40-F
TORONTO DOMINION BANK (TD)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
40-F
[Check one]
☐
REGISTRATION
STATEMENT
PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
☒
ANNUAL REPORT PURSUANT
TO SECTION 13(a) OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
October 31, 2024
Commission File Number
1-14446
THE
TORONTO-DOMINION BANK
(Exact name of Registrant as specified in its charter)
Canada
(Province or other jurisdiction of incorporation or organization)
6029
(Primary Standard Industrial Classification Code Number (if applicable))
13-5640479
(I.R.S. Employer Identification Number (if applicable))
c/o General Counsel’s Office
P.O. Box 1
Toronto-Dominion Centre
Toronto
,
Ontario
M5K 1A2
(
416
)
308-6963
(Address and telephone number of Registrant’s
principal executive offices)
Glenn Gibson
, The Toronto-Dominion
Bank
One Vanderbilt Avenue
New York
,
NY
10017
(
212
)
827-7000
(Name, address (including zip code) and telephone number (including
area code)
of agent for service in the United States)
Securities registered or to be registered pursuant to Section 12(b) of
the Act.
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Common Shares
TD
New York Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of
the Act.
Not Applicable
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of
the Act.
Not Applicable
(Title of Class)
For annual reports, indicate by check mark the information filed with this form:
☒
Annual information form
☒
Audited annual financial statements
Indicate the number of outstanding shares of each of the issuer’s classes of capital
or common stock as of the close of the period
covered by the annual report.
Common Shares
1,750,271,719
Non-Cumulative 5-Year
Rate Reset Preferred Shares, Series 1
(Non-Viability Contingent Capital)
20,000,000
Non-Cumulative 5-Year
Rate Reset Preferred Shares, Series 5
(Non-Viability Contingent Capital)
20,000,000
Non-Cumulative 5-Year
Rate Reset Preferred Shares, Series 7
(Non-Viability Contingent Capital)
14,000,000
Non-Cumulative 5-Year
Rate Reset Preferred Shares, Series 9
(Non-Viability Contingent Capital)
8,000,000
Non-Cumulative
5-Year
Rate Reset Preferred Shares, Series 16
(Non-Viability Contingent Capital)
14,000,000
Non-Cumulative 5-Year
Rate Reset Preferred Shares, Series 18
(Non-Viability Contingent Capital)
14,000,000
Class A First Preferred Shares, Series 26
1,750,000
(Non-Viability Contingent Capital)*
Non-Cumulative 5-Year
Rate Reset Preferred Shares, Series 27
850,000
Non-Cumulative 5-Year
Rate Reset Preferred Shares, Series 28
800,000
Class A First Preferred Shares, Series 29
(Non-Viability Contingent Capital)*
1,500,000
Class A First Preferred Shares, Series 30
(Non-Viability Contingent Capital)*
1,750,000
Class A First Preferred Shares, Series 31
(Non-Viability Contingent Capital)*
750,000
* In connection with
the issuance of: (i)
Limited Recourse Capital Notes NVCC,
Series 1, the Registrant issued
CAD$1,750
million of
Class A
First Preferred
Shares, Series
26 (Series
26 Preferred
Shares) at
a price
of CAD$1,000
per Series
26
Preferred Share; (ii) Limited Recourse Capital Notes NVCC, Series 2, the Registrant issued
CAD$1,500 million of Class A
First Preferred Shares,
Series 29 (Series
29 Preferred Shares)
at a price of
CAD$1,000 per Series
29 Preferred Share;
(iii)
Limited
Recourse
Capital
Notes
NVCC,
Series
3,
the
Registrant
issued
USD$1,750
million
of
Class
A
First
Preferred
Shares, Series
30 (Series
30 Preferred
Shares) at
a price
of USD$1,000
per Series
30 Preferred
Share; and
(iv) Limited
Recourse Capital Notes NVCC,
Series 4, the Registrant
issued USD$750 million
of Class A First Preferred
Shares, Series
31 (Series
31 Preferred
Shares) at
a price
of USD$1,000
per Series
31 Preferred
Share. The
Series 26
Preferred
Shares,
Series 29
Preferred Shares,
Series 30 Preferred
Shares and Series
31 Preferred
Shares were
issued to
a trust to
be held as
limited recourse trust
assets in
connection with the
Limited Recourse Capital
Note structure.
The Series
26 Preferred Shares,
Series 29
Preferred
Shares, Series
30 Preferred
Shares and
Series 31
Preferred
Shares are
eliminated on
the Registrant's
consolidated financial statements.
Indicate by check mark
whether the Registrant (1)
has filed all reports
required to be filed by
Section 13 or 15(d)
of the Exchange Act
during the preceding 12 months (or for such shorter period that the Registrant was required to
file such reports) and (2) has been subject
to such filing requirements for the past 90 days.
Yes
☒
No
☐
Indicate by check mark whether the Registrant has submitted electronically
every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
Registrant was required to submit such files).
Yes
☒
No
☐
Indicate by check mark whether the Registrant is an emerging
growth company, as defined in
Rule 12b-2 of the Exchange Act.
Emerging growth company
☐
If an emerging growth company that prepares its financial statements
in accordance with U.S. GAAP,
indicate by check mark if the
registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards†
provided pursuant to Section 13(a) of the Exchange Act.
☐
† The term "new or revised financial accounting standard" refers to any update
issued by the Financial Accounting Standards Board to
its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the Registrant has filed a report on and attestation to
its management's assessment of the effectiveness
of its internal control over financial reporting under Section 404(b)
of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report.
☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check
mark whether the financial statements of the
registrant included in the filing reflect the correction of an error to previously
issued financial statements.
☒
Indicate by check mark whether any of those error corrections are restatements
that required a recovery analysis of incentive-based
compensation received by any of the registrant’s
executive officers during the relevant recovery period pursuant
to §240.10D-1(b).
☐
Auditor Name:
Ernst & Young LLP
Auditor Location:
Toronto, Canada
Auditor Firm ID:
1263
Disclosure Controls and Procedures
The disclosure
provided under
the heading
Accounting Standards
and Policies –
Controls and
Procedures
– Disclosure
Controls and
Procedures
included in Exhibit 99.2:
Management’s Discussion and Analysis
is incorporated by reference herein.
Management’s Annual Report on Internal
Control Over Financial Reporting
The disclosure provided
under the heading
Accounting Standards
and Policies –
Controls
and Procedures
- Management’s
Report on
Internal
Control
Over
Financial
Reporting
included
in
Exhibit
99.2:
Management’s
Discussion
and
Analysis
is
incorporated
by
reference herein.
Attestation Report of the Registered Public Accounting Firm
The
disclosure
provided
under the
heading
Report
of
Independent
Registered
Public
Accounting
Firm To
the
Shareholders
and
the
Board of
Directors of
The Toronto
-Dominion Bank –
Opinion on Internal
Control over
Financial Reporting
included in Exhibit
99.3:
2024 Annual Financial Statements is incorporated by reference herein.
Changes in Internal Control Over Financial Reporting
The disclosure provided under
the heading
Accounting Standards and Policies –
Controls and Procedures - Changes in Internal Control
Over Financial Reporting
included in Exhibit 99.2:
Management’s Discussion and
Analysis is incorporated by reference herein.
Audit Committee Financial Expert
The
disclosure
provided
under
the
heading
Directors
and
Executive
Officers
-
Audit
Committee
included
in
Exhibit
99.1
:
Annual
Information Form dated December 4, 2024 is incorporated by reference
herein.
Code of Ethics
The Registrant has
adopted the
Code of Conduct and
Ethics for Employees and
Directors
(the “Code”) as its
code of ethics applicable
to
all
its
employees
and
directors,
including
the
Registrant’s
Group
President
and
Chief
Executive
Officer,
Group
Head
and
Chief
Financial Officer,
and Senior Vice
President, Finance, Controller
and Chief Accountant.
The Registrant posts the
Code on its website
at www.td.com
and also
undertakes to
provide a
copy of
the Code
to any
person without
charge upon
request.
Such request
may be
made by mail, telephone or e-mail to:
The Toronto-Dominion
Bank
TD Shareholder Relations
P.O.
Box 1, Toronto-Dominion
Centre
Toronto, Ontario,
Canada
M5K 1A2
Telephone:
1-866-756-8936
E-mail:
tdshinfo@td.com
On February
6, 2024,
an amended
version of
the Code
was filed
with the
SEC on
Form 6-K
and made
available on
the Registrant’s
website.
The key amendments made to
the Code at that
time included: a) Introduction and
Summary section revisions were made
to add language
confirming that nothing in the Code
is intended to prevent or
limit employees from exercising any protected rights
under applicable law,
b) Applying the Code, Step 4 Evaluate the Options and Make a Decision was updated to add an additional consideration of escalating a
matter or
engaging an
appropriate partner,
c) 2B
Gifts and
Entertainment revisions
were made
to align
to the
Anti-Bribery and
Anti-
Corruption
Policy,
and additional
language added
to clarify
that all
employees, regardless
of jurisdiction
are strictly
prohibited from
accepting any
gift card,
of any
value, at
any time,
d) 2F
Irregular Business
Conduct, Anti-Competitive
Behaviour,
language has
been
added
to
address
new
competition
law
requirements
regarding
terms
of
employment
and
solicitation
of
employees,
e)
2F
Irregular
Business Conduct, Tied Selling, the concept of
"taking advantage of" has been
added alongside the current prohibitions
against coercing
or imposing undue
pressure on customers,
f) 2K Cooperating
with Audits, Reviews,
and Investigations added
the obligation that
such
cooperation extends
to authorized external
reviews, as well
as internal reviews,
g) 3A Managing
Conflicts of Interest,
Introduction of
Conflicts to Interest, language added
to clarify to employees they may bring
potential conflicts directly to the attention
of Compliance,
not
just
when
directed
to
do
so
by
a
Manager.
In
addition
to
these
changes,
certain
other
editorial,
technical,
organizational,
administrative and non-substantive amendments were made to the Code.
No waivers from the provisions of the Code were granted in the fiscal year ended October 31,
2024
to the Registrant’s Group President
and
Chief
Executive
Officer,
Group
Head
and
Chief
Financial
Officer,
and
Senior
Vice
President,
Finance,
Controller
and
Chief
Accountant.
Principal Accountant Fees and Services
The
disclosure
regarding
Audit
Fees,
Audit-Related
Fees,
Tax
Fees
and
All
Other
Fees
provided
under
the
heading
Directors
and
Executive Officers - Pre-Approval Policies and Shareholders’ Auditor Service Fees
included in Exhibit 99.1:
Annual Information Form
dated December 4, 2024 is incorporated by reference herein.
Pre-Approval
Policy for Audit and Non-Audit Services
The disclosure provided under the
heading
Directors and Executive Officers - Pre-Approval Policies and Shareholders’ Auditor Service
Fees
included in Exhibit 99.1:
Annual Information Form dated December 4, 2024 is incorporated by reference
herein.
During the fiscal
year ended October
31, 2024, the waiver
of pre-approval provisions
set forth in the
applicable rules of the
SEC were
not utilized
for any services
related to Audit
-Related Fees,
Tax
Fees or All
Other Fees
and the Audit
Committee did
not approve
any
such fees subject to the waiver of pre-approval provisions.
Hours Expended on Audit Attributed to Persons Other than the Principal
Accountant’s
Employees
Not Applicable
Off-balance Sheet Arrangements
The disclosure provided under the
heading
Group Financial Condition
– Securitization and Off-Balance
Sheet Arrangements
included
in Exhibit 99.2:
Management’s Discussion and Analysis is incorporated
by reference herein.
Contractual and Other Obligations
The disclosure provided in
Table 58:
Remaining Contractual Maturity
included in Exhibit 99.2:
Management's Discussion and Analysis
is incorporated by reference herein.
Identification of the Audit Committee
The
disclosure
provided
under
the
heading
Directors
and
Executive
Officers
-
Audit
Committee
included
in
Exhibit
99.1:
Annual
Information Form dated December 4, 2024 identifying the Registrant’s
Audit Committee is incorporated by reference herein.
Mine Safety Disclosure
Not Applicable
Disclosure Regarding Foreign Jurisdictions that
Prevent Inspections.
Not Applicable
Recovery of Erroneously Awarded
Compensation.
Not Applicable
Undertaking
Registrant undertakes
to make
available, in
person or
by telephone,
representatives to
respond to
inquiries made
by the
Commission
staff, and to
furnish promptly, when requested
to do so
by the
Commission staff, information
relating to: the
securities registered pursuant
to
Form
40-F;
the
securities in
relation
to which
the obligation
to file
an annual
report
on Form
40-F
arises; or
transactions
in
said
securities.
Comparison of New York
Stock Exchange Corporate Governance Rules
A
comparison
of
NYSE
Corporate
Governance
Rules
required
to
be
followed
by
U.S.
Domestic
Issuers
under
the
NYSE's
listing
standards and the
Corporate Governance practices
of The Toronto-Dominion Bank (disclosure
required by section
303A.11 of the NYSE
Listed Company Manual) is available on the Corporate Governance
section of the Registrant’s website at www.td.com/governance
.
Signatures
Pursuant to the requirements
of the Exchange
Act, the Registrant certifies
that it meets all
of the requirements
for filing on Form
40-F
and has duly caused this annual report to be signed on its behalf by the
undersigned, thereto duly authorized.
Registrant:
THE TORONTO-DOMINION BANK
By:
/s/ Kelvin Tran
Name:
Kelvin Tran
Title:
Group Head and Chief Financial Officer
Date:
December 5, 2024
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 40-F
ANNUAL REPORT PURSUANT TO
SECTION 13(a) or 15(d) OF
THE SECURITIES EXCHANGE ACT OF
1934
________________________________
THE TORONTO-DOMINION BANK
________________________________
EXHIBITS
________________________________
INDEX TO EXHIBITS
No.
Exhibits
97
Incentive Compensation Clawback Policy
99.1
Annual Information Form dated December 4, 2024
99.2
Management’s Discussion and Analysis
99.3
2024 Annual Financial Statements
99.4
Industry Guide 3 – Return on Assets, Dividend Payouts, and Equity to Assets Ratios
99.5
99.6
Consent of Independent Registered Public Accounting Firm
99.7
Certification Pursuant to Section 302 of the U.S. Sarbanes-Oxley Act of 2002
99.8
101
The following financial information from
The Toronto-Dominion Bank’s Annual Report on Form 40-F for the year ended
October 31, 2024
formatted in
Inline XBRL: (i) Consolidated Balance
Sheet as at October 31, 2024
and 2023; (ii) Consolidated Statements
of Income, Comprehensive Income, Changes
in
Equity, and Cash Flows for the years then ended October
31, 2024; and (iii) Notes to Consolidated
Financial Statements.
104
Cover Page Interactive Data File (formatted
as Inline XBRL and contained in Exhibit
101)
ex97
Internal
Exhibit 97
Incentive Compensation Clawback Policy
ex991
The Toronto
-Dominion Bank
ANNUAL INFORMATION
FORM
December 4, 2024
Documents Incorporated by Reference
Portions
of
this
Annual
Information
Form
(“AIF”)
are
disclosed
in
the
annual
consolidated
financial
statements (the
“Annual
Financial
Statements”)
and management’s
discussion
and analysis
of the
Bank
(as
defined
below)
for
the
year
ended
October
31,
2024
(the
"2024
MD&A")
and
are
incorporated
by
reference into this AIF.
Page
Reference in
AIF
Page / Incorporated by
Reference from Annual
Financial Statements
Page / Incorporated by
Reference From 2024
MD&A
CORPORATE STRUCTURE
Name, Address and Incorporation
4
-
-
Intercorporate Relationships
4
-
-
GENERAL DEVELOPMENT OF THE BUSINESS
Three Year History
4
-
4-14, 21-39
DESCRIPTION OF THE BUSINESS
Review of Business, including Foreign Operations
6
11-15
4-11, 21-39
Investment in The Charles Schwab Corporation
6
64
10, 11, 21, 27-31, 60
Competition
-
-
67
Intangible Properties
-
25, 29, 65-66
-
Average Number of Employees
6
-
-
Lending
-
-
42-51, 76-81
Social and Environmental Policies
6
-
102-104
Risk Factors
6
-
61-104
DIVIDENDS
Dividends per Share for the Bank (October 31
st
year-end)
7
-
-
Dividend Restrictions
8
72
55
CAPITAL STRUCTURE
Common Shares
8
70-73
58
Preferred Shares
9
70-72
58
Limited Recourse Capital Notes
10
70-72
58
Perpetual Notes
10
Constraints
11
-
-
Ratings
12
-
93
MARKET FOR SECURITIES OF THE BANK
Market Listings
14
-
-
Trading Price and Volume
14
-
-
Prior Sales
15
-
-
ESCROWED SECURITIES AND SECURITIES SUBJECT TO
CONTRACTUAL RESTRICTIONS ON TRANSFER
15
-
-
DIRECTORS AND EXECUTIVE OFFICERS
Directors and Board Committees of the Bank
16
-
-
Audit Committee
20
-
-
Additional Information Regarding the Audit Committee
and
Shareholders' Auditor
21
-
-
Executive Officers of the Bank
22
-
-
Shareholdings of Directors and Executive Officers
24
-
-
Additional Disclosure for Directors and Executive Officers
24
-
-
Pre-Approval Policies and Shareholders’ Auditor Service Fees
25
-
-
LEGAL PROCEEDINGS AND REGULATORY ACTIONS
26
86-87
-
INTEREST OF MANAGEMENT AND OTHERS IN
MATERIAL TRANSACTIONS
26
89
-
TRANSFER AGENTS AND REGISTRARS
Transfer Agent
26
-
-
Co-transfer Agent and Registrar
27
-
-
INTERESTS OF EXPERTS
27
-
-
MATERIAL CONTRACTS
27
ADDITIONAL INFORMATION
28
-
-
APPENDIX "A" – Intercorporate Relationships
APPENDIX "B" – Description of Ratings
APPENDIX "C" – Audit Committee Charter
Unless otherwise specified, this AIF presents
information as at October 31, 2024.
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
(“2024 MD&A”)
in the
Bank’s 2024
Annual Report
under the
heading “Economic
Summary and
Outlook”,
under the
headings “Key
Priorities for
2025” and
“Operating Environment
and Outlook”
for the
Canadian
Personal
and
Commercial
Banking,
U.S.
Retail,
Wealth
Management
and
Insurance,
and
Wholesale
Banking
segments,
and
under
the
heading
“2024
Accomplishments
and
Focus
for
2025”
for
the
Corporate segment,
and in
other statements
regarding
the Bank’s
objectives
and priorities
for 2025
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: strategic,
credit,
market
(including
equity,
commodity,
foreign
exchange,
interest
rate,
and
credit
spreads),
operational
(including
technology,
cyber
security,
process,
systems,
data,
third-party,
fraud,
infrastructure,
insider
and
conduct),
model,
insurance,
liquidity,
capital
adequacy,
legal
and
regulatory
compliance
(including
financial crime), reputational, environmental and social, and
other risks.
Examples of
such risk
factors include
general business
and economic
conditions
in the
regions in
which
the Bank
operates (including
the economic,
financial,
and other
impacts of
pandemics); geopolitical
risk;
inflation,
interest
rates
and
recession
uncertainty;
regulatory
oversight
and
compliance
risk;
risks
associated
with
the
Bank's
ability
to
satisfy
the
terms
of
the
global
resolution
of
the
civil
and
criminal
investigations into
the Bank's
U.S. BSA/AML
program; the
impact of
the global
resolution of
the civil
and
criminal
investigations
into
the
Bank's
U.S.
BSA/AML
program
on
the
Bank's
businesses,
operations,
financial condition, and
reputation; the ability
of the Bank
to execute on
long-term strategies, shorter
-term
key
strategic
priorities,
including
the
successful
completion
of
acquisitions
and
dispositions
and
integration
of
acquisitions,
the
ability
of
the
Bank
to
achieve
its
financial
or
strategic
objectives
with
respect to its investments,
business retention plans, and
other strategic plans; the
risk of large declines
in
the
value
of
Bank's
Schwab
equity
investment
and
corresponding
impact
on
TD's
market
value;
technology and cyber security
risk (including cyber-attacks,
data security breaches or
technology failures)
on
the
Bank’s
technologies,
systems
and
networks,
those
of
the
Bank’s
customers
(including
their
own
devices), and third
parties providing services
to the Bank;
data risk; model
risk; fraud activity;
insider risk;
conduct
risk;
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,
and
other
risks
arising
from
the
Bank’s
use
of
third-parties;
the
impact
of
new
and
changes
to,
or
application
of,
current
laws,
rules
and
regulations,
including
without
limitation
consumer
protection
laws
and
regulations,
tax
laws,
capital
guidelines
and
liquidity
regulatory
guidance;
increased
competition
from
incumbents
and
new
entrants
(including
Fintechs
and
big
technology
competitors);
shifts
in
consumer
attitudes
and
disruptive
technology;
environmental and
social risk
(including climate-related
risk); exposure
related to
litigation and
regulatory
matters; ability
of the
Bank to
attract, develop,
and retain
key talent;
changes in
foreign exchange
rates,
interest rates, credit
spreads and equity
prices; downgrade,
suspension or withdrawal
of ratings assigned
by any rating
agency,
the value and
market price of
the Bank's common
shares and other
securities may
be impacted by market conditions and other
factors; the interconnectivity of Financial Institutions
including
existing
and
potential
international
debt
crises;
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;
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
2024 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 heading
“Significant Events”
or "Significant
and Subsequent
Events" in
the relevant
MD&A, which applicable releases may be found on www.td.com.
All
such
factors,
as
well
as
other
uncertainties
and
potential
events,
and
the
inherent
uncertainty
of
forward-looking
statements,
should
be
considered
carefully
when
making
decisions
with
respect
to
the
Bank. 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 2024 MD&A under the heading
“Economic Summary and Outlook”, under the
headings “Key
Priorities for
2025”
and
“Operating
Environment
and
Outlook”
and "Significant
Events"
for the
Canadian
Personal
and
Commercial
Banking,
U.S.
Retail,
Wealth
Management
and
Insurance,
and
Wholesale
Banking
segments,
and
under
the
heading
“2024
Accomplishments
and
Focus
for
2025”
for
the
Corporate segment, 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.
CORPORATE STRUCTURE
Name, Address and Incorporation
The Toronto
-Dominion
Bank
and its
subsidiaries
are collectively
known as
TD
Bank
Group ("TD"
or the
"Bank"). The
Toronto
-Dominion Bank,
a Schedule
1 chartered
bank subject
to the
provisions of
the
Bank
Act
(Canada) (the
“Bank Act”),
was formed
on February
1, 1955
through the
amalgamation
of The
Bank
of
Toronto
(chartered
in
1855)
and
The
Dominion
Bank
(chartered
in
1869).
The
Bank’s
head
office
is
located at Toronto
-Dominion Centre, P.O.
Box 1, King Street West
and Bay Street, Toronto,
Ontario, M5K
1A2.
Intercorporate Relationships
Information
about
the
intercorporate
relationships
among
the
Bank
and
its
principal
subsidiaries
is
provided in Appendix “A” to this AIF.
GENERAL DEVELOPMENT OF THE BUSINESS
Three Year History
On
October
6,
2020,
The
Charles
Schwab
Corporation
("Schwab")
completed
its
acquisition
of
TD
Ameritrade
Holding
Corporation
("TD
Ameritrade"),
of
which
the
Bank
was
a
major
shareholder
(the
"Schwab
transaction").
Upon
closing,
the
Bank
exchanged
its
approximate
43%
ownership
in
TD
Ameritrade
for
an
approximate
13.5%
stake
in
Schwab,
consisting
of
9.9%
voting
common
shares
and
the
remainder
in
non-voting
common
shares,
convertible
into
voting
common
shares
upon
transfer
to
a
third party.
On August
1, 2022,
the Bank
sold 28.4
million non-voting
common shares
of Schwab,
which
reduced the Bank’s
ownership interest in Schwab
to approximately 12.0%.
On August 21, 2024,
the Bank
sold
40,500,000
voting
common
shares
of
Schwab,
which
reduced
the
Bank's
ownership
interest
in
Schwab to approximately 10.1%.
In
addition,
on
November
25,
2019,
the
Bank
and
Schwab
entered
into
an
insured
deposit
account
agreement
(the
"2019
Schwab
IDA
Agreement"),
which
became
effective
upon
closing
of
the
Schwab
transaction
and
had
an
initial
expiration
date
of
July
1,
2031.
On
May
4,
2023,
the
Bank
and
Schwab
entered
into
an
amended
insured
deposit
account
agreement,
which
replaces
the
2019
Schwab
IDA
Agreement and extends the initial expiration date by
three years to July 1, 2034.
On
February
28,
2022,
the
Bank
and
First
Horizon
Corporation
("First
Horizon")
announced
a
definitive
agreement
(the
"Merger
Agreement")
for
the
Bank
to
acquire
First
Horizon.
On
May
4,
2023,
the
Bank
and
First
Horizon
announced
their
mutual
decision
to
terminate
the
Merger
Agreement
and
the
Bank
made a $306 million (US$225 million) cash payment to First
Horizon in connection with such termination.
On March 1, 2023, the
Bank completed its acquisition
of Cowen Inc. ("Cowen"),
advancing the Wholesale
Banking
segment’s
long-term
growth
strategy
in
the
U.S.
and
adding
complementary
products
and
services to the Bank’s existing businesses.
On October
10,
2024, following
active
cooperation
and
engagement
with
authorities
and
regulators,
the
Bank
reached
a
resolution
with
respect
to
previously
disclosed
investigations
related
to
its
U.S.
Bank
Secrecy Act ("BSA")
and Anti-Money
Laundering ("AML")
compliance programs.
The Bank and
certain of
its U.S.
subsidiaries
consented to
orders with
the Office
of the
Comptroller of
the Currency
("OCC"), the
Federal
Reserve
Board
("FRB"),
and
the
Financial
Crimes
Enforcement
Network
(FinCEN)
and
entered
into plea
agreements
with
the Department
of
Justice
("DOJ"),
Criminal
Division,
Money
Laundering
and
Asset
Recovery
Section
and
the
United
States
Attorney’s
Office
for
the
District
of
New
Jersey
(collectively,
the
"Global
Resolution").
Details
of
the
Global
Resolution
include:
(i)
a
total
payment
of
US$3.088
billion
(C$4.233
billion),
all
which
was
provisioned
during
the
2024
fiscal
year;
(ii)
TD
Bank,
N.A. ("TDBNA")
pleading guilty
to one
count of
conspiring to
fail to
maintain an
adequate AML
program,
fail
to
file
accurate
currency
transaction
reports
("CTRs")
and
launder
money
and
TD
Bank
US
Holding
Company ("TDBUSH")
pleading guilty
to two counts
of failing to
maintain an adequate
AML program and
failing to
file accurate
CTRs;
(iii) requirements
to remediate
the Bank’s
U.S. BSA/AML
program,
broadly
aligned
to
its
existing
remediation
program,
which
requirements
the
Bank
has
begun
to
address;
(iv)
a
requirement to prioritize the funding and staffing
of the remediation, which includes Board
certifications for
dividend distributions
from certain
of the
Bank's U.S.
subsidiaries to
the Bank;
(v) formal
oversight of
the
U.S. BSA/AML remediation
through an independent compliance
monitorship; (vi) a
prohibition against the
average combined
total assets
of TD’s
two U.S. banking
subsidiaries (TD
Bank, N.A.
and TD
Bank USA,
N.A.) (collectively,
the “U.S.
Bank”) exceeding
US$434 billion
(representing the
combined total
assets of
the
U.S.
Bank
as
at
September
30,
2024),
and
if
the
U.S.
Bank
does
not
achieve
compliance
with
all
actionable articles
in the
OCC consent
orders (and
for each
successive year
that the
U.S. Bank
remains
non-compliant), the
OCC may
require the
U.S. Bank
to further
reduce total
consolidated assets
by up
to
7%;
(vii)
the
U.S.
Bank
being
subject
to
OCC
supervisory
approval
processes
for
any
additions
of
new
bank products,
services, markets,
and stores
prior to
the OCC's
acceptance of
the U.S.
Bank's improved
AML policies
and
procedures,
to
ensure
the
AML
risk
of
new
initiatives
is
appropriately
considered
and
mitigated;
(viii)
requirements
for
the
Bank
and
TD
Group
U.S.
Holdings,
LLC
to
retain
a
third
party
to
assess
the effectiveness
of
the corporate
governance
and U.S.
management
structure
and
composition
to
adequately
oversee
U.S.
operations;
and
(ix)
requirements
to
comply
with
the
terms
of
the
plea
agreements with the DOJ
during a five-year term
of probation (which could
be extended as a
result of the
Bank failing to complete the
compliance undertakings, failing to
cooperate or to report alleged
misconduct
as
required,
or
committing
additional
crimes);
(x)
an
ongoing
obligation
to
cooperate
with
DOJ
investigations; and
(xi) an
ongoing obligation
to report
evidence or
allegations of
violations by
the Bank,
its
affiliates,
or
their
employees
that
may
be
a
violation
of
U.S.
federal
law.
The
Bank
is
focused
on
remediating
its
U.S.
BSA/AML
program
to
meet
the
requirements
of
the
Global
Resolution.
Additional
information
about
the
Global
Resolution
can
be
found
under
"Significant
Events
–
Global
Resolution
of
the Investigations
into the
Bank's U.S.
BSA/AML Program"
on pages
4 to
9 of
the 2024
MD&A, which
is
incorporated by reference.
DESCRIPTION OF THE BUSINESS
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 assets
and serves
over 27.9
million customers
in four key businesses
operating in a number
of locations in
financial centres around
the globe: Canadian
Personal
and
Commercial
Banking,
including
TD
Canada
Trust
and
TD
Auto
Finance
Canada;
U.S.
Retail, including
TD Bank,
America's Most
Convenient Bank®,
TD Auto
Finance U.S.,
TD Wealth
(U.S.),
and
an
investment
in
The
Charles
Schwab
Corporation;
Wealth
Management
and
Insurance,
including
TD
Wealth
(Canada),
TD
Direct
Investing,
and
TD
Insurance;
and
Wholesale
Banking,
including
TD
Securities and
TD Cowen.
TD also
ranks
among the
world's leading
online financial
services
firms, with
more than
17 million
active online
and mobile
customers. TD
had $2.06
trillion in
assets on
October 31,
2024.
The
Toronto
-Dominion
Bank
trades
under
the
symbol
"TD"
on
the
Toronto
and
New
York
Stock
Exchanges.
Descriptions of
TD’s
significant business
segments and
related information
are provided
on pages
14 to
15 and 21 to 39 of the 2024 MD&A, which are incorporated
by reference.
Investment in The Charles Schwab Corporation
See
"General
Development
of
the
Business"
above
for
additional
information
regarding
the
Bank's
ownership in Schwab.
T
he
Bank
owned
an
approximate
10.1%
stake
in
Schwab
as
at
October
31,
2024
consisting
of
approximately
7.5%
in
voting
common
shares
and
the
remainder
in
non-voting
common
shares
of
Schwab.
Schwab is a
leading provider
of financial services.
Through its subsidiaries,
Schwab provides
a full range
of
wealth
management,
securities
brokerage,
banking,
asset
management,
custody,
and
financial
advisory services to
individual investors and
independent investment
advisors. Schwab is
a U.S. publicly-
traded company and its common stock is listed on The New
York Stock
Exchange.
The
Bank
and
Schwab
are
party
to
a
stockholder
agreement
(the
"Stockholder
Agreement"),
which
became effective
upon closing
of the
Schwab transaction.
Under the
Stockholder
Agreement: (i)
subject
to meeting
certain
conditions,
the
Bank has
two seats
on Schwab's
Board of
Directors,
which seats
are
currently held
by Mr.
Bharat Masrani
and Mr.
Brian Levitt,
(ii) the
TD Bank
Group is
not permitted
to own
more
than
9.9%
voting
common
shares
of
Schwab,
and
(iii)
the
Bank
is
subject
to
customary
standstill
restrictions and, subject to certain exceptions, transfer
restrictions.
Average Number of Employees
TD had an average of 101,759 full-time equivalent employees
for fiscal 2024.
Social and Environmental Policies
The
Bank
publishes
a
Sustainability
Report
outlining
the
Bank's
social
and
environmental
policies
and
strategies.
This
report
and
other
related
information
is
available
on
the
Bank's
website.
Additional
information
about
the
Bank's
social
and
environmental
policies
can
be
found
under
"Environmental
and
Social Risk” on pages 102 to 104 of the 2024 MD&A, which
is incorporated by reference.
Risk Factors
The
Bank
considers
it
critical
to
regularly
assess
its
operating
environment
and
highlight
top
and
emerging
risks,
which
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.
An
explanation
of
the
types
of
risks
facing
the
Bank
and
its
businesses
and
the
ways
in
which
the
Bank
manages them
can be
found under
the heading
“Risk Factors
and Management”
on pages
61 to
104 of
the 2024 MD&A, which is incorporated by reference.
DIVIDENDS
Dividends per Share for the Bank (October 31
st
year-end)
1
Type of Shares
2024
2023
2022
Common Shares
4.08
3.84
$3.56
Class A First Preferred Shares (Non-Viability
Contingent Capital)
1
Series 1
2
$1.24
$0.92
$0.92
Series 3
3
-
$0.92
$0.92
Series 5
$0.97
$0.97
$0.97
Series 7
$0.80
$0.80
$0.80
Series 9
$0.81
$0.81
$0.81
Series 16
$1.58
$1.58
$1.13
Series 18
4
$1.44
$1.31
$1.18
Series 20
5
-
$1.19
$1.19
Series 22
6
-
$1.30
$1.30
Series 24
7
-
$1.28
$1.28
Series 26
8
-
-
-
Series 27
9
$57.50
$57.50
$32.85
Series 28
9
$72.32
$72.32
$19.42
Series 29
10
-
-
-
Series 30
11
-
-
-
Series 31
12
-
-
-
Notes:
1
Except as noted, dividends are payable quarterly on last day of January, April, July and October in each year, in an amount
per
share
per
annum
determined
by
multiplying
the
Annual
Fixed
Dividend
Rate
(as
defined
within
each
Prospectus
Supplement) applicable to such Subsequent Fixed
Rate Period by $25.00.
2
On October
16, 2024,
the Bank
announced that
none of
its 20
million Non-Cumulative
5-Year
Rate Reset
Class A
First
Preferred Shares, Series 1 (Non-Viability Contingent Capital
(NVCC)) (the "Series 1 Shares") will be
converted on October
31, 2024
into Non-Cumulative
Floating Rate
Class A
First Preferred
Shares, Series
2 (NVCC)
(the "Series
2 Shares")
of
TD. As had been previously announced on October 1, 2024, the dividend
rate for the Series 1 Shares for the 5-year period
from
and including
October 31,
2024 to
but excluding
October 31,
2029, if
declared, is
payable at
a
per
annum rate
of
4.97%.
3
On July
31, 2024,
the Bank
redeemed all
of its
20,000,000 outstanding
Non-Cumulative Class
A First
Preferred Shares,
Series 3 (NVCC).
4
On April
18, 2023,
the Bank
announced that
none of
its 14
million Non-Cumulative
5-Year
Rate Reset
Preferred Shares
NVCC, Series 18 (“Series
18 Shares”) would be
converted on April 30,
2023 into Non-Cumulative Floating
Rate Preferred
Shares
NVCC,
Series
19.
As
had
been
previously
announced
on
March
31,
2023,
the
dividend
rate
for
the
Series
18
Shares for the
5-year period from
and including April
30, 2023 to
but excluding April
30, 2028, if
declared, is payable
at a
per annum rate of 5.747%.
5
On
October
31,
2023,
the
Bank
redeemed
all
of
its
16,000,000
outstanding
Non-Cumulative
Class
A
First
Preferred
Shares, Series 20 (NVCC).
6
On April
30, 2024,
the Bank
redeemed all
of its
14,000,000 outstanding Non-Cumulative
Class A
First Preferred
Shares,
Series 22 (NVCC).
7
On July
31, 2024,
the Bank
redeemed all
of its
18,000,000 outstanding
Non-Cumulative Class
A First
Preferred Shares,
Series 24 (NVCC)
8
The
Class
A
First
Preferred
Shares,
Series
26
(NVCC)
(the
"Series
26
Shares")
were
issued
on
July
29,
2021
to
the
Limited Recourse Trust,
in connection with
the issuance of
limited recourse capital
notes. Until revoked, the
trustee of the
Limited Recourse Trust has
waived its right to receive any
and all dividends on the
Series 26 Shares.
Until such waiver is
revoked by
the trustee
of the
Limited Recourse Trust,
no dividends are
expected to
be declared or
paid on the
Series 26
Shares.
9
Dividends
are
payable
semi-annually
on
April
30
and
October
31
in
each
year,
in
an
amount
per
share
per
annum
determined by
multiplying the
Annual Fixed
Dividend Rate
(as defined
within the
Prospectus Supplement)
applicable to
such Subsequent Fixed Rate Period by $1,000.00.
10
The Class A
First Preferred Shares, Series
29 (NVCC) (the
"Series 29 Shares")
were issued on
September 14, 2022
to a
Limited Recourse Trust,
in connection with
the issuance of
limited recourse capital
notes. Until revoked, the
trustee of the
Limited Recourse Trust
has waived its
right to receive any
and all dividends on
the Series 29
Shares. Until such waiver
is
revoked by
the trustee
of the
Limited Recourse Trust,
no dividends are
expected to
be declared or
paid on the
Series 29
Shares.
11
The Class
A First
Preferred Shares,
Series
30 (NVCC)
(the "Series
30 Shares")
were issued
on October
17, 2022
to a
Limited Recourse Trust,
in connection with
the issuance of
limited recourse capital
notes. Until revoked, the
trustee of the
Limited Recourse Trust has
waived its right to receive any
and all dividends on the
Series 30 Shares.
Until such waiver is
revoked by
the trustee
of the
Limited Recourse Trust,
no dividends are
expected to
be declared or
paid on the
Series 30
Shares.
12
The Class A First Preferred Shares, Series 31 (NVCC) (the "Series 31 Shares") were issued on June 28, 2024 to a
Limited
Recourse Trust (defined below), in connection with the issuance of limited recourse capital notes. Until revoked, the trustee
of the
Limited Recourse
Trust has
waived its
right to
receive any
and all
dividends on
the Series
31 Shares.
Until such
waiver is
revoked by
the trustee
of the
Limited Recourse
Trust, no
dividends are
expected to
be declared
or paid
on the
Series 31 Shares.
Dividend Restrictions
The
Bank
is
prohibited
by
the
Bank
Act
from
declaring
dividends
on
its
preferred
or
common
shares
if
there are reasonable
grounds for
believing that the
Bank is,
or the payment
would cause
the Bank to
be,
in contravention of
the capital adequacy
and liquidity regulations
of the Bank
Act or directions
of OSFI. In
addition,
the
ability
to
pay
dividends
on
common
shares
without
the
approval
of
the
holders
of
the
outstanding
preferred
shares
is
restricted
unless
all
dividends
on
the
preferred
shares
have
been
declared and paid or set apart for payment.
CAPITAL STRUCTURE
The
following
summarizes
certain
provisions
of
the
Bank's
common
shares,
preferred
shares
and
other
capital
instruments
qualifying
as
Additional
Tier
1
Capital
("AT1")
under
OSFI's
Capital
Adequacy
Requirements
guideline,
including
limited
recourse
capital
notes
and
perpetual
notes.
This
summary
is
qualified in
its entirety
by the
Bank’s by-laws
and the
actual terms
and conditions
of such
securities. For
more
information
on
the
Bank's
capital
structure,
see
pages
52
to
59
of
the
2024
MD&A
and
Notes
19
and
20
of
the
2024
Annual
Financial
Statements.
The
Bank
incorporates
those
pages
and
Notes
by
reference.
In
accordance
with
capital
adequacy
requirements
adopted
by
the
Office
of
the
Superintendent
of
Financial Institutions (Canada) ("OSFI"),
in order to qualify as
Tier 1 or Tier
2 Capital under Basel III,
non-
common
capital
instruments
issued
by
the
Bank
after
January
1,
2013,
including
Preferred
Shares
(as
defined
below)
and
Perpetual
Notes
(defined
below),
must
include
a
non-viability
contingent
capital
feature (the "NVCC
Provisions"), under which
they could be
converted into a
variable number of
common
shares of the Bank upon
the occurrence of a
Trigger Event.
A Trigger Event
is currently defined in
OSFI's
Capital
Adequacy
Requirements
Guideline
as
an
event
where
OSFI
determines
that
the
Bank
is,
or
is
about
to
become,
non-viable
and
that
after
conversion
of
all
non-common
capital
instruments
and
consideration
of
any
other
relevant
factors
or
circumstances,
the
viability
of
the
Bank
is
expected
to
be
restored, or
if the
Bank has
accepted or
agreed to
accept a
capital injection
or equivalent
support from
a
federal or provincial government of Canada without
which the Bank would have been determined
by OSFI
to be non-viable.
Common Shares
The
authorized
common
share
capital
of
the
Bank
consists
of
an
unlimited
number
of
common
shares
without nominal or par value.
Voting Rights
Subject
to
the
restrictions
set
out
under
“Constraints”
below,
holders
of
common
shares
are
entitled
to
vote at all meetings
of the shareholders
of the Bank, except
meetings at which only
holders of a specified
class or series of shares are entitled to vote.
Dividend Rights
The
holders
of
common
shares
are
entitled
to
receive
dividends
as
and
when
declared
by
the
Board,
subject to the preference of the holders of the Preferred Shares
of the Bank.
Rights on Liquidation
After payment to the
holders of the Preferred
Shares of the Bank
of the amount or
amounts to which
they
may be entitled,
and after payment
of all outstanding
debts, the holders
of common shares
are entitled to
receive the remaining property of the Bank upon the liquidation,
dissolution or winding-up thereof.
Preferred Shares
The
Bank
is
authorized
to
issue
an
unlimited
number
of
Class
A
First
Preferred
Shares
(the
"Preferred
Shares"), without nominal or par value.
The
Preferred
Shares
of
the
Bank
may
be
issued
from
time
to
time,
in
one
or
more
series,
with
such
rights, privileges, restrictions and conditions as the Board
may determine.
Priority
The Preferred
Shares of each
series rank on
a parity
with every other
series of
Preferred Shares,
and all
Preferred Shares
rank prior
to the
common shares
and to
any other
shares of
the Bank
ranking junior
to
the Preferred
Shares with
respect to
the payment
of dividends
and the
distribution of
assets in
the event
of the liquidation, dissolution or winding-up
of the Bank, provided that a Trigger
Event has not occurred as
contemplated
under
the
NVCC
Provisions
applicable
to
a
series
of
Preferred
Shares.
In
the
event
of
a
Trigger
Event
occurring
under
the
NVCC
Provisions,
the
existing
priority
of
the
Preferred
Shares
of
the
affected series
will not
be relevant
as all
Preferred Shares
of such
series will
be converted
into common
shares of the Bank and, upon conversion, will rank on a parity
with all other common shares of the Bank.
Voting Rights
There are no voting
rights attached to
the Preferred Shares
except to the extent
provided in any series
or
by
the
Bank
Act
.
The
Bank
may
not,
without
the
prior
approval
of
the
holders
of
the
Preferred
Shares,
create
or
issue
(i)
any
shares
ranking
in
priority
to
or
on
a
parity
with
the
Preferred
Shares,
or
(ii)
any
additional
series
of
Preferred
Shares,
unless
at
the
date
of
such
creation
or
issuance
all
cumulative
dividends
and
any
declared
and
unpaid
non-cumulative
dividends
have
been
paid
or
set
apart
for
payment in respect of each series of Preferred Shares
then issued and outstanding.
Approval of
amendments to
the provisions
of the
Preferred Shares
as a
class may
be given
in writing
by
the holders
of all
the outstanding
Preferred Shares
or by
a resolution
carried by
an affirmative
vote of
at
least two-thirds
of the
votes cast
at a
meeting at
which the
holders of
a majority
of the
then outstanding
Preferred Shares
are present
or represented
by proxy
or,
if no
quorum is
present at
such meeting,
at an
adjourned
meeting
at
which
the
shareholders
then
present
or
represented
by
proxy
may
transact
the
business for which the meeting was originally called.
Rights on Liquidation
In the event of the liquidation, dissoluti
on or winding-up of the Bank, provided
that a Trigger Event
has not
occurred as
contemplated under
the NVCC
Provisions applicable
to a
series of
Preferred Shares,
before
any amounts are
paid to or
any assets distributed
among the holders
of the common
shares or
shares of
any other
class of
the Bank
ranking junior
to the
Preferred
Shares, the
holder of
a Preferred
Share of
a
series will
be entitled
to receive,
to the
extent provided
for with
respect to
such
Preferred Shares
by the
conditions attaching to such series:
(i) an amount equal to
the amount paid up thereon;
(ii) such premium,
if any,
as has
been provided
for with
respect
to the
Preferred
Shares of
such
series;
and
(iii)
all unpaid
cumulative
dividends,
if
any,
on
such
Preferred
Shares
and,
in
the
case
of
non-cumulative
Preferred
Shares, all
declared and
unpaid non-cumulative
dividends. After
payment to
the holders
of the
Preferred
Shares of
the amounts
so payable
to them,
they will
not be
entitled to
share in
any further
distribution of
the property or assets of the Bank.
Limited Recourse Capital Notes
The
Bank
has
issued
limited
recourse
capital
notes
(“LRCNs”)
with
recourse
limited
to
assets
held
in
a
trust
consolidated
by
the
Bank
(the
“Limited
Recourse
Trust”).
The
Limited
Recourse
Trust’s
assets
consist of Class A First Preferred
Shares of the Bank, each series
of which is issued concurrently
with the
applicable series
of LRCNs (the
“LRCN Preferred
Shares”). In the
event of (i)
non-payment of
interest on
LRCNs
following
any
interest
payment
date,
(ii)
non-payment
of
the
redemption
price
in
case
of
a
redemption of
the LRCNs,
(iii) non-payment
of principal
plus accrued
and unpaid
interest at
the maturity
of the
LRCNs, (iv)
an event
of default
on the
LRCNs, or
(v) a
Trigger Event,
the recourse
of each
LRCN
holder will be limited to that holder’s pro rata share of the Limited Recourse
Trust’s assets.
Voting Rights
The holders
of LRCNs
are not
entitled to
any voting
rights, nor
are they
entitled to
receive notice
of or
to
attend any meeting of the shareholders of the Bank.
Rights on Liquidation
The LRCNs,
by virtue
of the
recourse to
the LRCN
Preferred Shares,
include standard
NVCC Provisions
necessary for
them to
qualify as
Additional Tier
1 Capital
under OSFI’s
Capital
Adequacy Requirements
guideline. NVCC
Provisions
require the
conversion
of the
instrument
into a
variable number
of common
shares upon the occurrence
of a Trigger
Event. In such an event,
each LRCN Preferred Share
held in the
Limited
Recourse
Trust
will
automatically
and
immediately
be
converted
into
a
variable
number
of
common
shares
which
will
be
delivered
to
LRCN
holders
in
satisfaction
of
the
principal
amount
of,
and
accrued
and
unpaid
interest
on,
the
LRCNs.
The
number
of
common
shares
issued
will
be
determined
based on the
conversion formula
set out in
the terms
of the respective
series of
LRCN Preferred
Shares.
The LRCNs are
compound instruments
with both equity
and liability features
as payments
of interest and
principal
in cash
are made
at the
Bank’s
discretion.
Non-payment
of
interest
and principal
in cash
does
not constitute an event of default but will trigger the delivery
of each LRCN Preferred Shares.
Perpetual Notes
The Bank has issued subordinated notes ("Perpetual
Notes") that are issued without a scheduled
maturity
or
redemption
date.
Interest
on
the
Perpetual
Notes
is
due
and
payable
only
if
it
is
not
cancelled.
The
Bank has
the sole
and absolute
discretion to
cancel interest.
Such cancelled
interest cannot
be claimed
against
the
Bank,
will
not
constitute
an
event
of
default
and
holders
have
no
rights
to
receive
any
additional
interest
or
compensation
as
a
result
of
such
cancellation.
In
the
event
of
non-payment
of
interest in full following such
payment date, the Bank will not
(a) declare dividends on the common
shares
or preferred shares
or (b) subject
to certain exceptions,
redeem any common
shares or preferred
shares,
in each case until the Bank pays interest in full on the Perpetual
Notes.
Voting Rights
The holders of
Perpetual Notes are
not entitled to any
voting rights, nor
are they entitled
to receive notice
of or to attend any meeting of the shareholders of the
Bank.
Rights on Liquidation
The Perpetual Notes include standard NVCC
Provisions necessary for them to qualify
as Additional Tier 1
Capital under OSFI’s Capital
Adequacy Requirements guideline.
NVCC Provisions require the
conversion
of the
instrument
into a
variable
number
of
common
shares
upon the
occurrence
of
a Trigger
Event.
In
such
an
event,
each
Perpetual
Note
will
automatically
and
immediately
be
converted
into
a
variable
number
of
common
shares
which
will
be
delivered
to
Perpetual
Note
holders
in
satisfaction
of
the
principal
amount
of,
and
accrued
and
unpaid
interest
on,
the
Perpetual
Notes.
The
number
of
common
shares issued
will be
determined based
on the
conversion formula
set out
in the
terms of
the respective
series
of Perpetual
Notes.
The Perpetual
Notes
are compound
instruments
with
both equity
and liability
features as payments
of interest and
principal in cash
are made at the
Bank’s discretion. Non-payment
of
interest and
principal
does not
constitute
an event
of
default but
the
Bank’s
failure to
pay interest
in full
when due will
impact the Bank’s
ability to pay
dividends on, or
redeem, its common
shares and preferred
shares, as described under “Perpetual Notes” above.
Constraints
There are no
constraints imposed
on the ownership
of securities of
a bank, including
the Bank, to
ensure
that a
bank has
a required
level of
Canadian ownership.
However,
the Bank
Act contains
restrictions on
the issue,
transfer,
acquisition, beneficial
ownership and
voting of
all shares
of a
bank. For
example, no
person can
be a
major shareholder
of a
bank if
the bank
has equity
of $12
billion or
more. A
person is
a
major shareholder of a bank where:
(i)
the aggregate
of the
shares
of any
class of
voting
shares
beneficially
owned
by that
person,
by
entities controlled by
that person and
by any person
associated or acting
jointly or in
concert with
that person is more than 20% of the outstanding shares
of that class of voting shares; or
(ii)
the aggregate
of the shares
of any class
of non-voting
shares beneficially
owned by
that person,
by entities
controlled by
that person
and by
any person
associated or
acting jointly
or in
concert
with that person is more than 30% of the outstanding
shares of that class of non-voting shares.
No person can
have a significant
interest in any
class of shares
of a bank,
including the Bank,
unless the
person first receives the approval of the Minister of Finance
(Canada).
For purposes of the
Bank Act, a
person has a significant
interest in a class
of shares of a
bank where the
aggregate
of
any
shares
of
the
class
beneficially
owned
by
that
person,
by
entities
controlled
by
that
person and by any person
associated or acting jointly
or in concert with that
person exceeds 10% of
all of
the outstanding shares of that class of shares of such
bank.
The
Bank
Act
also
prohibits
the
registration
of
a
transfer
or
issue
of
any
share
of
a
bank
to,
and
the
exercise
in
person
or
by
proxy
of
any
voting
rights
attached
to
any
share
of
a
bank
that
is
beneficially
owned by,
Her Majesty in right of Canada
or of a province or any agent
or agency of Her Majesty
in either
of those rights,
or to the
government of a
foreign country or
any political subdivision
thereof, or any
agent
or
agency
of
a
foreign
government.
Despite
this
restriction,
the
Minister
of
Finance
of
Canada
may
approve the issue
of shares of a
bank, including the
Bank, to an agent
that is an
“eligible agent”, which
is
defined as an agent or agency
of Her Majesty in right of Canada or
of a province or an agent or
agency of
a government
of a
foreign
country or
any political
subdivision of
a foreign
country:
(i) whose
mandate is
publicly
available;
(ii)
that
controls
the
assets
of
an
investment
fund
in
a
manner
intended
to
maximize
long-term risk-adjusted returns
and Her Majesty in right
of Canada or of a
province or an agent
or agency
of
a
government
of
a
foreign
country
or
any
political
subdivision
of
a
foreign
country
contributes
to
the
fund or the fund is established to provide
compensation, hospitalization, medical care, annuities,
pensions
or
similar
benefits
to
natural
persons;
and
(iii)
whose
decisions
with
respect
to
the
assets
of
the
fund
referred
to
in
(ii)
are
not
influenced
in
any
significant
way
by
Her
Majesty
in
right
of
Canada
or
of
the
province
or
the
government
of
the
foreign
country
or
the
political
subdivision.
The
application
for
this
approval would be made jointly by a bank, including the
Bank, and the eligible agent.
Ratings
Credit ratings
are important
to the
Bank’s borrowing
costs and
ability to
raise funds.
Rating downgrades
could
potentially
result
in
higher
financing
costs
and
increased
collateral
pledging
requirements
for
the
Bank
and
reduced
access
to
capital
markets.
Rating
downgrades
may
also
affect
the
Bank’s
ability
to
enter
into
normal
course
derivative
transactions.
The
Bank
regularly
reviews
the
level
of
increased
collateral
that
would
be
required
in
the
event
of
rating
downgrades
and
holds
liquid
assets
to
cover
additional
collateral
required
in
the
event
of
certain
downgrades
in
the
Bank's
senior
long-term
credit
ratings.
Additional
information
relating
to
credit
ratings
is
provided
under
the
heading
“Liquidity
Risk”
in
the “Managing
Risk” section
starting on
page 89
of the
2024 MD&A
and under
the heading
"Downgrade,
Suspension
or
Withdrawal
of
Ratings
Assigned
by
Any
Rating
Agency"
in
the
"Risk
Factors
and
Management" section on page 69 of the MD&A.
As at October 31, 2024, TD had the following solicited ratings from
the rating agencies listed below:
Rating
Rank*
Moody's Investor Service
Legacy Senior Debt
1
Aa3
4 of 21
Senior Debt
2
A2
6 of 21
Short Term
Debt
P-1
1 of 4
Legacy Subordinated Debt (non-
NVCC)
A3
7 of 21
Tier 2 Subordinated Debt (NVCC)
A3 (hyb)
7 of 21
AT1 Perpetual Debt –
NVCC
Baa2 (hyb)
9 of 21
Limited Recourse Capital Notes –
NVCC
Baa2 (hyb)
9 of 21
Preferred Shares – NVCC
Baa2 (hyb)
9 of 21
Outlook
Stable
Rating
Rank*
Standard & Poor's
Legacy Senior Debt
1
A+
5 of 22
Senior Debt
2
A-
7 of 22
Short Term
Debt
A-1
2 of 8
Legacy Subordinated Debt (non-
NVCC)
A-
7 of 22
Tier 2 Subordinated Debt (NVCC)
BBB+
8 of 22
AT1 Perpetual Debt –
NVCC
BBB-
10 of 22
Limited Recourse Capital Notes –
NVCC
BBB-
10 of 22
Preferred Shares – NVCC
BBB-
10 of 22
Outlook
Stable
Rating
Rank*
Fitch
Legacy Senior Debt
1
AA
3 of 23
Senior Debt
2
AA-
4 of 23
Short Term
Debt
F1+
1 of 8
Legacy Subordinated Debt (non-
NVCC)
A
6 of 23
Tier 2 Subordinated Debt (NVCC)
A
6 of 23
AT1 Perpetual Debt –
NVCC
BBB+
8 of 23
Limited Recourse Capital Notes –
NVCC
BBB+
8 of 23
Preferred Shares – NVCC
BBB+
8 of 23
Outlook
Negative
Rating
Rank*
DBRS Morningstar
Legacy Senior Debt
1
AA (high)
2 of 23
Senior Debt
2
AA
3 of 23
Short Term
Debt
R-1 (high)
1 of 11
Legacy Subordinated Debt (non-
NVCC)
AA (low)
4 of 23
Tier 2 Subordinated Debt (NVCC)
A
6 of 23
AT1 Perpetual Debt –
NVCC
–
–
Limited Recourse Capital Notes –
NVCC
A (low)
7 of 23
Preferred Shares – NVCC
Pfd-2 (high)
4 of 17
Outlook
Negative (Long
Term);
Stable (Short
Term)
*
Relative
rank of each rating within the rating agency's
overall classification system.
Notes
:
1.
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.
2.
Subject to conversion under the bank recapitalization
"bail-in" regime.
Credit ratings are not
recommendations to purchase,
sell or hold a
financial obligation in
as much 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 agency.
Credit ratings
and outlooks
provided by
the 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,
capital
adequacy,
competitive
position,
asset
quality,
business
mix,
corporate governance and
risk management, the level
and quality of our
earnings and liquidity,
as well as
factors not entirely within the Bank’s
control, including the methodologies
used by the rating agencies
and
conditions affecting the overall financial services
industry.
As is common
practice, the Bank
has made payments
in the ordinary
course to the
rating agencies
listed
above
in
connection
with
the
assignment
of
ratings
on
the
securities
of
the
Bank.
In
addition,
the
Bank
has made customary payments in respect
of certain other services provided
to the Bank by the applicable
rating agencies during the last two years.
A definition of the categories of each
rating as at October 31, 2024
has been obtained from the respective
rating agency’s
website and
is outlined
in Appendix
B, and
a more
detailed explanation
may be
obtained
from the applicable
rating agency.
We note
that the definition
of the ratings
categories for
the respective
rating agencies are provided
solely in order to
satisfy requirements of Canadian
law and do not
constitute
an
endorsement
by
the
Bank
of
the
ratings
categories
or
of
the
application
by
the
respective
rating
agencies of their criteria and analyses.
MARKET FOR SECURITIES OF THE BANK
The
Bank’s
common
shares
are
listed
on
the
Toronto
Stock
Exchange
(TSX)
and
the
New
York
Stock
Exchange
under
the
trading
symbol
"TD".
Except
for
the
Class
A
First
Preferred
Shares,
Series
26
(NVCC),
the
Class
A
First
Preferred
Shares,
Series
29
(NVCC),
the
Class
A
First
Preferred
Shares,
Series
30
(NVCC),
the
Class
A
First
Preferred
Shares,
Series
31
(NVCC),
the
Non-Cumulative
5-Year
Fixed
Rate
Reset
Preferred
Shares,
Series
27,
and
the
Non-Cumulative
5-Year
Fixed
Rate
Reset
Preferred Shares,
Series 28
which are
not listed
on an
exchange, the
Bank’s Preferred
Shares are
listed
on the TSX.
Trading Price and Volume
Trading price and volume
of the Bank’s outstanding securities
on the TSX in the past year is set
out in the
tables below:
COMMON SHARES
Nov.
2023
Dec.
2023
Jan.
2024
Feb.
2024
Mar.
2024
Apr.
2024
May
2024
Jun.
2024
Jul.
2024
Aug.
2024
Sept.
2024
Oct.
2024
High ($)
Low ($)
Vol.('000)
78.17
77.14
6,243
82.74
81.69
4,963
86.07
85.05
21,299
81.83
80.70
3,548
81.82
80.68
3,515
81.86
81.31
12,387
81.59
80.75
5,304
76.60
74.89
4,599
75.68
74.71
19,587
81.45
80.22
4,137
80.79
79.90
2,616
86.10
84.67
11,345
PREFERRED SHARES
Nov.
2023
Dec.
2023
Jan.
2024
Feb.
2024
Mar.
2024
Apr.
2024
May
2024
Jun.
2024
Jul.
2024
Aug.
2024
Sept.
2024
Oct.
2024
Series 1
High ($)
Low ($)
Vol.('000)
16.44
16.18
21
18.42
18.24
7
18.14
17.91
15
20.20
20.01
6
21.86
21.86
-
23.07
22.95
13
23.69
23.49
57
23.39
23.34
42
24.06
23.99
95
24.24
24.21
40
24.32
24.27
21
22.70
22.62
14
Series 5
High ($)
Low ($)
Vol.('000)
16.31
15.74
10
17.56
17.52
2
17.49
17.41
4
19.49
19.31
67
20.07
19.83
5
21.71
21.61
4
23.07
22.96
126
22.49
22.36
80
23.56
23.51
5
23.99
23.90
5
23.80
23.75
12
22.70
22.56
13
Series 7
High ($)
Low ($)
Vol.('000)
16.54
16.31
6
18.43
18.34
3
-
-
-
20.03
19.98
16
20.55
20.47
3
21.90
21.90
-
23.35
23.27
23
22.86
22.85
1
-
-
-
23.91
23.50
2
23.70
23.70
-
23.66
23.64
3
Series 9
High ($)
Low ($)
Vol.('000)
16.76
16.63
7
18.81
18.49
1
-
-
-
20.22
20.07
59
20.60
20.45
3
-
-
-
23.20
23.06
80
-
-
-
23.59
23.59
-
23.90
23.55
5
23.48
23.46
2
-
-
-
Series 16
High ($)
Low ($)
Vol.('000)
22.06
21.23
55
22.90
22.80
2
23.20
23.15
6
29.98
23.79
19
23.34
23.31
2
23.85
23.76
16
24.44
24.14
30
24.90
24.77
2
24.77
24.51
1
25.55
25.47
9
-
-
-
25.61
25.61
1
Series 18
High ($)
Low ($)
Vol.('000)
19.19
18.45
6
21.09
20.71
12
21.13
21.12
3
21.31
21.09
215
21.37
21.07
3
22.29
22.28
4
23.09
22.73
32
24.08
23.86
4
24.01
24.01
-
24.62
24.40
29
24.95
24.85
3
24.81
24.74
5
Prior Sales
In the
most recently
completed financial
year,
the Bank
issued the
following shares
that are
not listed
or
quoted on a marketplace:
Issue Price
Number of Securities Issued
Date of Issue
Class
A
First
Preferred
Shares, Series 31 (NVCC)
US$1,000
750,000
June 28, 2024
The above preferred shares were
issued in connection with the issuance
of limited recourse capital notes.
For
further
information
on
the
Bank's
issuance
of
limited
recourse
capital
notes
and
the
associated
preferred shares, please
see Note
19 of the
Annual Financial
Statements for the
year ended October
31,
2024, which notes are incorporated by reference in this
AIF.
ESCROWED SECURITIES AND SECURITIES SUBJECT TO
CONTRACTUAL RESTRICTIONS ON
TRANSFER
In
connection
with
each
issuance
of
LRCNs,
the
Bank
also
concurrently
issues
Preferred
Shares
(see
"Limited Resource
Capital Notes"
for additional
information).
Each LRCN
Preferred Share
Series is
held
in
the
Limited
Recourse
Trust.
Pursuant
to
the
Amended
and
Restated
Declaration
of
Trust
for
the
Limited Recourse
Trust
and the
share provisions
for each
LRCN Preferred
Share Series,
the Trustee
of
the
Limited
Recourse
Trust
will
only
deliver
the
LRCN
Preferred
Shares
to
holders
of
LRCNs
under
certain prescribed circumstances.
Securities Subject to Contractual Restriction on Transfer
as at October 31, 2024
Designation of Class
Number of Securities that are Subject to
a Contractual Restriction on Transfer
1
Percentage of Class
Class A First Preferred
Shares, Series 26 (NVCC)
1,750,000
100%
Class A First Preferred
Shares, Series 29 (NVCC)
1,500,000
100%
Class A First Preferred
Shares, Series 30 (NVCC)
1,750,000
100%
Class A First Preferred
Shares, Series 31 (NVCC)
750,000
100%
1
The contractual restriction on transfer will remain in
place for so long as such shares are held
in the Limited Recourse Trust.
DIRECTORS AND EXECUTIVE OFFICERS
Directors and Board Committees of the Bank
The following
table sets
forth, as
at December
4, 2024,
the directors
of the
Bank,
their present
principal
occupation and business, municipality of residence and the
date each became a director of the Bank.
Director Name
Principal Occupation & Municipality of Residence
Director Since
Ayman Antoun
Corporate Director, and former
President,
IBM Americas
Oakville, Ontario, Canada
April 2024
Cherie L. Brant
Partner, Borden Ladner Gervais
LLP
Tyendinaga Mohawk Territory,
Ontario, Canada
August 2021
Amy W. Brinkley
Consultant, AWB Consulting, LLC
Charlotte, North Carolina, U.S.A.
September 2010
Raymond Chun
1
Chief Operating Officer
The Toronto
-Dominion Bank
Toronto,
Ontario, Canada
November 2024
Brian C. Ferguson
Corporate Director, and former
President & Chief Executive Officer,
Cenovus Energy Inc.
Calgary, Alberta, Canada
March 2015
Colleen A. Goggins
Corporate Director, and retired
Worldwide Chairman,
Consumer Group, Johnson & Johnson
Princeton, New Jersey,
U.S.A.
March 2012
Alan N. MacGibbon
Board Chair, The Toronto
-Dominion Bank
Mississauga, Ontario, Canada
April 2014
John B. MacIntyre
Corporate Director, and
Partner Emeritus, Birch Hill Equity Partners
Toronto,
Ontario, Canada
August 2023
Karen E. Maidment
Corporate Director, and former
Chief Financial and Administrative Officer,
BMO Financial Group
Cambridge, Ontario, Canada
September 2011
Keith G. Martell
Corporate Director, and former
President & Chief Executive Officer,
First Nations Bank of Canada
Eagle Ridge, Saskatchewan, Canada
August 2023
Bharat B. Masrani
Group President and Chief Executive Officer,
The Toronto
-Dominion Bank
Toronto,
Ontario, Canada
April 2014
Claude Mongeau
Corporate Director, and former
President and Chief Executive Officer,
Canadian National Railway Company
Montreal, Quebec, Canada
March 2015
S. Jane Rowe
Corporate Director, and former
Vice Chair, Investments,
Ontario Teachers'
Pension Plan Board
Toronto,
Ontario, Canada
April 2020
Nancy G. Tower
Corporate Director, and former
President & Chief Executive Officer,
Tampa
Electric Company
Halifax, Nova Scotia, Canada
June 2022
Ajay K. Virmani
Executive Chairman, Cargojet Inc.
Oakville, Ontario, Canada
August 2022
Mary A. Winston
Corporate Director, and former
public-company Chief Financial Officer
Charlotte, North Carolina, U.S.A.
August 2022
Notes:
1.
Mr.
Chun will
become Group
President and
Chief Executive
Officer of
the Bank,
on April
10, 2025,
at
the Bank's
next
Annual Meeting of Shareholders.
Except as disclosed below,
all directors have had the same principal occupation for
the past five years.
Prior to
commencing
his current
role as
Chief Operating
Officer
TD Bank
Group on
November 1,
2024,
Mr.
Chun
was
Group
Head,
Canadian
Personal
Banking,
TD
Bank
Group
from
December
11,
2023
to
October 31, 2024, Group
Head, Wealth Management
and TD Insurance, TD
Bank Group from January
1,
2022
to
December
10,
2023,
Executive
Vice
President,
Direct
Investing,
Business
Architecture
and
Delivery,
TD Wealth
from June 14,
2021 to December
31, 2021, and
Executive Vice
President, President
and CEO, TD Insurance from May 23, 2019 to June 13,
2021.
Mr. MacIntyre was a Partner
at Birch Hill Equity Partners prior to December
1, 2024.
Mr.
Martell
was
former
Director,
President
and
Chief
Executive
Officer
of First
Nations
Bank
of
Canada
prior to May 2023 and continued in an advisory role until July
30, 2023.
Ms.
Rowe
was
Vice
Chair,
Investments
of
the
Ontario
Teachers'
Pension
Plan
Board
("Ontario
Teachers")
prior to August 1,
- Ms. Rowe was
Executive Managing Director
and head of the
Equities
department of Ontario Teachers'
prior to October 1, 2020.
Ms. Tower
was President and Chief Executive Officer
of Tampa
Electric Company prior to May 2021.
Each
director
will
hold
office
until
the
next
annual
meeting
of
shareholders
of
the
Bank,
which
is
scheduled for April 10, 2025. More detailed
information concerning the nominees
proposed for election as
directors, as well
as those not
standing for
re-election, will
be provided
in the management
proxy circular
of the Bank.
The following table sets forth the Committees of the Bank’s
Board, the members of each Committee as at
December 4, 2024 and each Committee’s key responsibilities.
Committee
Members
Key Responsibilities
Corporate
Governance
Committee
Alan N. MacGibbon
(Chair)
Amy W. Brinkley
Claude Mongeau
Nancy G. Tower
Responsibility for corporate governance of the Bank:
●
Identify
individuals
qualified
to
become
Board
members
and
recommend
to
the
Board
the
director
nominees
for
the
next
annual
meeting
of
shareholders
and
recommend
candidates
to
fill
vacancies
on
the
Board
that occur between meetings of the shareholders;
●
Develop and recommend
to the Board
a set of
corporate
governance
principles,
including
a
code
of
conduct
and
ethics,
aimed
at
fostering
a
healthy
governance
culture
at the Bank;
●
Satisfy
itself
that
the
Bank
communicates
effectively,
both proactively
and responsively,
with
its shareholders,
other interested parties and the public;
●
Oversee
the
Bank's
alignment
with
its
purpose
and
its
strategy,
performance
and
reporting
on
corporate
responsibility for sustainability matters;
●
Oversee subsidiary
governance for
the Bank
enterprise-
wide;
●
Provide oversight of enterprise
-wide conduct risk and
act
as
the
conduct
review
committee
for
the
Bank
and
certain
of
its
Canadian
subsidiaries
that
are
federally-
regulated financial institutions;
●
Oversee
the
establishment
and
maintenance
of
policies
in
respect
of
the
Bank's
compliance
with
the
consumer
protection
provisions
of
the
Financial
Consumer
Protection Framework (FCPF); and
●
Oversee the evaluation
of the Board and Committees.
Human
Resources
Committee
Claude Mongeau
(Chair)
Amy W. Brinkley
John B. MacIntyre
Alan N. MacGibbon
Karen E. Maidment
Responsibility
for
management’s
performance
evaluation, compensation and succession planning:
●
Discharge,
and
assist
the
Board
in
discharging,
the
responsibility of
the Board
relating to
leadership, human
capital management and
compensation, as set
out in the
Committee’s charter;
●
Set
corporate
goals
and
objectives
for
the
CEO,
and
regularly measure
the CEO’s
performance against
these
goals and objectives;
●
Recommend compensation
for the CEO
to the Board
for
approval,
and
review
and
approve
compensation
for
certain senior officers;
●
Monitor
the
Bank's
compensation
strategy,
plans,
policies
and
practices
for
alignment
to
the
Financial
Stability
Board
Principles
for
Sound
Compensation
Practices
and
Implementation
Standards,
including
the
appropriate consideration of risk;
●
Oversee
a
robust
talent
planning
and
development
process, including review and approval of
the succession
plans for the senior
officer positions and
heads of control
functions;
●
Review and recommend
the CEO succession
plan to the
Board for approval;
●
Produce a report on
compensation, which is
published in
the
Bank’s
annual
proxy
circular,
and
review,
as
appropriate,
any
other
related
major
public
disclosures
concerning compensation; and
●
Oversee
the
strategy,
design
and
management
of
the
Bank's
employee
pension,
retirement
savings
and
benefit plans.
Risk
Committee
Amy W. Brinkley
(Chair)
Ayman Antoun
Cherie L. Brant
Colleen A. Goggins
Karen E. Maidment
Keith G. Martell
Nancy G. Tower
Ajay K. Virmani
Supervising the management of risk of the Bank:
●
Approve
the
Enterprise
Risk
Framework
("ERF")
and
related
risk
category
frameworks
and
policies
that
establish
the
appropriate
approval
levels
for
decisions
and other measures
to manage risk
to which the
Bank is
exposed;
●
Review
and
recommend
the
Bank’s
Enterprise
Risk
Appetite
Statement
for
approval
by
the
Board
and
oversee the Bank’s major risks as set out in the
ERF;
●
Review
the
Bank’s
risk
profile
and
performance
against
Risk Appetite; and
●
Provide a forum for “big-picture” analysis of
an enterprise
view of risk including consideration
of trends, and current
and emerging risks.
Audit
Committee
Nancy G. Tower*
(Chair)
Ayman Antoun
Brian C. Ferguson*
Keith G. Martell*
S. Jane Rowe*
Mary A. Winston*
Supervising
the
quality
and
integrity
of
the
Bank’s
financial reporting and compliance requirements:
●
Oversee
reliable,
accurate
and
clear
financial
reporting
to shareholders;
●
Oversee
the
effectiveness
of
internal
controls,
including
internal controls over financial reporting;
●
Recommend
to
the
Board
the
appointment
of
the
shareholders'
auditor
for
approval
by
the
shareholders
and
the
compensation
and
terms
of
engagement
of
the
shareholders' auditor for approval by the Board;
●
Oversee the
work of
the shareholders’
auditor,
including
requiring
the
shareholders’
auditor
to
report
directly
to
the Committee;
●
Review
reports
from
the
shareholders’
auditor,
chief
financial
officer,
chief
auditor,
chief
compliance
officer,
and chief anti-money laundering
officer, and
evaluate the
effectiveness and independence of each;
●
Oversee
the
establishment
and
maintenance
of
policies
and
programs
reasonably
designed
to
achieve
and
maintain
the
Bank's
compliance
with
the
laws
and
regulations that apply to it; and
●
Act as the Audit Committee for
certain subsidiaries of the
Bank that are federally regulated financial institutions.
*Designated Audit Committee Financial Expert
Audit Committee
The Audit Committee
of the Board
of Directors
of the Bank
operates under
a written charter
that sets
out
its
responsibilities
and
composition
requirements.
A
copy
of
the
charter
is
attached
to
this
AIF
as
Appendix “C”. The
Committee charter requires
all members to
be financially literate
or be willing
and able
to
acquire
the
necessary
knowledge
quickly.
“Financially
literate”
means
the
ability
to
read
and
understand financial
statements that
present a
breadth and
level of
complexity of
accounting issues
that
are generally comparable
to the breadth
and complexity of the
issues that can reasonably
be expected to
be raised by the Bank’s financial statements.
In addition,
the Committee
charter contains
independence
requirements applicable
to each
member and
each
member
currently
meets
those
requirements.
Specifically,
the
charter
provides
that
no
member
of
the Committee may
be an officer
or retired officer
of the Bank
and every member
shall be independent
of
the
Bank
within
the
meaning
of
all
applicable
laws,
rules
and
regulations,
including
those
particularly
applicable
to
Audit
Committee
members
and
any
other
relevant
consideration
as
determined
by
the
Board,
including
the
Bank’s
Director
Independence
Policy
(a
copy
of
which
is
available
on
the
Bank’s
website at www.td.com).
As
indicated
in
the
table
above,
the
members
of
the
Committee
are:
Nancy
G.
Tower
(Chair),
Ayman
Antoun, Brian
C. Ferguson,
Keith G.
Martell,
S. Jane
Rowe, and
Mary A.
Winston. The
members
of the
Audit
Committee
bring
significant
skills
and
experience
to
their
responsibilities,
including
academic
and
professional
experience
in
accounting,
business
and
finance.
The
Board
has
determined
that
each
of
Messrs.
Ferguson,
and
Martell
and
Mses.
Rowe,
Tower
and
Winston
has
the
attributes
of
an
Audit
Committee
Financial
Expert
as
defined
in
the
U.S.
Sarbanes-Oxley
Act;
all
Committee
members
are
financially
literate
and
independent
under
the
applicable
listing
standards
of
the
New
York
Stock
Exchange,
the
Committee
charter,
the
Bank’s
Director
Independence
Policy
and
the
corporate
governance guidelines of the Canadian Securities Administrators.
The following sets out the
education and experience of
each director relevant to the
performance of his or
her duties as a member of the Committee:
Ayman
Antoun
is
a
Corporate
Director.
He
is
the
former
President
of
IBM
Americas,
a
multinational
technology corporation
which includes
Canada, the
United States
and Latin
America. He
is also
a Board
member of TD's U.S. Retail Banking
subsidiaries. Mr.
Antoun also serves on the Board
of CAE Inc. and is
a member
of their
Audit Committee.
Mr.
Antoun holds
a Bachelor
of Science,
Electrical Engineering
with
Computer Science Minor from the University of Waterloo.
Brian
C.
Ferguson
is
a
Corporate
Director.
He
is
the
former
President
&
Chief
Executive
Officer
of
Cenovus
Energy
Inc.
Prior
to
leading
Cenovus
Energy
Inc.,
Mr.
Ferguson
was
the
Executive
Vice-
President
and
Chief
Financial
Officer
of
Encana
Corporation.
Mr.
Ferguson
holds
an
undergraduate
degree in commerce from the
University of Alberta and is
a Fellow of Chartered Professional
Accountants
Alberta. Mr. Ferguson is one
of the Bank's Audit Committee Financial Experts.
Keith G. Martell
is a Corporate Director.
Mr. Martell
is the former Director,
President and Chief Executive
Officer of
First Nations
Bank of
Canada ("FNBC").
Prior to
joining FNBC,
Mr.
Martell spent
10 years
with
the
Chartered
Accounting
firm
KPMG,
then
served
as
the
Executive
Director
of
Finance
and
Fiscal
Relations for the Federation of
Sovereign Indigenous Nations from
1995 to 2000. Mr.
Martell currently sits
on
the
Board
of
Nutrien
Ltd
and
USask
Properties
Investment
Inc.
Mr.
Martell
holds
a
Bachelor
of
Commerce and
an Honorary
Doctor of
Laws from
the University
of Saskatchewan
and is
a Fellow
of the
Institute
of
Chartered
Professional
Accountants
(FCPA,
FCA)
and
a
Certified
Aboriginal
Financial
Manager (CAFM). Mr. Martell
is one of the Bank's Audit Committee Financial Experts.
S. Jane Rowe
is a Corporate Director.
Ms. Rowe is the former Vice Chair,
Investments, Ontario Teachers
and
was
formerly
the
Executive
Managing
Director,
Equities,
Ontario
Teachers.
Prior
to
joining
Ontario
Teachers
in 2010,
Ms. Rowe
held several
senior
executive
management
roles at
Scotiabank
during her
tenure. Ms. Rowe
previously served
as Chair of
the Audit Committee
of Sierra Wireless.
Ms. Rowe holds
an
undergraduate
degree
in
commerce
from
the
Memorial
University
of
Newfoundland
and
a
master’s
degree
in
business
administration
from
the
Schulich
School
of
Business,
York
University.
Ms.
Rowe
is
one of the Bank’s Audit Committee Financial
Experts.
Nancy G.
Tower
is Chair
of the
Bank's Audit
Committee.
Ms. Tower
is a
Corporate Director.
She is
the
former President
and
Chief Executive
Officer
of Tampa
Electric Company,
which
is a
U.S.
subsidiary
of
Emera Inc. Ms. Tower
held a number of
senior roles at Emera
Inc. and its subsidiaries,
including as Chief
Corporate
Development
Officer,
Chief
Financial
Officer,
and
Chief
Executive
Officer
of
Emera
Newfoundland and Labrador.
Ms. Tower
also serves as a member
of the Audit Committee of
AltaGas Ltd.
Ms.
Tower
holds
a
Bachelor
of
Commerce
from
Dalhousie
University
in
Halifax,
Nova
Scotia
and
is
a
Chartered Professional
Accountant, a
Chartered Accountant,
and a
Fellow of
the Chartered
Professional
Accountants of Nova Scotia. Ms. Tower
is one of the Bank’s Audit Committee Financial
Experts.
Mary
A.
Winston
is
a
Corporate
Director
and
former
public-company
Chief
Financial
Officer
of
Family
Dollar
Stores,
Inc.,
Giant
Eagle,
Inc.
and
Scholastic
Corp.,
and
while
serving
as
a
board
member,
was
also interim CEO
of Bed Bath
and Beyond Inc.
Ms. Winston serves
as the Chair
of the Audit
Committees
of TD
Group
U.S.
Holdings
LLC, TD
Bank
U.S.
Holding
Company,
TD
Bank,
N.A.,
TD
Bank
USA,
N.A.
She
is
the
Chair
of
the
Audit
Committees
of
Acuity
Brands
Inc.
(through
January
2025)
and
Chipotle
Mexican
Grill
Inc,
and
sits
on
the
board
of
Northrup
Grumman.
Ms.
Winston
previously
served
as
the
Chair of the
Audit Committee
of Dover Corp.
from 2008
to 2018.
Ms. Winston
holds a
Bachelor's Degree
in Accounting from the University
of Wisconsin, an MBA from
Northwestern University's Kellogg
School of
Management,
and
is
a
Certified
Public
Accountant.
Ms.
Winston
is
one
of
the
Bank’s
Audit
Committee
Financial Experts.
Additional Information Regarding the Audit Committee
and Shareholders' Auditor
The
Audit
Committee
oversees
the
financial
reporting
process
at
the
Bank,
including
the
work
of
the
shareholder's
independent
external
auditor,
currently
Ernst
&
Young
LLP
(“EY”).
EY
is
responsible
for
planning
and
carrying
out,
in
accordance
with
professional
standards,
an
audit
of
the
Bank's
annual
financial statements and reviews of the Bank's quarterly
financial statements.
The Audit
Committee is
responsible for
the annual
recommendation
of the
appointment and
oversight of
the
shareholders’
independent
external
auditor.
The
Audit
Committee
assesses
the
performance
and
qualification
of
the
shareholders'
auditor
and
submits
its
recommendation
for
appointment,
or
reappointment,
to
the
Board
for
recommendation
to
the
shareholders.
The
shareholders'
auditor
is then
appointed by the shareholders, who vote on this matter
at the Annual General Meeting.
At
least
annually,
the
Audit
Committee
evaluates
the
performance,
qualifications,
skills,
resources
(amount and
type), and
independence of
the shareholders'
auditor,
including the
lead partner,
in order
to
support
the
Board
in
reaching
its
recommendation
to
appoint
the
shareholders'
auditor.
This
annual
evaluation
includes
an
assessment
of
audit
quality
and
service
considerations
such
as:
auditor
independence, objectivity
and professional skepticism;
quality of the
engagement team;
monitoring of the
partner
rotation
timing;
and
quality
of
the
communication
and
service
provided
by
the
shareholders'
auditor.
In
the
evaluation,
the
Audit
Committee
considers
the
nature
and
extent
of
communications
received from
the shareholders'
auditor during
the year,
the responses
from management
and the
Audit
Committee
to
an
annual
questionnaire
regarding
the
performance
of,
and
interactions
with,
the
shareholders' auditor.
EY
was
appointed
as
the
shareholders'
independent
external
auditor
for
the
year
ended
October
31,
2024, in
accordance
with
the
Bank
Act and
the recommendation
by the
Audit
Committee
and
has been
the
Bank’s
sole
independent
external
auditor
beginning
with
the
year
ended
October
31,
2006.
Prior
to
2006, EY acted as joint auditors of the Bank.
Executive Officers of the Bank
As at December 4, 2024, the following individuals are executive
officers of the Bank:
Executive Officer
Principal Occupation
Municipality of
Residence
Ajai
K. Bambawale
Group Head and Chief Risk Officer,
TD Bank Group
Toronto,
Ontario,
Canada
Melanie Burns
Executive Vice President and Chief Human
Resources Officer
Toronto,
Ontario,
Canada
Raymond Chun
1
Chief Operating Officer,
TD Bank Group
Oakville, Ontario,
Canada
Paul Clark
Senior Executive Vice President, Wealth
Management
Toronto,
Ontario,
Canada
Barbara Hooper
Group Head, Canadian Business Banking, TD Bank
Group
Etobicoke,
Ontario, Canada
Gregory Keeley
Senior Executive Vice President, Platforms and
Technology
Fairfield,
Connecticut,
U.S.A.
Jane Langford
Executive Vice President and General Counsel
Toronto,
Ontario,
Canada
Bharat B. Masrani
2
Group President and Chief Executive Officer,
TD
Bank Group
Toronto,
Ontario,
Canada
Sona Mehta
Group Head, Canadian Personal Banking, TD Bank
Group
Brampton,
Ontario, Canada
M. Christine Morris
Senior Executive Vice President,
Transformation, Enablement and Customer
Experience
Etobicoke,
Ontario, Canada
Anita O'Dell
3
Senior Vice President and Chief Auditor
Anderson, South
Carolina, U.S.A.
Leovigildo Salom
Group Head US Retail, TD Bank Group and
President and CEO, TD Bank, America's Most
Convenient Bank®
Miami, Florida,
U.S.A.
Kelvin Tran
Group Head and Chief Financial Officer,
TD
Bank Group
Markham,
Ontario, Canada
Tim Wiggan
Group Head, Wholesale Banking and
President and CEO of TD Securities
Toronto,
Ontario,
Canada
Notes:
1.
Mr.
Chun will
become Group
President and
Chief Executive
Officer of
the Bank,
on April
10, 2025,
at
the Bank's
next
Annual Meeting of Shareholders.
2.
Mr. Masrani will retire on April 10, 2025.
3.
As of December 9, 2024, Ms. O'Dell will move into
an advisory role at the Bank and will continue to
serve in that role until
she retires on May 31, 2025. Michelle Myers
will be appointed as Global Chief Auditor effective
December 9, 2024.
Except as disclosed
below,
all executive officers
have had the
same principal occupation
for the past
five
years.
Prior to commencing her current
role as Executive Vice
President and Chief Human Resources
Officer on
May 1,
2024, Ms.
Burns was
Executive Vice
President and
Deputy Chief
Human Resources
Officer from
June 5, 2023 to April
30, 2024, and Senior Vice
President, Human Resources, Talent
from June 13, 2011
to June 4, 2023.
Prior to
commencing
his current
role as
Chief Operating
Officer,
TD Bank
Group on
November 1,
2024,
Mr.
Chun
was
Group
Head,
Canadian
Personal
Banking,
TD
Bank
Group
from
December
11,
2023
to
October 31, 2024, Group
Head, Wealth Management
and TD Insurance, TD
Bank Group from January
1,
2022
to
December
10,
2023,
Executive
Vice
President,
Direct
Investing,
Business
Architecture
and
Delivery,
TD Wealth
from June 14,
2021 to December
31, 2021, and
Executive Vice
President, President
and CEO, TD Insurance from May 23, 2019 to June 13,
2021.
Prior
to
commencing
his
current
role
as
Senior
Executive
Vice
President,
Wealth
Management
on
November
1,
2024,
Mr.
Clark
was
Executive
Vice
President,
Wealth
Advice
from
June
14,
2021
to
October 31,
2024, and
Executive Vice
President, Direct
Investing, TD
Wealth from
July 1,
2019 to
June
13, 2021.
Prior to
commencing
her current
role
as Group
Head,
Canadian
Business Banking,
TD Bank
Group, on
May
1,
2023,
Ms.
Hooper
was
Senior
Executive
Vice
President,
Treasury
and
Enterprise
Strategy
from
September
1,
2021
to
April
30,
2023,
and
Executive
Vice
President,
Treasury
and
Corporate
Development from January 23, 2017 to August 31, 2021.
Prior to
commencing
his current
role
as
Senior
Executive
Vice
President,
Platforms
and Technology
on
January
1,
2022,
Mr.
Keeley
was
Executive
Vice
President
and
Chief
Information
Officer
from
April
1,
2021 to
December
31,
2021
and
Senior
Vice
President
and
Head
of
Enterprise
Operational
Excellence
from August 1, 2018 to March 31, 2021.
Prior to commencing
her current
role as
Executive Vice
President and
General Counsel
on May
1, 2022,
Ms. Langford was Senior Vice President, Legal, Corporate
from March 1, 2018 to April 30, 2022.
Prior to commencing her current role as
Group
Head,
Canadian
Personal
Banking,
TD
Bank
Group
on
November
1,
2024,
Ms.
Mehta
was
Executive
Vice
President,
Real
Estate
Secured
Lending,
Everyday
Banking,
Savings
and
Investing,
Canadian
Personal
Banking
from
November
20,
2023
to
October
31,
2024,
Senior
Vice
President,
Everyday
Banking,
Savings
and
Investing
from
May
9, 2022
to
November
19, 2023,
Senior Vice
President, Claims,
Fraud, Litigation
and Vendor
Management,
TD Insurance
from
February
10,
2020
to
May
8,
2022,
and
Vice
President,
Risk
Management
from
September
5,
2017
to
February 9, 2020.
Prior
to
starting
her
current
role
as
Senior
Executive
Vice
President,
Transformation,
Enablement
and
Customer
Experience
on
September
1,
2021,
Ms.
Morris
was
Executive
Vice
President
and
Chief
Operating Officer,
Canadian Personal Banking
from April 1, 2020
to August 31, 2021,
and Executive Vice
President, Lending Solutions, Canadian Personal Banking from
September 16, 2019 to March 31, 2020.
Prior to commencing
her current role
as Senior Vice
President and Chief
Auditor on March
29, 2021, Ms.
O'Dell
was
Senior
Vice
President
and
Chief
Auditor,
TD
Bank
America's
Most
Convenient
Bank
from
March 2, 2017 to March 28, 2021.
Prior to commencing
his current role
as Group Head
US Retail, TD
Bank Group and
President and CEO,
America's Most Convenient
Bank, on January 1,
2022, Mr.
Salom was Group Head,
Wealth Management
and TD Insurance, TD Bank Group from November 1,
2017 to December 31, 2021.
Prior to
commencing
his current
role
as Group
Head
and Chief
Financial
Officer
on March
2, 2023,
Mr.
Tran
was Senior
Executive Vice
President and
Chief Financial
Officer from
September 1,
2021 to
March
1, 2023,
Executive Vice
President, Enterprise
Finance from
May 27,
2021 until
August 31,
2021, Senior
Vice President, TD
Bank Group and
Chief Financial Officer,
TD Bank, America's
Most Convenient Bank®
from August 1, 2019 to May 26, 2021.
Prior to
commencing his
current role
as Group
Head, Wholesale
Banking and
President and
CEO of
TD
Securities on
November 1,
2024, Mr.
Wiggan was
Group Head,
Wealth Management
and Insurance,
TD
Bank Group from December
11, 2023
to October 31, 2024,
Executive Vice President,
Vice Chair and
Co-
Head of Global
Investment Banking, TD
Securities from March
1, 2023 to
December 10,
2023, Executive
Vice President,
Vice Chair
and Co-Head
Global Markets,
TD Securities
from March
3, 2022
to February
28,
2023,
Senior
Vice
President,
Executive
Managing
Director
and
Co-Head
Global
Markets,
TD
Securities
from
January
2,
2022 to
March
2,
2022,
and
Senior
Vice
President
and
Executive
Managing
Director, Global Equities and Commodities
from November 1, 2016 to January 1, 2022.
Shareholdings of Directors and Executive Officers
To
the knowledge of the Bank, as
at October 31, 2024, the directors
and executive officers of the
Bank as
a
group
beneficially
owned,
directly
or
indirectly,
or
exercised
control
or
direction
over
an
aggregate
of
2,234,206.58 of the
Bank’s common shares,
representing approximately
0.13 %
of the Bank’s
issued and
outstanding common shares on that date.
Additional Disclosure for Directors and Executive
Officers
To
the best of our
knowledge, having made
due inquiry,
the Bank confirms that,
as at December
4, 2024,
except as set out below:
(i)
no director or executive officer
of the Bank is, or was within the
last ten years, a director or
officer of
a company (including the Bank) that:
(a)
was subject to
an order (including
a cease trade
order or an
order similar to
a cease trade
or
an
order
that
denied
the
relevant
company
access
to
any
exemption
under
securities
legislation for
a period
of more
than 30
consecutive days),
that was
issued while
the director
or
executive
officer
was
acting
in
the
capacity
as
director,
chief
executive
officer
or
chief
financial officer;
(b)
was subject
to an
order that
was issued
after the
director or
executive officer
ceased to
be a
director, chief
executive officer
or chief financial
officer and
which resulted from
an event that
occurred
while
that
person
was
acting
in
the
capacity
as
director,
chief
executive
officer
or
chief financial officer; or
(c)
within
a
year
of
the
person
ceasing
to
act
in
that
capacity,
became
bankrupt,
made
a
proposal
under
any
legislation
relating
to
bankruptcy
or
insolvency
or
was
subject
to
or
instituted
any
proceedings,
arrangement
or
compromise
with
creditors
or
had
a
receiver,
receiver manager or trustee appointed to hold its assets.
(ii)
in
the
last
ten
years,
no
director
or
executive
officer
of
the
Bank
has
become
bankrupt,
made
a
proposal
under
any
legislation
relating
to
bankruptcy
or
insolvency,
or
become
subject
to
or
instituted any
proceedings,
arrangement
or compromise
with creditors,
or had
a receiver,
receiver
manager or trustee appointed to hold the assets of the
director or executive officer; and
(iii)
no director or
executive officer
of the Bank
has been subject
to any penalties
or sanctions imposed
by a court
relating to securities
legislation or by
a securities regulatory
authority or has
entered into
a
settlement
agreement
with
a
securities
regulatory
authority
or
has
been
subject
to
any
other
penalties
or
sanctions
imposed
by
a
court
or
regulatory
body
that
would
likely
be
considered
important to a reasonable investor in making an investment
decision.
Ms.
Goggins
was,
prior
to
June
14,
2016,
a
director
of
Valeant
Pharmaceuticals
International,
Inc.
("Valeant").
Management
cease
trade
orders
were
issued
for
directors
and
officers
of
Valeant
by
the
Autorité
des
marchés
financiers
(Quebec)
while
Ms.
Goggins
was
a
director
of
Valeant.
These
orders
were effective from March 31, 2016 to April 29, 2016,
and from May 17, 2016 to June 8, 2016.
Mr.
MacIntyre
was
a
director
of
2180811
Ontario
Limited
("2180811"),
the
sole
general
partner
of
RHB
Group LP ("RHB"). On January
17, 2017, RHB and 2180811
were deemed to have filed
an assignment of
bankruptcy
under
the
Bankruptcy
and Insolvency
Act.
RHB and
2180811
were
majority
owned
by Birch
Hill Equity Partners, where Mr.
MacIntyre is employed.
Pre-Approval Policies and Shareholders’ Auditor Service
Fees
The Bank’s
Audit Committee
has implemented
a policy
restricting the services
that may
be performed
by
the shareholders’ independent
external auditor.
The policy provides
detailed guidance to
management as
to
the
specific
services
that
are
eligible
for
Audit
Committee
pre-approval.
By
law,
the
shareholders’
auditor may not provide certain services to the Bank or
its subsidiaries.
The types of services to be
performed by the shareholders' auditor,
together with the maximum amount
of
fees that may be paid
for such services, must
be annually pre-approved by
the Audit Committee pursuant
to the policy.
The policy
also provides
that the
Audit Committee
will, on a
quarterly basis,
receive a year-
to-date
report
of
fees
paid
or
payable
to
the
shareholders'
auditor
for
services
performed,
as
well
as
details
of
any
proposed
engagements
for
consideration
and,
if
necessary
pre-approval,
by
the
Audit
Committee.
In
making
its
determination
regarding
the
services
to
be
performed
by
the
shareholders’
auditor, the
Audit Committee considers
compliance with applicable
legal and regulatory
requirements and
guidance,
and
with
the
policy,
as
well
as
whether
the
provision
of
the
services
could
negatively
impact
auditor
independence.
This
includes
considering
whether
the
provision
of
the
services
would
place
the
auditor in a
position to audit
its own work,
place the auditor
in an advocacy
role on behalf
of the Bank,
or
result in the auditor acting in the role of the Bank’s
management.
Fees
paid
to
EY,
the
Bank’s
current
shareholders’
independent
external
auditor,
by
category
of
fee
for
services provided during the two most recently completed
fiscal years are detailed in the table below.
Fees paid to Ernst & Young
LLP
(thousands of Canadian dollars)
2024
2023
Audit Fees
1
$45,580
$43,085
Audit-related fees
2
3,893
5,724
Tax
fees
3
815
1,067
All Other fees
4
25
150
Total Bank and Subsidiaries
$50,313
$50,026
Investment Funds
5
– Public Funds
2,849
2,643
– Private Funds
3,571
4,749
Total Investment
Funds
$6,420
$7,392
Total
Fees
$56,733
$57,418
Notes:
1.
Audit fees
are fees
for the
professional services
in connection
with the
audit of
the Bank’s
financial statements
including the
audit of
internal control over
financial reporting, the
audit of
its subsidiaries,
and other services
that are
normally provided
by
the shareholders’ auditor in connection with statutory
and regulatory filings or engagements.
2.
Audit-related fees are fees for assurance and
related services that are performed by the shareholders’
auditor. These services
include:
employee
benefit
plan
audits;
audit
of
charitable
organizations;
audit
services
for
certain
special
purpose
entities
administered
by
the
Bank;
accounting
and
tax
consultation
in
connection
with
mergers,
acquisitions,
divestitures
and
restructurings; application
and general
controls reviews;
interpretation of
accounting, tax
and reporting
standards; assurance
services
or
specified
procedures
that
are
not
required
by
statute
or
regulation;
reports
on
control
procedures
at
a
service
organization; translation of financial
statements and reports in
connection with the audit
or review; and information
technology
advisory services.
3.
Tax fees comprise general tax planning and advice related to mergers and acquisitions and financing structures; electronic and
paper-based tax
knowledge publications;
income and
commodity tax
compliance and
advisory services;
and transfer
pricing
services and customs and duties issues.
4.
All
other fees
include fees
for benchmark
studies; regulatory
advisory services;
and performance
and process
improvement
services.
5.
Includes fees for professional services
provided by EY for certain
investment funds managed by subsidiaries of
the Bank. The
fees mainly
relate to
audit services;
$566 thousand
(2023 –
$630 thousand)
relates to
tax and
other services.
In addition
to
other
administrative
costs,
the
subsidiaries
are
responsible
for
the
auditors'
fees
for
professional
services
rendered
in
connections with the annual
audits, statutory and regulatory filings, and
other services for the
investment funds, in return
for a
fixed administration fee. For certain funds, these fees
are paid directly by the funds.
LEGAL PROCEEDINGS AND REGULATORY
ACTIONS
A description
of material
legal proceedings
and regulatory
matters to
which the
Bank is
a party
is set out
under the
heading “Legal
and Regulatory
Matters” in
Note 27
of the
Annual Financial
Statements for
the
year ended October 31, 2024, which note is incorporated
by reference in this AIF.
On
October
10,
2024,
the
Bank
announced
that,
following
active
cooperation
and
engagement
with
authorities
and
regulators,
it
had
reached
a
resolution
of
investigations
related
to
its
U.S.
BSA/AML
compliance
programs.
The Bank
and
certain
of its
U.S.
subsidiaries
have consented
to orders
with
the
OCC,
the
FRB,
and
FinCEN
and
entered
into
plea
agreements
with
the
DOJ,
Criminal
Division,
Money
Laundering
and
Asset
Recovery
Section
and
the
United
States
Attorney’s
Office
for
the
District
of
New
Jersey.
More information is provided in the "General Development of the
Business" section of this AIF.
During
fiscal
2024,
Financial
Transactions
and
Reports
Analysis
Centre
of
Canada
("FINTRAC")
undertook
a
compliance
examination
of
certain
aspects
of
the
Bank’s
AML
program
in
Canada.
FINTRAC
imposed
an
administrative
monetary
penalty
of
$9.2
million
and
issued
five
violations:
(i)
FINTRAC
found
that
TD
failed
to
file
suspicious
transaction
reports
(STRs)
in
20
of
the
cases
it
had
reviewed
and
(ii)
FINTRAC
issued
four
inter-related
violations
that
primarily
stemmed
from
the
Bank’s
failure
to
properly
identify
(i.e.,
assess
and
document)
its
full
population
of
high-risk
customers.
More
information is provided
under "Significant Events
– Global Resolution
of the Investigations
into the Bank's
U.S. BSA/AML Program" on pages 4 to 9 of the 2024
MD&A.
From time to
time, in the
ordinary course of
business, the
Bank and its
subsidiaries are
assessed fees
or
fines
by
securities
regulatory
authorities
1
in
relation
to
administrative
matters,
including
late
filings
or
reporting, which may be considered penalties
or sanctions pursuant to securities legislation,
but which are
not,
individually
or in
the
aggregate,
material
to
the
Bank.
In
addition,
the
Bank
and
its subsidiaries
are
subject
to
numerous
regulatory
authorities
around
the
world,
and
fees,
administrative
penalties,
settlement agreements and sanctions may be categorized
differently by each regulator.
1
National
Instrument
14-101
defines
“securities
legislation”
as
Canadian
provincial
and
territorial
securities
legislation,
and
“securities regulatory authority” as Canadian provincial
and territorial securities regulatory authorities.
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL
TRANSACTIONS
To
the best of our knowledge, the
Bank confirms that, as at December
4, 2024, there were no directors
or
executive officers
of the
Bank, nor
any associate
or affiliate
of a
director or
executive officer
of the
Bank,
with
a
material
interest
in
any
transaction
within
the
three
most
recently
completed
financial
years
or
during the current
financial year that
has materially affected
or is reasonably
expected to materially
affect
the Bank.
TRANSFER AGENTS AND REGISTRARS
Transfer Agent
TSX Trust Company
301-100 Adelaide Street West,
Toronto,
ON M5H 4H1
Telephone:
416-682-3860 or toll-free at 1-800-387-0825 (Canada and U.S.
only)
Fax:
1-888-249-6189
Email:
shareholderinquiries@tmx.com
Website:
www.tsxtrust.com
Co-transfer Agent and Registrar
Computershare
P.O.
Box 43006
Providence, RI 02940-3006
or
150 Royall Street
Canton, MA 02021
Telephone:
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
Website:
www.computershare.com/investor
INTERESTS OF EXPERTS
The
Consolidated
Financial
Statements
of
the
Bank
for
the
year
ended
October
31,
2024
filed
under
National
Instrument
51-102
–
Continuous
Disclosure
Obligations,
portions
of
which
are
incorporated
by
reference
in
this
AIF,
have
been
audited
by
Ernst
&
Young
LLP,
Chartered
Professional
Accountants,
Licensed Public
Accountants, Toronto,
Ontario. Ernst
& Young
LLP is
the external
auditor who
prepared
the
Report
of
Independent
Registered
Public
Accounting
Firm
–
Opinion
on
the
Consolidated
Financial
Statements, and
Report of
Independent Registered
Public Accounting
Firm –
Opinion on
Internal Control
over Financial Reporting. Ernst & Young
LLP is independent with respect to the Bank
within the context of
the
CPA
Code
of
Professional
Conduct
of
the
Chartered
Professional
Accountants
of
Ontario.
Ernst
&
Young
LLP is also
independent with respect
to the Bank
within the meaning
of the U.S.
federal securities
laws and
the
applicable
rules
and regulations
thereunder
adopted by
the
U.S.
Securities
and Exchange
Commission and the Public Company Accounting Oversight
Board.
MATERIAL CONTRACTS
Except
as
set
forth
below,
the
Bank
has
not
entered
into
any
material
contracts,
other
than
those
contracts entered into in the ordinary course of business,
within the last financial year.
A
plea
agreement
was
entered
into
on
October
10,
2024
between
the
Department
of
Justice,
Criminal
Division,
Money
Laundering
and
Asset
Recovery
Section,
the
United
States
Attorney’s
Office
for
the
District of
New Jersey
and TD
Bank, N.A.,
pursuant to
which TD
Bank, N.A.
plead guilty
to one
count of
conspiring to
fail to
maintain an
adequate AML
program, fail
to file
accurate currency
transaction reports
("CTRs") and launder money.
A
plea
agreement
was
entered
into
on
October
10,
2024
between
the
Department
of
Justice,
Criminal
Division,
Money
Laundering
and
Asset
Recovery
Section,
the
United
States
Attorney’s
Office
for
the
District of New
Jersey and
TD Bank US
Holding Company (TDBUSH),
pursuant to which
TDBUSH plead
guilty to two counts of failing to maintain an adequate
AML program and failing to file accurate CTRs.
The above
plea
agreements
were filed
as “material
contracts”
in
accordance
with
the
Bank’s
regulatory
obligations
under
securities
laws
and
at
the
request
of
the
Ontario
Securities
Commission
("OSC"),
as
part of ongoing continuous disclosure review by OSC Corporate
Finance.
Additional
information
about
the
Global
Resolution
can
be
found
under
"Significant
Events
–
Global
Resolution
of
the
Investigations
into
the
Bank's
U.S.
BSA/AML
Program"
on
pages
4
to
9
of
the
2024
MD&A, which is incorporated by reference.
The
Bank's
material
contracts
are
available
under
the
Bank's
issuer
profile
on
SEDAR+
at
www.sedarplus.ca
ADDITIONAL INFORMATION
Additional
information
concerning
the
Bank
may
be
found
on
SEDAR+
at
www.sedarplus.ca
and
on
EDGAR at www.sec.gov.
Additional information,
including directors’
and officers’
remuneration and
indebtedness, principal
holders
of the Bank’s
securities and
options to purchase
securities, in
each case
if applicable,
is contained
in the
Bank’s
management
proxy
circular
for
its most
recent
annual
meeting
of
shareholders
that
involved
the
election
of
directors.
Additional
financial
information
is
provided
in
the
Bank’s
comparative
financial
statements
and
management’s
discussion
and
analysis
for
its
most
recently
completed
financial
year,
which at the date hereof was the year ended October 31, 2024.
Under certain Canadian
bank resolution powers
that came into effect
on September 23,
2018 (the "bail-in
regime"), the Canada Deposit
Insurance Corporation (“CDIC”) may,
in circumstances where the Bank
has
ceased, or
is about
to cease,
to be
viable, assume
temporary control
or ownership
of the
Bank and
may
be granted broad powers by one or more orders
of the Governor in Council (Canada),
including the power
to sell or
dispose of
all or a
part of the
assets of
the Bank,
and the
power to
carry out
or cause
the Bank
to carry out a
transaction or a series
of transactions the purpose
of which is to restructure
the business of
the
Bank.
The
expressed
objectives
of
the
bail-in
regime
include
reducing
government
and
taxpayer
exposure
in
the
unlikely
event
of
a
failure
of
a
bank
designated
by
OSFI
as
a
domestic
systemically
important
bank
("D-SIB"),
reducing
the
likelihood
of
such
a
failure
by
increasing
market
discipline
and
reinforcing that
bank shareholders
and creditors
are responsible
for the
D-SIBs’ risks
and not
taxpayers,
and preserving financial stability
by empowering the CDIC
to quickly restore a
failed D-SIB to viability
and
allow
it
to
remain
open
and
operating,
even
where
the
D-SIB
has
experienced
severe
losses.
For
a
description
of
Canadian
bank
resolution
powers
and
the
consequent
risk
factors
attaching
to
certain
liabilities of
the Bank,
reference is
made to
https://www.td.com/investor
-relations/ir-homepage/regulatory-
disclosures/main-features-of-capital-instruments/main-features-of-capital-instruments.jsp
.
Appendix “A”
Intercorporate Relationships
The following is a list of the directly or indirectly
held significant subsidiaries.
SIGNIFICANT SUBSIDIARIES
1
(millions of Canadian dollars)
October 31, 2024
North America
Address of Head
or Principal
Office
2
Carrying value
of shares
owned by the Bank
3
Meloche Monnex Inc.
Security National
Insurance Company
Primmum Insurance Company
TD Direct Insurance Inc.
TD General Insurance
Company
TD Home and Auto
Insurance Company
Montreal, Québec
Montreal, Québec
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
$
2,753
TD Wealth
Holdings Canada
Limited
TD Asset Management Inc.
Toronto, Ontario
Toronto, Ontario
10,367
GMI Servicing Inc.
Winnipeg, Manitoba
TD Waterhouse Private Investment
Counsel Inc.
Toronto, Ontario
TD Waterhouse Canada
Inc.
Toronto, Ontario
TD Auto Finance (Canada)
Inc.
Toronto, Ontario
4,287
TD Group US Holdings LLC
Toronto Dominion Holdings (U.S.A.), Inc.
Cowen Inc.
Cowen Structured
Holdings LLC
Cowen Structured Holdings Inc.
ATM Execution LLC
RCG LV Pearl, LLC
Cowen Financial
Products LLC
Cowen Holdings, Inc.
Cowen and Company, LLC
Cowen CV Acquisition LLC
Cowen Execution Holdco LLC
Westminster Research
Associates LLC
RCG Insurance Company
TD Prime Services
LLC
TD Securities
Automated Trading
LLC
TD Securities (USA) LLC
Toronto Dominion (Texas)
LLC
Toronto Dominion (New York) LLC
Toronto Dominion Investments, Inc.
TD Bank US Holding Company
Epoch Investment Partners, Inc.
TD Bank
USA, National
Association
TD Bank, National Association
TD Equipment Finance, Inc.
TD Private
Client Wealth
LLC
TD Public Finance LLC
TD Wealth Management Services
Inc.
Wilmington, Delaware
New York, New York
New York, New York
New York, New York
New York, New York
New York, New York
New York, New York
New York, New York
New York, New York
New York, New York
New York, New York
New York, New York
New York, New York
New York, New York
New York, New York
Chicago, Illinois
New York, New York
New York, New York
New York, New York
New York, New York
Cherry Hill,
New Jersey
New York, New York
Cherry Hill,
New Jersey
Cherry Hill,
New Jersey
Mt. Laurel, New Jersey
New York, New York
New York, New York
Mt. Laurel, New Jersey
81,374
TD Investment Services Inc.
Toronto, Ontario
56
TD Life Insurance
Company
Toronto, Ontario
163
TD Mortgage Corporation
Toronto, Ontario
13,231
TD Pacific Mortgage Corporation
Vancouver, British Columbia
The Canada Trust Company
Toronto, Ontario
TD Securities Inc.
Toronto, Ontario
3,213
TD Vermillion Holdings Limited
TD Financial
International Ltd.
TD Reinsurance (Barbados)
Inc.
Toronto, Ontario
Hamilton, Bermuda
St. James,
Barbados
23,714
International
Cowen Malta Holdings Limited
Cowen Insurance
Company Ltd
Birkirkara, Malta
Birkirkara, Malta
27
Ramius Enterprise
Luxembourg Holdco
S.à.r.l.
Luxembourg, Luxembourg
247
Cowen Reinsurance
S.A.
Luxembourg, Luxembourg
TD Ireland Unlimited
Company
TD Global Finance
Unlimited Company
Dublin, Ireland
Dublin, Ireland
2,805
TD Securities (Japan)
Co. Ltd.
Tokyo, Japan
13
Toronto Dominion Australia Limited
Sydney, Australia
104
TD Bank Europe Limited
London, England
1,407
Toronto Dominion International
Pte. Ltd.
Cowen Execution Services Limited
Singapore, Singapore
London, England
6,812
Toronto Dominion (South East Asia) Limited
Singapore, Singapore
1,643
1
Unless otherwise noted, The Toronto-Dominion Bank, either directly or through its subsidiaries, owns 100% of the entity and/or
100% of any issued and outstanding voting
securities and
non-voting securities of the entities listed.
2
Each subsidiary is incorporated or organized in the country in which its head or principal office is located.
3
Carrying amounts are prepared for purposes of meeting the disclosure requirements of Section 308 (3)(a)(ii)
of the
Bank Act (Canada)
. Intercompany transactions may be included herein
which are eliminated for consolidated financial reporting purposes.
Appendix "B"
Description of Ratings
Description of ratings, as disclosed by Moody's Investors
Service on its public website
Ratings assigned
on Moody’s
global long-term
and short-term
rating scales
are forward-looking
opinions
of the relative
credit risks
of financial
obligations issued
by non-financial
corporates, financial
institutions,
structured finance vehicles, project finance
vehicles, and public sector entities.
Moody’s defines credit risk
as
the
risk
that
an
entity
may
not
meet
its
contractual
financial
obligations
as
they
come
due
and
any
estimated
financial
loss
in
the
event
of
default
or
impairment.
The
contractual
financial
obligations
addressed by
Moody’s
ratings are
those that
call for,
without regard
to enforceability,
the payment
of an
ascertainable
amount,
which
may
vary
based
upon
standard
sources
of
variation
(e.g.,
floating
interest
rates), by
an ascertainable
date. Moody’s
rating addresses
the issuer’s
ability to
obtain cash
sufficient to
service the
obligation, and
its willingness
to pay.
Moody’s ratings
do not
address non-
standard sources
of variation in the amount of the principal
obligation (e.g., equity indexed), absent
an express statement to
the contrary
in a press
release accompanying
an initial
rating.
Long-term ratings
are assigned to
issuers
or obligations
with
an
original
maturity
of
eleven
months
or
more
and
reflect
both
on
the
likelihood
of
a
default or
impairment
on contractual
financial
obligations
and the
expected
financial
loss
suffered
in
the
event of
default or
impairment. Short-term
ratings are
assigned to
obligations with
an original
maturity of
thirteen
months
or
less
and
reflect
both
on
the
likelihood
of
a
default
or
impairment
on
contractual
financial
obligations
and
the
expected
financial
loss
suffered
in
the
event
of
default
or
impairment.
Moody’s issues
ratings at the
issuer level and
instrument level on
both the long-term
scale and the
short-
term
scale.
Typically,
ratings
are
made
publicly
available
although
private
and
unpublished
ratings
may
also be assigned.
Moody’s
differentiates
structured
finance
ratings
from
fundamental
ratings
(i.e.,
ratings
on
nonfinancial
corporate, financial institution, and public
sector entities) on the global long-term
scale by adding (sf) to all
structured
finance
ratings.
The
addition
of
(sf)
to
structured
finance
ratings
should
eliminate
any
presumption
that
such
ratings
and
fundamental
ratings
at
the
same
letter
grade
level
will
behave
the
same.
The
(sf)
indicator
for
structured
finance
security
ratings
indicates
that
otherwise
similarly
rated
structured finance
and fundamental
securities may
have different
risk characteristics.
Through its
current
methodologies,
however,
Moody’s
aspires
to
achieve
broad
expected
equivalence
in
structured
finance
and fundamental rating performance when measured over
a long period of time.
Moody’s assigns ratings
to long-term and
short-term financial obligations.
Long-term ratings are
assigned
to
issuers
or
obligations
with
an
original
maturity
of
eleven
months
or
more
and
reflect
both
on
the
likelihood of a
default on contractually
promised payments
and the expected
financial loss
suffered in
the
event of default. Short-term ratings
are assigned to obligations with
an original maturity of thirteen
months
or
less
and
reflect
both
on
the
likelihood
of
a
default
on
contractually
promised
payments
and
the
expected financial
loss suffered
in the event
of default.
Moody’s appends
numerical modifiers
1, 2, and
3
to
each
generic
rating
classification
from
'Aa'
through
'Caa'.
The
modifier
1
indicates
that
the
obligation
ranks
in the
higher
end of
its generic
rating category;
the modifier
2 indicates
a mid-range
ranking;
and
the modifier
3
indicates
a ranking
in the
lower
end
of
that generic
rating category.
Additionally,
a '(hyb)'
indicator is appended to
all ratings of hybrid
securities issued by
banks, insurers, finance
companies, and
securities firms.
A global long-term rating of
'Aa' reflects obligations that are
judged to be of high quality
and are subject to
very
low credit
risk.
Obligations
rated
'A'
are
judged
to
be
upper-medium
grade
and
are subject
to
low
credit
risk.
Obligations
rated
'Baa'
are
judged
to
be
medium-grade
and
subject
to
moderate
credit
risk
and as such
may possess
certain speculative characteristics.
Global short-term
ratings of 'P-1'
(Prime-1)
reflect a superior ability to repay short-term obligations.
A Moody’s
rating outlook
is an
opinion regarding
the likely
rating direction
over the
medium term.
Rating
outlooks
fall
into
four
categories:
'Positive'
(POS),
'Negative'
(NEG),
'Stable'
(STA),
and
'Developing'
(DEV). Outlooks
may be
assigned
at the
issuer level
or at
the rating
level. Where
there is
an outlook
at
the
issuer
level
and
the
issuer
has
multiple
ratings
with
differing
outlooks,
an
“(m)”
modifier
to
indicate
multiple
will
be
displayed
and
Moody’s
press
releases
will
describe
and
provide
the
rationale
for
these
differences. A designation
of 'RUR' (Rating(s)
Under Review) is
typically used when
an issuer has
one or
more
ratings
under
review,
which
overrides
the
outlook
designation.
A
designation
of
'RWR'
(Rating(s)
Withdrawn)
indicates
that
an
issuer
has
no
active
ratings
to
which
an
outlook
is
applicable.
Rating
outlooks are
not assigned
to all
rated entities.
In some
cases, this
will be
indicated by
the display
'NOO'
(No Outlook).
A
'Stable'
outlook
indicates
a
low
likelihood
of
a
rating
change
over
the
medium
term.
A
'Negative',
'Positive' or 'Developing'
outlook indicates
a higher likelihood
of a rating
change over
the medium term.
A
rating
committee
that
assigns
an
outlook
of
'Stable',
'Negative',
'Positive',
or
'Developing'
to
an
issuer’s
rating is also indicating its belief
that the issuer’s credit profile is consistent
with the relevant rating level at
that point in time.
Description of ratings, as disclosed by S&P Global Ratings
on its public website
An
S&P Global
Ratings
issue
credit
rating
is a
forward-looking
opinion
about the
creditworthiness
of
an
obligor with
respect to
a specific
financial obligation,
a specific
class of
financial obligations,
or a
specific
financial program
(including ratings
on medium-term
note programs
and commercial
paper programs).
It
takes
into
consideration
the
creditworthiness
of
guarantors,
insurers,
or
other
forms
of
credit
enhancement
on
the
obligation
and
takes
into
account
the
currency
in
which
the
obligation
is
denominated.
The
opinion
reflects
S&P Global
Ratings'
view of
the obligor's
capacity
and willingness
to
meet its
financial commitments
as they
come due,
and this
opinion may
assess terms,
such as
collateral
security and subordination, which could affect ultimate
payment in the event of default.
Issue
credit
ratings
can
be
either
long-term
or
short-term.
Short-term
issue
credit
ratings
are
generally
assigned
to
those
obligations
considered
short-term
in
the
relevant
market,
typically
with
an
original
maturity
of
no
more
than
365
days.
Short-term
issue
credit
ratings
are
also
used
to
indicate
the
creditworthiness
of
an
obligor
with
respect
to
put
features
on
long-term
obligations.
We
would
typically
assign a
long-term issue
credit rating
to an
obligation
with an
original maturity
of greater
than 365
days.
However,
the
ratings
we
assign
to
certain
instruments
may
diverge
from
these
guidelines
based
on
market practices.
Issue
credit
ratings
are
based,
in
varying
degrees,
on
S&P
Global
Ratings'
analysis
of
the
following
considerations:
•
The likelihood of payment--the capacity and willingness
of the obligor to meet its financial
commitments on an obligation in accordance with the terms of the
obligation;
•
The nature and provisions of the financial obligation, and the
promise we impute; and
•
The protection afforded by,
and relative position of, the financial obligation in the event of
a
bankruptcy, reorganization,
or other arrangement under the laws of bankruptcy
and other laws
affecting creditors' rights.
An issue rating is an assessment of default
risk but may incorporate an assessment
of relative seniority or
ultimate
recovery
in
the
event
of
default.
Junior
obligations
are
typically
rated
lower
than
senior
obligations, to
reflect lower
priority in
bankruptcy,
as noted
above. (Such
differentiation
may apply
when
an entity
has both
senior and
subordinated obligations,
secured and
unsecured
obligations, or
operating
company and holding company obligations.)
A
long-term
obligation
rated
'AA’
differs
from
the
highest-rated
obligations
only
to
a
small
degree.
The
obligor's
capacity
to
meet
its
financial
commitments
on
the
obligation
is
very
strong.
A
long-term
obligation rated ‘A’
is somewhat more susceptible
to the adverse effects
of changes in circumstances
and
economic conditions
than
obligations in
higher-rated categories.
However,
the obligor's
capacity to
meet
its
financial
commitments
on
the
obligation
is
still
strong.
A
long-term
obligation
rated
'BBB'
exhibits
adequate protection
parameters. However,
adverse economic
conditions or
changing circumstances
are
more
likely
to
weaken
the
obligor's
capacity
to
meet
its
financial
commitments
on
the
obligation.
The
ratings from 'AA'
to 'CCC'
may be modified
by the
addition of a
plus (+)
or minus
(-) sign to
show relative
standing within the major rating categories.
A short-term
obligation
rated 'A-1'
is rated
in the
highest category
by S&P
Global
Ratings.
The obligor's
capacity
to
meet
its
financial
commitments
on
the
obligation
is
strong.
Within
this
category,
certain
obligations
are
designated
with
a
plus
sign
(+).
This
indicates
that
the
obligor's
capacity
to
meet
its
financial commitments on these obligations is extremely
strong.
The
S&P
Global
Ratings
Canadian
preferred
share
rating
scale
serves
issuers,
investors,
and
intermediaries
in
the
Canadian
financial
markets
by
expressing
preferred
share
ratings
(determined
in
accordance
with
global
rating
criteria)
in
terms
of
rating
symbols
that
have
been
actively
used
in
the
Canadian market over a number
of years. An S&P Global
Ratings preferred share rating on
the Canadian
scale
is
a
forward-looking
opinion
about
the
creditworthiness
of
an
obligor
with
respect
to
a
specific
preferred
share
obligation
issued
in
the
Canadian
market
relative
to
preferred
shares
issued
by
other
issuers in
the Canadian
market. There
is a
direct correspondence
between the
specific ratings
assigned
on
the
Canadian
preferred
share
scale
and
the
various
rating
levels
on
the
global
debt
rating
scale
of
S&P Global
Ratings. The
Canadian scale
rating is
fully determined
by the
applicable global
scale rating,
and there are no additional analytical criteria
associated with the determination of ratings on
the Canadian
scale.
S&P
Global
Ratings'
practice
is
to
present
ratings
on
an
issuer's
preferred
shares
on
both
the
global rating
scale and
on
the Canadian
national scale
when
listing the
ratings
for a
particular
issuer.
A
Canadian
National
preferred
share
rating
of
'P-2'
corresponds
to
global
scale
preferred
share
rating
of
'BBB'.
An
S&P
Global
Ratings
outlook
assesses
the
potential
direction
of
a
long-term
credit
rating
over
the
intermediate term,
which is
generally up
to two
years for
investment grade
and generally
up to
one year
for speculative
grade. In
determining a
rating outlook,
consideration is
given to
any changes
in economic
and/or
fundamental
business
conditions.
A
'Stable'
rating
outlook
indicates
that
a
rating
is
not
likely
to
change.
Description of ratings, as disclosed by Fitch on its
public website
Fitch Ratings
publishes credit
ratings that
are forward
-looking opinions
on the
relative
ability of
an entity
or obligation
to meet
financial commitments.
Issuer Default
Ratings (IDRs)
are assigned
to corporations,
sovereign entities,
and
financial
institutions,
such
as banks,
leasing
companies
and
insurers,
and public
finance entities
(local and
regional governments).
Issue level
ratings are
also assigned
and often
include
an
expectation
of
recovery,
which
may be
notched
above
or below
the
issuer-level
rating.
Issue
ratings
are
assigned
to
secured
and
unsecured
debt
securities,
loans,
preferred
stock
and
other
instruments,
Structured finance
ratings
are issue
ratings
to securities
backed by
receivables
or other
financial
assets
that consider the obligations’ relative vulnerability to default.
Credit ratings are
indications of the
likelihood of repayment
in accordance with
the terms of
the issuance.
In limited
cases, Fitch
may include
additional considerations
(i.e. rate
to a
higher or
lower standard
than
that
implied
in
the
obligation’s
documentation).
Fitch’s
credit
rating
scale
for
issuers
and
issues
is
expressed using the
categories ‘AAA’
to ‘BBB’ (investment
grade) and ‘BB’
to ‘D’ (speculative
grade) with
an
additional
+/–
for
‘AA’
through
‘CCC’
levels,
indicating
relative
differences
of
probability
of
default
or
recovery for issues. The terms “investment grade” and
“speculative grade” are market conventions and do
not
imply
any
recommendation
or
endorsement
of
a
specific
security
for
investment
purposes.
Investment-grade categories indicate relatively
low to moderate credit risk, while
ratings in the speculative
categories signal either a higher level of credit risk or that
a default already occurred.
Credit
ratings
are
also
designated
as
‘long-term’
or
‘short-term’
with
different
scales
used.
Long-term
ratings use the noted ‘AAA’
to ‘D’ scale. Fitch’s rating
analysis considers the long-term rating
horizon, and
therefore
considers
both
near-term
and
long-term
key
rating
drivers.
Short-term
ratings
scale
is
‘F1+’
through
‘F3’,
‘B’,
‘C’
and
‘D/RD’.
The
‘D’
and
‘RD’
ratings
are
used
for
both
long-term
and
short-term
ratings.
Ratings of
individual securities
or financial
obligations of
a corporate
issuer address
relative vulnerability
to
default
on
an
ordinal
scale.
In
addition,
for
financial
obligations
in
corporate
finance,
a
measure
of
recovery
given
default
on
that
liability
is
also
included
in
the
rating
assessment.
This
notably
applies
to
covered
bonds
ratings,
which
incorporate
both
an
indication
of
the
probability
of
default
and
of
the
recovery
given
a
default
of
this
debt
instrument.
On
the
contrary,
Ratings
of
debtor-in-possession
(DIP)
obligations incorporate
the
expectation
of full
repayment.
The relationship
between the
issuer scale
and
obligation
scale
assumes
a
generic
historical
average
recovery.
Individual
obligations
can
be
assigned
ratings
higher,
lower,
or
the
same
as
that
entity’s
issuer
rating
or
IDR,
based
on
their
relative
ranking,
relative vulnerability to
default or based
on explicit Recovery
Ratings. As a result,
individual obligations of
entities, such as corporations, are assigned ratings
higher, lower,
or the same as that entity’s issuer
rating
or IDR, except
DIP obligation ratings
that are not
based off
an IDR.
At the lower
end of the
ratings scale,
Fitch publishes explicit Recovery Ratings in many cases
to complement issuer and obligation ratings.
'AA'
(Very
High
Credit
Quality)
ratings
denote
expectations
of
very
low
credit
risk.
They
indicate
very
strong
capacity
for
payment
of
financial
commitments.
This
capacity
is
not
significantly
vulnerable
to
foreseeable events.
‘A’ (High
Credit Quality) ratings
denote expectations of
low default risk. The
capacity
for
payment
of
financial
commitments
is
considered
strong.
This
capacity
may,
nevertheless,
be
more
vulnerable
to adverse
business
or economic
conditions
than is
the
case
for higher
ratings.
‘BBB’ (Good
Credit Quality) ratings
indicate that expectations
of credit risk
are currently low.
The capacity for
payment
of financial commitments
is considered adequate,
but adverse business
or economic conditions
are more
likely to impair this capacity.
A short-term
issuer
or obligation
rating
is based
in
all cases
on
the
short-term
vulnerability
to
default
of
the
rated
entity
and
relates
to
the
capacity
to
meet
financial
obligations
in
accordance
with
the
documentation
governing
the
relevant
obligation.
Short-term
deposit
ratings
may
be
adjusted
for
loss
severity.
Short-Term
Ratings
are assigned
to obligations
whose initial
maturity
is viewed
as “short
term”
based
on
market
convention
(a
long-term
rating
can
also
be
used
to
rate
an
issue
with
short
maturity).
Typically,
this means
up to
13 months
for corporate,
sovereign, and
structured
obligations and
up to
36
months
for
obligations
in
U.S.
public
finance
markets.
F1
(Highest
Short-Term
Credit
Quality)
Indicates
the
strongest
intrinsic
capacity
for
timely
payment
of
financial
commitments;
may
have
an
added
"+"
to
denote any exceptionally strong credit feature.
Outlooks
indicate
the
direction
a
rating
is
likely
to
move
over
a
one-
to
two-year
period.
They
reflect
financial or
other trends
that have
not yet
reached or
been sustained
the level
that would
cause a
rating
action, but which
may do so
if such trends
continue. A Positive
Rating Outlook indicates
an upward trend
on the
rating scale.
Conversely,
a Negative
Rating Outlook
signals
a negative
trend on
the rating
scale.
Positive or Negative
Rating Outlooks
do not imply
that a rating
change is inevitable,
and similarly,
ratings
with Stable Outlooks can be raised
or lowered without a prior revision
to the Outlook. Occasionally,
where
the fundamental
trend has
strong, conflicting
elements of
both positive
and negative,
the Rating
Outlook
may be described as “Evolving.”
Description of ratings, as disclosed by DBRS Morningstar
on its public website
The
DBRS
Morningstar
long-term
credit
ratings
provide
opinions
on
risk
of
default.
DBRS
Morningstar
considers
risk
of
default
to
be
the
risk
that
an
issuer
will
fail
to
satisfy
the
financial
obligations
in
accordance with
the terms
under which
a long-term
obligation has
been issued.
Credit ratings
are based
on quantitative and
qualitative considerations
relevant to the
issuer, and
the relative ranking
of claims. All
rating categories from AA to CCC contain the subcategories
(high) and (low). The absence of either a
(high) or (low) designation
indicates the credit rating
is in the middle
of the category.
A long-term rating of
'AA' is
of superior
credit quality.
The capacity
for the
payment of
financial obligations
is considered
high.
Credit
quality
differs
from
'AAA'
only
to
a
small
degree.
Unlikely
to
be
significantly
vulnerable
to
future
events.
A
long-term
rating
of
'A'
is
of
good
credit
quality.
The
capacity
for
the
payment
of
financial
obligations
is
substantial,
but
of
lesser
credit
quality
than
'AA'.
May
be
vulnerable
to
future
events,
but
qualifying negative factors are considered manageable.
The DBRS Morningstar
short-term debt rating
scale provides
an opinion on
the risk that
an issuer will
not
meet
its
short-term
financial
obligations
in
a
timely
manner.
Ratings
are
based
on
quantitative
and
qualitative
considerations
relevant
to
the
issuer
and
the
relative
ranking
of
claims.
The
'R-1'
and
'R-2'
rating
categories
are
further
denoted
by
the
subcategories
'(high)',
'(middle)',
and
'(low)'.
A
short-term
debt rating of 'R-1' '(high)' is the highest
credit quality.
The capacity for the payment of short-term
financial
obligations as they fall due is exceptionally high. Unlikely to be
adversely affected by future events.
The DBRS
Morningstar preferred
share rating
scale reflects
an opinion
on the
risk that
an issuer
will not
fulfil its obligations with respect
to both dividend and
principal commitments in respect
of preferred shares
issued in the Canadian
securities market in accordance
with the terms under
which the relevant preferred
shares have been issued.
Every DBRS Morningstar
rating using the preferred
share rating scale
is based
on quantitative
and qualitative
considerations relevant
to the
issuing entity.
Each rating
category may
be
denoted by the
subcategories 'high'
and 'low'. The
absence of either
a 'high' or 'low'
designation indicates
the rating
is
in
the
middle
of the
category.
Preferred
shares
issued
in
the
Canadian
securities
markets
are
rated
using
the
preferred
share
rating
scale
and
preferred
shares
issued
outside
of
the
Canadian
securities markets are rated using
the long-term obligations scale.
Because preferred share dividends
are
only payable
when approved,
the non-payment
of a
preferred share
dividend does
not necessarily
result
in a 'D'. DBRS Morningstar
may also use 'SD' (Selective
Default) in cases where
only some securities are
affected, such
as in
the case
of a
“distressed exchange”.
Preferred shares
rated 'Pfd-2'
are generally
of
good
credit
quality.
Protection
of
dividends
and
principal
is
still
substantial,
but
earnings,
the
balance
sheet
and
coverage
ratios
are
not
as
strong
as
'Pfd-1'
rated
companies.
Generally,
'Pfd-2'
ratings
correspond with issuers with an 'A' category or higher reference
point.
Appendix "C"
AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
OF THE TORONTO-DOMINION BANK
CHARTER
In this Charter, "Bank" means
The Toronto
-Dominion Bank on a consolidated basis.
Main Responsibilities:
●
overseeing reliable, accurate and clear financial reporting
to shareholders
●
overseeing the effectiveness of internal controls,
including internal control over financial reporting
●
recommending to the Board the appointment of the shareholders’
auditor for approval by the
shareholders and the compensation and terms of engagement
of the shareholders’ auditor for
approval by the Board
●
overseeing the work of the shareholders' auditor,
including requiring the shareholders' auditor to
report directly to the Committee
●
reviewing reports from the shareholders' auditor,
chief financial officer,
chief auditor, chief
compliance officer, and
chief anti-money laundering officer,
and evaluating the effectiveness and
independence of each
●
overseeing the establishment and maintenance of policies
and programs reasonably designed to
achieve and maintain the Bank's compliance with the laws
and regulations that apply to it
●
acting as the audit committee for certain subsidiaries of the
Bank that are federally regulated
financial institutions
Independence is Key:
●
the Committee is composed entirely of independent directors
●
the Committee meets without management present at
each Committee meeting
●
the Committee has the authority to engage independent advisors,
paid for by the Bank, to help it
make the best possible decisions on the financial reporting,
accounting policies and practices,
disclosure practices, compliance, and effectiveness
of internal controls of the Bank
Composition and Independence, Financial Literacy and
Authority
The Committee shall be composed of members of the Board of Directors
in such number as is
determined by the Board with regard to the by-laws of
the Bank, applicable laws, rules and regulations,
and any other relevant considerations, subject to a minimum
requirement of three directors.
No member of the Committee may be an officer
or retired officer of the Bank.
Every member of the
Committee shall be independent of the Bank within the meaning
of all applicable laws, rules and
regulations including those particularly applicable to audit committee
members and any other relevant
consideration as determined by the Board of Directors,
including the Bank's Director Independence
Policy.
No member of the Committee may serve on more than
three public company audit committees
(including the Bank) without the consent of the Corporate
Governance Committee and the Board.
The members of the Committee shall be appointed by the
Board and shall serve until their successor is
duly appointed, unless the member resigns, is removed,
or ceases to be a director.
A Chair will be
appointed by the Board upon recommendation of the
Corporate Governance Committee, failing which the
members of the Committee may designate a Chair by majority
vote.
The Committee may from time to
time delegate to its Chair certain powers or responsibilities
that the Committee itself may have hereunder,
and if the Chair exercises such powers and responsibilities,
the Chair shall report to the Committee with
respect to their actions.
In addition to the qualities set out in the Position Description for
Directors, all members of the Committee
should be financially literate or be willing and able to acquire
the necessary knowledge quickly.
Financially literate means the ability to read and understand
financial statements that present a breadth
and level of complexity of accounting issues that are generally comparable
to the breadth and complexity
of the issues that can reasonably be expected to be raised
by the Bank's financial statements.
At least
one member of the Committee shall have a background
in accounting or related financial management
experience which would include any experience or background
that results in the individual's financial
sophistication, including being or having been an auditor,
a chief executive officer,
chief financial officer or
other senior officer with financial oversight responsibilities.
In fulfilling the responsibilities set out in this Charter,
the Committee has the authority to conduct any
investigation it deems appropriate to, and access any officer,
employee or agent of the Bank for the
purpose of fulfilling its responsibilities, including the shareholders'
auditor.
The Committee may obtain advice and assistance from outside
legal, accounting or other advisors as the
Committee deems necessary to carry out its duties and
may retain and determine the compensation to be
paid by the Bank for such independent counsel or outside advisor
in its sole discretion without seeking
Board approval.
Committee members will enhance their familiarity with
financial, accounting and other areas relevant to
their responsibilities by participating in educational sessions
or other opportunities for development.
Meetings
The Committee shall meet at least four times annually,
or more frequently as circumstances dictate or as
the mandate requires.
The Committee shall meet with the shareholders'
auditor and management
quarterly to review the Bank's financial statements consistent with
the section entitled "Financial
Reporting" below.
The Committee shall dedicate a portion of each
of its regularly scheduled quarterly
meetings to meeting separately with each of the Chief
Executive Officer,
the Chief Financial Officer,
the
General Counsel, the Chief Auditor,
the Chief Risk Officer,
the Chief Compliance Officer,
the Chief Anti-
Money Laundering Officer,
and the shareholders' auditor and to meeting on its own
without members of
management or the shareholders' auditor present.
Any member of the Committee may make a request to
the Chair for a Committee meeting or any part thereof
to be held without management present. At each
Committee meeting, the Committee shall meet on its own without
members of management.
To
facilitate open communication between this Committee
and the Risk Committee, and where the Chair
of the Risk Committee is not a member of this Committee, the
Chair of the Risk Committee shall have a
standing invitation to attend each meeting of this Committee
at his or her discretion as a non-voting
observer and receive the materials for each such meeting. In
addition, this Committee shall meet with the
Risk Committee at least two times annually to discuss topics relevant
to both Committees.
The Committee may invite to its meetings any director,
member of management of the Bank or such other
persons as it deems appropriate in order to carry out its
responsibilities.
The Committee may also
exclude from its meetings any persons it deems appropriate
in order to carry out its responsibilities.
Specific Duties and Responsibilities
Financial Reporting
The Committee is responsible for the oversight of reliable,
accurate and clear financial reporting to
shareholders, including reviewing and discussing the
Bank's annual and interim consolidated financial
statements and management's discussion and analysis
("MD&A") and reviewing the shareholders' auditor
opinion on the annual financial statements and on the
Bank's internal control over financial reporting, prior
to approval by the Board and release to the public, and
reviewing, as appropriate, releases to the public
of significant material non-public financial information of the
Bank.
Such review of the financial reports of
the Bank shall include, when appropriate but at least annually,
discussion with management, the Internal
Audit Division and the shareholders' auditor of significant
issues regarding accounting principles,
practices, financial statement, and MD&A disclosures, including
non-GAAP and other financial measures
(e.g., Items of Note), and significant management estimates
and judgments.
The Committee reviews earnings news releases and satisfies
itself that adequate procedures are in place
for the review of the Bank's public disclosure of financial
information extracted or derived from the Bank's
financial statements, other than the public disclosure in the
Bank's annual and interim consolidated
financial statements and MD&A
and must periodically assess the adequacy of those
procedures.
Financial Reporting Process
The Committee supports the Board in its oversight of the
financial reporting process of the Bank including
by:
●
working with management, the shareholders' auditor and the Internal
Audit Division to review the
integrity of the Bank's financial reporting processes;
●
reviewing the process relating to and the certifications
of the Chief Executive Officer and the
Chief Financial Officer on the integrity of the Bank's
quarterly and annual consolidated financial
statements and such other periodic disclosure documents
required by regulators or that may be
required by law;
●
reviewing sustainability disclosures required to be included
in financial reporting, including any
such disclosures relating to climate-related matters;
●
considering the key accounting policies of the Bank and reviewing
in appropriate detail the basis
for significant estimates and judgments including but not
limited to actuarial reserves, allowances
for loan losses and other valuation allowances and discussing
such matters with management
and/or the shareholders' auditor;
●
keeping abreast of trends and best practices in financial reporting
including considering, as they
arise, topical issues and their application to the Bank;
●
reviewing with management and the shareholders' auditor significant
accounting principles and
policies and all critical accounting policies and practices
used and any significant audit
adjustments made;
●
considering and approving, if appropriate, substantive
changes to the Bank's accounting and
financial reporting policies as suggested by management, the
shareholders' auditor,
or the
Internal Audit Division;
●
establishing regular systems of reporting to the Committee
by each of management, the
shareholders' auditor and the Internal Audit Division regarding
any significant judgments made in
management's preparation of the financial statements and
any significant difficulties encountered
during the course of the review or audit, including any restrictions
on the scope of work or access
to required information; and
●
reviewing tax and tax planning matters that are material
to the financial statements.
The Committee's Role in the Financial Reporting Process
The Committee oversees the financial reporting process
at the Bank and reviews quarterly reporting
regarding the process undertaken by management. The
Committee approves the scope and terms of the
audit engagement and reviews the results of the review
by the shareholders' auditor.
The shareholders'
auditor is responsible for planning and carrying out, in accordance
with professional standards, an audit
of the Bank's annual financial statements and reviews
of the Bank's quarterly financial information.
Management is responsible for the Bank's financial reporting
process which includes the preparation,
presentation and integrity of the Bank's financial statements
and maintenance of appropriate accounting
and financial reporting principles and policies, and internal controls
and procedures designed to verify
compliance with accounting standards and applicable laws and
regulations.
Internal Controls
The shareholders' auditor is also responsible for planning
and carrying out, in accordance with
professional standards, an audit of the Bank's internal
control over financial reporting.
Management is
responsible for devising and maintaining effective
internal control over financial reporting and for its
assessment of the effectiveness of such internal
control.
The Committee is responsible for overseeing the internal control
framework and monitoring its
effectiveness including by:
●
reviewing management's reports related to the establishment
and maintenance of an adequate
and effective internal control system and processes
(including controls related to the prevention,
identification and detection of fraud) that are designed
to provide assurance in areas including
reporting (financial, operational and risk), efficiency
and effectiveness of operations and
safeguarding assets, monitoring compliance with laws, regulations
and guidance, and internal
policies, including compliance with section 404 of the
U.S. Sarbanes-Oxley Act and similar rules
of the Canadian Securities Administrators;
◾
as part of this review, the Committee
shall consider and discuss with
management whether any deficiencies identified may
be classified as a
significant deficiency or material weakness;
●
meeting with management, the Chief Auditor and the shareholders'
auditor to assess the
adequacy and effectiveness of the Bank's
internal controls, including internal control over
financial reporting and controls related to the prevention,
identification and detection of fraud;
●
overseeing the adequacy of governance structures and
control processes for all financial
instruments that are measured at fair value for financial reporting
purposes;
●
reviewing reports from the Risk Committee as considered
necessary or desirable with respect to
any issues relating to internal control policies and the effectiveness
of related procedures
considered by that Committee in the course of undertaking
its responsibilities; and
●
reviewing
reporting
by
the
Bank
to
its
shareholders
regarding
internal
control
over
financial
reporting.
Internal Audit Division
The Committee oversees the Internal Audit Division of
the Bank and any aspects of the internal audit
function that are outsourced to a third party.
The Committee satisfies itself that the Internal Audit Division
is sufficiently independent to perform its responsibilities.
In addition, the Committee:
●
discusses with the Chief Auditor and senior management
the authority,
roles and responsibilities
for the Internal Audit Division and, at least annually,
reviews and approves its charter and the
Chief Auditor's mandate and independence attestation;
●
reviews and discusses with the Chief Auditor internal audit
priorities and the annual audit plan
(including the risk assessment methodology) and approves
the audit plan and any significant
changes thereto and while satisfying itself that the plan is appropriate,
risk-based and addresses
all the relevant activities and significant risks over
a measurable cycle;
●
reviews and approves the annual financial budget, resource
plan and performance objectives,
and reviews significant updates;
●
reviews the Global Internal Audit Policy;
●
confirms the appointment and dismissal of the Chief Auditor;
●
annually conveys its view of the performance of the Chief
Auditor to the Chief Executive Officer
as input into the compensation approval process;
●
at least annually assesses the effectiveness and
operational adequacy of the Internal Audit
Division;
●
reviews the results of the independent quality assurance review
report on the Internal Audit
Division conducted on a five-year cycle, including information
on the qualifications and
independence of the assessor(s) and any potential conflict
of interest;
●
periodically reviewing the results of a benchmarking of
the Internal Audit Division conducted with
the assistance of an independent third party;
●
reviews and discuss regular reports prepared by the Chief
Auditor, including internal control
over
financial reporting and all other information outlined in regulatory
guidance, together with
management's response and follow-up on outstanding
findings, and proactively consider thematic
findings across the Bank;
●
provides a forum for the Chief Auditor to have unfettered
access to the Committee to raise any
non-conformance with the Audit Code of Ethics or the
standards of the Institute of Internal
Auditors that impacts the overall scope or operation of
the Internal Audit Division, organizational
or industry issues or issues with respect to the relationship
and interaction between the Internal
Audit Division, management, the shareholders' auditor and/or
regulators; and
●
oversees remediation of deficiencies identified by supervisory
authorities related to the Internal
Audit Division within an appropriate time frame and to review reports
on progress of necessary
corrective actions.
