TD Toronto Dominion Bank

Earnings News Release • Three and six months ended April 30, 2024

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

• Reported diluted earnings per share were $1.35, compared with $1.69.
• Adjusted diluted earnings per share were $2.04, compared with $1.91.
• Reported net income was $2,564 million, compared with $3,306 million.
• Adjusted net income was $3,789 million, compared with $3,707 million.

YEAR-TO-DATE FINANCIAL HIGHLIGHTS, six months ended April 30, 2024, compared with the corresponding period last year:

• Reported diluted earnings per share were $2.89, compared with $2.52.
• Adjusted diluted earnings per share were $4.04, compared with $4.14.
• Reported net income was $5,388 million, compared with $4,887 million.
• Adjusted net income was $7,426 million, compared with $7,861 million.

SECOND QUARTER ADJUSTMENTS (ITEMS OF NOTE)

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

• Amortization of acquired intangibles of $72 million ($62 million after-tax or 4 cents per share), compared with $79 million ($67 million after-tax or 3 cents per share) in the second quarter last year.
• Acquisition and integration charges related to the Schwab transaction of $21 million ($16 million after-tax or 1 cent per share), compared with $30 million ($26 million after-tax or 1 cent per share) in the second quarter last year.
• Restructuring charges of $165 million ($122 million after-tax or 7 cents per share).
• Acquisition and integration charges related to the Cowen acquisition of $102 million ($80 million after-tax or 4 cents per share), compared with $73 million ($63 million after-tax or 4 cents per share) in the second quarter last year.
• Impact from the terminated FHN acquisition-related capital hedging strategy of $64 million ($48 million after-tax or 3 cents per share), compared with $134 million ($101 million after-tax or 6 cents per share) in the second quarter last year.
• Civil matter provision/Litigation settlement of $274 million ($205 million after-tax or 11 cents per share), compared with $39 million ($28 million after-tax or 2 cents per share) in the second quarter last year.
• FDIC special assessment of $103 million ($77 million after-tax or 4 cents per share). 
• Provision for investigations related to the Bank's AML program of $615 million ($615 million after-tax or 35 cents per share).

TORONTO, May 23, 2024 /CNW/ - TD Bank Group ("TD" or the "Bank") today announced its financial results for the second quarter ended April 30, 2024. Reported earnings were $2.6 billion, down 22% compared with the second quarter last year, and adjusted earnings were $3.8 billion, up 2%.

"TD delivered strong second quarter results, with earnings of $3.8 billion and solid momentum across our franchise. We delivered significant positive operating leverage while continuing to invest in our business, including our risk and control infrastructure," said Bharat Masrani, Group President and Chief Executive Officer, TD Bank Group.

Canadian Personal and Commercial Banking delivered a strong quarter driven by continued volume growth and positive operating leverage
Canadian Personal and Commercial Banking net income was $1,739 million, an increase of 7% compared to the second quarter last year. The increase reflects revenue growth, partially offset by higher provisions for credit losses and non-interest expenses. Revenue was $4,839 million, an increase of 10%, driven by volume growth and margin expansion.

Canadian Personal and Commercial Banking continued to build momentum, delivering another strong quarter for New to Canada account openings. TD increased its support for international students with an agreement with HDFC, India's leading private sector bank, to help attract new customers with a simplified banking experience. The Bank also established a new collaboration with ApplyBoard, a Canadian educational organization that helps international students prepare their finances to study in Canada. In addition, TD Auto Finance was ranked #1 in Dealer Satisfaction with Non-Prime and Prime Credit Non-Captive Automotive Financing Lenders, according to the J.D. Power 2024 Canada Dealer Financing Satisfaction Study¹.

The U.S. Retail Bank delivered operating momentum with sequential earnings and loan growth in a challenging environment
U.S. Retail reported net income was $580 million (US$433 million), a decrease of 59% (58% in U.S. dollars) compared with the second quarter last year. On an adjusted basis, net income was $1,272 million, a decline of 16% (17% in U.S. dollars). TD Bank's investment in The Charles Schwab Corporation ("Schwab") contributed $183 million in earnings, a decrease of 27% (26% in U.S. dollars) compared with the second quarter last year.

The U.S. Retail Bank, which excludes the Bank's investment in Schwab, reported net income of $397 million (US$297 million), a decrease of 66% (65% in U.S. dollars) from the second quarter last year, primarily reflecting provisions for investigations related to the Bank's anti-money laundering program and the Federal Deposit Insurance Corporation (FDIC) Special Assessment, partially offset by acquisition and integration-related charges for the terminated First Horizon transaction in the second quarter last year. On an adjusted basis net income was $1,089 million (US$803 million), a decrease of 14% (15% in U.S. dollars) from the second quarter last year, primarily reflecting higher PCL and lower revenue.

