UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

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

the Securities Exchange Act of 1934

 

 

For the month of May, 2021.		Commission File Number: 001-14446

 

 

The Toronto-Dominion Bank

(Translation of registrant’s name into English)

 

 

c/o General Counsel’s Office

P.O. Box 1, Toronto Dominion Centre,

Toronto, Ontario, M5K 1A2

(Address of principal executive offices)

 

 

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

Form 20-F  ☐            Form 40-F  ☒

 

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

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

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

 

 

 

EXHIBIT INDEX

 

Exhibit		Description
99.1		2nd Quarter 2021 Report to Shareholders
99.2		Earnings Coverage
99.3		Return on Assets, Dividend Payouts, and Equity to Assets Ratios
99.4		Q2 2021 Earnings News Release
99.5		Q2 2021 Dividend News Release
99.6		CEO and CFO Certificates
101		Interactive Data File

FORM 6-K

SIGNATURES

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

 

						THE TORONTO-DOMINION BANK
DATE: May 27, 2021						By:		/s/ Caroline Cook
						Name:		Caroline Cook
						Title:		Associate Vice President, Legal

Exhibit 99.1

 

		TD Bank Group Reports Second Quarter 2021 Results Report to Shareholders • Three and Six months ended April 30, 2021

 

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

•

Reported diluted earnings per share were $1.99, compared with $0.80.

•

Adjusted diluted earnings per share were $2.04, compared with $0.85.

•

Reported net income was $3,695 million, compared with $1,515 million.

•

Adjusted net income was $3,775 million, compared with $1,599 million.

YEAR-TO-DATE FINANCIAL HIGHLIGHTS, six months ended April 30, 2021, compared with the corresponding period last year:

•

Reported diluted earnings per share were $3.76, compared with $2.42.

•

Adjusted diluted earnings per share were $3.86, compared with $2.51.

•

Reported net income was $6,972 million, compared with $4,504 million.

•

Adjusted net income was $7,155 million, compared with $4,671 million.

SECOND QUARTER ADJUSTMENTS (ITEMS OF NOTE)

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

•

Amortization of acquired intangibles of $69 million ($62 million after-tax or 3 cents per share), compared with $68 million ($59 million after-tax or 3 cents per share) in the second quarter last year.

• Acquisition and integration charges related to the Schwab transaction of $19 million ($18 million after-tax or 1 cent per share).

TORONTO, May 27, 2021 – TD Bank Group (“TD” or the “Bank”) today announced its financial results for the second quarter ended April 30, 2021. Reported earnings were $3.7 billion, up 144% compared with the second quarter last year, and adjusted earnings were $3.8 billion, up 136%.

“TD reported strong results in the second quarter, reflecting the underlying strength of our diversified businesses, improving economic conditions and our prudent approach to managing risk,” said Bharat Masrani, Group President and CEO, TD Bank Group. “We continued to invest in our people, capabilities and technology to position our business for growth as economies re-open and consumer and business activity recovers.”

“While we are encouraged by the progress being made on vaccinations, COVID-19 continues to be a factor in our lives and our focus remains on the safety of our people and on supporting the evolving needs of our customers and clients,” added Masrani. “As we look toward the future, we will continue to advance our strategy and contribute to a robust and inclusive recovery, guided by our purpose to enrich the lives of our customers, colleagues and communities.”

Canadian Retail

Canadian Retail reported net income was $2,182 million, an increase of 86% compared with the second quarter last year, mainly reflecting lower provisions for credit losses (PCL) and record results in wealth and insurance. Revenue increased 1%, reflecting growth in non-interest income and strong loan and deposit volumes, partially offset by lower margins and premium rebates for customers in the insurance business. PCL was lower by $1,190 million from the prior year, reflecting lower impaired and performing PCL. Reported expenses increased 4%, with higher volume-driven and employee-related expenses, partially offset by prior year charges related to the Greystone acquisition.

Business momentum accelerated this quarter, with mortgage originations up strongly, credit card transactions rising, and good account growth across all of the businesses. TD Insurance continued to take market share, becoming the third largest home and auto personal insurance provider in Canada, with strong customer engagement in its end-to-end digital capabilities. For the fourth year in a row, TD Auto Finance was ranked Highest in Dealer Satisfaction among Non-Captive Lenders with Retail Credit by J.D. Power. Canadian Retail continues to invest in its advice and service capabilities to help customers navigate change and plan for their financial future through personalized advice and tools. TD was also recognized by the Business Intelligence Group for its AI-powered digital experiences and, as of April 2021, continues to lead in the number of Interac e-Transfer and Flash transactions.

U.S. Retail

U.S. Retail net income was $1,316 million (US$1,047 million), an increase of 292% compared with the second quarter last year. The Bank’s investment in The Charles Schwab Corporation (“Schwab”) contributed $246 million (US$194 million) in earnings, compared with the contribution of $234 million (US$174 million) from TD Ameritrade a year ago.

The U.S. Retail Bank, which excludes the Bank’s investment in Schwab, reported net income of $1,070 million (US$853 million), an increase of 949% from the second quarter last year, mainly reflecting lower PCL. In U.S. dollars, revenue increased 2% reflecting higher non-interest income, partially offset by lower deposit margins. PCL was lower by US$987 million ($1,350 million) reflecting lower impaired and performing PCL. Expenses increased 4%, reflecting store optimization costs and higher employee-related expenses, partly offset by lower legal provisions. In Canadian dollars, revenue and expenses declined 7% and 5%, respectively, primarily as a result of appreciation in the Canadian dollar since the second quarter last year.

The U.S. Retail Bank continued to advance key strategic initiatives to enhance the customer experience this quarter, introducing the new Double Up Credit Card with one of the most valuable cash back offerings in the market. For small business customers, TD continued to facilitate access to Small Business Administration (SBA) Paycheck Protection Program (PPP) financing, ranking seventh nationwide through Round 2 of the program. TD Bank, America’s Most Convenient Bank^® was also proud to be recognized by Forbes as a Best Employer for Diversity 2021 for the third consecutive year.

 

TD BANK GROUP • SECOND QUARTER 2021 • REPORT TO SHAREHOLDERS			Page 1

Wholesale

Wholesale Banking reported net income of $383 million this quarter, an increase of 83% compared to the second quarter last year, reflecting lower PCL, partially offset by lower revenue and higher non-interest expenses. Revenue for the quarter was $1,157 million, a decrease of 8% from a year ago, primarily reflecting lower trading-related revenue. PCL was lower by $437 million from the prior year, reflecting lower impaired and performing PCL.

The Wholesale Bank’s results benefited from its diversified business mix and client-focused franchise, which provides trusted advice and critical access to markets. This quarter, TD announced an agreement to acquire Headlands Tech Global Markets LLC, a Chicago-based quantitative fixed income trading company, to strengthen its electronic bond trading infrastructure, deliver data-driven innovation and grow its global platform. The deal is expected to close in the second half of calendar 2021, subject to receipt of regulatory approvals and satisfaction of other customary closing conditions.

