TD Bank 2008 Annual Report Download

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How are we
building the better
bank every day?
2008 Annual Report

Table of contents

  • Page 1
    How are we building the better bank every day? 2008 Annual Report

  • Page 2
    ... risk we take. As a result, TDBFG is one of only seven banks on the New York Stock Exchange that has a Triple A rating from Moody's Investors Service. NET INCOME available to common shareholders (millions of Canadian dollars) Adjusted $5,000 EARNINGS PER SHARE (Canadian dollars) Adjusted Reported...

  • Page 3
    ...Financial positions at year end Total assets Total deposits Total loans Per common share (Canadian dollars) Diluted earnings - reported Diluted earnings - adjusted Dividend payout ratio - adjusted Closing market price Total shareholder return Financial ratios Tier 1 capital ratio Total capital ratio...

  • Page 4
    ... out to a select group of 186 employees over the last 3 years in recognition of their outstanding performance and unwavering commitment to demonstrating those values most important to us at TDBFG - our Guiding Principles. Be customer driven Respect each other Know our business Enhance our brand

  • Page 5
    ...'S DISCUSSION AND ANALYSIS FINANCIAL RESULTS 86 Consolidated Financial Statements 92 Notes to Consolidated Financial Statements 136 PRINCIPAL SUBSIDIARIES 138 TEN-YEAR STATISTICAL REVIEW MORE ABOUT US 142 Senior Officers 144 Glossary 145 Shareholder & Investor Information Increase shareholder value

  • Page 6
    ... largest bank in North America by market capitalization. We build strong franchise businesses and focus on their organic growth - complemented by strategic acquisitions. As a testament to the strength of our business, Barron's Magazine named TDBFG one of the best companies in North America, ranking...

  • Page 7
    ... Wherever You're Ready In 2008, TD Canada Trust opened 30 new branches in Canada while TD Bank, America's Most Convenient Bank, added 29 new branches, known as "stores," in the U.S. We believe that service and convenience mean giving customers access to in-branch service around their schedules - not...

  • Page 8
    ... exceptional service and practical financing solutions to manage their real estate investments - something TD Canada Trust has consistently delivered over the years. Banking Built Around You With a growing branch network, longer hours and more than 5,300 ATMs located throughout North America...

  • Page 9
    ... year, and "Highest in Customer Satisfaction for Small Business Banking," two years in a row.* • TD Canada Trust won its fourth consecutive Synovate award for best customer service. • The Service Quality Measurement Group (SQM) recognized TD Canada Trust's call centres with the highest banking...

  • Page 10
    ... our customers. Canada's Largest Discount Brokerage A constant focus on improving the client experience is how TDBFG's Wealth Management business is maintaining its industry-leading position and growing market share. What sets us apart? Our powerful platforms, unparalleled service and support, the...

  • Page 11
    ... America, serving 20 million customers annually at more than 200 locations in 36 states. As a TD Waterhouse Private Banking client, TDBFG has been James' strategic partner, advising his executive team at every stage of his company's growth. < TD BA N K FIN A N CIA L G ROU P A N N U A L REPORT 2008...

  • Page 12
    ...on the New York Stock Exchange that has a Triple A rating from Moody's Investors Service. TD Ameritrade - a Key Part of Our U.S. Growth Strategy Our investment in TD Ameritrade in 2005 was part of a long term U.S. expansion plan. A leader in the active trading space, SmartMoney's 2008 Broker Survey...

  • Page 13
    ...cant market turmoil in 2008, TD Securities remains focused on producing high-quality earnings while solidifying its position as a top 3 dealer in Canada. Working With Clients to Build Their Financial Future How do you become one of the fastest growing Wealth Management businesses in Canada (based...

  • Page 14
    ... TD Bank Financial Group gave to charities in Canada and the U.S. this year. Good corporate citizenship is woven into how we run our business, and it's part of how we evaluate our success. In 2008 we've continued to push forward in championing causes that are important to our employees, customers...

  • Page 15
    TO OUR SHAREHOLDERS An Interview with President and CEO Ed Clark 2008 was a pretty good year for TD Bank Financial Group despite some of the toughest market conditions we've ever seen. We had excellent performance in retail in both Canada and the U.S. That's a fantastic anchor for our bank and we'...

  • Page 16
    ... what's going to happen in the market, but based on how we run our business, we believe TD is one of the best positioned banks in the world. THE CURRENT MARKET TURMOIL PRESENTS FINANCIAL INSTITUTIONS WITH SOME GOOD BUYING OPPORTUNITIES. WILL TDBFG MAKE ANY ACQUISITIONS IN 2009? We have always said...

  • Page 17
    ...pay, benefits and performance-based compensation; and - Investing in training and development. • • • • $55.9 million invested 1.4% or $35.5 million, in donations in Canada vs. 1.3% or $32.6 million in 2007 Community • Donate minimum of 1% of domestic pre-tax profits (five year average...

  • Page 18
    ...the U.S. - through a TD Bank branch network that's now as large as TD Canada Trust's in Canada, as well as TD's investment in TD Ameritrade. A TRACK RECORD OF MANAGING RISK In 2008 the Board was pleased to welcome its newest director, Nadir Mohamed. His reputable track record as an executive in the...

