T
D
B
A
N
K
G
R
O
U
P
2
0
1
5
A
N
N
U
A
L
R
E
P
O
R
T
1
9
5
0
4
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.
Building the
Even Better Bank
2015 Annual Report
2015 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
Ten-Year Statistical Review
Glossary
Shareholder and Investor Information
1
2
4
5
6
10
112
120
201
207
209
For more information, see the interactive
TD Annual Report online by visiting td.com/
annual-report/ar2015
For information on TD’s commitments
to the community see the TD Corporate
Responsibility Report online by visiting
td.com/corporate-responsibility
(2015 report available April 2016)
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 2015
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 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 31, 2016
9:30 a.m. (Eastern)
Fairmont The Queen Elizabeth Hotel
Montréal, Québec
SUBORDINATED NOTES SERVICES
Trustee for subordinated notes:
Computershare Trust Company of Canada
Attention: Manager,
Corporate Trust Services
100 University Avenue, 11th Floor
Toronto, Ontario M5J 2Y1
Vous pouvez vous procurer des exemplaires en
français du rapport annuel au service suivant :
Affaires internes et publiques
La Banque Toronto-Dominion
P.O. Box 1, Toronto-Dominion Centre
Toronto (Ontario) M5K 1A2
TD B ANK GRO UP ANNUAL REP ORT 2015 SHAREHOLDER AND I NVESTO R I NFORM ATIO N
209
g
n
i
t
n
i
r
P
l
a
t
n
e
n
i
t
n
o
c
s
n
a
r
T
C
T
:
g
n
i
t
n
i
r
P
,
.
c
n
i
n
g
i
s
e
d
0
3
q
:
n
g
i
s
e
D
2015 Snapshot1
NET INCOME
available to common shareholders
(millions of Canadian dollars)
Adjusted
Reported
DILUTED EARNINGS
PER SHARE
(Canadian dollars)
Adjusted
Reported
RETURN ON RISK-
WEIGHTED ASSETS 2
(percent)
Adjusted
Reported
TOTAL ASSETS 3
(billions of Canadian dollars)
$9,000
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%
2.5
2.0
1.5
1.0
0.5
0
$1,200
1,000
800
600
400
200
0
11
12
13
14
15
11
12
13
14
15
11
12
13
14
15
11
12
13
14
15
11.2% TD’s 5-year CAGR
(adjusted)
9.8% TD’s 5-year CAGR
(adjusted)
2.40% TD’s 2015 return on
Common Equity Tier 1
Capital risk-weighted
assets (adjusted)
$1,104 billion of total
assets as at
October 31, 2015
DIVIDENDS PER SHARE
(Canadian dollars)
TOTAL SHAREHOLDER
RETURN
(5-year CAGR)
TD’S PREMIUM RETAIL
EARNINGS MIX4
$2.50
2.00
1.50
1.00
0.50
0
11.8%
TD’s premium earnings
mix is built on a North
American retail focus –
a lower-risk business
with consistent earnings.
27%
64%
9%
11
12
13
14
15
10.4% TD’s 5-year CAGR
5.7% Canadian peers
5-year CAGR
9.2% Canadian peers
91% Retail
9% Wholesale
Canadian Retail
U.S. Retail
Wholesale
1 Refer to the footnotes on page 2 and 3 for information on how these results
are calculated.
2 Effective fiscal 2013, amounts are calculated in accordance with the Basel III regula-
tory framework, and are presented on the “all-in” methodology. Prior to fiscal 2013,
amounts were calculated in accordance with the Basel II regulatory framework.
3 Certain comparative amounts have been restated, where applicable, as a result of
the implementation of the 2015 IFRS Standards and Amendments. Refer to page 2
for more information.
4 Based on adjusted results as defined in footnote 1 on page 2 and excludes
Corporate segment.
TD BANK GROUP ANNUAL REP O RT 20 1 5 2 015 SNAPSHOT
1
Year at a Glance1
Record TD Adjusted Earnings
of $8.8 billion in 2015
TD announced record adjusted earnings for
the seventh consecutive year driven by strong
performance in our retail businesses and good
results in the Wholesale segment.
Strong Relative TD Total
Shareholder Returns2
TD was one of only two Canadian banks to
achieve positive Total Shareholder Returns
(TSR) in fiscal 2015. In addition, TD produced
the top TSR among Big 5 peers for both the
medium and long term.
The Power of One TD3
The Power of One TD is a key competitive
advantage in TD’s strategy. By leveraging the
organic growth opportunities which exist
between all of our businesses, we are creating
even more value. One of the most notable
accomplishments includes $23 billion in referrals
to Wealth from other TD businesses in Canada.
TD Canada Trust continues to be
Canadians’ choice for Banking4
40% of Canadians have a TD account. Further
enhancing its offering, TD is now the only bank
in Canada to offer customers the ability to pay
U.S. bills from their Canadian bank accounts,
with convenient options including online, tablet,
and smartphone. TD also launched the Aboriginal
Community Banking Program in 2015, using
mobile technology that brings the bank to the
community, enabling individuals to open up
accounts and receive bank cards on site.
TD Securities strengthened its
franchise businesses both in
Canada and the U.S.7
TD Securities expanded corporate lending and
origination, grew product offerings to U.S.
clients and maintained top-three dealer status
in Canada. TD Securities also won a record four
GlobalCapital Bonds Awards in the Sovereign,
Supranational and Agency category, and nine
StarMine Analyst Awards in equity research.
TD continues to be a Direct
Channels leader in Canada10
TD ranked first in Canadian mobile adoption
and online unique visitors according to Comscore
and has the highest ranked app in the Apple
App Store amongst Canadian banks. The Bank
was also recognized for its leadership in customer
service excellence among the Big 5 Canadian
Banks for automated teller machines (ATM),
online and mobile according to Ipsos.
TD Canada Trust remains the
leader in Service & Convenience5
TD Canada Trust (TDCT) was named highest
in Customer Satisfaction for the tenth year
in a row by J.D. Power in the Canadian Retail
Banking Study. In addition, Ipsos awarded
TDCT its “Customer Service Excellence among
Big 5 Retail Banks” award for the eleventh
consecutive year.
TD Wealth reaches Two
Important Asset Milestones6
TD Mutual Funds reached $100 billion in
assets under management on strong net
sales. Our U.S. Wealth businesses achieved
$100 billion in client assets with strong
contributions from both advisory and asset
management businesses.
TD Bank, America’s Most
Convenient Bank® reaches Store
Milestone in New York City8
TD Bank achieved top three status with
138 stores in New York City despite many
peers being in the market for more than
a century.
TD Lab Drives Innovation and
Design Thinking
In one year since establishing the TD Lab at
Communitech in Kitchener-Waterloo, TD has
built 25 proof-of-concepts and prototypes
and engaged with over 50 startup companies.
TD Insurance achieved a record
$3.9 billion in total premiums
in 20159
TD Insurance is the largest direct-to-consumer
and affinity writer of personal home and auto
insurance in Canada. TD Insurance is also
one of the top three personal home and auto
insurers in Canada. TD Insurance is ranked first
in balance protection insurance on credit cards,
and second in credit protection insurance
among the Big 5 banks.
TD Friends of the Environment
Foundation celebrates 25th
anniversary
Over $76 million contributed by TD Friends
of the Environment Foundation to more than
24,000 community environment initiatives
across Canada since 1990.
1 The Toronto-Dominion Bank (the “Bank” or “TD”) prepares its Consolidated
“Five-year CAGR” is the compound annual growth rate calculated from 2010
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. Refer to the “Financial Results Overview” in the accompanying 2015
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 GAAP for fiscal
2010 and balances in accordance with IFRS for fiscal 2011 to 2015.
Certain comparative amounts have been restated as a result of the adoption of
new and amended standards under IFRS which required retrospective application,
effective in fiscal 2015 (2015 IFRS Standards and Amendments) and certain other
comparative amounts have also been restated/reclassified to conform with the
presentation adopted in the current period.
to 2015 on an adjusted basis.
Canadian peers include Royal Bank of Canada, Scotiabank, Bank of Montreal,
and Canadian Imperial Bank of Commerce.
TSR is calculated based on share price movement and dividends reinvested over
the trailing five year period.
Reference to retail earnings includes the total adjusted earnings of the Canadian
Retail and U.S. Retail segments.
2 TSR is calculated based on share price movement and dividends reinvested over
the trailing one-, five- and ten-year periods.
3 Wealth referral volume calculated as maximum of initial volumes or initial volumes
plus benefits of Wealth asset consolidation over the following 24 months.
4 Based on Statistics Canada estimated population of Canadians over 18, as of
July 1, 2015.
2
TD BANK GROU P AN NUAL REPO RT 20 15 YEAR A T A GLAN CE
5 TDCT received the highest numerical score among the big five retail banks in the
8 Active branch count in New York City’s five boroughs as of October 31, 2015
proprietary J.D. Power 2006-2015 Canadian Retail Banking Customer Satisfaction
StudiesSM. The 2015 study is based on more than 14,000 total responses and
measures opinions of consumers with their primary banking institution. Proprietary
study results are based on experiences and perceptions of consumers surveyed
April-May 2015. Your experiences may vary. Visit www.jdpower.com. TDCT was
rated number 1 among Canada’s five major banks for “Overall quality of customer
service” by independent market research firm Ipsos (formerly Synovate) from
2005 to 2015. Ipsos 2015 Best Banking Awards are based on ongoing quarterly
Customer Service Index (CSI) survey results. Sample size for the total 2015 CSI
program year ended with the August 2015 survey wave was 45,391 completed
surveys yielding 65,991 financial institution ratings nationally.
6 Based on assets in Canadian dollars as of October 31, 2015.
7 Top 3 in equity block and equity options block trading, government and
corporate debt underwriting, and syndications for nine-month period ended
September 30, 2015. Equity block trading is based on IRESS Market Data and
equity options block trading is sourced from the Montreal Exchange. Government
and corporate debt underwriting and syndications are sourced from Bloomberg.
GlobalCapital Bond Market Awards recognize the best borrowers, banks and
bankers in the sovereign, supranational and agency (SSA), financial institution
group (FIG), corporate, and emerging markets sectors for 2015. The awards are
based on the results of a market poll, with banks voting for their preferred issuers and
borrowers. Based on ranking first in select SSA categories. The Thomson Reuters
StarMine Analyst Awards recognize the world’s top individual sell-side analysts and
sell-side firms for 2015. They measure the performance of sell-side analysts based
on the returns of their buy/sell recommendations relative to industry benchmarks,
and the accuracy of their earnings estimates in 16 regions across the globe. Based
on ranking top 3 in select Industry and Overall Analyst categories.
Key Financial Metrics1
(millions of Canadian dollars, except where noted)
Results of operations
Total revenues – reported
Total revenues – adjusted2
Net income – reported
Net income – adjusted2
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 – adjusted2
Dividend payout ratio – adjusted2
Total shareholder return (1 year)3
Closing market price (fiscal year end)4
Financial ratios
Common Equity Tier 1 Capital ratio5,6
Tier 1 Capital ratio5,6
Total Capital ratio5,6
Efficiency ratio – reported
Efficiency ratio – adjusted
based on SNL Financial.
9 Gross Written Premiums for General Insurance business and Collected Premiums
for Life and Health business. Ranks based on data available from Office of the
Superintendent of Financial Institutions Canada (OSFI), Insurers, Insurance Bureau
of Canada, and Provincial Regulators, as at December 31, 2014. Bank rankings
based on Canadian Bankers Association (CBA) as of April 30, 2014.
10 Comscore reporting current as of June 2015. Apple App Store results current
as of October 2015. TDCT achieved leadership in banking excellence in the
following channels in the 2015 Ipsos Best Banking Awards: Automated Teller
Machine, online, and mobile. Leadership is defined as either a statistically
significant lead over the other Big 5 Canadian Banks (at a 95% confidence
interval) or a statistically equal tie with one or more of the Big 5 Canadian Banks.
Ipsos 2015 Best Banking Awards are based on ongoing quarterly CSI survey
results. Sample size for the total 2015 CSI program year ended with the August
2015 survey wave was 45,391 completed surveys yielding 65,991 financial
institution ratings nationally.
2015
2014
2013
$ 31,426
31,437
8,024
8,754
1,104.4
695.6
544.3
$ 29,961
29,681
7,883
8,127
960.5
600.7
478.9
4.21
4.61
43.3%
0.4%
4.14
4.27
43.0%
20.1%
53.68
55.47
$ 27,259
27,188
6,640
7,136
862.0
541.6
444.9
3.44
3.71
43.5%
22.3%
47.82
9.9%
9.4%
9.0%
11.3
14.0
57.5
54.3
10.9
13.4
55.1
53.4
11.0
14.2
55.3
52.9
1 Certain comparative amounts have been restated, where applicable, as a result
6 Effective the third quarter of 2014, each capital ratio has its own risk-weighted
of the implementation of the 2015 IFRS Standards and Amendments.
2 Refer to footnote 1 on page 2.
3 TSR is calculated based on share price movement and dividends reinvested over
a trailing one year period.
4 Toronto Stock Exchange (TSX) closing market price.
5 The 2015 IFRS Standards and Amendments were not incorporated into the
regulatory capital disclosures presented prior to fiscal 2015. For more information
on 2015 IFRS Standards and Amendments, refer to Note 4 of the 2015 Consolidated
Financial Statements.
assets (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 (CET1), Tier 1, and Total Capital RWA
are 57%, 65%, and 77% respectively. For fiscal 2015, the scalars are 64%, 71%,
and 77% respectively.
TD BANK GROUP ANNUAL REP O RT 20 1 5 Y EAR AT A GLANCE
3
Performance Indicators1
Performance indicators focus effort, communicate our priorities, and benchmark TD’s performance as we
strive to be the even Better Bank. The following table highlights our performance against these indicators.
2015 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 revenue4 faster than expenses
• Invest in core businesses to enhance customer experience
CUSTOMER
• Improve Legendary Experience Index (LEI)5 and Customer
Experience Index (CEI)6 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
• 0.4% vs. Canadian peer average of (2.7%)
• 8% EPS growth
• 2.40% vs. Canadian peer average of 2.24%3
• Total revenue growth of 7.8% vs. total expense growth of 7.6%
•
Refer to “Business Segment Analysis” in the 2015 MD&A for details
• LEI/CEI composite score 46.4% (target 48.7%)
• Refer to “Business Segment Analysis” in the 2015 MD&A for details
• Employee engagement score7 was 4.17 in 2015 vs. 4.20 in 2014
• Refer to TD’s 2015 Corporate Responsibility Report available
April 2016
• 1.3%, or $62.9 million, in donations and community sponsorships
(five-year average) to charitable and not-for-profit organizations
in Canada vs. 1.3%, or $56.7 million, in 20148
• Make positive contributions by:
– Supporting employees’ community involvement and
• US$22.1 million in donations and community sponsorships in the
U.S. vs. US$22.3 million in 2014
fundraising efforts
• £31,910 in donations and community sponsorships in the U.K. vs.
– 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
£60,244 in 2014
• $313,500 in domestic employee volunteer grants to 464 different
organizations
• $37.8 million, or 60%, of our community giving was directed
– Protecting and preserving the environment
to promote our areas of focus domestically
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 TSR is calculated based on share price movement and dividends reinvested over
a trailing one year period.
3 Return on CET1 RWA measured year-to-date as at October 31, 2015, for comparison
purposes. 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. For fiscal 2015,
the scalars are 64%, 71%, and 77% respectively.
4 Revenue is net of insurance claims and related expenses.
• $4.7 million distributed to 1,002 community environmental
projects through TD Friends of the Environment Foundation;
an additional $9.2 million from TD‘s community giving budget
was used to support environmental projects
5 LEI is a new survey measurement program that tracks customers’ experience and
their overall relationship with TD. LEI was launched for TDCT and TD Bank retail
programs in fiscal 2015, replacing CEI.
6 CEI is a survey measurement program that tracks advocacy among TD Wealth and
TD Insurance customers. TD Wealth and TD Insurance CEI programs will be transi-
tioned to LEI programs in fiscal 2017.
7 Scale for employee engagement score is from one to five.
8 Calculated based on Canadian cash donations/five-year rolling average domestic
net income before tax.
4
TD BANK GROU P AN NUAL REPO RT 20 15 PERF ORM ANCE INDIC ATORS
Group President and CEO’s Message
Winning organizations are more responsive to their customers, more agile than their competitors and
more flexible in how they go to market.
Once again, TD delivered on all counts. In doing so, we achieved our
best results to date and extended our leadership position in areas of
strategic importance. TD was one of only two Canadian banks to
achieve positive Total Shareholder Return in fiscal 2015. Indeed, over
the short, medium and long term, we outperformed our Canadian
peer average in creating shareholder value.
DIVERSE BUSINESS MIX DRIVES GROWTH
Adjusted earnings of $8.8 billion mark our 7th consecutive year of
record adjusted earnings, and underscore the power of our diverse
business mix.
The majority of those earnings, $5.9 billion, were generated by our
flagship Canadian Retail businesses. Forty per cent of Canadians have a
TD account with TD Canada Trust – the brand synonymous with legend-
ary customer service. Our personal and commercial banking businesses
again delivered strong loan volume growth. Record long-term mutual
fund sales helped build momentum for TD Wealth. TD Mutual Funds
reached $100 billion in assets under management on strong net sales.
TD Insurance reached nearly $4 billion in premiums – a major milestone.
We maintained the number one position in Canadian credit cards, and
drove record auto loan originations in Canada.
Our U.S. operations, including TD Bank, America’s Most Convenient
Bank,® reached more than US$2 billion in adjusted earnings for the
first time. In the markets where we compete, we outperformed our
peers in loan growth and household acquisition and we expanded our
strategic credit cards business, acquiring Nordstrom’s U.S. retail credit
card portfolio. Our U.S. Wealth businesses achieved $100 billion in
client assets with solid contributions across both advisory and asset
management businesses.
TD Securities delivered solid earnings of $873 million. Core revenue
growth was robust across the board, with contributions from trading,
corporate lending and debt underwriting both in Canada and the U.S.,
and we continued to expand product offerings to our U.S. clients.
FUTURE-PROOFING THE TD FRANCHISE
None of us are able to predict the future with great certainty. But
we can make sure our Bank has the capacity to adapt to the future –
no matter what it looks like. To this end, TD made a number of bold
moves in 2015 that we believe will help us compete, win and grow
in the coming years.
This included taking decisive steps to optimize our operations and
put in place a more streamlined, agile organizational structure. It has
freed up resources to reinvest in our people, culture and brand promise.
We also elevated our game in the digital space. TD established a
technology innovation centre in Waterloo, Ontario, which is becoming
a hotbed of ideas to make the customer experience better. We have
grown our patent portfolio – applications and issued – 10 times in size
in the past three years, with a heightened focus on digital advances.
All told, more than nine million customers across North America bene-
fit from our online and digital experiences, the most of any financial
institution in Canada.
But we won’t innovate for innovation’s sake. Banking is, and always
will be, about people and relationships. And so our focus will remain
on serving the real needs of our customers and clients: seamless inter-
actions, personal advice and human experiences.
BUILDING THE EVEN BETTER BANK
Looking ahead, our operating environment will continue to be shaped
by slow growth in the economy and rapid change in our industry.
Against this backdrop, it’s especially important to adapt when neces-
sary without abandoning the things that matter most to our customers
and colleagues. Moving forward, you will see TD continue to grow
organically – a proven capability of ours – with significant opportuni-
ties in front of us. We will also find ways to be more productive with
our resources, size and scale. At the same time, TD will look ahead to
get ahead and will strive to evolve in ways that create real value for all
our stakeholders.
In all of this, our people are key. I have met many of our colleagues
this year, across our entire footprint. I am inspired by their energy and
enthusiasm – they want to compete and win – not just because they
care about TD’s long-term success, but because they also care about
the long-term success of our customers and clients. And so they are
motivated to be better and do better. Their understanding of our busi-
ness – what we do and how we win – combined with their passion to
live up to our brand is why TD will continue to grow and deliver
results. They are why TD can be the even Better Bank.
Bharat Masrani
Group President and Chief Executive Officer
TD BANK GROUP ANNUAL REP O RT 20 1 5 GR OU P PR ESID EN T A ND CEO ’S MESSAG E
5
Chairman of the Board’s Message
In 2015, TD Bank Group once again demonstrated its strength and resilience by delivering a strong financial
performance in the face of subdued economic performance in Canada and the United States, while honouring
TD`s commitment to our employees, customers and shareholders to be the even Better Bank.
CEO SUCCESSION
Bharat Masrani completed a very successful first year as TD’s Group
President and CEO. The Bank delivered record adjusted earnings.
Decisive steps were taken with a view to speeding up decision-making
in the Bank; reallocating resources to growth businesses and channels;
and adapting to a slower growth environment.
Fortune magazine named TD one of the World’s Most Admired
Companies for 2015. TD was also named one of the World’s Safest
Banks by Global Finance in 2015 for the fifth year in a row, as well as
the Safest Bank in Canada and the World’s Safest Commercial Bank.
TD became the only Canadian bank to be recognized on the Dow
Jones Sustainability World Index list, the benchmark for global leaders
in economic, environmental and social responsibility.
CORPORATE GOVERNANCE
TD is committed to being a leader in corporate governance practices,
and a key element of such practices is strategic Board renewal. This
year we were pleased to welcome new directors to TD in anticipation
of impending retirements in 2016. Brian Ferguson is President and
Chief Executive Officer and a director of Cenovus Energy Inc. Claude
Mongeau is President and Chief Executive Officer and a director of
Canadian National Railway Company. Jean-René Halde was most
recently President and Chief Executive Officer of the Business
Development Bank of Canada. Each of these directors brings extensive
executive and strategic leadership skills, business acumen and industry
experience, and we look forward to their contribution to TD’s Board.
LOOKING AHEAD
While we expect continued challenges in the economic environment in
2016, we are confident that the changes under way across the Bank,
including those focused on improving productivity and enhancing
mobile and digital technology capability and offerings, will underpin
continuing strong performance.
On behalf of the Board, I would like to thank TD’s employees for
their continued support and dedication. They go above and beyond for
our customers and clients every day to provide legendary service and
convenience – they make TD. And they do this while giving back to the
communities in which they live and work, including generously sharing
their time through the TD Volunteer Network.
In closing, on behalf of the Board I would also like to thank our
customers and clients for their ongoing patronage and our shareholders
for their continuing support.
Brian M. Levitt
Chairman of the Board
THE BOARD OF DIRECTORS
AND ITS COMMITTEES
The Board of Directors as at December 2, 2015,
its committees and key committees’ responsi-
bilities are listed below. Our Proxy Circular for
the 2016 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
Brian C. Ferguson
President & Chief
Executive Officer,
Cenovus Energy Inc.,
Calgary, Alberta
Colleen A. Goggins
Corporate Director
and retired
Worldwide Chairman,
Consumer Group,
Johnson & Johnson,
Princeton, New Jersey
Mary Jo Haddad
Corporate Director and
retired President and
Chief Executive Officer,
The Hospital for
Sick Children
Oakville, Ontario
Jean-René Halde
Corporate Director and
retired President and
Chief Executive Officer,
Business Development
Bank of Canada,
Montréal, Québec
David E. Kepler
Corporate Director and
retired Executive Vice
President,
The Dow Chemical
Company,
Sanford, Michigan
Brian M. Levitt
Chairman of the Board,
The Toronto-Dominion
Bank and Vice Chair,
Osler, Hoskin &
Harcourt LLP,
Montréal, Québec
Alan N. MacGibbon
Vice Chair,
Osler, Hoskin &
Harcourt LLP,
Toronto, Ontario
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 B. 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
Corporate Director and
former President and
Chief Executive Officer,
Rogers
Communications Inc.,
Toronto, Ontario
Claude Mongeau
President and Chief
Executive Officer,
Canadian National
Railway Company,
Montréal, Québec
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 15 CHAIR MA N OF THE BOA RD ’S M ESS AGE
COMMITTEE
MEMBERS 1
KEY RESPONSIBILITIES 1
Corporate
Governance
Committee
Brian M. Levitt
(Chair)
William E. Bennett
Harold H. MacKay
Karen E. Maidment
Wilbur J. Prezzano
Human Resources
Committee
Risk Committee
Audit Committee
Wilbur J. Prezzano
(Chair)
Amy W. Brinkley
Mary Jo Haddad
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
Brian C. Ferguson2
Jean-René Halde
Alan N. MacGibbon2
Karen E. Maidment2
Irene R. Miller2
Claude Mongeau
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 nomi-
nees for the next annual meeting of shareholders and recommend candidates to fill vacancies on the
Board that occur between meetings of the 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 Chief Executive Officer (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 and development process, including review and approval of the
succession plans for the senior officer positions and heads of control functions;
• Review candidates for CEO and recommend the succession plan for this position to the Board
of Directors for approval; 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 (ERF) 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 monitor TD’s major risks as set out in the ERF;
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 the effectiveness of internal controls including controls over financial reporting;
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 2, 2015
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 2015 Annual
Information Form.
TD BANK GROUP ANNUAL REP O RT 20 1 5 C H AIR MA N OF TH E BO ARD’S MESS AG E
7
ENHANCED DISCLOSURE TASK FORCE
The Enhanced Disclosure Task Force (EDTF) was established by the
Financial Stability Board in May 2012 to identify fundamental disclosure
principles, recommendations and leading practices to enhance risk
disclosures of banks. On October 29, 2012, the EDTF published its
report, “Enhancing the Risk Disclosures of Banks”, which sets forth
7 fundamental disclosure principles and 32 recommendations around
improving risk disclosures.
Below is an index that includes the recommendations (as published
by the EDTF) and lists the location of the related EDTF disclosures
presented in the 2015 Annual Report or the 2015 fourth quarter
Supplemental Financial Information. Information on TD’s website
or any Supplemental Financial Information is not and should not be
considered incorporated herein by reference into the 2015 Annual
Report, Management’s Discussion and Analysis, or the Consolidated
Financial Statements.
EDTF Disclosure Recommendation
Annual Report
Supplemental
Financial
Information
Page
Present all related risk information together in any particular report.
See below for location of disclosures
Define the bank’s risk terminology and risk measures and present key parameter values used.
70-75, 80, 86, 88
Describe and discuss top and emerging risks.
66-69
Once the applicable rules are finalized, outline plans to meet each new key regulatory ratio.
62, 68, 92-93, 95
81
Topic
General
1
2
3
4
Risk Governance and Risk Management Strategies / Business Model
5
6
7
8
Summarize prominently the bank’s risk management organization, processes and
key functions.
Provide a description of the bank’s risk culture, and how procedures and strategies are
applied to support the culture.
Describe the key risks that arise from the bank’s business models and activities, the
bank’s risk appetite in the context of its business models and how the bank manages
such risks.
71-74
70-71
61, 75-101
Describe the use of stress testing within the bank’s risk governance and capital frameworks.
59, 74, 82, 99
Capital Adequacy and Risk Weighted Assets
9
10
11
12
13
14
15
Provide minimum Pillar 1 capital requirements, including capital surcharges for global
systemically important banks and the application of counter-cyclical and capital
conservation buffers.
Summarize information contained in the composition of capital templates adopted
by the Basel Committee to provide an overview of the main components of capital,
including capital instruments and regulatory adjustments.
56-58
77-78, 81
56
77-79
Present a flow statement of movements since the prior reporting date in regulatory capital.
Qualitatively and quantitatively discuss capital planning within a more general discussion
of management’s strategic planning.
Provide granular information to explain how RWAs relate to business activities and
related risks.
57-59, 99
59, 61
Present a table showing the capital requirements for each method used for calculating
RWAs for credit risk, market risk, and operational risk, and disclose information about
significant models used.
76-78, 79-80, 81,
82, 196-197
Tabulate credit risk in the banking book showing average probability of default (PD)
and loss given default (LGD) as well as exposure at default (EAD), total RWAs and RWA
density for Basel asset classes and major portfolios within the Basel asset classes at a
suitable level of granularity based on internal ratings grades. For non-retail banking book
credit portfolios, internal rating grades and PD bands should be mapped against external
credit ratings and the number of PD bands presented should match the number of notch-
specific ratings used by credit rating agencies.
80
5-8
76
53-71
16
Present a flow statement that reconciles movements in RWAs for the period for each
RWA risk type.
60
17
Provide a narrative putting Basel Pillar 3 back-testing requirements into context.
78, 82, 87
73-74
Liquidity
18
Describe how the bank manages its potential liquidity needs and provide a quantitative
analysis of the components of the liquidity reserve held to meet these needs.
88-89, 90, 91
8
TD BANK GROU P AN NUAL REPO RT 20 15 ENH ANCE D DIS CLOS URE TASK F ORC E
EDTF Disclosure Recommendation
Annual Report
Supplemental
Financial
Information
Page
Summarize encumbered and unencumbered assets in a tabular format by balance
sheet categories, including collateral received that can be re-hypothecated or
otherwise redeployed.
Tabulate consolidated total assets, liabilities and off-balance sheet commitments
by remaining contractual maturity at the balance sheet date.
92, 187-188
96-98
Topic
Funding
19
20
21
Discuss the bank’s funding strategy, including key sources and any funding concentrations.
94-95
Market Risk
22
23
24
Provide information that facilitates users’ understanding of the linkages between line
items in the balance sheet and the income statement with positions included in the
traded market risk disclosures (using the bank’s primary risk management measures
such as Value at Risk) and non-traded market risk disclosures.
80
Provide further qualitative and quantitative breakdowns of significant trading and non-
trading market risk factors that may be relevant to the bank’s portfolios beyond interest
rates, foreign exchange, commodity and equity measures.
80, 82, 83-84, 85
Provide qualitative and quantitative disclosures that describe significant market risk
measurement model limitations, assumptions, validation procedures, use of proxies,
changes in risk measures and models through time and descriptions of the reasons
for back-testing exceptions, and how these results are used to enhance the parameters
of the model.
81, 82, 83-84,
85, 87
25
Provide a description of the primary risk management techniques employed by the bank
to measure and assess the risk of loss beyond reported risk measures and parameters.
81, 82-85
Credit Risk
26
27
28
29
30
Provide information that facilitates users’ understanding of the bank’s credit risk profile,
including any significant credit risk concentrations.
Describe the policies for identifying impaired or non-performing loans, including how
the bank defines impaired or non-performing, restructured and returned-to-performing
(cured) loans as well as explanations of loan forbearance policies.
21-39, 43-74
40-55, 75-80,
149-152, 161,
162-163, 194-197
48-49, 123-124,
149
Provide a reconciliation of the opening and closing balances of non-performing or
impaired loans in the period and the allowance for loan losses.
45, 150-151
25, 29
Provide a quantitative and qualitative analysis of the bank’s counterparty credit risk that
arises from its derivative transactions.
Provide qualitative information on credit risk mitigation, including collateral held for all
sources of credit risk.
43-46
78, 133-134,
157-158, 161,
162-163
78-79, 127,
133-134
Other Risks
31
Describe ‘other risk’ types based on management’s classifications and discuss how each
one is identified, governed, measured and managed.
86-88, 99-101
32
Discuss publicly known risk events related to other risks.
87
The Bank will continue to enhance its disclosures, as necessary.
TD BANK GROUP ANNUAL REP O RT 20 1 5 EN H A NCE D D ISC LOS UR E TASK FOR CE
9
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, 2015, 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, 2015. This MD&A is dated December 2, 2015. 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 restated/reclassified to conform with the presentation adopted in the current year.
FINANCIAL RESULTS OVERVIEW
Net Income
Revenue
Provision for Credit Losses
Expenses
Taxes
Quarterly Financial Information
BUSINESS SEGMENT ANALYSIS
Business Focus
Canadian Retail
U.S. Retail
Wholesale Banking
Corporate
2014 FINANCIAL RESULTS OVERVIEW
Summary of 2014 Performance
2014 Financial Performance by Business Line
11
14
15
18
19
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
40
40
56
63
65
65
66
70
101
104
105
106
Additional information relating to the Bank, including the Bank’s Annual Information Form, is available on the Bank’s website at http://www.td.com, on SEDAR at
http://www.sedar.com, and on the U.S. Securities and Exchange Commission’s website at http://www.sec.gov (EDGAR filers section).
Caution Regarding Forward-Looking Statements
From time to time, the Bank (as defined in this document) makes written and/or oral forward-looking statements, including in this document, in other filings with
Canadian regulators or the United States (U.S.) Securities and Exchange Commission (SEC), 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
(“2015 MD&A”) under the heading “Economic Summary and Outlook”, for each business segment under headings “Business Outlook and Focus for 2016”, and in
other statements regarding the Bank’s objectives and priorities for 2016 and beyond and strategies to achieve them, the regulatory environment in which the Bank
operates, 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, individually or in the aggregate, such differences include: credit, market (including equity, commodity,
foreign exchange, and interest rate), liquidity, operational (including technology and infrastructure), 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, business retention, 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 commu-
nications 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, or application of,
current laws and regulations, including without limitation tax laws, risk-based capital guidelines and liquidity regulatory guidance; the overall difficult litigation envi-
ronment, including in the U.S.; increased competition, including through internet and mobile banking and non-traditional competitors; changes to the Bank’s credit
ratings; changes in currency and interest rates; increased funding costs and market volatility due to market illiquidity and competition for funding; critical accounting
estimates and changes to accounting standards, policies, and methods used by the Bank; existing and potential international debt crises; 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 refer to the “Risk Factors and Management” section of the 2015
MD&A, as may be updated in subsequently filed quarterly reports to shareholders and news releases (as applicable) related to any transactions or events 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 2015 MD&A under the headings “Economic
Summary and Outlook”, and for each business segment, “Business Outlook and Focus for 2016”, each as updated in subsequently filed quarterly reports to shareholders.
Any forward-looking statements contained in this document represent the views of management only as of the date hereof and are presented for the purpose of
assisting the Bank’s shareholders and analysts in understanding the Bank’s financial position, objectives and priorities and anticipated financial performance as at and
for the periods ended on the dates presented, and may not be appropriate for other purposes. The Bank does not undertake to update any forward-looking statements,
whether written or oral, that may be made from time to time by or on its behalf, except as required under applicable securities legislation.
10
TD BANK GROUP ANNUAL REPORT 2015 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 24 million customers in three key
businesses 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 10.2 million active online and mobile customers.
TD had $1.1 trillion in assets as at October 31, 2015. 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 to arrive at
“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 on 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,
which required retrospective application, effective in fiscal 2015
(2015 IFRS Standards and Amendments). As a result, certain compara-
tive amounts have been restated where applicable. The 2015 IFRS
Standards and Amendments were not incorporated into the regulatory
capital disclosures presented prior to fiscal 2015. For more informa-
tion, refer to Note 4 of the 2015 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
2015
$ 18,724
12,702
31,426
1,683
2,500
18,073
9,170
1,523
377
8,024
99
$ 7,925
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
$
112
7,813
$
107
7,633
$
105
6,350
11
TD BANK GROUP ANNUAL REPORT 2015 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)
2015
2014
2013
Operating results – adjusted
Net interest income
Non-interest income1
Total revenue
Provision for credit losses2
Insurance claims and related expenses
Non-interest expenses3
Income before income taxes and equity in net income of an investment in associate
Provision for income taxes4
Equity in net income of an investment in associate, net of income taxes5
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 intangibles6
Restructuring charges7
Charge related to the acquisition of Nordstrom Inc.’s (Nordstrom) credit card portfolio and
related integration costs8
Litigation and litigation-related charge/reserve9
Fair value of derivatives hedging the reclassified available-for-sale securities portfolio10
Integration charges and direct transaction costs relating to the acquisition of the credit card
portfolio of MBNA Canada11
Set-up, conversion and other one-time costs related to affinity relationship with
$ 18,724
12,713
31,437
1,683
2,500
17,076
10,178
1,862
438
8,754
99
8,655
112
8,543
(255)
(471)
(51)
(8)
55
–
$ 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)
–
–
–
43
(125)
$ 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)
(90)
–
(100)
57
(92)
–
–
–
(730)
$ 7,813
(131)
19
196
(244)
$ 7,633
(20)
(19)
–
(496)
$ 6,350
Aimia and acquisition of Aeroplan Visa credit card accounts12
Impact of Alberta flood on the loan portfolio13
Gain on sale of TD Waterhouse Institutional Services14
Total adjustments for items of note
Net income available to common shareholders – reported
1 Adjusted non-interest income excludes the following items of note: $62 million
gain due to change in fair value of derivatives hedging the reclassified available-
for-sale securities portfolio, as explained in footnote 10; $73 million difference
of the transaction price over the fair value of the Nordstrom assets acquired,
as explained in footnote 8; 2014 – $49 million gain due to change in fair value
of derivatives hedging the reclassified available-for-sale securities portfolio;
$231 million gain due to the sale of TD Waterhouse Institutional Services, as
explained in footnote 14; 2013 – $71 million gain due to change in fair value
of derivatives hedging the reclassified available-for-sale securities portfolio.
2 In 2014, 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 13; 2013 – $25 million due to
the impact of the Alberta flood on the loan portfolio.
3 Adjusted non-interest expenses exclude the following items of note: $289 million
amortization of intangibles, as explained in footnote 6; $686 million due to the
initiatives to reduce costs, as explained in footnote 7; $9 million due to integration
costs related to the Nordstrom transaction, as explained in footnote 8; $52 million
of litigation charges, as explained in footnote 9; $39 million recovery of litigation
losses, as explained in footnote 9; 2014 – $286 million amortization of intangibles;
$169 million of integration charges relating to the acquisition of the credit card
portfolio of MBNA Canada, as explained in footnote 11; $178 million of costs in
relation to the affinity relationship with Aimia and acquisition of Aeroplan Visa
credit card accounts, as explained in footnote 12; 2013 – $272 million amortization
of intangibles; $125 million of integration charges and direct transaction costs
relating to the acquisition of the credit card portfolio of MBNA Canada;
$127 million of litigation and litigation-related charges; $129 million due to the
initiatives to reduce costs; $27 million of set-up costs in preparation for the affinity
relationship with Aimia Inc. with respect to Aeroplan Visa credit cards.
4 For a reconciliation between reported and adjusted provision for income taxes, refer
to the “Non-GAAP Financial Measures – Reconciliation of Reported to Adjusted
Provision for Income Taxes” table in the “Income Taxes” section of the MD&A.
5 Adjusted equity in net income of an investment in associate excludes the following
items of note: $61 million amortization of intangibles, as explained in footnote 6;
2014 – $53 million amortization of intangibles; 2013 – $54 million amortization
of intangibles.
6 Amortization of intangibles relate to intangibles acquired as a result of asset
acquisitions and business combinations. Although the amortization of software
and asset servicing rights are recorded in amortization of intangibles, they are
not included for purposes of the items of note.
12
7 In fiscal 2015, the Bank recorded restructuring charges of $686 million ($471 million
after tax) on a net basis. During 2015 the Bank commenced its restructuring review
and in the second quarter of 2015 recorded $337 million ($228 million after tax)
of restructuring charges and recorded an additional restructuring charge of
$349 million ($243 million after tax) on a net basis in the fourth quarter of 2015.
The restructuring charges incurred in fiscal 2015 were intended to reduce costs
and manage expenses in a sustainable manner and to achieve greater operational
efficiencies. These measures included process redesign and business restructuring,
retail branch and real estate optimization, and organizational review. These
restructuring charges have been recorded as an adjustment to net income within
the Corporate segment. 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 charges related primarily to retail branch and real estate
optimization initiatives.
8 On October 1, 2015, the Bank acquired substantially all of Nordstrom’s existing
U.S. Visa and private label consumer credit card portfolio and became the primary
issuer of Nordstrom credit cards in the U.S. The transaction was treated as an asset
acquisition and the difference on the date of acquisition of the transaction price
over the fair value of assets acquired has been recorded in Non-interest income.
In addition, the Bank incurred set-up, conversion and other one-time costs related
to integration of the acquired cards and related program agreement. These
amounts are included as an item of note in the U.S. Retail segment.
9 As a result of developments and settlements reached in the U.S. in fiscal 2013,
the Bank determined that litigation and litigation-related charges of $127 million
($100 million after tax) were required. As a result of an adverse judgment and eval-
uation of certain other developments and exposures in the U.S. in 2015, the Bank
took prudent steps to reassess its litigation provision. Having considered these
factors, including related or analogous cases, the Bank determined, in accordance
with applicable accounting standards, that an increase of $52 million ($32 million
after tax) to the Bank’s litigation provision was required in the second quarter of
2015. During the third quarter of 2015, distributions of $39 million ($24 million
after tax) were received by the Bank as a result of previous settlements reached
on certain matters in the U.S., whereby the Bank was assigned the right to these
distributions, if and when made available. The amount for fiscal 2015 reflects this
recovery of previous settlements.
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
10 The Bank changed its trading strategy with respect to certain trading debt securities
and reclassified these securities from trading to the available-for-sale category effec-
tive August 1, 2008. These debt securities are economically hedged, primarily with
credit default swap and interest rate swap contracts which are recorded on a fair
value basis with changes in fair value recorded in the period’s earnings. Manage-
ment believes that this asymmetry in the accounting treatment between derivatives
and the reclassified debt securities results in volatility in earnings from period to
period that is not indicative of the economics of the underlying business perfor-
mance in Wholesale Banking. 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.
11 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.
Integration charges consist of costs related to information technology, employee
retention, 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 business. Integration charges related to this acquisition were incurred by
the Canadian Retail segment. The fourth quarter of 2014 was the last quarter
Canadian Retail included any further MBNA-related integration charges as an
item of note.
12 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
agreement, 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 were
included as an item of note in the Canadian Retail segment. The third quarter of
2014 was the last quarter Canadian Retail included any set-up, conversion, or
other one-time costs related to the acquired Aeroplan credit card portfolio as
an item of note.
13 In the third quarter of 2013, the Bank recorded PCL 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 provision 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.
14 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.
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
2015
$ 4.22
0.40
$ 4.62
$ 4.21
0.40
$ 4.61
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
1 EPS is computed by dividing net income available to common shareholders by the
2 For explanations of items of note, refer to the “Non-GAAP Financial Measures –
weighted-average number of shares outstanding during the period.
Reconciliation of Adjusted to Reported Net Income” table in the “Financial Results
Overview” section of this document.
T A B L E 4
AMORTIZATION OF INTANGIBLES, NET OF INCOME TAXES1
(millions of Canadian dollars)
TD Bank, National Association (TD Bank, N.A.)
TD Ameritrade Holding Corporation (TD Ameritrade)2
MBNA Canada
Aeroplan
Other
Software and other
Amortization of intangibles, net of income taxes
2015
$ 116
61
37
17
24
255
289
$ 544
2014
$ 115
53
37
14
27
246
236
$ 482
2013
$ 117
54
36
–
25
232
176
$ 408
1 Amortization of intangibles, with the exception of software and asset servicing
rights, are included as items of note. For explanations of items of note, refer to
the “Non-GAAP Financial Measures – Reconciliation of Adjusted to Reported Net
Income” table in the “Financial Results Overview” section of this document.
2 Included in equity in net income of an investment in associate.
13
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
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, 2014, capital allocated to the business segments
is based on 9% Common Equity Tier 1 (CET1) Capital.
Adjusted return on common equity (ROE) is adjusted net income avail-
able 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.
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, net of income taxes1
Net income available to common shareholders – adjusted
Return on common equity – adjusted
1 For explanations of items of note, refer to the “Non-GAAP Financial Measures –
Reconciliation of Adjusted to Reported Net Income” table in the “Financial Results
Overview” section of this document.
2015
2014
$ 58,178
7,813
730
8,543
$ 49,495
7,633
244
7,877
2013
$ 44,791
6,350
496
6,846
14.7%
15.9%
15.3%
SIGNIFICANT EVENTS IN 2015
Restructuring Charges
In fiscal 2015, the Bank recorded restructuring charges of $686 million
($471 million after tax) on a net basis. During 2015, the Bank
commenced its restructuring review and in the second quarter of 2015
recorded $337 million ($228 million after tax) of restructuring charges
and recorded an additional restructuring charge of $349 million
($243 million after tax) on a net basis in the fourth quarter of 2015.
The restructuring charges incurred in fiscal 2015 were intended to
reduce costs and manage expenses in a sustainable manner and to
achieve greater operational efficiencies. These measures included
process redesign and business restructuring, retail branch and real
estate optimization, and organizational review.
Acquisition of Nordstrom Inc.’s U.S. Credit Card Portfolio
On October 1, 2015, the Bank, through its subsidiary, TD Bank USA,
National Association (TD Bank USA, N.A.), acquired substantially all
of Nordstrom Inc.’s (Nordstrom) existing U.S. Visa and private label
consumer credit card portfolio, with a gross outstanding balance
of $2.9 billion (US$2.2 billion). In addition, the Bank and Nordstrom
entered into a long-term agreement under which the Bank became
the exclusive U.S. issuer of Nordstrom-branded Visa and private label
consumer credit cards to Nordstrom customers.
At the date of acquisition the Bank recorded the credit card receiv-
ables at their fair value of $2.9 billion. The transaction was treated as
an asset acquisition and the pre-tax difference of $73 million on the
date of acquisition of the transaction price over the fair value of assets
acquired has been recorded in Non-interest income. The gross
amounts of revenue and credit losses have been recorded on the
Consolidated Statement of Income in the U.S. Retail segment since
that date. Nordstrom shares in a fixed percentage of the revenue and
credit losses incurred. Nordstrom’s share of revenue and credit losses
is recorded in Non-interest expenses on the Consolidated Statement
of Income and related receivables from, or payables to Nordstrom are
recorded in Other assets or Other liabilities, respectively, on the
Consolidated Balance Sheet.
FINANCIAL RESULTS OVERVIEW
Net Income
AT A GLANCE OVERVIEW
• Reported net income was $8,024 million, an increase
of $141 million, or 2%, compared with last year.
• Adjusted net income was $8,754 million, an increase
of $627 million, or 8%, compared with last year.
Reported net income for the year was $8,024 million, an increase of
$141 million, or 2%, compared with $7,883 million last year. Reported
net income included a restructuring charge of $471 million after tax
and other items of note. Adjusted net income for the year was
$8,754 million, an increase of $627 million, or 8%, compared with
$8,127 million last year. The increase in adjusted net income was due
to higher earnings in the Canadian Retail, U.S. Retail, and Wholesale
Banking segments, partially offset by a higher loss in the Corporate
segment. Canadian Retail net income increased primarily due to good
loan and deposit volume growth, good wealth asset growth, strong
credit performance, and higher insurance earnings, partially offset
by margin compression and expense growth. U.S. Retail net income
increased primarily due to strong organic loan and deposit growth,
lower provision for credit losses (PCL), good expense management,
and the impact of foreign currency translation, partially offset by
margin compression and lower gains on sales of securities. Wholesale
Banking net income increased primarily due to higher revenue, partially
offset by higher non-interest expenses and a higher effective tax rate.
Corporate segment loss increased due to higher provisions for incurred
but not identified credit losses related to the Canadian loan portfolio
and certain non-recurring positives in the prior year including the gain
on sale of TD Ameritrade shares and favourable impact of tax items in
the prior year.
Reported diluted earnings per share (EPS) for the year were $4.21,
a 2% increase, compared with $4.14 last year. Adjusted diluted EPS for
the year were $4.61, an 8% increase, compared with $4.27 last year.
14
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
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 compared with last year.
Depreciation of the Canadian dollar had a favourable impact on
consolidated earnings for the year ended October 31, 2015, 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)
2015
vs. 2014
2014
vs. 2013
$ 1,135
1,146
747
745
297
304
$ 570
570
370
370
143
143
$ 0.16
$ 0.08
0.16
0.08
A one cent increase/decrease in the U.S. dollar to Canadian dollar
exchange rate will decrease/increase total Bank annual net income
by approximately $32 million.
FINANCIAL RESULTS OVERVIEW
Revenue
AT A GLANCE OVERVIEW
• Reported revenue was $31,426 million, an increase
of $1,465 million, or 5%, compared with last year.
• Adjusted revenue was $31,437 million, an increase
of $1,756 million, or 6%, compared with last year.
• Net interest income increased by $1,140 million, or 6%,
compared with last year.
• Reported non-interest income increased by $325 million,
or 3%, compared with last year.
• Adjusted non-interest income increased by $617 million,
or 5%, compared with last year.
NET INTEREST INCOME
Net interest income for the year on a reported and adjusted basis was
$18,724 million, an increase of $1,140 million, or 6%, 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, partially offset by a decline in the Corporate
segment. U.S. Retail net interest income increased primarily due to
strong organic loan and deposit growth, higher fee revenue, the
contribution from Nordstrom, and the impact of foreign currency
translation, partially offset by net margin compression and lower
accretion. Canadian Retail net interest income increased primarily due
to good loan and deposit volume growth and the full year impact of
Aeroplan, partially offset by lower margins. Wholesale Banking net
interest income increased primarily due to higher trading-related
revenue and strong corporate lending growth. Corporate segment
net interest income decreased primarily due to lower revenue from
treasury and balance sheet management activities.
NET INTEREST MARGIN
Net interest margin declined by 13 basis points (bps) during the
year to 2.05%, compared with 2.18% last year. Lower margins in
the Canadian and U.S. Retail segments were primarily due to core
margin compression.
NET INTEREST INCOME
(millions of Canadian dollars)
$20,000
16,000
12,000
8,000
4,000
0
13
14
15
Reported
Adjusted
15
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 7
NET INTEREST INCOME ON AVERAGE EARNING BALANCES1,2,3
(millions of Canadian dollars, except as noted)
2015
Average
balance
Interest4
Average
rate
Average
balance
Interest4
2014
Average
rate
Average
balance
Interest4
2013
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
Residential mortgages5
Canada
U.S.
Consumer instalment and other personal
Canada
U.S.
Credit card
Canada
U.S.
Business and government5
Canada
U.S.
International
Total interest-earning assets
Interest-bearing liabilities
Deposits
Personal
Canada
U.S.
Banks6
Canada
U.S.
Business and government6,7
Canada
U.S.
Subordinated notes and debentures
Obligations related to securities sold
short and under repurchase agreements
Canada
U.S.
Securitization liabilities8
Other liabilities
Canada
U.S.
International6
Total interest-bearing liabilities
Total net interest income on
average earning assets
$
4,738 $
40,684
15
107
0.32% $
0.26
3,692 $
27,179
17
72
0.46% $ 4,552 $
0.26
17,748
23
48
0.51%
0.27
50,234
23,790
31,639
90,552
1,297
454
479
1,525
39,384
36,074
249
78
188,048
26,336
93,943
35,609
18,096
8,778
4,924
984
4,600
1,144
2,235
1,450
2.58
1.91
1.51
1.68
0.63
0.22
2.62
3.74
4.90
3.21
55,383
18,424
1,367
333
23,169
76,245
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
33,691
35,512
288
62
0.85
0.17
24,207
31,422
230
94
178,128
22,677
5,212
858
90,512
29,272
4,499
1,058
2.93
3.78
4.97
3.61
167,061
20,010
5,049
764
91,729
26,206
4,718
1,016
2.57
1.91
1.63
2.08
0.95
0.30
3.02
3.82
5.14
3.88
12.35
16.52
17,984
7,200
2,245
1,287
12.48
17.88
14,582
4,697
1,828
834
12.54
17.76
62,879
85,553
77,467
1,759
2,730
800
$ 913,804 $ 24,830
1,808
2.80
2,308
3.19
1.03
767
2.72% $ 807,953 $ 23,928
55,048
64,343
69,494
1,584
52,820
3.28
2,270
55,186
3.59
1.10
718
62,180
2.96% $ 730,800 $ 22,615
3.00
4.11
1.15
3.09%
$ 181,101 $ 1,158
218
178,287
0.64% $ 172,897 $ 1,394
197
147,025
0.12
0.81% $ 168,369 $ 1,660
211
130,378
0.13
0.99%
0.16
8,907
11,764
180,596
154,578
7,953
34
32
1,796
909
390
46,340
47,835
34,968
450
186
593
0.38
0.27
0.99
0.59
4.90
0.97
0.39
1.70
5,898
7,682
18
16
145,233 1,540
125,375 1,065
412
7,964
47,360
42,962
41,745
535
122
777
0.31
0.21
1.06
0.85
5.17
1.13
0.28
1.86
6,134
6,565
11
14
120,426 1,270
111,787 1,248
447
8,523
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
4,889
33
35,693
79
4
257
$ 892,944 $ 6,106
88
1.62
1
12.06
0.72
179
0.68% $ 782,495 $ 6,344
5,652
29
32,673
82
5,625
1.56
3
72
3.45
0.55
94
19,766
0.81% $ 706,644 $ 6,541
1.46
4.17
0.48
0.93%
$ 913,804 $ 18,724
2.05% $ 807,953 $ 17,584
2.18% $ 730,800 $ 16,074
2.20%
1 Certain comparative amounts have been restated to conform with the presentation
6 Includes average trading deposits with a fair value of $71 billion
adopted in the current period.
(2014 – $58 billion, 2013 – $47 billion).
2 Net interest income includes dividends on securities.
3 Geographic classification of assets and liabilities is based on the domicile of the
7 Includes marketing fees incurred on the TD Ameritrade Insured Deposit
Accounts (IDA) of $1,051 million (2014 – $895 million, 2013 – $821 million).
booking point of assets and liabilities.
4 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.
5 Includes average trading loans of $10 billion (2014 – $10 billion, 2013 – $9 billion).
8 Includes average securitization liabilities at fair value of $11 billion
(2014 – $16 billion, 2013 – $25 billion) and average securitization liabilities
at amortized cost of $24 billion (2014 – $26 billion, 2013 – $26 billion).
16
TD BANK GROUP ANNUAL REPORT 2015 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 INCOME1,2,3
(millions of Canadian dollars)
2015 vs. 2014
2014 vs. 2013
Increase (decrease) due to changes in
Increase (decrease) due to changes 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
Residential mortgages
Canada
U.S.
Consumer instalment and other personal
Canada
U.S.
Credit card
Canada
U.S.
Business and government
Canada
U.S.
International
Total interest income
Interest-bearing liabilities
Deposits
Personal
Canada
U.S.
Banks
Canada
U.S.
Business and government
Canada
U.S.
Subordinated notes and debentures
Obligations related to securities sold short
and under repurchase agreements
Canada
U.S.
Securitization liabilities
Other liabilities
Canada
U.S.
International
Total interest expense
Net interest income
$
5
36
$
(127)
96
138
257
49
1
290
139
171
229
14
282
(7)
(1)
57
25
(36)
(102)
(88)
15
(578)
(13)
(70)
(143)
(24)
(119)
$
(2)
35
$
(5)
25
$
(1)
(1)
$
(6)
24
(70)
121
102
155
(39)
16
(288)
126
101
86
(10)
163
26
32
43
199
90
12
334
102
(62)
119
426
444
(57)
(20)
(2)
(213)
(32)
(44)
(171)
(9)
(157)
(77)
(9)
9
(31)
12
41
(14)
58
(32)
163
93
(219)
42
417
453
257
761
75
$ 2,673
(306)
(339)
(42)
$ (1,771)
(49)
422
33
$ 902
67
377
96
$ 2,325
157
(338)
(47)
$ (1,012)
224
39
49
$ 1,313
$
(302)
(21)
$ (236)
21
$
$
(310)
(41)
$
(266)
(14)
$
66
42
9
8
375
248
–
(11)
14
(126)
(12)
–
25
$ 638
$ 2,035
7
8
(119)
(404)
(22)
(74)
50
(58)
3
3
53
(876)
(895)
$
$
44
27
–
3
262
152
(29)
75
15
(159)
16
16
256
(156)
(22)
(85)
64
(184)
(9)
3
78
$ (238)
$ 1,140
1
(2)
72
$ 461
$ 1,864
$
$
7
(1)
8
(335)
(6)
(12)
5
9
5
–
13
(658)
(354)
7
2
270
(183)
(35)
63
20
(150)
6
(2)
85
(197)
$
$ 1,510
1 Certain comparative amounts have been restated to conform with the presentation
adopted in the current period.
2 Geographic classification of assets and liabilities is based on the domicile of the
booking point of assets and liabilities.
3 Interest income includes loan fees earned by the Bank, which are recognized in net
interest income over the life of the loan through the effective interest rate method.
17
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
NON-INTEREST INCOME
Non-interest income for the year on a reported basis was $12,702 million,
an increase of $325 million, or 3%, compared with last year. Adjusted
non interest income for the year was $12,713 million, an increase of
$616 million, or 5%, compared with last year. The increase in adjusted
non-interest income was primarily driven by increases in the U.S.
Retail, Canadian Retail, and Wholesale Banking segments, partially
offset by the Corporate segment. U.S. Retail non interest income
increased primarily due to the contribution from Nordstrom and the
impact of foreign currency translation, partially offset by lower gains
on sales of securities. Canadian Retail non interest income increased
primarily due to wealth asset growth, higher personal and business
banking fee-based revenue, and insurance premiums, partially offset
by the impact of a change in mix of reinsurance contracts. Wholesale
Banking non-interest income increased primarily due to strong debt
underwriting fees and corporate lending growth. Corporate segment
non-interest income decreased primarily due to the gains on sales of
TD Ameritrade shares in the prior year.
T A B L E 9
NON-INTEREST INCOME
(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
2015
2014
2013
% change
2015 vs. 2014
$
430
760
443
481
1,569
3,683
925
79
(223)
2,376
1,766
3,758
150
188
$ 12,702
$
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
4%
11
(8)
16
16
10
9
(54)
36
10
14
(3)
–
(70)
3%
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 for the year was $1,152 million,
an increase of $173 million, or 18%, compared with last year. For
additional details, refer to Note 22 of the 2015 Consolidated Financial
Statements. The increase in trading-related income over last year was
primarily driven by broad-based performance from interest rate and credit
trading, foreign exchange trading and equity trading that benefited
from improved client activity in the year. Equity trading also benefited
from increased volatility in the latter half of 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.
FINANCIAL RESULTS OVERVIEW
Provision for Credit Losses
AT A GLANCE OVERVIEW
• Reported PCL was $1,683 million, an increase of $126 million,
or 8%, compared with last year.
• Adjusted PCL was $1,683 million, an increase of $101 million,
or 6%, compared with last year.
Reported PCL for the year was $1,683 million, an increase of
$126 million, or 8%, compared with last year. Adjusted PCL for the
year was $1,683 million, an increase of $101 million, or 6%, compared
with last year. The increase was primarily driven by increases in the
Corporate and U.S. Retail segments, partially offset by a decrease in
the Canadian Retail segment. Corporate segment PCL increased
primarily due to higher provisions for incurred but not identified credit
losses related to the Canadian loan portfolio. U.S. Retail PCL increased
primarily due to volume growth, provisions related to the flooding in
South Carolina, and the impact of foreign currency translation partially
offset by continued credit quality improvement across various portfo-
lios. Canadian Retail PCL decreased primarily due to higher recoveries
in business banking, the sale of charged-off accounts, and strong
credit performance in personal banking.
18
PROVISION FOR
CREDIT LOSSES
(millions of Canadian dollars)
$2,000
1,500
1,000
500
0
13
14
15
Reported
Adjusted
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL RESULTS OVERVIEW
Expenses
AT A GLANCE OVERVIEW
• Reported non-interest expenses were $18,073 million, an
increase of $1,577 million, or 10%, compared with last year.
• Adjusted non-interest expenses were $17,076 million, an
increase of $1,213 million, or 8%, compared with last year.
• Insurance claims and related expenses were $2,500 million,
a decrease of $333 million, or 12%, compared with last year.
• Reported efficiency ratio was 57.5%, compared with 55.1%
last year.
• Adjusted efficiency ratio was 54.3%, compared with 53.4%
last year.
NON-INTEREST EXPENSES
Reported non-interest expenses for the year were $18,073 million, an
increase of $1,577 million, or 10%, compared with last year. Reported
non-interest expense included a restructuring charge of $686 million.
Adjusted non-interest expenses were $17,076 million, an increase
of $1,213 million, or 8%, compared with last year. The increase in
adjusted non-interest expenses was driven by increases in the U.S.
Retail, Canadian Retail, and Wholesale Banking segments. U.S. Retail
non-interest expenses increased primarily due to investments to
support business growth, the impact of foreign currency translation,
and the Nordstrom acquisition, partially offset by productivity savings.
Canadian Retail non-interest expenses increased primarily due to
higher employee-related costs, including higher revenue-based variable
expenses in the wealth business, business growth, and higher initiative
spend, partially offset by productivity savings. Wholesale Banking non-
interest expenses increased primarily due to the impact of foreign
exchange translation and higher operating expenses.
INSURANCE CLAIMS AND RELATED EXPENSES
Insurance claims and related expenses were $2,500 million, a decrease
of $333 million, or 12%, compared with last year, primarily due to a
change in mix of reinsurance contracts, more favourable prior years’
development, less severe weather conditions, and lower current year
claims costs.
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 57.5%, compared with 55.1% last
year. The adjusted efficiency ratio was 54.3%, compared with 53.4%
last year. The adjusted efficiency ratio, with insurance claims and
related expenses offset against revenues, was 59.0% compared with
59.1% last year.
NON-INTEREST EXPENSES
(millions of Canadian dollars)
EFFICIENCY RATIO
(percent)
$20,000
16,000
12,000
8,000
4,000
0
60%
50
40
30
20
10
0
13
14
15
13
14
15
Reported
Adjusted
Reported
Adjusted
19
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS T A B L E 1 0
NON-INTEREST EXPENSES AND EFFICIENCY RATIO
(millions of Canadian dollars, except as noted)
Salaries and employee benefits
Salaries
Incentive compensation
Pension and other employee benefits
Total salaries and employee benefits
Occupancy
Rent
Depreciation and impairment losses
Other
Total occupancy
Equipment
Rent
Depreciation and impairment losses
Other
Total equipment
Amortization of other intangibles
Marketing and business development
Restructuring charges
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
FINANCIAL RESULTS OVERVIEW
Taxes
2015
2014
2013
% change
2015 vs. 2014
$ 5,452
2,057
1,534
9,043
$ 5,171
1,927
1,353
8,451
$ 4,751
1,634
1,266
7,651
887
376
456
1,719
172
212
508
892
662
728
686
324
1,032
273
800
324
425
1,549
147
209
454
810
598
756
29
321
991
283
755
330
371
1,456
216
188
443
847
521
685
129
317
1,009
281
139
222
175
2,178
2,714
$ 18,073
160
212
185
2,151
2,708
$ 16,496
147
201
186
1,639
2,173
$ 15,069
5
7
13
7
11
16
7
11
17
1
12
10
11
(4)
2,266
1
4
(4)
(13)
5
(5)
1
–
10
57.5%
54.3
55.1%
53.4
55.3%
52.9
240bps
90
Reported total income and other taxes increased by $50 million, or 2%,
compared with last year. Income tax expense, on a reported basis, was
up $11 million, or 1%, compared with last year. Other taxes were up
$39 million, or 3%, compared with last year. Adjusted total income and
other taxes were up $252 million from last year. Total income tax expense,
on an adjusted basis, was up $213 million, or 13%, from last year.
The Bank’s effective income tax rate on a reported basis was 16.6%
for 2015, compared with 16.7% last year. For a reconciliation of the
Bank’s effective income tax rate with the Canadian statutory income tax
rate, refer to Note 26 of the 2015 Consolidated Financial Statements.
The Bank’s adjusted effective tax rate for the year was 18.3%,
compared with 17.5% last year. The year-over-year increase was
largely due to changes in business mix and the resolution of certain
audit items in 2014.
The Bank reports its investment in TD Ameritrade using the equity
method of accounting. TD Ameritrade’s tax expense of $221 million
in the year, compared with $198 million last year, was not part of the
Bank’s effective tax rate.
CANADIAN FEDERAL BUDGET
As mentioned in the Bank’s second and third quarter 2015 Reports
to Shareholders, the Government of Canada’s April budget included
proposals that would negatively impact financial institutions. We
expect that these proposals will be maintained by the recently elected
Federal government and the Bank will continue to monitor any change
to them. We note that, if effective, parts of the proposals are expected
to affect our Insurance business starting in fiscal 2016, resulting in an
increase in income taxes for that business of approximately $30 million
to $35 million, as calculated on a quarterly basis.
