TD Toronto Dominion Bank

FOURTH QUARTER FINANCIAL HIGHLIGHTS, compared with the fourth quarter last year:

• Reported diluted earnings per share were $2.80, compared with $1.54.
• Adjusted diluted earnings per share were $1.60, compared with $1.59.
• Reported net income was $5,143 million, compared with $2,856 million.
• Adjusted net income was $2,970 million, compared with $2,946 million.

FULL YEAR FINANCIAL HIGHLIGHTS, compared with last year:

• Reported diluted earnings per share were $6.43, compared with $6.25.
• Adjusted diluted earnings per share were $5.36, compared with $6.69.
• Reported net income was $11,895 million, compared with $11,686 million.
• Adjusted net income was $9,968 million, compared with $12,503 million.

FOURTH QUARTER ADJUSTMENTS (ITEMS OF NOTE)

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

• Amortization of intangibles of $61 million ($53 million after tax or 3 cents per share), compared with $74 million ($62 million after tax or 3 cents per share) in the fourth quarter last year.
• Charges associated with the acquisition of Greystone of $25 million ($24 million after tax or 1 cent per share), compared with $30 million ($28 million after tax or 2 cents per share) in the fourth quarter last year.
• Net gain on sale of the investment in TD Ameritrade of $1,421 million ($2,250 million after tax or $1.24 per share).

TORONTO, Dec. 3, 2020 /CNW/ - TD Bank Group ("TD" or the "Bank") today announced its financial results for the fourth quarter ended October 31, 2020. Reported earnings were $5.1 billion, up 80% compared with the same quarter last year, and adjusted earnings were $3.0 billion, up 1%.

"TD delivered solid results in the fourth quarter, capping off a year that demonstrated the strength of our business model and balance sheet, and the resilience of our people throughout the unprecedented COVID-19 pandemic," said Bharat Masrani, Group President and CEO, TD Bank Group. "90,000 TD Bankers from around the world came together to support our customers and clients through this time of uncertainty, while we remained focused on our strategy and strengthened the capabilities needed to serve and grow in the future. We also became a major shareholder in The Charles Schwab Corporation, one of the most innovative and highly-regarded investment firms in the U.S., and recorded a significant gain this quarter. More recently, the Bank announced an ambitious climate action plan signaling our intent to support clients as they transform their businesses to capture the opportunities of the low-carbon economy."

"While 2020 was not the year we expected it to be, we learned from the experience and demonstrated the speed and agility of our organization. We will continue to adapt to the current environment to deliver for all of our stakeholders and support an inclusive and sustainable recovery," added Masrani.

Canadian Retail
Canadian Retail reported net income was $1,802 million and adjusted net income was $1,826 million, both up 3% from the fourth quarter last year. This increase primarily reflects lower PCL and lower insurance claims, partially offset by lower revenue and higher non-interest expenses. Revenue decreased 2%, reflecting lower margins, partially offset by increased loan and deposit volumes and increased client activity in the Wealth business. Business momentum was strong this quarter with record auto finance and RESL originations, and higher General Insurance premiums. Expenses increased 2%, reflecting investments in technology and volume-driven expenses. PCL decreased $149 million over last year, largely due to the positive impact of bank and government assistance programs.

Canadian Retail continued to support customers as they navigated COVID-19 and planned for their financial future. This quarter, the segment introduced first-to-market digital capabilities with the launch of TD GoalAssist, the goals-based investing app from TD Direct Investing, TD Global Transfer which enables personal banking customers to transfer money internationally to over 200 countries and territories from EasyWeb and the TD mobile app, and the introduction of Amazon Shop with Points, which allows TD Rewards Cardholders to redeem TD points at check-out on Amazon.ca. The Bank also continued to enable online access to the latest CEBA program features.

U.S. Retail
U.S. Retail net income was $871 million (US$658 million), a decrease of 27% compared with the same quarter last year. TD Ameritrade contributed $339 million (US$255 million) in earnings to the segment, an increase of 16% compared to the same quarter last year, primarily reflecting higher trading volumes and lower operating expenses, partially offset by reduced trading commissions and lower asset-based revenue.

The U.S. Retail Bank, which excludes the Bank's investment in TD Ameritrade, contributed $532 million (US$403 million), down 41% from the same quarter last year, primarily reflecting higher PCL and lower revenue. Revenue declined in the quarter as lower net interest margins and fee income were partially offset by growth in loan and deposit volumes. PCL increased $277 million (US$210 million) compared to the fourth quarter last year, mainly on higher provisions for performing loans offset by lower provisions on impaired loans. 

The U.S. Retail Bank continued to support its customers with personalized, connected experiences across channels through the COVID-19 pandemic. Through its store network, TD provided virtual queue check-in and curbside debit card pickup. Customers also benefited from the Bank's investments in new digital capabilities, including TD Auto Finance's self-service portal and Unsecured Lending's end-to-end digital transformation.

Wholesale
Wholesale Banking reported record net income of $486 million this quarter, an increase of $326 million compared to the same quarter last year, reflecting higher revenue, lower non-interest expenses, and lower PCL. Revenue for the quarter was $1,254 million, an increase of 48% from a year ago, reflecting higher trading-related revenue, higher loan fees, higher debt underwriting fees, and derivative valuation charges incurred in the fourth quarter last year. The Wholesale Bank's performance reflects a strong, diversified business mix and client-focused franchise, and continued growth in the U.S. dollar business.