  • Page 19
    ... Board of Directors Appoint Management Resources Committee Risk Committee Annual Meeting: Attend our Annual Meeting - April 2, 2009 in Saint John, New Brunswick, Canada - or watch the webcast through our web site - www.td.com/investor. Corporate Responsibility Report: Read our 2008 report...

  • Page 20
    ... Corporate Director and Retired Vice Chairman, Eastman Kodak Company, Charleston, South Carolina William J. Ryan Chairman, TD Banknorth Inc., Falmouth, Maine Helen K. Sinclair Chief Executive Officer, BankWorks Trading Inc., Toronto, Ontario John M. Thompson Chairman of the Board, The Toronto...

  • Page 21
    ... in accounting policies (including future accounting changes) and methods the Bank uses to report its financial condition, including uncertainties associated with critical accounting assumptions and estimates; changes to our credit ratings; global capital market activity; increased funding costs...

  • Page 22
    ...the largest financial services providers in North America, offering comprehensive retail and commercial banking, wealth management and wholesale banking products and services. The Bank's operations and activities are organized around operating groups: Canadian Personal and Commercial Banking; Wealth...

  • Page 23
    ... in TD Banknorth Wholesale Banking restructuring charge Change in fair value of credit default swaps hedging the corporate loan book, net of provision for credit losses14 General allowance release Other tax items Provision for insurance claims15 Initial set up of specific allowance for credit card...

  • Page 24
    ...the transfer of functions from TD Bank USA, N.A. (TD Bank USA) to TD Banknorth, included in the Corporate segment; $5 million privatization charges, which primarily consisted of legal and investment banking fees, included in U.S. Personal and Commercial Banking; and $3 million merger-related charges...

  • Page 25
    ... Personal and Commercial Banking earnings increased by $447 million, largely due to the acquisition of Commerce and the privatization of TD Banknorth in 2007. Wholesale Banking earnings declined by $759 million due to a 50% reduction in revenue amid severe market conditions. The loss in Corporate...

  • Page 26
    ...higher product volumes in personal loans, real-estate secured lending and deposits. U.S. Personal and Commercial Banking net interest income increased $779 million, largely due to the Commerce acquisition. Wholesale Banking net interest income increased $443 million due to higher trading-related net...

  • Page 27
    ... and advisory Investment management fees Mutual funds management Credit fees Net securities gains Trading income (loss) Income from financial instruments designated as trading under the fair value option Service charges Loan securitizations Card services Insurance, net of claims Trust fees Other...

  • Page 28
    ...the acquisition of Commerce. Canadian Personal and Commercial Banking expenses increased $266 million due to higher employee compensation expense and investments in new business initiatives including longer hours and new branches. EFFICIENCY RATIO Efficiency ratio measures operating efficiency. The...

  • Page 29
    ...to the sale of TD Waterhouse U.S.A. to Ameritrade to create TD Ameritrade in 2006, the financial statements reported the pre-tax and after-tax results of TD Waterhouse U.S.A. separately. TD reports its investments in TD Ameritrade using the equity method of accounting; tax expense of $178 million in...

  • Page 30
    ... most products, and increases in U.S. Personal and Commercial Banking, primarily due to the acquisition of Commerce during the year. Wholesale Banking revenue decreased largely due to lower trading-related revenue due to severe market conditions. Provision for credit losses increased by $149 million...

  • Page 31
    ...-for-sale debt securities portfolio Gain relating to restructuring of Visa TD Banknorth restructuring, privatization and merger-related charges Restructuring and integration charges relating to the Commerce acquisition Change in fair value of credit default swaps hedging the corporate loan book, net...

  • Page 32
    ...of 1,098 branches located across Canada. TD Commercial Banking serves the needs of medium-sized Canadian businesses, customizing a broad range of products and services to meet their financing, investment, cash management, international trade and day-to-day banking needs. Under the TD Insurance brand...

  • Page 33
    ...-sale debt securities portfolio Gain relating to restructuring of Visa TD Banknorth restructuring, privatization and merger-related charges Restructuring and integration charges relating to the Commerce acquisition Change in fair value of credit default swaps hedging the corporate loan book...

  • Page 34
    ... theme of 2008 was the credit crunch and its economic fallout on the global economy. The U.S. economy officially fell into recession, amid falling home prices, significant job losses, weak consumer spending and poor business investment. Extreme problems in the financial system severely affected...

  • Page 35
    ... Bank's global insurance operations. Under the TD Canada Trust brand, the retail operations provide a full range of financial products and services to approximately 11 million personal and small business customers. $2,424 (millions of Canadian dollars) 51.2% (percent) NET INCOME EFFICIENCY RATIO...

  • Page 36
    ... market share. The life and health insurance industry in Canada and the reinsurance market internationally are more consolidated featuring a few large players. OVERALL BUSINESS STRATEGY The strategy for Canadian Personal and Commercial Banking has remained consistent year over year: • Be known...

  • Page 37
    ...equity market volatility and economic uncertainty has led to record volume growth in chequing, savings, and term deposits. Despite an increasingly competitive personal deposit landscape, the Bank maintained its leadership position in market share. • Consumer Lending - Personal loan and credit card...

  • Page 38
    ...owned by customers, managed by the Bank, where the Bank makes investment selections on behalf of the client (in accordance with an investment policy). In addition to the TD family of mutual funds, the Bank manages assets on behalf of individuals, pension funds, corporations, institutions, endowments...