Oversight of Shareholders' Auditor
The Committee annually reviews and evaluates the performance,
qualifications, skills, resources (amount
and type), independence and professional skepticism
of the shareholders' auditor and recommend to the
Board for recommendation to the shareholders, the appointment
of the shareholders' auditor.
The
Committee be responsible for approving the auditor's remuneration
a satisfies itself that the level of audit
fees is commensurate with the scope of work to obtain
a quality audit.
The Committee also makes
recommendations to the Board for approval regarding, if appropriate,
termination of the shareholders'
auditor.
The shareholders' auditor shall be accountable to the Committee
and the entire Board, as
representatives of the shareholders, for its review of the
financial statements and controls of the Bank.
In
addition, the Committee:
●
reviews and approves the annual audit plans and engagement
letters of the shareholders' auditor
and satisfy itself that the plans are appropriate, risk-based
and address all the relevant activities
over a measurable cycle;
●
at least annually,
reviews the shareholders' auditor's processes
for assuring the quality of their
audit services including ensuring their independence and any
other matters that may affect the
audit firm's ability to serve as shareholders' auditor;
●
discusses those matters that are required to be communicated
by the shareholders' auditor to the
Committee in accordance with the standards established
by the Chartered Professional
Accountants of Canada and the Public Company Accounting
Oversight Board ("PCAOB") and the
requirements of the
Bank Act
(Canada) and of the Bank's regulators, including its
primary
regulator OSFI, as such matters are applicable to the
Bank from time to time;
●
reviews with the shareholders' auditor any issues that
may be brought forward by it, including any
audit problems or difficulties, such as restrictions
on its audit activities or access to requested
information, and management's responses;
●
requests management to take the necessary corrective
actions to address any findings and
recommendations of the shareholders' auditor in a timely manner;
●
reviews with the shareholders' auditor concerns, if any,
about the quality,
not just acceptability,
of
the Bank's accounting principles and policies as applied
in its financial reporting;
●
provides a forum for management and the internal and/or
shareholders' auditor to raise issues
regarding their relationship and interaction.
To
the extent disagreements regarding financial
reporting are not resolved, be responsible for the resolution of
such disagreements between
management and the internal and/or shareholders' auditor;
●
at least annually,
reviews and evaluates the qualifications, performance
and independence of the
lead, and other key senior partners of the shareholders'
auditor, monitor the rotation timing
and,
as required upon rotation of the lead and other key senior partners,
assess the qualifications of
the shareholders' auditor's proposed new lead and other key
senior partners and obtain
confirmation from the shareholders' auditor of compliance
with the requirements for the
qualifications for auditors pursuant to the
Bank Act
(Canada), and guidance by other applicable
regulators;
●
at least every five years, conducts a periodic comprehensive
review of the shareholders' auditor;
and
●
annually reviews and discusses the Canadian Public Accountability
Board's ("CPAB")
and
PCAOB's public reports with the shareholders' auditor
and, as necessary,
discuss any CPAB
and/or PCAOB findings specific to the inspection of the Bank's
audit.
Independence of Shareholders' Auditor
The Committee monitors and assesses the independence
of the shareholders' auditor through various
mechanisms, including by:
●
reviewing and approving (or recommending to the Board
for approval) the audit engagement
terms and fees and other legally permissible services
to be performed by the shareholders'
auditor for the Bank, with such approval to be given either
specifically or pursuant to pre-approval
procedures adopted by the Committee;
●
reviewing from the shareholders' auditor,
at least annually,
a formal written statement confirming
independence and delineating all relationships between the shareholders'
auditor and the Bank
consistent with the rules of professional conduct of the Canadian
provincial chartered
accountants' institutes or other regulatory bodies, as applicable;
●
reviewing and discussing with the Board and the shareholders'
auditor, annually and otherwise
as
necessary, any relationships
or services between the shareholders' auditor and the Bank
or any
factors that may impact the objectivity and independence of the
shareholders' auditor;
●
reviewing, approving and monitoring policies and procedures
for the employment of past or
present partners, or employees of the shareholders' auditor
as required by applicable laws; and
●
reviewing, approving and monitoring other policies and procedures
put in place to facilitate
auditor independence, such as the criteria for tendering the
shareholders' auditor contract and the
rotation of members of the audit engagement team, as
applicable.
Finance Department
The Committee oversees the Finance Department of the Bank,
including by:
●
reviewing and approving the mandate of the Finance Department
and the mandate of the Chief
Financial Officer at least annually;
●
reviewing and approving, at least annually,
the Finance Department strategic priorities, budget
and resource plan, including reviewing reports from management
on resource adequacy;
●
annually assessing the effectiveness of the Finance
Department;
●
periodically reviewing the results of a benchmarking of
the Finance Department conducted with
the assistance of an independent third party;
●
annually conveying its view of the performance of the Chief Financial
Officer to the Chief
Executive Officer as input into the compensation
approval process;
●
confirming the appointment and dismissal of the Chief
Financial Officer; and
●
providing a forum for the Chief Financial Officer
to have unfettered access to the Committee to
raise any financial reporting issues or issues with respect
to the relationship and interaction
among the Finance Department, management, the shareholders'
auditor and/or regulators.
Compliance
The Committee oversees the establishment and maintenance
of policies and programs reasonably
designed to achieve and maintain the Bank's compliance
with the laws and regulations that apply to it,
including by:
●
establishing and maintaining procedures in accordance with regulatory
requirements for the
receipt, retention and treatment of confidential, anonymous
submissions of concerns regarding
questionable accounting, internal accounting controls or
auditing matters, and reviewing reports
on such complaints and submissions as required under
the applicable policy; and
●
reviewing professional pronouncements and changes to
key regulatory requirements relating to
accounting rules to the extent they apply to the financial
reporting process of the Bank.
Global Compliance Department
The Committee shall oversee the Global Compliance Department
of the Bank and the execution of its
mandate and shall satisfy itself that the Global Compliance Department
is sufficiently independent to
perform its responsibilities.
In addition, the Committee
shall:
●
review and approve its annual plan, including its budget, resources
and strategic priorities, and
any significant changes to the annual plan;
●
annually review and approve the mandate of the Global
Compliance Department and the
mandate of the Chief Compliance Officer;
●
at least annually assess the effectiveness of the Global
Compliance Department;
●
periodically review the results of a benchmarking of the Global
Compliance Department
conducted with the assistance of an independent third party;
●
confirm the appointment and dismissal of the Chief Compliance
Officer;
●
annually convey its view of the performance of the Chief
Compliance Officer to the Chief
Executive Officer as input into the compensation
approval process;
●
review with management the Bank's compliance with applicable
regulatory requirements and the
Regulatory Compliance Management ("RCM") Program;
●
regularly review and discuss reports prepared by the Chief Compliance
Officer for the Committee,
including with regard to reports by regulators and supervisory
authorities related to the Global
Compliance Department, the Bank's RCM program or the Bank's
compliance with applicable laws
and regulations and follow-up on any outstanding issues
including proactive consideration of
whether deficiencies in one area may be present in other
areas;
●
at least annually review the assessment by the Chief Compliance
Officer on the adequacy of,
adherence to and effectiveness of the Bank's day-to-day
RCM controls, as well as the Opinion of
the Chief Compliance Officer as to whether the RCM
Program and controls are sufficiently robust
to achieve compliance with the applicable enterprise-wide
regulatory requirements; and
●
provide a forum for the Chief Compliance Officer
to have unfettered access to the Committee. to
raise any compliance issues or concerns with respect to
the relationship and interaction among
the Global Compliance Department, management and/or
regulators.
Financial Crime Risk Management ("FCRM"))
The Committee shall oversee and monitor the establishment,
maintenance and ongoing effectiveness of
the Anti-Money Laundering ("AML") / Anti-Terrorist
Financing ("ATF")
/ Economic Sanctions / Anti-Bribery
and Anti-Corruption Program ("FCRM Program") that is
designed so that the Bank is in compliance with
the laws and regulations that apply to it as well as its own policies,
including:
●
reviewing with management the Bank's compliance with
applicable regulatory requirements;
●
reviewing an annual report from the Chief Anti-Money Laundering
Officer regarding the
assessment of the effectiveness of the FCRM Program,
and following up with management on
the status of recommendations and suggestions, as appropriate;
and
●
reviewing the opinion of the Chief Auditor on the effectiveness
of the FCRM Program (including
the AML) every two years and following up with management on
the status of recommendations
and suggestions, as appropriate.
FCRM Department
The Committee shall oversee the FCRM Department of the Bank
and the execution of its mandate and
shall satisfy itself that the FCRM Department is sufficiently
independent to perform its responsibilities.
In
addition, the Committee shall:
●
review and approve the FCRM Department's annual plan,
including its budget, resources and
strategic priorities, and any significant changes to the annual
plan;
●
consider and approve the AML Program Framework, including
the Enterprise AML/ATF
and
Enterprise Sanctions policies;
●
at least annually assess the effectiveness of the FCRM
Department;
●
review the results of an independent effectiveness
review of the FCRM Program (including AML)
conducted periodically;
●
periodically review the results of a benchmarking of the FCRM
Department conducted with the
assistance of an independent third party;
●
annually review and approve the mandate of the FCRM
Department and the mandate of the Chief
Anti-Money Laundering Officer;
●
confirm the appointment and dismissal of the Chief Anti
-Money Laundering Officer;
●
annually convey its view of the performance of the Chief
Anti-Money Laundering Officer to the
Chief Executive Officer as input into the compensation
approval process;
●
regularly review and discuss reports prepared by the Chief Anti-Money
Laundering Officer for the
Committee, including with regard to reports by supervisory
authorities related to the FCRM
Program, on the Bank's compliance with applicable laws and regulations
and on the design and
operation of the FCRM Program, the adequacy of resources
(people, systems and budget), and
any recommendations thereto, and follow-up on any
outstanding issues including proactive
consideration of whether deficiencies in one area may
be present in other areas; and
●
provide a forum for the Chief Anti-Money Laundering
Officer to have unfettered access to the
Committee to raise any compliance issues or concerns
with respect to the relationship and
interaction among the FCRM Department, management and/or
regulators.
General
The Committee shall have the following additional general duties
and responsibilities:
●
acting as the audit committee for certain Canadian subsidiaries
of the Bank that are federally-
regulated financial institutions, including meeting on an
annual basis, without management
present, with the appointed actuaries of the applicable
subsidiaries of the Bank that are federally-
regulated financial institutions;
●
reviewing with the Bank's General Counsel any legal matter
arising from litigation, asserted
claims or regulatory non-compliance that could have a
material impact on the Bank's financial
condition and provide a forum for the General Counsel to
have unfettered access to the
Committee to raise any legal issues;
●
provide a forum for the Chief Risk Officer to have
unfettered access to the Committee to raise any
compliance issues;
●
performing such other functions and tasks as may be
mandated by regulatory requirements
applicable to audit committees or delegated by the Board;
●
conducting an annual evaluation of the Committee to
assess its contribution and effectiveness in
fulfilling its mandate;
●
review and assess the adequacy of this Charter at least
annually and submit this Charter to the
Corporate Governance Committee for review and recommendation
to the Board for approval;
noting that changes considered administrative by the
Chair of the Committee and the Board Chair
can be reviewed and approved by the Corporate Governance
Committee throughout the year and
aggregated once per year for review and concurrence
by the Board;
●
maintaining minutes or other records of meetings and activities of
the Committee; and
●
the Committee Chair will report to the Board on recommendations
and material matters arising at
Committee meetings and any significant matters that arise
between Board meetings and shall
report as required to the Risk Committee on issues of relevance
to it.
Posted: December 2024
ex992
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 1
Management’s Discussion and Analysis
This Management’s Discussion and
Analysis (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 year ended
October 31, 2024, compared with the corresponding
period in the prior
year. This MD&A should be
read in conjunction with the audited Consolidated
Financial Statements and related Notes
for the year ended
October 31, 2024. This MD&A
is dated December 4, 2024. Unless otherwise
indicated, all amounts are expressed
in Canadian dollars and have been
primarily derived from the Bank’s annual Consolidated
Financial Statements prepared in accordance
with International Financial Reporting Standards
(IFRS) as issued by the International
Accounting Standards Board (IASB). Note
that certain comparative amounts have
been revised to conform with
the presentation adopted in the current period.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
2
GROUP FINANCIAL CONDITION
Balance Sheet Review
40
SIGNIFICANT EVENTS
4
Credit Portfolio Quality
42
Capital Position
52
FINANCIAL RESULTS OVERVIEW
Securitization and Off-Balance Sheet
Arrangements
59
Net Income
14
Related Party Transactions
60
Revenue
15
Financial Instruments
61
Provision for Credit Losses
16
Expenses
17
RISK FACTORS AND MANAGEMENT
Taxes
18
Risk Factors that May Affect
Future Results
61
Quarterly Financial Information
19
Managing Risk
70
BUSINESS SEGMENT ANALYSIS
ACCOUNTING STANDARDS
AND POLICIES
Business Focus
21
Critical Accounting Policies
and Estimates
104
Canadian Personal and Commercial
Banking
23
Current and Future Changes in
Accounting Policies
108
U.S. Retail
27
Controls and Procedures
109
Wealth Management and Insurance
32
Wholesale Banking
35
ADDITIONAL FINANCIAL INFORMATION
110
Corporate
38
GLOSSARY
117
2023 FINANCIAL RESULTS OVERVIEW
Summary of 2023 Performance
39
Additional information relating to the Bank, including the Bank’s Annual Information Form, is available on the Bank’s website at
http://www.td.com
, on SEDAR+
at
http://www.sedar.com
, and
on the U.S. Securities and Exchange Commission’s website at
http://www.sec.gov
(EDGAR filers section).
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 2
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 (“2024 MD&A”) in the Bank’s 2024 Annual
Report under the heading “Economic Summary
and Outlook”, under the headings “Key Priorities
for 2025” and
“Operating Environment and Outlook” for
the Canadian Personal and Commercial
Banking, U.S. Retail, Wealth Management
and Insurance, and Wholesale
Banking segments, and under the heading
“2024 Accomplishments and Focus for
2025” for the Corporate segment, and in other
statements regarding the Bank’s
objectives and priorities for 2025 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:
strategic, credit, market (including equity, commodity, foreign exchange,
interest rate, and credit spreads), operational
(including technology, cyber security, process, systems, data, third-party, fraud, infrastructure, insider
and conduct),
model, insurance, liquidity, capital adequacy, legal and regulatory compliance (including
financial crime), reputational, environmental and
social, and other risks.
Examples of such risk factors include general
business and economic conditions in
the regions in which the Bank operates (including
the economic, financial, and
other impacts of pandemics); geopolitical
risk; inflation, interest rates and recession
uncertainty; regulatory oversight and
compliance risk; risks associated with
the
Bank’s ability to satisfy the terms of the global resolution
of the civil and criminal investigations into
the Bank’s U.S. BSA/AML program; the impact
of the global
resolution of the civil and criminal investigations
into the Bank’s U.S. BSA/AML program on the
Bank’s businesses, operations,
financial condition,
and reputation;
the ability of the Bank to execute on long-term
strategies, shorter-term key strategic priorities,
including the successful completion of
acquisitions and dispositions
and integration of acquisitions, the ability of
the Bank to achieve its financial or strategic
objectives with respect to its investments,
business retention plans, and
other strategic plans; the risk of large declines
in the value of Bank’s Schwab equity investment
and corresponding impact on TD’s market value;
technology and
cyber security risk (including cyber-attacks,
data security breaches or technology failures)
on the Bank’s technologies, systems and networks,
those of the Bank’s
customers (including their own devices),
and third parties providing services to
the Bank; data risk; model risk; fraud activity;
insider risk; conduct risk; 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, and other risks arising
from the
Bank’s use of third-parties; the impact of new and
changes to, or application of, current laws,
rules and regulations, including without limitation
consumer protection
laws and regulations, tax laws, capital guidelines
and liquidity regulatory guidance; increased
competition from incumbents and new entrants
(including Fintechs
and big technology competitors); shifts in
consumer attitudes and disruptive technology;
environmental and social risk (including
climate-related risk); exposure
related to litigation and regulatory matters; ability
of the Bank to attract, develop, and
retain key talent; changes in foreign exchange
rates, interest rates, credit
spreads and equity prices; downgrade, suspension
or withdrawal of ratings assigned by any rating
agency,
the value and market price of the Bank’s common
shares and other securities may be impacted
by market conditions and other factors;
the interconnectivity of Financial Institutions
including existing and potential
international debt crises; 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; 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 2024 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” or “Significant and
Subsequent Events” in the relevant MD&A,
which applicable releases may be found on
www.td.com.
All such factors, as well as other uncertainties
and potential events, and the inherent
uncertainty of forward-looking statements,
should be considered carefully
when making decisions with respect
to the Bank. 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 2024 MD&A
under the headings
“Economic
Summary and Outlook” and “Significant Events”,
under the headings “Key Priorities
for 2025” and “Operating Environment and Outlook”
for the Canadian Personal
and Commercial Banking, U.S. Retail, Wealth
Management and Insurance, and Wholesale
Banking segments, and under the heading
“2024 Accomplishments
and Focus for 2025” for the Corporate segment,
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 • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 3
TABLE 1: FINANCIAL HIGHLIGHTS
(millions of Canadian dollars, except
where noted)
2024
2023
Results of operations
Total revenue – reported
1
$
57,223
$
50,690
Total revenue – adjusted
1,2
56,789
52,037
Provision for (recovery of) credit losses
4,253
2,933
Insurance service expenses (ISE)
1
6,647
5,014
Non-interest expenses – reported
1
35,493
29,855
Non-interest expenses – adjusted
1,2
29,148
26,517
Net income – reported
1
8,842
10,634
Net income – adjusted
1,2
14,277
14,995
Financial positions
(billions of Canadian dollars)
Total loans net of allowance for loan losses
$
949.5
$
895.9
Total assets
1
2,061.8
1,955.1
Total deposits
1,268.7
1,198.2
Total equity
115.2
112.1
Total risk-weighted assets (RWA)
3
630.9
571.2
Financial ratios
Return on common equity (ROE) – reported
1,4
8.2
%
9.9
%
Return on common equity – adjusted
1,2
13.6
14.2
Return on tangible common equity (ROTCE)
1,2,4
11.2
13.4
Return on tangible common equity – adjusted
1,2
18.0
18.7
Efficiency ratio – reported
1,4
62.0
58.9
Efficiency ratio – adjusted, net of ISE
1,2,4,5
58.1
56.4
Provision for (recovery of) credit losses
as a % of net average loans and acceptances
0.46
0.34
Common share information – reported
(Canadian dollars)
Per share earnings
1
Basic
$
4.73
$
5.53
Diluted
4.72
5.52
Dividends per share
4.08
3.84
Book value per share
4
59.59
56.56
Closing share price
6
76.97
77.46
Shares outstanding (millions)
Average basic
1,758.8
1,822.5
Average diluted
1,760.0
1,824.4
End of period
1,750.1
1,790.7
Market capitalization (billions of Canadian dollars)
$
134.7
$
138.7
Dividend yield
4
5.1
%
4.6
%
Dividend payout ratio
4
86.1
69.3
Price-earnings ratio
1,4
16.3
14.0
Total shareholder return (1 year)
4
4.5
(6.9)
Common share information – adjusted
(Canadian dollars)
1,2
Per share earnings
1
Basic
$
7.82
$
7.92
Diluted
7.81
7.91
Dividend payout ratio
52.1
%
48.4
%
Price-earnings ratio
1
9.9
9.8
Capital ratios
3
Common Equity Tier 1 Capital ratio
13.1
%
14.4
%
Tier 1 Capital ratio
14.8
16.2
Total Capital ratio
16.8
18.1
Leverage ratio
4.2
4.4
Total Loss Absorbing Capacity
(TLAC) ratio
28.7
32.7
TLAC Leverage ratio
8.1
8.9
1
For the year ended October 31, 2023, certain amounts have been restated for the adoption of IFRS 17,
Insurance Contracts
(IFRS 17). Refer to Note 4 of the Bank’s 2024 Consolidated
Financial Statements for further details.
2
The Toronto-Dominion Bank (“TD” or the
“Bank”) prepares its Consolidated Financial Statements in accordance with IFRS, the current Generally
Accepted Accounting Principles (GAAP),
and refers to results prepared in accordance with IFRS as the “reported” results. The Bank also utilizes non-GAAP
financial measures such as “adjusted” results and non-GAAP ratios to
assess each of its businesses and to measure
overall Bank performance. To arrive
at adjusted results, the Bank adjusts reported results for “items of note”. Refer to the “Financial Results
Overview” section of this document for further explanation, a list of the items of note, and a reconciliation of adjusted
to reported results. Non-GAAP financial measures and ratios used in
this document are not defined terms under IFRS and, therefore, may not be comparable to similar terms used by other
issuers.
3
These measures have been included in this document in accordance with the Office of the Superintendent
of Financial Institutions Canada’s (OSFI’s) Capital Adequacy Requirements
(CAR), Leverage Requirements, and TLAC guidelines. Refer to the “Capital Position” section of this document for
further details.
4
For additional information about this metric, refer to the Glossary of this document.
5
Efficiency ratio – adjusted, net of ISE is calculated by dividing adjusted non-interest expenses by adjusted
total revenue, net of ISE. Adjusted total revenue, net of ISE –
2024: $50,142 million, 2023: $47,023 million. Effective fiscal 2024, the composition of this non-GAAP
ratio and the comparative amounts have been revised.
6
Toronto Stock Exchange (TSX) closing
market price.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 4
SIGNIFICANT EVENTS
-
a) Global Resolution of the Investigations into the Bank’s U.S. BSA/AML Program
On October 10, 2024, following active cooperation
and engagement with authorities and
regulators, the Bank reached a resolution
with respect to previously
disclosed investigations related to its U.S. Bank
Secrecy Act (BSA) and AntiMoney
Laundering (AML) compliance programs.
The Bank and certain of its U.S.
subsidiaries consented to orders with the Office of
the Comptroller of the Currency (OCC), the Federal
Reserve Board (FRB), and the Financial
Crimes
Enforcement Network (FinCEN) and entered
into plea agreements with the Department
of Justice (DOJ), Criminal Division, Money
Laundering and Asset
Recovery Section and the United States
Attorney’s Office for the District of New Jersey (collectively, the “Global Resolution”).
Details of the Global Resolution
include: (i) a total payment of US$3.088 billion
(C$4.233 billion), all of which was provisioned
during the 2024 fiscal year; (ii) TD Bank, N.A.
(TDBNA) pleading
guilty to one count of conspiring to fail to maintain
an adequate AML program, fail to file
accurate currency transaction reports
(CTRs) and launder money and TD
Bank US Holding Company (TDBUSH) pleading
guilty to two counts of failing to maintain
an adequate AML program and failing
to file accurate CTRs; (iii)
requirements to remediate the Bank’s U.S. BSA/AML
program, broadly aligned to its existing
remediation program, which requirements
the Bank has begun to
address; (iv) a requirement to prioritize the
funding and staffing of the remediation, which includes
Board certifications for dividend distributions
from certain of the
Bank’s U.S. subsidiaries to the Bank; (v) formal oversight
of the U.S. BSA/AML remediation through
an independent compliance monitorship;
(vi) a prohibition
against the average combined total assets
of TD’s two U.S. banking subsidiaries (TD Bank,
N.A. and TD Bank USA, N.A.) (collectively, the “U.S. Bank”)
exceeding
US$434 billion (representing the combined
total assets of the U.S. Bank as at September
30, 2024) (the “Asset Limitation”), and if
the U.S. Bank does not achieve
compliance with all actionable articles in
the OCC consent orders (and for each successive
year that the U.S. Bank remains non-compliant),
the OCC may require
the U.S.
Bank to further reduce total consolidated
assets by up to 7%; (vii) the U.S. Bank being
subject to OCC supervisory approval processes
for any additions
of new bank products, services, markets, and
stores prior to the OCC’s acceptance of the U.S. Bank’s
improved AML policies and procedures,
to ensure the AML
risk of new initiatives is appropriately considered
and mitigated; (viii) requirements for
the Bank and TD Group U.S. Holdings, LLC
(TDGUS) to retain a third party
to assess the effectiveness of the corporate governance
and U.S. management structure and composition
to adequately oversee U.S. operations;
and (ix)
requirements to comply with the terms of the
plea agreements with the DOJ during a
five-year term of probation (which could be extended
as a result of the Bank
failing to complete the compliance undertakings,
failing to cooperate or to report alleged misconduct
as required, or committing additional crimes);
(x) an ongoing
obligation to cooperate with DOJ investigations;
and (xi) an ongoing obligation to report evidence
or allegations of violations by the Bank, its
affiliates, or their
employees that may be a violation of U.S. federal
law.
Refer to “Key Terms of the Global Resolution”
below for additional information about
the terms of the orders and plea agreements.
Key Terms of the Global Resolution
Order/Agreement
Key Requirements
Plea Agreements between the DOJ and
TDBUSH and TDBNA dated
October 10, 2024
●
TDBUSH plead guilty to BSA/AML program violations (31 U.S.C. § 5318(h) and 5322) and currency transaction report violations (31 U.S.C. § 5313
and 5324).
●
TDBNA plead guilty to conspiracy (18 U.S.C. § 371) with three objects: BSA/AML program violations (31 U.S.C. § 5318(h)) and 5322), currency
transaction report violations (31 U.S.C. § 5313 and 5324), and money laundering (18 U.S.C. § 1956(a)(2)(B)(i)).
●
Monetary Penalty: fine of US$1,434,013,478.40 (US$1,428,513,478.40 after crediting) for TDBUSH and a fine of US$500,000 and a forfeiture of
US$452,432,302 (US$328,932,302 after crediting) for TDBNA.
●
Term of Probation: Five-year term of probation.
●
Remediation requirements:
-
Independent Compliance Monitor. Retain an independent compliance monitor for a period of three years to oversee the Bank’s compliance
remediation and enhancement.
-
BSA/AML Compliance Obligations. Continue to implement and enhance its AML compliance program such that, at minimum, it meets the
requirements as set forth in Attachment C to the Plea Agreements, which lays out compliance commitments, including with respect to tone
from the top; policies, procedures, and internal controls; transaction monitoring and reporting; oversight and independence; insider risk;
training; internal reporting; employee discipline; monitoring, testing, and audit; and address any deficiencies in its AML compliance program,
as specified in the Plea Agreements.
●
Cooperation: Cooperate with the DOJ in any investigation or prosecution relating to the conduct, individuals, and entities described in the Plea
Agreements and the Statement of Facts attached to the Plea Agreements, as well as any other conduct, individuals, and entities under investigation
by the DOJ at any time during the length of the Agreements’ obligations.
●
Disclosure: To the extent that the Bank learns of any evidence or allegation of conduct by the Bank, its affiliates, or their employees that may be a
violation of U.S. federal law, promptly report to the DOJ any such evidence or allegation.
●
Sale/Merger/Transfer: Any change in corporate form, including a sale, merger, or transfer of business operations that are material to the Bank’s
consolidated operations, or to the operations of any subsidiaries, branches, or affiliates involved in the conduct described in the Statement of Facts,
as they exist as of the date of the Agreements, whether such transaction is structured as a sale, asset sale, merger, transfer, or other change in
corporate form, the Bank must include in any such contract a provision binding the purchaser, or any successor in interest thereto, to the obligations
described in the Agreements, and the other party to the contract must agree in writing to the terms and obligations to the Agreements; meet other
requirements prior to any such change in corporate form, including a sale, merger, or transfer of business operations, as specified in the
Agreements.
●
Breach of Agreements: The following would constitute a breach of the Agreements: (a) any felony under U.S. federal law; (b) providing deliberately
false, incomplete, or misleading information to the DOJ; (c) failing to cooperate with the DOJ; (d) failing to implement a compliance program as set
forth in the Plea Agreements and Attachment C to the Plea Agreements and complete the monitorship as set forth in the Plea Agreements and
Attachment D to the Plea Agreements; (e) committing any acts that, had they occurred within the jurisdictional reach of the United States, would be
a violation of federal money laundering laws or the Bank Secrecy Act; or (f) otherwise failing specifically to perform or to fulfill completely each of the
obligations under the Agreements. In the event of a breach of the Agreements, the Bank will be subject to prosecution for any federal criminal
violation of which the DOJ is aware, including the charges to which the Bank pleaded guilty.
●
Non-Contradiction: The Bank will not make any public statement, in litigation or otherwise, contradicting its acceptance of responsibility or the facts
described in the Information or Statement of Facts. The Bank will seek preclearance from the DOJ before issuing any affirmative public statement in
connection with the resolutions, including via press release, press conference remarks, or a scripted statement to investors.
●
Acknowledgement by the Bank and TDGUS of the Agreements by TDBNA and TDBUSH and agreement to undertake the cooperation commitments
outlined in the Agreements and ensure that TDBNA and TDBUSH comply with all terms of the Agreements.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 5
Order/Agreement
Key Requirements
FinCEN Consent Order involving TDBNA
and TD Bank USA, N.A. (TDBUSA)
●
BSA/AML program violations (31 U.S.C. § 5318 (h)(1) and 31 C.F.R. § 1020.210(a)), suspicious activity report violations (31 U.S.C. § 5318(g) and
31 C.F.R. § 1020.320), and currency transaction report violations (31 U.S.C. § 5313 and 31 C.F.R.
§ 1010.311).
●
BSA/AML program violations (31 U.S.C. § 5318 (h)(1) and 31 C.F.R. § 1020.210(a)), suspicious activity report violations (31 U.S.C. § 5318(g) and
31 C.F.R. § 1020.320), and currency transaction report violations (31 U.S.C. § 5313 and 31 C.F.R.
§ 1010.311).
●
Monetary Penalty: US$1.3 billion (requiring a payment of US$757 million after crediting).
●
Remediation Requirements:
-
Independent Compliance Monitor. The Order requires the Bank to retain an independent compliance monitor for a period of 4 years, which
will be required to undertake various reviews and issue reports as outlined in the Order.
-
Suspicious activity report (SAR) Lookback. The Order recognized that the Bank has retained an independent third party to conduct a SAR
lookback review, which will be overseen by the independent compliance monitor. Within 150 days from the engagement of the monitor, the
SAR lookback consultant must deliver to FinCEN and the monitor a report summarizing the proposed scope and methodology of the review.
Within 18 months from the date of the SAR lookback report, the SAR lookback consultant must deliver a detailed report that summarizes the
findings of its review.
-
BSA/AML Program Review. The Order requires the Bank to retain an independent third party to conduct a review of the effectiveness of its
BSA/AML program, similar to the review required by the FRB and OCC. Within 60 days from the engagement of the monitor, the monitor
must propose an AML program consultant or elect to serve as the consultant. Within 90 days from the engagement of the consultant, the
consultant must deliver to FinCEN a report summarizing the proposed scope and methodology of the review. Within 60 days from the end of
the consultant’s review, but no later than one year from the date of its engagement, the consultant must submit to FinCEN a final written
report.
-
Accountability Review. The Order requires the independent compliance monitor to assess the accountability review work that the Bank has
conducted concerning the involvement of personnel in the conduct described in the Order. Within 120 days from the engagement of the
monitor, the monitor must deliver to FinCEN a report summarizing the proposed scope and methodology of the review. Within 60 days from
the end of the monitor’s review, but no later than one year from the date of its engagement, the monitor must submit to FinCEN a final
written report.
-
Data Governance Review. The Order requires the independent compliance monitor to oversee a data governance review, which will involve
an assessment of the Bank’s data governance framework. Within 120 days from the engagement of the monitor, the monitor must deliver to
FinCEN a report summarizing the proposed scope and methodology of the review. Within 60 days from the end of the monitor’s review, but
no later than one year from the date of its engagement, the monitor must submit to FinCEN a final written report.
●
Cooperation: The Order requires the Bank to cooperate with FinCEN in all matters within the scope of or related to the resolution.
●
Non-Contradiction: The Order requires the Bank not to make any public statement that contradicts the admissions or acceptance of responsibility or
any terms of the Order.
OCC Consent Orders involving TDBNA and
TDBUSA
●
BSA/AML program violation (12 C.F.R. § 21.21), suspicious activity report violations (12 C.F.R.
§ 21.11), currency transaction report violations (31
C.F.R. § 1010.312), customer due diligence violation (31 C.F.R.
§ 1020.210(a)(2)(v)) and recklessly engaging in unsafe or unsound practices
related to the Bank’s BSA/AML Compliance Program.
●
Monetary Penalty: US$450 million.
●
The Orders will remain in effect until amended, suspended, waived, or terminated, in writing by the OCC.
●
Remediation Requirements (dates listed below may be extended by written approval from the OCC):
-
Compliance Committee. Appoint, within 15 days of the Order’s effective date, a Compliance Committee to monitor and oversee the
TDBNA’s and TDBUSA’s compliance
with the Orders.
-
BSA/AML Action Plan. Submit a written plan, within 150 days of the Order’s effective date, detailing the remedial actions necessary to
achieve and sustain compliance with the BSA, its implementing regulations, and specified articles of the Orders, and to address all
BSA/AML deficiencies, violations, and corrective actions (the “BSA/AML Action Plan”). Adopt and implement the BSA/AML Action Plan and
provide progress reports.
-
BSA/AML Program Assessment and Remediation.
Retain, within 60 days of the Order’s effective date or as otherwise specified in the
BSA/AML Action Plan, an independent third-party consultant to conduct an end-to-end review and assessment of their BSA/AML Program
and draft a written report documenting its findings and recommendations, to be submitted to the boards of directors (Boards) of TDBNA and
TDBUSA, and the OCC, at the same time. Effectively remediate any identified gaps and deficiencies.
-
New Products, Services, Branches, and Markets. Submit, within 150 days of the Order’s effective date, or as otherwise specified in the
BSA/AML Action Plan, to the OCC for review and prior written determination of no supervisory objection, improved policies and procedures
for evaluating the BSA/AML risks posed by adding a new product or service and ensuring the Bank has adequate controls to mitigate such
risks, prohibits TDBNA and TDBUSA from adding new products or services until they receive a determination of no supervisory objection to
the improved policies and procedures. After receiving no supervisory objection to the policies and procedures, the Orders prohibit TDBNA
and TDBUSA from adding any new medium or high BSA/AML risk product or service without, among other requirements, a prior
determination of no supervisory objection. Prohibition from opening a new branch or entering a new market without first receiving no
supervisory objection.
-
BSA Officer and Staffing. Maintain a qualified BSA Officer vested with sufficient independence, authority, stature, and resources, and
requires the Boards to ensure that TDBNA and TDBUSA have sufficient managers and staff with the appropriate skills, expertise, and with
the requisite authority, to support the BSA Officer and BSA/AML program. Following the Independent Consultant review, ensure there is an
annual review of the adequacy of the Bank’s BSA Officer and staff, with the determinations finalized in writing, to be submitted to the OCC,
and the Boards are responsible for ensuring any necessary changes are implemented. Ensure that the BSA Officer and staff have sufficient
training, authority, resources, and skill, that management has the necessary knowledge to oversee the Bank’s compliance with the BSA, that
information systems are effective, and that there are clear lines of authority and responsibility for the BSA/AML compliance function and
staff, including giving the BSA Officer the ultimate accountability for and authority over all the U.S. BSA/AML Program components.
-
BSA/AML Training. Implement, within 120 days of the Order’s effective date, or as otherwise specified in the BSA/AML Action Plan, an
effective BSA/AML Training Program that meets certain minimum requirements, as detailed in the Orders.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 6
Order/Agreement
Key Requirements
OCC Consent Orders involving TDBNA and
TDBUSA
-
BSA/AML Internal Controls. Develop and implement, within 120 days of the Order’s effective date, or as otherwise specified in the BSA/AML
Action Plan, an effective Internal Controls Program to identify and control the risks associated with money laundering and terrorist financing
and other illicit financial activity, and to achieve and maintain compliance with the BSA. The Internal Controls Program must meet certain
minimum requirements, as detailed in the Orders.
-
Customer Due Diligence and Risk Identification. Develop and implement, within 120 days of the Order’s effective date, or as otherwise
specified in the BSA/AML Action Plan, an effective customer due diligence (CDD) program to ensure appropriate collection and analysis of
customer information when opening new accounts, when renewing or modifying existing accounts for customers, and when the Bank
obtains event-driven information indicating that it would be prudent to obtain updated information and maintain accurate customer risk
profiles. The CDD Program must meet certain minimum requirements, as detailed in the Orders.
-
Suspicious Activity Identification, Evaluation, and Reporting. Develop and implement, within 120 days of the Order’s effective date, or as
otherwise specified in the BSA/AML Action Plan, an effective suspicious activity monitoring and reporting program to ensure the timely and
appropriate identification, review, and disposition of unusual activity, and the filing of SARs. The Suspicious Activity Review Program must
meet certain minimum requirements, as detailed in the Orders.
-
BSA/AML Independent Testing. Develop and implement, within 120 days of the Order’s effective date, or as otherwise specified in the
BSA/AML Action Plan, an effective BSA/AML independent testing program to test the Bank’s compliance with the BSA, relative to its risk
profile, and the overall adequacy of the Bank’s BSA/AML Program. The BSA/AML Audit Program must meet certain minimum requirements,
as detailed in the Orders. Develop risk assessment and planning processes that clearly document AML risk, and for management to require
reporting on no less than a quarterly basis of all deficiencies in BSA/AML processes and controls identified through the BSA/AML Audit
Program to the Bank’s Board or BSA/AML Audit Committee, and to senior management, after which the Boards or BSA/AML Audit
Committee must ensure that management takes prompt action to remediate the cited deficiencies and validates corrective action.
-
Suspicious Activity Review Lookback. Retain, within 60 days of the Order’s effective date, or as otherwise specified in the BSA/AML Action
Plan, an independent third-party consultant to conduct a review and provide a written report on the Bank’s suspicious activity monitoring,
investigation, decisioning, and reporting. The OCC has discretion to expand the scope of the look-back after its review of the report.
-
Accountability for Employees Involved in Misconduct. TDBNA and TDBUSA are prohibited from retaining, now or in the future, any individual
as an officer, employee, agent, consultant, or contractor who participated in, was subject to formal discipline, or was separated or terminated
in connection with the underlying conduct described in the Orders, and TDBNA and TDBUSA are required to submit, within 30 days of the
Order’s effective date, to the OCC policies, procedures, and reporting requirements for ensuring compliance with the accountability
requirements. The Orders also require the HR senior executive officers of TDBNA and TDBUSA to submit, on a quarterly basis, compliance
with the accountability requirements.
-
General Board Requirements. Ensure timely adoption and implementation of all corrective actions required by the Orders, verification of
adherence to the corrective actions, and ensure the corrective actions are effective in addressing the deficiencies that led to the Orders.
●
Limits on Growth. TDBNA and TDBUSA may not take any action that would cause the average of the Bank’s total consolidated assets for the
current calendar quarter and the immediately preceding calendar quarter to exceed the total consolidated assets reported as of September 30,
- If TDBNA and TDBUSA do not meet the deadline for compliance with all actionable articles in the Orders, the OCC may require TDBNA and
TDBUSA to reduce their total consolidated assets by up to 7% from their total consolidated assets as reported as of the most recent quarter, and for
each year TDBNA and TDBUSA continue to be in noncompliance with the Orders, the OCC may require further reductions up to 7% from their total
consolidated assets as reported as of the most recent calendar quarter. The Deputy Comptroller of the OCC may, at their discretion, temporarily
suspend the asset limit in light of unusual circumstances at TDBNA or TDBUSA.
●
Prioritization of Expenditure on Remediation. Prior to declaring or paying dividends, engaging in share repurchases, or making any other capital
distribution, the Boards of TDBNA and TDBUSA must certify in writing to the OCC that the Bank has allocated appropriate resources and staffing to
the remediation required by the Orders.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 7
Order/Agreement
Key Requirements
Federal Reserve Cease & Desist Order with
TD Bank, TD Group US Holdings LLC
(TDGUS) and TDBUSH
●
Issued pursuant to 12 U.S.C. § 1818(b) and (i)(2)(B)
●
Monetary Penalty: US$123.5 million.
●
The Order will remain in effect until stayed, modified, terminated, or suspended in writing by the FRB.
●
Remediation Requirements (dates listed below may be extended by written approval from the FRB):
-
Board Oversight. Submit to the FRB, within 90 days of the Order’s effective date, a written plan to oversee the matters identified in the
Order.
-
Corporate Governance and Management Review. Retain, within 30 days of the Order’s effective date, an independent third party to assess
the effectiveness of the corporate governance, board and U.S. management structure, and staffing needs at TD Bank, TDGUS, and
TDBUSH and draft a written report of findings and recommendations, which will be provided to the FRB and to the Office of the
Superintendent of Financial Institutions (OSFI) at the same time it is provided to the Boards of TD Bank and TDGUS. Submit to the FRB and
OSFI a written board oversight plan that is designed to address the findings and recommendations in the report and that describes the
actions the Boards of TD Bank and TDGUS will take to strengthen the management and corporate governance structure of TD Bank,
TDGUS, and TDBUSH.
-
U.S. Remediation Office: Submit, within 90 days of the Order’s effective date, a written plan to establish a Remediation Office in the United
States to operate under the oversight of the Boards. The Remediation Office will be responsible for several undertakings pursuant to the
Order.
-
U.S. Law Compliance Program. Submit, within 60 days of the Order’s effective date, a compliance program (U.S. Law Compliance Program)
to the FRB, including a timeline for implementation. The U.S. Law Compliance Program related obligations include, among other
requirements, the relocation to the U.S. the part of the TD Bank, TDGUS, and TDBUSH compliance function that is responsible for
establishing and maintaining compliance with the applicable BSA/AML requirements by the branches, affiliates, and global business lines of
TD Bank, TDGUS, and TDBUSH.
-
BSA/AML Compliance Review. Retain, within 30 days of the Order’s effective date, an independent third party to conduct a review of the
BSA/AML compliance elements of the U.S. Law Compliance Program. The independent third party will be responsible for preparing a written
report of findings and recommendations, which will be provided to the FRB at the same time it is provided to the Boards. TD Bank, TDGUS,
and TDBUSH must submit a written plan that is designed to fully address the findings and recommendations in the report and that describes
the actions that will be taken to strengthen compliance with the applicable BSA/AML requirements.
-
Resource Allocation for Remediation. Prior to TDGUS or TDBUSH declaring or paying dividends, engaging in share repurchases, or making
any other capital distribution, the Boards must certify to the FRB that the appropriate resources and staffing have been allocated to
remediation, as required by the Order.
-
Accountability for Employees Involved in Misconduct. TD Bank, TDGUS, and TDBUSH are prohibited from retaining, now or in the future,
any individual as an officer, employee, agent, consultant, or contractor who participated in, was subject to formal discipline, or was
separated or terminated in connection with the underlying described in the Order.
-
Ongoing Reporting. Submit quarterly progress reports detailing the form and manner of actions taken to comply with the Order, a timetable
and schedule to implement specific remedial actions to be taken, and the results thereof. Pursuant to the Order, the written OCC progress
reports will be sent to the FRB.
Remediation of U.S. BSA/AML Program
As described in the DOJ Statement of Facts,
between January 2014 and October 2023,
the U.S. Bank’s BSA/AML Program had long-term, pervasive,
and
systemic deficiencies and the U.S. Bank (a)
failed to substantively update, and severely
limited the types of activity screened
through, the transaction monitoring
system, and (b) failed to adequately train employees
who served as the first line of defense
against money laundering. TDBNA’s failure to effectively manage its
employee risk also contributed to insider misconduct.
In addition, as noted in the OCC Consent
Order, deficiencies in the U.S. Bank’s BSA/AML Program included
deficiencies related to: internal controls and risk
management practices; risk assessments;
customer due diligence; customer risk ratings;
suspicious activity
identification, evaluation, and reporting; governance;
staffing; independent testing; and training, among
others. There was a systemic breakdown
in the policies,
procedures, and processes to identify and report
suspicious activity.
The Bank is focused on remediating its U.S.
BSA/AML program to meet the requirements
of the Global Resolution, and it has organized
its remediation efforts
consistent with the requirements of the Global
Resolution. The redesign of the U.S.
BSA/AML program is focused on improvements
to capabilities across five core
pillars, namely: (i) People and Talent, (ii) Governance and Structure, (iii)
Policy and Risk Assessment, (iv) Process and
Control, and (v) Data and Technology.
Progress to date on the remediation includes:
(i)
People
and
Talent:
The
Bank
has
overhauled
its
U.S.
BSA/
AML
program
resourcing
across
all
three
lines
of
defence.
The
Bank
has
established
a
dedicated and expanded U.S. Financial Crime
Risk Management leadership team and
structure, with emphasis on specific experience
and subject matter
expertise, including the appointment of the
BSA Officer as required by the OCC order. The Bank has also
created and hired new resources across
the first
line of defence with years of risk management
and control experience, particularly in Financial
Crime areas. The Internal Audit function
has also been
further developed to include resources with
specialized testing experience in the domain
as well as specific to remediation validation
work.
(ii)
Governance
and
Structure:
The
Bank
has
strengthened
its
oversight
structure
and
accountability
across
all
three
lines
of
defence,
including
the
risk
management and audit functions, and has
established a dedicated committee at the U.S.
boards (the “U.S. Compliance Committee”)
as well as a
dedicated committee of the Bank’s Board of Directors
(the “Remediation Committee”) for remediation
oversight. In addition, the Bank has established
an
executive U.S. Remediation Office, which will be responsible
for overseeing the execution of the remediation
program and engaging with the U.S.
regulators in relation to the actions required
to be taken by the Bank under the Global
Resolution. The Bank also anticipates
that the monitorship will be
appointed in fiscal 2025
1
.
(iii)
Policy
and
Risk
Assessment:
The
Bank
has
introduced
new
standards
with
the
goal
of
enhancing
capabilities
to
measure
financial
crime
risk
more
effectively. Specifically, new risk limits have been designed and implemented, and changes to certain
risk assessment processes were introduced
to help
highlight specific products and areas of
specific risk.
(iv)
Process
an
d
Control:
The
Bank
has
enhanced
customer
onboarding
procedures
for
cash
intensive
clients.
In
addition,
the
Bank
has
added
additional
transactions to the Bank’s monitoring system and
added new scenarios to help increase the
detection of potentially suspicious activity
across its products
1
Under the terms of the plea agreements and consent orders, the selection of the monitor will be made by the DOJ
and FinCEN. Accordingly, the timing of the appointment
of the
monitorship is not entirely within the Bank’s control.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 8
-
and services. The Bank has also implemented
rolebased
targeted training and enhanced Bank-wide
general training to reinforce understanding
and
accountability.
(v)
Data
and
Technology:
The
Bank
has
deployed
new
data
-
driven
technology
solutions
and
has
deployed
the
first
phases
of
an
enhanced
transaction
monitoring platform. The new system has an
enhanced data model and new capabilities
to modernize and manage the Bank’s detection
proficiency into
the future. Advanced analytics have been introduced
to improve the speed of investigation activities,
and to do proactive modeling of current risks
that
impact the Bank.
With the talent, governance, structure, and policy
foundations in place, the Bank expects
to have the majority of its management remediation
actions implemented
in calendar 2025, with additional management
actions planned for calendar 2026. In addition,
sustainability and testing activities are planned
for calendar 2026
and calendar 2027. The Bank is also targeting
to have the Suspicious Activity Report lookback
to be completed in 2027 per the FinCEN
Consent Order.
All
management remediation actions will be
subject to validation by the Bank’s internal audit
function, followed by the review and acceptance
by the appointed
monitor, demonstrated sustainability, and, ultimately, the review and approval of the Bank’s U.S. banking regulators
and the DOJ. The following graph illustrates
the Bank’s expected remediation plan and progress.
The Bank’s remediation timeline is based on the Bank’s
current plans, as well as assumptions related
to the duration of planning activities, including
the
completion of external benchmarking and
lookback reviews. The Bank’s ability to
meet its planned remediation milestones assumes
that the Bank will be able to
successfully execute against its U.S. BSA/AML
remediation program plan, which is
subject to inherent risks and uncertainties including
the Bank’s ability to attract
and retain key employees, the ability of
third parties to deliver on their contractual obligations,
and the successful development and implementation
of required
technology solutions. Furthermore, the execution
of the U.S. BSA/AML remediation plan,
including these planned milestones, will not
be entirely within the Bank’s
control including because of (i) the requirement
to obtain regulatory approval or non-objection
before proceeding with various steps, and
(ii) the requirement for the
various deliverables to be acceptable to the regulators
and/or the monitors. For additional information
on the risks associated with the remediation
of the Bank’s
U.S. BSA/AML program, see “Risk Factors That
May Affect Future Results – Global Resolution of
the Investigations into the Bank’s U.S. BSA/AML
Program”.
For information about estimated U.S. BSA/AML
remediation and governance and
control expenses for the 2025 fiscal year, see the “Key Priorities
for 2025”
section of the U.S. Retail segment; for additional
information about the Bank’s AML governance
framework, see the “Managing Risk”
section; and for information
about the risks associated with the remediation
of the Bank’s U.S. BSA/AML program, see
the “Risk Factors That May Affect Future
Results – Global Resolution of
the Investigations into the Bank’s U.S. BSA/AML
Program”
section.
Assessment and Strengthening of the
Bank’s Enterprise AML Program
The Bank is undertaking several improvements
to the Bank’s enterprise-wide AML/Anti-Terrorist Financing and Sanctions Programs
(“Enterprise AML Program”).
These improvements are made in the context
of the Bank’s 2023 annual assessment of
its Enterprise AML Program, which was
rated unsatisfactory as of October
31, 2023. The depth and severity of U.S. BSA/AML
program deficiencies contributed to
the effectiveness rating of the Enterprise AML Program.
Moreover, during
fiscal 2024, Financial Transactions and Reports Analysis
Centre of Canada (FINTRAC) undertook a
compliance examination of certain aspects of
the Bank’s AML
program in Canada. FINTRAC imposed
an administrative monetary penalty
of $9.2 million and issued five violations:
(i) FINTRAC found that TD failed to file
suspicious transaction reports (STRs) in
20 of the cases it had reviewed and (ii)
FINTRAC issued four inter-related violations
that primarily stemmed from the
Bank’s failure to properly identify (i.e., assess
and document) its full population of high-risk
customers. Based on the Bank’s work to date,
the Bank (a) has not
identified issues to the same extent in Canada,
Europe or Asia as in the U.S., and (b)
has not experienced the same severe AML-related
events in Canada,
Europe or Asia as those experienced in the
U.S. However, the Bank has concluded that most of the pervasive
AML related issues in the U.S. are, to a
varying
extent, also applicable to certain aspects of
the Enterprise AML Program outside
the U.S. The Bank has identified a number
of areas in the Enterprise AML
Program outside the U.S. that require improvement.
Common themes requiring attention relate
to governance and oversight of various
components of the
Enterprise AML Program, quality of reporting
to senior management and the board of
directors, quality control processes, adequacy
of procedures in targeted
areas, operational deficiencies in respect of high-risk
customers, and certain aspects of
transaction monitoring.
Improvements to the Enterprise AML Program
outside the U.S. are underway, with corresponding investments
and resourcing in place across all three lines
of
defence, including key technology initiatives,
to ensure the Bank can address these deficiencies.
The Bank is also applying learnings obtained from
the
deficiencies identified in its U.S. BSA/AML
program to its Enterprise AML Program
outside the U.S. In particular, these improvements to
the Enterprise AML
Program outside the U.S. fall under three
main categories:
●
Tactical Enhancements: The Bank has launched the implementation of a
number of operational and business process
enhancements across the
enterprise, where necessary, that are similar to the initial enhancements
made to its U.S. BSA/AML program. These enhancements
are intended to
provide interim risk mitigation and strengthen
the control environment in specific key
areas.
●
Strategic Enhancements: A detailed plan
has been developed to upgrade the Enterprise
AML Program outside the U.S. and address
the areas that require
improvement, with ongoing updates.
●
FINTRAC Remediation: As a result of
the FINTRAC examination, the Bank
has established a remediation program and
submitted a detailed plan to
FINTRAC to address the FINTRAC violations
and ensure compliance with regulatory expectations.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 9
Similar to the U.S. BSA/AML remediation
program, the FINTRAC remediation and
other planned strategic enhancements of
the Enterprise AML Program outside
the U.S. are organized under five core pillars:
i.
People & Talent: Similar to investments made in the U.S., the Bank has
recruited AML program leadership and
talent with a focus on deep subject matter
expertise, with additional recruitment underway.
ii.
Governance & Structure: The Bank is redefining
its enterprise AML governance approach,
including strengthening oversight structure
and reporting across
all three lines of defense.
iii. Policy & Risk Assessment: Similar to the changes
being made in the U.S., new enterprise
standards and capabilities are being updated
to measure
financial crime risk more effectively, and strengthen oversight across
key areas of the program, including high
risk and high cash customer activity.
iv. Process & Control: The Bank is in the process of enhancing
enterprise customer onboarding procedures,
updating approaches to transaction and
customer monitoring, and implementing
training to support enhanced processes and
reinforce accountability.
v.
Data & Technology: The Bank has established an enhancement plan to deliver
new technology solutions with stronger
detection and data management
capabilities, advanced analytics, new scenarios,
and modelling capabilities.
Based on the Bank’s current plans, the majority
of the above-mentioned remediation and
enhancement actions are anticipated
to be implemented by the Bank by
the end of calendar 2025, and will then be
subject to internal review, challenge, and validation of the
activities. See “Remediation of U.S. BSA/AML
Program”
for
U.S. BSA/AML remediation timeline.
Impact on the Bank’s Financial Performance Objectives
Reflecting a challenging macroeconomic
environment and the impact of the resolution
of investigations related to the Bank’s AML program,
in fiscal 2024, the
Bank did not meet the Bank’s medium-term financial
targets to attain 7-10% adjusted EPS growth (the
Bank’s fiscal 2024 adjusted EPS growth
was -1.3%), a
16%+ return on equity (the Bank’s fiscal 2024
adjusted return on equity was 13.6%), and a
positive operating leverage
2
(the Bank’s fiscal 2024 adjusted revenue,
net of insurance service expense, and adjusted
expense growth were 7.1% and 10.5%,
respectively).
The Bank expects that fiscal 2025 will be a transition
year, is prioritizing the investments and work that are required
to meet its regulatory commitments, and
expects that elevated risk and control expenses
will negatively impact earnings during the 2025
fiscal year. In addition, the Bank continues to invest in its
businesses. Accordingly, for fiscal 2025, it will be challenging for
the Bank to generate earnings growth.
The Bank does not expect to meet the following
three
previously disclosed medium-term financial
targets in fiscal 2025: 7-10% adjusted EPS
growth, 16%+ return on equity and positive
operating leverage.
The Bank is currently undertaking a broad-based
strategic review and will reassess
organic opportunities and priorities, productivity
and efficiency initiatives, and
capital allocation alternatives, with the objective
of delivering competitive returns for our
shareholders. As a result of this review, the Bank is suspending
the
following medium-term financial targets:
7-10% adjusted EPS growth, 16%+
return on equity and positive operating leverage.
The Bank expects to provide
updates on its strategic review, and on the Bank's medium-term
financial targets, in the second half of 2025.
The Bank remains confident in the earnings
growth
potential of its Canadian Personal & Commercial
Banking, Wealth Management & Insurance and
Wholesale Banking segments. While the Bank
expects that its
balance sheet restructuring activities in the
U.S. Retail segment and U.S. AML remediation
will impact the U.S. Retail segment, it remains
committed to the US
market and confident in the strength of the
US franchise.
As a result of the Bank’s investments in its risk
and control infrastructure and investments
supporting business growth, including employee-related
expenses, net
of expected productivity and restructuring run-rate
savings, the Bank expects that expense
growth for the 2025 fiscal year will be in
the range of 5-7%
3
.
Impact on the Bank’s U.S. Priorities
The U.S. Retail segment’s top priority remains
remediating the U.S. BSA/AML program
and strengthening the governance and
control environment. In addition, to
help ensure we can continue to support our
customers’ financial needs in the U.S.
while not exceeding the limitation on the combined
total assets of the U.S. Bank,
the Bank is focused on executing multiple balance
sheet restructuring actions in fiscal 2025. Refer
to the “Key Priorities for 2025”
section of the U.S. Retail
segment section for additional information,
including the loss associated with the balance
sheet restructuring actions which is treated as
an item of note in the U.S.
Retail segment results.
Impact on the Bank’s Operations
The plea agreements have resulted in one
TD entity being disqualified from serving as
an investment adviser or underwriter
to registered investment companies in
the United States, which has required
TD to seek a waiver from the U.S. Securities
and Exchange Commission (“SEC”) and implement
interim arrangements until
a waiver is obtained. Another TD entity has
become disqualified from relying on
the U.S. Department of Labor’s “qualified
professional asset manager” exemption
for purposes of providing asset management
services to employee benefit plans subject
to the U.S. Employee Retirement Income
Security Act of 1974 (“ERISA”).
As a result, TD is relying on alternative exemptions
for purposes of ERISA compliance, which
are expected to allow TD to continue to operate
these businesses
without disruption. In addition, TD has made
minor modifications to its U.S. registered
securities programs. None of these changes
had a material impact on the
Bank’s fourth quarter of 2024 results.
The terms of the Global Resolution and
the financial, operational and business impact
that those terms have had on the Bank have
led to the Bank exceeding
certain internal risk metrics, resulting in
additional escalation and monitoring activities
within the Bank, including with respect to the
Bank’s remediation activities.
b)
Restructuring Charges
The Bank continued to undertake certain
measures in 2024 to reduce its cost base and
achieve greater efficiency. In connection with these measures, the Bank
incurred $566 million of restructuring charges
for the year ended October 31, 2024 (October 31,
2023 – $363 million), which primarily
relate to employee
severance and other personnel-related
costs and real estate optimization. This restructuring
program concluded in the third quarter
of 2024.
2
Operating leverage is a non-GAAP measure. At the total Bank level, TD calculates operating leverage
as the difference between the % change in adjusted revenue (U.S. Retail in source
currency) net of insurance service expense, and adjusted expenses (U.S. Retail in US$) grossed up
by the retailer program partners' share of PCL for the Bank's U.S. strategic card
portfolio. Collectively, these adjustments provide a measure
of operating leverage that management believes is more reflective of underlying business performance.
3
The Bank’s
expectations regarding
expense growth
is based
on the
Bank’s assumptions
regarding risk
and control
investments, employee-related
expenses, foreign
exchange impact,
and productivity and restructuring savings. These assumptions are subject to inherent uncertainties
and may vary based on factors both within and outside the Bank’s control including the
accuracy of
the Bank’s
employee compensation
and benefit
expense forecasts,
impact of
business performance
on variable
compensation, inflation,
the pace
of productivity
initiatives
across the organization,
and unexpected expenses
such as legal
matters. Refer to
the “Risk Factors
That May Affect
Future Results” section
of this document
for additional information
about risks and uncertainties that may impact the Bank’s estimates.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 10
c) Federal Deposit Insurance Corporation Special
Assessment
On November 16, 2023, the Federal Deposit
Insurance Corporation (FDIC) announced
a final rule that implements a special
assessment to recover the losses to
the Deposit Insurance Fund arising from
the protection of uninsured depositors during
the U.S. bank failures in the spring of 2023.
The special assessment
resulted in the recognition of $411 million (US$300 million) pre-tax
in non-interest expenses in the first
quarter of fiscal 2024.
On February 23, 2024, the FDIC notified
all institutions subject to the special assessment
that its estimate of total losses increased
compared to the amount
communicated with the final rule in November
- Accordingly, the Bank recognized an additional expense for
the special assessment of $103 million
(US$75 million)
in the second quarter of fiscal 2024.
During the fourth quarter of fiscal 2024,
the Bank updated the special assessment
estimate based on actual
invoices received during the year and recognized
an expense recovery of $72 million (US$52
million).
The final amount of the Bank’s special assessment
may be further updated as the FDIC determines
the actual losses to the Deposit Insurance
Fund.
d) Sale of Schwab Common Shares
On August 21, 2024, the Bank sold 40.5
million shares of common stock of The Charles
Schwab Corporation (“Schwab”) for proceeds
of approximately $3.4 billion
(US$2.5 billion). The share sale reduced the
Bank’s ownership interest in Schwab from 12.3%
to 10.1%. The Bank recognized approximately
$1.0 billion
(US$0.7 billion) as other income (net of $0.5
billion (US$0.4 billion) loss from accumulated
other comprehensive income (AOCI),
reclassified to earnings), in the
fourth quarter of fiscal 2024.
FINANCIAL RESULTS OVERVIEW
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
assets and serves more than 27.9 million
customers in four key businesses operating
in a number of locations in financial centres
around the globe: Canadian
Personal and Commercial Banking, including
TD Canada Trust and TD Auto Finance Canada; U.S.
Retail, including TD Bank, America’s Most Convenient
Bank
®
,
TD Auto Finance U.S., TD Wealth (U.S.), and an
investment in The Charles Schwab Corporation;
Wealth Management and Insurance, including
TD Wealth
(Canada), TD Direct Investing, and TD Insurance;
and Wholesale Banking,
including TD Securities and TD Cowen.
TD also ranks among the world’s leading
online financial services firms, with more
than 17 million active online and mobile customers.
TD had $2.06 trillion in assets on October
31, 2024. The
Toronto-Dominion Bank trades under the symbol “TD” on the Toronto and New York Stock Exchanges.
ECONOMIC SUMMARY AND OUTLOOK
The global economy remains on track for a
modest slowdown in calendar 2024, as high interest
rates continue to weigh on growth. Alongside
slower growth,
inflation across the G-7 has cooled, and
central banks have started to lower interest
rates. TD Economics expects future interest
rate reductions to be gradual, as
central banks assess how growth and inflation
respond. In addition, the evolution of geopolitical
risks maintains a degree of uncertainty
on both the economic
outlook and the inflation trajectory.
The U.S. economy has continued to grow at
a solid pace in calendar 2024 supported
by resilient consumer spending and
strength in business investment. High
borrowing costs have curtailed residential investment,
which has weighed on overall growth.
With U.S. domestic demand outpacing many of
its advanced economy
peers, import growth has also run ahead
of exports, leading to little support to growth
from international trade.
Based on the October 2024 data, the
U.S. job market has stabilized recently, with the unemployment rate
at 4.1%, up modestly from a year ago.
This can be
characterized as a normalization following
tight conditions that persisted for longer than
expected after the pandemic. The U.S. economy
carries the markings of a
“soft landing” that is allowing inflation pressures
to gradually drift lower and opened
the door to interest rate cuts by the U.S. Federal
Reserve. The U.S. central
bank lowered its policy rate by half a point in
September and another quarter point in October.
TD Economics expects the U.S. Federal
Reserve to continue to lower interest rates
over the next year. However, the pace of interest rate reductions has
become more uncertain following the November
election. Given the likelihood of increased
tariffs under the new administration, and the potential
for tax cuts, the
risk that inflation experiences renewed upward
pressure has increased. This could slow
the pace of interest rate reductions. TD
Economics expects the federal
funds rate to be lowered to 3.25-3.50% by the
end of calendar 2025 – a level that is still
on the restrictive side.
After Canada’s economy slowed notably in calendar
2023, strong population gains have lifted
economic growth in the first half of calendar
- Population
increases have also contributed to labour force
growth outpacing job creation, taking
the unemployment rate higher and cooling
labour market conditions. The
unemployment rate was 6.5% in October, above its pre-pandemic
level, but still below its long-run average.
Looking ahead, TD Economics expects
population
growth to slow sharply over the next
few years as the federal government reduced
its targets for permanent and non-permanent
residents. The negative impact of
the weaker population inflows on consumer
spending and housing activity is likely to be
more than offset by the boost to activity from lower
interest rates. As such,
TD Economics forecasts a modest pickup
in overall economic growth in calendar 2025
from this year’s estimated tepid
rate of around 1%.
As a result of favourable inflation dynamics
alongside a softening economy, the Bank of Canada has
cut interest rates four times in calendar 2024, taking
the
overnight rate to 3.75% in October. TD Economics expects
the Bank of Canada to continue lowering interest
rates over the next year, reaching between 2.25% to
2.50% by the end of calendar 2025. Interest
rates differentials between Canada and the
U.S. have widened, weakening the Canadian dollar. TD Economics
expects the Canadian dollar will trade in the
71 to 73 U.S. cent range over the next
few quarters.
HOW THE BANK REPORTS
The Bank prepares its Consolidated Financial
Statements in accordance with IFRS, the
current GAAP,
and refers to results prepared in accordance
with IFRS as
“reported” results.
Non-GAAP and Other Financial Measures
In addition to reported results, the Bank also
presents certain financial measures, including
non-GAAP financial measures that are historical,
non-GAAP ratios,
supplementary financial measures and capital
management measures, to assess its results.
Non-GAAP financial measures, such as “adjusted”
results, are utilized
to assess the Bank’s businesses and to measure
the Bank’s overall performance.
To
arrive at adjusted results, the Bank adjusts
for “items of note”, from reported
results. Items of note are items which management
does not believe are indicative of underlying
business performance and are disclosed
in Table 3. Non-GAAP
ratios include a non-GAAP financial measure
as one or more of its components. Examples
of non-GAAP ratios include adjusted basic
and diluted earnings per
share (EPS), adjusted dividend payout ratio, adjusted
efficiency ratio, and adjusted effective income tax rate.
The Bank believes that non-GAAP financial
measures and non-GAAP ratios provide
the reader with a better understanding of how
management views the Bank’s performance. Non-GAAP
financial measures
and non-GAAP ratios used in this document
are not defined terms under IFRS and,
therefore, may not be comparable to similar
terms used by other issuers.
Supplementary financial measures depict
the Bank’s financial performance and position,
and capital management measures depict
the Bank’s capital position, and
both are explained in this document where
they first appear.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 11
U.S. Strategic Cards
The Bank’s U.S. strategic cards portfolio is comprised
of 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 (PCL) related to
these portfolios in the Bank’s 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’s 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.
Investment in The Charles Schwab Corporation
and IDA Agreement
On August 21, 2024, the Bank sold 40.5
million shares of common stock of Schwab for
proceeds of approximately $3.4 billion (US$2.5
billion). The share sale
reduced the Bank’s ownership interest in Schwab
from 12.3% to 10.1%. The Bank recognized
approximately $1.0 billion (US$0.7 billion) as
other income (net of
$0.5 billion (US$0.4 billion) loss from AOCI
reclassified to earnings), in the fourth quarter
of fiscal 2024.
The Bank accounts for its investment in
Schwab using the equity method. The U.S.
Retail segment reflects the Bank’s share of
net income from its investment
in Schwab. The Corporate segment net income
(loss) includes amounts for amortization
of acquired intangibles, the acquisition
and integration charges related to
the Schwab transaction, and the Bank’s share of restructuring
and other charges incurred by Schwab.
The Bank’s share of Schwab’s earnings available to
common shareholders is reported with
a one-month lag. For further details,
refer to Note 12 of the 2024 Consolidated
Financial Statements.
On November 25, 2019, the Bank and Schwab
signed an insured deposit account agreement
(the “2019 Schwab IDA Agreement”), with an
initial expiration
date of July 1, 2031. Under the 2019 Schwab
IDA Agreement, starting July 1, 2021, Schwab
had the option to reduce the deposits by up
to US$10 billion per year
(subject to certain limitations and adjustments),
with a floor of US$50 billion. In addition, Schwab
requested some further operational flexibility
to allow for the
sweep deposit balances to fluctuate over
time, under certain conditions and subject to
certain limitations.
On May 4, 2023, the Bank and Schwab entered
into an amended insured deposit account
agreement (the “2023 Schwab IDA Agreement”
or the “Schwab IDA
Agreement”), which replaced the 2019 Schwab
IDA Agreement. Pursuant to the 2023 Schwab
IDA Agreement, the Bank continues to make
sweep deposit
accounts available to clients of Schwab. Schwab
designates a portion of the deposits
with the Bank as fixed-rate obligation amounts
(FROA). Remaining deposits
are designated as floating-rate obligations.
In comparison to the 2019 Schwab IDA Agreement,
the 2023 Schwab IDA Agreement extends
the initial expiration date
by three years to July 1, 2034 and provides
for lower deposit balances in its first
six years, followed by higher balances in
the later years. Specifically, until
September 2025, the aggregate FROA
will serve as the floor. Thereafter, the floor will be set at US$60 billion.
In addition, Schwab had the option to buy
down up
to $6.8 billion (US$5 billion) of FROA by paying
the Bank certain fees in accordance with the
2023 Schwab IDA Agreement, subject
to certain limits.
By the end of the first quarter of fiscal 2024,
Schwab had fully exercised its option
buy down up to US$5 billion of FROA and
had paid a total of $337 million
(US$250 million) in termination fees to the
Bank in accordance with the 2023 Schwab
IDA Agreement. The fees were intended
to compensate the Bank for losses
incurred from discontinuing certain hedging relationships
and for lost revenues. The net impact
was recorded in net interest income. Refer to
the “Related Party
Transactions” section in this document for further details.
The following table provides the operating results
on a reported basis for the Bank.
TABLE 2: OPERATING RESULTS – Reported
(millions of Canadian dollars)
2024
2023
Net interest income
$
30,472
$
29,944
Non-interest income
1
26,751
20,746
Total revenue
1
57,223
50,690
Provision for credit losses
4,253
2,933
Insurance service expenses
1
6,647
5,014
Non-interest expenses
1
35,493
29,855
Income before income taxes and share
of net income from investment in Schwab
1
10,830
12,888
Provision for (recovery of) income taxes
1
2,691
3,118
Share of net income from investment in Schwab
703
864
Net income – reported
1
8,842
10,634
Preferred dividends and distributions on other
equity instruments
526
563
Net income available to common shareholders
1
$
8,316
$
10,071
1
For the year ended October 31, 2023, certain amounts have been restated for the adoption of IFRS 17. Refer to
Note 4 of the Bank’s 2024 Consolidated Financial Statements for further
details.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 12
The following table provides a reconciliation between
the Bank’s adjusted and reported results.
For further details refer to the “Significant
Events” or “Financial
Results Overview” section.
TABLE 3: NON-GAAP FINANCIAL
MEASURES
– Reconciliation of Adjusted
to Reported Net Income
(millions of Canadian dollars)
2024
2023
Operating results – adjusted
Net interest income
1,2
$
30,749
$
30,394
Non-interest income
1,3,4
26,040
21,643
Total revenue
3
56,789
52,037
Provision for (recovery of) credit losses
4,253
2,933
Insurance service expenses
3
6,647
5,014
Non-interest expenses
3,5
29,148
26,517
Income before income taxes and share of net income from
investment in Schwab
16,741
17,573
Provision for (recovery of) income taxes
3,355
3,651
Share of net income from investment in Schwab
6
891
1,073
Net income – adjusted
3
14,277
14,995
Preferred dividends and distributions on other equity instruments
526
563
Net income available to common shareholders –
adjusted
3
13,751
14,432
Pre-tax adjustments for items of note
Amortization of acquired intangibles
7
(290)
(313)
Acquisition and integration charges related to the Schwab
transaction
5,6
(109)
(149)
Share of restructuring and other charges from investment
in Schwab
6
(49)
(35)
Restructuring charges
5
(566)
(363)
Acquisition and integration-related charges
5
(379)
(434)
Charges related to the terminated First Horizon (FHN)
acquisition
5
–
(344)
Payment related to the termination of the FHN transaction
5
–
(306)
Impact from the terminated FHN acquisition-related capital hedging
strategy
1
(242)
(1,251)
Impact of retroactive tax legislation on payment card clearing services
4
–
(57)
Gain on sale of Schwab shares
4
1,022
–
U.S. balance sheet restructuring
4
(311)
–
Indirect tax matters
2,5
(226)
–
Civil matter provision/Litigation settlement
4,5
(274)
(1,642)
FDIC special assessment
5
(442)
–
Global resolution of the investigations into the Bank’s U.S.
BSA/AML program
5
(4,233)
–
Less: Impact of income taxes
Amortization of acquired intangibles
(41)
(42)
Acquisition and integration charges related to the Schwab
transaction
(23)
(25)
Restructuring charges
(150)
(97)
Acquisition and integration-related charges
(82)
(89)
Charges related to the terminated FHN acquisition
–
(85)
Impact from the terminated FHN acquisition-related capital hedging
strategy
(60)
(308)
Impact of retroactive tax legislation on payment card clearing services
–
(16)
U.S. balance sheet restructuring
(77)
–
Indirect tax matters
(53)
–
Civil matter provision/Litigation settlement
(69)
(456)
FDIC special assessment
(109)
–
Canada Recovery Dividend (CRD) and federal tax rate increase
for fiscal 2022
8
–
585
Total adjustments for items of note
(5,435)
(4,361)
Net income available to common shareholders – reported
3
$
8,316
$
10,071
1
Prior to May 4, 2023, the impact shown covers periods before the termination of the FHN transaction
and includes
the following components, reported
in the Corporate segment: i) mark-
to-market gains (losses) on interest rate swaps recorded in non-interest income – 2023: ($1,386) million,
ii) basis adjustment amortization related to de-designated fair value hedge
accounting relationships, recorded in net interest income – 2023: $262 million, and iii) interest income (expense) recognized
on the interest rate swaps, reclassified from non-interest
income to net interest income with no impact to total adjusted net income – 2023: $585 million. After the termination
of the merger agreement, the residual impact of the strategy is
reversed through net interest income – 2024: ($242) million,
2023: ($127) million.
2
Adjusted net interest income excludes the following item of note:
i.
Indirect tax matters – 2024: $35 million, reported in the Corporate segment. Refer to “Taxes
”
in the “Financial Results Overview”
section for further details.
3
For the year ended October 31, 2023, certain amounts have been restated for the adoption of IFRS 17. Refer to
Note 4 of the Bank’s 2024 Consolidated Financial Statements for further
details.
4
Adjusted non-interest income excludes the following items of note:
i.
Impact of retroactive tax legislation on payment card clearing services – 2023: $57 million,
reported in the Corporate segment;
ii.
The Bank sold 40.5 million shares of common stock of Schwab and recognized a gain on the sale – 2024: $1,022
million, reported in the Corporate segment;
iii.
U.S. balance sheet restructuring – 2024: $311 million, reported in the
U.S. Retail segment; and
iv.
Stanford litigation settlement – 2023: $39 million. This reflects the foreign exchange loss and is reported in the Corporate
segment.
5
Adjusted non-interest expenses exclude the following items of note:
i.
Amortization of acquired intangibles – 2024: $172 million, 2023: $193 million, reported in the Corporate segment;
ii.
The Bank’s own acquisition and integration charges related to the Schwab transaction – 2024: $88
million, 2023: $95 million, reported in the Corporate segment;
iii.
Restructuring charges – 2024: $566 million, 2023: $363 million, reported in the Corporate segment;
iv.
Acquisition and integration-related charges – 2024: $379 million, 2023: $434 million, reported in the Wholesale
Banking segment;
v.
Charges related to the terminated FHN acquisition – 2023: $344 million, reported in the U.S. Retail segment;
vi.
Payment related to the termination of the FHN transaction – 2023: $306 million, reported in the Corporate segment;
vii.
Indirect tax matters – 2024: $191 million, reported in the Corporate segment.
Refer to “Taxes”
in the “Financial Results Overview”
section for further details;
viii.
Civil matter provision/Litigation settlement – 2024: $274 million in respect of a civil matter,
2023: $1,603 million in respect of the Stanford litigation settlement, reported in the
Corporate segment;
ix.
FDIC special assessment – 2024: $442 million,
reported in the U.S. Retail segment; and
x.
Charges for the global resolution of the investigations into the Bank’s U.S. BSA/AML program – 2024:
$4,233 million, reported in the U.S. Retail segment.
6
Adjusted Share of net income from investment in Schwab excludes the following items of note on an after-tax basis.
The earnings impact of these items is reported in the Corporate
segment:
i.
Amortization of Schwab-related acquired intangibles – 2024: $118
million, 2023: $120 million;
ii.
The Bank’s share of acquisition and integration charges associated with Schwab’s acquisition
of TD Ameritrade – 2024: $21 million,
2023: $54 million;
iii.
The Bank’s share of restructuring charges incurred by Schwab – 2024: $27 million, 2023: $35 million;
and
iv.
The Bank’s share of the FDIC special assessment charge incurred by Schwab – 2024:
$22 million.
7
Amortization of acquired intangibles relates to intangibles acquired as a result of asset acquisitions and business
combinations, including the after-tax amounts for amortization of
acquired intangibles relating to the Share of net income from investment in Schwab, reported in the Corporate segment.
Refer to footnotes 5 and 6 for amounts.
8
CRD and impact from increase in the Canadian federal tax rate for fiscal 2022 recognized in 2023, reported in the
Corporate segment.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 13
TABLE 4: RECONCILIATION OF REPORTED
TO ADJUSTED EARNINGS
PER SHARE
1
(Canadian dollars)
2024
2023
Basic earnings per share – reported
2
$
4.73
$
5.53
Adjustments for items of note
3.09
2.39
Basic earnings per share – adjusted
2
$
7.82
$
7.92
Diluted earnings per share – reported
2
$
4.72
$
5.52
Adjustments for items of note
3.09
2.39
Diluted earnings per share – adjusted
2
$
7.81
$
7.91
1
EPS is computed by dividing net income available to common shareholders by the weighted-average number of
shares outstanding during the period. Numbers may not add due to
rounding.
2
For the year ended October 31, 2023, certain amounts have been restated for the adoption of IFRS 17. Refer to
Note 4 of the Bank’s 2024 Consolidated Financial Statements for further
details.
TABLE 5: AMORTIZATION OF
INTANGIBLES, NET OF INCOME TAXES
(millions of Canadian dollars)
2024
2023
Schwab
1
$
118
$
120
Wholesale Banking related intangibles
108
117
Other
23
34
Included as items of note
249
271
Software and asset servicing rights
432
365
Amortization of intangibles, net of income
taxes
$
681
$
636
1
Included in Share of net income from investment in Schwab.
RETURN ON COMMON EQUITY
The consolidated Bank ROE is calculated
as reported net income available to common
shareholders as a percentage of average
common equity. The
consolidated Bank adjusted ROE is calculated
as adjusted net income available to
common shareholders as a percentage of average
common equity. Adjusted
ROE is a non-GAAP ratio and can be utilized
in assessing the Bank’s use of equity.
ROE for the business segments is calculated
as the segment net income available to
common shareholders as a percentage of
average allocated capital. The
Bank’s methodology for allocating capital
to its business segments is largely aligned
with the common equity capital requirements
under Basel III. Capital allocated
to the business segments increased to 11.5% of Common Equity
Tier 1 (CET1) Capital effective in the first quarter of 2024,
compared with 11% in fiscal 2023.
TABLE 6: RETURN ON COMMON EQUITY
(millions of Canadian dollars, except
as noted)
2024
2023
Average common equity
1
$
100,979
$
101,608
Net income available to common shareholders
– reported
1
8,316
10,071
Items of note, net of income taxes
5,435
4,361
Net income available to common shareholders
– adjusted
1
$
13,751
$
14,432
Return on common equity – reported
1
8.2
%
9.9
%
Return on common equity – adjusted
1
13.6
14.2
1
For the year ended October 31, 2023, certain amounts have been restated for the adoption of IFRS 17. Refer to
Note 4 of the Bank’s 2024 Consolidated Financial Statements for further
details.
RETURN ON TANGIBLE COMMON EQUITY
Tangible common equity (TCE) is calculated as common shareholders’ equity
less goodwill, imputed goodwill and intangibles
on the investments in Schwab and
other acquired intangible assets, net of related
deferred tax liabilities. 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 all
items of note, as a percentage of average
TCE. TCE, ROTCE, and
adjusted ROTCE can be utilized in assessing
the Bank’s use of equity. TCE is a non-GAAP financial measure,
and ROTCE and adjusted ROTCE are
non-GAAP
ratios.
TABLE 7: RETURN ON TANGIBLE COMMON
EQUITY
(millions of Canadian dollars, except
as noted)
2024
2023
Average common equity
1
$
100,979
$
101,608
Average goodwill
18,431
17,919
Average imputed goodwill and intangibles
on investments in Schwab
5,836
6,127
Average other acquired intangibles
2
560
584
Average related deferred tax liabilities
(230)
(154)
Average tangible common equity
1
76,382
77,132
Net income available to common shareholders
– reported
1
8,316
10,071
Amortization of acquired intangibles, net of income
taxes
249
271
Net income available to common shareholders
adjusted for
amortization of acquired intangibles, net
of income taxes
1
8,565
10,342
Other items of note, net of income taxes
5,186
4,090
Net income available to common shareholders
– adjusted
1
$
13,751
$
14,432
Return on tangible common equity
1
11.2
%
13.4
%
Return on tangible common equity – adjusted
1
18.0
18.7
1
For the year ended October 31, 2023, certain amounts have been restated for the adoption of IFRS 17. Refer to
Note 4 of the Bank’s 2024 Consolidated Financial Statements for further
details.
2
Excludes intangibles relating to software and asset servicing rights.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 14
0%
10%
20%
30%
40%
50%
60%
70%
NET INCOME – REPORTED
4
BY BUSINESS SEGMENT
(as a percentage of total net income)
2023
2024
U.S. Retail
Wholesale
Banking
Canadian Personal
and Commercial
Banking
Wealth
Management
and Insurance
0%
10%
20%
30%
40%
50%
NET INCOME – ADJUSTED
4,5
BY BUSINESS SEGMENT
(as a percentage of total net income)
2023
2024
Canadian Personal
and Commercial
Banking
U.S. Retail
Wholesale
Banking
Wealth
Management
and Insurance
IMPACT OF FOREIGN EXCHANGE RATE ON U.S. RETAIL SEGMENT TRANSLATED EARNINGS
The following table reflects the estimated impact
of foreign currency translation on key
U.S. Retail segment income statement items.
The impact is calculated as
the difference in translated earnings using the average
U.S. to Canadian dollars exchange rates in the
periods noted.
TABLE 8: IMPACT OF FOREIGN EXCHANGE
RATE ON U.S. RETAIL SEGMENT
TRANSLATED EARNINGS
(millions of Canadian dollars, except as
noted)
2024 vs. 2023
2023 vs. 2022
Increase (Decrease)
Increase (Decrease)
U.S. Retail Bank
Total revenue – reported
$
126
$
650
Total revenue – adjusted
1
128
650
Non-interest expenses – reported
166
365
Non-interest expenses – adjusted
1
70
346
Net income – reported, after-tax
(57)
214
Net income – adjusted, after-tax
1
39
228
Share of net income from investment in
Schwab
2
6
51
U.S. Retail segment net income – reported,
after-tax
(51)
265
U.S. Retail segment net income – adjusted, after-tax
1
45
279
Earnings per share
(Canadian dollars)
Basic – reported
$
(0.03)
$
0.15
Basic – adjusted
1
0.02
0.15
Diluted – reported
(0.03)
0.15
Diluted – adjusted
1
0.02
0.15
1
For additional information about the Bank’s use of non-GAAP financial measures, refer to “Non-GAAP
and Other Financial Measures” in the “Financial Results Overview” section of this
document.
2
Share of net income from investment in Schwab and TD Ameritrade and the foreign exchange impact
are reported with a one-month lag.
Average foreign exchange rate (equivalent
of CAD $1.00)
2024
2023
U.S. dollar
0.735
0.741
FINANCIAL RESULTS OVERVIEW
Net Income
45
Reported net income for the year was $8,842
million, a decrease of $1,792 million, or 17%,
compared with last year. The decrease primarily reflects
the impact of
the charges for the global resolution of the investigations
into the Bank’s U.S. BSA/AML program
in U.S. Retail,
higher non-interest expenses, including
investments in risk and control infrastructure,
higher insurance service expenses and
higher PCL, partially offset by higher revenues,
the prior year impact in the
Corporate segment of the Stanford litigation
settlement,
the lower current period impact of the terminated
FHN acquisition-related capital hedging strategy,
and the
current year gain on sale of Schwab shares in
the Corporate segment.
On an adjusted basis, net income for the year
was $14,277 million, a decrease of
$718 million, or 5%, compared with last
year. The reported ROE for the year was 8.2%, compared
with 9.9% last year. The adjusted ROE for the year was
13.6%,
compared with 14.2% last year.
4
Amounts exclude Corporate segment.
5
For additional information about the Bank’s use of non-GAAP financial measures, refer to “Non-GAAP
and Other Financial Measures” in the “Financial Results Overview” section of this
document.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 15
$0
$4,000
$8,000
$12,000
$16,000
$20,000
$24,000
$28,000
$32,000
2023
2024
NET INTEREST INCOME
6
(millions of Canadian dollars)
Reported
Adjusted
By segment, the decrease in reported net income
reflects decreases in U.S. Retail of $5,489
million and in Wealth Management and Insurance
of $46 million,
partially offset by increases in the Corporate segment
of $2,864 million, in Canadian Personal
and Commercial Banking of $531 million,
and in Wholesale Banking
of $348 million.
Reported diluted EPS for the year was $4.72,
a decrease of 14%, compared with $5.52
last year. Adjusted diluted EPS for the year was $7.81,
a decrease of
1%, compared with $7.91 last year.
FINANCIAL RESULTS OVERVIEW
Revenue
6
Reported revenue was $57,223 million, an
increase of $6,533 million, or 13%, compared
with last year. Adjusted
revenue was $56,789 million, an increase of $4,752
million, or 9%, compared with last year.
NET INTEREST INCOME
Reported net interest income for the year
was $30,472 million, an increase of $528
million, or 2%, compared
with last year. The increase primarily reflects volume growth
and higher deposit margins in Canadian Personal
and Commercial Banking, partially offset by lower
net interest income in Wholesale Banking.
Adjusted net
interest income was $30,749 million, an increase
of $355 million, or 1%.
By segment, the increase in reported net interest
income reflects increases in Canadian
Personal and
Commercial Banking of $1,505 million,
in the Corporate segment of $246 million,
and in Wealth Management
and Insurance of $162 million, partially offset by decreases
in Wholesale Banking of $956 million
and in U.S.
Retail of $429 million.
NET INTEREST MARGIN
Net interest margin is calculated by dividing
net interest income by average interest-earning
assets. This metric
is an indicator of the profitability of the Bank’s earning
assets less the cost of funding. Net interest
margin
decreased by 2 basis points (bps) during the
year to 1.72%, compared with 1.74% last
year, primarily due to the
impact of maintaining elevated liquidity levels.
Average interest earning assets used in the calculation
is a non-
GAAP financial measure and net interest
margin is a non-GAAP ratio. They are not defined
terms under IFRS
and, therefore, may not be comparable to similar
terms used by other issuers.
NON-INTEREST INCOME
Reported non-interest income for the year
was $26,751 million, an increase of $6,005
million, or 29%, compared with last year, primarily reflecting
higher lending
revenue, trading-related revenue, underwriting
fees, and equity commissions in
Wholesale Banking, the prior period impact
of the terminated FHN acquisition-
related capital hedging strategy and the current
year gain on sale of Schwab shares in the
Corporate segment, higher insurance premiums,
the impact of
reinsurance recoveries for catastrophe
claims, and higher fee-based and transaction
revenue in Wealth Management and Insurance.
Adjusted non-interest income
was $26,040 million, an increase of $4,397
million, or 20%.
By segment, the increase in reported non-interest
income reflects increases in Wholesale
Banking of $2,424 million, in the Corporate
segment of $2,018 million,
and in Wealth Management and Insurance of $1,743
million, partially offset by decreases in U.S.
Retail of $148 million and in Canadian Personal
and Commercial
Banking of $32 million.
TABLE 9: NON-INTEREST INCOME
(millions of Canadian dollars, except
as noted)
2024 vs. 2023
2024
2023
% change
Investment and securities services
Broker dealer fees and commissions
$
1,522
$
1,263
21
Full-service brokerage and other securities
services
1,668
1,518
10
Underwriting and advisory
1,436
997
44
Investment management fees
669
636
5
Mutual fund management
1,994
1,897
5
Trust fees
111
109
2
Total investment and securities services
7,400
6,420
15
Credit fees
1,898
1,796
6
Trading income (losses)
3,628
2,417
50
Service charges
1
2,626
2,514
4
Card services
2,947
2,932
1
Insurance revenue
1
6,952
6,311
10
Other income (loss)
1
1,300
(1,644)
179
Total
1
$
26,751
$
20,746
29
1
For the year ended October 31, 2023, certain amounts have been restated for the adoption of IFRS 17. Refer to
Note 4 of the Bank’s 2024 Consolidated Financial Statements for further
details.
6
For additional information about the Bank’s use of non-GAAP financial measures, refer to “Non-GAAP and Other Financial Measures” in the “Financial Results Overview” section of this document.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 16
$0
$1,000
$2,000
$3,000
$4,000
$5,000
PROVISION FOR CREDIT LOSSES
(millions of Canadian dollars)
2023
2024
TRADING-RELATED REVENUE
Trading-related revenue is the total of trading income (loss),
net interest income on trading positions, and
income (loss) from financial instruments
designated at
fair value through profit or loss (FVTPL)
that are managed within a trading portfolio.
Trading income (loss) includes realized and unrealized
gains and losses on
trading assets and liabilities. Net interest income
on trading positions arises from interest and
dividends related to trading assets and liabilities
and is reported net
of interest expense associated with funding
these assets and liabilities in the following
table. Trading-related revenue excludes underwriting
fees and commissions
on securities transactions. Trading-related revenue is
a non-GAAP financial measure, which is not
a defined term under IFRS and, therefore,
may not be
comparable to similar terms used by
other issuers. Management believes that
the trading-related revenue is an appropriate
measure of trading performance.
Trading-related revenue by product line depicts trading
income for each major trading category.
TABLE 10: TRADING-RELATED REVENUE
(millions of Canadian dollars)
For the years ended October 31
2024
2023
Trading income (loss)
$
3,628
$
2,417
Net interest income (loss)
1
(732)
435
Other
2
(193)
(672)
Total
$
2,703
$
2,180
Trading-related TEB adjustment
79
180
Total trading-related revenue (TEB)
$
2,782
$
2,360
By product
Interest rate and credit
$
1,147
$
821
Foreign exchange
905
860
Equity and other
730
679
Total trading-related revenue (TEB)
$
2,782
$
2,360
1
Excludes taxable equivalent basis (TEB).
2
Includes income (loss) from securities designated at FVTPL that are managed within a trading portfolio of $(208)
million (2023
– $(548) million) reported in Other Income (Loss) on the
2024 Consolidated Financial Statements and other adjustments.
FINANCIAL RESULTS OVERVIEW
Provision for Credit
Losses
PCL for the year was $4,253 million,
an increase of $1,320 million compared
with last year. PCL –
impaired was $3,877 million, an increase of
$1,391 million, reflecting credit migration in
the non-retail and
consumer lending portfolios.
PCL – performing was $376 million, a decrease
of $71 million. The current
year performing provisions largely reflect
current credit conditions including credit
migration, and volume
growth. Total PCL as an annualized percentage of credit volume was 0.46%.
By segment, PCL was higher in U.S. Retail
by $604
million, in Canadian Personal and Commercial
Banking by $412 million, in Wholesale Banking
by $191 million, in the Corporate segment
by $114 million,
and lower in Wealth Management and Insurance by
$1 million.
While results may vary by quarter, and are subject to changes
to economic conditions, the Bank’s fiscal
2025 PCLs are expected to be in the range
of 45 to 55 basis points
7
.
7
The Bank’s estimated PCL range is based on forward-looking assumptions that have inherent risks and
uncertainties. Results may vary depending on actual economic or credit
conditions and performance, such as the level of unemployment, interest rates, economic growth or contraction, and
borrower or industry specific credit factors and conditions. The Bank’s
PCL estimate is subject to risks and uncertainties including those set out in the “Risk Factors That May Affect
Future Results” section of this document.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 17
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
2023
2024
NON-INTEREST EXPENSES
8
(millions of Canadian dollars)
Reported
Adjusted
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
60%
65%
2023
2024
EFFICIENCY RATIO
8
(percent)
Reported
Adjusted, net of ISE
FINANCIAL RESULTS OVERVIEW
Expenses
8
NON-INTEREST EXPENSES
Reported non-interest expenses for the year
were
$35,493 million, an increase of $5,638 million, or
19%,
compared with last year, primarily reflecting the impact of
the charges for the global resolution of the investigations
into
the Bank’s U.S. BSA/AML program in
U.S. Retail, investments
in risk and control infrastructure, higher employee-related
expenses, including TD Cowen, the FDIC
special assessment
in U.S. Retail, and higher technology spend
supporting
business growth, partially offset by the prior year
impacts of the
Stanford litigation settlement and the payment
related to
termination of the First Horizon transaction
in the Corporate
segment. On an adjusted basis, non-interest
expenses were
$29,148 million, an increase of $2,631 million, or
10%. Due to
higher than estimated legal and regulatory expenses,
all of
which arose in the fourth quarter, the Bank did not meet its
previously-disclosed expectation that
its adjusted non-interest
expense growth for fiscal 2024 would be in
the high single
digits.
By segment, the increase in reported non-interest
expenses
reflects increases in U.S. Retail of $4,536
million, in Wholesale
Banking of $816 million, in Wealth Management and
Insurance
of $377 million, and in Canadian Personal and
Commercial
Banking of $310 million, partially offset by a decrease
in the
Corporate segment of $401 million.
INSURANCE SERVICE EXPENSES (ISE)
Insurance service expenses for the year
were $6,647 million. This represents an increase
of $1,633 million, or 33%, compared with
last year, of which
$916 million, or 18%, was driven by estimated
losses from catastrophe claims. The remaining
increase reflects less favourable prior
years’ claims development
and increased claims severity.
EFFICIENCY RATIO
The efficiency ratio measures operating efficiency
and is calculated by dividing non-interest expenses
by total revenue. A lower ratio indicates a
more efficient
business operation. Adjusted efficiency ratio is
calculated in the same manner using
adjusted non-interest expenses and
total revenue.
The reported efficiency ratio was 62.0%, compared
with 58.9% last year. The adjusted efficiency ratio, net of
ISE, was 58.1%, compared with 56.4% last
year.
TABLE 11: NON-INTEREST EXPENSES
AND EFFICIENCY RATIO
1
(millions of Canadian dollars, except
as noted)
2024 vs. 2023
2024
2023
% change
Salaries and employee benefits
Salaries
$
9,920
$
9,559
4
Incentive compensation
4,481
4,065
10
Pension and other employee benefits
2,332
2,129
10
Total salaries and employee benefits
16,733
15,753
6
Occupancy
Depreciation and impairment losses
1,048
987
6
Rent and maintenance
910
812
12
Total occupancy
1,958
1,799
9
Technology and equipment
Equipment, data processing and licenses
2,379
2,056
16
Depreciation and impairment losses
277
252
10
Total technology and equipment
2,656
2,308
15
Amortization of other intangibles
702
672
4
Communication and marketing
1,516
1,452
4
Restructuring charges
566
363
56
Brokerage-related and sub-advisory fees
498
456
9
Professional, advisory and outside services
1
3,064
2,493
23
Other expenses
1
7,800
4,559
71
Total expenses
1
$
35,493
$
29,855
19
Efficiency ratio – reported
1
62.0
%
58.9
%
310
bps
Efficiency ratio – adjusted, net of ISE
2
58.1
56.4
170
1
For the year ended October 31, 2023, certain amounts have been restated for the adoption of IFRS 17. Refer to
Note 4 of the Bank’s 2024 Consolidated Financial Statements for further
details.
2
For additional information about the Bank’s use of non-GAAP financial measures, refer to “Non-GAAP
and Other Financial Measures” in the “Financial Results Overview” section of this
document.
8
For additional information about the Bank’s use of non-GAAP financial measures, refer to “Non-GAAP
and Other Financial Measures” in the “Financial Results Overview”
section of this
document.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 18
FINANCIAL RESULTS OVERVIEW
Taxes
Reported total income and other taxes decreased
by $42 million, or 0.8%, compared with
last year, reflecting a decrease in income
tax expense of $427 million, or
13.7%, partially offset by an increase in other
taxes of $385 million, or 19%.
Adjusted total income and other taxes
decreased by $102 million from last year, or
1.8%, reflecting a decrease in income tax expense
of $296 million, or 8.1%, and an increase
in other taxes of $194 million, or 9.6%.
The Bank’s reported effective income tax rate was
24.8% for 2024, compared with 24.2%
last
year. The year-over-year increase primarily
reflects the tax impact
of the non-deductible charges for the global
resolution of the investigations into the Bank’s
U.S. BSA/AML program and
lower tax-exempt dividend income, partially
offset by the favourable tax impact associated
with the gain on sale of Schwab shares, while
the prior year tax rate was significantly impacted
by adjustments
associated with the implementation of the
Canada Recovery Dividend and the Canadian
federal tax rate increase as well as the terminated
First Horizon
transaction. For a reconciliation of the Bank’s
effective income tax rate with the Canadian
statutory income tax rate, refer to Note 24
of the 2024 Consolidated
Financial Statements.
The Bank reported its investment in Schwab
using the equity method of accounting. Schwab’s
tax expense (2024:
$215 million; 2023: $279 million) was not
part
of the Bank’s effective tax rate.
To allow for an after-tax calculation of
adjusted income, the adjusted provision
for income taxes is calculated by adjusting
the taxes for each item of note using
the applicable income tax rate of the relevant legal
entity. The adjusted effective income
tax rate is calculated as the adjusted
provision for income taxes before
other taxes as a percentage of adjusted net
income before taxes. The Bank’s
adjusted effective income tax rate for 2024
was 20.0%, compared with 20.8% last
year. The year-over-year decrease primarily reflects
favourable earnings mix, partially offset by lower
tax-exempt dividend income.
Adjusted results are not defined
terms under IFRS and, therefore, may not
be comparable to similar terms used
by other issuers.
TABLE 12: INCOME AND OTHER
TAXES – Reconciliation of Reported to
Adjusted Provision for Income and
Other Taxes
(millions of Canadian dollars, except
as noted)
2024
2023
Provision for income taxes – reported
1
$
2,691
$
3,118
Total adjustments for items of note
664
533
Provision for income taxes – adjusted
1
3,355
3,651
Other taxes
Payroll
909
853
Capital and premium
231
222
GST, HST, and provincial sales
2
1,002
719
Municipal and business
273
236
Total other taxes – reported
2,415
2,030
Total adjustments for items of note related
to indirect tax matters
(191)
–
Total other taxes – adjusted
2,224
2,030
Total taxes – adjusted
1
$
5,579
$
5,681
Effective income tax rate – reported
24.8
%
24.2
%
Effective income tax rate – adjusted
20.0
20.8
1
For the year ended October 31, 2023, certain amounts have been restated for the adoption of IFRS 17. Refer to
Note 4 of the Bank’s 2024 Consolidated Financial Statements for further
details.
2
Goods and services tax (GST) and Harmonized sales tax (HST).
Canadian Tax Measures
Bill C-59 was substantively enacted on May
28, 2024 and received royal assent on
June 20, 2024. The legislation advances
certain tax measures originally
introduced in the Canadian Federal budget
presented on March 28, 2023. In particular, Bill C-59 denies
the dividend received deduction in respect of
dividends
received by certain financial institutions on
shares that are mark-to-market property, subject to a minor
carve out for dividends on certain preferred
shares, as well
as imposes a 2% tax on the net value of
share repurchases by public corporations
in Canada. These measures are effective and have
been implemented by the
Bank as of January 1, 2024.
International Tax Reform – Pillar Two Global Minimum Tax
On December 20, 2021, the Organisation
for Economic Co-operation and Development
(OECD)
published Pillar Two model rules as part of its efforts toward
international tax reform. The Pillar Two model rules provide
for the implementation of a 15% global
minimum tax for large multinational enterprises,
which is to be
applied on a jurisdiction-by-jurisdiction
basis. Pillar Two legislation was enacted in Canada on
June 20, 2024 under Bill C-69, which includes
the
Global Minimum
Tax Act
addressing the Pillar Two model rules. The rules are
effective for the Bank for the fiscal year beginning
on November 1, 2024.
The
Global Minimum Tax
Act
may result in a tax on future dispositions
of shares in Charles Schwab, depending
on the accounting gain at that time and
its impact on effective tax rates. The
tax could be up to 15% of the accounting gain
and would be payable in Canada. Also,
similar legislation has passed in other jurisdictions
in which the Bank
operates and will result in additional taxes being
paid in those countries. The Bank estimates
that its effective tax rate will increase by 0.25%-0.50%
as a result of
these additional annual taxes, with the bulk
of the additional taxes arising in Ireland
due to its statutory corporate tax rate of 12.5%.
Indirect Tax Matters
On September 26, 2024, the Tax Court of Canada released its decision in
the case of
Royal Bank of Canada v. His Majesty the King
, 2024 TCC 125, a case on
the ability to claim input tax credits on
certain inputs to the credit card business.
The outcome of this case has caused the
Bank to revisit its historical input tax
credit claims.
The Bank also reviewed aspects of its
methodology for claiming input tax credits on
certain areas that have been challenged by
the Canada
Revenue Agency (CRA) and it has established
a provision of $226 million (inclusive of interest)
related to indirect tax matters.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 19
FINANCIAL RESULTS OVERVIEW
Quarterly Financial Information
FOURTH QUARTER 2024 PERFORMANCE
SUMMARY
Reported net income for the quarter was $3,635
million, an increase of $769 million, or 27%,
compared with the fourth quarter last
year, primarily reflecting higher
revenues and the current year gain on sale of
Schwab shares in the Corporate Segment,
partially offset by higher insurance service expenses
and higher non-
interest expenses, including investments
in risk and control infrastructure.
On an adjusted basis, net income for
the quarter was $3,205 million, a decrease
of
$280 million, or 8%. Reported diluted EPS
for the quarter was $1.97, an increase
of 33%, compared with $1.48 in the fourth
quarter of last year. Adjusted diluted
EPS for the quarter was $1.72, a decrease of
5%, compared with $1.82 in the fourth
quarter of last year.
Reported revenue for the quarter was $15,514
million, an increase of $2,336 million, or 18%,
compared with the fourth quarter last
year, of which $718 million,
or 5%, was driven by reinsurance recoveries
for catastrophe claims. Adjusted revenue
for the quarter was $14,897 million, an increase
of $1,655 million, or 12%,
compared with the fourth quarter last year.
Reported net interest income for the quarter
was $7,940 million, an increase of $446
million, or 6%, compared with the fourth quarter
last year, primarily
reflecting volume growth in Canadian Personal
and Commercial Banking, and higher
deposit margins
in the personal and commercial banking
businesses and
Wealth Management and Insurance. Adjusted net
interest income for the quarter was $8,034
million, an increase of $476 million, or
6%.
By segment, the increase
in reported net interest income reflects increases
in Canadian Personal and Commercial
Banking of $353 million, in the Corporate
segment of $88 million, and in
Wealth Management and Insurance of $56 million,
partially offset by decreases in U.S. Retail
of $27 million and in Wholesale Banking
of $24 million.
Reported non-interest income for the quarter
was $7,574 million, an increase of $1,890
million, or 33%, compared with the fourth quarter
last year, of which
$718 million, or 13%, was driven by reinsurance
recoveries for catastrophe claims.
The remaining increase was primarily driven
by the current quarter’s gain on
sale of Schwab shares in the Corporate Segment,
higher lending revenue, underwriting
fees and trading-related revenue in
Wholesale Banking, and higher fee-
based revenue, transaction revenue, and higher
insurance premiums in Wealth Management
and Insurance, partially offset by the impact
of U.S. balance sheet
restructuring in U.S. Retail. Adjusted non-interest
income was $6,863 million, an increase
of $1,179 million, or 21%. By segment, the increase
in reported non-
interest income reflects increases in the
Corporate segment of $986 million, in Wealth
Management and Insurance of $925 million,
and in Wholesale Banking of
$307 million, partially offset by decreases in U.S.
Retail of $285 million and in Canadian Personal
and Commercial Banking of $43 million.
PCL for the quarter was $1,109 million, an increase
of $231 million compared with the fourth
quarter last year. PCL – impaired was $1,153 million,
an increase
of $434 million,
or 60%, reflecting credit migration in
the non-retail and consumer lending portfolios.
PCL – performing was a recovery of
$44 million, compared
with a build of $159 million in the fourth quarter last
year. The performing release this quarter largely reflects improvement
in the economic outlook, including
the
impact of lower interest rates, and was recorded
in the Canadian Personal and Commercial
Banking and U.S. Retail segments. Total PCL for the quarter as an
annualized percentage of credit volume
was 0.47%.
By segment, PCL was higher by $100
million in U.S. Retail,
by $77 million in Wholesale Banking,
by $40 million in Canadian Personal &
Commercial Banking,
and by $14 million in the Corporate segment.
Insurance service expenses for the quarter
were $2,364 million. This represents
an increase of $1,018 million, or 76%,
compared with the fourth quarter last
year, of which $893 million, or 66%, was driven
by estimated losses from catastrophe
claims. The remaining increase reflects
less favourable prior years’
claims
development and increased claims severity.
Reported non-interest expenses for the quarter
were $8,050 million, an increase of $422 million,
or 6%, compared with the fourth quarter
last year, primarily
reflecting investments in risk and control infrastructure,
the provision for indirect tax matters in
the Corporate Segment, and higher technology
and marketing
spend supporting business growth, partially
offset by the prior year’s restructuring
charges in the Corporate Segment. Adjusted
non-interest expenses for the
quarter were $7,731 million, an increase of
$743 million, or 11%, compared with the fourth quarter last
year, primarily driven by investments in risk and control
infrastructure, investments supporting business
growth,
including technology and occupancy
costs, and other operating expenses. By
segment, the increase in
reported non-interest expenses reflects increases
in the Corporate segment of $249 million,
in Wealth Management and Insurance of $150
million, in U.S. Retail of
$65 million, and in Canadian Personal and
Commercial Banking of $63 million, partially
offset by a decrease in Wholesale Banking of
$105 million.
The Bank’s reported effective tax rate was 13.4% for
the quarter, compared with 18.5% in the same quarter last
year. The year-over-year decrease primarily
reflects the non-taxable gain on sale of Schwab
shares, partially offset by lower tax-exempt dividend
income, the tax impact of the non-deductible
charges for the
global resolution of the investigations into
the Bank’s U.S. BSA/AML program and
the impact of higher reported pre-tax income.
The Bank’s adjusted effective tax rate was 18.8% for the quarter, compared
with 19.3% in the same quarter last year. The year-over-year decrease
primarily
reflects the impact of lower adjusted
pre-tax income,
partially offset by lower tax-exempt dividend income.
QUARTERLY TREND ANALYSIS
Subject to the impact of seasonal trends and
items of note, the Bank’s reported earnings
were down 17% in 2024, compared with last
year, reflecting a challenging
macroeconomic environment and the impact
of the charges for the global resolution of
the investigations into the Bank’s U.S. BSA/AML
program. As the year
progressed, the Bank benefited from higher
market-related revenues in the Wholesale
Banking and Wealth Management and Insurance
segments, and volume
growth and higher deposit margins
i
n Canadian Personal and Commercial Banking,
reflecting a declining rate environment.
Including the impact of recoveries from
reinsurance coverage, insurance service
expenses were higher, reflecting less favourable prior years’
claims development, more severe weather-related
events,
and increased claims severity. Credit conditions continued to normalize
throughout the year which resulted in higher
PCLs. Expenses were higher, reflecting
investments in risk and control infrastructure
and employee-related expenses including variable
compensation. The Bank’s quarterly earnings
were impacted by,
among other things, seasonality, the number of days in a quarter, the economic environment
in Canada and the U.S., and foreign currency
translation.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 20
TABLE 13: QUARTERLY RESULTS
(millions of Canadian dollars, except as noted)
For the three months ended
2024
2023
Oct. 31
Jul. 31
Apr. 30
Jan. 31
Oct. 31
Jul. 31
Apr. 30
Jan. 31
Net interest income
$
7,940
$
7,579
$
7,465
$
7,488
$
7,494
$
7,289
$
7,428
$
7,733
Non-interest income
1
7,574
6,597
6,354
6,226
5,684
5,625
4,969
4,468
Total revenue
1
15,514
14,176
13,819
13,714
13,178
12,914
12,397
12,201
Provision for (recovery of) credit losses
1,109
1,072
1,071
1,001
878
766
599
690
Insurance service expenses
1
2,364
1,669
1,248
1,366
1,346
1,386
1,118
1,164
Non-interest expenses
1
8,050
11,012
8,401
8,030
7,628
7,359
6,756
8,112
Provision for (recovery of) income taxes
1
534
794
729
634
616
704
859
939
Share of net income from investment in Schwab
178
190
194
141
156
182
241
285
Net income (loss) – reported
1
3,635
(181)
2,564
2,824
2,866
2,881
3,306
1,581
Pre-tax adjustments for items of note
2
Amortization of acquired intangibles
60
64
72
94
92
88
79
54
Acquisition and integration charges related to the
Schwab transaction
35
21
21
32
31
54
30
34
Share of restructuring and other charges from
investment in Schwab
–
–
–
49
35
–
–
–
Restructuring charges
–
110
165
291
363
–
–
–
Acquisition and integration-related charges
82
78
102
117
197
143
73
21
Charges related to the terminated FHN acquisition
–
–
–
–
–
84
154
106
Payment related to the termination of the
FHN transaction
–
–
–
–
–
306
–
–
Impact from the terminated FHN acquisition-related
capital hedging strategy
59
62
64
57
64
177
134
876
Impact of retroactive tax legislation on payment card
clearing services
–
–
–
–
–
57
–
–
Gain on sale of Schwab shares
(1,022)
–
–
–
–
–
–
–
U.S. balance sheet restructuring
311
–
–
–
–
–
–
–
Indirect tax matters
226
–
–
–
–
–
–
–
Civil matter provision/Litigation settlement
–
–
274
–
–
–
39
1,603
FDIC special assessment
(72)
–
103
411
–
–
–
–
Global resolution of the investigations into the
Bank’s U.S. BSA/AML program
52
3,566
615
–
–
–
–
–
Total pre-tax adjustments for items of note
(269)
3,901
1,416
1,051
782
909
509
2,694
Less: Impact of income taxes
2,3
161
74
191
238
163
141
108
121
Net income – adjusted
1,2
3,205
3,646
3,789
3,637
3,485
3,649
3,707
4,154
Preferred dividends and distributions on other
equity instruments
193
69
190
74
196
74
210
83
Net income available to common
shareholders – adjusted
1,2
$
3,012
$
3,577
$
3,599
$
3,563
$
3,289
$
3,575
$
3,497
$
4,071
(Canadian dollars, except as noted)
Basic earnings (loss) per share
1
Reported
$
1.97
$
(0.14)
$
1.35
$
1.55
$
1.48
$
1.53
$
1.69
$
0.82
Adjusted
2
1.72
2.05
2.04
2.01
1.82
1.95
1.91
2.24
Diluted earnings (loss) per share
1
Reported
1.97
(0.14)
1.35
1.55
1.48
1.53
1.69
0.82
Adjusted
2
1.72
2.05
2.04
2.00
1.82
1.95
1.91
2.23
Return on common equity – reported
1
13.4
%
(1.0)
%
9.5
%
10.9
%
10.5
%
10.8
%
12.4
%
5.9
%
Return on common equity – adjusted
1,2
11.7
14.1
14.5
14.1
12.9
13.8
14.0
16.1
(billions of Canadian dollars, except as noted)
Average total assets
1
$
2,035
$
1,968
$
1,938
$
1,934
$
1,910
$
1,898
$
1,944
$
1,931
Average interest-earning assets
4
1,835
1,778
1,754
1,729
1,715
1,716
1,728
1,715
Net interest margin – reported
1.72
%
1.70
%
1.73
%
1.72
%
1.73
%
1.69
%
1.76
%
1.79
%
Net interest margin – adjusted
2
1.74
1.71
1.75
1.74
1.75
1.70
1.81
1.82
1
For the year ended October 31, 2023, certain amounts have been restated for the adoption of IFRS 17. Refer to
Note 4 of the Bank’s 2024 Consolidated Financial Statements for further
details.
2
For explanations of items of note, refer to the “Non-GAAP Financial Measures – Reconciliation of Adjusted to Reported
Net Income”
table in the “Financial Results Overview” section of
this document.
3
Includes the CRD and impact from increase in the Canadian federal tax rate for fiscal 2022.
4
Average interest-earning assets is a non-GAAP financial measure. Refer to “Non-GAAP and Other Financial
Measures” in the “Financial Results Overview” section and the Glossary of
this document for additional information about this metric.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 21
BUSINESS SEGMENT ANALYSIS
Business Focus
For management reporting purposes, the Bank’s operations
and activities are organized around the following
four key business segments: Canadian Personal
and
Commercial Banking, U.S. Retail, Wealth Management
and Insurance, and Wholesale Banking.
The Bank’s other activities are grouped into the
Corporate
segment.
Canadian Personal and Commercial Banking
serves over 15 million customers in
Canadian personal and business banking.
Personal Banking delivers ease,
value, and trusted advice to customers through
a comprehensive suite of deposit, savings,
payment and lending products and services,
supported by a network of
1,060 branches, 3,400
automated teller machines (ATM), mobile specialized salesforce,
and telephone, mobile and internet banking
services. Business Banking is
a premier, customer-centric franchise that delivers deep
sector expertise, valuable advice, and
a broad range of customized products and
services to meet the
needs of business owners,
leveraging its network of commercial branches
and specialized customer centers across
Canada.
U.S. Retail
includes the Bank’s personal, business banking
and wealth management operations in
the U.S., as well as the Bank’s investment in
Schwab.
Operating under the TD Bank, America’s Most
Convenient Bank
®
brand, the U.S. Retail Bank serves over
10 million customers in stores from
Maine to Florida,
and via auto dealerships and credit card
partner business locations nationwide. Personal
Banking provides a full range of financial
products and services to
customers from Maine to the Carolinas and
Florida through a network of 1,132 stores,
2,561 ATMs, telephone, and mobile and internet banking services.
Business
banking offers a diversified range of products and
services to help businesses meet their financing,
investment, cash management, international
trade, and day-to-
day banking needs. Wealth management provides
wealth products and services to retail and
institutional clients. The contribution from
the Bank’s investment in
Schwab is reported as equity in net income
of an investment in Schwab.
Wealth Management and Insurance
serves approximately 6 million customers across
the wealth and insurance businesses
in Canada. Wealth Management
offers wealth solutions to retail clients in Canada
through the direct investing, advice-based,
and asset management businesses. Wealth
Management also offers
asset management products to institutional
clients in Canada and globally. Insurance offers property and casualty
insurance through direct channels and
to
members of affinity groups, as well as life and
health insurance products to customers across
Canada.
Wholesale Banking
serves over 17,000 corporate, government,
and institutional clients in key financial
markets around the world. Operating under
the TD
Securities brand, Wholesale Banking offers
capital markets and corporate and investment banking
services to external clients and provides market
access and
wholesale banking solutions for the Bank’s
wealth and retail operations and their customers.
Wholesale Banking’s expertise is supported by
a presence across
North America, Europe, and Asia-Pacific.
Corporate segment
is comprised of service and control functions,
including Technology Solutions, Shared Services, Treasury and Balance Sheet
Management,
Marketing, Human Resources, Finance,
Risk Management, Compliance, Anti-Money
Laundering, Legal, Real Estate, Internal
Audit, and Others. Certain costs
relating to these functions are allocated
to operating business segments. The basis
of allocation and methodologies are reviewed
periodically to align with
management’s evaluation of the value provided
to the Bank’s business segments.
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 Note 28
of the 2024
Consolidated Financial Statements.
Effective fiscal 2024, certain asset management
businesses which
were previously reported in the U.S. Retail
segment are now reported in the Wealth Management
and Insurance segment. Comparative
period information has
been adjusted to reflect the new alignment.
Net interest income within Wholesale Banking
is calculated on a TEB, which means
that the value of non-taxable or tax-exempt income,
including 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 results is reversed in
the Corporate segment. The TEB adjustment
for the year was $79 million (October 31, 2023
– $181 million).
Share of net income from investment in
Schwab is reported in the U.S. Retail
segment. Amounts for amortization of acquired
intangibles, the Bank’s share of
acquisition and integration charges associated
with Schwab’s acquisition of TD Ameritrade,
the Bank’s share of Schwab’s restructuring charges,
and the Bank’s
share of Schwab’s FDIC special assessment
charge are recorded in the Corporate segment.
The “Key Priorities for 2025” section for each
business segment, provided on the following
pages, is based on the Bank’s views and
assumptions, including
those set out in the “Economic Summary and Outlook”
section and the actual outcome may be materially
different. For more information regarding the factors,
assumptions, and risks that may impact
the Bank’s views, refer to the “Caution Regarding
Forward-Looking Statements” section
and the “Risk Factors That
May Affect Future Results” section.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 22
TABLE 14: RESULTS BY SEGMENT
1,2
(millions of Canadian dollars)
Canadian Personal
Wealth
and Commercial
Management
Wholesale
Banking
U.S. Retail
and Insurance
Banking
3
Corporate
3
Total
2024
2023
2024
2023
2024
2023
2024
2023
2024
2023
2024
2023
Net interest income (loss)
$
15,697
$
14,192
$
11,600
$
12,029
$
1,226
$
1,064
$
582
$
1,538
$
1,367
$
1,121
$
30,472
$
29,944
Non-interest income (loss)
4,093
4,125
2,113
2,261
12,309
10,566
6,704
4,280
1,532
(486)
26,751
20,746
Total revenue
19,790
18,317
13,713
14,290
13,535
11,630
7,286
5,818
2,899
635
57,223
50,690
Provision for (recovery of) credit
losses – impaired
1,555
1,013
1,437
965
–
1
247
16
638
491
3,877
2,486
Provision for (recovery of) credit
losses – performing
200
330
95
(37)
–
–
70
110
11
44
376
447
Total provision for (recovery of)
credit losses
1,755
1,343
1,532
928
–
1
317
126
649
535
4,253
2,933
Insurance service expenses
–
–
–
–
6,647
5,014
–
–
–
–
6,647
5,014
Non-interest expenses
8,010
7,700
12,615
8,079
4,285
3,908
5,576
4,760
5,007
5,408
35,493
29,855
Income (loss) before
income taxes
10,025
9,274
(434)
5,283
2,603
2,707
1,393
932
(2,757)
(5,308)
10,830
12,888
Provision for (recovery of)
income taxes
2,806
2,586
200
658
648
706
275
162
(1,238)
(994)
2,691
3,118
Share of net income from
investment in Schwab
–
–
709
939
–
–
–
–
(6)
(75)
703
864
Net income (loss) –
reported
7,219
6,688
75
5,564
1,955
2,001
1,118
770
(1,525)
(4,389)
8,842
10,634
Pre-tax adjustments for
items of note
Amortization of acquired
intangibles
–
–
–
–
–
–
–
–
290
313
290
313
Acquisition and integration
charges related to the
Schwab transaction
–
–
–
–
–
–
–
–
109
149
109
149
Share of restructuring and other
charges from investment
in Schwab
–
–
–
–
–
–
–
–
49
35
49
35
Restructuring charges
–
–
–
–
–
–
–
–
566
363
566
363
Acquisition and integration-
related charges
–
–
–
–
–
–
379
434
–
–
379
434
Charges related to the
terminated FHN acquisition
–
–
–
344
–
–
–
–
–
–
–
344
Payment related to the
termination of the
FHN transaction
–
–
–
–
–
–
–
–
–
306
–
306
Impact from the terminated
FHN acquisition-related
capital hedging strategy
–
–
–
–
–
–
–
–
242
1,251
242
1,251
Impact of retroactive tax
legislation on payment
card clearing services
–
–
–
–
–
–
–
–
–
57
–
57
Gain on sale of Schwab shares
–
–
–
–
–
–
–
–
(1,022)
–
(1,022)
–
U.S. balance sheet restructuring
–
–
311
–
–
–
–
–
–
–
311
–
Indirect tax matters
–
–
–
–
–
–
–
–
226
–
226
–
Civil matter provision/
Litigation settlement
–
–
–
–
–
–
–
–
274
1,642
274
1,642
FDIC special assessment
–
–
442
–
–
–
–
–
–
–
442
–
Global resolution of the
investigations into the Bank’s
U.S. BSA/AML program
–
–
4,233
–
–
–
–
–
–
–
4,233
–
Total pre-tax adjustments
for items of note
–
–
4,986
344
–
–
379
434
734
4,116
6,099
4,894
Less: Impact of income taxes
4
–
–
186
85
–
–
82
89
396
359
664
533
Net income (loss) –
adjusted
5
$
7,219
$
6,688
$
4,875
$
5,823
$
1,955
$
2,001
$
1,415
$
1,115
$
(1,187)
$
(632)
$
14,277
$
14,995
Average common equity
6
$
21,618
$
18,151
$
44,415
$
40,915
$
6,141
$
5,692
$
15,821
$
14,134
$
12,984
$
22,716
$
100,979
$
101,608
Risk-weighted assets
185,704
168,514
271,959
235,444
20,571
17,979
122,584
121,232
30,082
27,992
630,900
571,161
1
For the year ended October 31, 2023, certain amounts have been restated for the adoption of IFRS 17. Refer to
Note 4 of the Bank’s 2024 Consolidated Financial Statements for further
details.
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 TEB. The TEB adjustment reflected in Wholesale
Banking is reversed in the Corporate segment.
4
Includes the CRD and impact from increase in the Canadian federal tax rate for fiscal 2022.
5
For additional information about the Bank’s use of non-GAAP financial measures, refer to “Non-GAAP
and Other Financial Measures” in the “Financial Results Overview” section of this
document.
6
For additional information about this metric, refer to the Glossary of this document.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 23
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
2023
2024
NET INCOME
(millions of Canadian dollars)
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
$20,000
2023
2024
TOTAL REVENUE
(millions of Canadian dollars)
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
2023
2024
AVERAGE DEPOSITS
(billions of Canadian dollars)
Personal
Business
BUSINESS SEGMENT ANALYSIS
Canadian Personal and
Commercial Banking
Canadian Personal and Commercial Banking offers a full range of financial products and services to over 15 million
customers in the Bank’s personal and commercial banking businesses in Canada.
TABLE 15: REVENUE
(millions of Canadian dollars)
2024
2023
Personal banking
$
13,828
$
12,705
Business banking
5,962
5,612
Total
$
19,790
$
18,317
KEY PRODUCT GROUPS
Personal Banking
●
Personal Deposits – chequing, savings, and
investment products for retail customers.
●
Real Estate Secured Lending (RESL) – lending
products for homeowners secured by residential
properties.
●
Credit Cards, Payments and Consumer Lending
– proprietary and co-branded credit
cards, debit, digital wallets, loyalty offerings, payment
plans, and
unsecured financing products.
Business Banking
●
Commercial Banking – borrowing, deposit
and cash management solutions for
businesses across a range of industries.
●
Small Business Banking – financial products
and services for small businesses.
●
Auto Finance – financing solutions for the prime
and non-prime automotive markets, recreational
and leisure vehicles, and automotive
floor plan financing.
●
Merchant Solutions – point-of-sale
technology and payment solutions for large
and small businesses.
INDUSTRY PROFILE
The personal and business banking industry
in Canada is mature and highly competitive,
consisting of large chartered banks, sizeable
regional banks and credit
unions, niche players competing in specific
products and geographies, and a variety
of non-traditional competitors. These industries
serve individuals and
businesses and offer products including borrowing, deposits,
cash management and financing solutions.
Products are distributed through retail branches,
commercial banking centers, and other
specialized distribution channels, as well
as by leveraging technology with a focus
on customer experiences that are
integrated across channels. Market leadership
and profitability depend upon delivering
a full suite of competitively priced products,
proactive advice that meets
customers’ needs, outstanding service and
convenience, integrated omnichannel experiences,
prudent risk management, and disciplined
expense management.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 24
STRATEGIC OBJECTIVES, ACCOMPLISHMENTS
AND PRIORITIES
BUSINESS STRATEGY
BUSINESS HIGHLIGHTS IN 2024
Provide trusted advice to help our
customers feel confident about their
financial future
●
Record New to Canada account acquisition,
driven by tailored banking packages to meet
new Canadians’ needs,
preferred language offerings in-branch, and strategic
relationships
●
Helped thousands of Canadians save
for their first home with TD’s First Home Savings Account
(FHSA)
●
Since the launch of TD Goal Builder, a financial goal setting
and tracking tool, thousands of TD customers
across
Canada have worked with their Personal
Bankers to build a personalized path to achieving
their financial goals
●
Launched TD eCommerce Solutions, a service
that integrates TD’s online payment processing
with a turnkey, highly
customizable web-platform builder, enabling Canadian businesses
to start selling their products and services online
with
quick setup, and to accept payments with ease
Consistently deliver legendary,
personal, and connected customer
experiences across all channels
●
Continued to enhance Canadian Personal and
Commercial Banking product offerings and innovative
solutions for
customers, increase frontline banker capacity, and reduce customer
friction, helping to result in record Legendary
Experience Index (LEI) results across channels
●
Continued to optimize the customer and colleague
experience associated with TD Mortgage
Direct, driving record
customer engagement and RESL volume
via connected digital experiences
●
TD Canada Trust was recognized as a Financial Service
Excellence shared award winner for “Customer
Service
Excellence”
9
, “Branch Service Excellence”
10
, and “Automated Telephone Banking Excellence”
11
among the Big 5
Banks
12
in the 2024 Ipsos Customer Service Index
(CSI) study
13
●
Business banking continued to expand areas
of specialization through additions to teams
in the technology and
innovation sector, including the launch of TD Innovation Partners
(TDIP), a new full-service team providing
bespoke,
high-touch banking and financing solutions in
support of technology companies at all
stages
●
TD Auto Finance ranked “Highest in Dealer
Satisfaction among Non-Prime and Prime
Credit Non-Captive Automotive
Financing Lenders”
in the J.D. Power 2024 Canada Dealer Financing
Satisfaction Study. This marks 7 consecutive
years that TD Auto Finance (Canada) has
been ranked #1 in Dealer Satisfaction among
Non-Captive Non-Prime
Lenders with Retail Credit
14
Deepen customer relationships by
delivering OneTD and growing
across underrepresented products
and markets
●
Maintained strong market share
15
positions and gained momentum across
the businesses:
–
#1 market share in Personal Non-Term deposits
–
#2 market share in RESL business with year-over-year
market share gains
–
Record credit card spend and loan volumes
supported by record active accounts, which
surpassed 8 million for the
first time
●
The Bank continued to execute on its OneTD
strategies, with a focus on delivering joint
strategic initiatives between
Business Banking and Wealth, including the expansion
of its co-location strategy with Senior Private
Bankers in
Commercial Banking Centers and the TD Auto
Finance, National Real Estate and
Commercial National Accounts groups
Execute with speed and impact,
taking only those risks we can
understand and manage
●
Continued to transform the way TD works, leveraging
AI and implementing other improvements
to increase speed and
efficiency:
–
Continued to leverage Next Evolution of Work (NEW),
an agile operating model, designed
to reduce complexity,
streamline decision making, improve customer
experience, and reduce cycle times
–
Invested in core technologies to improve the
customer and colleague experience, including
a new credit platform,
servicing platform, and customer relationship
management software
–
Improved RESL underwriting process
and productivity, reducing time to final mortgage approval, and
delivering a
faster, more streamlined experience for customers
●
Continued to provide personalized payment
experiences and rewards to customers through
strategic credit card
relationships, including:
–
Our relationship with Amazon that enables
customers to redeem TD Rewards points through
Amazon Shop with
Points
–
Expanded TD’s Loyalty ecosystem and providing additional
value to customers through enhancements
to strategic
collaborations with the Toronto Blue Jays and Vancouver Canucks
9
TD Canada Trust shared in the Customer Service Excellence award in the 2024
Ipsos Study.
10
TD Canada Trust shared in the Branch Banking Excellence award in the 2024 Ipsos
Study.
11
TD Canada Trust shared in the Automated Telephone
Banking Excellence award in the 2024 Ipsos Study.
12
Big 5 Banks consist of Bank of Montreal, Canadian Imperial Bank of Commerce, Royal Bank of Canada,
Scotiabank, and The Toronto
-Dominion Bank.
13
Ipsos 2024 Financial Service Excellence Awards are based on ongoing quarterly Customer Service Index
(CSI) survey results. Ipsos announces annual winners across 11
categories in
October after fielding for the final quarter-ends in September.
14
TD Auto Finance received the highest score in the retail non
‐
captive non
‐
prime segment and the retail non
‐
captive prime segment in the J.D. Power 2024 Canada Dealer Financing
Satisfaction Study, which measure Canadian auto dealers’
satisfaction with their auto finance providers. Visit jdpower.com/awards
for more details.
15
Market share ranking is based on most current data available from OSFI for Personal Non-term deposits
and RESL as of August 2024.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 25
BUSINESS STRATEGY
BUSINESS HIGHLIGHTS IN 2024
Innovate with purpose for our
customers and colleagues, and
shape the future of banking in the
digital age
●
Recognized as Best Consumer Digital Bank
for North America by Global Finance Magazine
for the fourth consecutive
year
16
:
–
Won an industry-leading 6 categories in North America,
including Best Bill Payment & Presentment,
Best
Information Security and Fraud Management,
Best in Lending, Best in Innovation, Best
Open Banking APIs, and
Best in Transformation
●
Continued to rank #1 for average digital reach
of any bank in Canada based on ComScore
17
●
The TD Mobile App continued to rank #1
for average smartphone monthly active
users in Canada according to Sensor
Tower for the eleventh consecutive year
18
●
Further scaled targeted RESL acquisition programs
across Retail and Mobile Mortgage Specialists,
creating a connected
advice experience across our highest quality daily
digital leads, e-mail programs, and digital
touch points in EasyWeb
and Mobile
●
Introduced new features to evolve and enhance
the mobile customer experience with capabilities
to increase customer
self-serve opportunities:
–
Features include new navigation bar and quick
actions providing one-touch access to
commonly used features and
capabilities to provide past due account information
and flexible repayment options
–
Enabled customers to renew the fixed portion
of their Home Equity Line of Credit (HELOC)
through their EasyWeb
profile or mobile banking app 120 days before
maturity, delivering a convenient, self-serve option for customers
Be recognized as an extraordinary
place to work where diversity and
inclusiveness are valued
●
Canadian Personal and Commercial Banking
is committed to advancing diversity and
inclusion across all dimensions of
its business:
–
Personal Banking continued to offer the Sponsorship
in Action Program for high performing colleagues
from
underrepresented groups to support career advancement
through intentional sponsorship opportunities
with senior
leaders
–
In Business Banking, the Women at TD – Power Leadership
Development Circle continued to support
the
advancement of talented women into Executive
positions through sponsorship and development
programs
–
Enterprise programs for Indigenous Peoples,
colleagues from the 2SLGBTQ+ community, and Persons with
Disabilities are in place to support colleagues
with leadership aspirations,
along with enhanced onboarding support
for all colleagues in these communities
Contribute to the well-being of our
communities
●
To
support diverse customer needs, branches
can serve customers in over 80 languages,
and over 200 languages can
be served through phone translation services
●
The National Real Estate Group (NREG)
continued to participate in the Canada
Mortgage and Housing Corporation
(CMHC) mortgage loan insurance (MLI) Select
program, a multi-unit MLI product focused on
affordability, accessibility
and climate compatibility
●
The Indigenous Banking Group continued investing
to support TD’s aim to be the Bank of choice
for Indigenous
Peoples, businesses, organizations and
communities
KEY PRIORITIES FOR
2025
●
Enhance customer experience through end-to-end
omnichannel distribution, providing seamless
and integrated experiences across all channels
●
Accelerate growth through a relentless
focus on the customer, acquiring new customers and leveraging
OneTD to deepen customer relationships
through
personalized advice that meets their unique needs
●
Improve speed, capacity, and efficiency by leveraging NEW with a goal
to deliver faster, with better outcomes and operate at
the intersection of digital, data,
technology, and customer experience
●
Continue to attract and retain top talent, emphasize
talent diversity, and enable excellence through process simplification
and learning and development
●
In alignment with the Environmental, Social and
Governance (ESG) enterprise strategy, focus on enhancing financial
inclusion and strengthening Financial
Health and Education for colleagues and customers
●
Actively monitor the macroeconomic
environment and key risk indicators across
the franchise, and continue to strengthen our
risk, control and governance
foundations
TABLE 16: CANADIAN PERSONAL AND COMMERCIAL BANKING
(millions of Canadian dollars, except as noted)
2024
2023
Net interest income
$
15,697
$
14,192
Non-interest income
4,093
4,125
Total revenue
19,790
18,317
Provision for (recovery of) credit losses – impaired
1,555
1,013
Provision for (recovery of) credit losses – performing
200
330
Total provision for (recovery of) credit losses
1,755
1,343
Non-interest expenses
8,010
7,700
Provision for (recovery of) income taxes
2,806
2,586
Net income
$
7,219
$
6,688
Selected volumes and ratios
Return on common equity
1
33.4
%
36.8
%
Net interest margin (including on securitized assets)
2.82
2.77
Efficiency ratio
40.5
42.0
Number of Canadian Retail branches at period end
1,060
1,062
Average number of full-time equivalent staff
28,678
28,961
1
Capital allocated to the business segment was increased to 11.5%
CET1 Capital effective fiscal 2024 compared with 11%
in the prior year.
REVIEW OF FINANCIAL PERFORMANCE
Canadian Personal and Commercial
Banking net income for the year was $7,219
million, an increase of $531 million, or 8%,
compared with last year, reflecting
higher revenue, partially offset by higher PCL and non-interest
expenses. ROE for the year was 33.4%,
compared with 36.8% last year.
16
Global Finance World’s Best Digital Bank 2024 Press Release (October 1, 2024).
17
ComScore MMX® Multi-Platform, Financial Services – Banking, Total
audience, 3-month average ending June 2024, Canada.
18
Sensor Tower - average monthly mobile
active users for the 11-year period ending September
2024.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 26
Revenue for the year was $19,790 million, an increase
of $1,473 million, or 8%, compared with
last year. Net interest income was $15,697 million, an
increase
of $1,505 million, or 11%, reflecting volume growth and higher deposit
margins, partially offset by lower loan margins. Average
loan volumes increased $33 billion,
or 6%, reflecting 6% growth in personal loans
and 7% growth in business loans. Average deposit
volumes increased $19 billion, or 4%, reflecting
6% growth in
personal deposits and 1% growth in business
deposits. Net interest margin was 2.82%,
an increase of 5 bps from last year, primarily due to higher
margins on
deposits, partially offset by changes to balance
sheet mix reflecting the transition of Bankers’
Acceptances (BAs) to Canadian Overnight
Repo Rate Average
(CORRA)-based loans,
and lower margins on loans. Non-interest
income was $4,093
million, a decrease of $32
million, or 1%, compared with last year.
PCL for the year was $1,755 million,
an increase of $412 million compared
with last year. PCL – impaired was $1,555 million, an increase
of $542 million, or
54%, reflecting credit migration in the consumer
and commercial lending portfolios.
PCL – performing was $200 million, a decrease
of $130 million. The current
year performing provisions largely reflect
current credit conditions, including credit
migration in the commercial and consumer
lending portfolios, and volume
growth. Total PCL as an annualized percentage of credit volume was 0.31%, an
increase of 6 bps compared with last
year.
Non-interest expenses for the year were
$8,010 million, an increase of $310 million, or
4%, compared with last year. The increase primarily reflects
higher
spend supporting business growth, including
technology costs, employee-related expenses,
and marketing costs, partially offset by lower
non-credit provisions.
The efficiency ratio for the year was 40.5%, compared
with 42.0% last year.
OPERATING ENVIRONMENT AND OUTLOOK
After recording two years of anemic growth,
the Canadian economy is expected to pick
up modestly in fiscal 2025. Consumer
and business spending is expected
to benefit from further gradual cuts to
the Bank of Canada’s policy rate as inflation continues
to converge on the 2% target. Within the
housing market, sales and
prices are expected to gain traction on
the back of lower borrowing rates as well as the
upcoming federal changes to mortgage rules
that will expand homebuyer
qualification eligibility. In Q1 2025, while many factors can impact
margins, including
further Bank of Canada rate cuts, competitive
market dynamics, and deposit
reinvestment rates and maturity profiles,
we expect net interest margin to remain relatively
stable.
19
Some increase in PCL is expected in
fiscal 2025, reflective of
volume growth and some further pressure
on credit as we move through this credit
cycle. Canadian Personal and Commercial
Banking is focused on continuing to
manage expenses prudently, while investing in distribution capabilities
to serve more customers and enhance
their experience, in technology and
platforms to
purposefully build for the future to meet evolving
needs of customers, colleagues and
communities, and to further enhance our risk,
compliance and controls
infrastructure.
While the macro economic environment is expected
to be supportive to overall revenue growth,
with declining interest rates and continued
business
investment, we expect some compression
in operating leverage. We believe TD’s customer
centric and digitally enabled Canadian Personal
and Commercial
Banking franchise is well-positioned to execute
on its growth opportunities.
19
The Bank’s Q1 2025 net interest margin expectations for the segment are based on the Bank’s assumptions regarding factors such as Bank of Canada rate cuts, competitive market dynamics, and
deposit reinvestment rates and maturity profiles, and are subject to inherent risks and uncertainties, including those set out in the “Risk Factors That May Affect Future Results” section of this document.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 27
$0
$1,000
$2,000
$3,000
$4,000
$5,000
2023
2024
NET INCOME
20
(millions of U.S. dollars)
Reported
Adjusted
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
2023
2024
TOTAL REVENUE
20
(millions of U.S. dollars)
Reported
Adjusted
$0
$50
$100
$150
$200
$250
$300
$350
$400
2023
2024
AVERAGE DEPOSITS
(billions of U.S. dollars)
Personal
Business
Sweep
BUSINESS SEGMENT ANALYSIS
U.S. Retail
20
Operating under the TD Bank, America’s Most Convenient Bank
®
brand, the U.S. Retail Bank offers a full range of financial
products and services to over 10 million customers in the Bank’s U.S. personal and business banking operations, including
wealth management. U.S. Retail includes an investment in Schwab.
TABLE 17: REVENUE – Reported
1
(millions of dollars)
Canadian dollars
U.S. dollars
2024
2023
2024
2023
Personal Banking
$
8,466
$
7,934
$
6,219
$
5,884
Business Banking
4,331
4,259
3,181
3,159
Wealth
483
474
355
351
Other
2
433
1,623
319
1,202
Total
$
13,713
$
14,290
$
10,074
$
10,596
1
Excludes equity in net income of an investment in Schwab.
2
Other revenue consists primarily of revenue from the Schwab IDA Agreement and from investing activities.
KEY PRODUCT GROUPS
Personal Banking
●
Personal Deposits – chequing, savings, and
Certificates of Deposit products and payment
solutions for retail customers offered through
multiple delivery
channels.
●
Consumer Lending – financing products,
including residential mortgages, home
equity and unsecured lending solutions
for retail customers.
●
Credit Cards Services – TD-branded credit
cards for retail customers, private label and
co-brand credit cards, and point-of-sale revolving
and instalment
financing solutions for customers of leading
U.S. retailers delivered through nationwide partnerships.
●
Retail Auto Finance – indirect retail financing
through a network of auto dealers, and
real-time payment solutions for auto dealers.
Business Banking
●
Commercial Banking – borrowing, deposit
and cash management solutions for
U.S. businesses and governments across a
wide range of industries.
●
Small Business Banking – borrowing, deposit
and cash management solutions for small businesses
including merchant services and TD-branded
credit cards.
Wealth
●
Wealth Advice – wealth management advice, financial
planning solutions, estate and trust planning,
and insurance and annuity products for
mass affluent, high
net worth and institutional clients, delivered
by store-based financial advisors, a robo-advisory
platform, and a multi-custodial securities-based
collateral lending
platform.
20
For additional information about the Bank’s use of non-GAAP financial measures, refer to “Non-GAAP
and Other Financial Measures” in the “Financial Results Overview”
section of this
document.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 28
INDUSTRY PROFILE
The U.S. personal and business banking industry
is highly competitive and includes
several very large financial institutions, as
well as regional banks, small
community and savings banks, finance companies,
credit unions, and other providers of
financial services. The wealth management
industry includes national and
regional banks, insurance companies, independent
mutual fund companies, brokers, and independent
asset management companies. The personal
and business
banking and wealth management industries
also include non-traditional competitors, ranging
from start-ups to established non-financial
companies expanding into
financial services. These industries serve individuals,
businesses, and governments and offer products
including deposits, lending, cash management,
financial
advice, and asset management. Products
may be distributed through a single distribution
channel or across multiple channels, including
physical locations, ATMs,
and telephone and digital and mobile channels.
Certain businesses also serve customers through
indirect channels. Traditional competitors are embracing
new
technologies and strengthening their focus on
the customer experience. Non-traditional
competitors including direct banks,
financial technology companies and
private lending companies have gained momentum
and are increasingly collaborating with
banks to develop new products and
services, and enhance the
customer experience. The keys to profitability
continue to be attracting and retaining customer
relationships with legendary service and
convenience, offering
products and services across multiple distribution
channels to meet customers’ evolving needs,
optimizing funding sources and costs, investing
strategically while
maintaining expense discipline, and
managing risk prudently.
STRATEGIC OBJECTIVES, ACCOMPLISHMENTS
AND PRIORITIES
BUSINESS STRATEGY
BUSINESS HIGHLIGHTS IN
2024
Remediate our AML Program and
strengthen our Governance and
Control Infrastructure
●
Made progress on our U.S. BSA/AML program
remediation,
which is organized under five core pillars:
(i) people and
talent, (ii) governance and structure, (iii) policy
and risk assessment, (iv) process and
control, and (v) data and
technology
●
Refer to “Significant Events – Global Resolution
of the Investigations into the Bank’s U.S. BSA/AML
Program”
for
additional information about the AML remediation
program
Key Enablers of Business Strategy
●
Recognized for leadership in diversity and inclusion:
-
Top score of 100 in the 2024 Disability Equality Index for the 10
th
consecutive year
-
In the top ten of America’s Best Employers
for Diversity by Forbes in 2024
-
One of America’s Best Employers for Veterans by Forbes for the
third consecutive year
-
Awarded “Best Employers: Excellence in Health and
Well-being”
by the Business Group on Health for
outstanding commitment to advancing employee
well-being through comprehensive and innovative
benefits
●
Certified as a Great Place to Work in the U.S.
for the 9
th
consecutive year
●
Earned an ‘Outstanding’
rating on the Community Reinvestment Act
exam from the Office of the Comptroller of the
Currency (OCC) for TD Bank USA, N.A. (TDBUSA),
the sixth consecutive exam for TDBUSA
or TD Bank, N.A.
