TD Bank 2009 Annual Report Download - page 53

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TD BANK FINANCIAL GROUP ANNUAL REPORT 2009 MANAGEMENT’S DISCUSSION AND ANALYSIS 49
GROUP FINANCIAL CONDITION
Credit Portfolio Quality
AT A GLANCE OVERVIEW
•Loans and acceptances portfolio net of allowances for credit
losses was $263 billion, an increase of $32 billion from the
prior year.
•Impaired loans after specific allowance were $1,557 million,
an increase of $752 million.
•Provision for credit losses was $2,480 million, compared with
$1,063 million in the prior year.
•Total allowances for credit losses increased by $1,103 million
to $2,639 million in 2009.
LOAN PORTFOLIO
Overall in 2009, the Bank’s credit quality remained acceptable despite
weakening economic conditions, due to established business and risk
management strategies and a continuing low interest rate environment.
During 2009, the loans and acceptances portfolio continued to be
diversified between retail and business and government. The Bank
increased its credit portfolio by $32 billion, or 14%, from the prior year,
largely due to volume growth in the Canadian Personal and Commer-
cial Banking and U.S. Personal and Commercial Banking segments and
the addition of certain debt securities classified as loans. Excluding
debt securities classified as loans, the credit portfolio increased
$22 billion, or 9%.
The Bank experienced growth in new impaired loan formations
during the year, driven largely by increases in both the Canadian
Personal and Commercial Banking and U.S. Personal and Commercial
Banking segments. The increase in impaired loans in Canadian Personal
and Commercial Banking was due primarily to volume increases and
the impact of higher unemployment and consumer bankruptcies on
the Personal portfolio. Impaired loan growth in U.S. Personal and
Commercial Banking was largely due to continued weakness in the
real estate sector and to higher defaults across most portfolios as a
result of the recession.
The majority of the credit risk exposure related to the loan and
acceptances portfolio. However, the Bank also engaged in activities
that have off-balance sheet credit risk. These include credit instruments
and derivative financial instruments, as explained in Note 33 to the
2009 Consolidated Financial Statements.
CONCENTRATION OF CREDIT RISK
The addition of debt securities classified as loans to the credit portfolio
in
2009 represented an increase of $11 billion in loans, net of specific
allowance over 2008, or 4%, of the 2009 portfolio. This increase
generally
reduced 2009 percentage concentrations relative to 2008
concentrations.
The Bank’s loan portfolio continued to be dominated by the Canadian
and U.S. residential and personal portfolios which represented 63%
of net loans including acceptances, compared with 62% in 2008 and
71% in 2007. During the year, the portfolio, which is primarily
comprised of residential mortgages, consumer instalment and other
personal loans increased by $23 billion, or 16%, and totalled $168 billion
at year end. Residential mortgages represented 25% of the portfolio in
both 2009 and 2008, down from 31% in 2007. Consumer instalment
and other personal loans were 39% of total loans net of specific
allowance in 2009, compared with 37% in 2008 and 39% in 2007.
The Bank’s business and government credit exposure was 31%
of total loans net of specific allowance, down from 35% in 2008. The
largest business and government sector concentrations in Canada
were the real estate and financial sectors, which comprised 5% and
2% of total loans and acceptances net of specific allowance, respec-
tively. Real estate was the leading U.S. sector of concentration and
represented 5% of net loans, down relative to 2008.
Geographically, the credit portfolio remained concentrated in Canada.
In 2009, the percentage of loans held in Canada was 71%, down
from 73% in 2008. The largest Canadian exposure was in Ontario,
which represented 54% of total loans net of specific allowance for
2009, down from 56% in 2008.
The balance of the credit portfolio was predominantly in the U.S.,
which represented 23% of the portfolio, down from 25% in 2008.
Exposure to other geographic regions was limited. The largest U.S.
exposures were in New York and New Jersey, each of which represented
5% of total loans net of specific allowance, compared with 6% and
4% respectively in 2008.