  • Page 39
    ... new client assets and increased mutual fund assets under management from TD Ameritrade, which were partially offset by the impact of market-related declines. INDUSTRY PROFILE The wealth management industry in North America is large, diverse and very competitive. Profitability is dependent on price...

  • Page 40
    ... TABLE 17 CONDENSED CONSOLIDATED STATEMENTS OF INCOME For the years ended Sept. 30, 2008 Sept. 30, 2007 (millions of U.S. dollars, except per share amounts) Revenues Net interest revenue Fee-based and other revenue Total revenue Expenses Employee compensation and benefits Other Total expenses...

  • Page 41
    ... Asset Management TD Mutual Funds is the second largest bank-owned mutual fund complex in Canada, based on market share of assets. TD Mutual Funds increased its industry market share by 54 bps while remaining in the fourth position in industry ranking for the third year in a row. • TD Mutual Funds...

  • Page 42
    ... under the brand name, TD Bank, America's Most Convenient Bank, U.S. Personal and Commercial Banking offers a full range of banking services to individuals, businesses and state/local governments. $722 (millions of Canadian dollars) 59.8% (percent) NET INCOME EFFICIENCY RATIO $800 80% 600 60...

  • Page 43
    ... in convenience banking in the markets we serve under our new brand TD Bank, America's Most Convenient Bank. • Focus on organic banking growth (including building new branches), particularly in core chequing accounts, commercial and small business loans, and fee-based product groups. • Maintain...

  • Page 44
    ... the money market deposit account (MMDA) agreement with TD Ameritrade. The MMDA is described in Note 32 to the 2008 Consolidated Financial Statements. KEY PRODUCT GROUPS Personal Banking • Personal Deposits - We continued to build our reputation as America's Most Convenient Bank by opening 29 new...

  • Page 45
    ... 07 08 Revenue (millions of Canadian dollars) 2008 2007 2006 Corporate banking Investment banking and capital markets Equity investments Total $ 370 553 327 $ 337 1,793 364 $2,494 $ 287 1,617 367 $2,271 $ 1,250 TD BA N K FIN A N CIA L G ROU P A N N U A L REPORT 2008 Management's Di scussi on...

  • Page 46
    ... business to focus on North American credit trading. • Continue to invest in risk and control functions. • Achieve an attractive rate of return on the equity investment portfolio over a medium to long-term holding period. • REVIEW OF FINANCIAL PERFORMANCE Reported net income was $65 million...

  • Page 47
    ... related to restructuring charge. KEY PRODUCT GROUPS Investment Banking and Capital Markets • Investment banking and capital markets revenue, which includes advisory, underwriting, trading, facilitation and execution services, decreased 69% from $1,793 million in 2007 to $553 million in 2008...

  • Page 48
    ... transaction, net of costs Dilution loss on the acquisition of Hudson by TD Banknorth TD Banknorth restructuring, privatization and merger-related charges Change in fair value of credit default swaps hedging the corporate loan book, net of provision for credit losses Other tax items - restatement of...

  • Page 49
    ... to higher service and credit fees, insurance revenue and non-trading foreign exchange revenue. Wealth Management other income increased due to higher assets under administration, an increase in trades per day and higher mutual fund assets under management. U.S. Personal and Commercial Banking other...

  • Page 50
    ... 2007 Financial Performance by Business Line Canadian Personal and Commercial Banking reported record earnings in 2007. Net income of $2,253 million in 2007 increased by $287 million, or 15%, from 2006. Return on invested capital increased from 25.2% in 2006 to 27.1% in 2007 as earnings growth...

  • Page 51
    ... deposits increased $56 billion due to underlying business growth in the Canadian Personal and Commercial Banking and the Commerce acquisition. (millions of Canadian dollars) Securities Securities purchased under reverse repurchase agreements Loans (net of allowance for credit losses) Deposits...

  • Page 52
    ... related to the purchase consideration for the Commerce acquisition. In addition, the Bank preferred shares increased by $1.5 billion due to issuance during the year. The Bank consolidated TD Bank, N.A. and reported the investment in TD Ameritrade using the exchange rate as at September 30, 2008...

  • Page 53
    ... business and risk management strategies and a continuing low interest rate environment. The Bank experienced a modest level of new impaired loan formations during the year, driven largely by increases in the Canadian and U.S. Personal and Commercial Banking segments. The increase in impaired loans...

  • Page 54
    ...$230,664 $185,194 $169,284 24.6% 9.4% 7.0% Based on geographic location of unit responsible for recording revenue. The Bank has no direct or derivative exposures to monoline insurance counterparties. 50 TD BA N K FIN A N CIA L G ROU P A N N U A L REPORT 2008 Ma na ge me nt's Di scussi on and Anal...

  • Page 55
    ... CREDIT LOSSES BY GEOGRAPHY 2008 2007 2006 2008 1 (millions of Canadian dollars, except percentage amounts) Percentage of total 2007 2006 Canada Atlantic provinces British Columbia2 Ontario2 Prairies2 Québec Total Canada United States Florida Maine Massachusetts New Jersey New York Pennsylvania...