(TDBNA) with an ‘Outstanding’
rating, reflecting our critical role in supporting
the needs of our local communities
●
Announced a 3-year, Community Impact Plan in January for
the benefit of diverse and underserved
communities,
supporting with Mortgage lending, community
development, Small Business lending, and
a commitment to open new
stores in Low-
and Moderate-Income areas and/or majority
minority markets
-
Formed a National Community Advisory Board
comprised of a diverse set of talented leaders
from
organizations in the Bank’s footprint to help ensure
the Community Impact Plan initiatives
meet local needs
and held inaugural meeting of this advisory
board
●
Delivered sustainable productivity savings
to reinvest in our AML remediation program
and Governance and Control
investments
Advance Our Digital and Mobile
Leadership
●
Continued to invest in everyday digital and
mobile banking capabilities to enhance the
customer experience, with
implemented improvements to date resulting
in a positive response from our customers
●
Surpassed 5 million active mobile customers
while continuing to deliver new capabilities designed
to enhance
customer experience, upgrade product bundling
and credit card pre-delinquency messaging,
and enhanced
Direct
Deposit alerts. Reached 57% digital adoption,
up 154 basis points year-over-year
Transform Distribution and Enable
Wealth Offering Across TD Bank,
America’s Most Convenient Bank
®
●
Opened six new stores with four new stores
in majority minority communities including
two stores in low-
and
moderate-income areas to ensure more residents
have neighbourhood access to a bank and
financial services
●
Renovated over 100 stores with refreshed
exteriors and interiors as well as dedicated
offices for financial advisors to
facilitate deeper conversations about advice,
education, and financial literacy to
meet customers’ evolving needs
●
Assets under Management (AUM) were
US$8 billion as at October 31, 2024, an increase
of US$2 billion, or 33%,
compared with the fourth quarter last year, reflecting net asset
growth
●
Continued enhancement of OneTD partnerships,
yielding approximately one hundred thousand
referrals during the
year, up 16% year-over-year:
●
Increased 3:1 store-to-advisor coverage model
in high opportunity areas, with the goal
of driving better advice-based
conversations with our customers in renovated
next generation stores; strengthened employee
training to help
identify Wealth opportunities
●
Launched TD Wealth Portal, providing an integrated
360-degree view of customer relationships
across Retail and
Wealth businesses on digital and mobile platforms
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 29
BUSINESS STRATEGY
BUSINESS HIGHLIGHTS IN
2024
Invest in Our Cards Franchise
●
Enhancements to our Bankcard product in 2023,
including the launch of TD Clear and
TD FlexPay and refreshed
benefits to TD Cash and Double Up cards,
has resonated with customers and deepened
relationships, helping to
grow new accounts for fiscal 2024 by 7% year-over-year
and increase balances for fiscal 2024
by 13% year-over-
year
●
Bolstered digital acquisition capabilities, driving
increased digital share of Bankcard sales
for fiscal 2024 by 6% year-
over-year
●
Progressed on our journey to modernize our
Cards infrastructure with unified target platforms
that enable full
servicing and processing of co-brand partnerships
●
We extended our relationship with Nordstrom
through 2032 with greater control over customer
servicing and
migrated approximately 1.5 million Retail
Cards Services customers onto the unified platform
Strengthen Our Commercial
Franchise
●
Building on high-quality relationships,
delivered growth in middle market, business
loan volume of 12% since the
fourth quarter of 2023,
and 70% since the fourth quarter of
2021, reflecting strong originations and enhanced
go-to-
market approach including improved AMCB and
TD Securities interaction framework
●
Deepened OneTD collaboration with TDS and
TD Cowen to deliver a full suite of products
and services to our clients
●
Differentiated Small Business digital and mobile
capabilities with the introduction of Apple
Tap to Pay and Zelle for
small business, offering customers flexible and
convenient payment options
●
Ranked #1 in its footprint by total number of
approved U.S. Small Business Administration
(SBA) loan units for the 8
th
consecutive year and ranked as the #2 national
SBA lender
21
for the 3
rd
year in a row
Drive Profitable Core Deposits
●
Served over 10 million customers for our
personal banking, business banking,
and wealth businesses,
powered by
deepening relationships with customers in our
core franchise businesses and our commitment
to customer
satisfaction
●
Drove customer engagement and primacy with
the launch of TD Complete Checking and
provided access to direct
deposits up to two days earlier with Early
Pay
●
Our fee enhancements established over the
past two years continued with the elimination
of Insufficient Funds fees
for our business customers and have reduced
attrition and promoted balance consolidation
leading to stable core
deposits
KEY PRIORITIES FOR
2025
●
Our top priority remains remediating the
U.S. BSA/AML program and strengthening
the governance and control environment
22
. The Bank expects U.S.
BSA/AML remediation and related governance
and control investments of approximately
US$500 million pre-tax in fiscal 2025
23
.
●
In light of the U.S. Retail segment’s focus outlined
above, the previous guidance that the Bank
expects to open 150 stores in the U.S.
by 2027 has been
suspended
●
To
help ensure we can continue to support
customers’
financial needs in the U.S. while not exceeding
the limitation on the combined total assets
of the
U.S. Bank,
the Bank will focus on executing its balance
sheet restructuring activities. The Bank expects
to complete the U.S. investment portfolio
repositioning
no later than the first half of calendar 2025
24
and reduce its assets by approximately
10% from the asset level as of September
30, 2024 by the end of fiscal
2025
25
:
-
Following the announcement of the Global
Resolution on October 10, 2024, the Bank
sold approximately US$2.8 billion of bonds
from its U.S.
investment portfolio, resulting in a loss of US$226
million pre-tax and US$170 million after-tax
($311 million pre-tax and $234 million after-tax).
The sale is expected to result in a pre-tax
benefit of US$89 million to net interest
income for fiscal 2025.
-
As of December 4, 2024, the Bank has sold
an additional US$3.3 billion of bonds,
resulting in a loss of approximately US$236
million pre-tax and
US$177 million after tax ($330 million pre-tax and
$247 million after-tax). This sale is expected
to result in a benefit of US$80 million – US$90
million to net interest income for fiscal 2025.
-
The Bank intends to continue to reposition its
U.S. investment portfolio by continuing
to sell lower yielding investment securities
and reinvesting
the proceeds into a similar composition of
assets but yielding higher rates. In total,
the Bank expects to sell up to US$50 billion of
bonds and this
repositioning of the U.S. investment portfolio
is expected to be accretive to net interest
income over the next two to three years and
increase net
interest income by US$300 million – US$500
million pre-tax in fiscal 2025.
-
The Bank aims to reduce assets by approximately
10% from the asset level as of September
30, 2024, largely by selling or winding down
certain
non-scalable or non-core U.S. loan portfolios
that do not align with the U.S. Retail segment’s
focused strategy or have lower returns on
investment
such as the correspondent lending, residential
jumbo mortgage, export and import lending,
and commercial auto dealer portfolios.
This reduction
in assets combined with natural balance
sheet run-off, is expected to reduce net interest income
in the U.S. Retail segment by approximately
US$200 million to US$225 million pre-tax in
fiscal 2025.
In total, these collective balance sheet restructuring
actions are expected to result in a
loss up to US$1.5 billion after-tax, and impact
capital as executed.
-
During the fourth quarter, the Bank used proceeds from investment
maturities, plus cash on hand, to pay
down certain short-term borrowings.
Accordingly, as of October 31, 2024, the U.S. Bank’s assets were US$431
billion. In the first quarter of 2025, the Bank
paid down an additional
US$14 billion of bank borrowings using
mainly cash, which will contribute to a
further reduction in the U.S. Bank's assets.
●
Deliver productivity to create reinvestment
capacity for remediation and governance and
control investments
21
U.S. Small Business Administration (SBA) loan units in its Maine-to-Florida footprint for the SBA’s
2024
fiscal year.
22
Refer to the section entitled “Significant Events – Global Resolution of the Investigations into the Bank’s
U.S. BSA/AML Program” for further information about the terms of the Global
Resolution and impacts to the Bank.
23
The total amount expected to be spent on remediation and governance and control investments is subject to inherent
uncertainties and may vary based on the scope of work in the U.S.
BSA/AML remediation plan which could change as a result of additional findings that are identified as work progresses
as well as the Bank’s ability to successfully execute against the
U.S. BSA/AML remediation program in accordance with the U.S. Retail segment’s fiscal 2025 plan.
The Bank’s ability to successfully execute its U.S. BSA/AML remediation plan is
subject to inherent risks and uncertainties including the Bank’s ability to attract and retain key employees,
the ability of third parties to deliver on their contractual obligations, and the
successful development and implementation of required technology solutions. Furthermore, the execution of the
U.S. BSA/AML remediation plan will not be entirely within the Bank’s
control including because of (i) the requirement to obtain regulatory approval or non-objection before proceeding
with various steps, and (ii) the requirement for the various deliverables to
be acceptable to the regulators and/or the monitors. Refer to “Global Resolution of the Investigations into the Bank’s
U.S. BSA/AML Program” in the “Risk Factors That May Affect Future
Results” section for additional information about risks associated with the Global Resolution and the remediation
of the Bank’s U.S. BSA/AML program.
24
The amount of bonds that the Bank sells, and accordingly,
the loss incurred as well as the amount of net interest income benefit, is subject to risk and uncertainties
and is based on
assumptions regarding the timing of when such securities are sold, the interest rates at the time of sale
as well as other market factors and conditions which are not entirely within the
Bank’s control.
25
The Bank’s estimates regarding net interest income impacts are based on assumptions regarding the
timing of when such assets are sold, or wound-down. The Bank’s ability to
successfully dispose the assets is subject to inherent risks and uncertainty and there is no guarantee that the Bank
will be able to sell the assets in the timeline outlined. The ability to sell
the assets will depend on market factors and conditions and any sale will likely be subject to customary closing terms
and conditions which could involve regulatory approvals which are
not entirely within the Bank’s control.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 30
●
Relentlessly focus on talent acquisition,
development and retention
●
Execute on a limited and focused strategic investment
agenda focused on client sectors
where we have scale, market share and competitive
advantage, with
the objective of enhancing return on equity
over time, including:
-
Enhance our digital / mobile capabilities to better
serve our customers’
everyday needs
-
Transform Retail distribution model enabling Wealth and
Small Business franchises
-
Invest in our Cards business by unifying
cards platforms and reducing the cost to
serve
-
Strengthen our Commercial Franchise in partnership
with TDS, deepening Middle Market relationships
in our existing footprint
TABLE 18: U.S. RETAIL
(millions of dollars, except as noted)
Canadian Dollars
2024
2023
Net interest income
$
11,600
$
12,029
Non-interest income – reported
2,113
2,261
Non-interest income – adjusted
1.2
2,424
2,261
Total revenue – reported
13,713
14,290
Total revenue – adjusted
1,2
14,024
14,290
Provision for (recovery of) credit losses –
impaired
1,437
965
Provision for (recovery of) credit losses –
performing
95
(37)
Total provision for (recovery of) credit losses
1,532
928
Non-interest expenses – reported
12,615
8,079
Non-interest expenses – adjusted
1,3
7,940
7,735
Provision for (recovery of) income taxes – reported
200
658
Provision for (recovery of) income taxes – adjusted
1
386
743
U.S. Retail Bank net income – reported
(634)
4,625
U.S. Retail Bank net income – adjusted
1
4,166
4,884
Share of net income from investment in
Schwab
4,5
709
939
Net income – reported
$
75
$
5,564
Net income – adjusted
1
4,875
5,823
U.S. Dollars
Net interest income
$
8,520
$
8,919
Non-interest income – reported
1,554
1,677
Non-interest income – adjusted
1,2
1,780
1,677
Total revenue – reported
10,074
10,596
Total revenue – adjusted
1,2
10,300
10,596
Provision for (recovery of) credit losses –
impaired
1,056
715
Provision for (recovery of) credit losses –
performing
70
(28)
Total provision for (recovery of) credit losses
1,126
687
Non-interest expenses – reported
9,245
5,988
Non-interest expenses – adjusted
1,3
5,834
5,734
Provision for (recovery of) income taxes – reported
147
489
Provision for (recovery of) income taxes – adjusted
1
283
551
U.S. Retail Bank net income – reported
(444)
3,432
U.S. Retail Bank net income – adjusted
1
3,057
3,624
Share of net income from investment in
Schwab
4,5
523
695
Net income – reported
$
79
$
4,127
Net income – adjusted
1
3,580
4,319
Selected volumes and ratios
Return on common equity – reported
6
0.2
%
13.5
%
Return on common equity – adjusted
1,6
11.0
14.1
Net interest margin
1,7
2.95
3.15
Efficiency ratio – reported
91.8
56.5
Efficiency ratio – adjusted
1
56.6
54.1
Assets under administration (billions of U.S.
dollars)
8
$
43
$
40
Assets under management (billions of U.S.
dollars)
8,9
8
6
Number of U.S. retail stores
1,132
1,177
Average number of full-time equivalent staff
27,842
28,134
1
For additional information about the Bank’s use of non-GAAP financial measures, refer to “Non-GAAP
and Other Financial Measures” in the “Financial Results Overview” section of this
document.
2
Adjusted non-interest income excludes the following item of note:
i.
U.S. balance sheet restructuring – 2024: $311 million or US$
226 million ($234 million or US$170 million after-tax).
3
Adjusted non-interest expenses exclude the following items of note:
i.
Charges related to the terminated First Horizon acquisition – 2023: $344 million or US$254 million ($259 million
or US$192 million after-tax);
ii.
FDIC special assessment
– 2024: $442 million or US$323 million ($333 million or US$243 million after-tax); and
iii.
Charges for the global resolution of the investigations into the Bank’s U.S. BSA/AML program – 2024:
$4,233 million or US$3,088 million (before and after-tax).
4
The Bank’s share of Schwab’s earnings is reported with a one-month lag. Refer to
Note 12 of the 2024
Consolidated Financial Statements for further details.
5
The after-tax amounts for amortization of acquired intangibles, the Bank’s
share of acquisition and integration charges associated with Schwab’s acquisition of TD Ameritrade
,
the Bank’s
share of Schwab’s restructuring charges, and the Bank’s share of Schwab’s FDIC
special assessment charge are recorded in the Corporate segment.
6
Capital allocated to the business segment was 11.5% CET1 effective
fiscal 2024 compared with 11% in the prior
year.
7
Net interest margin is calculated by dividing U.S. Retail segment’s net interest income by average interest
-earning assets excluding the impact related to sweep deposits arrangements
and the impact of intercompany deposits and cash collateral, which management believes better reflects segment
performance. In addition, the value of tax-exempt interest income is
adjusted to its equivalent before-tax value. Net interest income and average interest-earning assets used in the
calculation are non-GAAP financial measures. For additional information
about the Bank’s use of non-GAAP financial measures, refer to “Non-GAAP and Other Financial Measures”
in the “Financial Results Overview” section of this document.
8
For additional information about this metric, refer to the Glossary of this document.
9
Refer to “Business Focus” section of this document regarding alignment of certain asset management businesses
from the U.S. Retail segment to the Wealth Management and Insurance
segment.
REVIEW OF FINANCIAL PERFORMANCE
U.S. Retail reported net income for the
year was $75 million (US$79 million), a decrease
of $5,489 million (US$4,048 million), or 99%
(98% in U.S. dollars),
compared with last year. On an adjusted basis, net income
was $4,875 million (US$3,580 million), a
decrease of $948 million (US$739 million),
or 16% (17% in
U.S. dollars). The reported and adjusted ROE
for the year was 0.2% and 11.0%, respectively, compared with 13.5% and 14.1%, respectively, last year.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 31
U.S. Retail net income includes contributions
from the U.S. Retail Bank and the Bank’s investment
in Schwab. Reported net income
for the year from the Bank’s
investment in Schwab was $709 million (US$523
million) a decrease of $230 million (US$172
million), or 24% (25% in U.S. dollars).
U.S. Retail Bank reported net loss for the
year was $634 million (US$444
million), compared with reported net income
of $4,625 million (US$3,432 million) last
year, reflecting the impact of the charges for the global resolution
of the investigations into
the Bank’s U.S. BSA/AML program, the impact
of the FDIC special
assessment, higher PCL, lower net interest
income, and higher expenses, partially
offset by acquisition and integration-related charges
for the terminated First
Horizon transaction last year. U.S. Retail Bank adjusted net income
was $4,166 million (US$3,057 million), a
decrease of $718 million (US$567 million),
or 15%
(16% in U.S. dollars), reflecting higher PCL,
lower revenue, and higher non-interest
expenses.
Reported revenue for the year was US$10,074
million, a decrease of US$522 million, or 5%,
compared with last year. On an adjusted basis, revenue
for the
year was US$10,300 million, a decrease of
US$296 million, or 3%. Net interest income
of US$8,520 million, decreased US$399
million, or 4%, driven primarily by
lower investment income, and lower deposit
volumes, partially offset by higher deposit
margins, and higher loan volumes. Net interest
margin decreased 20 bps,
primarily due to maintaining elevated liquidity
levels, partially offset by higher deposit margins.
Reported non-interest income was US$1,554
million, a decrease of
US$123 million, or 7%, compared with last
year, reflecting the impact of U.S. balance sheet restructuring,
partially offset by fee income growth from increased
customer activity. On an adjusted basis, non-interest income was
US$1,780 million, an increase of US$103
million, or 6%, reflecting fee income growth from
increased customer activity.
Average loan volumes increased US$11 billion, or 6%, compared with last
year. Personal loans increased 8%, reflecting good mortgage
and auto originations.
Business loans increased 4%, reflecting good
originations and slower payment rates across
portfolios. Average deposit volumes decreased
US$22 billion, or 6%,
compared with last year, reflecting a 19% decrease in sweep
deposits and a 3% decrease in business
deposits, partially offset by a 2% increase in
personal
deposits. Excluding sweep deposits, average
deposits decreased 1%.
Assets under administration (AUA) were US$43
billion as at October 31, 2024, an increase
of US$3 billion, or 8%, compared with last
year, reflecting net asset
growth. Assets under management (AUM)
were US$8 billion as at October 31, 2024,
an increase of US$2 billion, or 33%,
compared with last year.
PCL for the year was US$1,126 million, an
increase of US$439 million compared
with last year. PCL – impaired was US$1,056 million, an increase
of
US$341 million, or 48%, reflecting credit
migration in the consumer and commercial lending
portfolios. PCL – performing was US$70
million, compared with a
recovery of US$28 million in the prior year. The current year
performing provisions largely reflect
current credit conditions, including credit migration,
and volume
growth. U.S. Retail PCL including only the
Bank’s share of PCL in the U.S. strategic cards portfolio,
as an annualized percentage of credit
volume, was 0.60%, an
increase of 22 bps, compared with last year.
Reported non-interest expenses for the year
were US$9,245 million, an increase of US$3,257
million, or 54%, compared with last year, reflecting the impact
of
the charges for the global resolution of the investigations
into the Bank’s U.S. BSA/AML program,
the impact of the FDIC special assessment,
higher legal and
regulatory expenses, costs associated
with the extension of our credit card program
agreement with Nordstrom, real estate
optimization costs, and a higher FDIC
assessment rate, partially offset by the impact of
the acquisition and integration-related charges
for the terminated First Horizon transaction
from last year. On an
adjusted basis, non-interest expenses increased
US$100 million, or 2%, reflecting costs associated
with the extension of our credit card program
agreement with
Nordstrom,
higher legal and regulatory expenses, and
higher operating expenses, partially offset
by ongoing productivity initiatives.
The reported and adjusted efficiency ratios for
the year were 91.8% and 56.6%, compared
with 56.5% and 54.1%, respectively, last year.
OPERATING ENVIRONMENT AND OUTLOOK
Fiscal 2025 is expected to be a challenging
year across the entire U.S. banking industry, with a declining rate
environment, continued regulatory pressures,
and
some further pressure on credit as we
move through this credit cycle. The U.S.
Retail Bank will also face pressure on net interest
income as the sweep portfolio
continues to wind down in line with the Schwab
IDA. However, the Bank expects core business activity to
remain strong driven by expected deposit
volume
stabilization. In Q1 2025, net interest
margin is expected to expand modestly driven
by balance sheet restructuring actions, partially offset
by deposit spread
compression driven by Fed rate actions and
competitive market dynamics
26
.
The U.S. Retail Bank’s top priority is the execution
of its AML remediation program and
the strengthening of its governance and control
infrastructure. The U.S.
Retail Bank will continue efforts to generate sustainable
productivity savings to create capacity
for these investments, which are expected
to increase into fiscal
2025, as we continue to prioritize the resources
needed to meet our remediation requirements.
Additionally, to meet the requirements of the consent orders
while
aiming to maintain a buffer to the asset limitation,
the U.S. Retail Bank will continue to restructure
the U.S. balance sheet to provide the flexibility
to continue to
meet our customers’ evolving needs. In light
of the AML remediation and governance
and control expenses, earnings in fiscal 2025
are expected to be lower than
earnings in fiscal 2024. However, return on equity is expected
to improve through fiscal 2025 and into
fiscal 2026, driven by the U.S. balance
sheet restructuring
actions
27
.
T
HE CHARLES SCHWAB
CORPORATION
Refer to Note 12 of the 2024 Consolidated Financial
Statements for further information on
Schwab.
26
The Bank’s Q1 2025 net interest margin expectations for the segment are based on the Bank’s
assumptions regarding interest rates, deposit reinvestment rates, average asset levels,
and other variables, and are subject to inherent risks and uncertainties, including those set out in the “Risk Factors
That May Affect Future Results” section of this document.
27
The Bank’s estimates regarding earnings and return on equity are based on assumptions regarding the
Bank’s ability to successfully execute against its strategies, including the U.S.
balance sheet restructuring actions resulting in the estimated net interest income benefits, and are therefore subject
to inherent risks and uncertainties, including those set out in the “Risk
Factors That May Affect Future Results” section of this document.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 32
$0
$1,000
$2,000
$3,000
2023
2024
NET INCOME
28
(millions of Canadian Dollars)
$100
$150
$200
$250
$300
$350
$400
$450
$500
$550
$600
$650
$700
2023
2024
AUA / AUM
29
(billions of Canadian Dollars)
AUA
AUM
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
2023
2024
INSURANCE PREMIUMS
(millions of Canadian dollars)
BUSINESS SEGMENT ANALYSIS
Wealth Management and
Insurance
2829
Wealth Management and Insurance provides wealth solutions and insurance protection to approximately 6 million customers
in Canada and asset management products to institutional clients in Canada and globally.
TABLE 19: REVENUE
(millions of Canadian dollars)
2024
2023
Wealth
$
6,042
$
5,401
Insurance
1,2
7,493
6,229
Total
$
13,535
$
11,630
1
Includes recoveries from reinsurers for catastrophe claims of $718 million (2023: nil).
2
For the year ended October 31, 2023, certain amounts have been restated for the adoption of IFRS 17. Refer to
Note 4 of the Bank’s 2024 Consolidated Financial Statements for further
details.
KEY PRODUCT GROUPS
Wealth
●
Direct Investing – platforms and resources for
self-directed retail investors to facilitate
research, investment management and
trading in a range of investment
products through online, phone, and mobile
channels.
●
Wealth Advice – wealth management advice and financial
planning solutions for mass affluent, high net
worth and ultra high net worth clients, integrated
with
other Wealth businesses and the broader Bank.
●
Asset Management – public and private
market investment management capabilities
for retail and institutional clients, including
a diversified suite of investment
products designed to provide attractive risk-adjusted
returns.
Insurance
●
Property and Casualty – home, auto and
small business insurance provided through direct
channels and to members of affinity groups
such as professional
associations, post-secondary institutions
such as universities and colleges, and employer
groups.
●
Life and Health – credit protection for
Canadian Personal and Business Banking borrowing
customers, life and health insurance products,
credit card balance
protection, and travel insurance products, distributed
through customer-assisted and direct to consumer
channels
.
INDUSTRY PROFILE
The Canadian wealth management industry
includes banks, insurance companies, independent
asset managers, direct-to-consumer
providers, independent
financial advisors and planners, and full-service
and discount brokerages. Growth relies
on the ability to provide differentiated and
integrated wealth solutions and
holistic financial advice to retail and institutional
investors while keeping pace with technological
change and regulatory requirements. The property
and casualty
insurance industry in Canada is fragmented
and competitive, consisting of numerous
personal and commercial line writers
offering products through broker,
captive agent and direct distribution channels,
while the life and health insurance industry is
comprised of several large life and health
insurers, and also includes
several banks that provide life and health insurance.
We expect that providing innovative digital capabilities
and solutions will be a key differentiator for customers
buying and servicing their insurance policies
through direct channels.
28
For the year ended October 31, 2023, certain amounts have been restated for the adoption of IFRS 17. Refer to
Note 4 of the Bank’s 2024 Consolidated Financial Statements for further
details.
29
Includes AUA administered by TD Investor Services, which is part of the Canadian Personal and Commercial Banking
segment.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 33
STRATEGIC OBJECTIVES, ACCOMPLISHMENTS
AND PRIORITIES
BUSINESS STRATEGY
BUSINESS HIGHLIGHTS IN 2024
Deliver legendary experiences and
trusted advice to help our customers
feel confident about their financial
future
●
Continued to meet customer needs, resulting in
strong Legendary Experience Index (LEI) results:
–
Wealth continued to prioritize the client experience,
posting strong LEI results in Direct Investing
and Advice
–
TD Insurance delivered consistently
high LEI results in fiscal 2024
marking the best annual performance since
program inception despite the impact of
multiple severe weather-related events
●
Recognized with multiple awards in 2024, reflecting
the strength of our products and platforms:
–
TD Direct Investing was named the top online
brokerage in Canada in The Globe and
Mail’s annual Digital
Brokerage Ranking for the second consecutive
year
30
–
TD Asset Management (TDAM) was
recognized in five categories at the 2023 Canada
LSEG Lipper Fund
Awards for providing attractive risk-adjusted returns
relative to industry peers
31
–
TDAM received FundGrade A+ rating across
18 TDAM managed mutual funds, portfolios,
and Exchange-
Traded Funds (ETFs)
for outstanding performance in 2023, representing
the most FundGrade A+ Awards
received by investment funds managed by
TDAM in a single period
32
●
Introduced several new services, features
and capabilities to enhance the client
experience:
–
Launched TD Active Trader mobile app for iOS, offering
sophisticated trading capabilities for iOS users
–
Introduced real-time partial share trading
on all direct investing platforms, making investing
more accessible
for Canadians
–
Enabled cross-border client advisory with
the introduction
of U.S. licensing for investment advisors
–
Introduced capability to deliver financial plans
in languages other than English and
French, with simplified and
traditional Chinese language capabilities
–
TDAM broadened its product shelf, launching
6 new Mutual Funds and 7 ETFs, including
actively managed
Target Maturity Bond ETFs and a Cash Management ETF
–
Strengthened TD Insurance’s digital capabilities
by enhancing self-serve features, including
online quote for
Small Business Insurance, travel and accident
& sickness coverages for Quebec customers
–
Enhanced the client experience by launching
Auto Insurance Claims Tracker, making it easier for customers
to obtain updates on their claims at any time
–
Life and Health made significant digital investments,
making it easier for customers to top up travel
insurance
coverage online, and introduced balance
protection insurance on the MBNA Amazon
credit card portfolio
Leverage OneTD to deepen
customer relationships with solutions
that meet their unique financial needs
●
Maintained strong market share
positions and gained momentum across
our businesses:
–
#1 market share in direct investing revenues
and assets
33
–
Largest Canadian institutional money manager
and largest money manager in Canada
for pension assets
34
–
#2 market share in mutual fund and ETF assets
among the Big 5 Banks
35,36
–
Gained market share in TD Wealth Financial Planning
and Private Wealth Management businesses
37
–
Maintained #1 rank as Canada’s Leading Direct
Distribution personal lines insurer and leader in
the affinity
market in Canada
38
–
#3 personal home & auto insurer in Canada
38
●
Continued to work with partners to deliver OneTD:
–
Direct Investing partnered with TD Insurance
and Personal Banking partners to promote
the Direct Investing
brand to new customer segments
–
Advice continued to build strong relationships
with Personal and Business Banking, significantly
increasing the
flow of referrals across businesses
–
TDAM continued to partner with TD Securities
to win global institutional mandates in Asia-Pacific
and Europe
–
Deepened customer relationships across the
Bank by increasing colleague confidence in
engaging in
protected borrowing conversations with customers
–
Leveraged our market leading brand to provide
TD Real Estate Secured Lending customers
with TD home
insurance
–
TD Insurance Private Client Advice offered advice
and protection to high-net-worth TD Wealth
customers
30
2024 Globe and Mail Digital Brokerage Ranking: https://www.theglobeandmail.com/investing/article
-the-2024-globe-and-mail-digital-brokerage-ranking-who-rules-and-whos/.
31
2023 Canada LSEG Lipper Fund Awards: https://lipperfundawards.com/Awards/Canada/2023/Fund.
32
The FundGrade A+® rating is used with permission from Fundata Canada Inc., all rights reserved. Fundata is a
leading provider of market and investment funds data to the Canadian
financial services industry and business media. The FundGrade A+® rating identifies funds that have consistently demonstrated
the best risk-adjusted returns throughout an entire
calendar year. For more information on the rating system, please visit
www.Fundata.com/ProductsServices/FundGrade.aspx.
33
Market share ranking is based on most current data available from Investor Economics, a division of ISS Market Intelligence,
for TD Direct Investing revenue and asset rankings as at
June 2024.
34
Market share ranking is based on most current data available from Investor Economics, a division of ISS Market Intelligence,
for institutional money manager and pension asset money
manager rankings as at December 2023.
35
The Big 5 Banks consist of Bank of Montreal, Canadian Imperial Bank of Commerce, Royal Bank of Canada, Scotiabank,
and The Toronto-Dominion Bank.
36
Market share rankings from Investment Funds Institute of Canada as at September 2024.
37
Market share is based on most current data available from Investor Economics, a division of ISS Market Intelligence,
for TD Wealth Financial Planning and TD Wealth Private Wealth
Management assets under administration (AUA) from June 2023 to June 2024.
38
Rankings based on data available from OSFI, Insurers, Insurance Bureau of Canada, and Provincial Regulators
as at December 2023.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 34
BUSINESS STRATEGY
BUSINESS HIGHLIGHTS IN 2024
Innovate with purpose to enable our
colleagues to execute with speed and
impact and strengthen the foundation
of our business
●
TD Wealth joined TD Insurance, transitioning
to the Next Evolution of Work (NEW) operating
model, simplifying the
way we work to deliver innovative, customer-centric
capabilities to market faster
●
TD Wealth continued to transform operations
workflows, building industrial-grade technology
and process
innovation that helps drive advisor and
client value, enhance business efficiency and reduce
operational risk
●
Continued to mature our control environment
to help enhance governance and oversight
functions across both TD
Wealth and TD Insurance
Be an extraordinary place to work
where diversity and inclusiveness are
valued, and contribute to the well-
being of our communities
●
Remain committed to our efforts to build a more
inclusive and diverse culture at TD, aligning
to our purpose to
enrich the lives of our customers, colleagues,
and communities:
–
TD Wealth Leaders participated in two signature events
to build awareness around our 2SLGBTQ+
colleagues
and communities – TD Parents Speak
Out Event, highlighting wealth leaders
with trans/non-binary children
and TD Transgender Day of Visibility Event dedicated to recognizing
the achievements of the transgender
community and celebrating their contributions
to society
–
TD Insurance launched the Talent Advancement Pathway for Indigenous Peoples
wherein successful
applicants will take part in a 2-year rotational
program to gain critical leadership skills
and experience across
the Insurance business
KEY PRIORITIES FOR
2025
●
Deliver legendary experiences by advancing innovations
that are designed to help build and protect
the financial well-being of our clients
●
Maintain digital leadership while continuing
to enhance client and colleague experience
●
Strengthen the foundation of our business through
investments in data and analytics,
technology, and enhancements to governance and control functions
to
enable scalable growth
●
Accelerate growth by deepening relationships
leveraging the strength of OneTD, expanding
distribution, and enhancing productivity
●
Continue to position our brand as a diverse
and inclusive employer of choice, enabling
colleagues to achieve their full potential
●
Extend institutional leadership position in asset
management into retail and global markets,
leveraging breadth and depth of capabilities
●
Rapidly respond to emerging claims trends,
ensuring alignment to risk appetite and
supporting customers as they face the impacts
of climate change
●
Expand small business insurance offering to more
segments, leveraging digital capabilities
and marketing to continue growing
the business
TABLE 20: WEALTH MANAGEMENT AND INSURANCE
(millions of Canadian dollars, except as noted)
2024
2023
Net interest income
$
1,226
$
1,064
Non-interest income
1,2
12,309
10,566
Total revenue
1
13,535
11,630
Provision for (recovery of) credit losses – impaired
–
1
Provision for (recovery of) credit losses – performing
–
–
Total provision for (recovery of) credit losses
–
1
Insurance service expenses
1,3
6,647
5,014
Non-interest expenses
1
4,285
3,908
Provision for (recovery of) income taxes
1
648
706
Net income
1
$
1,955
$
2,001
Selected volumes and ratios
Return on common equity
1,4
31.8
%
34.9
%
Efficiency ratio
1
31.7
33.6
Efficiency ratio, net of ISE
1,5
62.2
59.1
Assets under administration (billions of Canadian dollars)
6
$
651
$
531
Assets under management (billions of Canadian dollars)
530
441
Average number of full-time equivalent staff
15,093
16,130
1
For the year ended October 31, 2023, certain amounts have been restated for the adoption of IFRS 17. Refer to
Note 4 of the Bank’s 2024 Consolidated Financial Statements for further
details.
2
Includes recoveries from reinsurers for catastrophe claims of $718 million (2023: nil).
3
Includes estimated losses related to catastrophe claims of $1,223 million (2023: $307 million).
4
Capital allocated to the business segment was increased to 11.5%
CET1 Capital effective fiscal 2024 compared with 11%
in the prior year.
5
Efficiency ratio, net of ISE is calculated by dividing non-interest expenses by total revenue, net of ISE.
Total revenue, net of ISE
– 2024: $6,888 million, 2023: $6,616 million. Total
revenue, net of ISE is a non-GAAP financial measure. Refer to “Non-GAAP and Other Financial Measures” in the
“How We Performed” section and the Glossary of this document for
additional information about this metric.
6
Includes
AUA administered by TD Investor Services, which is part of the Canadian Personal and Commercial
Banking segment.
REVIEW OF FINANCIAL PERFORMANCE
Wealth Management and Insurance reported net income
for the year was $1,955 million, a decrease
of $46
million, or 2%, compared with last year, reflecting
higher estimated losses from catastrophe
claims and higher non-interest expenses,
partially offset by higher revenue. The ROE for
the year was 31.8%, compared
with 34.9% last year.
Revenue for the year was $13,535 million.
This represents an increase of $1,905 million, or
16%, compared with last year, of which $718 million,
or 6%, was
driven by reinsurance recoveries for catastrophe
claims. Non-interest income was $12,309
million. This represents an increase of $1,743
million, or 16%,
compared with last year, of which $718 million, or 7%, was
driven by reinsurance recoveries for catastrophe
claims. The remaining increase reflects
higher
insurance premiums, higher fee-based revenue,
and higher transaction revenue. Net interest
income was $1,226 million, an increase
of $162 million, or 15%,
compared with last year, reflecting higher deposit margins,
partially offset by lower deposit volumes.
AUA were $651 billion as at October 31, 2024,
an increase of $120 billion, or 23%, compared
with last year, reflecting market appreciation and net asset
growth. AUM were $530 billion as at October
31, 2024, an increase of $89 billion, or
20%, compared with last year, primarily reflecting market appreciation.
Insurance service expenses for the year
were $6,647 million. This represents an increase
of $1,633 million, or 33%, compared with last
year, of which $916
million, or 18%, was driven by estimated
losses from catastrophe claims. The
remaining increase reflects less favourable
prior years’ claims development and
increased claims severity.
Non-interest expenses for the year were
$4,285 million, an increase of $377 million, or
10%, compared with last year, reflecting higher variable
compensation,
higher technology spend supporting business
growth, and provisions related to litigation
matters.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 35
$0
$300
$600
$900
$1,200
$1,500
2023
2024
NET INCOME
39,40
(millions of Canadian dollars)
Reported
Adjusted
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
2023
2024
TOTAL REVENUE
39
(millions of Canadian dollars)
$25
$30
$35
$40
$45
$50
$55
$60
$65
$70
$75
$80
$85
$90
$95
$100
$105
2023
2024
AVERAGE GROSS LENDING
PORTFOLIO
(billions of Canadian dollars)
The efficiency ratio for the year was 31.7%, compared
with 33.6% last year. The efficiency ratio, net of ISE for the
year was 62.2%, compared with 59.1% last
year.
OPERATING ENVIRONMENT AND OUTLOOK
The anticipated declining interest rate environment,
modest economic growth and market conditions
in Canada and the U.S. are expected to impact
Wealth
Management and Insurance results in
fiscal 2025. Our continued focus on our
strategic priorities and investments in leading
digital platforms are expected to help
offset headwinds from pressure on fees from rising
competition, increases in insurance claims
due to severe weather-related events and
claims severity. Our
businesses are focused on continuing
to deliver high-quality advice, educational
content and innovative financial products
to our customers, and investment in risk
and control infrastructure while exercising
disciplined expense management to help
navigate the changing environment.
BUSINESS SEGMENT ANALYSIS
Wholesale Banking
3940
Operating under the brand name TD Securities, Wholesale Banking offers capital markets and corporate and investment
banking services to corporate, government, and institutional clients in key global financial centres across North America,
Europe and Asia-Pacific.
TABLE 21: REVENUE
(millions of Canadian dollars)
2024
2023
Global markets
$
4,218
$
3,265
Corporate and investment banking
3,104
2,618
Other
(36)
(65)
Total
$
7,286
$
5,818
LINES OF BUSINESS
●
Global Markets – sales, trading and research,
debt and equity underwriting, client securitization,
prime services, and trade execution services
41
.
●
Corporate and Investment Banking – corporate
lending and syndications, debt and
equity underwriting, advisory services, trade
finance, cash
management, investment portfolios, and related
activities
41
.
●
Other – investment portfolios and other
accounting adjustments.
INDUSTRY PROFILE
The wholesale banking sector is a mature,
highly competitive market comprised of banks,
large global investment firms, and independent
niche dealers. Wholesale
Banking provides capital markets and
corporate and investment banking services
to corporate, government, and institutional
clients. Changing regulatory
requirements continue to impact strategy
and returns for the sector. Firms are responding by shifting
their focus to client-driven trading revenue
and fee income to
reduce risk, preserve capital, and are also investing
in technology to support growing levels
of electronic trading across all markets.
Competition is expected to
remain intense for transactions with high-quality
clients. Longer term, wholesale banks with a diversified
client-focused business model, a full suite of
products and
services, and the ability to manage costs and
capital effectively will be well-positioned to achieve
attractive returns for shareholders.
39
Includes the acquisition of Cowen Inc. effective March 1, 2023.
40
For additional information about the Bank’s use of non-GAAP financial measures, refer to “Non-GAAP
and Other Financial Measures” in the “Financial Results Overview”
section of this
document.
41
Certain revenue streams are shared between Global Markets and Corporate and Investment Banking lines of business
in accordance
with an established agreement.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 36
STRATEGIC OBJECTIVES, ACCOMPLISHMENTS
AND PRIORITIES
BUSINESS STRATEGY
BUSINESS HIGHLIGHTS IN
2024
Become a Top 10 North American
Investment Bank with global reach
●
TD Securities and TD Cowen achieved
significant integration milestones including
the implementation of a unified
Investment Banking, Capital Markets and
Research platform, integrating coverage models,
and streamlining delivery
of capabilities for clients
●
TD began a multi-year investment in Global
Transaction Banking (GTB) to scale the business; GTB
corporate
deposits grew by 25% in 2024
●
Delivered client-focused ESG advisory
and financing solutions as demonstrated
by several marquee transactions and
recognition including:
–
Lead Manager on a US$1.5 billion Social Benchmark
for the International Finance Corporation (IFC)
to support
low-income communities in emerging
markets. This transaction was IFC’s largest ever
social bond
–
Lead Manager on KfW Development Bank AUD1.5
billion Green Bond. This transaction was KfW’s
largest ever
transaction
in the Australian market
–
Winner of Environmental Finance’s 2024 Sustainable
Debt Award for “Green Bond of the Year”, recognizing
TD’s 2023 Green Bond issuance
–
Awarded “Best Specialist ESG Research”
for 2024 by ESG Investing Awards, highlighting
the outstanding
dedication and commitment of TD Cowen’s research
to provide action-oriented and investable
research to ESG
and sustainability funds and institutional investors
●
Ranked #1 in Telecommunications and Media in the 2024 Extel Canada
Research Survey
●
Ranked #1 in Washington Research in the 2024 U.S.
Extel All-American Research Survey
●
Recognized in Euromoney Foreign Exchange
Awards 2024: World’s Best FX Bank for FX Data Management,
and
Canada’s Best FX Bank
In Canada, be a top-ranked
Investment Bank
●
Achieved top ranking across several major
products in the Canadian markets including:
–
#1 investment bank in Canadian M&A Announced
and Completed transactions
42
, and in Canadian Loan
Syndications
43
●
Delivered on several marquee and strategic
acquisitions and led notable transactions
in the Canadian market:
–
Advised the Special Committee of Nuvei on its
take-private by Advent International with the
support of Nuvei’s
multiple voting shareholders for an implied
enterprise value of US$6.3 billion
–
Advised Pembina Pipeline on its acquisition
of Enbridge’s interest in Alliance and Aux Sable
for $3.1 billion and
was lead left bookrunner on $1.3 billion bought
offering of subscription receipts financing
–
Advised Teck Resources on its sale of the steelmaking coal business, Elk
Valley Resources, to Glencore and
Nippon Steel Corporation for an implied enterprise
value of US$9.0 billion
–
Joint Bookrunner on TMX Group’s $1.1 billion
3 Tranche Debt Offering to finance the acquisition of
VettaFi
–
Served as Exclusive Financial Advisor to Advantage
Energy Ltd. on its $450 million acquisition
of the Charlie
Lake and Montney assets; TD also acted as Lead
Left Bookrunner on the concurrent bought
offering of
$125 million extendible convertible debentures,
$65 million subscription receipts and entered
the company’s
upsized bank syndicate
In the U.S., deliver value and
trusted advice in sectors where we
have competitive expertise
●
This quarter, TD Securities was joint lead on TD’s secondary
sale of Schwab shares in a US$2.5 billion
block trade,
one of the ten largest U.S. block trades since
2010
●
Demonstrated the strength of our combined
TD Securities and TD Cowen franchises
in the U.S.:
–
Acted as an Initial Underwriter, Joint Lead Arranger and
Joint Bookrunner on the US$9.2 billion
financing
package supporting the acquisition of Truist Insurance
Holdings by Stone Point Capital and Clayton,
Dubilier &
Rice; TD Securities also served as an
M&A advisor on this marquee US$15.5 billion
transaction
–
Joint Bookrunner on Arrowhead Pharmaceuticals’
US$450 million Underwritten Offering
–
Joint Bookrunner on Vera Therapeutics’
US$287.5 million Follow-On Offering
–
Lead Bookrunner for Avidity Biosciences’
US$461 million Follow-On Offering
–
Acting as financial advisor to Blue Owl Capital
Inc. on its pending acquisition
44
of IPI Partners, LLC for
approximately US$1.0 billion
●
E-trading market leader in Muni Bond trading
and expanded volume in Credit; TD ranking
for corporate credit trade
counts on MarketAxess increased notably
throughout 2024 to reach #2 in October 2024
In Europe and Asia-Pacific,
leverage our global capabilities to
build connected, sustainable
franchises
●
Continued strong success with global clients:
–
TD was Lead Manager on a US$5 billion
5-year Sustainable Development Bond
for the International
Development Association
–
Active bookrunner on EUR 5 billion dual-tranche
benchmark offering for KfW
–
Inaugural EUR-denominated 1.25 billion
benchmark bond for Province of Saskatchewan
–
Inaugural EUR 500 million preferred
senior benchmark for BayerLB
●
Launched cash equity trading desk in Singapore
●
Demonstrating continued strength in global
coverage for key clients, TD led all 5 Australian
dollar bond issuances for
Canadian provinces in 2024
42
Source: Refinitiv; Canadian target completed and announced transactions over the last twelve months ended October
31, 2024.
43
Source: Bloomberg; Calendar year-to-date through October 31, 2024.
44
Deal announced on October 7, 2024.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 37
BUSINESS STRATEGY
BUSINESS HIGHLIGHTS IN
2024
Continue to unlock OneTD
opportunities to grow with and
support our TD Retail and Wealth
partners
●
In partnership with other TD businesses:
–
TD Securities and TD Wealth enabled fully paid
lending to enhance returns for Wealth clients
–
Launched real-time trading in partial shares
for U.S. and Canadian equities, enabling
investors to buy and sell a
fraction of stocks and ETFs, making investing
more accessible; TD became the first bank-owned
brokerage in
Canada to provide real-time partial shares capability
–
In partnership with TD Bank, America’s Most
Convenient Bank, TD Securities began to issue
equity-linked
certificates of deposit, broadening the
suite of products available to clients in the U.S.
–
Migrated U.S. retail order flow to internal
execution venue, making it fully accessible
to TD’s institutional clients,
resulting in exceptional execution for both retail
and institutional clients
Invest in an efficient and agile
infrastructure, innovation and data
capabilities, and risk & control
enhancements
●
Implemented T+1 settlements resulting in
shortened standard settlement cycle for
most trades in North American
securities (fixed income and equities)
●
Successfully transitioned all existing derivatives,
securities and loan agreements referencing
Canadian Dollar Offered
Rate (CDOR) to the alternative reference rate,
Canadian Overnight Repo Rate Average (CORRA)
Be an extraordinary and inclusive
place to work by attracting,
developing, and retaining the best
talent
●
Raised $2.1
million for children’s charities through the annual
Underwriting Hope campaign
●
Recognized in Euromoney Foreign Exchange
Awards 2024: World’s Best FX Bank for Diversity & Inclusion
KEY PRIORITIES FOR
2025
●
Drive growth to build a Top 10 North American investment bank with global reach
– Scale our advisory and capital markets businesses
through a focused client strategy
– Enhance our e-trading offerings across Global
Markets
– Continue to build an integrated prime brokerage
platform
– Progress a multi-year build to create a digitally
enabled North American treasury platform
●
Deliver an integrated investment bank and
deepen partnerships across the firm to realize
OneTD synergies
– Leverage Wholesale Banking’s full-service platform
and talent base to expand and deepen
client relationships
– Grow presence with financial sponsors
and expand offerings for corporate derivatives
– Partner with TD’s retail businesses to launch
new products,
as appropriate, to meet TD client needs
and realize synergies
●
Strengthen foundational capabilities to support
business growth
-
Enhance foundation for future growth through
investments in core infrastructure, risk and
control enhancements, process improvements,
and
automation
-
Maintain our focus on prudent risk management
-
Continue to be an extraordinary place to work
and attract top talent with a focus on
culture, inclusion, and diversity
TABLE 22: WHOLESALE BANKING
1
(millions of Canadian dollars, except
as noted)
2024
2023
Net interest income (TEB)
$
582
$
1,538
Non-interest income
6,704
4,280
Total revenue
7,286
5,818
Provision for (recovery of) credit losses –
impaired
247
16
Provision for (recovery of) credit losses –
performing
70
110
Total provision for (recovery of) credit losses
317
126
Non-interest expenses – reported
5,576
4,760
Non-interest expenses – adjusted
2,3
5,197
4,326
Provision for (recovery of) income taxes
(TEB) – reported
275
162
Provision for (recovery of) income taxes
(TEB) – adjusted
2
357
251
Net income – reported
$
1,118
$
770
Net income – adjusted
2
1,415
1,115
Selected volumes and ratios
Trading-related revenue (TEB)
4
$
2,782
$
2,360
Average gross lending portfolio (billions of Canadian
dollars)
5
96.7
94.7
Return on common equity – reported
6
7.1
%
5.4
%
Return on common equity – adjusted
2,6
8.9
7.9
Efficiency ratio – reported
76.5
81.8
Efficiency ratio – adjusted
2
71.3
74.4
Average number of full-time equivalent staff
7,042
7,143
1
Wholesale Banking results for 2023 include the acquisition of Cowen Inc. effective March 1, 2023.
2
For additional information about the Bank’s use of non-GAAP financial measures, refer to “Non-GAAP
and Other Financial Measures” in the “Financial Results Overview” section of this
document.
3
Adjusted non-interest expenses exclude the acquisition and integration-related charges for the Cowen
acquisition – 2024: $379 million ($297 million after-tax), 2023: $434 million ($345
million after-tax).
4
Includes net interest income (loss) (TEB) of $(653) million (2023 – $615 million), and trading income
(loss) of $3,435
million (2023
– $1,745 million). Trading-related revenue (TEB) is a
non-GAAP financial measure. Refer to “Non-GAAP and Other Financial Measures” in the “Financial
Results Overview” section and the Glossary of this document for additional
information about this metric.
5
Includes gross loans and bankers’
acceptances (BA) relating to Wholesale Banking,
excluding letters of credit, cash collateral, credit default swaps, and allowance for credit losses.
6
Capital allocated to the business segment was increased to 11.5%
CET1 Capital effective fiscal 2024 compared with 11%
in the prior year.
REVIEW OF FINANCIAL PERFORMANCE
Wholesale Banking reported net income for
the year was $1,118
million, an increase of $348 million, or
45%, compared with the prior year, primarily reflecting
higher revenues, partially offset by higher non-interest
expenses and higher PCL. On an adjusted
basis, net income was $1,415 million, an
increase of
$300 million, or 27%.
Revenue for the period, including TD Cowen,
was $7,286 million, an increase of $1,468
million, or 25%, compared with the prior year, primarily reflecting
higher
lending revenue, trading-related revenue, underwriting
fees, and equity commissions.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 38
PCL was $317 million, an increase of $191
million compared with last year. PCL – impaired was $247
million, an increase of $231 million, primarily reflecting
a
small number of impairments across various
industries. PCL – performing was $70
million, a decrease of $40 million. The
current year performing provisions
largely reflect credit migration across various
industries.
Reported non-interest expenses for the period,
including TD Cowen, were $5,576 million,
an increase of $816 million, or 17%, compared
with the prior year,
primarily reflecting higher operating expenses,
variable compensation commensurate
with higher revenue, the impact of foreign
exchange translation and
payments related to the U.S. record keeping
and trading regulatory matters, partially
offset by lower acquisition and integration-related
costs. On an adjusted
basis, non-interest expenses were $5,197
million, an increase of $871 million, or 20%.
OPERATING ENVIRONMENT AND OUTLOOK
The operating environment remains challenging,
characterized by volatile markets, economic
uncertainty, geopolitical and ESG considerations, disruptive
technologies, intensifying competition, and evolving
capital and regulatory requirements.
These factors may affect corporate and investor
sentiment and market
and business conditions in a positive or negative
manner which makes capital markets results
difficult to forecast. TD Securities is confident
in its increasingly
diversified and client-focused business
model, and believes that the combined
TD Securities and TD Cowen franchise is
well positioned to help support future
growth. If market conditions are accommodating,
then, in fiscal 2025, the Bank expects that
these synergies will help fuel revenue
momentum above the average
$1.8 billion quarterly revenue seen in 2024 and
is targeting to deliver an average quarterly
adjusted net income after tax of between
$375 million and $425 million,
although results may vary from quarter
to quarter depending on operating and
market conditions
45
.
BUSINESS SEGMENT ANALYSIS
Corporate
Corporate segment is comprised of service and control functions. Certain costs relating to these functions are allocated to
operating business segments. The basis of allocation and methodologies are reviewed periodically to align with
management’s evaluation of the Bank’s business segments.
TABLE 23: CORPORATE
(millions of Canadian dollars)
2024
2023
Net (loss) – reported
$
(1,525)
$
(4,389)
Adjustments for items of note
Amortization of acquired intangibles
290
313
Acquisition and integration charges related to the Schwab
transaction
109
149
Share of restructuring and other charges from investment
in Schwab
49
35
Restructuring charges
566
363
Payment related to the termination of the FHN transaction
–
306
Impact from the terminated FHN acquisition-related capital hedging
strategy
242
1,251
Impact of retroactive tax legislation on payment card clearing services
–
57
Gain on sale of Schwab shares
(1,022)
–
Indirect tax matters
226
–
Civil matter provision/Litigation settlement
274
1,642
Less: impact of income taxes
CRD and federal tax rate increase for fiscal 2022
–
(585)
Other items of note
396
944
Net (loss) – adjusted
1
$
(1,187)
$
(632)
Decomposition of items included in net (loss) –
adjusted
Net corporate expenses
2
$
(1,641)
$
(942)
Other
454
310
Net (loss) – adjusted
1
$
(1,187)
$
(632)
Selected volumes
Average number of full-time equivalent staff
23,103
22,889
1
For additional information about the Bank’s use of non-GAAP financial measures, refer to “Non-GAAP
and Other Financial Measures” in the “Financial Results Overview” section of this
document.
2
For additional information about this metric, refer to the Glossary of this document.
Corporate segment includes expenses related
to service and control functions, the impact
of treasury and balance sheet management
activities, certain enterprise
level tax items, and intercompany items such
as elimination of TEB and the retailer program
partners’ share of the results of the
U.S. strategic cards portfolio.
Corporate segment’s reported net loss for the year
was $1,525 million, compared with a net loss
of $4,389 million last year. The lower net loss primarily reflects
the
current year gain on sale of Schwab shares,
lower negative impacts from the hedging
strategy related to the terminated First Horizon
acquisition and lower civil
matter provision/litigation settlement, partially
offset by the higher restructuring charges
and the impact of the provision for indirect
tax matters in the current year.
Net corporate expenses increased $699
million compared to the prior year, primarily reflecting higher investments
in risk and control infrastructure.
Of the
segment’s net corporate expenses for the
current year, approximately $460 million (US$340 million) reflects
our U.S. governance and control investments,
including costs for U.S. BSA/AML remediation.
The adjusted net loss for the year was $1,187
million, compared with an adjusted net loss of
$632 million last year.
45
This paragraph contains forward-looking information, that is based on the Bank’s assumptions about
interest rates, market volatility, market engagement,
credit conditions, competition,
and productivity initiatives, and is subject to risks and uncertainties, including those identified in the paragraph,
as well as other risk factors identified in the “Risk Factors That May Affect
Future Results” section in this document, including global economic conditions, regulatory requirements and investor
sentiment.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 39
2024 ACCOMPLISHMENTS AND FOCUS
FOR 2025
●
In 2024, the Corporate segment continued
to support the Bank’s business segments by executing
on enterprise and regulatory initiatives
and managing
the Bank’s balance sheet and funding activities.
●
In 2025, the Corporate segment’s service and
control functions are focused on continuing
to evolve to meet the complex and challenging
operating
environment and respond to changing expectations
of all our stakeholders.
●
The Corporate segment will also maintain its
focus on enhancing the processes, technologies
and regulatory controls that help enable the
Bank’s
businesses to operate efficiently, effectively and in compliance with all applicable
regulatory requirements.
2023 FINANCIAL RESULTS OVERVIEW
Summary of 2023 Performance
NET INCOME
Reported net income for the year was $10,634
million, a decrease of $6,795 million, or 39%,
compared with the prior year. The decrease reflects higher
non-
interest expenses, the impact of the terminated
First Horizon acquisition-related capital hedging
strategy, and higher PCL, partially offset by higher revenues. On
an adjusted basis, net income for the year
was $14,995 million, a decrease of $430 million,
or 3%, compared with prior year. The reported ROE
for the year was
9.9%, compared with 18.0% prior year. The adjusted ROE
for the year was 14.2%, compared with 15.9%
prior year.
Reported diluted EPS for the year was $5.52,
a decrease of 42%, compared with $9.47
prior year. Adjusted diluted EPS for the year was $7.91,
a decrease of
5%, compared with $8.36 prior year.
Reported revenue was $50,690 million, an
increase of $1,658 million, or 3%, compared
with prior year. Adjusted revenue was $52,037 million, an increase
of
$5,867 million, or 13%, compared with prior
year.
NET INTEREST INCOME
Reported net interest income for the year
was $29,944 million, an increase of $2,591
million, or 9%, compared with the prior year. The increase reflects
margin
growth in the personal and commercial banking
businesses and the impact of foreign exchange
translation, partially offset by lower net interest
income in
Wholesale Banking and lower sweep and other
deposit volumes in U.S. Retail. Adjusted
net interest income was $30,394 million,
an increase of $3,087 million, or
11%.
NON-INTEREST INCOME
Reported non-interest income for the year
was $20,746 million, a decrease of $933 million,
or 4%, compared with the prior
year, primarily reflecting the impact of
the terminated First Horizon acquisition-related
capital hedging strategy and gain in the
prior year on sale of Schwab shares. Adjusted
non-interest income was
$21,643 million, an increase of $2,780 million, or
15%, primarily reflecting higher equity
commissions, global transaction banking revenue,
advisory fees, and
equity underwriting fees in Wholesale Banking,
including TD Cowen, and higher insurance
revenue, partially offset by lower fee-based revenue
in the personal and
commercial banking and wealth businesses.
PROVISION FOR CREDIT LOSSES
PCL for the year was $2,933 million,
an increase of $1,866 million compared
with the prior year. PCL – impaired was $2,486 million, an
increase of $1,049 million,
reflecting some normalization of credit performance.
PCL – performing was $447 million,
compared with a recovery of $370
million in the prior year. This year’s
performing provisions were largely recorded
in the Canadian Personal and Commercial
Banking and Wholesale Banking segments,
reflecting credit conditions and
volume growth. Total PCL as an annualized percentage of credit volume
was 0.34%.
INSURANCE SERVICE EXPENSES
Insurance service expenses were $5,014
million, an increase of $2,114 million, or 73%, compared with the
prior year, reflecting presentation changes from the
adoption of IFRS 17 which resulted in a corresponding
decrease primarily in non-interest expenses,
the impact of changes in the discount
rate which resulted in a
similar increase in the fair value of investments
supporting claims liabilities reported in non-interest
income, increased claims severity and
higher estimated losses
from catastrophe claims.
NON-INTEREST EXPENSES
Reported non-interest expenses for the year
were $29,855 million, an increase of $5,214
million, or 21%, compared with the prior year, reflecting
higher employee-
related expenses, including TD Cowen, the
Stanford litigation settlement, and higher acquisition
and integration related charges, including
charges related to the
terminated First Horizon acquisition.
On an adjusted basis, non-interest expenses
were $26,517 million, an increase of $2,158
million, or 9%.
PROVISION FOR INCOME TAXES
Reported total income and other taxes decreased
by $631million, or 10.9%, compared with
the prior year, reflecting a decrease in income
tax expense of
$868 million, or 21.8%, partially offset by an
increase in other taxes of $237 million,
or 13.2%. Adjusted
total income and other taxes increased
by $293 million
from the prior year, or 5.4%, reflecting an increase
in income tax expense of $56 million,
or 1.6%, and an increase in other taxes of
$237 million, or 13.2%.
The Bank’s reported effective income tax rate was
24.2% for 2023, compared with 19.5%
in the prior year. The year-over-year increase
primarily reflects the
implementation of the Canada Recovery
Dividend and the 1.5% Canadian federal
tax rate increase beginning in 2022, the
impact of the terminated First Horizon
transaction, and favourable tax impacts in the
prior year associated with the sale of Schwab
shares, earnings mix and the recognition of unused
tax losses. For a
reconciliation of the Bank’s effective income
tax rate with the Canadian statutory income
tax rate, refer to Note 24 of the 2023 Consolidated
Financial Statements.
The Bank reported its investment in Schwab
using the equity method of accounting. Schwab’s
tax expense (2023: $279 million; 2022: $319
million) was not part
of the Bank’s effective tax rate.
BALANCE SHEET
Total assets
were $1,955 billion as at October 31, 2023,
an increase of $38 billion, from October
31, 2022. The impact of foreign exchange
translation from the
depreciation in the Canadian dollar increased
total assets by $16 billion. The increase in
total assets reflects an increase in loans,
net of allowances for loan losses
of $65 billion, securities purchased under
reverse repurchase agreements of $44 billion,
other assets of $15 billion, trading loans,
securities, and other of $8 billion,
financial assets designated at fair value through
profit or loss of $1 billion and investment in
Schwab of $1 billion. The increase was
partially offset by a decrease in
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 40
cash and interest-bearing deposits with
banks of $41 billion, debt securities at amortized
cost of $35 billion, derivative assets of $16
billion, and non-trading
financial assets at fair value through profit or loss
of $4 billion.
Total liabilities
were $1,843 billion as at October
31, 2023, an increase of $37 billion from
October 31, 2022. The impact of foreign exchange
translation from the
depreciation in the Canadian dollar increased
total liabilities by $17 billion. The increase in
total liabilities reflects an increase in obligations
related to securities
sold under repurchase agreements of $39 billion,
financial liabilities designated at fair value through
profit or loss of $29 billion, other liabilities of
$15 billion and
trading deposits of $7 billion. The increase
was partially offset by a decrease in deposits of $32
billion, derivative liabilities of $19 billion and
subordinated notes
and debentures $2 billion.
Equity
was $112 billion as at October 31, 2023, an increase of $1 billion from
October 31, 2022. The increase reflects
common shares issued with a 2% discount
under the dividend reinvestment plan, net of
share repurchases, and gains in accumulated
other comprehensive income, partially offset
by lower retained
earnings. The increase in accumulated other
comprehensive is primarily driven by the impact
of foreign currency translation. The retained
earnings decreased as
the net income for the year is offset by the dividends
paid and the premium on the repurchase
of common shares.
GROUP FINANCIAL CONDITION
Balance Sheet Review
TABLE 24: CONDENSED CONSOLIDATED
BALANCE SHEET ITEMS
(millions of Canadian dollars)
As at
October 31, 2024
October 31, 2023
Assets
Cash and Interest-bearing deposits
with banks
$
176,367
$
105,069
Trading loans, securities, and other
175,770
152,090
Non-trading financial assets at fair value through
profit or loss
5,869
7,340
Derivatives
78,061
87,382
Financial assets designated at fair value through
profit or loss
6,417
5,818
Financial assets at fair value through other
comprehensive income
93,897
69,865
Debt securities at amortized cost, net of allowance
for credit losses
271,615
308,016
Securities purchased under reverse repurchase
agreements
208,217
204,333
Loans, net of allowance for loan losses
949,549
895,947
Investment in Schwab
9,024
8,907
Other
1
86,965
110,372
Total assets
1
$
2,061,751
$
1,955,139
Liabilities
Trading deposits
$
30,412
$
30,980
Derivatives
68,368
71,640
Financial liabilities designated at fair value
through profit or loss
207,914
192,130
Deposits
1,268,680
1,198,190
Obligations related to securities sold
under repurchase agreements
201,900
166,854
Subordinated notes and debentures
11,473
9,620
Other
1
157,844
173,654
Total liabilities
1
1,946,591
1,843,068
Total equity
1
115,160
112,071
Total liabilities and equity
1
$
2,061,751
$
1,955,139
1
For the year ended October 31, 2023, certain amounts have been restated for the adoption of IFRS 17. Refer to
Note 4 of the Bank’s 2024 Consolidated Financial Statements for further
details.
Total assets
were $2,062 billion as at October 31, 2024,
an increase of $107 billion, from October
31, 2023. The impact of foreign exchange
translation from the
depreciation in the Canadian dollar increased
total assets by $3 billion.
The increase in total assets reflects an increase
in cash and interest-bearing deposits with banks
of $71 billion, loans, net of allowances
for loan losses of
$53 billion, trading loans, securities, and other
of $24 billion, financial assets at fair value
through other comprehensive income
of $24 billion, securities purchased
under reverse repurchase agreements of $4
billion and financial assets designated
at fair value through profit or loss of $1 billion.
The increase was partially offset
by a decrease in debt securities at amortized
cost of $37 billion, other assets of $23 billion,
derivative assets of $9 billion and non-trading
financial assets at fair
value through profit or loss of $1 billion.
Cash and interest-bearing deposits with
banks
increased $71 billion primarily reflecting
cash management activities.
Trading loans, securities, and other
increased $24 billion primarily in equity securities,
securitized mortgages and commodities held
for trading, partially offset
by government securities held for trading.
Non-trading financial assets at fair
value through profit or loss
decreased $1 billion primarily reflecting
maturities and sales.
Derivative
assets
decreased $9 billion primarily reflecting changes
in mark-to-market values of foreign exchange
and interest rate contracts.
Financial assets designated at fair value
through profit or loss
increased $1 billion primarily reflecting purchases,
partially offset by maturities and sales.
Financial assets at fair value through other
comprehensive income
increased $24 billion primarily reflecting new
investments, partially offset by maturities
and
sales.
Debt securities at amortized cost, net
of allowance for credit losses
decreased $37 billion primarily reflecting
maturities and sales of government securities,
partially offset by new investments and the impact
of risk management activities.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 41
Securities purchased under reverse repurchase
agreements
increased $4 billion
primarily
reflecting an increase in volume.
Loans, net of allowance for loan losses
increased $53 billion reflecting volume growth
in business and government loans, including
the impact of bankers’
acceptances
transitioned to business and government loans
following the cessation of CDOR, volume
growth in residential real estate secured lending,
and the
impact of foreign exchange translation.
Investment in Schwab
remains relatively flat as the impact of
the Bank’s share of Schwab’s other comprehensive
income and net income is offset by the
reduction in the Bank’s ownership interest in
Schwab with the sale of 40.5 million shares.
Other
assets decreased $23 billion primarily
reflecting the impact of the cessation of
CDOR on customer’s liabilities under acceptances
and decrease in amounts
receivable from brokers, dealers and clients
due to lower volumes of pending trades.
Total liabilities
were $1,947 billion as at October 31, 2024,
an increase of $104 billion from October 31,
- The impact
of foreign exchange translation from the
depreciation in the Canadian dollar increased
total liabilities by $3 billion.
The increase in total liabilities reflects an
increase in deposits of $71 billion, obligations
related to securities sold under repurchase
agreements of $35 billion,
financial liabilities designated at fair value
through profit or loss of $16 billion and subordinated
notes and debentures of $2 billion.
The increase was partially offset
by a decrease in other liabilities of $16 billion,
derivative liabilities of $3 billion and trading
deposits of $1 billion.
Trading deposits
decreased $1 billion primarily reflecting
maturities, partially offset by new issuances.
Derivative
liabilities
decreased $3 billion primarily reflecting
changes in mark-to-market values of foreign
exchange and interest rate contracts.
Financial liabilities designated at fair value
through profit or loss
increased $16 billion primarily reflecting
new issuances, partially offset by maturities.
Deposits
increased $71 billion reflecting higher
volumes in business and government, bank
and personal deposits and the impact of
foreign exchange translation.
Obligations related to securities sold
under repurchase agreements
increased $35 billion primarily reflecting
an increase in volume.
Subordinated notes and debentures
increased $2 billion primarily reflecting
new issuances, partially offset by redemptions.
Other
liabilities decreased $16 billion primarily
reflecting the impact of the cessation of
CDOR on acceptances and a volume decrease
in obligations related to
securities sold short and amounts payable
to brokers, dealers and clients, partially offset by increase
in securitization liabilities at fair value and
liabilities related to
structured entities.
Equity
was $115 billion as at October 31, 2024, an increase of $3 billion from
October 31, 2023. The increase reflects gains
in accumulated other comprehensive
income,
partially offset by lower retained earnings.
The increase in accumulated other comprehensive
income is primarily driven by gains on
cash flow hedges and
the Bank’s share of the other comprehensive
income from investment in Schwab.
The retained earnings decreased as the net
income for the year is more than
offset by the dividends paid and the premium on the
repurchase of common shares.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 42
GROUP FINANCIAL CONDITION
Credit Portfolio Quality
AT A GLANCE OVERVIEW
●
Loans and acceptances, net of allowance
for loan losses were $950 billion,
an increase of $36 billion compared
with last year.
●
Impaired loans net of Stage 3 allowances
were $3,407 million, an increase of $1,130
million compared with last year.
●
Provision for credit losses was $4,253
million, compared with $2,933 million
last year.
●
Total allowance for credit losses including off-balance sheet
positions increased by $952 million to $9,141
million.
LOAN PORTFOLIO
The Bank increased its loans and acceptances
net of allowance for loan losses by $36
billion, or 4%, from the prior year, primarily reflecting volume
growth in the
real estate secured lending and business
and government portfolios, and the impact
of foreign exchange.
While the majority of the Bank’s credit risk exposure
is related to loans and acceptances,
the Bank also engaged in activities that have
off-balance sheet credit
risk. These include credit instruments
and derivative financial instruments, as explained
in Note 30 of the 2024 Consolidated Financial
Statements.
CONCENTRATION OF CREDIT RISK
The Bank’s loan portfolio continued to be concentrated
in Canadian and U.S. consumer lending,
comprised of residential mortgages, consumer
instalment and
other personal loans, and credit card loans,
representing 63% of total loans net of Stage
3 allowances, flat compared with 2023.
During the year, these portfolios
increased by $24 billion, or 4%, and totalled $600
billion at year end. Residential mortgages
represented 35% of total loans net of Stage
3 allowances in 2024, flat
compared with 2023. Consumer instalment and
other personal loans, and credit card loans
were 28% of total loans net of Stage 3 allowances
in 2024, flat
compared with 2023.
The Bank’s business and government loan portfolio
was 37% of total loans net of Stage 3 allowances,
flat compared with 2023. The largest business
and
government sector concentrations in Canada
were the Real estate and Financial sectors,
which comprised 6% and 2% of net loans, respectively. Real estate
and
Financial sectors were the largest U.S. sector
concentrations in 2024, representing 4% and
3% of net loans, respectively.
Geographically, the credit portfolio remained concentrated in
Canada. In 2024, the percentage of loans
net of Stage 3 allowances held in Canada
was 66%, flat
compared with 2023. The largest Canadian regional
exposure was in Ontario, which represented
39% of total loans net of Stage 3 allowances
for 2024, flat
compared to the prior year.
The remaining credit portfolio was predominantly
in the U.S., which represented 33% of loans
net of Stage 3 allowances, flat compared
with 2023. Exposures to
other geographic regions were relatively
small. The largest U.S. regional exposures
were in New York and New England which represented 6% and 5% of
total
loans net of Stage 3 allowances, respectively, and consistent
with the prior year.
Under IFRS 9,
Financial Instruments
(IFRS 9), the Bank calculates allowances
for expected credit losses (ECLs) on debt
securities at amortized cost (DSAC)
and debt securities at fair value through
other comprehensive income (FVOCI). The
Bank has $361 billion in such debt securities
of which $361 billion are
performing securities (Stage 1 and 2) and none
are impaired.
The allowance for credit losses on DSAC and
debt securities at FVOCI was $3 million
and $1 million,
respectively.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 43
TABLE 25: LOANS AND ACCEPTANCES, NET OF STAGE 3 ALLOWANCE FOR LOAN LOSSES
BY INDUSTRY SECTOR
1,2
(millions of Canadian dollars, except as noted)
Percentage of total
October 31
October 31
October 31
October 31
2024
2023
2024
2023
Stage 3
allowances for
Gross
loan losses
Net
Net
loans
impaired
loans
loans
Canada
Residential mortgages
$
273,069
$
28
$
273,041
$
263,709
28.6
%
28.7
%
Consumer instalment and other personal
HELOC
3
123,036
31
123,005
117,587
12.9
12.8
Indirect Auto
29,837
98
29,739
28,721
3.1
3.1
Other
19,885
48
19,837
18,548
2.1
2.0
Credit card
20,510
90
20,420
18,746
2.0
2.0
Total personal
466,337
295
466,042
447,311
48.7
48.6
Real estate
Residential
27,874
7
27,867
27,782
2.9
3.0
Non-residential
25,962
25
25,937
24,820
2.7
2.7
Total real estate
53,836
32
53,804
52,602
5.6
5.7
Agriculture
11,218
7
11,211
9,892
1.2
1.1
Automotive
10,389
84
10,305
9,384
1.1
1.0
Financial
20,233
36
20,197
18,873
2.1
2.1
Food, beverage, and tobacco
3,387
96
3,291
3,059
0.3
0.3
Forestry
854
4
850
829
0.1
0.1
Government, public sector entities, and education
3,577
8
3,569
4,190
0.4
0.5
Health and social services
9,922
58
9,864
9,822
1.0
1.1
Industrial construction and trade contractors
6,180
16
6,164
5,607
0.6
0.6
Metals and mining
2,935
14
2,921
2,400
0.3
0.3
Oil and gas
2,265
11
2,254
2,288
0.2
0.2
Power and utilities
8,526
–
8,526
8,299
0.9
0.9
Professional and other services
5,733
43
5,690
5,716
0.6
0.6
Retail sector
5,020
66
4,954
4,564
0.5
0.5
Sundry manufacturing and wholesale
4,648
37
4,611
4,070
0.5
0.4
Telecommunications, cable, and media
5,325
6
5,319
4,294
0.6
0.5
Transportation
4,099
25
4,074
3,602
0.4
0.4
Other
5,811
12
5,799
6,345
0.6
0.7
Total business and government
163,958
555
163,403
155,836
17.0
17.0
Total Canada
630,295
850
629,445
603,147
65.7
65.6
United States
Residential mortgages
58,580
32
58,548
56,515
6.1
6.1
Consumer instalment and other personal
HELOC
3
11,525
22
11,503
10,566
1.3
1.2
Indirect Auto
42,981
58
42,923
41,012
4.5
4.5
Other
1,099
5
1,094
897
0.1
0.1
Credit card
20,123
288
19,835
19,596
2.1
2.1
Total personal
134,308
405
133,903
128,586
14.1
14.0
Real estate
Residential
13,727
10
13,717
11,956
1.4
1.2
Non-residential
28,152
25
28,127
28,514
2.9
3.0
Total real estate
41,879
35
41,844
40,470
4.3
4.2
Agriculture
1,182
–
1,182
1,173
0.1
0.1
Automotive
13,119
–
13,119
10,843
1.4
1.2
Financial
25,418
–
25,418
22,292
2.7
2.4
Food, beverage, and tobacco
4,584
1
4,583
4,396
0.5
0.5
Forestry
573
–
573
746
0.1
0.1
Government, public sector entities, and education
17,405
15
17,390
17,017
1.8
1.8
Health and social services
15,252
6
15,246
16,200
1.6
1.8
Industrial construction and trade contractors
2,555
4
2,551
2,413
0.3
0.3
Metals and mining
1,906
–
1,906
1,853
0.2
0.2
Oil and gas
1,586
5
1,581
1,594
0.2
0.2
Power and utilities
6,421
66
6,355
7,831
0.7
0.9
Professional and other services
18,434
24
18,410
17,518
1.9
1.9
Retail sector
6,199
8
6,191
6,318
0.6
0.7
Sundry manufacturing and wholesale
9,696
6
9,690
10,516
1.0
1.1
Telecommunications, cable, and media
7,748
45
7,703
9,175
0.8
1.0
Transportation
5,046
1
5,045
5,083
0.5
0.6
Other
4,104
6
4,098
2,746
0.4
0.3
Total business and government
183,107
222
182,885
178,184
19.1
19.3
Total United States
317,415
627
316,788
306,770
33.2
33.3
International
Personal
25
–
25
19
–
–
Business and government
10,138
65
10,073
10,024
1.1
1.1
Total international
10,163
65
10,098
10,043
1.1
1.1
Total excluding other loans
957,873
1,542
956,331
919,960
100.0
100.0
Other loans
Acquired credit-impaired loans
4
–
–
–
85
–
–
Total other loans
–
–
–
85
–
–
Total
$
957,873
$
1,542
$
956,331
$
920,045
100.0
%
100.0
%
Stage 1 and Stage 2 allowance for loan losses – performing
Personal, business and government
6,552
6,108
Total, net of allowance
$
949,779
$
913,937
Percentage change over previous year – loans and acceptances, net of Stage 3 allowance for loan
losses (impaired)
3.9
%
7.1
%
Percentage change over previous year – loans and acceptances, net of allowance
3.9
7.1
1
Primarily based on the geographic location of the customer’s address.
2
Includes loans that are measured at FVOCI.
3
Home equity line of credit.
4
Includes FDIC covered loans and other ACI loans.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 44
TABLE 26: LOANS AND ACCEPTANCES, NET OF STAGE 3 ALLOWANCE FOR LOAN LOSSES
BY GEOGRAPHY
1,2
(millions of Canadian dollars, except
as noted)
As at
Percentage of total
October 31
October 31
October 31
October 31
2024
2023
2024
2023
Stage 3
allowances for
loan losses
Gross loans
impaired
Net loans
Net loans
Canada
Atlantic provinces
$
14,500
$
18
$
14,482
$
13,662
1.5
%
1.5
%
British Columbia
3
103,107
63
103,044
96,010
10.8
10.4
Ontario
3
375,521
662
374,859
355,619
39.2
38.7
Prairies
3
84,753
72
84,681
88,417
8.8
9.6
Québec
52,414
35
52,379
49,439
5.5
5.4
Total Canada
630,295
850
629,445
603,147
65.8
65.6
United States
Carolinas (North and South)
17,943
21
17,922
17,983
1.9
2.0
Florida
27,841
49
27,792
26,709
2.9
2.9
New England
4
49,097
43
49,054
47,988
5.1
5.2
New Jersey
27,814
51
27,763
26,043
2.9
2.8
New York
59,422
95
59,327
56,821
6.2
6.2
Pennsylvania
17,513
18
17,495
18,731
1.8
2.0
Other
5
117,785
350
117,435
112,495
12.3
12.2
Total United States
317,415
627
316,788
306,770
33.1
33.3
International
Europe
5,506
65
5,441
5,843
0.6
0.6
Other
4,657
–
4,657
4,200
0.5
0.5
Total international
10,163
65
10,098
10,043
1.1
1.1
Total excluding other loans
957,873
1,542
956,331
919,960
100.0
100.0
Other loans
–
–
–
85
–
–
Total
$
957,873
$
1,542
$
956,331
$
920,045
100.0
%
100.0
%
Stage 1 and Stage 2 allowances
6,552
6,108
Total, net of allowance
$
949,779
$
913,937
Percentage change over previous year – loans and
acceptances,
net of Stage 3 allowances for loan losses (impaired)
2024
2023
Canada
4.4
%
6.5
%
United States
3.3
12.2
International
0.5
(46.4)
Other loans
(100.0)
(23.4)
Total
3.9
%
7.1
%
1
Primarily based on the geographic location of the customer’s address.
2
Includes loans that are measured at FVOCI.
3
The territories are included as follows: Yukon is included in British Columbia; Nunavut
is included in Ontario; and Northwest Territories
is included in the Prairies region.
4
The states included in New England are as follows: Connecticut, Maine, Massachusetts, New Hampshire, and Vermont.
5
Includes loans attributable to other states/regions including those outside TD’s core U.S. geographic
footprint.
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
so 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 may also purchase
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.
TABLE 27: CANADIAN REAL ESTATE
SECURED LENDING
1,2
(millions of Canadian dollars)
As at
Amortizing
Non-amortizing
Total
Residential
Home equity
Total amortizing real
Home equity
Mortgages
lines of credit
estate secured lending
lines of credit
October 31, 2024
Total
$
273,069
$
89,369
$
362,438
$
33,667
$
396,105
October 31, 2023
Total
$
263,733
$
86,943
$
350,676
$
30,675
$
381,351
1
Excludes loans classified as trading as the Bank intends to sell the loans immediately or in the near term, and loans
designated at FVTPL for which no allowance is recorded.
2
Amortizing includes loans where the fixed contractual payments are no longer sufficient to cover the
interest based on the rates in effect at October 31, 2024
and October 31, 2023,
respectively.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 45
TABLE 28: REAL ESTATE SECURED
LENDING
1,2
(millions of Canadian dollars, except as noted)
As at
Residential mortgages
Home equity lines of credit
Total
Insured
3
Uninsured
Insured
3
Uninsured
Insured
3
Uninsured
October 31, 2024
Canada
Atlantic provinces
$
2,445
0.9
%
$
4,753
1.7
%
$
158
0.1
%
$
2,207
1.8
%
$
2,603
0.7
%
$
6,960
1.8
%
British Columbia
4
8,311
3.0
48,362
17.7
804
0.7
22,840
18.6
9,115
2.3
71,202
18.0
Ontario
4
21,943
8.1
126,294
46.3
2,734
2.2
67,567
54.9
24,677
6.2
193,861
48.9
Prairies
4
17,685
6.5
22,120
8.1
1,499
1.2
12,459
10.1
19,184
4.8
34,579
8.7
Québec
6,616
2.4
14,540
5.3
509
0.4
12,259
10.0
7,125
1.8
26,799
6.8
Total Canada
57,000
20.9
%
216,069
79.1
%
5,704
4.6
%
117,332
95.4
%
62,704
15.8
%
333,401
84.2
%
United States
1,517
57,063
–
11,525
1,517
68,588
Total
$
58,517
$
273,132
$
5,704
$
128,857
$
64,221
$
401,989
October 31, 2023
Canada
Atlantic provinces
$
2,561
1.0
%
$
4,557
1.7
%
$
181
0.2
%
$
1,938
1.6
%
$
2,742
0.7
%
$
6,495
1.7
%
British Columbia
4
8,642
3.3
46,003
17.4
920
0.8
21,642
18.4
9,562
2.5
67,645
17.7
Ontario
4
22,559
8.6
118,882
45.1
3,126
2.7
64,095
54.4
25,685
6.8
182,977
48.1
Prairies
4
18,621
7.1
20,385
7.7
1,746
1.5
11,956
10.2
20,367
5.3
32,341
8.5
Québec
7,221
2.7
14,302
5.4
590
0.5
11,424
9.7
7,811
2.0
25,726
6.7
Total Canada
59,604
22.7
%
204,129
77.3
%
6,563
5.7
%
111,055
94.3
%
66,167
17.3
%
315,184
82.7
%
United States
1,439
55,169
–
10,591
1,439
65,760
Total
$
61,043
$
259,298
$
6,563
$
121,646
$
67,606
$
380,944
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 FVTPL for which no allowance is recorded.
3
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.
4
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 period over which the Bank’s residential
mortgages would be fully repaid based on
the amount of the most recent
payment received. All figures are calculated
based on current customer payment amounts,
including voluntary payments larger than
the original contractual
amounts and/or other voluntary prepayments.
The most recent customer payment amount
may exceed the original contractual amount
due.
Balances with a remaining amortization longer
than 30 years primarily reflect Canadian
variable rate mortgages where prior interest rate
increases relative to
current customer payment levels have resulted
in a longer current amortization period.
At renewal, the amortization period for
Canadian mortgages reverts to the
remaining contractual amortization, which
may require increased payments.
TABLE 29: RESIDENTIAL MORTGAGES
BY REMAINING AMORTIZATION
1,2,3
As at
<=5
>5 – 10
>10 – 15
>15 – 20
>20 – 25
>25 – 30
>30 – 35
>35
years
years
years
years
years
years
years
years
Total
October 31, 2024
Canada
0.8
%
2.7
%
6.4
%
16.8
%
33.3
%
28.9
%
2.4
%
8.7
%
100.0
%
United States
2.3
1.3
3.4
7.6
14.2
70.2
0.5
0.5
100.0
Total
1.0
%
2.5
%
5.9
%
15.1
%
29.9
%
36.2
%
2.1
%
7.3
%
100.0
%
October 31, 2023
Canada
0.8
%
2.7
%
5.7
%
14.1
%
31.5
%
24.6
%
1.4
%
19.2
%
100.0
%
United States
5.3
1.4
3.8
7.8
10.6
69.5
1.1
0.5
100.0
Total
1.6
%
2.5
%
5.3
%
13.0
%
27.8
%
32.6
%
1.4
%
15.8
%
100.0
%
1.
Excludes loans classified as trading as the Bank intends to sell the loans immediately or in the near term, and loans
designated at FVTPL for which no allowance is recorded.
2.
Percentage based on outstanding balance.
3.
$15.6 billion or 6% of the mortgage portfolio in Canada (October 31, 2023: $37.4 billion or 14%) relates to mortgages
in which the fixed contractual payments are no longer sufficient to
cover the interest based on the rates in effect at October 31, 2024 and October 31, 2023, respectively.
TABLE 30: UNINSURED AVERAGE
LOAN-TO-VALUE – Newly Originated and Newly
Acquired
1,2,3
For the 12 months ended
October 31, 2024
October 31, 2023
Residential
Home equity
Residential
Home equity
mortgages
lines of credit
4,5
Total
mortgages
lines of credit
4,5
Total
Canada
Atlantic provinces
69
%
67
%
68
%
70
%
68
%
69
%
British Columbia
6
66
61
64
66
61
64
Ontario
6
67
61
64
66
61
64
Prairies
6
73
69
71
73
70
72
Québec
69
68
69
69
69
69
Total Canada
68
63
66
67
63
65
United States
73
61
68
74
62
71
Total
69
%
63
%
66
%
68
%
63
%
66
%
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 FVTPL 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 • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 46
SOVEREIGN RISK
The following table provides a summary
of the Bank’s direct credit exposures outside
of Canada and the U.S. (Europe excludes
United Kingdom).
TABLE 31: TOTAL NET EXPOSURE BY
REGION AND COUNTERPARTY
(millions of Canadian dollars)
As at
Loans and commitments
1
Derivatives, repos, and securities lending
2
Trading and investment portfolio
3
Total
Corporate
Sovereign
Financial
Total
Corporate
Sovereign
Financial
Total
Corporate
Sovereign
Financial
Total
Exposure
4
October 31, 2024
Region
Europe
$
8,490
$
8
$
5,050
$
13,548
$
4,847
$
2,117
$
8,145
$
15,109
$
1,157
$
24,124
$
2,660
$
27,941
$
56,598
United Kingdom
8,462
3,124
2,661
14,247
3,490
1,172
13,536
18,198
866
1,691
1,104
3,661
36,106
Asia
241
30
2,412
2,683
519
533
2,739
3,791
290
10,486
893
11,669
18,143
Other
5
209
–
598
807
370
416
2,481
3,267
218
1,012
3,187
4,417
8,491
Total
$
17,402
$
3,162
$
10,721
$
31,285
$
9,226
$
4,238
$
26,901
$
40,365
$
2,531
$
37,313
$
7,844
$
47,688
$
119,338
October 31, 2023
Region
Europe
$
7,577
$
7
$
5,324
$
12,908
$
3,763
$
1,945
$
6,736
$
12,444
$
777
$
25,015
$
2,001
$
27,793
$
53,145
United Kingdom
8,928
7,965
2,131
19,024
2,759
490
13,431
16,680
491
596
257
1,344
37,048
Asia
254
20
2,167
2,441
262
706
2,640
3,608
325
10,728
830
11,883
17,932
Other
5
233
8
517
758
233
720
2,883
3,836
209
1,205
3,443
4,857
9,451
Total
$
16,992
$
8,000
$
10,139
$
35,131
$
7,017
$
3,861
$
25,690
$
36,568
$
1,802
$
37,544
$
6,531
$
45,877
$
117,576
1
Exposures, including interest-bearing deposits with banks, are presented net of impairment charges where applicable.
2
Exposures are calculated on a fair value basis and presented net of collateral. Derivatives are presented as net
exposures where there is an International Swaps and Derivatives
Association master netting agreement.
3
Trading exposures are net of eligible short positions.
4
In addition to the exposures identified above, the Bank also has $35.5 billion (October 31, 2023 – $40.8 billion)
of exposure to supranational entities.
5
Other regional exposure largely attributable to Australia.
IMPAIRED LOANS
A loan is considered impaired and migrates
to Stage 3 when it is 90 days or more past due
for retail exposures, rated borrower
risk rating (BRR) 9 for non-retail
exposures, or when there is objective evidence
that there has been a deterioration of credit
quality to the extent that the Bank no longer has
reasonable assurance
as to the timely collection of the full amount
of principal and interest. Gross impaired loans
excluding ACI loans increased $1,650 million,
or 50%, compared with
the prior year.
In Canada, impaired loans net of Stage 3 allowances
increased by $352 million, or 45% in 2024.
Residential mortgages, consumer instalment and
other
personal loans, and credit cards, had net
impaired loans of $512 million, an increase
of $136 million, or 36%, compared
with the prior year, reflecting credit
migration. Business and government impaired
loans net of Stage 3 allowances were $622
million, an increase of $216 million, compared
with $406 million in the
prior year, reflecting an increase in the commercial and Wholesale
lending portfolios as new formations
outpaced resolutions.
In the U.S., impaired loans net of Stage 3
allowances increased by $753 million, or 50%
in 2024. Residential mortgages, consumer
instalment and other
personal loans, and credit cards, had net
impaired loans of $1,118 million, an increase of $133 million, or
14%, compared with the prior year, reflecting credit
migration. Business and government net impaired
loans were $1,130 million, an increase
of $620 million, compared with $510
million in the prior year, reflecting an
increase in the commercial lending portfolios
as new formations outpaced resolutions,
and the impact of foreign exchange.
Geographically, 33% of total net impaired loans were located in
Canada and 66% in the U.S. The largest
regional concentration of net impaired loans in
Canada
was in Ontario, representing 24% of total
net impaired loans, compared with 23% in
the prior year. The largest regional concentration of net impaired
loans in the
U.S. was in New York, representing 23% of total net impaired loans,
compared with 21% in the prior year.
TABLE 32: CHANGES IN GROSS IMPAIRED
LOANS AND ACCEPTANCES
1,2,3
(millions of Canadian dollars)
2024
2023
Personal, Business and Government Loans
Impaired loans as at beginning of period
$
3,299
$
2,503
Classified as impaired during the period
8,655
5,885
Transferred to performing during the period
(1,094)
(931)
Net repayments
(1,801)
(1,351)
Disposals of loans
(158)
–
Amounts written off
(3,984)
(2,846)
Exchange and other movements
32
39
Impaired loans as at end of year
$
4,949
$
3,299
1
Includes customers’
liability under acceptances.
2
Excludes ACI loans.
3
Includes loans that are measured at FVOCI.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 47
TABLE 33: IMPAIRED LOANS NET OF
STAGE 3 ALLOWANCE FOR
LOAN LOSSES BY INDUSTRY
SECTOR
1,2,3,4
(millions of Canadian dollars, except as noted)
As at
Percentage of total
Oct. 31
Oct. 31
Oct. 31
Oct. 31
2024
2023
2024
2023
Stage 3
Gross
allowances for
Net
Net
impaired
loan losses
impaired
impaired
loans
impaired
loans
loans
Canada
Residential mortgages
$
275
$
28
$
247
$
162
7.2
%
7.1
%
Consumer instalment and other
personal
HELOC
185
31
154
117
4.5
5.1
Indirect auto
132
98
34
30
1.0
1.4
Other
72
48
24
21
0.7
0.9
Credit card
5
143
90
53
46
1.6
2.0
Total personal
807
295
512
376
15.0
16.5
Real estate
Residential
53
7
46
6
1.4
0.3
Non-residential
100
25
75
62
2.2
2.7
Total real estate
153
32
121
68
3.6
3.0
Agriculture
56
7
49
13
1.5
0.5
Automotive
160
84
76
14
2.2
0.6
Financial
47
36
11
3
0.3
0.1
Food, beverage, and tobacco
126
96
30
19
0.9
0.8
Forestry
11
4
7
2
0.2
0.1
Government, public sector entities,
and education
12
8
4
4
0.1
0.2
Health and social services
138
58
80
102
2.4
4.5
Industrial construction and trade
contractors
43
16
27
12
0.8
0.5
Metals and mining
22
14
8
15
0.2
0.7
Oil and gas
11
11
–
1
–
–
Power and utilities
–
–
–
–
–
–
Professional and other services
74
43
31
24
0.9
1.1
Retail sector
144
66
78
61
2.3
2.7
Sundry manufacturing and wholesale
100
37
63
14
1.8
0.6
Telecommunications, cable, and
media
10
6
4
13
0.1
0.6
Transportation
45
25
20
16
0.6
0.7
Other
25
12
13
25
0.4
1.1
Total business and government
1,177
555
622
406
18.3
17.8
Total Canada
1,984
850
1,134
782
33.3
34.3
United States
Residential mortgages
490
32
458
399
13.5
17.5
Consumer instalment and other
personal
HELOC
282
22
260
213
7.6
9.4
Indirect auto
309
58
251
215
7.4
9.4
Other
10
5
5
2
0.1
0.1
Credit card
5
432
288
144
156
4.2
6.9
Total personal
1,523
405
1,118
985
32.8
43.3
Real estate
Residential
201
10
191
79
5.6
3.5
Non-residential
409
25
384
203
11.3
8.9
Total real estate
610
35
575
282
16.9
12.4
Agriculture
2
–
2
3
0.1
0.1
Automotive
4
–
4
3
0.1
0.1
Financial
1
–
1
1
–
–
Food, beverage, and tobacco
11
1
10
3
0.3
0.1
Forestry
–
–
–
–
–
–
Government, public sector entities,
and education
62
15
47
2
1.4
0.1
Health and social services
55
6
49
35
1.4
1.6
Industrial construction and trade
contractors
38
4
34
18
1.0
0.8
Metals and mining
2
–
2
–
0.1
–
Oil and gas
4
4
–
1
–
–
Power and utilities
98
67
31
–
0.9
–
Professional and other services
165
24
141
52
4.1
2.3
Retail sector
54
8
46
27
1.3
1.2
Sundry manufacturing and wholesale
48
6
42
48
1.2
2.1
Telecommunications, cable, and
media
150
45
105
18
3.1
0.8
Transportation
13
1
12
6
0.4
0.3
Other
35
6
29
11
0.9
0.5
Total business and government
1,352
222
1,130
510
33.2
22.4
Total United States
2,875
627
2,248
1,495
66.0
65.7
International
90
65
25
–
0.7
–
Total
$
4,949
$
1,542
$
3,407
$
2,277
100.0
%
100.0
%
Net impaired loans as a % of common equity
3.27
%
2.25
%
1
Includes customers’ liability under acceptances.
2
Primarily based on the geographic location of the customer’s address.
3
Includes loans that are measured at FVOCI.
4
Excludes ACI loans, debt securities classified as loans under IAS 39
, Financial Instruments: Recognition and Measurement
and DSAC and debt securities at FVOCI under IFRS 9.
5
Credit cards are considered impaired when they are 90 days past due and written off at 180 days past due.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 48
TABLE 34: IMPAIRED LOANS NET OF STAGE 3
ALLOWANCE FOR LOAN LOSSES BY GEOGRAPHY
1,2,3,4,5
(millions of Canadian dollars, except as noted)
As at
Percentage of total
October 31
October 31
October 31
October 31
2024
2023
2024
2023
Stage 3
Gross
allowances for
Net
Net
impaired
loan losses
impaired
impaired
loans
impaired
loans
loans
Canada
Atlantic provinces
$
39
$
18
$
21
$
22
0.6
%
1.0
%
British Columbia
6
193
63
130
59
3.8
2.5
Ontario
6
1,463
662
801
533
23.5
23.4
Prairies
6
208
72
136
128
4.0
5.6
Québec
81
35
46
40
1.4
1.8
Total Canada
1,984
850
1,134
782
33.3
34.3
United States
Carolinas (North and South)
122
21
101
74
3.0
3.2
Florida
291
49
242
206
7.1
9.1
New England
7
275
43
232
177
6.8
7.8
New Jersey
311
51
260
150
7.6
6.6
New York
865
95
770
486
22.6
21.3
Pennsylvania
141
18
123
56
3.6
2.5
Other
870
350
520
346
15.3
15.2
Total United States
2,875
627
2,248
1,495
66.0
65.7
Total International
90
65
25
–
0.7
–
Total
$
4,949
$
1,542
$
3,407
$
2,277
100.0
%
100.0
%
Net impaired loans as a % of net loans
0.36
%
0.25
%
1
Includes customers’
liability under acceptances.
2
Primarily based on the geographic location of the customer’s address.
3
Includes loans that are measured at FVOCI.
4
Excludes ACI loans.
5
Credit cards are considered impaired when they are 90 days past due and written off at 180 days past
due.
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.
7
The states included in New England are as follows: Connecticut, Maine, Massachusetts, New Hampshire, and Vermont.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses including
off-balance sheet positions of $9,141 million as
at October 31, 2024, was comprised of Stage
3 allowance for impaired
loans of $1,553 million, Stage 2 allowance of
$4,675 million, and Stage 1 allowance
of $2,909 million, and allowance for debt
securities of $4 million. The Stage 1
and 2 allowances are for performing loans and
off-balance sheet instruments.
Stage 3 allowances (impaired)
The Stage 3 allowance for loan losses increased
$517 million, or 50%, compared
with last year, largely reflected in the Business and Government
lending
portfolios, and the impact of foreign exchange.
Stage 1 and Stage 2 allowances (performing)
As at October 31, 2024, the performing allowance
was $7,584 million, up from $7,149 million
as at October 31, 2023. The increase this year
largely reflected credit
conditions, including credit migration, volume
growth, and the impact of foreign exchange.
The allowance increase included $12 million
attributable to the partners’
share of the U.S. strategic cards portfolios.
The performing allowance for debt securities
is flat compared with last year.
Forward-looking information, including
macroeconomic variables deemed to be
predictive of ECLs based on the Bank’s experience,
is used to determine ECL
scenarios and associated probability weights
to determine the probability-weighted ECLs.
Each quarter, all base forecast macroeconomic variables
are refreshed,
resulting in new upside and downside
macroeconomic scenarios. The probability
weightings assigned to each ECL scenario
are also reviewed each quarter and
updated as required, as part of the Bank’s ECL governance
process. As a result of periodic reviews
and quarterly updates, the allowance
for credit losses may be
revised to reflect updates in loss estimates
based on the Bank’s recent loss experience and
its forward-looking views. The Bank
periodically reviews the
methodology and has performed certain additional
quantitative and qualitative portfolio and
loan level assessments of significant increase
in credit risk. Refer to
Note 3 of the Bank’s 2024 Consolidated Financial
Statements for further details on forward-looking
information.
The probability-weighted allowance for
credit losses reflects the Bank’s forward-looking
views. To the extent that certain anticipated effects cannot be fully
incorporated into quantitative models, management
continues to exercise expert credit judgment
in determining the amount of ECLs.
Refer to Note 3 of the Bank’s
2024 Consolidated Financial Statements
for additional detail.
PROVISION FOR CREDIT
LOSSES
The PCL is the amount charged to income
to bring the total allowance for credit
losses, including both Stage 1 and 2 allowances
(performing) and Stage 3
allowance (impaired), to a level that management
considers adequate to absorb expected and
incurred credit-related losses in
the Bank’s loan portfolio. Provisions
are reduced by any recoveries in the year.
In Canada, PCL – impaired related to residential
mortgages, consumer instalment and other personal
loans, and credit card loans was $1,158
million, an
increase of $347 million, or 43%, compared
to 2023 reflecting credit migration. PCL –
impaired related to business and government
loans was $445 million, an
increase of $246 million, compared to $199
million in the prior year, reflecting credit migration.
In the U.S., PCL – impaired related to residential
mortgages, consumer instalment and other personal
loans, and credit card loans was $1,712
million, an
increase of $433 million, or 34%, compared
to 2023, reflecting credit migration
and the impact of foreign exchange. PCL – impaired
related to business and
government loans was $457 million, an increase
of $260 million, compared to $197
million in the prior year, largely reflecting credit migration and
the impact of
foreign exchange.
Geographically, the largest regional concentration of PCL – impaired
in Canada was in Ontario. The largest
regional concentration of PCL – impaired in
the U.S.
was in New York.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 49
The following table provides a summary
of provisions charged to the Consolidated
Statement of Income.
TABLE 35: PROVISION FOR CREDIT LOSSES
1
(millions of Canadian dollars)
2024
2023
Provision for credit losses – Stage 3 (impaired)
Canadian Personal and Commercial
Banking
$
1,555
$
1,013
U.S. Retail
1,437
965
Wealth Management and Insurance
–
1
Wholesale Banking
247
16
Corporate
2
638
491
Total provision for credit losses – Stage 3
3,877
2,486
Provision for credit losses – Stage 1 and
Stage 2 (performing)
Canadian Personal and Commercial
Banking
200
330
U.S. Retail
95
(37)
Wealth Management and Insurance
–
–
Wholesale Banking
70
110
Corporate
2
11
44
Total provision for credit losses – Stage 1 and
2
376
447
Provision for credit losses
$
4,253
$
2,933
1
Includes PCL for off-balance sheet instruments.
2
Includes PCL on the retailer program partners’
share of the U.S. strategic cards portfolio.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 50
TABLE 36: PROVISION FOR CREDIT LOSSES
BY INDUSTRY SECTOR
1,2
(millions of Canadian dollars, except as noted)
For the years ended
Percentage of total
October 31
October 31
October 31
October 31
2024
2023
2024
2023
Stage 3 provision for credit losses (impaired)
Canada
Residential mortgages
$
9
$
9
0.2
%
0.4
%
Consumer instalment and other personal
HELOC
7
8
0.2
0.3
Indirect auto
396
227
10.2
9.1
Other
244
188
6.3
7.6
Credit card
502
379
12.9
15.2
Total personal
1,158
811
29.8
32.6
Real estate
Residential
2
1
–
–
Non-residential
19
12
0.5
0.5
Total real estate
21
13
0.5
0.5
Agriculture
7
1
0.2
–
Automotive
69
14
1.8
0.6
Financial
37
–
1.0
–
Food, beverage, and tobacco
81
16
2.1
0.6
Forestry
3
–
0.1
–
Government, public sector entities, and education
–
–
–
–
Health and social services
18
40
0.4
1.6
Industrial construction and trade contractors
24
14
0.6
0.6
Metals and mining
4
–
0.1
–
Oil and gas
–
(1)
–
–
Power and utilities
–
–
–
–
Professional and other services
30
19
0.8
0.8
Retail sector
44
11
1.1
0.4
Sundry manufacturing and wholesale
63
8
1.6
0.3
Telecommunications, cable, and media
3
4
0.1
0.2
Transportation
31
5
0.8
0.2
Other
10
55
0.3
2.2
Total business and government
445
199
11.5
8.0
Total Canada
1,603
1,010
41.3
40.6
United States
Residential mortgages
(2)
(2)
(0.1)
(0.1)
Consumer instalment and other personal
HELOC
3
(2)
0.1
(0.1)
Indirect auto
355
205
9.2
8.2
Other
233
222
6.0
9.0
Credit card
1,123
856
29.0
34.4
Total personal
1,712
1,279
44.2
51.4
Real estate
Residential
13
2
0.3
0.1
Non-residential
89
80
2.3
3.2
Total real estate
102
82
2.6
3.3
Agriculture
1
–
–
–
Automotive
4
3
0.1
0.1
Financial
1
(2)
–
(0.1)
Food, beverage, and tobacco
10
–
0.3
–
Government, public sector entities, and education
17
–
0.5
–
Health and social services
6
5
0.2
0.2
Industrial construction and trade contractors
18
5
0.5
0.2
Metals and mining
–
(1)
–
–
Oil and gas
–
–
–
–
Power and utilities
65
–
1.7
–
Professional and other services
47
16
1.2
0.6
Retail sector
29
9
0.7
0.4
Sundry manufacturing and wholesale
39
36
1.0
1.5
Telecommunications, cable, and media
53
16
1.4
0.6
Transportation
9
4
0.2
0.2
Other
56
24
1.4
1.0
Total business and government
457
197
11.8
8.0
Total United States
2,169
1,476
56.0
59.4
International
105
–
2.7
–
Total excluding other loans
3,877
2,486
100.0
100.0
Other loans
Debt securities at amortized cost and FVOCI
–
–
–
–
Acquired credit-impaired loans
3
–
–
–
–
Total other loans
–
–
–
–
Total Stage 3 provision for credit losses (impaired)
$
3,877
$
2,486
100.0
%
100.0
%
Stage 1 and 2 provision for credit losses
Personal, business, and government
$
376
$
447
Debt securities at amortized cost and FVOCI
–
–
Total Stage 1 and 2 provision for credit losses
376
447
Total provision for credit losses
$
4,253
$
2,933
1
Primarily based on the geographic location of the customer’s address.
2
Includes loans that are measured at FVOCI.
3
Includes all FDIC covered loans and other ACI loans.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 51
TABLE 37: PROVISION FOR CREDIT LOSSES
BY GEOGRAPHY
1,2,3
(millions of Canadian dollars, except
as noted)
For the years ended
Percentage of total
October 31
October 31
October 31
October 31
2024
2023
2024
2023
Canada
Atlantic provinces
$
63
$
49
1.5
%
1.7
%
British Columbia
4
186
116
4.4
4.0
Ontario
4
938
551
22.0
18.8
Prairies
4
276
203
6.5
6.9
Québec
140
91
3.3
3.1
Total Canada
1,603
1,010
37.7
34.5
United States
Carolinas (North and South)
93
68
2.2
2.3
Florida
242
173
5.7
5.9
New England
5
186
135
4.4
4.6
New Jersey
158
109
3.7
3.7
New York
328
262
7.7
9.0
Pennsylvania
79
53
1.8
1.8
Other
6
1,083
676
25.5
23.0
Total United States
2,169
1,476
51.0
50.3
International
105
–
2.5
–
Total excluding other loans
3,877
2,486
91.2
84.8
Other loans
7
–
–
–
–
Total Stage 3 provision for credit losses (impaired)
3,877
2,486
91.2
84.8
Stage 1 and 2 provision for credit losses
376
447
8.8
15.2
Total provision for credit losses
$
4,253
$
2,933
100.0
%
100.0
%
Provision for credit losses as a % of average
October 31
October 31
net loans and acceptances
6
2024
2023
Canada
Residential mortgages
–
%
–
%
Credit card, consumer instalment and other personal
0.62
0.46
Business and government
0.25
0.12
Total Canada
0.25
0.17
United States
Residential mortgages
–
–
Credit card, consumer instalment and other personal
2.43
1.96
Business and government
0.28
0.13
Total United States
0.75
0.54
International
2.49
–
Total excluding other loans
0.42
0.28
Other loans
–
–
Total Stage 3 provision for credit losses (impaired)
0.42
0.28
Stage 1 and 2 provision for credit losses
0.04
0.05
Total provision for credit losses as a % of average net loans
and acceptances
0.46
%
0.34
%
1
Primarily based on the geographic location of the customer’s address.
2
Includes loans that are measured at FVOCI.
3
Includes customers’
liability under acceptances.
4
The territories are included as follows: Yukon is included in British Columbia; Nunavut
is included in Ontario; and Northwest Territories
is included in the Prairies region.
5
The states included in New England are as follows: Connecticut, Maine, Massachusetts, New Hampshire, and Vermont.
6
Includes PCL attributable to other states/regions including those outside TD’s core U.S. geographic
footprint.
7
Other loans include ACI.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 52
GROUP FINANCIAL CONDITION
Capital Position
TABLE 38: CAPITAL STRUCTURE
AND RATIOS – Basel III
(millions of Canadian dollars, except
as noted)
2024
2023
Common Equity Tier 1 Capital
Common shares plus related contributed
surplus
$
25,543
$
25,522
Retained earnings
70,826
73,044
Accumulated other comprehensive income
7,904
2,750
Common Equity Tier 1 Capital before
regulatory adjustments
104,273
101,316
Common Equity Tier 1 Capital regulatory adjustments
Goodwill (net of related tax liability)
(18,645)
(18,424)
Intangibles (net of related tax liability)
(2,921)
(2,606)
Deferred tax assets excluding those arising
from temporary differences
(212)
(207)
Cash flow hedge reserve
3,015
5,571
Shortfall of provisions to expected losses
–
–
Gains and losses due to changes in own
credit risk on fair valued liabilities
(193)
(379)
Defined benefit pension fund net assets (net
of related tax liability)
(731)
(908)
Investment in own shares
(21)
(21)
Non-significant investments in the capital of
banking, financial, and insurance entities,
net of eligible
short positions (amount above 10% threshold)
(1,835)
(1,976)
Significant investments in the common
stock of banking, financial, and insurance
entities
that are outside the scope of regulatory
consolidation, net of eligible short positions
(amount above 10% threshold)
–
–
Equity investments in funds subject to
the fall-back approach
(32)
(49)
Other deductions or regulatory adjustments
to CET1 as determined by OSFI
16
–
Total regulatory adjustments to Common
Equity Tier 1 Capital
(21,559)
(18,999)
Common Equity Tier 1 Capital
82,714
82,317
Additional Tier 1 Capital instruments
Directly issued qualifying
Additional Tier 1 instruments plus stock
surplus
10,887
10,791
Additional Tier 1 Capital instruments before
regulatory adjustments
10,887
10,791
Additional Tier 1 Capital instruments
regulatory adjustments
Non-significant investments in the capital of
banking, financial, and insurance entities,
net of eligible
short positions (amount above 10% threshold)
(3)
(6)
Significant investments in the capital of banking,
financial, and insurance entities that are
outside
the scope of regulatory consolidation, net of
eligible short positions
(350)
(350)
Total regulatory adjustments to
Additional Tier 1 Capital
(353)
(356)
Additional Tier 1 Capital
10,534
10,435
Tier 1 Capital
93,248
92,752
Tier 2 Capital instruments and provisions
Directly issued qualifying Tier 2 instruments
plus related stock surplus
11,273
9,424
Collective allowances
1,512
1,964
Tier 2 Capital before regulatory adjustments
12,785
11,388
Tier 2 regulatory adjustments
Investment in own Tier 2 instruments
–
–
Non-significant investments in the capital of
banking, financial, and insurance entities,
net of eligible
short positions (amount above 10% threshold)
1
(224)
(196)
Non-significant investments in the other
TLAC-eligible instruments issued by G-SIBs
and Canadian
D-SIBs, where the institution does not own more
than 10% of the issued common share
capital
of the entity: amount previously designated
for the 5% threshold but that no longer meets
the
conditions
(64)
(136)
Significant investments in the capital of banking,
financial, and insurance entities that are
outside
the scope of regulatory consolidation, net of
eligible short positions
–
(160)
Total regulatory adjustments to Tier
2 Capital
(288)
(492)
Tier 2 Capital
12,497
10,896
Total Capital
$
105,745
$
103,648
Risk-weighted assets
$
630,900
$
571,161
Capital Ratios and Multiples
Common Equity Tier 1 Capital (as percentage
of risk-weighted assets)
13.1
%
14.4
%
Tier 1 Capital (as percentage of risk-weighted assets)
14.8
16.2
Total Capital (as percentage of risk-weighted
assets)
16.8
18.1
Leverage ratio
2
4.2
4.4
1
Includes other TLAC-eligible instruments issued by global systemically important banks (G-SIBs) and
Canadian domestic systemically important banks (D-SIBs) that are outside the
scope of regulatory consolidation, where the institution does not own more than 10% of the issued common share
capital of the entity.
2
The Leverage ratio is calculated as Tier 1 Capital divided by leverage exposure, as defined
in the “Regulatory Capital” section of this document.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 53
THE BANK’S CAPITAL MANAGEMENT OBJECTIVES
The Bank’s capital management objectives are:
●
To maintain an adequate level of capital based on the Bank’s risk profile
as determined by:
–
the Bank’s Risk Appetite Statement (RAS);
–
capital requirements defined by relevant
regulatory authorities; and
–
the Bank’s internal assessment of capital requirements,
including stress test analysis, consistent
with the Bank’s risk profile and risk tolerance levels.
●
Manage capital levels, in order to:
–
insulate the Bank from unexpected loss events;
–
maintain stakeholder confidence in the Bank;
–
establish that the Bank has adequate capital
under a severe but plausible stress event;
and
–
support and facilitate business growth and/or
strategic deployment consistent with the
Bank’s strategy and risk appetite.
●
To have the most economic weighted-average cost of capital achievable, while
preserving the appropriate mix of
capital elements to meet targeted
capitalization levels.
●
To support strong external debt ratings, in order to manage the Bank’s overall cost
of funds and to maintain access to required
funding (in the event of
unexpected loss or business growth).
●
To maintain a robust capital planning process and framework to support capital
funding decisions such as issuances, redemptions
and distributions which in
turn support the Bank’s capital adequacy.
These objectives are applied in a manner
consistent with the Bank’s overall objective of providing
a satisfactory return on shareholders’
equity.
CAPITAL SOURCES
The Bank’s capital is primarily derived from common
shareholders and retained earnings. Other
sources of capital include the Bank’s preferred
shareholders,
limited recourse capital noteholders,
perpetual subordinated capital noteholders,
and holders of the Bank’s subordinated debt.
CAPITAL MANAGEMENT
The Treasury and Balance Sheet Management (TBSM)
group manages capital for the Bank and
is responsible for forecasting and
monitoring compliance with
capital targets, recommending capital
management actions, managing the internal
capital adequacy assessment process (ICAAP),
and developing and
maintaining capital management policies. Oversight
of capital management is provided by Risk
Management and the Asset/Liability and Capital
Committee
(ALCO). The Board of Directors (the Board)
is ultimately responsible for oversight
of capital adequacy risk management.
The Bank continues to hold sufficient capital levels
to provide flexibility to support organic growth
and strategic priorities.
Strong capital ratios are the result of
the Bank’s internal capital generation,
management of the balance sheet, and periodic
issuance of capital securities.
ECONOMIC CAPITAL
Economic capital,
an internal measure of capital requirements,
is a key component of the Bank’s internal assessment
of capital adequacy. The Economic capital
framework requires assessment of all
material risks to the Bank and determination
of the amount of risk-based capital required
to cover unexpected losses from
the Bank’s business operations in a manner consistent
with the Bank’s capital management objectives.
The internal models used to perform this
assessment are
described in the “Managing Risk” section of
this document.
The Bank operates its capital regime under
the Basel Capital Framework. Consequently, in addition to addressing
Pillar 1 risks covering credit risk, market
risk,
and operational risk, the Bank’s economic
capital framework captures other material
Pillar 2 risks including non-trading
market risk (interest rate risk in the banking
book), additional credit risk due to concentration
(commercial and wholesale portfolios),
and “Other risks”, such as business
risk, insurance risk, and risks
associated with significant investments.
The framework also captures diversification
benefits across risk types and business
segments.
Please refer to the “Economic Capital and
Risk-Weighted Assets by Segment”
section for a business segment breakdown
of the Bank’s economic capital.
REGULATORY CAPITAL
Capital requirements established by 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 risk-weighted assets
(RWA), inclusive of any minimum requirements outlined
under the regulatory floor. Basel III also introduced a non-risk
sensitive leverage ratio to act as a supplementary
measure to the risk-sensitive capital requirements.
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 manages its regulatory capital
in accordance with OSFI’s implementation of
the Basel III Capital
Framework.
OSFI’s Capital Requirements under Basel
III
OSFI’s CAR and LR guidelines detail how
the Basel III capital rules apply to Canadian
banks.
The Domestic Stability Buffer (DSB) level increased
from 3% to 3.5% as of November 1, 2023.
The 50 bps increase reflects OSFI’s view of
appropriate actions to
enhance the resilience of Canada’s largest banks.
Currently, the DSB can range from 0 to 4%, with the effective level
adjusted by OSFI in response to
developments in Canada’s financial system and
the broader economy.
On February 1, 2023, OSFI implemented revised
capital rules that incorporate the Basel III reforms
with adjustments to make them suitable
for domestic
implementation. These revised rules
include changes to the calculation of credit risk
and operational risk requirements, and
amendments to the LR Guideline to
include a requirement for domestic systemically
important banks (D-SIBs) to hold a
leverage ratio buffer of 0.50% in addition
to the regulatory minimum
requirement of 3.0%. The LR buffer requirement also
applies to the TLAC leverage ratio. On
November 1, 2023, OSFI implemented
the second and final phase of
the Basel III reforms relating to the calculation
of credit valuation adjustment (CVA) and market risk RWA requirements. In addition,
effective November 1, 2023,
the regulatory capital floor transitioned
to 67.5% of RWA for fiscal 2024 from 65% of RWA in fiscal 2023.
On November 1, 2023, the Bank implemented
OSFI’s Parental Stand-Alone (Solo)
Total Loss Absorbing Capacity
(TLAC) Framework for D-SIBs, which
establishes a risk-based measure intended
to ensure that a non-viable D-SIB has sufficient loss
absorbing capacity on a stand-alone, legal
entity basis to support
its resolution. The Bank is compliant
with the requirements set out in this framework.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 54
The table below summarizes OSFI’s published
regulatory minimum capital targets
for the Bank as at October 31, 2024.
REGULATORY CAPITAL
AND TLAC TARGET RATIOS
Capital
Pillar 1
Pillar 1 & 2
Conservation
D-SIB / G-SIB
Regulatory
Regulatory
Minimum
Buffer
Surcharge
1
Target
2
DSB
Target
CET1
4.5
%
2.5
%
1.0
%
8.0
%
3.5
%
11.5
%
Tier 1
6.0
2.5
1.0
9.5
3.5
13.0
Total Capital
8.0
2.5
1.0
11.5
3.5
15.0
Leverage
3.0
n/a
3
0.5
3.5
n/a
3.5
TLAC
18.0
2.5
1.0
21.5
3.5
25.0
TLAC Leverage
6.75
n/a
0.50
7.25
n/a
7.25
1
The higher of the D-SIB and G-SIB surcharge applies to risk weighted capital. The D-SIB surcharge is currently equivalent
to the Bank’s 1% G-SIB additional common equity requirement
for risk weighted capital. The G-SIB surcharge may increase above 1% if the Bank’s
G-SIB score increases above certain thresholds to a maximum of 4.5%. OSFI’s LR
Guideline
includes a requirement for D-SIBs to hold a leverage ratio buffer set at 50% of a D-SIB’s
higher loss absorbency risk-weighted requirements, effectively 0.50%. This buffer
also applies to
the TLAC Leverage ratio.
2
The Bank’s countercyclical buffer requirement is 0% as of October 31, 2024.
3
Not applicable.
Capital Position and Capital Ratios
The Basel framework allows qualifying banks
to determine capital levels consistent with
the way they measure, manage, and mitigate
risks. It specifies
methodologies for the measurement of credit,
trading market, and operational risks. The
Bank uses the Internal Ratings-Based
approaches to credit risk for all
material portfolios.
For accounting purposes, IFRS is followed
for consolidation of subsidiaries and joint ventures.
For regulatory capital purposes, all subsidiaries
of the Bank are
consolidated except for insurance subsidiaries
which are deconsolidated and follow prescribed
treatment as per OSFI’s CAR guidelines. Insurance
subsidiaries
are subject to their own capital adequacy reporting,
such as OSFI’s Minimum Capital Test for General Insurance and Life Insurance
Capital Adequacy Test for Life
and Health.
Some of the Bank’s subsidiaries are individually
regulated by either OSFI or other regulators.
Many of these entities have minimum capital
requirements which
may limit the Bank’s ability to repatriate or redeploy
capital or funds for other uses.
The impact to CET1 capital upon adoption
of IFRS 17 is immaterial to the Bank.
As at October 31, 2024, the Bank’s CET1, Tier 1, and Total Capital ratios were 13.1%, 14.8%, and
16.8%, respectively. The decrease in the Bank’s CET1 Capital
ratio from 14.4% as at October 31, 2023,
was primarily attributable to the charges
for the global resolution of the investigations
into the Bank’s U.S. BSA/AML
program, common shares repurchased
for cancellation, and RWA growth across various segments.
CET1 was also impacted by regulatory changes
related to the
Fundamental Review of the Trading Book and negatively
amortizing mortgages and the FDIC
special assessment booked in the fiscal year. The impact
of the
foregoing items was partially offset by internal
capital generation, the sale of TD’s common share
holdings in Schwab and First Horizon,
and the issuance of
common shares pursuant to the Bank’s dividend reinvestment
plan. In the fourth quarter of fiscal 2024: (i)
the operational risk RWA impact from the Bank’s
provisions for investigations into the Bank’s
U.S. BSA/AML program had a negative 35
basis point impact on the Bank’s CET1 ratio,
which is reported on a one-
quarter lag basis consistent with the Basel
III reforms; (ii) the Bank’s sale of 40.5 million Schwab
shares had a positive 54 basis point impact on
the Bank’s CET1
ratio; and (iii) U.S. balance sheet restructuring
activities had a negative 4 basis point impact
on the Bank’s CET1 ratio.
As at October 31, 2024, the Bank’s leverage ratio
was 4.2%. Compared with the Bank’s leverage ratio
of 4.4% at October 31, 2023, the decrease
was
attributable primarily to increased leverage
exposures across various segments, largely
driven by the expiration of the temporary
exclusion of central bank
reserves in determining leverage exposure,
common shares repurchased for cancellation,
and an increase in the goodwill and intangibles
deduction related to the
Cowen acquisition, partially offset by organic
capital growth and the issuance of common
shares pursuant to the Bank’s dividend reinvestment
plan.
Common Equity Tier 1 Capital
CET1 Capital was $82.7 billion as at
October 31, 2024. Capital management funding
activities during the year included common
share issuance of $0.6 billion
under the dividend reinvestment plan and
from stock option exercises,
offset by common shares repurchased
of $0.7 billion.
Tier 1 and Tier 2 Capital
Tier 1 Capital was $93.2 billion as at October 31, 2024,
consisting of CET1 Capital and Additional Tier 1 Capital of
$82.7 billion and $10.5 billion, respectively. The
Bank’s Tier 1 Capital management activities during the year
consisted of the issue and redemption of
Tier 1-qualifying capital instruments
as follows:
●
On April 30, 2024, the Bank redeemed all of
its 14 million outstanding Class A Preferred
Shares Series 22, at a redemption price
of $25.00 per share,
for a total redemption cost of $350 million.
●
On July 3, 2024, the Bank issued US$750
million Limited Recourse Capital Notes (LRCN) Series
4, which bear interest at a rate of 7.25
per cent
annually for the initial period ending July 31, 2029.
Thereafter, the interest rate will reset every five years at
the prevailing 5-year U.S. Treasury Rate
plus 2.977 per cent. LRCN Series 4 will mature
on July 31, 2084. Concurrently with
the issuance of the LRCNs, the Bank issued
750,000 Preferred
Shares Series 31. The Preferred Shares Series
31 are eliminated on the Bank’s consolidated financial
statements.
●
On July 31, 2024, the Bank redeemed all of
its 20 million outstanding Class A Preferred
Shares Series 3, at a redemption price of
$25.00 per share, for
a total redemption cost of approximately
$500 million.
●
On July 31, 2024, the Bank redeemed all of
its 18 million outstanding Class A Preferred
Shares Series 24, at a redemption price
of $25.00 per share,
for a total redemption cost of approximately
$450 million.
●
On July 10, 2024, the Bank issued SGD 310
million of Perpetual Subordinated Additional
Tier 1 Capital Notes (“Perpetual Notes”). The Perpetual
Notes will bear interest at a rate of 5.7 per
cent annually for the initial period ending
July 31, 2029. Thereafter, the interest rate will reset every five
years at a rate equal to the 5-year SORA-OIS
Rate plus 2.652 per cent. The Perpetual
Notes have no scheduled maturity or redemption
date.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 55
Tier 2 Capital was $12.5 billion as at October 31, 2024.
Tier 2 Capital management activities during the year
consisted of the issue and redemption of
Tier 2-
qualifying capital instruments
as follows:
●
On April 9, 2024, the Bank issued $1.75 billion
of 5.177% Subordinated Notes. The notes
bear interest at a fixed rate of 5.177% per
annum until April
9, 2029, and daily compounded CORRA
plus 1.53% thereafter until maturity on
April 9, 2034.
●
On July 25, 2024, the Bank redeemed all of
its outstanding $1.5 billion 3.224% Subordinated
Notes due July 25, 2029, at par plus accrued
and unpaid
interest.
●
On September 10, 2024, the Bank issued
US$1 billion of 5.164% Subordinated Notes.
The notes bear interest at a fixed rate of 5.146%
per annum
until September 10, 2029, and the 5-year
U.S. Treasury Rate plus 1.500% thereafter until maturity
on September 10, 2034.
●
On October 30, 2024, the Bank issued JPY 20
billion of 1.601% Subordinated Notes.
The notes bear interest at a fixed rate of 1.601%
per annum until
October 30, 2029, and at the 5-year Japanese
Government Bond rate plus 1.032% thereafter, until maturity
on October 30, 2034.
INTERNAL CAPITAL ADEQUACY ASSESSMENT PROCESS
The Bank’s Internal Capital Adequacy Assessment
Process (ICAAP) is an integrated enterprise-wide
process that encompasses the governance,
management,
and control of risk and capital functions within
the Bank. It provides a framework for relating
risks to capital requirements through
the Bank’s capital modelling and
stress testing practices which help inform the
Bank’s overall capital adequacy requirements.
The ICAAP is led by TBSM with support
from numerous functional areas who collectively
help assess the Bank’s internal capital adequacy. This assessment
evaluates the capacity to bear risk in alignment
with the Bank’s risk profile and RAS. TBSM assesses
and monitors the overall adequacy
of the Bank’s available
capital in relation to both internal and regulatory
capital requirements under normal and
stressed conditions.
NVCC Provision
If an NVCC trigger event were to occur, for all series of
Class A First Preferred Shares excluding
the preferred shares issued with respect
to LRCNs, 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 0.8 billion in aggregate.
The LRCNs, by virtue of the recourse
to the preferred shares held in the Limited
Recourse Trust, include NVCC provisions. For LRCNs, if
an NVCC trigger were
to occur, the maximum number of common shares that
could be issued, assuming there are
no declared and unpaid dividends on the preferred
shares series
issued in connection with such LRCNs,
would be 1.3 billion in aggregate.
For NVCC subordinated notes and debentures
(including Perpetual Notes), if an 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
3.5 billion in aggregate.
DIVIDEND RESTRICTIONS
The Bank is prohibited by the
Bank Act (Canada)
from declaring dividends on its preferred
or common shares if there are reasonable
grounds for believing that the
Bank is, or the payment would cause the
Bank to be, in contravention of the capital adequacy
and liquidity regulations of the
Bank Act (Canada)
or directions of
OSFI. The Bank does not anticipate that this
condition will restrict it from paying dividends
in the normal course of business. In addition,
the ability to pay dividends
on common shares without the approval of
the holders of the outstanding preferred
shares is restricted unless all dividends on
the preferred shares have been
declared and paid or set apart for payment.
Currently, these limitations do not restrict the payment of dividends
on common shares or preferred shares.
DIVIDENDS
On December 4, 2024, the Board approved
a dividend in an amount of one dollar and
five cents ($1.05) per fully paid common
share in the capital stock of the
Bank for the quarter ending January 31, 2025,
payable on and after January 31, 2025,
to shareholders of record at the close of
business on January 10, 2025.
At October 31, 2024, the quarterly dividend
was $1.02 per common share. Common
share cash dividends declared and paid during
the year totalled $4.08 per
share (2023 – $3.84), representing a payout
ratio of 52.1%, slightly above the Bank’s target payout
range of 40-50% of adjusted earnings.
For cash dividends
payable on the Bank’s preferred shares, refer
to Note 20 of the 2024 Consolidated Financial
Statements. As at October 31, 2024, 1,750
million common shares
were outstanding (2023 – 1,791 million).
DIVIDEND REINVESTMENT PLAN
The Bank offers a dividend reinvestment plan
for its common shareholders. Participation in
the plan is optional and under the terms of the
plan, cash dividends on
common shares are used to purchase additional
common shares. At the option of the Bank,
the common shares may be issued from treasury
at an average
market price based on the last five trading
days before the date of the dividend payment,
with a discount of between 0% to 5% at the Bank’s discretion
or
purchased from the open market at market
price.
During the year ended October 31, 2024, under
the dividend reinvestment plan, the Bank
issued 6.6 million common shares from
treasury with no discount.
During the year ended October 31, 2023, under
the dividend reinvestment plan, the Bank issued
3.7 million common shares from treasury
with no discount and
16.8 million common shares with a 2% discount.
NORMAL COURSE ISSUER BID
On August 28, 2023, the Bank announced
that the Toronto Stock Exchange (TSX) and OSFI approved a normal course issuer
bid (NCIB) to repurchase for
cancellation up to 90 million of its common
shares. The NCIB commenced on August 31,
2023, and during the year ended October
31, 2024, the Bank
repurchased 49.4 million common shares
under the NCIB at an average price of
$80.15 per share for a total amount of
$4.0 billion. From the commencement of
the NCIB to October 31, 2024, the Bank repurchased
71.4 million shares under the program.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 56
RISK-WEIGHTED ASSETS
Based on Basel III, RWA are calculated for each of credit
risk, market risk, and operational risk.
Details of the Bank’s RWA are included in the following table.
TABLE 39: RISK-WEIGHTED ASSETS
(millions of Canadian dollars)
As at
October 31, 2024
October 31, 2023
Credit risk
Retail
Residential secured
$
58,215
$
53,611
Qualifying revolving retail
40,186
39,834
Other retail
53,929
45,298
Non-retail
Corporate
222,370
211,479
Sovereign
12,929
13,656
Bank
11,555
14,080
Securitization exposures
16,524
16,652
Subordinated debt, equity, and other
capital instruments
37,986
34,655
Other assets
36,454
37,867
Exposures subject to standardized or Internal
Ratings-Based (IRB) approaches
490,148
467,132
Total credit risk
490,148
467,132
Market risk
20,676
16,952
Operational risk
1
120,076
87,077
Total
$
630,900
$
571,161
1
Increase in Operational Risk RWA is primarily driven by the charges for the global
resolution of the investigations into the Bank’s U.S. BSA/AML program as well as the
business growth.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 57
ECONOMIC CAPITAL AND RISK-WEIGHTED ASSETS
BY SEGMENT
The following chart provides a breakdown of
the Bank’s RWA and economic
capital as at October 31, 2024. RWA reflects capital requirements
assessed based on
regulatory prescribed rules for credit risk,
trading market risk, and operational risk. Economic
capital reflects the Bank’s internal view of capital
requirements for
these risks as well as risks not captured
within the assessment of RWA as described in the “Economic
Capital” section of this document. The results
shown in the
chart do not reflect attribution of goodwill and
intangibles. For additional information
on the risks highlighted below, refer to the “Managing Risk”
section of this
document.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 58
TABLE 40: EQUITY AND
OTHER SECURITIES
1
(millions of shares/units and millions of Canadian
dollars, except as noted)
As at
October 31, 2024
October 31, 2023
Number of
Number of
shares/units
Amount
shares/units
Amount
Common shares
Common shares outstanding
1,750.3
$
25,373
1,791.4
$
25,434
Treasury – common shares
(0.2)
(17)
(0.7)
(64)
Total common shares
1,750.1
$
25,356
1,790.7
$
25,370
Stock options
Vested
5.4
5.1
Non-vested
9.3
9.0
Preferred shares – Class A
Series 1
2,3
20.0
$
500
20.0
$
500
Series 3
4
–
–
20.0
500
Series 5
20.0
500
20.0
500
Series 7
14.0
350
14.0
350
Series 9
8.0
200
8.0
200
Series 16
14.0
350
14.0
350
Series 18
14.0
350
14.0
350
Series 22
5
–
–
14.0
350
Series 24
6
–
–
18.0
450
Series 27
0.8
850
0.8
850
Series 28
0.8
800
0.8
800
91.6
$
3,900
143.6
$
5,200
Other equity instruments
7
Limited Recourse Capital Notes – Series 1
1.8
1,750
1.8
1,750
Limited Recourse Capital Notes – Series 2
1.5
1,500
1.5
1,500
Limited Recourse Capital Notes – Series 3
8
1.7
2,403
1.7
2,403
Limited Recourse Capital Notes – Series 4
8,9
0.7
1,023
–
–
Perpetual Subordinated Capital Notes – Series
2023-9
10
0.1
312
–
–
97.4
$
10,888
148.6
$
10,853
Treasury – preferred shares and other equity
instruments
(0.2)
(18)
(0.1)
(65)
Total preferred shares and other equity
instruments
97.2
$
10,870
148.5
$
10,788
1
For further details, including the conversion and exchange features, distributions, and significant terms and conditions,
refer to Note 20 of the Bank’s 2024 Consolidated Financial
Statements.
2
On September 23, 2024, TD announced that it does not intend to exercise its right to redeem all or any part of the
currently outstanding 20 million Non-Cumulative 5-Year
Rate Reset
Class A First Preferred Shares, Series 1 (Non-Viability Contingent Capital (NVCC)) (“Series 1 Shares”)
of TD on October 31, 2024.
3
On October 16, 2024, the Bank announced that none of its 20 million Non-Cumulative 5-Year
Rate Reset Class A First Preferred Shares, Series 1 NVCC (“Series 1 Shares”) would be
converted on October 31, 2024 into Non-Cumulative Floating Rate Class A First Preferred Shares, Series 2 NVCC
of TD. As previously announced on October 16, 2024, the dividend
rate for the Series 1 Shares for the 5-year period from and including October 31, 2024 to but excluding October
31, 2029 will be 4.97%.
4
On July 31, 2024, the Bank redeemed all of its 20 million outstanding Non-Cumulative 5-Year
Rate Reset Class A First Preferred Shares NVCC, Series 3 (“Series 3 Preferred Shares”), at
a redemption price of $25.00 per Series 3 Preferred Share, for a total redemption cost of approximately $500 million.
5
On April 30, 2024, the Bank redeemed all of its 14 million outstanding Non-Cumulative 5-Year
Rate Reset Class A First Preferred Shares NVCC, Series 22 (“Series 22 Preferred
Shares”), at a redemption price of $25.00 per Series 22 Preferred Share, for a total redemption cost of $350 million.
6
On July 31, 2024, the Bank redeemed all of its 18 million outstanding Non-Cumulative 5-Year
Rate Reset Class A First Preferred Shares NVCC, Series 24 (“Series 24 Preferred Shares”),
at a redemption price of $25.00 per Series 24 Preferred Share, for a total redemption cost of approximately $450
million.
7
For other equity instruments, the number of shares/units represents the number of notes issued.
8
For LRCNs – Series 3 and Series 4, the amount represents the Canadian dollar equivalent of the US dollar notional
amount.
9
On July 3, 2024, the Bank issued US$750 million 7.250% Fixed Rate Reset Limited Recourse Capital Notes, Series
4 NVCC (the “LRCNs”). The LRCNs will bear interest at a rate of
7.250 per cent annually, payable quarterly,
for the initial period ending on, but excluding, July 31, 2029. Thereafter, the interest
rate on the LRCNs will reset every five years at a rate
equal to the prevailing U.S. Treasury Rate plus 2.977 per cent. The LRCNs will mature
on July 31, 2084. Concurrently with the issuance of the LRCNs, the Bank issued 750,000 Non-
Cumulative 7.250% Fixed Rate Reset Preferred Shares, Series 31 NVCC (“Preferred Shares Series 31”). The Preferred
Shares Series 31 are eliminated on the Bank’s consolidated
financial statements.
10
On July 10, 2024, the Bank issued SGD 310 million of Fixed Rate Reset Perpetual Subordinated Additional Tier
1 Capital Notes, Series 2023-9 NVCC (the “AT1 Perpetual
Notes”). The
AT1 Perpetual Notes will bear interest at a rate of 5.700 per cent annually,
payable semi-annually, for the initial period ending on,
but excluding, July 31, 2029. Thereafter, the interest
rate on the AT1 Perpetual Notes will reset every five years
at a rate equal to the prevailing 5-year SORA-OIS Rate plus 2.652 per cent. The AT1
Perpetual Notes have no scheduled
maturity or redemption date. With the prior written approval of OSFI, the Bank may redeem the AT1
Perpetual Notes on July 31, 2029 and every January 31st and July 31st thereafter,
in
whole or in part, on not less than 10 nor more than 60 days’ prior notice to holders. For AT1
Perpetual Notes, the amount represents the Canadian dollar equivalent of the Singapore
dollar notional amount.
Future Regulatory Capital Developments
On July 5, 2024, OSFI announced a one-year
delay to the planned increase of the standardized
capital floor level. With this delay, the floor is expected to be
fully
transitioned in fiscal 2027. The standardized
capital floor subjects banks using internal
model-based approaches to a floor, with the floor calculated as
a
percentage of RWA under the standardized approach.
Global Systemically Important Banks
Designation and Disclosures
The Financial Stability Board (FSB), in
consultation with the BCBS and national authorities,
identifies G-SIBs. The G-SIB assessment
methodology is based on the
submissions of the largest global banks.
Twelve indicators are used in the G-SIB assessment methodology
to determine systemic importance. The
score for a
particular indicator is calculated by dividing
the individual bank value by the aggregate
amount for the indicator summed across all
banks included in the
assessment. Accordingly, an individual bank’s ranking is reliant on the
results and submissions of other global
banks.
The Bank is required to publish the twelve indicators
used in the G-SIB indicator-based assessment
framework. Public disclosure of financial
year-end data is
required annually, no later than the date of a bank’s first quarter public
disclosure of shareholder financial data
in the following year.
Public communications on G-SIB status are
issued annually each November. On November 22, 2019, the
Bank was designated as a G-SIB by the
FSB. The
Bank continued to maintain its G-SIB status
when the FSB published the 2024 list of G-SIBs
on November 26, 2024. As a result of this
designation, the Bank is
subject to an additional loss absorbency requirement
(CET1 as a percentage of RWA) of 1% under applicable
FSB member authority requirements; however, in
accordance with OSFI’s CAR guideline, the
higher of the D-SIB and G-SIB surcharges applies
to Canadian banks designated as a G-SIB.
As the D-SIB surcharge
is currently equal to the incremental 1%
G-SIB common equity ratio requirement,
the Bank’s G-SIB designation has no additional
impact on the Bank’s minimum
CET1 regulatory requirements. The G-SIB
surcharge may increase above 1% if
the Bank’s G-SIB score increases above certain
thresholds to a maximum of
4.5%.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 59
As a result of the Bank’s G-SIB designation, the
U.S. Federal Reserve requires that TD Group
US Holding LLC (TDGUS), as TD’s U.S. Intermediate
Holding
Company (IHC), maintain a minimum amount
of TLAC and long-term debt.
GROUP FINANCIAL CONDITION
Securitization and Off
-
Balance Sheet Arrangements
In the normal course of operations, the Bank
engages in a variety of financial transactions
that, under IFRS, are either not recorded on
the Bank’s Consolidated
Balance Sheet or are recorded in amounts that
differ from the full contract or notional
amounts. These off-balance sheet arrangements
involve, among other risks,
varying elements of market, credit, and liquidity
risks
which are discussed in the “Managing
Risk” section of this document.
Off-balance sheet arrangements are
generally undertaken for risk management,
capital management, and funding management
purposes and include securitizations,
contractual obligations, and
certain commitments and guarantees.
STRUCTURED ENTITIES
TD carries out certain business activities
through arrangements with structured entities
(SEs). The Bank uses SEs to raise capital,
obtain sources of liquidity by
securitizing certain of the Bank’s financial assets,
to assist TD’s clients in securitizing their financial
assets, and to create investment products
for the Bank’s
clients. Securitizations are an important part
of the financial markets, providing liquidity
by facilitating investor access to specific
portfolios of assets and risks.
Refer to Notes 2, 9, and 10 of the 2024 Consolidated
Financial Statements for further information
regarding the Bank’s involvement with SEs.
Securitization of Bank-Originated Assets
The Bank securitizes residential mortgages,
credit card loans,
and business and government loans to enhance
its liquidity position, to diversify sources
of funding,
and to optimize the management of the balance
sheet.
The Bank securitizes residential mortgages
under the National Housing Act Mortgage-Backed
Securities (NHA MBS) program sponsored
by the CMHC. The
securitization of the residential mortgages
with the CMHC does not qualify for derecognition
and the mortgages remain on the Bank’s Consolidated
Balance Sheet.
Additionally, the Bank securitizes credit card loans by selling them
to Bank-sponsored SEs that are consolidated
by the Bank. The Bank also securitizes
U.S.
residential mortgages with U.S. government-sponsored
entities which qualify for derecognition
and are removed from the Bank’s Consolidated Balance
Sheet.
Refer to Notes 9 and 10 of the 2024 Consolidated
Financial Statements for further information.
Residential Mortgage Loans
The Bank securitizes residential mortgage
loans through significant unconsolidated
SEs and Canadian non-SE 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. As at
October 31, 2024, there were $24.0 billion of
securitized residential mortgage loans outstanding
through significant unconsolidated SEs (October
31, 2023 –
$21.0 billion), and $6.7 billion outstanding
through non-SE third parties (October
31, 2023
– $3.5 billion).
Credit Card Loans
The Bank securitizes credit card loans through
an SE. The Bank consolidates the
SE as it serves as a financing vehicle
for the Bank’s assets, the Bank has power
over the key economic decisions of the SE, and
the Bank is exposed to the majority of the residual
risks of the SE. As at October 31, 2024, the Bank
had
$3.0 billion of securitized credit card receivables
outstanding (October 31, 2023 – $1.5 billion).
Due to the nature of the credit card receivables,
their carrying
amounts approximate fair value.
Business and Government Loans
The Bank securitizes business and government
loans through Canadian non-SE 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 loans are all government insured.
As at October 31, 2024, the Bank had
$189 million of securitized
business and government loans outstanding
(October 31, 2023
– $401 million), with carrying value of retained
interests of $1 million (October 31, 2023
–
$3 million).
Securitization of Third-Party Originated
Assets
Significant Unconsolidated Special Purpose
Entities
Multi-Seller Conduits
The Bank securitizes third party-originated
assets through Bank-sponsored SEs, including
its Canadian multi-seller conduits which are
not consolidated. These
Canadian multi-seller conduits securitize
Canadian originated third-party assets.
The Bank administers multi-seller conduits
and provides liquidity facilities as well
as securities distribution services; it may
also provide credit enhancements. TD’s total
potential exposure to loss through the provision
of liquidity facilities for multi-
seller conduits was $16.8 billion as at October
31, 2024 (October 31, 2023
– $15.2 billion). As at October 31,
2024, the Bank had funded exposure of
$15.4 billion
under such liquidity facilities relating to outstanding
issuances of asset-backed commercial
paper (ABCP) (October 31, 2023 - $13.3 billion).
TABLE 41: FUNDED EXPOSURE TO THIRD-PARTY
ORIGINATED ASSETS SECURITIZED
BY BANK-SPONSORED UNCONSOLIDATED
CONDUITS
1
(millions of Canadian dollars, except
as noted)
As at
October 31, 2024
October 31, 2023
Residential mortgage loans
$
8,527
$
8,221
Automobile loans and leases
5,580
4,266
Equipment leases
1,246
102
Trade receivables
–
64
Investment loans
66
609
Total funded exposure
$
15,419
$
13,262
1
The Bank’s funded exposure through the provision of liquidity facilities only relates to outstanding issuances
of ABCP funding ‘AAA’ rated assets.
As at October 31, 2024, the Bank held $0.4
billion of ABCP issued by Bank-sponsored
multi-seller conduits recorded on its 2024
Consolidated Balance Sheet
(October 31, 2023 – $2.2 billion).
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 60
COMMITMENTS
The Bank enters into various commitments
to meet the financing needs of the Bank’s
clients,
to earn fee income,
and to lease premises and equipment.
Significant
commitments of the Bank include financial
and performance standby letters of credit,
documentary and commercial letters of
credit, commitments to extend credit,
and obligations under long-term non-cancellable
leases for premises and equipment.
These products may expose the Bank to liquidity, credit, and
reputational
risks. There are adequate risk management and
control processes in place to mitigate
these risks. Certain commitments still remain
off-balance sheet. Note 26 of
the 2024 Consolidated Financial Statements
provides detailed information about the
Bank’s commitments including credit-related
arrangements and long-term
commitments or leases.
GUARANTEES
In the normal course of business, the Bank
enters into various guarantee contracts
to support its clients. The Bank’s significant
types of guarantee products are
financial and performance standby letters of
credit, credit enhancements, and indemnification
agreements. Certain guarantees remain
off-balance sheet. Refer to
Note 26 of the 2024 Consolidated Financial
Statements for further information.