Capital

TD’s Common Equity Tier 1 Capital ratio was 14.2%.

Conclusion

“TD is strong and well-capitalized, and we continue to adapt and grow through this time of disruption. Our performance demonstrates the strength of our proven business model, brought to life through the efforts and resilience of our 90,000 colleagues across the globe who live our purpose and demonstrate a deep commitment to the Bank, those we serve, and the communities where we live and work,” concluded Masrani.

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

 

TD BANK GROUP • SECOND QUARTER 2021 • 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 second quarter 2021 Report to Shareholders (RTS), Supplemental Financial Information (SFI), or Supplemental Regulatory Disclosures (SRD). Information on TD’s website, SFI, and SRD is not and should not be considered incorporated herein by reference into the second quarter 2021 RTS, Management’s Discussion and Analysis, or the Interim Consolidated Financial Statements. Certain disclosure references have been made to the Bank’s 2020 Annual Report.

 

Type of     Risk		Topic		EDTF Disclosure		Page
						RTS Second Quarter 2021			SFI Second Quarter 2021			SRD Second Quarter 2021		Annual Report 2020
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, 108-110
		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.		27, 40								68, 102-103, 105
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, 85-110
		8		Description of stress testing within the bank’s risk governance and capital frameworks.		30								66, 84, 92-93, 108
Capital Adequacy and Risk Weighted Assets		9		Pillar 1 capital requirements and the impact for global systemically important banks.		25-27, 77						1-3, 6		62-65, 69, 214
		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, 108
		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.		32-34, 36-37								98-100
Funding		19		Encumbered and unencumbered assets in a table by balance sheet category.		35								101, 208-209
		20		Tabulate consolidated total assets, liabilities and off-balance sheet commitments by remaining contractual maturity at the balance sheet date.		40-42								105-107
		21		Discussion of the bank’s funding sources and the bank’s funding strategy.		35-40								104-105
Market Risk		22		Linkage of market risk measures for trading and non-trading portfolio and balance sheet.		29								90
		23		Breakdown of significant trading and non-trading market risk factors.		29-31								90, 92-94
		24		Significant market risk measurement model limitations and validation procedures.		30								91-94, 96
		25		Primary risk management techniques beyond reported risk measures and parameters.		30								91-94
Credit Risk		26		Provide information that facilitates users’ understanding of the bank’s credit risk profile, including any significant credit risk concentrations.		21-24, 62-69			20-35			1-5, 10-11, 13-60		48-61, 85-89, 165-171, 181, 184-185, 212-213
		27		Description of the bank’s policies for identifying impaired loans.		69								56,140-142, 147-148, 171
		28		Reconciliation of the opening and closing balances of impaired loans in the period and the allowance for loan losses.		22, 64-67			24, 28					53, 168-169
		29		Analysis of the bank’s counterparty credit risks that arise from derivative transactions.								40-42, 49-53		88, 152, 176-177, 181, 184-185
		30		Discussion of credit risk mitigation, including collateral held for all sources of credit risk.										88, 144-145, 152
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, 108-110
		32		Discuss publicly known risk events related to other risks.		75								79, 206-208

 

 

TD BANK GROUP • SECOND QUARTER 2021 • REPORT TO SHAREHOLDERS			Page 3

TABLE OF CONTENTS

 

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATING PERFORMANCE

 

This MD&A is presented to enable readers to assess material changes in the financial condition and operating results of TD Bank Group (“TD” or the “Bank”) for the three and six months ended April 30, 2021, 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 2020 Consolidated Financial Statements and related Notes and 2020 MD&A. This MD&A is dated May 26, 2021. Unless otherwise indicated, all amounts are expressed in Canadian dollars and have been primarily derived from the Bank’s 2020 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 2020 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).

 

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

 

TD BANK GROUP • SECOND QUARTER 2021 • REPORT TO SHAREHOLDERS			Page 4

 

(millions of Canadian dollars, except as noted)			As at or for the three months ended												As at or for the six months ended
			April 30 2021				January 31 2021				April 30 2020				April 30 2021				April 30 2020
Results of operations
Total revenue		$	10,228			$	10,812			$	10,528			$	21,040			$	21,137
Provision for (recovery of) credit losses			(377	)			313				3,218				(64	)			4,137
Insurance claims and related expenses			441				780				671				1,221				1,451
Non-interest expenses – reported			5,729				5,784				5,121				11,513				10,588
Non-interest expenses – adjusted1			5,691				5,744				5,051				11,435				10,448
Net income – reported			3,695				3,277				1,515				6,972				4,504
Net income – adjusted1			3,775				3,380				1,599				7,155				4,671
Financial position (billions of Canadian dollars)
Total loans net of allowance for loan losses		$	708.4			$	706.0			$	747.0			$	708.4			$	747.0
Total assets			1,669.1				1,735.6				1,673.7				1,669.1				1,673.7
Total deposits			1,118.5				1,139.2				1,078.3				1,118.5				1,078.3
Total equity			94.5				95.4				93.3				94.5				93.3
Total Common Equity Tier 1 Capital risk-weighted assets			455.0				467.2				524.0				455.0				524.0
Financial ratios
Return on common equity (ROE) – reported			16.7	%			14.3	%			6.9	%			15.5	%			10.5	%
Return on common equity – adjusted1,2			17.1				14.7				7.3				15.9				10.9
Return on tangible common equity (ROTCE)2			23.0				19.9				9.6				21.5				14.5
Return on tangible common equity – adjusted1,2			23.1				20.1				9.8				21.6				14.7
Efficiency ratio – reported			56.0				53.5				48.6				54.7				50.1
Efficiency ratio – adjusted1			55.6				53.1				48.0				54.4				49.4
Provision for (recovery of) credit losses as a % of net average loans and acceptances3			(0.21	)			0.17				1.76				(0.02	)			1.15
Common share information – reported (Canadian dollars)
Per share earnings
Basic		$	2.00			$	1.77			$	0.80			$	3.77			$	2.42
Diluted			1.99				1.77				0.80				3.76				2.42
Dividends per share			0.79				0.79				0.79				1.58				1.53
Book value per share			49.25				49.44				48.54				49.25				48.54
Closing share price4			84.50				72.46				58.16				84.50				58.16
Shares outstanding (millions)
Average basic			1,817.4				1,814.2				1,803.0				1,815.7				1,807.0
Average diluted			1,819.9				1,815.8				1,804.4				1,817.8				1,809.0
End of period			1,818.7				1,816.0				1,803.4				1,818.7				1,803.4
Market capitalization (billions of Canadian dollars)		$	153.7			$	131.6			$	104.9			$	153.7			$	104.9
Dividend yield5			3.9	%			4.5	%			5.0	%			4.2	%			4.4	%
Dividend payout ratio			39.5				44.6				98.2				41.9				63.2
Price-earnings ratio6			10.9				11.0				10.2				10.9				10.2
Total shareholder return (1 year)7			52.1				4.1				(20.6	)			52.1				(20.6	)
Common share information – adjusted (Canadian dollars)1
Per share earnings
Basic		$	2.04			$	1.83			$	0.85			$	3.87			$	2.51
Diluted			2.04				1.83				0.85				3.86				2.51
Dividend payout ratio			38.7	%			43.2	%			92.8	%			40.8	%			60.8	%
Price-earnings ratio6			12.6				13.1				9.9				12.6				9.9
Capital ratios
Common Equity Tier 1 Capital ratio2			14.2	%			13.6	%			11.0	%			14.2	%			11.0	%
Tier 1 Capital ratio2			15.4				14.8				12.3				15.4				12.3
Total Capital ratio2			18.0				17.4				15.3				18.0				15.3
Leverage ratio			4.6				4.5				4.2				4.6				4.2

