Exhibit 99.1
 |
TD Bank Group Reports First Quarter 2022 Results Report to Shareholders • Three months ended January 31, 2022 |
The financial information in this document is reported in Canadian dollars and is based on the Bank’s unaudited Interim Consolidated Financial Statements and related Notes prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), unless otherwise noted.
Reported results conform to generally accepted accounting principles (GAAP), in accordance with IFRS. Adjusted measures are
non-GAAP
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 “How We Performed” section of this document. FIRST QUARTER FINANCIAL HIGHLIGHTS, compared with the first quarter last year:
• |
Reported diluted earnings per share were $2.02, compared with $1.77. |
• |
Adjusted diluted earnings per share were $2.08, compared with $1.83. |
• |
Reported net income was $3,733 million, compared with $3,277 million. |
• |
Adjusted net income was $3,833 million, compared with $3,380 million. |
FIRST QUARTER ADJUSTMENTS (ITEMS OF NOTE)
The first quarter reported earnings figures included the following items of note:
• |
Amortization of acquired intangibles of $67 million ($59 million after-tax or 3 cents per share), compared with $74 million ($65 million after-tax or 4 cents per share) in the first quarter last year. |
• |
Acquisition and integration charges related to the Schwab transaction of $50 million ($41 million after-tax or 2 cents per share), compared with $38 million ($38 million after-tax or 2 cents per share) in the first quarter last year. |
TORONTO,
March 3, 2022
“TD started the year strong, delivering revenue growth across all our business segments as customer activity gained additional momentum,” said Bharat Masrani, Group President and CEO, TD Bank Group. “With a focus on growth, we continue to make investments in technology and new capabilities, positioning us well to meet our customers’ and clients’ evolving needs.”
“I am also pleased to have announced our deal with First Horizon earlier this week. A bold acceleration of our U.S. strategy to acquire a premier regional bank, with a strong presence in highly attractive markets across the U.S. Southeast – a terrific strategic fit for TD,” added Masrani.
Canadian Retail saw continued strength in client activity, volumes and revenue
Canadian Retail net income was $2,254 million, an increase of 11% compared with the first quarter last year. The increase in earnings reflects record revenue and lower provisions for credit losses (PCL), partially offset by higher
non-interest
expenses. Revenue increased 6%, reflecting strong non-interest
income growth across all lines of business and momentum in loan and deposit volumes. Expenses increased 8%, reflecting investments to support business growth, and volume driven expenses including higher variable compensation. PCL decreased by $109 million from the first quarter last year, reflecting lower impaired PCL and a higher recovery in performing PCL. Canadian Retail started the year with good momentum, delivering record revenue performance in the Personal and Commercial Bank, supported by increased customer activity. In Wealth, net asset growth and mutual fund sales balanced the impact of trading volume normalization and delivered revenue growth for the business. Forward-focused innovations continued to support customers in building financial confidence, including expanding the New to Canada bundle to include 12 months of free international transfers via the TD Global Transfers platform and the launch of TD Easy Trade
TM
, a new mobile trading app from TD Direct Investing, with no minimum balance or monthly fees and 50 free stock trades per client, per year. Strong recovery continued across U.S. Retail
U.S. Retail net income was $1,272 million (US$1,006 million), an increase of 27% (30% in U.S. dollars) compared with the first quarter last year. The Bank’s investment in The Charles Schwab Corporation (Schwab) contributed $252 million (US$200 million) in earnings, an increase of 21% (24% in U.S. Dollars) compared with the first quarter last year.
The U.S. Retail Bank, which excludes the Bank’s investment in Schwab, reported net income of $1,020 million (US$806 million), an increase of 29% (31% in U.S. dollars) from the first quarter last year, primarily reflecting higher revenue and lower PCL. Revenue increased 4% (6% in U.S. dollars), reflecting higher deposit volumes and margins, increased earnings on the investment portfolio and higher fee income, partially offset by lower loan margins. PCL was $21 million (US$17 million), lower by $114 million (US$86 million) from the same quarter last year, reflecting lower impaired and performing PCL. Expenses decreased 5% (4% in U.S. dollars), reflecting store optimization costs incurred in the prior year, which more than offset investments made in the business in the current quarter. The U.S. Retail Bank continued to provide ongoing support to help small business customers process loan forgiveness through the Paycheck Protection Program (PPP), while assisting mortgage, credit card and middle-market customers with their credit needs.
The U.S. Retail Bank continued to invest in deepening customer experiences, building stronger communities and supporting colleagues. Enhancements to the TD Mobile app now provide debit card customers with the ability to easily request a digitally issued replacement once a card is reported lost, stolen or damaged. The Double Up
SM
Credit Card, added to the TD credit card suite last spring, became the primary driver of new Bankcard accounts, having added 98,000 accounts by quarter end. The Essential Banking deposit account, designed to provide better banking access to underserved communities, has resulted in 44,000 accounts since its official launch last August, helping to meet the needs of more customers, in more communities. TD Bank, America’s Most Convenient Bank®
opened its New York City flagship store, One Vanderbilt, serving as the largest store in TD’s U.S. footprint, providing customers greater convenience and accessibility. | TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 1 |
Strong Wholesale Banking performance in Q1
Wholesale Banking reported net income of $434 million this quarter, a decrease of 1% compared to the first quarter last year, reflecting higher revenue, lower PCL and higher
non-interest
expenses. PCL for the quarter was a recovery of $5 million, compared to a $20 million provision in the first quarter last year, reflecting lower levels of both performing and impaired PCL. Wholesale Banking delivered a strong performance while investing for future growth. During the first quarter, TD Securities continued to demonstrate its advisory and financing capabilities in sustainable finance by helping to structure and underwrite more than $12.5 billion of Green, Social and Sustainability-Linked Bonds, $24 billion of Sustainability-Linked Loans and delivering on notable advisory mandates.
Capital
TD’s Common Equity Tier 1 Capital ratio was 15.2%
1
. Conclusion
“Overall, this was a strong quarter for the Bank and as we look ahead, we remain focused on the opportunities to grow our business and deepen relationships with our customers,” added Masrani. “I want to thank our 90,000 colleagues around the world who continue to deliver on our purpose to enrich the lives of our customers, colleagues and communities each and every day.”
The foregoing contains forward-looking statements. Please refer to the “Caution Regarding Forward-Looking Statements” on page 4.
1 |
This measure has been included in this document in accordance with OSFI’s Capital Adequacy Requirements guideline. |
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 2 |
ENHANCED DISCLOSURE TASK FORCE
The Enhanced Disclosure Task Force (EDTF) was established by the Financial Stability Board in 2012 to identify fundamental disclosure principles, recommendations and leading practices to enhance risk disclosures of banks. The index below includes the recommendations (as published by the EDTF) and lists the location of the related EDTF disclosures presented in the first quarter 2022 Report to Shareholders (RTS), Supplemental Financial Information (SFI), or Supplemental Regulatory Disclosures (SRD). Information on TD’s website, SFI, and SRD is not and should not be considered incorporated herein by reference into the first quarter 2022 RTS, Management’s Discussion and Analysis, or the Interim Consolidated Financial Statements. Certain disclosure references have been made to the Bank’s 2021 Annual Report.
| Type of Risk |
Topic |
EDTF Disclosure |
Page | |||||||||||
RTS First Quarter 2022 |
SFI First Quarter 2022 |
SRD First Quarter 2022 |
Annual Report 2021 | |||||||||||
General |
1 |
Present all related risk information together in any particular report. |
Refer to below for location of disclosures | |||||||||||
2 |
The bank’s risk terminology and risk measures and present key parameter values used. |
80-85, 89, 95-98, 109-110 | ||||||||||||
3 |
Describe and discuss top and emerging risks. |
73-79 | ||||||||||||
4 |
Outline plans to meet each new key regulatory ratio once applicable rules are finalized. |
25, 39 | 69, 106 | |||||||||||
Risk Governance and Risk Management and Business Model |
5 |
Summarize the bank’s risk management organization, processes, and key functions. |
81-84 | |||||||||||
6 |
Description of the bank’s risk culture and procedures applied to support the culture. |
80-81 | ||||||||||||
7 |
Description of key risks that arise from the bank’s business models and activities. |
67, 80, 85-111 | ||||||||||||
8 |
Description of stress testing within the bank’s risk governance and capital frameworks. |
29 | 66, 84, 92-93, 109 | |||||||||||
Capital Adequacy and Risk Weighted Assets |
9 |
Pillar 1 capital requirements and the impact for global systemically important banks. |
21-25, 72 |
1-3, 6 |
62-65, 69, 216 | |||||||||
10 |
Composition of capital and reconciliation of accounting balance sheet to the regulatory balance sheet. |
1-3, 5 |
62 | |||||||||||
11 |
Flow statement of the movements in regulatory capital. |
4 | ||||||||||||
12 |
Discussion of capital planning within a more general discussion of management’s strategic planning. |
63-66, 109 | ||||||||||||
13 |
Analysis of how risk-weighted asset (RWA) relate to business activities and related risks. |
8-11 |
66-67 | |||||||||||
14 |
Analysis of capital requirements for each method used for calculating RWA. |
10 | 86-89, 91-92 | |||||||||||
15 |
Tabulate credit risk in the banking book for Basel asset classes and major portfolios. |
23-38, 43-48 |
||||||||||||
16 |
Flow statement reconciling the movements of RWA by risk type. |
11-12 |
||||||||||||
17 |
Discussion of Basel III back-testing requirements. |
60 | 88, 92, 96 | |||||||||||
Liquidity |
18 |
The bank’s management of liquidity needs and liquidity reserves. |
31-33, 35-36 |
98-100, 102-103 | ||||||||||
Funding |
19 |
Encumbered and unencumbered assets in a table by balance sheet category. |
34 | 101, 210-211 | ||||||||||
20 |
Tabulate consolidated total assets, liabilities and off-balance sheet commitments by remaining contractual maturity at the balance sheet date. |
39-41 |
106-108 | |||||||||||
21 |
Discussion of the bank’s funding sources and the bank’s funding strategy. |
34-39 |
103-106 | |||||||||||
Market Risk |
22 |
Linkage of market risk measures for trading and non-trading portfolio and balance sheet. |
28 | 90 | ||||||||||
23 |
Breakdown of significant trading and non-trading market risk factors. |
28-30 |
90, 93-94 | |||||||||||
24 |
Significant market risk measurement model limitations and validation procedures. |
29 | 91-94, 96 | |||||||||||
25 |
Primary risk management techniques beyond reported risk measures and parameters. |
29 | 91-94 | |||||||||||
Credit Risk |
26 |
Provide information that facilitates users’ understanding of the bank’s credit risk profile, including any significant credit risk concentrations. |
18-21, 58-64 |
19-34 |
1-5, 10-11, 13-60 |
48-61, 85-89, 166-173, 183,186-187, 214-215 | ||||||||
27 |
Description of the bank’s policies for identifying impaired loans. |
64 | 56, 142-143, 149, 173 | |||||||||||
28 |
Reconciliation of the opening and closing balances of impaired loans in the period and the allowance for loan losses. |
19, 60-62 |
23, 27 | 53, 169-171 | ||||||||||
29 |
Analysis of the bank’s counterparty credit risks that arise from derivative transactions. |
40-42, 49-53 |
88, 154, 177-179, 183, 186-187 | |||||||||||
30 |
Discussion of credit risk mitigation, including collateral held for all sources of credit risk. |
88, 146, 154 | ||||||||||||
Other Risks |
31 |
Description of ‘other risk’ types based on management’s classifications and discuss how each one is identified, governed, measured, and managed. |
95-97, 109-111 | |||||||||||
32 |
Discuss publicly known risk events related to other risks. |
70, 72 | 78-79, 208-210 | |||||||||||
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 3 |
TABLE OF CONTENTS
MANAGEMENT’S DISCUSSION AND ANALYSIS | ||
| 4 |
Caution Regarding Forward-Looking Statements | |
| 5 |
Financial Highlights | |
| 6 |
How We Performed | |
| 9 |
Financial Results Overview | |
| 12 |
How Our Businesses Performed | |
| 16 |
Quarterly Results | |
| 17 |
Balance Sheet Review | |
| 18 |
Credit Portfolio Quality | |
| 21 |
Capital Position | |
| 26 |
Risk Factors and Management | |
| 26 |
Managing Risk | |
| 42 |
Securitization and Off-Balance Sheet Arrangements | |
| 42 |
Accounting Policies and Estimates |
| 43 |
||
| 44 |
Glossary | |
INTERIM CONSOLIDATED FINANCIAL STATEMENTS | ||
| 47 |
Interim Consolidated Balance Sheet | |
| 48 |
Interim Consolidated Statement of Income | |
| 49 |
Interim Consolidated Statement of Comprehensive Income | |
| 50 |
Interim Consolidated Statement of Changes in Equity | |
| 51 |
Interim Consolidated Statement of Cash Flows | |
| 52 |
Notes to Interim Consolidated Financial Statements | |
| 73 |
||
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATING PERFORMANCE
This MD&A is presented to enable readers to assess material changes in the financial condition and operating results of TD Bank Group (“TD” or the “Bank”) for the three months ended January 31, 2022, compared with the corresponding periods shown. This MD&A should be read in conjunction with the Bank’s unaudited Interim Consolidated Financial Statements and related Notes included in this Report to Shareholders and with the 2021 Consolidated Financial Statements and related Notes and 2021 MD&A. This MD&A is dated March 2, 2022. Unless otherwise indicated, all amounts are expressed in Canadian dollars and have been primarily derived from the Bank’s 2021 Consolidated Financial Statements and related Notes or Interim Consolidated Financial Statements and related Notes, prepared in accordance with IFRS as issued by the IASB. Note that certain comparative amounts have been revised to conform with the presentation adopted in the current period. Additional information relating to the Bank, including the Bank’s 2021 Annual Information Form, is available on the Bank’s website at
http://www.td.com
, as well as on SEDAR at http://www.sedar.com
and on the SEC’s website at http://www.sec.gov
(EDGAR filers section). Caution Regarding Forward-Looking Statements
From time to time, the Bank (as defined in this document) makes written and/or oral forward-looking statements, including in this document, in other filings with Canadian regulators or the United States (U.S.) Securities and Exchange Commission (SEC), and in other communications. In addition, representatives of the Bank may make forward-looking statements orally to analysts, investors, the media and others. All such statements are made pursuant to the “safe harbour” provisions of, and are intended to be forward-looking statements under, applicable Canadian and U.S. securities legislation, including the . Forward-looking statements include, but are not limited to, statements made in this document, the Management’s Discussion and Analysis (“2021 MD&A”) in the Bank’s 2021 Annual Report under the headings “Economic Summary and Outlook” and “The Bank’s Response to
U.S. Private Securities Litigation Reform Act of 1995
COVID-19”,
under the headings “Key Priorities for 2022” and “Operating Environment and Outlook” for the Canadian Retail, U.S. Retail, and Wholesale Banking segments, and under the heading “Focus for 2022” for the Corporate segment, and in other statements regarding the Bank’s objectives and priorities for 2022 and beyond and strategies to achieve them, the regulatory environment in which the Bank operates, the Bank’s anticipated financial performance, and the potential economic, financial and other impacts of the Coronavirus Disease 2019 (COVID-19).
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, and infrastructure), model, insurance, liquidity, capital adequacy, legal, regulatory compliance and conduct, reputational, environmental and social, and other risks. Examples of such risk factors include the economic, financial, and other impacts of pandemics, including the
COVID-19
pandemic; general business and economic conditions in the regions in which the Bank operates; geopolitical risk; the ability of the Bank to execute on long-term strategies and shorter-term key strategic priorities, including the successful completion of acquisitions and dispositions, business retention plans, and strategic plans; technology and cyber security risk (including cyber-attacks or data security breaches) on the Bank’s information technology, internet, network access or other voice or data communications systems or services; model risk; fraud activity; 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-party service providers; the impact of new and changes to, or application of, current laws and regulations, including without limitation tax laws, capital guidelines and liquidity regulatory guidance and the bank recapitalization “bail-in”
regime; regulatory oversight and compliance risk; increased competition from incumbents and new entrants (including Fintechs and big technology competitors); shifts in consumer attitudes and disruptive technology; exposure related to significant litigation and regulatory matters; ability of the Bank to attract, develop, and retain key talent; changes to the Bank’s credit ratings; changes in currency and interest rates (including the possibility of negative interest rates); increased funding costs and market volatility due to market illiquidity and competition for funding; Interbank Offered Rate (IBOR) transition risk; critical accounting estimates and changes to accounting standards, policies, and methods used by the Bank; existing and potential international debt crises; environmental and social risk (including climate change); 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 2021 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 “Pending Acquisition” or “Significant and Subsequent Events and Pending Acquisitions” 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 2021 MD&A under the headings “Economic Summary and Outlook” and “The Bank’s Response to
COVID-19”,
under the headings “Key Priorities for 2022” and “Operating Environment and Outlook” for the Canadian Retail, U.S. Retail, and Wholesale Banking segments, and under the heading “Focus for 2022” 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 • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 4 |
TABLE 1: FINANCIAL HIGHLIGHTS
| (millions of Canadian dollars, except as noted) |
For the three months ended |
|||||||||||
January 31 2022 |
|
October 31 2021 |
|
|
January 31 2021 |
| ||||||
| Results of operations |
||||||||||||
| Total revenue – reported |
$ |
11,281 |
$ | 10,941 | $ | 10,812 | ||||||
| Total revenue – adjusted 1 |
11,281 |
10,941 | 10,812 | |||||||||
| Provision for (recovery of) credit losses |
72 |
(123 | ) | 313 | ||||||||
| Insurance claims and related expenses |
756 |
650 | 780 | |||||||||
| Non-interest expenses – reported |
5,967 |
5,947 | 5,784 | |||||||||
| Non-interest expenses – adjusted1 |
5,897 |
5,898 | 5,744 | |||||||||
| Net income – reported |
3,733 |
3,781 | 3,277 | |||||||||
| Net income – adjusted 1 |
3,833 |
3,866 | 3,380 | |||||||||
| Financial position |
||||||||||||
| Total loans net of allowance for loan losses |
$ |
743.6 |
$ | 722.6 | $ | 706.0 | ||||||
| Total assets |
1,778.6 |
1,728.7 | 1,735.6 | |||||||||
| Total deposits |
1,159.5 |
1,125.1 | 1,139.2 | |||||||||
| Total equity |
102.0 |
99.8 | 95.4 | |||||||||
| Total risk-weighted assets 2 |
470.9 |
460.3 | 467.2 | |||||||||
| Financial ratios |
||||||||||||
| Return on common equity (ROE) – reported 3 |
15.3 |
% |
15.7 | % | 14.3 | % | ||||||
| Return on common equity – adjusted 1 |
15.7 |
16.1 | 14.7 | |||||||||
| Return on tangible common equity (ROTCE) 1 |
20.6 |
21.3 | 19.9 | |||||||||
| Return on tangible common equity – adjusted 1 |
20.8 |
21.4 | 20.1 | |||||||||
| Efficiency ratio – reported 3 |
52.9 |
54.4 | 53.5 | |||||||||
| Efficiency ratio – adjusted 1,3 |
52.3 |
53.9 | 53.1 | |||||||||
| Provision for (recovery of) credit losses as a % of net average loans and acceptances |
0.04 |
(0.07 | ) | 0.17 | ||||||||
| Common share information – reported |
||||||||||||
| Per share earnings |
||||||||||||
| Basic |
$ |
2.03 |
$ | 2.04 | $ | 1.77 | ||||||
| Diluted |
2.02 |
2.04 | 1.77 | |||||||||
| Dividends per share |
0.89 |
0.79 | 0.79 | |||||||||
| Book value per share 3 |
53.00 |
51.66 | 49.44 | |||||||||
| Closing share price 4 |
101.81 |
89.84 | 72.46 | |||||||||
| Shares outstanding (millions) |
||||||||||||
| Average basic |
1,820.5 |
1,820.5 | 1,814.2 | |||||||||
| Average diluted |
1,824.1 |
1,823.2 | 1,815.8 | |||||||||
| End of period |
1,816.5 |
1,822.0 | 1,816.0 | |||||||||
| Market capitalization (billions of Canadian dollars) |
$ |
184.9 |
$ | 163.7 | $ | 131.6 | ||||||
| Dividend yield 3 |
3.7 |
% |
3.7 | % | 4.5 | % | ||||||
| Dividend payout ratio 3 |
44.0 |
38.7 | 44.6 | |||||||||
| Price-earnings ratio 3 |
12.8 |
11.6 | 11.0 | |||||||||
| Total shareholder return (1 year) 3 |
45.8 |
58.9 | 4.1 | |||||||||
| Common share information – adjusted 1,3 |
||||||||||||
| Per share earnings |
||||||||||||
| Basic |
$ |
2.08 |
$ | 2.09 | $ | 1.83 | ||||||
| Diluted |
2.08 |
2.09 | 1.83 | |||||||||
| Dividend payout ratio |
42.8 |
% |
37.8 | % | 43.2 | % | ||||||
| Price-earnings ratio |
12.5 |
11.3 | 13.1 | |||||||||
| Capital ratios 2 |
||||||||||||
| Common Equity Tier 1 Capital ratio |
15.2 |
% |
15.2 | % | 13.6 | % | ||||||
| Tier 1 Capital ratio |
16.3 |
16.5 | 14.8 | |||||||||
| Total Capital ratio |
19.0 |
19.1 | 17.4 | |||||||||
| Leverage ratio |
4.4 |
4.8 | 4.5 | |||||||||
| TLAC ratio |
28.6 |
28.3 | 23.8 | |||||||||
| TLAC Leverage ratio |
7.6 |
8.2 | 7.2 | |||||||||
1 |
The Toronto-Dominion Bank (“TD” or the “Bank”) prepares its Interim Consolidated Financial Statements in accordance with IFRS, the current GAAP, and refers to results prepared in accordance with IFRS as 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 for “items of note”, from reported results. Refer to the “How We Performed” 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. |
2 |
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 Total Loss Absorbing Capacity (TLAC) guidelines. Refer to the “Capital Position” section of this document for further details. |
3 |
For additional information about this metric, refer to the Glossary of this document. |
4 |
Toronto Stock Exchange (TSX) closing market price. |
PENDING ACQUISITION
Acquisition of First Horizon Corporation
On February 28, 2022, the Bank and First Horizon Corporation (“First Horizon”) announced a definitive agreement for the Bank to acquire First Horizon in an all-cash transaction valued at US$13.4 billion, or US$25.00 for each common share of First Horizon. In connection with this transaction, the Bank has invested US$494 million in non-voting First Horizon preferred stock (convertible in certain circumstances into up to 4.9% of First Horizon’s common stock). The transaction is expected to close in the first quarter of fiscal 2023, and is subject to customary closing conditions, including approvals from First Horizon’s shareholders and U.S. and Canadian regulatory authorities. The results of the acquired business will be consolidated by the Bank from the closing date and reported in the U.S. Retail segment.
If the transaction does not close prior to November 27, 2022, First Horizon shareholders will receive, at closing, an additional US$0.65 per share on an annualized basis for the period from November 27, 2022 through the day immediately prior to the closing. Either party will have the right to terminate the agreement if the transaction has not closed by February 27, 2023 (the “outside date”), subject to the right of either party (under certain conditions) to extend the outside date to May 27, 2023.
Concurrent with the announcement, the automatic share purchase plan established under the Bank’s NCIB automatically terminated pursuant to its terms. The NCIB remains in effect on the same terms and subject to the same restrictions as previously disclosed.
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 5 |
HOW WE PERFORMED
CORPORATE OVERVIEW
The Toronto-Dominion Bank and its subsidiaries are collectively known as TD Bank Group (“TD” or the “Bank”). TD is the fifth largest bank in North America by assets and serves more than 26 million customers in three key businesses operating in a number of locations in financial centres around the globe: Canadian Retail, which includes the results of the personal and commercial banking, wealth, and insurance businesses; U.S. Retail, which includes the results of the personal and business banking operations, wealth management services, and the Bank’s investment in The Charles Schwab Corporation (“Schwab”); and Wholesale Banking. TD also ranks among the world’s leading online financial services firms, with more than 15 million active online and mobile customers. TD had $1.8 trillion in assets on January 31, 2022. The Toronto-Dominion Bank trades under the symbol “TD” on the Toronto and New York Stock Exchanges.
HOW THE BANK REPORTS
The Bank prepares its Interim Consolidated Financial Statements in accordance with IFRS 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. 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 PCL related to these portfolios in the Bank’s Interim Consolidated Statement of Income. At the segment level, the retailer program partners’ share of revenues and credit losses is presented in the Corporate segment, with an offsetting amount (representing the partners’ net share) recorded in Non-interest
expenses, resulting in no impact to Corporate’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
On October 6, 2020, the Bank acquired an approximately 13.5% stake in Schwab following the completion of Schwab’s acquisition of TD Ameritrade (“Schwab transaction”). For further details, refer to Note 7 of the first quarter of 2022 Interim Consolidated Financial Statements. The Bank accounts for its investment in Schwab using the equity method and reports its
after-tax
share of Schwab’s earnings with a one-month
lag. 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 and the acquisition and integration charges related to the Schwab transaction. The following table provides the operating results on a reported basis for the Bank.
TABLE 2: OPERATING RESULTS – Reported
| (millions of Canadian dollars) | For the three months ended |
|||||||||||
January 31 2022 |
|
October 31 2021 |
|
|
January 31 2021 |
| ||||||
| Net interest income |
$ |
6,302 |
$ | 6,262 | $ | 6,030 | ||||||
| Non-interest income |
4,979 |
4,679 | 4,782 | |||||||||
| Total revenue |
11,281 |
10,941 | 10,812 | |||||||||
| Provision for (recovery of) credit losses |
72 |
(123 | ) | 313 | ||||||||
| Insurance claims and related expenses |
756 |
650 | 780 | |||||||||
| Non-interest expenses |
5,967 |
5,947 | 5,784 | |||||||||
| Income before income taxes and share of net income from investment in Schwab |
4,486 |
4,467 | 3,935 | |||||||||
| Provision for (recovery of) income taxes |
984 |
910 | 827 | |||||||||
| Share of net income from investment in Schwab |
231 |
224 | 169 | |||||||||
| Net income – reported |
3,733 |
3,781 | 3,277 | |||||||||
| Preferred dividends and distributions on other equity instruments |
43 |
63 | 65 | |||||||||
| Net income available to common shareholders |
$ |
3,690 |
$ | 3,718 | $ | 3,212 | ||||||
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 6 |
The following table provides a reconciliation between the Bank’s adjusted and reported results.
TABLE
3: NON-GAAP
FINANCIAL MEASURES – Reconciliation of Adjusted to Reported Net Income | (millions of Canadian dollars) | For the three months ended |
|||||||||||
January 31 2022 |
|
October 31 2021 |
|
|
January 31 2021 |
| ||||||
| Operating results – adjusted |
||||||||||||
| Net interest income |
$ |
6,302 |
$ | 6,262 | $ | 6,030 | ||||||
| Non-interest income |
4,979 |
4,679 | 4,782 | |||||||||
| Total revenue |
11,281 |
10,941 | 10,812 | |||||||||
| Provision for (recovery of) credit losses |
72 |
(123 | ) | 313 | ||||||||
| Insurance claims and related expenses |
756 |
650 | 780 | |||||||||
| Non-interest expenses1 |
5,897 |
5,898 | 5,744 | |||||||||
| Income before income taxes and share of net income from investment in Schwab |
4,556 |
4,516 | 3,975 | |||||||||
| Provision for (recovery of) income taxes |
1,001 |
921 | 836 | |||||||||
| Share of net income from investment in Schwab 2 |
278 |
271 | 241 | |||||||||
| Net income – adjusted |
3,833 |
3,866 | 3,380 | |||||||||
| Preferred dividends and distributions on other equity instruments |
43 |
63 | 65 | |||||||||
| Net income available to common shareholders – adjusted |
3,790 |
3,803 | 3,315 | |||||||||
| Pre-tax adjustments for items of note |
||||||||||||
| Amortization of acquired intangibles 3 |
(67 |
) |
(74 | ) | (74 | ) | ||||||
| Acquisition and integration charges related to the Schwab transaction 4 |
(50 |
) |
(22 | ) | (38 | ) | ||||||
| Less: Impact of income taxes |
||||||||||||
| Amortization of acquired intangibles |
(8 |
) |
(9 | ) | (9 | ) | ||||||
| Acquisition and integration charges related to the Schwab transaction 4 |
(9 |
) |
(2 | ) | – | |||||||
| Total adjustments for items of note |
(100 |
) |
(85 | ) | (103 | ) | ||||||
| Net income available to common shareholders – reported |
$ |
3,690 |
$ | 3,718 | $ | 3,212 | ||||||
1 |
Adjusted non-interest expenses exclude the following items of note related to the Bank’s own asset acquisitions and business combinations reported in the Corporate segment: |
| i. | Amortization of acquired intangibles – Q1 2022: $33 million, Q4 2021: $40 million, Q1 2021: $39 million. |
| ii. | The Bank’s own integration and acquisition costs related to the Schwab transaction – Q1 2022: $37 million, Q4 2021: $9 million, Q1 2021: $1 million. |
2 |
Adjusted share of net income from investment in Schwab excludes the following items of note on an after-tax basis. The earnings impact of both items is reported in the Corporate segment: |
| i. | Amortization of Schwab-related acquired intangibles – Q1 2022: $34 million, Q4 2021: $34 million; Q1 2021: $35 million; and |
| ii. | The Bank’s share of acquisition and integration charges associated with Schwab’s acquisition of TD Ameritrade – Q1 2022: $13 million, Q4 2021: $13 million, Q1 2021: $37 million. |
3 |
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 1 and 2 for amounts. |
4 |
Acquisition and integration charges related to the Schwab transaction include the Bank’s own integration and acquisition costs, as well as the Bank’s share of acquisition and integration charges associated with Schwab’s acquisition of TD Ameritrade on an after-tax basis, both reported in the Corporate segment. Refer to footnotes 1 and 2 for amounts. |
TABLE 4: RECONCILIATION OF REPORTED TO ADJUSTED EARNINGS PER SHARE
1
| (Canadian dollars) |
For the three months ended |
|||||||||||
January 31 2022 |
|
October 31 2021 |
|
|
January 31 2021 |
| ||||||
| Basic earnings per share – reported |
$ |
2.03 |
$ | 2.04 | $ | 1.77 | ||||||
| Adjustments for items of note |
0.05 |
0.05 | 0.06 | |||||||||
| Basic earnings per share – adjusted |
$ |
2.08 |
$ | 2.09 | $ | 1.83 | ||||||
| Diluted earnings per share – reported |
$ |
2.02 |
$ | 2.04 | $ | 1.77 | ||||||
| Adjustments for items of note |
0.05 |
0.05 | 0.06 | |||||||||
| Diluted earnings per share – adjusted |
$ |
2.08 |
$ | 2.09 | $ | 1.83 | ||||||
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. |
TABLE 5: AMORTIZATION OF INTANGIBLES, NET OF INCOME TAXES
| (millions of Canadian dollars) | For the three months ended |
|||||||||||
January 31 2022 |
|
October 31 2021 |
|
|
January 31 2021 |
| ||||||
| TD Bank, National Association (TD Bank, N.A.) |
$ |
5 |
$ | 5 | $ | 9 | ||||||
| Schwab 1 |
34 |
34 | 35 | |||||||||
| MBNA Canada |
3 |
7 | 7 | |||||||||
| Aeroplan |
4 |
4 | 6 | |||||||||
| Other |
13 |
15 | 8 | |||||||||
| Included as items of note |
59 |
65 | 65 | |||||||||
| Software |
97 |
110 | 110 | |||||||||
| Amortization of intangibles, net of income taxes |
$ |
156 |
$ | 175 | $ | 175 | ||||||
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
financial 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 attributable 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 10.5% Common Equity Tier 1 (CET1) Capital in the first quarter of 2022, compared with 9% in fiscal 2021.
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 7 |
TABLE 6: RETURN ON COMMON EQUITY
(millions of Canadian dollars, except as noted) |
For the three months ended |
|||||||||||
| January 31 2022 |
October 31 2021 |
January 31 2021 |
||||||||||
| Average common equity |
$ |
95,829 |
$ | 93,936 | $ | 89,211 | ||||||
| Net income available to common shareholders – reported |
3,690 |
3,718 | 3,212 | |||||||||
| Items of note, net of income taxes |
100 |
85 | 103 | |||||||||
| Net income available to common shareholders – adjusted |
$ |
3,790 |
$ | 3,803 | $ | 3,315 | ||||||
| Return on common equity – reported |
15.3 |
% |
15.7 | % | 14.3 | % | ||||||
| Return on common equity – adjusted |
15.7 |
16.1 | 14.7 | |||||||||
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) |
For the three months ended |
|||||||||||
January 31 2022 |
|
October 31 2021 |
|
|
January 31 2021 |
| ||||||
| Average common equity |
$ |
95,829 |
$ | 93,936 | $ | 89,211 | ||||||
| Average goodwill |
16,519 |
16,408 | 16,743 | |||||||||
| Average imputed goodwill and intangibles on investments in Schwab |
6,585 |
6,570 | 6,903 | |||||||||
| Average other acquired intangibles 1 |
526 |
565 | 407 | |||||||||
| Average related deferred tax liabilities |
(172 |
) |
(173 | ) | (173 | ) | ||||||
| Average tangible common equity |
72,371 |
70,566 | 65,331 | |||||||||
| Net income available to common shareholders – reported |
3,690 |
3,718 | 3,212 | |||||||||
| Amortization of acquired intangibles, net of income taxes |
59 |
65 | 65 | |||||||||
| Net income available to common shareholders adjusted for amortization of acquired intangibles, net of income taxes |
3,749 |
3,783 | 3,277 | |||||||||
| Other items of note, net of income taxes |
41 |
20 | 38 | |||||||||
| Net income available to common shareholders – adjusted |
$ |
3,790 |
$ | 3,803 | $ | 3,315 | ||||||
| Return on tangible common equity |
20.6 |
% |
21.3 | % | 19.9 | % | ||||||
| Return on tangible common equity – adjusted |
20.8 |
21.4 | 20.1 | |||||||||
1 |
Excludes intangibles relating to software and asset servicing rights. |
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) | For the three months ended | |
| January 31, 2022 vs. January 31, 2021 Increase (Decrease) | ||
| U.S. Retail Bank |
||
| Total revenue |
$ | |
| Non-interest expenses |
(26) | |
| Net income – after-tax |
(16) | |
| Share of net income from investment in Schwab 1 |
(8) | |
| U.S. Retail segment net income |
(24) | |
| Earnings per share |
||
| Basic |
$ (0.01) | |
| Diluted |
(0.01) | |
Average foreign exchange rate (equivalent of CAD $1.00) |
For the three months ended |
|||||||
January 31 2022 |
January 31 2021 |
|||||||
| U.S. dollar |
$ |
0.790 |
$ | 0.777 | ||||
1 |
Share of net income from investment in Schwab and the foreign exchange impact are reported with a one-month lag. |
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 8 |
FINANCIAL RESULTS OVERVIEW
Performance Summary
Outlined below is an overview of the Bank’s performance for the first quarter of 2022. Shareholder performance indicators help guide and benchmark the Bank’s accomplishments. For the purposes of this analysis, the Bank utilizes adjusted earnings, which excludes items of note from the reported results that are prepared in accordance with IFRS. Reported and adjusted results and items of note are explained in
“Non-GAAP
and Other Financial Measures” in the “How We Performed” section of this document. | • | Adjusted diluted EPS for the three months ended January 31, 2022, increased 13.7% from the same period last year. |
| • | Adjusted ROTCE for the three months ended January 31, 2022, was 20.8%. |
| • | For the twelve months ended January 31, 2022, the total shareholder return was 45.8% compared to the Canadian peer 2 average of 48.7%. |
Net Income
Quarterly comparison – Q1 2022 vs. Q1 2021
Reported net income for the quarter was $3,733 million, an increase of $456 million, or 14%, compared with the first quarter last year. The increase reflects higher revenues and lower PCL, partially offset by higher
non-interest
expenses. Adjusted net income for the quarter was $3,833 million, an increase of $453 million, or 13%. By segment, the increase in reported net income reflects an increase in U.S. Retail of $272 million and an increase in Canadian Retail of $217 million, partially offset by a decrease in the Corporate segment of $30 million and a decrease in Wholesale Banking of $3 million.
Quarterly comparison – Q1 2022 vs. Q4 2021
Reported net income for the quarter decreased $48 million, or 1%, compared with the prior quarter. The decrease reflects higher PCL, higher insurance claims, and higher
non-interest
expenses, partially offset by higher revenues. Adjusted net income for the quarter decreased $33 million or 1%. By segment, the decrease in reported net income reflects a decrease in U.S. Retail of $102 million and a decrease in the Corporate segment of $77 million, partially offset by an increase in Canadian Retail of $117 million and an increase in Wholesale Banking of $14 million.
Net Interest Income
Quarterly comparison – Q1 2022 vs. Q1 2021
Reported net interest income for the quarter was $6,302 million, an increase of $272 million, or 5%, compared with the first quarter last year. The increase reflects volume growth in the personal and commercial banking businesses and higher trading net interest income, partially offset by lower margins in the Canadian and U.S. Retail segments.
By segment, the increase in reported net interest income reflects an increase in Canadian Retail of $107 million, an increase in U.S. Retail of $84 million, an increase in Wholesale Banking of $48 million, and an increase in the Corporate segment of $33 million.
Quarterly comparison – Q1 2022 vs. Q4 2021
Reported net interest income for the quarter increased $40 million, or 1%, compared with the prior quarter, primarily reflecting volume growth in the personal and commercial banking businesses, partially offset by lower accelerated fee amortization from PPP loan forgiveness.
By segment, the increase in reported net interest income reflects an increase in Canadian Retail of $23 million, an increase in Wholesale Banking of $20 million, and an increase in U.S. Retail of $12 million, partially offset by a decrease in the Corporate segment of $15 million.
