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Summary of significant accounting policies (Policies)
 3 Months Ended
Mar. 31, 2023
Accounting Policies  
Financing receivable modification
In connection with the implementation of the Accounting Standards Update (“ASU”) 2022-02, the Corporation has modified its policy
related to
 
loan modifications.
 
As discussed
 
in Note
 
3, the
 
new accounting
 
guidance eliminates
 
the recognition
 
and measurement
principle of
 
TDRs.
 
The Corporation
 
has
 
also made
 
changes to
 
certain of
 
its
 
accounting policies
 
related to
 
its
 
loans portfolio
 
and
allowance for credit losses in connection with
 
this accounting standards update.
 
A
 
modification is
 
subject to
 
disclosure under
 
the new
 
ASU when
 
the Corporation
 
separately concludes
 
that both
 
of the
 
following
conditions exist:
 
1) the
 
debtor is experiencing
 
financial difficulties 2)
 
the modification constitutes
 
a reduction
 
in the
 
interest rate
 
on
the loan, a payment extension, a forgiveness of principal, or a more-than-insignificant payment delay. Determination that a borrower
is experiencing
 
financial difficulties
 
involves a
 
degree of
 
judgment. The identification
 
of loan
 
modifications to
 
debtors with
 
financial
difficulties is critical in the determination of the adequacy
 
of the ACL.
 
The
 
ASU
 
also
 
eliminates
 
the
 
requirement to
 
use
 
a
 
DCF
 
approach
 
to
 
estimated
 
credit
 
losses
 
for
 
modified
 
loans
 
with
 
borrowers
experiencing financial difficulties. The
 
entity can apply
 
a methodology similar to
 
the one used for
 
loans that were not
 
modified. The
Corporation applied a modified retrospective transition method for the implementation of ASU 2022-02 which
 
resulted in a reduction
of approximately $
46
 
million, $
29
 
million net of tax, in the reserve which was recorded as an
 
adjustment to the beginning balance of
retained earnings.
A
loan modified
 
with financial
 
difficulties is
 
typically in
 
non-accrual status
 
at the
 
time of
 
the modification.
 
These loans
 
continue in
non-accrual status until the borrower has demonstrated a willingness
 
and ability to make the restructured loan payments (at least
 
six
months of sustained performance after the modification (or one year for loans providing for quarterly or semi-annual payments)) and
management has concluded that it is probable
 
that the borrower would not be in payment
 
default in the foreseeable
 
future.
Refer
 
to
 
Note
 
9
 
to
 
the
 
Consolidated
 
Financial
 
Statements
 
for
 
additional
 
qualitative
 
information
 
on
 
loan
 
modifications
 
and
 
the
Corporation’s determination of the ACL.
Loans
Loans
 
Effective on January 1, 2023,
 
newly originated mortgage loans held-for-sale are stated at fair
 
value, with changes recorded through
earnings.
 
Previously held-for-sale
 
were carried
 
at
 
the lower
 
of
 
its cost
 
or market
 
value. Fair
 
value is
 
generally determined
 
in the
aggregate and
 
is measured
 
based on
 
current market
 
prices for
 
similar loans,
 
outstanding investor
 
commitments, prices
 
of recent
sales
 
or
 
discounted
 
cash
 
flow
 
analyses
 
which
 
utilize
 
inputs
 
and
 
assumptions
 
which
 
are
 
believed
 
to
 
be
 
consistent
 
with
 
market
participants’ views.
Derivatives financial instruments
Derivative instruments
Effective on
 
January 1,
 
2023, the
 
Corporation discontinued
 
the hedge
 
accounting treatment
 
of certain
 
forward contracts
 
for which
the
 
changes
 
in
 
fair
 
value
 
were
 
recorded,
 
net
 
of
 
taxes,
 
in
 
accumulated
 
other
 
comprehensive
 
income/(loss)
 
and
 
subsequently
reclassified to net
 
income (loss) in
 
the same
 
period that the
 
hedged transaction impacted
 
earnings. As a
 
result of this
 
change, the
changes in the fair
 
value of these forward contracts
 
are being recorded through net
 
income (loss). The Corporation utilizes
 
forward
contracts to hedge the
 
sale of mortgage-backed securities with
 
duration terms over one month.
 
Interest rate forwards are contracts
for the delayed delivery of securities, which the seller agrees to deliver on a specified future
 
date at a specified price or yield. These
forward contracts are hedging a forecasted transaction
 
and thus qualify for cash flow hedge accounting.
 
 
Based
 
on
 
the
 
election
 
to
 
apply
 
fair
 
value
 
accounting
 
for
 
its
 
mortgage
 
loans
 
held
 
for
 
sale,
 
effective
 
on
 
January
 
1,
 
2023,
 
the
Corporation discontinued
 
the
 
hedge accounting
 
since
 
the
 
changes
 
in
 
the
 
fair
 
value
 
of
 
the
 
loans
 
is
 
expected
 
to
 
be
 
offset
 
by
 
the
changes in the fair value of the forward
 
contract, both of which are now recorded through
 
net income (loss).