20
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 1 1
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
Restructuring charges
Charge related to the acquisition of Nordstrom’s credit card portfolio and related integration costs
Litigation and litigation-related charge/reserve
Fair value of derivatives hedging the reclassified available-for-sale securities portfolio
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
Impact of Alberta flood on the loan portfolio
Gain on sale of TD Waterhouse Institutional Services
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
2015
$ 1,523
2014
$ 1,512
2013
$ 1,135
95
215
31
5
(7)
–
–
–
–
339
1,862
485
135
428
181
1,229
$ 3,091
93
–
–
–
(6)
44
47
(6)
(35)
137
1,649
435
157
426
172
1,190
$ 2,839
94
39
–
26
(14)
33
7
6
–
191
1,326
404
140
380
169
1,093
$ 2,419
18.3%
17.5%
16.3%
1 For explanations of items of note, refer to the “Non-GAAP Financial Measures –
Reconciliation of Adjusted to Reported Net Income” table in the “Financial Results
Overview” section of this document.
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.
2 The tax effect for each item of note is calculated using the effective statutory
income tax rate of the applicable legal entity.
FINANCIAL RESULTS OVERVIEW
Quarterly Financial Information
FOURTH QUARTER 2015 PERFORMANCE SUMMARY
Reported net income for the quarter was $1,839 million, an increase
of $93 million, or 5%, compared with the fourth quarter last year.
Reported net income included a restructuring charge of $243 million
after tax and other items of note. Adjusted net income for the quarter
was $2,177 million, an increase of $315 million, or 17%, compared
with the fourth quarter last year. Reported diluted EPS for the quarter
was $0.96, compared with $0.91 in the fourth quarter last year.
Adjusted diluted EPS for the quarter was $1.14, compared with
$0.98 in the fourth quarter last year.
Reported revenue for the quarter was $8,047 million, an increase
of $595 million, or 8%, compared with the fourth quarter last year.
Adjusted revenue for the quarter was $8,096 million, an increase
of $645 million, or 9%, compared with the fourth quarter last year.
The increase in adjusted revenue was primarily driven by increases
in the U.S. Retail, Canadian Retail, and Wholesale Banking segments.
U.S. Retail revenue increased primarily due to strong loan and deposit
growth, broad-based fee growth, the Nordstrom acquisition, and the
impact of foreign currency translation, partially offset by lower
margins. Canadian Retail revenue increased primarily due to good loan
and deposit volume growth, higher fee-based revenue, good wealth
asset growth, and insurance premium growth, partially offset by lower
margins, a change in mix of reinsurance contracts, and the change
in fair value of investments supporting insurance claims liabilities.
Wholesale Banking revenue increased primarily due to higher trading-
related revenue, and corporate lending growth both in Canada and
the U.S., partially offset by lower equity underwriting.
PCL for the quarter was $509 million, an increase of $138 million,
or 37%, compared with the fourth quarter last year. The increase was
primarily driven by increases in the U.S. Retail and Corporate segments
partially offset by a decrease in the Canadian Retail segment. U.S.
Retail PCL increased primarily due to higher provisions for commercial
loans, provisions related to the South Carolina flooding, and the impact
of foreign currency translation. Corporate segment PCL increased
primarily due to higher provisions for incurred but not identified credit
losses related to the Canadian loan portfolio. Canadian Retail PCL
decreased primarily due to higher recoveries.
Insurance claims and related expenses for the quarter were
$637 million, a decrease of $83 million, or 12%, compared with
the fourth quarter last year, primarily due to the change in mix
of reinsurance contracts, more favourable prior years’ development
and the change in fair value of investments supporting claims
liabilities, partially offset by higher current year claims costs.
Reported non-interest expenses for the quarter were $4,911 million,
an increase of $580 million, or 13%, compared with the fourth quarter
last year. Reported non-interest expense included a restructuring
charge of $349 million. Adjusted non-interest expenses for the quarter
were $4,480 million, an increase of $293 million, or 7%, compared
with the fourth quarter last year. The increase in adjusted non interest
expenses was primarily driven by an increase in the U.S. Retail segment
partially offset by a decrease in the Corporate segment. Canadian
Retail and Wholesale Banking non-interest expenses were relatively
flat compared to the prior quarter. U.S. Retail non-interest expenses
increased primarily due to the Nordstrom acquisition, investment to
support business growth and the impact of foreign currency transla-
tion, partially offset by ongoing productivity savings.
The Bank’s reported effective tax rate was 13.0% for the quarter,
compared with 18.2% in the same quarter last year. The decrease was
largely due to the tax impact associated with the restructuring charges.
The Bank’s adjusted effective tax rate was 16.9% for the quarter,
compared with 18.9% in the same quarter last year. The decrease
was largely due to higher tax-exempt dividend income from taxable
Canadian corporations and business mix.
21
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
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 higher insurance earnings. U.S.
Retail earnings have benefited from strong loan and deposit volume
growth and continued investments to support business growth.
Wholesale Banking earnings benefited from improved trading and
investment banking results driven by strong client activity. 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. The Bank’s earnings also benefited from the impact
of foreign currency translation over the past eight quarters.
T A B L E 1 2
QUARTERLY RESULTS1
(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 taxes2
Amortization of intangibles
Restructuring charges
Charge related to the acquisition of Nordstrom’s
credit card portfolio and related integration costs
Litigation and litigation-related charge/reserve
Fair value of derivatives hedging the reclassified
available-for-sale securities portfolio
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
Impact of Alberta flood on the loan portfolio
Gain on sale of TD Waterhouse Institutional Services
Total adjustments for items of note
Net income – adjusted
Preferred dividends
Net income available to common shareholders and
non-controlling interests in subsidiaries – adjusted
Attributable to:
Non-controlling interests – adjusted
Common shareholders – adjusted
(Canadian dollars, except as noted)
Basic earnings per share
Reported
Adjusted
Diluted earnings per share
Reported
Adjusted
Return on common equity – reported
Return on common equity – adjusted
(billions of Canadian dollars, except as noted)
2015
For the three months ended
2014
Oct. 31
Jul. 31
Apr. 30
Jan. 31
Oct. 31
Jul. 31
Apr. 30
Jan. 31
$ 4,887
3,160
8,047
509
637
4,911
259
$ 4,697
3,309
8,006
437
600
4,292
502
$ 4,580
3,179
7,759
375
564
4,705
344
$ 4,560
3,054
7,614
362
699
4,165
418
$ 4,457
2,995
7,452
371
720
4,331
370
$ 4,435
3,074
7,509
338
771
4,040
330
$ 4,391
3,044
7,435
392
659
4,029
447
$ 4,301
3,264
7,565
456
683
4,096
365
108
1,839
91
2,266
88
1,859
90
2,060
86
1,746
77
2,107
80
1,988
77
2,042
65
243
51
–
(21)
–
62
–
–
(24)
(19)
–
65
228
–
32
(15)
–
63
–
–
–
–
–
62
–
–
–
–
54
60
–
–
–
(24)
27
63
–
–
–
–
23
61
–
–
–
(19)
21
–
–
–
338
2,177
26
–
–
–
19
2,285
25
–
–
–
310
2,169
24
–
–
–
63
2,123
24
–
–
–
116
1,862
32
16
(19)
–
60
2,167
25
–
–
–
86
2,074
40
115
–
(196)
(18)
2,024
46
2,151
2,260
2,145
2,099
1,830
2,142
2,034
1,978
29
$ 2,122
28
$ 2,232
28
$ 2,117
27
$ 2,072
27
$ 1,803
27
$ 2,115
26
$ 2,008
27
$ 1,951
$ 0.96
1.15
$ 1.20
1.21
$ 0.98
1.15
$ 1.09
1.12
$ 0.92
0.98
$ 1.12
1.15
$ 1.05
1.09
$ 1.07
1.06
0.96
1.14
11.4%
13.5
1.19
1.20
14.9%
15.0
0.97
1.14
12.8%
15.0
1.09
1.12
14.6%
15.1
0.91
0.98
13.1%
14.0
1.11
1.15
16.3%
16.8
1.04
1.09
15.9%
16.6
1.07
1.06
16.4%
16.2
Average earning assets
Net interest margin as a percentage of average earning assets
$ 958
$ 925
$ 906
$ 862
$ 832
$ 810
$ 798
$ 791
2.02%
2.01%
2.07%
2.10%
2.13%
2.17%
2.26%
2.16%
1 Certain comparative amounts have been restated, where applicable, as a result
2 For explanations of items of note, refer to the “Non-GAAP Financial Measures –
of the implementation of the 2015 IFRS Standards and Amendments.
Reconciliation of Adjusted to Reported Net Income” table in the “Financial Results
Overview” section of this document.
22
TD BANK GROUP ANNUAL REPORT 2015 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, 3,153 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 busi-
ness 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 opera-
tions operating under the brand TD Bank, America’s Most Convenient
Bank,® auto financing services, and wealth management services in
the U.S. The retail banking operations provide a full range of financial
products and services to over 8 million customers through multiple
delivery channels, including a network of 1,298 stores located along
the east coast from Maine to Florida, mobile and internet banking,
automated teller machines (ATM), and telephone. The commercial
banking operations serves the needs of businesses, through a diversi-
fied range of products and services to meet their financing, invest-
ment, cash management, international trade, and day-to-day banking
needs. Auto finance provides flexible financing options to customers
at point of sale for automotive vehicle purchases. Wealth management
offers a wide range of wealth products and services to retail and insti-
tutional clients. U.S. Retail works with TD Ameritrade to refer mass
affluent clients to TD Ameritrade for their direct investing needs. The
results of the Bank’s equity investment in TD Ameritrade are included
in U.S. Retail and reported as equity in net income of an investment
inassociate, net of income taxes.
Wholesale Banking provides a wide range of capital markets, invest-
ment 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 meeting the daily
trading, funding, and investment needs of our clients. Operating under
the TD Securities brand, our clients include highly-rated companies,
governments, and institutions in key financial markets around the world.
Wholesale Banking is an integrated part of TD’s strategy, providing
market access to TD’s wealth and retail operations, and providing
wholesale banking solutions to our partners and their customers.
The Bank’s other business activities are not considered reportable
segments and are, therefore, grouped in the Corporate segment.
The Corporate segment includes the impact of treasury and balance
sheet management activities, provisions for incurred but not identified
credit losses, tax items at an enterprise level, the elimination of
taxable equivalent and other intercompany adjustments, and residual
unallocated revenue and expenses.
Effective October 1, 2015, the results of the acquired Nordstrom U.S.
Credit Card Portfolio are reported in the U.S. Retail segment. Effective
December 27, 2013, and January 1, 2014, the results of the acquired
Aeroplan credit card portfolio and the results of the related affinity
relationship with Aimia Inc. (collectively, “Aeroplan”) are reported in
the Canadian Retail 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 busi-
ness segments is presented before any items of note not attributed to
the operating segments. For further details, refer to the “Financial
Results Overview” section of this document. For information concern-
ing the Bank’s measure of adjusted ROE, which is a non-GAAP finan-
cial measure, refer to the “Return on Common Equity” section.
Segmented information also appears in Note 30 of the 2015
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 $417 million, compared
with $428 million last year.
As noted in Note 9 of the 2015 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 2016” 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, refer to the “Caution Regarding Forward-
Looking Statements” section and the “Risk Factors That May Affect
Future Results” section.
23
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS T A B L E 1 3
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
Charge related to the acquisition of
Nordstrom’s credit card portfolio
and related integration costs
Restructuring charges
Litigation and litigation-related charge/reserve
Fair value of derivatives hedging the reclassified
available-for-sale securities portfolio
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
Impact of Alberta flood on the loan portfolio
Gain on sale of TD Waterhouse
Institutional Services
Total adjustments for items of note
Net income (loss) – adjusted
(billions of Canadian dollars)
Average common equity2
CET1 Capital risk-weighted assets3,4
Canadian
Retail
U.S. Retail
Wholesale
Banking
Corporate
2015
2014
2015
2014
2015
2014
2015
2014
2015
Total
2014
$ 9,781
9,904
887
2,500
8,407
7,891
1,953
$ 9,538
9,623
946
2,833
8,438
6,944
1,710
$ 7,011
2,414
749
–
6,170
2,506
394
$ 6,000
2,245
676
–
5,352
2,217
412
$ 2,295
631
18
–
1,701
1,207
334
$ 2,210
470
11
–
1,589
1,080
267
$
(363) $
(247)
29
–
1,795
(2,434)
(1,158)
(164) $ 18,724 $ 17,584
12,377
1,557
2,833
16,496
9,075
1,512
12,702
1,683
2,500
18,073
9,170
1,523
39
(76)
–
1,117
(1,166)
(877)
–
5,938
–
5,234
376
2,488
305
2,110
–
873
–
813
1
(1,275)
15
(274)
377
8,024
320
7,883
–
–
–
–
–
–
–
–
–
–
–
–
–
125
131
–
–
51
–
8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$ 5,938
–
256
$ 5,490
–
59
$ 2,547
–
–
$ 2,110
–
–
$ 873
–
–
$ 813
$ 13.9
106
$ 12.6
100
$ 31.1
200
$ 25.1
158
$
$
5.8
65
4.7
61
255
246
255
246
–
471
–
–
–
–
51
471
8
–
–
–
(55)
(43)
(55)
(43)
–
–
–
–
–
(19)
–
–
–
125
131
(19)
–
671
(604) $
(196)
(12)
(196)
–
244
730
(286) $ 8,754 $ 8,127
$
7.4
11
7.1 $
9
58.2 $
382
49.5
328
$
$
1 For explanations of items of note, refer to the “Non-GAAP Financial Measures −
4 Effective the third quarter of 2014, each capital ratio has its own risk-weighted
Reconciliation of Adjusted to Reported Net Income” table in the “Financial Results
Overview” section of this document.
2 Certain comparative amounts have been restated to conform with the presentation
adopted in the current period.
3 Prior to 2015, amounts have not been adjusted to reflect the impact of the 2015
IFRS Standards and Amendments.
assets (RWA) measure due to the Office of the Superintendent of Financial Institu-
tion (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. For fiscal 2015, the
scalars are 64%, 71%, and 77%, respectively.
24
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
ECONOMIC SUMMARY AND OUTLOOK
The first half of calendar 2015 saw a marked downturn in the Canadian
economy, as real gross domestic product (GDP) contracted in both the
first and second quarters. It is estimated that economic growth resumed
in the July to September period, helped in part by a rebound in exports
to the U.S. and some one-time factors, including the resumption of
production at a major automotive plant. Looking ahead to the next four
to five quarters, real GDP is expected to average a moderate 2% on a
quarterly annualized basis. In contrast, the U.S. economy has continued
to expand steadily, growing an average of 2% per quarter between
January and September 2015. Economic growth in the U.S. is expected
to pick up to about 2.5% in subsequent quarters.
Beyond the North American borders, economic conditions are mixed.
Signs of improvement can be seen in the main European economies
and in the United Kingdom, but economies remain highly reliant on
extraordinary monetary accommodation. Growth remains stubbornly
weak in emerging markets. This emerging market weakness in many
ways reflects concerns about the Chinese economy, which has entered
a lower-growth phase. At the same time, global commodity prices,
notably metals, have trended lower. This has resulted in a weaker
growth outlook for economies with exposure to both commodity
production and/or China exports, such as Australia.
While low commodity prices are proving a headwind for many
economies, the converse is true in the U.S., where low commodity
prices (particularly within the energy sector) are helping to support
consumer spending. Indeed, while activity expanded only 1.5% in the
June to September period, this reflected a drawdown in inventories and
headwinds on exports from a strong U.S. dollar. Consumer spending far
outpaced that of overall growth, rising a robust 3.2% in the same period
reflecting solid pent-up demand and relatively low unemployment.
Increased spending by households and domestic-oriented businesses
is expected to yield above-trend economic growth in calendar 2016.
Consistent with an economy that has less and less slack remaining,
the U.S. Federal Reserve appears likely to raise rates in December 2015,
with further gradual increases likely thereafter.
The outlook for the main sectors of the Canadian economy varies.
Household consumption will likely be constrained by record-high debt
levels, although debt service payments remain affordable helped by
the low interest rate environment. The net effect will be an ongoing
expansion of household spending, but at a slower pace than seen in
the past. Non-residential investment is expected to continue contract-
ing into the first half of calendar 2016, as persistently low oil prices
continue to impact investment planning decisions in the important oil
and gas sector.
Residential investment has continued to be a key driver of the
Canadian economy so far in calendar 2015. The effect of past interest
rate cuts, which have been supportive of this sector, are expected to fade
by mid-2016, and housing investment is expected to decline as further
supply comes on market. Overall, a small pause in the sector is likely,
helping rebalance the market after a prolonged period of expansion.
Canadian exporters are expected to be a key source of growth
over the second half of calendar 2015 and throughout 2016, fuelled
by rising U.S. demand and a favourable exchange rate against the
U.S. dollar. Strong growth in this sector will likely lead to some invest-
ment spending, particularly on machinery and equipment, which is
forecast to partially offset expected weakness in the oil and gas sector.
Additional investment support is likely to come from the federal
government, which has pledged further infrastructure spending. While
details are not yet available, this spending may boost GDP growth in
calendar years 2016 and 2017 by as much as 0.1 and 0.3 percentage
points, respectively.
With growth expected to settle in at a moderate 2% in the coming
quarters, there does not appear to be any significant fundamental
inflationary pressures in Canada, and as a result, core inflation is
expected to remain near 2% for the foreseeable future, in line with
the Bank of Canada’s target. Oil price movements have resulted in a
significant deviation of overall inflation from the core rate, averaging
just 1.1% year-on-year growth in the June to September period of 2015.
1 Amounts exclude Corporate Segment.
With oil prices expected to remain persistently low, it is likely that
inflation will remain well below the 2% target throughout both fiscal
and calendar 2016. Prospects for relatively low inflation and the
moderate growth profile provide little impetus for Bank of Canada to
change interest rates. The policy interest rate is expected to remain at
0.50% until mid-2017, at which point the Bank of Canada is expected
to begin increasing interest rates, albeit at a more gradual pace than
seen in past tightening cycles.
We consider the forecast outlined above to be the most likely
scenario. However, forecasts are by definition uncertain, and risks to
the outlook exist. Significant uncertainty remains around the outlook
for growth in China. A sharper slow-down of growth than anticipated
would place sizeable downward pressure on commodity prices, reduc-
ing the value of Canadian exports and relative investment. Canadian
exports themselves present a risk to the outlook, accounting for more
than a quarter of expected growth in calendar 2016; should foreign
demand fail to evolve in line with expectations, economic growth may
disappoint. It is also possible that the Canadian economy may outper-
form our expectations. In particular, the resiliency of Canadian housing
demand has been underestimated in the past, and this may continue
to be the case given low interest rates and continued income gains.
NET INCOME – REPORTED BY BUSINESS SEGMENT
(as a percentage of total net income)
1
70%
60
50
40
30
20
10
0
13
14
15
13
14
15
13
14
15
NET INCOME – ADJUSTED BY BUSINESS SEGMENT
(as a percentage of total net income)
1
70%
60
50
40
30
20
10
0
13
14
15
13
14
15
13
14
15
Canadian Retail
U.S. Retail
Wholesale Banking
25
TD BANK GROUP ANNUAL REPORT 2015 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.
NET INCOME
(millions of Canadian dollars)
EFFICIENCY RATIO
(percent)
$6,000
5,000
4,000
3,000
2,000
1,000
0
50%
40
30
20
10
0
13
14
15
13
14
15
Reported
Adjusted
Reported
Adjusted
T A B L E 1 4
REVENUE – Reported
(millions of Canadian dollars)
Personal banking
Business banking
Wealth
Insurance
Total
2015
$ 9,993
2,323
3,436
3,933
$ 19,685
2014
$ 9,600
2,284
3,226
4,051
$ 19,161
2013
$ 8,808
2,232
2,917
3,825
$ 17,782
26
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
CHALLENGES IN 2015
• Continued low interest rate environment, including two
Bank of Canada rate cuts, contributed to further deposit
margin compression.
• Fierce competition for new and existing customers from
the major Canadian banks and non-bank competitors.
• Challenging retail lending environment due to weak
economic growth and elevated consumer debt levels.
INDUSTRY PROFILE
The personal and business banking environment in Canada is very
competitive among the major banks as well as some strong regional
players 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
delivering outstanding customer service and convenience, disciplined
risk management practices, and prudent expense management.
Business growth in the fiercely competitive wealth management
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
competitive 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 consistently deliver top tier earnings
performance.
BUSINESS HIGHLIGHTS
• Achieved record adjusted earnings of $5,938 million, and
an adjusted efficiency ratio of 42.7%.
• Recognized as an industry leader in customer service
excellence with distinctions that included the following:
– TD Canada Trust ranked “Highest in Customer Satisfaction
Among the Big Five Retail Banks”2 for the tenth consecutive
year by J.D. Power, a global marketing information
company. The 2015 Canadian Retail Banking Customer
Satisfaction Study included responses from over
14,000 customers who use a primary financial institution
for personal banking.
– TD Canada Trust retained the #1 spot in “Customer Service
Excellence”3 among the Big Five Retail Banks for the
eleventh consecutive year according to Ipsos, a global
market research firm.
– TD Canada Trust has won the “Online Banking Excellence”4
award among the Big Five Retail Banks for the eleventh
consecutive year according to Ipsos, a global market
research firm.
– TD Canada Trust has won the “Mobile Banking Excellence”5
award among the Big Five Retail Banks in every single year
of the award’s existence according to Ipsos, a global market
research firm.
– TD Wealth Private Investment Advice received the second-
highest numerical score for overall customer satisfaction
in the proprietary J.D. Power 2015 Canadian Full Service
Investor Satisfaction StudySM6.
• 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 had record originations in Canada
during the year ended October 31, 2015.
• Business banking continued to generate strong loan volume
growth of 9%.
• TD Insurance achieved a record $3.9 billion in total premiums
in 2015.7
• TD Asset Management (TDAM), the manager of TD Mutual
Funds, had record long-term fund sales and record assets
under management.
• TD has maintained strong Canadian market share8
in key products:
– #1 in real estate secured lending, personal deposit,
and credit card market share.
– #2 in personal loan market share.
– #2 in Business Banking deposit and loan market share.
– #1 in Direct Investing by asset, trade, and revenue
market share.
2 Received the highest numerical score among the big five retail banks in the
proprietary J.D. Power 2006-2015 Canadian Retail Banking Customer Satisfaction
StudiesSM. 2015 study based on over 14,000 total responses and measures opinions
of consumers with their primary banking institution. Proprietary study results are
based on experiences and perceptions of consumers surveyed April-May 2015.
Your experiences may vary. Visit www.jdpower.com.
5 TD Canada Trust has won the award among the big five retail banks in the
proprietary Ipsos 2013-2015 Best Banking StudiesSM. The Mobile Banking
Excellence award was introduced in 2013. Ipsos 2015 Best Banking Awards are
based on ongoing quarterly CSI survey results. Sample size for the total 2015 CSI
program year ended with the August 2015 survey wave was 45,391 completed
surveys yielding 65,991 financial institution ratings nationally.
3 Ipsos 2015 Best Banking Awards are based on ongoing quarterly Customer Service
Index (CSI) survey results. Sample size for the total 2015 CSI program year ended
with the August 2015 survey wave was 45,391 completed surveys yielding
65,991 financial institution ratings nationally.
6 Proprietary study results are based on responses from 4,827 investors who use advice-
based investment services from financial institutions in Canada. The study was fielded
in May and June 2015. Your experiences may vary. Visit www.jdpower.com.
7 Gross Written Premiums for General Insurance business and Collected Premiums
4 TD Canada Trust has won the Online Banking Excellence award among the big five
retail banks in the proprietary Ipsos 2006-2015 Best Banking StudiesSM. Ipsos 2015
Best Banking Awards are based on ongoing quarterly CSI survey results. Sample size
for the total 2015 CSI program year ended with the August 2015 survey wave was
45,391 completed surveys yielding 65,991 financial institution ratings nationally.
for Life and Health business.
8 Market share ranking is based on most current data available from the Canadian
Bankers Association for Real Estate Secured Lending as at July 2015, from the
Canadian Bankers Association for Business Deposits and Loans as at June 2015,
from public financial disclosures for average credit card balances as at July 2015,
from OSFI for Personal Deposits and Loans as at August 2015, and from Investor
Economics for asset, trade, and revenue metrics as at September 2015.
27
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS T A B L E 1 5
CANADIAN RETAIL
(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 – 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 – reported2
Return on common equity – adjusted2
Margin on average earning assets (including securitized assets) – reported and adjusted
Efficiency ratio – reported
Efficiency ratio – adjusted
Number of Canadian retail branches
Average number of full-time equivalent staff3
2015
$ 9,781
9,904
19,685
887
2,500
8,407
8,407
5,938
2014
$ 9,538
9,623
19,161
946
2,833
8,438
8,091
5,234
2013
$ 8,922
8,860
17,782
929
3,056
7,754
7,602
4,569
–
125
92
–
$ 5,938
131
$ 5,490
20
$ 4,681
42.8%
42.8
2.87
42.7
42.7
1,165
39,218
41.7%
43.7
2.95
44.0
42.2
1,165
39,389
42.3%
43.3
2.92
43.6
42.7
1,179
39,535
1 For explanations of items of note, refer to the “Non-GAAP Financial Measures –
Reconciliation of Adjusted to Reported Net Income” table in the “Financial Results
Overview” section of this document.
2 Effective fiscal 2015, capital allocated to the business segments is based on 9%
3 In fiscal 2014, the Bank conformed to a standardized definition of full-time equiva-
lent staff across all segments. The definition includes, among other things, hours
for overtime and contractors as part of its calculations. Results for fiscal 2013 have
not been restated.
CET1 Capital. These changes have been applied prospectively.
REVIEW OF FINANCIAL PERFORMANCE
Canadian Retail net income for the year on a reported basis was
$5,938 million, an increase of $704 million, or 13%, compared with
last year. Adjusted net income for the year was $5,938 million, an
increase of $448 million, or 8%, compared with last year. The increase
in adjusted earnings was primarily due to good loan and deposit volume
growth, good wealth asset growth, strong credit performance, and
higher insurance earnings, partially offset by margin compression and
expense growth. The reported and adjusted annualized ROE for the year
was 42.8%, compared with 41.7% and 43.7%, 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
$19,685 million, an increase of $524 million, or 3%, compared with
last year. Net interest income increased $243 million, or 3%, driven
primarily by good loan and deposit volume growth and the full year
impact of Aeroplan, partially offset by lower margins. Non-interest
income increased $281 million, or 3%, largely driven by wealth asset
growth, higher personal and business banking fee-based revenue,
and insurance premium growth, partially offset by a change in mix of
reinsurance contracts. Margin on average earning assets was 2.87%,
a decrease of 8 bps, primarily due to the low rate environment and
competitive pricing.
The personal banking business generated good average lending
volume growth of $12.8 billion, or 5%. Average real estate secured
lending volume increased $9.5 billion, or 4%. Auto lending average
volume increased $2.4 billion, or 16%, while all other personal lending
average volumes increased $0.9 billion, or 3%. Business loans and
acceptances average volume increased $4.5 billion, or 9%. Average
personal deposit volumes increased $7.0 billion, or 5%, due to strong
growth in core chequing and savings volumes, partially offset by lower
term deposit volume. Average business deposit volumes increased
$5.1 billion, or 7%.
Assets under administration (AUA) were $310 billion as at
October 31, 2015, an increase of $17 billion, or 6%, and assets
under management (AUM) were $245 billion at October 31, 2015,
an increase of $18 billion, or 8%, compared with last year, driven
by strong new asset growth.
PCL for the year was $887 million, a decrease of $59 million, or 6%
compared with last year. Personal banking PCL was $855 million, a
decrease of $20 million, or 2%, due primarily to the sale of charged-
off accounts and strong credit performance, partially offset by higher
provisions in the auto lending portfolio. Business banking PCL was
$32 million, a decrease of $39 million, primarily due to higher
recoveries in the current year. Annualized PCL as a percentage
of credit volume was 0.26%, a decrease of 3 bps, compared with
last year. Net impaired loans were $715 million, a decrease of
$119 million, or 14%, compared with last year.
Insurance claims and related expenses were $2,500 million, a
decrease of $333 million, or 12%, compared with last year, primarily
due to a change in mix of reinsurance contracts, more favourable prior
years’ claims development, less severe weather conditions, and lower
current year claims costs.
Reported non-interest expenses for the year were $8,407 million,
a decrease of $31 million, compared to last year. Adjusted non-interest
expenses for the year were $8,407 million, an increase of $316 million,
or 4%, compared with last year. The increase was driven primarily by
higher employee-related costs, including higher revenue-based variable
expenses in the wealth business, business growth, and higher initiative
spend, partially offset by productivity savings.
The reported and adjusted efficiency ratio was 42.7%, compared
with 44.0% and 42.2%, respectively, last year.
28
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
KEY PRODUCT GROUPS
Personal Banking
• Personal Deposits – offers a full suite of chequing, savings, and
investment products to retail clients across Canada. In 2015, TD
achieved strong volume growth in Personal Deposits, and grew its
market share leadership by focusing on acquiring and retaining core
customer accounts. Growth in non-term deposits offset run-off in
lower margin term deposits primarily in agent channels. The business
was able to largely offset the impact of lower interest rates through
volume growth, margin management, and growth in other income.
• Consumer Lending – offers a diverse range of financing products to
suit the needs of retail clients across Canada. In 2015, lending volumes
continued to grow at a moderate pace. TD maintained its leadership
position in market share for real estate secured lending, focusing on
new product offerings and increasing customer retention.
• Credit Cards and Merchant Services – offers a range of credit card
products including co branded and affinity credit card programs.
In April 2015, TD enacted reductions to interchange rates along
with the rest of the industry. The business maintained the number
one position in credit card market share.9
• Auto Finance – offers retail automotive and recreational vehicle
financing through an extensive network of dealers across Canada.
In 2015, TD delivered record portfolio growth in a highly competi-
tive market by producing financial solutions for automotive and
recreational product dealerships, developing flexible vehicle financ-
ing options, and continuing its focus on service. TD also took steps
to enhance the productivity and efficiency of its operational and
adjudication functions by automating key processes.
Business Banking
• Commercial Banking – serves the needs of Canadian businesses
across a wide range of industries. In 2015, 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 2015, the busi-
ness continued to make investments in technology and credit
processes 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 AUA and trade volume in 2015. 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 broker-
age, and private client services, across different portfolio sizes and
levels of product complexity, to help clients protect, grow and tran-
sition their wealth. The advice-based wealth business is integrated
with the Canadian personal and commercial banking businesses.
New asset acquisition drove asset growth in 2015.
• Asset Management – TDAM is a leading investment manager with
deep retail and institutional capabilities. TD Mutual Funds is a lead-
ing mutual fund business, providing a broadly diversified range of
mutual funds and professionally managed portfolios. TDAM’s insti-
tutional investment business has a leading market share in Canada
and includes clients of some of the largest pension funds, endow-
ments, 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. TDAM had
another record year for AUM and long-term fund sales.
9 Market share ranking is based on the most current data available from public
financial disclosures for average credit card balances as at July 2015.
10 Based on Gross Written Premiums for General Insurance business. Ranks based
on data available from OSFI, Insurers, Insurance Bureau of Canada, and Provincial
Regulators, as at December 31, 2014.
Insurance
• Property and Casualty – TD is the largest direct distribution insurer10
and the third largest personal insurer10 in Canada. It is also the
national leader in the affinity market offering home and auto insur-
ance to members of affinity groups such as professional associations,
universities and employer groups, and other customers, through
direct channels.
• 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 2016
We will continue to focus on our legendary customer service and
convenience across all channels. Our commitment to continually
invest in our businesses positions us well for future growth. We
expect earnings growth to moderate in 2016 due to a challenging
operating environment. 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 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 acquisi-
tion is expected to be strong; however, benefits from market
appreciation next year are subject to capital markets performance.
Insurance results will depend upon, among other things, the
frequency and severity of weather-related events, as well as any
future potential regulatory and legislative changes. The tax rate
on insurance earnings is expected to increase starting in 2016
if recent legislative proposals become effective. We expect an
increase in credit losses for 2016 driven by normalizing credit
conditions and volume growth. We will maintain our focus on
productivity initiatives.
Our key priorities for 2016 are as follows:
• Continue to deliver a legendary customer experience across
all businesses and distribution channels.
• Invest in and deliver on organic growth opportunities across
our businesses.
• Retain and grow our market leadership in Credit Cards.
• Accelerate our growth in the Wealth Advice channels, enrich
the client offering in the Direct Investing business, and
innovate for leadership in Asset Management.
• Continue to invest in our insurance product offerings ensuring
that they are competitive, easy to understand and provide the
protection our clients need.
• Keep our focus on productivity to enhance the customer
experience, employee satisfaction, and shareholder value.
• Continue to be an extraordinary place to work.
29
TD BANK GROUP ANNUAL REPORT 2015 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, auto finance, and wealth management.
NET INCOME
(millions of Canadian dollars)
EFFICIENCY RATIO
(percent)
$3,000
2,500
2,000
1,500
1,000
500
0
80%
60
40
20
0
13
14
15
13
14
15
Reported
Adjusted
Reported
Adjusted
T A B L E 1 6
REVENUE – Reported
(millions of dollars)
Personal Banking
Business Banking
Wealth
Other1
Total
1 Other revenue consists primarily of revenue from investing activities.
2015
$ 5,496
2,729
411
789
$ 9,425
Canadian dollars
2014
$ 4,685
2,353
330
877
$ 8,245
2013
$ 3,778
2,094
202
1,248
$ 7,322
2015
$ 4,415
2,192
330
637
$ 7,574
2014
$ 4,297
2,158
303
805
$ 7,563
U.S. dollars
2013
$ 3,701
2,051
198
1,223
$ 7,173
30
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
BUSINESS HIGHLIGHTS
• Record adjusted earnings of US$2,053 million, up 6%
compared with last year.
• Continued to provide legendary customer service
and convenience:
– Named “Best Big Bank in America” by Money Magazine
for the third year in a row.
– Won the 2015 J.D. Power U.S. Small Business Banking
Award for the Northeast.11
– Named to DiversityInc.’s Top 50 Companies in the U.S.
for diversity for the third year in a row.
• Outperformed our peers in loan growth and household
acquisition.
• Deepened share of wallet for new and existing customers.
• Continued to invest in digital and in our omni-channel
experience.
• Expanded our credit cards business and closed the
Nordstrom transaction.
CHALLENGES IN 2015
• The sustained low interest rate environment and
a competitive lending landscape contributed to further
margin compression.
• Slow economic growth created a challenging environment
for retail lending.
• We faced fierce competition for new and existing customers
from U.S. banks and non-bank competitors.
• We managed the impacts of the regulatory and
legislative environment.
INDUSTRY PROFILE
The U.S. consumer and commercial banking industry is highly
competitive and includes several very large financial institutions as
well as regional banks, small community and savings banks, finance
companies, credit unions, and other providers of financial services.
The wealth management industry is also competitive and includes
national and regional banks, insurance companies, independent
mutual fund companies, brokers, and independent asset management
companies. The keys to profitability are attracting and retaining
customer relationships with legendary service and convenience,
offering competitively priced products that meet customers’ evolving
needs, managing expenses, and disciplined risk management.
OVERALL BUSINESS STRATEGY
Our goal is to outgrow and outperform our peers in the U.S.
Where we Compete:
• Retail and Commercial Banking along the Eastern seaboard
• Profitable customer segments in growth markets where we have
a competitive advantage
• Out-of-footprint opportunities within our risk appetite
How we Win:
• Deliver legendary service and convenience
• Grow and deepen customer relationships
• Leverage our differentiated brand as the “human” bank
• Deliver productivity initiatives that enhance both the employee
and customer experience
• Maintain our conservative risk appetite
• Build upon our unique employee culture
11 TD Bank, N.A. received the highest numerical score in the northeast in the
proprietary J.D. Power 2015 Small Business Banking Satisfaction StudySM. Study
based on 8,086 total responses, measuring 8 financial institutions in the northeast
(Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York,
Pennsylvania, Rhode Island, Vermont) and measures opinions of small business
customers with annual revenues from $100,000 to $10 million. Proprietary
study results are based on experiences and perceptions of customers surveyed
in July-August 2015. Your results may vary. Visit www.jdpower.com.
31
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS T A B L E 1 7
U.S. RETAIL1,2
(millions of dollars, except as noted)
Net interest income
Non-interest income
Total revenue – reported
Total revenue – adjusted
Provision for credit losses – loans3
Provision for (recovery of) credit losses –
debt securities classified as loans
Provision for credit losses
Non-interest expenses – reported
Non-interest expenses – adjusted
U.S. Retail Bank net income – reported4
Adjustments for items of note, net of income taxes5
Charge related to the acquisition of Nordstrom’s
credit card portfolio and related integration costs
Litigation and litigation-related charge/reserve
U.S. Retail Bank net income – adjusted4
Equity in net income of an investment in associate,
net of income taxes
Net income – adjusted
Net income – reported
Selected volumes and ratios
Return on common equity – reported6
Return on common equity – adjusted6
Margin on average earning assets (TEB)7
Efficiency ratio – reported
Efficiency ratio – adjusted
Number of U.S. retail stores
Average number of full-time equivalent staff8
2015
$ 7,011
2,414
9,425
9,498
787
(38)
749
6,170
6,148
2,112
51
8
2,171
376
$ 2,547
2,488
Canadian dollars
U.S. dollars
2014
$ 6,000
2,245
8,245
8,245
692
(16)
676
5,352
5,352
1,805
–
–
1,805
305
$ 2,110
2,110
2013
$ 5,173
2,149
7,322
7,322
811
(32)
779
4,768
4,642
1,506
–
100
1,606
246
$ 1,852
1,752
2015
$ 5,632
1,942
7,574
7,630
632
(29)
603
4,952
4,933
1,701
39
7
1,747
306
$ 2,053
2,007
2014
$ 5,503
2,060
7,563
7,563
635
(14)
621
4,907
4,907
1,657
–
–
1,657
281
$ 1,938
1,938
2013
$ 5,070
2,103
7,173
7,173
795
(31)
764
4,671
4,545
1,474
–
100
1,574
241
$ 1,815
1,715
8.0%
8.2
3.61
65.5
64.7
1,298
25,647
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
8.0%
8.2
3.61
65.5
64.7
1,298
25,647
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
1 Certain comparative amounts have been reclassified to conform with the presentation
6 Effective fiscal 2015, capital allocated to the business segments is based on 9%
adopted in the current period.
CET1 Capital. These changes have been applied prospectively.
2 Revenue, PCL, and expenses related to Target and Nordstrom are reported
7 The margin on average earning assets excludes the impact related to the TD Ameritrade
on a gross basis in the Consolidated Statement of Income.
3 Includes provisions for credit losses on acquired credit-impaired (ACI) loans
including all Federal Deposit Insurance Corporation (FDIC) covered loans.
4 Results exclude the impact related to the equity in net income of the investment
in TD Ameritrade.
insured deposit accounts (IDA). On a prospective basis, beginning in the second
quarter of 2015, the margin on average earning assets (a) excludes the impact
of cash collateral deposited by affiliates with the U.S. banks, which have been
eliminated at the U.S. Retail segment level and (b) the allocation of investments
to the IDA has been changed to reflect the Basel III liquidity rules.
5 For explanations of items of note, refer to the “Non-GAAP Financial Measures −
8 In fiscal 2014, the Bank conformed to a standardized definition of full-time
Reconciliation of Adjusted to Reported Net Income” table in the “Financial Results
Overview” section of this document.
equivalent staff across all segments. The definition includes, among other things,
hours for overtime and contractors as part of its calculations. Results for fiscal
2013 have not been restated.
REVIEW OF FINANCIAL PERFORMANCE
U.S. Retail net income for the year on a reported basis was $2,488 million
(US$2,007 million). U.S. Retail adjusted net income for the year was
$2,547 million (US$2,053 million), which included net income of
$2,171 million (US$1,747 million) from the U.S. Retail Bank and
$376 million (US$306 million) from TD’s investment in TD Ameritrade.
Canadian dollar earnings benefited from a strengthening of the U.S.
dollar during the year. The reported and adjusted annualized ROE for the
year was 8.0% and 8.2% respectively, compared with 8.4% last year.
U.S. Retail Bank reported net income for the year was US$1,701 million,
an increase of US$44 million, or 3%, compared with last year.
U.S. Retail Bank adjusted earnings of US$1,747 million increased
US$90 million, or 5%, compared with last year, primarily due to strong
organic growth, lower PCL, good expense management, and a lower
effective tax rate, partially offset by lower loan margins and lower
gains on sales of securities. The contribution from TD Ameritrade of
US$306 million was up 9% compared with last year, primarily due to
strong asset growth and higher transaction revenue, partially offset
by higher operating expenses and lower investment gains.
Reported revenue for the year was US$7,574 million, an increase
of US$11 million, relatively flat compared with last year. Adjusted
revenue was US$7,630 million, an increase of US$67 million, or 1%,
compared with last year, primarily due to strong organic loan and
deposit growth, higher fee revenue, and the contribution from
Nordstrom, partially offset by net margin compression, as well as,
lower accretion, and lower gains on sales of securities. Margin on
average earning assets was 3.61%, a 14 bps decrease compared with
last year primarily due to lower loan margins. Average loan volumes
increased US$11 billion, or 10%, compared with last year, driven by
a 17% increase in business loans and a 4% increase in personal loans.
Average deposit volumes increased US$11 billion, or 5%, compared
with last year driven by 7% growth in personal deposits, 5% growth
in business deposits, and 4% growth in TD Ameritrade deposits.
AUA were US$9.6 billion at October 31, 2015, an increase of
US$430 million, or 5%, compared with the last year, primarily due to
market appreciation. AUM were US$76.9 billion at October 31, 2015,
an increase of US$17.6 billion, or 30%, compared with last year,
mainly driven by net new asset growth.
32
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
PCL for the year was US$603 million, a decrease of US$18 million,
or 3%, compared with last year, primarily due to continued credit
quality improvement across various portfolios, partially offset by
volume growth and provisions related to South Carolina flooding.
Personal banking PCL was US$538 million, a decrease of US$92 million,
or 15%, compared with last year, reflecting good credit quality and
favourable loss rates across various products, partially offset by
the South Carolina flooding provision. Business banking PCL was
US$93 million, an increase of US$90 million compared to last year
primarily due to normalizing credit conditions and volume growth.
Annualized PCL as a percentage of credit volume for loans, excluding
debt securities classified as loans, was 0.48%, a decrease of 7 bps
compared with last year. Net impaired loans, excluding acquired credit-
impaired (ACI) loans and debt securities classified as loans, were
US$1.5 billion, an increase of US$209 million, or 17%, compared with
last year, driven primarily by inclusion of certain performing home
equity loans that have been reported as impaired, because borrowers
may not qualify under current underwriting guidelines. Net impaired
loans as a percentage of total loans were 1.1% as at October 31,
2015, flat compared with last year. Net impaired debt securities classi-
fied as loans were US$797 million at October 31, 2015, compared
with US$919 million at October 31, 2014.
Reported non-interest expenses for the year were US$4,952 million,
an increase of US$45 million, or 1%, compared with last year. On an
adjusted basis, non-interest expenses were US$4,933 million, an
increase of US$26 million, or 1%, compared with last year, primarily
due to the impact of Nordstrom and investments to support business
growth, partially offset by productivity savings. The reported and
adjusted efficiency ratio for the year was 65.5% and 64.7% respec-
tively, compared with 64.9% last year.
KEY PRODUCT GROUPS
Personal Banking
• Personal Deposits – offers a full suite of chequing and savings
products to retail customers through multiple delivery channels.
• Consumer Lending – offers a diverse range of financing products
to suit the needs of retail customers.
• Credit Cards Services – offers TD branded credit cards for retail and
small business franchise customers. TD also offers private label and
co-brand credit cards through partnerships with retail programs
nationwide to provide credit card products to their U.S. customers.
This portfolio includes Target and Nordstrom.
• Auto Finance – offers automotive financing through a network
of auto dealers throughout the U.S.
Business Banking
• Commercial Banking – serves the needs of U.S. businesses and
governments across a wide range of industries.
• Small Business Banking – offers a range of financial products
and services to small businesses.
Wealth
• Advice-based Business – provides private banking, investment
advisory, and trust services to retail and institutional clients, to help
clients protect, grow, and transition their wealth. The advice-based
business is integrated with the U.S. personal and commercial
banking businesses.
• 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. Both asset management units
work in close partnership with other TD businesses, including the
advice-based business and personal and commercial banking, to
align products and services to ensure a legendary client experience.
BUSINESS OUTLOOK AND FOCUS FOR 2016
The U.S. Retail business will remain focused on delivering
legendary customer service and convenience and deepening
client relationships. We anticipate modest economic growth,
ongoing regulatory pressures, and a fiercely competitive oper-
ating environment in 2016. We expect to post strong loan and
deposit growth, although competition for loans and deposits
will remain intense. In the absence of interest rate increases,
net interest margin is expected to remain under pressure.
We are forecasting an increase in credit losses for 2016 driven
by volume growth and normalizing credit conditions. We will
continue to maintain a disciplined expense management
approach as the benefits from restructuring activities and
continued focus on productivity initiatives are expected to
partially fund strategic business investments. Overall, in the
absence of interest rate increases, we expect modest growth
in adjusted earnings.
Our key priorities for 2016 are as follows:
• Outgrow our competitors by acquiring more customers and
deepening share of wallet.
• Advance our omni-channel strategy, including making key
strategic investments in digital capabilities.
• Enhance the customer and employee experience as measured
by internal and external surveys.
• Continue to meet heightened regulatory expectations.
• Drive productivity initiatives across the Bank.
TD AMERITRADE HOLDING CORPORATION
Refer to Note 12 of the 2015 Consolidated Financial Statements
for further information on TD Ameritrade.
33
TD BANK GROUP ANNUAL REPORT 2015 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.
NET INCOME
(millions of Canadian dollars)
TOTAL REVENUE
(millions of Canadian dollars)
$1,000
800
600
400
200
0
$3,000
2,500
2,000
1,500
1,000
500
0
13
14
15
13
14
15
T A B L E 1 8
REVENUE – Reported 1
(millions of Canadian dollars)
Investment banking and capital markets
Corporate banking
Total
1 Certain comparative amounts have been reclassified to conform with
the presentation adopted in the current period.
2015
$ 2,334
592
$ 2,926
2014
$ 2,170
510
$ 2,680
2013
$ 1,931
479
$ 2,410
34
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
BUSINESS HIGHLIGHTS
• Achieved earnings of $873 million and an ROE of 15.2%.
• Delivered strong core revenue growth.
• Robust performance in trading, corporate lending and debt
underwriting both in Canada and the U.S.
• Expanded product offerings to our U.S. clients.
• Won a record four GlobalCapital Bond Awards in the
Sovereign, Supranational and Agency category.12
• Awarded nine StarMine Analyst Awards in equity research.13
• Maintained top-three dealer status in Canada
(for the nine-month period ended September 30, 2015):14
– #1 in equity options block trading
– #2 in equity block trading
– #2 in government debt underwriting
– #3 in corporate debt underwriting
– #3 in syndications (on rolling twelve-month basis)
CHALLENGES IN 2015
• The sustained low interest rate environment and concerns
over the timing of rate increases, combined with a challenging
global environment, contributed to investor uncertainty.
• Weakening in the resource/energy sector impacted
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. The trading
environment was favourable in 2015, with strong client activity despite
challenging markets that were impacted by global uncertainty and
volatile energy prices. Fixed income issuance and lending volumes were
strong, as clients continued to take advantage of the low interest rate
environment. However, regulatory requirements and concerns over the
timing of interest rate increases in the U.S. continued to have an impact
on investor confidence and client activity. Overall, 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 and capital management.
Longer term, wholesale banks that have a diversified client-focused
business model, offer a wide range of products and services, and
exhibit effective cost and capital management will be well positioned
to achieve attractive returns for shareholders.
OVERALL BUSINESS STRATEGY
• Extend our client-centric franchise model through superior advice
client activities.
and execution.
• Regulatory changes had an impact on TD Securities’ businesses.
• Strengthen our position as a top investment dealer in Canada.
• Grow our U.S. franchise in partnership with U.S. Retail.
• Maintain a prudent risk profile by focusing on high quality clients,
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 1 9
WHOLESALE BANKING
(millions of Canadian dollars, except as noted)
Net interest income (TEB)
Non-interest income
Total revenue
Provision for credit losses
Non-interest expenses
Net income
Selected volumes and ratios
Trading-related revenue1
Gross drawn (billions of dollars)2
Return on common equity3
Efficiency ratio
Average number of full-time equivalent staff4
2015
$ 2,295
631
2,926
18
1,701
$ 873
2014
$ 2,210
470
2,680
11
1,589
$ 813
2013
$ 1,982
428
2,410
26
1,542
$ 650
$ 1,545
16
15.2%
58.1
3,748
$ 1,394
12
17.5%
59.3
3,654
$ 1,273
9
15.6%
64.0
3,536
1 In the fourth quarter of 2014, the Bank implemented a funding valuation adjust-
3 Effective fiscal 2015, capital allocated to the business segments is based on 9%
ment (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. Refer to Note 5 of the 2015 Consolidated Financial Statements for
further information on FVA.
2 Includes gross loans and bankers’ acceptances, excluding letters of credit and
before any cash collateral, credit default swaps (CDS), reserves, etc., for the
corporate lending business.
CET1 Capital. These changes have been applied prospectively.
4 In fiscal 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 fiscal
2013 have not been restated.
12 GlobalCapital Bond Market Awards recognize the best borrowers, banks and
bankers in the sovereign, supranational and agency (SSA), financial institution
group (FIG), corporate, and emerging markets sectors for 2015. The awards are
based on the results of a market poll, with banks voting for their preferred issuers
and borrowers. Based on ranking 1st in select SSA categories.
of sell-side analysts based on the returns of their buy/sell recommendations
relative to industry benchmarks, and the accuracy of their earnings estimates
in 16 regions across the globe. Based on ranking top 3 in select Industry and
Overall Analyst categories.
14 Equity block trading is based on IRESS Market Data and equity options block
13 The Thomson Reuters StarMine Analyst Awards recognize the world’s top individual
sell-side analysts and sell-side firms for 2015. They measure the performance
trading is sourced from the Montreal Exchange. Government and corporate debt
underwriting and syndications are sourced from Bloomberg.
35
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
REVIEW OF FINANCIAL PERFORMANCE
Wholesale Banking net income for the year was $873 million, an
increase of $60 million, or 7%, compared with last year. The increase
in earnings was due to higher revenue, partially offset by higher non-
interest expenses and a higher effective tax rate. The ROE for the year
was 15.2%, compared with 17.5% in the prior year.
Revenue for the year was $2,926 million, an increase of
$246 million, or 9%, compared with the prior year. Revenue increased
mainly due to higher trading-related revenue, while our continued
focus on originations both in Canada and the U.S. resulted in robust
debt underwriting fees and strong corporate lending growth. The
increase in debt underwriting fees was largely driven by improved
client activity, and corporate lending revenue increased on strong loan
volume growth. The revenue increase also included the positive impact
of foreign exchange translation. This was partially offset by lower merg-
ers and acquisition (M&A) and equity underwriting fees. Trading-related
revenue increased due to improved foreign exchange and fixed income
trading that benefited from strong client activity in the year despite a
challenging global environment, and higher equity trading on improved
client volumes and increased volatility in the latter half of the year.
PCL is comprised of specific provisions 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 $18 million, an increase of $7 million
compared with last year, and consisted of the accrual cost of credit
protection and a specific credit provision in the corporate lending
portfolio. PCL in the prior year consisted primarily of the accrual cost
of credit protection.
Non-interest expenses for the year were $1,701 million, an increase
of $112 million, or 7%, compared with last year. Non-interest expenses
increased primarily due to the impact of foreign exchange translation
and higher operating expenses.
ROE for the year was 15.2%, compared with 17.5% in the prior
year, decreasing primarily due to a higher capital allocation to the
segment and higher CET1 risk-weighted assets (RWA). CET1 RWA
increased due to higher corporate loan volumes and the impact of
foreign exchange translation.
KEY PRODUCT GROUPS
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 on improved capital markets client activity
and strong debt underwriting fees.
Corporate Banking
• Includes corporate lending, trade finance and cash management
services. Revenue increased over last year driven by higher fee
revenue and strong loan volumes.
BUSINESS OUTLOOK AND FOCUS FOR 2016
Overall, the global economy is showing modest growth and we
expect to see gradual improvements in capital markets in 2016.
We remain committed to expanding our client-focused franchise
dealer in North America, partnering with the rest of the
Bank and positioning our business for growth. However, the
combination of evolving capital and regulatory requirements,
uncertainty over the outlook for interest rates, volatile energy
markets and increased competition will continue to impact our
business. While these factors will likely affect corporate and
investor sentiment in the near term, we believe our diversified,
integrated business model will deliver solid results and grow
our franchise. In 2016, we remain focused on growing and
deepening client relationships, being a valued counterparty,
as well as managing our risks, capital, and productivity.
Our key priorities for 2016 are as follows:
• 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.
• Expand the U.S. franchise by growing our service offerings
to our North American clients.
• Further strengthen alignment with our enterprise partners
and their clients.
• Continue to invest in an agile and effective 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 2015 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, provisions for incurred but not identified losses related to the
Canadian loan portfolio, 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 0
CORPORATE
(millions of Canadian dollars)
Net income (loss) – reported
Adjustments for items of note, net of income taxes1
Amortization of intangibles
Restructuring charges
Fair value of derivatives hedging the reclassified available-for-sale securities portfolio
Impact of Alberta flood on the loan portfolio
Gain on sale of TD Waterhouse Institutional Services
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
1 For explanations of items of note, refer to the “Non-GAAP Financial Measures –
Reconciliation of Adjusted to Reported Net Income” table in the “Financial Results
Overview” section of this document.
2015
$ (1,275)
255
471
(55)
–
–
671
(604)
(734)
18
112
(604)
$
$
$
2014
$ (274)
246
–
(43)
(19)
(196)
(12)
$ (286)
$ (727)
334
107
$ (286)
2013
$ (331)
232
90
(57)
19
–
284
(47)
$
$ (516)
364
105
(47)
$
The Corporate segment reported net loss for the year was $1,275 million,
compared with a reported net loss of $274 million last year. Current
year reported net loss includes restructuring charges of $686 million
($471 million after-tax) on a net basis. For further details, refer to
the “Significant Events in 2015” in the “Financial Results Overview”
section of this document. The adjusted net loss for the year was
$604 million, compared with an adjusted net loss of $286 million last
year. The year-over-year increase in the adjusted net loss was attributable
to Other items. Other items were lower due to the gain on sale of TD
Ameritrade shares ($85 million after-tax) and favourable impact of tax
items in the prior year, lower revenue from treasury and balance sheet
management activities and higher provisions for incurred but not iden-
tified credit losses due to volume growth and refinements in allowance
methodology in the Canadian loan portfolio.
CORPORATE MANAGEMENT
The Corporate segment’s mandate is to provide centralized advice
and counsel to our key businesses and to those who serve our global
customers directly. This includes support from a wide range of functional
groups, as well as the design, development, and implementation of
processes, systems, and technologies to ensure that the Bank’s key
businesses operate efficiently, reliably, and in compliance with all
applicable regulatory requirements.
The corporate management function of the Bank includes audit,
legal, anti-money laundering, compliance, corporate and public affairs,
regulatory relationships and government affairs, economics, enterprise
technology solutions, finance, treasury and balance sheet management,
people strategies, marketing, Office of the Ombudsman, enterprise
real estate management, risk management, global physical security,
strategic sourcing, global strategy, enterprise project management,
corporate environment initiatives, and corporate development.
The enterprise Direct Channels and Distribution Strategy group
is part of Corporate operations and is responsible for the 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 2016
We expect Corporate segment adjusted net loss to be relatively
consistent with this year’s adjusted net loss.
37
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
2014 FINANCIAL RESULTS OVERVIEW
Summary of 2014 Performance
T A B L E 2 1
REVIEW OF 2014 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
$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.
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.
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.
38
Canadian
Retail
$ 9,538
9,623
19,161
946
2,833
8,438
6,944
1,710
–
5,234
256
$ 5,490
U.S.
Retail
$ 6,000
2,245
8,245
676
–
5,352
2,217
412
305
2,110
–
$ 2,110
Wholesale
Banking
Corporate
$ 2,210
470
2,680
11
–
1,589
1,080
267
–
813
–
$ 813
$
(164)
39
(125)
(76)
–
1,117
(1,166)
(877)
15
(274)
(12)
(286)
$
Total
$ 17,584
12,377
29,961
1,557
2,833
16,496
9,075
1,512
320
7,883
244
$ 8,127
INCOME TAX EXPENSE
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.
BALANCE SHEET
Factors Affecting Assets and Liabilities
Total assets were $961 billion as at October 31, 2014, an increase
of $98 billion, or 11%, 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), an $18 billion increase in securities
purchased under reverse repurchase agreements, a $15 billion increase
in interest-bearing deposits with banks, and a $5 billion increase in
held-to-maturity securities (net of reclassification of $22 billion from
available-for-sale securities).
Total liabilities were $904 billion as at October 31, 2014, an increase
of $94 billion, or 12%, from October 31, 2013. The impact of foreign
currency translation added $19 billion, or 2%, to growth in total liabili-
ties. The net increase was primarily due to a $59 billion increase in
deposits, a $19 billion increase in obligations related to securities sold
under repurchase agreements, and an $8 billion increase in trading
deposits, partially offset by an $11 billion decrease in securitization
liabilities at fair value.
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.
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
2014 FINANCIAL RESULTS OVERVIEW
2014 Financial Performance by Business Line
Wholesale Banking net income for the year was $813 million, an
increase of $163 million, or 25%, compared with 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 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 originations 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. 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 commensurate with revenue and the impact of foreign
exchange translation, partially offset by lower operating expenses.
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 ongoing investment in enterprise
and regulatory projects and productivity initiatives. Other items were
slightly unfavourable due to lower gains from treasury and other
hedging 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 favour-
able impact of tax items.
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. 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.
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.
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 Bank adjusted earnings of
US$1,657 million increased 5% compared with last year. The contribu-
tion from TD Ameritrade of US$281 million was up 17% compared
with last year. Canadian dollar earnings growth benefited from a
strengthening of the U.S. dollar during the 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. 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.
39
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS GROUP FINANCIAL CONDITION
Balance Sheet Review
AT A GLANCE OVERVIEW
Total assets were $1,104 billion as at October 31, 2015, an increase
of $144 billion, or 15%, compared with October 31, 2014.
T A B L E 2 2
SELECTED CONSOLIDATED BALANCE SHEET ITEMS
(millions of Canadian dollars)
Assets
Loans (net of allowance for loan losses)
Available-for-sale securities
Securities purchased under reverse
repurchase agreements
Held-to-maturity securities
Liabilities
Deposits
Trading deposits
Obligations related to securities sold under
repurchase agreements
As at
October 31 October 31
2014
2015
$ 544,341 $ 478,909
63,008
88,782
97,364
74,450
82,556
56,977
695,576 600,716
59,334
74,759
67,156
53,112
FACTORS AFFECTING ASSETS AND LIABILITIES
Total assets were $1,104 billion as at October 31, 2015, an increase
of $144 billion, or 15%, from October 31, 2014. The net increase was
primarily due to a $65 billion increase in loans (net of allowance for
loan losses), a $26 billion increase in available-for-sale securities, a
$15 billion increase in securities purchased under reverse repurchase
agreements, $17 billion increase in held-to-maturity securities, and
a $14 billion increase in derivatives. The impact of foreign currency
translation added $42 billion, or 4%, to growth in total assets.
Loans (net of allowance for loan losses) increased $65 billion
primarily driven by increases in the U.S. Retail segments and Canadian
Retail segments. 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. The increase in the Canadian Retail
segment was primarily due to growth in residential mortgages and
business and government loans.
GROUP FINANCIAL CONDITION
Credit Portfolio Quality
Available-for-sale securities increased $26 billion due to new
investments and the impact of foreign currency translation.
Securities purchased under reverse repurchase agreements
increased $15 billion primarily due to an increase in trade volumes
and foreign currency translation in Wholesale Banking.
Held-to-maturity securities increased $17 billion primarily due
to new investments and the impact of foreign currency translation.
Total liabilities were $1,037 billion as at October 31, 2015, an
increase of $133 billion, or 15%, from October 31, 2014. The net
increase was primarily due to a $95 billion increase in deposits,
a $15 billion increase in trading deposits, and a $14 billion increase
in obligations related to securities sold under repurchase agreements.
The impact of foreign currency translation added $41 billion, or 4%,
to growth in total liabilities.
Deposits increased $95 billion primarily due to increases in personal
non-term, business, and government deposits in both the U.S. Retail
and Canadian Retail segments, and the impact of foreign currency
translation.
Trading deposits increased $15 billion primarily due to higher issuance
of certificates and commercial paper in Wholesale Banking.
Obligations related to securities sold under repurchase agreements
increased $14 billion primarily due to an increase in trade volumes and
foreign currency translation in Wholesale Banking.
Equity was $67 billion as at October 31, 2015, an increase of $11 billion,
or 19%, from October 31, 2014. The increase was primarily due to higher
retained earnings and an increase in accumulated other comprehensive
income due to foreign currency translation.
AT A GLANCE OVERVIEW
• Loans and acceptances net of allowance for loan losses were
$561 billion, an increase of $69 billion compared with last year.
• Impaired loans net of counterparty-specific and individually
insignificant allowances were $2,660 million, an increase of
$416 million compared with last year.
LOAN PORTFOLIO
Overall in 2015, the Bank’s credit quality remained stable despite
uncertain economic conditions. During 2015, the Bank increased its
credit portfolio by $69 billion, or 14%, from the prior year, largely
due to volume growth in the Canadian and U.S. Retail segments and
the impact of foreign exchange.
• Provision for credit losses was $1,683 million, compared with
While the majority of the credit risk exposure is related to loans
$1,557 million last year.
• Total allowance for loan losses increased by $406 million
to $3,434 million.
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 32 of the 2015
Consolidated Financial Statements.
40
TD BANK GROUP ANNUAL REPORT 2015 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 67% of total loans net
of counterparty-specific and individually insignificant allowances, down
from 70% in 2014. During the year, these portfolios increased by
$30 billion, or 9%, and totalled $377 billion at year end. Residential
mortgages represented 38% of the portfolio in 2015, down from 40%
in 2014. Consumer instalment and other personal loans, and credit
cards were 29% of total loans net of counterparty-specific and individ-
ually insignificant allowances in 2015, down from 30% in 2014.
The Bank’s business and government credit exposure was 33% of
total loans net of counterparty-specific and individually insignificant
allowances, up from 29% in 2014. 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 2014.
Geographically, the credit portfolio remained concentrated in
Canada. In 2015, the percentage of loans held in Canada was 68%,
down from 72% in 2014. The largest Canadian exposure was in
Ontario, which represented 40% of total loans net of counterparty-
specific and individually insignificant allowance for loan losses for
2015, down from 41% in 2014.
The balance of the credit portfolio was predominantly in the U.S.,
which represented 31% of the portfolio, up from 27% in 2014
primarily due to the impact of foreign exchange and volume growth
in business and government loans, consumer indirect auto and credit
cards. Exposures to debt securities classified as loans, ACI loans, and
other geographic regions were relatively small. The largest U.S. expo-
sures by state were in New England and New Jersey which represented
7% and 6% of total loans net of counterparty-specific and individually
insignificant allowances, respectively, consistent with 2014.
During fiscal 2015, West Texas Intermediate crude oil prices fell
from approximately US$80 per barrel to US$47 as at October 31 2015.
Within the non-retail credit portfolio, TD had $3.8 billion of drawn
exposure to oil and gas production and servicing borrowers as at
October 31, 2015, representing less than 1% of the Bank’s total loans
and acceptances outstanding. The portfolio of oil and gas exposure is
broadly diversified and consistent with TD’s North American strategy.
For certain borrowers, a borrowing base re-determination is performed
on a semi-annual basis, the results of which are used to determine
exposure levels and credit terms. Within the retail credit portfolios,
TD had $52.5 billion of consumer lending drawn exposure in Alberta
as at October 31, 2015, the region most impacted by lower oil prices.
The Bank regularly conducts stress testing on its credit portfolios in
light of the current market conditions. The Bank’s portfolios continue
to perform within expectations given the current level and near term
outlook for commodity prices in this sector.