  • Page 56
    ... allowance Net impaired loans 2007 Net impaired loans 1 (millions of Canadian dollars, except percentage amounts) 2006 Net impaired loans 2008 Percentage of total 2007 2006 Canada Residential mortgages Consumer installment and other personal Total residential and personal Real estate Residential...

  • Page 57
    .... New provisions in the year are reduced by any recoveries from impaired loans. The Bank recorded increased provisions for credit losses of $1,063 million in 2008, compared with provisions of $645 million in 2007, due mainly to an increase of $158 million in Canadian Personal and Commercial Banking...

  • Page 58
    ...States Florida Maine Massachusetts New Jersey New York Pennsylvania Washington D.C. Other Total United States Other International Europe Other Total other international General provision Total Provision for credit losses as a % of net average loans3 Canada Residential mortgages Personal Business and...

  • Page 59
    ... SECTOR 1 (millions of Canadian dollars, except percentage amounts) 2008 2007 2006 2008 Percentage of total 2007 2006 Canada Residential mortgages Consumer installment and other personal Total residential and personal Real estate - Non-residential Agriculture Automotive Chemical Financial Food...

  • Page 60
    ... annual basis. The Bank's portfolio continues to perform as expected. These loans are recorded at amortized cost. See Note 3 to the 2008 Consolidated Financial Statements for further information regarding the accounting for loans and related credit losses. SECURITIES PORTFOLIO Exposure to Non-agency...

  • Page 61
    GROUP FINANCIAL CONDITION Capital Position TABLE 34 CAPITAL STRUCTURE AND RATIOS 2008 Basel II1 2007 Basel I 2006 Basel I (millions of Canadian dollars) Tier 1 capital Common shares Toronto-Dominion Bank common shares held by subsidiaries Contributed surplus Retained earnings Net unrealized ...

  • Page 62
    ... or operational conditions as well as investment capital that has been used to fund acquisitions or investments in fixed assets to support future earnings growth. The Bank uses internal models to determine how much riskbased capital is required to support the enterprise's risk and business exposures...

  • Page 63
    ... shares were outstanding (2007 - 717.8 million; 2006 - 717.4 million). The Bank's ability to pay dividends is subject to the Bank Act and the requirements of OSFI. Note 15 to the 2008 Consolidated Financial Statements provides further details. RATINGS As at October 31, 2008, the Bank's long-term...

  • Page 64
    ...shares outstanding (millions of shares) Stock options (millions of shares) - vested - non-vested Preferred shares - Class A (millions of shares): Series M Series N Series O Series P Series Q Series R Series S Series Y Series AA Total preferred shares Capital Trust Securities Trust units issued by TD...

  • Page 65
    ... to AAExpected weighted average life (years)2 Significant unconsolidated SPEs 1 (millions of Canadian dollars) 2007 Ratings profile of SPE asset class AAA AA+ to AA- Residential mortgage loans Credit card loans Automobile loans and leases Equipment loans and leases Trade receivables $ 3,428 500...

  • Page 66
    ... 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 October 31, 2008, were as follows: (millions of Canadian dollars) Notional amount 2008 1 Positive (negative) fair...

  • Page 67
    ... allows the Bank to earn profits in interest and fee income. Financial instruments also create a variety of risks which the Bank manages with its extensive risk management policies and procedures. The key risks include interest rate, credit, liquidity, equities and foreign exchange risks. For a more...

  • Page 68
    ... Insurance Deposit Corporation and of various other regulatory agencies internationally. The adoption of new economic or monetary policies by such agencies, changes to existing policies or changes in the supply of money and the general level of interest rates can impact the Bank's profitability...

  • Page 69
    ... new products and services, achieving market acceptance of its products and services, and/or developing and maintaining loyal customers. Acquisitions and Strategic Plans The Bank regularly explores opportunities to acquire other financial services companies or parts of their businesses directly...

  • Page 70
    ... for review and oversight of the Bank's business strategies and operating performance. Risk and Balance Sheet Management Committee • Chaired by the President and Chief Executive Officer. • Responsible for the oversight of the Bank's management of risk and financial position. Operational Risk...

  • Page 71
    ... the Board about them. • Executive Committees oversee key risks and exposures across the Bank. This involves reviewing and endorsing risk management policies, strategies and controls. Of the seven Executive Committees, two are chaired by the Chief Executive Officer. The Business Performance Review...

  • Page 72
    ... goods and services, loans, dividends, trade-related finance, as well as repatriation of the Bank's capital in that country. The Bank currently has counterparty exposure in a number of countries, with the majority of the exposure in North America. We measure country risk using approved risk rating...

  • Page 73
    ... used to set exposure limits and loan pricing. Internal ratings are also used in the calculation of regulatory capital, economic capital, and general allowance for credit losses. Derivative Exposures Credit risk on derivative financial instruments, also known as counterparty credit risk, is the risk...

  • Page 74
    .... The Bank makes use of credit derivatives to mitigate credit risk. The credit, legal, and other risks associated with these transactions are controlled through well established procedures. Our policy is to enter into these transactions with investment grade financial institutions. Credit risk to...

  • Page 75
    ... for loss from changes in the value of financial instruments. The value of a financial instrument can be affected by changes in interest rates, foreign exchange rates, equity and commodity prices and credit spreads. We are exposed to market risk in our trading and investment portfolios, as well as...