Non-Interest
Income Quarterly comparison – Q1 2022 vs. Q1 2021
Reported
non-interest
income for the quarter was $4,979 million, an increase of $197 million, or 4%, compared with the first quarter last year. The increase reflects higher fee-based
revenue in the banking and wealth businesses, and higher insurance volumes, partially offset by lower revenue from treasury and balance sheet management activities, lower transaction revenue in the wealth business, and lower wholesale trading revenue. By segment, the increase in reported
non-interest
income reflects an increase in Canadian Retail of $266 million and an increase in U.S. Retail of $18 million, partially offset by a decrease in the Corporate segment of $75 million and a decrease in Wholesale Banking of $12 million. Quarterly comparison – Q1 2022 vs. Q4 2021
Reported
non-interest
income for the quarter increased $300 million, or 6%, compared with the prior quarter. The increase primarily reflects higher wholesale trading revenue, higher fee-based
revenue in the banking and wealth businesses, and prior quarter premium rebates for customers in the insurance business, partially offset by lower revenue from treasury and balance sheet management activities. By segment, the increase in reported
non-interest
income reflects an increase in Wholesale Banking of $176 million, an increase in Canadian Retail of $175 million, partially offset by a decrease in the Corporate segment of $45 million and a decrease in U.S. Retail of $6 million. Provision for Credit Losses
Quarterly comparison – Q1 2022 vs. Q1 2021
PCL for the quarter was $72 million, a decrease of $241 million or 77%, compared with the first quarter last year. PCL – impaired was $329 million, a decrease of $137 million, largely related to improved credit conditions. PCL – performing was a recovery of $257 million, compared with a recovery of $153 million in the prior year, reflecting improved credit conditions, including a more favourable economic outlook. Total PCL for the quarter as an annualized percentage of credit volume was 0.04%.
By segment, the decrease in PCL reflects a decrease of $114 million in U.S. Retail, a decrease of $109 million in Canadian Retail, and a decrease of $25 million in Wholesale Banking, partially offset by an increase of $7 million in the Corporate segment.
Quarterly comparison – Q1 2022 vs. Q4 2021
PCL for the quarter increased $195 million compared with prior quarter. PCL – impaired increased by $109 million. While still significantly below historical levels, the increase reflects early signs of normalization of credit performance. PCL – performing was a recovery of $257 million, compared with a recovery of $343 million in the prior quarter. The performing release this quarter reflects a more favourable economic outlook. Total PCL for the quarter as an annualized percentage of credit volume was 0.04%.
2 |
Canadian peers include Bank of Montreal, Canadian Imperial Bank of Commerce, Royal Bank of Canada, and The Bank of Nova Scotia. |
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 9 |
By segment, the increase in PCL reflects an increase of $97 million in U.S. Retail, an increase of $72 million in Wholesale Banking, and an increase of $46 million in the Corporate segment, partially offset by a decrease of $20 million in Canadian Retail.
TABLE 9: PROVISION FOR CREDIT LOSSES
1
| (millions of Canadian dollars) | For the three months ended |
|||||||||||
January 31 2022 |
|
October 31 2021 |
|
|
January 31 2021 |
| ||||||
| Provision for (recovery of) credit losses – Stage 3 (impaired) |
||||||||||||
| Canadian Retail |
$ |
150 |
$ | 140 | $ | 167 | ||||||
| U.S. Retail |
125 |
68 | 190 | |||||||||
| Wholesale Banking |
(4 |
) |
(14 | ) | 10 | |||||||
| Corporate 2 |
58 |
26 | 99 | |||||||||
| Total provision for (recovery of) credit losses – Stage 3 |
329 |
220 | 466 | |||||||||
| Provision for (recovery of) credit losses – Stage 1 and Stage 2 performing |
||||||||||||
| Canadian Retail |
(117 |
) |
(87 | ) | (25 | ) | ||||||
| U.S. Retail |
(104 |
) |
(144 | ) | (55 | ) | ||||||
| Wholesale Banking |
(1 |
) |
(63 | ) | 10 | |||||||
| Corporate 2 |
(35 |
) |
(49 | ) | (83 | ) | ||||||
| Total provision for (recovery of) credit losses – Stage 1 and Stage 2 |
(257 |
) |
(343 | ) | (153 | ) | ||||||
| Total provision for (recovery of) credit losses |
$ |
72 |
$ | (123 | ) | $ | 313 | |||||
1 |
Includes PCL for off-balance sheet instruments. |
2 |
Includes PCL on the retailer program partners’ share of the U.S. strategic cards portfolio. |
Insurance claims and related expenses
Quarterly comparison – Q1 2022 vs. Q1 2021
Insurance claims and related expenses for the quarter were $756 million, a decrease of $24 million, or 3%, compared with the first quarter last year, reflecting a decrease in the fair value of investments supporting claims liabilities which resulted in a similar decrease in
non-interest
income, partially offset by more severe weather-related events. Quarterly comparison – Q1 2022 vs. Q4 2021
Insurance claims and related expenses for the quarter increased $106 million, or 16%, compared with the prior quarter, reflecting higher current year claims, less favourable prior years’ claims development, and more severe weather-related events.
Non-Interest
Expenses and Efficiency Ratio Quarterly comparison – Q1 2022 vs. Q1 2021
Reported
non-interest
expenses were $5,967 million, an increase of $183 million, or 3%, compared with the first quarter last year, reflecting higher spend supporting business growth and higher employee-related expenses, partially offset by prior year store optimization costs and the impact of foreign exchange translation. Adjusted non-interest
expenses were $5,897 million, an increase of $153 million, or 3%. By segment, the increase in reported
non-interest
expenses reflects an increase in Canadian Retail of $215 million, an increase in Wholesale Banking of $53 million, and an increase in the Corporate segment of $6 million, partially offset by a decrease in U.S. Retail of $91 million. The Bank’s reported efficiency ratio was 52.9% compared to 53.5% in the first quarter last year. The Bank’s adjusted efficiency ratio was 52.3%, compared with 53.1% in the first quarter last year.
Quarterly comparison – Q1 2022 vs. Q4 2021
Reported
non-interest
expenses for the quarter were $5,967 million, an increase of $20 million compared with the prior quarter. Adjusted non-interest
expenses were $5,897 million, flat compared with the prior quarter. By segment, the increase in reported
non-interest
expenses reflects an increase in Wholesale Banking of $106 million, partially offset by a decrease in Canadian Retail of $43 million, a decrease in the Corporate segment of $23 million, and a decrease in U.S. Retail of $20 million. The Bank’s reported efficiency ratio was 52.9% compared with 54.4% in the prior quarter. The Bank’s adjusted efficiency ratio was 52.3%, compared with 53.9% in the prior quarter.
Income Taxes
As discussed in
“Non-GAAP
and Other Financial Measures” in the “How We Performed” section of this document, the Bank adjusts its reported results to assess each of its businesses and to measure overall Bank performance. As such, the provision for income taxes is stated on a reported and an adjusted basis. The Bank’s effective income tax rate on a reported basis was 21.9% for the current quarter, compared with 21.0% in the first quarter last year and 20.4% in the prior quarter. The year-over-year increase primarily reflects the impact of higher
pre-tax
income. The quarter-over-quarter increase mainly reflects changes to the estimated liability for uncertain tax positions recorded in the prior quarter. 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 statutory income tax rate of the applicable 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 was 22.0% for the current quarter, compared with 21.0% in the first quarter last year and 20.4% in the prior quarter. The year-over-year increase primarily reflects the impact of higher pre-tax
income. The quarter-over-quarter increase mainly reflects changes to the estimated liability for uncertain tax positions recorded in the prior quarter. Adjusted results are not defined terms under IFRS and, therefore, may not be comparable to similar terms used by other issuers. | TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 10 |
TABLE 10: INCOME TAXES – Reconciliation of Reported to Adjusted Provision for Income Taxes
| (millions of Canadian dollars, except as noted) | For the three months ended |
|||||||||||||||||||||||
| January 31 2022 |
October 31 2021 |
January 31 2021 |
||||||||||||||||||||||
| Income taxes at Canadian statutory income tax rate |
$ |
1,178 |
26.3 |
% |
$ | 1,173 | 26.3 | % | $ | 1,033 | 26.3 | % | ||||||||||||
| Increase (decrease) resulting from: |
||||||||||||||||||||||||
| Dividends received |
(32 |
) |
(0.7 |
) |
(28 | ) | (0.6 | ) | (31 | ) | (0.8 | ) | ||||||||||||
| Rate differentials on international operations 1 |
(171 |
) |
(3.8 |
) |
(239 | ) | (5.3 | ) | (181 | ) | (4.6 | ) | ||||||||||||
| Other |
9 |
0.1 |
4 | – | 6 | 0.1 | ||||||||||||||||||
| Provision for income taxes and effective income tax rate – reported |
$ |
984 |
21.9 |
% |
$ | 910 | 20.4 | % | $ | 827 | 21.0 | % | ||||||||||||
| Total adjustments for items of note |
17 |
11 | 9 | |||||||||||||||||||||
| Provision for income taxes and effective income tax rate – adjusted |
$ |
1,001 |
22.0 |
% |
$ | 921 | 20.4 | % | $ | 836 | 21.0 | % | ||||||||||||
1 |
These amounts reflect tax credits as well as international business mix. |
ECONOMIC SUMMARY AND OUTLOOK
The global economy had a solid year in calendar 2021, with gross domestic product (GDP) estimated to have grown by nearly 6%, more than recovering the output lost in 2020.
Persistent disruptions related to
COVID-19
and global supply chains, as well as a spike in energy prices, have weighed on growth and boosted inflation at the outset of calendar 2022. With increased vaccination rates and more effective treatments, economic activity is expected to pick up as advanced economies continue to ease restrictions on activity. However, the global outlook remains subject to downside risk from the emergence of new, more virulent or vaccine-resistant variants. In addition, the recent escalation in tensions between Russia and Ukraine is a downside geopolitical risk that warrants monitoring. High and persistent inflation has garnered a forceful response from global central banks in most advanced and emerging market economies. Some have already commenced raising policy rates, while others (such as the Bank of Canada and the Federal Reserve) have signaled that an increase is imminent. China, where concerns over flagging growth have led to an easing in monetary policy, is an exception. Tighter financial conditions alongside a shift in the composition of demand toward services and a steady alleviation in supply bottlenecks, should help to tame inflationary pressures, but the speed of the adjustment is highly uncertain.
The U.S. economy ended 2021 on a strong note, growing by an estimated 6.9% annualized in the fourth calendar quarter, accelerating from 2.3% in the third quarter. Much of the uptick was due to a rebuilding in business inventories, which had been depleted by the combination of strong demand for goods and supply chain disruptions earlier in the year. Consumer spending growth also improved across many categories, although it decelerated in areas highly sensitive to the pandemic, such as food services and accommodation.
The U.S. labour market made considerable strides over the past year, with in January 2022. The unemployment rate edged up to 4.0% in the month, but is just 0.5 percentage points above its February 2020
non-farm
payrolls up 4.6% year-on-year
pre-pandemic
low. Still, the labour market has not made a full recovery. As of January 2022, payrolls were 2.9 million (1.9%) below pre-pandemic
levels and there were nearly one million fewer people in the labour force. With historically high job openings, the mismatch between labor supply and demand has pushed up nominal wage growth to the highest rate in over 20 years. Despite this, wage growth has not kept pace with the increase in consumer prices. In January, the percent change in the U.S. Consumer Price Index (CPI) hit a
year-on-year
40-year
high of 7.5%. Over half of the increase in the CPI was due to rising gasoline and vehicle prices. Energy prices have pushed even higher at the outset of 2022, and while auto production and sales picked up at the start of the year, supply shortages have continued to weigh on motor vehicle manufacturing. Over time, increases in energy and vehicle production should help to moderate the increase in transportation prices, but other sources of price pressures may take their place. Home price and rent measures have risen by double-digit rates and will likely translate into faster shelter price growth within the CPI measure in the coming months. The Federal Reserve has responded to high inflation by signaling the conclusion of its quantitative easing (QE) program in early March and its intention to begin raising the federal funds rate, which TD Economics anticipates will happen at its next meeting in March 2022. Thereafter, TD Economics expects the federal funds rate to increase in 25 basis points (bps) increments three more times over the course of calendar 2022, bringing it to 1.25% by the end of the calendar year. The timing and magnitude of future rate increases may be altered should inflationary pressures fail to ease at a pace consistent with the central bank’s expectations.
The Canadian economy accelerated in the final calendar quarter of 2021, buoyed by strong growth in the early months of the quarter. By November, real GDP pushed above its
pre-pandemic
level by an estimated 0.2%. Growth was broad-based, with both goods and service industries growing strongly. Activity appears to have stalled in December 2021 and January 2022, as the rapidly spreading Omicron variant once again led to mobility restrictions across the country. However, provincial governments embarked on reopening plans in February that, if sustained, should result in a noticeable pick-up
in activity through the late winter and early spring months. The Canadian labour market added jobs at a record clip in 2021. The
re-imposition
of restrictions on activity resulted in a sizeable pullback of 200,000 jobs in January, causing the unemployment rate to rise to 6.5% from 6.0%. However, the rise in unemployment was entirely due to an increase in people on temporary lay-off
or scheduled to start a job in the near future. The labour force remains on a solid footing and is larger than it was prior to the pandemic. As 2022 unfolds, ongoing pockets of weakness in high-contact service industries, such as leisure and hospitality, should improve. As in the United States, demand for labour is strong across industries, and job growth is expected to remain healthy. Canadian home sales continued to move higher through the end of last year. Upward pressure on home prices reflects the combination of healthy demand and limited inventory, with the number of homes for sale hitting a record low in December. Average home prices were up close to 20% in December, the second year of double-digit growth. As the Bank of Canada raises rates, the corresponding increase in mortgage rates is likely to slow housing demand over the next year, but limited inventories are expected to support prices.
year-on-year
CPI inflation is lower in Canada than in the United States, but hit a
30-year
high of 5.1% in January 2022. The outlook for inflation will depend on the trajectory of supply constraints and the pace of demand growth. With energy prices continuing to move higher and global supply disruptions prolonged by the spread of Omicron, inflation is likely to remain elevated at the outset of 2022. The Bank of Canada kept its overnight interest rate at 0.25% in January, but has clearly signaled its intention to raise rates. In addition, it has already ended its asset purchases and has communicated its intention to begin reducing the size of its balance sheet alongside increases in its policy rate. TD Economics expects the overnight rate to rise by 25 bps in March and anticipates three more 25 bps increases before the end of the calendar year, bringing it to 1.25% by the end of the year. With interest rates set to increase by the same amount in Canada and the United States, the Canadian dollar is expected to remain in a range of
79-81
U.S. cents over the next two years. | TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 11 |
HOW OUR BUSINESSES PERFORMED
For management reporting purposes, the Bank reports its results under three key business segments: Canadian Retail, which includes the results of the personal and commercial banking, wealth, and insurance businesses; U.S. Retail, which includes the results of the personal and business banking operations, wealth management services, and the Bank’s investment in Schwab; and Wholesale Banking. The Bank’s other activities are grouped into the Corporate segment.
Results of each business segment reflect revenue, expenses, assets, and liabilities generated by the businesses in that segment. Where applicable, the Bank measures and evaluates the performance of each segment based on adjusted results and ROE, and for those segments, the Bank indicates that the measure is adjusted. For further details, refer to the “How We Performed” section of this document, the “Business Focus” section in the Bank’s 2021 MD&A, and Note 29 of the Bank’s Consolidated Financial Statements for the year ended October 31, 2021.
PCL related to performing (Stage 1 and Stage 2) and impaired (Stage 3) financial assets, loan commitments, and financial guarantees is recorded within the respective segment.
Net interest income within Wholesale Banking is calculated on a taxable equivalent basis (TEB), which means that the value of
non-taxable
or tax-exempt
income, including certain dividends, is adjusted to its equivalent before-tax
value. Using TEB allows the Bank to measure income from all securities and loans consistently and makes for a more meaningful comparison of net interest income with similar institutions. The TEB increase to net interest income and provision for income taxes reflected in Wholesale Banking’s results are reversed in the Corporate segment. The TEB adjustment for the quarter was $38 million, compared with $36 million in the prior quarter and $42 million in the first quarter last year. Share of net income from investment in Schwab is reported in the U.S. Retail segment. Amounts for amortization of acquired intangibles and the acquisition and integration charges related to the Schwab transaction are recorded in the Corporate segment.
TABLE 11: CANADIAN RETAIL
| (millions of Canadian dollars, except as noted) | For the three months ended |
|||||||||||
| January 31 2022 |
October 31 2021 |
January 31 2021 |
||||||||||
| Net interest income |
$ |
3,085 |
$ | 3,062 | $ | 2,978 | ||||||
| Non-interest income |
3,633 |
3,458 | 3,367 | |||||||||
| Total revenue |
6,718 |
6,520 | 6,345 | |||||||||
| Provision for (recovery of) credit losses – impaired |
150 |
140 | 167 | |||||||||
| Provision for (recovery of) credit losses – performing |
(117 |
) |
(87 | ) | (25 | ) | ||||||
| Total provision for (recovery of) credit losses |
33 |
53 | 142 | |||||||||
| Insurance claims and related expenses |
756 |
650 | 780 | |||||||||
| Non-interest expenses |
2,869 |
2,912 | 2,654 | |||||||||
| Provision for (recovery of) income taxes |
806 |
768 | 732 | |||||||||
| Net income |
$ |
2,254 |
$ | 2,137 | $ | 2,037 | ||||||
| Selected volumes and ratios |
||||||||||||
| Return on common equity 1 |
44.8 |
% |
47.7 | % | 46.0 | % | ||||||
| Net interest margin (including on securitized assets) 2 |
2.53 |
2.57 | 2.65 | |||||||||
| Efficiency ratio |
42.7 |
44.7 | 41.8 | |||||||||
| Assets under administration (billions of Canadian dollars) 3 |
$ |
557 |
$ | 557 | $ | 484 | ||||||
| Assets under management (billions of Canadian dollars) 3 |
429 |
427 | 380 | |||||||||
| Number of Canadian retail branches |
1,062 |
1,061 | 1,087 | |||||||||
| Average number of full-time equivalent staff |
42,952 |
42,205 | 40,714 | |||||||||
1 |
Capital allocated to the business segment was increased to 10.5% CET1 Capital effective the first quarter of fiscal 2022 compared with 9% in the prior year. |
2 |
Net interest margin is calculated by dividing net interest income by average interest-earning assets. Average interest-earning assets used in the calculation of net interest margin 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 these metrics. |
3 |
For additional information about this metric, refer to the Glossary of this document. |
Quarterly comparison – Q1 2022 vs. Q1 2021
Canadian Retail net income for the quarter was $2,254 million, an increase of $217 million, or 11%, compared with the first quarter last year, reflecting higher revenue and lower PCL, partially offset by higher
non-interest
expenses. The annualized ROE for the quarter was 44.8%, compared with 46.0% in the first quarter last year. Canadian Retail revenue is derived from the personal and business banking, wealth, and insurance businesses. Revenue for the quarter was $6,718 million, an increase of $373 million, or 6%, compared with the first quarter last year.
Net interest income was $3,085 million, an increase of $107 million, or 4%, compared with the first quarter last year, reflecting volume growth, partially offset by lower margins. Average loan volumes increased $40 billion, or 9%, reflecting 8% growth in personal loans and 14% growth in business loans. Average deposit volumes increased $40 billion, or 9%, reflecting 7% growth in personal deposits, 13% growth in business deposits, and 9% growth in wealth deposits. Net interest margin was 2.53%, a decrease of 12 bps, reflecting changes to balance sheet mix, lower margins on loans, and lower mortgage prepayment revenue.
Non-interest
income was $3,633 million, an increase of $266 million, or 8%, reflecting higher fee-based
revenue in the banking and wealth businesses, and higher insurance volumes, partially offset by a decrease in the fair value of investments supporting claims liabilities which resulted in a similar decrease in insurance claims, and lower transaction revenue in the wealth business. Assets under administration (AUA) were $557 billion as at January 31, 2022, an increase of $73 billion, or 15%, and assets under management (AUM) were $429 billion as at January 31, 2022, an increase of $49 billion, or 13%, compared with the first quarter last year, both reflecting market appreciation and net asset growth.
PCL was $33 million, a decrease of $109 million, compared with the first quarter last year. PCL – impaired for the quarter was $150 million, a decrease of $17 million, or 10%. PCL – performing was a recovery of $117 million, compared with a recovery of $25 million in the prior year, reflecting improved credit conditions, including a more favourable economic outlook. Total PCL as an annualized percentage of credit volume was 0.03%, a decrease of 9 bps compared with the first quarter last year.
Insurance claims and related expenses for the quarter were $756 million, a decrease of $24 million, or 3%, compared with the first quarter last year reflecting a decrease in the fair value of investments supporting claims liabilities which resulted in a similar decrease in
non-interest
income, partially offset by more severe weather-related events. Non-interest
expenses for the quarter were $2,869 million, an increase of $215 million, or 8%, compared with the first quarter last year, reflecting higher spend supporting business growth, including technology and marketing costs, higher employee-related expenses and variable compensation. The efficiency ratio for the quarter was 42.7%, compared with 41.8% in the first quarter last year.
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 12 |
Quarterly comparison – Q1 2022 vs. Q4 2021
Canadian Retail net income for the quarter was $2,254 million, an increase of $117 million, or 5%, compared with the prior quarter, reflecting higher revenue and lower
non-interest
expenses, partially offset by higher insurance claims. The annualized ROE for the quarter was 44.8%, compared with 47.7%, in the prior quarter. Revenue increased $198 million, or 3%, compared with the prior quarter. Net interest income increased $23 million, or 1%. Average loan volumes increased $11 billion, or 2%, reflecting 2% growth in personal loans and 3% growth in business loans. Average deposit volumes increased $8 billion, or 2%, reflecting 1% growth in personal deposits, 2% growth in business deposits, and a 3% increase in wealth deposits. Net interest margin was 2.53%, a decrease of 4 bps, primarily reflecting lower margins on loans.
Non-interest
income increased $175 million, or 5%, reflecting prior quarter premium rebates for customers in the insurance business, higher transaction and fee-based
revenue in the wealth business, and higher fee-based
revenue in the banking businesses. AUA and AUM, were relatively flat compared with the prior quarter.
PCL was $33 million, a decrease of $20 million, compared with the prior quarter. PCL – impaired increased $10 million, or 7%. PCL – performing was a recovery of $117 million compared with a recovery of $87 million in the prior quarter. The performing release this quarter reflects a more favourable economic outlook. Total PCL as an annualized percentage of credit volume was 0.03%, a decrease of 1 basis point.
Insurance claims and related expenses for the quarter increased $106 million, or 16%, compared with the prior quarter, reflecting higher current year claims, less favourable prior years’ claims development and more severe weather-related events.
Non-interest
expenses decreased $43 million, or 1%, compared with the prior quarter reflecting lower technology and marketing costs. The efficiency ratio was 42.7%, compared with 44.7%, in the prior quarter.
TABLE 12: U.S. RETAIL
| (millions of dollars, except as noted) | For the three months ended |
|||||||||||
| Canadian Dollars |
January 31 2022 |
|
October 31 2021 |
|
|
January 31 2021 |
| |||||
| Net interest income |
$ |
2,115 |
$ | 2,103 | $ | 2,031 | ||||||
| Non-interest income |
671 |
677 | 653 | |||||||||
| Total revenue |
2,786 |
2,780 | 2,684 | |||||||||
| Provision for (recovery of) credit losses – impaired |
125 |
68 | 190 | |||||||||
| Provision for (recovery of) credit losses – performing |
(104 |
) |
(144 | ) | (55 | ) | ||||||
| Total provision for (recovery of) credit losses |
21 |
(76 | ) | 135 | ||||||||
| Non-interest expenses |
1,597 |
1,617 | 1,688 | |||||||||
| Provision for (recovery of) income taxes |
148 |
111 | 70 | |||||||||
| U.S. Retail Bank net income |
1,020 |
1,128 | 791 | |||||||||
| Share of net income from investment in Schwab 1,2 |
252 |
246 | 209 | |||||||||
| Net income |
$ |
1,272 |
$ | 1,374 | $ | 1,000 | ||||||
| U.S. Dollars |
||||||||||||
| Net interest income |
$ |
1,671 |
$ | 1,673 | $ | 1,579 | ||||||
| Non-interest income |
530 |
539 | 507 | |||||||||
| Total revenue |
2,201 |
2,212 | 2,086 | |||||||||
| Provision for (recovery of) credit losses – impaired |
99 |
53 | 147 | |||||||||
| Provision for (recovery of) credit losses – performing |
(82 |
) |
(115 | ) | (44 | ) | ||||||
| Total provision for (recovery of) credit losses |
17 |
(62 | ) | 103 | ||||||||
| Non-interest expenses |
1,261 |
1,288 | 1,313 | |||||||||
| Provision for (recovery of) income taxes |
117 |
89 | 55 | |||||||||
| U.S. Retail Bank net income |
806 |
897 | 615 | |||||||||
| Share of net income from investment in Schwab 1,2 |
200 |
195 | 161 | |||||||||
| Net income |
$ |
1,006 |
$ | 1,092 | $ | 776 | ||||||
| Selected volumes and ratios |
||||||||||||
| Return on common equity 3 |
12.6 |
% |
14.5 | % | 9.8 | % | ||||||
| Net interest margin 4 |
2.21 |
2.21 | 2.24 | |||||||||
| Efficiency ratio |
57.3 |
58.2 | 62.9 | |||||||||
| Assets under administration (billions of U.S. dollars) |
$ |
32 |
$ | 30 | $ | 26 | ||||||
| Assets under management (billions of U.S. dollars) |
40 |
41 | 43 | |||||||||
| Number of U.S. retail stores |
1,152 |
1,148 | 1,223 | |||||||||
| Average number of full-time equivalent staff |
24,922 |
24,771 | 26,333 | |||||||||
1 |
The Bank’s share of Schwab’s earnings is reported with a one-month lag. Refer to Note 7 of the Bank’s first quarter 2022 Interim Consolidated Financial Statements for further details. |
2 |
The after-tax amounts for amortization of acquired intangibles and the Bank’s share of acquisition and integration charges associated with Schwab’s acquisition are recorded in the Corporate segment. |
3 |
Capital allocated to the business segment was increased to 10.5% CET1 Capital effective the first quarter of fiscal 2022 compared with 9% in the prior year. |
4 |
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 “How We Performed” section of this document. |
Quarterly comparison – Q1 2022 vs. Q1 2021
U.S. Retail net income for the quarter was $1,272 million (US$1,006 million), an increase of $272 million (US$230 million), or 27% (30% in U.S. dollars) compared with the first quarter last year. The annualized ROE for the quarter was 12.6%, compared with 9.8%, in the first quarter last year.
U.S. Retail net income includes contributions from the U.S. Retail Bank and the Bank’s investment in Schwab. Net income for the quarter from the U.S. Retail Bank and the Bank’s investment in Schwab was $1,020 million (US$806 million) and $252 million (US$200 million), respectively.
The contribution from Schwab of US$200 million increased US$39 million, or 24%, compared with the contribution in the first quarter last year, primarily reflecting higher net interest revenue.
U.S. Retail Bank net income of US$806 million increased US$191 million, or 31%, primarily reflecting higher revenue, lower PCL, and lower
non-interest
expenses. U.S. Retail Bank revenue is derived from the personal and business banking and wealth management businesses. Revenue for the quarter was US$2,201 million, an increase of US$115 million, or 6%, compared with the first quarter last year. Net interest income of US$1,671 million, was up US$92 million,
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 13 |
largely driven by the benefit of higher business and personal deposit volumes and margins combined with increased earnings on the investment portfolio, partially offset by lower loan margins and decreased sweep deposit balances. Net interest margin of 2.21%, was down 3 bps, as the impact of negative balance sheet mix was partially offset by deposit margin expansion and increased earnings on the investment portfolio.
Non-interest
income increased US$23 million, or 5%, compared with the first quarter last year, primarily reflecting fee income growth from increased customer activity, partially offset by lower gains on the sale of mortgage loans. Average loan volumes decreased US$10 billion, or 6%, compared with the first quarter last year. Personal loans were flat while business loans decreased 11%, as PPP loan forgiveness accounted for about 56% of the decline in business loans with paydowns of commercial loans driving the remaining decline. Average deposit volumes increased US$20 billion, or 5%, reflecting a 15% increase in personal deposits and a 12% increase in business deposits, partially offset by a 6% decrease in sweep deposits.
AUA were US$32 billion as at January 31, 2022, an increase of US$6 billion, or 23%, compared with the first quarter last year, reflecting net asset growth. AUM were US$40 billion as at January 31, 2022, a decrease of US$3 billion, or 7%, compared with the first quarter last year, reflecting net asset outflows, partially offset by market appreciation.
PCL for the quarter was US$17 million, a decrease of US$86 million compared with the first quarter last year. PCL – impaired was US$99 million, a decrease of US$48 million, or 33%, largely related to improved credit conditions. PCL – performing was a recovery of US$82 million, compared with a recovery of US$44 million in the prior year, reflecting improved credit conditions, including a more favourable economic outlook. 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 0.04%, a decrease of 21 bps, compared with the first quarter last year.
Non-interest
expenses for the quarter were US$1,261 million, a decrease of US$52 million, or 4%, compared with the first quarter last year, primarily reflecting prior year store optimization costs of US$76 million and productivity savings in the current year, partially offset by higher employee related expenses and investments in the business. The efficiency ratio for the quarter was 57.3%, compared with 62.9%, in the first quarter last year.
Quarterly comparison – Q1 2022 vs. Q4 2021
U.S. Retail net income of $1,272 million (US$1,006 million) decreased $102 million (US$86 million), or 7% (8% in U.S. dollars). The annualized ROE for the quarter was 12.6%, compared with 14.5% in the prior quarter.
The contribution from Schwab of US$200 million increased US$5 million, or 3%, primarily reflecting higher net interest revenue, partially offset by higher operating expenses.
U.S. Retail Bank net income of US$806 million decreased US$91 million, or 10%, compared with the prior quarter, primarily reflecting higher PCL.
Revenue for the quarter decreased US$11 million, relatively flat, compared with the prior quarter. Net interest income of US$1,671 million, and net interest margin of 2.21%, were relatively flat as the impact of lower accelerated fee amortization from PPP forgiveness was offset by deposit margin expansion and increased earnings on the investment portfolio.
Non-interest
income decreased US$9 million, or 2%, primarily reflecting a lower valuation on certain investments, partially offset by higher fee income growth from increased customer activity. Average loan volumes decreased US$1 billion, or 1%, compared with the prior quarter. Personal loans increased 2%, primarily reflecting growth in residential mortgage and credit card balances. Business loans decreased 3%, the majority related to PPP loan forgiveness. Average deposit volumes increased US$9 billion, or 2%, compared with the prior quarter reflecting a 3% increase in personal deposits, a 2% increase in business deposits, and a 2% increase in sweep deposits.
AUA were US$32 billion as at January 31, 2022, an increase of US$2 billion, or 7%, compared with the prior quarter, reflecting net asset growth. AUM were US$40 billion as at January 31, 2022, a decrease of US$1 billion, or 2%, reflecting net asset outflows, partially offset by market appreciation.
PCL was US$17 million compared with a recovery of US$62 million in the prior quarter. PCL – impaired increased US$46 million, or 87%. While still significantly below historical levels, the increase reflects early signs of normalization of credit performance, including seasonal trends in the credit card and auto portfolios. PCL – performing was a recovery of US$82 million, compared with a recovery of US$115 million in the prior quarter. The current quarter performing release reflects a more favourable economic outlook. 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 0.04%, higher by 19 bps.
Non-interest
expenses for the quarter were US$1,261 million, a decrease of US$27 million, or 2%, primarily reflecting timing of project expenses and higher incentive compensation costs in the prior quarter. The efficiency ratio for the quarter was 57.3%, compared with 58.2% in the prior quarter.
THE CHARLES SCHWAB CORPORATION
Refer to Note 7, Investment in Associates and Joint Ventures of the Bank’s first quarter 2022 Interim Consolidated Financial Statements for further information on Schwab.
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 14 |
TABLE 13: WHOLESALE BANKING
| (millions of Canadian dollars, except as noted) | For the three months ended |
|||||||||||
January 31 2022 |
|
October 31 2021 |
|
|
January 31 2021 |
| ||||||
| Net interest income (TEB) |
$ |
709 |
$ | 689 | $ | 661 | ||||||
| Non-interest income |
637 |
461 | 649 | |||||||||
| Total revenue |
1,346 |
1,150 | 1,310 | |||||||||
| Provision for (recovery of) credit losses – impaired |
(4 |
) |
(14 | ) | 10 | |||||||
| Provision for (recovery of) credit losses – performing |
(1 |
) |
(63 | ) | 10 | |||||||
| Total provision for (recovery of) credit losses |
(5 |
) |
(77 | ) | 20 | |||||||
| Non-interest expenses |
764 |
658 | 711 | |||||||||
| Provision for (recovery of) income taxes (TEB) |
153 |
149 | 142 | |||||||||
| Net income |
$ |
434 |
$ | 420 | $ | 437 | ||||||
| Selected volumes and ratios |
||||||||||||
| Trading-related revenue (TEB) 1 |
$ |
726 |
$ | 510 | $ | 744 | ||||||
| Average gross lending portfolio (billions of Canadian dollars) 2 |
59.2 |
58.1 | 58.7 | |||||||||
| Return on common equity 3 |
16.2 |
% |
18.6 | % | 21.3 | % | ||||||
| Efficiency ratio |
56.8 |
57.2 | 54.3 | |||||||||
| Average number of full-time equivalent staff |
4,932 |
4,910 | 4,678 | |||||||||
1 |
Includes net interest income TEB of $525 million (October 2021 – $514 million, January 2021 – $504 million), and trading income (loss) of $201 million (October 2021 – $(4) million, January 2021 – $240 million). Trading-related revenue (TEB) 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. |
2 |
Includes gross loans and bankers’ acceptances relating to Wholesale Banking, excluding letters of credit, cash collateral, credit default swaps, and allowance for credit losses. |
3 |
Capital allocated to the business segment was increased to 10.5% CET1 Capital effective the first quarter of fiscal 2022 compared with 9% in the prior year. |
Quarterly comparison – Q1 2022 vs. Q1 2021
Wholesale Banking net income for the quarter was $434 million, a decrease of $3 million, or 1%, compared with the first quarter last year, reflecting higher revenue and lower PCL, offset by higher
non-interest
expenses. Wholesale Banking revenue is derived primarily from capital markets and corporate and investment banking services provided to corporate, government, and institutional clients. Wholesale Banking generates revenue from corporate lending, advisory, underwriting, sales, trading and research, client securitization, trade finance, cash management, prime services, and trade execution services. Revenue for the quarter was $1,346 million, an increase of $36 million, or 3%, compared with the first quarter last year, primarily reflecting higher loan fees and prime services revenue.
PCL for the quarter was a recovery of $5 million, lower by $25 million compared with the first quarter last year. PCL – impaired was a recovery of $4 million, lower by $14 million. PCL – performing was a recovery of $1 million, lower by $11 million.
Non-interest
expenses were $764 million, an increase of $53 million, or 7%, compared with the first quarter last year, primarily reflecting higher employee-related costs from continued investment in Wholesale Banking’s U.S. dollar strategy, including the investments in TD Securities Automated Trading. Quarterly comparison – Q1 2022 vs. Q4 2021
Wholesale Banking net income for the quarter was $434 million, an increase of $14 million, or 3%, compared with the prior quarter, reflecting higher revenue, partially offset by higher
non-interest
expenses and a lower PCL recovery. Revenue for the quarter increased $196 million, or 17%, primarily reflecting higher trading-related revenue, partially offset by lower advisory fees.
PCL for the quarter was a recovery of $5 million, compared with a recovery of $77 million in the prior quarter. PCL – impaired was a recovery of $4 million. PCL – performing was a recovery of $1 million, compared with a recovery of $63 million in the prior quarter.
Non-interest
expenses for the quarter increased $106 million, or 16%, primarily reflecting higher variable compensation. TABLE 14: CORPORATE
| (millions of Canadian dollars) | For the three months ended |
|||||||||||
January 31 2022 |
|
October 31 2021 |
|
|
January 31 2021 |
| ||||||
| Net income (loss) – reported |
$ |
(227 |
) |
$ | (150 | ) | $ | (197 | ) | |||
| Adjustments for items of note |
||||||||||||
| Amortization of acquired intangibles before income taxes |
67 |
74 | 74 | |||||||||
| Acquisition and integration charges related to the Schwab transaction |
50 |
22 | 38 | |||||||||
| Less: impact of income taxes |
17 |
11 | 9 | |||||||||
| Net income (loss) – adjusted 1 |
$ |
(127 |
) |
$ | (65 | ) | $ | (94 | ) | |||
| Decomposition of items included in net income (loss) – adjusted |
||||||||||||
| Net corporate expenses 2 |
$ |
(168 |
) |
$ | (202 | ) | $ | (182 | ) | |||
| Other |
41 |
137 | 88 | |||||||||
| Net income (loss) – adjusted 1 |
$ |
(127 |
) |
$ | (65 | ) | $ | (94 | ) | |||
| Selected volumes |
||||||||||||
| Average number of full-time equivalent staff |
18,017 |
17,772 | 17,720 | |||||||||
1 |
For additional information about Bank’s use of non-GAAP financial measures, refer to “Non-GAAP and Other Financial Measures” in the “How We Performed” section of this document. |
2 |
For additional information about this metric, refer to the Glossary of this document. |
Quarterly comparison – Q1 2022 vs. Q1 2021
Corporate segment’s reported net loss for the quarter was $227 million, compared with a reported net loss of $197 million in the first quarter last year. The year-over-year increase reflects a lower contribution from other items, partially offset by lower net corporate expenses. The decrease in other items primarily reflects lower revenue from treasury and balance sheet management activities this quarter. Net corporate expenses decreased $14 million compared to the same quarter last year. The adjusted net loss for the quarter was $127 million, compared with an adjusted net loss of $94 million in the first quarter last year.
