TD Bank 2009 Annual Report Download - page 88

TD BANK FINANCIAL GROUP ANNUAL REPORT 2009 MANAGEMENT’S DISCUSSION AND ANALYSIS84
DERIVATIVES
The impact of non-trading derivatives on net interest income and
non-interest income for the year ended October 31, 2009 is provided
in the table below.
Net interest income related to non-trading derivatives qualifying
for hedge accounting is largely offset by net interest income on the
hedged items.
(millions of Canadian dollars) Net interest income (loss) Non-interest loss
2009
Designated in qualifying fair value hedging relationships $ (615) $ (126)
Designated in qualifying cash flow hedging relationships 1,923 1
Designated in qualifying net investment hedge accounting relationships – (17)
Not in qualifying for hedge accounting relationships – (1,283)
NON-TRADING DERIVATIVES
TABLE 48
ACCOUNTING STANDARDS AND POLICIES
Changes in Accounting Policies
during the Current Year
FINANCIAL INSTRUMENTS – AMENDMENTS
a) Debt Securities Classified as Loans and Loans
Classified as Trading
In August 2009, the Accounting Standards Board (AcSB) of the
Canadian Institute of Chartered Accountants (CICA) amended CICA
Handbook Section 3855, Financial Instruments – Recognition and
Measurement and CICA Handbook Section 3025, Impaired Loans (the
2009 Amendments). The 2009 Amendments changed the definition
of a loan such that certain debt securities may be classified as loans if
they do not have a quoted price in an active market and it is not the
Bank’s intent to sell the securities immediately or in the near term.
Debt securities classified as loans are assessed for impairment using
the incurred credit loss model of CICA Handbook Section 3025. Under
this model, the carrying value of a loan is reduced to its estimated
realizable amount when it is determined that it is impaired. Loan
impairment accounting requirements are also applied to held-to-matu-
rity financial assets as a result of the 2009 Amendments. Debt securities
that are classified as available-for-sale continue to be written down
to their fair value through the Consolidated Statement of Income when
the impairment is considered to be other than temporary; however,
the impairment loss can be reversed if the fair value subsequently
increases and the increase can be objectively related to an event
occurring after the impairment loss was recognized.
As a result of the 2009 Amendments, the Bank reclassified certain
debt securities from available-for-sale to loans effective November 1,
2008 at their amortized cost as of that date. To be eligible for reclassi-
fication, the debt securities had to meet the amended definition of a
loan on November 1, 2008. Prior to the reclassification, the debt secu-
rities were accounted for at fair value with changes in fair value
recorded in other comprehensive income. After the reclassification,
they are accounted for at amortized cost using the effective interest
rate method.
In addition, the Bank also reclassified held-to-maturity securities
that did not have a quoted price in an active market to loans as
required by the 2009 Amendments. The securities were accounted
for at amortized cost both before and after the reclassification.
The following table shows carrying values of the reclassified debt
securities as at October 31, 2008 and November 1, 2008.
(millions of Canadian dollars) Amount
Available-for-sale debt securities reclassified to loans1
Non-agency collateralized mortgage obligation portfolio $ 8,435
Corporate and other debt 277
8,712
Held-to-maturity debt securities reclassified to loans
U.S. Federal, state, and municipal government
and agencies debt 69
Other OECD government guaranteed debt 459
Other debt securities 1,424
1,952
Total carrying value of debt securities
reclassified to loans on October 31, 2008 10,664
Transition adjustment for change
in measurement basis, pre tax2895
Gross amount of debt securities classified
as loans on November 1, 2008 11,559
Transition adjustment for recognition
of a general allowance, pre tax3(95)
Net carrying value of debt securities
classified as loans on November 1, 2008 $ 11,464
1Prior to the reclassification, the debt securities were accounted for at fair value
with changes in fair value recorded in other comprehensive income. After the
reclassification, the debt securities are accounted for at amortized cost.
2Includes $563 million after tax.
3Includes $59 million after tax.
In addition, the 2009 Amendments require loans for which the Bank
has the intention to sell immediately or in the near term to be classified
as trading. As a result, they are accounted for at fair value, with
changes in fair value recorded in the Consolidated Statement of
Income. Prior to the adoption of the 2009 Amendments, these loans
were accounted for at amortized cost. These loans are recorded in
residential mortgages and business and government loans on the
Consolidated Balance Sheet. This change did not have a material
impact on the financial position, cash flows, or earnings of the Bank.
DEBT SECURITIES RECLASSIFIED TO LOANS
TABLE 49