss of customer or
business opportunities, disruption to operations, misappropriation or
unauthorized release of confidential, financial or personal information,
litigation, regulatory penalties or intervention, remediation, investiga-
tion or restoration cost, and reputational damage.
68
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS Evolution of Fraud and Criminal Behaviour
The Bank is routinely exposed to various types of fraud. The sophistica-
tion, 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.
Third Party Service Providers
The Bank recognizes the value of using third parties to support its
business, as they provide access to leading processes and solutions,
specialized expertise, innovation, economies of scale and operational
efficiencies. However, they also create a reliance upon the continuity,
reliability and security of these relationships and their associated
processes, people and facilities. As the financial services industry and
its supply chains become more complex, the need for robust, sophisti-
cated controls and ongoing oversight also grows. Just as the Bank’s
own services, information technology, facilities and processes could
be subject to failures or disruptions as a result of human error, natural
disasters, utility disruptions, and criminal or terrorist acts (such as
cyber-attacks) each of its suppliers may be exposed to similar risks
which could in turn impact the Bank’s operations. Such adverse effects
could limit TD’s ability to deliver products and services to customers,
and/or damage the Bank’s reputation. Consequently, the Bank has
established expertise and resources dedicated to third party supplier
risk management, and policies and procedures governing third party
relationships from the point of selection through the life cycle of both
the relationship and the good or service. The Bank develops and tests
robust business continuity management plans which contemplate
customer, employee, and operational implications, including technol-
ogy and other infrastructure contingencies.
Introduction of New and Changes to Current Laws and Regulations
The introduction of new, and changes to current laws and regulations,
changes in interpretation of existing laws and regulations, judicial deci-
sions, 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 TD’s operations and profitability. Such adverse effects
may include incurring additional costs and resources to address initial
and ongoing compliance; limiting the types or nature of products and
services the Bank can provide and fees it can charge; unfavourably
impacting the pricing and delivery of products and services the Bank
provides; and increasing the ability of new and existing competitors to
compete with their pricing, products and services (including, in jurisdic-
tions 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. In addition to the adverse impacts described above, 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
(Dodd-Frank), a United States federal law, was signed into law
on July 21, 2010. It requires significant structural reform to the
U.S. financial services industry and ultimately affects every financial
institution operating in the U.S., including the Bank. Due to certain
extraterritorial aspects, it also impacts the Bank’s operations outside
the U.S., including in Canada. Many parts of the law are now
in effect and others are now in the implementation stage, while
regulations on other portions of the law remain to be finalized.
Certain of the rules that impact the Bank include:
• The “Volcker Rule” − In December 2013, the U.S. Federal Reserve
and other U.S. federal regulatory agencies issued final regulations
implementing the Volcker Rule provision of Dodd-Frank, which
restricts banking entities from engaging in proprietary trading and
from sponsoring or investing in certain hedge funds and private
equity funds. Under the final Volcker Rule regulations, banking
entities are required to conform their covered trading activities,
investments and sponsorship activities to the Volcker Rule by
July 21, 2015, absent an applicable exemption or further extension
to the conformance period by the Federal Reserve − The Bank has
established conformance plans, where relevant, but we are still in
the process of evaluating the full impact of the Volcker Rule on our
current activities. The Volcker Rule has and will likely continue to
increase our operational and compliance costs, and may also restrict
certain of our trading and fund investment or sponsorship activities.
• Debit Interchange − On July 31, 2013, the U.S. District Court for the
District of Columbia issued a ruling regarding the Federal Reserve’s
rules implementing a limit on debit interchange fees. The district
court’s ruling effectively required the Federal Reserve to lower the
cap on debit interchange fees by requiring the Federal Reserve to
recalculate the cap without considering certain costs to issuers.
Subsequently, the Appellate court overturned the District Court’s
decision. That Appellate court decision is now under appeal by the
merchant plaintiffs. If the Federal Reserve, upon final resolution of
the dispute, implements a lower cap on debit interchange fees, there
may be adverse impact on our debit card interchange fee revenue.
• Capital planning and Stress testing − Pursuant to the Federal
Reserve’s Comprehensive Capital Analysis and Review (CCAR)
process, we must submit our capital plan and stress test results to
the Federal Reserve on an annual and semi-annual basis respectively,
beginning in 2016. In addition, TD Bank, N.A. and TD Bank USA
are required to conduct stress testing pursuant to the requirements
of the Office of the Comptroller of the Currency (OCC), which also
defines the stress test scenarios. Any issues arising from stress test-
ing may negatively impact the Bank’s market position, businesses,
operations and reputation and lead to increased costs.
• Intermediate Holding Company − On February 18, 2014, the
U.S. Federal Reserve adopted a final rule that imposes “enhanced
prudential standards” on the operations of foreign banking organi-
zations (FBO) with consolidated assets of $10 billion or more in the
U.S., such standards including, for example, enhanced capital and
liquidity standards, stress testing requirements, and risk manage-
ment standards. In addition, FBOs with consolidated U.S. assets of
$50 billion or more, such as the Bank, must place all of their U.S.
operations (excluding branch and agency operations) under a top-
tier U.S. intermediate holding company (IHC), with 90 percent of
assets being transferred to the IHC by July 1, 2016, and the remain-
ing by July 1, 2017. It is anticipated that the foregoing actions will
likely require TD to incur operational and compliance costs and may
impact its businesses, operations and results in the U.S. and overall.
69
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS 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: gover-
nance of risk data, architecture and infrastructure, accuracy, complete-
ness, 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 enhancement
of Risk Data Aggregation.
Level of Competition and Disruptive Technology
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 pricing and distribution of products 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 technology. The nature of disruption is
such that it can be difficult to anticipate and/or respond adequately,
representing inherent risks to certain businesses including payments.
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 strate-
gies as appropriate. The Bank has been investing in enhanced capabili-
ties for our customers to transact across all of our channels seamlessly,
with a particular emphasis on mobile technologies.
The Bank has instituted an enterprise-wide regulatory reform delivery
program to analyze and implement applicable Dodd-Frank rules and
regulations in an integrated and comprehensive manner. However, the
full extent and magnitude of the adjustments to our businesses that
will be required under Dodd-Frank, and our ability to make them,
remain unclear and difficult to predict. As such, in general, in connec-
tion with Dodd-Frank regulations and actions by regulators, the Bank
could be negatively impacted by loss of revenue, limitations on the
products or services it offers, and additional compliance costs.
Basel III
OSFI’s guideline on “Liquidity Adequacy Requirements” (LAR) requires
banks to meet the Basel III Liquidity Coverage Ratio (LCR) of 100%
starting in January 2015 and the Net Stable Funding Ratio (NSFR) start-
ing in January 2018. The Bank has been managing its liquidity risk
under a prudent framework and is making necessary adjustments to
ensure compliance with LCR while maintaining liquidity levels within
the Risk Appetite of the Bank. Certain business lines will be modestly
impacted by the cost of implementing regulatory liquidity measures.
In addition, the Basel III Leverage Ratio is a non-risk based ratio that
acts as a supplementary measure to the risk-based capital require-
ments, with the objective of constraining the build-up of excess lever-
age in the banking sector. Effective January 1, 2015, the Leverage
Ratio replaces the Assets-to-Capital multiple and is required to
be publicly disclosed. The Bank continues to monitor and manage
its capital and asset levels to ensure compliance.
Consumer Businesses
Our consumer businesses are subject to extensive regulation and over-
sight. Regulatory change is occurring in all of the geographies we
operate, with some of the most significant changes arising in the U.S.
where, for instance, Dodd-Frank established the Consumer Financial
Protection Bureau (CFPB), a regulatory agency with its own examina-
tion and enforcement authority. Regulators in the U.S. have demon-
strated a trend towards establishing new standards and best practice
expectations via enforcement actions and an increased use of public
enforcement with substantial fines and penalties when compliance
breaches occur. TD continually monitors and evaluates the potential
impact of rules, proposals, consent orders and regulatory guidance
relevant to its consumer businesses and has a Fair & Responsible
Banking Compliance group which provides oversight, monitoring
and analysis of fair lending and unfair, deceptive or abusive acts or
practices risks. However, while we devote substantial compliance,
legal and operational business resources to facilitate compliance with
these rules by their respective effective dates, it is possible that we
may not be able to accurately predict the impact of final versions of
rules or enforcement actions taken by regulators. In addition, regula-
tors may continue to take formal enforcement action, rather than
taking informal supervisory actions, more frequently than they have
done historically. As a result of the foregoing, despite its prudence and
management efforts, the Bank’s operations and its product and service
offerings may be adversely impacted, therefore impacting financial
results. Also, it may be determined that the Bank has not successfully
addressed new rules, orders or enforcement actions to which it is
subject. As such, the Bank may continue to face a greater number
or wider scope of investigations, enforcement actions and litigation,
and the Bank may incur fines, penalties or judgments not in its favour
associated with non-compliance, all of which could also lead to
negative impacts on the Bank’s financial performance.
70
TD BANK GROUP ANNUAL REPORT 2014 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. The Bank’s goal is to earn
a stable and sustainable rate of return for every dollar of risk it takes,
while putting significant emphasis on investing in TD’s businesses to
ensure it can meet its future strategic objectives.
The Bank’s Enterprise Risk Framework (ERF) reinforces TD’s risk
culture, which emphasizes transparency and accountability, and
supports a common understanding among stakeholders of how the
Bank manages risk. The ERF addresses: (1) the nature of risks to the
Bank’s business strategy and operations; (2) how the Bank defines the
types of risk it is exposed to; (3) risk management governance and
organization; and (4) how the Bank manages risk through processes
that identify and assess, measure, control, and monitor and report risk.
The Bank’s risk management resources and processes are designed
to both challenge and enable all its businesses to understand the risks
they face and to manage them within TD’s risk appetite.
RISKS INVOLVED IN TD’S BUSINESSES
TD’s Risk Inventory describes the major risk categories and related
subcategories to which the Bank’s 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 (RAS) is the primary means used to
communicate how TD defines risk and determines the risks it is willing
to take. In defining its risk appetite, The Bank takes into account its
vision, mission, strategy, guiding principles, risk philosophy, and capac-
ity to bear risk. The guiding principles for TD’s RAS are as follows:
The Bank takes risks required to build its business, but only if those risks:
1. Fit the business strategy, and can be understood and managed.
2. Do not expose the enterprise to any significant single loss events;
TD does not ‘bet the Bank’ on any single acquisition, business,
or product.
3. Do not risk harming the TD brand.
TD considers current conditions and the impact of emerging risks in
developing and applying its risk appetite. Adherence to enterprise risk
appetite is managed and monitored across the Bank and is informed
by the RAS and a broad collection of principles, policies, processes, and
tools. TD’s RAS describes by major risk category the Bank’s risk princi-
ples and establishes both qualitative and quantitative measures with
key indicators, thresholds, and limits, as appropriate. RAS measures
consider both normal and stress scenarios and include those that can
be aggregated at the enterprise level and disaggregated at the business
segment level.
Risk Management is responsible for establishing practices and
processes to formulate, monitor, and report on TD’s RAS measures.
The function also monitors and evaluates the effectiveness of these
practices and measures. RAS measures are reported regularly to senior
management, the Board, and the Risk Committee of the Board
(Risk Committee); other RAS measures are tracked on an ongoing basis
by management, and escalated to senior management and the Board,
as required. Risk Management regularly assesses management’s
performance against TD’s RAS measures.
RISK CULTURE
The Bank’s risk culture embodies the “tone at the top” set by the
Board, Chief Executive Officer (CEO), and Senior Executive Team (SET),
which informs TD’s vision, mission, guiding principles, and leadership
profile. These governing objectives describe the attitudes and behav-
iours that the Bank seeks to foster, among its employees, in building
a culture where the only risks taken are those that can be understood
and managed. TD’s risk culture promotes accountability, learning from
past experiences, and encourages open communication and transpar-
ency on all aspects of risk taking. TD employees are encouraged to
challenge and escalate when they believe the Bank is operating outside
of its risk appetite.
Ethical behaviour is a key component of TD’s risk culture. TD’s Code
of Conduct and Ethics guides employees and Directors to make deci-
sions that meet the highest standards of integrity, professionalism,
and ethical behaviour. Every TD employee and Director is expected
and required to assess business decisions and actions on behalf of the
organization in light of whether it is right, legal, and fair. TD’s desired
risk culture is reinforced by linking compensation to management’s
performance against the Bank’s risk appetite. Performance against risk
appetite is a key consideration in determining compensation for execu-
tives, including adjustments to incentive awards both at the time of
award and again at maturity for deferred compensation. An annual
consolidated assessment of management’s performance against the
RAS prepared by Risk Management and reviewed by the Risk
Committee is used by the Human Resources Committee as a key input
into compensation decisions. All executives are individually assessed
against objectives that include consideration of risk and control behav-
iours. This comprehensive approach allows the Bank to consider
whether the actions of executive employees resulted in risk and control
events within their area of responsibility.
71
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS In addition, governance, risk, and oversight functions operate inde-
pendently from business segments supported by an organizational
structure that provides independent oversight and objective challenge.
Governance, risk, and oversight function heads, including the Chief
Risk Officer (CRO), have unfettered access to respective Board
Committees to raise risk, compliance, and other issues. Lastly, aware-
ness and communication of TD’s RAS 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 TD’s risk
culture by increasing the knowledge and understanding of the Bank’s
expectations for risk taking.
WHO MANAGES RISK
TD’s risk governance structure emphasizes and balances strong inde-
pendent oversight with clear ownership for risk control within each
business segment. Under the Bank’s approach to risk governance,
business segments are accountable for risks arising in their business
and are responsible for identifying, assessing and measuring the risks,
as well as designing and implementing mitigating controls. Business
segments also monitor and report on the ongoing effectiveness of
their controls to safeguard TD from exceeding its risk appetite.
The Bank’s risk governance model includes a senior management
committee structure that is designed to support transparent risk report-
ing and discussions. TD’s overall risk and control oversight is provided by
the Board and its committees (primarily the Audit and Risk Committees).
The CEO and SET determine the Bank’s long-term direction within
the Bank’s risk appetite and apply it to the business segments. Risk
Management, headed by the Group Head and CRO, recommends
enterprise risk strategy and policy and provides independent oversight
to support a comprehensive and proactive risk management approach.
The CRO, who is also a member of the SET, has unfettered access to
the Risk Committee. The Bank also employs a “three lines of defense”
model to describe the role of business segments (First Line), governance,
risk, and oversight functions, such as Risk Management, and Legal and
Regulatory Compliance functions (Second Line), and Internal Audit
(Third Line) in managing risk across TD.
Within the U.S. Retail business segment, additional risk and control
oversight is provided by a separate and distinct Board of Directors
which includes a fully independent Board Risk Committee and Board
Audit Committee. The U.S. Chief Risk Officer (U.S. CRO) has unfet-
tered access to the Board Risk Committee.
The following section provides an overview of the key roles and
responsibilities involved in risk management. The Bank’s risk governance
structure is illustrated in the following figure.
RISK GOVERNANCE STRUCTURE
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 Retail
U.S. Retail
Wholesale Banking
Internal
Audit
72
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS The Board of Directors
The Board oversees the Bank’s strategic direction, the implementation
of an effective risk management culture, and the internal control
framework across the enterprise. It accomplishes its risk management
mandate both directly and indirectly through its four committees,
primarily the Risk Committee and the Audit Committee, as well
as the Human Resources and Corporate Governance Committees.
On an annual basis, the Board reviews and approves TD’s RAS and
related measures to ensure ongoing relevance and alignment with
TD’s strategy.
The Risk Committee
The Risk Committee is responsible for reviewing and challenging
TD’s RAS prior to recommending it 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 certain enterprise risk
management policies that support compliance with TD’s risk appetite,
and monitors the management of risks and risk trends via the quarterly
review of the risk dashboard.
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 Anti-Money Laundering (AML) and
Compliance groups. The Committee monitors compliance with policies
in respect of ethical personal and business conduct, including the
Bank’s Code of Conduct and Ethics.
The Human Resources Committee
The Human Resources Committee, in addition to its other responsibili-
ties, satisfies itself that Human Resources risks are appropriately
identified and assessed, measured, controlled, and monitored in a
manner consistent with the risk programs within the Bank, and with
the sustainable achievement of the Bank’s business objectives.
The Corporate Governance Committee
The Corporate Governance Committee, in addition to its other respon-
sibilities, develops, and where appropriate, recommends 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.
Chief Executive Officer and Senior Executive Team
The CEO and the SET develop and recommend to the Board the Bank’s
long-term strategic plan and direction and also develop and recom-
mend for Board approval TD’s risk appetite. The SET manages enterprise
risk in accordance with TD’s risk appetite and considers the impact
of emerging risks on the Bank’s strategy. This accountability includes
identifying and reporting significant risks to the Risk Committee.
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 control 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 and promotes an inte-
grated 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, ALCO 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, OROC oversees the strategic assess-
ment of TD’s governance, control, and operational risk structure.
• Disclosure Committee – chaired by the Group Head, Finance,
Sourcing and Corporate Communications and Chief Financial
Officer, the Disclosure Committee ensures that appropriate controls
and procedures are in place and operating to permit timely, accu-
rate, balanced, and compliant disclosure to regulators, shareholders,
and the market.
• RRC – chaired by the CRO, RRC oversees that corporate and busi-
ness initiatives, as well as matters escalated under the Reputational
Risk Policy, with significant reputational risk profiles receive adequate
review for reputational risk implications prior to implementation.
Risk Management
The Risk Management function, headed by the CRO, provides inde-
pendent oversight of enterprise risk management, risk governance,
and control and is responsible for establishing risk management strat-
egy, frameworks, 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 functions 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. The CRO
is supported by a dedicated team of risk management professionals
organized to oversee risks arising from each of the Bank’s major
risk categories. There is an established process in place for the
identification and assessment of top and emerging risks. In addition,
the Bank has clear procedures governing 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 accountability for risk within the business segment.
Business management is responsible for recommending the business-
level risk appetite and measures, which are reviewed and challenged
by Risk Management, endorsed by the ERMC and approved by the
CEO, to align with TD’s risk appetite and manage risk within approved
risk limits.
Internal Audit
TD’s internal audit function provides independent assurance to the
Board regarding 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 compli-
ance risk across the Bank to align with the policies established and
approved by the Audit and Risk Committees. The Compliance
Department is responsible for establishing risk-based programs and
standards to proactively manage known and emerging compliance
risk across TD. The Compliance Department provides independent
oversight and delivers operational control processes to comply with
applicable legislation and regulatory requirements.
Anti-Money Laundering
The Global AML group establishes a risk-based program with 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. Business segments are accountable for
AML risk and are responsible for identifying and assessing the risk,
measuring, designing, and implementing mitigating controls, as well
as monitoring the risk.
73
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS Treasury and Balance Sheet Management
The Treasury and Balance Sheet Management (TBSM) group manages,
directs, and reports on the Bank’s capital and investment positions,
interest rate risk, liquidity and funding risk, and the market risks of
TD’s non-trading banking activities. The Risk Management function
oversees TBSM’s capital and investment activities.
Three Lines of Defense
In order to further the understanding of responsibilities for risk
management, the Bank employs a “three lines of defense” model
that describes the roles and responsibilities of the business segments,
governance, risk and oversight functions, and Internal Audit in
managing risk across the Bank. The following chart describes the
respective accountabilities of each line of defense at TD.
THREE LINES OF DEFENCE
First Line
Identify and Control
Business Segment Accountabilities
• Manage and identify risk in day-to-day activities owned by the line of business.
• Ensure activities are within TD’s risk appetite and risk management policies.
• Design, implement, and maintain effective internal controls.
• Implement risk based approval processes for all new products, services, activities, processes, and systems.
• Deliver training, tools, and advice to support its accountabilities.
• Monitor and report on risk profile.
Second Line
Governance, Risk, and Oversight Function Accountabilities
Set Standards and Challenge
• Establish enterprise governance, risk, and control strategies and policies.
• Provide oversight and independent challenge to the First Line of defense through review, inquiry,
and discussion.
• Develop and communicate governance, risk, and control policies.
• Provide training, tools, and advice to support the First Line of defense in carrying out its accountabilities.
• Monitor and report on compliance with risk appetite and policies.
Third Line
Internal Audit Accountabilities
Independent Assurance
• Verify independently that TD’s ERF is operating effectively.
• Validate the effectiveness of the First and Second Lines of defense in fulfilling their mandates
and managing risk.
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
to the extent they may impact TD, 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, under-
stood, and actively managed by business management and all
employees, individually and collectively.
• Independent Oversight – Risk policies, monitoring, and reporting
will be established and conducted 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.
The Bank’s objective is to establish and maintain integrated risk identi-
fication 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 the Bank’s risk
management process. TD’s risk measurement process aligns with regu-
latory requirements such as capital adequacy, leverage ratios, liquidity
measures, stress testing, and maximum credit exposure guidelines
established by its regulators. Additionally, the Bank has a process in
place to quantify risks to provide accurate and timely measurements
of the risks it assumes.
In quantifying risk, the Bank uses various risk measurement method-
ologies, 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, leverage ratios, and capital adequacy
metrics. The Bank 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 the
Bank’s internal controls are effective. This allows the Bank to identify,
escalate, and monitor significant risk issues as needed.
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TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS 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.
The Bank’s approach to risk control also includes risk and capital
assessments 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
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
The Bank monitors and reports on risk levels on a regular basis against
TD’s risk appetite and Risk Management reports on its risk monitoring
activities to senior management, the Board and its Committees,
and appropriate executive and management committees. The ERMC,
the Risk Committee, and the Board also receive annual and periodic
reporting on enterprise-wide stress testing and an annual update on
the Bank’s ICAAP. Complementing regular risk monitoring and report-
ing, 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
EWST at TD is part of the long-term strategic, financial and capital
planning exercise that helps validate the risk appetite of the Bank. 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 enterprise-
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.
The Risk Capital Committee, which is a subcommittee of the Asset
Liability and Capital Committee, provides oversight of the processes
and practices governing the EWST program.
As part of its 2014 program, the Bank evaluated two internally
generated macroeconomic stress scenarios covering a range of severi-
ties and duration, as described below. The scenarios were constructed
to cover a wide variety of risk factors meaningful to TD’s risk profile in
both the North American and global economies. Stressed macroeco-
nomic variables such as unemployment, GDP, resale home prices and
interest rates were forecast over the stress horizon which drives the
assessment of impacts. In both scenarios evaluated in the 2014
program, the Bank remained adequately capitalized with management
actions. Results of the scenarios were reviewed by senior executives,
incorporated in the Bank’s planning process, and presented to the Risk
Committee and the Board.
ENTERPRISE-WIDE STRESS SCENARIOS
Extreme Scenario
Severe Scenario
• The scenario emanates from a banking crisis stemming from emerg-
ing markets leading to sovereign and private sector defaults and a
subsequent global recession. 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 GDP, home
prices and unemployment align with historically observed recessions.
• External shocks to the Canadian economy trigger an unwinding of
household imbalances. Unemployment rises sharply as home prices
deteriorate significantly.
Separate from the EWST program, the Bank’s U.S. based subsidiaries
complete their own capital planning and regulatory stress testing exer-
cises. These include Office of the Comptroller (OCC) Dodd-Frank Act
Stress Testing (DFAST) requirements for operating banks, and the
Federal Reserve Board’s capital plan rule and related Comprehensive
Capital and Analysis Review (CCAR) requirements beginning in 2015
for the holding company.
TD 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 TD
reaching the point of non-viability in order to consider meaningful
remedial actions for replenishing the Bank’s capital and liquidity position.
75
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS 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 devel-
oping the Bank’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 identifying and assessing, measuring,
controlling and reporting on the effectiveness and risks of their busi-
ness strategies. The ERMC oversees the identification and monitoring
of significant and emerging risks related to TD’s strategies and ensures
that mitigating actions are taken where appropriate. The CEO, SET
members, and other senior executives report to the Board on the
implementation of the Bank’s strategies, identifying the risks within
those strategies, and explaining how they are managed.
HOW TD MANAGES STRATEGIC RISK
The strategies and operating performance of significant business units
and corporate functions are assessed regularly by the CEO and the
relevant members of the SET through an integrated financial and stra-
tegic planning process, management meetings, operating/financial
reviews, and strategic business reviews. The Bank’s annual planning
process considers individual segment long-term and short-term strate-
gies and associated key initiatives while also establishing enterprise
asset concentration limits. The process evaluates alignment between
segment-level and enterprise-level strategies and risk appetite. Once
the strategy is set, regular strategic business reviews conducted
throughout the year ensure that alignment is maintained. The reviews
include an evaluation of the strategy of each business, the overall
operating environment 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 the Bank’s strategy and risk appetite in accordance with its
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, 2014 and 2013.
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.
The Bank’s primary objective is to be methodical in its credit risk
assessment so that the Bank can better understand, select, and
manage its exposures to reduce significant fluctuations in earnings.
The Bank’s strategy is to ensure central oversight of credit risk in
each business, and reinforce 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 inte-
grated into each business, but each credit risk control unit separately
reports to Risk Management to ensure objectivity and accountability.
Each business segment’s credit risk control unit is responsible for its
credit decisions and must comply with established policies, exposure
guidelines, credit approval limits, and policy/limit exception procedures.
It must also adhere to established enterprise-wide standards of credit
assessment and obtain Risk Management’s approval for credit decisions
beyond their discretionary authority.
Risk Management provides independent oversight of credit risk by
developing policies that govern and control portfolio risks, and prod-
uct-specific policies, as required.
The Risk Committee of the Board oversees the management
of credit risk and annually approves major credit risk policies.
HOW TD MANAGES 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, and 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
decision-making strategies, including policy and limit exception
management guidelines, as well as the discretionary limits of officers
throughout the Bank for extending lines of credit.
Limits are established to monitor and control country, industry,
product, geographic, and group exposure risks in the portfolios in
accordance with enterprise-wide policies.
In TD’s Retail businesses, the Bank uses established underwriting
guidelines (which includes collateral and loan-to-value constraints)
along with 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 exposure and performance, and size
of total bank relationship, as well as external data such as credit
bureau information, to determine the amount of credit it is prepared
to extend to retail customers and to estimate future credit perfor-
mance. Established policies and procedures are in place to govern the
use and ongoing monitoring and assessment of the performance 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. Larger dollar exposures and material exceptions to policy are
escalated to Retail Risk Management. Material policy exceptions are
tracked and reported to monitor portfolio trends and identify potential
weaknesses in underwriting guidelines and strategies. Where unfa-
vourable trends are identified, remedial actions are taken to address
those weaknesses.
76
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS The Bank’s 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 it is willing to extend to a particular
borrower. Management processes are used to monitor country,
industry, and borrower or counterparty risk ratings, which include
daily, monthly, quarterly, and annual review requirements for credit
exposures. The key parameters used in the Bank’s 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,
dividends, and trade-related finance, as well as repatriation of the
Bank’s capital in that country. The Bank currently has credit exposure
in a number of countries, with the majority of the exposure in North
America. The Bank measures country risk using approved risk rating
models and qualitative factors that are also used to establish country
exposure limits covering all aspects of credit exposure across all busi-
nesses. Country risk ratings are managed on an ongoing basis and
are subject to a detailed review at least annually.
As part of the Bank’s credit risk strategy, the Bank sets limits on the
amount of credit it is prepared to extend to specific industry sectors.
The Bank monitors its concentration to any given industry to ensure
that the loan portfolio is diversified. The Bank manages its risk using
limits based on an internal risk rating score that combines TD’s indus-
try risk rating model and detailed industry analysis, and regularly
reviews industry risk ratings to ensure that those ratings properly
reflect the risk of the industry. The Bank assigns a maximum exposure
limit or a concentration limit to each major industry segment which
is a percentage of its total wholesale and commercial exposure.
The Bank may also set limits on the amount of credit it is 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.
The Bank may also use credit derivatives to mitigate industry
concentration and borrower-specific exposure as part of its 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. The Basel Framework sets out several
options which represent increasingly more risk-sensitive approaches
to calculating credit, market, and operational RWA.
Credit Risk and the Basel Framework
The Bank received approval from OSFI to use the Basel Advanced
Internal Ratings Based (AIRB) Approach for credit risk, effective
November 1, 2007. The Bank uses the AIRB Approach for all material
portfolios, except in the following areas:
• TD has approved exemptions to use the Standardized Approach
for some small credit exposures in North America. Risk Management
reconfirms annually that this approach remains appropriate.
• TD has received temporary waivers to use the Standardized
Approach for the majority of its U.S. credit portfolios and for
some small credit portfolios. The Bank is currently in the process
of transitioning these portfolios to the AIRB Approach.
To continue to qualify using the AIRB Approach for credit risk, the
Bank must meet the ongoing conditions and requirements established
by OSFI and the Basel Framework. The Bank regularly assesses its
compliance with these 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 under-
lying 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: PD – the likelihood that the borrower will not be able
to meet its scheduled repayments within a one year time horizon;
LGD – the amount of loss the Bank would likely incur when a borrower
defaults on a loan, which is expressed as a percentage of EAD – the
total amount the Bank is exposed to at the time of default. By applying
these risk parameters, TD can measure and monitor its credit risk to
ensure it remains within pre-determined thresholds.
Retail Exposures
In the retail portfolio, including individuals and small businesses, the
Bank manages exposures on a pooled basis, using predictive credit scor-
ing techniques. There are three sub-types of retail exposures: residential
secured (for example, individual mortgages and 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 example, 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
exposure sub-types. For each Canadian retail portfolio, the Bank
has retained 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 reflects 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 AIRB 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, such
as loan size, interest rate, and collateral, where applicable; an account’s
previous history and current status; an account’s age on books; a
customer’s credit bureau attributes; and a customer’s other holdings
with the Bank. For secured products such as residential mortgages,
property characteristics, loan-to-value ratios, and a 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.
Exposures are then assigned to one of nine pre-defined PD segments
based on their estimated long-run average one-year PD.
The risk discriminative and predictive power of the Bank’s retail credit
models is assessed against the most recently available one-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.
77
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS 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 to 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 esti-
mates similarly reflect a downturn scenario.
Non-Retail Exposures
In the non-retail portfolio, the Bank manages exposures on an individ-
ual borrower basis, using industry and sector-specific credit risk models,
and expert judgment. The Bank has categorized non-retail credit risk
exposures according to the following Basel counterparty types: corpo-
rate, including wholesale and commercial customers, sovereign, and
bank. Under the AIRB approach, CMHC-insured mortgages are consid-
ered sovereign risk and are 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). The Bank uses
this system for all corporate, sovereign, and bank exposures. The Bank
determines 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 capi-
tal, economic capital, and incurred but not identified allowance for
credit losses. Consistent with the AIRB approach to measure capital
adequacy at a one-year risk horizon, the parameters are estimated
to a twelve-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, the Bank reviews the borrower’s competitive position, financial
performance, economic and industry trends, management quality, and
access to funds. Under the AIRB 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 rele-
vant and material information must be taken into account and the
information being used must be current. Quantitative rating models
are used to rank 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 transi-
tion 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 uncer-
tainty. The calibration process for PD is a through-the-cycle approach.
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 AIRB 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 one-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.
Credit Risk Exposures Subject to the Standardized Approach
Currently the Standardized Approach to credit risk is used primarily for
assets in the U.S. credit portfolio. The Bank is 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 counterparty type, product type,
and the nature/extent of credit risk mitigation. TD uses external credit
ratings, including Moody’s and S&P to determine the appropriate risk
weight for its exposures to sovereigns (governments, central banks,
and certain public sector entities) and banks (regulated deposit-taking
institutions, securities firms, and certain public sector entities).
The Bank applies 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%.
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.
78
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS 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 TD. The Bank uses 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.
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. The Bank establishes various limits including gross notional
limits to manage business volumes and concentrations. TD regularly
assesses market conditions and the valuation of underlying financial
instruments. Counterparty credit risk may increase during periods of
receding market liquidity for certain instruments. Capital Markets Risk
Management meets regularly with Market and Credit Risk Management
and Trading businesses to discuss how evolving market conditions may
impact the Bank’s 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. The Bank also executes
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 the Bank uses
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 expo-
sures, and managing the size, diversification, and maturity structure
of the portfolios.
There are two types of wrong-way risk exposures, namely 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. The Bank measures and
manages specific wrong-way risk exposures in the same manner as
direct loan obligations and controls 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, 2014, after taking into account risk mitigation
strategies, TD does not have material derivative exposure to any coun-
terparty 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 vali-
dated on a regular basis 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, appro-
priate, 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 the Bank’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 the Bank’s credit
risk rating system.
Stress Testing
To determine the potential loss that could be incurred under a range
of adverse scenarios, the Bank subjects its 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 the Bank uses 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, automobiles, and other
business assets, such as accounts receivable, inventory, and fixed assets.
In the Wholesale Banking business, a large portion of loans is to invest-
ment 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 docu-
ment, register, perfect, and monitor collateral.
The Bank also uses collateral and master netting agreements to
mitigate derivative counterparty exposure. Security for derivative expo-
sures 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, safekeeping, and release of pledged securities.
In all but exceptional situations, the Bank secures collateral by
taking possession and controlling it in a jurisdiction where it can
legally enforce its collateral rights. In exceptional situations and when
demanded by TD’s counterparty, the Bank holds or pledges collateral
with an acceptable third-party custodian. The Bank documents all
such third-party arrangements with industry standard agreements.
Occasionally, the Bank may take guarantees to reduce the risk in
credit exposures. For credit risk exposures subject to AIRB, the Bank
only recognizes 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. The Bank’s 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
the Bank uses for all counterparties for which it has 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 residential real property 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. The Bank has specific risk management guidelines
addressing the circumstances when they may be used, and processes
to periodically validate AVMs including obtaining third party appraisals.
79
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS Gross Credit Risk Exposure
Gross credit risk exposure, also referred to as EAD, is the total
amount the Bank is 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 mitiga-
tion and includes both on-balance sheet and off-balance sheet expo-
sures. 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 the Bank uses
to measure credit risk is included in the following table.
T A B L E 5 3
GROSS CREDIT RISK EXPOSURE – Standardized and AIRB Approaches1,2
(millions of Canadian dollars)
Retail
Residential secured
Qualifying revolving retail
Other retail
Total retail
Non-retail
Corporate
Sovereign
Bank
Total non-retail
Gross credit risk exposures
October 31, 2014
As at
October 31, 2013
Standardized
AIRB
Total
Standardized
AIRB
Total
$ 28,599
–
48,093
76,692
85,948
35,788
9,794
131,530
$ 208,222
$ 261,063
59,316
36,680
357,059
177,826
96,948
98,736
373,510
$ 730,569
$ 289,662
59,316
84,773
433,751
263,774
132,736
108,530
505,040
$ 938,791
$ 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
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 Prior to 2014, the amounts have not been adjusted to reflect the impact of the
New IFRS Standards and Amendments.
Other Credit Risk Exposures
Non-trading Equity Exposures
TD’s non-trading equity exposures are at a level that represents less
than 5% of the Bank’s combined Tier 1 and Tier 2 Capital. As a result,
the Bank uses OSFI-prescribed risk weights to calculate RWA on non-
trading equity exposures.
Securitization Exposures
For externally rated securitization exposures, the Bank uses both the
Standardized Approach and the Ratings Based Approach (RBA). Both
approaches assign risk weights to exposures using external ratings.
The Bank uses ratings assigned by one or more external rating agen-
cies, including Moody’s and S&P. 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.
The Bank uses the Internal Assessment Approach (IAA) to manage
the credit risk of its exposures relating to ABCP securitizations that are
not externally rated.
Under the IAA, the Bank considers all relevant risk factors in assess-
ing the credit quality of these exposures, including those published by
the Moody’s and S&P rating agencies. The Bank also uses loss coverage
models and policies to quantify and monitor the level of risk, and facili-
tate its management. The Bank’s IAA process includes an assessment
of the extent by which the enhancement available for loss protection
provides coverage of expected losses. The levels of stressed coverage
the Bank requires for each internal risk rating are consistent with the
rating agencies’ published stressed factor requirements for equivalent
external ratings by asset class.
All exposures are assigned an internal risk rating based on the Bank’s
assessment, which must be reviewed at least annually. The Bank’s
ratings reflect its assessment of risk of loss, consisting of the combined
PD and LGD for each exposure. The ratings scale TD uses corresponds
to the long-term ratings scales used by the rating agencies.
The Bank’s IAA process is subject to all of the key elements and
principles of the Bank’s risk governance structure, and is managed
in the same way as outlined in this Credit Risk section.
The Bank uses the results of the IAA in all aspects of its 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 calcu-
late RWA for capital purposes.
Market Risk
Trading Market Risk is the risk of loss in financial instruments on 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,
or 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.
The Bank is exposed to market risk in its trading and investment
portfolios, as well as through its non-trading activities. In the Bank’s
trading and investment portfolios, it is an active participant in the
market, seeking to realize returns for TD through careful management
of its positions and inventories. In the Bank’s non-trading activities, it is
exposed to market risk through the everyday banking transactions that
the Bank’s customers execute with TD.
The Bank complied with the Basel III market risk requirements as at
October 31, 2014, using the Internal Model Method.
80
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
MARKET RISK LINKAGE TO THE BALANCE SHEET
The following table 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 5 4
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 through profit or loss
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
$ 43,773
101,173
55,363
4,745
63,008
56,977
75,031
481,937
13,080
5,569
1,434
42,652
944,742
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
Other liabilities1
Liabilities and Equity not exposed to market risk
Total Liabilities and equity
59,334
50,776
11,198
3,250
600,716
13,080
39,465
45,587
24,960
7,785
13,525
75,066
$ 944,742
Assets subject to market risk
Interest-bearing deposits with banks
Trading loans, securities, and other
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
Customers’ liability under acceptances
Investment in TD Ameritrade
Other assets1
Assets not exposed to market risk
Total Assets
$ 28,583
101,940
49,461
6,532
79,544
29,961
64,283
447,777
6,399
5,300
1,465
40,776
862,021
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
Other liabilities1
Liabilities and Equity not exposed to market risk
Total Liabilities and equity
50,967
49,471
21,960
12
541,605
6,399
41,829
34,414
25,592
7,982
13,071
68,719
$ 862,021
1 Other assets and liabilities related to retirement benefits, insurance and
special purpose entity liabilities.
$
377
99,274
48,731
–
–
–
8,154
–
–
–
–
–
156,536
1,793
47,050
10,190
3,242
–
–
37,247
8,242
–
–
–
–
$ 107,764
$
285
98,682
44,077
–
–
–
5,331
–
–
–
–
–
148,375
1,531
45,655
10,216
–
–
–
39,479
5,825
–
–
–
–
$ 102,706
$ 43,396
1,899
6,632
4,745
63,008
56,977
66,877
481,937
13,080
5,569
1,434
–
745,554
57,541
3,726
1,008
8
600,716
13,080
2,218
37,345
24,960
7,785
13,525
–
$ 761,912
$ 28,298
3,258
5,384
6,532
79,544
29,961
58,952
447,777
6,399
5,300
1,465
–
672,870
49,436
3,816
11,744
12
541,605
6,399
2,350
28,589
25,592
7,982
13,071
–
$ 690,596
As at
October 31, 2014
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
October 31, 2013
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
81
TD BANK GROUP ANNUAL REPORT 2014 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 on risk in order to provide effective service in
markets where its clients trade. In particular, the Bank needs to hold
inventory, act as principal to facilitate client transactions, and under-
write 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 trad-
ing results of the Bank’s trading businesses, recommend changes to
risk policies, review underwriting inventories, and review 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 2014.
HOW TD MANAGES MARKET RISK IN TRADING ACTIVITIES
Market risk plays a key part in the assessment of any trading business
strategy. The Bank launches new trading initiatives or expands existing
ones only if the risk has been thoroughly assessed, and is judged to be
within the Bank’s 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
The Bank sets trading limits that are consistent with the approved
business strategy for each business and its tolerance for the associated
market risk, aligned to its market risk appetite. In setting limits, the
Bank takes into account market volatility, market liquidity, organiza-
tional 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, credit spread, yield curve shift, price,
and volatility limits.
Another primary measure of trading limits is VaR, which the Bank
uses 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
TD computes total VaR on a daily basis by combining the General
Market Risk (GMR) and Idiosyncratic Debt Specific Risk (IDSR) associ-
ated 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.
The Bank values the current portfolio using the market price and rate
changes of the most recent 259 trading days for equity, interest rate,
foreign exchange, credit, and commodity products. 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 one-day holding
period is used for GMR calculation, which is scaled up to ten days
for regulatory 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 five-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 ten-day
holding period.
The following graph discloses daily one-day VaR usage and trading-
related revenue 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, 2014, there were 20 days of trading losses and trading-
related revenue was positive for 92% of the trading days, reflecting
normal trading activity and underwriting. 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
$100
80
60
40
20
0
(20)
(40)
82
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O
TD BANK GROUP ANNUAL REPORT 2014 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.
The Bank continuously improves its VaR methodologies and incorporates
new risk measures in line with market conventions, industry best prac-
tices, and regulatory requirements. During 2014, the Bank implemented
a modification to improve volatility risk modeling in VaR calculations.
To mitigate some of the shortcomings of VaR, the Bank uses addi-
tional 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, the Bank 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 fourth quar-
ter of fiscal 2014, Stressed VaR was calculated using the one-year
period that began on February 1, 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
represents 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 5 5
PORTFOLIO MARKET RISK MEASURES
(millions of Canadian dollars)
As at Average
High
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)
$
5.3
4.9
5.1
1.6
0.9
13.6
(16.1)
$
5.8
6.3
3.7
2.7
1.4
15.8
(17.8)
$ 15.3
29.3
275.6
$ 17.9
27.8
313.6
8.8
9.6
5.5
4
20.5
n/m2
$ 22.1
36.1
428.7
$ 12.8
$
2014
Low
3.3
3.9
1.5
0.7
0.6
12.1
n/m2
As at
Average
High
$
3.2
6.0
2.5
1.7
0.5
14.2
(12.8)
$
9.7
6.0
3.6
1.4
0.9
16.5
(18.8)
$ 19.2
10.9
8.8
5.8
2.3
23.6
n/m2
$ 14.2
21.1
222.0
$ 15.3
27.6
185.6
$ 19.3
32.0
267.9
$ 26.9
44.3
369.6
2013
Low
$
2.9
2.4
1.8
0.3
0.4
11.3
n/m2
$ 13.7
22.4
177.6
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 interest rate risk VaR decreased by $3.9 million compared to
the prior year due to reduced interest rate risk positions. Improvement
in the quality of data underlying the idiosyncratic debt specific model
introduced during 2013 coupled with a reduction in Canadian provin-
cial bond positions in the second quarter of 2014 decreased average
Stressed VaR compared with the prior year by $4.2 million. Larger
U.S. Agency and financial bond positions increased average IRC by
$46 million to $314 million compared to the prior year.
Validation of VaR Model
The Bank uses a back-testing process to compare the actual and theo-
retical 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
The Bank’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 the Bank has 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.
83
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
MARKET RISK IN OTHER WHOLESALE BANKING ACTIVITIES
The Bank is also exposed to market risk arising from a legacy portfolio
of bonds and preferred shares held in TD Securities and in its remain-
ing merchant banking investments. Risk Management reviews and
approves policies and procedures, which are established to monitor,
measure, and mitigate these risks.
The Bank is exposed to market risk when it enters into non-trading
banking transactions with its 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
TD’s traditional banking activities. Such market risks primarily include
interest rate risk and foreign exchange risk.
WHO IS RESPONSIBLE FOR ASSET/LIABILITY MANAGEMENT
TBSM measures and manages the market risks of the Bank’s 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 execu-
tives. The Market Risk Control function provides independent oversight,
governance, and control over these market risks. The Risk Committee
of the Board periodically reviews and approves key asset/liability
management and non-trading market risk policies and receives reports
on compliance with approved risk limits.
HOW TD MANAGES ITS ASSET AND LIABILITY POSITIONS
Non-trading interest rate risk is viewed as a non-productive risk as it
has the potential to increase earnings volatility and incur loss without
providing long run expected value. As a result, TBSM’s mandate is to
structure the asset and liability positions of the balance sheet in order
to achieve a target profile that controls the impact of changes in inter-
est rates on the Bank’s net interest income and economic value that is
consistent with the Bank’s RAS.
Managing Interest Rate Risk
Interest rate risk is the impact that changes in interest rates could have
on the Bank’s margins, earnings, and economic value. The objective
of interest rate risk management is to ensure that earnings are stable
and predictable over time. The Bank has adopted a disciplined hedging
approach to manage the net interest income contribution from its
asset and liability positions, including an assigned target-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; and
• developing and implementing strategies to stabilize net interest
income from all retail banking products.
The Bank is exposed to interest rate risk when asset and liability princi-
pal and interest cash flows have different interest 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.
TD’s 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 embedded options,
such as prepaying a loan or redeeming a deposit 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
twelve months for an immediate and sustained 100 bps unfavourable
interest rate shock. EaR measures the extent to which the maturing
and repricing asset and liability cash flows are matched over the next
twelve-month period and reflects how the Bank’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 the Bank’s asset portfolio and the change in the present value
of the Bank’s liability portfolio, including off-balance sheet instruments
and assumed profiles for non-rate sensitive products, 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 net 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
consistent with the Bank’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.
The Bank regularly performs valuations of all asset and liability
positions, as well as off-balance sheet exposures. TD’s objective is to
stabilize net interest income over time through disciplined asset/liability
matching and hedging.
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. The Bank
projects future cash flows by looking at the impact of:
• a target interest sensitivity profile for its core deposit portfolio;
• a target investment profile on its net equity position; and
• liquidation assumptions on mortgages other than from embedded
pre-payment options.
84
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS 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 TD to a significant
financial risk.
• Rate Commitments: The Bank models its exposure from freestand-
ing 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 prod-
ucts, is influenced by factors such as market mortgage rates, house
prices, and seasonality.
• Asset Prepayment: The Bank models its exposure to written
options embedded in other products, such as the right to prepay
residential mortgage loans, based on analysis of customer behav-
iour. Econometric models are used to model prepayments and the
effects of prepayment 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 parameters are also assessed to determine a
core liquidation speed which is independent of market incentives.
• Non-Maturity Liabilities: The Bank models its exposure to non-
maturity liabilities, such as core deposits, by assessing interest rate
elasticity and balance permanence using historical data and business
judgement. Fluctuations of non-maturity deposits can occur because
of factors such as interest rate movements, equity market move-
ments, and changes to customer liquidity preferences.
To manage product option exposures the Bank purchases options or
uses a dynamic hedging process designed to replicate the payoff of a
purchased option. The Bank also models the margin compression that
would be caused by declining interest rates on certain interest rate
sensitive demand deposit accounts.
Other market risks monitored on a regular basis include:
• Basis Risk: The Bank is exposed to risks related to the difference
in various market indices.
• Equity Risk: The Bank is exposed to equity risk through its equity-
linked guaranteed investment certificate product offering. The expo-
sure is managed by purchasing options to replicate the equity payoff.
The following graph shows the Bank’s 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, 2014 and October 31, 2013
(millions of Canadian dollars)
)
s
n
o
i
l
l
i
m
(
e
u
l
a
v
t
n
e
s
e
r
p
n
i
e
g
n
a
h
C
$150
100
50
0
(50)
(100)
(150)
(200)
(250)
Q4 2013: $(31.0)
Q4 2014: $(67.7)
(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,
funding instruments, other capital market alternatives, and, less
frequently, product pricing strategies to manage interest rate risk.