Capital
TD's Common Equity Tier 1 Capital ratio on a Basel III fully phased-in basis was 13.1%.

Conclusion
"I want to thank our dedicated colleagues around the world for their tremendous efforts in 2020. They continue to deliver legendary experiences for our customers in the face of unprecedented challenges. Despite uncertainties, TD will address the hurdles ahead, contribute to the recovery, and continue to invest in our future growth," concluded Masrani.

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

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.

HOW WE PERFORMED

HOW THE BANK REPORTS
The Bank prepares its Consolidated Financial Statements in accordance with IFRS, the current GAAP, and refers to results prepared in accordance with IFRS as "reported" results. 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 is comprised of agreements with certain U.S. retailers pursuant to which TD is the U.S. issuer of private label and co-branded consumer credit cards to their U.S. customers. Under the terms of the individual agreements, the Bank and the retailers share in the profits generated by the relevant portfolios after credit losses. Under IFRS, TD is required to present the gross amount of revenue and provisions for credit losses related to these portfolios in the Bank's Consolidated Statement of Income. At the segment level, the retailer program partners' share of revenues and credit losses is presented in the Corporate segment, with an offsetting amount (representing the partners' net share) recorded in Non-interest expenses, resulting in no impact to Corporate's reported Net income (loss). The Net income (loss) included in the U.S. Retail segment includes only the portion of revenue and credit losses attributable to TD under the agreements.

Investment in The Charles Schwab Corporation
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"). For further details, refer to "Significant Events" in the "How We Performed" section of this document. The Bank's share of TD Ameritrade's earnings is reported with a one-month lag. The same convention is being followed for Schwab, and the Bank will begin recording its share of Schwab's earnings on this basis in the first quarter of fiscal 2021.

In addition, on November 25, 2019, the Bank and Schwab entered into an insured deposit account agreement (the "Schwab IDA Agreement"), which became effective upon closing of the Schwab transaction and has an initial expiration date of July 1, 2031. The servicing fee under the Schwab IDA Agreement is set at 15 basis points (bps) per annum on the aggregate average daily balance in the sweep accounts. Prior to the Schwab IDA Agreement becoming effective, the Bank was party to an insured deposit account agreement with TD Ameritrade (the "TD Ameritrade IDA Agreement") and earned a servicing fee of 25 bps per annum on the aggregate average daily balance in the sweep accounts (subject to adjustment based on a specified formula). Refer to the "Related Party Transactions" section of the Bank's 2020 MD&A.

U.S. Tax Reform
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "U.S. Tax Act") which made broad and complex changes to the U.S. tax code.

The reduction of the U.S. federal corporate tax rate enacted by the U.S. Tax Act resulted in an adjustment during 2018 to the Bank's U.S. deferred tax assets and liabilities to the lower base rate of 21% as well as an adjustment to the Bank's carrying balances of certain tax credit-related investments and its investment in TD Ameritrade. The Bank finalized its assessment of the implications of the U.S. Tax Act during 2018 and recorded a net charge to earnings of $392 million (US$319 million) for the year ended October 31, 2018.

The lower corporate tax rate had and continues to have a positive effect on TD's current year and future earnings. The amount of the benefit may vary due to, among other things, changes in interpretations and assumptions the Bank has made and guidance that may be issued by applicable regulatory authorities.

Economic Summary and Outlook
The global economic recovery has slowed after an initial burst of growth following the end of lockdowns in the early summer months. A resurgence in COVID-19 cases across Europe and North America has prompted renewed restraints on activity, leaving economic momentum vulnerable in the fourth calendar quarter of 2020. Until an effective vaccine or treatment is widely distributed, the global economy is likely to remain susceptible to such periodic setbacks.

The Bank expects global real GDP to contract by 3.8% in calendar 2020, the largest annual decline in the post-war era. China is the only major economy that is likely to record growth this year, with early control of the virus, state-supported investment and rising exports supporting economic activity.

The global economic outlook for 2021 remains very uncertain and will depend on the timing and effectiveness of a vaccine. Assuming a vaccine is widely distributed by the summer, the Bank expects global real GDP to rebound by 6.2% in calendar 2021. Recent news of potentially earlier vaccine roll out offers some upside risk to that estimate. However, non-virus-related negative risks also exist, including the possibility of no-deal Brexit, escalating U.S.-China tensions, and continued geopolitical risks.

U.S. real GDP continues to recover. The economy expanded by 33.1% (annualized) in the third calendar quarter of 2020. Monthly data on consumer spending shows growth was especially rapid through May and June, while the unemployment rate has continued to improve. Since hitting a peak of 14.7% in April, it has fallen to 6.9% as of October, although this remains well above the 3.5% rate recorded in February. Likewise, real GDP remains 3.5% below its level in the fourth calendar quarter of 2019. The recent rise in COVID-19 cases is expected to slow U.S. growth in the final months of the calendar year, but not stall it outright. Business restrictions have so far been less severe and less widespread than what has been observed in other major economies. However, this also creates a risk that the intensity of business restrictions may eventually rise should the medical system become overly burdened.

