TD Bank 2014 Annual Report Download - page 57

TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS 55
(millions of Canadian dollars, except as noted) As at
Allowance for
Unpaid Counterparty- individually Carrying Percentage of
principal Carrying specific insignificant value net of unpaid principal
balance
1
value allowance impaired loans allowances balance
October 31, 2014
FDIC-assisted acquisitions $ 699 $ 660 $ 2 $ 49 $ 609 87.1%
South Financial 1,090 1,046 6 40 1,000 91.7
Other2 36 7 – – 7 19.4
Total ACI loan portfolio $ 1,825 $ 1,713 $ 8 $ 89 $ 1,616 88.5%
October 31, 2013
FDIC-assisted acquisitions $ 836 $ 787 $ 5 $ 55 $ 727 87.0%
South Financial 1,700 1,619 19 38 1,562 91.9
Other2 105 79 – – 79 75.2
Total ACI loan portfolio $ 2,641 $ 2,485 $ 24 $ 93 $ 2,368 89.7%
ACQUIRED CREDIT-IMPAIRED LOAN PORTFOLIO
TABLE 39
EXPOSURE TO ACQUIRED CREDIT-IMPAIRED LOANS
Acquired credit-impaired (ACI) loans are generally loans with evidence
of incurred credit loss where it is probable at the purchase date that the
Bank will be unable to collect all contractually required principal and
interest payments. Evidence of credit quality deterioration as of the
acquisition date may include statistics such as past due status and credit
scores. ACI loans are initially recorded at fair value and, as a result,
no allowance for credit losses is recorded on the date of acquisition.
ACI loans were acquired through the acquisitions of FDIC-assisted
transactions, which include FDIC covered loans subject to loss sharing
agreements with the FDIC, South Financial, Chrysler Financial, and the
acquisitions of the MBNA Canada, Target, and Aeroplan credit card
portfolios. The following table presents the unpaid principal balance,
carrying value, counterparty-specific allowance, allowance for individu-
ally insignificant impaired loans, and the net carrying value as a
percentage of the unpaid principal balance for ACI loans as at
October 31, 2014, and October 31, 2013.
(millions of Canadian dollars, except as noted) As at
October 31, 2014
October 31, 2013
Unpaid principal balance1 Unpaid principal balance1
Past due contractual status
Current and less than 30 days past due $ 1,540 84.4% $ 2,239 84.8%
30-89 days past due 60 3.3 78 2.9
90 or more days past due 225 12.3 324 12.3
Total ACI loans $ 1,825 100.0% $ 2,641 100.0%
Geographic region
Florida $ 1,101 60.3% $ 1,505 57.0%
South Carolina 535 29.3 772 29.2
North Carolina 143 7.9 241 9.1
Other U.S./Canada 46 2.5 123 4.7
Total ACI loans $ 1,825 100.0% $ 2,641 100.0%
1 Represents contractual amount owed net of charge-offs since acquisition of the loan.
1
Represents contractual amount owed net of charge-offs since acquisition of the loan.
2 Other includes the ACI loan portfolios of Chrysler Financial and the credit card
portfolios of MBNA Canada, Target, and Aeroplan.
ACQUIRED CREDIT-IMPAIRED LOANS – Key Credit Statistics
TABLE 40
During the year ended October 31, 2014, the Bank recorded a
recovery of $2 million in provision for credit losses on ACI loans
(2013 – provision for credit losses of $49 million, 2012 – provision
for credit losses of $114 million). The following table provides key
credit statistics by past due contractual status and geographic
concentrations based on ACI loans unpaid principal balance.
EXPOSURE TO NON-AGENCY COLLATERALIZED
MORTGAGE OBLIGATIONS
As a result of the acquisition of Commerce Bancorp Inc., the Bank has
exposure to non-agency Collateralized Mortgage Obligations (CMOs)
collateralized primarily by Alt-A and Prime Jumbo mortgages, most
of which are pre-payable fixed-rate mortgages without rate reset
features. At the time of acquisition, the portfolio was recorded at fair
value, which became the new cost basis for this portfolio.
These debt securities are classified as loans and carried at amor-
tized cost using the effective interest rate method, and are evaluated
for loan losses on a quarterly basis using the incurred credit loss
model. The impairment assessment follows the loan loss accounting
model, where there are two types of allowances for credit losses,
counterparty-specific and collectively assessed. Counterparty-specific
allowances represent individually significant loans, including the
Bank’s debt securities classified as loans, which are assessed for
whether impairment exists at the counterparty-specific level.
Collectively assessed allowances consist of loans for which no impair-
ment is identified on a counterparty-specific level and are grouped
into portfolios of exposures with similar credit risk characteristics to
collectively assess if impairment exists at the portfolio level.
The allowance for losses that are incurred but not identified
as at October 31, 2014, was US$52 million (October 31, 2013 –
US$94 million). The total provision for credit losses recognized in
2014 was a decrease of US$14 million (2013 – US$30 million decrease,
2012 – US$12 million increase).