As at October 31, 2014, an immediate and sustained 100 bps increase
in interest rates would have decreased the economic value of share-
holders’ equity by $67.7 million (October 31, 2013 – $31 million) after
tax. An immediate and sustained 100 bps decrease in Canadian inter-
est rates and a 25 bps decrease in U.S. interest rates would have
reduced the economic value of shareholders’ equity by $55.7 million
(October 31, 2013 – $9.4 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 5 6
SENSITIVITY OF AFTER-TAX ECONOMIC VALUE AT RISK BY CURRENCY
(millions of Canadian dollars)
Currency
Canadian dollar
U.S. dollar1
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 0%.
October 31, 2014
October 31, 2013
100 bps
increase
$ 6.9
(74.6)
$ (67.7)
100 bps
decrease
$ (46.9)
(8.8)
$ (55.7)
100 bps
increase
$ 9.5
(40.5)
$ (31.0)
100 bps
decrease
$ (1.3)
(8.1)
$ (9.4)
For the EaR measure (not shown on the graph), a 100 bps increase in
interest rates on October 31, 2014, would have increased pre-tax net
interest income by $438 million (October 31, 2013 – $562 million
increase) in the next twelve months. A 100 basis point decrease in
interest rates on October 31, 2014, would have decreased pre-tax net
interest income by $385 million (October 31, 2013 – $373 million
decrease) in the next twelve 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 management strate-
gies overseen by ALCO. Reported EaR remains consistent with the
Bank’s risk appetite and within established Board limits.
85
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
The following table shows the sensitivity of net interest income
(pre-tax) by currency for those currencies where the Bank has
material exposure.
T A B L E 5 7
SENSITIVITY OF PRE-TAX EARNINGS AT RISK BY CURRENCY
(millions of Canadian dollars)
Currency
Canadian dollar
U.S. dollar1
October 31, 2014
October 31, 2013
100 bps
increase
$ 354.4
83.7
$ 438.1
100 bps
decrease
$ (354.3)
(31.1)
$ (385.4)
100 bps
increase
$ 309.1
252.9
$ 562.0
100 bps
decrease
$ (309.1)
(63.4)
$ (372.5)
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 0%.
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.
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 its liabilities in that currency, they
create a foreign currency open position. An adverse change in foreign
exchange rates can impact the Bank’s reported net interest income
and shareholders’ equity, and also its capital ratios.
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 the Bank’s
RWA in a foreign currency increases, thereby increasing the Bank’s
capital requirement. 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 appropri-
ate to the attainment of the following goals: (1) to generate a targeted
credit of funds to deposits in excess of lending; (2) to provide a suffi-
cient margin of liquid assets to meet unanticipated deposit and loan
fluctuations and overall funds management objectives; (3) to provide
eligible securities to meet collateral requirements and cash manage-
ment operations; and (4) 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
the Bank’s own portfolio.
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 the Bank’s busi-
nesses to a broad range of operational risks, including failed transac-
tion 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.
86
WHY MARGINS ON AVERAGE EARNING ASSETS
FLUCTUATE OVER TIME
As previously noted, the objective of the Bank’s approach to
asset/liability management is to ensure that earnings are stable and
predictable over time, regardless of cash flow mismatches and the
exercise of embedded options. This approach also creates margin
certainty on fixed rate loans and deposits as they are booked.
Despite this approach however, the margin on average earning
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; and/or
• 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 the Bank
generates on its modeled maturity profile for core deposits and the
investment profile for its 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.
The Bank’s approach tends to moderate the impact of these factors
over time, resulting in a more stable and predictable earnings stream.
The Bank uses 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 is embedded in all of the Bank’s business activities
including the practices for managing other risks such as credit, market
and liquidity risk. The Bank must mitigate and manage operational risk
so that it can create and sustain shareholder value, successfully execute
the Bank’s business strategies, operate efficiently, and provide reliable,
secure and convenient access to financial services. The Bank maintains
a formal enterprise-wide operational risk management framework that
emphasizes a strong risk management and internal control culture
throughout TD.
Under Basel, the Bank uses the Standardized Approach to calcu-
late operational risk regulatory capital. The Bank’s operational risk
management framework, described below, has been enhanced to
meet the requirements of the Advanced Measurement Approach for
operational risk and work is underway to obtain regulatory approval
for implementation.
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
WHO MANAGES OPERATIONAL RISK
Operational Risk Management is an independent function that designs
and maintains the Bank’s overall operational risk management frame-
work. This framework sets out the enterprise-wide governance
processes, policies and practices to identify and assess, measure,
control, and monitor and report operational risk. Risk Management
provides reporting of the Bank’s operational risk exposures to senior
management through the Operational Risk Oversight Committee,
the ERMC and the Risk Committee of the Board.
The Bank also maintains program groups who oversee specific enter-
prise wide operational risk policies that require dedicated mitigation
and control activities. These policies govern the activities of the corpo-
rate functions responsible for the management and appropriate over-
sight of business continuity and crisis/incident management, supplier
risk management, financial crime risk management, project change
management, technology risk management, and information security.
The senior management of individual business units is responsible
for the day-to-day management of operational risk following the
Bank’s established operational risk management policies. Within each
business segment and corporate area, an independent risk manage-
ment function uses the elements of the operational risk management
framework according to the nature and scope of the operational risks
inherent in the area. The senior executives in each business unit partici-
pate 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 the Bank.
HOW TD MANAGES OPERATIONAL RISK
The Operational Risk Management Framework outlines the internal
risk and control structure to manage operational risk and includes risk
appetite, limits, governance, policies, and processes. 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, and each corporate area’s operational risk exposures. In addition,
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 defense in safeguarding
the Bank’s 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 management and internal controls are effective, appropriate,
and compliant with the Bank’s policies.
Operational Risk Event Monitoring
In order to reduce the Bank’s exposure to future loss, it is critical that
the Bank remains aware of and responds to its own and industry oper-
ational risks. The Bank’s policies and processes require that operational
risk events be identified, tracked, and reported to the appropriate level
of management to ensure that the Bank analyzes and manages such
risks appropriately and takes suitable corrective and preventative
action. The Bank also reviews, analyzes, and benchmarks 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 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
Operational Risk Management includes oversight of the effective use
of insurance aligned with the Bank’s risk management strategy and risk
appetite. To provide the Bank with additional protection from loss, Risk
Management manages a comprehensive portfolio of insurance and
other risk mitigating arrangements. The insurance terms and provisions,
including types and amounts of coverage in the portfolio, are continu-
ally assessed to ensure that both the Bank’s tolerance for risk and,
where applicable, statutory requirements are satisfied. The manage-
ment process includes conducting regular in-depth risk and financial
analysis and identifying opportunities to transfer elements of TD’s risk
to third parties where appropriate. The Bank transacts with external
insurers that satisfy the Bank’s minimum financial rating requirements.
Technology, Information and Cyber Security
Virtually all aspects of the Bank’s business and operations use technol-
ogy 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 the Bank’s information, systems, and
infrastructure. These risks are actively managed through enterprise-
wide technology risk and information security management programs
using industry best practices and the Bank’s operational risk manage-
ment framework. These programs include robust threat and vulnerabil-
ity assessments, as well as security and disciplined change
management practices.
Business Continuity and Crisis/Incident Management
During incidents that could disrupt the Bank’s business and operations,
Business Continuity Management supports the ability of senior manage-
ment to continue to manage and operate their businesses, and provide
customers access to products and services. The Bank’s robust enter-
prise-wide business continuity management program includes formal
crisis management protocols and continuity strategies. All areas of the
Bank 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 that supplies a particular
product or service to or on behalf of the Bank. The benefits of leverag-
ing third parties include access to leading technology, specialized
expertise, economies of scale, and operational efficiencies. While these
relationships bring benefits to the Bank’s businesses and customers,
the Bank also needs to manage and minimize any risks related to the
activity. The Bank does this through an enterprise-level third-party risk
management program that guides third-party activities throughout
the life cycles of the arrangements 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
The Bank has established a disciplined approach to project manage-
ment across the enterprise coordinated by the Bank’s Enterprise Project
Management Office (EPMO). This approach involves senior manage-
ment governance and oversight of the Bank’s project portfolio and
leverages leading industry practices to guide TD’s use of standardized
project management methodology, defined project management
accountabilities and capabilities, and project portfolio reporting and
management tools to support successful project delivery.
87
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS Financial Crime
Detecting fraud and other forms of financial crime is very important to
the Bank. To do this, TD maintains extensive security systems, protocols
and practices to detect and mitigate financial crimes against the Bank.
Excluding those events involving litigation, the Bank did not experience
any material single operational risk loss event in 2014. Refer to Note
29 of the 2014 Consolidated Financial Statements for further informa-
tion on material legal or regulatory actions.
Model Risk Management
TD defines Model Risk as the potential for adverse consequences arising
from decisions based on incorrect or misused models and their outputs.
It can lead to 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 encom-
pass the entire life cycle of a model, including proof of concept, devel-
opment, initial and ongoing validation, implementation, usage, and
ongoing model performance monitoring. The model risk management
regime also captures key processes that may be partially or wholly
qualitative, or based on expert judgment. Examples of key processes
include ICAAP, liquidity management, and Basel frameworks.
Business segments identify the need for a new model or process and
are responsible for development and documentation according to Bank
policies and standards. During model development, all controls with
respect to code generation, acceptance testing, and usage are estab-
lished 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 perfor-
mance monitoring and usage in accordance with the Bank’s model risk
policy to ensure there is no inappropriate use of models. In cases where
a model is deemed obsolete or unsuitable for its originally intended
purposes, it is decommissioned in accordance with the Bank’s policies.
Risk Management maintains a centralized model inventory and
provides oversight of all models defined in the Bank’s model risk policy
and is responsible for validation and approval of new models, the peri-
odic validation of all existing models on a pre-determined schedule
depending on regulatory requirements and materiality, and regular
monitoring of model performance. The validation process varies in
rigour, depending on the model type and use, but generally includes
a detailed determination of:
• the conceptual soundness of model methodologies and underlying
quantitative and qualitative assumptions;
• the risk associated with a model based on complexity and materiality;
• the sensitivity of a model to model assumptions and changes in data
inputs including stress testing; and
• the limitations of a model and the compensating risk mitigation
mechanisms in place to address the limitations.
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 to validate 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 or processes identified as
obsolete, or no longer appropriate for use through changes in industry
practice, the business environment, or Bank strategies are subject to
decommissioning. Decommissioning responsibilities are shared between
business owners and Risk Management. In order 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, non-life premium risk, non-life reserving risk,
catastrophic risk, mortality risk, morbidity risk, and longevity risk),
policyholder 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.
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 who provide additional risk management oversight.
HOW TD MANAGES 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 Bank’s Insurance
Risk Management Framework and Insurance Risk Policy collectively
outline the internal risk and control structure to manage insurance
risk and include risk appetite, policies, processes, as well as limits and
governance. These documents are maintained by Risk Management
and support alignment with the Bank’s risk appetite for insurance risk.
The assessment of reserves for claim liabilities is central to the insur-
ance operation. The Bank establishes reserves to cover estimated future
payments (including loss adjustment expenses) on all claims arising
from insurance contracts underwritten. The reserves cannot be estab-
lished with complete certainty, and represent management’s best esti-
mate 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. Claim
liabilities are governed by the Bank’s general insurance reserving policy.
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
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 the Bank’s reinsurance
business. Underwriting risk on business assumed is managed through
a policy that limits exposure to certain types of business and countries.
The vast majority of reinsurance treaties are annually renewable,
which minimizes long term risk. Pandemic exposure is reviewed
and estimated annually.
88
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS Liquidity Risk
The risk of having insufficient cash or collateral to meet financial
obligations without, in a timely manner, raising funding at
unfavourable rates or selling assets at distressed prices. Financial
obligations can arise from deposit withdrawals, debt maturities,
commitments to provide credit or liquidity support, or the need
to pledge additional collateral.
As a financial organization, TD must ensure that the Bank has continu-
ous access to sufficient and appropriate funding to cover its financial
obligations as they come due, and to sustain and grow TD’s businesses
under normal and stress conditions. In the event of a funding disrup-
tion, the Bank must be able to continue operating without being
required to sell non-marketable assets and/or significantly altering the
Bank’s business strategy. The process that ensures adequate access to
funding, and availability of liquid assets and/or collateral under both
normal and stress conditions is known as liquidity risk management.
HOW TD MANAGES LIQUIDITY RISK
The Bank’s overall liquidity requirement is defined as the amount
of liquid assets the Bank needs to hold to be able to cover expected
future cash flow requirements, plus a prudent reserve against potential
cash outflows in the event of a capital markets disruption or other
events that could affect TD’s access to funding. The Bank does 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 for a rolling 90-day
period, the Bank uses 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 TD’s ability to meet obligations as
they come due. The Bank also assumes loss of access toall forms of
external unsecured funding during the 90-day 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-term and long-term funding for all institutions, a significant
increase in the Bank’s cost of funds, and a significant decrease in the
marketability of assets. The Bank also calculates “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 retail 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 the Bank issues on behalf of
clients and short-term revolving asset-backed commercial paper
(ABCP) channels.
TD’S LIQUIDITY RISK APPETITE
The Bank maintains a sound and prudent approach to managing its
potential exposure to liquidity risk. The Bank targets a 90-day survival
horizon under a combined Bank-specific and market-wide stress
scenario, and a 365-day survival horizon under a prolonged Bank-
specific stress scenario that impacts the Bank’s access to unsecured
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
The Bank’s Asset, Liability and Capital Committee (ALCO) oversees the
Bank’s liquidity risk management program. It ensures there are effec-
tive management structures and policies in place to properly measure
and manage liquidity risk. The Global Liquidity Forum (GLF), a subcom-
mittee of the ALCO comprised of senior management from TBSM, Risk
Management, Finance, Wholesale Banking, and representatives from
foreign operations, identifies and monitors TD’s liquidity risks. The GLF
recommends actions to the ALCO to maintain TD’s liquidity positions
within limits under normal and stress conditions.
The following treasury areas are responsible for measuring, monitor-
ing, 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 manage-
ment approaches are applied across all of the Bank’s operations.
TBSM also manages and reports the combined Canadian Retail
(including domestic wealth businesses), Corporate segment, and
Wholesale Banking liquidity positions.
• U.S. TBSM is responsible for managing the liquidity position for
U.S. Retail operations.
• Other regional treasury-related operations, including those within
TD’s insurance, foreign branches, and/or subsidiaries are responsible
for managing their liquidity risk and positions.
• Management responsible for overseeing liquidity at the regional
level ensure that policies and liquidity risk management programs
are consistent with the GLAP and address local business conditions
and/or regulatory requirements.
• The GLAP is subject to review and approval by the GLF and endorse-
ment by the ALCO.
• The Risk Committee of the Board frequently reviews reporting
of the Bank’s liquidity position and approves the Liquidity Risk
Management Framework and Board Policies annually.
89
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS TD’s liquidity policy stipulates that the Bank must maintain sufficient
“available liquidity” to cover “required liquidity” at all times through-
out the Severe Combined Stress scenario. The liquid assets TD includes
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 TD considers when determining the Bank’s available liquidity are
summarized in the following table, which does not include assets held
within the Bank’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 5 8
SUMMARY OF LIQUID ASSETS BY TYPE AND CURRENCY1,2
(billions of Canadian dollars, except as noted)
As at
Cash and due from Banks
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, 2014
$
0.1
10.0
39.4
6.9
8.3
22.7
2.4
89.8
39.8
–
31.2
23.3
54.5
9.7
4.2
162.7
$ 252.5
$ 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
$
–
27.2
1.0
5.2
3.4
3.8
0.9
41.5
–
24.8
5.6
28.7
10.8
2.6
0.1
72.6
$
0.1
37.2
40.4
12.1
11.7
26.5
3.3
131.3
39.8
24.8
36.8
52.0
65.3
12.3
4.3
235.3
–%
$
10
11
4
3
7
1
36
11
7
10
14
18
3
1
64
–
21.0
2.1
6.7
0.2
6.2
0.8
37.0
1.1
23.6
13.1
10.5
13.8
1.7
–
63.8
$ 114.1
$ 366.6
100%
$ 100.8
$
0.1
16.2
38.3
5.4
11.5
20.3
2.5
94.3
38.7
1.2
23.7
41.5
51.5
10.6
4.3
171.5
$ 265.8
$ 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
$ 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
13%
13
3
3
7
1
40
6
9
9
16
13
3
4
60
$ 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
$ 107.6
$ 332.0
100%
$ 96.4
October 31, 2013
$ 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
1 Positions stated include gross asset values pertaining to secured borrowing/lending
and reverse-repurchase/repurchase businesses.
2 Liquid assets include collateral received that can be rehypothecated
or otherwise redeployed.
90
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
Liquid assets are held in The Toronto-Dominion Bank and multiple
domestic and foreign subsidiaries and branches and are summarized
in the following table.
T A B L E 5 9
SUMMARY OF UNENCUMBERED LIQUID ASSETS BY BANK, SUBSIDIARIES, AND BRANCHES1
(billions of Canadian dollars)
The Toronto-Dominion Bank (Parent)
Bank subsidiaries
Foreign branches
Total
1 Certain comparative amounts have been reclassified to conform with
the presentation adopted in the current year.
The Bank’s monthly average liquid assets for the years ended
October 31 are summarized in the following table.
October 31
2014
$ 89.4
150.2
26.2
$ 265.8
As at
October 31
2013
$ 57.7
143.3
34.6
$ 235.6
T A B L E 6 0
SUMMARY OF AVERAGE LIQUID ASSETS BY TYPE AND CURRENCY1
(billions of Canadian dollars, except as noted)
Average for the year ended
Cash and due from Banks
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
transactions2
Bank-owned
liquid assets
$
0.3
10.2
40.0
5.4
9.6
23.3
2.1
90.9
33.8
1.0
28.8
24.5
49.5
8.8
5.4
151.8
$ 242.7
$ 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
$
–
30.0
0.7
5.5
3.4
3.8
1.0
44.4
–
30.5
5.0
23.8
4.7
2.8
3.6
70.4
$ 114.8
$ 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
1 Positions stated include gross asset values pertaining to secured borrowing/lending
and reverse-repurchase/repurchase businesses.
2 Liquid assets include collateral received that can be rehypothecated
or otherwise redeployed.
Total liquid assets
Encumbered Unencumbered
liquid assets2
liquid assets
October 31, 2014
–%
$
$
0.3
40.2
40.7
10.9
13.0
27.1
3.1
135.3
33.8
31.5
33.8
48.3
54.2
11.6
9.0
222.2
$ 357.5
$ 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
11
11
3
4
8
1
38
9
9
9
14
15
3
3
62
100%
14%
12
3
3
8
1
41
6
10
10
14
12
2
5
59
100%
–
23.3
4.7
6.0
0.7
5.0
0.9
40.6
0.8
30.5
10.0
6.6
8.5
1.8
3.2
61.4
$ 102.0
$ 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
$
0.3
16.9
36.0
4.9
12.3
22.1
2.2
94.7
33.0
1.0
23.8
41.7
45.7
9.8
5.8
160.8
$ 255.5
October 31, 2013
$ 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
91
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
Average liquid assets held in The Toronto-Dominion Bank and multiple
domestic and foreign subsidiaries and branches are summarized in the
following table.
T A B L E 6 1
SUMMARY OF AVERAGE UNENCUMBERED LIQUID ASSETS BY BANK, SUBSIDIARIES, AND BRANCHES1
(billions of Canadian dollars)
The Toronto-Dominion Bank (Parent)
Bank subsidiaries
Foreign branches
Total
1 Certain comparative amounts have been reclassified to conform with
the presentation adopted in the current year.
Average for the year ended
October 31
2014
October 31
2013
$ 71.1
149.5
34.9
$ 255.5
$ 60.0
131.4
31.5
$ 222.9
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, the
Bank applies a downward adjustment to current market value reflective
of expected market conditions and investor requirements during the
“Severe Combined Stress” scenario. Overall, the Bank expects the
reduction in current market value to be low given the underlying high
credit quality and demonstrated liquidity of the Bank’s liquid asset port-
folio. Available liquidity also includes the Bank’s 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, the 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.
The Bank does not consolidate the surplus liquidity of U.S. Retail
with the positions of other entities due to investment restrictions
imposed by the U.S. Federal Reserve on funds generated from deposit
taking activities by member financial institutions. Surplus liquidity
domiciled in certain wealth and insurance business subsidiaries are also
not included in the enterprise liquidity position calculation due to local
regulatory investment restrictions.
The ongoing management of business segment liquidity in accor-
dance with stress scenario related limits ensures there will be sufficient
sources of cash and collateral in a liquidity stress event. Additional
stress scenarios are also used to evaluate the potential range of liquidity
requirements the Bank could encounter. The Bank has liquidity contin-
gency funding plans (CFP) in place at the enterprise level and for local
entities, 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 TD’s 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 the
Bank’s 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 the Bank’s financial strength, competitive position,
and liquidity, as well as factors not entirely within the Bank’s control,
including the methodologies used by rating agencies and conditions
affecting the overall financial services industry.
T A B L E 6 2
CREDIT RATINGS1
Ratings agency
Moody’s
S&P
DBRS
October 31, 2014
Short-term
debt rating
Senior long-term
debt rating and outlook
P-1
A-1+
R-1 (high)
Aa1
AA-
AA
Negative
Negative
Stable
1 The above ratings are for The Toronto-Dominion Bank legal entity. A more
extensive 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.
The Bank regularly reviews the level of increased collateral its trading
counterparties would require in the event of a downgrade of TD’s
credit rating. The Bank holds liquid assets to ensure TD is able to
provide additional collateral required by trading counterparties in the
event of a one-notch downgrade in the Bank’s senior long-term credit
ratings. Severe downgrades could have an impact on liquidity require-
ments by necessitating the Bank to post additional collateral for the
benefit of the Bank’s trading counterparties. The following table pres-
ents the additional collateral payments that could have been called at
the reporting date in the event of one, two, and three-notch down-
grades of the Bank’s credit ratings.
T A B L E 6 3
ADDITIONAL COLLATERAL REQUIREMENTS
FOR RATING DOWNGRADES
(billions of Canadian dollars)
Average for the year ended
One-notch downgrade
Two-notch downgrade
Three-notch downgrade
92
October 31 October 31
2013
2014
$ 0.3
0.3
0.6
$ 0.4
0.7
0.9
TD BANK GROUP ANNUAL REPORT 2014 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 in the following table.
T A B L E 6 4
ENCUMBERED AND UNENCUMBERED ASSETS1
(billions of Canadian dollars, except as noted)
Cash and due from banks
Interest-bearing deposits with banks
Securities, trading loans, and other7
Derivatives
Securities purchased under reverse repurchase agreements8
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
Deferred tax assets
Other assets9
Total on-balance sheet assets
Off-balance sheet items10
Securities purchased under reverse repurchase agreements
Securities borrowing and collateral received
Margin loans and other client activity
Total off-balance sheet items
Total
Cash and due from banks
Interest-bearing deposits with banks
Securities, trading loans, and other7
Derivatives
Securities purchased under reverse repurchase agreements8
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
Deferred tax assets
Other assets9
Total on-balance sheet assets
Off-balance sheet items10
Securities purchased under reverse repurchase agreements
Securities borrowing and collateral received
Margin loans and other client activity
Total off-balance sheet items
Total
Encumbered2
Unencumbered
Other4
–
$
2.5
9.8
–
–
48.2
–
–
–
–
–
–
–
60.5
–
–
–
–
$ 60.5
$
–
1.3
10.1
–
–
55.1
–
–
–
–
–
–
–
66.5
–
–
–
–
$ 66.5
$
Available as
Collateral5
–
35.1
147.4
–
–
75.4
–
–
–
–
–
–
–
257.9
29.0
7.1
11.0
47.1
$ 305.0
$
–
21.6
135.7
–
–
67.0
–
–
–
–
–
–
–
224.3
30.8
6.0
11.5
48.3
$ 272.6
$
Other6
2.8
4.1
13.1
55.4
75.0
340.2
13.1
5.6
14.2
2.7
4.9
2.0
20.5
553.6
(75.0)
–
(7.0)
(82.0)
$ 471.6
$
3.6
3.6
18.2
49.5
64.3
307.8
6.4
5.3
13.3
2.5
4.6
1.8
19.3
500.2
(64.3)
–
(7.4)
(71.7)
$ 428.5
$
Pledged as
Collateral3
–
2.1
55.5
–
–
15.1
–
–
–
–
–
–
–
72.7
66.5
16.4
1.7
84.6
$ 157.3
$
–
2.1
53.9
–
–
15.0
–
–
–
–
–
–
–
71.0
51.8
17.7
1.3
70.8
$ 141.8
As at
October 31, 2014
Encumbered
Total Assets as a %
Assets of Total Assets
$
2.8
43.8
225.8
55.4
75.0
478.9
13.1
5.6
14.2
2.7
4.9
2.0
20.5
$ 944.7
–%
0.5
6.9
–
–
6.7
–
–
–
–
–
–
–
14.1%
October 31, 2013
$
3.6
28.6
217.9
49.5
64.3
444.9
6.4
5.3
13.3
2.5
4.6
1.8
19.3
$ 862.0
–%
0.4
7.4
–
–
8.1
–
–
–
–
–
–
–
15.9%
1 Certain comparative amounts have been restated to conform with the presentation
adopted in the current year.
2 Asset encumbrance has been analyzed on an individual asset basis. Where a partic-
ular 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.
3 Represents assets 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 Federal Home
Loan Bank (FHLB) activity.
4 Assets supporting TD’s funding activities, assets pledged against securitization
liabilities, and assets held by consolidated securitization vehicles or in pools for
covered bond issuance, and assets covering short sales.
5 Assets 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.
6 Assets 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).
7 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.
8 Assets reported in Securities purchased under reverse repurchase agreements repre-
sent the value of these transactions, and not the value of the collateral received.
9 Other assets include amounts receivable from brokers, dealers, and clients.
10 Off-balance sheet items include the collateral value from the securities received
under reverse repurchase, securities borrowing, margin loans, and other client
activity. The loan value from the reverse repurchase transactions and margin
loans/client activity is deducted from the on-balance sheet Unencumbered –
Other category.
93
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
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
The Bank has access to a variety of short-term and long-term unse-
cured and secured funding sources, including securitization channels
that it uses to meet funding requirements. The Bank’s funding
activities are conducted in accordance with the GLAP Policy that
requires, among other things, assets be funded to the appropriate
term or stressed trading market depth.
The Bank’s primary approach to managing funding activities is to
maximize the use of deposits raised through personal and commercial
banking channels. 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 excluding securitization. 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.
T A B L E 6 5
SUMMARY OF DEPOSIT FUNDING
(billions of Canadian dollars)
P&C deposits – Canadian Retail
P&C deposits – U.S. Retail
Other deposits
Total
2014
2013
$ 273.2
227.1
1.1
$ 501.4
$ 260.5
200.0
2.0
$ 462.5
The Bank maintains an active external funding program to provide
access to diversified funding sources, including asset securitization,
covered bonds, and unsecured wholesale debt. The Bank’s wholesale
funding is diversified geographically, by currency, and by distribution
network. The Bank maintains depositor concentration limits against
short-term wholesale deposits so that it does not 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 an
effort to mitigate exposures to refinancing risk during a stress event.
The Bank continues to explore all opportunities to access lower-cost
funding on a sustainable basis. The following table represents the
various sources of funding obtained as at October 31, 2014 and
October 31, 2013.
T A B L E 6 6
WHOLESALE FUNDING
(millions of Canadian dollars)
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
2013
2014
Over
2 years
Total
Total
Deposits from Banks1
Bearer Deposit Note
Certificates of Deposit
Commercial Paper
Asset Backed Commercial Paper2
Covered Bonds
Mortgage Securitization
Senior Unsecured Medium Term Notes
Subordinated Notes and Debentures3
Term Asset Backed Securities
Other4
Total
Of which:
Secured
Unsecured
Total
29 $
$ 6,578 $ 3,126 $
143
12,191
4,153
1,075
–
19
228
–
–
2,339
17 $ 10,491 $ 11,025
2,627
716
–
– 69,381 56,139
8,192
–
4,081
–
10,860 16,511 10,442
23,349 36,158 47,552
18,933 41,268 23,290
7,982
1,662
6,989
$ 26,726 $ 26,433 $ 18,353 $ 39,474 $ 25,343 $ 62,897 $ 199,226 $ 179,981
3 $
–
120
–
–
3,398
7,657
14,165
–
–
–
738 $
2
13,157
564
504
–
2,864
446
–
–
78
8
27,501
732
10
2,253
1,590
7,220
–
–
131
563
16,412
2,695
1,510
–
679
276
–
–
1,172
7,785
1,953
–
7,785
1,953
3,720
8,144
3,099
$ 1,094 $ 2,189 $ 3,368 $ 3,853 $ 11,055 $ 36,162 $ 57,721 $ 63,737
25,632
26,735 141,505 116,244
$ 26,726 $ 26,433 $ 18,353 $ 39,474 $ 25,343 $ 62,897 $ 199,226 $ 179,981
14,288
24,244
35,621
14,985
1 Includes fixed-term deposits with banks.
2 Represents asset-backed commercial paper (ABCP) issued by consolidated
Bank-owned structured entities.
3 Subordinated notes and debentures are not considered wholesale funding
as they may be raised primarily for capital management purposes.
4 Includes fixed-term deposits from non-bank institutions.
94
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
Excluding Wholesale Banking mortgage aggregation business,
the Bank’s total 2014 mortgage-backed securities issuance was
$3.8 billion (2013 – $6.3 billion), and other real-estate secured issu-
ance using asset-backed securities was $1 billion (2013 – $1 billion).
The Bank also issued $17.4 billion of unsecured medium-term notes
(2013 – $13.4 billion) and $8.6 billion of covered bonds, in various
currencies and markets during the year ended October 31, 2014
(2013 – nil). This includes unsecured medium-term notes and covered
bonds settling subsequent to year end. Refer to Note 37 of the Bank’s
2014 Consolidated Financial Statements for further details.
REGULATORY DEVELOPMENTS CONCERNING LIQUIDITY
AND FUNDING
In May 2014, OSFI released the final LAR guideline which establishes
two minimum standards based on the Basel III framework with
national supervisory discretion applied to certain treatments: the LCR
effective January 1, 2015, and the Net Stable Funding Ratio (NSFR)
effective January 1, 2018. These requirements are supplemented by
additional supervisory monitoring metrics including the liquidity and
intraday liquidity monitoring tools as considered in the Basel III frame-
work and the OSFI-designed Net Cumulative Cash Flow (NCCF). Banks
are required to submit monthly LCR and NCCF starting with the
January 2015 positions and are required to comply with the 100%
LCR limit from the first reporting. TD is well prepared to meet the
regulatory reporting and LCR compliance requirements and is finalizing
strategies to align its liquidity risk management framework with the
new regulatory standards.
In July 2014, OSFI released the final guideline on “Public Disclosure
Requirements for Domestic Systematically Important Banks on Liquidity
Coverage Ratio”. D-SIBs are required to implement the Basel LCR
Disclosure Standards beginning with the second quarter of 2015
reporting period.
In October 2014, Basel Committee on Banking Supervision released
the final standard for “Basel III: the net stable funding ratio.” The NSFR
requires that the ratio of available stable funding over required stable
funding be greater than 100%. The NSFR is designed to reduce struc-
tural funding risk by requiring banks to have sufficient stable sources
of funding and lower reliance on funding maturing in 1 year to
support their businesses. The NSFR is expected to become a minimum
standard by January 1, 2018.
On August 1, 2014, the Department of Finance released a public
consultation paper (the “Bail-in Consultation”) regarding a proposed
Taxpayer Protection and Bank Recapitalization regime (commonly
referred to as “bail-in”) which outlines their intent to implement a
comprehensive risk management framework for Canada’s D-SIBs,
which includes TD. The regime is aimed at reducing the likelihood of
failure of systemically important banks and providing authorities with
the means to restore a bank to viability in the unlikely event that a
bank should fail, without disrupting the financial system or economy
and without using taxpayer funds. When the regime is in place, it will
allow for the expedient conversion of certain bank liabilities into regu-
latory capital when OSFI has determined that a bank has become or is
about to become non-viable. It is proposed in the Bail-in Consultation
that the conversion power only apply to long-term senior debt that
is issued, originated, or renegotiated after an implementation date
determined by the Government of Canada (GoC). The GoC has also
proposed that in order to have sufficient loss absorbing capacity that
D-SIBs be subject to a higher loss absorbency requirement of between
17 to 23% of RWA, which can be met through the sum of regulatory
capital (for example, common equity and NVCC instruments) and
long-term senior debt. The Bail-in Consultation period ended in
September 2014, and no implementation timeline has been provided.
MATURITY ANALYSIS OF ASSETS, LIABILITIES AND
OFF-BALANCE SHEET COMMITMENTS
The following table summarizes on-balance 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 obliga-
tions 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 contrac-
tual amounts is not representative of future liquidity requirements.
These contractual obligations have an impact on the Bank’s short-term
and long-term liquidity and capital resource needs.
The maturity analysis presented does not depict the Bank’s
asset/liability matching or exposure to interest rate and liquidity risk.
The Bank ensures that assets are appropriately funded to protect
against borrowing cost volatility and potential reductions to funding
market availability (that is, the Bank does not fund illiquid long-term
assets with short-term maturity borrowings). The Bank 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. The Bank also funds the stable balance
of revolving lines of credit with long-term funding sources. The Bank
conducts long-term funding activities 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 loans and pre-redeem
deposits. The Bank targets to match funding maturities as closely as
possible to the expected maturity profile of its balance sheet. The Bank
also raises shorter-term unsecured wholesale deposits to fund trading
assets based on its internal estimates of liquidity of these assets under
stressed market conditions.
95
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS T A B L E 6 7
REMAINING CONTRACTUAL MATURITY
(millions of Canadian dollars)
As at
October 31, 2014
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
Deferred tax assets
Amounts receivable from brokers,
dealers, and clients
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
Amounts payable to brokers,
dealers, and clients
Insurance-related liabilities
Other liabilities5
Subordinated notes and debentures
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 liquidity6,7
$
$
2,769
28,693
1,827
5,829
172
482
98
12
358
2,347
4,827
1,411
1,350
1,353
$
–
355
3,281
2,929
662
1,851
485
$
–
45
2,225
2,941
469
1,719
966
$
– $
145
2,620
1,691
419
393
573
– $
–
5,219
7,064
– $
–
17,831
14,372
– $
–
14,887
15,710
274
5,316
5,807
348
24,877
20,478
814
25,089
27,217
14,177
50,936
–
176
1,931
–
– $
2,781
43,773
101,173
55,363
4,745
63,008
56,977
33,684
18,090
13,563
3,413
6,037
205
39
–
–
75,031
1,174
991
–
15,766
12
17,943
–
17,943
11,256
–
–
–
–
–
1,735
1,352
–
3,883
12
6,982
–
6,982
1,796
–
–
–
–
–
5,052
2,446
–
3,606
34
11,138
–
11,138
22
–
–
–
8,669
2,498
–
6,384
254
17,805
–
17,805
6
–
–
–
8,566
3,270
–
3,487
–
15,323
–
15,323
–
–
–
–
–
–
–
–
–
–
52,314
14,097
–
9,451
147
76,009
–
76,009
–
–
–
–
–
–
94,362
24,505
–
36,813
499
156,179
–
156,179
–
–
–
–
27,040
12,786
–
41,330
1,737
82,893
–
82,893
–
–
–
–
–
61,466
25,570
10,629
–
97,665
(3,028)
94,637
–
5,569
14,233
2,680
198,912
123,411
25,570
131,349
2,695
481,937
(3,028)
478,909
13,080
5,569
14,233
2,680
–
–
–
–
4,930
2,008
4,930
2,008
9,319
2,364
$ 114,436
–
390
$ 38,916
–
1,158
$ 35,444
–
77
$ 29,666
–
166
9,319
11,163
$ 27,367 $ 100,005 $ 234,254 $ 166,651 $ 198,003 $ 944,742
–
6,726
–
111
–
130
–
41
$ 10,785
4,887
–
$ 14,876
4,545
290
$ 11,242
2,552
1,284
$ 9,587
2,698
356
$ 11,165 $
1,448
–
171 $
975 $
533 $
6,287
797
12,801
5,527
15,558
2,944
– $ 59,334
–
50,776
11,198
–
231
281
447
528
370
1,218
175
–
–
3,250
5,136
6,316
16,711
28,163
11,256
2,817
6,616
4,071
11,213
21,900
1,796
2,861
6,616
1,239
3,905
11,760
22
691
5,753
76
13,163
18,992
6
518
5,278
800
4,196
10,274
–
425
35,633
19
5,862
389
1,908
1,580
839
715
1,108
519
9,431
3
17,332
26,766
–
3,812
129
6,860
13,260
6
26,326
39,592
–
7,152
108
11,934
170
11
6,704
6,885
–
9,440
–
2,944
290,980
3,249
142,155
436,384
–
11,749
343,240
15,771
241,705
600,716
13,080
39,465
–
–
45,587
24,960
10,381
151
2,697
–
–
–
$ 107,020
–
236
3,554
–
–
–
$ 56,590
–
314
903
–
–
–
$ 32,703
–
–
339
–
–
–
$ 34,578
–
531
285
–
–
–
10,384
6,079
15,897
7,785
–
56,231
$ 26,125 $ 47,214 $ 82,268 $ 47,142 $ 511,102 $ 944,742
3
1,651
5,084
–
–
56,231
–
1,468
2,536
–
–
–
–
954
99
7,785
–
–
–
774
400
–
–
–
$
69
2
20
2
6
$
137
$
207
$
205
$
3
34
5
68
5
53
7
17
5
41
7
26
205 $
5
28
7
786 $
20
42
29
1,942 $
–
47
54
3,183 $
–
–
–
– $
–
–
–
6,734
40
265
111
9
132
64
–
–
322
647
1,295
2,378
2,605
1,637
2,633
6,316
884
24
59
43
21
9
21
20
10
–
–
18,395
207
12,616
12,366
5,779
4,195
4,161
11,416
45,269
3,061
1,505
100,368
Non-consolidated SPE commitments
Commitments to liquidity facilities for ABCP
–
–
–
–
–
–
1
–
–
1
1 Amount has been recorded according to the remaining contractual maturity
5 Includes $119 million of capital lease commitments with remaining contractual
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 $17 billion of covered bonds with remaining contractual maturities of
$2 billion in ‘6 months to 9 months’, $4 billion in ‘over 1 to 2 years’, $10 billion
in ‘over 2 to 5 years’, and $1 billion in ‘over 5 years’.
maturities of $3 million in ‘less than 1 month’ , $6 million in ‘1 month to
3 months’, $8 million in ‘3 months to 6 months’, $8 million in ‘6 months to
9 months’, $8 million in ‘9 months to 1 year’, $28 million in ‘over 1 to 2 years’,
$34 million in ‘over 2 to 5 years’, and $24 million in ‘over 5 years’.
6 Includes $76 million in commitments to extend credit to private equity investments.
7 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.
96
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 6 7
REMAINING CONTRACTUAL MATURITY (continued) 1
(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
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 other2
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
Goodwill3
Other intangibles3
Land, buildings, equipment, and other
depreciable assets3
Deferred tax assets
Amounts receivable from broker,
dealers, and clients
Other assets
Total assets
Liabilities
Trading deposits
Derivatives
Securitization liabilities at fair value
Other financial liabilities designated
at fair value through profit or loss
Deposits4,5
Personal
Banks
Business and government
Total deposits
Acceptances
Obligations related to securities sold short2
Obligations related to securities sold under
repurchase agreements
Securitization liabilities at amortized cost
Amounts payable to broker,
dealers, and clients
Insurance-related liabilities
Other liabilities6
Subordinated notes and debentures
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 liquidity7,8
Non-consolidated SPE commitments
Commitments to liquidity facilities for ABCP
$
$
3,581
22,539
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
911
1,097
548
$
–
138
3,185
1,379
739
1,851
412
$
– $
–
7,089
6,801
– $
–
18,528
14,832
– $
–
12,028
14,773
2,132
5,873
2,825
527
22,725
11,804
693
34,033
12,386
4,940
49,147
–
175
1,838
–
– $
3,581
28,583
101,940
49,461
6,532
79,544
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
–
–
–
–
31,175
10,460
–
8,059
307
50,001
–
50,001
–
–
–
–
108,098
28,099
–
31,745
893
168,835
–
168,835
–
–
–
–
25,015
8,895
–
32,682
1,868
68,460
–
68,460
–
–
–
–
–
62,126
22,222
11,783
–
96,131
(2,855)
93,276
–
5,300
13,293
2,493
185,820
119,192
22,222
116,799
3,744
447,777
(2,855)
444,922
6,399
5,300
13,293
2,493
–
–
–
–
–
–
–
–
–
–
–
–
4,635
1,800
4,635
1,800
9,183
1,630
$ 106,747
–
317
$ 37,993
–
179
$ 29,089
–
55
$ 26,981
–
754
$ 22,480
–
186
9,183
10,111
$ 75,167 $ 237,528 $ 142,412 $ 183,624 $ 862,021
–
6,727
–
224
–
39
$
9,991
5,430
1,896
$ 14,000
2,719
2,385
$ 18,430
2,425
2,619
$ 5,562
1,938
3,529
$ 1,609
1,627
2,401
156 $
$
6,868
1,962
807 $
412 $
13,648
4,662
14,816
2,506
– $ 50,967
49,471
–
21,960
–
2
4
1
1
1
3
–
–
–
12
5,288
9,412
22,931
37,631
4,927
689
27,990
40
8,842
142
4,070
–
–
–
$ 101,650
8,461
3,056
13,167
24,684
1,381
605
9,116
355
4,058
13,529
91
1,481
4,201
517
775
730
6,778
255
2,825
9,858
–
156
679
578
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
682
1,428
73
3,482
14
15,794
150
27
1,860
2,037
–
8,526
–
3,023
261,463
3,968
126,298
391,729
–
17,343
319,468
17,149
204,988
541,605
6,399
41,829
–
–
34,414
25,592
3
212
3,355
–
–
–
$ 54,066
–
284
946
–
–
–
$ 41,311
–
–
543
–
–
–
$ 22,844
–
477
694
149
–
–
$ 19,429
–
703
353
–
–
–
8,882
5,586
15,939
7,982
–
51,383
$ 34,221 $ 81,986 $ 40,110 $ 466,404 $ 862,021
–
1,325
1,552
–
–
–
37
1,577
4,335
–
–
51,383
–
866
91
7,833
–
–
$
64
$
129
$
193
$
192
$
190
$
2
9
–
6
4
20
–
69
7
28
–
6
7
45
–
24
7
46
–
7
732 $
–
78
–
32
1,838 $
–
44
–
19
2,918 $
–
–
–
–
180
1,007
2,022
2,497
1,485
3,788
5,022
502
41
66
36
14
24
3
15
1
– $
–
–
–
–
–
–
6,256
27
270
–
163
16,503
200
11,675
10,806
6,379
3,676
4,056
8,414
40,395
2,655
1,410
89,466
–
561
226
237
187
4
765
–
–
1,980
1 Certain comparative amounts have been reclassified to conform with the
6 Includes $103 million of capital lease commitments with remaining contractual
presentation adopted in the current year.
2 Amount has been recorded according to the remaining contractual maturity
of the underlying security.
3 For the purposes of this table, non-financial assets have been recorded as having
‘no specific maturity’.
4 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’.
5 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’.
maturities of $3 million in ‘less than 1 month’ , $6 million in ‘1 month to
3 months’, $8 million in ‘3 months to 6 months’, $8 million in ‘6 months to
9 months’, $7 million in ‘9 months to 1 year’, $18 million in ‘over 1 to 2 years’
and $53 million in ‘over 2 to 5 years’.
7 Includes $82 million in commitments to extend credit to private equity investments.
8 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.
97
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
Capital Adequacy Risk
Capital adequacy risk is the risk of insufficient capital available in rela-
tion 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, which are referred
to as capital limits. Managing the capital levels of a financial institution
exposes the Bank to the risk of breaching regulatory capital limits.
WHO MANAGES CAPITAL ADEQUACY RISK
The Board of Directors has the ultimate responsibility for overseeing
adequacy of capital and capital management. The Board reviews the
adherence to capital limits and thresholds and reviews and approves
the annual capital plan and the Global Capital Management Policy.
The Risk Committee of the Board reviews and approves the Capital
Adequacy Risk Management Framework and 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 recommends and maintains the Capital Adequacy Risk
Management Framework and 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 alloca-
tion of capital limits for business segments and reviews adherence
to capital limits and thresholds.
Enterprise Capital Management is responsible for forecasting
and monitoring compliance with capital limits and thresholds, 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 EWST processes. Business
segments are responsible for managing to allocated capital limits.
Additionally, U.S. regulated subsidiaries of the Bank and certain
other jurisdictions manage their capital adequacy risk in accordance
with local regulatory requirements. However, related local capital
management policies and procedures conform with those of TD.
HOW TD MANAGES 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 determines capital limits and thresholds in excess of mini-
mum capital requirements. The purpose of capital limits is to reduce
the risk of a breach of minimum capital requirements, due to an unex-
pected stress event, allowing management the opportunity to react
to declining capital levels before capital limits are breached. Capital
thresholds are higher than limits, taking into account normal capital
volatility. Capital limits and thresholds 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 thresholds. 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 fore-
cast and are considered in the determination of capital thresholds.
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 failure to identify, communicate, and comply with current and
changing laws, regulations, rules, regulatory guidance, self-regulatory
organization standards, and codes of conduct. It also includes anti-
money laundering, anti-terrorist financing and economic sanctions risk.
Financial services is one of the most closely regulated industries,
and the management of a financial services business such as the
Bank’s is expected to meet high standards in all business dealings and
transactions, wherever TD operates. As a result, the Bank is exposed
to legal and regulatory compliance risk in virtually all of its activities.
Failure to meet legal and regulatory requirements not only poses
a risk of censure or penalty, and may lead to litigation, but also puts
the Bank’s reputation at risk. Financial penalties, sanctions, and other
costs associated with legal proceedings and unfavourable judicial or
regulatory judgments may also adversely affect the Bank’s business,
results of operations and financial condition.
Legal and regulatory compliance 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 the
Bank’s 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. Representatives of
these groups participate, as required, in senior operating committees
of the Bank’s businesses. Also, the senior management of these groups
have established regular meetings with and reporting to the Audit
Committee, which oversees the establishment and maintenance of
processes and policies that ensure the Bank is in compliance with the
laws and regulations that apply to it (as well as its own policies).
The Legal, Compliance, Global Anti-Money Laundering and
Regulatory Risk groups also establish risk-based programs and stan-
dards to proactively manage known and emerging legal and regulatory
compliance risk. The Compliance, Global Anti-Money Laundering and
Regulatory Risk groups also provide independent oversight and deliver
operational control processes to comply with applicable legislation and
regulatory requirements.
98
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS The Bank’s Regulatory Risk groups also create and facilitate commu-
nication with elected officials and regulators, monitor legislation and
regulations, support business relationships with governments, coordi-
nate regulatory examinations, facilitate regulatory approvals of new
products, and advance the public policy objectives of the Bank.
The Legal department works closely with the business segments
and corporate functions to identify areas of potential legal and
regulatory compliance risk, and actively manage them to reduce
the Bank’s exposure.
HOW TD MANAGES LEGAL AND REGULATORY COMPLIANCE RISK
TD’s Code of Conduct and Ethics (the “Code”) sets the “tone at
the top” for a culture of integrity throughout the Bank. 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, sanctions,
compliance, privacy, and anti-corruption practices. The Code applies
not only to employees but also all the officers and directors of the
Bank, all of whom 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 compli-
ance risk primarily by implementing appropriate policies, procedures,
and controls. The Legal, Compliance, Global Anti-Money Laundering,
and Regulatory Risk 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;
• 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 significant
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; and
• liaising with regulators and industry associations, as appropriate,
regarding new or revised legislation, regulatory guidance and/or
regulatory examinations.