The Federal Reserve cut its policy interest rate to the 0% to 0.25% range in March and continues to expand its balance sheet by purchasing U.S. Treasuries and mortgage-backed securities. In late August, the U.S. central bank announced an update to its long-run goals and monetary policy strategy, committing to target an inflation rate that "averages two percent over time." With inflation currently well under two percent, this revised strategy suggests interest rates will remain very low for some time. The Bank expects the federal funds rate to remain at its current setting until calendar 2024. Historically, low interest rates have helped drive a rapid rebound in the housing market and this remains true today. Home sales are already above pre-crisis levels and price growth has been accelerating. Housing activity is expected to slow in calendar 2021, but a low homeownership rate and a favourable starting point for housing affordability suggests that growth will continue.

In terms of U.S. fiscal policy, the first round of COVID-19-related economic supports of over US$2.5 trillion helped households and businesses to maintain spending even as economic activity was curtailed. Many of these supports have now expired. As of October 31, 2020, there was broad agreement across party lines on a support package that would reinstate some enhanced federal unemployment insurance benefits, authorize more funds for small business loans and increase funding for COVID-19 testing, treatment and vaccine research and distribution. Uncertainty around the prospect for further assistance has increased following the November election.

Canada's economy was impacted more negatively than the U.S. in the first half of calendar 2020 and since then has recovered somewhat faster. The Bank estimates real GDP grew by 44.2% (annualized) in the third calendar quarter of the year. Despite this increase, real GDP was approximately 4.5% below the pre-COVID level in the fourth calendar quarter of 2019. The recovery in Canada's job market, meanwhile, has outperformed that of its U.S. counterpart. As of October 2020, almost four-fifths of the jobs lost during the initial lockdown have been recovered in Canada, which is a significantly better performance than in the U.S. The Canadian unemployment rate has fallen from a peak of 13.7% in May to 8.9% in October.

The recent surge in COVID-19 cases also presents a downside risk to the near-term Canadian outlook. In an effort to contain the spread of the virus, since October, governments in Ontario, Quebec and Manitoba have imposed restrictions on targeted industries. This is expected to slow the pace of the economic and labour market recovery in the final months of this calendar year.

Similar to the Federal Reserve, the Bank of Canada has acted aggressively to support the economy, bringing interest rates down to 0.25% in March and rapidly expanding the size of its balance sheet. The Canadian central bank has explicitly committed to hold its overnight rate steady at its effective lower bound of 0.25% until at least 2023. In an environment of stable short-term interest rate differentials between the U.S. and Canada, the Bank projects the Canadian dollar will trade in the moderate range of 76-78 US cents over the next four calendar quarters.

Fueled partly by extraordinarily low interest rates, Canadian existing home resales and average prices reached new record highs in September. Demand has been particularly robust for ground-based housing types and properties located outside denser downtown cores. The housing market has also become more bifurcated by type, with evidence of elevated supply in the condominium market, and strong price pressures for detached homes. The Bank expects deteriorating affordability to become a growing constraint in the detached home market. Coupled with flagging demand for condominiums, this is expected to result in a cooling in activity over the first half of calendar 2021.

Many of the government supports to households and businesses implemented in the early stages of the health and economic crisis have been extended into calendar 2021, putting a floor under spending and limiting the knock-on impact to insolvencies. In October, the Canada Emergency Response Benefit (CERB) transitioned to expanded employment insurance and the Canada Recovery Benefit. These two programs, which are temporary in nature, cast a wide net and offer protection to the incomes of workers who have not been able to find new employment. Highly supportive fiscal and monetary policy is expected to keep Canada's economy on a gradual recovery track in the coming quarters. However, like the U.S. and the global economy, a more expansive recovery will require an effective vaccine or treatment in order for business activity to normalize more broadly.

THE BANK'S RESPONSE TO COVID-19
Efforts to contain the COVID-19 pandemic have had a profound impact on economies around the world. In North America, the banking sector implemented a variety of measures to ease the strain on consumers and businesses. Governments, together with crown corporations, central banks and regulators, also introduced programs to mitigate the fallout of the crisis and support the effective functioning of financial markets. TD has been actively engaged in this collective effort, guided by the principles of supporting the well-being of its customers and colleagues and maintaining the Bank's operational and financial resilience.

Supporting Customers and Colleagues
Beginning in TD's fiscal second quarter, the Bank temporarily closed parts of its branch and store network and limited hours in others. As jurisdictions across TD's footprint began to ease physical distancing restrictions in the third quarter, the Bank re-opened a number of its branches and stores and started restoring hours of service to meet customer needs, in line with the directives of government, public health authorities and TD's Chief Medical Director. Extra precautions were taken in locations that remained open, including adjusting staff levels, installing protective equipment, enhancing cleaning, and implementing physical distancing measures to reduce personal contact. By October 31, 2020, virtually all Canadian branches and U.S. stores were open, and all ATMs were operational.

Also beginning in the second quarter, the Bank enabled a substantial majority of its contact center staff to work from home to maintain service levels. A number of branch and store colleagues were given training to respond to customer calls, and new digital capacity and self-serve capabilities were introduced to provide customers with ongoing access to financial service and advice. The Bank expanded its existing customer assistance programs – TD Helps in Canada and TD Cares in the U.S. – and redeployed colleagues across the organization to support these functions. In addition, new online and mobile applications were launched to facilitate the delivery of direct and government-introduced financial assistance for households and businesses. Approximately 60,000 TD colleagues continued to work from home as at October 31, 2020, and these arrangements are expected to remain in place for some time.