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

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

3	Excludes acquired credit-impaired (ACI) loans.

4	Toronto Stock Exchange (TSX) closing market price.

5

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

6	Price-earnings ratio is calculated based on a trailing four quarters’ earnings per share (EPS).

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

 

 

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 over 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 $1.7 trillion in assets on April 30, 2021. The Toronto-Dominion Bank trades under the symbol “TD” on the Toronto and New York Stock Exchanges.

 

TD BANK GROUP • SECOND QUARTER 2021 • REPORT TO SHAREHOLDERS			Page 5

ECONOMIC SUMMARY AND OUTLOOK

The COVID-19 pandemic continues to have a profound impact on the global economy. A successful vaccination campaign globally will be key to sustaining the economic recovery. During this third wave of the pandemic, advanced economies appear to have adapted to restrictions on activity, and the economic disruption from subsequent lockdowns has been less severe than last year. However, until large segments of the population are immunized, including emerging markets where vaccination rates have lagged, the spread of more contagious variants may continue to cause periodic setbacks.

In Europe, a slow start to the vaccination campaign (outside the United Kingdom) saw a third wave of the virus take hold in several countries. It now appears to be subsiding and economic activity in the region is picking up again. Conditions are less favourable in emerging markets, many of which continue to struggle with inadequate vaccine supplies. In China, where progress on vaccination fueled a strong recovery, GDP growth is now moderating, as authorities tighten monetary policy to shift the economy back to a more balanced growth path.

By contrast, the U.S. economy has been a stand-out on the global stage. The vaccination rollout has outpaced that in many peer countries, with the benefits evident in resurgent activity. The economy grew by 6.4% annualized in the first calendar quarter and looks set to accelerate in the second quarter. Several rounds of economic stimulus payments have boosted consumer spending, which grew by 10.7% annualized in the first calendar quarter. Business investment has also been stronger than expected, led by information technology equipment and software investment, reflecting rapid growth in digital adoption. Housing has been another source of strength, as strong demand and limited supply have pushed home price growth into double-digit territory across much of the country.

Fiscal policy is expected to remain supportive. In addition to the US$1.9 trillion American Rescue Plan signed into law in March, the Biden administration has recently proposed additional infrastructure and social spending plans, which it intends to finance in part through higher taxes on corporations and high net worth individuals. It remains to be seen which parts of the plans will pass Congress and when, but the underlying composition of spending has the potential to add to economic momentum in the years ahead.

While acknowledging stronger domestic economic growth, the Federal Reserve has thus far reiterated its commitment to keeping the federal funds rate at the current range of 0.0% to 0.25%. In part, this reflects a deliberate strategy to allow a modest overshoot of the Federal Reserve’s long-run 2% inflation target for a period of time. By the second half of 2022, TD Economics expects the unemployment rate to have returned to near historic lows and inflation to have exceeded the 2% threshold for several quarters. Should this materialize, the Federal Reserve is likely to begin raising its policy rate in the final calendar quarter of 2022, bringing it to a range of 0.25% to 0.50%.

Canada’s economy also appears to have started calendar 2021 on a relatively strong footing, growing at an estimated 5.8% annualized rate. In the months since, much of Canada has been hit hard by a third wave of COVID-19. Thanks to more effective treatments and a vaccination program targeted at more vulnerable groups, death rates have been much lower than in previous rounds of the pandemic. Still, to relieve the pressure on healthcare systems, renewed restrictions on businesses were implemented across much of the country this spring. This is likely to interrupt the labour market recovery in the near-term, but the overall economy is expected to continue growing, as households and businesses have demonstrated greater adaptability during successive waves of the pandemic. Vaccination rates increased during the first calendar quarter and have accelerated since. This should permit some easing in restrictions during the second calendar quarter and beyond. Growth will continue to benefit from government supports for workers and businesses, which were extended until the fall of 2021 in the spring Federal Budget.

The Canadian housing market has been a pillar of strength, even through the third wave of the pandemic. Low mortgage rates continue to spur demand in a tightly supplied market, and an upcoming tightening of mortgage qualification rules may result in some pull forward in demand this spring. Eroding affordability is expected to put some natural limits on demand, but a tight supply of highly sought after detached homes is likely to maintain a solid floor under home prices.

Reflecting the resilience of the Canadian economy and housing market, as well as ongoing support from fiscal policy, the Bank of Canada upgraded its economic forecasts. The central bank now expects economic slack to be absorbed and inflation to be at its 2% goal in the latter half of 2022, versus a previous expectation for 2023. This is consistent with TD Economics’ own forecast. Alongside the Federal Reserve, the Bank of Canada is expected to raise its overnight rate in the final calendar quarter of 2022. With similar policy rates in both countries, TD Economics expects the Canadian dollar to remain in a range of 79-81 U.S. cents over the next two years.

THE BANK’S RESPONSE TO COVID-19

Although economic conditions in Canada and the U.S. are improving, the COVID-19 pandemic continues to have a significant impact on economies around the world. While the commencement of vaccination against COVID-19 constitutes an encouraging development, some uncertainty remains as to the effectiveness, supply and distribution of vaccines, as well as their acceptance by the public, and governments’ ability to inoculate a sufficient proportion of the population quickly enough to enable widespread easing of containment measures and support the transition to a fully reopened economy. It also remains uncertain how effective vaccines will be against new variants of COVID-19, some of which may be more contagious or harmful. TD remains actively engaged with governments, supervisory agencies and public health authorities in the response to COVID-19, guided by the principles of supporting the well-being of its customers and colleagues and maintaining the Bank’s operational and financial resilience.

