T ABLE 30
IMPAIRED LOANS NET OF COUNTERPARTY-SPECIFIC AND INDIVIDUALLY INSIGNIFICANT ALLOWANCES FOR LOAN LOSSES BY GEOGRAPHY1,2,3,4
(millions of Canadian dollars, except as noted)
October 31 2016
Gross
impaired loans
Canada
Atlantic provinces British Columbia5 Ontario5 Prairies5 Québec
Total Canada United States
Carolinas (North and South) Florida
New England6 New Jersey New York
Pennsylvania Other
Total United States Total
Net impaired loans as a % of net loans7 1
$ 46
111 436 318 143
1,054
113 177 651 447 375 188 504
2,455 $ 3,509
$ 14 26
159 87 31
317
15 23 87 51 47 27
157 407
$ 724
Certain comparative amounts have been reclassified to conform with the presentation adopted in the current period.
2 Primarily based on the geographic location of the customer’s address. 3
$
32 85
277 231 112
737 98
154 564 396 328 161 347
2,048 $ 2,785
0.46% 5
6
Excludes FDIC covered loans and other ACI loans. For additional information refer to the “Exposure to Acquired Credit-Impaired Loans” discussion and table in this section of the document and Note 8 of the 2016 Consolidated Financial Statements.
4
Excludes debt securities classified as loans. For additional information refer to the “Exposure to Non-Agency Collateralized Mortgage Obligations” section of this document and Note 8 of the 2016 Consolidated Financial Statements.
ALLOWANCE FOR CREDIT LOSSES
Total allowance for credit losses consists of counterparty-specific and collectively assessed allowances. The allowance is increased by the PCL, and decreased by write-offs net of recoveries and disposals. The Bank maintains the allowance at levels that management believes is adequate to absorb incurred credit-related losses in the lending portfolio. Individual problem accounts, general economic conditions, loss experience, as well as the sector and geographic mix of the lending portfolio are all considered by management in assessing the appropriate allowance levels.
Counterparty-specific allowance
The Bank establishes counterparty-specific allowances for individually significant impaired loans when the estimated realizable value of the loan is less than its recorded value, based on the discounting of expected future cash flows.
During 2016, counterparty-specific allowances increased by
$30 million, or 8%, resulting in a total counterparty-specific allowance of $399 million primarily due to an increase in the oil and gas sector and the impact of foreign exchange. Excluding debt securities classified as loans, FDIC covered loans and other ACI loans, counterparty-specific allowances increased by $33 million, or 21% from the prior year, primarily due to an increase in the oil and gas sector and the impact of foreign exchange.
Collectively assessed allowance for individually insignificant impaired loans
Individually insignificant loans, such as the Bank’s personal and small business banking loans and credit cards, are collectively assessed for impairment. Allowances are calculated using a formula that incorporates recent loss experience, historical default rates, and the type of collateral pledged.
During 2016, the collectively assessed allowance for individually insignificant impaired loans increased by $88 million, or 17%, resulting in a total of $593 million, primarily due to the U.S. credit card portfolio and the impact of foreign exchange. Excluding FDIC covered loans and other ACI loans, the collectively assessed allowance for individually insignificant impaired loans increased by $107 million, or 25% from the prior year, primarily due to the U.S. credit card portfolio and the impact of foreign exchange.
Collectively assessed allowance for incurred but not identified credit losses
The collectively assessed allowance for incurred but not identified credit losses is established to recognize losses that management estimates to have occurred in the portfolio at the balance sheet date for loans not yet specifically identified as impaired. The level of collectively assessed allowance for incurred but not identified losses reflects exposures across all portfolios and categories. The collectively assessed allowance for incurred but not identified credit losses is reviewed on a quarterly basis using credit risk models and management’s judgment. The allowance level is calculated using the probability of default (PD), the loss given default (LGD), and the exposure at default (EAD) of the related portfolios. The PD is the likelihood that a borrower will not be able to meet its scheduled repayments. The LGD is the amount of the loss the Bank would likely incur when a borrower defaults on a loan, which is expressed as a percentage of EAD. EAD is the total amount the Bank expects to be exposed to at the time of default.
$ 34
109 318 156 129
746
110 163 524 387 318 171 241
1,914 $ 2,660 0.48%
$ 38 185 332 149 129
833
67 96
419 322 202 147 158
1,411 $ 2,244 0.46%
The territories are included as follows: Yukon is included in British Columbia; Nunavut is included in Ontario; and the Northwest Territories is included in the Prairies region.
The states included in New England are as follows: Connecticut, Maine, Massachusetts, New Hampshire, and Vermont. 7 Includes customers’ liability under acceptances.
1.2% 3.1 9.9 8.3 4.0
26.5
3.5 5.5
20.2 14.2 11.8 5.8
12.5 73.5
100.0%
1.3% 4.1
11.9 5.9 4.8
28.0
4.1 6.1
19.7 14.6 12.0 6.4 9.1
72.0 100.0%
1.7% 8.2
14.8 6.6 5.8
37.1
3.0 4.3
18.7 14.3 9.0 6.6 7.0
62.9 100.0%
Counterparty- specific and individually insignificant allowances
Net
impaired loans
October 31 2015
Net
impaired loans
As at
October 31 2014
Net
impaired loans
October 31 2016
October 31 2015
Percentage of total October 31
2014
50 TD BANK GROUP ANNUAL REPORT 2016 MANAGEMENT’S DISCUSSION AND ANALYSIS
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