TD Bank Financial Group Reports Third Quarter 2009 Results
THIRD QUARTER FINANCIAL HIGHLIGHTS, compared with the third quarter a
year ago:
- Reported diluted earnings per share(1) were $1.01, compared with
$1.21.
- Adjusted diluted earnings per share(2) were $1.47, compared with
$1.35.
- Reported net income(1) was $912 million, compared with $997 million.
- Adjusted net income(2) was $1,303 million, compared with
$1,115 million.
YEAR-TO-DATE FINANCIAL HIGHLIGHTS, nine months ended July 31, 2009,
compared with the corresponding period a year ago:
- Reported diluted earnings per share(1) were $2.51, compared with
$3.65.
- Adjusted diluted earnings per share(2) were $4.04, compared with
$4.12.
- Reported net income(1) was $2,242 million, compared with
$2,819 million.
- Adjusted net income(2) was $3,541 million, compared with
$3,148 million.
THIRD QUARTER ADJUSTMENTS (ITEMS OF NOTE)
The third quarter reported earnings figures included the following items
of note:
- Amortization of intangibles of $122 million after tax (15 cents per
share), compared with $111 million after tax (13 cents per share) in
the third quarter last year.
- A loss of $43 million after tax (5 cents per share) due to the change
in fair value of derivatives hedging the reclassified available-for-
sale debt securities portfolio.
- Restructuring and integration charges of $70 million after tax (8
cents per share), relating to the acquisition of Commerce, compared
with $15 million after tax (2 cents per share) in the third quarter
last year.
- A loss of $75 million after tax (9 cents per share) due to the change
in fair value of credit default swaps hedging the corporate loan
book, net of provision for credit losses, compared with a gain of
$22 million after tax (3 cents per share) in the third quarter last
year.
- An increase of $46 million after tax (5 cents per share) in general
allowance for Canadian Personal and Commercial Banking (excluding
VFC) and Wholesale Banking.
- A special assessment charge of $35 million after tax (4 cents per
share) from the Federal Deposit Insurance Corporation.
All dollar amounts are expressed in Canadian currency unless otherwise
noted.
(1) Reported results are prepared in accordance with Canadian generally
accepted accounting principles.
(2) Reported and adjusted results are explained under the "How the Bank
Reports" section.
"While we expected TD's businesses to hold up well under the weight of a global recession, their resilience is remarkable and has exceeded our expectations," said
THIRD QUARTER BUSINESS SEGMENT PERFORMANCE
Canadian Personal and Commercial Banking
Canadian Personal and Commercial Banking posted record earnings of
"Faced with a challenging economic environment, TD
Wealth Management
Wealth Management, including TDBFG's equity share in TD Ameritrade, earned net income of
"Our wealth businesses performed well, with earnings up nearly 30% from the last quarter," said Clark. "With strong client engagement and continued investments in the business, wealth management is very well positioned for the future."
U.S. Personal and Commercial Banking
U.S. Personal and Commercial Banking generated
"These are good results in the current economic context driven by solid fundamentals, with growth in both lending and deposits," said Clark. "While credit losses are certainly higher than last year, we continue to see good relative credit performance."
"The integration continues to be a great success story, with synergies and new store openings continuing on target," Clark added. "We are very pleased with the power of our U.S. retail franchise, TD Bank, America's Most Convenient Bank."
Wholesale Banking
Wholesale Banking earned net income for the quarter of
"TD Securities improved its strategic positioning while also achieving record results - a remarkable achievement," said Clark. "And the resulting decline in both market risk and risk-weighted assets has allowed us to redeploy capital strategically."
"While we do not view performance as sustainable at this level and remain cautious about the volatile operating environment, TD Securities is proving that you can actually reduce risk and get better results."
Conclusion
"Last quarter we said this may be a recession in which we actually grow lending through the downturn. This has been proven out, as our very strong capital position has allowed us to provide access to credit, filling the gaps left by those who have exited the lending market," said Clark. "While the recession is turning out to be less severe than we expected, looking forward we remain cautious and continue to expect a tough 2010. But this quarter's results show that strong businesses can perform even in tough economic conditions."
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
From time to time, TD Bank Financial Group (TDBFG or the Bank) makes written and oral forward-looking statements, including in this document, in other filings with Canadian regulators or the U.S. Securities and Exchange Commission (SEC), and in other communications. In addition, the Bank's senior management may make forward-looking statements orally to analysts, investors, representatives of the media and others. All such statements are made pursuant to the "safe harbour" provisions of the U.S. Private Securities Litigation Reform Act of 1995 and applicable Canadian securities legislation. Forward-looking statements include, among others, statements regarding the Bank's objectives and targets for 2009 and beyond, and strategies to achieve them, the outlook for the Bank's business lines, and the Bank's anticipated financial performance. The forward-looking information contained in this document is presented for the purpose of assisting our shareholders and analysts in understanding our financial position as at and for the periods ended on the dates presented and our strategic priorities and objectives, and may not be appropriate for other purposes. The economic assumptions for 2009 for the Bank are set out in the Bank's 2008 Annual Report under the heading "Economic Summary and Outlook" and for each of our business segments, under the heading "Business Outlook and Focus for 2009." 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 statements require us to make assumptions and are subject to inherent risks and uncertainties, general and specific. Especially in light of the current, unprecedented financial and economic environment, such risks and uncertainties may cause actual results to differ materially from the expectations expressed in the forward-looking statements. Some of the factors - many of which are beyond our control and the effects of which can be difficult to predict - that could cause such differences include: credit, market (including equity and commodity), liquidity, interest rate, operational, reputational, insurance, strategic, foreign exchange, regulatory, legal and other risks discussed in the Bank's 2008 Annual Report and in other regulatory filings made in
This document was reviewed by the Bank's Audit Committee and was approved by the Bank's Board of Directors, on the Audit Committee's recommendation, prior to its release.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATING PERFORMANCE
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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 Financial Group (TDBFG or the Bank) for the three and nine months ended
FINANCIAL HIGHLIGHTS
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For the nine
For the three months ended months ended
(millions of --------------------------------------------------
Canadian dollars, July 31 Apr. 30 July 31 July 31 July 31
except as noted) 2009 2009 2008 2009(1) 2008
-------------------------------------------------------------------------
Results of operations
Total revenue $4,667 $4,325 $4,037 $13,142 $11,029
Provision for credit
losses 557 656 288 1,750 775
Non-interest expenses 3,045 3,051 2,701 9,116 7,135
Net income - reported(2) 912 618 997 2,242 2,819
Net income - adjusted(2) 1,303 1,089 1,115 3,541 3,148
Economic profit(3) 258 58 321 492 1,073
Return on common
equity - reported 9.8% 6.6% 13.4% 8.2% 14.8%
Return on invested
capital(3) 12.6% 10.6% 13.1% 11.7% 14.2%
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Financial position
Total assets $544,590 $574,882 $508,839 $544,590 $508,839
Total risk-weighted
assets 189,745 199,745 184,674 189,745 184,674
Total shareholders'
equity 37,788 39,627 31,293 37,788 31,293
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Financial ratios -
reported
Efficiency ratio -
reported 65.2% 70.6% 66.9% 69.4% 64.7%
Efficiency ratio -
adjusted 56.6% 60.3% 62.8% 59.4% 60.7%
Tier 1 capital to
risk-weighted assets 11.2% 10.9% 9.5% 11.2% 9.5%
Provision for credit
losses as a % of net
average loans 0.91% 1.12% 0.51% 0.98% 0.51%
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Common share information
- reported
(Canadian dollars)
Per share
Basic earnings $1.01 $0.68 $1.22 $2.51 $3.68
Diluted earnings 1.01 0.68 1.21 2.51 3.65
Dividends 0.61 0.61 0.59 1.83 1.75
Book value 40.27 42.60 36.75 40.27 36.75
Closing share price 63.11 47.10 62.29 63.11 62.29
Shares outstanding
(millions)
Average basic 851.5 848.8 804.0 844.3 756.8
Average diluted 855.4 849.8 811.0 846.5 763.2
End of period 854.1 850.6 807.3 854.1 807.3
Market capitalization
(billions of Canadian
dollars) $53.9 $40.1 $50.3 $53.9 $50.3
Dividend yield 4.4% 5.9% 3.7% 5.1% 3.6%
Dividend payout ratio 60.1% 89.8% 48.5% 73.2% 48.8%
Price to earnings
multiple 16.9 12.0 12.1 16.9 12.1
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Common share information
- adjusted
(Canadian dollars)
Per share
Basic earnings $1.47 $1.23 $1.37 $4.05 $4.15
Diluted earnings 1.47 1.23 1.35 4.04 4.12
Dividend payout ratio 41.4% 49.4% 43.3% 45.4% 43.6%
Price to earnings
multiple 13.1 10.0 11.3 13.1 11.3
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(1) As explained in the "How the Bank Reports" section, effective the
second quarter ended April 30, 2009, as the reporting periods of U.S.
entities are aligned with the reporting period of the Bank, the
results of U.S. entities for the nine months ended July 31, 2009 have
been included with results of the Bank for the nine months ended
July 31, 2009, while the results of January 2009 have been included
directly in retained earnings of the second quarter and not included
in the net income of the Bank.
(2) Adjusted and reported results are explained in the "How the Bank
Reports" section, which includes reconciliation between reported and
adjusted results.
(3) Economic profit and return on invested capital are non-GAAP financial
measures and are explained in the "Economic Profit and Return on
Invested Capital" section.
HOW WE PERFORMED
Corporate Overview
The Toronto-Dominion Bank and its subsidiaries are collectively known as TD Bank Financial Group (TDBFG or the Bank). The Bank is the sixth largest bank in
How the Bank Reports
The Bank prepares its Consolidated Financial Statements in accordance with GAAP and refers to results prepared in accordance with GAAP as "reported" results. The Bank also utilizes non-GAAP financial measures referred to as "adjusted" results to assess each of its businesses and to measure overall Bank performance. To arrive at adjusted results, the Bank removes "items of note", net of income taxes, from reported results. The items of note relate to items which management does not believe are indicative of underlying business performance. The Bank believes that adjusted results provide the reader with a better understanding of how management views the Bank's performance. The items of note are listed in the table on the following page. As explained, adjusted results are different from reported results determined in accordance with GAAP. Adjusted results, items of note and related terms used in this document are not defined terms under GAAP and, therefore, may not be comparable to similar terms used by other issuers.
For the purpose of alignment of reporting periods with the Bank, effective the second quarter ended
The following tables provide reconciliations between the Bank's reported and adjusted results.
Operating Results - Reported
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For the nine
For the three months ended months ended
--------------------------------------------------
(millions of July 31 Apr. 30 July 31 July 31 July 31
Canadian dollars) 2009 2009 2008 2009 2008
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Net interest income $2,833 $2,940 $2,437 $8,501 $6,083
Non-interest income 1,834 1,385 1,600 4,641 4,946
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Total revenue 4,667 4,325 4,037 13,142 11,029
Provision for credit
losses 557 656 288 1,750 775
Non-interest expenses 3,045 3,051 2,701 9,116 7,135
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Income before income
taxes, non-controlling
interests in subsidiaries
and equity in net income
of an associated company 1,065 618 1,048 2,276 3,119
Provision for income taxes 209 35 122 186 517
Non-controlling interests
in subsidiaries, net of
income taxes 28 28 8 84 25
Equity in net income of an
associated company, net
of income taxes 84 63 79 236 242
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Net income - reported 912 618 997 2,242 2,819
Preferred dividends 49 41 17 119 36
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Net income available to
common shareholders -
reported $863 $577 $980 $2,123 $2,783
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Reconciliation of Non-GAAP Financial Measures
Adjusted Net Income to Reported Net Income
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Operating results - For the nine
adjusted For the three months ended months ended
--------------------------------------------------
(millions of July 31, Apr. 30, July 31, July 31, July 31,
Canadian dollars) 2009 2009 2008 2009 2008
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Net interest income $2,833 $2,940 $2,437 $8,501 $6,083
Non-interest income(1) 1,976 1,612 1,566 5,310 4,886
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Total revenue 4,809 4,552 4,003 13,811 10,969
Provision for credit
losses(2) 492 546 288 1,495 758
Non-interest expenses(3) 2,723 2,745 2,512 8,209 6,659
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Income before income
taxes, non-controlling
interests in subsidiaries
and equity in net income
of an associated company 1,594 1,261 1,203 4,107 3,552
Provision for income
taxes(4) 367 223 175 769 670
Non-controlling interests
in subsidiaries, net of
income taxes 28 28 8 84 25
Equity in net income of an
associated company, net
of income taxes(5) 104 79 95 287 291
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Net income - adjusted 1,303 1,089 1,115 3,541 3,148
Preferred dividends 49 41 17 119 36
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Net income available to
common shareholders -
adjusted 1,254 1,048 1,098 3,422 3,112
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Adjustments for items
of note, net of income
taxes:
Amortization of
intangibles(6) (122) (127) (111) (376) (278)
Increase (decrease) in
fair value of derivatives
hedging the reclassified
available-for-sale debt
securities portfolio(7) (43) (134) - (377) -
Restructuring and
integration charges
relating to the Commerce
acquisition(8) (70) (50) (15) (187) (45)
Increase (decrease) in
fair value of credit
default swaps hedging the
corporate loan book, net
of provision for credit
losses(9) (75) (44) 22 (107) 48
Other tax items(10) - - (14) - (34)
Provision for insurance
claims(11) - - - - (20)
General allowance increase
in Canadian Personal and
Commercial Banking
(excluding VFC) and
Wholesale Banking (46) (77) - (178) -
Settlement of TD Banknorth
shareholder
litigation(12) - (39) - (39) -
FDIC special assessment
charge(13) (35) - - (35) -
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Total adjustments for
items of note (391) (471) (118) (1,299) (329)
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Net income available to
common shareholders -
reported $863 $577 $980 $2,123 $2,783
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(1) Adjusted non-interest income excludes the following items of note:
third quarter 2009 - $118 million loss due to change in fair value
of credit default swaps (CDS) hedging the corporate loan book, as
explained in footnote 9; $24 million loss due to change in fair
value of derivatives hedging the reclassified available-for-sale
(AFS) debt securities portfolio, as explained in footnote 7;
second quarter 2009 - $61 million loss due to change in fair value
of CDS hedging the corporate loan book; $166 million loss due to
change in fair value of derivatives hedging the reclassified AFS
debt securities portfolio; first quarter 2009 - $13 million gain
due to change in fair value of CDS hedging the corporate loan
book; $313 million loss due to change in fair value of derivatives
hedging the reclassified AFS debt securities portfolio; third
quarter 2008 - $34 million gain due to change in fair value of CDS
hedging the corporate loan book; second quarter 2008 - $1 million
gain due to change in fair value of CDS hedging the corporate loan
book; first quarter 2008 - $55 million gain due to change in fair
value of CDS hedging the corporate loan book; $30 million
provision for insurance claims, as explained in footnote 11.
(2) Adjusted provision for credit losses excludes the following items
of note: third quarter 2009 - $65 million increase in general
allowance for credit losses in Canadian Personal and Commercial
Banking (excluding VFC) and Wholesale Banking; second quarter 2009
- $110 million increase in general allowance for credit losses in
Canadian Personal and Commercial Banking (excluding VFC) and
Wholesale Banking; first quarter 2009 - $80 million increase in
general allowance for credit losses in Canadian Personal and
Commercial Banking (excluding VFC) and Wholesale Banking; first
quarter 2008 - $17 million related to the portion that was hedged
via the CDS.
(3) Adjusted non-interest expenses excludes the following items of
note: third quarter 2009 - $158 million amortization of
intangibles, as explained in footnote 6; $109 million
restructuring and integration charges related to the Commerce
acquisition, as explained in footnote 8; $55 million FDIC special
assessment charge, as explained in footnote 13; second quarter
2009 - $171 million amortization of intangibles; $77 million
restructuring and integration charges related to the Commerce
acquisition; settlement of TD Banknorth shareholder litigation of
$58 million, as explained in footnote 12; first quarter 2009 -
$173 million amortization of intangibles; $106 million
restructuring and integration charges related to the Commerce
acquisition; third quarter 2008 - $166 million amortization of
intangibles; $23 million restructuring and integration charges;
second quarter 2008 - $117 million amortization of intangibles;
$48 million restructuring and integration charges related to the
Commerce acquisition; first quarter 2008 - $122 million
amortization of intangibles.
(4) For reconciliation between reported and adjusted provision for
income taxes, see the 'Reconciliation of non-GAAP provision for
(recovery of) income taxes' table in the "Taxes" section.
(5) Adjusted equity in net income of an associated company excludes
the following items of note: third quarter 2009 - $20 million
amortization of intangibles, as explained in footnote 6; second
quarter 2009 - $16 million amortization of intangibles; first
quarter 2009 - $15 million amortization of intangibles; third
quarter 2008 - $16 million amortization of intangibles; second
quarter 2008 - $17 million amortization of intangibles; first
quarter 2008 - $16 million amortization of intangibles.
(6) Amortization of intangibles relates to the Canada Trust
acquisition in 2000, the TD Banknorth acquisition in 2005 and its
privatization in 2007, the acquisitions by TD Banknorth of Hudson
United Bancorp in 2006 and Interchange Financial Services
Corporation in 2007, the Commerce acquisition in 2008 and the
amortization of intangibles included in equity in net income of TD
Ameritrade.
(7) Effective August 1, 2008, as a result of recent deterioration in
markets and severe dislocation in the credit market, the Bank
changed its trading strategy with respect to certain trading debt
securities. The Bank no longer intends to actively trade in these
debt securities. Accordingly, the Bank reclassified certain debt
securities from trading to AFS category in accordance with the
Amendments to the Canadian Institute of Chartered Accountants
(CICA) Handbook Section 3855, Financial Instruments - Recognition
and Measurement. As part of the Bank's trading strategy, these
debt securities are economically hedged, primarily with CDS and
interest rate swap contracts. This includes foreign exchange
translation exposure related to the debt securities portfolio and
the derivatives hedging it. These derivatives are not eligible for
reclassification and are recorded on a fair value basis with
changes in fair value recorded in the period's earnings.
Management believes that this asymmetry in the accounting
treatment between derivatives and the reclassified debt securities
results in volatility in earnings from period to period that is
not indicative of the economics of the underlying business
performance in Wholesale Banking. 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 and
disclosed as an item of note. Adjusted results of the Bank exclude
the gains and losses of the derivatives in excess of the accrued
amount.
(8) As a result of the acquisition of Commerce and related
restructuring and integration initiatives undertaken, the Bank
incurred restructuring and integration charges. Restructuring
charges consisted of employee severance costs, the costs of
amending certain executive employment and award agreements and the
write-down of long-lived assets due to impairment. Integration
charges consisted of costs related to employee retention, external
professional consulting charges and marketing (including customer
communication and rebranding). In the Interim Consolidated
Statement of Income, the restructuring and integration charges are
included in non-interest expenses.