In the early months of the pandemic, the Bank offered several forms of direct financial assistance to customers experiencing financial hardship due to COVID–19, including deferral of loan payments and minimum payments on credit card balances, interest reductions, insurance premium deferrals and premium reductions. As at October 31, 2020, the bulk of this assistance had run its course, with deferrals largely expiring on schedule and customers resuming payments. The table below summarizes the accounts and corresponding gross loan balances that remained subject to COVID-related deferral programs as of October 31, 2020 in the Canadian and U.S. Retail businesses. Delinquency rates for customers exiting deferral are higher than for the broader population but remain low in absolute terms reflecting continued job gains, the continuation of government support, the Bank's proactive outreach to clients, and TD's expanding suite of advice offerings.

The Bank continues to support 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 eligible business banking customers. 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. The Bank continues to work with the Government of Canada and EDC as further amendments to the CEBA Program are contemplated. Loans issued under the program are not recognized on the Bank's Consolidated Balance Sheet, as the Bank transfers substantially all risks and rewards in respect of the loans to the Government of Canada. As of October 31, 2020, the Bank had provided approximately 184,000 customers (July 31, 2020 – 169,000; April 30, 2020 – 117,000) with CEBA loans and had funded approximately $7.3 billion (July 31, 2020 – $6.7 billion; April 30, 2020 – $4.7 billion) in loans under the program.

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 October 31, 2020, the Bank had funded approximately 86,000 PPP loans (July 31, 2020 – 84,000; April 30, 2020 – 28,000). The gross carrying amount of loans originated under the program was approximately US$8.2 billion (July 31, 2020 – 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. For programs provided specifically to eligible mid-market businesses, these include the EDC BCAP Large Loan Program and BDC Junior Financing Program. 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. 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.

Maintaining the Bank's Financial and Operational Resilience
Early in its second quarter, the Bank invoked its crisis management protocols as the virus took root in the various jurisdictions in which TD operates. Business continuity management plans were activated, and an executive crisis management team was appointed to lead the response effort. The Bank rapidly implemented split-site and work from home arrangements and managed a surge in online and mobile traffic, including double-digit increases in Canadian and U.S. mobile banking downloads and digital usage, and up to a three-fold increase in direct investing trading volumes at the peak of market volatility. The Bank also facilitated the rapid activation and support of government relief programs and worked with its third-party suppliers to maintain critical functions and services throughout the disruption. TD's operations, including the Bank's technology infrastructure, network capacity, enterprise cloud capabilities and remote access systems, have remained stable in the months since, providing ongoing support for work from home arrangements and a continued high level of online and mobile customer traffic.

The Bank has been monitoring credit risk as it continues to support its customers' borrowing needs, incorporating both the economic outlook, as well as the impact of government relief programs and regulatory measures. While the outlook remains uncertain, the Bank considers its coverage levels appropriate following substantial additions to the allowance for performing loans in the second and third quarters.

Market risk continued to be well managed in the fourth quarter against a backdrop of reduced volatility, and the Bank's capital, liquidity and funding positions remained strong.

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
Beginning in the Bank's fiscal second quarter, in response to the challenges created by COVID-19 and then current market conditions, OSFI and the Bank of Canada took a number of actions designed to build resilience of federally regulated financial institutions and improve the stability of the Canadian financial system and economy. 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 the 2020 MD&A. For additional information on OSFI's liquidity measures, refer to the "Regulatory Developments Concerning Liquidity and Funding" section of the "Managing Risk" section of the 2020 MD&A.

As of the fourth quarter, governments, regulators and central banks globally continued to keep policy settings at accommodative levels. In Canada, this included 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.

Impact on Current Quarter Financial Performance
With the improvement in economic and business conditions this quarter, provisions for credit losses (PCL) decreased sequentially and non-interest income in the retail banking businesses stabilized on a recovery in customer spending and payment activity. The Bank continued to experience further margin pressure from the low interest rate environment. Deposit volumes continued to grow, partly reflecting the impact of government financial assistance programs, and capital markets and wealth direct investing revenues remained strong, reflecting high levels of client and market activity.

Impact on Financial Performance in Future Quarters
TD expects the Canadian and U.S. economies to continue their gradual recovery in 2021, but the outlook remains uncertain. There is promising news about potential vaccines, but much is still unknown about their efficacy, availability, distribution and public acceptance. Phased re-openings of the economy and targeted use of lockdowns have led to an encouraging uptick in activity as compared to the second and third quarters, but a second wave of infections is forcing many jurisdictions to impose renewed restrictions, and the government programs that have supported households and businesses through the slowdown may be difficult to sustain.

Overall, TD expects the recovery in earnings to be uneven. Fiscal 2021 earnings should be supported by lower PCL, reflecting the ongoing impact of bank and government relief and this year's allowance build, as well as improving customer activity and continued expense discipline. At the same time, TD expects further deposit margin compression given the low interest rate environment; some volumes may moderate from this year's levels, which were boosted by government stimulus, credit line draws and a high customer preference for liquidity; and capital markets activity may ease from this year's record pace. With its strong capital and liquidity levels, substantial loan loss reserves, and diversified and customer-focused franchise, TD considers the Bank to be well-positioned to manage both upside and downside risks and to execute on its growth opportunities.

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.

 

 

RETURN ON COMMON EQUITY
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 decreased to 9% CET1 Capital effective the second quarter of 2020 compared with 10.5% in the first quarter of 2020, and 10% in fiscal 2019.

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

Adjusted ROE is a non-GAAP financial measure and 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.

