UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

 

For the month of May, 2019.   Commission File Number: 001-14446

 

 

The Toronto-Dominion Bank

(Translation of registrant’s name into English)

 

 

c/o General Counsel’s Office

P.O. Box 1, Toronto Dominion Centre,

Toronto, Ontario, M5K 1A2

(Address of principal executive offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F  ☐             Form 40-F  ☒

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ☐

This Form 6-K, excluding Exhibit 99.4, Exhibit 99.5 and Exhibit 99.6 hereto, is incorporated by reference into all outstanding Registration Statements of The Toronto-Dominion Bank filed with the U.S. Securities and Exchange Commission.

 

 

 


EXHIBIT INDEX

 

Exhibit

  

Description

99.1    2nd Quarter 2019 Report to Shareholders
99.2    Earnings Coverage
99.3    Return on Assets, Dividend Payouts, and Equity to Assets Ratios
99.4    Q2 2019 Earnings News Release
99.5    Q2 2019 Dividend News Release
99.6    CEO and CFO Certificates
101    Interactive Data File


FORM 6-K

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    THE TORONTO-DOMINION BANK
DATE: May 23, 2019     By:   /s/ Caroline Cook
    Name:   Caroline Cook
    Title:   Associate Vice President, Legal
Table of Contents

Exhibit 99.1

 

 

LOGO

 

  

TD Bank Group Reports Second Quarter 2019 Results

Report to Shareholders Three and Six months ended April 30, 2019

 

The financial information in this document is reported in Canadian dollars and is based on the Bank's unaudited Interim Consolidated Financial Statements and related Notes prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), unless otherwise noted.

Reported results conform to generally accepted accounting principles (GAAP), in accordance with IFRS. Adjusted measures are non-GAAP measures. Refer to the "How the Bank Reports" section of the Management's Discussion and Analysis (MD&A) for an explanation of reported and adjusted results.

SECOND QUARTER FINANCIAL HIGHLIGHTS, compared with the second quarter last year:

 

Reported diluted earnings per share were $1.70, compared with $1.54.

 

Adjusted diluted earnings per share were $1.75, compared with $1.62.

 

Reported net income was $3,172 million, compared with $2,916 million.

 

Adjusted net income was $3,266 million, compared with $3,062 million.

YEAR-TO-DATE FINANCIAL HIGHLIGHTS, six months ended April 30, 2019, compared with the corresponding period last year:

 

Reported diluted earnings per share were $2.97, compared with $2.78.

 

Adjusted diluted earnings per share were $3.32, compared with $3.18.

 

Reported net income was $5,582 million, compared with $5,269 million.

 

Adjusted net income was $6,219 million, compared with $6,008 million.

SECOND QUARTER ADJUSTMENTS (ITEMS OF NOTE)

The second quarter reported earnings figures included the following items of note:

 

Amortization of intangibles of $78 million ($66 million after-tax or 3 cents per share), compared with $86 million ($73 million after-tax or 4 cents per share) in the second quarter last year.

 

Charges associated with the acquisition of Greystone of $30 million ($28 million after-tax or 2 cents per share).

TORONTO, May  23, 2019 – TD Bank Group ("TD" or the "Bank") today announced its financial results for the second quarter ended April 30, 2019. Second quarter reported earnings were $3.2 billion, up 9%, and adjusted earnings were $3.3 billion, up 7%, compared with the same quarter last year.

"TD achieved record earnings this quarter, reflecting continued year-over-year revenue growth in our retail businesses in Canada and the U.S., and stronger quarter-over-quarter results in our wholesale business," said Bharat Masrani, Group President and Chief Executive Officer, TD Bank Group. "We made strong progress in the quarter, adding new capabilities, strengthening our business, and advancing our strategic priorities as we continue to build the bank of the future."

Canadian Retail

Canadian Retail reported net income of $1,849 million and adjusted net income of $1,877 million, an increase of 1% and 2%, respectively, compared with the same quarter last year. Revenue grew by 8% reflecting increased volumes, higher margins, and more assets under management in its wealth businesses. Canadian Retail is already showing results from its "Future Ready" strategy and received the "Highest in Customer Satisfaction among the Big Five Retail Banks", according to the J.D. Power 2019 Canada Retail Banking Satisfaction Study 1 .

U.S. Retail

U.S. Retail reported and adjusted net income was $1,263 million (US$948 million), an increase of 29% (23% in U.S. dollars) on a reported basis and 20% (15% in U.S. dollars) on an adjusted basis, compared with the same quarter last year. TD Ameritrade contributed $258 million (US$195 million) in reported and adjusted earnings to the segment, an increase of 93% (82% in U.S. dollars) and 32% (27% in U.S. dollars), respectively, in the same quarter last year.

The U.S. Retail Bank, which excludes the Bank's investment in TD Ameritrade, reported net income of $1,005 million (US$753 million), up 19% (14% in U.S. dollars) on a reported basis and up 17% (12% in U.S. dollars) on an adjusted basis, from the same period last year. Earnings growth reflects higher deposit margins and increased loan and deposit volumes. U.S. Retail continued to invest in its digital platform and deliver industry-leading customer experiences, receiving the "Highest in Customer Satisfaction with Retail Banking in Southeast", according to the J.D. Power 2019 U.S. Retail Banking Satisfaction Study 2 .

Wholesale

Wholesale Banking saw a strong improvement over the first quarter of 2019, with net income of $221 million this quarter, reflecting higher trading-related revenue, advisory and underwriting fees from improved market conditions and increased client activity compared to the prior quarter. Compared to the second quarter last year, net income was $46 million lower, reflecting higher non-interest expenses, partially offset by lower provision for credit losses. The Wholesale Bank continues to invest in the global expansion of its U.S. dollar strategy.

Capital

TD's Common Equity Tier 1 Capital ratio on a Basel III fully phased-in basis was 12.0%.

 

 

1  

TD Canada Trust received the highest score among the big five banks in the J.D. Power 2019 Canada Retail Banking Satisfaction Study of customers' satisfaction with their primary bank. Visit jdpower.com/awards.

2  

TD Bank, America's Most Convenient Bank ® , received the highest score in the Southeast region of the J.D. Power 2019 U.S. Retail Banking Satisfaction Study of customers' satisfaction with their own retail bank. Visit jdpower.com.

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 1  


Table of Contents

Innovation

"We continue to enhance our omni capabilities and deliver new experiences to meet the evolving needs of our customers," added Masrani. "In recent months, we successfully converted our U.S. small business customers to our new digital platform, and participated in the launch of Verified.Me, which offers new options and added convenience to millions of Canadians."

Conclusion

"I want to thank our more than 85,000 colleagues across the globe for their significant contributions to the Bank's performance this quarter. I also want to congratulate them for our recent J.D. Power wins, which are testaments to their hard work and dedication to our customers," concluded Masrani.

The foregoing contains forward-looking statements. Please refer to the "Caution Regarding Forward-Looking Statements" on page 4.

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 2  


Table of Contents

ENHANCED DISCLOSURE TASK FORCE

The Enhanced Disclosure Task Force (EDTF) was established by the Financial Stability Board in 2012 to identify fundamental disclosure principles, recommendations and leading practices to enhance risk disclosures of banks. The index below includes the recommendations (as published by the EDTF) and lists the location of the related EDTF disclosures presented in the second quarter 2019 Report to Shareholders (RTS), Supplemental Financial Information (SFI), or Supplemental Regulatory Disclosures (SRD). Information on TD's website, SFI, and SRD is not and should not be considered incorporated herein by reference into the second quarter 2019 RTS, Management's Discussion and Analysis, or the Interim Consolidated Financial Statements. Certain disclosure references have been made to the Bank's 2018 Annual Report.

 

        Type of        

Risk

     Topic        EDTF Disclosure   

 

Page

 

   RTS

Second

Quarter

2019

   SFI

Second

Quarter

2019

   SRD

Second

Quarter

2019

   Annual

Report

2018

       
General    1   

Present all related risk information together in any particular report.

 

   Refer to below for location of disclosures

 

   2    The bank's risk terminology and risk measures and present key parameter values used.                   71-76,81,87,

89-91,

101-103

   3   

 

Describe and discuss top and emerging risks.

 

                 

 

67-71

 

   4    Outline plans to meet each new key regulatory ratio once applicable rules are finalized.    27, 40              62-63, 95-96,

98

Risk

Governance

and Risk Management and Business Model

   5   

Summarize the bank's risk management organization, processes, and key functions.

 

                  72-75
   6   

 

Description of the bank's risk culture and procedures applied to support the culture.

 

                  71-72
   7    Description of key risks that arise from the bank's business models and activities.                   61, 71,

76-103

   8    Description of stress testing within the bank's risk governance and capital frameworks.    31              60,75-76,

84,101

Capital Adequacy and Risk Weighted Assets    9    Pillar 1 capital requirements and the impact for global systemically important banks.    26-27, 74         1-3, 6    57-59, 63,

211

   10   

 

Composition of capital and reconciliation of accounting balance sheet to the regulatory balance sheet.

 

            

 

1-3, 5

 

  

 

57

 

  

11

  

 

Flow statement of the movements in regulatory capital.

 

            

 

4

 

    
   12   

 

Discussion of capital planning within a more general discussion of management's strategic planning.

 

                  58-60, 101
   13   

 

Analysis of how RWA relate to business activities and related risks.

 

       

 

4-7

 

       

 

60-61

 

   14    Analysis of capital requirements for each method used for calculating RWA.    31         10    77-79,81,

83-84

   15   

 

Tabulate credit risk in the banking book for Basel asset classes and major portfolios.

 

            

 

21-28, 31-33    

 

    
   16   

 

Flow statement reconciling the movements of RWA by risk type.

 

   27-28         11-12     
   17   

 

Discussion of Basel III back-testing requirements.

 

             42    80, 84, 89

Liquidity

 

   18    The bank's management of liquidity needs and liquidity reserves.    33-35, 37-38                  91-93
Funding    19   

Encumbered and unencumbered assets in a table by balance sheet category.

 

   36              94,204
   20   

 

Tabulate consolidated total assets, liabilities and off-balance sheet commitments by remaining contractual maturity at the balance sheet date.

 

   40-42              98-100
   21   

 

Discussion of the bank's funding sources and the bank's funding strategy.

 

   36-37, 39-40              97-98
Market Risk    22   

Linkage of market risk measures for trading and non-trading portfolio and balance sheet.

 

   30              82
   23   

 

Breakdown of significant trading and non-trading market risk factors.

 

   30-33              82, 84-87
   24   

 

Significant market risk measurement model limitations and validation procedures.

 

   31              83-87, 89
   25   

 

Primary risk management techniques beyond reported risk measures and parameters.

 

   31              83-87
Credit Risk    26    Provide information that facilitates users' understanding of the bank's credit risk profile, including any significant credit risk concentrations.    22-25, 61-66    15-31    1-5, 10-11,

13-42

   44-57, 76-81,
162-169, 178,
180-182, 209-210
   27    Description of the bank's policies for identifying impaired loans.    66              52,130-131,137-138,  
168
   28   

 

Reconciliation of the opening and closing balances of impaired loans in the period and the allowance for loan losses.

 

   22, 63-66    19, 23-24             49, 165-167
   29    Analysis of the bank's counterparty credit risks that arise from derivative transactions.              29-30, 34-38    79-80, 147,
174-175,178,
180-182
   30   

 

Discussion of credit risk mitigation, including collateral held for all sources of credit risk.

 

                  80, 134, 147
Other Risks    31   

Description of 'other risk' types based on management's classifications and discuss how each one is identified, governed, measured, and managed.

 

                  87-90,

101-103

   32   

 

Discuss publicly known risk events related to other risks.

 

   72-73              70-71, 202-204

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 3  


Table of Contents

TABLE OF CONTENTS

 

 

  MANAGEMENT ' S DISCUSSION AND ANALYSIS

4

  Caution Regarding Forward-Looking Statements

5

  Financial Highlights

6

  How We Performed

9

  Financial Results Overview

14

  How Our Businesses Performed

20

  Quarterly Results

21

  Balance Sheet Review

22

  Credit Portfolio Quality

26

  Capital Position

28

  Managing Risk

43

  Securitization and Off-Balance Sheet Arrangements

43

  Accounting Policies and Estimates

45

  Changes in Internal Control over Financial Reporting
  INTERIM CONSOLIDATED FINANCIAL STATEMENTS

46

  Interim Consolidated Balance Sheet

47

  Interim Consolidated Statement of Income

48

  Interim Consolidated Statement of Comprehensive Income

49

  Interim Consolidated Statement of Changes in Equity

50

  Interim Consolidated Statement of Cash Flows

51

  Notes to Interim Consolidated Financial Statements

76

  SHAREHOLDER AND INVESTOR INFORMATION
 

 

MANAGEMENT ' S DISCUSSION AND ANALYSIS OF OPERATING PERFORMANCE

 

This MD&A is presented to enable readers to assess material changes in the financial condition and operating results of TD Bank Group ("TD" or the "Bank") for the three and six months ended April 30, 2019, compared with the corresponding periods shown. This MD&A should be read in conjunction with the Bank's unaudited Interim Consolidated Financial Statements and related Notes included in this Report to Shareholders and with the 2018 Consolidated Financial Statements and related Notes and 2018 MD&A. This MD&A is dated May 22, 2019. Unless otherwise indicated, all amounts are expressed in Canadian dollars and have been primarily derived from the Bank's 2018 Consolidated Financial Statements and related Notes or Interim Consolidated Financial Statements and related Notes, prepared in accordance with IFRS as issued by the IASB. Note that certain comparative amounts have been revised to conform with the presentation adopted in the current period. Additional information relating to the Bank, including the Bank's 2018 Annual Information Form, is available on the Bank's website at http://www.td.com , as well as on SEDAR at http://www.sedar.com and on the SEC's website at http://www.sec.gov (EDGAR filers section).

 

Caution Regarding Forward-Looking Statements

From time to time, the Bank (as defined in this document) makes written and/or oral forward-looking statements, including in this document, in other filings with Canadian regulators or the United States (U.S.) Securities and Exchange Commission (SEC), and in other communications. In addition, representatives of the Bank may make forward-looking statements orally to analysts, investors, the media, and others. All such statements are made pursuant to the "safe harbour" provisions of, and are intended to be forward-looking statements under, applicable Canadian and U.S. securities legislation, including the U.S. Private Securities Litigation Reform Act of 1995 . Forward-looking statements include, but are not limited to, statements made in this document, the Management's Discussion and Analysis ("2018 MD&A") in the Bank's 2018 Annual Report under the heading "Economic Summary and Outlook", for the Canadian Retail, U.S. Retail, and Wholesale Banking segments under headings "Business Outlook and Focus for 2019", and for the Corporate segment, "Focus for 2019", and in other statements regarding the Bank's objectives and priorities for 2019 and beyond and strategies to achieve them, the regulatory environment in which the Bank operates, and the Bank's anticipated financial performance. Forward-looking statements are typically identified by words such as "will", "would", "should", "believe", "expect", "anticipate", "intend", "estimate", "plan", "goal", "target", "may", and "could".

By their very nature, these forward-looking statements require the Bank to make assumptions and are subject to inherent risks and uncertainties, general and specific. Especially in light of the uncertainty related to the physical, financial, economic, political, and regulatory environments, such risks and uncertainties – many of which are beyond the Bank's control and the effects of which can be difficult to predict – may cause actual results to differ materially from the expectations expressed in the forward-looking statements. Risk factors that could cause, individually or in the aggregate, such differences include: credit, market (including equity, commodity, foreign exchange, interest rate, and credit spreads), liquidity, operational (including technology and infrastructure), reputational, insurance, strategic, regulatory, legal, environmental, capital adequacy, and other risks. Examples of such risk factors include the general business and economic conditions in the regions in which the Bank operates; the ability of the Bank to execute on key priorities, including the successful completion of acquisitions and dispositions, business retention plans, and strategic plans and to attract, develop, and retain key executives; disruptions in or attacks (including cyber-attacks) on the Bank's information technology, internet, network access or other voice or data communications systems or services; the evolution of various types of fraud or other criminal behaviour to which the Bank is exposed; the failure of third parties to comply with their obligations to the Bank or its affiliates, including relating to the care and control of information; the impact of new and changes to, or application of, current laws and regulations, including without limitation tax laws, capital guidelines and liquidity regulatory guidance, and the bank recapitalization "bail-in" regime; exposure related to significant litigation and regulatory matters; increased competition, including through internet and mobile banking and non-traditional competitors; changes to the Bank's credit ratings; changes in currency and interest rates (including the possibility of negative interest rates); increased funding costs and market volatility due to market illiquidity and competition for funding; critical accounting estimates and changes to accounting standards, policies, and methods used by the Bank; existing and potential international debt crises; and the occurrence of natural and unnatural catastrophic events and claims resulting from such events. The Bank cautions that the preceding list is not exhaustive of all possible risk factors and other factors could also adversely affect the Bank's results. For more detailed information, please refer to the "Risk Factors and Management" section of the 2018 MD&A, as may be updated in subsequently filed quarterly reports to shareholders and news releases (as applicable) related to any events or transactions discussed under the headings "Significant Events" and "Significant and Subsequent Events in 2019" in the relevant MD&A, which applicable releases may be found on www.td.com . All such factors should be considered carefully, as well as other uncertainties and potential events, and the inherent uncertainty of forward-looking statements, when making decisions with respect to the Bank and the Bank cautions readers not to place undue reliance on the Bank's forward-looking statements.

Material economic assumptions underlying the forward-looking statements contained in this document are set out in the 2018 MD&A under the headings "Economic Summary and Outlook", for the Canadian Retail, U.S. Retail, and Wholesale Banking segments, "Business Outlook and Focus for 2019", and for the Corporate segment, "Focus for 2019", each as may be updated in subsequently filed quarterly reports to shareholders.

Any forward-looking statements contained in this document represent the views of management only as of the date hereof and are presented for the purpose of assisting the Bank's shareholders and analysts in understanding the Bank's financial position, objectives and priorities and anticipated financial performance as at and for the periods ended on the dates presented, and may not be appropriate for other purposes. The Bank does not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time by or on its behalf, except as required under applicable securities legislation.

This document was reviewed by the Bank ' s Audit Committee and was approved by the Bank ' s Board of Directors, on the Audit Committee ' s recommendation, prior to its release.

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 4  


Table of Contents

TABLE 1:  FINANCIAL HIGHLIGHTS 1

 

(millions of Canadian dollars, except as noted)

     As at or for the three months ended     As at or for the six months ended
      
April 30
2019
 
   
January 31
2019
 
   
April 30
2018
 
   
April 30
2019
 
   
April 30
2018
 

Results of operations

          

Total revenue

   $ 10,228   $ 9,998   $ 9,482   $ 20,226   $ 18,857

Provision for credit losses

     633     850     556     1,483     1,249

Insurance claims and related expenses

     668     702     558     1,370     1,133

Non-interest expenses – reported

     5,248     5,855     4,837     11,103     9,698

Non-interest expenses – adjusted 2

     5,163     5,161     4,759     10,324     9,552

Net income – reported

     3,172     2,410     2,916     5,582     5,269

Net income – adjusted 2

     3,266     2,953     3,062     6,219     6,008

Financial position (billions of Canadian dollars)

          

Total loans net of allowance for loan losses

   $ 663.6   $ 648.5   $ 622.0   $ 663.6   $ 622.0

Total assets

         1,356.6         1,322.5         1,283.8         1,356.6         1,283.8

Total deposits

     875.3     849.3     829.8     875.3     829.8

Total equity

     84.9     81.7     76.7     84.9     76.7

Total Common Equity Tier 1 Capital risk-weighted assets 3

     452.3     439.3     417.8     452.3     417.8

Financial ratios

          

Return on common equity – reported

     16.5  %      12.2  %      16.8  %      14.3  %      14.9  % 

Return on common equity – adjusted 4

     17.0     15.0     17.6     16.0     17.1

Return on tangible common equity 4

     23.4     17.5     24.4     20.4     21.8

Return on tangible common equity – adjusted 4

     23.6     21.0     25.0     22.3     24.3

Efficiency ratio – reported

     51.3     58.6     51.0     54.9     51.4

Efficiency ratio – adjusted 2

     50.5     51.6     50.2     51.0     50.4

Provision for credit losses as a % of net average loans and acceptances 5

     0.39     0.50     0.36     0.45     0.41

Common share information – reported (Canadian dollars)

          

Per share earnings

          

Basic

   $ 1.70   $ 1.27   $ 1.54   $ 2.97   $ 2.78

Diluted

     1.70     1.27     1.54     2.97     2.78

Dividends per share

     0.74     0.67     0.67     1.41     1.27

Book value per share

     43.51     41.69     38.26     43.51     38.26

Closing share price 6  

     76.42     74.00     72.11     76.42     72.11

Shares outstanding (millions)

          

Average basic

     1,826.6     1,833.1     1,843.6     1,829.9     1,842.6

Average diluted

     1,830.0     1,836.2     1,847.5     1,833.2     1,846.8

End of period

     1,828.4     1,830.8     1,844.6     1,828.4     1,844.6

Market capitalization (billions of Canadian dollars)

   $ 139.7   $ 135.5   $ 133.0   $ 139.7   $ 133.0

Dividend yield 7

     3.9  %      3.8  %      3.7  %      3.9  %      3.5  % 

Dividend payout ratio

     43.4     52.6     43.5     47.4     45.6

Price-earnings ratio

     12.3     12.3     12.7     12.3     12.7

Total shareholder return (1 year) 8

     10.0     2.6     16.3     10.0     16.3

Common share information – adjusted (Canadian dollars) 2

          

Per share earnings

          

Basic

   $ 1.75   $ 1.57   $ 1.62   $ 3.32   $ 3.18

Diluted

     1.75     1.57     1.62     3.32     3.18

Dividend payout ratio

     42.1  %      42.7  %      41.4  %      42.4  %      39.9  % 

Price-earnings ratio

     11.6     11.4     11.9     11.6     11.9

Capital ratios

          

Common Equity Tier 1 Capital ratio 3

     12.0  %      12.0  %      11.8  %      12.0  %      11.8  % 

Tier 1 Capital ratio 3

     13.5     13.5     13.5     13.5     13.5

Total Capital ratio 3

     15.8     15.9     15.8     15.8     15.8

Leverage ratio

     4.2     4.1     4.1     4.2     4.1

 

1  

Certain comparative amounts have been recast to conform with the presentation adopted in the current period.

2  

Adjusted measures are non-GAAP measures. Refer to the "How the Bank Reports" section of this document for an explanation of reported and adjusted results.

3  

Each capital ratio has its own risk-weighted assets (RWA) measure due to the Office of the Superintendent of Financial Institutions Canada (OSFI) prescribed scalar for inclusion of the Credit Valuation Adjustment (CVA). For fiscal 2019, the scalars for inclusion of CVA for Common Equity Tier 1 (CET1), Tier 1, and Total Capital RWA are all 100%. For fiscal 2018, the scalars for inclusion were 80%, 83%, and 86%, respectively.

4

Metrics are non-GAAP financial measures. Refer to the "Return on Common Equity" and "Return on Tangible Common Equity" sections of this document for an explanation.

5

Excludes acquired credit-impaired (ACI) loans.

6

Toronto Stock Exchange (TSX) closing market price.

7

Dividend yield is calculated as the annualized dividend per common share paid divided by daily average closing stock price in the relevant period. Dividend per common share is derived as follows: a) for the quarter – by annualizing the dividend per common share paid during the quarter; and b) for the year-to-date – by annualizing the year-to-date dividend per common share paid.

8

Total shareholder return is calculated based on share price movement and dividends reinvested over a trailing one-year period.

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 5  


Table of Contents

 

HOW WE PERFORMED

Corporate Overview

The Toronto-Dominion Bank and its subsidiaries are collectively known as TD Bank Group ("TD" or the "Bank"). TD is the sixth largest bank in North America by branches and serves more than 26 million customers in three key businesses operating in a number of locations in financial centres around the globe: Canadian Retail, which includes the results of the Canadian personal and commercial banking, wealth, and insurance businesses; U.S. Retail, which includes the results of the U.S. personal and business banking operations, wealth management services, and the Bank's investment in TD Ameritrade; and Wholesale Banking. TD also ranks among the world's leading online financial services firms, with approximately 13 million active online and mobile customers. TD had $1.4 trillion in assets on April 30, 2019. The Toronto-Dominion Bank trades under the symbol "TD" on the Toronto and New York Stock Exchanges.

How the Bank Reports

The Bank prepares its Interim Consolidated Financial Statements in accordance with IFRS, the current GAAP, and refers to results prepared in accordance with IFRS as "reported" results. The Bank also utilizes non-GAAP financial measures referred to as "adjusted" results to assess each of its businesses and to measure the Bank's overall performance. To arrive at adjusted results, the Bank removes "items of note", from reported results. The items of note relate to items which management does not believe are indicative of underlying business performance. The Bank believes that adjusted results provide the reader with a better understanding of how management views the Bank's performance. The items of note are disclosed in Table 3. As explained, adjusted results differ from reported results determined in accordance with IFRS. Adjusted results, items of note, and related terms used in this document are not defined terms under IFRS and, therefore, may not be comparable to similar terms used by other issuers.

The Bank's U.S. strategic cards portfolio comprises agreements with certain U.S. retailers pursuant to which TD is the U.S. issuer of private label and co-branded consumer credit cards to their U.S. customers. Under the terms of the individual agreements, the Bank and the retailers share in the profits generated by the relevant portfolios after credit losses. Under IFRS, TD is required to present the gross amount of revenue and provisions for credit losses related to these portfolios in the Bank's Interim Consolidated Statement of Income. At the segment level, the retailer program partners' share of revenues and credit losses is presented in the Corporate segment, with an offsetting amount (representing the partners' net share) recorded in Non-interest expenses, resulting in no impact to Corporate reported Net income (loss). The Net income (loss) included in the U.S. Retail segment includes only the portion of revenue and credit losses attributable to TD under the agreements.

The following table provides the operating results on a reported basis for the Bank.

 

TABLE 2:  OPERATING RESULTS – Reported 1

 

(millions of Canadian dollars)

     For the three months ended      For the six months ended
      
April 30
2019
 
    
January 31
2019
 
    
April 30
2018
 
    
April 30
2019
 
    
April 30
2018
 

Net interest income

   $ 5,872    $ 5,860    $ 5,398    $ 11,732    $ 10,828

Non-interest income

     4,356      4,138      4,084      8,494      8,029

Total revenue

         10,228          9,998          9,482          20,226          18,857

Provision for credit losses

     633      850      556      1,483      1,249

Insurance claims and related expenses

     668      702      558      1,370      1,133

Non-interest expenses

     5,248      5,855      4,837      11,103      9,698

Income before income taxes and equity in net income of an investment in TD Ameritrade

     3,679      2,591      3,531      6,270      6,777

Provision for income taxes

     773      503      746      1,276      1,786

Equity in net income of an investment in TD Ameritrade

     266      322      131      588      278

Net income – reported

     3,172      2,410      2,916      5,582      5,269

Preferred dividends

     62      60      52      122      104

Net income available to common shareholders and non-controlling interests in subsidiaries

   $ 3,110    $ 2,350    $ 2,864    $ 5,460    $ 5,165

Attributable to:

              

Common shareholders

   $ 3,110    $ 2,332    $ 2,846    $ 5,442    $ 5,129

Non-controlling interests

            18      18      18      36

 

1  

Certain comparative amounts have been recast to conform with the presentation adopted in the current period.

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 6  


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The following table provides a reconciliation between the Bank's adjusted and reported results.

 

TABLE 3:  NON-GAAP FINANCIAL MEASURES – Reconciliation of Adjusted to Reported Net Income 1

 

(millions of Canadian dollars)

     For the three months ended     For the six months ended    
      
April 30
2019
 
   
January 31
2019
 
   
April 30
2018
 
   
April 30
2019
 
   
April 30
2018
 
   

Operating results – adjusted

          

Net interest income

   $ 5,872   $ 5,860   $ 5,398   $ 11,732   $ 10,828    

Non-interest income 2

     4,356     4,138     4,084     8,494     8,118    

Total revenue

         10,228         9,998         9,482         20,226         18,946    

Provision for credit losses

     633     850     556     1,483     1,249    

Insurance claims and related expenses

     668     702     558     1,370     1,133    

Non-interest expenses 3

     5,163     5,161     4,759     10,324     9,552    

Income before income taxes and equity in net income of an investment in TD Ameritrade

     3,764     3,285     3,609     7,049     7,012    

Provision for income taxes

     787     678     763     1,465     1,416    

Equity in net income of an investment in TD Ameritrade 4

     289     346     216     635     412    

Net income – adjusted

     3,266     2,953     3,062     6,219     6,008    

Preferred dividends

     62     60     52     122     104    

Net income available to common shareholders and non-controlling interests in subsidiaries – adjusted

     3,204     2,893     3,010     6,097     5,904    

Attributable to:

          

Non-controlling interests in subsidiaries, net of income taxes

           18     18     18     36    

Net income available to common shareholders – adjusted

     3,204     2,875     2,992     6,079     5,868    

Pre-tax adjustments of items of note

          

Amortization of intangibles 5  

     (78     (80     (86     (158     (171 )  

Charges related to the long-term loyalty agreement with Air Canada 6

           (607           (607      

Charges associated with the acquisition of Greystone 7

     (30     (31           (61      

Charges associated with the Scottrade transaction 8

                 (77           (150 )  

Impact from U.S. tax reform 9

                             (48 )  

Provision for (recovery of) income taxes for items of note

          

Amortization of intangibles 10  

     (12     (13     (13     (25     (30 )  

Charges related to the long-term loyalty agreement with Air Canada

           (161           (161      

Charges associated with the acquisition of Greystone

     (2     (1           (3      

Charges associated with the Scottrade transaction

                 (4           (5 )  

Impact from U.S. tax reform 9

                             405    

Total adjustments for items of note

     (94     (543     (146     (637     (739 )  

Net income available to common shareholders – reported

   $ 3,110   $ 2,332   $ 2,846   $ 5,442   $ 5,129    

 

1  

Certain comparative amounts have been recast to conform with the presentation adopted in the current period.

2  

Adjusted Non-interest income excludes the following item of note: Adjustment to the carrying balances of certain tax credit-related investments, as explained in footnote 9 – first quarter 2018 – $(89) million. This amount was reported in the Corporate segment.

3  

Adjusted Non-interest expenses exclude the following items of note: Amortization of intangibles, as explained in footnote 5 – second quarter 2019 – $55 million, first quarter 2019 – $56 million, second quarter 2018 – $62 million, first quarter 2018 – $63 million; these amounts were reported in the Corporate segment. Charges related to the long-term loyalty agreement with Air Canada, as explained in footnote 6 – first quarter 2019 – $607 million; this amount was reported in the Canadian Retail segment. Charges associated with the acquisition of Greystone, as explained in footnote 7 – second quarter 2019 – $30 million, first quarter 2019 – $31 million; this amount was reported in the Canadian Retail segment. Charges associated with Scottrade transaction, as explained in footnote 8 – second quarter 2018 – $16 million and first quarter 2018 – $5 million; these amounts were reported in the U.S. Retail segment.

4  

Adjusted Equity in net income of an investment in TD Ameritrade excludes the following items of note: Amortization of intangibles, as explained in footnote 5 – second quarter 2019 $23 million, first quarter 2019 $24 million, second quarter 2018 – $24 million, first quarter 2018 $22 million; and the Bank's share of TD Ameritrade's deferred tax balances adjustment, as explained in footnote 9 – first quarter 2018 – $(41) million. The earnings impact of both of these items was reported in the Corporate segment. The Bank's share of charges associated with TD Ameritrade's acquisition of Scottrade Financial Services Inc. ("Scottrade"), as explained in footnote 8 – second quarter 2018 – $61 million, and first quarter 2018 – $68 million. This item was reported in the U.S. Retail segment.

5

Amortization of intangibles relates to intangibles acquired as a result of asset acquisitions and business combinations, including the after-tax amounts for amortization of intangibles relating to the Equity in net income of the investment in TD Ameritrade. Although the amortization of software and asset servicing rights are recorded in amortization of intangibles, they are not included for purposes of the items of note.

6

On January 10, 2019, the Bank's long-term loyalty program agreement with Air Canada became effective in conjunction with Air Canada completing its acquisition of Aimia Canada Inc., which operates the Aeroplan loyalty business (the "Transaction"). In connection with the Transaction, the Bank recognized an expense of $607 million ($446 million after-tax) in the Canadian Retail segment during the first quarter of 2019.

7

On November 1, 2018, the Bank acquired Greystone Capital Management Inc., the parent company of Greystone Managed Investments Inc. ("Greystone"). The Bank incurred acquisition-related charges including compensation to employee shareholders issued in common shares in respect of the purchase price, direct transaction costs, and certain other acquisition-related costs. These amounts have been recorded as an adjustment to net income and were reported in the Canadian Retail segment.

8

On September 18, 2017, the Bank acquired Scottrade Bank and TD Ameritrade acquired Scottrade, together with the Bank's purchase of TD Ameritrade shares issued in connection with TD Ameritrade's acquisition of Scottrade (the "Scottrade transaction"). Scottrade Bank merged with TD Bank, N.A. The Bank and TD Ameritrade incurred acquisition related charges including employee severance, contract termination fees, direct transaction costs, and other one-time charges. These amounts have been recorded as an adjustment to net income and include charges associated with the Bank's acquisition of Scottrade Bank and the after-tax amounts for the Bank's share of charges associated with TD Ameritrade's acquisition of Scottrade. These amounts were reported in the U.S. Retail segment.

9

In the first quarter of 2018, the reduction of the U.S. federal corporate tax rate enacted by the Tax Cuts and Jobs Act (the "U.S. Tax Act") resulted in a net charge to earnings of $453 million, comprising a net $48 million pre-tax charge related to the write-down of certain tax credit-related investments, partially offset by the favourable impact of the Bank's share of TD Ameritrade's remeasurement of its deferred income tax balances, and a net $405 million income tax expense resulting from the remeasurement of the Bank's deferred tax assets and liabilities to the lower base rate of 21% and other related tax adjustments. The earnings impact was reported in the Corporate segment.

10

The amount reported for the six months ended April 30, 2018, excludes $31 million relating to the one-time adjustment of associated deferred tax liability balances as a result of the U.S. Tax Act. The impact of this adjustment is included in the Impact from U.S. tax reform item of note.

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 7  


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TABLE 4:  RECONCILIATION OF REPORTED TO ADJUSTED EARNINGS PER SHARE (EPS) 1

 

(Canadian dollars)

     For the three months ended        For the six months ended
      
April 30
2019
 
    
January 31
2019
 
    
April 30
2018
 
 
    
April 30
2019
 
    
April 30
2018
 

Basic earnings per share – reported

   $ 1.70    $ 1.27    $ 1.54      $ 2.97    $ 2.78

Adjustments for items of note 2

     0.05      0.30      0.08        0.35      0.40

Basic earnings per share – adjusted

   $ 1.75    $ 1.57    $ 1.62      $ 3.32    $ 3.18

Diluted earnings per share – reported

   $ 1.70    $ 1.27    $ 1.54      $ 2.97    $ 2.78

Adjustments for items of note 2

     0.05      0.30      0.08        0.35      0.40

Diluted earnings per share – adjusted

   $ 1.75    $ 1.57    $ 1.62      $ 3.32    $ 3.18

 

1

EPS is computed by dividing net income available to common shareholders by the weighted-average number of shares outstanding during the period.

2

For explanations of items of note, refer to the "Non-GAAP Financial Measures – Reconciliation of Adjusted to Reported Net Income" table in the "How We Performed" section of this document.

 

TABLE 5:  AMORTIZATION OF INTANGIBLES, NET OF INCOME TAXES 1,2

 

(millions of Canadian dollars)

     For the three months ended        For the six months ended
      
April 30
2019
 
    
January 31
2019
 
    
April 30
2018
 
 
    
April 30
2019
 
    
April 30
2018
 

TD Bank, National Association (TD Bank, N.A.)

   $ 21    $ 21      $ 24    $ 42    $ 46

TD Ameritrade Holding Corporation (TD Ameritrade) 3

     23      24        24      47      46

MBNA Canada

     9      10        14      19      29

Aeroplan

     5      4        5      9      9

Other

     8      8        6      16      11
     66      67        73      133      141

Software and asset servicing rights

     117      110        123      227      228

Amortization of intangibles, net of income taxes

   $ 183    $ 177      $ 196    $ 360    $ 369

 

1

The amount reported for the six months ended April 30, 2018 excludes $31 million relating to the one-time adjustment of associated deferred tax liability balances as a result of the U.S. Tax Act. The impact of this adjustment is included in the Impact from U.S. tax reform item of note.

2

Amortization of intangibles, with the exception of software and asset servicing rights, is included as items of note. For explanations of items of note, refer to the "Non-GAAP Financial Measures – Reconciliation of Adjusted to Reported Net Income" table in the "How We Performed" section of this document.

3  

Included in Equity in net income of an investment in TD Ameritrade.

Return on Common Equity

The Bank's methodology for allocating capital to its business segments is aligned with the common equity capital requirements under Basel III. For fiscal 2019, the capital allocated to the business segments is based on 10% CET1 Capital. Capital allocated to the business segments was based on 9% for fiscal 2018.

Adjusted Return on common equity (ROE) is adjusted net income available to common shareholders as a percentage of average common equity.

Adjusted ROE is a non-GAAP financial measure as it is not a defined term under IFRS. Readers are cautioned that earnings and other measures adjusted to a basis other than IFRS do not have standardized meanings under IFRS and, therefore, may not be comparable to similar terms used by other issuers.

 

TABLE 6:  RETURN ON COMMON EQUITY

 

                                                                          

(millions of Canadian dollars, except as noted)

     For the three months ended       For the six months ended
      
April 30
2019
 
   
January 31
2019
 
   
April 30
2018
 
 
   
April 30
2019
 
   
April 30
2018
 

Average common equity

   $ 77,369   $ 75,873   $ 69,579   $ 76,663   $ 69,332

Net income available to common shareholders – reported

     3,110     2,332     2,846     5,442     5,129

Items of note, net of income taxes 1

     94     543     146     637     739

Net income available to common shareholders – adjusted

   $ 3,204   $ 2,875   $ 2,992   $ 6,079   $ 5,868

Return on common equity – reported

     16.5  %      12.2  %      16.8  %      14.3  %      14.9  % 

Return on common equity – adjusted

     17.0     15.0     17.6     16.0     17.1

 

1

For explanations of items of note, refer to the "Non-GAAP Financial Measures – Reconciliation of Adjusted to Reported Net Income" table in the "How We Performed" section of this document.

Return on Tangible Common Equity

Tangible common equity (TCE) is calculated as common shareholders' equity less goodwill, imputed goodwill and intangibles on an investment in TD Ameritrade and other acquired intangible assets, net of related deferred tax liabilities. Return on tangible common equity (ROTCE) is calculated as reported net income available to common shareholders after adjusting for the after-tax amortization of acquired intangibles, which are treated as an item of note, as a percentage of average TCE. Adjusted ROTCE is calculated using reported net income available to common shareholders, adjusted for items of note, as a percentage of average TCE. Adjusted ROTCE provides a useful measure of the performance of the Bank's income producing assets, independent of whether or not they were acquired or developed internally. TCE, ROTCE, and adjusted ROTCE are each non-GAAP financial measures and are not defined terms under IFRS. Readers are cautioned that earnings and other measures adjusted to a basis other than IFRS do not have standardized meanings under IFRS and, therefore, may not be comparable to similar terms used by other issuers.

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 8  


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TABLE 7:  RETURN ON TANGIBLE COMMON EQUITY

 

                                                                          

(millions of Canadian dollars, except as noted)

     For the three months ended       For the six months ended
      
April 30
2019
 
   
January 31
2019
 
   
April 30
2018
 
 
   
April 30
2019
 
   
April 30
2018
 

Average common equity

   $ 77,369   $ 75,873   $ 69,579   $ 76,663   $ 69,332

Average goodwill

     17,083     17,021     16,031     17,067     16,024

Average imputed goodwill and intangibles on an investment in TD Ameritrade

     4,136     4,170     4,060     4,160     4,090

Average other acquired intangibles 1

     717     676     696     690     728

Average related deferred tax liabilities

     (269     (238     (222     (254     (257

Average tangible common equity

     55,702     54,244     49,014     55,000     48,747

Net income available to common shareholders – reported

     3,110     2,332     2,846     5,442     5,129

Amortization of acquired intangibles, net of income taxes 2

     66     67     73     133     141

Net income available to common shareholders after adjusting for after-tax amortization of acquired intangibles

     3,176     2,399     2,919     5,575     5,270

Other items of note, net of income taxes 2

     28     476     73     504     598

Net income available to common shareholders – adjusted

   $ 3,204   $ 2,875   $ 2,992   $ 6,079   $ 5,868

Return on tangible common equity

     23.4  %      17.5  %      24.4  %      20.4  %      21.8  % 

Return on tangible common equity – adjusted

     23.6     21.0     25.0     22.3     24.3

 

1

Excludes intangibles relating to software and asset servicing rights.

2

For explanations of items of note, refer to the "Non-GAAP Financial Measures – Reconciliation of Adjusted to Reported Net Income" table in the "How We Performed" section of this document.

SIGNIFICANT AND SUBSEQUENT EVENTS IN 2019

Agreement for Air Canada Credit Card Loyalty Program

On January 10, 2019, the Bank's long-term loyalty program agreement (the "Loyalty Agreement") with Air Canada became effective in conjunction with Air Canada completing its acquisition of Aimia Canada Inc., which operates the Aeroplan loyalty business (the "Transaction"). Under the terms of the Loyalty Agreement, the Bank will become the primary credit card issuer for Air Canada's new loyalty program when it launches in 2020 through to 2030. TD Aeroplan cardholders will become members of Air Canada's new loyalty program and their miles will be transitioned when Air Canada's new loyalty program launches in 2020.

In connection with the Transaction, the Bank paid $622 million plus applicable sales tax to Air Canada, of which $547 million ($446 million after sales and income taxes) was recognized in non-interest expenses – other in the Canadian Retail segment during the first quarter of 2019, and $75 million was recognized as an intangible asset which will be amortized over the Loyalty Agreement term. In addition, the Bank prepaid $308 million plus applicable sales tax for the future purchase of loyalty points over a ten-year period. The Bank also expects to incur additional pre-tax costs of approximately $100 million over two years to build the functionality required to facilitate the new program. The Transaction reduced the Bank's CET1 ratio by approximately 13 basis points (bps).

Acquisition of Greystone

On November 1, 2018, the Bank acquired 100% of the outstanding equity of Greystone for consideration of $817 million, of which $475 million was paid in cash and $342 million was paid in the Bank's common shares. The value of 4.7 million common shares issued as consideration was based on the volume weighted average market price of the Bank's common shares over the 10 trading day period immediately preceding the fifth business day prior to the acquisition date and was recorded based on market price at close. Common shares of $167 million issued to employee shareholders in respect of the purchase price will be held in escrow for two years post-acquisition, subject to their continued employment, and will be recorded as a compensation expense over the two-year escrow period.

The acquisition was accounted for as a business combination under the purchase method. As at November 1, 2018, the acquisition contributed $169 million of assets and $55 million of liabilities. The excess of accounting consideration over the fair value of the identifiable net assets has been allocated to customer relationship intangibles of $140 million, deferred tax liability of $37 million, and goodwill of $433 million. Goodwill is not deductible for tax purposes. The results of the acquisition have been consolidated from the acquisition date and reported in the Canadian Retail segment. The purchase price allocation is subject to refinement and may be adjusted to reflect new information about facts and circumstances that existed at the acquisition date during the measurement period.

Normal Course Issuer Bid

As approved by the Board on May 22, 2019, the Bank announced its intention to initiate a normal course issuer bid (NCIB) for up to 20 million of its common shares, subject to the approval of OSFI and the TSX. The timing and amount of any purchases under the program are subject to regulatory approvals and to management discretion based on factors such as market conditions and capital adequacy.

 

 

FINANCIAL RESULTS OVERVIEW

Performance Summary

Outlined below is an overview of the Bank's performance on an adjusted basis for the second quarter of 2019. Shareholder performance indicators help guide and benchmark the Bank's accomplishments. For the purposes of this analysis, the Bank utilizes adjusted earnings, which excludes items of note from the reported results that are prepared in accordance with IFRS. Reported and adjusted results and items of note are explained in the "How the Bank Reports" section of this document.

 

Adjusted diluted earnings per share for the six months ended April 30, 2019, increased 4% from the same period last year. The Bank's goal is to achieve 7 to 10% adjusted earnings per share growth over the medium term.

 

Adjusted ROTCE for the six months ended April 30, 2019, was 22.3%.

 

For the twelve months ended April 30, 2019, the total shareholder return was 10.0% compared to the Canadian peer 3 average of 7.6%.

 

3  

Canadian peers include Bank of Montreal, Canadian Imperial Bank of Commerce, Royal Bank of Canada, and The Bank of Nova Scotia.

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 9  


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Net Income

Quarterly comparison – Q2 2019 vs. Q2 2018

Reported net income for the quarter was $3,172 million, an increase of $256 million, or 9%, compared with the second quarter last year. The increase reflects higher revenue and a higher contribution from TD Ameritrade, partially offset by higher non-interest expenses, insurance claims, and provision for credit losses (PCL). Adjusted net income for the quarter was $3,266 million, an increase of $204 million, or 7%.

By segment, the increase in reported net income was due to an increase in U.S. Retail of $284 million, or 29%, an increase in Canadian Retail of $16 million, or 1%, and a lower net loss in the Corporate segment of $2 million, or 1%, partially offset by a decrease in Wholesale Banking of $46 million, or 17%.

Quarterly comparison – Q2 2019 vs. Q1 2019

Reported net income for the quarter increased $762 million, or 32%, compared with the prior quarter. The increase was largely due to charges related to the agreement with Air Canada in the prior quarter, higher revenue in Wholesale Banking, and lower PCL. Adjusted net income for the quarter increased $313 million, or 11%.

By segment, the increase in reported net income was due to an increase in Canadian Retail of $470 million, or 34%, an increase in Wholesale Banking of $238 million, an increase in U.S. Retail of $23 million, or 2%, and a lower net loss in the Corporate segment of $31 million, or 16%.

Year-to-date comparison – Q2 2019 vs. Q2 2018

Reported net income of $5,582 million increased $313 million, or 6%, compared with the same period last year. The increase reflects higher revenue, the impact from U.S. tax reform in the same period last year, and a higher contribution from TD Ameritrade, partially offset by higher non-interest expenses, including charges related to the agreement with Air Canada, and higher insurance claims and PCL. Adjusted net income was $6,219 million, an increase of $211 million, or 4%, compared with the same period last year.

By segment, the increase in reported net income was due to an increase in U.S. Retail of $572 million, or 30%, a lower net loss in the Corporate segment of $444 million, or 56%, partially offset by a decrease in Canadian Retail of $362 million, or 10%, and a decrease in Wholesale Banking of $341 million, or 63%.

Net Interest Income

Quarterly comparison – Q2 2019 vs. Q2 2018

Net interest income for the quarter was $5,872 million, an increase of $474 million, or 9%, compared with the second quarter last year. The increase reflects volume growth and higher margins in the Canadian and U.S. Retail segments, and the impact of foreign currency translation.

By segment, the increase in net interest income was due to an increase in U.S. Retail of $254 million, or 13%, an increase in Canadian Retail of $229 million, or 8%, and an increase in the Corporate segment of $1 million, partially offset by a decrease in Wholesale Banking of $10 million, or 4%.

Quarterly comparison – Q2 2019 vs. Q1 2019

Net interest income for the quarter increased $12 million, compared with the prior quarter, primarily due to higher net interest income in Wholesale Banking reflecting improved market conditions, and higher margins and volume growth in the Canadian Retail segment, partially offset by the impact of fewer days in the current quarter.

By segment, the increase in net interest income was due to an increase in Wholesale Banking of $89 million, or 51%, partially offset by a decrease in Canadian Retail of $34 million, or 1%, a decrease in the Corporate segment of $27 million, or 7%, and a decrease in U.S. Retail of $16 million, or 1%.

Year-to-date comparison – Q2 2019 vs. Q2 2018

Net interest income was $11,732 million, an increase of $904 million, or 8%, compared with the same period last year. The increase was primarily due to volume growth and higher margins in the Canadian and U.S. Retail segments, and the impact of foreign currency translation, partially offset by lower net interest income in Wholesale Banking reflecting challenging market conditions in the first quarter of this year.

By segment, the increase in net interest income was due to an increase in U.S. Retail of $561 million, or 14%, an increase in Canadian Retail of $448 million, or 8%, and an increase in the Corporate segment of $61 million, or 9%, partially offset by a decrease in Wholesale Banking of $166 million, or 28%.

Non-Interest Income

Quarterly comparison – Q2 2019 vs. Q2 2018

Reported non-interest income for the quarter was $4,356 million, an increase of $272 million, or 7%, compared with the second quarter last year. The increase was primarily due to higher fee-based revenue, changes in the fair value of investments supporting claims liabilities, the acquisition of Greystone, and the impact of foreign currency translation.

By segment, the increase in reported non-interest income was due to an increase in Canadian Retail of $218 million, or 8%, an increase in U.S. Retail of $23 million, or 4%, an increase in the Corporate segment of $21 million, or 25%, and an increase Wholesale Banking of $10 million, or 2%.

Quarterly comparison – Q2 2019 vs. Q1 2019

Reported non-interest income for the quarter increased $218 million, or 5%, compared with the prior quarter. The increase was primarily due to higher non-interest income in Wholesale Banking reflecting improved market conditions, changes in the fair value of investments supporting claims liabilities, and higher asset levels in the wealth management business, partially offset by the effect of fewer days in the current quarter, and a seasonal decline in personal banking fees in the U.S. Retail segment.

By segment, the increase in reported non-interest income was due to an increase in Wholesale Banking of $216 million, or 53%, an increase in the Corporate segment of $21 million, or 25%, and an increase in Canadian Retail of $5 million, partially offset by a decrease in U.S. Retail of $24 million, or 3%.

Year-to-date comparison – Q2 2019 vs. Q2 2018

Reported non-interest income was $8,494 million, an increase of $465 million, or 6%, compared with the same period last year. The increase reflects higher revenues from the insurance business, higher fee-based revenue, the impact from U.S. tax reform in the same period last year, the acquisition of Greystone, and the impact of foreign currency translation, partially offset by lower non-interest income in Wholesale Banking reflecting challenging market conditions in the first quarter of this year.

By segment, the increase in reported non-interest income was due to an increase in Canadian Retail of $437 million, or 8%, an increase in Corporate of $149 million, and an increase in U.S. Retail of $21 million, or 2%, partially offset by a decrease in Wholesale Banking of $142 million, or 12%.

 

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Provision for Credit Losses

Quarterly comparison – Q2 2019 vs. Q2 2018

PCL for the quarter was $633 million, an increase of $77 million, or 14%, compared with the second quarter last year. PCL – impaired for the quarter was $593 million, an increase of $73 million, or 14%, reflecting low prior period provisions driven by strong credit performance and volume growth in Canadian Retail, and volume growth, seasoning, and mix shift in the U.S. strategic credit card portfolios, largely recognized in the Corporate segment. PCL – performing for the quarter was $40 million, an increase of $4 million, or 11%, reflecting current quarter provisions in the Canadian personal lending portfolios and volume growth in the U.S. commercial portfolio, partially offset by prior year credit migration in Wholesale Banking. Total PCL for the quarter as an annualized percentage of credit volume was 0.39%.

By segment, increase in PCL was due to an increase in Canadian Retail of $61 million, or 28%, an increase in U.S. Retail of $22 million, or 11%, an increase in the Corporate segment of $15 million, or 13%, partially offset by a decrease in Wholesale Banking of $21 million.

Quarterly comparison – Q2 2019 vs. Q1 2019

PCL for the quarter decreased by $217 million, or 26%, compared with the prior quarter. PCL – impaired was $593 million, a decrease of $124 million, or 17%, reflecting lower provisions for the U.S. commercial portfolio and seasonal trends in the U.S. credit card and auto portfolios. PCL – performing was $40 million, a decrease of $93 million, or 70%, reflecting seasonal trends in the U.S. credit card portfolios and prior quarter credit migration in Canadian Retail and Wholesale Banking, partially offset by a prior quarter migration from performing to impaired in the U.S. commercial portfolio. Total PCL for the quarter as an annualized percentage of credit volume was 0.39%.

By segment, the decrease in PCL was due to a decrease in Corporate segment of $95 million, or 42%, a decrease in U.S. Retail of $80 million, or 26%, a decrease in Canadian Retail of $30 million, or 10%, and a decrease in Wholesale Banking of $12 million.

Year-to-date comparison – Q2 2019 vs. Q2 2018

PCL was $1,483 million, an increase of $234 million, or 19%, compared with the same period last year. PCL – impaired was $1,310 million, an increase of $233 million, or 22%, reflecting volume growth, seasoning, and mix shift in the U.S. credit card portfolios, higher provisions in the U.S. commercial portfolio, and increased provisions and volume growth in Canadian Retail. PCL – performing was $173 million, an increase of $1 million, or 1%, reflecting credit migration in Canadian Retail, offset by lower provisions for the U.S. auto portfolio, and prior period credit migration in Wholesale Banking. Total PCL as an annualized percentage of credit volume was 0.45%.

By segment, the increase in PCL was due to an increase in Canadian Retail of $101 million or 21%, an increase in U.S. Retail of $81 million or 18%, an increase in the Corporate segment of $59 million, or 20% (largely reflecting PCL for the U.S. strategic cards portfolio, which is offset in Corporate segment non-interest expenses), partially offset by a decrease in Wholesale Banking of $7 million, or 78%.