T A B L E 2 3
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
2015
October 31
2014
October 31
2013
October 31
2015
October 31
2014
October 31
2013
Counterparty-
specific and
individually
insignificant
allowances
Gross
loans
Net
loans
Net
loans
Net
loans
$ 185,009
$ 17
$ 184,992
$ 175,112
$ 164,375
32.8%
35.4%
36.3%
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
61,317
19,038
16,075
17,941
299,380
14,862
11,330
26,192
5,411
4,049
10,590
1,463
492
5,853
4,928
2,141
1,252
3,409
1,549
3,734
2,225
2,303
2,427
1,388
4,749
84,155
$ 383,535
14
30
33
108
202
7
3
10
2
1
–
11
–
2
2
61,303
19,008
16,042
17,833
299,178
14,855
11,327
26,182
5,409
4,048
10,590
1,452
492
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
5,851
4,926
4,492
4,298
4,469
3,685
20
–
25
–
8
10
3
–
2
2
98
$ 300
2,121
1,252
3,384
1,549
3,726
2,215
2,300
2,427
1,386
4,747
84,057
$ 383,235
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
10.9
3.4
2.8
3.2
53.1
2.6
2.0
4.6
1.0
0.7
1.9
0.3
0.1
1.0
0.9
0.4
0.2
0.6
0.3
0.7
0.4
0.4
0.4
0.2
0.8
14.9
68.0%
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
0.4
0.2
0.5
0.3
0.7
0.5
0.4
0.2
0.2
0.9
14.6
72.2%
1 Primarily based on the geographic location of the customer’s address.
13.6
3.2
3.3
3.3
59.7
3.0
1.8
4.8
0.9
0.5
1.9
0.3
0.1
1.0
0.8
0.4
0.2
0.5
0.3
0.6
0.5
0.4
0.2
0.2
0.6
14.2
73.9%
41
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 2 3
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
2015
October 31
2014
October 31
2013
October 31
2015
October 31
2014
October 31
2013
Counterparty-
specific and
individually
insignificant
allowances
Gross
loans
Net
loans
Net
loans
Net
loans
$ 26,922
$ 30
$ 26,892
$ 23,326
$ 20,937
4.8%
4.7%
4.6%
49
7
3
109
198
11
14
25
–
2
4
2
1
1
3
6
2
–
–
11
12
12
1
2
2
86
284
–
–
–
584
207
83
290
$ 874
2.3
4.4
0.1
2.2
13.8
1.0
3.3
4.3
0.1
0.5
1.0
0.4
0.1
1.6
1.7
0.3
0.2
0.3
0.3
1.5
0.7
1.3
0.7
2.0
0.2
17.2
31.0
–
0.4
0.4
99.4
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
0.4
0.2
0.6
100.0%
0.5
0.3
0.8
100.0%
0.8
0.5
1.3
100.0%
13,285
24,855
690
12,165
77,887
5,680
18,303
23,983
467
3,025
5,877
2,534
562
9,088
9,716
1,491
1,160
1,485
1,797
8,663
4,207
7,002
4,068
11,115
891
97,131
175,018
5
1,978
1,983
560,236
1,980
1,331
3,311
$ 563,547
2,503
57
2,560
$ 560,987
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
14.0%
9.0%
8.5%
14.0
9.0
8.5
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
13,334
24,862
693
12,274
78,085
5,691
18,317
24,008
467
3,027
5,881
2,536
563
9,089
9,719
1,497
1,162
1,485
1,797
8,674
4,219
7,014
4,069
11,117
893
97,217
175,302
5
1,978
1,983
560,820
2,187
1,414
3,601
$ 564,421
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 loans2
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
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 ACI loans.
42
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 2 4
LOANS AND ACCEPTANCES, NET OF COUNTERPARTY-SPECIFIC AND INDIVIDUALLY INSIGNIFICANT ALLOWANCES BY GEOGRAPHY1,2
(millions of Canadian dollars, except as noted)
As at
Percentage of total
October 31
2015
October 31
2014
October 31
2013
October 31
2015
October 31
2014
October 31
2013
Canada
Atlantic provinces
British Columbia3
Ontario3
Prairies3
Québec
Total Canada
United States
Carolinas (North and South)
Florida
New England4
New Jersey
New York
Pennsylvania
Other
Total United States
International
Europe
Other
Total international
Total excluding other loans
Other loans
Total
Counterparty-
specific and
individually
insignificant
allowances
Gross
loans
$ 10,717
52,008
224,706
66,140
29,964
383,535
8,569
12,353
39,053
33,543
27,712
14,346
39,726
175,302
196
1,787
1,983
560,820
3,601
$ 564,421
$
8
22
205
44
21
300
14
20
91
65
47
24
23
284
–
–
–
584
290
$ 874
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
$ 10,709
51,986
224,501
66,096
29,943
383,235
8,555
12,333
38,962
33,478
27,665
14,322
39,703
175,018
196
1,787
1,983
560,236
3,311
$ 563,547
2,560
$ 560,987
$ 10,353
50,148
202,696
64,164
29,380
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
$ 9,694
48,868
188,375
60,367
27,778
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
2015
7.4%
33.3
(7.0)
(19.2)
14.0%
2014
6.5%
19.1
(5.2)
(31.0)
9.0%
2013
5.6%
23.0
(15.5)
(29.9)
8.5%
1.9%
9.2
39.9
11.7
5.3
68.0
1.5
2.2
7.0
5.9
4.9
2.5
7.0
31.0
–
0.4
0.4
99.4
0.6
100.0%
2.1%
2.1%
10.2
41.0
13.0
5.9
72.2
1.3
1.8
6.5
5.0
4.9
1.8
5.2
26.5
10.9
41.5
13.3
6.1
73.9
1.2
1.5
6.5
4.4
4.6
1.8
4.3
24.3
0.1
0.4
0.5
99.2
0.8
100.0%
0.2
0.3
0.5
98.7
1.3
100.0%
1 Certain comparative amounts have been restated/reclassified to conform with the
presentation adopted in the current period.
3 The territories are included as follows: Yukon is included in British Columbia; Nunavut
is included in Ontario; and Northwest Territories is included in the Prairies region.
2 Primarily based on the geographic location of the customer’s address.
4 The states included in New England are as follows: Connecticut, Maine,
Massachusetts, New Hampshire, and Vermont.
REAL ESTATE SECURED LENDING
Retail real estate secured lending includes mortgages and lines of credit
to North American consumers to satisfy financing needs including home
purchases and refinancing. 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. In Canada, credit policies 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 approved private
mortgage insurers. In the U.S., for residential mortgage originations,
mortgage insurance is usually obtained from either government-backed
entities or approved private mortgage insurers when the loan-to-value
exceeds 80% of the collateral value at origination.
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.
43
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 2 5
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, 2015
Canada
Atlantic provinces
British Columbia4
Ontario4
Prairies4
Québec
Total Canada
United States
Total
Canada
Atlantic provinces
British Columbia4
Ontario4
Prairies4
Québec
Total Canada
United States
Total
$
4,086
19,364 10.5
53,592 29.0
27,890 15.1
6.7
12,435
2.2% $ 1,675
14,099
34,447
11,477
5,944
117,367 63.5% 67,642
26,413
$ 94,055
951
$ 118,318
0.9% $
7.6
18.6
6.2
3.2
580
3,173
10,603
4,607
1,816
36.5% 20,779
10
$ 20,789
0.9% $
5.2
17.4
7.5
3.0
965
7,798
21,411
7,596
2,768
34.0% 40,538
13,439
$ 53,977
12.7
34.8
12.4
4.5
1.6% $ 4,666
22,537
64,195
32,497
14,251
66.0% 138,146
961
$ 139,107
1.9% $ 2,640
21,897
9.1
55,858
26.1
19,073
13.2
8,712
5.8
56.1% 108,180
39,852
$ 148,032
1.1%
8.9
22.7
7.7
3.5
43.9%
October 31, 2014
$
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
1 Geographic location is 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 the 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 6
RESIDENTIAL MORTGAGES BY REMAINING AMORTIZATION1,2,3
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
1.2%
2.6
1.4%
4.4%
2.9
4.3%
7.9%
16.1
8.9%
14.3%
4.1
13.0%
37.5%
12.3
34.3%
31.8%
61.2
35.4%
2.9%
0.6
2.6%
–% 100.0%
100.0
0.2
0.1% 100.0%
October 31, 2015
1.3%
2.3
1.4%
4.5%
1.9
4.2%
8.2%
18.8
9.4%
12.8%
2.9
11.6%
32.8%
10.4
30.2%
30.9%
63.0
34.7%
9.5%
0.6
8.4%
–% 100.0%
100.0
0.1
0.1% 100.0%
October 31, 2014
1 Certain comparative amounts have been restated to conform with the presentation
adopted in the current period.
2 Excludes loans classified as trading as the Bank intends to sell the loans
immediately or in the near term, and loans designated at fair value through
profit or loss for which no allowance is recorded.
3 Percentage based on outstanding balance.
44
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 2 7
UNINSURED AVERAGE LOAN-TO-VALUE – Newly Originated and Newly Acquired1,2,3
Canada
Atlantic provinces
British Columbia5
Ontario5
Prairies5
Québec
Total Canada
United States
Total
October 31, 2015
October 31, 2014
Residential Home equity
mortgages
lines of credit4,6
Total
Residential
mortgages
Home equity
lines of credit4
Total
73%
68
69
73
72
70
69
70%
68%
62
65
68
70
65
62
65%
71%
66
67
71
71
68
66
68%
73%
68
69
72
71
70
70
70%
62%
59
61
63
62
61
65
62%
71%
65
67
70
70
68
68
68%
1 Geographic location is based on the address of the property mortgaged.
2 Excludes loans classified as trading as the Bank intends to sell the loans
4 Home equity lines of credit loan-to-value includes first position collateral mortgage
if applicable.
immediately or in the near term, and loans designated at fair value through
profit or loss for which no allowance is recorded.
5 The territories are included as follows: Yukon is included in British Columbia; Nunavut
is included in Ontario; and the Northwest Territories is included in the Prairies region.
3 Based on house price at origination.
6 Home equity lines of credit fixed rate advantage option is included in loan-to-
value calculation.
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
classified as loans, Federal Deposit Insurance Corporation (FDIC)
covered loans, and other ACI loans, gross impaired loans increased
$513 million, or 19%, compared with the prior year, primarily due
to U.S. home equity line of credit new formations and the impact of
foreign exchange. Gross impaired loan formations increased year over
year by $223 million.
In Canada, net impaired loans decreased by $87 million, or 10%
in 2015 due to continued credit quality improvement in the retail
banking portfolios. Residential mortgages, consumer instalment and
other personal loans, and credit cards, generated impaired loans net
of counterparty-specific and individually insignificant allowances of
$625 million, a decrease of $154 million, or 20%, compared to with
the prior year, due to improved portfolio credit quality. Business and
government loans generated $121 million in net impaired loans, an
increase of $67 million, or 124%, compared with the prior year,
primarily due to new formations in the pipeline, oil and gas industry.
In the U.S., net impaired loans increased by $503 million, or 36% in
2015. Residential mortgages, consumer instalment and other personal
loans, and credit cards, generated net impaired loans of $1,345 million,
an increase of $556 million, or 70%, compared with the prior year,
due primarily to U.S. home equity line of credit new formations and the
impact of foreign exchange. The majority of the increase attributable
to U.S. home equity line of credit results from regulatory guidance
that requires the borrowers which are due for renewal but do not
qualify under current underwriting standards be classified as impaired.
Business and government loans generated $569 million in net impaired
loans, a decrease of $53 million, or 9%, compared with the prior year
due to good credit quality across the portfolio. 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, 28% of total impaired loans net of counterparty-
specific and individually insignificant allowances were generated by
Canada and 72% by the U.S. net impaired loans in Canada were
concentrated in Ontario, which represented 13% of total net impaired
loans, down from 15% in the prior year. U.S. net impaired loans were
concentrated in New England and New Jersey, representing 20% and
15% respectively of net impaired loans, consistent with 2014.
T A B L E 2 8
CHANGES IN GROSS IMPAIRED LOANS AND ACCEPTANCES
(millions of Canadian dollars)
Personal, Business and Government Loans1,2
Impaired loans as 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
Exchange and other movements
Impaired loans as at end of year
2015
2014
2013
$ 2,731
4,836
(1,179)
(1,257)
(8)
(2,141)
–
262
$ 3,244
$ 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
1 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 of the 2015 Consolidated Financial Statements.
2 Excludes FDIC covered loans and other ACI 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 of the 2015 Consolidated Financial Statements.
45
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 2 9
IMPAIRED LOANS NET OF COUNTERPARTY-SPECIFIC AND INDIVIDUALLY INSIGNIFICANT ALLOWANCES
BY INDUSTRY SECTOR1,2,3
(millions of Canadian dollars,
except as noted)
Oct. 31
2015
Oct. 31
2014
Oct. 31
2013
Oct. 31
2012
Oct. 31 Oct. 31
2015
2011
Oct. 31
2014
Oct. 31
2013
Oct. 31
2012
Oct. 31
2011
As at
Percentage of total
Counterparty-
specific and
individually
insignificant
allowances
Gross
impaired
loans
Net
impaired
loans
Net
impaired
loans
Net
impaired
loans
Net
impaired
loans
Net
impaired
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
$ 395
$ 17
$ 378
$ 427
$ 434 $ 465
$ 596
14.2%
19.0%
19.3%
22.1%
28.9%
180
47
52
153
827
14
30
33
108
202
166
17
19
45
625
249
17
20
66
779
301
16
21
43
815
306
14
30
95
910
180
16
26
18
836
6.2
0.7
0.7
1.7
23.5
11.1
0.8
0.9
2.9
34.7
13.4
0.7
0.9
2.0
36.3
14.6
0.7
1.4
4.5
43.3
8.6
0.8
1.3
0.9
40.5
13
10
23
5
2
1
12
–
3
5
22
6
93
–
12
19
5
2
4
5
7
3
10
2
1
–
11
–
2
2
20
–
25
–
8
10
3
–
2
2
6
7
13
3
1
1
1
–
1
3
2
6
68
–
4
9
2
2
2
3
10
4
14
5
1
1
–
2
3
5
1
1
1
–
4
7
2
1
1
5
13
5
18
5
–
1
3
1
4
2
6
9
20
–
3
18
7
–
1
2
15
1
16
4
2
21
2
4
2
17
6
1
1
–
4
22
8
19
–
3
13
6
19
5
1
1
1
–
3
1
7
3
2
–
3
21
14
1
1
5
0.2
0.3
0.5
0.1
–
–
–
–
–
0.1
0.1
0.2
2.6
–
0.2
0.3
0.1
0.1
0.1
0.1
0.4
0.2
0.6
0.3
–
–
–
0.1
0.1
0.3
–
–
–
–
0.2
0.4
0.1
–
–
0.3
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
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
0.6
0.3
0.9
0.2
0.1
0.1
0.1
–
0.1
0.1
0.3
0.1
0.1
–
0.1
1.0
0.7
0.1
0.1
0.2
219
$ 1,046
98
$ 300
121
$ 746
54
$ 833
100
132
$ 915 $ 1,042
88
$ 924
4.5
28.0%
2.4
37.1%
4.5
40.8%
6.3
49.6%
4.3
44.8%
1 Primarily based on the geographic location of the customer’s address.
2 Excludes FDIC covered loans and other ACI 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 of the 2015 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 of the 2015 Consolidated Financial Statements.
46
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 2 9
IMPAIRED LOANS NET OF COUNTERPARTY-SPECIFIC AND INDIVIDUALLY INSIGNIFICANT ALLOWANCES
BY INDUSTRY SECTOR (continued) 1,2,3
(millions of Canadian dollars,
except as noted)
Oct. 31
2015
Oct. 31
2014
Oct. 31
2013
Oct. 31
2012
Oct. 31 Oct. 31
2015
2011
Oct. 31
2014
Oct. 31
2013
Oct. 31
2012
Oct. 31
2011
As at
Percentage of total
Counterparty-
specific and
individually
insignificant
allowances
Gross
impaired
loans
Net
impaired
loans
Net
impaired
loans
Net
impaired
loans
Net
impaired
loans
Net
impaired
loans
$ 391
$ 30 $ 361 $ 303 $ 250 $ 187 $ 161
13.6%
13.5%
11.1%
8.9%
7.8%
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
79
147
226
1
13
30
9
1
9
41
36
15
6
–
85
77
52
14
33
7
655
2,198
–
–
$ 3,244
829
162
8
153
1,543
49
7
3
109
198
780
155
5
44
1,345
325
128
4
29
789
79
154
233
1
14
25
9
1
16
49
26
9
–
–
84
80
39
204
76
1
98
629
98
205
303
1
12
8
10
1
19
23
46
18
–
–
68
99
28
179
24
2
3
395
133
191
324
2
15
6
7
1
7
18
40
26
4
–
41
70
46
73
6
–
3
243
250
282
532
4
20
16
6
1
7
50
34
10
–
6
39
90
22
11
14
25
–
2
4
2
1
1
3
6
2
–
–
11
12
12
68
133
201
1
11
26
7
–
8
38
30
13
6
–
74
65
40
1
2
2
86
284
13
31
5
569
1,914
16
15
5
622
1,411
12
39
12
699
1,328
10
32
14
663
1,058
6
46
7
896
1,139
–
–
–
–
$ 584 $ 2,660 $ 2,244 $ 2,243 $ 2,100 $ 2,063
–
–
–
–
–
–
–
–
4.24%
4.28%
4.83%
4.86%
5.27%
29.3
5.8
0.2
1.7
50.6
2.6
5.0
7.6
–
0.4
1.0
0.3
–
0.3
1.4
1.1
0.5
0.2
–
2.8
2.4
1.5
0.5
1.2
0.2
21.4
72.0
–
–
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
–
–
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
–
–
3.6
0.3
–
0.1
11.8
12.1
13.7
25.8
0.2
1.0
0.8
0.3
0.1
0.3
2.4
1.6
0.5
–
0.3
1.9
4.3
1.1
0.3
2.2
0.3
43.4
55.2
–
–
100.0% 100.0% 100.0% 100.0% 100.0%
1 Primarily based on the geographic location of the customer’s address.
2 Excludes FDIC covered loans and other ACI 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 of the 2015 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 of the 2015 Consolidated Financial Statements.
47
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 3 0
IMPAIRED LOANS NET OF COUNTERPARTY-SPECIFIC AND INDIVIDUALLY INSIGNIFICANT ALLOWANCES
FOR LOAN LOSSES BY GEOGRAPHY1,2,3,4
(millions of Canadian dollars, except as noted)
As at
Percentage of total
October 31
2015
October 31
2014
October 31
2013
October 31
2015
October 31
2014
October 31
2013
Canada
Atlantic provinces
British Columbia5
Ontario5
Prairies5
Québec
Total Canada
United States
Carolinas (North and South)
Florida
New England6
New Jersey
New York
Pennsylvania
Other
Total United States
Total
Counterparty-
specific and
individually
insignificant
allowances
Gross
impaired
loans
Net
impaired
loans
Net
impaired
loans
$
40
126
549
185
146
1,046
126
184
624
460
370
196
238
2,198
$ 3,244
$
8
22
205
44
21
300
14
20
91
65
47
24
23
284
$ 584
$
32
104
344
141
125
746
112
164
533
395
323
172
215
1,914
$ 2,660
$
36
182
346
144
125
833
68
96
426
328
205
147
141
1,411
$ 2,244
Net
impaired
loans
$
34
210
404
171
96
915
49
75
430
301
184
140
149
1,328
$ 2,243
1.2%
3.9
12.9
5.3
4.7
28.0
4.2
6.2
20.0
14.9
12.1
6.5
8.1
72.0
100.0%
1.6%
8.1
15.4
6.4
5.6
37.1
3.0
4.3
19.0
14.6
9.1
6.6
6.3
62.9
100.0%
1.5%
9.4
18.0
7.6
4.3
40.8
2.2
3.4
19.2
13.4
8.2
6.2
6.6
59.2
100.0%
Net impaired loans as a % of net loans7
0.48%
0.46%
0.50%
1 Certain comparative amounts have been restated to conform with the presentation
adopted in the current period.
2 Primarily based on the geographic location of the customer’s address.
3 Excludes FDIC covered loans and other ACI 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 of the 2015 Consolidated Financial Statements.
4 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 of the 2015 Consolidated Financial Statements.
ALLOWANCE FOR CREDIT LOSSES
Total allowance for credit losses consists of counterparty-specific and
collectively assessed allowances. The allowance is increased by the
PCL, and decreased by write-offs net of recoveries 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 management 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 2015, counterparty-specific allowances increased by
$14 million, or 4%, resulting in a total counterparty-specific allowance
of $369 million. Excluding debt securities classified as loans, FDIC
covered loans and other ACI loans, counterparty-specific allowances
increased by $22 million, or 16% from the prior year, primarily due
to the impact of foreign exchange.
5 The territories are included as follows: Yukon is included in British Columbia; Nunavut
is included in Ontario; and the Northwest Territories is included in the Prairies region.
6 The states included in New England are as follows: Connecticut, Maine,
Massachusetts, New Hampshire, and Vermont.
7 Includes customers’ liability under acceptances.
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 2015, the collectively assessed allowance for individually
insignificant impaired loans increased by $63 million, or 14%, resulting
in a total of $505 million. Excluding FDIC covered loans and other ACI
loans, the collectively assessed allowance for individually insignificant
impaired loans increased by $75 million, or 21% from the prior year,
primarily due to the impact of foreign exchange.
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 estimates 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 exposures
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 allow-
ance 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 EAD. EAD is the total amount the Bank
expects to be exposed to at the time of default.
48
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
For the non-retail portfolio, allowances are estimated using
borrower specific information. The LGD is based on the security
and structure of the facility; EAD is a function of the current usage,
the borrower’s risk rating, and the committed amount of the facility.
For the retail portfolio, the collectively assessed allowance for incurred
but not identified credit losses is calculated on a pooled portfolio
level with each pool comprising exposures with similar 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 experience at default.
As at October 31, 2015, the collectively assessed allowance for
incurred but not identified credit losses was $2,873 million, up from
$2,505 million as at October 31, 2014. Excluding debt securities classi-
fied as loans, the collectively assessed allowance for incurred but not
identified credit losses increased by $370 million, or 15% from the
prior year, primarily due to the impact of foreign exchange and volume
growth in the U.S. retail portfolio.
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. During the
year ended October 31, 2015, certain refinements were made to
the methodology, the cumulative effect of which was not material.
Allowance for credit losses are further described in Note 8 of the
2015 Consolidated Financial Statements.
PROVISION FOR CREDIT LOSSES
The PCL is the amount charged to income to bring the total allowance
for credit losses, including both counterparty-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 PCL of $1,683 million in 2015, compared
with a total provision of $1,557 million in 2014. This amount comprised
$1,537 million of counterparty-specific and individually insignificant
provisions and $146 million in collectively assessed incurred but not
identified provisions. The total PCL as a percentage of net average
loans and acceptances decreased to 0.32% from 0.33%.
In Canada, residential mortgages, consumer instalment and other
personal loans, and credit cards, required counterparty-specific and
individually insignificant provisions of $828 million, an increase of
$39 million, or 5%, compared to 2014. Business and government
loans required counterparty-specific and individually insignificant
provisions of $62 million, a decrease of $22 million, or 26%, compared
to 2014 due to improved credit performance in the professional and
other service sector. Business and government counterparty-specific
and individually insignificant provisions were distributed across most
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 $630 million, an increase of
$68 million, or 12%, compared to 2014, primarily due to increases in
provisions for the home equity line of credit and credit card portfolios.
Business and government loans required counterparty-specific and
individually insignificant provisions of $80 million, an increase of
$60 million, compared to 2014 primarily due to increases in the real
estate and financial sectors and the impact of foreign exchange.
Geographically, 58% of counterparty-specific and individually
insignificant provisions were attributed to Canada and 46% to the
U.S. Canadian counterparty-specific and individually insignificant
provisions were concentrated in Ontario, which represented 37%
of total counterparty-specific and individually insignificant provisions,
down from 41% in 2014. U.S. counterparty-specific and individually
insignificant provisions were concentrated in New England and New
Jersey, representing 13% and 9%, respectively, of total counterparty-
specific and individually insignificant provisions, up from 10% and 7%,
respectively, in the prior year.
The following table provides a summary of provisions charged to the
Consolidated Statement of Income.
T A B L E 3 1
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
2015
2014
2013
$
76
2,062
(601)
1,537
44
102
–
146
$ 1,683
$ 168
1,849
(533)
1,484
8
65
–
73
$ 1,557
$ 231
1,644
(394)
1,481
(53)
203
–
150
$ 1,631
49
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 3 2
PROVISION FOR CREDIT LOSSES BY INDUSTRY SECTOR1
(millions of Canadian dollars, except as noted)
For the years ended
Percentage of total
October 31
2015
October 31
2014
October 31
2013
October 31
2015
October 31
2014
October 31
2013
Provision for credit losses – counterparty-specific
and individually insignificant
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
Professional and other services
Retail sector
Sundry manufacturing and wholesale
Telecommunications, cable, and media
Transportation
Other
Total business and government
Total Canada
United States
Residential mortgages
Consumer instalment and other personal
HELOC
Indirect Auto
Other
Credit card
Total personal
Real estate
Residential
Non-residential
Total real estate
Agriculture
Automotive
Financial
Food, beverage, and tobacco
Forestry
Government, public sector entities, and education
Health and social services
Industrial construction and trade contractors
Metals and mining
Pipelines, oil, and gas
Power and utilities
Professional and other services
Retail sector
Sundry manufacturing and wholesale
Telecommunications, cable, and media
Transportation
Other
Total business and government
Total United States
Total excluding other loans
Other loans
Debt securities classified as loans
Acquired credit-impaired loans2
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
1 Primarily based on the geographic location of the customer’s address.
2 Includes all FDIC covered loans and other ACI loans.
50
$
25
$
15
$
16
1.6%
1.0%
1.1%
7
153
148
495
828
(3)
3
–
2
2
–
11
–
–
–
21
(1)
21
(18)
9
–
–
4
11
62
890
24
69
123
77
337
630
–
15
15
–
4
1
4
–
2
2
9
–
–
–
8
11
18
2
–
4
80
710
1,600
(27)
(36)
(63)
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
0.4
10.0
9.6
32.2
53.8
(0.2)
0.2
–
0.1
0.1
–
0.7
–
–
–
1.4
(0.1)
1.4
(1.1)
0.6
–
–
0.3
0.7
4.1
57.9
1.6
4.5
8.0
5.0
21.9
41.0
–
1.0
1.0
–
0.3
0.1
0.3
–
0.1
0.1
0.6
–
–
–
0.5
0.7
1.1
0.1
–
0.3
5.2
46.2
104.1
(1.8)
(2.3)
(4.1)
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
$ 1,537
$ 1,484
$ 1,481
100.0%
100.0%
100.0%
157
(11)
146
$ 1,683
120
(47)
73
$ 1,557
195
(45)
150
$ 1,631
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 3 3
PROVISION FOR CREDIT LOSSES BY GEOGRAPHY1,2
(millions of Canadian dollars, except as noted)
For the years ended
Percentage of total
October 31
2015
October 31
2014
October 31
2013
October 31
2015
October 31
2014
October 31
2013
Canada
Atlantic provinces
British Columbia3
Ontario3
Prairies3
Québec
Total Canada
United States
Carolinas (North and South)
Florida
New England4
New Jersey
New York
Pennsylvania
Other
Total United States
International
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
$
38
79
567
128
78
890
33
51
194
134
120
50
128
710
$
34
74
602
95
68
873
36
43
147
98
89
42
127
582
–
–
1,600
(63)
1,537
146
$ 1,683
–
–
1,455
29
1,484
73
$ 1,557
$
32
86
651
98
72
939
17
28
120
74
61
22
158
480
–
–
1,419
62
1,481
150
$ 1,631
2.3%
4.7
33.7
7.6
4.6
52.9
2.0
3.0
11.5
8.0
7.1
3.0
7.6
42.2
–
–
95.1
(3.8)
91.3
8.7
100.0%
2.1%
4.7
38.7
6.1
4.4
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%
2.0%
5.3
39.9
6.0
4.4
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%
Provision for credit losses as a % of average
net loans and acceptances5
October 31
2015
October 31
2014
October 31
2013
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
0.08
0.24
0.09
1.38
0.10
0.46
–
0.31
(1.69)
0.29
0.03
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
net loans and acceptances
0.32%
0.33%
0.38%
1 Certain comparative amounts have been restated to conform with the presentation
4 The states included in New England are as follows: Connecticut, Maine,
adopted in the current period.
2 Primarily based on the geographic location of the customer’s address.
3 The territories are included as follows: Yukon is included in British Columbia; Nunavut
is included in Ontario; and Northwest Territories is included in the Prairies region.
Massachusetts, New Hampshire, and Vermont.
5 Includes customers’ liability under acceptances.
NON-PRIME LOANS
As at October 31, 2015, the Bank had approximately $2.5 billion
(October 31, 2014 – $2.4 billion), gross exposure to non-prime loans,
which primarily consist 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 3.84% on an annual basis (October 31, 2014 – 3.70%).
The portfolio continues to perform as expected. These loans are
recorded at amortized cost.
51
TD BANK GROUP ANNUAL REPORT 2015 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 4
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
Belgium
Finland
France
Germany
Netherlands
Sweden
Switzerland
United Kingdom
Other6
Total Rest of Europe
Total Europe
GIIPS
Greece
Italy
Ireland
Portugal
Spain
Total GIIPS
Rest of Europe
France
Germany
Netherlands
Sweden
Switzerland
United Kingdom
Other6
Total Rest of Europe
Total Europe
$
– $
–
–
–
–
–
– $
203
–
–
63
266
– $
4
–
–
47
51
– $
207
–
–
110
317
– $
–
–
–
–
–
– $
–
–
–
–
–
– $
3
375
–
37
415
–
3
375
–
37
415
$
– $
1
–
–
7
8
– $
25
–
–
–
25
– $
2
–
–
–
2
– $
28
–
–
7
35
–
238
375
–
154
767
October 31, 2015
131
4,794
87
7
1,892
469
1,999
1,451
1,194
457
89
–
729
1,103
5,496
2,161
532
118
10,560
7,311 12,149
$ 10,560 $ 4,380 $ 1,445 $ 16,385 $ 2,178 $ 2,660 $ 7,726 $ 12,564
4,834
85
674
2,645
1,269
197
1,500
4,723
141
1,394 16,068
1
64
1,178
738
223
62
707
3,982
356
–
65
–
1,094
295
30
181
2,434
15
4,114
98
–
97
507
641
–
22
750
63
2,178
32
23
617
754
330
27
–
764
113
2,660
40
13
205
100
517
167
216
128
8
6
–
29
88
14
28
11
114
9
–
–
176
127
464
441
211
4,002
137
6
–
4,971
952
952
1,124
3,544
3,339
6,110
9,657 14,301
9,442
4,667
4,189
7,130
927
458
1,213
222
–
2,451
4,664 14,883
548
2,054
1,381
1,235
299 20,163
5,558 26,020 54,237
$ 307 $ 20,188 $ 5,560 $ 26,055 $ 55,004
$
– $
–
–
–
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
481
954
416
–
854
1,568
107
4,380
1,275
1,473
813
60
630
4,435
712
9,398
$ 4,415 $ 2,882 $ 1,268 $ 8,565 $ 1,577 $ 1,545 $ 6,742 $ 9,864
974
480
224
30
611
3,641
330
6,290
88
159
427
101
198
156
69
1,198
40
474
145
76
–
1,772
137
2,644
133
320
362
–
19
567
162
1,563
168
673
227
30
–
227
220
1,545
609
1,587
988
177
1,052
3,496
313
8,222
2,003
6,451
3,574
1,164
142
93
220
36
4
68
197
33
118
137
606
539
74
4,241
75
3,887
1,792
6,094
9,511
5,375
2,932
621
1,401
1,824
–
5,142 13,073
704
2,867
1,842
1,734
5,790 20,318 37,938
651 13,877
$ 671 $ 13,892 $ 5,800 $ 20,363 $ 38,792
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, 2015, or October 31, 2014.
4 The fair values of the GIIPS exposures in Level 3 in the Trading and Investment
Portfolio were not significant as at October 31, 2015, and October 31, 2014.
5 The reported exposures do not include $0.4 billion of protection the Bank
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, 2014 – $5.6 billion)
and $41.9 billion for the rest of Europe (October 31, 2014 – $34.4 billion).
Derivatives 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
$1.5 billion (October 31, 2014 – $1.3 billion) are included in the Trading and
Investment Portfolio.
purchased through CDS (October 31, 2014 – $0.2 billion).
6 Other European exposure is distributed across 10 countries (October 31, 2014 –
12 countries), each of which has a net exposure including loans and commitments,
derivatives, repos and securities lending, and trading and investment portfolio
below $1 billion as at October 31, 2015, and October 31, 2014.
52
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 3 5
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
Belgium
Finland
France
Germany
Netherlands
Sweden
Switzerland
United Kingdom
Other3
Total Rest of Europe
Total Europe
October 31, 2015
Loans and Commitments
Indirect2
Total
As at
October 31, 2014
Direct1
Loans and Commitments
Indirect2
Total
$
–
3
–
–
47
50
4,834
24
495
915
525
4
838
2,142
6
9,783
$ 9,833
$
–
207
–
–
110
317
4,834
85
674
2,645
1,269
197
1,500
4,723
141
16,068
$ 16,385
$
–
233
–
–
18
251
–
82
190
672
506
173
353
1,872
76
3,924
$ 4,175
$
–
4
–
–
88
92
135
18
419
915
482
4
699
1,624
2
4,298
$ 4,390
$
–
237
–
–
106
343
135
100
609
1,587
988
177
1,052
3,496
78
8,222
$ 8,565
Direct1
$
–
204
–
–
63
267
–
61
179
1,730
744
193
662
2,581
135
6,285
$ 6,552
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 10 countries (October 31, 2014 –
12 countries), each of which has a net exposure including loans and commitments,
derivatives, repos and securities lending, and trading and investment portfolio
below $1 billion as at October 31, 2015, and October 31, 2014.
EXPOSURE TO ACQUIRED CREDIT-IMPAIRED LOANS
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 credit card portfolios of MBNA Canada, Target,
Aeroplan, and Nordstrom. The following table presents the unpaid prin-
cipal balance, carrying value, counterparty-specific allowance, allowance
for individually insignificant impaired loans, and the net carrying value
as a percentage of the unpaid principal balance for ACI loans.
Of the Bank’s European exposure, approximately 99%
(October 31, 2014 – 98%) is to counterparties in countries
rated AA or better 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.
Additionally, the Bank has 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 $8.8 billion (October 31, 2014 – $5.2 billion) of direct expo-
sure to supranational entities with European sponsorship and indirect
exposure including $1.6 billion (October 31, 2014 – $1.9 billion) of
European collateral from non-European counterparties related to
repurchase and securities lending transactions that are margined daily.
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.
53
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 3 6
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
$ 636
853
40
$ 1,529
$ 699
1,090
36
$ 1,825
Carrying
value
$ 601
813
–
$ 1,414
$ 660
1,046
7
$ 1,713
Counterparty-
specific
allowance
Allowance for
individually
insignificant
impaired loans
$ 1
5
–
$ 6
$ 2
6
–
$ 8
$ 45
32
–
$ 77
$ 49
40
–
$ 89
As at
Carrying
Percentage of
value net of unpaid principal
balance
allowances
October 31, 2015
$ 555
776
–
$ 1,331
87.3%
91.0
–
87.1%
October 31, 2014
$ 609
1,000
7
$ 1,616
87.1%
91.7
19.4
88.5%
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, Aeroplan, and Nordstrom.
During the year ended October 31, 2015, the Bank recorded a recov-
ery of $36 million in PCL on ACI loans (2014 – recovery of credit losses
of $2 million, 2013 – PCL of $49 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 3 7
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. and Canada
Total ACI loans
October 31, 2015
October 31, 2014
Unpaid principal balance1
Unpaid principal balance1
As at
$ 1,314
42
173
$ 1,529
$ 933
443
110
43
$ 1,529
85.9%
2.8
11.3
100.0%
61.0%
29.0
7.2
2.8
100.0%
$ 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%
1 Represents contractual amount owed net of charge-offs since acquisition of the loan.
EXPOSURE TO NON-AGENCY COLLATERALIZED
MORTGAGE OBLIGATIONS
As a result of the acquisition of Commerce Bancorp Inc., the Bank has
exposure to non-agency Collateralized Mortgage Obligations (CMOs)
collateralized primarily by Alt-A and Prime Jumbo mortgages, most
of which are pre-payable fixed-rate mortgages without rate reset
features. At the time of acquisition, the portfolio was recorded at fair
value, which became the new cost basis for this portfolio.
These debt securities are classified as loans and carried at amortized
cost using the effective interest rate method, and are evaluated for loan
losses on a quarterly basis using the incurred credit loss model. The
impairment assessment follows the loan loss accounting model, where
there are two types of allowances for credit losses, counterparty-
specific and collectively assessed. Counterparty-specific allowances
represent individually significant loans, 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 impairment 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, 2015, was US$43 million (October 31, 2014 – US$52 million).
During the year ended October 31, 2015, the Bank recorded a net
release of allowances for credit losses of US$29 million in PCL (net
release of allowance for credit losses of US$14 million in 2014 and
of US$30 million in 2013).
54
TD BANK GROUP ANNUAL REPORT 2015 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, 2015, and
October 31, 2014. As at October 31, 2015, the balance of the remain-
ing acquisition-related incurred loss was US$158 million (October 31,
2014 – US$187 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 3 8
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
$ 1,431
$ 1,268
$ 202
$ 1,066
74.5%
October 31, 2015
$ 1,748
$ 1,523
$ 241
$ 1,282
73.3%
October 31, 2014
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, 4% of the non-agency
CMO portfolio is rated AAA for regulatory capital reporting as at
October 31, 2015 (October 31, 2014 – 13%). The net capital benefit
of the re-securitization transaction is reflected in the changes in RWA.
For accounting purposes, the Bank retained a majority of the beneficial
interests in the re-securitized securities resulting in no financial statement
impact. The Bank’s assessment of impairment for these reclassified
securities is not impacted by a change in the credit ratings.
T A B L E 3 9
NON-AGENCY ALT-A AND PRIME JUMBO CMO PORTFOLIO BY VINTAGE YEAR
(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
Prime Jumbo
Amortized
cost
Fair
value
Amortized
cost
As at
Total
Fair
value
October 31, 2015
Amortized
cost
$ 36
62
256
201
274
Alt-A
Fair
value
$
41
69
297
220
314
$ 41
19
18
90
112
$ 44
21
20
101
120
$ 829
$ 941
$ 280
$ 306
$ 58
79
300
226
310
$
65
89
361
257
371
$ 64
24
23
113
137
$ 68
27
26
126
152
$ 973
$ 1,143
$ 361
$ 399
$
85
90
317
321
434
$ 1,247
$
77
81
274
291
386
$ 1,109
43
$ 1,066
October 31, 2014
$ 133
116
387
383
523
$ 1,542
$ 122
103
323
339
447
$ 1,334
52
$ 1,282
55
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
GROUP FINANCIAL CONDITION
Capital Position
T A B L E 4 0
CAPITAL STRUCTURE AND RATIOS – BASEL III1
(millions of Canadian dollars, except as noted)
Common Equity Tier 1 Capital
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
Investment in own Additional Tier 1 instruments
Significant investments in the capital of banking, financial, and insurance entities that are outside
the scope of regulatory consolidation, net of eligible short positions
Total regulatory adjustments to Additional Tier 1 Capital
Additional Tier 1 Capital
Tier 1 Capital
Tier 2 Capital instruments and provisions
Directly issued qualifying Tier 2 instruments plus related stock surplus
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
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 assets2
Common Equity Tier 1 Capital
Tier 1 Capital
Total Capital
Capital Ratios and Multiples
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)
Leverage ratio3
Asset-to-capital multiple
1 Capital position has been calculated using the “all-in” basis.
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. For the third and fourth
quarters of 2014, the scalars for inclusion of CVA for CET1, Tier 1, and Total
Capital RWA are 57%, 65%, and 77% respectively. For fiscal 2015, the scalars
are 64%, 71%, and 77%, respectively.
56
2015
2014
$ 20,457
32,053
10,209
62,719
$ 19,961
27,585
4,936
52,482
(19,143)
(2,192)
(367)
(1,498)
(140)
(188)
(104)
(4)
(1,125)
(24,761)
37,958
2,202
3,211
399
5,812
(16,709)
(2,355)
(485)
(711)
(91)
(98)
(15)
(7)
(1,046)
(21,517)
30,965
1,001
3,941
444
5,386
(2)
–
(352)
(354)
5,458
43,416
2,489
5,927
207
1,731
10,354
(170)
(170)
10,184
53,600
(352)
(352)
5,034
35,999
–
6,773
237
1,416
8,426
(170)
(170)
8,256
44,255
$ 382,360
383,301
384,108
$ 328,393
329,268
330,581
9.9%
11.3
14.0
3.7
n/a4
9.4%
10.9
13.4
n/a4
19.1
3 The leverage ratio is calculated as Tier 1 Capital divided by leverage exposure,
as defined.
4 Not applicable.
TD BANK GROUP ANNUAL REPORT 2015 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, consistent with preserving the appropriate mix of capital
elements to meet targeted capitalization levels.
• To ensure ready access to sources of appropriate capital,
at reasonable 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
overall 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
risk 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 “Economic Capital and Risk-Weighted Assets by
Segment” section for a business segment breakdown of the Bank’s
economic capital by 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 compo-
nents is defined as Tier 1 Capital. CET1 Capital is mainly comprised
of common shares, retained earnings, and accumulated other compre-
hensive income. CET1 capital is the highest quality capital and the
predominant form of Tier 1 Capital. It also includes regulatory adjust-
ments 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. Additional Tier 1 Capital primarily consists of preferred
shares. Tier 2 Capital is mainly comprised of subordinated debt and
certain loan loss allowances. Regulatory capital ratios are calculated
by dividing CET1, Tier 1, and Total Capital by their respective RWAs.15
OSFI’s Capital Requirements under Basel III
The Office of the Superintendent of Financial Institutions Canada’s
(OSFI) Capital Adequacy Requirements (CAR) guideline details how
the Basel III capital rules apply to Canadian banks.
Effective January 1, 2014, the Credit Valuation Adjustment (CVA)
capital charge is to be phased in over a five year period based on a
scalar approach whereby 57% of the CVA capital charge was applied
in 2014 for the CET1 calculation. This percentage increased to 64%
for 2015 and 2016, and increases to 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 to qualify as regulatory capital. NVCC provisions
require the conversion of non-common capital instruments 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.
15 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. For fiscal 2015, the scalars are 64%, 71%, and
77%, respectively.
57
TD BANK GROUP ANNUAL REPORT 2015 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%.
OSFI’s Regulatory Target Ratios under Basel III on an “All-In” Basis
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 July 2013, the BCBS published the updated final rules on global
systemically important banks (G-SIB). None of the Canadian banks
have been designated as a G-SIB. In March 2013, OSFI designated
the six major Canadian banks as domestic systemically important
banks (D-SIB), 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%.
Basel III Capital and Leverage Ratios
Common Equity Tier 1 Capital ratio
Tier 1 Capital ratio
Total Capital ratio
Leverage ratio
OSFI
Regulatory
Targets
Capital
BCBS Conservation without D-SIB
surcharge
buffer
minimum
Effective date
surcharge16
D-SIB
4.5%
6.0
8.0
3.0
2.5%
2.5
2.5
n/a
7.0% January 1, 2013
January 1, 2014
8.5
January 1, 2014
10.5
January 1, 2015
3.0
1.0%
1.0
1.0
n/a
OSFI
Regulatory
Targets
with D-SIB
surcharge16
8.0%
9.5
11.5
3.0
Basel III introduced a non-risk sensitive leverage ratio to act as a supple-
mentary measure to the risk-based capital requirements. The objective
of the leverage ratio is to constrain the build-up of excessive leverage
in the banking sector. The leverage ratio replaced OSFI’s assets to
capital multiple (ACM) measure effective January 1, 2015. The lever-
age ratio is calculated as per OSFI’s Leverage Requirements guideline.
The key components in the calculation of the ratio include, but are
not limited to, Tier 1 Capital, on balance sheet assets with adjustments
made to derivative and securities financing transaction exposures, and
credit equivalent amounts of off balance sheet exposures.
OSFI required Canadian banks to meet the ACM requirement until
October 31, 2014, when it was 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 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 U.S. Retail Bank.
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, 2015, the Bank’s CET1, Tier 1, and Total Capital
ratios were 9.9%, 11.3%, and 14.0%, respectively. During the year,
the Bank generated approximately $4.1 billion of CET1 Capital
through organic growth (net earnings less dividends) sufficient to fund
acquisitions, support business growth and improve the Bank’s capital
position largely without issuing additional common share capital.
The CVA capital charge represents approximately 35 bps, of which
64% (or 22 bps) is included in the 2015 CET1 Capital ratio, per OSFI’s
determined scalar phase-in. As at October 31, 2015, CET1, Tier 1,
and Total Capital RWA include 64%, 71%, and 77%, of the CVA
charge, respectively.
Common Equity Tier 1 Capital
CET1 Capital was $38 billion as at October 31, 2015. Strong earnings
growth contributed the majority of CET1 Capital growth in the year.
Capital management funding activities during the year included the
common share issuance of $483 million under the dividend reinvest-
ment plan and from stock option exercises.
16 The D-SIB surcharge will be applicable to risk-based capital requirements
effective January 1, 2016.
58
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
Tier 1 and Tier 2 Capital
Tier 1 Capital was $43 billion as at October 31, 2015, consisting of
CET1 Capital and Additional Tier 1 Capital of $38 billion and $5 billion,
respectively. Tier 1 Capital management activities during the year
consisted of the issuance of $500 million Non-cumulative 5-Year Rate
Reset Preferred Shares, Series 5, $350 million Non-cumulative 5-Year
Rate Reset Preferred Shares, Series 7, $200 million Non-cumulative
5-Year Rate Reset Preferred Shares Series 9, and $150 million
Non-cumulative Fixed Rate Preferred Shares, Series 11, all of which
included NVCC Provisions to ensure loss absorbency at the point of
non-viability; and the redemption of Class A First Preferred Shares,
Series P, Series Q and Series R, totalling $716 million.
Tier 2 Capital was $10 billion as at October 31, 2015. Tier 2 Capital
management activities during the year consisted of the issuance of
$1.5 billion 2.692% subordinated debentures due June 24, 2025, and
$1 billion 2.982% subordinated debentures due September 30, 2025,
both of which included NVCC Provisions to ensure loss absorbency at
the point of non-viability, and the redemption of $875 million 5.48%
subordinated debentures due April 2, 2020, and $800 million 4.97%
subordinated debentures due October 30, 2104. On September 15,
2015, the Bank announced its intention to redeem $1 billion 3.367%
subordinated debentures due November 2, 2020, on November 2, 2015.
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 capital modeling and stress testing practices which help
inform the Bank’s overall CAR.
The ICAAP is led by Risk Management and is supported by numerous
functional areas who together help assess the Bank’s internal capital
adequacy. This assessment ultimately represents the capacity to bear risk
in congruence with the Bank’s risk profile and RAS. Risk Management
alongside Enterprise Capital Management assesses and monitors
the overall adequacy of the Bank’s available capital in relation to
both internal and regulatory capital requirements under normal and
stressed conditions.
DIVIDENDS
At October 31, 2015, the quarterly dividend was $0.51 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 $2.00 per share (2014 – $1.84). For cash dividends payable on
the Bank’s preferred shares, refer to Note 21 of the 2015 Consolidated
Financial Statements. As at October 31, 2015, 1,855 million common
shares were outstanding (2014 – 1,845 million). The Bank’s ability to
pay dividends is subject to the Bank Act and the requirements of OSFI.
Refer to Note 21 of the 2015 Consolidated Financial Statements for
further information on dividend restrictions.
NORMAL COURSE ISSUER BID
On June 19, 2013, the Bank announced that the Toronto Stock Exchange
(TSX) approved the Bank’s normal course issuer bid to repurchase, 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.
As approved by the Board on December 2, 2015, the Bank announced
its intention to initiate a normal course issuer bid for up to 9.5 million
of its common shares, commencing as early as December, 2015, subject
to the approval of OSFI and the TSX. The timing and amount of any
purchases under the program are subject to regulatory approvals and
to management discretion based on factors such as market conditions
and capital adequacy.
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 1
COMMON EQUITY TIER 1 CAPITAL
RISK-WEIGHTED ASSETS1,2
(millions of Canadian dollars)
Credit risk
Retail
Residential secured
Qualifying revolving retail
Other retail
Non-retail
Corporate
Sovereign
Bank
Securitization exposures
Equity exposures
Exposures subject to standardized
or IRB approaches
Adjustment to IRB RWA for scaling factor
Other assets not included in standardized
or IRB approaches
Total credit risk
Market risk
Trading book
Operational risk
Standardized approach
Total
As at
October 31 October 31
2014
2015
$ 28,726 $ 25,910
12,016
52,018
12,586
60,976
150,497 118,571
3,999
11,949
12,014
926
4,071
11,412
13,074
866
282,208 237,403
5,842
6,347
40,032
32,680
328,587 275,925
12,655
14,376
41,118
38,092
$ 382,360 $ 328,393
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 quar-
ter of 2014, the scalars for inclusion of CVA for CET1, Tier 1, and Total Capital
RWA are 57%, 65%, and 77% respectively. For fiscal 2015, the scalars are 64%,
71%, and 77%, respectively.
2 Prior to 2015, the amounts have not been adjusted to reflect the impact of the
2015 IFRS Standards and Amendments.
59
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 4 2
FLOW STATEMENT FOR RISK-WEIGHTED ASSETS – Disclosure for Non-Counterparty Credit Risk and Counterparty
Credit Risk – Risk-Weighted Assets Movement by Key Driver1
October 31, 2015
October 31, 2014
For the three months ended
Non-counterparty
credit risk
Counterparty Non-counterparty
credit risk
credit risk
Counterparty
credit risk
$ 258.0
21.3
(0.5)
(0.9)
–
2.2
26.2
1.8
50.1
$ 308.1
$ 17.9
0.7
(0.4)
–
0.7
–
1.6
–
2.6
$ 20.5
$ 229.3
17.0
–
(2.4)
–
1.8
11.5
0.8
28.7
$ 258.0
$ 10.3
1.0
–
–
6.2
–
0.4
–
7.6
$ 17.9
The Movement in risk levels category reflects changes in risk due to
position changes and market movements.
The Model updates category reflects updates to the model to reflect
recent experience and changes in model scope.
The Methodology and policy category reflects methodology changes
to the calculations driven by regulatory policy changes. Methodology
changes related to precious metals exposure drove the decrease in RWA.
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 Driver1
T A B L E 4 4
(billions of Canadian dollars)
RWA, balance at beginning of period
Revenue generation
RWA, balance at end of period
For the years ended
October 31 October 31
2014
2015
$ 38.1
3.0
$ 41.1
$ 35.1
3.0
$ 38.1
1 Prior to 2015, the amounts have not been adjusted to reflect the impact of the
2015 IFRS Standards and Amendments.
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
1 Prior to 2015, the amounts have not been adjusted to reflect the impact of the
2015 IFRS Standards and Amendments.
Counterparty credit risk is comprised of over-the-counter derivatives,
repo-style transactions, trades cleared through central counterparties,
and CVA RWA which was phased in at 64% for fiscal 2015 (2014 –
57%). Non-counterparty credit risk includes loans and advances to
retail customers (individuals and small business), corporate entities
(wholesale and commercial customers), banks and governments, 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
fiscal 2015, is mainly due to growth in corporate 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 demograph-
ics, 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 fluctuations in the
U.S. dollar to Canadian dollar 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 Driver1
T A B L E 4 3
(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
For the years ended
October 31 October 31
2014
2015
$ 14.4
–
–
(1.7)
–
n/m2
(1.7)
$ 12.7
$ 11.7
(0.4)
2.8
0.3
–
n/m2
2.7
$ 14.4
1 Prior to 2015, the amounts have not been adjusted to reflect the impact of the
2015 IFRS Standards and Amendments.
2 Not meaningful.
60
TD BANK GROUP ANNUAL REPORT 2015 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, 2015. 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 RWA in the following figure
are predominately due to the additional Pillar II risks captured under
economic capital and the differences in confidence level. For additional
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
69%
5%
10%
16%
TD Bank Group
CET1 RWA2
$ 328,587
Credit Risk
$ 12,655
Market Risk
Operational Risk $ 41,118
Corporate
Canadian Retail
U.S. Retail1
Wholesale Banking
• Investment Banking
and Capital Markets
• Corporate Banking
• Treasury and Balance
Sheet Management
• Other Control Functions
• 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
Economic Capital (%)
Credit Risk
Market Risk
Operational Risk
Other Risks
69%
1%
19%
11%
Credit Risk
Market Risk
Operational Risk
Other Risks1
66%
4%
6%
24%
Credit Risk
Market Risk
Operational Risk
Other Risks
77%
15%
7%
1%
Credit Risk
Market Risk
Operational Risk
Other Risks
47%
6%
22%
25%
CET1 RWA2
$ 83,503
Credit Risk
–
$
Market Risk
Operational Risk $ 22,889
$ 186,941
Credit Risk
–
$
Market Risk
Operational Risk $ 13,126
$ 47,571
Credit Risk
$ 12,655
Market Risk
Operational Risk $ 4,724
Credit Risk
Market Risk
Operational Risk
$ 10,572
$
–
$ 379
1 U.S. Retail includes TD Ameritrade in Other Risks
2 Amounts are in millions of Canadian dollars
61
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS T A B L E 4 5
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 P2
Series Q3
Series R4
Series S
Series T
Series Y
Series Z
Series 15
Series 36
Series 57
Series 78
Series 99
Series 1110
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
2014
2015
Number of Number of
shares/units shares/units
1,856.2 1,846.2
(1.6)
1,855.1 1,844.6
(1.1)
7.0
11.4
–
–
–
5.4
4.6
5.5
4.5
20.0
20.0
20.0
14.0
8.0
6.0
108.0
(0.1)
107.9
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
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, refer to Note 21 of the Consolidated Financial Statements.
2 On March 2, 2015, the Bank redeemed all of its 10 million outstanding Class A
First Preferred Shares, Series P (“Series P Shares”), at the cash redemption price
of $25.607877 per Series P Share, for total redemption proceeds of approximately
$256 million.
3 On March 2, 2015, the Bank redeemed all of its 8 million outstanding Class A
First Preferred Shares, Series Q (“Series Q Shares”), at the cash redemption price
of $25.615068 per Series Q Share, for total redemption proceeds of approximately
$205 million.
4 On May 1, 2015, the Bank redeemed all of its 10 million outstanding Class A
First Preferred Shares, Series R (“Series R Shares”), at the cash redemption price
of $25.503836 per Series R Share, for total redemption proceeds of approximately
$255 million.
5 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 maximum
number of common shares that could be issued based on the formula for conver-
sion 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.
6 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 maximum
number of common shares that could be issued based on the formula for conver-
sion 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.
7 On December 16, 2014, the Bank issued 20 million non-cumulative 5-Year Rate
Reset Preferred Shares, Series 5 (“Series 5 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 maximum
number of common shares that could be issued based on the formula for conver-
sion applicable to the Series 5 shares, and assuming there are no declared and
unpaid dividends on the Series 5 shares or Series 6 shares, as applicable, would
be 100 million.
8 On March 10, 2015, the Bank issued 14 million non-cumulative 5-Year Rate
Reset Preferred Shares, Series 7 (“Series 7 shares”) for gross cash consideration
of $350 million, which included NVCC Provisions to ensure loss absorbency at the
point of non-viability. If the NVCC Provisions were to be triggered, the maximum
number of common shares that could be issued based on the formula for conver-
sion applicable to the Series 7 shares, and assuming there are no declared and
unpaid dividends on the Series 7 shares or Series 8 shares, as applicable, would
be 70 million.
9 On April 24, 2015, the Bank issued 8 million non-cumulative 5-Year Rate Reset
Preferred Shares, Series 9 (“Series 9 shares”) for gross cash consideration of
$200 million, which included NVCC Provisions to ensure loss absorbency at the
point of non-viability. If the NVCC Provisions were to be triggered, the maximum
number of common shares that could be issued based on the formula for conver-
sion applicable to the Series 9 shares, and assuming there are no declared and
unpaid dividends on the Series 9 shares or Series 10 shares, as applicable, would
be 40 million.
10 On July 21, 2015, the Bank issued 6 million non-cumulative Fixed Rate Preferred
Shares, Series 11 (“Series 11 shares”) for gross cash consideration of $150 million,
which included NVCC Provisions to ensure loss absorbency at the point of non-
viability. 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 11 shares, and assuming there are no declared and
unpaid dividends on the Series 11 shares would be 30 million.
FUTURE CHANGES IN BASEL
Future Regulatory Capital Developments
In December 2014, BCBS published the final standards on the revised
securitization framework. The final framework, effective January 2018,
enhanced the current methodologies for calculating securitization RWA
by making them more risk sensitive and limiting over-reliance on rating
agencies. The final standards yield capital requirements that are higher
than those under the current framework.
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.
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 interests by July 1, 2017. The IHC will be subject to the
same extensive capital, liquidity, and risk management requirements
as large BHCs.
In December 2014, BCBS released a consultative document intro-
ducing a capital floor framework based on Basel II/III standardized
approaches to calculate RWA. This framework will replace the current
transitional floor, which is based on the Basel I standard. The objec-
tives of a capital floor are to ensure minimum levels of banking system
capital, mitigate internal approaches model risk, and enhance compa-
rability of capital ratios across banks. The calibration of the floor is
outside the scope of this consultation. The impact on the Bank will
be dependent on the final calibration of the capital floor and on the
revised credit, market, and operational risk standardized approaches
which are currently all under review and consultation.
In July 2015, BCBS released a consultative document on a revision
of the CVA framework set out in the current Basel III capital standards
for the treatment of counterparty credit risk. The revised framework
proposes to better align the capital standard with the fair value
measurement of CVA employed under various accounting regimes
and the proposed revisions to the market risk framework under the
Fundamental Review of the Trading Book. The estimated timing for
implementation is early 2018 to align with the implementation of the
revised market risk framework.
62
TD BANK GROUP ANNUAL REPORT 2015 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. Refer to Note 2 of the 2015 Consolidated
Financial Statements for further information regarding the Bank’s
involvement with SPEs.
Securitization of Bank-Originated Assets
The Bank securitizes residential mortgages, business and government
loans, personal 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 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. Refer to Notes 9 and 10 of the
2015 Consolidated Financial Statements for further information.
T A B L E 4 6
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
Business and government loans
Total exposure
Residential mortgage loans
Consumer instalment and other personal loans2
Business and government loans
Total exposure
Securitized
assets
$ 23,452
–
–
$ 23,452
$ 23,796
–
2
$ 23,798
Carrying
value of
retained
interests
$ –
–
–
$ –
$ –
–
–
$ –
Securitized
assets
Securitized
assets
Carrying
value of
retained
interests
$
–
3,642
–
$ 3,642
–
$
6,081
–
$ 6,081
October 31, 2015
$ 6,759
–
1,828
$ 8,587
$ –
–
38
$ 38
October 31, 2014
$ 9,765
–
2,031
$ 11,796
$ –
–
44
$ 44
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, 2015,
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, 2015, the SPEs had nil issued commercial paper
outstanding (October 31, 2014 – $4 billion) and $4 billion of
issued notes outstanding (October 31, 2014 – $2 billion). As at
October 31, 2015, the Bank’s maximum potential exposure to loss
for these conduits was $4 billion (October 31, 2014 – $6 billion) of
which no underlying consumer instalment and other personal loans
was government insured (October 31, 2014 – $1 billion).
63
TD BANK GROUP ANNUAL REPORT 2015 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 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 $10.6 billion as at October 31, 2015
(October 31, 2014 – $9.9 billion). Further, as at October 31, 2015,
the Bank had committed to provide an additional $1.7 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, 2014 – $1.4 billion).
All third-party assets securitized by the Bank’s non-consolidated
multi-seller conduits were originated in Canada and sold to Canadian
securitization structures. Details of the Bank-administered multi-seller
ABCP conduits are included in the following table.
T A B L E 4 7
EXPOSURE TO THIRD PARTY-ORIGINATED ASSETS SECURITIZED BY BANK-SPONSORED NON-CONSOLIDATED CONDUITS
October 31, 2015
October 31, 2014
As at
Exposure and
ratings profile of
unconsolidated
SPEs
AAA1
$ 6,962
–
1,847
–
1,792
$ 10,601
Expected
weighted-
average life
(years)2
3.2
–
1.6
–
2.2
2.7
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
Leveraged Finance Credit Commitments
Also included in “Commitments to extend credit” in Note 28 of the
2015 Consolidated Financial Statements are leveraged finance credit
commitments. Leveraged finance credit commitments are agreements
that provide funding to a borrower with higher leverage ratio, relative
to the industry in which it operates, and for the purposes of acquisi-
tions, buyouts or capital distributions. During the year, we refined our
definition and it may be subject to further refinement moving forward.
As at October 31, 2015, the Bank’s exposure to leveraged finance
credit commitments, including funded and unfunded amounts, was
$11.2 billion (October 31, 2014 – $5.4 billion).
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 guar-
antee 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. Refer to Note 28 of the 2015 Consolidated Financial Statements
for further information regarding the accounting for guarantees.
(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
1 The Bank’s total liquidity facility exposure only relates to ‘AAA’ rated assets.
2 Expected weighted-average life for each asset type is based upon each of the
conduit’s remaining purchase commitment for revolving pools and the expected
weighted-average life of the assets for amortizing pools.
As at October 31, 2015, the Bank held $1.1 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, 2014 – $1.3 billion).
OFF-BALANCE SHEET EXPOSURE TO THIRD
PARTY-SPONSORED CONDUITS
The Bank has off-balance sheet exposure to third party-sponsored
conduits arising from providing liquidity facilities and funding commit-
ments of $1,268 million as at October 31, 2015 (October 31, 2014 –
$659 million). The assets within these conduits are comprised of
individual notes backed by automotive loan receivables, credit card
receivables and trade receivables. As at October 31, 2015, these
assets have maintained ratings from various credit rating agencies,
with a minimum rating of A. On-balance sheet exposure to third party-
sponsored conduits have been included in the financial statements.
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
control processes in place to mitigate these risks. Certain commitments
still remain off-balance sheet. Note 28 of the 2015 Consolidated
Financial Statements provides detailed information about the maximum
amount of additional credit the Bank could be obligated to extend.
64
TD BANK GROUP ANNUAL REPORT 2015 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 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 manage-
ment personnel, which are subject to approved policy guidelines
that govern all employees.
In addition, the Bank offers deferred share and other plans to
non-employee directors, executives, and certain other key employees.
Refer to Note 24 of the 2015 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 and accounts
for its investment in TD Ameritrade using the equity method. Pursuant
to the Stockholders Agreement in relation to the Bank’s equity invest-
ment in TD Ameritrade, the Bank has the right to designate five of
twelve members of TD Ameritrade’s Board of Directors. The Bank’s
designated directors include the Bank’s 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 between the
Bank and 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 $1,051 million in 2015 (2014 – $895 million;
2013 – $821 million) to TD Ameritrade for the deposit accounts. The
fee paid by the Bank is based on the average insured deposit balance
of $95 billion in 2015 (2014 – $80 billion; 2013 – $70 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 bps on the aggregate average daily balance in the
sweep accounts (subject to adjustment based on a specified formula).
As at October 31, 2015, amounts receivable from TD Ameritrade were
$79 million (October 31, 2014 – $103 million). As at October 31, 2015,
amounts payable to TD Ameritrade were $140 million (October 31, 2014 –
$104 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
processing and production, and cash management services. The Bank
accounts for Symcor’s results using the equity method of accounting.
During the year ended October 31, 2015, the Bank paid $124 million
(October 31, 2014 – $122 million; October 31, 2013 – $128 million)
for these services. As at October 31, 2015, the amount payable to
Symcor was $10 million (October 31, 2014 – $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, 2015, and October 31, 2014.
GROUP FINANCIAL CONDITION
Financial Instruments
As a financial institution, the Bank’s assets and liabilities are substantially
composed of financial instruments. Financial assets of the Bank include,
but are not limited to, cash, interest-bearing deposits, securities, loans,
and derivative instruments; while financial liabilities include, but are not
limited to, deposits, obligations related to securities sold short, securiti-
zation liabilities, obligations related to securities sold under repurchase
agreements, derivative instruments, and subordinated debt.
