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 August, 2020.		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		3rd Quarter 2020 Report to Shareholders
99.2		Earnings Coverage
99.3		Return on Assets, Dividend Payouts, and Equity to Assets Ratios
99.4		Q3 2020 Earnings News Release
99.5		Q3 2020 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: August 27, 2020						By:		/s/ Caroline Cook
						Name:		Caroline Cook
						Title:		Associate Vice President, Legal

Exhibit 99.1

 

		TD Bank Group Reports Third Quarter 2020 Results Report to Shareholders • Three and Nine months ended July 31, 2020

 

THIRD QUARTER FINANCIAL HIGHLIGHTS, compared with the third quarter last year:

•

Reported diluted earnings per share were $1.21, compared with $1.74.

•

Adjusted diluted earnings per share were $1.25, compared with $1.79.

•

Reported net income was $2,248 million, compared with $3,248 million.

•

Adjusted net income was $2,327 million, compared with $3,338 million.

YEAR-TO-DATE FINANCIAL HIGHLIGHTS, nine months ended July 31, 2020, compared with the corresponding period last year:

•

Reported diluted earnings per share were $3.62, compared with $4.71.

•

Adjusted diluted earnings per share were $3.76, compared with $5.11.

•

Reported net income was $6,752 million, compared with $8,830 million.

•

Adjusted net income was $6,998 million, compared with $9,557 million.

THIRD QUARTER ADJUSTMENTS (ITEMS OF NOTE)

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

•

Amortization of intangibles of $63 million ($54 million after-tax or 3 cents per share), compared with $75 million ($64 million after-tax or 3 cents per share) in the third quarter last year.

•

Charges associated with the acquisition of Greystone of $25 million ($25 million after-tax or 1 cent per share), compared with $26 million ($26 million after-tax or 2 cents per share) in the third quarter last year.

TORONTO, August 27, 2020 – TD Bank Group (“TD” or the “Bank”) today announced its financial results for the third quarter ended July 31, 2020. Reported earnings were $2.2 billion, down 31% compared with the same quarter last year, and adjusted earnings were $2.3 billion, down 30%.

“TD colleagues around the world continued to deliver for our customers, clients, and each other throughout a period of unprecedented disruption. As economies across our footprint begin to re-open, the wellbeing and safety of our customers, colleagues and communities remains a top priority,” said Bharat Masrani, Group President and CEO, TD Bank Group.

“We entered this crisis from a position of strength, and through prudent financial and risk management practices, we remain well-capitalized, with a high-quality balance sheet and strong liquidity. Our Common Equity Tier 1 Capital ratio finished the quarter at 12.5%,” added Masrani.

“Earnings improved from the second quarter, as continued volume growth, moderating credit provisions and strong wealth and wholesale revenues helped offset further margin pressure,” added Masrani. “The improved performance in our Canadian and U.S. Retail segments, and the record contribution from our Wholesale Banking segment, demonstrate the resilience of our diversified business model and the power of our customer-centric strategy.”

Canadian Retail

Canadian Retail reported net income was $1,263 million and adjusted net income was $1,288 million, both down 33% from the third quarter last year, primarily reflecting higher provisions for credit losses (PCL), lower revenue and higher insurance claims. Revenue decreased 2%, reflecting lower margins, partially offset by increased loan and deposit volumes and increased activity in the wealth and insurance businesses. Expenses were flat compared to the prior year and down 2% compared to the prior quarter. PCL increased $635 million from a year ago, mainly on higher provisions for performing loans.

Canadian Retail continued to help its customers navigate COVID-19 by providing ongoing access to government relief and payment deferral programs. In addition, Canadian Retail launched its new TD Ready Advice program which includes an online resource hub, tools like the TD Helps Support Finder, and direct outreach to customers to offer personalized advice. Sequential volume growth was strong, with double-digit gains in personal and business deposits, increased credit card sales activity, significant net asset growth in TD Wealth and strong insurance revenues. Canadian Retail customers benefited from enhanced online and mobile capabilities, leading to a significant increase in self-serve transactions and digital adoption this quarter.

U.S. Retail

U.S. Retail net income was $673 million (US$490 million), a decrease of 48% (49% in U.S. dollars) compared with the same quarter last year. TD Ameritrade contributed $317 million (US$230 million) in earnings to the segment, an increase of 8% (5% in U.S dollars) from a year ago, primarily reflecting higher trading volumes, partially offset by reduced trading commissions, lower asset-based revenue and higher operating expenses.

The U.S. Retail Bank, which excludes the Bank’s investment in TD Ameritrade, contributed $356 million (US$260 million) in earnings, down 64% (65% in U.S dollars) from the same quarter last year, reflecting higher PCL and lower revenue. Revenue declined in the quarter as lower net interest margin and fee income were partially offset by growth in loan and deposit volumes. PCL increased $642 million (US$464 million) compared with the third quarter last year, mainly on higher provisions for performing loans.

The U.S. Retail Bank continued to support its customers through the COVID-19 pandemic, expanding in-person and drive-through access to its store network and helping customers access government relief programs. Through the U.S. CARES Act Small Business Association Paycheck Protection Program, TD has funded approximately 84,000 loans and continues to work with the Federal Reserve Bank of Boston to facilitate the Main Street Lending Program for small- and medium-

 

TD BANK GROUP • THIRD QUARTER 2020 • REPORT TO SHAREHOLDERS			Page 1

sized businesses. The U.S. Retail Bank remained focused on delivering personalized and connected experiences for customers across all channels while further enhancing its digital offerings, and recorded significant increases in the use of its mobile app and online banking channels compared to the same quarter last year.

Wholesale

Wholesale Banking reported record net income of $442 million this quarter, an increase of 81% compared to the same quarter last year, reflecting higher revenue, partially offset by higher PCL and higher non-interest expenses. Revenue for the quarter was $1,397 million, an increase of 53% from a year ago, reflecting higher trading-related revenue and underwriting fees. PCL increased $122 million compared with the third quarter last year, reflecting higher impaired and performing provisions. Wholesale Banking’s strong performance this quarter reflected the continued strength of its Canadian dollar business and impressive progress on its U.S. dollar strategy. The Wholesale Banking segment continued to focus on building strong client relationships by providing critical access to markets and trusted financial advice.

Capital

TD’s Common Equity Tier 1 Capital ratio on a Basel III fully phased-in basis was 12.5%.

Conclusion

“The economic recovery will not be without its challenges and much remains uncertain in the near term. We will continue to monitor and adapt to the changing landscape, and be there to support our colleagues and advise the 26 million customers and clients who rely on us today more than ever,” added Masrani. “Our people are our greatest asset and I know that by working together we will emerge even stronger in the months ahead.”

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

 

TD BANK GROUP • THIRD QUARTER 2020 • 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 third quarter 2020 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 third quarter 2020 RTS, Management’s Discussion and Analysis, or the Interim Consolidated Financial Statements. Certain disclosure references have been made to the Bank’s 2019 Annual Report.