In fiscal 2020, the Bank offered several forms of direct financial assistance to customers experiencing financial hardship due to COVID-19, including deferral of loan payments. The bulk of this assistance has now largely run its course, except for deferrals of real estate secured loans in the U.S., where the original program allowed deferrals to be extended for up to 12 months. There have been few other customer requests for extensions. As of April 30, 2021, the gross loan balances that remained subject to COVID-related deferral programs was approximately $0.04 billion in Canada ($0.7 billion as at January 31, 2021), primarily reflecting Small Business Banking and Commercial Lending portfolios and US$1.1 billion in the United States (US$1.4 billion as at January 31, 2021), primarily in the Real Estate Secured Lending portfolio. Delinquency rates for customers that have exited deferral are higher than for the broader population but remain low in absolute terms, reflecting the continuation of government support and TD’s proactive outreach to clients. The Bank continues to provide advice and assistance to customers through its usual channels, TD Helps in Canada and TD Cares in the U.S. Any financial relief offered through these channels is not included in the balances disclosed above.

In addition to direct financial assistance, the Bank continues to support programs for individuals and businesses introduced by the Canadian and U.S. governments described below.

Canada Emergency Business Account Program

Under the Canada Emergency Business Account (CEBA) Program, with funding provided by Her Majesty in Right of Canada (the “Government of Canada”) and Export Development Canada (EDC) as the Government of Canada’s agent, the Bank provides eligible business banking customers with an interest-free, partially forgivable loan of up to $60,000 until December 31, 2022. If the loan is not repaid by December 31, 2022, it will be extended for an additional 3-year term bearing an interest rate of 5% per annum. As of April 30, 2021, the Bank had provided approximately 206,000 customers (January 31, 2021 – 194,000) with CEBA loans and had funded approximately $11.0 billion (January 31, 2021 – $9.8 billion) in loans under the program.

 

TD BANK GROUP • SECOND QUARTER 2021 • REPORT TO SHAREHOLDERS			Page 6

U.S. Coronavirus Aid, Relief, and Economic Security Act, Paycheck Protection Program

Under the Paycheck Protection Program (PPP) implemented by the Small Business Administration (SBA), the Bank provides loans to small businesses to assist them in retaining workers, maintaining payroll, and covering other expenses. PPP loans have a 2-year or 5-year term, bear an interest rate of 1% per annum, and are 100% guaranteed by the SBA. The full principal amount of the loan and any accrued interest are eligible for forgiveness if the loan is used for qualifying expenses. The Bank will be paid by the SBA for any portion of the loan that is forgiven. As of April 30, 2021, the Bank had approximately 98,000 PPP loans outstanding (January 31, 2021 – 79,000) with a gross carrying amount of approximately US$9.8 billion (January 31, 2021 – US$7.5 billion). During the three months ended April 30, 2021, approximately 45,000 new PPP loans (US$3.4 billion) were originated (three months ended January 31, 2021 – nil) and approximately 26,000 PPP loans (US$1.1 billion) were forgiven (three months ended January 31, 2021 – 6,000 PPP loans, US$0.7 billion).

Other Programs

The Bank continues to work with federal Crown Corporations, including EDC and the Business Development Bank of Canada (BDC) to deliver various other guarantee and co-lending programs for the Bank’s clients. This includes the Highly Affected Sectors Credit Availability Program (HASCAP) Guarantee to provide support to Canadian businesses that have been highly affected by and are facing economic hardship as a result of the COVID-19 pandemic which launched in the second fiscal quarter. In addition, TD is working with Canada’s federal government to facilitate access to the Canada Recovery Benefit (CRB) and Canada Emergency Wage Subsidy (CEWS) through Canada Revenue Agency direct deposit.

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

The Bank’s U.S. strategic cards portfolio comprises agreements with certain U.S. retailers pursuant to which TD is the U.S. issuer of private label and co-branded consumer credit cards to the retailers’ 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 the provision for credit losses (PCL). 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. The Corporate segment reflects the retailer program partners’ share of revenues and PCL, with an offsetting amount reflecting the partners’ net share recorded in Non-interest expenses. This results in no impact to the Corporate segment reported net income (loss). The U.S. Retail segment reflects only the portion of revenue and PCL attributable to TD under the agreements in its reported net income.

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”). 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.

 

 

(millions of Canadian dollars)		For the three months ended												For the six months ended
		April 30 2021				January 31 2021				April 30 2020				April 30 2021				April 30 2020
Net interest income		$	5,835			$	6,030			$	6,200			$	11,865			$	12,369
Non-interest income			4,393				4,782				4,328				9,175				8,768
Total revenue			10,228				10,812				10,528				21,040				21,137
Provision for (recovery of) credit losses			(377	)			313				3,218				(64	)			4,137
Insurance claims and related expenses			441				780				671				1,221				1,451
Non-interest expenses			5,729				5,784				5,121				11,513				10,588
Income before income taxes and share of net income from investment in Schwab and TD Ameritrade			4,435				3,935				1,518				8,370				4,961
Provision for (recovery of) income taxes			962				827				250				1,789				909
Share of net income from investment in Schwab and TD Ameritrade			222				169				247				391				452
Net income – reported			3,695				3,277				1,515				6,972				4,504
Preferred dividends			65				65				68				130				135
Net income available to common shareholders and non-controlling interests in subsidiaries		$	3,630			$	3,212			$	1,447			$	6,842			$	4,369
Attributable to:
Common shareholders		$	3,630			$	3,212			$	1,447			$	6,842			$	4,369

 

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

 

TD BANK GROUP • SECOND QUARTER 2021 • REPORT TO SHAREHOLDERS			Page 7

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

 

 

(millions of Canadian dollars)		For the three months ended												For the six months ended
		April 30 2021				January 31 2021				April 30 2020				April 30 2021				April 30 2020
Operating results – adjusted
Net interest income		$	5,835			$	6,030			$	6,200			$	11,865			$	12,369
Non-interest income			4,393				4,782				4,328				9,175				8,768
Total revenue			10,228				10,812				10,528				21,040				21,137
Provision for (recovery of) credit losses			(377	)			313				3,218				(64	)			4,137
Insurance claims and related expenses			441				780				671				1,221				1,451
Non-interest expenses2			5,691				5,744				5,051				11,435				10,448
Income before income taxes and share of net income from investment in Schwab and TD Ameritrade			4,473				3,975				1,588				8,448				5,101
Provision for income taxes			970				836				260				1,806				930
Share of net income from investment in Schwab and TD Ameritrade3			272				241				271				513				500
Net income – adjusted			3,775				3,380				1,599				7,155				4,671
Preferred dividends			65				65				68				130				135
Net income available to common shareholders – adjusted			3,710				3,315				1,531				7,025				4,536
Pre-tax adjustments for items of note
Amortization of acquired intangibles4			(69	)			(74	)			(68	)			(143	)			(138	)
Acquisition and integration charges related to the Schwab transaction5			(19	)			(38	)			–				(57	)			–
Charges associated with the acquisition of Greystone2			–				–				(26	)			–				(50	)
Less: Impact of income taxes
Amortization of acquired intangibles			(7	)			(9	)			(9	)			(16	)			(20	)
Acquisition and integration charges related to the Schwab transaction5			(1	)			–				–				(1	)			–
Charges associated with the acquisition of Greystone			–				–				(1	)			–				(1	)
Total adjustments for items of note			(80	)			(103	)			(84	)			(183	)			(167	)
Net income available to common shareholders – reported		$	3,630			$	3,212			$	1,447			$	6,842			$	4,369

 

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

2	Adjusted non-interest expenses exclude the following items of note related to the Bank’s own asset acquisitions and business combinations:

i.