GROUP FINANCIAL CONDITION
Related
P
arty Transactions
TRANSACTIONS WITH KEY MANAGEMENT
PERSONNEL, THEIR CLOSE FAMILY MEMBERS,
AND THEIR RELATED ENTITIES
Key management personnel are those persons
having authority and responsibility
for planning, directing,
and controlling the activities of the Bank, directly
or
indirectly. The Bank considers certain of its officers and directors to be
key management personnel. The Bank
makes loans to its key management personnel,
their
close family members,
and their related entities on market
terms and conditions with the exception of
banking products and services for key
management
personnel, which are subject to approved policy
guidelines that govern all employees.
In addition, the Bank offers deferred share and
other plans to non-employee directors, executives,
and certain other key employees. Refer
to Note 22 of the 2024
Consolidated Financial Statements for more
details.
In the ordinary course of business, the Bank
also provides various banking services to associated
and other related corporations on
terms similar to those
offered to non-related parties.
TRANSACTIONS WITH SUBSIDIARIES,
SCHWAB, AND SYMCOR INC.
Transactions between the Bank and its subsidiaries
meet the definition of related party transactions.
If these transactions are eliminated on
consolidation, they are
not disclosed as related party transactions.
Transactions between the Bank, Schwab, and Symcor
Inc. (Symcor) also qualify as related party
transactions. There were no significant
transactions between
the Bank, Schwab, and Symcor during the
year ended October 31, 2024, other than as
described in the following sections and in
Note 12 of the 2024 Consolidated
Financial Statements.
i)
TRANSACTIONS WITH SCHWAB
The Bank has significant influence over Schwab
and accounts for its investment in Schwab
using the equity method. Pursuant to the
Stockholder Agreement in
relation to the Bank’s equity investment in Schwab,
subject to certain conditions, the Bank
has the right to designate two members of
Schwab’s Board of Directors
and has representation
on two Board Committees. As of October
31, 2024, the Bank’s designated directors
were the Bank’s Group President and Chief Executive
Officer and the Bank’s former Chair of the Board.
A description of significant
transactions between the Bank and its affiliates
with Schwab is set forth below.
Insured Deposit Account Agreement
During the year ended October 31, 2024, Schwab
exercised its option to buy down the remaining
$0.7 billion (US$0.5 billion) of the US$5
billion FROA permitted
and paid $32 million (US$23 million) in
termination fees to the Bank in accordance
with the 2023 Schwab IDA Agreement.
During the year ended
October 31, 2023, Schwab exercised its option
to buy down an initial $6.1 billion (US$4.5 billion)
of FROA and paid $305 million (US$227
million) in termination
fees to the Bank in accordance with the 2023
Schwab IDA Agreement.
As at October 31, 2024, deposits under
the Schwab IDA Agreement were $117 billion (US$84 billion) (October
31, 2023 – $133 billion (US$96 billion)).
The
Bank paid fees, net of the termination fees
received from Schwab, of $908 million during
the year ended October 31, 2024 (October
31, 2023 – $932 million) to
Schwab related to sweep deposit accounts.
The amount paid by the Bank is based on
the average insured deposit balance of $121
billion for the year ended
October 31, 2024 (October 31, 2023 – $147
billion) and yields based on agreed upon
market benchmarks, less the actual interest
paid to clients of Schwab.
As at October 31, 2024, amounts receivable
from Schwab were $12 million (October
31, 2023 – $38 million). As at October 31,
2024, amounts payable to
Schwab were $42 million (October 31, 2023
– $24 million).
ii) TRANSACTIONS WITH SYMCOR
The Bank has one-third ownership in Symcor, a Canadian
provider of business process outsourcing
services offering a diverse portfolio of integrated
solutions in
item processing, statement processing and
production, and cash management
services. The Bank accounts for Symcor’s
results using the equity method of
accounting. During the year ended October 31,
2024, the Bank paid $88 million (October
31, 2023 – $81 million)
for these services. As at October 31, 2024,
the
amount payable to Symcor was $6 million
(October 31, 2023 – $12
million).
The Bank and two other shareholder banks
have also provided a $100 million unsecured
loan facility to Symcor which was undrawn
as at October 31, 2024 and
October 31, 2023.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 61
GROUP FINANCIAL CONDITION
Financial Instruments
As a financial institution, the Bank’s assets and
liabilities are substantially composed
of financial instruments. Financial assets
of the Bank include, but are not
limited to, cash, interest-bearing deposits, securities,
loans,
derivative instruments and securities purchased
under reverse repurchase agreements;
while financial
liabilities include, but are not limited to, deposits,
obligations related to securities sold
short, securitization liabilities, obligations
related to securities sold under
repurchase agreements, derivative instruments,
and subordinated debt.
The Bank uses financial instruments
for both trading and non-trading activities. The
Bank typically engages in trading activities
by the purchase and sale of
securities to provide liquidity and meet the needs
of clients and, less frequently, by taking trading positions with the
objective of earning a profit. Trading financial
instruments include,
but are not limited to, trading securities,
trading deposits, and trading derivatives.
Non-trading financial instruments include the
majority of the
Bank’s lending portfolio, non-trading securities,
hedging derivatives,
and the majority of the Bank’s financial
liabilities. In accordance with accounting
standards
related to financial instruments, financial assets
or liabilities classified as held-for-trading, non-trading
FVTPL, designated at FVTPL,
FVOCI,
and all derivatives are
measured at fair value in the Bank’s 2024 Consolidated
Financial Statements. DSAC, most loans,
and other liabilities are carried at amortized
cost using the
effective interest rate (EIR) method. For details on
how fair values of financial instruments
are determined, refer to the “Accounting
Judgments, Estimates, and
Assumptions”
– “Fair Value Measurements” section of this document.
The use of financial instruments allows
the Bank to earn profits in trading, interest,
and fee
income. Financial instruments also create
a variety of risks which the Bank
manages with its extensive risk management
policies and procedures. The key risks
include interest rate, credit, liquidity, market, and foreign exchange
risks. For a more detailed description on how
the Bank manages its risk, refer to the “Managing
Risk” section of this document.
RISK FACTORS AND
MANAGEMENT
Ri
sk Factors That
May
Affect Future Results
In addition to the risks described in the “Managing
Risk” section, there are numerous other
risk factors,
many of which are beyond the Bank’s control and
the
effects of which can be difficult to predict, that could
cause the Bank’s results to differ significantly from the
Bank’s plans, objectives, and estimates or
could impact
the Bank’s reputation or the sustainability of its business
model. All forward-looking statements, including
those in this MD&A, are, by their very nature,
subject to
inherent risks and uncertainties, general
and specific, which may cause the Bank’s actual results
to differ materially from the plan, objectives, estimates
or
expectations expressed in the forward-looking
statements. Some of these factors are discussed
below and others are noted in the “Caution
Regarding Forward-
Looking Statements” section of this
document.
TOP AND EMERGING RISKS
The Bank 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 management is focused due to the potential
magnitude or immediacy of their impacts.
Risks are identified, discussed, and actioned
by senior management and reported quarterly
to the Risk Committee and the Board. Specific
plans to mitigate top
and emerging risks are prepared, monitored,
and adjusted as required.
General Business and Economic Conditions
The Bank and its customers operate
in Canada, the U.S., and, to a lesser extent,
in other countries. As a result, the Bank’s earnings
are significantly affected by
the general business and economic conditions
in these regions, which could have
an adverse impact on the Bank’s results, business,
financial condition or
liquidity, and could result in changes to the way the Bank operates.
These conditions include short-term and
long-term interest rates, inflation, declines
in
economic activity (recession), volatility in
financial markets, and related market liquidity, funding costs, real estate
prices, employment levels, consumer
spending
and debt levels, evolving consumer trends
and related changes to business models,
business investment and overall business
sentiment, government policy
including levels of government spending,
monetary policy, fiscal policy (including tax policy and rate changes),
exchange rates, sovereign debt risks and
the
effects of pandemics and other public health emergencies.
Geopolitical Risk
Government policy, international trade and political relations across
the globe may impact overall market and
economic stability, including in the regions where the
Bank operates, or where its customers operate.
While the nature and extent of risks may
vary, they have the potential to disrupt global economic growth, create
volatility in financial markets that may affect
the Bank’s trading and non-trading activities, market
liquidity, funding costs, interest rates, foreign exchange,
commodity prices, credit spreads, fiscal policy, and directly and indirectly
influence general business and economic conditions
in ways that may have an adverse
impact on the Bank and its customers. Geopolitical
risks in 2024 included ongoing global
tensions resulting in sanctions and
countersanctions and related
operational complexities, supply chain disruptions,
being subjected to heightened regulatory
focus on climate change and transition
to a low-carbon economy,
increased likelihood of cyber-attacks on critical
public and private infrastructure and networks,
the Russia-Ukraine war and the resulting tensions
between Russia
and other nations, social unrest and volatility in
the Middle East that have escalated due
to the ongoing conflict between Israel and
Hamas and Hezbollah,
political
and economic turmoil, threats of terrorism and
ongoing protectionism measures due
to a decline in global alignment and elections
in geopolitically significant
markets that have potential to generate regulatory
and policy uncertainty.
These risks are expected to continue in
the coming years, with an increased probability
of new tariffs or meaningful changes to trade
policies. For example, renegotiation of
the U.S.-Mexico-Canada Agreement
(USMCA) or tariffs imposed before its
renewal could result in negative impacts
for some industries or economies that the
Bank operates in.
Inflation, Interest Rates and Recession
Uncertainty
Fluctuating interest rates and inflation, together
with overall macroeconomic conditions, could
have adverse impacts on the Bank’s
cost of funding, result in
increased loan delinquencies or impairments
and higher credit losses due to deterioration
in the financial condition of the Bank’s customers
and may necessitate
further increases in the Bank’s provision for credit
losses and net charge offs, all of which could
negatively impact the Bank’s business, financial
condition, liquidity
and results of operations. Inflation has slowed
from peak levels, but households continue
to feel the effect of past price increases, which
have weighed on
confidence and reduced spending power. Heightened geopolitical
risk and the potential for increased tariffs and
trade barriers adds uncertainty to the outlook
for
inflation and interest rates. A reacceleration
in inflation could trigger a reversal in recent
interest rate declines and a tightening
in financial conditions, while a
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 62
deterioration in economic conditions, especially
within the labour market, could lead to
faster decline in interest rates. In addition, actual
stress levels experienced
by the Bank’s borrowers may differ from assumptions
incorporated in estimates or models used
by the Bank. The uncertain inflation and
interest rate environment
increases concerns around the possibility
of a recession in Canada, the U.S. and
other regions where the Bank and its
customers operate and continues to impact
the macroeconomic and business environment.
Such developments could have an adverse
impact on the Bank’s business, financial condition,
liquidity and results
of operations.
Global Resolution of the Investigations
into the Bank’s U.S. BSA/AML Program
On October
10, 2024,
the Bank
and certain
of its
U.S. subsidiaries
consented to
orders with
the Office
of the
Comptroller of
the Currency
(OCC), the
Federal
Reserve
Board
(FRB),
and
the
Financial Crimes
Enforcement Network
(FinCEN) and
entered
into
plea
agreements with
the
Department
of
Justice, Criminal
Division,
Money
Laundering
and
Asset
Recovery
Section
and
the
United
States
Attorney’s
Office
for
the
District
of
New
Jersey
(collectively,
the
“Global
Resolution”). The Global
Resolution includes a
number of limitations on
the Bank’s U.S.
business, including an
asset limit in
certain entities (TD
Bank, N.A. and
TD Bank USA, N.A.,
also referred to as the “U.S. Bank”) and more stringent approval
processes for new retail bank products, services, markets and
branches, that
could adversely affect the Bank’s business, operations, financial
condition, capital and credit ratings (some of which
were downgraded following the announcement
of
the
Global
Resolution),
cash
flows
and
funding
costs,
as
well
as
affect
or
restrict
the
ability
of
the
Bank’s
U.S.
business
to
compete
effectively.
Board
certifications will
be required
for dividend
distributions from
certain of
the Bank’s
U.S. subsidiaries,
namely TD
Bank, N.A.,
TD Bank
US Holding
Company, TD
Bank USA,
N.A. and
TD Group
US Holdings
LLC, to
help ensure
the Bank
continues to
prioritize the
U.S. Bank
Secrecy Act/Anti-Money
Laundering program
(U.S. BSA/AML program) remediation. More details on the terms of the Global Resolution are set out under the heading “Significant Events – Global Resolution of
the Investigations into the Bank’s U.S. BSA/AML
Program”.
The orders and plea agreements have a number
of short-term and long-term deliverables
and obligations, many of which are overlapping
and interdependent.
Additional information about these deliverables
and obligations are set out in the “Key
Terms of the Global Resolution” section of the “Significant Events” section.
Satisfying the terms of the Global Resolution,
including the requirement to remediate
the Bank’s U.S. BSA/AML program, is expected
to be a multi-year endeavor,
and will not be entirely
within the Bank’s control including because of (i)
the requirement to obtain regulatory
approval or non-objection before proceeding
with
various steps, and (ii) the requirement for
the various deliverables to be acceptable
to the regulators and/or the monitors. Some of
the terms of the Global
Resolution are unusual and without precedent,
which exposes the Bank to uncertainty regarding
how and when these terms will be satisfied
in full. The Bank, its
regulators or applicable law enforcement agencies
in various jurisdictions may also identify
other issues as the Bank remediates and
enhances its risk and control
infrastructure, which may result in additional
regulatory proceedings or requirements
in the United States or elsewhere, and
may result in significant additional
consequences. Furthermore, there is risk
that the remediation may not meet expectations
set by regulators and this may result in additional
actions against the
Bank. Until the deficiencies in the Bank’s U.S. BSA/AML
program are fully remediated,
the Bank faces potentially escalating consequences.
For example, if the
U.S. Bank does not achieve compliance
with all actionable articles in the OCC consent
orders (and for each successive year
that the U.S. Bank remains non-
compliant), the OCC may require the U.S.
Bank to further reduce total consolidated
assets by up to 7%. Furthermore, delays in
satisfying one regulatory
requirement could affect the Bank’s progress on others.
Failure to satisfy the requirements of the Global
Resolution on a timely basis could result
in additional
fines, penalties, business restrictions, limitations
on subsidiary capital distributions, increased
capital or liquidity requirements, enforcement actions,
increased
regulatory oversight, and other adverse consequences,
which could be significant. Compliance
with the terms of the Global Resolution, as
well as the
implementation of their requirements and
remediation of the U.S. BSA/AML program,
is expected to continue to increase
the Bank’s costs, require the Bank to
revise some of its business strategies
and plans and reallocate resources away
from managing its business and require the Bank
to undergo significant changes
to its business, operations, products and services,
and risk management practices. In particular, the remediation
process will expose the Bank to the
following risks
that are described in more detail below: (i)
Model Risk, as the Bank replaces and enhances
the portfolio of tools being used to detect, escalate,
investigate and
action financial crime risks, (ii) Technology and Data Risk, as the Bank implements
new technology and data solutions, (iii)
Third Party Risk, as the Bank engages
third party advisors and vendors to support
the Bank’s change objectives, and (iv) Operational
Risk, as the Bank introduces new organization
structures, creates
new roles, onboards new talent, enhances
the global control environment, and invests
in updated processes and procedures
to support financial crime risks. In
addition, as a result of a third-party review of
governance at the Bank, the Bank’s Board of
Directors may be required to make changes
in management and/or
directors.
As noted under “Significant
Events – Global Resolution of the Investigations
into the Bank’s U.S. BSA/AML Program”,
the Bank is also undertaking
certain remediation and enhancements of
the Enterprise AML program and
will be exposed to similar risks as noted above
in respect of such remediation and
enhancement process. In addition, as we
make such remediation and enhancements
to our Enterprise AML Program, we expect
an increase in identification of
reportable transactions and/or events. This
increase will add to the operational backlog
in our FCRM investigations processing that
the Bank currently faces, but is
working towards remediating, across the
enterprise.
The Global Resolution could have indirect
adverse effects on the Bank and its subsidiaries
and businesses, including subsidiaries
and businesses that are not
directly party to or subject to the orders and plea
agreements, including by jeopardizing
the status of certain regulatory qualifications,
permissions, or exemptions,
or by causing certain counterparties to seek
to terminate contracts or other relationships
with the Bank. For example, the plea agreements
have resulted in one
TD entity becoming disqualified from serving
as an investment adviser or underwriter
to registered investment companies in
the United States, and that TD entity
has applied for a waiver from such disqualification
from the U.S. Securities and Exchange
Commission (“SEC”). In addition, one TD
entity has become disqualified
from relying on the U.S. Department of Labor’s
“qualified professional asset manager”
exemption for purposes of providing asset
management services to
employee benefit plans subject to the
U.S. Employee Retirement Income Security
Act of 1974, and, as a result, TD has been
relying on alternative exemptions for
purposes of ERISA compliance and is expected
to continue to be required to rely on alternative
exemptions. In the future, the Bank
may be required to seek
additional waivers, consents, approvals or other
exemptions to continue operating its businesses
as presently conducted, and any failure to
obtain such waivers,
consents, approvals or other exemptions
could adversely affect the Bank’s results of operations or
financial condition.
Failure to comply with the terms of the plea
agreements with the DOJ during the five-year
term of probation, including by failing
to complete the compliance
undertakings, failing to cooperate or to report
alleged misconduct as required, or
committing additional crimes, could also
subject the Bank to further prosecution
and additional financial penalties and ongoing
compliance commitments, and could result
in an extension of the length of the term
of probation. In addition, the
Bank’s current or former directors, officers and employees,
as well as the current or former directors,
officers and employees of the U.S. Bank,
may become
subject to civil or criminal investigations or
enforcement proceedings in relation to
the Bank’s U.S. BSA/AML program, which could result in
claims against the
Bank for damages or indemnification,
further disruptions to the Bank’s personnel (including
negative impact on the morale of its personnel)
and its operations and
further damage to its reputation or to the
perceptions of the Bank among the Bank’s
customers, service providers and investors.
The Global Resolution (including the limitations
imposed on the Bank’s U.S. businesses
imposed by the terms of the Global
Resolution) have negatively affected
the Bank’s brand and reputation, which may be
further negatively affected if any of the Bank’s or U.S.
Bank’s former or current directors, officers or employees
become subject to civil or criminal investigations
or enforcement proceedings, or if the Bank
is unable to satisfy the terms of the Global
Resolution (including the
requirement to remediate the Bank’s U.S. BSA/AML
program) in a manner that is acceptable
to the regulators and/or the monitors. This negative
impact on the
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 63
Bank’s brand and reputation, as well as the limitations
imposed on the Bank’s U.S. businesses by
the Global Resolution, may adversely affect: (i)
the Bank’s ability
to attract and retain customers and employees;
(ii) the willingness of key third parties,
including service providers, vendors, financial
counterparties, government
agencies, and
other market participants, to transact
with the Bank; and (iii) the willingness of
investors to retain Bank securities in their
investment portfolios or to
acquire Bank securities. See also “Level of
Competition, Shifts in Consumer Attitudes,
and Disruptive Technology”, “Ability to Attract, Develop, and Retain Key
Talent”, “Third Party Risk”, and “Value and Market Price of our Common Shares and other Securities”,
below.
The value and trading price of the Bank’s securities
could be negatively affected by a number of
factors related to the terms of the Global Resolution
and the
remediation of the issues resulting in the investigations,
including if: (i) the Bank fails to satisfy
the terms of the Global Resolution (including
the requirement to
remediate the Bank’s U.S. BSA/AML program)
in a manner that is acceptable to the regulators
and/or the monitors; (ii) the impact of the non-monetary
penalties
imposed on the Bank are more negative
or sustained than anticipated, including
if the limitations imposed on the Bank’s
U.S. businesses weaken the Bank’s U.S.
franchise; (iii) the Bank becomes subject
to further prosecution or financial penalties
(which may occur if the Bank fails to comply
with the terms of the plea
agreements with the DOJ during the five-year
term of probation); (iv) the Bank’s or U.S. Bank’s
former or current directors, officers or employees
become subject
to civil or criminal investigations or enforcement
proceedings in relation to the Bank’s U.S. BSA/AML
program; (v) the impact on the Bank’s brand
and reputation is
more negative or sustained than anticipated;
and/or (vi) if any of the risks described
in this “Global Resolution of the Investigations
into the Bank’s U.S. BSA/AML
Program”
section materializes. The foregoing factors
may also lead to rating agencies further
downgrading the Bank’s credit ratings and outlooks.
See also “Value
and Market Price of our Common Shares
and other Securities” and “Downgrade,
Suspension or Withdrawal of Ratings Assigned
by any Rating Agency”, below.
See also the risks described under “Regulatory
Oversight and Compliance”.
Regulatory Oversight and Compliance
The Bank and its businesses are subject
to extensive regulation and oversight by
a number of different governments, regulators and
self-regulatory organizations
(collectively, “Bank regulators”) around the world. Regulatory and
legislative changes and changes in the
Bank’s regulators’ expectations occur in all jurisdictions
in
which the Bank operates.
Bank regulators around the world have demonstrated
an increased focus on capital,
liquidity,
and interest rate risk
(IRR) risk management; consumer protection;
data management;
conduct risk and internal risk and control
frameworks across the three lines of defense;
foreign interference; and financial crime
including
money laundering, terrorist financing and economic
sanctions risks and threats. There is heightened
focus by Bank regulators globally on the impact
of interest
rates and inflation on customers, as well as
on the Bank’s operations and its management
and oversight of risks associated with these
matters. In addition, these
risks continue to rapidly evolve, as a
result of new or emerging threats, including
geopolitical and those associated with use
of new, emerging and interrelated
technologies, artificial intelligence (AI), machine
learning, models and decision-making tools.
The content and application of laws, rules and
regulations affecting financial services institutions
may sometimes vary according to factors such
as the size of the
institution,
the jurisdiction in which it is organized or
operates, and other criteria. There can also
be significant differences in the ways that
similar regulatory
initiatives affecting the financial services industry are
implemented in Canada, the United States
and other countries and regions in
which the Bank does business.
For example, when adopting rules that are
intended to implement a global regulatory
standard, a national regulator may introduce
additional or more restrictive
requirements. Furthermore, some of the Bank’s regulators
have the discretion to impose additional requirements,
standards or guidance regarding the Bank’s risk,
capital and liquidity management, or other
matters within their regulatory scope, and in
some cases the Bank may be prohibited by
law from publicly disclosing
such additional requirements, standards or guidance.
Compliance with these additional requirements,
standards or guidance may increase the
Bank’s compliance
and operational costs, and could adversely
affect the Bank’s businesses and results of operations.
Regulators have indicated the potential for escalating
consequences for banks that do not timely
resolve open issues or have repeat issues.
Furthermore, delays in satisfying one regulatory
requirement could affect
the Bank’s progress on others. Failure to satisfy
regulatory requirements on a timely basis
could result in additional fines, penalties, business
restrictions,
limitations on subsidiary capital distributions,
increased capital or liquidity requirements,
enforcement actions, increased regulatory oversight,
and other adverse
consequences, which could be significant.
Compliance with any consent orders or
regulatory proceedings, as well as the implementation
of their requirements,
may increase the Bank’s costs, require the Bank
to reallocate resources away from managing
its business, negatively impact the Bank’s capital
and credit ratings,
cash flows and funding costs, require the Bank
to undergo significant changes to its business,
operations, products and services, and risk
management practices,
damage the Bank’s reputation, and subject the
Bank to other adverse consequences, including
additional financial penalties, restrictions
and limitations.
The Bank monitors and evaluates the potential
impact of applicable regulatory developments
(including enacted and proposed rules,
standards, public
enforcement actions, consent orders, and
regulatory guidance). However, while the Bank devotes
substantial compliance, legal, and operational
business
resources to facilitate compliance with these
developments by their respective effective dates,
and also to the consideration of other Bank
regulator expectations, it
is possible that: (i) the Bank may not be
able to accurately predict the impact of
regulatory developments, or the interpretation
or focus of enforcement actions
taken by governments, regulators and courts,
(ii) the Bank may not be able to develop
or enhance the platforms, technology, or operational procedures
and
frameworks necessary to comply with, or adapt
to, such rules or expectations in advance
of or by their effective dates; or (iii) regulators and
other parties could
challenge the Bank’s compliance. Also, it may be
determined that the Bank has not adequately, completely or addressed
on a timely basis regulatory
developments or other regulatory requirements,
including enforcement actions, to which it
is subject, in a manner which meets Bank regulator
expectations.
At any given time, the Bank is subject
to a significant number of legal and regulatory
proceedings and to numerous governmental
and regulatory examinations.
Additionally, the Bank has been subject to regulatory enforcement
proceedings and has entered into
settlement agreements with Bank regulators,
and the Bank
may continue to face a greater number or
wider scope of investigations, enforcement
actions and litigation. The Bank could also
be subject to negative regulatory
evaluation or examination findings not only
because of violations of laws and regulations,
but also due to failures, as determined by
its regulators, to have
adequate policies and procedures, or to remedy
deficiencies on a timely basis. Regulatory
and legislative changes and changes in expectations
will continue to
increase the Bank’s compliance and operational
risks and costs. In addition, legislative and
regulatory initiatives could require
the Bank to make significant
modifications to its operations in the relevant
countries or regions in order to comply
with those requirements. This could result in increased
costs as well as
adversely affect the Bank’s businesses and results of operations.
In the future, the Bank may be subject to additional
regulatory enforcement proceedings or
enter into future settlement arrangements
with Bank regulators, and it
may incur fines, penalties,
judgments or business restrictions not
in its favour associated with regulatory
non-compliance, all of which could also
lead to negative
impacts on the Bank’s financial performance, operational
changes including restrictions on offering certain
products or services or on operating in
certain
jurisdictions, and its reputation.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 64
See also the risks described under the heading
“Introduction of New and Changes
to Current Laws, Rules and Regulations” and
“Global Resolution of the
Investigations into the Bank’s U.S. BSA/AML
Program”.
Executing on Long-Term Strategies and Shorter-Term
Key Strategic Priorities
The Bank has a number of strategies and priorities,
including those detailed in each Segment’s
“Business Segment Analysis” section of
this document, which may
include large scale strategic or regulatory initiatives
that are at various stages of development
or implementation. Examples include organic
growth strategies;
integrating recently acquired businesses
(e.g., TD Cowen); implementing strategic
agreements; projects to meet new regulatory
requirements; building new
platforms, technology, and omnichannel capabilities; and enhancements
to existing technology. Strategies may adjust in response to
shifts in the internal and
external environment and/or changes in leadership.
Risk can be elevated due to the size, scope,
velocity, interdependency, and complexity of projects; limited
timeframes to complete projects; and competing
priorities for limited specialized resources.
The Global Resolution of the civil and criminal
investigations into the
Bank’s U.S. BSA/AML program, including the
limitations on the Bank’s U.S. business, has
impacted and could adversely affect the Bank’s ability
to achieve some
of its strategies and priorities.
The Bank regularly explores opportunities
which include acquisitions and dispositions of companies
or businesses, directly or indirectly, through its subsidiaries.
In
respect of acquisitions and dispositions,
the Bank undertakes transaction assessments
and due diligence before completing
a merger, acquisition or disposition to
confirm the transaction fits within the Bank’s
Risk Appetite, and closely monitors integration
activities and performance post-close.
However, the Bank’s ability to
successfully complete an acquisition or disposition
is often subject to regulatory and other
approvals, and the Bank cannot be certain
when, or if, or on what terms
and conditions, any required approvals
will be granted.
While there is significant management attention
on the governance, oversight, methodology, tools, and resources
needed to manage the Bank’s strategies and
priorities, the Bank’s ability to execute on them
is dependent on a number of assumptions
and factors. These include those set
out in the “Economic Summary and
Outlook”,
“Key Priorities for 2025”, “2024 Accomplishments
and Focus for 2025”, “Operating Environment
and Outlook”, and “Managing Risk” sections
of this
document, as well as disciplined resource
and expense management and the Bank’s ability
to implement (and the costs associated
with the implementation of)
programs to comply with new or enhanced
regulations or regulator demands, all of
which may not be in the Bank’s control and are difficult
to predict.
The Bank may not achieve its financial or
strategic objectives including anticipated
cost savings or revenue synergies, following
acquisition and integration
activities. In addition, from time to time, the Bank
may invest in companies without taking a
controlling position in those companies, which
may subject the Bank to
those companies’
operational and financial risks, the risk
that these companies may make decisions
the Bank does not agree with, and
the risk that the Bank may
have differing objectives than the companies in
which the Bank has interests.
If any of the Bank’s strategies, priorities, acquisition
and integration activities, dispositions
or investments are not successfully executed,
or do not achieve their
financial or strategic objectives,
there may be an impact on the Bank’s operations
and financial performance and the Bank’s earnings
could grow more slowly or
decline.
TD’s Schwab Equity Investment and Schwab
IDA Agreement Exposes the Bank to
Certain Risks
As at October 31, 2024, the Bank’s reported investment
in Schwab was approximately 10.1%
of the outstanding voting and non-voting
common shares of Schwab,
representing approximately 13.5% of TD’s market
capitalization. The Bank accounts for its
investment in Schwab using the equity
method, recognizing the Bank’s
share of Schwab’s earnings available to common shareholders,
which on an adjusted basis represented
6.2% of TD’s net income in fiscal 2024. Schwab’s
stock
price has historically experienced higher levels
of volatility than the TD stock, and
the size of the Schwab investment relative
to TD’s market capitalization exposes
TD to the risk of large declines in the value
of the investment and a corresponding impact
on TD’s market value. The value of the Bank’s investment
in Schwab
and its contribution to the Bank’s financial results are
also vulnerable to poor financial performance
or other adverse developments in Schwab’s business.
In
addition, the Bank has a Schwab IDA Agreement
with Schwab and it may be affected by actions taken
by Schwab, or if Schwab does not perform
its obligations,
pursuant to the Schwab IDA agreement (as
further described in the “Related Party
Transactions” section of this document).
Technology and Cyber Security Risk
Technology and cyber security risks for large financial institutions like the
Bank have increased in recent years, especially
due to heightened geopolitical tensions
and a challenging macroeconomic environment
that increase the risk of cyber-attacks.
The rising risk of attacks on critical infrastructure
and supply chains is due,
in part, to the proliferation, sophistication
and constant evolution of new technologies
and attack methodologies used by
threat actors, such as organized criminals,
nation states, sociopolitical entities and other
internal and external parties. Heightened
risks may also result from the size and
scale of a financial institution’s
operations, geographic footprint, the complexity
of its technology infrastructure, its reliance
on internet capabilities, cloud and telecommunications
technologies to
conduct financial transactions, such as the
continued development of mobile and internet
banking platforms, as well as opportunistic
threats by actors that have
accelerated exploitations of new weaknesses,
misconfigurations, or vulnerabilities.
The Bank’s technologies, systems and networks,
those of the Bank’s customers (including their
own devices), and those of third parties
providing services to the
Bank, continue to be subject to cyber-attacks,
and may be subject to disruption of
services, data security or other breaches (such
as loss or exposure of
confidential information, including customer
or employee information), identity theft and
corporate espionage, or other incidents.
The Bank has experienced service
disruptions due to technology failure or
connectivity issues triggered by a third party
and may be subject to service disruptions
in the future due to cyber-attacks
and/or technology failure or connectivity issues.
The Bank’s use of third-party service providers,
which are subject to these potential incidents,
increases the risk of
potential attack, breach or disruption; and
may delay our response as the Bank has less immediate
oversight and direct control over the third parties’
technology
infrastructure or information security.
The Bank may experience material loss or
damage in the future as a result of online attacks
on banking systems and applications,
supply chain attacks,
ransomware attacks, introduction of malicious
software, denial of service attacks, malicious insiders
or service provider exfiltration of data,
AI-assisted attacks, and
phishing attacks, among others. Any of these
attacks could result in fraud, unauthorized
disclosure or theft of data or funds, or the disruption
of the Bank’s
operations. Cyber-attacks may include attempts
by malicious insiders or service providers
of the Bank to disrupt operations, access
or disclose sensitive
information or other data of the Bank, its customers,
or its employees. Attempts to deceive employees,
customers, service providers, or other users
of the Bank’s
systems continue to occur, in an effort to obtain sensitive information,
gain access to the Bank’s or its customers’ or employees’
data or customer or Bank funds, or
to disrupt the Bank’s operations. While these deception
attempts have not resulted in materially adverse
impacts on the Bank thus far, there can be no assurance
that future deception attempts may not be successful,
especially as threats become more
sophisticated. In addition, the Bank’s customers
may use personal
devices, such as computers, smartphones, and
tablets, which limits the Bank’s ability to mitigate
certain risks introduced through these personal
devices.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 65
The Bank regularly reviews external events
and assesses and may enhance its
controls and response capabilities as it considers
necessary to help mitigate
against the risk of cyber-attacks or data security
or other breaches in response to the
evolving threat environment, but these
activities may not mitigate all risks,
and the Bank may experience loss or damage
arising from such attacks or breaches.
As a result, the industry and the Bank are
susceptible to experiencing
potential financial and non-financial loss and/or
harm from these attacks or breaches.
The adoption of certain technologies, such as
cloud computing, AI, machine
learning, robotics, and process automation
call for continued focus and investment
to manage the Bank’s risks. It is possible that the
Bank, or those with whom the
Bank does business, have not anticipated or
implemented or may not anticipate or
implement effective measures against all
such cyber and technology-related
risks, particularly because the tactics, techniques,
and procedures used by threat actors
change frequently and risks can originate
from a wide variety of sources
that have also become increasingly sophisticated.
Furthermore, the Bank’s owned and operated applications,
platforms, networks, processes, products,
and services could be subject to failures
or disruptions, or
non-compliance with regulations as a result
of human error, natural disasters, utility or infrastructure disruptions,
pandemics or other public health emergencies,
malicious insiders or service providers, cyber-attacks
or other criminal or terrorist acts, which
may impact the Bank’s operations. Such adverse
effects could limit
the Bank’s ability to deliver products and services
to customers, and/or damage the Bank’s reputation,
which in turn could lead to financial loss.
While cyber
insurance premiums have stabilized, providers
continue to be concerned about systemic
cyber risk, causing coverage term changes
across the industry. This has
the potential to impact the Bank’s ability to mitigate
risks through cyber insurance and may limit
the amount of coverage available for financial
losses. As such, with
any cyber-attack, disruption of services, data,
security or other breaches (including loss or
exposure of confidential information), identity
theft, corporate espionage
or other compromise of technology or information
systems, hardware or related processes,
or any significant issues caused by weakness
in information technology
infrastructure and systems, the Bank
may experience, among other things, financial
loss; a loss of customers or business
opportunities; disruption to operations;
misappropriation or unauthorized disclosure
of confidential, financial or personal information;
damage to computers or systems of
the Bank and those of its
customers and counterparties; violations of
applicable laws; litigation; regulatory penalties
or intervention, remediation, investigation
or restoration costs; increased
costs to maintain and update the Bank’s operational
and security systems and infrastructure;
and reputational damage. If the Bank
were to experience such an
incident, it may take a significant amount of
time and resources to investigate the incident
to obtain information necessary to assess
the impact.
The Bank’s investments in its Technology and Cyber infrastructure, including the investment
in its risk and control environment, may be inadequate
to meet
regulatory expectations, remain competitive,
serve clients effectively, and avoid business disruptions
or operational errors.
Data Risk
Data risk is the risk associated with inadequate
or inappropriate use, management, or
protection of the Bank’s data assets, which
may adversely impact the Bank’s
operations, strategic objectives, reputation,
customer trust and financial results, and
may result in financial losses, regulatory investigations
and enforcement
proceedings, and legal proceedings.
Data use cases have increased due to process
automation and greater reliance on analytics
and business intelligence to support decision-making.
There is
heightened risk and expectations for managing
integrity and quality of customer data and
privacy. This risk highlights the importance of data usage, data
management, and access controls to
mitigate data risk and build and maintain the trust
of our customers, shareholders, and regulators.
Data risk spans broadly
across multiple risk categories and business
segments and typically arises out of
operational risks such as technology, cyber security, generative AI, fraud, and
third-party risks.
TD’s investments to improve its risk and control
environment, modernize its data and technology, and operating
model changes to further enhance data
management and protection may be inadequate
to meet regulatory expectations, remain competitive,
serve clients effectively, and avoid business disruptions or
operational errors.
Model Risk
Model Risk is the potential for adverse consequences
arising from decisions based on incorrect
or misused models and their outputs.
Model uncertainty remains
due to emerging risks (including elevated
inflation and interest rates over an extended
period of time), with model reliability impacted
across some business areas.
Short-
and long-term mitigants that were identified
and executed to help improve resilience
of models trained on historical data,
may become less relevant under
the current environment (e.g., in the case of
IFRS 9 and stress testing models),
and Management’s efforts to assess and update
models may not adequately or
successfully improve the resilience of such
models.
Fraud Activity
Fraud risk is the risk associated with acts designed
to deceive others, resulting in financial loss and
harm to shareholder value, brand, reputation,
employee
satisfaction and customers. Fraud Risk arises
from numerous sources, including potential or
existing customers, agents, third parties,
contractors, employees and
other internal or external parties, including
service providers to the Bank and the Bank’s
customers that store bank account
credentials and harvest data based on
customers’ web banking information and
activities. In deciding whether to extend credit
or enter into other transactions with
customers or counterparties, the Bank
may rely on information furnished by or on
behalf of such customers, counterparties
or other external parties, including financial
statements and financial
information and authentication information.
The Bank may also rely on the representations
of customers, counterparties, and other external
parties as to the
accuracy and completeness of such information.
Misrepresentation of this information potentially
exposes the Bank to increased fraud events
when transacting
with customers or counterparties. In order
to authenticate customers, whether
through the Bank’s phone or digital channels
or in its branches and stores, the Bank
may also rely on certain authentication
methods which could be subject to fraud.
Additionally, TD, and the industry as a whole, has experienced an
increase in attack levels year-over-year. Despite the Bank’s investments
in fraud prevention and
detection programs, capabilities, measures and
defences,
they have not fully mitigated,
and in the future may not successfully
mitigate,
against all fraudulent
activity which could result in financial loss or
disruptions in the Bank’s businesses. In addition
to the risk of material loss (financial loss,
misappropriation of
confidential information or other assets of
the Bank or its customers and counterparties)
that could result from fraudulent activity, the Bank could face legal
action
and customer and market confidence in the
Bank could be impacted.
Insider Risk
Insider risk is the potential for an individual
who has, or had, authorized access to
TD’s information, systems, premises, or people
to use their access, either
intentionally or unintentionally, to act in a way that could negatively
harm the Bank, including its customers,
employees, service providers, or other
stakeholders.
Insider risk exposure is inherent to the normal
course of operating TD’s businesses including activities
with our third parties.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 66
The financial industry continues to observe
an increased number of insider risk cases,
leading to new or emerging threats. These
cases can lead to data breaches,
intellectual property theft, fraud, operational
disruptions, and regulatory and compliance
risks.
The Bank closely monitors the internal
threat environment across all typologies and
continues to invest in TD’s insider risk management
program. Notwithstanding,
the Bank continues to be exposed to potential
adverse regulatory, financial, operational, legal, and reputational
impacts as a result of insider events.
Conduct Risk
Conduct risk is the risk
arising from employee conduct or business
practices causing unfair outcomes to persons
to whom we offer or sell our products or services,
or harm to market integrity. Conduct risk may arise from the
failure to comply with laws, regulatory requirements
and standards, or the TD Code of Conduct
and
Ethics.
Conduct risk is a risk across all industries
that can have significant impact to organizations,
including the Bank. From time to time,
some of the Bank’s employees
have failed, and may in the future fail, to
comply with applicable laws, regulatory requirements
and standards, and the TD Code of Conduct
and Ethics. Our
systems and procedures, including the
TD Code of Conduct and Ethics, may be inadequate
to ensure that our employees comply
with the law and operate with
integrity, leading to damage to our business and reputation, regulatory
action, or other potential adverse impacts
to the Bank.
Third-Party Risk
The Bank recognizes the value of using
third parties to support its businesses, as
they provide access to modern applications,
processes, products and services,
specialized expertise,
innovation, economies of scale, and operational
efficiencies. However, the Bank may become dependent on
third parties with respect to
continuity, reliability, and security, and their associated processes, people and facilities. As the financial services
industry and its supply chains become
more
complex, the need for resilient, robust, holistic,
and sophisticated controls, and ongoing
oversight increases.
The Bank also recognizes that the applications,
platforms, networks, processes, products,
and services from third parties could be
subject to failures or disruptions
impacting the delivery of services or products
to the Bank. These failures or disruptions could
be because of human error, natural disasters, utility or infrastructure
disruptions, changes in the financial condition
of such third parties, other general business and
economic conditions which may impact
such third parties,
pandemics or other public health emergencies,
malicious insiders or service providers,
cyber-attacks or other criminal or terrorist acts,
or non-compliance with
regulations. Such adverse effects could limit the Bank’s
ability to deliver products and services
to customers, lead to disruptions in the Bank’s businesses,
expose
the Bank to financial losses that the Bank is
unable to recover from such third parties,
and expose the Bank to legal, operational
and regulatory risks, including
those outlined under the headings “Global
Resolution of the Investigations into the Bank’s
U.S. BSA/AML Program”, “Regulatory Oversight
and Compliance”
and
“Legal Proceedings”, and/or damage the Bank’s reputation,
which in turn could result in an adverse impact
to the Bank’s operations, earnings or financial
condition.
Introduction of New and Changes to
Current Laws, Rules and Regulations
The financial services industry is highly regulated.
The Bank’s operations, profitability and reputation
could be adversely affected by the introduction of
new laws,
rules and regulations, amendments to, or
changes in interpretation or application of
current laws,
rules and regulations, issuance of judicial
decisions, and changes
in enforcement pace or activities. These adverse
effects could also result from the fiscal, economic,
and monetary policies of various central
banks, regulatory
agencies,
self-regulatory organizations and governments
in Canada, the U.S., the United Kingdom,
Ireland, Asia Pacific and other countries and regions,
and
changes in the interpretation or implementation
of those policies. Such adverse effects may include
incurring additional costs and devoting
additional resources to
address initial and ongoing compliance; limiting
the types or nature of products and services
the Bank can provide and fees it can charge; unfavourably
impacting
the pricing and delivery of products and services
the Bank provides; increasing the ability
of new and existing competitors to compete
on the basis of pricing,
products and services (including, in jurisdictions
outside Canada, the favouring of certain
domestic institutions); and increasing risks
associated with potential non-
compliance. In addition to the adverse impacts
described above, the Bank’s failure to comply
with applicable laws,
rules
and regulations could result in sanctions,
financial and non-financial penalties, and
changes including restrictions on offering certain products
or services or on operating in certain jurisdictions,
that could
adversely impact its earnings, operations and
reputation. See also the risks described
under the heading “Global Resolution of
the Investigations into the Bank’s
U.S. BSA/AML Program”
and “Regulatory Oversight and Compliance”.
The regulation of financial crime, including,
anti-money laundering, anti-terrorist financing
and economic sanctions,
continue to be a high priority globally, with an
increasing pace of regulatory change and geopolitical
events, along with heightened and evolving
regulatory standards in all the jurisdictions
in which the Bank
operates.
The global data and privacy landscape is dynamic
and regulatory expectations continue to evolve.
New and amended legislation is anticipated in
various
jurisdictions in which the Bank does business.
Canadian, U.S. and global regulators have
been increasingly focused on conduct, operational
resilience and consumer protection matters
and risks, which could
lead to investigations, remediation requirements,
and higher compliance costs.
Regulators have increased their focus on
ESG matters, including the impact of
climate change, greenwashing, sustainable finance,
financial and economic
inclusion and ESG-related policies and disclosure
regarding such matters, with significant new
legislation and amended legislation
anticipated
in some of the
jurisdictions in which the Bank does business.
In addition, there may be changes in interpretation
or application of current laws, rules and regulations
to incorporate ESG matters in ways that
were not previously
anticipated.
Despite the Bank’s monitoring and evaluation
of the potential impact of rules, proposals, public
enforcement actions, consent orders and
regulatory guidance,
unanticipated new regulations or regulatory interpretations
applicable
to the Bank may be introduced by governments
and regulators around the world and the
issuance of judicial decisions may result in
unanticipated consequences to the Bank.
Canada
In Canada, there are a number of government
and regulatory initiatives underway that
could impact financial institutions and initiatives
with respect to payments
evolution and modernization, open banking,
consumer protection, protection of customer
data, technology and cyber security, climate risk management
and
disclosure, greenwashing, dealing with vulnerable
persons, competitiveness of the financial
services industry, and anti-money laundering. For example, in
January
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 67
2024, a new OSFI guideline took effect in relation
to technology and cyber risk management,
which establishes requirements for federally
regulated financial
institutions (FRFIs) as to governance and
risk management, technology operations
and resilience, and cybersecurity;
and a new OSFI guideline was released
requiring federally regulated financial institutions
to establish, implement, maintain and adhere
to policies and procedures that protect against
threats to integrity or
security. The implementation of these guidelines may result in increased
compliance costs to the Bank and impact
the Bank’s strategies, priorities, organizational
plans, policies, processes and standards.
In another example, the federal government
is implementing AML related requirements
as part of its mandated five-year
review of Canada’s AML Regime. Many of the provisions
are anticipated to have or will have short
coming into force dates throughout 2025. The
pace of this
change, the short timelines to implement
and the evolving risks could result in increased
costs and risk that may impact the Bank’s businesses,
operations and
results.
United States
In July 2023, the U.S. banking regulators
proposed regulations modifying U.S.
capital rules to effectuate certain Basel III standards (as
well as other changes). The
proposed rules, if finalized in the form proposed
in July 2023 would be expected to increase
capital requirements on large banks with
more than US$100 billion in
total assets and, based on estimates by The
Federal Reserve, would be expected
to increase relative common equity tier 1
(CET1) capital requirements by
approximately 14% for the “Category III”
or “Category IV” intermediate holding companies
of foreign banking organizations. These
changes would impact the
Bank’s intermediate holding company (which is
considered a “Category III”
intermediate holding company under applicable
Federal Reserve regulations) and its
subsidiary U.S. banks but would not have a
direct impact on the Bank’s CET1 ratios, which
are based on OFSI rules. The proposed
rule would eliminate the
Accumulated Other Comprehensive Income
opt-out following a three-year transition
period, which would require reflecting
unrealized losses and gains from
Available-for-sale securities in regulatory capital.
In addition, the Federal Reserve has, as part
of a separate proposed rule on a G-SIB
surcharge, proposed changes to the definition
of the “cross-jurisdictional
activity” risk-based indicator. The proposed change
would include cross-jurisdictional derivatives
exposures (which are currently excluded)
in the calculation of
cross-jurisdictional activity. The Federal Reserve estimates that
this change in approach would, if finalized
in the form proposed in July 2023, substantially
increase
the reported value of cross-jurisdictional
activity in the combined U.S. operations
(CUSO) and intermediate holding companies
of foreign banking organizations.
Exceeding US$75 billion in cross-jurisdictional
activity would result in treatment
as a “Category II” institution under the
Federal Reserve’s regulatory framework.
The Federal Reserve expects seven
large foreign banking organizations would
move into Category II based on this change
in approach, and it is likely that the
Bank would be impacted if such changes are
finalized in the form proposed in July 2023.
In September 2024, the Vice Chair for Supervision of
the Federal Reserve, indicated that he
intends to recommend that the Federal
Reserve re-propose the Basel
endgame and G-SIB surcharge rules, with
broad and material changes to the 2023 proposals.
However, the re-proposal effort has since stalled. It is also unclear
what the substance of the final rules, the timing
on finalization of the rules, and the time
frame for compliance, will be. It is likely that
the Bank will incur operational,
capital, liquidity and compliance costs resulting
from the changes in these rules.
The current U.S. regulatory environment
for banking organizations may be further impacted
by additional legislative or regulatory developments,
including resulting
from changes in U.S. executive administration,
congressional leadership and/or agency
leadership, and regulators focusing on
potential racial discrimination and
economic inequity, including fair lending and unfair, deceptive, or abuse acts or practices.
The U.S. banking regulators may pursue further
changes to the
regulation and supervision of banks in response
to bank failures in Spring 2023, which could
include changes to liquidity, interest rate risk and incentive
compensation as areas of focus. The ultimate
outcome of these developments and their
impact on the Bank remain uncertain.
Europe
In Europe, there remain a number of uncertainties
in connection with the future of the United
Kingdom – European Union relationship,
and reforms implemented
through the European Market Infrastructure
Regulation and the review of Markets in Financial
Instruments Directive and accompanying
Regulation could result in
higher operational and system costs and
potential changes in the types of products
and services the Bank can offer to customers in
the region.
Level of Competition, Shifts in Consumer
Attitudes, and Disruptive Technology
The Bank operates in a highly competitive industry
and its performance is impacted by the level
of competition. Customer acquisition and
retention can be
influenced by many factors, including
the Bank’s brand and reputation as well as the pricing,
market differentiation, and overall customer experience
of the Bank’s
products and services.
Enhanced competition from incumbents and
new entrants may impact the Bank’s pricing of
products and services and may cause it
to lose revenue and/or market
share. Increased competition requires the Bank
to make persistent short- and long-term investments
to modernize, remain competitive,
and continue delivering
differentiated value to its customers. In addition, the
Bank operates in environments where laws
and regulations that apply to it may
not universally or equitably
apply to its current and emerging competitors,
which could include the domestic institutions
in jurisdictions outside of Canada or the
U.S., or non-traditional
providers (such as Fintech or big technology
competitors) of financial products and services.
Non-depository or non-financial institutions
are often able to offer
products and services that were traditionally
banking products and compete with banks
in offering digital financial solutions (primarily
mobile or web-based
services), without facing the same regulatory
and capital requirements or oversight. These
competitors
may also operate at much lower costs relative
to revenue
or balances than traditional banks or offer financial
services at a loss to drive user growth or
to support their other profitable businesses.
These third-parties can
seek to acquire customer relationships, react
quickly to changes in consumer behaviours,
and disintermediate customers from their
primary financial institution,
which can also increase fraud and privacy risks
for customers and financial institutions in
general. The nature of disruption is such
that it can be difficult to
anticipate and/or respond to adequately or
quickly, representing inherent risks to certain Bank businesses, including
payments,
lending and self-directed investing.
As such, this type of competition could also
adversely impact the Bank’s earnings and competitive
positioning.
As described in the “Global Resolution of the
Investigations into the Bank’s U.S. BSA/AML
Program”
section above, on October 10, 2024, the Bank
and certain of
its U.S. subsidiaries consented to orders
with the OCC, the Federal Reserve Board
and FinCEN, and entered into plea agreements
with the U.S. DOJ. The
negative impact of such orders and plea
agreements on the Bank’s brand and reputation,
along with the number of limitations on the
Bank’s U.S. business
imposed by such orders, could adversely
affect our ability to attract and retain customers
in the U.S. or elsewhere
.
AI adoption by TD and by our third-party vendors,
including newer technologies such as
Generative AI, presents risks and challenges
such as regulatory and legal
uncertainty, the risk of biased results or unreliable outputs if
commercially implemented, compliance
risks, and operational risks including
sophisticated and scaled
fraud / scams, cyber, privacy, data-related, intellectual property, and third-party risks. Despite the
Bank’s efforts to evaluate such technologies before their
use,
these efforts may not successfully mitigate these
technologies’
inherent risks and challenges, which
could result in financial loss or disruption
to the Bank’s
businesses. In addition, the Bank could face
legal action and customer and market confidence
in the Bank could be impacted. Given the
risk of potential
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 68
disintermediation
from incumbents, new entrants and
Fintech / big technology competitors, the Bank
may be required to make significant incremental
investments
in its innovation strategies and frameworks
in order to remain competitive.
Environmental and Social Risk (including
Climate-Related Risk)
As a financial institution, the Bank is subject
to environmental and social (E&S) risk. E&S
risk is a transverse risk, driving financial and
non-financial risks. Drivers
of E&S risk are often multi-faceted and can originate
from the Bank’s internal environment, including
its operations, business activities, environmental
and social-
related commitments, products, clients, colleagues,
or suppliers. Drivers of E&S risk can
also originate from the Bank’s external environment,
including the
communities in which the Bank operates, as
well as second-order impacts of physical risks
and the transition to a low-carbon
economy.
Climate-related risk is the risk of reputational
damage and/or financial loss or other harm
resulting from the physical and transition
risks of climate change to the
Bank, its clients or the communities in which
the Bank operates. This includes physical risks
arising from the consequences of a
changing climate, including acute
physical risks stemming from extreme weather
events happening with increasing severity
and frequency (e.g., wildfires and floods),
and chronic physical risks
stemming from longer-term, progressive shifts
in climatic and environmental conditions
(e.g., rising sea levels and global
warming). Transition risks arise from the
process of shifting to a low-carbon economy, influenced by new and emerging
climate-related public policies,
potential litigation and litigation, changing societal
demands and preferences, technologies,
stakeholder and shareholder expectations,
and legal developments.
Social risk is the risk of financial loss or other
harm resulting from social factors, including,
but not limited to, adverse human rights
(e.g., discrimination, Indigenous
Peoples’ rights, modern slavery, and human trafficking), the social impacts
of climate change (e.g., poverty, and economic and physical displacement)
and the
health and wellbeing of employees (e.g., inclusion
and diversity, pay equity, mental health, equality, physical wellbeing, and workplace safety). Organizations,
including the Bank, are under increasing
scrutiny to address social and financial inequalities
among racialized and other marginalized
groups and are subject to
rules and regulations both locally and internationally.
E&S risks may have financial, reputational,
and/or other implications for both the Bank
and its stakeholders (including its customers,
suppliers, and shareholders)
over a range of timeframes. These risks
may arise from the Bank’s actual or perceived actions,
or inaction, in relation to climate change
and other E&S issues, its
progress against its E&S targets or commitments,
or its disclosures on these matters.
These risks could also result from E&S matters
impacting the Bank’s
stakeholders. The Bank’s participation in external
E&S-related organizations or commitments
may exacerbate these risks and subject the
Bank to increased
scrutiny from its stakeholders. In addition,
the Bank may be subject to legal and
regulatory risks relating to E&S matters, including
regulatory orders, fines, and
enforcement actions; financial supervisory
capital adequacy requirements; and legal action
by shareholders or other stakeholders,
including the risks described in
the “Other Risk Factors – Legal Proceedings”
section. Additionally, different stakeholder groups may have divergent
views on E&S-related matters. This
divergence increases the risk that any action,
or inaction, will be perceived negatively by
at least some stakeholders. In the U.S.,
there has been increased
legislative activity by state governments
that restricts the flow of capital and investment
by financial institutions in state governmental
entities. The Bank is
monitoring these trends and assessing their potential
impact in the context of TD’s ESG-related
practices and policies.
Limitations on the availability and reliability
of data and methodologies may also impact
the Bank’s ability to assess and evaluate E&S
risks. Although these
limitations are expected to improve over time
as the Bank continues to advance its data
capabilities by working with internal and external
subject matter experts,
leading to more robust and reliable E&S risk
monitoring, analysis, and reporting, these
efforts are not expected to eliminate all E&S risks.
Failure to successfully manage E&S-related
expectations across various divergent perspectives
may negatively impact the Bank’s reputation and
financial results.
“Greenwashing” and “social washing” can
occur where claims of E&S benefits are
made in relation to products or services or
corporate performance that are false,
give a misleading impression, or are not supported
or substantiated. These claims have accelerated
in focus inside and outside the Bank. Public
commitments,
new products and disclosures can potentially
expose financial institutions to risk
.
Prosecution of greenwashing claims has
occurred in jurisdictions in which the
Bank operates, including Canada, the U.S. and
Europe. The Bank continues to closely monitor
trends in E&S-related litigation.
OTHER RISK FACTORS
Legal Proceedings
Given the highly regulated and consumer-facing
nature of the financial services industry, the Bank is exposed
to significant regulatory, quasi-regulatory and self-
regulatory investigations and enforcement proceedings
related to its businesses and operations.
In addition, the Bank and its subsidiaries are
from time to time
named as defendants or are otherwise involved
in various class actions and other litigation
or disputes with third parties related
to their businesses and operations.
A single event involving a potential violation of
law or regulation may give rise to numerous
and overlapping investigations and proceedings
by multiple federal,
provincial, state or local agencies and officials in
Canada, the U.S. or other jurisdictions. In
addition, failure to satisfy settlement or
consent agreements could lead
to additional enforcement proceedings. For example,
failure to comply with the terms of the
U.S. BSA/AML related plea agreements
with the DOJ during the five-
year term of probation, including by failing
to complete the compliance undertakings,
failing to cooperate or to report alleged misconduct
as required, or committing
additional crimes, could also subject the Bank
to further prosecution and additional financial
penalties and ongoing compliance commitments,
and could result in
an extension of the length of the term probation.
Furthermore, if another financial institution
violates a law or regulation relating to a particular
business activity or
practice, this will often give rise to an investigation
by regulators and other governmental
agencies of the same or similar activity or
practice by the Bank.
Actions currently pending against the Bank,
or in which the Bank is otherwise involved,
may result in judgments, settlements,
fines, penalties, disgorgements,
injunctions, increased exposure to litigation,
business improvement orders, limitations
or prohibitions from engaging in business
activities, changes to the operation
or management of business activities, or other
results adverse to the Bank, which
could materially affect the Bank’s businesses,
financial condition and operations,
and/or cause serious reputational harm to
the Bank, which could also affect the Bank’s future
business prospects. Moreover, some claims asserted against
the
Bank may be highly complex and include novel
or untested legal theories. The outcome of
such proceedings may be difficult to predict or
estimate, in some
instances, until late in the proceedings, which
may last several years. Although the Bank
establishes reserves for these matters according
to accounting
requirements, the amount of loss ultimately
incurred in relation to those matters may be
material and may be substantially different
from the amounts accrued.
Furthermore, the Bank may not establish reserves
for matters where the outcome is uncertain.
Regulators and other government agencies
examine the operations
of the Bank and its subsidiaries on both a
routine- and targeted-exam basis, and
they may pursue regulatory settlements, criminal
proceedings or other
enforcement actions against the Bank in the
future.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 69
For additional information relating to the Bank’s
material legal proceedings, refer to Note 26
of the 2024 Consolidated Financial Statements.
Ability to Attract, Develop, and Retain
Key Talent
The Bank’s future performance is dependent on the
availability of qualified talent, the Bank’s ability
to attract, develop, and retain key talent
and effectively manage
changes in leadership. The Bank’s management understands
that, while the labour market is softening
on both sides of the border, the competition for talent
continues across geographies, industries, and
emerging capabilities in a number of sectors
including financial services. This
competition is expected to continue as
a result of shifts in employee preferences, inflationary
pressures,
rapid speed of AI adoption, regulatory expectations,
economic conditions, and remote roles
providing opportunities across geographic boundaries.
This could result in increased attrition particularly
in areas where core professional and
specialized skills are
required.
As described in the “Global Resolution of the
Investigations into the Bank’s U.S. BSA/AML
Program”
section above, on October 10, 2024, the Bank
and certain of
its U.S. subsidiaries consented to orders
with the OCC, the Federal Reserve Board
and FinCEN, and entered into plea agreements
with the U.S. DOJ. The
negative impact of such orders and plea
agreements on the Bank’s reputation, along with
the number of limitations on the Bank’s U.S. business
imposed by such
orders, could adversely affect our ability to attract
and retain our talent in the U.S. or elsewhere
.
Although it is the goal of the Bank’s enterprise programs,
management resource policies and practices
to attract, develop, and retain key talent
employed by the
Bank or an entity acquired by the Bank, the Bank
may not be able to do so, and these actions
may not be sufficient to mitigate attrition.
Foreign Exchange Rates, Interest Rates,
Credit Spreads, and Equity Prices
Foreign exchange rate, interest rate, credit
spread, and equity price movements in
Canada, the U.S., and other jurisdictions in
which the Bank does business
impact the Bank’s financial position and its future
earnings. Changes in the value of the Canadian
dollar relative to the global foreign exchange
rates may also
affect the earnings of the Bank’s small business, commercial,
and corporate customers. A change in
the level of interest rates affects the interest spread
between
the Bank’s deposits and other liabilities, including loans
and, as a result, impacts the Bank’s net interest income.
In particular, elevated interest rates would
increase the Bank’s interest income but could also
have adverse impacts on the Bank’s cost of
funding for loans and may also result in
the risks outlined under the
heading “Inflation, Interest Rates and
Recession Uncertainty”. A change in
the level of credit spreads affects the relative
valuation of assets and liabilities and, as
a
result, impacts the Bank’s earnings and could
also result in significant losses if, to generate
liquidity, the Bank has to sell assets that have suffered a decline in
value. A change in equity prices impacts the Bank’s
financial position and its future earnings,
due to unhedged positions the Bank holds
in tradeable equity
securities. The trading and non-trading market
risk frameworks and policies manage
the Bank’s risk appetite for known market risk, but
such activities may not be
sufficient to mitigate against such market risk, and
the Bank remains exposed to unforeseen
market risk.
Downgrade, Suspension or Withdrawal
of Ratings Assigned by Any Rating
Agency
Credit ratings and outlooks of the Bank 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, capital
adequacy, competitive position, asset quality, business mix, corporate governance and risk
management, the level
and quality of our earnings 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. Our borrowing
costs and ability to obtain funding are influenced
by our credit ratings. Reductions in one
or more of our credit ratings
could adversely affect our ability to borrow funds
and raise the costs of our borrowings
substantially and could cause creditors and
business counterparties to raise collateral requirements
or take other actions that could adversely
affect our ability to raise funding. In addition to
credit ratings, our
borrowing costs are affected by various other
external factors, including market volatility
and concerns or perceptions about the financial
services industry
generally. There can be no assurance that we will maintain our credit
ratings and outlooks and that credit ratings
downgrades in the future would not have
a
material adverse effect on our ability to borrow
funds and borrowing costs. Some of the Bank’s
credit ratings were downgraded following the
global resolution of
the investigations into the Bank’s U.S. BSA/AML
Program, and the Bank’s credit ratings and outlooks
could be further downgraded if the rating
agencies consider
that the impact of the Global Resolution on
the Bank is more negative or sustained
than they expected, including if the Bank fails
to meet the requirements
imposed by its regulators or if the non-monetary
penalties weaken the Bank’s U.S. franchise.
Downgrades in our credit ratings also
may trigger additional collateral
or funding obligations which, depending on
the severity of the downgrade, could have
a material adverse effect on our liquidity, including as a result of
credit-
related contingent features in certain of our
derivative contracts.
Value and Market Price of our Common Shares
and other Securities
The market price of the Bank’s common shares
and other securities may be impacted
by market conditions and other factors, and
securityholders may not be able
to sell their securities at or above the price at
which they purchased such securities.
The volume, value and trading price of
the Bank’s securities could fluctuate
significantly in response to factors both related
and unrelated to our operating or financial
performance and/or future prospects, including:
(i) variations in the
Bank’s financial and operating results and financial
condition; (ii) the Bank’s ability to satisfy the terms
of the Global Resolution; (iii) the impact
of the Global
Resolution on the Bank’s businesses, operations and
financial condition; (iv) the Bank being
subject to further prosecution or financial penalties,
which may occur if
the Bank fails to comply with the terms
of the plea agreements with the DOJ during
the five-year term of probation; (v) the Bank’s or
U.S. Bank’s former or current
directors, officers or employees becoming
subject to civil or criminal investigations or
enforcement proceedings in relation
to the Bank’s U.S. BSA/AML program;
(vi) differences between the Bank’s actual financial and
operating results and financial condition and
those expected by investors and analysts;
(vii) changes in
perception by investors and analysts in the
Bank’s businesses, operations or financial condition;
(viii) conduct by the Bank’s employees, third
party contractors or
agents that adversely affects the Bank’s reputation; (ix)
the Bank’s inability to execute on long-term
strategies and shorter-term key strategic priorities;
(x) the
occurrence of significant technology or
cybersecurity events; (xi) changes in the general
business, market or economic conditions
in the regions in which the Bank
operates including as a result of geopolitical
instability or in conditions affecting financial institutions
or the financial services industry generally; (xii)
fluctuations in
inflation and interest rates; (xiii) volatility
on exchanges on which the Bank’s securities are
traded; (xiv) actual or prospective changes in
applicable laws,
regulations or rules; and (xv) the materialization
of other risks described in this “Risks that
May Affect Future Results” section.
Interconnectivity of Financial Institutions
The financial services industry is highly interconnected
such that a significant volume of transactions
occur among the members of the industry. The
interconnectivity of multiple financial institutions
with central or common agents, exchanges
and clearinghouses
increases the risk that a financial or operational
failure at one institution or entity may cause
more widespread failures that could
materially impact our ability to conduct business.
Any such failure, termination or
constraint could adversely affect our ability to
effect transactions, service our clients, manage our
exposure to risk or result in financial loss or liability
to our clients.
Additionally, the Bank routinely transacts
among an array of different financial products and
services with counterparties in the financial
services industry, including
banks, investment banks, governments,
central banks, insurance companies and other
financial institutions. A rapid deterioration
of a counterparty, or of a
systemically significant market participant
that is not a counterparty of the Bank, could
lead to creditworthiness concerns of other
borrowers or counterparties in
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 70
related or dependent industries, and can lead
to substantial disruption within the financial
markets.
These conditions could cause the Bank
to incur significant
losses or other adverse impacts to the Bank’s
financial condition. Furthermore, there is no
assurance that industry regulators or government
authorities will provide
support in the event of the failure or financial
distress of other banks or financial institutions,
or that they would do so in a timely fashion.
For example, the closures
of Silicon Valley Bank and Signature Bank in March 2023 in the
U.S. and their placement into receivership led
to liquidity,
credit and market risk concerns at many
financial institutions,
regardless of whether they had relationships
with the closing institutions.
Accounting Policies and Methods Used
by the Bank
The Bank’s accounting policies and estimates 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
Consolidated Financial Statements, and its
reputation. Material
accounting policies as well as current
and future changes in accounting policies are
described in Note 2 and Note 4, respectively, and significant
accounting
judgments, estimates, and assumptions are
described in Note 3 of the 2024
Consolidated Financial Statements.
RISK FACTORS AND MANAGEMENT
Managing Risk
EXECUTIVE SUMMARY
Growing profitability based on balanced revenue,
expenses and capital growth involves
selectively taking and managing risks
within the Bank’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 its businesses to
meet its strategic objectives.
The Bank’s Enterprise Risk Framework (ERF) reinforces
the Bank’s risk culture, which emphasizes transparency
and accountability, and supports a common
understanding among stakeholders of how
the Bank manages risk. The ERF addresses:
(1) how the Bank defines the types of
risk it is exposed to; (2) how the
Bank determines the risks arising from the
Bank’s strategy and operations; (3) risk management
governance and organization; and (4) how
the Bank manages risk
through processes that identify and assess,
measure, control, monitor, and report risk. The Bank’s risk management
resources and processes are designed
to
both challenge and enable all its businesses
to understand the risks they face and to
manage them within the Bank’s risk appetite.
RISKS INVOLVED IN
TD’S BUSINESSES
The Bank’s Risk Inventory sets out the Bank’s major
risk categories and related subcategories
to which the Bank’s businesses and operations could
be exposed.
The Risk Inventory facilitates consistent risk identification,
assessment, control, measurement, monitoring,
reporting, and disclosure of TD’s risks. The
Risk
Inventory is the starting point in developing
risk management strategies and processes.
The Bank’s major risk categories are: Strategic
Risk; Credit Risk; Market
Risk; Operational Risk; Model Risk; Insurance
Risk; Liquidity Risk; Capital Adequacy
Risk; Legal and Regulatory Compliance
(including Financial Crime) Risk; and
Reputational Risk.
RISK APPETITE
The Bank’s Risk Appetite Statement (RAS) is
the primary means used to communicate how
the Bank views risk and determines the type and
amount of risk it is
willing to take to deliver on its strategy
and to enhance shareholder value. In
setting the risk appetite, the Bank takes into
account its vision, purpose, strategy,
shared commitments, and capacity to bear
risk under both normal and recessionary/stress
conditions. The core risk principles for the
Bank’s RAS are as follows:
The Bank takes risks required to build its business,
but only if those risks:
Fit the business strategy, and can be understood and managed.
Do not expose the enterprise to any significant single loss events; TD does not ‘bet
the Bank’ on any single acquisition, business,
product or decision.
- Do not risk harming the TD brand.
The Bank’s Risk Appetite Governance Framework
(RAGF) describes the assumptions, responsibilities,
and processes established to define, maintain,
govern and
monitor TD’s risk appetite, and associated risk
measures. The Bank considers current operating
conditions and the impact of emerging risks in
developing and
applying its risk appetite. Adherence to the
Bank’s risk appetite is managed and monitored
across the Bank and is informed by the
RAGF and a broad collection of
principles, frameworks, policies, processes,
and tools.
The Bank’s RAS describes, by major risk category, the Bank’s risk principles
and establishes both qualitative and quantitative
measures, thresholds, and limits, as
appropriate. RAS measures consider both
normal and stress scenarios and include
those that can be monitored at the enterprise
level and cascaded to the
segments.
Risk Management is responsible for establishing
practices and processes to formulate,
monitor, and report on the Bank’s RAS measures. The Risk
Management
function also monitors and evaluates the effectiveness
of these practices and processes, as
well as the RAS measures. Compliance
with RAS principles and
measures is assessed and reported regularly
to senior management, the Board, and the Risk
Committee of the Board (Risk Committee);
other measures are
tracked on an ongoing basis by management,
and escalated to senior management and
the Board, as required.
Major Risk Categories
Market
Risk
Model
Risk
Market
Risk
Major Risk Categories
Reputational
Risk
Liquidity
Risk
Legal &
Regulatory
Compliance
(including
Financial
Crime) Risk
Strategic
Risk
Credit
Risk
Capital
Adequacy
Risk
Legal,
Regulatory
Compliance
(including Financial
Crime)
and Conduct
Risk
Liquidity
Risk
Model
Risk
Insurance
Risk
Operational
Risk
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 71
RISK CULTURE
Risk culture is the attitudes and behaviours
around taking and managing risk in
the Bank and is guided by our shared commitments
and the TD Culture
Framework. The TD Culture Framework defines
culture at TD including expected behaviours
and desired outcomes, describes our fundamental
mechanisms to
drive; embed; and reinforce our desired
culture and provides a comprehensive approach
to culture oversight. The shared commitments
are the behaviours that
differentiate the Bank and help guide the way the
Bank runs its business, grows its leaders,
supports its colleagues, and serves its communities.
Risk culture is
one of the attributes that is integral to the Bank’s overall
organizational culture. The Risk Committee
engages with the Chief Risk Officer (CRO)
who leads a
diverse team of risk professionals to drive a
proactive risk culture. The central oversight
for organisational culture at TD is led by Human
Resources (HR) in
partnership with Risk Management.
The Bank’s risk culture starts with the “tone at
the top” set by the Chief Executive Officer (CEO)
and the Senior Executive Team (SET), and is supported by the
Bank’s vision, purpose, shared commitments,
Code of Conduct and Ethics and risk appetite.
These governing objectives describe and
drive the behaviours,
decision making, and business practices
that the Bank seeks to foster among its
employees, in building a culture where the only
risks taken are those within our
established risk appetite. The Bank’s risk culture reinforces
that it is everyone’s accountability to self-reflect,
learn from past experiences, encourage
open
communication,
escalate matters on a timely basis, and
strive for transparency on all aspects of risk
taking. The Bank’s employees are expected to
challenge,
communicate, self-identify and escalate
in a timely, accurate and forthright manner when they believe the
Bank is operating outside of its desired
risk culture or
risk appetite.
Ethics, integrity and conduct is a pillar of
TD’s culture and is a key component of the Bank’s
risk culture. The Bank’s Code of Conduct and
Ethics guides
employees and directors to make decisions
that meet the highest standards of integrity, professionalism, and
ethical behaviour. Every Bank employee and director
is expected and required to assess business
decisions and actions on behalf of the organization
in light of whether it is right, legal, and
fair.
The Bank’s desired risk culture is reinforced by linking
compensation to management’s performance
against the Bank’s risk appetite. An annual consolidated
assessment of management’s performance against
the RAS is prepared by Risk Management,
reviewed by the Risk Committee, and
is used by the HR
Committee as a key input into compensation
decisions. All executives are individually assessed
against objectives that include consideration
of risk and control
behaviours. This comprehensive approach
allows the Bank to consider whether the actions
of executive management resulted in risk and
control events within
their area of responsibility.
In addition, Oversight Functions operate
independently from segments, supported
by an organizational structure that is designed
to provide objective oversight and
independent challenge. Oversight Function heads,
including the CRO, have unfettered access
to respective Board committees to raise risk,
compliance, and other
issues. Lastly, awareness and communication of the Bank’s RAS and
the ERF take place across the organization
through enterprise risk communication
programs, employee orientation and training,
and participation in internal risk management
conferences. These activities further strengthen
the Bank’s risk culture
by increasing the knowledge and understanding
of the Bank’s expectations for risk taking.
WHO MANAGES RISK
The Bank’s risk governance structure emphasizes
and balances strong independent oversight
with clear ownership for risk across the Bank.
Under the Bank’s
approach to risk governance, a “three lines
of defence” model is employed, in which
the first line of defence is the risk owner, the second line
provides risk
oversight, and the third line is internal audit.
The Bank’s risk governance model includes a
senior management committee structure that is
designed to support transparent risk reporting
and discussions. The
Bank’s overall risk and control oversight is provided
by the Board and its committees.
The CEO and SET determine the Bank’s long-term
direction which is then
carried out by segments within the Bank’s risk appetite.
Risk Management, headed by the CRO,
sets enterprise risk strategy and policy
and provides independent
oversight to support a comprehensive and proactive
risk management approach. The
CRO, who is also a member of the SET, has unfettered access
to the Risk
Committee.
In addition, the Chief Anti-Money Laundering
Officer and the Chief Compliance Officer have unfettered
access to the Audit Committee.
The Bank has a subsidiary governance framework
to support its overall risk governance structure,
including Boards of Directors, and committees
for various
subsidiary entities where appropriate. Within
the U.S. Retail business segment, risk and
control oversight is provided by separate
and distinct Boards of Directors
which includes fully independent Board
Risk and Audit Committees. The U.S.
Chief Risk Officer (U.S. CRO) has unfettered access
to the U.S. Board Risk
Committee,
the U.S. BSA Officer has unfettered access to
the U.S. Board Audit and Compliance
Committees,
and the U.S. Chief Compliance Officer has
unfettered access to the U.S. Audit Committee.
In addition, as further described in “Significant
Events – Global Resolution of the Investigations
into the Bank’s U.S.
BSA/AML Program”, the Bank is undertaking
a remediation of its U.S. BSA/AML Program,
which is a cross-functional undertaking,
spanning business lines and
control functions. The Bank has established
a dedicated program management infrastructure
to monitor execution against the remediation
program. This work is
being overseen by the Compliance Committee
of the U.S. subsidiary boards.
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Page 72
RISK GOVERNANCE STRUCTURE
The Board of Directors
The Board oversees the Bank’s strategic direction,
the implementation of an effective risk culture and
the internal control framework across the
enterprise. It
accomplishes its risk management mandate
both directly and indirectly through its five
committees: Audit, Risk, HR, Corporate
Governance and Remediation.
The
Board reviews and approves the Bank’s RAS
and related RAS measures at least annually, and reviews the
Bank’s risk profile and performance relative to its
risk
appetite measures and principles. In addition,
the Board has oversight of the Bank’s management
of capital, liquidity and internal controls
policies and practices.
The Audit Committee
The Audit Committee oversees financial reporting,
the adequacy and effectiveness of internal controls,
including internal controls over financial reporting,
and the
activities of the Internal Audit Division,
Finance, Compliance, and Financial Crime
Risk Management, including Anti-Money
Laundering/Terrorist
Financing/Economic Sanctions/Anti-Bribery
and Anti-Corruption.
In addition, the committee has oversight of
the establishment and maintenance of policies
and
programs reasonably designed to achieve and
maintain the Bank’s compliance with applicable
laws and regulations.
In support of this oversight, the committee
reviews any significant litigation and regulatory
matters.
The Risk Committee
The Risk Committee is responsible for reviewing
and recommending TD’s RAS for approval by
the Board annually. The Risk Committee oversees the
management of TD’s risk profile and performance
relative to its risk appetite. In support of
this oversight, the committee reviews and
approves significant
enterprise-wide risk management frameworks
and policies that are designed to help manage
the Bank’s major risk exposures, and monitors the
management of
risks, issues and trends.
The Human Resources Committee
The HR Committee, in addition to its other
responsibilities, oversees the management
of the Bank’s culture and approves the Bank’s
Culture Framework.
It also
satisfies itself that HR risks are appropriately identified,
assessed, and managed in a manner consistent
with the risk programs within the Bank, and
with the
sustainable achievement of the Bank’s business objectives.
In addition, the committee monitors the Bank’s
compensation strategy, plans, policies and practices,
including the appropriate consideration of
risk.
The Corporate Governance Committee
The Corporate Governance Committee, in
addition to its other responsibilities, develops,
and where appropriate, recommends
to the Board for approval corporate
governance principles, including the Bank’s
Code of Conduct and Ethics, aimed at
fostering a healthy governance culture at
the Bank, and also acts as the
conduct review committee for the Bank, including
providing oversight of conduct risk.
In addition, the committee has oversight of
the Bank’s strategy on corporate
responsibility for E&S matters, the establishment
and maintenance of policies in respect of
the Bank’s compliance with the consumer protection
provisions of the
Financial Consumer Protection Framework,
and regularly assesses Board succession
planning considerations.
The Remediation Committee
The Board approved the establishment of a
Remediation Committee effective December 5, 2024,
with a mandate to provide oversight to the
Bank’s and its
subsidiaries’
compliance with regulatory enforcement
related orders and agreements.
The committee will receive reports from the
various remediation teams and
oversight functions if necessary, including information and insights related
to the Bank’s compliance with all enforcement
commitments and progress on the
required remediation.
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Chief Executive Officer and Senior Executive
Team
The CEO and the SET develop and recommend
to the Board the Bank’s long-term strategic direction
and also develop and recommend for Board
approval TD’s
RAS. The SET members set the “tone at the
top” and manage risk in accordance with
the Bank’s RAS while considering the impact of
current and emerging risks
on the Bank’s strategy and risk profile. This accountability
includes identifying, understanding and
communicating significant risks to the Risk
Committee.
Executive Committees
The CEO, in consultation with the CRO establishes
the Bank’s executive committee structure.
These committees are chaired by SET members
and meet regularly
to oversee governance, risk, and control activities
and to review and monitor risk strategies
and associated risk activities and
practices.
The ERMC, chaired by the CEO, oversees
the management of major enterprise governance,
risk, and control activities and promotes
an integrated and effective
risk management culture. The following executive
committees have been established to
manage specific major risks based on the nature
of the risk and related
business activity:
●
ALCO – chaired by the Chief Financial Officer
(CFO), the ALCO oversees directly and
through its standing subcommittees (the
Enterprise Capital Committee
and Global Liquidity and Funding (GLF)
Committee) the management of the Bank’s
consolidated non-trading market risk and each
of its consolidated liquidity,
funding, investments, and capital positions.
●
OROC – chaired by the CRO, the OROC oversees
the identification, monitoring, and control
of key risks within the Bank’s operational risk
profile.
●
DC – chaired by the CFO, the DC oversees
that appropriate controls and procedures are
in place and operating to permit timely, accurate, balanced,
and
compliant disclosure to regulators with respect
to public disclosure, shareholders, and
the market.
●
ERRC – chaired by the CRO, the ERRC
oversees the management of reputational
risk within the Bank’s risk appetite, provides a
forum for discussion, review,
and escalation for non-traditional risks, and
acts as a decisioning body in cases where
urgent risk assessment and decisions are
required for select high-risk
cross-segment/enterprise changes and
where decision rights run across more than one
group.
Risk Management
The Risk Management function, headed
by the CRO, provides independent oversight
of enterprise-wide risk management, risk governance,
and control, including
the setting of risk strategy and policy to
manage risk in alignment with the Bank’s risk appetite
and business strategy. Risk Management’s primary objective is to
support a comprehensive and proactive approach
to risk management that promotes a strong
risk culture. Risk Management works with
the segments and other
oversight functions to establish policies, standards,
and limits that align with the Bank’s risk appetite
and monitors and reports on current and
emerging risks and
compliance with the Bank’s risk appetite. The
CRO leads and directs a diverse team of risk
management, including regulatory compliance
and financial crime risk
management (including anti-money laundering),
professionals organized to oversee risks
arising from each of the Bank’s major risk
categories. There is an
established process in place for the identification
and assessment of top and emerging
risks, including tail risk i.e., low probability
events that can result in large or
unquantifiable losses,
material intervention or action from regulators,
and/or significant harm to the TD
brand.
In addition, the Bank has clear procedures
governing
when and how risk events and issues are
communicated to senior management and
the Risk Committee.
Business and Corporate Segments
Each business and corporate segment has
a dedicated risk management function that
reports directly to a senior risk executive
who, in turn, reports to the CRO.
This structure supports an appropriate level
of independent oversight while emphasizing
accountability for risk within the segment.
Business and corporate
management is responsible for setting
the segment-level risk appetite and measures,
which are reviewed and challenged by
Risk Management, endorsed by the
ERMC, and approved by the CEO, to align
with the Bank’s RAS and manage risk within approved
risk limits.
The corporate segment includes service
and control groups (e.g., Platforms and
Technology; Transformation, Enablement and Customer Experience; HR and
Finance) that, like business segments, are
responsible for assessing risk, designing
and implementing controls and monitoring
and reporting their ongoing
effectiveness.
Internal Audit
The Bank’s Internal Audit function provides independent
and objective assurance to the Board
regarding the reliability and effectiveness of
key elements of the
Bank’s risk management, internal control, and governance
processes.
Global Compliance Department (Compliance)
Compliance is an independent regulatory
compliance risk and oversight function
for business conduct and market conduct laws,
rules and regulations (LRRs).
Compliance is also responsible for the design
and oversight of the Bank’s Regulatory Compliance
Management (RCM) program in accordance
with the Enterprise
RCM Framework and related standards and
supports the provision of the Chief Compliance
Officer’s opinion to the Audit Committee as
to whether the RCM
controls are sufficiently robust in achieving compliance
with applicable laws, rules and regulatory requirements
enterprise-wide.
Enterprise Conduct Risk Management (ECRM)
ECRM is responsible for the oversight of
TD’s management of conduct risk. ECRM owns
the Enterprise Conduct Risk Management Policy
and assesses
adherence to the policy through testing, analysis
of conduct-related issues, and effective challenge
of segment reporting and change risk
assessments. ECRM
provides enterprise-wide aggregated conduct risk reporting
to the Corporate Governance Committee
which oversees conduct risk management in
the Bank.
Financial Crime Risk Management (FCRM)
FCRM, previously Global Anti-Money Laundering,
is responsible for the oversight of TD’s regulatory
compliance regarding AML, Anti-Terrorist Financing,
Economic Sanctions, and Anti-Bribery/Anti-Corruption
(collectively, “Financial Crime Risk” or “FCR”) and assesses the
adequacy of, adherence to and
effectiveness of the Bank’s day-to-day controls of
the FCR Programs, using a risk-based
approach. FCRM is also responsible
for regulatory compliance and
broader prudential risk management
across the Bank in alignment with enterprise
AML, Sanctions and Anti-Bribery/Anti-Corruption
policies so that money
laundering, terrorist financing, economic
sanctions, and bribery and corruption risks
are appropriately identified and mitigated.
FCRM reports to the Audit
Committee and ERMC on the overall adequacy
and effectiveness of the FCR Programs including
AML, program design and operations.
As described in the “Significant Events – Global
Resolution of the Investigations into the Bank’s
U.S. BSA/AML Program”
section, a remediation plan is in place to
address U.S. BSA/AML regulatory requirements
and deliver on enhancements to strengthen
the AML program across the Global Bank, with
the goal of enabling
the Bank’s compliance with regulatory expectations
including how we identify, measure, monitor and mitigate
AML related risks.
Both the U.S. and the Global programs have
established risk mitigation and enhancement
programs to help ensure that any interim
risks are appropriately
identified and managed according to established
Risk Management standards during the period
that the full multi-year remediation and
enhancement activities are
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 74
delivered. The scope of the risk mitigation program
extends beyond FCRM specific risks
and is focused on helping to ensure that additional
risks arising from the
Bank undertaking this type and scale of change
are appropriately managed, including Model
Risk, Technology and Data Risk, Third Party Risk and Operational
Risk.
Three Lines of Defence
In order to further the understanding of responsibilities
for risk management, the Bank employs
the following “three lines of defence” model
that describes the
respective accountabilities of each line of
defence in managing risk across the Bank.
THREE LINES OF DEFENCE
FIRST LINE
RISK OWNER
IDENTIFY AND
CONTROL
●
Own, identify, manage, measure, and monitor current and emerging
risks in day-to-day activities, operations,
products, and
services.
●
Understand the risks, including tail risks, across
relevant risk categories (what could go
wrong and the potential impact to the
Bank’s customers, colleagues, and the Bank itself).
●
Identify and understand the applicable LRRs,
including LRRs specific to the business.
●
Promote ongoing initiatives to raise the profile
of risk considerations and understand
key risks impacting the business.
●
Implement governance and control processes
to promote risk awareness, clear risk ownership
within the business, and
personal accountability.
●
Design, implement, and maintain appropriate
mitigating controls, and assess the design
and operating effectiveness of those
controls.
●
Understand and monitor control gaps and
proactively self-identify and remediate issues.
●
Monitor and report on risk profile so that activities
are within TD’s risk appetite and policies.
●
Implement risk-based approval processes
for all new products, activities, processes,
and systems.
●
Escalate risk issues and develop and implement
action plans in a timely manner.
●
Develop and deliver training, tools, and advice
to support its accountabilities.
●
Promote a strong risk management culture.
SECOND LINE
RISK OVERSIGHT
SET STANDARDS
AND CHALLENGE
●
Establish and communicate enterprise governance,
risk, and control strategies, frameworks,
and policies.
●
Provide oversight and independent challenge
to the first line through an effective objective assessment,
that is evidenced and,
where significant, documented, including:
-
Challenge the quality and sufficiency of the first line’s risk
activities;
-
Identify and assess current and emerging risks
and controls, using a risk-based approach,
as appropriate;
-
Monitor the adequacy and effectiveness of internal
control activities;
-
Review and discuss assumptions, material
risk decisions and outcomes;
-
Aggregate and share results across business
lines and control areas to identify similar
events, patterns, or broad trends;
and
-
Monitor the execution of the Bank’s remediation activities.
●
Identify and assess, and communicate relevant
regulatory changes for the applicable LRRs.
●
Develop and implement risk measurement
tools so that activities are within TD’s RAS.
●
Monitor and report on compliance with the
Bank’s RAS and policies.
●
Escalate risk issues in a timely manner,
with a focus on maintaining transparency to
key stakeholders.
●
Report on the risks of the Bank on an enterprise-wide
and disaggregated level to the Board
and/or senior management,
independently of the business lines or operational
management.
●
Provide training, tools, and advice to support
the first line in carrying out its accountabilities.
●
Promote a strong risk management culture.
THIRD LINE
INTERNAL AUDIT
INDEPENDENT
ASSURANCE
●
Verify independently that TD’s ERF is designed and operating
effectively.
●
Validate the effectiveness of the first and second lines of defence in
fulfilling their mandates and managing risk.
In support of a strong risk culture, the Bank
applies the following principles in governing
how it manages risk:
●
Enterprise-Wide in Scope
– Risk Management will span all areas of the
Bank, including third-party alliances and joint
venture undertakings to the extent they
may impact the Bank, and all boundaries, both
geographic and regulatory.
●
Transparent and Effective Communication
– Matters relating to risk will be communicated
and escalated in a timely, accurate, and
forthright manner.
●
Enhanced Accountability
– Risks will be explicitly owned, understood,
and actively managed by business management
and all employees, individually and
collectively.
●
Independent Oversight
– Risk policies, monitoring, and reporting
will be established and conducted independently
and objectively.
●
Integrated Risk and Control Culture
– Risk Management disciplines will be integrated
into the Bank’s daily routines, decision-making,
and strategy
formulation.
●
Strategic Balance
– Risk will be managed to an acceptable
level of exposure, recognizing the need
to protect and grow shareholder value to foster
a sound
strategic balance between risk mitigation and
risk enablement within TD’s risk appetite.
●
Leadership Accountability
– Leaders are accountable to demonstrate,
influence and drive the right risk behaviours
and risk mindset with colleagues and
stakeholders.
APPROACH TO RISK MANAGEMENT PROCESSES
The Bank’s comprehensive and proactive approach
to risk management is comprised of four processes:
risk identification and assessment, measurement,
control,
and monitoring and reporting.
Risk Identification and Assessment
Risk identification and assessment is focused
on recognizing and understanding existing
risks, risks that may arise from new or
evolving business initiatives,
aggregate risks, tail risks, and emerging risks
from the changing environment. The Bank’s
objective is to establish and maintain integrated
risk identification and
assessment processes that enhance the understanding
of risk interdependencies, consider how risk
types intersect, and support the identification
of emerging
risks.
To
that end, the Bank’s Enterprise-Wide Stress
Te
sting (EWST) program enables senior management,
the Board, and its committees to identify and
articulate enterprise-wide risks and understand
potential vulnerabilities for the Bank.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 75
Risk Measurement
The ability to quantify risks is a key component
of the Bank’s risk management process. The Bank’s risk
measurement process aligns with regulatory
requirements
such as capital adequacy, leverage ratios, liquidity measures, stress
testing, and maximum credit exposure guidelines
established by its regulators. Additionally,
the Bank has a process in place to quantify
risks to provide accurate and timely measurements
of the risks it assumes.
In quantifying risk, the Bank uses various
risk measurement methodologies, including
Value-at-Risk (VaR) analysis, scenario analysis, stress testing, and limits.
Other examples of risk measurements include
credit exposures, PCL, peer comparisons,
trending analysis, liquidity coverage, leverage
ratios, capital adequacy
metrics, and operational risk event notification
metrics. The Bank also requires segments and
oversight functions to assess key risks and internal
controls through
a structured Risk and Control Self-Assessment
program. Internal and external risk events
are monitored to assess whether the Bank’s internal
controls are
effective. This allows the Bank to identify, escalate, and monitor significant
risk issues as needed.
Risk Control
The Bank’s risk control processes are established
and communicated through the Risk Committee
and management approved policies, and
associated
management approved procedures, control limits,
and delegated authorities which reflect
its risk appetite and risk tolerances.
The Bank’s approach to risk control also includes risk
and capital assessments to appropriately
capture key risks in its measurement and
management of capital
adequacy. This involves the review, challenge, and endorsement by senior management
committees of the Bank’s ICAAP and related
economic capital practices.
The Bank’s performance is measured based on
the allocation of risk-based capital to businesses
and the cost charged against that capital.
Risk Monitoring and Reporting
The Bank monitors and reports on risk levels
on a regular basis against its risk appetite
and Risk Management reports on its
risk monitoring activities to senior
management, the Board and its Committees,
and appropriate executive and management
committees. Complementing regular risk
monitoring and reporting,
ad hoc risk reporting is provided to senior
management, the Risk Committee, and the
Board, as appropriate, for new and emerging
risks or any significant changes
to the Bank’s risk profile. The Bank is developing
methodologies and approaches for climate
scenario analysis through participation in
industry-wide working
groups and the OSFI led Standardized
Climate Scenario Exercise, and is working
to embed the assessment of climate-related risks
and opportunities into relevant
Bank processes.
Stress Testing
Stress testing is an integral component of
the Bank’s risk management framework and serves
as a key component of the Bank’s capital,
strategic and financial
planning processes. Stress testing at the
Bank comprises an annual enterprise-wide
stress test featuring a range of scenarios,
prescribed regulatory stress tests in
multiple jurisdictions, and various ongoing
and ad hoc stress tests and analysis. The
results of these stress tests and analysis enable
management to assess the
impact of geopolitical events and changes
to economic and other market factors on the
Bank’s financial condition and assist in the determination
of capital and
liquidity adequacy and targets, risk appetite
and other limits. These exercises enable
the identification and quantification of vulnerabilities,
the monitoring of
changes in risk profile relative to risk appetite
limits, and evaluation of business plans.
The Bank utilizes a combination of quantitative
modelling and qualitative approaches to assess
the impact of changes in the macroeconomic
environment on the
Bank’s income statement, balance sheet, and
capital and liquidity position under hypothetical
stress situations. Stress testing engages
senior management across
the lines of business, Finance, TBSM, Economics,
and Risk Management. Stress test
results are reviewed, challenged and approved
by senior management and
executive oversight committees. The Bank’s
Risk Committee also
reviews, challenges, and discusses
the results. The results are submitted, disclosed,
or shared
with regulators as required or requested.
Enterprise-Wide Stress Testing
The Bank conducts an annual EWST as part
of a comprehensive capital and liquidity planning,
strategic, and financial exercise that is a
key component of the
Bank’s ICAAP framework. The EWST results are
considered in establishing the Bank’s capital targets
and stress related risk appetite limits, evaluating
the Bank’s
strategies and business plan, and identifying
actions that senior management could
take to manage the impact of stress events.
In addition, the Bank conducts ad
hoc stress tests and analysis for assessing
the impact of events deemed to be potentially
material or of concern in support of senior
management’s assessment of
vulnerabilities and operational readiness
to an uncertain or rapidly changing operating
environment.
The program is subject to a well-defined
governance framework that facilitates executive
oversight and engagement throughout the
organization. EWST
methodologies and results are reviewed and
challenged by executives and subject
matter experts from the line of business, finance
and risk teams. Stress testing
results are further reviewed by ERMC and are
also shared with the Board and regulators.
The Bank’s EWST program involves the development,
execution and
assessment of stress scenarios with varying
features and degrees of severity on the balance
sheet, income statement, capital, liquidity, and leverage. It enables
management to identify and assess enterprise-wide
risks and understand potential vulnerabilities,
and changes to the risk profile of the Bank.
The stress scenarios
are developed with consideration of the Bank’s
key business activities, exposures, concentrations
and vulnerabilities. The scenarios are designed
to be consistent
with regulatory stress testing frameworks
and cover a wide variety of risk factors
meaningful to the Bank’s risk profiles in North America
and globally including
changes to unemployment, gross domestic product,
home prices, and interest rates.
For the 2024 EWST program, the Bank developed
and assessed scenarios that explored emerging
risks such as inflation, various interest rate
environments,
increased competition/market pressure on
fees, Net Interest Margin compression reflecting
deposit attrition and higher funding costs,
and elevated regulatory,
fraud and cybersecurity risks. The stress testing
scenarios included, a plausible typical recession
calibrated to historical recessions in Canada
and the U.S., a low
probability and highly severe stagflation
scenario targeting TD-specific risks and vulnerabilities,
and an alternative scenario that explores
another plausible interest
rate environment. Supplemental analysis performed
during 2024 explored strategic risk events
to support senior management in assessing
key risks.
Other Stress Tests and Analysis
Ongoing stress testing and scenario analyses
within specific risk types, such as market risk,
liquidity risk, retail and wholesale
credit risk, operational risk, and
insurance risk, supplement and support our
enterprise-wide analyses. Results
from these risk-specific programs are used
in a variety of decision-making
processes including risk limit setting, portfolio
composition evaluation, risk appetite articulation
and business strategy implementation.
In addition, the Bank
conducts ad hoc stress tests and analysis
for the enterprise as well as for targeted portfolios,
to evaluate potential vulnerabilities and operational
readiness to
specific changes in economic and market
conditions including those related to evolving
geopolitical risk events.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 76
Stress tests are also conducted on certain legal
entities and jurisdictions, in line with
prescribed regulatory requirements.
The Bank’s U.S.- holding company and
operating bank subsidiaries’ capital planning
process including execution of stress tests are
conducted in accordance with the U.S. Dodd-Frank
Act stress testing
(DFAST) requirements. In addition, certain Bank subsidiaries
in Singapore, Ireland, and the United
Kingdom conduct stress testing exercises as
part of their
respective ICAAP. The Bank undertakes other internal and regulatory based stress
tests including liquidity and market risk, which are
detailed in the respective
sections.
The Bank also conducts scenario and sensitivity
analysis as part of the Recovery and
Resolution Planning program to assess potential
mitigating actions and
contingency planning strategies, as required.
Strategic Risk
Strategic risk is the risk of sub-optimal outcomes
(including financial losses or reputational
damage) arising from the Bank’s strategic
choices, execution of our
strategies, responses to disruption (e.g.,
technological advancements or unforeseen
competitive shifts) and regulatory shifts, or
tail risk exposures (i.e., low
probability events that can result in large or
unquantifiable losses, material intervention
or action from regulators, and/or significant
harm to the TD brand).
Strategic choices may span ongoing business
operations and inorganic (Mergers & Acquisitions
and strategic partnerships) activities.
WHO MANAGES STRATEGIC RISK
The CEO manages Strategic Risk, supported
by members of the SET and the ERMC.
The CEO, together with the SET, defines the overall strategy, in consultation
with, and subject to approval by the Board.
The Enterprise Strategy group, under the leadership
of the CFO, is charged with developing
the Bank’s long-term
strategy and shorter-term strategic objectives
and priorities with input and support from
senior executives across the Bank.
Each member of the SET is responsible
for establishing and managing long-
and short-term strategic priorities for
their areas of responsibility (business segment
or corporate function), and ensuring such strategies
are aligned with the Bank’s long-
and short-term strategic objectives and
priorities, and are within the Bank’s
risk appetite. Each member of the SET is also
accountable to the CEO for identifying,
assessing, measuring, controlling, monitoring,
and reporting on the
effectiveness and risks of their business segment
or corporate function’s strategies.
The CEO, members of the SET, and other senior executives report to the Board
on the implementation of the Bank’s strategies, identifying
related risks and
explaining how they are managed.
The ERMC oversees the identification and
monitoring of significant and emerging risks
related to the Bank’s strategies so that
mitigating actions are taken where
appropriate.
HOW TD MANAGES STRATEGIC RISK
The Bank’s enterprise-wide strategies and operating
performance, and those of significant business
segments and corporate functions, are assessed
regularly by
the CEO and members of the SET through
an integrated financial and strategic planning
process, as well as operating results reviews.
The Bank’s RAS establishes strategic risk limits at
the enterprise and business segment
levels. Limits include qualitative and quantitative
assessments and are
established to monitor and control business
concentrations, strategic disruption, and
E&S risks.
The Bank’s annual integrated planning process establishes
plans at the enterprise and segment levels.
The plans incorporate market trends, TD’s relative
performance, long-
and short-term strategies, target
metrics, key risks / mitigants, and alignment
with the Bank’s enterprise strategy and risk appetite.
Operating results are reviewed periodically during
the year to monitor segment / function
performance against the integrated financial
and strategic plan. These
reviews include an evaluation of long-term
strategy and short-term strategic priorities, including
the operating environment, relative performance
and competitive
positioning assessments, initiative execution
status, and key risks / mitigants. The frequency
of operating results reviews depends
on the risk profile and size of the
business segment or corporate function.
The Bank’s strategic risk and adherence to its
risk appetite is reviewed by the ERMC in
the normal course, as well as by the Board.
Additionally, material
acquisitions are assessed for their fit with
the Bank’s strategy and risk appetite in accordance
with the Bank’s Due Diligence Policy. This assessment is reviewed
by the SET and Board as part of the decision
process.
The shaded areas of this MD&A represent
a discussion on risk management policies
and procedures relating to credit, market,
and liquidity risks as required under
IFRS 7,
Financial Instruments: Disclosures
, which permits these specific disclosures
to be included in the MD&A. Therefore,
the shaded areas which include Credit
Risk, Market Risk, and Liquidity Risk, form an
integral part of the audited Consolidated
Financial Statements for the years ended October
31, 2024 and
October 31, 2023.
The Basel Framework
The objective of the Basel Framework is to improve the
consistency of capital requirements internationally
and establish minimum regulatory capital
standards
which adequately capture risks. The
Basel Framework sets different risk-sensitive
approaches for calculating credit, market,
and operational RWA.
Credit Risk
Credit risk is the risk of loss if a borrower or
counterparty in a transaction fails to meet
its agreed payment obligations.
Credit risk is one of the most significant and
pervasive risks in banking. Every loan,
extension of credit, or transaction that involves
the transfer of payments
between the Bank and other parties or financial
institutions exposes the Bank to some
degree of credit risk.
The Bank’s primary objective is to be methodical
in its credit risk assessment so that the
Bank can understand, select, and manage
its exposures to reduce
significant fluctuations in earnings.
The Bank’s strategy is to include central oversight of
credit risk in each business, and reinforce
a culture of transparency, accountability, independence, and
balance.
WHO MANAGES CREDIT RISK
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 77
The responsibility for credit risk management
is enterprise-wide.
To
reinforce ownership of credit risk, credit risk
control functions are integrated into each
business, but also report to Risk Management.
Each business segment’s credit risk control unit is
responsible for its credit decisions and
must comply with established policies, exposure
guidelines, credit
approval limits, and policy/limit exception procedures.
It must also adhere to established enterprise-wide
standards of credit assessment and obtain
Risk
Management’s approval for credit decisions beyond its
discretionary authority.
Risk Management is accountable for oversight
of credit risk by developing policies that
govern and control portfolio risks, and approval
of product-specific
policies, as required.
The Risk Committee oversees the management
of credit risk and annually approves
certain significant credit risk policies.
HOW TD MANAGES CREDIT RISK
The Bank’s Credit Risk Management Framework
outlines the internal risk and control
structure to manage credit risk and includes
risk appetite, policies,
processes, limits and governance. The Credit
Risk Management Framework is maintained by
Risk Management and supports alignment
with the Bank’s risk
appetite for credit risk.
Credit risk policies and credit decision-making
strategies, as well as the discretionary limits
of officers throughout the Bank for extending lines
of credit are
centrally approved by Risk Management,
and the Board where applicable.
Limits are established to monitor and control
country, industry, product, geographic, and group exposure risks in the portfolios in
accordance with enterprise-
wide policies.
In the Bank’s Retail businesses, the Bank uses established
underwriting guidelines (which include
collateral and loan-to-value requirements)
along with
approved scoring techniques and standards
in extending, monitoring, and reporting
personal credit. Credit scores and decision
strategies are used in the
origination and ongoing management of new
and existing retail credit exposures. Scoring
models and decision strategies utilize a
combination of borrower
attributes, including, but not limited to, income,
employment status, existing loan exposure
and performance, and size of total bank
relationship, as well as external
data such as credit bureau information, to determine
the amount of credit the Bank is prepared to extend
to retail customers and to estimate future
credit
performance. Established policies and procedures
are in place to govern the use, and
monitor and assess the performance of scoring
models and decision
strategies to align with expected performance
results. Retail credit exposures approved
within the credit centres are subject to ongoing
Retail Risk Management
review to assess the effectiveness of credit decisions
and risk controls, as well as to identify
emerging or systemic issues and trends.
Material policy exceptions
are tracked and reported and larger dollar exposures
and material exceptions to policy are
escalated to Retail Risk Management.
The Bank’s Commercial Banking and Wholesale Banking
businesses use credit risk models and policies
to establish borrower and facility risk
ratings (BRR and
FRR), quantify and monitor the level of risk,
and to aid in the Bank’s effective management of risk.
Risk ratings are also used to determine
the amount of credit
exposure the Bank is willing to extend
to a particular borrower. Management processes are used
to monitor country, industry, and borrower or counterparty risk
ratings, which include daily, monthly, quarterly, and annual review requirements for credit exposures. The key
parameters used in the Bank’s credit risk models
are
monitored on an ongoing basis.
Unanticipated economic or political changes
in a foreign country could affect cross-border payments
for goods and services, loans, dividends,
and trade-related
finance, as well as repatriation of the Bank’s capital
in that country. The Bank currently has credit exposure in
a number of countries, with the majority of the
exposure in North America. The Bank measures
country risk using approved risk rating models
and qualitative factors that are also used
to establish country
exposure limits covering all aspects of credit
exposure across all businesses. Country risk
ratings are managed on an ongoing
basis and are subject to a detailed
review at least annually.
As part of the Bank’s credit risk strategy, the Bank sets limits on the
amount of credit it is prepared to extend
to specific industry sectors. The Bank
monitors its
concentration to any given industry to provide
for a diversified loan portfolio and to reduce
the risk of undue concentration. The Bank
manages this risk using limits
based on an internal risk rating methodology
that considers relevant factors.
The Bank assigns a maximum exposure
limit or a concentration limit to each
major
industry segment which is a percentage of its
total wholesale and commercial private sector
exposure.
The Bank may also set limits on the amount
of credit it is prepared to extend to a particular
entity or group of entities, also referred
to as “entity risk”. All entity
risk is approved by the appropriate decision-making
authority using limits based on the entity’s BRR.
This exposure is monitored on a regular basis.
To
determine the potential loss that could be incurred
under a range of adverse scenarios, the
Bank subjects its credit portfolios to stress
tests. Stress tests
assess vulnerability of the portfolios to
the effects of severe but plausible situations, such as
an economic downturn or a material market
disruption.
Credit Risk and the Basel Framework
The Bank uses the Basel IRB to calculate
credit risk RWA for all material portfolios. Based on exposure
class, in accordance with the OSFI CAR
guidelines, either
a foundation approach (Foundation Internal
Ratings-Based (FIRB))
or advanced approach (Advanced
Internal Ratings-Based (AIRB))
is applied.
The following risk parameters are used in
credit risk RWA calculations and may be subject to prescribed
floors in some cases:
●
Probability of default (PD) – the likelihood
that the borrower will not be able to meet
its scheduled repayments within a one-year
time horizon.
●
Loss given default (LGD) – the amount
of loss the Bank would likely incur when a
borrower defaults on a loan, which is
expressed as a percentage of exposure
at default (EAD).
●
EAD – the total amount of the Bank’s exposure at
the time of default, including certain off-balance
sheet items.
The FIRB approach primarily uses internally
derived PD, while other components such
as LGD and EAD are prescribed. The
AIRB approach uses internally
derived PD, LGD, and EAD.
To
continue to qualify to use the IRB approaches
for credit risk, the Bank must meet the ongoing
conditions and requirements established by OSFI
and the Basel
Framework. The Bank regularly assesses its
compliance with these requirements.
Credit Risk Exposures Subject to the
IRB Approaches
Banks that adopt the IRB approaches to
credit risk must report credit risk exposures by
counterparty type, each having different underlying
risk characteristics.
These counterparty types may differ from the
presentation in the Bank’s 2024
Consolidated Financial Statements.
The Bank’s credit risk exposures are divided into
two main portfolios, retail and non-retail.
Retail Exposures
In the retail portfolio, including individuals and
small businesses, the Bank manages exposures
on a pooled basis, using predictive credit
scoring techniques. There
are three sub-types of retail exposures: residential
secured (for example, mortgages and
HELOCs), qualifying revolving retail (for
example, credit cards, unsecured
lines of credit, and overdraft protection products),
and other retail (for example, personal loans,
including secured automobile loans, student
lines of credit, and
small business banking credit products).
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 78
The Bank calculates RWA for its retail exposures using the
AIRB approach. All retail PD, LGD, and
EAD parameter models are based on the
internal default
and loss performance history for each of
the three retail exposure sub-types. These parameters
are also used in the calculation of regulatory
capital, economic
capital, and allowance for credit losses.
Account-level PD, LGD, and EAD models are
built for each product portfolio and calibrated
based on the observed account-level default
and loss performance
for the portfolio.
Consistent with the AIRB approach, the Bank
defines default for exposures as delinquency
of 90 days or more for the majority
of retail credit portfolios. LGD
estimates used in the RWA calculations reflect economic losses,
such as direct and indirect costs as well as
any appropriate discount to account
for time between
default and ultimate recovery. EAD estimates reflect the historically
observed utilization of credit limits at default.
PD, LGD, and EAD models are calibrated
using
established statistical methods, such as logistic
and linear regression techniques. Predictive
attributes in the models may include account
attributes, such as loan
size, interest rate, and collateral, where
applicable; an account’s previous history and
current status; an account’s age on book; a customer’s
credit bureau
attributes; a customer’s other holdings
with the Bank; and macroeconomic inputs,
such as unemployment rate. For secured
products such as residential
mortgages, property characteristics, loan-to-value
ratios, and a customer’s equity in
the property, play a significant role in PD as well as in LGD models.
All risk parameter estimates are updated
on a quarterly basis based on the refreshed
model inputs. Parameter estimation is fully automated
based on approved
formulas and is not subject to manual overrides.
Exposures are then assigned to pre-defined
PD segments based on their estimated long-run
average one-year PD.
The predictive power of the Bank’s retail credit
models is assessed against the most recently
available one-year default and loss performance
on a quarterly basis.
All models are also subject
to a comprehensive independent validation as
outlined in the “Model Risk Management”
section of this disclosure.
Long-run PD estimates are generated by
including key economic indicators, such as
interest rates and unemployment rates, and
using their long-run average
over the credit cycle to estimate PD.
LGD estimates are required to reflect a downturn
scenario. Downturn LGD estimates are generated
by using macroeconomic inputs, such
as changes in
housing prices and unemployment rates
expected in an appropriately severe downturn
scenario.
For unsecured products, downturn LGD estimates
reflect the observed lower recoveries
for exposures defaulted during the 2008
to 2009 recession. For
products secured by residential real estate,
such as mortgages and HELOCs,
downturn LGD reflects the potential impact
of a severe housing downturn. EAD
estimates similarly reflect a downturn scenario.
The following table maps PD ranges
to risk levels:
Risk assessment
PD Segment
PD Range
Low Risk
1
0.00
to
0.15
%
Normal Risk
2
0.16
to
0.41
3
0.42
to
1.10
Medium Risk
4
1.11
to
2.93
5
2.94
to
4.74
High Risk
6
4.75
to
7.59
7
7.60
to
18.24
8
18.25
to
99.99
Default
9
100.00
Non-Retail Exposures
In the non-retail portfolio, the Bank manages
exposures on an individual borrower basis, using
industry and sector-specific credit risk
models, and expert judgment.
The Bank has categorized non-retail credit risk
exposures according to the following
Basel counterparty types: corporate, including
wholesale and commercial
customers, sovereign, and bank. Under the
IRB approaches, CMHC-insured mortgages
are considered sovereign risk and are
therefore classified as non-retail.
The Bank evaluates credit risk for non-retail
exposures by using both a BRR and
FRR. The Bank uses this system for all corporate,
sovereign, and bank
exposures. The Bank determines the risk
ratings using industry and sector-specific
credit risk models that are based on
internal historical data. In Canada, for both
the wholesale and commercial lending portfolios,
credit risk models are calibrated based on internal
data beginning in 1994. In the U.S.,
credit risk models are
calibrated based on internal data beginning in
- All borrowers and
facilities are assigned an internal risk rating
that must be reviewed at least once each
year.
External data such as rating agency default rates
or loss databases are used to benchmark
the parameters.
Internal risk ratings (BRR and FRR) are key
to portfolio monitoring and management,
and are used to set exposure limits and loan
pricing. Internal risk ratings
are also used in the calculation of regulatory
capital, economic capital, and allowance
for credit losses.
Borrower Risk Rating and PD
Each borrower is assigned a BRR that
reflects the PD of the borrower using proprietary
models and expert judgment. In assessing
borrower risk, the Bank reviews
the borrower’s competitive position,
financial performance, economic, and industry
trends, management quality, and access to funds. Under the IRB
approaches,
borrowers are grouped into BRR grades
where a PD is calibrated for each BRR grade.
Use of projections for model implied risk ratings
is not permitted and BRRs
may not incorporate a projected reversal,
stabilization of negative trends, or the acceleration
of existing positive trends. Historic financial results
can however be
sensitized to account for events that have occurred,
or are about to occur, such as additional debt incurred
by a borrower since the date of the last
set of financial
statements. In conducting an assessment
of the BRR, all relevant and material information
must be taken into account and the information
being used must be
current. Quantitative rating models are used
to rank the expected through-the-cycle PD, and
these models are segmented into categories
based on industry and
borrower size. The quantitative model output
can be modified in some cases by expert judgment,
as prescribed within the Bank’s credit policies.
To
calibrate PDs for each BRR band, the Bank
computes yearly transition matrices based
on annual cohorts and then estimates the average
annual PD for each
BRR. The PD is set at the average estimation
level plus an appropriate adjustment to
cover statistical and model uncertainty. The calibration process
for PD is a
through-the-cycle approach.
TD’s 21-point BRR scale broadly aligns to external
ratings as follows:
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 79
Description
Rating category
Standard & Poor’s
Moody’s Investor Services
Investment grade
0 to 1C
AAA to AA-
Aaa to Aa3
2A to 2C
A+ to A-
A1 to A3
3A to 3C
BBB+ to BBB-
Baa1 to Baa3
Non-investment grade
4A to 4C
BB+ to BB-
Ba1 to Ba3
5A to 5C
B+ to B-
B1 to B3
Watch and classified
6 to 8
CCC+ to CC and below
Caa1 to Ca and below
Impaired/default
9A to 9B
Default
Default
Facility Risk Rating and LGD
The FRR maps to LGD, with different models used
based on industry and obligor size, and
takes into account facility-specific characteristics
such as collateral,
seniority ranking of debt, loan structure,
and borrower enterprise value.
Average LGD and the statistical uncertainty of LGD
are estimated for each FRR grade. In some
FRR models, the scarcity of historical default
events requires
the model to output a rank-ordering which
is then mapped through expert judgment
to the quantitative LGD scale.
Under the FIRB approach, LGDs are prescribed
whereas the AIRB approach stipulates the use
of downturn LGD, where the downturn period,
as determined by
internal and/or external experience, suggests
higher than average loss rates or lower
than average recovery.
To
reflect this, calibrated LGDs take into account
both the statistical estimation uncertainty and
the higher than average LGDs experienced
during downturn periods.
Exposure at Default
The Bank calculates non-retail EAD by first
measuring the drawn amount of a facility and
then adding a potential increased utilization
at default from the undrawn
portion, if any. Usage Given Default (UGD) is measured as the percentage
of undrawn exposure that would be expected
to be drawn by a borrower defaulting in
the next year, in addition to the amount that already has been drawn
by the borrower. In the absence of credit mitigation effects or
other details, the EAD is set at
the drawn amount plus (estimated UGD
x undrawn) for AIRB exposure, or (prescribed
UGD x undrawn) for FIRB exposures.
BRR and drawn ratio up to one-year prior
to default are predictors for UGD under the AIRB
approach.
Consequently, the UGD estimates are calibrated by BRR
and drawn ratio, the latter representing
the ratio of the drawn to authorized amounts.
Historical UGD experience is studied for any downturn
impacts, similar to the LGD downturn analysis.
The Bank has not found downturn UGD
to be significantly
different from average UGD, therefore the UGDs under
AIRB are set at the average calibrated
level, by drawn ratio and/or BRR, plus
an appropriate adjustment for
statistical and model uncertainty.
UGDs under the FIRB approach are prescribed
for relevant exposure classes.
Credit Risk Exposures Subject to the Standardized
Approach (SA)
Currently the SA to credit risk is used
for new portfolios, which are in the process of
transitioning to IRB approaches, or exempted portfolios
which are either
immaterial or expected to wind down. The
Bank primarily applies SA to certain segments
within both the Retail and Non-retail portfolios.
Under the SA, the
exposure amounts are multiplied by risk
weights prescribed by OSFI, based on the
OSFI Capital Adequacy Requirements
(CAR) guidelines, to determine RWA.
These risk weights are assigned according
to certain factors including counterparty type,
product type, and the nature/extent of
credit risk mitigation. The Bank
uses external credit ratings, including Moody’s and S&P
to determine the appropriate risk weight
for its exposures to sovereigns and central
banks, public sector
entities (PSEs), banks (regulated DTIs and
securities firms), and corporates. The Bank
applies SA to certain retail portfolios, including
Real Estate Secured
Lending (RESL), where the assigned risk
weight is primarily based on the exposure’s Loan-to-Value ratio and
whether the exposure is categorized as income
producing or general.
Lower risk weights apply where approved
credit risk mitigants exist. For off-balance sheet
exposures, specified credit conversion
factors are used to convert the
notional amount of the exposure into a credit
equivalent amount.
Derivative Exposures
Credit risk on derivative financial instruments,
also known as counterparty credit risk,
is the risk of a financial loss occurring as a result
of the failure of a
counterparty to meet its obligation to the Bank.
Derivative-related credit risks are subject to
the same credit approval standards that
the Bank uses for assessing
loans. These standards include evaluating
the creditworthiness of counterparties,
measuring and monitoring exposures, including
wrong-way risk exposures, and
managing the size, diversification, and
maturity structure of the portfolios.
The Bank uses various qualitative and quantitative
methods to measure and manage counterparty
credit risk. These include statistical methods
to measure the
current and future potential risk, as well as
ongoing stress testing to identify and quantify
exposure under a range of adverse scenarios.
The Bank establishes
various limits to manage business volumes
and concentrations. Risk Management
independently measures and monitors
counterparty credit risk relative to
established credit policies and limits. As
part of the credit risk monitoring process,
management periodically reviews all exposures,
including exposures resulting
from derivative financial instruments to higher
risk counterparties, and to assess the
valuation of underlying financial instruments and
the impact evolving market
conditions may have on the Bank.
There are two types of wrong-way risk exposures,
namely general and specific. General
wrong-way risk arises when the PD of the
counterparties moves in the
same direction as a given market risk factor. Specific wrong-way
risk arises when the exposure to a particular
counterparty moves in the same direction as
the PD
of the counterparty due to the nature of
the transactions entered into with that counterparty. These exposures
require specific approval within the credit approval
process. The Bank measures and manages
specific wrong-way risk exposures in the
same manner as direct loan obligations
and controls them by way of
approved credit facility limits.
The Bank uses the standardized approach
for counterparty credit risk to calculate
the EAD amount, which is defined by OSFI as
a multiple of the summation of
replacement cost and potential future exposure,
to estimate the risk and determine regulatory
capital requirements
for derivative exposures.
Credit Valuation Adjustment Risk
The Bank maintains policies and procedures
that govern the valuation and hedging of
Credit Valuation Adjustment (CVA) risk. These policies, procedures and
associated results are regularly reviewed and
approved by senior management. While
CVA risk, capital and hedging is managed and owned by a
dedicated
business function, the independent Risk
Management function oversees the process,
including the effectiveness of hedges, reporting
and monitoring for
compliance to policies and frameworks and
adherence to risk appetite. Quantitative
models used for CVA risk and CVA capital comply with TD’s Model Risk
Management Framework.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 80
Validation of the Credit Risk Rating System
Credit risk rating systems and methodologies
are independently validated on a regular
basis to verify that they remain accurate predictors
of risk. The validation
process includes the following considerations:
–
●
Risk parameter estimates – PDs, LGDs, and
EADs are reviewed and updated against actual
loss experience to verify that estimates
continue to be reasonable
predictors of potential loss.
●
Model performance – Estimates continue
to be discriminatory, stable, and predictive.
●
Data quality – Data used in the risk rating
system is accurate, appropriate, and sufficient.
●
Assumptions – Key assumptions underlying
the development of the model remain
valid for the current portfolio and environment.
Risk Management verifies that the credit
risk rating system complies with the Bank’s
Model Risk Policy. At least annually, the Risk Committee is informed of the
performance of the credit risk rating system.
The Risk Committee must approve any material
changes to the Bank’s credit risk rating system.
Credit Risk Mitigation
The techniques the Bank uses to reduce or
mitigate credit risk include written policies
and procedures to value and manage financial
and non-financial security
(collateral) and to review and negotiate netting
agreements. The amount and type of
collateral, and other credit risk mitigation
techniques required, are based on
the Bank’s own assessment of the borrower’s
or counterparty’s credit quality and capacity
to pay.
In the Retail and Commercial banking businesses,
security for loans is primarily non-financial
and includes residential real estate, real
estate under
development, commercial real estate, automobiles,
and other business assets, such as accounts
receivable, inventory, and fixed assets. In the Wholesale Banking
business, a large portion of loans are
to investment grade borrowers where no security
is pledged. Non-investment grade borrowers
typically pledge business
assets in the same manner as commercial
borrowers. Common standards across the Bank
are used to value collateral, determine
frequency of recalculation, and
to document, register, perfect, and monitor collateral.
The Bank mitigates derivative counterparty
exposure using mitigation strategies
that include master netting agreements,
collateral pledging, and central clearing
houses. Master netting agreements allow
the Bank to offset and arrive at a net obligation
amount, whereas collateral agreements allow
the Bank to secure the
Bank’s exposure. Security for derivative exposures
is primarily financial and includes
cash and negotiable securities issued by highly
rated governments and
investment grade issuers. Central clearing houses
further reduce bilateral credit risk by taking
the opposite position to each trade.
In all but exceptional situations, the Bank
secures collateral by taking possession and
controlling it in a jurisdiction where it can legally
enforce its collateral
rights. In exceptional situations and when demanded
by the Bank’s counterparty, the Bank holds or pledges collateral
with an acceptable third-party custodian.
The
Bank documents all such third party arrangements
with industry standard agreements.
Occasionally, the Bank may take guarantees to reduce the risk in credit
exposures. For credit risk exposures subject
to the IRB approaches, the Bank only
recognizes irrevocable guarantees for
Commercial Banking and Wholesale Banking
credit exposures that are provided by entities
with a better risk rating than that
of the borrower or counterparty to the
transaction.
The Bank makes use of credit derivatives
to mitigate credit risk. The credit, legal, and
other risks associated with these transactions
are controlled through well-
established procedures. The Bank’s policy is
to enter into these transactions with investment
grade financial institutions and transact
on a collateralized basis.
Credit risk to these counterparties is managed
through the same approval, limit, and monitoring
processes the Bank uses for all counterparties
for which it has
credit exposure.
The Bank uses appraisals as well as valuations
via automated valuation models (AVMs) to support property values
when adjudicating loans collateralized by
residential property. AVMs are computer-based tools used to estimate or validate the
market value of residential property and uses
market comparables and price
trends for local market areas. The primary
risk associated with the use of these tools
is that the value of an individual property
may vary significantly from the
average for the market area. The Bank has
specific risk management guidelines addressing
the circumstances when they may be used,
and processes to
periodically validate AVMs including obtaining third-party appraisals.
Gross Credit Risk Exposure
Gross credit risk exposure, also referred
to as 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, 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 42: GROSS CREDIT RISK EXPOSURES
Standardized and Internal Ratings-Based
(IRB) Approaches
1
(millions of Canadian dollars)
As at
October 31, 2024
October 31, 2023
Standardized
IRB
Total
Standardized
IRB
Total
Retail
Residential secured
$
4,163
$
537,075
$
541,238
$
4,815
$
515,152
$
519,967
Qualifying revolving retail
866
172,203
173,069
810
169,183
169,993
Other retail
3,391
104,253
107,644
3,368
99,253
102,621
Total retail
8,420
813,531
821,951
8,993
783,588
792,581
Non-retail
Corporate
2,346
721,156
723,502
3,496
654,369
657,865
Sovereign
205
588,498
588,703
116
527,423
527,539
Bank
4,541
171,250
175,791
5,272
171,180
176,452
Total non-retail
7,092
1,480,904
1,487,996
8,884
1,352,972
1,361,856
Gross credit risk exposures
$
15,512
$
2,294,435
$
2,309,947
$
17,877
$
2,136,560
$
2,154,437
1
Gross credit risk exposures represent EAD and are before the effects of credit risk mitigation. This table
excludes securitization, equity, and other credit
RWA.
Other Credit Risk Exposures
Non-trading Equity Exposures
The Bank applies the standardized approach
to calculate RWA on non-trading equity exposures. Under
the standardized approach, a
250
% risk weight is applied
to equity holdings with the exception of speculative
unlisted equities that receive a
400
% risk weight. Equity exposures to
sovereigns and holdings made under
legislated programs continue to follow the
OSFI prescribed risk weights of
0
%,
20
% or
100
%.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 81
Securitization Exposures
The Bank applies risk weights to all securitization
exposures under the revised securitization
framework published by OSFI. The revised
securitization framework
includes a hierarchy of approaches to determine
capital treatment, and transactions that
meet the simple, transparent, and comparable
requirements that are
eligible for preferential capital treatment.
The Bank uses Internal Ratings-Based Approach
(SEC-IRBA) for qualified exposures.
Under SEC-IRBA, risk weights are determined
using a loss coverage
model that quantifies and monitors the level
of risk. The SEC-IRBA also considers
credit enhancements available for loss protection.
For externally rated exposures that do not
qualify for SEC-IRBA, the Bank uses an
External Ratings-Based Approach (SEC-ERBA).
Risk weights are assigned
to exposures using external ratings by external
rating agencies, including Moody’s and S&P. The SEC-ERBA also takes into account
additional factors, including
the type of the rating (long-term or short-term),
maturity, and the seniority of the position.
For exposures that do not qualify for SEC-IRBA
or SEC-ERBA, and are held by an ABCP
issuing conduit, the Bank uses the
Internal Assessment Approach
(IAA).
Under the IAA, the Bank considers all relevant
risk factors in assessing the credit quality
of these exposures, including those published
by the Moody’s and S&P
rating agencies. The Bank also uses loss
coverage models and policies to quantify
and monitor the level of risk, and facilitate
its management. The Bank’s IAA
process includes an assessment of the extent
by which the enhancement available for loss
protection provides coverage of expected
losses. The levels of
stressed coverage the Bank requires for each
internal risk rating are consistent with the
rating agencies’ published stressed factor
requirements for their equivalent
external ratings by asset class. Under the
IAA, exposures are multiplied by OSFI prescribed
risk weights to calculate RWA for capital purposes.
For exposures that do not qualify for SEC-IRBA,
SEC-ERBA or the IAA, the Bank
uses the SA (SEC-SA). Under SEC-SA,
the primary factors that determine the
risk weights include the asset class of the underlying
loans, the seniority of the position, the level
of credit enhancements, and historical
delinquency rates.
Irrespective of the approach being used to
determine the risk weights, all exposures are
assigned an internal risk rating based on
the Bank’s assessment, which
must be reviewed at least annually. The ratings scale TD uses corresponds
to the long-term ratings scales used by
the rating agencies.
The Bank’s internal rating process is subject
to all of the key elements and principles of
the Bank’s risk governance structure, and is managed
in the same way
as outlined in this “Credit Risk” section.
The Bank uses the results of the internal rating
in all aspects of its credit risk management,
including performance tracking, control mechanisms,
and
management reporting.
Market Risk
Trading Market Risk is the risk of loss from financial instruments
held in trading portfolios due to adverse
movements in market factors. These market
factors
include interest rates, foreign exchange rates,
equity prices, commodity prices, credit
spreads, and their respective volatilities.
Non-Trading Market Risk is the risk of loss on the balance
sheet or volatility in earnings from non-trading
activities such as asset-liability management
or
investments, due to adverse movements
in market factors. These market factors
are predominantly interest rates, credit
spreads, foreign exchange rates and
equity prices.
The Bank is exposed to market risk in its
trading and investment portfolios, as well
as through its non-trading activities. The Bank
is an active participant in the
market through its trading and investment
portfolios, seeking to realize returns
for the Bank through careful management of its
positions and inventories. In the
Bank’s non-trading activities, it is exposed to
market risk through the everyday banking transactions
that the Bank executes with its customers.
The Bank complied with the Basel III
market risk requirements as at October 31, 2024,
using the Standardized Approach.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 82
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 43: MARKET RISK LINKAGE TO THE
BALANCE SHEET
(millions of Canadian dollars)
As at
October 31, 2024
October 31, 2023
Non-trading market
Balance
Trading
Non-trading
Balance
Trading
Non-trading
risk – primary risk
sheet
market risk
market risk
Other
sheet
market risk
market risk
Other
sensitivity
Assets subject to market risk
Interest-bearing deposits with banks
$
169,930
$
1,601
$
168,329
$
–
$
98,348
$
327
$
98,021
$
–
Interest rate
Trading loans, securities, and other
175,770
174,232
1,538
–
152,090
151,011
1,079
–
Interest rate
Non-trading financial assets at
fair value through profit or loss
5,869
–
5,869
–
7,340
–
7,340
–
Equity,
foreign exchange,
interest rate
Derivatives
78,061
70,636
7,425
–
87,382
81,526
5,856
–
Equity,
foreign exchange,
interest rate
Financial assets designated at
fair value through profit or loss
6,417
–
6,417
–
5,818
–
5,818
–
Interest rate
Financial assets at fair value through
other comprehensive income
93,897
–
93,897
–
69,865
–
69,865
–
Equity,
foreign exchange,
interest rate
Debt securities at amortized cost,
net of allowance for credit losses
271,615
–
271,615
–
308,016
–
308,016
–
Foreign exchange,
interest rate
Securities purchased under
reverse repurchase agreements
208,217
10,488
197,729
–
204,333
9,649
194,684
–
Interest rate
Loans, net of allowance for
loan losses
949,549
–
949,549
–
895,947
–
895,947
–
Interest rate
Customers’ liability under
acceptances
–
–
–
–
17,569
–
17,569
–
Interest rate
Investment in Schwab
9,024
–
9,024
–
8,907
–
8,907
–
Equity
Other assets
1,2
2,230
–
2,230
–
1,956
–
1,956
–
Interest rate
Assets not exposed to
market risk
91,172
–
–
91,172
97,568
–
–
97,568
Total Assets
2
$
2,061,751
$
256,957
$
1,713,622
$
91,172
$
1,955,139
$
242,513
$
1,615,058
$
97,568
Liabilities subject to market risk
Trading deposits
$
30,412
$
26,827
$
3,585
$
–
$
30,980
$
27,059
$
3,921
$
–
Equity, interest rate
Derivatives
68,368
66,976
1,392
–
71,640
70,382
1,258
–
Equity,
foreign exchange,
interest rate
Securitization liabilities at fair value
20,319
20,319
–
–
14,422
14,422
–
–
Interest rate
Financial liabilities designated at
fair value through profit or loss
207,914
2
207,912
–
192,130
2
192,128
–
Interest rate
Deposits
1,268,680
–
1,268,680
–
1,198,190
–
1,198,190
–
Interest rate,
foreign exchange
Acceptances
–
–
–
–
17,569
–
17,569
–
Interest rate
Obligations related to securities
sold short
39,515
37,812
1,703
–
44,661
43,993
668
–
Interest rate
Obligations related to securities sold
under repurchase agreements
201,900
13,540
188,360
–
166,854
12,641
154,213
–
Interest rate
Securitization liabilities at amortized
cost
12,365
–
12,365
–
12,710
–
12,710
–
Interest rate
Subordinated notes and debentures
11,473
–
11,473
–
9,620
–
9,620
–
Interest rate
Other liabilities
1,2
34,066
–
34,066
–
27,062
–
27,062
–
Equity, interest rate
Liabilities and Equity not
exposed to market risk
2
166,739
–
–
166,739
169,301
–
–
169,301
Total Liabilities and Equity
2
$
2,061,751
$
165,476
$
1,729,536
$
166,739
$
1,955,139
$
168,499
$
1,617,339
$
169,301
1
Relates to retirement benefits, insurance, and structured entity liabilities.
2
Balances as at October 31, 2023 have been restated for the adoption of IFRS 17. Refer to Note 4 of the Bank’s
2024 Consolidated Financial Statements for further details.
MARKET RISK IN TRADING ACTIVITIES
The overall objective of the Bank’s trading businesses
is to provide wholesale banking services,
including facilitation and liquidity, to clients of the Bank. The Bank
must take on risk in order to provide effective
service in markets where its clients trade.
In particular, the Bank needs to hold inventory, act as principal to facilitate
client transactions, and underwrite new issues.
The Bank also trades in order to have in-depth
knowledge of market conditions to provide
the most efficient and
effective pricing and service to clients,
while balancing the risks inherent in its dealing
activities.
WHO MANAGES MARKET RISK IN TRADING
ACTIVITIES
Primary responsibility for managing market
risk in trading activities lies with Wholesale
Banking,
with oversight from Market Risk Control
within Risk Management.
The Market Risk Control Committee meets
regularly to review the market risk profile
and trading results of the Bank’s trading businesses.
The committee is
chaired by the Vice President, Head of Market Risk,
and includes Wholesale Banking senior
management.
There were no significant reclassifications
between trading and non-trading books during
the year ended October 31, 2024.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 83
-80
-70
-60
-50
-40
-30
-20
-10
0
10
20
30
40
50
11/1/2023
11/10/2023
11/21/2023
11/30/2023
12/11/2023
12/20/2023
1/2/2024
1/11/2024
1/22/2024
1/31/2024
2/9/2024
2/20/2024
2/29/2024
3/11/2024
3/20/2024
3/29/2024
4/9/2024
4/18/2024
4/29/2024
5/8/2024
5/17/2024
5/28/2024
6/6/2024
6/17/2024
6/26/2024
7/5/2024
7/16/2024
7/25/2024
8/5/2024
8/14/2024
8/23/2024
9/3/2024
9/12/2024
9/23/2024
10/2/2024
10/11/2024
10/22/2024
10/31/2024
TOTAL VALUE-AT-RISK
AND TRADING NET REVENUE
(millions of Canadian dollars)
Trading net revenue
Value-at-Risk
HOW TD MANAGES MARKET RISK IN TRADING
ACTIVITIES
Market risk plays a key part in the assessment
of trading business strategies. The process
for the Bank to launch new trading initiatives,
or expand existing ones,
involves an assessment of risk with respect
to the Bank’s risk appetite and business expertise
and an assessment of the appropriate infrastructure
required to
monitor, control, and manage the risk. The Trading Market Risk Framework
outlines the management of trading market
risk and incorporates risk appetite, risk
governance structures, risk identification, risk
measurement, and risk control. The Trading Market
Risk Framework is maintained by Risk
Management and
supports alignment with the Bank’s risk appetite
for trading market risk.
Processes are in place to classify positions
as either trading book or banking book for
the purpose of calculating regulatory capital, per
OSFI CAR Guidelines.
Policies define the governance and monitoring
requirements of internal risk transfers.
Trading Limits
The Bank sets trading limits that are
consistent with the approved business strategy
for each business and its tolerance for the
associated market risk, aligned to
its market risk appetite. In setting limits, the
Bank takes
into account market volatility, market liquidity, organizational experience,
and business strategy. Limits are
prescribed at the Wholesale Banking level in
aggregate, as well as at more granular
levels.
The core market risk limits are based on
the key risk drivers in the business and includes
notional, credit spread, yield curve
shift, price, and volatility limits.
Another primary measure of trading limits is
VaR,
which the Bank uses to monitor and
control overall risk levels. VaR measures the adverse impact
that
potential changes in market rates and prices
could have on the value of a portfolio over a
specified period of time.
At the end of each day, risk positions are compared with risk limits,
and any excesses are reported in accordance
with established market risk policies and
procedures.
Calculating VaR
The Bank 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 to 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.
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 year ending October 31,
2024, there
were
12
days of trading losses and trading net
revenue was positive for
95
% of the trading days, reflecting normal
trading activity. Losses in the year did not
exceed VaR on any trading day.
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.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 84
The Bank continuously improves its VaR methodologies and incorporates
new risk measures in line with market
conventions, industry practices, and regulatory
requirements.
To mitigate some of the shortcomings of VaR, the Bank uses additional metrics designed for risk
management.
This include Stress Testing as well as
sensitivities to various market risk factors.
The following table presents the end of year, average, high,
and low usage of TD’s portfolio metrics.
TABLE 44: PORTFOLIO MARKET RISK
MEASURES
(millions of Canadian dollars)
2024
2023
As at
Average
High
Low
As at
Average
High
Low
Interest rate risk
$
8.4
$
16.8
$
27.7
$
5.1
$
21.1
$
24.9
$
44.2
$
12.2
Credit spread risk
25.1
30.0
40.5
18.9
31.5
31.6
41.9
22.5
Equity risk
7.7
7.8
12.0
5.2
6.0
9.4
15.8
5.7
Foreign exchange risk
5.2
2.9
7.8
1.2
2.1
3.5
9.7
1.0
Commodity risk
6.0
4.5
11.5
2.2
2.9
4.8
11.7
2.3
Idiosyncratic debt specific risk
18.2
20.3
29.7
13.8
28.4
33.2
57.2
20.3
Diversification effect
1
(45.0)
(50.8)
n/m
2
n/m
(57.4)
(62.6)
n/m
n/m
Total Value-at-Risk (one-day)
25.6
31.5
44.9
21.8
34.6
44.8
69.6
30.1
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.
Market volatility subsided across most asset
classes in 2024, with slowing inflation and interest
rates cuts, however concerns still
persist related to ongoing
geopolitical tensions.
The Bank has managed market risk by
maintaining stable risk exposures, with daily VaR remaining within approved
limits during the year.
Average VaR decreased year-over-year due to changes in interest rate
and fixed income positions, coupled
with narrowing credit spreads.
Validation of VaR Model
The Bank uses a back-testing process
to compare the actual profits
and losses to VaR to review their consistency with the
statistical results of the VaR model.
Stress Testing
The Bank’s trading business is subject to an overall global
stress test limit. In addition, global businesses
have stress test limits, and each broad risk
class has an
overall stress test threshold. Stress scenarios
are designed to model extreme economic events,
replicate worst-case historical experiences,
or introduce severe,
but plausible,
hypothetical changes in key market risk
factors. The stress testing program includes
scenarios developed using actual historical
market data during
periods of market disruption, in addition
to hypothetical scenarios developed by
Risk Management. Stress tests
are produced and reviewed regularly.
The events
the Bank has modelled include the 1987 equity
market crash, the 1998 Russian debt default
crisis, the aftermath of September 11, 2001, the 2007 ABCP crisis,
the credit crisis of Fall 2008,
the Brexit referendum of June 2016, and
the COVID-19 pandemic of 2020.
MARKET RISK IN OTHER WHOLESALE
BANKING ACTIVITIES
The Bank is also exposed to market risk arising
from its investment portfolio and other non-trading
portfolios.
Risk Management reviews and approves
policies and
procedures, which are established to
monitor, measure, and mitigate these risks.
Structural (Non-Trading) Market Risk
Structural (Non-Trading) Market Risk generally arises from traditional
banking activities, such as personal and
commercial banking products (loans and deposits),
as well as related funding, investments and
HQLA. It does not include market risk
from TD’s Wholesale Banking or Insurance businesses.
Structural market risks
primarily include interest rate risk and
foreign exchange risk.
WHO MANAGES STRUCTURAL (NON-TRADING)
MARKET RISK
The TBSM group measures and manages the
market risks of non-trading banking activities
outside of TD’s Wholesale Banking and Insurance
businesses, with
oversight from the ALCO. The Market
Risk Control function provides independent
oversight, governance, and control of these
market risks. The Risk Committee
reviews and approves key non-trading
market risk policies and monitors the Bank’s positions
and compliance with these policies
through regular reporting and
updates from senior management.
HOW TD MANAGES STRUCTURAL (NON-TRADING)
MARKET RISK
Non-trading interest rate risk, if not managed,
has the potential to increase earnings
volatility and generate losses without contributing
long term expected value.
To
manage this risk, the Bank’s non-trading asset and
liability profile is managed in accordance
with a target and series of limits to control
the impact of interest
rate changes on the Bank’s NII,
while maintaining the Bank’s economic value sensitivity
within risk appetite.
Managing Structural Interest Rate Risk
Interest rate risk is the impact that changes
in interest rates could have on the Bank’s margins,
earnings, and economic value. Interest rate
risk management is
designed to generate stable and predictable
earnings over time. The Bank has adopted
a disciplined hedging approach to manage
the net interest income from its
asset and liability positions. Key aspects of
this approach are:
●
Evaluating and managing the impact of rising
or falling interest rates on net interest income
and economic value, and developing strategies
to manage overall
sensitivity to rates across varying interest
rate scenarios;
●
Modelling the expected impact of customer
behaviour on TD’s products (e.g., how actively
customers exercise embedded options,
such as prepaying a loan or
redeeming a deposit before its maturity date);
●
Assigning target-modelled maturity profiles
for non-maturity assets, liabilities, and equity;
●
Measuring the margins of TD’s banking products
on a fully-hedged basis, including the impact
of financial options that are granted
to customers; and
●
Developing and implementing strategies
to stabilize net interest income from all retail and
commercial banking products.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 85
The Bank is exposed to the interest rate risk
from “mismatched positions”
which occur when asset and liability principal
and interest cash flows have different
repricing or maturity dates. The Bank measures
this risk based on an assessment of:
contractual cash flows, product-embedded
optionality, customer behaviour
expectations and the modelled maturity
profiles for non-maturity products.
To
manage this risk, the Bank primarily uses
financial derivatives, wholesale
investments and funding instruments.
The Bank also measures its exposure
to non-maturity liabilities, such as core deposits,
by assessing interest rate elasticity and balance
permanence using
historical data and business judgment. Fluctuations
of non-maturity deposits can occur due
to factors such as interest rate and equity
market movements, and
changes to customer liquidity preferences.
Banking product optionality, whether from freestanding options
such as mortgage rate commitments or options
embedded within loans and deposits, expose
the
Bank to significant financial risk. To manage these exposures, the Bank
purchases options or uses a dynamic hedging
process designed to replicate the payoff of
a purchased option.
●
Rate Commitments
: The Bank measures its exposure from
freestanding mortgage rate commitment
options using an expected funding profile based
on
historical experience. Customers’ propensity
to fund, and their preference for fixed or
floating rate mortgage products, is influenced
by factors such as market
mortgage rates, house prices, and seasonality.
●
Asset Prepayment and other Embedded
Options
: The Bank models its exposure to options
embedded in some of its products based on
analyses of
customer behaviour. Examples of modeled options are the right
to prepay residential mortgage loans,
and the right to early redeem some
term deposit products.
For mortgages, econometric models are used
to model prepayments and the effects of prepayment
behaviour to the Bank. In general, mortgage
prepayments
are also affected by factors such as mortgage age,
house prices, and GDP growth. The combined
impacts from these parameters are also
assessed to
determine a core liquidation speed that is independent
of market incentives. A similar analysis is
undertaken for other products with embedded
optionality.
Structural Interest Rate Risk Measures
The primary measures for this risk are Economic
Value of Shareholders’ Equity (EVE) Sensitivity and Net Interest
Income Sensitivity (NIIS).
EVE Sensitivity measures the impact of a
specified interest rate shock to the net present
value of the Bank’s banking book assets, liabilities,
and certain off-
balance sheet items. It reflects a measurement
of the potential present value impact on
shareholders’ equity without an assumed term
profile for the management
of the Bank’s own equity and excludes product
margins.
NIIS measures the NII change over a twelve-month
horizon for a specified change in interest
rates for banking book assets, liabilities,
and certain off-balance
sheet items assuming a constant balance
sheet over the period.
The Bank’s Market Risk policy sets overall limits
on structural interest rate risk measures.
These limits are periodically reviewed and approved
by the Risk
Committee.
In addition to the Board policy limits, book-level
risk limits for the Bank’s management of non-trading
interest rate risk are set by Risk Management.
Exposures against these limits are routinely
monitored and reported, and breaches of the
Board limits, if any, are escalated to both the ALCO and the
Risk
Committee.
TABLE 45: STRUCTURAL INTEREST
RATE SENSITIVITY MEASURES
(millions of Canadian dollars)
As at
October 31, 2024
October 31, 2023
EVE
NII
1,2
EVE
NII
1
Sensitivity
Sensitivity
1
Sensitivity
Sensitivity
1
Canada
U.S.
