COLLATERAL
As at October 31, 2016, the fair value of financial collateral held against loans that were past due but not impaired was $455 million (October 31, 2015 – $279 million). In addition, the Bank also holds non-financial collateral as security for loans. The fair value of non- financial collateral is determined at the origination date of the loan. A revaluation of non-financial collateral is performed if there has been a significant change in the terms and conditions of the loan and/or the loan is considered impaired. Management considers the nature of the collateral, seniority ranking of the debt, and loan structure in assessing the value of collateral. These estimated cash flows are reviewed at least annually, or more frequently when new information indicates a change in the timing or amount expected to be received.
ACQUIRED CREDIT-IMPAIRED LOANS
ACI loans are comprised of commercial, retail, and FDIC covered loans, from the acquisitions of South Financial, FDIC-assisted, Chrysler Financial, and a credit card portfolio within the U.S. strategic cards portfolio, and had outstanding unpaid principal balances of $6.3 billion, $2.1 billion, $874 million, and $41 million, respectively, and fair values of $5.6 billion, $1.9 billion, $794 million, and nil, respectively, at the acquisition dates.
Acquired Credit-Impaired Loans (millions of Canadian dollars)
FDIC-assisted acquisitions Unpaid principal balance1
Credit related fair value adjustments2
Interest rate and other related premium/(discount) Carrying value
Counterparty-specific allowance3 Allowance for individually insignificant impaired loans3
Carrying value net of related allowance – FDIC-assisted acquisitions4
South Financial Unpaid principal balance1 Credit related fair value adjustments2
Interest rate and other related premium/(discount) Carrying value
Counterparty-specific allowance3
Allowance for individually insignificant impaired loans3 Carrying value net of related allowance – South Financial Other5
Unpaid principal balance1
Credit related fair value adjustments2 Carrying value – Other
Total carrying value net of related allowance – Acquired credit-impaired loans
1 2 3 529
(15) (20)
494 (3)
(23) 468
2
(2) –
$ 912
Represents contractual amount owed net of charge-offs since the acquisition of the loan.
Credit related fair value adjustments include incurred credit losses on acquisition and are not accreted to interest income.
Management concluded as part of the Bank’s assessment of the ACI loans that it was probable that higher than estimated principal credit losses would result in a decrease in expected cash flows subsequent to acquisition. As a result, counterparty-specific and individually insignificant allowances have been recognized.
4 Carrying value does not include the effect of the FDIC loss sharing agreement. 5
Includes Chrysler Financial and an acquired credit card portfolio within the U.S. strategic cards portfolio.
FDIC COVERED LOANS
As at October 31, 2016, the balance of FDIC covered loans was $480 million (October 31, 2015 – $601 million) and was recorded in Loans on the Consolidated Balance Sheet. As at October 31, 2016, the balance of indemnification assets was $22 million (October 31, 2015 – $39 million) and was recorded in Other assets on the Consolidated Balance Sheet.
NOTE 9 TRANSFERS OF FINANCIAL ASSETS LOAN SECURITIZATIONS
The Bank securitizes loans through structured entity or non-structured entity third parties. Most loan securitizations do not qualify for derecognition 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, they are not derecognized from the balance sheet, retained interests are not recognized, 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 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 continues to be exposed to substantially all of the risks of the underlying 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 and as such, the sales do not qualify for derecognition.
The Bank securitizes U.S. originated residential mortgages with U.S. government agencies which qualify for derecognition from the Bank’s Consolidated Balance Sheet. As part of the securitization, 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 government loans to entities which may be structured entities. These securitizations may give rise to derecognition of the financial assets depending on the individual arrangement of each transaction. In addition, the Bank transfers credit card receivables, consumer instalment and other personal loans to structured entities that the Bank consolidates. Refer to Note 10 for further details.
853
(18) (22)
813 (5) (32) 776 40
(40) –
$ 1,331
As at
October 31 October 31 2016
2015 $ 508
(11) (17)
480 (1) (35) 444 $ 636
(12) (23)
601 (1) (45) 555
TD BANK GROUP ANNUAL REPORT 2016 FINANCIAL RESULTS 155
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