Amortization of acquired intangibles – Q2 2021: $35 million, Q1 2021: $39 million, Q2 2020: $44 million, Q1 2020: $46 million. These charges are reported in the Corporate segment.

ii.

The Bank’s own integration costs related to the Schwab transaction – Q2 2021: $3 million, Q1 2021: $1 million. These costs are reported in the Corporate segment.

iii.

Charges associated with the acquisition of Greystone – Q2 2020: $26 million, Q1 2020: $24 million. These charges were reported in the Canadian Retail segment.

3	Adjusted share of net income from investment in Schwab and TD Ameritrade 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 and TD Ameritrade-related acquired intangibles – Q2 2021: $34 million, Q1 2021: $35 million, Q2 2020: $24 million, Q1 2020: $24 million; and

ii.

The Bank’s share of acquisition and integration charges associated with Schwab’s acquisition of TD Ameritrade – Q2 2021: $16 million, Q1 2021: $37 million.

4

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 and TD Ameritrade, both reported in the Corporate segment. Refer to footnotes 2 and 3 for amounts.

5

Acquisition and integration charges related to the Schwab transaction include the Bank’s own integration 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 2 and 3 for amounts.

 

 

(Canadian dollars)		For the three months ended												For the six months ended
		April 30 2021				January 31 2021				April 30 2020				April 30 2021				April 30 2020
Basic earnings per share – reported		$	2.00			$	1.77			$	0.80			$	3.77			$	2.42
Adjustments for items of note2			0.04				0.06				0.05				0.10				0.09
Basic earnings per share – adjusted		$	2.04			$	1.83			$	0.85			$	3.87			$	2.51
Diluted earnings per share – reported		$	1.99			$	1.77			$	0.80			$	3.76			$	2.42
Adjustments for items of note2			0.04				0.06				0.05				0.10				0.09
Diluted earnings per share – adjusted		$	2.04			$	1.83			$	0.85			$	3.86			$	2.51

 

1	EPS is computed by dividing net income available to common shareholders by the weighted-average number of shares outstanding during the period. Numbers may not add due to rounding.

2	For 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.

 

 

(millions of Canadian dollars)		For the three months ended												For the six months ended
		April 30 2021				January 31 2021				April 30 2020				April 30 2021				April 30 2020
TD Bank, National Association (TD Bank, N.A.)		$	8			$	9			$	14			$	17			$	31
Schwab and TD Ameritrade2			34				35				24				69				48
MBNA Canada			6				7				7				13				14
Aeroplan			7				6				5				13				9
Other			7				8				9				15				16
			62				65				59				127				118
Software and asset servicing rights			107				110				125				217				249
Amortization of intangibles, net of income taxes		$	169			$	175			$	184			$	344			$	367

 

1

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

2	Included in Share of net income from investment in Schwab and TD Ameritrade.

 

TD BANK GROUP • SECOND QUARTER 2021 • REPORT TO SHAREHOLDERS			Page 8

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

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 is based on 9% Common Equity Tier 1 (CET1) Capital in fiscal 2021. Capital allocated to the business segments was decreased to 9% CET1 Capital effective the second quarter of 2020 compared with 10.5% in the first quarter of 2020.

 

 

(millions of Canadian dollars, except as noted)		For the three months ended												For the six months ended
		April 30 2021				January 31 2021				April 30 2020				April 30 2021				April 30 2020
Average common equity		$	89,069			$	89,211			$	85,603			$	89,049			$	83,876
Net income available to common shareholders – reported			3,630				3,212				1,447				6,842				4,369
Items of note, net of income taxes1			80				103				84				183				167
Net income available to common shareholders – adjusted		$	3,710			$	3,315			$	1,531			$	7,025			$	4,536
Return on common equity – reported			16.7	%			14.3	%			6.9	%			15.5	%			10.5	%
Return on common equity – adjusted			17.1				14.7				7.3				15.9				10.9

 

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

Return on Tangible Common Equity

Tangible common equity (TCE) is calculated as common shareholders’ equity less goodwill, imputed goodwill and intangibles on the investments in Schwab and TD Ameritrade 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. Adjusted ROTCE provides a useful measure of the performance of the Bank’s income producing assets, independent of whether they were acquired or developed internally. TCE, ROTCE, and adjusted ROTCE are each non-GAAP financial measures and are not defined terms under IFRS. Readers are cautioned that earnings and other measures adjusted to a basis other than IFRS do not have standardized meanings under IFRS and, therefore, may not be comparable to similar terms used by other issuers.

 

 

(millions of Canadian dollars, except as noted)		For the three months ended												For the six months ended
			April 30 2021				January 31 2021				April 30 2020				April 30 2021				April 30 2020
Average common equity		$	89,069			$	89,211			$	85,603			$	89,049			$	83,876
Average goodwill			16,320				16,743				17,531				16,530				17,280
Average imputed goodwill and intangibles on investments in Schwab and TD Ameritrade			6,670				6,903				4,217				6,786				4,160
Average other acquired intangibles1			366				407				531				387				548
Average related deferred tax liabilities			(167	)			(173	)			(265	)			(170	)			(263	)
Average tangible common equity			65,880				65,331				63,589				65,516				62,151
Net income available to common shareholders – reported			3,630				3,212				1,447				6,842				4,369
Amortization of acquired intangibles, net of income taxes2			62				65				59				127				118
Net income available to common shareholders adjusted for amortization of acquired intangibles, net of income taxes			3,692				3,277				1,506				6,969				4,487
Other items of note, net of income taxes2			18				38				25				56				49
Net income available to common shareholders – adjusted		$	3,710			$	3,315			$	1,531			$	7,025			$	4,536
Return on tangible common equity			23.0	%			19.9	%			9.6	%			21.5	%			14.5	%
Return on tangible common equity – adjusted			23.1				20.1				9.8				21.6				14.7

 

1	Excludes intangibles relating to software and asset servicing rights.

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

SIGNIFICANT AND SUBSEQUENT EVENTS, AND PENDING ACQUISITIONS

Acquisition of Wells Fargo’s Canadian Direct Equipment Finance Business

On May 1, 2021, the Bank acquired the Canadian Direct Equipment Finance business of Wells Fargo & Company (“Wells Fargo”) which had a net book value of approximately $1.4 billion, for consideration of approximately $1.5 billion. The acquisition is accounted for as a business combination under the purchase method. On finalization of the purchase price allocation, the excess of accounting consideration over the fair value of the identifiable net assets acquired will be allocated to goodwill. The results of the acquired business will be consolidated from the acquisition date and will be included in the Canadian Retail segment.

