TD Bank 2006 Annual Report Download - page 100

TD BANK FINANCIAL GROUP ANNUAL REPORT 2006 Financial Results
96
Net Future Tax Asset
(millions of Canadian dollars) 2006 2005
Future income tax assets
Allowance for credit losses $ 268 $ 333
Premises and equipment 237 251
Deferred income 12 20
Securities 193 201
Goodwill 77 85
Employee benefits 384 361
Other 248 382
Total future income tax assets 1,419 1,633
Valuation allowance (46) (58)
Future income tax assets 1,373 1,575
Future income tax liabilities
Intangible assets (678) (711)
Employee benefits (153) (146)
Other (5) (198)
Future income tax liabilities (836) (1,055)
Net future income tax asset1$ 537 $ 520
1Included in the October 31, 2006 net future income tax asset are future
income tax assets (liabilities) of $329 million (2005 – $254 million) in
Canada, $192 million (2005 – $247 million) in the United States and
$16 million (2005 – $19 million) in International jurisdictions.
The net future tax asset which is reported in other assets is
composed of:
Earnings of certain subsidiaries would be subject to additional
tax only upon repatriation. The Bank has not recognized a
future income tax liability for this additional tax since it does
not currently plan to repatriate the undistributed earnings. If all
the undistributed earnings of the operations of these subsidiaries
were repatriated, estimated additional taxes payable would be
$454 million at October 31, 2006 (2005 – $264 million).
The following tables present the fair value of both on- and off-
balance sheet financial instruments, based on the valuation
approach set out below. Fair value represents the Bank’s estimate
of the price at which a financial instrument could be exchanged
in an arm’s length transaction in the normal course of business
between willing parties who areunder no compulsion to act. Fair
value is best evidenced by a quoted market price, if one exists.
The Bank calculates fair values based on the following methods
of valuation and assumptions:
For certain assets and liabilities which are short term in nature
or contain variable rate features, fair value is considered to be
equal to carrying value. These items are not listed below. The
estimated fair value of securities, both trading and investment, is
considered to be the estimated market values reported in Note 2.
The estimated fair value of loans reflects changes in interest
rates which have occurred since the loans were originated and
changes in the creditworthiness of individual borrowers. For
fixed-rate performing loans, estimated fair value is determined by
discounting the expected future cash flows related to these loans
at market interest rates for loans with similar credit risks. The fair
value of loans is not adjusted for the value of any credit protec-
tion the Bank has purchased to mitigate credit risk. For floating-
rate performing loans, changes in interest rates have minimal
impact on fair value since loans reprice to market frequently.
On that basis, fair value is assumed to equal carrying value. The
fair value of credit derivatives is disclosed separately in Note 19.
The estimated fair value of term deposits is determined by dis-
counting the contractual cash flows using interest rates currently
offered for deposits with similar terms. For deposits with no
defined maturities, the Bank considers fair value to equal cash
value based on book value being the equivalent to the amount
payable on the reporting date. The estimated fair value of the
subordinated notes and debentures is determined by reference
to quoted market prices.
Financial Assets and Liabilities
(millions of Canadian dollars) 2006 2005
Carrying Estimated Carrying Estimated
Consolidated Balance Sheet value fair value value fair value
Assets
Securities $124,458 $125,254 $108,096 $108,883
Loans 160,608 160,464 152,243 152,359
Liabilities
Deposits 260,907 260,806 246,981 247,009
Subordinated notes and debentures 6,900 7,168 5,138 5,497
FAIR VALUE OF FINANCIAL INSTRUMENTS
NOTE 17