 

TABLE 8:  PROVISION FOR CREDIT LOSSES

 

(millions of Canadian dollars)

     For the three months ended       For the six months ended
      
April 30
2019
 
   
January 31
2019
 
    
April 30
2018
 
 
   
April 30
2019
 
    
April 30
2018
 

Provision for credit losses – Stage 3 (impaired)

            

Canadian Retail

   $ 256   $ 264    $ 219   $ 520    $ 456

U.S. Retail

     199     285      199     484      386

Wholesale Banking

                  (8            (8

Corporate 1

     138     168      110     306      243

Total provision for credit losses – Stage 3

     593     717      520     1,310      1,077

Provision for credit losses – Stage 1 and Stage 2 (performing) 2

            

Canadian Retail

     24     46            70      33

U.S. Retail

     27     21      5     48      65

Wholesale Banking

     (5     7      24     2      17

Corporate 1

     (6     59      7     53      57

Total provision for credit losses – Stage 1 and Stage 2

     40     133      36     173      172

Total provision for credit losses

   $ 633   $ 850    $ 556   $ 1,483    $ 1,249

 

1  

Includes PCL on the retailer program partners' share of the U.S. strategic cards portfolio.

2  

Includes financial assets, loan commitments, and financial guarantees.

Insurance claims and related expenses

Quarterly comparison – Q2 2019 vs. Q2 2018

Insurance claims and related expenses for the quarter were $668 million, an increase of $110 million, or 20%, compared with the second quarter last year, reflecting changes in the fair value of investments supporting claims liabilities, less favourable prior years' claims development, and higher current year claims, partially offset by decreases in reinsurance claims assumed and less severe weather-related events.

Quarterly comparison – Q2 2019 vs. Q1 2019

Insurance claims and related expenses for the quarter decreased $34 million, or 5%, compared with the prior quarter, reflecting more favourable prior years' claims development and lower current year claims, partially offset by the impact of changes to actuarial assumptions in the life and health business in the prior quarter, changes in the fair value of investments supporting claims liabilities, and more severe weather-related events.

Year-to-date comparison – Q2 2019 vs. Q2 2018

Insurance claims and related expenses were $1,370 million, an increase of $237 million, or 21%, compared with the same period last year. The increase reflects changes in the fair value of investments supporting claims liabilities, less favourable prior years' claims development, and higher current year claims, partially offset by less severe weather-related events and the impact of changes to actuarial assumptions in the life and health business.

Non-Interest Expenses and Efficiency Ratio

Quarterly comparison – Q2 2019 vs. Q2 2018

Reported non-interest expenses were $5,248 million, an increase of $411 million, or 8%, compared with the second quarter last year, reflecting additional employees supporting business growth, higher spend on strategic initiatives, the impact of foreign currency translation, charges related to the acquisition of

 

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Greystone, and continued investments supporting the global expansion of Wholesale Banking's U.S. dollar strategy. Adjusted non-interest expenses were $5,163 million, an increase of $404 million, or 8%.

By segment, the increase in reported non-interest expenses was due to an increase in Canadian Retail of $249 million, or 11%, an increase in Wholesale Banking of $81 million, or 16%, an increase in the Corporate segment of $42 million, or 7%, and an increase in U.S. Retail of $39 million, or 3%.

The Bank's reported efficiency ratio was 51.3%, compared with 51.0% in the second quarter last year. The Bank's adjusted efficiency ratio was 50.5%, compared with 50.2% in the second quarter last year.

Quarterly comparison – Q2 2019 vs. Q1 2019

Reported non-interest expenses for the quarter decreased $607 million, or 10%, compared with the prior quarter, largely due to charges related to the agreement with Air Canada in the prior quarter, and fewer days in the current quarter, partially offset by charges related to the acquisition of Greystone. Adjusted non-interest expenses decreased $2 million.

By segment, the decrease in reported non-interest expenses was due to a decrease in Canadian Retail of $603 million, or 20%, a decrease in U.S. Retail of $84 million, or 5%, and a decrease in Wholesale Banking of $5 million, or 1%, partially offset by an increase in the Corporate segment of $85 million, or 15%.

The Bank's reported efficiency ratio was 51.3%, compared with 58.6% in the prior quarter. The Bank's adjusted efficiency ratio was 50.5%, compared with 51.6% in the prior quarter.

Year-to-date comparison – Q2 2019 vs. Q2 2018

Reported non-interest expenses of $11,103 million increased $1,405 million, or 14%, compared with the same period last year, primarily reflecting charges related to the agreement with Air Canada, additional employees supporting business growth, higher spend on strategic initiatives, and the impact of foreign currency translation. Adjusted non-interest expenses were $10,324 million, an increase of $772 million, or 8%.

By segment, the increase in reported non-interest expenses was due to an increase in Canadian Retail of $1,022 million, or 22%, an increase in U.S. Retail of $203 million, or 7%, an increase in Wholesale Banking of $157 million, or 15%, and an increase in the Corporate segment of $23 million, or 2%.

The Bank's reported efficiency ratio was 54.9%, compared with 51.4% in the same period last year. The Bank's adjusted efficiency ratio was 51.0%, compared with 50.4% in the same period last year.

Income Taxes

As discussed in the "How the Bank Reports" section of this document, the Bank adjusts its reported results to assess each of its businesses and to measure overall Bank performance. As such, the provision for income taxes is stated on a reported and an adjusted basis.

The Bank's effective income tax rate on a reported basis was 21.0% for the second quarter, compared with 21.1% in the second quarter last year and 19.4% in the prior quarter. The year-over-year decrease was due to slightly higher tax-exempt dividend income and the positive impact of tax items, partially offset by the effects of higher income before taxes. The quarter-over-quarter increase was mainly due to higher income before taxes, partially offset by the positive impact of tax items.

 

TABLE 9:  INCOME TAXES

 

                                                                                                                                 

(millions of Canadian dollars, except as noted)

     For the three months ended     For the six months ended
      
April 30
2019
 
   
January 31
2019
 
   

April 30

2018

 

   

April 30

2019

 

   

April 30

2018

 

Income taxes at Canadian statutory income tax rate

   $ 974     26.5  %    $ 687     26.5  %    $ 934     26.5  %    $ 1,661     26.5  %    $ 1,795     26.5  % 

Increase (decrease) resulting from:

                    

Dividends received

     (27     (0.7     (23     (0.9     (17     (0.5     (50     (0.8     (97     (1.4

Rate differentials on international operations

     (170     (4.6     (185     (7.1     (180     (5.1     (355     (5.6     74     1.1

Other

     (4     (0.2     24     0.9     9     0.2     20     0.3     14     0.2

Provision for income taxes and effective income tax rate – reported

   $ 773     21.0  %    $ 503     19.4  %    $ 746     21.1  %    $ 1,276     20.4  %    $ 1,786     26.4  % 

Total adjustments for items of note 1

     14             175             17             189             (370        

Provision for income taxes and effective income tax rate – adjusted 2,3

   $ 787     20.9  %    $ 678     20.6  %    $ 763     21.1  %    $ 1,465     20.8  %    $ 1,416     20.2  % 

 

1

For explanations of items of note, refer to the "Non-GAAP Financial Measures – Reconciliation of Adjusted to Reported Net Income" table in the "How We Performed" section of this document.

2

The tax effect for each item of note is calculated using the statutory income tax rate of the applicable legal entity.

3

Adjusted effective income tax rate is the adjusted provision for income taxes before other taxes as a percentage of adjusted net income before taxes.

The Bank's adjusted effective tax rate was 20.9% for the quarter, lower than 21.1% in the second quarter last year and higher than 20.6% in the prior quarter. The year-over-year decrease was mainly due to slightly higher tax-exempt dividend income and the positive impact of tax items, partially offset by the effects of higher income before taxes. The quarter-over-quarter increase was mainly due to higher income before taxes, partially offset by the positive impact of tax items.

 

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Impact of Foreign Currency Translation on U.S. Retail Segment Earnings

The following table reflects the estimated impact of foreign currency translation on key U.S. Retail segment income statement items.

 

TABLE 10:  IMPACT OF FOREIGN CURRENCY TRANSLATION ON U.S. RETAIL SEGMENT EARNINGS

 

(millions of Canadian dollars, except as noted)

     For the three months ended        For the six months ended  
      

April 30, 2019 vs.

April 30, 2018

Increase (Decrease)

 

 

 

    

April 30, 2019 vs.
April 30, 2018

Increase (Decrease)

 
 

 

U.S. Retail Bank

     

Total revenue

   $ 124    $ 269

Non-interest expenses

     65      144

Net income – after-tax

     43      89

Equity in net income on an investment in TD Ameritrade 1

     13      25

U.S. Retail segment decreased net income – after-tax

     56      114

Earnings per share (Canadian dollars)

     

Basic

   $ 0.03    $ 0.06

Diluted

     0.03      0.06

 

1  

Equity in net income on an investment in TD Ameritrade and the foreign exchange impact are reported with a one-month lag.

 

Average foreign exchange rate (equivalent of CAD $1.00)

     For the three months ended        For the six months ended  
      
April 30
2019
 
 
    
April 30
2018
 
 
    
April 30
2019
 
 
    
April 30
2018
 
 

U.S. dollar

     0.751        0.784        0.751        0.787  

Economic Summary and Outlook

Real gross domestic product (GDP) worldwide is expected to grow at a relatively subdued average pace of 3.3% per year over calendar years 2019 and 2020, a notable deceleration from the near 4% pace set in calendar year 2018. This reduction in growth can be partly attributed to the fading impact of past fiscal and monetary stimulus and increased trade and geopolitical tensions. The global slowdown has prompted G-7 central banks to take a 'wait and see' approach with respect to further monetary policy adjustments. This, in combination with some early signs of economic stabilization, should limit the degree to which the world economy slows in the near term.

After outperforming other major advanced economies in 2018, the American economy turned in rapid growth in the first calendar quarter of 2019. The advance report by the U.S. Department of Commerce revealed a gain of 3.2% (annualized) in the January-March period, roughly in line with last year's average. However, the underlying details of the report were softer. Inventory accumulation and a contraction of imports were significant contributors to headline growth. Conversely, spending by households and businesses decelerated notably. More recent data point to renewed strength in consumer spending heading into the second calendar quarter. Nevertheless, with the impact of previous tax cuts and large government spending increases expected to fade, we expect that overall growth in the U.S. economy is poised to run at a more sustainable trajectory of around 2% growth over the reminder of this calendar year and in 2020. However, on May 10, 2019, the U.S. escalated trade tensions with China by imposing a 25% tariff (previously 10%) on US$200 billion in Chinese goods. China's government responded with increased tariffs on roughly $60 billion of goods imported from the U.S. The situation remains fluid as both governments are engaged in negotiations and have a forum to reach an agreement, unlike previous tariff action. The ultimate economic impact will depend on many factors, including how long the tariffs are imposed, further retaliatory actions or escalation, and importantly, market sentiment. Should the tariffs remain in place beyond the near-term, it is estimated to result in slightly higher consumer prices and a modest drag on U.S. economic growth.

At its latest policy meeting of April 30-May 1, the Federal Reserve Open Market Committee (FOMC) reaffirmed its neutral policy stance as it continues to balance domestic and international considerations. Although the FOMC characterized trends in the labor market and economic activity as solid, it acknowledged the recent weakness in inflation trends, with its preferred measure running below its symmetric target of 2%. The central bank attributed the recent softness to transitory factors. Provided that inflation remains steady (tariff impacts aside) in the coming months, we expect that the target range for the federal funds rate is likely to hold at its current rate of 2.25-2.50% over the next few years.

The Canadian economy remains in a soft patch. Real GDP is projected to have expanded by less than 1% annualized during the January-March 2019 period, marking little improvement from the anemic 0.4% pace of the prior quarter. Importantly, a softening in housing activity and household demand for big ticket items, such as household furnishings and automobiles in the autumn of 2018, carried over into the opening months of calendar year 2019. Oil production curtailment in Alberta also continued to weigh on growth.

We consider that some of the headwinds are temporary and will likely dissipate in the coming quarters, helping the Canadian economy accelerate modestly. Among these was poor weather acting as a partial factor behind soft resale housing and transportation/warehousing activity. In addition, recent declines in residential borrowing rates and a strong labour market backdrop are expected to lead to a gradual firming in household spending and housing activity. Within the oil sector, mandatory production curtailments have already begun to shrink in scale, which should gradually lift the weight it has placed on overall economic growth over the past several months. However, this adjustment appears to be slower than expected, as demonstrated by ongoing elevated domestic crude oil inventories.

Near-term relief should help place the Canadian expansion back on a 1.5-2% quarterly growth trajectory in the second half of this year. It is expected that further upside will ultimately remain restrained by cautious households given high average debt loads and tighter macroprudential policies on mortgage lending. In addition, there appears to be elevated inventory levels among both manufacturers and wholesalers. This dynamic is expected to limit the pace of overall growth, due to the risk that firms re-adjust elevated inventories via lessened production. Lastly, Canada's non-energy export performance has been lackluster for several quarters, which is unlikely to change in a meaningful way with a global economy that is on a slower growth trajectory, including the United States.

For 2019 as a whole, TD Economics projects Canadian real GDP growth to average only 1.2%, which is consistent with the Bank of Canada's downwardly-revised forecast in its April Monetary Policy Report. As noted, this forecast does not include any potential spill-over to Canada from the U.S.-China trade dispute. Although the sub-par rate of expansion implies a larger degree of economic slack than it had previously anticipated, the Bank of Canada indicated comfort in April with the current setting of its overnight policy rate (1.75%). Accordingly, TD Economics anticipates no change in the policy rate over the foreseeable future. With bond yields in Canada likely to remain below those in the U.S. and the recent rally in crude oil prices forecast to taper off, the Canadian dollar is projected to hold at the lower end of its recent range of US74 to US77 cents in calendar year 2019.

Downside risks, both domestic and global, remain. Domestically, the Bank of Canada will remain watchful of the possibility of a renewed slowdown in housing activity and a period of household deleveraging. Energy sector developments are also important, with prices subject to international forces and the possibility of a further investment retrenchment due to domestic transportation capacity issues. Geopolitical issues with Venezuela and Iran also remain fluid, with potential impacts on North American energy markets. Beyond the aforementioned U.S.-China trade dispute, there is now additional focus on trade with Europe and Japan. This maintains a risk of further disruption to globally integrated supply chains. The United Kingdom's exit from the European Union is progressing more slowly than expected, creating longer-lasting uncertainty on the investment backdrop. Lastly, other areas that continue to present a downside risk include ongoing tensions in

 

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the Middle East and the Korean Peninsula, and populist threats to established political and economic systems. These all keep global uncertainty elevated and may drive periods of financial market volatility. However, it should be noted that upside potential can also quickly come into the foreground, particularly if progress becomes evident in regards to trade tensions and Brexit developments.

 

 

HOW OUR BUSINESSES PERFORMED

For management reporting purposes, the Bank reports its results under three key business segments: Canadian Retail, which includes the results of the Canadian personal and commercial banking, wealth, and insurance businesses; U.S. Retail, which includes the results of the U.S. personal and business banking operations, wealth management services, and the Bank's investment in TD Ameritrade; and Wholesale Banking. The Bank's other activities are grouped into the Corporate segment.

Results of each business segment reflect revenue, expenses, assets, and liabilities generated by the businesses in that segment. Where applicable, the Bank measures and evaluates the performance of each segment based on adjusted results and ROE, and for those segments, the Bank indicates that the measure is adjusted. For further details, refer to the "How the Bank Reports" section of this document, the "Business Focus" section in the Bank's 2018 MD&A, and Note 29 Segmented Information of the Bank's Consolidated Financial Statements for the year ended October 31, 2018. For information concerning the Bank's measure of ROE, which is a non-GAAP financial measure, refer to the "How We Performed" section of this document.

Provision for credit losses (PCL) related to performing (Stage 1 and Stage 2) and impaired (Stage 3) financial assets, loan commitments, and financial guarantees is recorded within the respective segment.

Net interest income within Wholesale Banking is calculated on a taxable equivalent basis (TEB), which means that the value of non-taxable or tax-exempt income, including certain dividends, is adjusted to its equivalent before-tax value. Using TEB allows the Bank to measure income from all securities and loans consistently and makes for a more meaningful comparison of net interest income with similar institutions. The TEB increase to net interest income and provision for income taxes reflected in Wholesale Banking's results are reversed in the Corporate segment. The TEB adjustment for the quarter was $33 million, compared with $21 million in the prior quarter and $17 million in the second quarter last year.

 

TABLE 11:  CANADIAN RETAIL

 

(millions of Canadian dollars, except as noted)

     For the three months ended       For the six months ended
      
April 30
2019
 
   
January 31
2019
 
   
April 30
2018
 
 
   
April 30
2019
 
   
April 30
2018
 

Net interest income

   $ 3,010   $ 3,044   $ 2,781   $ 6,054   $ 5,606

Non-interest income

     2,949     2,944     2,731     5,893     5,456

Total revenue

     5,959     5,988     5,512     11,947     11,062

Provision for credit losses – impaired

     256     264     219     520     456

Provision for credit losses – performing

     24     46           70     33

Total provision for credit losses

     280     310     219     590     489

Insurance claims and related expenses

     668     702     558     1,370     1,133

Non-interest expenses – reported

     2,481     3,084     2,232     5,565     4,543

Non-interest expenses – adjusted 1

     2,451     2,446     2,232     4,897     4,543

Provision for (recovery of) income taxes – reported

     681     513     670     1,194     1,307

Provision for (recovery of) income taxes – adjusted 1

     683     675     670     1,358     1,307

Net income – reported

     1,849     1,379     1,833     3,228     3,590

Net income – adjusted 1  

   $ 1,877   $ 1,855   $ 1,833   $ 3,732   $ 3,590

Selected volumes and ratios

          

Return on common equity – reported 2

     43.2  %      31.6  %      50.6  %      37.4  %      48.9  % 

Return on common equity – adjusted 1,2

     43.9     42.5     50.6     43.2     48.9

Net interest margin (including on securitized assets)

     2.99     2.94     2.91     2.97     2.89

Efficiency ratio – reported

     41.6     51.5     40.5     46.6     41.1

Efficiency ratio – adjusted

     41.1     40.8     40.5     41.0     41.1

Assets under administration (billions of Canadian dollars)

   $ 421   $ 396   $ 392   $ 421   $ 392

Assets under management (billions of Canadian dollars)

     349     332     289     349     289

Number of Canadian retail branches

     1,100     1,099     1,121     1,100     1,121

Average number of full-time equivalent staff

     40,498     39,997     38,051     40,243     38,050

 

1  

Adjusted non-interest expenses exclude the following items of note: Charges related to the long-term loyalty agreement with Air Canada in the first quarter 2019 – $607 million ($446 million after-tax); and charges associated with the acquisition of Greystone in the second quarter 2019 – $30 million ($28 million after-tax) and the first quarter 2019 – $31 million ($30 million after-tax). For explanations of items of note, refer to the "Non-GAAP Financial Measures – Reconciliation of Adjusted to Reported Net Income" table in the "How We Performed" section of this document.

2

Capital allocated to the business segment was based on 10% CET1 Capital in fiscal 2019 and 9% in fiscal 2018.

Quarterly comparison – Q2 2019 vs. Q2 2018

Canadian Retail reported net income for the quarter was $1,849 million, an increase of $16 million, or 1%, compared with the second quarter last year, reflecting higher revenue, partially offset by charges related to the acquisition of Greystone, higher other non-interest expenses, insurance claims, and PCL. On an adjusted basis, net income for the quarter was $1,877 million, an increase of $44 million, or 2%. The reported and adjusted annualized ROE for the quarter was 43.2% and 43.9%, respectively, compared with 50.6% in the second quarter last year.

Canadian Retail revenue is derived from Canadian personal and commercial banking, wealth, and insurance businesses. Revenue for the quarter was $5,959 million, an increase of $447 million, or 8%, compared with the second quarter last year.

Net interest income was $3,010 million, an increase of $229 million, or 8%, reflecting volume growth and higher margins. Average loan volumes increased $22 billion, or 5%, reflecting 5% growth in personal loans, and 9% growth in business loans. Average deposit volumes increased $9 billion, or 3%, reflecting 4% growth in personal deposits, 2% growth in wealth deposits, and 1% growth in business deposits. Net interest margin was 2.99%, an increase of 8 bps, reflecting rising interest rates, partially offset by competitive pricing in loans.

Non-interest income was $2,949 million, an increase of $218 million, or 8%, reflecting higher revenues from the insurance business, higher fee-based revenue in the banking businesses, and the acquisition of Greystone. The increase in non-interest income also included $76 million related to the higher fair value of investments supporting claims liabilities, which resulted in a similar increase to insurance claims.

 

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Assets under administration (AUA) were $421 billion as at April 30, 2019, an increase of $29 billion, or 7%, compared with the second quarter last year, reflecting new asset growth and increases in market value. Assets under management (AUM) were $349 billion as at April 30, 2019, an increase of $60 billion, or 21%, compared with the second quarter last year, reflecting the acquisition of Greystone, increases in market value and new asset growth.

PCL was $280 million, an increase of $61 million, or 28%, compared with the second quarter last year. PCL – impaired for the quarter was $256 million, an increase of $37 million, or 17%, reflecting low prior period provisions driven by strong credit performance in personal lending and business banking, and volume growth. PCL – performing was $24 million, an increase of $24 million, reflecting current quarter provisions in the credit card and other personal portfolios. Total PCL as an annualized percentage of credit volume was 0.27%, or an increase of 4 bps.

Insurance claims and related expenses for the quarter were $668 million, an increase of $110 million, or 20%, compared with the second quarter last year, reflecting changes in the fair value of investments supporting claims liabilities, less favourable prior years' claims development, and higher current year claims, partially offset by decreases in reinsurance claims assumed and less severe weather-related events.

Reported non-interest expenses for the quarter were $2,481 million, an increase of $249 million, or 11%, compared with the second quarter last year, reflecting higher spend supporting business growth including employee-related costs, charges related to the acquisition of Greystone, and increased spend on strategic initiatives. On an adjusted basis, non-interest expenses were $2,451 million, an increase of $219 million, or 10%.

The reported and adjusted efficiency ratio for the quarter was 41.6% and 41.1%, respectively, compared with 40.5% in the second quarter last year.

Quarterly comparison – Q2 2019 vs. Q1 2019

Canadian Retail reported net income for the quarter increased $470 million, or 34%, compared with the prior quarter. The increase in earnings reflects charges related to the agreement with Air Canada in the prior quarter, lower insurance claims and PCL, partially offset by lower revenue. On an adjusted basis, net income increased $22 million, or 1%. The reported and adjusted annualized ROE for the quarter was 43.2% and 43.9%, respectively, compared with 31.6% and 42.5%, respectively, in the prior quarter.

Revenue decreased $29 million compared with the prior quarter. Net interest income decreased $34 million, or 1%, reflecting the effect of fewer days in the second quarter, partially offset by higher margins. Average loan volumes were consistent with the prior quarter. Average deposit volumes increased $1 billion, reflecting 1% growth in personal deposits and 3% growth in wealth deposits, partially offset by a 2% decline in business deposits. Net interest margin was 2.99%, an increase of 5 bps, reflecting a refinement in revenue recognition assumptions in the auto finance portfolio and increased spread between the Prime Rate and the Bankers' Acceptance rate.

Non-interest income increased $5 million, reflecting the higher fair value of investments supporting claims liabilities of $19 million, which resulted in a similar increase to insurance claims and higher asset levels in the wealth management business, partially offset by the impact of fewer days in the second quarter.

AUA increased $25 billion, or 6%, compared with the prior quarter, reflecting increases in market value and new asset growth. AUM increased $17 billion, or 5%, compared with the prior quarter, reflecting increases in market value.

PCL decreased $30 million, or 10%, compared with the prior quarter. PCL – impaired decreased by $8 million, or 3%. PCL – performing decreased by $22 million reflecting lower unfavourable credit migration in the personal lending and business banking portfolios. Total PCL as an annualized percentage of credit volume was 0.27%, a decrease of 2 bps.

Insurance claims and related expenses for the quarter decreased $34 million, or 5%, compared with the prior quarter, reflecting more favourable prior years' claims development and lower current year claims, partially offset by the impact of changes to actuarial assumptions in the life and health business in the prior quarter, changes in the fair value of investments supporting claims liabilities, and more severe weather-related events.

Reported non-interest expenses decreased $603 million, or 20%, compared with the prior quarter, reflecting charges related to the agreement with Air Canada in the prior quarter. On an adjusted basis, non-interest expenses were relatively flat compared to the prior quarter.

The reported and adjusted efficiency ratio for the quarter was 41.6% and 41.1%, respectively, compared with 51.5% and 40.8%, respectively, in the prior quarter.

Year-to-date comparison – Q2 2019 vs. Q2 2018

Canadian Retail reported net income for the six months ended April 30, 2019, was $3,228 million, a decrease of $362 million, or 10%, compared with same period last year. The decrease in earnings reflects charges related to the agreement with Air Canada and the acquisition of Greystone, higher other non-interest expenses, insurance claims, and PCL, partially offset by revenue growth. On an adjusted basis, net income for the period was $3,732 million, an increase of $142 million, or 4%. The reported and adjusted annualized ROE for the period was 37.4% and 43.2%, respectively, compared with 48.9% in the same period last year.

Revenue for the period was $11,947 million, an increase of $885 million, or 8%, compared with same period last year. Net interest income increased $448 million, or 8%, reflecting volume growth and higher margins. Average loan volumes increased $23 billion, or 6%, reflecting 5% growth in personal loan volumes and 9% growth in business loan volumes. Average deposit volumes increased $9 billion, or 3%, reflecting 3% growth in personal deposits volume and 2% growth in business deposit volumes. Net interest margin was 2.97%, an increase of 8 bps, reflecting rising interest rates, partially offset by competitive pricing in loans.

Non-interest income increased $437 million, or 8%, reflecting higher revenues from the insurance business, higher fee-based revenue in the banking businesses, and the acquisition of Greystone. The increase in non-interest income also included $136 million related to higher fair value of investments supporting claims liabilities, which resulted in a similar increase to insurance claims.

PCL was $590 million, an increase of $101 million, or 21%, compared with the same period last year. PCL – impaired was $520 million, an increase of $64 million, or 14%, largely reflecting increased provisions in the personal lending portfolios, and volume growth. PCL – performing was $70 million, an increase of $37 million reflecting credit migration in the personal lending and business banking portfolios. Total PCL as an annualized percentage of credit volume was 0.28%, an increase of 3 bps.

Insurance claims and related expenses were $1,370 million, an increase of $237 million, or 21%, compared with the same period last year. The increase reflects changes in the fair value of investments supporting claims liabilities, less favourable prior years' claims development, and higher current year claims, partially offset by less severe weather-related events and the impact of changes to actuarial assumptions in the life and health business.

Reported non-interest expenses were $5,565 million, an increase of $1,022 million, or 22%, compared with the same period last year. The increase reflects charges related to the agreement with Air Canada and the acquisition of Greystone, additional employees supporting business growth, and increased investment in strategic technology initiatives, partially offset by restructuring costs in the prior year. On an adjusted basis, non-interest expenses were $4,897 million, an increase of $354 million, or 8%.

The reported and adjusted efficiency ratio for the period was 46.6% and 41.0%, respectively, compared with 41.1% for the same period last year.

 

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TABLE 12:  U.S. RETAIL

 

(millions of dollars, except as noted)

     For the three months ended       For the six months ended
Canadian Dollars     
April 30
2019
 
   
January 31
2019
 
   
April 30
2018
 
 
   
April 30
2019
 
   
April 30
2018
 

Net interest income

   $         2,231   $         2,247   $         1,977   $         4,478   $         3,917

Non-interest income 1  

     677     701     654     1,378     1,357

Total revenue

     2,908     2,948     2,631     5,856     5,274

Provision for credit losses – impaired

     199     285     199     484     386

Provision for credit losses – performing

     27     21     5     48     65

Total provision for credit losses

     226     306     204     532     451

Non-interest expenses – reported

     1,527     1,611     1,488     3,138     2,935

Non-interest expenses – adjusted 2

     1,527     1,611     1,472     3,138     2,914

Provision for (recovery of) income taxes – reported 1

     150     102     94     252     197

Provision for (recovery of) income taxes – adjusted 1,2

     150     102     98     252     202

U.S. Retail Bank net income – reported

     1,005     929     845     1,934     1,691

U.S. Retail Bank net income – adjusted 2  

     1,005     929     857     1,934     1,707

Equity in net income of an investment in TD Ameritrade – reported 1,3

     258     311     134     569     240

Equity in net income of an investment in TD Ameritrade – adjusted 1,4

     258     311     195     569     369

Net income – reported

     1,263     1,240     979     2,503     1,931

Net income – adjusted

   $ 1,263   $ 1,240   $ 1,052   $ 2,503   $ 2,076

U.S. Dollars

                                        

Net interest income

   $ 1,676   $ 1,688   $ 1,551   $ 3,364   $ 3,084

Non-interest income 1  

     507     528     513     1,035     1,068

Total revenue – reported

     2,183     2,216     2,064     4,399     4,152

Provision for credit losses – impaired

     150     214     158     364     306

Provision for credit losses – performing

     20     16     3     36     50

Total provision for credit losses

     170     230     161     400     356

Non-interest expenses – reported

     1,148     1,209     1,167     2,357     2,311

Non-interest expenses – adjusted 2

     1,148     1,209     1,154     2,357     2,294

Provision for (recovery of) income taxes – reported 1

     112     77     73     189     153

Provision for (recovery of) income taxes – adjusted 1,2

     112     77     76     189     157

U.S. Retail Bank net income – reported

     753     700     663     1,453     1,332

U.S. Retail Bank net income – adjusted 2

     753     700     673     1,453     1,345

Equity in net income of an investment in TD Ameritrade – reported 1,3

     195     235     107     430     189

Equity in net income of an investment in TD Ameritrade – adjusted 1,4

     195     235     154     430     291

Net income – reported

     948     935     770     1,883     1,521

Net income – adjusted

   $ 948   $ 935   $ 827   $ 1,883   $ 1,636

Selected volumes and ratios

          

Return on common equity – reported 5

     13.2  %      12.6  %      11.9  %      12.9  %      11.5  % 

Return on common equity – adjusted 2,4,5

     13.2     12.6     12.7     12.9     12.4

Net interest margin 6

     3.38     3.42     3.23     3.40     3.21

Efficiency ratio – reported

     52.6     54.6     56.5     53.6     55.6

Efficiency ratio – adjusted

     52.6     54.6     55.9     53.6     55.3

Assets under administration (billions of U.S. dollars)

   $ 20   $ 19   $ 19   $ 20   $ 19

Assets under management (billions of U.S. dollars)

     47     46     59     47     59

Number of U.S. retail stores

     1,238     1,240     1,244     1,238     1,244

Average number of full-time equivalent staff

     26,735     26,864     26,382     26,800     26,273

 

1

In the first quarter of 2018, the reduction of the U.S. federal corporate tax rate enacted by the U.S. Tax Act resulted in an adjustment to the Bank's U.S. deferred tax assets and liabilities to the lower base rate of 21% as well as an adjustment to the Bank's carrying balances of certain tax credit-related investments and its investment in TD Ameritrade. The earnings impact was reported in the Corporate segment. For additional details, refer to the "Non-GAAP Financial Measures – Reconciliation of Adjusted to Reported Net Income" table in the "How We Performed" section of this document.

2

Adjusted U.S. Retail Bank net income excludes the following item of note: Charges associated with the Bank's acquisition of Scottrade Bank in the second quarter 2018 – $16 million ($12 million after-tax) or US$13 million (US$10 million after-tax) and first quarter 2018 – $5 million ($4 million after-tax) or US$4 million (US$3 million after-tax). For explanations of items of note, refer to the "Non-GAAP Financial Measures – Reconciliation of Adjusted to Reported Net Income" table in the "How We Performed" section of this document.

3

The after-tax amounts for amortization of intangibles relating to the Equity in net income of the investment in TD Ameritrade is recorded in the Corporate segment with other acquired intangibles.

4

Adjusted equity in net income of an investment in TD Ameritrade in the prior year excludes the following items of note: The Bank's share of charges associated with TD Ameritrade's acquisition of Scottrade in the second quarter 2018 – $61 million or US$47 million after-tax and first quarter 2018 – $68 million or US$55 million after-tax. For explanations of items of note, refer to the "Non-GAAP Financial Measures – Reconciliation of Adjusted to Reported Net Income" table in the "How We Performed" section of this document.

5  

Capital allocated to the business segment was based on 10% CET1 Capital in fiscal 2019 and 9% in fiscal 2018.

6  

Net interest margin excludes the impact related to the TD Ameritrade insured deposit accounts and the impact of intercompany deposits and cash collateral. In addition, the value of tax-exempt interest income is adjusted to its equivalent before-tax value.

Quarterly comparison – Q2 2019 vs. Q2 2018

U.S. Retail reported net income for the quarter was $1,263 million (US$948 million), an increase of $284 million (US$178 million), or 29% (23% in U.S. dollars), compared with the second quarter last year. On an adjusted basis, net income for the quarter was $1,263 million (US$948 million), an increase of $211 million (US$121 million), or 20% (15% in U.S. dollars). The reported and adjusted annualized ROE for the quarter was 13.2%, compared with 11.9% and 12.7%, respectively, in the second quarter last year.

U.S. Retail net income includes contributions from the U.S. Retail Bank and the Bank's investment in TD Ameritrade. Net income for the quarter from the U.S. Retail Bank and the Bank's investment in TD Ameritrade were $1,005 million (US$753 million) and $258 million (US$195 million), respectively.

The contribution from TD Ameritrade of US$195 million increased US$88 million, or 82%, compared with the second quarter last year, primarily due to higher asset-based revenue, charges associated with the Scottrade transaction in the same quarter last year, and decreased operating expenses, partially offset by lower trading volumes. Adjusted contribution from TD Ameritrade increased US$41 million, or 27%.

U.S. Retail Bank reported net income of US$753 million for the quarter increased US$90 million, or 14%, primarily due to higher revenue. U.S. Retail Bank adjusted net income increased US$80 million, or 12%.

 

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U.S. Retail Bank revenue is derived from personal and business banking, and wealth management. Revenue for the quarter was US$2,183 million, an increase of US$119 million, or 6%, compared with the second quarter last year. Net interest income increased US$125 million, or 8%, reflecting higher deposit margins and growth in loan and deposit volumes. Net interest margin was 3.38%, an increase of 15 bps, primarily due to higher deposit margins. Non-interest income decreased US$6 million, or 1%, largely due to net fund outflows impacting wealth management fees, partially offset by growth in other fee income.

Average loan volumes increased US$7 billion, or 5%, compared with the second quarter last year due to growth in personal and business loans of 3% and 6%, respectively. Average deposit volumes were up US$1 billion, compared with the second quarter last year, with growth in personal and business deposit volumes, offset by a decrease in sweep deposit volumes.

AUA were US$20 billion as at April 30, 2019, relatively flat compared with the second quarter last year. AUM were US$47 billion as at April 30, 2019, a decrease of US$12 billion, or 20%, reflecting net fund outflows including the impact of the strategic disposition of U.S. money market funds in the first quarter.

PCL for the quarter was US$170 million, an increase of US$9 million, or 6%, compared with the second quarter last year. PCL – impaired was US$150 million, a decrease of US$8 million, or 5%, primarily reflecting lower provisions for the commercial portfolio. PCL – performing was US$20 million, an increase of US$17 million, primarily reflecting higher volume growth in the commercial portfolio. U.S. Retail PCL including only the Bank's contractual portion of credit losses in the U.S. strategic cards portfolio, as an annualized percentage of credit volume was 0.45%, flat compared with the second quarter last year.

Reported non-interest expenses for the quarter were US$1,148 million, a decrease of US$19 million, or 2%, compared with the second quarter last year, reflecting the elimination of the Federal Deposit Insurance Corporation (FDIC) deposit insurance surcharge, recovery of a legal provision, and charges associated with the Scottrade transaction in the same quarter last year, partially offset by higher investments in business initiatives. On an adjusted basis, non-interest expenses decreased US$6 million, or 1%, compared with the second quarter last year.    

The reported and adjusted efficiency ratio for the quarter was 52.6%, compared with 56.5% and 55.9%, respectively, in the second quarter last year.

Quarterly comparison – Q2 2019 vs. Q1 2019

U.S. Retail net income of $1,263 million (US$948 million) increased $23 million (US$13 million), or 2% (1% in U.S. dollars), compared with the prior quarter. The annualized ROE for the quarter was 13.2%, compared with 12.6% in the prior quarter.

The contribution from TD Ameritrade was US$195 million, a decrease of US$40 million, or 17%, compared with the prior quarter, primarily due to lower trading volumes, increased operating expenses, and lower asset-based revenue.

U.S. Retail Bank net income for the quarter was US$753 million, an increase of US$53 million, or 8%, compared with the prior quarter, due to lower expenses and PCL, more than offsetting the reduction in revenue.

Revenue for the quarter decreased US$33 million, or 1%, compared with the prior quarter. Net interest income decreased US$12 million, or 1%, primarily due to the effect of fewer days in the quarter and lower net interest margin. Net interest margin was 3.38%, a decrease of 4 bps, primarily due to balance sheet mix. Non-interest income decreased US$21 million, or 4%, primarily reflecting a seasonal decline in personal banking fees.

Average loan volumes increased US$1 billion, or 1%, compared with the prior quarter, due to growth in business loans of 2%. Average deposit volumes decreased US$1 billion, with growth in personal deposit volumes of 3%, more than offset by a decrease in sweep deposit volumes of 4%.

AUA and AUM were US$20 billion and US$47 billion as at April 30, 2019, respectively, relatively flat to prior quarter.

PCL for the quarter decreased US$60 million, or 26%, compared with the prior quarter. PCL – impaired was US$150 million, a decrease of US$64 million, or 30%, primarily reflecting lower provisions for the commercial portfolio, coupled with seasonal trends in the credit card and auto portfolios. PCL – performing was US$20 million, an increase of US$4 million, or 25%, primarily reflecting migration from performing to impaired in the commercial portfolio in the prior quarter, partially offset by seasonal trends in the credit card portfolios. U.S. Retail PCL including only the Bank's contractual portion of credit losses in the U.S. strategic cards portfolio, as an annualized percentage of credit volume was 0.45%, a decrease of 14 bps.

Non-interest expenses for the quarter were US$1,148 million, a decrease of US$61 million, or 5%, compared with the prior quarter, reflecting recovery of a legal provision and fewer days in the quarter.

The efficiency ratio for the quarter was 52.6%, compared with 54.6% in the prior quarter.

Year-to-date comparison – Q2 2019 vs. Q2 2018

U.S. Retail reported net income for the six months ended April 30, 2019, was $2,503 million (US$1,883 million), an increase of $572 million (US$362 million), or 30% (24% in U.S. dollars), compared with the same period last year. On an adjusted basis, net income for the period increased $427 million (US$247 million), or 21% (15% in U.S. dollars). The reported and adjusted annualized ROE for the period was 12.9%, compared with 11.5% and 12.4%, respectively, in the same period last year.

Net income for the period from the U.S. Retail Bank and the Bank's investment in TD Ameritrade was $1,934 million (US$1,453 million) and $569 million (US$430 million), respectively.

The reported contribution from TD Ameritrade of US$430 million increased US$241 million, compared with the same period last year, primarily due to higher asset-based revenue, charges associated with the Scottrade transaction in the same period last year, and decreased operating expenses. Adjusted contribution from TD Ameritrade increased US$139 million, or 48%.

U.S. Retail Bank reported net income for the period was US$1,453 million, an increase of US$121 million, or 9%, compared with the same period last year, primarily due to higher revenue, partially offset by higher expenses and PCL. U.S. Retail Bank adjusted net income increased US$108 million, or 8%.

Revenue for the period was US$4,399 million, an increase of US$247 million, or 6%, compared with same period last year. Net interest income increased US$280 million, or 9%, reflecting higher deposit margins and growth in loan and deposit volumes. Net interest margin was 3.40%, a 19 bps increase primarily due to higher deposit margins. Non-interest income decreased US$33 million, or 3%, as lower wealth management fees and investment income were partially offset by growth in personal banking fees.

Average loan volumes increased US$6 billion, or 4%, compared with the same period last year, due to growth in personal loans of 3% and business loans of 5%. Average deposit volumes increased US$3 billion, or 1%, reflecting 4% growth in both personal and business deposit volumes, offset by a 3% decrease in sweep deposit volume.

PCL was US$400 million, an increase of US$44 million, or 12%, compared with the same period last year. PCL – impaired was US$364 million, an increase of US$58 million, or 19%, primarily reflecting higher provisions for the commercial portfolio, coupled with volume growth, seasoning, and mix in the credit card portfolios. PCL – performing was US$36 million, a decrease of US$14 million, or 28%, primarily reflecting lower provisions for the auto portfolio and migration from performing to impaired in the commercial portfolio, partially offset by higher volume growth in the commercial portfolio. U.S. Retail PCL including only the Bank's contractual portion of credit losses in the U.S. strategic cards portfolio, as an annualized percentage of credit volume, was 0.52%, an increase of 4 bps.

 

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Reported non-interest expenses for the period were US$2,357 million, an increase of US$46 million, or 2%, compared with the same period last year, reflecting investments in business initiatives, business volume growth, and higher employee-related costs, partially offset by productivity savings, the elimination of the FDIC deposit insurance surcharge, and recovery of a legal provision. On an adjusted basis, non-interest expenses increased US$63 million, or 3%.

The reported and adjusted efficiency ratio for the period was 53.6%, compared with 55.6% and 55.3%, respectively, for the same period last year.

TD AMERITRADE HOLDING CORPORATION

Refer to Note 7, Investment in Associates and Joint Ventures of the Bank's Interim Consolidated Financial Statements for further information on TD Ameritrade.

 

TABLE 13:  WHOLESALE BANKING 1

 

(millions of Canadian dollars, except as noted)

     For the three months ended       For the six months ended
      
April 30
2019
 
   
January 31
2019
 
   
April 30
2018
 
 
   
April 30
2019
 
   
April 30
2018
 

Net interest income (TEB)

   $ 262   $ 173     $ 272   $ 435   $ 601

Non-interest income

     625     409       615     1,034     1,176

Total revenue

     887     582       887     1,469     1,777

Provision for (recovery of) credit losses – impaired

                 (8           (8

Provision for (recovery of) credit losses – performing

     (5     7       24     2     17

Total provision for (recovery of) credit losses

     (5     7       16     2     9

Non-interest expenses

     597     602       516     1,199     1,042

Provision for (recovery of) income taxes (TEB) 2  

     74     (10     88     64     181

Net income (loss)

   $ 221   $ (17   $ 267   $ 204   $ 545

Selected volumes and ratios

          

Trading-related revenue (TEB)

   $ 411   $ 251     $ 475   $ 662   $ 990

Gross drawn (billions of Canadian dollars) 3  

     24.5     23.4       22.1     24.5     22.1

Return on common equity 4  

     12.5  %      (0.9 ) %      18.7  %      5.6  %      19.4  % 

Efficiency ratio

     67.3     103.4       58.2     81.6     58.6

Average number of full-time equivalent staff

     4,502     4,478       4,053     4,490     4,040

 

1

Certain comparative amounts have been recast to conform with the presentation adopted in the current period.

2

In the first quarter of 2018, the reduction of the U.S. federal corporate tax rate enacted by the U.S. Tax Act resulted in a one-time adjustment to Wholesale Banking's U.S. deferred tax assets and liabilities to the lower base rate of 21%. The earnings impact was reported in the Corporate segment. For additional details, refer to the "Non-GAAP Financial Measures – Reconciliation of Adjusted to Reported Net Income" table in the "How We Performed" section of this document.

3  

Includes gross loans and bankers' acceptances, excluding letters of credit, cash collateral, credit default swaps (CDS), and allowance for credit losses relating to the corporate lending business.

4  

Capital allocated to the business segment was based on 10% CET1 Capital in fiscal 2019 and 9% in fiscal 2018.

Quarterly comparison – Q2 2019 vs. Q2 2018

Wholesale Banking net income for the quarter was $221 million, a decrease of $46 million, or 17%, compared with the second quarter last year, reflecting higher non-interest expenses, partially offset by lower PCL.

Wholesale Banking revenue is derived primarily from capital markets and corporate and investment banking services provided to corporate, government, and institutional clients. Wholesale Banking generates revenue from corporate lending, advisory, underwriting, sales, trading and research, client securitization, trade finance, cash management, prime services, and trade execution services. Revenue for the quarter was $887 million, flat compared with the second quarter last year, reflecting higher advisory and underwriting fees, offset by lower trading-related revenue.

PCL for the quarter was a benefit of $5 million, a decrease of $21 million compared to the second quarter last year. PCL – impaired was nil in the current quarter compared to a net recovery of $8 million in the prior year, reflecting a recovery of provisions in the oil and gas sector. PCL – performing was a benefit of $5 million, a decrease of $29 million, primarily reflecting prior year credit migration.

Non-interest expenses were $597 million, an increase of $81 million, or 16%, compared with the second quarter last year reflecting continued investments supporting the global expansion of Wholesale Banking's U.S. dollar strategy and the impact of foreign exchange translation.

Quarterly comparison – Q2 2019 vs. Q1 2019

Wholesale Banking net income for the quarter was $221 million, an increase in net income of $238 million, compared with a net loss of $17 million in the prior quarter, reflecting higher revenue, lower PCL, and lower non-interest expenses.

Revenue for the quarter increased $305 million, compared with the prior quarter, reflecting higher trading-related revenue and advisory and underwriting fees as market conditions improved.

PCL for the quarter decreased by $12 million, compared to the prior quarter. PCL – performing was a benefit of $5 million, compared to a charge of $7 million in the prior quarter.

Non-interest expenses for the quarter decreased $5 million, or 1%, compared with the prior quarter, reflecting timing of employee-related costs and the impact of foreign exchange translation.

Year-to-date comparison – Q2 2019 vs. Q2 2018

Wholesale Banking net income for the six months ended April 30, 2019, was $204 million, a decrease of $341 million, compared with net income of $545 million for the same period last year, reflecting lower revenue and higher non-interest expenses, partially offset by lower PCL.

Revenue was $1,469 million, a decrease of $308 million, or 17%, compared with the same period last year reflecting challenging market conditions in the first quarter of this year.

PCL was $2 million, a decrease of $7 million, compared with the same period last year. PCL – impaired was nil compared to a net recovery of $8 million last year, reflecting a recovery of provisions in the oil and gas sector. PCL – performing decreased by $15 million, primarily reflecting prior year credit migration.

Non-interest expenses were $1,199 million, an increase of $157 million, or 15%, compared with the same period last year. This increase reflects the revaluation of certain liabilities for post-retirement benefits recognized in the prior year, continued investments supporting the global expansion of Wholesale Banking's U.S. dollar strategy, and the impact of foreign exchange translation, partially offset by lower variable compensation.

 

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TABLE 14:  CORPORATE

 

(millions of Canadian dollars)

     For the three months ended       For the six months ended
      
April 30
2019
 
   
January 31
2019
 
   
April 30
2018
 
 
   
April 30
2019
 
   
April 30
2018
 

Net income (loss) – reported 1

   $ (161   $ (192   $ (163   $ (353   $ (797

Pre-tax adjustments for items of note 2

          

Amortization of intangibles

     78     80     86     158     171

Impact from U.S. tax reform 1

                             48

Total pre-tax adjustments for items of note

     78     80     86     158     219

Provision for (recovery of) income taxes for items of note 1

     12     13     13     25     (375

Net income (loss) – adjusted

   $ (95   $ (125   $ (90   $ (220   $ (203

 

Decomposition of items included in net income (loss) – adjusted

          

Net corporate expenses

   $ (176   $ (182   $ (189   $ (358   $ (387

Other

     81     39     81     120     148

Non-controlling interests

           18     18     18     36

Net income (loss) – adjusted

   $ (95   $ (125   $ (90   $ (220   $ (203

 

Selected volumes

          

Average number of full-time equivalent staff

     16,710     16,229     14,574     16,466     14,454

 

1

In the first quarter of 2018, the reduction of the U.S. federal corporate tax rate enacted by the U.S. Tax Act resulted in a net charge to earnings of $453 million, comprising a net $48 million pre-tax charge related to the write-down of certain tax credit-related investments, partially offset by the favourable impact of the Bank's share of TD Ameritrade's remeasurement of its deferred income tax balances, and a net $405 million income tax expense resulting from the remeasurement of the Bank's deferred tax assets and liabilities to the lower base rate of 21% and other related tax adjustments.

2

For explanations of items of note, refer to the "Non-GAAP Financial Measures – Reconciliation of Adjusted to Reported Net Income" table in the "How We Performed" section of this document.

Quarterly comparison – Q2 2019 vs. Q2 2018

Corporate segment's reported net loss for the quarter was $161 million, compared with a reported net loss of $163 million in the second quarter last year. Reported net loss decreased primarily reflecting lower net corporate expenses and amortization of intangibles this quarter, partially offset by lower contribution from non-controlling interests. Net corporate expenses were lower largely reflecting lower net pension expenses in the current quarter. Adjusted net loss was $95 million compared with an adjusted net loss of $90 million in the second quarter last year.

Quarterly comparison – Q2 2019 vs. Q1 2019

Corporate segment's reported net loss for the quarter was $161 million, compared with a reported net loss of $192 million in the prior quarter. Reported net loss decreased primarily reflecting higher contribution from Other items, partially offset by lower contribution from non-controlling interests. Other items increased primarily reflecting higher revenue from treasury and balance sheet management activities and the positive impact of tax items in the current quarter. Adjusted net loss was $95 million compared with an adjusted net loss of $125 million in the prior quarter.

Year-to-date comparison – Q2 2019 vs. Q2 2018

Corporate segment's reported net loss for the six months ended April 30, 2019, was $353 million, compared with a reported net loss of $797 million in the same period last year. The decrease in reported net loss is primarily due to the impact from U.S. tax reform in the same period last year and lower net corporate expenses in the current period, partially offset by lower contribution from Other items and non-controlling interests. Lower contribution from Other items was partially due to lower revenue from treasury and balance sheet management activities in the current period. Net corporate expenses decreased primarily reflecting lower net pension expenses in the current period. Adjusted net loss for the six months ended April 30, 2019, was $220 million, compared with an adjusted net loss of $203 million in the same period last year.

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 19  


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QUARTERLY RESULTS

The following table provides summary information related to the Bank's eight most recently completed quarters.

 

TABLE 15:  QUARTERLY RESULTS 1

 

(millions of Canadian dollars, except as noted)                                For the three months ended  
            2019                          2018            2017  
      Apr. 30     Jan. 31     Oct. 31     Jul. 31     Apr. 30     Jan. 31     Oct. 31     Jul. 31  

Net interest income

   $ 5,872     $ 5,860     $ 5,756     $ 5,655     $ 5,398     $ 5,430     $ 5,330     $ 5,267  

Non-interest income

     4,356       4,138       4,380       4,244       4,084       3,945       3,955       4,033  

Total revenue

     10,228       9,998       10,136       9,899       9,482       9,375       9,285       9,300  

Provision for credit losses

     633       850       670       561       556       693       578       505  

Insurance claims and related expenses

     668       702       684       627       558       575       615       519  

Non-interest expenses

     5,248       5,855       5,366       5,131       4,837       4,861       4,843       4,869  

Provision for (recovery of) income taxes

     773       503       691       705       746       1,040       640       760  

Equity in net income of an investment in TD Ameritrade

     266       322       235       230       131       147       103       122  

Net income – reported

     3,172       2,410       2,960       3,105       2,916       2,353       2,712       2,769  

Pre-tax adjustments for items of note

                

Amortization of intangibles 2  

     78       80       76       77       86       85       78       74  

Charges related to the long-term loyalty agreement with Air Canada 2  

           607                                      

Charges associated with the acquisition of Greystone 2  

     30       31                                      

Charges associated with the Scottrade transaction 2  

                 25       18       77       73       46        

Impact from U.S. tax reform 2  

                                   48              

Dilution gain on the Scottrade transaction 3  

                                         (204      

Loss on sale of TD Direct Investing business in Europe 4  

                                               42  

Total pre-tax adjustments for items of note

     108       718       101       95       163       206       (80     116  

Provision for (recovery of) income taxes for items of note

     14       175       13       73       17       (387     29       20  

Net income – adjusted

     3,266       2,953       3,048       3,127       3,062       2,946       2,603       2,865  

Preferred dividends

     62       60       51       59       52       52       50       47  

Net income available to common shareholders and non-controlling interests in subsidiaries – adjusted

   $ 3,204     $ 2,893     $ 2,997     $ 3,068     $ 3,010     $ 2,894     $ 2,553     $ 2,818  

Attributable to:

                

Common shareholders – adjusted

   $ 3,204     $ 2,875     $ 2,979     $ 3,050     $ 2,992     $ 2,876     $ 2,518     $ 2,789  

Non-controlling interests – adjusted

           18       18       18       18       18       35       29  

 

(Canadian dollars, except as noted)

                                                                

Basic earnings per share

                

Reported

   $ 1.70     $ 1.27     $ 1.58     $ 1.65     $ 1.54     $ 1.24     $ 1.42     $ 1.46  

Adjusted

     1.75       1.57       1.63       1.67       1.62       1.56       1.36       1.51  

Diluted earnings per share

                

Reported

     1.70       1.27       1.58       1.65       1.54       1.24       1.42       1.46  

Adjusted

     1.75       1.57       1.63       1.66       1.62       1.56       1.36       1.51  

Return on common equity – reported

     16.5     12.2     15.8     16.9     16.8     13.2     15.4     15.5

Return on common equity – adjusted

     17.0       15.0       16.3       17.1       17.6       16.6       14.7       16.1  

 

(billions of Canadian dollars, except as noted)

                                                                

Average earning assets

   $   1,191     $   1,200     $   1,183     $   1,152     $   1,124     $   1,116     $   1,077     $   1,077  

Net interest margin

     2.02     1.94     1.93     1.95     1.97     1.93     1.96     1.94

 

1  

Certain comparative amounts have been recast to conform with the presentation adopted in the current period.