The U.S. Retail Bank continued to deliver loan growth while maintaining its through-the-cycle underwriting standards, with total average loan balances up 7% compared with the second quarter last year and up 1% from last quarter. Excluding sweep deposits, total personal and business deposit average balances were down 1% year-over-year, reflecting competitive market conditions, while quarter–over–quarter, personal and business deposit average balances were flat. Overall, the U.S. Retail Bank delivered balance sheet stability in a challenging environment.

During the quarter, TD Bank, America's Most Convenient Bank® (TD AMCB) launched TD Complete Checking and TD Early Pay, offering customers more flexible banking options, including earlier access to eligible direct deposits. TD AMCB surpassed five million active mobile customers while continuing to deliver new features and capabilities that enhance the customer experience. TD AMCB was ranked 9^th on Forbes' list of America's Best Employers for Diversity 2024, leading its peers as the highest ranked financial institution.

Wealth Management and Insurance results reflect strong business momentum
Wealth Management and Insurance net income was $621 million, an increase of 19% compared with the second quarter last year, as positive top-line momentum was partially offset by higher insurance service expenses. This quarter's revenue growth of 11% reflects insurance premium growth, and higher fee-based and transaction revenue in the Wealth Management business.

Wealth Management and Insurance continued to invest in client-centric innovation this quarter. TD Direct Investing completed its migration of most active traders to the new TD Active Trader platform and TD Wealth Advice continued to gain market share as it grows its advisor network². TD Asset Management launched seven new actively managed fixed income ETFs, showcasing the value of its proprietary independent credit research capabilities, and offering investors the potential to earn a high rate of interest income. In TD Insurance, Small Business Insurance expanded its national reach to new customer segments including business professionals, healthcare, retail, small manufacturing, and hospitality. 

Wholesale Banking delivered record revenue reflecting broad-based growth across the business
Wholesale Banking reported net income for the quarter was $361 million, an increase of $211 million compared with the second quarter last year, reflecting higher revenues, partially offset by higher non-interest expenses. On an adjusted basis, net income was $441 million, an increase of $228 million, or 107%. Revenue for the quarter was $1,940 million, an increase of $523 million, or 37%, compared with the second quarter last year, reflecting higher trading-related revenue, underwriting fees, and lending revenue.

On April 1, TD Securities and TD Cowen achieved an important milestone with the implementation of a unified Investment Banking, Capital Markets and Research platform, integrating coverage models and streamlining delivery of capabilities for clients.

Enhancements to TD's anti-money laundering (AML) program
The Bank has been cooperating with U.S. regulators and authorities in good faith for many months and is working diligently to bring these investigations to resolution so that investors can have more clarity. A comprehensive overhaul of TD's U.S. AML program is well underway, and will strengthen our program globally.

Capital
TD's Common Equity Tier 1 Capital ratio was 13.4%.

Conclusion
"Our businesses in Canada, the United States and across the globe are well-positioned to continue to meet the needs of our nearly 28 million customers and clients. I would like to thank our 95,000 TD bankers for everything they do to deliver for all of our stakeholders," added Masrani.

The foregoing contains forward-looking statements. Please refer to the "Caution Regarding Forward-Looking Statements" on page 3.

SIGNIFICANT EVENTS 

a) Provision for Investigations Related to the Bank's AML Program
In the second quarter of 2024, the Bank recorded an initial provision of $615 million (US$450 million) in connection with discussions with one of its U.S. regulators, related to previously disclosed regulatory and law enforcement investigations of the Bank's U.S. Bank Secrecy Act (BSA)/Anti-Money Laundering (AML) program. For further details, refer to Note 19 of the Bank's second quarter 2024 Interim Consolidated Financial Statements.

b) Restructuring Charges
The Bank continued to undertake certain measures in the second quarter of 2024 to reduce its cost base and achieve greater efficiency. In connection with these measures, the Bank incurred $165 million of restructuring charges which primarily relate to employee severance and other personnel-related costs and real estate optimization. Next quarter, we expect to incur additional restructuring charges of approximately $50 million, and to conclude our restructuring program.

c) Federal Deposit Insurance Corporation Special Assessment
On November 16, 2023, the FDIC announced a final rule that implements a special assessment to recover the losses to the Deposit Insurance Fund arising from the protection of uninsured depositors during the U.S. bank failures in the spring of 2023. The special assessment resulted in the recognition of $411 million (US$300 million) pre-tax in non-interest expenses in the first quarter of the Bank's fiscal 2024.