 

Type of     Risk		Topic		EDTF Disclosure		Page
						RTS Third Quarter 2020		SFI Third Quarter 2020		SRD Third Quarter 2020		Annual Report 2019
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.								73-78, 83, 90-93, 103-105
		3		Describe and discuss top and emerging risks.								68-73
		4		Outline plans to meet each new key regulatory ratio once applicable rules are finalized.		31, 44						63-64, 89, 97-98
Risk Governance and Risk Management and  Business Model		5		Summarize the bank’s risk management organization, processes, and key functions.								74-77
		6		Description of the bank’s risk culture and procedures applied to support the culture.								73-74
		7		Description of key risks that arise from the bank’s business models and activities.								62, 73, 78-105
		8		Description of stress testing within the bank’s risk governance and capital frameworks.		35						61,77, 86,103
Capital Adequacy  and Risk Weighted Assets		9		Pillar 1 capital requirements and the impact for global systemically important banks.		28-30, 84				1-3, 6		56-60, 64, 211
		10		Composition of capital and reconciliation of accounting balance sheet to the regulatory balance sheet.						1-3, 5		58
		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.								59-61, 103
		13		Analysis of how RWA relate to business activities and related risks.				8-11				61-62
		14		Analysis of capital requirements for each method used for calculating RWA.		35				10		79-81, 83, 85-86, 100
		15		Tabulate credit risk in the banking book for Basel asset classes and major portfolios.						23-37, 41-46
		16		Flow statement reconciling the movements of RWA by risk type.		31-32				11-12
		17		Discussion of Basel III back-testing requirements.						58		82, 86, 91-92
Liquidity		18		The bank’s management of liquidity needs and liquidity reserves.		37-39, 41-42						93-95
Funding		19		Encumbered and unencumbered assets in a table by balance sheet category.		40						96, 205
		20		Tabulate consolidated total assets, liabilities and off-balance sheet commitments by remaining contractual maturity at the balance sheet date.		44-46						100-102
		21		Discussion of the bank’s funding sources and the bank’s funding strategy.		40-41, 43-44						99-100
Market Risk		22		Linkage of market risk measures for trading and non-trading portfolio and balance sheet.		34						84
		23		Breakdown of significant trading and non-trading market risk factors.		34-37						84, 86-89
		24		Significant market risk measurement model limitations and validation procedures.		35						85-89, 91-92
		25		Primary risk management techniques beyond reported risk measures and parameters.		35						85-89
Credit Risk		26		Provide information that facilitates users’ understanding of the bank’s credit risk profile, including any significant credit risk concentrations.		24-27, 67-74		20-35		1-5, 10-11, 13-58		45-58, 78-83, 164-169, 178, 181-182, 209-210
		27		Description of the bank’s policies for identifying impaired loans.		74						53,136-137, 143-144, 168
		28		Reconciliation of the opening and closing balances of impaired loans in the period and the allowance for loan losses.		25, 69-72		24, 28				50, 166-167
		29		Analysis of the bank’s counterparty credit risks that arise from derivative transactions.						38-40, 47-51		81-82, 151, 174-175, 178, 181-182
		30		Discussion of credit risk mitigation, including collateral held for all sources of credit risk.								82, 140, 151
Other Risks		31		Description of ‘other risk’ types based on management’s classifications and discuss how each one is identified, governed, measured, and managed.								90-92, 103-105
		32		Discuss publicly known risk events related to other risks.		82						71-73, 203-205

 

TD BANK GROUP • THIRD QUARTER 2020 • 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 nine months ended July 31, 2020, 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 2019 Consolidated Financial Statements and related Notes and 2019 MD&A. This MD&A is dated August 27, 2020. Unless otherwise indicated, all amounts are expressed in Canadian dollars and have been primarily derived from the Bank’s 2019 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 2019 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 • THIRD QUARTER 2020 • 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 nine months ended
			July 31 2020				April 30 2020				July 31 2019				July 31 2020				July 31 2019
Results of operations
Total revenue		$	10,665			$	10,528			$	10,499			$	31,802			$	30,725
Provision for credit losses			2,188				3,218				655				6,325				2,138
Insurance claims and related expenses			805				671				712				2,256				2,082
Non-interest expenses – reported			5,307				5,121				5,374				15,895				16,477
Non-interest expenses – adjusted1			5,244				5,051				5,298				15,692				15,622
Net income – reported			2,248				1,515				3,248				6,752				8,830
Net income – adjusted1			2,327				1,599				3,338				6,998				9,557
Financial position (billions of Canadian dollars)
Total loans net of allowance for loan losses		$	721.4			$	747.0			$	675.9			$	721.4			$	675.9
Total assets			1,697.3				1,673.7				1,405.4				1,697.3				1,405.4
Total deposits			1,091.3				1,078.3				870.3				1,091.3				870.3
Total equity			92.5				93.3				86.4				92.5				86.4
Total risk-weighted assets (RWA)			478.1				524.0				454.9				478.1				454.9
Financial ratios
Return on common equity (ROE) – reported			10.0	%			6.9	%			15.8	%			10.3	%			14.8	%
Return on common equity – adjusted2			10.4				7.3				16.2				10.7				16.1
Return on tangible common equity (ROTCE)2			13.7				9.6				22.0				14.3				21.0
Return on tangible common equity – adjusted2			13.9				9.8				22.2				14.4				22.3
Efficiency ratio – reported			49.8				48.6				51.2				50.0				53.6
Efficiency ratio – adjusted1			49.2				48.0				50.5				49.3				50.8
Provision for credit losses as a % of net average loans and acceptances3			1.17				1.76				0.38				1.16				0.43
Common share information – reported (Canadian dollars)
Per share earnings
Basic		$	1.21			$	0.80			$	1.75			$	3.63			$	4.72
Diluted			1.21				0.80				1.74				3.62				4.71
Dividends per share			0.79				0.79				0.74				2.32				2.15
Book value per share			47.80				48.54				44.30				47.80				44.30
Closing share price4			59.27				58.16				77.15				59.27				77.15
Shares outstanding (millions)
Average basic			1,802.3				1,803.0				1,825.3				1,805.4				1,828.4
Average diluted			1,803.5				1,804.4				1,828.6				1,807.1				1,831.6
End of period			1,813.0				1,803.4				1,819.2				1,813.0				1,819.2
Market capitalization (billions of Canadian dollars)		$	107.5			$	104.9			$	140.4			$	107.5			$	140.4
Dividend yield5			5.3	%			5.0	%			3.9	%			4.7	%			3.9	%
Dividend payout ratio			65.3				98.2				42.3				63.9				45.5
Price-earnings ratio			11.5				10.2				12.3				11.5				12.3
Total shareholder return (1 year)6			(19.5	)			(20.6	)			3.9				(19.5	)			3.9
Common share information – adjusted (Canadian dollars)2
Per share earnings
Basic		$	1.25			$	0.85			$	1.79			$	3.76			$	5.12
Diluted			1.25				0.85				1.79				3.76				5.11
Dividend payout ratio			63.0	%			92.8	%			41.1	%			61.6	%			41.9	%
Price-earnings ratio			11.1				9.9				11.4				11.1				11.4
Capital ratios7
Common Equity Tier 1 Capital ratio			12.5	%			11.0	%			12.0	%			12.5	%			12.0	%
Tier 1 Capital ratio			13.8				12.3				13.4				13.8				13.4
Total Capital ratio			16.5				15.3				16.1				16.5				16.1
Leverage ratio			4.4				4.2				4.1				4.4				4.1

 

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

7	Includes capital adjustments provided by the Office of the Superintendent of Financial Institutions (OSFI) in response to the COVID-19 pandemic in the second and third quarters of 2020. Refer to the “Capital Position” section of this document for additional details.

 

TD BANK GROUP • THIRD QUARTER 2020 • 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 sixth largest bank in North America by branches 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 TD Ameritrade Holding Corporation (“TD Ameritrade”); and Wholesale Banking. TD also ranks among the world’s leading online financial services firms, with more than 14 million active online and mobile customers. TD had $1.7 trillion in assets on July 31, 2020. The Toronto-Dominion Bank trades under the symbol “TD” on the Toronto and New York Stock Exchanges.

