TD Bank 2007 Annual Report Download - page 112

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TD BANK FINANCIAL GROUP ANNUAL REPORT 2007 Financial Results108
Financial Assets and Liabilities
(millions of Canadian dollars) 2007 2006
Carrying Value Fair Value Carrying Value Fair Value
Financial Assets
Cash and due from banks $ 1,790 $ 1,790 $ 2,019 $ 2,019
Interest-bearing deposits with banks 14,746 14,746 8,763 8,763
Securities
Trading 77,637 77,637 77,482 77,482
Designated as trading under the fair value option 2,012 2,012 – –
Available-for-sale 35,650 36,340 – –
Held-to-maturity 7,737 7,680 – –
Investment – – 46,976 47,772
Securities purchased under reverse repurchase agreements 27,648 27,648 30,961 30,961
Loans 174,680 174,760 160,608 160,464
Loans designated as trading under the fair value option 1,235 1,235 – –
Customers‘ liability under acceptances 9,279 9,279 8,676 8,676
Trading derivatives (Note 24) 36,052 36,052 27,845 27,845
Other assets 13,407 13,407 9,844 10,828
Liabilities
Trading deposits 45,348 45,348 – –
Other deposits 231,045 230,812 260,907 260,806
Acceptances 9,279 9,279 8,676 8,676
Obligations related to securities sold short 24,195 24,195 27,113 27,113
Obligations related to securities sold under
repurchase agreements 16,574 16,574 18,655 18,655
Trading derivatives (Note 24) 39,028 39,028 29,337 29,337
Subordinated notes and debentures 9,449 9,396 6,900 7,168
Liabilities for preferred shares and capital trust securities 1,449 1,517 1,794 1,937
Other liabilities 20,605 20,605 14,219 14,881
Management validates that the estimates of fair value are
reasonable using a process of obtaining multiple quotes of
external market prices, consistent application of models over
a period of time, and the controls and processes in place. The
valuations are also validated by past experience and through
the actual cash settlement of contracts.
The Bank defers all inception profit on financial instruments
where fair value is estimated using valuation techniques based
on non-observable market inputs that are significant to the
overall valuation. The difference between the fair value at initial
recognition represented by transaction price and the fair value
determined using the valuation technique is recognized in income
when the inputs become observable. The total amount of change
in fair value recognized in income for the year ended October 31,
2007 relating to these financial instruments was $62 million,
which is before the impact of hedges and includes changes in
both the observable and non-observable inputs.
The potential effect of using reasonable possible alternative
assumptions for valuing these financial instruments would range
from a reduction in the fair value by $68 million to an increase
in the fair value by $82 million (before changes in valuation
adjustments).
The following table summarizes the aggregate profit not
recognized due to the difference between the transaction
price and amount determined using valuation techniques with
significant non-observable market inputs at inception:
NOTE 23 INTEREST RATE RISK
The Bank earns and pays interest on certain assets and liabilities.
To the extent that the assets, liabilities and financial instruments
mature or reprice at different points in time, the Bank is exposed
to interest rate risk. The table on the following page details
interest-rate sensitive instruments by the earlier of the maturity
or repricing date. Contractual repricing dates may be adjusted
according to management’s estimates for prepayments or early
redemptions that are independent of changes in interest rates.
Prior to November 1, 2006, the off-balance sheet position
included notional amounts for transactions that are put into place
as hedges of items not included in the trading account. These
transactions are now included in other assets or other liabilities.
Certain assets and liabilities are shown as non-rate sensitive
although the profile assumed for actual management may be
different. Trading securities and all derivatives are presented in
the floating rate category.
(millions of Canadian dollars) 2007
Balance at beginning of year $ 102
New transactions 8
Recognized in the income statement during the period (25)
Balance at end of year $ 85