The Bank uses financial instruments for both trading and non-trading
activities. The Bank typically engages in trading activities by the purchase
and sale of securities to provide liquidity and meet the needs of clients
and, less frequently, by taking 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 derivatives, and
financial liabilities. In accordance with accounting standards related to
financial instruments, financial assets or liabilities classified as trading
loans and securities, and financial instruments 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
“Accounting Judgements, Estimates, and Assumptions” – “Fair Value
Measurement” section of this document. The use of financial instru-
ments allows the Bank to earn profits in trading, interest, and fee
income. Financial instruments also create a variety of risks which the
Bank manages with its extensive risk management policies and proce-
dures. 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.
65
TD BANK GROUP ANNUAL REPORT 2015 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 uncertainties, 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 its customers 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, commodity and capital markets and related market liquid-
ity, real estate prices, employment 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, geopolitical risk associated with political 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 its business plans and strategies; it also
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 potential risks.
Executing on Key Priorities and Strategies
The Bank has a number of priorities and strategies, including those
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 organic
growth strategies, new acquisitions, integration of recently acquired
businesses, projects to meet new regulatory requirements or enhance-
ment to existing technology. Risk can be elevated due to the size,
scope, and complexity of projects, the limited timeframes to complete
the projects and competing priorities for limited, specialized resources.
In respect of acquisitions, the Bank undertakes 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 needed to manage our
priorities and strategies, our ability to execute on them is dependent
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 disciplined resource and expense management
and our ability to implement (and the costs associated with the imple-
mentation 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 technolo-
gies and attack methodologies used by socio political entities, orga-
nized criminals, hackers and other external parties. The increased risks
are also a factor of our size and scale of operations, our geographic
footprint, the complexity of our technology infrastructure, and our use
of internet and telecommunications technologies to conduct financial
transactions, such as our continued development of mobile and inter-
net 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, and may involve attempts to fraudulently
induce employees, customers, third party service providers or other
users of the Bank’s systems to disclose sensitive information in order
to gain access to the Bank’s data or that of its customers. 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 vulnerability assessments and responses. The Bank also invests in
projects to continually review and enhance its information technology
infrastructure. It is possible that the Bank, or those with whom
the Bank does business, may not anticipate or implement effective
measures against all such information and technology related 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 compro-
mise of technology or information systems, hardware or related
66
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS processes, or any significant issues caused by weakness in information
technology infrastructure, the Bank may experience, among other
things, financial loss; a loss of customers or business opportunities;
disruption to operations; misappropriation or unauthorized release of
confidential, financial or personal information; damage to computers
or systems of the Bank and those of its customers and counterparties;
violations of applicable privacy and other laws; litigation; regulatory
penalties or intervention, remediation, investigation or restoration cost;
increased costs to maintain and update our operational and security
systems and infrastructure; and reputational damage.
Evolution of Fraud and Criminal Behaviour
The Bank is routinely exposed to various types of fraud and other finan-
cial crime. The sophistication, 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 accu-
racy and completeness of such information. In addition to the risk of
material 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
defences and build upon existing practices in Canada and the U.S. The
Bank continues to introduce new capabilities and defences 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, which in turn could lead to
disruptions to our businesses and financial loss. 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 or application of existing laws and regulations,
judicial decisions, as well as the fiscal, economic and monetary policies
of various regulatory agencies and governments in Canada, the U.S. and
other countries, and changes in their interpretation or implementation,
could adversely affect TD’s operations, profitability and reputation. 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; unfa-
vourably impacting the pricing and delivery of products and services the
Bank provides; 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);
and increasing risks associated with potential non-compliance. In partic-
ular, the most recent financial crisis resulted in, and could further result
in, unprecedented and considerable change to laws and regulations
applicable to financial institutions and the financial industry. The
global privacy landscape continues to experience regulatory change,
with significant new legislation anticipated to come into force in the
jurisdictions in which we do business in the short- and medium-term.
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 U.S. federal law, was signed into law on July 21, 2010.
It requires significant structural reform to the U.S. financial services
industry and affects every banking organization operating in the U.S.,
including the Bank. Due to certain aspects with extraterritorial effect,
Dodd-Frank also impacts the Bank’s operations outside the U.S.,
including in Canada. Many parts of Dodd-Frank are in effect and
others are in the implementation stage. Certain of the rules that
impact the Bank include:
• The Volcker Rule – In December 2013, the U.S. Board of Governors
of the Federal Reserve System (the “Federal Reserve”) and other U.S.
federal regulatory agencies issued final regulations implementing the
Volcker Rule provisions of Dodd-Frank, which restrict banking entities
from engaging, as principal, in proprietary trading and from sponsor-
ing or holding ownership interests in or having certain relationships
with certain hedge funds and private equity funds, subject to certain
exceptions and exclusions. Under the final regulations, banking enti-
ties were required to conform their covered trading activities and
covered fund investments and sponsorship activities to the Volcker
Rule by July 21, 2015, absent an applicable extension. The Volcker
Rule also requires banking entities to establish comprehensive
compliance programs that are reasonably designed to document,
describe, monitor and limit covered trading and fund activities.
The Bank has established compliance programs under the Volcker
Rule where applicable. However, given the complexity of the Volcker
Rule’s application, and the lack of regulatory guidance on certain
matters, it is possible that future regulatory guidance or review could
result in additional limitations on the Bank’s trading and fund activi-
ties. The Volcker Rule will likely continue to increase our operational
and compliance costs.
• Debit Interchange Fees – In October 2011, the Federal Reserve’s
regulations implementing the so-called “Durbin Amendment” to
Dodd-Frank, which limits debit card interchange transaction fees
to those “reasonable” and “proportional” to the cost of the transac-
tion, became effective. In July 2013, the U.S. District Court for the
District of Columbia vacated certain portions of these regulations.
In March 2014, the U.S. Court of Appeals for the District of Columbia
Circuit overturned the District Court’s decision and largely upheld the
Federal Reserve’s rules governing debit card interchange fees, but
directed the Federal Reserve to provide further explanation regarding
its treatment of the costs of monitoring transactions. In August
2014, a group of trade associations and merchants filed a petition
for writ of certiorari with the U.S. Supreme Court. In January 2015,
the petition was denied.
67
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS • 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 for
our top-tier U.S. bank holding company (which will be the Bank’s
U.S. IHC beginning in July 2016 as described below), on a consolidated
basis, to the Federal Reserve on an annual and semi-annual basis
respectively, beginning in 2016. Given new submission dates included
in the Capital Plan Rule, our top-tier U.S. bank holding company will
submit its inaugural annual capital plan and stress test results on
April 5, 2016 and mid-cycle test results on October 5, 2016. Our
top-tier U.S. bank holding company will also be subject to the Federal
Reserve’s supervisory stress test on an annual basis, beginning in
2016. The Federal Reserve defines stress test scenarios for both the
company-run and supervisory stress tests by bank holding companies.
In addition, TD Bank, N.A. and TD Bank USA, N.A. are required to
conduct stress testing pursuant to the requirements of the U.S. Office
of the Comptroller of the Currency (OCC), which defines stress test
scenarios for stress testing by national banks. Any issues arising from
U.S. regulators’ review of such capital plan and stress testing may
negatively impact the Bank’s operations and/or reputation and lead
to increased costs.
• Intermediate Holding Company Establishment – In February 2014,
the Federal Reserve adopted a final rule that imposes “enhanced
prudential standards” on certain non-U.S. banking organizations
(“FBOs”) having a U.S. presence and global consolidated assets of
US$10 billion or more. Such standards include enhanced capital and
liquidity requirements, stress testing obligations and risk manage-
ment standards with additional requirements and expectations for
FBOs with at least US$50 billion in combined U.S. assets. In addition,
FBOs with U.S. non-branch assets of US$50 billion or more, such as
the Bank, are required to establish, by July 1, 2016, a separately
capitalized top-tier U.S. IHC. The IHC is required to hold the FBO’s
ownership interests in all of its U.S. subsidiaries (with certain limited
exceptions) but not the assets of the FBO’s U.S. branches and agen-
cies. TD will implement the IHC requirements in phases, the first of
which was concluded in July 2015, at which time TD Group US
Holdings LLC was established as the top-tier bank holding company
in the U.S. 90% percent of the FBO’s U.S. non-branch assets must be
transferred to the IHC by July 1, 2016, with the remaining ownership
interests in U.S. subsidiaries to be transferred to the IHC by July 1, 2017.
It is anticipated that the foregoing actions will require TD to incur
operational, capital, liquidity and compliance costs and may impact
its businesses, operations and results in the U.S. and overall.
The Bank has instituted an enterprise-wide regulatory reform delivery
program to analyze and implement applicable requirements under
Dodd-Frank and its implementing regulations in an integrated and
comprehensive manner. In general, in connection with Dodd-Frank and
its implementing 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 operational and compliance costs.
Basel III
OSFI’s guideline on Liquidity Adequacy Requirements (LAR) will
incorporate the finalized Basel Committee on Banking Supervision
Net Stable Funding Ratio (NSFR) rules in the near future. We expect
that OSFI will require banks to meet the 100% NSFR ratio no later
than 2018. The Bank will continue to evaluate the impact of imple-
menting the NSFR and determine adjustments required to liquidity
and funding management strategies.
Regulatory Oversight and Compliance Risk
Our businesses are subject to extensive regulation and oversight.
Regulatory change is occurring in all of the geographies where we
operate, with some of the most significant changes arising in the U.S.
Such change includes the establishment in the past few years of new
regulators with examination and enforcement authority, such as the
Consumer Financial Protection Bureau. Regulators have demonstrated
a trend towards establishing new standards and best practice expecta-
tions via enforcement actions and an increased use of public enforce-
ment 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. In addition, TD 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 opera-
tional business resources to facilitate compliance with these rules by
their respective effective dates and consideration of regulator expecta-
tions set out in enforcement actions, it is possible that we may not be
able to accurately predict the impact of final versions of rules or the
interpretation or enforcement actions taken by regulators. This could
require the Bank to take further actions or incur more costs than
expected. In addition, we believe that regulators may continue to take
formal enforcement action, rather than taking informal/ supervisory
actions, more frequently than they have done historically. As a result,
despite its prudence and management efforts, the Bank’s operations,
business strategies and product and service offerings may be adversely
impacted, therefore impacting financial results. Also, it may be deter-
mined 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. The Bank may incur greater than
expected costs associated with enhancing its compliance, or 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 and its reputation.
Principles for Effective Risk Data Aggregation
In January 2013, the Basel Committee on Banking Supervision
(BCBS) finalized its “Principles for Effective Risk Data Aggregation
and Reporting”. The principles provide guidelines for areas such as:
governance of risk data, architecture and infrastructure, accuracy,
completeness, timeliness, and adaptability of reporting. As a result,
the Bank faces increased complexity with respect to operational
compliance and may incur increased compliance and operating
costs. The Bank has assessed itself against each of the principles
at enterprise and risk specific levels. Programs are in place to manage
the enhancement of risk data aggregation and reporting.
68
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS Level of Competition and Disruptive Technology
The Bank operates in a highly competitive industry and its performance
is impacted by the level of competition. Customer retention and attrac-
tion of new customers can be influenced by many factors, including
the quality, pricing and variety of products and services offered, as
well as an institution’s reputation and ability to innovate. Ongoing or
increased competition may impact the Bank’s pricing of products and
services and may cause us to lose market share. Increased competition
also may require us to make additional short and long-term investments
in order to remain competitive, which may increase expenses. In addi-
tion, the Bank operates in environments where laws and regulations
that apply to it may not universally apply to its current competitors,
which include domestic institutions in jurisdictions outside of Canada
or non-traditional providers of financial products and services.
Non-depository or non-financial institutions are often able to offer
products and services that were traditionally banking products and to
compete with banks in the provision of electronic and Internet-based
financial solutions, without facing the same regulatory requirements
or oversight. These evolving distribution methods by such competitors
can also increase fraud and privacy risks for customers and financial
institutions in general. The nature of disruption is such that it can be
difficult to anticipate and/or respond to adequately or quickly, repre-
senting inherent risks to certain Bank businesses, including payments.
As such, this type of competition could also adversely impact the
Bank’s earnings by reducing revenue. Each of the business segments
of the Bank monitors the competitive environment including reviewing
and amending customer acquisition and management strategies as
appropriate. The Bank has been investing in enhanced capabilities for
our customers to transact across all of our channels seamlessly, with
a particular emphasis on mobile technologies.
OTHER RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
Legal Proceedings
The Bank or its subsidiaries are from time to time named as defendants
or are otherwise involved in various class actions and other litigations
or disputes with third parties, including regulatory enforcement
proceedings, related to its businesses and operations. The Bank
manages and mitigates the risks associated with these proceedings
through a robust litigation management function. The Bank’s material
litigation and regulatory enforcement proceedings are disclosed in
its Consolidated Financial Statements. There is no assurance that the
volume of claims and the amount of damages and penalties claimed
in litigation, arbitration and regulatory proceedings will not increase
in the future. Actions currently pending against the Bank may result
in judgments, settlements, fines, penalties, disgorgements, injunctions,
business improvement orders or other results adverse to the Bank,
which could materially adversely affect the Bank’s business, financial
condition, results of operations, cash flows and capital; require mate-
rial changes in the Bank’s operations; or cause serious reputational
harm to the Bank. Moreover, some claims asserted against the Bank
may be highly complex, and include novel or untested legal theories.
The outcome of such proceedings may be difficult to predict or esti-
mate until late in the proceedings, which may last several years. In
addition, settlement or other resolution of certain types of matters
are subject to external approval, which may or may not be granted.
Although the Bank establishes reserves for these matters according to
accounting requirements, the amount of loss ultimately incurred in
relation to those matters may substantially differ from the amounts
accrued. As a participant in the financial services industry, the Bank will
likely continue to experience the possibility of significant litigation and
regulatory enforcement proceedings related to its businesses and oper-
ations. For additional information relating to the Bank’s material legal
proceedings, refer to Note 28 of the Consolidated Financial Statements.
Acquisitions and Strategic Plans
The Bank regularly explores opportunities to acquire other companies,
or parts of their businesses directly or indirectly through the acquisition
strategies of its subsidiaries. There is no assurance that the Bank will
achieve its financial or strategic objectives, including anticipated cost
savings, or revenue synergies following acquisitions and integration
efforts. The Bank’s, or a subsidiary’s, ability to successfully complete
an acquisition is often subject to regulatory and other approvals, and
the Bank cannot be certain when or if, or on what terms and condi-
tions, any required approvals will be granted. The Bank’s financial
performance is also influenced by its ability to execute strategic plans
developed by management. If these strategic plans do not meet with
success or there is a change in strategic plans, there would be an
impact on the Bank’s financial performance and the Bank’s earnings
could grow more slowly or decline. The Bank undertakes due diligence
before completing an acquisition and closely monitors integration
activities and performance post acquisition.
Ability to Attract, Develop and Retain Key Executives
The Bank’s future performance depends to a large extent on the avail-
ability of qualified people and the Bank’s ability to attract, develop and
retain key executives. There is intense competition for the best people
in the financial services sector. Although it is the goal of the Bank’s
management resource policies and practices to attract, develop, and
retain key executives employed by the Bank or an entity acquired by
the Bank, there is no assurance that the Bank will be able to do so. The
Bank undergoes a human resource planning process, at least annually,
that facilitates the assessment of internal leadership capabilities and
potential talent needs. The Bank actively invests in the development
of employees in order to better meet future talent requirements.
Currency and Interest Rates
Currency and interest rate movements in Canada, the U.S. and other
jurisdictions in which the Bank does business impact the Bank’s finan-
cial position (as a result of foreign currency translation adjustments)
and its future earnings. Changes in the value of the Canadian dollar
relative to the U.S. dollar may also affect the earnings of the Bank’s
small business, commercial, and corporate clients in Canada. A change
in the level of interest rates, or a prolonged low interest rate environ-
ment, affects the interest spread between the Bank’s deposits and
loans and as a result impacts the Bank’s net interest income. The Bank
manages non-trading currency and interest rate risk exposures in
accordance with policies established by the Risk Committee through
its Asset Liability Management framework, which is further discussed
in the Managing Risk section of this document.
Accounting Policies and Methods Used by the Bank
The Bank’s accounting policies and estimates are essential to under-
standing 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 and changes to accounting standards and poli-
cies could have a materially adverse impact on the Bank’s Consolidated
Financial Statements, and therefore its reputation. The Bank has
established procedures to ensure that accounting policies are applied
consistently and that the processes for changing methodologies for
determining estimates and adopting new accounting standards are
well controlled and occur in an appropriate and systematic manner.
Significant accounting policies as well as new and amended standards
under IFRS are described in Note 2 and Note 4, respectively, of our
Consolidated Financial Statements.
69
TD BANK GROUP ANNUAL REPORT 2015 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 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 RAS is the primary means used to communicate how TD views risk
and determines the type and amount of risk it is willing to take to
deliver on the Bank’s strategy and enhance shareholder value. In defin-
ing its risk appetite, the Bank takes into account its vision, mission,
strategy, guiding principles, risk philosophy, and capacity 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 operating conditions and the impact of emerging
risks in developing and applying its risk appetite. Adherence to enter-
prise 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 principles 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 manage-
ment, the Board, and the 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 transparency
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 decisions
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
executives, 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
behaviours. This comprehensive approach allows the Bank to consider
whether the actions of executive management resulted in risk and
control events within their area of responsibility.
70
TD BANK GROUP ANNUAL REPORT 2015 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.
by the Board and its committees (primarily the Audit and Risk
Committees). The CEO and SET determine TD’s long-term direction
within the Bank’s risk appetite and apply it to the 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 defence”
model to describe the role of business segments (First Line), gover-
nance, 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.
WHO MANAGES RISK
TD’s risk governance structure emphasizes and balances strong
independent oversight with clear ownership for risk control within
each business segment. Under the Bank’s approach to risk gover-
nance, 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 effective-
ness 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
The Bank has a robust subsidiary governance framework to support
its overall risk governance structure, including boards of directors, and
committees for various subsidiary entities where appropriate. Within
the U.S. Retail business segment, 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 unfettered 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 Functions
Internal
Audit
Canadian Retail
U.S. Retail
Wholesale Banking
Business Segments
Internal
Audit
71
TD BANK GROUP ANNUAL REPORT 2015 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 recommending
TD’s RAS for approval by the Board annually. The Risk Committee over-
sees the management of TD’s risk profile and performance against its
risk appetite. In support of this oversight, the Committee reviews and
approves certain enterprise-wide risk management frameworks and
policies that support compliance with TD’s risk appetite, and monitors
the management of risks and risk trends.
The Audit Committee
The Audit Committee, in addition to overseeing financial reporting,
assesses the adequacy and effectiveness of internal controls, including
internal controls over financial reporting and the activities of the Bank’s
Global Anti-Money Laundering (AML) group, Compliance group and
Internal Audit. The Committee monitors compliance with policies in
respect of ethical personal and business conduct, including the Bank’s
Code of Conduct and Ethics and the Whistleblower Policy.
The Human Resources Committee
The Human Resources Committee, in addition to its other responsibilities,
satisfies itself that Human Resources risks are appropriately identified,
assessed, and managed 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 recommend
for Board approval TD’s risk appetite. The SET manages risk in accor-
dance with TD’s risk appetite and considers the impact of emerging
risks on the Bank’s strategy and risk profile. This accountability includes
identifying and reporting significant risks to the Risk Committee.
Executive Committees
The CEO, in consultation with the CRO determines 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 associated risk activities and practices.
The ERMC, chaired by the CEO, oversees the management of major
enterprise governance, risk, and control activities and promotes an
integrated and effective risk management 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, the ALCO oversees directly and through its
standing subcommittees (the Risk Capital Committee, Global Liquidity
Forum (GLF), and Enterprise Investment Committee) the manage-
ment of TD’s consolidated non-trading market risk and each of its
consolidated liquidity, funding, investments, and capital positions.
• OROC – chaired by the CRO, the OROC oversees the identification,
monitoring, and control of key risks within TD’s operational risk profile.
• Disclosure Committee – chaired by the Group Head, Finance,
Sourcing, Corporate Communications and Chief Financial Officer,
the Disclosure Committee oversees that appropriate controls and
procedures are in place and operating to permit timely, accurate,
balanced, and compliant disclosure to regulators, shareholders,
and the market.
• RRC – chaired by the CRO, the RRC oversees the management of
reputational risk within the Bank’s risk appetite.
Risk Management
The Risk Management function, headed by the CRO, provides
independent oversight of enterprise risk management, risk governance,
and control and is responsible for establishing risk management
strategy, 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 compliance
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 deliv-
ers 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.
72
TD BANK GROUP ANNUAL REPORT 2015 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 Defence
In order to further the understanding of responsibilities for risk
management, the Bank employs a “three lines of defence” 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 defence at TD.
THREE LINES OF DEFENCE
First Line
Identify and Control
Business Segment Accountabilities
• Manage and identify risk in day-to-day activities.
• 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, 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 and communicate enterprise governance, risk, and control strategies and policies.
• Provide oversight and independent challenge to the First Line through review, inquiry, and discussion.
• Provide training, tools, and advice to support the First Line 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 in fulfilling their mandates and managing risk.
In support of a strong risk culture, TD applies the following principles
in governing 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,
understood, 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
disciplines 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 comprehensive and proactive approach to risk management is
comprised of four basic processes: risk 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, aggregate risks, and emerging risks from the
changing environment. The Bank’s objective is to establish and main-
tain integrated risk identification and assessment processes that
enhance the understanding of risk interdependencies, consider how
risk types intersect, and support the identification of emerging risk.
To that end, TD’s Enterprise-Wide Stress Testing (EWST) program
enables senior management, the Board, and its committees to identify
and articulate enterprise-wide risks and understand potential vulnera-
bilities 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
regulatory requirements such as capital adequacy, leverage ratios,
liquidity measures, stress testing, and maximum credit exposure guide-
lines 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, PCL, peer comparisons, trending analysis, liquidity cover-
age, leverage ratios, capital adequacy metrics, and operational risk
event notification 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 Risk and
Control Self-Assessment (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.
73
TD BANK GROUP ANNUAL REPORT 2015 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, chal-
lenge, and endorsement by senior management committees of the
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 EWST and an annual update on the Bank’s ICAAP.
Complementing regular risk monitoring and reporting, ad hoc risk
reporting is provided to senior management, the Risk Committee,
and the Board, as appropriate, for new and emerging risks 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 is a key component of the ICAAP framework
and 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 under-
stand potential vulnerabilities that are relevant to TD’s risk profile.
Stress scenarios are developed considering the key macroeconomic
and idiosyncratic risks facing the Bank. A combination of approaches
incorporating both quantitative modelling and qualitative analysis are
utilized to assess the impact on the Bank’s performance in stress envi-
ronments. 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 ALCO, provides
oversight of the processes and practices governing the EWST program.
As part of its 2015 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 forecasted over the stress horizon which drives the
assessment of impacts. In both scenarios evaluated in the 2015
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 European financial crisis where
solvency concerns in some countries lead to widespread capital
flight. The resulting wave of corporate sector defaults at European
financial institutions spills over to North American banks.
• External shocks to the Canadian economy trigger an unwinding
of household imbalances. Unemployment rises sharply as home
prices deteriorate significantly. Extremely low oil prices lead to
a disproportionate impact on the Canadian economy.
• The severe scenario is modeled from historical recessions that have
taken place in the U.S. and Canada. The recession extends 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.
Separate from the EWST program, the Bank’s U.S.-based subsidiaries
complete their own capital planning and regulatory stress testing
exercises. These include OCC Dodd-Frank Act Stress Testing require-
ments for operating banks, and the Federal Reserve Board’s capital
plan rule and related CCAR requirements beginning in 2016 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.
74
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS Strategic Risk
Strategic risk is the potential for financial loss or reputational damage
arising from the choice of sub-optimal or ineffective strategies, the
improper implementation of chose strategies, choosing not to pursue
certain strategies, or a lack of responsiveness to changes in the busi-
ness environment. Strategies include merger and acquisition activities.
WHO MANAGES STRATEGIC RISK
The CEO manages strategic risk supported by the members of the SET
and the ERMC. The CEO, together with the SET, defines the overall
strategy, in consultation with, and subject to approval by the Board.
The Enterprise Strategy group, under the leadership of the Group
Head Insurance, Credit Cards, and Enterprise Strategy is charged with
developing 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 monitoring and reporting on the effectiveness and
risks of their business strategies. The ERMC oversees the identification
and monitoring of significant and emerging risks related to TD’s strate-
gies 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 enterprise and individual segment long-term and
short-term strategies and associated key initiatives while also establish-
ing enterprise asset concentration limits. The process evaluates align-
ment 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, as well as by the Board. 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 assess-
ment 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, Financial Instruments: Disclosures,
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, 2015 and 2014.
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
banking. 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 product
specific policies, as required.
The Risk Committee 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
appetite, policies, processes, 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 include 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 the Bank is
prepared to extend to retail customers and to estimate future credit
performance. Established policies and procedures are in place to
govern the use and ongoing monitoring and assessment of the perfor-
mance of scoring models and decision strategies to ensure alignment
with expected performance results. Retail credit exposures approved
within the regional credit centres are subject to ongoing Retail Risk
Management review to assess the effectiveness of credit decisions
and risk controls, as well as identify emerging or systemic issues and
trends. 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 unfavourable trends are identified, remedial actions are taken
to address those weaknesses.
75
TD BANK GROUP ANNUAL REPORT 2015 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
(BRR) 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 expects to transition the
U.S. credit portfolios to the AIRB Approach in 2016 subject to
regulatory approval.
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
underlying risk characteristics. These counterparty types may differ
from the presentation in the Bank’s Consolidated Financial Statements.
The Bank’s credit risk exposures are divided into two main portfolios,
retail and non-retail.
Risk Parameters
Under the AIRB Approach, credit risk is measured using the following
risk parameters: 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
scoring 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, individ-
ual 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 Approach, the Bank defines default for
Canadian exposures as delinquency of 90 days or more 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.
76
TD BANK GROUP ANNUAL REPORT 2015 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 estimates similarly reflect a downturn scenario.
The following table maps PD ranges to risk levels:
Risk Assessment
Low Risk
Normal Risk
Medium Risk
High Risk
Default
PD Segment
PD Range
1
2
3
4
5
6
7
8
9
0.00 to 0.15%
0.16 to 0.41
0.42 to 1.10
1.11 to 2.93
2.94 to 4.74
4.75 to 7.59
7.60 to 18.20
18.21 to 99.99
100.00
Non-Retail Exposures
In the non-retail portfolio, the Bank manages exposures on an individual
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:
corporate, including wholesale and commercial customers, sovereign,
and bank. Under the AIRB Approach, CMHC-insured mortgages are
considered sovereign risk and are therefore classified as non-retail.
The Bank evaluates credit risk for non-retail exposures by using both
a 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 1994-2014, 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
transition matrices based on annual cohorts and then estimates
the average annual PD for each BRR. The PD is set at the average
estimation level plus an appropriate adjustment to cover statistical
and model uncertainty. The calibration process for PD is a through-
the-cycle approach.
TD’s 21-point BRR scale broadly aligns to external ratings as follows:
Description
Investment grade
Non-investment grade
Watch and classified
Impaired/default
Rating Category
Standard & Poor’s
Moody’s Investor Services
0 to 1C
2A to 2C
3A to 3C
4A to 4C
5A to 5C
6 to 8
9A to 9B
AAA to AA-
A+ to A-
BBB+ to BBB-
BB+ to BB-
B+ to B-
CCC+ to CC and below
Default
Aaa to Aa3
A1 to A3
Baa1 to Baa3
Ba1 to Ba3
B1 to B3
Caa1 to Ca and below
Default
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
coverage, 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 Committed
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 downturn
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.
77
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
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 exposures) or 150% (all other exposures).
For off-balance sheet exposures, specified credit conversion factors
are used to convert the notional amount of the exposure into a credit
equivalent amount.
Derivative Exposures
Credit risk on derivative financial instruments, also known as counter-
party credit risk, is the risk of a financial loss occurring as a result of the
failure of a counterparty to meet its obligation to 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
Control 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 counter-
parties, measuring and monitoring exposures, including wrong-way
risk exposures, and managing the size, diversification, and maturity
structure of the portfolios.
There are two types of wrong-way risk exposures, namely general
and specific. General wrong-way risk arises when the PD 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 PD of the counter-
party 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 obliga-
tions 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 resulting
from derivative financial instruments to higher risk counterparties.
As at October 31, 2015, 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,
appropriate, and sufficient.
• Assumptions – Key assumptions underlying the development of the
model remain valid for the current portfolio and environment.
Risk Management ensures that the credit risk rating system complies
with 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 document, register, perfect, and monitor collateral.
78
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS The Bank also uses collateral and master netting agreements
to mitigate derivative counterparty exposure. Security for derivative
exposures is primarily financial and includes cash and negotiable
securities issued by highly rated governments and investment grade
issuers. This approach includes pre-defined discounts and procedures
for the receipt, 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.
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 mitigation and includes
both on balance sheet and off balance sheet exposures. On-balance
sheet exposures consist primarily of outstanding loans, acceptances, non-
trading securities, derivatives, and certain other repo-style transactions.
Off-balance sheet exposures consist primarily of undrawn commitments,
guarantees, and certain other repo style transactions.
Gross credit risk exposures for the two approaches the Bank uses
to measure credit risk are included in the following table.
T A B L E 4 8
GROSS CREDIT RISK EXPOSURES – Standardized and Advanced Internal Ratings Based 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, 2015
As at
October 31, 2014
Standardized
AIRB
Total
Standardized
AIRB
Total
$ 32,897
–
59,655
92,552
114,698
55,934
13,542
184,174
$ 276,726
$ 276,526
63,169
38,952
378,647
$ 309,423
63,169
98,607
471,199
225,263
128,496
111,602
465,361
$ 844,008
339,961
184,430
125,144
649,535
$ 1,120,734
$ 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
1 Gross credit risk exposures represent EAD and are before the effects of credit risk
mitigation. This table excludes securitization, equity, and other credit RWA.
2 Prior to 2015, amounts have not been adjusted to reflect the impact of the 2015
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.
79
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
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,
management reporting, and the calculation of capital. Under the IAA,
exposures are multiplied by OSFI prescribed risk weights to calculate
RWA for capital purposes.
Market Risk
Trading Market Risk is the risk of loss in financial instruments 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, 2015, using the Internal Model Approach.
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 4 9
MARKET RISK LINKAGE TO THE BALANCE SHEET1
(millions of Canadian dollars)
October 31, 2015
As at
October 31, 2014
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 assets2
Assets not exposed to market risk
Total Assets
Liabilities subject to market risk
Trading deposits
Derivatives
Securitization liabilities at fair value
Other financial liabilities designated at
fair value through profit or loss
Deposits
Acceptances
Obligations related to securities sold short
Obligations related to securities sold under
repurchase agreements
Securitization liabilities at amortized cost
Subordinated notes and debentures
Other liabilities2
Liabilities and Equity not exposed
Balance
Trading Non-trading
sheet market risk market risk
Balance
Trading Non-trading
sheet market risk market risk
Non-trading market risk –
primary risk sensitivity
$
42,483
95,157
69,438
$
219
89,372
58,144
$ 42,264
5,785
11,294
$ 43,773
101,173
55,796
$
377
99,274
49,164
$ 43,396
Interest rate
Interest rate
1,899
6,632 Equity, foreign exchange, interest rate
4,378
88,782
74,450
–
–
–
4,378
88,782
74,450
4,745
63,008
56,977
–
–
–
4,745
63,008
56,977
Interest rate
Foreign exchange, interest rate
Foreign exchange, interest rate
97,364
547,775
16,646
6,683
1,545
59,672
1,104,373
13,201
–
–
–
–
–
160,936
84,163
547,775
16,646
6,683
1,545
–
883,765
82,556
481,937
13,080
5,569
1,434
50,463
960,511
8,154
–
–
–
–
–
156,969
74,402
481,937
13,080
5,569
1,434
–
753,079
Interest rate
Interest rate
Interest rate
Equity
Interest rate
74,759
57,218
10,986
1,415
695,576
16,646
38,803
67,156
22,743
8,637
11,866
2,231
52,752
10,986
1,402
–
–
33,594
12,376
–
–
–
72,528
4,466
–
59,334
51,209
11,198
1,793
47,483
10,190
57,541
3,726
1,008
Interest rate
Foreign exchange, interest rate
Interest rate
13
695,576
16,646
5,209
3,250
600,716
13,080
39,465
3,242
–
–
37,247
8
600,716
13,080
2,218
54,780
22,743
8,637
11,866
53,112
24,960
7,785
13,525
8,242
–
–
–
44,870
24,960
7,785
13,525
Interest rate
Equity, interest rate
Interest rate
Interest rate
Interest rate
Interest rate
Interest rate
Interest rate
to market risk
Total Liabilities and Equity
98,568
$ 1,104,373
–
$ 113,341
–
$ 892,464
82,877
$ 960,511
–
$ 108,197
–
$ 769,437
1 Certain comparative amounts have been restated, where applicable, as a result
of the implementation of the 2015 IFRS Standards and Amendments.
2 Relates to retirement benefits, insurance, and structured entity liabilities.
80
TD BANK GROUP ANNUAL REPORT 2015 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 Control Committee meets
regularly to conduct a review of the market risk profile, trading
results of the Bank’s trading businesses as well as changes to market
risk policies. 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 the year ended October 31, 2015.
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) associated
with the Bank’s trading positions.
GMR is determined by creating a distribution of potential changes
in the market value of the current portfolio using historical simulation.
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 income reported in non-interest income and
the net interest income on trading positions reported in net interest
income, and is reported on a TEB. For the year ending October 31,
2015, there were 23 days of trading losses and trading-related revenue
was positive for 91% of the trading days, reflecting normal trading
activity. Losses in the year did not exceed VaR on any trading day.
TOTAL VALUE-AT-RISK AND TRADING-RELATED REVENUE
(millions of Canadian dollars)
Trading-related Revenue
Total Value-at-Risk
$30
20
10
0
(10)
(20)
(30)
4
1
0
2
,
3
v
o
N
4
1
0
2
,
0
1
v
o
N
4
1
0
2
,
7
1
v
o
N
4
1
0
2
,
4
2
v
o
N
4
1
0
2
,
1
c
e
D
4
1
0
2
,
8
c
e
D
4
1
0
2
,
5
1
c
e
D
4
1
0
2
,
2
2
c
e
D
4
1
0
2
,
9
2
c
e
D
5
1
0
2
,
5
n
a
J
5
1
0
2
,
2
1
n
a
J
5
1
0
2
,
9
1
n
a
J
5
1
0
2
,
6
2
n
a
J
5
1
0
2
,
2
b
e
F
5
1
0
2
,
9
b
e
F
5
1
0
2
,
6
1
b
e
F
5
1
0
2
,
3
2
b
e
F
5
1
0
2
,
2
r
a
M
5
1
0
2
,
9
r
a
M
5
1
0
2
,
6
1
r
a
M
5
1
0
2
,
3
2
r
a
M
5
1
0
2
,
0
3
r
a
M
5
1
0
2
,
6
r
p
A
5
1
0
2
,
3
1
r
p
A
5
1
0
2
,
0
2
r
p
A
5
1
0
2
,
7
2
r
p
A
5
1
0
2
,
4
y
a
M
5
1
0
2
,
1
1
y
a
M
5
1
0
2
,
8
1
y
a
M
5
1
0
2
,
5
2
y
a
M
5
1
0
2
,
1
n
u
J
5
1
0
2
,
8
n
u
J
5
1
0
2
,
5
1
n
u
J
5
1
0
2
,
2
2
n
u
J
5
1
0
2
,
9
2
n
u
J
5
1
0
2
,
6
l
u
J
5
1
0
2
,
3
1
l
u
J
5
1
0
2
,
0
2
l
u
J
5
1
0
2
,
7
2
l
u
J
5
1
0
2
,
3
g
u
A
5
1
0
2
,
0
1
g
u
A
5
1
0
2
,
7
1
g
u
A
5
1
0
2
,
4
2
g
u
A
5
1
0
2
,
1
3
g
u
A
5
1
0
2
,
7
p
e
S
5
1
0
2
,
4
1
p
e
S
5
1
0
2
,
1
2
p
e
S
5
1
0
2
,
8
2
p
e
S
5
1
0
2
,
5
t
c
O
5
1
0
2
,
2
1
t
c
O
5
1
0
2
,
9
1
t
c
O
5
1
0
2
,
6
2
t
c
O
81
TD BANK GROUP ANNUAL REPORT 2015 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 incorpo-
rates new risk measures in line with market conventions, industry best
practices, and regulatory requirements.
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, IRC, 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 quarter of
fiscal 2015, 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 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 0
PORTFOLIO MARKET RISK MEASURES
(millions of Canadian dollars)
Interest rate risk
Credit spread risk
Equity risk
Foreign exchange risk
Commodity risk
Idiosyncratic debt specific risk
Diversification effect1
Total Value-at-Risk (one-day)
Stressed Value-at-Risk (one-day)
Incremental Risk Capital Charge (one-year)
As at Average
High
$ 8.4
7.9
9.8
4.9
1.5
12.9
(26.5)
$ 18.9
18.3
255.4
$
8.0
7.8
9.0
3.8
1.5
15.9
(25.3)
$ 20.7
28.8
246.4
$ 14.9
11.8
13.5
9
3.3
22.5
n/m2
26
35.1
319.6
$
$
2015
Low
3.8
4.6
4
1.1
0.8
12.6
n/m2
$ 15.3
18.3
164.5
As at
Average
High
$
5.3
4.9
5.1
1.6
0.9
13.6
(16.1)
$ 15.3
29.3
275.6
$
5.8
6.3
3.7
2.7
1.4
15.8
(17.8)
$ 17.9
27.8
313.6
$ 12.8
8.8
9.6
5.5
4
20.5
n/m2
$ 22.1
36.1
428.7
2014
Low
$
3.3
3.9
1.5
0.7
0.6
12.1
n/m2
$ 14.2
21.1
222.0
1 The aggregate VaR is less than the sum of the VaR of the different risk types due
2 Not meaningful. It is not meaningful to compute a diversification effect because
to risk offsets resulting from portfolio diversification.
the high and low may occur on different days for different risk types.
Average VaR and Stressed VaR were relatively unchanged compared
with the last quarter. Increases in equity positions drove the increase
in average equity VaR year over year. Average IRC decreased by
$102 million over the past year primarily due to an IRC model
enhancement to improve risk measurement of own debt.
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 Control Committee.
82
TD BANK GROUP ANNUAL REPORT 2015 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 executives.
The Market Risk Control function provides independent oversight,
governance, and control over these market risks. The Risk Committee
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
interest 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 strate-
gies 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 for Net Interest Income Sensitivity (NIIS) and Economic
Value at Risk (EVaR). NIIS 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. NIIS 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 sensi-
tive 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 NIIS 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 NIIS and EVaR captures the impact
of changes to assumed customer behaviours, such as interest rate
sensitive 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 NIIS 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. 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.
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 NIIS 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.
83
TD BANK GROUP ANNUAL REPORT 2015 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
products, 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 movements,
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 exposure is managed by purchasing options to replicate the
equity payoff.
Interest Rate Risk
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, 2015 and October 31, 2014
(millions of Canadian dollars)
October 31, 2014: $(68)
October 31, 2015: $(143)
)
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
$200
100
0
(100)
(200)
(300)
(400)
(500)
(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, 2015, an immediate and sustained 100 bps increase
in interest rates would have decreased the economic value of share-
holders’ equity by $143 million (October 31, 2014 – $68 million)
after tax. An immediate and sustained 100 bps decrease in Canadian
interest rates and a 25 bps decrease in U.S. interest rates would have
reduced the economic value of shareholders’ equity by $27 million
(October 31, 2014 – $56 million) after tax.
The interest risk exposure, or EVaR, in the insurance business is not
included in the above graph. Interest rate risk is managed using
defined exposure limits and processes, as set and governed by the
insurance Board of Directors.
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 1
SENSITIVITY OF AFTER-TAX ECONOMIC VALUE AT RISK BY CURRENCY
(millions of Canadian dollars)
Currency
Canadian dollar
U.S. dollar
October 31, 2015
October 31, 2014
100 bps
increase
$
(5)
(138)
$ (143)
100 bps
decrease
$ (15)1
(12)2
$ (27)
100 bps
increase
$ 7
(75)
$ (68)
100 bps
decrease
$ (47)
(9)2
$ (56)
1 EVaR sensitivity has been measured using a 50 bps rate decline for Canadian
interest rates, corresponding to an interest rate environment that is floored at 0%.
2 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%.
84
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
For the NIIS measure (not shown on the graph), a 100 bps increase in
interest rates on October 31, 2015, would have increased pre-tax net
interest income by $345 million (October 31, 2014 – $438 million
increase) in the next twelve months. A 100 bps decrease in interest
rates on October 31, 2015, would have decreased pre-tax net interest
income by $272 million (October 31, 2014 – $385 million decrease) in
the next twelve months. Over the last year, the reported NIIS exposures
have decreased due to a decreasing portion of permanent non-rate
sensitive deposits being invested in a longer term maturity profile. This
is consistent with net interest income management strategies overseen
by ALCO. Reported NIIS remains consistent with the Bank’s risk appe-
tite and within established Board limits.
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 2
SENSITIVITY OF PRE-TAX NET INTEREST INCOME SENSITIVITY BY CURRENCY
(millions of Canadian dollars)
Currency
Canadian dollar
U.S. dollar
1 NIIS sensitivity has been measured using a 75 bps rate decline for Canadian interest
rates, corresponding to an interest rate environment that is floored at 0%.
2 NIIS 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
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 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 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.
October 31, 2015
October 31, 2014
100 bps
increase
$ 235
110
$ 345
100 bps
decrease
$ (234)1
(38)2
$ (272)
100 bps
increase
$ 354
84
$ 438
100 bps
decrease
$ (354)
(31)2
$ (385)
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 predict-
able 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’ Acceptance or prime London
Interbank Offered Rate 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 gener-
ates on its modeled maturity profile for core deposits and the invest-
ment 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.
85
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
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
businesses to a broad range of operational risks, including failed
transaction processing and documentation errors, fiduciary and
information breaches, technology failures, business disruption,
theft and fraud, workplace injury, and damage to physical assets
as a result of internal or outsourced business activities. The impact
can result in significant financial loss, reputational harm, or
regulatory censure and penalties.
Operational risk is embedded in all 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 currently uses the Standardized Approach to
calculate operational risk regulatory capital. The Bank has submitted its
application to OSFI to use the Basel II Advanced Measurement Approach
(AMA). The AMA will more directly reflect the Bank’s operational risk
environment, and operational risk regulatory capital will be measured
through the use of a loss distribution approach model which incorpo-
rates internal loss events, external loss events, scenario analysis, and
other adjustments.
WHO MANAGES OPERATIONAL RISK
Operational Risk Management is an independent function that
designs and maintains the Bank’s overall operational risk management
framework. This framework sets out the enterprise-wide governance
processes, policies, and practices to identify and assess, measure,
control, monitor, escalate, and report operational risk. Risk Management
ensures that there is appropriate monitoring and reporting of the
Bank’s operational risk profile and exposures to senior management
through the OROC, the ERMC, and the Risk Committee.
The Bank also maintains program groups who oversee specific
enterprise wide operational risk policies. These policies govern the
activities of the corporate functions responsible for the management
and appropriate oversight of business continuity and crisis/incident
management, supplier risk management, financial crime risk manage-
ment, project change management, technology risk management,
and information management.
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 and three
lines of defence model. An independent risk management function
supports each business segment and corporate area, and monitors
and challenges the implementation and use of the operational risk
management framework programs according to the nature and scope
of the operational risks inherent in the area. The senior executives in
each business unit participate in a Risk Management Committee that
oversees operational risk management issues and initiatives.
Ultimately, every employee has a role to play in managing opera-
tional risk. In addition to policies and procedures guiding employee
activities, training is available to all staff regarding specific types of
operational risks and their role in helping to protect the interests and
assets of 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 for operational risk, limits, governance, policies, and processes.
The Operational Risk Management Framework is maintained by Risk
Management and supports alignment with TD’s ERF and risk appetite.
The framework incorporates sound industry practices and meets
regulatory requirements. Key components of the framework include:
86
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 and senior management for manag-
ing operational risk are set out by enterprise-wide policies and practices.
Risk and Control Self-Assessment
Internal control is one of the primary methods of safeguarding the
Bank’s employees, customers, assets, and information, and in prevent-
ing and detecting errors and fraud. Annually, management undertakes
comprehensive assessments of key risk exposures and the internal
controls in place to reduce or offset these risks. Senior management
reviews the results of these evaluations to ensure that risk manage-
ment and internal controls are effective, appropriate, and compliant
with 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 opera-
tional 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
operational risk losses that have occurred at other financial institutions
using information acquired through recognized industry data providers.
Scenario Analysis
Scenario Analysis is a systematic and repeatable process to assess the
likelihood and loss impact of low frequency, high impact operational
risk events (tail risk). The Bank applies this practice to meet risk
measurement and risk management objectives. The process includes
use of relevant external operational loss event data that is assessed
considering the Bank’s operational risk profile and control structure.
The program raises awareness and educates business owners regarding
existing and emerging risks, which may result in the identification and
implementation of risk mitigation action plans to minimize tail risk.
Risk Reporting
Risk Management, in partnership with senior management, regularly
monitors risk-related measures and the risk profile throughout the Bank
to report to senior business management and the Risk Committee.
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 additional protection from loss, the Bank
manages a comprehensive portfolio of insurance and other risk miti-
gating arrangements. The insurance terms and provisions, including
types and amounts of coverage in the portfolio, are continually
assessed to ensure that both the Bank’s tolerance for risk and, where
applicable, statutory requirements are satisfied. The management
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 TD’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
Bank needs to manage risks associated with inadequacies, improper
operation, or unauthorized access of the Bank’s technology, infrastruc-
ture, systems, information, or data. To achieve this, the Bank actively
monitors, manages, and continues to enhance its ability to mitigate
technology and information security risks through enterprise-wide
programs using industry best practices and the Bank’s operational risk
management framework. These programs include robust threat and
vulnerability assessments and responses, enhanced resiliency planning
and testing, as well as disciplined change management practices.
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS 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
management to continue to manage and operate their businesses, and
provide customers access to products and services. The Bank’s robust
enterprise-wide business continuity management program leverages
a multi-tiered, global crisis/incident management governance structure
to ensure effective oversight, ownership, and management of crises
and incidents affecting the Bank. 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 manage-
ment 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. 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.
Financial Crime and Fraud Management
Detecting fraud and other forms of financial crime is very important
to the Bank. To do this, TD’s Financial Crime and Fraud Management
Group leads the development and implementation of enterprise-wide
financial crime and fraud management strategies, policies, and prac-
tices. TD employs advanced fraud analytics capabilities to strengthen
the Bank’s defences and enhance governance, oversight, and collabo-
ration across the enterprise to protect customers, shareholders, and
employees from increasingly sophisticated financial crimes and fraud.
Excluding those events involving litigation, the Bank did not experience
any material single operational risk loss event in 2015. Refer to Note
28 of the 2015 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,
either from individual models, or in aggregate. This may lead to finan-
cial loss, incorrect business and strategic decisions, or reputational risk.
The Bank manages this risk in accordance with management
approved model risk policies and supervisory guidance which encom-
pass the life cycle of a model, including proof of concept, development,
validation, implementation, usage, and ongoing model performance
monitoring. The Bank’s model risk management framework captures
key processes that may be partially or wholly qualitative, or based on
expert judgment.
Business segments identify the need for a new model or process and
are responsible for model development and documentation according
to the Bank’s policies and standards. During model development,
controls with respect to code generation, acceptance testing, and
usage are established and documented to a level of detail and compre-
hensiveness matching the materiality and complexity of the model.
Once models are implemented, business owners are responsible for
ongoing performance monitoring and usage in accordance with the
Bank’s model risk policy. 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.
Model Risk Management and Model Validation provide oversight,
maintain a centralized inventory of all models as defined in the Bank’s
model risk policy, validate and approve new and existing models
on a pre-determined schedule depending on regulatory requirements
and materiality, and monitor model performance. The validation
process varies in rigour, depending on the model type and use, but
at a minimum contains 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, 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 appropriate-
ness of the model’s methodology and its use.
At the conclusion of the validation process, a model will either be
approved for use or will be rejected and require redevelopment 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.
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, driven by 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
engaged in insurance businesses relating to property and casualty
insurance and, life and health insurance and reinsurance, through
various subsidiaries; it is through these businesses that the Bank is
exposed to insurance risk.
WHO MANAGES INSURANCE RISK
Senior management within the insurance business units has primary
responsibility for managing insurance risk with oversight by the CRO 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 and monitors
compliance with insurance risk policies. 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 gover-
nance. 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.
87
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS 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.
Liquidity Risk
The risk of having insufficient cash or collateral to meet financial obli-
gations 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.
TD’S LIQUIDITY RISK APPETITE
The Bank maintains a prudent and disciplined 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 minimum buffer over regulatory requirements
prescribed by the OSFI Liquidity Adequacy Requirements (LAR) guide-
lines that took effect in January 2015. Under the LAR guidelines,
Canadian banks were required to comply fully with the 100% Liquidity
Coverage Ratio (LCR) limit beginning in January 2015. The Bank oper-
ates under a prudent funding paradigm with an emphasis on maximiz-
ing deposits as a core source of funding, and having a ready access
to wholesale funding markets across diversified terms, channels, and
currencies so as to ensure low exposure to a sudden contraction of
wholesale funding capacity and to minimize structural liquidity gaps.
The Bank also maintains a comprehensive contingency funding plan
to enhance preparedness for recovery from potential liquidity stress
events. The resultant management strategies and actions comprise
an integrated liquidity risk management program that best ensures
low exposure to identified sources of liquidity risk and compliance
with regulatory requirements.
LIQUIDITY RISK MANAGEMENT RESPONSIBILITY
The Bank’s ALCO oversees the Bank’s liquidity risk management
program. It ensures there are effective management structures and
policies in place to properly measure and manage liquidity risk. The
Global Liquidity Forum (GLF), a subcommittee of the ALCO comprised
of senior management from TBSM, Risk Management, Finance,
Wholesale Banking, and representatives from foreign operations,
identifies and monitors TD’s liquidity risks. The management of
liquidity risk is the responsibility of the Head of TBSM, while oversight
and challenge is provided by the ALCO and independently by Risk
Management. The Risk Committee of the Board frequently reviews
reporting of the Bank’s liquidity position and approves the Bank’s
Liquidity Risk Management Framework and Policies annually.
The following treasury areas are responsible for measuring, monitoring,
and managing liquidity risks for major business segments:
• Liquidity and Funding Management (LFM) in TBSM is responsible for
maintaining the liquidity risk management policy and asset pledging
policy, along with associated limits, standards, and processes to
ensure that consistent and efficient liquidity management approaches
are applied across all of the Bank’s operations. TBSM LFM also
manages and reports the combined Canadian Retail (including
domestic wealth businesses), Corporate segment, and Wholesale
Banking liquidity positions.
There is also exposure to geographic concentration risk associated
with personal property coverage. Exposure to insurance risk concentra-
tion is managed through established underwriting guidelines, limits, and
authorization levels that govern the acceptance of risk. Concentration of
insurance risk is also mitigated through the purchase of reinsurance. The
insurance business’ reinsurance programs are governed by catastrophe
and reinsurance risk management policies.
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.
• 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 in compliance with
their own policies, local regulatory requirements and, as applicable,
consistent with the enterprise policy.
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 market-
able securities or short-term assets.
To define the amount of liquidity that must be held for a rolling
90-day period, the Bank has developed an internal view for managing
liquidity that uses an assumed “Severe Combined Stress” scenario.
The Severe Combined Stress scenario models potential liquidity
requirements and asset marketability during a crisis that has been
triggered in the markets, specifically with respect to a lack of confi-
dence in TD’s ability to meet obligations as they come due. The Bank
also assumes loss of access to all 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 liquid-
ity event that results in a significant reduction in the availability of
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 the bankers’ acceptances the
Bank issues on behalf of clients and short-term revolving ABCP.
The Bank also manages its liquidity to comply with the regulatory
liquidity metrics in the OSFI LAR (LCR and the Net Cumulative Cash
Flow (NCCF) monitoring tool). The LCR requires that banks maintain
a minimum liquidity coverage of 100% over a 30-day stress period.
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 subject to buffers over the
regulatory minimums. As a result, the Bank’s liquidity is managed to
the higher of TD’s 90-day surplus requirement and the target buffers
over the regulatory minimums.
88
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS The Funds Transfer Pricing process in TBSM considers liquidity risk as
a key determinant of the cost or credit of funds provided to loans and
deposits, respectively. Liquidity costs applied to loans are determined
based on the appropriate term funding profile, while deposits are
assessed based on the required liquidity reserves and balance stability.
Additional liquidity costs are also applied to other contingent commit-
ments like undrawn lines of credit provided to customers.
The unencumbered liquid assets TD includes as available liquidity in
the 90-day measurement period under its internal framework must be
currently marketable, of sufficient credit quality, and readily convertible
into cash through sale or pledging. Unencumbered liquid assets are
represented in a cumulative liquidity gap framework with adjustments
made for estimated market or trading depths, settlement timing,
and/or other identified impediments to potential sale or pledging.
Overall, the Bank expects the reduction in current market value of its
liquid asset portfolio to be low given the underlying high credit quality
and demonstrated liquidity.
TD has access to the Bank of Canada’s Emergency Lending Assistance
Program, the Federal Reserve Bank Discount Window in the U.S., and
the European Central Bank standby facilities. TD does not consider
borrowing capacity at central banks as a source of available liquidity
when assessing liquidity positions.
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 3
SUMMARY OF LIQUID ASSETS BY TYPE AND CURRENCY1
(billions of Canadian dollars, except as noted)
As at
Securities
received as
collateral from
securities
financing and
derivative
transactions2
Bank-owned
liquid assets
Total liquid assets
Encumbered Unencumbered
liquid assets2
liquid assets
October 31, 2015
$
2.9
17.6
38.5
9.3
5.3
15.3
3.5
92.4
36.8
13.0
31.3
43.0
55.5
5.9
6.6
192.1
$ 284.5
$
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
$
–
29.0
0.5
6.8
4.1
3.5
1.2
45.1
–
28.7
5.8
35.5
0.9
3.1
14.2
88.2
$
2.9
46.6
39.0
16.1
9.4
18.8
4.7
137.5
36.8
41.7
37.1
78.5
56.4
9.0
20.8
280.3
1%
$
11
9
4
2
5
1
33
9
10
9
19
13
2
5
67
0.2
19.6
3.3
7.0
1.5
7.2
0.7
39.5
1.2
28.7
14.4
21.8
4.3
1.3
12.4
84.1
$ 133.3
$ 417.8
100%
$ 123.6
$
2.7
27.0
35.7
9.1
7.9
11.6
4.0
98.0
35.6
13.0
22.7
56.7
52.1
7.7
8.4
196.2
$ 294.2
October 31, 2014
$
–
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
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
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
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.
89
TD BANK GROUP ANNUAL REPORT 2015 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. The increase of $28.4 billion in total unencum-
bered liquid assets from the previous year was mainly due to the
impact of foreign currency translation and growth in deposits.
T A B L E 5 4
SUMMARY OF UNENCUMBERED LIQUID ASSETS BY BANK, SUBSIDIARIES, AND BRANCHES
(billions of Canadian dollars)
The Toronto-Dominion Bank (Parent)
Bank subsidiaries
Foreign branches
Total
The Bank’s monthly average liquid assets for the years ended
October 31 are summarized in the following table.
October 31
2015
$ 91.4
175.2
27.6
$ 294.2
As at
October 31
2014
$ 89.4
150.2
26.2
$ 265.8
T A B L E 5 5
SUMMARY OF AVERAGE LIQUID ASSETS BY TYPE AND CURRENCY1
(billions of Canadian dollars, except as noted)
Average for the years ended
Securities
received as
collateral from
securities
financing and
derivative
transactions2
Bank-owned
liquid assets
Total liquid assets
Encumbered Unencumbered
liquid assets2
liquid assets
October 31, 2015
$
–
32.2
0.5
7.6
4.2
3.2
1.0
48.7
–
29.0
7.9
37.9
9.4
3.0
5.4
92.6
$
2.7
50.8
38.6
16.4
12.0
19.2
5.0
144.7
38.3
42.6
40.1
81.8
66.0
9.1
10.8
288.7
1%
$
12
9
4
3
4
1
34
9
10
9
19
15
2
2
66
0.4
20.1
3.5
7.5
1.7
6.5
0.6
40.3
1.2
30.2
15.9
21.9
11.7
1.0
4.2
86.1
$ 141.3
$ 433.4
100%
$ 126.4
$
2.3
30.7
35.1
8.9
10.3
12.7
4.4
104.4
37.1
12.4
24.2
59.9
54.3
8.1
6.6
202.6
$ 307.0
October 31, 2014
–%
$
$
–
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
$
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
11
11
3
4
8
1
38
9
9
9
14
15
3
3
62
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
$
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
$
2.7
18.6
38.1
8.8
7.8
16.0
4.0
96.0
38.3
13.6
32.2
43.9
56.6
6.1
5.4
196.1
$ 292.1
$
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
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
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
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 2015 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 5 6
SUMMARY OF AVERAGE UNENCUMBERED LIQUID ASSETS BY BANK, SUBSIDIARIES, AND BRANCHES
(billions of Canadian dollars)
The Toronto-Dominion Bank (Parent)
Bank subsidiaries
Foreign branches
Total
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 Board on funds generated from deposit taking
activities by member financial institutions. Surplus liquidity domiciled
in insurance business subsidiaries are also excluded in the enterprise
liquidity position calculation due to regulatory investment restrictions.
In addition to the “Severe Combined Stress” scenario, TD also
performs stress testing on multiple alternate scenarios. These scenarios
are a mix of TD-specific events, global macroeconomic stress events,
and/or regional/subsidiary specific events designed to test the impact
from unique drivers. Liquidity assessments are also part of the Bank’s
enterprise-wide stress testing program. Results from these stress event
scenarios are used to inform the establishment of or make enhance-
ments to policy limits and contingency funding plan actions.
The Bank has liquidity contingency funding plans in place at the
enterprise level (“Enterprise CFP”) and for subsidiaries operating in both
domestic and foreign jurisdictions (“Regional CFP”). The Enterprise CFP
provides a documented framework for managing unexpected liquidity
situations and thus is an integral component of the Bank’s overall liquid-
ity risk management program. It outlines different contingency stages
based on the severity and duration of the liquidity situation, and
identifies recovery actions appropriate to each stage. For each recovery
action, it provides key operational steps required to execute the action.
Regional CFP recovery actions are aligned to support the Enterprise CFP
as well as any identified local liquidity needs during stress. The actions
and governance structure proposed in the Enterprise CFP are aligned
with the Bank’s Crisis Management Recovery Plan.
Credit ratings are important to TD’s borrowing costs and ability to
raise funds. Rating downgrades could potentially result in higher financ-
ing costs, 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.
Average for the years ended
October 31
2015
October 31
2014
$ 100.8
180.6
25.6
$ 307.0
$ 71.1
149.5
34.9
$ 255.5
As at
October 31, 2015
Senior
Short-term
long-term
debt rating debt rating
Outlook
P-1
A-1+
R-1 (high)
Aa1 Negative
AA- Negative
AA Negative
T A B L E 5 7
CREDIT RATINGS1
Rating agency
Moody’s
S&P
DBRS
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
requirements by necessitating the Bank to post additional collateral
for the benefit of the Bank’s trading counterparties. The following
table presents the additional collateral that could have been called
at the reporting date in the event of one, two, and three-notch
downgrades of the Bank’s credit ratings.
T A B L E 5 8
ADDITIONAL COLLATERAL REQUIREMENTS
FOR RATING DOWNGRADES
(billions of Canadian dollars)
One-notch downgrade
Two-notch downgrade
Three-notch downgrade
Average for the years ended
October 31 October 31
2014
2015
$ 0.2
0.3
0.4
$ 0.3
0.3
0.6
91
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
As at
October 31, 2015
Encumbered
Total
assets as a %
assets of total assets
$
3.2
42.5
262.8
69.4
97.4
544.3
16.6
6.7
16.3
2.7
5.3
1.9
35.3
$ 1,104.4
–%
0.5
6.4
–
–
6.0
–
–
–
–
–
–
–
12.9%
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 5 9
ENCUMBERED AND UNENCUMBERED ASSETS1
(billions of Canadian dollars, except as noted)
Encumbered2
Unencumbered
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
Total on-balance sheet assets
Total off-balance sheet items
Total
$
Pledged as
collateral3
–
2.3
60.8
–
–
20.4
–
–
–
–
–
–
–
$ 83.5
78.9
18.3
1.9
99.1
$ 182.6
$ 72.7
84.4
$ 157.1
Other4
–
$
2.7
10.5
–
–
46.2
–
–
–
–
–
–
–
$ 59.4
–
–
–
–
$ 59.4
$ 60.5
–
$ 60.5
$
Available as
collateral5
–
29.5
168.9
–
–
81.6
–
–
–
–
–
–
–
$ 280.0
29.5
7.5
14.0
51.0
$ 331.0
$
Other6
3.2
8.0
22.6
69.4
97.4
396.1
16.6
6.7
16.3
2.7
5.3
1.9
35.3
$ 681.5
(97.4)
0.5
(7.9)
(104.8)
$ 576.7
$ 257.9
47.1
$ 305.0
$ 569.4
(89.4)
$ 480.0
October 31, 2014
$ 960.5
13.9%
1 Certain comparative amounts have been restated, where applicable, as a result of
the implementation of the 2015 IFRS Standards and Amendments. Certain other
comparative amounts have also been restated to conform with the presentation
adopted in the current period.
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).
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.
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 collat-
eral purposes however not regularly utilized in practice.
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
represent 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 agreements, 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.
LIQUIDITY COVERAGE RATIO
The Bank must maintain the LCR above 100% under normal operating
conditions in accordance with the OSFI LAR requirement. The LCR is
calculated as the ratio of the stock of unencumbered high quality
liquid assets (HQLA) over the net cash outflow requirements in the
next 30 days under a hypothetical liquidity stress event. The stress
event incorporates a number of idiosyncratic and market-wide shocks,
including deposit run-offs, partial loss of wholesale funding, additional
collateral requirements due to credit rating downgrades and market
volatility, sudden increases in the drawdown of unused lines provided
to the Bank’s clients, and other obligations the Bank expects to honour
during stress to mitigate reputational risk. HQLA eligible for the LCR
calculation under the OSFI LAR are primarily central bank reserves,
sovereign issued or guaranteed securities, and high quality securities
issued by non-financial entities. In calculating the LCR, HQLA haircuts,
deposit run-off rates, and other outflow and inflow rates are
prescribed by the OSFI LAR guideline.
92
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
The following table summarizes the Bank’s regulatory average monthly
LCR position for the fourth quarter of 2015, calculated in accordance
with OSFI’s LAR guideline.
T A B L E 6 0
AVERAGE BASEL III LIQUIDITY COVERAGE RATIO1
(billions of Canadian dollars, except as noted)
High-quality liquid assets
Total high-quality liquid assets
Cash outflows
Retail deposits and deposits from small business customers, of which:
Stable deposits4
Less stable deposits
Unsecured wholesale funding, of which:
Operational deposits (all counterparties) and deposits in networks of cooperative banks5
Non-operational deposits (all counterparties)
Unsecured debt
Secured wholesale funding
Additional requirements, of which:
Outflows related to derivative exposures and other collateral requirements
Outflows related to loss of funding on debt products
Credit and liquidity facilities
Other contractual funding obligations
Other contingent funding obligations6
Total cash outflows
Cash inflows
Secured lending
Inflows from fully performing exposures
Other cash inflows
Total cash inflows
Total high-quality liquid assets7
Total net cash outflows8
Liquidity coverage ratio9
Average for the three months ended
October 31, 2015
Total
unweighted
value
(average)2
Total
weighted
value
(average)3
$
n/a
$ 179.1
$ 367.1
157.9
209.2
195.9
85.4
77.4
33.1
n/a
136.5
20.8
6.8
108.9
11.7
487.5
n/a
$
$ 97.7
10.8
8.8
$ 117.3
$ 25.6
4.7
20.9
93.6
19.8
40.7
33.1
5.9
32.6
5.9
6.8
19.9
7.4
6.8
$ 171.9
$ 14.9
6.1
8.8
$ 29.8
Average for the three months ended
October 31
2015
July 31
2015
Total adjusted
value
Total adjusted
value
$ 179.1
142.1
$ 166.1
134.8
126%
123%
1 The average is comprised of the three month ends that are in the fiscal quarter.
2 Unweighted inflow and outflow values are outstanding balances maturing
or callable within 30 days.