Total
Canada
U.S.
Total
Total
Total
Before-tax impact of
100 bps increase in rates
$
(643)
$
(1,846)
$
(2,489)
$
301
$
419
$
720
$
(2,211)
$
920
100 bps decrease in rates
496
1,418
1,914
(357)
(626)
(983)
1,599
(1,099)
1
Represents the twelve-month NII exposure to an immediate and sustained shock in rates.
As at October 31, 2024, an immediate and
sustained 100 bps increase in interest rates
would have a negative impact to the Bank’s EVE
of $
2,489
million, an
increase of $
278
million from last year, and a positive impact to the Bank’s NII of
$
720
million, a decrease of $
200
million from last year. An immediate and
sustained 100 bps decrease in interest rates
would have a positive impact to the Bank’s EVE
of $
1,914
million, an increase of $
315
million from last year, and a
negative impact to the Bank’s NII of $
983
million, a decrease of $
116
million from last year. The year-over-year increases in both up and
down shock EVE
Sensitivity is primarily due to an increase in
the sensitivity of net assets funded by equity.
The year-over-year decreases in both up and
down shock NIIS is
primarily due to Treasury hedging activity. As at October 31, 2024, reported EVE
and NII Sensitivities remain within the Bank’s
risk appetite and established Board
limits.
Managing Non-trading Foreign Exchange
Risk
Foreign exchange risk refers to losses that
could result from changes in foreign-currency
exchange rates. Assets and liabilities
that are denominated in foreign
currencies create foreign exchange risk.
The Bank is exposed to non-trading foreign exchange
risk primarily from its investments in foreign
operations. When the Bank’s foreign currency
assets are
greater or less than its liabilities in that
currency, they create a foreign currency open position. An adverse
change in foreign exchange rates can impact
the Bank’s
reported net income and shareholders’
equity, and its capital ratios.
To minimize the impact of an adverse foreign exchange rate change on certain
capital ratios, the Bank’s net investments in
foreign operations are hedged so
certain capital ratios change by no more
than an acceptable amount for a given change
in foreign exchange rates. The Bank does not
generally hedge the
earnings of foreign subsidiaries which results
in changes to the Bank’s consolidated earnings
when relevant foreign exchange rates
change.
Other Non-trading Market Risks
Other structural market risks monitored on a regular
basis include:
●
Basis Risk
– The Bank is exposed to risks related
to the difference in various market indices.
●
Equity Risk
–
The Bank is exposed to non-trading equity
risk from investment securities designated
at FVOCI, equity-linked guaranteed investment
certificate
product offerings
and share-based compensation plans
where certain employees are awarded
share units equivalent to the Bank’s common
shares as
compensation for services provided to
the Bank. These share units are recorded
as a liability over the vesting period and revalued
at each reporting period until
settled in cash, and changes in the Bank’s share
price can impact non-interest expenses.
The Bank uses equity derivative instruments
to manage its non-
trading equity price risk.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 86
Managing Investment Portfolios
The Bank manages a securities portfolio
that is integrated into the overall asset and
liability management process. The securities
portfolio is comprised of high-
quality, low-risk securities and managed in a manner appropriate
to the attainment of the following goals: (1)
to generate a targeted credit of funds to deposit
balances that are in excess of loan balances;
(2) to provide a sufficient pool of liquid assets
to meet deposit and loan fluctuations and overall
liquidity management
objectives; (3) to provide eligible securities
to meet collateral and cash management requirements;
and (4) to manage the target interest rate risk
profile of the
balance sheet. The Risk Committee reviews
and approves the Enterprise Investment
Policy that sets out limits for the Bank’s investment
portfolio. In addition, the
Wholesale Banking and Insurance businesses
also hold investments that are managed
separately.
WHY NET INTEREST MARGIN FLUCTUATES
OVER TIME
As previously noted, the Bank’s approach to structural
(non-trading) market risk is designed
to generate stable and predictable earnings
over time, regardless of
cash flow mismatches and the exercise
of options granted to customers.
This approach also creates margin certainty
on loan and deposit profitability as they are
booked. Despite this approach however, the Bank’s NIM is
subject to change over time for the following
reasons (among others):
●
Differences in margins earned on new and renewing
products relative to the margin previously
earned on matured products;
●
Weighted-average margin impact from
changes in business and product mix;
●
Changes in the basis between certain market
indices;
●
The lag in changing product prices in response
to changes in market interest rates,
including rate-sensitive deposit pricing;
●
Changes from the repricing of hedging strategies
to manage the investment profile of the
Bank’s non-rate sensitive deposits; and
●
Margin changes from the portion of the Bank’s deposits
that are non-rate sensitive but not expected
to be longer term in nature, resulting in a
shorter term
investment profile and higher sensitivity
to short-term rates.
The general level of interest rates will affect the return
the Bank generates on its modelled
maturity profile for core non-rate sensitive deposits
and the investment
profile for its net equity position as it evolves
over time. The general level of interest rates
is also a key driver of some modelled option
exposures, and will affect
the cost of hedging such exposures. The Bank’s approach
to managing these factors tends to moderate their
impact over time, resulting in a more
stable and
predictable earnings stream.
Operational
Risk
Operational risk is the risk of loss resulting
from inadequate or failed internal processes,
people and systems or from external events
and also includes losses
related to legal risk events and regulatory
fines.
Operational risk is inherent in all of the Bank’s business
activities, including the practices and controls
used to manage other risks such as credit,
market, and
liquidity risk. Failure to manage operational
risk can result in financial loss (direct or
indirect), reputational harm, or regulatory
censure and penalties.
The Bank seeks to actively mitigate and
manage operational risk in order to create
and sustain shareholder value, successfully
execute the Bank’s business
strategies, operate efficiently, and provide reliable, secure, and convenient
access to financial services. The Bank maintains
a formal enterprise-wide operational
risk management framework that emphasizes
a strong risk management and internal
control culture throughout TD to help support
operational resilience and the
Bank’s ability to withstand disruptions.
WHO MANAGES OPERATIONAL RISK
Operational Risk Management is an independent
function that owns and maintains the Bank’s
Operational Risk Management Framework.
This framework sets out
the enterprise-wide governance processes, policies,
and practices to identify, assess, measure, control, monitor, escalate, report, and
communicate on operational
risk. Operational Risk Management is
designed to provide appropriate monitoring
and reporting of the Bank’s operational risk profile
and exposures to senior
management through the OROC, the ERMC,
and the Risk Committee.
In addition to the framework, Operational
Risk Management owns and maintains, or has
oversight of, the Bank’s operational risk policies including
those that
govern business continuity and crisis
management, third-party risk management,
data risk management, fraud risk management,
change governance, operational
resilience, technology and cyber security risk
management, and insider risk management.
Senior management of individual business
segments and corporate functions are responsible
for the day-to-day management of operational
risk following the
Bank’s established operational risk management framework,
policies and the three lines of defence
model. An independent risk management oversight
function
supports each business segment and corporate
function and monitors and challenges the
implementation and use of the operational
risk management programs
according to the nature and scope of the operational
risks inherent in the area. Senior executives
in each business segment and corporate
area participate in a
Risk Management Committee that oversees
operational risk management issues and
initiatives.
Ultimately, every employee has a role to play in managing operational
risk. In addition to policies and procedures
guiding employee activities, training is
available
to all employees regarding specific types of operational
risks and their role in helping to protect
the interests and assets of the Bank.
HOW TD MANAGES OPERATIONAL RISK
The Operational Risk Management Framework
outlines the internal risk and control structure
to manage operational risk and includes
the operational risk appetite,
governance processes, and policies. The Operational
Risk Management Framework supports alignment
with the Bank’s ERF and risk appetite. The
framework
incorporates sound industry practices and
is designed to meet regulatory requirements.
Key components of the framework
include:
Governance and Organization
Management reporting and organizational
structures emphasize accountability, ownership, and effective oversight
of each business segment’s and each corporate
function’s operational risk exposures. In addition,
the expectations of the Risk Committee
and senior management for managing operational
risk are set out by
enterprise-wide policies and practices.
Risk and Control Self-Assessment
Internal controls are one of the primary
methods of safeguarding the Bank’s employees, customers,
assets, and information, and in preventing
and detecting errors
and fraud. Management undertakes comprehensive
assessments of key risk exposures and
the internal controls in place to reduce or offset these
risks. Senior
management reviews the results of these evaluations
to assess whether risk management and
internal controls are effective, appropriate, and
compliant with the
Bank’s policies.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 87
Operational Risk Event Monitoring
To
reduce the Bank’s exposure to future loss, the Bank
must remain aware of and respond to its
own and industry operational risks. The Bank’s
policies and
processes require that operational risk events
be identified, tracked,
and reported to the appropriate level of
management to facilitate the Bank’s analysis and
management of its risks and inform the assessment
of suitable corrective and preventative
action. The Bank also reviews, analyzes,
and benchmarks itself against
operational risk losses that have occurred at other
institutions using information acquired
through recognized industry data providers.
Scenario Analysis
Scenario Analysis is a systematic and repeatable
process of obtaining expert business and
risk opinion to derive assessments of
the likelihood and potential loss
estimates of high impact operational events
that are unexpected and outside the normal
course of business. The Bank applies this practice
to meet risk
measurement and risk management objectives.
The process includes the use of relevant
external operational loss event data along
with the Bank’s internal loss
data and risk outlook that is assessed considering
the Bank’s operational risk profile and control
structure. The program is designed to raise awareness
and
educate business and corporate segments
regarding existing and emerging risks, which
may result in the identification and assessment
of new hypothetical
scenarios and risk mitigation action plans
to minimize tail risks.
Risk Reporting
Risk Management regularly monitors risk-related
measures and the risk profile throughout
the Bank to report to senior management and
the Risk Committee.
Operational risk measures are
systematically tracked, assessed, and
reported to promote management accountability
and direct the appropriate level of attention
to current and emerging issues.
Insurance
TD’s Corporate Insurance team, with oversight from
Risk Management, utilizes insurance and
other risk transfer arrangements to mitigate
and reduce potential
future losses related to operational risk.
Risk Management includes oversight of the effective
use of insurance aligned with the Bank’s risk
management strategy
and risk appetite. Insurance terms and provisions,
including types and amounts of coverage,
are regularly assessed so that the Bank’s tolerance
for risk and,
where applicable, statutory requirements are
satisfied. The management process includes
conducting regular in-depth risk and financial
analysis and identifying
opportunities to transfer elements of the Bank’s risk
to third parties where appropriate.
The Bank transacts with external insurers that
satisfy its minimum financial
strength rating requirements.
Technology and Cyber Security
The Bank leverages technology to support
its operations including new markets, competitive
products, delivery channels, as well as other
opportunities.
The Bank manages technology and cyber
security risks to support day-to-day operations;
and protect against unauthorized access
to the Bank’s technology,
infrastructure, systems, information, and
data.
To
enable this, the Bank monitors, manages,
and continues to enhance its ability to
mitigate these risks through
enterprise-wide programs and the implementation
of industry-accepted technology risk and cyber
threat management practices to help support
rapid detection and
response.
The Bank’s Platforms and Technology Risk and Compliance Committee provides
senior executive oversight, direction and
guidance regarding management of
risks relating to technology and cyber security, including cyber terrorism/activism,
cyber fraud, cyber espionage, cyber extortion,
identity theft and data theft. This
Committee endorses actions and makes
recommendations to the CEO and the ERMC
as appropriate, including in some instances,
supporting onward
recommendations to the Risk Committee and
the Board of Directors. Together with the Bank’s Operational Risk Management
Framework, technology and cyber
security programs also include resiliency planning
and testing, as well as disciplined technology
operations practices.
Data Management
The Bank’s data assets are governed and managed
with a view to preserve value and support
business objectives. Inconsistent or inadequate
data governance
and management practices may compromise
the Bank’s data and information assets which
could result in financial and reputational impacts.
The Bank’s
Enterprise Data Management Office develops
and implements enterprise-wide standards and
practices that describe how data and
information assets are created,
used, or maintained on behalf of the Bank.
The Bank manages data risk through
the Data Risk Management Framework
which describes the governance, policies, and
processes that TD’s business
segments, corporate segments,
and oversight functions employ to help
manage and govern data risk within the Bank’s
risk appetite.
Business Continuity and Crisis Management
The Bank maintains an enterprise-wide business
continuity and crisis management program
that supports management’s ability to operate
the Bank’s businesses
and operations (including providing customers
access to products and services) in the event
of a crisis or business disruption incident.
All areas of the Bank are
required to maintain and regularly test business
continuity plans to maintain resilience and
facilitate the continuity and recovery of business
operations. This
program is supported by formal crisis management
measures so that the appropriate level of leadership,
oversight and management is applied
to incidents
affecting the Bank.
Third-Party Management
A third-party is an entity that supplies products,
services or other business activities, functions
or processes to or on behalf of the Bank.
While these relationships
bring benefits to the Bank’s businesses and
customers, the Bank also needs to manage and
minimize any risks related to the activity. The Bank does this through
an enterprise third-party risk management
program that is designed to manage third-party
risks throughout the life cycle of a
relationship with a third-party. This
process also provides
risk management and senior management
oversight of these arrangements that
management considers appropriate based on
the size, risk,
and criticality of the arrangement.
Operational Resilience
Operational resilience is the ability of the
Bank to continue to deliver, and rapidly recover, critical services through
business disruption events, whether internal
or
external.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 88
The Bank’s Operational Resilience program assesses
the end-to-end availability of the Bank’s most
essential business and shared services, across
critical, single
points of failure, such as technology, third-parties, people, premises,
and data, to assess whether the
service can be delivered through disruptive
events, and
without causing material hardship to customers
and financial markets.
Change and Delivery
The Bank has established an enterprise-wide
standard for identifying and assessing the
risks of proposed changes that affect Products/
Services,
Process/Operations and Technology, and formal methodologies for delivering the changes (i.e., Project
Delivery Lifecycle, TD Agile and TD Scaled
Agile). This
approach involves senior management governance
and oversight of the Bank’s change portfolio and
leverages the use of a standardized
change risk assessment,
change delivery methodologies, defined
accountabilities and capabilities, and portfolio
reporting and management tools
to help support successful delivery.
Fraud Management
The Bank develops and implements enterprise-wide
fraud management strategies, policies, and
practices that are designed to
minimize the number, size
and scope of fraudulent activities
perpetrated against it. The Bank
employs prevention, detection and monitoring
capabilities across the enterprise that
are designed to help protect
customers, shareholders, and employees from
increasingly sophisticated fraud risk. Fraud risk is managed by
communicating
appropriate policies, procedures, employee
education in fraud risks, and monitoring activity
to help maintain adherence to the Fraud
Risk Management
Framework. The Fraud Risk Management Framework
describes the governance, policies, and
processes that the Bank’s businesses employ to
proactively
manage and govern fraud risk within the Bank’s risk
appetite which is embedded in the Bank’s
day to day operations and culture.
Operational Risk Capital Measurement
The Bank’s
operational
risk capital
is determined
using
the Basel
III Standardized
Approach
(SA), which is based on a Business Indicator Component (BIC),
a financial-statement-based proxy for operational
risk, and an Internal Loss Multiplier (ILM),
which is based on average historical losses
and the BIC. ILM is
derived using operational risk losses, net of
recoveries, over the previous ten years, and
BIC is derived using financial information
over the previous three years.
The operational risk capital is the product
of the BIC and the ILM.
People Risk Management
People risk is the risk associated with inadequacies
in the Bank’s organizational capacity, capability, and resources to support its business
goals, objectives and
strategies, human resource policies, processes,
and practices to hire, develop and retain resources
with appropriate capabilities and requisite
domain expertise to
operate and grow the business in a manner
consistent with employment laws, regulatory
expectations, and TD’s culture and expected behaviours.
HR sets policies
for key people and talent programs that business
lines implement within their daily operations.
HR is an oversight function and has central oversight
for TD’s
culture and people risk for the Bank including
compensation, conduct (in partnership
with Risk Management), and talent. The Bank
undertakes a Talent Review
and Succession Management program, which
focuses on the assessment, development
and succession planning for senior
and key roles within the organization.
In addition, a Critical Roles program exists
to strengthen our practices to assess leadership
and domain capabilities and aims to enhance
the management of
talent in roles most critical to the Bank’s success.
Risk Management provides oversight and independent
challenge to HR through an effective objective
assessment of their activities and programs.
Insider Risk Management
Insider Risk exposure is inherent in the normal
course of operating TD’s businesses and insider
risk continues to evolve, leading to new or
emerging threats. The
Bank has developed and implemented enterprise-wide
insider risk management strategies, policies
and practices that are designed to
mitigate unauthorized
insider activities. The Enterprise Insider
Risk Framework describes governance, roles
and responsibilities, and processes that
the Bank’s businesses and
corporate functions employ to proactively
manage and govern insider risk within the
Bank’s risk appetite.
Conduct Risk
Conduct risk may lead to legal, reputational,
and financial impact that can adversely
affect customers, the market, employees, and
the organization. Conduct risk
may arise from, but not limited to, business
practices, customer interactions, product
design, market manipulation, and individual
behaviour. The Bank has
developed and implemented enterprise-wide processes
and procedures that are designed
to identify, assess and manage conduct risk. TD business lines and
corporate functions are responsible for establishing,
implementing, and maintaining conduct
risk management procedures and controls,
as appropriate, in
alignment with TD’s policies and in compliance
with the laws and regulations that apply in the
jurisdictions in which they operate, and
to align with TD’s Shared
Commitments, TD’s Code of Conduct and Ethics,
and TD’s desired culture.
Model Risk
Model risk is the potential for adverse consequences
arising from decisions based on incorrect
or misused models and their outputs. It
can lead to financial loss,
reputational risk, or incorrect business and
strategic decisions.
WHO MANAGES MODEL RISK
Primary accountability for the management
of model risk resides with the senior
management of individual businesses
with respect to the models they use. The
Model Risk Governance Committee provides
oversight of governance, risk, and control
matters, by providing a platform to guide,
challenge, and advise decision
makers and model owners in model risk related
matters. Model Risk Management monitors
and reports on existing and emerging
model risks, and provides
periodic assessments to senior management,
Risk Management, the Risk Committee, and
regulators on the state of model risk at
TD and alignment with the
Bank’s Model risk appetite. The Risk Committee approves
the Bank’s Model Risk Management Framework
and Model Risk Policy.
HOW TD MANAGES MODEL RISK
The Bank manages model risk in accordance
with management approved model risk policies
and supervisory guidance which encompass
the life cycle of a model,
including proof of concept, development,
validation and approval, implementation, usage,
and ongoing model monitoring. The Bank’s
Model Risk Management
Framework also captures models that may be
partially or wholly qualitative or based on
expert judgment.
Segments identify the need for a new model
and are responsible for model development
and documentation according to the Bank’s
policies and standards.
During model development, controls with
respect to code generation, acceptance
testing, and usage are established and documented
to a level of detail and
comprehensiveness commensurate with
their model risk rating. Once models are implemented,
model owners are responsible for ongoing
monitoring and usage in
accordance with the Bank’s Model Risk Policy. In cases where a model is
deemed obsolete or unsuitable for its
originally intended purposes, it is decommissioned
in accordance with the Bank’s policies.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 89
Model Risk Management provides oversight,
including maintaining a centralized inventory of
all models as defined in the Bank’s Model Risk
Policy, independent
validation before each initial use, annual model
review, and ongoing validation on a pre-determined schedule
depending on the model risk rating.
Model Risk
Management sets model monitoring and
model implementation standards, and provides
training to all stakeholders. The validation
process varies in rigour,
depending on the model risk rating, but at a
minimum contains a detailed determination
of:
●
the conceptual soundness of model methodologies
and underlying quantitative and qualitative
assumptions;
●
the risk associated with a model based on intrinsic
risk, materiality and criticality;
●
the sensitivity of a model to assumptions
within the model and changes in data inputs
including stress testing; and
●
the limitations of a model and the compensating
risk mitigation mechanisms in place to address
the limitations.
As with traditional model approaches,
AI or machine learning models (including
Generative AI models) are also subject
to the same standards and risk
management practices.
At the conclusion of the validation process,
a model will either be approved for use
or will be rejected and require redevelopment
or other courses of action.
Models identified as obsolete or no longer
appropriate for use, due to changes in industry
practice, the business environment or Bank
strategies, are
decommissioned.
The Bank has policies and procedures in
place designed to discern models from
non-models, and the level of independent
challenge and oversight is
commensurate with the risk rating of the model.
Non-models are subject to governance requirements
such as End User Computing Standards.
Insurance
Risk
Insurance risk is the risk of financial loss due
to actual experience emerging differently
from expectations in insurance product pricing
and/or design, underwriting,
reinsurance protection,
and claims or reserving either at the inception
of an insurance or reinsurance contract,
during the lifecycle of the claim or at the
valuation
date. Unfavourable experience could emerge
due to adverse fluctuations in timing, actual
size, frequency of claims (for example, driven
by non-life premium risk,
non-life reserving risk, catastrophic risk, mortality
risk, morbidity risk, and longevity risk),
policyholder behaviour,
or associated expenses.
Insurance contracts provide financial protection
by transferring insured risks to the issuer
in exchange for premiums. The Bank is
engaged in insurance businesses
relating to property and casualty insurance, life
and health insurance, and reinsurance, through
various subsidiaries; it is through these businesses
that the Bank is
exposed to insurance risk.
WHO MANAGES INSURANCE RISK
Senior management within the insurance business
units has primary responsibility for
managing insurance risk with oversight by
the CRO for Insurance, who
reports into the Bank’s Risk Management Group.
The Bank’s Audit Committee and the Bank’s Corporate
Governance Committee respectively act
as the Audit and Conduct review committees
for the Canadian
insurance company subsidiaries. The insurance
company subsidiaries also have their own
boards of directors who provide additional
risk management oversight.
HOW TD MANAGES INSURANCE RISK
The Bank’s risk governance practices are designed
to support independent oversight and
control of risk within the insurance business.
The TD Insurance Risk
Committee and its subcommittees provide
critical oversight of the risk management
activities within the insurance business
and monitor compliance with insurance
risk policies. The Bank’s Insurance Risk Management
Framework and Insurance Risk Policy collectively
outline the internal risk and control structure
to manage
insurance risk and include risk appetite, policies,
processes, as well as limits and governance.
These documents are maintained by Risk Management
and support
alignment with the Bank’s risk appetite for insurance
risk.
The assessment of insurance contract liabilities
(remaining coverage and incurred claims)
is central to the insurance operation.
TD Insurance establishes reserves
to cover estimated future payments (including
loss adjustment expenses) on all claims
or terminations/surrenders of premium
arising from insurance contracts
underwritten. The reserves cannot be established
with complete certainty and represent
management’s best estimate for future payments.
As such, TD Insurance
regularly monitors estimates against actual
and emerging experience and adjusts reserves
as appropriate if experience emerges
differently than anticipated.
Liabilities for incurred claims and liabilities
for remaining coverage are governed
by the Bank’s general insurance and life and health
reserving risk policies.
Sound product design is an essential element
of managing risk. The Bank’s exposure to insurance
risk is mostly short-term in nature as
the principal underwriting
risk relates to personal automobile and home
insurance and small commercial insurance.
Insurance market cycles, as well as changes
in insurance legislation, the regulatory
environment, judicial environment, trends
in court awards, climate patterns,
pandemics or other applicable public health emergencies,
and the economic environment may impact
the performance of the insurance business.
We maintain
premium, pricing and underwriting policies or
standards to help manage these inherent risks.
There is also exposure to concentration risk
associated with general insurance and
life and health insurance coverage. Exposure
to insurance risk concentration is
managed through established underwriting guidelines,
limits, and authorization levels that govern
the acceptance of risk. Concentration of
insurance risk is also
mitigated through the purchase of reinsurance.
The insurance business’ reinsurance programs
are governed by catastrophe and reinsurance
risk management
policies.
Strategies are in place to help manage the risk
to the Bank’s reinsurance business. Underwriting
risk on business assumed is managed
through a policy that limits
exposure
to certain types of business and countries.
The vast majority of reinsurance treaties
are annually renewable, which minimizes long-term
risk. Pandemic
exposure is reviewed and estimated annually
within the reinsurance business to manage
concentration risk.
Liquidity Risk
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 BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 90
TD’S LIQUIDITY RISK APPETITE
TD follows a disciplined liquidity management
program, which is subject to risk governance
and oversight, and is designed to maintain
sufficient liquidity to permit
the Bank to operate through a significant
liquidity event without relying on extraordinary
central bank assistance. The Bank seeks
to maintain a stable and
diversified funding profile that emphasizes
funding assets and contingencies to the appropriate
term.
TD manages liquidity risk using a combination
of quantitative and qualitative measures.
This includes ensuring the Bank has sufficient liquidity
to satisfy its
operational needs and client commitments
in both normal and stress conditions. The
Bank maintains buffers over regulatory minimums
prescribed by OSFI’s
Liquidity Adequacy Requirements (LAR) Guideline.
The Bank targets a 90-day survival horizon
under a combined bank-specific and
market-wide stress scenario,
and a minimum surplus over prescribed
regulatory requirements. Under the LAR
guidelines, Canadian banks are required
to maintain a Liquidity Coverage Ratio
(LCR) of 100% or above (other than during
periods of financial stress), and a
Net Stable Funding Ratio (NSFR) of at least
100%. The Bank’s funding program
emphasizes maximizing deposits as
a core source of funding and having ready
access to wholesale funding markets across
diversified terms, funding types, and
currencies. This approach helps lower exposure
to a sudden contraction of wholesale funding
capacity and minimizes structural liquidity gaps.
The Bank also
maintains a Contingency Funding Plan to enhance
preparedness to address potential liquidity
stress events. The Bank’s strategies, plans and
governance
practices underpin an integrated liquidity risk
management program that is designed to reduce
exposure to liquidity risk and maintain
compliance with regulatory
requirements.
LIQUIDITY RISK MANAGEMENT RESPONSIBILITY
The Bank’s ALCO is responsible for establishing
effective management structures and practices
to ensure appropriate measurement, management,
and
governance of liquidity risk. The GLF Committee,
a subcommittee of the ALCO comprised of
senior management from Treasury, Wholesale Banking and Risk
Management, identifies and monitors the Bank’s liquidity
risks. The management of liquidity risk is
the responsibility of the SET member responsible
for Treasury,
while oversight and challenge are provided
by the ALCO and independently by
Risk Management. The Risk Committee
regularly reviews the Bank’s liquidity
position and approves the Bank’s Liquidity Risk
Management Framework bi-annually and
the related policies annually.
The following areas are responsible for
measuring, monitoring, and managing liquidity
risks for major business segments:
●
Enterprise Liquidity Risk in Risk Management
is responsible for liquidity risk management
and asset pledging policies, along with
associated limits, standards,
and processes which are established
to ensure that consistent and efficient liquidity
management approaches are applied across
all of the Bank’s operations.
Risk Management jointly owns the Liquidity
Risk Management Framework along with
the SET member responsible for Treasury. Enterprise Liquidity Risk
provides oversight of liquidity risk across
the enterprise and provides independent risk
assessment and effective challenge of liquidity
risk management. Capital
Markets Risk Management is responsible
for independent liquidity risk metric reporting.
●
Treasury Liquidity Management manages the liquidity
position of the Canadian Personal and
Commercial Banking, Wealth Management, and
Insurance,
Corporate, Wholesale Banking, and U.S.
Retail segments, as well as the liquidity position
of CUSO; and
●
Other regional operations, including those
within TD’s insurance business, foreign branches,
and/or subsidiaries are responsible for
managing their liquidity risk
in compliance with their own policies and
local regulatory requirements, while maintaining
alignment with the enterprise framework.
HOW TD MANAGES LIQUIDITY RISK
The Bank manages the liquidity profile of
its businesses in accordance with a defined
liquidity risk appetite and maintains
minimum liquidity requirements using a
combination of internal and regulatory measures.
The Bank’s internal stress testing informs the
management of liquidity risk. Among scenarios
considered is a severe combined stress
event resulting in elevated
liquidity requirements and a loss of confidence
in the Bank’s ability to meet obligations as
they come due. In addition to this bank-specific
event, this scenario
incorporates a market-wide liquidity
stress that materially reduces the availability
of funding for all institutions and decreases
the marketability of assets. The
Bank’s liquidity risk management policies stipulate
that the Bank must maintain a sufficient level of
liquid assets to support business growth,
and to cover identified
stressed liquidity requirements
under the stress scenario, for a period
of up to 90 days. Key elements of
the scenario include:
●
loss of access to wholesale funding including
repayment of maturing debt in the next 90
days;
●
accelerated attrition or “run-off” of deposits;
●
increased utilization of available credit and liquidity
facilities;
and
●
increased collateral requirements associated
with downgrades in the Bank’s credit ratings.
Internal measures complement regulatory
liquidity requirements, such as the Liquidity
Coverage Ratio (LCR), the Net Stable
Funding Ratio (NSFR), and the Net
Cumulative Cash Flow (NCCF) monitoring
tool which are prescribed in OSFI’s LAR guidance.
The LCR requires that banks maintain an
adequate stock of
unencumbered high-quality liquid assets (HQLA)
to meet liquidity needs over a 30-day stress
period (a minimum LCR of 100%). The
NSFR requires that banks
maintain available stable funding (ASF) in excess
of required stable funding (RSF) for periods
up to one year (a minimum NSFR of 100%),
and the NCCF monitors
the Bank’s detailed cash flow gaps for various
time bands. As a result, the Bank’s liquidity is
managed to the higher of its internal liquidity
requirements and target
buffers over the regulatory minimums.
The Bank also considers regional regulatory
metrics as well as potential restrictions
on liquidity transferability in the calculation
of enterprise liquidity positions.
Accordingly, surplus liquidity domiciled in regulated subsidiaries
may be excluded from consolidated liquidity
positions as appropriate. During fiscal 2024,
the Bank
maintained elevated liquidity levels (as compared
to fiscal 2023) as a risk management measure.
In the near-term, the Bank is targeting a liquidity
coverage ratio
of 150% for the Bank’s Canadian retail businesses,
TD Bank USA, N.A., TD Bank N.A. and
TD Securities Inc. This near-term elevated
liquidity should have a near-
term negative impact on net interest income
and net interest margin.
The Bank’s Funds Transfer Pricing process considers liquidity
risk as a key determinant of the cost
or credit of funds to the Retail and Wholesale
Banking
businesses. Liquidity costs are reflective
of the funding needs and reserve requirements
driven by the liquidity risk profile of the Bank’s
assets, liabilities, and
contingent obligations like undrawn lines of
credit provided to our clients.
LIQUID ASSETS
The Bank’s unencumbered liquid assets may be
used to help address potential liquidity requirements
arising from stress events. Liquid asset eligibility
considers
estimated in-stress market values and trading
market depths, as well as operational, legal,
or other impediments to sale, rehypothecation
or pledging.
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 as these are used to support insurance-specific
liabilities and capital requirements.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 91
TABLE 46: SUMMARY OF LIQUID
ASSETS BY TYPE AND CURRENCY
(millions of Canadian dollars, except as noted)
As at
Securities
received as
collateral from
securities
financing and
Bank-owned
derivative
Total
Encumbered
Unencumbered
liquid assets
transactions
liquid assets
liquid assets
liquid assets
1
October 31, 2024
Cash and central bank reserves
$
41,200
$
–
$
41,200
$
819
$
40,381
Canadian government obligations
20,938
79,241
100,179
49,952
50,227
National Housing Act Mortgage-Backed
Securities (NHA MBS)
42,320
–
42,320
1,627
40,693
Obligations of provincial governments, public sector entities
and multilateral development banks
41,788
28,332
70,120
39,339
30,781
Corporate issuer obligations
4,581
6,970
11,551
7,199
4,352
Equities
12,442
2,540
14,982
11,128
3,854
Total Canadian dollar-denominated
163,269
117,083
280,352
110,064
170,288
Cash and central bank reserves
125,271
–
125,271
218
125,053
U.S. government obligations
74,749
64,616
139,365
83,592
55,773
U.S. federal agency obligations, including U.S.
federal agency mortgage-backed obligations
76,085
15,008
91,093
28,147
62,946
Obligations of other sovereigns, public sector entities
and multilateral development banks
67,118
38,599
105,717
42,194
63,523
Corporate issuer obligations
74,072
16,758
90,830
31,291
59,539
Equities
53,525
37,204
90,729
52,894
37,835
Total non-Canadian dollar-denominated
470,820
172,185
643,005
238,336
404,669
Total
$
634,089
$
289,268
$
923,357
$
348,400
$
574,957
October 31, 2023
Total Canadian dollar-denominated
153,281
123,806
277,087
113,486
163,601
Total non-Canadian dollar-denominated
408,299
182,652
590,951
212,888
378,063
Total
$
561,580
$
306,458
$
868,038
$
326,374
$
541,664
1
Unencumbered liquid assets include on-balance sheet assets, assets borrowed or purchased under resale agreements,
and other off-balance sheet collateral received less encumbered
liquid assets.
Total unencumbered liquid assets increased by $
33
billion from October 31, 2023 largely
as a result of higher deposit balances and
wholesale funding proceeds.
Unencumbered liquid assets held in The
Toronto-Dominion Bank and multiple domestic and foreign subsidiaries (excluding
insurance subsidiaries) and branches
are summarized in the following table.
TABLE 47: SUMMARY OF UNENCUMBERED
LIQUID ASSETS BY BANK,
SUBSIDIARIES, AND BRANCHES
(millions of Canadian dollars)
As at
October 31
October 31
2024
2023
The Toronto-Dominion Bank (Parent)
$
227,435
$
205,408
Bank subsidiaries
314,306
291,915
Foreign branches
33,216
44,341
Total
$
574,957
$
541,664
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 92
The Bank’s monthly average liquid assets (excluding
those held in insurance subsidiaries) for
the years ended October 31, 2024, and October
31, 2023, are
summarized in the following table.
TABLE 48: SUMMARY OF
AVERAGE LIQUID ASSETS BY
TYPE AND CURRENCY
(millions of Canadian dollars, except as noted)
Average for the years ended
Securities
received as
collateral from
securities
financing and
Total
Bank-owned
derivative
liquid
Encumbered
Unencumbered
liquid assets
transactions
assets
liquid assets
liquid assets
1
October 31, 2024
Cash and central bank reserves
$
26,361
$
–
$
26,361
$
669
$
25,692
Canadian government obligations
20,458
84,295
104,753
52,252
52,501
NHA MBS
41,411
17
41,428
1,553
39,875
Obligations of provincial governments, public sector
entities and multilateral development banks
42,940
24,936
67,876
36,602
31,274
Corporate issuer obligations
13,517
5,751
19,268
5,805
13,463
Equities
12,646
2,604
15,250
11,187
4,063
Total Canadian dollar-denominated
157,333
117,603
274,936
108,068
166,868
Cash and central bank reserves
78,694
–
78,694
223
78,471
U.S. government obligations
71,187
63,884
135,071
75,404
59,667
U.S. federal agency obligations, including U.S.
federal agency mortgage-backed obligations
78,303
13,148
91,451
27,507
63,944
Obligations of other sovereigns, public sector entities and
multilateral development banks
65,794
38,992
104,786
41,221
63,565
Corporate issuer obligations
77,837
14,208
92,045
25,676
66,369
Equities
51,707
38,117
89,824
51,551
38,273
Total non-Canadian dollar-denominated
423,522
168,349
591,871
221,582
370,289
Total
$
580,855
$
285,952
$
866,807
$
329,650
$
537,157
October 31, 2023
Total Canadian dollar-denominated
159,066
118,731
277,797
115,390
162,407
Total non-Canadian dollar-denominated
434,538
168,482
603,020
191,601
411,419
Total
$
593,604
$
287,213
$
880,817
$
306,991
$
573,826
1
Unencumbered liquid assets include on-balance sheet assets, assets borrowed or purchased under resale agreements,
and other off-balance sheet collateral received less encumbered
liquid assets.
Average unencumbered liquid assets held in
The Toronto-Dominion Bank and multiple domestic and foreign subsidiaries (excluding
insurance subsidiaries) and
branches are summarized in the following
table.
TABLE 49: SUMMARY OF
AVERAGE UNENCUMBERED LIQUID
ASSETS BY BANK, SUBSIDIARIES,
AND BRANCHES
(millions of Canadian dollars)
Average for the years ended
October 31, 2024
October 31, 2023
The Toronto-Dominion Bank (Parent)
$
219,007
$
217,807
Bank subsidiaries
290,536
308,892
Foreign branches
27,614
47,127
Total
$
537,157
$
573,826
ASSET ENCUMBRANCE
In the course of the Bank’s daily operations, assets
are pledged to obtain funding, support
trading and brokerage businesses, and participate
in clearing and/or
settlement systems. A summary of on-
and off-balance sheet encumbered and unencumbered
assets is presented as follows.
TABLE 50: ENCUMBERED
AND UNENCUMBERED ASSETS
(millions of Canadian dollars)
As at
Total Assets
Encumbered
Unencumbered
Total
Pledged as
Available as
Assets
Collateral
1
Other
2
Collateral
3
Other
4
October 31, 2024
Cash and due from banks
$
6,437
$
–
$
–
$
26
$
6,411
Interest-bearing deposits with banks
169,930
6,161
–
158,123
5,646
Securities, trading loans, and other
920,003
406,745
20,738
447,011
45,509
Derivatives
78,061
–
–
–
78,061
Loans, net of allowance for loan losses
932,343
96,175
92,790
30,331
713,047
Other assets
5
95,989
238
–
–
95,751
Total assets
$
2,202,763
$
509,319
$
113,528
$
635,491
$
944,425
October 31, 2023
Total assets
6
$
2,093,392
$
437,482
$
84,997
$
623,826
$
947,087
1
Pledged collateral refers to the portion of assets that are pledged through encumbering activities, such as repurchase
agreements, securities lending, derivative contracts, and
requirements associated with participation in clearing houses and payment systems.
2
Includes assets supporting TD’s long-term funding activities such as asset securitization and issuance
of covered bonds.
3
Represents assets that are readily available for use as collateral to generate funding or support collateral requirements.
This category includes unencumbered loans backed by real-estate
that qualify as eligible collateral at FHLB.
4
Other unencumbered assets are not subject to any restrictions on their use to secure funding or as collateral but
would not be considered immediately available.
5
Other assets include investment in Schwab, goodwill, other intangibles, land, buildings, equipment, other depreciable
assets and right-of-use assets, deferred tax assets, amounts
receivable from brokers, dealers, and clients, and other assets on the balance sheet not reported in the above categories
.
6
Balances as at October 31, 2023 have been restated, with no impact on the measurement of the related financial
instruments in the Bank’s 2024 Consolidated Financial Statements, to
reflect the categorization of certain pledged assets in the comparative period.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 93
LIQUIDITY STRESS TESTING AND CONTINGENCY
FUNDING PLANS
In addition to the Bank’s internal liquidity stress
metric, the Bank performs liquidity
stress testing on multiple alternate scenarios.
These scenarios consist of a mix
of TD-specific and market-wide stress
events designed to evaluate the potential
impact of risk factors material to the
Bank’s risk profile. Liquidity assessments are
also part of the Bank’s EWST program.
The Bank has designed contingency funding
plans (CFP) for the enterprise and
material subsidiaries operating in foreign jurisdictions.
As they provide a
playbook for managing stressed liquidity conditions,
these plans are an integral component of
the Bank’s overall liquidity risk management framework.
The CFPs
outline different contingency levels based on the
severity and duration of the liquidity situation
and identify recovery actions appropriate
for each level. To support
operational readiness, CFPs provide key
steps required to implement each recovery
action. Regional CFPs identify recovery
actions to address region-specific
stress events. The actions and governance
structure outlined in the Bank’s CFP are aligned
with the Bank’s Crisis Management Recovery
Plan.
CREDIT RATINGS
Credit ratings may impact the Bank’s access to,
and cost of, raising funding and its ability
to engage in certain business activities
on a cost-effective basis. Credit
ratings and outlooks provided by rating agencies
reflect their views and methodologies and
are subject to change 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
conditions affecting the overall
financial services industry.
TABLE 51: CREDIT RATINGS
1
As at
October 31, 2024
Moody’s
S&P
Fitch
DBRS
Deposits/Counterparty
2
Aa2
A+
AA
AA (high)
Legacy Senior Debt
3
Aa3
A+
AA
AA (high)
Senior Debt
4
A2
A-
AA-
AA
Covered Bonds
Aaa
–
AAA
AAA
Legacy Subordinated Debt – non-NVCC
A3
A-
A
AA (low)
Tier 2 Subordinated Debt – NVCC
A3 (hyb)
BBB+
A
A
AT1 Perpetual Debt – NVCC
Baa2 (hyb)
BBB-
BBB+
–
Limited Recourse Capital Notes – NVCC
Baa2 (hyb)
BBB-
BBB+
A (low)
Preferred Shares – NVCC
Baa2 (hyb)
BBB-
BBB+
Pfd-2 (high)
Short-Term Debt (Deposits)
P-1
A-1
F1+
R-1 (high)
Outlook
Stable
Stable
Negative
Negative (Long Term);
Stable (Short Term)
1
The above ratings are for The Toronto-Dominion
Bank legal entity. Subsidiaries’ ratings are 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 in as much 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
Represents Moody’s Long-Term
Deposits Ratings and Counterparty Risk Rating, S&P’s Issuer Credit Rating, Fitch’s
Long-Term Deposits Rating and DBRS
’
Long-Term Issuer Rating.
3
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.
4
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 over-the-counter
(OTC) derivative counterparties as
of the
reporting date in the event of one, two, and
three-notch downgrades of the Bank’s credit ratings.
TABLE 52: ADDITIONAL COLLATERAL
REQUIREMENTS FOR RATING DOWNGRADES
1
(millions of Canadian dollars)
Average for the years ended
October 31, 2024
October 31, 2023
One-notch downgrade
$
127
$
124
Two-notch downgrade
287
192
Three-notch downgrade
1,014
913
1
The above collateral requirements are based on each OTC trading counterparty’s Credit Support Annex
and the Bank’s credit rating across applicable rating agencies.
LIQUIDITY COVERAGE RATIO
The LCR is a Basel III standard that aims to ensure
that an institution has an adequate stock
of unencumbered high-quality liquid assets
(HQLA), consisting of
cash or assets that can be converted into cash
to meet its liquidity needs for a 30-calendar
day liquidity stress scenario.
Other than during periods of financial stress,
the Bank must maintain the LCR above
100% in accordance with the published
OSFI LAR requirement. The
Bank’s LCR is calculated according to the scenario
parameters in the LAR
guideline, including prescribed HQLA eligibility
criteria and haircuts, deposit run-off
rates, and other outflow and inflow rates.
HQLA held by the Bank that are eligible
for the LCR calculation under the LAR are primarily
central bank reserves,
sovereign-issued or sovereign-guaranteed
securities, and high-quality securities issued
by non-financial entities.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 94
The following table summarizes the Bank’s average
daily LCR as of the relevant dates.
TABLE 53: AVERAGE LIQUIDITY
COVERAGE RATIO
1
(millions of Canadian dollars, except
as noted)
Average for the three months ended
October 31, 2024
Total unweighted
Total weighted
value (average)
2
value (average)
3
High-quality liquid assets
Total high-quality liquid assets
$
n/a
$
361,452
Cash outflows
Retail deposits and deposits from small business
customers, of which:
$
486,164
$
31,137
Stable deposits
262,831
7,885
Less stable deposits
223,333
23,252
Unsecured wholesale funding, of which:
374,254
183,788
Operational deposits (all counterparties)
and deposits in networks of cooperative banks
4
132,853
31,460
Non-operational deposits (all counterparties)
215,462
126,389
Unsecured debt
25,939
25,939
Secured wholesale funding
n/a
44,188
Additional requirements, of which:
338,644
96,198
Outflows related to derivative exposures and
other collateral requirements
45,211
36,403
Outflows related to loss of funding on debt products
10,839
10,839
Credit and liquidity facilities
282,594
48,956
Other contractual funding obligations
18,368
8,410
Other contingent funding obligations
821,172
12,660
Total cash outflows
$
n/a
$
376,381
Cash inflows
Secured lending
$
237,640
$
35,256
Inflows from fully performing exposures
25,208
12,686
Other cash inflows
66,539
66,539
Total cash inflows
$
n/a
$
114,481
Average for the three months ended
October 31, 2024
Jul 31, 2024
Total weighted
Total weighted
value
value
Total high-quality liquid assets
$
361,452
$
337,631
Total net cash outflows
261,900
262,308
Liquidity coverage ratio
138
%
129
%
1
The LCR is calculated in accordance with OSFI’s LAR guideline, which is reflective of liquidity-related
requirements published by the BCBS. The LCR for the quarter ended October 31,
2024, is calculated as an average of the 62 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, and applicable caps as prescribed by the OSFI LAR guideline.
4
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.
The Bank’s average LCR of 138% for the quarter ended
October 31, 2024, continues to meet regulatory
requirements.
The Bank holds a variety of liquid assets
commensurate with its liquidity needs.
Many of these assets qualify as HQLA in
the OSFI LAR guideline. The average
HQLA of the Bank for the quarter ended October
31, 2024, was $361 billion (July 31, 2024 –
$338 billion), with Level 1 assets representing
86% (July 31, 2024 –
84%). The Bank’s reported HQLA excludes excess
HQLA from U.S. Retail operations, as required
by the OSFI LAR guideline, to reflect liquidity
transfer
considerations between U.S. Retail and its
affiliates as a result of the 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.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 95
NET STABLE
FUNDING RATIO
The NSFR is a Basel III metric calculated as
the ratio of total ASF over total RSF in accordance
with OSFI’s LAR guideline. The Bank must maintain
an NSFR ratio
equal to or above 100% in accordance with
the LAR guideline.
The Bank’s ASF comprises the Bank’s liability and capital
instruments (including deposits and
wholesale funding). The assets that require
stable funding are based on the Bank’s on and
off-balance sheet activities and a function of
their liquidity
characteristics and the requirements of
OSFI’s LAR guideline.
TABLE 54: NET STABLE FUNDING RATIO
1
(millions of Canadian dollars, except
as noted)
As at
October 31, 2024
Unweighted value by residual maturity
6 months to
No
Less than
less than
More than
Weighted
maturity
2
6 months
1 year
1 year
value
3
Available Stable Funding Item
Capital
$
111,829
$
–
$
–
$
11,015
$
122,844
Regulatory capital
111,829
–
–
11,015
122,844
Other capital instruments
–
–
–
–
–
Retail deposits and deposits from small business
customers:
446,633
84,074
32,636
31,121
552,573
Stable deposits
252,382
33,209
13,774
16,103
300,499
Less stable deposits
194,251
50,865
18,862
15,018
252,074
Wholesale funding:
254,602
422,642
113,427
240,571
475,575
Operational deposits
105,233
2,043
1
–
53,639
Other wholesale funding
149,369
420,599
113,426
240,571
421,936
Liabilities with matching interdependent assets
4
–
2,486
1,157
26,817
–
Other liabilities:
51,828
92,158
3,068
NSFR derivative liabilities
n/a
347
n/a
All other liabilities and equity not included
in the above categories
51,828
87,580
2,327
1,904
3,068
Total Available Stable Funding
$
1,154,060
Required Stable Funding Item
Total NSFR high-quality liquid assets
$
n/a
$
n/a
$
n/a
$
n/a
$
57,070
Deposits held at other financial institutions for
operational purposes
–
–
–
–
–
Performing loans and securities:
111,220
241,451
123,685
678,007
784,545
Performing loans to financial institutions
secured by Level 1 HQLA
–
67,307
7,243
–
10,748
Performing loans to financial institutions
secured by non-Level 1
HQLA and unsecured performing
loans to financial institutions
–
58,937
11,532
13,395
25,443
Performing loans to non-financial corporate
clients, loans to retail
and small business customers, and loans
to sovereigns, central
banks and PSEs, of which:
39,510
59,215
48,510
298,130
345,033
With a risk weight of less than or equal
to 35% under the Basel II
standardized approach for credit risk
–
–
–
–
–
Performing residential mortgages, of which:
33,550
48,093
51,034
304,963
311,354
With a risk weight of less than or equal
to 35% under the Basel II
standardized approach for credit risk
33,550
48,093
51,034
304,963
311,354
Securities that are not in default and do not
qualify as HQLA,
including exchange-traded equities
38,160
7,899
5,366
61,519
91,967
Assets with matching interdependent liabilities
4
–
2,390
2,380
25,721
–
Other assets:
79,809
135,611
122,581
Physical traded commodities, including gold
16,148
n/a
n/a
n/a
14,130
Assets posted as initial margin for derivative
contracts and
contributions to default funds of CCPs
n/a
17,426
14,812
NSFR derivative assets
n/a
10,730
10,383
NSFR derivative liabilities before deduction
of variation margin
posted
n/a
19,931
997
All other assets not included in the above
categories
63,661
78,453
2,066
7,005
82,259
Off-balance sheet items
n/a
837,941
30,371
Total Required Stable Funding
$
994,567
Net Stable Funding Ratio
116
%
As at
October 31, 2023
Total Available Stable Funding
$
1,123,816
Total Required Stable Funding
960,590
Net Stable Funding Ratio
117
%
1
The NSFR is calculated in accordance with OSFI’s LAR guideline, which is reflective of liquidity-related
requirements published by the BCBS.
2
Items in the “no maturity” time bucket do not have a stated maturity. These
may include, but are not limited to, items such as capital with perpetual maturity,
non-maturity deposits, short
positions, open maturity positions, non-HQLA equities, and physical traded commodities.
3
Weighted values are calculated after the application of respective NSFR weights, as prescribed by the
OSFI LAR guideline.
4
Interdependent asset and liability items are deemed by OSFI to be interdependent and have RSF and ASF risk factors
adjusted to zero. Interdependent liabilities cannot fall due while the
asset is still on balance sheet, cannot be used to fund any other assets and principal payments from the asset cannot
be used for anything other than repaying the liability.
As such, the
only interdependent assets and liabilities that qualify for this treatment at the Bank are the liabilities arising from the
Canada Mortgage Bonds Program and their corresponding
encumbered assets.
The Bank’s NSFR as at October 31, 2024 is 116% (October 31, 2023
– 117%), representing a surplus of $159 billion, adhering to regulatory
requirements. The
NSFR remained relatively stable to the previous
quarter (July 31, 2024 – 115%) as the Bank’s funding continued
to adequately support its assets.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 96
FUNDING
The Bank’s primary approach to managing funding
activities is to maximize the use of deposits
raised through personal and commercial
banking channels.
The
Bank’s base of personal and commercial,
wealth, and Schwab sweep deposits make up approximately
70
% (2023 –
70
%) of the Bank’s total funding.
TABLE 55: SUMMARY OF DEPOSIT
FUNDING
(millions of Canadian dollars)
As at
October 31, 2024
October 31, 2023
P&C deposits – Canadian
$
566,329
$
529,078
P&C deposits – U.S.
1
433,406
446,355
Total
$
999,735
$
975,433
1
P&C deposits in U.S. are presented on a Canadian equivalent basis and therefore period-over-period movements
reflect both underlying growth and changes in the foreign exchange
rate.
WHOLESALE FUNDING
The Bank 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 raises
term funding through Senior Notes, NHA MBS,
and notes backed by credit
card receivables (Evergreen Credit Card
Trust) and HELOC (Genesis Trust II). 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,
commercial paper, and up until June 28, 2024, BAs.
The following table summarizes the registered
term funding and capital programs by geography, with the related program
size as at October 31, 2024.
Canada
United States
Europe
Capital Securities Program ($20 billion)
Canadian Senior Medium-Term Linked Notes
Program ($5 billion)
HELOC ABS Program (Genesis Trust II) ($7
billion)
U.S. SEC (F-3) Registered Capital and
Debt
Program (US$75 billion)
United Kingdom Listing Authority (UKLA)
Registered Legislative Covered Bond Program
($100 billion)
UKLA Registered European Medium-Term Note
Program (US$40 billion)
The following table presents a breakdown of
the Bank’s term debt by currency and funding
type. Term funding as at October 31, 2024, was $184.5 billion (October
31, 2023 – $173.3 billion).
Note that Table 56: Long-Term Funding and Table
57: Wholesale Funding do not include
any funding accessed via repurchase transactions
or securities financing.
TABLE 56: LONG-TERM FUNDING
1
As at
Long-term funding by currency
October 31, 2024
October 31, 2023
Canadian dollar
25
%
27
%
U.S. dollar
31
35
Euro
33
27
British pound
5
5
Other
6
6
Total
100
%
100
%
Long-term funding by type
Senior unsecured medium-term notes
51
%
61
%
Covered bonds
40
31
Mortgage securitization
2
7
7
Term asset backed securities
2
1
Total
100
%
100
%
1
The table includes funding issued to external investors only.
2
Mortgage securitization excludes the residential mortgage trading business.
The Bank maintains depositor concentration
limits in respect of short-term wholesale
deposits so that it is not overly reliant
on individual depositors for funding.
The Bank further limits short-term wholesale
funding maturity concentration in an effort
to mitigate refinancing risk during a stress
event.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 97
The following table represents the remaining
maturity of various sources of funding outstanding
as at October 31, 2024, and October 31, 2023.
TABLE 57: WHOLESALE FUNDING
1
(millions of Canadian dollars)
As at
October 31
October 31
2024
2023
Less than
1 to 3
3 to 6
6 months
Up to 1
Over 1 to
Over
1 month
months
months
to 1 year
year
2 years
2 years
Total
Total
Deposits from banks
2
$
1,156
$
142
$
79
$
479
$
1,856
$
–
$
–
$
1,856
$
2,095
Bearer deposit notes
10
191
309
277
787
–
–
787
1,804
Certificates of deposit
8,621
12,111
27,651
52,457
100,840
328
–
101,168
113,476
Commercial paper
7,637
10,869
19,896
20,791
59,193
1,146
–
60,339
40,515
Covered bonds
450
–
1,792
10,261
12,503
18,117
44,779
75,399
54,006
Mortgage securitization
3
119
1,593
1,147
1,324
4,183
5,155
23,346
32,684
27,131
Legacy senior unsecured medium-term
notes
4
–
–
–
–
–
88
–
88
3,162
Senior unsecured medium-term notes
5
–
7,845
1,720
11,221
20,786
17,311
55,060
93,157
100,492
Subordinated notes and debentures
6
–
–
–
200
200
–
11,273
11,473
9,620
Term asset backed securitization
302
–
2,495
4,169
6,966
1,150
1,488
9,604
2,204
Other
7
34,788
5,853
3,450
24,933
69,024
861
1,066
70,951
44,348
Total
$
53,083
$
38,604
$
58,539
$
126,112
$
276,338
$
44,156
$
137,012
$
457,506
$
398,853
Of which:
Secured
$
7,130
$
5,766
$
7,868
$
39,051
$
59,815
$
24,423
$
69,617
$
153,855
$
92,361
Unsecured
45,953
32,838
50,671
87,061
216,523
19,733
67,395
303,651
306,492
Total
$
53,083
$
38,604
$
58,539
$
126,112
$
276,338
$
44,156
$
137,012
$
457,506
$
398,853
1
Excludes BA, which are disclosed in the Remaining Contractual Maturity table within the “Managing Risk” section
of this document.
2
The presentation has been changed to only include fixed-term commercial bank deposits, to better align with how
management views the Bank’s composition of wholesale funding.
3
Includes mortgaged backed securities issued to external investors and Wholesale Banking residential mortgage trading
business.
4
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.
5
Comprised of senior debt subject to conversion under the bank recapitalization “bail-in”
regime. Excludes $4.4 billion of structured notes subject to conversion under the “bail-in”
regime (October 31, 2023 – $5.7 billion).
6
Subordinated notes and debentures are not considered wholesale funding as they may be raised primarily for capital
management purposes.
7
Includes fixed-term deposits from non-bank institutions (unsecured) of $17.3 billion (October 31, 2023 – $22.1
billion) and the remaining are non-term deposits.
Excluding the Wholesale Banking residential
mortgage trading business, the Bank’s total 2024
mortgage-backed securities issued to external
investors was
$2.3 billion (2023 – $1.3 billion) and other asset-backed
securities issued was $2.6 billion (2023 –
$0.4 billion). The Bank also issued $13.6
billion of unsecured
medium-term notes (2023 – $27.6 billion)
and $27.1 billion of covered bonds (2023
– $26.1 billion) during the year ended October
31, 2024.
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 certain lease-related 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’s objective is to fund its assets appropriately
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 including personal and business
term loans and the stable balance of revolving
lines of credit.
Additionally, the Bank issues long-term funding in respect of
such non-trading assets and 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 funding.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 98
TABLE 58: REMAINING CONTRACTUAL
MATURITY
(millions of Canadian dollars)
As at
October 31, 2024
No
Less than
1 to 3
3 to 6
6 to 9
9 months
Over 1 to
Over 2 to
Over
specific
1 month
months
months
months
to 1 year
2 years
5 years
5 years
maturity
Total
Assets
Cash and due from banks
$
6,437
$
–
$
–
$
–
$
–
$
–
$
–
$
–
$
–
$
6,437
Interest-bearing deposits with banks
165,665
23
–
–
–
–
–
–
4,242
169,930
Trading loans, securities, and other
1
3,773
4,852
6,777
4,852
4,729
11,756
28,458
27,484
83,089
175,770
Non-trading financial assets at fair value through
profit or loss
–
2
301
1,431
96
702
810
694
1,833
5,869
Derivatives
11,235
12,059
5,501
4,257
2,587
10,485
17,773
14,164
–
78,061
Financial assets designated at fair value through
profit or loss
367
251
486
613
292
1,144
1,865
1,399
–
6,417
Financial assets at fair value through other comprehensive
income
357
7,284
6,250
6,459
9,367
5,766
19,729
34,270
4,415
93,897
Debt securities at amortized cost, net of allowance
for credit losses
1,620
4,237
4,763
6,367
4,072
30,513
93,429
126,617
(3)
271,615
Securities purchased under reverse repurchase
agreements
2
134,310
35,360
19,897
10,119
5,299
1,722
482
–
1,028
208,217
Loans
Residential mortgages
7,502
11,817
13,066
16,074
4,353
86,112
132,381
60,344
–
331,649
Consumer instalment and other personal
974
1,758
2,509
4,077
6,137
28,498
88,052
35,096
61,281
228,382
Credit card
–
–
–
–
–
–
–
–
40,639
40,639
Business and government
55,591
15,405
10,866
19,340
18,982
47,488
98,362
61,904
29,035
356,973
Total loans
64,067
28,980
26,441
39,491
29,472
162,098
318,795
157,344
130,955
957,643
Allowance for loan losses
–
–
–
–
–
–
–
–
(8,094)
(8,094)
Loans, net of allowance for loan losses
64,067
28,980
26,441
39,491
29,472
162,098
318,795
157,344
122,861
949,549
Customers’ liability under acceptances
–
–
–
–
–
–
–
–
–
–
Investment in Schwab
–
–
–
–
–
–
–
–
9,024
9,024
Goodwill
3
–
–
–
–
–
–
–
–
18,851
18,851
Other intangibles
3
–
–
–
–
–
–
–
–
3,044
3,044
Land, buildings, equipment, other depreciable
assets, and right-of-use assets
3
–
8
1
4
12
81
562
3,130
6,039
9,837
Deferred tax assets
–
–
–
–
–
–
–
–
4,937
4,937
Amounts receivable from brokers, dealers, and clients
22,115
–
–
–
–
–
–
–
–
22,115
Other assets
6,556
2,478
2,989
556
367
373
312
153
14,397
28,181
Total assets
$
416,502
$
95,534
$
73,406
$
74,149
$
56,293
$
224,640
$
482,215
$
365,255
$
273,757
$
2,061,751
Liabilities
Trading deposits
$
4,522
$
2,516
$
2,768
$
2,101
$
3,715
$
5,488
$
7,566
$
1,736
$
–
$
30,412
Derivatives
9,923
11,556
5,740
3,319
2,783
8,800
12,877
13,370
–
68,368
Securitization liabilities at fair value
–
1,004
328
644
97
3,313
9,443
5,490
–
20,319
Financial liabilities designated at
fair value through profit or loss
50,711
25,295
51,967
40,280
37,964
1,477
–
–
220
207,914
Deposits
4,5
Personal
14,229
31,997
30,780
16,971
19,064
15,120
15,590
7
497,909
641,667
Banks
14,714
4,287
2,434
16,343
6,954
–
3
–
12,963
57,698
Business and government
23,536
24,136
11,295
19,038
9,020
37,681
76,667
24,144
343,798
569,315
Total deposits
52,479
60,420
44,509
52,352
35,038
52,801
92,260
24,151
854,670
1,268,680
Acceptances
–
–
–
–
–
–
–
–
–
–
Obligations related to securities sold short
1
1,431
2,392
750
971
603
8,303
10,989
12,610
1,466
39,515
Obligations related to securities sold under repurchase
agreements
2
173,741
21,172
2,096
1,036
30
1,225
23
–
2,577
201,900
Securitization liabilities at amortized cost
119
589
819
438
144
1,843
4,823
3,590
–
12,365
Amounts payable to brokers, dealers, and clients
26,598
–
–
–
–
–
–
–
–
26,598
Insurance-related liabilities
224
448
671
671
705
1,184
1,656
727
883
7,169
Other liabilities
12,396
14,478
7,279
1,114
876
1,886
1,421
5,608
6,820
51,878
Subordinated notes and debentures
–
–
–
200
–
–
–
11,273
–
11,473
Equity
–
–
–
–
–
–
–
–
115,160
115,160
Total liabilities and equity
$
332,144
$
139,870
$
116,927
$
103,126
$
81,955
$
86,320
$
141,058
$
78,555
$
981,796
$
2,061,751
Off-balance sheet commitments
Credit and liquidity commitments
6,7
$
31,198
$
28,024
$
26,127
$
24,731
$
21,440
$
52,706
$
174,388
$
4,743
$
1,948
$
365,305
Other commitments
8
113
266
270
400
254
1,019
1,591
403
50
4,366
Unconsolidated structured entity commitments
–
–
–
125
766
490
19
–
–
1,400
Total off-balance sheet commitments
$
31,311
$
28,290
$
26,397
$
25,256
$
22,460
$
54,215
$
175,998
$
5,146
$
1,998
$
371,071
1
Amount has been recorded according to the remaining contractual maturity of the underlying security.
2
Certain contracts considered short-term are presented in ‘less than 1 month’ category.
3
Certain 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 $
75
billion of covered bonds with remaining contractual maturities of $
2
billion in ‘over 3 months to 6 months’, $
10
billion in ‘over 6 months to 9 months’, $
18
billion in ‘over 1 to
2 years’, $
37
billion in ‘over 2 to 5 years’, and $
8
billion in ‘over 5 years’.
6
Includes $
609
million in commitments to extend credit to private equity investments.
7
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.
8
Includes various purchase commitments as well as commitments for leases not yet commenced, and
lease-related payments.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 99
TABLE 58: REMAINING CONTRACTUAL
MATURITY
(continued)
(millions of Canadian dollars)
As at
October 31, 2023
No
Less than
1 to 3
3 to 6
6 to 9
9 months
Over 1 to
Over 2 to
Over
specific
1 month
months
months
months
to 1 year
2 years
5 years
5 years
maturity
Total
Assets
Cash and due from banks
$
6,721
$
–
$
–
$
–
$
–
$
–
$
–
$
–
$
–
$
6,721
Interest-bearing deposits with banks
91,966
559
–
–
–
–
–
–
5,823
98,348
Trading loans, securities, and other
1
4,328
6,329
5,170
3,008
4,569
13,226
27,298
25,677
62,485
152,090
Non-trading financial assets at fair value through
profit or loss
–
–
354
1,538
199
1,664
828
1,351
1,406
7,340
Derivatives
10,145
10,437
5,246
4,244
3,255
11,724
25,910
16,421
–
87,382
Financial assets designated at fair value through
profit or loss
374
496
375
695
324
838
1,470
1,246
–
5,818
Financial assets at fair value through other comprehensive
income
745
2,190
1,200
5,085
2,223
9,117
15,946
29,845
3,514
69,865
Debt securities at amortized cost, net of allowance
for credit losses
1,221
4,020
4,073
16,218
3,480
22,339
116,165
140,502
(2)
308,016
Securities purchased under reverse repurchase
agreements
2
124,253
33,110
29,068
7,381
7,298
955
506
–
1,762
204,333
Loans
Residential mortgages
1,603
2,616
5,860
10,575
14,181
57,254
168,475
59,733
44
320,341
Consumer instalment and other personal
894
1,580
2,334
3,830
5,974
27,166
85,487
34,183
56,106
217,554
Credit card
–
–
–
–
–
–
–
–
38,660
38,660
Business and government
37,656
10,058
13,850
14,886
16,964
42,460
96,952
67,190
26,512
326,528
Total loans
40,153
14,254
22,044
29,291
37,119
126,880
350,914
161,106
121,322
903,083
Allowance for loan losses
–
–
–
–
–
–
–
–
(7,136)
(7,136)
Loans, net of allowance for loan losses
40,153
14,254
22,044
29,291
37,119
126,880
350,914
161,106
114,186
895,947
Customers’ liability under acceptances
14,804
2,760
5
–
–
–
–
–
–
17,569
Investment in Schwab
–
–
–
–
–
–
–
–
8,907
8,907
Goodwill
3
–
–
–
–
–
–
–
–
18,602
18,602
Other intangibles
3
–
–
–
–
–
–
–
–
2,771
2,771
Land, buildings, equipment, other depreciable
assets, and right-of-use assets
3
–
8
6
8
14
79
573
3,153
5,593
9,434
Deferred tax assets
4
–
–
–
–
–
–
–
–
3,951
3,951
Amounts receivable from brokers, dealers, and clients
30,416
–
–
–
–
–
–
–
–
30,416
Other assets
4
5,267
1,869
5,619
208
194
137
129
82
14,124
27,629
Total assets
4
$
330,393
$
76,032
$
73,160
$
67,676
$
58,675
$
186,959
$
539,739
$
379,383
$
243,122
$
1,955,139
Liabilities
Trading deposits
$
1,272
$
1,684
$
5,278
$
4,029
$
4,153
$
6,510
$
6,712
$
1,342
$
–
$
30,980
Derivatives
9,068
9,236
4,560
3,875
2,559
8,345
16,589
17,408
–
71,640
Securitization liabilities at fair value
2
498
345
1,215
391
1,651
6,945
3,375
–
14,422
Financial liabilities designated at
fair value through profit or loss
48,197
30,477
37,961
42,792
32,473
112
–
–
118
192,130
Deposits
5,6
Personal
6,044
19,095
22,387
14,164
19,525
17,268
20,328
51
507,734
626,596
Banks
19,608
68
29
–
–
–
4
1
11,515
31,225
Business and government
25,663
16,407
24,487
11,819
9,658
33,723
74,300
19,652
324,660
540,369
Total deposits
51,315
35,570
46,903
25,983
29,183
50,991
94,632
19,704
843,909
1,198,190
Acceptances
14,804
2,760
5
–
–
–
–
–
–
17,569
Obligations related to securities sold short
1
135
1,566
1,336
1,603
1,309
5,471
19,991
11,971
1,279
44,661
Obligations related to securities sold under repurchase
agreements
2
146,559
10,059
6,607
457
1,142
150
46
–
1,834
166,854
Securitization liabilities at amortized cost
–
526
355
1,073
703
2,180
4,956
2,917
–
12,710
Amounts payable to brokers, dealers, and clients
30,872
–
–
–
–
–
–
–
–
30,872
Insurance contract liabilities
4
243
305
327
258
253
694
1,131
501
2,134
5,846
Other liabilities
4
11,923
9,808
7,986
1,276
1,198
918
1,979
4,226
8,260
47,574
Subordinated notes and debentures
–
–
–
–
–
196
–
9,424
–
9,620
Equity
4
–
–
–
–
–
–
–
–
112,071
112,071
Total liabilities and equity
4
$
314,390
$
102,489
$
111,663
$
82,561
$
73,364
$
77,218
$
152,981
$
70,868
$
969,605
$
1,955,139
Off-balance sheet commitments
Credit and liquidity commitments
7,8
$
22,242
$
24,178
$
26,399
$
21,450
$
22,088
$
47,826
$
166,891
$
5,265
$
1,487
$
337,826
Other commitments
9
109
279
214
197
204
889
1,364
424
73
3,753
Unconsolidated structured entity commitments
–
836
3
239
95
729
–
–
–
1,902
Total off-balance sheet commitments
$
22,351
$
25,293
$
26,616
$
21,886
$
22,387
$
49,444
$
168,255
$
5,689
$
1,560
$
343,481
1
Amount has been recorded according to the remaining contractual maturity of the underlying security.
2
Certain contracts considered short-term are presented in ‘less than 1 month’ category.
3
Certain non-financial assets have been recorded as having ‘no specific maturity’.
4
Balances as at October 31, 2023 have been restated for the adoption of IFRS 17. Refer to Note 4 of the Bank’s
2024 Consolidated Financial Statements for further details.
5
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’.
6
Includes $
54
billion of covered bonds with remaining contractual maturities of $
6
billion in ‘over 3 months to 6 months’, $
1
billion in ‘over 6 months to 9 months’, $
12
billion in ‘over 1 to
2 years’, $
31
billion in ‘over 2 to 5 years’, and $
4
billion in ‘over 5 years’.
7
Includes $
573
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.
9
Includes various purchase commitments as well as commitments for leases not yet commenced, and lease-related
payments.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 100
Capital Adequacy Risk
Capital adequacy risk is the risk of insufficient
level and composition of capital being
available in relation to the amount of
capital required to carry out the Bank’s
strategy and/or satisfy regulatory and internal
capital adequacy requirements under normal
and stress conditions.
Capital is held to protect the viability
of the Bank in the event of unexpected
financial losses. Capital represents the loss-absorbing
funding required to provide a
cushion to protect depositors and other
creditors from unexpected losses.
Managing capital levels requires that the Bank
holds sufficient capital, in normal and stress environments,
to avoid the risk of breaching minimum capital
levels
prescribed by regulators and internal Board
limits.
WHO MANAGES CAPITAL ADEQUACY RISK
The Board oversees the Bank’s capital adequacy
and capital management by reviewing adherence
to capital targets and approving the annual
capital plan and the
Capital Adequacy Risk Management Policy. The Risk Committee
reviews and approves the Capital Adequacy
Risk Management Framework. The CRO
and the
CFO oversee that the Bank’s ICAAP is effective in
meeting capital adequacy requirements.
The ALCO recommends and maintains the
Capital Adequacy Risk Management Framework
and the Capital Adequacy Risk Management
Policy, and sets
additional capital targets and minimum requirements,
including the allocation of capital limits
to business segments, to support ongoing
compliance with the Capital
Adequacy Risk Management Policy. The ALCO also reviews the ongoing
adherence to established capital targets in
support of the effective and prudent
management of the Bank’s capital position and
maintenance of adequate capital.
TBSM is responsible for forecasting and
monitoring compliance with capital targets, on
a consolidated basis, with oversight provided
by ALCO. TBSM updates
the capital forecast, including appropriate
changes to capital issuance, repurchase
and redemption. The capital forecast is reviewed
by ALCO. TBSM also leads
the ICAAP and EWST processes. The Bank’s business
segments are responsible for managing to assigned
RWA and leverage exposure limits.
Additionally, regulated subsidiaries of the Bank, including certain insurance
subsidiaries and subsidiaries in the U.S. and other
jurisdictions, manage their capital
adequacy risk in accordance with applicable
regulatory requirements. Capital management
policies and procedures of subsidiaries
are also required to conform
with those of the Bank. U.S. regulated subsidiaries
of the Bank are required to follow several
regulatory guidelines, rules and expectations
related to capital
planning and stress testing including the U.S.
Federal Reserve Board’s Regulation YY establishing
Enhanced Prudential Standards for Foreign
Banking
Organizations, applicable to U.S. Bank Holding
Companies. Refer to the sections on “Future
Regulatory Capital Developments”, “Enterprise-Wide
Stress Testing”,
and “Risk Factors That May Affect Future Results”
for further details.
HOW TD MANAGES CAPITAL ADEQUACY RISK
Capital resources are managed in a manner
designed so that the Bank’s capital position can
support business strategies under both current
and future business
operating environments. The Bank manages
its operations within the capital constraints
defined by both internal and regulatory
capital requirements, so that it
meets the higher of these requirements.
Regulatory capital requirements represent
minimum capital levels. Capital targets are
established to provide a sufficient buffer so that the Bank
is able to
continuously meet these minimum capital requirements.
The purpose of these capital targets is
to reduce the risk of a breach of minimum
capital requirements,
due to unexpected events, allowing management
the opportunity to react to declining capital
levels before minimum capital requirements
are breached.
A periodic monitoring process is undertaken
to plan and forecast capital requirements.
As part of the annual planning process, business
segments are allocated
individual RWA and Leverage exposure limits. Capital generation
and usage are monitored and reported
to the ALCO.
The Bank assesses the sensitivity of its
forecast capital requirements and new
capital formations to various economic
conditions through its EWST process.
The results of the EWST are considered in
the determination of capital targets and
capital risk appetite limits.
The Bank also determines its internal capital
requirements through the ICAAP process
using models to measure the risk-based
capital required based on its
own tolerance for the risk of unexpected
losses. This risk tolerance is calibrated
to the required confidence level so that
the Bank will be able to meet its
obligations, even after absorbing severe
unexpected losses over a one-year period.
In addition, the Bank has a Capital Contingency
Plan that is designed to prepare management
to maintain capital adequacy through periods
of bank-specific or
systemic market stress. The Capital Contingency
Plan outlines the governance and procedures
to be followed if the Bank’s consolidated capital
levels are forecast
to fall below capital targets or when there
are capital concerns from disruptive events
or trends. It also outlines potential
management actions that may be taken to
prevent such a breach from occurring.
Legal and Regulatory Compliance (including Financial Crime) Risk
Legal and Regulatory Compliance (including
Financial Crime) (LRC) risk is the risk associated
with the Bank’s failure to comply with applicable
laws, rules,
regulations, prescribed practices, contractual
obligations, the Bank’s
Code of Conduct and Ethics, or standards of
fair business conduct or market conduct, which
can lead to adverse judgements, fines, sanctions,
liabilities, or reputational harm
that could be material to the Bank. LRC risk
includes the regulatory risks
associated with financial crimes (which include,
but are not limited to, money laundering,
terrorist financing, bribery, corruption, and violations of economic
sanctions), privacy, market conduct, consumer protection and business
conduct, as well as prudential and other generally
applicable non-financial requirements.
The Bank is exposed to
LRC risk in virtually all
of its activities. Failure to
mitigate LRC risk and meet regulatory
and legal requirements can
impact the
Bank’s ability to meet strategic objectives,
poses a risk of censure
or penalty, may lead to
litigation, and puts the Bank’s
reputation at risk. Financial
penalties, reputational damage, and other
costs associated with legal proceedings and
unfavourable judicial or regulatory determinations may
also
adversely affect the Bank’s business,
results of operations and financial
condition. LRC risk generally cannot be
effectively mitigated by trying to limit
its
impact to any one business
or jurisdiction as realized LRC
risk may adversely impact
unrelated businesses or jurisdictions. LRC risk
exposure is inherent
in the normal course of
operating the Bank’s businesses. Known
LRC risks continue to rapidly change as
a result of evolving laws
and regulatory
expectations, as well as new
or emerging threats, including geopolitical
and those associated with use
of new, emerging and interrelated
technologies
and use of,
AI,
machine learning, models and decision-making
tools.
WHO MANAGES LEGAL AND REGULATORY COMPLIANCE (INCLUDING FINANCIAL
CRIME) RISK
The proactive and effective management
of LRC risk is complex given the
breadth and pervasiveness of exposure.
The LRC Risk Management
Framework applies enterprise-wide to the
Bank and to all its
corporate functions, business segments, its
governance, risk, and oversight functions,
and
its subsidiaries, and is aligned
with the Bank’s ERF. All the
Bank’s businesses are accountable for
operating their business in compliance with
LRC
(including financial crime) requirements applicable to their jurisdiction
and specific businesses. All the Bank’s
businesses, including corporate functions,
are also accountable for the
LRC risk that they generate in their
operations, including LRC risks that may
arise in their dealings with third-party
vendors.
These accountabilities involve assessing
the risk, designing and implementing
controls, and monitoring and reporting
on their ongoing effectiveness to
safeguard the businesses from operating outside
of the Bank’s risk appetite.
Global Compliance and Financial Crime Risk
Management (FCRM) are
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 101
independent oversight functions (the “Oversight
Functions”) and are accountable for
RCM oversight and provide
objective guidance, and oversight with
respect
to managing
LRC risk. Legal,
U.S. Regulatory Relations & Government
Affairs (RRGA)/and Regulatory Risk provide advice
with
respect
to managing
LRC risk. Representatives of these
groups interact regularly with senior executives of
the Bank’s businesses. Also, the
senior management of Legal,
Compliance, and FCRM have established regular meetings
with and reporting to the Audit
Committee, which oversees the establishment
and
maintenance of policies and programs
designed to help achieve and maintain
the Bank’s compliance with the
applicable LRRs. Senior management of
the Compliance Department also report
regularly to the Corporate Governance Committee,
which oversees conduct risk management
in the Bank, the
establishment and maintenance of policies
in respect of the Bank’s compliance
with the consumer protection provisions of
the Canadian Financial
Consumer Protection Framework, and in
its capacity as the Bank’s conduct
review committee, related party transactions for
the Bank and certain of
its
Canadian subsidiaries that are federally-regulated financial
institutions. In addition, senior management
of Regulatory Risk has established periodic
reporting to the Board and
regular reporting to the Risk Committee.
HOW TD MANAGES LEGAL AND REGULATORY COMPLIANCE (INCLUDING
FINANCIAL CRIME) RISK
Effective management of LRC risk is a result of enterprise-wide
collaboration and requires (a) independent and
objective identification and oversight
of LRC risk,
(b) objective guidance and advisory services
and/or independent challenge and oversight
to identify, assess, control, and monitor LRC risk, and (c) an approved
set of frameworks, policies, procedures, guidelines,
and practices. While each business line
and corporate function is accountable for
owning LRC risk, each of the
Oversight Functions plays a critical role in
the management of LRC risk at the Bank.
Depending on the circumstances, they play
different roles at different times:
‘trusted advisor’, provider of objective
guidance, independent challenge,
and oversight and control (including ‘gatekeeper’
or approver).
Compliance performs the following functions:
it acts as an independent Regulatory Compliance
oversight function to establish enterprise
standards for business
and Oversight Functions in managing regulatory
compliance risk; it fosters a culture of integrity, ethics and compliance,
with accountability understood and
accepted throughout TD to manage and mitigate
Regulatory Compliance Risks; it assesses the
adequacy of, adherence to, and effectiveness of
the Bank’s day-to-
day RCM controls; it proactively manages regulatory
change and maintains a RCM Regulatory
Change Standard for Oversight Functions to
do the same; and it
supports the Chief Compliance Officer in providing an
opinion to the Audit Committee as to
whether the RCM controls are sufficiently robust to
achieve compliance
with applicable regulatory requirements.
FCRM acts as an independent regulatory compliance
and risk management oversight function
and is responsible for regulatory compliance
(laws, rules,
regulations) and the broader prudential risk
management components of the AML,
Anti-Terrorist Financing, Sanctions, and Anti-Bribery/Anti-Corruption programs
(collectively, the “FCR Programs”), including their design, content, and
enterprise-wide implementation; develops
policies and standards, monitors, evaluates,
and
reports on FCR Program controls, design, and
execution; and reports on the overall
adequacy and effectiveness of the FCR Programs,
including program design
and operation.
For their respective programs, Compliance
and FCRM have developed methodologies and
processes to measure and aggregate regulatory
compliance risks and
FCR program risks (including the risks that
our products, and services and delivery
channels are misused for financial crime)
on an ongoing basis as a baseline to
assess whether the Bank’s internal controls are
effective in adequately identifying and mitigating
such risks and determine whether individual
or aggregate
business activities are conducted within
the Bank’s risk appetite.
As further described in the “Significant Events –
Global Resolution of the Investigations
into the Bank’s U.S. BSA/AML Program” section above,
the Bank is
undertaking a remediation of its U.S. BSA/AML
Program and undertaking several improvements
to the Bank’s enterprise-wide AML/Anti-Terrorist Financing and
Sanctions Programs (the “Enterprise AML Program”).
Similar to the U.S. BSA/AML remediation
program, the FINTRAC remediation and
other planned strategic
enhancements of the Enterprise AML Program
outside the U.S. are organized under
five core pillars; (i) People & Talent, (ii) Governance & Structure, (iii) Policy
&
Risk Assessment, (iv) Process & Control,
(v) Data & Technology. The Bank has established a dedicated program management infrastructure
to monitor execution
against these programs. For the U.S.,
the work is being overseen by the Compliance
Committee of the U.S. subsidiary boards
and is expected to be a multi-year
endeavour, involving additional investments. In Canada, the
work is subject to oversight by senior executive
governance forums
along with regular reporting to the
Audit Committee of the Board.
Legal acts as an independent provider of
legal services and advice and protects
the Bank from unacceptable legal risk. Legal has
also developed methodologies
for measuring litigation risk for adherence
to the Bank’s risk appetite.
Processes employed by Legal, Compliance, and
FCRM (including policies and frameworks,
training and education, and the Bank’s Code of Conduct
and Ethics)
support the responsibility of each business
to adhere to LRC requirements.
Finally, the Corporate and Public Affairs (CAPA), Regulatory Risk Management and RRGA departments
also create and facilitate communication
with elected
officials and regulators, monitor legislation and
regulations, support business relationships
with governments, coordinate regulatory
examinations, track and
monitor issues from those examinations,
support regulatory discussions on new
or proposed products or business initiatives,
and advance the public policy
objectives of the Bank.
Reputational Risk
Reputational risk is the potential that stakeholder
perceptions, whether true or not, regarding
the Bank’s business practices, actions or inactions,
will or may cause
a significant decline in the Bank’s value, brand, liquidity
or customer base, or require costly measures
to address.
Stakeholders include customers, shareholders,
employees, regulators, and the communities
in which we operate.
A company’s reputation is a valuable business
asset that is essential to optimizing shareholder
value and therefore, is constantly at risk.
Reputational risk can
arise as a consequence of negative perceptions
about the Bank’s business practices involving
any aspect of the Bank’s operations and usually
involves concerns
about business ethics and integrity, competence, or the quality or
suitability of products and services. Since
all risk categories can have an impact
on a company’s
reputation, reputational risk is not managed
in isolation from the Bank’s other major risk
categories and can ultimately impact its brand,
earnings, and capital.
WHO MANAGES REPUTATIONAL RISK
Responsibility for managing risks to the Bank’s reputation
ultimately lies with the SET and the executive
committees that examine reputational risk
as part of their
regular mandate. The ERRC is the most
senior executive committee for the review of reputational
risk matters at TD. The mandate of
the ERRC is to oversee the
management of reputational risk within
the Bank’s risk appetite. Its main accountability is
to review and assess business and
corporate initiatives and activities
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 102
where significant reputational risk profiles
have been identified and escalated. The
ERRC also provides a forum for discussion,
review, and escalation for non-
traditional risks.
At the same time, every employee and representative
of the Bank has a responsibility to
contribute in a positive way to the Bank’s reputation
and the management
of reputational risk. This means that every
Bank employee is responsible for following
ethical practices at all times, complying
with applicable policies, legislation,
and regulations and are also supporting positive
interactions with the Bank’s stakeholders.
Reputational risk is most effectively managed when
everyone at the
Bank works continuously to protect and enhance
the Bank’s reputation. Where an employee is aware
of or suspects any conduct that violates
TD’s Code of
Conduct and Ethics, they have an obligation
to immediately report such conduct.
HOW TD MANAGES REPUTATIONAL RISK
The Bank’s approach to the management of reputational
risk combines the experience and
knowledge of individual business segments,
corporate shared service
areas and governance, risk and oversight functions.
It is based on enabling the Bank’s businesses
to understand their risks and developing
the policies,
processes, and controls required to manage
these risks appropriately and in line with
the Bank’s strategy and reputational risk appetite.
The Bank’s Reputational
Risk Management Framework provides a
comprehensive overview of its approach
to the management of this risk. Amongst other
significant
policies, the Bank’s
Enterprise Reputational Risk Management Policy
is approved by the Group Head and
CRO and sets out the requirements under which
business segments and
corporate shared services are required
to manage reputational risk. These requirements
include implementing procedures and
designating a business-level
committee (where required by the Policy) to review
and assess reputational risks and escalation
to the ERRC as appropriate.
The Bank also has an enterprise-wide New
Business and Product Approval (NBPA) Policy that is approved
by the CRO and establishes standard
practices to
support consistent processes for approving
new businesses, products, and services
across the Bank. The policy is supported by
business segment specific
processes, which involve independent review
from oversight functions, and consideration of
all aspects of a new product, including reputational
risk.
Environmental and Social Risk
E&S risk is the risk of financial loss, reputational
damage or other harm resulting from the
Bank’s inability to manage and respond to changing
environmental or
social factors that impact or are associated
with the Bank’s operations, business activities, products,
clients, or the communities in which the Bank
operates.
Operating a complex financial institution in
multiple jurisdictions exposes the Bank’s businesses
and operations to a broad range of financial
and non-financial
risks. Environmental and social issues expose
the Bank to a set of risks (collectively, E&S risk) that are transverse,
meaning they can drive financial and non-
financial risks, including but not limited to credit,
strategic, reputational, legal and regulatory
compliance risks.
WHO MANAGES ENVIRONMENTAL AND SOCIAL RISK
ESG Risk Management (ESG RM) establishes
E&S risk frameworks, policies, processes,
governance,
and
reporting structures for business and corporate
functions to identify, assess, measure, control,
monitor and report on E&S risks. Business
and corporate functions own and
manage the risks. Internal polices and
procedures require business and corporate
functions to consider the applicability and assessment
of E&S risk in current and new business
activity. Internal policies
also require business unit governance and business
processes to incorporate an assessment
of E&S risk and apply an appropriate
level of governance and
oversight consistent with their business procedures.
ESG RM is also developing enterprise-wide
tools and programs to support measurement
and monitoring activities, in addition
to business and corporate segment
activities. E&S Risk activities are a component
of the Bank’s E&S Target Operating Model (TOM) and Implementation Plans.
Senior Management oversight is maintained
through monitoring and reporting to the
OROC, ERMC and Risk Committee of
the Board.
HOW TD MANAGES ENVIRONMENTAL AND SOCIAL RISK
The Bank follows a disciplined approach to
managing financial and non-financial risks,
driven by E&S risks which may have a present
or future impact on the
Bank’s competitive position, brand or long-term
shareholder value creation. The Bank considers
current and potential E&S risk in the strategies
it executes, as
appropriate, by enabling informed decision-making
based on internal capabilities, industry
practices, legal and regulatory obligations,
and stakeholder expectations
– including shareholders and customers -
as they continue to evolve.
The Enterprise E&S Risk Framework outlines
how the Bank manages E&S risk. This
Framework is reinforced by risk-specific
policies including the Enterprise E&S
Risk Policy that establishes requirements
for business and corporate segments to effectively
manage their E&S risk. Business and corporate
segments, as
applicable, certify compliance with the E&S
Risk Policy requirements on an annual
basis.
With respect to non-retail lending, the Bank
takes a measured, client-focused and risk-based
approach to E&S risks. When a risk
assessment indicates a
heightened level of risk, the Bank conducts
enhanced due diligence that could include
the use of tools such as physical risk identification,
heatmaps, industry risk
ratings, client engagement and questionnaires,
financed emissions estimation and analytics
systems, environmental site assessments,
site visits, industry
research, and media scans, as applicable.
Risk assessment and enhanced due diligence
results follow the Bank’s risk governance process,
which may include
segment level and enterprise-level reputational
risk committee oversight. Following
this process, TD makes decisions to conduct
transactions based on the risks
presented by an individual customer and
the Bank’s ability to manage those risks.
The Bank continues to assess the impacts
associated with new and material changes
made to TD products, services, projects, and initiatives
by incorporating an
E&S risk assessment into the Bank’s Change Risk
Management process. Additionally, the Bank’s enterprise-wide Business
Continuity and Crisis Management
Program continues to support management’s ability
to operate the Bank’s businesses and operations
in the event of a business disruption incident,
including the
incremental impact of climate change.
The Bank’s E&S metrics, targets and performance
are publicly reported within its annual
sustainability reporting suite. Key performance
measures reported by the
Bank are informed by the Global Reporting
Initiative (GRI), the Sustainability Accounting
Standards Board (SASB) and the
FSB’s TCFD recommendations, with
select metrics that are independently assured.
Climate-Related Risk
Climate-related risk is the risk of reputational damage and/or financial
loss arising from the physical and transition
risks of climate change to the Bank,
its clients or
the communities in which the Bank operates.
This includes physical risks arising from
the consequences of a changing climate,
as well as transition risks arising
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 103
from the process of shifting to a low-carbon
economy. In its 2023 annual sustainability reporting suite,
the Bank highlighted its progress to assess
and manage
climate-related risk and effectively manage its business
strategies and continues to capture opportunities
in light of these evolving risks.
The Bank continues to evolve its ESG/Climate
TOM to support its work to implement TD’s Climate Action
Plan and to manage climate-related risks
through
dedicated work streams, including an enterprise
Climate Risk Strategy and Climate
Risk Scenario Analysis Program. The Bank
continues to work towards building
its expertise and capabilities for managing
climate-related risks, captured through
the E&S TOM via dedicated workstreams including
advancing climate-related
risk identification and measurement processes
and developing the Bank’s enterprise climate
data strategy.
TD’s Climate Scenario Analysis program helps
the Bank better understand the impacts of
climate-related financial risks. Climate
scenario analysis evaluates a
range of hypothetical outcomes by considering a
variety of alternative plausible future scenarios
under a given set of assumptions and
constraints. While scenarios
are not designed to deliver precise outcomes
or forecasts, they provide a way for the
Bank to consider how the future might look
and how we can prepare. The
Bank’s continued participation in scenario analysis
pilot exercises and programs across a range
of climate scenarios supports the development
of tools and
capabilities regarding climate data and
climate-related risk modelling. Developing these
capabilities supports the Bank’s understanding
of the transition and
physical risks of climate change, which will
help inform the Bank’s approach to further integrate
climate-related risk management activities
across the enterprise.
The Bank continues to refresh and enhance
the scope of its Climate Risk Heatmap,
supported by an Industry Risk Review process,
to support physical and
transition climate-related risk identification and
assessment and to refine its understanding
of the industry sector and geographic location
sensitivities that climate-
related risk may have on the Bank and its assets,
clients, and communities in which it operates.
TD is applying its Physical Climate Risk Identification
Framework
across its footprint and business lines to inform
risk control assessment processes and
business strategies.
The Bank contributes to public consultations
and advocacy initiatives on emerging climate
issues, including disclosure frameworks
proposed by regulators and
standard setters. The Bank also engages
with environmental and community NGOs, industry
associations, rating agencies, Indigenous
communities and
responsible investment organizations.
TD also participates in various North American
working groups, and as a member of
the Partnership for Carbon Accounting Financials,
helps develop and refine calculation methodologies
for emerging climate metrics. The Bank continues
its membership in the Risk Management
Association
Climate Risk Consortium, which focuses on
bringing financial institutions together to advance
the awareness of and address the risks
relevant to climate change,
by developing frameworks, and recommendations
for governance, disclosure, and risk management
principles.
TD recognizes it faces transition risk
from its own activities, as well as from the
clients we serve. In 2020, the Bank announced
a target to achieve net-zero
greenhouse gas (GHG) emissions associated
with the Bank’s operations and financing activities
by 2050, in alignment with the associated
principles of the Paris
Agreement.
The Bank monitors and assesses legal, policy, regulatory, economic, technological and
stakeholder developments regarding E&S
matters, including the transition
to net zero, and how those developments
may affect its E&S metrics and targets. Accordingly, the Bank may adjust
its E&S metrics or targets to reflect these
developments. In addition, E&S methodologies
or standards used by regulators, the financial
sector, industry groups or associations that the Bank
participates in
or belongs to, or that the Bank or its clients
use to measure and report on their GHG emissions
could result in the Bank amending or restating
its baselines,
calculated results or targets, and may result in
the Bank withdrawing from or modifying its
membership in certain groups or associations.
Limitations on the
availability and reliability of data may also
impact the Bank’s ability to assess and evaluate
E&S risks. The Bank is mindful of data
availability and data quality
limitations impacting risk management
and financed emissions efforts and work continues
through industry forums to address the lack
of standardized taxonomies
and methodologies. These limitations are expected
to improve over time as the Bank continues
to advance its data capabilities by working
with internal and
external subject matter experts, leading
to more robust and reliable E&S risk monitoring,
analysis, and reporting. The Bank assesses,
and will continue to assess,
the potential impacts of climate change and
related risks on its operations, lending portfolios,
investments, and businesses.
Regulatory and Standard Setter Developments
Concerning E&S Risk
On March 7, 2023, OSFI issued Guideline B-15:
Climate Risk Management (Guideline B-15),
which sets out OSFI’s expectations related to the
management and
disclosure of climate-related risks and opportunities.
Effective dates of Guideline B-15 begin October
31, 2024 for certain components, and annual
disclosures are
required to be made publicly available no later
than 180 days after fiscal year-end. The Bank’s required
public disclosures will be released in the
2024
sustainability reporting suite.
On June 26, 2023, the International Sustainability
Standards Board (ISSB) under the IFRS
Foundation, issued its first two sustainability
standards, IFRS S1
General Requirements for Disclosures of Sustainability-related
Financial Information and IFRS S2 Climate-related
Disclosures. IFRS S1 sets out the disclosure
requirements for financially material information
about sustainability-related risks and
opportunities to meet investor information
needs, and IFRS S2 specifically
sets the disclosure requirement for Climate-related
risks and opportunities. ISSB recommends
an effective date for annual reporting periods
beginning on or after
January 1, 2024, and this is subject to Canadian
jurisdiction’s endorsement. Early application is permitted
on or before the date of initial application
of IFRS S1 and
IFRS S2. The International Organization of
Securities Commissions (IOSCO) has officially endorsed
IFRS S1 and IFRS S2 on July 23, 2023,
and is now calling its
member jurisdictions to consider ways they
may adopt or apply the ISSB standards. The
Bank is currently assessing the impact of
adopting these standards and
monitoring communications from the Canadian
Securities Administrators.
Codes of Conduct and Human Rights
The Bank has several policies, including the
Bank’s Code of Conduct and Ethics, which reflect
the Bank’s commitment to manage its business
responsibly and in
compliance with applicable laws. For additional
information on the Code of Conduct and Ethics,
refer to the “Legal and Regulatory Compliance
(including Financial
Crime) Risk” section above. In 2024, the
Bank published a refreshed Statement on
Human Rights, which reflects the corporate
responsibility to respect human
rights as set out in the United Nations Guiding
Principles on Business and Human Rights
(UNGP). The Bank and its applicable subsidiaries
also publish reports
pursuant to modern slavery legislation
to which they are subject. The Bank’s current Human
Rights Statement and Modern Slavery
and Human Trafficking Report
can be found here: https://www.td.com/ca/en/about-td/for-investors/policies-and-references.
In 2023, the Bank embarked on a process
to review its policies, procedures and training
programs relating to Indigenous Peoples
and free, prior and informed
consent (FPIC) to assess the operationalization
of FPIC. In June 2024, the Bank reported
on the outcome and progress of this policy
and training review.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 104
TD’s Financial Consumer Protection Framework Policy
aims to promote responsible conduct
across Canadian banks and protect financial
services customers. It
also includes components related to promoting
transparency for customers to help
them make informed decisions and provisions
related to fair and equitable
dealing (e.g., requirements for cancelling
agreements, access to basic banking services
and complaints processes).
In the U.S., TD’s Fair & Responsible Banking Policy
supports the Bank’s commitment to treat all individuals
fairly and equitably in offering and providing banking
products and services: to mitigate risk to
the consumer; to prevent discriminatory practices
and unfair, deceptive or abusive acts or practices (UDAAP);
and to
maintain compliance with applicable federal and
state laws and regulations. TD’s Complaint Policy
enables it to identify and address customer
issues and continue
to enhance its legendary customer experience.
The Bank’s Supplier Code of Conduct also reflects
its commitment to respect human rights.
New or prospective suppliers providing goods
or services through the
Bank’s centralized Strategic Sourcing Group
must register through an enterprise procurement
system requiring them to represent that they
operate in accordance
with the expectations described in its Supplier
Code of Conduct, including those relating
to the protection of human rights and fair labour
practices.
In addition, the
Bank’s North American Supplier Diversity Program
seeks to promote a level playing field
and encourage the inclusion of women,
Black, Indigenous and other
minorities, the 2SLGBTQ+ community,
people with disabilities, veterans, refugees
and other diverse suppliers in its procurement
process.
To
reflect this goal, the
Bank’s Statement on Supplier Diversity, recognizes diversity and inclusion
as both a core value and a business imperative.
ACCOUNTING STANDARDS AND
POLICIES
Critical Accounting Policies
and Estimates
ACCOUNTING POLICIES AND ESTIMATES
The Bank’s accounting policies and estimates are
essential to understanding its results of
operations and financial condition. A
summary of the Bank’s material
accounting policies and estimates are presented
in the Notes of the 2024 Consolidated
Financial Statements. The Bank’s critical accounting
policies are reviewed
with the Audit Committee on a periodic basis.
Critical accounting policies that require
management’s judgment and estimates include
the classification and
measurement of financial assets, accounting
for impairments of financial assets, accounting
for leases, the determination of fair value of financial
instruments,
accounting for derecognition, the valuation
of goodwill and other intangibles, accounting
for employee benefits, accounting for income
taxes, accounting for
provisions, accounting for insurance, the consolidation
of structured entities,
and accounting for revenue from
contract with customers.
The Bank’s 2024 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 2024 Consolidated
Financial Statements.
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 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.
CLASSIFICATION AND MEASUREMENT OF FINANCIAL ASSETS
Business Model Assessment
The Bank determines its business models
based on the objective under which its
portfolios of financial assets are managed.
Refer to Note 2 of the Bank’s
2024 Consolidated Financial Statements
for details on the Bank’s business models.
In determining its business models, the Bank
considers the following:
●
Management’s intent and strategic objectives
and the operation of the stated policies in practice;
●
The primary risks that affect the performance
of the portfolio of assets and how these risks
are managed;
●
How the performance of the portfolio is evaluated
and reported to management; and
●
The frequency and significance of financial
asset sales in prior periods, the reasons
for such sales and the expected future sales activities.
Sales in themselves do not determine the business
model and are not considered in isolation.
Instead, sales provide evidence about
how cash flows are realized.
A held-to-collect business model will be reassessed
by the Bank to determine whether
any sales are consistent with an objective
of collecting contractual cash
flows if the sales are more than insignificant
in value or more than infrequent.
Solely Payments of Principal and Interest
Test
In assessing whether contractual cash flows
represent solely payments of principal
and interest (SPPI), the Bank considers
the contractual terms of the instrument.
This includes assessing whether the
financial asset contains contractual terms that
could change the timing or amount of contractual
cash flows such that they
would not be consistent with a basic lending arrangement.
In making the assessment, the Bank considers
the primary terms as follows and assesses
if the
contractual cash flows of the instrument continue
to meet the SPPI test:
●
Performance-linked features;
●
Terms that limit the Bank’s claim to cash flows
from specified assets (non-recourse terms);
●
Prepayment and extension terms;
●
Leverage features;
●
Features that modify elements of the time
value of money; and
●
Sustainability-linked features.
IMPAIRMENT OF FINANCIAL ASSETS
Significant Increase in Credit Risk
For retail exposures, criteria for assessing
significant increase in credit risk are
defined at the appropriate product or
portfolio level and vary based on the
exposure’s credit risk at origination. The criteria
include relative changes in PD, absolute
PD backstop, and delinquency backstop
when contractual payments are
more than 30 days past due. Significant increase
in credit risk since initial recognition
has occurred when one of the criteria is
met.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 105
For non-retail exposures, BRR is determined
on an individual borrower basis using industry
and sector specific credit risk models that
are based on historical
data. Current and forward-looking information
that is specific to the borrower, industry, and sector is considered based on
expert credit judgment. Criteria for
assessing significant increase in credit risk
are defined at the appropriate segmentation
level and vary based on the BRR of the exposure
at origination. Criteria
include relative changes in BRR, absolute
BRR backstop, and delinquency backstop
when contractual payments are more than 30
days past due. Significant
increase in credit risk since initial recognition
has occurred when one of the criteria is
met.
Measurement of Expected Credit Loss
ECLs are recognized on the initial recognition
of financial assets. Allowance for credit losses
represents management’s unbiased estimate
of the risk of default and
ECLs on the financial assets, including any off-balance
sheet exposures, at the balance sheet date.
For retail exposures, ECLs are calculated as
the product of PD, LGD, and EAD at
each time step over the remaining expected
life of the financial asset and
discounted to the reporting date based on
the EIR. PD estimates represent the forward-looking
PD, updated quarterly based on the Bank’s
historical experience,
current conditions, and relevant forward-looking
expectations over the expected life of
the exposure to determine the lifetime PD
curve. LGD estimates are
determined based on historical charge-off events
and recovery payments, current information
about attributes specific to the borrower, and direct
costs. Expected
cash flows from collateral, guarantees, and
other credit enhancements are incorporated
in LGD if integral to the contractual terms.
Relevant macroeconomic
variables are incorporated in determining
expected LGD. EAD represents the expected
balance at default across the remaining
expected life of the exposure. EAD
incorporates forward-looking expectations
about repayments of drawn balances and
future draws where applicable.
For non-retail exposures, ECLs are calculated
based on the present value of cash shortfalls
determined as the difference between contractual
cash flows and
expected cash flows over the remaining expected
life of the financial instrument. Lifetime
PD is determined by mapping the exposure’s
BRR to forward-looking PD
over the expected life. LGD estimates are
determined by mapping the exposure’s FRR
to expected LGD which takes into account
facility-specific characteristics
such as collateral, seniority ranking of debt,
and loan structure. Relevant macroeconomic
variables are incorporated in determining
expected PD and LGD.
Expected cash flows are determined by applying
the PD and LGD estimates to the contractual
cash flows to calculate cash shortfalls over
the expected life of the
exposure.
Forward-Looking Information
In calculating ECLs, the Bank employs internally
developed models that utilize parameters
for PD, LGD, and EAD. Forward-looking
macroeconomic factors
including at the regional level are incorporated
in the risk parameters as relevant.
Additional risk factors that are industry
or segment specific are also incorporated,
where relevant. Forward-looking macroeconomic
forecasts are generated by TD Economics
as part of the ECL process: A base economic
forecast is accompanied
with upside and downside estimates of realistically
possible economic conditions by considering
the sources of uncertainty around the base
forecast. All
macroeconomic forecasts are updated quarterly
for each variable on a regional basis where
applicable and incorporated as relevant
into the quarterly modelling of
base, upside and downside risk parameters
used in the calculation of ECL scenarios and
probability-weighted ECLs. TD Economics
will apply judgment to
recommend probability weights to each forecast
on a quarterly basis. The proposed
macroeconomic forecasts and probability
weightings are subject to robust
management review and challenge process
by a cross-functional committee that
includes representation from TD Economics,
Risk, Finance, and Business. ECLs
calculated under each of the three forecasts are
applied against the respective probability
weightings to determine the probability-weighted
ECLs. Refer to Note 8
for further details on the macroeconomic
variables and ECL sensitivity.
Expert Credit Judgment
Management’s expert credit judgment is used
to determine the best estimate for the qualitative
component contributing to ECLs, based on an assessment
of
business and economic conditions, historical
loss experience, loan portfolio composition,
and other relevant indicators and forward-looking
information that are not
fully incorporated into the model calculation.
There remains elevated economic uncertainty,
and management continues to exercise expert
credit judgment in assessing if an exposure
has experienced
significant increase in credit risk since initial recognition
and in determining the amount of ECLs at
each reporting date.
To
the extent that certain effects are not
fully incorporated into the model calculations,
temporary quantitative and qualitative adjustments
have been applied.
LEASES
The Bank applies judgment in determining
the appropriate lease term on a lease-by-lease
basis. All facts and circumstances that
create an economic incentive to
exercise a renewal option or not to exercise
a termination option including investments
in major leaseholds, branch performance
and past business practice are
considered. The periods covered by renewal
or termination options are only included
in the lease term if it is reasonably certain
that the Bank will exercise the
options; management considers “reasonably
certain”
to be a high threshold. Changes in the economic
environment or changes in the industry
may impact the
Bank’s assessment of lease term, and any changes
in the Bank’s estimate of lease terms
may have a material impact on the Bank’s Consolidated
Balance Sheet
and Consolidated Statement of Income.
In determining the carrying amount of right-of-use
(ROU) assets and lease liabilities,
the Bank is required to estimate the incremental
borrowing rate specific to
each leased asset or portfolio of leased assets
if the interest rate implicit in the lease
is not readily determinable. The Bank
determines the incremental borrowing
rate of each leased asset or portfolio of leased
assets by incorporating the Bank’s creditworthiness,
the security, term, and value of the ROU asset, and the
economic environment in which the leased
asset operates. The incremental borrowing
rates are subject to change mainly due
to changes in the macroeconomic
environment.
FAIR VALUE MEASUREMENTS
The fair value of financial instruments traded
in active markets at the balance
sheet date is based on their quoted market prices.
For all other financial instruments
not traded in an active market, fair value may
be based on other observable current
market transactions involving the same
or similar instruments, without
modification or repackaging, or is based on
a valuation technique which maximizes
the use of observable market inputs. Observable
market inputs may include
interest rate yield curves, foreign exchange
rates, and option volatilities. Valuation techniques include comparisons
with similar instruments where observable
market prices exist, discounted cash flow
analysis, option pricing models, and
other valuation techniques commonly
used by market participants.
For certain complex or illiquid financial instruments,
fair value is determined using valuation
techniques in which current market transactions
or observable
market inputs are not available. Judgment is used
when determining which valuation techniques
to apply, liquidity considerations, and model inputs such as
volatilities, correlations, spreads, discount rates,
pre-payment rates, and prices of underlying
instruments. Any imprecision in these estimates
can affect the
resulting fair value.
Judgment is also used in recording valuation
adjustments to model fair values to account
for system limitations or measurement uncertainty, such as when
valuing complex and less actively traded
financial instruments. If the market for a
complex financial instrument develops,
the pricing for this instrument may
become more transparent, resulting in refinement
of valuation models.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 106
DERECOGNITION OF FINANCIAL ASSETS
Certain financial assets transferred may
qualify for derecognition from the Bank’s Consolidated
Balance Sheet. To qualify for derecognition, certain key
determinations must be made, including
whether the Bank’s rights to receive cash flows
from the financial assets
have been retained or transferred and
the extent
to which the risks and rewards of ownership
of the financial assets have been retained
or transferred. If the Bank neither transfers nor
retains substantially all of
the risks and rewards of ownership of the
financial assets, a decision must be made as
to whether the Bank has retained control of
the financial assets.
Upon derecognition, the Bank will record a gain
or loss on sale of those assets which is
calculated as the difference between the carrying amount
of the asset
transferred and the sum of any cash proceeds
received, including any financial assets received
or financial liabilities assumed, and any
cumulative gains or losses
allocated to the transferred asset that had been
recognized in AOCI. In determining the
fair value of any financial assets received, the
Bank estimates future cash
flows by relying on estimates of the amount
of interest that will be collected on the
securitized assets, the yield to be paid to investors,
the portion of the securitized
assets that will be prepaid before their
scheduled maturity, ECLs, the cost of servicing the assets, and the
rate at which to discount these expected
future cash
flows. Actual cash flows may differ significantly
from those estimated by the Bank.
Retained interests are financial interests in
transferred assets retained by the Bank.
They are classified as trading securities and
are initially recognized at
relative fair value on the Bank’s Consolidated Balance
Sheet. Subsequently, the fair value of retained interests is
determined by estimating the present value
of
future expected cash flows. Differences between
the actual cash flows and the Bank’s estimated
future cash flows are recognized in trading
income (loss). These
assumptions are subject to periodic reviews
and may change due to significant changes
in the economic environment.
GOODWILL
The recoverable amount of the Bank’s cash-generating
units (CGUs) or groups of CGUs is determined
from internally developed valuation
models that consider
various factors and assumptions such as
forecasted earnings, growth rates, discount
rates, and terminal growth rates.
Management is required to use judgment in
estimating the recoverable amount of the
CGUs or groups of CGUs, and the use of
different assumptions and estimates in the
calculations could influence the
determination of the existence of impairment
and the valuation of goodwill. Management
believes that the assumptions and estimates
used are reasonable and
supportable. Where possible, assumptions
generated internally are compared to relevant
market information. The carrying amounts of
the Bank’s CGUs or groups
of CGUs are determined by management
using risk-based capital models to adjust
net assets and liabilities by CGU. These
models consider various factors
including market risk, credit risk, and operational
risk, including investment capital (comprised
of goodwill and other intangibles). Any
capital not directly attributable
to the CGUs is held within the Corporate
segment. The Bank’s capital oversight committees provide
oversight to the Bank’s capital allocation methodologies.
EMPLOYEE BENEFITS
The projected benefit obligation and expense
related to the Bank’s pension and post-retirement
defined benefit plans are determined using
multiple assumptions
that may significantly influence the value of
these amounts. Actuarial assumptions including
discount rates, compensation increases,
health care cost trend rates,
and mortality rates are management’s best estimates
and are reviewed annually with the Bank’s actuaries.
The Bank develops each assumption using
relevant
historical experience of the Bank in conjunction
with market-related data and considers
if the market-related data indicates
there is any prolonged or significant
impact on the assumptions. The discount
rate used to value the projected benefit
obligation is determined by reference
to market yields on high-quality corporate
bonds with terms matching the plans’ specific
cash flows. The other assumptions are also long-term
estimates. All assumptions are subject to
a degree of
uncertainty. Differences between actual experiences and the assumptions,
as well as changes in the assumptions
resulting from changes in future expectations,
result in remeasurement gains and losses
which are recognized in other comprehensive
income (OCI)
during the year and also impact expenses
in future periods.
INCOME TAXES
The Bank is subject to taxation in numerous
jurisdictions. There are many transactions
and calculations in the ordinary course
of business for which the ultimate
tax determination is uncertain. The Bank
maintains provisions for uncertain tax positions
that it believes appropriately reflect the risk of
tax positions under
discussion, audit, dispute, or appeal with
tax authorities, or which are otherwise
considered to involve uncertainty. These provisions are made using
the Bank’s
best estimate of the amount expected to be paid
based on an assessment of all relevant
factors, which are reviewed at the end of
each reporting period. However,
it is possible that at some future date, changes
in these liabilities could result from audits by
the relevant taxing authorities.
Deferred tax assets are recognized only
when it is probable that sufficient taxable profit
will be available in future periods against
which deductible temporary
differences may be utilized. The amount of
the deferred tax asset recognized and considered
realizable could, however, be reduced if projected income is
not
achieved due to various factors, such as
unfavourable business conditions. If projected
income is not expected to be achieved, the
Bank would decrease its
deferred tax assets to the amount that it believes
can be realized. The magnitude of the decrease
is significantly influenced by the Bank’s forecast
of future profit
generation, which determines the extent to
which it will be able to utilize the deferred
tax assets.
PROVISIONS
Provisions arise when there is some uncertainty
in the timing or amount of a loss in the
future. Provisions are based on the Bank’s best estimate
of all
expenditures required to settle its present obligations,
considering all relevant risks and uncertainties,
as well as, when material, the effect of
the time value of
money.
Many of the Bank’s provisions relate to various
legal and regulatory actions that the Bank
is involved in during the ordinary course
of business. Legal and
regulatory provisions require the involvement
of both the Bank’s management and legal counsel
when assessing the probability of a loss and estimating
any
monetary impact. Throughout the life of a provision,
the Bank’s management or legal counsel
may learn of additional information that may impact
its assessments
about the probability of loss or about the estimates
of amounts involved. Changes in these assessments
may lead to changes in the amount recorded
for
provisions. In addition, the actual costs of resolving
these claims may be substantially higher
or lower than the amounts recognized.
The Bank reviews its legal and
regulatory provisions on a case-by-case basis
after considering, among other factors, the
progress of each case, the Bank’s experience,
the experience of others
in similar cases, and the opinions and views of
legal counsel.
Certain of the Bank’s provisions relate to restructuring
initiatives initiated by the Bank. Restructuring
provisions require management’s best estimate,
including
forecasts of economic conditions. Throughout
the life of a provision, the Bank may become
aware of additional information that may impact
the assessment of
amounts to be incurred. Changes in these assessments
may lead to changes in the amount recorded
for restructuring provisions.
INSURANCE
The assumptions used in establishing the Bank’s
insurance contract liabilities are based on best
estimates of possible outcomes.
For property and casualty insurance
contracts, the ultimate cost of LIC is estimated
using a range of standard actuarial claims
projection techniques by the
appointed actuary in accordance with
Canadian accepted actuarial practices. Additional
qualitative judgment is used to assess
the extent to which past trends may
or may not apply in the future, in order to arrive
at the estimated ultimate claims cost
amounts that present the most likely outcome
taking into account all the
uncertainties involved.
For life and health insurance contracts, insurance
contract liabilities consider all future policy
cash flows, including premiums, claims, and
expenses required to
administer the policies. Critical assumptions
used in the measurement of life and health
insurance contract liabilities are determined
by the appointed actuary.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 107
Further information on insurance risk assumptions
is provided in Note 21 of the 2024 Consolidated
Financial Statements.
CONSOLIDATION OF STRUCTURED ENTITIES
Management judgment is required when
assessing whether the Bank should consolidate
an entity. For instance, it may not be feasible to determine if the Bank
controls an entity solely through an assessment
of voting rights for certain structured entities.
In these cases, judgment is required
to establish whether the Bank
has decision-making power over the key
relevant activities of the entity and
whether the Bank has the ability to use that power
to absorb significant variable returns
from the entity. If it is determined that the Bank has both decision-making
power and significant variable returns
from the entity, judgment is also used to determine
whether any such power is exercised by
the Bank as principal, on its own behalf,
or as agent, on behalf of another counterparty.
Assessing whether the Bank has decision-making
power includes understanding the purpose
and design of the entity in order to determine
its key economic
activities. In this context, an entity’s key economic
activities are those which predominantly
impact the economic performance of the
entity. When the Bank has the
current ability to direct the entity’s key economic
activities, it is considered to have decision-making
power over the entity.
The Bank also evaluates its exposure
to the variable returns of a structured entity in
order to determine if it absorbs a significant
proportion of the variable
returns the entity is designed to create. As part
of this evaluation, the Bank considers the purpose
and design of the entity in order to determine
whether it absorbs
variable returns from the structured entity
through its contractual holdings, which
may take the form of securities issued by
the entity, derivatives with the entity, or
other arrangements such as guarantees, liquidity
facilities, or lending commitments.
If the Bank has decision-making power over
the entity and absorbs significant variable returns
from the entity, it then determines if it is acting as principal
or
agent when exercising its decision-making power. Key factors
considered include the scope of its decision-making
power; the rights of other parties involved
with
the entity, including any rights to remove the Bank as decision-maker
or rights to participate in key decisions;
whether the rights of other parties are exercisable
in
practice; and the variable returns absorbed
by the Bank and by other parties involved
with the entity. When assessing consolidation, a presumption exists
that the
Bank exercises decision-making power as principal
if it is also exposed to significant variable
returns, unless an analysis of the
factors above indicates otherwise.
The decisions above are made with reference
to the specific facts and circumstances relevant
for the structured entity and related transaction(s)
under
consideration.
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.
INTEREST RATE BENCHMARK REFORM PHASE 2
Effective November 1, 2020, the Bank was an early adopter
of the Interest Rate Benchmark Reform Phase
2 and no transitional adjustment was required.
Interest Rate Benchmark Reform Phase 2 addresses
issues affecting financial reporting when
changes are made to contractual cash
flows of financial
instruments or hedging relationships
as a result of IBOR reform. The amendments
permit modification to financial assets,
financial liabilities and lease
liabilities required as a direct consequence of IBOR
reform and made on an economically
equivalent basis to be accounted for by updating
the EIR
prospectively. If the modification does not meet the practical expedient
requirements, existing IFRS requirements
are applied. Relief is also provided
for an
entity’s hedge accounting relationships in circumstances
where changes to hedged items and hedging
instruments arise as a result of IBOR reform.
The
amendments enable entities to reflect these
changes without discontinuing, or resulting in
a new formal designation of, the existing
hedging relationship. Permitted
changes include redefining the hedged risk
to reference an ARR (contractually or non-contractually
specified), amending the description of
the hedged item and
hedging instrument to reflect the ARR, and
amending the description of how the entity
will assess hedge effectiveness. Hedging relationships
within the scope of
Interest Rate Benchmark Reform Phase 2
are the same as those within the scope of
Interest Rate Benchmark Reform Phase 1.
Interest Rate Benchmark Reform
Phase 2 also amended IFRS 7, introducing expanded
qualitative and quantitative disclosures about
the risks arising from IBOR reform, how
an entity is managing
those risks, its progress in completing
the transition to ARRs, and how it is managing
the transition.
Interest rate benchmarks (such as the London
Interbank Offered Rate (LIBOR) and the Canadian
Dollar Offered Rate (CDOR)) have been reformed
and
replaced by ARRs. From June 30, 2023, all remaining
USD LIBOR settings (overnight, one-month,
three-month, six-month and twelve-month)
have either ceased
or were published only on a synthetic basis
for the use in legacy contracts that had no other
fallback solution. The remaining settings
of CDOR (one-month, two-
month, and three-month) ceased following
a final publication on June 28, 2024. The Bank’s
exposure to non-derivative financial assets,
non-derivative financial
liabilities, derivative notional amounts and off-balance
sheet commitments referencing CDOR is no
longer significant to its financial statements
as at
October 31, 2024 (October 31, 2023 – $17 billion,
$12 billion, $2,645 billion and $64 billion,
respectively).
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 108
ACCOUNTING STANDARDS AND
POLICIES
C
urrent and Future
Changes in Accounting
Policies
CURRENT CHANGES IN ACCOUNTING
POLICIES
The following new standard was adopted by
the Bank on November 1, 2023.
Insurance Contracts
The IASB issued IFRS 17 which replaced
the guidance in IFRS 4 and became effective
for annual reporting periods beginning on or
after January 1, 2023, which
was November 1, 2023 for the Bank. IFRS 17
establishes principles for recognition,
measurement, presentation and disclosure
of insurance contracts.
The Bank initially applied IFRS 17 on
November 1, 2023 and restated the comparative
period. The Bank transitioned by primarily
applying the full retrospective
approach which resulted in the measurement
of insurance contracts as if IFRS 17
had always applied to them. The following
table sets out adjustments to the
Bank’s insurance-related balances reported under
IFRS 4 as at October 31, 2022 used to derive
the insurance contract liabilities and reinsurance
contract assets
recognized by the Bank as at November
1, 2022 under IFRS 17.
(millions of Canadian dollars)
Amount
Insurance-related liabilities
$
7,468
Other liabilities
131
Other assets
(2,361)
Net insurance-related balances as at October
31, 2022
$
5,238
Changes in actuarial assumptions, including
risk adjustment and discount factor
(192)
Recognition of losses on onerous contracts
113
Other adjustments
(93)
Net insurance-related balances as at November
1, 2022
$
5,066
Insurance contract liabilities
$
5,761
Reinsurance contract assets
(695)
Net insurance-related balances as at November
1, 2022
$
5,066
On November 1, 2022, IFRS 17 transition
adjustments resulted in a decrease
to the Bank’s deferred tax assets of $60 million
and an after-tax increase to retained
earnings of $112 million.
Upon the initial application of IFRS 17 on
November 1, 2023, the Bank applied transitional
guidance and reclassified certain securities
supporting insurance
operations to minimize accounting mismatches
arising from the application of the new discount
factor under IFRS 17. The transitional guidance
for such securities
is applicable for entities that previously used
IFRS 9 and was applied without a restatement
of comparatives. The reclassification resulted
in a decrease to retained
earnings and an increase in AOCI of $10
million.
FUTURE CHANGES IN ACCOUNTING
POLICIES
The following standard and amendments
have been issued but are not yet effective
on the date of issuance of the Bank’s Consolidated
Financial Statements.
Presentation and Disclosure in Financial
Statements
In April 2024, the IASB issued IFRS 18,
Presentation and Disclosure in Financial
Statements
(IFRS 18), which replaces the guidance
in IAS 1,
Presentation of
Financial Statements
and sets out requirements for presentation
and disclosure of information, focusing
on providing relevant information to users
of the financial
statements. IFRS 18 introduces changes
to the structure of the statement of profit
or loss, aggregation and disaggregation of
financial information, and
management-defined performance
measures to be disclosed in the notes to
the financial statements. It will be effective for the Bank’s annual
period beginning
November 1, 2027. Early application is permitted.
The standard will be applied retrospectively
with restatement of comparatives.
The Bank is currently assessing
the impact of adopting this standard.
Amendments to the Classification and Measurement
of Financial Instruments
In May 2024, the IASB issued
Amendments to the Classification
and Measurement of Financial Instruments,
which amended IFRS 9 and IFRS 7
.
The
amendments address matters identified during
the post-implementation review of the
classification and measurement requirements
of IFRS 9. The amendments
clarify how to assess the contractual
cash flow characteristics of financial assets
that include environmental, social, and governance
linked features and other
similar contingent features. The amendments
also clarify the treatment of non-recourse
assets and contractually linked instruments.
Furthermore, the amendments
clarify that a financial liability is derecognized
on the settlement date and provide an accounting
policy choice to derecognize a financial liability
settled using an
electronic payment system before the
settlement date if certain conditions are
met. Finally, the amendments introduce additional disclosure requirements
for
financial instruments with contingent
features and equity instruments classified at
FVOCI.
The amendments will be effective for the Bank’s annual
period beginning November 1, 2026. Early
adoption is permitted, with an option to early
adopt the
amendments related to the classification
of financial assets and associated disclosures
only.
The Bank is required to apply the amendments
retrospectively, but is
not required to restate prior periods. The Bank
is currently assessing the impact of adopting
these amendments.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 109
ACCOUNTING STANDARDS
AND POLICIES
Controls and Procedures
DISCLOSURE CONTROLS AND PROCEDURES
An evaluation was performed under the supervision
and with the participation of the Bank’s
management, including the Chief Executive
Officer and Chief Financial
Officer, of the effectiveness of the Bank’s disclosure controls and procedures,
as defined in the rules of the SEC and
Canadian Securities Administrators, as of
October 31, 2024. Based on that evaluation,
the Bank’s management, including the Chief Executive
Officer and Chief Financial Officer, concluded that the Bank’s
disclosure controls and procedures were effective
as of October 31, 2024.
MANAGEMENT’S REPORT ON INTERNAL
CONTROL OVER FINANCIAL REPORTING
The Bank’s management is responsible for establishing
and maintaining adequate internal control
over financial reporting for the Bank.
The Bank’s internal control
over financial reporting includes those policies
and procedures that (1) pertain to the
maintenance of records, that, in reasonable
detail, accurately and fairly reflect
the transactions and dispositions of the assets
of the Bank; (2) provide reasonable assurance
that transactions are recorded as necessary
to permit preparation of
financial statements in accordance with
IFRS, and that receipts and expenditures
of the Bank are being made only in accordance
with authorizations of the Bank’s
management and directors; and (3) provide
reasonable assurance regarding prevention
or timely detection of unauthorized acquisition,
use, or disposition of the
Bank’s assets that could have a material effect on the
financial statements.
The Bank’s management has used the criteria established
in the 2013 Internal Control – Integrated
Framework issued by the Committee of
Sponsoring
Organizations of the Treadway Commission to assess,
with the participation of the Chief Executive
Officer and Chief Financial Officer, the effectiveness of the
Bank’s internal control over financial reporting.
Based on this assessment management
has concluded that as at October 31, 2024,
the Bank’s internal control over
financial reporting was effective based on the applicable
criteria. The effectiveness of the Bank’s internal control
over financial reporting has been audited by
the
independent auditors, Ernst & Young LLP, a registered public accounting firm that has also audited the Consolidated
Financial Statements of the Bank as of, and
for the year ended October 31, 2024. Their Report
on Internal Control over Financial Reporting
under Standards of the Public Company
Accounting Oversight
Board (United States),
included in the Report of Independent
Registered Public Accounting Firm - Internal
Control over Financial Reporting,
expresses an
unqualified opinion on the effectiveness of
the Bank’s internal control over financial reporting
as of October 31, 2024.
CHANGES IN INTERNAL CONTROL OVER
FINANCIAL REPORTING
During the year and quarter ended October 31,
2024, 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.
Refer to Note 2 and Note 3 of the Bank’s 2024
Consolidated Financial Statements for further
information regarding the Bank’s changes
to accounting policies,
procedures, and estimates.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 110
Additional Financial Information
Unless otherwise indicated, all amounts are
expressed in Canadian dollars and have
been primarily derived from the Bank’s 2024
Consolidated Financial
Statements,
prepared in accordance with IFRS as issued
by the IASB.
TABLE 59: SELECT ANNUAL
INFORMATION
1
(millions of Canadian dollars, except
as noted)
2024
2023
2022
Total revenue
$
57,223
$
50,690
$
49,032
Net income available to common shareholders
8,316
10,071
17,170
Basic earnings per share
4.73
5.53
9.48
Diluted earnings per share
4.72
5.52
9.47
Dividends declared per common share
4.08
3.84
3.56
Total Assets (billions of Canadian
dollars)
2,061.8
1,955.1
1,917.5
Deposits (billions of Canadian dollars)
1,268.7
1,198.2
1,230.0
1
For the year ended October 31, 2023, certain amounts have been restated for the adoption of IFRS 17. Refer to
Note 4 of the Bank’s 2024 Consolidated Financial Statements for further
details.
TABLE 60: INVESTMENT PORTFOLIO
– Securities Maturity Schedule
1,2
(millions of Canadian dollars)
Remaining terms to maturities
3
Over 1
Over 3
Over 5
With no
Within
year to
years to
years to
Over 10
specific
1 year
3 years
5 years
10 years
years
maturity
Total
October 31
October 31
2024
2023
Securities at fair value through other comprehensive income
Government and government-
related securities
Canadian government debt
Federal
Fair value
$
4,587
$
1,070
$
3,447
$
8,651
$
384
$
–
$
18,139
$
18,210
Amortized cost
4,584
1,065
3,451
8,733
448
–
18,281
18,334
Yield
1.06
%
1.16
%
2.51
%
2.98
%
2.92
%
–
%
2.30
%
2.26
%
Provinces
Fair value
2,807
2,376
6,346
9,609
132
–
21,270
19,940
Amortized cost
2,796
2,366
6,314
9,653
134
–
21,263
19,953
Yield
2.25
%
2.56
%
2.29
%
2.92
%
4.31
%
–
%
2.61
%
2.56
%
U.S. federal government debt
Fair value
16,801
3,093
1,770
7,839
–
–
29,503
4,676
Amortized cost
16,802
3,098
1,780
7,873
–
–
29,553
4,738
Yield
4.33
%
1.98
%
3.74
%
4.22
%
–
%
–
%
4.02
%
1.90
%
U.S. states, municipalities, and agencies
Fair value
3,036
240
10
340
2,068
–
5,694
6,326
Amortized cost
3,035
244
10
340
2,189
–
5,818
6,522
Yield
0.01
%
2.74
%
4.09
%
4.84
%
4.68
%
–
%
2.17
%
2.30
%
Other OECD government-guaranteed debt
Fair value
863
521
173
122
–
–
1,679
1,498
Amortized cost
870
520
174
123
–
–
1,687
1,521
Yield
0.97
%
2.40
%
2.70
%
3.80
%
–
%
–
%
1.80
%
1.59
%
Canadian mortgage-backed securities
Fair value
5
1,539
593
–
–
–
2,137
2,277
Amortized cost
5
1,533
587
–
–
–
2,125
2,313
Yield
4.55
%
2.33
%
2.68
%
–
%
–
%
–
%
2.43
%
3.25
%
Other debt securities
Asset-backed securities
Fair value
–
–
38
94
1,252
–
1,384
4,114
Amortized cost
–
–
39
95
1,263
–
1,397
4,146
Yield
–
%
–
%
5.67
%
6.09
%
5.76
%
–
%
5.78
%
3.92
%
Non-agency CMO
4
Fair value
–
–
–
–
–
–
–
–
Amortized cost
–
–
–
–
–
–
–
–
Yield
–
%
–
%
–
%
–
%
–
%
–
%
–
%
–
%
Corporate and other debt
Fair value
1,391
2,600
1,679
2,097
1,679
–
9,446
8,890
Amortized cost
1,391
2,595
1,675
2,082
1,675
1
9,419
8,945
Yield
2.31
%
1.97
%
3.29
%
3.02
%
4.88
%
–
%
3.01
%
3.76
%
Equity securities
Common shares
Fair value
–
–
–
–
–
3,914
3,914
3,170
Cost
–
–
–
–
–
3,810
3,810
3,190
Yield
–
%
–
%
–
%
–
%
–
%
5.59
%
5.59
%
4.07
%
Preferred shares
Fair value
–
–
–
–
–
501
501
343
Cost
–
–
–
–
–
632
632
567
Yield
–
%
–
%
–
%
–
%
–
%
3.82
%
3.82
%
3.02
%
Total securities at fair value through other comprehensive
income
Fair value
$
29,490
$
11,439
$
14,056
$
28,752
$
5,515
$
4,415
$
93,667
$
69,444
Amortized cost
29,483
11,421
14,030
28,899
5,709
4,443
93,985
70,229
Yield
2.98
%
2.10
%
2.68
%
3.34
%
4.83
%
5.34
%
3.16
%
2.72
%
1
Yields represent the weighted-average yield of each security owned at the end of the period. The effective yield includes the contractual
interest or stated dividend rate and is adjusted for the amortization of premiums and
discounts; the effect of related hedging activities is excluded.
2
There were no securities from a single issuer where the book value was greater than 10% as at October
31, 2024 and October 31, 2023.
3
Represents contractual maturities. Actual maturities may differ due to prepayment privileges in the
applicable contract.
4
Collateralized mortgage
obligation.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 111
TABLE 60: INVESTMENT PORTFOLIO
– Securities Maturity Schedule
(continued)
1,2
(millions of Canadian dollars)
Remaining terms to maturities
3
Over 1
Over 3
Over 5
With no
Within
year to
years to
years to
Over 10
specific
1 year
3 years
5 years
10 years
years
maturity
Total
October 31
October 31
2024
2023
Debt securities at amortized cost
Government and government-related
securities
Canadian government debt
Federal
Fair value
$
1,856
$
12,336
$
5,243
$
2,077
$
1,313
$
–
$
22,825
$
24,898
Amortized cost
1,858
12,431
5,222
2,095
1,385
–
22,991
25,344
Yield
1.49
%
2.04
%
2.56
%
2.80
%
4.83
%
–
%
2.35
%
3.07
%
Provinces
Fair value
1,581
2,472
5,169
9,292
–
–
18,514
17,291
Amortized cost
1,587
2,496
5,192
9,339
–
–
18,614
17,474
Yield
1.17
%
2.00
%
2.74
%
3.07
%
–
%
–
%
2.67
%
2.28
%
U.S. federal government and agencies debt
Fair value
852
12,636
22,464
–
13,329
–
49,281
65,386
Amortized cost
928
13,370
23,560
–
13,468
–
51,326
68,413
Yield
2.62
%
0.66
%
1.35
%
–
%
2.14
%
–
%
1.40
%
1.19
%
U.S. states, municipalities, and agencies
Fair value
2,628
5,490
4,485
27,113
30,531
–
70,247
73,604
Amortized cost
2,637
5,658
4,597
28,363
31,518
–
72,773
77,804
Yield
2.70
%
1.96
%
2.89
%
1.84
%
5.38
%
–
%
3.48
%
3.67
%
Other OECD government-guaranteed debt
Fair value
12,027
18,015
7,946
2,921
–
–
40,909
39,781
Amortized cost
11,134
18,391
7,133
2,736
–
–
39,394
41,269
Yield
1.02
%
1.15
%
3.14
%
3.04
%
–
%
–
%
1.61
%
1.36
%
Other debt securities
Asset-backed securities
Fair value
49
6,606
3,697
6,658
12,412
–
29,422
38,619
Amortized cost
49
6,653
3,821
6,734
12,451
–
29,708
39,888
Yield
6.61
%
2.57
%
2.57
%
4.85
%
5.71
%
–
%
4.41
%
4.30
%
Non-agency CMO
Fair value
–
–
–
206
14,668
–
14,874
15,779
Amortized cost
–
–
–
209
15,153
–
15,362
16,791
Yield
–
%
–
%
–
%
2.97
%
3.02
%
–
%
3.02
%
3.01
%
Canadian issuers
Fair value
308
2,801
393
1,118
–
–
4,620
4,341
Amortized cost
309
2,899
392
1,122
–
–
4,722
4,552
Yield
3.85
%
1.94
%
2.68
%
1.81
%
–
%
–
%
2.10
%
2.28
%
Other issuers
Fair value
2,329
5,745
5,510
1,900
–
–
15,484
15,511
Amortized cost
2,547
6,099
6,044
2,035
–
–
16,725
16,481
Yield
2.15
%
2.32
%
2.23
%
3.02
%
–
%
–
%
2.71
%
2.80
%
Total debt securities at amortized cost
Fair value
$
21,630
$
66,101
$
54,907
$
51,285
$
72,253
$
–
$
266,176
$
295,210
Amortized cost
21,049
67,997
55,961
52,633
73,975
–
271,615
308,016
Yield
1.55
%
1.59
%
2.24
%
2.59
%
4.35
%
–
%
2.67
%
2.66
%
1
Yields represent the weighted-average yield of each security owned at the end of the period. The effective yield includes
the contractual interest or stated
dividend rate and is adjusted for the amortization of premiums and
discounts; the effect of related hedging activities is excluded.
2
There were no securities from a single issuer where the book value was greater than 10% as at
October 31, 2024 and October 31, 2023.
3
Represents contractual maturities. Actual maturities may differ due to prepayment privileges in the applicable contract.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 112
TABLE 61: LOAN PORTFOLIO – Maturity Schedule
(millions of Canadian dollars)
As at
Remaining term-to-maturity
Within 1
Over 1 to 5
Over 5 years
Over
year
years
to 15 years
15 years
Total
October 31
October 31
2024
2023
Canada
Residential mortgages
$
51,833
$
218,132
$
3,097
$
7
$
273,069
$
263,733
Consumer instalment and other personal
HELOC
56,781
66,195
60
–
123,036
117,618
Indirect auto
837
14,958
14,042
–
29,837
28,786
Other
18,186
631
1,068
–
19,885
18,587
Credit card
20,510
–
–
–
20,510
18,815
Total personal
148,147
299,916
18,267
7
466,337
447,539
Real estate
Residential
14,500
11,220
2,152
2
27,874
27,784
Non-residential
13,813
9,841
2,308
–
25,962
24,849
Total real estate
28,313
21,061
4,460
2
53,836
52,633
Total business and government
(including real estate)
102,619
54,112
7,187
40
163,958
156,217
Total loans – Canada
250,766
354,028
25,454
47
630,295
603,756
United States
Residential mortgages
748
494
1,922
55,416
58,580
56,548
Consumer instalment and other personal
HELOC
8,938
82
782
1,723
11,525
10,585
Indirect auto
502
24,750
17,729
–
42,981
41,051
Other
232
864
5
(2)
1,099
901
Credit card
20,123
–
–
–
20,123
19,839
Total personal
30,543
26,190
20,438
57,137
134,308
128,924
Real estate
Residential
2,872
6,853
3,604
398
13,727
11,958
Non-residential
5,813
16,567
4,919
853
28,152
28,537
Total real estate
8,685
23,420
8,523
1,251
41,879
40,495
Total business and government
(including real estate)
47,985
89,120
38,408
7,594
183,107
178,259
Total loans – United States
78,528
115,310
58,846
64,731
317,415
307,183
Other International
Personal
25
–
–
–
25
19
Business and government
6,878
2,151
1,109
–
10,138
10,024
Total loans – Other international
6,903
2,151
1,109
–
10,163
10,043
Other loans
Debt securities classified as loans
–
–
–
–
–
–
Acquired credit-impaired loans
–
–
–
–
–
91
Total other loans
–
–
–
–
–
91
Total loans
$
336,197
$
471,489
$
85,409
$
64,778
$
957,873
$
921,073
TABLE 62: LOAN PORTFOLIO – Rate Sensitivity
(millions of Canadian dollars)
As at
October 31, 2024
October 31, 2023
Over 1 to
Over 5 to
Over
Over 1 to
Over 5 to
Over
5 years
15 years
15 years
5 years
15 years
15 years
Fixed rate
$
302,548
$
68,990
$
44,741
$
290,973
$
69,964
$
44,764
Variable rate
168,941
16,419
20,037
185,130
18,607
17,663
Total
$
471,489
$
85,409
$
64,778
$
476,103
$
88,571
$
62,427
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 113
TABLE 63: ALLOWANCE FOR LOAN LOSSES
(millions of Canadian dollars, except as noted)
2024
2023
Allowance for loan losses – Balance at beginning of year
$
7,136
$
6,432
Provision for credit losses
4,253
2,933
Write-offs
Canada
Residential mortgages
5
6
Consumer instalment and other personal
HELOC
8
5
Indirect Auto
437
293
Other
281
225
Credit card
587
457
Total personal
1,318
986
Real estate
Residential
3
2
Non-residential
4
1
Total real estate
7
3
Total business and government (including real estate)
264
128
Total Canada
1,582
1,114
United States
Residential mortgages
3
4
Consumer instalment and other personal
HELOC
3
5
Indirect Auto
501
325
Other
266
251
Credit card
1,293
968
Total personal
2,066
1,553
Real estate
Residential
8
2
Non-residential
100
61
Total real estate
108
63
Total business and government (including real estate)
336
179
Total United States
2,402
1,732
Other International
Personal
–
–
Business and government
–
–
Total other international
–
–
Other loans
Debt securities classified as loans
–
–
Acquired credit-impaired loans
1,2
–
–
Total other loans
–
–
Total write-offs against portfolio
3,984
2,846
Recoveries
Canada
Residential mortgages
–
–
Consumer instalment and other personal
HELOC
1
2
Indirect Auto
77
82
Other
47
45
Credit card
107
95
Total personal
232
224
Real estate
Residential
–
–
Non-residential
–
–
Total real estate
–
–
Total business and government (including real estate)
23
19
Total Canada
255
243
United States
Residential mortgages
1
3
Consumer instalment and other personal
HELOC
3
4
Indirect Auto
163
134
Other
32
31
Credit card
212
193
Total personal
411
365
Real estate
Residential
2
1
Non-residential
14
1
Total real estate
16
2
Total business and government (including real estate)
41
26
Total United States
452
391
Other International
Personal
–
–
Business and government
–
–
Total other international
–
–
Other loans
Debt securities classified as loans
–
–
Acquired credit-impaired loans
1,2
–
1
Total other loans
–
1
Total recoveries on portfolio
707
635
Net write-offs
(3,277)
(2,211)
Disposals
(39)
–
Foreign exchange and other adjustments
15
100
Total allowance for loan losses, including off-balance sheet
positions
8,088
7,254
Less: Change in allowance for off-balance sheet positions
3
(6)
118
Total allowance for loan losses, at end of period
$
8,094
$
7,136
Ratio of net write-offs in the period to average loans outstanding
0.35
%
0.25
%
1
Includes all FDIC covered loans and other ACI loans.
2
Other adjustments are required as a result of the accounting for FDIC covered loans.
3
The allowance for loan losses for off-balance sheet positions is recorded in Other liabilities on the Consolidated
Balance Sheet.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 114
TABLE 64: AVERAGE DEPOSITS
(millions of Canadian dollars, except as noted)
For the years ended
October 31, 2024
October 31, 2023
Total
Total
Average
interest
Average
Average
interest
Average
balance
expense
rate paid
balance
expense
rate paid
Deposits booked in Canada
1
Non-interest-bearing demand deposits
$
18,246
$
–
–
%
$
21,354
$
–
–
%
Interest-bearing demand deposits
87,264
7,291
8.36
84,808
4,231
4.99
Notice deposits
312,014
1,595
0.51
320,061
2,325
0.73
Term deposits
383,720
16,730
4.36
335,069
14,049
4.19
Total deposits booked in Canada
801,244
25,616
3.20
761,292
20,605
2.71
Deposits booked in the United States
Non-interest-bearing demand deposits
11,233
–
–
12,611
–
–
Interest-bearing demand deposits
34,784
1,377
3.96
27,067
953
3.52
Notice deposits
363,171
8,780
2.42
406,534
7,869
1.94
Term deposits
131,054
6,985
5.33
119,670
5,760
4.81
Total deposits booked in the United States
540,242
17,142
3.17
565,882
14,582
2.58
Deposits booked in the other international
Non-interest-bearing demand deposits
5
–
–
24
–
–
Interest-bearing demand deposits
1,532
81
5.29
32
3
9.38
Notice deposits
–
–
–
–
–
–
Term deposits
79,611
4,021
5.05
79,229
3,161
3.99
Total deposits booked in other international
81,148
4,102
5.05
79,285
3,164
3.99
Total average deposits
$
1,422,634
$
46,860
3.29
%
$
1,406,459
$
38,351
2.73
%
1
As at October 31, 2024, deposits by foreign depositors in TD’s Canadian bank offices
amounted to $218 billion (October 31, 2023 – $187 billion).
TABLE 65: DEPOSITS – Denominations of $100,000
or greater
1
(millions of Canadian dollars)
As at
Remaining term-to-maturity
Within 3
3 months to
6 months to
Over 12
months
6 months
12 months
months
Total
October 31, 2024
Canada
$
87,189
$
39,584
$
68,581
$
162,097
$
357,451
United States
2
41,824
33,614
27,596
3,336
106,370
Other international
36,401
9,911
35,960
258
82,530
Total
$
165,414
$
83,109
$
132,137
$
165,691
$
546,351
October 31, 2023
Canada
$
72,295
$
37,289
$
51,887
$
148,244
$
309,715
United States
2
48,481
24,335
36,868
3,939
113,623
Other international
32,895
18,287
37,304
142
88,628
Total
$
153,671
$
79,911
$
126,059
$
152,325
$
511,966
1
Deposits in Canada, U.S., and Other international include wholesale and retail deposits.
2
Includes deposits based on denominations of US$250,000 or greater of $36.9 billion in ‘within 3 months’, $30.5
billion in ‘over 3 months to 6 months’, $30.0 billion in ‘over 6 months to
12 months’, and $3.2 billion in ‘over 12 months’ (October 31, 2023 – $44.9 billion in ‘within 3 months’, $21.2 billion
in ‘over 3 months to 6 months’, $34.8 billion in ‘over 6 months to
12 months’, $3.3 billion in ‘over 12 months’).
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 115
TABLE 66: NET INTEREST INCOME ON
AVERAGE INTEREST-EARNING BALANCES
1,2
(millions of Canadian dollars, except as noted)
2024
2023
Average
Average
Average
Average
balance
Interest
3
rate
balance
Interest
3
rate
Interest-earning assets
Interest-bearing deposits with Banks
Canada
$
29,251
$
1,833
6.27
%
$
40,932
$
2,417
5.90
%
U.S.