ECONOMIC SUMMARY AND OUTLOOK

The COVID-19 pandemic continues to weigh on economies around the world. TD Economics forecasts a 4.3% contraction in global real gross domestic product (GDP) this calendar year. The pandemic resulted in a sudden halt to economic activity in the spring, as government-mandated physical distancing and other measures took effect. In many jurisdictions, these measures have since been eased and an economic recovery is now underway. However, it is expected that the recovery will be uneven, as some industries, including international travel, recreation, restaurants, and entertainment, are likely to face challenges in the absence of an effective vaccine. Similarly, jurisdictions that experience a resumption in COVID-19 cases may require the re-imposition of containment measures. It is likely that the initial burst in business activity and job rehiring that followed governments’ initial easing of restrictions will give way to a more gradual global recovery. Economic activity is not expected to return to pre-pandemic levels until late in calendar 2021. This economic outlook is subject to significant uncertainty related to health outcomes, consumer behaviour, and government policy.

U.S. economic growth declined by 32.9% (annualized) in the second calendar quarter of 2020, following a 5% drop in the prior quarter. Taken together, the first half of calendar 2020 represented the most severe economic contraction of the post-war era, reducing the level of economic activity by approximately 11% compared with pre-pandemic levels. In addition to its speed and severity, the recession is also unprecedented in its composition, led by a marked decline in personal consumption expenditures. The unemployment rate has been gradually declining from a peak of 14.7% in April 2020, to average 13.1% over the calendar quarter, edging down to 10.2% in July 2020. Based on employment outcomes and other higher frequency data, April 2020 appears to have marked the trough of the downturn. However, the recovery is being threatened by a sharp increase in COVID-19 case counts in many states, which has prompted a pause or partial rollback in re-opening plans. TD Economics believes that, like its global peers, the U.S. faces an uneven path forward, with the outlook contingent on virus outcomes, government policies, and the resilience of consumer and business confidence until effective vaccines are developed and widely distributed.

The pandemic drove a significant easing of U.S. monetary and fiscal policy. The Federal Reserve has cut its policy interest rate to the 0.00% to 0.25% range, resumed asset purchases, and unveiled a number of lending facilities. This response, alongside that of other major central banks, has improved the functioning of markets and led to a reduction in measures of financial stress. Subsequent communications from Federal Reserve Chair Powell have been consistent with the policy interest rate remaining at the current range through calendar 2022, in line with TD Economics’ expectations. The low interest rate environment has helped shore up housing demand despite still-elevated unemployment. TD Economics expects the Federal Reserve will not raise rates until there is convincing evidence of a sustained economic recovery and a significant reduction in labour market slack. Significant fiscal stimulus in support of businesses and households has helped cushion the near-term economic impact of the pandemic, with the potential for an additional package this fall representing an upside risk to the outlook. It appears likely that the extension of government measures to provide enhanced income support to individuals, businesses, and state and local governments will be an important and necessary support for the economy in the near-term, although the longer-term recovery will ultimately require a large-scale re-engagement of the labour force.

The Canadian economy has evolved largely in line with the United States. However, Canada’s weaker economic momentum pre-pandemic, its relatively more restrictive physical distancing measures, and the low level of oil prices imply a deeper contraction in activity during the first half of calendar 2020. TD Economics anticipates that the level of economic activity fell by 13.3% during that period. In contrast, Canada has so far avoided a significant resurgence of COVID-19 cases, and economic re-openings continue relatively unfettered.

Canadian government support measures have been effective in providing a backstop to household and business incomes. The Federal Government has announced that these programs will be adapted to fit ongoing circumstances, and extended to the end of calendar 2020. This provides further support to the economic outlook, although as elsewhere, long-term economic success will require a return to normality in labour markets. As in other jurisdictions, Canada’s economic recovery is expected to be uneven. Some areas, notably real estate activity, are rebounding more strongly than expected. Others, notably the energy sector, face a challenging operating environment, including soft prices and other factors such as uncertainty around longer-term pipeline capacity. Canada also faces the same constraints as other countries in being reliant on a vaccine or effective treatment before physical distancing requirements can be reversed more fully. This, in turn, is expected to limit the speed of recovery going forward.

The Bank of Canada has cut its policy interest rate to its effective lower bound of 0.25% and undertaken a number of liquidity and asset purchase operations, including ongoing purchases of federal and provincial debt securities. These actions have been successful in reducing funding market stresses. Bank of Canada Governor Macklem has stated that the policy interest rate will be held at its current level “until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved.” TD Economics expects policy interest rate increases to commence only in early calendar 2023 and to proceed at a very gradual pace thereafter, reflecting both the scale of the economic shock and the challenges associated with high private debt levels. TD Economics projects that the Canadian dollar will trade in the 74-77 US cents range over the next four calendar quarters.

Significant uncertainty around pandemic developments, government responses, and the economic implications thereof creates a wide range of potential economic outcomes relative to the baseline view. In all jurisdictions, a widespread, rapid increase of COVID-19 infections could prompt a re-imposition of nationwide economic restrictions similar to those that occurred in the spring months. Indeed, recent infection upticks in several major economies may call longer-term economic re-opening plans into question. Such outcomes would further pressure the finances of households and businesses, with negative feedback effects for the economy. Conversely, should one or more effective vaccines become rapidly and broadly available, the medium-term economic outlook should be expected to improve markedly, particularly for certain hard-hit industries. From a longer-term perspective, the pandemic could precipitate or accentuate trends that result in weaker potential economic growth domestically and abroad. These trends include increased geopolitical tensions, isolationism, reduced immigration rates, trade protectionism, and a structural decline in business investment.

THE BANK’S RESPONSE TO COVID-19

The COVID-19 pandemic continues to affect economies and societies around the world. In North America, early action by banks, governments and supervisory agencies has helped ease the financial stress on households and businesses. However, with economic activity resuming only gradually, relief programs remain largely in place, and in some cases have been extended. Similarly, central banks’ quick and comprehensive response has proved effective in stabilizing financial markets, but the magnitude of the shock and slow pace of recovery suggest monetary policy will remain at stimulative levels for some time. TD continues to be actively engaged in the recovery effort, guided by the principles of supporting the well-being of its customers and colleagues and maintaining the Bank’s operational and financial resilience.

 

TD BANK GROUP • THIRD QUARTER 2020 • REPORT TO SHAREHOLDERS			Page 6

Supporting Customers

As jurisdictions across TD’s footprint began to ease physical distancing restrictions this quarter, the Bank re-opened a number of its branches and stores and started to restore hours of service to meet customer needs and align with the directives of government and health authorities. As at July 31, 2020, approximately 75% of Canadian branches and virtually all U.S. stores were open, and the Bank’s network of more than 6,000 ATMs was fully operational. The Bank continues to take precautions to help protect the well-being of its customers and colleagues, including ongoing use of enhanced cleaning and protective equipment, and this quarter, making face coverings mandatory for all colleagues working in TD locations or while visiting customers, clients and vendors, reflecting guidance from public health authorities and TD’s Chief Medical Director.

While traffic in TD’s branch and store network has increased, customers continue to engage with the Bank across all of its distribution channels, including continued high levels of interaction with the contact centres and online and mobile platforms. TD expanded its advice offerings this quarter with the Canadian launch of the TD Ready Advice hub, the addition of new functionality to TD MySpend, and the introduction of an AI-driven tool to help customers locate information on Bank and government COVID-19 financial assistance programs.