Quarterly comparison – Q1 2022 vs. Q4 2021
Corporate segment’s reported net loss for the quarter was $227 million, compared with a reported net loss of $150 million in the prior quarter. The quarter-over-quarter increase reflects a lower contribution from other items, partially offset by lower net corporate expenses. The decrease in other items primarily reflects lower revenue from treasury and balance sheet management activities this quarter. Net corporate expenses decreased $34 million compared to the prior quarter. The adjusted net loss for the quarter was $127 million, compared with an adjusted net loss of $65 million in the prior quarter.
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 15 |
QUARTERLY RESULTS
The following table provides summary information related to the Bank’s eight most recently completed quarters.
TABLE 15: QUARTERLY RESULTS
| (millions of Canadian dollars, except as noted) | For the three months ended |
|||||||||||||||||||||||||||||||
2022 |
2021 | 2020 | ||||||||||||||||||||||||||||||
Jan. 31 |
Oct. 31 | Jul. 31 | Apr. 30 | Jan. 31 | Oct. 31 | Jul. 31 | Apr. 30 | |||||||||||||||||||||||||
| Net interest income |
$ |
6,302 |
$ | 6,262 | $ | 6,004 | $ | 5,835 | $ | 6,030 | $ | 6,027 | $ | 6,101 | $ | 6,200 | ||||||||||||||||
| Non-interest income |
4,979 |
4,679 | 4,708 | 4,393 | 4,782 | 5,817 | 4,564 | 4,328 | ||||||||||||||||||||||||
| Total revenue |
11,281 |
10,941 | 10,712 | 10,228 | 10,812 | 11,844 | 10,665 | 10,528 | ||||||||||||||||||||||||
| Provision for (recovery of) credit losses |
72 |
(123 | ) | (37 | ) | (377 | ) | 313 | 917 | 2,188 | 3,218 | |||||||||||||||||||||
| Insurance claims and related expenses |
756 |
650 | 836 | 441 | 780 | 630 | 805 | 671 | ||||||||||||||||||||||||
| Non-interest expenses |
5,967 |
5,947 | 5,616 | 5,729 | 5,784 | 5,709 | 5,307 | 5,121 | ||||||||||||||||||||||||
| Provision for (recovery of) income taxes |
984 |
910 | 922 | 962 | 827 | (202 | ) | 445 | 250 | |||||||||||||||||||||||
| Share of net income from investment in Schwab and TD Ameritrade |
231 |
224 | 170 | 222 | 169 | 353 | 328 | 247 | ||||||||||||||||||||||||
| Net income – reported |
3,733 |
3,781 | 3,545 | 3,695 | 3,277 | 5,143 | 2,248 | 1,515 | ||||||||||||||||||||||||
| Pre-tax adjustments for items of note1 |
||||||||||||||||||||||||||||||||
| Amortization of acquired intangibles |
67 |
74 | 68 | 69 | 74 | 61 | 63 | 68 | ||||||||||||||||||||||||
| Acquisition and integration charges related to the Schwab transaction |
50 |
22 | 24 | 19 | 38 | – | – | – | ||||||||||||||||||||||||
| Net gain on sale of the investment in TD Ameritrade 2 |
– |
– | – | – | – | (1,421 | ) | – | – | |||||||||||||||||||||||
| Charges associated with the acquisition of Greystone 3 |
– |
– | – | – | – | 25 | 25 | 26 | ||||||||||||||||||||||||
| Total pre-tax adjustments for items of note |
117 |
96 | 92 | 88 | 112 | (1,335 | ) | 88 | 94 | |||||||||||||||||||||||
| Less: Impact of income taxes 1 |
17 |
11 | 9 | 8 | 9 | 838 | 9 | 10 | ||||||||||||||||||||||||
| Net income – adjusted |
3,833 |
3,866 | 3,628 | 3,775 | 3,380 | 2,970 | 2,327 | 1,599 | ||||||||||||||||||||||||
| Preferred dividends and distributions on other equity instruments |
43 |
63 | 56 | 65 | 65 | 64 | 68 | 68 | ||||||||||||||||||||||||
| Net income available to common shareholders – adjusted |
$ |
3,790 |
$ | 3,803 | $ | 3,572 | $ | 3,710 | $ | 3,315 | $ | 2,906 | $ | 2,259 | $ | 1,531 | ||||||||||||||||
| (Canadian dollars, except as noted) |
||||||||||||||||||||||||||||||||
| Basic earnings per share |
||||||||||||||||||||||||||||||||
| Reported |
$ |
2.03 |
$ | 2.04 | $ | 1.92 | $ | 2.00 | $ | 1.77 | $ | 2.80 | $ | 1.21 | $ | 0.80 | ||||||||||||||||
| Adjusted |
2.08 |
2.09 | 1.96 | 2.04 | 1.83 | 1.60 | 1.25 | 0.85 | ||||||||||||||||||||||||
| Diluted earnings per share |
||||||||||||||||||||||||||||||||
| Reported |
2.02 |
2.04 | 1.92 | 1.99 | 1.77 | 2.80 | 1.21 | 0.80 | ||||||||||||||||||||||||
| Adjusted |
2.08 |
2.09 | 1.96 | 2.04 | 1.83 | 1.60 | 1.25 | 0.85 | ||||||||||||||||||||||||
| Return on common equity – reported |
15.3 |
% |
15.7 | % | 15.3 | % | 16.7 | % | 14.3 | % | 23.3 | % | 10.0 | % | 6.9 | % | ||||||||||||||||
| Return on common equity – adjusted |
15.7 |
16.1 | 15.6 | 17.1 | 14.7 | 13.3 | 10.4 | 7.3 | ||||||||||||||||||||||||
| (billions of Canadian dollars, except as noted) |
||||||||||||||||||||||||||||||||
| Average total assets |
$ |
1,769 |
$ | 1,750 | $ | 1,699 | $ | 1,726 | $ | 1,746 | $ | 1,718 | $ | 1,681 | $ | 1,568 | ||||||||||||||||
| Average interest-earning assets 4 |
1,593 |
1,574 | 1,527 | 1,536 | 1,563 | 1,531 | 1,494 | 1,374 | ||||||||||||||||||||||||
| Net interest margin |
1.57 |
% |
1.58 | % | 1.56 | % | 1.56 | % | 1.53 | % | 1.57 | % | 1.62 | % | 1.83 | % | ||||||||||||||||
1 |
For explanations of items of note, refer to the “Non-GAAP Financial Measures – Reconciliation of Adjusted to Reported Net Income” table in the “How We Performed” section of this document. |
2 |
Adjusted non-interest income excludes the Bank’s net gain on sale of its investment in TD Ameritrade as a result of the Schwab transaction primarily related to a revaluation gain, the release of cumulative foreign currency translation gains offset by the release of designated hedging items and related taxes, and the release of a deferred tax liability related to the Bank’s investment in TD Ameritrade, net of direct transaction costs. These amounts were reported in the Corporate segment. |
3 |
Adjusted non-interest expenses exclude charges associated with the acquisition of Greystone Capital Management Inc. (“Greystone”), reported in the Canadian Retail segment. |
4 |
Average interest-earning assets 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. |
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 16 |
BALANCE SHEET REVIEW
TABLE 16: SELECTED INTERIM CONSOLIDATED BALANCE SHEET ITEMS
| (millions of Canadian dollars) |
As at |
|||||||
| January 31, 2022 |
October 31, 2021 |
|||||||
| Assets |
||||||||
| Cash and Interest-bearing deposits with banks |
$ |
172,210 |
$ | 165,893 | ||||
| Trading loans, securities, and other |
152,748 |
147,590 | ||||||
| Non-trading financial assets at fair value through profit or loss |
9,925 |
9,390 | ||||||
| Derivatives |
54,519 |
54,427 | ||||||
| Financial assets designated at fair value through profit or loss |
4,762 |
4,564 | ||||||
| Financial assets at fair value through other comprehensive income |
75,519 |
79,066 | ||||||
| Debt securities at amortized cost, net of allowance for credit losses |
295,946 |
268,939 | ||||||
| Securities purchased under reverse repurchase agreements |
165,818 |
167,284 | ||||||
| Loans, net of allowance for loan losses |
743,615 |
722,622 | ||||||
| Investment in Schwab |
11,186 |
11,112 | ||||||
| Other |
92,340 |
97,785 | ||||||
| Total assets |
$ |
1,778,588 |
$ | 1,728,672 | ||||
| Liabilities |
||||||||
| Trading deposits |
$ |
20,549 |
$ | 22,891 | ||||
| Derivatives |
51,892 |
57,122 | ||||||
| Financial liabilities designated at fair value through profit or loss |
135,150 |
113,988 | ||||||
| Deposits |
1,159,538 |
1,125,125 | ||||||
| Obligations related to securities sold under repurchase agreements |
145,432 |
144,097 | ||||||
| Subordinated notes and debentures |
11,304 |
11,230 | ||||||
| Other |
152,746 |
154,401 | ||||||
| Total liabilities |
1,676,611 |
1,628,854 | ||||||
| Total equity |
101,977 |
99,818 | ||||||
| Total liabilities and equity |
$ |
1,778,588 |
$ | 1,728,672 | ||||
Total assets
The increase in total assets reflects debt securities at amortized cost (DSAC), net of allowance for credit losses of $27 billion, loans, net of allowances for loan losses of $21 billion, cash and interest-bearing deposits with banks of $6 billion, trading loans, securities, and other of $5 billion and
non-trading
financial assets at fair value through profit or loss (FVTPL) of $1 billion. The increase was partially offset by a decrease in other assets of $5 billion, financial assets at fair value through other comprehensive income (FVOCI) of $4 billion, and securities purchased under reverse repurchase agreements of $1 billion. Cash and interest-bearing deposits with banks
Trading loans, securities, and other
Non-trading
financial assets at fair value through profit or lossFinancial assets at fair value through other comprehensive income
Debt securities at amortized cost, net of allowance for credit losses
Securities purchased under reverse repurchase agreements
Loans, net of allowance for loan losses
Other
Total liabilities
The increase in total liabilities reflects deposits of $34 billion, financial liabilities designated at FVTPL of $21 billion and obligations related to securities sold under repurchase agreements of $1 billion. The increase was partially offset by a decrease in derivatives of $5 billion, trading deposits of $2 billion, and other liabilities of $1 billion.
Trading deposits
Derivative
mark-to-market
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 17 |
Financial liabilities designated at fair value through profit or loss
Deposits
Obligations related to securities sold under repurchase agreements
Other
Equity
CREDIT PORTFOLIO QUALITY
Quarterly comparison – Q1 2022 vs. Q1 2021
Gross impaired loans excluding acquired credit-impaired (ACI) loans were $2,560 million as at January 31, 2022, a decrease of $497 million, or 16%, compared with the first quarter last year. Canadian Retail gross impaired loans decreased $278 million, or 23%, compared with the first quarter last year, reflecting improved credit conditions in the consumer and commercial lending portfolios. U.S. Retail gross impaired loans decreased $208 million, or 11%, compared with the first quarter last year, reflecting improved credit conditions in the consumer and commercial lending portfolios, and the impact of foreign exchange. Wholesale gross impaired loans decreased $11 million or 61%, compared with the first quarter last year, reflecting resolutions outpacing formations. Net impaired loans were $1,880 million as at January 31, 2022, a decrease of $400 million, or 18%, compared with the first quarter last year.
The allowance for credit losses of $7,148 million as at January 31, 2022 was comprised of Stage 3 allowance for impaired loans of $686 million, Stage 2 allowance of $3,798 million and Stage 1 allowance of $2,657 million, and the allowance for debt securities of $7 million. The Stage 1 and 2 allowances are for performing loans and
off-balance
sheet instruments. The Stage 3 allowance for loan losses decreased $113 million, or 14%, reflecting improved credit conditions, and largely recorded in the consumer lending portfolios. The Stage 1 and Stage 2 allowance for loan losses decreased $1,683 million, or 21%, largely related to releases reflective of improved credit conditions, including a more favourable economic outlook, and the impact of foreign exchange. The allowance change included a decrease of $316 million attributable to the retailer program partners’ share of the U.S. strategic cards portfolio.
The allowance for debt securities decreased by $1 million compared with the first quarter last year.
Forward-looking information, including macroeconomic variables deemed to be predictive of expected credit losses (ECLs) based on the Bank’s experience, is used to determine ECL scenarios and associated probability weights to establish 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, including the impact of
COVID-19.
The Bank periodically reviews the methodology and has performed certain additional qualitative portfolio and loan level assessments of significant increase in credit risk. Refer to Note 3 of the Bank’s first quarter 2022 Interim 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 by considering reasonable and supportable information. There remains considerable uncertainty regarding the economic trajectory and the ultimate credit impact of the
COVID-19
pandemic, and the allowance for credit losses will be updated in future quarters as additional information becomes available. Refer to Note 3 of the Bank’s first quarter 2022 Interim Consolidated Financial Statements for additional details. The Bank calculates allowances for ECLs on debt securities measured at amortized cost and FVOCI. The Bank has $365 billion in such debt securities, all of which are performing (Stage 1 and 2) and none are impaired (Stage 3). The allowance for credit losses on DSAC and debt securities at FVOCI was $2 million and $5 million, respectively.
Quarterly comparison – Q1 2022 vs. Q4 2021
Gross impaired loans excluding ACI loans increased $149 million, or 6%, compared with the prior quarter, reflected in the U.S. consumer lending portfolios, largely related to real estate secured loans that exited deferral programs, and the impact of foreign exchange. Impaired loans net of allowance increased $98 million, or 5%, compared with the prior quarter.
The allowance for credit losses of $7,148 million as at January 31, 2022 was comprised of Stage 3 allowance for impaired loans of $686 million, Stage 2 allowance of $3,798 million and Stage 1 allowance of $2,657 million, and the allowance for debt securities of $7 million. The Stage 1 and 2 allowances are for performing loans and
off-balance
sheet instruments. The Stage 3 allowance for loan losses increased $48 million, or 8%, compared with the prior quarter, reflecting some early signs of credit normalization, including seasonal trends in the U.S. credit card and auto portfolios. The Stage 1 and Stage 2 allowance for loan losses decreased $153 million, or 2%, compared with the prior quarter, reflecting a more favourable economic outlook, partially offset by the impact of foreign exchange. The allowance for debt securities decreased by $2 million compared to the prior quarter.
For further details on loans, impaired loans, allowance for credit losses, and on the Bank’s use of forward-looking information and macroeconomic variables in determining its allowance for credit losses, refer to Note 6 of the Bank’s first quarter 2022 Interim Consolidated Financial Statements.
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 18 |
TABLE 17: CHANGES IN GROSS IMPAIRED LOANS AND ACCEPTANCES
1,2
| (millions of Canadian dollars) | For the three months ended |
|||||||||||
| January 31 2022 |
October 31 2021 |
January 31 2021 |
||||||||||
| Personal, Business, and Government Loans 3 |
||||||||||||
| Impaired loans as at beginning of period |
$ |
2,411 |
$ | 2,651 | $ | 3,157 | ||||||
| Classified as impaired during the period |
1,187 |
796 | 1,203 | |||||||||
| Transferred to performing during the period |
(259 |
) |
(206 | ) | (246 | ) | ||||||
| Net repayments |
(373 |
) |
(359 | ) | (301 | ) | ||||||
| Disposals of loans |
– |
– | (3 | ) | ||||||||
| Amounts written off |
(447 |
) |
(459 | ) | (675 | ) | ||||||
| Exchange and other movements |
41 |
(12 | ) | (78 | ) | |||||||
| Impaired loans as at end of period |
$ |
2,560 |
$ | 2,411 | $ | 3,057 | ||||||
1 |
Includes customers’ liability under acceptances. |
2 |
Includes loans that are measured at FVOCI. |
3 |
Excludes ACI loans. |
TABLE 18: ALLOWANCE FOR CREDIT LOSSES
| (millions of Canadian dollars, except as noted) | As at |
|||||||||||
| January 31 2022 |
October 31 2021 |
January 31 2021 |
||||||||||
| Allowance for loan losses for on-balance sheet loans |
||||||||||||
| Stage 1 allowance for loan losses |
$ |
2,247 |
$ | 2,263 | $ | 2,489 | ||||||
| Stage 2 allowance for loan losses |
3,308 |
3,492 | 4,659 | |||||||||
| Stage 3 allowance for loan losses |
684 |
635 | 785 | |||||||||
| Total allowance for loan losses for on-balance sheet loans1 |
6,239 |
6,390 | 7,933 | |||||||||
| Allowance for off-balance sheet instruments |
||||||||||||
| Stage 1 allowance for loan losses |
410 |
386 | 358 | |||||||||
| Stage 2 allowance for loan losses |
490 |
467 | 632 | |||||||||
| Stage 3 allowance for loan losses |
2 |
3 | 14 | |||||||||
| Total allowance for off-balance sheet instruments |
902 |
856 | 1,004 | |||||||||
| Allowance for loan losses |
7,141 |
7,246 | 8,937 | |||||||||
| Allowance for debt securities |
7 |
9 | 8 | |||||||||
| Allowance for credit losses |
$ |
7,148 |
$ | 7,255 | $ | 8,945 | ||||||
| Impaired loans, net of allowance 2 |
$ |
1,880 |
$ | 1,782 | $ | 2,280 | ||||||
| Net impaired loans as a percentage of net loans 2 |
0.25 |
% |
0.24 | % | 0.31 | % | ||||||
| Total allowance for loan losses as a percentage of gross loans and acceptances |
0.93 |
0.97 | 1.22 | |||||||||
| Provision for (recovery of) credit losses as a percentage of net average loans and acceptances |
0.04 |
(0.07 | ) | 0.17 | ||||||||
1 |
Includes allowance for loan losses related to loans that are measured at FVOCI of nil as at January 31, 2022 (October 31, 2021 – nil; January 31, 2021 – nil). |
2 |
Credit cards are considered impaired when they are 90 days past due and written off at 180 days past due. |
Real Estate Secured Lending
Retail real estate secured lending includes mortgages and lines of credit to North American consumers to satisfy financing needs including home purchases and refinancing. While the Bank retains first lien on the majority of properties held as security, there is a small portion of loans with second liens, but most of these are behind a TD mortgage that is in first position. In Canada, credit policies are designed 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 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 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 exceeds 80% of the collateral value at origination.
loan-to-value
loan-to-value
loan-to-value
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 19: CANADIAN REAL ESTATE SECURED LENDING
1
| (millions of Canadian dollars) | As at |
|||||||||||||||||||
Amortizing |
Non-amortizing |
Total |
||||||||||||||||||
| Residential Mortgages |
Home equity lines of credit |
Total amortizing real estate secured lending |
Home equity lines of credit |
|||||||||||||||||
January 31, 2022 |
||||||||||||||||||||
| Total |
$ |
236,023 |
$ |
72,757 |
$ |
308,780 |
$ |
30,851 |
$ |
339,631 |
||||||||||
| October 31, 2021 | ||||||||||||||||||||
| Total |
$ | 231,675 | $ | 71,016 | $ | 302,691 | $ | 30,917 | $ | 333,608 | ||||||||||
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. |
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 19 |
TABLE 20: 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 |
|||||||||||||||||||||||||||||||||||||||||||
January 31, 2022 |
||||||||||||||||||||||||||||||||||||||||||||||||
| Canada |
||||||||||||||||||||||||||||||||||||||||||||||||
| Atlantic provinces |
$ |
2,948 |
1.2 |
% |
$ |
3,723 |
1.6 |
% |
$ |
256 |
0.2 |
% |
$ |
1,487 |
1.4 |
% |
$ |
3,204 |
0.9 |
% |
$ |
5,210 |
1.5 |
% | ||||||||||||||||||||||||
| British Columbia 4 |
9,373 |
4.0 |
38,580 |
16.3 |
1,405 |
1.4 |
18,140 |
17.5 |
10,778 |
3.2 |
56,720 |
16.7 |
||||||||||||||||||||||||||||||||||||
| Ontario 4 |
24,949 |
10.6 |
98,204 |
41.6 |
5,002 |
4.8 |
54,235 |
52.4 |
29,951 |
8.8 |
152,439 |
44.9 |
||||||||||||||||||||||||||||||||||||
| Prairies 4 |
20,321 |
8.6 |
17,456 |
7.4 |
2,352 |
2.3 |
11,321 |
10.9 |
22,673 |
6.7 |
28,777 |
8.5 |
||||||||||||||||||||||||||||||||||||
| Québec |
8,047 |
3.4 |
12,422 |
5.3 |
820 |
0.8 |
8,590 |
8.3 |
8,867 |
2.6 |
21,012 |
6.2 |
||||||||||||||||||||||||||||||||||||
| Total Canada |
65,638 |
27.8 |
% |
170,385 |
72.2 |
% |
9,835 |
9.5 |
% |
93,773 |
90.5 |
% |
75,473 |
22.2 |
% |
264,158 |
77.8 |
% | ||||||||||||||||||||||||||||||
| United States |
904 |
38,102 |
– |
8,749 |
904 |
46,851 |
||||||||||||||||||||||||||||||||||||||||||
| Total |
$ |
66,542 |
$ |
208,487 |
$ |
9,835 |
$ |
102,522 |
$ |
76,377 |
$ |
311,009 |
||||||||||||||||||||||||||||||||||||
| October 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Canada |
||||||||||||||||||||||||||||||||||||||||||||||||
| Atlantic provinces |
$ | 3,007 | 1.3 | % | $ | 3,575 | 1.5 | % | $ | 265 | 0.3 | % | $ | 1,451 | 1.4 | % | $ | 3,272 | 1.0 | % | $ | 5,026 | 1.5 | % | ||||||||||||||||||||||||
| British Columbia 4 |
9,522 | 4.1 | 37,169 | 16.0 | 1,446 | 1.4 | 17,738 | 17.4 | 10,968 | 3.3 | 54,907 | 16.5 | ||||||||||||||||||||||||||||||||||||
| Ontario 4 |
25,603 | 11.1 | 94,913 | 41.1 | 5,173 | 5.1 | 52,977 | 52.0 | 30,776 | 9.1 | 147,890 | 44.3 | ||||||||||||||||||||||||||||||||||||
| Prairies 4 |
20,590 | 8.9 | 17,244 | 7.4 | 2,425 | 2.4 | 11,314 | 11.1 | 23,015 | 6.9 | 28,558 | 8.6 | ||||||||||||||||||||||||||||||||||||
| Québec |
8,138 | 3.5 | 11,914 | 5.1 | 841 | 0.8 | 8,303 | 8.1 | 8,979 | 2.7 | 20,217 | 6.1 | ||||||||||||||||||||||||||||||||||||
| Total Canada |
66,860 | 28.9 | % | 164,815 | 71.1 | % | 10,150 | 10.0 | % | 91,783 | 90.0 | % | 77,010 | 23.0 | % | 256,598 | 77.0 | % | ||||||||||||||||||||||||||||||
| United States |
868 | 35,797 | – | 8,736 | 868 | 44,533 | ||||||||||||||||||||||||||||||||||||||||||
| Total |
$ | 67,728 | $ | 200,612 | $ | 10,150 | $ | 100,519 | $ | 77,878 | $ | 301,131 | ||||||||||||||||||||||||||||||||||||
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 Bank’s residential mortgages by remaining amortization period. All figures are calculated based on current customer payment behaviour in order to properly reflect the propensity to prepay by borrowers. The current customer payment basis accounts for any accelerated payments made to date and projects remaining amortization based on existing balance outstanding and current payment terms.
TABLE 21: RESIDENTIAL MORTGAGES BY REMAINING AMORTIZATION
1,2
As at |
||||||||||||||||||||||||||||||||||||
| <5 years |
5– <10 years |
10– <15 years |
15– <20 years |
20– <25 years |
25– <30 years |
30– <35 years |
>=35 years |
Total |
||||||||||||||||||||||||||||
January 31, 2022 |
||||||||||||||||||||||||||||||||||||
| Canada |
0.9 |
% |
3.1 |
% |
6.6 |
% |
18.7 |
% |
40.9 |
% |
29.5 |
% |
0.3 |
% |
– |
% |
100.0 |
% | ||||||||||||||||||
| United States |
8.8 |
2.9 |
4.6 |
5.6 |
16.6 |
59.5 |
1.5 |
0.5 |
100.0 |
|||||||||||||||||||||||||||
| Total |
2.0 |
% |
3.1 |
% |
6.3 |
% |
16.8 |
% |
37.4 |
% |
33.8 |
% |
0.5 |
% |
0.1 |
% |
100.0 |
% | ||||||||||||||||||
| October 31, 2021 | ||||||||||||||||||||||||||||||||||||
| Canada |
0.9 | % | 3.1 | % | 6.6 | % | 19.0 | % | 41.9 | % | 28.2 | % | 0.3 | % | – | % | 100.0 | % | ||||||||||||||||||
| United States |
8.4 | 3.2 | 4.6 | 5.6 | 17.7 | 58.3 | 2.0 | 0.2 | 100.0 | |||||||||||||||||||||||||||
| Total |
1.9 | % | 3.2 | % | 6.3 | % | 17.2 | % | 38.4 | % | 32.4 | % | 0.6 | % | – | % | 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. |
TABLE 22: UNINSURED AVERAGE – Newly Originated and Newly Acquired
LOAN-TO-VALUE
1,2,3
For the three months ended |
||||||||||||||||||||||||
| Residential mortgages |
Home equity lines of credit 4,5 |
Total |
Residential mortgages |
Home equity lines of credit 4,5 |
Total |
|||||||||||||||||||
January 31, 2022 |
October 31, 2021 | |||||||||||||||||||||||
| Canada |
||||||||||||||||||||||||
| Atlantic provinces |
72 |
% |
70 |
% |
72 |
% |
73 | % | 70 | % | 72 | % | ||||||||||||
| British Columbia 6 |
67 |
64 |
66 |
68 | 64 | 66 | ||||||||||||||||||
| Ontario 6 |
67 |
64 |
66 |
67 | 64 | 66 | ||||||||||||||||||
| Prairies 6 |
74 |
71 |
73 |
74 | 70 | 72 | ||||||||||||||||||
| Québec |
72 |
71 |
72 |
72 | 72 | 72 | ||||||||||||||||||
| Total Canada |
68 |
65 |
67 |
68 | 66 | 67 | ||||||||||||||||||
| United States |
68 |
63 |
67 |
68 | 63 | 68 | ||||||||||||||||||
| Total |
68 |
% |
65 |
% |
67 |
% |
68 | % | 65 | % | 67 | % | ||||||||||||
1 |
Geographic location is based on the address of the property mortgaged. |
2 |
Excludes loans classified as trading as the Bank intends to sell the loans immediately or in the near term, and loans designated at FVTPL for which no allowance is recorded. |
3 |
Based on house price at origination. |
4 |
Home equity lines of credit (HELOCs) loan-to-value |
5 |
HELOC fixed rate advantage option is included in loan-to-value |
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 • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 20 |
Sovereign Risk
The table below includes the Bank’s direct credit exposures outside of North America (Europe excludes United Kingdom).
TABLE 23: 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 | |||||||||||||||||||||||||||||||||||||||
January 31, 2022 |
||||||||||||||||||||||||||||||||||||||||||||||||||||
| Region |
||||||||||||||||||||||||||||||||||||||||||||||||||||
| Europe |
$ |
7,326 |
$ |
– |
$ |
3,218 |
$ |
10,544 |
$ |
2,763 |
$ |
2,358 |
$ |
5,517 |
$ |
10,638 |
$ |
759 |
$ |
25,702 |
$ |
1,972 |
$ |
28,433 |
$ |
49,615 |
||||||||||||||||||||||||||
| United Kingdom |
9,103 |
21,886 |
805 |
31,794 |
1,844 |
1,437 |
11,498 |
14,779 |
719 |
566 |
341 |
1,626 |
48,199 |
|||||||||||||||||||||||||||||||||||||||
| Asia |
51 |
27 |
2,089 |
2,167 |
476 |
903 |
3,205 |
4,584 |
246 |
8,279 |
712 |
9,237 |
15,988 |
|||||||||||||||||||||||||||||||||||||||
| Other |
346 |
10 |
537 |
893 |
139 |
776 |
1,726 |
2,641 |
191 |
1,726 |
2,176 |
4,093 |
7,627 |
|||||||||||||||||||||||||||||||||||||||
| Total |
$ |
16,826 |
$ |
21,923 |
$ |
6,649 |
$ |
45,398 |
$ |
5,222 |
$ |
5,474 |
$ |
21,946 |
$ |
32,642 |
$ |
1,915 |
$ |
36,273 |
$ |
5,201 |
$ |
43,389 |
$ |
121,429 |
||||||||||||||||||||||||||
| October 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Region |
||||||||||||||||||||||||||||||||||||||||||||||||||||
| Europe |
$ | 7,248 | $ | – | $ | 3,216 | $ | 10,464 | $ | 2,523 | $ | 2,246 | $ | 6,113 | $ | 10,882 | $ | 809 | $ | 23,398 | $ | 2,033 | $ | 26,240 | $ | 47,586 | ||||||||||||||||||||||||||
| United Kingdom |
8,851 | 12,071 | 1,192 | 22,114 | 1,790 | 1,304 | 11,022 | 14,116 | 1,639 | 382 | 539 | 2,560 | 38,790 | |||||||||||||||||||||||||||||||||||||||
| Asia |
12 | 30 | 1,967 | 2,009 | 552 | 703 | 2,700 | 3,955 | 163 | 9,224 | 770 | 10,157 | 16,121 | |||||||||||||||||||||||||||||||||||||||
| Other |
337 | 10 | 529 | 876 | 135 | 564 | 1,629 | 2,328 | 321 | 2,443 | 1,947 | 4,711 | 7,915 | |||||||||||||||||||||||||||||||||||||||
| Total |
$ | 16,448 | $ | 12,111 | $ | 6,904 | $ | 35,463 | $ | 5,000 | $ | 4,817 | $ | 21,464 | $ | 31,281 | $ | 2,932 | $ | 35,447 | $ | 5,289 | $ | 43,668 | $ | 110,412 | ||||||||||||||||||||||||||
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 $34.3 billion (October 31, 2021 – $32.5 billion) of exposure to supranational entities. |
CAPITAL POSITION
REGULATORY CAPITAL
Capital requirements of the Basel Committee on Banking Supervision (BCBS) are commonly referred to as Basel III. Under Basel III, Total Capital consists of three components, namely CET1, Additional Tier 1, and Tier 2 Capital. Risk sensitive regulatory capital ratios are calculated by dividing CET1, Tier 1, and Total Capital by risk-weighted assets (RWA), inclusive of any minimum requirements outlined under the regulatory floor. In 2015, Basel III 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 continued to manage its regulatory capital in accordance with the Basel III Capital Framework as discussed in the “Capital Position” section of the Bank’s 2021 Annual Report. OSFI’s Capital Requirements under Basel III
OSFI’s Capital Adequacy Requirements (CAR) guideline details how the Basel III capital rules apply to Canadian banks. Other requirements, in addition to those described in “OSFI’s Capital Requirements under Basel III” section of Bank’s 2021 Annual Report, are noted below.
On March 13, 2020, as part of its
COVID-19
response, OSFI announced that the Domestic Stability Buffer (DSB), previously set to increase to 2.25% effective April 30, 2020, was being lowered to 1.00% effective immediately. On June 17, 2021, OSFI announced that the DSB would increase to 2.50% of total RWA, effective October 31, 2021. On December 10, 2021, OSFI announced that the DSB will remain at 2.50% of total RWA. The Bank continued to maintain its Global Systemically Important Bank
(G-SIB)
status when the Financial Stability Board (FSB) published the 2021 list of G-SIBs
on November 23, 2021. As a result of the designation, the Bank continues to be subject to an additional loss absorbency requirement (CET1 as a percentage of RWA) of 1%. As the Domestic Systemically Important Bank (D-SIB)
surcharge is currently equivalent to the 1% G-SIB
requirement, the Bank’s G-SIB
designation has no additional impact on the Bank’s minimum CET1 regulatory requirements. On September 23, 2018, the Canadian
Bail-in
regime came into effect, including OSFI’s Total Loss Absorbing Capacity (TLAC) guideline. Under this guideline, the Bank was required to meet supervisory risk-based TLAC target of 24.0% of RWA, inclusive of the 2.50% DSB, and TLAC leverage ratio target of 6.75% by November 1, 2021. Changes to the DSB will result in corresponding changes to the risk-based TLAC target ratio. The table below summarizes OSFI’s current regulatory minimum capital and TLAC ratios for the Bank.
REGULATORY CAPITAL AND TLAC TARGET RATIOS
| Minimum |
Capital Conservation Buffer |
D-SIB / G-SIB Surcharge 1 |
Pillar 1 Regulatory target 2 |
DSB 3 |
Pillar 1 & 2 regulatory target |
|||||||||||||||||||
| CET1 |
4.5 | % | 2.5 | % | 1.0 | % | 8.0 | % | 2.5 | % | 10.5 | % | ||||||||||||
| Tier 1 |
6.0 | 2.5 | 1.0 | 9.5 | 2.5 | 12.0 | ||||||||||||||||||
| Total Capital |
8.0 | 2.5 | 1.0 | 11.5 | 2.5 | 14.0 | ||||||||||||||||||
| TLAC |
18.0 | 2.5 | 1.0 | 21.5 | 2.5 | 24.0 | ||||||||||||||||||
1 |
The higher of the D-SIB and G-SIB surcharge applies. The D-SIB surcharge is currently equivalent to the Bank’s 1% G-SIB additional common equity requirement. 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%. |
2 |
The Bank’s countercyclical buffer requirement is 0% as of January 31, 2022. |
3 |
The DSB increased to 2.5%, from 1.0%, of total RWA effective October 31, 2021. |
The Bank’s Leverage Ratio is calculated as per OSFI’s Leverage Requirements guideline and has a regulatory minimum requirement of 3%. As noted above, the Bank is required to meet a supervisory TLAC leverage ratio target of 6.75%.
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 21 |
Effective January 1, 2013, all newly issued
non-common
Tier 1 and Tier 2 Capital instruments must include non-viability
contingent capital (NVCC) provisions to qualify as regulatory capital. NVCC provisions require the conversion of non-common
capital instruments into a variable number of common shares of the Bank upon the occurrence of a trigger event. A trigger event is defined 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, 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 determined by OSFI to be non-viable.
Non-common
Tier 1 and Tier 2 capital instruments issued prior to January 1, 2013, which did not include NVCC provisions were non-qualifying
capital instruments and subject to a phase-out
period which began in 2013 and ended on November 1, 2021. In fiscal 2020, OSFI introduced a number of measures to support
D-SIBs’
ability to supply credit to the economy during an expected period of disruption related to COVID-19
and market conditions. These measures, and subsequent guidance issued by OSFI, are described in the “OSFI’s Capital Requirements under Basel III” section of Bank’s 2021 Annual Report. Global Systemically Important Banks Disclosures
The FSB, in consultation with the BCBS and national authorities, identifies
G-SIBs.
In July 2013, the BCBS issued an update to the final rules on G-SIBs
and outlined the G-SIB
assessment methodology which is based on the submissions of the largest global banks. In July 2018, BCBS issued a revised G-SIB
framework; G-SIBs:
Revised Assessment Methodology and the Higher Loss Absorbency Requirement. The new assessment methodology introduces a trading volume indicator and modifies the weights in the substitutability category, amends the definition of cross-jurisdictional indicators, extends the scope of consolidation to insurance subsidiaries, and provides further guidance on bucket migration and associated loss absorbency surcharges. The revised methodology came into effect in 2022, using 2021 year-end
data. The thirteen 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 thirteen 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. The public communications on
G-SIB
status is 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 2021 list of G-SIBs
on November 23, 2021. 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, for Canadian banks designated as a G-SIB,
the higher of the D-SIB
and G-SIB
surcharges will apply. As the D-SIB
surcharge is currently equivalent 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. There is also currently no impact to the supervisory target risk-based TLAC ratio of 24.0% or TLAC leverage ratio of 6.75% as a result of the Bank’s G SIB 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%. As a result of the Bank’s
G-SIB
designation, the U.S. Federal Reserve requires TD Group US Holding LLC (TDGUS), as TD’s U.S. Intermediate Holding Company (IHC), to maintain a minimum amount of TLAC and long-term debt. From the date the Bank was designated as a G-SIB,
TDGUS has a three-year transitional period to meet these requirements. The indicator-based measurement approach, currently in effect, divides the thirteen indicators into five categories, with each category yielding a 20% weight to a bank’s total score on the
G-SIB
scale as per the following table. | TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 22 |
| Category (and weighting) |
Individual indicator (and weighting) |
Category background | ||
| Cross-jurisdictional activity (20%) |
1. Cross-jurisdictional claims (10%) 2. Cross-jurisdictional liabilities (10%) |
This category measures the importance of the bank’s activities outside its home jurisdiction, relative to overall activity of other banks. The two indicators reflect how the international impact of a bank’s distress or failure would vary in line with its share of cross-jurisdictional assets and liabilities. | ||
| Size (20%) |
3. Total exposures as defined for use in the Basel III leverage ratio (20%) |
This category measures the size of the bank. The larger the bank, the more difficult it is for its activities to be quickly replaced by other banks and therefore the greater the chance that its distress or failure would cause disruption to the financial markets in which it operates. The distress or failure of a large bank is also more likely to damage confidence in the financial system as a whole. Size is therefore a key measure of systemic importance. | ||
| Interconnectedness (20%) |
4. Intra-financial system assets (6.67%) 5. Intra-financial system liabilities (6.67%) 6. Securities outstanding (6.67%) |
This category measures the magnitude of dependence amongst banks. Given the network of contractual obligations in which the banks operate, financial distress at one institution can materially increase the likelihood of distress at other institutions. A bank’s systemic impact is likely to be positively related to its interconnectedness vis-à-vis | ||
| Substitutability / financial institution infrastructure (20%) |
7. Assets under custody (6.67%) 8. Payments activity (6.67%) 9. Underwritten transactions in debt and equity markets (3.33%) 10. Trading Volume (includes the two sub indicators) (3.33%) – Trading volume fixed income sub indicator – Trading volume equities and other securities sub indicator |
This category measures substitutability/financial institution infrastructure. The systemic impact of a bank’s distress of failure is expected to be negatively related to its degree of substitutability as both a market participant and a client service provider. The greater a bank’s role in a particular business line, or as a service provider in underlying market infrastructure (for example, payment systems), the larger the disruption will likely be following its failure, in terms of both service gaps and reduced flow of market and infrastructure liquidity. At the same time, the cost to the failed bank’s customers in having to seek the same service from another institution is likely to be higher for a failed bank with relatively greater market share in providing the service. | ||
| Complexity (20%) |
11. Notional amount of over-the-counter 12. Trading and other securities (6.67%) 13. Level 3 assets (6.67%) |
This category measures the complexity of the bank. The systemic impact of a bank’s distress or failure is expected to be positively related to its overall complexity – that is, its business, structural, and operational complexity. The more complex a bank is, the greater are the costs and time needed to resolve the bank. | ||
The following table provides the results of the thirteen indicators for the Bank. The increase in Intra-financial system liabilities was primarily due to increased deposits. Assets under custody increased due to market appreciation and new asset growth. The decrease in Trading and other securities reflects a decrease in financial assets at FVOCI. Other notable changes in the indicators from prior year primarily reflect normal business activities of the Bank.