     On February 23, 2024, the FDIC notified all institutions subject to the special assessment that its estimate of total losses has increased compared to the amount communicated with the final rule in November 2023. Accordingly, the Bank recognized an additional expense for the special assessment of $103 million (US$75 million) in the second quarter of the Bank's fiscal 2024. The final amount of the Bank's special assessment may be further updated as the FDIC determines the actual losses to the Deposit Insurance Fund. The FDIC plans to provide institutions subject to the special assessment with an updated estimate with its first quarter 2024 special assessment invoice, to be released in June 2024.

HOW WE PERFORMED

HOW THE BANK REPORTS
The Bank prepares its Interim Consolidated Financial Statements in accordance with IFRS and refers to results prepared in accordance with IFRS as "reported" results.

Non-GAAP and Other Financial Measures
In addition to reported results, the Bank also presents certain financial measures, including non-GAAP financial measures that are historical, non-GAAP ratios, supplementary financial measures and capital management measures, to assess its results. Non-GAAP financial measures, such as "adjusted" results, are utilized to assess the Bank's businesses and to measure the Bank's overall performance. To arrive at adjusted results, the Bank adjusts for "items of note" from reported results. Items of note are items which management does not believe are indicative of underlying business performance and are disclosed in Table 3. Non-GAAP ratios include a non-GAAP financial measure as one or more of its components. Examples of non-GAAP ratios include adjusted basic and diluted earnings per share (EPS), adjusted dividend payout ratio, adjusted efficiency ratio, net of ISE, and adjusted effective income tax rate. The Bank believes that non-GAAP financial measures and non-GAAP ratios provide the reader with a better understanding of how management views the Bank's performance. Non-GAAP financial measures and non-GAAP ratios used in this document are not defined terms under IFRS and, therefore, may not be comparable to similar terms used by other issuers. Supplementary financial measures depict the Bank's financial performance and position, and capital management measures depict the Bank's capital position, and both are explained in this document where they first appear.

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

Investment in The Charles Schwab Corporation and IDA Agreement
On October 6, 2020, the Bank acquired an approximately 13.5% stake in The Charles Schwab Corporation ("Schwab") following the completion of Schwab's acquisition of TD Ameritrade Holding Corporation ("TD Ameritrade") of which the Bank was a major shareholder (the "Schwab transaction"). On August 1, 2022, the Bank sold 28.4 million non-voting common shares of Schwab, at a price of US$66.53 per share for proceeds of $2.5 billion (US$1.9 billion), which reduced the Bank's ownership interest in Schwab to approximately 12.0%.

     The Bank accounts for its investment in Schwab using the equity method. The U.S. Retail segment reflects the Bank's share of net income from its investment in Schwab. The Corporate segment net income (loss) includes amounts for amortization of acquired intangibles, the acquisition and integration charges related to the Schwab transaction, and the Bank's share of restructuring and other charges incurred by Schwab. The Bank's share of Schwab's earnings available to common shareholders is reported with a one-month lag. For further details, refer to Note 7 of the Bank's second quarter 2024 Interim Consolidated Financial Statements.

     On November 25, 2019, the Bank and Schwab signed an insured deposit account agreement (the "2019 Schwab IDA Agreement"), with an initial expiration date of July 1, 2031. Under the 2019 Schwab IDA Agreement, starting July 1, 2021, Schwab had the option to reduce the deposits by up to US$10 billion per year (subject to certain limitations and adjustments), with a floor of US$50 billion. In addition, Schwab requested some further operational flexibility to allow for the sweep deposit balances to fluctuate over time, under certain conditions and subject to certain limitations.

     On May 4, 2023, the Bank and Schwab entered into an amended insured deposit account agreement (the "2023 Schwab IDA Agreement"), which replaced the 2019 Schwab IDA Agreement. Pursuant to the 2023 Schwab IDA Agreement, the Bank continues to make sweep deposit accounts available to clients of Schwab. Schwab designates a portion of the deposits with the Bank as fixed-rate obligation amounts (FROA). Remaining deposits over FROA are designated as floating-rate obligations. In comparison to the 2019 Schwab IDA Agreement, the 2023 Schwab IDA Agreement extends the initial expiration date by three years to July 1, 2034 and provides for lower deposit balances in its first six years, followed by higher balances in the later years. Specifically, until September 2025, the aggregate FROA will serve as the floor. Thereafter, the floor will be set at US$60 billion. In addition, Schwab has the option to buy down up to $6.8 billion (US$5 billion) of FROA by paying the Bank certain fees in accordance with the 2023 Schwab IDA Agreement, subject to certain limits. Refer to the "Related Party Transactions" section in the 2023 MD&A for further details.

