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Article Excerpt
Notes to Consolidated Interim Financial Statements (unaudited)
------------------------------------------------------------------------- These Consolidated Interim Financial Statements should be read in conjunction with the Bank's Consolidated Financial Statements for the year ended October 31, 2004. The Consolidated Interim Financial Statements have been prepared in accordance with Canadian generally accepted accounting principles and follow the same accounting policies and methods of application as the Bank's Consolidated Financial Statements for the year ended October 31, 2004 except as discussed in Note 1. The Consolidated Interim Financial Statements include all adjustments which are, in the opinion of management, necessary to a fair presentation of the results for the periods presented. Note 1: Changes in Accounting Policy ------------------------------------------------------------------------- (a) Liabilities and Equity As of November 1, 2004, the Bank adopted the Canadian Institute of Chartered Accountants (CICA) amendments to its accounting standard on financial instruments - disclosure and presentation on a retroactive basis with restatement of prior periods. As a result of these amendments, the Bank was required to classify its existing preferred shares totaling $1,310 million and innovative capital structures totaling $900 million, as at October 31, 2004, as liabilities and their corresponding distributions as interest expense. Earnings applicable to common shares and earnings per share amounts are unaffected for all prior periods. The following table shows the reduction in net interest income. Net income before non-controlling interest prior to restatement was also reduced by the same amounts each period. However, net income applicable to common shares is unaffected as the preferred dividends and non-controlling interest from the innovative capital structures were already deducted from income applicable to common shares in prior periods. For regulatory capital purposes, the existing capital instruments of the Bank have been grandfathered by the Superintendent of Financial Institutions Canada, and the Bank's capital ratios are unaffected. For the three For the six months ended months ended --------------------- --------------------- Apr. 30 Apr. 30 Apr. 30 Apr. 30 (millions of Canadian dollars) 2005 2004 2005 2004 ------------------------------------------------------------------------- Net interest income - prior to restatement $ 1,427 $ 1,485 $ 2,867 $ 2,974 Less: Preferred dividends 17 21 29 42 Non-controlling interest in innovative capital structures 17 23 34 46 ------------------------------------------------------------------------- Net interest income - restated $ 1,393 $ 1,441 $ 2,804 $ 2,886 ------------------------------------------- ------------------------------------------- For the year ended October 31 -------------------------------- (millions of Canadian dollars) 2004 2003 2002 -------------------------------------------------------------- Net interest income - prior to restatement $ 5,943 $ 5,616 $ 5,300 Less: Preferred dividends 78 87 93 Non-controlling interest in innovative capital structures 92 92 64 -------------------------------------------------------------- Net interest income - restated $ 5,773 $ 5,437 $ 5,143 -------------------------------- -------------------------------- (b) Consolidation of Variable Interest Entities As of November 1, 2004, the Bank prospectively adopted the CICA accounting guideline on the consolidation of variable interest entities (VIEs). VIEs are entities in which the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinate financial support provided by any parties, including equity investors. The accounting guideline required the Bank to identify VIEs in which it has an interest, determine whether it is the primary beneficiary of such entities and if so, consolidate them. The primary impact of adopting the revised guideline is that the Bank no longer consolidates one of its innovative capital structures - TD Capital Trust II Securities, which accounts for $350 million of Tier 1 capital. Although the Bank has voting control it is not deemed the primary beneficiary under the VIE rules. For regulatory capital purposes, the Bank's innovative capital structures have been grandfathered by the Superintendent of Financial Institutions Canada, and the Bank's capital ratios are unaffected. (c) Merchant Banking Accounting As of November 1, 2004, the Bank prospectively adopted the Canadian Accounting Standards Board's amendments to its accounting standard on subsidiaries which disallows an enterprise acquired with the clearly demonstrated intention that it would be disposed of in the foreseeable future to be considered a temporary investment. As a result, the Bank has commenced equity accounting for investments held in the merchant banking portfolio where it has significant influence. The impact of this change in accounting is not significant for the Bank. (d) Asset Retirement Obligations As of November 1, 2004, the Bank adopted the CICA accounting standard on asset retirement obligations on a retroactive basis with restatement. The accounting standard requires that a liability for an asset retirement obligation related to a long-lived asset be recognized in the period in which it is incurred and recorded at fair value. The offset to the liability is capitalized as part of the carrying amount of the related long-lived asset. The impact of this accounting standard is not significant for the Bank. (e) Investment Companies The Bank adopted the CICA accounting guideline on investment companies as of November 1, 2004. The accounting guideline requires the Bank's investment companies to account for all its investments at fair value. The guideline sets out the criteria for determining whether a company is an investment company and also provides guidance on the circumstances in which the parent company of, or equity method investor in, an investment company should account for the investment company's investments at fair value. The impact of this accounting guideline is not significant for the Bank. Note 2: Allowance for Credit Losses ------------------------------------------------------------------------- The Bank's allowance for credit losses at April 30, 2005 and April 30, 2004 is shown in the table below. The Bank no longer has any sectoral allowances beginning in the first quarter 2005. April 30, 2005 -------------------------------------------------------------- (millions of Canadian Specific General dollars) allowance allowance Total -------------------------------------------------------------- Balance at beginning of year $ 266 $ 917 $ 1,183 Acquisition of TD Banknorth 27 289 316 Provision for (reversal of) credit losses 69 (39) 30 Transfer from sectoral to specific - - - Write-offs (224) - (224) Recoveries 109 - 109 Other(1) 3 (7) (4) -------------------------------------------------------------- Allowance for credit losses at end of period $ 250 $ 1,160 $ 1,410 -------------------------------- -------------------------------- April 30, 2004 ------------------------------------------------------------------------- (millions of Canadian Specific General Sectoral dollars) allowance allowance allowance Total ------------------------------------------------------------------------- Balance at beginning of year $ 487 $ 984 $ 541 $ 2,012 Acquisition of TD Banknorth Provision for (reversal of) credit losses 171 (67) (400) (296) Transfer from sectoral to specific 3 - (3) - Write-offs (391) - - (391) Recoveries 61 - 99 160 Other(1) 15 - (9) 6 ------------------------------------------------------------------------- Allowance for credit losses at end of period $ 346 $ 917 $ 228 $ 1,491 ------------------------------------------- ------------------------------------------- (1) Includes foreign exchange rate changes and losses on loan sales booked to sectoral allowance. Note 3: Securitizations ------------------------------------------------------------------------- The following table summarizes the Bank's securitization activity for the three months and six months ended April 30. In most cases, the Bank retained the responsibility for servicing the assets securitized. For the three months ended ------------------------------------------------------ April 30, 2005 ------------------------------------------------------------------------- Residential Credit Commercial (millions of mortgage Personal card mortgage Canadian dollars) loans loans loans loans Total ------------------------------------------------------------------------- Gross proceeds from new securitizations recorded during the period $ 1,441 $ 2,100 $ 1,300 $ 299 $ 5,140 Retained interest recorded during the period 32 16 24 - 72 Gain on sale, net of transaction fees and...
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