The Bank’s policies and processes also provide for the timely escalation
of potential or actual material legal or regulatory issues to enable
senior management and the Board to effectively perform their
management and oversight responsibilities.
Finally, while it is not possible to completely eliminate legal risk,
the Legal Department works closely with business segments and
other corporate areas to identify and manage risk associated with
contractual obligations and plays a gatekeeper function for unaccept-
able legal risk. The Legal Department also manages litigation risk
within the TD Risk Appetite Statement and provides regular escalation
of material matters to the Audit Committee.
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 TD’s value, brand, liquidity
or customer base, or require costly measures to address.
A company’s reputation is a valuable business asset in its own right,
essential to optimizing shareholder value and therefore, is constantly
at risk. Reputational risk can arise as a consequence of any of the
organization’s activities and cannot be managed in isolation from
other forms of risk. All risk categories can have an impact on reputa-
tion, which in turn can impact TD’s brand, earnings, and capital.
WHO MANAGES REPUTATIONAL RISK
Responsibility for managing risks to the Bank’s reputation, ultimately,
lies with the SET and the executive committees that examine reputa-
tional risk as part of their regular mandate. The RRC is the executive
committee with enterprise-wide responsibility for making decisions
related to reputational risks. The mandate of the RRC is to ensure that
corporate or business initiatives with significant reputational risk
profiles have received adequate review for reputational risk implica-
tions prior to implementation.
At the same time, every employee and representative of the Bank
has a responsibility to contribute in a positive way to the Bank’s repu-
tation. This means following ethical practices at all times, complying
with applicable policies, legislation, and regulations and supporting
positive interactions with the Bank’s stakeholders. Reputational risk is
most effectively managed when everyone at the Bank works continu-
ously to protect and enhance TD’s reputation.
HOW TD MANAGES REPUTATIONAL RISK
Amongst other significant policies, TD’s enterprise-wide Reputational
Risk Management Policy is approved by the Risk Committee. This Policy
sets out the requirements under which each business segment is
required to manage reputational risk. These include implementing
procedures, and designating a business-level committee to review repu-
tational risk issues and escalating as appropriate to the enterprise RRC.
The Bank also has an enterprise-wide New Business and Product
Approval Policy that is approved by the Risk Committee and establishes
standard practices to be used across TD to approve new business and
product initiatives. The policy is supported by business segment specific
processes, which involve independent review from oversight functions,
and includes consideration of all aspects of a new product, including
reputational risk.
Environmental Risk
Environmental risk is the possibility of loss of strategic, financial,
operational or reputational value resulting from the impact of
environmental issues or concerns and related social risk 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 the Bank’s business, which include
management and operation of company-owned or managed real
estate, fleet, business operations, and associated services; (2) indirect
risks associated with the environmental performance or environmental
events, such as changing climate patterns that may impact the Bank’s
retail customers and clients to whom TD provides financing or in which
TD invests; (3) identification and management of emerging environ-
mental regulatory issues; and (4) failure to understand and appropri-
ately leverage environment-related trends to meet customer and
consumer demands for products and services.
99
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS 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 TD MANAGES ENVIRONMENTAL RISK
TD manages environmental risks within the Environmental Management
System (EMS) which consist of three components: an Environmental
Policy, an Environmental Management Framework, and Environmental
Procedures and Processes. The Bank’s EMS is consistent with the ISO
14001 international standard, which represents industry best practice.
The Bank’s Environmental Policy reflects the global scope of its envi-
ronmental activities.
Within the Bank’s Environmental Management Framework, it has
identified a number of priority areas and has made voluntary commit-
ments relating to these.
The Bank’s environmental metrics, targets, and performance are
publicly reported within its annual Corporate Responsibility Report.
Performance is reported according to the Global Reporting Initiative
(GRI) and is independently assured.
TD applies its Environmental and Social Credit Risk Management
Procedures to credit and lending in the wholesale, commercial, and
retail businesses. These procedures include assessment of TD’s clients’
policies, procedures, and performance on material environmental 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 guide-
lines have been developed for environmentally-sensitive sectors. The
Bank has been a signatory to the Equator Principles since 2007 and
reports on Equator Principle projects within its 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.
The Bank proactively monitors and assesses policy and legislative
developments, and maintains an ‘open door’ approach with environ-
mental and community organizations, industry associations, and
responsible investment organizations.
For more information on TD’s environmental policy, management
and performance, please refer to the Corporate Responsibility Report,
which is available at the Bank’s website: http://www.td.com/
corporateresponsibility/.
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 the latter’s Risk and Audit Committees.
TD monitors the risk management process at TD Ameritrade through
management governance and protocols and also participates in
TD Ameritrade’s Board.
The terms of the Stockholders Agreement provide for certain infor-
mation sharing rights in favour of TD to the extent the Bank 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 the Bank and TD Ameritrade to coordinate necessary
intercompany information flow. The Bank has designated the Group
Head, Insurance, Credit Cards and Enterprise Strategy to have respon-
sibility for the TD Ameritrade investment, including regular meetings
with the TD Ameritrade Chief Executive Officer. 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. In addition, certain
functions including Internal Audit, Treasury, Finance, and Compliance
have relationship protocols that allow for access to and the sharing of
information on risk and control issues. TD has established a compliance
committee, pursuant to a U.S. federal supervisory letter, which
provides a holistic overview of key compliance issues and develop-
ments across all of the Bank’s businesses in the U.S. including, to the
extent applicable, TD Ameritrade. As with other material risk issues,
where required, material risk issues associated with TD Ameritrade are
reported up to TD’s Risk Committee.
Pursuant to the Stockholders Agreement in relation to the Bank’s
equity investment in TD Ameritrade, the Bank designated five of
twelve members of TD Ameritrade’s Board of Directors including the
Bank’s Group President and Chief Executive Officer, its former Group
President and Chief Executive Officer, 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
ownership in TD Ameritrade and certain other limited exceptions.
Currently, the directors the Bank designates participate in a number
of TD Ameritrade Board committees, including chairing the Audit
Committee and the Human Resources and Compensation Committee,
as well as participating in the Risk Committee and Corporate
Governance Committee.
100
TD BANK GROUP ANNUAL REPORT 2014 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 2014 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 2014 Consolidated Financial Statements. The Bank has estab-
lished procedures to ensure that accounting 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 accounting policies
that require management’s judgment and estimates include account-
ing 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 structured entities.
ACCOUNTING POLICIES AND ESTIMATES
The Bank’s 2014 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 2014 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 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 and the loss event(s) results
in a decrease in the estimated cash flows of the instrument. The Bank
reviews these securities at least quarterly for impairment at the coun-
terparty-specific level. If there is no objective evidence of impairment
at the counterparty-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 consid-
ered 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 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 impairment individually
for loans that are individually significant, and collectively for loans that
are not individually significant. The allowance for credit losses repre-
sents 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 expe-
rience, 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 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.
101
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS GOODWILL AND OTHER INTANGIBLES
The fair value of the Bank’s cash generating unit (CGU) is determined
from internally developed 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 opera-
tional 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 discount rates,
compensation increases, health care cost trend rates, and mortality
rates are management’s best estimates and are reviewed annually with
the Bank’s actuaries. The Bank develops each assumption using rele-
vant 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 qual-
ity corporate bond yields as at October 31. The other assumptions are
also long-term estimates. All assumptions are subject to a degree of
uncertainty. Differences between actual experiences and the assump-
tions, as well as changes in the assumptions resulting from changes
in future expectations, result in actuarial gains and losses which are
recognized in other comprehensive income during the year and also
impact expenses in future periods.
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.
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 may change over time 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.
The Bank has implemented FVA in the fourth quarter of 2014 in
response to growing evidence that market implied funding costs and
benefits are now considered in the pricing and fair valuation of uncol-
lateralized derivatives. The FVA involves estimates and judgment as
there is currently no common industry practice or standard for deter-
mining the FVA. Some of the key drivers of FVA include the market
implied cost of funding spread over LIBOR, expected term of the
trades, and expected average exposure by counterparty. The Bank will
continue to monitor industry practice, and may refine the methodology
and the products to which FVA applies to as market practices evolve.
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 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.
102
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS CONSOLIDATION OF STRUCTURED ENTITIES
Management judgment is required when assessing whether the Bank
should consolidate an entity, particularly complex entities. For instance,
it may not be feasible to determine if the Bank controls an entity solely
through an assessment of voting rights for certain structured entities.
In this case, judgment is required to establish whether the Bank has
decision-making power over the key relevant activities of the entity
and whether the Bank has the ability to use that power to absorb
significant variable returns from the entity. If it is determined that the
Bank has both decision-making power and significant variable returns
from the entity, judgment is also used to determine whether any such
power is exercised by the Bank as principal, on its own behalf, or as
agent, on behalf of another counterparty.
Assessing whether the Bank has decision-making power includes
understanding the purpose and design of the entity in order to deter-
mine its key economic activities. In this context, an entity’s key economic
activities are those which predominantly impact the economic perfor-
mance of the entity. When the Bank has the current ability to direct
the entity’s key economic activities, it is considered to have decision-
making power over the entity.
The Bank also evaluates its exposure to the variable returns of
a structured entity in order to determine if it absorbs a significant
proportion of the variable returns the entity is designed to create.
As part of this evaluation, the Bank considers the purpose and design
of the entity in order to determine whether it absorbs variable returns
from the structured entity through its contractual holdings, which
may take the form of securities issued by the entity, derivatives with
the entity, or other arrangements such as guarantees, liquidity facili-
ties, or lending commitments.
If the Bank has decision-making power over and absorbs significant
variable returns from the entity it then determines if it is acting as prin-
cipal or agent when exercising its decision-making power. Key factors
considered include the scope of its decision-making powers; the rights
of other parties involved with the entity, including any rights to remove
the Bank as decision-maker or rights to participate in key decisions;
whether the rights of other parties are exercisable in practice; and the
variable returns absorbed by the Bank and by other parties involved
with the entity. When assessing consolidation, a presumption exists
that the Bank exercises decision-making power as principal if it is also
exposed to significant variable returns, unless an analysis of the factors
above indicates otherwise.
The decisions above are made with reference to the specific facts
and circumstances relevant for the structured entity and related
transaction(s) under consideration.
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
provisions 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 provisions
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
qualitative 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 taking
account of all the uncertainties involved.
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.
103
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS ACCOUNTING STANDARDS AND POLICIES
Current and Future Changes in Accounting Policies
CURRENT CHANGES IN ACCOUNTING POLICY
The following new and amended standards have been adopted
by the Bank.
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); and
• IFRS 12, Disclosure of Interests in Other Entities (IFRS 12).
The Bank also adopted related amendments to IFRS 10 and any
conforming changes to related standards.
The standards and amendments resulted 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 was November 1, 2013, for the Bank, and have been applied
retrospectively, allowing for certain practical exceptions and transition
relief. In order to adopt the above standards the Bank reassessed its
consolidation analyses for all of its investees, including but not limited
to, its subsidiaries, associates, joint ventures, structured entities such
as special purpose entities (SPEs) and its involvement with other third
party entities.
Consolidated Financial Statements
The Bank consolidates an entity as a result of controlling the entity,
based on the following criteria:
• The Bank has the power to direct the activities of the entity which
have the most significant impact on the entity’s risks and/or returns;
• The Bank is exposed to significant risks and/or returns arising from
the entity; and
• The Bank is able to use its power to affect the risks and/or returns
to which it is exposed.
When assessing whether the Bank controls an entity, the entity’s
purpose and design are considered in order to determine the activities
which most significantly impact the entity’s risks and/or returns.
On November 1, 2012, the transition date, the Bank’s adoption of
IFRS 10 resulted 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 were removed from the Bank’s Consolidated Financial
Statements. This resulted in a decrease to liabilities related to capital
trust securities of $1.75 billion which was replaced with an equivalent
amount of deposit note liabilities issued by the Bank to Trust IV.
The impact to the Bank’s opening retained earnings was not signifi-
cant. Other than the deconsolidation of Trust IV, IFRS 10 did not result
in 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 was
the accounting policy choice adopted by the Bank under IAS 31. On
November 1, 2012, the transition date, the Bank’s adoption of IFRS 11
did not result in 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 and
unconsolidated entities in which the Bank has involvement. The objec-
tive of IFRS 12 is to present information so that financial statement
users may evaluate the basis of control; any restrictions on consoli-
dated assets and liabilities; risk exposures arising from involvement
with unconsolidated structured entities; non-controlling interest hold-
ers’ involvement in the activities of consolidated entities; and the
Bank’s exposure to associates and joint ventures. The adoption of IFRS
12 did not result in a material impact on the Consolidated Financial
Statements of the Bank; however, the standard resulted in additional
disclosures, which are included in Note 10 on a retrospective basis.
Fair Value Measurement
IFRS 13, Fair Value Measurement (IFRS 13), provides a single framework
for fair value measurement and applies when other IFRS require or
permit fair value 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 was November 1, 2013 for the Bank,
and is applied prospectively. This new standard did not have a material
impact on the financial position, cash flows, or earnings of the Bank;
however the standard resulted in additional fair value disclosures
which are disclosed in Note 5 of the Consolidated Financial Statements
on a prospective basis.
Employee Benefits
The amendments to IAS 19, Employee Benefits (IAS 19), issued in June
2011, eliminate the corridor approach for actuarial gains and losses,
requiring the Bank to recognize immediately all actuarial gains and
losses in other comprehensive income. Under the amended standard,
the Bank has elected to reclassify cumulative actuarial gains and losses
to retained earnings. Net interest expense or income is calculated by
applying the discount rate to the net defined benefit asset or liability,
and is recorded on the Consolidated Statement of Income, along with
present and past service costs for the period. Plan amendment costs
are recognized in the period of a plan amendment, irrespective of its
vested status. Curtailments and settlements are recognized in income
by the Bank when the curtailment or settlement occurs. A curtailment
occurs when there is a significant reduction in the number of employ-
ees covered by the plan. A settlement occurs when the Bank enters
into a transaction that eliminates all further legal or constructive obli-
gation for part or all of the benefits provided under a defined benefit
plan. Furthermore, a termination benefit obligation is recognized when
the Bank can no longer withdraw the offer of the termination benefit,
or when it recognizes related restructuring costs.
104
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS The amendments to IAS 19 are effective for annual periods begin-
ning on or after January 1, 2013, which was November 1, 2013, for
the Bank, and have been applied retrospectively. On November 1, 2011,
the transition date, the amendments resulted in an increase to deferred
tax assets of $74 million, a decrease to other assets of $112 million, an
increase in other liabilities of $98 million, and a decrease to retained
earnings of $136 million.
Disclosures – Offsetting Financial Assets and Financial Liabilities
The amendments to IFRS 7, Financial Instruments: Disclosures (IFRS 7),
issued in December 2011 provide 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. While the IFRS 7 amendments will result in additional
disclosures, the amendments did not have a material impact on the
Consolidated Financial Statements of the Bank. The IFRS 7 amendments
are effective for annual periods beginning on or after January 1, 2013,
which was November 1, 2013, for the Bank. The disclosures required
by the IFRS 7 amendments have been presented on a retrospective basis
by the Bank as at October 31, 2014. Refer to Note 6 for the disclosures
required by the IFRS 7 amendments.
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.
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.
Presentation – Offsetting Financial Assets and Financial Liabilities
In December 2011, the IASB issued amendments to IAS 32, Financial
Instruments: Presentation, (the IAS 32 amendments) which clarified
the existing requirements for offsetting financial assets and financial
liabilities. These amendments are effective for annual periods begin-
ning on or after January 1, 2014, which will be November 1, 2014,
for the Bank. The Bank expects that certain bilateral transactions
related to reverse repurchase and repurchase agreements, and
amounts receivable from or payable to brokers, dealers, and clients
will no longer qualify for offsetting under the new guidance.
The Bank estimates the impact of adopting the IAS 32 amendments
will result in an increase in total assets and total liabilities of approxi-
mately $11 billion and $16 billion as at November 1, 2013, the transition
date, and October 31, 2014, respectively. There will be no impact to
opening equity, cash flows, or earnings of the Bank.
Levies
In May 2013, the IFRS Interpretations Committee (IFRIC), with the
approval of 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, which 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.
IFRIC 21 is expected to change the pattern and timing of
recognition of certain levies paid by the Bank, in that it requires
the obligation for these levies to be recognized at specific points
in time in accordance with their applicable legislation. This change
in timing of recognition is not expected to have a material impact
on the financial position, cash flows, or earnings of the Bank on
an annual basis.
Financial Instruments
In July 2014, the IASB issued the final version of IFRS 9, Financial
Instruments (IFRS 9), which replaces the guidance in IAS 39, Financial
Instruments: Recognition and Measurement (IAS 39). This final version
includes requirements on: (1) Classification and measurement of finan-
cial assets and liabilities; (2) Impairment; and (3) Hedge accounting.
Accounting for macro hedging has been decoupled from IFRS 9 and
will now be considered and issued as a separate standard. IFRS 9 is
effective for annual periods beginning on or after January 1, 2018,
which will be November 1, 2018, for the Bank, and is to be applied
retrospectively with certain exceptions. Early adoption of IFRS 9 is
permitted. IFRS 9 also permits early application of changes in the own
credit risk provision, prior to adopting all other requirements within
IFRS 9. The Bank is currently assessing the impact of adopting IFRS 9,
including early application of the own credit risk provision.
Novation of Derivatives and Continuation of Hedge Accounting
In June 2013, the IASB issued amendments to IAS 39 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 and have been retained in the final
version of IFRS 9.
Revenue from Contracts with Customers
In May 2014, the IASB issued IFRS 15, Revenue from Contracts with
Customers, which clarifies the principles for recognizing revenue and
cash flows arising from contracts with customers. The standard is
effective for annual periods beginning on or after January 1, 2017,
which will be November 1, 2017, for the Bank, and is to be applied
retrospectively. The Bank is currently assessing the impact of adopting
this standard.
105
TD BANK GROUP ANNUAL REPORT 2014 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, 2014. 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, 2014.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING
The Bank’s management is responsible for establishing and maintain-
ing 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
assurance 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 accor-
dance with authorizations of the Bank’s management and directors;
and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized 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 the
2013 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, 2014, 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,
2014. 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, 2014.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the year and quarter ended October 31, 2014, 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.
106
TD BANK GROUP ANNUAL REPORT 2014 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
IFRS as issued by the IASB.
T A B L E 6 8
INVESTMENT PORTFOLIO – Securities Maturity Schedule1
(millions of Canadian dollars)
Within
1 year
Over 1
year to
3 years
As at
October 31, 2014
Over 3
years to
5 years 10 years
Remaining terms to maturities2
With no
Over 5
specific
years maturity
years to Over 10
Total
Available-for-sale securities
Government and government-related securities
Canadian government debt
Federal
Fair value
Amortized cost
Yield
Provinces
Fair value
Amortized cost
Yield
U.S. federal government debt
Fair value
Amortized cost
Yield
U.S. states, municipalities and agencies
Fair value
Amortized cost
Yield
Other OECD government-guaranteed debt
Fair value
Amortized cost
Yield
Canadian mortgage-backed securities
Fair value
Amortized cost
Yield
Other debt securities
Asset-backed securities
Fair value
Amortized cost
Yield
Non-agency CMO
Fair value
Amortized cost
Yield
Corporate and other debt
Fair value
Amortized cost
Yield
Equity securities
Common shares
Fair value
Amortized cost
Yield
Preferred shares
Fair value
Amortized cost
Yield
Debt securities reclassified from trading
Fair value
Amortized cost
Yield
Total available-for-sale securities
Fair value
Amortized cost
Yield
1 Yields represent the weighted-average yield of each security owned at the end of
the period. The effective yield includes the contractual interest or stated dividend
rate and is adjusted for the amortization of premiums and discounts; the effect
of related hedging activities is excluded.
718 $ 4,694 $
710
1.79%
2.06%
4,672
752 $
740
2.04%
$
20
18
3.99%
– $ 8,404
–
8,355
–%
1.82%
$ 2,220 $
2,215
1.22%
655
651
1.56%
152
152
0.12%
741
737
1.76%
1,876
1,859
1,264
1,263
2.08%
2.52%
9
8
4.44%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
1,490
1,491
1,047
1,032
1.21%
1.90%
441
431
2.43%
2,567
2,433
6,433
6,411
2.75%
1.53%
1,171
1,170
1.10%
578
574
2.16%
1,165
1,164
1.80%
408
405
2.26%
–
–
–%
787
779
2.13%
2,519
2,477
2.28%
–
–
–%
–
–
–%
–
–
–%
1,004
1,003
4,168
4,157
2,756
2,753
6,480
6,445
4,495
4,473
1.20%
1.08%
0.73%
1.21%
1.00%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
1,722
1,713
2.77%
1,542
1,530
3,154
3,107
2,830
2,812
2.66%
2.98%
2.72%
428
417
3.79%
145
142
5.41%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
4,545
4,518
2.08%
152
152
0.12%
11,978
11,798
1.81%
3,322
3,313
1.67%
–
–
–%
3,306
3,256
2.24%
–
–
–%
–
–
–%
18,903
18,831
1.06%
1,722
1,713
2.77%
–
–
–%
8,099
8,008
2.91%
1,760
1,642
1,760
1,642
4.74%
4.74%
171
153
1.26%
171
153
1.26%
646
596
4.61%
112
109
4.07%
236
216
3.93%
31
27
3.97%
203
182
5.61%
64
62
5.27%
–
–
–%
$ 8,346 $ 11,429 $ 16,312 $ 12,102 $ 12,888
8,321 11,312 16,195 11,885 12,827
$ 1,931 $ 63,008
62,335
1,795
1.51%
1.94%
1.98%
1.91%
1.58%
4.44%
1.89%
2 Represents contractual maturities. Actual maturities may differ due to prepayment
privileges in the applicable contract.
107
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 6 8
INVESTMENT PORTFOLIO – Securities Maturity Schedule (continued)1
(millions of Canadian dollars)
As at
October 31, 2014
Within
1 year
Over 1
year to
3 years
Over 3
years to
5 years 10 years
Remaining terms to maturities2
With no
Over 5
specific
years maturity
years to Over 10
Total
$
– $
–
–%
–
–
–%
–
–
–%
– $
–
–%
–
–
–%
– $
–
–%
–
–
–%
– $
–
–%
–
–
–%
–
–
–%
–
–
–%
$ – $
–
–%
–
–
–%
–
–
–%
–
–
–%
282
281
4,846
4,822
9,534
9,465
4,217
4,224
–%
1.75%
2.11%
2.24%
2,679
2,677
8,282
8,226
4,531
4,424
1.57%
0.89%
0.85%
–
–
–%
–
–
–%
– 18,879
– 18,792
–%
2.04%
– 15,492
– 15,327
–%
1.00%
832
833
1.93%
1,529
1,536
7,002
6,961
6,938
6,917
6,654
6,611
2.20%
1.09%
0.85%
0.94%
– 22,955
– 22,858
–%
1.08%
$ 3,511 $ 10,093 $ 16,379 $ 16,472 $ 10,871
3,510 10,043 16,207 16,382 10,835
1.66%
1.10%
1.22%
1.58%
1.48%
$ – $ 57,326
– 56,977
–%
1.38%
2 Represents contractual maturities. Actual maturities may differ due to prepayment
privileges in the applicable contract.
Held-to-maturity securities
Government and government-related securities
Canadian government debt
Federal
Fair value
Amortized cost
Yield
U.S. federal government and agencies debt
Fair value
Amortized cost
Yield
U.S. states, municipalities and agencies
Fair value
Amortized cost
Yield
Other OECD government-guaranteed debt
Fair value
Amortized cost
Yield
Other debt securities
Other issuers
Fair value
Amortized cost
Yield
Total held-to-maturity schedules
Fair value
Amortized cost
Yield
1 Yields represent the weighted-average yield of each security owned at the end of
the period. The effective yield includes the contractual interest or stated dividend
rate and is adjusted for the amortization of premiums and discounts; the effect of
related hedging activities is excluded.
108
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 6 8
INVESTMENT PORTFOLIO – Securities Maturity Schedule (continued)1
(millions of Canadian dollars)
As at
October 31, 2013
Within
1 year
Over 1
year to
3 years
Over 3
years to
5 years
Remaining terms to maturities2
With no
specific
years maturity
Over 5
years to
10 years
Over 10
Total
Available-for-sale securities
Government and government-related securities
Canadian government debt
Federal
Fair value
Amortized cost
Yield
Provinces
Fair value
Amortized cost
Yield
U.S. federal government debt
Fair value
Amortized cost
Yield
U.S. states, municipalities and agencies
Fair value
Amortized cost
Yield
Other OECD government-guaranteed debt
Fair value
Amortized cost
Yield
Canadian mortgage-backed securities
Fair value
Amortized cost
Yield
Other debt securities
Asset-backed securities
Fair value
Amortized cost
Yield
Non-agency CMO
Fair value
Amortized cost
Yield
Corporate and other debt
Fair value
Amortized cost
Yield
Equity securities
Common shares
Fair value
Amortized cost
Yield
Preferred shares
Fair value
Amortized cost
Yield
Debt securities reclassified from trading
Fair value
Amortized cost
Yield
Total available-for-sale securities
Fair value
Amortized cost
Yield
1 Yields represent the weighted-average yield of each security owned at the end of
the period. The effective yield includes the contractual interest or stated dividend
rate and is adjusted for the amortization of premiums and discounts; the effect
of related hedging activities is excluded.
$ 5,041 $
5,040
0.58%
206 $ 2,979 $ 1,043 $
203
1.56%
0.94%
0.69%
2,967
1,034
$
60
57
3.16%
– $ 9,329
–
9,301
–%
0.69%
175
174
0.66%
141
141
0.14%
36
36
1.71%
540
536
0.84%
1,417
1,408
1.27%
448
443
1.34%
8
8
4.44%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
1,769
1,757
2,117
2,089
5,545
5,398
5,568
5,550
1.48%
1.91%
2.34%
1.47%
5,568
5,553
1,933
1,926
1.27%
1.12%
371
372
1.65%
122
127
1.50%
22
22
0.12%
922
914
2.13%
1,866
1,855
2.35%
–
–
–%
–
–
–%
–
–
–%
1,813
1,814
3,229
3,219
4,776 10,464
4,742 10,434
9,038
9,043
1.97%
1.03%
1.16%
0.75%
1.02%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
963
948
1.75%
2,161
2,125
3,819
3,738
2,127
2,081
3.08%
3.03%
2.84%
394
379
4.79%
152
148
5.48%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
2,588
2,569
1.16%
141
141
0.14%
15,035
14,830
1.85%
7,994
7,978
1.25%
–
–
–%
2,810
2,791
2.26%
–
–
–%
–
–
–%
29,320
29,252
1.01%
963
948
1.75%
–
–
–%
8,653
8,471
3.12%
1,640
1,560
1,640
1,560
3.69%
3.69%
166
152
3.70%
166
152
3.70%
905
835
7.46%
118
115
7.91%
353
313
8.03%
174
146
8.12%
171
161
6.22%
57
64
5.22%
32
36
7.92%
$ 15,075 $ 12,771 $ 15,827 $ 18,187 $ 15,846
15,020 12,606 15,660 17,976 15,818
$ 1,838 $ 79,544
78,828
1,748
1.41%
1.95%
1.62%
1.39%
1.29%
3.77%
1.56%
2 Represents contractual maturities. Actual maturities may differ due to prepayment
privileges in the applicable contract.
109
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 6 8
INVESTMENT PORTFOLIO – Securities Maturity Schedule (continued)1
(millions of Canadian dollars)
As at
October 31, 2013
Within
1 year
Over 1
year to
3 years
Over 3
years to
5 years
Remaining terms to maturities2
With no
specific
years maturity
Over 5
years to
10 years
Over 10
Total
Held-to-maturity securities
Government and government-related securities
Canadian government debt
Federal
Fair value
Amortized cost
Yield
U.S. federal government and agencies debt
Fair value
Amortized cost
Yield
U.S. states, municipalities and agencies
Fair value
Amortized cost
Yield
Other OECD government-guaranteed debt
Fair value
Amortized cost
Yield
Other debt securities
Other issuers
Fair value
Amortized cost
Yield
Total held-to-maturity schedules
Fair value
Amortized cost
Yield
$ 259
$
259
0.99%
$
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
$
–
–
–%
–
–
–%
$
–
–
–%
–
–
–%
–
–
–%
–
–
–%
1,335
1,334
7,414
7,447
3,764
3,770
1.47%
2.13%
2.23%
1,914
1,914
7,011
7,002
4,106
4,093
2.13%
1.29%
0.97%
72
71
1.25%
773
773
2.54%
747
749
2.72%
1,451
1,451
1,104
1,098
2.08%
1.83%
–
–
–%
–
–
–%
$ 2,946
$ 7,758
$ 6,892
$ 8,590
$ 3,764
2,946
7,751
6,878
8,616
3,770
2.14%
1.43%
1.30%
2.08%
2.23%
$ – $
–
–%
259
259
0.99%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
12,513
12,551
2.09%
13,103
13,080
1.31%
–
–
–%
4,075
4,071
2.22%
$ – $ 29,950
29,961
–
–%
1.76%
1 Yields represent the weighted-average yield of each security owned at the end of
the period. The effective yield includes the contractual interest or stated dividend
rate and is adjusted for the amortization of premiums and discounts; the effect of
related hedging activities is excluded.
2 Represents contractual maturities. Actual maturities may differ due to prepayment
privileges in the applicable contract.
110
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 6 8
INVESTMENT PORTFOLIO – Securities Maturity Schedule (continued)1
(millions of Canadian dollars)
As at
October 31, 2012
Within
1 year
Over 1
year to
3 years
Over 3
years to
5 years
Remaining terms to maturities2
With no
specific
years maturity
Over 5
years to
10 years
Over 10
Total
Available-for-sale securities
Government and government-related securities
Canadian government debt
Federal
Fair value
Amortized cost
Yield
Provinces
Fair value
Amortized cost
Yield
U.S. federal government debt
Fair value
Amortized cost
Yield
U.S. states, municipalities and agencies
Fair value
Amortized cost
Yield
Other OECD government-guaranteed debt
Fair value
Amortized cost
Yield
Canadian mortgage-backed securities
Fair value
Amortized cost
Yield
Other debt securities
Asset-backed securities
Fair value
Amortized cost
Yield
Non-agency CMO
Fair value
Amortized cost
Yield
Corporate and other debt
Fair value
Amortized cost
Yield
Equity securities
Common shares
Fair value
Amortized cost
Yield
Preferred shares
Fair value
Amortized cost
Yield
Debt securities reclassified from trading
Fair value
Amortized cost
Yield
Total available-for-sale securities
Fair value
Amortized cost
Yield
1 Yields represent the weighted-average yield of each security owned at the end of
the period. The effective yield includes the contractual interest or stated dividend
rate and is adjusted for the amortization of premiums and discounts; the effect of
related hedging activities is excluded.
$ 9,943 $
9,942
1.06%
122 $
119
2.42%
132 $
123
3.21%
630 $
610
2.34%
$
28
24
3.82%
– $ 10,855
–
10,818
–%
1.18%
2,178
2,177
1.17%
97
93
3.47%
54
50
3.62%
165
157
3.34%
9
8
4.44%
241
241
0.13%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
1,835
1,833
1,369
1,338
1,221 11,670 13,319
1,168 11,188 13,053
0.49%
1.26%
1.82%
2.25%
2.00%
2,479 11,379
2,433 11,193
3,323
3,203
2.86%
1.55%
1.73%
29
27
2.62%
61
61
0.11%
31
30
0.10%
1,050
1,043
2.06%
–
–
–%
–
–
–%
–
–
–%
1,031
1,024
4,152
4,131
5,718
5,683
7,305
7,202
6,839
6,828
3.96%
1.54%
0.97%
1.20%
1.26%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
961
939
1.88%
670
654
3.30%
4,781
4,656
1,782
1,705
2.93%
3.80%
456
423
5.28%
169
149
6.38%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
2,503
2,485
1.45%
241
241
0.13%
29,414
28,580
1.96%
17,210
16,856
1.77%
–
–
–%
1,142
1,134
1.91%
–
–
–%
–
–
–%
25,045
24,868
1.34%
961
939
1.88%
–
–
–%
7,858
7,587
3.35%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
1,851
1,749
1,851
1,749
2.67%
2.67%
232
194
1.85%
232
194
1.85%
152
147
7.85%
333
301
8.16%
442
378
7.51%
151
124
7.90%
186
215
5.86%
–
–
–%
1,264
1,165
7.46%
$ 18,590 $ 22,264 $ 13,722 $ 20,406 $ 21,511
18,512 21,861 13,353 19,731 21,216
$ 2,083 $ 98,576
96,616
1,943
1.53%
1.93%
1.89%
1.98%
1.83%
2.59%
1.85%
2 Represents contractual maturities. Actual maturities may differ due to prepayment
privileges in the applicable contract.
111
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 6 8
INVESTMENT PORTFOLIO – Securities Maturity Schedule (continued)1
(millions of Canadian dollars)
As at
October 31, 2012
Within
1 year
Over 1
year to
3 years
Over 3
years to
5 years
Remaining terms to maturities2
With no
specific
years maturity
Over 5
years to
10 years
Over 10
Held-to-maturity securities
Government and government-related securities
Canadian government debt
Federal
Fair value
Amortized cost
Yield
U.S. federal government and agencies debt
Fair value
Amortized cost
Yield
U.S. states, municipalities and agencies
Fair value
Amortized cost
Yield
Other OECD government-guaranteed debt
Fair value
Amortized cost
Yield
Other debt securities
Other issuers
Fair value
Amortized cost
Yield
Total held-to-maturity schedules
Fair value
Amortized cost
Yield
$ –
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
$ –
–
–%
$ –
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
$ –
–
–%
$ –
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
$ –
–
–%
$ –
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
$ –
–
–%
$ –
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
$ –
–
–%
$ –
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
$ –
–
–%
Total
$ –
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
$ –
–
–%
1 Yields represent the weighted-average yield of each security owned at the end of
the period. The effective yield includes the contractual interest or stated dividend
rate and is adjusted for the amortization of premiums and discounts; the effect
of related hedging activities is excluded.
2 Represents contractual maturities. Actual maturities may differ due to prepayment
privileges in the applicable contract.
112
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 6 9
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, 2014
As at
$ 24,960
$ 143,145
$ 7,020
$ 175,125
44,025
126
14,194
17,927
101,232
5,442
6,252
11,694
46,261
147,493
15,539
7,308
1,344
–
167,336
4,568
2,281
6,849
16,396
183,732
4
9,041
578
–
16,643
4,594
1,235
5,829
9,157
25,800
59,568
16,475
16,116
17,927
285,211
14,604
9,768
24,372
71,814
357,025
214
105
23,016
23,335
9,196
4,254
141
7,637
21,442
992
1,424
2,416
9,500
30,942
5
1,998
2,003
172
13,806
401
–
14,484
1,493
7,365
8,858
29,863
44,347
4
123
127
2,297
722
73
–
26,108
1,809
5,248
7,057
30,054
56,162
–
3
3
11,665
18,782
615
7,637
62,034
4,294
14,037
18,331
69,417
131,451
9
2,124
2,133
313
434
747
$ 181,185
646
434
1,080
$ 229,286
1,736
845
2,581
$ 84,546
2,695
1,713
4,408
$ 495,017
113
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 6 9
LOAN PORTFOLIO – Loans Maturity (continued)
(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, 2013
$ 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
114
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 6 9
LOAN PORTFOLIO – Loans Maturity (continued)
(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
T A B L E 7 0
LOAN PORTFOLIO – Rate Sensitivity
(millions of Canadian dollars)
Fixed rate
Variable rate
Total
October 31, 2014
October 31, 2013
October 31, 2012
1 to 5 years Over 5 years
1 to 5 years
Over 5 years
1 to 5 years
Over 5 years
$ 155,614
73,672
$ 229,286
$ 59,555
24,991
$ 84,546
$ 158,435
60,401
$ 218,836
$ 45,395
23,065
$ 68,460
$ 133,730
58,199
$ 191,929
$ 37,781
20,867
$ 58,648
As at
115
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
The change in the Bank’s allowance for credit losses for the years
ended October 31, 2014, October 31, 2013, and October 31, 2012,
are shown in the following table.
T A B L E 7 1
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 8
of the Bank’s Consolidated Financial Statements.
116
2014
$ 2,855
1,557
2013
$ 2,644
1,631
2012
$ 2,314
1,795
21
20
13
207
234
582
1,057
1
3
4
109
1,166
17
43
232
79
288
659
12
18
30
117
776
–
–
–
18
160
274
543
1,015
2
3
5
104
1,119
33
65
231
74
56
459
16
59
75
191
650
–
–
–
18
16
155
310
335
834
3
4
7
108
942
42
101
145
67
50
405
91
84
175
385
790
–
–
–
5
20
25
1,967
11
38
49
1,818
–
112
112
1,844
5
5
138
60
109
317
1
2
3
29
$ 346
3
2
35
55
101
196
1
1
2
28
$ 224
4
3
20
51
46
124
1
1
2
25
$ 149
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 7 1
ALLOWANCE FOR CREDIT LOSSES (continued)
(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
2014
2013
2012
$
10
$
17
$
15
5
12
20
60
107
14
15
29
73
180
–
–
–
4
64
22
5
112
8
10
18
49
161
–
–
–
6
35
19
5
80
8
13
21
57
137
–
–
–
–
7
7
533
(1,434)
–
112
3,090
62
$ 3,028
–
9
9
394
(1,424)
(41)
46
2,856
1
$ 2,855
–
1
1
287
(1,557)
–
20
2,572
(72)
$ 2,644
0.31%
0.33%
0.39%
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 8
of the Bank’s Consolidated Financial Statements.
3 The allowance for credit losses for off-balance sheet instruments is recorded
in Other Liabilities on the Consolidated Balance Sheet.
117
TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 7 2
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
For the year ended
October 31, 2012
October 31, 2014
October 31, 2013
Average
balance
Total
interest
expense
Average
rate paid
Average
balance
Total
interest
expense
Average
rate paid
Average
balance
$
5,405
38,443
159,687
120,493
324,028
$
–
597
421
1,934
2,952
–% $ 4,050
35,768
144,463
110,648
294,929
1.55
0.26
1.61
0.91
$
–
443
459
2,039
2,941
–% $ 4,218
34,699
127,564
112,516
278,997
1.24
0.32
1.84
1.00
Total
interest
expense
$
–
251
528
2,371
3,150
6,961
1,387
196,735
74,999
280,082
–
3
1,059
216
1,278
20
1,803
27
17,951
19,801
–
2
–
81
83
–
0.22
0.54
0.29
0.46
–
0.11
–
0.45
0.42
7,544
897
170,255
70,034
248,730
–
3
1,222
248
1,473
10
2,557
28
9,435
12,030
–
6
–
41
47
–
0.33
0.72
0.35
0.59
–
0.23
–
0.43
0.39
5,742
504
149,300
58,299
213,845
–
1
1,243
256
1,500
–
2,802
26
7,912
10,740
–
12
–
8
20
Average
rate paid
–%
0.72
0.41
2.11
1.13
–
0.20
0.83
0.44
0.70
–
0.43
–
0.10
0.19
Total average deposits
$ 623,911
$ 4,313
0.69% $ 555,689
$ 4,461
0.80% $ 503,582
$ 4,670
0.93%
1 As at October 31, 2014, deposits by foreign depositors in TD’s Canadian
bank offices amounted to $8 billion (October 31, 2013 – $7 billion,
October 31, 2012 – $7 billion).
T A B L E 7 3
DEPOSITS – Denominations of $100,000 or greater1
(millions of Canadian dollars)
Canada
United States
Other international
Total
Canada
United States
Other international
Total
Canada
United States
Other international
Total
1 Deposits in Canada, U.S. and Other international include
wholesale and retail deposits.
T A B L E 7 4
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
118
Within 3
months
3 months to
6 months
6 months to
12 months
Over 12
months
Remaining term to maturity
As at
Total
$ 23,860
32,950
12,131
$ 68,941
$ 3,411
13,359
1,985
$ 18,755
$ 13,461
28,012
1,446
$ 42,919
$ 25,229
41,595
11,141
$ 77,965
$ 5,196
15,634
4,504
$ 25,334
$ 8,695
7,974
77
$ 16,746
$ 32,421
27,605
8,907
$ 68,933
$ 4,885
13,537
127
$ 18,549
$ 8,524
12,876
17
$ 21,417
October 31, 2014
$ 54,743
2,380
–
$ 57,123
$ 95,475
76,701
15,562
$ 187,738
October 31, 2013
$ 36,036
1,684
18
$ 37,738
$ 75,156
66,887
15,740
$ 157,783
October 31, 2012
$ 26,869
1,741
–
$ 28,610
$ 72,699
55,759
9,051
$ 137,509
October 31
2014
October 31
2013
As at
October 31
2012
$ 45,587
57,122
51,703
0.33%
0.41
$ 34,414
46,234
42,726
0.43%
0.45
$ 38,816
42,578
40,349
0.42%
0.58
TD BANK GROUP ANNUAL REPORT 2014 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) and related regulations have been
applied and management has exercised its judgment and made best esti-
mates 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, 2014, using the framework found
in Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission 2013 Framework.
Based upon this assessment, management has concluded that as at
October 31, 2014, 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, 2014, in addition to
auditing 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.
Colleen M. Johnston
Chief Financial Officer
Bharat B. Masrani
Group President and
Chief Executive Officer
Toronto, Canada
December 3, 2014
119
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
INDEPENDENT AUDITORS’ REPORT 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, 2014 and 2013, 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, 2014, 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 assess-
ment 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, evaluating 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, 2014 and 2013, and its financial performance and its cash
flows for each of the years in the three-year period ended October 31,
2014, in accordance with International Financial Reporting Standards as
issued by the International 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-Domin-
ion Bank’s internal control over financial reporting as of October 31, 2014,
based on the criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 Framework) and our report dated December 3, 2014,
expressed an unqualified opinion on The Toronto-Dominion Bank’s internal
control over financial reporting.
Ernst & Young LLP
Chartered Professional Accountants
Licensed Public Accountants
Toronto, Canada
December 3, 2014
120
TD BANK GROUP ANNUAL REPORT 2014 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, 2014, based on criteria established
in Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 Framework)
(the “COSO criteria”). The Toronto-Dominion Bank’s management is
responsible for maintaining effective internal control over financial report-
ing, 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 accompany-
ing Management’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 proce-
dures 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 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 regard-
ing prevention or timely detection of unauthorized acquisition, 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,
2014, 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, 2014 and 2013, and the Consoli-
dated Statements of Income, Comprehensive Income, Changes in Equity,
and Cash Flows for each of the years in the three-year period ended
October 31, 2014, of The Toronto-Dominion Bank and our report dated
December 3, 2014, expressed an unqualified opinion thereon.
Ernst & Young LLP
Chartered Professional Accountants
Licensed Public Accountants
Toronto, Canada
December 3, 2014
121
TD BANK GROUP ANNUAL REPORT 2014 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, 7)
Derivatives (Notes 5, 11)
Financial assets designated at fair value through profit or loss (Note 5)
Available-for-sale securities (Notes 5, 7)
Held-to-maturity securities (Note 7)
Securities purchased under reverse repurchase agreements
Loans (Note 8)
Residential mortgages
Consumer instalment and other personal
Credit card
Business and government
Debt securities classified as loans
Allowance for loan losses (Note 8)
Loans, net of allowance for loan losses
Other
Customers’ liability under acceptances
Investment in TD Ameritrade (Note 12)
Goodwill (Note 14)
Other intangibles (Note 14)
Land, buildings, equipment, and other depreciable assets (Note 15)
Deferred tax assets (Note 27)
Amounts receivable from brokers, dealers and clients
Other assets (Note 16)
Total assets
LIABILITIES
Trading deposits (Notes 5, 17)
Derivatives (Notes 5, 11)
Securitization liabilities at fair value (Notes 5, 9)
Other financial liabilities designated at fair value through profit or loss (Note 5)
Deposits (Note 17)
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 9)
Amounts payable to brokers, dealers and clients
Insurance-related liabilities
Other liabilities (Note 18)
Subordinated notes and debentures (Note 19)
Total liabilities
EQUITY
Common shares (millions of shares issued and outstanding: Oct. 31, 2014 – 1,846.2, Oct. 31, 2013 – 1,838.9) (Note 21)
Preferred shares (millions of shares issued and outstanding: Oct. 31, 2014 – 88.0, Oct. 31, 2013 – 135.8) (Note 21)
Treasury shares – common (millions of shares held: Oct. 31, 2014 – (1.6), Oct. 31, 2013 – (3.9)) (Note 21)
Treasury shares – preferred (millions of shares held: Oct 31, 2014 – (0.04), Oct. 31, 2013 – (0.1)) (Note 21)
Contributed surplus
Retained earnings
Accumulated other comprehensive income (loss)
Non-controlling interests in subsidiaries (Note 22)
Total equity
Total liabilities and equity
Certain comparative amounts have been restated to conform with the presentation
adopted in the current period.
The accompanying Notes are an integral part of these Consolidated Financial Statements.
October 31
2014
$
2,781
43,773
46,554
101,173
55,363
4,745
63,008
224,289
56,977
75,031
198,912
123,411
25,570
131,349
2,695
481,937
(3,028)
478,909
13,080
5,569
14,233
2,680
4,930
2,008
9,319
11,163
62,982
$ 944,742
$ 59,334
50,776
11,198
3,250
124,558
343,240
15,771
241,705
600,716
13,080
39,465
45,587
24,960
10,384
6,079
15,897
155,452
7,785
888,511
19,811
2,200
(54)
(1)
205
27,585
4,936
54,682
1,549
56,231
$ 944,742
As at
October 31
2013
$
3,581
28,583
32,164
101,940
49,461
6,532
79,544
237,477
29,961
64,283
185,820
119,192
22,222
116,799
3,744
447,777
(2,855)
444,922
6,399
5,300
13,293
2,493
4,635
1,800
9,183
10,111
53,214
$ 862,021
$ 50,967
49,471
21,960
12
122,410
319,468
17,149
204,988
541,605
6,399
41,829
34,414
25,592
8,882
5,586
15,939
138,641
7,982
810,638
19,316
3,395
(145)
(2)
170
23,982
3,159
49,875
1,508
51,383
$ 862,021
122
Bharat B. Masrani
Group President and
Chief Executive Officer
William E. Bennett
Chair, Audit Committee
TD BANK GROUP ANNUAL REPORT 2014 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
Other
Net interest income
Non-interest income
Investment and securities services
Credit fees
Net securities gains (losses) (Note 7)
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 8)
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
Marketing and business development
Restructuring costs
Brokerage-related fees
Professional and advisory services
Communications
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 12)
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 restated to conform with the presentation
adopted in the current period.
The accompanying Notes are an integral part of these Consolidated Financial Statements.