Financial assistance offered by the Bank has included deferral of loan payments, deferred minimum payments on credit card balances, interest reductions, insurance premium deferrals, and premium reductions. The key payment deferral measures are summarized in the table below, which presents the gross loan balance and number of accounts that continue to be in deferral programs as of July 31, 2020. New applications for loan deferrals declined significantly during the third quarter, as did loan balances subject to deferral for most asset classes, reflecting both expiration of shorter-term deferrals and resumption of payments. In addition, the proportion of credit card customers that had their accounts deferred or received interest rate relief under the programs represented less than 2% of outstanding credit card accounts and outstanding balances as at July 31, 2020. TD Insurance has provided relief on approximately 400,000 policies since March, including payment deferrals, rate and mileage reductions and other adjustments.

 

CANADA
Bank-Led Payment Deferral Programs		As at April 30, 2020						As at July 31, 2020						Deferral Term
		Accounts1		$ Billion (CAD)1		% of portfolio2		Accounts1		$ Billion (CAD)1		% of portfolio2
Real Estate Secured Lending3		126,000		$36.0		14%		107,000		$31.4		12%		Up to 6-month payment deferral
Other Consumer Lending4		122,000		$3.2		3%		54,000		$1.3		1%		Up to 4-month payment deferral
Small Business Banking and Commercial Lending		12,000		$6.5		8%		13,000		$7.0		8%		Up to 6-month (up to 4-month for Small Business Banking for non-Real Estate Secured Lending secured debt)

 

1	Reflects approximate number of accounts and approximate gross loan balance at the time of payment deferral.

2	Reflects gross loan balance at the time of payment deferral as a percentage of the quarterly average loan portfolio balance.

3	Includes residential mortgages and amortizing Home Equity Lines of Credit (HELOCs).

4	Other Consumer Lending includes credit cards, other personal lending, and auto. The deferral period varies by product.

 

UNITED STATES
Bank-Led Payment Deferral Programs		As at April 30, 2020						As at July 31, 2020						Deferral Term
		Accounts1		$ Billion (USD)1		% of portfolio2		Accounts1		$ Billion (USD)1		% of portfolio2
Real Estate Secured Lending		7,000		$2.5		7%		7,000		$2.4		6%		3-month minimum forbearance
Other Consumer Lending3		226,000		$2.9		7%		46,000		$0.7		2%		Up to 3-month payment deferral
Small Business Banking and Commercial Lending		5,000		$6.5		7%		4,000		$3.0		3%		Up to 6-month payment deferral (up to 3-month for Commercial lending)

 

1	Reflects approximate number of accounts and approximate gross loan balance at the time of payment deferral.

2	Reflects gross loan balance at the time of payment deferral as a percentage of the quarterly average loan portfolio balance.

3	Other Consumer Lending includes credit cards, other personal lending, and auto. The deferral period varies by product.

In addition to direct financial assistance, the Bank is supporting programs for individuals and businesses introduced by the Canadian and U.S. governments.

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 loans to its business banking customers. In June 2020, eligibility for the CEBA loan program was expanded to include businesses that did not meet the payroll requirements of the initial program but had other eligible non-deferrable expenses. Under the CEBA Program, eligible businesses receive a $40,000 interest-free loan until December 31, 2022. If $30,000 is repaid on or before December 31, 2022, the remaining amount of the loan is eligible for complete forgiveness. 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. The funding provided to the Bank by the Government of Canada in respect of the CEBA Program represents an obligation to pass-through collections on the CEBA loans and is otherwise 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 Interim Consolidated Balance Sheet, as the Bank transfers substantially all risks and rewards in respect of the loans to the Government of Canada. As of July 31, 2020, the Bank had provided approximately 169,000 customers (April 30, 2020 – 117,000) with CEBA loans and had funded approximately $6.7 billion (April 30, 2020 – $4.7 billion) in loans under the program.

 

TD BANK GROUP • THIRD QUARTER 2020 • REPORT TO SHAREHOLDERS			Page 7

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

Under the Paycheck Protection Program (PPP) established by the U.S. Coronavirus Aid, Relief, and Economic Security (CARES) Act and implemented by the Small Business Administration (SBA), the Bank provided loans up to US$10 million each to small businesses to assist them in retaining workers, maintaining payroll, and covering other expenses. PPP loans originated before June 5, 2020 have a 2-year term with an option to extend to a 5-year term. PPP loans originated on or after June 5, 2020 have a 5-year term. All PPP loans 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 July 31, 2020, the Bank had funded approximately 84,000 PPP loans (April 30, 2020 – 28,000). The gross carrying amount of loans originated under the program was approximately US$8.2 billion (April 30, 2020 – US$6.0 billion).

Other Programs

The Bank has been working with federal Crown Corporations, including EDC and the Business Development Bank of Canada (BDC), as well as provincial and state governments and central banks to deliver other guarantee and co-lending programs for the Bank’s clients. In Canada, these programs include the EDC Business Credit Availability Program (BCAP) for small- and medium-sized enterprises, which offers eligible businesses with credit partially guaranteed by EDC, the BDC Co-Lending Program, which provides loans to small- and medium-sized businesses, and the Investissement Québec (IQ) Programme d’action concertée temporaire pour les entreprises (PACTE), which offers eligible businesses in Quebec with credit partially guaranteed by IQ. In the U.S., the Bank is working with the Federal Reserve Bank of Boston to facilitate the Main Street Lending Program for small- and medium-sized businesses. The Bank continues to work with EDC and BDC to launch the EDC BCAP Large Loan and BDC Junior Financing programs for eligible mid-market businesses. In addition, TD is working with Canada’s federal government to facilitate access to the Canada Emergency Response Benefit (CERB) and Canada Emergency Wage Subsidy (CEWS) through Canada Revenue Agency direct deposit.

Supporting Colleagues

With jurisdictions across TD’s footprint slowly proceeding to re-open economies, the Bank continues to have a significant number of colleagues working remotely, with approximately 60,000 TD colleagues working from home as at July 31, 2020. Work from home arrangements are expected to remain in place until at least the end of calendar 2020 as the Bank seeks to provide a safe environment for colleagues who need to be at TD locations to perform their work, while minimizing the strain on health, transit, and other local infrastructure in the community.

For colleagues required to come to a TD or third-party location, a number of measures have been put in place to promote health and safety. These include the enhanced cleaning, physical distancing measures and face covering measures noted above, as well as a new mobile application the Bank introduced this quarter, the TD BoardingPass, to facilitate the daily screening process that is now mandatory for colleagues accessing TD and third-party locations.

Where possible, TD continues to provide colleagues with the flexibility to adapt work schedules and access additional paid leave to meet caregiving demands resulting from the disruption. The Bank has also expanded the suite of health and wellness resources to support colleagues and their families, including virtual healthcare for eligible colleagues in Canada and 24-hour Nurseline and Telemedicine for colleagues in the U.S. In addition, the Bank’s self-serve learning platform, TD Thrive, has been enhanced with new content to support colleagues’ career growth and development.

Maintaining the Bank’s Financial and Operational Resilience

Credit risk continues to be monitored actively across all the Bank’s portfolios. While industry and government financial assistance programs have helped customers manage through the pandemic, the Bank continued to build allowance for credit losses this quarter across all segments, reflecting expectations for a slower pace of economic recovery.

Market risk was well managed in the quarter against a backdrop of reduced volatility, and the Bank’s liquidity and funding positions remained strong, reflecting the Bank’s conservative 90-day liquidity risk management paradigm, pre-funding actions taken in the second quarter and early June, and a stabilization in funding markets and normalization of credit spreads this quarter.

TD’s operations, including the Bank’s technology infrastructure, network capacity, enterprise cloud capabilities and remote access systems, remained stable throughout the quarter, providing continued support for work from home arrangements and a high level of online and mobile customer traffic. Digital adoption and engagement remained high during the quarter, including further growth in self-serve financial transactions and increased take-up of TD’s enhanced digital advice offerings.

