TD Bank 2005 Annual Report Download - page 84

TD BANK FINANCIAL GROUP ANNUAL REPORT 2005 Financial Results
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When loan receivables are sold in a securitization to a special
purpose entity under terms that transfer control to third parties,
the transaction is recognized as a sale and the related loan assets
are removed from the Consolidated Balance Sheet. As part of
the securitization, certain financial assets are retained and may
consist of one or more subordinated tranches, servicing rights,
and in some cases a cash reserve account. The retained interests
are classified as investment securities and are carried at cost
or amortized cost. A gain or loss on sale of the loan receivables
is recognized immediately in other income after the effects of
hedges on the assets sold, if applicable. The amount of the
gain or loss is determined by estimating the fair value of future
expected cash flows using management’sbest estimates of key
assumptions – credit losses, prepayment rates, forward yield
curves, and discount rates – which are commensurate with the
risks involved.
Subsequent to the securitization, any retained interests that
cannot be contractually settled in such a way that the Bank can
recover substantially all of its recorded investment are adjusted
to fair value. The current fair value of retained interests is deter-
mined using the present value of future expected cash flows as
discussed above.
The following table summarizes the Bank’s securitization
activity. In most cases the Bank retained the responsibility for
servicing the assets securitized.
LOAN SECURITIZATIONS
NOTE 4
Included in gross residential mortgages are Canadian government-
insured mortgages of $33,219 million at October 31, 2005
(2004 – $32,146 million). Gross impaired loans include foreclosed
assets held for sale with a gross carrying value of $21 million at
October 31, 2005 (2004 – $10 million) and a related allowance
of $11 million (2004 – $3 million).
Included in consumer instalment and other personal loans
areCanadian government-insured real estate personal loans of
$12,111 million at October 31, 2005 (2004 – $8,386 million).
Allowance for Credit Losses
(millions of Canadian dollars) 2005 2004 2003
Specific General Specific General Sectoral
allowance allowance Total allowance allowance allowance Total Total
Balance at beginning of year $266 $ 917 $1,183 $487 $984 $541 $2,012 $3,500
Acquisition of TD Banknorth 27 289 316 –– – ––
Provision for (reversal of) credit losses 107 (52) 55 336 (67) (655) (386) 186
Transfer from sectoral to specific –– –6 – (6) – –
Write-offs1(487) – (487) (687) – – (687) (1,601)
Recoveries2245 – 245 123 – 150 273 177
Other3(5) (14) (19) 1 – (30) (29) (250)
Allowance for credit losses at end
of year $153 $1,140 $1,293 $266 $ 917 $ – $1,183 $2,012
1For the year ended October 31, 2005, there were no write-offs related to
restructured loans (2004 – $7 million; 2003 – $39 million).
2Represents $229 million of sectoral recoveries.
3Includes foreign exchange rate changes and losses on loan sales booked to
sectoral allowance.
Loans and Impaired Loans
(millions of Canadian dollars)
Impaired Total
Gross Gross loans net allowance Net
amount of impaired Specific of specific General for credit amount
2005 loans loans allowance allowance allowance losses of loans
Residential mortgages $52,740 $ 19 $ 11 $ 8 $ 37 $ 48 $ 52,692
Consumer instalment and
other personal 62,754 125 62 63 302 364 62,390
Credit card 2,998 – – – 58 58 2,940
Business and government 35,044 205 80 125 743 823 34,221
Total $153,536 $349 $153 $196 $1,140 $1,293 $152,243
2004
Residential mortgages $ 51,420 $ 21 $ 6 $ 15 $ 40 $ 46 $ 51,374
Consumer instalment and
other personal 48,857 90 49 41 199 248 48,609
Credit card 2,566 – – – 56 56 2,510
Business and government 22,264 426 211 215 622 833 21,431
Total $125,107 $ 537 $266 $271 $ 917 $1,183 $123,924
2005 2004
Average gross impaired loans during the year $455 $946