2014
2013
2012
$ 19,758
$ 18,514
$ 17,951
2,913
1,173
84
23,928
4,313
777
412
842
6,344
17,584
3,346
845
173
(349)
2,152
1,552
3,883
150
625
12,377
29,961
1,557
2,833
8,451
1,549
810
598
756
29
321
991
283
2,708
16,496
9,075
1,512
320
7,883
143
$ 7,740
2,965
1,048
88
22,615
4,461
927
447
706
6,541
16,074
2,834
785
304
(279)
1,966
1,220
3,734
148
473
11,185
27,259
1,631
3,056
7,651
1,456
847
521
685
129
317
1,009
281
2,173
15,069
7,503
1,135
272
6,640
185
$ 6,455
$
107
7,633
$
105
6,350
1,839.1
1,845.3
$
4.15
4.14
1.84
1,837.9
1,845.1
$
3.46
3.44
1.62
3,259
940
88
22,238
4,670
1,026
612
904
7,212
15,026
2,621
745
373
(41)
1,849
942
3,537
149
345
10,520
25,546
1,795
2,424
7,259
1,374
825
477
668
–
296
925
282
1,910
14,016
7,311
1,085
234
6,460
196
$ 6,264
$
104
6,160
1,813.2
1,829.7
$
3.40
3.38
1.45
123
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
Consolidated Statement of Comprehensive Income
2014
$ 7,883
2013
$ 6,640
2012
$ 6,460
69
(163)
3,697
(13)
(1,390)
13
1,647
(2,083)
(458)
1,319
$ 9,202
$ 143
8,952
107
(472)
(271)
1,885
4
(737)
(4)
668
(1,559)
339
(147)
$ 6,493
$ 185
6,203
105
689
(163)
92
–
(54)
–
834
(1,079)
(748)
(429)
$ 6,031
$ 196
5,731
104
For the years ended October 31
(millions of Canadian dollars)
Net income
Other comprehensive income (loss), net of income taxes
Items that will be subsequently reclassified to net income
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
Net foreign currency translation gains (losses) from hedging activities4
Reclassification to earnings of net losses (gains) on hedges of investments in foreign operations5
Change in net gains (losses) on derivatives designated as cash flow hedges6
Reclassification to earnings of net losses (gains) on cash flow hedges7
Items that will not be subsequently reclassified to net income
Actuarial gains and (losses) on employee benefit plans8
Comprehensive income (loss) for the year
Attributable to:
Preferred shareholders
Common shareholders
Non-controlling interests in subsidiaries
1 Net of income tax provision in 2014 of $67 million (2013 – income tax recovery
of $285 million; 2012 – income tax provision of $302 million).
2 Net of income tax provision in 2014 of $81 million (2013 – income tax provision
of $136 million; 2012 – income tax provision of $74 million).
3 Net of income tax provision in 2014 of nil (2013 – income tax provision of nil;
2012 – income tax provision of nil).
4 Net of income tax recovery in 2014 of $488 million (2013 – income tax recovery
of $264 million; 2012 – income tax recovery of $22 million).
5 Net of income tax recovery in 2014 of $4 million (2013 – income tax provision
of $1 million; 2012 – income tax provision of nil).
6 Net of income tax provision in 2014 of $1,113 million (2013 – income tax provision
of $383 million; 2012 – income tax provision of $381 million).
7 Net of income tax provision in 2014 of $1,336 million (2013 – income tax provision
of $830 million; 2012 – income tax provision of $485 million).
8 Net of income tax recovery in 2014 of $210 million (2013 – income tax provision
of $172 million; 2012 – income tax recovery of $289 million).
Certain comparative amounts have been restated to conform with the presentation
adopted in the current period.
The accompanying Notes are an integral part of these Consolidated Financial Statements.
124
TD BANK GROUP ANNUAL REPORT 2014 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
Balance at end of year
Preferred shares (Note 21)
Balance at beginning of year
Issue of shares
Redemption of shares
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
Transition adjustments on adoption of new and amended accounting standards (Note 4)
Net income attributable to shareholders
Common dividends
Preferred dividends
Share issue expenses and others
Net premium on repurchase of common shares
Actuarial gains and (losses) on employee benefit plans
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
Certain comparative amounts have been restated to conform with the presentation
adopted in the current period.
The accompanying Notes are an integral part of these Consolidated Financial Statements.
2014
2013
2012
$ 19,316
199
339
(43)
19,811
$ 18,691
297
515
(187)
19,316
$ 17,491
253
947
–
18,691
3,395
1,000
(2,195)
2,200
(145)
(4,197)
4,288
(54)
(2)
(154)
155
(1)
170
48
(5)
(8)
205
23,982
–
7,776
(3,384)
(143)
(11)
(177)
(458)
27,585
732
(94)
638
722
2,307
3,029
1,705
(436)
1,269
4,936
3,395
–
–
3,395
(166)
(3,552)
3,573
(145)
(1)
(86)
85
(2)
196
(3)
(25)
2
170
20,868
(5)
6,535
(2,977)
(185)
–
(593)
339
23,982
1,475
(743)
732
(426)
1,148
722
2,596
(891)
1,705
3,159
3,395
–
–
3,395
(116)
(3,175)
3,125
(166)
–
(77)
76
(1)
212
10
(25)
(1)
196
18,213
(136)
6,356
(2,621)
(196)
–
–
(748)
20,868
949
526
1,475
(464)
38
(426)
2,841
(245)
2,596
3,645
1,508
107
(66)
1,549
$ 56,231
1,477
105
(74)
1,508
$ 51,383
1,483
104
(110)
1,477
$ 48,105
125
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
2014
2013
2012
$ 9,395
$ 7,775
$ 7,545
1,557
542
598
(173)
(320)
31
(204)
(2,364)
767
(33,717)
72,059
(4,597)
1,783
(11,394)
(7,996)
25,967
11,173
(150)
(45)
168
989
(220)
(2,195)
4,491
(4,351)
(3,188)
(107)
6,565
1,631
512
521
(304)
(272)
(370)
(425)
8,391
(7,409)
(33,820)
64,449
(4,068)
(364)
(3,962)
(4,600)
27,685
(4,402)
(3,400)
(407)
247
–
(780)
–
3,655
(3,638)
(2,647)
(105)
(11,477)
1,795
494
477
(373)
(234)
105
(236)
9,818
(21,178)
(27,836)
47,487
2,208
(1,952)
(2,265)
(2,790)
13,065
12,825
(201)
(35)
206
–
–
–
3,211
(3,252)
(1,870)
(104)
10,780
(15,190)
(7,075)
(676)
(38,887)
30,032
6,403
(9,258)
6,542
(37)
1,263
10
(837)
(10,748)
(2,768)
(33,475)
143
(800)
3,581
$ 2,781
$ 1,241
6,478
22,685
1,179
(58,102)
39,468
18,189
(11,352)
2,873
(489)
1,399
1,030
(745)
4,915
(6,211)
(16,100)
37
145
3,436
$ 3,581
869
$
6,931
21,532
1,018
(65,338)
40,223
20,707
–
–
(286)
1,568
162
(813)
(12,217)
(6,839)
(23,509)
4
340
3,096
$ 3,436
$ 1,296
7,368
21,218
925
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 8)
Depreciation (Note 15)
Amortization of other intangibles
Net securities losses (gains) (Note 7)
Equity in net income of an investment in associate (Note 12)
Deferred taxes (Note 27)
Changes in operating assets and liabilities
Interest receivable and payable (Notes 16, 18)
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
Net cash from (used in) operating activities
Cash flows from (used in) financing activities
Change in securities sold under repurchase agreements
Repayment of subordinated notes and debentures (Note 19)
Translation adjustment on subordinated notes and debentures issued in a foreign
currency and other
Common shares issued (Note 21)
Preferred shares issued (Note 21)
Repurchase of common shares (Note 21)
Redemption of preferred 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 7)
Purchases
Proceeds from maturities
Proceeds from sales
Activities in held-to-maturity securities (Note 7)
Purchases
Proceeds from maturities
Activities in debt securities classified as loans
Purchases
Proceeds from maturities
Proceeds from sales
Net purchases of land, buildings, equipment, and other depreciable assets
Changes in securities purchased (sold) under reverse repurchase agreements
Net cash acquired from (paid for) divestitures, acquisitions, and the sale of
TD Ameritrade shares (Notes 12, 13)
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 income taxes paid (refunded) during the year
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 restated to conform with the presentation
adopted in the current period.
The accompanying Notes are an integral part of these Consolidated Financial Statements.
126
TD BANK GROUP ANNUAL REPORT 2014 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
128
128
Nature of Operations
Summary of Significant Accounting Policies
Significant Accounting Judgments,
137
Estimates and Assumptions
Current and Future Changes in Accounting Policies
140
142
Fair Value Measurements
Offsetting Financial Assets and Financial Liabilities
154
Securities
155
Loans, Impaired Loans, and Allowance for Credit Losses
159
Transfers of Financial Assets
163
164
Structured Entities
Derivatives
168
175
Investment in Associates and Joint Ventures
Significant Acquisitions and Disposals
176
Goodwill and Other Intangibles
177
Land, Buildings, Equipment, and Other Depreciable Assets 179
179
Other Assets
180
Deposits
181
Other Liabilities
181
Subordinated Notes and Debentures
182
Capital Trust Securities
183
Share Capital
186
Non-Controlling Interests in Subsidiaries
186
Trading-Related Income
187
Insurance
190
Share-Based Compensation
191
Employee Benefits
197
Income Taxes
199
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 Event
199
203
204
206
208
212
213
213
214
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
127
TD BANK GROUP ANNUAL REPORT 2014 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 three business segments
operating in a number of locations in key financial centres around the
globe: Canadian Retail, U.S. Retail, 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 Finan-
cial Institutions Canada (OSFI). The Consolidated Financial Statements
are presented in Canadian dollars, unless otherwise indicated.
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 structured entities which it controls. The Bank
controls an entity when (1) it has the power to direct the activities of
the entity which have the most significant impact on the entity’s risks
and/or returns; (2) it is exposed to significant risks and/or returns
arising from the entity; and (3) it is able to use its power to affect the
risks and/or returns to which it is exposed.
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 eliminated
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. Control of subsidiaries is determined based on the
power exercisable through ownership of voting rights and is generally
aligned with the risks and/or returns (collectively referred to as “vari-
able returns”) absorbed from subsidiaries through those voting rights.
As a result, the Bank controls and consolidates subsidiaries when it
holds the majority of the voting rights of the subsidiary, unless there is
evidence that another investor has control over the subsidiary. The
existence and effect of potential voting rights that are currently exer-
cisable 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 consolidated until the date
when control ceases to exist.
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. Accord-
ingly, actual results may differ from estimated amounts as future
confirming events occur.
The accompanying Consolidated Financial Statements of the Bank
were approved and authorized for issue by the Bank’s Board of Direc-
tors (the “Board”), in accordance with the recommendation of the
Audit Committee, on December 3, 2014.
Certain disclosures are included in the shaded sections of the
“Managing Risk” section of the accompanying 2014 Management’s
Discussion and Analysis (MD&A), as permitted by IFRS, and form
an integral part of the Consolidated Financial Statements. Certain
comparative amounts have been restated 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 in Note 2.
The Bank may consolidate certain subsidiaries where it owns 50%
or less of the voting rights. Most of those subsidiaries are structured
entities as described in the following section.
Structured Entities
Structured entities, including special purpose entities (SPEs), are entities
that are created to accomplish a narrow and well-defined objective.
Structured entities may take the form of a corporation, trust, partner-
ship, or unincorporated entity. They are often created with legal
arrangements that impose limits on the decision making powers of
their governing board, trustee, or management over the operations of
the entity. Typically, structured entities may not be controlled directly
through holding more than half of the voting power of the entity as
the ownership of voting rights may not be aligned with the variable
returns absorbed from the entity. As a result, structured entities are
consolidated when the substance of the relationship between the Bank
and the structured entity indicates that the entity is controlled by the
Bank. When assessing whether the Bank has to consolidate a structured
entity, the Bank evaluates three primary criteria in order to conclude
whether, in substance:
• The Bank has the power to direct the activities of the structured
entity that have the most significant impact on the entity’s risks and/
or returns;
• The Bank is exposed to significant variable returns arising from the
entity; and
• The Bank has the ability to use its power to affect the risks and/or
returns to which it is exposed.
128
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS Consolidation conclusions are reassessed at the end of each financial
reporting period. The Bank’s policy is to consider the impact on consol-
idation 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.
Investments in Associates and Joint Ventures
Entities over which the Bank has significant influence are associates
and entities over which the Bank has joint control are joint ventures.
Associates and joint ventures are accounted for using the equity
method of accounting. Significant 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
and joint ventures are carried on the Consolidated Balance Sheet
initially at cost and increased or decreased to recognize the Bank’s
share of the profit or loss of the associate or joint venture, 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.
At each balance sheet date, the Bank assesses whether there is any
objective evidence that the investment in an associate or joint venture
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 a consolidated entity,
the minority shareholders’ interest is presented on the Consolidated
Balance Sheet as Non controlling interests in subsidiaries as a component
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.
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.
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.
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 twelve-month period.
Service charges, trust, and other fee income is recognized as earned.
Revenue recognition policies related to financial instruments and
insurance are described in the following accounting policies.
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 port-
folio 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 recog-
nized 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.
129
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS Assets and liabilities designated at fair value through profit or loss
Interest income is recognized using the EIRM. Loan origination fees
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 assets 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 financial assets 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 on the Consolidated Statement
of Income.
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 estimated
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 available-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 on the Consolidated Statement of 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 classified
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 counterparty-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.
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 commitment
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 appropriate
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 the terms and conditions of a loan. Modifications
may include payment deferrals, extension of amortization periods, rate
reductions, principal forgiveness, debt consolidation, forbearance and
other modifications intended to minimize the economic loss and to
avoid foreclosure or repossession of collateral. The Bank has policies in
place to determine the appropriate remediation strategy based on the
individual borrower.
If the modified loan’s estimated realizable value, discounted at the
original loan’s effective interest rate, has decreased as a result of the
modification, additional impairment is recorded. Once modified, if a
loan was classified as impaired prior to the modification, the loan is
generally assessed for impairment consistent with the Bank’s existing
policies for impairment.
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. The
allowance for loan losses, which includes credit-related allowances
for residential mortgages, consumer instalment and other personal,
credit card, business 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 Other liabilities 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.
130
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS 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.
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
experience, loan portfolio composition, and other relevant indicators.
Historical 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 contractually 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
determines 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
management assumptions relating to default rates, loss severities, the
amount and timing of prepayments, and other factors that are reflec-
tive 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 on a gross basis,
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.
131
TD BANK GROUP ANNUAL REPORT 2014 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 is reported as
a liability under Acceptances 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 initially recognized at fair value
and subsequently accounted for at amortized cost. Interest expense,
including capitalized transaction costs, is recognized on an accrual
basis using the EIRM.
Guarantees
The Bank issues guarantee contracts that require payments to be made
to guaranteed parties based on: (1) changes in the underlying economic
characteristics relating to an asset or liability of the guaranteed party;
(2) failure of another party to perform under an obligating agreement;
or (3) 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. Guarantees, including financial and
performance standby letters of credit, are initially measured and
recorded at their fair value. The fair value of a guarantee liability at
initial recognition is normally equal to the present value of the guaran-
tee fees received over the life of contract. The Bank’s release from risk
is recognized 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.
SHARE CAPITAL
The Bank classifies financial instruments that it issues as either financial
liabilities, equity instruments, or compound instruments.
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 in the Consolidated Statement of Income.
Issued instruments are classified as equity when there is no contrac-
tual obligation to transfer cash or other financial assets. Further, issued
instruments 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 as equity and presented in share capital.
Incremental costs directly attributable to the issue of equity instruments
are included in equity as a deduction from the proceeds, net of tax.
Dividend payments on these instruments are recognized as a reduction
in equity.
Compound instruments are comprised of both liability and equity
components in accordance with the substance of the contractual
arrangement. At inception, the fair value of the liability component is
initially measured with any residual amount assigned to the equity
component. Transaction costs are allocated proportionately to the
liability and equity components.
Common or preferred shares held by the Bank are classified as
treasury shares in equity, and the cost of these shares is recorded as
a reduction in equity. Upon the sale of treasury shares, the difference
between the sale proceeds and the cost of the shares is recorded in
or against contributed surplus.
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 the market risk nor
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
unrealized gains or losses on trading derivatives are recognized
immediately in trading income (losses).
Derivatives Held for Non-trading Purposes
Non-trading derivatives are primarily used to manage the market,
interest rate, and foreign exchange risks of the Bank’s traditional
banking activities. 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.
132
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS 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: (1) hedges of the changes in fair value of recognized assets
or liabilities or firm commitments (fair value hedges); (2) 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 (3) hedges of net investments in a foreign operation (net
investment hedges).
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.
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
immediately in non-interest income.
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
immediately 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
denominated 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, including 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 or Non-interest income, as applicable, on
the Consolidated Statement of Income in the period in which the
hedged item affects income, and are reported in the same income
statement line as the hedged item.
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 or Non-interest income, as applicable, on the
Consolidated Statement of Income.
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 Canadian
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
functional 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.
133
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS 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. When financial assets and liabilities have offsetting market
risks or credit risks, the Bank applies the portfolio exception, as
described in Note 5, and uses mid-market prices as a basis for estab-
lishing fair values for the offsetting risk positions and applies the most
representative price within the bid-ask spread 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 transac-
tions 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 in income upon initial recognition
of the instrument. When an instrument is measured using a valuation
technique that utilizes non-observable inputs, it is initially valued at the
transaction price, which is considered the best estimate of fair value.
Subsequent to initial recognition, any difference between the transac-
tion price and the value determined by the valuation technique at
initial recognition is recognized in 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
proportionate 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 deter-
mined by estimating the present value of future expected cash flows
using management’s best estimates of key assumptions that market
participants 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. Similarly,
when the benefits of servicing are less than adequate, a servicing liability
is recognized. Servicing assets and servicing liabilities are initially
recognized at fair value and subsequently carried at amortized cost.
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.
134
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS 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
9 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 respec-
tive prices at which the securities were originally acquired or sold,
plus accrued interest. Subsequently, the agreements are measured
at amortized 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.
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 obligation 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
repurchase 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 intangi-
bles, credit card related intangibles and software intangibles. Intangi-
ble 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.
Assets leased under a finance lease are capitalized 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.
135
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS Depreciation is recognized on a straight-line basis over the useful
lives of the assets estimated by asset category, as follows:
Asset
Buildings
Computer equipment
Furniture and fixtures
Other equipment
Leasehold improvements
Useful Life
15 to 40 years
3 to 8 years
3 to 15 years
5 to 15 years
Lesser of the remaining lease term and
the remaining useful life of the asset
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.
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
option 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 in addition to 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 share units equivalent to 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, in addition to 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. All actuarial
gains and losses are recognized immediately in other comprehensive
income, with cumulative gains and losses reclassified to retained
earnings. 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 discount rate, compensation increases, health care cost
trend rate, and mortality rates, which are reviewed annually with the
Bank’s actuaries. The discount rate used to value liabilities is based on
long-term corporate AA bond yields as of the measurement date. The
expense recognized includes the cost of benefits for employee service
provided in the current year, net interest expense or income on the net
defined benefit liability or asset, past service costs related to plan
amendments, curtailments or settlements, and administrative costs.
Plan amendment costs are recognized in the period of a plan amend-
ment, irrespective of its vested status. Curtailments and settlements
are recognized by the Bank when the curtailment or settlement occurs.
A curtailment occurs when there is a significant reduction in the
number of employees covered by the plan. 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.
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 cumula-
tive actuarial gains and losses, expenses, and recognized contributions
and is reported in other assets or other liabilities.
Net defined benefit 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.
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 earned.
For property and casualty insurance, insurance claims and policy
benefit liabilities represent current claims and estimates for future
insurance policy claims related to insurable events occurring at or
before the balance sheet date. These are determined by the appointed
actuary in accordance with accepted actuarial practices and are
reported as other liabilities. Expected claims and policy benefit liabili-
ties are determined on a case-by-case basis and consider such variables
as past loss experience, 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
136
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
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.
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 provisions
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
probable 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 esti-
mates 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 system-
atic 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 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 pres-
ence 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 and the loss event(s) results
in a decrease in the estimated cash flows of the instrument. The Bank
reviews these securities at least quarterly for impairment at the coun-
terparty-specific level. If there is no objective evidence of impairment
at the counterparty-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 consid-
ered 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
dete rioration of credit quality subsequent to the initial recognition of
the loan 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 impairment individu-
ally for loans that are individually significant, and collectively for loans
that are not individually significant. The allowance for credit losses
represents management’s best estimate of impairment incurred in the
137
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS 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 experi-
ence, 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 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, 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 may change over time 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 meth-
odology 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.
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 cash generating unit (CGU) is determined
from internally developed 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 exis-
tence 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 opera-
tional 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 discount rates,
compensation increases, health care cost trend rates, and mortality
rates are management’s best estimates 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 other assumptions are
also long-term estimates. All assumptions are subject to a degree of
uncertainty. Differences between actual experiences and the assump-
138
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS tions, as well as changes in the assumptions resulting from changes
in future expectations, result in actuarial gains and losses which are
recognized in other comprehensive income during the year and also
impact expenses in future periods.
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, consider-
ing 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
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. Addi-
tional qualitative 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
taking account of all the uncertainties involved.
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
combination of its own experience and industry experience. Policy-
holders 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 STRUCTURED ENTITIES
Management judgment is required when assessing whether the Bank
should consolidate an entity, particularly complex entities. For instance,
it may not be feasible to determine if the Bank controls an entity solely
through an assessment of voting rights for certain structured entities.
In this case, judgment is required to establish whether the Bank has
decision-making power over the key relevant activities of the entity
and whether the Bank has the ability to use that power to absorb
significant variable returns from the entity. If it is determined that the
Bank has both decision-making power and significant variable returns
from the entity, judgment is also used to determine whether any such
power is exercised by the Bank as principal, on its own behalf, or as
agent, on behalf of another counterparty.
Assessing whether the Bank has decision-making power includes
understanding the purpose and design of the entity in order to
determine its key economic activities. In this context, an entity’s
key economic activities are those which predominantly impact the
economic performance of the entity. When the Bank has the current
ability to direct the entity’s key economic activities, it is considered
to have decision-making power over the entity.
The Bank also evaluates its exposure to the variable returns of
a structured entity in order to determine if it absorbs a significant
proportion of the variable returns the entity is designed to create.
As part of this evaluation, the Bank considers the purpose and design
of the entity in order to determine whether it absorbs variable returns
from the structured entity through its contractual holdings, which
may take the form of securities issued by the entity, derivatives with
the entity, or other arrangements such as guarantees, liquidity facili-
ties, or lending commitments.
If the Bank has decision-making power over and absorbs significant
variable returns from the entity it then determines if it is acting as prin-
cipal or agent when exercising its decision-making power. Key factors
considered include the scope of its decision-making powers; the rights
of other parties involved with the entity, including any rights to remove
the Bank as decision-maker or rights to participate in key decisions;
whether the rights of other parties are exercisable in practice; and the
variable returns absorbed by the Bank and by other parties involved
with the entity. When assessing consolidation, a presumption exists
that the Bank exercises decision-making power as principal if it is also
exposed to significant variable returns, unless an analysis of the factors
above indicates otherwise.
The decisions above are made with reference to the specific facts
and circumstances relevant for the structured entity and related
transaction(s) under consideration.
139
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS N O T E 4
CURRENT AND FUTURE CHANGES IN ACCOUNTING POLICIES
CURRENT CHANGES IN ACCOUNTING POLICY
The following new and amended standards have been adopted by
the Bank.
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); and
• IFRS 12, Disclosure of Interests in Other Entities (IFRS 12).
The Bank also adopted related amendments to IFRS 10 and any
conforming changes to related standards.
The standards and amendments resulted 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 was November 1, 2013, for the Bank, and have been applied
retrospectively, allowing for certain practical exceptions and transition
relief. In order to adopt the above standards the Bank reassessed its
consolidation analyses for all of its investees, including but not limited
to, its subsidiaries, associates, joint ventures, structured entities such
as special purpose entities (SPEs) and its involvement with other third
party entities.
Consolidated Financial Statements
The Bank consolidates an entity as a result of controlling the entity,
based on the following criteria:
• The Bank has the power to direct the activities of the entity which
have the most significant impact on the entity’s risks and/or returns;
• The Bank is exposed to significant risks and/or returns arising from
the entity; and
• The Bank is able to use its power to affect the risks and/or returns
to which it is exposed.
When assessing whether the Bank controls an entity, the entity’s
purpose and design are considered in order to determine the activities
which most significantly impact the entity’s risks and/or returns.
On November 1, 2012, the transition date, the Bank’s adoption of
IFRS 10 resulted 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 were removed from the Bank’s Consolidated Financial State-
ments. This resulted in a decrease to liabilities related to capital trust
securities of $1.75 billion which was replaced with an equivalent
amount of deposit note liabilities issued by the Bank to Trust IV. The
impact to the Bank’s opening retained earnings was not significant.
Other than the deconsolidation of Trust IV, IFRS 10 did not result in
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 was
the accounting policy choice adopted by the Bank under IAS 31. On
November 1, 2012, the transition date, the Bank’s adoption of IFRS 11
did not result in 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 and
unconsolidated entities in which the Bank has involvement. The
objective of IFRS 12 is to present information so that financial statement
140
users may evaluate the basis of control; any restrictions on consolidated
assets and liabilities; risk exposures arising from involvement 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
did not result in a material impact on the Consolidated Financial
Statements of the Bank; however, the standard resulted in additional
disclosures, which are included in Note 10 on a retrospective basis.
Fair Value Measurement
IFRS 13, Fair Value Measurement (IFRS 13), provides a single frame-
work for fair value measurement and applies when other IFRS require
or permit fair value 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 was November 1, 2013
for the Bank, and is applied prospectively. This new standard did not
have a material impact on the financial position, cash flows, or earn-
ings of the Bank; however the standard resulted in additional fair value
disclosures which are disclosed in Note 5 of the Consolidated Financial
Statements on a prospective basis.
Employee Benefits
The amendments to IAS 19, Employee Benefits (IAS 19), issued in
June 2011, eliminate the corridor approach for actuarial gains and
losses, requiring the Bank to recognize immediately all actuarial
gains and losses in other comprehensive income. Under the amended
standard, the Bank has elected to reclassify cumulative actuarial gains
and losses to retained earnings. Net interest expense or income is
calculated by applying the discount rate to the net defined benefit
asset or liability, and is recorded on the Consolidated Statement of
Income, along with present and past service costs for the period. Plan
amendment costs are recognized in the period of a plan amendment,
irrespective of its vested status. Curtailments and settlements are
recognized in income by the Bank when the curtailment or settlement
occurs. A curtailment occurs when there is a significant reduction in
the number of employees covered by the plan. 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. Furthermore, a termination benefit
obligation is 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 was November 1, 2013, for the
Bank, and have been applied retrospectively. On November 1, 2011,
the transition date, the amendments resulted in an increase to deferred
tax assets of $74 million, a decrease to other assets of $112 million, an
increase in other liabilities of $98 million, and a decrease to retained
earnings of $136 million.
Disclosures – Offsetting Financial Assets and Financial Liabilities
The amendments to IFRS 7, Financial Instruments: Disclosures (IFRS 7),
issued in December 2011 provide 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. While the IFRS 7 amendments will result in additional
disclosures, the amendments did not have a material impact on the
Consolidated Financial Statements of the Bank. The IFRS 7 amendments
are effective for annual periods beginning on or after January 1, 2013,
which was November 1, 2013, for the Bank. The disclosures required
by the IFRS 7 amendments have been presented on a retrospective
basis by the Bank as at October 31, 2014. Refer to Note 6 for the
disclosures required by the IFRS 7 amendments.
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS Summary of Impact upon Adoption of New and
Amended Standards
The following table summarizes the impact upon adoption of the new
and amended standards.
Impact Upon Adoption of New and Amended Standards
(millions of Canadian dollars)
ASSETS
Interest-bearing deposits with banks
Trading loans, securities, and other
Available-for-sale securities
Goodwill
Deferred tax assets
Other assets
LIABILITIES
Deposits – Personal
Deposits – Business and government
Amounts payable to brokers, dealers and clients
Other liabilities
Liability for capital trust securities
EQUITY
Retained earnings
Accumulated other comprehensive income (loss)
Previously
reported
IAS 19
adjustment
IFRS 10 & 11
adjustment
Total
adjustments
Amount after
adjustments
As at
October 31, 2013
$ 28,855
101,928
79,541
13,297
1,588
9,990
235,199
319,749
203,204
8,908
14,553
1,740
548,154
$
–
–
–
–
212
(450)
(238)
–
–
–
346
–
346
$
(272)
12
3
(4)
–
(12)
(273)
(281)
1,784
(26)
(4)
(1,740)
(267)
$
(272)
12
3
(4)
212
(462)
(511)
$ 28,583
101,940
79,544
13,293
1,800
9,528
234,688
(281)
1,784
(26)
342
(1,740)
79
319,468
204,988
8,882
14,895
–
548,233
24,565
3,166
$ 27,731
(578)
(6)
$ (584)
(5)
(1)
(6)
(583)
(7)
(590)
$
23,982
3,159
$ 27,141
$
For the year ended October 31, 2013
Net income after tax and equity in associate
$
6,662
$
(22)
$
–
$
(22)
$ 6,640
Net income after tax and equity in associate
$
6,471
$
(11)
$
–
$
(11)
$ 6,460
For the year ended October 31, 2012
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.
The Bank estimates the impact of adopting the IAS 32 amendments
will result in an increase in total assets and total liabilities of approxi-
mately $11 billion and $16 billion as at November 1, 2013, the
transition date, and October 31, 2014, respectively. There will be no
impact to opening equity, cash flows, or earnings of the Bank.
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.
Presentation – Offsetting Financial Assets and
Financial Liabilities
In December 2011, the IASB issued amendments to IAS 32, Financial
Instruments: Presentation, (the IAS 32 amendments) which clarified
the existing requirements for offsetting financial assets and financial
liabilities. These amendments are effective for annual periods begin-
ning on or after January 1, 2014, which will be November 1, 2014, for
the Bank. The Bank expects that certain bilateral transactions related
to reverse repurchase and repurchase agreements, and amounts
receivable from or payable to brokers, dealers, and clients will no
longer qualify for offsetting under the new guidance.
Levies
In May 2013, the IFRS Interpretations Committee (IFRIC), with the
approval of 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, which 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.
IFRIC 21 is expected to change the pattern and timing of recognition
of certain levies paid by the Bank, in that it requires the obligation for
these levies to be recognized at specific points in time in accordance
with their applicable legislation. This change in timing of recognition is
not expected to have a material impact on the financial position, cash
flows, or earnings of the Bank on an annual basis.
141
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
Financial Instruments
In July 2014, the IASB issued the final version of IFRS 9, Financial
Instruments (IFRS 9), which replaces the guidance in IAS 39, Financial
Instruments: Recognition and Measurement (IAS 39). This final version
includes requirements on: (1) Classification and measurement of finan-
cial assets and liabilities; (2) Impairment; and (3) Hedge accounting.
Accounting for macro hedging has been decoupled from IFRS 9 and
will now be considered and issued as a separate standard. IFRS 9 is
effective for annual periods beginning on or after January 1, 2018,
which will be November 1, 2018, for the Bank, and is to be applied
retrospectively with certain exceptions. Early adoption of IFRS 9 is
permitted. IFRS 9 also permits early application of changes in the own
credit risk provision, prior to adopting all other requirements within
IFRS 9. The Bank is currently assessing the impact of adopting IFRS 9,
including early application of the own credit risk provision.
Novation of Derivatives and Continuation of Hedge Accounting
In June 2013, the IASB issued amendments to IAS 39 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 and have been
retained in the final version of IFRS 9.
Revenue from Contracts with Customers
In May 2014, the IASB issued IFRS 15, Revenue from Contracts with
Customers, which clarifies the principles for recognizing revenue and
cash flows arising from contracts with customers. The standard is
effective for annual periods beginning on or after January 1, 2017,
which will be November 1, 2017, for the Bank, and is to be applied
retrospectively. The Bank is currently assessing the impact of adopting
this standard.
N O T E 5
FAIR VALUE MEASUREMENTS
Certain assets and liabilities, primarily financial instruments, are carried
on the balance sheet at their fair value on a recurring basis. These
financial instruments include trading loans and securities, 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 securities sold
under repurchase agreements. All other financial assets are carried at
amortized cost and the fair value is disclosed as follows:
DETERMINATION OF FAIR VALUE
The fair value of financial instruments traded in active markets at the
balance sheet date is based on their available 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 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, 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 may change over time 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.
VALUATION GOVERNANCE
Valuation processes are guided by policies and procedures that are
approved by senior management and subject matter experts. Senior
Executive oversight over the valuation process is provided through vari-
ous valuation-related committees. Further, the Bank has a number of
additional controls in place, including an independent price verification
process to ensure the accuracy of fair value measurements reported in
the financial statements. The sources used for independent pricing
comply with the standards set out in the approved valuation-related
policies, which includes consideration of the reliability, relevancy, and
timeliness of data.
METHODS AND ASSUMPTIONS
The Bank calculates fair values for measurement and disclosure purposes
based on the following methods of valuation and assumptions:
Government and Government-Related Securities
The fair value of Canadian government debt securities is 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 transaction
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.
142
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS The fair value of residential mortgage-backed securities is primarily
based on broker quotes, third-party vendor prices, or other valuation
techniques, such as the use of option-adjusted spread (OAS) models
which include inputs such as prepayment 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 counterparty credit quality and liquidity.
Other Debt Securities
The fair value of corporate and other debt securities, including debt
securities reclassified from trading to available-for-sale, 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 where
there is a wide bid-offer spread, fair value is determined based on
quoted market prices for similar securities or through valuation tech-
niques, including discounted cash flow analysis, and multiples of
earnings before taxes, depreciation, and amortization, and other
relevant valuation techniques.
If there are trading restrictions on the equity security held, a valua-
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 do not impact the
fair value of the original instrument.
Retained Interests
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.
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 by 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 of derivative financial instruments is determined
as follows:
Derivative Financial Instruments
The fair value of exchange-traded derivative financial instruments is
based on quoted market prices. The fair value of OTC derivative finan-
cial 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 inputs
that are observable in the market or can be derived from observable
market data.
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.
A credit risk valuation adjustment (CRVA) is recognized against the
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
established to recognize the estimated realizable value, net of collateral
held, based on market pricing in effect at the time the default is
recognized. In these instances, the estimated realizable value is
measured by discounting the expected future cash flows at an appro-
priate effective interest rate immediately prior to impairment, after
adjusting for the value of collateral. The fair value of non-trading
derivatives is determined on the same basis as for trading derivatives.
The fair value of a derivative is partly a function of collateralization.
The Bank uses the relevant overnight index swap (OIS) curve to
discount the cash flows for collateralized derivatives as most collateral
is posted in cash and can be funded at the overnight rate.
143
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS In the fourth quarter of 2014, the Bank implemented funding
valuation adjustment (FVA) in response to growing evidence that
market implied funding costs and benefits are now considered in the
pricing and fair valuation of uncollateralized derivatives. Some of the
key drivers of FVA include the market implied cost of funding spread
over LIBOR, expected term of the trade, and expected average expo-
sure by counterparty. FVA is further adjusted to account for the extent
to which the funding cost is incorporated into observed traded levels
and to calibrate to the expected term of the trade.
The FVA applies to both assets and liabilities, but the adjustment
in the fourth quarter largely relates to uncollateralized derivative assets
given the impact of the Bank’s own credit risk, which is a significant
component of the funding costs, is already incorporated in the valua-
tion of uncollateralized derivative liabilities through the application of
debit valuation adjustments (DVAs).
FVA was implemented on a prospective basis as a change in
accounting estimate and resulted in a $69 million charge during the
fourth quarter. There were no changes to the leveling in the fair value
hierarchy as a result of the implementation of FVA. The Bank will
continue to monitor industry practice, and may refine the methodology
and the products to which FVA applies to as market practices evolve.
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 (CMB) 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 repur-
chase 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.
Other Financial Liabilities Designated at Fair Value
For deposits designated at fair value through profit or loss, fair value
is determined using discounted cash flow valuation techniques which
maximize the use of observable market inputs such as benchmark yield
curves. The Bank considers the impact of its own creditworthiness in
the valuation of these deposits by reference to observable market
inputs. The Bank currently issues mortgage loan commitments to its
customers which allow them to lock in a fixed mortgage rate prior
to their expected funding date. The Bank values loan commitments
through the use of an option pricing model and with adjustments
calculated using an expected funding ratio to arrive at the most repre-
sentative fair value. The expected funding ratio represents the Bank’s
best estimate, based on historical analysis, as to the amount of loan
commitments that will actually fund. If commitment extensions are
exercised by the borrower, the Bank will remeasure the written option
at fair value.
Portfolio Exception
IFRS 13 provides a measurement exception that allows an entity to
determine the fair value of a group of financial assets and liabilities
with offsetting risks based on the sale or transfer of its net exposure
to a particular risk or risks. The Bank manages certain financial
assets and financial liabilities, such as derivative assets and derivative
liabilities on the basis of net exposure and applies the portfolio
exception when determining the fair value of these financial assets
and financial liabilities.
Fair Value of Assets and Liabilities not Measured at Fair Value
The fair value of assets and liabilities not measured at fair value
include loans, deposits, certain securitization liabilities, certain securities
purchased and obligations relating to securities sold under reverse
repurchase and repurchase agreements and subordinated notes and
debentures. For these instruments, fair values are calculated for
disclosure purposes only, and the valuation techniques are disclosed
above. In addition, the Bank has determined that the carrying value
approximates the fair value for the following assets and liabilities as
they are usually liquid floating rate financial instruments and are
generally short term in nature: cash and due from banks, interest-
bearing deposits with banks, customers’ liability under acceptances,
and acceptances.
Carrying Value and Fair Value of Financial Instruments
and Commodities
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. The following
table includes the fair value of commodities.
144
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS Financial Assets, Liabilities and Commodities
(millions of Canadian dollars)
FINANCIAL ASSETS AND COMMODITIES
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
Amounts receivable from brokers, dealers and clients
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
Amounts payable to brokers, dealers and clients
Other liabilities
Subordinated notes and debentures
October 31, 2014
October 31, 2013
Carrying value
Fair value
Carrying value
Fair value
As at
$
2,781
43,773
$
2,781
43,773
$
3,581
28,583
$
3,581
28,583
30,899
9,019
45,911
10,142
5,154
48
101,173
55,363
4,745
30,899
9,019
45,911
10,142
5,154
48
101,173
55,363
4,745
31,707
28,724
1,931
646
63,008
31,707
28,724
1,931
646
63,008
34,119
22,858
56,977
75,031
478,909
13,080
9,319
3,590
34,371
22,955
57,326
75,031
483,044
13,080
9,319
3,590
59,334
50,776
11,198
3,250
600,716
13,080
39,465
45,587
24,960
10,384
9,926
7,785
$
59,334
50,776
11,198
3,250
601,705
13,080
39,465
45,587
25,271
10,384
9,958
8,358
$
32,861
9,628
45,751
10,219
3,414
67
101,940
49,461
6,532
37,897
38,936
1,806
905
79,544
25,890
4,071
29,961
64,283
444,922
6,399
9,183
3,469
50,967
49,471
21,960
12
541,605
6,399
41,829
34,414
25,592
8,882
12,839
7,982
$
32,861
9,628
45,751
10,219
3,414
67
101,940
49,461
6,532
37,897
38,936
1,806
905
79,544
25,875
4,075
29,950
64,283
445,935
6,399
9,183
3,469
50,967
49,471
21,960
12
543,080
6,399
41,829
34,414
25,864
8,882
12,857
8,678
$
1 As at October 31, 2014, the carrying values of certain available-for-sale equity
securities of $5 million (October 31, 2013 – $6 million) are assumed to approxi-
mate 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 7, 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 on
a recurring basis as at October 31.
145
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
Fair Value Hierarchy for Assets and Liabilities Measured at Fair Value on a Recurring Basis
(millions of Canadian dollars)
October 31, 2014
As at
October 31, 2013
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
$
$
302 $ 12,229
5,454
8,698
3,427
789
–
–
–
–
– $ 12,531 $
–
–
–
–
5,454
8,698
3,427
789
304 $ 12,908
4,518
11,250
2,685
1,090
1
105
–
–
$
– $ 13,212
4,519
–
11,355
–
2,685
–
1,090
–
–
–
2,805
6,128
20
66
2,825
6,194
–
–
2,943
6,596
5
84
2,948
6,680
40,695
40
–
5,154
–
46,191
5,172
–
10,142
–
–
54,844
4 45,871
–
40
– 10,142
5,154
–
48
48
138 101,173
38,020
64
–
3,414
–
41,908
7,652
–
10,219
–
–
59,861
15
–
–
–
67
171
45,687
64
10,219
3,414
67
101,940
2
56
–
–
53
111
23,413
24,852
18
5,577
341
54,201
– 23,415
16 24,924
18
6,610
396
1,051 55,363
–
1,033
2
1
168
–
–
60
229
25,690
14,106
60
8,131
263
48,250
–
13
3
958
8
982
25,691
14,287
63
9,089
331
49,461
202
–
202
4,538
–
4,538
–
5
5
4,740
5
4,745
372
–
372
6,151
–
6,151
–
9
9
6,523
9
6,532
199
–
–
–
–
8,205
4,494
12,130
3,317
3,306
–
–
–
18,903
1,722
8,080
–
51
8,404
4,545
– 12,130
3,322
5
3,306
–
– 18,903
1,722
–
8,099
19
–
–
–
–
–
–
–
–
9,329
2,588
15,176
7,986
2,810
29,320
963
8,634
–
–
–
8
–
9,329
2,588
15,176
7,994
2,810
–
–
19
29,320
963
8,653
210
29
–
438
242
1
337
60,737
1,303
141
309
1,755
171
646
1,828 63,003
197
30
–
227
222
–
677
77,705
1,215
136
228
1,606
1,634
166
905
79,538
– $ 8,154
$
– $ 8,154 $
– $ 5,331
$
– $ 5,331
– $ 57,703
$ 1,631 $ 59,334 $
– $ 49,571
$ 1,396 $ 50,967
2
43
–
–
52
97
–
20,026
22,975
325
5,275
440
49,041
11,198
–
1,537
6
81 20,109
14 23,032
325
6,812
498
1,638 50,776
– 11,198
1
149
–
–
56
206
–
22,789
15,535
355
8,892
266
47,837
21,960
58
12
3
1,350
5
1,428
–
22,848
15,696
358
10,242
327
49,471
21,960
$
$
–
14,305
3,242
25,126
8
3,250
34 39,465
–
17,698
–
24,124
12
7
12
41,829
$
– $ 8,242
$
– $ 8,242 $
– $ 5,825
$
– $ 5,825
1 As at October 31, 2014, the carrying values of certain available-for-sale equity
securities of $5 million (October 31, 2013 – $6 million) are assumed to approximate
fair value in the absence of quoted market prices in an active market.
2 As at October 31, 2014, common shares include the fair value of Federal Reserve
Stock and Federal Home Loan Bank stock of $972 million (October 31, 2013 –
$930 million) which are redeemable by the issuer at cost for which cost approxi-
mates 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.
146
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
The Bank’s policy is to record transfers of assets and liabilities between
the different levels of the fair value hierarchy using the fair values
as at the end of each reporting period. Assets are transferred between
Level 1 and Level 2 depending on if there is sufficient frequency and
volume in an active market.
During the year ended October 31, 2014, the Bank transferred
$1 billion of trading securities and $1 billion obligations related to
securities sold short from Level 1 to Level 2. These transfers repre-
sented previously on-the-run treasury securities that are now off-the-
run. During the year ended October 31, 2013, the Bank transferred
$4 billion off-the run treasury securities classified as trading and
$4 billion classified as available for sale from Level 1 to Level 2. In
addition, the Bank transferred $2 billion off-the-run treasury securities
sold short from Level 1 to Level 2.
Movements of Level 3 instruments
Significant transfers into and out of Level 3 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.
147
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS 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 years ended October 31.
Reconciliation of Changes in Fair Value for Level 3 Financial Assets and Liabilities
(millions of Canadian dollars)
Total realized and
unrealized gains (losses)
Movements
Fair value
as at
Nov. 1,
2013
Included
in income1
Included
in OCI
Purchases
Issuances
Other2
Into
Level 3
Transfers
Change in
unrealized
gains
Fair value
(losses) on
as at
Out of October 31, instruments
still held3
2014
Level 3
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
Trading loans
Retained interests
Financial assets designated
at fair value through
profit or loss
Loans
Available-for-sale securities
Government and government-
related securities
Canadian government debt
Provinces
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
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
84
15
–
–
67
171
9
9
–
8
–
19
1,215
136
–
3
–
–
–
5
8
1
1
1
–
–
1
7
(6)
228
$ 1,606
30
$ 33
–
–
–
–
–
–
–
–
–
–
–
–
–
31
4
20
$ 55
10
145
159
54
–
–
368
–
–
–
3
–
–
97
6
–
$ 106
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(68)
(195)
(170)
(54)
–
(24)
(511)
73
37
–
2
–
–
112
–
(8)
–
(2)
–
–
(10)
20
66
4
–
–
48
138
(5)
(5)
–
–
–
–
5
5
–
187
(137)
–
–
–
40
–
(41)
51
5
–
19
1
–
–
–
1,303
141
(6)
–
–
(48)
1
(14)
$ (67)
46
$ 274
(1)
309
$ (179) $ 1,828
–
(2)
–
–
–
(7)
(9)
(4)
(4)
1
–
–
1
30
4
20
$ 56
Total realized and
unrealized losses (gains)
Movements
Fair value
as at
Nov. 1,
2013
Included
in income1
Included
in OCI
Purchases
Issuances
Other2
Into
Level 3
Transfers
Change in
unrealized
losses
Fair value
(gains) on
as at
Out of October 31, instruments
still held3
2014
Level 3
$ 1,396
$ 65
$ –
$
–
$ 687
$ (494)
$
1
$
(24) $ 1,631
$ 50
58
(1)
–
392
(3)
446
21
–
1
166
–
188
12
(49)
–
–
–
–
–
–
–
–
–
–
(119)
–
(119)
–
–
–
221
–
221
1
(2)
(1)
(161)
8
(155)
–
1
–
5
(1)
5
–
84
(39)
–
1
–
–
–
–
1
–
81
(2)
–
504
4
587
23
–
–
164
4
191
8
(52)
$
7
$
–
$ –
$ (26)
$
–
$ 52
$
1
$
–
$
34
$
–
1 Gains (losses) on financial assets and liabilities are recognized in Net securities gains
4 As at October 31, 2014, consists of derivative assets of $1.1 billion
(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.
(November 1, 2013 – $982 million) and derivative liabilities of $1.6 billion
(November 1, 2013 – $1.4 billion), which have been netted on this table
for presentation purposes only.
148
TD BANK GROUP ANNUAL REPORT 2014 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,
2012
Included
in income1
Included
in OCI
Purchases
Issuances
Other2
Fair value
as at
Out of October 31,
2013
Level 3
Into
Level 3
Change in
unrealized
gains
(losses) on
instruments
still held3
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
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
17
57
77
–
85
236
13
13
2
57
(4)
(12)
–
–
–
(16)
–
–
–
–
–
–
5
84
15
–
67
171
9
9
8
19
1,215
136
–
(2)
–
–
(13)
(15)
1
1
–
(4)
37
7
20
$ 60
$
–
$
–
$ –
$ 182
$
–
$ (182)
$
–
$ –
$
–
$ –
2
2
–
–
6
10
–
–
–
–
–
–
79
339
134
88
–
822
–
–
(111)
(369)
–
–
10
10
(196)
(88)
(34)
(980)
22
67
–
–
–
89
4
4
–
–
–
1
–
(3)
–
–
8
–
(8)
(8)
–
–
(2)
–
(36)
–
(421)
(5)
59
–
–
–
–
–
–
–
–
–
1,446
163
165
$ 1,833
27
(1)
11
$ 38
(7)
(21)
111
–
7
$ (24)
–
$ 119
$
(2)
$ (466)
54
$ 113
(7)
$ (7)
228
$ 1,606
Total realized and
unrealized losses (gains)
Movements
Transfers
Fair value
as at
Nov. 1,
2012
Included
in income1
Included
in OCI
Purchases
Issuances
Other2
Fair value
as at
Out of October 31,
2013
Level 3
Into
Level 3
Change in
unrealized
losses
(gains) on
instruments
still held3
$ 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)
17
14
–
–
178
(197)
–
–
–
–
–
–
–
–
58
(1)
–
392
(3)
446
(33)
1
2
141
(1)
110
12
1
$
21
$
–
$ –
$ (47)
$
–
$ 33
$
–
$ –
$
7
$ –
1 Gains (losses) on financial assets and liabilities are recognized in Net securities
4 As at October 31, 2013, consists of derivative assets of $982 million
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.