  • Page 76
    ... a distribution of potential changes in the market value of the current portfolio. We value the current portfolio using the market price and rate changes (for equity, interest rate, foreign exchange, credit and commodity products) of the most recent 259 trading days. GMR is computed as the threshold...

  • Page 77
    TABLE 41 VALUE-AT-RISK USAGE 2008 3 As at Average High Low As at Average High 2007 Low For the year ended October 31 (millions of Canadian dollars) Interest rate and credit spread risk Equity risk Foreign exchange risk Commodity risk Debt specific risk Diversification effect1 Total Value-at-Risk...

  • Page 78
    ... 2008: $(122.8) million -300 -400 -2.0 -1.5 -1 -0.5 0 0.5 1.0 1.5 2.0 Parallel interest rate shock percentage The Bank uses derivative financial instruments, wholesale instruments and other capital market alternatives and, less frequently, product pricing strategies to manage interest rate risk...

  • Page 79
    ... increase 100 bps decrease (millions of Canadian dollars) Currency Canadian dollar U.S. dollar $(15.5) 21.9 $ 15.5 (21.9) $ 1.0 (6.5) $ (1.0) 6.5 Managing Non-trading Foreign Exchange Risk Foreign exchange risk refers to losses that could result from changes in foreign currency exchange rates...

  • Page 80
    ... 2008 Within 1 year 1 to 3 years 3 to 5 years Over 5 years Total 2007 Total (millions of Canadian dollars) Deposits1 Subordinated notes and debentures Operating lease commitments Capital lease commitments Capital trust securities Network service agreements Automated banking machines Contact...

  • Page 81
    ...as reinsurance companies, where appropriate. Technology and Information Virtually all aspects of our business and operations use technology and information to create and support new markets, competitive products and delivery channels and other business developments. The key risks are associated with...

  • Page 82
    ... key day-to-day business controls comply with applicable legislation. Internal and external Legal counsels also work closely with the business units and corporate functions to identify areas of potential regulatory and legal risk, and actively manage them to reduce the Bank's exposure. HOW WE MANAGE...

  • Page 83
    ...risk issues at TD Ameritrade through appropriate board and management governance and protocols. The Bank designates four of the twelve TD Ameritrade directors, and this number currently includes our Chief Executive Officer, our Group Head Wealth Management and an independent director of the Bank. TD...

  • Page 84
    ... applicable. The fair value for a substantial majority of financial instruments is based on published and quoted market prices or valuation models that use independently observable market inputs. Independently observable market inputs include interest rate yield curves, foreign exchange rates and...

  • Page 85
    ...value securities option Financial liabilities Loans designated as trading Obligations Availableunder the related to for-sale fair value securities securities Derivatives option sold short Derivatives (millions of Canadian dollars, except percentage amounts) As at October 31, 2008 Trading deposits...

  • Page 86
    ...expected long-term return on plan assets, compensation increases, health care cost trend rate and discount rate are management's best estimates and are reviewed annually with the Bank's actuaries. The Bank develops each assumption using relevant experience in conjunction with market related data and...

  • Page 87
    ...recent market conditions, as of October 31, 2008 the fair value of the Bank's principal pension plan assets has declined approximately 14% since the July 31, 2008 measurement date. During the same period, the discount rate used to determine the benefit obligation of the Bank's principal pension plan...

  • Page 88
    ... the Bank beginning November 1, 2008. These standards are not expected to have a material effect on the financial position or earnings of the Bank. Conversion to International Financial Reporting Standards in fiscal 2012 The CICA Accounting Standards Board requires all Canadian publicly accountable...

  • Page 89
    ... Consolidated Financial Statements. ACCOUNTING STANDARDS AND POLICIES Controls and Procedures DISCLOSURE CONTROLS AND PROCEDURES An evaluation was performed under the supervision and with the participation of the Bank's management, including the Chief Executive Officer and Chief Financial Officer...

  • Page 90
    ... Statements of The Toronto-Dominion Bank and related financial information presented in this Annual Report. Canadian generally accepted accounting principles as well as the requirements of the Bank Act and related regulations have been applied and management has exercised its judgement and made best...

  • Page 91
    ... CONTROLS UNDER STANDARDS OF THE PUBLIC COMPANY ACCOUNTING STANDARD OVERSIGHT BOARD (UNITED STATES) The Board of Directors and Shareholders of The Toronto-Dominion Bank We have audited the effectiveness of The Toronto-Dominion Bank's internal control over financial reporting as of October 31, 2008...

  • Page 92
    ... installment and other personal Credit card Business and government Business and government loans designated as trading under the fair value option Allowance for credit losses Loans, net of allowance for credit losses Other Customers' liability under acceptances Investment in TD Ameritrade (Note 31...

  • Page 93
    ... financial instruments designated as trading under the fair value option Service charges Loan securitizations (Note 4) Card services Insurance, net of claims (Note 21) Trust fees Other (Note 33) Total revenue Provision for credit losses (Note 3) Non-interest expenses Salaries and employee benefits...

  • Page 94
    ...at beginning of year Shares issued Balance at end of year Contributed surplus Balance at beginning of year Stock options (Note 18) Conversion of TD Banknorth options on privatization (Note 18) Conversion of Commerce options on acquisition (Note 18) Balance at end of year Retained earnings Balance at...