2  

For explanations of items of note, refer to the "Non-GAAP Financial Measures – Reconciliation of Adjusted to Reported Net Income" table in the "How We Performed" section of this document.

3

In connection with TD Ameritrade's acquisition of Scottrade on September 18, 2017, TD Ameritrade issued 38.8 million shares, of which the Bank purchased 11.1 million pursuant to its pre-emptive rights. As a result of the share issuances, the Bank's common stock ownership percentage in TD Ameritrade decreased and the Bank realized a dilution gain of $204 million reported in the Corporate segment.

4

On June 2, 2017, the Bank completed the sale of its Direct Investing business in Europe to Interactive Investor PLC. A loss of $40 million after-tax was recorded in the Corporate segment in other income (loss). The loss is not considered to be in the normal course of business for the Bank.

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 20  


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BALANCE SHEET REVIEW

 

TABLE 16:  SELECTED INTERIM CONSOLIDATED BALANCE SHEET ITEMS 1

 

(millions of Canadian dollars)

              As at  
      April 30, 2019      October 31, 2018  

Assets

     

Cash and interest-bearing deposits with banks

   $ 33,462      $ 35,455  

Trading loans, securities, and other

     132,805        127,897  

Non-trading financial assets at fair value through profit or loss

     4,202        4,015  

Derivatives

     43,624        56,996  

Financial assets designated at fair value through profit or loss

     3,379        3,618  

Financial assets at fair value through other comprehensive income

     125,109        130,600  

Debt securities at amortized cost, net of allowance for credit losses

     111,544        107,171  

Securities purchased under reverse repurchase agreements

     149,949        127,379  

Loans, net of allowance for loan losses

     663,615        646,393  

Other

     88,899        95,379  

Total assets

   $ 1,356,588      $ 1,334,903  

Liabilities

     

Trading deposits

   $ 53,974      $ 114,704  

Derivatives

     42,199        48,270  

Financial liabilities designated at fair value through profit or loss

     57,783        16  

Deposits

     875,343        851,439  

Obligations related to securities sold under repurchase agreements

     107,885        93,389  

Subordinated notes and debentures

     8,968        8,740  

Other

     125,538        138,305  

Total liabilities

     1,271,690        1,254,863  

Total equity

     84,898        80,040  

Total liabilities and equity

   $ 1,356,588      $ 1,334,903  

 

1  

Certain comparative amounts have been reclassified to conform with the presentation adopted in the current period.

Total assets were $1,357 billion as at April 30, 2019, an increase of $22 billion, or 2%, from October 31, 2018. The increase was primarily due to securities purchased under reverse repurchase agreements of $23 billion, loans, net of allowances for loan losses of $17 billion, trading loans, securities, and other of $5 billion, and debt securities at amortized cost, net of allowance for credit losses of $4 billion. The increase was partially offset by decreases in derivatives of $13 billion, financial assets at fair value through other comprehensive income (FVOCI) of $5 billion, cash and interest-bearing deposits with banks of $2 billion, and other assets of $6 billion. The foreign currency translation impact on total assets, primarily in the U.S. Retail segment, was an increase of approximately $9 billion, or 1%.

Cash and interest-bearing deposits with banks decreased $2 billion primarily due to cash management activities.

Trading loans, securities, and other increased $5 billion primarily due to higher market value of trading securities.

Derivatives decreased $13 billion primarily due to the impact of foreign exchange, equity markets on the mark-to-market values, and reduced netting of positions.

Financial assets at FVOCI decreased $5 billion primarily due to sales and maturities.

Debt securities at amortized cost, net of allowance for credit losses increased $4 billion primarily due to new investments and foreign exchange translation, partially offset by sales and maturities.

Securities purchased under reverse repurchase agreements increased $23 billion primarily due to an increase in secured financing activities.

Loans (net of allowance for loan losses) increased $17 billion primarily due to business and government loans, foreign exchange translation, home equity lines of credit (HELOC), and residential mortgages.

Other assets decreased $6 billion primarily due to amounts receivable from brokers, dealers, and clients due to unsettled and pending trades.

Total liabilities were $1,272 billion as at April 30, 2019, an increase of $17 billion, or 1%, from October 31, 2018. The increase was primarily due to financial liabilities designated at fair value though profit and loss of $58 billion, deposits of $24 billion, and obligations related to securities sold under repurchase agreements of $14 billion. The increase was partially offset by decreases in trading deposits of $61 billion, derivatives of $6 billion, and other liabilities of $13 billion. The foreign currency translation impact on total liabilities, primarily in the U.S. Retail segment, was an increase of approximately $9 billion, or 1%.

Trading deposits decreased $61 billion as the majority of maturing deposits were reissued as financial liabilities designated at fair value through profit and loss.

Derivatives decreased $6 billion primarily due to the impact of foreign exchange, interest rates, and equity markets on the mark-to-market values, partially offset by reduced netting of positions.

Financial liabilities designated at fair value through profit and loss increased $58 billion due to new issuances of funding instruments.

Deposits increased $24 billion primarily due to foreign exchange translation, an increase in business and government deposits, and personal deposits.

Obligations related to securities sold under repurchase agreements increased $14 billion primarily due to an increase in trading volumes, and financing activities.

 

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Other liabilities decreased $13 billion primarily due to amounts payable to brokers, dealers, and clients due to unsettled and pending trades and obligations related to securities sold short.

Equity was $85 billion as at April 30, 2019, an increase of $5 billion, or 6%, from October 31, 2018. The increase was primarily due to other comprehensive income from foreign exchange translation and gains on cash flow hedges, retained earnings, the issuance of common shares due to the acquisition of Greystone, and the issuance of Non-Cumulative 5-year Rate Reset Preferred Shares, Series 22, partially offset by the redemption of the TD Capital Trust III securities.

 

 

CREDIT PORTFOLIO QUALITY

Quarterly comparison – Q2 2019 vs. Q2 2018

Gross impaired loans excluding FDIC covered loans and other ACI loans were $3,296 million as at April 30, 2019, an increase of $303 million, or 10%, compared with the second quarter last year. Canadian Retail gross impaired loans increased $155 million, or 20%, compared with the second quarter last year largely due to new formations in the commercial portfolio. U.S. Retail gross impaired loans increased $148 million, or 7%, compared with the second quarter last year largely reflecting new formations in the commercial portfolio primarily attributable to the power and utilities sector and the impact of foreign exchange, partially offset by a reclassification to performing for certain U.S. HELOC clients current with their payments. Wholesale gross impaired loans were nil in the current quarter and the second quarter last year. Net impaired loans were $2,522 million as at April 30, 2019, an increase of $237 million, or 10%, compared with the second quarter last year, largely due to new formations in the commercial portfolios and the impact of foreign exchange, partially offset by a reclassification to performing for certain U.S. HELOC clients current with their payments.

The allowance for credit losses of $4,887 million as at April 30, 2019, was comprised of Stage 3 allowance for impaired loans of $790 million, Stage 2 allowance of $1,822 million, and Stage 1 allowance of $2,271 million collectively for performing loans and off-balance sheet instruments and allowance for debt securities of $4 million.

The Stage 3 allowance for loan losses increased $58 million, or 8%, primarily due to an increase in the U.S. credit card portfolio and the impact of foreign exchange. The Stage 1 and Stage 2 allowance for loan losses increased $411 million, or 11%, largely reflecting the impact of foreign exchange and an increase in the U.S. credit card portfolio due to volume growth, seasoning, and mix shift.

The allowance for debt securities decreased by $136 million, or 97% compared with the second quarter last year primarily reflecting the sale of certain debt securities.

The Bank periodically reviews the methodology for assessing significant increase in credit risk and expected credit losses (ECLs). Forward-looking information is incorporated as appropriate where macroeconomic scenarios and associated probability weights are updated quarterly and incorporated to determine the probability-weighted ECLs. As part of periodic review and quarterly updates, certain revisions may be made to reflect updates in statistically derived loss estimates for the Bank's recent loss experience of its credit portfolios and forward-looking views, which may cause a change to the allowance for ECLs. During the second quarter of 2019, ordinary course updates were made to the forward-looking estimates used to determine the Bank's probability-weighted ECLs, but no changes were made to the methodology.

The Bank calculates allowances for ECLs on debt securities measured at amortized cost and FVOCI. The Bank has $232 billion in such debt securities of which $232 billion are performing securities (Stage 1 and 2) and none are impaired (Stage 3). The allowance for credit losses on debt securities at amortized cost (DSAC) and debt securities at FVOCI was $1 million and $3 million, respectively.

Quarterly comparison – Q2 2019 vs. Q1 2019

Gross impaired loans excluding FDIC covered loans and other ACI loans decreased $238 million, or 7%, compared with the prior quarter largely reflecting a reclassification to performing for certain U.S. HELOC clients current with their payments. Impaired loans net of allowance decreased $232 million, or 8%, compared with the prior quarter reflecting a reclassification to performing for certain U.S. HELOC clients current with their payments.

The Stage 3 allowance for loan losses decreased $6 million, or 1%, compared with the prior quarter. The Stage 1 and Stage 2 allowance for loan losses increased $91 million, or 2%, compared with the prior quarter.

The allowance for debt securities decreased by $2 million, or 33%, compared to the prior quarter.

For further details on loans, impaired loans, and allowance for credit losses, refer to Note 6 of the Bank's second quarter 2019 Interim Consolidated Financial Statements.

 

TABLE 17:  CHANGES IN GROSS IMPAIRED LOANS AND ACCEPTANCES

 

(millions of Canadian dollars)

     For the three months ended     For the six months ended
      April 30
2019
    January 31
2019
    April 30
2018
    April 30
2019
    April 30
2018
 

Personal, Business, and Government Loans 1  

          

Impaired loans as at beginning of period

   $ 3,534     $ 3,154     $ 3,048     $ 3,154     $ 3,085  

Classified as impaired during the period

     1,340       1,722       1,149       3,062       2,406  

Transferred to performing during the period

     (489     (200     (250     (689     (439

Net repayments

     (358     (371     (357     (729     (697

Disposals of loans

     (14           (4     (14     (13

Amounts written off

     (769     (766     (696     (1,535     (1,344

Recoveries of loans and advances previously written off

                              

Exchange and other movements

     52       (5     103       47       (5

Impaired loans as at end of period

   $     3,296     $   3,534     $     2,993     $ 3,296     $ 2,993  

 

1

Excludes FDIC covered loans and other ACI loans.

 

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TABLE 18:  ALLOWANCE FOR CREDIT LOSSES

 

(millions of Canadian dollars, except as noted)

                    As at
     April 30
2019
    January 31
2019
    April 30
2018
 

Allowance for loan losses for on-balance sheet loans

     

Stage 1 allowance for loan losses

  $   1,691   $   1,640   $   1,567

Stage 2 allowance for loan losses

    1,297     1,293     1,250

Stage 3 allowance for loan losses

    790     796     732

Total allowance for loan losses for on-balance sheet loans

    3,778     3,729     3,549

 

Allowance for off-balance sheet instruments

     

Stage 1 allowance for loan losses

    580     573     488

Stage 2 allowance for loan losses

    525     496     377

Total allowance for off-balance sheet instruments

    1,105     1,069     865

Allowance for loan losses

    4,883     4,798     4,414

Allowance for debt securities

    4     6     140

Allowance for credit losses

  $ 4,887   $ 4,804   $ 4,554

Impaired loans, net of allowance 1,2

  $ 2,522   $ 2,754   $ 2,285

Net impaired loans as a percentage of net loans 1,2

    0.37     0.41     0.36

Provision for credit losses as a percentage of net average loans and acceptances 1  

    0.39     0.50     0.36

 

1

Excludes FDIC covered loans and other ACI loans.

2

Credit cards are considered impaired when they are 90 days past due and written off at 180 days past due.

Real Estate Secured Lending

Retail real estate secured lending includes mortgages and lines of credit to North American consumers to satisfy financing needs including home purchases and refinancing. While the Bank retains first lien on the majority of properties held as security, there is a small portion of loans with second liens, but most of these are behind a TD mortgage that is in first position. In Canada, credit policies are designed to ensure that the combined exposure of all uninsured facilities on one property does not exceed 80% of the collateral value at origination. Lending at a higher loan-to-value ratio is permitted by legislation but requires default insurance. This insurance is contractual coverage for the life of eligible facilities and protects the Bank's real estate secured lending portfolio against potential losses caused by borrowers' default. The Bank also purchases default insurance on lower loan-to-value ratio loans. The insurance is provided by either government-backed entities or approved private mortgage insurers. In the U.S., for residential mortgage originations, mortgage insurance is usually obtained from either government-backed entities or approved private mortgage insurers when the loan-to-value exceeds 80% of the collateral value at origination.

The Bank regularly performs stress tests on its real estate lending portfolio as part of its overall stress testing program. This is done with a view to determine the extent to which the portfolio would be vulnerable to a severe downturn in economic conditions. The effect of severe changes in house prices, interest rates, and unemployment levels are among the factors considered when assessing the impact on credit losses and the Bank's overall profitability. A variety of portfolio segments, including dwelling type and geographical regions, are examined during the exercise to determine whether specific vulnerabilities exist. Based on the Bank's most recent reviews, potential losses on all real estate secured lending exposures are considered manageable.

 

TABLE 19:  CANADIAN REAL ESTATE SECURED LENDING 1

 

(millions of Canadian dollars)

                                         As at  
     Amortizing        Non-amortizing        Total  
    
Residential
Mortgages
 
 
    
Home equity
lines of credit
 
 
    
Total amortizing real
estate secured lending
 
 
    
Home equity
lines of credit
 
 
        
                                      April 30, 2019  

Total

   $ 194,692    $ 52,934      $ 247,626      $ 35,258    $ 282,884
                                        

 

 

 

October 31, 2018

 

 

Total

   $ 193,829      $ 50,554      $ 244,383      $ 35,605    $ 279,988  

 

1

Excludes loans classified as trading as the Bank intends to sell the loans immediately or in the near term, and loans designated at fair value through profit or loss for which no allowance is recorded.

 

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TABLE 20: REAL ESTATE SECURED LENDING 1,2,3

 

(millions of Canadian dollars, except as noted)

 

                         As at  
  

 

 

 
     Residential mortgages       Home equity lines of credit       Total  
     Insured 4       Uninsured       Insured 4       Uninsured       Insured 4       Uninsured  
                                                           April 30, 2019  

Canada

                              

Atlantic provinces

   $ 3,394        1.7   $ 2,652        1.4   $ 420        0.5   $ 1,315        1.5   $ 3,814        1.3   $ 3,967        1.4

British Columbia 5

     11,672        6.0       24,466        12.6       1,936        2.2       14,677        16.6       13,608        4.8       39,143        13.8  

Ontario 5

     33,296        17.1       63,422        32.6       6,926        7.9       41,609        47.2       40,222        14.2       105,031        37.2  

Prairies 5

     22,874        11.7       15,298        7.9       3,361        3.8       11,058        12.5       26,235        9.3       26,356        9.3  

Québec

     8,968        4.6       8,650        4.4       1,083        1.2       5,807        6.6       10,051        3.6       14,457        5.1  

Total Canada

     80,204        41.1     114,488        58.9     13,726        15.6     74,466        84.4     93,930        33.2     188,954        66.8

United States

     935                31,631                1                12,157                936                43,788           

Total

   $ 81,139              $ 146,119              $ 13,727              $ 86,623              $ 94,866              $ 232,742           
                                                          

 

October 31, 2018

 

Canada

                              

Atlantic provinces

   $ 3,492        1.8   $ 2,544        1.3   $ 424        0.5   $ 1,312        1.5   $ 3,916        1.4   $ 3,856        1.4

British Columbia 5

     12,389        6.4       23,460        12.1       1,981        2.3       14,221        16.5       14,370        5.1       37,681        13.5  

Ontario 5

     35,355        18.2       60,308        31.2       7,052        8.2       40,163        46.6       42,407        15.1       100,471        35.9  

Prairies 5

     23,561        12.2       14,998        7.7       3,408        4.0       10,963        12.7       26,969        9.6       25,961        9.3  

Québec

     9,350        4.8       8,372        4.3       1,105        1.3       5,530        6.4       10,455        3.7       13,902        5.0  

Total Canada

     84,147        43.4     109,682        56.6     13,970        16.3     72,189        83.7     98,117        34.9     181,871        65.1

United States

     900                30,462                1                12,367                901                42,829           

Total

   $     85,047              $   140,144              $     13,971              $     84,556              $     99,018              $   224,700           

 

1

Certain comparative amounts have been restated to conform with the presentation adopted in the current period.

2

Geographic location is based on the address of the property mortgaged.

3

Excludes loans classified as trading as the Bank intends to sell the loans immediately or in the near term, and loans designated at fair value through profit or loss for which no allowance is recorded.

4

Default insurance is contractual coverage for the life of eligible facilities whereby the Bank's exposure to real estate secured lending, all or in part, is protected against potential losses caused by borrower default. It is provided by either government-backed entities or other approved private mortgage insurers.

5

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 following table provides a summary of the Bank's residential mortgages by remaining amortization period. All figures are calculated based on current customer payment behaviour in order to properly reflect the propensity to prepay by borrowers. The current customer payment basis accounts for any accelerated payments made to date and projects remaining amortization based on existing balance outstanding and current payment terms.

 

TABLE 21: RESIDENTIAL MORTGAGES BY REMAINING AMORTIZATION 1,2

 

 

                                                                     As at  
    
<5
years
 
 
   
5–<10
years
 
 
   
10–<15
years
 
 
   
15–<20
years
 
 
   
20–<25
years
 
 
   
25–<30
years
 
 
   
30–<35
years
 
 
   
>=35
years
 
 
    Total  
                                                April 30, 2019  

Canada

     1.0     3.7     6.7     15.8 %       43.4     29.0     0.4         100

United States

     4.7       7.5       4.8       5.8       28.8       47.2       0.9       0.3       100  

Total

     1.6     4.3     6.5     14.4 %       41.1     31.6     0.5         100
                                               

 

October 31, 2018

 

Canada

     1.0     3.8     6.7     15.1 %       42.7     30.1     0.6         100

United States

     4.8       8.2       4.8       5.2       29.4       46.3       1.0       0.3       100  

Total

     1.6     4.4     6.5     13.7 %       40.8     32.4     0.6         100

 

1

Excludes loans classified as trading as the Bank intends to sell the loans immediately or in the near term, and loans designated at fair value through profit or loss for which no allowance is recorded.

2

Percentage based on outstanding balance.

 

TABLE 22:  UNINSURED AVERAGE LOAN-TO-VALUE – Newly Originated and Newly Acquired 1,2,3

 

 

     For the three months ended  
     Residential mortgages      
Home equity
lines of credit 4,5
 
 
    Total       Residential mortgages      
Home equity
lines of credit 4,5
 
 
    Total  
             April 30, 2019            October 31, 2018  

Canada

            

Atlantic provinces

     73     69 %       72     75     71 %       73

British Columbia 6

     67       63       65       65       62       64  

Ontario 6

     68       65       67       67       65       66  

Prairies 6

     73       70       72       73       71       72  

Québec

     73       72       73       73       73       73  

Total Canada

     69       65       67       68       66       67  

United States

     69       62       66       70       59       65  

Total

     69     65 %       67     68     65 %       67

 

1

Geographic location is based on the address of the property mortgaged.

2

Excludes loans classified as trading as the Bank intends to sell the loans immediately or in the near term, and loans designated at fair value through profit or loss for which no allowance is recorded.

3

Based on house price at origination.

4

HELOC loan-to-value includes first position collateral mortgage if applicable.

5

HELOC fixed rate advantage option is included in loan-to-value calculation.

6

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.

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 24  


Table of Contents

Sovereign Risk

The following table provides a summary of the Bank's credit exposure to certain European countries, including Greece, Italy, Ireland, Portugal, and Spain (GIIPS).

 

TABLE 23:  EXPOSURE TO EUROPE – Total Net Exposure by Country and Counterparty 1

 

 

(millions of Canadian dollars)

 

                          As at  
 

 

 

 
    Loans and commitments 2       Derivatives, repos, and securities lending 3       Trading and investment portfolio 4,5       Total  
    Corporate       Sovereign       Financial       Total       Corporate       Sovereign       Financial       Total       Corporate       Sovereign       Financial       Total       Exposure 6  
Country                                                                         April 30, 2019  

GIIPS

 

Greece

  $     $     $     $     $     $     $     $     $     $     $     $     $  

Italy

                4       4                               11             21       32       36  

Ireland

                301       301       5             158       163                   8       8       472  

Portugal

                                  151       41       192       1                   1       193  

Spain

          37       65       102                   116       116       15             23       38       256  

Total GIIPS

          37       370       407       5       151       315       471       27             52       79       957  

Rest of Europe

                                                                                                       

Austria

                            3       60       12       75       2       1,063       5       1,070       1,145  

Belgium

    268             159       427       461       27       270       758       27       94             121       1,306  

Finland

          103       37       140             20       174       194             1,096       1       1,097       1,431  

France

    587       1,209       154       1,950       90       493       2,063       2,646       112       5,055       210       5,377       9,973  

Germany

    1,332       627       59       2,018       538       797       1,008       2,343       279       8,574       60       8,913       13,274  

Netherlands

    466       577       129       1,172       278       370       697       1,345       48       3,287       242       3,577       6,094  

Norway

          148       5       153       17       556       67       640       2       512       667       1,181       1,974  

Sweden

          12       23       35             222       70       292       19       1,639       656       2,314       2,641  

Switzerland

    1,016       58       125       1,199       224             919       1,143       62             39       101       2,443  

United Kingdom

    2,858       2,921       44       5,823       1,589       590       8,478       10,657       315       1,076       1,770       3,161       19,641  

Other 7

          5       107       112       20       133       532       685       5       455       32       492       1,289  

Total Rest of Europe

    6,527       5,660       842       13,029       3,220       3,268       14,290       20,778       871       22,851       3,682       27,404       61,211  

Total Europe

  $ 6,527     $ 5,697     $ 1,212     $   13,436     $ 3,225     $ 3,419     $ 14,605     $   21,249     $ 898     $ 22,851     $ 3,734     $   27,483     $ 62,168  
Country                                                                        

 

October 31, 2018

 

GIIPS

 

Greece

  $     $     $     $     $     $     $     $     $     $     $     $     $  

Italy

          178       1       179                   3       3       26       22       5       53       235  

Ireland

                197       197       17             268       285                               482  

Portugal

                                  139       56       195       1                   1       196  

Spain

          30       56       86                   61       61       23       522             545       692  

Total GIIPS

          208       254       462       17       139       388       544       50       544       5       599       1,605  

Rest of Europe

                                                                                                       

Austria

                7       7       9       46       12       67             1,008             1,008       1,082  

Belgium

    263             225       488       140       34       486       660       40       94       2       136       1,284  

Finland

          141             141             36       110       146             1,071             1,071       1,358  

France

    579       514       133       1,226       77       621       1,822       2,520       122       5,613       176       5,911       9,657  

Germany

    1,106       354       210       1,670       443       805       933       2,181       240       7,779       63       8,082       11,933  

Netherlands

    509       706       194       1,409       273       506       362       1,141       44       3,717       265       4,026       6,576  

Norway

    121       33       5       159       20       288       54       362       24       426       630       1,080       1,601  

Sweden

          67       95       162             287       235       522       15       1,548       644       2,207       2,891  

Switzerland

    997       58       89       1,144       37             2,127       2,164       39             25       64       3,372  

United Kingdom

    2,872       1,082       19       3,973       1,558       559       9,262       11,379       336       857       2,429       3,622       18,974  

Other 7

          5       99       104       30       164       761       955       3       395       66       464       1,523  

Total Rest of Europe

    6,447       2,960       1,076       10,483       2,587       3,346       16,164       22,097       863       22,508       4,300       27,671       60,251  

Total Europe

  $ 6,447     $ 3,168     $ 1,330     $ 10,945     $ 2,604     $ 3,485     $ 16,552     $ 22,641     $ 913     $ 23,052     $ 4,305     $ 28,270     $ 61,856  

 

1

Certain comparative amounts have been reclassified to conform with the presentation adopted in the current period.

2

Exposures include interest-bearing deposits with banks and are presented net of impairment charges where applicable. There were no impairment charges for European exposures as at April 30, 2019, or October 31, 2018.

3

Exposures are calculated on a fair value basis and are net of collateral. Total market value of pledged collateral is $0.2 billion (October 31, 2018 – $0.4 billion) for GIIPS and $78.5 billion for the rest of Europe (October 31, 2018 – $66 billion). Derivatives are presented as net exposures where there is an International Swaps and Derivatives Association master netting agreement.

4

Trading and investment portfolio includes deposits and trading exposures are net of eligible short positions.

5

The fair values of the GIIPS exposures in Level 3 in the trading and investment portfolio were nil as at April 30, 2019 and not significant as at October 31, 2018.

6  

The reported exposures do not include $0.2 billion of protection the Bank purchased through CDS (October 31, 2018 – $0.2 billion).

7  

Other European exposure is distributed across 11 countries (October 31, 2018 – 10 countries), each of which has a net exposure including loans and commitments, derivatives, repos and securities lending, and trading and investment portfolio below $1 billion as at April 30, 2019.

Of the Bank's European exposure, approximately 98% (October 31, 2018 – 96%) is to counterparties in countries rated either Aa3 or better by Moody's Investor Services (Moody's) or AA or better by Standard & Poor's (S&P), with the majority of this exposure to the sovereigns themselves or to well-rated, systemically important banks in these countries. Derivatives and securities repurchase transactions are completed on a collateralized basis. The vast majority of derivatives exposure is offset by cash collateral while the repurchase transactions are backed largely by government securities rated AA or better, and cash. The Bank also takes a limited amount of exposure to well rated corporate issuers in Europe where the Bank also does business with their related entities in North America.

In addition to the European exposure identified above, the Bank also has $12.6 billion (October 31, 2018 – $11.2 billion) of exposure to supranational entities with European sponsorship and $1.8 billion (October 31, 2018 – $1.0 billion) of indirect exposure to European collateral from non-European counterparties related to repurchase and securities lending transactions that are margined daily.

As part of the Bank's usual credit risk and exposure monitoring processes, all exposures are reviewed on a regular basis. European exposures are reviewed monthly or more frequently as circumstances dictate and are periodically stress tested to identify and understand any potential vulnerabilities. Based on the most recent reviews, all European exposures are considered manageable.

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 25  


Table of Contents

 

CAPITAL POSITION

REGULATORY CAPITAL

Capital requirements of the Basel Committee on Banking Supervision (BCBS) are commonly referred to as Basel III. Under Basel III, Total Capital consists of three components, namely CET1, Additional Tier 1, and Tier 2 Capital. Risk sensitive regulatory capital ratios are calculated by dividing CET1, Tier 1, and Total Capital by their respective RWA, inclusive of any minimum requirements outlined under the regulatory floor. In 2015, Basel III implemented a non-risk sensitive leverage ratio to act as a supplementary measure to the risk-sensitive capital requirements. The objective of the leverage ratio is to constrain the build-up of excess leverage in the banking sector. The leverage ratio is calculated by dividing Tier 1 Capital by leverage exposure which is primarily comprised of on-balance sheet assets with adjustments made to derivative and securities financing transaction exposures, and credit equivalent amounts of off-balance sheet exposures. TD continues to manage its regulatory capital in accordance with the Basel III Capital Framework as discussed in the "Capital Position" section of the Bank's 2018 Annual Report.

OSFI ' s Capital Requirements under Basel III

OSFI's Capital Adequacy Requirements (CAR) guideline details how the Basel III capital rules apply to Canadian banks.

From fiscal 2014 to 2018, the CVA capital charge was phased-in based on a scalar approach. For fiscal 2018, the scalars inclusion of CVA for CET1, Tier 1, and Total Capital RWA were 80%, 83%, and 86%, respectively. For fiscal 2019, the CVA has been fully phased-in.

Effective January 1, 2013, all newly issued non-common Tier 1 and Tier 2 Capital instruments must include non-viability contingent capital (NVCC) provisions to qualify as regulatory capital. NVCC provisions require the conversion of non-common capital instruments into a variable number of common shares of the Bank upon the occurrence of a trigger event as defined in the guidance. Existing non-common Tier 1 and Tier 2 capital instruments which do not include NVCC provisions are non-qualifying capital instruments and are subject to a phase-out period which began in 2013 and ends in 2022.

The CAR guideline contains two methodologies for capital ratio calculation: (1) the "transitional" method; and (2) the "all-in" method. The minimum CET1, Tier 1, and Total Capital ratios, based on the "all-in" method, are 4.5%, 6%, and 8%, respectively. OSFI expects Canadian banks to include an additional capital conservation buffer of 2.5%, effectively raising the CET1, Tier 1 Capital, and Total Capital ratio minimum requirements to 7%, 8.5%, and 10.5%, respectively.

In March 2013, OSFI designated the six major Canadian banks as domestic systemically important banks (D-SIBs), for which a 1% common equity capital surcharge is in effect from January 1, 2016. As a result, the six Canadian banks designated as D-SIBs, including TD, are required to meet an "all-in" Pillar 1 target CET1, Tier 1, and Total Capital ratios of 8%, 9.5%, and 11.5%, respectively.

At the discretion of OSFI, a common equity countercyclical capital buffer (CCB) within a range of 0% to 2.5% may be imposed. The primary objective of the CCB is to protect the banking sector against future potential losses resulting from periods of excess aggregate credit growth that have often been associated with the build-up of system-wide risk. The CCB is an extension of the capital conservation buffer and must be met with CET1 capital. The CCB is calculated using the weighted-average of the buffers deployed in Canada and across BCBS member jurisdictions and selected non-member jurisdictions to which the bank has private sector credit exposures.

Effective November 1, 2017, OSFI required D-SIBs and foreign bank subsidiaries in Canada to comply with the CCB regime, phased-in according to the transitional arrangements. As a result, the maximum countercyclical buffer relating to foreign private sector credit exposures was capped at 1.25% of total RWA in the first quarter of 2017 and increases each subsequent year by an additional 0.625%, to reach its final maximum of 2.5% of total RWA in the first quarter of 2019. As at April 30, 2019, the CCB is only applicable to private sector credit exposures located in Hong Kong, Sweden, Norway, and the United Kingdom. Based on the allocation of exposures and buffers currently in place in Hong Kong, Sweden, Norway, and the United Kingdom, the Bank's countercyclical buffer requirement is 0% as at April 30, 2019.

On June 25, 2018, OSFI provided greater transparency related to previously undisclosed Pillar 2 CET1 capital buffer through the introduction of the public Domestic Stability Buffer (DSB). The DSB is held by D-SIBs against Pillar 2 risks associated with systemic vulnerabilities including, but not limited to: i) Canadian consumer indebtedness; ii) asset imbalances in the Canadian market; and iii) Canadian institutional indebtedness. The level of the buffer ranges between 0% and 2.5% of total RWA and must be met with CET1 Capital. At a minimum, OSFI will review the buffer semi-annually and any changes will be made public. In December 2018, OSFI announced that the DSB would be set at 1.75% as of April 30, 2019 effectively raising the CET1 target to 9.75%. Prior to April 30, 2019, the buffer was 1.5%. A breach of the buffer will not automatically constrain capital distributions; however, OSFI will require a remediation plan.

Effective in the second quarter of 2018, OSFI implemented a revised methodology for calculating the regulatory capital floor. The revised floor is based on the Basel II standardized approach, with the floor factor transitioned in over three quarters. The floor was fully transitioned, to a factor of 75%, in the fourth quarter of fiscal 2018. The Bank is not constrained by the capital floor.

In the first quarter of 2019, the Bank implemented the revised CAR guidelines related to the domestic implementation of the standardized approach for counterparty credit risk (CCR), capital requirements for bank exposures to central counterparties, as well as revisions to the securitization framework.

The leverage ratio is calculated as per OSFI's Leverage Requirements guideline and has a regulatory minimum requirement of 3%.

The Canadian Bail-in regime, including OSFI's Total Loss Absorbing Capacity (TLAC) guideline, came into effect on September 23, 2018. Under this guideline, the Bank in required to meet target TLAC requirements by November 1, 2021. The Bank is currently subject to a target risk-based TLAC ratio of 23.25% of RWA and a TLAC leverage ratio of 6.75%.

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 26  


Table of Contents

The following table provides details of TD's regulatory capital position.

 

TABLE 24: REGULATORY CAPITAL POSITION

 

                                                  

(millions of Canadian dollars, except as noted)

                     As at  
      April 30
2019
    October 31
2018
    April 30
2018
 

Capital

      

Common Equity Tier 1 Capital

   $ 54,269     $ 52,389     $ 49,485  

Tier 1 Capital

     61,008       59,735       56,434  

Total Capital

     71,620       70,434       65,970  

Common Equity Tier 1 Capital risk-weighted assets for:

      

Credit risk 1

     385,280       370,044       352,179  

Market risk

     13,028       13,213       15,248  

Operational risk

     53,959       52,375       50,392  

Total

   $ 452,267     $ 435,632     $ 417,819  

Capital and leverage ratios

      

Common Equity Tier 1 Capital ratio 1

     12.0 %       12.0 %       11.8 %  

Tier 1 Capital ratio 1

     13.5       13.7       13.5  

Total Capital ratio 1

     15.8       16.2       15.8  

Leverage ratio

     4.2       4.2       4.1  

 

1

Each capital ratio has its own RWA measure due to the OSFI-prescribed scalar for inclusion of the CVA. For fiscal 2019, the scalars are 100%. For fiscal 2018, the scalars for inclusion of CVA for CET1, Tier 1, and Total Capital RWA were 80%, 83%, and 86%.

As at April 30, 2019, the Bank's CET1, Tier 1, and Total Capital ratios were 12.0%, 13.5%, and 15.8%, respectively. Compared with the Bank's CET1 Capital ratio of 12.0% at October 31, 2018, the CET1 Capital ratio remained relatively flat as organic capital growth was offset by common shares repurchased, the loyalty agreement with Air Canada, actuarial losses on employee benefit plans, and the acquisition of Greystone.

As at April 30, 2019, the Bank's Leverage ratio was 4.2%, compared with the Bank's Leverage ratio of 4.2% at October 31, 2018. The Leverage ratio remained relatively flat as capital generation and preferred shares issuances were offset by an increase in exposure resulting from the implementation of the standardized approach for measuring CCR in the first quarter of 2019, and business growth in Wholesale Banking and Canadian Retail.

Future Regulatory Capital Developments

Future regulatory capital developments, in addition to those described in the "Future Regulatory Capital Developments" section of the Bank's 2018 Annual Report, are noted below.

In April 2019, OSFI released the final version of its Guideline B-2: Large Exposure Limits for D-SIBs. The guideline outlines practices for the management of risk related to large exposures and provides additional guidance on methods for identifying, measuring, managing, and monitoring large exposures. The guideline introduces tighter limits for exposures to both Global Systemically Important Banks and to other Canadian D-SIBs, recognizes eligible credit risk mitigation techniques by measuring exposure on a net basis rather than a gross basis, and reduces the eligible capital base from Total Capital to Tier 1 Capital. The guideline is effective November 1, 2019.

In January 2019, BCBS issued the final minimum capital requirements for market risk standard. The key aspects of the standard include: clarification on the scope; a refined standardized approach for foreign exchange risk and index instruments; revised standardized risk weights applicable to general interest rate risk, foreign exchange, and certain other exposures; revisions to the assessment process relating to internal models reflecting the risks on individual trading desks; and revisions related to identification of risk factors that are eligible for internal modelling. The standard is effective January 1, 2022.

In December 2018, BCBS issued a consultative document on leverage ratio disclosure requirements. The proposal requires banks to include in Pillar 3 disclosures, in addition to current requirements, the amount of each of the following exposures calculated based on an average of daily values over the quarter: adjusted gross securities financing transaction assets; replacement cost derivative exposures; and central bank reserves that are included on-balance sheet. The revisions are expected to be implemented no later than January 1, 2022.

In December 2018, BCBS issued the final "Pillar 3 disclosure requirements – updated framework". The framework includes disclosure revisions and additions arising from the finalization of the Basel III reforms related to the following areas: credit risk, operational risk, leverage ratio, CVA risk; RWA calculated by the Bank's internal models and under standardized approaches; and an overview of risk management, RWA, and key prudential metrics. The framework also contains new disclosure requirements related to asset encumbrance and capital distribution constraints. These disclosure requirements, together with the first and second phase of the revised Pillar 3 disclosure requirements, issued in January 2015 and March 2017, respectively, complete the Pillar 3 framework. The disclosure requirements related to Basel III reforms are effective January 1, 2022.

Normal Course Issuer Bid

As approved by the Board on May 22, 2019, the Bank announced its intention to initiate a normal course issuer bid (NCIB) for up to 20 million of its common shares, subject to the approval of OSFI and the Toronto Stock Exchange (TSX). The timing and amount of any purchases under the program are subject to regulatory approvals and to management discretion based on factors such as market conditions and capital adequacy.

The Bank's previous NCIB, which was announced on April 19, 2018 and as amended on December 10, 2018, expired on April 12, 2019. The Bank repurchased an aggregate of 30 million common shares under its previous NCIB, at an average price of $74.29 per share for a total amount of $2.2 billion.

During the three and six months ended April 30, 2019, the Bank repurchased 5.5 million and 10 million common shares, respectively, under its previous NCIB at an average price of $75.30 and $72.75 per share, respectively, for a total amount of $414 million and $727 million, respectively.

During the year ended October 31, 2018, the Bank repurchased 20 million common shares under its previous NCIB at an average price of $75.07 per share for a total amount of $1.5 billion.

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 27  


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TABLE 25: EQUITY AND OTHER SECURITIES

 

(millions of shares/units, except as noted)

             As at  
     April 30, 2019       October 31, 2018  
      Number of
shares/units
    Number of
shares/units
 
Common shares outstanding      1,829.1       1,830.4  

Treasury shares – common

     (0.7     (2.1 )  

Total common shares

     1,828.4       1,828.3  

Stock options

    

Vested

     6.0       4.7  

Non-vested

     8.2       8.4  

Preferred shares – Class A

    

Series 1

     20.0       20.0  

Series 3

     20.0       20.0  

Series 5

     20.0       20.0  

Series 7

     14.0       14.0  

Series 9

     8.0       8.0  

Series 11

     6.0       6.0  

Series 12

     28.0       28.0  

Series 14

     40.0       40.0  

Series 16

     14.0       14.0  

Series 18

     14.0       14.0  

Series 20

     16.0       16.0  

Series 22

     14.0        
       214.0       200.0  

Treasury shares – preferred

     (0.3     (0.3 )  

Total preferred shares

     213.7       199.7  

Capital Trust Securities (thousands of shares)

    

Trust units issued by TD Capital Trust III:

    

TD Capital Trust III Securities – Series 2008 1

           1,000.0  

Debt issued by TD Capital Trust IV:

    

TD Capital Trust IV Notes – Series 1 2

     550.0       550.0  

TD Capital Trust IV Notes – Series 2

     450.0       450.0  

TD Capital Trust IV Notes – Series 3

     750.0       750.0  

 

1

TD Capital Trust III redeemed all of the outstanding TD Capital Trust III Securities – Series 2008 on December 31, 2018.

2

On May 9, 2019, TD Capital Trust IV announced its intention to redeem all of the outstanding TD Capital Trust IV Notes – Series 1 on June 30, 2019.

All series of preferred shares – Class A include NVCC provisions. If a NVCC trigger event were to occur, the maximum number of common shares that could be issued, assuming there are no declared and unpaid dividends on the respective series of preferred shares at the time of conversion, would be 1.1 billion in aggregate.

For NVCC subordinated notes and debentures, if a NVCC trigger event were to occur, the maximum number of common shares that could be issued, assuming there is no accrued and unpaid interest on the respective subordinated notes and debentures, would be 2.6 billion in aggregate. The following subordinated debentures contain NVCC provisions: the 2.692% subordinated debentures due June 24, 2025, 2.982% subordinated debentures due September 30, 2025, 3.589% subordinated debentures due September 14, 2028, 3.224% subordinated debentures due July 25, 2029, 4.859% subordinated debentures due March 4, 2031, and the 3.625% subordinated debentures due September 15, 2031. Refer to Note 19 of the Bank's 2018 Consolidated Financial Statements for additional details.

 

 

MANAGING RISK

EXECUTIVE SUMMARY

Growing profitability in financial services involves selectively taking and managing risks within TD's risk appetite. The Bank's goal is to earn a stable and sustainable rate of return for every dollar of risk it takes, while putting significant emphasis on investing in TD's businesses so that it can meet its future strategic objectives.

TD's businesses and operations are exposed to a broad number of risks that have been identified and defined in the Enterprise Risk Framework. The Bank's tolerance to those risks is defined in the Enterprise Risk Appetite which has been developed within a comprehensive framework that takes into consideration current conditions in which the Bank operates and the impact that emerging risks will have on TD's strategy and risk profile. The Bank's risk appetite states that it takes risks required to build its business, but only if those risks: (1) fit the business strategy, and can be understood and managed; (2) do not expose the enterprise to any significant single loss events; TD does not 'bet the bank' on any single acquisition, business, or product; and (3) do not risk harming the TD brand. Each business is responsible for setting and aligning its individual risk appetites with that of the enterprise based on a thorough examination of the specific risks to which it is exposed.

TD considers it critical to regularly assess its operating environment and highlight top and emerging risks. These are risks with a potential to have a material effect on the Bank and where the attention of senior leaders is focused due to the potential magnitude or immediacy of their impact.

Risks are identified, discussed, and actioned by senior leaders and reported quarterly to the Risk Committee of the Board and the Board. Specific plans to mitigate top and emerging risks are prepared, monitored, and adjusted as required.

The Bank's risk governance structure and risk management approach have not substantially changed from that described in the Bank's 2018 Annual Report. Additional information on risk factors can be found in the 2018 MD&A under the heading "Risk Factors and Management". For a complete discussion of the risk governance structure and the risk management approach, refer to the "Managing Risk" section in the Bank's 2018 Annual Report.

The shaded sections of this MD&A represent a discussion relating to market and liquidity risks and form an integral part of the Interim Consolidated Financial Statements for the period ended April 30, 2019.

 

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CREDIT RISK

Gross credit risk exposure, also referred to as exposure at default (EAD), is the total amount the Bank is exposed to at the time of default of a loan and is measured before counterparty-specific provisions or write-offs. Gross credit risk exposure does not reflect the effects of credit risk mitigation and includes both on-balance sheet and off-balance sheet exposures. On-balance sheet exposures consist primarily of outstanding loans, acceptances, non-trading securities, derivatives, and certain other repo-style transactions. Off-balance sheet exposures consist primarily of undrawn commitments, guarantees, and certain other repo-style transactions.

Gross credit risk exposures for the two approaches the Bank uses to measure credit risk are included in the following table.

 

TABLE 26:  GROSS CREDIT RISK EXPOSURES – Standardized and Advanced Internal Ratings Based (AIRB) Approaches 1

 

(millions of Canadian dollars)

                                                  As at  
              April 30, 2019        October 31, 2018  
      Standardized      AIRB      Total      Standardized      AIRB      Total  

Retail

                 

Residential secured

   $ 3,512      $ 376,401      $ 379,913      $ 3,091      $ 371,450      $ 374,541  

Qualifying revolving retail

            130,339        130,339               112,388        112,388  

Other retail

     7,895        81,388        89,283        12,835        80,513        93,348  

Total retail

     11,407        588,128        599,535        15,926        564,351        580,277  

Non-retail

                 

Corporate

     136,656        379,055        515,711        132,030        346,751        478,781  

Sovereign

     97,113        143,212        240,325        95,411        136,951        232,362  

Bank

     18,718        112,428        131,146        18,019        110,295        128,314  

Total non-retail

     252,487        634,695        887,182        245,460        593,997        839,457  

Gross credit risk exposures

   $ 263,894      $   1,222,823      $   1,486,717      $ 261,386      $   1,158,348      $   1,419,734  

 

1

Gross credit risk exposures represent EAD and are before the effects of credit risk mitigation. This table excludes securitization, equity, and certain other credit RWA.

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 29  


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MARKET RISK

Market risk capital is calculated using internal models and comprises three components: (1) Value-at-Risk (VaR); (2) Stressed VaR; and (3) Incremental Risk Charge (IRC). In addition, the Bank calculates market risk capital using the Standardized approach for a limited number of portfolios.

Market Risk Linkage to the Balance Sheet

The following table provides a breakdown of the Bank's balance sheet into assets and liabilities exposed to trading and non-trading market risks. Market risk of assets and liabilities included in the calculation of VaR and other metrics used for regulatory market risk capital purposes is classified as trading market risk.

 

TABLE 27: MARKET RISK LINKAGE TO THE BALANCE SHEET

 

(millions of Canadian dollars)                                                                    As at  
     April 30, 2019      October 31, 2018          
     

Balance

sheet

     Trading
market risk
     Non-trading
market risk
     Other     

Balance

sheet

     Trading
market risk
     Non-trading
market risk
     Other      Non-trading market
risk – primary risk
sensitivity
 

Assets subject to market risk

                          

Interest-bearing deposits with banks

   $ 28,453      $ 111      $ 28,342      $      $ 30,720      $ 729      $ 29,991      $        Interest rate  

Trading loans, securities, and other

     132,805        130,627        2,178               127,897        125,437        2,460               Interest rate  

Non-trading financial assets at fair value through profit or loss

     4,202               4,202               4,015               4,015              

Equity,
foreign exchange,
interest rate
 
 
 

Derivatives

     43,624        39,415        4,209               56,996        53,087        3,909              

Equity,
foreign exchange,
interest rate
 
 
 

Financial assets designated at fair value through profit or loss

     3,379               3,379               3,618               3,618               Interest rate  

Financial assets at fair value through other comprehensive income

     125,109               125,109               130,600               130,600              

Equity,
foreign exchange,
interest rate
 
 
 

Debt securities at amortized cost, net of allowance for credit losses

     111,544               111,544               107,171               107,171              
Foreign exchange,
interest rate
 
 

Securities purchased under reverse repurchase agreements

     149,949        4,796        145,153               127,379        3,920        123,459               Interest rate  

Loans, net of allowance for loan losses

     663,615               663,615               646,393               646,393               Interest rate  

Customers' liability under acceptances

     16,189               16,189               17,267               17,267               Interest rate  

Investment in TD Ameritrade

     9,027               9,027               8,445               8,445               Equity  

Other assets 1

     1,571               1,571               1,751               1,751               Interest rate  

Assets not exposed to market risk

     67,121                      67,121        72,651                      72,651           

Total Assets

     1,356,588        174,949        1,114,518        67,121        1,334,903        183,173        1,079,079        72,651           

Liabilities subject to market risk

                          

Trading deposits

     53,974        8,568        45,406               114,704        6,202        108,502               Interest rate  

Derivatives

     42,199        37,937        4,262               48,270        44,119        4,151              

Equity,
foreign exchange,
interest rate
 
 
 

Securitization liabilities at fair value

     12,738        12,738                      12,618        12,618                      Interest rate  

Financial liabilities designated at fair value through profit or loss

     57,783        4        57,779               16        2        14               Interest rate  

Deposits

     875,343               875,343               851,439               851,439               Interest rate  

Acceptances

     16,189               16,189               17,269               17,269               Interest rate  

Obligations related to securities sold short

     36,365        34,972        1,393               39,478        37,323        2,155               Interest rate  

Obligations related to securities sold under repurchase agreements

     107,885        1,893        105,992               93,389        3,797        89,592               Interest rate  

Securitization liabilities at amortized cost

     14,020               14,020               14,683               14,683               Interest rate  

Subordinated notes and debentures

     8,968               8,968               8,740               8,740               Interest rate  

Other liabilities 1

     17,189               17,189               16,134               16,134               Equity, interest rate  

Liabilities and Equity not exposed to market risk

     113,935                      113,935        118,163                      118,163           

Total Liabilities and Equity

   $     1,356,588      $     96,112      $     1,146,541      $     113,935      $     1,334,903      $     104,061      $     1,112,679      $     118,163           

 

1  

Relates to retirement benefits, insurance, and structured entity liabilities.

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 30  


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Calculating VaR

TD computes total VaR on a daily basis by combining the General Market Risk (GMR) and Idiosyncratic Debt Specific Risk (IDSR) associated with the Bank's trading positions.

GMR is determined by creating a distribution of potential changes in the market value of the current portfolio using historical simulation. The Bank values the current portfolio using the market price and rate changes of the most recent 259 trading days for equity, interest rate, foreign exchange, credit, and commodity products. GMR is computed as the threshold level that portfolio losses are not expected to exceed more than one out of every 100 trading days. A one-day holding period is used for GMR calculation, which is scaled up to ten days for regulatory capital calculation purposes.

IDSR measures idiosyncratic (single-name) credit spread risk for credit exposures in the trading portfolio using Monte Carlo simulation. The IDSR model is based on the historical behaviour of five-year idiosyncratic credit spreads. Similar to GMR, IDSR is computed as the threshold level that portfolio losses are not expected to exceed more than one out of every 100 trading days. IDSR is measured for a ten-day holding period.

The following graph discloses daily one-day VaR usage and trading net revenue, reported on a TEB, within Wholesale Banking. Trading net revenue includes trading income and net interest income related to positions within the Bank's market risk capital trading books. For the quarter ended April 30, 2019, there were three days of trading losses and trading net revenue was positive for 95% of the trading days. Losses in the quarter did not exceed VaR on any trading day.

 

LOGO

VaR is a valuable risk measure but it should be used in the context of its limitations, for example:

   

VaR uses historical data to estimate future events, which limits its forecasting abilities;

   

it does not provide information on losses beyond the selected confidence level; and

   

it assumes that all positions can be liquidated during the holding period used for VaR calculation.

The Bank continuously improves its VaR methodologies and incorporates new risk measures in line with market conventions, industry best practices, and regulatory requirements. During the second quarter of 2019, TD implemented a modification to improve equity volatility data used in VaR calculations.

To mitigate some of the shortcomings of VaR, the Bank uses additional metrics designed for risk management and capital purposes. These include Stressed VaR, IRC, Stress Testing Framework, as well as limits based on the sensitivity to various market risk factors.

Calculating Stressed VaR

In addition to VaR, the Bank also calculates Stressed VaR, which includes Stressed GMR and Stressed IDSR. Stressed VaR is designed to measure the adverse impact that potential changes in market rates and prices could have on the value of a portfolio over a specified period of stressed market conditions. Stressed VaR is determined using similar techniques and assumptions in GMR and IDSR VaR. However, instead of using the most recent 259 trading days (one year), the Bank uses a selected year of stressed market conditions. In the second quarter of 2019, Stressed VaR was calculated using the one-year period that began on February 1, 2008. The appropriate historical one-year period to use for Stressed VaR is determined on a quarterly basis. Stressed VaR is a part of regulatory capital requirements.

Calculating the Incremental Risk Charge

The IRC is applied to all instruments in the trading book subject to migration and default risk. Migration risk represents the risk of changes in the credit ratings of the Bank's exposures. TD applies a Monte Carlo simulation with a one-year horizon and a 99.9% confidence level to determine IRC, which is consistent with regulatory requirements. IRC is based on a "constant level of risk" assumption, which requires banks to assign a liquidity horizon to positions that are subject to IRC. IRC is a part of regulatory capital requirements.

 

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The following table presents the end of quarter, average, high, and low usage of TD's portfolio metrics.

 

TABLE 28:  PORTFOLIO MARKET RISK MEASURES

 

(millions of Canadian dollars)    For the three months ended     For the six months ended  
     

April 30

2019

     January 31
2019
    April 30
2018
    April 30
2019
    April 30
2018
 
      As at     Average     High     Low      Average     Average     Average     Average  

Interest rate risk

   $ 6.7     $ 8.6     $ 13.9     $ 5.4      $ 12.9     $ 17.0     $ 10.8     $ 13.0  

Credit spread risk

     11.1       12.2       16.6       9.4        19.7       11.4       16.0       10.3  

Equity risk

     7.0       6.7       9.6       4.6        7.1       8.5       6.9       8.1  

Foreign exchange risk

     4.3       5.4       9.5       1.7        6.5       4.5       6.0       4.1  

Commodity risk

     1.4       2.2       3.5       1.4        2.6       2.2       2.4       2.4  

Idiosyncratic debt specific risk

     14.5       15.1       20.2       13.5        20.2       17.3       17.6       15.7  

Diversification effect 1

     (25.9     (29.2     n/m 2       n/m        (41.4     (35.4     (35.4     (31.2

Total Value-at-Risk (one-day)

     19.1       21.0       28.1       16.8        27.6       25.5       24.3       22.4  

Stressed Value-at-Risk (one-day)

     43.9       43.5       56.8       38.8        60.5       57.7       52.6       48.3  

Incremental Risk Capital Charge (one-year)

   $     269.7     $     204.2     $     269.7     $     173.1      $       232.6     $       205.4     $       219.5     $       206.4  

1 The aggregate VaR is less than the sum of the VaR of the different risk types due to risk offsets resulting from portfolio diversification.

2 Not meaningful. It is not meaningful to compute a diversification effect because the high and low may occur on different days for different risk types.

Average VaR decreased quarter-over-quarter due to decrease in debt specific risk driven by changes in government and financial bonds positions and interest rate risk from U.S. interest rate risk positions. Average Stressed VaR decreased quarter-over-quarter driven by U.S. interest rate risk positions.

Average IRC decreased quarter-over-quarter due to positions in Canadian banks and provinces.