The Bank continues to evaluate its preparedness for a more sustained period of stress, refine its downturn readiness procedures and develop its medium- and long-term plans, including for various ‘return to the workplace’ scenarios.

Response from Regulators and Central Banks

Globally, governments, regulators and central banks continued to maintain accommodative policy settings in the quarter, including maintaining adjustments to regulatory requirements to build resilience of federally regulated financial institutions and improve the stability of the Canadian financial system and economy, and continuing to make available asset purchase and lending programs to support market liquidity.

For additional information on OSFI’s capital measures, refer to the “OSFI’s Capital Requirements under Basel III” and “Future Regulatory Capital Developments” sections of the “Capital Position” section of this document. For additional information on OSFI’s liquidity measures, refer to the “Regulatory Developments Concerning Liquidity and Funding” section of the “Managing Risk” section of this document.

Impact on Current Quarter Financial Performance

The COVID-19 pandemic has profoundly altered the economic landscape and continues to have a significant impact on TD’s financial performance. Provisions for credit losses remain elevated this quarter, principally owing to the uncertain economic outlook. The Bank experienced further margin pressure from the low interest rate environment, as well as weaker non-interest income in the retail banking businesses reflecting reduced customer spending and payment activity. Loan and deposit volumes continued to grow, partly reflecting the impact of government financial assistance programs. Capital markets and wealth direct investing revenues were stronger, in response to heightened market activity.

 

TD BANK GROUP • THIRD QUARTER 2020 • REPORT TO SHAREHOLDERS			Page 8

HOW THE BANK REPORTS

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

The Bank’s U.S. strategic cards portfolio comprises agreements with certain U.S. retailers pursuant to which TD is the U.S. issuer of private label and co-branded consumer credit cards to their U.S. customers. Under the terms of the individual agreements, the Bank and the retailers share in the profits generated by the relevant portfolios after credit losses. Under IFRS, TD is required to present the gross amount of revenue and 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 reported Net income (loss). The Net income (loss) included in the U.S. Retail segment includes only the portion of revenue and credit losses attributable to TD under the agreements.

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

 

 

(millions of Canadian dollars)		For the three months ended												For the nine months ended
		July 31 2020				April 30 2020				July 31 2019				July 31 2020				July 31 2019
Net interest income		$	6,483			$	6,460			$	6,024			$	19,244			$	17,756
Non-interest income			4,182				4,068				4,475				12,558				12,969
Total revenue			10,665				10,528				10,499				31,802				30,725
Provision for credit losses			2,188				3,218				655				6,325				2,138
Insurance claims and related expenses			805				671				712				2,256				2,082
Non-interest expenses			5,307				5,121				5,374				15,895				16,477
Income before income taxes and equity in net income of an investment in TD Ameritrade			2,365				1,518				3,758				7,326				10,028
Provision for income taxes			445				250				813				1,354				2,089
Equity in net income of an investment in TD Ameritrade			328				247				303				780				891
Net income – reported			2,248				1,515				3,248				6,752				8,830
Preferred dividends			68				68				62				203				184
Net income available to common shareholders and non-controlling interests in subsidiaries		$	2,180			$	1,447			$	3,186			$	6,549			$	8,646
Attributable to:
Common shareholders		$	2,180			$	1,447			$	3,186			$	6,549			$	8,628
Non-controlling interests			–				–				–				–				18

 

TD BANK GROUP • THIRD QUARTER 2020 • REPORT TO SHAREHOLDERS			Page 9

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 nine months ended
		July 31 2020				April 30 2020				July 31 2019				July 31 2020				July 31 2019
Operating results – adjusted
Net interest income		$	6,483			$	6,460			$	6,024			$	19,244			$	17,756
Non-interest income			4,182				4,068				4,475				12,558				12,969
Total revenue			10,665				10,528				10,499				31,802				30,725
Provision for credit losses			2,188				3,218				655				6,325				2,138
Insurance claims and related expenses			805				671				712				2,256				2,082
Non-interest expenses1			5,244				5,051				5,298				15,692				15,622
Income before income taxes and equity in net income of an investment in TD Ameritrade			2,428				1,588				3,834				7,529				10,883
Provision for income taxes			454				260				824				1,384				2,289
Equity in net income of an investment in TD Ameritrade2			353				271				328				853				963
Net income – adjusted			2,327				1,599				3,338				6,998				9,557
Preferred dividends			68				68				62				203				184
Net income available to common shareholders and non-controlling interests in subsidiaries – adjusted			2,259				1,531				3,276				6,795				9,373
Attributable to:
Non-controlling interests in subsidiaries, net of income taxes			–				–				–				–				18
Net income available to common shareholders – adjusted			2,259				1,531				3,276				6,795				9,355
Pre-tax adjustments for items of note
Amortization of intangibles3			(63	)			(68	)			(75	)			(201	)			(233	)
Charges related to the long-term loyalty agreement with Air Canada4			–				–				–				–				(607	)
Charges associated with the acquisition of Greystone5			(25	)			(26	)			(26	)			(75	)			(87	)
Less: Impact of income taxes
Amortization of intangibles			(9	)			(9	)			(11	)			(29	)			(36	)
Charges related to the long-term loyalty agreement with Air Canada			–				–				–				–				(161	)
Charges associated with the acquisition of Greystone			–				(1	)			–				(1	)			(3	)
Total adjustments for items of note			(79	)			(84	)			(90	)			(246	)			(727	)
Net income available to common shareholders – reported		$	2,180			$	1,447			$	3,186			$	6,549			$	8,628

1

Adjusted Non-interest expenses exclude the following items of note: Amortization of intangibles, as explained in footnote 3 – third quarter 2020 – $38 million, second quarter 2020 – $44 million, first quarter 2020 – $46 million, third quarter 2019 – $50 million, second quarter 2019 – $55 million, first quarter 2019 – $56 million; these amounts were reported in the Corporate segment. Charges related to the long-term loyalty agreement with Air Canada, as explained in footnote 4 – first quarter 2019 – $607 million; this amount was reported in the Canadian Retail segment. Charges associated with the acquisition of Greystone, as explained in footnote 5 – third quarter 2020 – $25 million, second quarter 2020 – $26 million, first quarter 2020 – $24 million, third quarter 2019 – $26 million, second quarter 2019 – $30 million, first quarter 2019 – $31 million; this amount was reported in the Canadian Retail segment.

2

Adjusted Equity in net income of an investment in TD Ameritrade Holding Corporation (TD Ameritrade) excludes the following items of note: Amortization of intangibles, as explained in footnote 3 – third quarter 2020 – $25 million, second quarter 2020 – $24 million, first quarter 2020 – $24 million, third quarter 2019 – $25 million, second quarter 2019 – $23 million, first quarter 2019 – $24 million. The earnings impact of this item was reported in the Corporate segment.

3

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

4

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

5

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

 

 

(Canadian dollars)		For the three months ended												For the nine months ended
		July 31 2020				April 30 2020				July 31 2019				July 31 2020				July 31 2019
Basic earnings per share – reported		$	1.21			$	0.80			$	1.75			$	3.63			$	4.72
Adjustments for items of note2			0.04				0.05				0.04				0.13				0.40
Basic earnings per share – adjusted		$	1.25			$	0.85			$	1.79			$	3.76			$	5.12
Diluted earnings per share – reported		$	1.21			$	0.80			$	1.74			$	3.62			$	4.71
Adjustments for items of note2			0.04				0.05				0.05				0.14				0.40
Diluted earnings per share – adjusted		$	1.25			$	0.85			$	1.79			$	3.76			$	5.11

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

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

 

TD BANK GROUP • THIRD QUARTER 2020 • REPORT TO SHAREHOLDERS			Page 10

 

(millions of Canadian dollars)		For the three months ended												For the nine months ended
		July 31 2020				April 30 2020				July 31 2019				July 31 2020				July 31 2019
TD Bank, National Association (TD Bank, N.A.)		$	10			$	14			$	17			$	41			$	59
TD Ameritrade2			25				24				25				73				72
MBNA Canada			6				7				11				20				30
Aeroplan			4				5				4				13				13
Other			9				9				7				25				23
			54				59				64				172				197
Software and asset servicing rights			133				125				116				382				343
Amortization of intangibles, net of income taxes		$	187			$	184			$	180			$	554			$	540

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 Equity in net income of an investment in TD Ameritrade.