(9) The Bank purchases CDS to hedge the credit risk in Wholesale
Banking's corporate lending portfolio. These CDS do not qualify
for hedge accounting treatment and are measured at fair value with
changes in fair value recognized in current period's earnings. The
related loans are accounted for at amortized cost. Management
believes that this asymmetry in the accounting treatment between
CDS and loans would result in periodic profit and loss volatility
which is not indicative of the economics of the corporate loan
portfolio or the underlying business performance in Wholesale
Banking. As a result, the CDS are accounted for on an accrual
basis in Wholesale Banking and the gains and losses on the CDS, in
excess of the accrued cost, are reported in the Corporate segment.
Adjusted results exclude the gains and losses on the CDS in excess
of the accrued cost.
(10) This represents the negative impact of the scheduled reductions in
the income tax rate on reduction of net future income tax assets.
(11) The Bank accrued an additional actuarial liability in its insurance
subsidiary operations for potential losses in the first quarter of
2008 related to a court decision in Alberta. The Alberta
government's legislation effectively capping minor injury insurance
claims was challenged and held to be unconstitutional. In the
current quarter, the government of Alberta won their appeal of the
decision; however, the ultimate outcome remains uncertain as the
plaintiffs may seek further appeal.
(12) Upon the announcement of the privatization of TD Banknorth in
November 2006, certain minority shareholders of TD Banknorth
initiated class action litigation alleging various claims against
the Bank, TD Banknorth and TD Banknorth officers and directors. The
parties agreed to settle the litigation in February 2009 for
$61.3 million (US$50 million) of which $3.7 million (US$3 million)
had been previously accrued on privatization. The Court of Chancery
in Delaware approved the settlement of the TD Banknorth
Shareholders' Litigation effective June 24, 2009, and the settlement
became final.
(13) On May 22, 2009, the Federal Deposit Insurance Corporation (FDIC),
in the U.S., finalized a special assessment resulting in a charge of
$55 million before tax ($35 million after tax) or US$49 million
before tax (US$31 million after tax).
Reconciliation of Reported Earnings per Share (EPS) to Adjusted EPS(1)
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For the nine
For the three months ended months ended
--------------------------------------------------
July 31 Apr. 30 July 31 July 31 July 31
(Canadian dollars) 2009 2009 2008 2009 2008
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Diluted - reported $1.01 $0.68 $1.21 $2.51 $3.65
Items of note
affecting income
(as above) 0.46 0.55 0.14 1.53 0.43
Items of note
affecting EPS only(2) - - - - 0.04
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Diluted - adjusted $1.47 $1.23 $1.35 $4.04 $4.12
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Basic - reported $1.01 $0.68 $1.22 $2.51 $3.68
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(1) EPS is computed by dividing net income available to common
shareholders by the weighted-average number of shares outstanding
during the period. As a result, the sum of the quarterly EPS may not
equal to year-to-date EPS.
(2) The diluted EPS figures do not include Commerce earnings for the
month of April 2008 because there was a month lag between fiscal
quarter ends until the first quarter of this year, while share
issuance on transaction close resulted in a one-time negative
earnings impact of 4 cents per share.
Amortization of Intangibles, Net of Income Taxes(1)
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For the nine
For the three months ended months ended
--------------------------------------------------
(millions of July 31 Apr. 30 July 31 July 31 July 31
Canadian dollars) 2009 2009 2008 2009 2008
-------------------------------------------------------------------------
Canada Trust $40 $39 $46 $119 $104
TD Bank, N.A. 60 70 42 200 107
TD Ameritrade (included
in equity in net income
of an associated company) 20 16 16 51 49
Other 2 2 7 6 18
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Amortization of
intangibles, net of
income taxes $122 $127 $111 $376 $278
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(1) Amortization of intangibles is included in the Corporate segment.
Economic Profit and Return on Invested Capital
The Bank utilizes economic profit as a tool to measure shareholder value creation. Economic profit is adjusted net income available to common shareholders less a charge for average invested capital. Average invested capital is equal to average common equity for the period plus the average cumulative after-tax goodwill and intangible assets amortized as of the reporting date. The rate used in the charge for capital is the equity cost of capital calculated using the capital asset pricing model. The charge represents an assumed minimum return required by common shareholders on the Bank's invested capital. The Bank's goal is to achieve positive and growing economic profit.
Return on invested capital (ROIC) is adjusted net income available to common shareholders divided by average invested capital. ROIC is a variation of the economic profit measure that is useful in comparison to the equity cost of capital. Both ROIC and the equity cost of capital are percentage rates, while economic profit is a dollar measure. When ROIC exceeds the equity cost of capital, economic profit is positive. The Bank's goal is to maximize economic profit by achieving ROIC that exceeds the equity cost of capital.
Economic profit and ROIC are non-GAAP financial measures as these are not defined terms under GAAP. Readers are cautioned that earnings and other measures adjusted to a basis other than GAAP do not have standardized meanings under GAAP and therefore, may not be comparable to similar terms used by other issuers.
The following table reconciles between the Bank's economic profit, ROIC and net income available to common shareholders - adjusted. Adjusted results, items of note and related terms are discussed in the "How the Bank Reports" section.
Reconciliation of Economic Profit, Return on Invested Capital and Net
Income Available to Common Shareholders - Adjusted
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For the nine
For the three months ended months ended
--------------------------------------------------
(millions of July 31 Apr. 30 July 31 July 31 July 31
Canadian dollars) 2009 2009 2008 2009 2008
-------------------------------------------------------------------------
Average common equity $34,898 $36,120 $29,065 $34,680 $25,198
Average cumulative
goodwill/intangible
assets amortized, net
of income taxes 4,598 4,491 4,171 4,489 4,091
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Average invested
capital $39,496 $40,611 $33,236 $39,169 $29,289
Rate charged for
invested capital 10.0% 10.0% 9.3% 10.0% 9.3%
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Charge for invested
capital $996 $990 $777 $2,930 $2,039
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Net income available
to common shareholders
- reported $863 $577 $980 $2,123 $2,783
Items of note impacting
income, net of income
taxes 391 471 118 1,299 329
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Net income available to
common shareholders
- adjusted $1,254 $1,048 $1,098 $3,422 $3,112
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Economic profit $258 $58 $321 $492 $1,073
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Return on invested
capital 12.6% 10.6% 13.1% 11.7% 14.2%
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FINANCIAL RESULTS OVERVIEW
Performance Summary
An overview of the Bank's performance on an adjusted basis for the third quarter 2009 against the financial shareholder indicators included in the 2008 Annual Report is outlined below. Shareholder performance indicators help guide and benchmark the Bank's accomplishments. For the purposes of this analysis, the Bank utilizes adjusted earnings, which excludes items of note from the reported results that are prepared in accordance with GAAP. Reported and adjusted results and items of note are explained in the "How the Bank Reports" section.
- Adjusted diluted earnings per share for the nine months ended
July 31, 2009 were $4.04, or down 2%, from the same period last year.
This decline reflects the common and preferred equity issuances in
fiscal 2009 to further strengthen the Bank's capital position. The
Bank's goal is to achieve 7 - 10% adjusted earnings per share growth
over the longer term.
- Adjusted return on risk-weighted assets (RWA) for the first nine
months of 2009 was 2.3% compared with 2.6% in the same period in
2008.
- For the twelve months ended July 31, 2009, the total shareholder
return was 6.4% which was below the Canadian peer average of 11.4%.
Impact of Foreign Exchange Rate on U.S. Personal and Commercial Banking
and TD Ameritrade Translated Earnings
U.S. Personal and Commercial Banking earnings and the Bank's share of earnings from TD Ameritrade are impacted by fluctuations in the U.S. dollar - Canadian dollar exchange rate.
Depreciation of the Canadian dollar had a favourable impact on consolidated earnings for the quarter and for the nine months ended
Impact of Foreign Exchange Rate on U.S. Translated Earnings
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For the three For the nine
months ended months ended
--------------------------------------
July 31, 2009 vs. July 31, 2009 vs.
(millions of Canadian dollars) July 31, 2008 July 31, 2008
-------------------------------------------------------------------------
U.S. Personal and Commercial
Banking
Increased total revenue $128 $611
Increased non-interest expenses 74 353
Increased net income 34 148
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TD Ameritrade
Increased share of earnings $16 $40
-------------------------------------------------------------------------
Earnings per share impact $0.06 $0.22
-------------------------------------------------------------------------
Net Income
Quarterly comparison - Q3 2009 vs. Q3 2008
------------------------------------------
Reported net income for the quarter was
Quarterly comparison - Q3 2009 vs. Q2 2009
------------------------------------------
Reported net income for the quarter increased
Year-to-date comparison - Q3 2009 vs. Q3 2008
---------------------------------------------
Reported net income for the nine months ended
Net Interest Income
Quarterly comparison - Q3 2009 vs. Q3 2008
------------------------------------------
Net interest income for the quarter was
Quarterly comparison - Q3 2009 vs. Q2 2009
------------------------------------------
Net interest income for the quarter decreased
Year-to-date comparison - Q3 2009 vs. Q3 2008
---------------------------------------------
On a year-to-date basis, net interest income was
Non-interest Income
Quarterly comparison - Q3 2009 vs. Q3 2008
------------------------------------------
Reported non-interest income for the quarter was
Quarterly comparison - Q3 2009 vs. Q2 2009
------------------------------------------
Reported non-interest income for the quarter increased
Year-to-date comparison - Q3 2009 vs. Q3 2008
---------------------------------------------
On a year-to-date basis, reported non-interest income of
Provision for Credit Losses
Quarterly comparison - Q3 2009 vs. Q3 2008
------------------------------------------
During the quarter, the Bank recorded PCL of
Quarterly comparison - Q3 2009 vs. Q2 2009
------------------------------------------
PCL for the third quarter decreased
Year-to-date comparison - Q3 2009 vs. Q3 2008
---------------------------------------------
On a year-to-date basis, PCL increased $975 million, or 126%, to $1,750
million. This increase was primarily due to higher provisions in the U.S.
Personal and Commercial Banking and Canadian Personal and Commercial Banking
segments, and a general PCL of $255 million related to the Canadian Personal
and Commercial Banking (excluding VFC) and Wholesale Banking segments.
Provision for Credit Losses
-------------------------------------------------------------------------
For the nine
For the three months ended months ended
--------------------------------------------------
(millions of July 31 Apr. 30 July 31 July 31 July 31
Canadian dollars) 2009 2009 2008 2009 2008
-------------------------------------------------------------------------
Net new specifics
(net of reversals) $442 $446 $260 $1,274 $771
Less: recoveries 28 25 30 77 95
-------------------------------------------------------------------------
Provision for credit
losses - specifics 414 421 230 1,197 676
Change in general
allowance for credit
losses
VFC 22 22 16 65 47
U.S. Personal and
Commercial Banking 56 103 42 233 51
Canadian Personal and
Commercial Banking
(excluding VFC) and
Wholesale Banking 65 110 - 255 -
Other - - - - 1
-------------------------------------------------------------------------
Total $557 $656 $288 $1,750 $775
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Non-Interest Expenses and Efficiency Ratio
Quarterly comparison - Q3 2009 vs. Q3 2008
------------------------------------------
Reported non-interest expenses for the quarter were
The reported efficiency ratio improved to 65.2%, compared with 66.9% in the third quarter last year. The Bank's adjusted efficiency ratio improved to 56.6%, compared with 62.8% in the same period last year.
Quarterly comparison - Q3 2009 vs. Q2 2009
------------------------------------------
Reported non-interest expenses decreased
The reported efficiency ratio improved to 65.2%, compared with 70.6% in the prior quarter. The adjusted efficiency ratio improved to 56.6%, compared with 60.3% in the prior quarter.
Year-to-date comparison - Q3 2009 vs. Q3 2008
---------------------------------------------
On a year-to-date basis, reported non-interest expenses were
The reported efficiency ratio declined to 69.4%, compared with 64.7% in the same period last year. The Bank's adjusted efficiency ratio improved to 59.4%, compared with 60.7% in the same period last year.
Taxes
As discussed in the "How the Bank Reports" section, the Bank adjusts its reported results to assess each of its businesses and to measure overall Bank performance. As such, the provision for income taxes is stated on a reported and an adjusted basis.
The Bank's reported effective tax rate was 19.6% for the third quarter, compared with 11.6% in the same quarter last year and 5.7% in the prior quarter. The increase this quarter was mainly due to a decrease in tax exempt income and a higher effective rate on international operations.
On a year-to-date basis, the Bank's reported effective tax rate was 8.2%, compared with 16.6% in the same period last year. The year-over-year decrease was primarily due to a decrease in reported net income before taxes, a proportionate increase in tax exempt income and a lower effective tax rate on international operations.
Taxes
-------------------------------------------------------------------------
For the three months ended
----------------------------------------------
(millions of July 31 Apr. 30 July 31
Canadian dollars) 2009 2009 2008
-------------------------------------------------------------------------
Income taxes at Canadian
statutory income tax rate $337 31.7% $196 31.8% $343 32.7%
Increase (decrease)
resulting from:
Dividends received (48) (4.5) (85) (13.8) (93) (8.9)
Rate differentials on
international
operations (97) (9.2) (117) (19.0) (126) (12.0)
Other - net 17 1.6 41 6.7 (2) (0.2)
-------------------------------------------------------------------------
Provision for income taxes
and effective income tax
rate - reported $209 19.6% $35 5.7% $122 11.6%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
---------------------------------------------------------
For the nine months ended
------------------------------
(millions of July 31 July 31
Canadian dollars) 2009 2008
---------------------------------------------------------
Income taxes at Canadian
statutory income tax rate $722 31.7% $1,019 32.7%
Increase (decrease)
resulting from:
Dividends received (265) (11.7) (258) (8.3)
Rate differentials on
international
operations (348) (15.3) (279) (8.9)
Other - net 77 3.5 35 1.1
---------------------------------------------------------
Provision for income taxes
and effective income tax
rate - reported $186 8.2% $517 16.6%
---------------------------------------------------------
---------------------------------------------------------
The Bank's adjusted effective tax rate was 23.0% for the third quarter,
compared with 14.5% in the same quarter last year and 17.7% in the prior
quarter. The increase this quarter was mainly due to a decrease in tax exempt
income and a higher effective rate on international operations.
On a year-to-date basis, the Bank's adjusted effective tax rate was
18.7%, in line with 18.9% in the same period last year.
Reconciliation of Non-GAAP Provision for (Recovery of) Income Taxes
-------------------------------------------------------------------------
For the nine
For the three months ended months ended
(millions of --------------------------------------------------
Canadian dollars, July 31 Apr. 30 July 31 July 31 July 31
except as noted) 2009 2009 2008 2009 2008
-------------------------------------------------------------------------
Provision for income
taxes - reported $209 $35 $122 $186 $517
-------------------------------------------------------------------------
Adjustments for items
of note:
Amortization of
intangibles 56 60 71 177 176
Increase (decrease) in
fair value of
derivatives hedging the
reclassified
available-for-sale debt
securities portfolio (19) 32 - 126 -
Restructuring and
integration charges
relating to the Commerce
acquisition 39 27 8 105 26
Increase (decrease) in
fair value of credit
default swaps hedging the
corporate loan book, net
of provision for credit
losses 43 17 (12) 59 (25)
Other tax items - - (14) - (34)
Provision for insurance
claims - - - - 10
General allowance increase
in Canadian Personal and
Commercial Banking
(excluding VFC) and
Wholesale Banking 19 33 - 77 -
Settlement of TD Banknorth
shareholder litigation - 19 - 19 -
FDIC special assessment
charge 20 - - 20 -
-------------------------------------------------------------------------
Total adjustments for
items of note 158 188 53 583 153
-------------------------------------------------------------------------
Provision for income taxes
- adjusted $367 $223 $175 $769 $670
-------------------------------------------------------------------------
Effective income tax rate
- adjusted(1) 23.0% 17.7% 14.5% 18.7% 18.9%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Adjusted effective income tax rate is adjusted provisions for income
taxes before other taxes as a percentage of adjusted net income
before taxes.
HOW OUR BUSINESSES PERFORMED
For management reporting purposes, the Bank's operations and activities are organized around four key business segments operating in a number of locations in key financial centres around the globe: Canadian Personal and Commercial Banking, including TD
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. Amortization of intangible expenses is included in the Corporate segment. Accordingly, net income for the operating business segments is presented before amortization of intangibles, as well as any other items of note not attributed to the operating segments. For further details, see the "How the Bank Reports" section, the "Business Focus" section in the 2008 Annual Report and Note 30 to the 2008 Consolidated Financial Statements. For information concerning the Bank's measures of economic profit and return on invested capital, which are non-GAAP financial measures, see the "Economic Profit and Return on Invested Capital" section. Segmented information also appears in Note 14.
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 quarter was
The Bank securitizes retail loans and receivables, and records a gain or loss on sale, including the recognition of an asset related to the retained interests. Credit losses incurred on retained interests after securitization are recorded as a charge to non-interest income in the Bank's Consolidated Financial Statements. For segment reporting, PCL related to securitized volumes is included in Canadian Personal and Commercial Banking but is reversed in the Corporate segment and reclassified as a charge to non-interest income to comply with GAAP.
Canadian Personal and Commercial Banking
Canadian Personal and Commercial Banking net income for the quarter was a record
Revenue for the quarter was
PCL for the quarter was
Non-interest expenses for the quarter were
The average full time equivalent (FTE) staffing levels increased 250, or 1%, compared with the third quarter last year and increased 304, or 1%, compared with the prior quarter. FTE staffing levels on a year-to-date basis increased 569, or 2%, compared with the same period last year. The efficiency ratio for the current quarter improved to 47.8%, compared with 49.9% in the third quarter last year and 50.2% in the prior quarter. The efficiency ratio on a year-to-date basis improved to 49.9%, compared with 50.7% in the same period last year.
Volume growth across most products is anticipated to slow down, while PCL rates are expected to continue to rise reflective of the challenging conditions of the Canadian economy. Expenses will continue to be managed to ensure that spending supports long-term earnings growth.
Wealth Management
Wealth Management net income for the quarter was
Net income for the nine months ended
Revenue for the quarter was
Non-interest expenses for the quarter were
The average FTE staffing levels increased by 260, or 4%, compared with the third quarter last year primarily due to new client-facing advisors and increased processing staff to handle higher trading volumes. Compared with the prior quarter, average FTE staffing levels decreased by 69, or 1%, mainly due to a decline in processing staff, partially offset by new client-facing advisors. Average FTE staffing levels on a year-to-date basis increased by 562, or 9%, compared with the same period last year mainly due to the inclusion of 325 FTE from the U.S. wealth management businesses, new client-facing advisors, and increased processing staff to handle higher trading volumes. The efficiency ratio for the current quarter was 75.4%, compared with 69.1% in the third quarter last year and 78.4% in the prior quarter. The efficiency ratio on a year-to-date basis worsened to 77.7%, compared with 68.3% in the same period last year.
