TD Bank 2005 Annual Report Download - page 87

TD BANK FINANCIAL GROUP ANNUAL REPORT 2005 Financial Results 83
Variable interest entities (VIEs) are entities in which the total
equity investment at risk is not sufficient to permit the entity
to finance its activities without additional subordinate financial
support. The Bank identifies VIEs in which it has an interest,
determines whether it is the primary beneficiary of such entities
and if so, consolidates them. The primary beneficiary is an entity
that is exposed to a majority of the VIE’s expected losses or enti-
tled to a majority of the VIE’s expected residual returns, or both.
As of October 31, 2005, the Bank was not considered the
primary beneficiary of any significant VIEs. The Bank did hold
significant variable interests in VIEs where it is not considered the
primary beneficiary. The Bank’s position in these non-consolidated
VIEs is discussed below.
MULTI-SELLER CONDUITS
Multi-seller conduits provide liquidity to the Bank’s clients by
facilitating investor access to specific portfolios of assets and
risks. The Bank may provide credit enhancements, swap facilities
or liquidity facilities to the VIEs as well as securities distribution
services. Liquidity facilities are only available in the event of a
general market disruption and the probability of loss is negligible.
The Bank does not provide employees to the VIEs, nor does
it have ownership interests in these VIEs. In addition, all fees
earned by the Bank in respect of these activities are at
market rates.
As of October 31, 2005, the Bank held positions in multi-seller
conduits. These multi-sellers held a total of $10 billion in assets
as of October 31, 2005. While the probability of loss is negligible,
the Bank’s maximum potential exposure to loss from these con-
duits through sole provision of liquidity facilities available only in
the event of a general market disruption was $10 billion as at
October 31, 2005.
SINGLE-SELLER CONDUITS
The Bank uses single-seller conduits to enhance its liquidity
position, diversify its sources of funding and to optimize the
management of its balance sheet. The Bank may use single-seller
conduits to securitize residential mortgages, real estate secured
personal loans, and commercial mortgages.
As of October 31, 2005, the Bank held positions in a single-
seller conduit created in fiscal 2000 with $3 billion of assets.
The Bank’s maximum potential exposure to loss for this conduit
is $3 billion as of October 31, 2005 (through sole provision of
liquidity facilities only available in the event of a general market
disruption), however, the probability of loss is negligible.
OTHER FINANCIAL TRANSACTIONS
The Bank sells trading securities to VIEs in conjunction with its
balance sheet management strategies. The Bank does not retain
effective control over the assets sold. Assets sold under such
arrangements at October 31, 2005 amounted to $1 billion. The
Bank enters into total return swaps with the sale counterparties
in respect of the assets sold. Market risk for all such transactions
is tracked and monitored.
The Bank is also involved in collateralized debt obligation
vehicles (CDOs). The Bank may serve in the capacity of an under-
writer, a third party investor or a derivative counterparty for
CDOs. 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 CDO’s variable interest holders.
As of October 31, 2005 the Bank did not have a significant
position in CDOs.
In addition, the Bank offers equity linked notes and credit
linked notes to various VIEs and third party clients. As at October
31, 2005, the Bank’s exposure to risk from these transactions was
not significant.
The Bank through The Canada Trust Company acts as a trustee
for personal and corporate trust. Fees are earned by the Bank for
its role as a trustee. These fees are not significant for the Bank.
In addition to the transactions and products above, the Bank
also offers other financial products including mutual funds to
clients. These financial products are, on occasion, created using
aVIE as the issuer or obligor of the financial products. The Bank
may provide certain administrative services and other financial
products to the VIEs in exchange for market rate compensation.
The Bank’sposition for these transactions is not considered to
be significant.
VARIABLE INTEREST ENTITIES
NOTE 6
Asset Depreciation rate and method
Buildings 5% or 10%, declining balance
Computer equipment 30%, declining balance
Computer software 3 to 7 years, straight-line
Furniture, fixtures and other equipment 20%, declining balance
Leasehold improvements estimated useful life, straight-line
There was no impairment of the Bank’s land, buildings and
equipment during the year.
Buildings, equipment, leasehold improvements and land are
recorded on the Consolidated Balance Sheet. Buildings, equip-
ment and leasehold improvements are reported at cost less accu-
mulated depreciation. Land is reported at cost. When the Bank
reports a gain on sale of property in which it retains a significant
leasing interest, the portion of the gain which can be allocated to
the leased interest is deferred and amortized to income over the
remaining term of the lease. Gains and losses on disposal are
included in other income in the Consolidated Statement of
Income. When land, building and equipment areno longer in
use or considered impaired they are written down to their net
recoverable amount. Depreciation methods and rates by asset
category areas follows:
(millions of Canadian dollars) 2005 2004
Accumulated Net book Net book
Cost depreciation value value
Land $ 180 $ – $ 180 $ 139
Buildings 668 310 358 240
Computer equipment and software1,144 662 482 387
Furniture, fixtures and other equipment 866 490 376 257
Leasehold improvements 738 333 405 307
Total $3,596 $1,795 $1,801 $1,330
Accumulated depreciation at the end of 2004 was $1,286 mil-
lion. Depreciation expense for buildings and equipment
amounted to $322 million for 2005 (2004 – $294 million;
2003 – $318 million).
LAND, BUILDINGS AND EQUIPMENT
NOTE 7