Announced Acquisition of Headlands Tech Global Markets, LLC

On March 23, 2021, the Bank and Headlands Tech Holdings, LLC announced a definitive agreement for the Bank to acquire Headlands Tech Global Markets, LLC, a Chicago-based quantitative fixed income trading company. The transaction is expected to close in the second half of calendar 2021, subject to receipt of regulatory approvals and satisfaction of other customary closing conditions. The results of the acquired business will be consolidated from the acquisition date and will be included in the Wholesale Banking segment.

 

TD BANK GROUP • SECOND QUARTER 2021 • REPORT TO SHAREHOLDERS			Page 9

 

FINANCIAL RESULTS OVERVIEW

Performance Summary

Outlined below is an overview of the Bank’s performance for the second quarter of 2021. Shareholder performance indicators help guide and benchmark the Bank’s accomplishments. For the purposes of this analysis, the Bank utilizes adjusted earnings, which excludes items of note from the reported results that are prepared in accordance with IFRS. Reported and adjusted results and items of note are explained in the “How the Bank Reports” section of this document. In addition, a general economic update and a summary of the Bank’s response to the COVID-19 pandemic are explained in the “How We Performed” section of this document.

•

Adjusted diluted earnings per share for the six months ended April 30, 2021, increased 54% from the same period last year.

•

Adjusted ROTCE for the six months ended April 30, 2021, was 21.6%.

•

For the twelve months ended April 30, 2021, the total shareholder return was 52.1% compared to the Canadian peer1 average of 56.7%.

Net Income

Quarterly comparison – Q2 2021 vs. Q2 2020

Reported net income for the quarter was $3,695 million, an increase of $2,180 million, or 144%, compared with the second quarter last year. The increase reflects lower PCL, and lower insurance claims, partially offset by higher non-interest expenses, and lower revenue. Adjusted net income for the quarter was $3,775 million, an increase of $2,176 million, or 136%.

By segment, the increase in reported net income reflects an increase in Canadian Retail of $1,010 million, an increase in U.S. Retail of $980 million, an increase in Wholesale Banking of $174 million, and a lower net loss in Corporate segment of $16 million.

Quarterly comparison – Q2 2021 vs. Q1 2021

Reported net income for the quarter increased $418 million, or 13%, compared with the prior quarter. The increase reflects lower PCL, and lower insurance claims, partially offset by lower revenue. Adjusted net income for the quarter increased $395 million, or 12%.

By segment, the increase in reported net income reflects an increase in U.S. Retail of $316 million, an increase in Canadian Retail of $145 million, and an increase in Corporate segment of $11 million, partially offset by a decrease in Wholesale Banking of $54 million.

Year-to-date comparison – Q2 2021 vs. Q2 2020

Reported net income of $6,972 million increased $2,468 million, or 55%, compared with the same period last year. The increase reflects lower PCL, and lower insurance claims, partially offset by higher non-interest expenses. Adjusted net income was $7,155 million, an increase of $2,484 million, or 53%, compared with the same period last year.

By segment, the increase in reported net income reflects an increase in Canadian Retail of $1,258 million, an increase in U.S. Retail of $834 million, an increase in Wholesale Banking of $330 million, and a lower net loss in Corporate segment of $46 million.

Net Interest Income

Quarterly comparison – Q2 2021 vs. Q2 2020

Reported Net interest income for the quarter was $5,835 million, a decrease of $365 million, or 6%, compared with the second quarter last year. The decrease reflects lower margins in the Canadian and U.S. Retail segments and the impact of foreign exchange translation, partially offset by volume growth in the personal and commercial banking businesses, and higher trading net interest income.

By segment, the decrease in reported net interest income reflects a decrease in U.S. Retail of $361 million, a decrease in Canadian Retail of $129 million, and a decrease in Corporate segment of $30 million, partially offset by an increase in Wholesale Banking of $155 million.

Quarterly comparison – Q2 2021 vs. Q1 2021

Reported Net interest income for the quarter decreased $195 million, or 3% compared with the prior quarter, primarily reflecting the impact of fewer days in the second quarter and the impact of foreign exchange translation.

By segment, the decrease in reported net interest income reflects a decrease in Canadian Retail of $105 million, a decrease in U.S. Retail of $81 million, and a decrease in Wholesale Banking of $13 million, partially offset by an increase in Corporate segment of $4 million.

Year-to-date comparison – Q2 2021 vs. Q2 2020

Reported Net interest income was $11,865 million, a decrease of $504 million, or 4%, compared with the same period last year. The decrease reflects lower margins in the Canadian and U.S. Retail segments and the impact of foreign exchange translation, partially offset by volume growth in the personal and commercial banking businesses and higher trading net interest income.

By segment, the decrease in reported net interest income reflects a decrease in U.S. Retail of $526 million, a decrease in Canadian Retail of $318 million, and a decrease in Corporate segment of $119 million, partially offset by an increase in Wholesale Banking of $459 million.

Non-Interest Income

Quarterly comparison – Q2 2021 vs. Q2 2020

Reported non-interest income for the quarter was $4,393 million, an increase of $65 million, or 2%, compared with the second quarter last year. The increase reflects higher transaction and fee-based revenue in the wealth and banking businesses, and higher insurance volumes, partially offset by lower trading revenue, and premium rebates for customers in the insurance business.

By segment, the increase in reported non-interest income reflects an increase in U.S. Retail of $172 million, and an increase in Canadian Retail of $168 million, partially offset by a decrease in Wholesale Banking of $259 million, and a decrease in Corporate segment of $16 million.

Quarterly comparison – Q2 2021 vs. Q1 2021

Reported non-interest income for the quarter decreased $389 million, or 8%, compared with the prior quarter. The decrease primarily reflects lower trading revenue, premium rebates for customers in the insurance business, and lower revenue from treasury and balance sheet management activities, partially offset by higher transaction and fee-based revenue in the wealth business.

By segment, the decrease in reported non-interest income reflects a decrease in Canadian Retail of $178 million, a decrease in Wholesale Banking of $140 million, and a decrease in Corporate segment of $81 million, partially offset by an increase in U.S. Retail of $10 million.