RETURN ON TANGIBLE COMMON EQUITY
Tangible common equity (TCE) is calculated as common shareholders' equity less goodwill, imputed goodwill and intangibles on the investments in Schwab and TD Ameritrade and other acquired intangible assets, net of related deferred tax liabilities. Return on tangible common equity (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 or not 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.

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.

SIGNIFICANT EVENTS

Acquisition of TD Ameritrade Holding Corporation by The Charles Schwab Corporation
On October 6, 2020, Schwab completed its acquisition of TD Ameritrade, of which the Bank was a major shareholder. Under the terms of the Schwab transaction, all TD Ameritrade shareholders, including the Bank, exchanged each TD Ameritrade share they owned for 1.0837 common shares of Schwab. At closing, in exchange for the Bank's approximately 43% ownership in TD Ameritrade, the Bank received an approximately 13.5% stake in Schwab, consisting of 9.9% voting common shares and the remainder in non-voting common shares, convertible into voting common shares upon transfer to a third party. The transaction resulted in a net gain on sale of the Bank's investment in TD Ameritrade of $2.3 billion after-tax in the fourth quarter of 2020. The transaction had an approximately neutral impact on CET1 at closing.

The Bank and Schwab are party to a stockholder agreement (the "Stockholder Agreement"), which became effective upon closing of the Schwab transaction. Under the Stockholder Agreement: (i) subject to meeting certain conditions, the Bank has two seats on Schwab's Board of Directors, (ii) the Bank is not permitted to own more than 9.9% voting common shares of Schwab, and (iii) the Bank is subject to customary standstill and lockup restrictions, including, subject to certain exceptions, transfer restrictions. In addition, the Bank and Schwab entered into the Schwab IDA Agreement, which became effective upon closing and has an initial expiration date of July 1, 2031. Starting on July 1, 2021, deposits under the Schwab IDA Agreement, which were $195 billion (US$146 billion) as at October 31, 2020, can be reduced at Schwab's option by up to US$10 billion a year (subject to certain adjustments based on the change in the balance of the sweep deposits between closing and July 1, 2021), with a floor of US$50 billion. The servicing fee under the Schwab IDA Agreement is set at 15 bps per annum on the aggregate average daily balance in the sweep accounts.

The Bank reports its investment in Schwab using the equity method of accounting. The Bank's share of Schwab's earnings available to common shareholders is reported with a one-month lag, and the Bank will begin recording its share of Schwab's earnings on this basis in the first quarter of fiscal 2021.

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 Canadian personal and commercial banking, wealth, and insurance businesses; U.S. Retail, which includes the results of the U.S. personal and business banking operations, wealth management services, and the Bank's investment in TD Ameritrade (Schwab as of October 6, 2020); 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, the "Business Focus" section in the 2020 MD&A, and Note 29 of the Bank's Consolidated Financial Statements for the year ended October 31, 2020. For information concerning the Bank's measure of adjusted return on average common equity, 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 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 $44 million, compared with $36 million in the fourth quarter last year, and $47 million in the prior quarter.

Quarterly comparison – Q4 2020 vs. Q4 2019
Canadian Retail reported net income for the quarter was $1,802 million, an increase of $57 million, or 3%, compared with the fourth quarter last year. The increase in earnings reflects lower PCL and lower insurance claims, partially offset by lower revenue and higher non-interest expenses. On an adjusted basis, net income for the quarter was $1,826 million, an increase of $53 million, or 3%. The reported and adjusted annualized ROE for the quarter was 40.5% and 41.0%, respectively, compared with 37.9% and 38.5%, respectively, in the fourth quarter last year.

Canadian Retail revenue is derived from the Canadian personal and commercial banking, wealth, and insurance businesses. Revenue for the quarter was $6,029 million, a decrease of $104 million, or 2%, compared with the fourth quarter last year.

Net interest income was $2,982 million, a decrease of $191 million, or 6%, reflecting lower deposit margins, partially offset by deposit and loan volume growth. Average loan volumes increased $13 billion, or 3%, reflecting 3% growth in personal loans and 4% growth in business loans. Average deposit volumes increased $68 billion, or 20%, reflecting 15% growth in personal deposits, 23% growth in business deposits, and 42% growth in wealth deposits. Net interest margin was 2.71%, a decrease of 25 bps, reflecting lower interest rates.

Non-interest income was $3,047 million, an increase of $87 million, or 3%, reflecting higher transaction and fee-based revenue in the wealth business, and higher insurance revenue, partially offset by lower fees in the banking businesses.

Assets under administration (AUA) were $433 billion as at October 31, 2020, an increase of $11 billion, or 3%, compared with the fourth quarter last year, reflecting new asset growth. Assets under management (AUM) were $358 billion as at October 31, 2020, an increase of $5 billion, or 1%, compared with the fourth quarter last year, reflecting market appreciation.

PCL for the quarter was $251 million, a decrease of $149 million, or 37%, compared with the fourth quarter last year. PCL – impaired was $199 million, a decrease of $125 million, or 39%, primarily reflected in the consumer lending portfolios, largely reflecting the ongoing impact of bank and government assistance programs. PCL – performing was $52 million, a decrease of $24 million, reflecting a smaller increase to the performing allowance for credit losses this quarter. Performing provisions in the current quarter were largely recorded in the commercial lending portfolios. Total PCL as an annualized percentage of credit volume was 0.22%, or a decrease of 15 bps.

