0001279569-17-000371.txt : 20170302 0001279569-17-000371.hdr.sgml : 20170302 20170302133849 ACCESSION NUMBER: 0001279569-17-000371 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20170131 FILED AS OF DATE: 20170302 DATE AS OF CHANGE: 20170302 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TORONTO DOMINION BANK CENTRAL INDEX KEY: 0000947263 STANDARD INDUSTRIAL CLASSIFICATION: COMMERCIAL BANKS, NEC [6029] IRS NUMBER: 135640479 STATE OF INCORPORATION: A6 FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-14446 FILM NUMBER: 17657976 BUSINESS ADDRESS: STREET 1: 66 WELLINGTON STREET WEST STREET 2: 12TH FLOOR, TD TOWER CITY: TORONTO, ONTARIO STATE: A6 ZIP: M5K 1A2 BUSINESS PHONE: 416-944-6367 MAIL ADDRESS: STREET 1: 66 WELLINGTON STREET WEST STREET 2: 12TH FLOOR, TD TOWER CITY: TORONTO, ONTARIO STATE: A6 ZIP: M5K 1A2 6-K 1 tdbank6k.htm FORM 6-K

 

 

 

 

 

 

 

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 March, 2017. 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  þ

 

 

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 is incorporated by reference into all outstanding Registration Statements of The Toronto-Dominion Bank filed with the U.S. Securities and Exchange Commission.

 

 

 

 

 

 

 
 

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:  March 2, 2017 By: /s/ Cynthia Sargeant  
  Name: Cynthia Sargeant  
  Title:   Associate Vice President, Legal  

 

 

 
 

 

EXHIBIT INDEX

 

Exhibit   Description
     
99.1   1st Quarter 2017 Report to Shareholders
99.2   Earnings Coverage
99.3   Return on Assets, Dividend Payouts, and Equity to Assets Ratios
99.4   Ratio of Earnings to Fixed Charges

 

 EX-99.1 2 ex991.htm 1ST QUARTER 2017 REPORT TO SHAREHOLDERS

Exhibit 99.1

 

 

 

TD Bank Group Reports First Quarter 2017 Results
Report to Shareholders • Three months ended January 31, 2017

 

 

The financial information in this document is reported in Canadian dollars, and is based on the Bank's unaudited Interim Consolidated Financial Statements and related Notes prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), unless otherwise noted.

Reported results conform to generally accepted accounting principles (GAAP), in accordance with IFRS. Adjusted measures are non-GAAP measures. Refer to the "How the Bank Reports" section of the Management's Discussion and Analysis (MD&A) for an explanation of reported and adjusted results.

 

FIRST QUARTER FINANCIAL HIGHLIGHTS, compared with the first quarter last year:

•Reported diluted earnings per share were $1.32, compared with $1.17.
•Adjusted diluted earnings per share were $1.33, compared with $1.18.
•Reported net income was $2,533 million, compared with $2,223 million.
•Adjusted net income was $2,558 million, compared with $2,247 million.

 

FIRST QUARTER ADJUSTMENTS (ITEMS OF NOTE)

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

•Amortization of intangibles of $80 million ($59 million after tax or 3 cents per share), compared with $90 million ($65 million after tax or 3 cents per share) in the first quarter last year.
•A gain of $41 million ($34 million after tax or 2 cents per share) due to the change in fair value of derivatives hedging the reclassified available-for-sale securities portfolio, compared with a gain of $46 million ($41 million after tax or 2 cents per share) in the first quarter last year.

 

TORONTO, March 2, 2017 – TD Bank Group ("TD" or the "Bank") today announced its financial results for the first quarter ending January 31, 2017. First quarter reported earnings were $2.5 billion, up 14% compared with the same quarter last year, reflecting growth across all segments.

 

"We are pleased with our start to 2017. Our focus on organic growth, combined with favourable market conditions this quarter led to strong results in our retail and wholesale business segments on both sides of the border," said Bharat Masrani, Group President and Chief Executive Officer. The Bank also announced a dividend increase of 5 cents per common share for the quarter ending in April and its intention to launch a normal course issuer bid to repurchase for cancellation up to 15 million of its common shares, which is subject to regulatory approval.

