TD Bank 2014 Annual Report Download - page 157

TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS 155
SECURITIES
NOTE 7
October 31, 2014, of $18 million after tax (October 31, 2013 – decrease
of $25 million after tax). During the year ended October 31, 2014,
reclassified debt securities with a fair value of $331 million
(October 31, 2013 – $420 million) were sold or matured, and
$17 million after tax (October 31, 2013 – $28 million after tax) was
recorded in net securities gains during the year ended October 31, 2014.
Reclassification of Certain Debt Securities –
Available-for-Sale to Held-to-Maturity
The Bank has reclassified certain debt securities from available-for-sale
to held-to-maturity. For these debt securities, the Bank’s strategy is
to earn the yield to maturity to aid in prudent capital management
under Basel III. These debt securities were previously recorded at fair
value, with changes in fair value recognized in other comprehensive
income. Subsequent to the date of reclassification, the net unrealized
gain or loss recognized in accumulated other comprehensive income
is amortized to interest income over the remaining life of the reclassi-
fied debt securities using the EIRM. The reclassifications are non-cash
transactions that are excluded from the Consolidated Statement of
Cash Flows.
The Bank has completed the following reclassifications:
Reclassification of Certain Debt Securities –
Trading to Available-for-Sale
During 2008, the Bank changed its trading strategy with respect to
certain debt securities as a result of deterioration in markets and
severe dislocation in the credit market. These debt securities were
initially recorded as trading securities measured at fair value with any
changes in fair value as well as any gains or losses realized on disposal
recognized in Trading income. Since the Bank no longer intended to
actively trade in these debt securities, the Bank reclassified these debt
securities from trading to available-for-sale effective August 1, 2008.
The fair value of the reclassified debt securities was $646 million as
at October 31, 2014 (October 31, 2013 – $905 million). For the year
ended October 31, 2014, net interest income of $41 million after tax
(October 31, 2013 – $62 million after tax) was recorded relating to the
reclassified debt securities. The decrease in fair value of these securities
during the year ended October 31, 2014, of $18 million after tax
(October 31, 2013 – decrease of $25 million after tax) was recorded in
other comprehensive income. Had the Bank not reclassified these debt
securities, the change in the fair value of these debt securities would
have been included as part of trading income, the impact of which
would have resulted in a decrease in net income for the year ended
Had the Bank not reclassified these debt securities, the change in
the fair value recognized in other comprehensive income for these
debt securities would have been an increase of $53 million during the
year ended October 31, 2014 (October 31, 2013 – a decrease of
$44 million). After the reclassification, the debt securities contributed
the following amounts to net income:
(millions of Canadian dollars) For the years ended
October 31 October 31
2014 2013
Net interest income1 $ 541 $ 138
Net income before income taxes 541 138
Provision for (recovery of) income taxes 192 37
Net income $ 349 $ 101
1
Includes amortization of the net unrealized gains of $86 million during the year
ended October 31, 2014 (October 31, 2013 – $85 million) associated with these
reclassified held-to-maturity securities, that is presented as Reclassifications
to earnings of net losses (gains) in respect of available-for-sale securities on the
Consolidated Statement of Comprehensive Income. The impact of this amortization
on net interest income is offset by the amortization of the corresponding net
reclassification premium on these debt securities.
(millions of Canadian dollars, except as noted)
October 31, 2014 October 31, 2013 As at the reclassification date
Weighted-Average Undiscounted
Amount Fair Carrying Fair Carrying Effective Interest Recoverable
Reclassification Date reclassified Value Value Value Value Rate Cash Flows
March 1, 2013 $ 11,084 $ 6,845 $ 6,805 $ 9,405 $ 9,398 1.8% $ 11,341
September 23, 2013 9,854 9,790 9,728 9,978 9,941 1.9 10,742
November 1, 20131 21,597 21,949 21,863 – – 1.1 24,519
1
The change in fair value of these securities recorded in other comprehensive
income for the year ended October 31, 2014 was nil (October 31, 2013 – decrease
of $163 million).