  • Page 95
    ...and equipment Securities purchased under reverse repurchase agreements TD Banknorth share repurchase program Acquisitions and dispositions less cash and cash equivalents acquired (Note 31) Net cash used in investing activities Effect of exchange rate changes on cash and cash equivalents Net increase...

  • Page 96
    ...legal entities controlled by the Bank. The financial position and results of operations of TD Banknorth, Inc. (TD Banknorth) and Commerce Bancorp, Inc. (Commerce) are consolidated on a one month lag basis. The Bank uses the purchase method to account for all business acquisitions. When the Bank does...

  • Page 97
    ... positions in securities, were recorded on an accrual basis. Under the new standards, financial assets and financial liabilities are initially recognized at fair value and are subsequently accounted for based on their classification. Financial assets are classified as trading, designated as trading...

  • Page 98
    ... Income Stock-based Compensation Employee Future Benefits Trading-related Income Insurance Restructuring Costs Income Taxes Earnings Per Share Fair Value of Financial Instruments Interest Rate Risk Derivative Financial Instruments Contingent Liabilities, Commitments and Guarantees Credit Risk...

  • Page 99
    ... to the discount rate used to value the insurance reserves. Certain government and government insured securities have been combined with derivatives to form economic hedging relationships. These securities are being held as part of the Bank's overall interest rate risk management strategy and have...

  • Page 100
    ... Schedule (millions of Canadian dollars) Within 1 year Remaining term to maturity 1 Over Over Over 1 year to 3 years to 5 years to 3 years 5 years 10 years Over 10 years With no specific maturity 2008 Total 2007 Total Trading securities Government and government-insured securities Canada Provinces...

  • Page 101
    ... (millions of Canadian dollars) Within 1 year Remaining term to maturity 1 Over Over Over 1 year to 3 years to 5 years to 3 years 5 years 10 years Over 10 years With no specific maturity 2008 Total 2007 Total Held-to-maturity securities Government and government- insured securities Canada Other...

  • Page 102
    ... measured by discounting the expected future cash flows at the effective interest rate inherent in the loan immediately prior to impairment. For personal and small business loans and credit card loans, specific provisions are calculated using a formula that takes into account recent loss experience...

  • Page 103
    ... to make the payment without the loan being classified as past due. Gross Amount of Loans Past Due but not Impaired as at October 31, 2008 (millions of Canadian dollars) 1-30 days 31-60 days 61-89 days Total Residential mortgages Consumer installment and other personal loans Credit cards Business...

  • Page 104
    ... on the Bank's Consolidated Statement of Income. Securitization Gains (Losses) and Income on Retained Interests (millions of Canadian dollars) Residential mortgage loans Personal loans Credit Commercial card mortgage loans loans 2008 Residential mortgage loans Personal loans Credit Commercial card...

  • Page 105
    ..., it should be used with caution. Sensitivity of Key Assumptions to Adverse Changes (millions of Canadian dollars) Residential mortgage loans Personal loans 2008 Credit Commercial card mortgage loans loans Fair value of retained interests Discount rate +10% +20% Prepayment rate +10% +20% Expected...

  • Page 106
    ... (millions of Canadian dollars) 2008 Canadian Personal and Commercial Banking Wealth Management U.S. Personal and Commercial Banking Wholesale Banking Corporate Total Carrying value of goodwill at beginning of year Goodwill arising on the acquisition of Commerce Transfers during the year Sale of...

  • Page 107
    ...be recorded. (millions of Canadian dollars) Depreciation rate and method 5% or 10%, declining balance 30%, declining balance 3 to 7 years, straight-line 20%, declining balance lesser of lease term or useful life, straight-line 2008 Cost Accumulated depreciation Net book value 2007 Net book value...

  • Page 108
    ... is $352 million due to TD Capital Trust ll. Term Deposits (millions of Canadian dollars) Over Over Over Over Within 1 year 2 years 3 years 4 years 1 year to 2 years to 3 years to 4 years to 5 years Over 5 years 2008 2007 Total Total Personal Banks Business and government Trading Total $ 24...

  • Page 109
    ... issues, US$85 million qualified as Tier 2B regulatory capital. REPAYMENT SCHEDULE The aggregate maturities of the Bank's subordinated notes and debentures are as follows: (millions of Canadian dollars) 2008 2007 Within 1 year Over 1 year to 2 years Over 2 years to 3 years Over 3 years to 4 years...

  • Page 110
    ...into a variable number of the Bank's common shares at the holder's option, as liabilities for reporting purposes. Dividend payments on these preferred shares are recorded in interest expense. (millions of Canadian dollars) 2008 2007 Preferred shares issued by the Bank (thousands of shares): Class...

  • Page 111
    ...of not less than 90% of the closing price of such TD CaTS II on the last trading day immediately before the date fixed for purchase. Each TD CaTS II may be automatically exchanged into 40 noncumulative Class A redeemable First Preferred Shares, Series A3 of the Bank without the consent of the holder...

  • Page 112
    ...Issued and Outstanding (millions of shares and millions of Canadian dollars) 2008 Number of shares Amount Number of shares 2007 Amount Number of shares 2006 Amount Common: Balance at beginning of year Issued on exercise of options Issued as a result of dividend reinvestment plan Impact of shares...

