TD Bank 2010 Annual Report Download - page 104

TD BANK GROUP ANNUAL REPORT 2010 FINANCIAL RESULTS102
$1.8 billion (2009 – $1.0 billion) in liquidity facilities for asset-backed
commercial paper that could potentially be issued by the conduits.
As at October 31, 2010, the Bank also provided deal-specific credit
enhancement in the amount of $73 million (2009 – $134 million).
Single-Seller Conduits
The Bank uses single-seller conduits to enhance its liquidity position,
to diversify its sources of funding, and to optimize management of
its balance sheet.
As at October 31, 2010, the single-seller conduits had $5.1 billion
(2009 – $5.1 billion) of commercial paper outstanding. While the prob-
ability of loss is negligible, the Bank’s maximum potential exposure to
loss for these conduits through the sole provision of liquidity facilities
was $5.1 billion (2009-$5.1 billion); $1.1 billion (2009 - $1.1 billion)
of the assets held by conduits are personal loans that are government
insured. Additionally, the Bank had retained interests of $121 million
(2009 – $121 million) relating to excess spread.
Other Financing Transactions
In April 2010, the Bank exited certain transactions where it provided
cost-efficient financing to U.S. corporate clients through VIEs. The
Bank no longer provides financing to these corporate clients under
these arrangements and as at October 31, 2010, had no exposure
to these VIEs (October 31, 2009 – $2.0 billion).
Multi-Seller Conduits
Multi-seller conduits (also referred to as customer securitization vehicles)
provide customers with alternate sources of financing through the
securitization of their assets. The customers sell their receivables to the
conduit and the conduit funds its purchase of the receivables through
issuance of short-term commercial paper to outside investors. Each
seller continues to service its assets and absorb first losses. The Bank
has no rights to the assets as they are owned by the conduit. The Bank
administers the conduits and provides liquidity facilities as well as
securities distribution services; it may also provide credit enhancements.
The liquidity facilities can be drawn by the conduits if the conduit
meets certain tests designed to ensure the Bank does not provide
credit enhancement. From time to time, the Bank in its capacity as
distribution agent may hold commercial paper issued by the conduits.
The commercial paper held is classified as trading securities on the
Consolidated Balance Sheet. The Bank earns fees from the conduits
which are recognized when earned. The Bank holds variable interests in
these multi-seller conduits primarily through holding their commercial
paper, providing liquidity facilities and earning fees; however, the Bank
is not the primary beneficiary.
The Bank’s maximum potential exposure to loss due to its ownership
interest in commercial paper and through the provision of liquidity facili-
ties for multi-seller conduits was $5.3 billion as at October 31, 2010
(2009 – $7.5 billion). Further, the Bank has committed to an additional
ACQUISITIONS AND OTHER
NOTE 7
a) U.S. Personal and Commercial Banking Acquisitions
in Fiscal 2010
On April 16, 2010, the Bank acquired certain assets and assumed
liabilities of Riverside National Bank of Florida (“Riverside”), First
Federal Bank of North Florida (“First Federal”) and AmericanFirst Bank
(“AmericanFirst”) in FDIC-assisted transactions. In addition, the Bank
entered into loss share agreements with the FDIC whereby the FDIC
shares in the losses on loans and certain real estate assets. Under the
terms of the loss share agreements, the FDIC reimburses the Bank
for 50% of losses up to a threshold level for each bank ($449 million
for Riverside, $59 million for First Federal and $18 million for
AmericanFirst) and 80% of losses thereafter. The term of the loss
share agreements is ten years from the date of acquisition for single
family residential mortgages and five years (plus three years where
only recoveries will be shared) for other loans and real estate assets.
At the end of the loss share periods, the Bank may be required to
make a payment to the FDIC based on the actual losses incurred
in relation to the FDIC Intrinsic Loss Estimate as defined in the loss
share agreements.
On September 30, 2010, the Bank acquired 100% of the outstand ing
common shares of The South Financial Group, Inc. (South Financial)
for total consideration to common shareholders of approximately
$65 million paid in cash and common shares in the amount of
$11 million and $54 million, respectively. Each common share of
South Financial was exchanged for US $0.28 cash or 0.004 of a Bank
common share, resulting in the issuance of approximately 720 thousand
common shares of the Bank. In addition, immediately prior to comple-
tion of the transaction, the United States Department of the Treasury
sold the Bank its South Financial preferred stock and the associated
warrant acquired under the Treasury’s Capital Purchase Program and
discharged all accrued but unpaid dividends on that stock for total
cash consideration of approximately $134 million.
The acquisitions were accounted for by the purchase method. The
results from the acquisition dates to October 31, 2010 have been
consolidated with the Bank’s results for the year ended October 31,
2010. The results are included with TD Bank, N.A. and are reported
in the U.S. Personal and Commercial Banking segment. As at the
acquisition dates, the acquisitions contributed $2.2 billion of net cash
and cash equivalents, $8.6 billion of loans, $123 million of identifiable
intangibles, $3.9 billion of other assets, $12.3 billion of deposits and
$2.6 billion of other liabilities to the Bank’s Consolidated Balance
Sheet. Included in loans is $2.0 billion of covered loans and amounts
receivable from the FDIC related to the reimbursement under the
loss share agreements. The estimated fair value for loans reflects
the expected credit losses at the acquisition date. The excess of
the fair value of the identifiable assets acquired over that of the
liabilities assumed of approximately $316 million has been allocated
to goodwill. The purchase price allocation is subject to further
refinement as the Bank completes the valuation of the assets
acquired and liabilities assumed.
b) TD AMERITRADE Holding Corporation
During the year, TD AMERITRADE Holding Corporation (TD Ameritrade)
repurchased approximately 15 million shares which increased the Bank’s
ownership position in TD Ameritrade to 45.9% as at October 31,
2010
(October 31, 2009 – 45.1%). On August 6, 2010, the Stockholders
Agreement was amended such that: (i) the Bank has until January 24,
2014 to reduce its ownership in TD Ameritrade to 45%; (ii) the Bank
is required to commence reduction of its ownership in TD Ameritrade
and continue its reduction as long as it can be executed at a price
per share equal to or greater than the Bank’s then-applicable average
carrying value per share of TD Ameritrade; and (iii) in connection
with stock repurchases by TD Ameritrade, the Bank’s ownership
interest in TD Ameritrade will not exceed 48%.
c) Commerce Bancorp, Inc.
On March 31, 2008, the Bank acquired 100% of the outstanding
shares of Commerce Bancorp, Inc. (Commerce) for total consider-
ation of $8,510 million, primarily paid in cash and common shares in
the amount of $2,167 million and $6,147 million, respectively. Each
share of Commerce was exchanged for 0.4142 of a Bank common
share and US$10.50 in cash, resulting in the issuance of 83.3 million
common shares of the Bank. The results of Commerce’s operations
are included with TD Bank, N.A. and are reported in U.S. Personal
and Commercial Banking. The acquisition of Commerce contributed
the following assets and liabilities to the Bank’s Consolidated
Balance Sheet at the date of acquisition: $25,154 million of
securities, $18,171 million of loans, $1,514 million of intangibles,
$6,274 million of goodwill, $5,974 million of other assets,
$47,271 million of deposits, and $1,306 million of other liabilities.