TD Bank 2014 Annual Report Download - page 165

TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS 163
TRANSFERS OF FINANCIAL ASSETS
NOTE 9
continues to be exposed to substantially all of the risks of the underly-
ing mortgages, through the retention of a seller swap which transfers
principal and interest payment risk on the NHA MBS back to the Bank
in return for coupon paid on the CMB issuance. The NHA MBS and
sales of NHA MBS into the CHT do not qualify for derecognition as the
Bank continues to be exposed to substantially all of the risks of the
underlying residential mortgages.
The Bank securitizes U.S. originated and purchased residential mort-
gages with U.S. government agencies which qualify for derecognition
from the Bank’s Consolidated Balance Sheet. As part of the securitiza-
tion, the Bank retains the right to service the transferred mortgage
loans. The MBS that are created through the securitization are typically
sold to third-party investors.
The Bank also securitizes personal loans and business and govern-
ment loans to entities which may be structured entities. These securiti-
zations may give rise to full or partial derecognition of the financial
assets depending on the individual arrangement of each transaction.
In addition, the Bank transfers financial assets to certain consolidated
structured entities. See Note 10, Structured Entities for further details.
The following table summarizes the securitized asset types that did
not qualify for derecognition, along with their associated
securitization liabilities.
LOAN SECURITIZATIONS
The Bank securitizes loans through structured entity or non-structured
entity third parties. Most loan securitizations do not qualify for derecog-
nition since in certain circumstances, the Bank continues to be exposed
to substantially all of the prepayment, interest rate, and/or credit risk
associated with the securitized financial assets and has not transferred
substantially all of the risk and rewards of ownership of the securitized
assets. Where loans do not qualify for derecognition, the loan is not
derecognized from the balance sheet, retained interests are not recog-
nized, and a securitization liability is recognized for the cash proceeds
received. Certain transaction costs incurred are also capitalized and
amortized using the EIRM.
The Bank securitizes insured residential mortgages under the
National Housing Act Mortgage-Backed Securities (NHA MBS) program
sponsored by the Canada Mortgage and Housing Corporation (CMHC).
The MBS that are created through the NHA MBS program are sold to
the Canada Housing Trust (CHT) as part of the Canada Mortgage Bond
(CMB) program, sold to third-party investors, or are held by the Bank.
The CHT issues CMB to third-party investors and uses resulting
proceeds to purchase NHA MBS from the Bank and other mortgage
issuers in the Canadian market. Assets purchased by the CHT are
comingled in a single trust from which CMB are issued. The Bank
Financial Assets Not Qualifying for Derecognition Treatment as Part of the Bank’s Securitization Programs
(millions of Canadian dollars) As at
October 31, 2014
October 31, 2013
Fair Carrying Fair Carrying
value amount value amount
Nature of transaction
Securitization of residential mortgage loans $ 33,792 $ 33,561 $ 39,685 $ 39,386
Securitization of business and government loans 2 2 21 21
Other financial assets transferred related to securitization1 2,321 2,321 6,911 6,832
Total $ 36,115 $ 35,884 $ 46,617 $ 46,239
Associated liabilities2 $ (36,469) $ (36,158) $ (47,824) $ (47,552)
1
Includes asset-backed securities, asset-backed commercial paper, cash, repurchase
agreements, and Government of Canada securities used to fulfill funding require-
ments of the Bank’s securitization structures after the initial securitization of
mortgage loans.
2
Includes securitization liabilities carried at amortized cost of $25 billion as at
October 31, 2014 (October 31, 2013 – $25 billion) and securitization liabilities
carried at fair value of $11 billion as at October 31, 2014 (October 31, 2013 –
$22 billion).
Other Financial Assets Not Qualifying for Derecognition
The Bank enters into certain transactions where it transfers previously
recognized financial assets, such as commodities, debt and equity
securities, but retains substantially all of the risks and rewards of those
assets. These transferred financial assets are not derecognized and the
transfers are accounted for as financing transactions. The most
common transactions of this nature are repurchase agreements and
securities lending agreements, in which the Bank retains substantially
all of the associated credit, price, interest rate, and foreign exchange
risks and rewards associated with the assets.
The following table summarizes the carrying amount of financial assets
and the associated transactions that did not qualify for derecognition,
as well as their associated financial liabilities.
Other Financial Assets Not Qualifying for Derecognition
(millions of Canadian dollars) As at
October 31 October 31
2014 2013
Carrying amount of assets
Nature of transaction
Repurchase agreements1,2 $ 19,924 $ 16,658
Securities lending agreements 10,718 12,827
Total 30,642 29,485
Carrying amount of
associated liabilities2 $ 19,939 $ 16,775
1
Includes $3.8 billion of assets related to precious metals repurchase agreements
(October 31, 2013 – $2.2 billion).
2
Associated liabilities are all related to repurchase agreements.