 

Canadian Retail

Canadian Retail net income was $1,566 million, an increase of 4% compared with the same quarter last year reflecting volume growth, improved margins, and higher wealth revenue, partially offset by higher investments in technology initiatives and front-line employees, and volume-driven expenses.

 

U.S. Retail

U.S. Retail net income was $800 million (US$601 million) this quarter compared with $751 million (US$552 million) for the first quarter last year.

 

The U.S. Retail Bank, which excludes the Bank's investment in TD Ameritrade, generated net income of $689 million (US$518 million), an increase of 7% (10% in U.S. dollars) compared with the first quarter last year. Earnings reflect good operating leverage, growth in customers, loans and deposits, and fee income.

 

TD Ameritrade contributed $111 million (US$83 million) in earnings to the segment, an increase of 2% (1% in U.S. dollars) compared with $109 million (US$82 million) for the same quarter last year, reflecting higher trading volumes and asset-based revenue, partially offset by higher operating expenses.

 

Wholesale Banking

Wholesale Banking net income was $267 million, an increase of 66% compared with the first quarter last year, reflecting revenue growth from higher origination activity in debt and equity capital markets, higher trading-related revenue, and recoveries in credit losses.

 

Capital

TD's Common Equity Tier 1 Capital ratio on a Basel III fully phased-in basis was 10.9%, compared with 10.4% last quarter.

 

Conclusion

"We experienced good revenue growth this quarter and made investments in technology and front-line employees to strengthen relationships with our customers and clients," said Masrani. "Moving forward, we will continue to capitalize on our scale, customer-centric brand and diversified business mix to compete, grow and win."

 

 

 

 

 

 

The foregoing contains forward-looking statements. Please refer to the "Caution Regarding Forward-Looking Statements" on page 2.

 

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 1
 

CONTENTS

 

1 FIRST QUARTER FINANCIAL HIGHLIGHTS and   26 Managing Risk
  ADJUSTMENTS (ITEMS OF NOTE)   40 Securitization and Off-Balance Sheet Arrangements
      42 Accounting Policies and Estimates
      44 Changes in Internal Control over Financial Reporting
         
  MANAGEMENT'S DISCUSSION AND ANALYSIS     INTERIM CONSOLIDATED FINANCIAL STATEMENTS
3 Financial Highlights   45 Interim Consolidated Balance Sheet
4 How We Performed   46 Interim Consolidated Statement of Income
6 Financial Results Overview   47 Interim Consolidated Statement of Comprehensive Income
10 How Our Businesses Performed   48 Interim Consolidated Statement of Changes in Equity
14 Quarterly Results   49 Interim Consolidated Statement of Cash Flows
15 Balance Sheet Review   50 Notes to Interim Consolidated Financial Statements
16 Credit Portfolio Quality      
22 Capital Position   73 SHAREHOLDER AND INVESTOR INFORMATION

 

 

Caution Regarding Forward-Looking Statements

From time to time, the Bank (as defined in this document) makes written and/or oral forward-looking statements, including in this document, in other filings with Canadian regulators or the United States (U.S.) Securities and Exchange Commission (SEC), and in other communications. In addition, representatives of the Bank may make forward-looking statements orally to analysts, investors, the media and others. All such statements are made pursuant to the "safe harbour" provisions of, and are intended to be forward-looking statements under, applicable Canadian and U.S. securities legislation, including the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements made in this document, the Management's Discussion and Analysis ("2016 MD&A") in the Bank's 2016 Annual Report under the heading "Economic Summary and Outlook", for each business segment under headings "Business Outlook and Focus for 2017", and in other statements regarding the Bank's objectives and priorities for 2017 and beyond and strategies to achieve them, the regulatory environment in which the Bank operates, and the Bank's anticipated financial performance. Forward-looking statements are typically identified by words such as "will", "should", "believe", "expect", "anticipate", "intend", "estimate", "plan", "may", and "could".