Assets under management of
Current capital market and economic challenges in this low interest rate environment are anticipated to continue to impact results over the next few quarters. In the third quarter, advice-based businesses witnessed stronger asset growth due to a rebound in equity markets. Client engagement remains strong as evidenced by growth in new accounts and net new client assets. Expenses continue to be managed prudently while continuing to focus on investment in client-facing advisors, products and technology to enable future business growth.
Wealth Management
-------------------------------------------------------------------------
For the nine
For the three months ended months ended
--------------------------------------------------
(millions of July 31 Apr. 30 July 31 July 31 July 31
Canadian dollars) 2009 2009 2008 2009 2008
-------------------------------------------------------------------------
Global Wealth(1) $95 $78 $127 $248 $370
TD Ameritrade 68 48 74 193 229
-------------------------------------------------------------------------
Net income $163 $126 $201 $441 $599
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Effective the third quarter of 2008, the Bank transferred the U.S.
wealth management businesses to the Wealth Management segment for
management reporting purposes. Prior periods have not been
reclassified as the impact was not material to segment results.
TD AMERITRADE Holding Corporation
As at
As a result of the issuance of shares on
On
The condensed financial statements of TD Ameritrade, based on its Consolidated Financial Statements filed with the SEC, are provided as follows:
Condensed Consolidated Balance Sheet
-------------------------------------------------------------------------
As at
---------------------
June 30, Sep. 30,
(millions of U.S. dollars) 2009 2008
-------------------------------------------------------------------------
Assets
Receivable from brokers, dealers and clearing
organizations $1,540 $4,177
Receivable from clients, net of allowance for
doubtful accounts 5,013 6,934
Other assets 10,667 4,841
-------------------------------------------------------------------------
Total assets $17,220 $15,952
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities
Payable to brokers, dealers and clearing
organizations $2,269 $5,770
Payable to clients 9,188 5,071
Other liabilities 2,385 2,186
-------------------------------------------------------------------------
Total liabilities 13,842 13,027
-------------------------------------------------------------------------
Stockholders' equity 3,378 2,925
-------------------------------------------------------------------------
Total liabilities and stockholders' equity $17,220 $15,952
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Condensed Consolidated Statement of Income
-------------------------------------------------------------------------
For the three For the nine
months ended months ended
-------------------------------------------
(millions of U.S. dollars, June 30 June 30 June 30 June 30
except per share amounts) 2009 2008 2009 2008
-------------------------------------------------------------------------
Revenues
Net interest revenue $99 $132 $251 $419
Fee-based and other revenue 515 492 1,499 1,469
-------------------------------------------------------------------------
Total revenue 614 624 1,750 1,888
-------------------------------------------------------------------------
Expenses
Employee compensation and
benefits 128 129 366 367
Other 204 167 577 537
-------------------------------------------------------------------------
Total expenses 332 296 943 904
-------------------------------------------------------------------------
Non-interest income (2) - (2) 1
-------------------------------------------------------------------------
Pre-tax income 280 328 805 985
Provision for income taxes 109 124 318 353
-------------------------------------------------------------------------
Net income(1) $171 $204 $487 $632
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per share - basic $0.30 $0.34 $0.84 $1.06
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earning per share - diluted $0.30 $0.34 $0.83 $1.05
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The Bank's equity share of net income of TD Ameritrade is subject to
adjustments relating to amortization of intangibles.
U.S. Personal and Commercial Banking
U.S. Personal and Commercial Banking reported net income for the quarter was
Reported net income for the nine months ended
Revenue for the quarter was
The AFS securities portfolio was approximately
PCL for the quarter was
Reported non-interest expenses for the quarter were
The average FTE staffing levels decreased by 210, or 1%, compared with the third quarter last year. Included in this decrease is a reduction of approximately 600 FTE staff due to integration efforts and branch consolidations, partially offset by the increase of approximately 400 FTE staff resulting from 35 new store openings since the third quarter last year. The reported efficiency ratio for the quarter worsened to 68.9%, compared with 59.5% in the third quarter last year and 64.2% in the prior quarter. The adjusted efficiency ratio for the quarter worsened to 59.3%, compared with 57.3% in the third quarter last year and 58.2% in the prior quarter. The reported and adjusted efficiency ratios on a year-to-date basis worsened to 66.7% and 58.6% respectively, compared with 58.5% and 54.8% respectively in the same period last year.
Loan volume growth is expected to slow and the weak economy in the U.S. will continue to result in higher than normal PCLs. Continued core deposit growth, attainment of synergies and prudent expense management should help offset these adverse effects.
Wholesale Banking
Wholesale Banking reported a record net income for the quarter was
Net income for the nine months ended
Wholesale Banking revenue was derived primarily from capital markets, investing and corporate lending activities. Revenue for the quarter was
PCL is composed of specific provisions for credit losses and accrual costs for credit protection. PCL for the quarter was
Non-interest expenses for the quarter were
RWA declined
Wholesale Banking had a very strong quarter, delivering record net income. Our integrated, client focused franchise strategy performed very well amidst the more favourable capital markets operating environment. However, we expect the Wholesale Banking contribution to moderate in the fourth quarter as the operating conditions normalize leading to potentially lower trading revenues and lower capital market activity. Key priorities for Wholesale Banking include solidifying our position as a top-three dealer in
Corporate
Corporate segment's reported net loss for the quarter was
The reported net loss for the nine months ended
The difference between reported and adjusted net loss for the Corporate segment was due to items of note as outlined below. These items are described further on page 6.
-------------------------------------------------------------------------
For the nine
For the three months ended months ended
--------------------------------------------------
(millions of July 31 Apr. 30 July 31 July 31 July 31
Canadian dollars) 2009 2009 2008 2009 2008
-------------------------------------------------------------------------
Corporate segment net
loss - reported $(427) $(501) $(129) $(1,457) $(368)
-------------------------------------------------------------------------
Adjustments for items
of note, net of
income taxes:
Amortization of
intangibles 122 127 111 376 278
Decrease in fair value
of derivatives hedging
the reclassified
available-for-sale
securities portfolio 43 134 - 377 -
Decrease (increase) in
fair value of credit
default swaps hedging
the corporate loan
book, net of provision
for credit losses 75 44 (22) 107 (48)
Other tax items - - - - 20
Provision for insurance
claims - - - - 20
General allowance
increase in Canadian
Personal and
Commercial Banking
(excluding VFC) and
Wholesale Banking 46 77 - 178 -
Settlement of TD
Banknorth shareholder
litigation - 39 - 39 -
FDIC special assessment
charge 35 - - 35 -
-------------------------------------------------------------------------
Total adjustments for
items of note 321 421 89 1,112 270
-------------------------------------------------------------------------
Corporate segment net
loss - adjusted $(106) $(80) $(40) $(345) $(98)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Decomposition of items
included in net loss -
adjusted
Net securitization (15) 40 (6) (8) (20)
Unallocated corporate
expenses (96) (69) (77) (225) (185)
Other 5 (51) 43 (112) 107
-------------------------------------------------------------------------
Corporate segment net
loss - adjusted $(106) $(80) $(40) $(345) $(98)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
BALANCE SHEET REVIEW
Year-to-date comparison - July 31, 2009 vs. October 31, 2008
------------------------------------------------------------
Total assets of the Bank were
Securities increased largely due to a
Loans (net of allowance for loan losses) increased by
Other assets declined by
Total liabilities of the Bank were
Deposits increased
Other liabilities decreased
Common shares and preferred shares increased
CREDIT PORTFOLIO QUALITY
Gross impaired loans were
Net impaired loans as at
The allowance for credit losses of
Changes in Gross Impaired Loans and Acceptances
-------------------------------------------------------------------------
For the nine
For the three months ended months ended
--------------------------------------------------
(millions of July 31 Oct. 30 July 31 July 31 July 31
Canadian dollars) 2009 2008 2008 2009 2008
-------------------------------------------------------------------------
Balance at beginning
of period $1,875 $1,001 $909 $1,157 $569
Impact due to reporting-
period alignment of
U.S. entities(1) - - - 57 -
Additions 969 616 554 2,886 1,788
Return to performing
status, repaid or sold (366) (243) (231) (957) (662)
Write-offs (401) (247) (229) (1,108) (699)
Foreign exchange and
other adjustments (130) 30 (2) (88) 5
-------------------------------------------------------------------------
Balance at end of
period $1,947 $1,157 $1,001 $1,947 $1,001
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Allowance for Credit Losses
-------------------------------------------------------------------------
As at
------------------------------
July 31 Oct. 31 July 31
(millions of Canadian dollars) 2009 2008 2008
-------------------------------------------------------------------------
Specific allowance - on-balance sheet loans $536 $352 $292
-------------------------------------------------------------------------
General allowance for - on-balance sheet
loans 1,443 1,184 1,155
- off-balance sheet
instruments(2) 274 - -
-------------------------------------------------------------------------
Total general allowance 1,717 1,184 1,155
-------------------------------------------------------------------------
Allowance for credit losses $2,253 $1,536 $1,447
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Impaired loans net of specific allowance $1,411 $805 $709
Net impaired loans as a percentage of
net loans 0.6% 0.3% 0.3%
Provision for credit losses as a
percentage of net average loans
(quarterly ratio) 0.91% 0.49% 0.51%
-------------------------------------------------------------------------
(1) As a result of the reporting-period alignment of U.S. entities as
described in the "How the Bank Reports" section, the impact on gross
impaired loans for January 2009 comprised of additions to impaired
loans of $153 million; return to performing status, repaid or sold of
$66 million; write-offs of $35 million; and foreign exchange and
other adjustments of $5 million.
(2) Effective April 30, 2009, the allowance for credit losses for
off-balance sheet instruments is recorded in other liabilities. Prior
period balances have not been reclassified.
Non-Prime Loans
As at
SECURITIES PORTFOLIO
Exposure to Non-Agency Collateralized Mortgage Obligation (CMO)
As at
During the second quarter of the current year, the Bank re-securitized a portion of the non-agency CMO securities 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, 68% of the non-agency CMO securities are now rated AAA for regulatory capital reporting. The net capital benefit of the re-securitization transaction is reflected in the changes in RWA and in the securitization deductions from Tier 1 and Tier 2 capital. 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 an other-than-temporary impairment for these securities is not impacted by the change in the credit ratings.
The fair value of the portfolio as at
Non-Agency Alt-A and Prime Jumbo CMO Securities by Vintage Year
-------------------------------------------------------------------------
(millions of
U.S. dollars)
-------------------------------------------------------------------------
Alt-A Prime Jumbo Total
As at -------------------------------------------------------------
July 31, Amortized Fair Amortized Fair Amortized Fair
2009 cost value cost value cost value
-------------------------------------------------------------------------
2003 $379 $374 $654 $644 $1,033 $1,018
2004 652 634 702 695 1,354 1,329
2005 921 820 1,705 1,586 2,626 2,406
2006 509 419 642 554 1,151 973
2007 761 655 502 453 1,263 1,108
-------------------------------------------------------------------------
Total
securities(1) $3,222 $2,902 $4,205 $3,932 $7,427 $6,834
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As at
Oct. 31,
2008
-------------------------------------------------------------------------
2003 $423 $360 $775 $664 $1,198 $1,024
2004 759 626 972 850 1,731 1,476
2005 979 787 2,031 1,711 3,010 2,498
2006 549 429 819 656 1,368 1,085
2007 818 644 587 478 1,405 1,122
-------------------------------------------------------------------------
Total
securities $3,528 $2,846 $5,184 $4,359 $8,712 $7,205
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) These securities are mainly investment grade with ratings of BBB and
above for accounting purposes and do not reflect the
re-securitization transaction.
CAPITAL POSITION
The Bank's capital ratios are calculated using the guidelines of the Office of the Superintendent of Financial Institutions
Regulatory Capital Position
-------------------------------------------------------------------------
As at
-------------------------------------------
(millions of Canadian July 31, Apr. 30, Oct. 31, July 31,
dollars, except as noted) 2009 2009 2008 2008
-------------------------------------------------------------------------
Risk-weighted assets for:
Credit risk $160,336 $167,836 $177,552 $152,326
Market risk 4,682 7,737 9,644 8,179
Operational risk 24,727 24,172 24,554 24,169
-------------------------------------------------------------------------
Total risk-weighted assets $189,745 $199,745 $211,750 $184,674
-------------------------------------------------------------------------
Tier 1 capital $21,219 $21,778 $20,679 $17,491
Tier 1 capital ratio(1) 11.2% 10.9% 9.8% 9.5%
Total capital(2) $27,906 $28,216 $25,348 $24,702
Total capital ratio(3) 14.7% 14.1% 12.0% 13.4%
Assets-to-capital multiple(4) 16.6 17.1 19.3 17.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Tier 1 capital ratio is calculated as Tier 1 capital divided by RWA.
(2) Total capital includes Tier 1 and Tier 2 capital.
(3) Total capital ratio is calculated as Total capital divided by RWA.
(4) The assets-to-capital multiple 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 adjusted capital.
OSFI's target Tier 1 and Total capital ratios for Canadian banks are 7% and 10%, respectively. Effective
As at
The Bank continues to maintain 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.
For further details of equity and preferred share issuances, see Notes 5, 6 and 8 to the Interim Consolidated Financial Statements. For further details of regulatory capital, see Note 9 to the Interim Consolidated Financial Statements.
MANAGING RISK
EXECUTIVE SUMMARY
Financial services involve prudently taking risks to generate profitable growth. At the Bank, our goal is to earn a stable and sustainable rate of return for every dollar of risk we take, while putting significant emphasis on investing in our businesses to ensure we can meet our future growth objectives. Our businesses thoroughly examine the various risks to which they are exposed and assess the impact and likelihood of those risks. We respond by developing business and risk management strategies for our various business units, taking into consideration the risks and business environment in which we operate. Through our businesses and operations, we are exposed to a broad number of risks that have been identified and defined in our Enterprise Risk Framework. This framework outlines appropriate risk oversight processes and the consistent communication and reporting of key risks that could hinder the achievement of our business objectives and strategies. Our risk governance structure and risk management approach have not substantially changed from that described in our 2008 Annual Report. Certain risks have been outlined below. For a complete discussion of our risk governance structure and our risk management approach, refer to "Managing Risk" on pages 66 to 79 of the Bank's 2008 Annual Report.
Certain sections of this MD&A represent a discussion relating to credit, market and liquidity risks and form an integral part of the Interim Consolidated Financial Statements for the period ended
CREDIT RISK
Gross credit risk exposures, measured before credit risk mitigants, are given below:
Credit Risk Exposures(1) - Standardized and AIRB Approaches
-------------------------------------------------------------------------
As at July 31, 2009 As at Oct. 31, 2008
(millions of ------------------------------------------------------------
Canadian Standard- Standard-
dollars) ized(2) AIRB Total ized(2) AIRB Total
-------------------------------------------------------------------------
Retail
Residential
secured $10,239 $141,934 $152,173 $7,733 $134,930 $142,663
Qualifying
revolving
retail - 40,715 40,715 - 41,461 41,461
Other retail 16,133 22,992 39,125 15,386 20,415 35,801
-------------------------------------------------------------------------
Total retail 26,372 205,641 232,013 23,119 196,806 219,925
-------------------------------------------------------------------------
Non-retail
Corporate 45,426 98,807 144,233 44,991 113,119 158,110
Sovereign 1,725 50,516 52,241 305 57,856 58,161
Bank 16,145 77,098 93,243 8,302 91,635 99,937
-------------------------------------------------------------------------
Total
non-retail 63,296 226,421 289,717 53,598 262,610 316,208
-------------------------------------------------------------------------
Gross
credit risk
exposures $89,668 $432,062 $521,730 $76,717 $459,416 $536,133
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Gross credit risk exposures represent exposure at default and are
before the effects of credit risk mitigation. This table excludes
securitization and equity exposures.
(2) Beginning the first quarter of 2009, credit risk exposures from the
Commerce acquisition are reported using the Standardized approach,
previously reported within the Standardized approach using the
Interim Approach to Reporting.
MARKET RISK
A graph that discloses daily Value-at-Risk (VaR) usage and trading-related income(1) within the Wholesale Banking segment is included on page 21 of the fully formatted version of this third quarter 2009 Report to Shareholders, which can be found on the Bank's website at www.td.com/investor/qr_2009.jsp. For the quarter ended
(1) Trading-related income is the total of net interest income on trading
positions reported in net interest income and trading income reported
in non-interest income. Trading-related revenue in the graph above
excludes revenue related to changes in the fair value of loan
commitments. Similarly, the commitments are not included in the VaR
measure as they are not managed as trading positions. In the first
quarter of the current year, there was a significant recovery
realized on the cancellation of a loan commitment due to specific
circumstances related to the borrower.
The following table presents the end of quarter, average, high and low
Total VaR usage.
Value-at-Risk Usage
-------------------------------------------------------------------------
For the three months ended
----------------------------------------------------
July 31 Apr. 30 July 31
2009 2009 2008
(millions of ----------------------------------------------------
Canadian dollars) As at Average High Low Average Average
-------------------------------------------------------------------------
Interest rate and
credit spread risk $9.7 $14.3 $22.0 $8.3 $25.2 $25.6
Equity risk 6.4 8.3 13.8 4.8 8.2 13.4
Foreign exchange
risk 4.7 3.3 6.0 1.2 5.2 3.8
Commodity risk 0.5 0.9 1.5 0.5 0.9 1.5
Debt specific risk 17.0 21.9 30.4 13.9 39.4 35.1
Diversification
effect(1) (19.4) (23.4) n/m(2) n/m(2) (32.1) (33.0)
-------------------------------------------------------------------------
Total Value-at-Risk $18.9 $25.3 $34.7 $18.2 $46.8 $46.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------
For the nine
months ended
-----------------
July 31 July 31
2009 2008
(millions of -----------------
Canadian dollars) Average Average
-------------------------------------
Interest rate and
credit spread risk $23.5 $22.6
Equity risk 9.8 9.7
Foreign exchange
risk 4.2 2.9
Commodity risk 0.9 1.4
Debt specific risk 36.6 28.5
Diversification
effect(1) (31.2) (27.6)
-------------------------------------
Total Value-at-Risk $43.8 $37.5
-------------------------------------
-------------------------------------
(1) The aggregate VaR is less than the sum of the VaR of the different
risk types due to risk offsets resulting from portfolio
diversification.
(2) Not meaningful. It is not meaningful to compute a diversification
effect because the high and low may occur on different days for
different risk types.
Interest Rate Risk
A graph that shows our interest rate risk exposure (as measured by Economic Value at Risk, or EVaR) on all non-trading assets, liabilities and derivative instruments used for interest rate risk management instruments is included on page 22 of the fully formatted version of this third quarter 2009 Report to Shareholders, which can be found on the Bank's website at www.td.com/investor/qr_2009.jsp.