3 Weighted values are calculated after the application of respective HQLA haircuts
or inflow and outflow rates, as prescribed by the OSFI LAR guidelines.
4 As defined by OSFI LAR, stable deposits from retail and small medium-sized
enterprise (SME) customers are deposits that are insured, and are either held
in transactional accounts, or the depositors have an established relationship
with the Bank that make deposit withdrawal highly unlikely.
5 Operational deposits from non-SME business customers are deposits kept
with the Bank in order to facilitate their access and ability to conduct payment
and settlement activities. These activities include clearing, custody, or cash
management services.
6 Includes uncommitted credit and liquidity facilities, stable value money market
mutual funds, outstanding debt securities with remaining maturity greater than
30 days, and other contractual cash outflows. TD has no contractual obligation
to buyback these outstanding TD debt securities, and as a result, a 0% outflow
rate is applied under the OSFI LAR guideline.
7 Adjusted HQLA includes both asset haircut and applicable caps, as prescribed by
the OSFI LAR (HQLA assets after haircuts are capped at 40% for Level 2 and 15%
for Level 2B).
8 Adjusted Net Cash Outflows include both inflow and outflow rates and applicable
caps, as prescribed by the OSFI LAR (inflows are capped at 75% of outflows).
9 The LCR percentage is calculated as the simple average of the three month-end
LCR percentages.
The Bank’s average LCR of 126% for quarter ended October 31, 2015,
continues to meet the regulatory requirement. The 3% increase over
prior quarter LCR was mainly due to the impact of pre-funding activity,
favourable change in HQLA asset mix, and deposit growth.
The Bank holds a variety of liquid assets commensurate with liquidity
needs in the organization. Many of these assets qualify as HQLA
under the OSFI LAR guidelines. The average HQLA of the Bank for the
quarter ended October 31, 2015, was $179.1 billion (July 31, 2015 –
166.1 billion), with level 1 assets representing 80%. The Bank’s
reported HQLA excludes excess HQLA from the U.S. Retail operations,
as required by the OSFI LAR, to reflect liquidity transfer considerations
between U.S. Retail and its affiliates in the Bank as a result of U.S.
Federal Reserve Board’s regulations. By excluding excess HQLA,
the U.S. Retail LCR is effectively capped at 100% prior to total
Bank consolidation.
We manage our LCR position with a target minimum that reflects
management’s liquidity risk tolerances. As described in the section
“How TD Manages Liquidity Risk”, we manage our HQLA and other
liquidity buffers to the higher of TD’s 90-day surplus requirement
and the target buffers over regulatory requirements through LCR
and NCCF. As a result, the total stock of HQLA is subject to ongoing
rebalancing against the projected liquidity requirements. Therefore,
changes to the amount of HQLA TD holds should be considered as
part of TD’s normal business activities instead of any indication of
change in the Bank’s risk appetite, unless otherwise stated.
93
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
FUNDING
The Bank has access to a variety of unsecured and secured funding
sources. The Bank’s funding activities are conducted in accordance
with the liquidity management 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 increase of $57.5 billion in deposits raised through personal
and commercial banking channels in U.S. Retail from October 31, 2014,
to October 31, 2015, was largely due to the impact of foreign
exchange translation.
T A B L E 6 1
SUMMARY OF DEPOSIT FUNDING
(billions of Canadian dollars)
P&C deposits – Canadian Retail
P&C deposits – U.S. Retail
Other deposits
Total
As at
October 31 October 31
2014
2015
$ 293.3
284.7
1.6
$ 579.6
$ 273.2
227.1
1.1
$ 501.4
The Bank actively maintains various external wholesale term (greater than
1 year) funding programs to provide access to diversified funding sources,
including asset securitization, covered bonds, and unsecured wholesale
debt. The Bank’s wholesale funding is diversified by geography, by
currency, and by funding channel. The Bank also utilizes certificates of
deposit and commercial paper as short term (1 year and less) funding.
The following table summarizes by geography the term programs,
with the related program size.
Canada
United States
Europe/Australia
Capital Securities Program ($10 billion)
U.S. SEC (F-10) Registered Capital Securities
Program (US$5 billion)
United Kingdom Listing Authority (UKLA)
Registered Legislative Covered Bond Program
($40 billion)
Genesis Trust II Asset-Backed Securities
Program ($7 billion)
U.S. SEC (F-10) Registered Senior Medium
Term Notes Program (US$20 billion)
UKLA Registered European Medium Term Note
Program (US$20 billion)
Senior Medium Term Linked Notes Program
($2 billion)
U.S. SEC (F-3) Registered Linked Notes
Program (US$2 billion)
Australian Debt Issuance Programme
(A$5 billion)
TD continuously evaluates opportunities to diversify its funding into
new markets and potential investor segments against relative issuance
costs. Through this diversification, the Bank aims to maximize funding
flexibility and minimize funding concentrations and dependency. As
presented in the following charts, TD’s long-term debt profile is well
diversified by currency as well as by type of long-term funding product.
BY CURRENCY
BY TYPE
AUD, 2% GBP, 4%
EUR, 10%
USD, 43%
Term ABS, 4%
Mortgage
Securitization, 22%
Senior
Unsecured
Medium Term
Notes, 51%
CAD, 41%
Covered
Bonds, 23%
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.
94
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
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, 2015, and
October 31, 2014.
T A B L E 6 2
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
2014
2015
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 securitization
Other4
Total
Of which:
Secured
Unsecured
Total
$ 5,984 $ 1,846 $ 1,701 $
9,902 $ 10,491
716
1,678
66,046 69,381
8,144
15,304
3,099
–
23,719 16,511
33,729 36,158
53,656 41,268
7,785
1,953
3,720
$ 23,203 $ 24,524 $ 34,763 $ 38,499 $ 19,800 $ 76,895 $ 217,684 $ 199,226
371 $
365
15,021
2,109
–
3,930
3,803
12,676
–
–
224
– $
–
95
–
–
15,870
21,018
28,756
8,637
2,500
19
– $
–
342
–
–
3,919
6,037
8,601
–
900
1
88
14,562
5,628
–
–
1,454
199
–
–
747
83
26,115
4,143
–
–
1,393
1,278
–
–
50
1,142
9,911
3,424
–
–
24
2,146
–
–
572
8,637
3,400
1,613
24 $ 1,455 $ 1,393 $ 7,735 $ 10,857 $ 39,407 $ 60,871 $ 57,721
$
23,179
37,488 156,813 141,505
$ 23,203 $ 24,524 $ 34,763 $ 38,499 $ 19,800 $ 76,895 $ 217,684 $ 199,226
33,370
23,069
30,764
8,943
1 Includes fixed-term deposits with banks.
2 Represents ABCP issued by consolidated bank-sponsored 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 (unsecured).
Excluding the Wholesale Banking mortgage aggregation business, the
Bank’s total 2015 mortgage-backed securities issuance was $2.1 billion
(2014 – $3.8 billion), and other real-estate secured issuance using
asset-backed securities was $1.6 billion (2014 – $1 billion). The Bank
also issued $14.8 billion of unsecured medium-term notes (2014 –
$17.4 billion) and $6.5 billion of covered bonds (2014 – $8.6 billion),
in various currencies and markets during the year ended October 31,
2015. This includes unsecured medium-term notes and covered bonds
issued but settling subsequent to year end.
REGULATORY DEVELOPMENTS CONCERNING LIQUIDITY
AND FUNDING
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 regula-
tory capital (for example, common equity and NVCC instruments)
and long-term senior debt. On April 21, 2015, in its 2015 federal
budget, the Canadian Federal Government confirmed its intention to
implement the bail-in regime. The summary of the proposed bail-in
legislation was in line with the proposals in the Bail-in Consultation
paper and no implementation timeline has been provided.
In June 2015, the BCBS released the final requirements for the
“Net Stable Funding Ratio Disclosure Standards”. The standard defines
a common public disclosure framework for the NSFR calculated in
accordance to the guidelines published by BCBS in October 2014.
The NSFR is designed to reduce structural funding risk by requiring
banks to have sufficient stable sources of funding and lower reliance
on funding maturing in one year to support their businesses. The
NSFR and its public disclosure requirement are expected to become
minimum standards by January 2018.
On September 30, 2015, the Bank of Canada finalized changes to
its framework for financial market operations and emergency lending
policies with immediate effective date. The reforms are designed to
lower the risk profile of core financial institutions (FI) and increase the
resilience of funding and market liquidity in times of market stress.
With its financial market operations, the central bank refined its opera-
tional parameters for overnight repo (including reverse-repo) programs
and securities lending program, reduced its purchases at primary
auctions of nominal GoC bonds, and introduced a regular program
of term repo operations as well as a Contingent Term Repo Facility
that will be activated at its discretion under severe market-wide liquid-
ity stress. In addition, the Bank of Canada made changes to the
manner in which it addresses liquidity issues at individual institutions
by expanding the role of Emergency Lending Assistance (ELA) in
effective recovery and resolution of FIs provided the FI satisfies the
requirement of a credible recovery and resolution framework be in
place. An updated ELA policy statement reflecting these changes will
be published later this year.
On November 9, 2015, the Financial Stability Board issued the final
Total Loss-Absorbing Capacity (TLAC) standard for G SIBs. The TLAC
standard defines a minimum requirement for the instruments and
liabilities that should be readily available for bail-in within resolution
at G SIBs. Separately and on the same day, the Basel Committee
on Banking Supervision released a consultative document on TLAC
holdings, setting out its proposed prudential treatment of banks’
investments in TLAC. It is applicable to all banks subject to the Basel
Committee’s standards, including both G-SIBs and non G-SIBs. Comments
on the consultative document are due by February 12, 2016.
95
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
MATURITY ANALYSIS OF ASSETS, LIABILITIES, AND
OFF-BALANCE SHEET COMMITMENTS
The following table summarizes on-balance sheet 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
in the following table 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 commit-
ments are expected to expire without being drawn upon, the total
of the contractual amounts is not representative of future liquidity
requirements. These contractual obligations have an impact on 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. 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 consid-
ering 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 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.
96
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS T A B L E 6 3
REMAINING CONTRACTUAL MATURITY
(millions of Canadian dollars)
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
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
5 years
$
$
3,154
21,471
1,955
2,845
195
268
170
–
420
3,957
4,661
488
1,763
966
$
–
529
3,327
2,906
535
1,899
1,779
$
–
154
3,524
3,443
205
1,299
1,930
$
–
53
4,587
3,315
285
1,249
1,896
$
– $
–
9,410
10,102
– $
–
15,426
22,291
– $
–
17,958
19,875
552
4,556
6,952
770
33,196
35,744
1,171
42,580
25,013
As at
October 31, 2015
No
specific
maturity
Total
– $
19,856
35,013
–
177
1,972
–
3,154
42,483
95,157
69,438
4,378
88,782
74,450
57,371
21,490
14,315
3,002
1,083
95
8
–
–
97,364
1,301
970
–
18,755
1
21,027
–
21,027
13,889
–
–
–
–
–
2,418
2,127
–
4,682
5
9,232
–
9,232
2,380
–
–
–
–
–
12,045
4,263
–
7,030
94
23,432
–
23,432
337
–
–
–
11,703
3,529
–
6,699
43
21,974
–
21,974
40
–
–
–
11,579
3,702
–
4,132
–
19,413
–
19,413
–
–
–
–
30,751
7,450
–
11,578
120
49,899
–
49,899
–
–
–
–
111,105
32,885
–
49,473
243
193,706
–
193,706
–
–
–
–
31,471
18,732
–
52,845
1,681
104,729
–
104,729
–
–
–
–
–
61,813
30,215
12,335
–
104,363
(3,434)
100,929
–
6,683
16,337
2,671
212,373
135,471
30,215
167,529
2,187
547,775
(3,434)
544,341
16,646
6,683
16,337
2,671
–
–
–
–
–
–
–
–
–
–
–
–
5,314
1,931
5,314
1,931
21,996
2,356
$ 146,697
–
539
$ 45,896
–
1,468
$ 50,527
–
85
$ 35,656
–
120
$ 32,001
–
93
21,996
13,248
$ 81,659 $ 301,281 $ 211,408 $ 199,248 $ 1,104,373
–
8,365
–
140
–
82
$ 12,654
2,629
–
$ 16,457
4,462
471
$ 27,238
2,599
27
$ 11,751
2,720
285
$ 4,308
2,343
–
$
360 $
1,202 $
789 $
7,520
1,933
17,294
5,033
17,651
3,237
– $
–
–
74,759
57,218
10,986
190
204
284
337
224
176
–
–
–
1,415
4,580
6,118
15,815
26,513
13,889
942
54,621
24
6,736
2,782
10,600
20,118
2,380
1,631
7,075
774
6,622
14,471
337
2,017
5,252
173
5,813
11,238
40
1,917
4,896
211
13,950
19,057
–
417
9,333
1
13,265
22,599
–
3,113
7,884
983
2,499
1,366
1,427
1,547
424
1,971
225
4,104
12,353
6
37,896
50,255
–
9,583
76
10,013
190
13
10,266
10,469
–
10,904
345,403
7,002
168,451
520,856
–
8,279
–
2,735
–
–
395,818
17,080
282,678
695,576
16,646
38,803
67,156
22,743
22,664
127
1,356
–
–
–
$ 135,609
–
170
2,243
–
–
–
$ 57,003
–
257
682
–
–
–
$ 51,777
–
352
286
–
–
–
$ 31,900
–
330
170
–
–
–
$ 29,244
–
829
1,261
–
–
–
22,664
6,519
14,223
8,637
–
67,028
$ 42,120 $ 98,399 $ 55,577 $ 602,744 $ 1,104,373
–
1,672
4,909
–
–
67,028
–
1,728
3,215
–
–
–
–
1,054
101
8,637
–
–
$
$
77
2
9
3
12
$
155
3
19
5
71
$
231
5
28
8
36
228
5
29
8
38
$
227
–
30
8
27
$
874 $
–
21
32
2,183 $
–
35
29
4,091 $
–
–
–
112
74
7
868
1,406
2,415
2,917
1,586
3,183
8,479
53
50
97
64
12
35
19
192
–
– $
–
–
–
–
–
–
8,066
15
171
93
377
21,046
330
12,541
14,457
9,654
5,665
8,509
11,579
63,334
3,660
1,881
131,280
Non-consolidated structured entity commitments
Commitments to liquidity facilities for ABCP
–
151
148
138
138
464
707
–
–
1,746
1 Amount has been recorded according to the remaining contractual maturity of the
5 Includes $106 million of capital lease commitments with remaining contractual
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 $24 billion of covered bonds with remaining contractual maturities of
$4 billion in ‘9 months to 1 Year’, $4 billion in ‘over 1 to 2 years’, $13 billion in
‘over 2 to 5 years’, and $3 billion in ‘over 5 years’.
maturities of $3 million in ‘less than 1 month’, $7 million in ‘1 month to 3 months’,
$8 million in ‘3 months to 6 months’, $7 million in ‘6 months to 9 months’,
$6 million in ‘9 months to 1 year’, $24 million in ‘over 1 to 2 years’, $29 million
in ‘over 2 to 5 years’, and $22 million in ‘over 5 years’.
6 Includes $133 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.
97
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 6 3
REMAINING CONTRACTUAL MATURITY (continued) 1
(millions of Canadian dollars)
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 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
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 brokers,
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 structured entity commitments
Commitments to liquidity facilities for ABCP
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
5 years
$
$
2,769
28,693
1,827
5,845
172
482
98
12
358
2,347
4,945
1,411
1,350
1,353
$
–
355
3,281
2,932
662
1,851
485
$
–
45
2,225
2,951
469
1,719
966
$
– $
145
2,620
1,696
419
393
573
– $
–
5,219
7,168
– $
–
17,831
14,544
– $
–
14,887
15,715
274
5,316
5,807
348
24,877
20,478
814
25,089
27,217
As at
October 31, 2014
No
specific
maturity
Total
– $
2,781
43,773
101,173
55,796
4,745
63,008
56,977
14,177
50,936
–
176
1,931
–
40,978
18,321
13,563
3,413
6,037
205
39
–
–
82,556
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
17,130
2,364
$ 129,557
–
390
$ 39,265
–
1,158
$ 35,447
–
77
$ 29,676
–
166
17,130
11,163
$ 27,372 $ 100,109 $ 234,426 $ 166,656 $ 198,003 $ 960,511
–
6,726
–
111
–
130
–
41
$ 10,785
4,904
–
$ 14,876
4,661
290
$ 11,242
2,558
1,284
$ 9,587
2,707
356
$ 11,165 $
1,453
–
171 $
975 $
533 $
6,391
797
12,973
5,527
15,562
2,944
– $ 59,334
51,209
–
11,198
–
231
281
447
528
370
1,218
175
–
–
3,250
5,136
6,316
16,711
28,163
11,256
2,817
42,928
19
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
6,093
389
1,908
1,580
838
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
–
–
53,112
24,960
18,192
151
2,697
–
–
–
$ 122,143
–
236
3,554
–
–
–
$ 56,937
–
314
903
–
–
–
$ 32,709
–
–
339
–
–
–
$ 34,586
–
531
285
–
–
–
18,195
6,079
15,897
7,785
–
56,231
$ 26,130 $ 47,318 $ 82,440 $ 47,146 $ 511,102 $ 960,511
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 $
–
–
–
9
132
64
–
647
1,295
2,378
2,605
1,637
2,633
6,316
884
24
59
43
21
9
21
20
10
– $
–
–
–
–
–
–
6,734
40
265
111
322
18,395
207
12,616
12,366
5,779
4,195
4,161
11,416
45,269
3,061
1,505
100,368
–
272
189
66
66
381
408
–
–
1,382
1 Certain comparative amounts have been restated, where applicable, as a result of
6 Includes $119 million of capital lease commitments with remaining contractual
the implementation of the 2015 IFRS Standards and Amendments.
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 $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’.
98
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’.
7 Includes $76 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.
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
Capital Adequacy Risk
Capital adequacy risk is the risk of insufficient capital being available in
relation to the amount of capital required to carry out the Bank’s strategy
and/or satisfy regulatory and internal capital adequacy requirements.
Capital is held to protect the viability of the Bank in the event of
unexpected financial losses. Capital represents the loss-absorbing
funding required to provide a cushion to protect depositors and other
creditors from unexpected losses.
Managing capital levels of a financial institution requires that
TD holds sufficient capital under all conditions to avoid the risk of
breaching minimum capital levels prescribed by regulators.
WHO MANAGES CAPITAL ADEQUACY RISK
The Board has the ultimate responsibility for overseeing adequacy of
capital and capital management. The Board reviews the adherence to
capital targets and reviews and approves the annual capital plan and
the Global Capital Management Policy. The Risk Committee reviews
and approves the Capital Adequacy Risk Management Framework and
oversees management’s actions to maintain an appropriate ICAAP frame-
work, commensurate with the Bank’s risk profile. The CRO 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 targets.
Enterprise Capital Management within Treasury and Balance Sheet
Management is responsible for forecasting and monitoring compliance
with capital targets, on a consolidated basis. Enterprise Capital
Management updates the capital forecast and makes recommendations
to the ALCO regarding capital issuance, repurchase and redemption.
Risk Capital Assessment, within Risk Management, leads the ICAAP
and EWST processes. Business segments are responsible for managing
to allocated capital limits.
Additionally, regulated subsidiaries, including, insurance, U.S., and
other jurisdictions of the Bank manage their capital adequacy risk in
accordance with applicable regulatory requirements. However, capital
management policies and procedures of these subsidiaries conform
with those of the Bank. U.S.-regulated subsidiaries of the Bank are
required to follow the U.S. Federal Reserve Board’s final rules on
Enhanced Prudential Standards for large Foreign Bank Organizations
and U.S. Bank Holding Companies. Refer to the sections on “Future
Regulatory Capital Developments”, “EWST” and “Top and Emerging
Risks That May Affect the Bank and Future Results” for further details.
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 approves capital targets that provide a sufficient buffer
under stress conditions so that the Bank exceeds minimum capital
requirements. The purpose of these capital targets is to reduce the risk
of a breach of minimum capital requirements, due to an unexpected
stress event, allowing management the opportunity to react to declin-
ing capital levels before minimum capital requirements are breached.
Capital targets are defined in the Global Capital Management Policy.
The Bank also determines its internal capital requirements through
the ICAAP process using models to measure the risk-based capital
required based on its own tolerance for the risk of unexpected losses.
This risk tolerance is calibrated to the required confidence level so that
the Bank will be able to meet its obligations, even after absorbing
worst case unexpected losses over a one-year period, associated with
management’s target debt rating.
In addition, the Bank has a Capital Contingency Plan that is designed
to prepare management to ensure capital adequacy through periods of
Bank- specific or systemic market stress. The Capital Contingency Plan
determines the governance and procedures to be followed if the Bank’s
consolidated capital levels are forecast to fall below capital targets. It
outlines potential management actions that may be taken to prevent
such a breach from occurring.
A comprehensive periodic monitoring process is undertaken to
plan and forecast capital requirements. As part of the annual planning
process, business segments are allocated individual capital limits.
Capital usage is monitored and reported to the ALCO.
The Bank assesses the sensitivity of its forecast capital requirements
and new capital formations to various economic conditions through its
EWST process. The impacts of the EWST are applied to the capital fore-
cast and are considered in the determination of capital targets.
Legal and Regulatory Compliance Risk
Legal and regulatory compliance (LRC) 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, regu-
lations, rules, regulatory guidance, self-regulatory organization standards
and codes of conduct, including AML regulations (“LRC requirements”).
It also includes the risks associated with the failure to meet material
contractual obligations or similarly binding legal commitments, by either
the Bank or other parties contracting with the Bank. Potential conse-
quences of failing to mitigate LRC risk include financial loss, regulatory
sanctions and loss of reputation, which could be material to the Bank.
Financial Services is one of the most closely regulated industries, and
the management of a financial services business is expected to meet
high standards in all business dealings and transactions. As a result, we
are exposed to LRC risk in virtually all of our activities. Failure to meet
regulatory and legal requirements not only poses a risk of censure or
penalty, and may lead to litigation, but also puts our reputation at risk.
Financial penalties, reputational damage and other costs associated with
legal proceedings, and unfavourable judicial or regulatory judgments or
actions may also adversely affect TD’s business, results of operations and
financial condition. LRC risk differs from other banking risks, such as
credit risk or market risk, in that it is typically not a risk actively or delib-
erately assumed by management in expectation of a return. This risk can
occur as part of the normal course of operating TD’s businesses.
WHO MANAGES LEGAL AND REGULATORY COMPLIANCE RISK
The proactive and effective management of this risk is complex given
the breadth and pervasiveness of exposure. Effective management of
LRC risk is a result of enterprise-wide collaboration between businesses
and the Legal, Compliance and AML departments and is set out under
a Legal and Regulatory Compliance Risk Management framework.
Each of the Bank’s businesses is responsible for compliance with LRC
requirements applicable to their jurisdiction and specific business
requirements. Under TD’s approach to risk governance, businesses
have ownership and overall responsibility for adhering to LRC require-
ments in their business operations, including for setting the appropri-
ate tone for legal and regulatory compliance. Compliance, Legal
and AML, together with the Regulatory Risk (including Regulatory
Relationships and Government Affairs) group, provide advice and
oversight with respect to managing LRC risk. Representatives of these
groups participate, as required, in senior operating committees of the
Bank’s businesses. Also, the senior management of Compliance, Legal
and AML 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).
HOW TD MANAGES LEGAL AND REGULATORY COMPLIANCE RISK
While each of TD’s businesses is responsible for assessing its LRC risk,
designing and implementing controls, and monitoring and reporting on its
risk profile, effective management of LRC risk is a result of enterprise-wide
collaboration between businesses and the Legal, Compliance and AML
departments through (a) independent and objective identification and
assessment of LRC risk, (b) objective guidance and advisory services to
identify, assess, control and monitor LRC risk, and (c) an approved set
of frameworks, policies, procedures, guidelines and practices. Legal,
Compliance and AML are structured and organize their activities in
order to support the independent and effective oversight of LRC Risks
99
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS across the enterprise, promote a culture of integrity, and provide
trusted objective guidance. In particular, Compliance and AML depart-
ments aim to build and run strong, resilient and sustainable depart-
ments that effectively manage LRC risk globally by:
• Independently monitoring and assessing, on a risk-based approach,
the adequacy of, adherence to and effectiveness of LRC risk
management programs and controls in the Businesses;
• Delivering objective guidance and independent challenge;
• Proactively managing regulatory change; and
• Providing trusted and reliable reporting, advice and opinion to
senior leadership and the Audit Committee of the Board on the
state of LRC risks, controls and outcomes.
The Legal department undertakes certain centralized functions and
provides teams to support TD to identify and manage LRC risk, includ-
ing with respect to disclosure and governance matters and litigation
management to manage financial, reputational and regulatory risk
to the Bank. In addition, the Compliance and AML departments have
developed methodologies and processes to measure and aggregate
LRC risks on an ongoing basis as a critical baseline to assess whether
TD’s internal controls are effective in adequately mitigating LRC risk.
The Legal department has developed methodologies for measuring
litigation risk for adherence to risk appetite.
Finally, the Bank’s Regulatory Risk groups also create and facilitate
communication with elected officials and regulators, monitor legisla-
tion and regulations, support business relationships with governments,
coordinate regulatory examinations, facilitate regulatory approvals of
new products, and advance the public policy objectives of the Bank.
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 that is essential
to optimizing shareholder value and therefore, is constantly at risk.
Reputational risk can arise as a consequence of negative impressions
about TD’s business practices and may involve any aspect of the Bank’s
operations, but usually involves concerns about business ethics and
integrity, competence, or the quality or suitability of products and
services. As such, reputational risk is not managed in isolation from TD’s
other major risk categories, as all risk categories can have an impact on
reputation, 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 most senior
executive committee for the review of reputational risk matters at TD.
The mandate of the RRC is to oversee the management of reputational
risk within the Bank’s risk appetite. Its main accountability is to review
and assess business and corporate initiatives and activities across TD
where significant reputational risk profiles have been identified and
escalated. The RRC ensures that escalated initiatives and activities
have received adequate senior management and subject matter expert
review for reputational risk implications 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
continuously to protect and enhance TD’s reputation.
HOW TD MANAGES REPUTATIONAL RISK
TD’s approach to the management of reputational risk combines the
experience and knowledge of individual business segments, and gover-
nance, risk and oversight functions. It is based on enabling TD’s busi-
nesses to understand their risks and developing the policies, processes,
and controls required to manage these risks appropriately in line with
the Bank’s strategy and reputational risk appetite. TD’s Reputational
Risk Management Framework provides a comprehensive overview of
100
the Bank’s approach to the management of this risk. Amongst other
significant policies, TD’s enterprise Reputational Risk Management
Policy is approved by the Risk Committee. This Policy sets out the
requirements under which business segments and corporate shared
services are required to manage reputational risk. These include imple-
menting procedures and designating a business-level committee to
review reputational risk issues and escalating as appropriate to the 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 support consistent processes
for approving new businesses and products. 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 new or emerging
environmental regulatory issues; and (4) failure to understand and
appropriately leverage environment-related trends to meet customer
and consumer demands for products and services.
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
environmental 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 (FPIC)
of Aboriginal peoples. Within Wholesale Banking, sector-specific
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS guidelines 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. In 2015 TD Insurance became a signatory to the United
Nations Environment Program Finance Initiative Principles for Sustainable
Insurance (UNEP FI-PSI) which provides a global framework for managing
environmental, social and governance risks within the insurance industry.
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, particu-
larly 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
information 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 developments
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 Board or an appropriate Board committee.
Pursuant to the Stockholders Agreement in relation to the Bank’s
equity investment in TD Ameritrade, the Bank has the right to desig-
nate five of twelve members of TD Ameritrade’s Board of Directors.
The Bank’s designated directors include the Bank’s 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 partici-
pating in the Risk Committee and Corporate Governance Committee.
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 of the 2015 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 2015 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 2015 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, refer to
Notes 2 and 3 of the Bank’s 2015 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.
101
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS 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 considered
objective evidence of impairment. Other factors considered in the
impairment assessment include the financial position and key financial
indicators of the issuer, significant past and continued losses of the
issuer, as well as breaches of contract, including default or delinquency
in interest payments and loan covenant violations.
Loans
A loan (including a debt security classified as a loan) is considered
impaired when there is objective evidence that there has been a deteri-
oration of credit quality subsequent to the initial recognition of the
loan 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 credit
losses and may result in a change in the incurred but not identified
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.
102
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.
An analysis of fair value of financial instruments and further details
as to how they are measured are provided in Note 5 of the Bank’s
2015 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
have been retained or transferred and the extent to which the risks
and rewards of ownership of the financial asset have been retained
or transferred. If the Bank neither transfers nor retains substantially all
of the risks and rewards of ownership of the financial asset, a decision
must be made as to whether the Bank has retained control of the
financial asset. Upon derecognition, the Bank will record a gain or loss
on sale of those assets which is calculated as the difference between
the 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. 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 existence
of impairment and the valuation of goodwill. Management believes
that the assumptions and estimates used are reasonable and support-
able. Where possible, fair values generated internally are compared to
relevant market information. The carrying amounts of the Bank’s CGUs
are determined by management using risk based capital models to
adjust net assets and liabilities by CGU. These models consider various
factors including market risk, credit risk, and operational risk, including
investment capital (comprised of goodwill and other intangibles). Any
unallocated capital not directly attributable to the CGUs is held within
the Corporate segment. The Bank’s capital oversight committees
provide oversight to the Bank’s capital allocation methodologies.
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS 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
assumptions, 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, 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 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. 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 infor-
mation 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 combination of its own experience and industry experi-
ence. 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.
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 bene-
fits, 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.
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 activ-
ities 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 facilities,
or lending commitments.
103
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS 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.
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.
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 was November 1, 2014, for
the Bank. The transition date for the Bank was November 1, 2013.
As a result of adopting the IAS 32 amendments, certain bilateral
transactions related to reverse repurchase and repurchase agreements,
and amounts receivable from or payable to brokers, dealers, and clients
no longer qualified for offsetting under the new guidance. As at
October 31, 2014, the IAS 32 amendments resulted in an increase
in derivative assets and liabilities of $0.4 billion (November 1, 2013 –
$0.5 billion), an increase in reverse repurchase and repurchase
agreements of $7.5 billion (November 1, 2013 – $5.2 billion), and
an increase in amounts receivable from or payable to brokers, dealers,
and clients of $7.8 billion (November 1, 2013 – $5.3 billion).
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 was November 1, 2014, for the Bank.
IFRIC 21 changed 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 did
not have a material impact on the financial position, cash flows, or
earnings of the Bank on an annual basis.
Novation of Derivatives and Continuation of Hedge Accounting
In June 2013, the IASB issued amendments to IAS 39, Financial
Instruments: Recognition and Measurement (IAS 39), which provides
relief from discontinuing hedge accounting when novation of a deriva-
tive designated as a hedge accounting instrument meets certain crite-
ria. The IAS 39 amendments are effective for annual periods beginning
on or after January 1, 2014, which was November 1, 2014, for the
Bank, and have been applied retrospectively. The IAS 39 amendments
did not 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, Financial Instruments (IFRS 9).
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.
Financial Instruments
In July 2014, the IASB issued the final version of IFRS 9, which
replaces the guidance in IAS 39. This final version includes require-
ments on: (1) Classification and measurement of financial assets and
liabilities; (2) Impairment of financial assets; and (3) General hedge
accounting. IFRS 9 is effective for annual periods beginning on or
after January 1, 2018 and is to be applied retrospectively with certain
exceptions. IFRS 9 does not require restatement of comparative period
financial statements except in limited circumstances related to aspects
of hedge accounting. Entities are permitted to restate comparatives
as long as hindsight is not applied. In January 2015, OSFI issued the
final version of the Advisory titled “Early adoption of IFRS 9 Financial
Instruments for Domestic Systemically Important Banks”. All D-SIBs,
including the Bank, are required to early adopt IFRS 9 for the annual
period beginning on November 1, 2017.
The adoption of IFRS 9 is a significant initiative for the Bank supported
by a formal governance framework and a robust implementation plan.
An Executive Steering Committee has been formed with joint leadership
from Finance and Risk and with representation from Technology, Internal
Audit, and project management teams. A communication plan including
progress reporting protocols has been established with regular updates
provided to the Executive Steering Committee on key decisions. IFRS 9
overview sessions have been held at various levels within the Bank,
including the Audit and Risk Committees.
The Bank’s implementation plan includes the following phases:
(a) Initiation and Planning; (b) Detailed Assessment; (c) Design and
Solution Development; and (d) Implementation, with work streams
focused on each of the three required sections of IFRS 9 noted above
as well as Reporting and Disclosures. The Bank is on track with its
project timelines. The Initiation and Planning phase is near completion
and the Detailed Assessment and Design and Solution Development
phases are in progress.
The following is a summary of the new accounting concepts and
project status under IFRS 9:
Classification and Measurement
Financial assets will be classified based on the Bank’s business model
for managing its financial assets and the contractual cash flow charac-
teristics of the financial asset. Financial assets are classified into one
of the following three categories, which determine how it is measured
subsequent to initial recognition: amortized cost, fair value through
other comprehensive income (FVOCI), and fair value through profit
or loss. An election may be made to hold certain equity securities
at FVOCI, with no subsequent recycling of gains and losses into net
income. In addition to the classification tests described above, IFRS 9
also includes an option to irrevocably designate a financial asset as
measured at fair value through profit or loss if doing so eliminates
or significantly reduces an accounting mismatch.
104
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS The classification and measurement of financial liabilities remain
largely unchanged under IFRS 9, except for financial liabilities measured
at fair value through profit or loss when classified as held for trading or
designated using the fair value option. When the fair value option is
elected, the Bank will be required to recognize the change in the fair
value of the financial liability arising from changes in the Bank’s own
credit risk in other comprehensive income.
The Bank has defined its significant business models and is in the
process of assessing the cash flow characteristics for all financial assets
under the scope of IFRS 9.
Impairment
IFRS 9 introduces a new impairment model based on expected credit
losses (ECLs) which will replace the existing incurred loss model under
IAS 39. Currently, impairment losses are recognized when there is
objective evidence of credit quality deterioration to the extent that the
Bank no longer has reasonable assurance as to the timely collection
of the full amount of principal and interest. If there is no objective
evidence of impairment for an individual loan, the loan is included in
a group of assets with similar credit risk characteristics and collectively
assessed for impairment losses incurred but not identified. Under IFRS
9, ECLs will be recognized in profit or loss before a loss event has
occurred, which could result in earlier recognition of credit losses
compared to the current model.
The expected credit loss model requires the recognition of impairment
at an amount equal to 12-month ECLs or lifetime ECLs depending on
whether there has been a significant increase in credit risk since initial
recognition of the financial instrument. If a significant increase in credit
risk has occurred since initial recognition, then impairment is measured
as lifetime ECLs otherwise 12-month ECLs are measured. If credit quality
improves in a subsequent period such that the increase in credit risk
since initial recognition is no longer considered significant, the loss
allowance will revert back to being measured based on 12-month ECLs.
ECLs will be measured as the probability-weighted present value
of expected cash shortfalls over the remaining expected life of the
financial instrument and will consider reasonable and supportable
information about past events, current conditions and forecasts of
future events and economic conditions that impact our credit risk
assessment. 12-month ECLs represent the portion of lifetime ECLs
that are expected to occur based on default events that are possible
within 12 months after the reporting date. The IFRS 9 model breaks
down into three stages: Stage 1 – 12-month ECLs for performing
instruments, Stage 2 – Lifetime ECLs for performing instruments that
have experienced a significant increase in credit risk, and Stage 3 –
Lifetime ECLs for non-performing financial assets.
The new impairment model will apply to all financial assets
measured at amortized cost or fair value through other comprehensive
income with the most significant impact expected to be on loan assets.
The model will also apply to loan commitments and financial guaran-
tees that are not measured at fair value through profit or loss.
The Bank is currently assessing the technology requirements for
tracking credit migration under the new ECL model as well as the
impact to risk parameters and credit risk modelling processes.
General Hedge Accounting
IFRS 9 introduces a new general hedge accounting model which better
aligns accounting with risk management activities. The new standard
permits a wider range of qualifying hedged items and hedged risks as
well as types of hedging instruments. Effectiveness testing will have
an increased focus on establishing an economic relationship, achieving
a target hedge ratio and monitoring credit risk exposures. Voluntary
discontinuation of hedging relationships is no longer permitted except
in limited circumstances based on the risk management objectives of
hedge strategies. The Bank has an accounting policy choice to adopt
the new general hedge accounting model under IFRS 9 or continue
to apply the hedge accounting requirements under IAS 39. The Bank
continues to evaluate this accounting policy choice in accordance with
the project plan.
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. In July 2015, the IASB
confirmed a one-year deferral of the effective date to annual periods
beginning on or after January 1, 2018, which will be November 1, 2018
for the Bank, and is to be applied retrospectively. The Bank is currently
assessing the impact of adopting this standard.
ACCOUNTING STANDARDS AND POLICIES
Controls and Procedures
DISCLOSURE CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the partici-
pation 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, 2015. Based on that evalua-
tion, 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, 2015.
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, 2015, 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,
2015. 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, 2015.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the year and quarter ended October 31, 2015, there have been
no changes in the Bank’s policies and procedures and other processes
that comprise its internal control over financial reporting, that have
materially affected, or are reasonably likely to materially affect, the
Bank’s internal control over financial reporting.
105
TD BANK GROUP ANNUAL REPORT 2015 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 4
INVESTMENT PORTFOLIO – Securities Maturity Schedule1,2
(millions of Canadian dollars)
As at
Within
1 year
Over 1
year to
3 years
Over 3
years to
5 years
Over 5
years to
10 years
Over 10
With no
specific
years maturity
Remaining terms to maturities3
Total
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
October 31 October 31 October 31
2013
2015
2014
– $
–
–%
– $ 14,431 $ 8,404 $ 9,329
– 14,450
9,301
–%
8,355
1.82%
1.48%
0.69%
$ 161 $ 3,928 $ 7,653 $ 2,689 $
3,922
7,671
2,697
1.67% 1.41%
1.41%
160
1.64%
454
454
1.16%
145
145
0.04%
402
399
2.52%
1,935
1,926
1,911
1,912
2,876
2,933
1.83% 1.83%
2.28%
9
8
4.44%
– 7,185
– 7,233
–%
1.98%
4,545
4,518
2.08%
2,588
2,569
1.16%
–
–
–%
10,491
10,566
–
–
–%
1.83%
–
–
–%
– 10,636
– 10,711
–%
1.81%
152
152
0.12%
141
141
0.14%
1,051
1,042
2,153
2,090
1,847
1,816
6,496
6,468
1.86% 1.50%
2.32%
1.56%
– 11,949
– 11,815
–%
1.73%
11,978 15,035
11,798 14,830
1.81%
1.85%
1,866
1,865
0.44%
1,224
1,223
4,145
4,159
4,420
4,466
0.53% 1.43%
1.64%
456
454
2.11%
1,540
1,507
2,064
2,060
2.32% 1.76%
–
–
–%
–
–
–%
–
–
–%
– 11,655
– 11,713
–%
1.26%
3,322
3,313
1.67%
7,994
7,978
1.25%
– 4,060
– 4,021
–%
2.01%
3,306
3,256
2.24%
2,810
2,791
2.26%
1,688
1,687
1.18%
1,103
1,104
1,975
1,976
6,113
6,136
5,883
6,018
1.04% 1.05%
1.67%
1.04%
– 16,762
– 16,921
–%
1.28%
18,903 29,320
18,831 29,252
1.06%
1.01%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
916
921
2.13%
–
–
–%
916
921
2.13%
1,722
1,713
2.77%
963
948
1.75%
1,221
1,216
3.08%
4,513
4,521
2,456
2,461
2.91% 2.75%
433
433
3.52%
142
139
5.38%
– 8,765
– 8,770
–%
2.96%
8,099
8,008
2.91%
8,653
8,471
3.12%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
1,858 1,858
1,770 1,770
5.42%
5.42%
1,760
1,642
4.74%
1,640
1,560
3.69%
–
–
–%
114
112
4.33%
114
112
4.33%
171
153
1.26%
166
152
3.70%
85
83
8.77%
78
75
23
19
8.32% 8.25%
208
185
5.87%
57
58
4.84%
–
–
–%
451
420
6.84%
646
596
4.61%
905
835
7.46%
$ 6,478 $ 15,372 $ 22,380 $ 29,077 $ 13,503 $ 1,972 $ 88,782 $ 63,008 $ 79,544
62,335 78,828
1.89%
1.56%
1,882 88,857
1.99% 1.60%
6,463 15,320
13,612
29,232
22,348
5.35%
1.82%
1.40%
1.44%
1.89%
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 As at October 31, 2015, includes securities issued by Government of Japan of
$8.9 billion and Federal Republic of Germany of $8.6 billion, where the book value
was greater than 10% of the shareholders’ equity. There were no securities owned
greater than 10% in the prior years.
3 Represents contractual maturities. Actual maturities may differ due to prepayment
privileges in the applicable contract.
106
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 6 4
INVESTMENT PORTFOLIO – Securities Maturity Schedule (continued)1,2
(millions of Canadian dollars)
As at
Within
1 year
Over 1
year to
3 years
Over 3
years to
5 years
Over 5
years to
10 years
Over 10
With no
specific
years maturity
Remaining terms to maturities3
Total
Total
October 31 October 31 October 31
2013
2015
2014
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
–
–
–%
–
–
–%
$
60 $
59
0.42%
– $
–
–% 1.87%
923 $
915
–
–
–%
–
–
–%
– $
–
–%
–
–
–%
–
–
–%
–
–
–%
$ – $
–
–%
983 $
974
1.78%
– $
–
–%
259
259
0.99%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
2,582
2,567
6,608
6,575
6,391
6,243
3,266
3,263
1.58% 1.85%
2.29%
2.24%
– 18,847
– 18,648
–%
2.03%
18,879
18,792
2.04%
12,513
12,551
2.09%
5,811
5,804
1.09%
8,812
8,696
8,695
8,610
0.58% 0.23%
947
935
0.33%
–
–
–%
872
878
2.94%
3,507
3,491
11,849 2,612
11,842 2,616
11,807
11,956
1.84% 0.84%
1.26%
2.00%
$ 6,743 $ 14,901 $ 28,075 $ 9,950 $ 15,073
15,219
27,942
6,741 14,754
9,794
1.32%
1.05% 0.92%
1.83%
2.05%
– 24,265
– 24,045
–%
0.57%
15,492
15,327
1.00%
13,103
13,080
1.31%
– 30,647
– 30,783
–%
1.50%
22,955
22,858
4,075
4,071
1.08%
2.22%
$ – $ 74,742 $ 57,326 $ 29,950
56,977 29,961
1.38%
– 74,450
–%
1.33%
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 As at October 31, 2015, includes securities issued by Government of Japan of
$8.9 billion and Federal Republic of Germany of $8.6 billion, where the book
value was greater than 10% of the shareholders’ equity. There were no securities
owned greater than 10% in the prior years.
3 Represents contractual maturities. Actual maturities may differ due to prepayment
privileges in the applicable contract.
107
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 6 5
LOAN PORTFOLIO – Maturity Schedule
(millions of Canadian dollars)
Remaining terms to maturities
Under
1 year
1 to 5
years
Over
5 years
Total
As at
Total
October 31 October 31 October 31 October 31 October 31
2011
2015
2013
2014
2012
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
$ 38,764 $ 141,728 $ 4,517 $ 185,009 $ 175,125 $ 164,389 $ 154,247 $ 142,297
44,270 17,040
8,838
392
214
14,624
17,941
–
115,991 167,820
7 61,317 59,568 61,581 64,753 65,531
9,808 19,038 16,475 14,666 13,965 13,607
1,237 16,075 16,116 15,193 14,574 15,380
8,094
– 17,941 17,927 15,288 14,236
15,569 299,380 285,211 271,117 261,775 244,909
5,212
7,516
12,728
5,160
2,311
7,471
4,490 14,862 14,604 13,685 12,477 10,738
1,503 11,330
5,899
5,993 26,192 24,372 21,838 19,729 16,637
8,153
7,252
9,768
53,961 20,508
169,952 188,328
9,686 84,155 71,814 64,272 55,797 51,720
25,255 383,535 357,025 335,389 317,572 296,629
283
112
26,527 26,922 23,335 20,945 17,362 12,495
10,791
206
6,048 17,664
436
203
12,274
–
29,599 18,418
2,446
1,143
1,620
9,416
2,763 11,862
2,337 13,334 11,665 10,607 10,122
1,150 24,862 18,782 16,323 13,466
490
1,097
9,654
9,741
449
892
30,068 78,085 62,034 55,308 42,537 33,231
693
– 12,274
533
6,900
615
7,637
54
5,691
3,101
3,015
2,102
7,281 18,317 14,037 12,084 10,831
9,443
9,383 24,008 18,331 15,554 13,846 12,544
3,470
4,294
14,682 41,127
44,281 59,545
41,408 97,217 69,417 55,000 47,181 41,853
71,476 175,302 131,451 110,308 89,718 75,084
4
1,760
1,764
1
218
219
–
–
–
5
1,978
1,983
9
2,124
2,133
10
2,240
2,250
11
2,653
2,664
12
3,520
3,532
143
145
288
364
523
887
1,680
746
2,426
2,187
1,414
3,601
2,695
1,713
4,408
3,744
2,485
6,229
6,511
4,994
3,767
5,560
8,761 12,071
$ 216,285 $ 248,979 $ 99,157 $ 564,421 $ 495,017 $ 454,176 $ 418,715 $ 387,316
T A B L E 6 6
LOAN PORTFOLIO – Rate Sensitivity
(millions of Canadian dollars)
As at
October 31, 2015
October 31, 2014
October 31, 2013
October 31, 2012
October 31, 2011
1 to
5 years
Over
5 years
1 to
5 years
Over 5
years
1 to
5 years
Over 5
years
1 to
5 years
Over 5
years
1 to
5 years
Over 5
years
$ 176,316 $ 66,949 $ 155,614 $ 59,555 $ 158,435 $ 45,395 $ 133,730 $ 37,781 $ 90,753 $ 28,301
16,764
$ 248,979 $ 99,157 $ 229,286 $ 84,546 $ 218,836 $ 68,460 $ 191,929 $ 58,648 $ 147,657 $ 45,065
20,867 56,904
23,065 58,199
24,991 60,401
32,208 73,672
72,663
Fixed rate
Variable rate
Total
108
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
The change in the Bank’s allowance for credit losses for the years
ended October 31 are shown in the following table.
T A B L E 6 7
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, refer to the “FDIC Covered Loans” section in
Note 8 of the Bank’s 2015 Consolidated Financial Statements.
2015
$ 3,028
1,683
2014
$ 2,855
1,557
2013
$ 2,644
1,631
2012
$ 2,314
1,795
23
21
20
13
224
218
638
1,116
4
3
7
74
1,190
13
207
234
582
1,057
1
3
4
109
1,166
18
160
274
543
1,015
2
3
5
104
1,119
16
47
206
101
454
824
5
22
27
124
948
–
–
–
17
43
232
79
288
659
12
18
30
117
776
–
–
–
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
–
–
–
13
6
19
2,157
5
20
25
1,967
11
38
49
1,818
–
112
112
1,844
1
2
78
58
124
263
1
1
2
33
$ 296 $
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
2011
$ 2,309
1,490
11
12
155
329
365
872
3
3
6
102
974
30
74
55
69
54
282
113
60
173
373
655
–
–
–
48
39
87
1,716
4
1
20
48
43
116
–
1
1
27
$ 143
109
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 6 7
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
2015
2014
2013
2012
2011
$
11
$
10
$
17
$
15
$
9
5
83
23
113
235
9
9
18
50
285
–
1
1
5
12
20
60
107
14
15
29
73
180
–
–
–
–
19
19
601
(1,556)
(3)
321
3,473
39
$ 3,434
–
7
7
533
(1,434)
–
112
3,090
62
$ 3,028
4
64
22
5
112
8
10
18
49
161
–
–
–
–
9
9
394
(1,424)
(41)
46
2,856
1
$ 2,855
6
35
19
5
80
8
13
21
57
137
–
–
–
–
1
1
287
(1,557)
–
20
2,572
(72)
$ 2,644
0.30%
0.31%
0.33%
0.39%
3
14
20
4
50
9
8
17
71
121
–
–
–
–
–
–
264
(1,452)
–
(28)
2,319
5
$ 2,314
0.40%
1 Includes all FDIC covered loans and other ACI loans.
2 Other adjustments are required as a result of the accounting for FDIC covered
loans. For additional information, refer to the “FDIC Covered Loans” section in
Note 8 of the Bank’s 2015 Consolidated Financial Statements.
3 The allowance for credit losses for off-balance sheet instruments is recorded in
Other Liabilities on the Consolidated Balance Sheet.
T A B L E 6 8
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
October 31, 2015
October 31, 2014
Average
balance
Total
interest
expense
Average
rate paid
Average
balance
Total
interest
expense
Average
rate paid
Average
balance
For the year ended
October 31, 2013
Total
interest
expense
Average
rate paid
6,685 $
$
45,081
172,124
146,714
370,604
–
570
306
2,112
2,988
–% $ 5,405 $
1.26
0.18
1.44
0.81
38,443
159,687
120,493
324,028
–
597
421
1,934
2,952
–% $ 4,050 $
35,768
144,463
110,648
294,929
–
443
459
2,039
2,941
1.55
0.26
1.61
0.91
8,723
2,812
239,078
94,016
344,629
–
4
842
313
1,159
55
1,874
2
17,042
18,973
–
5
–
90
95
–
0.14
0.35
0.33
0.34
–
0.27
–
0.53
0.50
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
–%
1.24
0.32
1.84
1.00
–
0.33
0.72
0.35
0.59
–
0.23
–
0.43
0.39
Total average deposits
$ 734,206 $ 4,242
0.58% $ 623,911 $ 4,313
0.69% $ 555,689 $ 4,461
0.80%
1 As at October 31, 2015, deposits by foreign depositors in TD’s Canadian
bank offices amounted to $13 billion (October 31, 2014 – $8 billion,
October 31, 2013 – $7 billion).
110
TD BANK GROUP ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 6 9
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 0
SHORT-TERM BORROWINGS1
(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
1 Certain comparative amounts have been restated, where applicable, as a result
of the implementation of the 2015 IFRS Standards and Amendments.
Within 3
months
3 months to
6 months
6 months to
12 months
Over 12
months
Remaining term to maturity
As at
Total
$ 31,147
28,018
10,222
$ 69,387
$ 4,234
27,687
4,976
$ 36,897
$ 20,715
14,672
4,168
$ 39,555
$ 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
October 31, 2015
$ 64,989
2,545
–
$ 67,534
$ 121,085
72,922
19,366
$ 213,373
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
2015
October 31
2014
As at
October 31
2013
$ 67,156
$ 53,112
75,082
74,669
0.25%
0.37
62,025
55,944
0.39%
0.38
$ 34,414
46,234
42,726
0.43%
0.45
111
TD BANK GROUP ANNUAL REPORT 2015 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 estimates where appropriate.
The Bank’s accounting system and related internal controls are
designed, and supporting procedures maintained, to provide reason-
able assurance that financial records are complete and accurate and
that assets are safeguarded 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 communication 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, 2015, 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, manage-
ment has concluded that as at October 31, 2015, 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 manage-
ment’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 finan-
cial 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 profes-
sional 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 necessary 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
shareholders of the Bank, have audited the effectiveness of the Bank’s
internal control over financial reporting as at October 31, 2015, 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 2, 2015
112
TD BANK GROUP ANNUAL REPORT 2015 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, 2015 and 2014, 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, 2015, 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 exam-
ining, 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, 2015 and 2014, and its financial performance
and its cash flows for each of the years in the three-year period ended
October 31, 2015, 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-Dominion Bank’s internal control over financial reporting
as of October 31, 2015, 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 2, 2015, 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 2, 2015
113
TD BANK GROUP ANNUAL REPORT 2015 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, 2015, 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 reporting, and for its assessment of the effectiveness
of internal control over financial reporting included in the accom-
panying Management’s Report on Internal Control over Financial
Reporting contained in the accompanying 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 reason-
able assurance about whether effective internal control over financial
reporting was maintained 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 evaluat-
ing the design and operating effectiveness 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 Report-
ing Standards as issued by the International Accounting Standards
Board (IFRS). A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the main-
tenance 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
regarding 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
reporting 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, 2015, 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, 2015 and
2014, 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, 2015, of The Toronto-Dominion
Bank and our report dated December 2, 2015, expressed an unqualified
opinion thereon.
Ernst & Young LLP
Chartered Professional Accountants
Licensed Public Accountants
Toronto, Canada
December 2, 2015
114
TD BANK GROUP ANNUAL REPORT 2015 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 26)
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, 2015 – 1,856.2, Oct. 31, 2014 – 1,846.2) (Note 21)
Preferred shares (millions of shares issued and outstanding: Oct. 31, 2015 – 108.0, Oct. 31, 2014 – 88.0) (Note 21)
Treasury shares – common (millions of shares held: Oct. 31, 2015 – (1.1), Oct. 31, 2014 – (1.6)) (Note 21)
Treasury shares – preferred (millions of shares held: Oct. 31, 2015 – (0.1), Oct. 31, 2014 – (0.04)) (Note 21)
Contributed surplus
Retained earnings
Accumulated other comprehensive income (loss)
Non-controlling interests in subsidiaries (Note 21)
Total equity
Total liabilities and equity
Certain comparative amounts have been restated, where applicable, as a result of the
implementation of the 2015 IFRS Standards and Amendments. Refer to Note 4
for further details.
The accompanying Notes are an integral part of these Consolidated Financial Statements.
October 31
2015
$
3,154
42,483
45,637
95,157
69,438
4,378
88,782
257,755
74,450
97,364
212,373
135,471
30,215
167,529
2,187
547,775
(3,434)
544,341
16,646
6,683
16,337
2,671
5,314
1,931
21,996
13,248
84,826
$ 1,104,373
As at
October 31
2014
$
2,781
43,773
46,554
101,173
55,796
4,745
63,008
224,722
56,977
82,556
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
17,130
11,163
70,793
$ 960,511
$
74,759
57,218
10,986
1,415
144,378
$ 59,334
51,209
11,198
3,250
124,991
395,818
17,080
282,678
695,576
16,646
38,803
67,156
22,743
22,664
6,519
14,223
188,754
8,637
1,037,345
20,294
2,700
(49)
(3)
214
32,053
10,209
65,418
1,610
67,028
$ 1,104,373
343,240
15,771
241,705
600,716
13,080
39,465
53,112
24,960
18,195
6,079
15,897
170,788
7,785
904,280
19,811
2,200
(54)
(1)
205
27,585
4,936
54,682
1,549
56,231
$ 960,511
Bharat B. Masrani
Group President and
Chief Executive Officer
William E. Bennett
Chair, Audit Committee
115
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
Consolidated Statement of Income
(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 gain (loss) (Note 7)
Trading income (loss) (Note 22)
Service charges
Card services
Insurance revenue (Note 23)
Trust fees
Other income (loss)
Total revenue
Provision for credit losses (Note 8)
Insurance claims and related expenses (Note 23)
Non-interest expenses
Salaries and employee benefits (Note 25)
Occupancy, including depreciation
Equipment, including depreciation
Amortization of other intangibles
Marketing and business development
Restructuring charges
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 26)
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 27)
Basic
Diluted
Earnings per share (dollars) (Note 27)
Basic
Diluted
Dividends per share (dollars)
Certain comparative amounts have been reclassified to conform with the presentation
adopted in the current period.
The accompanying Notes are an integral part of these Consolidated Financial Statements.
For the years ended October 31
2015
2014
2013
$ 20,319
$ 19,716
$ 18,498
3,155
1,214
142
24,830
4,242
593
390
881
6,106
18,724
3,683
925
79
(223)
2,376
1,766
3,758
150
188
12,702
31,426
1,683
2,500
9,043
1,719
892
662
728
686
324
1,032
273
2,714
18,073
9,170
1,523
377
8,024
99
$ 7,925
2,913
1,173
126
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
$
112
7,813
$
107
7,633
1,849.2
1,854.1
$
4.22
4.21
2.00
1,839.1
1,845.3
$
4.15
4.14
1.84
2,965
1,048
104
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
$
105
6,350
1,837.9
1,845.1
$
3.46
3.44
1.62
116
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
Consolidated Statement of Comprehensive Income
For the years ended October 31
2015
$ 8,024
2014
$ 7,883
2013
$ 6,640
(464)
(93)
8,090
–
(2,764)
–
4,805
(4,301)
400
5,673
$ 13,697
99
$
13,486
112
69
(163)
3,697
(13)
(1,390)
13
2,439
(2,875)
(458)
1,319
$ 9,202
$ 143
8,952
107
(472)
(271)
1,885
4
(737)
(4)
(86)
(805)
339
(147)
$ 6,493
$ 185
6,203
105
(millions of Canadian dollars)
Net income
Other comprehensive income (loss) (OCI), 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 (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 recovery in 2015 of $210 million (2014 – income tax provision
of $67 million; 2013 – income tax recovery of $285 million).
2 Net of income tax provision in 2015 of $78 million (2014 – income tax provision
of $81 million; 2013 – income tax provision of $136 million).
3 Net of income tax provision in 2015 of nil (2014 – income tax provision of nil;
2013 – income tax provision of nil).
4 Net of income tax recovery in 2015 of $985 million (2014 – income tax recovery
of $488 million; 2013 – income tax recovery of $264 million).
5 Net of income tax provision in 2015 of nil (2014 – income tax recovery of $4 million;
2013 – income tax provision of $1 million).
6 Net of income tax provision in 2015 of $2,926 million (2014 – income tax provision
of $1,394 million; 2013 – income tax provision of $140 million).
7 Net of income tax provision in 2015 of $2,744 million (2014 – income tax provision
of $1,617 million; 2013 – income tax provision of $587 million).
8 Net of income tax provision in 2015 of $147 million (2014 – income tax recovery
of $210 million; 2013 – income tax provision of $172 million).
Certain comparative amounts have been reclassified to conform with the presentation
adopted in the current year.
The accompanying Notes are an integral part of these Consolidated Financial Statements.
117
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
Consolidated Statement of Changes in Equity
(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 24)
Other
Balance at end of year
Retained earnings
Balance at beginning of year
Net income attributable to shareholders
Common dividends
Preferred dividends
Share issue expenses and others
Net premium on repurchase of common shares and redemption of preferred shares
Actuarial gains (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 reclassified to conform with the presentation
adopted in the current year.
The accompanying Notes are an integral part of these Consolidated Financial Statements.
For the years ended October 31
2015
2014
2013
$ 19,811
128
355
–
20,294
$ 19,316
199
339
(43)
19,811
$ 18,691
297
515
(187)
19,316
2,200
1,200
(700)
2,700
(54)
(5,269)
5,274
(49)
(1)
(244)
242
(3)
205
25
–
(16)
214
27,585
7,912
(3,700)
(99)
(28)
(17)
400
32,053
638
(557)
81
3,029
5,326
8,355
1,269
504
1,773
10,209
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
20,863
6,535
(2,977)
(185)
–
(593)
339
23,982
1,475
(743)
732
(426)
1,148
722
2,596
(891)
1,705
3,159
1,549
112
(51)
1,610
$ 67,028
1,508
107
(66)
1,549
$ 56,231
1,477
105
(74)
1,508
$ 51,383
118
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
Consolidated Statement of Cash Flows
(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 26)
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
Issue of subordinated notes and debentures (Note 19)
Redemption of subordinated notes and debentures (Note 19)
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 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, where applicable, as a result of
the implementation of the 2015 IFRS Standards and Amendments. Refer to Note 4
for further details.
The accompanying Notes are an integral part of these Consolidated Financial Statements.
For the years ended October 31
2015
2014
2013
$ 9,547
$ 9,395
$ 7,775
1,683
588
662
(79)
(377)
(352)
(294)
(662)
6,016
(63,947)
108,446
(7,633)
371
(2,429)
(16,267)
35,273
14,044
2,500
(1,675)
108
1,184
–
(717)
5,541
(5,513)
(3,444)
(112)
11,916
1,557
533
598
(173)
(320)
31
(204)
(2,364)
767
(33,717)
72,059
(4,597)
1,783
(11,394)
(8,041)
25,913
13,494
–
(150)
168
989
(220)
(2,195)
4,491
(4,351)
(3,188)
(107)
8,931
1,631
518
521
(304)
(272)
(370)
(425)
8,391
(7,409)
(33,820)
64,449
(4,068)
(364)
(3,962)
(5,007)
27,284
(4,402)
–
(3,400)
247
–
(780)
–
3,655
(3,638)
(2,647)
(105)
(11,070)
1,290
(15,190)
(7,075)
(58,775)
27,055
6,631
(15,120)
9,688
(23)
875
–
(972)
(14,808)
(2,918)
(47,077)
261
373
2,781
$ 3,154
$
554
6,167
23,483
1,216
(38,887)
30,032
6,403
(9,258)
6,542
(37)
1,263
10
(828)
(13,069)
(2,768)
(35,787)
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
(751)
4,915
(6,211)
(16,106)
37
145
3,436
$ 3,581
$
869
6,931
21,532
1,018
119
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
Notes to Consolidated Financial Statements
To facilitate a better understanding of the Bank’s Consolidated Financial Statements, significant accounting
policies, and related disclosures, a listing of all the notes is provided below.
NOTE TOPIC
1
2
3
PAGE
121
121
Nature of Operations
Summary of Significant Accounting Policies
Significant Accounting Judgments,
129
Estimates and Assumptions
Current and Future Changes in Accounting Policies
132
132
Fair Value Measurements
Offsetting Financial Assets and Financial Liabilities
144
Securities
145
Loans, Impaired Loans, and Allowance for Credit Losses
149
Transfers of Financial Assets
152
153
Structured Entities
Derivatives
157
164
Investment in Associates and Joint Ventures
Significant Acquisitions and Disposals
165
Goodwill and Other Intangibles
166
Land, Buildings, Equipment, and Other Depreciable Assets 168
168
Other Assets
169
Deposits
170
Other Liabilities
170
Subordinated Notes and Debentures
171
Capital Trust Securities
171
Equity
173
Trading-Related Income
174
Insurance
177
Share-Based Compensation
178
Employee Benefits
183
Income Taxes
Earnings Per Share
185
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
185
189
190
192
194
198
199
199
200
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
120
TD BANK GROUP ANNUAL REPORT 2015 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.
These Consolidated Financial Statements were prepared using the
accounting policies as described in Note 2, as well as the new and
amended standards under IFRS (2015 IFRS Standards and Amendments)
adopted retrospectively by the Bank as discussed in Note 4. Certain
other comparative amounts have also been restated/reclassified to
conform with the presentation adopted in the current period.
The preparation of financial statements requires that management
make estimates, assumptions, and judgments regarding the reported
amount of assets, liabilities, revenue and expenses, and disclosure
of contingent assets and liabilities, as further described in Note 3.
Accordingly, actual results may differ from estimated amounts as future
confirming events occur.
The accompanying Consolidated Financial Statements of the Bank
were approved and authorized for issue by the Bank’s Board of Directors,
in accordance with a recommendation of the Audit Committee, on
December 2, 2015.
Certain disclosures are included in the shaded sections of the
“Managing Risk” section of the accompanying 2015 Management’s
Discussion and Analysis (MD&A), as permitted by IFRS, and form an
integral part of the Consolidated Financial Statements. The Consoli-
dated Financial Statements were prepared under a historical cost basis,
except for certain items carried at fair value as discussed in Note 2.
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 Bank may consolidate certain subsidiaries where it owns 50% or
less of the voting rights. Most of those subsidiaries are structured enti-
ties 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.
Consolidation conclusions are reassessed at the end of each financial
reporting period. The Bank’s policy is to consider the impact on
consolidation of all significant changes in circumstances, focusing
on the following:
• Substantive changes in ownership, such as the purchase or disposal
of more than an insignificant additional interest in an entity;
• Changes in contractual or governance arrangements of an entity;
• Additional activities undertaken, such as providing a liquidity
facility beyond the original terms or entering into a transaction
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.