By their very nature, these forward-looking statements require the Bank to make assumptions and are subject to inherent risks and uncertainties, general and specific. Especially in light of the uncertainty related to the physical, financial, economic, political, and regulatory environments, such risks and uncertainties – many of which are beyond the Bank's control and the effects of which can be difficult to predict – may cause actual results to differ materially from the expectations expressed in the forward-looking statements. Risk factors that could cause, individually or in the aggregate, such differences include: credit, market (including equity, commodity, foreign exchange, and interest rate), liquidity, operational (including technology and infrastructure), reputational, insurance, strategic, regulatory, legal, environmental, capital adequacy, and other risks. Examples of such risk factors include the general business and economic conditions in the regions in which the Bank operates; the ability of the Bank to execute on key priorities, including the successful completion of acquisitions and dispositions, business retention plans, and strategic plans and to attract, develop and retain key executives; disruptions in or attacks (including cyber-attacks) on the Bank's information technology, internet, network access or other voice or data communications systems or services; the evolution of various types of fraud or other criminal behaviour to which the Bank is exposed; the failure of third parties to comply with their obligations to the Bank or its affiliates, including relating to the care and control of information; the impact of new and changes to, or application of, current laws and regulations, including without limitation tax laws, risk-based capital guidelines and liquidity regulatory guidance; exposure related to significant litigation and regulatory matters; increased competition, including through internet and mobile banking and non-traditional competitors; changes to the Bank's credit ratings; changes in currency and interest rates (including the possibility of negative interest rates); increased funding costs and market volatility due to market illiquidity and competition for funding; critical accounting estimates and changes to accounting standards, policies, and methods used by the Bank; existing and potential international debt crises; and the occurrence of natural and unnatural catastrophic events and claims resulting from such events. The Bank cautions that the preceding list is not exhaustive of all possible risk factors and other factors could also adversely affect the Bank's results. For more detailed information, please refer to the "Risk Factors and Management" section of the 2016 MD&A, as may be updated in subsequently filed quarterly reports to shareholders and news releases (as applicable) related to any transactions or events discussed under the heading "Significant Events" in the relevant MD&A, which applicable releases may be found on www.td.com. All such factors should be considered carefully, as well as other uncertainties and potential events, and the inherent uncertainty of forward-looking statements, when making decisions with respect to the Bank and the Bank cautions readers not to place undue reliance on the Bank's forward-looking statements.

Material economic assumptions underlying the forward-looking statements contained in this document are set out in the 2016 MD&A under the headings "Economic Summary and Outlook", and for each business segment, "Business Outlook and Focus for 2017", each as may be updated in subsequently filed quarterly reports to shareholders.

Any forward-looking statements contained in this document represent the views of management only as of the date hereof and are presented for the purpose of assisting the Bank's shareholders and analysts in understanding the Bank's financial position, objectives and priorities and anticipated financial performance as at and for the periods ended on the dates presented, and may not be appropriate for other purposes. The Bank does not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time by or on its behalf, except as required under applicable securities legislation.

 

 

 

 

 

 

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

 

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 2
 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATING PERFORMANCE

 

This MD&A is presented to enable readers to assess material changes in the financial condition and operating results of TD Bank Group ("TD" or the "Bank") for the three months ended January 31, 2017, 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 2016 Consolidated Financial Statements and related Notes and 2016 MD&A. This MD&A is dated March 1, 2017. Unless otherwise indicated, all amounts are expressed in Canadian dollars and have been primarily derived from the Bank's 2016 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 restated/reclassified to conform with the presentation adopted in the current period. Additional information relating to the Bank, including the Bank's 2016 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).

 

 