The Bank uses derivative financial instruments, wholesale instruments and other capital market alternatives and, less frequently, product pricing strategies to manage interest rate risk. As at
The following table shows the sensitivity of the economic value of shareholders' equity (after tax) by currency for those currencies where the Bank has material exposure.
Sensitivity of After-tax Economic Value at Risk by Currency
-------------------------------------------------------------------------
As at As at As at
July 31, 2009 Oct. 31, 2008 July 31, 2008
(millions of -----------------------------------------------------------
Canadian 100 bps 100 bps 100 bps 100 bps 100 bps 100 bps
dollars) increase decrease increase decrease increase decrease
-------------------------------------------------------------------------
Canadian dollar $(16.7) $(76.3) $(0.4) $(27.0) $(7.8) $(21.6)
U.S. dollar (90.9) (65.6) (122.4) (2.0) (58.7) (67.1)
-------------------------------------------------------------------------
LIQUIDITY RISK
As a financial organization, we must always ensure that we have access to enough readily-available funds to cover our financial obligations as they come due, and to sustain and grow our assets and operations under both normal and stress conditions. In the event of a funding disruption, we need to ensure we have sufficient liquid assets to continue to function. The process that ensures adequate access to funds is known as the management of liquidity risk.
Our overall liquidity requirement is defined as the amount of liquidity we need to fund expected cash outflows, as well as a prudent liquidity reserve to fund potential cash outflows in the event of a disruption in the capital markets or other event that could affect our access to liquidity. We do not rely on short-term wholesale funding for purposes other than funding marketable securities or short-term assets.
To define the amount of liquidity that must be held at all times for a specified minimum period, we use a conservative base-case scenario stress test. This scenario ensures that we have sufficient liquidity to cover 100% of our unsecured wholesale debt coming due, potential retail and commercial deposit run-off and forecasted operational requirements. In addition, we provide for coverage of Bank-sponsored funding programs, such as Bankers' Acceptances we issue on behalf of clients, and Bank-sponsored asset-backed commercial paper (ABCP). We also use an extended liquidity coverage test to ensure that we can fund our operations on a fully secured basis for a period up to one year.
To meet liquidity requirements, we hold assets that can be readily converted into cash. Assets must be currently marketable, of sufficient credit quality and available for sale to be considered readily convertible into cash. Liquid assets are represented in a cumulative liquidity gap framework based on settlement timing and market depth. Assets that are not available without delay because they are needed for collateral or other similar purposes are not considered readily convertible into cash.
While each of our major operations has responsibility for the measurement and management of its own liquidity risks, we also manage liquidity on an enterprise-wide basis to ensure consistent and efficient management of liquidity risk across all of our operations. On
The base-case scenario models a Bank-specific liquidity stress event and assumes normal levels of asset liquidity in the markets. In response to conditions experienced in global financial markets in September, 2008 which significantly affected liquidity, the Asset/Liability Committee (ALCO) and the Risk Committee of the Board approved managing to a Systemic Market Event liquidity stress test scenario as directed by the Global Liquidity Risk Management policy. Building on the base-case scenario, the Systemic Market Event scenario further adjusts asset liquidity to reflect both the stressed market conditions as well as the availability of high quality, unencumbered Bank-owned assets eligible as collateral under secured borrowing programs such as the Bank of
We have contingency plans in place to provide direction in the event of a liquidity crisis.
We also regularly review the level of increased collateral our trading counterparties would require in the event of a downgrade of the Bank's credit rating. The impact of a one notch downgrade would be minimal and could be readily managed in the normal course of business.
In response to current conditions in global financial markets affecting liquidity, the Global Liquidity Forum meets frequently and closely monitors global funding market conditions and potential impacts to our funding access on a daily basis.
OFF-BALANCE SHEET ARRANGEMENTS
The Bank carries out certain business activities via arrangements with special purpose entities (SPEs). We use SPEs to obtain sources of liquidity by securitizing certain of the Bank's financial assets, to assist our clients in securitizing their financial assets and to create investment products for our clients. SPEs may be organized as trusts, partnerships or corporations and they may be formed as qualifying special purpose entities (QSPEs) or variable interest entities (VIEs). When an entity is deemed a VIE, the entity must be consolidated by the primary beneficiary. Consolidated SPEs have been presented in the Bank's Consolidated Balance Sheet.
Securitization of Bank-Originated Assets
The Bank securitizes residential mortgages, personal loans and commercial mortgages to enhance its liquidity position, to diversify sources of funding and to optimize the management of the balance sheet. All products securitized by the Bank were originated in
Exposure Securitized by the Bank as an Originator(1),(2)
-------------------------------------------------------------------------
As at July 31, 2009
---------------------------------------
Significant Significant
unconsolidated unconsolidated
QSPEs SPEs
---------------------------------------
Carrying Carrying
Secur- value of Secur- value of
itized retained itized retained
(millions of Canadian dollars) assets interests assets interests
-------------------------------------------------------------------------
Residential mortgage loans $- $- $36,873 $1,081
Personal loans 7,363 107 - -
Commercial mortgage loans 125 3 - -
-------------------------------------------------------------------------
Total exposure $7,488 $110 $36,873 $1,081
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As at Oct. 31, 2008
---------------------------------------
Significant Significant
unconsolidated unconsolidated
QSPEs SPEs
---------------------------------------
Carrying Carrying
Secur- value of Secur- value of
itized retained itized retained
(millions of Canadian dollars) assets interests assets interests
-------------------------------------------------------------------------
Residential mortgage loans $- $- $24,332 $442
Personal loans 8,100 80 - -
Commercial mortgage loans 148 4 - -
-------------------------------------------------------------------------
Total exposure $8,248 $84 $24,332 $442
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Certain comparative amounts have been restated and reclassified to
conform to the presentation adopted in the current period.
(2) In all the securitization transactions that the Bank has undertaken
for its own assets, it has acted as an originating bank and retained
securitization exposure.
Residential Mortgage Loans
The Bank may be exposed to the risks of transferred loans to the securitization vehicles through retained interests. There are no expected credit losses on the retained interests of the securitized residential mortgages as the mortgages are all government guaranteed.
Personal Loans
The Bank securitizes personal loans through QSPEs, as well as single-seller conduits via QSPEs. As at
Commercial Mortgage Loans
As at
Securitization of Third Party-Originated Assets
The Bank administers multi-seller conduits and provides liquidity facilities as well as securities distribution services; it may also provide credit enhancements. Third party-originated assets are securitized through Bank-sponsored SPEs, which are not consolidated by the Bank. The Bank's maximum potential exposure to loss due to its ownership interest in commercial paper and through the provision of global style liquidity facilities for multi-seller conduits was
All third-party assets securitized by the Bank were originated in
Exposure to Third Party-Originated Assets Securitized by Bank-Sponsored
Conduits
-------------------------------------------------------------------------
As at July 31, 2009
-------------------------------------------
Ratings profile of Expected
Significant SPE asset class weighted-
unconsol- ------------------- average
idated AA+ to life
(millions of Canadian dollars) SPEs AAA AA- (years)(1)
-------------------------------------------------------------------------
Residential mortgage loans $2,631 $2,601 $30 2.5
Credit card loans 500 500 - 2.9
Automobile loans and leases 3,237 3,237 - 1.4
Equipment loans and leases 436 436 - 1.2
Trade receivables 1,748 1,748 - 2.7
-------------------------------------------------------------------------
Total exposure $8,552 $8,522 $30 2.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
---------------------------------------------------------------
As at Oct. 31, 2008
---------------------------------
Ratings profile of
Significant SPE asset class
unconsol- -------------------
idated AA+ to
(millions of Canadian dollars) SPEs AAA AA-
---------------------------------------------------------------
Residential mortgage loans $3,428 $3,378 $50
Credit card loans 500 500 -
Automobile loans and leases 4,474 4,470 4
Equipment loans and leases 638 636 2
Trade receivables 1,705 1,679 26
---------------------------------------------------------------
Total exposure $10,745 $10,663 $82
---------------------------------------------------------------
---------------------------------------------------------------
(1) Expected weighted-average life for each asset type is based upon each
conduit's remaining purchase commitment for revolving pools and the
expected weighted-average life of the assets for amortizing pools.
As at
Exposure to Third Party-Sponsored Conduits
The Bank has exposure to U.S. third party-sponsored conduits arising from providing liquidity facilities of
The Bank's exposure to Canadian third party-sponsored conduits in the form of margin funding facilities as at
Other Investment and Financing Products
Other Financing Transactions
The Bank enters into transactions with major U.S. corporate clients through VIEs to provide them with cost efficient financing. Under these transactions, as at
Exposure to Collateralized Debt Obligations
Since the decision was made in 2005 to exit the structured products business, the Bank no longer originates Collateralized Debt Obligation vehicles (CDOs). Total CDOs purchased and sold in the trading portfolio as at
Collateralized Debt Obligations(1)
-------------------------------------------------------------------------
As at As at
July 31, 2009 Oct. 31, 2008
----------------------------------------
Positive Positive
(negative) (negative)
Notional fair Notional fair
(millions of Canadian dollars) amount value amount value
-------------------------------------------------------------------------
Funded
Purchased protection via Bank-
issued credit linked notes $231 $(47) $283 $(38)
Unfunded
Sold protection
- positive fair value 840 - 891 -
- negative fair value - (212) - (278)
Purchased protection
- positive fair value 170 70 261 104
- negative fair value - (4) - (28)
Unfunded - Similar Reference Portfolio
Sold protection
- positive fair value - - 1,820 5
- negative fair value - - - (568)
Purchased protection
- positive fair value - - 1,883 613
- negative fair value - - - (5)
-------------------------------------------------------------------------
(1) This table excludes standard index tranche CDOs.
The Bank does not have any exposure to U.S. subprime mortgages via the CDOs. The CDOs are referenced to corporate debt securities. The hedges on the similar reference portfolio are not entered into with monoline insurers; rather they are entered into with global financial institutions, such as universal banks or broker-dealers. All exposures are managed with risk limits that have been approved by the Bank's risk management group and are hedged with various financial instruments, including credit derivatives and bonds within the trading portfolio, not included in this table. Counterparty exposure on hedges is collateralized under Credit Support Agreements (CSAs) and netting arrangements, consistent with other over-the-counter (OTC) derivative contracts. The Bank's CDO positions are fair valued using valuation techniques with significant non-observable market inputs. The potential effect of using reasonable possible alternative assumptions for valuing these CDO positions would range from a reduction in the fair value by
Leveraged Finance Credit Commitments
Included in 'Commitments to extend credit' in Note 28 to the 2008 Consolidated Financial Statements are leveraged finance commitments. Leveraged finance commitments are agreements that provide funding to a wholesale borrower with higher levels of debt measured by the ratio of debt capital to equity capital of the borrower, relative to the industry in which it operates. The Bank's exposure to leveraged finance commitments as at
QUARTERLY RESULTS
The following table provides summary information related to the Bank's
eight most recently completed quarters.
Quarterly Results
-------------------------------------------------------------------------
For the three months ended
-----------------------------------------
2009 2008
-----------------------------------------
(millions of Canadian dollars) July 31 Apr. 30 Jan. 31 Oct. 31
-------------------------------------------------------------------------
Net interest income $2,833 $2,940 $2,728 $2,449
Non-interest income 1,834 1,385 1,422 1,191
-------------------------------------------------------------------------
Total revenue 4,667 4,325 4,150 3,640
Provision for credit losses 557 656 537 288
Non-interest expenses 3,045 3,051 3,020 2,367
Provision for (recovery of)
income taxes 209 35 (58) 20
Non-controlling interests in
subsidiaries, net of income taxes 28 28 28 18
Equity in net income of an
associated company, net of income
taxes 84 63 89 67
-------------------------------------------------------------------------
Net income - reported 912 618 712 1,014
-------------------------------------------------------------------------
Adjustments for items of note, net
of income taxes:
Amortization of intangibles 122 127 127 126
Reversal of Enron litigation
reserve - - - (323)
Decrease (increase) in fair
value of derivatives hedging
the reclassified
available-for-sale debt
securities portfolio 43 134 200 (118)
Gain relating to restructuring
of Visa - - - -
Restructuring and integration
charges relating to the
Commerce acquisition 70 50 67 25
Decrease (increase) in fair
value of credit default swaps
hedging the corporate loan
book, net of provision for
credit losses 75 44 (12) (59)
Other tax items - - - -
Provision for insurance claims - - - -
General allowance increase
(release) in Canadian Personal
and Commercial Banking
(excluding VFC) and Wholesale
Banking 46 77 55 -
Settlement of TD Banknorth
shareholder litigation - 39 - -
FDIC special assessment charge 35 - - -
-------------------------------------------------------------------------
Total adjustments for items of
note 391 471 437 (349)
-------------------------------------------------------------------------
Net income - adjusted 1,303 1,089 1,149 665
Preferred dividends 49 41 29 23
-------------------------------------------------------------------------
Net income available to common
shareholders - adjusted $1,254 $1,048 $1,120 $642
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(Canadian dollars, except as
noted)
-------------------------------------------------------------------------
Basic earnings per share
- reported $1.01 $0.68 $0.82 $1.23
- adjusted 1.47 1.23 1.35 0.79
Diluted earnings per share
- reported 1.01 0.68 0.82 1.22
- adjusted 1.47 1.23 1.34 0.79
Return on common shareholders'
equity 9.8% 6.6% 8.1% 13.3%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the three months ended
-----------------------------------------
2008 2007
-----------------------------------------
(millions of Canadian dollars) July 31 Apr. 30 Jan. 31 Oct. 31
-------------------------------------------------------------------------
Net interest income $2,437 $1,858 $1,788 $1,808
Non-interest income 1,600 1,530 1,816 1,742
-------------------------------------------------------------------------
Total revenue 4,037 3,388 3,604 3,550
Provision for credit losses 288 232 255 139
Non-interest expenses 2,701 2,206 2,228 2,241
Provision for (recovery of)
income taxes 122 160 235 153
Non-controlling interests in
subsidiaries, net of income taxes 8 9 8 8
Equity in net income of an
associated company, net of income
taxes 79 71 92 85
-------------------------------------------------------------------------
Net income - reported 997 852 970 1,094
-------------------------------------------------------------------------
Adjustments for items of note, net
of income taxes:
Amortization of intangibles 111 92 75 99
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 - - - (135)
Restructuring and integration
charges relating to the
Commerce acquisition 15 30 - -
Decrease (increase) in fair
value of credit default swaps
hedging the corporate loan
book, net of provision for
credit losses (22) (1) (25) 2
Other tax items 14 - 20 -
Provision for insurance claims - - 20 -
General allowance increase
(release) in Canadian Personal
and Commercial Banking
(excluding VFC) and Wholesale
Banking - - - (39)
Settlement of TD Banknorth
shareholder litigation - - - -
FDIC special assessment charge - - - -
Total adjustments for items of
note 118 121 90 (73)
-------------------------------------------------------------------------
Net income - adjusted 1,115 973 1,060 1,021
Preferred dividends 17 11 8 5
-------------------------------------------------------------------------
Net income available to common
shareholders - adjusted $1,098 $962 $1,052 $1,016
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(Canadian dollars, except as
noted)
-------------------------------------------------------------------------
Basic earnings per share
- reported $1.22 $1.12 $1.34 $1.52
- adjusted 1.37 1.33 1.46 1.42
Diluted earnings per share
- reported 1.21 1.12 1.33 1.50
- adjusted 1.35 1.32 1.45 1.40
Return on common shareholders'
equity 13.4% 13.4% 18.0% 20.8%
-------------------------------------------------------------------------
Certain comparative amounts have been reclassified to conform to the
current period's presentation.
ACCOUNTING POLICIES AND ESTIMATES
The Bank's unaudited Interim Consolidated Financial Statements, presented on pages 29 to 46 of this Report to Shareholders, have been prepared in accordance with GAAP. These Interim Consolidated Financial Statements should be read in conjunction with the Bank's Consolidated Financial Statements for the year ended
Changes in Accounting Policies
Alignment of Reporting Period of U.S. Entities
Effective the quarter ended
Subsequent Accounting for Impaired Financial Assets
On
Goodwill, Intangible Assets and Financial Statement Concepts
Effective
Credit Risk and Fair Value
Effective
Critical Accounting Estimates
The critical accounting estimates remain unchanged from those disclosed in the Bank's 2008 Annual Report.
Future Changes in Accounting Policies
Financial Instruments Disclosures
The CICA's Accounting Standards Board (AcSB) amended CICA Handbook Section 3862, Financial Instruments - Disclosures, to enhance the disclosure requirements regarding fair value measurements and the liquidity risk of financial instruments. The amendments will be effective for the Bank's 2009 annual Consolidated Financial Statements.
Assessment of Embedded Derivatives upon Reclassification
During the third quarter of fiscal 2009, the AcSB amended Section 3855 to clarify that, upon reclassification of a financial instrument out of the trading category, an assessment of whether an embedded derivative is required to be bifurcated must be completed. In addition, the amendment prohibits the reclassification of a financial instrument out of trading when the derivative embedded in the financial instrument cannot be separately measured from the host contract. The amendment is applicable to all reclassifications occurring after
Impairment of Financial Assets
On
Conversion to International Financial Reporting Standards
The AcSB requires that all Canadian publicly accountable enterprises adopt International Financial Reporting Standards (IFRS) for years beginning on or after
IFRS will be effective for the Bank for the fiscal 2012 beginning on
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the most recent interim period, 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.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
-------------------------------------------------------------------------
INTERIM CONSOLIDATED BALANCE SHEET (unaudited)
-------------------------------------------------------------------------
As at
--------------------
July 31 Oct. 31
(millions of Canadian dollars) 2009 2008
-------------------------------------------------------------------------
ASSETS
Cash and due from banks $2,477 $2,517
Interest-bearing deposits with banks 15,482 15,429
-------------------------------------------------------------------------
17,959 17,946
-------------------------------------------------------------------------
Securities
Trading (Note 15) 49,756 59,497
Available-for-sale (Note 2) 88,914 75,121
Held-to-maturity 12,223 9,507
-------------------------------------------------------------------------
150,893 144,125
-------------------------------------------------------------------------
Securities purchased under reverse repurchase
agreements 32,414 42,425
-------------------------------------------------------------------------
Loans
Residential mortgages 61,843 57,596
Consumer instalment and other personal 90,067 79,610
Credit card 7,863 7,387
Business and government (Note 15) 76,556 76,567
-------------------------------------------------------------------------
236,329 221,160
Allowance for loan losses (Note 3) (1,979) (1,536)
-------------------------------------------------------------------------
Loans, net of allowance for loan losses 234,350 219,624
-------------------------------------------------------------------------
Other
Customers' liability under acceptances 9,743 11,040
Investment in TD Ameritrade 5,865 5,159
Derivatives 57,374 83,548
Goodwill 14,951 14,842
Other intangibles 2,678 3,141
Land, buildings and equipment 3,887 3,833
Other assets 14,476 17,531
-------------------------------------------------------------------------
108,974 139,094
-------------------------------------------------------------------------
Total assets $544,590 $563,214
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES
Deposits
Personal $216,900 $192,234
Banks 6,171 9,680
Business and government 124,503 129,086
Trading 40,904 44,694
-------------------------------------------------------------------------
388,478 375,694
-------------------------------------------------------------------------
Other
Acceptances 9,743 11,040
Obligations related to securities sold short 12,439 18,518
Obligations related to securities sold under
repurchase agreements 7,413 18,654
Derivatives 55,536 74,473
Other liabilities 17,764 17,721
-------------------------------------------------------------------------
102,895 140,406
-------------------------------------------------------------------------
Subordinated notes and debentures 12,419 12,436
-------------------------------------------------------------------------
Liability for preferred shares (Note 5) 550 550
-------------------------------------------------------------------------
Liability for capital trust securities (Note 6) 899 894
-------------------------------------------------------------------------
Non-controlling interests in subsidiaries (Note 7) 1,561 1,560
-------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common shares (millions of shares issued and
outstanding: July 31, 2009 - 854.1 and Oct. 31,
2008 - 810.1) (Note 8) 15,073 13,241
Preferred shares (millions of shares issued and
outstanding: July 31, 2009 - 135.8 and Oct. 31, 2008 -
75.0) (Note 8) 3,395 1,875
Contributed surplus 339 350
Retained earnings 18,383 17,857
Accumulated other comprehensive income (loss) (Note 10) 598 (1,649)
-------------------------------------------------------------------------
37,788 31,674
-------------------------------------------------------------------------
Total liabilities and shareholders' equity $544,590 $563,214
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Certain comparative amounts have been reclassified to conform to the
current period's presentation.