Validation of VaR Model

The Bank uses a back-testing process to compare the actual and theoretical profit and losses to VaR to ensure that they are consistent with the statistical results of the VaR model. The theoretical profit or loss is generated using the daily price movements on the assumption that there is no change in the composition of the portfolio. Validation of the IRC model must follow a different approach since the one-year horizon and 99.9% confidence level preclude standard back-testing techniques. Instead, key parameters of the IRC model such as transition and correlation matrices are subject to independent validation by benchmarking against external study results or through analysis using internal or external data.

Interest Rate Risk

The following graph shows the Bank's interest rate risk exposure (as measured by Economic Value at Risk (EVaR)) on all non-trading assets, liabilities, and derivative instruments used for structural interest rate management. This reflects the interest rate risk from personal and commercial banking products (loans and deposits) as well as related funding, investments and high-quality liquid assets (HQLA). EVaR is defined as the difference between the change in the present value of the Bank's asset portfolio and the change in the present value of the Bank's liability portfolio, including off-balance sheet instruments and assumed profiles for non-rate sensitive products, resulting from an immediate and sustained 100 bps unfavourable interest rate shock. EVaR measures the relative sensitivity of asset and liability cash flow mismatches to changes in interest rates. Closely matching asset and liability cash flows reduces EVaR and mitigates the risk of volatility in future net interest income.

 

LOGO

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 32  


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The Bank uses derivative financial instruments, wholesale investments, funding instruments, other capital market alternatives, and, less frequently, product pricing strategies to manage interest rate risk. As at April 30, 2019 an immediate and sustained 100 bps increase in interest rates would have decreased the economic value of shareholders' equity by $337 million (January 31, 2019 – $304 million decrease) after-tax. An immediate and sustained 100 bps decrease in interest rates would have reduced the economic value of shareholders' equity by $274 million (January 31, 2019 – $149 million decrease) after-tax.

The interest risk exposure, or EVaR, in the insurance business is not included in the above graph. Interest rate risk in the insurance business is managed using defined exposure limits and processes, as set and governed by the insurance Board of Directors.

The following table shows the sensitivity of the economic value of shareholders' equity (after-tax) by currency for those currencies where TD has material exposure.

 

TABLE 29: SENSITIVITY OF AFTER-TAX ECONOMIC VALUE-AT-RISK BY CURRENCY

 

(millions of Canadian dollars)                  As at  
     April 30, 2019     January 31, 2019     April 30, 2018  
      100 bps
increase
    100 bps
decrease
    100 bps
increase
    100 bps
decrease
    100 bps
increase
    100 bps
decrease
 

Canadian dollar

   $ (66   $     $ (58   $ 1     $ (37   $ (41

U.S. dollar

     (271     (274     (246     (150     (251     (11
     $ (337   $ (274   $ (304   $ (149   $ (288   $ (52

Liquidity Risk

Liquidity risk is the risk of having insufficient cash or collateral to meet financial obligations and an inability to, in a timely manner, raise funding or monetize assets at a non-distressed price. Financial obligations can arise from deposit withdrawals, debt maturities, commitments to provide credit or liquidity support, or the need to pledge additional collateral.

TD ' S LIQUIDITY RISK APPETITE

The Bank maintains a prudent and disciplined approach to managing its potential exposure to liquidity risk. The Bank targets a 90-day survival horizon under a combined Bank-specific and market-wide stress scenario, and a minimum buffer over regulatory requirements prescribed by the OSFI Liquidity Adequacy Requirements (LAR) guideline. Under the LAR guideline, Canadian banks are required to maintain a Liquidity Coverage Ratio (LCR) at the minimum of 100%. The Bank operates under a prudent funding paradigm with an emphasis on maximizing deposits as a core source of funding and having a ready access to wholesale funding markets across diversified terms, funding types, and currencies so as to ensure low exposure to a sudden contraction of wholesale funding capacity and to minimize structural liquidity gaps. The Bank also maintains a detailed contingency funding plan to enhance preparedness for recovery from potential liquidity stress events. The resultant management strategies and actions comprise an integrated liquidity risk management program that ensures low exposure to identified sources of liquidity risk and compliance with regulatory requirements.

LIQUIDITY RISK MANAGEMENT RESPONSIBILITY

The Bank's Asset/Liability and Capital Committee (ALCO) oversees the Bank's liquidity risk management program. It is designed to ensure there are effective management structures and policies in place to properly measure and manage liquidity risk. The Global Liquidity and Funding Committee, a subcommittee of the ALCO comprised of senior management from Treasury and Balance Sheet Management (TBSM), Risk Management, Finance, and Wholesale Banking, identifies and monitors the Bank's liquidity risks. The management of liquidity risk is the responsibility of the Head of TBSM, while oversight and challenge are provided by the ALCO and independently by Risk Management. The Risk Committee of the Board regularly reviews the Bank's liquidity position and approves the Bank's Liquidity Risk Management Framework bi-annually and the related policies annually.

The Bank's liquidity risk appetite and liquidity risk management approach have not substantially changed from that described in the Bank's 2018 Annual Report. For a complete discussion of liquidity risk, refer to the "Liquidity Risk" section in the Bank's 2018 Annual Report.

LIQUID ASSETS

The unencumbered liquid assets the Bank holds to meet its liquidity requirements must be high-quality securities that the Bank believes can be monetized quickly in stress conditions with minimum loss in market value. Unencumbered liquid assets are represented in a cumulative liquidity gap framework with adjustments made for estimated market or trading depths, settlement timing, and/or other identified impediments to potential sale or pledging. Overall, the Bank expects any reduction in market value of its liquid asset portfolio to be modest given the underlying high credit and liquidity quality.

Assets held by the Bank to meet liquidity requirements are summarized in the following tables. The tables do not include assets held within the Bank's insurance businesses due to investment restrictions.

 

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TABLE 30: SUMMARY OF LIQUID ASSETS BY TYPE AND CURRENCY 1

 

(millions of Canadian dollars, except as noted)

                                                 As at  
     Bank-owned
liquid assets
     Securities
received as
collateral from
securities
financing and
derivative
transactions 2
     Total
liquid assets
     % of
total
    Encumbered
liquid assets
     Unencumbered
liquid assets 2
 
                April 30, 2019  

Cash and due from banks

   $ 4,029      $      $ 4,029        1   $ 228      $ 3,801  

Canadian government obligations

     13,865        74,980        88,845        14       54,585        34,260  

National Housing Act Mortgage-Backed Securities (NHA MBS)

     41,792        34        41,826        7       3,232        38,594  

Provincial government obligations

     13,738        23,554        37,292        6       27,644        9,648  

Corporate issuer obligations

     8,293        3,952        12,245        2       3,659        8,586  

Equities

     11,290        3,030        14,320        2       10,139        4,181  

Other marketable securities and/or loans

     3,362        444        3,806        1       513        3,293  

Total Canadian dollar-denominated

     96,369        105,994        202,363        33       100,000        102,363  

Cash and due from banks

     24,424               24,424        4       32        24,392  

U.S. government obligations

     30,331        45,037        75,368        12       36,209        39,159  

U.S. federal agency obligations, including U.S. federal agency mortgage-backed obligations

     49,733        9,650        59,383        10       17,983        41,400  

Other sovereign obligations

     49,530        39,995        89,525        14       31,738        57,787  

Corporate issuer obligations

     81,125        2,199        83,324        14       7,030        76,294  

Equities

     37,944        36,871        74,815        12       38,888        35,927  

Other marketable securities and/or loans

     4,543        1        4,544        1       530        4,014  

Total non-Canadian dollar-denominated

     277,630        133,753        411,383        67       132,410        278,973  

Total

   $ 373,999      $ 239,747      $ 613,746        100   $ 232,410      $ 381,336  
              October 31, 2018  

Cash and due from banks

   $ 3,002      $      $ 3,002        1   $ 1,098      $ 1,904  

Canadian government obligations

     18,256        63,463        81,719        14       47,572        34,147  

NHA MBS

     39,649        42        39,691        6       3,057        36,634  

Provincial government obligations

     12,720        19,241        31,961        5       23,651        8,310  

Corporate issuer obligations

     6,622        3,767        10,389        2       3,769        6,620  

Equities

     10,554        1,637        12,191        2       6,028        6,163  

Other marketable securities and/or loans

     2,655        349        3,004        1       277        2,727  

Total Canadian dollar-denominated

     93,458        88,499        181,957        31       85,452        96,505  

Cash and due from banks

     24,046               24,046        4       28        24,018  

U.S. government obligations

     30,163        37,691        67,854        12       32,918        34,936  

U.S. federal agency obligations, including U.S. federal agency mortgage-backed obligations

     47,150        927        48,077        8       7,522        40,555  

Other sovereign obligations

     56,034        45,912        101,946        18       41,993        59,953  

Corporate issuer obligations

     78,160        1,576        79,736        14       7,234        72,502  

Equities

     33,514        37,666        71,180        12       32,206        38,974  

Other marketable securities and/or loans

     4,786        4        4,790        1       191        4,599  

Total non-Canadian dollar-denominated

     273,853        123,776        397,629        69       122,092        275,537  

Total

   $ 367,311      $ 212,275      $ 579,586        100   $ 207,544      $ 372,042  

1  Positions stated include gross asset values pertaining to secured borrowing/lending and reverse-repurchase/repurchase businesses.

2  Liquid assets include collateral received that can be re-hypothecated or otherwise redeployed.

Liquid assets are held in The Toronto-Dominion Bank and multiple domestic and foreign subsidiaries and branches and are summarized in the following table.

 

TABLE 31: SUMMARY OF UNENCUMBERED LIQUID ASSETS BY BANK, SUBSIDIARIES, AND BRANCHES

 

                                 
(millions of Canadian dollars)            As at  
     

April 30

2019

     October 31
2018
 

The Toronto-Dominion Bank (Parent)

   $ 143,442      $ 136,544  

Bank subsidiaries

     222,088        217,565  

Foreign branches

     15,806        17,933  

Total

   $ 381,336      $ 372,042  

 

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The Bank's monthly average liquid assets (excluding those held in insurance subsidiaries) for the quarters ended April 30, 2019 and January 31, 2019, are summarized in the following table.

 

TABLE 32: SUMMARY OF AVERAGE LIQUID ASSETS BY TYPE AND CURRENCY 1

 

(millions of Canadian dollars, except as noted)            Average for the three months ended  
     Bank-owned
liquid assets
     Securities
received as
collateral from
securities
financing and
derivative
transactions 2
     Total
liquid assets
     % of
Total
    Encumbered
liquid assets
     Unencumbered
liquid assets 2
 
              April 30, 2019  

Cash and due from banks

   $ 3,382      $      $ 3,382        1   $ 209      $ 3,173  

Canadian government obligations

     13,906        63,924        77,830        13       47,864        29,966  

NHA MBS

     42,626        35        42,661        7       3,267        39,394  

Provincial government obligations

     13,495        23,012        36,507        6       27,004        9,503  

Corporate issuer obligations

     6,918        4,010        10,928        2       3,939        6,989  

Equities

     11,174        3,754        14,928        2       8,940        5,988  

Other marketable securities and/or loans

     3,320        422        3,742        1       495        3,247  

Total Canadian dollar-denominated

     94,821        95,157        189,978        32       91,718        98,260  

Cash and due from banks

     28,170               28,170        5       39        28,131  

U.S. government obligations

     30,183        43,578        73,761        12       37,620        36,141  

U.S. federal agency obligations, including U.S. federal agency mortgage-backed obligations

     48,211        7,859        56,070        9       16,579        39,491  

Other sovereign obligations

     49,987        41,458        91,445        15       33,212        58,233  

Corporate issuer obligations

     80,437        2,441        82,878        14       6,896        75,982  

Equities

     34,087        35,552        69,639        12       37,834        31,805  

Other marketable securities and/or loans

     4,698        3        4,701        1       386        4,315  

Total non-Canadian dollar-denominated

     275,773        130,891        406,664        68       132,566        274,098  

Total

   $ 370,594      $ 226,048      $ 596,642        100   $ 224,284      $ 372,358  
              January 31, 2019  

Cash and due from banks

   $ 2,583      $      $ 2,583          $ 451      $ 2,132  

Canadian government obligations

     15,721        57,341        73,062        12       42,228        30,834  

NHA MBS

     42,274        40        42,314        7       3,890        38,424  

Provincial government obligations

     13,372        19,900        33,272        6       23,001        10,271  

Corporate issuer obligations

     5,349        4,017        9,366        2       3,845        5,521  

Equities

     7,367        2,972        10,339        2       6,220        4,119  

Other marketable securities and/or loans

     3,414        465        3,879        1       345        3,534  

Total Canadian dollar-denominated

     90,080        84,735        174,815        30       79,980        94,835  

Cash and due from banks

     30,137               30,137        5       28        30,109  

U.S. government obligations

     33,103        38,549        71,652        12       35,498        36,154  

U.S. federal agency obligations, including U.S. federal agency mortgage-backed obligations

     49,877        6,911        56,788        10       17,436        39,352  

Other sovereign obligations

     54,201        42,376        96,577        16       30,857        65,720  

Corporate issuer obligations

     79,597        2,800        82,397        14       7,109        75,288  

Equities

     33,735        35,711        69,446        12       31,206        38,240  

Other marketable securities and/or loans

     5,763        239        6,002        1       677        5,325  

Total non-Canadian dollar-denominated

     286,413        126,586        412,999        70       122,811        290,188  

Total

   $ 376,493      $ 211,321      $ 587,814        100   $ 202,791      $ 385,023  

 

1  

Positions stated include gross asset values pertaining to secured borrowing/lending and reverse-repurchase/repurchase businesses.

2  

Liquid assets include collateral received that can be re-hypothecated or otherwise redeployed.

Average liquid assets held in The Toronto-Dominion Bank and multiple domestic and foreign subsidiaries and branches are summarized in the following table.

 

TABLE 33: SUMMARY OF AVERAGE UNENCUMBERED LIQUID ASSETS BY BANK, SUBSIDIARIES, AND BRANCHES

 

(millions of Canadian dollars)    Average for the three months ended  
      April 30
2019
     January 31
2019
 

The Toronto-Dominion Bank (Parent)

   $ 137,951      $ 134,578  

Bank subsidiaries

     218,334        227,337  

Foreign branches

     16,073        23,108  

Total

   $ 372,358      $ 385,023  

ASSET ENCUMBRANCE

In the course of the Bank's day-to-day operations, assets are pledged to obtain funding, support trading and brokerage businesses, and participate in clearing and/or settlement systems. A summary of encumbered and unencumbered assets (excluding assets held in insurance subsidiaries) is presented in the following table to identify assets that are used or available for potential funding needs.

 

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TABLE 34: ENCUMBERED AND UNENCUMBERED ASSETS

 

                                                                                                                       
(millions of Canadian dollars, except as noted)    As at  
     Encumbered 1      Unencumbered               
     Pledged as
collateral 2
     Other 3      Available as
collateral 4
     Other 5     Total assets      Encumbered
assets as a %
of total assets
 
                                     April 30, 2019  

Cash and due from banks

   $ 191      $      $      $ 4,818     $ 5,009       

Interest-bearing deposits with banks

     3,678        102        22,427        2,246       28,453        0.3  

Securities, trading loans, and other 6

     68,279        12,571        284,229        11,960       377,039        6.0  

Derivatives

                          43,624       43,624         

Securities purchased under reverse repurchase agreements 7

                          149,949       149,949         

Loans, net of allowance for loan losses

     24,392        60,340        86,084        492,799       663,615        6.2  

Customers' liability under acceptances

                          16,189       16,189         

Investment in TD Ameritrade

                          9,027       9,027         

Goodwill

                          17,232       17,232         

Other intangibles

                          2,623       2,623         

Land, buildings, equipment, and other depreciable assets

                          5,500       5,500         

Deferred tax assets

                          2,136       2,136         

Other assets 8

     821                      35,371       36,192        0.1  

Total on-balance sheet assets

   $ 97,361      $ 73,013      $ 392,740      $ 793,474     $ 1,356,588        12.6

Off-balance sheet items 9

                

Securities purchased under reverse repurchase agreements

     145,738               24,050        (149,949     

Securities borrowing and collateral received

     54,153        1,163        20,349              

Margin loans and other client activity

     9,721               20,490        (13,320     

Total off-balance sheet items

     209,612        1,163        64,889        (163,269     

Total

   $ 306,973      $ 74,176      $ 457,629      $ 630,205       
                                     October 31, 2018  

Total on-balance sheet assets

   $ 100,719      $ 72,086      $ 377,068      $ 785,030     $ 1,334,903        12.9

Total off-balance sheet items

     185,323        559        57,845        (142,072 )       

Total

   $ 286,042      $ 72,645      $ 434,913      $ 642,958       

 

1  

Asset encumbrance has been analyzed on an individual asset basis. Where a particular asset has been encumbered and TD has holdings of the asset both on-balance sheet and off-balance sheet, for the purpose of this disclosure, the on and off-balance sheet holdings are encumbered in alignment with the business practice.

2  

Represents assets that have been posted externally to support the Bank's day-to-day operations, including securities financing transactions, clearing and payments, and derivative transactions. Also includes assets that have been pledged to Federal Home Loan Bank (FHLB) to support the U.S. Retail business.

3  

Assets supporting TD's long-term funding activities, assets pledged against securitization liabilities, and assets held by consolidated securitization vehicles or in pools for covered bond issuance.

4  

Assets that are considered readily available in their current legal form to generate funding or support collateral needs. This category includes reported FHLB assets that remain unutilized and held-to-maturity securities that are available for collateral purposes however not regularly utilized in practice.

5  

Assets that cannot be used to support funding or collateral requirements in their current form. This category includes those assets that are potentially eligible as funding program collateral (for example, Canada Mortgage and Housing Corporation insured mortgages that can be securitized into NHA MBS).

6  

Securities include trading loans, securities, non-trading financial assets at fair value through profit or loss and other financial assets designated at fair value through profit or loss, securities at FVOCI, and DSAC.

7  

Assets reported in Securities purchased under reverse repurchase agreements represent the value of the loans extended and not the value of the collateral received.

8  

Other assets include amounts receivable from brokers, dealers, and clients.

9  

Off-balance sheet items include the collateral value from the securities received under reverse repurchase agreements, securities borrowing, margin loans, and other client activity. The loan value from the reverse repurchase transactions and margin loans/client activity is deducted from the on-balance sheet Unencumbered – Other category.

LIQUIDITY STRESS TESTING AND CONTINGENCY FUNDING PLANS

In addition to the "Severe Combined Stress" scenario, TD performs liquidity stress testing on multiple alternate scenarios. These scenarios are a mix of TD-specific events and market-wide stress events designed to test the impact from risk factors material to TD's risk profile. Liquidity assessments are also part of the Bank's enterprise-wide stress testing program. Results from these stress event scenarios are used to inform the Bank's contingency funding plan actions.

The Bank has liquidity contingency funding plans (CFP) in place at the enterprise level ("Enterprise CFP") and for subsidiaries operating in both domestic and foreign jurisdictions ("Regional CFP"). The Enterprise CFP provides a documented framework for managing unexpected liquidity situations and thus is an integral component of the Bank's overall liquidity risk management program. It outlines different contingency levels based on the severity and duration of the liquidity situation, and identifies governance protocols and recovery actions appropriate for each level. For each recovery action, it provides key operational steps required to execute the action. Regional CFPs identify recovery actions to address region-specific stress events. The actions and governance structure proposed in the Enterprise CFP are aligned with the Bank's Crisis Management Recovery Plan.

CREDIT RATINGS

Credit ratings impact TD's borrowing costs and ability to raise funds. Rating downgrades could potentially result in higher financing costs, increased requirement to pledge collateral, reduced access to capital markets, and could also affect the Bank's ability to enter into derivative transactions.

Credit ratings and outlooks provided by rating agencies reflect their views and are subject to change from time to time, based on a number of factors including the Bank's financial strength, competitive position, and liquidity, as well as factors not entirely within the Bank's control, including the methodologies used by rating agencies and conditions affecting the overall financial services industry.

 

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TABLE 35: CREDIT RATINGS 1

 

                             As at  
                             April 30, 2019  
Rating agency    Short-term debt rating      Legacy senior debt rating 2      Senior debt rating 3      Outlook  

Moody's

     P-1        Aa1        Aa3        Stable  

S&P

     A-1+        AA-        A        Stable  

DBRS

     R-1 (high)        AA        AA (low)        Positive  

 

1  

The above ratings are for The Toronto-Dominion Bank legal entity. A more extensive listing, including subsidiaries' ratings, is available on the Bank's website at http://www.td.com/investor/credit.jsp . Credit ratings are not recommendations to purchase, sell, or hold a financial obligation inasmuch as they do not comment on market price or suitability for a particular investor. Ratings are subject to revision or withdrawal at any time by the rating organization.

2  

Includes (a) Senior debt issued prior to September 23, 2018; and (b) Senior debt issued on or after September 23, 2018 which is excluded from the bank recapitalization "bail-in" regime, including debt with an original term-to-maturity of less than 400 days and most structured notes.

3  

Subject to conversion under the bank recapitalization "bail-in" regime.

The Bank regularly reviews the level of increased collateral its trading counterparties would require in the event of a downgrade of TD's credit rating. The following table presents the additional collateral that could have been contractually required to be posted to the derivative counterparties at the reporting date in the event of one, two, and three-notch downgrades of the Bank's credit ratings.

 

TABLE 36: ADDITIONAL COLLATERAL REQUIREMENTS FOR RATING DOWNGRADES 1

 

(millions of Canadian dollars)    Average for the three months ended  
     

April 30

2019

    

January 31

2019

 

One-notch downgrade

   $ 80      $ 56  

Two-notch downgrade

     87        56  

Three-notch downgrade

     535        458  

 

1  

The above collateral requirements are based on contractual trading counterparty Credit Support Annex and the Bank's credit rating across applicable rating agencies.

LIQUIDITY COVERAGE RATIO

The LCR is a Basel III metric calculated as the ratio of the stock of unencumbered HQLA over the net cash outflow requirements in the next 30 days under a hypothetical liquidity stress event.

The Bank must maintain the LCR above 100% under normal operating conditions in accordance with the OSFI LAR requirement. The Bank's LCR is calculated according to the scenario parameters in the OSFI LAR guideline, including prescribed HQLA eligibility criteria and haircuts, deposit run-off rates, and other outflow and inflow rates. HQLA eligible for the LCR calculation under the OSFI LAR guideline are primarily central bank reserves, sovereign issued or guaranteed securities, and high-quality securities issued by non-financial entities.

The following table summarizes the Bank's average daily LCR position for the quarter ended April 30, 2019.

 

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TABLE 37:  AVERAGE BASEL III LIQUIDITY COVERAGE RATIO 1

 

(millions of Canadian dollars, except as noted)    Average for the three months ended  
     April 30, 2019  
      Total unweighted
value (average) 2
    Total weighted
value (average) 3
 

High-quality liquid assets

                

Total high-quality liquid assets

   $ n/a 4     $ 213,526  

Cash outflows

                

Retail deposits and deposits from small business customers, of which:

   $ 479,060     $ 33,724  

Stable deposits 5

     202,598       6,078  

Less stable deposits

     276,462       27,646  

Unsecured wholesale funding, of which:

     241,454       120,707  

Operational deposits (all counterparties) and deposits in networks of cooperative banks 6

     98,720       23,509  

Non-operational deposits (all counterparties)

     104,154       58,618  

Unsecured debt

     38,580       38,580  

Secured wholesale funding

     n/a       14,147  

Additional requirements, of which:

     205,339       54,237  

Outflows related to derivative exposures and other collateral requirements

     33,619       18,059  

Outflows related to loss of funding on debt products

     5,317       5,317  

Credit and liquidity facilities

     166,403       30,861  

Other contractual funding obligations

     10,514       4,957  

Other contingent funding obligations 7

     567,611       9,187  

Total cash outflows

   $ n/a     $ 236,959  

Cash inflows

                

Secured lending

   $ 178,063     $ 23,260  

Inflows from fully performing exposures

     15,610       7,053  

Other cash inflows

     48,511       48,511  

Total cash inflows

   $ 242,184     $ 78,824  
     Average for the three months ended  
      April 30, 2019     January 31, 2019  
      Total adjusted
value
    Total adjusted
value
 

Total high-quality liquid assets 8

   $ 213,526     $ 213,982  

Total net cash outflows 9

     158,135       163,267  

Liquidity coverage ratio

     135  %      131  %  

 

1  

The LCR for the quarter ended April 30, 2019, is calculated as an average of the 61 daily data points in the quarter.

2  

Unweighted inflow and outflow values are outstanding balances maturing or callable within 30 days.

3  

Weighted values are calculated after the application of respective HQLA haircuts or inflow and outflow rates, as prescribed by the OSFI LAR guideline.

4  

Not applicable.

5  

As defined by the OSFI LAR guideline, stable deposits from retail and small medium-sized enterprise (SME) customers are deposits that are insured and are either held in transactional accounts or the depositors have an established relationship with the Bank that make deposit withdrawal highly unlikely.

6  

Operational deposits from non-SME business customers are deposits kept with the Bank in order to facilitate their access and ability to conduct payment and settlement activities. These activities include clearing, custody, or cash management services.

7  

Includes uncommitted credit and liquidity facilities, stable value money market mutual funds, outstanding debt securities with remaining maturity greater than 30 days, and other contractual cash outflows. TD has no contractual obligation to buy back these outstanding TD debt securities, and as a result, a 0% outflow rate is applied under the OSFI LAR guideline.

8  

Adjusted HQLA includes both asset haircut and applicable caps, as prescribed by the OSFI LAR guideline (HQLA assets after haircuts are capped at 40% for Level 2 and 15% for Level 2B).

9  

Adjusted Net Cash Outflows include both inflow and outflow rates and applicable caps, as prescribed by the OSFI LAR guideline (inflows are capped at 75% of outflows).

The Bank's average LCR of 135% for quarter ended April 30, 2019, continues to meet the regulatory requirements.

The Bank holds a variety of liquid assets commensurate with liquidity needs in the organization. Many of these assets qualify as HQLA under the OSFI LAR guideline. The average HQLA of the Bank for the quarter ended April 30, 2019, was $214 billion (January 31, 2019 – $214 billion), with Level 1 assets representing 82% (January 31, 2019 – 79%). The Bank's reported HQLA excludes excess HQLA from the U.S. Retail operations, as required by the OSFI LAR guideline, to reflect liquidity transfer considerations between U.S. Retail and its affiliates in the Bank as a result of U.S. Federal Reserve Board's regulations. By excluding excess HQLA, the U.S. Retail LCR is effectively capped at 100% prior to total Bank consolidation.

As described in the "How TD Manages Liquidity Risk" section of the Bank's 2018 Annual Report, the Bank manages its HQLA and other liquidity buffers to the higher of TD's 90-day surplus requirement and the target buffers over regulatory requirements from the LCR and the Net Cumulative Cash Flow metrics. As a result, the total stock of HQLA is subject to ongoing rebalancing against the projected liquidity requirements.

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 38  


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FUNDING

The Bank has access to a variety of unsecured and secured funding sources. The Bank's funding activities are conducted in accordance with the liquidity management policy that requires assets be funded to the appropriate term and to a prudent diversification profile.

The Bank's primary approach to managing funding activities is to maximize the use of deposits raised through personal and commercial banking channels. The following table illustrates the Bank's large base of personal and commercial, wealth, and TD Ameritrade sweep deposits (collectively, "P&C deposits") that make up over 70% of total funding.

 

TABLE 38:    SUMMARY OF DEPOSIT FUNDING

 

(millions of Canadian dollars)    As at  
      April 30 2019      October 31 2018  

P&C deposits – Canadian Retail

   $     370,487    $     359,473

P&C deposits – U.S. Retail

     353,035        346,624

Other deposits

     28      36

Total

   $ 723,550    $ 706,133

The Bank actively maintains various registered external wholesale term (greater than 1 year) funding programs to provide access to diversified funding sources, including asset securitization, covered bonds, and unsecured wholesale debt. The Bank also raises term funding through Canadian Senior Notes, Canadian NHA MBS, Canada Mortgage Bonds, debt issued in Australia, and notes backed by credit card receivables (Evergreen Credit Card Trust). The Bank's wholesale funding is diversified by geography, by currency, and by funding types. The Bank raises short-term (1 year and less) funding using certificates of deposit and commercial paper.

The following table summarizes the registered term funding programs by geography, with the related program size.

 

     
Canada   United States   Europe

 

Capital Securities Program ($10 billion)

 

Canadian Senior Medium-Term Linked Notes Program ($4 billion)

 

HELOC Asset-Backed Security (ABS) Program (Genesis Trust II) ($7 billion)

 

 

 

U.S. SEC (F-3) Registered Capital and Debt Program (US$40 billion)

 

 

United Kingdom Listing Authority (UKLA) Registered Legislative Covered Bond Program ($50 billion)

 

UKLA Registered European Medium-Term Note Program (US$20 billion)

The Bank regularly evaluates opportunities to diversify its funding into new markets and to new investors in order to manage funding risk and cost. The following table presents a breakdown of the Bank's term debt by currency and funding type. Term funding for the quarter ended April 30, 2019, was $128.9 billion (October 31, 2018 – $127.7 billion).

 

TABLE 39:  LONG-TERM FUNDING

 

 

     As at  
Long-term funding by currency    April 30 2019     October 31 2018  

Canadian dollar

     31  %      32  % 

U.S. dollar

     38     39

Euro

     22     19

British pound

     6     7

Other

     3     3

Total

     100  %      100  % 

Long-term funding by type

                

Senior unsecured medium-term notes

     54  %      55  % 

Covered bonds

     30     29

Mortgage securitization 1

     11     12

Term asset-backed securities

     5     4

Total

     100  %      100  % 

 

1

Mortgage securitization excludes the residential mortgage trading business.

 

The Bank maintains depositor concentration limits against short-term wholesale deposits so that it does not depend on small groups of depositors for funding. The Bank further limits short-term wholesale funding maturity concentration in an effort to mitigate exposures to refinancing risk during a stress event.

 

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 39  


Table of Contents

The following table represents the remaining maturity of various sources of funding outstanding as at April 30, 2019 and October 31, 2018.

 

TABLE 40:  WHOLESALE FUNDING

 

(millions of Canadian dollars)    As at  
                                            

April 30

2019

     October 31
2018
 
      Less than
1 month
     1 to 3
months
     3 to 6
months
    

6 months

to 1 year

     Over 1 to
2 years
    

Over

2 years

     Total      Total  

Deposits from banks 1

   $ 9,905      $ 2,740      $ 2,291      $ 1,604      $      $      $ 16,540    $ 14,176

Bearer deposit note

     676      856      462      964                    2,958      3,872

Certificates of deposit

     6,910      17,255      16,331      5,661                    46,157      51,401

Commercial paper

     18,491      10,144      17,166      9,933                    55,734      55,570

Covered bonds

            2,629      2,346      3,287      6,337      24,509      39,108      36,284

Mortgage securitization

            1,206      845      2,788      3,455      18,464      26,758      27,301

Legacy senior unsecured medium-term notes 2

            4,941      7,005      4,454      24,020      22,422      62,842      69,518

Senior unsecured medium-term notes 3

                                        5,909      5,909       

Subordinated notes and debentures 4

                                        8,968      8,968      8,740

Term asset-backed securitization

     990             802      748      3,239      670      6,449      5,626

Other 5

     4,753      2,520      924      549      590      1,288      10,624      6,534

Total

   $ 41,725    $ 42,291    $ 48,172    $ 29,988    $ 37,641    $ 82,230    $ 282,047    $ 279,022

Of which:

                       

Secured

   $ 990    $ 3,835    $ 3,993    $ 6,823    $ 13,031    $ 43,654    $ 72,326    $ 69,225

Unsecured

     40,735      38,456      44,179      23,165      24,610      38,576      209,721      209,797

Total

   $     41,725    $     42,291    $     48,172    $     29,988    $     37,641    $     82,230    $     282,047    $     279,022

 

1  

Includes fixed-term deposits from banks.

2  

Comprised of senior debt issued prior to September 23, 2018.

3  

Comprised of senior debt subject to conversion under the bank recapitalization "bail-in" regime. Excludes $677 million of structured notes subject to conversion under the bail-in regime.

4  

Subordinated notes and debentures are not considered wholesale funding as they may be raised primarily for capital management purposes.

5  

Includes fixed-term deposits from non-bank institutions (unsecured) of $10.6 billion (October 31, 2018 – $6.5 billion).

Excluding the Wholesale Banking mortgage aggregation business, the Bank's total mortgage-backed securities issuance for the three and six months ended

April 30, 2019, was $0.6 billion and $1.1 billion, respectively (three and six months ended April 30, 2018 – $0.7 billion and $1.3 billion, respectively). Other asset backed securities issuance for the three and six months ended April 30, 2019, was $1.4 billion (three and six months ended April 30, 2018 – $0.8 billion). The Bank also issued $5.9 billion of unsecured medium-term notes for the three and six months ended April 30, 2019 (three and six months ended April 30, 2018 – $1.8 billion and $6.5 billion, respectively). The total covered bonds issuance for the three and six months ended April 30, 2019, was $2.6 billion (three and six months ended April 30, 2018 – $1.9 billion and $2.8 billion, respectively).

REGULATORY DEVELOPMENTS CONCERNING LIQUIDITY AND FUNDING

In April 2019, OSFI published its final guidelines for Canadian application of Net Stable Funding Ratio (NSFR) as part of its Liquidity Adequacy Requirements (LAR). The NSFR requires that the ratio of available stable funding over required stable funding be greater than 100%. The NSFR is designed to reduce structural funding risk by requiring banks to have sufficient stable sources of funding and lower reliance on funding maturing in less than one year to support their businesses. OSFI implementation of NSFR for D-SIBs will be in January 2020 and the public disclosure requirement will begin in January 2021.

In April 2019, OSFI also published changes to the LAR guideline with an implementation date of January 2020. The changes increase reserve requirements on certain retail deposit types that, in the view of OSFI, may have higher risk of withdrawals in periods of stress. The regulation also introduces new monitoring requirements on the components of banks' funding profiles.

 

MATURITY ANALYSIS OF ASSETS, LIABILITIES, AND OFF-BALANCE SHEET COMMITMENTS

The following table summarizes on-balance sheet and off-balance sheet categories by remaining contractual maturity. Off-balance sheet commitments include contractual obligations to make future payments on operating capital lease commitments, certain purchase obligations, and other liabilities. The values of credit instruments reported in the following table represent the maximum amount of additional credit that the Bank could be obligated to extend should such instruments be fully drawn or utilized. Since a significant portion of guarantees and commitments are expected to expire without being drawn upon, the total of the contractual amounts is not representative of expected future liquidity requirements. These contractual obligations have an impact on the Bank's short-term and long-term liquidity and capital resource needs.

The maturity analysis presented does not depict the degree of the Bank's maturity transformation or the Bank's exposure to interest rate and liquidity risk. The Bank ensures that assets are appropriately funded to protect against borrowing cost volatility and potential reductions to funding market availability. The Bank utilizes stable non-maturity deposits (chequing and savings accounts) and term deposits as the primary source of long-term funding for the Bank's non-trading assets. The Bank also funds the stable balance of revolving lines of credit with long-term funding. The Bank issues long-term funding based primarily on the projected net growth of non-trading assets. The Bank raises short-term funding primarily to finance trading assets. The liquidity of trading assets under stressed market conditions is considered when determining the appropriate term of the related funding.

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 40  


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TABLE 41:  REMAINING CONTRACTUAL MATURITY

 

(millions of Canadian dollars)

    As at
    April 30, 2019
     Less than
1 month
    1 to 3
months
    3 to 6
months
    6 to 9
months
   

9 months

to 1 year

    Over 1 to
2 years
    Over 2 to
5 years
    Over
5 years
   

No

specific
maturity

    Total  

Assets

                                                                               

Cash and due from banks

  $ 5,007   $ 2   $     $     $     $     $     $     $     $ 5,009

Interest-bearing deposits with banks

    27,325     299     385                                   444     28,453

Trading loans, securities, and other 1

    2,517     3,675     2,919     2,392     3,338     9,466     25,282     21,519     61,697     132,805

Non-trading financial assets at fair value through profit or loss

    13     27     467           61     1,227     792     878     737     4,202

Derivatives

    3,988     6,008     3,097     3,312     1,882     5,890     9,330     10,117           43,624

Financial assets designated at fair value through profit or loss

    107     141     52     98     111     334     1,769     767           3,379

Financial assets at fair value through other comprehensive income

    2,078     5,541     4,252     2,927     5,451     20,887     50,072     32,021     1,880     125,109

Debt securities at amortized cost, net of allowance for credit losses

    1,599     2,219     4,396     3,391     1,820     5,886     39,035     53,199     (1     111,544

Securities purchased under reverse repurchase agreements

    100,567     26,640     14,251     5,243     3,242     6                       149,949

Loans

                   

Residential mortgages

    1,084     6,540     10,680     8,658     10,025     42,282     112,590     35,399           227,258

Consumer instalment and other personal

    977       2,192       3,416       3,270       3,838       15,628       57,159       26,956       61,272       174,708

Credit card

                                                    36,004     36,004

Business and government

    27,573     4,640     6,602     7,342     6,489     22,820     71,468     61,667     20,822     229,423

Total loans

    29,634       13,372       20,698       19,270       20,352       80,730       241,217       124,022       118,098       667,393

Allowance for loan losses

                                                    (3,778     (3,778

Loans, net of allowance for loan losses

    29,634       13,372       20,698       19,270       20,352       80,730       241,217       124,022       114,320       663,615

Customers' liability under acceptances

    13,703     2,340     130     10     6                             16,189

Investment in TD Ameritrade

                                                    9,027     9,027

Goodwill 2

                                                    17,232     17,232

Other intangibles 2

                                                    2,623     2,623

Land, buildings, equipment, and other depreciable assets 2

                                                    5,500     5,500

Deferred tax assets

                                                    2,136     2,136

Amounts receivable from brokers, dealers, and clients

    18,954                                                     18,954

Other assets

    3,411     916     348     130     2,669     206     226     97     9,235     17,238

Total assets

  $ 208,903     $ 61,180     $ 50,995     $ 36,773     $ 38,932     $ 124,632     $ 367,723     $ 242,620     $ 224,830     $ 1,356,588

Liabilities

                                                                               

Trading deposits

  $ 9,045   $ 10,551   $ 18,936   $ 6,883   $ 1,123   $ 1,732   $ 4,371   $ 1,333   $     $ 53,974

Derivatives

    4,458     5,896     3,534     3,323     1,810     5,068     7,578     10,532           42,199

Securitization liabilities at fair value

          703     272     587     413     1,479     6,993     2,291           12,738

Financial liabilities designated at fair value through profit or loss

    18,809     15,496     15,286     7,903     284                 5           57,783

Deposits 3,4

                   

Personal

    4,615     7,483     8,992     7,594     7,653     10,521     9,868     30     432,927     489,683

Banks

    5,422     1,599     765     1,387                 3     7     10,486     19,669

Business and government 5

    17,638     21,795     14,680     6,582     6,264     31,181     49,869     5,770     212,212     365,991

Total deposits

    27,675     30,877     24,437     15,563     13,917     41,702     59,740     5,807     655,625     875,343

Acceptances

    13,703     2,340     130     10     6                             16,189

Obligations related to securities sold short 1

    75     856     1,069     1,000     1,512     6,920     10,666     13,507     760     36,365

Obligations related to securities sold under repurchase agreements

    92,452     13,642     1,169     499     40     57     26                 107,885

Securitization liabilities at amortized cost

          503     572     511     1,277     1,976     5,911     3,270           14,020

Amounts payable to brokers, dealers, and clients

    19,323                                                     19,323

Insurance-related liabilities

    255     318     334     268     267     928     1,608     916     1,750     6,644

Other liabilities 6

    3,905     1,050     1,283     1,120     1,618     3,678     1,125     148     6,332     20,259

Subordinated notes and debentures

                                              8,968           8,968

Equity

                                                    84,898     84,898

Total liabilities and equity

  $     189,700   $     82,232   $     67,022   $     37,667   $     22,267   $     63,540   $     98,018   $     46,777   $     749,365   $     1,356,588

Off-balance sheet commitments

                   

Credit and liquidity commitments 7,8

  $ 19,270     $ 23,417   $ 17,106   $ 14,662   $ 13,522   $ 26,311   $ 105,994   $ 4,726   $ 1,316   $ 226,324  

Operating lease commitments

    81     164     245     244     242     928     2,320     3,553           7,777

Other purchase obligations

    49     116     144     181     178     532     794     738     58     2,790

Unconsolidated structured entity commitments

          1,051     826           97     998                       2,972

Total off-balance sheet commitments

  $ 19,400     $ 24,748   $ 18,321   $ 15,087   $ 14,039   $ 28,769   $ 109,108   $ 9,017   $ 1,374   $ 239,863  

 

  1  

Amount has been recorded according to the remaining contractual maturity of the underlying security.

  2  

For the purposes of this table, non-financial assets have been recorded as having 'no specific maturity'.

  3  

As the timing of demand deposits and notice deposits is non-specific and callable by the depositor, obligations have been included as having 'no specific maturity'.

  4  

Includes $39 billion of covered bonds with remaining contractual maturities of $3 billion in 'over 1 month to 3 months', $2 billion in 'over 3 months to 6 months', $1 billion in 'over 6 months to 9 months', $2 billion in 'over 9 months to 1 year', $6 billion in 'over 1 to 2 years', $23 billion in 'over 2 to 5 years', and $2 billion in 'over 5 years'.

  5  

On May 9, 2019, TD Capital Trust IV announced its intention to redeem all of the outstanding TD Capital Trust IV Notes – Series 1 on June 30, 2019.

  6  

Includes $92 million of capital lease commitments with remaining contractual maturities of $2 million in 'less than 1 month', $4 million in '1 month to 3 months', $6 million in '3 months to 6 months', $5 million in '6 months to 9 months', $5 million in '9 months to 1 year', $20 million in 'over 1 to 2 years', $47 million in 'over 2 to 5 years', and $3 million in 'over 5 years'.

  7  

Includes $316 million in commitments to extend credit to private equity investments.

  8  

Commitments to extend credit exclude personal lines of credit and credit card lines, which are unconditionally cancellable at the Bank's discretion at any time.

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 41  


Table of Contents

TABLE 41:  REMAINING CONTRACTUAL MATURITY (continued) 1

 

                                                                                                                                                                                   

(millions of Canadian dollars)

     As at
  

 

October 31, 2018

      Less than
1 month
     1 to 3
months
     3 to 6
months
     6 to 9
months
     9 months
to 1 year
    

Over 1 to

2 years

    

Over 2 to

5 years

    

Over

5 years

    

No

specific
maturity

    Total  

Assets

                                                                                        

Cash and due from banks

   $ 4,733    $ 2    $      $      $      $      $      $      $     $ 4,735

Interest-bearing deposits with banks

     28,332      924      154      21      16                           1,273     30,720

Trading loans, securities, and other 2

     1,971      5,244      2,111      3,653      3,998      9,683      25,772      25,895      49,570     127,897

Non-trading financial assets at fair value through profit or loss

            12      99      460      906      227      841      848      622     4,015

Derivatives

     7,343      9,263      5,275      3,276      2,321      7,130      12,436      9,952            56,996

Financial assets designated at fair value through profit or loss

     30      95      535      243      90      297      1,532      796            3,618

Financial assets at fair value through other comprehensive income

     1,111      4,214      4,150      5,354      3,962      19,777      57,922      31,936      2,174     130,600

Debt securities at amortized cost, net of allowance for credit losses

     881      2,577      3,010      3,594      4,059      8,103      34,032      50,990      (75     107,171

Securities purchased under reverse repurchase agreements

     77,612      30,047      14,426      3,807      1,458      29                          127,379

Loans

                            

Residential mortgages

     908      3,234      6,614      11,166      11,061      43,063      113,852      35,293            225,191

Consumer instalment and other personal

     753      1,332      2,628      3,724      4,131      14,313      56,632      26,321      62,245     172,079

Credit card

                                                             35,018     35,018

Business and government

     23,052      4,320      5,539      7,131      9,269      19,637      67,922      59,251      21,533     217,654

Total loans

     24,713      8,886      14,781      22,021      24,461      77,013      238,406      120,865      118,796     649,942

Allowance for loan losses

                                                             (3,549     (3,549

Loans, net of allowance for loan losses

     24,713      8,886      14,781      22,021      24,461      77,013      238,406      120,865      115,247     646,393

Customers' liability under acceptances

     14,984      2,145      132      6                                        17,267

Investment in TD Ameritrade

                                                             8,445     8,445

Goodwill 3

                                                             16,536     16,536

Other intangibles 3

                                                             2,459     2,459

Land, buildings, equipment, and other depreciable assets 3

                                                             5,324     5,324

Deferred tax assets

                                                             2,812     2,812

Amounts receivable from brokers, dealers, and clients

     26,940                                                             26,940

Other assets

     3,432      854      1,926      120      142      136      301      90      8,595     15,596

Total assets

   $ 192,082    $ 64,263    $ 46,599    $ 42,555    $ 41,413    $ 122,395    $ 371,242    $ 241,372    $ 212,982   $ 1,334,903

Liabilities

                                                                                        

Trading deposits

   $ 16,145    $ 37,337    $ 31,081    $ 12,954    $ 11,739    $ 1,183    $ 3,260    $ 1,005    $     $ 114,704

Derivatives

     6,195      8,684      4,230      3,103      2,263      5,510      9,282      9,003            48,270

Securitization liabilities at fair value

            981      194      661      272      1,822      6,719      1,969            12,618

Financial liabilities designated at fair value through profit or loss

     10      5                                         1            16

Deposits 4,5

                            

Personal

     4,330      7,094      7,541      6,245      7,718      10,222      9,876      38      424,580     477,644

Banks

     6,499      1,941      255      24      54             3      8      7,928     16,712

Business and government

     18,840      19,337      7,033      9,984      11,299      21,345      54,780      8,000      206,465     357,083

Total deposits

     29,669      28,372      14,829      16,253      19,071      31,567      64,659      8,046      638,973     851,439

Acceptances

     14,986      2,145      132      6                                        17,269

Obligations related to securities sold short 2

     2,621      3,679      1,500      387      904      4,330      13,771      11,474      812     39,478

Obligations related to securities sold under repurchase agreements

     73,759      15,508      3,516      428      108      43      27                   93,389

Securitization liabilities at amortized cost

     22      1,240      625      503      575      2,496      6,232      2,990            14,683

Amounts payable to brokers, dealers, and clients

     28,385                                                             28,385

Insurance-related liabilities

     213      294      353      309      310      937      1,624      903      1,755     6,698

Other liabilities 6

     2,916      2,631      538      1,326      1,394      2,205      2,308      152      5,704     19,174

Subordinated notes and debentures

                                                      8,740            8,740

Equity

                                                             80,040     80,040

Total liabilities and equity

   $ 174,921    $ 100,876    $ 56,998    $ 35,930    $ 36,636    $ 50,093    $ 107,882    $ 44,283    $ 727,284   $ 1,334,903

Off-balance sheet commitments

                            

Credit and liquidity commitments 7,8

   $ 18,341    $ 16,732    $ 17,222    $ 13,105    $ 9,159    $ 25,720    $ 101,210    $ 5,260    $ 1,293   $ 208,042

Operating lease commitments

     79      159      240      237      233      902      2,188      3,229            7,267

Other purchase obligations

     46      163      131      128      127      460      898      524            2,477

Unconsolidated structured entity commitments

            1,079      940      329             7      408                   2,763

Total off-balance sheet commitments

   $ 18,466    $ 18,133    $ 18,533    $ 13,799    $ 9,519    $ 27,089    $ 104,704    $ 9,013    $ 1,293   $ 220,549

 

  1  

Certain comparative amounts have been recast to conform with the presentation adopted in the current period.

  2  

Amount has been recorded according to the remaining contractual maturity of the underlying security.

  3  

For the purposes of this table, non-financial assets have been recorded as having 'no specific maturity'.

  4  

As the timing of demand deposits and notice deposits is non-specific and callable by the depositor, obligations have been included as having 'no specific maturity'.

  5  

Includes $36 billion of covered bonds with remaining contractual maturities of $1 billion in '3 months to 6 months', $3 billion in '6 months to 9 months', $2 billion in '9 months to 1 year', $5 billion in 'over 1 to 2 years', $22 billion in 'over 2 to 5 years', and $3 billion in 'over 5 years'.

  6  

Includes $60 million of capital lease commitments with remaining contractual maturities of $2 million in 'less than 1 month', $5 million in '1 month to 3 months', $7 million in '3 months to 6 months', $6 million in '6 months to 9 months', $6 million in '9 months to 1 year', $12 million in 'over 1 to 2 years', $17 million in 'over 2 to 5 years', and $5 million in 'over 5 years'.

  7  

Includes $205 million in commitments to extend credit to private equity investments.

  8  

Commitments to extend credit exclude personal lines of credit and credit card lines, which are unconditionally cancellable at the Bank's discretion at any time.

 

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SECURITIZATION AND OFF-BALANCE SHEET ARRANGEMENTS

The Bank enters into securitization and off-balance sheet arrangements in the normal course of operations. The Bank is involved with structured entities that it sponsors, as well as entities sponsored by third-parties. Refer to "Securitization and Off-Balance Sheet Arrangements" section, Note 9: Transfers of Financial Assets and Note 10: Structured Entities of the Bank's 2018 Annual Report for further details. There have been no significant changes to the Bank's securitization and off-balance sheet arrangements during the quarter ended April 30, 2019.

Securitization of Bank-Originated Assets

The Bank securitizes residential mortgages, business and government loans, credit cards, and personal loans to enhance its liquidity position, to diversify sources of funding, and to optimize the management of the balance sheet.

Residential Mortgage Loans

The Bank securitizes residential mortgage loans through significant unconsolidated special purpose entities (SPEs) and Canadian non-SPE third parties. Residential mortgage loans securitized by the Bank may give rise to full derecognition of the financial assets depending on the individual arrangement of each transaction. In instances where the Bank fully derecognizes residential mortgage loans, the Bank may be exposed to the risks of transferred loans through retained interests.

Consumer Instalment and Other Personal Loans

The Bank securitizes consumer instalment and other personal loans through a consolidated SPE. The Bank consolidates the SPE as it serves as a financing vehicle for the Bank's assets, the Bank has power over the key economic decisions of the SPE, and the Bank is exposed to the majority of the residual risks of the SPE.

Credit Card Loans

The Bank securitizes credit card loans through a SPE. The Bank consolidates the SPE as it serves as a financing vehicle for the Bank's assets, the Bank has power over the key economic decisions of the SPE, and the Bank is exposed to the majority of the residual risks of the SPE.

Business and Government Loans

The Bank securitizes business and government loans through significant unconsolidated SPEs and Canadian non-SPE third parties. Business and government loans securitized by the Bank may be derecognized from the Bank's balance sheet depending on the individual arrangement of each transaction. In instances where the Bank fully derecognizes business and government loans, the Bank may be exposed to the risks of transferred loans through retained interests. There are no ECLs on the retained interests of the securitized business and government loans as the mortgages are all government insured.

Securitization of Third Party-Originated Assets

Significant Unconsolidated Special Purpose Entities

Multi-Seller Conduits

The Bank administers multi-seller conduits and provides liquidity facilities as well as securities distribution services; it may also provide credit enhancements. Third party-originated assets are securitized through Bank-sponsored SPEs, which are not consolidated by the Bank. The Bank's maximum potential exposure to loss due to its ownership interest in commercial paper and through the provision of liquidity facilities for multi-seller conduits was $10.6 billion as at April 30, 2019 (October 31, 2018 – $10.4 billion). Further, as at April 30, 2019, the Bank had committed to provide an additional $3 billion in liquidity facilities that can be used to support future asset-backed commercial paper in the purchase of deal-specific assets (October 31, 2018 – $2.8 billion).

All third-party assets securitized by the Bank's unconsolidated multi-seller conduits were originated in Canada and sold to Canadian securitization structures.

Off-Balance Sheet Exposure to Third Party-Sponsored Conduits

The Bank has off-balance sheet exposure to third party-sponsored conduits arising from providing liquidity facilities and funding commitments of $3.8 billion as at April 30, 2019 (October 31, 2018 – $3.0 billion). The assets within these conduits are comprised of individual notes backed by automotive loan receivables, credit card receivables, equipment receivables and trade receivables. As at April 30, 2019, these assets have maintained ratings from various credit rating agencies, with a minimum rating of A. On-balance sheet exposure to third party-sponsored conduits have been included in the financial statements.

 

 

ACCOUNTING POLICIES AND ESTIMATES

The Bank's unaudited Interim Consolidated Financial Statements have been prepared in accordance with IFRS. For details of the Bank's accounting policies under IFRS, refer to Note 2 of the Bank's second quarter 2019 Interim Consolidated Financial Statements and the 2018 Annual Consolidated Financial Statements. For details of the Bank's significant accounting judgments, estimates, and assumptions under IFRS, refer to Note 3 of the Bank's 2018 Annual Consolidated Financial Statements.

CURRENT CHANGES IN ACCOUNTING POLICY

The following new standards have been adopted by the Bank on November 1, 2018.

Revenue from Contracts with Customers

On November 1, 2018, the Bank adopted IFRS 15, Revenue from Contracts with Customers (IFRS 15), which establishes the principles for recognizing revenue and cash flows arising from contracts with customers and prescribes the application of a five-step recognition and measurement model. The standard excludes from its scope, revenue arising from items such as financial instruments, insurance contracts, and leases. The Bank adopted the standard on a modified retrospective basis, recognizing the cumulative effect of initially applying the standard as an adjustment to opening retained earnings without restating comparative period financial information.

The adoption of IFRS 15 resulted in a reduction to Shareholders' Equity of $41 million related to certain expenses not eligible for deferral under IFRS 15. The presentation of certain revenue and expense items is changed due to IFRS 15 and reclassified prospectively. These presentation changes are not significant and do not have an impact on net income.