TABLE
24: G-SIB
INDICATORS1,2
| (millions of Canadian dollars) |
As at |
|||||||||
| October 31, 2021 |
October 31, 2020 |
|||||||||
| Category (and weighting) |
Individual Indicator |
|||||||||
| Cross-jurisdictional activity (20%) |
Cross-jurisdictional claims |
$ |
830,437 |
$ | 796,964 | |||||
| Cross-jurisdictional liabilities |
827,905 |
769,164 | ||||||||
| Size (20%) |
Total exposures as defined for use in the Basel III leverage ratio 3 |
1,891,393 |
1,862,214 | |||||||
| Interconnectedness (20%) |
Intra-financial system assets 3 |
75,393 |
80,640 | |||||||
| Intra-financial system liabilities 3 |
47,057 |
36,405 | ||||||||
| Securities outstanding 3 |
375,375 |
316,871 | ||||||||
| Substitutability/financial institution |
Assets under custody |
575,767 |
453,178 | |||||||
| infrastructure (20%) |
Payments activity |
33,753,368 |
31,433,859 | |||||||
| Underwritten transactions in debt and equity markets |
182,538 |
205,509 | ||||||||
| Trading Volume (includes the two sub indicators) 4 |
||||||||||
| – Trading volume fixed income sub indicator |
6,610,891 |
n/a | ||||||||
| – Trading volume equities and other securities sub indicator |
3,069,636 |
n/a | ||||||||
| Complexity (20%) |
Notional amount of OTC derivatives |
16,918,562 |
15,385,351 | |||||||
| Trading and other securities 3,5 |
60,710 |
87,968 | ||||||||
| Level 3 assets 3 |
2,522 |
2,573 | ||||||||
1 |
The G-SIB indicators are prepared based on the methodology prescribed in BCBS guidelines published and disclosed in accordance with OSFI’s Advisory on G-SIBs – Public Disclosure Requirements. Given the Bank was designated as a G-SIB by the FSB on November 22, 2019, additional public disclosures on these indicators are required. Refer to the Bank’s Regulatory Capital Disclosures at www.td.com/investor-relations/ir-homepage/regulatory-disclosures/g-sib/disclosures.jsp G-SIB indicators. The Bank is required to submit its G-SIB indicators to OSFI and BCBS for review following the date of this report. In the event that one or both regulators provide comments to the Bank regarding its submission that would result in changes to the G-SIB indicators listed in the table above, the Bank will publish such revised G-SIB indicators on its website. |
2 |
The Intra-financial system asset indicator for October 31, 2020 has been revised. |
3 |
Insurance subsidiaries are included in the G-SIB indicator as of 2021. |
4 |
Trading Volume is a new indicator as of 2021, and as such there is no comparative value shown for 2020. |
5 |
Includes trading securities, securities designated at FVTPL, and securities at FVOCI. |
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 23 |
The following table provides details of TD’s regulatory capital position.
TABLE 25: CAPITAL STRUCTURE AND RATIOS – Basel III
| (millions of Canadian dollars, except as noted) | As at |
|||||||||||
January 31 2022 |
October 31 2021 |
January 31 2021 |
||||||||||
| Common Equity Tier 1 Capital |
||||||||||||
| Common shares plus related contributed surplus |
$ |
23,128 |
$ | 23,086 | $ | 22,594 | ||||||
| Retained earnings |
65,621 |
63,944 | 56,032 | |||||||||
| Accumulated other comprehensive income |
7,532 |
7,097 | 11,152 | |||||||||
| Common Equity Tier 1 Capital before regulatory adjustments |
96,281 |
94,127 | 89,778 | |||||||||
| Common Equity Tier 1 Capital regulatory adjustments |
||||||||||||
| Goodwill (net of related tax liability) |
(16,474 |
) |
(16,099 | ) | (16,413 | ) | ||||||
| Intangibles (net of related tax liability) |
(2,030 |
) |
(2,006 | ) | (1,899 | ) | ||||||
| Deferred tax assets excluding those arising from temporary differences |
(101 |
) |
(100 | ) | (158 | ) | ||||||
| Cash flow hedge reserve |
(1,121 |
) |
(1,691 | ) | (3,368 | ) | ||||||
| Shortfall of provisions to expected losses |
– |
– | – | |||||||||
| Gains and losses due to changes in own credit risk on fair valued liabilities |
(142 |
) |
(124 | ) | (59 | ) | ||||||
| Defined benefit pension fund net assets (net of related tax liability) |
(729 |
) |
(470 | ) | (9 | ) | ||||||
| Investment in own shares |
(5 |
) |
(36 | ) | (4 | ) | ||||||
| Non-significant investments in the capital of banking, financial, and insurance entities, net of eligible short positions (amount above 10% threshold) |
(4,538 |
) |
(4,486 | ) | (5,873 | ) | ||||||
| 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) |
– |
– | – | |||||||||
| Other deductions or regulatory adjustments to CET1 as determined by OSFI 1 |
382 |
822 | 1,398 | |||||||||
| Total regulatory adjustments to Common Equity Tier 1 Capital |
(24,758 |
) |
(24,190 | ) | (26,385 | ) | ||||||
| Common Equity Tier 1 Capital |
71,523 |
69,937 | 63,393 | |||||||||
| Additional Tier 1 Capital instruments |
||||||||||||
| Directly issued qualifying Additional Tier 1 instruments plus stock surplus |
5,696 |
5,691 | 5,647 | |||||||||
| Directly issued capital instruments subject to phase out from Additional Tier 1 2 |
n/a |
450 | 615 | |||||||||
| Additional Tier 1 instruments issued by subsidiaries and held by third parties |
– |
– | 61 | |||||||||
| Additional Tier 1 Capital instruments before regulatory adjustments |
5,696 |
6,141 | 6,323 | |||||||||
| 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) |
(13 |
) |
(12 | ) | (12 | ) | ||||||
| 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 | ) | (350 | ) | ||||||
| Total regulatory adjustments to Additional Tier 1 Capital |
(363 |
) |
(362 | ) | (362 | ) | ||||||
| Additional Tier 1 Capital |
5,333 |
5,779 | 5,961 | |||||||||
| Tier 1 Capital |
76,856 |
75,716 | 69,354 | |||||||||
| Tier 2 Capital instruments and provisions |
||||||||||||
| Directly issued qualifying Tier 2 instruments plus related stock surplus |
11,104 |
11,030 | 11,183 | |||||||||
| Directly issued capital instruments subject to phase out from Tier 2 2 |
n/a |
120 | 160 | |||||||||
| Collective allowances |
2,113 |
1,665 | 1,172 | |||||||||
| Tier 2 Capital before regulatory adjustments |
13,217 |
12,815 | 12,515 | |||||||||
| Tier 2 regulatory adjustments |
||||||||||||
| Investments in own Tier 2 instruments |
– |
(8 | ) | – | ||||||||
| Non-significant investments in the capital of banking, financial, and insurance entities, net of eligible short positions (amount above 10% threshold)3 |
(372 |
) |
(308 | ) | (406 | ) | ||||||
| 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 |
(153 |
) |
(68 | ) | – | |||||||
| 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 |
) |
(160 | ) | (160 | ) | ||||||
| Total regulatory adjustments to Tier 2 Capital |
(685 |
) |
(544 | ) | (566 | ) | ||||||
| Tier 2 Capital |
12,532 |
12,271 | 11,949 | |||||||||
| Total Capital |
$ |
89,388 |
$ | 87,987 | $ | 81,303 | ||||||
| Risk-weighted assets |
$ |
470,852 |
$ | 460,270 | $ | 467,227 | ||||||
| Capital Ratios and Multiples 4 |
||||||||||||
| Common Equity Tier 1 Capital (as percentage of risk-weighted assets) |
15.2 |
% |
15.2 | % | 13.6 | % | ||||||
| Tier 1 Capital (as percentage of risk-weighted assets) |
16.3 |
16.5 | 14.8 | |||||||||
| Total Capital (as percentage of risk-weighted assets) |
19.0 |
19.1 | 17.4 | |||||||||
| Leverage ratio 5 |
4.4 |
4.8 | 4.5 | |||||||||
1 |
Represents ECL transitional arrangements provided by OSFI. Refer to the “OSFI’s Capital Requirements under Basel III” within the “Capital Position” section of the Bank’s 2021 Annual Report. |
2 |
Effective January 1, 2022, no longer applicable. |
3 |
Includes other TLAC-eligible instruments issued by G-SIBs and Canadian 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. |
4 |
The CET1, Tier 1, Total Capital and Leverage ratios excluding the ECL transitional arrangements are 15.1%, 16.2%, 19.0%, and 4.3%, respectively. |
5 |
The Leverage ratio is calculated as Tier 1 Capital divided by leverage exposure, as defined in the “Regulatory Capital” section of this document. |
As at January 31, 2022, the Bank’s CET1, Tier 1, Total Capital, and risk-based TLAC ratios were 15.2%, 16.3%, 19.0% and 28.6%, respectively. The Bank’s CET1 Capital ratio was flat compared to October 31, 2021 as organic growth was offset by common shares repurchased, RWA growth primarily in the Wholesale Banking and Canadian Retail segments, and the reduction in the scaling factor related to OSFI’s transition arrangements for ECL provisioning, from 50% in fiscal 2021 to 25% in fiscal 2022.
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 24 |
As at January 31, 2022, the Bank’s Leverage and TLAC Leverage ratios were 4.4% and 7.6%, respectively. The decrease in the Bank’s Leverage ratio from 4.8% as at October 31, 2021 primarily reflecting the expiration of the exclusion of sovereign-issued securities from the leverage ratio measure on December 31, 2021, partially offset by organic capital growth.
Future Regulatory Capital Developments
Future regulatory capital developments, in addition to those described in the “Future Regulatory Capital Developments” section of the Bank’s 2021 Annual Report, are noted below.
On January 31, 2022, OSFI announced revised capital, leverage, liquidity and disclosure rules that incorporate the Basel III reforms with adjustments to make them suitable for domestic implementation. The Leverage Requirements Guideline revisions include a requirement for
D-SIBs
to hold a leverage ratio buffer in addition to the regulatory minimum requirement of 3.0%. The revised rules are effective in the second quarter of 2023, with the exception of those related to market risk and credit valuation adjustment risk which are effective in 2024. TABLE 26: EQUITY AND OTHER SECURITIES
1
| (millions of shares/units and millions of Canadian dollars, except as noted) | As at |
|||||||||||||||
January 31, 2022 |
October 31, 2021 | |||||||||||||||
| Number of shares/units |
Amount |
Number of shares/units |
Amount |
|||||||||||||
| Common shares outstanding |
1,818.8 |
$ |
23,170 |
1,823.9 | $ | 23,066 | ||||||||||
| Treasury – common shares |
(2.3 |
) |
(188 |
) |
(1.9 | ) | (152 | ) | ||||||||
| Total common shares |
1,816.5 |
$ |
22,982 |
1,822.0 | $ | 22,914 | ||||||||||
| Stock options |
||||||||||||||||
| Vested |
5.0 |
4.4 | ||||||||||||||
| Non-vested |
8.6 |
7.8 | ||||||||||||||
| Preferred shares – Class A |
||||||||||||||||
| Series 1 |
20.0 |
$ |
500 |
20.0 | $ | 500 | ||||||||||
| Series 3 |
20.0 |
500 |
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 20 |
16.0 |
400 |
16.0 | 400 | ||||||||||||
| Series 22 |
14.0 |
350 |
14.0 | 350 | ||||||||||||
| Series 24 |
18.0 |
450 |
18.0 | 450 | ||||||||||||
158.0 |
$ |
3,950 |
158.0 | $ | 3,950 | |||||||||||
| Other equity instruments |
||||||||||||||||
| Limited Recourse Capital Notes Series 1 2 |
1.8 |
1,750 |
1.8 | 1,750 | ||||||||||||
159.8 |
$ |
5,700 |
159.8 | $ | 5,700 | |||||||||||
| Treasury – preferred shares and other equity instruments |
(0.2 |
) |
(6 |
) |
(0.1 | ) | (10 | ) | ||||||||
| Total preferred shares and other equity instruments |
159.6 |
$ |
5,694 |
159.7 | $ | 5,690 | ||||||||||
| Debt issued by TD Capital Trust IV: |
||||||||||||||||
| (thousands of units) |
||||||||||||||||
| TD Capital Trust IV Notes – Series 2 3 |
– |
– |
450.0 | 450 | ||||||||||||
1 |
For further details, including the conversion and exchange features, and distributions, refer to Note 21 of the Bank’s 2021 Annual Consolidated Financial Statements. |
2 |
For Limited Recourse Capital Notes (LRCNs), the number of shares/units represents the number of notes issued. |
3 |
On November 1, 2021, TD Capital Trust IV redeemed all of the outstanding TD Capital Trust IV Notes – Series 2. |
DIVIDENDS
On March 2, 2022, the Board approved a dividend in an amount of eighty-nine cents (89 cents) per fully paid common share in the capital stock of the Bank for the quarter ending April 30, 2022, payable on and after April 30, 2022, to shareholders of record at the close of business on April 8, 2022.
NORMAL COURSE ISSUER BID
On January 7, 2022, the Bank announced that the Toronto Stock Exchange and OSFI had approved the Bank’s previously announced normal course issuer bid (NCIB) to repurchase for cancellation up to 50 million of its common shares.
During the three months ended January 31, 2022, the Bank repurchased 7.5 million common shares under the NCIB, at an average price of $101.89 per share for a total amount of $764 million, which represents a $670 million premium over the share capital amount.
Concurrent with the announcement of the Bank’s acquisition of First Horizon on February 28, 2022, the Bank’s automatic share purchase plan established under its NCIB automatically terminated pursuant to its terms. Refer to “Pending Acquisition” in the “Financial Highlights” section of this document for additional details.
NVCC PROVISION
All series of preferred shares – Class A include NVCC provisions. If a NVCC trigger event were to occur and excluding the Preferred Shares Series 26 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 790 million in aggregate.
The LRCNs, by virtue of the recourse to the Preferred Shares Series 26, include NVCC provisions. For LRCNs, if a 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 26, would be 350 million.
For NVCC subordinated notes and debentures, if a NVCC trigger event were to occur, the maximum number of common shares that could be issued, assuming there is no accrued and unpaid interest on the respective subordinated notes and debentures, would be 3.2 billion in aggregate.
Refer to Note 21 of the Bank’s 2021 Annual Consolidated Financial Statements for additional details.
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 25 |
RISK FACTORS AND MANAGEMENT
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
In addition to the risks described in the “Risk Factors and Management” section of the Bank’s 2021 MD&A, 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 its plans, objectives, and estimates or could impact the Bank’s reputation or 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 expectations expressed in the forward-looking statements. Some of these factors are discussed in the “Risk Factors and Management” section of the 2021 MD&A and in this “Risk Factors and Management” section of this document, and others are noted in the “Caution Regarding Forward-Looking Statements” section of this document. For a discussion of risk factors that could adversely affect the Bank’s financial results and condition, refer to the “Risk Factors and Management” section of the 2021 MD&A.
The following risk factor
supplements
the “Impact of pandemics, including the COVID-19
pandemic” risk factor described in the “Risk Factors and Management” section of the 2021 MD&A. Impact of pandemics, including the
COVID-19
pandemic The
COVID-19
pandemic, including the emergence of additional variants that are potentially more contagious and/or more vaccine-resistant than current or past COVID-19
variants, has resulted in, and may continue to result in, increased levels of workforce absenteeism and disruption for the Bank and for its suppliers and other third parties upon which the Bank relies, which may increase operational and compliance risks for the Bank. Increased absenteeism and disruption may also increase the Bank’s exposure to the other risks described in the “Risk Factors and Management” section of the 2021 MD&A, including those set out in the “Impact of pandemics, including the COVID-19
pandemic” risk factor. The following risk factor
amends
the ‘Ability to Attract, Develop, and Retain key Talent’ risk factor described in the “Risk Factors and Management” section of the 2021 MD&A. Ability to Attract, Develop, and Retain Key Talent
The Bank’s future performance is dependent on the availability of qualified talent and the Bank’s ability to attract, develop, and retain key talent. The Bank’s management understands that the competition for talent continues to increase across geographies, industries, and emerging capabilities across a number of sectors including financial services. This competition has intensified and is expected to continue to intensify as a result of the impact of basis.
COVID-19,
including as a result of remote work opportunities and relaxing geographic boundaries. This could result in increased attrition across organizations particularly in areas where core professional and specialized skills are required. Annually, the Bank undertakes a talent review process to assess critical capability requirements for all areas of the business. Through this process, an assessment of current executive leadership, technical and core capabilities, as well as talent development opportunities is completed against both near term and future business needs. The outcomes from the process inform plans at both the enterprise and business level to retain, develop, or acquire the talent which are then actioned throughout the course of the year. Although it is the goal of the Bank’s 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. The Bank continues to rely on the Bank’s annual talent review program as well as the Bank’s regular, effective management practices to proactively assess and address retention and recruitment risk and emphasize ongoing communication with talent to ensure appropriate responses on a case-by-case
MANAGING RISK
EXECUTIVE SUMMARY
Growing profitability in financial results based on balanced revenue, expense and capital growth services 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 future strategic objectives.
The Bank’s businesses and operations are exposed to a broad number of risks that have been identified and defined in the Enterprise Risk Framework. The Bank’s tolerance to those risks is defined in the Enterprise Risk Appetite which has been developed within a comprehensive framework that takes into consideration current conditions in which the Bank operates and the impact that emerging risks will have on TD’s strategy and risk profile. The Bank’s risk appetite states that it takes risks required to build its business, but only if those risks: (1) fit the business strategy and can be understood and managed; (2) do not expose the enterprise to any significant single loss events; TD does not ‘bet the bank’ on any single acquisition, business, or product; and (3) do not risk harming the TD brand. Each business is responsible for setting and aligning its individual risk appetites with that of the enterprise based on a thorough examination of the specific risks to which it is exposed.
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 leaders is focused due to the potential magnitude or immediacy of their impact.
Risks are identified, discussed, and actioned by senior leaders and reported quarterly to the Risk Committee. Specific plans to mitigate top and emerging risks are prepared, monitored, and adjusted as required.
The Bank’s risk governance structure and risk management approach have not substantially changed from that described in the Bank’s 2021 Annual Report. Additional information on risk factors can be found in this document and the 2021 MD&A under the heading “Risk Factors and Management”. For a complete discussion of the risk governance structure and the risk management approach, refer to the “Managing Risk” section in the Bank’s 2021 Annual Report.
The shaded sections of this MD&A represent a discussion relating to market and liquidity risks and form an integral part of the Interim Consolidated Financial Statements for the period ended January 31, 2022.
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 26 |
CREDIT RISK
Gross credit risk exposure, also referred to as exposure at default (EAD), is the total amount the Bank is exposed to at the time of default of a loan and is measured before counterparty-specific provisions or write-offs. Gross credit risk exposure does not reflect the effects of credit risk mitigation (CRM) and includes both
on-balance
sheet and off-balance
sheet exposures. On-balance
sheet exposures consist primarily of outstanding loans, acceptances, non-trading
securities, derivatives, and certain other repo-style transactions. Off-balance
sheet exposures consist primarily of undrawn commitments, guarantees, and certain other repo-style
transactions. Gross credit risk exposures for the two approaches the Bank uses to measure credit risk are included in the following table.
TABLE 27: GROSS CREDIT RISK EXPOSURES – Standardized and Advanced Internal Ratings-Based (AIRB) Approaches
1
(millions of Canadian dollars) |
As at |
|||||||||||||||||||||||
January 31, 2022 |
October 31, 2021 |
|||||||||||||||||||||||
Standardized |
AIRB |
Total |
Standardized |
AIRB |
Total |
|||||||||||||||||||
| Retail |
||||||||||||||||||||||||
| Residential secured |
$ |
4,437 |
$ |
442,895 |
$ |
447,332 |
$ |
4,323 |
$ |
433,144 |
$ |
437,467 |
||||||||||||
| Qualifying revolving retail |
– |
155,836 |
155,836 |
– |
151,006 |
151,006 |
||||||||||||||||||
| Other retail |
3,462 |
89,461 |
92,923 |
3,368 |
88,894 |
92,262 |
||||||||||||||||||
| Total retail |
7,899 |
688,192 |
696,091 |
7,691 |
673,044 |
680,735 |
||||||||||||||||||
| Non-retail |
||||||||||||||||||||||||
| Corporate |
3,674 |
641,281 |
644,955 |
6,066 |
625,640 |
631,706 |
||||||||||||||||||
| Sovereign |
1 |
514,751 |
514,752 |
1 |
470,671 |
470,672 |
||||||||||||||||||
| Bank |
489 |
132,365 |
132,854 |
519 |
136,004 |
136,523 |
||||||||||||||||||
| Total non-retail |
4,164 |
1,288,397 |
1,292,561 |
6,586 |
1,232,315 |
1,238,901 |
||||||||||||||||||
| Gross credit risk exposures |
$ |
12,063 |
$ |
1,976,589 |
$ |
1,988,652 |
$ |
14,277 |
$ |
1,905,359 |
$ |
1,919,636 |
||||||||||||
1 |
Gross credit risk exposures represent EAD and are before the effects of CRM. This table excludes securitization, equity, and certain other credit RWA. |
TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 27 |
MARKET RISK
Market risk capital is calculated using internal models and comprises three components: (VaR); (2) Stressed VaR; and (3) Incremental Risk Charge (IRC). In addition, the Bank calculates market risk capital using the Standardized approach for a limited number of portfolios.
(1) Value-at-Risk
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 28: MARKET RISK LINKAGE TO THE BALANCE SHEET
(millions of Canadian dollars) |
As at |
|||||||||||||||||||||||||||||||||||
January 31, 2022 |
October 31, 2021 | |||||||||||||||||||||||||||||||||||
| Balance sheet |
Trading market risk |
Non-trading market risk |
Other |
Balance sheet |
Trading market risk |
Non-trading market risk |
Other | Non-trading market risk – primary risk sensitivity |
||||||||||||||||||||||||||||
| Assets subject to market risk |
||||||||||||||||||||||||||||||||||||
| Interest-bearing deposits with banks |
$ |
165,209 |
$ |
317 |
$ |
164,892 |
$ |
– |
$ | 159,962 | $ | 423 | $ | 159,539 | $ | – | Interest rate | |||||||||||||||||||
| Trading loans, securities, and other |
152,748 |
147,200 |
5,548 |
– |
147,590 | 138,701 | 8,889 | – | Interest rate | |||||||||||||||||||||||||||
| Non-trading financial assets at fair value through profit or loss |
9,925 |
– |
9,925 |
– |
9,390 | – | |
9,390 |
|
|
– |
|
|
Equity, foreign exchange, interest rate |
| |||||||||||||||||||||
| Derivatives |
54,519 |
52,380 |
2,139 |
– |
54,427 | 52,352 | 2,075 | – | |
Equity, foreign exchange, interest rate |
| |||||||||||||||||||||||||
| Financial assets designated at fair value through profit or loss |
4,762 |
– |
4,762 |
– |
4,564 | – | 4,564 | – | Interest rate | |||||||||||||||||||||||||||
| Financial assets at fair value through other comprehensive income |
75,519 |
– |
75,519 |
– |
79,066 | – | 79,066 | – | |
Equity, foreign exchange, interest rate |
| |||||||||||||||||||||||||
| Debt securities at amortized cost, net of allowance for credit losses |
295,946 |
– |
295,946 |
– |
268,939 | – | 268,939 | – | |
Foreign exchange, interest rate |
| |||||||||||||||||||||||||
| Securities purchased under reverse repurchase agreements |
165,818 |
7,491 |
158,327 |
– |
167,284 | 7,992 | 159,292 | – | Interest rate | |||||||||||||||||||||||||||
| Loans, net of allowance for loan losses |
743,615 |
– |
743,615 |
– |
722,622 | – | 722,622 | – | Interest rate | |||||||||||||||||||||||||||
| Customers’ liability under acceptances |
17,346 |
– |
17,346 |
– |
18,448 | – | 18,448 | – | Interest rate | |||||||||||||||||||||||||||
| Investment in Schwab |
11,186 |
– |
11,186 |
– |
11,112 | – | 11,112 | – | Equity | |||||||||||||||||||||||||||
| Other assets 1 |
3,055 |
– |
3,055 |
– |
2,677 | – | 2,677 | – | Interest rate | |||||||||||||||||||||||||||
| Assets not exposed to market risk |
78,940 |
– |
– |
78,940 |
82,591 | – | – | 82,591 | ||||||||||||||||||||||||||||
| Total Assets |
1,778,588 |
207,388 |
1,492,260 |
78,940 |
1,728,672 | 199,468 | 1,446,613 | 82,591 | ||||||||||||||||||||||||||||
| Liabilities subject to market risk |
||||||||||||||||||||||||||||||||||||
| Trading deposits |
20,549 |
20,480 |
69 |
– |
22,891 | 22,731 | 160 | – | Equity, interest rate | |||||||||||||||||||||||||||
| Derivatives |
51,892 |
47,730 |
4,162 |
– |
57,122 | 51,817 | 5,305 | – | |
Equity, foreign exchange, interest rate |
| |||||||||||||||||||||||||
| Securitization liabilities at fair value |
13,332 |
13,332 |
– |
– |
13,505 | 13,505 | – | – | Interest rate | |||||||||||||||||||||||||||
| Financial liabilities designated at fair value through profit or loss |
135,150 |
6 |
135,144 |
– |
113,988 | 7 | 113,981 | – | Interest rate | |||||||||||||||||||||||||||
| Deposits |
1,159,538 |
– |
1,159,538 |
– |
1,125,125 | – | 1,125,125 | – | |
Interest rate, foreign exchange |
| |||||||||||||||||||||||||
| Acceptances |
17,346 |
– |
17,346 |
– |
18,448 | – | 18,448 | – | Interest rate | |||||||||||||||||||||||||||
| Obligations related to securities sold short |
47,430 |
46,344 |
1,086 |
– |
42,384 | 41,242 | 1,142 | – | Interest rate | |||||||||||||||||||||||||||
| Obligations related to securities sold under repurchase agreements |
145,432 |
6,329 |
139,103 |
– |
144,097 | 5,126 | 138,971 | – | Interest rate | |||||||||||||||||||||||||||
| Securitization liabilities at amortized cost |
15,280 |
– |
15,280 |
– |
15,262 | – | 15,262 | – | Interest rate | |||||||||||||||||||||||||||
| Subordinated notes and debentures |
11,304 |
– |
11,304 |
– |
11,230 | – | 11,230 | – | Interest rate | |||||||||||||||||||||||||||
| Other liabilities 1 |
16,289 |
– |
16,289 |
– |
16,144 | – | 16,144 | – | Equity, interest rate | |||||||||||||||||||||||||||
| Liabilities and Equity not exposed to market risk |
145,046 |
– |
– |
145,046 |
148,476 | – | – | 148,476 | ||||||||||||||||||||||||||||
| Total Liabilities and Equity |
$ |
1,778,588 |
$ |
134,221 |
$ |
1,499,321 |
$ |
145,046 |
$ | 1,728,672 | $ | 134,428 | $ | 1,445,768 | $ | 148,476 | ||||||||||||||||||||
1 |
Relates to retirement benefits, insurance, and structured entity liabilities. |
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 28 |
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 in the market value of the current portfolio using historical simulation. The Bank values the current portfolio using the market price and rate changes of the most recent 259 trading days for equity, interest rate, foreign exchange, credit, and commodity products. GMR is computed as the threshold level that portfolio losses are not expected to exceed more than one out of every 100 trading days. A
one-day
holding period is used for GMR calculation, which is scaled up to ten days for regulatory capital calculation purposes. IDSR measures idiosyncratic (single-name) credit spread risk for credit exposures in the trading portfolio using Monte Carlo simulation. The IDSR model is based on the historical behaviour of five-year idiosyncratic credit spreads. Similar to GMR, IDSR is computed as the threshold level that portfolio losses are not expected to exceed more than one out of every 100 trading days. IDSR is measured for a
ten-day
holding period. The following graph discloses daily 7 days of trading losses and trading net revenue was positive for 89 % of the trading days, reflecting normal trading activity. Losses in the quarter did not exceed VaR on any trading day.
one-day
VaR usage and trading net revenue, reported on a taxable equivalent basis, within Wholesale Banking. Trading net revenue includes trading income and net interest income related to positions within the Bank’s market risk capital trading books. For the quarter ending January 31, 2022, there were 
VaR is a valuable risk measure but it should be used in the context of its limitations, for example:
| • | VaR uses historical data to estimate future events, which limits its forecasting abilities; |
| • | it does not provide information on losses beyond the selected confidence level; and |
| • | it assumes that all positions can be liquidated during the holding period used for VaR calculation. |
The Bank continuously improves its VaR methodologies and incorporates new risk measures in line with market conventions, industry best practices, and regulatory requirements.
To mitigate some of the shortcomings of VaR, the Bank uses additional metrics designed for risk management and capital purposes. These include Stressed VaR, IRC, Stress Testing Framework, as well as limits based on the sensitivity to various market risk factors.
Calculating Stressed VaR
In addition to VaR, the Bank also calculates Stressed VaR, which includes Stressed GMR and Stressed IDSR. Stressed VaR is designed to measure the adverse impact that potential changes in market rates and prices could have on the value of a portfolio over a specified period of stressed market conditions. Stressed VaR is determined using similar techniques and assumptions in GMR and IDSR VaR. However, instead of using the most recent 259 trading days (one year), the Bank uses a selected year of stressed market conditions. In the first quarter of 2022, Stressed VaR was calculated using the
one-year
period that includes the 2008 financial crisis. The appropriate historical one-year
period to use for Stressed VaR is determined on a quarterly basis. Stressed VaR is a part of regulatory capital requirements. Calculating the Incremental Risk Charge
The IRC is applied to all instruments in the trading book subject to migration and default risk. Migration risk represents the risk of changes in the credit ratings of the Bank’s exposures. TD applies a Monte Carlo simulation with a
one-year
horizon and a 99.9% confidence level to determine IRC, which is consistent with regulatory requirements. IRC is based on a “constant level of risk” assumption, which requires banks to assign a liquidity horizon to positions that are subject to IRC. IRC is a part of regulatory capital requirements. | TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 29 |
The following table presents the end of quarter, average, high, and low usage of TD’s portfolio metrics.
TABLE 29: PORTFOLIO MARKET RISK MEASURES
| (millions of Canadian dollars) | For the three months ended |
|||||||||||||||||||||||
January 31 2022 |
October 31 2021 |
|
January 31 2021 |
| ||||||||||||||||||||
As at |
Average |
High |
Low |
Average | Average | |||||||||||||||||||
| Interest rate risk |
$ |
$ |
$ |
$ |
$ | $ | ||||||||||||||||||
| Credit spread risk |
||||||||||||||||||||||||
| Equity risk |
||||||||||||||||||||||||
| Foreign exchange risk |
||||||||||||||||||||||||
| Commodity risk |
||||||||||||||||||||||||
| Idiosyncratic debt specific risk |
||||||||||||||||||||||||
| Diversification effect 1 |
( |
) | ( |
) | n/m |
2 |
n/m |
( |
) | ( |
) | |||||||||||||
| Total Value-at-Risk (one-day) |
||||||||||||||||||||||||
| Stressed Value-at-Risk (one-day) |
||||||||||||||||||||||||
| Incremental Risk Capital Charge (one-year) |
$ |
$ |
$ |
$ |
$ | |
$ | |
||||||||||||||||
1 |
The aggregate VaR is less than the sum of the VaR of the different risk types due to risk offsets resulting from portfolio diversification. |
2 |
Not meaningful. It is not meaningful to compute a diversification effect because the high and low may occur on different days for different risk types. |
Average VaR increased quarter-over-quarter due to changes in interest rate risk positions and decreased year-over-year due to the
COVID-19
related VaR scenarios dropping out of the one-year
historical VaR period. Average Stressed VaR increased compared to both last quarter and same quarter last year due to changes in interest rate risk positions. Average IRC remained relatively unchanged compared to last quarter. Average IRC decreased year-over-year due to changes in bond positions.
Validation of VaR Model
The Bank uses a back-testing process to compare the actual and theoretical profit and losses to VaR to ensure that they are consistent with the statistical results of the VaR model. The theoretical profit or loss is generated using the daily price movements on the assumption that there is no change in the composition of the portfolio. Validation of the IRC model must follow a different approach since the
one-year
horizon and 99.9% confidence level preclude standard back-testing techniques. Instead, key parameters of the IRC model such as transition and correlation matrices are subject to independent validation by benchmarking against external study results or through analysis using internal or external data. Structural
(Non-Trading)
Interest Rate Risk The Bank’s structural interest rate risk arises from traditional personal and commercial banking activity and is generally the result of mismatches between the maturities and repricing dates of the Bank’s assets and liabilities. The measurement of interest rate risk in the banking book does not include exposures from TD’s Wholesale Banking or Insurance businesses.
The primary measures for this risk are Economic Value of Shareholders’ Equity (EVE) Sensitivity and Net Interest Income Sensitivity (NIIS).
The EVE Sensitivity measures the impact of a specified interest rate shock to the change in 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. The 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 the 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 are set for the Bank’s management of
non-trading
interest rate risk 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 Asset/Liability and Capital Committee (ALCO) and the Risk Committee. The following table shows the potential
before-tax
impact of an immediate and sustained 100 bps increase or decrease in interest rates on the EVE and NIIS measures. Interest rate floors are applied by currency to the decrease in rates such that they do not exceed expected lower bounds, with the most material currencies set to a floor of -25
bps. TABLE 30: STRUCTURAL INTEREST RATE SENSITIVITY MEASURES
| (millions of Canadian dollars) | As at |
|||||||||||||||||||||||||||||||||||||||
January 31, 2022 |
October 31, 2021 | January 31, 2021 | ||||||||||||||||||||||||||||||||||||||
| EVE Sensitivity |
NII Sensitivity 1 |
EVE Sensitivity |
NII Sensitivity |
EVE Sensitivity |
NII Sensitivity |
|||||||||||||||||||||||||||||||||||
Canada |
U.S. |
Total |
Canada |
U.S. |
Total |
Total | Total | Total | Total | |||||||||||||||||||||||||||||||
| Before-tax impact of |
||||||||||||||||||||||||||||||||||||||||
| 100 bps increase in rates |
$ |
$ |
( |
) | $ |
( |
) | $ |
$ |
$ |
$ | ( |
) | $ | |
$ | ( |
) | $ | |
||||||||||||||||||||
| 100 bps decrease in rates |
( |
) | ( |
) | ( |
) | ( |
) | |
( |
) | |
( |
) | ||||||||||||||||||||||||||
1 |
Represents the twelve-month net interest income (NII) exposure to an immediate and sustained shock in rates. |
As at January 31, 2022, an immediate and sustained 100 bps increase in interest rates would have had a negative impact to the Bank’s EVE of $1,284 million, 84 million from last quarter, and a positive impact to the Bank’s NII of $2,000 million, 143 million from last quarter. An immediate and sustained 100 bps decrease in interest rates would have had a positive impact to the Bank’s EVE of $543 million, 205 million from last quarter, and a negative impact to the Bank’s NII of $1,481 million, an increase of $380
a decrease
of $an increase
of $an increase
of $million from last quarter. The quarter-over-quarter decrease in up shock EVE is primarily due to decreased sensitivity from loan optionality in the U.S. region. The quarter-over-quarter increase in down shock NII Sensitivity in primarily due to an increase in the effective shock given the increased level of rates and the measurement using a -25 bps floor, while the increase in up shock NII Sensitivity is primarily attributed to deposit growth.
| TD BANK GROUP • FIRST QUARTER 2022 • RE PORT TO SHAREHOLDERS |
Page 30 |
Liquidity Risk
Liquidity risk is the risk of having insufficient cash or collateral to meet financial obligations and an inability to, in a timely manner, raise funding or monetize assets at a
non-distressed
price. Financial obligations can arise from deposit withdrawals, debt maturities, commitments to provide credit or liquidity support, or the need to pledge additional collateral. TD’S LIQUIDITY RISK APPETITE
The Bank maintains a prudent and disciplined approach to managing its potential exposure to liquidity risk. The Bank targets a
90-day
survival horizon under a combined bank-specific and market-wide stress scenario, and a minimum buffer over regulatory requirements prescribed by OSFI’s Liquidity Adequacy Requirements (LAR) guidelines. Under the LAR guidelines, Canadian banks are required to maintain a Liquidity Coverage Ratio (LCR) at the minimum of 100% other than during periods of financial stress and to maintain a Net Stable Funding Ratio (NSFR) at the minimum of 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 that is designed to ensure low exposure to a sudden contraction of wholesale funding capacity and to minimize structural liquidity gaps. The Bank also maintains a contingency funding plan to enhance preparedness for recovery from potential liquidity stress events. The Bank’s strategies and actions comprise an integrated liquidity risk management program that is designed to ensure low exposure to liquidity risk and compliance with regulatory requirements. LIQUIDITY RISK MANAGEMENT RESPONSIBILITY
The Bank’s ALCO oversees the Bank’s liquidity risk management program. It ensures there are effective management structures and practices in place to properly measure and manage liquidity risk. The Global Liquidity & Funding Committee, a subcommittee of the ALCO comprised of senior management from Treasury and Balance Sheet Management (TBSM), Risk Management and Wholesale Banking, identifies and monitors the Bank’s liquidity risks. The management of liquidity risk is the responsibility of the SET member responsible for TBSM, while oversight and challenge is 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 Bank has established TDGUS as TD’s U.S. Intermediate Holding Company (IHC), as well as a Combined U.S. Operations (CUSO) reporting unit that consists of the IHC and TD’s U.S. branch and agency network. Both TDGUS and CUSO are managed to the U.S. Enhanced Prudential Standards liquidity requirements in addition to the Bank’s liquidity management framework.
