TD Bank 2010 Annual Report Download - page 135

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TD BANK GROUP ANNUAL REPORT 2010 FINANCIAL RESULTS 133
The following table demonstrates, the potential effect of using
reasonable possible alternative assumptions for financial assets
and financial liabilities held, as at October 31, that are classified as
Level 3 in the fair value hierarchy. In calculating these ranges, the
Bank considered the effects of changes to certain non-observable
inputs such as correlation and recovery rates.
A Level 3 financial asset or liability is first recognized at its transaction
price. The difference between the transaction price at initial recogni-
tion and the value determined at that date using a valuation technique
is not recognized in income until the non-observable inputs used to
value these instruments become observable. The following table
summarizes the aggregate difference yet to be recognized in net
income due to the difference between the transaction price and
the amount determined using valuation techniques with significant
non-observable market inputs.
(millions of Canadian dollars) 2010 2009
Balance at beginning of year $ 19 $ 33
New transactions 11 4
Recognized in the Consolidated Statement
of Income during the year (18) (18)
Balance at end of year $ 12 $ 19
Sensitivity Analysis of Level 3 Financial Assets and Liabilities
(millions of Canadian dollars) 2010 2009
Impact to net assets Impact to net assets
Decrease in Increase in Decrease in Increase in
fair value fair value fair value fair value
FINANCIAL ASSETS
Trading securities
Government and government related securities
Canadian government debt
U.S. Federal, state, municipal governments, and agencies debt $ 1 $ 1 $ – $ –
Other debt securities
Canadian issuers 1 1 3 3
Other issuers – – 1 1
Equity securities
Retained interests 52 54 48 50
Total trading securities 54 56 52 54
Available-for-sale securities
Government and government related securities
Debt securities reclassified from trading 1 1 3 3
Total available for sale securities 1 1 3 3
Loans 2 2 2 2
Derivatives 3 25 39 46
FINANCIAL LIABILITIES
Trading deposits 3 2 5 5
Obligations related to securities sold short 1 1 – –
Derivatives 49 24 58 51
Total $ 113 $ 111 $ 159 $ 161
repricing dates may be adjusted according to management’s estimates
for prepayments or early redemptions that are independent of changes
in interest rates. Certain assets and liabilities are shown as non-rate
sensitive although the profile assumed for actual management may be
different. Derivatives are presented in the floating rate category.
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
INTEREST RATE RISK
NOTE 30