TD Bank 2005 Annual Report Download - page 105

TD BANK FINANCIAL GROUP ANNUAL REPORT 2005 Financial Results 101
(millions of Canadian dollars) On-balance sheet assets1Off-balance sheet financial instruments
Derivative
Credit financial
instruments2,3 instruments4,5
2005 2004 2005 2004 2005 2004
Canada 80% 92% 60% 70% 28% 27%
United States 19 637 24 27 26
United Kingdom –12310 8
Europe – excluding the United Kingdom ––––28 29
Other International 1113710
Total 100% 100% 100% 100% 100% 100%
$152,243 $123,924 $57,428 $47,252 $33,216 $33,858
1The real estate industry segment accounted for 7% (2004 - 2.6%)of the
total loans and customers' liability under acceptances.
2At October 31, 2005, the Bank had commitments and contingentliability
contracts in the amount of $57,428 million (2004 – $47,252 million).
Included arecommitments to extend credit totaling $50,656 million (2004
–$41,132 million), of which the credit risk is dispersed as detailed in the
table above.
3Of the commitments to extend credit, industry segments which equaled or
exceeded 5% of the total concentration were as follows at October 31,
2005: Financial institutions 45% (2004 – 53%); Real estate residential 8%
(2004 – 1%).
4At October 31, 2005, the current replacement cost of derivative financial
instruments amounted to $33,216 million (2004 – $33,858 million). Based
on the location of ultimate counterparty,the credit risk was allocated as
detailed in the table above.
5The largest concentration by counterparty type was with financial institu-
tions, which accounted for 83%of the total (2004 – 84%). The second
largest concentration was with governments which accounted for 7% of
the total. No other industry segment exceeded 4%of the total.
Concentration of credit risk exists where a number of borrowers
or counterparties are engaged in similar activities, are located
in the same geographic area or have comparable economic
characteristics. Their ability to meet contractual obligations
may be similarly affected by changing economic, political or
other conditions. Our portfolio could be sensitive to changing
conditions in particular geographies.
For management reporting purposes, the Bank’s operations and
activities are organized around the following operating business
segments: Canadian Personal and Commercial Banking, U.S.
Personal and Commercial Banking, Wholesale Banking and
Wealth Management.
The Canadian Personal and Commercial Banking segment
comprises the Bank’spersonal and business banking in Canada
as well as the Bank’s global insurance operations (excluding the
U.S.) and provides financial products and services to personal,
small business, insurance, and commercial customers. The U.S.
Personal and Commercial Banking segment provides commercial
banking, insurance agency, wealth management, merchant
services, mortgage banking and other financial services in the
northeast United States. The Wholesale Banking segment pro-
vides financial products and services to corporate, government,
and institutional customers. The Wealth Management segment
provides investment products and services to institutional and
retail investors.
The Bank’sother business activities arenot considered
reportable segments and aretherefore grouped in the Corporate
segment. The Corporate segment includes activities from the
non-core lending portfolio, effects of asset securitization pro-
grams, treasury management, general provisions for credit losses,
elimination of taxable equivalent adjustments, corporate level tax
benefits, and residual unallocated revenues, expenses, and taxes.
Results of each business segment reflect revenues, expenses,
assets and liabilities generated by the businesses in that segment.
Due to the complexity of the Bank, its management reporting
model uses various estimates, assumptions, allocations and risk-
based methodologies for funds transfer pricing, inter-segment
revenues, income tax rates, capital, indirect expenses and cost
transfers to measure business segment results. Transfer pricing
of funds is generally applied at market rates. Inter-segment
revenues are negotiated between each business segment and
approximate the value provided by the distributing segment.
Income tax expense or benefit is generally applied to each
segment based on a statutory tax rate and may be adjusted for
items and activities unique to each segment.
The Bank measures and evaluates the performance of each
segment based on earnings before amortization of intangibles
and, where applicable, the Bank notes that the measure is before
amortization of intangibles. For example, revenue is not affected
by the amortization of intangibles, but expenses are affected by
the amortization of intangibles. This measure is only relevant in
the Canadian Personal and Commercial Banking, U.S. Personal
and Commercial Banking and Wealth Management segments,
as there are no intangibles allocated to the Wholesale Banking
and Corporate segments.
Net interest income, primarily within Wholesale Banking is
calculated on a taxable equivalent basis (TEB), which means that
the value of non-taxable or tax-exempt income such as dividends
is adjusted (increased) to its equivalent before tax value. Using
TEB allows the Bank to measure income from all securities and
loans consistently and makes for a more meaningful comparison
of net interest income with similar institutions. The taxable
equivalent basis adjustment reflected in the Wholesale Banking
segment’s results is eliminated in the Corporate segment.
CONCENTRATION OF CREDIT RISK
NOTE 21
SEGMENTED INFORMATION
NOTE 22
Maximum Potential Amount of Future Payments
(millions of Canadian dollars) 2005 2004
Financial and performance standby letters of credit $6,077 $5,429
Assets sold with recourse 1,174 1,869
Credit enhancements 117 117
Total $7,368 $7,415
agreements prevents the Bank from making a reasonable esti-
mate of the maximum potential amount that the Bank would be
required to pay such counterparties.
The table below summarizes at October 31, the maximum
potential amount of future payments that could be made under
the guarantee agreements without consideration of possible recov-
eries under recourse provisions or from collateral held or pledged.