The Bank’s liquidity risk appetite and liquidity risk management approach have not substantially changed from that described in the Bank’s 2021 Annual Report. For a complete discussion of liquidity risk, refer to the “Liquidity Risk” section in the Bank’s 2021 Annual Report.
Liquid assets
The unencumbered liquid assets the Bank holds to meet its liquidity requirements must be high-quality securities that the Bank believes can be monetized quickly in stress conditions with minimum loss in market value. The liquidity value of unencumbered liquid assets considers estimated market or trading depths, settlement timing, and/or other identified impediments to potential sale or pledging. Overall, the Bank expects any reduction in market value of its liquid asset portfolio to be modest given the underlying high credit quality and demonstrated liquidity.
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 • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 31 |
TABLE 31: SUMMARY OF LIQUID ASSETS BY TYPE AND CURRENCY
1,2
(millions of Canadian dollars, except as noted) |
As at |
|||||||||||||||||||||||
Bank-owned liquid assets |
Securities received as collateral from securities financing and derivative transactions |
Total liquid assets |
% of total |
Encumbered liquid assets |
Unencumbered liquid assets |
|||||||||||||||||||
January 31, 2022 |
||||||||||||||||||||||||
Cash and central bank reserves |
$ |
$ |
– |
$ |
% |
$ |
$ |
|||||||||||||||||
Canadian government obligations |
||||||||||||||||||||||||
National Housing Act Mortgage-Backed Securities (NHA MBS) |
||||||||||||||||||||||||
Obligations of provincial governments, public sector entities and multilateral development banks 3 |
||||||||||||||||||||||||
Corporate issuer obligations |
||||||||||||||||||||||||
Equities |
||||||||||||||||||||||||
Total Canadian dollar-denominated |
||||||||||||||||||||||||
Cash and central bank reserves |
– |
|||||||||||||||||||||||
U.S. government obligations |
||||||||||||||||||||||||
U.S. federal agency obligations, including U.S. federal agency mortgage-backed obligations |
||||||||||||||||||||||||
Obligations of other sovereigns, public sector entities and multilateral development banks 3 |
||||||||||||||||||||||||
Corporate issuer obligations |
||||||||||||||||||||||||
Equities |
||||||||||||||||||||||||
Total non-Canadian dollar-denominated |
||||||||||||||||||||||||
Total |
$ |
$ |
$ |
% |
$ |
$ |
||||||||||||||||||
| October 31, 2021 | ||||||||||||||||||||||||
Cash and central bank reserves |
$ | $ | – | $ | % | $ | $ | |||||||||||||||||
Canadian government obligations |
||||||||||||||||||||||||
NHA MBS |
||||||||||||||||||||||||
Obligations of provincial governments, public sector entities and multilateral development banks 3 |
||||||||||||||||||||||||
Corporate issuer obligations |
||||||||||||||||||||||||
Equities |
||||||||||||||||||||||||
Total Canadian dollar-denominated |
||||||||||||||||||||||||
Cash and central bank reserves |
– | |||||||||||||||||||||||
U.S. government obligations |
||||||||||||||||||||||||
U.S. federal agency obligations, including U.S. federal agency mortgage-backed obligations |
||||||||||||||||||||||||
Obligations of other sovereigns, public sector entities and multilateral development banks 3 |
||||||||||||||||||||||||
Corporate issuer obligations |
||||||||||||||||||||||||
Equities |
||||||||||||||||||||||||
Total non-Canadian dollar-denominated |
||||||||||||||||||||||||
Total |
$ | $ | $ | % | $ | $ | ||||||||||||||||||
1 |
Liquid assets include collateral received that can be re-hypothecated or otherwise redeployed. |
| 2 | Positions stated include gross asset values pertaining to securities financing transactions. |
3 |
Includes debt obligations issued or guaranteed by these entities. |
Unencumbered liquid assets are held in The Toronto-Dominion Bank and multiple domestic and foreign subsidiaries and branches and are summarized in the following table.
TABLE 32: SUMMARY OF UNENCUMBERED LIQUID ASSETS BY BANK, SUBSIDIARIES, AND BRANCHES
| (millions of Canadian dollars) | As at |
|||||||
January 31 2022 |
October 31 2021 |
|||||||
The Toronto-Dominion Bank (Parent) |
$ |
$ | ||||||
Bank subsidiaries |
||||||||
Foreign branches |
||||||||
Total |
$ |
$ | ||||||
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 32 |
The Bank’s monthly average liquid assets (excluding those held in insurance subsidiaries) for the quarters ended January 31, 2022 and October 31, 2021, are summarized in the following table.
TABLE 33: SUMMARY OF AVERAGE LIQUID ASSETS BY TYPE AND CURRENCY
1,2
(millions of Canadian dollars, except as noted) |
Average for the three months ended |
|||||||||||||||||||||||
Bank-owned liquid assets |
Securities received as collateral from securities financing and derivative transactions |
Total liquid assets |
% of Total |
Encumbered liquid assets |
Unencumbered liquid assets |
|||||||||||||||||||
January 31, 2022 |
||||||||||||||||||||||||
Cash and central bank reserves |
$ |
60,740 |
$ |
– |
$ |
60,740 |
7 |
% |
$ |
837 |
$ |
59,903 |
||||||||||||
Canadian government obligations |
17,631 |
94,642 |
112,273 |
12 |
79,019 |
33,254 |
||||||||||||||||||
NHA MBS |
23,825 |
2 |
23,827 |
3 |
1,110 |
22,717 |
||||||||||||||||||
Obligations of provincial governments, public sector entities and multilateral development banks 3 |
30,561 |
27,410 |
57,971 |
6 |
38,343 |
19,628 |
||||||||||||||||||
Corporate issuer obligations |
9,928 |
3,940 |
13,868 |
2 |
2,491 |
11,377 |
||||||||||||||||||
Equities |
15,749 |
4,133 |
19,882 |
2 |
8,155 |
11,727 |
||||||||||||||||||
Total Canadian dollar-denominated |
158,434 |
130,127 |
288,561 |
32 |
129,955 |
158,606 |
||||||||||||||||||
Cash and central bank reserves |
87,080 |
– |
87,080 |
10 |
920 |
86,160 |
||||||||||||||||||
U.S. government obligations |
96,633 |
51,145 |
147,778 |
16 |
48,794 |
98,984 |
||||||||||||||||||
U.S. federal agency obligations, including U.S. federal agency mortgage-backed obligations |
76,772 |
5,426 |
82,198 |
9 |
18,268 |
63,930 |
||||||||||||||||||
Obligations of other sovereigns, public sector entities and multilateral development banks 3 |
64,019 |
63,505 |
127,524 |
14 |
63,729 |
63,795 |
||||||||||||||||||
Corporate issuer obligations |
83,921 |
3,321 |
87,242 |
10 |
9,870 |
77,372 |
||||||||||||||||||
Equities |
50,621 |
34,188 |
84,809 |
9 |
40,593 |
44,216 |
||||||||||||||||||
Total non-Canadian dollar-denominated |
459,046 |
157,585 |
616,631 |
68 |
182,174 |
434,457 |
||||||||||||||||||
Total |
$ |
617,480 |
$ |
287,712 |
$ |
905,192 |
100 |
% |
$ |
312,129 |
$ |
593,063 |
||||||||||||
| October 31, 2021 | ||||||||||||||||||||||||
Cash and central bank reserves |
$ | 74,790 | $ | – | $ | 74,790 | 8 | % | $ | 953 | $ | 73,837 | ||||||||||||
Canadian government obligations |
26,392 | 91,893 | 118,285 | 14 | 83,385 | 34,900 | ||||||||||||||||||
NHA MBS |
24,605 | 3 | 24,608 | 3 | 1,287 | 23,321 | ||||||||||||||||||
Obligations of provincial governments, public sector entities and multilateral development banks 3 |
28,390 | 25,268 | 53,658 | 6 | 35,864 | 17,794 | ||||||||||||||||||
Corporate issuer obligations |
8,494 | 3,918 | 12,412 | 1 | 2,722 | 9,690 | ||||||||||||||||||
Equities |
15,249 | 4,216 | 19,465 | 2 | 9,931 | 9,534 | ||||||||||||||||||
Total Canadian dollar-denominated |
177,920 | 125,298 | 303,218 | 34 | 134,142 | 169,076 | ||||||||||||||||||
Cash and central bank reserves |
90,594 | – | 90,594 | 10 | 51 | 90,543 | ||||||||||||||||||
U.S. government obligations |
84,826 | 46,339 | 131,165 | 15 | 39,231 | 91,934 | ||||||||||||||||||
U.S. federal agency obligations, including U.S. federal agency mortgage-backed obligations |
74,167 | 5,398 | 79,565 | 9 | 18,553 | 61,012 | ||||||||||||||||||
Obligations of other sovereigns, public sector entities and multilateral development banks 3 |
63,495 | 64,353 | 127,848 | 14 | 61,752 | 66,096 | ||||||||||||||||||
Corporate issuer obligations |
78,334 | 2,970 | 81,304 | 9 | 10,286 | 71,018 | ||||||||||||||||||
Equities |
40,823 | 33,735 | 74,558 | 9 | 38,143 | 36,415 | ||||||||||||||||||
Total non-Canadian dollar-denominated |
432,239 | 152,795 | 585,034 | 66 | 168,016 | 417,018 | ||||||||||||||||||
Total |
$ | 610,159 | $ | 278,093 | $ | 888,252 | 100 | % | $ | 302,158 | $ | 586,094 | ||||||||||||
1 |
Liquid assets include collateral received that can be re-hypothecated or otherwise redeployed. |
2 |
Positions stated include gross asset values pertaining to securities financing transactions. |
3 |
Includes debt obligations issued or guaranteed by these entities. |
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 34: SUMMARY OF AVERAGE UNENCUMBERED LIQUID ASSETS BY BANK, SUBSIDIARIES, AND BRANCHES
| (millions of Canadian dollars) | Average for the three months ended |
|||||||
January 31 2022 |
October 31 2021 |
|||||||
The Toronto-Dominion Bank (Parent) |
$ |
192,701 |
$ | 208,858 | ||||
Bank subsidiaries |
380,829 |
359,606 | ||||||
Foreign branches |
19,533 |
17,630 | ||||||
Total |
$ |
593,063 |
$ | 586,094 | ||||
ASSET ENCUMBRANCE
In the course of the Bank’s operations, assets are pledged to obtain funding, support trading and brokerage businesses, and participate in clearing and/or settlement systems. A summary of encumbered and unencumbered assets (excluding assets held in insurance subsidiaries) is presented in the following table to identify assets that are used or available for potential funding needs.
day-to-day
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 33 |
TABLE 35: ENCUMBERED AND UNENCUMBERED ASSETS
| (millions of Canadian dollars) | As at |
|||||||||||||||||||||||||||
Total Assets |
Encumbered 1 |
Unencumbered |
||||||||||||||||||||||||||
Bank-owned assets |
Securities received as collateral from securities financing and derivative transactions 2 |
Total Assets |
Pledged as Collateral 3 |
Other 4 |
Available as Collateral 5 |
Other 6 |
||||||||||||||||||||||
January 31, 2022 |
||||||||||||||||||||||||||||
Cash and due from banks |
$ |
7,001 |
$ |
– |
$ |
7,001 |
$ |
– |
$ |
– |
$ |
– |
$ |
7,001 |
||||||||||||||
Interest-bearing deposits with banks |
165,209 |
– |
165,209 |
8,457 |
154 |
155,789 |
809 |
|||||||||||||||||||||
Securities, trading loans, and other 7 |
538,900 |
377,767 |
916,667 |
381,968 |
12,355 |
494,147 |
28,197 |
|||||||||||||||||||||
Derivatives |
54,519 |
– |
54,519 |
– |
– |
– |
54,519 |
|||||||||||||||||||||
Securities purchased under reverse repurchase agreements 8 |
165,818 |
(165,818 |
) |
– |
– |
– |
– |
– |
||||||||||||||||||||
Loans, net of allowance for loan losses 9 |
743,615 |
(19,040 |
) |
724,575 |
36,951 |
43,817 |
57,571 |
586,236 |
||||||||||||||||||||
Customers’ liabilities under acceptances |
17,346 |
– |
17,346 |
– |
– |
– |
17,346 |
|||||||||||||||||||||
Other assets 10 |
86,180 |
– |
86,180 |
470 |
– |
– |
85,710 |
|||||||||||||||||||||
Total assets |
$ |
1,778,588 |
$ |
192,909 |
$ |
1,971,497 |
$ |
427,846 |
$ |
56,326 |
$ |
707,507 |
$ |
779,818 |
||||||||||||||
| October 31, 2021 | ||||||||||||||||||||||||||||
Total assets |
$ | 1,728,672 | $ | 170,253 | $ | 1,898,925 | $ | 400,502 | $ | 60,298 | $ | 681,236 | $ | 756,889 | ||||||||||||||
1 |
Asset encumbrance has been analyzed on an individual asset basis. Where a particular asset has been encumbered and TD has holdings of the asset both on-balance sheet and off-balance sheet, for the purpose of this disclosure, the on- and off-balance sheet holdings are encumbered in alignment with the business practice. |
2 |
Assets received as collateral through off-balance transactions such as reverse repurchase agreements, securities borrowing, margin loans, and other client activity. |
3 |
Represents assets that have been posted externally to support the Bank’s day-to-day |
4 |
Assets supporting TD’s long-term funding activities, assets pledged against securitization liabilities, and assets held by consolidated securitization vehicles or in pools for covered bond issuance. |
5 |
Assets that are considered readily available in their current legal form to generate funding or support collateral needs. This category includes reported FHLB assets that remain unutilized and DSAC that are available for collateral purposes however not regularly utilized in practice. |
6 |
Assets that cannot be used to support funding or collateral requirements in their current form. This category includes those assets that are potentially eligible as funding program collateral or for pledging to central banks (for example, Canada Mortgage and Housing Corporation insured mortgages that can be securitized into NHA MBS). |
7 |
Includes trading loans, securities, non-trading financial assets at FVTPL and other financial assets designated at FVTPL, financial assets at FVOCI, and DSAC. |
8 |
Assets reported in the “Bank-owned assets” column represent the value of the loans extended and not the value of the collateral received. The loan value from the reverse repurchase transactions is deducted from the “Securities received as collateral from securities financing and derivative transactions” column to avoid double-counting with the on-balance sheet assets. |
9 |
The loan value from the margin loans/client activity is deducted from the “Securities received as collateral from securities financing and derivative transactions” column to avoid double-counting with the on-balance sheet assets. |
10 |
Other assets include investment in Schwab, goodwill, other intangibles, land, buildings, equipment, and other depreciable assets, deferred tax assets, amounts receivable from brokers, dealers, and clients, and other assets on the balance sheet not reported in the above categories. |
LIQUIDITY STRESS TESTING AND CONTINGENCY FUNDING PLANS
In addition to the Severe Combined Stress Scenario, the Bank performs liquidity stress testing on multiple alternate scenarios. These scenarios are a mix of
TD-specific
events and market-wide stress events designed to test the impact from risk factors material to the Bank’s risk profile. Liquidity assessments are also part of the Bank’s Enterprise-Wide Stress Testing program. The Bank has liquidity contingency funding plans (CFP) in place at the overall Bank level and for subsidiaries operating in foreign jurisdictions (“Regional CFPs”). The Bank’s CFP provides a documented framework for managing unexpected liquidity situations and thus is an integral component of the Bank’s overall liquidity risk management program. It outlines different contingency levels based on the severity and duration of the liquidity situation, and identifies recovery actions appropriate for each level. For each recovery action, it provides key operational steps required to execute the action. Regional CFPs identify recovery actions to address region-specific stress events. The actions and governance structure outlined in the Bank’s CFP are aligned with the Bank’s Crisis Management Recovery Plan.
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 34 |
CREDIT RATINGS
Credit ratings impact the Bank’s borrowing costs and ability to raise funds. Rating downgrades could potentially result in higher financing costs, increased requirements to pledge collateral, reduced access to capital markets, and could also affect the Bank’s ability to enter into derivative transactions.
Credit ratings and outlooks provided by rating agencies reflect their views and are subject to change from based on a number of factors including the Bank’s financial strength, competitive position, and liquidity, as well as factors not entirely within the Bank’s control, including the methodologies used by rating agencies and conditions affecting the overall financial services industry.
time-to-time,
TABLE 36: CREDIT RATINGS
1
As at |
||||||||||||
January 31, 2022 |
||||||||||||
Moody’s |
S&P |
DBRS |
||||||||||
Deposits/Counterparty 2 |
Aa1 |
AA- |
AA (high) |
|||||||||
Legacy Senior Debt 3 |
Aa2 |
AA- |
AA (high) |
|||||||||
Senior Debt 4 |
A1 |
A |
AA |
|||||||||
Covered Bonds |
Aaa |
– |
AAA |
|||||||||
Subordinated Debt |
A2 |
A |
AA (low) |
|||||||||
Subordinated Debt – NVCC |
A2 (hyb) |
A- |
A |
|||||||||
Preferred Shares – NVCC |
Baa1 (hyb) |
BBB |
Pfd-2 (high) |
|||||||||
Limited Recourse Capital Notes – NVCC |
Baa1 (hyb) |
BBB |
A (low) |
|||||||||
Short-Term Debt (Deposits) |
P-1 |
A-1+ |
R-1 (high) |
|||||||||
Outlook |
Stable |
Stable |
Stable |
|||||||||
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, 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, including debt with an original term-to-maturity |
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 Bank holds liquid assets to ensure it is able to provide additional collateral required by trading counterparties in the event of a three-notch downgrade in the Bank’s legacy senior debt ratings. The following table presents the additional collateral that could have been contractually required to be posted to 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 37: ADDITIONAL COLLATERAL REQUIREMENTS FOR RATING DOWNGRADES
1
| (millions of Canadian dollars) | Average for the three months ended |
|||||||
January 31 2022 |
October 31 2021 |
|||||||
One-notch downgrade |
$ |
181 |
$ | 194 | ||||
Two-notch downgrade |
287 |
273 | ||||||
Three-notch downgrade |
1,118 |
1,048 | ||||||
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 metric calculated as the ratio of the stock of unencumbered high-quality liquid assets (HQLA) over the net cash outflow requirements in the next 30 days under a hypothetical liquidity stress event.
Other than during periods of financial stress, the Bank must maintain the LCR above 100% in accordance with the 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 • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 35 |
The following table summarizes the Bank’s average daily LCR as of the relevant dates.
TABLE 38: AVERAGE BASEL III LIQUIDITY COVERAGE RATIO
1
| (millions of Canadian dollars, except as noted) | Average for the three months ended |
|||||||
January 31, 2022 |
||||||||
Total unweighted value (average) 2 |
Total weighted value (average) 3 |
|||||||
High-quality liquid assets |
||||||||
Total high-quality liquid assets |
$ |
n/a |
4 |
$ |
326,939 |
|||
Cash outflows |
||||||||
Retail deposits and deposits from small business customers, of which: |
$ |
683,127 |
$ |
80,871 |
||||
Stable deposits 5 |
254,227 |
7,627 |
||||||
Less stable deposits |
428,900 |
73,244 |
||||||
Unsecured wholesale funding, of which: |
352,130 |
158,058 |
||||||
Operational deposits (all counterparties) and deposits in networks of cooperative banks 6 |
167,158 |
40,266 |
||||||
Non-operational deposits (all counterparties) |
152,049 |
84,869 |
||||||
Unsecured debt |
32,923 |
32,923 |
||||||
Secured wholesale funding |
n/a |
18,409 |
||||||
Additional requirements, of which: |
270,050 |
76,394 |
||||||
Outflows related to derivative exposures and other collateral requirements |
41,338 |
29,262 |
||||||
Outflows related to loss of funding on debt products |
5,671 |
5,671 |
||||||
Credit and liquidity facilities |
223,041 |
41,461 |
||||||
Other contractual funding obligations |
16,241 |
10,585 |
||||||
Other contingent funding obligations 7 |
619,870 |
10,709 |
||||||
Total cash outflows |
$ |
n/a |
$ |
355,026 |
||||
Cash inflows |
||||||||
Secured lending |
$ |
211,618 |
$ |
20,870 |
||||
Inflows from fully performing exposures |
12,832 |
5,984 |
||||||
Other cash inflows |
65,041 |
65,041 |
||||||
Total cash inflows |
$ |
289,491 |
$ |
91,895 |
||||
Average for the three months ended |
||||||||
January 31, 2022 |
October 31, 2021 | |||||||
Total adjusted value |
Total adjusted value |
|||||||
Total high-quality liquid assets 8 |
$ |
326,939 |
$ | 334,370 | ||||
Total net cash outflows 9 |
263,131 |
265,958 | ||||||
Liquidity coverage ratio |
124 |
% |
126 | % | ||||
1 |
The LCR for the quarter ended January 31, 2022 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, as prescribed by the OSFI LAR guideline. |
4 |
Not applicable as per the LCR common disclosure template. |
5 |
As defined by the OSFI LAR guideline, stable deposits from retail and small- and medium-sized enterprise (SME) customers are deposits that are insured and are either held in transactional accounts or the depositors have an established relationship with the Bank that makes deposit withdrawal highly unlikely. |
6 |
Operational deposits from non-SME business customers are deposits kept with the Bank in order to facilitate their access and ability to conduct payment and settlement activities. These activities include clearing, custody, or cash management services. |
7 |
Includes uncommitted credit and liquidity facilities, stable value money market mutual funds, outstanding debt securities with remaining maturity greater than 30 days, and other contractual cash outflows. With respect to outstanding debt securities with remaining maturity greater than 30 days, TD has no contractual obligation to buy back these outstanding TD debt securities, and as a result, a 0% outflow rate is applied under the OSFI LAR guideline. |
8 |
Total HQLA includes both asset haircuts and applicable caps, as prescribed by the OSFI LAR guideline (HQLA assets after haircuts are capped at 40% for Level 2 and 15% for Level 2B). |
9 |
Total Net Cash Outflows include both inflow and outflow rates and applicable caps, as prescribed by the OSFI LAR guideline (inflows are capped at 75% of outflows). |
The Bank’s average LCR of 124% for quarter ended January 31, 2022 continues to meet the regulatory requirements.
The Bank holds a variety of liquid assets commensurate with liquidity needs of the organization. Many of these assets qualify as HQLA under the OSFI LAR guideline. The average HQLA of the Bank for the quarter ended January 31, 2022 was $327 billion (October 31, 2021 – $334 billion), with Level 1 assets representing 84% (October 31, 2021 – 86%). The Bank’s reported HQLA excludes excess HQLA from the U.S. Retail operations, as required by the OSFI LAR guideline, to reflect liquidity transfer considerations between U.S. Retail and its affiliates 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.
As described in the “How TD Manages Liquidity Risk” section of the Bank’s 2021 Annual Report, the Bank manages its HQLA and other liquidity buffers to the higher of TD’s
90-day
surplus requirement and the target buffers over regulatory requirements from the LCR, NSFR, and the Net Cumulative Cash Flow (NCCF) metrics. As a result, the total stock of HQLA is subject to ongoing rebalancing against the projected liquidity requirements. NET STABLE FUNDING RATIO
The NSFR is a Basel III metric calculated as the ratio of total available stable funding (ASF) over total required stable funding (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 but not limited to deposits and wholesale funding). The Bank’s RSF comprises the Bank’s assets and
off-balance
sheet activities and is a function of the liquidity characteristics and maturity profile of these assets. | TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 36 |
TABLE 39: NET STABLE FUNDING RATIO
| (millions of Canadian dollars, except as noted) |
As at |
|||||||||||||||||||
January 31, 2022 |
||||||||||||||||||||
Unweighted value by residential maturity |
||||||||||||||||||||
No maturity 1 |
Less than 6 months |
6 months to less than 1 year |
More than 1 year |
Weighted value 2 |
||||||||||||||||
| Available Stable Funding Item |
||||||||||||||||||||
| Capital |
$ |
98,990 |
$ |
n/a |
$ |
n/a |
$ |
10,842 |
$ |
109,833 |
||||||||||
| Regulatory capital |
98,990 |
n/a |
n/a |
10,842 |
109,833 |
|||||||||||||||
| Other capital instruments |
n/a |
n/a |
n/a |
– |
– |
|||||||||||||||
| Retail deposits and deposits from small business customers: |
674,670 |
30,069 |
9,667 |
15,219 |
598,001 |
|||||||||||||||
| Stable deposits 3 |
259,356 |
9,622 |
4,792 |
8,103 |
268,184 |
|||||||||||||||
| Less stable deposits |
415,314 |
20,447 |
4,875 |
7,116 |
329,817 |
|||||||||||||||
| Wholesale funding: |
267,178 |
284,279 |
44,218 |
84,615 |
263,116 |
|||||||||||||||
| Operational deposits 4 |
136,689 |
2,188 |
– |
– |
69,438 |
|||||||||||||||
| Other wholesale funding |
130,489 |
282,091 |
44,218 |
84,615 |
193,678 |
|||||||||||||||
| Liabilities with matching interdependent assets 5 |
– |
2,294 |
1,950 |
19,746 |
– |
|||||||||||||||
| Other liabilities: |
58,974 |
72,712 |
2,138 |
|||||||||||||||||
| NSFR derivative liabilities |
n/a |
1,956 |
n/a |
|||||||||||||||||
| All other liabilities and equity not included in the above categories |
58,974 |
67,803 |
1,630 |
1,323 |
2,138 |
|||||||||||||||
| Total Available Stable Funding |
$ |
973,088 |
||||||||||||||||||
| Required Stable Funding Item |
||||||||||||||||||||
| Total NSFR high-quality liquid assets |
$ |
n/a |
$ |
n/a |
$ |
n/a |
$ |
n/a |
$ |
55,743 |
||||||||||
| Deposits held at other financial institutions for operational purposes |
– |
54 |
– |
– |
27 |
|||||||||||||||
| Performing loans and securities |
85,517 |
182,123 |
90,389 |
581,221 |
619,173 |
|||||||||||||||
| Performing loans to financial institutions secured by Level 1 HQLA |
– |
57,494 |
11,385 |
– |
13,877 |
|||||||||||||||
| Performing loans to financial institutions secured by non-Level 1 |
||||||||||||||||||||
| HQLA and unsecured performing loans to financial institutions |
377 |
36,151 |
5,810 |
4,199 |
11,359 |
|||||||||||||||
| Performing loans to non-financial corporate clients, loans to retail and small business customers, and loans to sovereigns, central banks and PSEs, of which: |
30,753 |
46,550 |
30,028 |
235,404 |
268,006 |
|||||||||||||||
| With a risk weight of less than or equal to 35% under the Basel II standardized approach for credit risk |
28,459 |
16,986 |
280 |
23,028 |
||||||||||||||||
| Performing residential mortgages, of which: |
30,794 |
31,299 |
34,158 |
269,671 |
233,825 |
|||||||||||||||
| With a risk weight of less than or equal to 35% under the Basel II standardized approach for credit risk 6 |
30,794 |
31,299 |
34,158 |
269,671 |
233,825 |
|||||||||||||||
| Securities that are not in default and do not qualify as HQLA, including exchange-traded equities |
23,593 |
10,629 |
9,008 |
71,947 |
92,106 |
|||||||||||||||
| Assets with matching interdependent liabilities 5 |
– |
2,112 |
2,256 |
19,622 |
– |
|||||||||||||||
| Other assets: |
65,017 |
98,183 |
86,786 |
|||||||||||||||||
| Physical traded commodities, including gold |
16,766 |
n/a |
n/a |
n/a |
14,492 |
|||||||||||||||
| Assets posted as initial margin for derivative contracts and contributions to default funds of CCPs |
11,349 |
9,647 |
||||||||||||||||||
| NSFR derivative assets |
n/a |
4,720 |
2,765 |
|||||||||||||||||
| NSFR derivative liabilities before deduction of variation margin posted |
n/a |
12,915 |
646 |
|||||||||||||||||
| All other assets not included in the above categories |
48,251 |
62,430 |
2,004 |
4,765 |
59,236 |
|||||||||||||||
| Off-balance sheet items |
n/a |
646,710 |
22,566 |
|||||||||||||||||
| Total Required Stable Funding |
$ |
784,295 |
||||||||||||||||||
| Net Stable Funding Ratio |
124 |
% | ||||||||||||||||||
As at |
||||||||||||||||||||
October 31, 2021 |
||||||||||||||||||||
| Total Available Stable Funding |
$ |
958,226 |
||||||||||||||||||
| Total Required Stable Funding |
$ |
763,800 |
||||||||||||||||||
| Net Stable Funding Ratio |
125 |
% | ||||||||||||||||||
1 |
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. |
2 |
Weighted values are calculated after the application of respective NSFR weights, as prescribed by the OSFI LAR guideline. |
3 |
As defined by the OSFI LAR guideline, stable deposits from retail and SME customers are deposits that are insured and are either held in transactional accounts or the depositors have an established relationship with the Bank that makes deposit withdrawals highly unlikely. |
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. |
5 |
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 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. |
6 |
Includes Residential Mortgages and HELOCs. |
The Bank’s NSFR for the quarter ended January 31, 2022 is at 124% (October 31, 2021 – 125%) and has met the regulatory requirements. The NSFR changes are based on a number of factors including deposit and loan growth, changes in capital levels, wholesale funding issuance and maturities, and changes in the maturity profile of wholesale funding.
quarter-to-quarter
TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 37 |
FUNDING
The Bank has access to a variety of unsecured and secured funding sources. The Bank’s funding activities are conducted in accordance with the liquidity management policy that requires assets be funded to the appropriate term and to a prudent diversification profile.
The Bank’s primary approach to managing funding activities is to maximize the use of deposits raised through personal and commercial banking channels. The following table illustrates the Bank’s large base of personal and commercial, wealth, and Schwab sweep deposits (collectively, “P&C deposits”) that make up over 75 % of the Bank’s total funding.
TABLE 40: SUMMARY OF DEPOSIT FUNDING
| (millions of Canadian dollars) |
As at |
|||||||
| January 31 2022 |
October 31 2021 |
|||||||
| P&C deposits – Canadian Retail |
$ |
$ | ||||||
| P&C deposits – U.S. Retail 1 |
||||||||
| Total |
$ |
$ | |
|||||
1 |
P&C deposits in U.S. Retail are presented on a CAD 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 home equity lines of credit (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 bankers’ acceptances.
The following table summarizes the registered term funding and capital programs by geography, with the related program size as at January 31, 2022.
Canada |
United States |
Europe | ||
| Capital Securities Program ($15 billion) Canadian Senior Medium-Term Linked Notes Program ($4 billion) HELOC ABS Program (Genesis Trust II) ($7 billion) |
U.S. SEC (F-3) Registered Capital and Debt Program (US$45 billion)1 |
United Kingdom Listing Authority (UKLA) Registered Legislative Covered Bond Program ($80 billion) UKLA Registered European Medium-Term Note Program (US$20 billion) | ||
1 |
On February 4, 2022, the Bank filed a renewal registration statement on Form F-3 which, subject to review by the U.S. Securities Exchange Commission and upon going effective, would register up to US$75 billion for sale under the U.S. program. |
The following table presents a breakdown of the Bank’s term debt by currency and funding type. Term funding as at January 31, 2022, was $104.5 billion (October 31, 2021 – $100.7 billion).
Note that Table 41: Long-Term Funding and Table 42: Wholesale Funding do not include any funding accessed via repurchase transactions or securities financing.
TABLE 41: LONG-TERM FUNDING
As at |
||||||||
Long-term funding by currency |
January 31 2022 |
October 31 2021 |
||||||
| Canadian dollar |
36 |
% |
37 | % | ||||
| U.S. dollar |
39 |
38 | ||||||
| Euro |
19 |
18 | ||||||
| British pound |
3 |
4 | ||||||
| Other |
3 |
3 | ||||||
| Total |
100 |
% |
100 | % | ||||
Long-term funding by type |
||||||||
| Senior unsecured medium-term notes |
62 |
% |
59 | % | ||||
| Covered bonds |
21 |
24 | ||||||
| Mortgage securitization 1 |
15 |
15 | ||||||
| Term asset-backed securities |
2 |
2 | ||||||
| Total |
100 |
% |
100 | % | ||||
1 |
Mortgage securitization includes mortgage-backed securities issued to external investors and 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 • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 38 |
The following table represents the remaining maturity of various sources of funding outstanding as at January 31, 2022 and October 31, 2021.
TABLE 42: WHOLESALE FUNDING
1
(millions of Canadian dollars) |
As at |
|||||||||||||||||||||||||||||||||||
| January 31 2022 |
October 31 2021 |
|||||||||||||||||||||||||||||||||||
Less than 1 month |
1 to 3 months |
3 to 6 months |
6 months to 1 year |
Up to 1 year |
Over 1 to 2 years |
Over 2 years |
Total |
Total |
||||||||||||||||||||||||||||
| Deposits from banks 2 |
$ |
14,204 |
$ |
4,450 |
$ |
2,159 |
$ |
249 |
$ |
21,062 |
$ |
– |
$ |
– |
$ |
21,062 |
$ |
18,503 |
||||||||||||||||||
| Bearer deposit notes |
130 |
41 |
27 |
133 |
331 |
– |
– |
331 |
600 |
|||||||||||||||||||||||||||
| Certificates of deposit |
4,686 |
16,187 |
19,138 |
22,582 |
62,593 |
212 |
– |
62,805 |
53,079 |
|||||||||||||||||||||||||||
| Commercial paper |
13,522 |
18,143 |
20,483 |
8,044 |
60,192 |
– |
– |
60,192 |
57,474 |
|||||||||||||||||||||||||||
| Covered bonds |
– |
1,785 |
3,926 |
2,637 |
8,348 |
5,716 |
8,903 |
22,967 |
25,086 |
|||||||||||||||||||||||||||
| Mortgage securitization 3 |
1,066 |
1,431 |
988 |
2,040 |
5,525 |
5,253 |
17,833 |
28,611 |
28,767 |
|||||||||||||||||||||||||||
| Legacy senior unsecured medium-term notes 4 |
– |
3,787 |
– |
– |
3,787 |
8,883 |
2,026 |
14,696 |
16,959 |
|||||||||||||||||||||||||||
| Senior unsecured medium-term notes 5 |
– |
– |
– |
5,397 |
5,397 |
6,601 |
38,050 |
50,048 |
41,709 |
|||||||||||||||||||||||||||
| Subordinated notes and debentures 6 |
– |
– |
– |
– |
– |
– |
11,304 |
11,304 |
11,230 |
|||||||||||||||||||||||||||
| Term asset backed securitization |
– |
– |
– |
543 |
543 |
635 |
690 |
1,868 |
1,809 |
|||||||||||||||||||||||||||
| Other 7 |
22,177 |
3,465 |
1,810 |
960 |
28,412 |
835 |
1,399 |
30,646 |
26,770 |
|||||||||||||||||||||||||||
| Total |
$ |
55,785 |
$ |
49,289 |
$ |
48,531 |
$ |
42,585 |
$ |
196,190 |
$ |
28,135 |
$ |
80,205 |
$ |
304,530 |
$ |
281,986 |
||||||||||||||||||
| Of which: |
||||||||||||||||||||||||||||||||||||
| Secured |
$ |
1,066 |
$ |
3,216 |
$ |
4,914 |
$ |
5,221 |
$ |
14,417 |
$ |
11,605 |
$ |
27,432 |
$ |
53,454 |
$ |
55,670 |
||||||||||||||||||
| Unsecured |
54,719 |
46,073 |
43,617 |
37,364 |
181,773 |
16,530 |
52,773 |
251,076 |
226,316 |
|||||||||||||||||||||||||||
| Total |
$ |
55,785 |
$ |
49,289 |
$ |
48,531 |
$ |
42,585 |
$ |
196,190 |
$ |
28,135 |
$ |
80,205 |
$ |
304,530 |
$ |
281,986 |
||||||||||||||||||
1 |
Excludes Bankers’ acceptances, which are disclosed in the Remaining Contractual Maturity table within the “Managing Risk” section of this document. |
2 |
Includes fixed-term deposits with banks. |
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 |
5 |
Comprised of senior debt subject to conversion under the bank recapitalization “bail-in” regime. Excludes $1.3 billion of structured notes subject to conversion under the “bail-in” regime (October 31, 2021 – $1.4 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 $19.1 billion (October 31, 2021 – $14.6 billion) and the remaining are non-term deposits. |
Excluding the Wholesale Banking residential mortgage trading business, the Bank’s total mortgage-backed securities issued to external investors for the three months ended January 31, 2022 was $0.4 billion (three months ended January 31, 2021 – $0.5 billion) and other asset-backed securities issued for the three months ended January 31, 2022 was nil (three months ended January 31, 2021 – nil). The Bank also issued $7.8 billion of unsecured medium-term notes for the three months ended January 31, 2022 (three months ended January 31, 2021 – $5.6 billion).
