TD Bank 2009 Annual Report Download - page 139

TD BANK FINANCIAL GROUP ANNUAL REPORT 2009 FINANCIAL RESULTS 135
The following table demonstrates, the potential effect of using reason-
able
possible alternative assumptions for financial assets and financial
liabilities held, as at October 31, 2009, that are classified as Level 3 in
the fair value hierarchy. In calculating these ranges, the Bank consid-
ered the effects of changes to certain non-observable inputs such as
correlation and recovery rates.
Sensitivity Analysis of Level 3 Financial Assets and Liabilities
(millions of Canadian dollars) 2009
Impact to net assets
Decrease in Increase in
fair value fair value
Financial Assets and Liabilities
Trading securities $52 $54
Available-for-sale securities 33
Loans 22
Derivative assets 39 46
Trading deposits 55
Derivative liabilities 58 51
Total $ 159 $ 161
As at October 31, 2008, the potential effect of using reasonable
possible alternative assumptions for valuing the Level 3 financial
instruments ranged from a reduction in the fair value by $556 million
to an increase in the fair value by $554 million (before changes in
valuation adjustments). The prior year ranges were calculated based
on Level 3 balances which included non-agency collateralized mort-
gage obligation debt securities as reported prior to the Amendments
to CICA Handbook Section 3855, as described in Note 1a).
A Level 3 financial asset or liability is first recognized at its transac-
tion price. The difference between the transaction price at initial
recognition and the value determined at that date using a valuation
technique is not recognized in income until the non-observable inputs
used to value these instruments become observable. The following
table summarizes the aggregate difference yet to be recognized in net
income due to the difference between the transaction price and the
amount determined using valuation techniques with significant non-
observable market inputs.
(millions of Canadian dollars) 2009 20081
Balance at beginning of year $33 $34
New transactions 46
Recognized in the Consolidated Statement
of Income during the period (18) (7)
Balance at end of year $ 19 $33
1Excludes valuation adjustments related to model and input parameter uncertainty
of $48 million which are reflected in the fair value of the underlying instruments
as determined by valuation techniques.
The Bank earns and pays interest on certain assets and liabilities. To the
extent that the assets, liabilities and financial instruments mature or
reprice at different points in time, the Bank is exposed to interest rate
risk. The table on the following page details interest-rate sensitive
instruments by the earlier of the maturity or repricing date. Contractual
repricing dates may be adjusted according to management’s estimates
for prepayments or early redemptions that are independent of changes
in interest rates. Certain assets and liabilities are shown as non-rate
sensitive although the profile assumed for actual management may be
different. Derivatives are presented in the floating rate category.
INTEREST RATE RISK
NOTE 31
Interest Rate Risk
(billions of Canadian dollars, except as noted) 2009
Total Over Non-
Floating Within 3 months within 1 year to Over interest
rate 3 months to 1 year 1 year 5 years 5 years sensitive Total
Assets
Cash resources and other $ 1.0 $ 19.0 $ 0.1 $ 20.1 $ – $ – $ 1.4 $ 21.5
Effective yield 0.2% 1.4% –% –%
Trading securities $ 0.2 $ 7.8 $ 5.7 $ 13.7 $ 9.0 $ 8.9 $ 22.7 $ 54.3
Effective yield 1.0% 0.8% 2.9% 2.6%
Available-for-sale $ 0.1 $ 44.7 $ 9.1 $ 53.9 $ 25.8 $ 4.2 $ 0.9 $ 84.8
Effective yield 0.5% 1.6% 2.8% 6.1%
Held-to-maturity $ – $ 0.9 $ 2.0 $ 2.9 $ 6.8 $ – $ – $ 9.7
Effective yield 2.4% 3.4% 4.0% –%
Securities purchased under reverse repurchase agreements $ 5.8 $ 18.8 $ 2.3 $ 26.9 $ 2.3 $ 2.0 $ 1.8 $ 33.0
Effective yield 0.5% 0.5% 1.8% 5.5%
Loans1$ 7.0 $ 140.3 $ 20.7 $ 168.0 $ 62.6 $ 16.1 $ 6.4 $ 253.1
Effective yield 4.6% 5.2% 5.3% 5.6%
Other $ 59.5 $ – $ – $ 59.5 $ – $ – $ 41.3 $ 100.8
Total assets $ 73.6 $ 231.5 $ 39.9 $ 345.0 $ 106.5 $ 31.2 $ 74.5 $ 557.2
Liabilities and shareholders’ equity
Trading deposits $ – $ 18.3 $ 15.7 $ 34.0 $ 0.1 $ 0.3 $ 1.0 $ 35.4
Effective yield 0.8% 0.4% 1.5% 5.4%
Other deposits $ 126.5 $ 36.7 $ 28.9 $ 192.1 $ 52.9 $ 5.5 $105.1 $ 355.6
Effective yield 1.3% 2.3% 3.0% 6.4%
Obligations related to securities sold short $ 17.6 $ – $ – $ 17.6 $ – $ – $ – $ 17.6
Obligations related to securities sold under repurchase agreements $ 0.1 $ 14.1 $ 1.6 $ 15.8 $ – $ – $ 0.7 $ 16.5
Effective yield 0.3% 0.4% –% –%
Subordinated notes and debentures $ – $ 0.1 $ – $ 0.1 $ 0.6 $ 11.7 $ – $ 12.4
Effective yield 0.2% –% 8.0% 5.3%
Other $ 58.1 $ – $ 0.9 $ 59.0 $ 0.6 $ – $ 21.4 $ 81.0
Shareholders’ equity $ – $ – $ – $ – $ 3.4 $ – $ 35.3 $ 38.7
Total liabilities and shareholders’ equity $ 202.3 $ 69.2 $ 47.1 $ 318.6 $ 57.6 $ 17.5 $163.5 $ 557.2
Net position $ (128.7) $ 162.3 $ (7.2) $ 26.4 $ 48.9 $ 13.7 $ (89.0) $ –
1As 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).