The accompanying notes are an integral part of these Interim Consolidated
Financial Statements.
INTERIM CONSOLIDATED STATEMENT OF INCOME (unaudited)
-------------------------------------------------------------------------
For the three For the nine
months ended months ended
----------------------------------------
(millions of Canadian dollars, July 31 July 31 July 31 July 31
except as noted) 2009 2008 2009 2008
-------------------------------------------------------------------------
Interest income
Loans $2,694 $3,410 $8,684 $10,046
Securities
Dividends 184 259 688 761
Interest 1,096 1,267 3,849 3,171
Deposits with banks 538 194 1,394 467
-------------------------------------------------------------------------
4,512 5,130 14,615 14,445
-------------------------------------------------------------------------
Interest expense
Deposits 1,221 2,068 4,692 6,378
Subordinated notes and debentures 168 165 503 482
Preferred shares and capital trust
securities 23 24 70 70
Other 267 436 849 1,432
-------------------------------------------------------------------------
1,679 2,693 6,114 8,362
-------------------------------------------------------------------------
Net interest income 2,833 2,437 8,501 6,083
-------------------------------------------------------------------------
Non-interest income
Investment and securities services 572 591 1,621 1,714
Credit fees 150 121 454 330
Net securities gains (losses) (90) 14 (463) 276
Trading income (loss) 338 (196) 470 (140)
Service charges 368 356 1,122 874
Loan securitizations (Note 4) 92 77 333 244
Card services 197 175 541 410
Insurance, net of claims 253 243 711 679
Trust fees 35 36 108 106
Other income (loss) (Note 15) (81) 183 (256) 453
-------------------------------------------------------------------------
1,834 1,600 4,641 4,946
-------------------------------------------------------------------------
Total revenue 4,667 4,037 13,142 11,029
-------------------------------------------------------------------------
Provision for credit losses (Note 3) 557 288 1,750 775
-------------------------------------------------------------------------
Non-interest expenses
Salaries and employee benefits 1,436 1,342 4,387 3,650
Occupancy, including depreciation 299 279 920 648
Equipment, including depreciation 227 188 651 480
Amortization of other intangibles 158 166 502 405
Restructuring costs (Note 16) - - 27 48
Marketing and business development 127 131 408 343
Brokerage-related fees 73 64 204 186
Professional and advisory services 200 135 540 364
Communications 60 54 181 149
Other (Note 17) 465 342 1,296 862
-------------------------------------------------------------------------
3,045 2,701 9,116 7,135
-------------------------------------------------------------------------
Income before income taxes,
non-controlling interests in
subsidiaries and equity in net
income of an associated company 1,065 1,048 2,276 3,119
Provision for income taxes 209 122 186 517
Non-controlling interests in
subsidiaries, net of income taxes 28 8 84 25
Equity in net income of an
associated company, net of income
taxes 84 79 236 242
-------------------------------------------------------------------------
Net income 912 997 2,242 2,819
Preferred dividends 49 17 119 36
-------------------------------------------------------------------------
Net income available to common
shareholders $863 $980 $2,123 $2,783
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average number of common shares
outstanding (millions) (Note 13)
Basic 851.5 804.0 844.3 756.8
Diluted 855.4 811.0 846.5 763.2
Earnings per share (Canadian dollars)
(Note 13)
Basic $1.01 $1.22 $2.51 $3.68
Diluted 1.01 1.21 2.51 3.65
Dividends per share (Canadian
dollars) 0.61 0.59 1.83 1.75
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Certain comparative amounts have been reclassified to conform to the
current period's presentation.
The accompanying notes are an integral part of these Interim Consolidated
Financial Statements.
INTERIM CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
-------------------------------------------------------------------------
For the three For the nine
months ended months ended
----------------------------------------
July 31 July 31 July 31 July 31
(millions of Canadian dollars) 2009 2008 2009 2008
-------------------------------------------------------------------------
Common shares (Note 8)
Balance at beginning of period $14,875 $12,818 $13,241 $6,577
Proceeds from shares issued on
exercise of stock options 90 129 135 200
Shares issued as a result of
dividend reinvestment plan 116 142 324 185
Proceeds from issuance of new
shares - - 1,381 -
Shares issued on acquisition of
Commerce - - - 6,147
Impact of shares sold (acquired)
for trading purposes(1) (8) 1 (8) (19)
-------------------------------------------------------------------------
Balance at end of period 15,073 13,090 15,073 13,090
-------------------------------------------------------------------------
Preferred shares (Note 8)
Balance at beginning of period 3,395 1,125 1,875 425
Shares issued - 500 1,520 1,200
-------------------------------------------------------------------------
Balance at end of period 3,395 1,625 3,395 1,625
-------------------------------------------------------------------------
Contributed surplus
Balance at beginning of period 350 383 350 119
Stock options (Note 11) (11) (28) (11) (27)
Conversion of Commerce stock
options on acquisition - - - 263
-------------------------------------------------------------------------
Balance at end of period 339 355 339 355
-------------------------------------------------------------------------
Retained earnings
Balance at beginning of period 18,039 16,864 17,857 15,954
Net income of U.S. entities for
January 2009 (Note 1) - - 4 -
Net income 912 997 2,242 2,819
Common dividends (519) (475) (1,553) (1,358)
Preferred dividends (49) (17) (119) (36)
Share issue expenses - (7) (48) (17)
-------------------------------------------------------------------------
Balance at end of period 18,383 17,362 18,383 17,362
-------------------------------------------------------------------------
Accumulated other comprehensive
income (loss) (Note 10)
Balance at beginning of period 2,968 (595) (1,649) (1,671)
Other comprehensive income of U.S.
entities for January 2009 (Note 1) - - 329 -
Other comprehensive income (loss)
for the period (2,370) (544) 1,918 532
-------------------------------------------------------------------------
Balance at end of period 598 (1,139) 598 (1,139)
-------------------------------------------------------------------------
Retained earnings and accumulated
other comprehensive income 18,981 16,223 18,981 16,223
-------------------------------------------------------------------------
Total shareholders' equity $37,788 $31,293 $37,788 $31,293
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Sold or purchased by subsidiaries of the Bank, which are regulated
securities entities in accordance with Regulation 92-313 under the
Bank Act.
INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) (unaudited)
-------------------------------------------------------------------------
For the three For the nine
months ended months ended
----------------------------------------
July 31 July 31 July 31 July 31
(millions of Canadian dollars) 2009 2008 2009 2008
-------------------------------------------------------------------------
Net income $912 $997 $2,242 $2,819
-------------------------------------------------------------------------
Other comprehensive income (loss),
net of income taxes
Change in unrealized gains (losses)
on available-for-sale securities,
net of hedging activities(a) 1,178 (272) 845 (80)
Reclassification to earnings of
net losses (gains) in respect of
available-for-sale securities(b) 45 (17) 212 (58)
Net change in unrealized foreign
currency translation gains (losses)
on investments in subsidiaries,
net of hedging activities(c),(d) (2,576) (231) 353 8
Change in net gains (losses) on
derivative instruments designated
as cash flow hedges(e) (661) 41 1,403 764
Reclassification to earnings of
net gains on cash flow hedges(f) (356) (65) (895) (102)
-------------------------------------------------------------------------
Total other comprehensive income
(loss) for the period (2,370) (544) 1,918 532
-------------------------------------------------------------------------
Comprehensive income (loss) for
the period $(1,458) $453 $4,160 $3,351
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(a) Net of income tax provision of $576 million and $339 million,
respectively, for the three and nine months ended July 31, 2009
(three and nine months ended July 31, 2008 - income tax recovery of
$153 million and $83 million, respectively).
(b) Net of income tax recovery of $61 million and $133 million,
respectively, for the three and nine months ended July 31, 2009
(three and nine months ended July 31, 2008 - income tax provision of
$4 million and $21 million, respectively).
(c) Net of income tax provision of $537 million and $662 million,
respectively, for the three and nine months ended July 31, 2009
(three and nine months ended July 31, 2008 - income tax recovery of
$97 million and $392 million, respectively).
(d) Includes $1,297 million and $1,406 million, respectively, of after-
tax gains arising from hedges of the Bank's investment in foreign
operations for the three and nine months ended July 31, 2009 (three
and nine months ended July 31, 2008 - after-tax losses of
$215 million and $887 million, respectively).
(e) Net of income tax recovery of $267 million and net of income tax
provision of $676 million, respectively, for the three and nine
months ended July 31, 2009 (three and nine months ended July 31, 2008
- income tax provision of $10 million and $328 million,
respectively).
(f) Net of income tax provision of $165 million and $398 million,
respectively, for the three and nine months ended July 31, 2009
(three and nine months ended July 31, 2008 - income tax provision of
$29 million and $45 million, respectively).
Certain comparative amounts have been reclassified to conform to the
current period's presentation.
The accompanying notes are an integral part of these Interim Consolidated
Financial Statements.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
-------------------------------------------------------------------------
For the three For the nine
months ended months ended
----------------------------------------
July 31 July 31 July 31 July 31
(millions of Canadian dollars) 2009 2008 2009 2008
-------------------------------------------------------------------------
Cash flows from (used in)
operating activities
Net income $912 $997 $2,242 $2,819
Adjustments to determine net cash
flows from (used in) operating
activities:
Provision for credit losses 557 288 1,750 775
Restructuring costs (Note 16) - - 27 48
Depreciation 156 135 434 302
Amortization of other intangibles 158 166 502 405
Stock options 8 5 25 16
Net securities losses (gains) 90 (14) 463 (276)
Net gain on securitizations
(Note 4) (53) (24) (234) (85)
Equity in net income of an
associated company (84) (79) (236) (242)
Non-controlling interests 28 8 84 25
Future income taxes (32) (338) 40 (317)
Changes in operating assets and
liabilities:
Current income taxes payable 943 (450) 2,129 (1,962)
Interest receivable and payable (139) (18) 76 (132)
Trading securities 10,208 9,420 9,607 10,092
Derivative assets 17,002 (852) 25,951 (2,255)
Derivative liabilities (13,381) (666) (18,753) (1,749)
Other (3,226) 1,671 531 267
-------------------------------------------------------------------------
Net cash from operating activities 13,147 10,249 24,638 7,731
-------------------------------------------------------------------------
Cash flows from (used in) financing
activities
Change in deposits (13,477) 4,695 11,763 30,554
Change in securities sold under
repurchase agreements 2,468 208 (11,519) (1,516)
Change in securities sold short (1,363) 947 (6,079) 298
Issue of subordinated notes and
debentures - 1,025 - 4,025
Repayment of subordinated notes
and debentures - - (18) -
Liability for preferred shares and
capital trust securities (1) 20 5 (1)
Translation adjustment on
subordinated notes and debentures
issued in a foreign currency and
other (50) (13) (3) 4
Common shares issued for cash, net
of expenses - - 1,356 -
Common shares issued on exercise of
stock options 71 96 99 157
Common shares sold (acquired) for
trading purposes (8) 1 (8) (19)
Dividends paid in cash on
common shares (403) (333) (1,229) (1,173)
Net proceeds from issuance of
preferred shares - 493 1,497 1,183
Dividends paid on preferred shares (49) (17) (119) (36)
-------------------------------------------------------------------------
Net cash from (used in) financing
activities (12,812) 7,122 (4,255) 33,476
-------------------------------------------------------------------------
Cash flows from (used in) investing
activities
Interest-bearing deposits with
banks (4,677) 3,154 (2,692) 2,301
Activity in available-for-sale and
held-to-maturity securities:
Purchases (20,301) (37,956) (80,051) (76,940)
Proceeds from maturities 20,666 13,642 41,954 20,339
Proceeds from sales 10,063 16,851 26,299 48,540
Activity in lending activities:
Origination and acquisitions (36,283) (42,383) (120,749) (111,999)
Proceeds from maturities 24,876 28,917 83,554 80,265
Proceeds from sales 147 372 366 825
Proceeds from loan
securitizations (Note 4) 6,048 1,395 20,906 4,809
Land, buildings and equipment 123 (107) (463) (250)
Securities purchased under reverse
repurchase agreements (805) (1,071) 10,809 (6,490)
Acquisitions and dispositions less
cash and cash equivalents acquired
(Note 18) - - - (1,759)
-------------------------------------------------------------------------
Net cash used in investing
activities (143) (17,186) (20,067) (40,359)
-------------------------------------------------------------------------
Effect of exchange rate changes on
cash and cash equivalents (152) 14 (167) 81
-------------------------------------------------------------------------
Net increase in cash and cash
equivalents 40 199 149 929
Impact due to reporting-period
alignment of U.S. entities (Note 1) - - (189) -
Cash and cash equivalents at
beginning of period 2,437 2,520 2,517 1,790
-------------------------------------------------------------------------
Cash and cash equivalents at end
of period, represented by cash
and due from banks $2,477 $2,719 $2,477 $2,719
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplementary disclosure of cash
flow information
Amount of interest paid during the
period $2,022 $2,886 $7,165 $8,486
Amount of income taxes paid
(refunded) during the period (90) 413 (968) 1,945
-------------------------------------------------------------------------
Certain comparative amounts have been reclassified to conform to the
current period's presentation.
The accompanying notes are an integral part of these Interim Consolidated
Financial Statements.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
-------------------------------------------------------------------------
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-------------------------------------------------------------------------
BASIS OF PRESENTATION
These Interim Consolidated Financial Statements have been prepared in
accordance with Canadian generally accepted accounting principles (GAAP)
and follow the same accounting policies and methods of application as the
Bank's audited Consolidated Financial Statements for the year ended
October 31, 2008 (2008 Consolidated Financial Statements), except as
described in this Note. Under GAAP, additional disclosures are required
in the annual financial statements and accordingly, these Interim
Consolidated Financial Statements should be read in conjunction with the
2008 Consolidated Financial Statements and the accompanying notes
included on pages 88 to 135 of the Bank's 2008 Annual Report and the
shaded sections of the 2008 Management's Discussion and Analysis (MD&A)
included on pages 68 to 76 of the Bank's 2008 Annual Report. Certain
disclosures are included in the MD&A as permitted by GAAP and as
discussed on pages 21 to 23 of the MD&A in this report. These disclosures
are shaded in the MD&A and form an integral part of the Interim
Consolidated Financial Statements. The Interim Consolidated Financial
Statements include all adjustments which are, in the opinion of
management, necessary for a fair presentation of the results for the
periods presented. Note that certain comparative amounts have been
reclassified to conform to the current period's presentation.
CHANGES IN ACCOUNTING POLICIES
Alignment of Reporting Period of U.S. Entities
Effective the quarter ended April 30, 2009, the reporting periods of
TD Banknorth Inc. (TD Banknorth) and Commerce Bancorp, Inc. (Commerce)
have been aligned with the reporting period of the Bank to eliminate the
one month lag in financial reporting. Previously, the reporting periods
of TD Banknorth and Commerce were included in the Bank's financial
statements on a one month lag. In accordance with Canadian Institute of
Chartered Accountant's (CICA) Handbook Section 1506, Accounting Changes,
this alignment is considered a change in accounting policy. The Bank has
assessed that the impact to the prior period Consolidated Financial
Statements is not material and therefore, an adjustment was made to
opening retained earnings of the second quarter this year to align the
reporting periods of TD Banknorth and Commerce to that of the Bank's
reporting period. Accordingly, the results of TD Banknorth and Commerce
for the nine months ended July 31, 2009 have been included with the
results of the Bank for the nine months ended July 31, 2009, while the
results of January 2009 have been included directly in retained earnings
and not in the Interim Consolidated Statement of Income.
Subsequent Accounting for Impaired Financial Assets
On April 29, 2009, the Bank adopted an amendment to CICA Handbook Section
3855, Financial Instruments - Recognition and Measurement (Section 3855).
The amendment clarified that, subsequent to the recognition of an
impairment loss on a financial asset (other than a loan), interest income
on the impaired financial asset is recognized using the rate of interest
used to determine the impairment loss. The adoption of this amendment did
not have a material impact on the financial position or earnings of the
Bank.
Goodwill, Intangible Assets and Financial Statement Concepts
Effective November 1, 2008, the Bank adopted CICA Handbook Section 3064,
Goodwill and Intangible Assets, which clarifies that costs can be
deferred only when they relate to an item that meets the definition of an
asset, and as a result, start-up costs must be expensed as incurred. CICA
Handbook Section 1000, Financial Statement Concepts, was also amended to
provide consistency with the new standard. The adoption of these
standards did not have a material impact on the financial position or
earnings of the Bank.
Credit Risk and Fair Value
Effective November 1, 2008, the Bank adopted EIC 173, Credit Risk and the
Fair Value of Financial Assets and Financial Liabilities. The abstract
clarifies how the Bank's own credit risk and the credit risk of the
counterparty should be taken into account in determining the fair value
of financial assets and financial liabilities, including derivatives. The
new guidance did not have a material impact on the financial position or
earnings of the Bank.
FUTURE CHANGES IN ACCOUNTING POLICIES
Financial Instruments Disclosures
The CICA's Accounting Standards Board (AcSB) amended CICA Handbook
Section 3862, Financial Instruments - Disclosures, to enhance the
disclosure requirements regarding fair value measurements and the
liquidity risk of financial instruments. The amendments will be effective
for the Bank's 2009 annual Consolidated Financial Statements.