  • Page 113
    ...be issued from the Bank's treasury at an average market price based on the last five trading days before the date of the dividend payment, with a discount of between 0% to 5% at the Bank's discretion, or from the open market at market price. During the year, a total of 0.6 million common shares were...

  • Page 114
    ... is recognized. In addition, TD Banknorth and Commerce assets as at October 31, 2008 were used when calculating the Bank's regulatory capital position as at October 31, 2008. During the year ended October 31, 2008, the Bank complied with the OSFI guideline related to capital ratios and the assets...

  • Page 115
    ... were issued. Under this plan, 9.2 million common shares have been reserved for future issuance (2007 - 11 million; 2006 - 12.5 million). The outstanding options expire on various dates to February 19, 2018. A summary of the Bank's stock option activity and related information for the years ended...

  • Page 116
    ... the average of the other major Canadian banks. The number of TD Banknorth share units under these plans as at October 31, 2008 was 0.5 million (2007 - 1.6 million; 2006 - 1.8 million). Compensation expense for these plans is recorded in the year the incentive award is earned by the plan participant...

  • Page 117
    ... pro-rated on service and management's best estimates of expected long-term return on plan assets, compensation increases, health care cost trend rate and discount rate, which are reviewed annually by the Bank's actuaries. The discount rate used to value liabilities is based on longterm corporate AA...

  • Page 118
    ... Canadian dollars) employees and employees eligible for that plan became eligible to join the Bank's principal pension plan. Funding for the defined benefit portion is provided by contributions from the Bank and members of the plan. The following table presents the financial position of the defined...

  • Page 119
    ... plans have been adopted for certain key officers and limited post-retirement TD Banknorth Plan Obligations and Assets (millions of Canadian dollars) benefit programs provide medical coverage and life insurance benefits to a closed group of employees and directors who meet minimum age and service...

  • Page 120
    ...nil to the TD Banknorth Defined Benefit Pension Plan, $13 million to the Bank's supplemental employee retirement plans and $13 million for the principal non-pension post-retirement benefit plans. Future contribution amounts may change upon the Bank's review of its contribution levels during the year...

  • Page 121
    ... change in actuarial assumptions on policy benefit liabilities was not material during the year. (millions of Canadian dollars) 2008 2007 2006 The Bank is engaged in insurance business relating to property and casualty insurance, life and health insurance and reinsurance business. Premiums, net of...

  • Page 122
    ... to Statutory Tax Rate (millions of Canadian dollars) 2008 2007 2006 Income taxes at Canadian statutory income tax rate Increase (decrease) resulting from: Dividends received Rate differentials on international operations Items related to dilution gains and losses Future federal and provincial...

  • Page 123
    ... using non-observable market inputs or transaction prices. A number of factors such as bid-offer spread, credit profile and model uncertainty are taken into account, as appropriate, when values are calculated using valuation techniques. If the fair value of a financial asset measured at fair value...

  • Page 124
    ...as for trading derivatives. Financial Assets and Liabilities (millions of Canadian dollars) Deposits The estimated fair value of term deposits is determined by discounting the contractual cash flows using interest rates currently offered for deposits with similar terms. For deposits with no defined...

  • Page 125
    ...54.8 $ 44.5 $ 58.0 Interest Rate Risk by Currency (billions of Canadian dollars) Floating rate Within 3 months 3 months to 1 year Total within 1 year Over 1 year to 5 years Over 5 years Noninterest sensitive 2008 Total Canadian currency Foreign currency Net position $(77.8) (2.3) $(80.1) $ 80...

  • Page 126
    ...credit spreads, commodity prices, equities or other financial measures. Such instruments include interest rate, foreign exchange, equity, commodity and credit derivative contracts. The Bank uses these instruments to manage the risks associated with its funding and investing strategies or for trading...

  • Page 127
    ... dates. Commodity contracts include commodity forward, futures, swaps and options, such as precious metals and energy-related products in both over-the-counter and exchange markets. The Bank issues certain loan commitments to customers at a fixed price. These funding commitments are accounted...

  • Page 128
    ... (millions of Canadian dollars) Average fair value for the year 1 Positive Negative Positive 2008 Year-end fair value Negative Positive 2007 Year-end fair value Negative Derivative financial instruments held or issued for trading purposes: Interest rate contracts Futures Forward rate agreements...

  • Page 129
    ....7 DERIVATIVE-RELATED RISKS Market Risk Derivative instruments, in the absence of any compensating upfront cash payments, generally have no market value at inception. They obtain value, positive or negative, as relevant interest rates, foreign exchange rates, equity, commodity or credit prices or...

  • Page 130
    ...given financial guarantee treatment for credit risk capital purposes, are excluded in accordance with the guidelines of OSFI. In 2007, foreign exchange contracts with an original maturity of 14 days or less, were also excluded in accordance with the Basel I methodology. The total positive fair value...

  • Page 131
    ... the same as for loans made by the Bank. Financial and performance standby letters of credit represent irrevocable assurances that the Bank will make payments in the event that a customer cannot meet its obligations to third parties and they carry the same credit risk, recourse and collateral...

  • Page 132
    ...of a financial instrument at a price agreed when the option is arranged and which can be physically or cash settled. Written options can be used by the counterparty to hedge foreign exchange, equity, credit, commodity and interest rate risks. The Bank does not track, for accounting purposes, whether...