     During the first quarter of 2024, Schwab exercised its option to buy down the remaining $0.7 billion (US$0.5 billion) of the US$5 billion FROA buydown allowance and paid $32 million (US$23 million) in termination fees to the Bank in accordance with the 2023 Schwab IDA Agreement. By the end of the first quarter of 2024, Schwab had completed its buy down of the full US$5 billion FROA buydown allowance and had paid a total of $337 million (US$250 million) in termination fees to the Bank. The fees were intended to compensate the Bank for losses incurred from discontinuing certain hedging relationships and for lost revenues. The net impact was recorded in net interest income.

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

The following table provides a reconciliation between the Bank's adjusted and reported results. For further details refer to the "Significant Events" section.

Return on Common Equity
The consolidated Bank ROE is calculated as reported net income available to common shareholders as a percentage of average common equity. The consolidated Bank adjusted ROE is calculated as adjusted net income available to common shareholders as a percentage of average common equity. Adjusted ROE is a non-GAAP financial ratio and can be utilized in assessing the Bank's use of equity.

     ROE for the business segments is calculated as the segment net income attributable to common shareholders as a percentage of average allocated capital. The Bank's methodology for allocating capital to its business segments is largely aligned with the common equity capital requirements under Basel III. Capital allocated to the business segments was increased to 11.5% Common Equity Tier 1 (CET1) Capital effective the first quarter of 2024, compared with 11% in fiscal 2023.

Return on Tangible Common Equity
Tangible common equity (TCE) is calculated as common shareholders' equity less goodwill, imputed goodwill and intangibles on the investments in Schwab and other acquired intangible assets, net of related deferred tax liabilities. ROTCE is calculated as reported net income available to common shareholders after adjusting for the after–tax amortization of acquired intangibles, which are treated as an item of note, as a percentage of average TCE. Adjusted ROTCE is calculated using reported net income available to common shareholders, adjusted for all items of note, as a percentage of average TCE. TCE, ROTCE, and adjusted ROTCE can be utilized in assessing the Bank's use of equity. TCE is a non-GAAP financial measure, and ROTCE and adjusted ROTCE are non-GAAP ratios.

HOW OUR BUSINESSES PERFORMED

For management reporting purposes, the Bank's business operations and activities are organized around the following four key business segments: Canadian Personal and Commercial Banking, U.S. Retail, Wealth Management and Insurance, and Wholesale Banking. The Bank's other activities are grouped into the Corporate segment.

     Results of each business segment reflect revenue, expenses, assets, and liabilities generated by the businesses in that segment. Where applicable, the Bank measures and evaluates the performance of each segment based on adjusted results and ROE, and for those segments, the Bank indicates that the measure is adjusted. For further details, refer to the "How We Performed" section of this document, the "Business Focus" section in the Bank's 2023 MD&A, and Note 28 of the Bank's Consolidated Financial Statements for the year ended October 31, 2023. Effective the first quarter of 2024, certain asset management businesses which were previously reported in the U.S. Retail segment are now reported in the Wealth Management and Insurance segment. Comparative period information has been adjusted to reflect the new alignment.

     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 pre-tax value. Using TEB allows the Bank to measure income from all securities and loans consistently and makes for a more meaningful comparison of net interest income with similar institutions. The TEB increase to net interest income and provision for income taxes reflected in Wholesale Banking results is reversed in the Corporate segment. The TEB adjustment for the quarter was $4 million, compared with $29 million in the prior quarter and $40 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, the acquisition and integration charges related to the Schwab transaction, and the Bank's share of restructuring and other charges incurred by Schwab are recorded in the Corporate segment.

Quarterly comparison – Q2 2024 vs. Q2 2023
Canadian Personal and Commercial Banking net income for the quarter was $1,739 million, an increase of $114 million, or 7%, compared with the second quarter last year, reflecting higher revenue, partially offset by higher PCL and non-interest expenses. The annualized ROE for the quarter was 32.9%, compared with 37.4% in the second quarter last year.

     Revenue for the quarter was $4,839 million, an increase of $435 million, or 10%, compared with the second quarter last year. Net interest income was $3,812 million, an increase of $435 million, or 13%, compared with the second quarter last year, primarily reflecting volume growth and higher margins. Average loan volumes increased $37 billion, or 7%, reflecting 7% growth in personal loans and 7% growth in business loans. Average deposit volumes increased $16 billion, or 4%, reflecting 6% growth in personal deposits, partially offset by 1% decline in business deposits. Net interest margin was 2.84%, an increase of 10 basis points (bps), primarily due to higher margins on deposits, partially offset by lower margins on loans and changes to balance sheet mix. Non-interest income was $1,027 million, flat compared with the second quarter last year.