REGULATORY DEVELOPMENTS CONCERNING LIQUIDITY AND FUNDING
In January 2022, OSFI published finalized updates to its Liquidity Adequacy Requirements guideline, following a public consultation period that began in March 2021. The primary changes to the LAR involve enhancements to the NCCF supervisory tool to improve the risk sensitivity to the metric. Significant changes include the addition of contingencies for undrawn loan commitments, changes to certain loan cash inflows, and the adjustment of deposit runoff factors. The effective date of the changes will be April 2023.
In January 2022, OSFI published an updated Pillar 3 Disclosure Guideline, which covers liquidity disclosures among other topics. The guideline provides OSFI’s updated expectations for the domestic implementation of Basel’s Pillar 3 Framework. The guideline will not materially impact the Bank’s existing liquidity disclosures, but will contribute to improved consistency and comparability of disclosures across jurisdictions. The effective date of the changes will be in the second quarter of 2023.
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 ensures that assets are appropriately funded to protect against borrowing cost volatility and potential reductions to funding market availability. The Bank utilizes stable
non-maturity
deposits (chequing and savings accounts) and term deposits as the primary source of long-term funding for the Bank’s non-trading
assets including personal and business term loans and the stable balance of revolving lines of credit. The Bank issues long-term funding based primarily on the projected net growth of 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 • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 39 |
TABLE 43: REMAINING CONTRACTUAL MATURITY
| (millions of Canadian dollars) |
As at |
|||||||||||||||||||||||||||||||||||||||
January 31, 2022 |
||||||||||||||||||||||||||||||||||||||||
Less than 1 month |
1 to 3 months |
3 to 6 months |
6 to 9 months |
9 months to 1 year |
Over 1 to 2 years |
Over 2 to 5 years |
Over 5 years |
No specific maturity |
Total |
|||||||||||||||||||||||||||||||
| Assets |
||||||||||||||||||||||||||||||||||||||||
| Cash and due from banks |
$ |
$ |
– |
$ |
– |
$ |
– |
$ |
– |
$ |
– |
$ |
– |
$ |
– |
$ |
– |
$ |
||||||||||||||||||||||
| Interest-bearing deposits with banks |
– |
– |
– |
– |
– |
|||||||||||||||||||||||||||||||||||
| Trading loans, securities, and other 1 |
||||||||||||||||||||||||||||||||||||||||
| Non-trading financial assets at fair value through profit or loss |
||||||||||||||||||||||||||||||||||||||||
| Derivatives |
– |
|||||||||||||||||||||||||||||||||||||||
| Financial assets designated at fair value through profit or loss |
– |
|||||||||||||||||||||||||||||||||||||||
| Financial assets at fair value through other comprehensive income |
||||||||||||||||||||||||||||||||||||||||
| Debt securities at amortized cost, net of allowance for credit losses |
( |
) | ||||||||||||||||||||||||||||||||||||||
| Securities purchased under reverse repurchase agreements 2 |
– |
– |
||||||||||||||||||||||||||||||||||||||
| Loans |
||||||||||||||||||||||||||||||||||||||||
| Residential mortgages |
– |
|||||||||||||||||||||||||||||||||||||||
| Consumer instalment and other personal |
||||||||||||||||||||||||||||||||||||||||
| Credit card |
– |
– |
– |
– |
– |
– |
– |
– |
||||||||||||||||||||||||||||||||
| Business and government |
||||||||||||||||||||||||||||||||||||||||
| Total loans |
||||||||||||||||||||||||||||||||||||||||
| Allowance for loan losses |
– |
– |
– |
– |
– |
– |
– |
– |
( |
) | ( |
) | ||||||||||||||||||||||||||||
| Loans, net of allowance for loan losses |
||||||||||||||||||||||||||||||||||||||||
| Customers’ liability under acceptances |
– |
– |
– |
– |
||||||||||||||||||||||||||||||||||||
| Investment in Schwab |
– |
– |
– |
– |
– |
– |
– |
– |
||||||||||||||||||||||||||||||||
| Goodwill 3 |
– |
– |
– |
– |
– |
– |
– |
– |
||||||||||||||||||||||||||||||||
| Other intangibles 3 |
– |
– |
– |
– |
– |
– |
– |
– |
||||||||||||||||||||||||||||||||
| Land, buildings, equipment, and other depreciable assets 3 |
– |
– |
||||||||||||||||||||||||||||||||||||||
| Deferred tax assets |
– |
– |
– |
– |
– |
– |
– |
– |
||||||||||||||||||||||||||||||||
| Amounts receivable from brokers, dealers, and clients |
– |
– |
– |
– |
– |
– |
– |
– |
||||||||||||||||||||||||||||||||
| Other assets |
||||||||||||||||||||||||||||||||||||||||
| Total assets |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||||||||||||||
| Liabilities |
||||||||||||||||||||||||||||||||||||||||
| Trading deposits |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
– |
$ |
|||||||||||||||||||||||||||||
| Derivatives |
– |
|||||||||||||||||||||||||||||||||||||||
| Securitization liabilities at fair value |
– |
|||||||||||||||||||||||||||||||||||||||
| Financial liabilities designated at fair value through profit or loss |
||||||||||||||||||||||||||||||||||||||||
| Deposits 4,5 |
||||||||||||||||||||||||||||||||||||||||
| Personal |
||||||||||||||||||||||||||||||||||||||||
| Banks |
||||||||||||||||||||||||||||||||||||||||
| Business and government |
||||||||||||||||||||||||||||||||||||||||
| Total deposits |
||||||||||||||||||||||||||||||||||||||||
| Acceptances |
– |
– |
– |
– |
||||||||||||||||||||||||||||||||||||
| Obligations related to securities sold short 1 |
||||||||||||||||||||||||||||||||||||||||
| Obligations related to securities sold under repurchase agreements 2 |
– |
– |
– |
|||||||||||||||||||||||||||||||||||||
| Securitization liabilities at amortized cost |
– |
– |
||||||||||||||||||||||||||||||||||||||
| Amounts payable to brokers, dealers, and clients |
– |
– |
– |
– |
– |
– |
– |
– |
||||||||||||||||||||||||||||||||
| Insurance-related liabilities |
||||||||||||||||||||||||||||||||||||||||
| Other liabilities |
||||||||||||||||||||||||||||||||||||||||
| Subordinated notes and debentures |
– |
– |
– |
– |
– |
– |
– |
|||||||||||||||||||||||||||||||||
| Equity |
– |
– |
– |
– |
– |
– |
– |
– |
||||||||||||||||||||||||||||||||
| Total liabilities and equity |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||||||||||||||
| Off-balance sheet commitments |
||||||||||||||||||||||||||||||||||||||||
| Credit and liquidity commitments 6,7 |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||||||||||||||
| Other commitments 8 |
– |
|||||||||||||||||||||||||||||||||||||||
| Unconsolidated structured entity commitments |
– |
– |
– |
– |
||||||||||||||||||||||||||||||||||||
| Total off-balance sheet commitments |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||||||||||||||
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 $ |
6 |
Includes $ |
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 • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 40 |
TABLE 43: REMAINING CONTRACTUAL MATURITY
| (millions of Canadian dollars) | As at |
|||||||||||||||||||||||||||||||||||||||
| October 31, 2021 | ||||||||||||||||||||||||||||||||||||||||
| Less than 1 month |
1 to 3 months |
3 to 6 months |
6 to 9 months |
9 months to 1 year |
Over 1 to 2 years |
Over 2 to 5 years |
Over 5 years |
No specific maturity |
Total | |||||||||||||||||||||||||||||||
| Assets |
||||||||||||||||||||||||||||||||||||||||
| Cash and due from banks |
$ | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | $ | ||||||||||||||||||||||
| Interest-bearing deposits with banks |
– | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Trading loans, securities, and other 1 |
||||||||||||||||||||||||||||||||||||||||
| Non-trading financial assets at fair value through profit or loss |
||||||||||||||||||||||||||||||||||||||||
| Derivatives |
– | |||||||||||||||||||||||||||||||||||||||
| Financial assets designated at fair value through profit or loss |
– | |||||||||||||||||||||||||||||||||||||||
| Financial assets at fair value through other comprehensive income |
||||||||||||||||||||||||||||||||||||||||
| Debt securities at amortized cost, net of allowance for credit losses |
( |
) | ||||||||||||||||||||||||||||||||||||||
| Securities purchased under reverse repurchase agreements 2 |
– | – | ||||||||||||||||||||||||||||||||||||||
| Loans |
||||||||||||||||||||||||||||||||||||||||
| Residential mortgages |
– | |||||||||||||||||||||||||||||||||||||||
| Consumer instalment and other personal |
||||||||||||||||||||||||||||||||||||||||
| Credit card |
– | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||
| Business and government |
||||||||||||||||||||||||||||||||||||||||
| Total loans |
||||||||||||||||||||||||||||||||||||||||
| Allowance for loan losses |
– | – | – | – | – | – | – | – | ( |
) | ( |
) | ||||||||||||||||||||||||||||
| Loans, net of allowance for loan losses |
||||||||||||||||||||||||||||||||||||||||
| Customers’ liability under acceptances |
– | – | – | – | ||||||||||||||||||||||||||||||||||||
| Investment in Schwab |
– | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||
| Goodwill 3 |
– | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||
| Other intangibles 3 |
– | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||
| Land, buildings, equipment, and other depreciable assets 3 |
– | |||||||||||||||||||||||||||||||||||||||
| Deferred tax assets |
– | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||
| Amounts receivable from brokers, dealers, and clients |
– | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||
| Other assets |
||||||||||||||||||||||||||||||||||||||||
| Total assets |
$ | |
$ | |
$ | |
$ | |
$ | |
$ | |
$ | |
$ | |
$ | $ | |
|||||||||||||||||||||
| Liabilities |
||||||||||||||||||||||||||||||||||||||||
| Trading deposits |
$ | $ | $ | $ | $ | $ | $ | $ | $ | – | $ | |||||||||||||||||||||||||||||
| Derivatives |
– | |||||||||||||||||||||||||||||||||||||||
| Securitization liabilities at fair value |
– | – | ||||||||||||||||||||||||||||||||||||||
| Financial liabilities designated at fair value through profit or loss |
– | |||||||||||||||||||||||||||||||||||||||
| Deposits 4,5 |
||||||||||||||||||||||||||||||||||||||||
| Personal |
||||||||||||||||||||||||||||||||||||||||
| Banks |
– | |||||||||||||||||||||||||||||||||||||||
| Business and government |
||||||||||||||||||||||||||||||||||||||||
| Total deposits |
||||||||||||||||||||||||||||||||||||||||
| Acceptances |
– | – | – | – | ||||||||||||||||||||||||||||||||||||
| Obligations related to securities sold short 1 |
||||||||||||||||||||||||||||||||||||||||
| Obligations related to securities sold under repurchase agreements 2 |
– | – | – | |||||||||||||||||||||||||||||||||||||
| Securitization liabilities at amortized cost |
– | – | ||||||||||||||||||||||||||||||||||||||
| Amounts payable to brokers, dealers, and clients |
– | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||
| Insurance-related liabilities |
||||||||||||||||||||||||||||||||||||||||
| Other liabilities |
||||||||||||||||||||||||||||||||||||||||
| Subordinated notes and debentures |
– | – | – | – | – | – | – | |||||||||||||||||||||||||||||||||
| Equity |
– | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||
| Total liabilities and equity |
$ | $ | $ | $ | $ | $ | $ | $ | $ | |
$ | |||||||||||||||||||||||||||||
| Off-balance sheet commitments |
||||||||||||||||||||||||||||||||||||||||
| Credit and liquidity commitments 6,7 |
$ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Other commitments 8 |
– | |||||||||||||||||||||||||||||||||||||||
| Unconsolidated structured entity commitments |
– | – | – | – | ||||||||||||||||||||||||||||||||||||
| Total off-balance sheet commitments |
$ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
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 $ |
6 |
Includes $ |
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 • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 4 1 |
SECURITIZATION AND
OFF-BALANCE
SHEET ARRANGEMENTS The Bank enters into securitization and
off-balance
sheet arrangements in the normal course of operations. The Bank is involved with structured entities (SEs) that it sponsors, as well as entities sponsored by third parties. Refer to “Securitization and Off-Balance
Sheet Arrangements” section, Note 9: Transfers of Financial Assets and Note 10: Structured Entities of the Bank’s 2021 Annual Report and “Transfers of Financial Assets Qualifying for Derecognition” section of Note 6 of the Bank’s first quarter 2022 Interim Consolidated Financial Statements for further details. There have been no significant changes to the Bank’s securitization and off-balance
sheet arrangements during the quarter ended January 31, 2022. Securitization of Bank-Originated Assets
The Bank securitizes residential mortgages, personal loans, credit cards and business and government loans to enhance its liquidity position, to diversify sources of funding, and to optimize the management of the balance sheet.
Residential Mortgage Loans
The Bank securitizes residential mortgage loans through significant consolidated and 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. Consumer Instalment and Other Personal Loans
The Bank securitizes consumer instalment and other personal loans through a consolidated 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.
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.
Business and Government Loans
The Bank securitizes business and government loans through significant unconsolidated SEs and 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 mortgages are all government insured. Securitization of Third Party-Originated Assets
Significant Unconsolidated Special Purpose Entities
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 these multi-seller conduits and provides liquidity facilities as well as securities distribution services; it may also provide credit enhancements. TD’s maximum potential exposure to loss due to its ownership interest in commercial paper and through the provision of liquidity facilities for multi-seller conduits was $10.8 billion as at January 31, 2022 (October 31, 2021 – $10.5 billion). In addition, as at January 31, 2022, the Bank had committed to provide $3.0 billion in liquidity facilities that can be used to support future asset-backed commercial paper in the purchase of deal-specific assets (October 31, 2021 – $2.1 billion).
Off-Balance
Sheet Exposure to Third Party-Sponsored Conduits The Bank has
off-balance
sheet exposure to third party-sponsored conduits arising from providing liquidity facilities and funding commitments of $3.1 billion as at January 31, 2022 (October 31, 2021 – $2.5 billion). The assets within these conduits are comprised of individual notes backed by automotive loan receivables, credit card receivables, equipment receivables and trade receivables. On-balance
sheet exposure to third party-sponsored conduits have been included in the financial statements. ACCOUNTING POLICIES AND ESTIMATES
The Bank’s unaudited Interim Consolidated Financial Statements have been prepared in accordance with IFRS. For details of the Bank’s accounting policies under IFRS, refer to Note 2 of the Bank’s first quarter 2022 Interim Consolidated Financial Statements and 2021 Annual Consolidated Financial Statements. For details of the Bank’s significant accounting judgments, estimates, and assumptions under IFRS, refer to Note 3 of the Bank’s first quarter 2022 Interim Consolidated Financial Statements and Bank’s 2021 Annual Consolidated Financial Statements.
CURRENT CHANGES IN ACCOUNTING POLICIES
There were no new accounting policies that have been adopted by the Bank for the three months ended January 31, 2022.
ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS
The estimates used in the Bank’s accounting policies are essential to understanding its results of operations and financial condition. Some of the Bank’s policies require subjective, complex judgments and estimates as they relate to matters that are inherently uncertain. Changes in these judgments or estimates and changes to accounting standards and policies could have a materially adverse impact on the Bank’s Interim Consolidated Financial Statements. The Bank has established procedures to ensure that accounting policies are applied consistently and that the processes for changing methodologies, determining estimates, and adopting new accounting standards are well-controlled and occur in an appropriate and systematic manner.
Impairment – Expected Credit Loss Model
The ECL model requires the application of estimates and judgment in the assessment of the current and forward-looking economic environment. As a result of
COVID-19,
there is a higher degree of uncertainty in determining reasonable and supportable forward-looking information. Management exercises 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, by considering reasonable and supportable information that is not already included in the quantitative models. The current environment is subject to rapid change and to the extent that certain effects of COVID-19
are not fully incorporated into the model calculations, increased temporary quantitative and qualitative adjustments have been applied. This includes borrower credit scores, industry and geography specific COVID-19
impacts, payment support initiatives | TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 42 |
introduced by the Bank and governments, and the persistence of the economic shutdown, the effects of which are not yet fully reflected in the quantitative models. The Bank has performed certain additional qualitative portfolio and loan level assessments of significant increase in credit risk.
Interest Rate Benchmark Reform
Effective December 31, 2021, the publication of London Inter-Bank Offered Rate (LIBOR) settings has ceased for all sterling, Japanese yen, Swiss franc, and euro settings as well as the
1-week
and 2-month
US LIBOR settings. The Bank continues to progress on its transition plan for the overnight, one-month,
three-month, six-month
and 12-month
US LIBOR settings which will cease to be published immediately after June 30, 2023. On January 31, 2022, Refinitiv Benchmark Services (UK) Ltd. (RBSL), the administrator of the Canadian Dollar Offered Rate (CDOR), published a public consultation regarding the potential cessation of CDOR. Following the consultation close on February 28, 2022, RBSL is expected to publish an outcome statement on the consultation. Pending any decision yet to be taken by RBSL, the outcome statement may include an announcement of the cessation of CDOR together with an effective date for such cessation. The consultation followed the publication of a whitepaper regarding the future of CDOR by the Canadian Alternative Reference Rate Working Group (CARR) on December 16, 2021, which recommended RBSL cease publication of all CDOR’s remaining tenors after June 30, 2024. CARR emphasized that the decision to cease CDOR ultimately lies with RBSL as the administrator of CDOR.
FUTURE CHANGES IN ACCOUNTING POLICIES
The following standard has been issued, but is not yet effective on the date of issuance of the Bank’s Interim Consolidated Financial Statements. The Bank is currently assessing the impact of applying the standard on the Interim Consolidated Financial Statements and will adopt the standard when it becomes effective.
Insurance Contracts
The IASB issued IFRS 17, (IFRS 17) which replaces the guidance in IFRS 4, and establishes principles for recognition, measurement, presentation, and disclosure of insurance contracts. Insurance contracts are aggregated into groups which are measured at the risk adjusted present value of cash flows in fulfilling the contracts. Revenue is recognized as insurance contract services are provided over the coverage period. Losses are recognized immediately if the contract group is expected to be onerous.
Insurance Contracts
Insurance Contracts
The standard is effective for annual reporting periods beginning on or after January 1, 2023, which will be November 1, 2023 for the Bank. OSFI’s related Advisory precludes early adoption. The standard will be applied retrospectively with restatement of comparatives unless impracticable.
The Bank is proceeding with the implementation efforts accordingly.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the most recent interim period, there have been no changes in the Bank’s policies and procedures and other processes that comprise its internal control over financial reporting, that have materially affected, or are reasonably likely to materially affect, the Bank’s internal control over financial reporting.
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 43 |
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:
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:
Assets under Administration (AUA):
Assets under Management (AUM):
Asset-Backed Commercial Paper (ABCP):
Asset-Backed Securities (ABS):
Average Common Equity:
Average Interest
-Earning
Assets: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)
Basis Points (bps):
Book Value per Share:
Carrying Value:
Collateralized Mortgage Obligation (CMO):
non-agency
CMOs. Common Equity Tier 1 (CET1) Capital:
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:
Compound Annual Growth Rate (CAGR):
Credit Valuation Adjustment (CVA):
Diluted EPS
Dividend Payout Ratio
Dividend Yield:
Effective Income Tax Rate:
Effective Interest Rate (EIR):
Effective Interest Rate Method (EIRM):
effective interest rate
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 44 |
Efficiency Ratio:
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):
Expected Credit Losses (ECLs):
Fair Value:
Fair value through other comprehensive income (FVOCI):
Fair value through profit or loss (FVTPL):
Federal Deposit Insurance Corporation (FDIC):
Forward Contracts:
Over-the-counter
Futures:
Hedging:
Impaired Loans:
Loss Given Default (LGD):
Mark-to-Market
Master Netting Agreements:
Net Corporate Expenses:
Non-interest
expenses related to corporate service and control groups which are not allocated to a business segment. Net Interest Margin:
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. Non-Viability
Contingent Capital (NVCC): Notional:
Office of the Superintendent of Financial Institutions Canada (OSFI):
Options:
Price-Earnings Ratio
Probability of Default (PD):
Provision for Credit Losses (PCL):
Return on Common Equity (ROE):
Return on Risk-weighted Assets:
Return on Tangible Common Equity (ROTCE):
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):
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. | TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 45 |
Securitization:
Solely Payments of Principal and Interest (SPPI):
| • | The entity’s business model relates to managing financial assets (such as bank trading activity), and, as such, an asset is held with the intention of collecting its contractual cash flows; and |
| • | An asset’s contractual cash flows represent SPPI. |
Swaps:
Tangible common equity (TCE):
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):
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:
Total Capital Ratio:
Total Shareholder Return (TSR):
Trading-Related Revenue:
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, which is part of the total Bank’s trading-related revenue, 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
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 46 |
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
INTERIM CONSOLIDATED BALANCE SHEET |
||||||||
| (As at and in millions of Canadian dollars) | January 31, 2022 |
October 31, 2021 | ||||||
| ASSETS |
||||||||
| Cash and due from banks |
$ |
$ | ||||||
| Interest-bearing deposits with banks |
||||||||
| Trading loans, securities, and other (Note 4) |
||||||||
| Non-trading financial assets at fair value through profit or loss (Note 4) |
||||||||
| Derivatives (Note 4) |
||||||||
| Financial assets designated at fair value through profit or loss (Note 4) |
||||||||
| Financial assets at fair value through other comprehensive income (Note 4) |
||||||||
| Debt securities at amortized cost, net of allowance for credit losses (Notes 4, 5) |
||||||||
| Securities purchased under reverse repurchase agreements |
||||||||
| Loans (Notes 4, 6) |
||||||||
| Residential mortgages |
||||||||
| Consumer instalment and other personal |
||||||||
| Credit card |
||||||||
| Business and government |
||||||||
| Allowance for loan losses (Note 6) |
( |
) |
( |
) | ||||
| Loans, net of allowance for loan losses |
||||||||
| Other |
||||||||
| Customers’ liability under acceptances |
||||||||
| Investment in Schwab (Note 7) |
||||||||
| Goodwill (Note 8) |
||||||||
| Other intangibles |
||||||||
| Land, buildings, equipment, and other depreciable assets |
||||||||
| Deferred tax assets |
||||||||
| Amounts receivable from brokers, dealers, and clients |
||||||||
| Other assets (Note 9) |
||||||||
| Total assets |
$ |
$ | ||||||
| LIABILITIES |
||||||||
| Trading deposits (Notes 4, 10) |
$ |
$ | ||||||
| Derivatives (Note 4) |
||||||||
| Securitization liabilities at fair value (Note 4) |
||||||||
| Financial liabilities designated at fair value through profit or loss (Notes 4, 10) |
||||||||
| Deposits (Notes 4, 10) |
||||||||
| Personal |
||||||||
| Banks |
||||||||
| Business and government |
||||||||
| Other |
||||||||
| Acceptances |
||||||||
| Obligations related to securities sold short (Note 4) |
||||||||
| Obligations related to securities sold under repurchase agreements |
||||||||
| Securitization liabilities at amortized cost (Note 4) |
||||||||
| Amounts payable to brokers, dealers, and clients |
||||||||
| Insurance-related liabilities |
||||||||
| Other liabilities (Note 11) |
||||||||
| Subordinated notes and debentures (Note 4) |
||||||||
| Total liabilities |
||||||||
| EQUITY |
||||||||
| Shareholders’ Equity |
||||||||
| Common shares (Note 12) |
||||||||
| Preferred shares and other equity instruments (Note 12) |
||||||||
| Treasury – common shares (Note 12) |
( |
) |
( |
) | ||||
| Treasury – preferred shares and other equity instruments (Note 12) |
( |
) |
( |
) | ||||
| Contributed surplus |
||||||||
| Retained earnings |
||||||||
| Accumulated other comprehensive income (loss) |
||||||||
| Total equity |
||||||||
| Total liabilities and equity |
$ |
$ | ||||||
The accompanying Notes are an integral part of these Interim Consolidated Financial Statements.
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 47 |
INTERIM CONSOLIDATED STATEMENT OF INCOME |
||||||||
| (millions of Canadian dollars, except as noted) | For the three months ended |
|||||||
| January 31 2022 |
January 31 2021 |
|||||||
| Interest income 1 (Note 19) |
||||||||
| Loans |
$ |
$ | ||||||
| Securities |
||||||||
| Interest |
||||||||
| Dividends |
||||||||
| Deposits with banks |
||||||||
| Interest expense (Note 19) |
||||||||
| Deposits |
||||||||
| Securitization liabilities |
||||||||
| Subordinated notes and debentures |
||||||||
| Other |
||||||||
| Net interest income |
||||||||
| Non-interest income |
||||||||
| Investment and securities services |
||||||||
| Credit fees |
||||||||
| Trading income (loss) |
||||||||
| Service charges |
||||||||
| Card services |
||||||||
| Insurance revenue |
||||||||
| Other income (loss) |
||||||||
| Total revenue |
||||||||
| Provision for (recovery of) credit losses (Note 6) |
||||||||
| Insurance claims and related expenses |
||||||||
| Non-interest expenses |
||||||||
| Salaries and employee benefits |
||||||||
| Occupancy, including depreciation |
||||||||
| Technology and equipment, including depreciation |
||||||||
| Amortization of other intangibles |
||||||||
| Communication and marketing |
||||||||
| Brokerage-related and sub-advisory fees |
||||||||
| Professional, advisory and outside services |
||||||||
| Other |
||||||||
| Income before income taxes and share of net income from investment in Schwab |
||||||||
| Provision for (recovery of) income taxes |
||||||||
| Share of net income from investment in Schwab (Note 7) |
||||||||
| Net income |
||||||||
| Preferred dividends and distributions on other equity instruments |
||||||||
| Net income available to common shareholders |
$ |
$ | ||||||
| Earnings per share (Note 16) |
||||||||
| Basic |
$ |
$ | ||||||
| Diluted |
||||||||
| Dividends per common share |
||||||||
1 |
Includes $ |
The accompanying Notes are an integral part of these Interim Consolidated Financial Statements.
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 48 |
INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME |
||||||||
| (millions of Canadian dollars) | For the three months ended |
|||||||
January 31 2022 |
January 31 2021 |
|||||||
| Net income |
$ |
$ | ||||||
| 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) |
( |
) |
||||||
| Reclassification to earnings of net loss / (gain) |
( |
) |
( |
) | ||||
| Changes in allowance for credit losses recognized in earnings |
( |
) |
||||||
| Income taxes relating to: |
||||||||
| Change in unrealized gain/(loss) |
( |
) | ||||||
| Reclassification to earnings of net loss / (gain) |
||||||||
( |
) |
|||||||
| Net change in unrealized foreign currency translation gain/(loss) on investments in foreign operations, net of hedging activities |
||||||||
| Unrealized gain/(loss) |
( |
) | ||||||
| Net gain / (loss) on hedges |
( |
) |
||||||
| Income taxes relating to: |
||||||||
| Net gain/(loss) on hedges |
( |
) | ||||||
| ( |
) | |||||||
| Net change in gain / (loss) on derivatives designated as cash flow hedges |
||||||||
| Change in gain/(loss) |
( |
) | ||||||
| Reclassification to earnings of loss / (gain) |
( |
) |
||||||
| Income taxes relating to: |
||||||||
| Change in gain/(loss) |
( |
) |
||||||
| Reclassification to earnings of loss / (gain) |
( |
) | ||||||
( |
) |
( |
) | |||||
| Share of other comprehensive income (loss) from investment in Schwab |
( |
) |
( |
) | ||||
| Items that will not be subsequently reclassified to net income |
||||||||
| Actuarial gain/(loss) on employee benefit plans |
||||||||
| Gain / (loss) |
||||||||
| Income taxes |
( |
) |
( |
) | ||||
| Change in net unrealized gain/(loss) on equity securities designated at fair value through other comprehensive income |
||||||||
| Change in net unrealized gain/(loss) |
||||||||
| Income taxes |
( |
) |
( |
) | ||||
| G ain/(loss) |
||||||||
| Gain / (loss) |
( |
) |
||||||
| Income taxes |
( |
) | ||||||
( |
) |
|||||||
| Total other comprehensive income (loss) |
( |
) | ||||||
| Total comprehensive income (loss) |
$ |
$ | ||||||
| Attributable to: |
||||||||
| Common shareholders |
$ |
$ | ||||||
| Preferred shareholders and other equity instrument holders |
||||||||
The accompanying Notes are an integral part of these Interim Consolidated Financial Statements.
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 49 |
INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY |
||||||||
| (millions of Canadian dollars) | For the three months ended |
|||||||
January 31, 2022 |
January 31, 2021 | |||||||
Common shares (Note 12) |
||||||||
Balance at beginning of period |
$ |
$ | ||||||
Proceeds from shares issued on exercise of stock options |
||||||||
Shares issued as a result of dividend reinvestment plan |
||||||||
Purchase of shares for cancellation and other |
( |
) |
||||||
Balance at end of period |
||||||||
Preferred shares and other equity instruments (Note 12) |
||||||||
Balance at beginning and end of period |
||||||||
Treasury – common shares (Note 12) |
||||||||
Balance at beginning of period |
( |
) |
( |
) | ||||
Purchase of shares |
( |
) |
( |
) | ||||
Sale of shares |
||||||||
Balance at end of period |
( |
) |
( |
) | ||||
Treasury – preferred shares and other equity instruments (Note 12) |
||||||||
Balance at beginning of period |
( |
) |
( |
) | ||||
Purchase of shares and other equity instruments |
( |
) |
( |
) | ||||
Sale of shares and other equity instruments |
||||||||
Balance at end of period |
( |
) |
( |
) | ||||
Contributed surplus |
||||||||
Balance at beginning of period |
||||||||
Net premium (discount) on sale of treasury instruments |
( |
) | ||||||
Issuance of stock options, net of options exercised |
||||||||
Other |
( |
) |
||||||
Balance at end of period |
||||||||
Retained earnings |
||||||||
Balance at beginning of period |
||||||||
Net income attributable to equity instrument holders |
||||||||
Common dividends |
( |
) |
( |
) | ||||
Preferred dividends and distributions on other equity instruments |
( |
) |
( |
) | ||||
Net premium on repurchase of common shares and redemption of preferred shares and other equity instruments (Note 12) |
( |
) |
||||||
Actuarial gain/(loss) on employee benefit plans |
||||||||
Realized gain/(loss) on equity securities designated at fair value through other comprehensive income |
||||||||
Balance at end of period |
||||||||
Accumulated other comprehensive income (loss) |
||||||||
Net unrealized gain/(loss) on financial assets at fair value through other comprehensive income: |
||||||||
Balance at beginning of period |
||||||||
Other comprehensive income (loss) |
( |
) |
||||||
Allowance for credit losses |
( |
) |
||||||
Balance at end of period |
||||||||
Net unrealized gain/(loss) on equity securities designated at fair value through other comprehensive income: |
||||||||
Balance at beginning of period |
( |
) | ||||||
Other comprehensive income (loss) |
||||||||
Reclassification of loss / (gain) to retained earnings |
( |
) |
||||||
Balance at end of period |
( |
) | ||||||
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 period |
( |
) | ||||||
Other comprehensive income (loss) |
( |
) |
||||||
Balance at end of period |
( |
) | ||||||
Net unrealized foreign currency translation gain/(loss) on investments in foreign operations, net of hedging activities: |
||||||||
Balance at beginning of period |
||||||||
Other comprehensive income (loss) |
( |
) | ||||||
Balance at end of period |
||||||||
Net gain/(loss) on derivatives designated as cash flow hedges: |
||||||||
Balance at beginning of period |
||||||||
Other comprehensive income (loss) |
( |
) |
( |
) | ||||
Balance at end of period |
||||||||
Share of accumulated other comprehensive income (loss) from investment in Schwab |
( |
) |
( |
) | ||||
Total accumulated other comprehensive income |
||||||||
Total equity |
$ |
$ | ||||||
The accompanying Notes are an integral part of these Interim Consolidated Financial Statements.
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 50 |
| INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS |
||||||||
| (millions of Canadian dollars) |
For the three months ended |
|||||||
January 31 2022 |
January 31 2021 |
| ||||||
| Cash flows from (used in) operating activities |
||||||||
| Net income |
$ |
$ | ||||||
| Adjustments to determine net cash flows from (used in) operating activities |
||||||||
| Provision for (recovery of) credit losses (Note 6) |
||||||||
| Depreciation |
||||||||
| Amortization of other intangibles |
||||||||
| Net securities loss/(gain) (Note 5) |
( |
) |
( |
) | ||||
| Share of net income from investment in Schwab (Note 7) |
( |
) |
( |
) | ||||
| Deferred taxes |
||||||||
| Changes in operating assets and liabilities |
||||||||
| Interest receivable and payable (Notes 9, 11) |
( |
) |
( |
) | ||||
| Securities sold under repurchase agreements |
( |
) | ||||||
| Securities purchased under reverse repurchase agreements |
||||||||
| Securities sold short |
||||||||
| Trading loans and securities |
( |
) |
( |
) | ||||
| Loans net of securitization and sales |
( |
) |
||||||
| Deposits |
||||||||
| Derivatives |
( |
) |
||||||
| Non-trading financial assets at fair value through profit or loss |
( |
) |
||||||
| Financial assets and liabilities designated at fair value through profit or loss |
( |
) | ||||||
| Securitization liabilities |
( |
) |
( |
) | ||||
| Current taxes |
( |
) |
||||||
| Brokers, dealers and clients amounts receivable and payable |
( |
) | ||||||
| Other, including unrealized foreign currency translation (gain) / loss |
( |
) |
||||||
| Net cash from (used in) operating activities |
||||||||
| Cash flows from (used in) financing activities |
||||||||
| Redemption or repurchase of subordinated notes and debentures |
||||||||
| Common shares issued, net |
||||||||
| Repurchase of common shares (Note 12) |
( |
) |
– | |||||
| Redemption of preferred shares and other equity instruments |
( |
) |
– | |||||
| Sale of treasury shares and other equity instruments |
||||||||
| Purchase of treasury shares and other equity instruments (Note 12) |
( |
) |
( |
) | ||||
| Dividends paid on shares and distributions paid on other equity instruments |
( |
) |
( |
) | ||||
| Repayment of lease liabilities |
( |
) |
( |
) | ||||
| Net cash from (used in) financing activities |
( |
) |
( |
) | ||||
| Cash flows from (used in) investing activities |
||||||||
| Interest-bearing deposits with banks |
( |
) |
( |
) | ||||
| Activities in financial assets at fair value through other comprehensive income |
||||||||
| Purchases |
( |
) |
( |
) | ||||
| Proceeds from maturities |
||||||||
| Proceeds from sales |
||||||||
| Activities in debt securities at amortized cost |
||||||||
| Purchases |
( |
) |
( |
) | ||||
| Proceeds from maturities |
||||||||
| Proceeds from sales |
||||||||
| Net purchases of land, buildings, equipment, other depreciable assets, and other intangibles |
( |
) |
( |
) | ||||
| Net cash acquired from (paid for) divestitures and acquisitions |
– |
|||||||
| Net cash from (used in) investing activities |
( |
) |
( |
) | ||||
| Effect of exchange rate changes on cash and due from banks |
( |
) | ||||||
| Net increase (decrease) in cash and due from banks |
( |
) | ||||||
| Cash and due from banks at beginning of period |
||||||||
| Cash and due from banks at end of period |
$ |
$ | ||||||
| Supplementary disclosure of cash flows from operating activities |
||||||||
| Amount of income taxes paid (refunded) during the period |
$ |
$ | ||||||
| Amount of interest paid during the period |
||||||||
| Amount of interest received during the period |
||||||||
| Amount of dividends received during the period |
||||||||
The accompanying Notes are an integral part of these Interim Consolidated Financial Statements.
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 51 |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: NATURE OF OPERATIONS
CORPORATE INFORMATION
The Toronto-Dominion Bank is a bank chartered under the . 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 . The Toronto-Dominion Bank and its subsidiaries are collectively known as TD Bank Group (“TD” or the “Bank”). The Bank was formed through the amalgamation on February 1, 1955, of The Bank of Toronto (chartered in 1855) and The Dominion Bank (chartered in 1869). The Bank is incorporated and domiciled in Canada with its registered and principal business offices located at 66 Wellington Street West, Toronto, Ontario. TD serves customers in three business segments operating in a number of locations in key financial centres around the globe: Canadian Retail, U.S. Retail, and Wholesale Banking.
Bank Act
Bank Act
BASIS OF PREPARATION
The accompanying Interim Consolidated Financial Statements and accounting principles followed by the Bank have been prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB), including the accounting requirements of the Office of the Superintendent of Financial Institutions Canada (OSFI). The Interim Consolidated Financial Statements are presented in Canadian dollars, unless otherwise indicated.
These Interim Consolidated Financial Statements were prepared on a condensed basis in accordance with International Accounting Standard 34, using the accounting policies as described in Note 2 of the Bank’s 2021 Annual Consolidated Financial Statements. Certain comparative amounts have been revised to conform with the presentation adopted in the current period.
Interim Financial Reporting
The preparation of the Interim 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 of the Bank’s 2021 Annual Consolidated Financial Statements and in Note 3 of this report. Accordingly, actual results may differ from estimated amounts as future confirming events occur.
The Bank’s Interim Consolidated Financial Statements have been prepared using uniform accounting policies for like transactions and events in similar circumstances. All intercompany transactions, balances, and unrealized gains and losses on transactions are eliminated on consolidation.
The Interim Consolidated Financial Statements for the three months ended January 31, 2022, were approved and authorized for issue by the Bank’s Board of Directors, in accordance with a recommendation of the Audit Committee, on March 2, 2022.