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. Associates and joint ventures are accounted
for using the equity method of accounting. 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
121
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS to reflect any impairment in the value of such entities. These increases
or decreases, together with any gains and losses realized on disposi-
tion, are reported on the Consolidated Statement of Income.
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
shareholders. 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 recognized 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 management fees are primarily calculated
based on average daily or point in time assets under management
(AUM) or by assets under administration (AUA) by investment mandate.
Administration fees earned may either be a fixed amount per client
account, or calculated based on a percentage of daily, monthly,
or annual AUM for institutional accounts. Investment banking fees,
including advisory fees, are recognized as income when earned,
and underwriting fees are recognized 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
portfolio of identified financial instruments that are managed together
and for which there is evidence of a recent actual pattern of short-
term profit-taking.
Included within the trading portfolio are trading securities, trading
loans, trading deposits, securitization liabilities at fair value, obligations
related to securities sold short, and physical commodities, as well as
122
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 designa-
tion 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
strategy; or (3) the instrument contains one or more embedded deriva-
tives 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
derivative from the financial instrument is prohibited. In addition, the
fair value through profit or loss designation is available only for those
financial instruments for which a reliable estimate of fair value can be
obtained. Once financial assets and liabilities are designated at fair
value through profit or loss, the designation is irrevocable.
Assets and liabilities designated at fair value through profit or loss
are carried at fair value on the Consolidated Balance Sheet, with
changes in fair value as well as any gains or losses realized on disposal
recognized in other income. Interest is recognized on an accrual basis
using the EIRM and is included in interest income or interest expense.
Available-for-Sale Securities
Financial 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 a weighted-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 esti-
mated future cash flows of the instrument. A significant or prolonged
decline in fair value below cost is considered objective evidence of
impairment for available-for-sale equity securities. A deterioration
in credit quality is considered objective evidence of impairment for
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
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS 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.
Interest income is recognized using the EIRM. Loan origination fees
and costs are considered to be adjustments to the loan yield and are
recognized in interest income over the term of the loan.
Commitment fees are recognized in credit fees over the commit-
ment period when it is unlikely that the commitment will be called
upon; otherwise, they are recognized in interest income over the term
of the resulting loan. Loan syndication fees are recognized in credit
fees upon completion of the financing placement unless the yield on
any loan retained by the Bank is less than that of other comparable
lenders involved in the financing syndicate. In such cases, an appropri-
ate portion of the fee is recognized as a yield adjustment to interest
income over the term of the loan.
Loan Impairment, 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. For 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.
Renegotiated Loans
In cases where a borrower experiences financial difficulties the Bank
may grant certain concessionary modifications to the terms and condi-
tions of a loan. Modifications may include payment deferrals, extension
of amortization periods, rate reductions, principal forgiveness, debt
consolidation, forbearance and other modifications intended to mini-
mize 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. Once modified,
additional impairment is recorded where the Bank identifies a decrease
in the modified loan’s estimated realizable value as a result of the
modification. Modified loans are assessed for impairment, consistent
with the Bank’s existing policies for impairment.
Allowance for Credit Losses, Excluding Acquired Credit-Impaired Loans
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 allow-
ance 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 meth-
odology. 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 allow-
ances. Each quarter, allowances are reassessed and adjusted based
on any changes in management’s estimate of the future cash flows
estimated to be recovered. Credit losses on impaired loans continue
to be recognized by means of an allowance for credit losses until a
loan is written off.
A loan is written off against the related allowance for credit losses
when there is no realistic prospect of recovery. Non-retail loans are
generally written off when all reasonable collection efforts have been
exhausted, such as when a loan is sold, when all security has been
realized, or when all security has been resolved with the receiver or
bankruptcy court. Non-real estate secured retail loans are generally
written off when contractual payments are 180 days past due, or when
a loan is sold. Real-estate secured retail loans are generally written off
when the security is realized.
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
impairment 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 applicable, is measured as the difference between the carrying amount
of the loan and the estimated recoverable amount. The estimated recov-
erable 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
123
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS 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 contractu-
ally required principal and interest payments, they are generally consid-
ered 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
reflective of current market conditions. With respect to certain individ-
ually 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.
124
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.
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.
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS 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. Derivatives
are carried at their fair value on the Consolidated Balance Sheet.
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 interest rate,
foreign exchange, and other market 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.
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).
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-inter-
est 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.
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
125
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS 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. The Bank designates derivatives
and non-derivatives (such as foreign currency deposit liabilities) as
hedging instruments in net investment hedges.
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.
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
126
transactions involving the same or similar instrument, without modifi-
cation 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 significant 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 transaction price and the value determined by the valuation tech-
nique 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 signif-
icantly as a result of the transfer, the Bank has retained substantially
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.
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS 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 derecognition,
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 derec-
ognized from the balance sheet and the retained interest recorded,
in proportion to their relative fair values on the date of transfer. Subse-
quent to initial recognition, as market prices are generally not available
for retained interests, fair value is determined by estimating the present
value of future expected cash flows using management’s best estimates
of key assumptions that market 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 recog-
nized 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.
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 respective
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 obliga-
tion to return the cash as an obligation related to Securities sold under
repurchase agreements on the Consolidated Balance Sheet. Where
securities are received as collateral, the Bank does not record the
collateral on the Consolidated Balance Sheet.
In securities borrowing transactions, the Bank borrows securities
from a counterparty and pledges either cash or securities as collateral.
If cash is pledged as collateral, the Bank records the transaction as
securities purchased under reverse repurchase agreements on the
Consolidated Balance Sheet. Securities pledged as collateral remain
on the Bank’s Consolidated Balance Sheet.
Where securities are pledged or received as collateral, security
borrowing fees and security lending income are recorded in Non-interest
expenses and Non-interest income, respectively, on the Consolidated
Statement of Income over the term of the transaction. Where cash is
pledged or received as collateral, interest received or incurred is deter-
mined using the EIRM and is included in Interest income and Interest
expense, respectively, on the Consolidated Statement of Income.
Commodities purchased or sold with an agreement to sell or repur-
chase the commodities at a later date at a fixed price, are also included
in securities purchased under reverse repurchase agreements and
obligations related to securities sold under repurchase agreements,
respectively, if the derecognition criteria under IFRS are not met.
These instruments are measured at fair value.
GOODWILL
Goodwill represents the excess purchase price paid over the net
fair value of identifiable assets and liabilities acquired in a business
combination. Goodwill is carried at its initial cost less accumulated
impairment losses.
Goodwill is allocated to a cash generating unit (CGU) or a group
of CGUs that is expected to benefit from the synergies of the business
combination, regardless of whether any assets acquired and liabilities
assumed are assigned to the CGU or group of CGUs. A CGU is the
smallest identifiable group of assets that generate cash flows largely
independent of the cash inflows from other assets or groups of assets.
Each CGU or group of CGUs, to which the goodwill is allocated,
represents the lowest level within the Bank at which the goodwill
is monitored for internal management purposes and is not larger than
an operating segment.
Goodwill is assessed for impairment at least annually and when
an event or change in circumstances indicates that the carrying
amount may be impaired. When impairment indicators are present,
the recoverable amount of the CGU or group of CGUs, which is the
higher of its estimated fair value less costs to sell and its value-in-use,
is determined. If the carrying amount of the CGU or group of CGUs
is higher than its recoverable amount, an impairment loss exists.
The impairment loss is recognized on the Consolidated Statement
of Income and is applied to the goodwill balance. An impairment loss
cannot be reversed in future periods.
INTANGIBLE ASSETS
Intangible assets represent identifiable non-monetary assets and are
acquired either separately or through a business combination, or inter-
nally generated software. The Bank’s intangible assets consist primarily
of core deposit intangibles, credit card related intangibles, and soft-
ware intangibles. Intangible assets are initially recognized at fair value
and are amortized over their estimated useful lives (3 to 20 years)
proportionate to their expected economic benefits, except for software
which is amortized over its estimated useful life (3 to 7 years) on a
straight-line basis.
127
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS 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 impair-
ment 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.
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 impair-
ment is identified. Impairment losses previously recognized 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 the sale of the non-current assets (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 in Other income
on the Consolidated Statement of Income.
128
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.
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
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 insur-
ance 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 liabilities 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 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.
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 assessment of the time value of
money and the risks specific to the obligation. The increase in provi-
sions due to the passage of time is recognized as interest expense.
INCOME TAXES
Income tax is comprised of current and deferred tax. Income tax
is recognized on the Consolidated Statement of Income, except to
the extent that it relates to items recognized in other comprehensive
income or directly in equity, in which case the related taxes are
also recognized in other comprehensive income or directly in
equity, respectively.
Deferred tax is recognized on temporary differences between the
carrying amounts of assets and liabilities on the Consolidated Balance
Sheet and the amounts attributed to such assets and liabilities for tax
purposes. Deferred tax assets and liabilities are determined based on
the tax rates that are expected to apply when the assets or liabilities
are reported for tax purposes. Deferred tax assets are recognized only
when it is probable that sufficient taxable profit will be available in
future periods against which deductible temporary differences may be
utilized. Deferred tax liabilities are not recognized on temporary differ-
ences arising on investments in subsidiaries, branches and associates,
and interests in joint ventures if the Bank controls the timing of the
reversal of the temporary difference and it is probable that the tempo-
rary difference will not reverse in the foreseeable future.
The Bank records a provision for uncertain tax positions if it is prob-
able that the Bank will have to make a payment to tax authorities
upon their examination of a tax position. This provision is measured at
the Bank’s best estimate of the amount expected to be paid. Provisions
are reversed to income in the period in which management determines
they are no longer required or as determined by statute.
N O T E 3
SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES, AND ASSUMPTIONS
The estimates used in the Bank’s accounting policies are essential
to understanding its results of operations and financial condition.
Some of the Bank’s policies require subjective, complex judgments
and estimates as they relate to matters that are inherently uncertain.
Changes in these judgments or estimates could have a significant
impact on the Bank’s Consolidated Financial Statements. The Bank
has established procedures to ensure that accounting policies are
applied consistently and that the processes for changing methodolo-
gies for determining estimates are well controlled and occur in an
appropriate and systematic manner.
IMPAIRMENT OF FINANCIAL ASSETS
Available-for-Sale Securities
Impairment losses are recognized on available-for-sale securities if
there is objective evidence of impairment as a result of one or more
events that have occurred after initial recognition 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 considered objective
evidence of impairment. Other factors considered in the impairment
assessment include the financial position and key financial indicators
of the issuer, significant past and continued losses of the issuer, as well
as breaches of contract, including default or delinquency in interest
payments and loan covenant violations.
Loans
A loan (including a debt security classified as a loan) is considered
impaired when there is objective evidence that there has been a
deterioration 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
129
TD BANK GROUP ANNUAL REPORT 2015 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 credit
losses and may result in a change in the incurred but not identified
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
methodology and the extent of change in those factors.
Judgment is also used in recording fair value adjustments to model
valuations to account for measurement uncertainty when valuing
complex and less actively traded financial instruments. If the market
for a complex financial instrument develops, the pricing for this
instrument may become more transparent, resulting in refinement
of valuation models.
An analysis of fair values of financial instruments and further details
as to how they are measured are provided in Note 5.
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
have been retained or transferred and the extent to which the risks
and rewards of ownership of the financial asset have been retained
or transferred. If the Bank neither transfers nor retains substantially all
of the risks and rewards of ownership of the financial asset, a decision
must be made as to whether the Bank has retained control of the
financial asset. Upon derecognition, the Bank will record a gain or loss
on sale of those assets which is calculated as the difference between
the 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. 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 existence
of impairment and the valuation of goodwill. Management believes
that the assumptions and estimates used are reasonable and support-
able. Where possible, fair values generated internally are compared to
relevant market information. The carrying amounts of the Bank’s CGUs
are determined by management using risk based capital models to
adjust net assets and liabilities by CGU. These models consider various
factors including market risk, credit risk, and operational risk, including
investment capital (comprised of goodwill and other intangibles). Any
unallocated capital not directly attributable to the CGUs is held within
the Corporate segment. The Bank’s capital oversight committees
provide oversight to the Bank’s capital allocation methodologies.
EMPLOYEE BENEFITS
The projected benefit obligation and expense related to the Bank’s
pension and non-pension post-retirement benefit plans are determined
using multiple assumptions that may significantly influence the value
of these amounts. Actuarial assumptions including 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-
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.
130
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS INCOME TAXES
The Bank is subject to taxation in numerous jurisdictions. There are
many transactions and calculations in the ordinary course of business
for which the ultimate tax determination is uncertain. The Bank main-
tains provisions for uncertain tax positions that it believes appropriately
reflect the risk of tax positions under discussion, audit, dispute, or
appeal with tax authorities, or which are otherwise considered to
involve uncertainty. These provisions are made using the Bank’s best
estimate of the amount expected to be paid based on an assessment
of all relevant factors, which are reviewed at the end of each reporting
period. However, it is possible that at some future date, an additional
liability could result from audits by the relevant taxing authorities.
Deferred tax assets are recognized only when it is probable that
sufficient taxable profit will be available in future periods against
which deductible temporary differences may be utilized. The amount
of the deferred tax asset recognized and considered realizable could,
however, be reduced if projected income is not achieved due to various
factors, such as unfavourable business conditions. If projected income
is not expected to be achieved, the Bank would decrease its deferred
tax assets to the amount that it believes can be realized. The magni-
tude of the decrease is significantly influenced by the Bank’s forecast
of future profit generation, which determines the extent to which it
will be able to utilize the deferred tax assets.
PROVISIONS
Provisions arise when there is some uncertainty in the timing or
amount of a loss in the future. Provisions are based on the Bank’s best
estimate of all expenditures required to settle its present obligations,
considering all relevant risks and uncertainties, as well as, when mate-
rial, the effect of the time value of money.
Many of the Bank’s provisions relate to various legal actions that
the Bank is involved in during the ordinary course of business. Legal
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 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. 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 infor-
mation that may impact the assessment of amounts to be incurred.
Changes in these assessments may lead to changes in the amount
recorded for provisions.
INSURANCE
The assumptions used in establishing the Bank’s insurance claims and
policy benefit liabilities are based on best estimates of possible outcomes.
For property and casualty insurance, the ultimate cost of claims
liabilities is estimated using a range of standard actuarial claims
projection techniques in accordance with Canadian accepted actuarial
practices. The main assumption underlying these techniques is that a
company’s past claims development experience can be used to project
future claims development and hence ultimate claims costs. As such,
these methods extrapolate the development of paid and incurred losses,
average costs per claim and claim numbers based on the observed
development of earlier years and expected loss ratios. Additional
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 experi-
ence. 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.
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 provi-
sion 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.
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 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 facilities,
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.
131
TD BANK GROUP ANNUAL REPORT 2015 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.
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,
Financial Instruments (IFRS 9).
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 was November 1, 2014, for
the Bank. The transition date for the Bank was November 1, 2013.
As a result of adopting the IAS 32 amendments, certain bilateral
transactions related to reverse repurchase and repurchase agreements,
and amounts receivable from or payable to brokers, dealers, and
clients no longer qualified for offsetting under the new guidance. As
at October 31, 2014, the IAS 32 amendments resulted in an increase
in derivative assets and liabilities of $0.4 billion (November 1, 2013 –
$0.5 billion), an increase in reverse repurchase and repurchase agree-
ments of $7.5 billion (November 1, 2013 – $5.2 billion), and an
increase in amounts receivable from or payable to brokers, dealers,
and clients of $7.8 billion (November 1, 2013 – $5.3 billion).
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 was November 1, 2014, for the Bank.
IFRIC 21 changed 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 did
not have a material impact on the financial position, cash flows, or
earnings of the Bank on an annual basis.
Novation of Derivatives and Continuation of Hedge Accounting
In June 2013, the IASB issued amendments to IAS 39, Financial Instru-
ments: Recognition and Measurement (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 was November 1, 2014, for the Bank,
and have been applied retrospectively. The IAS 39 amendments did not
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.
Financial Instruments
In July 2014, the IASB issued the final version of IFRS 9, which replaces
the guidance in IAS 39. This final version includes requirements on:
(1) Classification and measurement of financial assets and liabilities;
(2) Impairment of financial assets; and (3) General hedge accounting.
Accounting for macro hedging has been decoupled from IFRS 9. The
Bank has an accounting policy choice to apply the hedge accounting
requirements of IFRS 9 or IAS 39.
IFRS 9 is effective for annual periods beginning on or after
January 1, 2018, and is to be applied retrospectively with certain
exceptions. IFRS 9 does not require restatement of comparative
period financial statements except in limited circumstances related
to aspects of hedge accounting. Entities are permitted to restate
comparatives as long as hindsight is not applied. In January 2015,
OSFI issued the final version of the Advisory titled “Early adoption of
IFRS 9 Financial Instruments for Domestic Systemically Important Banks”.
All domestic systemically important banks (D-SIBs), including the Bank,
are required to early adopt IFRS 9 for the annual period beginning on
November 1, 2017. The adoption of IFRS 9 is a significant initiative for
the Bank supported by a formal governance framework and a robust
implementation plan.
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. In July 2015,
the IASB confirmed a one-year deferral of the effective date to
annual periods beginning on or after January 1, 2018, which will be
November 1, 2018 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 and financial
liabilities are carried at amortized cost.
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.
132
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS 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 bond yield curves.
The fair value of U.S. federal and state government, as well as
agency debt securities, is determined by reference to recent transac-
tion prices, broker quotes, or third-party vendor prices. Brokers or
third-party vendors may use a pool-specific valuation model to value
these securities. Observable market inputs to the model include to-be-
announced (TBA) market prices, the applicable indices, and metrics
such as the coupon, maturity, and weighted-average maturity of the
pool. Market inputs used in the valuation model include, but are not
limited to, indexed yield curves and trading spreads.
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 bond
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 techniques, 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. 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 discount-
ing 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.
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 estab-
lished 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
appropriate EIR 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.
133
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS The fair value of a derivative is partly a function of collateralization.
The Bank uses the relevant overnight index swap curve to discount the
cash flows for collateralized derivatives as most collateral is posted in
cash and can be funded at the overnight rate.
In the fourth quarter of 2014, the Bank implemented funding valua-
tion 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 the
London Interbank Offered Rate (LIBOR) and the expected average
exposure 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 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 valuation of uncollateralized derivative
liabilities through the application of debit valuation adjustments. 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) curves.
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. 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 subsequently not measured at fair
value include loans, deposits, certain securitization liabilities, certain
securities purchased under reverse repurchase agreements, obligations
relating to securities sold under repurchase agreements, and subordi-
nated 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 accep-
tances, and acceptances.
134
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS Carrying Value and Fair Value of Financial Instruments not
carried at Fair Value
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.
Financial Assets and Liabilities not carried at Fair Value1
(millions of Canadian dollars)
FINANCIAL ASSETS
Cash and due from banks
Interest-bearing deposits with banks
Held-to-maturity securities2
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 receivable from brokers, dealers and clients
Other assets
Total assets not carried at fair value
FINANCIAL 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 not carried at fair value
October 31, 2015
October 31, 2014
Carrying value
Fair value
Carrying value
Fair value
As at
$
3,154
42,483
$
3,154
42,483
$
2,781
43,773
$
2,781
43,773
43,667
30,783
74,450
97,364
542,418
1,923
544,341
44,095
30,647
74,742
97,364
544,862
2,166
547,028
34,119
22,858
56,977
82,556
476,486
2,423
478,909
34,371
22,955
57,326
82,556
480,314
2,730
483,044
16,646
21,996
4,247
$ 804,681
16,646
21,996
4,247
$ 807,660
13,080
17,130
3,590
$ 698,796
13,080
17,130
3,590
$ 703,280
$ 695,576
16,646
67,156
22,743
22,664
7,788
8,637
$ 841,210
$ 697,376
16,646
67,156
23,156
22,664
7,826
8,992
$ 843,816
$ 600,716
13,080
53,112
24,960
18,195
9,926
7,785
$ 727,774
$ 601,705
13,080
53,112
25,271
18,195
9,958
8,358
$ 729,679
1 Certain comparative amounts have been restated, where applicable, as a result of
the implementation of the 2015 IFRS Standards and Amendments. Refer to Note 4
for further details.
2 Includes debt securities reclassified from available-for-sale to held-to-maturity.
Refer to Note 7 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 Government bonds 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 assets and liabilities measured at fair value on a recur-
ring basis as at October 31.
135
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
Fair Value Hierarchy for Assets and Liabilities Measured at Fair Value on a Recurring Basis1
(millions of Canadian dollars)
Level 1
Level 2
Level 3
Total2
Level 1
Level 2
October 31, 2015
As at
October 31, 2014
Total2
Level 3
FINANCIAL ASSETS AND COMMODITIES
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 shares3,4
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
$
493 $ 11,560
6,121
–
$
– $ 12,053 $
6,145
24
302 $ 12,229
5,454
–
$
– $ 12,531
5,454
–
1
–
–
15,719
4,194
1,019
– 15,720
4,199
5
1,019
–
–
–
2,558
7,359
57
191
2,615
7,550
–
–
–
–
–
8,698
3,427
789
2,805
6,128
–
–
–
8,698
3,427
789
20
66
2,825
6,194
28,933
33
–
5,410
–
34,870
447
–
10,650
154
–
59,781
5
38
– 10,650
–
38
186 29,566 40,695
40
–
5,564 5,154
–
506 95,157 46,191
38
5,172
–
10,142
–
–
54,844
4
–
–
–
48
138
45,871
40
10,142
5,154
48
101,173
2
45
–
–
32
79
27,968
38,692
59
1,376
691
68,786
– 27,970
6 38,743
63
4
1,936
560
726
3
573 69,438
2
56
–
–
94
152
23,420
24,852
18
5,962
341
54,593
–
16
–
1,033
2
1,051
23,422
24,924
18
6,995
437
55,796
106
–
106
4,272
–
4,272
–
–
–
4,378
–
4,378
202
–
202
4,538
–
4,538
–
5
5
4,740
5
4,745
–
–
14,431
7,185
–
–
–
–
–
–
22,585
11,648
4,060
16,261
916
8,618
– 14,431
7,185
–
199
–
8,205
4,494
–
51
8,404
4,545
– 22,585
7 11,655
4,060
–
501 16,762
916
8,765
–
147
–
–
–
–
–
–
12,130
3,317
3,306
18,903
1,722
8,080
–
5
–
12,130
3,322
3,306
–
–
19
18,903
1,722
8,099
177
20
–
197
100
–
169
85,973
1,575
94
282
1,852
114
451
2,606 88,776
210
29
–
438
242
1
337
60,737
1,303
141
309
1,828
1,755
171
646
63,003
–
13,201
– 13,201
–
8,154
–
8,154
$
– $ 72,879
$ 1,880 $ 74,759 $
– $ 57,703
$ 1,631 $ 59,334
34
25
–
2
49
110
–
22,959
30,588
290
1,316
899
56,052
10,986
88 23,081
5 30,618
290
–
2,275
957
954
6
1,056 57,218
– 10,986
2
43
–
–
93
138
–
20,033
22,975
325
5,660
440
49,433
11,198
81
14
–
1,537
6
1,638
–
20,116
23,032
325
7,197
539
51,209
11,198
–
8,783
1,402
29,961
13
–
1,415
59 38,803 14,305
3,242
25,126
8
34
3,250
39,465
–
12,376
– 12,376
–
8,242
–
8,242
1 Certain comparative amounts have been restated, where applicable, as a result of
the implementation of the 2015 IFRS Standards and Amendments. Refer to Note 4
for further details.
2 Fair value is the same as carrying value.
3 As at October 31, 2015, the carrying values of certain available-for-sale equity
securities of $6 million (October 31, 2014 – $5 million) are assumed to approximate
fair value in the absence of quoted market prices in an active market.
4 As at October 31, 2015, common shares include the fair value of Federal Reserve
Stock and Federal Home Loan Bank stock of $1.3 billion (October 31, 2014 –
$1.0 billion) 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.
136
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
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 judgment.
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.
There were no significant transfers between Level 1 and Level 2 during
the years ended October 31, 2015, and October 31, 2014.
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.
137
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
$
–
$
–
$
$
–
$
(9)
$ 33
$
–
$
24
$
–
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 Assets and Liabilities
(millions of Canadian dollars)
Total realized and
unrealized gains (losses)
Movements
Transfers
Included
in income1
Included
in OCI
Purchases
Issuances
Other2
Into
Level 3
Out of
Level 3
Fair value
as at
Change in
unrealized
gains
(losses) on
Oct. 31, instruments
still held3
2015
FINANCIAL ASSETS
Trading loans, securities, and other
Government and government-
related securities
Canadian government debt
Provinces
Other OECD government
guaranteed debt
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
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
Fair value
as at
Nov. 1,
2014
$
–
–
20
66
4
–
48
138
5
5
51
5
–
19
–
–
(10)
–
–
3
(7)
1
1
1
–
–
3
–
–
–
–
–
–
–
–
–
–
–
(44)
5
–
–
63
61
276
31
–
431
–
–
–
–
–
–
1,303
141
91
(34)
2
(12)
404
–
309
$ 1,828
29
$ 90
28
$ (21)
–
$ 404
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5
–
5
(96)
(168)
(94)
(26)
(13)
(406)
72
267
–
–
–
377
(6)
(6)
–
2
–
–
–
–
(2)
(25)
–
–
–
(27)
–
–
(52)
–
57
191
186
5
38
506
–
–
–
7
–
(1)
–
–
–
2
1
2
2
1
–
43
(3)
502
242
–
(119)
501
147
(225)
(1)
–
–
–
–
1,575
94
(68)
$ (252)
38
$ 782
(54)
282
$ (225) $ 2,606
(44)
5
40
(12)
28
$ 18
Total realized and
unrealized losses (gains)
Movements
Transfers
Fair value
as at
Nov. 1,
2014
Included
in income1
Included
in OCI
Purchases
Issuances
Other2
Into
Level 3
Out of
Level 3
Fair value
as at
Change in
unrealized
losses
(gains) on
Oct. 31, instruments
still held3
2015
FINANCIAL LIABILITIES
Trading deposits
Derivatives4
Interest rate contracts
Foreign exchange contracts
Credit contracts
Equity contracts
Commodity contracts
Other financial liabilities
designated at fair value
through profit or loss
Obligations related to
securities sold short
$ 1,631
$
6
$ –
$
–
$ 834
$ (591)
$
–
$
–
$ 1,880
$ (13)
81
(2)
–
504
4
587
2
(2)
(4)
(63)
26
(41)
8
(40)
–
–
–
–
–
–
–
–
–
–
(96)
–
(96)
–
–
–
194
–
194
5
–
–
(124)
(25)
(144)
–
(3)
–
–
(2)
(5)
–
6
–
(18)
–
(12)
88
(1)
(4)
397
3
483
4
1
(4)
(66)
7
(58)
–
90
(45)
–
–
13
(46)
$
34
$
–
$ –
$ (78)
$
–
$ 105
$
–
$
(2) $
59
$
–
1 Gains (losses) on financial assets and liabilities are recognized in Net securities
3 Changes in unrealized gains (losses) on available-for-sale securities are recognized
gains (losses), Trading income (loss), and Other income (loss) on the Consolidated
Statement of Income.
2 Consists of sales, settlements, and foreign exchange.
in accumulated other comprehensive income.
4 As at October 31, 2015, consists of derivative assets of $0.6 billion (November 1,
2014 – $1.1 billion) and derivative liabilities of $1.1 billion (November 1, 2014 –
$1.6 billion), which have been netted on this table for presentation purposes only.
138
TD BANK GROUP ANNUAL REPORT 2015 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,
2013
Included
in income1
Included
in OCI
Purchases
Issuances
Other2
Into
Level 3
Out of
Level 3
Change in
unrealized
gains
(losses) on
instruments
still held3
Fair value
as at
Oct. 31,
2014
FINANCIAL ASSETS
Trading loans, securities, and other
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
Canadian government debt
Provinces
Other OECD government
guaranteed debt
Other debt securities
Corporate and other debt
Equity securities
Common shares
Preferred shares
Debt securities reclassified
from trading
FINANCIAL LIABILITIES
Trading deposits
Derivatives4
Interest rate contracts
Foreign exchange contracts
Credit contracts
Equity contracts
Commodity contracts
Other financial liabilities
designated at fair value
through profit or loss
Obligations related to
securities sold short
$
5
84
$
15
–
67
171
9
9
–
8
19
1,215
136
–
3
–
–
5
8
1
1
1
–
1
7
(6)
$
$ –
–
–
–
–
–
$ 10
145
159
54
–
368
–
–
–
–
–
–
–
31
4
–
3
–
97
6
228
$ 1,606
30
$ 33
20
$ 55
–
$ 106
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$
(68)
(195)
(170)
(54)
(24)
(511)
$ 73
37
–
2
–
112
$
–
(8)
$
20
66
$ –
(2)
–
(2)
–
(10)
4
–
48
138
(5)
(5)
–
–
–
–
5
5
–
187
(137)
(6)
–
–
–
40
(41)
51
5
19
(48)
1
1
–
–
–
1,303
141
(14)
(67)
$
46
$ 274
(1)
$ (179)
309
$ 1,828
–
–
(7)
(9)
(4)
(4)
1
–
1
30
4
20
$ 56
Total realized and
unrealized losses (gains)
Movements
Transfers
Fair value
as at
Nov. 1,
2013
Included
in income1
Included
in OCI
Purchases
Issuances
Other2
Into
Level 3
Out of
Level 3
Change in
unrealized
losses
(gains) on
instruments
still held3
Fair value
as at
Oct. 31,
2014
$ 1,396
$ 65
$ –
$
–
$ 687
$ (494)
$
1
$ (24) $ 1,631
$ 50
58
(1)
–
392
(3)
446
21
–
1
166
–
188
–
–
–
–
–
–
–
–
–
(119)
–
(119)
–
–
–
221
–
221
1
(2)
(1)
(161)
8
(155)
–
1
–
5
(1)
5
1
–
–
–
–
1
81
(2)
–
504
4
587
23
–
–
164
4
191
12
(49)
–
–
84
(39)
–
–
8
(52)
$
7
$
–
$ –
$ (26)
$
–
$ 52
$
1
$ –
$
34
$ –
1 Gains (losses) on financial assets and liabilities are recognized in Net securities
4 As at October 31, 2014, consists of derivative assets of $1.1 billion
gains (losses), Trading income (loss), and Other income (loss) on the Consolidated
Statement of Income.
2 Consists of sales, settlements, and foreign exchange.
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.
139
TD BANK GROUP ANNUAL REPORT 2015 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. For debt securities, the
price equivalent is expressed in ‘points’, and represents a percentage
of the par amount, and prices at the lower end of the range are
generally a result of securities that are written down. For equity securi-
ties, the price equivalent is based on a percentage of a proxy price.
There may be wide ranges depending on the liquidity of the securities.
New issuances of debt and equity securities are priced at 100% of
the issue price.
Credit Spread
Credit spread is a significant input used in the valuation of many
derivatives. It is the primary reflection of the creditworthiness 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 creditworthiness.
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 and certain retained
interests. 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.
Inflation Rate Swap Curve
The fair value of inflation rate swap contracts is a swap between the
interest rate curve and the inflation Index. The inflation rate swap
spread is not observable and is determined using proxy inputs such
as inflation index rates and Consumer Price Index (CPI) bond yields.
Generally swap curves are observable; however, there may be
instances where certain specific swap curves are not observable.
140
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS Valuation techniques and inputs used in the fair value
measurement of Level 3 assets and liabilities
The following tables present 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
Valuation
technique
Significant
unobservable
inputs (Level 3)
October 31, 2015
October 31, 2014
As at
Lower
range
Upper
range
Lower
range
Upper
range
Unit
Government and government-
related securities
Market comparable
Bond price equivalent
55
136
100
101
points
Other debt securities
Market comparable
Bond price equivalent
–
128
–
132
points
Equity securities1
Market comparable
Discounted cash flow
EBITDA multiple
Market comparable
Retained interests
Discounted cash flow
New issue price
Discount rate
Earnings multiple
Price equivalent
Prepayment and
liquidation rates
Discount rates
100
8
4.6
52
100
20
22
117
–
280
–
360
100
1
5.3
78
–
326
100
23
25
118
10
427
%
%
times
%
%
bps2
Market comparable
Bond price equivalent
n/a3
n/a3
105
105
points
Other financial assets
designated at fair value
through profit or loss
Derivatives
Interest rate contracts
Swaption model
Discounted cash flow
Currency specific volatility
Inflation rate swap curve
Foreign exchange contracts
Option model
Currency specific volatility
Credit contracts
Discounted cash flow
Credit spread
Equity contracts
Option model
Commodity contracts
Option model
Trading deposits
Option model
Swaption model
Price correlation
Quanto correlation
Dividend yield
Equity volatility
Quanto correlation
Swaption correlation
Price correlation
Quanto correlation
Dividend yield
Equity volatility
Currency specific volatility
17
1
8
7
10
(38)
–
6
(45)
24
(23)
(38)
–
6
17
292
2
12
55
90
17
12
94
(25)
36
98
17
14
116
292
8
1
6
5
14
(40)
–
11
(45)
34
–
(45)
–
10
8
188
2
18
%
%
%
103
bps2
85
17
11
80
(25)
46
98
18
11
68
188
Other financial liabilities
designated at fair value
through profit or loss
Obligations related to
securities sold short
Option model
Funding ratio
1
72
3
72
Market comparable
New issue price
100
100
100
100
1 As at October 31, 2015, common shares exclude the fair value of Federal Reserve
stock and Federal Home Loan Bank stock of $1.3 billion (October 31, 2014 –
$1.0 billion) 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.
2 Basis points.
3 Not applicable.
%
%
%
%
%
%
%
%
%
%
%
%
%
141
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
The following table summarizes the potential effect of using reason-
ably possible alternative assumptions for financial assets and financial
liabilities held, that are classified in Level 3 of the fair value hierarchy
as at October 31. 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
Retained interests
Derivatives
Equity contracts
Available-for-sale securities
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
Obligations related to securities sold short
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 significant non-observable inputs in the
valuation technique used to value the instruments become observable.
The following table summarizes the aggregate difference yet to be recog-
nized in net income due to the difference between the transaction price
and the amount determined using valuation techniques with significant
non-observable market inputs at initial recognition.
142
October 31, 2015
Impact to net assets
As at
October 31, 2014
Impact to net assets
Decrease in
fair value
Increase in
fair value
Decrease in
fair value
Increase in
fair value
$ 6
2
8
24
24
$
6
–
6
33
33
$
–
3
3
21
21
$
–
–
–
22
22
3
3
2
–
52
5
4
64
16
5
4
28
54
8
4
68
20
8
4
32
13
17
6
10
29
54
83
2
1
$ 195
14
40
54
2
1
$ 141
20
32
52
1
–
$ 151
16
31
47
1
–
$ 112
(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
2015
$ 33
57
(60)
$ 30
2014
$ 41
44
(52)
$ 33
FINANCIAL ASSETS AND LIABILITIES DESIGNATED
AT FAIR VALUE
Securities Designated at Fair Value through Profit or Loss
Certain securities that support insurance reserves within certain of
the Bank’s insurance subsidiaries have been designated at fair value
through profit or loss. The actuarial valuation of the insurance reserve
is measured using a discount factor which is based on the yield of the
supporting invested assets, with changes in the discount factor being
recognized in the Consolidated Statement of Income. By designating
the securities at fair value through profit or loss, the unrealized gain
or loss on the securities is recognized in the Consolidated Statement
of Income in the same period as a portion of the income or loss resulting
from changes to the discount rate used to value the insurance liabilities.
In addition, certain government and government-insured securities
have been combined with derivatives to form economic hedging 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.
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
Securitization Liabilities at Fair Value
Securitization liabilities at fair value include securitization liabilities
classified as trading and those designated at fair value through profit
or loss. The fair value of a financial liability incorporates the credit risk
of that financial liability. The holders of the securitization liabilities are
not exposed to credit risk of the Bank and accordingly, changes in the
Bank’s own credit do not impact the determination of fair value.
As at October 31, 2015, the Bank had no outstanding securitization
liabilities designated at fair value through profit or loss as the remaining
securitization liabilities matured during the year. As at October 31, 2014,
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.
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 economically 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 contractual maturity amounts for the deposits designated at fair
value through profit or loss were $4 million less than the carrying
amount as at October 31, 2015 (October 31, 2014 – $5 million less
than the carrying amount). As at October 31, 2015, the fair value
of deposits designated at fair value through profit or loss includes
$1 million of the Bank’s own credit risk (October 31, 2014 – $5 million).
Due to the short-term nature of the 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, 2015, the income (loss) representing
net changes in the fair value of financial assets and liabilities designated
at fair value through profit or loss was $(16) million (2014 – $55 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, but for which fair value is disclosed.
Fair Value Hierarchy for Assets and Liabilities not carried at Fair Value1
(millions of Canadian dollars)
October 31, 2015
As at
October 31, 2014
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
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
– $ 2,781
– 43,773
– 34,371
– 22,955
– 57,326
$ 3,154 $
– $
– 42,483
– $
3,154
– 42,483
$ 2,781 $
– $
–
43,773
– 44,095
– 30,647
– 74,742
– 44,095
– 30,647
– 74,742
– 84,163
– 84,163
– 197,568 347,294 544,862
–
2,166
– 198,096 348,932 547,028
1,638
528
–
–
–
–
–
–
–
34,371
22,955
57,326
74,402
189,331
984
190,315
– 74,402
290,983 480,314
2,730
292,729 483,044
1,746
– 16,646
– 21,996
4,010
–
– 16,646
– 21,996
4,247
$ 3,154 $ 442,136 $ 349,169 $ 794,459
237
–
–
–
– 13,080
– 17,130
3,590
$ 2,781 $ 399,147 $ 293,198 $ 695,126
13,080
17,130
3,121
469
$
– $ 697,376 $
– 16,646
– $ 697,376
– 16,646
$
– $ 601,705 $
13,080
–
– $ 601,705
– 13,080
– 54,780
– 23,156
– 22,664
7,001
–
–
8,992
– $ 830,615 $
– 54,780
– 23,156
– 22,664
7,826
8,992
825 $ 831,440
825
–
$
44,870
25,271
18,195
9,204
8,358
–
–
–
–
–
– $ 720,683 $
– 44,870
– 25,271
– 18,195
9,958
8,358
754 $ 721,437
754
–
$
1 Certain comparative amounts have been restated, where applicable, as a result
of the implementation of the 2015 IFRS Standards and Amendments. Refer to
Note 4 for further details.
143
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
N O T E 6
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 OTC 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 counter parties
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.
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 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.
Offsetting Financial Assets and Financial Liabilities1
(millions of Canadian dollars)
As at
October 31, 2015
Amounts subject to an enforceable
master netting arrangement or similar
agreement that are not set-off in
the Consolidated Balance Sheet2,3
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
FINANCIAL ASSETS
Derivatives
Securities purchased under
reverse repurchase agreements
Total
Financial Liabilities
Derivatives
Obligations related to securities sold
under repurchase agreements
Total
$ 96,632
$ 27,194
$ 69,438
113,007
209,639
15,643
42,837
97,364
166,802
84,412
27,194
57,218
82,799
$ 167,211
15,643
$ 42,837
67,156
$ 124,374
FINANCIAL ASSETS
Derivatives
Securities purchased under
reverse repurchase agreements
Total
Financial Liabilities
Derivatives
Obligations related to securities sold
under repurchase agreements
Total
$ 69,921
$ 14,125
$ 55,796
94,877
164,798
12,321
26,446
82,556
138,352
65,334
14,125
51,209
65,433
$ 130,767
12,321
$ 26,446
53,112
$ 104,321
$ 39,962
6,705
46,667
39,962
6,705
$ 46,667
$ 39,783
14,021
53,804
39,783
14,021
$ 53,804
Collateral
Net Amount
$ 18,602
$ 10,874
90,538
109,140
121
10,995
11,966
5,290
60,445
$ 72,411
6
$ 5,296
October 31, 2014
$ 8,278
$ 7,735
68,457
76,735
78
7,813
6,353
5,073
39,088
$ 45,441
3
$ 5,076
1 Certain comparative amounts have been restated, where applicable, as a result of
the implementation of the 2015 IFRS Standards and Amendments. Refer to Note 4
for further details.
2 Excess collateral as a result of overcollateralization has not been reflected in the table.
3 Includes amounts where the contractual set-off rights are subject to uncertainty
under the laws of the relevant jurisdiction.
144
TD BANK GROUP ANNUAL REPORT 2015 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 $451 million as
at October 31, 2015 (October 31, 2014 – $646 million). For the year
ended October 31, 2015, net interest income of $27 million after tax
(October 31, 2014 – $41 million after tax) was recorded relating to
the reclassified debt securities. The decrease in fair value of these secu-
rities during the year ended October 31, 2015, of $4 million after tax
(October 31, 2014 – decrease of $18 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, 2015, of $4 million after tax (October 31, 2014 –
decrease of $18 million after tax). During the year ended
October 31, 2015, reclassified debt securities with a fair
value of $312 million (October 31, 2014 – $331 million) were
sold or matured, and $13 million after tax (October 31, 2014 –
$17 million after tax) was recorded in net securities gains during
the year ended October 31, 2015.
RECLASSIFICATIONS 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 amor-
tized to interest income over the remaining life of the reclassified 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.
Reclassifications from Available-for-Sale to Held-to-Maturity Securities
(millions of Canadian dollars, except as noted)
October 31, 2015
October 31, 2014
As at the reclassification date
Reclassification Date
March 1, 2013
September 23, 2013
November 1, 2013
Other reclassifications1
Amount
reclassified
$ 11,084
9,854
21,597
5,044
Fair
value
$ 4,248
8,995
22,532
5,085
Carrying
value
$ 4,219
8,916
22,637
5,121
Fair
value
$ 6,845
9,790
21,949
–
Carrying
value
$ 6,805
9,728
21,863
–
Weighted-average
effective interest
rate
Undiscounted
recoverable
cash flows
1.8%
1.9
1.1
3.0
$ 11,341
10,742
24,519
5,859
1 Represents reclassifications completed during the year ended October 31, 2015.
The change in fair value of these securities recorded in other comprehensive
income for the year ended October 31, 2015, was a decrease of $4.3 million
(October 31, 2014 – $8.0 million increase).
Had the Bank not reclassified these debt securities, the change in the
fair value recognized in other comprehensive income for these debt
securities would have been a decrease of $275 million during the year
ended October 31, 2015 (October 31, 2014 – an increase of $53 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
2014
2015
$ 540
540
199
$ 341
$ 541
541
192
$ 349
1 Includes amortization of net unrealized gains of $46 million during the year ended
October 31, 2015 (October 31, 2014 – $86 million), associated with these reclassi-
fied held-to-maturity securities that is presented as Reclassification to earnings of
net 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.
145
TD BANK GROUP ANNUAL REPORT 2015 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)
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
Within
1 year
Over 1
year to
3 years
Over 3
years to
5 years
Remaining terms to maturities1
With no
Over 5
specific
years maturity
years to Over 10
10 years
Total
Total
As at
October 31 October 31
2014
2015
$ 4,591 $ 2,954 $
2,006
622
717 $ 2,932 $
390
1,299
1,828
859 $
– $ 12,053 $ 12,531
5,454
– 6,145
3,983
2,162
2,403
1,306
1,844
388
5,664
258
1,826
85
– 15,720
– 4,199
8,698
3,427
81
25
12,848
265
15
7,565
553
15
3,907
–
61
10,214
–
4
4,602
899
120
–
–
– 39,136
713
76
30,899
487
3,293
3,780
564
2,661
3,225
607
864
1,471
699
696
1,395
258
36
294
2,615
–
–
7,550
– 10,165
2,825
6,194
9,019
–
–
–
–
45,871
40
45,911
48
$ 16,628 $ 10,793 $ 5,379 $ 11,635 $ 4,904 $ 29,604 $ 78,943 $ 85,877
29,566 29,566
38
29,604 29,604
38
–
–
–
–
26
–
–
–
8
–
–
–
3
–
–
–
1
38
Securities designated at fair value through profit or loss (FVO securities)
Government and government-related securities
Canadian government debt
Federal
Provinces
Other OECD government-guaranteed debt
$
836 $
–
611
1,447
12 $
26
258
296
– $
5
71
76
Other debt securities
Canadian issuers
Other issuers
Equity securities
Common shares
38
223
261
–
–
Total FVO securities
$ 1,708 $
111
459
570
198
182
380
– $
36 $
212
–
212
552
–
552
326
–
362
45
–
45
– $
–
–
–
884 $ 2,498
552
569
609
940
3,659
2,393
–
–
–
944
864
1,808
428
471
899
–
–
866 $
–
–
456 $
–
–
764 $
–
–
407 $
182
177
177
177
182
177
177 $ 4,378 $ 4,740
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
$
161 $ 3,928 $ 7,653 $ 2,689 $
454
1,935
1,911
2,876
– $
9
– $ 14,431 $ 8,404
4,545
– 7,185
547
1,866
456
3,484
1,051
1,224
1,540
9,678
2,153
4,145
2,064
17,926
12,338
4,420
–
22,323
6,496
–
–
6,505
1,688
–
1,221
2,909
1,103
–
4,513
5,616
1,975
–
2,456
4,431
6,113
–
433
6,546
5,883
916
142
6,941
– 22,585
– 11,655
–
4,060
– 59,916
12,130
3,322
3,306
31,707
– 16,762
916
–
–
8,765
– 26,443
18,903
1,722
8,099
28,724
–
–
–
85
1,760
171
1,931
646
$ 6,478 $ 15,372 $ 22,380 $ 29,077 $ 13,503 $ 1,972 $ 88,782 $ 63,008
1,858 1,858
114
1,972
451
114
1,972
–
–
–
–
208
–
–
–
78
–
–
–
57
–
–
–
23
1 Represents contractual maturities. Actual maturities may differ due to prepayment
privileges in the applicable contract.
146
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
Securities Maturity Schedule (continued)
(millions of Canadian dollars)
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
Within
1 year
Over 1
year to
3 years
Over 3
years to
5 years
Remaining terms to maturities1
With no
Over 5
specific
years maturity
years to Over 10
10 years
Total
Total
As at
October 31 October 31
2014
2015
$
59 $
– $
915 $
– $
– $
– $
974 $
–
6,575
2,567
–
8,610
8,696
5,804
5,863 11,263 16,100
6,243
935
7,178
3,263
–
3,263
– 18,648 18,792
– 24,045 15,327
– 43,667 34,119
–
–
878
878
10,082
866
–
–
2,625
1,760
3,491 11,842
6,741 14,754 27,942
– 19,014 17,933
610
–
–
4,315
– 30,783 22,858
– 74,450 56,977
$ 31,555 $ 41,785 $ 56,157 $ 51,270 $ 34,033 $ 31,753 $ 246,553 $ 210,602
5,798
6,158
–
2,616 11,956
9,794 15,219
2,268
–
348
6,158
5,611
1 Represents contractual maturities. Actual maturities may differ due to prepayment
privileges in the applicable contract.
Unrealized Securities Gains (Losses)
The following table summarizes the unrealized gains and losses
as at October 31.
Unrealized Securities Gains (Losses) for Available-for-Sale Securities
(millions of Canadian dollars)
October 31, 2015
As at
October 31, 2014
Cost/
Gross
amortized unrealized unrealized
(losses)
Gross
cost1
gains
Cost/
Gross
Fair amortized unrealized unrealized
(losses)
cost1
Gross
gains
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
$ 14,450
7,233
$ 42
19
$
(61) $ 14,431 $ 8,355
7,185 4,518
(67)
$ 50
29
$
(1) $ 8,404
(2) 4,545
22,526
11,713
4,021
59,943
169
4
49
283
(110) 22,585 11,950
(62) 11,655 3,313
4,060 3,256
(10)
(310) 59,916 31,392
16,921
921
8,770
26,612
1,770
112
1,882
420
$ 88,857
15
2
75
92
(174) 16,762 18,831
916 1,713
8,765 8,008
(261) 26,443 28,552
(7)
(80)
118
6
124
33
$ 532
114
(30)
(4)
(34)
(2)
1,858 1,642
153
1,972 1,795
596
$ (607) $ 88,782 $ 62,335
451
208
11
50
348
84
9
117
210
131
18
149
55
$ 762
(28) 12,130
(2) 3,322
– 3,306
(33) 31,707
(12) 18,903
– 1,722
(26) 8,099
(38) 28,724
–
(13) 1,760
171
(13) 1,931
646
$ (89) $ 63,008
(5)
1 Includes the foreign exchange translation of amortized cost balances at the
period-end spot rate.
147
TD BANK GROUP ANNUAL REPORT 2015 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 consecu-
tive twelve months preceding October 31, 2015, and October 31,
2014, the fair value of the securities was less than the amortized cost.
If not, they have been categorized as “less than 12 months”.
Unrealized Loss Positions for Available-for-Sale Securities
(millions of Canadian dollars)
Available-for-sale securities
Government and government-related securities
Canadian government debt
Federal
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
Securities Gains (Losses)
The following table summarizes the net securities gains and losses
as at October 31.
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, 2015, and
October 31, 2014, related to debt securities in the reclassified portfolio as described
in the “Reclassification of Certain Debt Securities – Trading to Available-for-Sale”
section of this Note.
148
As at
October 31, 2015
Less than 12 months
12 months or longer
Total
Gross
Fair unrealized
losses
value
Gross
Fair unrealized
losses
value
Gross
Fair unrealized
losses
value
$ 13,618
6,800
$ 61
67
$ 131
–
$ – $ 13,749
6,800
–
$ 61
67
12,848
8,973
95
62
1,056
–
15 13,904
8,973
–
110
62
1,348
43,587
10
295
–
1,187
–
15
1,348
44,774
11,038
4,497
15,535
130
57
187
2,165
659
2,824
51 13,203
5,156
18,359
23
74
171
21
192
74
$ 59,388
30
4
34
2
$ 518
–
–
–
–
$ 4,011
171
–
21
–
192
–
–
74
$ 89 $ 63,399
10
310
181
80
261
30
4
34
2
$ 607
October 31, 2014
$
954
1,166
$ 1
2
$
–
–
$ – $
–
954
1,166
$ 1
2
1,932
–
11
–
1,033
135
17
2
2,965
135
28
2
–
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
–
33
12
26
38
13
–
13
5
$ 89
For the years ended October 31
2015
2014
2013
$ 124
$ 183
$ 312
(45)
$ 79
(10)
$ 173
(8)
$ 304
TD BANK GROUP ANNUAL REPORT 2015 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 allowance for loan losses as at October 31.
Loans, Impaired Loans, and Allowance for Loan Losses
(millions of Canadian dollars)
Gross Loans
Neither
past due
nor
impaired
Past due
but not
impaired
Impaired2
Individually
Counter- insignificant
impaired
loans
party
specific
Allowance for loan losses1
Incurred
Total
but not allowance
for loan
losses
identified
loan losses
Total
Net
loans
As at
October 31, 2015
Residential mortgages3,4,5
Consumer instalment and other personal6
Credit card
Business and government3,4,5
Debt securities classified as loans
Acquired credit-impaired loans
Total
5,923
1,761
1,990
$ 208,802 $ 2,343 $ 786 $ 211,931
1,278 135,324
128,123
306 30,215
28,148
163,840
874 166,704
$ 528,913 $ 12,017 $ 3,244 $ 544,174
2,187
1,414
$ 547,775
Residential mortgages3,4,5
Consumer instalment and other personal6
Credit card
Business and government3,4,5
Debt securities classified as loans
Acquired credit-impaired loans
Total
5,406
1,694
1,201
$ 195,466 $ 2,242 $ 752 $ 198,460
853 123,230
116,971
294 25,564
23,576
128,242
832 130,275
$ 464,255 $ 10,543 $ 2,731 $ 477,529
2,695
1,713
$ 481,937
$
–
–
–
156
$ 156
207
6
$ 369
$
–
–
–
134
$ 134
213
8
$ 355
$ 47
136
217
28
$ 428
–
77
$ 505
$ 22
110
199
22
$ 353
–
89
$ 442
$
632
897
916
58 $ 105 $ 211,826
768 134,556
1,114 29,101
1,100 165,604
$ 2,503 $ 3,087 $ 541,087
1,923
1,331
$ 2,560 $ 3,434 $ 544,341
264
83
57
–
$
48
577
801
746
$ 2,172
59
–
$ 2,231
October 31, 2014
$
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
1 Excludes allowance for off-balance sheet positions.
2 As at October 31, 2015, impaired loans exclude $1.2 billion (October 31, 2014 –
$1.2 billion) of gross impaired debt securities classified as loans.
3 Excludes trading loans with a fair value of $11 billion as at October 31, 2015
(October 31, 2014 – $10 billion), and amortized cost of $10 billion as at
October 31, 2015 (October 31, 2014 – $10 billion), and loans designated
at fair value through profit or loss of nil as at October 31, 2015
(October 31, 2014 – $5 million). No allowance is recorded for trading
loans or loans designated at fair value through profit or loss.
4 Includes insured mortgages of $126 billion as at October 31, 2015
(October 31, 2014 – $131 billion).
5 As at October 31, 2015, impaired loans with a balance of $419 million did not
have a related allowance for loan losses (October 31, 2014 – $435 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.
6 Includes Canadian government-insured real estate personal loans of $21 billion
as at October 31, 2015 (October 31, 2014 – $24 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 $134 million as at October 31, 2015
(October 31, 2014 – $180 million), and were recorded in Other
assets on the Consolidated Balance Sheet.
The following table presents information related to the Bank’s
impaired loans.
Impaired Loans1
(millions of Canadian dollars)
Residential mortgages
Consumer instalment and
other personal
Credit card
Business and government
Total
Unpaid
principal
balance2
$ 844
1,437
306
978
$ 3,565
Carrying
value
$ 786
1,278
306
874
$ 3,244
October 31, 2015
Related
allowance
for credit
losses
Average
gross
impaired
loans
$ 47
$ 790
136
217
184
$ 584
1,045
294
866
$ 2,995
Unpaid
principal
balance2
$ 807
977
294
978
$ 3,056
Carrying
value
$ 752
853
294
832
$ 2,731
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
1 Excludes ACI loans and debt securities classified as loans.
2 Represents contractual amount of principal owed.
149
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
The changes to the Bank’s allowance for credit losses, as at and for the
years ended October 31, are shown in the following tables.
Allowance for Credit Losses
(millions of Canadian dollars)
Counterparty-specific allowance
Business and government
Debt securities classified as loans
Total counterparty-specific allowance excluding
acquired credit-impaired loans
Acquired credit-impaired loans1,2
Total counterparty-specific allowance
Collectively assessed allowance for
individually insignificant impaired loans
Residential mortgages
Consumer instalment and other personal
Credit card
Business and government
Total collectively assessed allowance for individually
insignificant impaired loans excluding acquired
credit-impaired loans
Acquired credit-impaired loans1,2
Total collectively assessed allowance for
individually insignificant impaired loans
Collectively assessed allowance for incurred
but not identified credit losses
Residential mortgages
Consumer instalment and other personal
Credit card
Business and government
Debt securities classified as loans
Total collectively assessed allowance for
incurred but not identified credit losses
Allowance for credit losses
Residential mortgages
Consumer instalment and other personal
Credit card
Business and government
Debt securities classified as loans
Total allowance for credit losses excluding
acquired credit-impaired loans
Acquired credit-impaired loans1,2
Total allowance for credit losses
Less: Allowance for off-balance sheet positions3
Allowance for loan losses
Balance
as at
November 1
2014
Provision
for credit
losses
Write-offs
Recoveries
Disposals
Foreign
exchange
and other
adjustments
Balance
as at
October 31
2015
$ 134
213
$
57
(27)
$
347
8
355
22
110
199
22
30
(6)
24
49
577
832
85
(73)
(13)
(86)
(1)
(87)
(39)
(809)
(1,092)
(125)
$ 42
–
42
10
52
12
249
237
42
353
89
1,543
(30)
(2,065)
(5)
540
9
442
1,513
(2,070)
549
48
602
924
872
59
2,505
70
712
1,123
1,028
272
3,205
97
3,302
274
$ 3,028
4
3
40
110
(11)
146
53
580
872
252
(38)
1,719
(36)
1,683
19
$ 1,664
–
–
–
–
–
–
(39)
(809)
(1,092)
(198)
(13)
(2,151)
(6)
(2,157)
–
$ (2,157)
–
–
–
–
–
–
12
249
237
84
–
582
19
601
–
$ 601
$ (3)
–
(3)
–
(3)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(3)
–
(3)
–
(3)
–
$ (3)
(1)
$
34
33
(5)
28
3
9
41
4
57
14
71
6
52
65
90
9
$ 156
207
363
6
369
47
136
217
28
428
77
505
58
657
1,029
1,072
57
222
2,873
9
61
106
93
43
312
9
321
20
$ 301
105
793
1,246
1,256
264
3,664
83
3,747
313
$ 3,434
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.
150
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
Allowance for Credit Losses
(millions of Canadian dollars)
Counterparty-specific allowance
Business and government
Debt securities classified as loans
Total counterparty-specific allowance excluding
acquired credit-impaired loans
Acquired credit-impaired loans1,2
Total counterparty-specific allowance
Collectively assessed allowance for
individually insignificant impaired loans
Residential mortgages
Consumer instalment and other personal
Credit card
Business and government
Total collectively assessed allowance for individually
insignificant impaired loans excluding acquired
credit-impaired loans
Acquired credit-impaired loans1,2
Total collectively assessed allowance for
individually insignificant impaired loans
Collectively assessed allowance for incurred
but not identified credit losses
Residential mortgages
Consumer instalment and other personal
Credit card
Business and government
Debt securities classified as loans
Total collectively assessed allowance for
incurred but not identified credit losses
Allowance for credit losses
Residential mortgages
Consumer instalment and other personal
Credit card
Business and government
Debt securities classified as loans
Total allowance for credit losses excluding
acquired credit-impaired loans
Acquired credit-impaired loans1,2
Total allowance for credit losses
Less: Allowance for off-balance sheet positions3
Allowance for loan losses
Balance
as at
November 1
2013
Provision
for credit
losses
$ 151
173
$
324
24
348
22
118
128
30
68
31
99
(7)
92
23
557
771
36
Write-offs
Recoveries
Disposals
$
(144)
(5)
$ 72
–
$ –
–
(149)
(3)
(152)
(38)
(808)
(870)
(82)
72
4
76
15
240
169
30
298
93
1,387
5
(1,798)
(17)
454
3
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.
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, 2015, there were $3 billion (October 31, 2014 –
$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 table.
Loans Past Due but not Impaired1
(millions of Canadian dollars)
Residential mortgages
Consumer instalment and other personal
Credit card
Business and government
Total
1 Excludes all ACI loans and debt securities classified as loans.
1-30
days
$ 1,511
5,023
1,317
1,829
$ 9,680
31-60
days
$ 729
702
287
123
$ 1,841
October 31, 2015
61-89
days
Total
1-30
days
$ 103 $ 2,343 $ 1,406
4,577
198
1,254
157
38
1,041
$ 496 $ 12,017 $ 8,278
5,923
1,761
1,990
31-60
days
$ 724
666
279
107
$ 1,776
As at
October 31, 2014
61-89
days
Total
$ 112 $ 2,242
5,406
163
1,694
161
53
1,201
$ 489 $ 10,543
151
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
COLLATERAL
As at October 31, 2015, the fair value of financial collateral held
against loans that were past due but not impaired was $279 million
(October 31, 2014 – $155 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.
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 Corpo-
ration (Target), Aeroplan, and Nordstrom Inc. (Nordstrom) and had
outstanding unpaid principal balances of $6.3 billion, $2.1 billion,
$874 million, $327 million, $143 million, $32 million, and $41 million,
respectively, and fair values of $5.6 billion, $1.9 billion, $794 million,
$129 million, $85 million, $10 million, and nil, respectively, at the
acquisition dates.
Acquired Credit-Impaired Loans
(millions of Canadian dollars)
As at
October 31 October 31
2014
2015
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 –
FDIC-assisted acquisitions4
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 –
$ 636
(12)
(23)
601
(1)
(45)
$ 699
(18)
(21)
660
(2)
(49)
555
609
853
(18)
(22)
813
(5)
(32)
776
40
(40)
–
–
–
1,090
(19)
(25)
1,046
(6)
(40)
1,000
36
(29)
7
–
7
Acquired credit-impaired loans
$ 1,331
$ 1,616
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, Aeroplan, and Nordstrom.
FDIC COVERED LOANS
As at October 31, 2015, the balance of FDIC covered loans was
$601 million (October 31, 2014 – $660 million) and was recorded
in Loans on the Consolidated Balance Sheet. As at October 31, 2015,
the balance of indemnification assets was $39 million (October 31,
2014 – $60 million) and was recorded in Other assets on the
Consolidated Balance Sheet.
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 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 underlying 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 and as such, the sales do not qualify
for derecognition.
The Bank securitizes U.S. originated and purchased residential
mortgages with U.S. government agencies which qualify for derecog-
nition from the Bank’s Consolidated Balance Sheet. As part of the
securitization, 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 government
loans to entities which may be structured entities. These securitizations
may give rise to derecognition of the financial assets depending on the
individual arrangement of each transaction.
In addition, the Bank transfers financial assets to certain consoli-
dated structured entities. Refer to Note 10 for further details.
152
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
The following table summarizes the securitized asset types that did not
qualify for derecognition, along with their associated securitization
liabilities as at October 31.
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, 2015
October 31, 2014
Fair
value
Carrying
amount
Fair
value
Carrying
amount
$ 30,355
–
3,173
33,528
$ (34,142)
$ 30,211
–
3,170
33,381
$ (33,729)
$ 33,792
2
2,321
36,115
$ (36,469)
$ 33,561
2
2,321
35,884
$ (36,158)
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 $23 billion as at
October 31, 2015 (October 31, 2014 – $25 billion), and securitization liabilities
carried at fair value of $11 billion as at October 31, 2015 (October 31, 2014 –
$11 billion).
Other Financial Assets Not Qualifying for Derecognition
The Bank enters into certain transactions where it transfers previously
recognized commodities and financial assets, such as, debt and equity
securities, but retains substantially all of the risks and rewards of those
assets. These transferred assets are not derecognized and the transfers
are accounted for as financing transactions. The most common trans-
actions of this nature are repurchase agreements and securities lending
agreements, in which the Bank retains substantially all of the associated
credit, price, interest rate, and foreign exchange risks and rewards
associated with the assets.
The following table summarizes the carrying amount of financial assets
and the associated transactions that did not qualify for derecognition,
as well as their associated financial liabilities as at October 31.
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
2015
2014
$ 24,708 $ 19,924
10,718
30,642
14,239
38,947
$ 24,656 $ 19,939
1 Includes $4.9 billion, as at October 31, 2015, of assets related to precious metals
repurchase agreements (October 31, 2014 – $3.8 billion).
2 Associated liabilities are all related to repurchase agreements.
TRANSFERS OF FINANCIAL ASSETS QUALIFYING
FOR DERECOGNITION
Transferred financial assets that are derecognized in their
entirety 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, 2015, the fair value of retained
interests was $38 million (October 31, 2014 – $44 million). There are
no expected credit losses on the retained interests of the securitized
business and government loans as the underlying 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, 2015, the trading income recognized on
the retained interest was $3 million (October 31, 2014 – $3 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, 2015, the carrying value of
these servicing rights was $20 million (October 31, 2014 – $16 million)
and the fair value was $26 million (October 31, 2014 – $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, 2015, was $12 million (October 31, 2014 – $7 million).
153
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
N O T E 1 0
STRUCTURED ENTITIES
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.
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 spon-
sored 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. The
Bank has no rights to the assets as they are owned by the securitiza-
tion 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 which are structured as loan facilities between the Bank, as
the sole liquidity lender, and the Bank-sponsored trusts. If a trust expe-
riences 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 can only be drawn if
preconditions are met ensuring 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
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. 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. 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 derivatives 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 consoli-
date 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 port-
folio 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 AUM increases. As a result, the
Bank’s holding of seed capital investment in its own sponsored invest-
ment funds and trusts is typically not significant 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 mort-
gages sold by the Bank into the Fund. The Bank has a put option with
the 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 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 the year ended October 31, 2015, the fair
value of the mortgages repurchased as a result of a liquidity event
was $29 million (2014 – $84 million). Generally, the term of these
agreements do not exceed five years. While the Bank has power over
the 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 guaran-
teed. 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.
154
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS 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
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 consoli-
dates the Covered Bond Entities as it has power over the key economic
activities and retains all the variable returns in these entities.