TABLE 1: FINANCIAL HIGHLIGHTS                  
(millions of Canadian dollars, except as noted) As at or for the three months ended   
     January 31    October 31    January 31   
     2017    2016    2016   
Results of operations                  
Total revenue   $ 9,120    $ 8,745    $ 8,610   
Provision for credit losses   633      548      642   
Insurance claims and related expenses   574      585      655   
Non-interest expenses     4,897      4,848      4,653   
Net income – reported   2,533      2,303      2,223   
Net income – adjusted1    2,558      2,347      2,247   
Return on common equity – reported   14.4  %   13.3  %   13.3  %
Return on common equity – adjusted2    14.5      13.6      13.5   
Financial position (billions of Canadian dollars)                  
Total loans net of allowance for loan losses $ 584.7    $ 585.7    $ 567.0   
Total assets   1,186.9      1,177.0      1,173.6   
Total deposits   774.5      773.7      736.5   
Total equity   73.3      74.2      71.7   
Total Common Equity Tier 1 Capital risk-weighted assets3    402.2      405.8      399.6   
Financial ratios                  
Efficiency ratio – reported   53.7  %   55.4  %   54.0  %
Efficiency ratio – adjusted1    53.2      54.8      53.5   
Common Equity Tier 1 Capital ratio3    10.9      10.4      9.9   
Tier 1 Capital ratio3    12.6      12.2      11.4   
Total Capital ratio3    15.1      15.2      13.7   
Leverage ratio   4.0      4.0      3.7   
Provision for credit losses as a % of net average loans and acceptances4    0.42      0.37      0.45   
Common share information – reported (dollars)                  
Per share earnings                  
  Basic $ 1.32    $ 1.20    $ 1.17   
  Diluted   1.32      1.20      1.17   
Dividends per share   0.55      0.55      0.51   
Book value per share   36.25      36.71      35.99   
Closing share price5    67.41      60.86      53.15   
Shares outstanding (millions)                  
  Average basic   1,855.8      1,855.4      1,854.1   
  Average diluted   1,860.3      1,858.8      1,857.5   
  End of period   1,856.4      1,857.2      1,850.3   
Market capitalization (billions of Canadian dollars) $ 125.1    $ 113.0    $ 98.3   
Dividend yield     3.4  %   3.7  %   3.9  %
Dividend payout ratio   41.6      45.7      43.6   
Price-earnings ratio   14.0      13.0      12.4   
Total shareholder return (1 year)6    31.7      17.9      9.2   
Common share information – adjusted (dollars)1                   
Per share earnings                  
  Basic $ 1.34    $ 1.23    $ 1.18   
  Diluted   1.33      1.22      1.18   
Dividend payout ratio   41.2  %   44.8  %   43.1  %
Price-earnings ratio   13.4      12.5      11.4   
1Adjusted measures are non-GAAP measures. Refer to the "How the Bank Reports" section of this document for an explanation of reported and adjusted results.
2Adjusted return on common equity is a non-GAAP financial measure. Refer to the "Return on Common Equity" section of this document for an explanation.
3Each capital ratio has its own risk-weighted assets (RWA) measure due to the Office of the Superintendent of Financial Institutions Canada (OSFI) prescribed scalar for inclusion of the Credit Valuation Adjustment (CVA). For fiscal 2016, the scalars for inclusion of CVA for Common Equity Tier 1 (CET1), Tier 1, and Total Capital RWA were 64%, 71%, and 77%, respectively. For fiscal 2017, the scalars are 72%, 77%, and 81%.
4Excludes acquired credit-impaired (ACI) loans and debt securities classified as loans. For additional information on ACI loans, refer to the "Credit Portfolio Quality" section of the MD&A and Note 5 of the Interim Consolidated Financial Statements. For additional information on debt securities classified as loans, refer to the "Exposure to Non-Agency Collateralized Mortgage Obligations" discussion and tables in the "Credit Portfolio Quality" section of the MD&A and Note 5 of the Interim Consolidated Financial Statements.
5Toronto Stock Exchange closing market price.
6Total shareholder return (TSR) is calculated based on share price movement and dividends reinvested over a trailing one year period.

 

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 3
 

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 25 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 TD Ameritrade; and Wholesale Banking, including TD Securities. TD also ranks among the world's leading online financial services firms, with over 11 million active online and mobile customers. TD had $1.2 trillion in assets as at January 31, 2017. The Toronto-Dominion Bank trades under the symbol "TD" on the Toronto and New York Stock Exchanges.

 

How the Bank Reports

The Bank prepares its Interim Consolidated Financial Statements in accordance with IFRS, 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.