  • Page 133
    ... risk of financial instruments, before taking account of any collateral held or other credit enhancements. Gross Maximum Credit Risk Exposure (millions of Canadian dollars) 2008 2007 Cash and due from banks Interest-bearing deposits with banks Securities1 Trading Government and government-insured...

  • Page 134
    ... on the risk rating for the standardized approach. Financial Assets Subject to the Standardized Approach by Risk-weights (millions of Canadian dollars) 0% 20% 35% 75% 100% October 31, 2008 150% Total Loans Residential mortgages Consumer installment and other personal Credit card Business and...

  • Page 135
    ...financial products and services to personal, small business, insurance, and commercial customers. The Wealth Management segment provides investment products and services to institutional and retail investors and includes the Bank's equity investment in TD Ameritrade. The U.S. Personal and Commercial...

  • Page 136
    Results by Business Segment (millions of Canadian dollars) Canadian Personal and Commercial Banking 1 U.S. Personal and Commercial Banking 2,3 2008 Wealth Management 1 Wholesale Banking 4 Corporate 4 Total Net interest income Other income Provision for (reversal of) credit losses Non-interest ...

  • Page 137
    ... based on the average market price of the Bank's common shares over the 2 day period before and after the terms of the acquisition were agreed to and announced. The acquisition was accounted for by the purchase method. The results of Commerce from the acquisition date to September 30, 2008 have been...

  • Page 138
    ... was funded by the sale of TD Banknorth common shares to the Bank. TD Banknorth consolidates the financial results of Hudson. The transaction resulted in a dilution loss for the Bank of $72 million in 2006. The acquisition of Hudson by TD Banknorth contributed $6.0 billion of personal/business loans...

  • Page 139
    ... to directors and officers are on market terms and conditions unless, in the case of banking products and services for officers, otherwise stipulated under approved policy guidelines that govern all employees. The amounts outstanding are as follows: (millions of Canadian dollars) 2008 2007 Personal...

  • Page 140
    ... shares) Meloche Monnex Inc. Security National Insurance Company Primmum Insurance Company TD Direct Insurance Inc. TD General Insurance Company TD Home and Auto Insurance Company TD Asset Finance Corp. TD Asset Management Inc. TD Waterhouse Private Investment Counsel Inc. TDAM USA Inc. TD Capital...

  • Page 141
    ... Insurance, Inc. Toronto Dominion (New York) LLC Toronto Dominion Capital (U.S.A.), Inc. Toronto Dominion Investments, Inc. Other International NatWest Personal Financial Management Limited (50%) NatWest Stockbrokers Limited TD Ireland TD Global Finance TD Waterhouse Bank N.V. TD Waterhouse Investor...

  • Page 142
    ... agreements Loans (net of allowance for credit losses) Other Total Liabilities Deposits Other Subordinated notes and debentures Liabilities for preferred shares and capital trust securities Non-controlling interests in subsidiaries Shareholders' equity Common shares Preferred shares Contributed...

  • Page 143
    ... of note", net of tax, from reported results) and related terms are not defined terms under GAAP and therefore, may not be comparable to similar terms used by other issuers. For further explanation, see "How the Bank Reports" in the accompanying Management's Discussion and Analysis. Adjusted results...

  • Page 144
    ... charge TD Banknorth restructuring, privatization and merger-related charges Goodwill impairment Sale of Wealth Management's Mutual Funds record keeping business Special Investment Real Estates gains General reserves Changes in fair value of credit default swaps hedging the corporate loan book...

  • Page 145
    ...$24 million on adjusted earnings is included in other tax items. Adjusted to reflect the one-for-one stock dividend paid on July 31, 1999. Dividends paid during the year divided by average of high and low common share prices for the year. Beginning in 1999, the price earnings ratio is computed using...

  • Page 146
    ... CANADIAN PERSONAL AND BUSINESS BANKING Paul C. Douglas Bernard T. Dorval Executive Vice President Group Head Global Insurance and Head Group Business Banking Strategy & Deputy Chair TD Canada Trust Brian J. Haier Executive Vice President Retail Distribution Timothy D. Hockey Group Head Canadian...

  • Page 147
    ... Group Head U.S. Personal and Commercial Banking and President & CEO TD Bank Carol L. Mitchell Executive Vice President Shared Services TD Bank Walter J. Owens Executive Vice President Commercial Banking TD Bank Paul J. Vessey Executive Vice President Product Management TD Bank U.S. Personal...

  • Page 148
    ...to investors to fund the purchase of loans. Swaps: Contracts that involve the exchange of fixed and floating interest rate payment obligations and currencies on a notional principal for a specified period of time. Total Market Return: The change in market price plus dividends paid during the year as...

  • Page 149
    ... TD Capital Trust are listed on the Toronto Stock Exchange. Further information regarding the Bank's listed securities, including ticker symbols and CUSIP numbers, is available on our web site at www.td.com under Investor Relations/Share Information or by calling the Shareholder Relations Department...

  • Page 150
    ... accounts to commercial lending, TD Bank Financial Group offers a full range of personal financial services and small business banking products. This includes loans and lines of credit, mortgages, credit cards, student services and U.S. banking as well as home, auto, health and life insurance...