TD Bank 2007 Annual Report Download - page 62

TD BANK FINANCIAL GROUP ANNUAL REPORT 2007 Management’s Discussion and Analysis58
TABLE 35 CONTRACTUAL OBLIGATIONS BY REMAINING MATURITY
(millions of Canadian dollars) 2007 2006
Within1
Year
1 to 3
years
3 to 5
years
Over 5
years Total Total
Deposits1$ 219,075 $ 40,903 $ 15,009 $ 1,406 $ 276,393 $ 260,907
Subordinated notes and debentures 1 4 422 9,022 9,449 6,900
Operating lease commitments 330 562 384 598 1,874 1,794
Capital lease commitments 18 29 27 276 N/A
Capital trust securities –899 – – 899 900
Network service agreements 167 325 – – 492 616
Automated banking machines 62 118 55 –235 303
Contact centre technology 32 56 56 –144 214
Software licensing and equipment maintenance 73 95 – – 168 135
Total $ 219,758 $ 42,991 $ 15,953 $ 11,028 $ 289,730 $ 271,769
1 As the timing of deposits payable on demand, and deposits payable after
notice, is non-specific and callable by the depositor, obligations have been
included as less than one year.
Bank does not provide credit enhancement. From time to time,
the Bank, in its capacity of distribution agent may hold com-
mercial paper issued by the conduits. The Bank earns fees and
all fees earned in respect of these activities are on a market
basis. If these securitizations were to be terminated, the Bank
would experience a reduction in securitization income.
Our principal relationship with SPEs comes in the form of
administering multi-seller asset-backed commercial paper con-
duit programs (multi-seller conduits) totaling $12.6 billion as at
October 31, 2007, and $10.3 billion as at October 31, 2006.
We currently administer four multi-seller conduits. We are
involved in the multi-seller conduit markets because they gener-
ate a favourable risk-adjusted return for us. Our clients primarily
utilize multi-seller conduits to diversify their financing sources
and to reduce funding costs by leveraging the value of high-
quality collateral.
CREATION OF OTHER INVESTMENT AND
FINANCING PRODUCTS
The Bank enters into structured transactions with VIEs to assist
corporate clients in accessing cost efficient financing. Generally
both the Bank and the client invest in such VIEs with the pro-
ceeds used to make loans to entities affiliated with the client.
The Bank is not the primary beneficiary of these VIEs and as at
October 31, 2007, the Bank provided approximately $3 billion
(2006 - $2 billion) in financing to these VIEs. The Bank has
received guarantees totalling approximately $3 billion from
major financial institutions covering our investments in these
VIEs. In addition, the Bank has received approximately $888 mil-
lion of collateral and has purchased $605 million of credit
default swaps to further mitigate any exposure to these VIEs.
These VIEs held in excess of $12 billion in total assets as of
October 31, 2007. The Bank’s maximum total exposure to loss
before considering guarantees, collateral and credit default
swaps is approximately $3 billion as at October 31, 2007.
The Bank is also involved in Collateralized Debt Obligation
vehicles (CDOs). In relation to these CDOs, the Bank may serve
in the capacity of an underwriter, a third-party investor or a
derivative counterparty. CDOs raise capital by issuing debt
securities and use their capital to invest in portfolios of securities
and derivatives. Any net income or loss is shared by the CDOs’
variable interest holders. The CDOs we manage may from time
to time purchase collateral assets originated by us or third par-
ties. We recognize fee income from collateral management ser-
vices and, where indicated, trading income from investments in
individual CDOs. The Bank’s exposure to CDOs is not significant.
GUARANTEES
In the normal course of business, we enter into various guaran-
tee contracts to support our clients. Our significant types of
guarantee products are financial and performance standby let-
ters of credit, assets sold with recourse, credit enhancements
and indemnification agreements. Effective November 1, 2006,
the Bank adopted new accounting standards for financial
instruments which include guarantees. Certain guarantees
remain off-balance sheet. See Note 25 to the Consolidated
Financial Statements for further information regarding the
accounting for guarantees.
COMMITMENTS
The Bank enters into various commitments to meet the financ-
ing needs of the Bank’s clients and to earn fee income.
Significant commitments of the Bank include financial and per-
formance standby letters of credit, documentary and commer-
cial letters of credit and commitments to extend credit. These
products may expose the Bank to liquidity, credit and reputa-
tional risks. There are adequate risk management and control
processes in place to mitigate these risks. Certain commitments
still remain off-balance sheet. Note 25 to the Bank’s
Consolidated Financial Statements provides detailed informa-
tion about the maximum amount of additional credit the Bank
could be obligated to commit.
CONTRACTUAL OBLIGATIONS
The Bank has contractual obligations to make future payments
on operating and capital lease commitments and certain pur-
chase obligations. These contractual obligations impact the
Bank’s short-term and long-term liquidity and capital resource
needs. All contracts, with the exception of operating lease com-
mitments (those where we are committed to purchase deter-
mined volumes of goods and services), are reflected on the
Bank’s Consolidated Balance Sheet. Table 35 below summarizes
our contractual obligations.