As the Interim Consolidated Financial Statements do not include all of the disclosures normally provided in the Annual Consolidated Financial Statements, they should be read in conjunction with the Bank’s 2021 Annual Consolidated Financial Statements and the accompanying Notes, and the shaded sections of the 2021 Management’s Discussion and Analysis (MD&A). Certain disclosures are included in the shaded sections of the “Managing Risk” section of the MD&A in this report, as permitted by IFRS, and form an integral part of the Interim Consolidated Financial Statements.
NOTE 2: CURRENT AND FUTURE CHANGES IN ACCOUNTING POLICIES
CURRENT CHANGES IN ACCOUNTING POLICIES
There were no new accounting policies that have been adopted by the Bank for the three months ended January 31, 2022.
FUTURE CHANGES IN ACCOUNTING POLICIES
The following standard has been issued, but is not yet effective on the date of issuance of the Bank’s Interim Consolidated Financial Statements. The Bank is currently assessing the impact of applying the standard on the Interim Consolidated Financial Statements and will adopt the standard when it becomes effective.
Insurance Contracts
The IASB issued IFRS 17, (IFRS 17) which replaces the guidance in IFRS 4, and establishes principles for recognition, measurement, presentation, and disclosure of insurance contracts. Insurance contracts are aggregated into groups which are measured at the risk adjusted present value of cash flows in fulfilling the contracts. Revenue is recognized as insurance contract services are provided over the coverage period. Losses are recognized immediately if the contract group is expected to be onerous.
Insurance Contracts
Insurance Contracts
The standard is effective for annual reporting periods beginning on or after January 1, 2023, which will be November 1, 2023 for the Bank. OSFI’s related Advisory precludes early adoption. The standard will be applied retrospectively with restatement of comparatives unless impracticable.
The Bank is proceeding with the implementation efforts accordingly.
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 52 |
NOTE 3: SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES, AND ASSUMPTIONS
The estimates used in the Bank’s accounting policies are essential to understanding its results of operations and financial condition. Some of the Bank’s policies require subjective, complex judgments and estimates as they relate to matters that are inherently uncertain. Changes in these judgments or estimates and changes to accounting standards and policies could have a materially adverse impact on the Bank’s Interim Consolidated Financial Statements. The Bank has established procedures to ensure that accounting policies are applied consistently and that the processes for changing methodologies, determining estimates, and adopting new accounting standards are well-controlled and occur in an appropriate and systematic manner. Refer to Note 3 of the Bank’s 2021 Annual Consolidated Financial Statements for a description of significant accounting judgments, estimates, and assumptions.
Impairment – Expected Credit Loss Model
The expected credit loss (ECL) model requires the application of estimates and judgment in the assessment of the current and forward-looking economic environment. As a result of
COVID-19,
there is a higher degree of uncertainty in determining reasonable and supportable forward-looking information. Management exercises 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, by considering reasonable and supportable information that is not already included in the quantitative models. The current environment is subject to rapid change and to the extent that certain effects of COVID-19
are not fully incorporated into the model calculations, increased temporary quantitative and qualitative adjustments have been applied. This includes borrower credit scores, industry and geography specific COVID-19
impacts, payment support initiatives introduced by the Bank and governments, and the persistence of the economic shutdown, the effects of which are not yet fully reflected in the quantitative models. The Bank has performed certain additional qualitative portfolio and loan level assessments of significant increase in credit risk. NOTE 4: FAIR VALUE MEASUREMENTS
There have been no significant changes to the Bank’s approach and methodologies used to determine fair value measurements for the three months ended January 31, 2022.
(
a
)
FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES NOT CARRIED AT FAIR VALUE
The following table reflects the fair value of the Bank’s financial assets and liabilities not carried at fair value.
Financial Assets and Liabilities not carried at Fair Value
1
| (millions of Canadian dollars) | As at |
|||||||||||||||
January 31, 2022 |
October 31, 2021 | |||||||||||||||
| Carrying value |
Fair value |
Carrying value |
Fair value |
|||||||||||||
| FINANCIAL ASSETS |
||||||||||||||||
| Debt securities at amortized cost, net of allowance for credit losses |
||||||||||||||||
| Government and government-related securities |
$ |
$ |
$ | $ | ||||||||||||
| Other debt securities |
||||||||||||||||
| Total debt securities at amortized cost, net of allowance for credit losses |
||||||||||||||||
| Total loans, net of allowance for loan losses |
||||||||||||||||
| Total financial assets not carried at fair value |
$ |
$ |
$ | $ | ||||||||||||
| FINANCIAL LIABILITIES |
||||||||||||||||
| Deposits |
$ |
$ |
$ | $ | ||||||||||||
| Securitization liabilities at amortized cost |
||||||||||||||||
| Subordinated notes and debentures |
||||||||||||||||
| Total financial liabilities not carried at fair value |
$ |
$ |
$ | |
$ | |
||||||||||
1 |
This table excludes financial assets and liabilities where the carrying value approximates their fair value. |
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 53 |
(b)
FAIR VALUE HIERARCHY
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 January 31, 2022 and October 31, 2021.
Fair Value Hierarchy for Assets and Liabilities Measured at Fair Value on a Recurring Basis
| (millions of Canadian dollars) | As at |
|||||||||||||||||||||||||||||||
January 31, 2022 |
October 31, 2021 | |||||||||||||||||||||||||||||||
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 |
$ |
$ |
$ |
– |
$ |
$ | $ | $ | – | $ | ||||||||||||||||||||||
Provinces |
– |
– |
– | – | ||||||||||||||||||||||||||||
U.S. federal, state, municipal governments, and agencies debt |
– |
– |
– | – | ||||||||||||||||||||||||||||
Other OECD government guaranteed debt |
– |
– |
– | – | ||||||||||||||||||||||||||||
Mortgage-backed securities |
– |
– |
– | – | ||||||||||||||||||||||||||||
Other debt securities |
||||||||||||||||||||||||||||||||
Canadian issuers |
– |
– |
– | – | ||||||||||||||||||||||||||||
Other issuers |
– |
– | ||||||||||||||||||||||||||||||
Equity securities |
– |
|||||||||||||||||||||||||||||||
Trading loans |
– |
– |
– | – | ||||||||||||||||||||||||||||
Commodities |
– |
– | ||||||||||||||||||||||||||||||
Retained interests |
– |
– |
– | – | ||||||||||||||||||||||||||||
Non-trading financial assets at fair value through profit or loss |
||||||||||||||||||||||||||||||||
Securities |
||||||||||||||||||||||||||||||||
Loans |
– |
– | ||||||||||||||||||||||||||||||
Derivatives |
||||||||||||||||||||||||||||||||
Interest rate contracts |
– |
|||||||||||||||||||||||||||||||
Foreign exchange contracts |
||||||||||||||||||||||||||||||||
Credit contracts |
– |
– |
– | – | ||||||||||||||||||||||||||||
Equity contracts |
– |
– | ||||||||||||||||||||||||||||||
Commodity contracts |
||||||||||||||||||||||||||||||||
Financial assets designated at fair value through profit or loss |
||||||||||||||||||||||||||||||||
Securities 1 |
– |
– |
– | – | ||||||||||||||||||||||||||||
– |
– |
– | – | |||||||||||||||||||||||||||||
Financial assets at fair value through other comprehensive income |
||||||||||||||||||||||||||||||||
Government and government-related securities |
||||||||||||||||||||||||||||||||
Canadian government debt |
||||||||||||||||||||||||||||||||
Federal |
– |
– |
– | – | ||||||||||||||||||||||||||||
Provinces |
– |
– |
– | – | ||||||||||||||||||||||||||||
U.S. federal, state, municipal governments, and agencies debt |
– |
– |
– | – | ||||||||||||||||||||||||||||
Other OECD government guaranteed debt |
– |
– |
– | – | ||||||||||||||||||||||||||||
Mortgage-backed securities |
– |
– |
– | – | ||||||||||||||||||||||||||||
Other debt securities |
||||||||||||||||||||||||||||||||
Asset-backed securities |
– |
– |
– | – | ||||||||||||||||||||||||||||
Corporate and other debt |
– |
– | ||||||||||||||||||||||||||||||
Equity securities |
||||||||||||||||||||||||||||||||
Loans |
– |
– |
– | – | ||||||||||||||||||||||||||||
Securities purchased under reverse repurchase agreements |
– |
– |
– | – | ||||||||||||||||||||||||||||
FINANCIAL LIABILITIES |
||||||||||||||||||||||||||||||||
Trading deposits |
– |
– | ||||||||||||||||||||||||||||||
Derivatives |
||||||||||||||||||||||||||||||||
Interest rate contracts |
||||||||||||||||||||||||||||||||
Foreign exchange contracts |
– |
– | ||||||||||||||||||||||||||||||
Credit contracts |
– |
– |
– | – | ||||||||||||||||||||||||||||
Equity contracts |
– |
– | ||||||||||||||||||||||||||||||
Commodity contracts |
||||||||||||||||||||||||||||||||
Securitization liabilities at fair value |
– |
– |
– | – | ||||||||||||||||||||||||||||
Financial liabilities designated at fair value through profit or loss |
– | |||||||||||||||||||||||||||||||
Obligations related to securities sold short 1 |
– |
|||||||||||||||||||||||||||||||
Obligations related to securities sold under repurchase agreements |
– |
– |
– | – | ||||||||||||||||||||||||||||
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 • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 54 |
(c)
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.
There were no significant transfers between Level 1 and Level 2 during the three months ended January 31, 2022 (three months ended January 31, 2021 – $400 million of fair value through other comprehensive income (FVOCI) Canadian government debt were transferred from Level 2 to Level 1).
There were no significant transfers between Level 2 and Level 3 during the three months ended January 31, 2022 and January 31, 2021.
There were no significant changes to the unobservable inputs and sensitivities for assets and liabilities classified as Level 3 during the three months ended January 31, 2022 and January 31, 2021.
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 55 |
(d)
RECONCILIATION OF CHANGES IN FAIR VALUE FOR LEVEL 3 ASSETS AND LIABILITIES
The following tables reconcile changes in fair value of all assets and liabilities measured at fair value using significant Level 3 unobservable inputs for the three months ended January 31, 2022 and January 31, 2021.
Reconciliation of Changes in Fair Value for Level 3 Assets and Liabilities |
||||||||||||||||||||||||||||||||||||
(millions of Canadian dollars) |
Fair value as at November 1 2021 |
Total realized and unrealized gains (losses) |
Movements |
Transfers |
Fair value as at January 31 2022 |
Change in unrealized gains (losses) on instruments still held 5 |
||||||||||||||||||||||||||||||
Included in income |
1 |
Included in OCI |
2,3 |
Purchases/ Issuances |
Sales/ Settlements |
4 |
Into Level 3 |
Out of Level 3 |
||||||||||||||||||||||||||||
FINANCIAL ASSETS |
||||||||||||||||||||||||||||||||||||
Trading loans, securities, and other |
||||||||||||||||||||||||||||||||||||
Other debt securities |
$ |
$ |
– |
$ |
– |
$ |
$ |
( |
) |
$ |
$ |
– |
$ |
$ |
– |
|||||||||||||||||||||
Equity securities |
– |
– |
– |
( |
) |
– |
– |
– |
– |
|||||||||||||||||||||||||||
– |
– |
( |
) |
– |
– |
|||||||||||||||||||||||||||||||
Non-trading financial assets at fair value through profit or loss |
||||||||||||||||||||||||||||||||||||
Securities |
– |
( |
) |
– |
( |
) |
||||||||||||||||||||||||||||||
Loans |
– |
– |
– |
– |
– |
– |
– |
|||||||||||||||||||||||||||||
– |
( |
) |
– |
( |
) |
|||||||||||||||||||||||||||||||
Financial assets at fair value through other comprehensive income |
||||||||||||||||||||||||||||||||||||
Other debt securities |
– |
– |
– |
( |
) |
– |
– |
– |
||||||||||||||||||||||||||||
Equity securities |
– |
– |
– |
|||||||||||||||||||||||||||||||||
$ |
$ |
– |
$ |
$ |
$ |
$ |
– |
$ |
– |
$ |
$ |
|||||||||||||||||||||||||
FINANCIAL LIABILITIES |
||||||||||||||||||||||||||||||||||||
Trading deposits 6 |
$ |
( |
) |
$ |
( |
) |
$ |
– |
$ |
( |
) |
$ |
$ |
( |
) |
$ |
$ |
( |
) |
$ |
( |
) | ||||||||||||||
Derivatives 7 |
||||||||||||||||||||||||||||||||||||
Interest rate contracts |
( |
) |
( |
) |
– |
– |
– |
– |
( |
) |
– |
|||||||||||||||||||||||||
Foreign exchange contracts |
( |
) |
– |
– |
– |
– |
– |
( |
) | |||||||||||||||||||||||||||
Equity contracts |
( |
) |
( |
) |
– |
– |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||||
Commodity contracts |
– |
– |
( |
) |
– |
– |
||||||||||||||||||||||||||||||
( |
) |
– |
– |
( |
) |
( |
) |
( |
) |
|||||||||||||||||||||||||||
Financial liabilities designated at fair value through profit or loss |
( |
) |
– |
( |
) |
– |
– |
( |
) |
|||||||||||||||||||||||||||
Obligations related to securities sold short |
( |
) |
– |
– |
– |
– |
– |
– |
– |
|||||||||||||||||||||||||||
Fair value as at November 1 2020 |
Total realized and unrealized gains (losses) |
Movements |
Transfers |
Fair value as at January 31 2021 |
Change in unrealized gains (losses) on instruments still held 5 |
|||||||||||||||||||||||||||||||
Included in income |
1 |
Included in OCI |
2,3 |
Purchases/ Issuances |
Sales/ Settlements |
4 |
Into Level 3 |
Out of Level 3 |
||||||||||||||||||||||||||||
FINANCIAL ASSETS |
||||||||||||||||||||||||||||||||||||
Trading loans, securities, and other |
||||||||||||||||||||||||||||||||||||
Government and government-related securities |
$ | $ | $ | – | $ | – | $ | ( |
) | $ | – | $ | – | $ | – | $ | – | |||||||||||||||||||
Other debt securities |
– | – | ( |
) | – | ( |
) | |||||||||||||||||||||||||||||
| – | – | ( |
) | – | ( |
) | ||||||||||||||||||||||||||||||
Non-trading financial assets at fair value through profit or loss |
||||||||||||||||||||||||||||||||||||
Securities |
– | – | ( |
) | – | ( |
) | ( |
) | |||||||||||||||||||||||||||
Loans |
– | – | – | – | – | – | – | |||||||||||||||||||||||||||||
| – | – | ( |
) | – | ( |
) | ( |
) | ||||||||||||||||||||||||||||
Financial assets at fair value through other comprehensive income |
||||||||||||||||||||||||||||||||||||
Other debt securities |
– | – | – | – | – | |||||||||||||||||||||||||||||||
Equity securities |
– | ( |
) | – | – | |||||||||||||||||||||||||||||||
| $ | $ | – | $ | $ | $ | ( |
) | $ | – | $ | – | $ | $ | |||||||||||||||||||||||
FINANCIAL LIABILITIES |
||||||||||||||||||||||||||||||||||||
Trading deposits 6 |
$ | ( |
) | $ | ( |
) | $ | – | $ | ( |
) | $ | $ | ( |
) | $ | – | $ | ( |
) | $ | ( |
) | |||||||||||||
Derivatives 7 |
||||||||||||||||||||||||||||||||||||
Interest rate contracts |
( |
) | ( |
) | – | – | – | – | ( |
) | ||||||||||||||||||||||||||
Foreign exchange contracts |
– | – | – | – | ||||||||||||||||||||||||||||||||
Equity contracts |
( |
) | ( |
) | – | ( |
) | – | ( |
) | ( |
) | ||||||||||||||||||||||||
Commodity contracts |
( |
) | – | – | – | – | ||||||||||||||||||||||||||||||
| ( |
) | ( |
) | – | ( |
) | – | ( |
) | |||||||||||||||||||||||||||
Financial liabilities designated at fair value through profit or loss |
( |
) | – | ( |
) | – | – | ( |
) | ( |
) | |||||||||||||||||||||||||
Obligations related to securities sold short |
– | – | – | – | – | ( |
) | – | ( |
) | – | |||||||||||||||||||||||||
1 |
Gains/losses on financial assets and liabilities are recognized within Non-interest Income on the Interim Consolidated Statement of Income. |
2 |
Other comprehensive income. |
3 |
Includes realized gains/losses transferred to retained earnings on disposal of equities designated at FVOCI. |
4 |
Includes foreign exchange. |
5 |
Changes in unrealized gains/losses on financial assets at FVOCI are recognized in accumulated other comprehensive income. |
6 |
Issuances and repurchases of trading deposits are reported on a gross basis. |
7 |
Consists of derivative assets of $ |
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 5 6 |
NOTE 5: SECURITIES
(a)
UNREALIZED SECURITIES GAINS (LOSSES)
The following table summarizes the unrealized gains and losses as at January 31, 2022 and October 31, 2021.
Unrealized Gains (Losses) for Securities at Fair Value Through Other Comprehensive Income |
||||||||||||||||||||||||||||||||
| (millions of Canadian dollars) | As at |
|||||||||||||||||||||||||||||||
January 31, 2022 |
October 31, 2021 | |||||||||||||||||||||||||||||||
Cost/ amortized cost 1 |
Gross unrealized gains |
Gross unrealized (losses) |
Fair value |
Cost/ amortized cost 1 |
Gross unrealized gains |
Gross unrealized (losses) |
Fair value |
|||||||||||||||||||||||||
Government and government-related securities |
||||||||||||||||||||||||||||||||
Canadian government debt |
||||||||||||||||||||||||||||||||
Federal |
$ |
$ |
$ |
( |
) |
$ |
$ | $ | $ | ( |
) | $ | ||||||||||||||||||||
Provinces |
( |
) |
( |
) | ||||||||||||||||||||||||||||
U.S. federal, state, municipal governments, and agencies debt |
( |
) |
( |
) | ||||||||||||||||||||||||||||
Other OECD government guaranteed debt |
( |
) |
– | |||||||||||||||||||||||||||||
Mortgage-backed securities |
– |
– | ||||||||||||||||||||||||||||||
( |
) |
( |
) | |||||||||||||||||||||||||||||
Other debt securities |
||||||||||||||||||||||||||||||||
Asset-backed securities |
( |
) |
( |
) | ||||||||||||||||||||||||||||
Corporate and other debt |
( |
) |
( |
) | ||||||||||||||||||||||||||||
( |
) |
( |
) | |||||||||||||||||||||||||||||
Total debt securities |
( |
) |
( |
) | ||||||||||||||||||||||||||||
Equity securities |
||||||||||||||||||||||||||||||||
Common shares |
( |
) |
( |
) | ||||||||||||||||||||||||||||
Preferred shares |
( |
) |
( |
) | ||||||||||||||||||||||||||||
( |
) |
( |
) | |||||||||||||||||||||||||||||
Total securities at fair value through other comprehensive income |
$ |
$ |
$ |
( |
) |
$ |
$ | $ | $ | ( |
) | $ | |
|||||||||||||||||||
1 |
Includes the foreign exchange translation of amortized cost balances at the period-end spot rate. |
(b)
EQUITY SECURITIES DESIGNATED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
The Bank designated certain equity securities as equity securities at FVOCI. The following table summarizes the fair value of equity securities designated at FVOCI as at January 31, 2022 and October 31, 2021, and dividend income recognized on these securities for the three months ended January 31, 2022 and January 31, 2021.
Equity Securities Designated at Fair Value Through Other Comprehensive Income |
||||||||||||||||
| (millions of Canadian dollars) | As at |
For the three months ended |
||||||||||||||
January 31, 2022 |
October 31, 2021 | January 31, 2022 |
January 31, 2021 | |||||||||||||
Fair value |
Dividend income recognized |
|||||||||||||||
Common shares |
$ |
$ | $ |
$ | ||||||||||||
Preferred shares |
||||||||||||||||
Total |
$ |
$ | $ |
$ | ||||||||||||
The Bank disposed of certain equity securities in line with the Bank’s investment strategy with a fair value of $24 million during the three months ended January 31, 2022 (three months ended January 31, 2021 – $4 million). The Bank realized a cumulative gain of $2
million and earned no dividend income during the three
months ended
January 31, 2022 (cumulative gain and dividend income for the three months ended January 31, 2021
– nil
.
(c)
DEBT SECURITIES NET REALIZED GAINS (LOSSES)
The following table summarizes the net realized gains and losses for the three months ended January 31, 2022 and January 31, 2021, which are included in Other income (loss) on the Interim Consolidated Statement of Income.
Debt Securities Net Realized Gains (Losses) |
||||||||
| (millions of Canadian dollars) | For the three months ended |
|||||||
January 31 2022 |
January 31 2021 |
|||||||
Debt securities at fair value through other comprehensive income |
$ |
$ | |
|||||
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 5 7 |
(d)
CREDIT QUALITY OF DEBT SECURITIES
The Bank evaluates
non-retail
credit risk on an individual borrower basis, using both a borrower risk rating (BRR) and facility risk rating, as detailed in the shaded area of the “Managing Risk” section of the 2021 MD&A. This system is used to assess all non-retail
exposures, including debt securities. The following table provides the gross carrying amounts of debt securities measured at amortized cost and debt securities at FVOCI by internal risk ratings for credit risk management purposes, presenting separately those debt securities that are subject to Stage 1, Stage 2, and Stage 3 allowances. Refer to the “Allowance for Credit Losses” table in Note 6 for details regarding the allowance and provision for credit losses on debt securities.
Debt Securities by Risk Ratings
| (millions of Canadian dollars) |
As at |
|||||||||||||||||||||||||||||||
January 31, 2022 |
October 31, 2021 |
|||||||||||||||||||||||||||||||
Stage 1 |
Stage 2 |
Stage 3 |
Total |
Stage 1 | Stage 2 | Stage 3 | Total | |||||||||||||||||||||||||
Debt securities 1 |
||||||||||||||||||||||||||||||||
Investment grade |
$ |
$ |
– |
$ |
n/a |
2 |
$ |
$ | $ | – | $ | n/a | $ | |||||||||||||||||||
Non-Investment grade |
n/a |
n/a | ||||||||||||||||||||||||||||||
Watch and classified |
n/a |
n/a |
n/a | n/a | ||||||||||||||||||||||||||||
Default |
n/a |
n/a |
– |
– |
n/a | n/a | – | – | ||||||||||||||||||||||||
Total debt securities |
– |
– | ||||||||||||||||||||||||||||||
Allowance for credit losses on debt securities at amortized cost |
– |
– |
– | – | ||||||||||||||||||||||||||||
Total debt securities, net of allowance |
$ |
$ |
$ |
– |
$ |
$ | |
$ | $ | – | $ | |
||||||||||||||||||||
| 1 | Includes debt securities backed by government-guaranteed loans of $ |
| 2 | Not applicable. |
As at January 31, 2022, total debt securities, net of allowance, in the table above, include debt securities measured at amortized cost, net of allowance, of $295,946 million (October 31, 2021 – $268,939 million), and debt securities measured at FVOCI of $69,156 million (October 31, 2021 – $72,865 million).
The difference between probability-weighted ECLs and base ECLs on debt securities at FVOCI and at amortized cost as at both January 31, 2022 and October 31, 2021, was insignificant.
NOTE 6: 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 January 31, 2022 and October 31, 2021.
Loans and Acceptances
| (millions of Canadian dollars) |
As at |
|||||||
January 31, 2022 |
October 31, 2021 | |||||||
Residential mortgages |
$ |
$ | ||||||
Consumer instalment and other personal |
||||||||
Credit card |
||||||||
Business and government |
||||||||
Customers’ liability under acceptances |
||||||||
Loans at FVOCI (Note 4) |
||||||||
Total loans and acceptances |
||||||||
Total allowance for loan losses |
||||||||
Total loans and acceptances, net of allowance |
||||||||
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 Ratings” table.
Loans and Acceptances – Business and Government
| (millions of Canadian dollars) |
As at |
|||||||
January 31, 2022 |
October 31, 2021 | |||||||
Loans at amortized cost |
$ |
$ | ||||||
Customers’ liability under acceptances |
||||||||
Loans at FVOCI (Note 4) |
||||||||
Loans and acceptances |
||||||||
Allowance for loan and acceptances losses |
||||||||
Loans and acceptances, net of allowance |
||||||||
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 58 |
(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 probability of default (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 2021 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. The following table provides the gross carrying amounts of loans, acceptances and credit risk exposures on loan commitments and financial guarantee contracts by internal risk ratings for credit risk management purposes, presenting separately those that are subject to Stage 1, Stage 2, and Stage 3 allowances.
Loans and Acceptances by Risk Ratings
| (millions of Canadian dollars) |
As at |
|||||||||||||||||||||||||||||||
January 31, 2022 |
October 31, 2021 | |||||||||||||||||||||||||||||||
Stage 1 |
Stage 2 |
Stage 3 |
Total |
Stage 1 | Stage 2 | Stage 3 | Total | |||||||||||||||||||||||||
Residential mortgages 1,2,3 |
||||||||||||||||||||||||||||||||
Low Risk |
$ |
$ |
$ |
n/a |
$ |
$ | $ | $ | n/a | $ | ||||||||||||||||||||||
Normal Risk |
n/a |
n/a | ||||||||||||||||||||||||||||||
Medium Risk |
– |
n/a |
– | n/a | ||||||||||||||||||||||||||||
High Risk |
– |
– | ||||||||||||||||||||||||||||||
Default |
n/a |
n/a |
n/a | n/a | ||||||||||||||||||||||||||||
Total loans |
||||||||||||||||||||||||||||||||
Allowance for loan losses |
||||||||||||||||||||||||||||||||
Loans, net of allowance |
||||||||||||||||||||||||||||||||
Consumer instalment and other personal 4 |
||||||||||||||||||||||||||||||||
Low Risk |
n/a |
n/a | ||||||||||||||||||||||||||||||
Normal Risk |
n/a |
n/a | ||||||||||||||||||||||||||||||
Medium Risk |
n/a |
n/a | ||||||||||||||||||||||||||||||
High Risk |
||||||||||||||||||||||||||||||||
Default |
n/a |
n/a |
n/a | n/a | ||||||||||||||||||||||||||||
Total loans |
||||||||||||||||||||||||||||||||
Allowance for loan losses |
||||||||||||||||||||||||||||||||
Loans, net of allowance |
||||||||||||||||||||||||||||||||
Credit card |
||||||||||||||||||||||||||||||||
Low Risk |
n/a |
n/a | ||||||||||||||||||||||||||||||
Normal Risk |
n/a |
n/a | ||||||||||||||||||||||||||||||
Medium Risk |
n/a |
n/a | ||||||||||||||||||||||||||||||
High Risk |
||||||||||||||||||||||||||||||||
Default |
n/a |
n/a |
n/a | n/a | ||||||||||||||||||||||||||||
Total loans |
||||||||||||||||||||||||||||||||
Allowance for loan losses |
||||||||||||||||||||||||||||||||
Loans, net of allowance |
||||||||||||||||||||||||||||||||
Business and government 1,2,3,5 |
||||||||||||||||||||||||||||||||
Investment grade or Low/Normal Risk |
n/a |
n/a | ||||||||||||||||||||||||||||||
Non-Investment grade or Medium Risk |
n/a |
n/a | ||||||||||||||||||||||||||||||
Watch and classified or High Risk |
||||||||||||||||||||||||||||||||
Default |
n/a |
n/a |
n/a | n/a | ||||||||||||||||||||||||||||
Total loans and acceptances |
||||||||||||||||||||||||||||||||
Allowance for loan and acceptances losses |
||||||||||||||||||||||||||||||||
Loans and acceptances, net of allowance |
||||||||||||||||||||||||||||||||
Total loans and acceptances 6 |
||||||||||||||||||||||||||||||||
Total allowance for loan losses 6,7 |
||||||||||||||||||||||||||||||||
Total loans and acceptances, net of allowance 6 |
$ |
$ |
$ |
$ |
$ | |
$ | |
$ | |
$ | |
||||||||||||||||||||
1 |
Includes impaired loans with a balance of $ |
2 |
Excludes trading loans and non-trading loans at fair value through profit or loss (FVTPL) with a fair value of $ |
3 |
Includes insured mortgages of $ |
4 |
Includes Canadian government-insured real estate personal loans of $ |
5 |
Includes loans guaranteed by government agencies of $ Non-Investment grade or a lower risk rating based on the borrowers’ credit risk. |
6 |
Stage 3 includes acquired credit-impaired (ACI) loans of $ |
7 |
Includes allowance for loan losses related to loans that are measured at FVOCI of |
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 59 |
Loans and Acceptances by Risk Ratings
–
Off-Balance
Sheet Credit Instruments1
| (millions of Canadian dollars) |
As at |
|||||||||||||||||||||||||||||||
January 31, 2022 |
October 31, 2021 | |||||||||||||||||||||||||||||||
Stage 1 |
Stage 2 |
Stage 3 |
Total |
Stage 1 | Stage 2 | Stage 3 | Total | |||||||||||||||||||||||||
| Retail Exposures 2 |
||||||||||||||||||||||||||||||||
| Low Risk |
$ |
$ |
$ |
n/a |
$ |
$ | $ | $ | n/a | $ | ||||||||||||||||||||||
| Normal Risk |
n/a |
n/a | ||||||||||||||||||||||||||||||
| Medium Risk |
n/a |
n/a | ||||||||||||||||||||||||||||||
| High Risk |
– |
– | ||||||||||||||||||||||||||||||
| Default |
n/a |
n/a |
– |
– |
n/a | n/a | – | – | ||||||||||||||||||||||||
| Non-Retail Exposures3 |
||||||||||||||||||||||||||||||||
| Investment grade |
– |
n/a |
– | n/a | ||||||||||||||||||||||||||||
| Non-Investment grade |
n/a |
n/a | ||||||||||||||||||||||||||||||
| Watch and classified |
– |
– | ||||||||||||||||||||||||||||||
| Default |
n/a |
n/a |
n/a | n/a | ||||||||||||||||||||||||||||
| Total off-balance sheet credit instruments |
||||||||||||||||||||||||||||||||
| Allowance for off-balance sheet credit instruments |
||||||||||||||||||||||||||||||||
| Total off-balance sheet credit instruments, net of allowance |
$ |
$ |
$ |
$ |
$ | $ | $ | $ | ||||||||||||||||||||||||
1 |
Excludes mortgage commitments. |
2 |
Includes $ |
3 |
Includes $ |
(c)
ALLOWANCE FOR CREDIT LOSSES
The following table provides details on the Bank’s allowance for credit losses as at and for the three months ended January 31, 2022 and January 31, 2021, including allowance for
off-balance
sheet instruments in the applicable categories. Allowance for Credit Losses
| (millions of Canadian dollars) | Balance at beginning of period |
Provision for credit losses |
Write-offs, net of recoveries |
Foreign exchange, disposals, and other adjustments |
Balance at end of period |
Balance at beginning of period |
Provision for credit losses |
Write-offs, net of recoveries |
Foreign exchange, disposals, and other adjustments |
Balance at end of period |
||||||||||||||||||||||||||||||
For the three months ended |
||||||||||||||||||||||||||||||||||||||||
January 31, 2022 |
January 31, 2021 | |||||||||||||||||||||||||||||||||||||||
| Residential mortgages |
$ |
$ |
( |
) |
$ |
( |
) |
$ |
$ |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Consumer instalment and other personal |
( |
) |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||||
| Credit card |
( |
) |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||||
| Business and government |
( |
) |
( |
) |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||
| Total allowance for loan losses, including off-balance sheet instruments |
( |
) |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||||
| Debt securities at amortized cost |
– |
– |
– |
– | – | – | ||||||||||||||||||||||||||||||||||
| Debt securities at FVOCI |
( |
) |
– |
– |
– | – | ||||||||||||||||||||||||||||||||||
| Total allowance for credit losses on debt securities |
( |
) |
– |
– |
– | – | ||||||||||||||||||||||||||||||||||
| Total allowance for credit losses |
$ |
$ |
$ |
( |
) |
$ |
$ |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||||
| Comprising: |
||||||||||||||||||||||||||||||||||||||||
| Allowance for credit losses on loans at amortized cost |
$ |
$ |
$ | $ | ||||||||||||||||||||||||||||||||||||
| Allowance for credit losses on loans at FVOCI |
– |
– |
||||||||||||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
| Allowance for loan losses |
||||||||||||||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
| Allowance for off-balance sheet instruments |
||||||||||||||||||||||||||||||||||||||||
| Allowance for credit losses on debt securities |
||||||||||||||||||||||||||||||||||||||||
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 60 |
(d)
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 three months ended January 31, 2022 and January 31, 2021.
Allowance for Loan Losses by Stage
| (millions of Canadian dollars) | For the three months ended |
|||||||||||||||||||||||||||||||
January 31, 2022 |
January 31, 2021 | |||||||||||||||||||||||||||||||
Stage 1 |
Stage 2 |
Stage 3 |
1 |
Total |
Stage 1 | Stage 2 | Stage 3 | 1 |
Total | |||||||||||||||||||||||
| Residential Mortgages |
||||||||||||||||||||||||||||||||
| Balance at beginning of period |
$ |
$ |
$ |
$ |
$ | $ | $ | $ | ||||||||||||||||||||||||
| Provision for credit losses |
||||||||||||||||||||||||||||||||
| Transfer to Stage 1 2 |
( |
) |
– |
– |
( |
) | – | – | ||||||||||||||||||||||||
| Transfer to Stage 2 |
( |
) |
( |
) |
– |
( |
) | ( |
) | – | ||||||||||||||||||||||
| Transfer to Stage 3 |
– |
( |
) |
– |
– | ( |
) | – | ||||||||||||||||||||||||
| Net remeasurement due to transfers into stage 3 |
( |
) |
– |
( |
) |
( |
) | – | – | |||||||||||||||||||||||
| New originations or purchases 4 |
n/a |
n/a |
n/a | n/a | ||||||||||||||||||||||||||||
| Net repayments 5 |
( |
) |
( |
) |
( |
) |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||
| Derecognition of financial assets (excluding disposals and write-offs) 6 |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
| Changes to risk, parameters, and models 7 |
( |
) |
( |
) | ||||||||||||||||||||||||||||
| Disposals |
– |
– |
– |
– |
||||||||||||||||||||||||||||
| Write-offs |
( |
) |
( |
) |
( |
) | ( |
) | ||||||||||||||||||||||||
| Recoveries |
( |
) | ||||||||||||||||||||||||||||||
| Foreign exchange and other adjustments | – |
– |
( |
) | ( |
) | – | ( |
) | |||||||||||||||||||||||
| Balance at end of period | $ |
$ |
$ |
$ |
$ | $ | $ | $ | ||||||||||||||||||||||||
| Consumer Instalment and Other Personal |
||||||||||||||||||||||||||||||||
| Balance, including off-balance sheet instruments, at beginning of period |
$ |
$ |
$ |
$ |
$ | $ | $ | $ | ||||||||||||||||||||||||
| Provision for credit losses |
||||||||||||||||||||||||||||||||
| Transfer to Stage 1 2 |
( |
) |
( |
) |
– |
( |
) | ( |
) | – | ||||||||||||||||||||||
| Transfer to Stage 2 |
( |
) |
( |
) |
– |
( |
) | ( |
) | |||||||||||||||||||||||
| Transfer to Stage 3 |
( |
) |
( |
) |
( |
) | ( |
) | ||||||||||||||||||||||||
| Net remeasurement due to transfers into stage 3 |
( |
) |
( |
) |
( |
) | ( |
) | ||||||||||||||||||||||||
| New originations or purchases 4 |
n/a |
n/a |
n/a | n/a | ||||||||||||||||||||||||||||
| Net repayments 5 |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
| Derecognition of financial assets (excluding disposals and write-offs) 6 |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
| Changes to risk, parameters, and models 7 |
( |
) |
( |
) | ||||||||||||||||||||||||||||
| Disposals |
– |
– |
– |
– |
||||||||||||||||||||||||||||
| Write-offs |
( |
) |
( |
) |
( |
) | ( |
) | ||||||||||||||||||||||||
| Recoveries |
||||||||||||||||||||||||||||||||
| Foreign exchange and other adjustments | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||
| Balance, including off-balance sheet instruments, at end of period |
||||||||||||||||||||||||||||||||
| Less: Allowance for off-balance sheet instruments8 |
||||||||||||||||||||||||||||||||
| Balance at end of period | $ |
$ |
$ |
$ |
$ | $ | $ | $ | ||||||||||||||||||||||||
| Credit Card 9 |
||||||||||||||||||||||||||||||||
| Balance, including off-balance sheet instruments, at beginning of period |
$ |
$ |
$ |
$ |
$ | $ | $ | $ | ||||||||||||||||||||||||
| Provision for credit losses |
||||||||||||||||||||||||||||||||
| Transfer to Stage 1 2 |
( |
) |
( |
) |
( |
) | ( |
) | ||||||||||||||||||||||||
| Transfer to Stage 2 |
( |
) |
( |
) |
( |
) | ( |
) | ||||||||||||||||||||||||
| Transfer to Stage 3 |
( |
) |
( |
) |
( |
) | ( |
) | ||||||||||||||||||||||||
| Net remeasurement due to transfers into stage 3 |
( |
) |
( |
) |
( |
) | ( |
) | ||||||||||||||||||||||||
| New originations or purchases 4 |
n/a |
n/a |
n/a | n/a | ||||||||||||||||||||||||||||
| Net repayments 5 |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Derecognition of financial assets (excluding disposals and write-offs) 6 |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
| Changes to risk, parameters, and models 7 |
( |
) |
( |
) | ||||||||||||||||||||||||||||
| Disposals |
– |
– |
– |
– |
||||||||||||||||||||||||||||
| Write-offs |
( |
) |
( |
) |
( |
) | ( |
) | ||||||||||||||||||||||||
| Recoveries |
||||||||||||||||||||||||||||||||
| Foreign exchange and other adjustments | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||
| Balance, including off-balance sheet instruments, at end of period |
||||||||||||||||||||||||||||||||
| Less: Allowance for off-balance sheet instruments8 |
||||||||||||||||||||||||||||||||
| Balance at end of period |
$ |
$ |
$ |
$ |
$ | $ | $ | $ | ||||||||||||||||||||||||
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, Summary of Significant Accounting Policies , Significant Accounting Judgments, Estimates and Assumptions |
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, Summary of Significant Accounting Policies Significant Accounting Judgments, Estimates and Assumptions |
8 |
The allowance for loan losses for off-balance sheet instruments is recorded in Other liabilities on the Interim 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 of the Bank’s 2021 Annual Consolidated Financial Statements for further details. |
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 61 |
Allowance for Loan Losses by Stage |
||||||||||||||||||||||||||||||||
(millions of Canadian dollars) |
For the three months ended |
|||||||||||||||||||||||||||||||
January 31, 2022 |
January 31, 2021 |
|||||||||||||||||||||||||||||||
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 |
$ |
$ |
$ |
$ |
$ | $ | $ | $ | ||||||||||||||||||||||||
Provision for credit losses |
||||||||||||||||||||||||||||||||
Transfer to Stage 1 3 |
( |
) |
( |
) |
– |
( |
) | ( |
) | |||||||||||||||||||||||
Transfer to Stage 2 |
( |
) |
( |
) |
– |
( |
) | ( |
) | |||||||||||||||||||||||
Transfer to Stage 3 |
( |
) |
( |
) |
– |
( |
) | ( |
) | |||||||||||||||||||||||
Net remeasurement due to transfers into stage 3 |
( |
) |
( |
) |
( |
) | ( |
) | ||||||||||||||||||||||||
New originations or purchases 3 |
n/a |
n/a |
n/a | n/a | ||||||||||||||||||||||||||||
Net repayments 3 |
( |
) |
( |
) |
( |
) |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||
Derecognition of financial assets (excluding disposals and write-offs) 3 |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
Changes to risk, parameters, and models 3 |
( |
) |
( |
) | ||||||||||||||||||||||||||||
Disposals |
– |
– |
– |
– |
||||||||||||||||||||||||||||
Write-offs |
– |
– |
( |
) |
( |
) |
( |
) | ( |
) | ||||||||||||||||||||||
Recoveries |
– |
– |
||||||||||||||||||||||||||||||
| Foreign exchange and other adjustments | ( |
) |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
Balance, including off-balance sheet instruments, at end of period |
||||||||||||||||||||||||||||||||
Less: Allowance for off-balance sheet instruments4 |
||||||||||||||||||||||||||||||||
| Balance at end of period | ||||||||||||||||||||||||||||||||
Total Allowance, including off-balance sheet instruments, at end of period |
||||||||||||||||||||||||||||||||
Less: Total Allowance for off-balance sheet instruments4 |
||||||||||||||||||||||||||||||||
Total Allowance for Loan Losses at end of period |
$ |
$ |
$ |
$ |
$ | $ | $ | $ | |
|||||||||||||||||||||||
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 Interim Consolidated Balance Sheet. |
The allowance for credit losses on all remaining financial assets is not significant.