(November 1, 2012 – $749 million) and derivative liabilities of $1.4 billion
(November 1, 2012 – $1.2 billion), which have been netted on this table
for presentation purposes only.
149
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
VALUATION OF ASSETS AND LIABILITIES CLASSIFIED
AS LEVEL 3
Significant unobservable inputs in Level 3 positions
The following section discusses the significant unobservable inputs
for Level 3 positions and assesses the potential effect that a change
in each observable input may have on the fair value measurement.
Price Equivalent
Certain financial instruments, mainly debt and equity securities, are
valued using price equivalents when market prices are not available,
with fair value measured by comparison with observable pricing data
from instruments with similar characteristics. The price equivalent is
expressed in points, and represents a percentage of the par amount.
There may be wide ranges depending on the liquidity of the securities.
Prices at the lower end of the range are generally a result of securities
that are written down.
Credit Spread
Credit spread is a significant input used in the valuation of many
derivatives. It is the primary reflection of the credit worthiness of a
counterparty and represents the premium or yield return above the
benchmark reference that a bond holder would require in order to
allow for the credit quality difference between the entity and the
reference benchmark. An increase/(decrease) in credit spread will
(decrease)/increase the value of financial instrument. Credit spread
may be negative where the counterparty is more credit worthy than
the benchmark against which the spread is calculated. A wider
credit spread represents decreasing credit worthiness.
Prepayment Rate and Liquidation Rate
Expected future prepayment and liquidation rates are significant inputs
for retained interests and represent the amount of unscheduled
principal repayment. The prepayment rate and liquidation rate will be
obtained from prepayment forecasts which are based on a number
of factors such as historical prepayment rates for similar pool loans
and the future economic outlook, considering factors including, but
not limited to, future interest rates.
Correlation
The movements of inputs are not necessarily independent from other
inputs. Such relationships, where material to the fair value of a given
instrument, are captured via correlation inputs into the pricing models.
The Bank includes correlation between the asset class, as well as across
asset classes. For example, price correlation is the relationship between
prices of equity securities in equity basket derivatives, and quanto
correlation is the relationship between instruments which settle in one
currency and the underlying securities which are denominated in
another currency.
Implied Volatility
Implied volatility is the value of the volatility of the underlying instrument
which, when input in an option pricing model, such as Black-Scholes,
will return a theoretical value equal to the current market price of the
option. Implied volatility is a forward-looking and subjective measure,
and differs from historical volatility because the latter is calculated
from known past returns of a security.
Funding ratio
The funding ratio is a significant unobservable input required to value
mortgage commitments issued by the Bank. The funding ratio represents
an estimate of percentage of commitments that are ultimately funded
by the Bank. The funding ratio is based on a number of factors such
as observed historical funding percentages within the various lending
channels and the future economic outlook, considering factors including,
but not limited to, competitive pricing and fixed/variable mortgage rate
gap. An increase/(decrease) in funding ratio will increase/(decrease)
the value of the lending commitment in relationship to prevailing
interest rates.
Earnings Multiple, Discount Rate and Liquidity Discount
Earnings multiple, discount rate and liquidity discount are significant
inputs used when valuing certain equity securities. Earnings multiples
are selected based on comparable entities and a higher multiple will
result in a higher fair value. Discount rates are applied to cash flow
forecasts to reflect time value of money and the risks associated with
the cash flows. A higher discount rate will result in a lower fair value.
Liquidity discounts may be applied as a result of the difference in
liquidity between the comparable entity and the equity securities
being valued.
Currency Specific Swap Curve
The fair value of foreign exchange contracts is determined using inputs
such as foreign exchange spot rates and swap curves. Generally swap
curves are observable, but there may be certain durations, or currency
specific foreign exchange spot and currency specific swap curves that
are not observable.
Dividend Yield
Dividend yield is a key input for valuing equity contracts and is generally
expressed as a percentage of the current price of the stock. Dividend
yields can be derived from the repo or forward price of the actual
stock being fair valued. Spot dividend yields can also be obtained from
pricing sources, if it can be demonstrated that spot yields are a good
indication of future dividends.
150
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS Valuation techniques and inputs used in the fair value
measurement of Level 3 assets and liabilities
The following table presents the Bank’s assets and liabilities recognized
at fair value and classified as Level 3, together with the valuation
techniques used to measure fair value, the significant inputs used in
the valuation technique that are considered unobservable, and a range
of values for those unobservable inputs. The range of values represents
the highest and lowest inputs used in calculating the fair value.
Valuation Techniques and Inputs Used in the Fair Value Measurement of Level 3 Assets and Liabilities
(millions of Canadian dollars, except as noted)
As at
October 31, 2014
Fair value Fair value
liabilities
assets
Valuation
technique
Significant
unobservable
inputs (Level 3)
Lower
range
Upper
range
Unit
Government and government-
related securities
$ 56
$ n/a1
Market comparable
Bond price equivalent
100
101
points
Other debt securities
414
n/a
Market comparable
Bond price equivalent
–
132
points
Equity securities2
476
n/a
Market comparable
Discounted cash flow
EBITDA multiple
Market comparable
Retained interests
48
n/a Discounted cash flow
New issue price
Discount rate
Earnings multiple
Price equivalent
Prepayment and
liquidation rates
100
1
5.3x
98
100
23
25x
98
–
10
%
%
%
%
Other financial assets designated
at fair value through profit or loss
5
n/a
Market comparable
Bond price equivalent
105
105
points
Derivatives
Interest rate contracts
Foreign exchange contracts
Credit contracts
Equity contracts
–
16
–
81
14
Swaption model
Currency specific volatility
Option model
Currency specific volatility
– Discounted cash flow
Credit spread
188
18
%
%
103
bps3
1,033
1,537
Option model
8
6
5
14
(40)
–
11
(45)
34
–
(45)
–
10
8
85
17
11
80
(25)
46
98
18
11
68
188
Price correlation
Quanto correlation
Dividend yield
Equity volatility
Quanto correlation
Swaption correlation
Price correlation
Quanto correlation
Dividend yield
Equity volatility
Currency specific volatility
Commodity contracts
2
6
Option model
Trading deposits
n/a
1,631
Option model
Swaption model
Other financial liabilities designated
at fair value through profit or loss
Obligations related to securities
sold short
n/a
8
Option model
Funding ratio
3
72
n/a
34
Market comparable
New issue price
100
100
1 Not applicable.
2 As at October 31, 2014, common shares exclude the fair value of
Federal Reserve Stock and Federal Home Loan Bank stock of $972 million
(October 31, 2013 – $930 million) which are redeemable by the issuer at cost
which approximates fair value. These securities cannot be traded in the market
hence these securities have not been subjected to the sensitivity analysis.
3 Basis points.
%
%
%
%
%
%
%
%
%
%
%
%
%
151
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
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, that are classified in Level 3 of the
fair value hierarchy. For interest rate derivatives, the Bank performed
a sensitivity analysis on the unobservable 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 was calculated by using
reasonably possible alternative assumptions by shocking dividends by
5%, correlation by 10%, or the price of the underlying equity instru-
ment by 10% and volatility from (13)% to 33%. For trading deposits,
the sensitivity was calculated by varying unobservable inputs which
may include volatility, credit spreads, and correlation.
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 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.
152
October 31, 2014
Impact to net assets
As at
October 31, 2013
Impact to net assets
Decrease in
fair value
Increase in
fair value
Decrease in
fair value
Increase in
fair value
$
–
–
3
3
–
–
21
21
–
2
54
8
4
68
$
–
–
–
–
–
–
22
22
–
–
20
8
4
32
$
1
–
5
6
–
–
30
30
1
2
45
7
4
59
$ 1
–
2
3
–
–
35
35
1
–
18
7
4
30
6
10
5
9
20
32
52
1
$ 151
16
31
47
1
$ 112
23
49
72
2
$ 174
17
42
59
2
$ 138
(millions of Canadian dollars)
For the years ended October 31
Balance as at beginning of year
New transactions
Recognized in the Consolidated Statement
of Income during the year
Balance as at end of year
2014
$ 41
44
(52)
$ 33
2013
$ 48
32
(39)
$ 41
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 $5 million as
at October 31, 2014 (October 31, 2013 – $9 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.
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
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 desig-
nating 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 rela-
tionships. 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 does 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 $8 million less than the carrying amount as
at October 31, 2014 (October 31, 2013 – $123 million less than the
carrying amount).
Other Liabilities Designated at Fair Value through Profit or Loss
Certain deposits and loan commitments issued to customers to
provide a mortgage at a fixed rate have been designated at fair value
through profit or loss. These deposits and commitments are economi-
cally hedged with derivatives and other financial instruments where
the changes in fair value are recognized in non-interest income. The
designation of these deposits and loan commitments at fair value
through profit or loss eliminates an accounting mismatch that would
otherwise arise.
The amount the Bank would be contractually required to pay at
maturity for the deposits designated at fair value through profit or loss
was $48 million less than the carrying amount as at October 31, 2014
(October 31, 2013 – nil). As at October 31, 2014, the fair value of
deposits designated at fair value through profit or loss includes
$5 million of the Bank’s own credit risk (October 31, 2013 – nil).
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
determination 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, 2014, the income (loss) representing
net changes in the fair value of financial assets and liabilities designated at
fair value through profit or loss was $55 million (2013 – $(129) million).
Fair Value Hierarchy for Assets and Liabilities not carried
at Fair Value
The following table presents the levels within the fair value hierarchy
for each of the assets and liabilities not carried at fair value as at
October 31, 2014, but for which fair value is disclosed.
Fair Value Hierarchy for Assets and Liabilities not carried at Fair Value
(millions of Canadian dollars)
ASSETS
Cash and due from banks
Interest-bearing deposits with banks
Held-to-maturity securities
Government and government-related securities
Other debt securities
Total held-to-maturity securities
Securities purchased under reverse repurchase agreements
Loans
Debt securities classified as loans
Total Loans
Other
Customers’ liability under acceptances
Amounts receivables from brokers, dealers, and clients
Other assets
Total Assets with fair value disclosures
LIABILITIES
Deposits
Acceptances
Obligations related to securities sold under repurchase agreements
Securitization liabilities at amortized cost
Amounts payable to brokers, dealers, and clients
Other liabilities
Subordinated notes and debentures
Total liabilities with fair value disclosures
Level 1
Level 2
Level 3
Total
As at
October 31, 2014
$ 2,781
–
$
–
43,773
$
–
–
$
2,781
43,773
–
–
–
–
–
–
–
34,371
22,955
57,326
66,877
189,331
984
190,315
–
–
–
–
290,983
1,746
292,729
34,371
22,955
57,326
66,877
480,314
2,730
483,044
–
–
–
$ 2,781
13,080
9,319
3,121
$ 383,811
–
–
469
$ 293,198
13,080
9,319
3,590
$ 679,790
$
$
–
–
–
–
–
–
–
–
$ 601,705
13,080
37,345
25,271
10,384
9,204
8,358
$ 705,347
$
$
–
–
–
–
–
754
–
754
$ 601,705
13,080
37,345
25,271
10,384
9,958
8,358
$ 706,101
153
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
N O T E 6
OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES
OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES
The Bank enters into netting agreements with counterparties (such as
clearing houses) to manage the credit risks associated primarily with
repurchase and reverse repurchase transactions, securities borrowing
and lending, and over-the-counter and exchange-traded derivatives.
These netting agreements and similar arrangements generally allow
the counterparties to set-off liabilities against available assets received.
The right to set-off is a legal right to settle or otherwise eliminate all
or a portion of an amount due by applying against that amount an
amount receivable from the other party. These agreements effectively
reduce the Bank’s credit exposure by what it would have been if those
same counterparties were liable for the gross exposure on the same
underlying contracts.
Netting arrangements are typically constituted by a master netting
agreement which specifies the general terms of the agreement
between the counterparties, including information on the basis of the
netting calculation, types of collateral, and the definition of default
and other termination events for transactions executed under the
agreement. The master netting agreements contain the terms and
conditions by which all (or as many as possible) relevant transactions
between the counterparties are governed. Multiple individual transac-
tions are subsumed under this general master netting agreement,
forming a single legal contract under which the counterparties conduct
their relevant mutual business. In addition to the mitigation of credit
risk, placing individual transactions under a single master netting
agreement that provides for netting of transactions in scope also helps
to mitigate settlement risks associated with transacting in multiple
jurisdictions or across multiple contracts. These arrangements include
clearing agreements, global master repurchase agreements, and global
master securities lending agreements.
(millions of Canadian dollars)
In the normal course of business, the Bank enters into numerous
contracts to buy and sell goods and services from various suppliers.
Some of these contracts may have netting provisions that allow for the
offset of various trade payables and receivables in the event of default
of one of the parties. While these are not disclosed in the following
table, the gross amount of all payables and receivables to and from
the Bank’s vendors is disclosed in the Other assets note in accounts
receivable and other items and in the Other liabilities note in accounts
payable, accrued expenses, and other items.
The Bank also enters into regular way purchases and sales of stocks
and bonds. Some of these transactions may have netting provisions
that allow for the offset of broker payables and broker receivables
related to these purchases and sales. While these are not disclosed
in the following table, the gross amount of receivables are disclosed
in Amounts receivable from brokers, dealers, and clients and payables
are disclosed in Amounts payable to brokers, dealers, and clients.
The following table provides a summary of the financial assets and
liabilities which are subject to enforceable master netting agreements
and similar arrangements, including amounts not otherwise set off in
the balance sheet, as well as financial collateral received to mitigate
credit exposures for these financial assets and liabilities. The gross
financial assets and liabilities are reconciled to the net amounts
presented within the associated balance sheet line, after giving effect
to transactions with the same counterparties that have been offset in
the balance sheet. Related amounts and collateral received that are
not offset on the balance sheet, but are otherwise subject to the same
enforceable netting agreements and similar arrangements, are then
presented to arrive at a net amount.
As at
October 31, 2014
Amounts subject to an enforceable
master netting arrangement or similar
agreement that are not set-off in
the Consolidated Balance Sheet1
Gross amounts
of recognized
financial
instruments
before
balance sheet
netting
Gross amounts
of recognized
financial
instruments
set-off in the
Consolidated
Balance Sheet
Net amount
of financial
instruments
presented in the
Consolidated
Balance Sheet
Amounts
subject to an
enforceable
master netting
agreement
Collateral
Net Amount
FINANCIAL ASSETS
Derivatives
Securities purchased under
reverse repurchase agreements
Total
Financial Liabilities
Derivatives
Obligations related to securities sold
under repurchase agreements
Total
FINANCIAL ASSETS
Derivatives
Securities purchased under
reverse repurchase agreements
Total
Financial Liabilities
Derivatives
Obligations related to securities sold
under repurchase agreements
Total
$ 69,488
$ 14,125
$ 55,363
$ 39,783
$ 8,278
$ 7,302
94,877
164,365
19,846
33,971
75,031
130,394
64,901
14,125
50,776
65,433
$ 130,334
19,846
$ 33,971
45,587
$ 96,363
6,828
46,611
39,783
6,828
$ 46,611
68,127
76,405
76
7,378
6,353
4,640
38,757
$ 45,110
2
$ 4,642
October 31, 2013
$ 60,326
$ 10,865
$ 49,461
$ 37,919
$ 5,609
$ 5,933
84,192
144,518
19,909
30,774
64,283
113,744
60,336
10,865
49,471
54,323
$ 114,659
19,909
$ 30,774
34,414
$ 83,885
7,134
45,053
37,919
7,134
$ 45,053
57,085
62,694
64
5,997
6,250
5,302
27,279
$ 33,529
1
$ 5,303
1 Excess collateral as a result of overcollateralization has not been reflected in
the table.
154
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
N O T E 7
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 $646 million as
at October 31, 2014 (October 31, 2013 – $905 million). For the year
ended October 31, 2014, net interest income of $41 million after tax
(October 31, 2013 – $62 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, 2014, of $18 million after tax
(October 31, 2013 – decrease of $25 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, 2014, of $18 million after tax (October 31, 2013 – decrease
of $25 million after tax). During the year ended October 31, 2014,
reclassified debt securities with a fair value of $331 million
(October 31, 2013 – $420 million) were sold or matured, and
$17 million after tax (October 31, 2013 – $28 million after tax) was
recorded in net securities gains during the year ended October 31, 2014.
Reclassification of Certain Debt Securities –
Available-for-Sale to Held-to-Maturity
The Bank has reclassified certain debt securities 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. Subsequent to the date of reclassification, the net unrealized
gain or loss recognized in accumulated other comprehensive income
is amortized to interest income over the remaining life of the reclassi-
fied debt securities using the EIRM. The reclassifications are non-cash
transactions that are excluded from the Consolidated Statement of
Cash Flows.
The Bank has completed the following reclassifications:
(millions of Canadian dollars, except as noted)
October 31, 2014
October 31, 2013
As at the reclassification date
Reclassification Date
March 1, 2013
September 23, 2013
November 1, 20131
Amount
reclassified
$ 11,084
9,854
21,597
Fair
Value
$ 6,845
9,790
21,949
Carrying
Value
$ 6,805
9,728
21,863
Fair
Value
$ 9,405
9,978
–
Carrying
Value
$ 9,398
9,941
–
Weighted-Average
Effective Interest
Rate
1.8%
1.9
1.1
Undiscounted
Recoverable
Cash Flows
$ 11,341
10,742
24,519
1 The change in fair value of these securities recorded in other comprehensive
income for the year ended October 31, 2014 was nil (October 31, 2013 – decrease
of $163 million).
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 $53 million during the
year ended October 31, 2014 (October 31, 2013 – a decrease of
$44 million). 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 years ended
October 31 October 31
2013
2014
$ 541
541
192
$ 349
$ 138
138
37
$ 101
1 Includes amortization of the net unrealized gains of $86 million during the year
ended October 31, 2014 (October 31, 2013 – $85 million) associated with these
reclassified held-to-maturity securities, that is presented as Reclassifications
to earnings of net losses (gains) in respect of available-for-sale securities on the
Consolidated Statement of Comprehensive Income. The impact of this amortization
on net interest income is offset by the amortization of the corresponding net
reclassification premium on these debt securities.
155
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
Remaining Terms to Maturities of Securities
The remaining terms to contractual maturities of the securities held by
the Bank are shown on the following table.
Securities Maturity Schedule
(millions of Canadian dollars)
Within
1 year
Over 1
year to
3 years
Over 3
years to
5 years
As at
October 31 October 31
2013
2014
Remaining terms to maturities1
Over 5
years to Over 10
10 years
With no
specific
years maturity
Total
Total
Trading 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
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 collateralized mortgage obligation portfolio
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
Non-agency collateralized mortgage obligation portfolio
Other issuers
Total held-to-maturity securities
Total securities
$ 2,489 $ 3,219 $ 1,777 $ 2,969 $ 2,077 $
397
1,945
1,652
807
653
– $ 12,531 $ 13,212
4,519
–
5,454
1,093
2,025
2,617
481
1,323
317
2,507
449
1,158
155
–
–
8,698 11,355
2,685
3,427
482
14
8,048
176
16
7,162
55
9
3,878
–
31
6,763
–
6
5,048
1,022
713
–
–
68
76
– 30,899 32,861
384
2,986
3,370
858
1,727
2,585
633
798
1,431
565
568
1,133
385
115
500
–
–
–
2,825
6,194
9,019
2,948
6,680
9,628
–
–
–
4
45,871 45,871 45,687
–
64
–
– 45,911 45,911 45,751
67
$ 11,422 $ 9,751 $ 5,312 $ 7,920 $ 5,561 $ 45,911 $ 85,877 $ 88,307
–
–
–
24
–
–
–
3
–
–
–
4
40
40
13
48
–
$ 2,220 $
655
718 $ 4,694 $
741
1,876
1,264
752 $
20 $
9
– $ 8,404 $ 9,329
2,588
–
4,545
1,642
1,171
–
5,688
1,047
578
787
441
1,165
2,519
3,871 10,695
2,567
408
–
4,991
6,433
–
–
6,462
– 12,130 15,176
7,994
–
–
2,810
– 31,707 37,897
3,322
3,306
1,004
–
1,542
2,546
4,168
–
3,154
7,322
2,756
–
2,830
5,586
6,480
–
428
6,908
4,495
1,722
145
6,362
– 18,903 29,320
963
–
–
8,653
– 28,724 38,936
1,722
8,099
–
–
–
112
1,640
166
1,806
905
$ 8,346 $ 11,429 $ 16,312 $ 12,102 $ 12,888 $ 1,931 $ 63,008 $ 79,544
1,760
171
1,931
–
1,760
171
1,931
646
–
–
–
236
–
–
–
203
–
–
–
31
–
–
–
64
$
– $
– $
– $
– $
– $
– $
– $
259
–
2,677
2,677
281
8,226
8,507
4,822
4,424
9,246
9,465
–
9,465
4,224
–
4,224
– 18,792 12,551
– 15,327 13,080
– 34,119 25,890
–
–
833
833
345
–
1,191
1,536
6,001
4,670
610
–
–
2,291
6,611
6,961
3,510 10,043 16,207 16,382 10,835
1,239
– 17,933
610
–
–
2,832
4,315
–
– 22,858
4,071
– 56,977 29,961
$ 23,278 $ 31,223 $ 37,831 $ 36,404 $ 29,284 $ 47,842 $ 205,862 $ 197,812
6,917
–
–
6,917
1 Represents contractual maturities. Actual maturities may differ due to prepayment
privileges in the applicable contract.
156
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
Unrealized Securities Gains (Losses)
The following table summarizes the unrealized gains and losses
as at October 31, 2014, and October 31, 2013.
Unrealized Securities Gains (Losses)
(millions of Canadian dollars)
October 31, 2014
As at
October 31, 2013
Cost/
Gross
amortized unrealized unrealized
(losses)
Gross
gains
cost1
Cost/
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 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
Non-agency collateralized mortgage obligation portfolio
Other issuers
Total held-to-maturity securities
Total securities
1 Includes the foreign exchange translation of amortized cost balances at the
period-end spot rate.
$
$ 8,355 $
4,518
11,950
3,313
3,256
31,392
50
29
208
11
50
348
(1) $ 8,404 $ 9,301 $
(2)
4,545
(28) 12,130
3,322
3,306
(33) 31,707
(2)
–
2,569
14,971
7,978
2,791
37,610
32
21
269
23
22
367
$
(4) $ 9,329
2,588
(2)
15,176
(64)
7,994
(7)
2,810
(3)
37,897
(80)
18,831
1,713
8,008
28,552
84
9
117
210
(12) 18,903
1,722
–
(26)
8,099
(38) 28,724
29,252
948
8,471
38,671
136
15
206
357
(68)
–
(24)
(92)
29,320
963
8,653
38,936
1,642
153
1,795
596
131
18
149
55
$ 62,335 $ 762
(13)
–
(13)
(5)
108
15
123
86
$ (89) $ 63,008 $ 78,828 $ 933
1,560
152
1,712
835
1,760
171
1,931
646
(28)
(1)
(29)
(16)
1,640
166
1,806
905
$ (217) $ 79,544
– $
$
18,792
15,327
34,119
–
143
167
310
$
– $
– $
259 $
(56) 18,879
(2) 15,492
(58) 34,371
12,551
13,080
25,890
$
–
44
29
73
(82)
(6)
(88)
– $
259
12,513
13,103
25,875
85
17,933
–
610
38
4,315
123
22,858
56,977
433
$ 119,312 $ 1,195
(4) 18,014
(4)
606
4,335
(18)
(26) 22,955
(84) 57,326
8
–
9
17
90
$ (173) $ 120,334 $ 108,789 $ 1,023
1,239
–
2,832
4,071
29,961
1,247
–
–
–
2,828
(13)
4,075
(13)
(101)
29,950
$ (318) $ 109,494
157
TD BANK GROUP ANNUAL REPORT 2014 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
twelve months preceding October 31, 2014, and October 31, 2013, 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 Securities1
(millions of Canadian dollars)
Available-for-sale securities
Government and government-related securities
Canadian government debt
Federal
Provinces
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
Provinces
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
1 Certain comparative amounts have been restated to conform with the presentation
adopted in the current period.
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 impairment losses for the years ended October 31, 2014, or 2013
related to debt securities in the reclassified portfolio as described in the
“Reclassification of Certain Debt Securities – Trading to Available-for-Sale”
section of the Note.
158
As at
October 31, 2014
Less than 12 months
12 months or longer
Total
Gross
Fair unrealized
losses
value
Gross
Fair unrealized
losses
value
Gross
Fair unrealized
losses
value
$
954
1,166
1,932
–
$ 1
2
11
–
$
–
–
1,033
135
$ – $
–
17
2
954
1,166
2,965
135
–
4,052
–
14
–
1,168
–
19
–
5,220
3,616
2,316
5,932
6
14
20
698
153
851
6
12
18
4,314
2,469
6,783
32
–
32
–
$ 10,016
13
–
13
–
$ 47
–
–
–
59
$ 2,078
32
–
–
–
32
–
5
59
$ 42 $ 12,094
$
1
2
28
2
–
33
12
26
38
13
–
13
5
$ 89
October 31, 2013
$ 3,430
377
2,978
1,622
$
$ 4
1
50
6
–
70
706
312
$ – $ 3,430
447
3,684
1,934
1
14
1
875
9,282
3
64
–
1,088
–
16
875
10,370
8,465
1,622
10,087
44
11
55
648
346
994
24
13
37
9,113
1,968
11,081
$
4
2
64
7
3
80
68
24
92
59
115
174
–
$ 19,543
14
1
15
–
$ 134
22
–
22
85
$ 2,189
81
14
115
–
196
14
16
85
$ 83 $ 21,732
28
1
29
16
$ 217
For the years ended October 31
2014
2013
2012
$ 183
$ 312
$ 423
(10)
$ 173
(8)
$ 304
(50)
$ 373
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
N O T E 8
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
$ 195,466 $ 2,242
5,406
116,971
1,694
23,576
128,242
1,201
$ 464,255 $ 10,543
$ 182,169 $ 2,459
5,648
112,528
1,299
20,620
112,779
1,354
$ 428,096 $ 10,760
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, 2014
Individually
Counter- insignificant
impaired
Incurred
Total
but not allowance
for loan
losses
identified
loans credit losses
party
specific
Net
loans
Impaired
Total
$ 752 $ 198,460
853 123,230
294 25,564
832 130,275
$ 2,731 $ 477,529
2,695
1,713
$ 481,937
$ 706 $ 185,334
737 118,913
269 22,188
980 115,113
$ 2,692 $ 441,548
3,744
2,485
$ 447,777
$
–
–
–
134
$ 134
213
8
$ 355
$
–
–
–
151
$ 151
173
24
$ 348
$ 22
110
199
22
$ 353
–
89
$ 442
$ 22
118
128
30
$ 298
–
93
$ 391
$
48
577
801
746
$ 2,172
59
–
$ 2,231
$
65
541
714
698
$ 2,018
98
–
$ 2,116
$
70 $ 198,390
687 122,543
1,000 24,564
902 129,373
$ 2,659 $ 474,870
2,423
1,616
$ 3,028 $ 478,909
272
97
October 31, 2013
$
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
1 Excludes allowance for off-balance sheet positions.
2 Excludes trading loans with a fair value of $10 billion as at October 31, 2014
(October 31, 2013 – $10 billion) and amortized cost of $10 billion as at
October 31, 2014 (October 31, 2013 – $10 billion), and loans designated
at fair value through profit or loss of $5 million as at October 31, 2014
(October 31, 2013 – $9 million). No allowance is recorded for trading loans
or loans designated at fair value through profit or loss.
3 Includes insured mortgages of $131 billion as at October 31, 2014
(October 31, 2013 – $130 billion).
RENEGOTIATED LOANS
In cases where a borrower experiences financial difficulties, the Bank
may grant certain concessionary modifications to the terms and
conditions of a loan. Modifications may include payment deferrals,
extension of amortization periods, rate reductions, principal forgive-
ness, debt consolidation, forbearance, and other modifications
intended to minimize the economic loss and to avoid foreclosure or
repossession of collateral. The Bank has policies in place to determine
the appropriate remediation strategy based on the individual borrower.
If the modified loan’s estimated realizable value, discounted at the
original loan’s effective interest rate, has decreased as a result of the
modification, additional impairment is recorded. Once modified, if a
loan was classified as impaired prior to the modification, the loan is
generally assessed for impairment consistent with the Bank’s existing
policies for impairment.
4 As at October 31, 2014, impaired loans with a balance of $435 million did not
have a related allowance for loan losses (October 31, 2013 – $497 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 $24 billion
as at October 31, 2014 (October 31, 2013 – $27 billion).
FORECLOSED ASSETS
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. The Bank predominantly relies on third-party appraisals
to determine the carrying value of foreclosed assets. Foreclosed
assets held for sale were $180 million as at October 31, 2014
(October 31, 2013 – $233 million) and were recorded in Other assets
on the Consolidated Balance Sheet.
159
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
Unpaid
principal
balance2
$ 807
977
294
978
$ 3,056
Carrying
value
$ 752
853
294
832
$ 2,731
$ 759
834
269
1,179
$ 3,041
$ 706
737
269
980
$ 2,692
As at
October 31, 2014
Related
allowance
for credit
losses
$ 22
110
199
156
$ 487
Average
gross
impaired
loans
$ 740
796
292
910
$ 2,738
October 31, 2013
$ 22
118
128
181
$ 449
$ 697
709
228
968
$ 2,602
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 ACI loans and debt securities classified as loans.
2 Represents contractual amount of principal owed.
The changes in the Bank’s allowance for credit losses for the years
ended October 31 are shown in the following tables.
Allowance for Credit Losses
(millions of Canadian dollars)
Balance
as at
November 1
2013
Provision
for credit
losses
Counterparty-specific allowance
Business and government
Debt securities classified as loans
Total counterparty-specific allowance excluding acquired
$ 151
173
$
Write-offs
Recoveries
Disposals
$
(144)
(5)
$ 72
–
$ –
–
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
68
31
99
(7)
92
23
557
771
36
(149)
(3)
(152)
(38)
(808)
(870)
(82)
324
24
348
22
118
128
30
72
4
76
15
240
169
30
454
3
298
93
1,387
5
(1,798)
(17)
391
1,392
(1,815)
457
65
565
767
833
98
2,328
87
683
895
1,014
271
2,950
117
3,067
212
$ 2,855
(19)
14
138
(13)
(47)
73
4
571
909
91
(16)
–
–
–
–
–
–
(38)
(808)
(870)
(226)
(5)
1,559
(2)
1,557
54
$ 1,503
(1,947)
(20)
(1,967)
–
$ (1,967)
–
–
–
–
–
–
15
240
169
102
–
526
7
533
–
$ 533
Foreign
exchange
and other
adjustments
Balance
as at
October 31
2014
$ (13)
14
1
(10)
(9)
–
3
1
8
12
5
17
2
23
19
52
8
$ 134
213
347
8
355
22
110
199
22
353
89
442
48
602
924
872
59
104
2,505
2
26
20
47
22
117
(5)
112
8
$ 104
70
712
1,123
1,028
272
3,205
97
3,302
274
$ 3,028
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$ –
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 Other
liabilities on the Consolidated Balance Sheet.
160
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
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
$ 170
185
$ 159
13
$
(208)
(11)
$ 41
–
$ –
(22)
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
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
insignificant impaired loans
317
1,296
(1,585)
348
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
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)
–
–
–
–
–
–
–
–
–
–
–
(19)
(19)
–
–
–
–
(41)
(41)
–
(41)
–
$ (41)
Balance
as at
October 31
2013
$ 151
173
324
24
348
22
118
128
30
298
93
391
65
565
767
833
98
$ (11)
8
(3)
(11)
(14)
1
2
2
–
5
10
15
1
7
5
25
7
45
2,328
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
Other liabilities on the Consolidated Balance Sheet.
161
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
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.
The following table summarizes loans that are contractually past due
but not impaired as at October 31. U.S. Retail may grant a grace
period of up to 15 days. As at October 31, 2014, there were $2 billion
(October 31, 2013 – $2 billion) of U.S. Retail loans that were up to
15 days past due and 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.
Collateral
As at October 31, 2014, the fair value of financial collateral held
against loans that were past due but not impaired was $155 million
(October 31, 2013 – $172 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, 2014, impaired loans exclude $1.2 billion
(October 31, 2013 – $1.2 billion) of gross impaired debt securities
classified as loans. Subsequent to any recorded impairment,
interest income continues to be recognized using the EIRM 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
Financial, and the credit card portfolios of MBNA Canada (MBNA),
Target Corporation (Target), and Aeroplan, and had outstanding
unpaid principal balances of $6.3 billion, $2.1 billion, $874 million,
$327 million, $143 million, and $32 million, respectively, and fair
values of $5.6 billion, $1.9 billion, $794 million, $129 million,
$85 million, and $10 million, respectively, at the acquisition dates.
162
1-30
days
$ 1,406
4,577
1,254
1,041
$ 8,278
$ 1,560
4,770
956
974
$ 8,260
31-60
days
$ 724
666
279
107
$ 1,776
$ 785
695
216
325
$ 2,021
Acquired Credit-Impaired Loans
(millions of Canadian dollars)
As at
October 31, 2014
61-89
days
$ 112
163
161
53
$ 489
Total
$ 2,242
5,406
1,694
1,201
$ 10,543
October 31, 2013
$ 114
183
127
55
$ 479
$ 2,459
5,648
1,299
1,354
$ 10,760
As at
October 31 October 31
2013
2014
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 –
$ 699
(18)
(21)
660
(2)
(49)
$ 836
(27)
(22)
787
(5)
(55)
FDIC-assisted acquisitions4
609
727
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
Carrying value
Allowance for individually insignificant impaired loans3
Carrying value net of related allowance – Other
Total carrying value net of related allowance –
1,090
(19)
(25)
1,046
(6)
(40)
1,000
36
(29)
7
–
7
1,700
(33)
(48)
1,619
(19)
(38)
1,562
105
(26)
79
–
79
Acquired credit-impaired loans
$ 1,616
$ 2,368
1 Represents contractual amount owed net of charge-offs since the 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, Target, and Aeroplan.
FDIC COVERED LOANS
As at October 31, 2014, the balance of FDIC covered loans was
$660 million (October 31, 2013 – $787 million) and was recorded in
Loans on the Consolidated Balance Sheet. As at October 31, 2014, the
balance of indemnification assets was $60 million (October 31, 2013 –
$81 million) and was recorded in Other assets on the Consolidated
Balance Sheet.
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
N O T E 9
TRANSFERS OF FINANCIAL ASSETS
LOAN SECURITIZATIONS
The Bank securitizes loans through structured entity or non-structured
entity third parties. Most loan securitizations do not qualify for derecog-
nition since in certain circumstances, the Bank continues to be exposed
to substantially all of the prepayment, interest rate, and/or credit risk
associated with the securitized 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 recog-
nized, and a securitization liability is recognized for the cash proceeds
received. Certain transaction costs incurred are also capitalized and
amortized using the 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 (CHT) as part of the Canada Mortgage Bond
(CMB) program, sold to third-party investors, or are held by the Bank.
The CHT issues CMB to third-party investors and uses resulting
proceeds to purchase NHA MBS from the Bank and other mortgage
issuers in the Canadian market. Assets purchased by the CHT are
comingled in a single trust from which CMB are issued. The Bank
continues to be exposed to substantially all of the risks of the underly-
ing mortgages, through the retention of a seller swap which transfers
principal and interest payment risk on the NHA MBS back to the Bank
in return for coupon paid on the CMB issuance. The NHA MBS and
sales of NHA MBS into the CHT do not qualify for derecognition as the
Bank continues to be exposed to substantially all of the risks of the
underlying 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 entities which may be structured entities. These securiti-
zations 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
structured entities. See Note 10, Structured Entities for further details.
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 business and government loans
Other financial assets transferred related to securitization1
Total
Associated liabilities2
October 31, 2014
October 31, 2013
Fair
value
Carrying
amount
Fair
value
Carrying
amount
$ 33,792
2
2,321
$ 36,115
$ (36,469)
$ 33,561
2
2,321
$ 35,884
$ (36,158)
$ 39,685
21
6,911
$ 46,617
$ (47,824)
$ 39,386
21
6,832
$ 46,239
$ (47,552)
1 Includes asset-backed securities, asset-backed commercial paper, cash, repurchase
agreements, and Government of Canada securities used to fulfill funding require-
ments of the Bank’s securitization structures after the initial securitization of
mortgage loans.
2 Includes securitization liabilities carried at amortized cost of $25 billion as at
October 31, 2014 (October 31, 2013 – $25 billion) and securitization liabilities
carried at fair value of $11 billion as at October 31, 2014 (October 31, 2013 –
$22 billion).
Other Financial Assets Not Qualifying for Derecognition
The Bank enters into certain transactions where it transfers previously
recognized financial assets, such as commodities, 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 transactions 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.
Other Financial Assets Not Qualifying for Derecognition
(millions of Canadian dollars)
As at
Carrying amount of assets
Nature of transaction
Repurchase agreements1,2
Securities lending agreements
Total
Carrying amount of
associated liabilities2
October 31 October 31
2014
2013
$ 19,924 $ 16,658
12,827
29,485
10,718
30,642
$ 19,939 $ 16,775
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.
1 Includes $3.8 billion of assets related to precious metals repurchase agreements
(October 31, 2013 – $2.2 billion).
2 Associated liabilities are all related to repurchase agreements.
163
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
TRANSFERS OF FINANCIAL ASSETS QUALIFYING
FOR DERECOGNITION
Transferred financial assets that are derecognized in their
entirety but where the Bank has a continuing involvement
Continuing involvement may arise if the Bank retains any contractual
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, 2014, the fair value of retained
interests was $44 million (October 31, 2013 – $52 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. For the year ended October 31, 2014, the trading
income recognized on the retained interest was $3 million
(October 31, 2013 – $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 certain instances, the Bank has a continuing involvement to
service those loans. As at October 31, 2014, the carrying value of these
servicing rights was $16 million (October 31, 2013 – $17 million) and the
fair value was $22 million (October 31, 2013 – $22 million). A gain or
loss on sale of the loans is recognized immediately in other income. The
gain (loss) on sale of the loans for the year ended October 31, 2014,
was $7 million (October 31, 2013 – $41 million).
TRANSFER OF DEBT SECURITIES CLASSIFIED AS LOANS
During the year ended October 31, 2014, the Bank did not sell
any of its non-agency collateralized mortgage obligation securities
(October 31, 2013 – sales of $539 million resulting in a gain of
$108 million recorded in Other income on the Consolidated
Statement of Income).
N O T E 1 0
STRUCTURED ENTITIES
A structured entity is typically created to accomplish a narrow, well-
defined objective and may take the form of a corporation, trust,
partnership, or unincorporated entity. The Bank uses structured entities
for a variety of purposes including: (1) to facilitate the transfer of
specified risks to clients; (2) as financing vehicles for itself or for clients;
or (3) to segregate assets on behalf of investors. The Bank is typically
restricted from accessing the assets of the structured entity under the
relevant arrangements.
Legal restrictions often impose limits on the decision-making power
that the entity’s governing board, trustee or management have over
the economic activities of the entity. Control over structured entities is
not typically determined on the basis of voting rights as any such
voting rights may not confer substantive power over the key economic
activities of the entity. As a result, structured entities are consolidated
when the substance of the relationship between the Bank and the
entity indicates that the entity is controlled by the Bank, in accordance
with the Bank’s accounting policy.
The Bank is involved with structured entities that it sponsors as
well as entities sponsored by third-parties. Factors assessed when
determining if the Bank is the sponsor of a structured entity include
whether the Bank is the predominant user of the entity; whether the
entity’s branding or marketing identity is linked with the Bank; and
whether the Bank provides an implicit or explicit guarantee of the
entity’s performance to investors or other third parties. The Bank is
not considered to be the sponsor of a structured entity if it only
provides arm’s-length services to the entity, for example, by acting
as administrator, distributor, custodian, or loan servicer. Sponsorship
of a structured entity may indicate that the Bank had power over
the entity at inception; however, this is not sufficient to determine if
the Bank consolidates the entity. Regardless of whether or not the
Bank sponsors an entity, consolidation is determined on a case-by-
case basis.
SPONSORED STRUCTURED ENTITIES
The following section outlines the Bank’s involvement with key
sponsored structured entities:
Securitizations
The Bank securitizes its own assets and facilitates the securitization of
client assets through structured entities, such as conduits, which issue
asset-backed commercial paper (ABCP) or other securitization entities
which issue longer-dated term securities. Securitizations are an impor-
tant source of liquidity for the Bank, allowing it to diversify its funding
sources and to optimize its balance sheet management approach.
Such securitizations serve a similar purpose for the Bank’s clients, who
transfer assets into the Bank’s securitization entities in return for cash
generated through the issuance of ABCP or term securities to third
party investors. The Bank has no rights to the assets as they are owned
by the securitization entity.
The Bank sponsors both single-seller and multi-seller securitization
conduits. Depending on the specifics of the entity, the variable returns
absorbed through ABCP may be significantly mitigated by variable
returns retained by the sellers. The Bank provides liquidity facilities to
certain single-seller and multi-seller conduits for the benefit of ABCP
investors. 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 issuing ABCP due to illiquidity in
the commercial market, the trust may draw on the loan facility, and
use the proceeds to pay maturing ABCP. The liquidity facilities cannot
be drawn if an entity 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 conduit. The Bank’s
exposure to the variable returns of these conduits from its provision of
liquidity facilities and any related commitments is mitigated by the
164
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS sellers’ continued exposure to variable returns, as described below. The
Bank provides administration and securities distribution services to its
sponsored securitization conduits, which may result in it holding an
investment in the ABCP issued by these entities. The ABCP inventory
held is monitored as part of the ongoing consolidation assessment
process. In some cases, the Bank may also provide credit enhancements
or may transact derivatives with securitization conduits. The Bank
earns fees from the conduits which are recognized when earned.
The Bank sells assets to single-seller conduits which it controls and
consolidates. Control results from the Bank’s power over the entity’s
key economic decisions, predominantly, the mix of assets sold into the
conduit; and exposure to the variable returns of the transferred assets,
usually through a derivative or the provision of credit mitigation in the
form of cash reserves, over-collateralization, or guarantees over the
performance of the entity’s portfolio of assets.
Multi-seller conduits 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 the issuance of short-term commercial paper
to third party investors. These conduits are similar to single-seller
conduits except that assets are received from more than one seller
and comingled into a single portfolio of assets. The Bank is typically
deemed to have power over the entity’s key economic decisions,
namely, the selection of sellers and related assets sold as well as other
decisions related to the management of risk in the vehicle. Sellers of
assets in multi-seller conduits typically continue to be exposed to the
variable returns of their portion of transferred assets, through deriva-
tives or the provision of credit mitigation. The Bank’s exposure to the
variable returns of multi seller conduits from its provision of liquidity
facilities and any related commitments is mitigated by the sellers’
continued exposure to variable returns from the entity. While the
Bank may have power over multi-seller conduits, it is not exposed to
significant variable returns and does not consolidate such entities.
Investment Funds and other Asset Management Entities
As part of its asset management business, the Bank creates investment
funds and trusts (including mutual funds), enabling it to provide its
clients with a broad range of diversified exposure to different risk
profiles, in accordance with the client’s risk appetite. Such entities
may be actively managed or may be passively directed, for example,
through the tracking of a specified index, depending on the entity’s
investment strategy. Financing for these entities is obtained through the
issuance of securities to investors, typically in the form of fund units.
Based on each entity’s specific strategy and risk profile, the proceeds
from this issuance are used by the entity to purchase a portfolio of
assets. An entity’s portfolio may contain investments in securities,
derivatives, or other assets, including cash. At the inception of a new
investment fund or trust, the Bank will typically invest an amount of
seed capital in the entity, allowing it to establish a performance history
in the market. Over time, the Bank sells its seed capital holdings to
third party investors, as the entity’s assets under management (AUM)
increases. As a result, the Bank’s holding of seed capital investment in
its own sponsored investment funds and trusts is typically not signifi-
cant to the Consolidated Financial Statements. Aside from any seed
capital investments, the Bank’s interest in these entities is generally
limited to fees earned for the provision of asset management services.
The Bank does not typically provide guarantees over the performance
of these funds.
The Bank also sponsors the TD Mortgage Fund (the “Fund”), which is
a mutual fund containing a portfolio of Canadian residential mortgages
sold by the Bank into the fund. The Bank has a put option with the
TD Mortgage Fund under which it is required to repurchase defaulted
mortgage loans at their carrying amount from the fund. The Bank’s
exposure under this put option is mitigated as the mortgages in the
Fund are collateralized and government guaranteed. In addition to the
put option, the Bank provides a liquidity facility to the TD Mortgage
Fund for the benefit of fund unit investors. Under the liquidity facility,
the Bank is obligated to repurchase mortgages at their fair value to
enable the Fund to honour unit-holder redemptions in the event that
the Fund experiences a liquidity event. During fiscal 2014, the fair
value of the mortgages repurchased as a result of a liquidity event was
$84 million (2013 – $192 million). Generally, the term of these agree-
ments do not exceed five years. While the Bank has power over the
TD Mortgage Fund, it does not absorb a significant proportion of variable
returns from the Fund, as the variability in the fund relates primarily
to the credit risk of the underlying mortgages which are government
guaranteed. As a result, the Bank does not consolidate the Fund.
The Bank is typically considered to have power over the key
economic decisions of sponsored asset management entities; however,
it does not consolidate an entity unless it is also exposed to significant
variable returns of the entity. This determination is made on a case-by-
case basis, in accordance with the Bank’s consolidation policy.
Financing Vehicles
The Bank may use structured entities to provide a cost-effective means
of financing its operations, including raising capital or obtaining fund-
ing. These structured entities include: (1) TD Capital Trust III and
TD Capital Trust IV (together the “CaTS Entities”); and (2) TD Covered
Bond Guarantor Limited Partnership and TD Covered Bond (Legislative)
Guarantor Limited Partnership (together the “Covered Bond Entities”).
The CaTS Entities issued innovative capital securities which currently
count as Tier 1 Capital of the Bank but, under Basel III, are considered
non-qualifying capital instruments and are subject to the Basel III
phase-out rules. The proceeds from these issuances were invested in
assets purchased from the Bank which generate income for distribu-
tion to investors. The Bank is considered to have decision-making
power over the key economic activities of the CaTS Entities; however,
it does not consolidate an entity unless it is also exposed to significant
variable returns of the entity. The Bank is exposed to the risks and
returns from certain CaTS Entities as it holds the residual risks in those
entities, typically through retaining all the voting securities of the
entity. Where the entity’s portfolio of assets are exposed to risks which
are not related to the Bank’s own credit risk, the Bank is considered to
be exposed to significant variable returns of the entity and consolidates
the entity. However, certain CaTS Entities hold assets which are only
exposed to the Bank’s own credit risk. In this case, the Bank does
not absorb significant variable returns of the entity as it is ultimately
exposed only to its own credit risk, and does not consolidate. Refer
to Note 20, Capital Trust Securities for further details.
