TD Bank 2007 Annual Report Download - page 89

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TD BANK FINANCIAL GROUP ANNUAL REPORT 2007 Financial Results 85
Upon adoption of the new accounting rules certain securities
that support insurance reserves within some of the Bank’s insur-
ance subsidiaries have been designated as trading under the fair
value option. The actuarial valuation of the insurance reserve is
based on a discount factor using a weighted average yield, with
changes in the discount factor being recorded in the Consolidated
Statement of Income. By designating the securities as trading
under the fair value option, the unrealized gain or loss on the
securities will be recognized in the Consolidated Statement of
Income along with the variation in the discounting of insurance
reserves thereby reducing the accounting mismatch.
Available-for-sale
Financial assets classified as available-for-sale are carried at fair
value with the changes in fair value recorded in other comprehen-
sive income. Securities that are classified as available-for-sale and
do not have a readily available market value are recorded at cost.
Available-for-sale securities are written down to fair value through
income whenever it is necessary to reflect other-than-temporary
impairment. Gains and losses realized on disposal of available-for-
sale securities, which are calculated on an average cost basis, are
recognized in net securities gains in other income. Dividends and
interest income are recognized on the accrual basis and are
included in interest income.
Held-to-maturity
Securities that have a fixed maturity date, where the Bank intends
and has the ability to hold to maturity, are classified as held-to-
maturity and accounted for at amortized cost using the effective
interest rate method. Interest income is recognized on the accrual
basis and is included in interest income.
SECURITIES PURCHASED UNDER REVERSE REPURCHASE
AGREEMENTS AND SOLD UNDER REPURCHASE
AGREEMENTS
Securities purchased under reverse repurchase agreements consist
of the purchase of a security with the commitment by the Bank
to resell the security to the original seller at a specified price.
Securities sold under repurchase agreements consist of the sale
of a security with the commitment by the Bank to repurchase the
security at a specified price. Securities purchased under reverse
repurchase agreements and obligations related to securities sold
under repurchase agreements are carried at amortized cost on
the Consolidated Balance Sheet. The difference between the sale
price and the agreed repurchase price on a repurchase agreement
is recorded as interest expense. Conversely, the difference
between the cost of the purchase and the predetermined pro-
ceeds to be received on a resale agreement is recorded as interest
income. The Bank takes possession of the underlying collateral,
monitors its market value relative to the amounts due under the
agreements and when necessary, requires transfer of additional
collateral or reduction in the security balance to maintain contrac-
tual margin protection. In the event of counterparty default, the
financing agreement provides the Bank with the right to liquidate
the collateral held.