NOTE 7
SECURITIES
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 $328 million as at October 31, 2016 (October 31, 2015 – $451 million). For the year ended October 31, 2016, net interest income of $19 million after tax (October 31, 2015 – $27 million after tax) was recorded relating to the reclassified debt securities. There was no significant increase in fair value recorded in OCI during the year ended October 31, 2016 (October 31, 2015 – decrease of $4 million after tax). 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 no significant
increase for the year ended October 31, 2016 (October 31, 2015 – decrease of $4 million after tax). During the year ended October 31, 2016, reclassified debt securities with a fair value of $155 million (October 31, 2015 – $312 million) were sold or matured, and $7 million after tax (October 31, 2015 – $13 million after tax) was recorded in net securities gains during the year ended October 31, 2016.
RECLASSIFICATIONS 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 OCI. Subsequent to the date of reclassification, the net unrealized gain or loss recognized in AOCI is amortized to interest income over the remaining life of the reclassified 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.
Reclassifications from Available-for-Sale to Held-to-Maturity Securities (millions of Canadian dollars, except as noted)
October 31, 2016 Amount
Reclassification Date March 1, 2013
September 23, 2013 November 1, 2013
Other reclassifications1 1
reclassified $ 11,084
9,854
21,597 8,342
Fair value
$ 1,618 7,022
20,339 8,607
Represent reclassifications completed during the years ended October 31, 2016 and October 31, 2015.
Had the Bank not reclassified these debt securities, the change in the fair value recognized in OCI for these debt securities would have been an increase of $156 million during the year ended October 31, 2016 (October 31, 2015 – a decrease of $275 million). After the reclassification, the debt securities contributed the following amounts to net income.
(millions of Canadian dollars) Net interest income1
Provision for (recovery of) income taxes Net income
1 For the years ended
October 31 October 31 2016
$ 593 226
$ 367 199 $ 341
Includes amortization of net unrealized gains of $20 million during the year ended October 31, 2016 (October 31, 2015 – $46 million), associated with these reclassified held-to-maturity securities that is presented as Reclassification 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.
2015 $ 540
Carrying value
$ 1,605 6,934
20,401 8,577
October 31, 2015 Fair value
$ 4,248 8,995
22,532 5,085
Carrying value
$ 4,219 8,916
22,637 5,121
Weighted-average effective interest rate
As at the reclassification date Undiscounted
recoverable cash flows
1.8% 1.9 1.1 2.5
$11,341 10,742 24,519 9,490
148 TD BANK GROUP ANNUAL REPORT 2016 FINANCIAL RESULTS
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