The Bank issues, or has issued, debt under its covered bond
programs where the principal and interest payments of the notes
are guaranteed by a covered bond entity, with such guarantee secured
by a portfolio of assets held by the entity. Investors in the Bank’s
covered bonds may have recourse to the Bank should the assets of
the covered bond entity be insufficient to satisfy the covered bond
liabilities. The Bank consolidates the Covered Bond Entities as it has
power over the key economic activities and retains all the variable
returns in these entities.
165
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS THIRD-PARTY SPONSORED STRUCTURED ENTITIES
In addition to structured entities sponsored by the Bank, the Bank is
also involved with structured entities sponsored by third parties. Key
involvement with third party sponsored structured entities is described
in the following section.
Third-party Sponsored Securitization Programs
The Bank participates in the securitization program of government-
sponsored structured entities, including the CMHC, a Crown corporation
of the Government of Canada, and similar U.S. government-sponsored
entities. The CMHC guarantees CMB issued through the CHT.
The Bank is exposed to the variable returns in the CHT, through
its retention of seller swaps resulting from its participation in the
CHT program. The Bank does not have power over the CHT as its key
economic activities are controlled by the Government of Canada. The
Bank’s exposure to the CHT is included in the balance of residential
mortgage loans noted in Note 9, Transfers of Financial Assets and is
not disclosed in the table accompanying this Note.
The Bank participates in the securitization programs sponsored by
U.S. government agencies. The Bank is not exposed to significant
variable returns from these agencies and does not have power over
the key economic activities of the agencies, which are controlled
by the U.S. government.
Investment Holdings and Derivatives
The Bank may hold interests in third party structured entities, predomi-
nantly in the form of direct investments in securities or partnership
interests issued by those structured entities, or through derivatives
transacted with counterparties which are structured entities. Invest-
ments in, and derivatives with, structured entities are recognized on
the Bank’s Consolidated Balance Sheet. The Bank does not typically
consolidate third party structured entities where its involvement is
limited to investment holdings and/or derivatives as the Bank would
not generally have power over the key economic decisions of the entity.
Financing Transactions
In the normal course of business, the Bank may enter into financing
transactions with third party structured entities including commercial
loans, reverse repurchase agreements, prime brokerage margin lending
and similar collateralized lending transactions. While such transactions
expose the Bank to the structured entities counterparty credit risk, this
exposure is mitigated by the collateral related to these transactions.
The Bank typically has neither power nor significant variable returns
due to financing transactions with structured entities and would
not generally consolidate such entities. Financing transactions with
third party-sponsored structured entities are included on the Bank’s
Consolidated Financial Statements and have not been included in
the table accompanying this Note.
Arm’s-length Servicing Relationships
In addition to the involvement outlined above, the Bank may also
provide services to structured entities on an arm’s-length basis,
for example as sub-advisor to an investment fund or asset servicer.
Similarly, the Bank’s asset management services provided to institu-
tional investors may include transactions with structured entities. As a
consequence of providing these services, the Bank may be exposed to
variable returns from these structured entities, for example, through
the receipt of fees or short-term exposure to the structured entity’s
securities. Any such exposure is typically mitigated by collateral or
some other contractual arrangement with the structured entity or its
sponsor. The Bank generally has neither power nor significant variable
returns from the provision of arm’s-length services to a structured
entity and, consequently does not consolidate such entities. Fees and
other exposures through servicing relationships are included on the
Bank’s Consolidated Financial Statements and have not been included
in the table accompanying this Note.
INVOLVEMENT WITH CONSOLIDATED STRUCTURED ENTITIES
Securitizations
The Bank securitizes credit card loans, consumer instalment and other
personal loans through securitization entities, predominantly single-
seller conduits. These conduits are consolidated by the Bank based on
the factors described above. Aside from the exposure resulting from
its involvement as seller and sponsor of consolidated securitization
conduits described above, including the liquidity facilities provided, the
Bank has no contractual or non-contractual arrangements to provide
financial support to consolidated securitization conduits. The Bank’s
interests in securitization conduits generally rank senior to interests
held by other parties, in accordance with the Bank’s investment and
risk policies. As a result, the Bank has no significant obligations to
absorb losses before other holders of securitization issuances.
Other Consolidated Structured Entities
Depending on the specific facts and circumstances of the Bank’s
involvement with structured entities, the Bank may consolidate asset
management entities, financing vehicles or third party-sponsored struc-
tured entities, based on the factors described above. Aside from its
exposure resulting from its involvement as sponsor or investor in the
structured entities as previously discussed, the Bank does not typically
have other contractual or non-contractual arrangements to provide
financial support to these consolidated structured entities.
INVOLVEMENT WITH UNCONSOLIDATED STRUCTURED ENTITIES
The following table presents information related to the Bank’s uncon-
solidated structured entities. Unconsolidated structured entities include
both TD and third-party sponsored entities. Securitizations include
holdings in TD-sponsored multi-seller conduits, as well as third-party
sponsored mortgage and asset-backed securitizations, including
government-sponsored agency securities such as CMBs, and U.S.
government agency issuances. Investment Funds and Trusts include
holdings in third party funds and trusts, as well as holdings in TD-
sponsored asset management funds and trusts. Amounts in Other
are predominantly related to investments in community-based U.S.
tax-advantage entities described in Note 12, Investment in Associates
and Joint Ventures.
166
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS Carrying Amount and Maximum Exposure to Unconsolidated Structured Entities
(millions of Canadian dollars)
Securitizations
Investment
Funds and
Trusts
Other
Total
Securitizations
October 31, 2014
Investment
Funds and
Trusts
As at
October 31, 2013
Other
Total
FINANCIAL ASSETS
Trading loans, securities,
and other
Derivatives1
Financial assets designated at
fair value through profit or loss
Available-for-sale securities
Held-to-maturity securities
Loans
Other
Total assets
FINANCIAL LIABILITIES
Derivatives1
Obligations related to securities
sold short
Total liabilities
Off-balance sheet exposure2
Maximum exposure to loss from
involvement with unconsolidated
structured entities
Size of sponsored unconsolidated
$ 3,450
–
$ 5,913
335
$
–
–
$ 9,363
335
$ 3,200
–
$ 8,456
301
$
–
–
$ 11,656
301
35
41,426
37,335
2,553
6
84,805
–
1,432
1,432
9,925
34
584
–
–
–
6,866
187
163
350
356
41
120
–
–
2,101
2,262
110
42,130
37,335
2,553
2,107
93,933
59
52,658
13,790
2,737
6
72,450
18
593
–
–
–
9,368
41
119
–
–
1,697
1,857
118
53,370
13,790
2,737
1,703
83,675
–
–
–
187
1,595
1,782
–
970
2,052
2,052
51
1,021
–
–
–
970
2,103
3,073
986
11,267
9,796
458
741
10,995
93,298
6,872
3,248
103,418
80,194
8,805
2,598
91,597
structured entities3
$ 9,756
$ 58,561
$ 1,750
$ 70,067
$ 9,625
$ 39,505
$ 1,750
$ 50,880
1 Derivatives primarily subject to vanilla interest rate or foreign exchange risk are not
included in these amounts as those derivatives are designed to align the structured
entity’s cash flows with risks absorbed by investors and are not predominantly
designed to expose the Bank to variable returns created by the entity.
2 For the purposes of this disclosure, off balance-sheet exposure represents the
notional value of liquidity facilities, guarantees, or other off-balance sheet commit-
ments without considering the effect of collateral or other credit enhancements.
3 The size of sponsored unconsolidated structured entities is provided based on
the most appropriate measure of size for the type of entity: (1) The par value
of notes issued by securitization conduits and similar liability issuers; (2) the total
assets under management (AUM) of investment funds and trusts; and (3) the total
fair value of partnership or equity shares in issue for partnerships and similar
equity issuers.
Sponsored Unconsolidated Structured Entities in which the Bank
has no Significant Investment at the End of the Period
Sponsored unconsolidated structured entities in which the Bank has
no significant investment at the end of the period are predominantly
investment funds and trusts created for the asset management business.
The Bank would not typically hold investments, with the exception of
seed capital, in these structured entities. However, the Bank continues
to earn fees from asset management services provided to these entities,
some of which could be based on the performance of the fund. Fees
payable are generally senior in the entity’s priority of payment and
would also be backed by collateral, limiting the Bank’s exposure to loss
from these entities. The Bank’s non-interest income received from its
involvement with these asset management entities was $1.4 billion
(October 31, 2013 − $1.2 billion) at the end of the period. The total
AUM in these entities was $161 billion (October 31, 2013 − $138 billion)
at the end of the period. Any assets transferred by the Bank during
the period are co-mingled with assets obtained from third parties in
the market. Except as previously disclosed, the Bank has no contractual
or non-contractual arrangements to provide financial support to
unconsolidated structured entities.
167
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
N O T E 1 1
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 trans-
acted 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.
168
TD BANK GROUP ANNUAL REPORT 2014 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 associ-
ated with the market risk nor 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, 2014
Fair value as at
balance sheet date
October 31, 2013
Fair value as at
balance sheet date
Positive
Negative
Positive
Negative
Positive
Negative
$
1
52
21,029
–
561
21,643
–
4,455
–
10,248
–
255
14,958
1
20
21
6,062
451
6,513
43,135
–
2,744
–
16
2,760
1,386
–
2,577
3,963
$
2
47
19,299
590
–
19,938
–
4,042
–
12,204
262
–
16,508
57
2
59
$
1
92
20,059
–
594
20,746
–
8,030
–
11,936
–
346
20,312
1
12
13
7,022
338
7,360
43,865
4,499
396
4,895
45,966
–
1,690
3
–
1,693
910
–
1,097
2,007
–
2,648
–
21
2,669
1,612
–
3,000
4,612
$
–
82
17,873
592
–
18,547
–
6,525
–
14,487
351
–
21,363
37
2
39
5,357
498
5,855
45,804
–
1,559
3
–
1,562
398
–
1,271
1,669
$
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
2
2
274
274
5
5
286
286
3
3
1,945
1,945
8,670
$ 51,805
1,365
1,365
5,339
$ 49,204
2,111
2,111
9,397
$ 55,363
1,455
1,455
4,972
$ 50,776
1,787
1,787
7,545
$ 49,461
1 The average fair value of trading derivatives for the year ended October 31, 2013,
was: positive $56 billion and negative $58 billion. Averages are calculated on a
monthly basis.
$
–
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
169
TD BANK GROUP ANNUAL REPORT 2014 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.
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
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
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
$
–
6
–
14
20
–
–
–
–
–
–
$
–
744
–
–
744
1,594
–
2,223
3,817
–
–
–
–
$ 20
650
650
$ 5,211
–
$
228
–
–
228
–
–
–
–
–
–
$
–
636
–
–
636
622
–
993
1,615
–
–
–
–
$ 228
482
482
$ 2,733
$ –
–
–
–
–
9
–
–
9
–
–
–
–
$ 9
$ –
–
–
–
–
–
–
–
–
–
–
–
–
$ –
$
–
1,898
–
7
1,905
9
–
777
786
5
5
$
–
2,648
–
21
2,669
1,612
–
3,000
4,612
5
5
$
–
224
–
–
224
–
–
–
–
–
–
$
–
297
–
–
297
384
–
629
1,013
–
–
1,461
1,461
$ 4,157
2,111
2,111
$ 9,397
–
–
$ 224
–
–
$ 1,310
–
$
2,533
–
17
2,550
26
–
700
726
3
3
–
$
3,397
–
17
3,414
648
–
1,693
2,341
3
3
–
$
130
–
–
130
–
–
–
–
–
–
–
$
274
–
–
274
566
–
658
1,224
–
–
1,305
1,305
$ 4,584
1,787
1,787
$ 7,545
–
–
$ 130
–
–
$ 1,498
$
–
–
–
–
–
7
–
110
117
–
–
–
–
$ 117
$ –
–
–
–
–
30
–
–
30
–
–
–
–
$ 30
As at
October 31, 2014
Derivative Liabilities
Derivatives
not in
qualifying
hedging
relationships
$
–
1,038
3
–
1,041
7
–
532
539
286
286
Total
$
–
1,559
3
–
1,562
398
–
1,271
1,669
286
286
1,455
1,455
$ 3,321
1,455
1,455
$ 4,972
October 31, 2013
–
$
1,607
4
–
1,611
20
–
519
539
262
262
–
$
2,011
4
–
2,015
616
–
1,177
1,793
262
262
1,296
1,296
$ 3,708
1,296
1,296
$ 5,366
170
TD BANK GROUP ANNUAL REPORT 2014 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.
Fair Value Hedges
(millions of Canadian dollars)
Fair value hedges
Interest rate contracts
Other contracts2
Total income (loss)
Fair value hedges
Interest rate contracts
Other contracts2
Total income (loss)
Fair value hedges
Interest rate contracts2
Total income (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
2014
$ (144)
2
$ (142)
$ 277
13
$ 290
$ 129
$ 129
$ 115
(2)
$ 113
$ (248)
(14)
$ (262)
$ (127)
$ (127)
$ (29)
–
$ (29)
$ 29
(1)
$ 28
$ 2
$ 2
$ 36
–
$ 36
2013
$ (8)
–
$ (8)
2012
$ (1)
$ (1)
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, 2014, October 31, 2013, and
October 31, 2012, 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
2014
Amounts excluded
from the
Hedge assessment of hedge
effectiveness3
ineffectiveness3
Cash flow hedges
Interest rate contracts
Foreign exchange contracts
Other contracts
Total income (loss)
Net investment hedges
Foreign exchange contracts4
Cash flow hedges
Interest rate contracts
Foreign exchange contracts
Other contracts
Total income (loss)
Net investment hedges
Foreign exchange contracts4
Cash flow hedges
Interest rate contracts
Foreign exchange contracts
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 or non-interest income, as applicable.
3 Amounts are recorded in non-interest income.
4 Includes non-derivative instruments designated as hedging instruments in qualifying
hedge accounting relationships (for example, foreign denominated liabilities).
$
805
1,665
305
$ 2,775
$ 1,169
1,949
302
$ 3,420
$ (1,878)
$
17
$
(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
–
–
$ 1
$ –
$ (3)
–
–
$ (3)
$ –
$ –
–
–
$ –
$ –
$ –
–
–
$ –
$ 1
2013
$ –
–
–
$ –
$ –
2012
$ –
–
–
$ –
$ 4
171
TD BANK GROUP ANNUAL REPORT 2014 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.
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, 2014
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
$ 16,877
(4,530)
$ 12,347
$ 23,155
(9,745)
$ 13,410
$ 10,107
(8,847)
$ 1,260
$
721
(2,673)
$ (1,952)
$ 275
–
$ 275
$ 51,135
(25,795)
$ 25,340
October 31, 2013
$ 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
Income related to interest cash flows is recognized using the EIRM
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, 2014, and October 31, 2013,
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. 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.
2014
2013
$
(66)
13
(100)
10
$ (143)
$ 69
(47)
(187)
4
$ (161)
2012
$ (111)
(14)
(67)
3
$ (189)
The following table discloses the notional amount of over-the-counter
and exchange-traded derivatives.
Over-the-Counter and Exchange-Traded Derivatives
(billions of Canadian dollars)
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
As at
October 31 October 31
2013
2014
Over-the-Counter1
Non
Trading
Clearing
house2
Clearing Exchange-
traded
house
Total
Non-
trading
Total
Total
$
– $
216
2,524
–
–
2,740
–
67
1,030
25
24
1,146
$ 228
–
–
11
15
254
$ 228
283
3,554
36
39
4,140
$
–
–
702
–
2
704
$ 228
283
4,256
36
41
4,844
$ 301
173
3,087
42
43
3,646
–
–
–
–
–
–
–
–
–
–
–
508
–
444
19
19
990
2
1
3
36
–
–
–
–
–
36
–
–
–
36
508
–
444
19
19
1,026
2
1
3
–
41
1
51
–
–
93
5
–
5
36
549
1
495
19
19
1,119
7
1
8
38
426
–
446
13
12
935
9
4
13
–
–
–
35
10
45
$ 2,740 $ 2,184
23
14
37
$ 327
58
24
82
$ 5,251
39
–
39
$ 841
97
24
121
$ 6,092
87
31
118
$ 4,712
1 Collateral held under a Credit Support Annex 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.
172
TD BANK GROUP ANNUAL REPORT 2014 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
2013
2014
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
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 group.
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.
Over
Over
Within 1 year to 3 years to 5 years to
10 years
1 year
3 years
5 years
Over
$
$ 179
251
1,179
27
30
1,666
$
47
32
1,314
5
5
1,403
20
498
1
121
19
19
678
1
–
1
15
37
–
144
–
–
196
3
1
4
2
–
944
2
2
950
1
14
–
108
–
–
123
2
–
2
$
–
–
713
1
2
716
–
–
–
103
–
–
103
1
–
1
Over
10 years
Total
Total
$
–
–
106
1
2
109
$ 228
283
4,256
36
41
4,844
$ 301
173
3,087
42
43
3,646
–
–
–
19
–
–
19
–
–
–
36
549
1
495
19
19
1,119
7
1
8
38
426
–
446
13
12
935
9
4
13
42
17
59
$ 2,404
23
6
29
$ 1,632
31
1
32
$ 1,107
1
–
1
$ 821
–
–
–
$ 128
97
24
121
$ 6,092
87
31
118
$ 4,712
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,
diversification 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 mitigation techniques. Master netting agreements reduce
risk to the Bank by allowing the Bank to close out and net transactions
with counterparties subject to such agreements upon the occurrence
of certain events. The effect of these master netting agreements is
shown in the following table. Also shown in this table, 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.
173
TD BANK GROUP ANNUAL REPORT 2014 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
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) Contracts
Total
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
2014
$ 29,486
4,286
1,112
$ 34,884
By location of risk2
Canada
United States
Other international
United Kingdom
Europe – other
Other
Total Other international
Total current replacement cost
October 31, 2014
As at
October 31, 2013
Current
replacement
cost
Credit
equivalent
amount
Risk-
weighted
amount
Current
replacement
cost
Credit
equivalent
amount
$
22
20,919
614
21,555
$
74
26,737
707
27,518
$
25
14,571
363
14,959
$
26
24,460
604
25,090
$
14
31,331
746
32,091
9,492
14,936
346
24,774
13
6,156
343
6,512
52,841
39,783
13,058
5,678
7,380
998
$ 8,378
16,556
37,891
558
55,005
184
9,949
1,207
11,340
93,863
58,632
35,231
6,002
29,229
11,700
$ 40,929
3,778
14,397
145
18,320
106
1,275
368
1,749
35,028
23,988
11,040
2,135
8,905
1,659
$ 10,564
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
Canada1
October 31
2013
$ 22,329
4,653
986
$ 27,968
United States1
Other International1
October 31
2014
October 31
2013
October 31
2014
October 31
2013
October 31
2014
$ 10,418
1,308
1,298
$ 13,024
$ 12,476
1,217
1,063
$ 14,756
$ 4,762
16
155
$ 4,933
$ 5,482
9
94
$ 5,585
$ 44,666
5,610
2,565
$ 52,841
Risk-
weighted
amount
$
3
16,773
440
17,216
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
As at
Total
October 31
2013
$ 40,287
5,879
2,143
$ 48,309
45,461
$ 7,380
42,916
$ 5,393
October 31
2014
% mix
October 31
2013
% mix
38.1%
32.2
8.5
11.3
9.9
29.7
100.0%
50.0%
25.3
8.8
11.2
4.7
24.7
100.0%
October 31
2014
$ 2,811
2,375
632
832
730
2,194
$ 7,380
October 31
2013
$ 2,694
1,367
473
603
256
1,332
$ 5,393
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: (1) the posting of collateral or other acceptable remedy such as
assignment of the affected contracts to an acceptable counterparty;
or (2) 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, 2014, the aggregate
net liability position of those contracts would require: (1) the posting
of collateral or other acceptable remedy totalling $78 million
(October 31, 2013 – $51 million) in the event of a one-notch or two-
notch downgrade in the Bank’s senior debt ratings; and (2) funding
totalling $1 million (October 31, 2013 – $4 million) following the
termination and settlement of outstanding derivative contracts in
the event of a one-notch or two-notch downgrade in the Bank’s
senior debt ratings.
174
TD BANK GROUP ANNUAL REPORT 2014 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,
2014, the fair value of all derivative instruments with credit risk related
contingent features in a net liability position was $9 billion (October 31,
2013 – $8 billion). The Bank has posted $7 billion (October 31, 2013 –
$6 billion) of collateral for this exposure in the normal course of busi-
ness. As at October 31, 2014, the impact of a one-notch downgrade in
the Bank’s senior debt ratings would require the Bank to post an addi-
tional $293 million (October 31, 2013 – $254 million) 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 addi-
tional $327 million (October31, 2013 – $315 million) of collateral to that
posted in the normal course of business.
N O T E 1 2
INVESTMENT IN ASSOCIATES AND JOINT VENTURES
INVESTMENT IN TD AMERITRADE HOLDING CORPORATION
The Bank has significant influence over TD Ameritrade Holding Corpo-
ration (TD Ameritrade) and accounts for its investment in TD Ameritrade
using the equity method. As at October 31, 2014, the Bank’s reported
investment in TD Ameritrade was 40.97% (October 31, 2013 – 42.22%)
of the outstanding shares of TD Ameritrade with a fair value of $8 billion
(October 31, 2013 – $7 billion) based on the closing price of US$33.74
(October 31, 2013 – US$27.26) on the New York Stock Exchange.
On December 6, 2013, the Bank completed a private sale of
5.5 million shares of its investment in TD Ameritrade. The shares were
sold at a price of US$28.22, a 3% discount to the market price of
US$29.09. On February 13, 2014, the Bank completed another private
sale of 4 million shares of its investment in TD Ameritrade. The shares
were sold at a price of US$32.05, a 3.3% discount to the closing
market price of US$33.14. For the year ended October 31, 2014,
the Bank recognized gains on the sale of TD Ameritrade shares of
$85 million after tax, respectively. During the year ended October 31,
2014, TD Ameritrade repurchased 8.5 million shares (for the year
ended October 31, 2013 – nil), resulting in the Bank’s ownership posi-
tion in TD Ameritrade of 40.97% as at October 31, 2014. The Bank
will continue to account for its investment using the equity method.
On December 5, 2013, the Stockholders Agreement was extended
by five years to January 24, 2021, and amended such that beginning
January 24, 2016, if stock repurchases by TD Ameritrade cause the
Bank’s ownership percentage to exceed 45%, the Bank is required to
use reasonable efforts to sell or dispose of such excess stock, subject
to the Bank’s commercial judgment as to the optimal timing, amount
and method of sales with a view to maximizing proceeds from such
sales. However, beginning January 24, 2016, in the event that stock
repurchases by TD Ameritrade cause the Bank’s ownership percentage
to exceed 45%: (1) the Bank has no absolute obligation to reduce its
ownership percentage to 45% by the termination of the Stockholders
Agreement; and (2) stock repurchases cannot result in the Bank’s
ownership percentage exceeding 47%.
Pursuant to the Stockholders Agreement in relation to the Bank’s
equity investment in TD Ameritrade, the Bank designated five of twelve
members of TD Ameritrade’s Board of Directors including the Bank’s
Group President and Chief Executive Officer, its former Group President
and Chief Executive Officer, 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 years ended October 31, 2014, and
October 31, 2013, TD Ameritrade did not experience any significant
restrictions to transfer funds in the form of cash dividends, or repay-
ment of loans or advances.
The condensed financial statements of TD Ameritrade, based on its
consolidated financial statements, are included in the following table.
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
2014
September 30
2013
As at
$ 1,249
13,118
12,493
$ 26,860
$ 2,729
16,340
2,440
21,509
5,351
$ 26,860
$ 1,406
9,368
11,994
$ 22,768
$ 2,057
13,746
2,089
17,892
4,876
$ 22,768
175
TD BANK GROUP ANNUAL REPORT 2014 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.
For the years ended September 30
2014
2013
2012
$ 629
2,756
3,385
823
1,168
1,991
17
1,377
524
$ 853
$ 1.55
1.54
$ 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
INVESTMENT IN IMMATERIAL ASSOCIATES OR
JOINT VENTURES
Except for TD Ameritrade as disclosed above, no associate or joint
venture was individually material to the Bank as of October 31, 2014
or October 31, 2013. The carrying amount of the Bank’s investment in
individually immaterial associates and joint ventures during the period
was $2 billion (October 31, 2013 – $2 billion).
Individually immaterial associates and joint ventures consisted
predominantly of investments in private funds or partnerships that
make equity investments, provide debt financing or support community-
based tax-advantaged investments. The investments in these entities
generate a return primarily through the realization of U.S. federal and
state income tax credits, including Low Income Housing Tax Credits,
New Markets Tax Credits and Historic Tax Credits.
N O T E 1 3
SIGNIFICANT ACQUISITIONS AND DISPOSALS
Acquisition of certain CIBC Aeroplan Credit Card Accounts
On December 27, 2013, the Bank, Aimia Inc. (Aimia), and the Canadian
Imperial Bank of Commerce (CIBC) closed a transaction under which
the Bank acquired approximately 50% of CIBC’s existing Aeroplan
credit card portfolio, which primarily included accounts held by
customers who did not have an existing retail banking relationship
with CIBC. The Bank accounted for the purchase as an asset acquisi-
tion. The results of the acquisition have been recorded in the
Canadian Retail segment.
The Bank acquired approximately 540,000 cardholder accounts with
an outstanding balance of $3.3 billion at a price of par plus $50 million
less certain adjustments for total cash consideration of $3.3 billion.
At the date of acquisition, the fair value of credit card receivables
acquired was $3.2 billion and the fair value of an intangible asset for
the purchased credit card relationships was $146 million.
In connection with the purchase agreement, the Bank agreed to pay
CIBC a further $127 million under a commercial subsidy agreement.
This payment was recognized as a non-interest expense in 2014.
Disposal 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 in
cash, subject to certain price adjustment mechanisms. A pre-tax gain
of $231 million was recorded in the Corporate segment in other
income in the first quarter of 2014. An additional pre-tax gain of
$13 million was recorded in the Corporate segment subsequently,
upon the settlement of price adjustment mechanisms.
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.
176
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 U.S. Retail 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 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 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 have been recorded in the U.S. Retail segment.
At the date of acquisition the Bank recorded the credit card
receivables 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 share of
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
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 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
reported in the Canadian Retail segment.
Goodwill is not deductible for tax purposes. Subsequent to acquisi-
tion 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
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 ACI loans. The estimated
fair value of acquired performing loans reflects incurred and future expected credit
losses and the estimated fair value of ACI loans reflects incurred credit losses at
the acquisition date.
$811 million to revenue and $(15) million to net income.
2 Gross contractual receivables amount to $8 billion.
N O T E 1 4
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 billion and primarily related to treasury assets managed within
the Corporate segment. The Bank’s capital oversight committees
provide oversight to the Bank’s capital allocation methodologies.
Goodwill by Segment
(millions of Canadian dollars)
Carrying amount of goodwill as at November 1, 2012
Transition adjustments on adoption of new and amended accounting standards
Additions1
Foreign currency translation adjustments and other
Carrying amount of goodwill as at October 31, 2013
Gross amount of goodwill
Accumulated impairment losses
Carrying amount of goodwill as at November 1, 2013
Additions
Disposals
Foreign currency translation adjustments and other
Carrying amount of goodwill as at October 31, 2014
Accumulated impairment losses
1 Relates to goodwill arising from the acquisition of Epoch which was re-allocated as
a result of the realignment of the Bank’s reportable segments. Refer to Note 31
for further details.
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 assessments 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 8 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.
Canadian
Retail
$ 1,753
(2)
425
24
2,200
2,200
–
2,200
5
(13)
57
2,249
–
$
U.S. Retail
Wholesale
Banking
$ 10,408
–
75
460
10,943
10,943
–
10,943
–
–
891
11,834
–
$
$ 150
–
–
–
150
150
–
150
–
–
–
150
–
$
Total
$ 12,311
(2)
500
484
13,293
13,293
–
13,293
5
(13)
948
14,233
–
$
177
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
Pre-Tax Discount Rates
(millions of Canadian dollars, except as noted)
Canadian Retail
U.S. Retail1
Wholesale
Total
1 Goodwill predominantly relates to U.S. personal and commercial banking.
OTHER INTANGIBLES
The following table presents details of other intangibles as at October 31.
October 31
2014
Carrying
amount of
goodwill
$ 2,249
11,834
150
$ 14,233
2014
Discount
rate
10.3–12.4%
10.7–12.0
13.8
October 31
2013
Carrying
amount of
goodwill
$ 2,200
10,943
150
$ 13,293
2013
Discount
rate
10.7–12.4%
10.8–12.0
13.8
Other Intangibles1
(millions of Canadian dollars)
Cost
At November 1, 2012
Additions
Disposals
Impairment
Fully amortized intangibles
Foreign currency translation adjustments and other
At October 31, 2013
Additions
Disposals
Fully amortized intangibles
Foreign currency translation adjustments and other
At October 31, 2014
Amortization and impairment
At November 1, 2012
Disposals
Impairment
Amortization charge for the year
Fully amortized intangibles
Foreign currency translation adjustments and other
At October 31, 2013
Disposals
Impairment
Amortization charge for the year
Fully amortized intangibles
Foreign currency translation adjustments and other
At October 31, 2014
Net Book Value:
At October 31, 2013
At October 31, 2014
Core deposit
intangibles
Credit card
related
intangibles
Internally
generated
software
Other
Software
Other
intangibles
$ 1,954
–
–
–
–
85
2,039
–
–
–
165
$ 2,204
$ 1,096
–
–
175
–
52
1,323
–
–
165
–
110
$ 1,598
$ 472
98
–
–
–
13
583
146
–
–
9
$ 738
$ 47
–
–
55
–
–
102
–
–
76
–
3
$ 181
$ 1,008
456
(9)
(12)
(73)
(1)
1,369
468
(34)
(154)
28
$ 1,677
$ 308
(4)
5
191
(73)
2
429
(1)
–
227
(154)
29
$ 530
$ 112
60
–
–
(5)
(10)
157
63
–
(4)
11
$ 227
$ 44
–
–
43
(5)
–
82
–
–
50
(4)
2
$ 130
$ 376
149
(5)
–
–
8
528
21
–
–
23
$ 572
$ 210
(4)
–
42
–
(1)
247
–
–
45
–
7
$ 299
Total
$ 3,922
763
(14)
(12)
(78)
95
4,676
698
(34)
(158)
236
$ 5,418
$ 1,705
(8)
5
506
(78)
53
2,183
(1)
–
563
(158)
151
$ 2,738
$ 716
606
$ 481
557
$ 940
1,147
$ 75
97
$ 281
273
$ 2,493
2,680
1 Certain comparative amounts have been reclassified to conform with the
presentation adopted in the current period.
178
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
N O T E 1 5
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.
Land, Buildings, Equipment, and Other Depreciable Assets1
(millions of Canadian dollars)
Land
Buildings
Computer
equipment
Furniture,
fixtures and
other
depreciable
Leasehold
assets improvements
Total
Cost
As at November 1, 2012
Additions
Acquisitions through business combinations
Disposals
Impairment losses
Fully depreciated assets
Foreign currency translation adjustments and other
As at October 31, 2013
Additions
Acquisitions through business combinations
Disposals
Fully depreciated assets
Foreign currency translation adjustments and other
As at October 31, 2014
Accumulated depreciation and impairment/losses
As at November 1, 2012
Depreciation charge for the year
Disposals
Impairment losses
Fully depreciated assets
Foreign currency translation adjustments and other
As at October 31, 2013
Depreciation charge for the year
Disposals
Impairment losses
Fully depreciated assets
Foreign currency translation adjustments and other
As at October 31, 2014
Net Book Value:
As at October 31, 2013
As at October 31, 2014
1 Certain comparative amounts have been reclassified to conform with the
presentation adopted in the current period.
N O T E 1 6
OTHER ASSETS
Other Assets
(millions of Canadian dollars)
Accounts receivable and other items1
Accrued interest
Current income tax receivable
Defined benefit asset
Insurance-related assets, excluding investments
Prepaid expenses
Total
1 Includes foreclosed assets as at October 31, 2014, of $180 million
(October 31, 2013 – $233 million) and FDIC indemnification assets as
at October 31, 2014, of $60 million (October 31, 2013 – $81 million).
$ 860
5
–
–
–
–
(7)
858
5
–
(6)
–
52
$ 909
$
$
–
–
–
–
–
–
–
–
–
–
–
–
–
$ 2,432
148
–
–
–
(28)
116
2,668
141
–
(21)
(130)
239
$ 2,897
$ 691
102
(1)
6
(28)
17
787
125
(4)
–
(130)
162
$ 940
$ 669
320
–
(45)
–
(12)
(146)
786
195
–
(51)
(86)
30
$ 874
$ 285
165
(44)
–
(12)
(52)
342
182
(38)
–
(86)
9
$ 409
$ 1,412
125
2
(66)
–
(77)
(28)
1,368
155
–
(29)
(81)
(130)
$ 1,283
$ 754
146
(45)
2
(77)
(66)
714
126
(22)
1
(81)
(106)
$ 632
$ 1,271
112
5
(19)
(2)
(30)
40
1,377
183
–
(24)
(65)
90
$ 1,561
$ 512
99
(13)
5
(30)
6
579
109
(30)
–
(65)
20
$ 613
$ 6,644
710
7
(130)
(2)
(147)
(25)
7,057
679
–
(131)
(362)
281
$ 7,524
$ 2,242
512
(103)
13
(147)
(95)
2,422
542
(94)
1
(362)
85
$ 2,594
$ 858
909
$ 1,881
1,957
$ 444
465
$ 654
651
$ 798
948
$ 4,635
4,930
October 31
2014
$ 6,540
1,330
1,030
15
1,419
829
$ 11,163
As at
October 31
2013
$ 5,649
1,260
583
56
1,409
1,154
$ 10,111
179
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
N O T E 1 7
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
prior to withdrawal. These deposits are in general savings accounts.
Sheet. The deposits are generally term deposits, guaranteed invest-
ment certificates, senior debt, and similar instruments. The aggregate
amount of term deposits in denominations of $100,000 or more as at
October 31, 2014, was $188 billion (October 31, 2013 – $158 billion).
Certain deposit liabilities are classified as Trading deposits on the
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 ten years. Accrued interest on deposits, calculated using
the EIRM, is included in Other liabilities on the Consolidated Balance
Consolidated Balance Sheet and accounted for at fair value with
the change in fair value recognized on the Consolidated Statement
of Income.
Deposits by Type
(millions of Canadian dollars)
Personal
Banks1
Business and government2
Designated at fair value through profit or loss3
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
Total2,4
October 31
2014
As at
October 31
2013
Demand
$ 11,908
3,242
52,182
–
–
$ 67,332
Notice
Term
Total
Total
$ 279,072
7
89,973
–
–
$ 369,052
$ 52,260
12,522
99,550
3,242
59,334
$ 226,908
$ 343,240
15,771
241,705
3,242
59,334
$ 663,292
$ 319,468
17,149
204,988
–
50,967
$ 592,572
$
5,739
36,962
$
4,738
31,558
340,993
278,121
1,477
$ 663,292
306,631
247,887
1,758
$ 592,572
1 Includes deposits with the Federal Home Loan Bank.
2 As at October 31, 2014, includes $17 billion in Deposits on the Consolidated
Balance Sheet relating to covered bondholders (October 31, 2013 – $10 billion)
and $2 billion (October 31, 2013 – $2 billion) due to Trust IV. Refer to Note 37
for further details on a covered bond issuance by the Bank subsequent to
October 31, 2014.
3 Included in Other financial liabilities designated at fair value through profit or
loss on the Consolidated Balance Sheet.
4 As at October 31, 2014, includes deposits of $370 billion (October 31, 2013 –
$320 billion) denominated in U.S. dollars and $21 billion (October 31, 2013 –
$16 billion) denominated in other foreign currencies.
Deposits by Country
(millions of Canadian dollars)
Personal
Banks
Business and government
Designated at fair value through profit or loss1
Trading
Total
1 Included in Other financial liabilities designated at fair value through profit
or loss on the Consolidated Balance Sheet.
Term Deposits
(millions of Canadian dollars)
October 31
2014
As at
October 31
2013
Canada United States
International
Total
Total
$ 177,681
6,284
157,464
3,242
2,061
$ 346,732
$ 164,142
2,408
80,801
–
51,866
$ 299,217
$ 1,417
7,079
3,440
–
5,407
$ 17,343
$ 343,240
15,771
241,705
3,242
59,334
$ 663,292
$ 319,468
17,149
204,988
–
50,967
$ 592,572
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
Personal
Banks
Business and government
Designated at fair value through profit or loss1
Trading
Total
$ 29,399 $ 9,431 $ 6,834 $ 2,893 $ 3,533
3
8,669
–
461
12,502
3
49,188 17,332
1,218
171
1
9,719
175
202
2
7,938
–
312
1,849
57,655
$ 150,593 $ 28,155 $ 16,931 $ 11,145 $ 12,666
1 Included in Other financial liabilities designated at fair value through profit
or loss on the Consolidated Balance Sheet.
180
As at
October 31 October 31
2013
2014
Over
5 years
Total
Total
$ 170 $ 52,260 $ 58,005
11 12,522 13,181
6,704 99,550 78,690
3,242
–
533 59,334 50,967
$ 7,418 $ 226,908 $ 200,843
–
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
Term Deposits due within a Year
(millions of Canadian dollars)
Personal
Banks
Business and government
Designated at fair value through profit or loss1
Trading
Total
1 Included in Other financial liabilities designated at fair value through profit
or loss on the Consolidated Balance Sheet.
October 31
2014
As at
October 31
2013
Within
3 months
$ 11,752
10,387
27,924
505
25,661
$ 76,229
Over 3
months to
6 months
Over 6
months to
12 months
Total
Total
$ 6,616
1,239
3,905
446
11,242
$ 23,448
$ 11,031
876
17,359
898
20,752
$ 50,916
$ 29,399
12,502
49,188
1,849
57,655
$ 150,593
$ 36,009
13,115
46,162
–
49,592
$ 144,878
N O T E 1 8
OTHER LIABILITIES
Other Liabilities
(millions of Canadian dollars)
Accounts payable, accrued expenses and other items
Accrued interest
Accrued salaries and employee benefits
Cheques and other items in transit
Current income tax payable
Deferred tax liabilities
Defined benefit liability
Liabilities related to structured entities
Provisions
Total
October 31
2014
$ 3,666
943
2,653
237
34
287
2,393
5,053
631
$ 15,897
As at
October 31
2013
$ 2,887
1,077
2,286
1,077
137
321
1,715
5,743
696
$ 15,939
N O T E 1 9
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.
Subordinated Notes and Debentures
(millions of Canadian dollars, except as noted)
Maturity date
August 2014
April 2020
November 2020
September 20223
July 2023
May 2025
October 2104
December 2105
December 2106
Total
Interest
rate (%)
10.05
5.481
3.372
4.644
5.835
9.15
4.976
4.787
5.768
Earliest par
redemption
date
–
April 2015
November 2015
September 2017
July 2018
–
October 2015
December 2016
December 2017
As at
October 31
2014
October 31
2013
$
–
869
997
268
650
199
796
2,211
1,795
$ 7,785
$ 149
871
1,000
270
650
199
796
2,247
1,800
$ 7,982
1 For the period to but excluding the earliest par redemption date and thereafter
5 For the period to but excluding the earliest par redemption date and thereafter
at a rate of 3-month Bankers’ Acceptance rate plus 2.00%.
at a rate of 3-month Bankers’ Acceptance rate plus 2.55%.
2 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%.
3 Obligation of a subsidiary.
4 For the period to but excluding the earliest par redemption date and thereafter
at a rate of 3-month Bankers’ Acceptance rate plus 1.00%.
6 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 1.77%.
7 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 1.74%.
8 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%.
181
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
REPAYMENT SCHEDULE
The aggregate remaining maturities of the Bank’s subordinated notes
and debentures are as follows:
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
N O T E 2 0
CAPITAL TRUST SECURITIES
October 31
2014
$
–
–
–
–
7,785
$ 7,785
As at
October 31
2013
$ 149
–
–
–
7,833
$ 7,982
The Bank issues innovative capital securities through two structured
entities: TD Capital Trust III (Trust III) and TD Capital Trust IV (Trust IV).
TD CAPITAL TRUST III SECURITIES – SERIES 2008
On September 17, 2008, 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. TD CaTS III
are reported on the Consolidated Balance Sheet as Non controlling
interests in subsidiaries because the Bank consolidates Trust III.
TD CAPITAL TRUST IV NOTES – SERIES 1 TO 3
On January 26, 2009, 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-cumula-
tive 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. The Bank
does not consolidate Trust IV because it does not absorb significant
returns of Trust IV as it is ultimately exposed only to its own credit
risk. Therefore, TD CaTS IV Notes are not reported on the Bank’s
Consolidated Balance Sheet but the deposit notes issued to Trust IV
are reported in Deposits on the Consolidated Balance Sheet. Refer
to Notes 10 and 17 for further details.
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
TD CaTS IV Notes issued by Trust IV
TD Capital Trust IV Notes – Series 1
TD Capital Trust IV Notes – Series 2
TD Capital Trust IV Notes – Series 3
Thousands
of units
Distribution/Interest
payment dates
Annual At the option October 31 October 31
2013
of the issuer
yield
2014
Redemption
date
As at
1,000
June 30, Dec. 31
7.243%1 Dec. 31, 20132
$ 993
$ 993
550
450
750
1,750
June 30, Dec. 31
June 30, Dec. 31
June 30, Dec. 31
9.523%3 June 30, 20144
10.000%5 June 30, 20144
6.631%6 Dec. 31, 20144
550
450
750
$ 1,750
550
450
750
$ 1,750
1 From and including September 17, 2008, 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%.
5 From and including January 26, 2009, to but excluding June 30, 2039. Starting on
June 30, 2039, and on every fifth anniversary thereafter, the interest rate will reset
to equal the then 5 year Government of Canada yield plus 9.735%.
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 From and including January 26, 2009, to but excluding June 30, 2019. Starting
on June 30, 2019, and on every fifth anniversary thereafter, the interest rate will
reset to equal the then 5 year Government of Canada yield plus 10.125%.
4 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. Due to the phase-out of non-qualifying
instruments under OSFI’s CAR Guideline, the Bank expects to exercise a regulatory
event redemption right in 2022 in respect of the TD CaTS IV – 2 outstanding at
that time.
6 From and including September 15, 2009, to but excluding June 30, 2021. Starting
on June 30, 2021, and on every fifth anniversary thereafter, the interest rate will
reset to equal the then 5 year Government of Canada yield plus 4.0%.
182
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
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. Non-cumulative preferential dividends are
payable quarterly, as and when declared by the Board of Directors of
the Bank. Preferred shares issued after January 1, 2013, include a
non-viability contingent capital (NVCC) provisions (NVCC Provisions),
necessary for the preferred shares to qualify as regulatory capital under
OSFI’s Capital Adequacy Requirements (CAR) guideline. NVCC Provisions
require the conversion of the preferred shares into a variable number
of common shares of the Bank if OSFI determines that the Bank is, or
is about to become, non-viable and that after conversion of all non-
common capital instruments, the viability of the Bank is expected to
be restored, or if the Bank has accepted or agreed to accept a capital
injection or equivalent support from a federal or provincial government
without which the Bank would have been determined by OSFI to be
non-viable.
STOCK DIVIDEND
On January 31, 2014, the Bank paid 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 shares. The follow-
ing table summarizes the shares issued and outstanding and treasury
shares held as at October 31, and reflects the impact of the stock
dividend on the common shares as if it was retrospectively applied to
all periods presented that occurred prior to the payment date of the
stock dividend.
Common and Preferred Shares Issued and Outstanding and Treasury Shares Held
(millions of shares and millions of Canadian dollars)
October 31, 2014
October 31, 2013
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
Balance as at end of year – common shares
Preferred Shares – Class A
Series O1
Series P
Series Q
Series R
Series S
Series T
Series Y
Series Z
Series AA2
Series AC3
Series AE4
Series AG5
Series AI6
Series AK7
Series 1
Series 3
Balance as at end of year – preferred shares
Treasury shares – common
Balance as at beginning of year
Purchase of shares
Sale of shares
Balance as at end of year – treasury shares – common
Treasury shares – preferred
Balance as at beginning of year
Purchase of shares
Sale of shares
Balance as at end of year – treasury shares – preferred
Number
of shares
1,838.9
5.0
6.4
(4.1)
1,846.2
–
10.0
8.0
10.0
5.4
4.6
5.5
4.5
–
–
–
–
–
–
20.0
20.0
88.0
(3.9)
(80.7)
83.0
(1.6)
(0.1)
(6.1)
6.2
–
Amount
$ 19,316
199
339
(43)
$ 19,811
$
–
250
200
250
135
115
137
113
–
–
–
–
–
–
500
500
$ 2,200
$
$
$
$
(145)
(4,197)
4,288
(54)
(2)
(154)
155
(1)
Number
of shares
1,836.5
8.3
12.1
(18.0)
1,838.9
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
(4.2)
(83.4)
83.7
(3.9)
–
(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)
1 On October 31, 2014, the Bank redeemed all of its outstanding Class A First
5 On April 30, 2014, the Bank redeemed all of its outstanding 5-Year Rate Reset
Preferred Shares, Series O, at a redemption price of $25 per share.
Preferred Shares, Series AG, at a redemption price of $25 per share.
2 On January 31, 2014, the Bank redeemed all of its outstanding 5-Year Rate Reset
6 On July 31, 2014, the Bank redeemed all of its outstanding 5-Year Rate Reset
Preferred Shares, Series AA, at a redemption price of $25 per share.
Preferred Shares, Series AI, at a redemption price of $25 per share.
3 On January 31, 2014, the Bank redeemed all of its outstanding 5-Year Rate Reset
7 On July 31, 2014, the Bank redeemed all of its outstanding 5-Year Rate Reset
Preferred Shares, Series AC, at a redemption price of $25 per share.
Preferred Shares, Series AK, at a redemption price of $25 per share.
4 On April 30, 2014, the Bank redeemed all of its outstanding 5-Year Rate Reset
Preferred Shares, Series AE, at a redemption price of $25 per share.
183
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
Class A First Preferred Shares, Series P
On November 1, 2007, the Bank issued 10 million Class A First
Preferred Shares, Series P (Series P shares) 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 per share if redeemed on or after
November 1, 2012, and decreasing by $0.25 each twelve-month period
thereafter to $25 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 (Series Q shares) 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 per share if redeemed on or after
January 31, 2013, and decreasing by $0.25 each twelve-month period
thereafter to $25 per share if redeemed on or after January 31, 2017.
Class A First Preferred Shares, Series R
On March 12, 2008, the Bank issued 10 million Class A First Preferred
Shares, Series R (Series R shares) 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 per share if redeemed on or after April 30,
2013, and decreasing by $0.25 each twelve-month period thereafter
to $25 per share if redeemed on or after April 30, 2017.
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 (Series S shares) for gross cash
consideration of $250 million. Quarterly non-cumulative cash divi-
dends, if declared, will be paid at a per annum rate of 3.371% for the
period from and including July 31, 2013, to but excluding July 31,
2018. 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, 2018, 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 per share on July 31, 2018, and on July 31 every five years there-
after. On July 31, 2013, the Bank converted 4.6 million of its 10 million
Series S shares, on a one-for-one basis, into non-cumulative Floating
Rate Preferred Shares, Series T.
