TD Bank 2010 Annual Report Download - page 101

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TD BANK GROUP ANNUAL REPORT 2010 FINANCIAL RESULTS 99
The following table summarizes loans that are past due but not
impaired as at October 31, 2010 and October 31, 2009, and generally,
these amounts exclude loans that fall within the allowed grace period.
Although U.S. Personal and Commercial Banking may grant a grace
period of up to 15 days, there were $1.7 billion as at October 31,
2010 (2009 – $1.4 billion), of U.S. Personal and Commercial Banking
loans that were past due up to 15 days that are included in the
1-30 days category in the following table.
is determined at the origination date of the loan. A revaluation of non-
financial collateral is performed if there has been a significant change
in the terms and conditions of the loan and/or the loan is considered
impaired. For impaired loans, an assessment of the collateral is taken into
consideration when estimating the net realizable amount of the loan.
Loans Past Due but not Impaired
A loan is classified as past due when a borrower has failed to make
a payment by the contractual due date, taking into account the grace
period, if applicable. The grace period represents the additional time
period beyond the contractual due date during which a borrower may
make the payment without the loan being classified as past due. The
grace period varies depending on the product type and the borrower.
Debt securities classified as loans and purchased impaired loans are
considered to be contractually past due when actual cash flows are
less than those cash flows expected at acquisition. As at October 31,
2010 and 2009, no debt securities classified as loans or purchased
impaired loans are past due but not impaired.
Collateral
As at October 31, 2010, the fair value of financial collateral held
against loans that were past due but not impaired was $22 million
(2009 – $45 million). In addition, the Bank also holds non-financial
collateral as security for loans. The fair value of non-financial collateral
Loans Past Due but not Impaired
(millions of Canadian dollars) 2010 2009
1 to 30 31 to 60 61 to 89 1 to 30 31 to 60 61 to 89
days days days Total days days days Total
Residential mortgages $ 849 $ 381 $ 94 $ 1,324 $ 861 $ 387 $ 67 $ 1,315
Consumer instalment and other personal 4,879 788 175 5,842 3,600 627 163 4,390
Credit card 405 81 46 532 355 79 49 483
Business and government 1,850 544 174 2,568 2,248 517 200 2,965
Total $ 7,983 $ 1,794 $ 489 $ 10,266 $ 7,064 $ 1,610 $ 479 $ 9,153
FINANCIAL INSTRUMENTS DESIGNATED AS TRADING UNDER THE FAIR VALUE OPTION
NOTE 4
Financial assets and financial liabilities, other than those classified as
trading, may be designated as trading under the fair value option if
fair values are reliably measurable, the asset or liability meets one
or more of the criteria set out below, and the asset or liability is so
designated by the Bank on initial recognition. Financial instruments
designated as trading under the fair value option and related interest
and dividend income are accounted for on the same basis as securities
classified as trading.
The Bank may designate financial assets and financial liabilities
as trading when the designation:
i) eliminates or significantly reduces valuation or recognition inconsis-
tencies that would otherwise arise from measuring financial assets
or financial liabilities, or recognizing gains and losses on them, on
different bases; or
ii) applies to groups of financial assets, financial liabilities or combina-
tions thereof that are managed, and their performance evaluated, on
a fair value basis in accordance with a documented risk management
or investment strategy, and where information about the groups
of financial instruments is reported to management on that basis.
SECURITIES DESIGNATED AS TRADING UNDER
THE FAIR VALUE OPTION
Certain securities that support insurance reserves within certain of the
Bank’s insurance 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 the market yield of the assets supporting the
insurance reserve, 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 is recognized in the Consolidated Statement of Income
in the same period as the loss or income resulting from changes to the
discount rate used to value the insurance reserves.
In addition, certain government and government insured securities
have been combined with derivatives to form economic hedging rela-
tionships. These securities are being held as part of the Bank’s overall
interest rate risk management strategy and have been designated as
trading under the fair value option. The derivatives are carried at fair
value, with the change in fair value recognized in the Consolidated
Statement of Income.
The total fair value of these securities designated as trading under
the fair value option was $2,983 million as at October 31, 2010
(2009 – $3,236 million). These securities are recorded in trading
securities on the Consolidated Balance Sheet.
BUSINESS AND GOVERNMENT LOANS DESIGNATED
AS TRADING UNDER THE FAIR VALUE OPTION
Certain business and government loans held within a trading portfolio
or economically hedged with derivatives, are designated as trading
under the fair value option if the criteria described above are met. The
method of determining fair value of these loans is described in Note 29.
The total fair value of these loans was $85 million as at October 31,
2010 (2009 – $210 million) which represents their maximum credit
exposure. These loans are recorded in business and government
loans on the Consolidated Balance Sheet.
These loans are managed as part of a trading portfolio with risk
limits that have been approved by the Bank’s risk management group
and are hedged with various financial instruments, including credit
derivatives. The Bank also uses other instruments within this trading
portfolio to hedge its total maximum exposure to loss. At October 31,
2010, the cumulative change in fair value of these loans attributable
to changes in credit risk was nil (2009 – loss of $16 million), calculated
by determining the changes in credit spread implicit in the fair value
of the loans.