TD Bank 2001 Annual Report Download - page 75

73
FINANCIAL RESULTS
(millions of dollars)
Residential Personal
2001 mortgage loans loans
Carrying value of retained interests $ 239 $ 27
Discount rate 3.8% 4.8%
+10% $(1)$ –
+20% (2) –
Prepayment rate 7.0% 20.3%
+10% $ (2) $ (2)
+20% (3) (4)
Expected credit losses .2% 1.6%
+10% $–$(1)
+20% –(1)
Restructuring costs
Under previous Canadian GAAP, restructuring costs incurred in
respect of an acquired company could be accrued as a liability
provided that a restructuring plan detailing all significant actions
to be taken had been approved by an appropriate level of man-
agement, and significant changes to the plan were not likely. U.S.
GAAP and current Canadian GAAP require that restructuring costs
related to an acquired company be included as a liability in the
allocation of the purchase price, thereby increasing goodwill.
U.S. GAAP also requires that all restructuring costs be incurred
within one year of a restructuring plan’s approval by management
and that all employees to be involuntarily terminated be notified
of their termination benefit arrangement. In accordance with U.S.
GAAP, restructuring costs of $188 million and $55 million after-
tax have been recognized during 2001 and 2000, respectively. The
restructuring costs under Canadian GAAP amounted to $138 mil-
lion and $271 million after-tax for 2001 and 2000, respectively.
Loan securitizations
U.S. GAAP and current Canadian GAAP require gains on loan
securitizations to be recognized in income immediately. Under
previous Canadian GAAP, gains were recognized only when
received in cash by the Bank.
During the year, the Bank adopted the new U.S. accounting
standard for transfers and servicing of financial assets and extin-
guishments of liabilities. The principal impact of this new U.S.
standard on the Bank’s financial statements is to require consoli-
dation of special purpose entities (SPE’s) in circumstances where
the SPE is considered a single-seller and either its activities
are not sufficiently limited or it does not have a minimum 3%
external equity investment. Canadian GAAP requires consolidation
of such SPE’s only when the Bank retains substantially all the
residual risks and rewards of the SPE.
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.
The sensitivity analysis is hypothetical and should be used
with caution.
Non-controlling interest
Under U.S. GAAP, preferred shares of the Bank’s subsidiary,
TD Mortgage Investment Corporation, are presented as a non-
controlling interest on the consolidated balance sheet, and
the net income applicable to the non-controlling interest is
presented separately on the consolidated statement of income.
Under Canadian GAAP, these preferred shares are included
within the total preferred shares presented on the consolidated
balance sheet.
Future income taxes
Under Canadian GAAP, the effects of income tax rate reductions
are recorded when considered substantively enacted. Under U.S.
GAAP, the effects of rate changes do not impact the measurement
of tax balances until passed into law.
Investment securities
U.S. GAAP requires that investment securities be classified as
either “available for sale” or “held to maturity”, and requires
available for sale securities to be reported on the balance sheet
at their estimated fair values. Unrealized gains and losses arising
from changes in fair values of available for sale securities are
reported net of income taxes in other comprehensive income.
Other than temporary declines in fair value are recorded by trans-
ferring the unrealized loss from other comprehensive income to
the statement of income. For U.S. GAAP, the Bank accounts for
substantially all investment securities as available for sale. Under
Canadian GAAP, investment securities are carried at cost or amor-
tized cost, with other than temporary declines in value
recognized based upon expected net realizable values.