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40 <br />provision for Loan Tosses <br />Loans are stated net of unearned incW8 and any provisions for anticipated Losses. <br />The provision f= loan losses included in the Consolidated statement of income <br />is detenained by a;pLying to the outstandrng eligible loans at the year end, the <br />weighted average ratio of actual loan loss e.%q>erience to eligible leans <br />outstanding for the past ave fiscal years. The actual loan loss experience for <br />the year consists of the net change to provisions established to recognize <br />anticipated losses, and writs -offs less recoveries on loans previously written <br />off. The difference between actual loan leas w4mienee for the year and the <br />provision for loan lasses included in the Consolidated statement of income is <br />reflected in the Consolidated statement of appropriations for contingencies. <br />Under U.S. bank accounting principles the <br />the income statement represents adiitiams <br />possible losses. Actual loan losses are <br />subsequent recoveries are added. <br />8Mropriations for Cantingencies <br />provision for loan losses included in <br />for the year to the allowance for <br />deducted from the allowance and <br />This is a reserve created through transfers from retained earnings to provide <br />for unforeseen future losses. This reserve is in addition to the provisions <br />that have already been deducted from the value of loads reflected in the <br />Consolidated statement of assets and liabilities and takes into account the <br />difference between actual loan loss experience and the provision for loan losses <br />reflected in the Consolidated statement of income. <br />The reserve consists of two elements: tax allowable and tax -paid. The <br />tax -allowable portion consists of transactions, including transfers from <br />retained earnings, which are not subject to tax until their cuv lative amount <br />exceeds a limit prescribed by regulation of the Minister of Finance. 'This <br />limit, known as Prescribed Aggregate Reserve, is an amount calculated as the sum <br />of 1.58 of the first CN$2.0 billion (US;1.4 billion) of eligible assets and 1% <br />of the remaining eligible assets. <br />The tax -paid portion of appropriations for contingencies reflects the net of <br />actual loan lass experience and provision for loan losses as they related to <br />subsidiaries, and discretionary transfers to or from retained earnings on oihich <br />full taxes have been provided. <br />Under U.S. bank accounting principles there is no comparable appropriations <br />account. The allowance for possible loan losses, established by charges to <br />income, is deducted from the face amount of the loans on the Balance Sheet. <br />Securities <br />Investment securities other than those that qualify as loan substitutes are <br />carried at cost or amortized cost. Realized gains and losses on disposal of <br />debt securities in the Investment account other than treasury bills are <br />amortized to inane over five years. Cerins and losses realized on disposal of <br />treasury bills and other investment securities and writedowns to reflect <br />permanent impairment in value of investment securities other than loan <br />substitutes are included in income in the year in which they occur. <br />Trading account securities are carried at market values. Cerins and losses cn <br />disposal and adjustments to market are included in i.rcamre in the year in which <br />they occur. <br />A-4 <br />