72,331
3,446
4.76
58,220
2,433
4.18
Securities
Trading
Canada
77,792
3,110
4.00
79,415
3,209
4.04
U.S.
26,410
999
3.78
24,377
1,006
4.13
Non-trading
Canada
117,514
6,067
5.16
109,955
5,452
4.96
U.S.
226,820
10,293
4.54
268,597
9,988
3.72
Securities purchased under reverse
repurchase agreements
Canada
86,905
4,253
4.89
84,646
3,869
4.57
U.S.
74,237
4,837
6.52
61,839
3,630
5.87
Loans
Residential mortgages
4
Canada
287,609
12,772
4.44
266,016
10,882
4.09
U.S.
56,771
2,203
3.88
51,329
1,802
3.51
Consumer instalment and other personal
Canada
165,582
8,377
5.06
158,980
6,244
3.93
U.S.
52,340
3,243
6.20
47,692
2,405
5.04
Credit card
Canada
20,581
2,712
13.18
18,683
2,393
12.81
U.S.
18,953
3,652
19.27
18,226
3,384
18.57
Business and government
4
Canada
173,410
10,364
5.98
151,034
8,152
5.40
U.S.
163,744
10,097
6.17
156,970
8,985
5.72
International
5
124,093
5,131
4.13
121,324
4,423
3.65
Total interest-earning assets
6
1,774,343
93,389
5.26
1,718,235
80,674
4.70
Interest-bearing liabilities
Deposits
Personal
7
Canada
328,798
7,124
2.17
314,227
4,852
1.54
U.S.
264,636
7,647
2.89
283,287
6,335
2.24
Banks
8,9
Canada
20,121
1,078
5.36
19,939
1,098
5.51
U.S.
24,319
908
3.73
25,486
942
3.70
Business and government
8,9
Canada
394,345
17,414
4.42
360,857
14,655
4.06
U.S.
179,530
8,587
4.78
175,719
7,305
4.16
Subordinated notes and debentures
10,417
436
4.19
11,112
436
3.92
Obligations related to securities sold short
and under repurchase agreements
Canada
77,529
3,596
4.64
83,935
3,662
4.36
U.S.
109,960
7,015
6.38
78,421
4,408
5.62
Securitization liabilities
10
30,503
1,002
3.28
27,629
915
3.31
Other liabilities
Canada
4,092
156
3.81
3,796
126
3.32
U.S.
20,321
1,137
5.60
17,162
817
4.76
International
8,9
135,392
6,817
5.04
127,126
5,179
4.07
Total interest-bearing liabilities
6
1,599,963
62,917
3.93
1,528,696
50,730
3.32
Total interest-earning assets, net interest
income, and net interest margin
$
1,774,343
$
30,472
1.72
%
$
1,718,235
$
29,944
1.74
%
Add: non-interest earning assets
201,032
–
–
203,948
–
–
Total assets, net interest income and
margin
$
1,975,375
$
30,472
1.54
%
$
1,922,183
$
29,944
1.56
%
1
Net interest income includes dividends on securities.
2
Geographic classification of assets and liabilities is based on the domicile of the booking point of assets and liabilities.
3
Interest income includes loan fees earned by the Bank, which are recognized in net interest income over the life
of the loan through the effective interest rate method (EIRM).
4
Includes average trading loans of $20 billion (2023 – $15 billion).
5
Comprised of interest-bearing deposits with Banks, securities, securities purchased under reverse repurchase
agreements, and business and government loans.
6
Average interest-earning assets and average interest-bearing liabilities are non-GAAP financial measures
that depict the Bank’s financial position, and are calculated using daily
balances. For additional information about the Bank’s use of non-GAAP financial measures, refer to “Non
-GAAP and Other Financial Measures” in the “Financial Results Overview”
section of this document.
7
Includes charges incurred on the Schwab IDA Agreement of $0.9 billion (2023 – $0.9 billion).
8
Includes average trading deposits with a fair value of $31 billion (2023 – $26 billion).
9
Includes average deposit designated at FVTPL of $188 billion (2023 – $188 billion).
10
Includes average securitization liabilities at fair value of $18 billion (2023
– $13 billion) and average securitization liabilities at amortized cost of $13 billion (2023 – $14
billion).
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 116
The following table presents an analysis of the
change in net interest income due to volume
and interest rate changes. In this analysis,
changes due to
volume/interest rate variance have been
allocated to average interest rate.
TABLE 67: ANALYSIS OF CHANGE
IN NET INTEREST INCOME
1,2
(millions of Canadian dollars)
2024 vs. 2023
Increase (decrease) due to changes in
Average volume
Average rate
Net change
Interest-earning assets
Interest-bearing deposits with banks
Canada
$
(690)
$
106
$
(584)
U.S.
590
423
1,013
Securities
Trading
Canada
(66)
(33)
(99)
U.S.
84
(91)
(7)
Non-trading
Canada
375
240
615
U.S.
(1,553)
1,858
305
Securities purchased under reverse
repurchase agreements
Canada
103
281
384
U.S.
728
479
1,207
Loans
Residential mortgages
Canada
883
1,007
1,890
U.S.
191
210
401
Consumer instalment and other personal
Canada
259
1,874
2,133
U.S.
234
604
838
Credit card
Canada
243
76
319
U.S.
135
133
268
Business and government
Canada
1,208
1,004
2,212
U.S.
388
724
1,112
International
30
678
708
Total interest income
3,142
9,573
12,715
Interest-bearing liabilities
Deposits
Personal
Canada
225
2,047
2,272
U.S.
(418)
1,730
1,312
Banks
Canada
10
(30)
(20)
U.S.
(43)
9
(34)
Business and government
Canada
1,360
1,399
2,759
U.S.
158
1,124
1,282
Subordinated notes and debentures
(27)
27
–
Obligations related to securities sold
short and under repurchase agreements
Canada
(280)
214
(66)
U.S.
1,773
834
2,607
Securitization liabilities
95
(8)
87
Other liabilities
Canada
10
20
30
U.S.
150
170
320
International
362
1,276
1,638
Total interest expense
3,375
8,812
12,187
Net interest income
$
(233)
$
761
$
528
1
Geographic classification of assets and liabilities is based on the domicile of the booking point of assets and liabilities.
2
Interest income includes loan fees earned by the Bank, which are recognized in net interest income over the life
of the loan through the EIRM.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 117
GLOSSARY
Financial and Banking Terms
Adjusted Results:
Non-GAAP financial measures
used to assess each of the
Bank’s businesses and to measure the Bank’s overall
performance. To arrive at
adjusted results, the Bank adjusts for “items
of note”, from reported results. The
items of note relate to items which management
does not believe are indicative
of underlying business performance.
Allowance for Credit Losses:
Represent expected credit losses (ECLs)
on
financial assets, including any off-balance sheet
exposures, at the balance
sheet date. Allowance for credit losses consists
of Stage 3 allowance for
impaired financial assets and Stage 2 and
Stage 1 allowance for performing
financial assets and off-balance sheet instruments.
The allowance is increased
by the provision for credit losses,
decreased by write-offs net of recoveries and
disposals,
and impacted by foreign exchange.
Amortized Cost:
The amount at which a financial asset or
financial liability is
measured at initial recognition minus principal
repayments, plus or minus the
cumulative amortization, using EIRM, of any
differences between the initial
amount and the maturity amount, and
minus any reduction for impairment.
Assets under Administration (AUA):
Assets that are beneficially owned by
customers where the Bank provides services
of an administrative nature, such
as the collection of investment income and
the placing of trades on behalf of the
clients (where the client has made his or
her own investment selection). The
majority of these assets are not reported on
the Bank’s Consolidated Balance
Sheet.
Assets under Management (AUM):
Assets that are beneficially owned by
customers, managed by the Bank, where
the Bank has discretion to make
investment selections on behalf of the
client (in accordance with an investment
policy). In addition to the TD family of mutual
funds, the Bank manages assets
on behalf of individuals, pension funds, corporations,
institutions, endowments
and foundations. These assets are not reported
on the Bank’s Consolidated
Balance Sheet. Some assets under management
that are also administered by
the Bank are included in assets under administration.
Asset-Backed Commercial Paper (ABCP):
A form of commercial paper that is
collateralized by other financial assets.
Institutional investors usually purchase
such instruments in order to diversify their assets
and generate short-term
gains.
Asset-Backed Securities (ABS):
A security whose value and income
payments are derived from and collateralized
(or “backed”) by a specified pool
of underlying assets.
Average Common Equity:
Average common equity for the business
segments
reflects the average allocated capital. The
Bank’s methodology for allocating
capital to its business segments is largely aligned
with the common equity
capital requirements under Basel III.
Average Interest-Earning Assets:
A non-GAAP financial measure that depicts
the Bank’s financial position, and is calculated
as the average carrying value of
deposits with banks, loans and securities based
on daily balances for the period
ending October 31 in each fiscal year.
Basic Earnings per Share (EPS)
: A performance measure calculated by
dividing net income attributable to common
shareholders by the weighted
average number of common shares outstanding
for the period. Adjusted basic
EPS is calculated in the same manner using
adjusted net income.
Basis Points
(bps):
A unit equal to 1/100 of 1%. Thus, a 1%
change is equal to
100 basis points.
Book Value per Share:
A measure calculated by dividing common
shareholders’
equity by number of common shares at the
end of the period.
Carrying Value:
The value at which an asset or liability
is carried at on the
Consolidated Balance Sheet.
Catastrophe Claims:
Insurance claims that relate to any single
event that
occurred in the period, for which the aggregate
insurance claims are equal to
or greater than an internal threshold of $5
million before reinsurance. The
Bank’s internal threshold may change from time
to time.
Collateralized Mortgage Obligation (CMO):
They are collateralized debt
obligations consisting of mortgage-backed
securities that are separated and
issued as different classes of mortgage pass-through
securities with different
terms, interest rates, and risks. CMOs by private
issuers are collectively
referred to as non-agency CMOs.
Common Equity Tier 1 (CET1) Capital:
This is a primary Basel III capital
measure comprised mainly of common equity, retained earnings and
qualifying
non-controlling interest in subsidiaries. Regulatory
deductions made to arrive
at the CET1 Capital include goodwill
and intangibles, unconsolidated
investments in banking, financial, and insurance
entities, deferred tax assets,
defined benefit pension fund assets, and
shortfalls in allowances.
Common Equity Tier 1 (CET1) Capital Ratio:
CET1 Capital ratio represents
the predominant measure of capital adequacy
under Basel III
and equals CET1 Capital divided by RWA.
Compound Annual Growth Rate (CAGR):
A measure of growth over multiple
time periods from the initial investment value
to the ending investment value
assuming that the investment has been compounding
over the time period.
Credit Valuation Adjustment (CVA):
CVA represents a capital charge that
measures credit risk due to default of derivative
counterparties. This charge
requires banks to capitalize for the potential
changes in counterparty credit
spread for the derivative portfolios.
Diluted EPS
: A performance measure calculated by dividing
net income
attributable to common shareholders by the
weighted average number of
common shares outstanding adjusting
for the effect of all potentially dilutive
common shares. Adjusted diluted EPS is
calculated in the same manner using
adjusted net income.
Dividend Payout Ratio
: A ratio represents the percentage of
Bank’s earnings
being paid to common shareholders in
the form of dividends and is calculated
by dividing common dividends by net income
available to common
shareholders. Adjusted dividend payout ratio
is calculated in the same manner
using adjusted net income.
Dividend Yield:
A ratio calculated as the dividend per
common share for the
year divided by the daily average closing
stock price during the year.
Effective Income Tax Rate:
A rate and performance indicator calculated
by
dividing the provision for income taxes as a percentage
of net income before
taxes. Adjusted effective income tax rate is calculated
in the same manner
using adjusted results.
Effective Interest Rate (EIR):
The rate that discounts expected future cash
flows for the expected life of the financial instrument
to its carrying value. The
calculation takes into account the contractual
interest rate, along with any fees
or incremental costs that are directly
attributable to the instrument and all other
premiums or discounts.
Effective Interest Rate Method (EIRM):
A technique for calculating the actual
interest rate in a period based on the amount
of a financial instrument’s book
value at the beginning of the accounting period.
Under EIRM,
the effective
interest rate, which is a key component of
the calculation, discounts the
expected future cash inflows and outflows expected
over the life of a financial
instrument.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 118
Efficiency Ratio:
The efficiency ratio measures operating efficiency and
is
calculated by taking the non-interest expenses
as a percentage of total revenue.
A lower ratio indicates a more efficient business
operation. Adjusted efficiency
ratio is calculated in the same manner using
adjusted non-interest expenses
and total revenue.
Enhanced Disclosure Task Force (EDTF):
Established by the Financial
Stability Board in May 2012, comprised of
banks, analysts, investors, and
auditors, with the goal of enhancing the risk
disclosures of banks and other
financial institutions.
Expected Credit Losses (ECLs):
ECLs are the probability-weighted present
value of expected cash shortfalls over
the remaining expected life of the
financial instrument and considers reasonable
and supportable information
about past events, current conditions, and forecasts
of future events and
economic conditions that impact the Bank’s
credit risk assessment.
Fair Value:
The price that would be received to sell an
asset or paid to transfer
a liability in an orderly transaction between
market participants at the
measurement date, under current market
conditions.
Fair value through other comprehensive
income (FVOCI):
Under IFRS 9, if
the asset passes the contractual cash
flows test (named SPPI), the business
model assessment determines how the instrument
is classified. If the instrument
is being held to collect contractual cash flows,
that is, if it is not expected to be
sold, it is measured as amortized cost. If the
business model for the instrument
is to both collect contractual cash flows and
potentially sell the asset, it is
measured at FVOCI.
Fair value through profit or loss (FVTPL):
Under IFRS 9, the classification is
dependent on two tests, a contractual
cash flow test (named SPPI) and a
business model assessment. Unless the
asset meets the requirements of both
tests, it is measured at fair value with all
changes in fair value reported in profit
or loss.
Federal Deposit Insurance Corporation
(FDIC):
A U.S. government
corporation which provides deposit insurance
guaranteeing the safety of a
depositor’s accounts in member banks.
The FDIC also examines and
supervises certain financial institutions for
safety and soundness, performs
certain consumer-protection functions, and
manages banks in receiverships
(failed banks).
Forward Contracts:
Over-the-counter contracts between two parties
that oblige
one party to the contract to buy and the other
party to sell an asset for a fixed
price at a future date.
Futures:
Exchange-traded contracts to buy or
sell a security at a predetermined
price on a specified future date.
Hedging:
A risk management technique intended
to mitigate the Bank’s
exposure to fluctuations in interest rates,
foreign currency exchange rates, or
other market factors. The elimination or
reduction of such exposure is
accomplished by engaging in capital markets
activities to establish offsetting
positions.
Impaired Loans:
Loans where, in management’s opinion,
there has been a
deterioration of credit quality to the extent
that the Bank no longer has
reasonable assurance as to the timely collection
of the full amount of principal
and interest.
Loss Given Default (LGD):
It is the amount of the loss the Bank
would likely
incur when a borrower defaults on a loan,
which is expressed as a percentage
of exposure at default.
Mark-to-Market (MTM):
A valuation that reflects current market rates
as at the
balance sheet date for financial instruments
that are carried at fair value.
Master Netting Agreements:
Legal agreements between two parties
that have
multiple derivative contracts with each other
that provide for the net settlement
of all contracts through a single payment, in
a single currency, in the event of
default or termination of any one contract.
Net Corporate Expenses:
Non-interest expenses related to corporate
service
and control groups which are not allocated to a
business segment.
Net Interest Margin:
A non-GAAP ratio calculated as net interest
income as a
percentage of average interest-earning assets
to measure performance. This
metric is an indicator of the profitability of
the Bank’s earning assets less the
cost of funding. Adjusted net interest
margin is calculated in the same manner
using adjusted net interest income.
Non-Viability Contingent Capital (NVCC):
Instruments (preferred shares and
subordinated debt) that contain a feature or
a provision that allows the financial
institution to either permanently convert these
instruments into common shares
or fully write-down the instrument, in the event
that the institution is no longer
viable.
Notional:
A reference amount on which payments
for derivative financial
instruments are based.
Office of the Superintendent of Financial
Institutions Canada (OSFI):
The
regulator of Canadian federally chartered
financial institutions and federally
administered pension plans.
Options:
Contracts in which the writer of the option grants
the buyer the future
right, but not the obligation, to buy or to sell a
security, exchange rate, interest
rate, or other financial instrument or commodity
at a predetermined price at or
by a specified future date.
Price-Earnings Ratio
: A ratio calculated by dividing the closing
share price by
EPS based on a trailing four quarters to indicate
market performance.
Adjusted
price-earnings ratio is calculated in the
same manner using adjusted EPS.
Probability of Default (PD):
It is the likelihood that a borrower will not
be able
to meet its scheduled repayments.
Provision for Credit Losses (PCL):
Amount added to the allowance for credit
losses to bring it to a level that management
considers adequate to reflect
expected credit-related losses on its
portfolio.
Return on Common Equity (ROE):
The consolidated Bank ROE is calculated
as net income available to common shareholders
as a percentage of average
common shareholders’
equity,
utilized in assessing the Bank’s use of equity.
ROE for the business segments is calculated
as the segment net income
attributable to common shareholders as a percentage
of average allocated
capital. Adjusted ROE is calculated in
the same manner using adjusted net
income.
Return on Risk-weighted Assets:
Net income available to common
shareholders as a percentage of average risk-weighted
assets.
Return on Tangible Common Equity (ROTCE):
A non-GAAP financial
measure 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
Tangible common
equity. Adjusted ROTCE is calculated in the same manner using
adjusted net
income.
Both measures can be utilized in assessing
the Bank’s use of equity.
Risk-Weighted Assets (RWA):
Assets calculated by applying a regulatory
risk-weight factor to on and off-balance sheet
exposures. The risk-weight
factors are established by the OSFI to
convert on and off-balance sheet
exposures to a comparable risk level.
Securitization:
The process by which financial assets,
mainly loans, are
transferred to structures,
which normally issue a series of asset-backed
securities to investors to fund the purchase
of loans.
Solely Payments of Principal and Interest
(SPPI):
Contractual cash flows of
a financial asset that are consistent with a
basic lending arrangement.
Swaps:
Contracts that involve the exchange of fixed
and floating interest rate
payment obligations and currencies on a notional
principal for a specified
period of time.
TD BANK GROUP • 2024 ANNUAL REPORT • MANAGEMENT’S DISCUSSION AND ANALYSIS
Page 119
Tangible common equity (TCE):
A non-GAAP financial measure calculated
as
common shareholders’ equity less goodwill,
imputed goodwill, and intangibles
on an investment in Schwab and TD
Ameritrade and other acquired intangible
assets, net of related deferred tax liabilities.
It can be utilized in assessing the
Bank’s use of equity.
Taxable Equivalent Basis (TEB):
A calculation method (not defined in GAAP)
that increases revenues and the provision
for income taxes on certain tax-
exempt securities to an equivalent before-tax
basis to facilitate comparison of
net interest income from both taxable and
tax-exempt sources.
Tier 1 Capital Ratio:
Tier 1 Capital represents the more permanent
forms of
capital, consisting primarily of common
shareholders’
equity, retained earnings,
preferred shares and innovative instruments.
Tier 1 Capital ratio is calculated as
Tier 1 Capital divided by RWA.
Total Capital Ratio:
Total Capital is defined as the total of net Tier 1 and Tier 2
Capital. Total Capital ratio is calculated as Total Capital divided by RWA.
Total Shareholder Return (TSR):
The total return earned on an investment
in
TD’s common shares. The return measures the
change in shareholder value,
assuming dividends paid are reinvested in
additional shares.
Trading-Related Revenue:
A non-GAAP financial measure that is
the total of
trading income (loss), net interest income on
trading positions, and income from
financial instruments designated at FVTPL
that are managed within a trading
portfolio. Trading-related revenue (TEB) in the Wholesale
Banking segment is
also a non-GAAP financial measure and is
calculated in the same manner,
including TEB adjustments. Both are used
for measuring trading performance.
Value-at-Risk (VaR):
A metric used to monitor and control overall
risk levels
and to calculate the regulatory capital required
for market risk in trading
activities. VaR measures the adverse impact that potential changes
in market
rates and prices could have on the value
of a portfolio over a specified period of
time.
ex993
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 1
CONSOLIDATED FINANCIAL STATEMENTS
Page
Management’s Responsibility for Financial Information
2
Report of Independent Registered Public
Accounting Firm – Public Company Accounting
Oversight Board Standards (United States)
7
Report of Independent Registered Public
Accounting Firm – Internal Control over
Financial Reporting
10
Consolidated Financial Statements
Consolidated Balance Sheet
11
Consolidated Statement of Income
12
Consolidated Statement of Comprehensive
Income
13
Consolidated Statement of Changes in Equity
14
Consolidated Statement of Cash Flows
15
Notes to Consolidated Financial Statements
Note 1
Nature of Operations
16
Note 2
Summary of Material Accounting Policies
16
Note 3
Significant Accounting Judgments, Estimates,
and Assumptions
27
Note 4
Current and Future Changes in Accounting
Policies
31
Note 5
Fair Value Measurements
32
Note 6
Offsetting Financial Assets and Financial Liabilities
41
Note 7
Securities
42
Note 8
Loans, Impaired Loans, and Allowance for
Credit Losses
45
Note 9
Transfers of Financial Assets
52
Note 10
Structured Entities
53
Note 11
Derivatives
56
Note 12
Investment in Associates and Joint Ventures
64
Note 13
Significant Transactions
65
Note 14
Goodwill and Other Intangibles
65
Note 15
Land, Buildings, Equipment, Other Depreciable
Assets, and Right-of-Use Assets
67
Note 16
Other Assets
68
Note 17
Deposits
68
Note 18
Other Liabilities
69
Note 19
Subordinated Notes and Debentures
70
Note 20
Equity
70
Note 21
Insurance
73
Note 22
Share-Based Compensation
76
Note 23
Employee Benefits
78
Note 24
Income Taxes
83
Note 25
Earnings Per Share
85
Note 26
Provisions, Contingent Liabilities, Commitments,
Guarantees, Pledged Assets, and
Collateral
86
Note 27
Related Party Transactions
89
Note 28
Segmented Information
90
Note 29
Interest Income and Expense
92
Note 30
Credit Risk
93
Note 31
Regulatory Capital
94
Note 32
Information on Subsidiaries
96
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 2
FINANCIAL RESULTS
Consolidated Financial Statements
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL
INFORMATION
The management of The Toronto-Dominion Bank and its subsidiaries (the “Bank”)
is responsible for the integrity, consistency, objectivity,
and reliability of the
Consolidated Financial Statements of the Bank
and related financial information as
presented. International Financial Reporting
Standards as issued by the
International Accounting Standards Board,
as well as the requirements of the
Bank Act
(Canada),
and related regulations have been applied
and management has
exercised its judgment and made best estimates
where appropriate.
The Bank’s accounting system and related internal
controls are designed, and supporting procedures
maintained, to provide reasonable assurance
that
financial records are complete and accurate,
and that assets are safeguarded against
loss from unauthorized use or disposition.
These supporting procedures
include the careful selection and training
of qualified staff, the establishment of organizational
structures providing a well-defined division
of responsibilities and
accountability for performance, and the
communication of policies and guidelines
of business conduct throughout the Bank.
Management has assessed the effectiveness of the
Bank’s internal control over financial reporting
as at October 31, 2024,
using the framework found in
Internal Control – Integrated Framework issued
by the Committee of Sponsoring Organizations
of the Treadway Commission 2013 Framework. Based upon
this
assessment, management has concluded
that as at October 31, 2024,
the Bank’s internal control over financial reporting
is effective.
The Bank’s Board of Directors, acting through the
Audit Committee, which is composed entirely
of independent directors, oversees management’s
responsibilities for financial reporting. The
Audit Committee reviews the Consolidated
Financial Statements and recommends them
to the Board for approval.
Other responsibilities of the Audit Committee
include monitoring the Bank’s system of internal
control over the financial reporting process
and making
recommendations to the Board and shareholders
regarding the appointment of the external
auditor.
The Bank’s Chief Auditor, who has full and free access to the Audit
Committee, conducts an extensive program
of audits. This program supports the
system of
internal control and is carried out by a professional
staff of auditors.
The Office of the Superintendent of Financial
Institutions Canada, makes such examination
and enquiry into the affairs of the Bank as deemed
necessary to
ensure that the provisions of the
Bank Act (Canada)
, having reference to the safety of the depositors,
are being duly observed and that the Bank
is in sound
financial condition.
Ernst & Young LLP,
the independent auditors appointed by
the shareholders of the Bank, have audited
the effectiveness of the Bank’s internal control over
financial reporting as of October 31, 2024, in addition
to auditing the Bank’s Consolidated Financial
Statements as of the same date. Their
reports, which
expressed unqualified opinions, can be found
on the following pages. Ernst & Young LLP have full and free access
to, and meet periodically with, the Audit
Committee to discuss their audit and
matters arising therefrom, such as, comments
they may have on the fairness of financial
reporting and the adequacy of
internal controls.
Bharat B. Masrani
Kelvin Tran
Group President and
Group Head and
Chief Executive Officer
Chief Financial Officer
Toronto, Canada
December 4, 2024
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TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 7
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of The Toronto-Dominion Bank
Opinion on the Consolidated Financial
Statements
We have audited the accompanying Consolidated
Balance Sheets of The Toronto-Dominion Bank (TD) as of October 31, 2024
and 2023, the related Consolidated
Statements of Income, Comprehensive
Income, Changes in Equity, and Cash Flows for the years then
ended, and the related notes (collectively referred
to as the
“consolidated financial statements”). In our opinion,
the consolidated financial statements present
fairly, in all material respects, the consolidated financial position
of TD at October 31, 2024 and 2023, its
consolidated financial performance and its
consolidated cash flows for the years then ended,
in conformity with
International Financial Reporting Standards
(IFRS) as issued by the International Accounting
Standards Board.
We also have audited, in accordance with the
standards of the Public Company Accounting
Oversight Board (United States) (PCAOB),
TD’s internal control over
financial reporting as of October 31, 2024, based
on criteria established in Internal Control –
Integrated Framework issued by the Committee
of Sponsoring
Organizations of the Treadway Commission (2013 framework)
and our report dated December 4, 2024,
expressed an unqualified opinion
thereon.
Basis for Opinion
These consolidated financial statements are
the responsibility of TD’s management. Our responsibility
is to express an opinion on TD’s consolidated
financial
statements based on our audits. We are a public
accounting firm registered with the PCAOB
and are required to be independent with respect
to TD in accordance
with the U.S. federal securities laws and
the applicable rules and regulations of the
Securities and Exchange Commission
and the PCAOB.
We conducted our audits in accordance with
the standards of the PCAOB. Those standards
require that we plan and perform the audit
to obtain reasonable
assurance about whether the financial
statements are free of material misstatement,
whether due to error or fraud. Our audits
included performing procedures to
assess the risks of material misstatement
of the financial statements, whether due
to error or fraud, and performing procedures
that respond to those risks. Such
procedures included examining, on a test basis,
evidence regarding the amounts and disclosures
in the consolidated financial statements.
Our audits also included
evaluating the accounting principles used and
significant estimates made by management,
as well as evaluating the overall presentation
of the consolidated
financial statements. We believe that our audits
provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below
are matters arising from the current period
audit of the consolidated financial statements
that were communicated
or required to be communicated to the audit
committee and that: (1) relate to accounts
or disclosures that are material to the consolidated
financial statements,
and (2) involved our especially challenging,
subjective, or complex judgments.
The communication of critical audit
matters does not alter in any way our opinion
on
the consolidated financial statements, taken
as a whole, and we are not, by communicating
the critical audit matters below, providing separate opinions
on the
critical audit matters or on the accounts or
disclosures to which they relate.
Allowance for credit losses
Description of
the Matter
TD describes its significant accounting judgments,
estimates, and assumptions in relation
to the allowance for credit losses in Note 3
of the consolidated financial statements. As
disclosed in Note 8 to the consolidated financial
statements, TD recognized $9,141 million
in allowances for credit losses on its
consolidated balance sheet using an expected
credit loss model (ECL). The ECL is an
unbiased
and probability-weighted estimate of credit losses
expected to occur in the future, which is
based on the probability of default (PD),
loss given default (LGD) and exposure at
default (EAD) or the expected cash
shortfall relating to the underlying financial asset.
The
ECL is determined by evaluating a range
of possible outcomes incorporating the time
value of money and reasonable and supportable
information about past events, current conditions,
and future economic forecasts. ECL allowances
are measured at amounts equal to
either (i) 12-month ECL; or (ii) lifetime ECL
for those financial instruments that have experienced
a significant increase in credit risk
(SICR) since initial recognition or when
there is objective evidence of impairment.
Auditing the allowance for credit losses was
complex and required the application of
significant judgment and involvement of
specialists because of the sophistication of
the models, the forward-looking nature
of the key assumptions, and the inherent
interrelationship of the critical variables used
in measuring the ECL. Key areas of judgment
include evaluating: (i) the models
and
methodologies used for measuring both the
12-month and lifetime expected credit losses;
(ii) the assumptions used in the ECL
scenarios including forward-looking information
(FLI) and assigning probability weighting;
(iii) the determination of SICR; and (iv)
the
assessment of the qualitative component applied
to the modelled ECL based on management’s
expert credit judgment.
How We Addressed the
Matter in Our Audit
We obtained an understanding, evaluated the design,
and tested the operating effectiveness of
management’s controls over the
allowance for credit losses. The controls
we tested included, amongst others, the development
and validation of models and selection
of appropriate inputs including economic forecasting,
determination of non-retail borrower
risk ratings, the integrity of the data used
including the associated controls over relevant
information technology (IT) systems,
and the governance and oversight over the
modelled results and the use of expert credit judgment.
To test the allowance for credit losses, our audit procedures included, amongst
others, involving our credit risk specialists
to assess
whether the methodology and assumptions,
including management’s SICR triggers, used in
significant models that estimate the ECL
across various portfolios are consistent
with the requirements of IFRS. This included
reperforming the model validation procedures
for
a sample of models to evaluate whether management’s
conclusions were appropriate. With the assistance
of our economic specialists,
we evaluated the models, methodology and
process used by management to develop
the FLI variable forecasts for each scenario
and
the scenario probability weights. For a
sample of FLI variables, we compared management’s
FLI to independently derived forecasts
and publicly available information. On a sample
basis, we recalculated the ECL to test
the mathematical accuracy of management’s
models. We tested the completeness and accuracy
of data used in measuring the ECL
by agreeing to source documents and systems
and evaluated a sample of management’s non-retail
borrower risk ratings against TD’s risk rating
policy. With the assistance of our
credit risk specialists, we also evaluated
management’s methodology and governance
over the application of expert credit judgment
by
evaluating that the amounts recorded
were reflective of underlying credit quality and
macroeconomic trends. We also assessed the
adequacy of disclosures related to the allowance
for credit losses.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 8
Fair value measurement of derivatives
Description of
the Matter
TD describes its significant accounting judgments,
estimates, and assumptions in relation
to the fair value measurement of derivatives
in Note 3 of the consolidated financial
statements. As disclosed in Note 5 of the
consolidated financial statements, TD
has derivative
assets of $78,061 million and derivative liabilities
of $68,368 million recorded at fair value.
Certain of these derivatives are complex
and illiquid and require valuation techniques
that may include complex models and
non-observable inputs, requiring management’s
estimation and judgment.
Auditing the valuation of certain derivatives required
the application of significant auditor judgment
and involvement of valuation
specialists in assessing the complex models
and non-observable inputs used. Certain
valuation inputs used to determine fair
value
that may be non-observable include volatilities,
correlations, and credit spreads. The
valuation of certain derivatives is sensitive
to
these inputs as they are forward-looking and
could be affected by future economic and market
conditions.
How We Addressed the
Matter in Our Audit
We obtained an understanding, evaluated the design,
and tested the operating effectiveness of
management’s controls, including the
associated controls over relevant IT systems,
over the valuation of TD’s derivative portfolio.
The controls we tested included, amongst
others, the controls over the suitability and
mechanical accuracy of models used in the
valuation of derivatives, and controls over
management’s independent assessment of
fair values, including the integrity of data used
in the valuation such as the significant
inputs noted above.
To test the valuation of these derivatives, our audit procedures included,
amongst others, an evaluation of the
methodologies and
significant inputs used by TD. With the assistance
of our valuation specialists, we performed
an independent valuation for a sample of
derivatives to assess the modelling assumptions
and significant inputs used to estimate
the fair value, which involved obtaining
significant inputs from independent external
sources, where available. We also assessed
the adequacy of the disclosures related to
the fair value measurement of derivatives.
Measurement of provision for uncertain
tax positions
Description of
the Matter
TD describes its significant accounting judgments,
estimates, and assumptions in relation
to income taxes in Note 3 and Note 24 of
the
consolidated financial statements. As a
financial institution operating in multiple jurisdictions,
TD is subject to complex and constantly
evolving tax legislation. Uncertainty in a tax position
may arise as tax laws are subject to interpretation.
TD uses significant judgment in
i) determining whether it is probable that TD
will have to make a payment to tax authorities
upon their examination of certain uncertain
tax positions and ii) measuring the amount of
the provision.
Auditing TD’s provision for uncertain tax positions
involved the application of judgment and
is based on interpretation of tax legislation
and jurisprudence.
How We Addressed the
Matter in Our Audit
We obtained an understanding, evaluated the design,
and tested the operating effectiveness of
management’s controls over TD’s
provision for uncertain tax positions.
The controls we tested included, amongst others,
the controls over the assessment of the
technical merits of tax positions and management’s
process to measure the provision for
uncertain tax positions.
With the assistance of our tax professionals,
we assessed the technical merits and the
amount recorded for uncertain tax positions.
Our audit procedures included, amongst others,
using our knowledge of, and experience
with, the application of tax laws by the
relevant income tax authorities to evaluate
TD’s interpretations and assessment of tax laws
with respect to uncertain tax positions.
We
assessed the implications of correspondence
received by TD from the relevant tax authorities
and evaluated income tax opinions or
other third-party advice obtained. We also assessed
the adequacy of the disclosures related
to uncertain tax positions.
Valuation of Goodwill in the U.S. Personal and
Commercial Banking group of Cash Generating
Units
Description of
the Matter
TD describes its significant accounting judgments,
estimates, and assumptions in relation
to the recoverable amount of its cash
generating units (‘CGU”) or group of
CGUs to which goodwill has been allocated
in Note 3 of the consolidated financial
statements. As
disclosed in Note 14 of the consolidated financial
statements, TD has $14,663 million of goodwill
in the U.S. Retail segment, which
predominantly relates to the U.S. Personal
and Commercial Banking group of cash generating
units (“US P&C CGUs”). Goodwill is
assessed for impairment annually, or more frequently if impairment
indicators are present.
Auditing the recoverable amount for the
U.S. P&C CGUs was complex and required
the application of significant auditor judgment
and
involvement of valuation specialists in assessing
certain significant assumptions in the impairment
test. Significant assumptions in the
estimate of the recoverable amount included
the discount rate and certain forward-looking
assumptions, such as the terminal
growth
rate, and forecasted earnings, which are affected by
expectations about future market or economic
conditions.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 9
How We Addressed the
Matter in Our Audit
We obtained an understanding, evaluated the design,
and tested the operating effectiveness of
management’s controls over the
recoverable amount of TD’s U.S. P&C CGUs.
The controls we tested included, amongst
others, the controls over management’s
review of TD’s forecast as well as controls over
management’s review of the model and methodology
over significant assumptions
such as the discount rate and the terminal
growth rate. We also tested controls over
management’s review of the integrity of the data
used and the mathematical accuracy of
their valuation model.
To test the estimated recoverable amount of the U.S. P&C CGUs, our audit
procedures included, amongst others,
with the assistance
of our valuation specialists, assessing the
methodology and testing the significant assumptions
and underlying data used by TD in its
assessment. We considered the selection and
application of the discount rate by evaluating
the inputs and mathematical accuracy of
the calculation, while also developing an independent
estimate and comparing it to the discount
rate selected by management. We
considered the selection and application of
the terminal growth rate by evaluating the
selected rate against relevant market and
economic forecast data. We evaluated the reasonability
of the forecasted earnings by comparing
to historical results and considering
our current understanding of the business as
well as current economic trends. We assessed
the historical accuracy of management’s
prior year estimates by performing a comparison
of management’s prior year projections to actual
results. We performed sensitivity
analysis on the significant assumptions to
consider the impact of changes in the recoverable
amount that would result from changes in
the assumptions. We also assessed the adequacy
of the disclosures related to the valuation
of goodwill.
Chartered Professional Accountants
Licensed Public Accountants
We have served as TD’s sole auditor since 2006. Prior
to 2006, we or our predecessor firm have
served as joint auditor with various other firms
since 1955.
Toronto, Canada
December 4, 2024
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 10
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of The Toronto-Dominion Bank
Opinion on Internal Control over Financial
Reporting
We have audited The Toronto-Dominion Bank’s (TD) internal control over financial reporting
as of October 31, 2024, based on
criteria established in Internal
Control – Integrated Framework issued by
the Committee of Sponsoring Organizations
of the Treadway Commission (2013 framework) (the
COSO criteria). In our
opinion, TD maintained, in all material respects,
effective internal control over financial
reporting as of October 31, 2024, based on
the COSO criteria.
We also have audited, in accordance with the
standards of the Public Company Accounting
Oversight Board (United States) (PCAOB),
the Consolidated Balance
Sheets of TD as of October 31, 2024 and 2023,
the related Consolidated Statements of
Income, Comprehensive Income, Changes
in Equity and Cash Flows for
the years then ended, and the related notes,
and our report dated December 4, 2024,
expressed an unqualified opinion thereon.
Basis for Opinion
TD’s management is responsible for maintaining
effective internal control over financial reporting,
and for its assessment of the effectiveness of
internal control
over financial reporting included in the accompanying
Management’s Report on Internal Control over
Financial Reporting contained in the accompanying
Management’s Discussion and Analysis. Our responsibility
is to express an opinion on TD’s internal control
over financial reporting based on our
audit. We are a
public accounting firm registered with the PCAOB
and are required to be independent with respect
to TD in accordance with the U.S. federal
securities laws and
the applicable rules and regulations of the
Securities and Exchange Commission and
the PCAOB.
We conducted our audit in accordance with the
standards of the PCAOB. Those standards
require that we plan and perform the audit
to obtain reasonable
assurance about whether effective internal control
over financial reporting was maintained in
all material respects.
Our audit included obtaining an understanding
of internal control over financial reporting,
assessing the risk that a material weakness
exists, testing and evaluating
the design and operating effectiveness of internal
control based on the assessed risk, and performing
such other procedures as we considered necessary
in the
circumstances. We believe that our audit provides
a reasonable basis for our opinion.
Definition and Limitations of Internal Control
over Financial Reporting
A company’s internal control over financial
reporting is a process designed to provide reasonable
assurance regarding the reliability of
financial reporting and the
preparation of financial statements for external
purposes in accordance with International
Financial Reporting Standards as issued by the
International Accounting
Standards Board. A company’s internal control over
financial reporting includes those policies
and procedures that (1) pertain to the
maintenance of records that,
in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets
of the company; (2) provide reasonable
assurance that
transactions are recorded as necessary to
permit preparation of financial statements
in accordance with International Financial
Reporting Standards as issued by
the International Accounting Standards Board,
and that receipts and expenditures of the
company are being made only in accordance
with authorizations of
management and directors of the company;
and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized
acquisition, use, or
disposition of the company’s assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal
control over financial reporting may not prevent
or detect misstatements. Also, projections
of any evaluation of
effectiveness to future periods are subject to
the risk that controls may become inadequate
because of changes in conditions, or that
the degree of compliance
with the policies or procedures may deteriorate.
Chartered Professional Accountants
Licensed Public Accountants
Toronto, Canada
December 4, 2024
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 11
Consolidated Financial Statements
CONSOLIDATED BALANCE SHEET
(As at and in millions of Canadian dollars)
October 31, 2024
October 31, 2023
ASSETS
Cash and due from banks
$
6,437
$
6,721
Interest-bearing deposits with banks
169,930
98,348
176,367
105,069
Trading loans, securities, and other
(Note 5)
175,770
152,090
Non-trading financial assets at fair value through
profit or loss
(Note 5)
5,869
7,340
Derivatives
(Notes 5, 11)
78,061
87,382
Financial assets designated at fair value through
profit or loss
(Notes 5, 7)
6,417
5,818
Financial assets at fair value through other
comprehensive income
(Note 5)
93,897
69,865
360,014
322,495
Debt securities at amortized cost, net
of allowance for credit losses (Notes 5,
7)
271,615
308,016
Securities purchased under reverse repurchase
agreements (Note 6)
208,217
204,333
Loans (Notes 5, 8)
Residential mortgages
331,649
320,341
Consumer instalment and other personal
228,382
217,554
Credit card
40,639
38,660
Business and government
356,973
326,528
957,643
903,083
Allowance for loan losses
(Note 8)
(8,094)
(7,136)
Loans, net of allowance for loan losses
949,549
895,947
Other
Customers’ liability under acceptances
(Note 8)
–
17,569
Investment in Schwab
(Note 12)
9,024
8,907
Goodwill
(Note 14)
18,851
18,602
Other intangibles
(Note 14)
3,044
2,771
Land, buildings, equipment, other depreciable
assets, and right-of-use assets
(Note 15)
9,837
9,434
Deferred tax assets
1
(Note 24)
4,937
3,951
Amounts receivable from brokers, dealers,
and clients
22,115
30,416
Other assets
1
(Note 16)
28,181
27,629
95,989
119,279
Total assets
1
$
2,061,751
$
1,955,139
LIABILITIES
Trading deposits
(Notes 5, 17)
$
30,412
$
30,980
Derivatives
(Notes 5, 11)
68,368
71,640
Securitization liabilities at fair value
(Notes 5, 9)
20,319
14,422
Financial liabilities designated at fair value
through profit or loss
(Notes 5, 17)
207,914
192,130
327,013
309,172
Deposits (Notes 5, 17)
Personal
641,667
626,596
Banks
57,698
31,225
Business and government
569,315
540,369
1,268,680
1,198,190
Other
Acceptances
(Note 8)
–
17,569
Obligations related to securities sold
short
(Note 5)
39,515
44,661
Obligations related to securities sold
under repurchase agreements
(Note 6)
201,900
166,854
Securitization liabilities at amortized
cost
(Notes 5, 9)
12,365
12,710
Amounts payable to brokers, dealers, and
clients
26,598
30,872
Insurance contract liabilities
1
(Note 21)
7,169
5,846
Other liabilities
1
(Note 18)
51,878
47,574
339,425
326,086
Subordinated notes and debentures (Notes
5, 19)
11,473
9,620
Total liabilities
1
1,946,591
1,843,068
EQUITY
Shareholders’ Equity
Common shares
(Note 20)
25,373
25,434
Preferred shares and other equity instruments
(Note 20)
10,888
10,853
Treasury – common shares
(Note 20)
(17)
(64)
Treasury – preferred shares and other equity instruments
(Note 20)
(18)
(65)
Contributed surplus
204
155
Retained earnings
1
70,826
73,008
Accumulated other comprehensive income (loss)
7,904
2,750
Total equity
1
115,160
112,071
Total liabilities and equity
1
$
2,061,751
$
1,955,139
1
Balances as at October 31, 2023 have been restated for the adoption of IFRS 17,
Insurance Contracts
(IFRS 17). Refer to Note 4 for details.
The accompanying Notes are an integral part of these Consolidated Financial Statements.
Bharat B. Masrani
Nancy G. Tower
Group President and Chief Executive Officer
Chair, Audit Committee
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 12
CONSOLIDATED STATEMENT OF INCOME
(millions of Canadian dollars, except
as noted)
For the years ended October 31
2024
2023
Interest income
1
(Note 29)
Loans
$
53,676
$
44,518
Reverse repurchase agreements
11,621
9,520
Securities
Interest
20,295
19,029
Dividends
2,371
2,289
Deposits with banks
5,426
5,318
93,389
80,674
Interest expense (Note 29)
Deposits
46,860
38,351
Securitization liabilities
1,002
915
Subordinated notes and debentures
436
436
Repurchase agreements and short sales
13,322
10,083
Other
1,297
945
62,917
50,730
Net interest income
30,472
29,944
Non-interest income
Investment and securities services
7,400
6,420
Credit fees
1,898
1,796
Trading income (loss)
3,628
2,417
Service charges
2
2,626
2,514
Card services
2,947
2,932
Insurance revenue
2
(Note 21)
6,952
6,311
Other income (loss)
2
(Notes 12, 13)
1,300
(1,644)
26,751
20,746
Total revenue
2
57,223
50,690
Provision for (recovery of) credit losses
(Note 8)
4,253
2,933
Insurance service expenses
2
(Note 21)
6,647
5,014
Non-interest expenses
Salaries and employee benefits
16,733
15,753
Occupancy, including depreciation
1,958
1,799
Technology and equipment, including depreciation
2,656
2,308
Amortization of other intangibles
702
672
Communication and marketing
1,516
1,452
Restructuring charges
(Note 26)
566
363
Brokerage-related and sub-advisory fees
498
456
Professional, advisory and outside services
2
3,064
2,493
Other
2
(Notes 13, 26)
7,800
4,559
35,493
29,855
Income before income taxes and share
of net income from investment in Schwab
2
10,830
12,888
Provision for (recovery of) income taxes
2
(Note 24)
2,691
3,118
Share of net income from investment
in Schwab (Note 12)
703
864
Net income
2
8,842
10,634
Preferred dividends and distributions on
other equity instruments
526
563
Net income available to common shareholders
2
$
8,316
$
10,071
Earnings per share
(Canadian dollars)
(Note 25)
Basic
2
$
4.73
$
5.53
Diluted
2
4.72
5.52
Dividends per common share
(Canadian dollars)
4.08
3.84
1
Includes $
84,324
million for the year ended October 31, 2024 (October 31, 2023 – $
72,403
million), which has been calculated based on the effective interest rate method
(EIRM).
2
Amounts for the year ended October 31, 2023 have been restated for the adoption of IFRS 17. Refer to Note 4 for
details.
The accompanying Notes are an integral part of these Consolidated Financial Statements.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 13
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(millions of Canadian dollars)
For the years ended October 31
2024
2023
Net income
1
$
8,842
$
10,634
Other comprehensive income (loss)
Items that will be subsequently reclassified
to net income
Net change in unrealized gain/(loss) on
financial assets at fair value through
other comprehensive income
Change in unrealized gain/(loss)
285
96
Reclassification to earnings of net loss/(gain)
(23)
(9)
Changes in allowance for credit losses recognized
in earnings
(1)
–
Income taxes relating to:
Change in unrealized gain/(loss)
(68)
(32)
Reclassification to earnings of net loss/(gain)
12
8
205
63
Net change in unrealized foreign currency
translation gain/(loss) on
investments in foreign operations, net
of hedging activities
Unrealized gain/(loss)
540
2,233
Reclassification to earnings of net loss/(gain)
(19)
11
Net gain/(loss) on hedges
(457)
(1,821)
Reclassification to earnings of net loss/(gain)
on hedges
41
(15)
Income taxes relating to:
Net gain/(loss) on hedges
122
217
Reclassification to earnings of net loss/(gain)
on hedges
(11)
4
216
629
Net change in gain/(loss) on derivatives
designated as cash flow hedges
Change in gain/(loss)
3,354
(78)
Reclassification to earnings of loss/(gain)
173
238
Income taxes relating to:
Change in gain/(loss)
(929)
137
Reclassification to earnings of loss/(gain)
(50)
(52)
2,548
245
Share of other comprehensive income (loss)
from investment in Schwab
2,007
91
Items that will not be subsequently reclassified
to net income
Remeasurement gain/(loss) on employee
benefit plans
Gain/(loss)
(151)
(95)
Income taxes
40
9
(111)
(86)
Change in net unrealized gain/(loss)
on equity securities designated at
fair value through other comprehensive income
Change in net unrealized gain/(loss)
222
(204)
Income taxes
(60)
54
162
(150)
Gain/(loss) from changes in fair value due
to own credit risk on
financial liabilities designated at fair value
through profit or loss
Gain/(loss)
22
(158)
Income taxes
(6)
42
16
(116)
Total other comprehensive income (loss)
5,043
676
Total comprehensive income (loss)
1
$
13,885
$
11,310
Attributable to:
Common shareholders
1
$
13,359
$
10,747
Preferred shareholders and other equity instrument
holders
1
526
563
1
Amounts for the year ended October 31, 2023 have been restated for the adoption of IFRS 17. Refer to Note 4 for
details.
The accompanying Notes are an integral part of these Consolidated Financial Statements.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 14
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(millions of Canadian dollars)
For the years ended October 31
2024
2023
Common shares (Note 20)
Balance at beginning of year
$
25,434
$
24,363
Proceeds from shares issued on exercise of stock options
112
83
Shares issued as a result of dividend reinvestment plan
529
1,720
Purchase of shares for cancellation and other
(702)
(732)
Balance at end of year
25,373
25,434
Preferred shares and other equity instruments (Note 20)
Balance at beginning of year
10,853
11,253
Issuance of shares and other equity instruments
1,335
–
Redemption of shares and other equity instruments
(1,300)
(400)
Balance at end of year
10,888
10,853
Treasury – common shares (Note 20)
Balance at beginning of year
(64)
(91)
Purchase of shares
(11,209)
(7,959)
Sale of shares
11,256
7,986
Balance at end of year
(17)
(64)
Treasury – preferred shares and other equity instruments (Note 20)
Balance at beginning of year
(65)
(7)
Purchase of shares and other equity instruments
(625)
(590)
Sale of shares and other equity instruments
672
532
Balance at end of year
(18)
(65)
Contributed surplus
Balance at beginning of year
155
179
Net premium (discount) on sale of treasury instruments
20
(21)
Issuance of stock options, net of options exercised
22
27
Other
7
(30)
Balance at end of year
204
155
Retained earnings
Balance at beginning of year
1
73,008
73,698
Impact on adoption of IFRS 17
2
–
112
Impact of reclassification of securities supporting insurance operations
related to the adoption of IFRS 17
2
(10)
–
Net income attributable to equity instrument holders
1
8,842
10,634
Common dividends
(7,163)
(6,982)
Preferred dividends and distributions on other equity instruments
(526)
(563)
Share and other equity instrument issue expenses
(7)
–
Net premium on repurchase of common shares and redemption of preferred shares and other equity instruments
(Note 20)
(3,295)
(3,553)
Remeasurement gain/(loss) on employee benefit plans
(111)
(86)
Realized gain/(loss) on equity securities designated at fair value through other comprehensive income
88
(252)
Balance at end of year
1
70,826
73,008
Accumulated other comprehensive income (loss)
Net unrealized gain/(loss) on financial assets at fair value through other comprehensive income:
Balance at beginning of year
(413)
(476)
Impact of reclassification of securities supporting insurance operations
related to the adoption of IFRS 17
2
10
–
Other comprehensive income (loss)
196
63
Allowance for credit losses
(1)
–
Balance at end of year
(208)
(413)
Net unrealized gain/(loss) on equity securities designated at fair value through other comprehensive income:
Balance at beginning of year
(127)
23
Other comprehensive income (loss)
250
(402)
Reclassification of loss/(gain) to retained earnings
(88)
252
Balance at end of year
35
(127)
Gain/(loss) from changes in fair value due to own credit risk on financial liabilities designated at fair value
through profit or loss:
Balance at beginning of year
(38)
78
Other comprehensive income (loss)
16
(116)
Balance at end of year
(22)
(38)
Net unrealized foreign currency translation gain/(loss) on investments in foreign operations, net of hedging activities:
Balance at beginning of year
12,677
12,048
Other comprehensive income (loss)
216
629
Balance at end of year
12,893
12,677
Net gain/(loss) on derivatives designated as cash flow hedges:
Balance at beginning of year
(5,472)
(5,717)
Other comprehensive income (loss)
2,548
245
Balance at end of year
(2,924)
(5,472)
Share of accumulated other comprehensive income (loss) from Investment in Schwab
(1,870)
(3,877)
Total accumulated other comprehensive income
7,904
2,750
Total equity
1
$
115,160
$
112,071
1
Amounts for the year ended October 31, 2023 have been restated for the adoption of IFRS 17. Refer to Note 4 for
details.
2
Refer to Note 4 for details on the adoption of IFRS 17.
The accompanying Notes are an integral part of these Consolidated Financial Statements.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 15
CONSOLIDATED STATEMENT OF CASH FLOWS
(millions of Canadian dollars)
For the years ended October 31
2024
2023
Cash flows from (used in) operating activities
Net income
1
$
8,842
$
10,634
Adjustments to determine net cash flows from (used in) operating activities
Provision for (recovery of) credit losses
(Note 8)
4,253
2,933
Depreciation
(Note 15)
1,325
1,239
Amortization of other intangibles
(Note 14)
702
672
Net securities loss/(gain)
(Note 7)
358
48
Share of net income from investment in Schwab
(Note 12)
(703)
(864)
Gain on sale of Schwab shares
(Note 12)
(1,022)
–
Deferred taxes
1
(Note 24)
(1,061)
(1,306)
Changes in operating assets and liabilities
Interest receivable and payable
(Notes 16, 18)
1,133
812
Securities sold under repurchase agreements
35,046
36,832
Securities purchased under reverse repurchase agreements
(3,884)
(41,873)
Securities sold short
(5,146)
(2,722)
Trading loans, securities, and other
(23,680)
(5,332)
Loans net of securitization and sales
(57,908)
(67,766)
Deposits
69,922
(25,487)
Derivatives
6,049
(2,341)
Non-trading financial assets at fair value through profit or loss
1,471
3,897
Financial assets and liabilities designated at fair value through profit or loss
15,185
28,565
Securitization liabilities
5,552
(552)
Current taxes
658
1,228
Brokers, dealers, and clients amounts receivable and payable
4,027
(5,128)
Other, including unrealized foreign currency translation loss/(gain)
1
(6,182)
1,209
Net cash from (used in) operating activities
54,937
(65,302)
Cash flows from (used in) financing activities
Issuance of subordinated notes and debentures
(Note 19)
3,324
–
Redemption or repurchase of subordinated notes and debentures
(Note 19)
(1,544)
(1,716)
Common shares issued, net of issuance costs
(Note 20)
100
74
Repurchase of common shares, including tax on net value of share repurchases
(Note 20)
(3,997)
(4,285)
Preferred shares and other equity instruments issued, net of issuance costs
(Note 20)
1,328
–
Redemption of preferred shares and other equity instruments
(Note 20)
(1,300)
(400)
Sale of treasury shares and other equity instruments
(Note 20)
11,948
8,497
Purchase of treasury shares and other equity instruments
(Note 20)
(11,834)
(8,549)
Dividends paid on shares and distributions paid on other equity instruments
(7,160)
(5,825)
Repayment of lease liabilities
(678)
(643)
Net cash from (used in) financing activities
(9,813)
(12,847)
Cash flows from (used in) investing activities
Interest-bearing deposits with banks
(71,153)
41,446
Activities in financial assets at fair value through other comprehensive income
Purchases
(42,542)
(24,336)
Proceeds from maturities
18,825
17,893
Proceeds from sales
4,130
5,838
Activities in debt securities at amortized cost
Purchases
(11,306)
(26,987)
Proceeds from maturities
49,606
52,819
Proceeds from sales
5,772
12,021
Net purchases of land, buildings, equipment, other depreciable assets, and other intangibles
(Note 15)
(2,177)
(1,844)
Net cash acquired from (paid for) divestitures and acquisitions
(Notes 12, 13)
3,423
(624)
Net cash from (used in) investing activities
(45,422)
76,226
Effect of exchange rate changes on cash and due from banks
14
88
Net increase (decrease) in cash and due from banks
(284)
(1,835)
Cash and due from banks at beginning of year
6,721
8,556
Cash and due from banks at end of year
$
6,437
$
6,721
Supplementary disclosure of cash flows from operating activities
Amount of income taxes paid (refunded) during the year
$
3,812
$
3,036
Amount of interest paid during the year
61,779
48,179
Amount of interest received during the year
91,013
76,646
Amount of dividends received during the year
2,694
2,247
1
Amounts for the year ended October 31, 2023 have been restated for the adoption of IFRS 17. Refer to Note 4 for
details.
The accompanying Notes are an integral part of these Consolidated Financial Statements.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 16
Notes to Consolidated Financial Statements
NOTE 1: NATURE OF OPERATIONS
CORPORATE INFORMATION
The Toronto-Dominion Bank is a bank chartered under the
Bank Act (Canada)
. 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 (Canada)
. 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 four business segments
operating in a number of locations in key
financial centres around the globe:
Canadian Personal and Commercial Banking,
U.S. Retail, Wealth Management and Insurance,
and Wholesale Banking.
BASIS OF PREPARATION
The accompanying 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 Consolidated Financial Statements
are presented in Canadian dollars, unless
otherwise indicated.
These Consolidated Financial Statements
were prepared using the accounting policies
as described in Note 2. Certain comparative
amounts have been revised
to conform with the presentation adopted in
the current period.
The preparation of the Consolidated Financial
Statements requires that management
make judgments, estimates, and assumptions
regarding the reported
amount of assets, liabilities, revenue and expenses,
and disclosure of contingent assets and
liabilities, as further described
in Note 3. Accordingly, actual results
may differ from estimated amounts as future
confirming events occur.
The accompanying Consolidated Financial Statements
of the Bank were approved and authorized
for issue by the Bank’s Board of Directors, in
accordance
with a recommendation of the Audit Committee,
on December 4, 2024.
The risk management policies and procedures
of the Bank are provided in the Management’s
Discussion and Analysis (MD&A).
The shaded sections of the
“Managing Risk” section of the 2024 MD&A,
relating to market, liquidity, and insurance risks, are an integral
part of these Consolidated Financial Statements,
as
permitted by IFRS.
NOTE 2: SUMMARY OF MATERIAL ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The Consolidated Financial Statements include
the assets, liabilities, results of operations,
and cash flows of the Bank and its subsidiaries
including certain
structured entities which it controls.
The Bank’s 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.
Subsidiaries
Subsidiaries are corporations or other legal
entities controlled by the Bank, generally
through directly holding more than half of
the voting power of the entity.
Control of subsidiaries is determined based
on the power exercisable through ownership
of voting rights and is generally aligned with
the risks and/or returns
(collectively referred to as “variable returns”)
absorbed from subsidiaries through those voting
rights. As a result, the Bank controls and
consolidates subsidiaries
when it holds the majority of the voting rights
of the subsidiary, unless there is evidence that another investor
has control over the subsidiary. The existence and
effect of potential voting rights that are currently
exercisable or convertible are considered
in assessing whether the Bank controls
an entity. Subsidiaries are
consolidated from the date the Bank obtains
control and continue to be consolidated until
the date when control ceases to exist.
The Bank may consolidate certain subsidiaries
where it owns 50% or less of the voting rights.
Most of those subsidiaries are structured entities
as described in the
following section.
Structured Entities
Structured entities are entities created
to accomplish a narrow and well-defined objective.
Structured entities may take the form
of a corporation, trust, partnership,
or unincorporated entity. They are often created with legal arrangements
that impose limits on the decision-making powers
of their governing board, trustee, or
management. Structured entities are consolidated
when the substance of the relationship
between the Bank and the structured entity
indicates that the Bank
controls the entity. When assessing whether the Bank has to consolidate
a structured entity, the Bank evaluates three primary criteria in order
to conclude
whether, in substance:
●
The Bank has the power to direct the activities
of the structured entity that have the most
significant impact on the entity’s variable returns;
●
The Bank is exposed to significant variable
returns arising from the entity; and
●
The Bank has the ability to use its power
to affect the variable returns to which it is exposed.
Consolidation conclusions are reassessed at
the end of each financial reporting period.
The Bank’s policy is to consider the impact on consolidation
of all
significant changes in circumstances,
focusing on the following:
●
Substantive changes in ownership, such as
the purchase or disposal of more than
an insignificant interest in an entity;
●
Changes in contractual or governance arrangements
of an entity;
●
Additional activities undertaken, such as providing
a liquidity facility beyond the original terms
or entering into a transaction not originally
contemplated;
●
Changes in the financing structure of an entity;
and
●
Changes in the rights to exercise power over
an entity.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 17
INVESTMENTS IN ASSOCIATES AND JOINT VENTURES
Entities over which the Bank has significant
influence are associates and entities over
which the Bank has joint control are joint
ventures. Significant influence is
the power to participate in the financial and
operating policy decisions of an investee,
but is not control or joint control over these
entities. Significant influence is
presumed to exist where the Bank holds between
20
% and
50
% of the voting rights of an entity. Significant influence may
also exist where the Bank holds less
than
20
% of the voting rights and has influence over
financial and operating policy-making processes,
through board representation and significant
commercial
arrangements. Associates and joint ventures
are accounted for using the equity method
of accounting. Investments in associates and
joint ventures are carried on
the Consolidated Balance Sheet initially at
cost and increased or decreased to recognize
the Bank’s share of the profit or loss of the associate
or joint venture,
capital transactions, including the receipt of any
dividends, and write-downs to reflect
any impairment in the value of such entities.
These increases or decreases,
together with any gains and losses realized
on disposition, are reported on the
Consolidated Statement of Income. The
carrying amount of the investments also
includes the Bank’s share of the investee’s other comprehensive
income or loss, which is reported in the relevant
section of the Consolidated Statement of
Comprehensive Income.
At each balance sheet date, the Bank assesses
whether there is any objective evidence that
the investment in an associate or joint venture
is impaired. The
Bank calculates the amount of impairment
as the difference between the higher of fair
value or value-in-use and its carrying value.
CASH AND DUE FROM BANKS
Cash and due from banks consist of cash and amounts
due from banks which are issued by
investment grade financial institutions.
These amounts are due on
demand or have an original maturity of three
months or less.
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,
Revenue from Contracts with Customers
, 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.
Investment and securities services
Investment and securities services income
includes
asset management fees, administration
and commission fees, and investment banking
fees. The Bank
recognizes asset management and administration
fees based on time elapsed, which depicts
the rendering of investment management
and related services over
time. The fees are primarily calculated based
on average daily or point in time assets
under management (AUM) or assets under administration
(AUA) depending
on the investment mandate.
Commission fees include sales, trailer and
brokerage commissions. Sales and brokerage
commissions are generally recognized at a
point in time when the
transaction is executed. Trailer commissions are recognized
over time and are generally calculated based
on the average daily net asset value of
the fund during
the period.
Investment banking fees include advisory
fees and underwriting fees and are generally
recognized at a point in time upon successful
completion of the
engagement.
Credit fees
Credit fees include liquidity fees, restructuring
fees, letter of credit fees, and loan syndication
fees. Liquidity, restructuring,
and letter of credit fees are recognized
in
income over the period in which the service
is provided. Loan syndication fees are
generally recognized at a point in time
upon completion of the financing
placement.
Service charges
Service charges income is earned on personal
and commercial deposit accounts and
consists of account fees and transaction-based
service charges. Account
fees relate to account maintenance activities
and are recognized in income over the
period in which the service is provided.
Transaction-based service charges are
recognized as earned at a point in time
when the transaction is complete.
Card services
Card services income includes interchange
income as well as card fees such as annual
and transactional fees. Interchange income
is recognized at a point in time
when the transaction is authorized and funded.
Card fees are recognized as earned at the
transaction date with the exception of annual
fees, which are recognized
over a twelve-month period.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 18
FINANCIAL INSTRUMENTS
Interest Rate Benchmark Reform Phase
1
The Bank adopted Interest Rate Benchmark
Reform, Amendments to IFRS 9,
Financial Instruments
(IFRS 9), IAS 39,
Financial Instruments: Recognition and
Measurement
(IAS 39) and IFRS 7,
Financial Instruments: Disclosures
(IFRS 7) (Interest Rate Benchmark
Reform Phase 1), including the applicable
amendments
to IFRS 7 relating to hedge accounting, in
the fourth quarter of 2019. Under these
amendments, it is assumed that the hedged
interest rate benchmark is not
altered and thus hedge accounting continues
through to the date of replacement of
the existing interest rate benchmark with its
alternative reference rate (ARR).
The Bank is not required to discontinue hedge
accounting if the actual results of the hedge
do not meet the effectiveness requirements as a result
of interbank
offered rate (IBOR) reform. Refer to Note 11 for disclosures related
to the Bank’s hedge accounting relationships
impacted by IBOR reform.
Refer to Note 3 for details of Interest Rate
Benchmark Reform – Phase 2, Amendments
to IFRS 9, IAS 39, IFRS 7, IFRS 4,
Insurance Contracts
(IFRS 4) and
IFRS 16,
Leases
(IFRS 16) (Interest Rate Benchmark
Reform Phase 2), issued on August 27, 2020
and early adopted by the Bank on November
1, 2020.
Classification and Measurement of Financial
Assets
The Bank classifies its financial assets into
the following categories:
●
Amortized cost;
●
Fair value through other comprehensive income
(FVOCI);
●
Held-for-trading;
●
Non-trading fair value through profit or loss
(FVTPL); and
●
Designated as measured at FVTPL.
The Bank recognizes financial assets on a
settlement date basis, except for derivatives
and securities, which are recognized on a
trade date basis.
Debt Instruments
The classification and measurement for debt
instruments is based on the Bank’s business
models for managing its financial assets
and whether the contractual
cash flows represent solely payments of principal
and interest (SPPI). Refer to Note 3 for judgment
with respect to the determination of the Bank’s
business
models and whether contractual cash flows represent
SPPI.
The Bank has determined its business
models as follows:
●
Held-to-collect: the objective is to collect
contractual cash flows;
●
Held-to-collect-and-sell: the objective is both
to collect contractual cash flows and
sell the financial assets; and
●
Held-for-sale and other business models: the
objective is neither of the above.
The Bank performs the SPPI test for
financial assets held within the held-to-collect
and held-to-collect-and-sell business models.
If these financial assets have
contractual cash flows which are inconsistent
with a basic lending arrangement that do
not pass the SPPI test,
they are classified as non-trading financial
assets
measured at FVTPL. In a basic lending arrangement,
interest includes only consideration for
time value of money, credit risk, other basic lending risks, and a
reasonable profit margin.
Debt Securities and Loans Measured at Amortized
Cost
Debt securities and loans held within a held-to-collect
business model where their contractual
cash flows pass the SPPI test are measured
at amortized cost. The
carrying amount of these financial assets is
adjusted by an allowance for credit losses
recognized and measured as described
in the Impairment – Expected Credit
Loss Model
section of this Note, as well as any write-offs and unearned
income which includes prepaid interest,
loan origination fees and costs, commitment
fees,
loan syndication fees, and unamortized discounts
or premiums. Interest income is recognized
using EIRM. The effective interest rate (EIR) is
the rate that
discounts expected future cash flows for
the expected life of the financial instrument
to its carrying value. The calculation takes
into account the contractual interest
rate, along with any fees or incremental
costs that are directly attributable to the instrument
and all other premiums or discounts. Loan
origination fees and costs
are considered to be adjustments to the loan
yield and are recognized in interest income
over the term of the loan. Commitment fees
are recognized in credit fees
over the commitment period when it is
unlikely that the commitment will be
called upon; otherwise, they are recognized
in interest income over the term of the
resulting loan. Loan syndication fees are recognized
in credit fees upon completion of the financing
placement unless the yield on any loan retained
by the Bank is
less than that of other comparable lenders involved
in the financing syndicate. In such cases,
an appropriate portion of the fee is recognized
as a yield adjustment
in interest income over the term of the loan.
Debt Securities and Loans Measured at Fair
Value through Other Comprehensive Income
Debt securities and loans held within a held-to-collect-and-sell
business model where their contractual cash
flows pass the SPPI test are measured at
FVOCI. Fair
value changes are recognized in other
comprehensive income,
except for impairment gains or losses,
interest income and foreign exchange gains
and losses on
the instrument’s amortized cost, which are recognized
in the Consolidated Statement of Income.
Interest income is recognized using EIRM.
The expected credit
loss (ECL) allowance is recognized and
measured as described in the Impairment
– Expected Credit Loss Model section of
this Note. When the financial asset is
derecognized, the cumulative gain or loss previously
recognized in other comprehensive income is
reclassified from equity to income and
recognized in other
income (loss).
Financial Assets Held-for-Trading
The held-for-sale business model includes
financial assets held within a trading portfolio,
which have been originated, acquired,
or incurred principally for the
purpose of selling in the near term, or if they
form part of a portfolio of identified financial
instruments that are managed together
and for which there is evidence of
short-term profit-taking. Financial assets
held within this business model consist of
trading securities, trading loans, as well
as certain securities purchased under
reverse repurchase agreements.
Trading portfolio assets are accounted for at fair value
with changes in fair value recognized in
trading income (loss). Transaction costs are expensed
as
incurred. Dividends are recognized on
the ex-dividend date and interest is recognized
on an accrual basis. Both dividends and interest
are included in interest
income.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 19
Non-Trading Financial Assets Measured at Fair Value through Profit or Loss
Non-trading financial assets measured at
FVTPL include financial assets held
within the held-for-sale and other business
models, for example debt securities and
loans managed on a fair value basis. Financial
assets held within the held-to-collect or held-to-collect-and-sell
business models that do not pass the SPPI
test are
also classified as non-trading financial assets
measured at FVTPL. Changes in fair value
as well as any gains or losses realized on
disposal are recognized in
other income (loss). Interest income from
debt instruments is included in interest
income on an accrual basis.
Financial Assets Designated at Fair Value through Profit
or Loss
Debt instruments in a held-to-collect
or held-to-collect-and-sell business model can be
designated at initial recognition as measured
at FVTPL, provided the
designation can eliminate or significantly reduce
an accounting mismatch that would
otherwise arise from measuring these
financial assets on a different basis.
The FVTPL designation is available only
for those financial instruments for which a
reliable estimate of fair value can be obtained.
Once financial assets are
designated at FVTPL,
the designation is irrevocable. Changes in
fair value as well as any gains or losses realized
on disposal are recognized in other income
(loss). Interest income from these financial
assets is included in interest income on an accrual
basis.
Customers’ Liability under Acceptances
Acceptances represent a form of negotiable
short-term debt issued by customers,
which the Bank guarantees for a fee. Revenue
is recognized on an accrual
basis. The potential obligation of the Bank is
reported as a liability under Acceptances
on the Consolidated Balance Sheet.
The Bank’s recourse against the
customer in the event of a call on any of
these commitments is reported as an asset
of the same amount.
Equity Instruments
Equity investments are required to be measured
at FVTPL, except where the Bank has
elected at initial recognition to irrevocably designate
an equity investment,
held for purposes other than trading, at FVOCI.
If such an election is made, the fair value
changes, including any associated foreign exchange
gains or losses, are
recognized in other comprehensive income
and are not subsequently reclassified
to net income, including upon disposal.
Realized gains and losses are
transferred directly to retained earnings
upon disposal. Consequently, there is no review required for impairment.
Dividends will normally be recognized in interest
income unless the dividends represent a recovery
of part of the cost of the investment. Gains and
losses on trading and non-trading equity investments
measured
at FVTPL are included in trading income (loss)
and other income (loss), respectively.
Classification and Measurement for
Financial Liabilities
The Bank classifies its financial liabilities into
the following categories:
●
Held-for-trading;
●
Designated at FVTPL; and
●
Other liabilities.
Financial Liabilities Held-for-Trading
Financial liabilities are held within a trading
portfolio if they have been incurred principally
for the purpose of repurchasing in the near
term, or form part of a
portfolio of identified financial instruments
that are managed together and for which
there is evidence of a recent actual pattern
of short-term profit-taking. Financial
liabilities held-for-trading are primarily trading
deposits, securitization liabilities at
fair value, obligations related to securities
sold short and certain obligations
related to securities sold under repurchase agreements.
Trading portfolio liabilities are accounted for at fair
value, with changes in fair value as well as any
gains or losses realized on disposal recognized
in trading
income (loss). Transaction costs are expensed as incurred.
Interest is recognized on an accrual basis
in interest expense.
Financial Liabilities Designated at Fair Value through
Profit or Loss
Certain financial liabilities may be designated
at FVTPL at initial recognition. To be designated at FVTPL, financial liabilities
must meet one of the following criteria:
(1) the designation eliminates or significantly
reduces a measurement or recognition
inconsistency; (2) the financial liabilities
or a group of financial assets and
financial liabilities are managed, and their performance
is evaluated, on a fair value basis in accordance
with a documented risk management or
investment
strategy; or (3) the instrument contains one
or more embedded derivatives unless
a) the embedded derivative does not significantly
modify the cash flows that
otherwise would be required by the contract,
or b) it is clear with little or no analysis
that separation of the embedded derivative
from the financial instrument is
prohibited. In addition, the FVTPL designation
is available only for those financial instruments
for which a reliable estimate
of fair value can be obtained. Once
financial liabilities are designated at FVTPL,
the designation is irrevocable.
Financial liabilities designated at FVTPL are
carried at fair value on the Consolidated Balance
Sheet, with changes in fair value as
well as any gains or losses
realized on disposal recognized in other income
(loss), except for the amount of change in
fair value attributable to changes in the Bank’s own
credit risk, which is
presented in other comprehensive income.
Amounts recognized in other comprehensive
income are not subsequently reclassified
to net income upon
derecognition of the financial liability;
instead,
they are transferred directly to retained
earnings.
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 both
the interest rate benchmark curve and
the Bank’s own credit curve; and (ii)
the period-over-period change in the present
value of the same expected cash flows using
a discount curve based solely on the interest
rate benchmark curve.
For loan commitments and financial guarantee
contracts that are designated at FVTPL,
the full change in fair value of the liability is recognized
in other income
(loss).
Interest is recognized on an accrual basis
in interest expense.
Other Financial Liabilities
Deposits
Deposits, other than deposits included in a
trading portfolio and deposits designated at
FVTPL, are accounted for at amortized cost.
Accrued interest on deposits
is included in Other liabilities on the Consolidated
Balance Sheet. Interest, including capitalized
transaction costs, is recognized on an accrual
basis using EIRM as
Interest expense on the Consolidated Statement
of Income.
Subordinated Notes and Debentures
Subordinated notes and debentures are
accounted for at amortized cost. Accrued
interest on subordinated notes and debentures
is included in Other liabilities on
the Consolidated Balance Sheet. Interest, including
capitalized transaction costs, is recognized
on an accrual basis using EIRM as Interest
expense on the
Consolidated Statement of Income.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 20
Reclassification of Financial Assets and
Financial Liabilities
Financial assets and financial liabilities are
not reclassified subsequent to their initial
recognition, except for financial assets
for which the Bank changes its
business model for managing financial assets.
Such reclassifications of financial assets are
expected to be rare in practice.
Impairment – Expected Credit Loss Model
The ECL model applies to financial assets, including
loans and debt securities measured
at amortized cost, loans and debt securities
measured at FVOCI, loan
commitments, and financial guarantees
that are not measured at FVTPL.
The ECL model consists of three stages:
Stage 1 – Twelve-month ECLs for performing
financial assets, Stage 2 – Lifetime ECLs
for financial assets that have
experienced a significant increase in credit
risk since initial recognition, and Stage 3 – Lifetime
ECLs for financial assets that are credit-impaired.
ECLs are the
difference between all the contractual cash flows
that are due to the Bank in accordance with
the contract and all the cash flows the
Bank expects to receive,
discounted at the original EIR. If a significant
increase in credit risk has occurred
since initial recognition, impairment is
measured as lifetime ECLs. Otherwise,
impairment is measured as twelve-month ECLs
which represent the portion of lifetime ECLs
that are expected to occur based on default
events that are possible
within twelve months after the reporting date.
If credit quality improves in a subsequent
period such that the increase in credit risk
since initial recognition is no
longer considered significant, the loss allowance
reverts to being measured based on twelve-month
ECLs.
Significant Increase in Credit Risk
For retail exposures, significant increase in
credit risk is assessed based on changes in
the twelve-month probability of default (PD)
since initial recognition, using
a combination of individual and collective information
that incorporates borrower and account
specific attributes and relevant forward-looking
macroeconomic
variables.
For non-retail exposures, significant increase
in credit risk is assessed based on
changes in the internal risk rating (borrower risk
ratings (BRR)) since initial
recognition. Refer to the shaded areas of
the “Managing Risk” section of the 2024
MD&A for further details on the Bank’s 21-point BRR
scale to risk levels.
For both retail and non-retail exposures,
delinquency backstop when contractual payments
are more than 30 days past due is also used
in assessing significant
increase in credit risk.
The Bank defines default as delinquency of 90
days or more for most retail products
and BRR of 9 for non-retail exposures.
Exposures are considered credit-
impaired and migrate to Stage 3 when the definition
of default is met or when there is objective
evidence that there has been a deterioration
of credit quality to the
extent the Bank no longer has reasonable
assurance as to the timely collection of the
full amount of principal and interest.
When assessing whether there has been a
significant increase in credit risk since
the initial recognition of a financial asset,
the Bank considers all reasonable
and supportable information that is available
without undue cost or effort about past events,
current conditions, and forecast of future economic
conditions. Refer to
Note 3 for additional details.
Measurement of Expected Credit Losses
ECLs are measured as the probability-weighted
present value of expected cash shortfalls over
the remaining expected life of the financial instrument
and consider
reasonable and supportable information about
past events, current conditions, and forecasts
of future events and economic conditions
that impact the Bank’s
credit risk assessment. Expected life is
the maximum contractual period the Bank is
exposed to credit risk, including extension
options for which the borrower has
unilateral right to exercise. For certain
financial instruments that include both a loan
and an undrawn commitment,
and the Bank’s contractual ability to demand
repayment and cancel the undrawn commitment
does not limit the Bank’s exposure to credit losses
to the contractual notice period, ECLs are
measured over the
period the Bank is exposed to credit risk.
For example, ECLs for credit cards are
measured over the borrowers’ expected
behavioural life, incorporating
survivorship assumptions and borrower-specific
attributes.
The Bank leverages
its Advanced Internal Ratings-Based
models used for regulatory capital purposes
and incorporates adjustments where appropriate
to
calculate ECLs.
Forward-Looking Information and Expert
Credit Judgment
Forward-looking information is considered
when determining significant increase in
credit risk and measuring ECLs. Forward-looking
macroeconomic factors are
incorporated in the risk parameters as relevant.
Qualitative factors that are not already considered
in the quantitative models are incorporated
by applying expert credit judgment in determining
the final ECLs.
Refer to Note 3 for additional details.
Modified Loans
In cases where a borrower experiences financial
difficulties, the Bank may grant certain modifications
to the terms and conditions of a loan.
Modifications may
include payment deferrals, extension of amortization
periods, rate reductions, principal forgiveness,
debt consolidation, forbearance and other
modifications
intended to minimize the economic loss and
to avoid foreclosure or repossession
of collateral. The Bank has policies in place
to determine the appropriate
remediation strategy based on the individual
borrower.
If the Bank determines that a modification
results in expiry of cash flows, the original
asset is derecognized and a new asset
is recognized based on the new
contractual terms. Significant increase in
credit risk is assessed relative to the risk of
default on the date of modification.
If the Bank determines that a modification
does not result in derecognition, significant
increase in credit risk is assessed based
on the risk of default at initial
recognition of the original asset. Expected cash
flows arising from the modified contractual
terms are considered when calculating ECLs
for the modified asset. For
loans that were modified while having lifetime
ECLs, the loans can revert to having
twelve-month ECLs after a period of performance
and improvement in the
borrower’s financial condition.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 21
Allowance for Loan Losses, Excluding
Acquired Credit-Impaired Loans
The allowance for loan losses represents
management’s calculation of probability-weighted
ECLs in the lending portfolios, including
any off-balance sheet
exposures, at the balance sheet date. The
allowance for loan losses for lending portfolios
reported on the Consolidated Balance
Sheet, which includes credit-
related allowances for residential mortgages,
consumer instalment and other personal,
credit card, business and government loans, and
customers’ liability under
acceptances, is deducted from Loans on
the Consolidated Balance Sheet. The allowance
for loan losses for loans measured at
FVOCI is included in the
Consolidated Statement of Changes in Equity. The allowance for loan losses
for off-balance sheet instruments, which relates
to certain guarantees, letters of
credit, and undrawn lines of credit, is recognized
in Other liabilities on the Consolidated Balance
Sheet. Allowances for lending portfolios
reported on the balance
sheet and off-balance sheet exposures are
calculated using the same methodology. The allowance is increased
by the provision for credit losses and
decreased
by write-offs net of recoveries and disposals.
Each
quarter, allowances are reassessed and adjusted based
on any changes in management’s estimate
of ECLs.
Loan losses on impaired loans in Stage 3
continue to be recognized by means of an allowance
for loan losses until a loan is written off.
A loan is written off against the related allowance
for loan losses when there is no realistic
prospect of recovery. Non-retail loans are generally written off
when
all reasonable collection efforts have been exhausted,
such as when a loan is sold, when all security
has been realized, or when all security has
been resolved
with the receiver or bankruptcy court.
Non-real estate retail loans are generally
written off when contractual payments are
180 days past due, or when a loan is
sold. Real estate secured retail loans are generally
written off when the security is realized. The time period
over which the Bank performs collection
activities on
the contractual amount outstanding of financial
assets that are written off varies from one
jurisdiction to another and generally spans
between less than one year to
five years.
Allowance for Credit Losses on Debt Securities
The allowance for credit losses on debt securities
represents management’s calculation of probability-weighted
ECLs. Debt securities measured at amortized
cost
are presented net of the allowance for credit
losses on the Consolidated Balance Sheet.
The allowance for credit losses on debt securities
measured at FVOCI are
included in the Consolidated Statement of
Changes in Equity. The allowance for credit losses is increased
by the provision for credit losses and
decreased by
write-offs net of recoveries and disposals.
Acquired Performing Loans
Acquired performing loans are initially measured
at fair value, which considers incurred
and expected future credit losses estimated
at the acquisition date and
also reflects adjustments based on the acquired
loan’s interest rate in comparison to current
market rates. On acquisition, twelve-month
ECLs are recognized on
the acquired performing loans, resulting in
the carrying amount being lower than fair
value. Acquired performing loans are subsequently
accounted for at amortized
cost based on their contractual cash flows and
any acquisition related discount or premium,
including credit-related discounts, is
considered to be an adjustment to
the loan yield and is recognized in interest income
using EIRM over the term of the loan, or the expected
life of the loan for acquired performing
loans with
revolving terms.
Acquired Credit-Impaired Loans
When loans are acquired with evidence of incurred
credit loss where it is probable at the purchase
date that the Bank will be unable to collect
all contractually
required principal and interest payments,
they are generally considered to be acquired
credit-impaired (ACI) loans, with no ECLs recognized
on acquisition. ACI
loans are identified as impaired at acquisition
based on specific risk characteristics of
the loans, including past due status, performance
history, and recent
borrower credit scores. ACI loans are accounted
for based on the present value of expected
cash flows as opposed to their contractual
cash flows. The Bank
determines the fair value of these loans at
the acquisition date by discounting expected
cash flows at a discount rate that reflects
factors a market participant
would use when determining fair value, including
management assumptions relating to default rates,
loss severities, the amount and timing of prepayments,
and
other factors that are reflective of current
market conditions. With respect to certain
individually significant ACI loans, accounting
is applied individually at the loan
level. The remaining ACI loans are aggregated
provided they are acquired in the same
fiscal quarter and have common risk
characteristics. Aggregated loans are
accounted for as a single asset with aggregated
cash flows and a single composite interest
rate. Subsequent to acquisition, the Bank
regularly reassesses and
updates its cash flow estimates for changes
to assumptions relating to default rates, loss
severities, the amount and timing of prepayments,
and other factors that
are reflective of current market conditions.
Probable decreases in expected cash flows
trigger the recognition of additional impairment,
which is measured based
on the present value of the revised expected
cash flows discounted at the loan’s EIR as
compared to the carrying value of the loan.
The ECL in excess of the initial
credit-related discount is recorded through
the provision for credit losses. Interest
income on ACI loans is calculated by applying
the credit-adjusted EIR to the
amortized cost of ACI loans.
SHARE CAPITAL AND OTHER EQUITY INSTRUMENTS
The Bank classifies financial instruments
that it issues as either financial liabilities,
equity instruments, or compound instruments.
Issued instruments that are mandatorily redeemable
or convertible into a variable number of
the Bank’s common shares at the holder’s option
are classified as
liabilities on the Consolidated Balance Sheet.
Dividend or interest payments on these instruments
are recognized in Interest expense on
the Consolidated
Statement of Income.
Issued instruments are classified as
equity when there is no contractual obligation
to transfer cash or other financial assets
to redeem or convert these
instruments. Such instruments, if not
mandatorily redeemable or convertible into a
variable number of the Bank’s common shares at the
holder’s option, are
classified as equity on the Consolidated Balance
Sheet.
Incremental costs directly attributable
to the issue of equity instruments are included
in equity as a
deduction from the proceeds, net of tax.
Dividends and distributions on these instruments
are recognized as a reduction in equity.
Compound instruments are comprised of
both liability and equity components in accordance
with the substance of the contractual arrangement.
The liability
component is initially measured at fair value
with any residual amount assigned to the equity
component. Issuance costs are allocated
proportionately to the
liability and equity components.
Common shares, preferred shares, and other
equity instruments issued and held by the Bank
are classified as treasury instruments
in equity, and the cost of
these instruments is recorded as a reduction in
equity. Upon the sale of treasury instruments, the difference between
the sale proceeds and the cost of the
instruments is recorded in or against contributed
surplus.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 22
GUARANTEES
The Bank issues guarantee contracts that require
payments to be made to guaranteed parties
based on: (1) changes in the underlying
economic characteristics
relating to an asset or liability of the guaranteed
party; (2) failure of another party to perform
under an obligating agreement; or (3) failure
of another third party to
pay its indebtedness when due. Guarantees
are initially measured and recorded
at their fair value. The fair value of a
guarantee liability at initial recognition
is
normally equal to the present value of the guarantee
fees received over the life of the contract.
The Bank’s release from risk is recognized
over the term of the
guarantee using a systematic and rational amortization
method.
If a guarantee meets the definition of a derivative,
it is carried at fair value on the Consolidated
Balance Sheet and reported as a derivative asset
or derivative
liability at fair value. Guarantees that are
considered derivatives are over-the-counter
(OTC) credit derivative contracts designed
to transfer the credit risk in an
underlying financial instrument from one
counterparty to another.
DERIVATIVES
Derivatives are instruments that derive
their value from changes in underlying interest
rates, foreign exchange rates, credit spreads,
commodity prices, equities, or
other financial or non-financial measures.
Such instruments include interest rate, foreign
exchange, equity, commodity, and credit derivative contracts. The Bank
uses these instruments for trading and non-trading
purposes. Derivatives are carried at
their fair value on the Consolidated Balance
Sheet.
Derivatives Held for Trading Purposes
The Bank enters into trading derivative contracts
to meet the needs of its customers,
to provide liquidity and market-making
related activities, and in certain cases,
to manage risks related to its trading portfolios.
The realized and unrealized gains or losses
on trading derivatives are recognized
in trading income (loss).
Derivatives Held for Non-trading Purposes
Non-trading derivatives are primarily used
to manage interest rate, foreign exchange, and
other market risks of the Bank’s traditional
banking activities. When
derivatives are held for non-trading purposes
and when the transactions meet the hedge accounting
requirements of IAS 39, they are presented
as non-trading
derivatives and receive hedge accounting
treatment, as appropriate. Certain derivative
instruments that are held for economic hedging
purposes, and do not meet
the hedge accounting requirements of IAS
39, are also presented as non-trading derivatives
with the change in fair value of these derivatives
recognized in non-
interest income.
Hedging Relationships
Hedge Accounting
The Bank has an accounting policy choice
to apply the hedge accounting requirements
of IFRS 9 or IAS 39. The Bank has
made the decision to continue applying
the IAS 39 hedge accounting requirements
and complies with the revised annual
hedge accounting disclosures as required
by the related amendments to IFRS 7.
At the inception of a hedging relationship, the
Bank documents the relationship between
the hedging instrument and the hedged item,
its risk management
objective, and its strategy for undertaking
the hedge. The Bank also requires a documented
assessment, both at hedge inception
and on an ongoing basis, of
whether or not the derivatives that are used in
hedging relationships are highly effective in offsetting
the changes attributable to the hedged risks
in the fair values
or cash flows of the hedged items. In order
to be considered highly effective, the hedging instrument
and the hedged item must be highly and inversely
correlated
such that the changes in the fair value of
the hedging instrument will substantially offset
the effects of the hedged exposure throughout
the term of the hedging
relationship. If a hedging relationship becomes
ineffective, it no longer qualifies for hedge accounting
and any subsequent change in the fair value
of the hedging
instrument
is recognized in Non-interest income
on the Consolidated Statement of Income.
Changes in fair value relating to the derivative
component excluded from the assessment
of hedge effectiveness are recognized in
Net interest income or Non-
interest income, as applicable, on the
Consolidated Statement of Income.
When derivatives are designated in hedge accounting
relationships,
the Bank classifies them either as: (1) hedges
of the changes in fair value of recognized
assets, liabilities or firm commitments (fair
value hedges); (2) hedges of the variability in
highly probable future cash flows attributable
to recognized assets,
liabilities or forecast transactions (cash flow
hedges); or (3) hedges of net investments
in foreign operations (net investment hedges).
Interest Rate Benchmark Reform
A hedging relationship is affected by IBOR reform
if the reform gives rise to uncertainties about
(a) the interest rate benchmark (contractually
or non-contractually
specified) designated as a hedged risk; and/or
(b) the timing or the amount of interest
rate benchmark-based cash flows of the hedged
item or of the hedging
instrument.
For such hedging relationships, the following
temporary exceptions apply during the period
of uncertainty:
●
When assessing whether a forecast transaction
is highly probable or expected to occur, it is assumed that
the interest rate benchmark on which the hedged
cash flows (contractually or non-contractually
specified) are based is not altered as a result
of IBOR reform;
●
When assessing whether a hedge is expected
to be highly effective, it is assumed that the interest
rate benchmark on which the hedged cash
flows and/or the
hedged risk (contractually or non-contractually
specified) are based, or the interest rate benchmark
on which the cash flows of the hedging
instrument are
based, is not altered as a result of IBOR reform;
●
A hedge is not required to be discontinued
if the actual results of the hedge are outside
of a range of 80–125 per cent as a result
of IBOR reform; and
●
For a hedge of a non-contractually specified benchmark
portion of interest rate risk, the requirement
that the risk component is separately
identifiable need only
be met at the inception of the hedging relationship.
Fair Value Hedges
The Bank’s fair value hedges principally consist of
interest rate swaps that are used to protect
against changes in the fair value of fixed-rate
financial instruments
due to movements in market interest rates.
The change in the fair value of the derivative
that is designated and qualifies as a fair value
hedge, as well as the change in the
fair value of the hedged item
attributable to the hedged risk, is recognized
in net interest income to the extent that the
hedging relationship is effective. Any change in
fair value relating to the
ineffective portion of the hedging relationship
is recognized immediately in non-interest
income.
The cumulative adjustment to the carrying
amount of the hedged item (the basis adjustment)
is amortized to Net interest income on
the Consolidated Statement
of Income based on a recalculated EIR over
the remaining expected life of the hedged item,
with amortization beginning no later than
when the hedged item
ceases to be adjusted for changes in its fair value
attributable to the hedged risk. Where the
hedged item has been derecognized, the
basis adjustment is
immediately released to Net interest
income or Non-interest income, as applicable,
on the Consolidated Statement of Income.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 23
Cash Flow Hedges
The Bank is exposed to variability in
future cash flows attributable to interest rate,
foreign exchange rate, and equity price risks.
The amounts and timing of future
cash flows are projected for each hedged
exposure on the basis of their contractual
terms and other relevant factors, including estimates
of prepayments and
defaults.
The effective portion of the change in the fair value
of the derivative that is designated and qualifies
as a cash flow hedge is initially recognized in
other
comprehensive income. The change in fair
value of the derivative relating to the ineffective
portion is recognized immediately in
non-interest income. Amounts in
accumulated other comprehensive income
(AOCI) are reclassified to Net interest
income or Non-interest income, as applicable,
on the Consolidated Statement of
Income in the same period during which
the hedged item affects income.
When a hedging instrument expires or is sold,
or when a hedge no longer meets the
criteria for hedge accounting, any cumulative
gain or loss existing in AOCI
at that time remains in AOCI until the forecast
transaction impacts the Consolidated Statement
of Income. When a forecast transaction is no
longer expected to
occur, the cumulative gain or loss that was reported in AOCI
is immediately reclassified to Net interest
income or Non-interest income, as
applicable, on the
Consolidated Statement of Income.
Net Investment Hedges
Hedges of net investments in foreign operations
are accounted for similar to cash flow hedges.
The change in fair value on the hedging instrument
relating to the
effective portion is recognized in other comprehensive
income. The change in fair value of the
hedging instrument relating to the ineffective
portion is recognized
immediately in non-interest income. Gains
and losses in AOCI are reclassified as
non-interest income in the Consolidated
Statement of Income upon the disposal
or partial disposal of the investment in
the foreign operation. The Bank designates derivatives
and non-derivatives (such as foreign currency
deposit liabilities) as
hedging instruments in net investment hedges.
Embedded Derivatives
Derivatives may be embedded in financial liabilities
or other host contracts. Embedded derivatives
are treated as separate derivatives when
their economic
characteristics and risks are not closely
related to those of the host instrument,
a separate instrument with the same terms
as the embedded derivative would meet
the definition of a derivative, and the combined
contract is not measured at fair value
with changes in fair value recognized in income,
such as held-for-trading or
designated at FVTPL.
These embedded derivatives, which are bifurcated
from the host contract, are recognized as
Derivatives on the Consolidated Balance Sheet
and measured at fair value with subsequent
changes in fair value recognized in
Non-interest income on the Consolidated Statement
of Income.
TRANSLATION AND PRESENTATION OF FOREIGN CURRENCIES
The Bank’s Consolidated Financial Statements
are
presented in Canadian dollars.
Items included in the financial statements
of each of the Bank’s entities are
measured using their functional currency, which is the currency
of the primary economic environment in
which they operate.
Monetary assets and liabilities denominated
in a currency that differs from an entity’s functional
currency are translated into the functional
currency of the entity
at exchange rates prevailing at the balance
sheet date. Non-monetary assets and liabilities
are translated at historical exchange
rates. Income and expenses are
translated into an entity’s functional currency at
average exchange rates for the period.
Translation gains and losses are included in non-interest income
except for
equity investments designated at FVOCI where
unrealized translation gains and losses
are recorded in other comprehensive income.
Foreign operations are those with a functional
currency other than Canadian dollars. For
the purpose of translation into the Bank’s presentation
currency, all
assets and liabilities are first measured in
the functional currency of the foreign operation
and subsequently, translated at exchange rates prevailing at
the balance
sheet date. Income and expenses are
translated at average exchange rates for the
period. Unrealized translation gains
and losses relating to these foreign
operations, net of gains or losses arising
from net investment hedges and applicable
income taxes, are included in other
comprehensive income. Translation gains
and losses in AOCI are recognized on
the Consolidated Statement of Income upon
the disposal or partial disposal of the foreign
operation. The investment
balance of foreign entities accounted for
by the equity method, including the Bank’s investment
in The Charles Schwab Corporation, is
translated into Canadian
dollars using exchange rates prevailing at
the balance sheet date with exchange gains
or losses recognized in other comprehensive
income.
OFFSETTING OF FINANCIAL INSTRUMENTS
Financial assets and liabilities are offset, with
the net amount presented on the Consolidated
Balance Sheet, only if the Bank currently has
a legally enforceable
right to set off the recognized amounts, and intends
either to settle on a net basis or to realize
the asset and settle the liability simultaneously. In all other
situations,
assets and liabilities are presented on
a gross basis.
DETERMINATION OF FAIR VALUE
The fair value of a financial instrument on
initial recognition is normally the transaction
price, as evidenced by the fair value of the
consideration given or received.
The best evidence of fair value is quoted prices
in active markets. When there is no
active market for the instrument, the fair
value may be based on other
observable current market transactions
involving the same or similar instruments,
without modification or repackaging, or based
on a valuation technique which
maximizes the use of observable market
inputs.
When financial assets and liabilities have offsetting
market risks or credit risks, the Bank applies
a measurement exception, as described
in Note 5 under
Portfolio Exception
. The value determined from application
of the portfolio exception must be allocated
to the individual financial instruments
within the group to
arrive at the fair value of an individual financial
instrument. Balance
sheet offsetting presentation requirements, as described
above under the Offsetting of
Financial Instruments section of this Note, are
then applied, if applicable.
Valuation adjustments reflect the Bank’s assessment of factors that market participants
would use in pricing the asset or liability. The Bank recognizes
various
types of valuation adjustments including, but
not limited to, adjustments for bid-offer spreads, adjustments
for the unobservability of inputs used in
pricing models,
and adjustments for assumptions about risk,
such as the creditworthiness of either counterparty
and market implied unsecured funding
costs and benefits for OTC
derivatives.
If there is a difference between the initial transaction
price and the value based on a valuation
technique, the difference is referred to as inception
profit or loss.
Inception profit or loss is recognized
upon initial recognition of the instrument only
if the fair value is based on observable
inputs. When an instrument is measured
using a valuation technique that utilizes significant
non-observable inputs, it is initially valued at
the transaction price, which is considered
the best estimate of fair
value. Subsequent to initial recognition, any
difference between the transaction price and
the value determined by the valuation technique
at initial recognition is
recognized as non-observable inputs become
observable.
If the fair value of a financial asset measured
at fair value becomes negative, it is recognized
as a financial liability until either its fair
value becomes positive, at
which time it is recognized as a financial asset,
or until it is extinguished.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 24
DERECOGNITION OF FINANCIAL INSTRUMENTS
Financial Assets
The Bank derecognizes a financial asset
when the contractual rights to that asset have
expired. Derecognition may also be appropriate
where the contractual right
to receive future cash flows from the
asset have been transferred, or where
the Bank retains the rights to future cash
flows from the asset, but assumes an
obligation to pay those cash flows to a third party
subject to certain criteria.
When the Bank transfers a financial asset,
it is necessary to assess the extent
to which the Bank has retained the risks and rewards
of ownership of the
transferred asset. If substantially all the risks
and rewards of ownership of the financial
asset have been retained, the Bank continues
to recognize the financial
asset and also recognizes a financial liability
for the consideration received. Certain transaction
costs incurred are also capitalized and amortized
using EIRM. If
substantially all the risks and rewards of ownership
of the financial asset have been transferred,
the Bank will derecognize the financial asset
and recognize
separately as assets or liabilities any rights
and obligations created or retained in the
transfer. The Bank determines whether substantially all
the risks and rewards
have been transferred by quantitatively comparing
the variability in cash flows before and
after the transfer. If the variability in cash flows does not
change
significantly as a result of the transfer, the Bank has retained
substantially all of the risks and rewards of ownership.
If the Bank neither transfers nor retains
substantially all the risks and rewards of
ownership of the financial asset, the Bank
derecognizes the financial asset
where it has relinquished control of the financial
asset. The Bank is considered to have
relinquished control of the financial asset
where the transferee has the
practical ability to sell the transferred financial
asset. Where the Bank has retained control
of the financial asset, it continues to recognize
the financial asset to the
extent of its continuing involvement in
the financial asset. Under these circumstances,
the Bank usually retains the rights to future
cash flows relating to the asset
through a residual interest and is exposed
to some degree of risk associated with the
financial asset.
The derecognition criteria are also applied
to the transfer of part of an asset, rather
than the asset as a whole, or to a group of
similar financial assets in their
entirety, when applicable. If transferring a part of an asset, it
must be a specifically identified cash flow, a fully proportionate
share of the asset, or a fully
proportionate share of a specifically identified
cash flow.
Securitization
Securitization is the process by which
financial assets are transformed into
securities. The Bank securitizes financial
assets by transferring those financial assets
to a third party and as part of the securitization,
certain financial assets may be retained and
may consist of an interest-only strip and, in
some cases, a cash
reserve account (collectively referred to as
“retained interests”). If the transfer qualifies
for derecognition, a gain or loss on sale
of the financial assets is recognized
immediately in other income (loss) after considering
the effect of hedge accounting on the assets
sold, if applicable. The amount of the gain
or loss is calculated as
the difference between the carrying amount of the
asset transferred and the sum of any cash
proceeds received, the fair value of any financial
asset received or
financial liability assumed, and any cumulative
gain or loss allocated to the transferred
asset that had been recognized in AOCI.
To determine the value of the
retained interest initially recorded, the previous
carrying value of the transferred asset is allocated
between the amount derecognized from
the balance sheet and
the retained interest recorded, in proportion
to their relative fair values on the date of transfer. Subsequent
to initial recognition, as market prices are generally
not
available for retained interests, fair value
is determined by estimating the present
value of future expected cash flows using management’s
best estimates of key
assumptions that market participants would
use in determining such fair value. Refer
to Note 3 for assumptions used by management
in determining the fair value
of retained interests. Retained interest is classified
as trading securities with subsequent
changes in fair value recorded in trading income
(loss).
Where the Bank retains the servicing rights,
the benefits of servicing are assessed
against market expectations. When the benefits
of servicing are more than
adequate, a servicing asset is recognized.
Similarly, when the benefits of servicing are less than adequate,
a servicing liability is recognized. Servicing
assets and
servicing liabilities are initially recognized
at fair value and subsequently carried
at amortized cost.
Financial Liabilities
The Bank derecognizes a financial liability when
the obligation under the liability is discharged,
cancelled,
or expires. If an existing financial
liability is replaced by
another financial liability from the same lender
on substantially different terms or where
the terms of the existing liability are substantially
modified, the original
liability is derecognized and a new liability is
recognized with the difference in the respective
carrying amounts recognized on the Consolidated
Statement of
Income.
Securities Purchased Under Reverse Repurchase
Agreements, Securities Sold Under Repurchase
Agreements, and Securities Borrowing
and Lending
Securities purchased under reverse repurchase
agreements involve the purchase of securities
by the Bank under agreements to resell
the securities at a future
date. These agreements are treated as collateralized
lending transactions whereby the Bank
takes possession of the purchased securities, but
does not acquire
the risks and rewards of ownership. The Bank
monitors the market value of the purchased
securities relative to the amounts due under the
reverse repurchase
agreements, and when necessary, requires transfer of additional
collateral. In the event of counterparty default,
the agreements provide the Bank with the right
to
liquidate the collateral held and offset the proceeds
against the amount owing from the counterparty.
Obligations related to securities sold
under repurchase agreements involve the sale
of securities by the Bank to counterparties
under agreements to repurchase
the securities at a future date. These agreements
do not result in the risks and rewards of
ownership being relinquished and are treated
as collateralized borrowing
transactions. The Bank monitors the market
value of the securities sold relative to
the amounts due under the repurchase agreements,
and when necessary,
transfers additional collateral or may require
counterparties
to return the collateral pledged. Certain
transactions that do not meet derecognition
criteria are also
included in obligations related to securities
sold under repurchase agreements. Refer to
Note 9 for further details.
Securities purchased under reverse repurchase
agreements and obligations related to
securities sold under repurchase agreements
are initially recorded on the
Consolidated Balance Sheet at the respective
prices at which the securities were originally
acquired or sold, plus accrued interest.
Subsequently, the agreements
are measured at amortized cost on the
Consolidated Balance Sheet, plus accrued
interest, except when they are held-for-trading
or are designated at FVTPL.
Interest earned on reverse repurchase agreements
and interest incurred on repurchase agreements
is determined using EIRM for agreements
measured at
amortized cost and recognized on an accrual
basis for agreements measured at fair value,
and is included in Interest income and Interest
expense, respectively,
on the Consolidated Statement of Income.
Changes in fair value on reverse repurchase
agreements and repurchase agreements
that are held-for-trading or are
designated at FVTPL are included in Trading income
(loss) or in Other income (loss) on the Consolidated
Statement of Income.
In securities lending transactions,
the Bank lends securities to a counterparty
and receives collateral in the form of
cash or securities. If cash collateral is
received, the Bank records the cash along
with an obligation to return the cash as Obligations
related to securities sold under repurchase
agreements on the
Consolidated Balance Sheet.
Where securities are received as collateral,
the Bank does not record the collateral on
the Consolidated Balance Sheet.
In securities borrowing transactions,
the Bank borrows securities from a counterparty
and pledges either cash or securities as
collateral. If cash is pledged as
collateral, the Bank records the transaction
as Securities purchased under reverse repurchase
agreements on the Consolidated Balance
Sheet. If securities are
pledged as collateral,
the securities remain on the Bank’s Consolidated
Balance Sheet.
Where securities are pledged or received as
collateral, security borrowing fees and security
lending income are recorded in Non-interest
income on the
Consolidated Statement of Income over the
term of the transaction. Where cash is pledged
or received as collateral, interest received
or incurred is included in
Interest income and Interest expense, respectively, on the Consolidated
Statement of Income.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 25
Physical commodities purchased or sold
with an agreement to sell or repurchase the physical
commodities at a later date at a fixed price,
are also included in
securities purchased under reverse repurchase
agreements and obligations related to securities
sold under repurchase agreements, respectively, if the
derecognition criteria are not met. These
instruments are measured at fair value.
GOODWILL
Goodwill represents the excess purchase
price paid over the net fair value of identifiable
assets and liabilities acquired in a business
combination. Goodwill is
carried at its initial cost less accumulated impairment
losses.
Goodwill is allocated to a cash-generating
unit (CGU) or a group of CGUs that is
expected to benefit from the synergies of
the business combination, regardless
of whether any assets acquired and liabilities
assumed are assigned to the CGU or group
of CGUs. A CGU is the smallest identifiable
group of assets that
generates cash flows largely independent of
the cash inflows from other assets or groups
of assets. Each CGU or group of CGUs,
to which goodwill is allocated,
represents the lowest level within the Bank
at which the goodwill is monitored
for internal management purposes and is
not larger than an operating segment. If
the composition of a CGU or group of CGUs
to which goodwill has been allocated
changes as a result of the sale of a business,
restructuring or other changes, the
goodwill is reallocated to the units affected using a
relative value approach, unless the Bank
can demonstrate that some other method better
reflects the goodwill
associated with the units affected.
Goodwill is assessed for impairment at least
annually and when an event or change
in circumstances indicates that the carrying
amount may be impaired.
When impairment indicators are present,
the recoverable amount of the CGU or group
of CGUs, which is the higher of its
estimated fair value less costs of
disposal and its value-in-use, is determined.
If the carrying amount of the CGU or group
of CGUs is higher than its recoverable amount,
an impairment loss exists.
The impairment loss is recognized on the Consolidated
Statement of Income and cannot be reversed
in future periods.
INTANGIBLE ASSETS
Intangible assets represent identifiable non-monetary
assets and are acquired either separately
or through a business combination, or
internally generated
software. The Bank’s intangible assets consist primarily
of core deposit intangibles, credit
card related intangibles,
software intangibles,
and other intangibles.
Intangible assets are initially recognized at
cost, or at fair value if acquired through
a business combination, and are amortized
over their estimated useful lives (
4
to
15
years) proportionate to their expected economic
benefits, except for software which is
amortized over its estimated useful life (
3
to
7
years) on a straight-line
basis. In respect of internally generated
software, development costs are capitalized
only if the costs can be measured reliably, the asset is technically
feasible,
future economic benefits are probable, and the
Bank intends to and has sufficient resources
to complete development of the asset. Research
costs are expensed
as incurred.
The Bank assesses its intangible assets
for impairment indicators on a quarterly basis.
When impairment indicators are present, the recoverable
amount of the
asset, which is the higher of its estimated
fair value less costs of disposal and its value-in-use,
is determined. If the carrying amount
of the asset is higher than its
recoverable amount, the asset is written down
to its recoverable amount. Where it is not possible
to estimate the recoverable amount of an individual
asset, the
Bank estimates the recoverable amount
of the CGU to which the asset belongs.
If the CGU is not impaired, the useful
life of the intangible asset is assessed with
any changes applied on a prospective basis.
An impairment loss is recognized on
the Consolidated Statement of Income in
the period in which the impairment is
identified. Impairment losses recognized
previously are assessed and reversed if the
circumstances leading to the impairment
are no longer present. Reversal of
any impairment loss will not exceed the
carrying amount of the intangible asset
that would have been determined had no
impairment loss been recognized for the
asset in prior periods.
LAND, BUILDINGS, EQUIPMENT, AND OTHER DEPRECIABLE ASSETS
Land is recognized at cost. Buildings, computer
equipment, furniture and fixtures, other equipment,
and leasehold improvements are recognized
at cost less
accumulated depreciation and provisions
for impairment, if any. Gains or losses on disposal are included in
Non-interest income on the Consolidated
Statement of
Income.
The Bank records the obligation associated
with the retirement of a long-lived asset
at fair value in the period in which it is incurred
and can be reasonably
estimated, and records a corresponding increase
to the carrying amount of the asset. The asset
is depreciated on a straight-line
basis over its remaining useful life
while the liability is accreted to reflect the passage
of time until the eventual settlement of the
obligation.
Depreciation is recognized on a straight-line
basis over the useful lives of the assets
estimated by asset category, as follows:
Asset
Useful Life
Buildings
15
to
40
years
Computer equipment
2
to
8
years
Furniture and fixtures
3
to
15
years
Other equipment
5
to
15
years
Leasehold improvements
Lesser of the remaining lease term and
the remaining useful life of the asset
The Bank assesses its depreciable assets
for changes in useful life or impairment
on a quarterly basis. Where an impairment
indicator exists and the depreciable
asset does not generate separate cash flows
on a stand-alone basis, impairment is assessed
based on the recoverable amount of the
CGU to which the
depreciable asset belongs. If the CGU is not
impaired, the useful life of the depreciable
asset is assessed with any changes applied
on a prospective basis. Any
impairment loss is recognized on the Consolidated
Statement of Income in the period in which
the impairment is identified. Impairment
losses previously
recognized are assessed and reversed if the
circumstances leading to their impairment
are no longer present. Reversal of any impairment
loss will not exceed the
carrying amount of the depreciable asset
that would have been determined had no impairment
loss been recognized for the asset in prior periods.
NON-CURRENT ASSETS HELD-FOR-SALE
Individual non-current assets or disposal groups
are classified as held-for-sale if they are
available for immediate sale in their present
condition subject only to
terms that are usual and customary for
sales of such assets or disposal groups, and
their sale must be highly probable to occur
within one year. For a sale to be
highly probable, management must be committed
to a sales plan and initiate an active program
to market the sale of the non-current assets
or disposal groups.
Non-current assets or disposal groups classified
as held-for-sale are measured at the lower
of their carrying amount and fair value
less costs to sell on the
Consolidated Balance Sheet. Write-downs on premises
related non-current assets and write-downs
on equipment on initial classification
as held-for-sale are
included in Non-interest expenses on the Consolidated
Statement of Income. Subsequently, a non-current asset or disposal
group that is held-for-sale is no longer
depreciated or amortized, and any subsequent
write-downs in fair value less costs to sell or
such increases not in excess of cumulative
write-downs, are
recognized in Other income on the Consolidated
Statement of Income.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 26
SHARE-BASED COMPENSATION
The Bank grants share options to certain
key employees as compensation for services
provided to the Bank. The Bank uses
a binomial tree-based valuation
option pricing model to estimate fair value
for all share option compensation awards.
The cost of the share options is based on the fair value estimated at the grant
date and is recognized as compensation expense and contributed surplus over the service period required for employees to become fully entitled to the awards.
This period is generally equal to the vesting period in addition to a period prior to the grant date. For the Bank’s share options, this period is generally equal to five
years. When options are exercised, the amount initially recognized in the contributed surplus balance is reduced, with a corresponding increase in common
shares.
The Bank has various other share-based
compensation plans where certain employees
of the Bank are awarded share units equivalent
to the Bank’s common
shares as compensation for services provided
to the Bank. The obligation related to share
units is included in other liabilities on
the Consolidated Balance Sheet.
Compensation expense is recognized based on
the fair value of the share units at the grant
date adjusted for changes in fair value
between the grant date and the
vesting date, net of hedging activities,
over the service period required for
employees to become fully entitled
to the awards. This period is generally
equal to the
vesting period,
in addition to a period prior to the grant
date. For the Bank’s share units, this period is
generally equal to four years.
EMPLOYEE BENEFITS
Defined Benefit Plans
Actuarial valuations are prepared at least
every three years to determine the present
value of the projected benefit obligation
related to the Bank’s defined benefit
plans. In periods between actuarial valuations,
an extrapolation is performed based
on the most recent valuation completed. All
remeasurement gains and losses
are recognized immediately in other comprehensive
income, with cumulative gains and losses
reclassified to retained earnings. Pension
and post-retirement
defined benefit plan expenses are determined
based upon separate actuarial valuations
using the projected benefit method pro-rated
on service and
management’s best estimates of discount rate,
compensation increases, health care
cost trend rate, and mortality rates, which are
reviewed annually with the
Bank’s actuaries. The discount rate used to value liabilities
is determined by reference to market
yields on high-quality corporate bonds with terms
matching the
plans’ specific cash flows
.
The expense recognized includes the cost of
benefits for employee service provided in
the current year, net interest expense or income
on the net defined benefit liability or asset, past
service costs related to plan amendments,
curtailments or settlements, and administrative
costs. Plan amendment
costs are recognized in the period of a plan amendment,
irrespective of its vested status. Curtailments
and settlements are recognized by the
Bank when the
curtailment or settlement occurs. A curtailment
occurs when there is a significant reduction
in the number of employees covered by
the plan. A settlement occurs
when the Bank enters into a transaction that
eliminates all further legal or constructive
obligation for part or all of the benefits
provided under a defined benefit plan.
The fair value of plan assets and the present
value of the projected benefit obligation are
measured as at October 31. The net defined
benefit asset or liability
represents the difference between the cumulative remeasurement
gains and losses, expenses,
and recognized contributions and is reported
in other assets or
other liabilities.
Net defined benefit assets recognized by
the Bank are subject to a ceiling which limits
the asset recognized on the Consolidated
Balance Sheet to the amount
that is recoverable through refunds of contributions
or future contribution holidays. In addition,
where a regulatory funding deficit exists related
to a defined benefit
plan, the Bank is required to record a liability
equal to the present value of all future
cash payments required to eliminate that
deficit.
Defined Contribution Plans
For defined contribution plans, annual pension
expense is equal to the Bank’s contributions
to those plans.
INSURANCE
Insurance contracts are aggregated into groups
which are measured at the risk-adjusted present
value of cash flows in fulfilling the contracts.
Insurance revenue is
recognized on the Consolidated Statement of
Income as insurance services are provided
over the coverage period of the contracts
within the groups. Insurance
service expenses are reported on the
Consolidated Statement of Income as insurance
claims and related expenses are recognized and
when contract groups are
expected to be onerous.
Contract groups are onerous if their fulfilment
cash flows are expected to result in a net outflow. The liabilities
from insurance groups are
comprised of the liability for remaining
coverage (LRC) and the liability for incurred
claims (LIC) and are reported as Insurance
contract liabilities on the
Consolidated Balance Sheet. The LRC is
the obligation to investigate and pay claims
that have not yet occurred and includes a loss
component related to onerous
contract groups. The LIC is the estimate
of claims incurred, including claims that
have occurred but have not been reported,
and related insurance costs.
The Bank measures its insurance contract
groups using one of two measurement models,
the premium allocation approach (PAA) or the general measurement
model (GMM). The majority of insurance
contract groups are measured using the PAA, which includes
the Bank’s property and casualty insurance contracts
and
short-term life and health insurance contracts.
The PAA is a simplified model applied to insurance contracts
that are either one year or less or where the PAA
approximates the GMM. Contracts using
the GMM are longer-term life and health
contracts. The LRC for insurance contract
groups using the PAA is measured as
the premiums received less insurance acquisition
cash flows paid. The LRC is adjusted for the
recognition of insurance revenue and amortization
of acquisition
cash flows reported in insurance service expenses
on a straight-line basis over the contractual
terms of the underlying insurance contracts,
usually twelve months.
The LRC for longer term contracts using
the GMM model is measured using estimates
and assumptions that reflect the timing and
uncertainty of insurance cash
flows. Under both the PAA and GMM, when a group of contracts
is expected to be onerous, a loss
component (expected loss related to
fulfilling the group’s
insurance contracts) is established which
increases the LRC and insurance
service expenses. The loss component of the LRC
is subsequently recognized as a
reduction to insurance service expenses
over the contractual term of the underlying
insurance contracts to offset claims incurred
and related expenses.
The Bank measures the LIC at the present
value of current estimates of claims and related
costs for insurable events occurring at or before
the Consolidated
Balance Sheet date. The LIC includes a risk
adjustment, which represents the compensation
the Bank requires for bearing the uncertainty
related to non-financial
risks in its fulfilment of insurance contracts.
Expenses related to claims incurred, including
claims arising from catastrophes, and related
costs are reported in
insurance service expenses while changes
related to discounting the liability are recorded
as insurance finance income or expenses in
other income (loss).
Estimates used in the measurement of insurance
contract liabilities are determined in accordance
with accepted actuarial practices. Current estimates
of claims
and related expenses are determined on a
case-by-case basis and consider such
variables as past loss experience, current
claims trends and changes in the
prevailing social, economic, and legal environment.
These estimates are continually reviewed,
and as experience develops and new information
becomes known,
the estimates are adjusted as necessary. In addition to reported
claims information, the Bank’s insurance
contract liabilities include a provision to
account for the
future development of insurance claims, including
insurance claims incurred but not reported
by policyholders (IBNR). IBNR liabilities
are evaluated based on
historical development trends and actuarial
methodologies for groups of claims
with similar attributes.
Reinsurance contracts held are recognized
and measured using the same principles
as insurance contracts. Reinsurance contract assets
are presented in
Other assets on the Consolidated Balance
Sheet and the net results from reinsurance
contracts held are presented in Other income
(loss) on the Consolidated
Statement of Income. Refer to Note 21 for further
detail on the balances and results of insurance
and reinsurance contracts.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 27
PROVISIONS & CONTINGENT LIABILITIES
Provisions are recognized when the Bank has
a present obligation (legal or constructive)
as a result of a past event, the amount of
which can be reliably estimated,
and it is probable that an outflow of resources
will be required to settle the obligation.
Provisions are measured based on management’s
best estimate of the consideration required
to settle the obligation at the end of the reporting
period, taking
into account the risks and uncertainties surrounding
the obligation. If the effect of the time value of
money is material, provisions are measured
at the present value
of the expenditure expected to be required
to settle the obligation, using a discount rate
that reflects
the current market assessment of the time
value of money and
the risks specific to the obligation.
Contingent liabilities exist when there is a possible
obligation which is yet to be confirmed
or a present obligation which has been confirmed
but the outflow of
future resources is not probable or is not
reliably measurable. Contingent liabilities
are not recorded in the Bank’s Consolidated
Financial Statements and are
disclosed if material unless there is a remote
chance that it will result in a future outflow
of resources to settle.
INCOME TAXES
Income tax is comprised of current and deferred
tax. Income tax is recognized in the Provision
for (recovery of) income taxes on the
Consolidated Statement of
Income, except to the extent that it relates to items
recognized in other comprehensive income or
directly in equity, in which case the related taxes are also
recognized in other comprehensive income
or directly in equity, respectively.
Deferred tax is recognized on temporary differences
between the carrying amounts of assets
and liabilities on the Consolidated Balance Sheet
and the amounts
attributed to such assets and liabilities for
tax purposes. Deferred tax assets and liabilities
are determined based on the tax rates
that are expected to apply when
the assets or liabilities are reported for
tax purposes. Deferred tax assets are recognized
only when it is probable that sufficient taxable
profit will be available in
future periods against which deductible
temporary differences may be utilized. Deferred
tax liabilities are not recognized on temporary
differences arising on
investments in subsidiaries, branches,
and associates, and interests in joint
ventures if the Bank controls the timing of
the reversal of the temporary difference and
it is probable that the temporary difference will not
reverse in the foreseeable future.
The Bank records a provision for uncertain
tax positions if it is probable that the Bank
will have to make a payment to tax authorities
upon their examination of a
tax position. This provision is measured
at the Bank’s best estimate of the amount expected
to be paid. Provisions are reversed in provision
for (recovery of)
income taxes in the period in which management
determines they are no longer required or
as determined by statute.
LEASES
An arrangement contains a lease if there is an
identified asset and the Bank has a right
to control that asset for a period of time in
exchange for consideration. A
right-of-use (ROU) asset and lease liability
is recognized for all leases except for
short-term leases and low value leases, as
described below. At the lease
commencement date, the lease liability is initially
recognized at the present value of the
future lease payments over the remaining lease
term and is discounted
using the Bank’s incremental borrowing rate.
The right-of-use asset is recognized
at cost, comprising an amount equal
to the lease liability, subject to certain
adjustments. Subsequently, the right-of-use asset is measured at
cost less accumulated depreciation and impairment
and adjusted for any remeasurement
of
lease liabilities, while the lease liability is accreted
using the Bank’s incremental borrowing rate.
The lease liability is remeasured when there is a
modification, a
change in the lease term, a change in the lease
payments (e.g., changes to future payments
resulting from a change in an index or rate
used to determine such
lease payments) or changes in the Bank’s assumptions
or strategies relating to the exercise
of purchase, extension, or termination options.
The Bank’s leases consist primarily of real estate,
equipment and other asset leases. Right-of-use
assets are recorded in Land, buildings,
equipment, other
depreciable assets and right-of-use assets
on the Consolidated Balance Sheet and
lease liabilities are included in Other liabilities
on the Consolidated Balance
Sheet. Interest expense on lease liabilities is
included in Net interest income and depreciation
expense on the right-of-use assets
is recognized in Non-interest
expenses on the Consolidated Statement
of Income.
Short-term leases, which have a lease term of
twelve months
or less, and leases of low-value assets
are exempt, and their payments are recognized
in Non-
interest expenses on a straight-line basis
within the Bank’s Consolidated Statement of
Income.
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 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.
CLASSIFICATION AND MEASUREMENT OF FINANCIAL ASSETS
Business Model Assessment
The Bank determines its business models
based on the objective under which its
portfolios of financial assets are managed.
Refer to Note 2 for details on the
Bank’s business models. In determining its
business models, the Bank considers
the following:
●
Management’s intent and strategic objectives
and the operation of the stated policies in practice;
●
The primary risks that affect the performance
of the portfolio
of assets and how these risks are
managed;
●
How the performance of the portfolio is evaluated
and reported to management; and
●
The frequency and significance of financial
asset sales in prior periods, the reasons
for such sales and the expected future sales activities.
Sales in themselves do not determine the business
model and are not considered in isolation.
Instead, sales provide evidence about
how cash flows are realized.
A held-to-collect business model will be reassessed
by the Bank to determine whether
any sales are consistent with an objective
of collecting contractual cash
flows if the sales are more than insignificant
in value or more than infrequent.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 28
Solely Payments of Principal and Interest
Test
In assessing whether contractual cash flows
represent SPPI, the Bank considers the
contractual terms of the instrument. This
includes assessing whether the
financial asset contains contractual terms
that could change the timing or amount
of contractual cash flows such that
they would not be consistent with a basic
lending arrangement. In making the assessment,
the Bank considers the primary terms
as follows and assesses if the contractual
cash flows of the instrument
continue to meet the SPPI test:
●
Performance-linked features;
●
Terms that limit the Bank’s claim to cash flows
from specified assets (non-recourse terms);
●
Prepayment and extension terms;
●
Leverage features;
●
Features that modify elements of the time
value of money; and
●
Sustainability-linked features.
IMPAIRMENT OF FINANCIAL ASSETS
Significant Increase in Credit Risk
For retail exposures, criteria for assessing
significant increase in credit risk are
defined at the appropriate product or
portfolio level and vary based on the
exposure’s credit risk at origination. The criteria
include relative changes in PD, absolute
PD backstop, and delinquency backstop
when contractual payments are
more than 30 days past due. Significant increase
in credit risk since initial recognition
has occurred when one of the criteria is
met.
For non-retail exposures, BRR is determined
on an individual borrower basis using industry
and sector specific credit risk models that are
based on historical
data. Current and forward-looking information
that is specific to the borrower, industry, and sector is considered based on expert
credit judgment. Criteria for
assessing significant increase in credit risk
are defined at the appropriate segmentation
level and vary based on the BRR of the exposure
at origination. Criteria
include relative changes in BRR, absolute
BRR backstop, and delinquency backstop
when contractual payments are more than 30
days past due. Significant
increase in credit risk since initial recognition
has occurred when one of the criteria is
met.
Measurement of Expected Credit Loss
ECLs are recognized on the initial recognition
of financial assets. Allowance for credit losses
represents management’s unbiased estimate
of the risk of default and
ECLs on the financial assets, including any off-balance
sheet exposures, at the balance sheet date.
For retail exposures, ECLs are calculated as
the product of PD, loss given default (LGD),
and exposure at default (EAD) at each
time step over the remaining
expected life of the financial asset and discounted
to the reporting date based on the EIR. PD
estimates represent the forward-looking
PD, updated quarterly
based on the Bank’s historical experience, current
conditions, and relevant forward-looking expectations
over the expected life of the exposure
to determine the
lifetime PD curve. LGD estimates are determined
based on historical charge-off events and recovery
payments, current information about attributes
specific to the
borrower, and direct costs. Expected cash flows from
collateral, guarantees, and other credit enhancements
are incorporated in LGD if integral to the contractual
terms. Relevant macroeconomic variables
are incorporated in determining expected
LGD. EAD represents the expected balance
at default across the remaining
expected life of the exposure. EAD incorporates
forward-looking expectations about repayments
of drawn balances and future draws
where applicable.
For non-retail exposures, ECLs are calculated
based on the present value of cash shortfalls
determined as the difference between contractual
cash flows and
expected cash flows over the remaining expected
life of the financial instrument. Lifetime
PD is determined by mapping the exposure’s
BRR to forward-looking PD
over the expected life. LGD estimates are
determined by mapping the exposure’s facility
risk rating (FRR) to expected LGD which
takes into account facility-
specific characteristics such as collateral,
seniority ranking of debt, and loan structure.
Relevant macroeconomic variables are incorporated
in determining
expected PD and LGD. Expected cash flows
are determined by applying the PD and LGD
estimates to the contractual cash flows
to calculate cash shortfalls over
the expected life of the exposure.
Forward-Looking Information
In calculating ECLs, the Bank employs internally
developed models that utilize parameters
for PD, LGD, and EAD. Forward-looking
macroeconomic factors
including at the regional level are incorporated
in the risk parameters as relevant.
Additional risk factors that are industry or
segment specific are also incorporated,
where relevant. Forward-looking macroeconomic
forecasts are generated by TD Economics
as part of the ECL process: A base economic
forecast is accompanied
with upside and downside estimates of realistically
possible economic conditions by considering
the sources of uncertainty around the base
forecast. All
macroeconomic forecasts are updated quarterly
for each variable on a regional basis where
applicable and incorporated as relevant
into the quarterly modelling of
base, upside and downside risk parameters
used in the calculation of ECL scenarios and
probability-weighted ECLs. TD Economics
will apply judgment to
recommend probability weights to each forecast
on a quarterly basis. The proposed
macroeconomic forecasts and probability
weightings are subject to robust
management review and challenge process
by a cross-functional committee that
includes representation from TD Economics,
Risk, Finance, and Business. ECLs
calculated under each of the three forecasts are
applied against the respective probability
weightings to determine the probability-weighted
ECLs. Refer to Note 8
for further details on the macroeconomic
variables and ECL sensitivity.
Expert Credit Judgment
Management’s expert credit judgment is used
to determine the best estimate for the qualitative
component contributing to ECLs, based on an assessment
of
business and economic conditions, historical
loss experience, loan portfolio composition,
and other relevant indicators and forward-looking
information that are not
fully incorporated into the model calculation.
There remains elevated economic uncertainty,
and management continues to exercise expert
credit judgment in assessing if an exposure
has experienced
significant increase in credit risk since initial
recognition and in determining the amount
of ECLs at each reporting date. To the extent that certain effects are not
fully incorporated into the model calculations,
temporary quantitative and qualitative adjustments
have been applied.
LEASES
The Bank applies judgment in determining
the appropriate lease term on a lease-by-lease
basis. All facts and circumstances that
create an economic incentive to
exercise a renewal option or not to exercise
a termination option including investments
in major leaseholds, branch performance
and past business practice are
considered. The periods covered by renewal
or termination options are only included
in the lease term if it is reasonably certain
that the Bank will exercise the
options; management considers “reasonably
certain”
to be a high threshold. Changes in the economic
environment or changes in the industry
may impact the
Bank’s assessment of lease term, and any changes
in the Bank’s estimate of lease terms
may have a material impact on the Bank’s
Consolidated Balance Sheet
and Consolidated Statement of Income.
In determining the carrying amount of right-of-use
(ROU) assets and lease liabilities,
the Bank is required to estimate the incremental
borrowing rate specific to
each leased asset or portfolio of leased assets
if the interest rate implicit in the lease
is not readily determinable. The Bank
determines the incremental borrowing
rate of each leased asset or portfolio of leased
assets by incorporating the Bank’s creditworthiness,
the security, term, and value of the ROU asset, and the
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 29
economic environment in which the leased
asset operates. The incremental borrowing
rates are subject to change mainly due
to changes in the macroeconomic
environment.
FAIR VALUE MEASUREMENTS
The fair value of financial instruments traded
in active markets at the balance
sheet date is based on their quoted market
prices. For all other financial instruments
not traded in an active market, fair value may
be based on other observable current
market transactions involving the same or
similar instruments, without
modification or repackaging, or is based on
a valuation technique which maximizes
the use of observable market inputs. Observable
market inputs may include
interest rate yield curves, foreign exchange
rates, and option volatilities. Valuation techniques include comparisons
with similar instruments where observable
market prices exist, discounted cash flow
analysis, option pricing models, and
other valuation techniques commonly
used by market participants.
For certain complex or illiquid financial instruments,
fair value is determined using valuation
techniques in which current market transactions
or observable
market inputs are not available. Judgment is used
when determining which valuation techniques
to apply, liquidity considerations, and model inputs such as
volatilities, correlations, spreads, discount rates,
pre-payment rates, and prices of underlying
instruments. Any imprecision in these estimates
can affect the
resulting fair value.
Judgment is also used in recording valuation
adjustments to model fair values to account
for system limitations or measurement uncertainty, such as
when
valuing complex and less actively traded
financial instruments. If the market for a
complex financial instrument develops,
the pricing for this instrument may
become more transparent, resulting in refinement
of valuation models.
An analysis of the fair value of financial instruments
and further details as to how they are
measured are provided in Note 5.
DERECOGNITION OF FINANCIAL ASSETS
Certain financial assets transferred may
qualify for derecognition from the Bank’s
Consolidated Balance Sheet. To qualify for derecognition, certain key
determinations must be made, including
whether the Bank’s rights to receive cash flows
from the financial asset have been retained
or transferred and the extent
to which the risks and rewards of ownership
of the financial assets have been retained
or transferred. If the Bank neither transfers nor
retains substantially all of
the risks and rewards of ownership of the
financial asset, a decision must be made
as to whether the Bank has retained control
of the financial asset.
Upon derecognition, the Bank will record a gain
or loss on sale of those assets which is calculated
as the difference between the carrying amount
of the asset
transferred and the sum of any cash proceeds
received, including any financial assets received
or financial liabilities assumed, and
any cumulative gains or losses
allocated to the transferred asset that had been
recognized in AOCI. In determining the
fair value of any financial assets received, the
Bank estimates future cash
flows by relying on estimates of the amount
of interest that will be collected on the
securitized assets, the yield to be paid to investors,
the portion of the securitized
assets that will be prepaid before their
scheduled maturity, ECLs, the cost of servicing the assets, and the
rate at which to discount these expected
future cash
flows. Actual cash flows may differ significantly
from those estimated by the Bank.
Retained interests are financial interests in
transferred assets retained by the Bank.
They are classified as trading securities and
are initially recognized at
relative fair value on the Bank’s Consolidated Balance
Sheet. Subsequently, the fair value of retained interests is
determined by estimating the present value
of
future expected cash flows. Differences between
the actual cash flows and the Bank’s estimated
future cash flows are recognized in trading
income (loss). These
assumptions are subject to periodic reviews
and may change due to significant changes
in the economic environment.
GOODWILL
The recoverable amount of the Bank’s CGUs
or groups of CGUs is determined from
internally developed valuation models
that consider various factors and
assumptions such as forecasted earnings, growth
rates, discount rates, and terminal growth
rates. Management is required to use judgment
in estimating the
recoverable amount of the CGUs or groups
of CGUs, and the use of different assumptions and
estimates in the calculations could influence
the determination of
the existence of impairment and the valuation
of goodwill. Management believes that the assumptions
and estimates used are reasonable
and supportable. Where
possible, assumptions generated internally
are compared to relevant market information.
The carrying amounts of the Bank’s CGUs or groups
of CGUs are
determined by management using risk-based
capital models to adjust net assets and liabilities
by CGU. These models consider various
factors including market
risk, credit risk, and operational risk,
including investment capital (comprised of
goodwill and other intangibles). Any capital
not directly attributable to the CGUs is
held within the Corporate segment. The Bank’s
capital oversight committees provide oversight
to the Bank’s capital allocation methodologies.
EMPLOYEE BENEFITS
The projected benefit obligation and expense
related to the Bank’s pension and post-retirement
defined benefit plans are determined using
multiple assumptions
that may significantly influence the value of
these amounts. Actuarial assumptions including
discount rates, compensation increases,
health care cost trend rates,
and mortality rates are management’s best estimates
and are reviewed annually with the Bank’s actuaries.
The Bank develops each assumption using
relevant
historical experience of the Bank in conjunction
with market-related data and considers
if the market-related data indicates
there is any prolonged or significant
impact on the assumptions. The discount
rate used to value the projected benefit
obligation is determined by reference
to market yields on high-quality corporate
bonds with terms matching the plans’ specific
cash flows. The other assumptions are also long-term
estimates. All assumptions are subject to
a degree of
uncertainty. Differences between actual experiences and the assumptions,
as well as changes in the assumptions
resulting from changes in future expectations,
result in remeasurement gains and losses
which are recognized in other comprehensive
income (OCI)
during the year and also impact expenses
in future periods.
INCOME TAXES
The Bank is subject to taxation in numerous
jurisdictions. There are many transactions
and calculations in the ordinary course
of business for which the ultimate
tax determination is uncertain. The Bank
maintains provisions for uncertain tax positions
that it believes appropriately reflect the risk of
tax positions under
discussion, audit, dispute, or appeal with
tax authorities, or which are otherwise
considered to involve uncertainty. These provisions are made using
the Bank’s
best estimate of the amount expected to be paid
based on an assessment of all relevant
factors, which are reviewed at the end of
each reporting period. However,
it is possible that at some future date, changes
in these liabilities could result from audits by
the relevant taxing authorities.
Deferred tax assets are recognized only
when it is probable that sufficient taxable profit
will be available in future periods against
which deductible temporary
differences may be utilized. The amount of
the deferred tax asset recognized and considered
realizable could, however, be reduced if projected income is
not
achieved due to various factors, such as
unfavourable business conditions. If projected
income is not expected to be achieved, the
Bank would decrease its
deferred tax assets to the amount that it believes
can be realized. The magnitude of the decrease
is significantly influenced by the Bank’s forecast
of future profit
generation, which determines the extent to
which it will be able to utilize the deferred
tax assets.
PROVISIONS
Provisions arise when there is some uncertainty
in the timing or amount of a loss in the
future. Provisions are based on the Bank’s best estimate
of all
expenditures required to settle its present obligations,
considering all relevant risks and uncertainties,
as well as, when material, the effect of
the time value of
money.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 30
Many of the Bank’s provisions relate to various
legal and regulatory actions that the Bank
is involved in during the ordinary course
of business. Legal and
regulatory provisions require the involvement
of both the Bank’s management and legal counsel
when assessing the probability of a loss and estimating
any
monetary impact. Throughout the life of a provision,
the Bank’s management or legal counsel
may learn of additional information that may impact
its assessments
about the probability of loss or about the estimates
of amounts involved. Changes in these assessments
may lead to changes in the amount recorded
for
provisions. In addition, the actual costs of resolving
these claims may be substantially higher
or lower than the amounts recognized.
The Bank reviews its legal and
regulatory provisions on a case-by-case basis
after considering, among other factors, the
progress of each case, the Bank’s experience,
the experience of others
in similar cases, and the opinions and views of
legal counsel.
Certain of the Bank’s provisions relate to restructuring
initiatives initiated by the Bank. Restructuring
provisions require management’s best estimate,
including
forecasts of economic conditions. Throughout
the life of a provision, the Bank may become
aware of additional information that may impact
the assessment of
amounts to be incurred. Changes in these assessments
may lead to changes in the amount recorded
for restructuring provisions.
INSURANCE
The assumptions used in establishing the Bank’s
insurance contract liabilities are based on best
estimates of possible outcomes.
For property and casualty insurance
contracts, the ultimate cost of LIC is estimated
using a range of standard actuarial claims
projection techniques by the
appointed actuary in accordance with
Canadian accepted actuarial practices. Additional
qualitative judgment is used to assess
the extent to which past trends may
or may not apply in the future, in order to arrive
at the estimated ultimate claims cost
amounts that present the most likely outcome
taking into account all the
uncertainties involved.
For life and health insurance contracts, insurance
contract liabilities consider all future policy
cash flows, including premiums, claims, and
expenses required to
administer the policies. Critical assumptions
used in the measurement of life and health
insurance contract liabilities are determined
by the appointed actuary.
Further information on insurance risk assumptions
is provided in Note 21.
CONSOLIDATION OF STRUCTURED ENTITIES
Management judgment is required when
assessing whether the Bank should consolidate
an entity. For instance, it may not be feasible to determine if the Bank
controls an entity solely through an assessment
of voting rights for certain structured entities.
In these cases, judgment is required
to establish whether the Bank
has decision-making power over the key
relevant activities of the entity and
whether the Bank has the ability to use that power
to absorb significant variable returns
from the entity. If it is determined that the Bank has both decision-making
power and significant variable returns
from the entity, judgment is also used to determine
whether any such power is exercised by
the Bank as principal, on its own behalf,
or as agent, on behalf of another counterparty.
Assessing whether the Bank has decision-making
power includes understanding the purpose
and design of the entity in order to determine
its key economic
activities. In this context, an entity’s key economic
activities are those which predominantly
impact the economic performance of the
entity. When the Bank has the
current ability to direct the entity’s key economic
activities, it is considered to have decision-making
power over the entity.
The Bank also evaluates its exposure
to the variable returns of a structured entity in
order to determine if it absorbs a significant
proportion of the variable
returns the entity is designed to create. As part
of this evaluation, the Bank considers the purpose
and design of the entity in order to determine
whether it absorbs
variable returns from the structured entity
through its contractual holdings, which
may take the form of securities issued by
the entity, derivatives with the entity, or
other arrangements such as guarantees, liquidity
facilities, or lending commitments.
If the Bank has decision-making power over
the entity and absorbs significant variable returns
from the entity, it then determines if it is acting as principal or
agent when exercising its decision-making power. Key factors
considered include the scope of its decision-making
power; the rights of other parties involved
with
the entity, including any rights to remove the Bank as decision-maker
or rights to participate in key decisions;
whether the rights of other parties are exercisable
in
practice; and the variable returns absorbed
by the Bank and by other parties involved
with the entity. When assessing consolidation, a presumption exists
that the
Bank exercises decision-making power as principal
if it is also exposed to significant variable
returns, unless an analysis of the
factors above indicates otherwise.
The decisions above are made with reference
to the specific facts and circumstances relevant
for the structured entity and related transaction(s)
under
consideration.
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.
INTEREST RATE BENCHMARK REFORM PHASE 2
Effective November 1, 2020, the Bank was an early adopter
of the Interest Rate Benchmark Reform Phase
2 and no transitional adjustment was required.
Interest Rate Benchmark Reform Phase 2 addresses
issues affecting financial reporting when
changes are made to contractual cash
flows of financial
instruments or hedging relationships
as a result of IBOR reform. The amendments
permit modification to financial assets,
financial liabilities and lease
liabilities required as a direct consequence of IBOR
reform and made on an economically equivalent
basis to be accounted for by updating
the EIR
prospectively. If the modification does not meet the practical expedient
requirements, existing IFRS requirements
are applied. Relief is also provided
for an
entity’s hedge accounting relationships in circumstances
where changes to hedged items and hedging
instruments arise as a result of IBOR reform.
The
amendments
enable entities to reflect these changes without
discontinuing, or resulting in a new formal
designation of, the existing hedging relationship.
Permitted
changes include redefining the hedged risk
to reference an ARR (contractually or non-contractually
specified), amending the description of
the hedged item and
hedging instrument to reflect the ARR, and
amending the description of how the entity
will assess hedge effectiveness. Hedging relationships
within the scope of
Interest Rate Benchmark Reform Phase 2
are the same as those within the scope of
Interest Rate Benchmark Reform Phase 1.
Interest Rate Benchmark Reform
Phase 2 also amended IFRS 7, introducing expanded
qualitative and quantitative disclosures about
the risks arising from IBOR reform, how
an entity is managing
those risks, its progress in completing
the transition to ARRs, and how it is managing
the transition.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 31
Interest rate benchmarks (such as the London
Interbank Offered Rate (LIBOR) and the Canadian
Dollar Offered Rate (CDOR)) have been reformed
and
replaced by ARRs. From June 30, 2023, all remaining
USD LIBOR settings (overnight, one-month,
three-month, six-month and twelve-month)
have either ceased
or were published only on a synthetic basis
for the use in legacy contracts that had no other
fallback solution. The remaining settings
of CDOR (one-month, two-
month, and three-month) ceased following
a final publication on June 28, 2024. The Bank’s
exposure to non-derivative financial assets,
non-derivative financial
liabilities, derivative notional amounts and off-balance
sheet commitments referencing CDOR is no
longer significant to its financial statements
as at
October 31, 2024 (October 31, 2023 – $
17
billion, $
12
billion, $
2,645
billion and $
64
billion, respectively).
NOTE 4: CURRENT AND FUTURE
CHANGES IN ACCOUNTING POLICIES
CURRENT CHANGES IN ACCOUNTING
POLICIES
The following new standard was adopted by
the Bank on November 1, 2023.
Insurance Contracts
The IASB issued IFRS 17 which replaced
the guidance in IFRS 4 and became effective
for annual reporting periods beginning on or
after January 1, 2023, which
was November 1, 2023 for the Bank. IFRS 17 establishes
principles for recognition, measurement,
presentation and disclosure of insurance
contracts.
The Bank initially applied IFRS 17 on
November 1, 2023 and restated the comparative
period. The Bank transitioned by primarily
applying the full retrospective
approach which resulted in the measurement
of insurance contracts as if IFRS 17
had always applied to them.
The following table sets out adjustments
to the
Bank’s insurance-related balances reported under
IFRS 4 as at October 31, 2022 used to derive
the insurance contract liabilities and reinsurance
contract assets
recognized by the Bank as at November
1, 2022 under IFRS 17.
(millions of Canadian dollars)
Amount
Insurance-related liabilities
$
7,468
Other liabilities
131
Other assets
(2,361)
Net insurance-related balances as at October
31, 2022
$
5,238
Changes in actuarial assumptions, including
risk adjustment and discount factor
(192)
Recognition of losses on onerous contracts
113
Other adjustments
(93)
Net insurance-related balances as at
November 1, 2022
$
5,066
Insurance contract liabilities
$
5,761
Reinsurance contract assets
(695)
Net insurance-related balances as at
November 1, 2022
$
5,066
On November 1, 2022, IFRS 17 transition
adjustments resulted in a decrease
to the Bank’s deferred tax assets of $
60
million and an after-tax increase to retained
earnings of $
112
million.