 

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

 

TD BANK GROUP • SECOND QUARTER 2021 • REPORT TO SHAREHOLDERS			Page 10

Year-to-date comparison – Q2 2021 vs. Q2 2020

Reported non-interest income was $9,175 million, an increase of $407 million, or 5%, compared with the same period last year. The increase reflects higher transaction and fee-based revenue in the wealth business, higher revenue from treasury and balance sheet management activities, higher insurance premiums, and a higher valuation on certain investments in the U.S. Retail segment, partially offset by lower trading revenue and premium rebates for customers in the insurance business.

By segment, the increase in reported non-interest income reflects an increase in Canadian Retail of $447 million, an increase in Corporate segment of $140 million, and an increase in U.S. Retail of $119 million, partially offset by a decrease in Wholesale Banking of $299 million.

Provision for Credit Losses

Quarterly comparison – Q2 2021 vs. Q2 2020

PCL for the quarter was a recovery of $377 million, lower by $3,595 million compared with the second quarter last year. PCL – impaired was $381 million, a decrease of $586 million, primarily reflecting the continued impact of government economic support programs on the consumer lending portfolios, and prior year credit migration in the Wholesale lending portfolio. PCL – performing was a recovery of $758 million, lower by $3,009 million, reflecting a performing allowance increase in the prior year, and a release this quarter largely related to an improvement in the economic outlook. Total PCL for the quarter as an annualized percentage of credit volume was -0.21%, a decrease of 197 basis points (bps), compared with the second quarter last year.

By segment, lower PCL is reflected in U.S. Retail of $1,350 million, in Canadian Retail of $1,190 million, in Corporate segment of $618 million, and in Wholesale Banking of $437 million.

Quarterly comparison – Q2 2021 vs. Q1 2021

PCL for the quarter was lower by $690 million, compared with the prior quarter. PCL – impaired was $381 million, a decrease of $85 million, primarily reflected in the U.S. consumer lending portfolios. PCL – performing was a recovery of $758 million, lower by $605 million reflecting a performing allowance release this quarter, largely related to an improvement in the economic outlook. Total PCL for the quarter as an annualized percentage of credit volume was -0.21%, a decrease of 38 bps, compared with the prior quarter.

By segment, lower PCL is reflected in U.S Retail of $348 million, in Canadian Retail of $179 million, in Wholesale Banking of $83 million, and in Corporate segment of $80 million.

Year-to-date comparison – Q2 2021 vs. Q2 2020

PCL was a recovery of $64 million, lower by $4,201 million, compared with the same period last year. PCL – impaired was $847 million, a decrease of $926 million, primarily reflecting the continued impact of government economic support programs on the consumer lending portfolios, and prior year credit migration in the Wholesale lending portfolio. PCL – performing was a recovery of $911 million, lower by $3,275 million, reflecting a performing allowance increase in the prior year, and a release this quarter largely related to an improvement in the economic outlook. Total PCL as an annualized percentage of credit volume was -0.02%.

By segment, lower PCL is reflected in U.S. Retail of $1,534 million, in Canadian Retail of $1,439 million, in Corporate segment of $794 million, and in Wholesale Banking of $434 million.

 

 

(millions of Canadian dollars)		For the three months ended												For the six months ended
			April 30 2021				January 31 2021				April 30 2020				April 30 2021				April 30 2020
Provision for (recovery of) credit losses – Stage 3 (impaired)
Canadian Retail		$	191			$	167			$	365			$	358			$	685
U.S. Retail			117				190				287				307				560
Wholesale Banking			12				10				194				22				246
Corporate2			61				99				121				160				282
Total provision for (recovery of) credit losses – Stage 3			381				466				967				847				1,773
Provision for (recovery of) credit losses – Stage 1 and Stage 2 (performing)
Canadian Retail			(228	)			(25	)			788				(253	)			859
U.S. Retail			(330	)			(55	)			850				(385	)			896
Wholesale Banking			(75	)			10				180				(65	)			145
Corporate2			(125	)			(83	)			433				(208	)			464
Total provision for (recovery of) credit losses – Stage 1 and Stage 2			(758	)			(153	)			2,251				(911	)			2,364
Total provision for (recovery of) credit losses		$	(377	)		$	313			$	3,218			$	(64	)		$	4,137

 

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 – Q2 2021 vs. Q2 2020

Insurance claims and related expenses for the quarter were $441 million, a decrease of $230 million, or 34%, compared with the second quarter last year reflecting lower current year claims, a decrease in the fair value of investments supporting claims liabilities which resulted in a similar decrease in non-interest income, and more favourable prior years’ claims development.

Quarterly comparison – Q2 2021 vs. Q1 2021

Insurance claims and related expenses for the quarter decreased $339 million, or 43%, compared with the prior quarter, reflecting lower current year claims, a decrease in the fair value of investments supporting claims liabilities which resulted in a similar decrease in non-interest income, and more favourable prior years’ claims development.

Year-to-date comparison – Q2 2021 vs. Q2 2020

Insurance claims and related expenses were $1,221 million, a decrease of $230 million, or 16%, compared with the same period last year, reflecting a decrease in the fair value of investments supporting claims liabilities which resulted in a similar decrease in non-interest income, lower current year claims, and more favourable prior years’ claims development.

 

TD BANK GROUP • SECOND QUARTER 2021 • REPORT TO SHAREHOLDERS			Page 11

Non-Interest Expenses and Efficiency Ratio

Quarterly comparison – Q2 2021 vs. Q2 2020

Reported non-interest expenses were $5,729 million, an increase of $608 million, or 12%, compared with the second quarter last year, mainly due to an increase in the retailer program partners’ net share of the profits from the U.S. strategic cards portfolio, primarily as a result of lower PCL. Non-interest expenses also reflect higher employee-related expenses and store optimization costs, partially offset by the impact of foreign exchange translation, lower legal provisions, and prior year charges related to the Greystone acquisition, which collectively accounted for approximately 1% of the increase. Adjusted non-interest expenses were $5,691 million, an increase of $640 million, or 13%.

By segment, the increase in reported non-interest expenses reflects an increase in Corporate segment of $504 million, an increase in Canadian Retail of $101 million, an increase in Wholesale Banking of $89 million, partially offset by a decrease in U.S. Retail of $86 million.

The Bank’s reported efficiency ratio was 56.0% compared to 48.6% in the second quarter last year. The Bank’s adjusted efficiency ratio was 55.6%, compared with 48.0% in the second quarter last year.

Quarterly comparison – Q2 2021 vs. Q1 2021

Reported non-interest expenses for the quarter decreased $55 million, or 1%, compared with the prior quarter. Adjusted non-interest expenses decreased $53 million, or 1%.

By segment, the decrease in reported non-interest expenses reflects a decrease in U.S. Retail of $94 million, and a decrease in Wholesale Banking of $6 million, partially offset by an increase in Corporate segment of $10 million, and an increase in Canadian Retail of $35 million.