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 62 |
(e)
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 of the Bank’s 2021 Annual Consolidated Financial Statements 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 represents the 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 January 31, 2022. 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. Relative to a year ago, the economy has made substantial progress in recovering from the economic shock caused by the COVID-19
pandemic. As the economy moves farther away from the initial economic shocks of the pandemic, uncertainty around the economic forecast continues to decrease. Macroeconomic Variables |
||||||||||||||||||||||||
As at |
||||||||||||||||||||||||
January 31, 2022 |
||||||||||||||||||||||||
Base Forecast |
Upside Scenario |
Downside Scenario |
||||||||||||||||||||||
Average Q1 2022- Q4 2022 1 |
Remaining 4-year period 1 |
Average Q1 2022- Q4 2022 1 |
Remaining 4-year period 1 |
Average Q1 2022- Q4 2022 1 |
Remaining 4-year period 1 |
|||||||||||||||||||
Unemployment rate |
||||||||||||||||||||||||
Canada |
% | % | % | % | % | % | ||||||||||||||||||
United States |
||||||||||||||||||||||||
Real GDP |
||||||||||||||||||||||||
Canada |
||||||||||||||||||||||||
United States |
||||||||||||||||||||||||
Home prices |
||||||||||||||||||||||||
Canada (average existing price) 2 |
||||||||||||||||||||||||
United States (CoreLogic HPI) 3 |
||||||||||||||||||||||||
Central bank policy interest rate |
||||||||||||||||||||||||
Canada |
||||||||||||||||||||||||
United States |
||||||||||||||||||||||||
U.S. 10-year treasury yield |
||||||||||||||||||||||||
U.S. 10-year BBB spread (%-pts) |
||||||||||||||||||||||||
Exchange rate (U.S. dollar/Canadian dollar) |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
1 |
The numbers represent average values for the quoted periods, and average of year-on-year |
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. |
(f)
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 |
|||||||
January 31, 2022 |
October 31, 2021 | |||||||
Probability-weighted ECLs |
$ |
$ | ||||||
Base ECLs |
||||||||
Difference – in amount |
$ |
$ | ||||||
Difference – in percentage |
% |
% | ||||||
ECLs for performing loans and The following table shows the estimated impact of staging on ECLs by presenting all 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. 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 |
|||||||
January 31, 2022 |
October 31, 2021 | |||||||
Probability-weighted ECLs |
$ |
$ | ||||||
All performing loans and off-balance sheet instruments using 12-month ECLs |
||||||||
Incremental lifetime ECLs impact |
$ |
$ | ||||||
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 63 |
(g)
FORECLOSED ASSETS
Foreclosed assets are repossessed 35 million as at January 31, 2022 (October 31, 2021 – $53 million), and were recorded in Other assets on the Interim Consolidated Balance Sheet.
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 $(h)
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 |
|||||||||||||||||||||||
January 31, 2022 |
October 31, 2021 | |||||||||||||||||||||||
31-60 days |
61-89 days |
Total |
31-60 days |
61-89 days |
Total | |||||||||||||||||||
| Residential mortgages |
$ |
$ |
$ |
$ | $ | $ | ||||||||||||||||||
| Consumer instalment and other personal |
||||||||||||||||||||||||
| Credit card |
||||||||||||||||||||||||
| Business and government |
||||||||||||||||||||||||
| Total |
$ |
$ |
$ |
$ | $ | $ | ||||||||||||||||||
1 |
Includes loans that are measured at FVOCI. |
(i)
TRANSFERS OF FINANCIAL ASSETS QUALIFYING FOR DERECOGNITION
Canada Emergency Business Account Program
“
”
2-year
term bearing an interest rate of non-recourse
to the Bank. Accordingly, the Bank is required to remit all collections of principal and interest on the CEBA loans to the Government of Canada but is not required to repay amounts that its customers fail to pay or that have been forgiven. The Bank receives an administration fee to recover the costs to administer the program for the Government of Canada. Loans issued under the program are not recognized on the Bank’s Consolidated Balance Sheet, as the Bank transfers substantially all risks and rewards in respect of the loans to the Government of Canada. NOTE 7: 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 operating 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 (the “Schwab IDA Agreement”). 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 subsequent period that would significantly affect the results. As at January 31, 2022, the Bank’s reported investment in Schwab was 13.39 % (October 31, 2021 – 13.41 %) of the outstanding voting and 28 billion (US$22 billion) (October 31, 2021 – $26 billion (US$21 billion)) based on the closing price of US$87.70 (October 31, 2021 – US$82.03 ) on the New York Stock Exchange.
non-voting
common shares of Schwab with a fair value of $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 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. In addition, the Schwab IDA Agreement has an initial expiration date of July 1, 2031.
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 64 |
The condensed financial statements of Schwab, based on its most recent published consolidated financial statements, are included in the following tables. The carrying value of the Bank’s investment in Schwab of $11.2 billion as at January 31, 2022 (October 31, 2021 – $11.1 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 $231 million during the three months ended January 31, 2022 (three months ended January 31, 2021 – $169 million), reflects net income after adjustments for amortization of certain intangibles net of tax.
Condensed Consolidated Balance Sheet |
||||||||
| (millions of Canadian dollars) |
As at |
|||||||
December 31 2021 |
September 30 2021 |
|||||||
| Assets |
||||||||
| Receivables from brokerage clients, net |
$ |
$ | ||||||
| Available for sale securities |
||||||||
| Other assets |
||||||||
| Total assets |
$ |
$ | ||||||
| Liabilities |
||||||||
| Bank deposits |
$ |
$ | ||||||
| Payables to brokerage clients |
||||||||
| Other liabilities |
||||||||
| Total liabilities |
||||||||
| Stockholders’ equity |
||||||||
| Total liabilities and stockholders’ equity |
$ |
$ | ||||||
Condensed Consolidated Statement of Income |
||||||||
| (millions of Canadian dollars, except as noted) |
For the three months ended |
|||||||
December 31 2021 |
|
December 31 2020 |
| |||||
| Net Revenues |
||||||||
| Net interest revenue |
$ |
$ | |
|||||
| Asset management and administration fees |
||||||||
| Trading revenue and other |
||||||||
| Total net revenues |
||||||||
| Expenses Excluding Interest |
||||||||
| Compensation and benefits |
||||||||
| Other |
||||||||
| Total expenses excluding interest |
||||||||
| Income before taxes on income |
||||||||
| Taxes on income |
||||||||
| Net income |
||||||||
| Preferred stock dividends and other |
||||||||
| Net Income available to common stockholders |
||||||||
| Other comprehensive income (loss) |
( |
) |
( |
) | ||||
| Total comprehensive income (loss) |
$ |
( |
) |
$ | ||||
| Earnings per common shares outstanding – basic (Canadian dollars) |
$ |
$ | ||||||
| Earnings per common shares outstanding – diluted (Canadian dollars) |
||||||||
NOTE 8: GOODWILL
Goodwill by Segmen t |
| (millions of Canadian dollars) | Canadian Retail |
U.S. Retail 1 |
Wholesale Banking |
Total |
||||||||||||
| Carrying amount of goodwill as at November 1, 2020 |
$ | |
$ | |
$ | |
$ | |
||||||||
| Additions (disposals) |
– | |||||||||||||||
| Foreign currency translation adjustments and other |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Carrying amount of goodwill as at October 31, 2021 2 |
$ | $ | $ | $ | ||||||||||||
| Foreign currency translation adjustments and other |
||||||||||||||||
| Carrying amount of goodwill as at January 31, 2022 2 |
$ |
$ |
$ |
$ |
||||||||||||
1 |
Goodwill predominantly relates to U.S. personal and commercial banking. |
2 |
Accumulated impairment as at January 31, 2022 and October 31, 2021 was |
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 65 |
NOTE 9: OTHER ASSETS
Other Assets
| (millions of Canadian dollars) | As at |
|||||||
| January 31 2022 |
October 31 2021 |
|||||||
| Accounts receivable and other items |
$ |
$ | ||||||
| Accrued interest |
||||||||
| Current income tax receivable |
||||||||
| Defined benefit asset |
||||||||
| Insurance-related assets, excluding investments |
||||||||
| Prepaid expenses |
||||||||
| Total |
$ |
$ | ||||||
NOTE 10: DEPOSITS
Demand deposits are those for which the Bank does not have the right to require notice prior to withdrawal and are in general chequing accounts. Notice deposits are those for which the Bank can legally require notice prior to withdrawal and are in general savings 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 $311 billion (October 31, 2021 – $283 billion).
100,000
or more as at January 31, 2022, was $Deposits
| (millions of Canadian dollars) | As at |
|||||||||||||||||||||||||||||||||||||||
By Type |
By Country |
January 31 2022 |
October 31 2021 |
|||||||||||||||||||||||||||||||||||||
Demand |
Notice |
Term 1 |
Canada |
United States |
International |
Total |
Total | |||||||||||||||||||||||||||||||||
| Personal |
$ |
$ |
$ |
$ |
$ |
$ |
– |
$ |
$ | |||||||||||||||||||||||||||||||
| Banks |
||||||||||||||||||||||||||||||||||||||||
| Business and government 2 |
||||||||||||||||||||||||||||||||||||||||
| Trading | – |
– |
||||||||||||||||||||||||||||||||||||||
| Designated at fair value through profit or loss 3 |
– |
– |
||||||||||||||||||||||||||||||||||||||
| Total |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ | ||||||||||||||||||||||||||||||||
| Non-interest-bearing deposits included above |
||||||||||||||||||||||||||||||||||||||||
| In domestic offices |
$ |
$ | ||||||||||||||||||||||||||||||||||||||
| In foreign offices |
||||||||||||||||||||||||||||||||||||||||
| Interest-bearing deposits included above |
||||||||||||||||||||||||||||||||||||||||
| In domestic offices |
||||||||||||||||||||||||||||||||||||||||
| In foreign offices |
||||||||||||||||||||||||||||||||||||||||
| U.S. federal funds deposited |
||||||||||||||||||||||||||||||||||||||||
| Total 2,4 |
$ |
$ | ||||||||||||||||||||||||||||||||||||||
1 |
Includes $ “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 $ |
3 |
Financial liabilities designated at FVTPL on the Interim Consolidated Balance Sheet also includes $ |
4 |
Includes deposits of $ |
Redemption of TD Capital Trust IV Notes – Series 2
On November 1, 2021, TD Capital Trust IV redeemed all of the outstanding $450 million TD Capital Trust IV Notes – Series 2. The proceeds from the issuance of TD Capital Trust IV Notes – Series 2 were invested in Bank deposit notes which were redeemed on November 1, 2021. On December 8, 2021, TD Capital Trust IV was dissolved.
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 6 6 |
NOTE 11: OTHER LIABILITIES
Other Liabilities
| (millions of Canadian dollars) | As at |
|||||||
| January 31 2022 |
October 31 2021 |
|||||||
| Accounts payable, accrued expenses, and other items 1 |
$ |
$ | ||||||
| Accrued interest |
||||||||
| Accrued salaries and employee benefits |
||||||||
| Cheques and other items in transit |
||||||||
| Current income tax payable |
||||||||
| Deferred tax liabilities |
||||||||
| Defined benefit liability |
||||||||
| Lease liabilities |
||||||||
| Liabilities related to structured entities |
||||||||
| Provisions |
||||||||
| Total |
$ |
$ | ||||||
1 |
Includes dividends and distributions payable of |
NOTE 12: EQUITY
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 three months ended January 31, 2022 and January 31, 2021.
Shares and Other Equity Instruments Issued and Outstanding and Treasury Instruments Held
| (millions of shares or other equity instruments and millions of Canadian dollars) | For the three months ended |
|||||||||||||||
January 31, 2022 |
January 31, 2021 | |||||||||||||||
| Number of shares |
Amount |
Number of shares |
Amount |
|||||||||||||
| Common Shares |
||||||||||||||||
| Balance as at beginning of period |
$ |
$ | ||||||||||||||
| Proceeds from shares issued on exercise of stock options |
||||||||||||||||
| Shares issued as a result of dividend reinvestment plan |
||||||||||||||||
| Purchase of shares for cancellation and other |
( |
) |
( |
) |
– | – | ||||||||||
| Balance as at end of period – common shares |
$ |
$ | |
|||||||||||||
| Preferred Shares and Other Equity Instruments |
||||||||||||||||
| Preferred Shares – Class A |
||||||||||||||||
| Balance as at beginning and end of period |
$ |
$ | ||||||||||||||
| Other Equity Instruments 1 |
||||||||||||||||
| Balance as at beginning and end of period |
$ |
– | $ | – | ||||||||||||
| Balance as at beginning and end of period – preferred shares and other equity instruments |
$ |
$ | ||||||||||||||
| Treasury – common shares 2 |
||||||||||||||||
| Balance as at beginning of period |
$ |
( |
) |
$ | ( |
) | ||||||||||
| Purchase of shares |
( |
) |
( |
) | ||||||||||||
| Sale of shares |
( |
) |
( |
) | ||||||||||||
| Balance as at end of period – treasury – common shares |
$ |
( |
) |
$ | ( |
) | ||||||||||
| Treasury – preferred shares and other equity instruments 2 |
||||||||||||||||
| Balance as at beginning of period |
$ |
( |
) |
$ | ( |
) | ||||||||||
| Purchase of shares and other equity instruments |
( |
) |
( |
) | ||||||||||||
| Sale of shares and other equity instruments |
( |
) |
( |
) | ||||||||||||
| Balance as at end of period – treasury – preferred shares and other equity instruments |
$ |
( |
) |
$ | ( |
) | ||||||||||
1 |
Consists of Limited Recourse Capital Notes (LRCNs). For LRCNs, the number of shares represents the number of notes issued. |
2 |
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. |
DIVIDENDS
On March 2, 2022, the Board approved a dividend in an amount of eighty-nine cents (
cents) per fully paid common share in the capital stock of the Bank for the quarter ending April 30, 2022, payable on and after April 30, 2022, to shareholders of record at the close of business on April 8, 2022.
NORMAL COURSE ISSUER BID
On January 7, 2022, the Bank announced that the Toronto Stock Exchange and OSFI had approved the Bank’s previously announced normal course issuer bid (NCIB) to repurchase for cancellation up to 50 million of its common shares.
During the three months ended January 31, 2022, the Bank repurchased 7.5 million common shares under the NCIB, at an average price of $101.89 per share for a total amount of $764 million, which represents a $670 million premium over the share capital amount.
Concurrent with the announcement of the Bank’s acquisition of First Horizon Corporation on February 28, 2022, the Bank’s automatic share purchase plan established under its NCIB automatically terminated pursuant to its terms. Refer to Note 22: for additional details.
Subsequent Events
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 67 |
NOTE 13: SHARE-BASED COMPENSATION
For the three months ended January 31, 2022, the Bank recognized compensation expense for stock option awards of $10.1 million (three months ended January 31, 2021
$10.0 million). During the three months ended January 31, 2022, 2.5 million (three months ended January 31, 2021 – 2.2 million) stock options were granted by the Bank at a weighted-average fair value of $12.41 per option (January 31, 2021 – $8.90 per option).
The following table summarizes the assumptions used for estimating the fair value of options for the three months ended January 31, 2022 and January 31, 2021.
Assumptions Used for Estimating the Fair Value of Options
| (in Canadian dollars, except as noted) | For the three months ended |
|||||||
| January 31 2022 |
January 31 2021 |
|||||||
| Risk-free interest rate |
% |
% | ||||||
| Option contractual life |
||||||||
| Expected volatility 1 |
% |
% | ||||||
| Expected dividend yield |
% |
% | ||||||
| Exercise price/share price |
$ |
$ | ||||||
1 |
Expected volatility is calculated based on the average daily volatility measured over a historical period. |
NOTE 14: EMPLOYEE BENEFITS
non-pension
post-retirement defined benefit plans and the Bank’s other material defined benefit pension and post-retirement benefit plans, for the three months ended January 31, 2022 and January 31, 2021.Defined Benefit Plan Expenses
| (millions of Canadian dollars) | Principal pension plans |
Principal post-retirement benefit plan |
Other pension and post-retirement benefit plans 1 |
|||||||||||||||||||||
For the three months ended |
||||||||||||||||||||||||
January 31 2022 |
January 31 2021 |
January 31 2022 |
January 31 2021 |
January 31 2022 |
January 31 2021 |
|||||||||||||||||||
| Service cost – benefits earned |
$ |
$ | $ |
$ | $ |
$ | ||||||||||||||||||
| Net interest cost (income) on net defined benefit liability (asset) |
( |
) |
||||||||||||||||||||||
| Past service cost (credit) |
– |
– | – |
– | – |
|||||||||||||||||||
| Defined benefit administrative expenses |
– |
– | ||||||||||||||||||||||
| Total |
$ |
$ | $ |
$ | $ |
$ | ||||||||||||||||||
1 |
Includes Canada Trust defined benefit pension plan, TD Banknorth defined benefit pension plan, TD Auto Finance defined benefit pension and post-retirement benefit plans, and supplemental employee defined benefit pension plans. |
The following table summarizes expenses for the Bank’s defined contribution plans for the three months ended January 31, 2022 and January 31, 2021.
Defined Contribution Plan Expenses
| (millions of Canadian dollars) | For the three months ended |
|||||||
January 31 2022 |
January 31 2021 |
|||||||
| Defined contribution pension plans 1 |
$ |
$ | ||||||
| Government pension plans 2 |
||||||||
| Total |
$ |
$ | ||||||
1 |
Includes defined contribution portion of the TD Pension Plan (Canada) and TD Bank, N.A. defined contribution 401(k) plan. |
2 |
Includes Canada Pension Plan, Quebec Pension Plan, and U.S. Federal Insurance Contributions Act |
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 68 |
The following table summarizes the remeasurements recognized in other comprehensive income for the Bank’s principal pension and post-retirement defined benefit plans for the three months ended January 31, 2022 and January 31, 2021.
Amounts Recognized in Other Comprehensive Income for Remeasurement of Defined Benefit Plans
1,2,3
| (millions of Canadian dollars) | Principal pension plans |
Principal post-retirement benefit plan |
||||||||||||||
For the three months ended |
||||||||||||||||
January 31 2022 |
January 31 2021 |
January 31 2022 |
January 31 2021 |
|||||||||||||
| Remeasurement gain – financial/ (loss) |
$ |
$ | $ |
$ | ||||||||||||
| Remeasurement gain – return on plan assets less interest income/ (loss) |
– |
– | ||||||||||||||
| Total |
$ |
$ | $ |
$ | ||||||||||||
1 |
Excludes the Canada Trust defined benefit pension plan, TD Banknorth defined benefit pension plan, TD Auto Finance retirement plans, supplemental employee retirement plans, and other employee defined benefit plans operated by the Bank and certain of its subsidiaries not considered material for disclosure purposes as these plans are not remeasured on a quarterly basis. |
2 |
Changes in discount rates and return on plan assets are reviewed and updated on a quarterly basis. All other assumptions are updated annually. |
3 |
Amounts are presented on a pre-tax basis. |
NOTE 15: INCOME TAXES
The Canada Revenue Agency (CRA), Revenu Québec Agency (RQA) and Alberta Tax and Revenue Administration (ATRA) are denying certain dividend deductions claimed by the Bank. During the quarter, the CRA reassessed the Bank for $154 million of additional income tax and interest in respect of its 2016 taxation year. As at January 31, 2022, the CRA has reassessed the Bank for $1,186 million of income tax and interest for the years 2011 to 2016, the RQA has reassessed the Bank for $34 million for the years 2011 to 2015, and the ATRA has reassessed the Bank for $33 million for the years 2011 to 2014. In February 2022, the ATRA reassessed the Bank for $21 million of additional income tax and interest in respect of its 2015 and 2016 taxation years. In total, the Bank has been reassessed for $1,274 million of income tax and interest. The Bank expects the CRA, RQA, and ATRA to continue to reassess open years on the same basis. The Bank is of the view that its tax filing positions were appropriate and intends to challenge all reassessments.
NOTE 16: EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding for the period.
Diluted earnings per share is calculated using the same method as basic earnings per share except that certain adjustments are made to net income attributable to common shareholders and the weighted-average number of shares outstanding for the effects of all dilutive potential common shares that are assumed to be issued by the Bank.
The following table presents the Bank’s basic and diluted earnings per share for the three months ended January 31, 2022 and January 31, 2021.
Basic and Diluted Earnings Per Share
| (millions of Canadian dollars, except as noted) | For the three months ended |
|||||||
January 31 2022 |
January 31 2021 |
|||||||
| Basic earnings per share |
||||||||
| Net income attributable to common shareholders |
$ |
$ | ||||||
| Weighted-average number of common shares outstanding (millions) |
||||||||
| Basic earnings per share |
$ |
$ | ||||||
| Diluted earnings per share |
||||||||
| Net income attributable to common shareholders |
$ |
$ | ||||||
| Net income available to common shareholders including impact of dilutive securities |
||||||||
| Weighted-average number of common shares outstanding (millions) |
||||||||
| Effect of dilutive securities |
||||||||
| Stock options potentially exercisable (millions) 1 |
||||||||
| Weighted-average number of common shares outstanding – diluted (millions) |
||||||||
| Diluted earnings per share 1 |
$ |
$ | ||||||
1 |
For the three months ended January 31, 2022, |
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 69 |
NOTE 17: CONTINGENT LIABILITIES
Other than as described below, there have been no new significant events or transactions as previously identified in Note 27 of the Bank’s 2021 Annual Consolidated Financial Statements.
LEGAL AND REGULATORY MATTERS
LITIGATION
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 various governmental regulatory agencies and law enforcement authorities in various jurisdictions. 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. As at January 31, 2022, the Bank’s RPL is from zero to approximately $1.39 billion (October 31, 2021 – from zero to approximately $1.45 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 provisions and/or RPL to be significantly different from its actual 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. In management’s opinion, based on its current knowledge and after consultation with counsel, the ultimate disposition of these actions, individually or in the aggregate, will not have a material adverse effect on the consolidated financial condition or the consolidated cash flows of the Bank. However, because of the factors listed above, as well as other uncertainties inherent in litigation and regulatory matters, there is a possibility that the ultimate resolution of legal or regulatory actions may be material to the Bank’s consolidated results of operations for any particular reporting period.
Stanford Litigation –
Rotstain v. Trustmark National Bank, et al
Rotstain
A joint status report was filed in the action on January 31, 2022. In the report, the removing bank defendant requested a status conference to address how to resolve the overlapping issues with the litigation. Plaintiffs’ position is that the matter should continue to be stayed.
Smith v. Independent Bank et al.
Rotstain
Smith
In Ontario, the hearing of the appeal in the Joint Liquidators’ action is scheduled for April 20-21, 2022.
Credit Card Fees
–
TD Ameritrade Stockholder Litigation
–
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 70 |
NOTE 18: SEGMENTED INFORMATION
For management reporting purposes, the Bank reports its results under three key business segments: Canadian Retail, which includes the results of the Canadian personal and commercial banking businesses, Canadian credit cards, TD Auto Finance Canada, and the Canadian wealth and insurance businesses; U.S. Retail, which includes the results of the U.S. personal and business banking operations, U.S. credit cards, TD Auto Finance U.S., U.S. wealth business, and the Bank’s investment in Schwab; and Wholesale Banking. The Bank’s other activities are grouped into the Corporate segment.
The following table summarizes the segment results for the three months ended January 31, 2022 and January 31, 2021.
Results by Business Segment
1
(millions of Canadian dollars) |
Canadian Retail |
U.S. Retail |
Wholesale Banking 2 |
Corporate 2 |
Total |
|||||||||||||||||||||||||||||||||||
For the three months ended January 31 |
||||||||||||||||||||||||||||||||||||||||
2022 |
2021 |
2022 |
2021 |
2022 |
2021 |
2022 |
2021 |
2022 |
2021 |
|||||||||||||||||||||||||||||||
| Net interest income |
$ |
$ | $ |
$ | $ |
$ | $ |
$ | $ |
$ | ||||||||||||||||||||||||||||||
| Non-interest income |
||||||||||||||||||||||||||||||||||||||||
| Total revenue |
||||||||||||||||||||||||||||||||||||||||
| Provision for (recovery of) credit losses |
( |
) |
||||||||||||||||||||||||||||||||||||||
| Insurance claims and related expenses |
||||||||||||||||||||||||||||||||||||||||
| Non-interest expenses |
||||||||||||||||||||||||||||||||||||||||
| Income (loss) before income taxes and share of net income from investment in Schwab |
( |
) |
( |
) | ||||||||||||||||||||||||||||||||||||
| Provision for (recovery of) income taxes |
( |
) |
( |
) | ||||||||||||||||||||||||||||||||||||
| Share of net income from investment in Schwab 3,4 |
( |
) |
( |
) | ||||||||||||||||||||||||||||||||||||
| Net income (loss) |
$ |
$ | $ |
$ | $ |
$ | $ |
( |
) |
$ | ( |
) | $ |
$ | ||||||||||||||||||||||||||
1 |
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. |
2 |
Net interest income within Wholesale Banking is calculated on a taxable equivalent basis (TEB). The TEB adjustment reflected in Wholesale Banking is reversed in the Corporate segment. |
3 |
The after-tax amounts for amortization of acquired intangibles and the Bank’s share of acquisition and integration charges associated with Schwab’s acquisition of TD Ameritrade are recorded in the Corporate segment. |
4 |
The Bank’s share of Schwab’s earnings is reported with a one-month lag. Refer to Note 7 for further details. |
Total Assets by Business Segment
(millions of Canadian dollars) |
Canadian Retail |
U.S. Retail |
Wholesale Banking |
Corporate |
Total |
|||||||||||||||
| As at January 31, 2022 |
||||||||||||||||||||
| Total assets |
$ |
$ |
$ |
$ |
$ |
|||||||||||||||
As at October 31, 2021 |
||||||||||||||||||||
| Total assets |
$ |
$ |
$ |
$ |
$ |
|||||||||||||||
NOTE 19: INTEREST INCOME AND EXPENSE
The following tabl
e
s present interest income and interest expense by basis of accounting measurement. Interest Income
| (millions of Canadian dollars) | For the three months ended |
|||||||
January 31, 2022 |
January 31, 2021 | |||||||
| Measured at amortized cost 1 |
$ |
$ | ||||||
| Measured at FVOCI – Debt instruments 1 |
||||||||
| Measured or designated at FVTPL |
||||||||
| Measured at FVOCI – Equity instruments |
||||||||
| Total |
$ |
$ | ||||||
1 |
Interest income is calculated using EIRM. |
Interest Expense
| (millions of Canadian dollars) | For the three months ended |
|||||||
January 31, 2022 |
January 31, 2021 | |||||||
| Measured at amortized cost 1 |
$ |
$ | ||||||
| Measured or designated at FVTPL |
||||||||
| Total |
$ |
$ | ||||||
1 |
Interest expense is calculated using EIRM. |
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 71 |
NOTE 20: REGULATORY CAPITAL
The Bank manages its capital under guidelines established by OSFI. The regulatory capital guidelines measure capital in relation to credit, market, and operational risks. The Bank has various capital policies, procedures, and controls which it utilizes to achieve its goals and objectives.
On November 22, 2019, the Bank was designated a global systemically important bank (G-SIB).
During the three months ended January 31, 2022, the Bank complied with the OSFI Basel III guidelines related to capital ratios and the leverage ratios. Effective January 1, 2016, OSFI’s target Common Equity Tier 1 (CET1), Tier 1, and Total Capital ratios for Canadian banks designated as domestic systemically important banks 1 8 9.5 11.5 2.5 % of total risk-weighted assets (RWA) and must be met with CET1 Capital, effectively raising the OSFI CET1 minimum target to 10.5 %. The OSFI target includes the greater of the 1
(D-SIBs)
includes a D-SIBs
against Pillar 2 risks. The current buffer is set at D-SIB
or G-SIB
surcharge, both of which are currently On September 23, 2018, the Canadian Bail-in regime came into effect, including OSFI’s Total Loss Absorbing Capacity (TLAC). Under this guideline, the Bank was required to meet supervisory risk-based TLAC target of 24.0 % of RWA, inclusive of the 2.50 % DSB, and TLAC leverage ratio target of 6.75 % by November 1, 2021. Changes to the DSB will result in corresponding changes to the risk-based TLAC target ratio.
The following table summarizes the Bank’s regulatory capital positions as at January 31, 2022 and October 31, 2021.
Regulatory Capital Position
| (millions of Canadian dollars, except as noted) | As at |
|||||||
January 31 2022 |
October 31 2021 |
|||||||
| Capital |
||||||||
| Common Equity Tier 1 Capital |
$ |
$ | ||||||
| Tier 1 Capital |
||||||||
| Total Capital |
||||||||
| Risk-weighted assets used in the calculation of capital ratios |
||||||||
| Capital and leverage ratios |
||||||||
| Common Equity Tier 1 Capital ratio |
% |
% | ||||||
| Tier 1 Capital ratio |
||||||||
| Total Capital ratio |
||||||||
| Leverage ratio |
||||||||
| TLAC Ratio |
||||||||
| TLAC Leverage Ratio |
||||||||
NOTE 21: RISK MANAGEMENT
The risk management policies and procedures of the Bank are provided in the MD&A. The shaded sections of the “Managing Risk” section of the MD&A relating to market, liquidity, and insurance risks are an integral part of the Interim Consolidated Financial Statements.
NOTE 22: SUBSEQUENT EVENTS
Acquisition of First Horizon Corporation
On February 28, 2022, the Bank and First Horizon Corporation (“First Horizon”) announced a definitive agreement for the Bank to acquire First Horizon in an all-cash transaction valued at US$13.4 billion, or US$25.00 for each common share of First Horizon. In connection with this transaction, the Bank has invested US$494 million in non-voting First Horizon preferred stock (convertible in certain circumstances into up to 4.9 % of First Horizon’s common stock). The transaction is expected to close in the first quarter of fiscal 2023, and is subject to customary closing conditions, including approvals from First Horizon’s shareholders and U.S. and Canadian regulatory authorities. The results of the acquired business will be consolidated by the Bank from the closing date and reported in the U.S. Retail segment.
If the transaction does not close prior to November 27, 2022, First Horizon shareholders will receive, at closing, an additional
US$0.65
per share on an annualized basis for the period from November 27, 2022 through the day immediately prior to the closing. Either party will have the right to terminate the agreement if the transaction has not closed
by February 27, 2023
(the “outside date”), subject to the right of either party (under certain conditions) to extend the outside date to May 27, 2023.
Concurrent with the announcement, the automatic share purchase plan established under the Bank’s NCIB automatically terminated pursuant to its terms. The NCIB remains in effect on the same terms and subject to the same restrictions as previously disclosed.
Rothstein Litigation Settlement Recovery
Subsequent to quarter end, the Bank reached a settlement in , in Canada. The Bank received $225 million as a recovery of losses incurred resulting from the previous resolution by TD in the U.S. of multiple proceedings related to an alleged Ponzi scheme perpetrated by, among others, Scott Rothstein.
TD Bank, N.A. v. Lloyd’s Underwriters et al.
| TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 72 |
SHAREHOLDER AND INVESTOR INFORMATION
Shareholder Services
If you: |
And your inquiry relates to: |
Please contact: | ||
Are a registered shareholder (your name appears on your TD share certificate) |
Missing dividends, lost share certificates, estate questions, address changes to the share register, dividend bank account changes, the dividend reinvestment plan, eliminating duplicate mailings of shareholder materials or stopping (or resuming) receiving annual and quarterly reports |
Transfer Agent: TSX Trust Company P.O. Box 700, Station B Montréal, Québec H3B 3K3 1-800-387-0825 (Canada and U.S. only) or 416-682-3860 Facsimile: 1-888-249-6189 shareholderinquiries@tmx.com or www.tsxtrust.com | ||
| Hold your TD shares through the Direct Registration System in the United States |
Missing dividends, lost share certificates, estate questions, address changes to the share register, eliminating duplicate mailings of shareholder materials or stopping (or resuming) receiving annual and quarterly reports |
Co-Transfer Agent and Registrar: Computershare Trust Company, N.A. P.O. Box 505000 Louisville, KY 40233, or Computershare Trust Company, N.A. 462 South 4th Street, Suite 1600 Louisville, KY 40202 1-866-233-4836 TDD for hearing impaired: 1-800-231-5469 Shareholders outside of U.S.: 201-680-6578 TDD shareholders outside of U.S.: 201-680-6610 www.computershare.com/investor | ||
Beneficially own TD shares that are held in the name of an intermediary, such as a bank, a trust company, a securities broker or other nominee |
Your TD shares, including questions regarding the dividend reinvestment plan and mailings of shareholder materials |
Your intermediary | ||
For all other shareholder inquiries, please contact TD Shareholder Relations at 416-944-6367 or 1-866-756-8936 or email
tdshinfo@td.com
. Please note that by leaving us an e-mail or voicemail message, you are providing your consent for us to forward your inquiry to the appropriate party for response. Normal Course Issuer Bid
On January 7, 2022, the Bank announced that the Toronto Stock Exchange and OSFI had approved the Bank’s Normal Course Issuer Bid (NCIB) to repurchase for cancellation up to 50 million of the Bank’s common shares. Pursuant to the Notice of Intention filed with the TSX, the NCIB ends on January 10, 2023, such earlier date as the Bank may determine, or such earlier date as the Bank may complete its purchases. A copy of the Notice may be obtained without charge by contacting TD Shareholder Relations by phone at 416-944-6367 or 1-866-756-8936 or by e-mail at
tdshinfo@td.com
. General Information
Products and services: Contact TD Canada Trust, 24 hours a day, seven days a week: 1-866-567-8888
French: 1-866-233-2323
Cantonese/Mandarin: 1-800-328-3698
Telephone device for the hearing impaired (TTY): 1-800-361-1180
Website:
www.td.com
Email:
customer.service@td.com
Quarterly Earnings Conference Call
TD Bank Group will host an earnings conference call in Toronto, Ontario on March 3, 2022. The call will be audio webcast live through TD’s website at 1:30 p.m. ET. The call will feature presentations by TD executives on the Bank’s financial results for first quarter and discussions of related disclosures, followed by a question-and-answer period with analysts. The presentation material referenced during the call will be available on the TD website at or 1-866-696-5894 (toll free) and the passcode is 2727354#.
www.td.com/investor
on March 3, 2022 in advance of the call. A listen-only telephone line is available at 416-641-6150
The audio webcast and presentations will be archived at www.
td.com/investor
. Replay of the teleconference will be available from 5:00 p.m. ET on March 3, 2022, until 11:59 p.m. ET on March 18, 2022 by calling 905-694-9451 or 1-800-408-3053 (toll free). The passcode is 7300743#. Annual Meeting
Thursday, April 14, 2022
Toronto, Ontario
TD BANK GROUP • FIRST QUARTER 2022 • REPORT TO SHAREHOLDERS |
Page 73 |
