TD Bank 2006 Annual Report Download - page 85

TD BANK FINANCIAL GROUP ANNUAL REPORT 2006 Financial Results 81
When loan receivables are transferred in a securitization to a
special purpose entity under terms that transfer control to third
parties and consideration other than beneficial interest in the
transferred assets is received, the transaction is recognized as a
sale and the related loan assets are removed from the
Consolidated Balance Sheet. For control to have transferred, the
transferred loans must be isolated from the seller, even in the
event of bankruptcy or receivership of the seller, the purchaser
must have the right to sell or pledge the transferred loans or, if
the purchaser is a Qualifying Special Purpose Entity (QSPE) as
defined in the CICA Accounting Guideline 12, Transfers of
Receivables,the investors of the QSPE must have the right to
sell or pledge their ownership interest in the QSPE and the seller
cannot retain the right to repurchase the loans and receive more
than trivial benefit.
As part of the securitization, certain financial assets are
retained and may consist of an interest-only strip, servicing rights
and, in some cases, a cash reserve account.
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 recog-
nized depends on the previous carrying values of the receivables
involved in the transfer, allocated between the assets sold and
the retained interests based on their relative fair values at the
date of transfer. To obtain fair value, quoted market prices are
used, whereavailable. However,as market prices are generally
not available for retained interests, fair value is determined by
estimating the present value of future expected cash flows using
management’s best estimates of key assumptions – credit losses,
prepayment rates, forward yield curves and discount rates –
which are commensurate with the risks involved.
Wherethe Bank retains the servicing rights and the benefits
of servicing are more or less than adequate, based on market
expectations, a servicing asset or liability is recognized, which
is amortized in proportion to and over the period of estimated
servicing income.
Other retained interests are classified as investment securities
and are carried at cost or amortized cost and are reviewed for
impairment on a quarterly basis. Subsequent to the securitization,
any retained interests that are impaired are adjusted to net realiz-
able value, which is determined using the present value of future
expected cash flows.
The following table summarizes the Bank’s securitization activi-
ty.In most cases the Bank retained the responsibility for servicing
the assets securitized.
LOAN SECURITIZATIONS
NOTE 4
Included in residential mortgages are Canadian government-
insured mortgages of $29,433 million at October 31, 2006
(2005 – $33,219 million). Gross impaired loans include foreclosed
assets held for sale with a gross carrying value of $27 million at
October 31, 2006 (2005 – $21 million) and a related allowance
of $12 million (2005 – $11 million).
Included in consumer instalment and other personal loans
are Canadian government-insured real estate personal loans of
$13,702 million at October 31, 2006 (2005 – $12,111 million).
Allowance for Credit Losses
(millions of Canadian dollars) 2006 2005 2004
Specific General Specific General
allowance allowance Total allowance allowance Total Total
Balance at beginning of year $153 $1,140 $1,293 $ 266 $ 917 $1,183 $2,012
Acquisitionsof TD Banknorth (includes Hudson) and VFC –87 87 27 289316 –
Provision for (reversal of) credit losses 457 (48) 409 107 (52) 55 (386)
Write-offs1(583) – (583) (487) – (487) (687)
Recoveries129 –129 245 –245 273
Other216 (34) (18) (5) (14)(19) (29)
Allowance for credit losses at end of year $172 $1,145 $1,317 $ 153 $1,140 $1,293 $1,183
1For the year ended October 31, 2006, there were no write-offs related to
restructured loans (2005 – nil; 2004 – $7 million).
2Includes foreign exchange rate changes, net of losses on loan sales.
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
2006 loans loans allowance allowance allowance losses of loans
Residential mortgages $53,425 $ 16 $ 6 $ 10 $ 33 $ 39 $ 53,386
Consumer instalment and
other personal 63,130 114 59 55 271 330 62,800
Credit card 4,856 38 21 17 92 113 4,743
Business and government 40,514 243 86 157 749 835 39,679
Total $161,925 $ 411 $172 $239 $1,145 $1,317 $160,608
2005
Residential mortgages $ 52,740 $ 19 $ 11 $ 8 $ 37 $ 48 $ 52,692
Consumer instalment and
other personal 62,754 93 50 43 247 297 62,457
Credit card 2,998 – – – 58 58 2,940
Business and government 35,044 237 92 145 798 890 34,154
Total $153,536 $ 349 $153 $196 $1,140 $1,293 $152,243
2006 2005
Average gross impaired loans during the year $354 $455