TD Bank 2003 Annual Report Download - page 82

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TD BANK FINANCIAL GROUP ANNUAL REPORT 2003 • Financial Results80
Credit exposure of derivative financial instruments at year end
(millions of dollars) 2003 2002
Current Credit Risk- Current Credit Risk-
replace- equivalent weighted replace- equivalent weighted
ment cost1amount amount ment cost 1amount amount
Interest rate contracts
Forward rate agreements $ 51 $ 223 $ 45 $ 188 $ 273 $ 58
Swaps 14,402 18,719 4,810 14,608 18,120 4,501
Options purchased 878 1,171 282 925 1,089 294
Total interest rate contracts 15,331 20,113 5,137 15,721 19,482 4,853
Foreign exchange contracts
Forward contracts 7,366 11,437 2,579 5,826 11,030 2,671
Swaps 928 1,520 465 416 1,015 294
Cross-currency
interest rate swaps 4,342 9,369 2,131 2,613 7,482 1,754
Options purchased 247 748 171 66 324 81
Total foreign exchange contracts 12,883 23,074 5,346 8,921 19,851 4,800
Other contracts21,487 10,218 2,756 2,163 11,567 3,129
Total derivative financial
instruments $29,701 $53,405 $13,239 $26,805 $50,900 $12,782
Less impact of master netting
agreements and collateral 20,149 28,824 7,252 18,176 26,974 6,523
$ 9,552 $24,581 $ 5,987 $ 8,629 $23,926 $ 6,259
1Exchange traded instruments and forward foreign exchange contracts with
an original maturity of 14 days or less are excluded in accordance with the
guidelines of the Office of the Superintendent of Financial Institutions
Canada. The total positive fair value of the excluded contracts at October 31,
2003 was $1,893 million (2002 – $1,535 million).
2Includes equity, commodity and credit derivatives.
Credit instruments
(millions of dollars) 2003 2002
Financial and performance standby letters of credit $ 6,275 $ 8,767
Documentary and commercial letters of credit 754 1,497
Commitments to extend credit
Original term to maturity of one year or less 32,357 45,472
Original term to maturity of more than one year 16,346 22,097
$55,732 $77,833
(a) In the normal course of business, the Bank enters into
various off-balance sheet commitments and contingent liability
contracts. The primary purpose of these contracts is to make
funds available for the financing needs of customers. The Bank’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 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
security requirements as loans extended to customers.
Documentary and commercial letters of credit are instruments
issued on behalf of a customer authorizing a third party to draw
drafts on the Bank up to a certain amount subject to specific
terms and conditions. The Bank is at risk for any drafts drawn
that are not ultimately settled by the customer, and the amounts
are collateralized by the goods to which they relate.
Commitments to extend credit represent unutilized portions
of authorizations to extend credit in the form of loans and cus-
tomers’ liability under acceptances.
The credit instruments reported below represent the maximum
amount of additional credit that the Bank could be obligated to
extend should contracts be fully utilized.
(b) During the year, the Bank entered into an agreement with
an external party whereby the external party will provide network
and computer desktop support services for seven years at a total
projected cost of $720 million.
The premises and equipment net rental expense charged to net
income for the year ended October 31, 2003 was $552 million
(2002 – $507 million).
The Bank has obligations under long-term non-cancellable
leases for premises and equipment. Future minimum operating
lease commitments for premises and for equipment where the
annual rental is in excess of $100 thousand are detailed as follows.
(millions of dollars)
2004 $ 314
2005 269
2006 223
2007 179
2008 150
2009 and thereafter 505
$1,640
NOTE 19 Contingent liabilities, commitments and guarantees