Assessment of Embedded Derivatives upon Reclassification
During the third quarter of fiscal 2009, the AcSB amended Section 3855 to
clarify that, upon reclassification of a financial instrument out of the
trading category, an assessment of whether an embedded derivative is
required to be bifurcated must be completed. In addition, the amendment
prohibits the reclassification of a financial instrument out of trading
when the derivative embedded in the financial instrument cannot be
separately measured from the host contract. The amendment is applicable
to all reclassifications occurring after July 1, 2009. It did not have a
material impact on the financial position or earnings of the Bank.
Impairment of Financial Assets
On August 20, 2009, the AcSB amended Section 3855 and CICA Handbook
Section 3025, Impaired Loans (Section 3025). The amendments changed the
definition of a loan such that certain debt securities may be classified
as loans if they do not have a quoted price in an active market and the
Bank does not have the intent to sell the security immediately or in the
near term. As a result, debt securities classified as loans will be
assessed for impairment using the incurred credit loss model of Section
3025 to reduce the carrying value of a loan to its estimated realizable
amount. Loan impairment accounting requirements are also applied to held-
to-maturity financial assets as a result of the amendments. Debt
securities that are classified as available-for-sale (AFS) continue to be
written down to their fair value through the Consolidated Statement of
Income when the impairment is considered to be other-than-temporary.
However, the impairment loss can be reversed if the fair value
subsequently increases and the increase can be objectively related to an
event occurring after the impairment loss was recognized. The amendments
will be adopted by the Bank in the fourth quarter of fiscal 2009. The
Bank is assessing the impact of adoption of the amendments on the
financial position and earnings of the Bank.
Conversion to International Financial Reporting Standards
The AcSB requires that all Canadian publicly accountable enterprises
adopt International Financial Reporting Standards (IFRS) for years
beginning on or after January 1, 2011. IFRS uses a conceptual framework
similar to Canadian GAAP, but there are some differences in recognition,
measurement and disclosures.
IFRS will be effective for the Bank for the fiscal 2012 beginning on
November 1, 2011. This includes restatement of comparative fiscal 2011
financial results for interim and annual periods. Currently, the Bank is
in the planning phase of converting to IFRS. It is not yet possible to
fully determine the impact to the financial statements, as accounting
standards and the interpretations thereof are changing. The conversion to
IFRS is a significant initiative for the Bank, for which substantial
resources are being dedicated to ensure proper implementation.
Note 2: SECURITIES
-------------------------------------------------------------------------
Impairment of Available-for-Sale Securities
AFS securities are written down to fair value through net income whenever
it is necessary to reflect other-than-temporary impairment. For the three
and nine months ended July 31, 2009, the Bank recognized impairment
losses on AFS securities that were deemed to be other-than-temporary of
$22 million and $333 million, respectively. These losses were primarily
related to Wholesale Banking.
Reclassification of Certain Debt Securities
The Bank changed its trading strategy with respect to certain trading
debt securities and reclassified these debt securities from trading to
the AFS category effective August 1, 2008 in accordance with the
Amendments to CICA Handbook Section 3855, Financial Instruments -
Recognition and Measurement and CICA Handbook Section 3862, Financial
Instruments - Disclosure. This change was made as a result of
deterioration in markets and severe dislocation in the credit market and
is described in more detail in Notes 1 and 2 to the 2008 Consolidated
Financial Statements.
On August 1, 2008, the fair value of debt securities reclassified from
trading to AFS was $6,979 million. In addition, on the date of
reclassification, these debt securities had a weighted-average effective
interest rate of 6.99% with expected recoverable cash flows, on an
undiscounted basis, of $9,732 million. The fair value of the reclassified
debt securities was $6,193 million as at July 31, 2009 (October 31, 2008
- $7,355 million). During the three and nine months ended July 31, 2009,
net interest income of $86 million and $300 million after tax,
respectively (three months ended October 31, 2008 - $110 million after
tax), was recorded relating to the reclassified debt securities. For the
three and nine months ended July 31, 2009, the respective increase in
fair value of $316 million and $486 million after tax (three months ended
October 31, 2008 - decrease of $561 million after tax) for these
securities 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 an increase of net income of $316
million and $486 million after tax, respectively, for the three and nine
months ended July 31, 2009 (three months ended October 31, 2008 -
reduction of $561 million after tax). Included in the impairment losses
on AFS securities disclosed above, $3 million and $88 million, for the
three and nine months ended July 31, 2009, respectively (three months
ended October 31, 2008 - nil), related to debt securities in the
reclassified portfolio. These losses were primarily offset by gains on
credit protection held which were recorded in other income. For the three
and nine months ended July 31, 2008, the Bank recognized the change in
the fair value of these debt securities in its trading income.
Unrealized Gains and Losses on Available-for-Sale Securities
-------------------------------------------------------------------------
As at
----------------------------------------
July 31, 2009
----------------------------------------
Gross Gross
Cost/ unreal- unreal-
amortized ized ized Fair
(millions of Canadian dollars) cost gains losses value
-------------------------------------------------------------------------
Government and government-
related securities securities
Canadian government debt
Federal $10,618 $10 $- $10,628
Provinces 342 9 - 351
U.S. Federal, state and
municipal governments
and agencies debt 15,291 188 47 15,432
Other OECD government-
guaranteed debt 10,373 23 - 10,396
Mortgage-backed securities 22,007 1,017 451 22,573
-------------------------------------------------------------------------
58,631 1,247 498 59,380
-------------------------------------------------------------------------
Other debt securities
Asset-backed securities 10,115 7 74 10,048
Non-agency collateralized
mortgage obligation portfolio 8,002 662 1,301 7,363
Corporate and other debt 3,664 327 42 3,949
-------------------------------------------------------------------------
21,781 996 1,417 21,360
-------------------------------------------------------------------------
Bonds reclassified
from trading(1) 6,285 161 253 6,193
-------------------------------------------------------------------------
Equity securities(2)
Preferred shares 375 37 30 382
Common shares 1,571 308 84 1,795
-------------------------------------------------------------------------
1,946 345 114 2,177
-------------------------------------------------------------------------
Total $88,643 $2,749 $2,282 $89,110
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total carrying value $88,914
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As at
----------------------------------------
Oct. 31, 2008
----------------------------------------
Gross Gross
Cost/ unreal- unreal-
amortized ized ized Fair
(millions of Canadian dollars) cost gains losses value
-------------------------------------------------------------------------
Government and government-
related securities securities
Canadian government debt
Federal $10,363 $14 $2 $10,375
Provinces 231 3 1 233
U.S. Federal, state and
municipal governments
and agencies debt 5,295 12 149 5,158
Other OECD government-
guaranteed debt 22 - - 22
Mortgage-backed securities 29,118 401 728 28,791
-------------------------------------------------------------------------
45,029 430 880 44,579
-------------------------------------------------------------------------
Other debt securities
Asset-backed securities 9,178 1 290 8,889
Non-agency collateralized
mortgage obligation portfolio 9,329 11 905 8,435
Corporate and other debt 2,601 1 40 2,562
-------------------------------------------------------------------------
21,108 13 1,235 19,886
-------------------------------------------------------------------------
Bonds reclassified
from trading(1) 8,219 2,154 3,018 7,355
-------------------------------------------------------------------------
Equity securities(2)
Preferred shares 452 70 22 500
Common shares 2,791 540 244 3,087
-------------------------------------------------------------------------
3,243 610 266 3,587
-------------------------------------------------------------------------
Total $77,599 $3,207 $5,399 $75,407
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total carrying value $75,121
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Includes fair value of government and government-insured securities
of $36 million (October 31, 2008 - $41 million) and other debt
securities of $6,157 million (October 31, 2008 - $7,314 million).
(2) Equity securities in the AFS portfolio with a carrying value of
$2,237 million (October 31, 2008 - $1,496 million) do not have quoted
market prices and are carried at cost. The fair value of these equity
securities was $2,433 million (October 31, 2008 - $1,782 million) and
is included in the table above.
Note 3: ALLOWANCE FOR CREDIT LOSSES AND LOANS PAST DUE BUT NOT IMPAIRED
-------------------------------------------------------------------------
The Bank maintains an allowance it considers adequate to absorb all
credit-related losses in a portfolio of instruments that are both on and
off the Interim Consolidated Balance Sheet. The allowance for loan
losses, which includes allowance for deposits with banks, mortgages,
acceptances and loans other than loans designated as trading under the
fair value option, is deducted from loans on the Interim Consolidated
Balance Sheet. The allowance for credit losses for off-balance sheet
instruments, which relates to certain guarantees, letters of credit and
undrawn lines of credit, is recorded in other liabilities. The change in
the Bank's allowance for credit losses for the nine months ended July 31
is shown in the following table.
Allowance for Credit Losses
-------------------------------------------------------------------------
As at
------------------------------------------------------------
July 31, 2009 July 31, 2008
------------------------------------------------------------
(millions of
Canadian Specific General Specific General
dollars) allowance allowance Total allowance allowance Total
-------------------------------------------------------------------------
Allowance for
credit losses
at beginning
of year $352 $1,184 $1,536 $203 $1,092 $1,295
Impact due to
reporting-period
alignment of
U.S. entities(1) 22 29 51 - - -
Provision for
credit losses 1,197 553 1,750 676 99 775
Write-offs (1,108) - (1,108) (699) - (699)
Recoveries 77 - 77 95 - 95
Foreign exchange
and other
adjustments(2) (4) (49) (53) 17 (36) (19)
-------------------------------------------------------------------------
Allowance for
credit losses at
end of period $536 $1,717 $2,253 $292 $1,155 $1,447
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consisting of:
Allowance for
loan losses(3) $536 $1,443 $1,979 $292 $1,155 $1,447
Allowance for
credit losses
for off-balance
sheet
instruments(3) - 274 274 - - -
-------------------------------------------------------------------------
Allowance for
credit losses at
end of period $536 $1,717 $2,253 $292 $1,155 $1,447
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The impact due to alignment of reporting period of U.S. entities
consists of the following: provision for credit losses - $80 million;
write-offs - $35 million; recoveries - nil; and other - $6 million.
(2) Includes foreign exchange rate changes, net of losses on loan sales.
(3) Effective April 30, 2009, the allowance for credit losses for
off-balance sheet instruments is recorded in other liabilities. Prior
period balances have not been reclassified.
Loans Past Due but not Impaired
A loan is classified as past due when a borrower has failed to make a
payment by the contractual due date, taking into account the grace
period, if applicable. The grace period represents the additional time
period beyond the contractual due date during which a borrower may make
the payment without the loan being classified as past due. The grace
period varies depending on the product type and the borrower.
The table below represents loans that are past due but not impaired. With
the exception of U.S. Personal and Commercial Banking, these amounts
exclude loans that fall within the allowed grace period. U.S Personal and
Commercial Banking may grant a grace period of up to 15 days. There were
$2.0 billion as at July 31, 2009 (October 31, 2008 - $2.6 billion) of
U.S. Personal and Commercial Banking loans that were past due up to 15
days and are included in the 1-30 days category in the table below.
Loans Past Due but not Impaired
-------------------------------------------------------------------------
As at
July 31, 2009
---------------------------------------
1-30 31-60 61-89
(millions of Canadian dollars) days days days Total
-------------------------------------------------------------------------
Residential mortgages $851 $376 $80 $1,307
Consumer instalment and
other personal 3,219 543 138 3,900
Credit card 351 77 48 476
Business and government 2,115 403 181 2,699
-------------------------------------------------------------------------
Total $6,536 $1,399 $447 $8,382
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As at
Oct. 31, 2008
----------------------------------------
1-30 31-60 61-89
(millions of Canadian dollars) days days days Total
-------------------------------------------------------------------------
Residential mortgages $807 $357 $63 $1,227
Consumer instalment and
other personal 3,234 570 131 3,935
Credit card 381 75 41 497
Business and government 2,729 256 80 3,065
-------------------------------------------------------------------------
Total $7,151 $1,258 $315 $8,724
-------------------------------------------------------------------------
Note 4: LOAN SECURITIZATIONS
-------------------------------------------------------------------------
The following tables summarize the Bank's securitization activity for the
three and nine months ended July 31. In most cases, the Bank retained
responsibility for servicing the assets securitized.
Securitization Activity
-------------------------------------------------------------------------
(millions of
Canadian dollars) July 31, 2009
-------------------------------------------------------------------------
Residential Credit Commercial
For the three mortgage Personal card mortgage
months ended loans loans loans loans Total
-------------------------------------------------------------------------
Gross proceeds $6,785 $784 $- $- $7,569
Retained interests 280 6 - - 286
Cash flows received
on retained
interests 167 16 - 1 184
-------------------------------------------------------------------------
For the nine
months ended
-------------------------------------------------------------------------
Gross proceeds $21,643 $2,507 $- $- $24,150
Retained interests 846 8 - - 854
Cash flows received
on retained
interests 338 54 - 2 394
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(millions of
Canadian dollars) July 31, 2008
-------------------------------------------------------------------------
Residential Credit Commercial
For the three mortgage Personal card mortgage
months ended loans loans loans loans Total
-------------------------------------------------------------------------
Gross proceeds $2,195 $1,477 $- $- $3,672
Retained interests 45 12 - - 57
Cash flows received
on retained
interests 56 18 14 1 89
-------------------------------------------------------------------------
For the nine
months ended
-------------------------------------------------------------------------
Gross proceeds $6,109 $4,221 $1,600 $- $11,930
Retained interests 145 38 12 - 195
Cash flows received
on retained
interests 164 70 43 2 279
-------------------------------------------------------------------------
The following tables summarize the impact of securitizations on the
Bank's Interim Consolidated Statement of Income for the three and nine
months ended July 31.
Securitization Gains and Income on Retained Interests
-------------------------------------------------------------------------
(millions of
Canadian dollars) July 31, 2009
-------------------------------------------------------------------------
Residential Credit Commercial
For the three mortgage Personal card mortgage
months ended loans loans loans loans Total
-------------------------------------------------------------------------
Gain on sale $48 $5 $- $- $53
Income on retained
interests(1) 34 5 - - 39
-------------------------------------------------------------------------
Total $82 $10 $- $- $92
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the nine
months ended
-------------------------------------------------------------------------
Gain on sale $227 $7 $- $- $234
Income on retained
interests(1) 84 15 - - 99
-------------------------------------------------------------------------
Total $311 $22 $- $- $333
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(millions of
Canadian dollars) July 31, 2008
-------------------------------------------------------------------------
Residential Credit Commercial
For the three mortgage Personal card mortgage
months ended loans loans loans loans Total
-------------------------------------------------------------------------
Gain on sale $13 $11 $- $- $24
Income on retained
interests(1) 23 1 29 - 53
-------------------------------------------------------------------------
Total $36 $12 $29 $- $77
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the nine
months ended
-------------------------------------------------------------------------
Gain on sale $36 $37 $12 $- $85
Income on retained
interests(1) 69 14 76 - 159
-------------------------------------------------------------------------
Total $105 $51 $88 $- $244
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Income on retained interests excludes income arising from changes in
fair values. Unrealized gains and losses on retained interests
arising from changes in fair value are recorded in trading income.
The key assumptions used to value the retained interests at the date of
the securitization activities are as follows:
Key Assumptions
-------------------------------------------------------------------------
2009
------------------------------------------
Residential Credit Commercial
mortgage Personal card mortgage
loans loans loans loans
-------------------------------------------------------------------------
Prepayment rate(1) 18.7% 5.2% n/a 5.2%
Excess spread(2) 1.3 0.4 n/a 1.0
Discount rate 3.2 3.3 n/a 5.9
Expected credit losses(3) - - n/a 0.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2008
------------------------------------------
Residential Credit Commercial
mortgage Personal card mortgage
loans loans loans loans
-------------------------------------------------------------------------
Prepayment rate(1) 18.5% 6.0% 43.5% 5.2%
Excess spread(2) 0.8 1.1 7.1 1.0
Discount rate 5.2 5.7 6.1 8.1
Expected credit losses(3) - - 2.4 0.1
-------------------------------------------------------------------------
(1) Represents monthly payment rate for secured personal and credit card
loans.
(2) The excess spread for credit card loans reflects the net portfolio
yield, which is interest earned less funding costs and losses.
(3) There are no expected credit losses for residential mortgage loans as
the loans are government-guaranteed.
During the three months ended July 31, 2009, there were maturities of
previously securitized loans and receivables of $1,521 million (three
months ended July 31, 2008 - $2,277 million). Proceeds from new
securitizations were $6,048 million for the three months ended July 31,
2009 (three months ended July 31, 2008 - $1,395 million). During the nine
months ended July 31, 2009, there were maturities of previously
securitized loans and receivables of $3,244 million (nine months ended
July 31, 2008 - $7,121 million). Proceeds from new securitizations were
$20,906 million for the nine months ended July 31, 2009 (nine months
ended July 31, 2008 - $4,809 million).
Note 5: LIABILITY FOR PREFERRED SHARES
-------------------------------------------------------------------------
The Bank's liability for preferred shares is as follows:
Preferred Shares
-------------------------------------------------------------------------
As at
--------------------
July 31, Oct. 31,
(millions of Canadian dollars) 2009 2008
-------------------------------------------------------------------------
Preferred shares issued by the Bank
(thousands of shares):
Class A - 14,000 Series M $350 $350
Class A - 8,000 Series N 200 200
-------------------------------------------------------------------------
Total liability for preferred shares $550 $550
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Note 6: CAPITAL TRUST SECURITIES
-------------------------------------------------------------------------
The following table summarizes the Capital Trust Securities issued by the
Trusts that were established by the Bank.
Capital Trust Securities
-------------------------------------------------------------------------
As at
--------------------
July 31, Oct. 31,
(millions of Canadian dollars) 2009 2008
-------------------------------------------------------------------------
Trust units issued by TD Capital Trust
(thousands of units)
900 Capital Trust Securities - Series 2009(1) $899 $894
Trust units issued by TD Capital Trust II(2)
(thousands of units)
350 TD Capital Trust II Securities - Series 2012-1 350 350
Trust units issued by TD Capital Trust III
(thousands of units)
1,000 TD Capital Trust III Securities - Series 2008(3) 987 990
Debt issued by TD Capital Trust IV(2)
(thousands of units)
550 TD Capital Trust IV Notes - Series 1 550 -
450 TD Capital Trust IV Notes - Series 2 450 -
-------------------------------------------------------------------------
(1) Included in Liability for Capital Trust Securities on the Interim
Consolidated Balance Sheet.
(2) Trust II and Trust IV are variable interest entities. As the Bank is
not the primary beneficiary of the trusts, the Bank does not
consolidate them. The senior deposit notes that were issued to Trust
II and Trust IV are reflected in deposits on the Interim Consolidated
Balance Sheet.
(3) Included in non-controlling interests in subsidiaries on the Interim
Consolidated Balance Sheet. See Note 7.