Return on Common Equity

The Bank’s methodology for allocating capital to its business segments is aligned with the common equity capital requirements under Basel III. Capital allocated to the business segments was decreased to 9% Common Equity Tier 1 (CET1) Capital effective the second quarter of 2020 compared with 10.5% in the first quarter of 2020, and 10% in fiscal 2019.

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

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

 

 

(millions of Canadian dollars, except as noted)		For the three months ended												For the nine months ended
		July 31 2020				April 30 2020				July 31 2019				July 31 2020				July 31 2019
Average common equity		$	86,794			$	85,603			$	80,160			$	84,677			$	77,773
Net income available to common shareholders – reported			2,180				1,447				3,186				6,549				8,628
Items of note, net of income taxes1			79				84				90				246				727
Net income available to common shareholders – adjusted		$	2,259			$	1,531			$	3,276			$	6,795			$	9,355
Return on common equity – reported			10.0	%			6.9	%			15.8	%			10.3	%			14.8	%
Return on common equity – adjusted			10.4				7.3				16.2				10.7				16.1

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

Return on Tangible Common Equity

Tangible common equity (TCE) is calculated as common shareholders’ equity less goodwill, imputed goodwill and intangibles on an investment in TD Ameritrade and other acquired intangible assets, net of related deferred tax liabilities. ROTCE is calculated as reported net income available to common shareholders after adjusting for the after-tax amortization of acquired intangibles, which are treated as an item of note, as a percentage of average TCE. Adjusted ROTCE is calculated using reported net income available to common shareholders, adjusted for items of note, as a percentage of average TCE. Adjusted ROTCE provides a useful measure of the performance of the Bank’s income producing assets, independent of whether 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 nine months ended
		July 31 2020				April 30 2020				July 31 2019				July 31 2020				July 31 2019
Average common equity		$	86,794			$	85,603			$	80,160			$	84,677			$	77,773
Average goodwill			17,534				17,531				17,123				17,327				17,073
Average imputed goodwill and intangibles on an investment in TD Ameritrade			4,184				4,217				4,145				4,158				4,153
Average other acquired intangibles1			492				531				666				529				680
Average related deferred tax liabilities			(264	)			(265	)			(272	)			(263	)			(259	)
Average tangible common equity			64,848				63,589				58,498				62,926				56,126
Net income available to common shareholders – reported			2,180				1,447				3,186				6,549				8,628
Amortization of acquired intangibles, net of income taxes2			54				59				64				172				197
Net income available to common shareholders after adjusting for after-tax amortization of acquired intangibles			2,234				1,506				3,250				6,721				8,825
Other items of note, net of income taxes2			25				25				26				74				530
Net income available to common shareholders – adjusted		$	2,259			$	1,531			$	3,276			$	6,795			$	9,355
Return on tangible common equity			13.7	%			9.6	%			22.0	%			14.3	%			21.0	%
Return on tangible common equity – adjusted			13.9				9.8				22.2				14.4				22.3

1	Excludes intangibles relating to software and asset servicing rights.

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

SIGNIFICANT EVENTS AND PENDING TRANSACTIONS

TD Ameritrade Holding Corporation and The Charles Schwab Corporation

On November 25, 2019, the Bank announced its support for the acquisition of TD Ameritrade, of which the Bank is a major shareholder, by The Charles Schwab Corporation, through a definitive agreement announced by those companies. The transaction is expected to close in the second half of calendar 2020, subject to all applicable closing conditions having been satisfied. Refer to the “Financial Results Overview – Significant and Subsequent Events, and Pending Transactions” section of the Bank’s 2019 MD&A for a discussion of the announced transaction.

 

TD BANK GROUP • THIRD QUARTER 2020 • REPORT TO SHAREHOLDERS			Page 11

 

FINANCIAL RESULTS OVERVIEW

Performance Summary

Outlined below is an overview of the Bank’s performance for the third quarter of 2020. 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 nine months ended July 31, 2020, decreased 26.4% from the same period last year.

•

Adjusted ROTCE for the nine months ended July 31, 2020, was 14.4%.

•

For the twelve months ended July 31, 2020, the total shareholder return was (19.5%) compared to the Canadian peer1 average of (13.0%).

Net Income

Quarterly comparison – Q3 2020 vs. Q3 2019

Reported net income for the quarter was $2,248 million, a decrease of $1,000 million, or 31%, compared with the third quarter last year. The decrease reflects higher PCL and higher insurance claims, partially offset by higher revenue, and lower non-interest expenses. Adjusted net income for the quarter was $2,327 million, a decrease of $1,011 million, or 30%.

By segment, the decrease in reported net income reflects a decrease in Canadian Retail of $627 million, or 33%, and a decrease in U.S. Retail of $614 million, or 48%, partially offset by an increase in Wholesale Banking of $198 million, or 81%, and a lower net loss in the Corporate segment of $43 million, or 25%.

Quarterly comparison – Q3 2020 vs. Q2 2020

Reported net income for the quarter increased $733 million, or 48%, compared with the prior quarter. The increase reflects lower PCL, higher revenue, and a higher contribution from TD Ameritrade, partially offset by higher non-interest expenses and higher insurance claims. Adjusted net income for the quarter increased $728 million, or 46%.

By segment, the increase in reported net income reflects an increase in U.S. Retail of $337 million, or 100%, an increase in Wholesale Banking of $233 million, or 111%, an increase in Canadian Retail of $91 million, or 8%, and a lower net loss in the Corporate segment of $72 million, or 36%.

Year-to-date comparison – Q3 2020 vs. Q3 2019

Reported net income of $6,752 million decreased $2,078 million, or 24%, compared with the same period last year. The decrease reflects higher PCL, higher insurance claims, and a lower contribution from TD Ameritrade, partially offset by higher revenue and lower non-interest expenses. Adjusted net income was $6,998 million, a decrease of $2,559 million, or 27%.

By segment, the decrease in reported net income reflects a decrease in U.S. Retail of $1,635 million, or 43%, a decrease in Canadian Retail of $894 million, or 17%, and a higher net loss in the Corporate segment of $33 million, or 6%, partially offset by an increase in Wholesale Banking of $484 million.

Net Interest Income

Quarterly comparison – Q3 2020 vs. Q3 2019

Net interest income for the quarter was $6,483 million, an increase of $459 million, or 8%, compared with the third quarter last year. The increase reflects volume growth in the Canadian and U.S. Retail segments, and higher trading-related net interest income, partially offset by lower margins.

By segment, the increase in net interest income reflects an increase in Wholesale Banking of $333 million, or 168%, an increase in the Corporate segment of $323 million, or 70%, and an increase in U.S. Retail of $15 million, or 1%, partially offset by a decrease in Canadian Retail of $212 million, or 7%. The increase in the Corporate segment primarily reflects treasury and balance sheet management activities, the impact of which is largely offset in non-interest income.

Quarterly comparison – Q3 2020 vs. Q2 2020

Net interest income for the quarter increased $23 million compared with the prior quarter primarily reflecting volume growth in the Canadian and U.S. Retail segments, the effect of more days in the third quarter, and higher trading-related net interest income, partially offset by lower margins.