 

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In addition to the above changes related to the adoption of IFRS 15, the Bank also changed its accounting policy on securities lending and borrowing transactions. Where securities are received or pledged as collateral, securities lending income and securities borrowing fees are recorded in Non-interest income and Non-interest expenses, respectively on the Interim Consolidated Statement of Income. This change has been applied retrospectively.

Revenue Recognition

Revenue is recognized at an amount that reflects the consideration the Bank expects to be entitled to in exchange for transferring services to a customer, excluding amounts collected on behalf of third parties. The Bank recognizes revenue when it transfers control of a good or a service to a customer at a point in time or over time. The determination of when performance obligations are satisfied requires the use of judgment. Refer to Note 3 for further details.

The Bank identifies contracts with customers subject to IFRS 15, which create enforceable rights and obligations. The Bank determines the performance obligations based on distinct services promised to the customers in the contracts. The Bank's contracts generally have a term of one year or less, consist of a single performance obligation, and the performance obligations generally reflect services.

For each contract, the Bank determines the transaction price, which includes estimating variable consideration and assessing whether the price is constrained. Variable consideration is included in the transaction price to the extent that it is highly probable that a significant reversal of the amount will not occur when the uncertainty associated with the amount of variable consideration is subsequently resolved. As such, the estimate of the variable consideration is constrained until the end of the invoicing period. The uncertainty is generally resolved at the end of the reporting period and as such, no significant judgment is required when recognizing variable consideration in revenues.

The Bank's receipt of payment from customers generally occurs subsequent to the satisfaction of performance obligations or a short time thereafter. As such, the Bank has not recognized any material contract assets (unbilled receivables) or contract liabilities (deferred revenues) and there is no significant financing component associated with the consideration due to the Bank.

When another party is involved in the transfer of services to a customer, an assessment is made to evaluate whether the Bank is the principal such that revenues are reported on a gross basis or the agent such that revenues are reported on a net basis. The Bank is the principal when it controls the services in the contract promised to the customer before they are transferred. Control is demonstrated by the Bank being primarily responsible for fulfilling the transfer of the services to the customer, having discretion in establishing pricing of the services, or both.

Refer to Note 2 of the Bank's 2018 Annual Consolidated Financial Statements for additional revenue policy disclosures.

Share-based Payment

In June 2016, the IASB published amendments to IFRS 2, Share-based Payment (IFRS 2), which provide additional guidance on the classification and measurement of share-based payment transactions. The amendments clarify the accounting for cash-settled share-based payment transactions that include a performance condition, the classification of share-based payment transactions with net settlement features for withholding tax obligations, and the accounting for modifications of share-based payment transactions from cash-settled to equity-settled. The amendments to IFRS 2 are effective for annual periods beginning on or after January 1, 2018, which was November 1, 2018 for the Bank. These amendments have been applied prospectively and did not have a significant impact on the Bank.

FUTURE CHANGES IN ACCOUNTING POLICIES

The following standards have been issued, but are not yet effective on the date of issuance of the Bank's Interim Consolidated Financial Statements. The Bank is currently assessing the impact of the application of these standards on the Interim Consolidated Financial Statements and will adopt these standards when they become effective.

Leases

In January 2016, the IASB issued IFRS 16, Leases (IFRS 16), which will replace IAS 17, Leases , introducing a single lessee accounting model for all leases by eliminating the distinction between operating and financing leases. IFRS 16 requires lessees to recognize right-of-use assets and lease liabilities for most leases on the balance sheet. Lessees will also recognize depreciation expense on the right-of-use asset, interest expense on the lease liability, and a shift in the timing of expense recognition in the statement of income. Short-term leases, which are defined as those that have a lease term of twelve months or less, and leases of low-value assets are exempt. Lessor accounting remains substantially unchanged. IFRS 16 is effective for annual periods beginning on or after January 1, 2019, which will be November 1, 2019 for the Bank. The Bank will adopt the new standard by recognizing the cumulative effect of any transitional impacts in opening retained earnings within the Consolidated Balance Sheet at November 1, 2019, with no restatement of the comparative periods. The Bank's IFRS 16 program is governed by a formal multi-functional enterprise-wide governance structure and project delivery plan. In support of the program, the Bank is currently analyzing the full impact of this standard upon its financial statements and regulatory metrics, upgrading its lease administration and accounting systems, and developing future processes and internal controls over financial reporting.

Insurance Contracts

In May 2017, the IASB issued IFRS 17, Insurance Contracts (IFRS 17), which replaces the guidance in IFRS 4, Insurance Contracts and establishes principles for recognition, measurement, presentation, and disclosure of insurance contracts. IFRS 17 is currently effective for the Bank's annual reporting period beginning November 1, 2021; however, based on recent IASB meetings, an upcoming amendment to IFRS 17 and a deferral of the effective date by one year is anticipated. Any change to the Bank's effective date is subject to updates of OSFI's related Advisory. The Bank is currently assessing the impact of adopting this standard.

Conceptual Framework for Financial Reporting

In March 2018, the IASB issued the revised Conceptual Framework for Financial Reporting (Revised Conceptual Framework), which provides a set of concepts to assist the IASB in developing standards and to help preparers consistently apply accounting policies where specific accounting standards do not exist. The framework is not an accounting standard and does not override the requirements that exist in other IFRS standards. The Revised Conceptual Framework describes that financial information must be relevant and faithfully represented to be useful, provides revised definitions and recognition criteria for assets and liabilities, and confirms that different measurement bases are useful and permitted. The Revised Conceptual Framework is effective for annual periods beginning on or after January 1, 2020, which will be November 1, 2020 for the Bank, with early adoption permitted. The Bank is currently assessing the impact of adopting the revised framework.

 

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Business Combinations

In October 2018, the IASB issued a narrow-scope amendment to IFRS 3, Business Combinations (IFRS 3). The amendments provide additional guidance on the definition of a business which determines whether an acquisition is of a business or a group of assets. An acquirer recognizes goodwill only when acquiring a business, not when acquiring a group of assets. The amendments to IFRS 3 are effective for annual reporting periods beginning on or after January 1, 2020, which will be November 1, 2020 for the Bank, with early adoption permitted and is to be applied prospectively. The Bank will assess the impact of the amendments on future acquisitions.

Presentation of Financial Statements and Accounting Policies, Changes in Accounting Estimates and Errors

In October 2018, the IASB issued amendments to IAS 1, Presentation of Financial Statements and IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors which clarify the definition of "material". Specifically, the amendments clarify that information is material if omitting, misstating, or obscuring it could reasonably be expected to influence the decisions that the primary users of general purpose financial statements make on the basis of those financial statements. Accompanying explanations to the definition have also been improved. The amendments are effective for annual periods beginning on or after January 1, 2020, which will be November 1, 2020 for the Bank, and are to be applied prospectively with early application permitted. The Bank is currently assessing the impact of adopting these amendments.

 

 

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

During the most recent interim period, there have been no changes in the Bank's policies and procedures and other processes that comprise its internal control over financial reporting, that have materially affected, or are reasonably likely to materially affect, the Bank's internal control over financial reporting.

 

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INTERIM CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

INTERIM CONSOLIDATED BALANCE SHEET (unaudited)               
(As at and in millions of Canadian dollars)    April 30, 2019     October 31, 2018  

ASSETS

                

Cash and due from banks

   $ 5,009   $ 4,735  

Interest-bearing deposits with banks

     28,453     30,720  
       33,462     35,455  

Trading loans, securities, and other (Note 4)

     132,805     127,897  

Non-trading financial assets at fair value through profit or loss (Note 4)

     4,202     4,015  

Derivatives (Note 4)

     43,624     56,996  

Financial assets designated at fair value through profit or loss (Note 4)

     3,379     3,618  

Financial assets at fair value through other comprehensive income (Notes 4, 5, 6)

     125,109     130,600  
       309,119     323,126  

Debt securities at amortized cost, net of allowance for credit losses (Notes 4, 5)

     111,544     107,171  

Securities purchased under reverse repurchase agreements (Note 4)

     149,949     127,379  

Loans (Notes 4, 6)

    

Residential mortgages

     227,258     225,191  

Consumer instalment and other personal

     174,708     172,079  

Credit card

     36,004     35,018  

Business and government

     229,423     217,654  
       667,393     649,942  

Allowance for loan losses (Note 6)

     (3,778     (3,549

Loans, net of allowance for loan losses

     663,615     646,393  

Other

    

Customers' liability under acceptances

     16,189     17,267  

Investment in TD Ameritrade (Note 7)

     9,027     8,445  

Goodwill (Note 9)

     17,232     16,536  

Other intangibles

     2,623     2,459  

Land, buildings, equipment, and other depreciable assets

     5,500     5,324  

Deferred tax assets (Note 16)

     2,136     2,812  

Amounts receivable from brokers, dealers, and clients

     18,954     26,940  

Other assets (Note 10)

     17,238     15,596  
       88,899     95,379  

Total assets

   $ 1,356,588   $ 1,334,903  

LIABILITIES

                

Trading deposits (Notes 4, 11)

   $ 53,974   $ 114,704  

Derivatives (Note 4)

     42,199     48,270  

Securitization liabilities at fair value (Note 4)

     12,738     12,618  

Financial liabilities designated at fair value through profit or loss (Notes 4, 11)

     57,783     16  
       166,694     175,608  

Deposits (Note 11)

    

Personal

     489,683     477,644  

Banks

     19,669     16,712  

Business and government

     365,991     357,083  
       875,343     851,439  

Other

    

Acceptances

     16,189     17,269  

Obligations related to securities sold short (Note 4)

     36,365     39,478  

Obligations related to securities sold under repurchase agreements (Note 4)

     107,885     93,389  

Securitization liabilities at amortized cost (Note 4)

     14,020     14,683  

Amounts payable to brokers, dealers, and clients

     19,323     28,385  

Insurance-related liabilities

     6,644     6,698  

Other liabilities (Note 12)

     20,259     19,174  
       220,685     219,076  

Subordinated notes and debentures (Note 4)

     8,968     8,740  

Total liabilities

     1,271,690     1,254,863  

EQUITY

                

Shareholders ' Equity

    

Common shares (Note 13)

     21,718     21,221  

Preferred shares (Note 13)

     5,350     5,000  

Treasury shares – common (Note 13)

     (49     (144

Treasury shares – preferred (Note 13)

     (6     (7

Contributed surplus

     162     193  

Retained earnings

     47,980     46,145  

Accumulated other comprehensive income (loss)

     9,743     6,639  
       84,898     79,047  

Non-controlling interests in subsidiaries (Note 13)

           993  

Total equity

     84,898     80,040  

Total liabilities and equity

   $ 1,356,588   $ 1,334,903  

The accompanying Notes are an integral part of these Interim Consolidated Financial Statements.

Certain comparative amounts have been reclassified to conform with the presentation adopted in the current period.

 

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INTERIM CONSOLIDATED STATEMENT OF INCOME (unaudited)

(millions of Canadian dollars, except as noted)    For the three months ended      For the six months ended  
      April 30 2019     April 30 2018      April 30 2019     April 30 2018  

Interest income 1  

         

Loans

   $ 7,745   $ 6,618    $ 15,647   $ 13,087

Securities

         

    Interest

     1,954     1,541      4,074     2,995

    Dividends

     384     267      718     513

Deposits with banks

     190     183      378     322
       10,273     8,609      20,817     16,917

Interest expense (Note 20)

         

Deposits

     3,349     2,404      6,873     4,513

Securitization liabilities

     129     143      280     282

Subordinated notes and debentures

     93     80      188     172

Other

     830     584      1,744     1,122
       4,401     3,211      9,085     6,089

Net interest income

     5,872     5,398      11,732     10,828

Non-interest income

         

Investment and securities services

     1,249     1,120      2,413     2,291

Credit fees

     331     292      634     574

Net securities gain (loss) (Note 5)

     35     33      24     36

Trading income (loss)

     237     318      412     605

Income (loss) from non-trading financial instruments at fair value through profit or loss

     73     5      84     18

Income (loss) from financial instruments designated at fair value through profit or loss

     53     (36      89     (111

Service charges

     692     652      1,406     1,323

Card services

     614     550      1,257     1,145

Insurance revenue

     1,035     1,024      2,070     1,968

Other income (loss)

     37     126      105     180
       4,356     4,084      8,494     8,029

Total revenue

     10,228     9,482      20,226     18,857

Provision for credit losses (Note 6)

     633     556      1,483     1,249

Insurance claims and related expenses

     668     558      1,370     1,133

Non-interest expenses

         

Salaries and employee benefits (Note 15)

     2,799     2,497      5,651     5,057

Occupancy, including depreciation

     454     437      914     879

Equipment, including depreciation

     282     265      561     510

Amortization of other intangibles

     199     216      394     412

Marketing and business development

     206     184      366     340

Restructuring charges (recovery)

     (5     (7      (6     38

Brokerage-related and sub-advisory fees

     83     90      166     184

Professional and advisory services

     320     248      647     487

Other

     910     907      2,410     1,791
       5,248     4,837      11,103     9,698

Income before income taxes and equity in net income of an investment in TD Ameritrade

     3,679     3,531      6,270     6,777

Provision for (recovery of) income taxes (Note 16)

     773     746      1,276     1,786

Equity in net income of an investment in TD Ameritrade (Note 7)

     266     131      588     278

Net income

     3,172     2,916      5,582     5,269

Preferred dividends

     62     52      122     104

Net income available to common shareholders and non-controlling interests in subsidiaries

   $ 3,110   $ 2,864    $ 5,460   $ 5,165

Attributable to:

         

    Common shareholders

   $ 3,110   $ 2,846    $ 5,442   $ 5,129

    Non-controlling interests in subsidiaries

           18      18     36

Earnings per share (Canadian dollars) (Note 17)

         

Basic

   $ 1.70   $ 1.54    $ 2.97   $ 2.78

Diluted

     1.70     1.54      2.97     2.78

Dividends per common share (Canadian dollars)

     0.74     0.67      1.41     1.27

1 Includes $8,554 million and $17,239 million, respectively, for the three and six months ended April 30, 2019 (three and six months ended April 30, 2018 – $7,310 million and $14,411 million, respectively) which have been calculated based on the effective interest rate method. Refer to Note 20.

The accompanying Notes are an integral part of these Interim Consolidated Financial Statements.

Certain comparative amounts have been recast to conform with the presentation adopted in the current period.

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 47  


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INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 1 (unaudited)

(millions of Canadian dollars)    For the three months ended     For the six months ended  
      April 30
2019
    April 30
2018
    April 30
2019
    April 30
2018
 

Net income

     $  3,172     $  2,916     $  5,582     $  5,269

Other comprehensive income (loss), net of income taxes

        

Items that will be subsequently reclassified to net income

        

Net change in unrealized gains (losses) on financial assets at fair value through other comprehensive income

        

Change in unrealized gains (losses) on debt securities at fair value through other comprehensive income

     63     (167     96     (161

Reclassification to earnings of net losses (gains) in respect of debt securities at fair value through other comprehensive income

     (26     (3     14     (5

Reclassification to earnings of changes in allowance for credit losses on debt securities at fair value through other comprehensive income

     (2     12     (2     16
       35     (158     108     (150

Net change in unrealized foreign currency translation gains (losses) on investments in foreign operations, net of hedging activities

        

Unrealized gains (losses) on investments in foreign operations

     1,358     2,791     1,227     (295

Net gains (losses) on hedges of investments in foreign operations

     (338     (763     (319     78
       1,020     2,028     908     (217

Net change in gains (losses) on derivatives designated as cash flow hedges

        

Change in gains (losses) on derivatives designated as cash flow hedges

     1,339     393     2,654     (2,002

Reclassification to earnings of losses (gains) on cash flow hedges

     (600     (814     (470     335
       739     (421     2,184     (1,667

Items that will not be subsequently reclassified to net income

        

Actuarial gains (losses) on employee benefit plans

     (122     53     (424     73

Change in net unrealized gains (losses) on equity securities designated at fair value through other comprehensive income

     (32     2     (84     28

Change in fair value due to credit risk on financial liabilities designated at fair value through profit or loss

     (2           (12      
       (156     55     (520     101

Total other comprehensive income (loss), net of income taxes

     1,638     1,504     2,680     (1,933

Total comprehensive income (loss)

     $  4,810     $  4,420     $  8,262     $  3,336

Attributable to:

        

Common shareholders

     $  4,748     $  4,350     $  8,122     $  3,196

Preferred shareholders

     62     52     122     104

Non-controlling interests in subsidiaries

           18     18     36

1 The amounts are net of income tax provisions (recoveries) presented in the following table.

 

Income Tax Provisions (Recoveries) in the Interim Consolidated Statement of Comprehensive Income  
(millions of Canadian dollars)    For the three months ended      For the six months ended  
      April 30
2019
    April 30
2018
     April 30
2019
    April 30
2018
 

Change in unrealized gains (losses) on debt securities at fair value through other comprehensive income

     $      21     $    (56      $      28     $  (113

Less: Reclassification to earnings of net losses (gains) in respect of debt securities at fair value through other comprehensive income

     9            (6     1

Less: Reclassification to earnings of changes in allowance for credit losses on debt securities at fair value through other comprehensive income

           (4            (4

Unrealized gains (losses) on investments in foreign operations

                         

Net gains (losses) on hedges of investments in foreign operations

     (122     (275      (115     29

Change in gains (losses) on derivatives designated as cash flow hedges

     597     361      1,032     (685

Less: Reclassification to earnings of losses (gains) on cash flow hedges

     334     503      258     (73

Actuarial gains (losses) on employee benefit plans

     (44     20      (153     44

Change in net unrealized gains (losses) on equity securities designated at fair value through other comprehensive income

     (12     2      (31     16

Change in fair value due to credit risk on financial liabilities designated at fair value through profit or loss

     (1            (5      

Total income taxes

     $      96     $    (447      $    504     $  (633

The accompanying Notes are an integral part of these Interim Consolidated Financial Statements.

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 48  


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INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (unaudited)

(millions of Canadian dollars)    For the three months ended     For the six months ended  
      April 30, 2019     April 30, 2018     April 30, 2019     April 30, 2018  

Common shares (Note 13)

        

Balance at beginning of period

   $ 21,661   $ 21,094   $ 21,221   $ 20,931

Proceeds from shares issued on exercise of stock options

     24     24     52     96

Shares issued as a result of dividend reinvestment plan

     98     92     197     183

Shares issued in connection with acquisitions (Notes 8, 13)

                 366      

Purchase of shares for cancellation and other

     (65     (7     (118     (7

Balance at end of period

     21,718     21,203     21,718     21,203

Preferred shares (Note 13)

        

Balance at beginning of period

     5,350     4,750     5,000     4,750

Issue of shares

           350     350     350

Balance at end of period

     5,350     5,100     5,350     5,100

Treasury shares – common (Note 13)

        

Balance at beginning of period

     (139     (92     (144     (176

Purchase of shares

     (2,855     (1,691     (5,198     (3,590

Sale of shares

     2,945     1,675     5,293     3,658

Balance at end of period

     (49     (108     (49     (108

Treasury shares – preferred (Note 13)

        

Balance at beginning of period

     (3     (9     (7     (7

Purchase of shares

     (36     (48     (69     (79

Sale of shares

     33     52     70     81

Balance at end of period

     (6     (5     (6     (5

Contributed surplus

        

Balance at beginning of period

     158     229     193     214

Net premium (discount) on sale of treasury shares

     6     (34     (26     (10

Issuance of stock options, net of options exercised

     (1     (1     (2     (9

Other

     (1           (3     (1

Balance at end of period

     162     194     162     194

Retained earnings

        

Balance at beginning of period

     46,660     41,744     46,145     40,489

Impact on adoption of IFRS 15 1 (Note 2)

           n/a 2       (41     n/a

Impact on adoption of IFRS 9 3

                       53

Net income attributable to shareholders

     3,172     2,898     5,564     5,233

Common dividends

     (1,350     (1,239     (2,577     (2,341

Preferred dividends

     (62     (52     (122     (104

Share issue expenses and others

           (4     (4     (4

Net premium on repurchase of common shares, redemption of preferred shares, and other

     (350     (37     (610     (37

Actuarial gains (losses) on employee benefit plans

     (122     53     (424     73

Realized gains (losses) on equity securities designated at fair value through other comprehensive income

     32           49     1

Balance at end of period

     47,980     43,363     47,980     43,363

Accumulated other comprehensive income (loss)

        

Net unrealized gain (loss) on debt securities at fair value through other comprehensive income:

        

Balance at beginning of period

     318     537     245     510

Impact on adoption of IFRS 9

                       19

Other comprehensive income (loss)

     37     (170     110     (166

Allowance for credit losses

     (2     12     (2     16

Balance at end of period

     353     379     353     379

Net unrealized gain (loss) on equity securities designated at fair value through other comprehensive income:

        

Balance at beginning of period

     3     43     55     113

Impact on adoption of IFRS 9

                       (96

Other comprehensive income (loss)

           2     (35     29

Reclassification of loss (gain) to retained earnings

     (32           (49     (1

Balance at end of period

     (29     45     (29     45

Change in fair value due to credit risk on financial liabilities designated at fair value through profit or loss:

        

Balance at beginning of period

     (10                  

Other comprehensive income (loss)

     (2           (12      

Balance at end of period

     (12           (12      

Net unrealized foreign currency translation gain (loss) on investments in foreign operations, net of hedging activities:

        

Balance at beginning of period

     8,714     5,546     8,826     7,791

Other comprehensive income (loss)

     1,020     2,028     908     (217

Balance at end of period

     9,734     7,574     9,734     7,574

Net gain (loss) on derivatives designated as cash flow hedges:

        

Balance at beginning of period

     (1,042     (1,654     (2,487     (408

Other comprehensive income (loss)

     739     (421     2,184     (1,667

Balance at end of period

     (303     (2,075     (303     (2,075

Total accumulated other comprehensive income

     9,743     5,923     9,743     5,923

Total shareholders ' equity

     84,898     75,670     84,898     75,670

Non-controlling interests in subsidiaries (Note 13)

        

Balance at beginning of period

           986     993     983

Net income attributable to non-controlling interests in subsidiaries

           18     18     36

Redemption of non-controlling interests in subsidiaries

                 (1,000      

Other

           (12     (11     (27

Balance at end of period

           992           992

Total equity

   $ 84,898   $ 76,662   $ 84,898   $ 76,662

1 IFRS 15, Revenue from Contracts with Customers (IFRS 15).

2 Not applicable.

3 IFRS 9, Financial Instruments (IFRS 9).

The accompanying Notes are an integral part of these Interim Consolidated Financial Statements.

 

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INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)

(millions of Canadian dollars)    For the three months ended     For the six months ended  
      April 30
2019
    April 30
2018
    April 30
2019
    April 30
2018
 

Cash flows from (used in) operating activities

        

Net income before income taxes, including equity in net income of an investment in TD Ameritrade

   $         3,945     $         3,662   $         6,858     $         7,055

Adjustments to determine net cash flows from (used in) operating activities

        

Provision for credit losses (Note 6)

     633       556     1,483       1,249

Depreciation

     145       140     289       277

Amortization of other intangibles

     199       216     394       412

Net securities losses (gains) (Note 5)

     (35     (33     (24     (36

Equity in net income of an investment in TD Ameritrade (Note 7)

     (266     (131     (588     (278

Deferred taxes

     (91     (136     50       544

Changes in operating assets and liabilities

        

Interest receivable and payable (Notes 10, 12)

     63       (27     (13     (89

Securities sold under repurchase agreements

     13,123       12,229     14,496       7,586

Securities purchased under reverse repurchase agreements

     (17,519     (16,314     (22,570     (6,485

Securities sold short

     (2,525     238     (3,113     1,923

Trading loans and securities

     (10,735     (2,142     (4,908     (10,185

Loans net of securitization and sales

     (15,762     (15,359     (18,646     (20,136

Deposits

     (2,580     25,923     (36,826     20,430

Derivatives

     1,004       (5,214     7,301       (2,212

Non-trading financial assets at fair value through profit or loss

     (327     417     (96     5,185

Financial assets and liabilities designated at fair value through profit or loss

     31,279       (149     58,006       (282

Securitization liabilities

     478       16     (543     (1,204

Current taxes

     (66     (1,260     (830     (1,101

Brokers, dealers and clients amounts receivable and payable

     1,102       (85     (1,076     (871

Other

     (3,733     (8,691     (4,619     (5,695

Net cash from (used in) operating activities

     (1,668     (6,144     (4,975     (3,913

Cash flows from (used in) financing activities

        

Redemption or repurchase of subordinated notes and debentures

     (21     31     23       (1,819

Common shares issued (Note 13)

     20       20     44       81

Repurchase of common shares (Note 13)

     (415     (44     (728     (44

Preferred shares issued (Note 13)

           346     346       346

Sale of treasury shares (Note 13)

     2,984       1,693     5,337       3,729

Purchase of treasury shares (Note 13)

     (2,891     (1,739     (5,267     (3,669

Dividends paid

     (1,314     (1,199     (2,502     (2,262

Redemption of non-controlling interests in subsidiaries (Note 13)

                 (1,000      

Distributions to non-controlling interests in subsidiaries

           (18     (11     (36

Net cash from (used in) financing activities

     (1,637     (910     (3,758     (3,674

Cash flows from (used in) investing activities

        

Interest-bearing deposits with banks

     3,218       8,506     2,267       14,798

Activities in financial assets at fair value through other comprehensive income (Note 5)

        

Purchases

     (6,992     (3,362     (11,351     (8,361

Proceeds from maturities

     8,269       7,682     15,854       14,120

Proceeds from sales

     2,444       731     4,914       1,171

Activities in debt securities at amortized cost (Note 5)

        

Purchases

     (8,593     (13,166     (14,570     (23,844

Proceeds from maturities

     5,804       6,886     11,707       9,889

Proceeds from sales

     16       201     1,132       201

Net purchases of land, buildings, equipment, and other depreciable assets

     (292     (225     (465     (151

Net cash acquired from (paid for) divestitures and acquisitions (Note 8)

                 (536      

Net cash from (used in) investing activities

     3,874       7,253     8,952       7,823

Effect of exchange rate changes on cash and due from banks

     59       102     55       (10

Net increase (decrease) in cash and due from banks

     628       301     274       226

Cash and due from banks at beginning of period

     4,381       3,896     4,735       3,971

Cash and due from banks at end of period

   $ 5,009     $ 4,197   $ 5,009     $ 4,197

Supplementary disclosure of cash flows from operating activities

        

Amount of income taxes paid (refunded) during the period

   $ 783     $ 1,816   $ 1,950     $ 2,417

Amount of interest paid during the period

     4,290       3,103     8,995       6,025

Amount of interest received during the period

     9,841       8,207     19,996       16,251

Amount of dividends received during the period

     323       230     679       493

The accompanying Notes are an integral part of these Interim Consolidated Financial Statements.

Certain comparative amounts have been reclassified to conform with the presentation adopted in the current period.

 

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NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

NOTE 1:  NATURE OF OPERATIONS

CORPORATE INFORMATION

The Toronto-Dominion Bank is a bank chartered under the Bank Act . The shareholders of a bank are not, as shareholders, liable for any liability, act, or default of the bank except as otherwise provided under the Bank Act . The Toronto-Dominion Bank and its subsidiaries are collectively known as TD Bank Group ("TD" or the "Bank"). The Bank was formed through the amalgamation on February 1, 1955, of The Bank of Toronto (chartered in 1855) and The Dominion Bank (chartered in 1869). The Bank is incorporated and domiciled in Canada with its registered and principal business offices located at 66 Wellington Street West, Toronto, Ontario. TD serves customers in three business segments operating in a number of locations in key financial centres around the globe: Canadian Retail, U.S. Retail, and Wholesale Banking.

BASIS OF PREPARATION

The accompanying Interim Consolidated Financial Statements and accounting principles followed by the Bank have been prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB), including the accounting requirements of the Office of the Superintendent of Financial Institutions Canada (OSFI). The Interim Consolidated Financial Statements are presented in Canadian dollars, unless otherwise indicated.

These Interim Consolidated Financial Statements were prepared on a condensed basis in accordance with International Accounting Standard 34, Interim Financial Reporting using the accounting policies as described in Note 2 of the Bank's 2018 Annual Consolidated Financial Statements except for the changes in accounting policies described in Note 2 of this report. Certain comparative amounts have been revised to conform with the presentation adopted in the current period.

The preparation of the Interim Consolidated Financial Statements requires that management make estimates, assumptions, and judgments regarding the reported amount of assets, liabilities, revenue and expenses, and disclosure of contingent assets and liabilities, as further described in Note 3 of the Bank's 2018 Annual Consolidated Financial Statements and Note 3 of this report. Accordingly, actual results may differ from estimated amounts as future confirming events occur.

The Bank's Interim Consolidated Financial Statements have been prepared using uniform accounting policies for like transactions and events in similar circumstances. All intercompany transactions, balances, and unrealized gains and losses on transactions are eliminated on consolidation.

The Interim Consolidated Financial Statements for the three and six months ended April 30, 2019, were approved and authorized for issue by the Bank's Board of Directors, in accordance with a recommendation of the Audit Committee, on May 22, 2019.

As the Interim Consolidated Financial Statements do not include all of the disclosures normally provided in the Annual Consolidated Financial Statements, it should be read in conjunction with the Bank's 2018 Annual Consolidated Financial Statements and the accompanying Notes, and the shaded sections of the 2018 Management's Discussion and Analysis (MD&A). Certain disclosures are included in the shaded sections of the "Managing Risk" section of the MD&A in this report, as permitted by IFRS, and form an integral part of the Interim Consolidated Financial Statements. The Interim Consolidated Financial Statements were prepared under a historical cost basis, except for certain items carried at fair value as discussed in Note 2 of the Bank's 2018 Annual Consolidated Financial Statements.

 

NOTE 2:  CURRENT AND FUTURE CHANGES IN ACCOUNTING POLICIES

CURRENT CHANGES IN ACCOUNTING POLICY

The following new standards have been adopted by the Bank on November 1, 2018.

Revenue from Contracts with Customers

On November 1, 2018, the Bank adopted IFRS 15, Revenue from Contracts with Customers (IFRS 15), which establishes the principles for recognizing revenue and cash flows arising from contracts with customers and prescribes the application of a five-step recognition and measurement model. The standard excludes from its scope, revenue arising from items such as financial instruments, insurance contracts, and leases. The Bank adopted the standard on a modified retrospective basis, recognizing the cumulative effect of initially applying the standard as an adjustment to opening retained earnings without restating comparative period financial information.

The adoption of IFRS 15 resulted in a reduction to Shareholders' Equity of $41 million related to certain expenses not eligible for deferral under IFRS 15. The presentation of certain revenue and expense items is changed due to IFRS 15 and reclassified prospectively. These presentation changes are not significant and do not have an impact on net income.

In addition to the above changes related to the adoption of IFRS 15, the Bank also changed its accounting policy on securities lending and borrowing transactions. Where securities are received or pledged as collateral, securities lending income and securities borrowing fees are recorded in Non-interest income and Non-interest expenses, respectively on the Interim Consolidated Statement of Income. This change has been applied retrospectively.

Revenue Recognition

Revenue is recognized at an amount that reflects the consideration the Bank expects to be entitled to in exchange for transferring services to a customer, excluding amounts collected on behalf of third parties. The Bank recognizes revenue when it transfers control of a good or a service to a customer at a point in time or over time. The determination of when performance obligations are satisfied requires the use of judgment. Refer to Note 3 for further details.

The Bank identifies contracts with customers subject to IFRS 15, which create enforceable rights and obligations. The Bank determines the performance obligations based on distinct services promised to the customers in the contracts. The Bank's contracts generally have a term of one year or less, consist of a single performance obligation, and the performance obligations generally reflect services.

For each contract, the Bank determines the transaction price, which includes estimating variable consideration and assessing whether the price is constrained. Variable consideration is included in the transaction price to the extent that it is highly probable that a significant reversal of the amount will not occur when the uncertainty associated with the amount of variable consideration is subsequently resolved. As such, the estimate of the variable consideration is constrained until the end of the invoicing period. The uncertainty is generally resolved at the end of the reporting period and as such, no significant judgment is required when recognizing variable consideration in revenues.

 

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The Bank's receipt of payment from customers generally occurs subsequent to the satisfaction of performance obligations or a short time thereafter. As such, the Bank has not recognized any material contract assets (unbilled receivables) or contract liabilities (deferred revenues) and there is no significant financing component associated with the consideration due to the Bank.

When another party is involved in the transfer of services to a customer, an assessment is made to evaluate whether the Bank is the principal such that revenues are reported on a gross basis or the agent such that revenues are reported on a net basis. The Bank is the principal when it controls the services in the contract promised to the customer before they are transferred. Control is demonstrated by the Bank being primarily responsible for fulfilling the transfer of the services to the customer, having discretion in establishing pricing of the services, or both.

Refer to Note 2 of the Bank's 2018 Annual Consolidated Financial Statements for additional revenue policy disclosures.

Share-based Payment

In June 2016, the IASB published amendments to IFRS 2, Share-based Payment (IFRS 2), which provide additional guidance on the classification and measurement of share-based payment transactions. The amendments clarify the accounting for cash-settled share-based payment transactions that include a performance condition, the classification of share-based payment transactions with net settlement features for withholding tax obligations, and the accounting for modifications of share-based payment transactions from cash-settled to equity-settled. The amendments to IFRS 2 are effective for annual periods beginning on or after January 1, 2018, which was November 1, 2018 for the Bank. These amendments have been applied prospectively and did not have a significant impact on the Bank.

FUTURE CHANGES IN ACCOUNTING POLICIES

The following standards have been issued, but are not yet effective on the date of issuance of the Bank's Interim Consolidated Financial Statements. The Bank is currently assessing the impact of the application of these standards on the Interim Consolidated Financial Statements and will adopt these standards when they become effective.

Leases

In January 2016, the IASB issued IFRS 16, Leases (IFRS 16), which will replace IAS 17, Leases , introducing a single lessee accounting model for all leases by eliminating the distinction between operating and financing leases. IFRS 16 requires lessees to recognize right-of-use assets and lease liabilities for most leases on the balance sheet. Lessees will also recognize depreciation expense on the right-of-use asset, interest expense on the lease liability, and a shift in the timing of expense recognition in the statement of income. Short-term leases, which are defined as those that have a lease term of twelve months or less, and leases of low-value assets are exempt. Lessor accounting remains substantially unchanged. IFRS 16 is effective for annual periods beginning on or after January 1, 2019, which will be November 1, 2019 for the Bank. The Bank will adopt the new standard by recognizing the cumulative effect of any transitional impacts in opening retained earnings within the Consolidated Balance Sheet at November 1, 2019, with no restatement of the comparative periods. The Bank's IFRS 16 program is governed by a formal multi-functional enterprise-wide governance structure and project delivery plan. In support of the program, the Bank is currently analyzing the full impact of this standard upon its financial statements and regulatory metrics, upgrading its lease administration and accounting systems, and developing future processes and internal controls over financial reporting.

Insurance Contracts

In May 2017, the IASB issued IFRS 17, Insurance Contracts (IFRS 17), which replaces the guidance in IFRS 4, Insurance Contracts and establishes principles for recognition, measurement, presentation, and disclosure of insurance contracts. IFRS 17 is currently effective for the Bank's annual reporting period beginning November 1, 2021; however, based on recent IASB meetings, an upcoming amendment to IFRS 17 and a deferral of the effective date by one year is anticipated. Any change to the Bank's effective date is subject to updates of OSFI's related Advisory. The Bank is currently assessing the impact of adopting this standard.

Conceptual Framework for Financial Reporting

In March 2018, the IASB issued the revised Conceptual Framework for Financial Reporting (Revised Conceptual Framework), which provides a set of concepts to assist the IASB in developing standards and to help preparers consistently apply accounting policies where specific accounting standards do not exist. The framework is not an accounting standard and does not override the requirements that exist in other IFRS standards. The Revised Conceptual Framework describes that financial information must be relevant and faithfully represented to be useful, provides revised definitions and recognition criteria for assets and liabilities, and confirms that different measurement bases are useful and permitted. The Revised Conceptual Framework is effective for annual periods beginning on or after January 1, 2020, which will be November 1, 2020 for the Bank, with early adoption permitted. The Bank is currently assessing the impact of adopting the revised framework.

Business Combinations

In October 2018, the IASB issued a narrow-scope amendment to IFRS 3, Business Combinations (IFRS 3). The amendments provide additional guidance on the definition of a business which determines whether an acquisition is of a business or a group of assets. An acquirer recognizes goodwill only when acquiring a business, not when acquiring a group of assets. The amendments to IFRS 3 are effective for annual reporting periods beginning on or after January 1, 2020, which will be November 1, 2020 for the Bank, with early adoption permitted and is to be applied prospectively. The Bank will assess the impact of the amendments on future acquisitions.

Presentation of Financial Statements and Accounting Policies, Changes in Accounting Estimates and Errors

In October 2018, the IASB issued amendments to IAS 1, Presentation of Financial Statements and IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors which clarify the definition of "material". Specifically, the amendments clarify that information is material if omitting, misstating, or obscuring it could reasonably be expected to influence the decisions that the primary users of general purpose financial statements make on the basis of those financial statements. Accompanying explanations to the definition have also been improved. The amendments are effective for annual periods beginning on or after January 1, 2020, which will be November 1, 2020 for the Bank, and are to be applied prospectively with early application permitted. The Bank is currently assessing the impact of adopting these amendments.

 

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NOTE 3:  SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES, AND ASSUMPTIONS

The estimates used in the Bank's accounting policies are essential to understanding its results of operations and financial condition. Some of the Bank's policies require subjective, complex judgments and estimates as they relate to matters that are inherently uncertain. Changes in these judgments or estimates and changes to accounting standards and policies could have a materially adverse impact on the Bank's Interim Consolidated Financial Statements. The Bank has established procedures to ensure that accounting policies are applied consistently and that the processes for changing methodologies, determining estimates, and adopting new accounting standards are well-controlled and occur in an appropriate and systematic manner. Refer to Note 3 of the Bank's 2018 Annual Consolidated Financial Statements for a description of significant accounting judgments, estimates, and assumptions, in addition to those described below.

Revenue from Contracts with Customers

The Bank applies judgment to determine the timing of satisfaction of performance obligations which affects the timing of revenue recognition, by evaluating the pattern in which the Bank transfers control of services promised to the customer. A performance obligation is satisfied over time when the customer simultaneously receives and consumes the benefits as the Bank performs the service. For performance obligations satisfied over time, revenue is generally recognized using the time-elapsed method which is based on time elapsed in proportion to the period over which the service is provided, for example, personal deposit account bundle fees. The time-elapsed method is a faithful depiction of the transfer of control for these services as control is transferred evenly to the customer when the Bank provides a stand-ready service or effort is expended evenly by the Bank to provide a service over the contract period. In contracts where the Bank has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the Bank's performance completed to date, the Bank recognizes revenue in the amount to which it has a right to invoice.

The Bank satisfies a performance obligation at a point in time if the customer obtains control of the promised services at that date. Determining when control is transferred requires the use of judgment. For transaction-based services, the Bank determines that control is transferred to the customer at a point in time when the customer obtains substantially all of the benefits from the service rendered and the Bank has a present right to payment, which generally coincides with the moment the transaction is executed.

The Bank exercises judgment in determining whether costs incurred in connection with acquiring new revenue contracts would meet the requirement to be capitalized as incremental costs to obtain or fulfil a contract with customers.

 

NOTE 4:  FAIR VALUE MEASUREMENTS

There have been no significant changes to the Bank's approach and methodologies used to determine fair value measurements during the three and six months ended April 30, 2019. Refer to Note 5 of the Bank's 2018 Annual Consolidated Financial Statements for a description of the valuation techniques and inputs used in the fair value measurement of the Bank's financial instruments.

Carrying Value and Fair Value of Financial Instruments not carried at Fair Value

The fair values in the following table exclude assets that are not financial instruments, such as land, buildings, and equipment, as well as goodwill and other intangible assets, including customer relationships, which are of significant value to the Bank.

Financial Assets and Liabilities not carried at Fair Value 1

(millions of Canadian dollars)                            As at  
     April 30, 2019      October 31, 2018  
      Carrying
value
    

Fair

value

     Carrying
value
    

Fair

value

 

FINANCIAL ASSETS

                                   

Debt securities at amortized cost, net of allowance for credit losses

           

Government and government-related securities

   $ 63,183    $ 63,073    $ 60,535    $ 59,948

Other debt securities

     48,361      48,286      46,636      46,316

Total debt securities at amortized cost, net of allowance for credit losses

     111,544      111,359      107,171      106,264

Total loans, net of allowance for loan losses

     663,615        665,018        646,393      642,542

Total financial assets not carried at fair value

   $ 775,159      $ 776,377      $ 753,564    $ 748,806

FINANCIAL LIABILITIES

                                   

Deposits

   $ 875,343      $ 875,840      $ 851,439    $ 846,148

Securitization liabilities at amortized cost

     14,020      14,147      14,683      14,654

Subordinated notes and debentures

     8,968        9,478        8,740      9,027

Total financial liabilities not carried at fair value

   $     898,331      $     899,465      $     874,862    $     869,829

 

1  

This table excludes financial assets and liabilities where the carrying amount is a reasonable approximation of fair value.

Fair Value Hierarchy and Valuation of Assets and Liabilities Classified as Level 3

IFRS requires disclosure of a three-level hierarchy for fair value measurements based upon the observability of inputs to the valuation of an asset or liability as of the measurement date. Refer to Note 5 of the Bank's 2018 Annual Consolidated Financial Statements for a description of the three levels.

There have been no significant changes to the valuation techniques, unobservable inputs, and sensitivities during the three and six months ended April 30, 2019. The significant valuation techniques and significant unobservable inputs used in the fair value measurements of Level 3 financial assets and financial liabilities are described and quantified within the "Valuation of Assets and Liabilities Classified as Level 3" section in Note 5 of the Bank's 2018 Annual Consolidated Financial Statements.

 

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The following table presents the levels within the fair value hierarchy for each of the assets and liabilities measured at fair value on a recurring basis as at April 30, 2019 and October 31, 2018.

 

Fair Value Hierarchy for Assets and Liabilities Measured at Fair Value on a Recurring Basis

 

                                  

(millions of Canadian dollars)

                                                                   As at  
     April 30, 2019       October 31, 2018  
       Level 1        Level 2        Level 3        Total 1       Level 1        Level 2        Level 3        Total 1  

FINANCIAL ASSETS AND COMMODITIES

                                                                      

Trading loans, securities, and other 2

                                                                      

Government and government-related securities

                      

Canadian government debt

                      

Federal

   $ 786      $ 9,127      $      $ 9,913     $ 127    $ 14,335    $      $ 14,462

Provinces

            7,865        46        7,911              7,535      3      7,538

U.S. federal, state, municipal governments, and agencies debt

            16,050               16,050              19,732             19,732

Other OECD government guaranteed debt

            4,149               4,149              3,324             3,324

Mortgage-backed securities

            2,054               2,054              2,029             2,029

Other debt securities

                      

Canadian issuers

            5,973        2        5,975              5,630      1      5,631

Other issuers

            13,578        18        13,596              14,459      16      14,475

Equity securities

                      

Common shares

     49,784        131               49,915       43,699      53             43,752

Preferred shares

     57                      57       33      26             59

Trading loans

            11,335               11,335              10,990             10,990

Commodities

     11,549        279               11,828       5,540      340             5,880

Retained interests

            22               22              25             25
       62,176        70,563        66        132,805       49,399      78,478      20      127,897

Non-trading financial assets at fair value through profit or loss

                      

Securities

     190        2,567        447        3,204       176      2,095      408      2,679

Loans

            978        20        998              1,317      19      1,336
       190        3,545        467        4,202       176      3,412      427      4,015

Derivatives

                      

Interest rate contracts

     31        11,775               11,806       33      12,365             12,398

Foreign exchange contracts

     41        28,753        6        28,800       24      39,647      4      39,675

Credit contracts

            14               14              9             9

Equity contracts

            1,305        525        1,830              3,170      453      3,623

Commodity contracts

     127        1,019        28        1,174       144      1,112      35      1,291
       199        42,866        559        43,624       201      56,303      492      56,996

Financial assets designated at fair value through profit or loss

                      

Securities 2

            3,379               3,379              3,618             3,618
              3,379               3,379              3,618             3,618

Financial assets at fair value through other comprehensive income

                                                                      

Government and government-related securities

                      

Canadian government debt

                      

Federal

            11,009               11,009              12,731             12,731

Provinces

            11,763               11,763              9,507             9,507

U.S. federal, state, municipal governments, and agencies debt

            45,252               45,252              45,766             45,766

Other OECD government guaranteed debt

            18,177               18,177              19,896      200      20,096

Mortgage-backed securities

            6,096               6,096              6,633             6,633

Other debt securities

                      

Asset-backed securities

            20,036               20,036              21,407      562      21,969

Non-agency collateralized mortgage obligation portfolio

            311               311              472             472

Corporate and other debt

            8,245        23        8,268              8,483      24      8,507

Equity securities

                      

Common shares

     84        2        1,532        1,618       309      3      1,492      1,804

Preferred shares

     208        3        50        261       235             135      370

Loans

            2,318               2,318              2,745             2,745
       292        123,212        1,605        125,109       544      127,643      2,413      130,600

Securities purchased under reverse repurchase agreements

            4,796               4,796              3,920             3,920

FINANCIAL LIABILITIES

                                                                      

Trading deposits

            50,295        3,679        53,974              111,680      3,024      114,704

Derivatives

                      

Interest rate contracts

     28        10,420        77        10,525       24      9,646      63      9,733

Foreign exchange contracts

     29        26,121        8        26,158       18      34,897      3      34,918

Credit contracts

            418               418              386             386

Equity contracts

            2,794        1,350        4,144              1,319      1,077      2,396

Commodity contracts

     113        828        13        954       134      695      8      837
       170        40,581        1,448        42,199       176      46,943      1,151      48,270

Securitization liabilities at fair value

            12,738               12,738              12,618             12,618

Financial liabilities designated at fair value through profit or loss

            57,770        13        57,783              2      14      16

Obligations related to securities sold short 2

     787        35,578               36,365       1,142      38,336             39,478

Obligations related to securities sold under repurchase agreements

            1,893               1,893              3,797             3,797
1  

Fair value is the same as carrying value.

2  

Balances reflect the reduction of securities owned (long positions) by the amount of identical securities sold but not yet purchased (short positions).

 

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The Bank's policy is to record transfers of assets and liabilities between the different levels of the fair value hierarchy using the fair values as at the end of each reporting period. Assets are transferred between Level 1 and Level 2 depending on if there is sufficient frequency and volume in an active market.

There were no significant transfers between Level 1 and Level 2 during the three and six months ended April 30, 2019 and April 30, 2018.

Movements of Level 3 instruments

Significant transfers into and out of Level 3 occur mainly due to the following reasons:

 

Transfers from Level 3 to Level 2 occur when techniques used for valuing the instrument incorporate significant observable market inputs or broker-dealer quotes which were previously not observable.

 

Transfers from Level 2 to Level 3 occur when an instrument's fair value, which was previously determined using valuation techniques with significant observable market inputs, is now determined using valuation techniques with significant non-observable inputs.

Due to the unobservable nature of the inputs used to value Level 3 financial instruments there may be uncertainty about the valuation of these instruments. The fair value of Level 3 instruments may be drawn from a range of reasonably possible alternatives. In determining the appropriate levels for these unobservable inputs, parameters are chosen so that they are consistent with prevailing market evidence and management judgment.

The following tables reconcile changes in fair value of all assets and liabilities measured at fair value using significant Level 3 non-observable inputs for the three and six months ended April 30.

 

Reconciliation of Changes in Fair Value for Level 3 Assets and Liabilities                                       
(millions of Canadian dollars)    Fair
value as at
February 1
2019
    Total realized and
unrealized gains (losses)
    Movements     Transfers    

Fair

value as at
April 30
2019

    Change in
unrealized
gains
(losses) on
instruments
still held 5
 
     Included
in income 1
    Included
in OCI 2 , 3
    Purchases     Issuances      Other 4     Into
Level 3
     Out of
Level 3
 

FINANCIAL ASSETS

                                                                                  

Trading loans, securities, and other

                                                                                  

Government and government- related securities

                      

Canadian government debt

                      

Provinces

   $     $ (1   $     $     $      $     $ 47      $     $ 46     $ (1

Other debt securities

                      

Canadian issuers

     1                                    1              2      

Other issuers

     9                              (9     18              18      
       10     (1                        (9     66              66       (1

Non-trading financial assets at fair value through profit or loss

                      

Securities

     495     56       1       65              (170                  447       5  

Loans

     21                              (1                  20        
       516     56       1       65              (171                  467       5  

Financial assets at fair value through other comprehensive income

                                                                                  

Government and government- related securities

                      

Other OECD government guaranteed debt

     210     14                          (224                         

Other debt securities

                      

Asset-backed securities

     559                                           (559            

Corporate and other debt

     23                                                 23      

Equity securities

                      

Common shares

     1,495           (1     14              24                    1,532       (1

Preferred shares

     57           (8     1                                 50     (9
     $ 2,344   $ 14     $ (9   $ 15     $      $ (200   $      $ (559   $ 1,605     $ (10
    

Fair
value as at

February 1

2019

    Total realized and
unrealized losses (gains)
    Movements     Transfers    

Fair
value as at

April 30
2019

    Change in
unrealized
losses
(gains) on
instruments
still held 5
 
     Included
in income 1
    Included
in OCI 3
    Purchases     Issuances      Other 4     Into
Level 3
     Out of
Level 3
 

FINANCIAL LIABILITIES

                                                                                  

Trading deposits 6

   $ 3,465   $ 188     $     $ (315   $ 397      $ (56   $      $     $ 3,679     $ 189  

Derivatives 7

                      

Interest rate contracts

     64     12                          1                    77       11  

Foreign exchange contracts

     (2                                    4              2        

Equity contracts

     699     190             (21     58        (101                  825       179  

Commodity contracts

     8     (34                        11                    (15 )     (23
       769     168             (21     58        (89     4              889       167  

Financial liabilities designated at fair value through profit or loss

     3     (18                 32        (4                  13     (14

Obligations related to securities sold short

                                                              
1  

Gains (losses) on financial assets and liabilities are recognized in Net securities gains (losses), Trading income (loss), and Other income (loss) on the Interim Consolidated Statement of Income.

2  

Other comprehensive income.

3  

Includes realized gains (losses) transferred to retained earnings on disposal of equities designated at fair value through other comprehensive income (FVOCI). Refer to Note 5 for further details.

4  

Consists of sales, settlements, and foreign exchange.

5  

Changes in unrealized gains (losses) on financial assets at FVOCI are recognized in accumulated other comprehensive income (AOCI).

6  

Issuances and repurchases of trading deposits are reported on a gross basis.

7  

As at April 30, 2019, consists of derivative assets of $0.6 billion (February 1, 2019 – $0.5 billion) and derivative liabilities of $1.5 billion (February 1, 2019 – $1.3 billion), which have been netted on this table for presentation purposes only.

 

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Reconciliation of Changes in Fair Value for Level 3 Assets and Liabilities                                       
(millions of Canadian dollars)    Fair
value as at
November 1
2018
    Total realized and
unrealized gains (losses)
    Movements     Transfers    

Fair

value as at
April 30
2019

    Change in
unrealized
gains
(losses) on
instruments
still held 4
 
     Included
in income 1
    Included
in OCI 2
    Purchases     Issuances      Other 3     Into
Level 3
     Out of
Level 3
 

FINANCIAL ASSETS

                                                                                  

Trading loans, securities, and other

                                                                                  

Government and government- related securities

                      

Canadian government debt

                      

Provinces

   $ 3   $ (1   $     $     $      $ (3   $ 47      $     $ 46   $ (1

Other debt securities

                      

Canadian issuers

     1                                    1              2      

Other issuers

     16     1                          (17     19        (1     18        
       20                              (20     67        (1     66       (1

Non-trading financial assets at fair value through profit or loss

                      

Securities

     408     58       2       136              (178     21              447       6  

Loans

     19     1             1              (1                  20       1  
       427     59       2       137              (179     21              467       7  

Financial assets at fair value through other comprehensive income

                                                                                  

Government and government-related securities

                      

Other OECD government guaranteed debt

     200     24                          (224                         

Other debt securities

                      

Asset-backed securities

     562                                           (562            

Corporate and other debt

     24           (1                                     23       (1

Equity securities

                      

Common shares

     1,492                 19              21                    1,532       (1

Preferred shares

     135           (11     1              (74            (1     50       (17
     $     2,413   $ 24     $ (12   $ 20     $      $ (277   $      $ (563   $     1,605     $ (19
     Fair
value as at
November 1
2018
    Total realized and
unrealized losses (gains)
    Movements     Transfers     Fair
value as at
April 30
2019
    Change in
unrealized
losses
(gains) on
instruments
still held 5
 
     Included
in income 1
    Included
in OCI 2
    Purchases     Issuances      Other 4     Into
Level 3
     Out of
Level 3
 

FINANCIAL LIABILITIES

                                                                                  

Trading deposits 5

   $ 3,024   $ 287     $     $ (391   $ 769      $ (10   $      $     $ 3,679     $ 255  

Derivatives 6

                      

Interest rate contracts

     63     16                          (2                  77       15  

Foreign exchange contracts

     (1     1                          (2     4              2        

Equity contracts

     624     295             (40     115        (169                  825       281  

Commodity contracts

     (27     4                          8                    (15     (3
       659     316             (40     115        (165     4              889       293  

Financial liabilities designated at fair value through profit or loss

     14     (40                 49        (10                  13     (30

Obligations related to securities sold short

                                                              
1  

Gains (losses) on financial assets and liabilities are recognized in Net securities gains (losses), Trading income (loss), and Other income (loss) on the Interim Consolidated Statement of Income.