     PCL for the quarter was $467 million, an increase of $220 million compared with the second quarter last year. PCL – impaired was $397 million, an increase of $163 million, or 70%, reflecting credit migration in the consumer and commercial lending portfolios. PCL – performing was $70 million, an increase of $57 million. The performing provisions this quarter largely reflect credit conditions, including credit migration in the commercial and consumer lending portfolios, and volume growth. Total PCL as an annualized percentage of credit volume was 0.34%, an increase of 15 bps compared with the second quarter last year.

     Non-interest expenses for the quarter were $1,957 million, an increase of $54 million, or 3%, compared with the second quarter last year, reflecting higher spend supporting business growth, including higher employee-related expenses and technology costs, partially offset by higher non-credit provisions in the second quarter last year.

     The efficiency ratio for the quarter was 40.4%, compared with 43.2% in the second quarter last year.

Quarterly comparison – Q2 2024 vs. Q1 2024
Canadian Personal and Commercial Banking net income for the quarter was $1,739 million, a decrease of $46 million, or 3%, compared with the prior quarter, reflecting lower revenue and higher PCL, partially offset by lower non-interest expenses. The annualized ROE for the quarter was 32.9%, compared with 34.6% in the prior quarter.

     Revenue decreased $45 million, or 1%, compared with the prior quarter. Net interest income decreased $21 million, or 1%, reflecting fewer days in the second quarter, partially offset by volume growth. Average loan volumes increased $5 billion, or 1%, reflecting 1% growth in personal loans and 2% growth in business loans. Average deposit volumes were relatively flat compared with the prior quarter, reflecting 1% growth in personal deposits, offset by 1% decline in business deposits. Net interest margin was 2.84%, flat compared with the prior quarter. Non-interest income decreased $24 million, or 2%, compared with the prior quarter, reflecting lower fee revenue. 

     PCL for the quarter was $467 million, an increase of $44 million compared with the prior quarter. PCL – impaired was $397 million, an increase of $33 million, or 9%, largely reflecting credit migration in the commercial lending portfolio. PCL – performing was $70 million, an increase of $11 million. The performing provisions this quarter largely reflect credit conditions, including credit migration in the commercial and consumer lending portfolios, and volume growth. Total PCL as an annualized percentage of credit volume was 0.34%, an increase of 4 bps compared with the prior quarter.

     Non-interest expenses decreased $27 million, or 1% compared with the prior quarter, primarily reflecting lower technology costs and employee-related expenses. 

     The efficiency ratio was 40.4%, compared with 40.6%, in the prior quarter.

Year-to-date comparison – Q2 2024 vs. Q2 2023
Canadian Personal and Commercial Banking net income for the six months ended April 30, 2024, was $3,524 million, an increase of $170 million, or 5%, compared with the same period last year, reflecting higher revenue, partially offset by higher PCL and non-interest expenses. The annualized ROE for the period was 33.8%, compared with 38.6%, in the same period last year.

     Revenue for the period was $9,723 million, an increase of $730 million, or 8%, compared with the same period last year. Net interest income was $7,645 million, an increase of $729 million, or 11% compared with the same period last year, reflecting volume growth and higher margins. Average loan volumes increased $37 billion, or 7%, reflecting 7% growth in personal loans and 8% growth in business loans. Average deposit volumes increased $15 billion, or 3%, reflecting 6% growth in personal deposits, partially offset by a 2% decline in business deposits. Net interest margin was 2.84%, an increase of 7 bps, primarily due to higher margins on deposits, partially offset by lower margins on loans and changes to balance sheet mix. Non-interest income was $2,078 million, relatively flat compared with the same period last year.

     PCL was $890 million, an increase of $316 million compared with the same period last year. PCL – impaired was $761 million, an increase of $307 million, or 68%, reflecting credit migration in the consumer and commercial lending portfolios. PCL – performing was $129 million, an increase of $9 million. The current year performing provisions largely reflect current credit conditions, including credit migration, and volume growth. Total PCL as an annualized percentage of credit volume was 0.32%, an increase of 10 bps compared with the same period last year.

     Non-interest expenses were $3,941 million, an increase of $175 million, or 5%, compared with the same period last year, reflecting higher spend supporting business growth, including higher employee-related expenses and technology costs.

     The efficiency ratio was 40.5%, compared with 41.9%, for the same period last year.