By segment, the increase in net interest income reflects an increase in the Corporate segment of $132 million, or 20%, and an increase in Wholesale Banking of $38 million, or 8%, partially offset by a decrease in Canadian Retail of $92 million, or 3%, and a decrease in U.S. Retail of $55 million, or 2%. The increase in the Corporate segment primarily reflects treasury and balance sheet management activities, the impact of which is largely offset in non-interest income.

Year-to-date comparison – Q3 2020 vs. Q3 2019

Net interest income was $19,244 million, an increase of $1,488 million, or 8%, compared with the same period last year. The increase reflects volume growth in the Canadian and U.S. Retail segments, and higher trading-related net interest income, partially offset by lower margins.

By segment, the increase in net interest income reflects an increase in the Corporate segment of $793 million, or 65%, an increase in Wholesale Banking of $748 million, or 118%, and an increase in U.S. Retail of $44 million or 1%, partially offset by a decrease in Canadian Retail of $97 million, or 1%. The increase in the Corporate segment primarily reflects treasury and balance sheet management activities, the impact of which is largely offset in non-interest income.

Non-Interest Income

Quarterly comparison – Q3 2020 vs. Q3 2019

Reported non-interest income for the quarter was $4,182 million, a decrease of $293 million, or 7%, compared with the third quarter last year. The decrease reflects lower fee income in the personal and commercial banking businesses reflecting reduced customer activity, particularly in the credit cards business, partially offset by higher revenue from the wealth and insurance businesses, and higher trading-related revenue and underwriting fees in Wholesale banking.

By segment, the decrease in reported non-interest income reflects a decrease in the Corporate segment of $385 million, and a decrease in U.S. Retail of $150 million, or 20%, partially offset by an increase in Wholesale Banking of $150 million, or 21%, and an increase in Canadian Retail of $92 million, or 3%. The decrease in the Corporate segment primarily reflects treasury and balance sheet management activities, the impact of which is largely offset in net interest income.

Quarterly comparison – Q3 2020 vs. Q2 2020

Reported non-interest income for the quarter increased $114 million, or 3%, compared with the prior quarter. The increase reflects higher revenue in the insurance and wealth businesses, higher trading-related revenue, and higher valuation of certain investments in the U.S. Retail segment, partially offset by lower other revenue in Wholesale Banking, and lower fee income in the personal and commercial banking businesses reflecting reduced customer activity, particularly in the credit cards business.

 

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 • THIRD QUARTER 2020 • REPORT TO SHAREHOLDERS			Page 12

By segment, the increase in reported non-interest income reflects an increase in U.S. Retail of $104 million, or 21%, an increase in Wholesale Banking of $98 million, or 13%, and an increase in Canadian Retail of $95 million, or 3%, partially offset by a decrease in the Corporate segment of $183 million, or 86%. The decrease in the Corporate segment primarily reflects treasury and balance sheet management activities, the impact of which is largely offset in net interest income.

Year-to-date comparison – Q3 2020 vs. Q3 2019

Reported non-interest income was $12,558 million, a decrease of $411 million, or 3%, compared with the same period last year. The decrease reflects lower fee income in the personal and commercial banking businesses reflecting reduced customer activity, particularly in the credit cards business, and reduced valuation of certain investments in the U.S. Retail segment, partially offset by higher trading-related revenue, underwriting fees and loan fees in Wholesale Banking, and higher revenue in the wealth and insurance businesses.

By segment, the decrease in reported non-interest income reflects a decrease in Corporate of $961 million, and a decrease in U.S. Retail of $331 million, or 16%, partially offset by an increase in Wholesale Banking of $573 million, or 33%, and an increase in Canadian Retail of $308 million, or 3%. The decrease in the Corporate segment primarily reflects treasury and balance sheet management activities, the impact of which is largely offset in net interest income.

Provision for Credit Losses

Quarterly comparison – Q3 2020 vs. Q3 2019

PCL for the quarter was $2,188 million, an increase of $1,533 million compared with the third quarter last year. PCL – impaired was $831 million, an increase of $250 million, or 43%, reflecting higher provisions in the Canadian and U.S. consumer, Canadian commercial, and Wholesale lending portfolios. PCL – performing was $1,357 million, an increase of $1,283 million, primarily related to a significant deterioration in the economic outlook, including the impact of credit migration. Total PCL for the quarter as an annualized percentage of credit volume was 1.17%.

By segment, the increase in PCL reflects an increase in U.S. Retail of $642 million, an increase in Canadian Retail of $635 million, an increase in the Corporate segment of $134 million, and an increase in Wholesale Banking of $122 million.

Quarterly comparison – Q3 2020 vs. Q2 2020

PCL for the quarter decreased by $1,030 million compared with the prior quarter. PCL – impaired was $831 million, a decrease of $136 million, or 14%, primarily reflecting less credit migration in Wholesale Banking. PCL – performing was $1,357 million, a decrease of $894 million, or 40%, reflecting a smaller increase to the performing allowance for credit losses this quarter. Total PCL for the quarter as an annualized percentage of credit volume was 1.17%.

By segment, the decrease in PCL reflects a decrease in the Corporate segment of $337 million, a decrease in Wholesale Banking of $251 million, a decrease in U.S. Retail of $240 million, and a decrease in Canadian Retail of $202 million.

Year-to-date comparison – Q3 2020 vs. Q3 2019

PCL was $6,325 million, an increase of $4,187 million compared with the same period last year. PCL – impaired was $2,604 million, an increase of $713 million, or 38%, reflecting credit migration in Wholesale Banking, higher provisions in the Canadian commercial and Canadian and U.S. consumer lending portfolios, and volume growth. PCL – performing was $3,721 million, an increase of $3,474 million, primarily related to a significant deterioration in the economic outlook, including the impact of credit migration. Total PCL as an annualized percentage of credit volume was 1.16%.

By segment, the increase in PCL reflects an increase in Canadian Retail of $1,589 million, an increase in U.S. Retail of $1,566 million, an increase in the Corporate segment of $521 million, and an increase in Wholesale Banking of $511 million.

 

 

(millions of Canadian dollars)		For the three months ended												For the nine months ended
			July 31 2020				April 30 2020				July 31 2019				July 31 2020				July 31 2019
Provision for credit losses – Stage 3 (impaired)
Canadian Retail		$	372			$	365			$	282			$	1,057			$	802
U.S. Retail			290				287				184				850				668
Wholesale Banking			52				194				12				298				12
Corporate1			117				121				103				399				409
Total provision for credit losses – Stage 3			831				967				581				2,604				1,891
Provision for credit losses – Stage 1 and Stage 2 (performing)2
Canadian Retail			579				788				34				1,438				104
U.S. Retail			607				850				71				1,503				119
Wholesale Banking			71				180				(11	)			216				(9	)
Corporate1			100				433				(20	)			564				33
Total provision for credit losses – Stage 1 and Stage 2			1,357				2,251				74				3,721				247
Total provision for credit losses		$	2,188			$	3,218			$	655			$	6,325			$	2,138

 

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

2	Includes financial assets, loan commitments, and financial guarantees.

Insurance claims and related expenses

Quarterly comparison – Q3 2020 vs. Q3 2019

Insurance claims and related expenses for the quarter were $805 million, an increase of $93 million, or 13%, compared with the third quarter last year. The increase reflects less favourable prior years’ claims development, higher severe weather-related events and a $37 million increase in the fair value of investments supporting claims liabilities which resulted in a similar increase to non-interest income, partially offset by more favourable current year claims.