2  

Includes realized gains (losses) transferred to retained earnings on disposal of equities designated at FVOCI. Refer to Note 5 for further details.

3  

Consists of sales, settlements, and foreign exchange.

4  

Changes in unrealized gains (losses) on financial assets at FVOCI are recognized in AOCI.

5  

Issuances and repurchases of trading deposits are reported on a gross basis.

6  

As at April 30, 2019, consists of derivative assets of $0.6 billion (November 1, 2018 – $0.5 billion) and derivative liabilities of $1.5 billion (November 1, 2018 – $1.2 billion), which have been netted on this table for presentation purposes only.

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 56  


Table of Contents
Reconciliation of Changes in Fair Value for Level 3 Assets and Liabilities                                       
(millions of Canadian dollars)    Fair
value as at
February 1
2018
    Total realized and
unrealized gains (losses)
    Movements     Transfers    

Fair

value as at
April 30
2018

    Change in
unrealized
gains
(losses) on
instruments
still held 4
 
     Included
in income 1
    Included
in OCI 2
    Purchases     Issuances      Other 3     Into
Level 3
     Out of
Level 3
 

FINANCIAL ASSETS

                                                                                  

Trading loans, securities, and other

                                                                                  

Government and government- related securities

                      

Canadian government debt

                      

Provinces

   $     $     $     $     $      $     $      $     $     $  

Other debt securities

                      

Canadian issuers

     1                                                 1      

Other issuers

     121     (1                        5     24            149     4
       122     (1                        5     24            150     4

Non-trading financial assets at fair value through profit or loss

                      

Securities

     324     11           13            8                  356     11

Loans

     18     1                                           19     1
       342     12           13            8                  375     12

Financial assets at fair value through other comprehensive income

                                                                                  

Government and government- related securities

                      

Other OECD government guaranteed debt

     193     11                                           204     (3

Other debt securities

                      

Asset-backed securities

     529           (3                  23                  549     (3

Corporate and other debt

     99     3     1                                     103     1

Equity securities

                      

Common shares

     1,404           (3     1            53                  1,455     (2

Preferred shares

     116           13                  1                  130     13
     $ 2,341   $ 14   $ 8   $ 1   $      $ 77   $      $     $ 2,441   $ 6
     Fair
value as at
February 1
2018
    Total realized and
unrealized losses (gains)
    Movements     Transfers     Fair
value as at
April 30
2018
    Change in
unrealized
losses
(gains) on
instruments
still held 4
 
     Included
in income 1
    Included
in OCI 2
    Purchases     Issuances      Other 3     Into
Level 3
     Out of
Level 3
 

FINANCIAL LIABILITIES

                                                                                  

Trading deposits 5

   $ 2,875   $ (40   $     $ (69   $ 463    $ (285   $ 4    $ (8   $ 2,940   $ (20

Derivatives 6

                      

Interest rate contracts

     51     17                        1                  69     20

Foreign exchange contracts

     (1     1                        (1                  (1      

Equity contracts

     842     (62           (28     64      (105                  711     (73

Commodity contracts

     (8     (18                        3                  (23     (17
       884     (62           (28     64      (102                  756     (70

Financial liabilities designated at fair value through profit or loss

     29     (13                 34      (34                  16     (14

Obligations related to securities sold short

                                          4            4      
1  

Gains (losses) on financial assets and liabilities are recognized in Net securities gains (losses), Trading income (loss), and Other income (loss) on the Interim Consolidated Statement of Income.

2  

Includes realized gains (losses) transferred to retained earnings on disposal of equities designated at FVOCI. Refer to Note 5 for further details.

3  

Consists of sales, settlements, and foreign exchange.

4  

Changes in unrealized gains (losses) on financial assets at FVOCI are recognized in AOCI.

5  

Issuances and repurchases of trading deposits are reported on a gross basis.

6  

As at April 30, 2018, consists of derivative assets of $0.7 billion (February 1, 2018 – $0.9 billion) and derivative liabilities of $1.4 billion (February 1, 2018 – $1.8 billion), which have been netted on this table for presentation purposes only.

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 57  


Table of Contents
                                                                                                             
Reconciliation of Changes in Fair Value for Level 3 Assets and Liabilities                        
(millions of Canadian dollars)   

Fair

value as at

November 1
2017

   

Total realized and

unrealized gains (losses)

    Movements     Transfers    

Fair

value as at

April 30

2018

   

Change in

unrealized

gains

(losses) on

instruments
still held 4

 
    Included
in income 1
    Included
in OCI 2
    Purchases     Issuances      Other 3     Into
Level 3
     Out of
Level 3
 
                     

FINANCIAL ASSETS

                                                                                  

Trading loans, securities, and other

                                                                                  

Government and government- related securities

                      

Canadian government debt Provinces

   $     $     $     $     $      $     $      $     $     $  

Other debt securities

                      

Canadian issuers

     6                              (4     1      (2     1      

Other issuers

     8     (1           2            4     145      (9     149     4
       14     (1           2                  146      (11     150     4

Non-trading financial assets at fair value through profit or loss

                      

Securities

     305     27           26            (2                  356     23

Loans

     15     (2           2                  4            19     (2
       320     25           28            (2     4            375     21

Financial assets at fair value through other comprehensive income

                                                                                  

Government and government- related securities

                      

Other OECD government guaranteed debt

     203     4     (3                                     204     (3

Other debt securities

                      

Asset-backed securities

     553           (1                  (3                  549     (1

Corporate and other debt

     95     4     6                  (2                  103     6

Equity securities

                      

Common shares

     1,469           (2     7            (19                  1,455     (4

Preferred shares

     108           21                  1                  130     21
     $ 2,428   $ 8   $ 21   $ 7   $      $ (23   $      $     $ 2,441   $ 19
    

Fair

value as at

November 1
2017

   

Total realized and

unrealized losses (gains)

    Movements     Transfers    

Fair

value as at

April 30

2018

   

Change in

unrealized

losses
(gains) on

instruments
still held 4

 
     Included
in income 1
    Included
in OCI 2
    Purchases     Issuances      Other 3     Into
Level 3
     Out of
Level 3
 

FINANCIAL LIABILITIES

                                                                                  

Trading deposits 5

   $ 2,521   $ (7   $     $ (210   $ 1,099    $ (449   $ 4    $ (18   $ 2,940   $ (28

Derivatives 6

                      

Interest rate contracts

     70                              (1                  69     1

Foreign exchange contracts

     (1                                                 (1      

Equity contracts

     893     (70           (47     102      (169            2     711     (74

Commodity contracts

     (2     (25                        4                  (23     (21
       960     (95           (47     102      (166            2     756     (94

Financial liabilities designated at fair value through profit or loss

     7     19                 59      (69                  16     12

Obligations related to securities sold short

                                          4            4      
1  

Gains (losses) on financial assets and liabilities are recognized in Net securities gains (losses), Trading income (loss), and Other income (loss) on the Interim Consolidated Statement of Income.

2  

Includes realized gains (losses) transferred to retained earnings on disposal of equities designated at FVOCI. Refer to Note 5 for further details.

3  

Consists of sales, settlements, and foreign exchange.

4  

Changes in unrealized gains (losses) on financial assets at FVOCI are recognized in AOCI.

5  

Issuances and repurchases of trading deposits are reported on a gross basis.

6  

As at April 30, 2018, consists of derivative assets of $0.7 billion (November 1, 2017 – $0.9 billion) and derivative liabilities of $1.4 billion (November 1, 2017 – $1.9 billion), which have been netted on this table for presentation purposes only.

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 58  


Table of Contents

NOTE 5: SECURITIES

 

Unrealized Securities Gains (Losses)

The following table summarizes the unrealized gains and losses as at April 30, 2019 and October 31, 2018.

 

                                                                                                                       
Unrealized Gains (Losses) for Securities at Fair Value Through Other Comprehensive Income  
(millions of Canadian dollars)    As at  
     April 30, 2019      October 31, 2018  
      Cost/
amortized
cost 1
     Gross
unrealized
gains
     Gross
unrealized
(losses)
    Fair
value
     Cost/
amortized
cost 1
     Gross
unrealized
gains
     Gross
unrealized
(losses)
   

Fair

value

 

Securities at Fair Value Through Other Comprehensive Income

                                                                     

Government and government-related securities

                     

Canadian government debt

                     

Federal

   $ 10,978    $ 34    $ (3   $ 11,009    $ 12,740    $ 38    $ (47   $ 12,731

Provinces

     11,705      78      (20     11,763      9,443      75      (11     9,507

U.S. federal, state, municipal governments, and agencies debt

     45,226      156      (130     45,252      45,857      265      (356     45,766

Other OECD government guaranteed debt

     18,131      50      (4     18,177      20,034      65      (3     20,096

Mortgage-backed securities

     6,051      45            6,096      6,575      59      (1     6,633
       92,091      363      (157     92,297      94,649      502      (418     94,733

Other debt securities

                     

Asset-backed securities

     20,000      61      (25     20,036      21,901      87      (19     21,969

Non-agency collateralized mortgage obligation portfolio

     311                   311      471      1            472

Corporate and other debt

     8,257      36      (25     8,268      8,534      31      (58     8,507
       28,568      97      (50     28,615      30,906      119      (77     30,948

Total debt securities

     120,659      460      (207     120,912      125,555      621      (495     125,681

Equity securities

                     

Common shares

     1,616      30      (28     1,618      1,725      118      (39     1,804

Preferred shares

     305      5      (49     261      376      20      (26     370
       1,921      35      (77     1,879      2,101      138      (65     2,174

Total securities at fair value through other comprehensive income

   $ 122,580    $ 495    $ (284   $ 122,791    $ 127,656    $ 759    $ (560   $ 127,855

 

1  

Includes the foreign exchange translation of amortized cost balances at the period-end spot rate.

Equity Securities Designated at Fair Value Through Other Comprehensive Income

The Bank designated certain equity securities shown in the following table as equity securities at FVOCI. The designation was made because the investments are held for purposes other than trading.

 

Equity Securities Designated at Fair Value Through Other Comprehensive Income                          
(millions of Canadian dollars)            As at             For the three months ended      For the six months ended  
     April 30, 2019      October 31, 2018             April 30, 2019      April 30, 2018      April 30, 2019      April 30, 2018  
             Fair value             Dividend income recognized      Dividend income recognized  

Common shares

   $ 1,618    $ 1,804       $ 20    $ 17    $ 40    $ 33  

Preferred shares

     261      370         3      4      7      8  

Total

   $ 1,879    $ 2,174             $ 23    $ 21    $ 47    $ 41  

The Bank disposed of certain equity securities in line with the Bank's investment strategy with a fair value of $133 million and $312 million during the three and six months ended April 30, 2019, respectively (three and six months ended April 30, 2018 – $10 million and $14 million, respectively). The Bank realized a cumulative gain of $44 million and $68 million during the three and six months ended April 30, 2019, respectively (three and six months ended April 30, 2018 – nil and $2 million, respectively) on disposal of these equity securities and recognized dividend income of $1 million and $3 million during the three and six months ended April 30, 2019, respectively (three and six months ended April 30, 2018 – nil).

 

Net Securities Gains (Losses)                               
(millions of Canadian dollars)    For the three months ended      For the six months ended  
      April 30
2019
     April 30
2018
     April 30
2019
    April 30
2018
 

Debt securities at amortized cost

          

Net realized gains (losses)

   $      $ 30    $ 44   $ 30

Debt securities at fair value through other comprehensive income

          

Net realized gains (losses)

     35      3      (20     6

Total

   $ 35    $ 33    $ 24   $ 36

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 59  


Table of Contents

Credit Quality of Debt Securities

The Bank evaluates non-retail credit risk on an individual borrower basis, using both a borrower risk rating and facility risk rating, as detailed in the shaded area of the "Managing Risk" section of the 2018 MD&A. This system is used to assess all non-retail exposures, including debt securities.

The following table provides the gross carrying amounts of debt securities measured at amortized cost and debt securities at FVOCI by internal risk ratings for credit risk management purposes, presenting separately those debt securities that are subject to Stage 1, Stage 2, and Stage 3 allowances.

Debt Securities by Risk Ratings

                                                                                                                                       
(millions of Canadian dollars)                                                           As at  
    April 30, 2019      October 31, 2018  
      Stage 1        Stage 2        Stage 3        Total        Stage 1        Stage 2        Stage 3        Total  

Debt securities

                      

Investment grade

  $ 230,279      $      $ n/a      $ 230,279      $ 230,488    $      $ n/a    $ 230,488

Non-Investment grade

    2,138        40        n/a        2,178        2,140      54      n/a      2,194

Watch and classified

    n/a               n/a               n/a      11      n/a      11

Default

    n/a        n/a                      n/a      n/a      234      234

Total debt securities

    232,417        40               232,457        232,628      65      234      232,927

Allowance for credit losses on debt securities at amortized cost

    1                      1        1      4      70      75

Debt securities, net of allowance

  $ 232,416      $ 40      $      $ 232,456      $ 232,627    $ 61    $ 164    $ 232,852

As at April 30, 2019, the allowance for credit losses on debt securities was $4 million (October 31, 2018 – $80 million), comprising of $1 million (October 31, 2018 – $75 million) for debt securities at amortized cost (DSAC) and $3 million (October 31, 2018 – $5 million) for debt securities at FVOCI. For the three and six months ended April 30, 2019, the Bank reported a provision for credit losses of nil (three and six months ended April 30, 2018 – recovery of credit losses of $2 million) on DSAC. For the three and six months ended April 30, 2019, the Bank reported a recovery of credit losses of $2 million (three and six months ended April 30, 2018 – provision for credit losses of $16 million and $20 million, respectively) on debt securities at FVOCI.

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 60  


Table of Contents

NOTE 6:  LOANS, IMPAIRED LOANS, AND ALLOWANCE FOR CREDIT LOSSES

The following tables provide the gross carrying amounts of loans and credit risk exposures on loan commitments and financial guarantee contracts by internal risk ratings for credit risk management purposes, presenting separately those that are subject to Stage 1, Stage 2, and Stage 3 allowances.

Loans by Risk Ratings

                                                                                                                                       

(millions of Canadian dollars)

                                                  As at  
     April 30, 2019        October 31, 2018  
       Stage 1        Stage 2        Stage 3        Total        Stage 1        Stage 2        Stage 3        Total  

Residential mortgages 1,2,3

                       

Low Risk

   $ 174,308      $ 55      $ n/a      $ 174,363      $ 168,690    $ 32    $ n/a      $ 168,722

Normal Risk

     42,707        240        n/a        42,947        47,821      176      n/a        47,997

Medium Risk

     6,156        484        n/a        6,640        5,106      267      n/a        5,373

High Risk

     984        1,393        304        2,681        892      1,264      317      2,473

Default

     n/a        n/a        415        415        n/a      n/a      392      392

Total

     224,155        2,172        719        227,046        222,509      1,739      709      224,957

Allowance for loan losses

     27        32        47        106        24      34      47      105

Loans, net of allowance

     224,128        2,140        672        226,940        222,485      1,705      662      224,852

Consumer instalment and other personal 4  

                       

Low Risk

     91,848        995        n/a        92,843        87,906      983      n/a        88,889

Normal Risk

     43,448        1,035        n/a        44,483        48,008      1,190      n/a        49,198

Medium Risk

     25,812        1,020        n/a        26,832        23,008      1,063      n/a        24,071

High Risk

     7,016        2,403        576        9,995        6,158      2,386      817      9,361

Default

     n/a        n/a        516        516        n/a      n/a      514      514

Total

     168,124        5,453        1,092        174,669        165,080      5,622      1,331      172,033

Allowance for loan losses

     621        357        179        1,157        574      349      178      1,101

Loans, net of allowance

     167,503        5,096        913        173,512        164,506      5,273      1,153      170,932

Credit card

                       

Low Risk

     7,033        15        n/a        7,048        7,234      11      n/a        7,245

Normal Risk

     9,987        82        n/a        10,069        9,780      66      n/a        9,846

Medium Risk

     11,791        305        n/a        12,096        11,347      246      n/a        11,593

High Risk

     4,769        1,566        334        6,669        4,435      1,445      333      6,213

Default

     n/a        n/a        122        122        n/a      n/a      121      121

Total

     33,580        1,968        456        36,004        32,796      1,768      454      35,018

Allowance for loan losses

     400        309        382        1,091        379      283      341      1,003

Loans, net of allowance

     33,180        1,659        74        34,913        32,417      1,485      113      34,015

Business and government 1,2,3,5

                       

Investment grade or Low/Normal Risk

     119,732        47        n/a        119,779        118,414      57      n/a        118,471

Non-Investment grade or Medium Risk

     116,478        5,186        n/a        121,664        108,678      5,272      n/a        113,950

Watch and classified or High Risk

     732        4,595        104        5,431        666      3,746      97      4,509

Default

     n/a        n/a        925        925        n/a      n/a      563      563

Total

     236,942        9,828        1,029        247,799        227,758      9,075      660      237,493

Allowance for loan losses

     643        599        166        1,408        651      551      120      1,322

Loans, net of allowance

     236,299        9,229        863        246,391        227,107      8,524      540      236,171

Total loans excluding acquired credit-impaired loans 5

     662,801        19,421        3,296        685,518        648,143      18,204      3,154      669,501

Allowance for loan losses

     1,691        1,297        774        3,762        1,628      1,217      686      3,531

Loans, net of allowance 5

     661,110        18,124        2,522        681,756        646,515      16,987      2,468      665,970

Acquired credit-impaired loans

     n/a        n/a        382        382        n/a      n/a      453      453

Allowance for loan losses

     n/a        n/a        16        16        n/a      n/a      18      18

Loans, net of allowance

     n/a        n/a        366        366        n/a      n/a      435      435

Total loans 5

     662,801        19,421        3,678        685,900        648,143      18,204      3,607      669,954

Total allowance for loan losses

     1,691        1,297        790        3,778        1,628      1,217      704      3,549

Total loans, net of allowance 5

   $ 661,110      $ 18,124      $ 2,888      $ 682,122      $ 646,515    $ 16,987    $ 2,903    $ 666,405
1

As at April 30, 2019, impaired loans with a balance of $138 million (October 31, 2018 – $124 million) did not have a related allowance for loan losses. An allowance was not required for these loans as the balance relates to loans where the realizable value of the collateral exceeded the loan amount.

2

As at April 30, 2019, excludes trading loans and non-trading loans at fair value through profit or loss with a fair value of $11 billion (October 31, 2018 – $11 billion) and $1 billion (October 31, 2018 – $1 billion), respectively.

3

As at April 30, 2019, includes insured mortgages of $91 billion (October 31, 2018 – $95 billion).

4

As at April 30, 2019, includes Canadian government-insured real estate personal loans of $14 billion (October 31, 2018 – $14 billion).

5

As at April 30, 2019, includes loans that are measured at FVOCI of $2 billion (October 31, 2018 – $3 billion) and customers' liability under acceptances of $16 billion (October 31, 2018 – $17 billion).

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 61  


Table of Contents
                                                                                                                                       
Loans by Risk Ratings – Off-Balance Sheet Credit Instruments                
(millions of Canadian dollars)                                                            As at  
                     April 30, 2019                      October 31, 2018  
      Stage 1      Stage 2      Stage 3      Total      Stage 1      Stage 2      Stage 3      Total  

Retail Exposures 1  

                       

Low Risk

   $ 261,329      $ 829      $ n/a      $ 262,158      $ 246,575    $ 2,576    $ n/a      $ 249,151

Normal Risk

     52,244        607        n/a        52,851        51,961      1,129      n/a        53,090

Medium Risk

     13,073        368        n/a        13,441        12,298      469      n/a        12,767

High Risk

     1,754        895               2,649        1,765      638             2,403

Default

     n/a        n/a                      n/a        n/a                

Non-Retail Exposures 2

                       

Investment grade

     176,875               n/a        176,875        167,993      323      n/a        168,316

Non-Investment grade

     62,865        2,652        n/a        65,517        60,002      2,309      n/a        62,311

Watch and classified

     3        2,065               2,068        13      1,949             1,962

Default

     n/a        n/a                      n/a        n/a                

Total off-balance sheet credit instruments

     568,143        7,416               575,559        540,607      9,393             550,000

Allowance for off-balance sheet credit instruments

     580        525               1,105        550      479             1,029

Total off-balance sheet credit instruments, net of allowance

   $ 567,563      $ 6,891      $      $ 574,454      $ 540,057    $ 8,914    $      $ 548,971
1

As at April 30, 2019, includes $307 billion (October 31, 2018 – $302 billion) of personal lines of credit and credit card lines, which are unconditionally cancellable at the Bank's discretion at any time.

2

As at April 30, 2019, includes $39 billion (October 31, 2018 – $37 billion) of the undrawn component of uncommitted credit and liquidity facilities.

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 62  


Table of Contents

The changes to the Bank's allowance for loan losses, as at and for the three and six months ended April 30, 2019 and April 30, 2018, are shown in the following tables.

 

                                                                                                                                                                         

Allowance for Loan Losses

                                                                               

(millions of Canadian dollars)

   

For the three months ended

 
   

April 30, 2019

     

April 30, 2018

 
      Stage 1     Stage 2     Stage 3      

Acquired

credit-

impaired

loans


    Total     Stage 1     Stage 2  

 

Stage 3

 

   

Acquired

credit-

impaired

loans


    Total

Residential Mortgages

                   

Balance at beginning of period

  $ 25   $ 30   $ 48     $ 4   $ 107   $ 23   $ 22   $ 39   $ 7   $ 91

Provision for credit losses

                   

Transfer to Stage 1 1

    4     (4                       5     (5                  

Transfer to Stage 2

    (1     3     (2                 (1     2     (1            

Transfer to Stage 3

          (2     2                         (2     2            

Net remeasurement due to transfers 2

    (2     2                       (3     1                 (2

New originations or purchases 3

    2     n/a     n/a             2     2     n/a     n/a           2

Net repayments 4

                                                    (1     (1

Derecognition of financial assets (excluding disposals and write-offs) 5

          (1     (4           (5     (1           (1           (2

Changes to risk, parameters, and models 6

    (1     4     9             12     (2     5     7           10

Disposals

                                                           

Write-offs

                (6           (6                 (7           (7

Recoveries

                                              1           1
Foreign exchange and other adjustments                                         1     1     1     3
Balance at end of period   $ 27   $ 32   $ 47     $ 4   $ 110   $ 23   $ 24   $ 41   $ 7   $ 95

Consumer Instalment and Other Personal

                   

Balance, including off-balance sheet instruments, at beginning of period

  $ 598   $ 413   $ 181     $ 2   $ 1,194   $ 535   $ 381   $ 179   $ 5   $ 1,100

Provision for credit losses

                   

Transfer to Stage 1 1

    84     (80     (4                 77     (73     (4            

Transfer to Stage 2

    (28     39     (11                 (27     38     (11            

Transfer to Stage 3

    (4     (54     58                   (9     (43     52            

Net remeasurement due to transfers 2

    (34     38     2             6     (31     29     2            

New originations or purchases 3

    73     n/a     n/a             73     72     n/a     n/a           72

Net repayments 4

    (22     (8     (3           (33     (13     (7     (6     (1     (27

Derecognition of financial assets (excluding disposals and write-offs) 5

    (18     (26     (18           (62     (29     (20     (11           (60

Changes to risk, parameters, and models 6

    (7     74     183             250     (14     70     167     (1     222

Disposals

                                                           

Write-offs

                (280           (280                 (263           (263

Recoveries

                68             68                 61     1     62
Foreign exchange and other adjustments     5     5     3             13     11     7     4           22

Balance, including off-balance sheet instruments, at end of period

    647     401     179       2     1,229     572     382     170     4     1,128
Less: Allowance for off-balance sheet instruments 7     26     44                 70     25     46                 71
Balance at end of period   $ 621   $ 357   $ 179     $ 2   $ 1,159   $ 547   $ 336   $ 170   $ 4   $ 1,057

Credit Card 8

                   

Balance, including off-balance sheet instruments, at beginning of period

  $ 865   $ 635   $ 389     $     $ 1,889   $ 737   $ 585   $ 341   $     $ 1,663

Provision for credit losses

                   

Transfer to Stage 1 1

    164     (155     (9                 130     (120     (10            

Transfer to Stage 2

    (55     72     (17                 (39     54     (15            

Transfer to Stage 3

    (8     (149     157                   (8     (113     121            

Net remeasurement due to transfers 2

    (55     75     9             29     (46     54     9           17

New originations or purchases 3

    35     n/a     n/a             35     45     n/a     n/a           45

Net repayments 4

    (1     (1     5             3     13     (12     17           18

Derecognition of financial assets (excluding disposals and write-offs) 5

    (27     (33     (131           (191     (31     (27     (117           (175

Changes to risk, parameters, and models 6

    (50     176     339             465     (52     150     308           406

Disposals

                                  (4     (4     (2           (10

Write-offs

                (443           (443                 (385           (385

Recoveries

                78             78                 68           68
Foreign exchange and other adjustments     12     7     5             24     19     15     13           47

Balance, including off-balance sheet instruments, at end of period

    880     627     382             1,889     764     582     348           1,694
Less: Allowance for off-balance sheet instruments 7     480     318                 798     393     264                 657

Balance at end of period

  $ 400   $ 309   $ 382     $     $ 1,091   $ 371   $ 318   $ 348   $     $ 1,037
1  

Transfers represent stage transfer movements prior to expected credit loss (ECL) remeasurement.

2  

Represents the remeasurement between twelve-month and lifetime ECLs due to stage transfers, excluding the change to risk, parameters, and models.

3  

Represents the increase in the allowance resulting from loans that were newly originated, purchased, or renewed.

4  

Represents the changes in the allowance related to cash flow changes associated with new draws or repayments on loans outstanding.

5  

Represents the decrease in the allowance resulting from loans that were fully repaid and excludes the decrease associated with loans that were disposed or fully written off.

6  

Represents the change in the allowance related to changes in risk including changes to macroeconomic factors, level of risk, associated parameters, and models.

7  

The allowance for loan losses for off-balance sheet instruments is recorded in Other liabilities on the Interim Consolidated Balance Sheet.

8  

Credit cards are considered impaired and migrate to Stage 3 when they are 90 days past due and written off at 180 days past due. Refer to Note 2 of the Bank's 2018 Annual Consolidated Financial Statements for further details.

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 63  


Table of Contents
                                                                                                                                                                         

Allowance for Loan Losses (Continued) 1

 

       

(millions of Canadian dollars)

    

For the three months ended

 
    

April 30, 2019

     

April 30, 2018

 
       Stage 1     Stage 2     Stage 3      

Acquired
credit-impaired
loans
 
 
    Total     Stage 1     Stage 2    
Stage 3
 
 
   


Acquired
credit-

impaired
loans

 
 

 
 

    Total

Business and Government

                    

Balance, including off-balance sheet instruments, at beginning of period

   $ 725   $ 711   $ 162   $ 10   $ 1,608   $ 663   $ 628   $ 153     $ 14   $ 1,458

Provision for credit losses

                    

Transfer to Stage 1 2

     41     (40     (1                 38     (37     (1 )              

Transfer to Stage 2

     (38     40     (2                 (36     38     (2 )              

Transfer to Stage 3

     (2     (29     31                 (2     (13     15              

Net remeasurement due to transfers 2

     (14     27     1           14     (11     17     1             7

New originations or purchases 2

     104     n/a     n/a           104     119     n/a     n/a             119

Net repayments 2

     (5     (10     (4     1     (18     (5     (12     (2 )       1     (18

Derecognition of financial assets (excluding disposals and write-offs) 2

     (74     (73     (25           (172     (102     (95     (17 )       (1     (215

Changes to risk, parameters, and models 2

     (31     127     31     (4     123     9     95     23         (3     124

Disposals

                                                            

Write-offs

                 (40           (40                 (41 )             (41

Recoveries

                 11     2     13                 16       1     17
Foreign exchange and other adjustments      11     9     2     1     23     23     18     4       1     46

Balance, including off-balance sheet instruments, at end of period

     717     762     166     10     1,655     696     639     149     13     1,497

Less: Allowance for off-balance sheet instruments 3

     74     163                 237     70     67                 137
Balance at end of period      643     599     166     10     1,418     626     572     149     13     1,360

Total Allowance for Loan Losses at end of period

   $ 1,691   $ 1,297   $ 774   $ 16   $ 3,778   $ 1,567   $ 1,250   $ 708   $ 24   $ 3,549
1  

Includes the allowance for credit losses related to customers' liability under acceptances.

2  

For explanations regarding this line item, refer to the "Allowance for Loan Losses" table on the previous page in this Note.

3  

The allowance for loan losses for off-balance sheet instruments is recorded in Other liabilities on the Interim Consolidated Balance Sheet.

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 64  


Table of Contents
                                                                                                                                                                         

Allowance for Loan Losses

                                                                                

(millions of Canadian dollars)

    

For the six months ended

 
    

April 30, 2019

     

April 30, 2018

 
       Stage 1     Stage 2     Stage 3      


Acquired
credit-

impaired
loans

 
 

 

    Total     Stage 1     Stage 2     Stage 3      


Acquired
credit-
impaired
loans
 
 
 
    Total

Residential Mortgages

                    

Balance at beginning of period

   $ 24   $ 34   $ 47     $ 5   $ 110   $ 24   $ 26   $ 45     $ 12   $ 107

Provision for credit losses

                    

Transfer to Stage 1 1

     17     (16     (1                 11     (11                  

Transfer to Stage 2

     (2     6     (4                 (2     4     (2 )              

Transfer to Stage 3

     (1     (4     5                         (4     4              

Net remeasurement due to transfers 2

     (6     3                 (3     (7     3                 (4

New originations or purchases 3

     5     n/a     n/a             5     6     n/a     n/a             6

Net repayments 4

           (1                 (1     (1     (1           (4     (6

Derecognition of financial assets (excluding disposals and write-offs) 5

     (1     (2     (8           (11     (1     (1     (1 )             (3

Changes to risk, parameters, and models 6

     (9     12     21       (1     23     (7     9     8       (2     8

Disposals

                                                            

Write-offs

                 (13           (13                 (14 )             (14

Recoveries

                                               2             2
Foreign exchange and other adjustments                                          (1     (1 )       1     (1
Balance at end of period    $ 27   $ 32   $ 47     $ 4   $ 110   $ 23   $ 24   $ 41     $ 7   $ 95

Consumer Instalment and Other Personal

                    

Balance, including off-balance sheet instruments, at beginning of period

   $ 599   $ 392   $ 178     $ 2   $ 1,171   $ 529   $ 355   $ 166     $ 5   $ 1,055

Provision for credit losses

                    

Transfer to Stage 1 1

     167     (158     (9                 146     (138     (8 )              

Transfer to Stage 2

     (57     78     (21                 (60     80     (20 )              

Transfer to Stage 3

     (9     (106     115                   (13     (88     101              

Net remeasurement due to transfers 2

     (68     78     5             15     (59     68     5             14

New originations or purchases 3

     139     n/a     n/a             139     142     n/a     n/a             142

Net repayments 4

     (43     (15     (6           (64     (13     (13     (6 )       (3     (35

Derecognition of financial assets (excluding disposals and write-offs) 5

     (38     (52     (33           (123     (54     (47     (20 )             (121

Changes to risk, parameters, and models 6

     (48     180     405             537     (46     166     351       1     472

Disposals

                                                            

Write-offs

                 (586           (586                 (528 )             (528

Recoveries

                 128             128                 130       1     131
Foreign exchange and other adjustments      5     4     3             12           (1     (1 )             (2

Balance, including off-balance sheet instruments, at end of period

     647     401     179       2     1,229     572     382     170       4     1,128
Less: Allowance for off-balance sheet instruments 7      26     44                 70     25     46                 71
Balance at end of period    $ 621   $ 357   $ 179     $ 2   $ 1,159   $ 547   $ 336   $ 170     $ 4   $ 1,057

Credit Card 8

                    

Balance, including off-balance sheet instruments, at beginning of period

   $ 819   $ 580   $ 341     $     $ 1,740   $ 763   $ 521   $ 321     $     $ 1,605

Provision for credit losses

                    

Transfer to Stage 1 1

     363     (296     (67                 254     (234     (20 )              

Transfer to Stage 2

     (111     143     (32                 (93     126     (33 )              

Transfer to Stage 3

     (16     (316     332                   (24     (222     246              

Net remeasurement due to transfers 2

     (111     154     23             66     (91     113     39             61

New originations or purchases 3

     65     n/a     n/a             65     112     n/a     n/a             112

Net repayments 4

     38     1     (30           9     84     (4     (17 )             63

Derecognition of financial assets (excluding disposals and write-offs) 5

     (47     (54     (195           (296     (57     (57     (136 )             (250

Changes to risk, parameters, and models 6

     (130     409     716             995     (173     343     579             749

Disposals

                                   (8     (7     (3 )             (18

Write-offs

                 (861           (861                 (757 )             (757

Recoveries

                 149             149                 129             129
Foreign exchange and other adjustments      10     6     6             22     (3     3                  

Balance, including off-balance sheet instruments, at end of period

     880     627     382             1,889     764     582     348             1,694
Less: Allowance for off-balance sheet instruments 7      480     318                 798     393     264                 657

Balance at end of period

   $ 400   $ 309   $ 382     $     $ 1,091   $ 371   $ 318   $ 348     $     $ 1,037
1  

Transfers represent stage transfer movements prior to expected credit loss ECL remeasurement.

2  

Represents the remeasurement between twelve-month and lifetime ECLs due to stage transfers, excluding the change to risk, parameters, and models.

3  

Represents the increase in the allowance resulting from loans that were newly originated, purchased, or renewed.

4  

Represents the changes in the allowance related to cash flow changes associated with new draws or repayments on loans outstanding.

5  

Represents the decrease in the allowance resulting from loans that were fully repaid and excludes the decrease associated with loans that were disposed or fully written off.

6  

Represents the change in the allowance related to changes in risk including changes to macroeconomic factors, level of risk, associated parameters, and models.

7  

The allowance for loan losses for off-balance sheet instruments is recorded in Other liabilities on the Interim Consolidated Balance Sheet.

8  

Credit cards are considered impaired and migrate to Stage 3 when they are 90 days past due and written off at 180 days past due. Refer to Note 2 of the Bank's 2018 Annual Consolidated Financial Statements for further details.

 

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Allowance for Loan Losses (Continued) 1

                                                                                                                                                                         
(millions of Canadian dollars)    For the six months ended  
     April 30, 2019     April 30, 2018  
      Stage 1     Stage 2     Stage 3     Acquired
credit-
impaired
loans
    Total     Stage 1     Stage 2     Stage 3     Acquired
credit-
impaired
loans
    Total  

Business and Government

                    

Balance, including off-balance sheet instruments, at beginning of period

   $ 736   $ 690   $ 120   $ 11   $ 1,557   $ 706   $ 627   $ 174     $ 18   $ 1,525

Provision for credit losses

                    

Transfer to Stage 1 2

     85     (82     (3                 66     (64     (2            

Transfer to Stage 2

     (68     72     (4                 (52     55     (3            

Transfer to Stage 3

     (3     (48     51                 (4     (29     33              

Net remeasurement due to transfers 2

     (27     47     2           22     (18     32     3             17

New originations or purchases 2

     213     n/a     n/a           213     205     n/a     n/a             205

Net repayments 2

     2     (22     (8     1     (27     (6     (22     (11     (1     (40

Derecognition of financial assets (excluding disposals and write-offs) 2

     (168     (183     (37           (388     (194     (184     (24     (1     (403

Changes to risk, parameters, and models 2

     (64     280     101     (8     309     (3     226     26       (5     244

Disposals

                                               (5 )             (5

Write-offs

                 (75           (75                 (73 )       (1     (74

Recoveries

                 19     5     24                 32       3     35

Foreign exchange and other adjustments

     11     8           1     20     (4     (2     (1           (7

Balance, including off-balance sheet instruments, at end of period

     717     762     166     10     1,655     696     639     149     13     1,497

Less: Allowance for off-balance sheet instruments 3

     74     163                 237     70     67                 137

Balance at end of period

     643     599     166     10     1,418     626     572     149     13     1,360

Total Allowance for Loan Losses at end of period

   $ 1,691   $ 1,297   $ 774   $ 16   $ 3,778   $ 1,567   $ 1,250   $ 708   $ 24   $ 3,549
1  

Includes the allowance for credit losses related to customers' liability under acceptances.

2  

For explanations regarding this line item, refer to the "Allowance for Loan Losses" table on the previous page in this Note.

3  

The allowance for loan losses for off-balance sheet instruments is recorded in Other liabilities on the Interim Consolidated Balance Sheet.

The allowance for credit losses on all remaining financial assets is not significant.

FORECLOSED ASSETS

Foreclosed assets are repossessed non-financial assets where the Bank gains title, ownership, or possession of individual properties, such as real estate properties, which are managed for sale in an orderly manner with the proceeds used to reduce or repay any outstanding debt. The Bank does not generally occupy foreclosed properties for its business use. The Bank predominantly relies on third-party appraisals to determine the carrying value of foreclosed assets. Foreclosed assets held for sale were $87 million as at April 30, 2019 (October 31, 2018 – $81 million), and were recorded in Other assets on the Interim Consolidated Balance Sheet.

LOANS PAST DUE BUT NOT IMPAIRED

A loan is classified as past due when a borrower has failed to make a payment by the contractual due date. The following table summarizes loans that are contractually past due but not impaired as at April 30, 2019 and October 31, 2018.

 

                                                                                                                       

Loans Past Due but not Impaired 1,2

                                                                       

(millions of Canadian dollars)

              As at  
     April 30, 2019        October 31, 2018  
      
1-30
days
 
 
    
31-60
days
 
 
    
61-89
days
 
 
     Total       
1-30
days
 
 
    
31-60
days
 
 
    
61-89
days
 
 
     Total  

Residential mortgages

   $ 1,620      $ 342      $ 117      $ 2,079      $ 1,471    $ 358    $ 101    $ 1,930

Consumer instalment and other personal

     5,972        738        255        6,965        5,988      811      241      7,040

Credit card

     1,291        304        208        1,803        1,403      340      213      1,956

Business and government

     1,378        421        66        1,865        1,314      444      28      1,786

Total

   $ 10,261      $ 1,805      $ 646      $ 12,712      $ 10,176    $ 1,953    $ 583    $ 12,712
1  

Includes loans that are measured at FVOCI.

2  

Balances as at April 30, 2019 and October 31, 2018 exclude all acquired credit-impaired loans.

 

NOTE 7:  INVESTMENT IN ASSOCIATES AND JOINT VENTURES

INVESTMENT IN TD AMERITRADE HOLDING CORPORATION

The Bank has significant influence over TD Ameritrade Holding Corporation (TD Ameritrade) and accounts for its investment in TD Ameritrade using the equity method. The Bank's equity share in TD Ameritrade's earnings, excluding dividends, is reported on a one-month lag basis. The Bank takes into account changes in the subsequent period that would significantly affect the results.

As at April 30, 2019, the Bank's reported investment in TD Ameritrade was 42.32% (October 31, 2018 – 41.61%) of the outstanding shares of TD Ameritrade with a fair value of $16 billion (US$12 billion) (October 31, 2018 – $16 billion (US$12 billion)) based on the closing price of US$52.58 (October 31, 2018 – US$51.72) on the New York Stock Exchange.

 

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During the six months ended April 30, 2019, TD Ameritrade repurchased 10.2 million shares (for the year ended October 31, 2018 – 5.5 million shares). Pursuant to the Stockholders Agreement in relation to the Bank's equity investment in TD Ameritrade, if stock repurchases by TD Ameritrade cause the Bank's ownership percentage to exceed 45%, the Bank is required to use reasonable efforts to sell or dispose of such excess stock, subject to the Bank's commercial judgment as to the optimal timing, amount, and method of sales with a view to maximizing proceeds from such sales. However, in the event that stock repurchases by TD Ameritrade cause the Bank's ownership percentage to exceed 45%, the Bank has no absolute obligation to reduce its ownership percentage to 45%. In addition, stock repurchases by TD Ameritrade cannot result in the Bank's ownership percentage exceeding 47%.

Pursuant to the Stockholders Agreement in relation to the Bank's equity investment in TD Ameritrade, the Bank has the right to designate five of twelve members of TD Ameritrade's Board of Directors. The Bank's designated directors currently include the Bank's Group President and Chief Executive Officer and four independent directors of TD or TD's U.S. subsidiaries.

TD Ameritrade has no significant contingent liabilities to which the Bank is exposed. During the six months ended April 30, 2019 and April 30, 2018, TD Ameritrade did not experience any significant restrictions to transfer funds in the form of cash dividends, or repayment of loans or advances.

The condensed financial statements of TD Ameritrade, based on its consolidated financial statements, are included in the following tables.

 

Condensed Consolidated Balance Sheets 1                
(millions of Canadian dollars)    As at  
      March 31
2019
     September 30
2018
 
Assets      

Receivables from brokers, dealers, and clearing organizations

     $    2,178      $    1,809

Receivables from clients, net

     27,836      29,773

Other assets, net

     21,804      17,811

Total assets

     $  51,818      $  49,393

Liabilities

     

Payable to brokers, dealers, and clearing organizations

     $3,313      $3,923

Payable to clients

     31,135      30,126

Other liabilities

     6,220      4,809

Total liabilities

     40,668      38,858

Stockholders ' equity 2

     11,150      10,535

Total liabilities and stockholders ' equity

     $  51,818      $  49,393

 

1  

Customers' securities are reported on a settlement date basis whereas the Bank reports customers' securities on a trade date basis.

2  

The difference between the carrying value of the Bank's investment in TD Ameritrade and the Bank's share of TD Ameritrade's stockholders' equity is comprised of goodwill, other intangibles, and the cumulative translation adjustment.

 

Condensed Consolidated Statements of Income                                
(millions of Canadian dollars, except as noted)    For the three months ended      For the six months ended  
      March 31
2019
     March 31
2018
     March 31
2019
     March 31
2018
 

Revenues

           

Net interest revenue

   $ 481      $ 390      $ 978      $ 741  

Fee-based and other revenue

     1,447        1,400        2,953        2,647  

Total revenues

     1,928        1,790        3,931        3,388  

Operating expenses

           

Employee compensation and benefits

     452        583        871        1,111  

Other

     539        706        1,071        1,349  

Total operating expenses

     991        1,289        1,942        2,460  

Other expense (income)

     49        30        73        72  

Pre-tax income

     888        471        1,916        856  

Provision for income taxes

     225        128        455        136  

Net income 1,2

   $ 663      $ 343      $ 1,461      $ 720  

Earnings per share – basic (Canadian dollars)

   $ 1.18      $ 0.60      $ 2.60      $ 1.27  

Earnings per share – diluted (Canadian dollars)

     1.18        0.60        2.59        1.26  

 

1  

The Bank's equity share of net income of TD Ameritrade is based on the published consolidated financial statements of TD Ameritrade after converting into Canadian dollars and is subject to adjustments relating to the amortization of certain intangibles.

2  

The Bank's equity share in TD Ameritrade earnings for the three and six months ended April 30, 2019 includes an adjustment of nil (three and six months ended April 30, 2018 – a net favourable adjustment of nil and $41 million (US$32 million), respectively) primarily representing the Bank's share of TD Ameritrade's remeasurement of its deferred income tax balances as a result of the reduction in the U.S. federal corporate income tax rate.

 

NOTE 8:  SIGNIFICANT ACQUISITIONS AND DISPOSALS    

Agreement for Air Canada Credit Card Loyalty Program

On January 10, 2019, the Bank's long-term loyalty program agreement (the "Loyalty Agreement") with Air Canada became effective in conjunction with Air Canada completing its acquisition of Aimia Canada Inc., which operates the Aeroplan loyalty business (the "Transaction"). Under the terms of the Loyalty Agreement, the Bank will become the primary credit card issuer for Air Canada's new loyalty program when it launches in 2020 through to 2030. TD Aeroplan cardholders will become members of Air Canada's new loyalty program and their miles will be transitioned when Air Canada's new loyalty program launches in 2020.

In connection with the Transaction, the Bank paid $622 million plus applicable sales tax to Air Canada, of which $547 million ($446 million after sales and income taxes) was recognized in Non-interest expenses – Other on the Interim Consolidated Statement of Income during the first quarter of 2019, and $75 million was recognized as an intangible asset which will be amortized over the Loyalty Agreement term. In addition, the Bank prepaid $308 million plus applicable sales tax for the future purchase of loyalty points over a ten-year period.

 

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Acquisition of Greystone Managed Investments Inc.

On November 1, 2018, the Bank acquired 100% of the outstanding equity of Greystone Capital Management Inc., the parent company of Greystone Managed Investments Inc. ("Greystone") for consideration of $817 million, of which $475 million was paid in cash and $342 million was paid in the Bank's common shares. The value of 4.7 million common shares issued as consideration was based on the volume weighted average market price of the Bank's common shares over the 10 trading day period immediately preceding the fifth business day prior to the acquisition date and was recorded based on market price at close. Common shares of $167 million issued to employee shareholders in respect of the purchase price will be held in escrow for two years post-acquisition, subject to their continued employment, and will be recorded as a compensation expense over the two-year escrow period.

The acquisition was accounted for as a business combination under the purchase method. As at November 1, 2018, the acquisition contributed $169 million of assets and $55 million of liabilities. The excess of accounting consideration over the fair value of the identifiable net assets has been allocated to customer relationship intangibles of $140 million, deferred tax liability of $37 million, and goodwill of $433 million. Goodwill is not deductible for tax purposes. The results of the acquisition have been consolidated from the acquisition date and reported in the Canadian Retail segment. The purchase price allocation is subject to refinement and may be adjusted to reflect new information about facts and circumstances that existed at the acquisition date during the measurement period.

 

NOTE 9:  GOODWILL

Goodwill by Segment

                                                           
         
(millions of Canadian dollars)    Canadian
Retail  
     U.S.
Retail 1
     Wholesale
Banking
     Total  

Carrying amount of goodwill as at November 1, 2017

   $ 2,303      $ 13,693      $ 160    $ 16,156  

Additions

     82                      82  

Foreign currency translation adjustments and other

     18        280               298  

Carrying amount of goodwill as at October 31, 2018 2

     2,403        13,973        160      16,536  

Additions

     433                      433  

Foreign currency translation adjustments and other

     15        248                 263  

Carrying amount of goodwill as at April 30, 2019 2

   $ 2,851      $ 14,221      $ 160      $ 17,232  

 

1

Goodwill predominantly relates to U.S. personal and commercial banking.

2

Impairment losses for the three and six months ended April 30, 2019 and April 30, 2018 were nil, and accumulated impairment as at April 30, 2019 was nil (October 31, 2018 – nil).

 

NOTE 10:  OTHER ASSETS

Other Assets

                             
(millions of Canadian dollars)            As at  
      April 30
2019
     October 31
2018
 

Accounts receivable and other items

   $ 9,310      $ 8,938  

Accrued interest

     2,446        2,343  

Current income tax receivable

     2,503        1,614  

Defined benefit asset

     10        113  

Insurance-related assets, excluding investments

     1,561        1,638  

Prepaid expenses

     1,408        950  

Total

   $ 17,238      $ 15,596  

 

NOTE 11:  DEPOSITS

Demand deposits are those for which the Bank does not have the right to require notice prior to withdrawal. These deposits are in general chequing accounts.

Notice deposits are those for which the Bank can legally require notice prior to withdrawal. These deposits are in general savings accounts.

Term deposits are those payable on a fixed date of maturity purchased by customers to earn interest over a fixed period. The terms are from one day to ten years. The deposits are generally term deposits, guaranteed investment certificates, senior debt, and similar instruments. The aggregate amount of term deposits in denominations of $100,000 or more as at April 30, 2019, was $297 billion (October 31, 2018 – $293 billion).

Certain deposit liabilities are classified as Trading deposits on the Interim Consolidated Balance Sheet and accounted for at fair value with the change in fair value recognized on the Interim Consolidated Statement of Income.

Certain deposits have been designated at fair value through profit or loss on the Interim Consolidated Balance Sheet to reduce an accounting mismatch from related economic hedges. These deposits are accounted for at fair value with the change in fair value recognized on the Interim Consolidated Statement of Income, except for the amount of change in fair value attributable to changes in the Bank's own credit risk, which is recognized on the Interim Consolidated Statement of Comprehensive Income. Changes in fair value attributable to changes in the Bank's own credit risk are measured as the difference between: (i) the period-over-period change in the present value of the expected cash flows using an all-in discount curve reflecting the interest rate benchmark curve and the Bank's own credit risk; and (ii) the period-over-period change in the present value of the same expected cash flows using a discount curve based on the interest rate benchmark curve.

For deposits designated at fair value through profit or loss, the estimated amount that the Bank would be contractually required to pay at maturity, which is based on notional amounts, was $177 million less than its fair value as at April 30, 2019.

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 68  


Table of Contents
                                                                                                                                                                         
Deposits                                                                      
(millions of Canadian dollars)   As at  
    By Type           By Country           April 30
2019
    October 31
2018
 
     Demand     Notice     Term 1           Canada     United States     International           Total     Total  

Personal

  $ 13,714     $ 419,240     $ 56,729       $ 225,858     $ 263,795     $ 30       $ 489,683     $ 477,644  

Banks 2

    9,163       155       10,351         12,811       74       6,784         19,669       16,712  

Business and government 3,4

    78,789       133,449       153,753         266,014       96,320       3,657         365,991       357,083  

Trading 2

                53,974         26,119       16,270       11,585         53,974       114,704  

Designated at fair value through profit or loss 2,5

                57,766               31,711       22,175       3,880               57,766        

Total

  $ 101,666     $ 552,844     $ 332,573             $ 562,513     $ 398,634     $ 25,936             $ 987,083     $ 966,143  

Non-interest-bearing deposits included above

 

               

In domestic offices

                  $ 40,562     $ 42,402  

In foreign offices

                    53,524       54,488  

Interest-bearing deposits included above

                   

In domestic offices

                    521,951       505,295  

In foreign offices

                    370,365       362,890  

U.S. federal funds deposited 2

                                                                    681       1,068  

Total 3,6

                                                                  $ 987,083     $ 966,143  

 

1  

Includes $6,586 million (October 31, 2018 – $53 million) of senior debt which is subject to the bank recapitalization "bail-in" regime. This regime provides certain statutory powers to the Canada Deposit Insurance Corporation, including the ability to convert specified eligible shares and liabilities into common shares in the event that the Bank becomes non-viable.

2  

Includes deposits and advances with the Federal Home Loan Bank.

3  

As at April 30, 2019, includes $39 billion relating to covered bondholders (October 31, 2018 – $36 billion) and $2 billion (October 31, 2018 – $2 billion) due to TD Capital Trust lV.

4  

On May 9, 2019, TD Capital Trust IV announced its intention to redeem all of the outstanding TD Capital Trust IV Notes – Series 1 on June 30, 2019.

5  

Financial liabilities designated at fair value through profit or loss on the Interim Consolidated Balance Sheet consist of deposits designated at fair value through profit or loss and $17 million (October 31, 2018 – $16 million) of loan commitments and financial guarantees designated at fair value through profit or loss.

6  

As at April 30, 2019, includes deposits of $559 billion (October 31, 2018 – $548 billion) denominated in U.S. dollars and $56 billion (October 31, 2018 – $55 billion) denominated in other foreign currencies.

 

NOTE 12:  OTHER LIABILITIES

 

                             
Other Liabilities 1                
(millions of Canadian dollars)    As at  
      April 30
2019
     October 31
2018
 

Accounts payable, accrued expenses, and other items

   $ 4,842      $ 4,958  

Accrued interest

     1,373        1,283  

Accrued salaries and employee benefits

     2,538        3,344  

Cheques and other items in transit

     964        454  

Current income tax payable

     149        84  

Deferred tax liabilities

     192        175  

Defined benefit liability

     2,230        1,747  

Liabilities related to structured entities

     6,449        5,627  

Provisions

     1,522        1,502  

Total

   $ 20,259      $ 19,174  

 

1  

Certain comparative amounts have been reclassified to conform with the presentation adopted in the current period.

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 69  


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NOTE 13: EQUITY

The following table summarizes the shares issued and outstanding, and treasury shares held as at April 30, 2019 and October 31, 2018.

 

                                                           
Common and Preferred Shares Issued and Outstanding and Treasury Shares Held                            
(millions of shares and millions of Canadian dollars)   April 30, 2019     October 31, 2018  
     Number
of shares
    Amount     Number
of shares
    Amount  

Common Shares

       

Balance as at beginning of year

    1,830.4   $ 21,221     1,842.5   $ 20,931

Proceeds from shares issued on exercise of stock options

    1.0     52     2.9     152

Shares issued as a result of dividend reinvestment plan

    2.7     197     5.0     366

Shares issued in connection with acquisitions 1

    5.0     366            

Purchase of shares for cancellation and other

    (10.0     (118     (20.0     (228

Balance as at end of period – common shares

    1,829.1   $ 21,718     1,830.4   $ 21,221

Preferred Shares – Class A

       

Balance as at beginning of year

    200.0   $ 5,000     190.0   $ 4,750

Shares issued 2

    14.0     350     30.0     750

Shares redeemed

                (20.0     (500

Balance as at end of period – preferred shares

    214.0   $ 5,350     200.0   $ 5,000

Treasury shares – common 3

       

Balance as at beginning of year

    2.1   $ (144     2.9   $ (176

Purchase of shares

    71.5     (5,198     110.6     (8,295

Sale of shares

    (72.9     5,293     (111.4     8,327

Balance as at end of period – treasury shares – common

    0.7   $ (49     2.1   $ (144

Treasury shares – preferred 3

       

Balance as at beginning of year

    0.3   $ (7     0.3   $ (7

Purchase of shares

    3.0     (69     5.2     (129

Sale of shares

    (3.0     70     (5.2     129

Balance as at end of period – treasury shares – preferred

    0.3   $ (6     0.3   $ (7

 

1  

Includes 4.7 million shares issued for $342 million that form part of the consideration paid for Greystone, as well as 0.3 million shares issued for $24 million as share-based compensation to replace share-based payment awards of Greystone. Refer to Note 8 for a discussion on the acquisition of Greystone.