 

 

TABLE 2: OPERATING RESULTS – Reported              
(millions of Canadian dollars) For the three months ended   
     January 31  October 31  January 31   
     2017  2016  2016   
Net interest income $ 5,141  $ 5,072  $ 5,047   
Non-interest income   3,979    3,673    3,563   
Total revenue   9,120    8,745    8,610   
Provision for credit losses   633    548    642   
Insurance claims and related expenses   574    585    655   
Non-interest expenses     4,897    4,848    4,653   
Income before income taxes and equity in net income of an              
  investment in TD Ameritrade   3,016    2,764    2,660   
Provision for income taxes     596    555    546   
Equity in net income of an investment in TD Ameritrade   113    94    109   
Net income – reported   2,533    2,303    2,223   
Preferred dividends   48    43    25   
Net income available to common shareholders and non-controlling              
  interests in subsidiaries $ 2,485  $ 2,260  $ 2,198   
Attributable to:                
Common shareholders $ 2,456  $ 2,231  $ 2,169   
Non-controlling interests   29    29    29   

 

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 4
 

 

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

 

 

TABLE 3: NON-GAAP FINANCIAL MEASURES – Reconciliation of Adjusted to Reported Net Income  
(millions of Canadian dollars) For the three months ended   
     January 31  October 31  January 31   
   2017  2016  2016   
Operating results – adjusted              
Net interest income $ 5,141  $ 5,072  $ 5,047   
Non-interest income1    3,938    3,654    3,517   
Total revenue   9,079    8,726    8,564   
Provision for credit losses   633    548    642   
Insurance claims and related expenses   574    585    655   
Non-interest expenses2    4,833    4,784    4,579   
Income before income taxes and equity in net income of an              
  investment in TD Ameritrade   3,039    2,809    2,688   
Provision for income taxes   610    572    566   
Equity in net income of an investment in TD Ameritrade3    129    110    125   
Net income – adjusted   2,558    2,347    2,247   
Preferred dividends   48    43    25   
Net income available to common shareholders and non-controlling              
  interests in subsidiaries – adjusted   2,510    2,304    2,222   
Attributable to:              
Non-controlling interests in subsidiaries, net of income taxes   29    29    29   
Net income availablue to common shareholders – adjusted   2,481    2,275    2,193   
Pre-tax adjustments for items of note              
Amortization of intangibles4    (80)   (80)   (90)  
Fair value of derivatives hedging the reclassified available-for-sale              
  securities portfolio5    41    19    46   
Provision for (recovery of) income taxes for items of note              
Amortization of intangibles   (21)   (20)   (25)  
Fair value of derivatives hedging the reclassified available-for-sale              
  securities portfolio   7    3    5   
Total adjustments for items of note   (25)   (44)   (24)  
Net income available to common shareholders – reported $ 2,456  $ 2,231  $ 2,169   
1Adjusted non-interest income excludes the following items of note: first quarter 2017 – $41 million gain due to change in fair value of derivatives hedging the reclassified available-for-sale securities portfolio, as explained in footnote 5; fourth quarter 2016 – $19 million gain due to change in fair value of derivatives hedging the reclassified available-for-sale securities portfolio; first quarter 2016 – $46 million gain due to change in fair value of derivatives hedging the reclassified available-for-sale securities portfolio. These amounts were reported in the Corporate segment.
2Adjusted non-interest expenses excludes the following items of note: first quarter 2017 – $64 million amortization of intangibles, as explained in footnote 4; fourth quarter 2016 – $64 million amortization of intangibles; first quarter 2016 – $74 million amortization of intangibles. These amounts were reported in the Corporate segment.
3Adjusted equity in net income of an investment in TD Ameritrade excludes the following items of note: first quarter 2017 – $16 million amortization of intangibles, as explained in footnote 4; fourth quarter 2016 – $16 million amortization of intangibles; first quarter 2016 – $16 million amortization of intangibles. These amounts were reported in the Corporate segment.
4Amortization 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.
5The Bank changed its trading strategy with respect to certain trading debt securities and reclassified these securities from trading to the available-for-sale category effective August 1, 2008. These debt securities are economically hedged, primarily with credit default swap and interest rate swap contracts which are recorded on a fair value basis with changes in fair value recorded in the period's earnings. Management believes that this asymmetry in the accounting treatment between derivatives and the reclassified debt securities results in volatility in earnings from period to period that is not indicative of the economics of the underlying business performance in Wholesale Banking. The Bank may from time to time replace securities within the portfolio to best utilize the initial, matched fixed term funding. As a result, the derivatives are accounted for on an accrual basis in Wholesale Banking and the gains and losses related to the derivatives in excess of the accrued amounts are reported in the Corporate segment. Adjusted results of the Bank exclude the gains and losses of the derivatives in excess of the accrued amount.