Quarterly comparison – Q3 2020 vs. Q2 2020

Insurance claims and related expenses for the quarter increased $134 million, or 20%, compared with the prior quarter. The increase reflects higher claims from severe weather-related events, less favourable prior years’ claims development and a $52 million increase in the fair value of investments supporting claims liabilities which resulted in a similar increase to non-interest income, partially offset by more favourable current year claims.

 

TD BANK GROUP • THIRD QUARTER 2020 • REPORT TO SHAREHOLDERS			Page 13

Year-to-date comparison – Q3 2020 vs. Q3 2019

Insurance claims and related expenses were $2,256 million, an increase of $174 million, or 8%, compared with the same period last year. The increase reflects higher severe weather-related events and less favourable prior years’ claims development, partially offset by more favourable current year claims and a decrease in the fair value of investments supporting claims liabilities which resulted in a similar decrease to non-interest income.

Non-Interest Expenses and Efficiency Ratio

Quarterly comparison – Q3 2020 vs. Q3 2019

Reported non-interest expenses were $5,307 million, a decrease of $67 million, or 1%, compared with the third quarter last year. The decrease reflects a decline in the retailer program partners’ net share of the profits from the U.S. strategic cards portfolio and lower professional fees and other discretionary spend, partially offset by higher compensation. Adjusted non-interest expenses were $5,244 million, a decrease of $54 million, or 1%.

By segment, the decrease in reported non-interest expenses reflects a decrease in the Corporate segment of $184 million, or 29%, partially offset by an increase in Wholesale Banking of $75 million, or 13%, and an increase in U.S. Retail of $42 million, or 3%. Canadian Retail non-interest expenses were flat compared with the third quarter last year.

The Bank’s reported efficiency ratio was 49.8% compared to 51.2% in the third quarter last year. The Bank’s adjusted efficiency ratio was 49.2%, compared with 50.5% in the third quarter last year.

Quarterly comparison – Q3 2020 vs. Q2 2020

Reported non-interest expenses for the quarter increased $186 million, or 4%, compared with the prior quarter. The increase reflects an increase in the retailer program partners’ net share of the profits from the U.S. strategic cards portfolio, and higher variable compensation, largely in Wholesale Banking, partially offset by a prior quarter increase in legal provisions and lower professional fees and other discretionary spend. Adjusted non-interest expenses increased $193 million, or 4%.

By segment, the increase in reported non-interest expenses reflects an increase in the Corporate segment of $222 million, or 94%, and an increase in Wholesale Banking of $53 million, or 9%, partially offset by a decrease in Canadian Retail of $55 million, or 2%, and a decrease in U.S. Retail of $34 million, or 2%.

The Bank’s reported efficiency ratio was 49.8% compared with 48.6% in the prior quarter. The Bank’s adjusted efficiency ratio was 49.2%, compared with 48.0% in the prior quarter.

Year-to-date comparison – Q3 2020 vs. Q3 2019

Reported non-interest expenses of $15,895 million decreased $582 million, or 4%, compared with the same period last year, primarily reflecting charges related to the agreement with Air Canada in the prior period. On an adjusted basis, non-interest expenses were $15,692 million, an increase of $70 million reflecting higher compensation and an increase in legal provisions, partially offset by a decline in the retailer program partners’ net share of the profits from the U.S. strategic cards portfolio and lower professional fees and other discretionary spend.

By segment, the decrease in reported non-interest expenses reflects a decrease in the Corporate segment of $562 million, or 30%, and a decrease in Canadian Retail of $341 million, or 4%, partially offset by an increase in U.S. Retail of $177 million, or 4%, and an increase in Wholesale Banking of $144 million, or 8%.

The Bank’s reported efficiency ratio was 50.0% compared with 53.6% in the same period last year. The Bank’s adjusted efficiency ratio was 49.3%, compared with 50.8% 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 18.8% for the third quarter, compared with 21.6% in the third quarter last year and 16.5% in the prior quarter. The year-over-year decrease primarily reflects the impact of lower pre-tax income and favourable tax items. The quarter-over-quarter increase mainly reflects the impact of higher pre-tax income, partially offset by favourable tax items and higher provisions related to changes in tax law in the prior quarter.

 

 

(millions of Canadian dollars, except as noted)		For the three months ended																								For the nine months ended
		July 31 2020								April 30 2020								July 31 2019								July 31 2020								July 31 2019
Income taxes at Canadian statutory income tax rate		$	624				26.4	%		$	400				26.4	%		$	994				26.5	%		$	1,932				26.4	%		$	2,655				26.5	%
Increase (decrease) resulting from:
Dividends received			(30	)			(1.3	)			(30	)			(2.0	)			(28	)			(0.7	)			(90	)			(1.2	)			(78	)			(0.8	)
Rate differentials on international operations1			(136	)			(5.8	)			(145	)			(9.6	)			(176	)			(4.7	)			(517	)			(7.1	)			(531	)			(5.3	)
Other			(13	)			(0.5	)			25				1.7				23				0.5				29				0.4				43				0.4
Provision for income taxes and effective income tax rate – reported		$	445				18.8	%		$	250				16.5	%		$	813				21.6	%		$	1,354				18.5	%		$	2,089				20.8	%
Total adjustments for items of note2			9								10								11								30								200
Provision for income taxes and effective income tax rate – adjusted3,4		$	454				18.7	%		$	260				16.4	%		$	824				21.5	%		$	1,384				18.4	%		$	2,289				21.0	%

 

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.

The Bank’s adjusted effective tax rate was 18.7% for the quarter, lower than 21.5% in the third quarter last year and higher than 16.4% in the prior quarter. The year-over-year decrease primarily reflects the impact of lower pre-tax income and favourable tax items. The quarter-over-quarter increase mainly reflects the impact of higher pre-tax income, partially offset by favourable tax items and higher provisions related to changes in tax law in the prior quarter.

 

TD BANK GROUP • THIRD QUARTER 2020 • REPORT TO SHAREHOLDERS			Page 14

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 nine months ended
		July 31, 2020 vs. July 31, 2019 Increase (Decrease)				July 31, 2020 vs. July 31, 2019 Increase (Decrease)
U.S. Retail Bank
Total revenue		$	82			$	141
Non-interest expenses			47				84
Net income – after-tax			10				4
Equity in net income on an investment in TD Ameritrade1			10				12
U.S. Retail segment net income – after-tax			20				16
Earnings per share (Canadian dollars)
Basic		$	0.01			$	0.01
Diluted			0.01				0.01

 

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

 

Average foreign exchange rate (equivalent of CAD $1.00)			For the three months ended								For the nine months ended
		July 31 2020				July 31 2019				July 31 2020				July 31 2019
U.S. dollar		$	0.731			$	0.753			$	0.739			$	0.752

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 TD Ameritrade; and Wholesale Banking. The Bank’s other activities are grouped into the Corporate segment.

Results of each business segment reflect revenue, expenses, assets, and liabilities generated by the businesses in that segment. Where applicable, the Bank measures and evaluates the performance of each segment based on adjusted results and ROE, and for those segments, the Bank indicates that the measure is adjusted. For further details, refer to the “How the Bank Reports” section of this document including the Bank’s response to COVID-19, the “Business Focus” section in the Bank’s 2019 MD&A, and Note 29 Segmented Information of the Bank’s Consolidated Financial Statements for the year ended October 31, 2019. For information concerning the Bank’s measure of ROE, which is a non-GAAP financial measure, refer to the “How We Performed” section of this document.

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 $47 million, compared with $30 million in the prior quarter and $37 million in the third quarter last year.

 

TD BANK GROUP • THIRD QUARTER 2020 • REPORT TO SHAREHOLDERS			Page 15