Upon the initial application of IFRS 17 on
November 1, 2023, the Bank applied transitional
guidance and reclassified certain securities
supporting insurance
operations to minimize accounting mismatches
arising from the application of the new discount
factor under IFRS 17. The transitional guidance
for such securities
is applicable for entities that previously used
IFRS 9 and was applied without a restatement
of comparatives. The reclassification resulted
in a decrease to retained
earnings and an increase in AOCI of $
10
million.
FUTURE CHANGES IN ACCOUNTING
POLICIES
The following standard and amendments
have been issued but are not yet effective
on the date of issuance of the Bank’s Consolidated
Financial Statements.
Presentation and Disclosure in Financial
Statements
In April 2024, the IASB issued IFRS 18,
Presentation and Disclosure in Financial
Statements
(IFRS 18), which replaces the guidance
in IAS 1,
Presentation of
Financial Statements
and sets out requirements for presentation
and disclosure of information, focusing
on providing relevant information to users
of the financial
statements. IFRS 18 introduces changes
to the structure of the statement of profit
or loss, aggregation and disaggregation of
financial information, and
management-defined performance
measures to be disclosed in the notes to
the financial statements. It will be effective for the Bank’s annual
period beginning
November 1, 2027. Early application is permitted.
The standard will be applied retrospectively
with restatement of comparatives.
The Bank is currently assessing
the impact of adopting this standard.
Amendments to the Classification and Measurement
of Financial Instruments
In May 2024, the IASB issued
Amendments to the Classification
and Measurement of Financial Instruments,
which amended IFRS 9 and IFRS 7
.
The
amendments address matters identified during
the post-implementation review of the
classification and measurement requirements
of IFRS 9. The amendments
clarify how to assess the contractual
cash flow characteristics of financial assets
that include environmental, social, and governance
linked features and other
similar contingent features. The amendments
also clarify the treatment of non-recourse
assets and contractually linked instruments.
Furthermore, the amendments
clarify that a financial liability is derecognized
on the settlement date and provide an accounting
policy choice to derecognize a financial liability
settled using an
electronic payment system before the
settlement date if certain conditions are
met. Finally, the amendments introduce additional disclosure requirements
for
financial instruments with contingent
features and equity instruments classified at
FVOCI.
The amendments will be effective for the Bank’s annual
period beginning November 1, 2026. Early
adoption is permitted, with an option to early
adopt the
amendments related to the classification
of financial assets and associated disclosures
only.
The Bank is required to apply the amendments
retrospectively, but is
not required to restate prior periods. The Bank
is currently assessing the impact of adopting
these amendments.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 32
NOTE 5: FAIR VALUE MEASUREMENTS
Certain assets and liabilities, primarily
financial instruments, are carried on
the balance sheet at their fair value on a recurring
basis. These financial instruments
include trading loans and securities, non-trading
financial assets at FVTPL, financial assets
and liabilities designated at FVTPL, financial
assets at FVOCI,
derivatives, certain securities purchased under
reverse repurchase agreements, trading
deposits, securitization liabilities at fair value,
obligations related to
securities sold short, and certain obligations
related to securities sold under repurchase
agreements. All other financial assets
and financial liabilities are carried at
amortized cost.
(a)
VALUATION GOVERNANCE
Valuation processes are guided by policies and procedures
that are approved by senior management
and subject matter experts. Senior Executive
oversight over
the valuation process is provided through various
valuation committees. Further, the Bank has a number of
additional controls in place, including
an independent
price verification process to ensure the accuracy
of fair value measurements reported in
the financial statements. The sources used
for independent pricing comply
with the standards set out in the approved
valuation-related policies, which include
consideration of the reliability, relevancy, and timeliness of data.
(b)
METHODS AND ASSUMPTIONS
The Bank calculates fair value for measurement
and disclosure purposes based on the following
methods of valuation and assumptions:
Government and Government-Related Securities
The fair value of Canadian government debt
securities is determined by quoted prices in
active markets, reference to recent transaction
prices, or third-party
vendor prices. In cases where external and
independent prices are not readily available,
alternate
techniques based on the risk metrics and unique
characteristics
of the security are utilized.
The fair value of Canadian residential mortgage-backed
securities (MBS) is based on third-party vendor
prices, reference to recent transaction prices,
or
valuation techniques that utilize observable
inputs such as benchmark government bond
prices, government bond yield curves, quoted
yield spreads and
prepayment rate assumptions related
to the underlying collateral.
The fair value of U.S. government and agency
debt securities is determined by reference
to recent transaction prices, broker quotes,
or third-party vendor
prices. For U.S. agency MBS pricing, brokers
or third-party vendors may use a pool-specific
valuation model to value these securities, using
observable market
inputs.
The fair value of other Organisation for Economic
Co-operation and Development (OECD)
government-guaranteed debt is based
on broker quotes and third-
party vendor prices, or where external and independent
prices are not readily available, alternate
techniques based on the risk metrics and unique
characteristics
of the security are utilized.
Other Debt Securities
The fair value of corporate and other debt
securities is based on broker quotes, third-party
vendor prices, or alternate techniques
utilizing the risk metrics and
unique characteristics of the security. Asset-backed securities are
primarily fair valued using third-party
vendor prices, including those generated by issue-specific
valuation models using observable market
inputs.
Equity Securities
The fair value of equity securities is based
on quoted prices in active markets, where available.
Where quoted prices in active markets are
not readily available,
such as for private equity securities, or
where there is a wide bid-ask spread, fair
value is determined based on quoted
market prices for similar securities or
through valuation techniques, including discounted
cash flow analysis, multiples of earnings
before taxes, depreciation and amortization,
and other relevant
valuation techniques.
If there are trading restrictions on the equity
security held, a valuation adjustment is
recognized against available prices to reflect
the nature of the restriction.
However, restrictions that are not part of the security held
and represent a separate contractual arrangement
that has been entered into by the Bank and a
third
party do not impact the fair value of the original
instrument.
The cost of Federal Reserve stock and
Federal Home Loan Bank (FHLB) stock
approximates fair value.
Retained Interests
Retained interests are classified as trading
securities and are initially recognized at their relative
fair market value. Subsequently, the fair value of retained interests
recognized by the Bank is determined by
estimating the present value of future expected
cash flows.
Differences between the actual cash flows and
the Bank’s
estimate of future cash flows are recognized
in income. These assumptions are subject
to periodic review and may change due
to significant changes in the
economic environment.
Loans
The estimated fair value of loans carried at amortized
cost reflects changes in market price that have
occurred since the loans were originated
or purchased. For
fixed-rate performing loans, estimated
fair value is determined by discounting the expected
future cash flows related to these loans at
current market interest rates
for loans with similar credit risks. For floating-rate
performing loans, changes in interest
rates have minimal impact on fair value
since loans reprice to market
frequently. On that basis, fair value is assumed to approximate
carrying value. The fair value of loans is not
adjusted for the value of any credit protection
the Bank
has purchased to mitigate credit risk.
The fair value of loans carried at FVTPL,
which includes trading loans and non-trading
loans at FVTPL, is determined using observable
market prices, where
available. Where the Bank is a market maker
for loans traded in the secondary market,
fair value is determined using executed prices,
or prices for comparable
trades. For those loans where the Bank is
not a market maker, the Bank obtains broker quotes from other
reputable dealers, or uses valuation techniques
to
determine fair value.
The fair value of loans carried at FVOCI is assumed
to approximate amortized cost as they are generally
floating rate performing loans that are
short term in
nature.
Commodities
The fair value of commodities is based on quoted
prices in active markets, where available.
The Bank also transacts commodity derivative
contracts which can be
traded on an exchange or in OTC markets.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 33
Derivative Financial Instruments
The fair value of exchange-traded derivative financial
instruments is based on quoted market prices.
The fair value of OTC derivative financial
instruments is
estimated using well established valuation
techniques, such as discounted cash flow
techniques, the Black-Scholes model,
and Monte Carlo simulation. The
valuation models incorporate inputs that are
observable in the market or can be derived
from observable market data.
Prices derived by using models are recognized
net of valuation adjustments. The inputs
used in the valuation models depend on
the type of derivative and the
nature of the underlying instrument and are
specific to the instrument being valued.
Inputs can include, but are not limited to, interest
rate yield curves, foreign
exchange rates, dividend yield projections,
commodity spot and forward prices, recovery
rates, volatilities, spot prices, and correlation.
A credit valuation adjustment (CVA) is recognized against the
model value of OTC derivatives to account
for the uncertainty that the counterparty in a derivative
transaction may not be able to fulfil its obligations
under the transaction to the Bank. In determining
CVA, the Bank takes into account master netting agreements
and collateral, and considers the creditworthiness
of the counterparty, using market observed or proxy credit
spreads, in assessing potential future
amounts owed
to the Bank.
The fair value of a derivative is partly a function
of collateralization. The Bank uses relevant
overnight
borrowing curves to discount the
cash flows for
collateralized derivatives as most collateral
is posted in cash and can be funded at the
overnight rate.
A funding valuation adjustment (FVA) is recognized against the model
value of OTC derivatives to recognize the
market implied unsecured funding costs and
benefits considered in the pricing and fair value
determination. Some of the key drivers
of FVA include the market implied funding spread and the expected
average exposure by counterparty.
The Bank will continue to monitor industry
practice on valuation adjustments and
may refine the methodology as market practices
evolve.
Deposits
The estimated fair value of term deposits is
determined by discounting the contractual
cash flows using interest rates currently offered for
deposits with similar
terms.
For deposits with no defined maturities,
the Bank considers fair value to equal carrying
value, which is equivalent to the amount payable
on the balance sheet
date.
For trading deposits and deposits designated
at FVTPL, which is included in financial liabilities
designated at FVTPL, fair value is determined
using discounted
cash flow valuation techniques which
maximize the use of observable market inputs
such as benchmark yield curves and foreign
exchange rates. The Bank
considers the impact of its own creditworthiness
in the valuation of these deposits by reference
to observable market inputs.
Securitization Liabilities
The fair value of securitization liabilities is based
on quoted market prices or quoted market
prices for similar financial instruments,
where available. Where quoted
prices are not available, fair value is determined
using valuation techniques, which maximize
the use of observable inputs, such
as Canada Mortgage Bond (CMB)
curves and MBS curves.
Obligations Related to Securities Sold
Short
The fair value of these obligations is based
on the fair value of the underlying securities,
which can include equity or debt securities.
As these obligations are fully
collateralized, the method used to determine
fair value would be the same as that of
the relevant underlying equity or debt securities.
Securities Purchased Under Reverse
Repurchase Agreements and Obligations
Related to Securities Sold Under Repurchase
Agreements
Commodities and certain bonds and equities
purchased or sold with an agreement
to sell or repurchase them at a later
date at a fixed price are carried at fair
value. The fair value of these agreements
is based on valuation techniques such as discounted
cash flow models which maximize the use
of observable market
inputs such as interest rate swap curves
and commodity forward prices.
Subordinated Notes and Debentures
The fair value of subordinated notes and debentures
are based on quoted market prices.
Portfolio Exception
IFRS 13,
Fair Value Measurement
provides a measurement exception
that allows an entity to determine the fair value of
a group of financial assets and liabilities
with offsetting risks based on the sale or transfer
of its net exposure to a particular risk or
risks. The Bank manages certain financial
assets and financial liabilities,
such as derivative assets and derivative liabilities,
on the basis of net exposure to a particular risk,
or risks; and uses mid-market prices as a basis
for establishing
fair values for the offsetting risk positions and
applies the most representative price
within the bid-ask spread to the net open position,
as appropriate. Refer to
Note 2 for further details on the use of the portfolio
exception to establish fair value.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 34
(c)
FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES NOT CARRIED AT FAIR VALUE
The carrying value and fair value of financial
assets and liabilities not carried at fair
value are disclosed in the table below. For these instruments,
fair values are
calculated for disclosure purposes only, using the valuation techniques
used by the Bank. In addition, the Bank
has determined that the carrying value of
certain
financial assets and liabilities approximates
their fair value, which include: cash and
due from banks, interest-bearing deposits
with banks, customers’ liability
under acceptances, amounts receivable from
brokers, dealers, and clients, other assets,
acceptances, amounts payable to brokers,
dealers, and clients, and other
liabilities. Substantially all securities purchased
under reverse repurchase agreements
and obligations related to securities sold under
repurchase agreements are
measured at amortized cost where the carrying
value approximates their fair value.
Financial Assets and Liabilities not carried
at Fair Value
1
(millions of Canadian dollars)
As at
October 31, 2024
October 31, 2023
Carrying
Fair
Carrying
Fair
value
value
value
value
FINANCIAL ASSETS
Debt securities at amortized cost, net of allowance
for credit losses
Government and government-related
securities
$
206,815
$
202,667
$
232,093
$
222,699
Other debt securities
64,800
63,509
75,923
72,511
Total debt securities at amortized cost, net of allowance for credit losses
271,615
266,176
308,016
295,210
Total loans, net of allowance for loan losses
949,549
949,227
895,947
877,763
Total financial assets not carried at fair value
$
1,221,164
$
1,215,403
$
1,203,963
$
1,172,973
FINANCIAL LIABILITIES
Deposits
$
1,268,680
$
1,266,562
$
1,198,190
$
1,188,585
Securitization liabilities at amortized
cost
12,365
12,123
12,710
12,035
Subordinated notes and debentures
11,473
11,628
9,620
9,389
Total financial liabilities not carried at fair value
$
1,292,518
$
1,290,313
$
1,220,520
$
1,210,009
1
This table excludes financial assets and liabilities where the carrying value approximates their fair value.
(d)
FAIR VALUE HIERARCHY
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. The three levels are
defined as follows:
Level 1
: Fair value is based on quoted market prices
for identical assets or liabilities that are
traded in an active exchange market
or highly liquid and actively
traded in OTC markets.
Level 2
: Fair value is based on observable inputs other
than Level 1 prices, such as quoted
market prices for similar (but not identical)
assets or liabilities in active
markets, quoted market prices for identical
assets or liabilities in markets that are
not active, and other inputs that are observable
or can be corroborated by
observable market data for substantially the
full term of the assets or liabilities. Level
2 assets and liabilities include debt securities
with quoted prices that are
traded less frequently than exchange-traded
instruments and derivative contracts
whose value is determined using valuation
techniques with inputs that are
observable in the market or can be derived
principally from or corroborated by observable
market data.
Level 3
: Fair value is based on non-observable inputs
that are supported by little or no market
activity and that are significant to the
fair value of the assets or
liabilities. Financial instruments classified
within Level 3 of the fair value hierarchy are
initially recognized at their transaction price,
which is considered the best
estimate of fair value. After initial measurement,
the fair value of Level 3 assets and liabilities
is determined using valuation models, discounted
cash flow
methodologies, or similar techniques.
Fair Value Hierarchy for Assets and Liabilities not carried
at Fair Value
The following table presents the levels within
the fair value hierarchy for each of the
financial assets and liabilities not carried at fair
value as at October 31, 2024
and October 31, 2023, but for which fair
value is disclosed.
Fair Value Hierarchy for Assets and
Liabilities not carried at Fair Value
1
(millions of Canadian dollars)
As at
October 31, 2024
October 31, 2023
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
ASSETS
Debt securities at amortized cost, net of allowance for
credit losses
Government and government-related securities
$
–
$
202,667
$
–
$
202,667
$
–
$
222,699
$
–
$
222,699
Other debt securities
–
63,509
–
63,509
–
72,510
1
72,511
Total debt securities
at amortized cost, net of allowance
for credit losses
–
266,176
–
266,176
–
295,209
1
295,210
Total loans, net
of allowance for loan losses
–
285,070
664,157
949,227
–
284,280
593,483
877,763
Total assets with
fair value disclosures
$
–
$
551,246
$
664,157
$
1,215,403
$
–
$
579,489
$
593,484
$
1,172,973
LIABILITIES
Deposits
$
–
$
1,266,562
$
–
$
1,266,562
$
–
$
1,188,585
$
–
$
1,188,585
Securitization liabilities at amortized cost
–
12,123
–
12,123
–
12,035
–
12,035
Subordinated notes and debentures
–
11,628
–
11,628
–
9,389
–
9,389
Total liabilities with
fair value disclosures
$
–
$
1,290,313
$
–
$
1,290,313
$
–
$
1,210,009
$
–
$
1,210,009
1
This table excludes financial assets and liabilities where the carrying value approximates their fair value.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 35
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
October 31, 2024
and October 31, 2023.
Fair Value Hierarchy for Assets and
Liabilities Measured at Fair Value
on a Recurring Basis
(millions of Canadian dollars)
As at
October 31, 2024
October 31, 2023
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
FINANCIAL ASSETS AND COMMODITIES
Trading loans, securities, and other
1
Government and government-related securities
Canadian government debt
Federal
$
691
$
9,551
$
–
$
10,242
$
72
$
9,073
$
–
$
9,145
Provinces
–
6,398
–
6,398
–
7,445
–
7,445
U.S. federal, state, municipal governments,
and agencies debt
–
18,861
–
18,861
2
24,325
67
24,394
Other OECD government-guaranteed debt
–
9,722
–
9,722
–
8,811
–
8,811
Mortgage-backed securities
–
1,352
–
1,352
–
1,698
–
1,698
Other debt securities
Canadian issuers
–
6,611
12
6,623
–
6,067
5
6,072
Other issuers
–
15,845
14
15,859
–
14,553
60
14,613
Equity securities
68,682
34
12
68,728
54,186
41
10
54,237
Trading loans
–
23,518
–
23,518
–
17,261
–
17,261
Commodities
13,504
962
–
14,466
7,620
791
–
8,411
Retained interests
–
1
–
1
–
3
–
3
82,877
92,855
38
175,770
61,880
90,068
142
152,090
Non-trading financial assets at fair value through
profit or loss
Securities
391
1,188
1,233
2,812
269
2,596
980
3,845
Loans
–
3,057
–
3,057
–
3,495
–
3,495
391
4,245
1,233
5,869
269
6,091
980
7,340
Derivatives
Interest rate contracts
2
15,440
–
15,442
17
22,893
–
22,910
Foreign exchange contracts
47
51,001
13
51,061
26
57,380
7
57,413
Credit contracts
–
6
–
6
–
54
–
54
Equity contracts
64
6,167
–
6,231
58
4,839
–
4,897
Commodity contracts
548
4,756
17
5,321
306
1,787
15
2,108
661
77,370
30
78,061
407
86,953
22
87,382
Financial assets designated at
fair value through profit or loss
Securities
1
–
6,417
–
6,417
–
5,818
–
5,818
–
6,417
–
6,417
–
5,818
–
5,818
Financial assets at fair value through other
comprehensive income
Government and government-related securities
Canadian government debt
Federal
–
18,139
–
18,139
–
18,210
–
18,210
Provinces
–
21,270
–
21,270
–
19,940
–
19,940
U.S. federal, state, municipal governments,
and agencies debt
–
35,197
–
35,197
–
11,002
–
11,002
Other OECD government-guaranteed debt
–
1,679
–
1,679
–
1,498
–
1,498
Mortgage-backed securities
–
2,137
–
2,137
–
2,277
–
2,277
Other debt securities
Asset-backed securities
–
1,384
–
1,384
–
4,114
–
4,114
Corporate and other debt
–
9,439
7
9,446
–
8,863
27
8,890
Equity securities
1,058
2
3,355
4,415
1,133
3
2,377
3,513
Loans
–
230
–
230
–
421
–
421
1,058
89,477
3,362
93,897
1,133
66,328
2,404
69,865
Securities purchased under reverse
repurchase agreements
–
10,488
–
10,488
–
9,649
–
9,649
FINANCIAL LIABILITIES
Trading deposits
–
29,907
505
30,412
–
29,995
985
30,980
Derivatives
Interest rate contracts
3
13,283
158
13,444
16
21,064
126
21,206
Foreign exchange contracts
30
40,936
12
40,978
19
44,841
13
44,873
Credit contracts
–
403
–
403
–
172
–
172
Equity contracts
–
7,974
24
7,998
7
3,251
21
3,279
Commodity contracts
673
4,845
27
5,545
248
1,846
16
2,110
706
67,441
221
68,368
290
71,174
176
71,640
Securitization liabilities at fair value
–
20,319
–
20,319
–
14,422
–
14,422
Financial liabilities designated
at fair value through profit or loss
–
207,890
24
207,914
–
192,108
22
192,130
Obligations related to securities sold short
1
1,783
37,732
–
39,515
1,329
43,332
–
44,661
Obligations related to securities sold
under repurchase agreements
–
9,736
–
9,736
–
12,641
–
12,641
1
Balances reflect the reduction of securities owned (long positions) by the amount of identical securities sold but
not yet purchased (short positions).
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 36
(e)
TRANSFERS BETWEEN FAIR VALUE HIERARCHY LEVELS FOR ASSETS
AND LIABILITIES MEASURED AT FAIR VALUE ON A RECURRING BASIS
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 whether
there is sufficient frequency and volume in an
active market. There
were no significant transfers between Level
1 and Level 2 during the years ended
October 31, 2024 and October 31, 2023.
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 unobservable
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.
There were no significant transfers between
Level 2 and Level 3 during the years ended
October 31, 2024 and October 31, 2023.
There were no other significant changes to
the unobservable inputs and sensitivities
for assets and liabilities classified as
Level 3 during the years ended
October 31, 2024 and October 31, 2023.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 37
(f)
RECONCILIATION OF CHANGES IN FAIR VALUE FOR LEVEL 3 ASSETS AND LIABILITIES
The following tables set out changes in fair
value of all assets and liabilities measured
at fair value using significant Level 3 unobservable
inputs for the years
ended October 31, 2024
and October 31, 2023.
Reconciliation of Changes in Fair Value for Level 3 Assets and Liabilities
(millions of Canadian dollars)
Change in
unrealized
Fair
Total realized and
Fair
gains
value as at
unrealized gains (losses)
Movements
1
Transfers
value as at
(losses) on
November 1
Included
Included
Purchases/
Sales/
Into
Out of
October 31
instruments
2023
in income
2
in OCI
3,4
Issuances
Settlements
Level 3
Level 3
2024
still held
5
FINANCIAL ASSETS
Trading loans, securities,
and other
Government and government-related
securities
$
67
$
–
$
–
$
–
$
(67)
$
–
$
–
$
–
$
–
Other debt securities
65
1
–
91
(88)
33
(76)
26
–
Equity securities
10
(1)
–
11
(8)
–
–
12
–
142
–
–
102
(163)
33
(76)
38
–
Non-trading financial assets at
fair value through profit or loss
Securities
980
98
–
232
(76)
–
(1)
1,233
80
980
98
–
232
(76)
–
(1)
1,233
80
Financial assets at fair value
through other comprehensive
income
Other debt securities
27
–
(3)
3
(20)
–
–
7
–
Equity securities
2,377
–
(7)
1,171
(205)
19
–
3,355
3
$
2,404
$
–
$
(10)
$
1,174
$
(225)
$
19
$
–
$
3,362
$
3
FINANCIAL LIABILITIES
Trading deposits
6
$
(985)
$
(13)
$
–
$
(122)
$
540
$
–
$
75
$
(505)
$
(6)
Derivatives
7
Interest rate contracts
(126)
(70)
–
–
38
–
–
(158)
(34)
Foreign exchange contracts
(6)
14
–
–
2
(14)
5
1
4
Equity contracts
(21)
(5)
–
–
(2)
3
1
(24)
(6)
Commodity contracts
(1)
(5)
–
–
(4)
–
–
(10)
(9)
(154)
(66)
–
–
34
(11)
6
(191)
(45)
Financial liabilities designated
at fair value through profit or loss
(22)
127
–
(260)
131
–
–
(24)
127
Change in
unrealized
Fair
Total realized and
Fair
gains
value as at
unrealized gains (losses)
Movements
1
Transfers
value as at
(losses) on
November 1
Included
Included
Purchases/
Sales/
Into
Out of
October 31
instruments
2022
in income
2
in OCI
3,4
Issuances
Settlements
Level 3
Level 3
2023
still held
5
FINANCIAL ASSETS
Trading loans, securities,
and other
Government and government-related
securities
$
–
$
–
$
–
$
33
$
–
$
34
$
–
$
67
$
–
Other debt securities
49
7
–
111
(145)
95
(52)
65
1
Equity securities
–
(2)
–
41
(29)
–
–
10
2
49
5
–
185
(174)
129
(52)
142
3
Non-trading financial assets at
fair value through profit or loss
Securities
845
4
–
187
(56)
–
–
980
(17)
845
4
–
187
(56)
–
–
980
(17)
Financial assets at fair value
through other comprehensive
income
Other debt securities
60
–
(6)
22
(28)
–
(21)
27
–
Equity securities
2,477
–
(565)
2,473
(2,008)
–
–
2,377
(382)
$
2,537
$
–
$
(571)
$
2,495
$
(2,036)
$
–
$
(21)
$
2,404
$
(382)
FINANCIAL LIABILITIES
Trading deposits
6
$
(416)
$
(57)
$
–
$
(539)
$
30
$
(15)
$
12
$
(985)
$
(43)
Derivatives
7
Interest rate contracts
(156)
(47)
–
–
77
–
–
(126)
25
Foreign exchange contracts
4
(2)
–
–
(1)
(8)
1
(6)
2
Equity contracts
(59)
35
–
26
(17)
(1)
(5)
(21)
24
Commodity contracts
27
24
–
–
(52)
–
–
(1)
(1)
(184)
10
–
26
7
(9)
(4)
(154)
50
Financial liabilities designated
at fair value through profit or loss
(44)
(89)
–
(486)
597
–
–
(22)
(89)
1
Includes foreign exchange.
2
Gains/losses on financial assets and liabilities are recognized within Non-interest income on the Consolidated Statement
of Income.
3
Other comprehensive income.
4
Includes realized gains/losses transferred to retained earnings on disposal of equities designated at FVOCI. Refer
to Note 7 for further details.
5
Changes in unrealized gains/losses on financial assets at FVOCI are recognized in AOCI.
6
Issuances and repurchases of trading deposits are reported on a gross basis.
7
Consists of derivative assets of $
30
million (October 31, 2023/November 1, 2023 – $
22
million; November 1, 2022 – $
50
million) and derivative liabilities of $
221
million
(October 31, 2023/November 1, 2023 – $
176
million; November 1, 2022 – $
234
million), which have been netted in this table for presentation purposes only.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 38
(g)
VALUATION OF ASSETS AND LIABILITIES CLASSIFIED AS LEVEL 3
Significant unobservable inputs in Level
3 positions
The following section discusses the significant
unobservable inputs for Level 3 positions
and assesses the potential effect that a change
in each unobservable
input may have on the fair value measurement.
Price Equivalent
Certain financial instruments, mainly
debt and equity securities, are valued using price
equivalents when market prices are
not available,
with fair value measured
by comparison with observable pricing data
from instruments with similar characteristics.
For debt securities, the price equivalent is
expressed in ‘points’, and
represents a percentage of the par amount.
For equity securities, the price equivalent
is based on a percentage of a proxy price.
There may be wide ranges
depending on the liquidity of the securities.
New issuances of debt and equity securities
are priced at 100% of the issue price.
Correlation
The movements of inputs are not necessarily
independent from other inputs. Such relationships,
where material to the fair value of a given instrument,
are
captured via correlation inputs into the pricing
models. The Bank includes correlation between
the asset class,
as well as across asset classes. For
example, price
correlation is the relationship between prices
of equity securities in equity basket
derivatives, and quanto correlation is the relationship
between instruments which
settle in one currency and the underlying
securities which are denominated in another
currency.
Implied Volatility
Implied volatility is the value of the volatility
of the underlying instrument which, when
input in an option pricing
model, such as Black-Scholes,
will return a
theoretical value equal to the current
market price of the option. Implied volatility
is a forward-looking and subjective measure,
and differs from historical volatility
because the latter is calculated from known
past returns of a security.
Funding Ratio
The funding ratio is a significant unobservable
input required to value loan commitments
issued by the Bank. The funding ratio represents
an estimate of the
percentage of commitments that are ultimately
funded by the Bank. The funding ratio is
based on a number of factors such as observed
historical funding
percentages within the various lending channels
and the future economic outlook, considering
factors including, but not limited to, competitive
pricing and
fixed/variable mortgage rate gap. An increase/decrease
in the funding ratio will increase/decrease
loan commitment liability values in relationship
to prevailing
interest rates.
Earnings Multiple, Discount Rate, and Liquidity
Discount
Earnings multiple, discount rate, and liquidity
discount are significant inputs used when
valuing certain equity securities. Earnings multiples
are selected based on
comparable entities and a higher multiple
will result in a higher fair value. Discount
rates are applied to cash flow forecasts
to reflect time value of money and the
risks associated with the cash flows.
A higher discount rate will result in a lower
fair value. Liquidity discounts may be applied
as a result of the difference in
liquidity between the comparable entity and
the equity securities being valued.
Inflation Rate Swap Curve
Inflation rate swap contracts valuation reflects
spread between interest rate curves and
the inflation rates. The inflation rates are
not observable and are
determined using proxy inputs such as inflation
indices (e.g., Consumer Price Index).
Net Asset Value
The fair value of certain private funds is based
on the net asset value determined by the
fund managers based on valuation methodologies,
as there are no
observable prices for these instruments.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 39
Valuation techniques and inputs used in the fair value measurement
of Level 3 assets and liabilities
The following table presents
the Bank’s assets and liabilities recognized
at fair value and classified as Level 3, together
with the valuation techniques used to
measure fair value, the significant inputs
used in the valuation technique that are considered
unobservable,
and a range of values for those unobservable
inputs.
The range of values represents
the highest and lowest inputs
used in calculating the fair value.
Valuation Techniques and Inputs
Used in the Fair Value Measurement of Level 3 Assets and Liabilit
ies
As at
October 31, 2024
October 31, 2023
Significant
Valuation
unobservable
Lower
Upper
Lower
Upper
technique
inputs (Level 3)
range
range
range
range
Unit
Government and government-
related securities
Market comparable
Bond price equivalent
n/a
1
n/a
99
100
points
Other debt securities
Market comparable
Bond price equivalent
–
102
–
103
points
Equity securities
2
Market comparable
New issue price
100
100
100
100
%
Non-trading financial assets
at fair value through profit or loss
Market comparable
New issue price
100
100
100
100
%
Discounted cash flow
Discount rates
9
9
9
9
%
EBITDA multiple
Earnings multiple
–
20.0
–
20.0
times
Price-based
Net Asset Value
3
n/a
n/a
n/a
n/a
Derivatives
Interest rate contracts
Discounted cash flow
Inflation rate swap curve
2
2
1
2
%
Option model
Funding ratio
75
75
75
75
%
Swaption Model
Currency-specific volatility
56
319
n/a
n/a
%
Foreign exchange contracts
Option model
Currency-specific volatility
5
26
5
14
%
Equity contracts
Option model
Price correlation
16
67
55
86
%
Quanto correlation
n/a
n/a
–
68
%
Dividend yield
2
7
–
7
%
Equity volatility
13
27
14
41
%
Commodity contracts
Option model
Quanto correlation
(67)
(47)
(67)
(47)
%
Trading deposits
Option model
Quanto correlation
n/a
n/a
–
68
%
Dividend yield
n/a
n/a
–
4
%
Equity volatility
n/a
n/a
14
20
%
Swaption model
Currency-specific volatility
53
319
50
503
%
Financial liabilities designated
at fair value through profit or loss
Option model
Funding ratio
2
70
4
70
%
1
Not applicable.
2
Equity securities exclude the fair value of Federal Reserve stock and FHLB stock of $
3.2
billion (October 31, 2023 – $
2.2
billion) which are redeemable by the issuer at cost which
approximates fair value. These securities cannot be traded in the market, hence, these securities have not been
subjected to the sensitivity analysis.
3
Net asset value information for private funds has not been disclosed due to the wide range in prices for these instruments.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 40
The following table summarizes the potential
effect of using reasonably possible alternative
assumptions for financial assets and
financial liabilities held, that are
classified in Level 3 of the fair value hierarchy
as at October 31, 2024 and October 31, 2023.
For trading securities, non-trading securities
at FVTPL and equity
securities at FVOCI, the sensitivity was
calculated based on an upward and downward
shock of the fair value reported. For trading deposits,
the sensitivity was
calculated by varying unobservable inputs
which may include volatility, credit spreads, and correlation. For
interest rate derivatives, the Bank performed
a
sensitivity analysis on the mortgage spreads
and unobservable inflation curve. For equity
derivatives, the sensitivity was calculated
by using reasonably possible
alternative
assumptions by shocking correlation,
or the price and volatility of the underlying
equity instrument. For financial liabilities
designated at FVTPL, the
sensitivity was calculated based on an upward
and downward shock of the funding ratio.
Sensitivity Analysis of Level 3 Financial
Assets and Liabilities
(millions of Canadian dollars)
As at
October 31, 2024
October 31, 2023
Impact to net assets
Impact to net assets
Decrease in
Increase in
Decrease in
Increase in
fair value
fair value
fair value
fair value
FINANCIAL ASSETS
Trading loans, securities, and other
Securities
$
3
$
1
$
10
$
2
Non-trading financial assets at fair
value through profit or loss
Securities
155
39
133
49
Financial assets at fair value through other
comprehensive income
Equity securities
30
12
25
13
FINANCIAL LIABILITIES
Trading deposits
–
–
–
–
Derivatives
Interest rate contracts
28
17
25
16
Equity contracts
1
–
2
1
29
17
27
17
Financial liabilities designated at fair value
through profit or loss
2
4
5
5
Total
$
219
$
73
$
200
$
86
For the years ended October 31, 2024
and 2023, the aggregate difference yet
to be recognized in net income due to the difference
between the transaction price
and the amount determined using valuation
techniques with significant non-observable inputs
at initial recognition were immaterial.
(h)
FINANCIAL INSTRUMENTS DESIGNATED AT FAIR VALUE
Securities Designated at Fair Value through Profit
or Loss
Certain securities supporting insurance
contract liabilities within the Bank’s insurance
underwriting subsidiaries have been designated
at FVTPL to eliminate or
significantly reduce an accounting mismatch.
Insurance contract liabilities are measured
using a discount factor and changes in the discount
factor are recognized
on the Consolidated Statement of Income.
The unrealized gains or losses on securities
designated at FVTPL are recognized on
the Consolidated Statement of
Income in the same period as gains or losses
resulting from changes to the discount rate
used to value the insurance contract liabilities.
In addition, certain debt securities have been designated
at FVTPL as they are economically hedged
with derivatives and the designation eliminates
or
significantly reduces an accounting mismatch.
Financial Liabilities Designated at Fair Value through
Profit or Loss
Certain deposits have been designated at FVTPL
to reduce an accounting mismatch from
related economic hedges, and are included
in Financial liabilities
designated at FVTPL on the Consolidated
Balance Sheet. In addition, certain obligations
related to securities sold under repurchase
agreements have been
designated at FVTPL as the instruments
are part of a portfolio that is managed on a
fair value basis and have been included in Obligations
related to securities
sold under repurchase agreements on the Consolidated
Balance Sheet. The fair value of obligations
related to securities sold under repurchase
agreements
designated at FVTPL was $
9,736
million as at October 31, 2024 (October
31, 2023 – $
7,974
million).
For financial liabilities designated at FVTPL,
the estimated amount that the Bank
would be contractually required to pay at
maturity, which is based on notional
amounts, was $
2,744
million less than its fair value as at October
31, 2024 (October 31, 2023 – $
2,897
million).
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 41
NOTE 6: OFFSETTING FINANCIAL ASSETS
AND FINANCIAL LIABILITIES
The Bank enters into netting agreements
with counterparties (such as clearing houses)
to manage the credit risks associated primarily
with repurchase and
reverse repurchase transactions, securities
borrowing and lending transactions, and
OTC and exchange-traded derivatives.
These netting agreements and similar
arrangements generally allow the counterparties
to set-off liabilities against available assets received.
The right to set-off is a legal right to settle or otherwise
eliminate all or a portion of an amount due by
applying against that amount an amount receivable
from the other party. These agreements effectively reduce the
Bank’s credit exposure by what it would have
been if those same counterparties were liable
for the gross exposure on the same underlying
contracts.
Netting arrangements are typically constituted
by a master netting agreement which
specifies the general terms of the agreement
between the counterparties,
including information on the basis of the netting
calculation, types of collateral, and the definition
of default and other termination events
for transactions executed
under the agreement. The master netting
agreements contain the terms and conditions
by which all (or as many as possible) relevant
transactions between the
counterparties are governed. Multiple individual
transactions are subsumed under this general
master netting agreement, forming a single legal
contract under
which the counterparties conduct their relevant
mutual business. In addition to the mitigation
of credit risk, placing individual transactions
under a single master
netting agreement that provides for netting of
transactions in scope also helps to mitigate
settlement risks associated with transacting
in multiple jurisdictions or
across multiple contracts. These arrangements
include clearing agreements, global
master repurchase agreements, and global
master securities lending
agreements.
In the normal course of business, the Bank
enters into contracts to buy and sell goods
and services from various suppliers. Some
of these contracts may have
netting provisions that allow for the offset of various
trade payables and receivables in the event
of default of one of the parties. While these
are not disclosed in
the following table, the gross amount of all payables
and receivables to and from the Bank’s vendors
is disclosed in Note 16 in accounts receivable
and other
items, and in Note 18 in accounts payable,
accrued expenses, and other items.
The Bank also enters into regular way purchases
and sales of stocks and bonds. Some of
these transactions may have netting provisions
that allow for the
offset of broker payables and broker receivables
related to these purchases and sales.
While these are not disclosed in the following
table, the amount of
receivables are presented in amounts receivable
from brokers, dealers, and clients, and payables
are disclosed in amounts payable to brokers,
dealers, and
clients.
The following table provides a summary
of the financial assets and liabilities which
are subject to enforceable master netting
agreements and similar
arrangements, including amounts not otherwise
set-off on the Consolidated Balance Sheet, as
well as financial collateral received to mitigate
credit exposures for
these financial assets and liabilities. The gross
financial assets and liabilities are reconciled
to net amounts and are presented within the
associated line on the
Consolidated Balance Sheet, after transactions
with the same counterparties have been offset. Related
amounts and collateral received that are not
offset on the
Consolidated Balance Sheet, but are otherwise
subject to the same enforceable netting agreements
and similar arrangements, are then presented
to arrive at a
net amount.
Offsetting Financial Assets and Financial Liabilities
(millions of Canadian dollars)
As at
October 31, 2024
Amounts subject to an enforceable
master netting agreement or similar
arrangement that are not offset in
the Consolidated Balance Sheet
1,2
Gross amounts
Gross amounts
of recognized
of recognized
Net amount
financial
financial
of financial
Amounts
instruments
instruments
instruments
subject to an
before
offset in the
presented in the
enforceable
balance sheet
Consolidated
Consolidated
master netting
netting
Balance Sheet
Balance Sheet
agreement
Collateral
Net Amount
Financial Assets
Derivatives
$
79,949
$
1,888
$
78,061
$
42,849
$
14,214
$
20,998
Securities purchased under
reverse repurchase agreements
225,475
17,258
208,217
20,904
184,116
3,197
Total
305,424
19,146
286,278
63,753
198,330
24,195
Financial Liabilities
Derivatives
70,256
1,888
68,368
42,849
19,903
5,616
Obligations related to securities sold
under repurchase agreements
219,158
17,258
201,900
20,904
179,318
1,678
Total
$
289,414
$
19,146
$
270,268
$
63,753
$
199,221
$
7,294
October 31, 2023
Financial Assets
Derivatives
$
93,867
$
6,485
$
87,382
$
47,300
$
13,526
$
26,556
Securities purchased under
reverse repurchase agreements
232,211
27,878
204,333
12,291
188,510
3,532
Total
326,078
34,363
291,715
59,591
202,036
30,088
Financial Liabilities
Derivatives
78,125
6,485
71,640
47,300
14,279
10,061
Obligations related to securities sold
under repurchase agreements
194,732
27,878
166,854
12,291
153,090
1,473
Total
$
272,857
$
34,363
$
238,494
$
59,591
$
167,369
$
11,534
1
Excess collateral as a result of overcollateralization has not been reflected in the table.
2
Includes amounts where the contractual set-off rights are subject to uncertainty under the laws of the
relevant jurisdiction.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 42
NOTE 7: SECURITIES
Securities are held by the Bank for both trading
and non-trading activities. Trading securities are included
in Trading loans, securities, and other on the
Consolidated Balance Sheet. Non-trading
securities are included in Non-trading financial
assets at FVTPL, Financial assets designated
at FVTPL, Financial assets
at FVOCI, or Debt securities at amortized
cost, net of allowance for credit losses on
the Consolidated Balance Sheet.
(a)
REMAINING TERMS TO MATURITIES OF SECURITIES
The remaining terms to contractual maturities
of the securities held by the Bank are
shown on the following table.
Securities Maturity Schedule
(millions of Canadian dollars)
As at
October 31
October 31
2024
2023
Remaining terms to maturities
1
Over 1
Over 3
Over 5
With no
Within
year to
years to
years to
Over 10
specific
1 year
3 years
5 years
10 years
years
maturity
Total
Total
Trading securities
Government and government-related securities
Canadian government debt
Federal
$
4,765
$
1,228
$
1,876
$
1,238
$
1,135
$
–
$
10,242
$
9,145
Provinces
872
1,023
669
1,558
2,276
–
6,398
7,445
U.S. federal, state, municipal governments, and
agencies debt
4,308
2,215
1,580
2,686
8,072
–
18,861
24,394
Other OECD government-guaranteed debt
7,790
861
354
497
220
–
9,722
8,811
Mortgage-backed securities
Residential
459
480
97
4
–
–
1,040
1,484
Commercial
110
49
74
79
–
–
312
214
18,304
5,856
4,650
6,062
11,703
–
46,575
51,493
Other debt securities
Canadian issuers
900
2,722
1,037
1,194
770
–
6,623
6,072
Other issuers
3,547
7,409
2,788
1,428
686
1
15,859
14,613
4,447
10,131
3,825
2,622
1,456
1
22,482
20,685
Equity securities
Common shares
–
–
–
–
–
68,670
68,670
54,204
Preferred shares
–
–
–
–
–
58
58
33
–
–
–
–
–
68,728
68,728
54,237
Retained interests
–
–
1
–
–
–
1
3
Total trading securities
$
22,751
$
15,987
$
8,476
$
8,684
$
13,159
$
68,729
$
137,786
$
126,418
Non-trading financial assets at fair value through
profit or loss
Government and government-related securities
U.S. federal, state, municipal governments, and
agencies debt
$
–
$
–
$
–
$
–
$
271
$
–
$
271
$
288
–
–
–
–
271
–
271
288
Other debt securities
Canadian issuers
20
82
161
31
–
618
912
750
Asset-backed securities
2
13
373
11
15
–
414
1,885
Other issuers
–
–
–
–
–
50
50
48
22
95
534
42
15
668
1,376
2,683
Equity securities
Common shares
–
–
–
–
–
1,105
1,105
816
Preferred shares
–
–
–
–
–
60
60
58
–
–
–
–
–
1,165
1,165
874
Total non-trading financial
assets at fair value
through profit or loss
$
22
$
95
$
534
$
42
$
286
$
1,833
$
2,812
$
3,845
Financial assets designated at fair value through profit
or loss
Government and government-related securities
Canadian government debt
Federal
$
251
$
30
$
10
$
–
$
3
$
–
$
294
$
484
Provinces
511
424
247
1,202
47
12
2,443
1,817
U.S. federal, state, municipal governments, and
agencies debt
–
9
–
–
–
–
9
8
Other OECD government-guaranteed debt
188
104
18
–
–
–
310
411
950
567
275
1,202
50
12
3,056
2,720
Other debt securities
Canadian issuers
988
882
395
58
66
6
2,395
2,577
Other issuers
71
817
73
5
–
–
966
521
1,059
1,699
468
63
66
6
3,361
3,098
Total financial assets designated
at fair value
through profit or loss
$
2,009
$
2,266
$
743
$
1,265
$
116
$
18
$
6,417
$
5,818
1
Represents contractual maturities. Actual maturities may differ due to prepayment privileges in the applicable
contract.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 43
Securities Maturity Schedule
(Continued)
(millions of Canadian dollars)
As at
October 31
October 31
2024
2023
Remaining terms to maturities
1
Over 1
Over 3
Over 5
With no
Within
year to
years to
years to
Over 10
specific
1 year
3 years
5 years
10 years
years
maturity
Total
Total
Securities at fair value through other comprehensive
income
Government and government-related securities
Canadian government debt
Federal
$
4,587
$
1,070
$
3,447
$
8,651
$
384
$
–
$
18,139
$
18,210
Provinces
2,807
2,376
6,346
9,609
132
–
21,270
19,940
U.S. federal, state, municipal governments, and
agencies debt
19,837
3,333
1,780
8,179
2,068
–
35,197
11,002
Other OECD government-guaranteed debt
863
521
173
122
–
–
1,679
1,498
Mortgage-backed securities
5
1,539
593
–
–
–
2,137
2,277
28,099
8,839
12,339
26,561
2,584
–
78,422
52,927
Other debt securities
Asset-backed securities
–
–
38
94
1,252
–
1,384
4,114
Corporate and other debt
1,391
2,600
1,679
2,097
1,679
–
9,446
8,890
1,391
2,600
1,717
2,191
2,931
–
10,830
13,004
Equity securities
Common shares
–
–
–
–
–
3,914
3,914
3,170
Preferred shares
–
–
–
–
–
501
501
343
–
–
–
–
–
4,415
4,415
3,513
Total securities at fair value
through other
comprehensive income
$
29,490
$
11,439
$
14,056
$
28,752
$
5,515
$
4,415
$
93,667
$
69,444
Debt securities at amortized cost, net of allowance for
credit losses
Government and government-related securities
Canadian government debt
Federal
$
1,858
$
12,431
$
5,222
$
2,095
$
1,385
$
–
$
22,991
$
25,344
Provinces
1,587
2,496
5,192
9,339
–
–
18,614
17,474
U.S. federal, state, municipal governments, and
agencies debt
3,565
19,028
28,157
28,363
44,986
–
124,099
146,217
Other OECD government-guaranteed debt
11,134
18,391
7,133
2,736
–
–
39,394
41,269
18,144
52,346
45,704
42,533
46,371
–
205,098
230,304
Other debt securities
Asset-backed securities
49
6,653
3,821
6,734
12,451
–
29,708
39,888
Non-agency collateralized mortgage obligation
portfolio
–
–
–
209
15,153
–
15,362
16,791
Canadian issuers
309
2,899
392
1,122
–
–
4,722
4,552
Other issuers
2,547
6,099
6,044
2,035
–
–
16,725
16,481
2,905
15,651
10,257
10,100
27,604
–
66,517
77,712
Total debt securities at amortized
cost, net of
allowance for credit losses
21,049
67,997
55,961
52,633
73,975
–
271,615
308,016
Total securities
$
75,321
$
97,784
$
79,770
$
91,376
$
93,051
$
74,995
$
512,297
$
513,541
1
Represents contractual maturities. Actual maturities may differ due to prepayment privileges in the applicable
contract.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 44
(b)
UNREALIZED SECURITIES GAINS (LOSSES)
The following table summarizes the unrealized
gains and losses as at October 31, 2024
and October 31, 2023.
Unrealized Securities Gains (Losses) for
Securities at Fair Value Through Other Comprehensive
Income
(millions of Canadian dollars)
As at
October 31, 2024
October 31, 2023
Cost/
Gross
Gross
Cost/
Gross
Gross
amortized
unrealized
unrealized
Fair
amortized
unrealized
unrealized
Fair
cost
1
gains
(losses)
value
cost
1
gains
(losses)
value
Government and government-related
securities
Canadian government debt
Federal
$
18,281
$
17
$
(159)
$
18,139
$
18,335
$
45
$
(170)
$
18,210
Provinces
21,263
77
(70)
21,270
19,953
105
(118)
19,940
U.S. federal, state, municipal governments, and
agencies debt
35,371
22
(196)
35,197
11,260
17
(275)
11,002
Other OECD government-guaranteed debt
1,687
1
(9)
1,679
1,521
1
(24)
1,498
Mortgage-backed securities
2,125
17
(5)
2,137
2,313
–
(36)
2,277
78,727
134
(439)
78,422
53,382
168
(623)
52,927
Other debt securities
Asset-backed securities
1,397
1
(14)
1,384
4,146
–
(32)
4,114
Corporate and other debt
9,419
77
(50)
9,446
8,946
43
(99)
8,890
10,816
78
(64)
10,830
13,092
43
(131)
13,004
Total debt securities
89,543
212
(503)
89,252
66,474
211
(754)
65,931
Equity securities
Common shares
3,810
176
(72)
3,914
3,191
95
(116)
3,170
Preferred shares
632
29
(160)
501
566
1
(224)
343
4,442
205
(232)
4,415
3,757
96
(340)
3,513
Total securities at fair value through other
comprehensive income
$
93,985
$
417
$
(735)
$
93,667
$
70,231
$
307
$
(1,094)
$
69,444
1
Includes the foreign exchange translation of amortized cost balances at the period-end spot rate.
(c)
EQUITY SECURITIES DESIGNATED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
The Bank designated certain equity securities
at FVOCI.
The following table summarizes the fair
value of equity securities designated at
FVOCI as at
October 31, 2024 and October 31, 2023, and
dividend income recognized on these securities
for the years ended October 31, 2024 and
October 31, 2023.
Equity Securities Designated at Fair Value Through
Other Comprehensive Income
(millions of Canadian dollars)
As at
For the years ended
October 31, 2024
October 31, 2023
October 31, 2024
October 31, 2023
Fair value
Dividend income recognized
Common shares
$
3,914
$
3,170
$
153
$
476
Preferred shares
501
343
155
136
Total
$
4,415
$
3,513
$
308
$
612
The Bank disposed of certain equity securities
in line with the Bank’s investment strategy
and disposed of FHLB stocks in accordance
with FHLB member
stockholding requirements, as follows:
Equity Securities Net Realized Gains
(Losses)
(millions of Canadian dollars)
For the years ended
October 31
October 31
2024
2023
Equity Securities
1
Fair value
$
643
$
230
Cumulative realized gain/(loss)
121
(18)
FHLB Stock
Fair value
187
1,575
Cumulative realized gain/(loss)
–
–
1
Includes disposal of the Bank’s holdings in First Horizon Corporation (“First Horizon”) common shares
in the third quarter of fiscal 2024.
(d)
DEBT SECURITIES NET REALIZED GAINS
(LOSSES)
The Bank disposed of certain debt securities
measured at amortized cost and FVOCI
during the year.
The following table summarizes the net realized
gains and
losses on securities disposed of during
the years ended October 31, 2024 and October
31, 2023, which are included in Other income
(loss) on the Consolidated
Statement of Income.
Debt Securities Net Realized Gains (Losses)
(millions of Canadian dollars)
For the years ended
October 31
October 31
2024
2023
Debt securities at amortized cost
1
$
(381)
$
(57)
Debt securities at fair value through other
comprehensive income
23
9
Total
$
(358)
$
(48)
1
Includes $
311
million (US$
226
million) (October 31, 2023 –
nil
) of pre-tax losses on debt securities at amortized cost related to the balance sheet restructuring initiative
undertaken in the
U.S. Retail segment. Refer to Note 26 for additional information regarding the asset limitation on TD’s two
U.S. bank subsidiaries. As of December 4, 2024, the Bank has sold additional
debt securities during the first quarter of fiscal 2025, resulting in approximately an additional $
330
million (US$
236
million) of pre-tax losses on debt securities at amortized cost.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 45
(e)
CREDIT QUALITY OF DEBT SECURITIES
The Bank evaluates non-retail credit risk
on an individual borrower basis, using both
a BRR and FRR, as detailed in the
shaded area of the “Managing Risk”
section of the 2024
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 rating for credit
risk management purposes, presenting
separately those debt securities that are
subject to Stage 1, Stage 2, and Stage 3
allowances. Refer to the “Allowance
for
Credit Losses” table in Note 8 for details regarding
the allowance and provision for credit losses
on debt securities.
Debt Securities by Risk Rating
(millions of Canadian dollars)
As at
October 31, 2024
October 31, 2023
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
Debt securities
1
Investment grade
$
360,272
$
–
$
n/a
$
360,272
$
373,317
$
–
$
n/a
$
373,317
Non-investment grade
439
91
n/a
530
519
–
n/a
519
Watch and classified
n/a
68
n/a
68
n/a
113
n/a
113
Default
n/a
n/a
–
–
n/a
n/a
–
–
Total debt securities
360,711
159
–
360,870
373,836
113
–
373,949
Allowance for credit losses on debt
securities at amortized cost
3
–
–
3
2
–
–
2
Total debt securities, net of allowance
$
360,708
$
159
$
–
$
360,867
$
373,834
$
113
$
–
$
373,947
1
Includes debt securities backed by government-guaranteed loans of $
113
million (October 31, 2023 – $
104
million), which are reported in Non-investment grade or a lower risk rating
based on the issuer’s credit risk.
As at October 31, 2024, total debt securities,
net of allowance, in the table above, include
debt securities measured at amortized cost,
net of allowance, of
$
271,615
million (October 31, 2023 – $
308,016
million), and debt securities measured at
FVOCI of $
89,252
million (October 31, 2023 – $
65,931
million).
The difference between probability-weighted ECLs
and base ECLs on debt securities at FVOCI
and at amortized cost as at both October 31, 2024
and
October 31, 2023, was insignificant. Refer to
Note 3 for further details.
NOTE 8: LOANS, IMPAIRED LOANS, AND ALLOWANCE FOR CREDIT LOSSES
(a)
LOANS AND ACCEPTANCES
The following table provides details regarding
the Bank’s loans and acceptances as at October
31, 2024
and October 31, 2023.
Loans and Acceptances
(millions of Canadian dollars)
As at October 31
2024
2023
Residential mortgages
$
331,649
$
320,341
Consumer instalment and other personal
228,382
217,554
Credit card
40,639
38,660
Business and government
356,973
326,528
957,643
903,083
Customers’ liability under acceptances
–
17,569
Loans at FVOCI
(Note 5)
230
421
Total loans
and acceptances
957,873
921,073
Total allowance for loan losses
8,094
7,136
Total loans and acceptances, net of allowance
$
949,779
$
913,937
Business and government loans (including
loans at FVOCI) and customers’ liability
under acceptances are grouped together
as reflected below for presentation in
the “Loans and Acceptances by Risk Rating”
table.
Loans and Acceptances – Business and
Government
(millions of Canadian dollars)
As at October 31
2024
2023
Loans at amortized cost
$
356,973
$
326,528
Customers’ liability under acceptances
–
17,569
Loans at FVOCI
(Note 5)
230
421
Loans and acceptances
357,203
344,518
Allowance for loan losses
3,583
2,990
Loans and acceptances, net of allowance
$
353,620
$
341,528
(b)
CREDIT QUALITY OF LOANS
In the retail portfolio, including individuals and
small businesses, the Bank manages exposures
on a pooled basis, using predictive credit
scoring techniques. For
non-retail exposures, each borrower is assigned
a BRR that reflects the PD of the borrower
using proprietary industry and sector
specific risk models and expert
judgment. Refer to the shaded areas of the “Managing
Risk”
section of the 2024 MD&A for further details,
including the mapping of PD ranges
to risk levels for
retail exposures as well as the Bank’s 21-point
BRR scale to risk levels and external
ratings for non-retail exposures.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 46
The following tables provide the gross carrying
amounts of loans, acceptances, and credit
risk exposures on loan commitments and
financial guarantee contracts
by internal risk rating for credit risk management
purposes,
presenting separately those that are
subject to Stage 1, Stage 2, and Stage 3
allowances.
Loans and Acceptances by Risk Rating
(millions of Canadian dollars)
As at
October 31, 2024
October 31, 2023
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
Residential mortgages
1,2,3
Low Risk
$
238,101
$
655
$
n/a
$
238,756
$
225,596
$
46
$
n/a
$
225,642
Normal Risk
65,318
13,620
n/a
78,938
70,423
11,324
n/a
81,747
Medium Risk
370
9,614
n/a
9,984
110
9,581
n/a
9,691
High Risk
5
3,201
347
3,553
10
2,573
325
2,908
Default
n/a
n/a
418
418
n/a
n/a
353
353
Total loans
303,794
27,090
765
331,649
296,139
23,524
678
320,341
Allowance for loan losses
116
189
60
365
154
192
57
403
Loans, net of allowance
303,678
26,901
705
331,284
295,985
23,332
621
319,938
Consumer instalment and other personal
4
Low Risk
101,171
2,624
n/a
103,795
100,102
2,278
n/a
102,380
Normal Risk
66,105
12,054
n/a
78,159
60,613
13,410
n/a
74,023
Medium Risk
27,188
6,352
n/a
33,540
24,705
5,816
n/a
30,521
High Risk
4,017
7,881
412
12,310
4,122
5,700
323
10,145
Default
n/a
n/a
578
578
n/a
n/a
485
485
Total loans
198,481
28,911
990
228,382
189,542
27,204
808
217,554
Allowance for loan losses
667
1,120
262
2,049
653
959
197
1,809
Loans, net of allowance
197,814
27,791
728
226,333
188,889
26,245
611
215,745
Credit card
Low Risk
6,902
16
n/a
6,918
6,499
12
n/a
6,511
Normal Risk
11,714
188
n/a
11,902
11,171
134
n/a
11,305
Medium Risk
12,908
1,122
n/a
14,030
12,311
1,163
n/a
13,474
High Risk
2,832
4,382
437
7,651
2,567
4,289
401
7,257
Default
n/a
n/a
138
138
n/a
n/a
113
113
Total loans
34,356
5,708
575
40,639
32,548
5,598
514
38,660
Allowance for loan losses
704
1,015
378
2,097
709
913
312
1,934
Loans, net of allowance
33,652
4,693
197
38,542
31,839
4,685
202
36,726
Business and government
1,2,3,5
Investment grade or Low/Normal Risk
158,425
102
n/a
158,527
159,477
101
n/a
159,578
Non-investment grade or Medium Risk
166,892
11,851
n/a
178,743
161,651
10,278
n/a
171,929
Watch and classified or High Risk
704
16,610
89
17,403
604
11,017
75
11,696
Default
n/a
n/a
2,530
2,530
n/a
n/a
1,315
1,315
Total loans and acceptances
326,021
28,563
2,619
357,203
321,732
21,396
1,390
344,518
Allowance for loan losses
983
1,758
842
3,583
1,157
1,371
462
2,990
Loans and acceptances, net of allowance
325,038
26,805
1,777
353,620
320,575
20,025
928
341,528
Total loans and acceptances
6
862,652
90,272
4,949
957,873
839,961
77,722
3,390
921,073
Total allowance for loan losses
6
2,470
4,082
1,542
8,094
2,673
3,435
1,028
7,136
Total loans and acceptances,
net of allowance
6
$
860,182
$
86,190
$
3,407
$
949,779
$
837,288
$
74,287
$
2,362
$
913,937
1
Includes impaired loans with a balance of $
259
million (October 31, 2023 – $
271
million) which did not have a related allowance for loan losses as the realizable value of the collateral
exceeded the loan amount.
2
Excludes trading loans and non-trading loans at FVTPL with a fair value of $
24
billion (October 31, 2023 – $
17
billion) and $
3
billion (October 31, 2023 – $
3
billion), respectively.
3
Includes insured mortgages of $
71
billion (October 31, 2023 – $
74
billion).
4
Includes Canadian government-insured real estate personal loans of $
6
billion (October 31, 2023 – $
7
billion).
5
Includes loans guaranteed by government agencies of $
24
billion (October 31, 2023 – $
26
billion), which are primarily reported in non-investment grade or a lower risk rating based on the
borrowers’ credit risk.
6
Stage 3 includes ACI loans of
nil
(October 31, 2023 – $
91
million) and a related allowance for loan losses of
nil
(October 31, 2023 – $
6
million), which have been included in the “Default”
risk rating category as they were impaired at acquisition.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 47
Loans and Acceptances by Risk Rating
(Continued)
– Off-Balance Sheet Credit Instruments
1
(millions of Canadian dollars)
As at
October 31, 2024
October 31, 2023
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
Retail Exposures
2
Low Risk
$
268,234
$
1,365
$
n/a
$
269,599
$
254,231
$
1,093
$
n/a
$
255,324
Normal Risk
93,576
1,332
n/a
94,908
91,474
1,112
n/a
92,586
Medium Risk
18,562
1,247
n/a
19,809
19,774
1,079
n/a
20,853
High Risk
1,126
1,181
–
2,307
1,209
1,198
–
2,407
Default
n/a
n/a
–
–
n/a
n/a
–
–
Non-Retail Exposures
3
Investment grade
287,830
–
n/a
287,830
264,029
–
n/a
264,029
Non-investment grade
99,866
6,968
n/a
106,834
98,068
4,396
n/a
102,464
Watch and classified
328
5,418
–
5,746
218
4,158
–
4,376
Default
n/a
n/a
252
252
n/a
n/a
107
107
Total off-balance sheet credit
instruments
769,522
17,511
252
787,285
729,003
13,036
107
742,146
Allowance for off-balance sheet credit
instruments
439
593
11
1,043
476
565
8
1,049
Total off-balance sheet credit
instruments, net of allowance
$
769,083
$
16,918
$
241
$
786,242
$
728,527
$
12,471
$
99
$
741,097
1
Exclude mortgage commitments.
2
Includes
$
384
billion (October 31, 2023 – $
369
billion) of personal lines of credit and credit card lines, which are unconditionally cancellable at the Bank’s
discretion at any time.
3
Includes $
66
billion (October 31, 2023 – $
62
billion) of the undrawn component of uncommitted credit and liquidity facilities.
(c)
IMPAIRED LOANS
The following table presents information related
to the Bank’s impaired loans as at October 31, 2024
and October 31, 2023.
Impaired Loans
1
(millions of Canadian dollars)
As at
October 31, 2024
October 31, 2023
Related
Average
Related
Average
Unpaid
allowance
gross
Unpaid
allowance
gross
principal
Carrying
for credit
impaired
principal
Carrying
for credit
impaired
balance
2
value
losses
loans
balance
2
value
losses
loans
Residential mortgages
$
827
$
765
$
60
$
685
$
665
$
618
$
57
$
618
Consumer instalment and
other personal
1,045
990
262
894
849
795
197
735
Credit card
575
575
378
544
514
514
312
425
Business and government
2,812
2,619
842
1,875
1,473
1,372
456
1,034
Total
$
5,259
$
4,949
$
1,542
$
3,998
$
3,501
$
3,299
$
1,022
$
2,812
1
Balances exclude ACI loans.
2
Represents contractual amount of principal owed.
(d)
ALLOWANCE FOR CREDIT LOSSES
The following table provides details on
the Bank’s allowance for credit losses as at and
for the years ended October 31, 2024
and October 31, 2023, including
allowance for off-balance sheet instruments in the
applicable categories.
Allowance for Credit Losses
(millions of Canadian dollars)
Foreign
Foreign
exchange,
exchange,
Balance at
Provision
Write-offs,
disposals,
Balance
Balance at
Provision
Write-offs,
disposals,
Balance
beginning
for credit
net of
and other
at end of
beginning
for credit
net of
and other
at end of
of year
losses
recoveries
adjustments
year
of year
losses
recoveries
adjustments
year
For the years ended
October 31, 2024
October 31, 2023
Residential mortgages
$
403
$
(34)
$
(7)
$
3
$
365
$
323
$
85
$
(7)
$
2
$
403
Consumer instalment and other
personal
1,895
1,407
(1,173)
4
2,133
1,704
988
(806)
9
1,895
Credit card
2,577
1,676
(1,561)
7
2,699
2,352
1,327
(1,137)
35
2,577
Business and government
3,310
1,204
(536)
(38)
3,940
2,984
533
(261)
54
3,310
Total allowance for loan losses,
including off-balance sheet
instruments
8,185
4,253
(3,277)
(24)
9,137
7,363
2,933
(2,211)
100
8,185
Debt securities at amortized cost
2
1
–
–
3
1
–
–
1
2
Debt securities at FVOCI
2
(1)
–
–
1
2
–
–
–
2
Total allowance for credit
losses on debt securities
4
–
–
–
4
3
–
–
1
4
Total allowance for credit losses
$
8,189
$
4,253
$
(3,277)
$
(24)
$
9,141
$
7,366
$
2,933
$
(2,211)
$
101
$
8,189
Comprising:
Allowance for credit losses on
loans at amortized cost
$
7,136
$
8,094
$
6,432
$
7,136
Allowance for credit losses on
loans at FVOCI
–
–
–
–
Allowance for loan losses
7,136
8,094
6,432
7,136
Allowance for off-balance sheet
instruments
1,049
1,043
931
1,049
Allowance for credit losses on
debt securities
4
4
3
4
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 48
(e)
ALLOWANCE FOR LOAN LOSSES BY STAGE
The following table provides details on
the Bank’s allowance for loan losses by stage
as at and for the years ended October 31,
2024
and October 31, 2023.
Allowance for Loan Losses by Stage
(millions of Canadian dollars)
For the years ended
October 31, 2024
October 31, 2023
Stage 1
Stage 2
Stage 3
1
Total
Stage 1
Stage 2
Stage 3
1
Total
Residential Mortgages
Balance at beginning of period
$
154
$
192
$
57
$
403
$
127
$
140
$
56
$
323
Provision for credit losses
Transfer to Stage 1
2
137
(133)
(4)
–
123
(120)
(3)
–
Transfer to Stage 2
(30)
52
(22)
–
(30)
47
(17)
–
Transfer to Stage 3
–
(32)
32
–
(2)
(23)
25
–
Net remeasurement due to transfers into stage
3
(30)
22
–
(8)
(23)
18
–
(5)
New originations or purchases
4
32
n/a
n/a
32
49
n/a
n/a
49
Net repayments
5
(4)
–
–
(4)
(4)
(3)
–
(7)
Derecognition of financial assets (excluding
disposals and write-offs)
6
(7)
(27)
(35)
(69)
(9)
(23)
(14)
(46)
Changes to risk, parameters, and models
7
(135)
114
36
15
(78)
156
16
94
Disposals
–
–
–
–
–
–
–
–
Write-offs
–
–
(8)
(8)
–
–
(10)
(10)
Recoveries
–
–
1
1
–
–
3
3
Foreign exchange and other adjustments
(1)
1
3
3
1
–
1
2
Balance at end of period
$
116
$
189
$
60
$
365
$
154
$
192
$
57
$
403
Consumer Instalment and Other Personal
Balance, including off-balance sheet instruments,
at beginning of period
$
688
$
1,010
$
197
$
1,895
$
654
$
896
$
154
$
1,704
Provision for credit losses
Transfer to Stage 1
2
607
(603)
(4)
–
594
(589)
(5)
–
Transfer to Stage 2
(246)
329
(83)
–
(207)
276
(69)
–
Transfer to Stage 3
(11)
(254)
265
–
(9)
(197)
206
–
Net remeasurement due to transfers into stage
3
(267)
300
9
42
(208)
223
9
24
New originations or purchases
4
359
n/a
n/a
359
415
n/a
n/a
415
Net repayments
5
(76)
(95)
(16)
(187)
(63)
(81)
(12)
(156)
Derecognition of financial assets (excluding
disposals and write-offs)
6
(74)
(104)
(50)
(228)
(76)
(97)
(51)
(224)
Changes to risk, parameters, and models
7
(286)
590
1,117
1,421
(416)
575
770
929
Disposals
–
–
–
–
–
–
–
–
Write-offs
–
–
(1,496)
(1,496)
–
–
(1,104)
(1,104)
Recoveries
–
–
323
323
–
–
298
298
Foreign exchange and other adjustments
2
2
–
4
4
4
1
9
Balance, including off-balance sheet instruments,
at end of period
696
1,175
262
2,133
688
1,010
197
1,895
Less: Allowance for off-balance sheet instruments
8
29
55
–
84
35
51
–
86
Balance at end of period
$
667
$
1,120
$
262
$
2,049
$
653
$
959
$
197
$
1,809
Credit Card
9
Balance, including off-balance sheet instruments,
at beginning of period
$
988
$
1,277
$
312
$
2,577
$
954
$
1,191
$
207
$
2,352
Provision for credit losses
Transfer to Stage 1
2
1,087
(1,051)
(36)
–
1,134
(1,108)
(26)
–
Transfer to Stage 2
(323)
404
(81)
–
(317)
375
(58)
–
Transfer to Stage 3
(21)
(881)
902
–
(19)
(715)
734
–
Net remeasurement due to transfers into stage
3
(476)
477
25
26
(513)
476
21
(16)
New originations or purchases
4
153
n/a
n/a
153
194
n/a
n/a
194
Net repayments
5
25
11
65
101
74
7
57
138
Derecognition of financial assets (excluding
disposals and write-offs)
6
(55)
(71)
(367)
(493)
(43)
(75)
(264)
(382)
Changes to risk, parameters, and models
7
(432)
1,204
1,117
1,889
(489)
1,111
771
1,393
Disposals
–
–
–
–
–
–
–
–
Write-offs
–
–
(1,880)
(1,880)
–
–
(1,425)
(1,425)
Recoveries
–
–
319
319
–
–
288
288
Foreign exchange and other adjustments
1
4
2
7
13
15
7
35
Balance, including off-balance sheet instruments,
at end of period
947
1,374
378
2,699
988
1,277
312
2,577
Less: Allowance for off-balance sheet instruments
8
243
359
–
602
279
364
–
643
Balance at end of period
$
704
$
1,015
$
378
$
2,097
$
709
$
913
$
312
$
1,934
1
Includes allowance for loan losses related to ACI loans.
2
Transfers represent stage transfer movements prior to ECL remeasurement.
3
Represents the mechanical remeasurement between twelve-month (i.e., Stage 1) and lifetime ECLs (i.e., Stage 2
or 3) due to stage transfers necessitated by credit risk migration, as
described in the “Significant Increase in Credit Risk” section of Note 2 and Note 3, holding all other factors impacting
the change in ECLs constant.
4
Represents the increase in the allowance resulting from loans that were newly originated, purchased, or renewed.
5
Represents the changes in the allowance related to cash flow changes associated with new draws or repayments
on loans outstanding.
6
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.
7
Represents the changes in the allowance related to current period changes in risk (e.g., PD) caused by changes
to macroeconomic factors, level of risk, parameters, and/or models,
subsequent to stage migration. Refer to the “Measurement of Expected Credit Losses”, “Forward-Looking
Information” and “Expert Credit Judgment” sections of Note 2 and Note 3 for
further details.
8
The allowance for loan losses for off-balance sheet instruments is recorded in Other liabilities
on the Consolidated Balance Sheet.
9
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 for further details.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 49
Allowance for Loan Losses by Stage
(Continued)
(millions of Canadian dollars)
For the years ended
October 31, 2024
October 31, 2023
Stage 1
Stage 2
Stage 3
1
Total
Stage 1
Stage 2
Stage 3
1
Total
Business and Government
2
Balance, including off-balance sheet instruments,
at beginning of period
$
1,319
$
1,521
$
470
$
3,310
$
1,220
$
1,417
$
347
$
2,984
Provision for credit losses
Transfer to Stage 1
3
266
(265)
(1)
–
346
(344)
(2)
–
Transfer to Stage 2
(568)
584
(16)
–
(570)
583
(13)
–
Transfer to Stage 3
(19)
(350)
369
–
(11)
(208)
219
–
Net remeasurement due to transfers into stage
3
(86)
158
13
85
(102)
115
2
15
New originations or purchases
3
1,165
n/a
n/a
1,165
1,258
n/a
n/a
1,258
Net repayments
3
20
(60)
(77)
(117)
41
(76)
(100)
(135)
Derecognition of financial assets (excluding
disposals and write-offs)
3
(683)
(611)
(297)
(1,591)
(715)
(587)
(398)
(1,700)
Changes to risk, parameters, and models
3
(271)
917
1,016
1,662
(178)
585
688
1,095
Disposals
–
–
(39)
(39)
–
–
–
–
Write-offs
–
–
(600)
(600)
–
–
(307)
(307)
Recoveries
–
–
64
64
–
–
46
46
Foreign exchange and other adjustments
7
43
(49)
1
30
36
(12)
54
Balance, including off-balance sheet instruments,
at end of period
1,150
1,937
853
3,940
1,319
1,521
470
3,310
Less: Allowance for off-balance sheet instruments
4
167
179
11
357
162
150
8
320
Balance at end of period
983
1,758
842
3,583
1,157
1,371
462
2,990
Total Allowance, including
off-balance sheet
instruments, at end of period
2,909
4,675
1,553
9,137
3,149
4,000
1,036
8,185
Less: Total Allowance for
off-balance sheet
instruments
4
439
593
11
1,043
476
565
8
1,049
Total Allowance for Loan Losses
at end of period
$
2,470
$
4,082
$
1,542
$
8,094
$
2,673
$
3,435
$
1,028
$
7,136
1
Includes allowance for loan losses related to ACI loans.
2
Includes allowance for loan losses related to customers’ liability under acceptances.
3
For explanations regarding this line item, refer to the “Allowance for Loan Losses by Stage” table on the previous
page in this Note.
4
The allowance for loan losses for off-balance sheet instruments is recorded in Other liabilities on the
Consolidated Balance Sheet.
The allowance for credit losses on all remaining
financial assets is not significant.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 50
(f)
FORWARD-LOOKING INFORMATION
Relevant macroeconomic factors are incorporated
in risk parameters as appropriate. Additional
risk factors that are industry or segment
specific are also
incorporated, where relevant. The key macroeconomic
variables used in determining ECLs include
regional unemployment rates for all retail
exposures and
regional housing price indices for residential
mortgages and home equity lines of credit.
For business and government loans, the key
macroeconomic variables
include gross domestic product (GDP), unemployment
rates, interest rates, and credit spreads.
Refer to Note 3 for a discussion
of how forward-looking information
is generated and considered in determining
whether there has been a significant increase
in credit risk and in measuring ECLs.
Macroeconomic Variables
Select macroeconomic variables are projected
over the forecast period.
The following table sets out average values
of the macroeconomic variables over the
four
calendar quarters starting with the current
quarter, and the remaining 4-year forecast period for the base
forecast and upside and downside scenarios
used in
determining the Bank’s ECLs as at October
31, 2024. As the forecast period increases, information
about the future becomes less readily available
and projections
are anchored on assumptions around structural
relationships between economic parameters
that are inherently much less certain.
Restrictive monetary policy
continues to contribute to elevated economic
uncertainty, particularly in Canada where household debt levels
remain elevated, and is likely to continue
to weigh on
near-term economic growth.
Macroeconomic Variables
As at
October 31, 2024
Base Forecast
Upside Scenario
Downside Scenario
Average
Remaining
Average
Remaining
Average
Remaining
Q4 2024-
4-year
Q4 2024-
4-year
Q4 2024-
4-year
Q3 2025
1
period
1
Q3 2025
1
period
1
Q3 2025
1
period
1
Unemployment rate
Canada
6.7
%
6.0
%
5.7
%
5.6
%
7.7
%
7.3
%
United States
4.3
4.0
3.8
3.7
5.4
5.4
Real GDP
Canada
1.7
2.0
2.1
2.2
(0.4)
2.3
United States
1.9
2.1
2.7
2.4
(0.2)
2.4
Home prices
Canada (average existing price)
2
6.0
3.0
8.2
3.4
(7.1)
3.7
United States (CoreLogic HPI)
3
1.3
3.0
4.2
3.8
(8.5)
4.1
Central bank policy interest rate
Canada
3.19
2.27
4.19
2.61
1.69
1.81
United States
3.69
3.00
5.00
3.39
2.81
2.06
U.S. 10-year treasury yield
3.52
3.45
4.49
3.81
3.40
3.34
U.S. 10-year BBB spread (%-pts)
1.75
1.80
1.59
1.76
2.51
2.10
Exchange rate (U.S. dollar/Canadian dollar)
$
0.74
$
0.75
$
0.75
$
0.76
$
0.71
$
0.71
Macroeconomic Variables
As at
October 31, 2023
Base Forecast
Upside Scenario
Downside Scenario
Average
Remaining
Average
Remaining
Average
Remaining
Q4 2023-
4-year
Q4 2023-
4-year
Q4 2023-
4-year
Q3 2024
1
period
1
Q3 2024
1
period
1
Q3 2024
1
period
1
Unemployment rate
Canada
6.2
%
6.2
%
5.6
%
5.8
%
7.0
%
7.1
%
United States
4.0
4.1
3.7
3.9
5.0
5.2
Real GDP
Canada
0.7
1.7
0.9
1.7
(0.8)
1.9
United States
1.5
1.7
2.2
1.8
(0.1)
2.0
Home prices
Canada (average existing price)
2
0.1
3.7
3.1
3.0
(9.7)
6.7
United States (CoreLogic HPI)
3
2.5
1.6
3.5
2.1
(8.1)
4.8
Central bank policy interest rate
Canada
4.63
2.39
5.00
2.45
3.75
1.88
United States
5.25
2.94
5.50
2.95
4.25
2.38
U.S. 10-year treasury yield
3.89
3.22
4.21
3.32
3.46
3.17
U.S. 10-year BBB spread (%-pts)
2.18
1.81
1.94
1.78
2.67
2.05
Exchange rate (U.S. dollar/Canadian dollar)
$
0.72
$
0.79
$
0.77
$
0.81
$
0.71
$
0.74
1
The numbers represent average values for the quoted periods, and average of year-on-year growth for real GDP
and home prices.
2
The average home price is the average transacted sale price of homes sold via the Multiple Listing Service; data
is collected by the Canadian Real Estate Association.
3
The CoreLogic home price index (HPI) is a repeat-sales index which tracks increases and decreases in the same
home’s sales price over time.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 51
(g)
SENSITIVITY OF ALLOWANCE FOR CREDIT LOSSES
ECLs are sensitive to the inputs used in internally
developed models, the macroeconomic variables
in the forward-looking forecasts and respective
probability
weightings in determining the probability-weighted
ECLs, and other factors considered when
applying expert credit judgment. Changes
in these inputs,
assumptions, models, and judgments would
affect the assessment of significant increase in
credit risk and the measurement of ECLs.
The following table presents the base ECL
scenario compared to the probability-weighted
ECLs,
with the latter derived from three ECL
scenarios for performing
loans and off-balance sheet instruments. The difference
reflects the impact of deriving multiple
scenarios around the base ECLs
and resultant change in ECLs due
to non-linearity and sensitivity to using
macroeconomic forecasts.
Change from Base to Probability-Weighted ECLs
(millions of Canadian dollars, except
as noted)
As at
October 31, 2024
October 31, 2023
Probability-weighted ECLs
$
7,584
$
7,149
Base ECLs
7,185
6,658
Difference – in amount
$
399
$
491
Difference – in percentage
5.6
%
7.4
%
ECLs for performing loans and off-balance sheet
instruments consist of an aggregate amount
of Stage 1 and Stage 2 probability-weighted
ECLs which are twelve-
month ECLs and lifetime ECLs,
respectively. Transfers from Stage 1 to Stage 2 ECLs result from a
significant increase in credit risk since initial
recognition of the
loan.
The following table shows the estimated
impact of staging on ECLs by presenting
all performing loans and off-balance sheet instruments
calculated using
twelve-month ECLs compared to the current
aggregate probability-weighted ECLs,
holding all risk profiles constant.
Incremental Lifetime ECLs Impact
(millions of Canadian dollars)
As at
October 31, 2024
October 31, 2023
Probability-weighted ECLs
$
7,584
$
7,149
All performing loans and off-balance sheet instruments
using 12-month ECLs
5,631
5,295
Incremental lifetime ECLs impact
$
1,953
$
1,854
(h)
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 $
126
million as at October 31, 2024 (October 31, 2023
– $
59
million) and were recorded in Other assets
on the Consolidated Balance
Sheet.
(i)
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
past
due but not impaired. Loans less than 31 days
contractually past due are excluded as
they do not generally reflect a borrower’s ability
to meet their payment
obligations.
Loans Past Due but not Impaired
1
(millions of Canadian dollars)
As at
October 31, 2024
October 31, 2023
31-60
61-89
31-60
61-89
days
days
Total
days
days
Total
Residential mortgages
$
443
$
111
$
554
$
286
$
81
$
367
Consumer instalment and other personal
983
335
1,318
870
287
1,157
Credit card
375
269
644
359
242
601
Business and government
244
83
327
264
103
367
Total
$
2,045
$
798
$
2,843
$
1,779
$
713
$
2,492
1
Includes loans that are measured at FVOCI.
(j)
MODIFIED FINANCIAL ASSETS
The amortized cost of financial assets
with lifetime allowance that were modified
during the year ended October 31, 2024,
was $
214
million (October 31, 2023 –
$
389
million) before modification, with insignificant
modification gain or loss. The gross carrying
amount of modified financial assets
for which the loss allowance
changed from lifetime to twelve-month ECLs
during the year ended October 31, 2024 was
insignificant (October 31, 2023 – $
144
million).
(k)
COLLATERAL
As at October 31, 2024, the collateral held against
total gross impaired loans represents
82
% (October 31, 2023 –
77
%) of total gross impaired loans. The fair
value of non-financial collateral is determined
at the origination date of the loan. A revaluation
of non-financial collateral is performed if
there has been a significant
change in the terms and conditions of the loan
and/or the loan is considered impaired.
Management considers the nature of the collateral,
seniority ranking of the
debt, and loan structure in assessing the
value of collateral. These estimated cash
flows are reviewed at least annually, or more frequently when new
information
indicates a change in the timing or amount expected
to be received.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 52
NOTE 9: TRANSFERS OF FINANCIAL
ASSETS
LOAN SECURITIZATIONS
The Bank securitizes loans through structured
entity or non-structured entity third parties.
Most loan securitizations do not qualify for
derecognition since in most
circumstances, the Bank continues to be exposed
to substantially all of the prepayment, interest
rate, and/or credit risk associated with
the securitized financial
assets and has not transferred substantially
all of the risk and rewards of ownership
of the securitized assets. Where loans do
not qualify for derecognition, they
are not derecognized from the Bank’s Consolidated
Balance Sheet, retained interests are not
recognized, and a securitization liability is recognized
for the cash
proceeds received. Certain transaction costs
incurred are also capitalized and amortized
using EIRM.
The Bank securitizes insured residential
mortgages under the National Housing Act
Mortgage-Backed Securities (NHA
MBS) program sponsored by the
Canada Mortgage and Housing Corporation
(CMHC). The MBS that are created through
the NHA MBS program are sold to the
Canada Housing Trust (CHT) as
part of the CMB program,
sold to third-party investors,
or are held by the Bank. The CHT issues
CMB to third-party investors and uses resulting
proceeds to
purchase NHA MBS from the Bank and other
mortgage issuers in the Canadian market. Assets
purchased by the CHT are commingled
in a single trust from which
CMB are issued. The Bank continues to be exposed
to substantially all of the risks of the underlying
mortgages, through the retention of a seller
swap which
transfers principal and interest payment
risk on the NHA MBS back to the Bank
in return for coupon paid on the CMB
issuance and as such, the sales do not
qualify for derecognition.
The Bank securitizes U.S. originated residential
mortgages with U.S. government agencies
which qualify for derecognition from the Bank’s Consolidated
Balance Sheet. As part of the securitization,
the Bank retains the right to service the
transferred mortgage loans. The MBS that
are created through the
securitization are typically sold to third-party
investors.
The Bank also securitizes business and government
loans to entities which may be structured
entities. These securitizations may give
rise to derecognition of
the financial assets depending on the individual
arrangement of each transaction.
In addition, the Bank transfers credit card receivables
to structured entities that the Bank consolidates.
Refer to Note 10 for further details.
The following table summarizes the securitized
asset types that did not qualify for derecognition,
along with their associated
securitization liabilities as at
October 31, 2024
and October 31, 2023.
Financial Assets Not Qualifying for Derecognition
Treatment as Part of the Bank’s Securitization Programs
(millions of Canadian dollars)
As at
October 31, 2024
October 31, 2023
Fair
Carrying
Fair
Carrying
value
amount
value
amount
Nature of transaction
Securitization of residential mortgage loans
$
30,543
$
30,787
$
23,835
$
24,433
Other financial assets transferred related
to securitization
1
2,623
2,619
3,554
3,571
Total
33,166
33,406
27,389
28,004
Associated liabilities
2
$
32,442
$
32,684
$
26,457
$
27,131
1
Includes asset-backed securities, asset-backed commercial paper (ABCP),
cash, repurchase agreements, and Government of Canada securities used to fulfil funding requirements
of the
Bank’s securitization structures after the initial securitization of mortgage loans.
2
Includes securitization liabilities carried at amortized cost of $
12
billion as at October 31, 2024 (October 31, 2023 – $
13
billion), and securitization liabilities carried at fair value of
$
20
billion as at October 31, 2024 (October 31, 2023 – $
14
billion).
Other Financial Assets Not Qualifying for
Derecognition
The Bank enters into certain transactions
where it transfers previously recognized commodities
and financial assets, such as debt and equity
securities, but retains
substantially all of the risks and rewards of
those assets. These transferred assets are
not derecognized and the transfers are accounted
for as financing
transactions. The most common transactions
of this nature are repurchase agreements
and securities lending agreements, in which
the Bank retains substantially
all of the associated credit, price, interest rate,
and foreign exchange risks and rewards
associated with the assets.
The following table summarizes the carrying
amount of financial assets and the associated
transactions that did not qualify for derecognition,
as well as their
associated financial liabilities as at October
31, 2024 and October 31, 2023.
Other Financial Assets Not Qualifying for
Derecognition
(millions of Canadian dollars)
As at
October 31
October 31
2024
2023
Carrying amount of assets
Nature of transaction
Repurchase agreements
1,2
$
40,725
$
27,782
Securities lending agreements
52,781
40,333
Total
93,506
68,115
Carrying amount of associated liabilities
2
$
40,450
$
28,037
1
Includes $
2.8
billion, as at October 31, 2024 (October 31, 2023 – $
3.6
billion) of assets related to repurchase agreements or swaps that are collateralized by physical precious
metals.
2
Associated liabilities are all related to repurchase agreements.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 53
TRANSFERS OF FINANCIAL ASSETS QUALIFYING
FOR DERECOGNITION
Transferred financial assets that are derecognized
in their entirety where the Bank has a
continuing involvement
Continuing involvement may arise if the Bank
retains any contractual rights or obligations
subsequent to the transfer of financial assets.
Certain business and
government loans securitized by the Bank are
derecognized from the Bank’s Consolidated Balance
Sheet. In instances where the Bank fully derecognizes
business and government loans, the Bank
may be exposed to the risks of transferred loans
through a retained interest. As at October
31, 2024, the fair value of
retained interests was $
1
million (October 31, 2023 – $
3
million). A gain or loss on sale of the loans
is recognized immediately in other income
(loss) after
considering the effect of hedge accounting on
the assets sold, if applicable. The amount
of the gain or loss recognized depends on
the previous carrying values of
the loans involved in the transfer, allocated between the assets
sold and the retained interests based on their
relative fair values at the date of transfer.
Certain portfolios of U.S. residential mortgages
originated by the Bank are sold and derecognized
from the Bank’s Consolidated Balance Sheet.
In certain
instances, the Bank has a continuing involvement
to service those loans. As at October 31, 2024,
the carrying value of these servicing
rights was $
81
million
(October 31, 2023 – $
92
million) and the fair value was $
133
million (October 31, 2023 – $
150
million). A gain or loss on sale of the loans
is recognized
immediately in other income (loss). The gain
(loss) on sale of the loans for the year ended
October 31, 2024 was ($
3
) million (October 31, 2023 – ($
40
) million).
NOTE 10: STRUCTURED ENTITIES
The Bank uses structured entities for a variety
of purposes including:
(1) to facilitate the transfer of specified risks
to clients; (2) as financing vehicles for itself or
for
clients; or (3)
to segregate assets on behalf of investors.
The Bank is typically restricted from accessing
the assets of the structured entity under the relevant
arrangements.
The Bank is involved with structured entities
that it sponsors,
as well as entities sponsored by third parties.
Factors assessed when determining if the Bank
is
the sponsor of a structured entity include
whether the Bank is the predominant user of
the entity; whether the entity’s branding or marketing
identity is linked with
the Bank; and whether the Bank provides
an implicit or explicit guarantee of
the entity’s performance to investors or other
third parties. The Bank is not considered
to be the sponsor of a structured entity if
it only provides arm’s-length services to the entity, for example, by acting
as administrator, distributor, custodian, asset
manager, or loan servicer. Sponsorship of a structured entity may indicate
that the Bank had power over the entity at
inception; however, this is not sufficient to
determine if the Bank consolidates the entity. Regardless of
whether or not the Bank sponsors an entity, consolidation is determined
on a case-by-case basis.
(a)
SPONSORED STRUCTURED ENTITIES
The following section outlines the Bank’s involvement
with key sponsored structured entities.
Securitizations
The Bank securitizes its own assets
and facilitates the securitization of client
assets through structured entities, such as
conduits, which issue ABCP or other
securitization entities which issue longer-dated
term securities. Securitizations are an important
source of liquidity for the Bank, allowing
it to diversify its funding
sources and to optimize its balance sheet
management approach.
The Bank sponsors both single-seller and
multi-seller securitization conduits. Depending
on the specifics of the entity, the variable returns absorbed through
ABCP may be significantly mitigated
by variable returns retained by the sellers.
The Bank provides liquidity facilities to certain
conduits for the benefit of ABCP
investors which are structured as loan
facilities between the Bank, as the sole liquidity
lender, and the Bank-sponsored entity.
If an entity experiences difficulty
issuing ABCP due to illiquidity in the commercial
market, the entity may draw on the loan facility, and use the proceeds
to pay maturing ABCP. The ABCP issued
by each multi-seller conduit is in the conduit’s own
name with recourse to the financial assets
owned by the multi-seller conduit, and is non-recourse
to the Bank
except through our participation in liquidity facilities.
The Bank’s exposure to the variable returns
of these conduits from its provision of liquidity
facilities and any
related commitments is mitigated by the sellers’
continued exposure to variable returns through
the provision of first loss protection, as described
below. The Bank
provides administration and securities
distribution services to its sponsored
securitization conduits, which may result
in it holding an investment in the ABCP issued
by these entities. In some cases, the Bank
may also provide credit enhancements or
may transact derivatives with securitization
conduits. The Bank earns fees
from the conduits which are recognized
when earned.
The Bank sells assets to single-seller
conduits which it controls and consolidates.
Control results from the Bank’s power over the entity’s
key economic
decisions, predominantly, the mix of assets sold into the conduit
and exposure to the variable returns of
the transferred assets, usually through a derivative
or the
provision of credit mitigation in the form
of cash reserves, over-collateralization,
or guarantees over the performance of
the entity’s portfolio of assets.
Multi-seller conduits provide sellers with
alternate sources of financing through the
securitization of their assets. These
conduits are similar to single-seller
conduits except that financial assets are
purchased from more than one seller and
commingled into a single portfolio of assets. Each
transaction is structured with
transaction-specific first loss protection provided
by the third-party seller. This enhancement can take
various forms, including but not limited
to
overcollateralization, excess spread, subordinated
classes of financial assets, guarantees or
letters of credit. The Bank is typically deemed
to have power over the
entity’s key economic decisions, namely,
the selection of sellers and related assets
sold as well as other decisions related
to the management of risk in the vehicle.
Where the Bank has power over multi-seller
conduits,
but is not exposed to significant variable
returns it does not consolidate such
entities. Where the Bank is
exposed to variable returns of a multi-seller
conduit from provision of certain types
of liquidity facilities, together with power over
the entity as well as the ability to
use its power to influence significant variable
returns, the Bank consolidates the conduit.
Investment Funds and Other Asset Management
Entities
As part of its asset management business,
the Bank creates investment funds and
trusts (including mutual funds), enabling it
to provide its clients with a broad
range of diversified exposure to different risk profiles,
in accordance with the client’s risk appetite.
Such entities may be actively managed or
may be passively
directed, for example, through the tracking
of a specified index, depending on
the entity’s investment strategy. Financing for these entities is obtained through
the
issuance of securities to investors, typically
in the form of fund units. Based on each
entity’s specific strategy and risk profile, the
proceeds from this issuance are
used by the entity to purchase a portfolio of
assets. An entity’s portfolio may contain investments
in securities, derivatives,
or other assets, including cash. At the
inception of a new investment fund or trust,
the Bank will typically invest an amount of
seed capital in the entity, allowing it to establish a performance
history in the
market. Over time, the Bank sells its seed
capital holdings to third-party investors, as the entity’s
AUM increases. As a result, the Bank’s holding
of seed capital
investment in its own sponsored investment
funds and trusts is typically not significant
to the Consolidated Financial Statements. Aside
from any seed capital
investments, the Bank’s interest in these entities
is generally limited to fees earned for
the provision of asset management services.
The Bank does not typically
provide guarantees over the performance of
these funds.
The Bank is typically considered to have
power over the key economic decisions
of sponsored asset management entities;
however, it does not consolidate an
entity unless it is also exposed to significant
variable returns of the entity. This determination is made on
a case-by-case basis, in accordance
with the Bank’s
consolidation policy.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 54
Financing Vehicles
The Bank may use structured entities to provide
a cost-effective means of financing its operations,
including raising capital or obtaining
funding. These structured
entities include TD Covered Bond (Legislative)
Guarantor Limited Partnership (the “Covered
Bond Entity”).
The Bank issues, or has issued, debt under its
covered bond program where the principal and
interest payments of the notes are guaranteed
by the Covered
Bond Entity. The Bank sold a portfolio of assets to the Covered Bond
Entity and provided a loan to the Covered
Bond Entity to facilitate the purchase. The Bank
is
restricted from accessing the Covered Bond
Entity’s assets under the relevant agreement.
Investors in the Bank’s covered bonds may have
recourse to the Bank
should the assets of the Covered Bond Entity
be insufficient to satisfy the covered bond liabilities.
The Bank consolidates the Covered Bond
Entity as it has power
over the key economic activities and
retains all the variable returns in this entity.
(b)
THIRD-PARTY SPONSORED STRUCTURED ENTITIES
In addition to structured entities sponsored
by the Bank, the Bank is also involved with
structured entities sponsored by third parties.
Key involvement with
third-party sponsored structured entities
is described in the following section.
Third-party Sponsored Securitization
Programs
The Bank participates in the securitization
programs
of government-sponsored structured
entities, including the CMHC, a Crown
corporation of the Government of
Canada, and similar U.S. government-sponsored
entities. CMHC guarantees both NHA
MBS and CMB which are issued through
the CHT.
The Bank is exposed to the variable returns
in the CHT, through its retention of seller swaps resulting from its
participation in the CHT program. The Bank does
not have power over the CHT as its key
economic activities are controlled by the Government
of Canada. The Bank’s exposure to the
CHT is included in the
balance of residential mortgage loans as noted
in Note 9, and is not disclosed in the
table accompanying this Note.
The Bank participates in the securitization
programs sponsored by U.S. government
agencies. The Bank is not exposed to significant
variable returns from
these agencies and does not have power over
the key economic activities of these agencies,
which are controlled by the U.S. government.
Investment Holdings and Derivatives
The Bank may hold interests in third-party
structured entities, predominantly in
the form of direct investments in securities
or partnership interests issued by those
structured entities,
or through derivatives transacted with
counterparties which are structured entities.
Investments in, and derivatives with, structured
entities are
recognized on the Bank’s Consolidated Balance Sheet.
The Bank does not typically consolidate third-party
structured entities where its involvement
is limited to
investment holdings and/or derivatives as the Bank
would not generally have power over the
key economic decisions of these entities.
Financing Transactions
In the normal course of business, the Bank
may enter into financing transactions with third-party
structured entities including commercial loans,
reverse repurchase
agreements, prime brokerage margin lending,
and similar collateralized lending transactions.
While such transactions expose the Bank
to the structured entities’
counterparty credit risk, this exposure is mitigated
by the collateral related to these transactions.
The Bank typically has neither power nor
significant variable
returns due to financing transactions with
structured entities and would not generally
consolidate such entities. Financing transactions
with third-party sponsored
structured entities are included on the Bank’s
Consolidated Financial Statements and have not
been included in the table accompanying
this Note.
Arm’s-length Servicing Relationships
In addition to the involvement outlined above,
the Bank may also provide services to
structured entities on an arm’s-length basis, for example
as sub-advisor to an
investment fund or asset servicer. Similarly, the Bank’s asset management services
provided to institutional investors
may include transactions with structured
entities. As a consequence of providing
these services, the Bank may be exposed
to variable returns from these structured entities,
for example, through the
receipt of fees or short-term exposure
to the structured entity’s securities. Any such exposure
is typically mitigated by collateral or
some other contractual
arrangement with the structured entity or
its sponsor. The Bank generally has neither power nor
significant variable returns from the provision
of arm’s-length
services to a structured entity and, consequently
does not consolidate such entities.
Fees and other exposures through servicing relationships
are included on the
Bank’s Consolidated Financial Statements and have
not been included in the table accompanying
this Note.
(c)
INVOLVEMENT WITH CONSOLIDATED STRUCTURED ENTITIES
Securitizations
The Bank securitizes credit card receivables
through securitization entities, predominantly
single-seller conduits. These conduits are
consolidated by the Bank
based on the factors described above. Aside
from the exposure resulting from its involvement
as seller and sponsor of consolidated
securitization conduits
described above, including the liquidity facilities
provided, the Bank has no contractual or
non-contractual arrangements to provide
financial support to
consolidated securitization conduits.
The Bank’s interests in securitization conduits
generally rank senior to interests held by
other parties, in accordance with the
Bank’s investment and risk policies. As a result,
the Bank has no significant obligations to absorb
losses before other holders of securitization issuances.
Other Consolidated Structured Entities
Depending on the specific facts and circumstances
of the Bank’s involvement with structured
entities, the Bank may consolidate asset
management entities,
financing vehicles,
or third-party sponsored structured entities,
based on the factors described above.
Aside from its exposure resulting from its
involvement as
sponsor or investor in the structured
entities as previously discussed,
the Bank does not typically have other
contractual or non-contractual arrangements
to
provide financial support to these consolidated
structured entities.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 55
(d)
INVOLVEMENT WITH UNCONSOLIDATED STRUCTURED ENTITIES
The following table presents information related
to the Bank’s unconsolidated structured entities.
Unconsolidated structured entities include both
TD and third-party
sponsored entities. Securitizations include holdings
in TD-sponsored multi-seller conduits,
as well as third-party sponsored mortgage
and asset-backed
securitizations, including government-sponsored
agency securities such as CMBs, and
U.S. government agency issuances. Investment
Funds and Trusts include
holdings in third-party funds and trusts, as
well as holdings in TD-sponsored asset management
funds and trusts and commitments to certain
U.S. municipal
funds. Amounts in Other are mainly related
to investments in community-based
U.S. tax-advantage entities described in
Note 12. These holdings do not result in
the consolidation of these entities as TD does
not have power over these entities.
Carrying Amount and Maximum Exposure to Unconsolidated
Structured Entities
(millions of Canadian dollars)
As at
October 31, 2024
October 31, 2023
Investment
Investment
funds and
funds and
Securitizations
trusts
Other
Total
Securitizations
trusts
Other
Total
FINANCIAL ASSETS
Trading loans, securities,
and other
$
7,559
$
992
$
–
$
8,551
$
7,190
$
930
$
–
$
8,120
Non-trading financial assets at
fair value through profit or loss
684
836
98
1,618
2,163
738
107
3,008
Derivatives
1
–
680
–
680
–
401
–
401
Financial assets designated at
fair value through profit or loss
–
298
–
298
–
268
–
268
Financial assets at fair value through
other comprehensive income
22,615
967
2
23,584
25,956
3,714
7
29,677
Debt securities at amortized cost,
net of allowance for credit losses
117,890
1,210
–
119,100
134,503
1,153
–
135,656
Loans
4,114
3
–
4,117
4,560
4
–
4,564
Other
2
88
5,762
5,852
5
107
4,657
4,769
Total assets
152,864
5,074
5,862
163,800
174,377
7,315
4,771
186,463
FINANCIAL LIABILITIES
Deposits
–
–
1,451
1,451
–
–
839
839
Derivatives
1
–
645
–
645
–
50
–
50
Obligations related to securities
sold short
2,324
331
–
2,655
4,126
333
–
4,459
Total liabilities
2,324
976
1,451
4,751
4,126
383
839
5,348
Off-balance sheet exposure
2
22,897
4,392
2,990
30,279
19,904
3,965
2,294
26,163
Maximum exposure to loss from
involvement with unconsolidated
structured entities
$
173,437
$
8,490
$
7,401
$
189,328
$
190,155
$
10,897
$
6,226
$
207,278
Size of sponsored unconsolidated
structured entities
3
$
15,850
$
45,272
$
12
$
61,134
$
14,032
$
33,744
$
39
$
47,815
1
Derivatives primarily subject to vanilla interest rate or foreign exchange risk are not included in these amounts
as those derivatives are designed to align the structured entity’s cash flows
with risks absorbed by investors and are not predominantly designed to expose the Bank to variable returns created
by the entity.
2
For the purposes of this disclosure, off-balance sheet exposure represents the notional value of liquidity
facilities, guarantees, or other off-balance sheet commitments without considering
the effect of collateral or other credit enhancements.
3
The size of sponsored unconsolidated structured entities is provided based on the most appropriate measure of
size for the type of entity: (1) The par value of notes issued by
securitization conduits and similar liability issuers; (2) the total AUM of investment funds and trusts; and (3) the total
fair value of partnership or equity shares in issue for partnerships and
similar equity issuers.
Sponsored Unconsolidated Structured Entities
in which the Bank has no Significant Investment
at the End of the Period
Sponsored unconsolidated structured entities
in which the Bank has no significant investment
at the end of the period are predominantly investment
funds and
trusts created for the asset management
business. The Bank would not typically
hold investments, with the exception of
seed capital, in these structured entities.
However, the Bank continues to earn fees from asset management
services provided to these entities, some of which
could be based on the performance of the
fund. Fees payable are generally senior in
the entity’s priority of payment and would also
be backed by collateral, limiting the Bank’s exposure
to loss from these
entities. The Bank earned non-interest income
of $
2.3
billion (October 31, 2023 − $
2.1
billion) from its involvement with these asset
management entities for the
year ended October 31, 2024, of which $
1.9
billion (October 31, 2023 − $
1.9
billion) was received directly from these
entities. The total AUM in these entities
as at
October 31, 2024 was $
302.9
billion (October 31, 2023 − $
253.1
billion). Any assets transferred by the Bank
during the period are commingled with assets
obtained from third parties in the market.
Except as previously disclosed, the Bank
has no contractual or non-contractual arrangements
to provide financial support
to unconsolidated structured entities.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 56
NOTE 11: DERIVATIVES
(a)
DERIVATIVE PRODUCT TYPES AND RISK EXPOSURES
The majority of the Bank’s derivative contracts
are OTC transactions that are bilaterally
negotiated between the Bank and the
counterparty to the contract. The
remainder are exchange-traded contracts transacted
through organized and regulated exchanges
and consist primarily of options and futures.
The Bank’s derivative transactions relate to trading
and non-trading activities. The purpose of
derivatives held for non-trading activities
is primarily for managing
interest rate, foreign exchange, and equity risk
related to the Bank’s funding, lending,
investment, and other structural market risk
management activities. The
Bank’s risk management strategy for these
risks is discussed in shaded sections of
the “Managing Risk” section of the MD&A.
Where hedge accounting is applied, only
specific or a combination of risk components
are hedged, including benchmark interest
rate, foreign exchange rate,
and equity price components. All these risk
components are observable in the relevant
market environment and the change in the fair
value or the variability in
cash flows attributable to these risk components
can be reliably measured for hedged items.
The Bank also enters into derivative transactions
to economically
hedge certain exposures that do not otherwise
qualify for hedge accounting, or
where hedge accounting is not considered
feasible.
Where the derivatives are in hedge relationships,
the main sources of ineffectiveness can be attributed
to differences between hedging instruments and hedged
items:
●
Differences in fixed rates, when contractual coupons
of the fixed rate hedged items are designated;
●
Differences in the discounting factors, when hedging
derivatives are collateralized;
●
CVA on the hedging derivatives; and
●
Mismatch in critical terms such as tenor and
timing of cash flows between hedging instruments
and hedged items.
To mitigate a portion of the ineffectiveness, the Bank designates the benchmark risk
component of contractual cash flows of
hedged items and executes hedging
derivatives with high-quality counterparties.
The majority of the Bank’s hedging derivatives
are collateralized.
Interest Rate Derivatives
Interest rate swaps are OTC contracts in
which two counterparties agree to exchange
cash flows over a period of time based
on rates applied to a specified
notional amount. This includes interest rate
swaps that are transacted and settled through
a clearing house which acts as a central
counterparty. A typical interest
rate swap would require one counterparty
to pay a fixed market interest rate in exchange
for a variable market interest rate determined
from time to time, with both
calculated on a specified notional amount.
No exchange of principal amount takes place.
Forward rate agreements are OTC contracts
that effectively fix a future interest rate for a
period of time. A typical forward rate agreement
provides that at a pre-
determined future date, a cash settlement
will be made between the counterparties based
upon the difference between a contracted rate and
a market rate to be
determined in the future, calculated on a
specified notional amount. No exchange of principal
amount takes place.
Interest rate options are contracts in
which one party (the purchaser of an option) acquires
from another party (the writer of an option),
in exchange for a
premium, the right, but not the obligation,
either to buy or sell, on a specified future date
or series of future dates or within a specified
time, a specified financial
instrument at a contracted price. The underlying
financial instrument will have a market
price which varies in response to changes
in interest rates. In managing
the Bank’s interest rate exposure, the Bank acts as
both a writer and purchaser of these options.
Options are transacted both OTC and through
exchanges.
Interest rate futures are standardized
contracts transacted on an exchange, with interest
bearing instruments as the underlying reference
assets. These
contracts differ from forward rate agreements in
that they are in standard amounts with standard
settlement dates and are transacted on an exchange.
The Bank uses interest rate swaps to hedge
its exposure to benchmark interest rate risk
by modifying the repricing or maturity
characteristics of existing and/or
forecast assets and liabilities, including funding
and investment activities. These swaps are
designated in either fair value hedges against
fixed rate
assets/liabilities or cash flow hedges against
floating rate assets/liabilities. For fair
value hedges, the Bank assesses and measures
the hedge effectiveness based
on the change in the fair value of the derivative
hedging instrument relative to the change
in the fair value of the hedged item.
For cash flow hedges, the Bank uses
a hypothetical derivative having terms that identically
match the critical terms of the hedged item
as the proxy for measuring
the change in cash flows of the
hedged item.
Foreign Exchange Derivatives
Foreign exchange forwards are OTC contracts
in which one counterparty contracts
with another to exchange a specified amount
of one currency for a specified
amount of a second currency, at a future date or range of dates.
Swap contracts comprise foreign exchange
swaps and cross-currency interest rate swaps.
Foreign exchange swaps are transactions
in which a foreign
currency is simultaneously purchased in
the spot market and sold in the forward
market, or vice-versa. Cross-currency interest
rate swaps are transactions in
which counterparties exchange principal and
interest cash flows in different currencies over
a period of time. These contracts are used
to manage currency and/or
interest rate exposures.
Foreign exchange futures contracts are
similar to foreign exchange forward contracts
but differ in that they are in standard currency amounts
with standard
settlement dates and are transacted on an exchange.
The Bank uses non-derivative instruments
such as foreign currency deposit liabilities
and derivative instruments such as
cross-currency swaps and foreign
exchange forwards to hedge its foreign currency
exposure. These hedging instruments
are designated in either net investment hedges
or cash flow hedges. For
net investment hedges, the Bank assesses and
measures the hedge effectiveness based on the
change in the fair value of the hedging
instrument relative to the
translation gains and losses on the net investment
in the foreign operation. For cash flow
hedges, the Bank assesses and measures
the hedge effectiveness
based on the change in the fair value of
the hedging instrument relative to the change
in the cash flows of the foreign currency
denominated asset/liability
attributable to foreign exchange risk, using the
hypothetical derivative method.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 57
Credit Derivatives
The Bank uses credit derivatives such as
credit default swaps (CDS) and total return
swaps to manage risks in the Bank’s corporate loan
portfolio and other cash
instruments, as well as managing counterparty
credit risk on derivatives. Credit risk is the
risk of loss if a borrower or counterparty in
a transaction fails to meet its
agreed payment obligations. The Bank uses
credit derivatives to mitigate industry
concentration and borrower-specific exposure as
part of the Bank’s portfolio risk
management techniques. The credit, legal, and
other risks associated with these transactions
are controlled through well established
procedures. The Bank’s
policy is to enter into these transactions
with investment grade financial institutions.
Credit risk to these counterparties is managed
through the same approval,
limit, and monitoring processes that is
used for all counterparties to which the
Bank has credit exposure.
Credit derivatives are OTC contracts designed
to transfer the credit risk in an underlying
financial instrument (usually termed as
a reference asset) from one
counterparty to another. The most common credit derivatives
are CDS, which include contracts transacted
through clearing houses, and total return swaps.
In
CDS contracts, the CDS purchaser acquires
credit protection on a reference asset or group
of assets from a writer of CDS in exchange
for a premium. The
purchaser may pay the agreed premium
at inception or over a period of time. The
credit protection compensates the purchaser
for deterioration in value of the
reference asset or group of assets upon the occurrence
of certain credit events such as bankruptcy, or changes in specified
credit rating or credit index. Settlement
may be cash based or physical, requiring
the delivery of the reference asset to the
CDS writer. In total return swap contracts, one counterparty
agrees to pay or
receive from the other cash amounts based
on changes in the value of a reference
asset or group of assets, including any returns
such as interest earned on
these assets in exchange for amounts that are
based on prevailing market funding rates.
These cash settlements are made regardless of
whether there is a credit
event.
Other Derivatives
The Bank also transacts in equity and commodity
derivatives in both exchange and OTC
markets.
Equity swaps are OTC contracts in which one
counterparty agrees to pay, or receive from the other, cash amounts based on
changes in the value of a stock
index, a basket of stocks or a single stock.
These contracts sometimes include a payment
in respect of dividends.
Equity options give the purchaser of the option,
for a premium, the right, but not the obligation,
to buy from or sell to the writer of an option,
an underlying stock
index, basket of stocks or a single stock
at a contracted price. Options are transacted
both OTC and through exchanges.
Equity index futures are standardized
contracts transacted on an exchange. They
are based on an agreement to pay or receive
a cash amount based on the
difference between the contracted price level of
an underlying stock index and its corresponding
market price level at a specified future date.
There is no actual
delivery of stocks that comprise the underlying
index. These contracts are in standard amounts
with standard settlement dates.
Equity forwards are OTC contracts in
which one counterparty contracts with another
to buy or sell a single stock or stock index, or
to settle the contract in cash
based on changes in the value of a reference
asset, at a future date.
Commodity contracts include commodity
forwards, futures, swaps, and options,
such as precious metals and energy-related
products in both OTC and
exchange markets.
The Bank applies hedge accounting on
certain equity forwards and/or total return
swaps to hedge exposure to equity price risk.
These derivatives are
designated as cash flow hedges.
The Bank assesses and measures the hedge
effectiveness based on the change in the
fair value of the hedging instrument
relative to the change in the cash flows of the
hedged item attributable to movement in
equity price, using the hypothetical derivative
method.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 58
Fair Value of Derivatives
(millions of Canadian dollars)
October 31, 2024
October 31, 2023
Fair value as at
Fair value as at
balance sheet date
balance sheet date
Positive
Negative
Positive
Negative
Derivatives held or issued for trading
purposes
Interest rate contracts
1
Forward rate agreements
$
232
$
48
$
464
$
88
Swaps
11,971
9,470
16,041
12,667
Options written
–
1,118
–
2,204
Options purchased
1,210
–
2,265
–
Total interest rate contracts
13,413
10,636
18,770
14,959
Foreign exchange contracts
1
Forward contracts
3,617
2,521
1,968
1,836
Swaps
15,456
14,304
20,123
17,806
Cross-currency interest rate swaps
24,366
22,496
28,902
22,990
Options written
–
619
–
619
Options purchased
507
–
503
–
Total foreign exchange contracts
43,946
39,940
51,496
43,251
Credit derivative contracts
Credit default swaps – protection purchased
–
294
11
122
Credit default swaps – protection sold
5
2
42
5
Total credit derivative contracts
5
296
53
127
Other contracts
Equity contracts
5,286
6,636
4,350
2,846
Commodity contracts
5,321
5,545
2,108
2,110
Total other contracts
10,607
12,181
6,458
4,956
Fair value – trading
67,971
63,053
76,777
63,293
Derivatives held or issued for non-trading
purposes
Interest rate contracts
Forward rate agreements
8
–
2
1
Swaps
2,005
2,807
4,131
6,246
Options written
–
1
–
–
Options purchased
16
–
7
–
Total interest rate contracts
2,029
2,808
4,140
6,247
Foreign exchange contracts
Forward contracts
386
494
821
503
Swaps
80
20
31
3
Cross-currency interest rate swaps
6,649
524
5,065
1,116
Total foreign exchange contracts
7,115
1,038
5,917
1,622
Credit derivative contracts
Credit default swaps – protection purchased
1
107
1
45
Total credit derivative contracts
1
107
1
45
Other contracts
Equity contracts
945
1,362
547
433
Total other contracts
945
1,362
547
433
Fair value – non-trading
10,090
5,315
10,605
8,347
Total fair value
$
78,061
$
68,368
$
87,382
$
71,640
1
The fair values of interest rate futures and foreign exchange futures are immaterial and therefore excluded from
this table.
The following table distinguishes derivatives held
or issued for non-trading purposes between
those that have been designated in qualifying
hedge accounting
relationships and those which have not been
designated in qualifying hedge accounting
relationships as at October 31, 2024 and
October 31, 2023.
Fair Value of Non-Trading
Derivatives
1
(millions of Canadian dollars)
As at
October 31, 2024
Derivative Assets
Derivative Liabilities
Derivatives
Derivatives
Derivatives in qualifying
not in
Derivatives in qualifying
not in
hedging relationships
qualifying
hedging relationships
qualifying
Fair
Cash
Net
hedging
Fair
Cash
Net
hedging
value
flow
investment
relationships
Total
value
flow
investment
relationships
Total
Derivatives held or issued for
non-trading purposes
Interest rate contracts
$
932
$
123
$
–
$
974
$
2,029
$
309
$
1,290
$
–
$
1,209
$
2,808
Foreign exchange contracts
–
6,945
–
170
7,115
–
846
–
192
1,038
Credit derivative contracts
–
–
–
1
1
–
–
–
107
107
Other contracts
–
337
–
608
945
–
132
–
1,230
1,362
Fair value – non-trading
$
932
$
7,405
$
–
$
1,753
$
10,090
$
309
$
2,268
$
–
$
2,738
$
5,315
October 31, 2023
Derivatives held or issued for
non-trading purposes
Interest rate contracts
$
2,049
$
33
$
–
$
2,058
$
4,140
$
1,195
$
2,629
$
–
$
2,423
$
6,247
Foreign exchange contracts
–
5,754
–
163
5,917
–
1,597
–
25
1,622
Credit derivative contracts
–
–
–
1
1
–
–
–
45
45
Other contracts
–
434
–
113
547
–
190
–
243
433
Fair value – non-trading
$
2,049
$
6,221
$
–
$
2,335
$
10,605
$
1,195
$
4,416
$
–
$
2,736
$
8,347
1
Certain derivative assets qualify to be offset with certain derivative liabilities on the Consolidated Balance
Sheet. Refer to Note 6 for further details.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 59
Fair Value Hedges
The following table presents the effects of fair
value hedges on the Consolidated Balance
Sheet and the Consolidated Statement of Income.
Fair Value Hedges
(millions of Canadian dollars)
For the years ended or as at
October 31, 2024
Accumulated
Accumulated
Change in
Change in fair
amount of fair
amount of fair
value of hedged
value of hedging
Carrying
value hedge
value hedge
items for
instruments for
amounts
adjustments
adjustments on
ineffectiveness
ineffectiveness
Hedge
for hedged
on hedged
de-designated
measurement
measurement
ineffectiveness
items
items
1,2
hedged items
Assets
Interest rate risk
Debt securities at amortized cost
$
6,856
$
(6,899)
$
(43)
$
113,323
$
(10,995)
$
(3,015)
Financial assets at fair value through
other comprehensive income
3,127
(3,146)
(19)
53,253
(1,086)
(71)
Loans
1,789
(1,798)
(9)
52,765
(328)
4
Total assets
11,772
(11,843)
(71)
219,341
(12,409)
(3,082)
Liabilities
Interest rate risk
Deposits
(2,291)
2,265
(26)
125,519
(3,543)
(136)
Securitization liabilities at amortized cost
(163)
163
–
6,865
68
–
Subordinated notes and debentures
(50)
50
–
3,158
27
(91)
Total liabilities
(2,504)
2,478
(26)
135,542
(3,448)
(227)
Total
$
9,268
$
(9,365)
$
(97)
October 31, 2023
Assets
Interest rate risk
Debt securities at amortized cost
$
(4,408)
$
4,381
$
(27)
$
105,672
$
(18,332)
$
(3,378)
Financial assets at fair value through
other comprehensive income
(785)
807
22
43,249
(4,230)
(68)
Loans
(798)
800
2
54,482
(2,322)
9
Total assets
(5,991)
5,988
(3)
203,403
(24,884)
(3,437)
Liabilities
Interest rate risk
Deposits
1,383
(1,417)
(34)
118,308
(8,641)
(102)
Securitization liabilities at amortized cost
76
(79)
(3)
2,124
(65)
–
Subordinated notes and debentures
7
(7)
–
1,026
(101)
(32)
Total liabilities
1,466
(1,503)
(37)
121,458
(8,807)
(134)
Total
$
(4,525)
$
4,485
$
(40)
1
The Bank has portfolios of fixed rate financial assets and liabilities whereby the principal amount changes frequently
due to originations, issuances, maturities and prepayments. The
interest rate risk hedges on these portfolios are rebalanced dynamically.
2
Reported balances represent adjustments to the carrying values of hedged items as included in the “Carrying amounts
for hedged items” column in this table.
Cash Flow Hedges and Net Investment
Hedges
The following table presents the effects of cash
flow hedges and net investment hedges on the
Bank’s Consolidated Statement of Income and
the Consolidated
Statement of Comprehensive Income.
Cash Flow and Net Investment Hedges
(millions of Canadian dollars)
For the years ended
October 31, 2024
Change in fair
Hedging
Amount reclassified
Change in value
value of hedging
gains (losses)
from accumulated
Net change
of hedged items
instruments for
recognized in other
other comprehensive
in other
for ineffectiveness
ineffectiveness
Hedge
comprehensive
income (loss)
comprehensive
measurement
measurement
ineffectiveness
income
1
to earnings
1
income (loss)
1
Cash flow hedges
2
Interest rate risk
3
$
(3,602)
$
3,606
$
4
$
2,128
$
(2,311)
$
4,439
Foreign exchange risk
4,5,6
(1,863)
1,867
4
1,287
2,204
(917)
Equity price risk
56
(59)
(3)
(59)
(66)
7
Total cash flow hedges
$
(5,409)
$
5,414
$
5
$
3,356
$
(173)
$
3,529
Net investment hedges
$
457
$
(457)
$
–
$
(457)
$
(41)
$
(416)
October 31, 2023
Cash flow hedges
2
Interest rate risk
3
$
1,260
$
(1,261)
$
(1)
$
(3,528)
$
(3,069)
$
(459)
Foreign exchange risk
4,5,6
(4,417)
4,414
(3)
3,824
3,168
656
Equity price risk
374
(374)
–
(374)
(337)
(37)
Total cash flow hedges
$
(2,783)
$
2,779
$
(4)
$
(78)
$
(238)
$
160
Net investment hedges
$
1,821
$
(1,821)
$
–
$
(1,821)
$
15
$
(1,836)
1
Effects on OCI are presented on a pre-tax basis.
2
During the years ended October 31, 2024 and October 31, 2023, there were no instances where forecast hedged
transactions failed to occur.
3
Hedged items include forecast interest cash flows on loans
,
deposits, and securitization liabilities.
4
For non-derivative instruments designated as hedging foreign exchange risk, fair value change is measured as
the gains and losses due to spot foreign exchange movements.
5
Cross-currency swaps may be used to hedge 1) foreign exchange risk, or 2) a combination of interest rate risk
and foreign exchange risk in a single hedge relationship. Cross-currency
swaps in both types of hedge
relationships are disclosed in the foreign exchange risk category.
6
Hedged items include principal and interest cash flows on foreign denominated securities, loans, deposits, other
liabilities, and subordinated notes and debentures.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 60
Reconciliation of Accumulated Other Comprehensive
Income (Loss)
1
(millions of Canadian dollars)
For the years ended
October 31, 2024
Accumulated other
Accumulated other
Accumulated other
Accumulated other
comprehensive
Net changes in other
comprehensive
comprehensive
comprehensive
income (loss)
comprehensive
income (loss)
income (loss) on
income (loss) on
at beginning of year
income (loss)
at end of year
designated hedges
de-designated hedges
Cash flow hedges
Interest rate risk
$
(6,441)
$
4,439
$
(2,002)
$
455
$
(2,457)
Foreign exchange risk
(1,091)
(917)
(2,008)
(2,008)
–
Equity price risk
(21)
7
(14)
(14)
–
Total cash flow hedges
$
(7,553)
$
3,529
$
(4,024)
$
(1,567)
$
(2,457)
Net investment hedges
Foreign translation risk
$
(6,352)
$
(416)
$
(6,768)
$
(6,768)
$
–
October 31, 2023
Cash flow hedges
Interest rate risk
$
(5,982)
$
(459)
$
(6,441)
$
(3,463)
$
(2,978)
Foreign exchange risk
(1,747)
656
(1,091)
(1,091)
–
Equity price risk
16
(37)
(21)
(21)
–
Total cash flow hedges
$
(7,713)
$
160
$
(7,553)
$
(4,575)
$
(2,978)
Net investment hedges
Foreign translation risk
$
(4,516)
$
(1,836)
$
(6,352)
$
(6,352)
$
–
1
Presented on a pre-tax basis.
(b)
NOTIONAL AMOUNTS
The notional amounts are not recorded as assets
or liabilities as they represent the face amount
of the contract to which a rate or price is applied
to determine the
amount of cash flows to be exchanged.
Notional amounts do not represent the potential
gain or loss associated with the market risk
nor are they indicative of the
credit risk associated with derivative
financial instruments.
The following table discloses the notional
amount of OTC and exchange-traded derivatives.
Over-the-Counter and Exchange-Traded Derivatives
(millions of Canadian dollars)
As at
October 31
October 31
2024
2023
Trading
Over-the-Counter
1
Non
Clearing
clearing
Exchange-
Non-
house
2
house
traded
Total
trading
3
Total
Total
Notional
Interest rate contracts
Futures
$
–
$
–
$
761,112
$
761,112
$
–
$
761,112
$
1,377,932
Forward rate agreements
550,965
22,772
–
573,737
552
574,289
628,416
Swaps
17,656,335
474,381
–
18,130,716
1,708,529
19,839,245
16,974,557
Options written
–
93,559
5,806
99,365
125
99,490
111,734
Options purchased
–
112,098
5,550
117,648
1,863
119,511
140,437
Total interest rate contracts
18,207,300
702,810
772,468
19,682,578
1,711,069
21,393,647
19,233,076
Foreign exchange contracts
Forward contracts
39
355,932
–
355,971
24,644
380,615
231,601
Swaps
494
1,685,083
–
1,685,577
7,024
1,692,601
2,021,332
Cross-currency interest rate swaps
–
1,525,781
–
1,525,781
143,796
1,669,577
1,448,859
Options written
–
56,614
163
56,777
–
56,777
51,216
Options purchased
–
49,344
15
49,359
–
49,359
36,959
Total foreign exchange contracts
533
3,672,754
178
3,673,465
175,464
3,848,929
3,789,967
Credit derivative contracts
Credit default swaps – protection purchased
12,469
327
–
12,796
2,708
15,504
12,156
Credit default swaps – protection sold
1,651
242
–
1,893
–
1,893
2,535
Total credit derivative contracts
14,120
569
–
14,689
2,708
17,397
14,691
Other contracts
Equity contracts
–
123,991
117,988
241,979
36,049
278,028
221,265
Commodity contracts
118
103,714
141,763
245,595
–
245,595
164,170
Total other contracts
118
227,705
259,751
487,574
36,049
523,623
385,435
Total
$
18,222,071
$
4,603,838
$
1,032,397
$
23,858,306
$
1,925,290
$
25,783,596
$
23,423,169
1
Collateral held under a Credit Support Annex to help reduce counterparty credit risk is in the form of high-quality
and liquid assets such as cash and high-quality government securities.
Acceptable collateral is governed by the Collateralized Trading Policy.
2
Derivatives executed through a central clearing house reduce settlement risk due to the ability to net settle offsetting
positions for capital purposes and therefore receive preferential
capital treatment compared to those settled with non-central clearing house counterparties.
3
Includes $
1,532
billion of OTC derivatives that are transacted with clearing houses (October 31, 2023 – $
1,970
billion) and $
394
billion of OTC derivatives that are transacted with non-
clearing houses (October 31, 2023 – $
426
billion). There were
no
exchange-traded derivatives both as at October 31, 2024 and October 31, 2023.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 61
The following table distinguishes the notional amount
of derivatives held or issued for non-trading
purposes between those that have been
designated in qualifying
hedge accounting relationships and those
which have not been designated in qualifying
hedge accounting relationships.
Notional of Non-Trading Derivatives
(millions of Canadian dollars)
As at
October 31, 2024
Derivatives in qualifying hedging relationships
Derivatives not in
Derivatives held or issued for
Fair
Cash
Net
qualifying hedging
hedging (non-trading) purposes
value
flow
1
Investment
1
relationships
Total
Interest rate contracts
$
395,687
$
340,741
$
–
$
974,641
$
1,711,069
Foreign exchange contracts
–
159,693
–
15,771
175,464
Credit derivative contracts
–
–
–
2,708
2,708
Other contracts
–
2,409
–
33,640
36,049
Total notional non-trading
$
395,687
$
502,843
$
–
$
1,026,760
$
1,925,290
October 31, 2023
Interest rate contracts
$
372,214
$
298,328
$
–
$
1,529,603
$
2,200,145
Foreign exchange contracts
–
144,485
–
16,429
160,914
Credit derivative contracts
–
–
–
2,191
2,191
Other contracts
–
2,241
–
30,015
32,256
Total notional non-trading
$
372,214
$
445,054
$
–
$
1,578,238
$
2,395,506
1
Certain cross-currency swaps are executed using multiple derivatives, including interest rate swaps. These derivatives
are used to hedge foreign exchange rate risk in cash flow hedges
and net investment hedges.
The following table discloses the notional
principal amount of OTC derivatives and exchange-traded
derivatives based on their contractual terms
to maturity.
Derivatives by Remaining Term-to-Maturity
(millions of Canadian dollars)
As at
October 31
October 31
2024
2023
Within
Over 1 year
Over
Notional Principal
1 year
to 5 years
5 years
Total
Total
Interest rate contracts
Futures
$
639,609
$
121,503
$
–
$
761,112
$
1,377,932
Forward rate agreements
550,518
18,386
5,385
574,289
628,416
Swaps
7,354,061
8,828,049
3,657,135
19,839,245
16,974,557
Options written
59,930
35,462
4,098
99,490
111,734
Options purchased
62,000
52,319
5,192
119,511
140,437
Total interest rate contracts
8,666,118
9,055,719
3,671,810
21,393,647
19,233,076
Foreign exchange contracts
Futures
–
–
–
–
–
Forward contracts
363,791
14,994
1,830
380,615
231,601
Swaps
1,649,432
40,989
2,180
1,692,601
2,021,332
Cross-currency interest rate swaps
419,447
863,763
386,367
1,669,577
1,448,859
Options written
52,418
4,354
5
56,777
51,216
Options purchased
44,184
5,153
22
49,359
36,959
Total foreign exchange contracts
2,529,272
929,253
390,404
3,848,929
3,789,967
Credit derivative contracts
Credit default swaps – protection purchased
1,675
7,406
6,423
15,504
12,156
Credit default swaps – protection sold
431
781
681
1,893
2,535
Total credit derivative contracts
2,106
8,187
7,104
17,397
14,691
Other contracts
Equity contracts
209,083
67,387
1,558
278,028
221,265
Commodity contracts
219,998
25,104
493
245,595
164,170
Total other contracts
429,081
92,491
2,051
523,623
385,435
Total
$
11,626,577
$
10,085,650
$
4,071,369
$
25,783,596
$
23,423,169
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 62
The following table discloses the notional amount
and average price of derivative instruments
designated in qualifying hedge accounting
relationships.
Hedging Instruments by Remaining Term-to-Maturity
(millions of Canadian dollars, except
as noted)
As at
October 31
October 31
2024
2023
Within
Over 1 year
Over 5
Notional
1 year
to 5 years
years
Total
Total
Interest rate risk
Interest rate swaps
Notional – pay fixed
$
18,647
$
106,879
$
105,214
$
230,740
$
238,472
Average fixed interest rate %
2.86
3.06
2.31
Notional – received fixed
112,428
178,069
26,652
317,149
253,798
Average fixed interest rate %
4.17
3.02
3.02
Total notional – interest rate risk
131,075
284,948
131,866
547,889
492,270
Foreign exchange risk
1
Forward contracts
Notional – USD/CAD
2,278
5,466
72
7,816
8,067
Average FX forward rate
1.31
1.30
1.31
Notional – EUR/CAD
2,623
11,180
1,338
15,141
14,664
Average FX forward rate
1.63
1.54
1.56
Notional – other
810
91
–
901
172
Cross-currency swaps
2,3
Notional – USD/CAD
9,345
28,810
8,789
46,944
51,497
Average FX rate
1.29
1.32
1.29
Notional – EUR/CAD
10,197
36,145
15,535
61,877
47,618
Average FX rate
1.41
1.46
1.44
Notional – GBP/CAD
1,792
7,860
108
9,760
5,723
Average FX rate
1.65
1.68
1.73
Notional – other currency pairs
4
5,019
11,537
698
17,254
16,744
Total notional – foreign exchange risk
32,064
101,089
26,540
159,693
144,485
Equity Price Risk
Notional – equity contracts
2,409
–
–
2,409
2,241
Total notional
$
165,548
$
386,037
$
158,406
$
709,991
$
638,996
1
Foreign currency denominated deposit liabilities are also used to hedge foreign exchange risk. Includes $
77.4
billion (October 31, 2023 – $
67.2
billion) of the carrying value of these non-
derivative hedging instruments
designated under net investment hedges.
2
Cross-currency swaps may be used to hedge 1) foreign exchange risk, or 2) a combination of interest rate risk and
foreign exchange risk in a single hedge relationship. Cross-currency
swaps in both types of hedge relationships are disclosed in the foreign exchange risk category.
3
Certain cross-currency swaps are executed using multiple derivatives, including interest rate swaps. The notional
amount of these interest rate swaps, excluded from the above, is
$
188.5
billion as at October 31, 2024 (October 31, 2023 – $
178.3
billion).
4
Includes derivatives executed to manage non-trading foreign currency exposures, when more than one currency
is involved prior to hedging to the Canadian dollar, or when
the currency
pair is not a significant exposure for the Bank.
Interest Rate Benchmark Reform
As at October 31, 2024, the Bank has transitioned
all derivative instruments designated in qualifying
hedge accounting relationships referencing
CDOR to an ARR
and it
no
longer has exposure to any residual
CDOR derivative notional amounts (October
31, 2023 – $
284
billion).
(c)
DERIVATIVE-RELATED RISKS
Market Risk
Derivatives, in the absence of any compensating
upfront cash payments, generally have no
market value at inception. They obtain value,
positive or negative, as
relevant interest rates, foreign exchange
rates, equity, commodity or credit prices or indices change, such
that the previously contracted terms of the derivative
transactions have become more or less favourable
than what can be negotiated under current
market conditions for contracts with the same
terms and the same
remaining period to expiry. The potential for derivatives to increase
or decrease in value as a result of the foregoing
factors is generally referred to as market risk.
Credit Risk
Credit risk on derivatives, also known as counterparty
credit risk, is the risk of a financial loss
occurring as a result of the failure of a
counterparty to meet its
obligation to the Bank.
Derivative-related credit risks are subject
to the same credit approval, limit and
monitoring standards that are used for managing
other transactions that create
credit exposure. This includes evaluating
the creditworthiness of counterparties, and
managing the size, diversification and maturity
structure of the portfolios. The
Bank actively engages in risk mitigation
strategies through the use of multi-product
derivative master netting agreements,
collateral and other risk mitigation
techniques. Master netting agreements reduce
risk to the Bank by allowing the Bank
to close out and net transactions with counterparties
subject to such
agreements upon the occurrence of certain
events.
The current replacement cost and credit equivalent
amount shown in the following table are based
on the
standardized approach for counterparty credit
risk. According to this approach, the
current replacement cost accounts for
the fair value of the positions, posted and
received collateral, and master netting agreement
clauses. The credit equivalent amount is the
sum of the current replacement cost
and the potential future
exposure, which is calculated by applying
factors determined by OSFI to the notional
principal amount of the derivatives. The risk-weighted
amount is determined
by applying the adequate risk weights to
the credit equivalent amount.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 63
Credit Exposure of Derivatives
(millions of Canadian dollars)
As at
October 31, 2024
October 31, 2023
Current
Credit
Risk-
Current
Credit
Risk-
replacement
equivalent
weighted
replacement
equivalent
weighted
cost
amount
amount
cost
amount
amount
Interest rate contracts
Forward rate agreements
$
35
$
102
$
29
$
32
$
141
$
70
Swaps
4,215
11,037
964
6,436
13,423
1,142
Options written
7
140
26
3
92
27
Options purchased
17
123
23
27
140
39
Total interest rate contracts
4,274
11,402
1,042
6,498
13,796
1,278
Foreign exchange contracts
Forward contracts
1,746
5,643
1,022
1,514
4,732
968
Swaps
3,234
16,136
2,246
4,184
19,252
2,863
Cross-currency interest rate swaps
4,124
17,176
1,515
5,668
18,249
1,767
Options written
36
291
59
27
306
71
Options purchased
50
239
64
64
252
93
Total foreign exchange contracts
9,190
39,485
4,906
11,457
42,791
5,762
Other contracts
Credit derivatives
–
207
30
4
278
50
Equity contracts
669
8,964
2,348
762
8,147
2,577
Commodity contracts
1,115
5,752
848
829
4,980
1,102
Total other contracts
1,784
14,923
3,226
1,595
13,405
3,729
Total derivatives
15,248
65,810
9,174
19,550
69,992
10,769
Qualifying Central Counterparty Contracts
10,529
19,117
652
6,494
27,211
969
Total
$
25,777
$
84,927
$
9,826
$
26,044
$
97,203
$
11,738
Current Replacement Cost of Derivatives
(millions of Canadian dollars, except
as noted)
As at
Canada
1
United States
1
Other international
1
Total
October 31
October 31
October 31
October 31
October 31
October 31
October 31
October 31
By sector
2024
2023
2024
2023
2024
2023
2024
2023
Financial
$
4,647
$
5,132
$
38
$
23
$
272
$
234
$
4,957
$
5,389
Government
3,594
5,441
98
189
2,618
4,455
6,310
10,085
Other
1,670
1,508
639
654
1,671
1,913
3,980
4,075
Total current replacement cost
$
9,911
$
12,081
$
775
$
866
$
4,561
$
6,602
$
15,247
$
19,549
October 31
October 31
October 31
October 31
2024
2023
By location of risk
2024
2023
% mix
% mix
Canada
$
3,737
$
3,720
24.5
%
19.0
%
United States
4,937
7,108
32.4
36.4
Other international
United Kingdom
775
883
5.1
4.5
Europe – other
2,828
3,164
18.5
16.2
Other
2,970
4,674
19.5
23.9
Total Other international
6,573
8,721
43.1
44.6
Total current replacement cost
$
15,247
$
19,549
100.0
%
100.0
%
1
Based on geographic location of unit responsible for recording revenue.
Certain of the Bank’s derivative contracts are
governed by master derivative agreements
having provisions that may permit the
Bank’s counterparties to require,
upon the occurrence of a certain contingent event:
(1) the posting of collateral or other acceptable
remedy such as assignment of the affected
contracts to an
acceptable counterparty;
or (2)
settlement of outstanding derivative contracts.
Most often, these contingent events are in the
form of a downgrade of the senior
debt rating of the Bank, either as counterparty
or as guarantor of one of the Bank’s subsidiaries.
At October 31, 2024, the aggregate net liability
position of those
contracts would require: (1) the posting of
collateral or other acceptable remedy
totalling $
511
million (October 31, 2023 – $
407
million) in the event of a one-notch
or two-notch downgrade in the Bank’s senior debt rating;
and (2) funding totalling $
134
million (October 31, 2023 –
nil
) following the termination and settlement of
outstanding derivative contracts in the event
of a one-notch or two-notch downgrade in
the Bank’s senior debt rating.
Certain of the Bank’s derivative contracts are
governed by master derivative agreements
having credit support provisions
that permit the Bank’s counterparties
to call for collateral depending on the net mark-to-market
exposure position of all derivative contracts
governed by that master derivative agreement.
Some of
these agreements may permit the Bank’s counterparties
to require, upon the downgrade of the credit rating
of the Bank, to post additional collateral.
As at
October 31, 2024, the fair value of all derivative
instruments with credit risk related
contingent features in a net liability position
was $
16
billion (October 31, 2023 –
$
16
billion). The Bank has posted $
17
billion (October 31, 2023 – $
16
billion) of collateral for this exposure in the normal
course of business. As at
October 31, 2024, the impact of a one-notch downgrade
in the Bank’s credit rating would require the Bank
to post an additional $
49
million (October 31, 2023 –
$
147
million) of collateral to that posted in the normal
course of business. A two-notch downgrade
in the Bank’s credit rating would require the Bank
to post an
additional $
1,228
million (October 31, 2023 – $
223
million) of collateral to that posted in the normal
course of business.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 64
NOTE 12: INVESTMENT IN ASSOCIATES AND JOINT VENTURES
INVESTMENT IN THE CHARLES SCHWAB CORPORATION
The Bank has significant influence over
The Charles Schwab Corporation (“Schwab”)
and the ability to participate in the financial
and operational policy-making
decisions of Schwab through a combination
of the Bank’s ownership, board representation
and the insured deposit account agreement
between the Bank and
Schwab. As such, the Bank accounts for its
investment in Schwab using the equity
method. The Bank’s share of Schwab’s earnings available
to common
shareholders is reported with a one-month
lag. The Bank takes into account changes
in the one-month lag period that would
significantly affect the results.
On August 21, 2024, the Bank sold
40.5
million shares of common stock of Schwab for
proceeds of approximately $
3.4
billion (US$
2.5
billion). The share sale
reduced the Bank’s ownership interest in Schwab
from
12.3
% to
10.1
%. The Bank recognized approximately
$
1.0
billion (US$
0.7
billion) as other income (net of
$
0.5
billion (US$
0.4
billion) loss from AOCI reclassified
to earnings), in the fourth quarter of fiscal 2024.
The Bank continues to account for its investment
in
Schwab using the equity method.
As at October 31, 2024, the Bank’s reported investment
in Schwab was approximately
10.1
% (October 31, 2023 –
12.4
%), consisting of
7.5
% of the outstanding
voting common shares and the remainder
in non-voting common shares of Schwab
with an aggregate fair value of $
18
billion (US$
13
billion) (October 31, 2023 –
$
16
billion (US$
12
billion)) based on the closing price of US$
70.83
(October 31, 2023 – US$
52.04
) on the New York Stock Exchange.
The Bank and Schwab are party to a stockholder
agreement (the “Stockholder Agreement”)
under which the Bank has the right to designate
two members of
Schwab’s Board of Directors and has representation
on two Board Committees, subject to
the Bank meeting certain conditions. The Bank’s designated
directors
currently are the Bank’s Group President and
Chief Executive Officer and the Bank’s former Chair
of the Board. Under the Stockholder
Agreement, the Bank is not
permitted to own more than
9.9
% voting common shares of Schwab,
and the Bank is subject to customary
standstill restrictions and subject to certain exceptions,
transfer restrictions.
The carrying value of the Bank’s investment in
Schwab of $
9.0
billion as at October 31, 2024 (October
31, 2023 – $
8.9
billion) represents the Bank’s share of
Schwab’s stockholders’ equity, adjusted for goodwill, other intangibles,
and cumulative translation adjustment.
The Bank’s share of net income from its investment
in Schwab of $
703
million during the year ended October 31, 2024
(October 31, 2023 – $
864
million), reflects net income after adjustments
for amortization of
certain intangibles net of tax.
The following tables represent the gross
amount of Schwab’s total assets, liabilities, net
revenues, net income available to common
stockholders, other comprehensive income (loss),
and comprehensive income (loss).
Summarized Financial Information
(millions of Canadian dollars)
As at
September 30
September 30
2024
2023
Total assets
$
630,363
$
644,139
Total liabilities
566,502
592,923
(millions of Canadian dollars)
For the years ended September 30
2024
2023
Total net revenues
$
25,493
$
26,811
Total net income available to common stockholders
6,376
7,483
Total other comprehensive income (loss)
8,356
3,247
Total comprehensive income (loss)
14,732
10,730
Insured Deposit Account Agreement
On November 25, 2019, the Bank and Schwab
signed an insured deposit account agreement
(the “2019 Schwab IDA Agreement”), with an
initial expiration date of
July 1, 2031. Under the 2019 Schwab IDA
Agreement, starting July 1, 2021, Schwab
had the option to reduce the deposits by
up to US$
10
billion per year (subject
to certain limitations and adjustments),
with a floor of US$
50
billion. In addition, Schwab requested some
further operational flexibility to allow for the
sweep
deposit balances to fluctuate over time, under
certain conditions and subject to certain limitations.
On May 4, 2023, the Bank and Schwab entered
into an amended insured deposit account
agreement (the “2023 Schwab IDA Agreement”
or the “Schwab IDA
Agreement”), which replaced the 2019 Schwab
IDA Agreement. Pursuant to the 2023 Schwab
IDA Agreement, the Bank continues to make
sweep deposit
accounts available to clients of Schwab. Schwab
designates a portion of the deposits
with the Bank as fixed-rate obligation amounts
(FROA). Remaining deposits
are designated as floating-rate obligations.
In comparison to the 2019 Schwab IDA Agreement,
the 2023 Schwab IDA Agreement extends
the initial expiration date
by three years to July 1, 2034 and provides
for lower deposit balances in its first six
years, followed by higher balances in
the later years. Specifically, until
September 2025, the aggregate FROA
will serve as the floor. Thereafter, the floor will be set at US$
60
billion. In addition, Schwab had the option
to buy down up
to $
6.8
billion (US$
5
billion) of FROA by paying the Bank certain
fees in accordance with the 2023 Schwab
IDA Agreement, subject to certain limits.
By the end of the first quarter of fiscal 2024,
Schwab had fully exercised its option to buy
down up to US$
5
billion of FROA and had paid a total of
$
337
million
(US$
250
million) in termination fees to the Bank in
accordance with the 2023 Schwab IDA Agreement.