Insurance claims and related expenses for the quarter were $630 million, a decrease of $75 million, or 11%, compared with the fourth quarter last year. The decrease reflects lower current accident year claims, no severe weather-related events and favourable prior years' claims development, partially offset by an increase in certain current year claims reserves, as well as an increase in the fair value of investments supporting claims liabilities which resulted in a similar increase to non-interest income.

Reported non-interest expenses for the quarter were $2,684 million, an increase of $47 million, or 2%, compared with the fourth quarter last year, reflecting higher spend supporting business growth including technology, volume-driven expenses, and marketing, partially offset by a reduction in project and other discretionary spend. On an adjusted basis, non-interest expenses were $2,659 million, an increase of $52 million, or 2%.

The reported and adjusted efficiency ratio for the quarter was 44.5% and 44.1%, respectively, compared with 43.0% and 42.5%, respectively, in the fourth quarter last year.

Quarterly comparison – Q4 2020 vs. Q3 2020
Canadian Retail reported net income for the quarter increased $539 million, or 43%, compared with the prior quarter. The increase in earnings reflects lower PCL and lower insurance claims, partially offset by higher non-interest expenses. On an adjusted basis, net income increased $538 million, or 42%. The reported and adjusted annualized ROE for the quarter was 40.5% and 41.0%, respectively, compared with 28.3% and 28.8%, respectively, in the prior quarter.

Revenue increased $3 million compared with the prior quarter. Net interest income increased $72 million, or 2%, primarily reflecting volume growth. Average loan volumes increased $6 billion, or 1%, reflecting 2% growth in personal loans and 1% decrease in business loans. Average deposit volumes increased $16 billion, or 4%. Net interest margin was 2.71%, an increase of 3 bps, reflecting improving loan margins.

Non-interest income decreased $69 million, or 2%, reflecting a $97 million decrease in the fair value of investments supporting claims liabilities which resulted in a similar decrease to insurance claims, partially offset by a recovery in customer activity, including retail sales and higher fee-based income in our banking business.

AUA decreased $1 billion compared with the prior quarter reflecting a decrease in market value. AUM decreased $8 billion, or 2%, reflecting a decrease in net assets.

PCL for the quarter decreased $700 million, or 74%, compared with the prior quarter. PCL – impaired decreased by $173 million, or 47%, reflected in the consumer lending portfolios, largely reflecting the ongoing impact of bank and government assistance programs. PCL – performing decreased by $527 million, reflecting a smaller increase to the performing allowance for credit losses this quarter in the consumer and commercial lending portfolios. Total PCL as an annualized percentage of credit volume was 0.22%, a decrease of 64 bps.

Insurance claims and related expenses for the quarter decreased $175 million, or 22%, compared with the prior quarter, reflecting favourable prior years' claims development, no severe weather-related events and changes in the fair value of investments supporting claims liabilities which resulted in a similar decrease to non-interest income, partially offset by higher current year claims and an increase in certain current year claims reserves.

Reported non-interest expenses increased $151 million, or 6%, compared with the prior quarter, reflecting higher spend supporting business growth and higher marketing costs. On an adjusted basis, non-interest expenses increased $151 million, or 6%.

The reported and adjusted efficiency ratio for the quarter was 44.5% and 44.1%, respectively, compared with 42.0% and 41.6%, respectively, in the prior quarter.

Quarterly comparison – Q4 2020 vs. Q4 2019 
U.S. Retail net income for the quarter was $871 million (US$658 million), a decrease of $320 million (US$242 million), or 27% (27% in U.S. dollars), compared with the fourth quarter last year. The reported and adjusted annualized ROE for the quarter was 9.0%, compared with 11.8%, in the fourth quarter last year.

U.S. Retail net income includes contributions from the U.S. Retail Bank and the Bank's investment in TD Ameritrade. Net income for the quarter from the U.S. Retail Bank and the Bank's investment in TD Ameritrade were $532 million (US$403 million) and $339 million (US$255 million), respectively.

The contribution from TD Ameritrade of US$255 million increased US$36 million, or 16%, compared with the fourth quarter last year, primarily reflecting higher trading volumes and lower operating expenses, partially offset by reduced trading commissions and lower asset-based revenue.

U.S. Retail Bank net income of US$403 million decreased US$278 million, or 41%, primarily reflecting higher PCL and lower revenue.

U.S. Retail Bank revenue is derived from personal and business banking, and wealth management. Revenue for the quarter was US$2,054 million, a decrease of US$176 million, or 8%, compared with the fourth quarter last year. Net interest income decreased US$121 million, or 7%, reflecting lower deposit margins, partially offset by growth in loan and deposit volumes. Net interest margin was 2.27%, a decrease of 91 bps, primarily reflecting lower deposit margins and balance sheet mix. Non-interest income decreased US$55 million, or 10%, primarily reflecting lower deposit fees.

Average loan volumes increased US$12 billion, or 7%, compared with the fourth quarter last year, reflecting growth in personal and business loans of 3% and 10%, respectively, with significant increases in business loans reflecting originations under the SBA PPP. Average deposit volumes increased US$81 billion, or 30%, reflecting a 35% increase in sweep deposit volumes, a 37% increase in business deposit volumes, and a 17% increase in personal deposit volumes.

AUA were US$24 billion as at October 31, 2020, an increase of US$3 billion, or 16%, compared with the fourth quarter last year, reflecting loan and deposit growth. AUM were US$39 billion as at October 31, 2020, a decrease of US$5 billion, or 11%, reflecting net fund outflows.