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 as noted in Note 9, 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 vari-
able 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. Investments
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 these entities.
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 Consoli-
dated 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 institutional 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 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 involve-
ment 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 Structured 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
structured 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. These holdings do not
result in the consolidation of these entities as TD does not have
power over these entities.
155
TD BANK GROUP ANNUAL REPORT 2015 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, 2015
Investment
funds and
trusts
As at
October 31, 2014
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
structured entities3
$ 6,148
–
$ 1,167
156
$
–
–
$
7,315
156
$ 3,450
–
$ 5,913
335
$
–
–
$
9,363
335
12
42,415
43,820
3,081
7
95,483
–
3,023
3,023
11,869
64
388
–
–
–
1,775
195
181
376
353
39
122
–
–
2,717
2,878
115
42,925
43,820
3,081
2,724
100,136
35
41,426
37,335
2,553
6
84,805
–
–
–
195
3,204
3,399
–
1,432
1,432
1,832
14,054
10,584
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
–
–
–
187
1,595
1,782
986
11,926
104,329
1,752
4,710
110,791
93,957
6,872
3,248
104,077
$ 10,404
$ 12,541
$ 1,750
$ 24,695
$ 9,756
$ 58,561
$ 1,750
$ 70,067
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 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 enti-
ties, 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
$1.6 billion (October 31, 2014 − $1.4 billion) for the year ended
October 31, 2015. The total AUM in these entities was $178.9 billion
(October 31, 2014 − $161.3 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 arrange-
ments to provide financial support to unconsolidated structured entities.
156
TD BANK GROUP ANNUAL REPORT 2015 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
transacted through organized and regulated exchanges and consist
primarily of options and futures.
Interest Rate Derivatives
The Bank uses interest rate derivatives, such as interest rate futures
and forwards, swaps, and options in managing interest rate risks.
Interest rate risk is the impact that changes in interest rates could
have on the Bank’s margins, earnings, and economic value. Changes
in interest rate can impact the market value of fixed rate assets and
liabilities. Further, certain assets and liabilities repayment rates vary
depending on interest rates.
Forward rate agreements are OTC contracts that effectively fix a
future interest rate for a period of time. A typical forward rate agree-
ment provides that at a pre-determined future date, a cash settlement
will be made between the counterparties based upon the difference
between a contracted rate and a market rate to be determined in the
future, calculated on a specified notional amount. No exchange of
principal amount takes place.
Interest rate swaps are OTC contracts in which two counterparties
agree to exchange cash flows over a period of time based on rates
applied to a specified notional amount. A typical interest rate swap
would require one counterparty to pay a fixed market interest rate
in exchange for a variable market interest rate determined from
time to time, with both calculated on a specified notional amount.
No exchange of principal amount takes place. Certain interest rate
swaps are transacted and settled through a clearing house which acts
as a central counterparty.
Interest rate options are contracts in which one party (the purchaser
of an option) acquires from another party (the writer of an option),
in exchange for a premium, the right, but not the obligation, either
to buy or sell, on a specified future date or series of future dates or
within a specified time, a specified financial instrument at a contracted
price. The underlying financial instrument will have a market price
which varies in response to changes in interest rates. In managing
the Bank’s interest rate exposure, the Bank acts as both a writer and
purchaser of these options. Options are transacted both OTC and
through exchanges. Interest rate futures are standardized contracts
transacted on an exchange. They are based upon an agreement to
buy or sell a specified quantity of a financial instrument on a specified
future date, at a contracted price. These contracts differ from forward
rate agreements in that they are in standard amounts with standard
settlement dates and are transacted on an exchange.
Foreign Exchange Derivatives
The Bank uses foreign exchange derivatives, such as futures, forwards,
and swaps in managing foreign exchange risks. Foreign exchange risk
refers to losses that could result from changes in foreign currency
exchange rates. Assets and liabilities that are denominated in foreign
currencies have foreign exchange risk. The Bank is exposed to non-
trading foreign exchange risk from its investments in foreign operations
when the Bank’s foreign currency assets are greater or less than the
liabilities in that currency; they create foreign currency open positions.
Foreign exchange forwards are OTC contracts in which one counter-
party contracts with another to exchange a specified amount of one
currency for a specified amount of a second currency, at a future date
or range of dates.
Swap contracts comprise foreign exchange swaps and cross-
currency interest rate swaps. Foreign exchange swaps are transactions
in which a foreign currency is simultaneously purchased in the spot
market and sold in the forward market, or vice-versa. Cross-currency
interest rate swaps are transactions in which counterparties exchange
principal and interest cash flows in different currencies over a period
of time. These contracts are used to manage currency and/or interest
rate exposures.
Foreign exchange futures contracts are similar to foreign exchange
forward contracts but differ in that they are in standard currency
amounts with standard settlement dates and are transacted on
an exchange.
Credit Derivatives
The Bank uses credit derivatives such as credit default swaps (CDS)
and total return swaps in managing risks of the Bank’s corporate loan
portfolio and other cash instruments. Credit risk is the risk of loss
if a borrower or counterparty in a transaction fails to meet its agreed
payment obligations. The Bank uses credit derivatives to mitigate
industry concentration and borrower-specific exposure as part of the
Bank’s portfolio risk management techniques. The credit, legal, and
other risks associated with these transactions are controlled through
well established procedures. The Bank’s policy is to enter into these
transactions with investment grade financial institutions. Credit risk to
these counterparties is managed through the same approval, limit, and
monitoring processes that is used for all counterparties to which the
Bank has credit exposure.
Credit derivatives are OTC contracts designed to transfer the credit
risk in an underlying financial instrument (usually termed as a reference
asset) from one counterparty to another. The most common credit
derivatives are CDS (referred to as option contracts) and total return
swaps (referred to as swap contracts). In option contracts, an option
purchaser acquires credit protection on a reference asset or group of
assets from an option writer in exchange for a premium. The option
purchaser may pay the agreed premium at inception or over a period
of time. The credit protection compensates the option purchaser for
deterioration in value of the reference asset or group of assets upon
the occurrence of certain credit events such as bankruptcy, or changes
in specified credit ratings or credit index. 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.
157
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS 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.
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.
Fair Value of Derivatives1
(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 year2
Negative
Positive
October 31, 2015
Fair value as at
balance sheet date
October 31, 2014
Fair value as at
balance sheet date
Positive
Negative
Positive
Negative
$
–
24
23,706
–
729
24,459
–
11,892
–
18,245
–
612
30,749
2
6
8
701
690
1,391
56,607
–
3,732
–
36
3,768
3,628
–
6,175
9,803
$
36
33
20,485
665
–
21,219
–
10,801
–
20,373
630
–
31,804
79
5
84
$
–
3
23,520
–
609
24,132
–
8,783
–
19,630
–
404
28,817
9
11
20
1,327
931
2,258
55,365
890
726
1,616
54,585
–
2,577
2
–
2,579
468
–
2,208
2,676
–
3,806
–
32
3,838
3,408
–
6,518
9,926
$
32
26
19,983
495
–
20,536
–
9,724
–
18,224
427
–
28,375
55
8
63
1,317
954
2,271
51,245
–
2,543
2
–
2,545
455
–
1,788
2,243
$
1
31
20,127
–
594
20,753
–
8,030
–
11,936
–
346
20,312
1
12
13
5,311
437
5,748
46,826
–
2,648
–
21
2,669
1,612
–
3,000
4,612
17
17
262
262
43
43
227
227
5
5
1,502
1,502
15,090
$ 71,697
1,138
1,138
6,655
$ 62,020
1,046
1,046
14,853
$ 69,438
958
958
5,973
$ 57,218
1,684
1,684
8,970
$ 55,796
$
–
22
17,940
592
–
18,554
–
6,525
–
14,487
351
–
21,363
37
2
39
5,742
539
6,281
46,237
–
1,559
3
–
1,562
398
–
1,271
1,669
286
286
1,455
1,455
4,972
$ 51,209
1 Certain comparative amounts have been restated, where applicable, as a result of
the implementation of the 2015 IFRS Standards and Amendments. Refer to Note 4
for further details. Certain other comparative amounts have also been restated/
reclassified to conform with the presentation adopted in the current period.
2 The average fair value of trading derivatives over a 12-month period had a positive
fair value and a negative fair value of $44 billion and $44 billion, respectively, for
the year ended October 31, 2014.
158
TD BANK GROUP ANNUAL REPORT 2015 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 Derivatives1
(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
$ 448 $
–
–
–
596
9,881
–
410
$ 448 $ 10,887
$ –
13
–
–
$ 13
$ 2,794 $ 3,838
9,926
43
1,046
$ 3,505 $ 14,853
32
43
636
$ 837
–
–
–
$ 837
$ 403
1,650
–
–
$ 2,053
$ 51
537
–
–
$ 588
As at
October 31, 2015
Derivative Liabilities
Derivatives
not in
qualifying
hedging
relationships
Total
$ 1,254
56
227
958
$ 2,495
$ 2,545
2,243
227
958
$ 5,973
October 31, 2014
$ 20 $
–
–
–
744
3,817
–
650
$ 20 $ 5,211
$ –
9
–
–
$ 9
$ 1,905 $ 2,669
4,612
786
5
5
1,034
1,684
$ 3,730 $ 8,970
$ 224
–
–
–
$ 224
$ 297
1,013
–
–
$ 1,310
$
–
117
–
–
$ 117
$ 1,041
539
286
1,455
$ 3,321
$ 1,562
1,669
286
1,455
$ 4,972
1 Certain other comparative amounts have also been restated to conform with the
presentation adopted in the current period.
The following table discloses 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 OCI for the years ended October 31.
Results of Hedge Activities Recorded in Net Income and Other Comprehensive Income
(millions of Canadian dollars)
Derivatives held or issued for
non-trading purposes
Interest rate contracts
Foreign exchange contracts
Credit derivatives
Other contracts
Fair value – non-trading
Derivatives held or issued for
non-trading purposes
Interest rate contracts
Foreign exchange contracts
Credit derivatives
Other contracts
Fair value – non-trading
Fair value hedges
Gains (losses) recognized in income on derivatives1,2
Gains (losses) recognized in income on hedged items attributable to the hedged risk2
Hedge ineffectiveness2
Cash flow hedges
Gains (losses) recognized in OCI on derivatives3
Gains (losses) reclassified from OCI into income4
Hedge ineffectiveness2
Net investment hedges
Gains (losses) recognized in OCI on derivatives1,3
Gains (losses) reclassified from OCI into income hedges4
Hedge ineffectiveness2
1 Includes non-derivative financial instruments such as foreign currency deposit
liabilities. The fair value attributable to the foreign exchange risk of these
non-derivative financial instruments was $22.2 billion as at October 31, 2015,
(October 31, 2014 – $21.6 billion).
For the years ended October 31
2015
2014
2013
$
(773)
776
3
$
(142)
113
(29)
$
290
(262)
28
7,725
7,047
(4)
(3,732)
–
–
3,849
4,494
1
(1,878)
17
–
55
1,382
(3)
(1,001)
(5)
–
2 Amounts are recorded in non-interest income.
3 OCI is presented on a pre-tax basis.
4 Amounts are recorded in net interest income or non-interest income, as applicable.
159
TD BANK GROUP ANNUAL REPORT 2015 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, 2015
Within
1 year
Over 1 year Over 3 years
to 5 years
to 3 years
Over 5 years
to 10 years
Over 10
years
Total
$ 18,125
(10,055)
$ 8,070
$ 19,630
(23,030)
$ (3,400)
$ 12,223
(14,754)
$ (2,531)
$ 3,061
(8,994)
$ (5,933)
$ 517
–
$ 517
$ 53,556
(56,833)
$ (3,277)
October 31, 2014
$ 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
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, 2015, and October 31, 2014,
there were no significant instances where forecasted hedged trans-
actions failed to occur.
The following table presents gains (losses) on non-trading derivatives that
have not been designated in qualifying hedge accounting relationships.
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
Other contracts
Total
1 Amounts are recorded in non-interest income.
2015
2014
$ (108)
(23)
(35)
2
–
$ (164)
$
(66)
13
(100)
10
–
$ (143)
2013
$ 69
(47)
(187)
4
–
$ (161)
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.
160
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
The following table discloses the notional amount of over-the-counter
and exchange-traded derivatives.
Over-the-Counter and Exchange-Traded Derivatives 1
(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
2014
2015
Over-the-Counter2
Non
Trading
Clearing
house3
clearing Exchange-
traded
house
Total
Non-
trading4
Total
Total
$
$
–
329
2,939
–
–
3,268
–
44
581
20
17
662
$ 261
–
–
9
15
285
$ 261
373
3,520
29
32
4,215
$
–
–
1,116
–
2
1,118
$ 261
373
4,636
29
34
5,333
$ 263
283
4,256
37
42
4,881
–
–
–
–
–
–
–
1
–
1
–
665
–
472
24
23
1,184
2
1
3
–
–
–
–
–
–
–
–
–
–
–
665
–
472
24
23
1,184
3
1
4
–
49
–
77
–
–
126
6
–
6
–
714
–
549
24
23
1,310
9
1
10
–
549
1
495
19
19
1,083
7
1
8
–
–
–
34
9
43
$ 3,269 $ 1,892
43
16
59
$ 344
77
25
102
$ 5,505
36
–
36
113
25
138
$ 1,286 $ 6,791
108
30
138
$ 6,110
1 Certain comparative amounts have been restated, where applicable, as a result of
the implementation of the 2015 IFRS Standards and Amendments. Refer to Note 4
for more details. Certain other comparative amounts have also been restated to
conform with the presentation adopted in the current period.
3 Derivatives executed through a central clearing house reduces settlement risk due
to the ability to net settle offsetting positions for capital purposes and therefore
receive preferential capital treatment compared to those settled with non-central
clearing house counterparties.
2 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.
4 Includes $912 billion of over-the-counter derivatives that are transacted with
clearing houses (October 31, 2014 – $476 billion) and $374 billion of over-the-
counter derivatives that are transacted with non-clearing houses (October 31,
2014 – $359 billion) as at October 31, 2015. There were no exchange-traded
derivatives both as at October 31, 2015 and October 31, 2014.
161
TD BANK GROUP ANNUAL REPORT 2015 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 Maturity1
(billions of Canadian dollars)
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
As at
October 31 October 31
2014
2015
Remaining term to maturity
Over
Within 1 year to
5 years
1 year
Over
5 years
$
$ 214
347
1,229
21
25
1,836
$
47
26
2,463
6
5
2,547
–
655
–
111
23
22
811
2
–
2
–
57
–
317
1
1
376
6
1
7
–
–
944
2
4
950
–
2
–
121
–
–
123
1
–
1
Total
Total
$ 261
373
4,636
29
34
5,333
$ 263
283
4,256
37
42
4,881
–
714
–
549
24
23
1,310
9
1
10
–
549
1
495
19
19
1,083
7
1
8
52
16
68
$ 2,717
57
8
65
$ 2,995
4
1
5
$ 1,079
113
25
138
$ 6,791
108
30
138
$ 6,110
1 Certain comparative amounts have been restated, where applicable, as a result of
the implementation of the 2015 IFRS Standards and Amendments. Refer to Note 4
for further details. Certain other comparative amounts have also been restated to
conform with the presentation adopted in the current period.
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 counter-
party to meet its obligation to the Bank. The Capital Markets Risk
Management area within Wholesale Banking is responsible for imple-
menting and ensuring compliance with credit policies established by
the Bank for the management of derivative credit exposures.
Derivative-related credit risks are subject to the same credit approval,
limit and monitoring standards that are used for managing other trans-
actions that create credit exposure. This includes evaluating the credit-
worthiness 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
calculated 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.
162
TD BANK GROUP ANNUAL REPORT 2015 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
2015
$ 35,352
9,107
2,111
$ 46,570
By location of risk2
Canada
United States
Other international
United Kingdom
Europe – other
Other
Total Other international
Total current replacement cost
October 31, 2015
As at
October 31, 2014
Current
replacement
cost
Credit
equivalent
amount
Risk-
weighted
amount
Current
replacement
cost
Credit
equivalent
amount
$
26
$
$
22
$
21,908
638
22,572
11,976
26,148
404
38,528
17
1,079
582
1,678
62,778
39,962
22,816
11,820
10,996
1,937
$ 12,933
67
26,915
727
27,709
20,750
52,070
688
73,508
287
4,185
1,431
5,903
107,120
58,659
48,461
12,173
36,288
14,735
$ 51,023
$
21
13,869
359
14,249
4,866
16,645
166
21,677
118
954
365
1,437
37,363
24,957
12,406
3,649
8,757
2,070
$ 10,827
20,919
614
21,555
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
74
26,737
707
27,518
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
Canada1
October 31
2014
$ 29,486
4,286
1,112
$ 34,884
October 31
2015
$ 4,373
38
837
$ 5,248
United States1
October 31
2014
Other International1
October 31
2014
October 31
2015
$ 10,418
1,308
1,298
$ 13,024
$ 6,405
2,830
1,725
$ 10,960
$ 4,762
16
155
$ 4,933
October 31
2015
$ 46,130
11,975
4,673
$ 62,778
Risk-
weighted
amount
$
25
14,571
363
14,959
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
As at
Total
October 31
2014
$ 44,666
5,610
2,565
$ 52,841
51,782
$ 10,996
45,461
$ 7,380
October 31
2015
% mix
October 31
2014
% mix
38.8%
39.8
2.3
13.6
5.5
21.4
100.0%
38.1%
32.2
8.5
11.3
9.9
29.7
100.0%
October 31
2015
$ 4,268
4,379
256
1,496
597
2,349
$ 10,996
October 31
2014
$ 2,811
2,375
632
832
730
2,194
$ 7,380
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,
2015, the fair value of all derivative instruments with credit risk related
contingent features in a net liability position was $14 billion (October 31,
2014 – $9 billion). The Bank has posted $16 billion (October 31, 2014 –
$7 billion) of collateral for this exposure in the normal course of business.
As at October 31, 2015, the impact of a one-notch downgrade in the
Bank’s senior debt ratings would require the Bank to post an additional
$194 million (October 31, 2014 – $293 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
additional $228 million (October 31, 2014 – $327 million) of collateral
to that posted in the normal course of business.
163
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 30, 2015, the aggregate net liability
position of those contracts would require: (1) the posting of collateral
or other acceptable remedy totalling $97 million (October 31, 2014 –
$77 million) in the event of a one-notch or two-notch downgrade in
the Bank’s senior debt ratings; and (2) funding totalling nil (October
31, 2014 – $1 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.
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
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. The Bank’s equity share in TD Ameritrade’s
earnings, excluding dividends, is reported on a one-month lag basis.
The Bank takes into account changes in the subsequent period that
would significantly affect the results.
As at October 31, 2015, the Bank’s reported investment in
TD Ameritrade was 41.54% (October 31, 2014 – 40.97%) of the
outstanding shares of TD Ameritrade with a fair value of $10 billion
(October 31, 2014 – $8 billion) based on the closing price of
US$34.47 (October 31, 2014 – US$33.74) on the New York
Stock Exchange.
During the year ended October 31, 2015, TD Ameritrade repur-
chased 8.4 million shares (for the year ended October 31, 2014 –
8.5 million shares).
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,
Condensed Consolidated Balance Sheets1,2
(millions of Canadian dollars)
Assets
Receivables from brokers, dealers, and clearing organizations
Receivables from clients, net
Other assets, net
Total assets
Liabilities
Payable to brokers, dealers, and clearing organizations
Payable to clients
Other liabilities
Total liabilities
Stockholders’ equity3
Total liabilities and stockholders’ equity
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 has the right to designate
five of twelve members of TD Ameritrade’s Board of Directors. The
Bank’s designated directors include the Bank’s 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, 2015, and
October 31, 2014, 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 tables.
September 30
2015
September 30
2014
As at
$ 1,127
16,697
16,661
$ 34,485
$ 3,539
20,966
3,570
28,075
6,410
$ 34,485
$ 1,249
13,118
12,491
$ 26,858
$ 2,729
16,340
2,438
21,507
5,351
$ 26,858
1 Certain comparative amounts have been restated to conform with the presentation
adopted in the current period.
2 Customers’ securities are reported on a settlement date basis whereas the Bank
reports customers’ securities on a trade date basis.
3 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 good-
will, other intangibles, and the cumulative translation adjustment.
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.
164
For the years ended September 30
2015
2014
2013
$ 764
3,227
3,991
991
1,370
2,361
45
1,585
585
$ 1,000
$ 1.84
1.83
$ 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
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
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, 2015,
or October 31, 2014. The carrying amount of the Bank’s investment in
individually immaterial associates and joint ventures during the period
was $2.8 billion (October 31, 2014 – $2.2 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 commu-
nity-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 Nordstrom Inc.’s U.S. Credit Card Portfolio
On October 1, 2015, the Bank, through its subsidiary, TD Bank USA,
National Association (TD Bank USA, N.A.), acquired substantially all
of Nordstrom Inc.’s (Nordstrom) existing U.S. Visa and private label
consumer credit card portfolio, with a gross outstanding balance of
$2.9 billion (US$2.2 billion). In addition, the Bank and Nordstrom
entered into a long-term agreement under which the Bank became
the exclusive U.S. issuer of Nordstrom-branded Visa and private
label consumer credit cards to Nordstrom customers.
At the date of acquisition the Bank recorded the credit card receiv-
ables at their fair value of $2.9 billion. The transaction was treated
as an asset acquisition and the pre-tax difference of $73 million on
the date of acquisition of the transaction price over the fair value of
assets acquired has been recorded in Non-interest income. The gross
amounts of revenue and credit losses have been recorded on the
Consolidated Statement of Income in the U.S. Retail segment since
that date. Nordstrom shares in a fixed percentage of the revenue and
credit losses incurred. Nordstrom’s share of revenue and credit losses
is recorded in Non-interest expenses on the Consolidated Statement
of Income and related receivables from, or payables to Nordstrom
are recorded in Other assets or Other liabilities, respectively, on the
Consolidated Balance Sheet.
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 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 agree-
ment. 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.
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 receiv-
ables acquired at their fair value of $5.7 billion and intangible assets
totalling $98 million. The gross amount of revenue and credit losses
have been recorded on the Consolidated Statement of Income since
that date. Target Corporation shares in a fixed percentage of the reve-
nue and credit losses incurred. Target Corporation’s share of revenue
and credit losses is recorded in Non-interest expenses on the Consoli-
dated Statement of Income and related receivables from, or payables
to Target Corporation are recorded in Other assets or Other liabilities,
respectively, on the Consolidated Balance Sheet.
165
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS 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 manage-
ment 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 approximately $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, 2013
Additions
Disposals
Foreign currency translation adjustments and other
Carrying amount of goodwill as at October 31, 20142
Carrying amount of goodwill as at November 1, 2014
Foreign currency translation adjustments and other
Carrying amount of goodwill as at October 31, 20152
Pre-tax discount rates
2014
2015
1 Goodwill predominantly relates to U.S. personal and commercial banking.
2 Accumulated impairment as at October 31, 2015, and October 31, 2014 was nil.
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 10 times to 14 times.
In considering the sensitivity of the key assumptions discussed
above, management determined that a reasonable change in any of
the above would not result in the recoverable amount of any of the
groups of CGUs to be less than its carrying amount.
Canadian
Retail
$ 2,200
5
(13)
57
2,249
2,249
120
$ 2,369
U.S. Retail1
$ 10,943
–
–
891
11,834
11,834
1,984
$ 13,818
Wholesale
Banking
$ 150
–
–
–
150
150
–
$ 150
Total
$ 13,293
5
(13)
948
14,233
14,233
2,104
$ 16,337
10.3–12.4%
9.1–12.4
10.7–12.0%
9.7–10.5
13.8%
12.4
166
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
OTHER INTANGIBLES
The following table presents details of other intangibles as at October 31.
Other Intangibles
(millions of Canadian dollars)
Cost
As at November 1, 2013
Additions
Disposals
Impairment losses
Fully amortized intangibles
Foreign currency translation adjustments
and other
As at October 31, 2014
Additions
Disposals
Fully amortized intangibles
Foreign currency translation adjustments
and other
At October 31, 2015
Amortization and impairment
As at November 1, 2013
Disposals
Impairment losses
Amortization charge for the year
Fully amortized intangibles
Foreign currency translation adjustments
and other
As at October 31, 2014
Disposals
Impairment losses
Amortization charge for the year
Fully amortized intangibles
Foreign currency translation adjustments
and other
As at October 31, 2015
Net Book Value:
As at October 31, 2014
As at October 31, 2015
Core deposit
intangibles
Credit card
related
intangibles
Internally
generated
software
Other
software
Other
intangibles
$ 2,039
–
–
–
–
165
2,204
–
–
–
353
$ 2,557
$ 1,323
–
–
165
–
110
1,598
–
–
162
–
264
$ 2,024
$ 583
146
–
–
–
9
738
–
–
–
20
$ 758
$ 102
–
–
76
–
3
181
–
–
83
–
6
$ 270
$ 1,369
468
(34)
–
(154)
28
1,677
394
(31)
(178)
76
$ 1,938
$ 429
(1)
–
227
(154)
29
530
(16)
5
295
(178)
47
$ 683
$ 157
63
–
–
(4)
11
227
74
(3)
(12)
15
$ 301
$ 82
–
–
50
(4)
2
130
(1)
–
63
(12)
7
$ 187
$ 528
21
–
–
–
23
572
6
–
–
82
$ 660
$ 247
–
–
45
–
7
299
–
–
50
–
30
$ 379
Total
$ 4,676
698
(34)
–
(158)
236
5,418
474
(34)
(190)
546
$ 6,214
$ 2,183
(1)
–
563
(158)
151
2,738
(17)
5
653
(190)
354
$ 3,543
$ 606
533
$ 557
488
$ 1,147
1,255
$ 97
114
$ 273
281
$ 2,680
2,671
167
TD BANK GROUP ANNUAL REPORT 2015 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
$ 858
5
(6)
–
52
909
–
(2)
–
111
$ 1,018
$
$
–
–
–
–
–
–
–
–
–
–
–
–
–
$ 2,668
141
(21)
(130)
239
2,897
174
(21)
(62)
268
$ 3,256
$ 787
125
(4)
–
(130)
162
940
134
(18)
–
(62)
141
$ 1,135
$ 786
195
(51)
(86)
30
874
113
(111)
(116)
30
$ 790
$ 342
182
(38)
–
(86)
9
409
183
(73)
–
(116)
16
$ 419
$ 1,368
155
(29)
(81)
(130)
1,283
211
(23)
(104)
76
$ 1,443
$ 714
126
(22)
1
(81)
(106)
632
137
(22)
–
(104)
38
$ 681
$ 1,377
183
(24)
(65)
90
1,561
134
(19)
(66)
144
$ 1,754
$ 579
99
(20)
–
(65)
20
613
134
(19)
–
(66)
50
$ 712
$ 7,057
679
(131)
(362)
281
7,524
632
(176)
(348)
629
$ 8,261
$ 2,422
532
(84)
1
(362)
85
2,594
588
(132)
–
(348)
245
$ 2,947
$ 909
1,018
$ 1,957
2,121
$ 465
371
$ 651
762
$ 948
1,042
$ 4,930
5,314
October 31
2015
$ 7,810
1,563
1,245
104
1,441
869
216
$ 13,248
As at
October 31
2014
$ 6,540
1,330
1,030
15
1,419
829
–
$ 11,163
Cost
As at November 1, 2013
Additions
Disposals
Fully depreciated assets
Foreign currency translation adjustments and other
As at October 31, 2014
Additions
Disposals
Fully depreciated assets
Foreign currency translation adjustments and other
As at October 31, 2015
Accumulated depreciation and impairment/losses
As at November 1, 2013
Depreciation charge for the year
Disposals
Impairment losses
Fully depreciated assets
Foreign currency translation adjustments and other
As at October 31, 2014
Depreciation charge for the year
Disposals
Impairment losses
Fully depreciated assets
Foreign currency translation adjustments and other
As at October 31, 2015
Net Book Value:
As at October 31, 2014
As at October 31, 2015
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 items
Accrued interest
Current income tax receivable
Defined benefit asset
Insurance-related assets, excluding investments
Prepaid expenses
Cheques and other items in transit
Total
168
TD BANK GROUP ANNUAL REPORT 2015 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.
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. The deposits are generally term deposits, guaranteed
investment certificates, senior debt, and similar instruments. The aggre-
gate amount of term deposits in denominations of $100,000 or more as
at October 31, 2015, was $213 billion (October 31, 2014 – $188 billion).
Certain deposit liabilities are classified as Trading deposits on the
Consolidated Balance Sheet and accounted for at fair value with the
change in fair value recognized on the Consolidated Statement of Income.
Deposits
(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
By Type
By Country
October 31
2015
October 31
2014
As at
Demand
Notice
Term
Canada United States
International
Total
Total
$ 13,183 $ 332,220 $ 50,415 $ 189,120
10,856
6,880
192,166
64,670
122
103,781
10,078
114,227
–
–
1,402
3,739
$ 84,733 $ 436,123 $ 250,881 $ 397,283
1,402
74,759
–
–
$ 205,071
1,618
87,067
–
58,926
$ 352,682
$ 1,627 $ 395,818 $ 343,240
15,771
17,080
4,606
241,705
282,678
3,445
3,242
–
12,094
59,334
$ 21,772 $ 771,737 $ 663,292
1,402
74,759
$
6,195 $
47,485
5,739
36,962
391,088
326,885
84
340,993
278,121
1,477
$ 771,737 $ 663,292
1 Includes deposits and advances with the Federal Home Loan Bank.
2 As at October 31, 2015, includes $24 billion in Deposits on the Consolidated
Balance Sheet relating to covered bondholders (October 31, 2014 – $17 billion)
and $2 billion (October 31, 2014 – $2 billion) due to TD Capital Trust IV.
3 Included in Other financial liabilities designated at fair value through profit
or loss on the Consolidated Balance Sheet.
4 As at October 31, 2015, includes deposits of $438 billion (October 31, 2014 –
$370 billion) denominated in U.S. dollars and $36 billion (October 31, 2014 –
$21 billion) denominated in other foreign currencies.
Term Deposits
(millions of Canadian dollars)
Personal
Banks
Business and government
Designated at fair value through profit or loss1
Trading
Total
Over
Over
Over
Within 1 year to 2 years to 3 years to 4 years to
5 years
3 years
1 year
2 years
4 years
Over
As at
October 31 October 31
2014
2015
Over
5 years
Total
Total
190 $ 50,415 $ 52,260
$ 28,539 $ 9,333 $ 6,130 $ 3,602 $ 2,621 $
13 10,078 12,522
10,058
10,266 114,227 99,550
52,800
3,242
1,402
1,226
72,408
789 74,759 59,334
$ 165,031 $ 23,135 $ 22,562 $ 13,431 $ 15,464 $ 11,258 $ 250,881 $ 226,908
3
16,061
–
368
1
13,265
176
360
–
12,388
–
455
3
9,447
–
379
–
1 Included in Other financial liabilities designated at fair value through profit
or loss on the Consolidated Balance Sheet.
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
2015
As at
October 31
2014
Within
3 months
$ 11,316
8,900
26,415
383
29,111
$ 76,125
Over 3
months to
6 months
Over 6
months to
12 months
Total
Total
$ 7,075
774
6,622
282
27,238
$ 41,991
$ 10,148
384
19,763
561
16,059
$ 46,915
$ 28,539
10,058
52,800
1,226
72,408
$ 165,031
$ 29,399
12,502
49,188
1,849
57,655
$ 150,593
169
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
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
2015
$ 3,901
882
2,601
–
69
323
1,947
3,400
1,100
$ 14,223
As at
October 31
2014
$ 3,666
943
2,653
237
34
287
2,393
5,053
631
$ 15,897
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
April 2, 20201
November 2, 20203
September 20, 20224
July 9, 2023
May 26, 2025
June 24, 20256
September 30, 20256
October 30, 21048
December 14, 2105
December 18, 2106
Total
1 On April 2, 2015 (“Redemption Date”), the Bank redeemed all of its outstanding
$875 million 5.48% subordinated debentures due April 2, 2020, at a redemption
price of 100% of the principal amount. Interest on the debentures ceased to
accrue on and after the Redemption Date.
2 Interest rate is for the period to but excluding the earliest par redemption date,
and thereafter, it will be reset at a rate of 3-month Bankers’ Acceptance rate plus
the reset spread noted.
3 On September 15, 2015, the Bank announced its intention to redeem all of its
outstanding $1 billion 3.367% subordinated debentures due November 2, 2020
on November 2, 2015, at a redemption price of 100% of the principal amount.
4 Obligation of a subsidiary.
5 Not applicable.
REPAYMENT SCHEDULE
The aggregate remaining maturities of the Bank’s subordinated notes
and debentures are as follows:
Interest
rate (%)
Reset
spread (%)
Earliest par
redemption
date
October 31
2015
October 31
2014
As at
5.482
3.372
4.642
5.832
9.15
2.692
2.982
4.977
4.787
5.767
2.002
April 2, 2015
1.252
November 2, 2015
1.002 September 20, 2017
2.552
July 9, 2018
n/a5
–
1.212
June 24, 2020
1.832 September 30, 2020
1.777
October 30, 2015
1.747 December 14, 2016
1.997 December 18, 2017
$
–
998
267
650
199
1,489
1,000
–
2,235
1,799
$ 8,637
$
869
997
268
650
199
–
–
796
2,211
1,795
$ 7,785
6 Non-viability contingent capital (NVCC). The subordinated notes and debentures
qualify as regulatory capital under OSFI’s CAR guideline. If a NVCC conversion
were to occur in accordance with the NVCC Provisions, the maximum number of
common shares that could be issued based on the formula for conversion set out
in the respective prospectus supplements, assuming there are no declared and
unpaid interest on the respective subordinated notes, as applicable, would be
$450 million for the 2.692% subordinated debentures due June 24, 2025, and
$300 million for the 2.982% subordinated debentures due September 30, 2025.
7 Interest rate is for the period to but excluding the earliest par redemption date,
and thereafter, it will be reset every 5 years at a rate of 5-year Government of
Canada yield plus the reset spread noted.
8 On October 30, 2015 (the “Redemption Date”), the Bank redeemed all of its
outstanding $800 million 4.97% subordinated debentures due October 30, 2104,
at a redemption price of 100% of the principal amount. Interest on the debentures
ceased to accrue on and after the Redemption Date.
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
170
October 31
2015
$ 998
–
–
–
7,639
$ 8,637
As at
October 31
2014
$
–
–
–
–
7,785
$ 7,785
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
N O T E 2 0
CAPITAL TRUST SECURITIES
The Bank issued 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.
TD announced on February 7, 2011, that, based on OSFI’s
February 4, 2011 Advisory which outlined OSFI’s expectations
regarding the use of redemption rights triggered by regulatory
event clauses in non-qualifying capital instruments, it expects to
exercise a regulatory event redemption right only in 2022 in respect
of the TD Capital Trust IV Notes – Series 2 outstanding at that time.
As of October 31, 2015, there was $450 million in principal amount
of TD Capital Trust IV Notes – Series 2 issued and outstanding.
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
2014
of the issuer
yield
2015
Redemption
date
As at
1,000
June 30, Dec. 31
7.243%1 Dec. 31, 20132
$ 964
$ 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%.
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.
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.
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%.
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%.
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%.
N O T E 2 1
EQUITY
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
NVCC Provisions, necessary for the preferred shares to qualify as regu-
latory capital under OSFI’s 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.
171
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
The following table summarizes the shares issued and outstanding and
treasury shares held as at October 31.
Common and Preferred Shares Issued and Outstanding and Treasury Shares Held
(millions of shares and millions of Canadian dollars)
October 31, 2015
October 31, 2014
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 P1
Series Q2
Series R3
Series S
Series T
Series Y
Series Z
Series 14
Series 34
Series 54
Series 74
Series 94
Series 114
Balance as at end of year – preferred shares
Treasury shares – common5
Balance as at beginning of year
Purchase of shares
Sale of shares
Balance as at end of year – treasury shares – common
Treasury shares – preferred5
Balance as at beginning of year
Purchase of shares
Sale of shares
Balance as at end of year – treasury shares – preferred
Number
of shares
1,846.2
3.3
6.7
–
1,856.2
–
–
–
5.4
4.6
5.5
4.5
20.0
20.0
20.0
14.0
8.0
6.0
108.0
(1.6)
(98.2)
98.7
(1.1)
–
(9.9)
9.8
(0.1)
Amount
$ 19,811
128
355
–
$ 20,294
$
–
–
–
135
115
137
113
500
500
500
350
200
150
$ 2,700
$
$
$
$
(54)
(5,269)
5,274
(49)
(1)
(244)
242
(3)
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)
1 On March 2, 2015, the Bank redeemed all of its 10 million outstanding Class A
4 Non-viability contingent capital. Series 1, 3, 5, 7, 9, and 11 Preferred Shares qualify
First Preferred Shares, Series P (“Series P Shares”), at the cash redemption price
of $25.607877 per Series P Share, for total redemption costs of approximately
$256 million.
2 On March 2, 2015, the Bank redeemed all of its 8 million outstanding Class A
First Preferred Shares, Series Q (“Series Q Shares”), at the cash redemption price
of $25.615068 per Series Q Share, for total redemption costs of approximately
$205 million.
3 On May 1, 2015, the Bank redeemed all of its 10 million outstanding Class A
First Preferred Shares, Series R (“Series R Shares”), at the cash redemption price
of $25.503836 per Series R Share, for total redemption costs of approximately
$255 million.
as regulatory capital under OSFI’s CAR guideline. If a NVCC conversion were to
occur in accordance with the NVCC Provisions, the maximum number of common
shares that could be issued based on the formula for conversion set out in the
respective terms and conditions applicable to each Series of shares, assuming
there are no declared and unpaid dividends on the respective Series of shares
at the time of conversion, as applicable, would be 100 million, 100 million,
100 million, 70 million, 40 million, and 30 million, respectively.
5 When the Bank purchases its own shares as part of its trading business, they
are classified as treasury shares and the cost of these shares is recorded as
a reduction in equity.
Preferred Shares Terms and Conditions
Fixed Rate Preferred Shares
Series 112
Rate Reset Preferred Shares4
Series S
Series Y
Series 12
Series 32
Series 52
Series 72
Series 92
Floating Rate Preferred Shares4,5
Series T
Series Z
Issue date
Annual
yield (%)1
Reset Next redemption/ Convertible
into1
conversion date1
spread (%)1
July 21, 2015
4.9
n/a October 31, 20203
n/a
June 11, 2008
July 16, 2008
June 4, 2014
July 31, 2014
December 16, 2014
March 10, 2015
April 24, 2015
July 31, 2013
October 31, 2013
3.371
3.5595
3.9
3.8
3.75
3.6
3.7
n/a
n/a
1.60
July 31, 2018
1.68 October 31, 2018
2.24 October 31, 2019
2.27
July 31, 2019
January 31, 2020
2.25
2.79
July 31, 2020
2.87 October 31, 2020
Series T
Series Z
Series 2
Series 4
Series 6
Series 8
Series 10
July 31, 2018
1.60
1.68 October 31, 2018
Series S
Series Y
1 Non-cumulative preferred dividends for each Series are payable quarterly, as and
3 Subject to regulatory consent, redeemable on or after October 31, 2020 at
when declared by the Board of Directors. The dividend rate of the Rate Reset
Preferred Shares will reset on the next redemption/conversion date and every five
years thereafter to equal the then five-year Government of Canada bond yield plus
the reset spread noted. Rate Reset Preferred Shares are convertible to the corre-
sponding Series of Floating Rate Preferred Shares, and vice versa. If converted into
a Series of Floating Rate Preferred Shares, the dividend rate for the quarterly period
will be equal to the then 90-day Government of Canada Treasury bill yield plus the
reset spread noted.
2 Non-viability contingent capital.
a redemption price of $26.00, and thereafter, at a declining redemption price.
4 Subject to regulatory consent, redeemable on the redemption date noted and every
five years thereafter, at $25 per share. Convertible on the conversion date noted
and every five years thereafter if not redeemed. If converted, the holders have the
option to convert back to the original Series of preferred shares every five years.
5 Subject to a redemption price of $25.50 per share if redeemed prior to July 31,
2018 for Series T and October 31, 2018 for Series Z.
172
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
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.
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 repurchase,
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 share-
holders. 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 divi-
dend 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,
6.7 million common shares at a discount of 0% were issued from the
Bank’s treasury (2014 – 6.4 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 interest
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.
NON-CONTROLLING INTERESTS IN SUBSIDIARIES
The following are included in non-controlling interests in subsidiaries
of the Bank.
(millions of Canadian dollars)
REIT preferred stock, Series A
TD Capital Trust III Securities – Series 20081
Total
As at
October 31 October 31
2014
2015
$ 646
964
$ 1,610
$ 556
993
$ 1,549
1 Refer to Note 20 for a description of the TD Capital Trust III securities.
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 2
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.
173
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
For the years ended October 31
2015
$ 1,380
(223)
(5)
1,152
636
467
54
(5)
$ 1,152
2014
$ 1,337
(349)
(9)
979
601
385
2
(9)
$ 979
2013
$ 1,231
(279)
(6)
946
557
368
27
(6)
$ 946
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.
There is also exposure to geographic concentration risk associated
with personal property coverage. Exposure to insurance risk concentra-
tion is managed through established underwriting guidelines, limits, and
authorization levels that govern the acceptance of risk. Concentration
of insurance risk is also mitigated through the purchase of reinsurance.
The insurance business’ reinsurance programs are governed by catas-
trophe and reinsurance risk management policies.
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.
OTHER RELATED RISKS
The Bank’s mitigation of insurance risk through the purchase of
reinsurance gives rise to counterparty credit risk exposure. This coun-
terparty credit risk is managed through catastrophe and reinsurance
risk management policies. To properly 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. Interest rate risk and liquidity risk are
managed through investment policies.
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.
Trading-Related Income
(millions of Canadian dollars)
Net interest income (loss)
Trading income (loss)
Financial instruments designated at fair value through profit or loss1
Total
By product
Interest rate and credit portfolios
Foreign exchange portfolios
Equity and other portfolios
Financial instruments designated at fair value through profit or loss1
Total
1 Excludes amounts related to securities designated at fair value through profit
or loss that are not managed within a trading portfolio, but which have been
combined with derivatives to form economic hedging relationships.
N O T E 2 3
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; it is through these businesses that the Bank is
exposed to 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 fluc-
tuations in timing, actual size and/or frequency of claims (for example,
driven by 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.
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 practises 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 and monitors compliance
with insurance risk policies. 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 Bank establishes reserves to cover estimated future payments
(including loss adjustment expenses) on all claims arising from insur-
ance contracts underwritten. The reserves cannot be established with
complete certainty, and represent management’s best estimate for
future claim payments. As such, the Bank regularly monitors liability
estimates against claims experience and adjusts reserves as appropriate
if experience emerges differently than anticipated. Claim liabilities are
governed by the Bank’s general insurance reserving policy.
174
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
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 2015 were
$177 million (2014 – $182 million; 2013 – $182 million).
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)).
For the years ended October 31
2015
2014
2013
$ 4,220
891
3,329
429
3,758
2,734
234
$ 2,500
$ 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
(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, 2015
October 31, 2014
Reinsurance/
Other
recoverable
$ 148
6
Gross
$ 4,371
2,415
Net
$ 4,223
2,409
Gross1
$ 3,962
2,504
Reinsurance/
Other
recoverable1
$ 180
39
Net
$ 3,782
2,465
(163)
18
41
2,311
(1,003)
(929)
(1,932)
7
$ 4,757
11
–
–
17
–
(34)
(34)
7
$ 138
(174)
(132)
(39)
(93)
18
41
2,294
(1,003)
(895)
(1,898)
–
$ 4,619
(17)
44
2,399
(1,064)
(934)
(1,998)
8
$ 4,371
1
(1)
–
(3)
(37)
(40)
8
$ 148
(18)
45
2,399
(1,061)
(897)
(1,958)
–
$ 4,223
1 Certain comparative amounts have been restated to conform with the presentation
adopted in the current year.
(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, 2015
October 31, 2014
Gross
Reinsurance
Net
Gross
Reinsurance
$ 1,559
3,074
(3,043)
$ 1,590
–
$
87
(87)
–
$
$ 1,559
2,987
(2,956)
$ 1,590
$ 1,506
3,006
(2,953)
$ 1,559
–
$
91
(91)
–
$
Net
$ 1,506
2,915
(2,862)
$ 1,559
(c) Other Movements in Insurance Liabilities
Other movements of $310 million in insurance liabilities
(October 31, 2014 – $297 million) 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 eight most recent accident years, with subsequent developments
during the periods and together with cumulative payments to date.
The original reserve estimates are evaluated monthly for redundancy
or deficiency. The evaluation is based on actual payments in full or
partial settlement of claims and current estimates of claims liabilities
for claims still open or claims still unreported.
175
TD BANK GROUP ANNUAL REPORT 2015 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
2015
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
Seven years later
Current estimates of
cumulative claims
Cumulative payments to date
Net undiscounted provision
for unpaid claims
Effect of discounting
Provision for adverse deviation
Net provision for unpaid claims
$ 3,335
$ 1,598
$ 1,742
$ 1,724
$ 1,830
$ 2,245
$ 2,465
$ 2,409
3,366
3,359
3,422
3,527
3,630
3,612
3,646
1,627
1,663
1,720
1,763
1,753
1,756
–
1,764
1,851
1,921
1,926
1,931
–
–
1,728
1,823
1,779
1,768
–
–
–
1,930
1,922
1,884
–
–
–
–
2,227
2,191
–
–
–
–
–
2,334
–
–
–
–
–
–
–
–
–
–
–
–
–
3,646
(3,376)
1,756
(1,633)
1,931
(1,711)
1,768
(1,481)
1,884
(1,404)
2,191
(1,473)
2,334
(1,383)
2,409
(1,003)
270
123
220
287
480
718
951
1,406
$ 4,455
(249)
413
$ 4,619
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
other 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 report-
ing and final settlements of claims.
The following table outlines the sensitivity of the Bank’s property
and casualty insurance claims liabilities to reasonably possible move-
ments 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, 2015
October 31, 2014
Impact on net
income (loss)
before
income taxes
Impact on
equity
Impact on net
income (loss)
before
income taxes
Impact on
equity
$ 127
(136)
(45)
45
(32)
32
(219)
219
$ 94
(100)
(33)
33
(24)
24
(161)
161
$ 118
(126)
(41)
41
(31)
31
(200)
200
$ 87
(93)
(30)
30
(23)
23
(147)
147
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.
176
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
CONCENTRATION OF INSURANCE RISK
Concentration risk is the risk resulting from large exposure to similar
risks that are positively correlated.
Risk associated with automobile, residential and other products may
vary in relation to the geographical area of the risk insured. Exposure
to concentrations of insurance risk, by 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, 2015, for the property and casualty insurance
business, 68.9% of net written premiums were derived from auto-
mobile policies (October 31, 2014 – 70.3%) followed by residential
with 30.6% (October 31, 2014 – 29.4%). The distribution by provinces
show that business is mostly concentrated in Ontario with 59.0%
of net written premiums (October 31, 2014 – 60.6%). The Western
provinces represented 28.8% (October 31, 2014 – 27.7%) followed
by the Atlantic provinces with 6.3% (October 31, 2014 – 5.6%)
and Québec, 5.9% (October 31, 2014 – 6.1%).
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 $1.2 million (October 31, 2014 –
$3.1 million), the majority of claims are less than $250 thousand
(October 31, 2014 – $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 under-
standing of exposure to this risk, a pandemic scenario
is tested annually.
N O T E 2 4
SHARE-BASED COMPENSATION
STOCK OPTION PLAN
The Bank maintains a stock option program for certain key employees.
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, 23.6 million common shares
have been reserved for future issuance (October 31, 2014 –
25.9 million). The outstanding options expire on various dates to
December 11, 2024. The following table summarizes the Bank’s stock
option activity and related information, adjusted to reflect the impact
of the stock dividend 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
2015
Weighted-
average
of shares exercise price
Number
19.4
2.6
(3.3)
(0.3)
18.4
$ 36.72
52.46
30.31
44.25
$ 40.65
2014
Weighted-
average
exercise price
$ 33.89
47.59
31.32
39.60
$ 36.72
Number
of shares
22.0
2.6
(5.0)
(0.2)
19.4
7.0
$ 35.90
7.1
$ 31.18
2013
Weighted-
average
exercise price
$ 31.00
40.54
27.60
36.64
$ 33.89
$ 29.67
Number
of shares
27.5
3.3
(8.4)
(0.4)
22.0
8.8
The weighted average share price for the options exercised in 2015 was
$53.98 (2014 – $52.15; 2013 – $43.26).
The following table summarizes information relating to stock options
outstanding and exercisable as at October 31, 2015.
Range of Exercise Prices
(millions of shares and Canadian dollars)
$21.25 – $32.99
$36.03 – $36.64
$39.21 – $40.54
$43.06 – $44.25
$45.31 – $52.46
For the year ended October 31, 2015, the Bank recognized compensation
expense for stock option awards of $19.8 million (October 31, 2014 –
$25.6 million; October 31, 2013 – $24.8 million). For the year ended
October 31, 2015, 2.6 million (October 31, 2014 – 2.6 million;
October 31, 2013 – 3.3 million) options were granted by the Bank at
a weighted-average fair value of $9.06 per option (2014 – $9.29 per
option; 2013 – $7.83 per option).
The following table summarizes the assumptions used for estimating
the fair value of options for the twelve months ended October 31.
Options outstanding
Options exercisable
Number of
shares
outstanding
Weighted-
average
remaining
contractual
Weighted-
average
life (years) exercise price
2.7
6.0
3.6
1.1
5.0
3.4
5.6
6.3
2.3
8.4
$ 31.28
36.63
40.35
43.42
50.01
Number of
shares
Weighted-
average
exercisable exercise price
2.7
2.6
0.5
1.1
0.1
$ 31.28
36.62
39.21
43.42
45.31
Assumptions Used for Estimating Fair Value of Options
(in Canadian dollars, except as noted)
2015
2014
2013
Risk-free interest rate
Expected option life (years)
Expected volatility1
Expected dividend yield
Exercise price/share price
1.44%
1.90%
1.43%
6.3 years
25.06%
3.65%
6.2 years
27.09%
3.66%
6.3 years
27.23%
3.51%
$ 52.46
$ 47.59
$ 40.54
1 Expected volatility is calculated based on the average daily volatility measured over
a historical period corresponding to the expected option life.
177
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
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 share-
holder 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, 2015, was 26 million (2014 – 26 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
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,
2015, 6.5 million deferred share units were outstanding (October 31,
2014 – 7.6 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,
2015, the Bank recognized compensation expense, net of the effects
of hedges, for these plans of $441 million (2014 – $415 million; 2013 –
$336 million). The compensation expense recognized before the effects
of hedges was $471 million (2014 – $718 million; 2013 – $621 million).
The carrying amount of the liability relating to these plans, based on the
closing share price, was $1.6 billion at October 31, 2015 (October 31,
2014 – $1.8 billion), and is reported in Other liabilities on the Consoli-
dated Balance Sheet.
EMPLOYEE OWNERSHIP PLAN
The Bank also operates a share purchase plan available to Canadian
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, 2015, the Bank’s contributions
totalled $67 million (2014 – $65 million; 2013 – $63 million) and were
expensed as salaries and employee benefits. As at October 31, 2015,
an aggregate of 20 million common shares were held under the
Employee Ownership Plan (October 31, 2014 – 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.
N O T E 2 5
EMPLOYEE BENEFITS
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. 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
contributions from the Bank and members of the plans, as applicable.
In accordance with legislation, the Bank contributes amounts, as
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 2015 were $357 million (2014 – $302 million). The 2015
contributions were made in accordance with the actuarial valuation
reports for funding purposes as at October 31, 2014, for both of the
principal pension plans. The 2014 contributions were made in accor-
dance with the actuarial valuation reports for funding purposes as
at October 31, 2013, and October 31, 2011, for the Society and
the TDPP, respectively. The next valuation date for funding purposes
is as at October 31, 2015, for both of the principal pension plans.
The Bank also provides certain post-retirement benefits, which are
generally non-funded. Post-retirement 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.
178
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 investments of the Society and 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 8% and 15% surplus volatility, respectively. The investment
policies for the principal pension plans exclude Pension Enhancement
Account (PEA) assets which are invested at the member’s discretion
in certain mutual funds.
Public debt instruments of both the Society and the TDPP 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
public debt portfolio.
With respect to the Society’s public debt portfolio, up to 15%
of the total fund can be invested in a bond mandate subject to the
following constraints: debt instruments rated BBB+ to BBB- must not
exceed 25%; asset-backed securities must have a minimum credit
rating of AAA and not exceed 25% of the mandate; debt instruments
of non-government entities must not exceed 80%; debt instruments of
non-Canadian government entities must not exceed 20%; debt instru-
ments of a single non-government or non-Canadian government entity
must not exceed 10%; and debt instruments issued by the Govern-
ment of Canada, provinces of Canada, or municipalities must not
exceed 100%, 75%, or 10%, respectively. Also with respect to the
Society’s public debt portfolio, up to 14% of the total fund can be
invested in a bond mandate subject to the following constraints: debt
instruments rated BBB+ to BBB- must not exceed 25%; asset-backed
securities must have a minimum credit rating of AAA and not exceed
25% of the mandate; and there is a limitation of 10% for any one
issuer. The remainder of the public debt portfolio is not permitted
to invest in debt instruments of non-government entities.
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS The TDPP is not permitted to invest in debt instruments of non-
government entities.
The equity portfolios of both the Society and the TDPP are 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 permitted
to be included to further diversify the portfolio. A maximum of 10%
of a total fund may be invested in emerging market equities.
For both the Society and the TDPP, derivatives can be utilized
provided they are not used to create financial leverage, but rather
for risk management purposes. The Society is also permitted to
invest in other alternative investments, such as private equities.
The 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, 2015
Debt
Equity
Alternative investments1
Other2
Total
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
Acceptable
range
58-76%
24-42
0-10
n/a
58-72%
24-34.5
0-4
0-12.5
n/a
58-72%
24-34.5
0-4
0-12.5
n/a
% of
total
64%
30
6
n/a
100%
60%
32
2
6
n/a
100%
58%
34
2
6
n/a
100%
Society1
Fair value
Quoted
Unquoted
$
–
1,015
37
–
$ 1,052
$
–
1,228
–
40
–
$ 1,268
–
$
1,086
–
37
–
$ 1,123
$ 2,852
346
227
74
$ 3,499
$ 2,489
84
93
188
101
$ 2,955
$ 2,094
138
79
162
157
$ 2,630
Acceptable
range
44-56%
44-56
n/a
n/a
44-56%
44-56
n/a
n/a
n/a
44-56%
44-56
n/a
n/a
n/a
% of
total
50%
50
n/a
n/a
100%
50%
50
n/a
n/a
n/a
100%
49%
51
n/a
n/a
n/a
100%
TDPP1
Fair value
Quoted
Unquoted
$
–
–
n/a
–
–
$
$
–
–
n/a
n/a
–
–
$
$
–
–
n/a
n/a
–
–
$
$ 369
374
n/a
33
$ 776
$ 277
280
n/a
n/a
25
$ 582
$ 199
208
n/a
n/a
17
$ 424
1 The Society’s alternative investments primarily include private equity funds,
of which a fair value of nil as at October 31, 2015 (October 31, 2014 – nil;
October 31, 2013 – $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.
2 Consists mainly of PEA assets, interest and dividends receivable, and amounts
due to and due from brokers for securities traded but not yet settled.
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. The
Bank received regulatory approval to wind-up the defined contribution
portion of the plan effective April 1, 2011. The wind-up was completed
on May 31, 2012. Funding for the defined benefit portion is provided
by contributions from the Bank and members of the plan.
TD Bank, N.A. Retirement Plans
TD Bank, N.A. and its subsidiaries maintain a defined contribution
401(k) plan covering all employees. The contributions to the plan for
the year ended October 31, 2015 were $103 million (October 31, 2014 –
$92 million; October 31, 2013 – $81 million), which included core
and matching contributions. Annual expense is equal to the Bank’s
contributions to the plan.
179
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
TD Bank, N.A. also has frozen defined benefit retirement
plans covering certain legacy TD Banknorth and TD Auto Finance
(legacy Chrysler Financial) employees. TD Bank, N.A. also has
closed post-retirement benefit plans, which include limited medical
coverage and life insurance benefits, covering certain TD Auto
Finance (legacy Chrysler Financial) employees.
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)
Change in projected benefit obligation
Projected benefit obligation at beginning of year
Obligations included due to TD Auto Finance plan merger3
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 (credit)4
Projected benefit obligation as at October 31
Change in plan assets
Plan assets at fair value at beginning of year
Assets included due to TD Auto Finance plan merger3
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 (credit)4
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
Principal
pension plans
2015
2014
2013
$ 5,321 $ 4,338
–
282
205
591
44
(1)
66
(204)
–
–
5,321
–
359
219
(279)
18
(71)
69
(259)
–
–
5,377
$ 4,143
–
278
184
(234)
98
(3)
65
(193)
–
–
4,338
4,805
–
205
4,177
–
208
3,743
–
175
158
69
357
(259)
–
(8)
5,327
(50)
264
66
302
(204)
–
(8)
4,805
(516)
54
65
340
(193)
–
(7)
4,177
(161)
Principal non-pension
post-retirement
benefit plan1
2013
2014
2015
Other pension and
retirement plans2
2013
2014
2015
$ 557
–
20
23
(12)
–
(21)
–
(14)
–
–
553
–
–
–
–
–
14
(14)
–
–
–
(553)
$ 551
–
18
26
50
(82)
6
–
(12)
–
–
557
–
–
–
–
–
12
(12)
–
–
–
(557)
$ 526 $ 2,644
19
13
113
(35)
(11)
17
–
(251)
264
(30)
2,743
–
17
24
(29)
30
(7)
–
(10)
–
–
551
$ 2,196
–
10
106
188
129
17
–
(114)
106
6
2,644
$ 2,325
–
12
92
(223)
19
10
–
(100)
61
–
2,196
–
–
–
1,734
18
76
1,575
–
77
1,462
–
56
–
–
10
(10)
–
–
–
(551)
(31)
–
153
(251)
216
(5)
1,910
(833)
72
–
35
(114)
98
(9)
1,734
(910)
86
–
26
(100)
49
(4)
1,575
(621)
359
282
278
20
18
17
14
–
8
(3)
–
7
$ 381 $ 286
9
–
7
$ 294
23
–
–
$ 43
26
–
–
$ 44
24
–
–
$ 41 $
13
37
(30)
8
28
$
10
29
6
5
50
$
12
36
–
4
52
4.21%
2.86
4.42%
2.63
4.82%
2.83
4.53%
2.82
4.21%
2.86
4.82%
2.83
4.30%
3.50
4.80%
3.50
4.40%
3.25
4.30%
3.50
4.50%
3.50
4.27%
4.75%
1.29
1.43
4.01%
1.37
4.80%
3.50
4.39%
4.27%
1.20
1.30
4.75%
1.43
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 5.35%. The rate is assumed to decrease gradually to 3.60% by
the year 2028 and remain at that level thereafter.
2 Includes CT defined benefit pension plan, TD Banknorth defined benefit pension
plan, TD Auto Finance retirement plans, and supplemental employee retirement
plans. Other employee benefit plans operated by the Bank and certain of its
subsidiaries are not considered material for disclosure purposes.
3 Effective December 31, 2014, certain TD Auto Finance retirement plans were
merged and certain previously undisclosed obligations and assets are now included
for the current year. The opening balances of these obligations and assets for the
year ended October 31, 2015, were $19 million and $18 million, respectively
(October 31, 2014 – $14 million and $16 million; October 31, 2013 – $16 million
and $15 million, respectively).
4 Includes a settlement gain of $35 million related to a portion of the TD Banknorth
defined benefit pension plan that was settled during the period.
180
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
During the year ended October 31, 2016, the Bank expects to contribute
$335 million to its principal pension plans, $16 million to its principal
non-pension post-retirement benefit plan, and $40 million to its other
pension and retirement plans. Future contribution amounts may change
upon the Bank’s review of its contribution levels during the year.
Assumptions related to future mortality which have been used to
determine the defined benefit obligation and net benefit cost are
as follows:
Assumed Life Expectancy at Age 65
(number of years)
Principal
pension plans
Principal non-pension
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
2015
22.1
23.9
23.3
25.1
2014
21.9
23.8
23.2
25.0
2013
22.0
23.2
23.2
24.1
2015
2014
2013
22.1
23.9
23.3
25.1
21.9
23.8
23.2
25.0
22.0
23.2
23.2
24.1
2015
22.0
24.0
22.5
25.0
Other pension and
retirement plans
As at October 31
2014
22.0
23.3
23.1
25.6
2013
20.2
21.9
20.7
22.2
The weighted-average duration of the defined benefit obligation for
the Bank’s principal pension plans, principal non-pension post-retire-
ment benefit plan and other pension and retirement plans at the end
of the reporting period are 16 years (2014 – 16 years, 2013 – 15 years),
17 years (2014 – 18 years, 2013 – 17 years), and 13 years (2014 –
13 years, 2013 – 13 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, 2015
For the year ended
October 31, 2015
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
$ 907
(705)
(275)
298
(103)
102
n/a
n/a
$ 103
(80)
n/a1
n/a1
(18)
18
(82)
105
$ 404
(324)
(1)
1
(75)
76
(4)
5
$ 109
(96)
(53)
58
(16)
16
n/a
n/a
$ 4
(3)
n/a1
n/a1
(2)
2
(8)
11
$ 8
(12)
n/a1
n/a1
(3)
3
n/a1
n/a1
181
TD BANK GROUP ANNUAL REPORT 2015 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
Principal pension plans
Other pension and retirement plans1
Other employee benefit plans2
Total other assets
Other liabilities
Principal pension plans
Principal non-pension post-retirement benefit plan
Other pension and retirement plans1
Other employee benefit plans2
Total other liabilities
Net amount recognized
October 31
2015
October 31
2014
$
95
–
9
104
145
553
833
416
1,947
$ (1,843)
$
–
9
6
15
516
557
919
401
2,393
$ (2,378)
As at
October 31
2013
$
–
52
4
56
161
551
673
330
1,715
$ (1,659)
1 Effective December 31, 2014, certain TD Auto Finance retirement plans were merged.
For the current year, these assets and liabilities have been included in Other pension
and retirement plans. Previously, these assets or liabilities were included in Other
employee benefit plans.
2 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.
Amounts Recognized in the Consolidated Statement of Other Comprehensive Income1
(millions of Canadian dollars)
For the years ended
October 31
2015
October 31
2014
October 31
2013
$ 490
33
1
23
$ 547
$ (371)
26
(266)
(57)
$ (668)
$ 193
6
280
32
$ 511
3 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.
Actuarial gains (losses) recognized in Other Comprehensive Income
Principal pension plans
Principal non-pension post-retirement benefit plan
Other pension and retirement plans2
Other employee benefit plans3
Total actuarial gains (losses) recognized in Other Comprehensive Income
1 Amounts are presented on pre-tax basis.
2 Effective December 31, 2014, certain TD Auto Finance retirement plans were
merged. For the current year, these actuarial gains or losses have been included
in Other pension and retirement plans. Previously, these actuarial gains or losses
were included in Other employee benefit plans.
182
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
N O T E 2 6
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
Other – net
Provision for income taxes and effective income tax rate
For the years ended October 31
2015
2014
2013
$ 1,881
(6)
1,875
$ 1,450
31
1,481
$ 1,619
(114)
1,505
(372)
(1)
8
13
(352)
1,523
(1,279)
414
(865)
14
51
65
723
53
61
496
610
37
1
(11)
4
31
1,512
(623)
(269)
(892)
(9)
(4)
(13)
607
413
284
152
849
220
134
(241)
113
$ 723
(72)
(44)
(126)
(242)
$ 607
(398)
8
(2)
22
(370)
1,135
(699)
(221)
(920)
(17)
40
23
238
353
245
191
789
(4)
(5)
(542)
(551)
$ 238
2013
26.3%
(3.4)
(6.5)
(1.3)
15.1%
183
2015
2014
$ 2,409
26.3%
$ 2,385
26.3%
$ 1,970
(319)
(556)
(11)
$ 1,523
(3.5)
(6.1)
(0.1)
16.6%
(321)
(489)
(63)
$ 1,512
(3.5)
(5.4)
(0.7)
16.7%
(253)
(487)
(95)
$ 1,135
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
Deferred tax assets and liabilities are comprised of the following.
