TD Bank 2009 Annual Report Download - page 108

TD BANK FINANCIAL GROUP ANNUAL REPORT 2009 FINANCIAL RESULTS104
1In 2009, multi-unit residential (MUR) mortgages and any related credit losses have
been reclassified from residential mortgages to business and government retroac-
tively to 2008.
2Commercial mortgage loans are included in business and government loans.
3As a result of the 2009 Amendments to CICA Handbook Section 3855, certain
available-for-sale and held-to-maturity securities were reclassified to loans, as
described in Note 1a).
4As explained in Note 1, due to the alignment of reporting period of U.S. entities,
the amounts relating to TD Bank, N.A., which includes TD Banknorth and
Commerce, have been reflected in retained earnings.
The following table presents information about gross impaired loans
and net write-offs for components of reported and securitized finan-
cial assets as at October 31.
Loans Managed
(millions of Canadian dollars) 2009 2008
Gross Write-offs, Gross Write-offs,
Gross impaired net of Gross impaired net of
loans loans recoveries loans loans recoveries
Type of loan
Residential mortgages1$ 106,562 $ 394 $ 13 $ 81,928 $ 264 $ 8
Consumer instalment and other personal 101,319 286 599 87,710 221 384
Credit card 8,152 102 435 7,387 82 300
Business and government and other loans176,293 1,300 391 76,715 602 145
Total loans managed 292,326 2,082 1,438 253,740 1,169 837
Less: Loans securitized
Residential mortgages 40,897 – – 24,332 – –
Consumer instalment and other personal 6,962 12 – 8,100 12 1
Credit card –––––14
Business and government2117 – – 148 – –
Total loans securitized 47,976 12 – 32,580 12 15
Debt securities classified as loans311,146 241 – –––
Impact due to reporting-period alignment of U.S. entities4n/a n/a 35 n/a n/a n/a
Total loans reported on the Consolidated Balance Sheet $ 255,496 $ 2,311 $ 1,473 $ 221,160 $ 1,157 $ 822
A VIE is an entity in which the total equity investment at risk is not
sufficient to permit the entity to finance its activities without addi-
tional subordinated financial support. The Bank identifies VIEs in which
it has an interest, determines whether it is the primary beneficiary of
such entities and if so, consolidates them. The primary beneficiary is
an entity that is exposed to a majority of the VIE’s expected losses or
entitled to a majority of the VIE’s expected residual returns, or both.
The Bank is the primary beneficiary of one significant VIE. This VIE
is funded by the Bank and purchases senior tranches of securitized
assets from the Bank’s existing customers. As at October 31, 2009, the
VIE had $2.1 billion (2008 – $1.9 billion) of assets, which included
credit card loans, automobile loans and leases, and equipment loans
and leases. All the assets were originated in Canada. The Bank is
not restricted from accessing the VIE’s assets to the extent of its enti-
tlement under arrangements with the sellers. The Bank’s maximum
potential exposure to loss was $2.1 billion (2008 – $1.9 billion) as
at October 31, 2009.
Until March 2009, the Bank was the primary beneficiary of an addi-
tional VIE, Lillooet Limited (Lillooet). As discussed further in Note 7,
the Bank ceased to be the primary beneficiary of this VIE during the
fiscal year.
The Bank holds significant variable interests in VIEs where it is not
considered the primary beneficiary. The Bank’s variable interests in
these non-consolidated VIEs are discussed as follows.
MULTI-SELLER CONDUITS
Multi-seller conduits (also referred to as customer securitization vehi-
cles) provide customers with alternate sources of financing through
the securitization of their assets. The customers sell their receivables
to the conduit and the conduit funds its purchase of the receivables
through issuance of short-term commercial paper to outside investors.
Each seller continues to service its assets and absorb first losses. The
Bank has no rights to the assets as they are owned by the conduit.
The Bank administers the conduits and provides liquidity facilities
as well as securities distribution services; it may also provide credit
enhancements. The liquidity facilities can be drawn by the conduits
if the conduit meets certain tests designed to ensure the Bank does
not provide credit enhancement. From time to time, the Bank in its
capacity as distribution agent may hold commercial paper issued by
the conduits which is classified as trading securities. The Bank earns
fees from the conduits which are recognized when earned. The Bank
holds variable interests in these multi-seller conduits primarily through
holding their commercial paper, providing liquidity facilities and earning
fees; however, the Bank is not the primary beneficiary.
The Bank’s maximum potential exposure to loss due to its ownership
interest in commercial paper and through the provision of liquidity
facilities for multi-seller conduits was $7.5 billion as at October 31,
2009 (2008 – $10.7 billion). Further, the Bank has committed to an
additional $1.0 billion (2008 – $1.8 billion) in liquidity facilities for
asset-backed commercial paper that could potentially be issued by the
conduits. As at October 31, 2009, the Bank also provided deal-specific
credit enhancement in the amount of $134 million (2008 – $78 million).
SINGLE-SELLER CONDUITS
The Bank uses single-seller conduits to enhance its liquidity position,
to diversify its sources of funding, and to optimize management of its
balance sheet.
As at October 31, 2009, the single-seller conduits had $5.1 billion
(2008 – $5.1 billion) of commercial paper outstanding. While the
probability of loss is negligible, the Bank’s maximum potential expo-
sure to loss for these conduits through the sole provision of liquidity
facilities was $5.1 billion (2008 – $5.1 billion), of which $1.1 billion
(2008 – $1.1 billion) related to personal loans that were government
insured. Additionally, the Bank had retained interests of $121 million
(2008 – $80 million) relating to excess spread.
VARIABLE INTEREST ENTITIES
NOTE 6