PCL for the quarter was US$433 million, an increase of US$210 million, compared with the fourth quarter last year. PCL – impaired was US$111 million, a decrease of US$92 million, or 45%, primarily reflected in the consumer lending portfolios, largely reflecting the ongoing impact of bank and government assistance programs. PCL – performing was US$322 million, an increase of US$302 million, primarily related to a significant deterioration in the economic outlook, including the impact of credit migration, and predominantly reflected in the commercial lending portfolios. U.S. Retail PCL including only the Bank's contractual portion of credit losses in the U.S. strategic cards portfolio, as an annualized percentage of credit volume, was 1.01%, or an increase of 46 bps.

Non-interest expenses for the quarter were US$1,254 million, a decrease of US$7 million, compared with the fourth quarter last year, primarily reflecting restructuring charges in the prior year and productivity savings this year, partially offset by costs to support customers and employees during the COVID-19 pandemic, higher employee-related costs, and a prior year adjustment to post-retirement benefit costs.

The efficiency ratio for the quarter was 61.1%, compared with 56.5% in the fourth quarter last year.

Quarterly comparison – Q4 2020 vs. Q3 2020
U.S. Retail net income increased $198 million (US$168 million), or 29% (34% in U.S. dollars), compared with the prior quarter. The annualized ROE for the quarter was 9.0%, compared to 6.7%, in the prior quarter.

The contribution from TD Ameritrade was US$255 million, an increase of US$25 million, or 11%, compared with the prior quarter, primarily reflecting higher asset-based revenue and higher trading volumes, partially offset by reduced trading commissions.

U.S. Retail Bank net income for the quarter increased US$143 million, or 55%, compared with the prior quarter.

Revenue for the quarter decreased US$31 million, or 1%. Net interest income decreased US$82 million, or 5%, reflecting continued deposit margin compression, partially offset by deposit volume growth. Net interest margin was 2.27%, a decrease of 23 bps reflecting lower deposit margins and balance sheet mix. Non-interest income increased US$51 million, or 12%, primarily reflecting higher deposit and credit card fees, partially offset by the valuation of certain investments in the prior quarter.

Average loan volumes decreased US$2 billion, or 1%, compared with the prior quarter, reflecting a decline in business loans of 3%, resulting from pay downs on commercial lines of credit, partially offset by an increase in personal loans of 1%. Average deposit volumes increased US$10 billion, or 3%, reflecting a 5% increase in business deposit volumes, a 3% increase in personal deposit volumes, and a 1% increase in sweep deposit volumes.

AUA were US$24 billion as at October 31, 2020, an increase of US$1 billion, or 6%, compared with the prior quarter. AUM were US$39 billion as at

October 31, 2020, a decrease of US$1 billion, or 3%, compared with the prior quarter, reflecting net outflows.

PCL for the quarter decreased US$222 million, compared with the prior quarter. PCL – impaired decreased by US$100 million, primarily reflected in the consumer lending portfolios, largely reflecting the ongoing impact of bank and government assistance programs. PCL – performing decreased by US$122 million, reflecting a smaller increase to the performing allowance for credit losses this quarter. Performing provisions in the current quarter were largely recorded in the commercial lending portfolios. U.S. Retail PCL including only the Bank's contractual portion of credit losses in the U.S. strategic cards portfolio, as an annualized percentage of credit volume was 1.01%, or a decrease of 50 bps.

Non-interest expenses for the quarter increased US$49 million, or 4%, compared with the prior quarter, reflecting higher employee-related costs, investments in the business, and marketing.

The efficiency ratio for the quarter was 61.1%, compared with 57.8%, in the prior quarter.

Quarterly comparison – Q4 2020 vs. Q4 2019
Wholesale Banking net income for the quarter was $486 million, an increase of $326 million compared with the fourth quarter last year reflecting higher revenue, lower non-interest expenses, and lower PCL.

Wholesale Banking revenue is derived primarily from capital markets and corporate and investment banking services provided to corporate, government, and institutional clients. Wholesale Banking generates revenue from corporate lending, advisory, underwriting, sales, trading and research, client securitization, trade finance, cash management, prime services, and trade execution services. Revenue for the quarter was $1,254 million, an increase of $406 million, or 48%, compared with the fourth quarter last year primarily reflecting higher trading-related revenue, higher loan fees and higher debt underwriting fees, as well as derivative valuation charges of $96 million in the prior year.

PCL for the quarter was a benefit of $6 million, compared with provisions of $41 million in the fourth quarter last year. PCL – impaired was a recovery of $19 million. PCL – performing was $13 million.

Non-interest expenses were $581 million, a decrease of $19 million, or 3%, compared with the fourth quarter last year. The decrease reflects lower variable compensation.

Quarterly comparison – Q4 2020 vs. Q3 2020
Wholesale Banking net income for the quarter increased $44 million, or 10%, compared with the prior quarter reflecting lower PCL and lower non-interest expenses, partially offset by lower revenue.

Revenue for the quarter decreased $143 million, or 10%, primarily reflecting lower trading-related revenue and lower underwriting fees, partially offset by higher other revenue.

PCL for the quarter decreased by $129 million. PCL – impaired was a recovery of $19 million, a decrease of $71 million reflecting credit migration in the prior quarter. PCL – performing was $13 million, a decrease of $58 million, reflecting a smaller increase to the performing allowance for credit losses this quarter.