TD Capital IV Notes
On January 26, 2009, TD Capital Trust IV (Trust IV), a trust established
under the laws of the Province of Ontario, issued $550 million of 9.523%
TD Capital Trust IV Notes - Series 1 due June 30, 2108 (TD CaTS IV -
Series 1) and $450 million of 10.00% TD Capital Trust IV Notes - Series 2
due June 30, 2108 (TD CaTS IV - Series 2) (collectively, the TD CaTS IV
Notes). The proceeds from the issuance were invested in Bank deposits. TD
CaTS IV Notes qualify as Tier 1 capital of the Bank.
TD CaTS IV - Series 1 will pay interest, at a rate of 9.523%, in equal
semi-annual instalments on June 30 and December 31 of each year until
June 30, 2019. Starting on June 30, 2019 and on every fifth anniversary
thereafter until June 30, 2104 (Series 1 Interest Reset Date), the
interest rate on the TD CaTS IV - Series 1 will reset to equal the
Government of Canada (GOC) yield plus 10.125%. TD CaTS IV - Series 2 will
pay interest, at a rate of 10.00%, in equal semi-annual instalments on
June 30 and December 31 of each year until June 30, 2039. Starting on
June 30, 2039 and on every fifth anniversary thereafter until June 30,
2104 (Series 2 Interest Reset Date), the interest rate on the TD CaTS IV
- Series 2 will reset to equal the GOC yield plus 9.735%.
On or after June 30, 2014, the Trust may redeem the TD CaTS IV -
Series 1, subject to regulatory consent, for a price per $1,000 principal
amount of TD CaTS IV - Series 1 redeemed (a) on any day that is not a
Series 1 Interest Reset Date equal to the greater of par and a price
calculated to provide an annual yield equal to the yield of a GOC bond
maturing on the next Series 1 Interest Reset Date plus (i) 1.6875% if the
redemption date is prior to June 30, 2019 or (ii) 3.375% if the
redemption date is on or after June 30, 2019, or (b) on a Series 1
Interest Reset Date equal to par, together in each case with accrued and
unpaid interest. On or after June 30, 2014, the Trust may redeem the TD
CaTS IV - Series 2, subject to regulatory consent, for a price per $1,000
principal amount of TD CaTS IV - Series 2 redeemed (a) on any day that is
not a Series 2 Interest Reset Date equal to the greater of par and a
price calculated to provide an annual yield equal to the yield of a GOC
bond maturing on the next Series 2 Interest Reset Date plus (i) 1.62% if
the redemption date is prior to June 30, 2039 or (ii) 3.24% if the
redemption date is on or after June 30, 2039, or (b) on a Series 2
Interest Reset Date equal to par, together in each case with accrued and
unpaid interest.
Holders of TD CaTS IV Notes may, in certain circumstances, be required to
invest interest paid on the TD CaTS IV Notes in non-cumulative Class A
First Preferred Shares of the Bank. In addition, in certain
circumstances, the TD CaTS IV Notes will be exchanged automatically,
without the consent of the holders, for non-cumulative Class A First
Preferred Shares, Series A10 of the Bank.
Note 7: NON-CONTROLLING INTERESTS IN SUBSIDIARIES
-------------------------------------------------------------------------
As at
--------------------
July 31, Oct. 31,
(millions of Canadian dollars) 2009 2008
-------------------------------------------------------------------------
REIT preferred stock, Series A $530 $523
TD Capital Trust III Securities - Series 2008 987 990
Other 44 47
-------------------------------------------------------------------------
Total non-controlling interests in subsidiaries $1,561 $1,560
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Note 8: SHARE CAPITAL
-------------------------------------------------------------------------
Shares Issued and Outstanding
-------------------------------------------------------------------------
As at
-----------------------------------------
July 31, 2009 Oct. 31, 2008
-----------------------------------------
(millions of shares and Number of Number of
millions of Canadian dollars) shares Amount shares Amount
-------------------------------------------------------------------------
Common shares:
Balance at beginning of year 810.1 $13,241 717.8 $6,577
Issued on exercise of stock options 2.6 135 4.6 255
Issued as a result of
dividend reinvestment plan 6.8 324 4.6 274
Issued for cash 34.9 1,381 - -
Issued on the acquisition
of Commerce - - 83.3 6,147
Impact of shares acquired
for trading purposes(1) (0.3) (8) (0.2) (12)
-------------------------------------------------------------------------
Balance at end of period -
common shares 854.1 $15,073 810.1 $13,241
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Preferred shares (Class A):
Series O 17.0 $425 17.0 $425
Series P 10.0 250 10.0 250
Series Q 8.0 200 8.0 200
Series R 10.0 250 10.0 250
Series S 10.0 250 10.0 250
Series Y 10.0 250 10.0 250
Series AA 10.0 250 10.0 250
Series AC 8.8 220 - -
Series AE 12.0 300 - -
Series AG 15.0 375 - -
Series AI 11.0 275 - -
Series AK 14.0 350 - -
-------------------------------------------------------------------------
Balance at end of period -
preferred shares 135.8 $3,395 75.0 $1,875
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Purchased by subsidiaries of the Bank, which are regulated securities
entities in accordance with Regulation 92-313 under the Bank Act.
COMMON SHARES
On December 5, 2008, the Bank issued 35 million common shares for gross
cash consideration of $1.4 billion. The common shares qualify as Tier 1
capital of the Bank.
PREFERRED SHARES
5-Year Rate Reset Preferred Shares, Series AC
On November 5, 2008, the Bank issued 8.8 million non-cumulative 5-Year
Rate Reset Preferred Shares, Series AC for gross cash consideration of
$220 million. Quarterly non-cumulative cash dividends, if declared, will
be paid at a per annum rate of 5.60% for the initial period from and
including November 5, 2008 to but excluding January 31, 2014. Thereafter,
the dividend rate will reset every five years to equal the then five year
Government of Canada bond yield plus 2.74%. Holders of the Series AC
shares will have the right to convert their shares into non-cumulative
Floating Rate Preferred Shares, Series AD, subject to certain conditions,
on January 31, 2014, and on January 31 every five years thereafter and
vice versa. The Series AC shares are redeemable by the Bank for cash,
subject to regulatory consent, at $25.00 per share on January 31, 2014
and on January 31 every five years thereafter. The Series AC shares
qualify as Tier 1 capital of the Bank.
5-Year Rate Reset Preferred Shares, Series AE
On January 14, 2009, the Bank issued 12 million non-cumulative 5-Year
Rate Reset Preferred Shares, Series AE for gross cash consideration of
$300 million. Quarterly non-cumulative cash dividends, if declared, will
be paid at a per annum rate of 6.25% for the initial period from and
including January 14, 2009 to but excluding April 30, 2014. Thereafter,
the dividend rate will reset every five years to equal the then five year
Government of Canada bond yield plus 4.37%. Holders of the Series AE
shares will have the right to convert their shares into non-cumulative
Floating Rate Class A Preferred Shares, Series AF, subject to certain
conditions, on April 30, 2014, and on April 30 every five years
thereafter and vice versa. The Series AE shares are redeemable by the
Bank for cash, subject to regulatory consent, at $25.00 per share on
April 30, 2014 and on April 30 every five years thereafter. The Series
AE shares qualify as Tier 1 capital of the Bank.
5-Year Rate Reset Preferred Shares, Series AG
On January 30, 2009, the Bank issued 15 million non-cumulative 5-Year
Rate Reset Preferred Shares, Series AG for gross cash consideration of
$375 million. Quarterly non-cumulative cash dividends, if declared, will
be paid at a per annum rate of 6.25% for the initial period from and
including January 30, 2009 to but excluding April 30, 2014. Thereafter,
the dividend rate will reset every five years to equal the then five year
Government of Canada bond yield plus 4.38%. Holders of the Series AG
shares will have the right to convert their shares into non-cumulative
Floating Rate Class A Preferred Shares, Series AH, subject to certain
conditions, on April 30, 2014, and on April 30 every five years
thereafter and vice versa. The Series AG shares are redeemable by the
Bank for cash, subject to regulatory consent, at $25.00 per share on
April 30, 2014 and on April 30 every five years thereafter. The Series AG
shares qualify as Tier 1 capital of the Bank.
5-Year Rate Reset Preferred Shares, Series AI
On March 6, 2009, the Bank issued 11 million non-cumulative 5-Year Rate
Reset Preferred Shares, Series AI for gross cash consideration of
$275 million. Quarterly non-cumulative cash dividends, if declared, will
be paid at a per annum rate of 6.25% for the initial period from and
including March 6, 2009 to but excluding July 31, 2014. Thereafter, the
dividend rate will reset every five years to equal the then five year
Government of Canada bond yield plus 4.15%. Holders of the Series AI
shares will have the right to convert their shares into non-cumulative
Floating Rate Class A Preferred Shares, Series AJ, subject to certain
conditions, on July 31, 2014, and on July 31 every five years thereafter
and vice versa. The Series AI shares are redeemable by the Bank for cash,
subject to regulatory consent, at $25.00 per share on July 31, 2014 and
on July 31 every five years thereafter. The Series AI shares qualify as
Tier 1 capital of the Bank.
5-Year Rate Reset Preferred Shares, Series AK
On April 3, 2009, the Bank issued 14 million non-cumulative 5-Year Rate
Reset Preferred Shares, Series AK for gross cash consideration of
$350 million. Quarterly non-cumulative cash dividends, if declared, will
be paid at a per annum rate of 6.25% for the initial period from and
including April 3, 2009 to but excluding July 31, 2014. Thereafter, the
dividend rate will reset every five years to equal the then five year
Government of Canada bond yield plus 4.33%. Holders of the Series AK
shares will have the right to convert their shares into non-cumulative
Floating Rate Class A Preferred Shares, Series AL, subject to certain
conditions, on July 31, 2014, and on July 31 every five years thereafter
and vice versa. The Series AK shares are redeemable by the Bank for cash,
subject to regulatory consent, at $25.00 per share on July 31, 2014 and
on July 31 every five years thereafter. The Series AK shares qualify as
Tier 1 capital of the Bank.
Note 9: REGULATORY CAPITAL
-------------------------------------------------------------------------
The Bank manages its capital under guidelines established by the Office
of the Superintendent of Financial Institutions Canada (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. Effective April 30, 2009 for accounting purposes, and
effective October 31, 2008 for regulatory reporting purposes, the
reporting period of the U.S. entities was aligned with the rest of the
Bank. Prior to April 30, 2009 and October 31, 2008, the Bank's financial
statements and regulatory capital, respectively, were calculated
incorporating TD Banknorth and Commerce on a one month lag.
During the nine months ended July 31, 2009, the Bank complied with the
OSFI guideline related to capital ratios and the assets-to-capital
multiple. This guideline is based on the "International Convergence of
Capital Measurement and Capital Standards - A Revised Framework"
(Basel II) issued by the Basel Committee on Banking Supervision.
Effective November 1, 2008, substantial investments held prior to
January 1, 2007, which were previously deducted from Tier 2 capital, are
deducted 50% from Tier 1 capital and 50% from Tier 2 capital. Insurance
subsidiaries continue to be deconsolidated and reported as a deduction
from Tier 2 capital.
The Bank's regulatory capital position was as follows:
Regulatory Capital Position
-------------------------------------------------------------------------
As at
--------------------
July 31, Oct. 31,
(millions of Canadian dollars) 2009 2008
-------------------------------------------------------------------------
Tier 1 capital $21,219 $20,679
Tier 1 capital ratio(1) 11.2% 9.8%
Total capital(2) $27,906 $25,348
Total capital ratio(3) 14.7% 12.0%
Assets-to-capital multiple(4) 16.6 19.3
-------------------------------------------------------------------------
(1) Tier 1 capital ratio is calculated as Tier 1 capital divided by
risk-weighted assets (RWA).
(2) Total capital includes Tier 1 and Tier 2 capital.
(3) Total capital ratio is calculated as Total capital divided by RWA.
(4) The assets-to-capital multiple 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 adjusted capital.
OSFI's target Tier 1 and Total capital ratios for Canadian banks are 7%
and 10%, respectively.
Note 10: ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
-------------------------------------------------------------------------
The following table summarizes the Bank's accumulated other comprehensive
income (loss), net of income taxes, as at July 31:
Accumulated Other Comprehensive Income (Loss), Net of Income Taxes
-------------------------------------------------------------------------
As at
--------------------
July 31, Oct. 31,
(millions of Canadian dollars) 2009(1) 2008
-------------------------------------------------------------------------
Net unrealized loss on available-for-sale securities,
net of hedging activities $(153) $(1,409)
Net unrealized foreign currency translation
loss on investments in subsidiaries, net of
hedging activities (1,114) (1,633)
Net gain on derivatives designated
as cash flow hedges 1,865 1,393
-------------------------------------------------------------------------
Accumulated other comprehensive income (loss)
balance as at end of period $598 $(1,649)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) This includes the impact of other comprehensive income of U.S.
entities for January 2009, as explained in Note 1, and consists of
the following: unrealized gains on AFS securities, net of hedging
activities - $199 million; unrealized foreign currency translation
gains on investments in subsidiaries, net of hedging activities -
$166 million; and losses on derivatives designated as cash flow
hedges - $36 million.
Note 11: STOCK-BASED COMPENSATION
-------------------------------------------------------------------------
For the three and nine months ended July 31, 2009, the Bank recognized
compensation expense for stock option awards of $8 million and
$25 million, respectively (three and nine months ended July 31, 2008 -
$5 million and $16 million, respectively).
During the three months ended July 31, 2009 and July 31, 2008, there were
no options granted by the Bank. During the nine months ended July 31,
2009, 4 million (nine months ended July 31, 2008 - 2 million) options
were granted by the Bank with a weighted-average fair value of $7.62 per
option (nine months ended July 31, 2008 - $10.80 per option).
The fair value of options granted was estimated at the date of grant
using a binomial tree-based valuation model. The following assumptions
were used:
Assumptions Used for Estimating Fair Value of Options
-------------------------------------------------------------------------
For the nine months ended
----------------------------
July 31 July 31
2009 2008
-------------------------------------------------------------------------
Risk-free interest rate 2.2% 3.8%
Expected option life 5.6 years 5.5 years
Expected volatility 23.9% 15.9%
Expected dividend yield 3.00% 2.85%
-------------------------------------------------------------------------
Note 12: EMPLOYEE FUTURE BENEFITS
-------------------------------------------------------------------------
The Bank's principal pension plans, The Pension Fund Society of the
Toronto-Dominion Bank (the Society) and the TD Pension Plan (Canada) (the
Plan), are defined benefit plans. The Society was closed to new members
on January 30, 2009 and the Plan commenced on March 1, 2009. Benefits
under the principal pension plans are determined based upon the period of
plan participation and the average salary of the member in the best
consecutive five years in the last 10 years of combined plan membership.
The expenses for the Bank's pension plans and Principal Non-Pension Post-
Retirement Benefit Plan are as follows:
Principal Pension Plans Pension Expense
-------------------------------------------------------------------------
For the three For the nine
months ended months ended
---------------------------------------
July 31 July 31 July 31 July 31
(millions of Canadian dollars) 2009 2008 2009 2008
-------------------------------------------------------------------------
Elements of pension plan expense
before adjustments to recognize
the long term nature of the cost:
Service cost - benefits earned $18 $21 $50 $58
Interest cost on projected
benefit obligation 38 33 108 96
Actual return on plan assets (68) (71) 342 36
Plan amendments - - - 7
Adjustments to recognize the
long-term nature of plan cost:
Difference between costs arising in
the period and costs recognized
in the period in respect of:
Return on plan assets(1) 35 33 (443) (150)
Actuarial losses(2) 13 5 18 10
Plan amendments(3) (4) 2 7 -
-------------------------------------------------------------------------
Total $32 $23 $82 $57
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) For the three months ended July 31, 2009, includes expected return on
plan assets of $33 million (three months ended July 31, 2008 -
$38 million) less actual return on plan assets of $68 million (three
months ended July 31, 2008 - $71 million). For the nine months ended
July 31, 2009, includes expected return on plan assets of
$101 million (nine months ended July 31, 2008 - $114 million) less
actual return on plan assets of $(342) million (nine months ended
July 31, 2008 - $(36) million).
(2) For the three months ended July 31, 2009, includes loss recognized of
$13 million (three months ended July 31, 2008 - $5 million) less
actuarial losses on projected benefit obligation of nil (three months
ended July 31, 2008 - nil). For the nine months ended July 31, 2009,
includes loss recognized of $18 million (nine months ended July 31,
2008 - $10 million) less actuarial losses on projected benefit
obligation of nil (nine months ended July 31, 2008 - nil).
(3) For the three months ended July 31, 2009, includes amortization of
costs for plan amendments of $(4) million (three months ended
July 31, 2008 - $2 million) less actual cost amendments of nil (three
months ended July 31, 2008 - nil). For the nine months ended July 31,
2009, includes amortization of costs for plan amendments of
$7 million (nine months ended July 31, 2008 - $7 million) less actual
cost amendments of nil (nine months ended July 31, 2008 -
$7 million).
Other Pension Plans' Expense
-------------------------------------------------------------------------
For the three For the nine
months ended months ended
---------------------------------------
July 31 July 31 July 31 July 31
(millions of Canadian dollars) 2009 2008 2009 2008
-------------------------------------------------------------------------
CT Defined Benefit Pension Plan $1 $1 $3 $3
TD Banknorth Defined Benefit
Pension Plan(1) (3) 1 (8) -
Supplemental employee
retirement plans 8 8 24 24
-------------------------------------------------------------------------
Total $6 $10 $19 $27
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) TD Banknorth Defined Benefit Pension Plan was frozen as of December
31, 2008, and no service credits can be earned after that date.
Principal Non-Pension Post-Retirement Benefit Plan Expense
-------------------------------------------------------------------------
For the three For the nine
months ended months ended
---------------------------------------
July 31 July 31 July 31 July 31
(millions of Canadian dollars) 2009 2008 2009 2008
-------------------------------------------------------------------------
Elements of non-pension plan expense
before adjustments to recognize
the long-term nature of the cost:
Service cost - benefits earned $2 $3 $6 $9
Interest cost on projected
benefit obligation 5 6 15 17
Adjustments to recognize the
long-term nature of plan cost:
Difference between costs arising
in the period and costs recognized
in the period in respect of:
Actuarial losses - 1 - 4
Plan amendments (1) (1) (4) (4)
-------------------------------------------------------------------------
Total $6 $9 $17 $26
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash Flows
The Bank's contributions to its pension plans and its Principal Non-
Pension Post-Retirement Benefit Plan are as follows:
Plan Contributions
-------------------------------------------------------------------------
For the three For the nine
months ended months ended
---------------------------------------
July 31 July 31 July 31 July 31
(millions of Canadian dollars) 2009 2008 2009 2008
-------------------------------------------------------------------------
Principal pension plans $505 $30 $554 $67
CT Defined Benefit Pension Plan - (1) - (1)
TD Banknorth Defined Benefit
Pension Plan - 1 - 1
Supplemental employee
retirement plans 6 1 12 8
Principal Non-Pension
Post-Retirement Benefit Plan 3 3 7 7
-------------------------------------------------------------------------
Total $514 $34 $573 $82
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As at July 31, 2009, the Bank expects to contribute an additional
$66 million to its principal pension plans, nil to its CT Defined Benefit
Pension Plan, nil to its TD Banknorth Defined Benefit Pension Plan,
$7 million to its supplemental employee retirement plans and $2 million
to its Principal Non-Pension Post-Retirement Benefit Plan by the end of
the year. However, future contribution amounts may change upon the Bank's
review of the current contribution levels during the year.