Floating Rate Preferred Shares, Series T
On July 31, 2013, the Bank issued 4.6 million non-cumulative Floating
Rate Preferred Shares, Series T (Series T shares) in a gross amount of
$115 million through a one-for-one conversion of some of its Series S
shares. Floating rate non-cumulative 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 then 90-day Government 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 Series S shares, 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 (1) $25 per share on
July 31, 2018, and on July 31 every five years thereafter, or (2) $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 (Series Y shares) for gross cash
consideration of $250 million. Quarterly non-cumulative cash divi-
dends, if declared, will be paid at a per annum rate of 3.5595% for
the period from and including October 31, 2013, to but excluding
October 31, 2018. 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, 2018,
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 per share on October 31, 2018, and on
October 31 every five years thereafter. On October 31, 2013, the Bank
converted 4.5 million of its 10 million Series Y shares, 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 (Series Z shares) in a gross
amount of $113 million through a one-for-one conversion of some
of its Series Y shares. 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 then 90-day Govern-
ment 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
Series Y shares, 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 (1) $25 per share on October 31, 2018, and
on October 31 every five years thereafter, or (2) $25.50 in the case
of redemptions on any other date on or after October 31, 2013.
5-Year Rate Reset Preferred Shares, Series 1
On June 4, 2014, the Bank issued 20 million non-cumulative 5-Year
Rate Reset Preferred Shares, Series 1 (Series 1 shares) for gross cash
consideration of $500 million. Quarterly non-cumulative cash divi-
dends, if declared, will be paid at a per annum rate of 3.90% for the
initial period from and including June 4, 2014, to but excluding
October 31, 2019. Thereafter, the dividend rate will reset every five
years to equal the then five-year Government of Canada bond yield
plus 2.24%. Holders of the Series 1 shares will have the right to
convert their shares into non-cumulative Floating Rate Preferred
Shares, Series 2 (Series 2 shares), subject to certain conditions, on
October 31, 2019, and on October 31 every five years thereafter and
vice versa. The Series 1 shares are redeemable by the Bank for cash,
subject to regulatory consent, at $25 per share on October 31, 2019,
and on October 31 every five years thereafter. If the NVCC Provisions
were to be triggered, the maximum number of common shares that
could be issued based on the formula for conversion applicable to
the Series 1 shares, and assuming there are no declared and unpaid
dividends on the Series 1 shares or Series 2 shares, as applicable,
would be 100 million.
184
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS 5-Year Rate Reset Preferred Shares, Series 3
On July 31, 2014, the Bank issued 20 million non-cumulative 5-Year
Rate Reset Preferred Shares, Series 3 (Series 3 shares) for gross cash
consideration of $500 million. Quarterly non-cumulative cash dividends,
if declared, will be paid at a per annum rate of 3.80% for the initial
period from and including July 31, 2014, to but excluding July 31,
2019. Thereafter, the dividend rate will reset every five years to equal
the then five-year Government of Canada bond yield plus 2.27%.
Holders of the Series 3 shares will have the right to convert their shares
into non-cumulative Floating Rate Preferred Shares, Series 4 (Series 4
shares), subject to certain conditions, on July 31, 2019, and on July 31
every five years thereafter and vice versa. The Series 3 shares are
redeemable by the Bank for cash, subject to regulatory consent, at
$25 per share on July 31, 2019, and on July 31 every five years there-
after. If the NVCC Provisions were to be triggered, the maximum
number of common shares that could be issued based on the formula
for conversion applicable to the Series 3 shares, and assuming there
are no declared and unpaid dividends on the Series 3 shares or Series 4
shares, as applicable, would be 100 million.
NORMAL COURSE ISSUER BID
On June 19, 2013, the Bank announced that the Toronto Stock
Exchange (TSX) approved the Bank’s normal course issuer bid to repur-
chase, for cancellation, up to 24 million of the Bank’s common shares.
The bid commenced on June 21, 2013, and expired in accordance
with its terms in June 2014. During the year ended October 31, 2014,
the Bank repurchased 4 million common shares under this bid at an
average price of $54.15 for a total amount of $220 million. During
the year ended October 31, 2013, the Bank repurchased 18 million
common shares under this bid at an average price of $43.25 for a
total amount of $780 million.
DIVIDEND REINVESTMENT PLAN
The Bank offers a dividend reinvestment plan for its common
shareholders. Participation in the plan is optional and under the
terms of the plan, cash dividends on common shares are used to
purchase additional common shares. At the option of the Bank, the
common shares may be issued from the Bank’s treasury at an average
market price 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 discretion, or from the open market at market price. During
the year, 6.4 million common shares at a discount of 0% were issued
from the Bank’s treasury (2013 – 6.5 million shares at a discount of
1% and 5.6 million common shares at a discount of 0%) under the
dividend reinvestment plan.
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.
185
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS 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
Total
1 Refer to Note 20 for a description of the TD Capital Trust III securities.
October 31
2014
$ 556
993
$ 1,549
As at
October 31
2013
$ 515
993
$ 1,508
REIT PREFERRED STOCK, FIXED-TO-FLOATING RATE
EXCHANGEABLE NON-CUMULATIVE PERPETUAL PREFERRED
STOCK, SERIES A
A real estate investment trust, Northgroup Preferred Capital Corpora-
tion (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. Each Series A share may be automati-
cally exchanged, without the consent of the holders, into a newly
issued share of preferred stock of TD Bank, N.A. on the occurrence
of certain events.
N O T E 2 3
TRADING-RELATED INCOME
Trading assets and liabilities, including trading derivatives, certain
securities 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
following table. Trading income (loss) includes realized and unrealized
gains and losses on trading assets and liabilities. Realized and unreal-
ized 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.
For the years ended October 31
2014
$ 1,337
(349)
(9)
$ 979
601
385
2
(9)
$ 979
2013
$ 1,231
(279)
(6)
$ 946
557
368
27
(6)
$ 946
2012
$ 1,050
(41)
10
$ 1,019
534
374
101
10
$ 1,019
186
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
N O T E 2 4
INSURANCE
INSURANCE RISK
The Bank is engaged in insurance businesses relating to property and
casualty insurance, life and health insurance, and reinsurance through
various subsidiaries.
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, non-life premium risk, non-life reserving risk, catastrophic
risk, mortality risk, morbidity risk, and longevity risk), policyholder
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,
who provide additional 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 Bank’s Insurance
Risk Management Framework and Insurance Risk Policy collectively
outline the internal risk and control structure to manage insurance
risk and include risk appetite, policies, processes as well as limits and
governance. These documents are maintained by Risk Management
and support alignment with the Bank’s risk appetite for insurance risk.
The assessment of reserves for claim liabilities is central to the
insurance operation. The Bank establishes 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 antici-
pated. Claim liabilities are governed by the Bank’s general insurance
reserving policy.
Insurance Revenue and Insurance Claims and Related Expenses
(millions of Canadian dollars)
Insurance Revenue
Earned Premiums
Gross
Reinsurance ceded
Net earned premiums
Fee income and other revenue1
Insurance Revenue
Insurance Claims and Related Expenses
Gross
Reinsurance ceded
Insurance Claims and Related Expenses
1 Ceding commissions received and paid are included within fee income and other
revenue. Ceding commissions paid and netted against fee income in 2014 were
$182 million (2013 – $182 million; 2012 – $184 million).
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
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 the Bank’s reinsurance
business. Underwriting risk on business assumed is managed through
a policy that limits exposure to certain types of business and countries.
The vast majority of reinsurance treaties are annually renewable, which
minimizes long-term risk. Pandemic exposure is reviewed and esti-
mated annually.
OTHER RELATED RISKS
Credit risk is managed through a counterparty credit policy. To prop-
erly manage interest rate risk and liquidity risk, the Bank maintains a
system to match a portion of its investments to the net provision for
unpaid claims. Therefore, most of the change in the value of the assets
held for matching purposes will be offset by a corresponding change
in the net provision for unpaid claims’ discounted values.
INSURANCE REVENUE AND EXPENSES
Insurance revenue is presented on the Consolidated Statement of
Income under Insurance revenue and claims-related expenses are
presented under Insurance claims and related expenses, including
the impacts of claims and reinsurance on the Consolidated Statement
of Income.
For the years ended October 31
2014
2013
2012
$ 4,423
856
3,567
316
3,883
3,041
208
$ 2,833
$ 4,253
836
3,417
317
3,734
3,273
217
$ 3,056
$ 3,990
834
3,156
381
3,537
2,771
347
$ 2,424
187
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
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 the following section
(a)) and unearned premiums (see the following section (b)). The provi-
sion 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) in other recoverables
Balance as at end of year
October 31, 2014
October 31, 2013
Gross
Reinsurance
Net
Gross
Reinsurance
$ 3,939
2,504
$ 157
39
$ 3,782
2,465
$ 3,276
2,332
$ 275
87
(132)
(39)
(93)
346
(17)
44
2,399
(1,064)
(934)
(1,998)
8
$ 4,348
1
(1)
–
(3)
(37)
(40)
8
$ 125
(18)
45
2,399
(1,061)
(897)
(1,958)
–
$ 4,223
(80)
70
2,668
(1,011)
(985)
(1,996)
(9)
$ 3,939
(65)
1
–
23
(47)
(85)
(132)
(9)
$ 157
Net
$ 3,001
2,245
411
(81)
70
2,645
(964)
(900)
(1,864)
–
$ 3,782
(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, 2014
October 31, 2013
Gross
Reinsurance
Net
Gross
Reinsurance
$ 1,506
3,006
(2,953)
$ 1,559
$
$
–
91
(91)
–
$ 1,506
2,915
(2,862)
$ 1,559
$ 1,397
2,909
(2,800)
$ 1,506
$
$
–
70
(70)
–
Net
$ 1,397
2,839
(2,730)
$ 1,506
(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 seven most recent accident years, with subsequent develop-
ments during the periods and together with cumulative payments to
date. The original reserve estimates are evaluated monthly for redun-
dancy 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.
188
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
Incurred Claims by Accident Year
(millions of Canadian dollars)
Net ultimate claims cost at end
2008
and prior
2009
2010
2011
2012
2013
2014
Total
Accident year
of accident year
Revised estimates
One year later
Two years later
Three years later
Four years later
Five years later
Six 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
$ 3,335
$ 1,598
$ 1,742
$ 1,724
$ 1,830
$ 2,245
$ 2,465
3,366
3,359
3,422
3,527
3,630
3,612
1,627
1,663
1,720
1,763
1,753
1,764
1,851
1,921
1,926
1,728
1,823
1,779
1,930
1,922
2,227
3,612
(3,299)
1,753
(1,592)
1,926
(1,630)
1,779
(1,375)
1,922
(1,285)
2,227
(1,323)
2,465
(1,061)
313
161
296
404
637
904
1,404
$ 4,119
(268)
372
$ 4,223
SENSITIVITY TO INSURANCE RISK
A variety of assumptions are made related to the 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 based on various quantitative and
qualitative factors including the discount rate, the margin for adverse
deviation, reinsurance, trends in claims severity and frequency, and
external drivers.
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 property and
casualty insurance claims liabilities to reasonably possible movements
in the discount rate, the margin for adverse deviation, and the
frequency and severity of claims, with all other assumptions held
constant. Movements in the assumptions 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
Impact of an absolute change of 5% in key assumptions
Frequency of claims
Increase in assumption
Decrease in assumption
Severity of claims
Increase in assumption
Decrease in assumption
October 31, 2014
October 31, 2013
Impact on net
income (loss)
before
income tax
Impact on
equity
Impact on net
income (loss)
before
income tax
Impact on
equity
$ 118
(126)
(41)
41
(31)
31
(200)
200
$ 87
(93)
(30)
30
(23)
23
(147)
147
$ 102
(110)
(31)
31
(33)
33
(180)
180
$ 75
(81)
(23)
23
(24)
24
(133)
133
189
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
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.
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, 2014, for the property and casualty insurance
business, 70.3% of net written premiums were derived from automo-
bile policies (October 31, 2013 – 71.9%) followed by residential with
29.4% (October 31, 2013 – 27.8%). The distribution by provinces
show that business is mostly concentrated in Ontario with 60.6%
of net written premiums (October 31, 2013 – 61.6%). The Western
provinces represented 27.7% (October 31, 2013 – 26.6%) followed
by Quebec, 6.1% (October 31, 2013 – 6.6%) and the Atlantic
provinces with 5.6% (October 31, 2013 – 5.2%).
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 $3.1 million
(October 31, 2013 – $3.0 million), the majority of claims are less than
$250 thousand (October 31, 2013 – $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
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, 25.9 million common shares have been
reserved for future issuance (October 31, 2013 – 28.3 million). The
outstanding options expire on various dates to December 12, 2023.
The following table summarizes the Bank’s stock option activity and
related information, adjusted to reflect the impact of the stock divi-
dend as discussed in Note 21 on a retrospective basis, for the years
ended October 31.
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
2014
Weighted-
average
of shares exercise price
Number
22.0
2.6
(5.0)
(0.2)
19.4
$ 33.89
47.59
31.32
39.60
$ 36.72
2013
Weighted-
average
exercise price
$ 31.00
40.54
27.60
36.64
$ 33.89
Number
of shares
27.5
3.3
(8.4)
(0.4)
22.0
7.1
$ 31.18
8.8
$ 29.67
2012
Weighted-
average
exercise price
$ 29.03
36.64
25.54
33.89
$ 31.00
$ 29.04
Number
of shares
31.8
3.8
(7.7)
(0.4)
27.5
15.7
The weighted average share price for the options exercised in 2014 was
$52.15 (2013 – $43.26; 2012 – $40.11).
The following table summarizes information relating to stock options
outstanding and exercisable as at October 31, 2014.
Range of Exercise Prices
(millions of shares and Canadian dollars)
$19.90 – $24.94
$29.70 – $32.34
$32.99 – $34.86
$36.34 – $38.14
$39.06 – $47.59
190
Options outstanding
Options exercisable
Number of
shares
outstanding
Weighted-
average
remaining
contractual
life (years)
1.7
0.4
3.3
8.3
5.7
1.0
1.0
4.5
5.7
8.4
Weighted-
average
exercise
price
$ 21.25
31.51
33.13
36.74
43.67
Number of
shares
Weighted-
average
exercisable exercise price
1.7
0.4
3.3
1.6
0.1
$ 21.25
31.51
33.13
37.18
39.06
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
For fiscal 2014, the Bank recognized compensation expense for
stock option awards of $25.6 million (2013 – $24.8 million; 2012 –
$22.1 million). During 2014, 2.6 million (2013 – 3.3 million;
2012 – 3.8 million) options were granted by the Bank at a weighted-
average fair value of $9.29 per option (2013 – $7.83 per option;
2012 – $7.26 per option).
The following table summarizes the assumptions used for estimating
the fair value of options for the twelve months ended October 31.
Assumptions Used for Estimating Fair Value of Options
(in Canadian dollars, except as noted)
2014
2013
2012
Risk-free interest rate
Expected option life (years)
Expected volatility1
Expected dividend yield
Exercise price/share price
1.90%
1.43%
1.50%
6.2 years
27.09%
3.66%
$ 47.59
6.3 years
27.23%
3.51%
$ 40.54
6.3 years
27.40%
3.40%
$ 36.64
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. During the
vesting period, dividend equivalents accrue to the participants in the
form of additional share units. At the maturity date, the participant
receives cash representing the value of the share units. The final
number of performance share units will vary from 80% to 120% of
the number of units outstanding at maturity (consisting of initial units
awarded plus additional units in lieu of dividends) based on the Bank’s
total shareholder return relative to the average of a peer group of
large financial institutions. The number of such share units outstanding
under these plans as at October 31, 2014, was 26 million (2013 –
27 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
be deferred as share units equivalent to the Bank’s common shares.
The deferred share units are not redeemable by the participant until
N O T E 2 6
EMPLOYEE BENEFITS
termination of employment or directorship. Once these conditions are
met, the deferred share units 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, 2014,
7.6 million deferred share units were outstanding (October 31, 2013 –
7.1 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, 2014, the Bank recognized compensation expense, net
of the effects of hedges, for these plans of $415 million (2013 –
$336 million; 2012 – $326 million). The compensation expense
recognized before the effects of hedges was $718 million (2013 –
$621 million; 2012 – $429 million). The carrying amount of the
liability relating to these plans, based on the closing share price, was
$1.8 billion at October 31, 2014 (October 31, 2013 – $1.5 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), subject to an annual cap of 10% of salary effective
January 1, 2014, 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, 2014, the Bank’s contributions totalled $65 million (2013 –
$63 million; 2012 – $61 million) and were expensed as salaries and
employee benefits. As at October 31, 2014, an aggregate of 20 million
common shares were held under the Employee Ownership Plan (Octo-
ber 31, 2013 – 20 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 the Bank’s 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) (TDPP), are defined benefit plans for Canadian
Bank employees. 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 ten 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
2014 were $302 million (2013 – $340 million). The 2014 contributions
were made in accordance with the actuarial valuation reports for fund-
ing purposes as at October 31, 2013, and October 31, 2011, for the
Society and the TDPP, respectively. The 2013 contributions were made
in accordance with the actuarial valuation reports for funding purposes
as at October 31, 2012, and October 31, 2011, for the Society and the
TDPP, respectively. The next valuation date for funding purposes is as
at October 31, 2014, for both of the principal pension plans.
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.
191
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
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 ten-year periods. The investment policies for the principal
pension plans are detailed as follows 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 by
asset category for the principal pension plans (excluding PEA assets)
are as follows:
Plan Asset Allocation
(millions of Canadian dollars, except as noted)
As at October 31, 2014
Debt
Equity
Cash equivalents
Alternative investments1
Other2
Total
As at October 31, 2013
Debt
Equity
Cash equivalents
Alternative investments1
Other2
Total
As at October 31, 2012
Debt
Equity
Cash equivalents
Alternative investments1
Other2
Total
Acceptable
Range
58-72%
24-34.5
0-4
0-12.5
n/a
58-72%
24-34.5
0-4
0-12.5
n/a
57-71%
25-35.5
0-4
0-12.5
n/a
% of
Total
60%
32
2
6
n/a
100%
58%
34
2
6
n/a
100%
60%
31
3
6
n/a
100%
Society1
Fair Value
Unquoted
$ 2,489
84
93
188
101
$ 2,955
$ 2,094
138
79
162
157
$ 2,630
$ 1,995
118
114
167
63
$ 2,457
Acceptable
Range
44-56%
44-56
n/a
n/a
n/a
44-56%
44-56
n/a
n/a
n/a
44-56%
44-56
n/a
n/a
n/a
Quoted
$
–
1,228
–
40
–
$ 1,268
–
$
1,086
–
37
–
$ 1,123
$
–
917
–
27
–
$ 944
% of
Total
50%
50
n/a
n/a
n/a
100%
49 %
51
n/a
n/a
n/a
100%
50%
50
n/a
n/a
n/a
100%
TDPP1
Fair Value
Unquoted
Quoted
$
$
$
$
$
$
–
–
n/a
n/a
–
–
–
–
n/a
n/a
–
–
–
–
n/a
n/a
–
–
$ 277
280
n/a
n/a
25
$ 582
$ 199
208
n/a
n/a
17
$ 424
$ 165
168
n/a
n/a
9
$ 342
1 The Society’s alternative investments primarily include private equity funds, of
2 Consists mainly of PEA assets, interest and dividends receivable, and amounts due
which a fair value of nil in 2014 (2013 – $1 million; 2012 – $1 million) is invested
in the Bank and its affiliates. The principal pension plans also invest in investment
vehicles which may hold shares or debt issued by the Bank.
to and due from brokers for securities traded but not yet settled.
Society Investment Strategy
The investments of the Society are managed with the primary objective
of providing reasonable and stable rates of return, consistent with
available market opportunities, prudent portfolio management, and
levels of risk commensurate with the return expectations and asset
mix policy as set out by the risk budget of 9% surplus volatility.
Debt instruments generally must meet or exceed a credit rating of
BBB at the time of purchase and during the holding period, except for
the portion of the debt portfolio managed to the Financial Times Stock
Exchange (FTSE) TMX Canada Universe Bond Index (formerly known as
the DEX Universe Bond Index), which can invest in bonds with a credit
rating below BBB. There are no limitations on the maximum amount
allocated to each credit rating above BBB for the total debt portfolio.
The bond mandate managed to the FTSE TMX Canada Universe Bond
Index, representing 10% to 29% of the total fund, may be invested
in bonds with a credit rating below BBB-. Within this mandate, the
following limitations apply: debt instruments rated BBB+ or lower must
not exceed 25%; debt instruments rated below BBB- must not exceed
10%; debt instruments of non-government entities must not exceed
80%; debt instruments of non-Canadian government entities must not
exceed 20%; and debt instruments of a single non-government or
non-Canadian government entity must not exceed 10%. In addition,
debt instruments issued by the Government of Canada, provinces of
Canada, or municipalities must not exceed 100%, 75%, or 10% of
this mandate, respectively. Asset-backed securities must have a mini-
mum credit rating of AAA and those rated AAA 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 are also included to further diversify the portfolio. A maximum
of 5% of the total fund may be invested in emerging market equities.
Alternative investments include hedge funds and private equities.
Derivatives can be utilized provided they are not used for speculative
purposes or to create financial leverage for the Society. The Society
may invest in hedge funds, which may employ leverage when executing
their investment strategy.
The Society was in compliance with its investment policy throughout
the year.
TDPP Investment Strategy
The investments of the TDPP are managed with the primary objective
of providing reasonable and stable rates of return, consistent with
available market opportunities, prudent portfolio management, and
levels of risk commensurate with the return expectations and asset mix
policy as set out by the risk budget of 22% surplus volatility.
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 for the total debt portfolio.
192
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
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 are also included to further diversify the portfolio. A maximum
of 5% of the total fund may be invested in emerging market equities.
Derivatives can be used provided they are not used for speculative
purposes or to create financial leverage for the TDPP.
The TDPP was in compliance with its investment policy throughout
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.
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, interest rate, inflation, and price risks),
credit risk, longevity risk and liquidity risk. Key material risks faced by
all plans are a decline in interest rates or credit spreads, which could
increase the defined benefit obligation by more than the change in the
value of plan assets, or from longevity risk (that is, lower mortality rates).
Asset-liability matching strategies are focused on obtaining an
appropriate balance between earning an adequate return and having
changes in liability values being hedged by changes in asset values.
The principal pension plans manage these financial 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
The Bank’s principal pension plans are overseen by a single retirement
governance structure established by the Human Resources Committee
of the Bank’s Board of Directors. The governance structure utilizes
retirement governance committees who have responsibility to oversee
plan operations and investments, acting in a fiduciary capacity. Where
required, approvals will also be sought from the applicable local body
to comply with local regulatory requirements. Strategic, material plan
changes require the approval of the Bank’s Board of Directors.
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
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 2014 were
$45 million (2013 – $42 million; 2012 – $41 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 2014
was $47 million (2013 – $39 million; 2012 – $37 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 employ-
ees. 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 direc-
tors who meet minimum age and service requirements. Effective
December 31, 2008, benefits under the retirement and supplemental
retirement plans were frozen.
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
salaried employees based on the employee’s cumulative contributions,
years of service during which employee contributions were made, and
the 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.
193
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS 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 principal
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
Service cost – benefits earned
Interest cost on projected benefit obligation
Remeasurement (gain) loss – financial
Remeasurement (gain) loss – demographic
Remeasurement (gain) loss – experience
Members’ contributions
Benefits paid
Change in foreign currency exchange rate
Past service cost – plan amendment costs (credits)
Past service cost – curtailment (gains) losses3
Past service cost – other
Projected benefit obligation as at October 31
Change in plan assets
Plan assets at fair value at beginning of year
Interest income on plan assets
Remeasurement gain (loss) – return on plan
assets less interest income
Members’ contributions
Employer’s contributions
Benefits paid
Change in foreign currency exchange rate
Defined benefit administrative expenses
Plan assets at fair value as at October 31
Net defined benefit asset (liability)
Annual expense
Net employee benefits expense includes the following:
Service cost – benefits earned
Net interest cost (income) on net defined benefit
liability (asset)
Past service cost – plan amendment costs (credits)
Past service cost – curtailment (gains) losses3
Past service cost – other
Defined benefit administrative expenses
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
Actuarial assumptions used to determine the
projected benefit obligation as at
October 31 (percentage)
Weighted-average discount rate for projected
benefit obligation
Weighted-average rate of compensation increase
2014
2013
2012
2014
2013
2012
2014
2013
2012
$ 4,338 $ 4,143
278
184
(234)
98
(3)
65
(193)
–
–
–
–
4,338
282
205
591
44
(1)
66
(204)
–
–
–
–
5,321
$ 3,141
179
177
758
–
1
61
(180)
–
6
–
–
4,143
$ 551
18
26
50
(82)
6
–
(12)
–
–
–
–
557
$ 526
17
24
(29)
30
(7)
–
(10)
–
–
–
–
551
$ 426
13
24
78
–
(5)
–
(10)
–
–
–
–
526
$ 2,196
10
106
188
129
17
–
(114)
106
(1)
–
7
2,644
$ 2,325
12
92
(223)
19
10
–
(100)
61
–
–
–
2,196
$ 2,055
17
101
287
(4)
7
–
(100)
2
(9)
(31)
–
2,325
4,177
208
3,743
175
3,300
195
–
–
–
–
–
–
1,575
77
1,462
56
1,374
64
264
66
302
(204)
–
(8)
4,805
(516)
54
65
340
(193)
–
(7)
4,177
(161)
81
61
293
(180)
–
(7)
3,743
(400)
–
–
12
(12)
–
–
–
(557)
–
–
10
(10)
–
–
–
(551)
–
–
10
(10)
–
–
–
(526)
72
–
35
(114)
98
(9)
1,734
(910)
86
–
26
(100)
49
(4)
1,575
(621)
87
–
38
(100)
1
(2)
1,462
(863)
282
278
179
18
17
13
(3)
–
–
–
7
9
–
–
–
7
$ 286 $ 294
(18)
6
–
–
7
$ 174
26
–
–
–
–
$ 44
24
–
–
–
–
$ 41
24
–
–
–
–
$ 37
$
10
29
(1)
–
7
5
50
$
12
36
–
–
–
4
52
$
17
37
(9)
(31)
–
2
16
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
4.01%
1.37
4.99%
1.98
4.21%
2.86
4.82%
2.83
4.53%
2.82
4.30%
3.50
4.80%
3.50
4.50%
3.50
4.27%
1.30
4.75%
1.43
4.08%
1.86
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 5.5%. The rate is assumed to decrease gradually to 3.6% by the
year 2028 and remain at that level thereafter.
2 Includes CT defined benefit pension plan, TD Banknorth defined benefit pension
plan, certain TD Auto Finance retirement plans, and supplemental employee retire-
ment plans. Other employee benefit 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 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.
194
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
In fiscal 2015, the Bank expects to contribute $300 million to its principal
pension plans, $15 million to its principal non-pension post-retirement
benefit plan, and $97 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)
Principal Pension Plans
Male aged 65 at measurement date
Female aged 65 at measurement date
Male aged 40 at measurement date
Female aged 40 at measurement date
Principal Non-Pension Plans Post-Retirement Benefit Plan
Male aged 65 at measurement date
Female aged 65 at measurement date
Male aged 40 at measurement date
Female aged 40 at measurement date
Other Pension and Retirement Plans
Male aged 65 at measurement date
Female aged 65 at measurement date
Male aged 40 at measurement date
Female aged 40 at measurement date
2014
2013
2012
21.9
23.8
23.2
25.0
21.9
23.8
23.2
25.0
22.0
23.3
23.1
25.6
22.0
23.2
23.2
24.1
22.0
23.2
23.2
24.1
20.2
21.9
20.7
22.2
21.0
22.1
22.8
23.1
21.0
22.1
22.8
23.1
19.8
21.4
20.5
21.8
The weighted-average durations of the defined benefit obligations
for the Bank’s principal pension plans, principal non-pension post-
retirement benefit plan and other pension and retirement plans at
the end of the reporting period are 21 years (2013 – 20 years, 2012 –
20 years), 18 years (2013 – 17 years, 2012 – 17 years), and 13 years
(2013 – 13 years, 2012 – 14 years), respectively.
The following table provides the sensitivity of the projected benefit
obligation and expenses for the Bank’s principal pension plans, the
principal non-pension post-retirement benefit plan, and the Bank’s
significant other pension and retirement plans to actuarial assumptions
considered significant by the Bank. These include discount rate, life
expectancy, rates of compensation increase, and health care cost initial
trend rates, as applicable. For each sensitivity test, the impact of a
reasonably possible change in a single factor is shown with other
assumptions left unchanged.
Sensitivity of Significant Actuarial Assumptions
(millions of Canadian dollars, except as noted)
Impact of an absolute change in
significant actuarial assumptions
Discount rate
1% decrease in assumption
1% increase in assumption
Rates of compensation increase
1% decrease in assumption
1% increase in assumption
Life expectancy
1 year decrease in assumption
1 year increase in assumption
Health care cost initial trend rate
1% decrease in assumption
1% increase in assumption
1 An absolute change in this assumption is immaterial.
As at
October 31, 2014
For the year ended
October 31, 2014
Principal
Non-Pension
Post-
Retirement
Benefit Plan
Principal
Pension
Plans
Obligation
Other
Pension
and
Retirement
Plans
Principal
Non-Pension
Post-
Retirement
Benefit Plan
Principal
Pension
Plans
Expense
Other
Pension
and
Retirement
Plans
$ 1,274
(943)
(292)
323
(137)
135
n/a
n/a
$ 107
(83)
n/a1
n/a1
(21)
22
(81)
103
$ 410
(328)
(1)
1
(72)
71
(4)
5
$ 149
(120)
(41)
44
(14)
14
n/a
n/a
$ 4
3
n/a1
n/a1
(2)
2
(9)
11
$ 8
(11)
n/a1
n/a1
(3)
3
n/a1
n/a1
195
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
The Bank recognized the following amounts on the Consolidated
Balance Sheet as at October 31.
Amounts Recognized in the Consolidated Balance Sheet
(millions of Canadian dollars)
Other assets
Other pension and retirement plans
Other employee benefit plans1
Total other assets
Other liabilities
Principal pension plans
Principal non-pension post-retirement benefit plan
Other pension and retirement plans
Other employee benefit plans1
Total other liabilities
Total net assets (liabilities)
1 Consists of other defined benefit pension and other post-employment benefit plans
operated by the Bank and its subsidiaries that are not considered material for
disclosure purposes.
The Bank recognized the following amounts in the Consolidated
Statement of Other Comprehensive Income for the years ended
October 31.
Amounts Recognized in the Consolidated Statement of Other Comprehensive Income1
(millions of Canadian dollars)
Actuarial gains (losses) recognized in Other Comprehensive Income
Principal pension plans
Principal non-pension post-retirement benefit plan
Other pension and retirement plans
Other employee benefit plans
Total actuarial gains (losses) recognized in Other Comprehensive Income
1 Amounts are presented on pre-tax basis.
October 31
2014
October 31
2013
$
9
6
15
516
557
919
401
2,393
$ (2,378)
$
52
4
56
161
551
673
330
1,715
$ (1,659)
As at
October 31
2012
$
–
1
1
400
526
863
361
2,150
$ (2,149)
For the years ended
October 31
2014
October 31
2013
October 31
2012
$ (371)
26
(266)
(57)
$ (668)
$ 193
6
280
32
$ 511
$
(678)
(73)
(203)
(83)
$ (1,037)
196
TD BANK GROUP ANNUAL REPORT 2014 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 (recovery of) 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
2014
2013
2012
$ 1,450
31
1,481
$ 1,619
(114)
1,505
$ 999
(19)
980
37
1
(11)
4
31
1,512
(623)
(269)
(892)
(9)
(4)
(13)
607
413
284
152
849
(398)
8
(2)
22
(370)
1,135
(699)
(221)
(920)
(17)
40
23
238
353
245
191
789
154
(14)
(1)
(34)
105
1,085
172
(356)
(184)
6
21
27
928
604
412
142
1,158
(72)
(44)
(126)
(242)
607
$
(4)
(5)
(542)
(551)
$ 238
(246)
(162)
178
(230)
$ 928
2014
2013
$ 2,385
26.3%
$ 1,970
26.3%
$ 1,933
(321)
(489)
–
(63)
$ 1,512
(3.5)
(5.4)
–
(0.7)
16.7%
(253)
(487)
–
(95)
$ 1,135
(3.4)
(6.5)
–
(1.3)
15.1%
(262)
(483)
(18)
(85)
$ 1,085
2012
26.4%
(3.6)
(6.6)
(0.2)
(1.2)
14.8%
197
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
Deferred tax assets and liabilities are comprised of the following.
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
Employee benefits
Pensions
Losses available for carry forward
Tax credits
Other
Total deferred tax assets1
Deferred tax liabilities
Securities
Intangibles
Goodwill
Land, buildings, equipment, and other depreciable assets
Total deferred tax liabilities
Net deferred tax assets
Reflected on the Consolidated Balance Sheet as follows:
Deferred tax assets
Deferred tax liabilities2
Net deferred tax assets
October 31
2014
Consolidated
Balance
Sheet
As at
October 31
2013
Consolidated
Balance
Sheet
$ 582
7
30
124
88
695
367
256
357
123
2,629
612
287
9
–
908
1,721
2,008
287
$ 1,721
$ 557
–
43
131
176
688
77
313
360
321
2,666
789
382
7
9
1,187
1,479
1,800
321
$ 1,479
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 $18 million as at October 31, 2014 (October 31, 2013 – $37 million), of which
$8 million (October 31, 2013 – $5 million) is scheduled to expire within five years.
The movement in the net deferred tax asset for the years ended
October 31 was as follows:
2 Included in Other liabilities on the Consolidated Balance Sheet.
Deferred Income Tax Expense (Recovery)
(millions of Canadian dollars)
Consolidated
Other
Statement of Comprehensive
Income
Income
Business
Combinations
and Other
2014
Total
Consolidated
Statement of
Income
Other
Comprehensive
Income
Business
Combinations
and Other
2013
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)
$
(25)
$
–
$ –
$
(25)
(16)
13
7
74
2
(5)
57
3
202
(87)
(95)
(99)
–
–
–
14
–
(2)
–
–
–
(90)
–
(191)
–
–
–
–
–
–
–
–
(4)
–
–
–
(16)
13
7
88
2
(7)
57
3
198
(177)
(95)
(290)
17
34
61
74
13
12
(28)
(176)
(11)
(265)
(91)
15
–
–
–
(55)
–
–
–
–
–
(337)
–
171
–
–
–
–
–
–
–
–
(18)
–
61
(3)
17
34
61
19
13
12
(28)
(176)
(29)
(602)
(30)
183
$ 31
$ (269)
$ (4)
$ (242)
$ (370)
$ (221)
$ 40
$ (551)
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, 2014. The total amount of these temporary
differences was $37 billion as at October 31, 2014 (October 31,
2013 – $30 billion).
198
TD BANK GROUP ANNUAL REPORT 2014 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.
Diluted earnings per share is calculated using the same method as
basic earnings per share, except that certain adjustments are made to
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.
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
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)
Weighted-average number of common shares outstanding – diluted (millions)
Diluted earnings per share (dollars)1
1 For the years ended October 31, 2014, October 31, 2013, and October 31, 2012,
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.
The following table presents the Bank’s basic and diluted earnings per
share for the years ended October 31, and reflects the impact of the
stock dividend, as discussed in Note 21, on the Bank’s basic and
diluted earnings per share, as if it was retrospectively applied to all
periods presented.
For the years ended October 31
2014
2013
2012
$ 7,633
1,839.1
4.15
$ 6,350
1,837.9
3.46
$ 6,160
1,813.2
3.40
7,633
6,350
6,160
–
$ 7,633
1,839.1
6.2
–
1,845.3
4.14
$
3
$ 6,353
1,837.9
5.7
1.5
1,845.1
3.44
$
17
$ 6,177
1,813.2
6.5
10.0
1,829.7
3.38
$
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.
Provisions
(millions of Canadian dollars)
Balance as of November 1, 2012
Additions
Amounts used
Release of unused amounts
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
Additions
Amounts used
Release of unused amounts
Foreign currency translation adjustments and other
Balance as of October 31, 2014, 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, 2014
1 Refer to Note 8, Loans, Impaired Loans, and Allowance for Credit Losses for
further details.
Litigation Restructuring
$ 286
251
(279)
(23)
9
$ 4
129
(28)
–
–
Asset
Retirement
Obligations
$ 66
7
–
(4)
–
Other
$ 89
102
(105)
(22)
2
244
105
69
66
76
(146)
(20)
14
40
(79)
(11)
–
–
–
(1)
–
132
(99)
(31)
(2)
$ 168
$ 55
$ 68
$ 66
Total
$ 445
489
(412)
(49)
11
484
212
696
248
(324)
(63)
12
$ 357
274
$ 631
199
TD BANK GROUP ANNUAL REPORT 2014 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
possible losses, in excess of provisions, for its legal proceedings where
it is possible to make such an estimate, is from zero to approximately
$239 million as at October 31, 2014. 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
significantly 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 civil matters are specifically
exempted from the Bar Order.
First, the lawsuit captioned Coquina Investments v. TD Bank, N.A.
et al. was exempted from the bar order. 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$35 million 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 sanctions motions. TD Bank,
N.A. appealed the judgment and sanctions order to the United States
Court of Appeals for the Eleventh Circuit. On July 29, 2014, the Court
of Appeals affirmed the judgment and sanctions order, but referred
the case to the trial court to determine whether the amount of
the judgment should be reduced. TD Bank, N.A. is considering its
further options.
Second, the Bar Order did 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. The motion for
sanctions was, however, denied on July 25, 2014. Plaintiffs have
appealed the denial of their motion, and that appeal is still pending.
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, and a second distribution to eligible class
members of residual settlement funds was made in October 2014.
The Court retains jurisdiction over class members and distributions.
On August 21, 2013, TD Bank, N.A. was named as a defendant
in King, et al. v. TD Bank, N.A f/k/a Carolina First Bank (D.S.C.), a
putative 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. This
case has progressed to the discovery stage.
On February 28, 2014, TD Bank, N.A. was named as a defendant in
Padilla, et al. v. TD Bank, N.A. (E.D. Pa.), a putative nationwide class
action filed in federal court in the Eastern District of Pennsylvania
challenging TD Bank, N.A.’s overdraft practices on behalf of certain
individuals who opened a chequing account after August 15, 2010,
or were not included in the prior overdraft class action settlements.
This case is in its preliminary stages.
200
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS Interchange Fee Class Actions
Between 2011 and 2013, seven proposed class actions were
commenced in British Columbia, Alberta, Saskatchewan, Ontario, and
Quebec: Coburn and Watson’s Metropolitan Home v. Bank of America
Corporation, et al.; 1023916 Alberta Ltd. v. Bank of America Corpora-
tion, et al.; Macaronies Hair Club v. BOFA Canada Bank, et al.; The
Crown & Hand Pub Ltd. v. Bank of America Corporation, et al.; Hello
Baby Equipment Inc. v. BOFA Canada Bank, et al.; Bancroft-Snell, et al.
v. Visa Canada Corporation, et al.; and 9085-4886 Quebec Inc. v. Visa
Canada Corporation, et al. The defendants in each action are Visa
Canada Corporation (Visa) and MasterCard International Incorporated
(MasterCard) (collectively, the “Networks”), along with TD and several
other financial institutions. The plaintiff class members are Canadian
merchants who accept payment for products and services by Visa and/
or MasterCard. While there is some variance, in most of the actions it
is alleged that, from March 2001 to the present, the Networks
conspired with their issuing banks and acquirers to fix excessive fees
and that certain rules (Honour All Cards and No Surcharge) have the
effect of increasing the merchant discount fees. The actions include
claims of civil conspiracy, breach of the Competition Act, interference
with economic relations and unjust enrichment. Unspecified general
and punitive damages are sought on behalf of the merchant class
members. In the lead case proceeding in British Columbia, the decision
to partially certify the action as a class proceeding was released on
March 27, 2014. This decision is under appeal by both class represen-
tatives and defendants. The appeals are expected to be heard in
December 2014.
RESTRUCTURING
The Bank undertook certain measures commencing in the fourth
quarter of 2013, which continued through fiscal year 2014, to reduce
costs in a sustainable manner and achieve greater operational efficien-
cies. To implement these measures, the Bank recorded a provision
of $129 million in 2013 and $29 million in 2014 for restructuring
initiatives related primarily to retail branch, real estate and other
optimi zation 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 in this Note for
further details.
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 10.
The values of credit instruments reported as follows represent
the maximum 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
2013
2014
$ 18,395 $ 16,503
200
207
32,593
32,456
67,913
56,873
$ 118,971 $ 106,169
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, as at October 31, 2014, the Bank is committed to
fund $76 million (October 31, 2013 – $82 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 commit-
ments for premises and for equipment, where the annual rental is in
excess of $100 thousand, is estimated at $823 million for 2015;
$786 million for 2016; $725 million for 2017; $653 million for 2018,
$564 million for 2019, and $3,183 million for 2020 and thereafter.
Future minimum finance lease commitments where the annual
payment is in excess of $100 thousand, is estimated at $32 million for
2015; $28 million for 2016; $20 million for 2017; $8 million for 2018,
$7 million for 2019, and $24 million for 2020 and thereafter.
The premises and equipment net rental expense, included under
Non-interest expenses in the Consolidated Statement of Income, was
$947 million for the year ended October 31, 2014 (October 31, 2013 –
$971 million; October 31, 2012 – $914 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, 2014, securities and other
assets with a carrying value of $139 billion (October 31, 2013 –
$134 billion) were pledged as collateral in respect of these transac-
tions. See Note 9 for further details.
Certain consumer instalment and other personal loan assets with
a carrying value of $8 billion (October 31, 2013 – $11 billion) and
residential mortgages with a carrying value of $8 billion (October 31,
2013 – nil) were also pledged with respect to covered bonds issued
by the Bank.
201
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
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, 2014, was $86 billion (October 31, 2013 – $82 billion).
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 following table summarizes as at October 31, the maximum poten-
tial 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
2013
2014
$ 18,395 $ 16,503
341
$ 18,662 $ 16,844
267
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
2013
2014
$ 30,642 $ 29,484
120
$ 30,742 $ 29,604
100
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, 2014, the fair value of financial assets accepted as
collateral that the Bank is permitted to sell or repledge in the absence
of default was $22 billion (October 31, 2013 – $20 billion). The fair
value of financial assets accepted as collateral that have been sold or
repledged (excluding cash collateral) was $4 billion as at October 31,
2014 (October 31, 2013 – $3 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, which it continues to service, to the
TD Mortgage Fund (the “Fund”), a mutual fund managed by the Bank.
As part of its responsibilities, the Bank has an obligation to repurchase
mortgage loans when they default or if the Fund experiences a liquid-
ity event such that it does not have sufficient cash to honor unit holder
redemptions. For further details on the Bank’s involvement with the
Fund, please see Note 10, Structured Entities.
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.
202
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
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 offi-
cers 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
2013
2014
$ 4
262
$ 266
$
3
181
$ 184
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
2014
$ 27
1
37
$ 65
2013
$ 25
2
32
$ 59
2012
$ 23
1
32
$ 56
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. There were no significant transac-
tions between the Bank, TD Ameritrade and Symcor during fiscal 2014,
other than as described in the following sections.
Other Transactions with TD Ameritrade and Symcor Inc.
(1) TD AMERITRADE HOLDING CORPORATION
The following is a description of significant transactions of the Bank
and its affiliates with TD Ameritrade.
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 $895 million in 2014 (2013 – $821 million; 2012 –
$834 million) to TD Ameritrade for the deposit accounts. The fee
paid by the Bank is based on the average insured deposit balance of
$80 billion in 2014 (2013 – $70 billion; 2012 – $60 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 adjustment based on a
specified formula).
As at October 31, 2014, amounts receivable from TD Ameritrade were
$103 million (October 31, 2013 – $54 million). As at October 31, 2014,
amounts payable to TD Ameritrade were $104 million (October 31,
2013 – $103 million).
(2) 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 process-
ing and production, and cash management services. The Bank
accounts for Symcor’s results using the equity method of accounting.
During fiscal 2014, the Bank paid $122 million (2013 – $128 million;
2012 – $128 million) for these services. As at October 31, 2014,
the amount payable to Symcor was $10 million (October 31, 2013 –
$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, 2014, and October 31, 2013.
203
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
N O T E 3 1
SEGMENTED INFORMATION
Effective November 1, 2013, the Bank revised its reportable segments,
and for management reporting purposes, reports its results under
three key business segments: Canadian Retail, which includes the
results of the Canadian personal and commercial banking businesses,
Canadian credit cards, TD Auto Finance Canada and Canadian wealth
and insurance businesses; U.S. Retail, which includes the results of the
U.S. personal and commercial banking businesses, U.S. credit cards,
TD Auto Finance U.S., U.S. wealth business and the Bank’s investment
in TD Ameritrade; and Wholesale Banking. The Bank’s other activities
are grouped into the Corporate segment. Certain goodwill pertaining
to the former Wealth and Insurance segment was allocated on a rela-
tive fair value basis to the Canadian Retail and U.S. Retail segments
when the segments were realigned. The segmented results for periods
prior to the segment realignment have been restated accordingly.
The results of the Aeroplan credit card portfolio, acquired on
December 27, 2013, are reported in the Canadian Retail segment.
The results of Epoch Investment Partners, Inc., acquired on March 27,
2013, and the results of the U.S. credit card portfolio of Target Corpo-
ration, acquired on March 13, 2013, are reported in the U.S. Retail
segment. The results of the credit card portfolio of MBNA Canada,
acquired on December 1, 2011, as well as the integration charges
related to the acquisition, are reported in the Canadian Retail segment.
Canadian Retail is comprised of Canadian personal and commercial
banking, which provides financial products and services to personal,
small business, and commercial customers, TD Auto Finance Canada,
the Canadian credit card business, the Canadian wealth business,
which provides investment products and services to institutional and
retail investors, and the insurance business. U.S. Retail is comprised of
the personal and commercial banking operations in the U.S. operating
under the brand TD Bank, America’s Most Convenient Bank, primarily
in the Northeast and Mid-Atlantic regions and Florida, and the U.S.
wealth business, including Epoch and the Bank’s equity investment
in TD Ameritrade. 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 Canadian Retail and Wholesale Banking, elimination of taxable
equivalent adjustments and other management reclassifications, corpo-
rate 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,
capital, 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 credit default swaps (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 earn-
ings. The related loans are accounted for at amortized cost. Manage-
ment believes that this asymmetry in the accounting treatment
between CDS and loans would result in periodic profit and loss volatil-
ity which is not indicative of the economics of the corporate loan
portfolio or the underlying business performance in Wholesale Banking.
As a result, these CDS are accounted for on an accrual basis in Whole-
sale Banking and the gains and losses on these CDS, in excess of the
accrued cost, are reported in the Corporate segment.
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 performance 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.
204
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS The following table summarizes the segment results for the years ended
October 31.
Results by Business Segment
(millions of Canadian dollars, except as noted)
Net interest income (loss)
Non-interest income (loss)
Provision for (reversal of) credit losses
Insurance claims and related expenses
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)
Provision for (reversal of) credit losses
Insurance claims and related expenses
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)
Provision for (reversal of) credit losses
Insurance claims and related expenses
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)
Canadian
Retail
U.S.