Non-interest expenses for the quarter decreased $88 million, or 13%, reflecting lower variable compensation, partially offset by a legal provision and higher technology related costs.

Quarterly comparison – Q4 2020 vs. Q4 2019
Corporate segment's reported net income for the quarter was $1,984 million, compared with a reported net loss of $240 million in the fourth quarter last year. The year-over-year increase was primarily attributable to a net gain on sale of the Bank's investment in TD Ameritrade of $1,421 million ($2,250 million after-tax), as well as higher revenue from treasury and balance sheet management activities, which are reflected in Other, partially offset by higher net corporate expenses. Net corporate expenses increased largely reflecting the impact of corporate real estate optimization costs of $163 million in the current quarter, partially offset by restructuring charges of $51 million in the same quarter last year. The adjusted net loss for the quarter was $213 million, compared with an adjusted net loss of $178 million in the fourth quarter last year.

Quarterly comparison – Q4 2020 vs. Q3 2020
Corporate segment's reported net income for the quarter was $1,984 million, compared with a reported net loss of $130 million in the prior quarter. The quarter-over-quarter increase in reported net income was primarily attributable to a net gain on sale of the Bank's investment in TD Ameritrade of $1,421 million ($2,250 million after-tax), as well as higher revenue from treasury and balance sheet management activities, which are reflected in Other, partially offset by higher net corporate expenses. Net corporate expenses increased largely reflecting the impact of corporate real estate optimization costs of $163 million in the current quarter and lower employee-related benefits claims in the prior quarter. The adjusted net loss for the quarter was $213 million, compared with an adjusted net loss of $76 million in the prior quarter.

CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

 

Appendix A – Segmented Information
For management reporting purposes, the Bank reports its results under three key business segments: Canadian Retail, which includes the results of the Canadian personal and commercial banking businesses, Canadian credit cards, TD Auto Finance Canada and Canadian wealth and insurance businesses; U.S. Retail, which includes the results of the U.S. personal and commercial banking businesses, U.S. credit cards, TD Auto Finance U.S., U.S. wealth business, and the Bank's investment in TD Ameritrade (Schwab as of October 6, 2020); and Wholesale Banking. The Bank's other activities are grouped into the Corporate segment.

Results for these segments for the three and twelve months ended October 31, 2020 and October 31, 2019 are presented in the following tables.

SHAREHOLDER AND INVESTOR INFORMATION

Shareholder Services

For all other shareholder inquiries, please contact TD Shareholder Relations at 416-944-6367 or 1-866-756-8936 or email tdshinfo@td.com.

Please note that by leaving us an e-mail or voicemail message, you are providing your consent for us to forward your inquiry to the appropriate party for response.

Annual Report on Form 40-F (U.S.)
A copy of the Bank's Annual Report on Form 40-F for fiscal 2020 will be filed with the Securities and Exchange Commission later today and will be available at http://www.td.com. You may obtain a printed copy of the Bank's Annual Report on Form 40-F for fiscal 2020 free of charge upon request to TD Shareholder Relations at 416-944-6367 or 1-866-756-8936 or e-mail tdshinfo@td.com.

Access to Quarterly Results Materials
Interested investors, the media, and others may view this fourth quarter earnings news release, results slides, supplementary financial information, supplemental regulatory disclosure, and the 2020 Consolidated Financial Statements and MD&A documents on the TD website at www.td.com/investor/.

General Information
Products and services: Contact TD Canada Trust, 24 hours a day, seven days a week: 1-866-567-8888 French: 1-866-233-2323
Cantonese/Mandarin: 1-800-328-3698
Telephone device for the hearing impaired (TTY): 1-800-361-1180

Website: www.td.com 
Email: customer.service@td.com

Media contacts: https://newsroom.td.com/media-contacts

Quarterly Earnings Conference Call
TD Bank Group will host an earnings conference call in Toronto, Ontario on December 3, 2020. The call will be available live via TD's website at 1:30 p.m. ET. The call and audio webcast will feature presentations by TD executives on the Bank's financial results for the fourth quarter, followed by a question-and-answer period with analysts. The presentation material referenced during the call will be available on the TD website at www.td.com/investor on December 3, 2020, by approximately 12 p.m. ET. A listen-only telephone line is available at 416-641-6150 or 1-866-696-5894 (toll free) and the passcode is 2727354#.

The audio webcast and presentations will be archived at www.td.com/investor. Replay of the teleconference will be available from 5:00 p.m. ET on December 3, 2020, until 11:59 p.m. ET on December 11, 2020 by calling 905-694-9451 or 1-800-408-3053 (toll free). The passcode is 7300743#.

Annual Meeting
Thursday, April 1, 2021

About TD Bank Group

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, including TD Canada Trust, TD Auto Finance Canada, TD Wealth (Canada), TD Direct Investing, and TD Insurance; U.S. Retail, including TD Bank, America's Most Convenient Bank^®, TD Auto Finance U.S., TD Wealth (U.S.), and an investment in The Charles Schwab Corporation; and Wholesale Banking, including TD Securities. TD also ranks among the world's leading online financial services firms, with more than 14 million active online and mobile customers. TD had CDN$1.7 trillion in assets on October 31, 2020. The Toronto-Dominion Bank trades under the symbol "TD" on the Toronto and New York Stock Exchanges.

SOURCE TD Bank Group