TD Bank 2010 Annual Report Download - page 71

TD BANK GROUP ANNUAL REPORT 2010 MANAGEMENT’S DISCUSSION AND ANALYSIS 69
covered bonds during the year. We continue to explore all opportunities
to access expanded or lower cost funding on a sustainable basis relative
to our projected term funding needs.
PLEDGED ASSETS, REPURCHASE AGREEMENTS
AND COLLATERAL
In the ordinary course of business, securities and other assets are
pledged against liabilities. As at October 31, 2010, securities and other
assets with a carrying value of $46 billion (2009 – $32 billion) were
pledged in respect of securities sold short or under repurchase agree-
ments. In addition, as at October 31, 2010, assets with a carrying
value of $17 billion (2009 – $8 billion) were deposited for the purposes
of participation in clearing and payment systems and depositories or
to have access to the facilities of central banks in foreign jurisdictions,
or as security for contract settlements with derivative exchanges or
other derivative counterparties.
In the ordinary course of business, the Bank enters into security lend-
ing arrangements where it agrees to lend unpaid customer securities, or
its own securities, to borrowers on a fully collateralized basis. Securities
lent as at October 31, 2010 amounted to $12 billion (2009 – $13 billion).
In addition, the Bank may accept financial assets as collateral that
the Bank is permitted to sell or repledge in the absence of default.
These transactions are conducted under terms that are usual and
customary to standard lending, and security borrowing and lending
activities. As at October 31, 2010, the fair value of financial assets
accepted as collateral that the Bank is permitted to sell or repledge in
the absence of default is $24.2 billion (2009 – $23.2 billion). The fair
value of financial assets accepted as collateral that has been sold or
repledged (excluding cash collateral) was $6.7 billion as at October 31,
2010 (2009 – $6.3 billion).
As at October 31, 2010, $2.2 billion (2009 – nil) of consumer instal-
ment and other personal loan assets were also pledged in respect of
covered bonds currently issued by the Bank. These assets were sold by
the Bank to a VIE which is consolidated by the Bank. A discussion on
the structure of this VIE and assets held is included in Note 6.
FUNDING
We have a large base of stable retail and commercial deposits, making
up over 70% of total funding. In addition, we have an active wholesale
funding program to provide access to widely diversified funding sources,
including asset securitization. Our wholesale funding is diversified
geographically, by currency and by distribution network. We maintain
limits on the amounts of deposits that we can hold from any single
depositor in order not to overly rely on one or a small group of customers
as a source of funding. When deposit levels exceed these limits, the
excess amount must be invested in highly liquid assets and, as a result,
is not used to fund our Wholesale Banking requirements. We also limit
the wholesale funding that can mature in a given time period. These
funding limits are designed to address the risks of operational complexity
in selling assets and reduced asset liquidity in a systemic market event
and also serve to limit our exposure to large liability maturities.
Over the last year, we have been able to meet our funding needs
primarily through sales of National Housing Act Mortgage-Backed
Securities including participation in the Insured Mortgage Purchase
Program (IMPP). We also obtained funding from the issuance of
CREDIT AND LIQUIDITY COMMITMENTS
In the normal course of business, TD enters into various commitments
and contingent liability contracts. The primary purpose of these contracts
is to make funds available for the financing needs of customers. TD’s
policy for requiring collateral security with respect to these contracts
and the types of collateral security held is generally the same as for
loans made by TD.
The values of credit instruments reported below represent the maxi-
mum
amount of additional credit that TD could be obligated to extend
should contracts be fully utilized. The following table provides the
contractual maturity of notional amounts of credit, guarantee, and
liquidity commitments should contracts be fully drawn upon and clients
default. Since a significant portion of guarantees and commitments
are expected to expire without being drawn upon, the total of the
contractual amounts is not representative of future liquidity requirements.
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.
(billions of Canadian dollars) 2010 2009
Assets securitized $ 9.0 $ 19.6
Covered bonds 2.0 –
Preferred shares and capital trust securities – 3.3
Total $ 11.0 $ 22.9
CONTRACTUAL OBLIGATIONS
TD has contractual obligations to make future payments on operating
and capital lease commitments, certain purchase obligations and other
liabilities. These contractual obligations have an impact on TD’s short-
term and long-term liquidity and capital resource needs. The table below
summarizes the remaining contractual maturity for certain undiscounted
financial liabilities and other contractual obligations.
(millions of Canadian dollars) 2010 2009
Over 1 year Over 3 to Over
Within 1 year to 3 years 5 years 5 years Total Total
Deposits1 $ 349,221 $ 47,269 $ 14,756 $ 18,725 $ 429,971 $ 391,034
Subordinated notes and debentures 208 210 148 11,940 12,506 12,383
Operating lease commitments 626 1,127 859 1,949 4,561 4,206
Capital lease commitments 37 20 15 25 97 86
Capital trust securities – – – – – 895
Network service agreements 32 – – – 32 99
Automated banking machines 121 136 73 – 330 489
Contact centre technology 33 55 – – 88 123
Software licensing and equipment maintenance 99 31 – – 130 166
Total $ 350,377 $ 48,848 $ 15,851 $ 32,639 $ 447,715 $ 409,481
CONTRACTUAL OBLIGATIONS BY REMAINING MATURITY
TABLE 45
(millions of Canadian dollars) 2010 2009
Financial and performance standby letters of credit $ 14,299 $ 13,311
Documentary and commercial letters of credit 262 354
Commitments to extend credit1
Original term to maturity of one year or less 22,947 25,197
Original term to maturity of more than one year 39,849 36,182
Total $ 77,357 $ 75,044
1 Commitments to extend credit exclude personal lines of credit and credit card lines,
which are unconditionally cancellable at TD’s discretion at any time.
CREDIT AND LIQUIDITY COMMITMENTS
TABLE 46
TERM FUNDING SOURCES
TABLE 44