Deferred Tax Assets and Liabilities1
(millions of Canadian dollars)
Deferred tax assets
Allowance for credit losses
Land, buildings, equipment, and other depreciable assets
Deferred (income) expense
Trading loans
Employee benefits
Pensions
Losses available for carry forward
Tax credits
Other
Total deferred tax assets2
Deferred tax liabilities
Securities
Intangibles
Goodwill
Total deferred tax liabilities
Net deferred tax assets
Reflected on the Consolidated Balance Sheet as follows:
Deferred tax assets
Deferred tax liabilities3
Net deferred tax assets
October 31
2015
As at
October 31
2014
$ 737
19
65
124
714
114
260
399
322
2,754
664
404
78
1,146
1,608
1,931
323
$ 1,608
$ 582
7
30
124
695
367
256
357
123
2,541
524
287
9
820
1,721
2,008
287
$ 1,721
1 Certain comparative amounts have been reclassified to conform with the presenta-
3 Included in Other liabilities on the Consolidated Balance Sheet.
tion adopted in the current period.
2 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 $21 million as at October 31, 2015 (October 31, 2014 – $18 million), of which
$11 million (October 31, 2014 – $8 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:
Deferred Income Tax Expense (Recovery)
(millions of Canadian dollars)
Consolidated
statement of
income
Other
comprehensive
income
Business
combinations
and other
2015
Total
Consolidated
statement of
income
Other
comprehensive
income
Business
combinations
and other
20141
Total
Deferred income tax expense
(recovery)
Allowance for credit losses
Land, buildings, equipment,
and other depreciable assets
Deferred (income) expense
Trading loans
Goodwill
Employee benefits
Losses available for carry forward
Tax credits
Other deferred tax assets
Securities
Intangible assets
Pensions
Total deferred income tax
$ (155)
$
–
$ –
$ (155)
$
(25)
$
–
$ –
$
(25)
(12)
(35)
–
12
(27)
(4)
(42)
(193)
(124)
117
111
–
–
–
–
8
–
–
–
264
–
142
–
–
–
57
–
–
–
(6)
–
–
–
(12)
(35)
–
69
(19)
(4)
(42)
(199)
140
117
253
(16)
13
7
2
(5)
57
3
202
(13)
(95)
(99)
–
–
–
–
(2)
–
–
–
(76)
–
(191)
–
–
–
–
–
–
–
(4)
–
–
–
(16)
13
7
2
(7)
57
3
198
(89)
(95)
(290)
expense (recovery)
$ (352)
$ 414
$ 51
$ 113
$ 31
$ (269)
$
(4)
$ (242)
1 Certain comparative amounts have been reclassified to conform with the
presentation adopted in the current year.
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, 2015. The total amount of these
temporary differences was $48 billion as at October 31, 2015
(October 31, 2014 – $37 billion).
184
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
N O T E 2 7
EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income attributable
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, 2015, October 31, 2014, and October 31, 2013,
the computation of diluted earnings per share did not include 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
2015
2014
2013
$ 7,813
1,849.2
4.22
$ 7,633
1,839.1
4.15
$ 6,350
1,837.9
3.46
7,813
7,633
6,350
–
$ 7,813
1,849.2
4.9
–
1,854.1
4.21
$
–
$ 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
$
N O T E 2 8
PROVISIONS, CONTINGENT LIABILITIES, COMMITMENTS, GUARANTEES, PLEDGED ASSETS, AND COLLATERAL
PROVISIONS
The following table summarizes the Bank’s provisions.
Provisions
(millions of Canadian dollars)
Balance as at November 1, 2014
Additions
Amounts used
Release of unused amounts
Foreign currency translation adjustments and other
Balance as of October 31, 2015, before allowance for
credit losses for off-balance sheet instruments
Add: allowance for credit losses for off-balance sheet instruments2
Balance as of October 31, 2015
1 Includes provisions for onerous lease contracts.
2 Refer to Note 8 for further details.
Litigation Restructuring1
$ 168
172
(179)
(11)
16
$ 55
733
(261)
(47)
6
Asset
retirement
obligations
$ 68
–
–
(1)
3
Other
$ 66
96
(79)
(22)
4
$ 166
$ 486
$ 70
$ 65
Total
$ 357
1,001
(519)
(81)
29
$ 787
313
$ 1,100
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, although it is possi-
ble the Bank may incur additional losses and actual losses may vary
significantly from the current estimate. The Bank believes the estimate
of the aggregate range of reasonably possible losses (i.e. those which
are neither probable nor remote), in excess of provisions, for its legal
proceedings where it is possible to make such an estimate, is from zero
to approximately $389 million as at October 31, 2015. This represents
the Bank’s best estimate based upon currently available information
for actions for which an estimate can be made. Actions for which the
Bank cannot currently make an estimate, such as those which are in
a preliminary stage or for which no specific amount is claimed, have
not been included. The Bank’s estimate involves significant judgment,
given the varying stages of the proceedings, the existence of multiple
defendants in many of such proceedings whose share of liability
has yet to be determined and the fact that the underlying matters will
change from time to time.
185
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
In management’s opinion, based on its current knowledge and after
consultation with counsel, the ultimate disposition 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 opera-
tions 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
Southern District of Florida confirmed a liquidation plan for the RRA
bankruptcy estate that includes a litigation bar order in favor of
TD Bank, N.A. (the “Bar Order”). Two civil matters, Coquina Invest-
ments v. TD Bank, N.A. et al. and Razorback Funding, LLC, et al. v.
TD Bank, N.A., et al., were exempted from the Bar Order, but both
matters are now concluded.
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.
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.
TD Bank, N.A. was subsequently named as a defendant in eleven
putative nationwide class actions challenging the overdraft practices
of TD Bank, N.A. from August 16, 2010 to the present: King, et al.
v. TD Bank, N.A f/k/a Carolina First Bank (D.S.C.); Padilla, et al.
v. TD Bank, N.A. (E.D. Pa.); Hurel v. TD Bank, N.A. and The Toronto-
Dominion Bank (D.N.J.); Koshgarian v. TD Bank, N.A. and The
Toronto-Dominion Bank (S.D.N.Y.); Goodall v. The Toronto-Dominion
Bank and TD Bank, N.A. (M.D. FL.); Klein et al. v. TD Bank, N.A.
(D.N.J.); Ucciferri v. TD Bank, N.A. (D.N.J.); and Austin v. TD Bank,
N.A. (D. Conn.); Robinson v. TD Bank, N.A. (S.D. Fla.) (“Robinson
Case No. 60469”); Robinson v. TD Bank, N.A. (S.D. Fla.) (“Robinson
Case No. 60476”); and Mingrone v. TD Bank, N.A. (E.D.N.Y.). The
King action further challenges the overdraft practices of Carolina
First Bank prior to its merger into TD Bank, N.A. in September 2010.
The Toronto-Dominion Bank was also named as a defendant in the
Hurel, Koshgarian, and Goodall actions, but was subsequently
dismissed without prejudice in Hurel. All of the actions have been
consolidated for pretrial proceedings as MDL 2613 in the United States
District Court for the District of South Carolina. The plaintiffs filed
a consolidated amended class action complaint on June 19, 2015,
which governs all of the consolidated cases other than Mingrone and
Robinson Case No. 15-60476. On July 21, 2015, the Mingrone class
action complaint was dismissed without prejudice. The Toronto-
Dominion Bank was not named as a defendant in the consolidated
amended class action complaint. TD Bank, N.A. has moved to dismiss
the consolidated amended class action complaint in part.
Gevaerts Litigation
TD Bank, N.A. was named as a defendant in Gevaerts, et al. v.
TD Bank, et al., a purported class action lawsuit in the United States
District Court for the Southern District of Florida related to an
alleged $223 million fraud scheme orchestrated by Ms. Deborah Peck,
a former customer of TD Bank, N.A., among others.
On November 5, 2015, the court approved a settlement between
TD Bank, N.A. and the plaintiffs. The claims against TD Bank, N.A.
will be dismissed with prejudice under the terms of the settlement.
Interchange Fee Class Actions
Between 2011 and 2013, seven proposed class actions were
commenced in British Columbia, Alberta, Saskatchewan, Ontario and
Québec: 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 Incorpo-
rated (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 exces-
sive fees and that certain rules (Honour All Cards, No Discrimination
and No Surcharge) have the effect of increasing the merchant fees.
The actions include claims of civil conspiracy, breach of the Competi-
tion 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. The certification decision
was appealed by both plaintiff class representatives and defendants.
The appeal hearing took place in December 2014 and the decision was
released on August 19, 2015. Both the plaintiffs and defendants
succeeded in part on their respective appeals.
Stanford Litigation
The Toronto-Dominion Bank was named as a defendant in Rotstain
v. Trustmark National Bank, et al., a putative class action lawsuit
in the United States District Court for the Northern District of Texas
related to a US$7.2 billion Ponzi scheme perpetrated by R. Allen
Stanford, the owner of Stanford International Bank, Limited (“SIBL”),
an offshore bank based in Antigua. Plaintiffs purport to represent
a class of investors in SIBL-issued certificates of deposit. The Bank
provided certain correspondent banking services to SIBL. Plaintiffs
allege that the Bank and four other banks aided and abetted or
conspired with Mr. Stanford to commit fraud and that the bank
defendants received fraudulent transfers from SIBL by collecting
fees for providing certain services.
186
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS 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
2014
2015
$ 21,046 $ 18,395
207
330
32,456
40,477
90,803
67,913
$ 152,656 $ 118,971
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, 2015, the Bank is committed to
fund $133 million (October 31, 2014 – $76 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 $917 million for 2016;
$874 million for 2017; $801 million for 2018, $718 million for 2019,
and $4,756 million for 2020 and thereafter.
Future minimum finance lease commitments where the annual
payment is in excess of $100 thousand, is estimated at $31 million
for 2016; $24 million for 2017; $12 million for 2018, $10 million
for 2019, and $29 million for 2020 and thereafter.
The premises and equipment net rental expense, included under
Non-interest expenses in the Consolidated Statement of Income, was
$1.1 billion for the year ended October 31, 2015 (October 31, 2014 –
$0.9 billion; October 31, 2013 – $1.0 billion).
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, covered bonds, obligations related
to securities sold short, and securities 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.
The Official Stanford Investors Committee, a court-approved
committee representing investors, received permission to intervene in the
lawsuit and has brought similar claims against all the bank defendants.
The court denied in part and granted in part The Toronto-Dominion
Bank’s motion to dismiss the lawsuit on April 21, 2015. The court also
entered a class certification scheduling order, requiring the parties to
conduct discovery and submit briefing regarding class certification.
The class certification motion was fully submitted on October 26, 2015.
Plaintiffs filed an amended complaint asserting certain additional state
law claims against the Bank on June 23, 2015. The Bank’s motion to
dismiss the newly amended complaint in its entirety was fully submitted
on August 18, 2015.
The Toronto-Dominion Bank is also a defendant in two cases filed
in the Ontario Superior Court of Justice: (1) Wide & Dickson v. The
Toronto-Dominion Bank, an action filed by the Joint Liquidators of SIBL
appointed by the Eastern Caribbean Supreme Court, and (2) Dynasty
Furniture Manufacturing Ltd., et al. v. The Toronto-Dominion Bank, an
action filed by five investors in certificates of deposits sold by Stanford.
The suits assert that the Bank acted negligently and provided knowing
assistance to SIBL’s fraud. The court denied the Bank’s motion for
summary judgement in the Joint Liquidators case to dismiss the action
based on the applicable statute of limitations on November 9, 2015 and
designated the limitations issues to be addressed as part of a future
trial on the merits. The parties intend to schedule a status conference
to set a timetable for proceeding with the Joint Liquidators’ case and
dealing with the Dynasty case.
RESTRUCTURING
In fiscal 2015 the Bank recorded restructuring charges of $686 million
($471 million after tax) on a net basis. During 2015 the Bank
commenced its restructuring review and in the second quarter of 2015
recorded $337 million ($228 million after tax) of restructuring charges
and recorded an additional restructuring charge of $349 million
($243 million after tax) on a net basis in the fourth quarter of 2015.
The restructuring charges incurred in fiscal 2015 were intended to
reduce costs and manage expenses in a sustainable manner and to
achieve greater operational efficiencies. These measures included
process redesign and business restructuring, retail branch and real
estate optimization, and organizational review and primarily related
to asset impairments, exiting of lease agreements, employee severance
and other personnel-related costs.
COMMITMENTS
Credit-related Arrangements
In the normal course of business, the Bank enters into various
commitments and contingent liability contracts. The primary purpose
of these contracts is to make funds available for the financing needs
of customers. 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. Refer to 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.
187
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
Credit Enhancements
The Bank guarantees payments to counterparties in the event that
third party credit enhancements supporting asset pools are insufficient.
Written Options
Written options are agreements under which the Bank grants the
buyer the future right, but not the obligation, to sell or buy at
or by a specified date, a specific amount of a financial instrument
at a price agreed when the option is arranged and which can be
physically or cash settled.
Written options can be used by the counterparty to hedge foreign
exchange, equity, credit, commodity, and interest rate risks. The Bank
does not track, for accounting purposes, whether its clients enter into
these derivative contracts for trading or hedging purposes and has not
determined if the guaranteed party has the asset or liability related to
the underlying. Accordingly, the Bank cannot ascertain which contracts
are guarantees under the definition contained in the accounting guide-
line for disclosure of guarantees. The Bank employs a risk framework
to define risk tolerances and establishes limits designed to ensure that
losses do not exceed acceptable pre-defined limits. Due to the nature
of these contracts, the Bank cannot make a reasonable estimate of the
potential maximum amount payable to the counterparties.
The total notional principal amount of the written options as at
October 31, 2015, was $101 billion (October 31, 2014 – $95 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 prevent 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
2014
2015
$ 21,046 $ 18,395
267
$ 21,253 $ 18,662
207
Details of assets pledged against liabilities and collateral assets held or
re-pledged are shown in the following table:
(millions of Canadian dollars)
Sources of pledged assets and collateral
Bank assets
Interest-bearing deposits with banks
Loans
Securities
As at
October 31 October 31
2014
2015
$
4,997 $
4,594
66,602 63,293
71,228 65,318
142,827 133,205
Third-party assets1
Collateral received and available for sale or re-pledging 150,120 131,600
(47,101)
Less: Collateral not re-pledged
99,108 84,499
241,935 217,704
(51,012)
Uses of pledged assets and collateral2
Derivatives
Obligations related to securities sold under
repurchase agreements
Securities borrowing and lending
Obligations related to securities sold short
Securitization
Covered bond
Clearing systems, payment systems, and depositories
Foreign governments and central banks
Other
Total
3,005
2,871
70,011 56,857
32,511 23,987
36,303 40,899
33,169 39,581
22,071 16,355
3,925
4,137
8,462
6,273
32,266 26,956
$ 241,935 $ 217,704
1 Includes collateral received from reverse repurchase agreements, securities borrowing,
margin loans, and other client activity.
2 Includes $34.1 billion of on-balance sheet assets that the Bank has pledged
and that the counterparty can subsequently repledge as at October 31, 2015
(October 31, 2014 – $26.8 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 experi-
ences a liquidity event such that it does not have sufficient cash to
honor unit holder redemptions. During the year ended October 31,
2015, the fair value of mortgages repurchased as a result of the
liquidity event was $29 million (October 31, 2014 – $84 million).
For further details on the Bank’s involvement with the Fund, refer
to Note 10.
188
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
N O T E 2 9
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 deci-
sions. The Bank’s related parties include key management personnel,
their close family members and their related entities, subsidiaries,
associates, joint ventures, and post-employment benefit plans for
the Bank’s employees.
TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL, THEIR
CLOSE FAMILY MEMBERS AND THEIR RELATED ENTITIES
Key management personnel are those persons having authority and
responsibility for planning, directing, and controlling the activities
of the Bank, directly or indirectly. The Bank considers certain of its
officers and directors 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 manage-
ment personnel, which are subject to approved policy guidelines that
govern all employees.
As at October 31, 2015, $340 million of loans were made to key
management personnel, their close family members and their related
entities (October 31, 2014 – $266 million).
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
2015
$ 22
3
31
$ 56
2014
$ 27
1
37
$ 65
2013
$ 25
2
32
$ 59
In addition, the Bank offers deferred share and other plans to
non-employee directors, executives, and certain other key employees.
Refer to Note 24 for further 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 Inc.
(Symcor) also qualify as related party transactions. There were no
significant transactions between the Bank, TD Ameritrade and Symcor
during the year ended October 31, 2015, other than as described in
the following sections.
Other Transactions with TD Ameritrade and Symcor
(1) TRANSACTIONS WITH TD AMERITRADE HOLDING CORPORATION
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 $1.1 billion during the year ended October 31, 2015
(October 31, 2014 – $0.9 billion; October 31, 2013 – $0.8 billion) to
TD Ameritrade for the deposit accounts. The fee paid by the Bank is
based on the average insured deposit balance of $95 billion for the
year ended October 31, 2015 (October 31, 2014 – $80 billion; October
31, 2013 – $70 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, and the balance tied to an agreed rate
of return. The Bank earns a servicing fee of 25 basis points (bps) on
the aggregate average daily balance in the sweep accounts (subject
to adjustment based on a specified formula).
As at October 31, 2015, amounts receivable from TD Ameritrade
were $79 million (October 31, 2014 – $103 million). As at October 31,
2015, amounts payable to TD Ameritrade were $140 million (October 31,
2014 – $104 million).
(2) TRANSACTIONS WITH SYMCOR
The Bank has one-third ownership in Symcor, a Canadian provider
of business process outsourcing services offering a diverse portfolio
of integrated solutions in item processing, statement processing
and production, and cash management services. The Bank accounts
for Symcor’s results using the equity method of accounting. During
the year ended October 31, 2015, the Bank paid $124 million
(October 31, 2014 – $122 million; October 31, 2013 – $128 million)
for these services. As at October 31, 2015, the amount payable to
Symcor was $10 million (October 31, 2014 – $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, 2015, and October 31, 2014.
189
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
N O T E 3 0
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.
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 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 meeting the daily trading, funding, and investment needs of our
clients. The Bank’s other activities are grouped into the Corporate
segment. The Corporate segment includes the effects of certain
asset securitization programs, treasury management, the collectively
assessed allowance for incurred but not identified credit losses in
Canadian Retail and Wholesale Banking, elimination of taxable equiva-
lent adjustments and other management reclassifications, corporate
level tax items, and residual unallocated revenue and expenses.
The results of each business segment reflect revenue, expenses
and assets generated by the businesses in that segment. Due to the
complexity of the Bank, its management reporting model uses various
estimates, assumptions, allocations and risk-based methodologies for
funds transfer pricing, inter-segment revenue, income tax rates, capi-
tal, indirect expenses and cost transfers to measure business segment
results. Transfer pricing of funds is generally applied at market rates.
Inter-segment revenue is negotiated between each business segment
and approximates the fair value of the services provided. Income tax
provision or recovery is generally applied to each segment based on
a statutory tax rate and may be adjusted for items and activities unique
to each segment. Amortization of intangibles acquired as a result of
business combinations is included in the Corporate segment. Accord-
ingly, net income for business segments is presented before amortiza-
tion of these intangibles.
Net interest income within Wholesale Banking is calculated on
a taxable equivalent basis (TEB), which means that the value of non-
taxable or tax-exempt income, including dividends, is adjusted to its
equivalent before-tax value. Using TEB allows the Bank to measure
income from all securities and loans consistently and makes for a more
meaningful comparison of net interest income with similar institutions.
The TEB adjustment reflected in Wholesale Banking is reversed in the
Corporate segment.
The Bank purchases CDS to hedge the credit risk in Wholesale Bank-
ing’s corporate lending portfolio. These CDS do not qualify for hedge
accounting treatment and are measured at fair value with changes in
fair value recognized in current period’s earnings. The related loans are
accounted for at amortized cost. Management believes that this asym-
metry 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, these CDS are
accounted for on an accrual basis in Wholesale 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 vola-
tility in earnings from period to period that is not indicative of the
economics of the underlying business performance in Wholesale Bank-
ing. 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.
190
TD BANK GROUP ANNUAL REPORT 2015 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 311
(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)
1 Certain comparative amounts have been restated, where applicable, as a result
of the implementation of the 2015 IFRS Standards and Amendments. Refer to
Note 4 for further details.
For the years ended October 31
Canadian
Retail
U.S.
Retail
Wholesale
Banking
Corporate
$ 9,781
9,904
887
2,500
8,407
7,891
1,953
–
$ 5,938
$ 7,011
2,414
749
–
6,170
2,506
394
376
$ 2,488
$ 2,295
631
18
–
1,701
1,207
334
–
$ 873
$
(363)
(247)
29
–
1,795
(2,434)
(1,158)
1
$ (1,275)
2015
Total
$ 18,724
12,702
1,683
2,500
18,073
9,170
1,523
377
$ 8,024
$ 360.1
$ 347.3
$ 343.5
$ 53.5
$ 1,104.4
$ 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)
$
2014
$ 17,584
12,377
1,557
2,833
16,496
9,075
1,512
320
$ 7,883
$ 334.6
$ 277.1
$ 317.6
$ 31.2
$ 960.5
$ 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
191
TD BANK GROUP ANNUAL REPORT 2015 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 location 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)
For the years ended October 31
As at October 31
Canada
United States
Other international
Total
Canada
United States
Other international
Total
Canada
United States
Other international
Total
Total revenue
2015
Income before
income taxes
$ 20,224
10,140
1,062
$ 31,426
$ 19,642
8,363
1,956
$ 29,961
$ 18,013
7,205
2,041
$ 27,259
$ 6,625
2,040
505
$ 9,170
2014
$ 6,314
1,579
1,182
$ 9,075
2013
$ 5,220
1,023
1,260
$ 7,503
2015
Net income
$ 5,361
1,802
861
$ 8,024
Total assets1
$ 623,061
417,186
64,126
$ 1,104,373
2014
$ 5,106
1,284
1,493
$ 7,883
$ 554,036
324,865
81,610
$ 960,511
2013
$ 4,234
864
1,542
$ 6,640
$ 518,247
262,679
81,095
$ 862,021
1 Certain comparative amounts have been restated, where applicable, as a result
of the implementation of the 2015 IFRS Standards and Amendments. Refer to
Note 4 for further details.
N O T E 3 1
INTEREST RATE RISK
The Bank earns and pays interest on certain assets and liabilities. To
the extent that the assets and liabilities 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 assets and liabilities
by the earlier of the maturity or repricing date. Contractual repricing
dates may be adjusted according to management’s estimates for
prepayments or early redemptions that are independent of changes
in interest rates. Certain assets and liabilities are shown as non-rate
sensitive although the profile assumed for actual management may
be different. Derivatives are presented in the floating rate category.
The Bank’s risk management policies and procedures relating to credit,
market, and liquidity risks as required under IFRS 7 are outlined in the
shaded sections of the “Managing Risk” section of the MD&A.
192
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
Interest Rate Risk1
(billions of Canadian dollars, except as noted)
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, 2015
Assets
Cash resources and other
Trading loans, securities, and other
Financial assets designated at fair value through profit or loss
Available-for-sale
Held-to-maturity
Securities purchased under reverse repurchase agreements
Loans
Other
Total assets
Liabilities and equity
Trading deposits
Other financial liabilities designated at fair value through profit or loss
Other deposits
Securitization liabilities at fair value
Obligations related to securities sold short
Obligations related to securities sold under repurchase agreements
Securitization liabilities at amortized cost
Subordinated notes and debentures
Other
Equity
Total liabilities and equity
Net position
$ 16.5
0.8
1.0
1.4
–
5.5
21.9
86.0
133.1
$ 28.1
5.6
0.2
6.4
1.2
63.5
227.5
–
332.5
$
0.7 $ 45.3
15.1
8.7
1.9
0.7
11.3
3.5
8.3
7.1
84.2
15.2
312.7
63.3
86.0
–
564.8
99.2
29.0
–
0.2
0.6
76.0
237.8
0.5
–
–
38.8
53.9
0.6
8.8
–
1.0
–
–
73.9
–
–
169.4
351.7
$ (218.6) $ 163.1
43.2
0.6
44.3
0.3
–
0.3
2.9
–
–
–
91.6
$
72.2
1.4
358.1
0.8
38.8
54.8
11.7
1.0
73.9
–
612.7
7.6 $ (47.9)
$
–
24.3
1.2
45.7
53.0
–
184.0
–
308.2
0.5
–
104.8
7.0
–
–
8.5
7.4
–
2.0
130.2
$ 178.0
– $
0.3 $
$
16.6
1.2
31.3
13.2
–
33.7
–
96.0
39.2
0.1
0.5
–
13.2
13.9
68.2
135.4
45.6
95.2
4.4
88.8
74.5
97.4
544.3
154.2
1,104.4
1.6
–
200.2
–
–
12.4
–
–
43.4
64.3
321.9
0.5
–
32.5
3.2
–
–
2.5
0.2
–
0.7
39.6
$ 56.4 $ (186.5) $
74.8
1.4
695.6
11.0
38.8
67.2
22.7
8.6
117.3
67.0
1,104.4
–
Total assets
Total liabilities and equity
Net position
$ 123.9
311.3
$ (187.4)
$ 278.4
142.4
$ 136.0
$ 113.4 $ 515.7
519.7
66.0
(4.0)
$ 47.4 $
$ 249.3
121.1
$ 128.2
$ 70.2 $ 125.3
285.5
34.2
$ 36.0 $ (160.2)
$ 960.5
960.5
–
$
October 31, 2014
1 Certain comparative amounts have been restated, where applicable, as a result
of the implementation of the 2015 IFRS Standards and Amendments. Refer to
Note 4 for further details.
Interest Rate Risk by Category
(billions of Canadian dollars)
Canadian currency
Foreign currency
Net position
Canadian currency
Foreign currency
Net position
Floating
rate
$ (172.3)
(46.3)
$ (218.6)
Within
3 months
$ 118.9
44.2
$ 163.1
3 months
to 1 year
$ 34.6
(27.0)
$ 7.6
$ (186.1)
(1.3)
$ (187.4)
$ 109.7
26.3
$ 136.0
$ 25.5
21.9
$ 47.4
Total
within
1 year
$ (18.8)
(29.1)
$ (47.9)
$ (50.9)
46.9
(4.0)
$
Over 1
year to
5 years
$ 113.0
65.0
$ 178.0
$ 103.2
25.0
$ 128.2
Over
5 years
$ 11.3
45.1
$ 56.4
$ 9.9
26.1
$ 36.0
As at
October 31, 2015
Non-
interest
sensitive
$ (110.6)
(75.9)
$ (186.5)
Total
$ (5.1)
5.1
–
$
October 31, 2014
$ 12.7
(12.7)
–
$
$
(49.5)
(110.7)
$ (160.2)
193
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
N O T E 3 2
CREDIT RISK
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
October 31
2014
October 31
2015
Credit instruments2,3
October 31
2014
October 31
2015
68%
31
–
–
1
100%
72%
27
–
–
1
100%
40%
55
1
3
1
100%
48%
48
1
2
1
100%
$ 561
$ 492
$ 153
$ 119
As at
Derivative financial
instruments4,5
October 31
2014
October 31
2015
35%
25
16
18
6
100%
$ 63
34%
23
18
18
7
100%
$ 53
1 Of the total loans and customers’ liability under acceptances, the only industry
4 As at October 31, 2015, the current replacement cost of derivative financial instru-
segment which equalled or exceeded 5% of the total concentration as at
October 31, 2015, was: real estate 9% (October 31, 2014 – 9%).
2 As at October 31, 2015, the Bank had commitments and contingent liability
contracts in the amount of $153 billion (October 31, 2014 – $119 billion). Included
are commitments to extend credit totalling $131 billion (October 31, 2014 –
$100 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, 2015:
financial institutions 17% (October 31, 2014 – 17%); pipelines, oil and gas 10%
(October 31, 2014 – 9%); power and utilities 9% (October 31, 2014 – 9%); food,
beverage and tobacco 7% (October 31, 2014 – 3%); sundry manufacturing and
wholesale 7% (October 31, 2014 – 7%); government, public sector entities, and
education 6% (October 31, 2014 – 8%); automotive 6% (October 31, 2014 – 6%);
professional and other services 6% (October 31, 2014 – 5%).
ments amounted to $63 billion (October 31, 2014 – $53 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 74% of the
total as at October 31, 2015 (October 31, 2014 – 85%). The second largest
concentration was with governments, which accounted for 19% of the total
as at October 31, 2015 (October 31, 2014 – 11%). No other industry segment
exceeded 5% of the total.
6 Debt securities classified as loans were less than 1% as at October 31, 2015
(October 31, 2014 – 1%), of the total loans and customers’ liability
under acceptances.
194
TD BANK GROUP ANNUAL REPORT 2015 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 Exposure1
(millions of Canadian dollars)
Cash and due from banks
Interest-bearing deposits with banks
Securities2
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
Derivatives3
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 instruments4
Unconditionally cancellable commitments to extend credit
relating to personal lines of credit and credit card lines
Total credit exposure
October 31
2015
As at
October 31
2014
$
1,776
42,483
$
1,639
43,773
39,136
10,165
38
59,916
26,443
43,667
30,783
97,364
107,120
212,245
134,693
29,101
166,379
1,923
16,646
21,996
4,199
1,046,073
152,656
30,899
9,019
48
31,707
28,724
34,119
22,858
82,556
93,863
198,815
122,714
24,570
130,387
2,423
13,080
17,130
3,542
891,866
118,971
239,839
$ 1,438,568
197,829
$ 1,208,666
1 Certain comparative amounts have been restated, where applicable, as a result of
the implementation of the 2015 IFRS Standards and Amendments. Refer to Note 4
for further details.
2 Excludes equity securities.
3 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. Refer to Note 11 for further details.
4 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. Refer to Note 28
for further details.
195
TD BANK GROUP ANNUAL REPORT 2015 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 Stan-
dardized Approach to credit risk. Under the Standardized Approach,
assets receive an OSFI-prescribed risk-weight based on factors including
counterparty type, product type, collateral, and external credit assess-
ments. These assets relate primarily to the Bank’s U.S. 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 and on the
Bank’s risk ratings.
Financial Assets Subject to the Standardized Approach by Risk-Weights
(millions of Canadian dollars)
As at
October 31, 2015
0%
20%
35%
50%
75%2
100%3
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
$
– $
847
–
11,279
–
12,126
317
–
5,190
134
– $ 24,010
5,154
–
–
–
5,641 29,164
–
1,646 41,994
–
–
527
–
–
–
–
12,710
–
26,482 48,162 29,164
–
$ 26,864 $ 50,678 $ 29,164
2,516
382
$
– $
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
–
$ – $ 2,901 $
– 32,302
– 21,258
–
–
–
– 60,352
–
–
386 $
79
–
3,891 73,087
7
73,559
–
4 $ 27,301
294 38,993
180 21,438
717 94,164
141
1,195 182,037
– 43,640
–
–
–
–
–
1
–
1 60,352
461
–
–
–
–
2
– 13,238
1,195 238,917
– 29,135
$ 1 $ 60,813 $ 99,337 $ 1,195 $ 268,052
–
2
–
73,561
25,776
October 31, 2014
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
–
–
–
–
–
1
–
1 49,172
301
–
–
2
9,554
1,230 184,752
– 22,398
$ 1 $ 49,473 $ 75,009 $ 1,230 $ 207,150
–
2
–
54,623
20,386
–
–
–
1 Other assets include amounts due from banks and interest-bearing deposits
with banks.
2 Based on the Bank’s internal risk ratings, 70% of retail exposures are rated ‘low
risk’ or ‘normal risk’ and 30% are rated ‘high risk’ or ‘default’ as at October 31,
2015 (October 31, 2014 – 68% and 32%, respectively).
3 Based on the Bank’s internal risk ratings, 38% of non-retail exposures are rated
‘investment grade’ and 62% are rated ‘non-investment grade’ as at October 31,
2015 (October 31, 2014 – 33% and 67%, respectively).
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. The non-retail and retail asset risk rating classifications
subject to the AIRB Approach reflect whether the exposure is subject
to a guarantee, which would result in the exposure being classified
based on the internal risk rating of the guarantor. The following risk
ratings may not directly correlate with the ‘Neither past due nor
impaired’, ‘Past due but not impaired’ and ‘Impaired’ status disclosed
in Note 8 – Loans, Impaired Loans and Allowance for Credit Losses,
because of the aforementioned risk transference guarantees, and
certain loan exposures that remain subject to the Standardized
Approach. 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.
196
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
Non-Retail Financial Assets Subject to the AIRB Approach by Risk Rating1
(millions of Canadian dollars)
As at
October 31, 2015
Investment
grade
Non-
investment
grade
Watch and
classified
Impaired/
defaulted
Loans
Residential mortgages2
Consumer instalment and other personal2
Business and government
Debt securities classified as loans
Total loans
Held-to-maturity
Securities purchased under reverse repurchase agreements
Customers’ liability under acceptances
Other assets3
Total assets
Off-balance sheet credit instruments
Total
Loans
Residential mortgages2
Consumer instalment and other personal2
Business and government
Debt securities classified as loans
Total loans
Held-to-maturity
Securities purchased under reverse repurchase agreements
Customers’ liability under acceptances
Other assets3
Total assets
Off-balance sheet credit instruments
Total
$ 98,583
21,392
32,933
1,356
154,264
30,810
86,801
9,039
29,617
310,531
71,725
$ 382,256
$ 108,027
22,888
27,973
1,686
160,574
22,105
73,730
6,911
34,698
298,018
59,661
$ 357,679
$
–
30
32,194
163
32,387
–
10,563
7,326
160
50,436
10,300
$ 60,736
$
–
31
28,288
148
28,467
–
8,826
6,067
50
43,410
8,047
$ 51,457
$
–
–
1,054
113
1,167
–
–
273
–
1,440
340
$ 1,780
$
–
–
664
112
776
–
–
100
–
876
97
$ 973
Total
$ 98,583
21,422
66,342
1,839
188,186
30,810
97,364
16,644
29,777
362,781
82,384
$ 445,165
$
–
–
161
207
368
–
–
6
–
374
19
$ 393
October 31, 2014
$
–
–
162
213
375
–
–
–
–
375
7
$ 382
$ 108,027
22,919
57,087
2,159
190,192
22,105
82,556
13,078
34,748
342,679
67,812
$ 410,491
1 Certain comparative amounts have been restated, where applicable, as a result of
the implementation of the 2015 IFRS Standards and Amendments. Refer to Note 4
for further details.
2 Includes CMHC insured exposures classified as sovereign exposure under Basel III
and therefore included in the non-retail category under the AIRB Approach.
3 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, 2015
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
$ 43,920
31,290
2,564
545
78,319
–
58,822
$ 137,141
$ 36,169
28,953
2,398
3,193
70,713
–
12,571
$ 83,284
$ 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
$ 4,684
10,322
2,354
2,232
19,592
–
3,379
$ 22,971
$ 4,876
10,254
2,286
2,179
19,595
–
3,088
$ 22,683
$ 1,572
4,223
1,407
999
8,201
–
916
$ 9,117
$ 1,518
4,006
1,411
1,085
8,020
–
835
$ 8,855
$ 144
268
54
54
520
–
4
$ 524
$ 86,489
75,056
8,777
7,023
177,345
–
75,692
$ 253,037
October 31, 2014
$ 167
269
50
67
553
–
4
$ 557
$ 67,163
68,793
8,402
6,841
151,199
–
69,906
$ 221,105
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.
197
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
N O T E 3 3
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, consistent with preserving the appropriate mix of capital
elements to meet targeted capitalization levels.
• To ensure ready access to sources of appropriate capital, at reasonable
cost, in order to:
– insulate the Bank from unexpected events; or
– 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 overall objective of providing a satisfactory return on share-
holders’ equity.
Basel III Capital Framework
Capital requirements of the Basel Committee on Banking and Supervi-
sion (BCBS) are commonly referred to as Basel III. Under Basel III, total
capital consists of three components, namely Common Equity Tier 1
(CET1), Additional Tier 1, and Tier 2 Capital. The sum of the first two
components is defined as Tier 1 Capital. CET1 Capital is mainly
comprised of common shares, retained earnings, and accumulated
other comprehensive income. CET1 Capital is the highest quality
capital and the predominant form of Tier 1 Capital. It also includes
regulatory adjustments and deductions for items such as goodwill,
other intangibles, and amounts by which capital items (that is, signifi-
cant investments in CET1 Capital of financial institutions, mortgage
servicing rights, and deferred tax assets from temporary differences)
exceed allowable thresholds. Additional Tier 1 Capital primarily consists
of preferred shares. Tier 2 Capital is mainly comprised of subordinated
debt and certain loan loss allowances. Regulatory capital ratios are
calculated by dividing CET1, Tier 1, and Total Capital by risk-weighted
assets (RWA).
Basel III introduced a non-risk sensitive leverage ratio to act as a
supplementary measure to the risk-based capital requirements. The
objective of the leverage ratio is to constrain the build-up of excessive
leverage in the banking sector. The leverage ratio replaced OSFI’s asset
to capital multiple (ACM) effective January 1, 2015. The leverage ratio
is calculated as per OSFI’s Leverage Requirements guideline. The key
components in the calculation of the ratio include, but are not limited
to, Tier 1 Capital, on-balance sheet assets with adjustments made to
derivative and securities financing transaction exposures, and credit
equivalent amounts of off-balance sheet exposures.
198
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 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 U.S. Retail Bank.
For accounting purposes, IFRS is followed for consolidation of
subsidiaries and joint ventures. For regulatory capital purposes, insur-
ance subsidiaries are deconsolidated and reported as a deduction from
capital. Insurance subsidiaries are subject to their own capital adequacy
reporting, such as OSFI’s Minimum Continuing Capital Surplus Require-
ments and Minimum Capital Test. Currently, for regulatory capital
purposes, all the entities of the Bank are either consolidated or
deducted from capital and there are no entities from which surplus
capital is recognized.
Some of the Bank’s subsidiaries are individually regulated by either
OSFI or other regulators. Many of these entities have minimum capital
requirements which they must maintain and which may limit the
Bank’s ability to extract capital or funds for other uses.
During the year ended October 31, 2015, the Bank complied with
the OSFI guideline related to capital ratios and the leverage ratio. This
guideline is based on “A global regulatory framework for more resilient
banks and banking systems” (Basel III) issued by the BCBS. OSFI’s target
CET1, Tier 1 and Total Capital ratios for Canadian banks are 7%, 8.5%
and 10.5%, respectively. For the year ended October 31, 2015, the
scalars are 64%, 71%, and 77% respectively.
The following table summarizes the Bank’s regulatory capital position
as at October 31:
Regulatory Capital Position
(millions of Canadian dollars, except as noted)
As at
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
Leverage ratio6
Assets-to-capital multiple7
2015
October 31 October 31
20141
$ 37,958 $ 30,965
9.9%
9.4%
$ 43,416 $ 35,999
10.9%
11.3%
$ 53,600 $ 44,255
14.0%
3.7
n/a
13.4%
n/a
19.1
1 The amounts have not been adjusted to reflect the impact of the 2015 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 the third quarter of 2014, each capital ratio has its own RWA measure
due to the OSFI prescribed scalar for inclusion of the CVA. For the third and fourth
quarter of 2014, the scalars for inclusion of CVA for CET1, Tier 1, and Total Capital
RWA are 57%, 65%, and 77% respectively. For the year ended October 31, 2015,
the scalars are 64%, 71%, 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 leverage ratio is calculated as Tier 1 Capital divided by leverage exposure,
as defined.
7 The ACM is calculated as total assets plus off-balance sheet credit instruments,
such as certain letters of credit and guarantees, less investments in associated
corporations, goodwill and net intangibles, divided by Total Capital.
OSFI has provided IFRS transitional provisions for the leverage ratio
(as previously with the ACM), which allows for the exclusion of assets
securitized and sold through CMHC-sponsored programs prior to
March 31, 2010 from the calculation.
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
N O T E 3 4
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 market and liquidity risks are an integral part
of the 2015 Consolidated Financial Statements.
N O T E 3 5
INFORMATION ON SUBSIDIARIES
The following is a list of the directly or indirectly held
significant subsidiaries.
Significant Subsidiaries1
(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 Group US Holdings LLC
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 Investment Services Inc.
TD Life Insurance Company
TD Mortgage Corporation
TD Pacific Mortgage Corporation
The Canada Trust Company
TD Securities Inc.
TD Vermillion Holdings ULC
TD Financial International Ltd.
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.
Address of Head
or Principal Office2
Montréal, Québec
Montréal, Québec
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Oakville, Ontario
Toronto, Ontario
Toronto, Ontario
Wilmington, Delaware
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
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Vancouver, British Columbia
Toronto, Ontario
Toronto, Ontario
Calgary, Alberta
Hamilton, Bermuda
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
As at October 31, 2015
Description
Holding Company providing management
Carrying value of shares
owned by the Bank
services to subsidiaries
$ 1,628
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
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
Mutual Fund Dealer
Insurance Company
Loans and Deposits Entity
Deposit Taking Entity
Trust, Loans and Deposits Entity
Investment Dealer and Broker
Holding Company
Holding 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
595
1,757
1,321
8
45
145
40,310
25
59
11,632
1,728
19,696
2,056
12
2,408
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.
199
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
Significant Subsidiaries (continued)1
(millions of Canadian dollars)
International
TD Bank International S.A.
TD Bank N.V.
TD Ireland
TD Global Finance
TD Luxembourg International Holdings
TD Ameritrade Holding Corporation3
TD Wealth Holdings (UK) Limited
TD Direct Investing (Europe) Limited
Thirdco II Limited
TD Asset Administration UK 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
Luxembourg, Luxembourg
Amsterdam, The Netherlands
Dublin, Ireland
Dublin, Ireland
Luxembourg, Luxembourg
Omaha, Nebraska
Leeds, England
Leeds, England
Leeds, England
Leeds, England
Sydney, Australia
London, England
London, England
London, England
London, England
Singapore, Singapore
Description
International Direct Brokerage
Dutch Bank
Holding Company
Securities Dealer
Holding Company
Securities Dealer
Holding Company
Direct Broker
Investment Holding Company
Foreign Securities Dealer
Securities Dealer
Holding Company
UK Bank
Holding Company
Securities Dealer
Merchant Bank
As at October 31, 2015
Carrying value of shares
owned by the Bank
49
$
678
1,051
6,683
219
133
215
1,242
1,170
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 As at October 31, 2015, the Bank’s reported indirect investment in TD Ameritrade
Holding Corporation was 41.54% (October 31, 2014 – 40.97%) of the outstanding
shares of TD Ameritrade Holding Corporation. 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.
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, 2015, the net assets of subsidiaries subject to regu-
latory or capital adequacy requirements was $66.2 billion (October 31,
2014 – $48.5 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 and Note 28.
Aside from non-controlling interests disclosed in Note 21, there
were no significant restrictions 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 6
SUBSEQUENT EVENT
Normal Course Issuer Bid
As approved by the Board on December 2, 2015, the Bank announced
its intention to initiate a normal course issuer bid for up to 9.5 million
of its common shares, commencing as early as December, 2015, subject
to the approval of OSFI and the Toronto Stock Exchange (TSX). The
timing and amount of any purchases under the program are subject to
regulatory approvals and to management discretion based on factors
such as market conditions and capital adequacy.
200
TD BANK GROUP ANNUAL REPORT 2015 FINANCIAL RESULTS
Ten-year Statistical Review – IFRS1,2
Condensed Consolidated Balance Sheet
(millions of Canadian dollars)
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 interests 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
$
45,637
188,317
69,438
74,450
97,364
544,341
84,826
1,104,373
74,759
57,218
695,576
201,155
8,637
1,037,345
20,294
2,700
(52)
214
32,053
10,209
65,418
1,610
67,028
$ 1,104,373
2015
18,724
12,702
31,426
1,683
2,500
18,073
9,170
1,523
377
8,024
99
$
2015
18,724
12,713
31,437
1,683
2,500
17,076
10,178
1,862
438
8,754
99
2015
2014
2013
2012
2011
$ 46,554
168,926
55,796
56,977
82,556
478,909
70,793
960,511
59,334
51,209
600,716
185,236
7,785
904,280
19,811
2,200
(55)
205
27,585
4,936
54,682
1,549
56,231
$ 960,511
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
$ 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
$ 862,021
$ 811,053
$ 735,493
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
7,503
1,135
272
6,640
185
7,311
1,085
234
6,460
196
2011
$ 13,661
10,179
23,840
1,490
2,178
13,047
7,125
1,326
246
6,045
180
7,925
$
7,740
$
6,455
$
6,264
$
5,865
112
7,813
$
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
$
$
8,655
$
7,984
$
6,951
$
6,868
$
6,252
112
8,543
$
107
7,877
$
105
6,846
$
104
6,764
$
104
6,148
1 The Bank prepares its Consolidated Financial Statements in accordance with
IFRS, as issued by the IASB, the current 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, please refer to the “How the Bank
Reports” in the 2015 MD&A.
2 Certain comparative amounts have been restated, where applicable, as a result of
the implementation of the 2015 IFRS Standards and Amendments, and the impact
of the January 31, 2014 stock dividend, as discussed in Note 4 and Note 21,
respectively, of the 2015 Consolidated 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 5 TEN -YEA R S TATISTI CAL REV IEW 201
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
Restructuring charges
Charge related to the acquisition of Nordstrom’s credit card
portfolio and related integration costs
Litigation and litigation-related charge/reserve
Fair value of derivatives hedging the reclassified
available-for-sale securities portfolio
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
Impact of Alberta flood on the loan portfolio
Gain on sale of TD Waterhouse Institutional Services
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
2015
2014
2013
2012
2011
$
7,813
$
7,633
$
6,350
$
6,160
$
5,761
255
471
51
8
(55)
–
–
–
–
–
–
–
–
–
–
246
–
–
–
(43)
125
131
(19)
(196)
–
–
–
–
–
–
232
90
–
100
(57)
92
20
19
–
–
–
–
–
–
–
496
238
–
–
248
89
104
–
–
–
37
17
(120)
(18)
9
–
604
391
–
–
–
(128)
–
–
–
–
–
55
–
–
82
(13)
387
Total adjustments for items of note
730
244
Net income available to common shareholders – adjusted
$
8,543
$
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
2015
$
20,294
2,700
(52)
214
32,053
10,209
$
65,418
1,610
2014
$ 19,811
2,200
(55)
205
27,585
4,936
$ 54,682
1,549
2013
$ 19,316
3,395
(147)
170
23,982
2012
$ 18,691
3,395
(167)
196
20,868
3,159
3,645
$ 49,875
$ 46,628
1,508
1,477
2011
$ 17,491
3,395
(116)
212
18,213
3,326
$ 42,521
1,483
Total equity
$
67,028
$ 56,231
$ 51,383
$ 48,105
$ 44,004
1 The Bank prepares its Consolidated Financial Statements in accordance with
IFRS, as issued by the IASB, the current 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, please refer to the “How the Bank
Reports” in the 2015 MD&A.
2 Certain comparative amounts have been restated, where applicable, as a result
of the implementation of the 2015 IFRS Standards and Amendments, and the
impact of the January 31, 2014 stock dividend, as discussed in Note 4 and Note 21,
respectively, of the 2015 Consolidated Financial Statements, and restatements to
conform with the presentation adopted in the current period.
202
TD BANK GROU P AN NUAL REPO RT 20 15 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 as a % of average earning assets2
13 Common dividend payout ratio
14 Dividend yield6
15 Price earnings ratio7
Asset quality
16
Impaired loans net of counterparty-specific and individually
Capital ratios
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 ratio5,10
20 Tier 1 capital ratio4,5
21 Total capital ratio4,5
22 Common equity to total assets2
23 Number of common shares outstanding (millions)
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
Performance ratios
3 Return on common equity
4 Return on Common Equity Tier 1 Capital risk-weighted assets4,5
5 Efficiency ratio
6 Common dividend payout ratio
7 Price-earnings ratio7
$
2015
4.22
4.21
2.00
33.81
53.68
1.59
(3.2)%
0.4
13.4%
2.20
57.5
2.05
47.4
3.8
12.8
0.48%
4.24
0.34
9.9%
11.3
14.0
2014
4.15
4.14
1.84
28.45
55.47
1.95
16.0%
20.1
15.4%
2.45
55.1
2.18
44.3
3.5
13.4
0.46%
4.28
0.34
9.4%
10.9
13.4
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
0.50%
4.83
0.38
9.0%
11.0
14.2
$
2012
3.40
3.38
1.45
23.60
40.62
1.72
2011
$
3.25
3.21
1.31
21.72
37.62
1.73
8.0%
11.9
15.0%
2.58
54.9
2.23
42.5
3.8
12.0
0.52%
4.86
0.43
n/a%
12.6
15.7
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
5.7
1,855.1
$ 99,584
81,483
2,514
108
5,171
5.5
1,844.6
$ 102,322
81,137
2,534
111
4,833
5.4
1,835.0
$ 87,748
78,748
2,547
110
4,734
5.3
1,832.3
$ 74,417
78,397
2,535
112
4,739
5.3
1,802.0
$ 67,782
75,631
2,483
108
4,650
$
$
2015
4.62
4.61
14.7%
2.40
54.3
43.3
11.7
2014
4.28
4.27
15.9%
2.53
53.4
43.0
13.0
$
2013
3.72
3.71
$
2012
3.73
3.71
$
2011
3.47
3.43
15.3%
2.50
52.9
43.5
12.9
16.5%
2.83
51.3
38.7
11.0
17.3%
2.95
52.2
37.7
11.0
1 The Bank prepares its Consolidated Financial Statements in accordance with IFRS,
as issued by the IASB, the current GAAP, and refers to results prepared in accor-
dance 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
2015 MD&A.
2 Certain comparative amounts have been restated, where applicable, as a result
of the implementation of the 2015 IFRS Standards and Amendments, and the
impact of the January 31, 2014 stock dividend, as discussed in Note 4 and Note
21, respectively, of the 2015 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 fiscal 2013, amounts are calculated in accordance with the Basel III regu-
latory framework, and are presented based on the “all-in” methodology. Prior to
fiscal 2013, amounts were calculated in accordance with the Basel II regulatory
framework. Prior to 2012, amounts were calculated based on Canadian GAAP.
5 Effective fiscal 2014, the 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. For fiscal 2015, the scalars are 64%, 71%, and 77% respectively.
6 Yield is calculated as dividends paid during the year divided by average of high
and low common share prices for the year.
7 The price-earnings ratio is computed using diluted net income per common share
over the trailing 4 quarters.
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 2015 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 2015 MD&A.
10 Effective fiscal 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 fiscal 2013 are not applicable (n/a).
11 In fiscal 2014, the Bank conformed to a standardized definition of full-time equiv-
alent 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 fiscal 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 5 TEN -YEA R S TATISTI CAL REV IEW 203
Ten-year Statistical Review – Canadian GAAP1
Condensed Consolidated Balance Sheet
(millions of Canadian dollars)
ASSETS
Cash resources and other
Securities
Securities purchased under reverse repurchase agreements
Loans, net of allowance for loan losses
Other
Total assets
LIABILITIES
Deposits
Other
Subordinated notes and debentures
Liabilities for preferred shares and capital trust securities
Non-controlling interests in subsidiaries
EQUITY
Common shares
Preferred shares
Treasury shares2
Contributed surplus
Retained earnings
Accumulated other comprehensive income (loss)
2011
2010
2009
2008
2007
2006
$ 24,111
192,538
53,599
303,495
112,617
$ 21,710
171,612
50,658
269,853
105,712
$ 21,517
148,823
32,948
253,128
100,803
$ 17,946
144,125
42,425
219,624
139,094
$ 16,536
123,036
27,648
175,915
78,989
$ 10,782
124,458
30,961
160,608
66,105
686,360
619,545
557,219
563,214
422,124
392,914
481,114
145,209
11,670
32
1,483
429,971
132,691
12,506
582
1,493
391,034
112,078
12,383
1,445
1,559
375,694
140,406
12,436
1,444
1,560
276,393
112,905
9,449
1,449
524
260,907
101,242
6,900
1,794
2,439
639,508
577,243
518,499
531,540
400,720
373,282
18,417
3,395
(116)
281
24,339
536
46,852
16,730
3,395
(92)
305
20,959
1,005
42,302
15,357
3,395
(15)
336
18,632
1,015
38,720
13,278
1,875
(79)
392
17,857
(1,649)
31,674
6,577
425
–
119
15,954
(1,671)
6,334
425
–
66
13,725
(918)
21,404
19,632
Total liabilities and shareholders’ equity
$ 686,360
$ 619,545
$ 557,219
$ 563,214
$ 422,124
$ 392,914
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
2011
2010
2009
2008
2007
2006
$ 12,831
8,763
$ 11,543
8,022
$ 11,326
6,534
$
8,532
6,137
$
6,924
7,357
21,594
–
1,465
13,083
7,046
1,299
104
246
5,889
180
19,565
–
1,625
12,163
17,860
–
2,480
12,211
5,777
1,262
106
235
4,644
194
3,169
241
111
303
3,120
167
14,669
–
1,063
9,502
4,104
537
43
309
3,833
59
14,281
–
645
8,975
4,661
853
95
284
3,997
20
$
6,371
6,821
13,192
1,559
409
8,815
5,527
874
184
134
4,603
22
Net income available to common shareholders
$
5,709
$
4,450
$
2,953
$
3,774
$
3,977
$
4,581
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
2011
2010
2009
2008
$ 12,831
8,587
$ 11,543
8,020
$ 11,326
7,294
$
8,532
5,840
$
21,418
1,465
12,395
19,563
1,685
11,464
18,620
2,225
11,016
14,372
1,046
9,291
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
7,558
1,508
104
305
6,251
180
6,414
1,387
106
307
5,228
194
5,379
923
111
371
4,716
167
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
Net income available to common shareholders
$
6,071
$
5,034
$
4,549
$
3,754
$
4,169
$
3,354
1 Results prepared in accordance with Canadian GAAP were referred to as
2 Effective fiscal 2008, treasury shares have been reclassified from common and
“reported”. Adjusted results (excluding “items of note”, net of income taxes,
from reported results) and related terms were not defined terms under Canadian
GAAP and therefore, may not be comparable to similar terms used by other
issuers. For further explanation, refer to the “How the Bank Reports” section of
the 2015 MD&A. Adjusted results are presented from fiscal 2006 to allow for
sufficient years for historical comparison. See the following page for a reconcilia-
tion with reported results.
preferred shares and are shown separately. Prior to fiscal 2008, the amounts for
treasury shares were not reasonably determinable.
204204
TD BANK GROU P AN NUAL REPO RT 20 15 TEN- YEAR S TATIS TICAL RE VIEW
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
Initial set up of specific allowance for credit card and overdraft loans
Total adjustments for items of note
2011
2010
2009
2008
2007
2006
$ 5,709
$ 4,450
$ 2,953
$ 3,774
$ 3,977
$ 4,581
426
–
(134)
–
–
69
(13)
14
–
–
–
–
–
–
–
–
–
–
–
362
467
–
(5)
–
–
69
4
–
(11)
(17)
(44)
121
–
–
–
–
–
–
–
584
492
–
450
–
–
276
126
–
–
–
178
–
39
35
–
–
–
–
–
1,596
404
(323)
(118)
–
–
70
(107)
–
34
20
–
–
–
–
–
–
–
–
–
(20)
353
–
–
(135)
43
–
(30)
–
–
–
(39)
–
–
–
–
–
–
–
–
192
316
–
–
–
–
–
(7)
–
24
–
(39)
–
–
–
(1,665)
72
19
35
18
(1,227)
$ 3,354
Net income available to common shareholders – adjusted
$ 6,071
$ 5,034
$ 4,549
$ 3,754
$ 4,169
Condensed Consolidated Statement of Changes in Shareholders’ Equity
(millions of Canadian dollars)
2011
2010
2009
2008
2007
2006
Common shares
Preferred shares
Treasury shares2
Contributed surplus
Retained earnings
Accumulated other comprehensive income (loss)
$ 18,417
3,395
(116)
281
24,339
536
$ 16,730
3,395
(92)
305
20,959
1,005
$ 15,357
3,395
(15)
336
18,632
1,015
$ 13,278
1,875
(79)
392
17,857
(1,649)
$ 6,577
425
–
119
15,954
(1,671)
$ 6,334
425
–
66
13,725
(918)
Total shareholders’ equity
$ 46,852
$ 42,302
$ 38,720
$ 31,674
$ 21,404
$ 19,632
1 For fiscal 2006, the impact of future tax decreases of $24 million on adjusted
2 Effective fiscal 2008, treasury shares have been reclassified from common and
earnings is included in other tax items.
preferred shares and are shown separately. Prior to fiscal 2008, the amounts for
treasury shares were not reasonably determinable.
TD BANK GROUP ANNUAL REP O RT 20 1 5 TEN -YEA R S TATISTI CAL REV IEW 205205
Ten-year Statistical Review – Canadian GAAP
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’ investment1
Performance ratios 9 Return on common equity
10 Return risk-weighted assets
11 Efficiency ratio2
12 Net interest margin
13 Common dividend payout ratio
14 Dividend yield3
15 Price earnings ratio4
Asset quality
16
Impaired loans net of specific allowance
as a % of net loans5,6
17 Net impaired loans as a % of
common equity5,6
18 Provision for credit losses as a % of
net average loans5,6
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 staff7
25 Number of retail outlets8
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 common equity
4 Return on risk-weighted assets
5 Efficiency ratio2
6 Common dividend payout ratio
7 Price-earnings ratio4
$
$
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
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
$
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
$
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
$
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
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
0.59%
0.65%
0.62%
0.35%
0.20%
0.16%
4.07
4.41
4.41
2.70
1.74
1.41
0.48
13.0%
16.0
6.3
0.63
12.2%
15.5
6.3
0.92
11.3%
14.9
6.3
0.50
9.8%
12.0
5.3
0.37
10.3%
13.0
5.0
0.25
12.0%
13.1
4.9
1,802.0
1,757.0
1,717.6
1,620.2
1,435.6
1,434.8
$ 67,782
75,631
2,483
108
4,650
$ 64,526
68,725
2,449
105
4,550
$ 52,972
65,930
2,205
190
4,197
$ 46,112
58,792
2,238
249
4,147
$ 51,216
51,163
1,733
211
3,344
$
2011
3.43
3.41
15.4%
2.95
57.9
38.1
11.0
$
2010
2.91
2.89
13.7%
2.63
58.6
42.1
12.7
$
2009
2.69
2.68
12.9%
2.27
59.2
45.6
11.6
$
2008
2.46
2.44
14.3%
2.18
64.6
49.3
11.6
$
2007
2.90
2.88
20.3%
2.80
59.6
36.4
12.4
$ 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 Return is calculated based on share price movement and reinvested dividends over
the trailing twelve-month period.
2 The efficiency ratios under Canadian GAAP for the fiscal years 2011 and prior are
based on the presentation of Insurance revenues being reported net of claims and
expenses.
3 Yield is calculated as dividends paid during the year divided by average of high and
low common share prices for the year.
4 The price earnings ratio is computed using diluted net income per common share.
5 Includes customers’ liability under acceptances.
6 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 2015 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 2015 MD&A.
7 Reflects the number of employees on an average full-time equivalent basis.
8 Includes retail bank outlets, private client centre branches, and estate and
trust branches.
206206
TD BANK GROU P AN NUAL REPO RT 20 15 TEN- YEAR S TATIS TICAL RE VIEW
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 counterparty-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 underwriting 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 (AUA): Assets that are beneficially
owned by customers where the Bank provides services of an adminis-
trative 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 (AUM): 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, corpora-
tions, institutions, endowments and foundations. These assets are
not reported on the Bank’s Consolidated Balance Sheet.
Asset-backed Commercial Paper (ABCP): A form of commercial
paper that is collateralized by other financial assets. Institutional inves-
tors usually purchase such instruments in order to diversify their assets
and generate short-term gains.
Asset-backed Securities (ABS): A security whose value and income
payments are derived from and collateralized (or “backed”) by a speci-
fied 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 Consolidated Balance Sheet.
Collateralized Mortgage Obligation (CMO): They are collateralized
debt obligations consisting of mortgage-backed securities that are
separated and issued as different classes of mortgage pass-through
securities with different terms, interest rates, and risks. CMOs
by private issuers are collectively referred to as non-agency CMOs.
Common Equity Tier 1 (CET1) Capital: This is a primary Basel III
capital measure comprised mainly of common equity, retained earn-
ings 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.
Compound Annual Growth Rate (CAGR): A measure of growth over
multiple time periods from the initial investment value to the ending
investment value assuming that the investment has been compounding
over the time period.
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 port-
folios. 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 (EIR): 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 incremental costs that are directly
attributable to the instrument and all other premiums or discounts.
Effective Interest Rate Method (EIRM): A technique for calculating
the actual interest rate in a period based on the amount of a financial
instrument’s book value at the beginning of the accounting period.
Under EIRM, the effective interest rate, which is a key component of the
calculation, discounts the expected future cash inflows and outflows
expected over the life of a financial instrument.
Efficiency Ratio: Non-interest expenses as a percentage of total
revenue; the efficiency ratio measures the efficiency of the
Bank’s operations.
Enhanced Disclosure Task Force (EDTF): Established by the Financial
Stability Board in May 2012 with the goal of improving the risk disclo-
sures of the banks and other financial institutions.
Exposure at Default (EAD): It is the total amount the Bank expects
to be exposed to at the time of default.
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.
Federal Deposit Insurance Corporation (FDIC): A U.S. government
corporation which provides deposit insurance guaranteeing the safety
of a depositor’s accounts in member banks. The FDIC also examines
and supervises certain financial institutions for safety and soundness,
performs certain consumer-protection functions, and manages banks
in receiverships (failed banks).
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.
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.
TD BANK GROUP ANNUAL RE POR T 2 015 GLOSSAR Y
207207
GLOSSARY (continued)
Loss Given Default (LGD): It 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.
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.
Mark-to-Market (MTM): 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.
Non-Viability Contingent Capital (NVCC): Instruments (preferred
shares and subordinated debt) that contain a feature or a provision
that allows the financial institution to either permanently convert these
instruments into common shares or fully write-down the instrument,
in the event that the institution is no longer viable.
Notional: A reference amount on which payments for derivative finan-
cial instruments are based.
Office of the Superintendent of Financial Institutions Canada
(OSFI): The regulator of Canadian federally chartered financial institu-
tions and federally administered 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.
Probability of Default (PD): It is the likelihood that a borrower will
not be able to meet its scheduled repayments.
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 (ROE): 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 accom-
plish a narrow and well-defined objective. SPEs may take the form
of a corporation, trust, partnership, 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 revenues 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 port-
folio over a specified period of time.
208
TD BANK GROU P AN NUAL REPO RT 20 15 GLOSSA RY
2015 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
Ten-Year Statistical Review
Glossary
Shareholder and Investor Information
1
2
4
5
6
10
112
120
201
207
209
web page image
to come
web page image
to come
For more information, including a video
message from Bharat Masrani, see the
interactive TD Annual Report online by
visiting td.com/annual-report/ar2015
For information on TD’s commitments
to the community see the TD Corporate
Responsibility Report online by visiting
td.com/corporate-responsibility
(2015 report available April 2016)
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 2015
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 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 31, 2016
9:30 a.m. (Eastern)
Fairmont The Queen Elizabeth Hotel
Montréal, Québec
SUBORDINATED NOTES SERVICES
Trustee for subordinated notes:
Computershare Trust Company of Canada
Attention: Manager,
Corporate Trust Services
100 University Avenue, 11th Floor
Toronto, Ontario M5J 2Y1
Vous pouvez vous procurer des exemplaires en
français du rapport annuel au service suivant :
Affaires internes et publiques
La Banque Toronto-Dominion
P.O. Box 1, Toronto-Dominion Centre
Toronto (Ontario) M5K 1A2
TD B ANK GRO UP ANNUAL REP ORT 2015 SHAREHOLDER AND I NVESTO R I NFORM ATIO N
209
g
n
i
t
n
i
r
P
l
a
t
n
e
n
i
t
n
o
c
s
n
a
r
T
C
T
:
g
n
i
t
n
i
r
P
,
.
c
n
i
n
g
i
s
e
d
0
3
q
:
n
g
i
s
e
D
T
D
B
A
N
K
G
R
O
U
P
2
0
1
5
A
N
N
U
A
L
R
E
P
O
R
T
1
9
5
0
4
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.
Building the
Even Better Bank
2015 Annual Report