The Bank’s reported efficiency ratio was 56.0% compared with 53.5% in the prior quarter. The Bank’s adjusted efficiency ratio was 55.6%, compared with 53.1% in the prior quarter.

Year-to-date comparison – Q2 2021 vs. Q2 2020

Reported non-interest expenses of $11,513 million increased $925 million, or 9%, compared with the same period last year, mainly due to an increase in the retailer program partners’ net share of the profits from the U.S. strategic cards portfolio, primarily as a result of lower PCL. Non-interest expenses also reflect higher employee-related expenses and store optimization costs, partially offset by the impact of foreign exchange translation, lower discretionary spend, and prior year charges related to the Greystone acquisition, which collectively accounted for approximately 2% of the increase. On an adjusted basis, non-interest expenses were $11,435 million, an increase of $987 million, or 9%.

By segment, the increase in reported non-interest expenses reflects an increase in Corporate segment of $649 million, an increase in Wholesale Banking of $148 million, an increase in Canadian Retail of $119 million, and an increase in U.S. Retail of $9 million.

The Bank’s reported efficiency ratio was 54.7%, compared with 50.1% in the same period last year. The Bank’s adjusted efficiency ratio was 54.4%, compared with 49.4% in the same period last year.

Income Taxes

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

The Bank’s effective income tax rate on a reported basis was 21.7% for the current quarter, compared with 16.5% in the second quarter last year and 21.0% in the prior quarter. The year-over-year and quarter-over-quarter increases primarily reflect the impact of higher pre-tax income.

The Bank’s adjusted effective tax rate was 21.7% for the quarter, higher than 16.4% in the second quarter last year and higher than 21.0% in the prior quarter. The year-over-year and quarter-over-quarter increases primarily reflect the impact of higher pre-tax income.

 

 

(millions of Canadian dollars, except as noted)		For the three months ended																								For the six months ended
		April 30 2021								January 31 2021								April 30 2020								April 30 2021								April 30 2020
Income taxes at Canadian statutory income tax rate		$	1,164				26.3	%		$	1,033				26.3	%		$	400				26.4	%		$	2,197				26.3	%		$	1,308				26.4	%
Increase (decrease) resulting from:
Dividends received			(31	)			(0.7	)			(31	)			(0.8	)			(30	)			(2.0	)			(62	)			(0.7	)			(62	)			(1.2	)
Rate differentials on international operations1			(181	)			(4.1	)			(181	)			(4.6	)			(145	)			(9.6	)			(362	)			(4.3	)			(381	)			(7.7	)
Other			10				0.2				6				0.1				25				1.7				16				0.1				44				0.8
Provision for income taxes and effective income tax rate – reported		$	962				21.7	%		$	827				21.0	%		$	250				16.5	%		$	1,789				21.4	%		$	909				18.3	%
Total adjustments for items of note2			8								9								10								17								21
Provision for income taxes and effective income tax rate – adjusted3,4		$	970				21.7	%		$	836				21.0	%		$	260				16.4	%		$	1,806				21.4	%		$	930				18.2	%

 

1	These amounts reflect tax credits as well as international business mix.

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

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

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

 

TD BANK GROUP • SECOND QUARTER 2021 • REPORT TO SHAREHOLDERS			Page 12

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.

 

 

(millions of Canadian dollars, except as noted)		For the three months ended				For the six months ended
		April 30, 2021 vs. April 30, 2020 Increase (Decrease)				April 30, 2021 vs. April 30, 2020 Increase (Decrease)
U.S. Retail Bank
Total revenue		$	(244	)		$	(307	)
Non-interest expenses			(149	)			(188	)
Net income – after-tax			(100	)			(119	)
Share of net income from investment in Schwab1			(14	)			(18	)
U.S. Retail segment net income			(114	)			(137	)
Earnings per share (Canadian dollars)
Basic		$	(0.06	)		$	(0.08	)
Diluted			(0.06	)			(0.08	)

 

1	Share of net income from investment in Schwab and the foreign exchange impact are reported with a one-month lag.

 

Average foreign exchange rate (equivalent of CAD $1.00)		For the three months ended								For the six months ended
		April 30 2021				April 30 2020				April 30 2021				April 30 2020
U.S. dollar		$	0.794			$	0.726			$	0.786			$	0.743

 

 

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 including the Bank’s response to COVID-19, the “Business Focus” section in the Bank’s 2020 MD&A, and Note 29 Segmented Information of the Bank’s Consolidated Financial Statements for the year ended October 31, 2020.

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 $37 million, compared with $42 million in the prior quarter and $30 million in the second 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.

 

 

(millions of Canadian dollars, except as noted)		For the three months ended												For the six months ended
		April 30 2021				January 31 2021				April 30 2020				April 30 2021				April 30 2020
Net interest income		$	2,873			$	2,978			$	3,002			$	5,851			$	6,169
Non-interest income			3,189				3,367				3,021				6,556				6,109
Total revenue			6,062				6,345				6,023				12,407				12,278
Provision for (recovery of) credit losses – impaired			191				167				365				358				685
Provision for (recovery of) credit losses – performing			(228	)			(25	)			788				(253	)			859
Total provision for (recovery of) credit losses			(37	)			142				1,153				105				1,544
Insurance claims and related expenses			441				780				671				1,221				1,451
Non-interest expenses – reported			2,689				2,654				2,588				5,343				5,224
Non-interest expenses – adjusted1			2,689				2,654				2,562				5,343				5,174
Provision for (recovery of) income taxes – reported			787				732				439				1,519				1,098
Provision for (recovery of) income taxes – adjusted1			787				732				440				1,519				1,099
Net income – reported			2,182				2,037				1,172				4,219				2,961
Net income – adjusted1		$	2,182			$	2,037			$	1,197			$	4,219			$	3,010
Selected volumes and ratios
Return on common equity – reported2			51.3	%			46.0	%			27.2	%			48.6	%			32.4	%
Return on common equity – adjusted1,2			51.3				46.0				27.8				48.6				33.0
Net interest margin (including on securitized assets)			2.61				2.65				2.83				2.63				2.88
Efficiency ratio – reported			44.4				41.8				43.0				43.1				42.5
Efficiency ratio – adjusted1			44.4				41.8				42.5				43.1				42.1
Assets under administration (billions of Canadian dollars)		$	514			$	484			$	406			$	514			$	406
Assets under management (billions of Canadian dollars)			397				380				346				397				346
Number of Canadian retail branches			1,085				1,087				1,087				1,085				1,087
Average number of full-time equivalent staff			41,064				40,714				40,712				40,886				41,056

 

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	Capital allocated to the business segment was reduced to 9% CET1 effective the second quarter of 2020 compared with 10.5% in the first quarter of 2020.

 

TD BANK GROUP • SECOND QUARTER 2021 • REPORT TO SHAREHOLDERS			Page 13