 

 

TABLE 4: RECONCILIATION OF REPORTED TO ADJUSTED EARNINGS PER SHARE (EPS)1   
(Canadian dollars)     For the three months ended   
   January 31  October 31  January 31   
   2017  2016  2016   
Basic earnings per share – reported $ 1.32  $ 1.20  $ 1.17   
Adjustments for items of note2    0.02    0.03    0.01   
Basic earnings per share – adjusted $ 1.34  $ 1.23  $ 1.18   
                 
Diluted earnings per share – reported   $ 1.32  $ 1.20  $ 1.17   
Adjustments for items of note2    0.01    0.02    0.01   
Diluted earnings per share – adjusted $ 1.33  $ 1.22  $ 1.18   
1EPS is computed by dividing net income available to common shareholders by the weighted-average number of shares outstanding during the period.
2For 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 • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 5
 

 

TABLE 5: AMORTIZATION OF INTANGIBLES, NET OF INCOME TAXES1       
(millions of Canadian dollars) For the three months ended   
     January 31  October 31  January 31   
     2017  2016  2016   
TD Bank, National Association (TD Bank, N.A.) $ 25  $ 25  $ 30   
TD Ameritrade Holding Corporation (TD Ameritrade)2    16    16    16   
MBNA Canada   9    9    9   
Aeroplan   5    4    4   
Other   4    6    6   
       59    60    65   
Software and asset servicing rights   82    94    80   
Amortization of intangibles, net of income taxes $ 141  $ 154  $ 145   
1Amortization of intangibles, with the exception of software and asset servicing rights, are 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.
2Included 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. The capital allocated to the business segments is based on 9% CET1 Capital.

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 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.

 

 

TABLE 6: RETURN ON COMMON EQUITY  
(millions of Canadian dollars, except as noted)   For the three months ended   
     January 31    October 31    January 31   
     2017    2016    2016   
Average common equity $ 67,697    $ 66,769    $ 64,641   
Net income available to common shareholders – reported   2,456      2,231      2,169   
Items of note, net of income taxes1    25      44      24   
Net income available to common shareholders – adjusted   2,481      2,275      2,193   
Return on common equity – reported   14.4  %   13.3  %   13.3  %
Return on common equity – adjusted   14.5      13.6      13.5   
1For 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.

 

 

FINANCIAL RESULTS OVERVIEW

 

Performance Summary

Outlined below is an overview of the Bank's performance on an adjusted basis for the first quarter of 2017. 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.

•Adjusted diluted earnings per share for the three months ended January 31, 2017, increased 13% from the same period last year reflecting higher earnings across all segments. The Bank's goal is to achieve 7 to 10% adjusted earnings per share growth over the medium term.
•Adjusted return on common equity for the three months ended January 31, 2017, was 14.5%.
•For the twelve months ended January 31, 2017, the total shareholder return was 31.7% compared to the Canadian peer1 average of 34.6%.

 

Impact of Foreign Exchange Rate on U.S. Retail Segment Translated Earnings

U.S. Retail segment earnings, including the contribution from the Bank's investment in TD Ameritrade, reflect fluctuations in the U.S. dollar to Canadian dollar exchange rate compared with the same period last year. Appreciation of the Canadian dollar had an unfavourable impact on U.S. Retail segment earnings for the three months ended January 31, 2017, compared with the same period last year, as shown in the following table.

