TD Bank 2010 Annual Report Download - page 103

TD BANK GROUP ANNUAL REPORT 2010 FINANCIAL RESULTS 101
The following table presents key economic assumptions and the
sensitivity of the current fair value of retained interests to two adverse
changes in each key assumption as at October 31, 2010. As the sensi-
tivity is hypothetical, it should be used with caution.
During 2010, there were maturities of previously securitized loans
and receivables of $4,619 million (2009 – $4,566 million; 2008 –
$8,901 million) and the net proceeds from loan securitizations were
$15,580 million (2009 – $27,491 million; 2008 – $10,370 million).
The following table presents information about gross impaired loans
and net write-offs for components of reported and securitized financial
assets as at October 31.
Sensitivity of Key Assumptions to Adverse Changes
(millions of Canadian dollars, except as noted) 2010 2009
Residential Commercial Residential Commercial
mortgage Personal mortgage mortgage Personal mortgage
loans loans loans loans loans loans
Fair value of retained interests $ 1,313 $ 121 $ 3 $ 1,216 $ 121 $ 2
Discount rate 3.5% 3.4% 4.2% 3.4% 3.0% 5.8%
+10% $ (6) $ – $ – $ (3) $ – $ –
+20% (13) (1) – (7) (1) –
Prepayment rate 18.9% 5.4% 0.0% 18.8% 4.3% 5.2%
+10% $ (37) $ (8) $ – $ (40) $ (8) $ –
+20% (74) (15) – (78) (14) –
Expected credit losses 0.0% 0.0% 0.0% 0.0% 0.0% 0.1%
+10% $ – $ – $ – $ – $ – $ –
+20% – – – – – –
Loans Managed
(millions of Canadian dollars) 2010 2009
Gross Write-offs, Gross Write-offs,
Gross impaired net of Gross impaired net of
loans loans recoveries loans loans recoveries
Type of loan
Residential mortgages $ 114,950 $ 472 $ 32 $ 106,562 $ 394 $ 13
Consumer instalment and other personal 107,435 350 689 101,319 286 599
Credit card 8,870 86 418 8,152 102 435
Business and government and other loans 84,094 1,394 488 76,293 1,300 391
Total loans managed 315,349 2,302 1,627 292,326 2,082 1,438
Less: Loans securitized
Residential mortgages 43,443 – – 40,897 – –
Consumer instalment and other personal 6,555 16 1 6,962 12 –
Business and government1 613 – – 117 – –
Total loans securitized 50,611 16 1 47,976 12 –
Debt securities classified as loans 7,591 1,170 24 11,146 241 –
Impact due to reporting-period alignment of U.S. entities n/a n/a n/a n/a n/a 35
Total loans reported on the Consolidated Balance Sheet $ 272,329 $ 3,456 $ 1,650 $ 255,496 $ 2,311 $ 1,473
1
Commercial mortgage loans and multi-unit residential mortgages and related credit
losses are included in business and government loans.
VARIABLE INTEREST ENTITIES
NOTE 6
A variable interest entity (VIE) is an entity in which the total equity
investment at risk is not sufficient to permit the entity to finance its
activities without additional subordinated financial support. The Bank
identifies VIEs in which it has an interest, determines whether it is the
primary beneficiary of such entities and if so, consolidates them. The
primary beneficiary is an entity that is exposed to a majority of the
VIE’s expected losses or entitled to a majority of the VIE’s expected
residual returns, or both.
SIGNIFICANT CONSOLIDATED VARIABLE INTEREST ENTITIES
The Bank is the primary beneficiary of two significant VIEs that it
consolidates. One of the VIEs is funded by the Bank and purchases
senior tranches of securitized assets from the Bank’s existing customers.
As at October 31, 2010, the VIE had $0.6 billion (2009 – $2.1 billion)
of assets, which included credit card loans, automobile loans and
leases, and equipment loans and leases. All the assets were originated
in Canada. The Bank is not restricted from accessing the VIE’s assets
to the extent of its entitlement under arrangements with the sellers.
The Bank’s maximum potential exposure to loss was $0.6 billion
(2009 – $2.1 billion) as at October 31, 2010.
The second VIE was created in 2010 to guarantee principal and
interest payments in respect of covered bonds issued by the Bank.
The Bank sold assets originated in Canada to the VIE and provided
a loan to the VIE to facilitate the purchase. As at October 31, 2010,
this VIE had $9.5 billion of assets which are reported as consumer
instalment and other personal loans on the Consolidated Balance
Sheet. Of this amount $2.2 billion were pledged in respect of covered
bonds. The Bank is restricted from accessing the VIE’s assets under
the relevant arrangements. The Bank’s maximum potential exposure
to loss was $2.2 billion as at October 31, 2010.
SIGNIFICANT NON-CONSOLIDATED VARIABLE
INTEREST ENTITIES
The Bank holds significant variable interests in VIEs where it is not
considered the primary beneficiary. The Bank’s variable interests in
these non-consolidated VIEs are discussed as follows.