The fees were intended to compensate
the Bank for losses
incurred from discontinuing certain hedging relationships
and for lost revenues. The net impact
was recorded in net interest income.
Refer to Note 27 for further details on
the Schwab IDA Agreement.
INVESTMENT IN OTHER ASSOCIATES OR JOINT VENTURES
Except for Schwab as disclosed above,
the Bank did not have investments in associates
or joint ventures which were individually
material as of October 31, 2024,
or October 31, 2023. The carrying amount
of the Bank’s investment in other associates and
joint ventures as at October 31, 2024 was
$
4.9
billion
(October 31, 2023 – $
4.2
billion).
Other associates and joint ventures consisted
predominantly of investments in private
funds or partnerships that make equity investments,
provide debt
financing or support community-based tax-advantaged
investments. The investments in these
entities generate a return primarily through
the realization of U.S.
federal and state income tax credits,
including Low Income Housing Tax Credits, New Markets Tax Credits,
and Historic Tax Credits.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 65
NOTE 13: SIGNIFICANT TRANSACTIONS
(a)
Acquisition of Cowen Inc.
On March 1, 2023, the Bank completed
the acquisition of Cowen Inc. (“Cowen”).
The acquisition advances the Wholesale Banking
segment’s long-term growth
strategy in the U.S. and adds complementary
products and services to the Bank’s existing
businesses. The results of the acquired
business have been
consolidated by the Bank from the closing date
and primarily reported in the Wholesale Banking
segment. Consideration included $
1,500
million
(US$
1,100
million) in cash for
100
% of Cowen’s common shares outstanding, $
253
million (US$
186
million) for the settlement of Cowen’s Series A Preferred
Stock, and $
205
million (US$
151
million) related to the replacement of share-based
payment awards.
The acquisition was accounted for as a business
combination under the purchase method.
The acquisition contributed $
10,793
million (US$
7,928
million) of
assets and $
10,005
million (US$
7,351
million) of liabilities. The excess of accounting
consideration over the fair value of the
tangible net assets acquired was
allocated to intangible assets of $
298
million (US$
219
million) net of taxes, and goodwill of $
872
million (US$
641
million). Goodwill is not deductible for tax
purposes.
For the year ended October 31, 2023, the
contribution of Cowen to the Bank’s revenue and
net income was not significant, nor would
it have been significant if
the acquisition had occurred as of November
1, 2022.
The Bank continues to dispose of certain non-core
businesses that were acquired in connection
with the Cowen acquisition. These non-core
businesses are
disposal groups which meet the criteria to be
classified as held for sale and are measured at
the lower of their carrying amount and
fair value less costs to sell. The
assets and liabilities of these disposal groups
are recorded in Other assets and Other liabilities,
respectively, on the Consolidated Balance Sheet. During the
year
ended October 31, 2023, the Bank disposed of
a reinsurance subsidiary that was classified
as held for sale. During the year ended
October 31, 2024, the Bank
disposed of Cowen’s legacy prime brokerage
and outsourced trading business that
was classified as held for sale. As at October
31, 2024, assets of $
775
million
(October 31, 2023 – $
1,958
million) and liabilities of $
337
million (October 31, 2023 – $
1,291
million) were classified as held for sale.
(b)
Termination of the Merger Agreement with First Horizon Corporation
On May 4, 2023, the Bank and First Horizon
announced their mutual decision
to terminate the previously announced merger
agreement for the Bank to acquire
First Horizon. Under the terms of the termination
agreement, the Bank made a $
306
million (US$
225
million) cash payment to First Horizon on
May 5, 2023. The
termination payment was recognized in non-interest
expenses in the third quarter of fiscal 2023
and was reported in the Corporate segment.
In connection with the transaction, the Bank had
invested US$
494
million in non-voting First Horizon preferred
stock. During the second quarter of fiscal
2023,
the Bank recognized a valuation adjustment
loss of $
199
million (US$
147
million) on this investment, recorded in OCI. On
June 26, 2023, in accordance with the
terms of the preferred share purchase agreement,
the preferred stock converted into approximately
19.7
million common shares of First Horizon,
resulting in the
Bank recognizing a loss of $
166
million (US$
126
million) during the third quarter of fiscal 2023
in OCI based on First Horizon’s common
share price at the time of
conversion. Upon conversion, the losses recognized
to date, including the impact of foreign exchange,
were reclassified directly to retained earnings.
The Bank
elected to record subsequent fair value changes
on the common shares in OCI. On June
5, 2024, the Bank sold its holdings of First
Horizon common shares.
Gains of $
115
million (US$
75
million) recognized in OCI since the date
of conversion, which included the impact
of foreign exchange, were reclassified
directly to
retained earnings during the third quarter of
fiscal 2024.
The Bank had also implemented a strategy
to mitigate the impact of interest rate volatility
to capital on closing of the acquisition.
The Bank determined that the
fair value of First Horizon’s fixed rate financial assets
and liabilities and certain intangible
assets would have been sensitive to interest
rate changes. The fair value
of net assets would have determined the
amount of goodwill to be recognized on
closing of the acquisition. Increases in goodwill
and intangibles would have
negatively impacted capital ratios because they
are deducted from capital under OSFI
Basel III rules. In order to mitigate this volatility
to closing capital, the Bank
de-designated certain interest rate swaps
hedging fixed income investments in
fair value hedge accounting
relationships.
As a result of the de-designation, mark-to-market
gains (losses) on these swaps were recognized
in earnings, without any corresponding offset
from the
previously hedged investments. Such gains (losses)
would have mitigated the capital impact from
changes in the amount of goodwill recognized
on closing of the
acquisition. The de-designation also triggered
the amortization of the investments’ basis adjustment
to net interest income over the remaining
expected life of the
investments.
Prior to the termination of the merger agreement
on May 4, 2023, for the year ended October
31, 2023, the Bank reported ($
1,386
) million in non-interest
income related to the mark-to-market on
the swaps, and $
262
million in net interest income related to
the basis adjustment amortization. In addition,
for the year
ended October 31, 2023, the Bank reported
$
585
million in non-interest income related to
the net interest earned on the swaps.
Following the announcement to terminate
the merger agreement, the Bank discontinued
this strategy and reinstated hedge accounting
on the portfolio of fixed
income investments using new swaps entered
into at higher market rates. The impact
from the higher swap rates and the basis adjustment
amortization discussed
above is reported in net interest income.
Income recognized from this strategy
will reverse over time causing a decrease
to net interest income. For the year ended
October 31, 2024, the decrease to net interest income
was $
242
million (October 31, 2023 – $
127
million), recorded in the Corporate segment.
NOTE 14: GOODWILL AND OTHER INTANGIBLES
GOODWILL
The recoverable amount of the Bank’s CGUs or groups
of CGUs is determined from internally
developed valuation models that consider
various factors and
assumptions such as forecasted earnings, growth
rates, discount rates, and terminal
growth rates. Management is required
to use judgment in estimating the
recoverable amount of the CGUs or groups
of CGUs,
and the use of different assumptions and estimates
in the calculations could influence the
determination of
the existence of impairment and the valuation
of goodwill. Management believes that the assumptions
and estimates used are reasonable
and supportable. Where
possible, assumptions generated internally
are compared to relevant market information.
The carrying amounts of the Bank’s CGUs or groups
of CGUs are
determined by management using risk-based
capital models to adjust net assets and liabilities
by CGU. These models consider various
factors including market
risk, credit risk,
and operational risk, including investment
capital (comprised of goodwill and other intangibles).
As at the date of the last impairment test,
the
amount of capital not directly attributable
to the CGUs and held within the Corporate
segment was approximately $
11.5
billion and primarily related to treasury
assets and excess capital managed within the
Corporate segment.
The Bank’s capital oversight committees provide
oversight to the Bank’s capital allocation
methodologies.
Key Assumptions
The recoverable amount of each CGU or group
of CGUs has been determined based on its estimated
value-in-use. In assessing value-in-use, estimated
future
cash flows based on the Bank’s internal forecast
are discounted using an appropriate pre-tax
discount rate.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 66
The following were the key assumptions
applied in the goodwill impairment testing:
Discount Rate
The pre-tax discount rates used reflect
current market assessments
of the risks specific to each group of
CGUs and are dependent on the risk profile
and capital
requirements of each group of CGUs.
Forecasted Earnings
The earnings included in the goodwill impairment
testing for each group of CGUs were based
on the Bank’s internal forecast, which projects
expected cash flows
over the next five years,
with the exception of the U.S. Personal and
Commercial Banking group of CGUs
where cash flow projections covering a
seven year
period were used, which more closely aligns
with the long-term strategic growth plan for
the business.
Terminal Growth Rates
Beyond the Bank’s internal forecast, cash flows
were assumed to grow at a steady terminal
growth rate. Terminal growth rates were based on the expected long-
term growth of gross domestic product and
inflation and ranged from
2.0
% to
4.1
% (2023 –
2.0
% to
4.1
%).
In considering the sensitivity of the key assumptions
discussed above, management determined
that a reasonable change in any of the
above would not result in
the recoverable amount of any of the groups
of CGUs to be less than their carrying amount.
Goodwill by Segment
(millions of Canadian dollars)
Canadian
Personal and
Wealth
Commercial
U.S.
Management
Wholesale
Banking
Retail
1
and Insurance
Banking
Total
Carrying amount of goodwill as at November 1, 2022
$
902
$
14,363
$
2,104
$
287
$
17,656
Additions (disposals)
–
–
–
744
744
Foreign currency translation adjustments and other
–
257
18
(73)
202
Carrying amount of goodwill as at October 31, 2023
2
$
902
$
14,620
$
2,122
$
958
$
18,602
Additions (disposals)
3
–
–
–
128
128
Foreign currency translation adjustments and other
–
43
3
75
121
Carrying amount of goodwill as at October 31, 2024
2
$
902
$
14,663
$
2,125
$
1,161
$
18,851
Pre-tax discount rates
2023
9.7
–
9.9
%
10.0
–
11.3
%
9.6
–
11.0
%
13.9
%
2024
9.7
–
9.9
10.7
–
11.8
10.9
–
11.0
14.4
1
Goodwill predominantly relates to U.S. Personal and Commercial Banking.
2
Accumulated impairment as at October 31, 2024 and October 31, 2023 was
nil
.
3
Includes adjustments to the purchase price allocation in connection with the Cowen acquisition.
OTHER INTANGIBLES
The following table presents details of other
intangibles as at October 31, 2024 and
October 31, 2023.
Other Intangibles
(millions of Canadian dollars)
Credit card
Internally
Core deposit
related
generated
Other
Other
intangibles
intangibles
software
software
intangibles
Total
Cost
As at November 1, 2022
$
2,664
$
848
$
2,918
$
233
$
1,165
$
7,828
Additions
–
–
846
52
395
1,293
Disposals
–
–
(1)
(2)
–
(3)
Fully amortized intangibles
–
–
(582)
(37)
–
(619)
Foreign currency translation adjustments
and other
1
48
2
(78)
(10)
(4)
(42)
As at October 31, 2023
$
2,712
$
850
$
3,103
$
236
$
1,556
$
8,457
Additions
–
–
961
23
9
993
Disposals
–
–
(5)
(6)
(6)
(17)
Fully amortized intangibles
–
–
(627)
(60)
–
(687)
Foreign currency translation adjustments
and other
8
1
(25)
2
36
22
As at October 31, 2024
$
2,720
$
851
$
3,407
$
195
$
1,595
$
8,768
Amortization and impairment
As at November 1, 2022
$
2,662
$
771
$
1,256
$
153
$
683
$
5,525
Disposals
–
–
–
–
–
–
Impairment losses (reversals)
–
–
–
–
–
–
Amortization charge for the year
2
11
443
36
180
672
Fully amortized intangibles
–
–
(582)
(37)
–
(619)
Foreign currency translation adjustments
and other
1
48
3
10
11
36
108
As at October 31, 2023
$
2,712
$
785
$
1,127
$
163
$
899
$
5,686
Disposals
–
–
–
(3)
–
(3)
Impairment losses (reversals)
–
–
–
–
–
–
Amortization charge for the year
–
11
498
32
161
702
Fully amortized intangibles
–
–
(627)
(60)
–
(687)
Foreign currency translation adjustments
and other
8
–
(2)
3
17
26
As at October 31, 2024
$
2,720
$
796
$
996
$
135
$
1,077
$
5,724
Net Book Value:
As at October 31, 2023
$
–
$
65
$
1,976
$
73
$
657
$
2,771
As at October 31, 2024
–
55
2,411
60
518
3,044
1
Includes amounts related to restructuring. Refer to Note 26 for further details.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 67
NOTE 15: LAND, BUILDINGS, EQUIPMENT, OTHER DEPRECIABLE ASSETS,
AND RIGHT-OF-USE ASSETS
The following table presents details of the
Bank’s land, buildings, equipment, and other depreciable
assets as at October 31, 2024
and October 31, 2023.
Land, Buildings, Equipment, and Other
Depreciable Assets
(millions of Canadian dollars)
Furniture,
fixtures,
and other
Computer
depreciable
Leasehold
Land
Buildings
equipment
assets
improvements
Total
Cost
As at November 1, 2022
$
949
$
2,564
$
817
$
1,415
$
3,461
$
9,206
Additions
1
172
227
244
401
1,045
Disposals
1
(13)
(11)
(15)
(53)
(21)
(113)
Fully depreciated assets
–
(18)
(109)
(112)
(199)
(438)
Foreign currency translation adjustments
and other
2
(18)
(152)
(3)
17
37
(119)
As at October 31, 2023
919
2,555
917
1,511
3,679
9,581
Additions
–
216
153
362
485
1,216
Disposals
1
–
(9)
(65)
(137)
(127)
(338)
Fully depreciated assets
–
(22)
(143)
(171)
(289)
(625)
Foreign currency translation adjustments
and other
2
6
47
(11)
2
42
86
As at October 31, 2024
$
925
$
2,787
$
851
$
1,567
$
3,790
$
9,920
Accumulated depreciation and
impairment losses
As at November 1, 2022
$
–
$
983
$
365
$
785
$
1,702
$
3,835
Depreciation charge for the year
–
84
175
152
274
685
Disposals
1
–
(8)
(15)
(53)
(20)
(96)
Impairment losses
–
1
1
5
4
11
Fully depreciated assets
–
(18)
(109)
(112)
(199)
(438)
Foreign currency translation adjustments
and other
2
–
(50)
1
10
31
(8)
As at October 31, 2023
–
992
418
787
1,792
3,989
Depreciation charge for the year
–
93
179
165
298
735
Disposals
1
–
(9)
(62)
(134)
(108)
(313)
Impairment losses
–
–
11
7
1
19
Fully depreciated assets
–
(22)
(143)
(171)
(289)
(625)
Foreign currency translation adjustments
and other
2
–
25
(4)
13
42
76
As at October 31, 2024
$
–
$
1,079
$
399
$
667
$
1,736
$
3,881
Net Book Value Excluding Right-of-Use Assets:
As at October 31, 2023
$
919
$
1,563
$
499
$
724
$
1,887
$
5,592
As at October 31, 2024
925
1,708
452
900
2,054
6,039
1
Cash received from disposals was $
22
million for the year ended October 31, 2024 (October 31, 2023 – $
57
million).
2
Includes amounts related to restructuring and adjustments to reclassify held-for-sale items to other assets.
Refer to Note 26 for further details.
The following table presents details of the
Bank’s ROU assets as recorded in accordance
with IFRS 16,
Leases
. Refer to Note 18 and Note 26 for the related
lease
liabilities details.
Right-of-Use Assets Net Book Value
(millions of Canadian dollars)
Computer
Land
Buildings
equipment
Total
As at November 1, 2022
$
777
$
3,208
$
44
$
4,029
Additions
5
238
–
243
Depreciation
(91)
(439)
(13)
(543)
Reassessments, modifications, and variable
lease payment adjustments
6
70
–
76
Terminations and impairment
–
–
–
–
Foreign currency translation adjustments
and other
12
24
1
37
As at October 31, 2023
$
709
$
3,101
$
32
$
3,842
Additions
3
373
48
424
Depreciation
(97)
(462)
(13)
(572)
Reassessments, modifications, and variable lease
payment adjustments
21
130
(20)
131
Terminations and impairment
–
1
–
1
Foreign currency translation adjustments
and other
(3)
(25)
–
(28)
As at October 31, 2024
$
633
$
3,118
$
47
$
3,798
Total Land, Buildings, Equipment, Other Depreciable
Assets, and Right-of-Use Assets Net
Book Value
(millions of Canadian dollars)
Furniture,
fixtures,
and other
Computer
depreciable
Leasehold
Land
Buildings
equipment
assets
improvements
Total
As at October 31, 2023
$
1,628
$
4,664
$
531
$
724
$
1,887
$
9,434
As at October 31, 2024
1,558
4,826
499
900
2,054
9,837
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 68
NOTE 16: OTHER ASSETS
Other Assets
(millions of Canadian dollars)
As at
October 31
October 31
2024
2023
Accounts receivable and other items
1
$
12,931
$
13,893
Accrued interest
5,509
5,504
Cheques and other items in transit
1,656
–
Current income tax receivable
4,061
4,814
Defined benefit asset
(Note 23)
1,042
1,254
Prepaid expenses
2
1,794
1,462
Reinsurance contract assets
1,188
702
Total
2
$
28,181
$
27,629
1
Includes assets related to disposal groups classified as held-for-sale in connection with the Cowen
acquisition. Refer to Note 13 for further details.
2
Balances as at October 31, 2023 have been restated for the adoption of IFRS 17. Refer to Note 4 for details.
NOTE 17: DEPOSITS
Demand deposits are those for which
the Bank does not have the right to require notice
prior to withdrawal, which primarily include business
and government
chequing accounts. Notice deposits are those
for which the Bank can legally require notice
prior to withdrawal, which include both
savings and chequing accounts.
Term deposits are payable on a given date of maturity and are purchased by
customers to earn interest over a fixed period,
with terms ranging from one day to ten
years and generally include fixed 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 October 31, 2024 was $
546
billion (October 31, 2023 – $
512
billion).
Deposits
(millions of Canadian dollars)
As at
October 31
October 31
By Type
By Country
2024
2023
Demand
Notice
Term
1
Canada
United States
International
Total
Total
Personal
$
18,068
$
479,841
$
143,758
$
339,534
$
302,133
$
–
$
641,667
$
626,596
Banks
12,646
317
44,735
20,590
36,484
624
57,698
31,225
Business and government
2
150,664
193,134
225,517
400,439
161,291
7,585
569,315
540,369
181,378
673,292
414,010
760,563
499,908
8,209
1,268,680
1,198,190
Trading
–
–
30,412
23,807
3,357
3,248
30,412
30,980
Designated at fair value
through profit or loss
3
–
–
207,668
56,029
75,140
76,499
207,668
191,988
Total
$
181,378
$
673,292
$
652,090
$
840,399
$
578,405
$
87,956
$
1,506,760
$
1,421,158
Non-interest-bearing deposits included
above
4
Canada
$
58,873
$
61,581
United States
73,509
76,376
International
–
23
Interest-bearing deposits included above
4
Canada
781,526
712,283
United States
5
504,896
482,247
International
87,956
88,648
Total
2,6
$
1,506,760
$
1,421,158
1
Includes $
97.6
billion (October 31, 2023 – $
103.3
billion) 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 $
75.4
billion relating to covered bondholders (October 31, 2023 – $
54.0
billion).
3
Financial liabilities designated at FVTPL on the Consolidated Balance Sheet also includes $
246.0
million (October 31, 2023 – $
142.3
million) of loan commitments and financial
guarantees designated at FVTPL.
4
The geographical splits of the deposits are based on the point of origin of the deposits.
5
Includes $
13.1
billion (October 31, 2023 – $
13.9
billion) of U.S. federal funds deposited and $
36.2
billion (October 31, 2023 – $
9.0
billion) of deposits and advances with the FHLB.
6
Includes deposits of $
810.2
billion (October 31, 2023 – $
779.9
billion) denominated in U.S. dollars and $
140.7
billion (October 31, 2023 – $
115.0
billion) denominated in other foreign
currencies.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 69
Term Deposits by Remaining Term-to-Maturity
(millions of Canadian dollars)
As at
October 31
October 31
2024
2023
Over
Over
Over
Over
Within
1 year to
2 years to
3 years to
4 years to
Over
1 year
2 years
3 years
4 years
5 years
5 years
Total
Total
Personal
$
113,041
$
15,120
$
8,906
$
3,253
$
3,431
$
7
$
143,758
$
118,862
Banks
44,732
–
1
–
2
–
44,735
19,710
Business and government
87,025
37,681
45,697
16,981
13,989
24,144
225,517
215,709
Trading
15,622
5,488
3,967
1,611
1,988
1,736
30,412
30,980
Designated at fair value through
profit or loss
206,191
1,477
–
–
–
–
207,668
191,988
Total
$
466,611
$
59,766
$
58,571
$
21,845
$
19,410
$
25,887
$
652,090
$
577,249
Term Deposits due within a Year
(millions of Canadian dollars)
As at
October 31
October 31
2024
2023
Over 3
Over 6
Within
months to
months to
3 months
6 months
12 months
Total
Total
Personal
$
46,226
$
30,780
$
36,035
$
113,041
$
81,215
Banks
19,001
2,434
23,297
44,732
19,705
Business and government
47,672
11,295
28,058
87,025
88,034
Trading
7,038
2,768
5,816
15,622
16,416
Designated at fair value through
profit or loss
75,982
51,980
78,229
206,191
191,876
Total
$
195,919
$
99,257
$
171,435
$
466,611
$
397,246
NOTE 18: OTHER LIABILITIES
Other Liabilities
(millions of Canadian dollars)
As at
October 31
October 31
2024
2023
Accounts payable, accrued expenses, and
other items
1,2
$
7,706
$
8,314
Accrued interest
5,559
4,421
Accrued salaries and employee benefits
5,386
4,993
Cheques and other items in transit
2
–
2,245
Current income tax payable
67
162
Deferred tax liabilities
(Note 24)
300
204
Defined benefit liability
(Note 23)
1,380
1,244
Lease liabilities
3
5,013
5,050
Liabilities related to structured entities
22,792
17,520
Provisions
(Note 26)
3,675
3,421
Total
2
$
51,878
$
47,574
1
Includes liabilities related to disposal groups classified as held-for-sale in connection with the Cowen acquisition.
Refer to Note 13 for further details.
2
Balances as at October 31, 2023 have been restated for the adoption of IFRS 17. Refer to Note 4 for details.
3
Refer to Note 26 for lease liability maturity and lease payment details.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 70
NOTE 19: SUBORDINATED NOTES AND DEBENTURES
Subordinated notes and debentures are
direct unsecured obligations of the Bank
or its subsidiaries and are subordinated in
right of payment to the claims of
depositors and certain other creditors. Redemptions,
cancellations, exchanges, and modifications
of subordinated debentures qualifying
as regulatory capital are
subject to the consent and approval of OSFI.
Subordinated Notes and Debentures
(millions of Canadian dollars, except
as noted)
As at
Earliest par
Interest
Reset
redemption
October 31
October 31
Maturity date
rate (%)
spread (%)
date
2024
2023
May 26, 2025
9.150
n/a
–
$
200
$
196
July 25, 2029
1
3.224
2,3
1.250
2
July 25, 2024
–
1,513
April 22, 2030
1
3.105
2
2.160
2
April 22, 2025
2,989
3,005
March 4, 2031
1
4.859
2
3.490
2
March 4, 2026
1,257
1,246
September 15, 2031
1
3.625
4
2.205
4
September 15, 2026
2,045
2,018
January 26, 2032
1
3.060
2
1.330
2
January 26, 2027
1,637
1,642
April 9, 2034
1
5.177
5
1.530
5
April 9, 2029
1,803
–
September 10, 2034
1
5.146
6
1.500
September 10, 2029
1,359
–
October 30, 2034
1
1.601
7
1.032
October 30, 2029
183
–
Total
$
11,473
$
9,620
1
The subordinated notes and debentures include non-viability contingent capital (NVCC) provisions and qualify as
regulatory capital under OSFI’s Capital Adequacy Requirements (CAR)
guideline. Refer to Note 20 for further details.
2
Interest rate is for the period to but excluding the earliest par redemption date, and thereafter,
it will be reset at a rate of three-month bankers’ acceptance rate (as such term is defined in
the applicable offering document) plus the reset spread noted.
3
On July 25, 2024, the Bank redeemed all of its outstanding $
1.5
billion
3.224
% medium-term notes due July 25, 2029, at a redemption price of
100
per cent of the principal amount, plus
accrued and unpaid interest to, but excluding, the redemption date.
4
Interest rate is for the period to but excluding the earliest par redemption date, and thereafter,
it will be reset at a rate of
5-year Mid-Swap Rate
plus the reset spread noted.
5
Interest rate is for the period to but excluding the earliest par redemption date, and thereafter,
it will be reset at Daily Compounded Canadian Overnight Repo Rate Average
plus the reset
spread noted.
6
Interest rate is for the period to but excluding the earliest par redemption date, and thereafter,
it will be reset at the prevailing
5-year U.S. Treasury Rate
plus the reset spread noted.
7
Interest rate is for the period to but excluding the earliest par redemption date, and thereafter,
it will be reset at the Japanese government bond yield plus the reset spread noted.
NOTE 20: EQUITY
COMMON SHARES
The Bank is authorized by its shareholders
to issue an unlimited number of common
shares, without par value, for unlimited
consideration. The common shares
are not redeemable or convertible. Dividends
are typically declared by the Board of
Directors of the Bank on a quarterly basis and
the amount may vary from
quarter to quarter.
PREFERRED SHARES AND OTHER EQUITY
INSTRUMENTS
Preferred Shares
The Bank is authorized by its shareholders
to issue, in one or more series, an unlimited
number of Class A First Preferred Shares,
without nominal or par value.
Non-cumulative preferential dividends are payable
either quarterly or semi-annually in accordance
with applicable terms, as and when declared
by the Board of
Directors of the Bank. All preferred shares
issued by the Bank currently include
NVCC provisions, necessary for the
preferred shares to qualify as regulatory
capital under OSFI’s CAR guideline. NVCC provisions
require the conversion of the impacted instruments
into a variable number of common shares
upon the
occurrence of a Trigger Event. A Trigger Event is currently defined
in the CAR Guideline as an event where
OSFI determines that the Bank is, or is about
to
become, non-viable and that after conversion
or write-off, as applicable, of all non-common
capital instruments and consideration of
any other relevant factors or
circumstances, the viability of the Bank is expected
to be restored, or where the Bank has accepted
or agreed to accept a capital injection or equivalent
support
from a federal or provincial government of
Canada without which the Bank would have
been determined by OSFI to be non-viable.
Limited Recourse Capital Notes
The Bank has issued Limited Recourse
Capital Notes (the “LRCNs”) with recourse
limited to assets held in a trust consolidated
by the Bank (the “Limited Recourse
Trust”). The Limited Recourse Trust’s assets consist of Class A First
Preferred Shares of the Bank, each series
which is issued concurrently with the LRCNs
(the
“LRCN Preferred Shares”). The LRCN Preferred
Shares are eliminated on the Bank’s consolidated
financial statements.
In the event of (i) non-payment of interest
following any interest payment date,
(ii) non-payment of the redemption price
in case of a redemption of the LRCNs,
(iii) non-payment of principal plus accrued
and unpaid interest at the maturity of the LRCNs,
(iv) an event of default on the LRCNs, or
(v) a Trigger Event, the
recourse of each LRCN holder will be limited
to that holder’s pro rata share of the
Limited Recourse Trust’s assets.
The LRCNs, by virtue of the recourse to the LRCN
Preferred Shares, include standard
NVCC provisions necessary for them to qualify
as Additional Tier 1
Capital under OSFI’s CAR guideline. NVCC provisions
require the conversion of the instrument
into a variable number of common
shares upon the occurrence of
a Trigger Event. In such an event, each LRCN Preferred
Share will automatically and immediately be
converted into a variable number of common
shares which
will be delivered to LRCN holders in
satisfaction of the principal amount of, and accrued
and unpaid interest on, the LRCNs.
The number of common shares issued
will be determined based on the conversion
formula set out in the terms of the respective
series of LRCN Preferred Shares.
The LRCNs are compound instruments with
both equity and liability features. Non-payment
of interest and principal in cash does not
constitute an event of
default and will trigger the delivery of the LRCN
Preferred Shares. The liability component
has a nominal value and, therefore,
the proceeds received upon
issuance have been presented as equity, and any interest payments
are accounted for as distributions on other
equity instruments.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 71
Perpetual Subordinated Capital Notes
The Bank has issued Perpetual Subordinated
Capital Notes (“Perpetual Notes”). The
Perpetual Notes have no scheduled maturity
or redemption date. Interest
payments are at the discretion of the Bank.
The Perpetual Notes include standard NVCC
provisions necessary for them to qualify
as Additional Tier 1 Capital
under OSFI’s CAR guideline.
The Perpetual Notes are compound instruments
with both equity and liability features. The
liability component has a nominal value
and, therefore, the proceeds
received upon issuance have been presented
as equity, and any interest payments are accounted for as distributions
on other equity instruments.
The following table summarizes the changes
to the shares and other equity instruments
issued and outstanding and treasury instruments
held as at and for the
years ended October 31, 2024 and October
31, 2023.
Shares and Other Equity Instruments
Issued and Outstanding and Treasury Instruments
Held
(millions of shares or other equity instruments
and millions of Canadian dollars)
October 31, 2024
October 31, 2023
Number
Number
of shares
Amount
of shares
Amount
Common Shares
Balance as at beginning of year
1,791.4
$
25,434
1,821.7
$
24,363
Proceeds from shares issued on exercise
of stock options
1.7
112
1.2
83
Shares issued as a result of dividend reinvestment
plan
6.6
529
20.5
1,720
Purchase of shares for cancellation and other
(49.4)
(702)
(52.0)
(732)
Balance as at end of year – common shares
1,750.3
$
25,373
1,791.4
$
25,434
Preferred Shares and Other Equity Instruments
Preferred Shares – Class A
Series 1
20.0
$
500
20.0
$
500
Series 3
1
–
–
20.0
500
Series 5
20.0
500
20.0
500
Series 7
14.0
350
14.0
350
Series 9
8.0
200
8.0
200
Series 16
14.0
350
14.0
350
Series 18
14.0
350
14.0
350
Series 22
2
–
–
14.0
350
Series 24
3
–
–
18.0
450
Series 27
0.8
850
0.8
850
Series 28
0.8
800
0.8
800
91.6
$
3,900
143.6
$
5,200
Other Equity Instruments
4
Limited Recourse Capital Notes – Series 1
1.8
$
1,750
1.8
$
1,750
Limited Recourse Capital Notes – Series 2
1.5
1,500
1.5
1,500
Limited Recourse Capital Notes – Series 3
5
1.7
2,403
1.7
2,403
Limited Recourse Capital Notes – Series 4
5
0.7
1,023
–
–
Perpetual Subordinated Capital Notes – Series
2023-9
6
0.1
312
–
–
5.8
6,988
5.0
5,653
Balance as at end of year – preferred shares
and other equity instruments
97.4
$
10,888
148.6
$
10,853
Treasury – common shares
7
Balance as at beginning of year
0.7
$
(64)
1.0
$
(91)
Purchase of shares
139.1
(11,209)
94.9
(7,959)
Sale of shares
(139.6)
11,256
(95.2)
7,986
Balance as at end of year – treasury
– common shares
0.2
$
(17)
0.7
$
(64)
Treasury – preferred shares and other equity instruments
7
Balance as at beginning of year
0.1
$
(65)
0.1
$
(7)
Purchase of shares and other equity instruments
6.6
(625)
3.7
(590)
Sale of shares and other equity instruments
(6.5)
672
(3.7)
532
Balance as at end of year – treasury
– preferred shares and other equity
instruments
0.2
$
(18)
0.1
$
(65)
1
On July 31, 2024, the Bank redeemed all of its
20
million outstanding Non-Cumulative 5-Year
Rate Reset Class A First Preferred Shares NVCC, Series 3 (“Series 3 Preferred Shares”), at
a redemption price of $
25.00
per Series 3 Preferred Share, for a total redemption cost of approximately $
500
million.
2
On April 30, 2024, the Bank redeemed all of its
14
million outstanding Non-Cumulative 5-Year
Rate Reset Class A First Preferred Shares NVCC, Series 22 (“Series 22 Preferred
Shares”), at a redemption price of $
25.00
per Series 22 Preferred Share, for a total redemption cost of $
350
million.
3
On July 31, 2024, the Bank redeemed all of its
18
million outstanding Non-Cumulative 5-Year
Rate Reset Class A First Preferred Shares NVCC, Series 24 (“Series 24 Preferred Shares”),
at a redemption price of $
25.00
per Series 24 Preferred Share, for a total redemption cost of approximately $
450
million.
4
For Limited Recourse Capital Notes, the number of shares represents the number of notes issued.
5
For LRCNs – Series 3 and 4, the amount represents the Canadian dollar equivalent of the U.S. dollar notional
amount. Refer to “Preferred Shares and Other Equity Instruments –
Significant Terms and Conditions” table
for further details.
6
For perpetual subordinated capital notes, the amount represents the Canadian dollar equivalent of the Singapore
dollar notional amount. Refer to “Preferred Shares and Other Equity
Instruments – Significant Terms and Conditions”
table for further details.
7
When the Bank purchases its own equity instruments as part of its trading business, they are classified as treasury
instruments and the cost of these instruments is recorded as a
reduction in equity.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 72
Preferred Shares and Other Equity Instruments –
Significant Terms and
Conditions
(millions of Canadian dollars)
Annual
Dividend
Reset
Next redemption/
Convertible
Issue date
yield (%)
1
frequency
1
spread (%)
1
conversion date
1,2
into
1,2
NVCC Rate Reset Preferred Shares
Series 1
3
June 4, 2014
4.970
Quarterly
2.240
October 31, 2029
Series 2
Series 5
December 16, 2014
3.876
Quarterly
2.250
January 31, 2025
Series 6
Series 7
March 10, 2015
3.201
Quarterly
2.790
July 31, 2025
Series 8
Series 9
April 24, 2015
3.242
Quarterly
2.870
October 31, 2025
Series 10
Series 16
July 14, 2017
6.301
Quarterly
3.010
October 31, 2027
Series 17
Series 18
4
March 14, 2018
5.747
Quarterly
2.700
April 30, 2028
Series 19
Series 27
April 4, 2022
5.750
Semi-annual
3.317
October 31, 2027
–
Series 28
July 25, 2022
7.232
Semi-annual
4.200
October 31, 2027
–
Annual
Coupon
Reset
Next redemption
Recourse to
Issue date
yield (%)
frequency
spread (%)
date
Preferred Shares
5
Other Equity Instruments
Perpetual Subordinated Capital Notes
6
July 10, 2024
5.700
Semi-annual
2.652
July 31, 2029
n/a
NVCC Limited Recourse Capital Notes
7
Series 1
July 29, 2021
3.600
Semi-annual
2.747
October 31, 2026
Series 26
Series 2
September 14, 2022
7.283
Semi-annual
4.100
October 31, 2027
Series 29
Series 3
8
October 17, 2022
8.125
Quarterly
4.075
October 31, 2027
Series 30
Series 4
8
July 3, 2024
7.250
Quarterly
2.977
July 31, 2029
Series 31
1
Non-cumulative preferred dividends for each series are payable as and when declared by the Board of Directors.
The dividend rate of the Rate Reset Preferred Shares will reset on the
next earliest optional redemption/conversion date and every
5
years thereafter to equal the then
5
-year Government of Canada bond yield plus the noted reset spread. If converted into a
series of floating rate preferred shares, the dividend rate for the quarterly period will be equal to the then
90
-day Government of Canada Treasury bill yield plus the noted reset
spread
unless otherwise stated.
2
Subject to regulatory consent and unless otherwise stated, preferred shares are redeemable on the next earliest
optional redemption date as noted and every
5
years thereafter. Preferred
Shares, except Series 27 and Series 28, are convertible into the corresponding series of floating rate preferred shares
on the conversion date noted and every
5
years thereafter if not
redeemed. If converted, the holders have the option to convert back to the original series of preferred shares every
5
years.
3
On October 16, 2024, the Bank announced that none of its
20
million Non-Cumulative 5-Year Rate
Reset Class A First Preferred Shares, Series 1 NVCC (“Series 1 Shares”) would be
converted on October 31, 2024 into Non-Cumulative Floating Rate Class A First Preferred Shares, Series 2 (NVCC)
(“Series 2 Shares”) of TD. As previously announced on October 1,
2024, the dividend rate for the Series 1 Shares for the 5-year period from and including October 31, 2024 to but
excluding October 31, 2029 will be
4.97
%.
4
On April 18, 2023, the Bank announced that none of its
14
million Non-Cumulative 5-Year Rate Reset
Preferred Shares NVCC, Series 18 (“Series 18 Shares”) would be converted on
April 30, 2023 into Non-Cumulative Floating Rate Preferred Shares NVCC, Series 19 (“Series 19 Shares”). As had
been previously announced on March 31, 2023, the dividend rate for
the Series 18 Shares for the 5-year period from and including April 30, 2023 to but excluding April 30, 2028, if declared,
is payable at a per annum rate of
5.747
%.
5
LRCN Preferred Share Series 26 and Series 29 were issued at a price of $
1,000
per share and LRCN Preferred Share Series 30 and Series 31 were issued at a price of
US$
1,000
per
share. The LRCN Preferred Shares are eliminated on the Bank’s Consolidated Balance Sheet.
6
Perpetual Subordinated Capital Notes are denominated in Singapore dollars. The interest rate on Perpetual Subordinated
Capital Notes will reset on the next interest reset date and every
5 years thereafter to a rate equal to the then prevailing 5-year SORA-OIS Rate plus the noted reset
spread.
7
LRCNs may be redeemed at the option of the Bank, with the prior written approval of OSFI, in whole
or in part on prior notice by the Bank as of the earliest redemption date and each
optional redemption date thereafter. Unless otherwise stated, the interest rate on the
LRCNs will reset on the next earliest optional redemption date and every
5
years thereafter at a rate
equal to the then 5-year Government of Canada bond yield plus the noted reset spread.
8
LRCN Series 3 and 4 are denominated in U.S. dollars. The interest rate on LRCN Series 3 and 4 will
reset on the next interest reset date and every
5
years thereafter to equal the then
5
-year U.S. Treasury yield plus the noted reset spread.
NVCC Provision
If an NVCC trigger event were to occur, for all series of
Class A First Preferred Shares excluding
the preferred shares issued with respect
to LRCNs, 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
0.8
billion in aggregate.
The LRCNs, by virtue of the recourse
to the preferred shares held in the Limited Recourse
Trust, include NVCC provisions. For LRCNs, if an
NVCC trigger were
to occur, the maximum number of common shares that
could be issued, assuming there are
no declared and unpaid dividends on the preferred
shares series
issued in connection with such LRCNs, would
be
1.3
billion in aggregate.
For NVCC subordinated notes and debentures
(including Perpetual Notes), if an
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
3.5
billion in aggregate.
DIVIDEND RESTRICTIONS
The Bank is prohibited by the
Bank Act (Canada)
from declaring dividends on its preferred
or common shares if there are reasonable
grounds for believing that the
Bank is, or the payment would cause the
Bank to be, in contravention of the capital adequacy
and liquidity regulations of the
Bank Act (Canada)
or directions of
OSFI. The Bank does not anticipate that this
condition will restrict it from paying dividends
in the normal course of business. In addition,
the ability to pay dividends
on common shares without the approval of
the holders of the outstanding preferred
shares is restricted unless all dividends on
the preferred shares have been
declared and paid or set apart for payment.
Currently, these limitations do not restrict the payment of dividends
on common shares or preferred shares.
DIVIDENDS
On December 4, 2024, the Board approved
a dividend in an amount of one dollar and
five cents ($
1.05
) per fully paid common share in the capital
stock of the
Bank for the quarter ending January 31, 2025,
payable on and after January 31, 2025,
to shareholders of record at the close of
business on January 10, 2025.
At October 31, 2024, the quarterly dividend
was $
1.02
per common share. Common share
cash dividends declared and paid during the
year totalled $
4.08
per
share (2023 – $
3.84
), representing a payout ratio of
52.1
%, slightly above the Bank’s target payout range of
40
-
50
% of adjusted earnings. For cash dividends
payable on the Bank’s preferred shares, refer
to Note 20. As at October 31, 2024,
1,750
million common shares were outstanding
(2023 –
1,791
million).
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 73
DIVIDEND REINVESTMENT PLAN
The Bank offers a dividend reinvestment plan
for its common shareholders. Participation in
the plan is optional and under the terms of the
plan, cash dividends on
common shares are used to purchase additional
common shares. At the option of the Bank,
the common shares may be issued from treasury
at an average
market price based on the last five trading
days before the date of the dividend payment,
with a discount of between
0
% to
5
% at the Bank’s discretion or
purchased from the open market at market
price.
During the year ended October 31, 2024, under
the dividend reinvestment plan, the Bank
issued
6.6
million common shares from treasury with
no
discount.
During the year ended October 31, 2023, under
the dividend reinvestment plan, the Bank
issued
3.7
million common shares from treasury with
no
discount and
16.8
million common shares with a
2
% discount.
NORMAL COURSE ISSUER BID
On August 28, 2023, the Bank announced
that the Toronto Stock Exchange (TSX) and OSFI approved a normal course issuer
bid (NCIB) to repurchase for
cancellation up to
90
million of its common shares. The NCIB
commenced on August 31, 2023, and during
the year ended October 31, 2024, the
Bank
repurchased
49.4
million common shares under the NCIB at
an average price of $
80.15
per share for a total amount of $
4.0
billion. From the commencement of
the NCIB to October 31, 2024, the Bank repurchased
71.4
million shares under the program.
NOTE 21: INSURANCE
(a)
INSURANCE SERVICE RESULT
Insurance revenue and expenses are presented
on the Consolidated Statement of Income
under Insurance revenue and Insurance
service expenses,
respectively. Net income or expense from reinsurance is presented
in other income (loss).
The following table shows components of the insurance
service result
presented in the Consolidated Statement of
Income for the Bank which includes the results
of property and casualty insurance, life and
health insurance, as well
as reinsurance issued and held in Canada and
internationally.
Insurance Service Result
(millions of Canadian dollars)
For the year ended
October 31, 2024
October 31, 2023
Insurance revenue
$
6,952
$
6,311
Insurance service expenses
6,647
5,014
Insurance service result before reinsurance
contracts held
305
1,297
Net income (expense) from reinsurance
contracts held
524
(137)
Insurance service result
$
829
$
1,160
Net income (expense) from reinsurance
contracts held is comprised of recoveries
from reinsurers offset by ceded premiums. For
the year ended October 31, 2024,
the Bank recognized recoveries from reinsurers
of $
1,054
million (October 31, 2023 – $
405
million) and ceded premiums of $
530
million (October 31, 2023 –
$
542
million). For the year ended October 31, 2024,
the Bank recognized insurance finance expenses
of $
443
million (October 31, 2023 – $
204
million) from
insurance and reinsurance contracts in other
income (loss). The Bank’s investment return on
securities supporting insurance contracts
is comprised of interest
income reported in net interest income and
fair value changes reported in other income (loss).
Investment return on securities
supporting insurance contracts was
$
372
million for the year ended October 31, 2024 (October
31, 2023 – $
209
million).
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 74
(b)
INSURANCE CONTRACT LIABILITIES
Insurance contract liabilities are comprised
of amounts related to the LRC, LIC and
other insurance liabilities.
The following table presents movements in
the property and casualty insurance liabilities.
Property and casualty insurance contract
liabilities by LRC and LIC
(millions of Canadian dollars)
For the year ended October 31, 2024
Liabilities for remaining coverage
Liabilities for incurred claims
Total
Excluding
Estimates of the
loss
Loss
present value of
Risk
component
component
future cash flows
adjustment
Insurance contract liabilities at beginning
of year
$
630
$
129
$
4,740
$
220
$
5,719
Insurance revenue
(5,506)
–
–
–
(5,506)
Insurance service expenses:
Incurred claims and other insurance service
expenses
–
(145)
5,099
96
5,050
Amortization of insurance acquisition cash
flows
803
–
–
–
803
Losses and reversal of losses on onerous
contracts
–
117
–
–
117
Changes to liabilities for incurred claims
–
–
(65)
(114)
(179)
Insurance service result
(4,703)
(28)
5,034
(18)
285
Insurance finance expenses
7
–
479
19
505
Total changes in the Consolidated Statement of Income
(4,696)
(28)
5,513
1
790
Cash flows:
Premiums received
5,576
–
–
–
5,576
Claims and other insurance service expenses
paid
–
–
(4,264)
–
(4,264)
Acquisition cash flows paid
(796)
–
–
–
(796)
Total cash flows
4,780
–
(4,264)
–
516
Insurance contract liabilities at end of year
$
714
$
101
$
5,989
$
221
$
7,025
Property and casualty insurance contract
liabilities by LRC and LIC
(millions of Canadian dollars)
For the year ended October 31, 2023
Liabilities for remaining coverage
Liabilities for incurred claims
Total
Excluding
Estimates of the
loss
Loss
present value of
Risk
component
component
future cash flows
adjustment
Insurance contract liabilities at beginning
of year
$
623
$
113
$
4,700
$
208
$
5,644
Insurance revenue
(4,898)
–
–
–
(4,898)
Insurance service expenses:
Incurred claims and other insurance service
expenses
–
(102)
3,801
82
3,781
Amortization of insurance acquisition cash
flows
789
–
–
–
789
Losses and reversal of losses on onerous
contracts
–
118
–
–
118
Changes to liabilities for incurred claims
–
–
(356)
(78)
(434)
Insurance service result
(4,109)
16
3,445
4
(644)
Insurance finance expenses
1
–
215
8
224
Total changes in the Consolidated Statement of Income
(4,108)
16
3,660
12
(420)
Cash flows:
Premiums received
4,920
–
–
–
4,920
Claims and other insurance service expenses
paid
–
–
(3,620)
–
(3,620)
Acquisition cash flows paid
(805)
–
–
–
(805)
Total cash flows
4,115
–
(3,620)
–
495
Insurance contract liabilities at end of year
$
630
$
129
$
4,740
$
220
$
5,719
Other insurance contract liabilities were $
144
million as at October 31, 2024 (October 31,
2023 – $
127
million) and include life and health insurance contract
liabilities of $
121
million (October 31, 2023 – $
124
million).
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 75
(c)
PROPERTY AND CASUALTY CLAIMS DEVELOPMENT
The following table shows the estimates of
the insurance liabilities for incurred
claims net of reinsurance assets for incurred
claims (net LIC) with subsequent
developments during the periods and cumulative
payments to date. The original estimates
are evaluated monthly for redundancy or
deficiency. The evaluation is
based on actual payments in full or partial
settlement of claims and current estimates
of the net LIC related to claims still open
or claims still unreported.
Incurred Claims by Accident Year
(millions of Canadian dollars)
Accident Year
2015
and prior
2016
2017
2018
2019
2020
2021
2022
2023
2024
Total
Net ultimate claims cost at
end of accident year
$
6,353
$
2,438
$
2,425
$
2,631
$
2,727
$
2,646
$
2,529
$
3,242
$
3,830
$
4,478
Revised estimates
One year later
6,104
2,421
2,307
2,615
2,684
2,499
2,367
3,182
4,039
Two years later
5,802
2,334
2,258
2,573
2,654
2,412
2,278
3,167
Three years later
5,553
2,264
2,201
2,522
2,575
2,278
2,225
Four years later
5,279
2,200
2,151
2,465
2,489
2,230
Five years later
5,137
2,159
2,108
2,408
2,474
Six years later
5,115
2,143
2,086
2,396
Seven years later
5,069
2,134
2,078
Eight years later
5,044
2,129
Nine years later
5,035
Current estimates of
cumulative net claims
5,035
2,129
2,078
2,396
2,474
2,230
2,225
3,167
4,039
4,478
Cumulative net claims paid to date
(4,894)
(2,062)
(2,004)
(2,260)
(2,255)
(1,975)
(1,856)
(2,490)
(2,716)
(2,133)
Net undiscounted provision
for unpaid claims
141
67
74
136
219
255
369
677
1,323
2,345
$
5,606
Effect of discounting
(534)
Effect of risk adjustment for
non-financial risk
184
Net liabilities for incurred claims
$
5,256
Insurance liabilities for incurred claims
6,210
Reinsurance assets for incurred claims
(954)
(d)
RISK ADJUSTMENT FOR NON-FINANCIAL
RISK AND DISCOUNTING
The risk adjustment reflects an amount that
an insurer would reasonably pay to remove
the uncertainty that future cash flows
will exceed the expected value
amount. The Bank has estimated the risk adjustment
for its property and casualty operations’ LIC
using statistical techniques in accordance
with Canadian
accepted actuarial principles to develop potential
future observations and a confidence level
range of 80
th
to 90
th
percentile.
Insurance contract liabilities are calculated
by discounting expected future cash flows.
The interest rates used to discount the Bank’s insurance
balances over a
duration of
1
to
10
years range from
3.8
% to
4.5
% as at October 31, 2024 (October
31, 2023 –
5.5
% to
5.7
%).
(e)
SENSITIVITY TO INSURANCE RISK
A variety of assumptions are made related
to the future level of claims, policyholder behaviour, expenses
and sales levels when products are designed
and priced,
as well as when actuarial liabilities are determined.
Such assumptions require a significant amount
of professional judgment. The LIC is
sensitive to certain
assumptions. It has not been possible
to quantify the sensitivity of certain assumptions
such as legislative changes or uncertainty
in the estimation process. Actual
experience may differ from the assumptions
made by the Bank.
For property and casualty insurance, the
main assumption underlying the LIC is that past
claims development experience can be
used to project future claims
development and hence ultimate claims costs.
As such, these methods extrapolate the development
of paid and incurred losses, average
costs per claim, and
claim numbers based on the observed development
of earlier years and expected loss ratios.
Net LIC estimates are based on various quantitative
and qualitative
factors including the discount rate, the risk
adjustment,
reinsurance, trends in claims severity and
frequency,
and other external drivers.
Qualitative and other unforeseen factors could
negatively impact the Bank’s ability to accurately
assess the risk of the insurance policies that
the Bank
underwrites. In addition, there may be
significant lags between the occurrence of
an insured event and the time it is actually
reported to the Bank and additional
lags between the time of reporting and final
settlements of claims.
The following table outlines the sensitivity of
the Bank’s property and casualty LIC to reasonably
possible movements in the discount
rate, risk adjustment, and
the frequency and severity of claims, with
all other assumptions held constant.
Movements in the assumptions may be non-linear.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 76
Sensitivity of Critical Assumptions – Property
and Casualty Insurance
(millions of Canadian dollars)
As at
October 31, 2024
October 31, 2023
Impact on net
Impact on net
income (loss)
income (loss)
before
Impact on
before
Impact on
income taxes
equity
income taxes
1
equity
1
Impact of a 1% change in key assumptions
and estimates
Discount rate
Increase in assumption
$
121
$
90
$
102
$
75
Decrease in assumption
(129)
(95)
(108)
(80)
Risk adjustment
Increase in assumption
(52)
(38)
(63)
(47)
Decrease in assumption
40
29
42
31
Impact of a 5% change in key assumptions
and estimates
Frequency of claims
Increase in assumption
$
(182)
$
(135)
$
(165)
$
(122)
Decrease in assumption
182
135
165
122
Severity of claims
Increase in assumption
(288)
(213)
(228)
(169)
Decrease in assumption
288
213
228
169
1
Balances as at October 31, 2023 have been restated for the adoption of IFRS 17. Refer to Note 4 for details.
For life and health insurance, the processes
used to determine critical assumptions
are as follows:
●
Mortality, morbidity, and lapse assumptions are based on industry and historical company
data; and
●
Expense assumptions are based on the annual
Finance expense study.
A sensitivity
analysis for
possible movements
in life
and health
insurance business
assumptions was
performed and
the impact
is not
significant to
the Bank’s
Consolidated Financial Statements.
(f)
CONCENTRATION OF INSURANCE RISK
Concentration risk is the risk resulting from
large exposures to similar risks that are positively
correlated.
Risk associated with automobile, residential
and other products may vary in relation to the
geographical area of the risk insured. Exposure
to concentrations of
insurance risk, by type of risk, is mitigated by
ceding these risks through reinsurance
contracts, as well as careful selection and implementation
of underwriting
strategies, which is in turn largely achieved
through diversification by line of business and
geographical areas. For automobile insurance,
legislation is in place at a
provincial level and this creates differences in
the benefits provided among the provinces.
As at October 31, 2024, for the property
and casualty insurance business,
65.5
% of insurance revenue was mainly derived
from automobile policies
(October 31, 2023 –
66.8
%) followed by residential with
34.3
% (October 31, 2023 –
33.2
%). The distribution by provinces show that business
is mostly
concentrated in Ontario with
50.5
% of insurance revenue (October 31, 2023
–
50.6
%). The Western provinces represented
31.9
% (October 31, 2023 –
32.2
%),
followed by the Atlantic provinces with
10.6
% (October 31, 2023 –
10.6
%), and Québec at
6.8
% (October 31, 2023 –
6.6
%).
Concentration risk is not a major concern
for the life and health insurance business
as it does not have a material level of regional
specific characteristics like
those exhibited in the property and casualty
insurance business. Reinsurance is used
to limit the liability on a single claim.
Concentration risk is further limited by
diversification across uncorrelated risks. This
limits the impact of a regional pandemic
and other concentration risks.
To
improve understanding of exposure
to this
risk, a pandemic scenario is tested annually.
NOTE 22: SHARE-BASED COMPENSATION
STOCK OPTION PLAN
The Bank maintains a stock option program
for certain key employees. Options on
common shares are granted to eligible employees
of the Bank under the plan
for terms of
ten years
and vest over a
four-year
period. These options provide holders
with the right to purchase common shares of
the Bank at a fixed price equal
to the closing market price of the shares
on the TSX on the day prior to the date the
options were issued. The outstanding options
expire on various dates to
December 12, 2033.
The following table summarizes the Bank’s stock
option activity and related information,
adjusted to reflect the impact of the 2014
stock
dividend on a retrospective basis, for the
years ended October 31, 2024
and October 31, 2023.
Stock Option Activity
(millions of shares and Canadian dollars)
2024
2023
Weighted-
Weighted-
Number
average
Number
average
of shares
exercise price
of shares
exercise price
Number outstanding, beginning of year
14.1
$
76.58
12.8
$
72.05
Granted
2.6
81.78
2.5
90.55
Exercised
(1.7)
60.07
(1.2)
58.32
Forfeited/expired
(0.3)
85.36
–
79.27
Number outstanding, end of year
14.7
$
79.17
14.1
$
76.58
Exercisable, end of year
5.4
$
68.51
5.1
$
64.18
Available for grant
5.1
7.4
The weighted-average share price for the
options exercised in 2024 was $
80.57
(2023 – $
85.53
).
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 77
The following table summarizes information
relating to stock options outstanding and
exercisable as at October 31, 2024.
Range of Exercise Prices
(millions of shares and Canadian dollars)
Options outstanding
Options exercisable
Weighted-
average
Weighted-
Weighted-
Number
remaining
average
Number
average
of shares
contractual
exercise
of shares
exercise
outstanding
life (years)
price
exercisable
price
$
52.46
-$
69.39
2.9
2.8
64.74
2.9
64.74
$
71.88
-$
72.64
2.9
5.1
72.12
0.9
72.64
$
72.84
-$
81.78
4.1
7.4
78.24
1.6
72.84
$
90.55
2.4
8.0
90.55
–
–
$
95.33
2.4
7.0
95.33
–
–
For the year ended October 31, 2024, the Bank
recognized compensation expense for
stock option awards of $
34.2
million (October 31, 2023 – $
35.1
million). For
the year ended October 31, 2024,
2.6
million (October 31, 2023 –
2.5
million) options were granted by the Bank at a
weighted-average fair value of $
14.36
per
option (2023 – $
14.70
per option) estimated using a binomial tree-based
valuation option pricing model.
The following table summarizes the assumptions
used for estimating the fair value of options
for the years ended October 31, 2024 and
October 31, 2023.
Assumptions Used for Estimating the
Fair Value of Options
(in Canadian dollars, except as noted)
2024
2023
Risk-free interest rate
3.41
%
2.87
%
Option contractual life
10
years
10
years
Expected volatility
18.92
%
18.43
%
Expected dividend yield
3.78
%
3.69
%
Exercise price/share price
$
81.78
$
90.55
The risk-free interest rate is based on Government
of Canada benchmark bond yields as
at the grant date. Expected volatility is
calculated based on the historical
average daily volatility and expected dividend
yield is based on dividend payouts in the last
fiscal year. These assumptions are measured over a period
corresponding to the option contractual life.
OTHER SHARE-BASED COMPENSATION PLANS
The Bank operates restricted share unit and performance
share unit plans which are offered to certain employees
of the Bank. Under these plans, participants
are
awarded share units equivalent to the Bank’s
common shares that generally vest over
three years
. During the vesting period, dividend equivalents
accrue to the
participants in the form of additional share
units. At the maturity date, the participant receives
cash representing the value of the share
units. The final number of
performance share units will typically vary
from
80
% to
120
% of the number of units outstanding
at maturity (consisting of initial units awarded
plus additional units
in lieu of dividends) based on the Bank’s total
shareholder return relative to the average of
a peer group of large Canadian financial
institutions.
For the year ended
October 31, 2024, the Bank awarded
9.9
million of such share units at a weighted-average
price of $
81.54
(2023 –
9.1
million units at a weighted-average price of
$
88.75
). The number of such share units outstanding
under these plans as at October 31, 2024
was
27.9
million (October 31, 2023 –
25.8
million).
The Bank also offers deferred share unit plans
to eligible employees and non-employee directors.
Under these plans, a portion of the participant’s
annual
incentive award may be deferred,
or in the case of non-employee directors,
a portion of their annual compensation
may be delivered as share units equivalent
to
the Bank’s common shares. The deferred share units
are not redeemable by the participant until
termination of employment or directorship. Once
these conditions
are met, the deferred share units
must be redeemed for cash no later than
the end of the next calendar year. Dividend equivalents accrue
to the participants in the
form of additional units. For the year ended
October 31, 2024, the Bank awarded
0.2
million deferred share units at a weighted-average
price of $
81.57
(2023 –
0.2
million units at a weighted-average price
of $
89.88
). As at October 31, 2024,
6.6
million deferred share units were outstanding
(October 31, 2023 –
7.0
million).
Compensation expense for these plans is recorded
in the year the incentive award is earned
by the plan participant. Changes in the
value of these plans are
recorded, net of the effects of related hedges, on
the Consolidated Statement of Income.
For the year ended October 31, 2024, the Bank
recognized
compensation expense, net of the effects of hedges,
for these plans of $
970
million (2023 – $
870
million). The compensation expense recognized
before the
effects of hedges was $
903
million (2023 – $
533
million). The carrying amount of the liability relating
to these plans, based on the closing share
price, was
$
2.7
billion at October 31, 2024 (October
31, 2023 – $
2.4
billion), and is reported in Other liabilities
on the Consolidated Balance Sheet.
EMPLOYEE OWNERSHIP PLAN
The Bank also operates a share purchase plan
available to Canadian employees. Employees
can contribute up to
10
% of their annual eligible earnings (net
of
source deductions) to the Employee Ownership
Plan. For participating employees below
the level of Vice President, the Bank matches
100
% of the first $
250
of
employee contributions each year and the remainder
of employee contributions at
50
% to an overall maximum of
3.5
% of the employee’s eligible earnings or
$
2,250
, whichever comes first. The Bank’s contributions
vest once an employee has completed
two years of continuous service with the Bank.
For the year ended
October 31, 2024, the Bank’s contributions totalled $
91
million (2023 – $
89
million) and were expensed as salaries and
employee benefits. As at
October 31, 2024, an aggregate of
24
million (October 31, 2023 –
24
million) common shares were held under
the Employee Ownership Plan. The shares
in the
Employee Ownership Plan are purchased in
the open market and are considered outstanding
for computing the Bank’s basic and diluted earnings
per share.
Dividends earned on the Bank’s
common shares held by the Employee Ownership
Plan are used to purchase additional common
shares for the Employee
Ownership Plan in the open market.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 78
NOTE 23: EMPLOYEE BENEFITS
PENSION AND OTHER POST-RETIREMENT
BENEFIT PLANS
The Bank sponsors a number of pension and
post-retirement benefit plans for current eligible
and former employees. Pension arrangements
include defined
benefit pension plans, defined contribution
pension plans and supplementary arrangements
that provide pension benefits in excess
of statutory limits. The Bank
also provides certain post-retirement benefits.
The Bank’s principal defined benefit pension plans,
consisting of The Pension Fund Society of
The Toronto-Dominion Bank (the “Society”) and the defined
benefit portion of the TD Pension Plan (Canada)
(the “TDPP DB”), are for eligible Canadian
Bank employees who elected to join the Society
or the TDPP DB. The
Society was closed to new members on January
30, 2009, and the TDPP DB commenced
on March 1, 2009. Effective December 31, 2018,
the TDPP DB was
closed to new employees hired after that
date. All new permanent employees hired
in Canada on or after January 1, 2019 are eligible
to join the defined
contribution portion of the TDPP (the “TDPP
DC”) after one year of service. Benefits
under the principal defined benefit pension
plans are determined based upon
the period of plan participation and the average
salary of the member in the best consecutive
five years in the last ten years of combined plan
membership.
Benefits under the TDPP DC are funded
from the balance of the accumulated
contributions of the member and the Bank plus
the member’s investment earnings.
Annual expense for the TDPP DC is
equal to the Bank’s contributions to the plan.
Funding for the Bank’s principal defined benefit
pension plans is provided by contributions
from the Bank and members of the plans
through a separate trust. In
accordance with legislation, the Bank contributes
amounts, as determined on an actuarial basis,
to the plans and has the ultimate responsibility
for ensuring that
the liabilities of the plans are adequately funded
over time. Any deficits determined
in the funding valuations must generally be
funded over a period not exceeding
fifteen years. The Bank’s funding policy is to
make at least the minimum annual contributions
required by legislation. Any contributions
in excess of the minimum
requirements are discretionary. The principal defined benefit pension
plans are registered with OSFI and
the Canada Revenue Agency and are subject
to the acts
and regulations that govern federally regulated
pension plans. The 2024
and 2023 contributions were made in accordance
with the actuarial valuation reports for
funding purposes as at October 31, 2023 and
October 31, 2022, respectively. Valuations for funding purposes are being prepared as
of October 31, 2024 for the
Society and no later than October 31, 2026
for the TDPP DB.
Post-retirement defined benefit plans are unfunded
and, where offered, generally include health
care and dental benefits or, to assist with the cost, a benefits
subsidy to be used to reduce the cost of
coverage. Employees must meet certain
age and service requirements to be eligible
for post-retirement benefits and are
generally required to pay a portion of the
cost of the benefits. Effective June 1, 2017, the
Bank’s principal post-retirement defined benefit
plan, covering eligible
Canadian employees, was closed to new employees
hired on or after that date.
(a)
INVESTMENT STRATEGY AND ASSET ALLOCATION
The principal defined benefit pension plans are expected to each achieve a rate of return that meets or exceeds the change in value of the plan’s respective
liabilities over rolling five-year periods. The investments are managed with the primary objective of providing reasonable rates of return, consistent with available
market opportunities, economic conditions, consideration of plan liabilities, prudent portfolio management, and the target risk profiles for the plans.
The asset allocations by asset category for
the principal defined benefit pension plans
are as follows:
Plan Asset Allocation
(millions of Canadian dollars except as noted)
Society
1
TDPP DB
1
Target
% of
Fair value
Target
% of
Fair value
As at October 31, 2024
range
total
Quoted
Unquoted
range
total
Quoted
Unquoted
Debt
60
-
90
%
71
%
$
–
$
4,245
55
-
75
%
67
%
$
–
$
2,106
Equity
0-
21
5
104
194
0-
30
5
54
106
Alternative investments
2
0-
29
24
–
1,458
5
-
38
28
–
877
Other
3
n/a
n/a
–
86
n/a
n/a
–
188
Total
100
%
$
104
$
5,983
100
%
$
54
$
3,277
As at October 31, 2023
4
Debt
60
-
90
%
70
%
$
–
$
3,686
55
-
75
%
63
%
$
–
$
1,690
Equity
0-
21
4
72
153
0-
30
9
79
166
Alternative investments
2
0-
29
26
–
1,351
5
-
38
28
–
734
Other
3
n/a
n/a
–
159
n/a
n/a
–
130
Total
100
%
$
72
$
5,349
100
%
$
79
$
2,720
1
The principal defined benefit pension plans invest in investment vehicles which may hold shares or debt issued
by the Bank.
2
The principal defined benefit pension plans’ alternative investments are primarily private equity,
infrastructure, and real estate funds.
3
Consists mainly of amounts due to and due from brokers for securities traded but not yet settled, bond repurchase
agreements, interest and dividends receivable, and Pension
Enhancement Account assets, which are invested at the members’ discretion in certain mutual and
pooled funds.
4
Balances as at October 31, 2023 have been restated to reflect plan assets in ‘Other’
that were reported in ‘Debt’, with no impact on the measurement of the total plan assets, to reflect the
categorization of certain plan assets in the comparative period.
Public debt instruments of the Bank’s principal defined
benefit pension plans must meet or exceed
a credit rating of BBB – at the time of
purchase.
The equity portfolios of the principal defined benefit pension plans are broadly diversified primarily across small to large capitalization quality companies with no
individual holding exceeding 10% of the equity portfolio or 10% of the outstanding shares of any one company. Foreign equities are included to further diversify the
portfolio.
A maximum of
10
% of the equity portfolio can be invested
in emerging market equities.
Derivatives can be utilized by the principal
defined benefit pension plans provided
they are not used to create financial leverage,
unless the financial leverage is
for risk management purposes. The principal
defined benefit pension plans are permitted
to invest in alternative investments, such as private
equity, infrastructure
equity, and real estate.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 79
(b)
RISK MANAGEMENT PRACTICES
The Bank’s principal defined benefit pension plans
are overseen by a single retirement governance
structure established by the Human Resources
Committee of
the Bank’s Board of Directors. The governance
structure utilizes retirement governance
committees who have responsibility
to oversee plan operations and
investments, acting in a fiduciary capacity. Strategic, material
plan changes require the approval of the
Bank’s Board of Directors.
The principal defined benefit pension plans’ investments
include financial instruments which
are exposed to various risks. These risks include
market risk
(including foreign currency, interest rate, inflation, equity price, and
credit spread risks), credit risk, and liquidity
risk. Key material risks faced by defined
benefit
plans are a decline in interest rates or credit
spreads, which could increase the present
value of the projected benefit obligation by
more than the change in the
value of plan assets, and from longevity risk
(that is, lower mortality rates).
Asset-liability matching strategies are employed
to focus on obtaining an appropriate balance
between earning an adequate return
and having changes in
liability values hedged by changes in asset
values.
The principal defined benefit pension plans
manage these financial risks in accordance
with the
Pension Benefits Standards Act, 1985
, applicable regulations,
as well as the plans’ written investment policies.
Specific risk management practices monitored
for the principal defined benefit pension plans
include performance,
credit exposure, and asset mix.
(c)
OTHER SIGNIFICANT PENSION AND POST-RETIREMENT
BENEFIT PLANS
Canada Trust (CT) Pension Plan
As a result of the acquisition of CT Financial
Services Inc., the Bank sponsors a defined
benefit pension plan, which is closed
to new members, but for which
active members continue to accrue benefits.
Funding for the plan is provided by contributions
from the Bank and members of the plan.
TD Insurance Pension Plan
As a result of the acquisition of Meloche
Monnex Inc., the Bank sponsors a defined benefit
pension plan, which is closed to new
members, but for which active
members continue to accrue benefits. Funding
for the plan is provided by contributions
from the Bank.
TD Bank, N.A. Retirement Plans
TD Bank, N.A. and its subsidiaries maintain
a defined contribution 401(k) plan covering
all employees. Annual expense is equal
to the Bank’s contributions to the
plan. TD Bank, N.A. also has frozen defined
benefit pension plans covering certain legacy
TD Banknorth and TD Auto Finance (legacy
Chrysler Financial)
employees.
Government Pension Plans
The Bank also makes contributions to government
pension plans, including the Canada Pension
Plan, Quebec Pension Plan and Social Security
under the
U.S.
Federal Insurance Contribution Act.
(d)
DEFINED CONTRIBUTION PLAN EXPENSE
The following table summarizes expenses for
the Bank’s defined contribution plans.
Defined Contribution Plan Expenses
(millions of Canadian dollars)
For the years ended October 31
2024
2023
Defined contribution pension plans
1
$
310
$
250
Government pension plans
2
533
502
Total
$
843
$
752
1
Includes the TDPP DC and the TD Bank, N.A. defined contribution 401(k) plan.
2
Includes Canada Pension Plan, Quebec Pension Plan, and Social Security under the U.S.
Federal Insurance Contributions Act
.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 80
(e)
DEFINED BENEFIT PLAN FINANCIAL INFORMATION
The following table presents the financial position
of the Bank’s principal pension and post-retirement
defined benefit plans and the Bank’s other material
defined
benefit pension plans for the years ended October
31, 2024 and October 31, 2023. Other
employee defined benefit plans operated
by the Bank and certain of its
subsidiaries are not considered material
for disclosure purposes.
Employee Defined Benefit Plans’ Obligations, Assets,
Funded Status, and Expense
(millions of Canadian dollars, except as noted)
Principal
post-retirement
Principal pension plans
benefit plan
1
Other pension plans
2
2024
2023
2024
2023
2024
2023
Change in projected benefit obligation
Projected benefit obligation at beginning of year
$
6,833
$
6,763
$
352
$
372
$
2,264
$
2,339
Service cost – benefits earned
217
247
5
6
15
17
Interest cost on projected benefit obligation
381
353
20
19
128
122
Remeasurement (gain) loss – financial
1,155
(487)
40
(9)
220
(97)
Remeasurement (gain) loss – demographic
–
–
–
(18)
(1)
–
Remeasurement (gain) loss – experience
92
151
–
2
20
11
Members’ contributions
112
113
–
–
–
–
Benefits paid
(355)
(307)
(20)
(20)
(149)
(149)
Change in foreign currency exchange rate
–
–
–
–
3
21
Past service cost
3
35
–
–
–
–
–
Projected benefit obligation as at October 31
8,470
6,833
397
352
2,500
2,264
Wholly or partially funded projected benefit obligation
8,470
6,833
–
–
1,898
1,711
Unfunded projected benefit obligation
–
–
397
352
602
553
Total projected benefit obligation
as at October 31
8,470
6,833
397
352
2,500
2,264
Change in plan assets
Plan assets at fair value at beginning of year
8,220
8,481
–
–
1,816
1,894
Interest income on plan assets
464
453
–
–
102
99
Remeasurement gain (loss) – return on plan assets less
interest income
988
(698)
–
–
177
(76)
Members’ contributions
112
113
–
–
–
–
Employer’s contributions
–
187
20
20
56
33
Benefits paid
(355)
(307)
(20)
(20)
(149)
(149)
Change in foreign currency exchange rate
–
–
–
–
3
21
Defined benefit administrative expenses
(11)
(9)
–
–
(5)
(6)
Plan assets at fair value as at October 31
9,418
8,220
–
–
2,000
1,816
Excess (deficit) of plan assets at fair value over projected
benefit obligation
948
1,387
(397)
(352)
(500)
(448)
Effect of asset limitation and minimum funding requirement
–
(195)
–
–
(21)
(53)
Net defined benefit asset (liability)
948
1,192
(397)
(352)
(521)
(501)
Recorded in
Other assets in the Bank’s Consolidated Balance Sheet
948
1,192
–
–
94
62
Other liabilities in the Bank’s Consolidated Balance Sheet
–
–
(397)
(352)
(615)
(563)
Net defined benefit asset (liability)
948
1,192
(397)
(352)
(521)
(501)
Annual expense
Net employee benefits expense includes the following:
Service cost – benefits earned
217
247
5
6
15
17
Net interest cost (income) on net defined benefit liability
(asset)
(83)
(100)
20
19
26
23
Interest cost on asset limitation and minimum funding requirement
11
21
–
–
3
4
Past service cost
3
35
–
–
–
–
–
Defined benefit administrative expenses
9
10
–
–
5
5
Total
$
189
$
178
$
25
$
25
$
49
$
49
Actuarial assumptions used to determine the annual expense
Weighted-average discount rate for projected benefit
obligation
5.66
%
5.44
%
5.71
%
5.45
%
5.95
%
5.56
%
Weighted-average rate of compensation increase
2.78
%
2.88
%
3.05
%
3.25
%
1.35
%
1.42
%
Assumed life expectancy at age 65, in years
Male aged 65
23.2
23.2
23.2
23.2
21.9
21.9
Female aged 65
24.3
24.3
24.3
24.3
23.4
23.4
Male aged 45
24.1
24.1
24.1
24.1
22.6
22.6
Female aged 45
25.2
25.2
25.2
25.2
24.3
24.2
Actuarial assumptions used to determine the projected
benefit obligation as at October 31
Weighted-average discount rate for projected benefit
obligation
4.83
%
5.66
%
4.80
%
5.71
%
5.06
%
5.95
%
Weighted-average rate of compensation increase
2.78
%
2.78
%
3.00
%
3.05
%
1.37
%
1.35
%
Assumed life expectancy at age 65, in years
Male aged 65
23.2
23.2
23.2
23.2
21.9
21.9
Female aged 65
24.3
24.3
24.3
24.3
23.5
23.4
Male aged 45
24.1
24.1
24.1
24.1
22.7
22.6
Female aged 45
25.2
25.2
25.2
25.2
24.3
24.3
1
The rate of increase for health care costs for the next year used to measure the expected cost of benefits covered
for the principal post-retirement defined benefit plan is
2.59
%.
The rate
is assumed to decrease gradually to
0.89
% by the year 2040 and remain at that level thereafter (2023 –
3.24
% grading to
0.89
% by the year 2040 and remain at that level thereafter).
2
Includes Canada Trust defined benefit pension plan, TD Banknorth defined benefit pension
plan, TD Auto Finance defined benefit pension plan, TD Insurance defined benefit pension
plan, and supplemental executive defined benefit pension plans.
3
Relates to the Pension Fund Society that was modified in fiscal 2024.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 81
The Bank recognized the following amounts
on the Consolidated Balance Sheet.
Amounts Recognized in the Consolidated
Balance Sheet
(millions of Canadian dollars)
As at
October 31
October 31
2024
2023
Other assets
Principal defined benefit pension plans
$
948
$
1,192
Other defined benefit pension plans
94
62
Total
1,042
1,254
Other liabilities
Principal post-retirement defined benefit
plan
397
352
Other defined benefit pension plans
615
563
Other employee benefit plans
1
368
329
Total
1,380
1,244
Net amount recognized
$
(338)
$
10
1
Consists of other pension and other post-retirement benefit plans operated by the Bank and its subsidiaries that
are not considered material for disclosure purposes.
The following table summarizes the remeasurements
recognized in OCI for the Bank’s principal pension
and post-retirement defined benefit plans and
certain of
the Bank’s other material defined benefit pension plans.
Amounts Recognized in Other Comprehensive
Income for Remeasurement of Defined
Benefit Plans
1,2
(millions of Canadian dollars)
Principal
post-retirement
Principal pension plans
benefit plan
Other pension plans
For the years ended October 31
2024
2023
2024
2023
2024
2023
Remeasurement gains (losses) – financial
$
(1,155)
$
487
$
(40)
$
9
$
(220)
$
97
Remeasurement gains (losses) – demographic
–
–
–
18
1
–
Remeasurement gains (losses) – experience
(92)
(151)
–
(2)
(20)
(11)
Remeasurement gains (losses) – return
on
plan assets less interest income
986
(697)
–
–
177
(77)
Changes in asset limitation and minimum funding
requirement
206
210
–
–
35
12
Total
$
(55)
$
(151)
$
(40)
$
25
$
(27)
$
21
1
Amounts are presented on a pre-tax basis.
2
Excludes net remeasurement gains (losses) recognized in OCI in respect of other employee defined
benefit plans operated by the Bank and certain of its subsidiaries not considered
material for disclosure purposes totalling ($
29
) million (2023 – $
10
million).
(f)
CASH FLOWS
During the year ended October 31, 2025,
the Bank expects to contribute $
140
million to its principal defined benefit pension
plans, $
21
million to its principal post-
retirement defined benefit plan, and $
60
million to its other defined benefit pension
plans. Future contribution amounts
may change upon the Bank’s review of its
contribution levels during the year.
The following table summarizes the expected
future benefit payments for the next 10 years.
Expected Future Benefit Payments
(millions of Canadian dollars)
Principal
Principal
post-retirement
pension plans
benefit plan
Other pension
plans
Benefit payments expected to be paid
in:
2025
$
416
$
21
$
166
2026
439
22
169
2027
463
23
170
2028
487
24
172
2029
508
24
173
2030-2034
2,814
131
852
Total
$
5,127
$
245
$
1,702
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 82
(g)
MATURITY PROFILE
The breakdown of the projected benefit obligations
between active, deferred, and retired
members is as follows:
Disaggregation of Projected Benefit Obligation
(millions of Canadian dollars)
Principal
Principal
post-retirement
pension plans
benefit plan
Other pension plans
As at October 31
2024
2023
2024
2023
2024
2023
Active members
$
5,722
$
4,459
$
163
$
135
$
488
$
448
Deferred members
543
452
–
–
373
362
Retired members
2,205
1,922
234
217
1,639
1,454
Total
$
8,470
$
6,833
$
397
$
352
$
2,500
$
2,264
The weighted-average duration of the projected
benefit obligations is as follows:
Duration of Projected Benefit Obligation
(number of years)
Principal
Principal
pension
post-retirement
plans
benefit plan
Other pension plans
As at October 31
2024
2023
2024
2023
2024
2023
Weighted-average duration
14
13
13
12
11
10
(h)
SENSITIVITY ANALYSIS
The following table provides the sensitivity
of the projected benefit obligation for the
Bank’s principal defined benefit pension plans,
the principal post-retirement
defined benefit plan, and the Bank’s significant
other defined benefit pension plans to actuarial
assumptions considered significant by the Bank.
These include
discount rate, rates of compensation increase,
life expectancy, and health care cost initial trend rates, as applicable.
The sensitivity analysis provided in the
table
should be used with caution, as it is hypothetical
and the impact of changes in each significant
assumption may not be linear. For each sensitivity test,
the impact
of a reasonably possible change in a single
factor is shown with other assumptions left
unchanged. Actual experience may result in
simultaneous changes in a
number of key assumptions, which could
magnify or diminish certain sensitivities.
Sensitivity of Significant Defined Benefit
Plan Actuarial Assumptions
(millions of Canadian dollars, except
as noted)
As at
October 31, 2024
Obligation Increase (Decrease)
Principal
Principal
post-
Other
pension
retirement
pension
plans
benefit plan
plans
Impact of an absolute change in
significant actuarial assumptions
Discount rate
1% decrease in assumption
$
1,250
$
54
$
294
1% increase in assumption
(989)
(44)
(244)
Rates of compensation increase
1% decrease in assumption
(242)
–
1
(20)
1% increase in assumption
217
–
1
23
Life expectancy
1 year decrease in assumption
(150)
(11)
(75)
1 year increase in assumption
146
11
73
Health care cost initial trend rate
1% decrease in assumption
n/a
(7)
n/a
1% increase in assumption
n/a
7
n/a
1
An absolute change in this assumption is immaterial.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 83
NOTE 24: INCOME TAXES
The provision for (recovery of) income
taxes is comprised of the following:
Provision for (Recovery of) Income Taxes
(millions of Canadian dollars)
For the years ended October 31
2024
2023
Provision for (recovery of) income taxes
– Consolidated Statement of Income
Current income taxes
Provision for (recovery of) income taxes
for the current period
$
3,956
$
3,244
Adjustments in respect of prior years and
other
(204)
1,180
1
Total current income taxes
3,752
4,424
Deferred income taxes
Provision for (recovery of) deferred income
taxes related to the origination
and reversal of temporary differences
2
(1,254)
(656)
Effect of changes in tax rates
(13)
(74)
Adjustments in respect of prior years and
other
206
(576)
Total deferred income taxes
2
(1,061)
(1,306)
Total provision for (recovery of) income taxes – Consolidated Statement
of Income
2
2,691
3,118
Provision for (recovery of) income taxes
– Statement of Other Comprehensive Income
Current income taxes
767
65
Deferred income taxes
183
(452)
Total provision for (recovery of) income taxes – Statement of Other
Comprehensive Income
2
950
(387)
Income taxes – other items including
business combinations and other adjustments
Current income taxes
(38)
(188)
Deferred income taxes
2
(12)
(32)
(50)
(220)
Total provision for (recovery of) income taxes
2
3,591
2,511
Current income taxes
Federal
1,712
2,099
Provincial
1,221
1,380
Foreign
1,548
822
4,481
4,301
Deferred income taxes
Federal
2
92
(761)
Provincial
2
54
(449)
Foreign
(1,036)
(580)
(890)
(1,790)
Total provision for (recovery of) income taxes
2
$
3,591
$
2,511
1
The 2023 amount includes the $
585
million impact to provision for income taxes as discussed in the Implementation of the Canada Recovery
Dividend and Change in Corporate Tax
Rate
section below.
2
Amounts for the year ended October 31, 2023 have been restated for the adoption of IFRS 17. Refer to Note 4 for
details.
The Bank’s statutory and effective tax rate is outlined
in the following table.
Reconciliation to Statutory Income Tax Rate
(millions of Canadian dollars, except
as noted)
2024
2023
Income taxes at Canadian statutory income
tax rate
1
$
3,009
27.8
%
$
3,575
27.7
%
Increase (decrease) resulting from:
Dividends received
(28)
(0.3)
(109)
(0.8)
Rate differentials on international operations
(270)
(2.5)
(952)
(7.4)
Other – net
1
(20)
(0.2)
604
4.7
2
Provision for income taxes and effective
income tax rate
1
$
2,691
24.8
%
$
3,118
24.2
%
1
Amounts for the year ended October 31, 2023 have been restated for the adoption of IFRS 17. Refer to Note 4 for
details.
2
The 2023 amount includes the $
585
million impact to provision for income taxes as discussed in the Implementation of the Canada Recovery
Dividend and Change in Corporate Tax
Rate
section below.
Implementation of the Canada Recovery
Dividend and Change in Corporate
Tax Rate
On December 15, 2022, Bill C-32,
Fall Economic Statement Implementation
Act, 2022
, received Royal Assent. This bill enacted
the Canada Recovery Dividend
(CRD) and increased the Canadian federal
tax rate for bank and life insurer groups by
1.5
%.
The implementation of the CRD resulted
in a provision for income taxes of $
553
million and a charge to OCI of $
239
million, recognized in the first quarter of
2023.
The increase in the Canadian federal tax rate
of
1.5
%, prorated for the first taxation year that ends
after April 7, 2022, resulted in a provision
for income taxes of
$
82
million and a tax benefit of $
75
million in OCI related to fiscal 2022, recognized
in the first quarter of 2023. The Bank also
remeasured certain Canadian
deferred tax assets and liabilities for
the increase in tax rate, which resulted in an
increase in net deferred tax assets of
$
50
million, which was recorded in
provision for income taxes.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 84
International Tax Reform – Pillar Two Global Minimum Tax
On December 20, 2021, the OECD published
Pillar Two model rules as part of its efforts toward international
tax reform. The Pillar Two model rules provide for the
implementation of a 15% global minimum
tax for large multinational enterprises,
which is to be applied on a jurisdiction-by-jurisdiction
basis. Pillar Two legislation
was enacted in Canada on June 20, 2024
under Bill C-69, which includes the
Global Minimum Tax Act
addressing the Pillar Two model rules. The rules are
effective for the Bank for the fiscal year beginning
on November 1, 2024. The
Global Minimum Tax Act
may result in a tax on future dispositions
of shares in
Charles Schwab, depending on the accounting
gain at that time and its impact on effective tax
rates. The tax could be up to 15% of
the accounting gain and would
be payable in Canada. Also, similar legislation
has passed in other jurisdictions in which
the Bank operates and will result in additional
taxes being paid in those
countries. The Bank estimates that its effective
tax rate will increase by
0.25
%-
0.50
% as a result of these additional annual taxes,
with the bulk of the additional
taxes arising in Ireland due to its statutory corporate
tax rate of
12.5
%.
Other Tax Matters
The Canada Revenue Agency (CRA), Revenu
Québec Agency (RQA) and Alberta Tax and Revenue Administration (ATRA) are denying certain
dividend and
interest deductions claimed by the Bank.
During the year ended October 31, 2024,
the RQA reassessed the Bank for $
1
million of additional income tax and
interest in respect of its 2018 taxation year. As at October 31,
2024, the CRA has reassessed the
Bank for $
1,661
million for the years 2011 to 2018, the RQA has
reassessed the Bank for $
52
million for the years 2011 to 2018, and the ATRA has reassessed the Bank for $
71
million for the years 2011 to 2018. In total, the
Bank has been reassessed for $
1,784
million of income tax and interest. The Bank
expects to continue to be reassessed
for open years. The Bank is of the view
that its tax filing positions were appropriate
and filed a Notice of Appeal with the
Tax Court of Canada on March 21, 2023.
Deferred tax assets and liabilities comprise of
the following:
Deferred Tax Assets and Liabilities
(millions of Canadian dollars)
As at
October 31
October 31
2024
2023
Deferred tax assets
Allowance for credit losses
$
1,592
$
1,466
Trading loans
31
30
Employee benefits
1,036
867
Losses available for carry forward
45
127
Tax credits
89
46
Land, buildings, equipment, other depreciable
assets, and right-of-use assets
366
471
Securities
589
314
Deferred income
353
–
Intangibles
92
–
Other
1
727
1,006
Total deferred tax assets
1
4,920
4,327
Deferred tax liabilities
Pensions
81
158
Deferred expenses
–
238
Intangibles
–
10
Goodwill
202
174
Total deferred tax liabilities
283
580
Net deferred tax assets
1
4,637
3,747
Reflected on the Consolidated Balance Sheet
as follows:
Deferred tax assets
1
4,937
3,951
Deferred tax liabilities
2
300
204
Net deferred tax assets
1
$
4,637
$
3,747
1
Balances as at October 31, 2023 have been restated for the adoption of IFRS 17. Refer to Note 4 for details.
2
Included in Other liabilities on the Consolidated Balance Sheet.
The amount of temporary differences, unused tax
losses, and unused tax credits for which
no deferred tax asset is recognized on the
Consolidated Balance Sheet
was $
658
million as at October 31, 2024 (October 31,
2023 – $
663
million), of which $
2
million (October 31, 2023 – $
11
million) is scheduled to expire within five
years.
Certain taxable temporary differences associated
with the Bank’s investments in subsidiaries, branches
and associates, and interests in joint ventures
did not
result in the recognition of deferred tax liabilities
as at October 31, 2024. The total amount
of these temporary differences was $
72
billion as at October 31, 2024
(October 31, 2023 – $
88
billion).
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 85
The movement in the net deferred tax asset
for the years ended October 31, 2024 and
October 31, 2023, was as follows:
Deferred Income Tax Expense (Recovery)
(millions of Canadian dollars)
For the years ended October 31
2024
2023
Consolidated
Other
Business
Consolidated
Other
Business
statement of
comprehensive
combinations
statement of
comprehensive
combinations
income
income
and other
Total
income
income
and other
Total
Deferred income tax expense
(recovery)
Allowance for credit losses
$
(126)
$
–
$
–
$
(126)
$
(127)
$
–
$
–
$
(127)
Trading loans
(1)
–
–
(1)
(2)
–
–
(2)
Employee benefits
(154)
(15)
–
(169)
(9)
12
(113)
(110)
Losses available for carry
forward
82
–
–
82
(53)
–
(12)
(65)
Tax credits
(43)
–
–
(43)
(5)
–
–
(5)
Land, buildings, equipment, other depreciable
assets, and right-of-use assets
105
–
–
105
(194)
–
3
(191)
Other deferred tax assets
1
291
–
(12)
279
(754)
–
5
(749)
Securities
(494)
219
–
(275)
(66)
(443)
–
(509)
Pensions
(56)
(21)
–
(77)
(5)
(21)
–
(26)
Deferred (income) expenses
(591)
–
–
(591)
11
–
–
11
Intangibles
(102)
–
–
(102)
(122)
–
85
(37)
Goodwill
28
–
–
28
20
–
–
20
Total deferred income tax
expense (recovery)
1
$
(1,061)
$
183
$
(12)
$
(890)
$
(1,306)
$
(452)
$
(32)
$
(1,790)
1
Amounts for the year ended October 31, 2023
have been restated for the adoption of IFRS 17. Refer to Note 4 for details.
NOTE 25: 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 years
ended October 31, 2024 and October 31, 2023.
Basic and Diluted Earnings Per Share
1
(millions of Canadian dollars, except
as noted)
For the years ended October 31
2024
2023
Basic earnings per share
Net income attributable to common shareholders
$
8,316
$
10,071
Weighted-average number of common shares outstanding
(millions)
1,758.8
1,822.5
Basic earnings per share
(Canadian dollars)
$
4.73
$
5.53
Diluted earnings per share
Net income attributable to common shareholders
$
8,316
$
10,071
Net income available to common shareholders
including impact of dilutive securities
8,316
10,071
Weighted-average number of common shares outstanding
(millions)
1,758.8
1,822.5
Effect of dilutive securities
Stock options potentially exercisable (millions)
2
1.2
1.9
Weighted-average number of common shares outstanding
– diluted (millions)
1,760.0
1,824.4
Diluted earnings per share
(Canadian dollars)
2
$
4.72
$
5.52
1
Certain amounts for the year ended October 31, 2023 have been restated for the adoption of IFRS 17. Refer to
Note 4 for details.
2
For the year ended October 31, 2024, the computation of diluted earnings per share excluded average options
outstanding of
6.9
million with an exercise price of $
89.49
as the option
price was greater than the average market price of the Bank’s common shares. For the
year ended October 31, 2023, the computation of diluted earnings per share excluded average
options outstanding of
4.6
million with an exercise price of $
93.09
, as the option price was greater than the average market price of the Bank’s common
shares.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 86
NOTE 26: PROVISIONS, CONTINGENT LIABILITIES,
COMMITMENTS, GUARANTEES, PLEDGED
ASSETS, AND COLLATERAL
(a)
PROVISIONS
The following table summarizes
the Bank’s provisions recorded in other liabilities.
Provisions
(millions of Canadian dollars)
Legal, Regulatory,
Restructuring
and Other
1
Total
Balance as at November 1, 2023
$
192
$
2,180
$
2,372
Additions
590
4,699
5,289
Amounts used
(525)
(4,228)
(4,753)
Release of unused amounts
(24)
(8)
(32)
Foreign currency translation adjustments
and other
3
(247)
(244)
Balance as at October 31, 2024, before
allowance for
credit losses for off-balance sheet instruments
$
236
$
2,396
$
2,632
Add: Allowance for credit losses for off-balance sheet
instruments
2
1,043
Balance as at October 31, 2024
$
3,675
1
The Bank recognized provisions totalling US$
3.088
billion ($
4.233
billion) for the global resolution of the investigations into the Bank’s U.S. Bank Secrecy Act
(BSA)/Anti-Money
Laundering (AML) program during the year ended October 31, 2024. The balance of the provisions as at October
31, 2024 is US$
1.43
billion ($
1.99
billion).
2
Refer to Note 8 for further details.
(b)
RESTRUCTURING
The Bank continued to undertake certain
measures during fiscal 2024 to reduce its cost
base and achieve greater efficiency. In connection with these
measures,
the Bank incurred $
566
million of restructuring charges during the
year ended October 31, 2024 (October 31, 2023
– $
363
million). The restructuring costs
primarily relate to: (i) employee severance
and other personnel-related costs recorded
as provisions and (ii) real estate optimization
mainly recorded as a reduction
to buildings (refer to Note 15). This restructuring
program concluded in the third quarter
of 2024.
(c)
LEGAL AND REGULATORY MATTERS
In the ordinary course of business, the Bank
and its subsidiaries are involved in various
legal and regulatory actions, including but
not limited to civil claims and
lawsuits, regulatory examinations, investigations,
audits, and requests for information by
governmental, regulatory and self-regulatory
agencies and law
enforcement authorities in various jurisdictions,
in respect of our businesses and compliance
programs. The Bank establishes 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. However, the Bank does
not disclose the
specific possible loss associated with each underlying
matter given the substantial uncertainty associated
with each possible loss as described below and
the
negative consequences to the Bank’s resolution
of the matters that comprise the
RPL should individual possible losses be disclosed.
As at October 31, 2024, the
Bank’s RPL is from
zero
to approximately $
625
million (October 31, 2023 – from
zero
to approximately $
1.44
billion). 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 actual losses to be significantly different
from its provisions or RPL. 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 indeterminate damages.
On October 10, 2024, the Bank announced
that, following active cooperation and engagement
with authorities and regulators, it reached a resolution
of
previously disclosed investigations related
to its U.S. BSA and AML compliance programs.
The Bank and certain of its U.S. subsidiaries consented
to orders with
the Office of the Comptroller of the Currency (OCC),
the Federal Reserve Board, and the Financial
Crimes Enforcement Network (FinCEN) and entered
into plea
agreements with the Department of Justice (DOJ),
Criminal Division, Money Laundering and Asset
Recovery Section and the United States
Attorney’s Office for
the District of New Jersey. Details of the resolution include: (i)
a total payment of US$
3.088
billion ($
4.233
billion); (ii) TD Bank, N.A. pleading
guilty to one violation
of conspiring to willfully fail to maintain an adequate
AML program, knowingly fail to file accurate
currency transaction reports (CTRs) and money
laundering and
TD Bank US Holding Company (TDBUSH)
pleading guilty to two violations of failing
to maintain an adequate AML program and
failing to file accurate CTRs; (iii)
requirements to remediate the Bank’s U.S. BSA/AML
program, broadly aligned to its existing
remediation program, which requirements
the Bank has begun to
address; (iv) a requirement to prioritize the
funding and staffing of the remediation, which includes
Board certifications for dividend distributions
from certain of the
Bank’s U.S. subsidiaries to the Bank; (v) formal oversight
of the U.S. BSA/AML remediation
through an independent compliance monitorship;
(vi) prohibition
against the average combined total assets
of TD’s two U.S. bank subsidiaries (TD Bank,
NA and TD Bank USA, NA) (collectively, the “U.S. Bank”) exceeding
US$
434
billion (representing the combined total
assets of the U.S. Bank as at September
30, 2024), and if the U.S. Bank does not achieve
compliance with all
actionable articles in the OCC consent orders
(and for each successive year that the
U.S. Bank remains non-compliant),
the OCC may require the U.S. Bank to
further reduce total consolidated assets by up
to
7
%; (vii) the U.S. Bank being subject
to OCC supervisory approval processes
for any additions of new bank
products, services, markets, and stores
prior to the OCC’s acceptance of the
U.S. Bank’s improved AML policies and procedures,
to ensure the AML risk of new
initiatives is appropriately considered and
mitigated; (viii) requirements for the Bank
and TD Group Holdings, LLC (TDGUS)
to retain a third party to assess the
effectiveness of the corporate governance and
U.S. Board and management structure and composition
to adequately oversee U.S. operations; (ix)
requirements to
comply with the terms of the plea agreements
with the DOJ during a five-year term of probation
(which could be extended as a result of
the Bank failing to
complete the compliance undertakings, failing
to cooperate or to report alleged misconduct
as required, or committing additional
crimes); (x) an ongoing obligation
to cooperate with DOJ investigations;
and (xi) an ongoing obligation to report evidence
or allegations of violations by the Bank, its
affiliates, or their employees that
may be a violation of U.S. federal law.
The Bank, together with some former or
current directors, officers and employees, have been
named as defendants in proposed class
action lawsuits in the
United States and Canada purporting
to be brought on behalf of TD shareholders
alleging, among other things, that a
decline in the price of TD’s shares was the
result of misleading disclosures with
respect to the Bank’s AML program and/or the potential
outcomes of the government agencies’ or regulators’
investigations.
We anticipate that additional lawsuits may be
filed and that some of these lawsuits may
be consolidated into one or more actions. All
of the proceedings are still in
early stages and none have been certified to
proceed as a class action. Losses or damages
cannot be estimated at this time.
The Bank also has been named as defendant
in a purported class action lawsuit in
the United States purporting to be brought
on behalf of First Horizon
shareholders alleging that a decline in the price
of First Horizon shares was the result
of alleged misleading disclosures TD
made with respect to TD’s U.S. AML
program and its effect on the Bank’s contemplated
merger with First Horizon. These proceedings
are still in early stages and have not been
certified to proceed as
a class action.
Losses or damages cannot be estimated at
this time.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 87
The Bank is a defendant in Canada and/or
the United States in a number of matters brought
by customers, including class actions,
alleging claims in connection
with various fees, practices and credit decisions.
The cases are in various stages of maturity, with a number of
cases not yet certified.
On September 30, 2024, TD Securities (USA)
LLC (TDS-US) entered into a Deferred
Prosecution Agreement (DPA) with the U.S. DOJ related to
the actions of
a former TDS trader. Pursuant to the terms of the DPA, TDS-US agreed to pay
total monetary sanctions of approximately
US$
15.5
million, which consists of a
criminal penalty, forfeiture and victim compensation. TDS-US and,
in certain instances, TD Group US Holdings
LLC, further agreed to abide by certain
cooperation, reporting and compliance obligations
in connection with the DPA.
These include, but are not limited to: (i)
an ongoing obligation to cooperate with
DOJ investigations; (ii) an ongoing obligation
to report evidence or allegations of violations
by TDS-US of certain federal statutes; (iii)
the implementation and
maintenance of a corporate compliance program
that meets certain enumerated standards;
and (iv) an ongoing obligation to regularly
report to the DOJ on its
efforts to bolster its compliance program. TDS-US
also resolved investigations by the U.S.
Securities and Exchange Commission
(SEC) and the Financial Industry
Regulatory Authority (FINRA) relating
to the actions of the former TDS-US trader. As part of the resolutions,
TDS-US agreed to pay approximately US$
7
million in
total monetary sanctions to the SEC
and US$
6
million to FINRA.
The Bank was named as a defendant in
Rotstain v. Trustmark National Bank, et al
., a putative class action lawsuit in the
United States District Court for the
Northern District of Texas related to a US$
7.2
billion Ponzi scheme perpetrated by
R. Allen Stanford, the owner of Stanford International
Bank, Limited (SIBL), an
offshore bank based in Antigua. Plaintiffs purported to represent
a class of investors in SIBL issued
certificates of deposit.
The Bank provided certain
correspondent banking services to SIBL.
Plaintiffs alleged that the Bank and four other banks
aided and abetted Mr. Stanford and that the bank defendants
received fraudulent transfers from SIBL by
collecting fees for providing certain services.
The district court denied Plaintiffs’
motion for class certification, which the
Fifth Circuit declined to review on appeal.
The Official Stanford Investors Committee (OSIC),
a court-approved committee representing investors,
received
permission to intervene in the lawsuit and brought
similar claims against all the bank defendants.
In fiscal year 2023, the Bank reached a settlement
agreement
pursuant to which the Bank agreed to pay
US$
1.205
billion to the U.S. Receiver to resolve all
claims against the Bank arising from or related
to R. Allen Stanford,
including the claims asserted in the
Rotstain et al. v. Trustmark National Bank et al
. and
Smith et al. v. Independent Bank
actions. Under the terms of the
agreement, all involved parties have agreed
to a bar order dismissing and releasing all
current or future claims arising from or
related to R. Allen Stanford.
In
August 2023, R. Allen Stanford filed an appeal
of the order approving the settlement,
which the Fifth Circuit denied. On
May 31, 2024, the claims against the Bank
were dismissed with prejudice in
Rotstain v. Trustmark National Bank, et al
. On June 3, 2024, the United States Supreme
Court denied R. Allen Stanford’s request
for rehearing regarding the denial of his petition
for a writ of certiorari in which he challenged
the settlement in this action. This brings to
a close the Stanford
litigation in the United States.
In the third quarter of 2024, the Bank and
certain of its subsidiaries resolved the investigations
by the SEC and the Commodity Futures
Trading Commission
(CFTC) concerning compliance with records preservation
requirements relating to business
communications exchanged on unapproved
electronic channels. The
Bank and its subsidiaries in the aggregate paid
penalties totalling US$
124.5
million, for which the Bank was fully provisioned,
and agreed to various other
customary terms similar to those imposed on
other financial institutions that have
resolved similar investigations.
In the second quarter of 2024, the Bank and
certain of its subsidiaries reached a settlement
in principle relating to a civil matter, pursuant to which
the Bank
recorded a provision of $
274
million.
Refer to Note 24 for disclosures related
to tax matters.
(d)
COMMITMENTS
Credit-related Arrangements
In the normal course of business, the Bank
enters into various commitments and
contingent liability contracts. The primary purpose
of these contracts is to make
funds available for the financing needs of
customers. The Bank’s policy for requiring
collateral security with respect to these contracts
and the types of collateral
security held is generally the same as for loans
made by the Bank.
Financial and performance standby letters
of credit represent irrevocable assurances
that the Bank will make payments in the event
that a customer cannot
meet its obligations to third parties and they
carry the same credit risk, recourse,
and collateral security requirements as loans
extended to customers.
Performance standby letters of credit are
considered non-financial guarantees as payment
does not depend on the occurrence of
a credit event and is generally
related to a non-financial trigger event.
Documentary and commercial letters of
credit are instruments issued on behalf
of a customer authorizing a third party to
draw drafts on the Bank up to a certain
amount subject to specific terms and conditions.
The Bank is at risk for any drafts drawn
that are not ultimately settled by the customer, and the amounts
are
collateralized by the assets to which
they relate.
Commitments to extend credit represent unutilized
portions of authorizations to extend credit
in the form of loans and customers’ liability
under acceptances. A
discussion on the types of liquidity facilities
the Bank provides to its securitization
conduits is included in Note 10.
The values of credit instruments reported as
follows represent the maximum amount
of additional credit that the Bank could
be obligated to extend should
contracts be fully utilized.
Credit Instruments
(millions of Canadian dollars)
As at
October 31
October 31
2024
2023
Financial and performance standby letters
of credit
$
44,463
$
39,310
Documentary and commercial letters
of credit
337
167
Commitments to extend credit
1
Original term-to-maturity of one year or less
76,060
69,686
Original term-to-maturity of more than one
year
245,846
230,565
Total
$
366,706
$
339,728
1
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.
In addition, as at October 31, 2024, the Bank
is committed to fund $
594
million (October 31, 2023 – $
554
million) of private equity investments.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 88
Long-term Commitments or Leases
The Bank has obligations under long-term non-cancellable
leases for premises and equipment.
The maturity profile for undiscounted lease liabilities
is $
40
million
for 2025, $
119
million for 2026, $
216
million for 2027, $
225
million for 2028, $
469
million for 2029, $
5,330
million for 2030 and thereafter. Total lease payments,
including $
19
million (October 31, 2023 – $
10
million) paid for short-term and low-value asset
leases, for the year ended October 31,
2024, were $
829
million
(October 31, 2023 – $
780
million).
(e)
ASSETS SOLD WITH RECOURSE
In connection with its securitization activities,
the Bank typically makes customary representations
and warranties about the underlying assets
which may result in
an obligation to repurchase the assets. These
representations and warranties attest that
the Bank, as the seller, has executed the sale of assets in
good faith, and
in compliance with relevant laws and contractual
requirements. In the event that they do not
meet these criteria, the loans may be required
to be repurchased by
the Bank.
(f)
GUARANTEES
In addition to financial and performance
standby letters of credit, the following types
of transactions represent the principal guarantees
that the Bank has entered
into.
Credit Enhancements
The Bank guarantees payments to counterparties
in the event that third-party credit enhancements
supporting asset pools are insufficient.
Indemnification Agreements
In the normal course of operations, the Bank
provides indemnification agreements
to various counterparties in transactions such as
service agreements, leasing
transactions, and agreements relating
to acquisitions and dispositions. Under these agreements,
the Bank is required to compensate counterparties
for costs
incurred as a result of various contingencies
such as changes in laws and regulations
and litigation claims. The nature of certain
indemnification agreements
prevent the Bank from making a reasonable
estimate of the maximum potential amount
that the Bank would be required to pay such
counterparties.
The Bank also indemnifies directors, officers,
and other persons, to the extent permitted by
law, against certain claims that may be made against
them as a
result of their services to the Bank or, at the Bank’s request, to
another entity.
(g)
PLEDGED ASSETS AND COLLATERAL
In the ordinary course of business, securities
and other assets are pledged against liabilities
or contingent liabilities, including repurchase
agreements,
securitization liabilities, covered bonds,
obligations related to securities sold
short, and securities borrowing transactions.
Assets are also deposited for the
purposes of participation in clearing and payment
systems and depositories or to have access
to the facilities of central banks in foreign jurisdictions,
or as security
for contract settlements with derivative exchanges
or other derivative counterparties.
Details of assets pledged against liabilities
and collateral assets held or repledged are
shown in the following table:
Sources and Uses of Pledged Assets
and Collateral
(millions of Canadian dollars)
As at
October 31
October 31
2024
2023
Sources of pledged assets and collateral
Bank assets
Interest-bearing deposits with banks
$
6,161
$
6,166
Loans
205,337
130,829
Securities
1
240,425
218,981
Other assets
238
696
452,161
356,672
Third-party assets
1,2
Collateral received and available for sale or
repledging
364,178
355,147
Less: Collateral not repledged
(73,996)
(76,265)
290,182
278,882
742,343
635,554
Uses of pledged assets and collateral
3
Derivatives
15,964
14,696
Obligations related to securities sold
under repurchase agreements
1
186,777
162,284
Securities borrowing and lending
1
137,292
126,031
Obligations related to securities sold
short
1
34,336
39,436
Securitization
36,806
29,135
Covered bond
76,698
55,719
Clearing systems, payment systems, and depositories
10,540
11,863
Foreign governments and central banks
119,522
109,878
Other
124,408
86,512
Total
1
$
742,343
$
635,554
1
Balances as at October 31, 2023 have been restated, with no impact on the measurement of the related financial
instruments in the Bank’s Consolidated Financial Statements, to reflect
the categorization of certain pledged assets in the comparative period.
2
Includes collateral received from reverse repurchase agreements, securities lending,
margin loans, and other client activity.
3
Includes $
63.7
billion of on-balance sheet assets that the Bank has pledged and that the counterparty can subsequently repledge
as at October 31, 2024 (October 31, 2023 –
$
52.3
billion).
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 89
NOTE 27: RELATED PARTY TRANSACTIONS
Parties are considered to be related if one party
has the ability to directly or indirectly
control the other party or exercise significant influence
over the other party in
making financial or operational decisions.
The Bank’s related parties include key management
personnel, their close family members and
their related entities,
subsidiaries, associates, joint ventures, and
post-employment benefit plans for the Bank’s employees.
TRANSACTIONS WITH KEY MANAGEMENT
PERSONNEL, THEIR CLOSE FAMILY MEMBERS,
AND THEIR RELATED ENTITIES
Key management personnel are those persons
having authority and responsibility
for planning, directing,
and controlling the activities of the Bank, directly
or
indirectly. The Bank considers certain of its officers and directors to be
key management personnel. The Bank
makes loans to its key management personnel,
their
close family members,
and their related entities on market
terms and conditions with the exception of
banking products and services for key
management
personnel, which are subject to approved policy
guidelines that govern all employees.
As at October 31, 2024, $
14
million (October 31, 2023 – $
105
million) of related party loans were outstanding
from key management personnel, their
close family
members,
and their related entities. This amount
also includes balances from certain retired
key management personnel.
COMPENSATION
The remuneration of key management personnel
was as follows:
Compensation
(millions of Canadian dollars)
For the years ended October 31
2024
2023
Short-term employee benefits
$
30
$
33
Post-employment benefits
1
1
Share-based payments
23
38
Total
$
54
$
72
In addition, the Bank offers deferred share and
other plans to non-employee directors, executives,
and certain other key employees. Refer
to Note 22 for further
details.
In the ordinary course of business, the Bank
also provides various banking services to associated
and other related corporations on
terms similar to those
offered to non-related parties.
TRANSACTIONS WITH SUBSIDIARIES,
SCHWAB, AND SYMCOR INC.
Transactions between the Bank and its subsidiaries
meet the definition of related party transactions.
If these transactions are eliminated on
consolidation, they are
not disclosed as related party transactions.
Transactions between the Bank, Schwab, and Symcor
Inc. (Symcor) also qualify as related party
transactions. There were no significant transactions
between
the Bank, Schwab, and Symcor during the
year ended October 31, 2024, other than as
described in the following sections and in
Note 12.
i) TRANSACTIONS WITH SCHWAB
A description of significant transactions
between the Bank and its affiliates with Schwab
is set forth below.
Insured Deposit Account Agreement
During the year ended October 31, 2024, Schwab
exercised its option to buy down the remaining
$
0.7
billion (US$
0.5
billion) of the US$
5
billion FROA permitted
and paid $
32
million (US$
23
million) in termination fees to the Bank in
accordance with the 2023 Schwab IDA Agreement.
During the year ended October 31,
2023, Schwab exercised its option to buy
down an initial $
6.1
billion (US$
4.5
billion) of FROA and paid $
305
million (US$
227
million) in termination fees to the
Bank in accordance with the 2023 Schwab
IDA Agreement.
As at October 31, 2024, deposits under
the Schwab IDA Agreement were $
117
billion (US$
84
billion) (October 31, 2023 – $
133
billion (US$
96
billion)). The
Bank paid fees, net of the termination fees
received from Schwab, of $
908
million during the year ended October 31, 2024
(October 31, 2023 – $
932
million) to
Schwab related to sweep deposit accounts.
The amount paid by the Bank is based on
the average insured deposit balance of $
121
billion for the year ended
October 31, 2024 (October 31, 2023 – $
147
billion) and yields based on agreed upon
market benchmarks, less the actual interest
paid to clients of Schwab.
As at October 31, 2024, amounts receivable
from Schwab were $
12
million (October 31, 2023 – $
38
million). As at October 31, 2024, amounts payable
to
Schwab were $
42
million (October 31, 2023 – $
24
million).
ii) TRANSACTIONS WITH SYMCOR
The Bank has
one-third ownership
in Symcor, a Canadian provider of business process
outsourcing services offering a diverse portfolio
of integrated solutions in
item processing, statement processing and
production, and cash management
services. The Bank accounts for Symcor’s
results using the equity method of
accounting. During the year ended October 31,
2024, the Bank paid $
88
million (October 31, 2023 – $
81
million) for these services. As at October
31, 2024, the
amount payable to Symcor was $
6
million (October 31, 2023 – $
12
million).
The Bank and two other shareholder banks
have also provided a $
100
million unsecured loan facility to Symcor
which was undrawn as at October 31, 2024 and
October 31, 2023.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 90
NOTE 28: SEGMENTED INFORMATION
For management reporting purposes, the Bank
reports its results under four key
business segments: Canadian Personal and
Commercial Banking,
U.S. Retail,
Wealth Management and Insurance,
and Wholesale Banking. The Bank’s other activities
are grouped into the Corporate segment.
Canadian Personal and Commercial Banking
provides financial products and services
to personal, small business and commercial
customers, and includes TD
Auto Finance Canada. U.S. Retail is comprised
of personal and business banking in the
U.S., TD Auto Finance U.S., the U.S.
wealth business, as well as the
Bank’s equity investment in Schwab. Wealth Management
and Insurance includes the Canadian
wealth business which provides investment products
and services
to institutional and retail investors, and the insurance
business which provides property and casualty
insurance, as well as life and health insurance
products to
customers across Canada. Effective fiscal 2024,
certain asset management businesses
which were previously reported in the
U.S. Retail segment are now
reported in the Wealth Management and Insurance
segment. Comparative period information has
been adjusted to reflect the new alignment.
Wholesale Banking
provides a wide range of capital markets,
investment banking, and corporate banking
products and services, including underwriting
and distribution of new debt
and equity issues, providing advice on strategic
acquisitions and divestitures, and
meeting the daily trading, funding, and investment
needs of the Bank’s clients.
The Corporate segment includes the effects of
certain asset securitization programs,
treasury management, elimination of taxable
equivalent adjustments and
other management reclassifications, corporate
level tax items, and residual unallocated
revenue and expenses.
The results of each business segment reflect
revenue, expenses, and assets generated
by the businesses in that segment.
Due to the complexity of the Bank,
its management reporting model uses various
estimates, assumptions, allocations, and
risk-based methodologies for funds
transfer pricing, inter-segment
revenue, income tax rates, capital, indirect
expenses and cost transfers to
measure business segment results. The basis
of allocation and methodologies are
reviewed periodically to align with management’s
evaluation of the Bank’s business segments.
Transfer pricing of funds is generally applied at market rates.
Intersegment revenue is negotiated between
each business segment and approximates
the fair value of the services provided. Income
tax provision or recovery is
generally applied to each segment based on
a statutory tax rate and may be adjusted
for items and activities unique to each segment.
Amortization of intangibles
acquired as a result of business combinations
is included in the Corporate segment. Accordingly, net income for
business segments is presented before
amortization of these intangibles.
Non-interest income is earned by the Bank
primarily through investment and
securities services, credit fees, trading
income, service charges, card services,
and
insurance revenues. Revenues from
investment and securities services are earned
predominantly in the Wealth Management
and Insurance segment. Revenues
from credit fees are primarily earned
in the Wholesale Banking and Canadian Personal
and Commercial Banking segments.
Trading income is earned within
Wholesale Banking. Both service charges
and card services revenue are mainly earned
in the U.S. Retail and Canadian Personal
and Commercial Banking
segments. Insurance revenue is earned in
the Wealth Management and Insurance 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, primarily 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 adjustment reflected in Wholesale
Banking is reversed in the
Corporate segment.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 91
The following table summarizes the segment
results for the years ended October 31, 2024
and October 31, 2023.
Results by Business Segment
1,2
(millions of Canadian dollars)
For the years ended
October 31, 2024
Canadian
Personal and
Wealth
Commercial
U.S.
Management
Wholesale
Banking
Retail
and Insurance
Banking
3
Corporate
3
Total
Net interest income (loss)
$
15,697
$
11,600
$
1,226
$
582
$
1,367
$
30,472
Non-interest income (loss)
4,093
2,113
12,309
6,704
1,532
26,751
Total revenue
19,790
13,713
13,535
7,286
2,899
57,223
Provision for (recovery of)
credit losses
1,755
1,532
–
317
649
4,253
Insurance service expenses
–
–
6,647
–
–
6,647
Non-interest expenses
8,010
12,615
4,285
5,576
5,007
35,493
Income (loss) before income taxes
and share of net income from
investment in Schwab
10,025
(434)
2,603
1,393
(2,757)
10,830
Provision for (recovery of)
income taxes
2,806
200
648
275
(1,238)
2,691
Share of net income from
investment in Schwab
4,5
–
709
–
–
(6)
703
Net income (loss)
$
7,219
$
75
$
1,955
$
1,118
$
(1,525)
$
8,842
October 31, 2023
Net interest income (loss)
$
14,192
$
12,029
$
1,064
$
1,538
$
1,121
$
29,944
Non-interest income (loss)
4,125
2,261
10,566
4,280
(486)
20,746
Total revenue
18,317
14,290
11,630
5,818
635
50,690
Provision for (recovery of)
credit losses
1,343
928
1
126
535
2,933
Insurance service expenses
–
–
5,014
–
–
5,014
Non-interest expenses
7,700
8,079
3,908
4,760
5,408
29,855
Income (loss) before income taxes
and share of net income
from investment in Schwab
9,274
5,283
2,707
932
(5,308)
12,888
Provision for (recovery of)
income taxes
2,586
658
706
162
(994)
3,118
Share of net income from
investment in Schwab
4,5
–
939
–
–
(75)
864
Net income (loss)
$
6,688
$
5,564
$
2,001
$
770
$
(4,389)
$
10,634
1
Certain amounts for the year ended October 31, 2023 have been restated for the adoption of IFRS 17. Refer to
Note 4 for details.
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 TEB. The TEB adjustment reflected in Wholesale
Banking is reversed in the Corporate segment.
4
The after-tax amounts for amortization of acquired intangibles, the Bank’s share of acquisition and integration
charges associated with Schwab’s acquisition of TD Ameritrade, the Bank’s
share of Schwab’s restructuring charges, and the Bank’s share of Schwab’s Federal
Deposit Insurance Corporation special assessment charge are recorded in the Corporate segment.
5
The Bank’s share of Schwab’s earnings is reported with a one-month lag. Refer to Note
12 for further details.
Total Assets by Business Segment
1
(millions of Canadian dollars)
Canadian
Personal and
Wealth
Commercial
Management
Wholesale
Banking
U.S. Retail
and Insurance
Banking
Corporate
Total
As at October 31, 2024
Total assets
$
584,468
$
606,572
$
23,217
$
686,795
$
160,699
$
2,061,751
As at October 31, 2023
Total assets
$
560,303
$
561,350
$
22,293
$
673,398
$
137,795
$
1,955,139
1
Certain balances as at October 31, 2023 have been restated for the adoption of IFRS 17 (refer to Note 4 for details)
and restated to reflect assets in the U.S. Retail Segment that were
reported in the Corporate Segment (with no impact on the measurement of the related total assets in the Bank’s
Consolidated Financial Statements).
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 92
RESULTS BY GEOGRAPHY
For reporting of geographic results, segments
are grouped into Canada, United States,
and Other international. Transactions are primarily
recorded in the location
responsible for recording the revenue or assets.
This location frequently corresponds
with the location of the legal entity through which
the business is conducted
and the location of the customer.
Results by Geography
1
(millions of Canadian dollars)
For the years ended
As at
October 31
October 31
2024
2024
Total revenue
Total assets
Canada
$
31,453
$
1,146,243
United States
22,097
749,353
Other international
3,673
166,155
Total
$
57,223
$
2,061,751
2023
2023
Canada
$
29,159
$
1,043,638
United States
18,267
763,332
Other international
3,264
148,169
Total
$
50,690
$
1,955,139
1
Certain amounts have been restated for the adoption of IFRS 17 as at and for the year
ended October 31, 2023.
Refer to Note 4 for details.
NOTE 29: INTEREST INCOME AND EXPENSE
The following tables present interest income
and interest expense by basis of accounting
measurement.
Interest Income
(millions of Canadian dollars)
For the years ended October 31
2024
2023
Measured at amortized cost
1
$
80,581
$
69,088
Measured at FVOCI – Debt instruments
1
3,743
3,315
84,324
72,403
Measured or designated at FVTPL
8,742
7,980
Measured at FVOCI – Equity instruments
323
291
Total
$
93,389
$
80,674
1
Interest income is calculated using EIRM.
Interest Expense
(millions of Canadian dollars)
For the years ended October 31
2024
2023
Measured at amortized cost
1,2
$
50,382
$
41,059
Measured or designated at FVTPL
12,535
9,671
Total
$
62,917
$
50,730
1
Interest expense is calculated using EIRM.
2
Includes interest expense on lease liabilities for the year ended October 31, 2024 of $
151
million (October 31, 2023 – $
135
million).
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 93
NOTE 30: CREDIT RISK
Concentration of credit risk exists where
a number of borrowers or counterparties are
engaged in similar activities, are located
in the same geographic area or
have comparable economic characteristics.
Their ability to meet contractual obligations
may be similarly affected by changing economic, political
or other
conditions. The Bank’s portfolio could be sensitive
to changing conditions in particular geographic
regions.
Concentration of Credit Risk
(millions of Canadian dollars,
As at
except as noted)
Loans and customers’ liability
Derivative financial
under acceptances
1,2
Credit Instruments
3,4
instruments
5,6
October 31
October 31
October 31
October 31
October 31
October 31
2024
2023
2024
2023
2024
2023
Canada
66
%
66
%
32
%
30
%
28
%
26
%
United States
33
33
64
65
32
33
United Kingdom
–
–
1
2
9
9
Europe – other
–
–
2
2
21
21
Other international
1
1
1
1
10
11
Total
100
%
100
%
100
%
100
%
100
%
100
%
$
949,779
$
913,937
$
366,706
$
339,728
$
69,970
$
82,761
1
Of the total loans and customers’ liability under acceptances, the only industry segment which equalled or exceeded
5
% of the total concentration as at October 31, 2024 was real estate
10
% (October 31, 2023 –
10
%).
2
Includes loans that are measured at FVOCI.
3
As at October 31, 2024, the Bank had commitments and contingent liability contracts in the amount of $
367
billion (October 31, 2023 – $
340
billion). Included are commitments to extend
credit totalling $
322
billion (October 31, 2023 – $
300
billion), of which the credit risk is dispersed as detailed in the table above.
4
Of the commitments to extend credit, industry segments which equalled or exceeded
5
% of the total concentration were as follows as at October 31, 2024: financial institutions
19
%
(October 31, 2023 –
17
%); power and utilities
11
% (October 31, 2023 –
10
%); government, public sector entities and education
7
% (October 31, 2023 –
8
%); automotive
7
%
(October 31, 2023 –
8
%); professional and other services
8
% (October 31, 2023 –
7
%); sundry manufacturing and wholesale
7
% (October 31, 2023 –
7
%); non-residential real estate
6
%
(October 31, 2023 –
6
%).
5
As at October 31, 2024, the current replacement cost of derivative financial instruments, excluding the impact of
master netting agreements and collateral, amounted to $
70
billion
(October 31, 2023 – $
83
billion). Based on the location of the ultimate counterparty,
the credit risk was allocated as detailed in the table above. The table excludes the fair
value of
exchange traded derivatives.
6
The largest concentration by counterparty type was with financial institutions (including non-banking financial institutions),
which accounted for
66
% of the total as at October 31, 2024
(October 31, 2023 –
60
%). The second largest concentration was with governments, which accounted for
24
% of the total as at October 31, 2024 (October 31, 2023 –
32
%). No other
industry segment exceeded
5
% of the total.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 94
The following table presents the maximum
exposure to credit risk of financial instruments,
before taking account of any collateral
held or other credit
enhancements.
Gross Maximum Credit Risk Exposure
(millions of Canadian dollars)
As at
October 31
October 31
2024
2023
Cash and due from banks
$
6,437
$
6,721
Interest-bearing deposits with banks
169,930
98,348
Securities
1
Financial assets designated at fair value through
profit or loss
Government and government-insured
securities
3,056
2,720
Other debt securities
3,361
3,098
Trading
Government and government-insured
securities
46,575
51,493
Other debt securities
22,482
20,685
Retained interest
1
3
Non-trading securities at fair value through
profit or loss
Government and government-insured
securities
271
288
Other debt securities
1,376
2,683
Securities at fair value through other
comprehensive income
Government and government-insured
securities
78,422
52,927
Other debt securities
10,830
13,004
Debt securities at amortized cost
Government and government-insured
securities
205,098
230,304
Other debt securities
66,517
77,712
Securities purchased under reverse purchase
agreements
208,217
204,333
Derivatives
2
78,061
87,382
Loans
Residential mortgages
331,284
319,938
Consumer instalment and other personal
226,333
215,745
Credit card
38,542
36,726
Business and government
353,390
323,538
Trading loans
23,518
17,261
Non-trading loans at fair value through profit
or loss
3,057
3,495
Loans at fair value through other comprehensive
income
230
421
Customers’ liability under acceptances
–
17,569
Amounts receivable from brokers, dealers,
and clients
22,115
30,416
Other assets
12,761
12,504
Total assets
1,911,864
1,829,314
Credit instruments
3
366,706
339,728
Unconditionally cancellable commitments
to extend credit
450,574
430,163
Total credit exposure
$
2,729,144
$
2,599,205
1
Excludes equity securities.
2
The carrying amount of the derivative assets represents the maximum credit risk exposure related to derivative contracts.
3
The balance represents the maximum amount of additional funds that the Bank could be obligated to extend should the contracts
be fully utilized. The actual maximum exposure may
differ
from the amount reported above. Refer to Note 26 for further details.
NOTE 31: REGULATORY CAPITAL
The Bank manages its capital in accordance
with 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. The Bank is designated
as a domestic systemically important bank
(D-SIB) and a global systemically important
bank (G-SIB).
The Bank’s capital management objectives are:
●
To maintain an adequate level of capital based on the Bank’s risk profile
as determined by:
–
the Bank’s Risk Appetite Statement;
–
capital requirements defined by relevant
regulatory authorities; and
–
the Bank’s internal assessment of capital requirements,
including stress test analysis, consistent
with the Bank’s risk profile and risk tolerance levels.
●
Manage capital levels, in order to:
–
insulate the Bank from unexpected loss events;
–
maintain stakeholder confidence in the Bank;
–
establish that the Bank has adequate capital
under a severe but plausible stress event;
and
–
support and facilitate business growth and/or
strategic deployment consistent with the
Bank’s strategy and risk appetite.
●
To have the most economic weighted-average cost of capital achievable, while
preserving the appropriate mix of
capital elements to meet targeted
capitalization levels.
●
To support strong external debt ratings, in order to manage the Bank’s overall cost
of funds and to maintain access to required
funding (in the event of
unexpected loss or business growth).
●
To maintain a robust capital planning process and framework to support capital
funding decisions such as issuances, redemptions
and distributions which in
turn support the Bank’s capital adequacy.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 95
These objectives are applied in a manner
consistent with the Bank’s overall objective of
providing a satisfactory return on
shareholders’ equity.
Basel III Capital Framework
Capital requirements of the Basel Committee
on Banking Supervision are commonly referred
to as Basel III. Under Basel III,
Total Capital consists of three
components, namely
Common Equity Tier 1 (CET1),
Additional Tier 1, and
Tier 2 Capital. Risk sensitive regulatory capital
ratios are calculated by dividing CET1,
Tier 1, and Total Capital by risk-weighted
assets (RWA), inclusive of any minimum
requirements outlined under the regulatory
floor. In 2015, Basel III also
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.
Capital Position and Capital Ratios
The Basel framework allows qualifying banks
to determine capital levels consistent with
the way they measure, manage, and mitigate
risks. It specifies
methodologies for the measurement of credit,
trading market, and operational risks.
The Bank uses the Internal Ratings-Based approaches
to credit risk for all
material portfolios.
For accounting purposes, IFRS is followed
for consolidation of subsidiaries and joint ventures.
For regulatory capital purposes,
all subsidiaries of the Bank are
consolidated except for insurance subsidiaries
which are deconsolidated and follow prescribed
treatment per OSFI’s CAR guidelines. Insurance
subsidiaries are
subject to their own capital adequacy reporting,
such as OSFI’s Minimum Capital
Test for General Insurance and Life Insurance Capital
Adequacy Test for Life and
Health.
Some of the Bank’s subsidiaries are individually
regulated by either OSFI or other regulators.
Many of these entities have minimum
capital requirements which
may limit the Bank’s ability to extract capital
or funds for other uses.
The impact to CET1 capital upon adoption
of IFRS 17 is immaterial to the Bank.
Canadian banks designated as D-SIBs are required
to comply with OSFI’s minimum targets for risk-based
capital and leverage ratios. The minimum
targets
include a D-SIB surcharge and Domestic Stability
Buffer (DSB) for CET1, Tier 1, Total Capital and risk-based Total Loss Absorbing Capacity (TLAC) ratios. The
DSB level was increased to
3.5
% as of November 1, 2023, which
sets these minimum target ratios at
11.5
%,
13.0
%,
15.0
% and
25.0
%, respectively. The OSFI
target includes the greater of the D-SIB or
G-SIB surcharge, both of which are
currently
1
% for the Bank. On February 1, 2023, OSFI
announced revisions to the
Leverage Requirements Guideline to introduce
a requirement for D-SIBs to hold a leverage
ratio buffer of
0.50
% in addition to the existing minimum requirement.
This sets the minimum targets for leverage
and TLAC leverage ratios at
3.5
% and
7.25
%, respectively.
The Bank complied with all published regulatory
minimum risk-based capital and leverage ratio
requirements set by OSFI during the
year ended October 31, 2024.
The following table summarizes the Bank’s regulatory
capital position as at October 31, 2024 and
October 31, 2023.
Regulatory Capital Position
(millions of Canadian dollars, except
as noted)
As at
October 31
October 31
2024
2023
Capital
Common Equity Tier 1 Capital
$
82,714
$
82,317
Tier 1 Capital
93,248
92,752
Total Capital
105,745
103,648
Risk-weighted assets used in the calculation
of capital ratios
630,900
571,161
Capital and leverage ratios
Common Equity Tier 1 Capital ratio
13.1
%
14.4
%
Tier 1 Capital ratio
14.8
16.2
Total Capital ratio
16.8
18.1
Leverage ratio
4.2
4.4
TLAC Ratio
28.7
32.7
TLAC Leverage Ratio
8.1
8.9
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 96
NOTE 32: INFORMATION ON SUBSIDIARIES
The following is a list of the directly or indirectly
held significant subsidiaries.
SIGNIFICANT SUBSIDIARIES
1
(millions of Canadian dollars)
October 31, 2024
Address of Head
Carrying value of shares
North America
or Principal Office
2
owned by the Bank
3
Meloche Monnex Inc.
Montreal, Québec
$
2,753
Security National Insurance Company
Montreal, Québec
Primmum Insurance Company
Toronto, Ontario
TD Direct Insurance Inc.
Toronto, Ontario
TD General Insurance Company
Toronto, Ontario
TD Home and Auto Insurance Company
Toronto, Ontario
TD Wealth Holdings Canada Limited
Toronto, Ontario
10,367
TD Asset Management Inc.
Toronto, Ontario
GMI Servicing Inc.
Winnipeg, Manitoba
TD Waterhouse Private Investment Counsel Inc.
Toronto, Ontario
TD Waterhouse Canada Inc.
Toronto, Ontario
TD Auto Finance (Canada) Inc.
Toronto, Ontario
4,287
TD Group US Holdings LLC
Wilmington, Delaware
81,374
Toronto Dominion Holdings (U.S.A.), Inc.
New York, New York
Cowen Inc.
New York, New York
Cowen Structured Holdings LLC
New York, New York
Cowen Structured Holdings Inc.
New York, New York
ATM Execution LLC
New York, New York
RCG LV Pearl, LLC
New York, New York
Cowen Financial Products LLC
New York, New York
Cowen Holdings, Inc.
New York, New York
Cowen and Company, LLC
New York, New York
Cowen CV Acquisition LLC
New York, New York
Cowen Execution Holdco LLC
New York, New York
Westminster Research Associates LLC
New York, New York
RCG Insurance Company
New York, New York
TD Prime Services LLC
New York, New York
TD Securities Automated Trading LLC
Chicago, Illinois
TD Securities (USA) LLC
New York, New York
Toronto Dominion (Texas) LLC
New York, New York
Toronto Dominion (New York) LLC
New York, New York
Toronto Dominion Investments, Inc.
New York, New York
TD Bank US Holding Company
Cherry Hill, New Jersey
Epoch Investment Partners, Inc.
New York, New York
TD Bank USA, National Association
Cherry Hill, New Jersey
TD Bank, National Association
Cherry Hill, New Jersey
TD Equipment Finance, Inc.
Mt. Laurel, New Jersey
TD Private Client Wealth LLC
New York, New York
TD Public Finance LLC
New York, New York
TD Wealth Management Services Inc.
Mt. Laurel, New Jersey
TD Investment Services Inc.
Toronto, Ontario
56
TD Life Insurance Company
Toronto, Ontario
163
TD Mortgage Corporation
Toronto, Ontario
13,231
TD Pacific Mortgage Corporation
Vancouver, British Columbia
The Canada Trust Company
Toronto, Ontario
TD Securities Inc.
Toronto, Ontario
3,213
TD Vermillion Holdings Limited
Toronto, Ontario
23,714
TD Financial International Ltd.
Hamilton, Bermuda
TD Reinsurance (Barbados) Inc.
St. James, Barbados
International
Cowen Malta Holdings Limited
Birkirkara, Malta
27
Cowen Insurance Company Ltd
Birkirkara, Malta
Ramius Enterprise Luxembourg Holdco S.à.r.l.
Luxembourg, Luxembourg
247
Cowen Reinsurance S.A.
Luxembourg, Luxembourg
TD Ireland Unlimited Company
Dublin, Ireland
2,805
TD Global Finance Unlimited Company
Dublin, Ireland
TD Securities (Japan) Co. Ltd.
Tokyo, Japan
13
Toronto Dominion Australia Limited
Sydney, Australia
104
TD Bank Europe Limited
London, England
1,407
Toronto Dominion International Pte. Ltd.
Singapore, Singapore
6,812
Cowen Execution Services Limited
London, England
Toronto Dominion (South East Asia) Limited
Singapore, Singapore
1,643
1
Unless otherwise noted, The Toronto-Dominion Bank, either directly or through its subsidiaries, owns
100
% of the entity and/or
100
% of any issued and outstanding voting
securities and
non-voting securities of the entities listed.
2
Each subsidiary is incorporated or organized in the country in which its head or principal office is located.
3
Carrying amounts are prepared for purposes of meeting the disclosure requirements of Section 308 (3)(a)(ii) of the
Bank Act (Canada)
. Intercompany transactions may be included herein
which are eliminated for consolidated financial reporting purposes.
TD BANK GROUP • 2024 ANNUAL REPORT • FINANCIAL STATEMENTS AND NOTES
Page 97
SUBSIDIARIES WITH RESTRICTIONS
TO TRANSFER FUNDS
Certain of the Bank’s subsidiaries have regulatory requirements
to fulfil, in accordance with applicable law, in order to transfer
funds, including paying dividends to,
repaying loans to, or redeeming subordinated
debentures issued to, the Bank. These
customary requirements include, but
are not limited to:
●
Local regulatory capital and/or surplus adequacy
requirements;
●
Basel requirements under Pillar 1 and Pillar
2;
●
Local regulatory approval requirements; and
●
Local corporate and/or securities laws.
Pursuant to the terms of the orders that
TD Bank USA, N.A. (TDBUSA) and TD Bank
N.A. (TDBNA) entered into with the OCC,
the boards of directors of TDBUSA
and TDBNA will be required to certify to
the OCC that the Bank has allocated appropriate
resources and staffing to the remediation required
by the orders before
declaring or paying dividends, engaging in
share repurchases, or making any other
capital distribution. In addition, pursuant to the
terms of the cease and desist
order that the Bank, TDGUS and TDBUSH
entered into with the Federal Reserve,
the boards of directors of TDGUS and
TDBUSH will be required to certify to
the
Federal Reserve that appropriate resources
and staffing have been allocated to remediation,
as required by the order, before declaring or paying any dividends,
engaging in share repurchases, or making any
other capital distributions. If TDBUSA,
TDBNA, TDGUS or TDBUSH are unable
to so certify, then there would be
restrictions on (i) the payment of dividends
or making of any other capital distributions to
the Bank, or (ii) the repurchase of shares
of these entities from the Bank
.
As at October 31, 2024, the net assets of
subsidiaries subject to regulatory or CAR
was approximately $
109
billion (October 31, 2023 – $
103
billion), before
intercompany eliminations.
In addition to regulatory requirements outlined
above, the Bank may be subject to significant
restrictions on its ability to use the assets
or settle the liabilities of
members of its group. Key contractual restrictions
may arise from the provision of collateral to
third parties in the normal course of business,
for example through
secured financing transactions; assets
securitized which are not subsequently available
for transfer by the Bank; and assets transferred
into other consolidated
and unconsolidated
structured entities. The impact of these restrictions
has been disclosed in Notes 9 and 26.
ex994
RETURN ON ASSETS, DIVIDEND PAYOUTS, AND EQUITY TO ASSETS RATIOS
1,2
For the three months ended
For the year ended
October 31
July 31
April 30
January 31
October 31
October 31
October 31
2024
2024
2024
2024
2024
2023
2022
Return on Assets - reported
3,4
0.67
%
(0.05)
%
0.50
%
0.56
%
0.42
%
0.52
%
0.95
%
Return on Assets - adjusted
4,5
0.59
0.72
0.76
0.73
0.70
0.75
0.84
Dividend Payout Ratio - reported
6
51.8
n/m
7
75.8
65.8
86.3
69.5
37.5
Dividend Payout Ratio - adjusted
8
59.2
49.8
50.0
50.7
52.2
48.5
42.5
Equity to Asset Ratio
4,9
5.5
5.7
5.8
5.7
5.7
5.9
5.6
1
Calculated pursuant to the U.S. Securities and Exchange Commission Industry Guide 3.
2
The Bank prepares its consolidated financial statements in accordance with International Financial Reporting Standards
(IFRS), the current generally accepted accounting principles
(GAAP), and refers to results prepared in accordance with IFRS as the “reported” results. The Bank
also utilizes non-GAAP financial measures such as “adjusted” results (i.e. reported
results excluding “items of note”) and non-GAAP ratios to assess each of its businesses and measure overall Bank
performance. The Bank believes that non-GAAP financial measures
and non-GAAP ratios provide the reader with a better understanding of how management views the Bank’s
performance. Non-GAAP financial measures and ratios used in this
presentation are not defined terms under IFRS and, therefore, may not be comparable to similar terms used by other
issuers. Refer to the “Significant Events” or “Financial Results
Overview” section in the Bank’s 2024 MD&A (available at www.td.com/investor
and www.sedar.com),
which is incorporated by reference, for further explanation, reported basis results, a
list of the items of note, and a reconciliation of adjusted to reported results.
3
Calculated as reported net income available to common shareholders divided by average total assets.
4
For the year ended October 31, 2023, certain amounts in the calculation of these ratios have been restated for the
adoption of IFRS 17,
Insurance Contracts (IFRS 17).
5
Calculated as adjusted net income available to common shareholders divided by average total assets.
6
Calculated as dividends declared per common share divided by reported basic earnings per share.
7
Not meaningful.
8
Calculated as dividends declared per common share divided by adjusted basic earnings per share.
9
Calculated as average total equity divided by average total assets.
ex995
Exhibit 99.5
Code of Ethics
Code of Conduct and Ethics for Employees and Directors
is incorporated by reference to the
Form 6-K filed with the SEC on February 6, 2024.
ex996
Exhibit 99.6
Consent of Independent Registered Public Accounting
Firm
We
consent
to
the
reference
to
our
Firm
under
the
caption
“Experts”,
which
appears
in
the
Annual
Information Form
in Exhibit
99.1, and to
the use
in this
Annual Report on
Form 40-F
of our reports
dated
December 4,
2024, with
respect to
the consolidated
balance sheets
of The
Toronto
-Dominion
Bank (the
“Bank”)
as
of
October
31,
2024
and
2023,
and
the
consolidated
statements
of
income,
comprehensive
income,
changes
in
equity
and
cash
flows
for
the
two-year
period
ended
October
31,
2024,
and
the
effectiveness of internal control over financial reporting
of the Bank as of October 31, 2024.
We also consent to
the incorporation by reference
of our reports dated
December 4, 2024 in
the following
Registration Statements of the Bank:
1)
Registration Statement (Form F-3 No. 333-83232),
2)
Registration Statement (Form F-3 No. 333-262557),
3)
Registration Statement (Form S-8 No. 333-101026)
4)
Registration Statement (Form S-8 No. 333-116159),
5)
Registration Statement (Form S-8 No. 333-120815),
6)
Registration Statement (Form S-8 No. 333-142253),
7)
Registration Statement (Form S-8 No. 333-150000),
8)
Registration Statement (Form S-8 No. 333-167234),
9)
Registration Statement (Form S-8 No. 333-169721),
10) Registration Statement
(Form S-8 No. 333-263318), and
11)
Registration Statement (Form S-8 No. 333-275850).
/s/Ernst & Young
LLP
Chartered Professional Accountants
Licensed Public Accountants
Toronto,
Canada
December 5, 2024
ex997
Exhibit 99.7
Certification Pursuant to Section 302 of the U.S. Sarbanes-Oxley
Act of 2002
I, Bharat Masrani, certify that:
1.
I have reviewed this annual report on Form 40-F of The Toronto
-Dominion Bank;
2.
Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading
with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the issuer as of, and for, the periods presented
in
this report;
4.
The issuer’s other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the issuer and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under
our supervision, to ensure that material information relating to the issuer,
including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period
in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such
internal control over financial reporting 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 generally accepted accounting principles;
c)
Evaluated the effectiveness of the issuer’s disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on
such evaluation; and
d)
Disclosed in this report any change in the issuer’s internal control
over financial reporting that occurred during the period
covered by the annual report that has materially affected, or is reasonably
likely to materially affect, the issuer’s internal
control over financial reporting; and
5.
The issuer’s other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the issuer’s auditors and the audit committee of the
issuer’s board of directors (or persons performing the
equivalent
functions):
a)
All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting
which are reasonably likely to adversely affect the issuer’s
ability to record, process, summarize and report financial
information; and
b)
Any fraud, whether or not material, that involves management or
other employees who have a significant role in the issuer’s
internal control over financial reporting.
Date:
December 5, 2024
/s/ Bharat Masrani
Bharat Masrani
Group President and Chief Executive Officer
Certification Pursuant to Section 302 of the U.S. Sarbanes-Oxley
Act of 2002
I, Kelvin Tran, certify that:
1.
I have reviewed this annual report on Form 40-F of The Toronto
-Dominion Bank;
2.
Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading
with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the issuer as of, and for, the periods presented in
this report;
4.
The issuer’s other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the issuer and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under
our supervision, to ensure that material information relating to the issuer,
including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period
in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such
internal control over financial reporting 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 generally accepted accounting principles;
c)
Evaluated the effectiveness of the issuer’s disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on
such evaluation; and
d)
Disclosed in this report any change in the issuer’s internal control
over financial reporting that occurred during the period
covered by the annual report that has materially affected, or is reasonably
likely to materially affect, the issuer’s internal
control over financial reporting; and
5.
The issuer’s other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the issuer’s auditors and the audit committee of the
issuer’s board of directors (or persons performing the equivalent
functions):
a)
All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting
which are reasonably likely to adversely affect the issuer’s
ability to record, process, summarize and report financial
information; and
b)
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the issuer’s
internal control over financial reporting.
Date:
December 5, 2024
/s/ Kelvin Tran
Kelvin Tran
Group Head and Chief Financial Officer
ex998
Exhibit 99.8
Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to
Section 906 of the U.S. Sarbanes-Oxley Act of 2002
In connection with the Annual Report of The Toronto
-Dominion Bank (the "Bank") on Form 40-F for the year ended October
31,
2024 as filed with the Securities and Exchange Commission on the date
hereof (the "Report"), I, Bharat Masrani, Group President and
Chief Executive Officer of the Bank, certify,
pursuant to 18 U.S.C. § 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 that:
1.
The Report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations
of the Bank.
Date:
December 5, 2024
/s/ Bharat Masrani
Bharat Masrani
Group President and Chief Executive Officer
Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to
Section 906 of the U.S. Sarbanes-Oxley Act of 2002
In connection with the Annual Report of The Toronto
-Dominion Bank (the "Bank") on Form 40-F for the year ended October
31,
2024 as filed with the Securities and Exchange Commission on the date
hereof (the "Report"), I, Kelvin Tran, Group Head
and Chief
Financial Officer of the Bank, certify,
pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of
2002 that:
1.
The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations
of the Bank.
Date:
December 5, 2024
/s/Kelvin Tran
Kelvin Tran
Group Head and Chief Financial Officer