2  

Non-Cumulative 5-Year Rate Reset Preferred Shares (non-viability contingent capital (NVCC)), Series 22 (the "Series 22 Shares") issued by the Bank on January 28, 2019, at a price of $25 per share, with quarterly non-cumulative cash dividends on these shares, if declared, payable at a per annum rate of 5.20% for the initial period ending April 30, 2024. Thereafter, the dividend rate will reset every five years equal to the then five-year Government of Canada bond yield plus 3.27%. Holders of these shares will have the right to convert their shares into non-cumulative NVCC Floating Rate Preferred Shares, Series 23, subject to certain conditions, on April 30, 2024, and on April 30 every five years thereafter. Holders of the Series 23 Shares will be entitled to receive quarterly floating rate dividends, if declared, at a rate equal to the three-month Government of Canada Treasury Bill yield plus 3.27%. The Series 22 Shares are redeemable by the Bank, subject to regulatory consent, at $25 per share on April 30, 2024, and on April 30 every five years thereafter.

3  

When the Bank purchases its own shares as part of its trading business, they are classified as treasury shares and the cost of these shares is recorded as a reduction in equity.

Normal Course Issuer Bid

As approved by the Board on May 22, 2019, the Bank announced its intention to initiate a normal course issuer bid (NCIB) for up to 20 million of its common shares, subject to the approval of OSFI and the Toronto Stock Exchange (TSX). The timing and amount of any purchases under the program are subject to regulatory approvals and to management discretion based on factors such as market conditions and capital adequacy.

The Bank's previous NCIB, which was announced on April 19, 2018 and as amended on December 10, 2018, expired on April 12, 2019. The Bank repurchased an aggregate of 30 million common shares under its previous NCIB, at an average price of $74.29 per share for a total amount of $2.2 billion.

During the three and six months ended April 30, 2019, the Bank repurchased 5.5 million and 10 million common shares, respectively, under its previous NCIB at an average price of $75.30 and $72.75 per share, respectively, for a total amount of $414 million and $727 million, respectively.

During the year ended October 31, 2018, the Bank repurchased 20 million common shares under its previous NCIB at an average price of $75.07 per share for a total amount of $1.5 billion.

Non-Controlling Interests in Subsidiaries

Redemption of TD CaTS III Securities

On December 31, 2018, TD Capital Trust III, a subsidiary of the Bank, redeemed all of the outstanding TD Capital Trust III Securities – Series 2008 (TD CaTS III) at a price of $1 billion plus the unpaid distribution payable on the redemption date. TD CaTS III were included in Non-controlling interests in subsidiaries on the Interim Consolidated Balance Sheet.

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 70  


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NOTE 14:  SHARE-BASED COMPENSATION

For the three and six months ended April 30, 2019, the Bank recognized compensation expense for stock option awards of $3.0 million and $6.3 million, respectively (three and six months ended April 30, 2018 – $3.4 million and $6.5 million, respectively).

During the three months ended April 30, 2019 and April 30, 2018, nil stock options were granted by the Bank at a weighted-average fair value of nil per option. During the six months ended April 30, 2019, 2.2 million stock options (six months ended April 30, 2018 – 1.9 million stock options) were granted by the Bank at a weighted-average fair value of $5.64 per option (April 30, 2018 – $6.28 per option).

The following table summarizes the assumptions used for estimating the fair value of options for the six months ended April 30.

 

Assumptions Used for Estimating the Fair Value of Options               
(in Canadian dollars, except as noted)    For the six months ended  
     April 30
2019
    April 30
2018
 

Risk-free interest rate

     2.03  %      1.71  % 

Expected option life

     6.3 years       6.3 years  

Expected volatility 1

     12.64  %      13.91  % 

Expected dividend yield

     3.48  %      3.50  % 

Exercise price/share price

   $ 69.39     $ 72.64  

 

1  

Expected volatility is calculated based on the average daily volatility measured over a historical period corresponding to the expected option life.

 

NOTE 15:  EMPLOYEE BENEFITS

The following table summarizes expenses for the Bank's principal pension and non-pension post-retirement benefit plans and the Bank's significant other pension and retirement plans, for the three and six months ended April 30.

 

Employee Benefit Plans ' Expenses  
(millions of Canadian dollars)    Principal pension
plans
     Principal non-pension
post-retirement
benefit plan
     Other pension and
retirement plans 1
 
     For the three months ended  
      April 30
2019
    April 30
2018
     April 30
2019
     April 30
2018
     April 30
2019
     April 30
2018
 

Net employee benefits expense

                

Service cost – benefits earned

   $ 82     $ 101      $ 3      $ 4      $ 3      $ 2  

Net interest cost on net defined benefit liability

     (3     2      5        5      8        8  

Past service cost (credit)

                                2         

Defined benefit administrative expenses

     2       3                    1        1  

Total expense

   $ 81     $ 106      $ 8      $ 9      $ 14      $ 11  
     For the six months ended  
      April 30
2019
    April 30
2018
     April 30
2019
     April 30
2018
     April 30
2019
     April 30
2018
 

Net employee benefits expense

                

Service cost – benefits earned

   $ 163     $ 203      $ 7      $ 8      $ 5      $ 5  

Net interest cost on net defined benefit liability

     (6     4        10        9        16        15  

Past service cost (credit)

                                2        (3

Defined benefit administrative expenses

     5       5                      3        2  

Total expense

   $ 162     $ 212      $ 17      $ 17      $ 26      $ 19  

 

1  

Includes Canada Trust (CT) defined benefit pension plan, TD Banknorth defined benefit pension plan, TD Auto Finance retirement plans, and supplemental employee retirement plans. Other employee benefit plans operated by the Bank and certain of its subsidiaries are not considered material for disclosure purposes. The TD Banknorth defined benefit pension plan was frozen as of December 31, 2008, and no service credits can be earned after that date. Certain TD Auto Finance defined benefit pension plans were frozen as of April 1, 2012, and no service credits can be earned after March 31, 2012.

CASH FLOWS

The following table summarizes the Bank's contributions to its principal pension and non-pension post-retirement benefit plans and the Bank's significant other pension and retirement plans during the three and six months ended April 30.

 

Plan Contributions                                
(millions of Canadian dollars)    For the three months ended      For the six months ended  
      April 30
2019
    

April 30

2018

     April 30
2019
     April 30
2018
 

Principal pension plans

   $ 95    $ 71    $ 178    $ 190

Principal non-pension post-retirement benefit plan

     4      4      8      7

Other pension and retirement plans 1

     10      7      19      16

Total

   $ 109    $ 82    $ 205    $ 213

 

1  

Includes CT defined benefit pension plan, TD Banknorth defined benefit pension plan, TD Auto Finance retirement plans, and supplemental employee retirement plans. Other employee benefit plans operated by the Bank and certain of its subsidiaries are not considered material for disclosure purposes.

As at April 30, 2019, the Bank expects to contribute an additional $175 million to its principal pension plans, $8 million to its principal non-pension post-retirement benefit plan, and $24 million to its other pension and retirement plans by the end of the fiscal year. However, future contribution amounts may change upon the Bank's review of current contribution levels during fiscal 2019.

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 71  


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NOTE 16:  INCOME TAXES

The Canada Revenue Agency (CRA) and Alberta are denying certain dividend deductions claimed by the Bank. To date, the Bank has been reassessed for approximately $553 million of income tax and interest for the years 2011 to 2013. The Bank expects the CRA and Alberta to reassess the subsequent years on the same basis and that Québec will also reassess all open years. The Bank is of the view that its tax filing positions were appropriate and intends to challenge all reassessments.

 

NOTE 17:  EARNINGS PER SHARE

Basic earnings per share is calculated by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding for the period.

Diluted earnings per share is calculated using the same method as basic earnings per share except that certain adjustments are made to net income attributable to common shareholders and the weighted-average number of shares outstanding for the effects of all dilutive potential common shares that are assumed to be issued by the Bank.

The following table presents the Bank's basic and diluted earnings per share for the three and six months ended April 30.

 

Basic and Diluted Earnings Per Share                                
(millions of Canadian dollars, except as noted)    For the three months ended      For the six months ended  
      April 30
2019
     April 30
2018
     April 30
2019
     April 30
2018
 

Basic earnings per share

           

Net income attributable to common shareholders

   $ 3,110      $ 2,846      $ 5,442      $ 5,129  

Weighted-average number of common shares outstanding (millions)

     1,826.6        1,843.6        1,829.9        1,842.6  

Basic earnings per share (Canadian dollars)

   $ 1.70      $ 1.54      $ 2.97      $ 2.78  

Diluted earnings per share

           

Net income attributable to common shareholders

   $ 3,110      $ 2,846      $ 5,442      $ 5,129  

Net income available to common shareholders including impact of dilutive securities

     3,110        2,846        5,442        5,129  

Weighted-average number of common shares outstanding (millions)

     1,826.6        1,843.6        1,829.9        1,842.6  

Effect of dilutive securities

           

Stock options potentially exercisable (millions) 1

     3.4        3.9      3.3      4.2  

Weighted-average number of common shares outstanding – diluted (millions)

     1,830.0        1,847.5        1,833.2        1,846.8  

Diluted earnings per share (Canadian dollars) 1

   $ 1.70      $ 1.54      $ 2.97      $ 2.78  

 

1  

For the three and six months ended April 30, 2019 and April 30, 2018, no outstanding options were excluded from the computation of diluted earnings per share.

 

NOTE 18:  CONTINGENT LIABILITIES

Other than as described below, there have been no new significant events or transactions as previously identified in Note 27 of the Bank's 2018 Annual Consolidated Financial Statements.

LITIGATION

In the ordinary course of business, the Bank and its subsidiaries are involved in various legal and regulatory actions. The Bank establishes legal provisions when it becomes probable that the Bank will incur a loss and the amount can be reliably estimated. The Bank also estimates the aggregate range of reasonably possible losses (RPL) in its legal and regulatory actions (that is, those which are neither probable nor remote), in excess of provisions. As at April 30, 2019, the Bank's RPL is from zero to approximately $602 million (October 31, 2018 – from zero to approximately $763 million). The Bank's provisions and RPL represent the Bank's best estimates based upon currently available information for actions for which estimates can be made, but there are a number of factors that could cause the Bank's provisions and/or RPL to be significantly different from its actual or reasonably possible losses. For example, the Bank's estimates involve significant judgment due to the varying stages of the proceedings, the existence of multiple defendants in many proceedings whose share of liability has yet to be determined, the numerous yet-unresolved issues in many of the proceedings, some of which are beyond the Bank's control and/or involve novel legal theories and interpretations, the attendant uncertainty of the various potential outcomes of such proceedings, and the fact that the underlying matters will change from time to time. In addition, some actions seek very large or indeterminable damages.

In management's opinion, based on its current knowledge and after consultation with counsel, the ultimate disposition of these actions, individually or in the aggregate, will not have a material adverse effect on the consolidated financial condition or the consolidated cash flows of the Bank. However, because of the factors listed above, as well as other uncertainties inherent in litigation and regulatory matters, there is a possibility that the ultimate resolution of legal or regulatory actions may be material to the Bank's consolidated results of operations for any particular reporting period.

Stanford Litigation – On February 28, 2019, the Bank, along with the other bank defendants, filed a motion for judgment on the pleadings in the Official Stanford Investors Committee's case seeking dismissal of three claims (aiding and abetting fraud, aiding and abetting conversion, and aiding and abetting breach of fiduciary duty). The motion was fully briefed as of April 4, 2019. On May 3, 2019, two groups of plaintiffs comprising more than 950 individual investors in certificates of deposit issued by Stanford International Bank, Limited filed motions to intervene in the Official Stanford Investors Committee's case against the Bank and the other bank defendants. Discovery against the bank defendants is ongoing.

Overdraft Litigation – On February 1, 2019, the parties filed a Joint Notice of Settlement of all claims consolidated in MDL 2613 on a class-wide basis. Settlement is conditional on the parties reaching agreement on all material terms of a written agreement and court approval. In response to the Notice of Settlement, on February 4, 2019, the Court issued an order suspending all deadlines.

 

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Credit Card Fees – The trial of the British Columbia action is scheduled to proceed in October 2020.

Consumer Class  Actions – The Bank, along with several other Canadian financial institutions, is a defendant in a number of matters brought by consumers alleging provincial and/or national class claims in connection with various fees, interest rate calculations, and credit decisions. The cases are in various stages of maturity. In one matter, the Bank is the sole defendant and a trial date has been scheduled for November 2020.

 

NOTE 19:  SEGMENTED INFORMATION

For management reporting purposes, the Bank reports its results under three key business segments: Canadian Retail, which includes the results of the Canadian personal and commercial banking, wealth, and insurance businesses; U.S. Retail, which includes the results of the U.S. personal and business banking operations, wealth management services, and the Bank's investment in TD Ameritrade; and Wholesale Banking. The Bank's other activities are grouped into the Corporate segment.

Refer to Note 29 of the Bank's 2018 Annual Consolidated Financial Statements for additional segment disclosures.

The following table summarizes the segment results for the three and six months ended April 30.

 

                                                                                                                                                                                                                           
Results by Business Segment 1,2                                                       
(millions of Canadian dollars)          Canadian Retail      U.S. Retail      Wholesale Banking 3      Corporate 3     Total  
                           For the three months ended  
            

April 30

2019

    

April 30

2018

     April 30
2019
    

April 30

2018

    

April 30

2019

   

April 30

2018

    

April 30

2019

   

April 30

2018

   

April 30

2019

    

April 30

2018

 

Net interest income (loss)

     $ 3,010      $ 2,781      $ 2,231      $ 1,977      $ 262     $ 272      $ 369     $ 368     $ 5,872      $ 5,398  

Non-interest income (loss)

             2,949        2,731        677        654        625       615        105       84       4,356        4,084  

Total revenue 4

             5,959        5,512        2,908        2,631        887       887        474       452       10,228        9,482  

Provision for (recovery of) credit losses

       280        219        226        204        (5     16        132       117       633        556  

Insurance claims and related expenses

       668        558                                               668        558  

Non-interest expenses

             2,481        2,232        1,527        1,488        597       516        643       601       5,248        4,837  

Income (loss) before income taxes

             2,530        2,503        1,155        939        295       355        (301     (266     3,679        3,531  

Provision for (recovery of) income taxes

       681        670        150        94        74       88        (132     (106     773        746  

Equity in net income of an investment in TD Ameritrade

                           258        134                     8       (3     266        131  

Net income (loss)

           $ 1,849      $ 1,833      $ 1,263      $ 979      $ 221     $ 267      $ (161   $ (163   $ 3,172      $ 2,916  
                           For the six months ended  
             April 30
2019
    

April 30

2018

     April 30
2019
    

April 30

2018

     April 30
2019
   

April 30

2018

     April 30
2019
    April 30
2018
   

April 30

2019

    

April 30

2018

 

Net interest income (loss)

     $ 6,054      $ 5,606      $ 4,478      $ 3,917      $ 435     $ 601      $ 765     $ 704     $ 11,732      $ 10,828  

Non-interest income (loss)

             5,893        5,456        1,378        1,357        1,034       1,176        189       40       8,494        8,029  

Total revenue 4

             11,947        11,062        5,856        5,274        1,469       1,777        954       744       20,226        18,857  

Provision for (recovery of) credit losses

       590        489        532        451        2       9        359       300       1,483        1,249  

Insurance claims and related expenses

       1,370        1,133                                               1,370        1,133  

Non-interest expenses

             5,565        4,543        3,138        2,935        1,199       1,042        1,201       1,178       11,103        9,698  

Income (loss) before income taxes

             4,422        4,897        2,186        1,888        268       726        (606     (734     6,270        6,777  

Provision for (recovery of) income taxes

       1,194        1,307        252        197        64       181        (234     101       1,276        1,786  

Equity in net income of an investment in TD Ameritrade

                           569        240                     19       38       588        278  

Net income (loss)

           $ 3,228      $ 3,590      $ 2,503      $ 1,931      $ 204     $ 545      $ (353   $ (797   $ 5,582      $ 5,269  

Total assets

           $ 439,485      $ 415,518      $ 426,143      $ 405,115      $ 424,360     $ 403,775      $ 66,600     $ 59,428     $ 1,356,588      $ 1,283,836  

 

1  

Certain comparative amounts have been recast to conform with the presentation adopted in the current period.

2  

The retailer program partners' share of revenues and credit losses is presented in the Corporate segment, with an offsetting amount (representing the partners' net share) recorded in Non-interest expenses, resulting in no impact to Corporate reported Net income (loss). The Net income (loss) included in the U.S. Retail segment includes only the portion of revenue and credit losses attributable to the Bank under the agreements.

3  

Net interest income within Wholesale Banking is calculated on a taxable equivalent basis (TEB). The TEB adjustment reflected in Wholesale Banking is reversed in the Corporate segment.

4  

The impact from certain treasury and balance sheet management activities relating to the U.S. Retail segment is recorded in the Corporate segment.

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 73  


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NOTE 20:  INTEREST INCOME AND EXPENSE

The following table presents interest income and interest expense by basis of accounting measurement. Please refer to Note 2 of the 2018 Annual Consolidated Financial Statements for the type of instruments measured at amortized cost and FVOCI.

 

                                                           
(millions of Canadian dollars)            For the three months ended  
     April 30, 2019      April 30, 2018  
      Interest
income
     Interest
expense
     Interest
income
     Interest
expense  
 

Measured at amortized cost

   $ 7,289      $ 2,823      $ 6,214      $ 2,157  

Measured at FVOCI

     1,265               1,096         
     8,554        2,823      7,310        2,157  

Not measured at amortized cost or FVOCI 1

     1,719        1,578      1,299        1,054  

Total

   $ 10,273      $ 4,401      $ 8,609      $ 3,211  
             For the six months ended  
     April 30, 2019      April 30, 2018  
      Interest
income
     Interest
expense
     Interest
income
     Interest
expense
 

Measured at amortized cost

   $ 14,669      $ 5,751      $ 12,274      $ 4,107  

Measured at FVOCI

     2,570               2,137         
     17,239        5,751        14,411        4,107  

Not measured at amortized cost or FVOCI 1

     3,578        3,334        2,506        1,982  

Total

   $ 20,817      $ 9,085      $ 16,917      $ 6,089  

 

1  

Includes interest income, interest expense, and dividend income for financial instruments that are measured or designated at fair value through profit or loss and equities designated at FVOCI.

 

NOTE 21:  REGULATORY CAPITAL    

The Bank manages its capital under guidelines established by OSFI. The regulatory capital guidelines measure capital in relation to credit, market, and operational risks. The Bank has various capital policies, procedures, and controls which it utilizes to achieve its goals and objectives.

During the six months ended April 30, 2019, the Bank complied with the OSFI Basel III guidelines related to capital ratios and the leverage ratio. Effective January 1, 2016, OSFI's target Common Equity Tier 1 (CET1), Tier 1, and Total Capital ratios for Canadian banks designated as domestic systemically important banks (D-SIBs) includes a 1% common equity capital surcharge bringing the targets to 8%, 9.5%, and 11.5%, respectively. In addition, on June 25, 2018, OSFI provided greater transparency related to previously undisclosed Pillar 2 CET1 capital buffers through the introduction of the public Domestic Stability Buffer, which is held by D-SIBs against Pillar 2 risks. The current buffer is set at 1.75% of total risk-weighted assets (RWA) and must be met with CET1 Capital, effectively raising the CET1 target to 9.75%.

The following table summarizes the Bank's regulatory capital positions as at April 30, 2019 and October 31, 2018.

 

                                 
Regulatory Capital Position               
(millions of Canadian dollars, except as noted)    As at  
      April 30
2019
    October 31
2018
 

Capital

    

Common Equity Tier 1 Capital

   $ 54,269     $ 52,389  

Tier 1 Capital

     61,008       59,735  

Total Capital

     71,620       70,434  

Risk-weighted assets used in the calculation of capital ratios 1

    

Common Equity Tier 1 Capital

   $ 452,267     $ 435,632  

Tier 1 Capital

     452,267       435,780  

Total Capital

     452,267       435,927  

Capital and leverage ratios

    

Common Equity Tier 1 Capital ratio 1

     12.0  %      12.0  % 

Tier 1 Capital ratio 1

     13.5       13.7  

Total Capital ratio 1

     15.8       16.2  

Leverage ratio

     4.2       4.2  

 

1  

In accordance with the final Capital Adequacy Requirements guideline, the Credit Valuation Adjustment (CVA) capital charge has been phased in until the first quarter of 2019. Each capital ratio has its own RWA measure due to the OSFI prescribed scalar for inclusion of the CVA. For fiscal 2019, the corresponding scalars are all 100%. For fiscal 2018, the scalars for inclusion of CVA for CET1, Tier 1, and Total Capital RWA were 80%, 83%, and 86%, respectively.

 

NOTE 22:  RISK MANAGEMENT    

The risk management policies and procedures of the Bank are provided in the MD&A. The shaded sections of the "Managing Risk" section of the MD&A relating to market, liquidity, and insurance risks are an integral part of the Interim Consolidated Financial Statements.

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 74  


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NOTE 23: SUBSEQUENT EVENTS

Normal Course Issuer Bid

As approved by the Board on May 22, 2019, the Bank announced its intention to initiate an NCIB for up to 20 million of its common shares, subject to the approval of OSFI and the TSX. The timing and amount of any purchases under the program are subject to regulatory approvals and to management discretion based on factors such as market conditions and capital adequacy.

 

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SHAREHOLDER AND INVESTOR INFORMATION

 

Shareholder Services

 

If you:   And your inquiry relates to:   Please contact:
     
Are a registered shareholder (your name appears on your TD share certificate)   Missing dividends, lost share certificates, estate questions, address changes to the share register, dividend bank account changes, the dividend reinvestment plan, eliminating duplicate mailings of shareholder materials or stopping (or resuming) receiving annual and quarterly reports  

Transfer Agent:

AST Trust Company (Canada)
P.O. Box 700, Station B

Montréal, Québec H3B 3K3

1-800-387-0825 (Canada and U.S. only)

or 416-682-3860

Facsimile: 1-888-249-6189

inquiries@astfinancial.com or

www.astfinancial.com/ca.en

 

     

Hold your TD shares through the

Direct Registration System

in the United States

  Missing dividends, lost share certificates, estate questions, address changes to the share register, eliminating duplicate mailings of shareholder materials or stopping (or resuming) receiving annual and quarterly reports  

Co-Transfer Agent and Registrar:

Computershare
P.O. Box 505000

Louisville, KY 40233, or

 

Computershare

462 South 4 th Street, Suite 1600

Louisville, KY 40202

1-866-233-4836

TDD for hearing impaired: 1-800-231-5469

Shareholders outside of U.S.: 201-680-6578

TDD shareholders outside of U.S.: 201-680-6610
www.computershare.com/investor

 

     

Beneficially own TD shares that are held in the name of an intermediary, such as a bank, a trust company, a securities broker or other nominee

 

  Your TD shares, including questions regarding the dividend reinvestment plan and mailings of shareholder materials   Your intermediary

For all other shareholder inquiries, please contact TD Shareholder Relations at 416-944-6367 or 1-866-756-8936 or email tdshinfo@td.com . Please note that by leaving us an e-mail or voicemail message, you are providing your consent for us to forward your inquiry to the appropriate party for response.

General Information

Products and services: Contact TD Canada Trust, 24 hours a day, seven days a week: 1-866-567-8888

French: 1-866-233-2323

Cantonese/Mandarin: 1-800-328-3698

Telephone device for the hearing impaired (TTY): 1-800-361-1180

Website: www.td.com

Email: customer.service@td.com

Quarterly Earnings Conference Call

TD Bank Group will host an earnings conference call in Toronto, Ontario on May 23, 2019. The call will be audio webcast live through TD's website at 1:30 p.m. ET. The call and audio webcast will feature presentations by TD executives on the Bank's financial results for the second quarter, discussions of related disclosures, and will be followed by a question-and-answer period with analysts. The presentation material referenced during the call will be available on the TD website at www.td.com/investor/qr_2019.jsp on May 23, 2019, by approximately 12 p.m. ET. A listen-only telephone line is available at 416-641-6150 or 1-866-696-5894 (toll free) and the passcode is 2727354#.

The audio webcast and presentations will be archived at www.td.com/investor/qr_2019.jsp . Replay of the teleconference will be available from 3:30 p.m. ET on May 23, 2019, until 11:59 p.m. ET on Thursday, June 20, 2019 by calling 905-694-9451 or 1-800-408-3053 (toll free). The passcode is 4990143#.

 

TD BANK GROUP SECOND QUARTER 2019 REPORT TO SHAREHOLDERS     Page 76  

Exhibit 99.2

THE TORONTO-DOMINION BANK

EARNINGS COVERAGE ON SUBORDINATED NOTES AND DEBENTURES,

PREFERRED SHARES CLASSIFIED AS EQUITY, AND LIABILITIES FOR

PREFERRED SHARES AND CAPITAL TRUST SECURITIES

FOR THE TWELVE MONTHS ENDED April 30, 2019

TD Bank Group (“TD” or the “Bank”) dividend requirements on all its outstanding preferred shares in respect of the twelve months ended April 30, 2019 and adjusted to a before-tax equivalent using an effective tax rate of 20.1% for the twelve months ended April 30, 2019, amounted to $287.7 million for the twelve months ended April 30, 2019. The Bank’s interest and dividend requirements on all subordinated notes and debentures, preferred shares and liabilities for preferred shares and capital trust securities, after adjustment for new issues and retirement, amounted to $834 million for the twelve months ended April 30, 2019. The Bank’s reported net income, before interest on subordinated debt and liabilities for preferred shares and capital trust securities and income taxes was $13,623 million for the twelve months ended April 30, 2019, which was 16.3 times the Bank’s aggregate dividend and interest requirement for this period.

On an adjusted basis, the Bank’s net income before interest on subordinated debt and liabilities for preferred shares and capital trust securities and income taxes for the twelve months ended April 30, 2019, was $14,508 million, which was 17.4 times the Bank’s aggregate dividend and interest requirement for this period.

The Bank’s financial results are prepared in accordance with International Financial Reporting Standards (IFRS), the current generally accepted accounting principles (GAAP). The Bank refers to results prepared in accordance with IFRS as “reported” results. The Bank also utilizes non-GAAP financial measures referred to as “adjusted” results to assess each of its businesses and to measure overall Bank performance. To arrive at adjusted results, the Bank removes “items of note”, from reported results. The items of note relate to items which management does not believe are indicative of underlying business performance. The Bank believes that adjusted results provide the reader with a better understanding of how management views the Bank’s performance. As explained, adjusted results are different from reported results determined in accordance with IFRS. Adjusted results, items of note, and related terms used herein are not defined terms under IFRS, and, therefore, may not be comparable to similar terms used by other issuers. Please refer to the “Financial Results Overview – How the Bank Reports” section of the Bank’s 2018 Management’s Discussion and Analysis (MD&A) and the “How We Performed – How the Bank Reports” section of the Bank’s second quarter 2019 MD&A for a reconciliation between the Bank’s reported and adjusted results.

Exhibit 99.3

 

  RETURN ON ASSETS, DIVIDEND PAYOUTS, AND EQUITY TO ASSETS RATIOS 1,2

 

     For the three months ended     For the year ended  
     

April 30,

2019

   

January 31,

2019

   

October 31,

2018

 

Return on Assets – reported 3  

     0.94     0.68     0.86

Return on Assets – adjusted 4  

     0.97     0.84       0.92

Dividend Payout Ratio – reported 5  

     43.5     52.7       43.4

Dividend Payout Ratio – adjusted 6  

     42.2     42.7       40.3

Equity to Asset Ratio 7  

     6.1     5.9       5.9
1  

Calculated pursuant to the U.S. Securities and Exchange Commission Industry Guide 3.

2  

TD Bank Group (“TD” or the “Bank”) financial results prepared in accordance with International Financial Reporting Standards (IFRS), the current generally accepted accounting principles (GAAP), are referred to as “reported” results. The Bank also utilizes non-GAAP financial measures referred to as “adjusted” results (reported results excluding “items of note”, net of income taxes) to assess each of its businesses and measure overall Bank performance. Refer to the “How We Performed” section in the Bank’s second quarter 2019 Report to Shareholders ( www.td.com/investor ) for further explanation, reported basis results, a list of the items of note, and a reconciliation of non-GAAP measures.

3  

Calculated as reported net income available to common shareholders and non-controlling interests (NCI) in subsidiaries divided by average total assets.

4

Calculated as adjusted net income available to common shareholders and NCI in subsidiaries divided by average total assets.

5  

Calculated as dividends declared per common share divided by reported basic earnings per share.

6  

Calculated as dividends declared per common share divided by adjusted basic earnings per share.

7  

Calculated as average total equity (including NCI in subsidiaries) divided by average total assets.

Exhibit 99.4

 

 

LOGO

 

  

TD Bank Group Reports Second Quarter 2019 Results

Earnings News Release Three and Six months ended April 30, 2019

 

This quarterly Earnings News Release should be read in conjunction with the Bank's unaudited second quarter 2019 Report to Shareholders for the three and six months ended April 30, 2019, prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), which is available on our website at http://www.td.com/investor/ . This analysis is dated May 22, 2019. Unless otherwise indicated, all amounts are expressed in Canadian dollars, and have been primarily derived from the Bank's Annual or Interim Consolidated Financial Statements prepared in accordance with IFRS. Certain comparative amounts have been revised to conform to the presentation adopted in the current period. Additional information relating to the Bank is available on the Bank's website at http://www.td.com , as well as on SEDAR at http://www.sedar.com and on the U.S. Securities and Exchange Commission's (SEC) website at http://www.sec.gov (EDGAR filers section).

Reported results conform to generally accepted accounting principles (GAAP), in accordance with IFRS. Adjusted measures are non-GAAP measures. Refer to the "How the Bank Reports" section of the Management's Discussion and Analysis (MD&A) for an explanation of reported and adjusted results.

SECOND QUARTER FINANCIAL HIGHLIGHTS, compared with the second quarter last year:

   

Reported diluted earnings per share were $1.70, compared with $1.54.

   

Adjusted diluted earnings per share were $1.75, compared with $1.62.

   

Reported net income was $3,172 million, compared with $2,916 million.

   

Adjusted net income was $3,266 million, compared with $3,062 million.

YEAR-TO-DATE FINANCIAL HIGHLIGHTS, six months ended April 30, 2019, compared with the corresponding period last year:

   

Reported diluted earnings per share were $2.97, compared with $2.78.

 
   

Adjusted diluted earnings per share were $3.32, compared with $3.18.

   

Reported net income was $5,582 million, compared with $5,269 million.

   

Adjusted net income was $6,219 million, compared with $6,008 million.

SECOND QUARTER ADJUSTMENTS (ITEMS OF NOTE)

The second quarter reported earnings figures included the following items of note:

   

Amortization of intangibles of $78 million ($66 million after-tax or 3 cents per share), compared with $86 million ($73 million after-tax or 4 cents per share) in the second quarter last year.

   

Charges associated with the acquisition of Greystone of $30 million ($28 million after-tax or 2 cents per share).

TORONTO, May  23, 2019 – TD Bank Group ("TD" or the "Bank") today announced its financial results for the second quarter ended April 30, 2019. Second quarter reported earnings were $3.2 billion, up 9%, and adjusted earnings were $3.3 billion, up 7%, compared with the same quarter last year.

"TD achieved record earnings this quarter, reflecting continued year-over-year revenue growth in our retail businesses in Canada and the U.S., and stronger quarter-over-quarter results in our wholesale business," said Bharat Masrani, Group President and Chief Executive Officer, TD Bank Group. "We made strong progress in the quarter, adding new capabilities, strengthening our business, and advancing our strategic priorities as we continue to build the bank of the future."

Canadian Retail

Canadian Retail reported net income of $1,849 million and adjusted net income of $1,877 million, an increase of 1% and 2%, respectively, compared with the same quarter last year. Revenue grew by 8% reflecting increased volumes, higher margins, and more assets under management in its wealth businesses. Canadian Retail is already showing results from its "Future Ready" strategy and received the "Highest in Customer Satisfaction among the Big Five Retail Banks", according to the J.D. Power 2019 Canada Retail Banking Satisfaction Study 1 .

U.S. Retail

U.S. Retail reported and adjusted net income was $1,263 million (US$948 million), an increase of 29% (23% in U.S. dollars) on a reported basis and 20% (15% in U.S. dollars) on an adjusted basis, compared with the same quarter last year. TD Ameritrade contributed $258 million (US$195 million) in reported and adjusted earnings to the segment, an increase of 93% (82% in U.S. dollars) and 32% (27% in U.S. dollars), respectively, in the same quarter last year.

The U.S. Retail Bank, which excludes the Bank's investment in TD Ameritrade, reported net income of $1,005 million (US$753 million), up 19% (14% in U.S. dollars) on a reported basis and up 17% (12% in U.S. dollars) on an adjusted basis, from the same period last year. Earnings growth reflects higher deposit margins and increased loan and deposit volumes. U.S. Retail continued to invest in its digital platform and deliver industry-leading customer experiences, receiving the "Highest in Customer Satisfaction with Retail Banking in Southeast", according to the J.D. Power 2019 U.S. Retail Banking Satisfaction Study 2 .

Wholesale

Wholesale Banking saw a strong improvement over the first quarter of 2019, with net income of $221 million this quarter, reflecting higher trading-related revenue, advisory and underwriting fees from improved market conditions and increased client activity compared to the prior quarter. Compared to the second quarter last year, net income was $46 million lower, reflecting higher non-interest expenses, partially offset by lower provision for credit losses. The Wholesale Bank continues to invest in the global expansion of its U.S. dollar strategy.

 

 

1  

TD Canada Trust received the highest score among the big five banks in the J.D. Power 2019 Canada Retail Banking Satisfaction Study of customers' satisfaction with their primary bank. Visit jdpower.com/awards.

2  

TD Bank, America's Most Convenient Bank ® , received the highest score in the Southeast region of the J.D. Power 2019 U.S. Retail Banking Satisfaction Study of customers' satisfaction with their own retail bank. Visit jdpower.com.

 

TD BANK GROUP SECOND QUARTER 2019 EARNINGS NEWS RELEASE     Page 1  


Capital

TD's Common Equity Tier 1 Capital ratio on a Basel III fully phased-in basis was 12.0%.

Innovation

"We continue to enhance our omni capabilities and deliver new experiences to meet the evolving needs of our customers," added Masrani. "In recent months, we successfully converted our U.S. small business customers to our new digital platform, and participated in the launch of Verified.Me, which offers new options and added convenience to millions of Canadians."

Conclusion

"I want to thank our more than 85,000 colleagues across the globe for their significant contributions to the Bank's performance this quarter. I also want to congratulate them for our recent J.D. Power wins, which are testaments to their hard work and dedication to our customers," concluded Masrani.

The foregoing contains forward-looking statements. Please refer to the "Caution Regarding Forward-Looking Statements".

 

Caution Regarding Forward-Looking Statements

From time to time, the Bank (as defined in this document) makes written and/or oral forward-looking statements, including in this document, in other filings with Canadian regulators or the United States (U.S.) Securities and Exchange Commission (SEC), and in other communications. In addition, representatives of the Bank may make forward-looking statements orally to analysts, investors, the media, and others. All such statements are made pursuant to the "safe harbour" provisions of, and are intended to be forward-looking statements under, applicable Canadian and U.S. securities legislation, including the U.S. Private Securities Litigation Reform Act of 1995 . Forward-looking statements include, but are not limited to, statements made in this document, the Management's Discussion and Analysis ("2018 MD&A") in the Bank's 2018 Annual Report under the heading "Economic Summary and Outlook", for the Canadian Retail, U.S. Retail, and Wholesale Banking segments under headings "Business Outlook and Focus for 2019", and for the Corporate segment, "Focus for 2019", and in other statements regarding the Bank's objectives and priorities for 2019 and beyond and strategies to achieve them, the regulatory environment in which the Bank operates, and the Bank's anticipated financial performance. Forward-looking statements are typically identified by words such as "will", "would", "should", "believe", "expect", "anticipate", "intend", "estimate", "plan", "goal", "target", "may", and "could".

By their very nature, these forward-looking statements require the Bank to make assumptions and are subject to inherent risks and uncertainties, general and specific. Especially in light of the uncertainty related to the physical, financial, economic, political, and regulatory environments, such risks and uncertainties – many of which are beyond the Bank's control and the effects of which can be difficult to predict – may cause actual results to differ materially from the expectations expressed in the forward-looking statements. Risk factors that could cause, individually or in the aggregate, such differences include: credit, market (including equity, commodity, foreign exchange, interest rate, and credit spreads), liquidity, operational (including technology and infrastructure), reputational, insurance, strategic, regulatory, legal, environmental, capital adequacy, and other risks. Examples of such risk factors include the general business and economic conditions in the regions in which the Bank operates; the ability of the Bank to execute on key priorities, including the successful completion of acquisitions and dispositions, business retention plans, and strategic plans and to attract, develop, and retain key executives; disruptions in or attacks (including cyber-attacks) on the Bank's information technology, internet, network access or other voice or data communications systems or services; the evolution of various types of fraud or other criminal behaviour to which the Bank is exposed; the failure of third parties to comply with their obligations to the Bank or its affiliates, including relating to the care and control of information; the impact of new and changes to, or application of, current laws and regulations, including without limitation tax laws, capital guidelines and liquidity regulatory guidance, and the bank recapitalization "bail-in" regime; exposure related to significant litigation and regulatory matters; increased competition, including through internet and mobile banking and non-traditional competitors; changes to the Bank's credit ratings; changes in currency and interest rates (including the possibility of negative interest rates); increased funding costs and market volatility due to market illiquidity and competition for funding; critical accounting estimates and changes to accounting standards, policies, and methods used by the Bank; existing and potential international debt crises; and the occurrence of natural and unnatural catastrophic events and claims resulting from such events. The Bank cautions that the preceding list is not exhaustive of all possible risk factors and other factors could also adversely affect the Bank's results. For more detailed information, please refer to the "Risk Factors and Management" section of the 2018 MD&A, as may be updated in subsequently filed quarterly reports to shareholders and news releases (as applicable) related to any events or transactions discussed under the headings "Significant Events" and "Significant and Subsequent Events in 2019" in the relevant MD&A, which applicable releases may be found on www.td.com . All such factors should be considered carefully, as well as other uncertainties and potential events, and the inherent uncertainty of forward-looking statements, when making decisions with respect to the Bank and the Bank cautions readers not to place undue reliance on the Bank's forward-looking statements.

Material economic assumptions underlying the forward-looking statements contained in this document are set out in the 2018 MD&A under the headings "Economic Summary and Outlook", for the Canadian Retail, U.S. Retail, and Wholesale Banking segments, "Business Outlook and Focus for 2019", and for the Corporate segment, "Focus for 2019", each as may be updated in subsequently filed quarterly reports to shareholders.

Any forward-looking statements contained in this document represent the views of management only as of the date hereof and are presented for the purpose of assisting the Bank's shareholders and analysts in understanding the Bank's financial position, objectives and priorities and anticipated financial performance as at and for the periods ended on the dates presented, and may not be appropriate for other purposes. The Bank does not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time by or on its behalf, except as required under applicable securities legislation.

This document was reviewed by the Bank ' s Audit Committee and was approved by the Bank ' s Board of Directors, on the Audit Committee ' s recommendation, prior to its release.

 

TD BANK GROUP SECOND QUARTER 2019 EARNINGS NEWS RELEASE     Page 2  


TABLE 1:  FINANCIAL HIGHLIGHTS 1

 

(millions of Canadian dollars, except as noted)

     As at or for the three months ended              As at or for the six months ended
      

April 30

2019

 

   

January 31

2019

 

   

April 30

2018

 

            

April 30

2019

 

   

April 30

2018

 

Results of operations

             

Total revenue

   $ 10,228   $ 9,998   $ 9,482      $ 20,226   $ 18,857

Provision for credit losses

     633     850     556        1,483     1,249

Insurance claims and related expenses

     668     702     558        1,370     1,133

Non-interest expenses – reported

     5,248     5,855     4,837        11,103     9,698

Non-interest expenses – adjusted 2  

     5,163     5,161     4,759        10,324     9,552

Net income – reported

     3,172     2,410     2,916        5,582     5,269

Net income – adjusted 2  

     3,266     2,953     3,062              6,219     6,008

Financial position (billions of Canadian dollars)

             

Total loans net of allowance for loan losses

   $ 663.6   $ 648.5   $ 622.0      $ 663.6   $ 622.0

Total assets

         1,356.6         1,322.5         1,283.8            1,356.6         1,283.8

Total deposits

     875.3     849.3     829.8        875.3     829.8

Total equity

     84.9     81.7     76.7        84.9     76.7

Total Common Equity Tier 1 Capital risk-weighted assets 3  

     452.3     439.3     417.8              452.3     417.8

Financial ratios

             

Return on common equity – reported

     16.5  %      12.2  %      16.8  %         14.3  %      14.9  % 

Return on common equity – adjusted 4  

     17.0     15.0     17.6        16.0     17.1

Return on tangible common equity 4  

     23.4     17.5     24.4        20.4     21.8

Return on tangible common equity – adjusted 4  

     23.6     21.0     25.0        22.3     24.3

Efficiency ratio – reported

     51.3     58.6     51.0        54.9     51.4

Efficiency ratio – adjusted 2  

     50.5     51.6     50.2        51.0     50.4

Provision for credit losses as a % of net average loans and acceptances 5

     0.39     0.50     0.36              0.45     0.41

Common share information – reported (Canadian dollars)

             

Per share earnings

             

Basic

   $ 1.70   $ 1.27   $ 1.54      $ 2.97   $ 2.78

Diluted

     1.70     1.27     1.54        2.97     2.78

Dividends per share

     0.74     0.67     0.67        1.41     1.27

Book value per share

     43.51     41.69     38.26        43.51     38.26

Closing share price 6  

     76.42     74.00     72.11        76.42     72.11

Shares outstanding (millions)

             

Average basic

     1,826.6     1,833.1     1,843.6        1,829.9     1,842.6

Average diluted

     1,830.0     1,836.2     1,847.5        1,833.2     1,846.8

End of period

     1,828.4     1,830.8     1,844.6        1,828.4     1,844.6

Market capitalization (billions of Canadian dollars)

   $ 139.7   $ 135.5   $ 133.0      $ 139.7   $ 133.0

Dividend yield 7  

     3.9  %      3.8  %      3.7  %         3.9  %      3.5  % 

Dividend payout ratio

     43.4     52.6     43.5        47.4     45.6

Price-earnings ratio

     12.3     12.3     12.7        12.3     12.7

Total shareholder return (1 year) 8  

     10.0     2.6     16.3              10.0     16.3

Common share information – adjusted (Canadian dollars) 2  

             
Per share earnings

 

Basic

   $ 1.75   $ 1.57   $ 1.62      $ 3.32   $ 3.18

Diluted

     1.75     1.57     1.62        3.32     3.18

Dividend payout ratio

     42.1  %      42.7  %      41.4  %         42.4  %      39.9  % 

Price-earnings ratio

     11.6     11.4     11.9              11.6     11.9

Capital ratios

             

Common Equity Tier 1 Capital ratio 3  

     12.0  %      12.0  %      11.8  %         12.0  %      11.8  % 

Tier 1 Capital ratio 3  

     13.5     13.5     13.5        13.5     13.5

Total Capital ratio 3  

     15.8     15.9     15.8        15.8     15.8

Leverage ratio

     4.2     4.1     4.1              4.2     4.1

 

1  

Certain comparative amounts have been recast to conform with the presentation adopted in the current period.

2  

Adjusted measures are non-GAAP measures. Refer to the "How the Bank Reports" section of this document for an explanation of reported and adjusted results.

3  

Each capital ratio has its own risk-weighted assets (RWA) measure due to the Office of the Superintendent of Financial Institutions Canada (OSFI) prescribed scalar for inclusion of the Credit Valuation Adjustment (CVA). For fiscal 2019, the scalars for inclusion of CVA for Common Equity Tier 1 (CET1), Tier 1, and Total Capital RWA are all 100%. For fiscal 2018, the scalars for inclusion were 80%, 83%, and 86%, respectively.

4

Metrics are non-GAAP financial measures. Refer to the "Return on Common Equity" and "Return on Tangible Common Equity" sections of this document for an explanation.

5

Excludes acquired credit-impaired (ACI) loans.

6

Toronto Stock Exchange (TSX) closing market price.

7

Dividend yield is calculated as the annualized dividend per common share paid divided by daily average closing stock price in the relevant period. Dividend per common share is derived as follows: a) for the quarter – by annualizing the dividend per common share paid during the quarter; and b) for the year-to-date – by annualizing the year-to-date dividend per common share paid.

8

Total shareholder return is calculated based on share price movement and dividends reinvested over a trailing one-year period.

 

TD BANK GROUP SECOND QUARTER 2019 EARNINGS NEWS RELEASE     Page 3  


 

HOW WE PERFORMED

How the Bank Reports

The Bank prepares its Interim Consolidated Financial Statements in accordance with IFRS, the current GAAP, and refers to results prepared in accordance with IFRS as "reported" results. The Bank also utilizes non-GAAP financial measures referred to as "adjusted" results to assess each of its businesses and to measure the Bank's overall performance. To arrive at adjusted results, the Bank removes "items of note", from reported results. The items of note relate to items which management does not believe are indicative of underlying business performance. The Bank believes that adjusted results provide the reader with a better understanding of how management views the Bank's performance. The items of note are disclosed in Table 3. As explained, adjusted results differ from reported results determined in accordance with IFRS. Adjusted results, items of note, and related terms used in this document are not defined terms under IFRS and, therefore, may not be comparable to similar terms used by other issuers.

The Bank's U.S. strategic cards portfolio comprises agreements with certain U.S. retailers pursuant to which TD is the U.S. issuer of private label and co-branded consumer credit cards to their U.S. customers. Under the terms of the individual agreements, the Bank and the retailers share in the profits generated by the relevant portfolios after credit losses. Under IFRS, TD is required to present the gross amount of revenue and provisions for credit losses related to these portfolios in the Bank's Interim Consolidated Statement of Income. At the segment level, the retailer program partners' share of revenues and credit losses is presented in the Corporate segment, with an offsetting amount (representing the partners' net share) recorded in Non-interest expenses, resulting in no impact to Corporate reported Net income (loss). The Net income (loss) included in the U.S. Retail segment includes only the portion of revenue and credit losses attributable to TD under the agreements.

The following table provides the operating results on a reported basis for the Bank.

 

TABLE 2:  OPERATING RESULTS – Reported 1

 

(millions of Canadian dollars)

     For the three months ended              For the six months ended
      
April 30
2019
 
    
January 31
2019
 
    
April 30
2018
 
            
April 30
2019
 
    
April 30
2018
 

Net interest income

   $ 5,872    $ 5,860    $ 5,398      $ 11,732    $ 10,828

Non-interest income

     4,356      4,138      4,084              8,494      8,029

Total revenue

     10,228      9,998      9,482        20,226      18,857

Provision for credit losses

     633      850      556        1,483      1,249

Insurance claims and related expenses

     668      702      558        1,370      1,133

Non-interest expenses

     5,248      5,855      4,837              11,103      9,698

Income before income taxes and equity in net income of an investment in TD Ameritrade

     3,679      2,591      3,531        6,270      6,777

Provision for income taxes

     773      503      746        1,276      1,786

Equity in net income of an investment in TD Ameritrade

     266      322      131              588      278

Net income – reported

     3,172      2,410      2,916        5,582      5,269

Preferred dividends

     62      60      52              122      104

Net income available to common shareholders and non-controlling interests in subsidiaries

   $ 3,110    $ 2,350    $ 2,864            $ 5,460    $ 5,165

Attributable to:

                

Common shareholders

   $ 3,110    $ 2,332    $ 2,846      $ 5,442    $ 5,129

Non-controlling interests

            18      18              18      36

 

1  

Certain comparative amounts have been recast to conform with the presentation adopted in the current period.

 

TD BANK GROUP SECOND QUARTER 2019 EARNINGS NEWS RELEASE     Page 4  


The following table provides a reconciliation between the Bank's adjusted and reported results.

 

TABLE 3:  NON-GAAP FINANCIAL MEASURES – Reconciliation of Adjusted to Reported Net Income 1

 

(millions of Canadian dollars)

     For the three months ended              For the six months ended    
      

April 30

2019

 

   

January 31

2019

 

   

April 30

2018

 

            
April 30
2019
 
   

April 30

2018

   

   

Operating results – adjusted

             

Net interest income

   $ 5,872   $ 5,860   $ 5,398      $ 11,732   $ 10,828    

Non-interest income 2  

     4,356     4,138     4,084              8,494     8,118    

Total revenue

     10,228     9,998     9,482        20,226     18,946    

Provision for credit losses

     633     850     556        1,483     1,249    

Insurance claims and related expenses

     668     702     558        1,370     1,133    

Non-interest expenses 3  

     5,163     5,161     4,759              10,324     9,552    

Income before income taxes and equity in net income of an investment in TD Ameritrade

     3,764     3,285     3,609        7,049     7,012    

Provision for income taxes

     787     678     763        1,465     1,416    

Equity in net income of an investment in TD Ameritrade 4  

     289     346     216              635     412    

Net income – adjusted

     3,266     2,953     3,062        6,219     6,008    

Preferred dividends

     62     60     52              122     104    

Net income available to common shareholders and non-controlling interests in subsidiaries – adjusted

     3,204     2,893     3,010              6,097     5,904    

Attributable to:

             

Non-controlling interests in subsidiaries, net of income taxes

           18     18              18     36    

Net income available to common shareholders – adjusted

     3,204     2,875     2,992              6,079     5,868    

Pre-tax adjustments of items of note

             

Amortization of intangibles 5  

     (78     (80     (86        (158     (171 )  

Charges related to the long-term loyalty agreement with Air Canada 6  

           (607              (607      

Charges associated with the acquisition of Greystone 7  

     (30     (31              (61      

Charges associated with the Scottrade transaction 8  

                 (77              (150 )  

Impact from U.S. tax reform 9  

                                (48 )  

Provision for (recovery of) income taxes for items of note

             

Amortization of intangibles 10  

     (12     (13     (13        (25     (30 )  

Charges related to the long-term loyalty agreement with Air Canada

           (161              (161      

Charges associated with the acquisition of Greystone

     (2     (1              (3      

Charges associated with the Scottrade transaction

                 (4              (5 )  

Impact from U.S. tax reform 9  

                                      405    

Total adjustments for items of note

     (94     (543     (146              (637     (739 )  

Net income available to common shareholders – reported

   $ 3,110   $ 2,332   $ 2,846            $ 5,442   $ 5,129    

 

1  

Certain comparative amounts have been recast to conform with the presentation adopted in the current period.

2  

Adjusted Non-interest income excludes the following item of note: Adjustment to the carrying balances of certain tax credit-related investments, as explained in footnote 9 – first quarter 2018 – $(89) million. This amount was reported in the Corporate segment.

3  

Adjusted Non-interest expenses exclude the following items of note: Amortization of intangibles, as explained in footnote 5 – second quarter 2019 – $55 million, first quarter 2019 – $56 million, second quarter 2018 – $62 million, first quarter 2018 – $63 million; these amounts were reported in the Corporate segment. Charges related to the long-term loyalty agreement with Air Canada, as explained in footnote 6 – first quarter 2019 – $607 million; this amount was reported in the Canadian Retail segment. Charges associated with the acquisition of Greystone, as explained in footnote 7 – second quarter 2019 – $30 million, first quarter 2019 – $31 million; this amount was reported in the Canadian Retail segment. Charges associated with Scottrade transaction, as explained in footnote 8 – second quarter 2018 – $16 million and first quarter 2018 – $5 million; these amounts were reported in the U.S. Retail segment.

4  

Adjusted Equity in net income of an investment in TD Ameritrade excludes the following items of note: Amortization of intangibles, as explained in footnote 5 – second quarter 2019 $23 million, first quarter 2019 $24 million, second quarter 2018 – $24 million, first quarter 2018 $22 million; and the Bank's share of TD Ameritrade's deferred tax balances adjustment, as explained in footnote 9 – first quarter 2018 – $(41) million. The earnings impact of both of these items was reported in the Corporate segment. The Bank's share of charges associated with TD Ameritrade's acquisition of Scottrade Financial Services Inc. ("Scottrade"), as explained in footnote 8 – second quarter 2018 – $61 million, and first quarter 2018 – $68 million. This item was reported in the U.S. Retail segment.

5

Amortization of intangibles relates to intangibles acquired as a result of asset acquisitions and business combinations, including the after-tax amounts for amortization of intangibles relating to the Equity in net income of the investment in TD Ameritrade. Although the amortization of software and asset servicing rights are recorded in amortization of intangibles, they are not included for purposes of the items of note.

6

On January 10, 2019, the Bank's long-term loyalty program agreement with Air Canada became effective in conjunction with Air Canada completing its acquisition of Aimia Canada Inc., which operates the Aeroplan loyalty business (the "Transaction"). In connection with the Transaction, the Bank recognized an expense of $607 million ($446 million after-tax) in the Canadian Retail segment during the first quarter of 2019.

