TD Bank 2006 Annual Report Download - page 106

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TD BANK FINANCIAL GROUP ANNUAL REPORT 2006 Financial Results
102
Credit Instruments
(millions of Canadian dollars) 2006 2005
Financial and performance standby letters
of credit $7,206 $6,077
Documentary and commercial letters of credit 942 695
Commitments to extend credit:
Original term to maturity of one year or less 37,375 32,004
Original term to maturity of more than
one year 18,809 18,652
Total $64,332 $57,428
LITIGATION
The two principal legal actions regarding Enron to which the
Bank is a party are the securities class action and the bankruptcy
proceeding. In 2005, the Bank agreed to settle the bankruptcy
court claims in this matter for approximately $145 million
(US$130 million). Payment of this settlement was made during
2006. As at October 31, 2006, the total contingent litigation
reserve for Enron-related claims was approximately $464 million
(US$413 million). It is possible that additional reserves above
current level could be required. Additional reserves, if required,
cannot be reasonably determined for many reasons, including
that other settlements are not generally appropriate for compari-
son purposes, the lack of consistency in other settlements and
the difficulty in predicting the future actions of other parties to
the litigation. The Bank and its subsidiaries are involved in various
other legal actions in the ordinary course of business, many of
which are loan-related. In management’s opinion, the ultimate
disposition of these actions, individually or in the aggregate, will
not have a material adverse effect on the financial condition of
the Bank.
COMMITMENTS
Credit-related Arrangements
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.
Current Replacement Cost of Derivatives
(millions of Canadian dollars) Canada1United States1Other international1Total
By sector 2006 2005 2006 2005 2006 2005 2006 2005
Financial $11,356 $13,724 $82 $97 $11,252 $13,806 $22,690 $27,627
Government 2,274 2,320 ––248 234 2,522 2,554
Other 1,810 1,888 93 121 806 1,026 2,709 3,035
Current replacement cost $15,440 $17,932 $175 $218 $12,306 $15,066 $27,921 $33,216
Less impact of master netting
agreements and collateral 17,123 19,282
Total $10,798 $13,934
2006 2005
By location of ultimate risk22006 2005 %mix %mix
Canada $5,278 $6,020 48.9 43.2
United States 1,088 2,189 10.1 15.7
Other international
United Kingdom 1,130 1,285 10.4 9.2
Europe – other 2,363 3,367 21.9 24.2
Australia and New Zealand 568 685 5.3 4.9
Japan 54 80 .5 .6
Asia – other 10 43 .1 .3
Latin America and Caribbean 64 90 .6 .6
Middle East and Africa 243 175 2.2 1.3
Total other international 4,432 5,725 41.0 41.1
Total current replacement cost $10,798 $13,934 100.0 100.0
1Based on geographic location of unit responsible for recording revenue.
2After impact of master netting agreements and collateral.
CONTINGENT LIABILITIES, COMMITMENTS AND GUARANTEES
NOTE 20
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 assets to which they relate.
Commitments to extend credit represent unutilized portions
of authorizations to extend credit in the form of loans and
customers’ liability under acceptances.
The values of credit instruments reported below represent
the maximum amount of additional credit that the Bank could
be obligated to extend should contracts be fully utilized.