TD Bank 2014 Annual Report Download - page 203

TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS 201
Interchange Fee Class Actions
Between 2011 and 2013, seven proposed class actions were
commenced in British Columbia, Alberta, Saskatchewan, Ontario, and
Quebec: Coburn and Watson’s Metropolitan Home v. Bank of America
Corporation, et al.; 1023916 Alberta Ltd. v. Bank of America Corpora-
tion, et al.; Macaronies Hair Club v. BOFA Canada Bank, et al.; The
Crown & Hand Pub Ltd. v. Bank of America Corporation, et al.; Hello
Baby Equipment Inc. v. BOFA Canada Bank, et al.; Bancroft-Snell, et al.
v. Visa Canada Corporation, et al.; and 9085-4886 Quebec Inc. v. Visa
Canada Corporation, et al. The defendants in each action are Visa
Canada Corporation (Visa) and MasterCard International Incorporated
(MasterCard) (collectively, the “Networks”), along with TD and several
other financial institutions. The plaintiff class members are Canadian
merchants who accept payment for products and services by Visa and/
or MasterCard. While there is some variance, in most of the actions it
is alleged that, from March 2001 to the present, the Networks
conspired with their issuing banks and acquirers to fix excessive fees
and that certain rules (Honour All Cards and No Surcharge) have the
effect of increasing the merchant discount fees. The actions include
claims of civil conspiracy, breach of the Competition Act, interference
with economic relations and unjust enrichment. Unspecified general
and punitive damages are sought on behalf of the merchant class
members. In the lead case proceeding in British Columbia, the decision
to partially certify the action as a class proceeding was released on
March 27, 2014. This decision is under appeal by both class represen-
tatives and defendants. The appeals are expected to be heard in
December 2014.
RESTRUCTURING
The Bank undertook certain measures commencing in the fourth
quarter of 2013, which continued through fiscal year 2014, to reduce
costs in a sustainable manner and achieve greater operational efficien-
cies. To implement these measures, the Bank recorded a provision
of $129 million in 2013 and $29 million in 2014 for restructuring
initiatives related primarily to retail branch, real estate and other
optimi zation initiatives.
COMMITMENTS
Credit-related Arrangements
In the normal course of business, the Bank enters into various commit-
ments and contingent liability contracts. The primary purpose of these
contracts is to make funds available for the financing needs of custom-
ers. 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 irrevo-
cable 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. See the Guarantees section in this Note for
further details.
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. A discussion on the types of liquidity
facilities the Bank provides to its securitization conduits is included
in Note 10.
The values of credit instruments reported as follows represent
the maximum amount of additional credit that the Bank could be
obligated to extend should contracts be fully utilized.
Credit Instruments
(millions of Canadian dollars) As at
October 31 October 31
2014 2013
Financial and performance standby
letters of credit $ 18,395 $ 16,503
Documentary and commercial letters of credit 207 200
Commitments to extend credit1
Original term to maturity of one year or less 32,456 32,593
Original term to maturity of more than one year 67,913 56,873
Total $ 118,971 $ 106,169
1
Commitments to extend credit exclude personal lines of credit and credit card lines,
which are unconditionally cancellable at the Bank’s discretion at any time.
In addition, as at October 31, 2014, the Bank is committed to
fund $76 million (October 31, 2013 – $82 million) of private
equity investments.
Long-term Commitments or Leases
The Bank has obligations under long-term non-cancellable leases for
premises and equipment. Future minimum operating lease commit-
ments for premises and for equipment, where the annual rental is in
excess of $100 thousand, is estimated at $823 million for 2015;
$786 million for 2016; $725 million for 2017; $653 million for 2018,
$564 million for 2019, and $3,183 million for 2020 and thereafter.
Future minimum finance lease commitments where the annual
payment is in excess of $100 thousand, is estimated at $32 million for
2015; $28 million for 2016; $20 million for 2017; $8 million for 2018,
$7 million for 2019, and $24 million for 2020 and thereafter.
The premises and equipment net rental expense, included under
Non-interest expenses in the Consolidated Statement of Income, was
$947 million for the year ended October 31, 2014 (October 31, 2013 –
$971 million; October 31, 2012 – $914 million).
Pledged Assets and Collateral
In the ordinary course of business, securities and other assets are
pledged against liabilities or contingent liabilities, including repurchase
agreements, securitization liabilities, capital trust securities, and securi-
ties borrowing transactions. Assets are also 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. As at October 31, 2014, securities and other
assets with a carrying value of $139 billion (October 31, 2013 –
$134 billion) were pledged as collateral in respect of these transac-
tions. See Note 9 for further details.
Certain consumer instalment and other personal loan assets with
a carrying value of $8 billion (October 31, 2013 – $11 billion) and
residential mortgages with a carrying value of $8 billion (October 31,
2013 – nil) were also pledged with respect to covered bonds issued
by the Bank.