7

On November 1, 2018, the Bank acquired Greystone Capital Management Inc., the parent company of Greystone Managed Investments Inc. ("Greystone"). The Bank incurred acquisition-related charges including compensation to employee shareholders issued in common shares in respect of the purchase price, direct transaction costs, and certain other acquisition-related costs. These amounts have been recorded as an adjustment to net income and were reported in the Canadian Retail segment.

8

On September 18, 2017, the Bank acquired Scottrade Bank and TD Ameritrade acquired Scottrade, together with the Bank's purchase of TD Ameritrade shares issued in connection with TD Ameritrade's acquisition of Scottrade (the "Scottrade transaction"). Scottrade Bank merged with TD Bank, N.A. The Bank and TD Ameritrade incurred acquisition related charges including employee severance, contract termination fees, direct transaction costs, and other one-time charges. These amounts have been recorded as an adjustment to net income and include charges associated with the Bank's acquisition of Scottrade Bank and the after-tax amounts for the Bank's share of charges associated with TD Ameritrade's acquisition of Scottrade. These amounts were reported in the U.S. Retail segment.

9

In the first quarter of 2018, the reduction of the U.S. federal corporate tax rate enacted by the Tax Cuts and Jobs Act (the "U.S. Tax Act") resulted in a net charge to earnings of $453 million, comprising a net $48 million pre-tax charge related to the write-down of certain tax credit-related investments, partially offset by the favourable impact of the Bank's share of TD Ameritrade's remeasurement of its deferred income tax balances, and a net $405 million income tax expense resulting from the remeasurement of the Bank's deferred tax assets and liabilities to the lower base rate of 21% and other related tax adjustments. The earnings impact was reported in the Corporate segment.

10

The amount reported for the six months ended April 30, 2018, excludes $31 million relating to the one-time adjustment of associated deferred tax liability balances as a result of the U.S. Tax Act. The impact of this adjustment is included in the Impact from U.S. tax reform item of note.

 

TD BANK GROUP SECOND QUARTER 2019 EARNINGS NEWS RELEASE     Page 5  


TABLE 4:  RECONCILIATION OF REPORTED TO ADJUSTED EARNINGS PER SHARE (EPS) 1  

 

(Canadian dollars)

     For the three months ended          For the six months ended
      

April 30

2019


    

January 31

2019


    

April 30

2018


 

    

April 30

2019


    

April 30

2018


Basic earnings per share – reported

   $ 1.70    $ 1.27    $ 1.54      $ 2.97    $ 2.78

Adjustments for items of note 2

     0.05      0.30      0.08        0.35      0.40

Basic earnings per share – adjusted

   $ 1.75    $ 1.57    $ 1.62      $ 3.32    $ 3.18

Diluted earnings per share – reported

   $ 1.70    $ 1.27    $ 1.54      $ 2.97    $ 2.78

Adjustments for items of note 2

     0.05      0.30      0.08        0.35      0.40

Diluted earnings per share – adjusted

   $ 1.75    $ 1.57    $ 1.62      $ 3.32    $ 3.18

 

1

EPS is computed by dividing net income available to common shareholders by the weighted-average number of shares outstanding during the period.

2

For explanations of items of note, refer to the "Non-GAAP Financial Measures – Reconciliation of Adjusted to Reported Net Income" table in the "How We Performed" section of this document.

Return on Common Equity

The Bank's methodology for allocating capital to its business segments is aligned with the common equity capital requirements under Basel III. For fiscal 2019, the capital allocated to the business segments is based on 10% CET1 Capital. Capital allocated to the business segments was based on 9% for fiscal 2018.

Adjusted Return on common equity (ROE) is adjusted net income available to common shareholders as a percentage of average common equity.

Adjusted ROE is a non-GAAP financial measure as it is not a defined term under IFRS. Readers are cautioned that earnings and other measures adjusted to a basis other than IFRS do not have standardized meanings under IFRS and, therefore, may not be comparable to similar terms used by other issuers.

 

TABLE 5:  RETURN ON COMMON EQUITY

 

                                                                          

(millions of Canadian dollars, except as noted)

     For the three months ended     For the six months ended
      

April 30

2019


   

January 31

2019


   

April 30

2018


   

April 30

2019


   

April 30

2018


Average common equity

   $ 77,369   $ 75,873   $ 69,579   $ 76,663   $ 69,332

Net income available to common shareholders – reported

     3,110     2,332     2,846     5,442     5,129

Items of note, net of income taxes 1

     94     543     146     637     739

Net income available to common shareholders – adjusted

   $ 3,204   $ 2,875   $ 2,992   $ 6,079   $ 5,868

Return on common equity – reported

     16.5  %      12.2  %      16.8  %      14.3  %      14.9  % 

Return on common equity – adjusted

     17.0     15.0     17.6     16.0     17.1

 

1

For explanations of items of note, refer to the "Non-GAAP Financial Measures – Reconciliation of Adjusted to Reported Net Income" table in the "How We Performed" section of this document.

Return on Tangible Common Equity

Tangible common equity (TCE) is calculated as common shareholders' equity less goodwill, imputed goodwill and intangibles on an investment in TD Ameritrade and other acquired intangible assets, net of related deferred tax liabilities. Return on tangible common equity (ROTCE) is calculated as reported net income available to common shareholders after adjusting for the after-tax amortization of acquired intangibles, which are treated as an item of note, as a percentage of average TCE. Adjusted ROTCE is calculated using reported net income available to common shareholders, adjusted for items of note, as a percentage of average TCE. Adjusted ROTCE provides a useful measure of the performance of the Bank's income producing assets, independent of whether or not they were acquired or developed internally. TCE, ROTCE, and adjusted ROTCE are each non-GAAP financial measures and are not defined terms under IFRS. Readers are cautioned that earnings and other measures adjusted to a basis other than IFRS do not have standardized meanings under IFRS and, therefore, may not be comparable to similar terms used by other issuers.

 

TABLE 6:  RETURN ON TANGIBLE COMMON EQUITY

 

                                                                          

(millions of Canadian dollars, except as noted)

     For the three months ended     For the six months ended
      

April 30

2019


   

January 31

2019


   

April 30

2018


   

April 30

2019


   

April 30

2018


Average common equity

   $ 77,369   $ 75,873   $ 69,579   $ 76,663   $ 69,332

Average goodwill

     17,083     17,021     16,031     17,067     16,024

Average imputed goodwill and intangibles on an investment in TD Ameritrade

     4,136     4,170     4,060     4,160     4,090

Average other acquired intangibles 1

     717     676     696     690     728

Average related deferred tax liabilities

     (269     (238     (222     (254     (257

Average tangible common equity

     55,702     54,244     49,014     55,000     48,747

Net income available to common shareholders – reported

     3,110     2,332     2,846     5,442     5,129

Amortization of acquired intangibles, net of income taxes 2

     66     67     73     133     141

Net income available to common shareholders after adjusting for after-tax amortization of acquired intangibles

     3,176     2,399     2,919     5,575     5,270

Other items of note, net of income taxes 2

     28     476     73     504     598

Net income available to common shareholders – adjusted

   $ 3,204   $ 2,875   $ 2,992   $ 6,079   $ 5,868

Return on tangible common equity

     23.4  %      17.5  %      24.4  %      20.4  %      21.8  % 

Return on tangible common equity – adjusted

     23.6     21.0     25.0     22.3     24.3
1

Excludes intangibles relating to software and asset servicing rights.

2

For explanations of items of note, refer to the "Non-GAAP Financial Measures – Reconciliation of Adjusted to Reported Net Income" table in the "How We Performed" section of this document.

 

TD BANK GROUP SECOND QUARTER 2019 EARNINGS NEWS RELEASE     Page 6  


SIGNIFICANT AND SUBSEQUENT EVENTS IN 2019

Agreement for Air Canada Credit Card Loyalty Program

On January 10, 2019, the Bank's long-term loyalty program agreement (the "Loyalty Agreement") with Air Canada became effective in conjunction with Air Canada completing its acquisition of Aimia Canada Inc., which operates the Aeroplan loyalty business (the "Transaction"). Under the terms of the Loyalty Agreement, the Bank will become the primary credit card issuer for Air Canada's new loyalty program when it launches in 2020 through to 2030. TD Aeroplan cardholders will become members of Air Canada's new loyalty program and their miles will be transitioned when Air Canada's new loyalty program launches in 2020.

In connection with the Transaction, the Bank paid $622 million plus applicable sales tax to Air Canada, of which $547 million ($446 million after sales and income taxes) was recognized in non-interest expenses – other in the Canadian Retail segment during the first quarter of 2019, and $75 million was recognized as an intangible asset which will be amortized over the Loyalty Agreement term. In addition, the Bank prepaid $308 million plus applicable sales tax for the future purchase of loyalty points over a ten-year period. The Bank also expects to incur additional pre-tax costs of approximately $100 million over two years to build the functionality required to facilitate the new program. The Transaction reduced the Bank's CET1 ratio by approximately 13 basis points (bps).

Acquisition of Greystone

On November 1, 2018, the Bank acquired 100% of the outstanding equity of Greystone for consideration of $817 million, of which $475 million was paid in cash and $342 million was paid in the Bank's common shares. The value of 4.7 million common shares issued as consideration was based on the volume weighted average market price of the Bank's common shares over the 10 trading day period immediately preceding the fifth business day prior to the acquisition date and was recorded based on market price at close. Common shares of $167 million issued to employee shareholders in respect of the purchase price will be held in escrow for two years post-acquisition, subject to their continued employment, and will be recorded as a compensation expense over the two-year escrow period.

The acquisition was accounted for as a business combination under the purchase method. As at November 1, 2018, the acquisition contributed $169 million of assets and $55 million of liabilities. The excess of accounting consideration over the fair value of the identifiable net assets has been allocated to customer relationship intangibles of $140 million, deferred tax liability of $37 million, and goodwill of $433 million. Goodwill is not deductible for tax purposes. The results of the acquisition have been consolidated from the acquisition date and reported in the Canadian Retail segment. The purchase price allocation is subject to refinement and may be adjusted to reflect new information about facts and circumstances that existed at the acquisition date during the measurement period.

Normal Course Issuer Bid

As approved by the Board on May 22, 2019, the Bank announced its intention to initiate a normal course issuer bid (NCIB) for up to 20 million of its common shares, subject to the approval of OSFI and the TSX. The timing and amount of any purchases under the program are subject to regulatory approvals and to management discretion based on factors such as market conditions and capital adequacy.

 

 

HOW OUR BUSINESSES PERFORMED

For management reporting purposes, the Bank reports its results under three key business segments: Canadian Retail, which includes the results of the Canadian personal and commercial banking, wealth, and insurance businesses; U.S. Retail, which includes the results of the U.S. personal and business banking operations, wealth management services, and the Bank's investment in TD Ameritrade; and Wholesale Banking. The Bank's other activities are grouped into the Corporate segment.

Results of each business segment reflect revenue, expenses, assets, and liabilities generated by the businesses in that segment. Where applicable, the Bank measures and evaluates the performance of each segment based on adjusted results and ROE, and for those segments, the Bank indicates that the measure is adjusted. For further details, refer to the "How the Bank Reports" section of this document, the "Business Focus" section in the Bank's 2018 MD&A, and Note 29 Segmented Information of the Bank's Consolidated Financial Statements for the year ended October 31, 2018. For information concerning the Bank's measure of ROE, which is a non-GAAP financial measure, refer to the "How We Performed" section of this document.

Provision for credit losses (PCL) related to performing (Stage 1 and Stage 2) and impaired (Stage 3) financial assets, loan commitments, and financial guarantees is recorded within the respective segment.

Net interest income within Wholesale Banking is calculated on a taxable equivalent basis (TEB), which means that the value of non-taxable or tax-exempt income, including certain dividends, is adjusted to its equivalent before-tax value. Using TEB allows the Bank to measure income from all securities and loans consistently and makes for a more meaningful comparison of net interest income with similar institutions. The TEB increase to net interest income and provision for income taxes reflected in Wholesale Banking's results are reversed in the Corporate segment. The TEB adjustment for the quarter was $33 million, compared with $21 million in the prior quarter and $17 million in the second quarter last year.

 

TD BANK GROUP SECOND QUARTER 2019 EARNINGS NEWS RELEASE     Page 7  


TABLE 7:  CANADIAN RETAIL

 

(millions of Canadian dollars, except as noted)

     For the three months ended     For the six months ended
      

April 30

2019


   

January 31

2019


   

April 30

2018


   

April 30

2019


   

April 30

2018


Net interest income

   $ 3,010   $ 3,044   $ 2,781   $ 6,054   $ 5,606

Non-interest income

     2,949     2,944     2,731     5,893     5,456

Total revenue

     5,959     5,988     5,512     11,947     11,062

Provision for credit losses – impaired

     256     264     219     520     456

Provision for credit losses – performing

     24     46           70     33

Total provision for credit losses

     280     310     219     590     489

Insurance claims and related expenses

     668     702     558     1,370     1,133

Non-interest expenses – reported

     2,481     3,084     2,232     5,565     4,543

Non-interest expenses – adjusted 1  

     2,451     2,446     2,232     4,897     4,543

Provision for (recovery of) income taxes – reported

     681     513     670     1,194     1,307

Provision for (recovery of) income taxes – adjusted 1  

     683     675     670     1,358     1,307

Net income – reported

     1,849     1,379     1,833     3,228     3,590

Net income – adjusted 1

   $ 1,877   $ 1,855   $ 1,833   $ 3,732   $ 3,590

Selected volumes and ratios

          

Return on common equity – reported 2

     43.2  %      31.6  %      50.6  %      37.4  %      48.9  % 

Return on common equity – adjusted 1,2

     43.9     42.5     50.6     43.2     48.9

Net interest margin (including on securitized assets)

     2.99     2.94     2.91     2.97     2.89

Efficiency ratio – reported

     41.6     51.5     40.5     46.6     41.1

Efficiency ratio – adjusted

     41.1     40.8     40.5     41.0     41.1

Assets under administration (billions of Canadian dollars)

   $ 421   $ 396   $ 392   $ 421   $ 392

Assets under management (billions of Canadian dollars)

     349     332     289     349     289

Number of Canadian retail branches

     1,100     1,099     1,121     1,100     1,121

Average number of full-time equivalent staff

     40,498     39,997     38,051     40,243     38,050
1  

Adjusted non-interest expenses exclude the following items of note: Charges related to the long-term loyalty agreement with Air Canada in the first quarter 2019 – $607 million ($446 million after-tax); and charges associated with the acquisition of Greystone in the second quarter 2019 – $30 million ($28 million after-tax) and the first quarter 2019 – $31 million ($30 million after-tax). For explanations of items of note, refer to the "Non-GAAP Financial Measures – Reconciliation of Adjusted to Reported Net Income" table in the "How We Performed" section of this document.

2

Capital allocated to the business segment was based on 10% CET1 Capital in fiscal 2019 and 9% in fiscal 2018.

Quarterly comparison – Q2 2019 vs. Q2 2018

Canadian Retail reported net income for the quarter was $1,849 million, an increase of $16 million, or 1%, compared with the second quarter last year, reflecting higher revenue, partially offset by charges related to the acquisition of Greystone, higher other non-interest expenses, insurance claims, and PCL. On an adjusted basis, net income for the quarter was $1,877 million, an increase of $44 million, or 2%. The reported and adjusted annualized ROE for the quarter was 43.2% and 43.9%, respectively, compared with 50.6% in the second quarter last year.

Canadian Retail revenue is derived from Canadian personal and commercial banking, wealth, and insurance businesses. Revenue for the quarter was $5,959 million, an increase of $447 million, or 8%, compared with the second quarter last year.

Net interest income was $3,010 million, an increase of $229 million, or 8%, reflecting volume growth and higher margins. Average loan volumes increased $22 billion, or 5%, reflecting 5% growth in personal loans, and 9% growth in business loans. Average deposit volumes increased $9 billion, or 3%, reflecting 4% growth in personal deposits, 2% growth in wealth deposits, and 1% growth in business deposits. Net interest margin was 2.99%, an increase of 8 bps, reflecting rising interest rates, partially offset by competitive pricing in loans.

Non-interest income was $2,949 million, an increase of $218 million, or 8%, reflecting higher revenues from the insurance business, higher fee-based revenue in the banking businesses, and the acquisition of Greystone. The increase in non-interest income also included $76 million related to the higher fair value of investments supporting claims liabilities, which resulted in a similar increase to insurance claims.

Assets under administration (AUA) were $421 billion as at April 30, 2019, an increase of $29 billion, or 7%, compared with the second quarter last year, reflecting new asset growth and increases in market value. Assets under management (AUM) were $349 billion as at April 30, 2019, an increase of $60 billion, or 21%, compared with the second quarter last year, reflecting the acquisition of Greystone, increases in market value and new asset growth.

PCL was $280 million, an increase of $61 million, or 28%, compared with the second quarter last year. PCL – impaired for the quarter was $256 million, an increase of $37 million, or 17%, reflecting low prior period provisions driven by strong credit performance in personal lending and business banking, and volume growth. PCL – performing was $24 million, an increase of $24 million, reflecting current quarter provisions in the credit card and other personal portfolios. Total PCL as an annualized percentage of credit volume was 0.27%, or an increase of 4 bps.

Insurance claims and related expenses for the quarter were $668 million, an increase of $110 million, or 20%, compared with the second quarter last year, reflecting changes in the fair value of investments supporting claims liabilities, less favourable prior years' claims development, and higher current year claims, partially offset by decreases in reinsurance claims assumed and less severe weather-related events.

Reported non-interest expenses for the quarter were $2,481 million, an increase of $249 million, or 11%, compared with the second quarter last year, reflecting higher spend supporting business growth including employee-related costs, charges related to the acquisition of Greystone, and increased spend on strategic initiatives. On an adjusted basis, non-interest expenses were $2,451 million, an increase of $219 million, or 10%.

The reported and adjusted efficiency ratio for the quarter was 41.6% and 41.1%, respectively, compared with 40.5% in the second quarter last year.

Quarterly comparison – Q2 2019 vs. Q1 2019

Canadian Retail reported net income for the quarter increased $470 million, or 34%, compared with the prior quarter. The increase in earnings reflects charges related to the agreement with Air Canada in the prior quarter, lower insurance claims and PCL, partially offset by lower revenue. On an adjusted basis, net income increased $22 million, or 1%. The reported and adjusted annualized ROE for the quarter was 43.2% and 43.9%, respectively, compared with 31.6% and 42.5%, respectively, in the prior quarter.

Revenue decreased $29 million compared with the prior quarter. Net interest income decreased $34 million, or 1%, reflecting the effect of fewer days in the second quarter, partially offset by higher margins. Average loan volumes were consistent with the prior quarter. Average deposit volumes increased $1 billion, reflecting 1% growth in personal deposits and 3% growth in wealth deposits, partially offset by a 2% decline in business deposits. Net interest margin was 2.99%, an increase of 5 bps, reflecting a refinement in revenue recognition assumptions in the auto finance portfolio and increased spread between the Prime Rate and the Bankers' Acceptance rate.

Non-interest income increased $5 million, reflecting the higher fair value of investments supporting claims liabilities of $19 million, which resulted in a similar increase to insurance claims and higher asset levels in the wealth management business, partially offset by the impact of fewer days in the second quarter.

 

TD BANK GROUP SECOND QUARTER 2019 EARNINGS NEWS RELEASE     Page 8  


AUA increased $25 billion, or 6%, compared with the prior quarter, reflecting increases in market value and new asset growth. AUM increased $17 billion, or 5%, compared with the prior quarter, reflecting increases in market value.

PCL decreased $30 million, or 10%, compared with the prior quarter. PCL – impaired decreased by $8 million, or 3%. PCL – performing decreased by $22 million reflecting lower unfavourable credit migration in the personal lending and business banking portfolios. Total PCL as an annualized percentage of credit volume was 0.27%, a decrease of 2 bps.

Insurance claims and related expenses for the quarter decreased $34 million, or 5%, compared with the prior quarter, reflecting more favourable prior years' claims development and lower current year claims, partially offset by the impact of changes to actuarial assumptions in the life and health business in the prior quarter, changes in the fair value of investments supporting claims liabilities, and more severe weather-related events.

Reported non-interest expenses decreased $603 million, or 20%, compared with the prior quarter, reflecting charges related to the agreement with Air Canada in the prior quarter. On an adjusted basis, non-interest expenses were relatively flat compared to the prior quarter.

The reported and adjusted efficiency ratio for the quarter was 41.6% and 41.1%, respectively, compared with 51.5% and 40.8%, respectively, in the prior quarter.

Year-to-date comparison – Q2 2019 vs. Q2 2018

Canadian Retail reported net income for the six months ended April 30, 2019, was $3,228 million, a decrease of $362 million, or 10%, compared with same period last year. The decrease in earnings reflects charges related to the agreement with Air Canada and the acquisition of Greystone, higher other non-interest expenses, insurance claims, and PCL, partially offset by revenue growth. On an adjusted basis, net income for the period was $3,732 million, an increase of $142 million, or 4%. The reported and adjusted annualized ROE for the period was 37.4% and 43.2%, respectively, compared with 48.9% in the same period last year.

Revenue for the period was $11,947 million, an increase of $885 million, or 8%, compared with same period last year. Net interest income increased $448 million, or 8%, reflecting volume growth and higher margins. Average loan volumes increased $23 billion, or 6%, reflecting 5% growth in personal loan volumes and 9% growth in business loan volumes. Average deposit volumes increased $9 billion, or 3%, reflecting 3% growth in personal deposits volume and 2% growth in business deposit volumes. Net interest margin was 2.97%, an increase of 8 bps, reflecting rising interest rates, partially offset by competitive pricing in loans.

Non-interest income increased $437 million, or 8%, reflecting higher revenues from the insurance business, higher fee-based revenue in the banking businesses, and the acquisition of Greystone. The increase in non-interest income also included $136 million related to higher fair value of investments supporting claims liabilities, which resulted in a similar increase to insurance claims.

PCL was $590 million, an increase of $101 million, or 21%, compared with the same period last year. PCL – impaired was $520 million, an increase of $64 million, or 14%, largely reflecting increased provisions in the personal lending portfolios, and volume growth. PCL – performing was $70 million, an increase of $37 million reflecting credit migration in the personal lending and business banking portfolios. Total PCL as an annualized percentage of credit volume was 0.28%, an increase of 3 bps.

Insurance claims and related expenses were $1,370 million, an increase of $237 million, or 21%, compared with the same period last year. The increase reflects changes in the fair value of investments supporting claims liabilities, less favourable prior years' claims development, and higher current year claims, partially offset by less severe weather-related events and the impact of changes to actuarial assumptions in the life and health business.

Reported non-interest expenses were $5,565 million, an increase of $1,022 million, or 22%, compared with the same period last year. The increase reflects charges related to the agreement with Air Canada and the acquisition of Greystone, additional employees supporting business growth, and increased investment in strategic technology initiatives, partially offset by restructuring costs in the prior year. On an adjusted basis, non-interest expenses were $4,897 million, an increase of $354 million, or 8%.

The reported and adjusted efficiency ratio for the period was 46.6% and 41.0%, respectively, compared with 41.1% for the same period last year.

 

TD BANK GROUP SECOND QUARTER 2019 EARNINGS NEWS RELEASE     Page 9  


TABLE 8:  U.S. RETAIL

 

(millions of dollars, except as noted)    For the three months ended     For the six months ended  

Canadian Dollars

  

April 30

2019

   

January 31

2019

   

April 30

2018

   

April 30

2019

   

April 30

2018

 

Net interest income

   $ 2,231   $ 2,247   $ 1,977   $ 4,478   $ 3,917

Non-interest income 1

     677     701     654     1,378     1,357

Total revenue

     2,908     2,948     2,631     5,856     5,274

Provision for credit losses – impaired

     199     285     199     484     386

Provision for credit losses – performing

     27     21     5     48     65

Total provision for credit losses

     226     306     204     532     451

Non-interest expenses – reported

     1,527     1,611     1,488     3,138     2,935

Non-interest expenses – adjusted 2

     1,527     1,611     1,472     3,138     2,914

Provision for (recovery of) income taxes – reported 1

     150     102     94     252     197

Provision for (recovery of) income taxes – adjusted 1,2

     150     102     98     252     202

U.S. Retail Bank net income – reported

     1,005     929     845     1,934     1,691

U.S. Retail Bank net income – adjusted 2  

     1,005     929     857     1,934     1,707

Equity in net income of an investment in TD Ameritrade – reported 1,3

     258     311     134     569     240

Equity in net income of an investment in TD Ameritrade – adjusted 1,4

     258     311     195     569     369

Net income – reported

     1,263     1,240     979     2,503     1,931

Net income – adjusted

   $ 1,263   $ 1,240   $ 1,052   $ 2,503   $ 2,076

U.S. Dollars

                                        

Net interest income

   $ 1,676   $ 1,688   $ 1,551   $ 3,364   $ 3,084

Non-interest income 1

     507     528     513     1,035     1,068

Total revenue – reported

     2,183     2,216     2,064     4,399     4,152

Provision for credit losses – impaired

     150     214     158     364     306

Provision for credit losses – performing

     20     16     3     36     50

Total provision for credit losses

     170     230     161     400     356

Non-interest expenses – reported

     1,148     1,209     1,167     2,357     2,311

Non-interest expenses – adjusted 2  

     1,148     1,209     1,154     2,357     2,294

Provision for (recovery of) income taxes – reported 1

     112     77     73     189     153

Provision for (recovery of) income taxes – adjusted 1,2

     112     77     76     189     157

U.S. Retail Bank net income – reported

     753     700     663     1,453     1,332

U.S. Retail Bank net income – adjusted 2  

     753     700     673     1,453     1,345

Equity in net income of an investment in TD Ameritrade – reported 1,3

     195     235     107     430     189

Equity in net income of an investment in TD Ameritrade – adjusted 1,4

     195     235     154     430     291

Net income – reported

     948     935     770     1,883     1,521

Net income – adjusted

   $ 948   $ 935   $ 827   $ 1,883   $ 1,636

Selected volumes and ratios

          

Return on common equity – reported 5

     13.2  %      12.6  %      11.9  %      12.9  %      11.5  % 

Return on common equity – adjusted 2,4,5

     13.2     12.6     12.7     12.9     12.4

Net interest margin 6

     3.38     3.42     3.23     3.40     3.21

Efficiency ratio – reported

     52.6     54.6     56.5     53.6     55.6

Efficiency ratio – adjusted

     52.6     54.6     55.9     53.6     55.3

Assets under administration (billions of U.S. dollars)

   $ 20   $ 19   $ 19   $ 20   $ 19

Assets under management (billions of U.S. dollars)

     47     46     59     47     59

Number of U.S. retail stores

     1,238     1,240     1,244     1,238     1,244

Average number of full-time equivalent staff

     26,735     26,864     26,382     26,800     26,273

 

1

In the first quarter of 2018, the reduction of the U.S. federal corporate tax rate enacted by the U.S. Tax Act resulted in an adjustment to the Bank's U.S. deferred tax assets and liabilities to the lower base rate of 21% as well as an adjustment to the Bank's carrying balances of certain tax credit-related investments and its investment in TD Ameritrade. The earnings impact was reported in the Corporate segment. For additional details, refer to the "Non-GAAP Financial Measures – Reconciliation of Adjusted to Reported Net Income" table in the "How We Performed" section of this document.

2

Adjusted U.S. Retail Bank net income excludes the following item of note: Charges associated with the Bank's acquisition of Scottrade Bank in the second quarter 2018 – $16 million ($12 million after-tax) or US$13 million (US$10 million after-tax) and first quarter 2018 – $5 million ($4 million after-tax) or US$4 million (US$3 million after-tax). For explanations of items of note, refer to the "Non-GAAP Financial Measures – Reconciliation of Adjusted to Reported Net Income" table in the "How We Performed" section of this document.

3

The after-tax amounts for amortization of intangibles relating to the Equity in net income of the investment in TD Ameritrade is recorded in the Corporate segment with other acquired intangibles.

4

Adjusted equity in net income of an investment in TD Ameritrade in the prior year excludes the following items of note: The Bank's share of charges associated with TD Ameritrade's acquisition of Scottrade in the second quarter 2018 – $61 million or US$47 million after-tax and first quarter 2018 – $68 million or US$55 million after-tax. For explanations of items of note, refer to the "Non-GAAP Financial Measures – Reconciliation of Adjusted to Reported Net Income" table in the "How We Performed" section of this document.

5  

Capital allocated to the business segment was based on 10% CET1 Capital in fiscal 2019 and 9% in fiscal 2018.

6  

Net interest margin excludes the impact related to the TD Ameritrade insured deposit accounts and the impact of intercompany deposits and cash collateral. In addition, the value of tax-exempt interest income is adjusted to its equivalent before-tax value.

Quarterly comparison – Q2 2019 vs. Q2 2018

U.S. Retail reported net income for the quarter was $1,263 million (US$948 million), an increase of $284 million (US$178 million), or 29% (23% in U.S. dollars), compared with the second quarter last year. On an adjusted basis, net income for the quarter was $1,263 million (US$948 million), an increase of $211 million (US$121 million), or 20% (15% in U.S. dollars). The reported and adjusted annualized ROE for the quarter was 13.2%, compared with 11.9% and 12.7%, respectively, in the second quarter last year.

U.S. Retail net income includes contributions from the U.S. Retail Bank and the Bank's investment in TD Ameritrade. Net income for the quarter from the U.S. Retail Bank and the Bank's investment in TD Ameritrade were $1,005 million (US$753 million) and $258 million (US$195 million), respectively.

The contribution from TD Ameritrade of US$195 million increased US$88 million, or 82%, compared with the second quarter last year, primarily due to higher asset-based revenue, charges associated with the Scottrade transaction in the same quarter last year, and decreased operating expenses, partially offset by lower trading volumes. Adjusted contribution from TD Ameritrade increased US$41 million, or 27%.

U.S. Retail Bank reported net income of US$753 million for the quarter increased US$90 million, or 14%, primarily due to higher revenue. U.S. Retail Bank adjusted net income increased US$80 million, or 12%.

 

TD BANK GROUP SECOND QUARTER 2019 EARNINGS NEWS RELEASE     Page 10  


U.S. Retail Bank revenue is derived from personal and business banking, and wealth management. Revenue for the quarter was US$2,183 million, an increase of US$119 million, or 6%, compared with the second quarter last year. Net interest income increased US$125 million, or 8%, reflecting higher deposit margins and growth in loan and deposit volumes. Net interest margin was 3.38%, an increase of 15 bps, primarily due to higher deposit margins. Non-interest income decreased US$6 million, or 1%, largely due to net fund outflows impacting wealth management fees, partially offset by growth in other fee income.

Average loan volumes increased US$7 billion, or 5%, compared with the second quarter last year due to growth in personal and business loans of 3% and 6%, respectively. Average deposit volumes were up US$1 billion, compared with the second quarter last year, with growth in personal and business deposit volumes, offset by a decrease in sweep deposit volumes.

AUA were US$20 billion as at April 30, 2019, relatively flat compared with the second quarter last year. AUM were US$47 billion as at April 30, 2019, a decrease of US$12 billion, or 20%, reflecting net fund outflows including the impact of the strategic disposition of U.S. money market funds in the first quarter.

PCL for the quarter was US$170 million, an increase of US$9 million, or 6%, compared with the second quarter last year. PCL – impaired was US$150 million, a decrease of US$8 million, or 5%, primarily reflecting lower provisions for the commercial portfolio. PCL – performing was US$20 million, an increase of US$17 million, primarily reflecting higher volume growth in the commercial portfolio. U.S. Retail PCL including only the Bank's contractual portion of credit losses in the U.S. strategic cards portfolio, as an annualized percentage of credit volume was 0.45%, flat compared with the second quarter last year.

Reported non-interest expenses for the quarter were US$1,148 million, a decrease of US$19 million, or 2%, compared with the second quarter last year, reflecting the elimination of the Federal Deposit Insurance Corporation (FDIC) deposit insurance surcharge, recovery of a legal provision, and charges associated with the Scottrade transaction in the same quarter last year, partially offset by higher investments in business initiatives. On an adjusted basis, non-interest expenses decreased US$6 million, or 1%, compared with the second quarter last year.    

The reported and adjusted efficiency ratio for the quarter was 52.6%, compared with 56.5% and 55.9%, respectively, in the second quarter last year.

Quarterly comparison – Q2 2019 vs. Q1 2019

U.S. Retail net income of $1,263 million (US$948 million) increased $23 million (US$13 million), or 2% (1% in U.S. dollars), compared with the prior quarter. The annualized ROE for the quarter was 13.2%, compared with 12.6% in the prior quarter.

The contribution from TD Ameritrade was US$195 million, a decrease of US$40 million, or 17%, compared with the prior quarter, primarily due to lower trading volumes, increased operating expenses, and lower asset-based revenue.

U.S. Retail Bank net income for the quarter was US$753 million, an increase of US$53 million, or 8%, compared with the prior quarter, due to lower expenses and PCL, more than offsetting the reduction in revenue.

Revenue for the quarter decreased US$33 million, or 1%, compared with the prior quarter. Net interest income decreased US$12 million, or 1%, primarily due to the effect of fewer days in the quarter and lower net interest margin. Net interest margin was 3.38%, a decrease of 4 bps, primarily due to balance sheet mix. Non-interest income decreased US$21 million, or 4%, primarily reflecting a seasonal decline in personal banking fees.

Average loan volumes increased US$1 billion, or 1%, compared with the prior quarter, due to growth in business loans of 2%. Average deposit volumes decreased US$1 billion, with growth in personal deposit volumes of 3%, more than offset by a decrease in sweep deposit volumes of 4%.

AUA and AUM were US$20 billion and US$47 billion as at April 30, 2019, respectively, relatively flat to prior quarter.

PCL for the quarter decreased US$60 million, or 26%, compared with the prior quarter. PCL – impaired was US$150 million, a decrease of US$64 million, or 30%, primarily reflecting lower provisions for the commercial portfolio, coupled with seasonal trends in the credit card and auto portfolios. PCL – performing was US$20 million, an increase of US$4 million, or 25%, primarily reflecting migration from performing to impaired in the commercial portfolio in the prior quarter, partially offset by seasonal trends in the credit card portfolios. U.S. Retail PCL including only the Bank's contractual portion of credit losses in the U.S. strategic cards portfolio, as an annualized percentage of credit volume was 0.45%, a decrease of 14 bps.

Non-interest expenses for the quarter were US$1,148 million, a decrease of US$61 million, or 5%, compared with the prior quarter, reflecting recovery of a legal provision and fewer days in the quarter.

The efficiency ratio for the quarter was 52.6%, compared with 54.6% in the prior quarter.

Year-to-date comparison – Q2 2019 vs. Q2 2018

U.S. Retail reported net income for the six months ended April 30, 2019, was $2,503 million (US$1,883 million), an increase of $572 million (US$362 million), or 30% (24% in U.S. dollars), compared with the same period last year. On an adjusted basis, net income for the period increased $427 million (US$247 million), or 21% (15% in U.S. dollars). The reported and adjusted annualized ROE for the period was 12.9%, compared with 11.5% and 12.4%, respectively, in the same period last year.

Net income for the period from the U.S. Retail Bank and the Bank's investment in TD Ameritrade was $1,934 million (US$1,453 million) and $569 million (US$430 million), respectively.

The reported contribution from TD Ameritrade of US$430 million increased US$241 million, compared with the same period last year, primarily due to higher asset-based revenue, charges associated with the Scottrade transaction in the same period last year, and decreased operating expenses. Adjusted contribution from TD Ameritrade increased US$139 million, or 48%.

U.S. Retail Bank reported net income for the period was US$1,453 million, an increase of US$121 million, or 9%, compared with the same period last year, primarily due to higher revenue, partially offset by higher expenses and PCL. U.S. Retail Bank adjusted net income increased US$108 million, or 8%.

Revenue for the period was US$4,399 million, an increase of US$247 million, or 6%, compared with same period last year. Net interest income increased US$280 million, or 9%, reflecting higher deposit margins and growth in loan and deposit volumes. Net interest margin was 3.40%, a 19 bps increase primarily due to higher deposit margins. Non-interest income decreased US$33 million, or 3%, as lower wealth management fees and investment income were partially offset by growth in personal banking fees.

Average loan volumes increased US$6 billion, or 4%, compared with the same period last year, due to growth in personal loans of 3% and business loans of 5%. Average deposit volumes increased US$3 billion, or 1%, reflecting 4% growth in both personal and business deposit volumes, offset by a 3% decrease in sweep deposit volume.

PCL was US$400 million, an increase of US$44 million, or 12%, compared with the same period last year. PCL – impaired was US$364 million, an increase of US$58 million, or 19%, primarily reflecting higher provisions for the commercial portfolio, coupled with volume growth, seasoning, and mix in the credit card portfolios. PCL – performing was US$36 million, a decrease of US$14 million, or 28%, primarily reflecting lower provisions for the auto portfolio and migration from performing to impaired in the commercial portfolio, partially offset by higher volume growth in the commercial portfolio. U.S. Retail PCL including only the Bank's contractual portion of credit losses in the U.S. strategic cards portfolio, as an annualized percentage of credit volume, was 0.52%, an increase of 4 bps.

 

TD BANK GROUP SECOND QUARTER 2019 EARNINGS NEWS RELEASE     Page 11  


Reported non-interest expenses for the period were US$2,357 million, an increase of US$46 million, or 2%, compared with the same period last year, reflecting investments in business initiatives, business volume growth, and higher employee-related costs, partially offset by productivity savings, the elimination of the FDIC deposit insurance surcharge, and recovery of a legal provision. On an adjusted basis, non-interest expenses increased US$63 million, or 3%.

The reported and adjusted efficiency ratio for the period was 53.6%, compared with 55.6% and 55.3%, respectively, for the same period last year.

 

TABLE 9:  WHOLESALE BANKING 1  

 

(millions of Canadian dollars, except as noted)    For the three months ended     For the six months ended  
     

April 30

2019

   

January 31

2019

   

April 30

2018

   

April 30

2019

   

April 30

2018

 

Net interest income (TEB)

   $ 262   $ 173     $ 272   $ 435   $ 601

Non-interest income

     625     409       615     1,034     1,176

Total revenue

     887     582       887     1,469     1,777

Provision for (recovery of) credit losses – impaired

                 (8           (8

Provision for (recovery of) credit losses – performing

     (5     7       24     2     17

Total provision for (recovery of) credit losses

     (5     7       16     2     9

Non-interest expenses

     597     602       516     1,199     1,042

Provision for (recovery of) income taxes (TEB) 2  

     74     (10     88     64     181

Net income (loss)

   $ 221   $ (17   $ 267   $ 204   $ 545

Selected volumes and ratios

          

Trading-related revenue (TEB)

   $ 411   $ 251     $ 475   $ 662   $ 990

Gross drawn (billions of Canadian dollars) 3  

     24.5     23.4       22.1     24.5     22.1

Return on common equity 4  

     12.5  %      (0.9 ) %      18.7     5.6  %      19.4  % 

Efficiency ratio

     67.3     103.4       58.2     81.6     58.6

Average number of full-time equivalent staff

     4,502     4,478       4,053     4,490     4,040

 

1

Certain comparative amounts have been recast to conform with the presentation adopted in the current period.

2

In the first quarter of 2018, the reduction of the U.S. federal corporate tax rate enacted by the U.S. Tax Act resulted in a one-time adjustment to Wholesale Banking's U.S. deferred tax assets and liabilities to the lower base rate of 21%. The earnings impact was reported in the Corporate segment. For additional details, refer to the "Non-GAAP Financial Measures – Reconciliation of Adjusted to Reported Net Income" table in the "How We Performed" section of this document.

3  

Includes gross loans and bankers' acceptances, excluding letters of credit, cash collateral, credit default swaps (CDS), and allowance for credit losses relating to the corporate lending business.

4  

Capital allocated to the business segment was based on 10% CET1 Capital in fiscal 2019 and 9% in fiscal 2018.

Quarterly comparison – Q2 2019 vs. Q2 2018

Wholesale Banking net income for the quarter was $221 million, a decrease of $46 million, or 17%, compared with the second quarter last year, reflecting higher non-interest expenses, partially offset by lower PCL.

Wholesale Banking revenue is derived primarily from capital markets and corporate and investment banking services provided to corporate, government, and institutional clients. Wholesale Banking generates revenue from corporate lending, advisory, underwriting, sales, trading and research, client securitization, trade finance, cash management, prime services, and trade execution services. Revenue for the quarter was $887 million, flat compared with the second quarter last year, reflecting higher advisory and underwriting fees, offset by lower trading-related revenue.

PCL for the quarter was a benefit of $5 million, a decrease of $21 million compared to the second quarter last year. PCL – impaired was nil in the current quarter compared to a net recovery of $8 million in the prior year, reflecting a recovery of provisions in the oil and gas sector. PCL – performing was a benefit of $5 million, a decrease of $29 million, primarily reflecting prior year credit migration.

Non-interest expenses were $597 million, an increase of $81 million, or 16%, compared with the second quarter last year reflecting continued investments supporting the global expansion of Wholesale Banking's U.S. dollar strategy and the impact of foreign exchange translation.

Quarterly comparison – Q2 2019 vs. Q1 2019

Wholesale Banking net income for the quarter was $221 million, an increase in net income of $238 million, compared with a net loss of $17 million in the prior quarter, reflecting higher revenue, lower PCL, and lower non-interest expenses.

Revenue for the quarter increased $305 million, compared with the prior quarter, reflecting higher trading-related revenue and advisory and underwriting fees as market conditions improved.

PCL for the quarter decreased by $12 million, compared to the prior quarter. PCL – performing was a benefit of $5 million, compared to a charge of $7 million in the prior quarter.

Non-interest expenses for the quarter decreased $5 million, or 1%, compared with the prior quarter, reflecting timing of employee-related costs and the impact of foreign exchange translation.

Year-to-date comparison – Q2 2019 vs. Q2 2018

Wholesale Banking net income for the six months ended April 30, 2019, was $204 million, a decrease of $341 million, compared with net income of $545 million for the same period last year, reflecting lower revenue and higher non-interest expenses, partially offset by lower PCL.

Revenue was $1,469 million, a decrease of $308 million, or 17%, compared with the same period last year reflecting challenging market conditions in the first quarter of this year.

PCL was $2 million, a decrease of $7 million, compared with the same period last year. PCL – impaired was nil compared to a net recovery of $8 million last year, reflecting a recovery of provisions in the oil and gas sector. PCL – performing decreased by $15 million, primarily reflecting prior year credit migration.

Non-interest expenses were $1,199 million, an increase of $157 million, or 15%, compared with the same period last year. This increase reflects the revaluation of certain liabilities for post-retirement benefits recognized in the prior year, continued investments supporting the global expansion of Wholesale Banking's U.S. dollar strategy, and the impact of foreign exchange translation, partially offset by lower variable compensation.

 

TD BANK GROUP SECOND QUARTER 2019 EARNINGS NEWS RELEASE     Page 12  


TABLE 10:  CORPORATE

 

(millions of Canadian dollars)    For the three months ended     For the six months ended  
     

April 30

2019

   

January 31

2019

   

April 30

2018

   

April 30

2019

   

April 30

2018

 

Net income (loss) – reported 1  

   $ (161   $ (192   $ (163   $ (353   $ (797

Pre-tax adjustments for items of note 2  

          

Amortization of intangibles

     78     80     86     158     171

Impact from U.S. tax reform 1  

                             48

Total pre-tax adjustments for items of note

     78     80     86     158     219

Provision for (recovery of) income taxes for items of note 1  

     12     13     13     25     (375

Net income (loss) – adjusted

   $ (95   $ (125   $ (90   $ (220   $ (203

Decomposition of items included in net income (loss) – adjusted

          

Net corporate expenses

   $ (176   $ (182   $ (189   $ (358   $ (387

Other

     81     39     81     120     148

Non-controlling interests

           18     18     18     36

Net income (loss) – adjusted

   $ (95   $ (125   $ (90   $ (220   $ (203

Selected volumes

          

Average number of full-time equivalent staff

     16,710     16,229     14,574     16,466     14,454

 

1

In the first quarter of 2018, the reduction of the U.S. federal corporate tax rate enacted by the U.S. Tax Act resulted in a net charge to earnings of $453 million, comprising a net $48 million pre-tax charge related to the write-down of certain tax credit-related investments, partially offset by the favourable impact of the Bank's share of TD Ameritrade's remeasurement of its deferred income tax balances, and a net $405 million income tax expense resulting from the remeasurement of the Bank's deferred tax assets and liabilities to the lower base rate of 21% and other related tax adjustments.

2

For explanations of items of note, refer to the "Non-GAAP Financial Measures – Reconciliation of Adjusted to Reported Net Income" table in the "How We Performed" section of this document.

Quarterly comparison – Q2 2019 vs. Q2 2018

Corporate segment's reported net loss for the quarter was $161 million, compared with a reported net loss of $163 million in the second quarter last year. Reported net loss decreased primarily reflecting lower net corporate expenses and amortization of intangibles this quarter, partially offset by lower contribution from non-controlling interests. Net corporate expenses were lower largely reflecting lower net pension expenses in the current quarter. Adjusted net loss was $95 million compared with an adjusted net loss of $90 million in the second quarter last year.

Quarterly comparison – Q2 2019 vs. Q1 2019

Corporate segment's reported net loss for the quarter was $161 million, compared with a reported net loss of $192 million in the prior quarter. Reported net loss decreased primarily reflecting higher contribution from Other items, partially offset by lower contribution from non-controlling interests. Other items increased primarily reflecting higher revenue from treasury and balance sheet management activities and the positive impact of tax items in the current quarter. Adjusted net loss was $95 million compared with an adjusted net loss of $125 million in the prior quarter.

Year-to-date comparison – Q2 2019 vs. Q2 2018

Corporate segment's reported net loss for the six months ended April 30, 2019, was $353 million, compared with a reported net loss of $797 million in the same period last year. The decrease in reported net loss is primarily due to the impact from U.S. tax reform in the same period last year and lower net corporate expenses in the current period, partially offset by lower contribution from Other items and non-controlling interests. Lower contribution from Other items was partially due to lower revenue from treasury and balance sheet management activities in the current period. Net corporate expenses decreased primarily reflecting lower net pension expenses in the current period. Adjusted net loss for the six months ended April 30, 2019, was $220 million, compared with an adjusted net loss of $203 million in the same period last year.

 

TD BANK GROUP SECOND QUARTER 2019 EARNINGS NEWS RELEASE     Page 13  


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Access to Quarterly Results Materials

Interested investors, the media and others may view the second quarter earnings news release, results slides, supplementary financial information, and the Report to Shareholders on the TD Investor Relations website at www.td.com/investor/ .

Quarterly Earnings Conference Call

TD Bank Group will host an earnings conference call in Toronto, Ontario on May 23, 2019. The call will be audio webcast live through TD's website at 1:30 p.m. ET. The call and audio webcast will feature presentations by TD executives on the Bank's financial results for the second quarter, discussions of related disclosures, and will be followed by a question-and-answer period with analysts. The presentation material referenced during the call will be available on the TD website at www.td.com/investor/qr_2019.jsp on May 23, 2019, by approximately 12 p.m. ET. A listen-only telephone line is available at 416-641-6150 or 1-866-696-5894 (toll free) and the passcode is 2727354#.

The audio webcast and presentations will be archived at www.td.com/investor/qr_2019.jsp. Replay of the teleconference will be available from 3:30 p.m. ET on May 23, 2019, until 11:59 p.m. ET on Thursday, June 20, 2019 by calling 905-694-9451 or 1-800-408-3053 (toll free). The passcode is 4990143#.

About TD Bank Group

The Toronto-Dominion Bank and its subsidiaries are collectively known as TD Bank Group ("TD" or the "Bank"). TD is the sixth largest bank in North America by branches and serves 26 million customers in three key businesses operating in a number of locations in financial centres around the globe: Canadian Retail, including TD Canada Trust, TD Auto Finance Canada, TD Wealth (Canada), TD Direct Investing, and TD Insurance; U.S. Retail, including TD Bank, America's Most Convenient Bank ® , TD Auto Finance U.S., TD Wealth (U.S.), and an investment in TD Ameritrade; and Wholesale Banking, including TD Securities. TD also ranks among the world's leading online financial services firms, with 13 million active online and mobile customers. TD had $1.4 trillion in assets on April 30, 2019. The Toronto-Dominion Bank trades under the symbol "TD" on the Toronto and New York Stock Exchanges.

For further information contact:

Gillian Manning, Head of Investor Relations, 416-308-6014

Julie Bellissimo, Manager, Media Relations, 416-965-6050

 

TD BANK GROUP SECOND QUARTER 2019 EARNINGS NEWS RELEASE     Page 14  

Exhibit 99.5

TD BANK GROUP DECLARES DIVIDENDS

(all amounts in Canadian dollars)

TORONTO – May  23, 2019 - The Toronto-Dominion Bank (the Bank) today announced that a dividend in an amount of seventy-four cents (74 cents) per fully paid common share in the capital stock of the Bank has been declared for the quarter ending July 31, 2019, payable on and after July 31, 2019, to shareholders of record at the close of business on July 10, 2019.

In lieu of receiving their dividends in cash, holders of the Bank's common shares may choose to have their dividends reinvested in additional common shares of the Bank in accordance with the Dividend Reinvestment Plan (the "Plan").

Under the Plan, the Bank has the discretion to either purchase the additional common shares in the open market or issue them from treasury. If issued from treasury, the Bank may decide to apply a discount of up to 5% to the Average Market Price (as defined in the Plan) of the additional shares. For the July 31, 2019 dividend, the Bank will issue the additional shares from treasury, with no discount.

Registered holders of record of the Bank's common shares wishing to join the Plan can obtain an Enrolment Form from AST Trust Company (Canada) (1-800-387-0825) or on the Bank's website, www.td.com/investor/drip.jsp. In order to participate in the Plan in time for this dividend, Enrolment Forms for registered holders must be received by AST Trust Company (Canada) at P.O. Box 4229, Postal Station A, Toronto, Ontario, M5W 0G1, or by facsimile at 1-888-488-1416, before the close of business on July 9, 2019. Beneficial or non-registered holders of the Bank's common shares wishing to join the Plan must contact their financial institution or broker for instructions on how to enroll in advance of the above date.

The Bank also announced that dividends have been declared on the following Non-Cumulative Redeemable Class A First Preferred Shares of the Bank, payable on and after July 31, 2019, to shareholders of record at the close of business on July 10, 2019:

 

 

Series 1, in an amount per share of $0.24375;

 

Series 3, in an amount per share of $0.2375;

 

Series 5, in an amount per share of $0.234375;

 

Series 7, in an amount per share of $0.225;

 

Series 9, in an amount per share of $0.23125;

 

Series 11, in an amount per share of $0.30625;

 

Series 12, in an amount per share of $0.34375;

 

Series 14, in an amount per share of $0.303125;

 

Series 16, in an amount per share of $0.28125;

 

Series 18, in an amount per share of $0.29375;

 

Series 20, in an amount per share of $0.296875; and

 

Series 22, in the amount per share of $0.325.

The Bank for the purposes of the Income Tax Act, Canada and any similar provincial legislation advises that the dividend declared for the quarter ending July 31, 2019 and all future dividends will be eligible dividends unless indicated otherwise.


About TD Bank Group

The Toronto-Dominion Bank and its subsidiaries are collectively known as TD Bank Group ("TD" or the "Bank"). TD is the sixth largest bank in North America by branches and serves 26 million customers in three key businesses operating in a number of locations in financial centres around the globe: Canadian Retail, including TD Canada Trust, TD Auto Finance Canada, TD Wealth (Canada), TD Direct Investing, and TD Insurance; U.S. Retail, including TD Bank, America's Most Convenient Bank ® , TD Auto Finance U.S., TD Wealth (U.S.), and an investment in TD Ameritrade; and Wholesale Banking, including TD Securities. TD also ranks among the world's leading online financial services firms, with 13 million active online and mobile customers. TD had $1.4 trillion in assets on April 30, 2019. The Toronto-Dominion Bank trades under the symbol "TD" on the Toronto and New York Stock Exchanges.

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For more information contact:   

Annette Galler

Senior Legal Officer, Corporate

Legal Department – Shareholder Relations

(416) 944-6367

Toll free 1-866-756-8936

  

Julie Bellissimo

Media Relations, Corporate & Public Affairs

(416) 965-6050

Exhibit 99.6

FORM 52-109F2

CERTIFICATION OF INTERIM FILINGS

FULL CERTIFICATE

I, Bharat Masrani, Group President and Chief Executive Officer of The Toronto-Dominion Bank, certify the following:

1. Review : I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of The Toronto-Dominion Bank (the “issuer”) for the interim period ended April 30, 2019.

2. No misrepresentations : Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

3. Fair presentation : Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

4. Responsibility : The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings , for the issuer.

5. Design : Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings

(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

(i) material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

(ii) information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

5.1 Control framework : The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria) in 2013.


5.2 N/A

5.3 N/A

6. Reporting changes in ICFR : The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on February 1, 2019 and ended on April 30, 2019 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

 

Date: May 23, 2019
/s/ Bharat Masrani
Bharat Masrani
Group President and Chief Executive Officer


FORM 52-109F2

CERTIFICATION OF INTERIM FILINGS

FULL CERTIFICATE

I, Riaz Ahmed, Group Head and Chief Financial Officer of The Toronto-Dominion Bank, certify the following:

1. Review : I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of The Toronto-Dominion Bank (the “issuer”) for the interim period ended April 30, 2019.

2. No misrepresentations : Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

3. Fair presentation : Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

4. Responsibility : The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings , for the issuer.

5. Design : Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings

(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

(i) material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

(ii) information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

5.1 Control framework : The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria) in 2013.


5.2 N/A

5.3 N/A

6. Reporting changes in ICFR : The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on February 1, 2019 and ended on April 30, 2019 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

 

Date: May 23, 2019
/s/ Riaz Ahmed
Riaz Ahmed
Group Head and Chief Financial Officer