Note 13: EARNINGS PER SHARE
-------------------------------------------------------------------------
The Bank's basic and diluted earnings per share at July 31 are as
follows:
Basic and Diluted Earnings per Share
-------------------------------------------------------------------------
For the three For the nine
months ended months ended
---------------------------------------
(millions of Canadian dollars, July 31 July 31 July 31 July 31
except as noted) 2009 2008 2009 2008
-------------------------------------------------------------------------
Basic earnings per share
Net income available to
common shareholders $863 $980 $2,123 $2,783
Average number of common shares
outstanding (millions) 851.5 804.0 844.3 756.8
Basic earnings per share
(Canadian dollars) $1.01 $1.22 $2.51 $3.68
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Diluted earnings per share
Net income available to
common shareholders $863 $980 $2,123 $2,783
-------------------------------------------------------------------------
Average number of common shares
outstanding (millions) 851.5 804.0 844.3 756.8
Stock options potentially
exercisable as determined
under the treasury stock
method(1) (millions) 3.9 7.0 2.2 6.4
-------------------------------------------------------------------------
Average number of common shares
outstanding - diluted (millions) 855.4 811.0 846.5 763.2
-------------------------------------------------------------------------
Diluted earnings per share(1)
(Canadian dollars) $1.01 $1.21 $2.51 $3.65
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) For the nine months ended July 31, 2009, the computation of diluted
earnings per share excluded weighted-average options outstanding of
17.0 million with a weighted-average exercise price of $64.08 as the
option price was greater than the average market price of the Bank's
common shares. For the nine months ended July 31, 2008, the
computation of diluted earnings per share excluded weighted-average
options outstanding of 5.0 million with a weighted-average exercise
price of $69.19 as the option price was greater than the average
market price of the Bank's common shares.
Note 14: SEGMENTED INFORMATION
-------------------------------------------------------------------------
The Bank's operations and activities are organized around four key
business segments: Canadian Personal and Commercial Banking, Wealth
Management, U.S. Personal and Commercial Banking and Wholesale Banking.
The Bank's other activities are grouped into the Corporate segment.
Results for these segments for the three and nine months ended July 31
are presented in the following tables:
Results by Business Segment
-------------------------------------------------------------------------
U.S.
Canadian Personal Personal and
(millions of and Commercial Wealth Commercial
Canadian dollars) Banking(1) Management(1) Banking(1)(2)(3)
-------------------------------------------------------------------------
July July July July July July
For the three 31 31 31 31 31 31
months ended 2009 2008 2009 2008 2009 2008
-------------------------------------------------------------------------
Net interest income $1,650 $1,485 $65 $89 $873 $759
Non-interest income 797 777 497 520 263 267
-------------------------------------------------------------------------
Total revenue 2,447 2,262 562 609 1,136 1,026
Provision for
(reversal of)
credit losses 290 194 - - 183 76
Non-interest expenses 1,170 1,129 424 421 783 610
-------------------------------------------------------------------------
Income (loss) before
income taxes 987 939 138 188 170 340
Provision for
(recovery of)
income taxes 310 295 43 61 (2) 96
Non-controlling
interests in
subsidiaries, net
of income taxes - - - - - -
Equity in net income
of an associated
company, net of
income taxes - - 68 74 - -
-------------------------------------------------------------------------
Net income (loss) $677 $644 $163 $201 $172 $244
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total assets
(billions of
Canadian dollars)
- balance sheet $180.1 $170.5 $18.7 $14.8 $144.1 $117.6
- securitized 53.3 39.1 - - - -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Wholesale
Banking(4) Corporate(4) Total
-------------------------------------------------------------------------
July July July July July July
For the three 31 31 31 31 31 31
months ended 2009 2008 2009 2008 2009 2008
-------------------------------------------------------------------------
Net interest income $527 $348 $(282) $(244) $2,833 $2,437
Non-interest income 349 (20) (72) 56 1,834 1,600
-------------------------------------------------------------------------
Total revenue 876 328 (354) (188) 4,667 4,037
Provision for
(reversal of)
credit losses 32 30 52 (12) 557 288
Non-interest expenses 326 281 342 260 3,045 2,701
-------------------------------------------------------------------------
Income (loss) before
income taxes 518 17 (748) (436) 1,065 1,048
Provision for
(recovery of)
income taxes 191 (20) (333) (310) 209 122
Non-controlling
interests in
subsidiaries, net
of income taxes - - 28 8 28 8
Equity in net income
of an associated
company, net of
income taxes - - 16 5 84 79
-------------------------------------------------------------------------
Net income (loss) $327 $37 $(427) $(129) $912 $997
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total assets
(billions of
Canadian dollars)
- balance sheet $167.3 $181.6 $34.4 $24.3 $544.6 $508.8
- securitized 3.9 2.7 (12.8) (12.9) 44.4 28.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Results by Business Segment
-------------------------------------------------------------------------
U.S.
Canadian Personal Personal and
(millions of and Commercial Wealth Commercial
Canadian dollars) Banking(1) Management(1) Banking(1)(2)(3)
-------------------------------------------------------------------------
July July July July July July
For the nine 31 31 31 31 31 31
months ended 2009 2008 2009 2008 2009 2008
-------------------------------------------------------------------------
Net interest income $4,680 $4,301 $203 $259 $2,767 $1,380
Non-interest income 2,335 2,242 1,415 1,478 844 573
-------------------------------------------------------------------------
Total revenue 7,015 6,543 1,618 1,737 3,611 1,953
Provision for
(reversal of)
credit losses 842 557 - - 523 148
Non-interest expenses 3,499 3,320 1,257 1,187 2,407 1,142
-------------------------------------------------------------------------
Income (loss) before
income taxes 2,674 2,666 361 550 681 663
Provision for
(recovery of)
income taxes 824 842 113 180 38 192
Non-controlling
interests in
subsidiaries,
net of income taxes - - - - - -
Equity in net income
of an associated
company, net of
income taxes - - 193 229 - -
-------------------------------------------------------------------------
Net income (loss) $1,850 $1,824 $441 $599 $643 $471
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Wholesale
Banking(4) Corporate(4) Total
-------------------------------------------------------------------------
July July July July July July
For the nine 31 31 31 31 31 31
months ended 2009 2008 2009 2008 2009 2008
-------------------------------------------------------------------------
Net interest income $1,909 $854 $(1,058) $(711) $8,501 $6,083
Non-interest income 426 510 (379) 143 4,641 4,946
-------------------------------------------------------------------------
Total revenue 2,335 1,364 (1,437) (568) 13,142 11,029
Provision for
(reversal of)
credit losses 157 96 228 (26) 1,750 775
Non-interest expenses 1,070 893 883 593 9,116 7,135
-------------------------------------------------------------------------
Income (loss) before
income taxes 1,108 375 (2,548) (1,135) 2,276 3,119
Provision for
(recovery of)
income taxes 343 82 (1,132) (779) 186 517
Non-controlling
interests in
subsidiaries,
net of income taxes - - 84 25 84 25
Equity in net income
of an associated
company, net of
income taxes - - 43 13 236 242
-------------------------------------------------------------------------
Net income (loss) $765 $293 $(1,457) $(368) $2,242 $2,819
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Effective the third quarter ended July 31, 2008, the Bank transferred
the U.S. insurance and credit card businesses to Canadian Personal
and Commercial Banking, and the U.S. wealth management businesses to
Wealth Management for management reporting purposes. Prior periods
have not been reclassified as the impact was not material to segment
results.
(2) Commencing the third quarter ended July 31, 2008, the results of U.S.
Personal and Commercial Banking include Commerce. For details, see
Note 31 to the 2008 Annual Report.
(3) As explained in Note 1, effective the second quarter ended April 30,
2009, as a result of the alignment of reporting period of the U.S.
entities, TD Banknorth and Commerce are consolidated using the same
period as the Bank.
(4) The taxable equivalent basis increase to net interest income and
provision for income taxes, reflected in Wholesale Banking results,
is reversed in the Corporate segment.
Note 15: FINANCIAL INSTRUMENTS
-------------------------------------------------------------------------
Hedge Accounting
Hedge accounting results were as follows:
Hedge Accounting Results
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For the three For the nine
months ended months ended
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July 31 July 31 July 31 July 31
(millions of Canadian dollars) 2009 2008 2009 2008
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Fair value hedges
Net gain arising from hedge
ineffectiveness $1.2 $1.3 $21.1 $9.9
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Cash flow hedges
Net gain (loss) arising from
hedge ineffectiveness $0.3 $(0.9) $(4.3) $0.5
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Portions of derivative gains (losses) that were excluded from the
assessment of hedge effectiveness for fair value and cash flow hedging
activities and the change in fair value related to these portions in each
period are included in the Interim Consolidated Statement of Income. The
effect of this exclusion was not significant for the three and nine
months ended July 31, 2009.
During the nine months ended July 31, 2009, there were no firm
commitments that no longer qualified as hedges.
Over the next twelve months, the Bank expects approximately $1.0 billion
in net gains reported in other comprehensive income as at July 31, 2009
to be reclassified to net income. The maximum length of time over which
the Bank is hedging its exposure to the variability in future cash flows
from anticipated transactions is 30 years. During the nine months ended
July 31, 2009, there were no forecasted transactions that failed to
occur.
Financial Instruments Designated as Trading under the Fair Value Option
Financial assets and financial liabilities, other than those classified
as trading, may be designated as trading under the fair value option if
fair values are reliably measurable, the asset or liability meets one or
more of the criteria set out in Note 2 to the 2008 Consolidated Financial
Statements, and the asset or liability is so designated by the Bank on
initial recognition.
The total fair value of the securities designated as trading under the
fair value option was $3,090 million as at July 31, 2009 (October 31,
2008 - $6,402 million). These securities are recorded in trading
securities on the Consolidated Balance Sheet.
The total fair value of the loans designated as trading under the fair
value option was $362 million as at July 31, 2009 (October 31, 2008 -
$510 million). These loans are recorded in business and government loans
on the Consolidated Balance Sheet.
During the three months ended July 31, 2009, income (loss) representing
net changes in the fair value of financial assets designated as trading
under the fair value option was $(103) million (three months ended July
31, 2008 - $(10) million). During the nine months ended July 31, 2009,
income (loss) representing net changes in the fair value of financial
assets designated as trading under the fair value option was $232 million
(nine months ended July 31, 2008 - $(54) million). Income (loss) from
financial instruments designated as trading under the fair value option
is recorded in other income in the Consolidated Income Statement. This
income (loss) is primarily offset by the changes in the fair value of
derivatives used to economically hedge these assets and are recorded in
other income in the Consolidated Income Statement.
Note 16: RESTRUCTURING AND INTEGRATION CHARGES
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As a result of the acquisition of Commerce and related restructuring and
integration initiatives, the Bank incurred integration charges of
$109 million and $265 million during the three and nine months ended
July 31, 2009, respectively. Integration charges consisted of costs
related to resources dedicated to the integration, employee retention
costs, external professional consulting charges, marketing costs
(including customer communication and rebranding) and integration related
travel costs. In the Interim Consolidated Statement of Income, the
integration charges are included in other non-interest expenses.
During the first quarter ended January 31, 2009, the Bank incurred
$27 million of restructuring charges. Restructuring charges consisted of
estimated lease termination costs for approximately 50 legacy TD
Banknorth branches that were closed and consolidated with nearby branches
in connection with the Commerce integration. In the Interim Consolidated
Statement of Income, the restructuring charges are included in
restructuring costs. No restructuring charges were recorded in the second
quarter ended April 30, 2009 and the third quarter ended July 31, 2009.
As at July 31 2009, the remaining balance of the restructuring liability
related to the acquisition of Commerce was $28 million. Restructuring and
integration charges included in the Interim Consolidated Statement of
Income are presented in the following table:
Commerce Restructuring and Integration Charges
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For the three For the nine
months ended months ended
---------------------------------------
July 31 July 31 July 31 July 31
(millions of Canadian dollars) 2009 2008 2009 2008
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Restructuring costs $- $- $27 $48
Integration charges(1) 109 23 265 23
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(1) These amounts do not include integration charges of $25 million
included directly in retained earnings, in the second quarter this
year, as a result of the alignment of reporting period of U.S.
entities, as explained in Note 1.
Note 17: OTHER NON-INTEREST EXPENSES
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Other non-interest expenses include the following:
a) A special assessment charge of $55 million before tax ($35 million
after tax) or US$49 million before tax (US$31 million after tax) was
included in the third quarter ended July 31, 2009, which was
finalized by the Federal Deposit Insurance Corporation (FDIC), in the
U.S., on May 22, 2009.
b) A charge in the second quarter ended April 30, 2009 for settlement of
TD Banknorth shareholder litigation. Upon the announcement of the
privatization of TD Banknorth in November 2006, certain minority
shareholders of TD Banknorth initiated class action litigation
alleging various claims against the Bank, TD Banknorth and TD
Banknorth officers and directors. The parties agreed to settle the
litigation in February 2009 for $61.3 million (US$50 million) of
which $3.7 million (US$3 million) had been previously accrued on
privatization. The Court of Chancery in Delaware approved the
settlement of the TD Banknorth Shareholders' Litigation effective
June 24, 2009, and the settlement became final.
Note 18: ACQUISITIONS AND DISPOSITIONS
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Commerce Bancorp, Inc.
During the nine months ended July 31, 2009, goodwill decreased by
$56 million to $6,274 million, primarily due to the completion of the
valuation of the loan portfolio and a corresponding future income tax
liability. The purchase price allocation, including the valuation of the
assets and liabilities, was completed on March 31, 2009. There were no
changes to goodwill in the current quarter.
TD AMERITRADE Holding Corporation
As at July 31, 2009, the Bank's reported investment in TD AMERITRADE
Holding Corporation (TD Ameritrade) was 45.2% of the issued and
outstanding shares of TD Ameritrade.
As a result of the issuance of shares on June 11, 2009 by TD Ameritrade
in connection with its acquisition of thinkorswim Group Inc., the Bank's
ownership position in TD Ameritrade decreased from 47.5% as at April 30,
2009 to 45.2% as at July 31, 2009.
On January 24, 2009, the limit in the Bank's beneficial ownership of TD
Ameritrade under the Stockholders' Agreement increased from 39.9% to 45%.
Pursuant to the terms of the Stockholders' Agreement, the Bank will not
exercise the voting rights in respect of any shares held in excess of the
45% limit. On March 2, 2009, the Bank took delivery of 27 million shares
in settlement of its amended hedging arrangement with Lillooet Limited
(Lillooet) at a hedged cost to the Bank of US$515 million. As Lillooet
was consolidated in the Bank's Consolidated Financial Statements, the
replacement of the amended hedge arrangement with the direct ownership of
the 27 million shares had no material impact on the Bank.
Note 19: RISK MANAGEMENT
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The risk management policies and procedures of the Bank are provided in
the MD&A. The shaded sections of the Managing Risk section, included on
pages 21 to 23 of the MD&A, relating to credit, market and liquidity
risks are an integral part of the Interim Consolidated Financial
Statements. For a complete discussion of our risk management policies and
procedures refer to the shaded sections presented on pages 68 to 76 of
the Bank's 2008 Annual Report.
SHAREHOLDER AND INVESTOR INFORMATION
Shareholder Services
-------------------------------------------------------------------------
If you: And your inquiry Please contact:
relates to:
-------------------------------------------------------------------------
Are a registered Missing dividends, Transfer Agent:
shareholder (your name lost share certifi- CIBC Mellon Trust
appears on your TD cates, estate ques- Company
share certificate) tions, address changes P.O. Box 7010
to the share register, Adelaide Street Postal
dividend bank account Station
changes, the dividend Toronto, Ontario
reinvestment plan, to M5C 2W9
eliminate duplicate 416-643-5500
mailings of shareholder or toll-free at
materials, or to stop 1-800-387-0825
(and resume) receiving inquiries@
Annual and Quarterly cibcmellon.com or
Reports. www.cibcmellon.com
-------------------------------------------------------------------------
Hold your TD shares Missing dividends, lost Co-Transfer Agent and
through the Direct share certificates, Registrar:
Registration System estate questions, BNY Mellon Shareowner
in the United States address changes to the Services
share register, to P.O. Box 358015
eliminate duplicate Pittsburgh,
mailings of Pennsylvania 15252-8015
shareholder materials, or
or to stop (and resume) 480 Washington
receiving Annual and Boulevard
Quarterly Reports. Jersey City, New Jersey
07310
1-866-233-4836
TDD for hearing
impaired:
1-800-231-5469
Foreign shareholders:
201-680-6578
TDD foreign
shareholders:
201-680-6610
www.bnymellon.com/
shareowner
-------------------------------------------------------------------------
Beneficially own TD Your TD shares, Your intermediary
shares that are held including questions
in the name of an regarding the dividend
intermediary, such as reinvestment plan and
a bank, a trust mailings of
company, a securities shareholder materials
broker or other
nominee
-------------------------------------------------------------------------
For all other shareholder inquiries, please contact TD Shareholder
Relations at 416-944-6367 or 1-866-756-8936 or email [email protected]. 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.
General Information
Contact Corporate & Public Affairs:
416-982-8578
Products and services: Contact TD Canada Trust, 24 hours a day, seven
days a week:
1-866-567-8888
French: 1-866-233-2323
Cantonese/Mandarin: 1-800-328-3698
Telephone device for the deaf: 1-800-361-1180
Internet website: http://www.td.com
Internet e-mail: [email protected]
Quarterly Earnings Conference Call
TD Bank Financial Group will host an earnings conference call in Mount Laurel, New Jersey on
The webcast and presentations will be archived at www.td.com/investor/calendar_arch.jsp. Replay of the teleconference will be available from
Annual Meeting
Thursday, March 25, 2010
Fairmont Le Château Frontenac
Quebec City, Quebec
About TD Bank Financial Group
The Toronto-Dominion Bank and its subsidiaries are collectively known as TD Bank Financial Group. TD Bank Financial Group is the sixth largest bank in
For further information: Tim Thompson, Senior Vice President, Investor Relations, (416) 308-9030; Nick Petter, Manager, Media Relations, (416) 308-1861
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