Retail
Wholesale
Banking
Corporate
Total
For the years ended October 31
2014
$ 9,538
9,623
946
2,833
8,438
6,944
1,710
–
$ 5,234
$ 6,000
2,245
676
–
5,352
2,217
412
305
$ 2,110
$ 2,210
470
11
–
1,589
1,080
267
–
$ 813
$
(164)
39
(76)
–
1,117
(1,166)
(877)
15
(274)
$
$ 17,584
12,377
1,557
2,833
16,496
9,075
1,512
320
$ 7,883
$ 334.6
$ 277.1
$ 302.2
$ 30.8
$ 944.7
$ 8,922
8,860
929
3,056
7,754
6,043
1,474
–
$ 4,569
$ 5,173
2,149
779
–
4,768
1,775
269
246
$ 1,752
$ 1,982
428
26
–
1,542
842
192
–
$ 650
$
(3)
(252)
(103)
–
1,005
(1,157)
(800)
26
(331)
$
2013
$ 16,074
11,185
1,631
3,056
15,069
7,503
1,135
272
$ 6,640
$ 312.1
$ 244.5
$ 269.3
$ 36.1
$ 862.0
$ 8,606
8,387
1,151
2,424
7,485
5,933
1,470
–
$ 4,463
$ 4,663
1,570
779
–
4,246
1,208
92
209
$ 1,325
$ 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
14,016
7,311
1,085
234
$ 6,460
$ 303.8
$ 214.3
$ 260.7
$ 32.3
$ 811.1
205
TD BANK GROUP ANNUAL REPORT 2014 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
2014
2014
Total revenue
Income before
income taxes
Net income
Goodwill
Total assets
$ 19,642
8,363
1,956
$ 29,961
$ 18,013
7,205
2,041
$ 27,259
$ 17,314
6,101
2,131
$ 25,546
$ 6,314
1,579
1,182
$ 9,075
$ 5,220
1,023
1,260
$ 7,503
$ 5,356
458
1,497
$ 7,311
$ 5,106
1,284
1,493
$ 7,883
2013
$ 4,234
864
1,542
$ 6,640
2012
$ 4,293
462
1,705
$ 6,460
$ 1,540
12,641
52
$ 14,233
$ 1,592
11,694
7
$ 13,293
$ 1,549
10,713
49
$ 12,311
$ 545,073
320,130
79,539
$ 944,742
2013
$ 518,247
262,679
81,095
$ 862,021
2012
$ 498,334
242,058
70,661
$ 811,053
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 cate-
gory. 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.
206
TD BANK GROUP ANNUAL REPORT 2014 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 financial liabilities designated at fair value through profit or loss
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
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
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, 2014
$ 25.7
$ 20.0
0.5
0.7
0.4
–
$
$
$
$
0.1%
3.9
0.9%
1.2
2.3%
4.7
0.8%
1.5
7.3%
$
$
$
$
$
$
$
$
0.5 $ 46.2
0.5%
7.4 $ 11.8
0.9%
1.1 $
2.9%
3.0
$ 17.7 $ 22.8
$ 26.8
0.7%
2.1%
$ 17.2 $ 18.7
$ 28.8
0.8%
$
$
–
–%
– $
–%
0.4
$ 46.6
$ 19.6
$ 18.7 $ 51.1
$ 101.2
$
1.0%
0.6
1.5%
1.4%
0.1
1.1%
1.4%
$ 0.9 $
2.4%
$ 12.7 $
2.5%
$ 9.5 $
2.2%
$
– $
–%
0.2
$
4.7
0.7
$ 63.0
–
$ 57.0
8.2
$ 75.0
4.7
$ 42.2
$ 19.8 $ 66.7
$
0.4%
0.3%
$ 15.3
$ 197.4
$ 49.7 $ 262.4
$ 173.4
$ 28.4 $ 14.7
$ 478.9
$ 68.3
$ 115.6
1.9%
$
–
$ 270.9
3.6%
$
– $ 68.3
$ 113.4 $ 499.9
3.4%
$
–
$ 249.3
3.8%
$
– $ 50.0
$ 70.2 $ 125.3
$ 118.3
$ 944.7
$ 14.0
$ 24.0
$ 19.5 $ 57.5
$
–
$
0.3%
–
–%
$ 204.0
$ 65.1
$
–
$ 39.5
1.0
$
$
0.7%
0.3
0.3%
$
–
$ 35.7
$
$
$
$
–
–
0.4%
8.4
1.6%
–
–%
$
–
$ 62.3
–
$
–
$
$ 320.8
$ 133.5
$ (205.2) $ 137.4
$ 10.5
$ 20.6
$
$
$
$
$
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%
0.3%
$
– $
–%
–
–
$ 36.2 $ 305.3
$
$
0.2
1.5%
3.3
1.5%
$ 0.4 $
1.9%
$
– $
–%
1.2
$ 59.3
–
$
3.3
$ 61.7
$ 9.1 $ 224.6
$ 600.7
$
$
$
$
$
1.3%
1.6 $
2.3%
1.9
– $ 39.5
0.6 $ 37.3
0.4%
2.3 $ 10.7
2.6%
1.7 $
5.2%
1.7
$
– $ 62.3
–
– $
$
$ 61.9 $ 516.2
$ 51.5 $ (16.3)
$
$
$
1.6%
6.4
1.4%
–
–
–%
$ 11.4
$
2.1%
5.9
4.9%
$
–
2.2
$
$ 91.1
$ 158.2
2.9%
$ 2.9 $
2.2%
$
$
– $
– $
–%
$ 2.9 $
3.1%
$ 0.2 $
9.2%
–
$ 11.2
–
8.3
$ 39.5
$ 45.6
–
$ 25.0
–
$
7.8
$
– $ 33.8
– $ 54.0
$
$ 15.5 $ 321.9
$ 54.7 $ (196.6) $
$ 96.1
$ 56.2
$ 944.7
–
October 31, 2013
$
$
$
0.8 $ 31.9
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
$
$
3.1
0.9%
2.0 $
1.6%
7.2 $ 55.8
0.2%
2.1%
$ 17.6
$
1.4%
2.1
1.9%
$
$
–
–%
– $
–%
0.3
$ 32.2
$ 25.3
$ 11.8 $ 49.7
$ 101.9
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%
$
–
$ 272.6
3.7%
$
– $ 55.9
$ 107.9 $ 465.6
3.6%
$
–
$ 226.3
3.9%
$
– $ 46.8
$ 55.7 $ 114.4
$ 102.7
$ 862.0
$
–
$ 25.6
$ 23.2 $ 48.8
$
0.2%
0.4%
0.7
0.6%
$ 0.4 $
2.1%
1.1
$ 51.0
$ 196.2
$ 53.9
$ 45.9 $ 296.0
$ 54.8
$ 3.4 $ 187.4
$ 541.6
$
–
$ 41.8
0.8
$
$
$
–
–
$ 55.9
$
–
$ 294.7
$ (209.6)
$
0.8%
4.4
0.9%
$
–
$ 27.7
$
$
0.4%
8.1
1.9%
–
–%
–
$
$
1.5
$ 121.2
$ 151.4
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
$
$
2.2
0.7 $
$ 82.2 $ 498.1
$ 25.7 $ (32.5)
$
$
$
1.7%
6.6
1.7%
–
–
–%
$ 12.0
$
1.9%
7.6
5.0%
0.7
$
$
0.5
$ 82.9
$ 143.4
5.4%
$ 2.5 $
2.6%
$
$
– $
– $
–%
$ 2.9 $
2.9%
$ 0.2 $
9.2%
–
$ 22.0
–
5.8
$ 41.8
$ 34.4
–
$ 25.6
–
$
8.0
– $ 28.6
$
$
– $ 48.7
$ 9.4 $ 271.6
$ 46.3 $ (157.2)
$ 86.2
$ 51.4
$ 862.0
$
–
207
TD BANK GROUP ANNUAL REPORT 2014 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
Floating
rate
$ (186.1)
(19.1)
$ (205.2)
Within
3 months
$ 109.7
27.7
$ 137.4
3 months
to 1 year
$ 25.5
26.0
$ 51.5
$ (177.4)
(32.2)
$ (209.6)
$ 110.7
40.7
$ 151.4
$ 11.8
13.9
$ 25.7
Total
within
1 year
$ (50.9)
34.6
$ (16.3)
$ (54.9)
22.4
$ (32.5)
Over 1
year to
5 years
$ 103.2
55.0
$ 158.2
$ 95.2
48.2
$ 143.4
Over
5 years
$ 9.9
44.8
$ 54.7
$ 10.4
35.9
$ 46.3
As at
October 31, 2014
Non-
interest
sensitive
$ (49.5)
(147.1)
$ (196.6)
Total
$ 12.7
(12.7)
–
$
October 31, 2013
$ 10.4
(10.4)
–
$
$
(40.3)
(116.9)
$ (157.2)
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
(billions of Canadian dollars, except as noted)
Canada
United States6
United Kingdom
Europe – other
Other international
Total
Loans and customers’ liability
under acceptances1
Credit instruments2,3
As at
Derivative financial
instruments4,5
October 31
2014
October 31
2013
October 31
2014
October 31
2013
October 31
2014
October 31
2013
72%
27
–
–
1
100%
74%
25
–
–
1
100%
48%
48
1
2
1
100%
50%
46
1
2
1
100%
$ 492
$ 451
$ 119
$ 106
34%
23
18
18
7
100%
$ 53
39%
19
15
20
7
100%
$ 48
1 Of the total loans and customers’ liability under acceptances, the only industry
4 As at October 31, 2014, the current replacement cost of derivative financial instru-
segment which equalled or exceeded 5% of the total concentration as at October
31, 2014, was: real estate 9% (October 31, 2013 – 8%).
2 As at October 31, 2014, the Bank had commitments and contingent liability
contracts in the amount of $119 billion (October 31, 2013 – $106 billion). Included
are commitments to extend credit totalling $100 billion (October 31, 2013 –
$89 billion), 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, 2014:
financial institutions 17% (October 31, 2013 – 17%); pipelines, oil and gas 9%
(October 31, 2013 – 10%); power and utilities 9% (October 31, 2013 – 8%);
government, public sector entities, and education 8% (October 31, 2013 – 7%);
sundry manufacturing and wholesale 7% (October 31, 2013 – 7%); automotive
6% (October 31, 2013 – 7%); telecommunications, cable, and media 6% (Octo-
ber 31, 2013 – 7%); professional and other services 5% (October 31, 2013 – 4%).
ments amounted to $53 billion (October 31, 2013 – $48 billion). 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 85% of the
total as at October 31, 2014 (October 31, 2013 – 83%). The second largest
concentration was with governments, which accounted for 11% of the total
as at October 31, 2014 (October 31, 2013 – 12%). No other industry segment
exceeded 5% of the total.
6 Debt securities classified as loans were 1% as at October 31, 2014 (October 31,
2013 – 1%) of the total loans and customers’ liability under acceptances.
208
TD BANK GROUP ANNUAL REPORT 2014 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
Amounts receivable from brokers, dealers and clients
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
2014
As at
October 31
2013
$
1,639
43,773
$
2,455
28,583
30,899
9,019
48
31,707
28,724
34,119
22,858
75,031
93,863
198,815
122,714
24,570
130,387
2,423
13,080
9,319
3,542
876,530
118,971
32,861
9,628
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
9,183
3,424
795,351
106,169
197,829
$ 1,193,330
177,755
$ 1,079,275
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 11 for further details.
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 for
further details.
209
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
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 standard-
ized 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. Retail portfolio.
Refer to the Managing Risk – Credit Risk section of the MD&A for a
discussion on the risk rating for the standardized approach.
Financial Assets Subject to the Standardized Approach by Risk-Weights
(millions of Canadian dollars)
As at
October 31, 2014
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
$
– $
244
–
6,689
–
6,933
336
–
2,164
307
– $ 21,374
4,187
–
–
–
2,807 25,561
–
– 34,872
–
–
490
–
–
9,063
–
–
–
15,996 38,169 25,561
–
$ 15,996 $ 39,880 $ 25,561
1,711
–
$
146 $
–
–
4,456
–
4,602
273 $ 19,080
3,858
100
–
–
–
1,832
–
571
2,776 22,938
–
– 11,440
255
$ – $ 2,090 $
73
– 26,597
–
– 17,041
3,444 54,286
–
–
7
–
– 49,172 54,621
–
–
–
$
3 $ 23,722
262 31,699
127 17,168
838 67,421
314
1,230 140,324
– 34,872
–
–
–
–
2
–
–
1
–
–
1 49,172 54,623
301 20,386
–
$ 1 $ 49,473 $ 75,009
–
–
–
–
2
9,554
1,230 184,752
– 22,398
$ 1,230 $ 207,150
October 31, 2013
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
–
–
–
–
3,585
–
622
8,187 16,923 22,938
–
2,079
$ 8,187 $ 19,002 $ 22,938
–
–
–
–
1
–
–
1
32
–
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
1 Other assets include amounts due from banks and interest-bearing deposits
with banks.
210
TD BANK GROUP ANNUAL REPORT 2014 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, 2014
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
$ 108,027
22,888
27,973
1,686
160,574
22,105
67,134
6,911
34,698
291,422
59,661
$ 351,083
$ 107,232
26,728
27,167
2,504
163,631
18,521
52,711
3,191
25,930
263,984
58,886
$ 322,870
$
–
31
28,288
148
28,467
–
7,897
6,067
50
42,481
8,047
$ 50,528
$
–
32
27,340
158
27,530
–
9,487
3,187
32
40,236
7,151
$ 47,387
$
–
–
664
112
776
–
–
100
–
876
97
$ 973
$
–
–
617
120
737
–
–
20
–
757
276
$ 1,033
Total
$ 108,027
22,919
57,087
2,159
190,192
22,105
75,031
13,078
34,748
335,154
67,812
$ 402,966
$
–
–
162
213
375
–
–
–
–
375
7
$ 382
October 31, 2013
$
–
–
133
173
306
–
–
–
–
306
10
$ 316
$ 107,232
26,760
55,257
2,955
192,204
18,521
62,198
6,398
25,962
305,283
66,323
$ 371,606
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, 2014
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
$ 33,083
27,768
2,417
487
63,755
–
54,143
$ 117,898
$ 27,519
26,496
2,238
3,023
59,276
–
11,836
$ 71,112
$ 27,357
24,509
1,073
403
53,342
–
35,589
$ 88,931
$ 23,310
26,538
2,420
2,967
55,235
–
13,747
$ 68,982
$ 4,876
10,254
2,286
2,179
19,595
–
3,088
$ 22,683
$ 4,736
9,020
2,919
2,255
18,930
–
3,936
$ 22,866
$ 1,518
4,006
1,411
1,085
8,020
–
835
$ 8,855
$ 1,661
3,813
1,651
1,153
8,278
–
921
$ 9,199
$ 167
269
50
67
553
–
4
$ 557
$ 67,163
68,793
8,402
6,841
151,199
–
69,906
$ 221,105
October 31, 2013
$ 160
287
53
80
580
–
4
$ 584
$ 57,224
64,167
8,116
6,858
136,365
–
54,197
$ 190,562
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.
211
TD BANK GROUP ANNUAL REPORT 2014 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.
• 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.
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 earn-
ings, and accumulated other comprehensive income, and is the highest
quality capital and the predominant form of Tier 1 Capital. CET1 Capital
also includes regulatory adjustments and deductions for items such as
goodwill, other intangibles, and 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 new capital charges for derivatives credit
valuation adjustment and 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. In October 2014, OSFI released its final
guideline for the Leverage Ratio Requirements and replaces the Assets-
to-Capital Multiple with the Leverage Ratio, effective January 1, 2015.
212
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 capi-
tal 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
subsidiaries 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.
During the year ended October 31, 2014, 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). OSFI’s
target CET1, Tier 1 and Total Capital ratios for Canadian banks are
7%, 8.5% and 10.5%, respectively.
The Bank’s regulatory capital position as at October 31 was as follows:
Regulatory Capital Position
(millions of Canadian dollars, except as noted)
Common Equity Tier 1 Capital
Common Equity Tier 1 Capital ratio2
Tier 1 Capital
Tier 1 Capital ratio2,3
Total Capital4
Total Capital ratio2,5
Assets-to-capital multiple6
As at
October 31 October 31
20131
2014
$ 30,965 $ 25,822
9.4%
9.0%
$ 35,999 $ 31,546
10.9%
$ 44,255 $ 40,690
13.4%
19.1
14.2%
18.2
11.0%
1 The amounts have not been adjusted to reflect the impact of the New IFRS Standards
and Amendments.
2 The final CAR Guideline postponed the Credit Valuation Adjustment (CVA) capital
charge until January 1, 2014, and is being phased in until the first quarter of 2019.
Effective 2014, each capital ratio has its own risk-weighted assets (RWA) measure
due to the OSFI prescribed scalar for inclusion of the CVA. For 2014, the scalars for
inclusion of CVA for CET1, Tier 1 and Total Capital RWA were 57%, 65%, and
77%, respectively.
3 Tier 1 Capital ratio is calculated as Tier 1 Capital divided by Tier 1 Capital RWA.
4 Total Capital includes CET1, Tier 1, and Tier 2 Capital.
5 Total Capital ratio is calculated as Total Capital divided by Total Capital RWA.
6 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.
OSFI has 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.
TD BANK GROUP ANNUAL REPORT 2014 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 2014 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 as at October 31, 2014.
Significant Subsidiaries1
North America
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 Company3
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.
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.
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
NatWest Personal Financial Management Limited
NatWest Stockbrokers Limited
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
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
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
Leeds, England
Leeds, England
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
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 Services
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 Services
Broker-dealer and Registered Investment Advisor
Insurance Agency
Holding Company
Holding Company
Intragroup Lending 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
Investment Holding Company
Foreign Securities Dealer
International Direct Brokerage
Dutch Bank
Holding Company
Securities Dealer
Holding Company
Direct Broker
Securities Dealer
Holding Company
UK Bank
Holding Company
Securities Dealer
Merchant Bank
1 Unless otherwise noted, The Toronto-Dominion 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 On November 1, 2014, CT Financial Assurance Company amalgamated with
TD Life Insurance Company.
213
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS
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 subor-
dinated 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.
As at October 31, 2014, the net assets of subsidiaries subject to
regulatory or capital adequacy requirements was $48 billion
(October 31, 2013 – $44 billion), before intercompany eliminations.
In addition to regulatory requirements outlined above, the Bank may
be subject to significant restrictions on its ability to use the assets or
settle the liabilities of members of its group. Key contractual restric-
tions may arise from the provision of collateral to third parties in the
normal course of business, for example through secured financing
transactions; assets securitized which are not subsequently available
for transfer by the Bank; and assets transferred into other consolidated
and unconsolidated structured entities. The impact of these restrictions
has been disclosed in Note 9, Transfers of Financial Assets and Note 29,
Provisions, Contingent Liabilities, Commitments, Guarantees, Pledged
Assets, and Collateral.
Aside from non-controlling interests disclosed in Note 22, Non-
Controlling Interests in Subsidiaries, there were no significant restric-
tions on the ability of the Bank to access or use the assets or settle the
liabilities of subsidiaries within the group as a result of protective rights
of non-controlling interests.
N O T E 3 7
SUBSEQUENT EVENTS
Medium Term Notes
On November 5, 2014, the Bank issued US$1.25 billion of fixed rate
medium term notes and US$500 million of floating rate 5-year senior
medium term notes.
Covered Bonds
On November 6, 2014, the Bank issued AUD $1 billion of 5-year
floating rate covered bond in the Australian market.
214
TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS PRINCIPAL SUBSIDIARIES1
North America
(millions of Canadian dollars)
North America
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 Company3
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.
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.
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, 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 On November 1, 2014, CT Financial Assurance Company amalgamated with
TD Life Insurance Company.
As at October 31, 2014
Carrying value of shares
owned by the Bank
$ 1,548
563
1,404
1,310
4
41
126
21
184
11,193
1,707
31,241
19,354
2,057
6
2,001
Address of Head
or Principal Office2
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, Delawar
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
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
TD BANK GROUP ANNUAL RE POR T 2 0 14 PRIN C IPAL SUBSIDI AR IES
215
PRINCIPAL SUBSIDIARIES1
International
(millions of Canadian dollars)
International
NatWest Personal Financial Management Limited
NatWest Stockbrokers Limited
TD Bank International S.A.
TD Bank N.V.
TD Ireland
TD Global Finance
TD Luxembourg International Holdings
TD Ameritrade Holding Corporation (40.97%)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, 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
Leeds, England
Leeds, 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, 2014
Carrying value of shares
owned by the Bank
$ 119
49
288
1,039
5,569
124
224
1,106
928
216
TD BANK GROU P AN NUAL REPO RT 20 14 PRIN CIPAL SU BSIDIARIES
Ten-year Statistical Review – IFRS1,2
Condensed Consolidated Balance Sheet
(millions of Canadian dollars)
2014
2013
2012
2011
ASSETS
Cash resources and other
Trading loans, securities, and other3
Derivatives
Held-to-maturity securities
Securities purchased under reverse repurchase agreements
Loans, net of allowance for loan losses
Other
Total assets
LIABILITIES
Trading deposits
Derivatives
Deposits
Other
Subordinated notes and debentures
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 income
Total revenue
Provision for credit losses
Insurance claims and related expenses
Non-interest expenses
Income before income taxes and equity in net income
of an investment in associate
Provision for (recovery of) 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 income
Total revenue
Provision for credit losses
Insurance claims and related expenses
Non-interest expenses
Income before income taxes and equity in net income
of an investment in associate
Provision for (recovery of) 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
$ 46,554
168,926
55,363
56,977
75,031
478,909
62,982
944,742
59,334
50,776
600,716
169,900
7,785
888,511
19,811
2,200
(55)
205
27,585
4,936
54,682
1,549
56,231
$ 944,742
2014
$ 17,584
12,377
29,961
1,557
2,833
16,496
9,075
1,512
320
7,883
143
$ 32,164
188,016
49,461
29,961
64,283
444,922
53,214
862,021
50,967
49,471
541,605
160,613
7,982
810,638
19,316
3,395
(147)
170
23,982
3,159
49,875
1,508
51,383
$ 25,128
199,280
60,919
–
69,198
408,848
47,680
811,053
38,774
64,997
487,754
160,105
11,318
762,948
18,691
3,395
(167)
196
20,868
3,645
46,628
1,477
48,105
$ 862,021
$ 811,053
2013
2012
$ 16,074
11,185
27,259
1,631
3,056
15,069
$ 15,026
10,520
25,546
1,795
2,424
14,016
$ 24,112
171,109
59,845
–
56,981
377,187
46,259
735,493
29,613
61,715
449,428
139,190
11,543
691,489
17,491
3,395
(116)
212
18,213
3,326
42,521
1,483
44,004
$ 735,493
2011
$ 13,661
10,179
23,840
1,490
2,178
13,047
7,503
1,135
272
6,640
185
7,311
1,085
234
6,460
196
7,125
1,326
246
6,045
180
$
7,740
$
6,455
$
6,264
$
5,865
$
107
7,633
$
105
6,350
$
104
6,160
$
104
5,761
2014
$ 17,584
12,097
29,681
1,582
2,833
15,863
9,403
1,649
373
8,127
143
2013
2012
$ 16,074
11,114
27,188
1,606
3,056
14,390
$ 15,062
10,615
25,677
1,903
2,424
13,180
8,136
1,326
326
7,136
185
8,170
1,397
291
7,064
196
2011
$ 13,661
10,052
23,713
1,490
2,178
12,373
7,672
1,545
305
6,432
180
$
7,984
$
6,951
$
6,868
$
6,252
$
107
7,877
$
105
6,846
$
104
6,764
$
104
6,148
1 The Bank prepares its Consolidated Financial Statements in accordance with
International Financial Reporting Standards (IFRS), as issued by the International
Accounting Standards Board (IASB), the current generally accepted accounting
principles (GAAP), and refers to results prepared in accordance with IFRS as
“reported” results. 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 2014 Management’s
Discussion and Analysis (MD&A).
2 Certain comparative amounts have been restated as a result of the adoption of
new and amended IFRS standards and the impact of the January 31, 2014 stock
dividend, as discussed in Note 4 and Note 21, respectively, of the 2014 Consoli-
dated Financial Statements, and restatements to conform with the presentation
adopted in the current period.
3 Includes available-for-sale securities and financial assets designated at fair value
through profit or loss.
TD BANK GROUP ANNUAL REP O RT 20 1 4 TEN -YEA R S TATISTI CAL REV IEW 217
Ten-year Statistical Review – IFRS1,2
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
Integration charges and direct transaction costs relating to the acquisition
of the credit card portfolio of MBNA Canada
Fair value of derivatives hedging the reclassified available-for-sale
securities portfolio
Set-up, conversion and other one-time costs related to affinity relationship
with Aimia and acquisition of Aeroplan Visa credit card accounts
Impact of Alberta flood on the loan portfolio
Gain on sale of TD Waterhouse Institutional Services
Litigation and litigation-related charge/reserve
Restructuring charges
Impact of Superstorm Sandy
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 losses
Positive impact due to changes in statutory income tax rates
Integration charges and direct transaction costs relating to U.S. Retail acquisitions
Fair value of credit default swaps hedging the corporate loan book,
net of provision for credit losses
2014
2013
2012
2011
$
7,633
$ 6,350
$ 6,160
$ 5,761
246
125
(43)
131
(19)
(196)
–
–
–
–
–
–
–
–
232
92
(57)
20
19
–
100
90
–
–
–
–
–
–
238
104
89
–
–
–
248
–
37
17
(120)
(18)
9
–
604
391
–
(128)
–
–
–
–
–
–
55
–
–
82
(13)
387
Total adjustments for items of note
244
496
Net income available to common shareholders – adjusted
$
7,877
$ 6,846
$ 6,764
$ 6,148
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)
Total
Non-controlling interests in subsidiaries
Total equity
2014
2013
2012
$ 19,811
2,200
(55)
205
27,585
4,936
$ 19,316
$ 18,691
3,395
(147)
170
23,982
3,159
3,395
(167)
196
20,868
3,645
$ 54,682
$ 49,875
$ 46,628
2011
$ 17,491
3,395
(116)
212
18,213
3,326
$ 42,521
1,549
1,508
1,477
1,483
$ 56,231
$ 51,383
$ 48,105
$ 44,004
1 The Bank prepares its Consolidated Financial Statements in accordance with
International Financial Reporting Standards (IFRS), as issued by the International
Accounting Standards Board (IASB), the current generally accepted account-
ing principles (GAAP), and refers to results prepared in accordance with IFRS as
“reported” results. 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 2014 MD&A.
2 Certain comparative amounts have been restated as a result of the adoption of
new and amended IFRS standards and the impact of the January 31, 2014 stock
dividend, as discussed in Note 4 and Note 21, respectively, of the 2014 Consoli-
dated Financial Statements, and restatements to conform with the presentation
adopted in the current period.
218
TD BANK GROU P AN NUAL REPO RT 20 14 TEN- YEAR S TATIS TICAL RE VIEW
Ten-year Statistical Review – IFRS1,2
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 common equity
10 Return on Common Equity Tier 1 Capital risk-weighted assets4,5
11 Efficiency ratio
12 Net interest margin
13 Common dividend payout ratio
14 Dividend yield6
15 Price earnings ratio7
Asset quality
16
Impaired loans net of counterparty-specific and individually
Capital ratios4,5
Other
insignificant allowances as a % of net loans8,9
17 Net impaired loans as a % of common equity8,9
18 Provision for credit losses as a % of net average loans8,9
19 Common Equity Tier 1 capital ratio10
20 Tier 1 capital ratio
21 Total capital ratio
22 Common equity to total assets
23 Number of common shares outstanding (thousands)
24 Market capitalization (millions of Canadian dollars)
25 Average number of full-time equivalent staff11
26 Number of retail outlets12
27 Number of retail brokerage offices
28 Number of automated banking machines
Other Statistics – Adjusted
Per common share
1 Basic earnings
2 Diluted earnings
$
2014
4.15
4.14
1.84
28.45
55.47
1.95
16.0%
20.1
15.4%
2.45
55.1
2.19
44.3
3.5
13.4
0.46%
4.28
0.34
9.4%
10.9
13.4
5.6
1,844.6
$ 102,322
81,137
2,534
111
4,833
2013
$
3.46
3.44
1.62
25.33
47.82
1.89
17.7%
22.3
14.2%
2.32
55.3
2.20
46.9
3.7
13.9
2012
$
3.40
3.38
1.45
23.60
40.62
1.72
8.0%
11.9
15.0%
2.58
54.9
2.23
42.5
3.8
12.0
0.50%
4.83
0.38
0.52%
4.86
0.43
9.0%
n/a%
11.0
14.2
5.4
1,835.0
$ 87,748
78,748
2,547
110
4,734
12.6
15.7
5.3
1,832.3
$ 74,417
78,397
2,535
112
4,739
2011
$
3.25
3.21
1.31
21.72
37.62
1.73
2.4%
5.7
16.2 %
2.78
60.2
2.30
40.2
3.4
11.7
0.56%
5.27
0.39
n/a%
13.0
16.0
5.3
1,802.0
$ 67,782
75,631
2,483
108
4,650
$
2014
4.28
4.27
$
2013
3.72
3.71
2012
$
3.73
3.71
2011
$
3.47
3.43
Performance ratios
3 Return on common equity
4 Return on Common Equity Tier 1 Capital risk-weighted assets4
5 Efficiency ratio
6 Common dividend payout ratio
7 Price-earnings ratio7
1 The Bank prepares its Consolidated Financial Statements in accordance with
International Financial Reporting Standards (IFRS), as issued by the International
Accounting Standards Board (IASB), the current generally accepted accounting
principles (GAAP), and refers to results prepared in accordance with IFRS as
“reported” results. 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 2014 MD&A.
2 Certain comparative amounts have been restated as a result of the adoption
of new and amended IFRS standards and the impact of the January 31, 2014
stock dividend, as discussed in Note 4 and Note 21, respectively, of the 2014
Consolidated Financial Statements, and restatements to conform with the
presentation adopted in the current period.
3 Return is calculated based on share price movement and dividends reinvested
over the trailing twelve month period.
4 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 calculated based on Canadian GAAP.
5 Effective 2014, the Credit Valuation Adjustment (CVA) is being implemented
based on a phase-in approach until the first quarter of 2019. Effective the third
quarter of 2014, the scalars for inclusion of CVA for CET1, Tier 1 and Total
Capital RWA are 57%, 65% and 77% respectively.
17.3%
2.95
52.2
37.7
11.0
6 Yield is calculated as dividends paid during the year divided by average of high
16.5%
2.83
51.3
38.7
11.0
15.3%
2.50
52.9
43.5
12.9
15.9%
2.53
53.4
43.0
13.0
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 2014 MD&A. For additional information on debt securi-
ties classified as loans, see the “Exposure to Non-Agency Collateralized Mortgage
Obligations” discussion and tables in the “Credit Portfolio Quality” section of the
2014 MD&A.
10 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. Accordingly, amounts for periods
prior to 2013 are not applicable (n/a).
11 In 2014, the Bank conformed to a standardized definition of full-time equivalent
staff across all segments. The definition includes, among other things, hours
for overtime and contractors as part of its calculations. Comparatives for periods
prior to 2014 have not been restated.
12 Includes retail bank outlets, private client centre branches, and estate and
trust branches.
TD BANK GROUP ANNUAL REP O RT 20 1 4 TEN -YEA R S TATISTI CAL REV IEW 219
Ten-year Statistical Review – Canadian GAAP1
Condensed Consolidated Balance Sheet
(millions of Canadian dollars)
2011
2010
2009
2008
2007
2006
2005
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)
Total liabilities and shareholders’ equity
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 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 (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
$ 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
$ 686,360
2011
$ 12,831
8,763
21,594
–
1,465
13,083
7,046
1,299
104
246
5,889
180
$ 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
$ 619,545
2010
$ 11,543
8,022
19,565
–
1,625
12,163
5,777
1,262
106
235
4,644
194
$ 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
Net income available to common shareholders
$
5,709
$
4,450
$
2,953
$
3,774
$
3,977
$
4,581
$
2,229
Condensed Consolidated Statement of Income – Adjusted
(millions of Canadian dollars)
Net interest income
Non-interest income
Total revenue
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 (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
8,587
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
2009
$ 11,326
7,294
18,620
2,225
11,016
5,379
923
111
371
4,716
167
Net income available to common shareholders
$
6,071
$
5,034
$
4,549
$
3,754
$
4,169
$
3,354
$
2,861
531,540
400,720
373,282
349,344
$ 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
–
645
8,975
4,661
853
95
284
3,997
20
2007
6,924
7,148
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
108,096
26,375
152,243
65,078
365,210
246,981
93,722
5,138
1,795
1,708
5,872
–
–
40
10,650
(696)
15,866
$ 365,210
2005
6,008
5,951
–
55
8,844
3,060
699
132
2,229
–
–
2005
6,021
6,077
319
7,887
3,892
899
132
2,861
–
–
$
$
$
$
14,372
14,072
13,233
12,098
$
$
$
$
14,669
14,281
13,192
11,959
220220
TD BANK GROU P AN NUAL REPO RT 20 14 TEN- YEAR S TATIS TICAL RE VIEW
Subordinated notes and debentures
Liabilities for preferred shares and capital trust securities
Non-controlling interest in subsidiaries
639,508
577,243
518,499
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
Other
Total assets
LIABILITIES
Deposits
Other
EQUITY
Common shares
Preferred shares
Treasury shares 2
Contributed surplus
Retained earnings
Accumulated other comprehensive income (loss)
Total liabilities and shareholders’ equity
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 credit losses
Non-interest expenses
Condensed Consolidated Statement of Income – Adjusted
(millions of Canadian dollars)
Income 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
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 (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
$ 24,111
192,538
53,599
303,495
112,617
686,360
481,114
145,209
11,670
32
1,483
18,417
3,395
(116)
281
24,339
536
46,852
$ 686,360
2011
$ 12,831
8,763
21,594
–
1,465
7,046
1,299
104
246
5,889
180
2011
$ 12,831
8,587
21,418
1,465
12,395
7,558
1,508
104
305
6,251
180
$ 21,710
171,612
50,658
269,853
105,712
619,545
429,971
132,691
12,506
582
1,493
16,730
3,395
(92)
305
20,959
1,005
42,302
$ 619,545
2010
$ 11,543
8,022
19,565
–
1,625
5,777
1,262
106
235
4,644
194
2010
$ 11,543
8,020
19,563
1,685
11,464
6,414
1,387
106
307
5,228
194
$ 21,517
148,823
32,948
253,128
100,803
557,219
391,034
112,078
12,383
1,445
1,559
15,357
3,395
(15)
336
18,632
1,015
38,720
$ 557,219
2009
$ 11,326
6,534
17,860
–
2,480
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
13,083
12,163
12,211
2011
2010
2009
2008
2007
2006
2005
$ 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
$ 422,124
$
2007
6,924
7,357
14,281
–
645
8,975
4,661
853
95
284
3,997
20
$ 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
$ 392,914
$
2006
6,371
6,821
13,192
1,559
409
8,815
5,527
874
184
134
4,603
22
$ 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
$ 365,210
$
2005
6,008
5,951
11,959
–
55
8,844
3,060
699
132
–
2,229
–
Net income available to common shareholders
$
5,709
$
4,450
$
2,953
$
3,774
$
3,977
$
4,581
$
2,229
Net income available to common shareholders
$
6,071
$
5,034
$
4,549
$
3,754
$
4,169
$
3,354
$
2,861
$
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
–
1 Results prepared in accordance with Canadian generally accepted accounting
principles (CGAAP) were referred to as “reported”. Adjusted results (excluding
“items of note”, net of income taxes, from reported results) and related terms
were not defined terms under CGAAP and therefore, may not be comparable to
similar terms used by other issuers. For further explanation, see “How the Bank
Reports” in the 2014 MD&A. Adjusted results are presented from 2005 to allow
for sufficient years for historical comparison. Adjusted results shown for years
prior to 2006 reflect adjustments for amortization of intangibles and certain identi-
fied 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 separately. Prior to 2008, the amounts for treasury shares
were not reasonably determinable.
TD BANK GROUP ANNUAL REP O RT 20 1 4 TEN -YEA R S TATISTI CAL REV IEW 221221
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. Retail acquisitions
Decrease / (Increase) in fair value of credit default swaps hedging
the corporate loan book, net of provision for credit loss
Integration charges related to the Chrysler Financial acquisition
Other tax items1
Provision for (release of) insurance claims
General allowance increase (release) in Canadian Retail and Wholesale Banking
Agreement with Canada Revenue Agency
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
Total adjustments for items of note
2011
$ 5,709
426
–
(134)
–
–
69
(13)
14
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
362
2010
$ 4,450
467
–
(5)
–
–
69
4
–
(11)
(17)
(44)
121
–
–
–
–
–
–
–
–
–
–
–
–
584
Net income available to common shareholders – adjusted
$ 6,071
$ 5,034
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 equity7,8
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 (millions)
23 Market capitalization (millions of Canadian dollars)
24 Average number of full-time equivalent staff9
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
222222
TD BANK GROU P AN NUAL REPO RT 20 14 TEN- YEAR S TATIS TICAL RE VIEW
2011
$ 18,417
3,395
(116)
281
24,339
536
$ 46,852
$
2011
3.23
3.21
1.31
24.12
37.62
1.56
2.4%
5.7
14.5%
2.78
60.6
2.37
40.6
3.4
11.7
0.59%
4.07
0.48
13.0%
16.0
6.3
1,802.0
$ 67,782
75,631
2,483
108
4,650
$
2011
3.43
3.41
15.4%
2.95
57.9
38.1
11.0
2010
$ 16,730
3,395
(92)
305
20,959
1,005
$ 42,302
2010
$
2.57
2.55
1.22
22.15
36.73
1.66
19.1%
23.4
12.1%
2.33
62.2
2.35
47.6
3.5
14.4
0.65%
4.41
0.63
12.2%
15.5
6.3
1,757.0
$ 64,526
68,725
2,449
105
4,550
$
2010
2.91
2.89
13.7%
2.63
58.6
42.1
12.7
2009
$ 2,953
492
–
450
–
–
276
126
–
–
–
178
–
39
35
–
–
–
–
–
–
–
–
–
–
1,596
$ 4,549
2009
$ 15,357
3,395
(15)
336
18,632
1,015
$ 38,720
2009
$
1.75
1.74
1.22
20.57
30.84
1.50
8.4%
13.6
8.4%
1.47
68.4
2.54
70.3
4.8
17.8
0.62%
4.41
0.92
11.3%
14.9
6.3
1,717.6
$ 52,972
65,930
2,205
190
4,197
$
2009
2.69
2.68
12.9%
2.27
59.2
45.6
11.6
2008
$ 3,774
2007
$ 3,977
2006
$ 4,581
(20)
192
$ 3,754
$ 4,169
(1,227)
$ 3,354
$ 6,577
$ 6,334
404
(323)
(118)
–
–
70
(107)
–
34
20
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2008
$ 13,278
1,875
(79)
392
17,857
(1,649)
$ 31,674
$
2008
2.45
2.44
1.18
18.39
28.46
1.55
(20.2)%
(17.1)
14.4%
2.19
64.8
2.22
49.0
3.8
11.7
0.35%
2.70
0.50
9.8%
12.0
5.3
2008
2.46
2.44
14.3%
2.18
64.6
49.3
11.6
353
–
–
(135)
43
–
(30)
(39)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2007
425
–
119
15,954
(1,671)
$ 21,404
$
2007
2.77
2.74
1.06
14.62
35.68
2.44
9.6%
13.0
19.3%
2.67
62.8
2.06
38.1
3.0
13.0
0.20%
1.74
0.37
10.3%
13.0
5.0
2007
2.90
2.88
20.3%
2.80
59.6
36.4
12.4
316
–
–
–
–
–
(7)
–
24
–
(39)
–
–
–
72
19
35
–
–
–
–
18
–
(1,665)
2006
425
–
66
13,725
(918)
$ 19,632
$
2006
3.20
3.17
0.89
13.39
32.55
2.43
16.9%
20.3
25.5%
3.36
59.8
2.02
27.9
2.9
10.3
0.16%
1.41
0.25
12.0%
13.1
4.9
1,434.8
$ 46,704
51,147
1,705
208
3,256
$
2006
2.35
2.33
18.7%
2.46
62.4
38.1
14.0
1,620.2
$ 46,112
58,792
2,238
249
4,147
1,435.6
$ 51,216
51,163
1,733
211
3,344
$
$
2005
$ 2,229
354
–
(17)
–
(98)
–
(23)
–
–
–
–
–
–
–
–
–
–
29
(127)
100
163
13
–
238
632
$ 2,861
2005
$ 5,872
–
–
40
10,650
(696)
$ 15,866
$
2005
1.61
1.60
0.79
11.15
27.85
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
1,423.6
$ 39,648
50,991
1,499
329
2,969
$
2005
2.09
2.07
19.6%
2.42
65.2
38.4
13.5
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. Retail acquisitions
Decrease / (Increase) in fair value of credit default swaps hedging
the corporate loan book, net of provision for credit loss
Integration charges related to the Chrysler Financial acquisition
Other tax items1
Provision for (release of) insurance claims
General allowance increase (release) in Canadian Retail and Wholesale Banking
Agreement with Canada Revenue Agency
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
Total adjustments for items of note
Net income available to common shareholders – adjusted
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 equity7,8
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 (millions)
23 Market capitalization (millions of Canadian dollars)
24 Average number of full-time equivalent staff9
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
362
584
$ 6,071
$ 5,034
1,596
$ 4,549
426
–
(134)
–
–
69
(13)
14
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2011
$ 18,417
3,395
(116)
281
24,339
536
$ 46,852
$
2011
3.23
3.21
1.31
24.12
37.62
1.56
2.4%
5.7
14.5%
2.78
60.6
2.37
40.6
3.4
11.7
0.59%
4.07
0.48
13.0%
16.0
6.3
1,802.0
$ 67,782
75,631
2,483
108
4,650
$
2011
3.43
3.41
15.4%
2.95
57.9
38.1
11.0
467
–
(5)
–
–
69
4
–
(11)
(17)
(44)
121
–
–
–
–
–
–
–
–
–
–
–
–
2010
$ 16,730
3,395
(92)
305
20,959
1,005
$ 42,302
$
2010
2.57
2.55
1.22
22.15
36.73
1.66
19.1%
23.4
12.1%
2.33
62.2
2.35
47.6
3.5
14.4
0.65%
4.41
0.63
12.2%
15.5
6.3
1,757.0
$ 64,526
68,725
2,449
105
4,550
$
2010
2.91
2.89
13.7%
2.63
58.6
42.1
12.7
492
–
450
–
–
276
126
–
–
–
178
–
39
35
–
–
–
–
–
–
–
–
–
–
2009
$ 15,357
3,395
(15)
336
18,632
1,015
$ 38,720
$
2009
1.75
1.74
1.22
20.57
30.84
1.50
8.4%
13.6
8.4%
1.47
68.4
2.54
70.3
4.8
17.8
0.62%
4.41
0.92
11.3%
14.9
6.3
1,717.6
$ 52,972
65,930
2,205
190
4,197
$
2009
2.69
2.68
12.9%
2.27
59.2
45.6
11.6
Reconciliation of Non-GAAP Financial Measures
(millions of Canadian dollars)
2011
$ 5,709
2010
$ 4,450
2009
$ 2,953
2008
$ 3,774
2007
$ 3,977
2006
$ 4,581
2005
$ 2,229
404
(323)
(118)
–
–
70
(107)
–
34
20
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(20)
353
–
–
(135)
43
–
(30)
–
–
–
(39)
–
–
–
–
–
–
–
–
–
–
–
–
–
192
$ 3,754
$ 4,169
2008
$ 13,278
1,875
(79)
392
17,857
(1,649)
$ 31,674
$
2008
2.45
2.44
1.18
18.39
28.46
1.55
(20.2)%
(17.1)
14.4%
2.19
64.8
2.22
49.0
3.8
11.7
0.35%
2.70
0.50
9.8%
12.0
5.3
1,620.2
$ 46,112
58,792
2,238
249
4,147
$
2008
2.46
2.44
14.3%
2.18
64.6
49.3
11.6
2007
$ 6,577
425
–
119
15,954
(1,671)
$ 21,404
2007
$
2.77
2.74
1.06
14.62
35.68
2.44
9.6%
13.0
19.3%
2.67
62.8
2.06
38.1
3.0
13.0
0.20%
1.74
0.37
10.3%
13.0
5.0
1,435.6
$ 51,216
51,163
1,733
211
3,344
$
2007
2.90
2.88
20.3%
2.80
59.6
36.4
12.4
316
–
–
–
–
–
(7)
–
24
–
(39)
–
–
–
(1,665)
72
19
35
–
–
–
–
18
–
(1,227)
$ 3,354
2006
$ 6,334
425
–
66
13,725
(918)
$ 19,632
2006
$
3.20
3.17
0.89
13.39
32.55
2.43
16.9%
20.3
25.5%
3.36
59.8
2.02
27.9
2.9
10.3
0.16%
1.41
0.25
12.0%
13.1
4.9
1,434.8
$ 46,704
51,147
1,705
208
3,256
$
2006
2.35
2.33
18.7%
2.46
62.4
38.1
14.0
354
–
–
–
–
–
(17)
–
(98)
–
(23)
–
–
–
–
–
–
29
(127)
100
163
13
–
238
632
$ 2,861
2005
$ 5,872
–
–
40
10,650
(696)
$ 15,866
2005
$
1.61
1.60
0.79
11.15
27.85
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
1,423.6
$ 39,648
50,991
1,499
329
2,969
$
2005
2.09
2.07
19.6%
2.42
65.2
38.4
13.5
1 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 prior are based
on the presentation of Insurance revenues being reported net of claims
and expenses.
5 Yield is calculated as 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 2014 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 2014 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 4 TEN -YEA R S TATISTI CAL REV IEW 223223
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.
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.
Basis Points (bps): A unit equal to 1/100 of 1%. Thus, a 1% change is equal to
100 basis points.
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) Capital: 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.
Common Equity Tier 1 (CET1) Capital Ratio: CET1 Capital 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 Capital Adequacy Requirements
(CAR) guideline, CVA capital add-on charge was effective January 1, 2014.
Dividend Yield: Dividends paid during the year divided by average of high and low
common share prices for the year.
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.
Efficiency Ratio: Non-interest expenses as a percentage of total revenue; the
efficiency ratio measures the efficiency of the Bank’s operations.
Fair Value: The price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement
date, under current market conditions.
Forward Contracts: Over-the-counter contracts between two parties 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.
Futures: Exchange-traded contracts to buy or sell a security at a predetermined
price on a specified future date.
224
TD BANK GROU P AN NUAL REPO RT 20 14 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
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.
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 Equity Tier 1 (CET1) Capital Risk-weighted Assets: Net
income available to common shareholders as a percentage of average CET1 Capital
risk-weighted assets.
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.
Risk-Weighted Assets (RWA): Assets calculated by applying a regulatory 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.
2014 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
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For more information, including a
video message from Bharat Masrani, see
the interactive TD Annual Report online
by scanning the QR code below or
visiting td.com/annual-report/ar2014
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
(2014 report available April 2015)
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 2014
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 2014 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 30170
College Station, TX 77842-3170 or
211 Quality Circle, Suite 210
College Station, TX 77845
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
March 26, 2015
9:30 a.m. (Eastern)
Metro Toronto Convention Centre
Toronto, Ontario
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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P.O. Box 1, Toronto-Dominion Centre
Toronto (Ontario) M5K 1A2
TD B ANK GRO UP ANNUAL REP ORT 2014 SHAREHOLDER AND I NVESTO R I NFORM ATIO N
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