TD Bank 2011 Annual Report Download - page 48

TD BANK GROUP ANNUAL REPORT 2011 MANAGEMENT’S DISCUSSION AND ANALYSIS46
General Allowance
A general allowance is established to recognize losses that manage-
ment estimates to have occurred in the portfolio at the balance sheet
date for loans not yet specifically identified as impaired. The level of
general allowance reflects exposures across all portfolios and catego-
ries. The general allowance is reviewed on a quarterly basis using
credit risk models and management’s judgment. The allowance level is
calculated using the probability of default (PD), the loss given default
(LGD) and the exposure at default (EAD). The PD is the likelihood that
a borrower will not be able to meet its scheduled repayments. The LGD
is the amount of the loss the Bank would likely incur when a borrower
defaults on a loan, which is expressed as a percentage of exposure at
default. EAD is the total amount the Bank expects to be exposed to at
the time of default.
For the non-retail portfolio, allowances are estimated using borrower
specific information at the borrower level. The LGD is based on the
security of the facility; EAD is a function of the current usage, the
borrower’s risk rating, and the committed amount of the facility. For
the retail portfolio, the general allowance is calculated on a portfolio
level and is based on statistical estimates of loss using historical loss
and recovery data models and forecast balances. Models are validated
against historical experience and are updated at least annually. The
general allowance methodology is approved annually by the Risk
Committee of the Board of Directors.
At October 31, 2011 the general allowance for loan losses
was $1,926 million, up from $1,910 million at October 31, 2010.
Excluding debt securities classified as loans general allowance
increased by $30 million, or 2% from the prior year.
ALLOWANCE FOR CREDIT LOSSES
Total allowance for credit losses consists of specific and general
allowances carried on the Consolidated Balance Sheet. The allowance
is increased by the provision for credit losses, and decreased by write-
offs net of recoveries. The Bank maintains the allowance at levels that
management believes is adequate to absorb all credit-related losses in
the lending portfolio. Individual problem accounts, general economic
conditions, loss experience, as well as the sector and geographic mix
of the lending portfolio are all considered by management in assessing
the appropriate allowance levels.
Specific Allowance
The Bank establishes specific allowances for impaired loans when the
estimated realizable value of the loan is less than its recorded value,
based on discounting expected future cash flows. Specific allowances
for loan losses are established to reduce the book value of loans to
their estimated realizable amounts.
During 2011, specific allowances decreased by $7 million, or 1%,
resulting in a total specific allowance of $670 million. Excluding debt
securities classified as loans, FDIC covered loans and other acquired
credit-impaired loans, specific allowance decreased by $108 million,
or 20% from the prior year. Allowances for credit losses are more fully
described in Note 4 to the Consolidated Financial Statements.
(millions of Canadian dollars, except as noted) Percentage of total
2011 2010 2009 2011 2010 2009
Gross Net Net Net
impaired Specific impaired impaired impaired
loans
allowance loans loans loans
Canada
Atlantic provinces $ 21 $ 5 $ 16 $ 15 $ 11 0.9% 0.9% 0.7%
British Columbia3 122 17 105 74 50 5.9 4.3 3.2
Ontario3 472 165 307 340 429 17.4 19.8 27.5
Prairies3 148 19 129 100 98 7.3 5.8 6.3
Québec 86 15 71 51 47 4.0 3.0 3.0
Total Canada4 849 221 628 580 635 35.5 33.8 40.7
United States
Carolinas (North and South) 14 6 8 – – 0.5 – –
Florida 52 7 45 47 78 2.5 2.7 5.0
New England5 457 71 386 457 255 21.9 26.7 16.5
New Jersey 297 47 250 215 192 14.1 12.5 12.3
New York 153 19 134 161 240 7.6 9.4 15.4
Pennsylvania 192 25 167 114 84 9.5 6.6 5.4
Other 182 33 149 141 73 8.4 8.2 4.7
Total United States4 1,347 208 1,139 1,135 922 64.5 66.1 59.3
International
Other – – – 1 – – 0.1 –
Total international – – – 1 – – 0.1 –
Total1,2 $ 2,196 $ 429 $ 1,767 $ 1,716 $ 1,557 100.0% 100.0% 100.0%
Net impaired loans as a % of net loans6 0.59% 0.65% 0.62%
IMPAIRED LOANS NET OF SPECIFIC ALLOWANCE FOR LOAN LOSSES BY GEOGRAPHY1,2
TABLE 35
1 Excludes FDIC covered loans and other acquired credit-impaired loans. For
additional information refer to the “Exposure to Acquired Credit-Impaired Loans”
discussion and table in this section of the document and Note 4 to the 2011
Consolidated Financial Statements.
2 Excludes debt securities classified as loans. For additional information refer to
the “Exposure to Non-agency Collaterized Mortgage Obligations” section of this
document and Note 4 to the 2011 Consolidated Financial Statements.
3 The territories are included as follows: Yukon is included in British Columbia;
Nunavut is included in Ontario; and Northwest Territories is included in the
Prairies region.
4 Includes trading loans that the Bank intends to sell immediately or in the near
term with a fair value of $253 million (2010 – $188 million) and amortized cost of
$253 million (2010 – $188 million), and loans designated as trading under the fair
value option of $14 million (2010 – $85 million) and amortized cost of $5 million
(2010 – $86 million). No allowance is recorded for trading loans or loans designated
as trading under the fair value option.
5 The states included in New England are as follows: Connecticut, Maine,
Massachusetts, New Hampshire, and Vermont.
6 Includes customers’ liability under acceptances.