 

 

TABLE 7: IMPACT OF FOREIGN EXCHANGE RATE ON U.S. RETAIL SEGMENT TRANSLATED EARNINGS          
(millions of Canadian dollars, except as noted) For the three months ended    
     January 31, 2017 vs.  
      January 31, 2016  
U.S. Retail Bank          
Decreased total revenue     $ 79   
Decreased non-interest expenses         45   
Decreased net income – after tax       21   
Decreased equity in net income of an investment in TD Ameritrade       1   
U.S. Retail segment decreased net income – after tax       22   
Earnings per share (dollars)          
Decrease in basic       $ 0.01   
Decrease in diluted       0.01   

 

On a trailing twelve month basis, a one cent appreciation/depreciation in the U.S. dollar to Canadian dollar average exchange rate will increase/decrease U.S. Retail segment net income by approximately $40 million.

 

 

__________________________________

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

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 6
 

 

Economic Summary and Outlook

After recording virtually no growth during the first half of calendar 2016, Canada's economy kicked into higher gear in the year's second half with an average rate of expansion of approximately 3% annualized. While a rebound in oil production and exports in the aftermath of last spring's wildfires in northern Alberta accounted for an important part of the turnaround in the July to December 2016 period, a solid advance in consumer spending was at the core. However, for the 2016 calendar year as a whole, economic growth still ran at a sub-par 1.4%.

Looking ahead, Canada's economic performance could be more highly influenced than normal by economic and political developments in the United States. The U.S. economy has led a general global upswing in growth since mid-2016, and most signs point to a solid 2-2.5% advance in real GDP stateside over the next few years. With the labour market close to full employment, robust hiring demand has been translating into steady wage gains across the income spectrum. Americans have also been lured back into the job market, as evidenced by a rising participation rate. A continuation of a relatively low unemployment rate and broad-based income increases are expected to underpin a steady pace of household spending and housing demand in the coming quarters, despite recent increases in borrowing costs. Meanwhile, business spending fundamentals among U.S. corporations have been improving recently. In this environment, the U.S. Federal Reserve is likely to follow through with further gradual reductions in monetary accommodation over the next few years. Continued attractive U.S. bond yields relative to those in other advanced economies are expected to keep the U.S. dollar close to its highest levels in more than a decade.

Potential policy moves in Washington represent a key source of uncertainty to the U.S. economic outlook. The Administration and Congress are contemplating major reforms to taxes and deregulation, along with a number of other measures related to spending on infrastructure and defense. Other policies that have been floated, such as those that could reduce flows of trade and immigration to the U.S. could be growth inhibiting. At this stage, both the measures to be adopted and their timing remain highly speculative, injecting both upside and downside risks to the economic outlook.

For Canada, this increased uncertainty is occurring against a backdrop of improved global demand for Canadian-sourced goods and services. Exports rebounded solidly in the fourth calendar quarter of 2016 and are expected to maintain momentum in the upcoming year in tandem with trends in U.S. and global spending. After a difficult two-year slump that was driven in large part by weakness in the resource sector, business investment in Canada looks to have bottomed and we anticipate a modest recovery in 2017. However, that momentum is at risk of being restrained by policy uncertainty south of the border, and in particular the potential for trade protectionist measures or business tax reform by the U.S. government that dampen investment intentions among Canadian firms.

The real estate sector has remained a major engine of growth, supported by the persisting low rate environment and rising wealth associated with housing prices. The ongoing strength in national sales and prices in late 2016 and early 2017 can largely be chalked up to one market, the Greater Toronto Area (GTA). Home price pressures in the GTA continue to escalate under very tight supply conditions within the single-family home segment. In contrast, the previously heated Vancouver market has recorded a significant slowdown in sales and average prices since the implementation of housing-related taxes on non-residents last summer. A number of developments continue to point to a moderation in Canadian housing resale activity by the second half of this year. Chief among them are the tightening of the rules for insured mortgage by the federal government last autumn and recent increases in mortgage rates. However, Toronto's tight supply conditions suggest a flattening in price pressures is the more likely outcome, rather than an outright correction in the absence of any additional policy measures.

Government spending is projected to provide a moderate boost to economic growth over the near term, spearheaded by fiscal expansion at the federal level. The federal government is gearing up to release a spring budget that lays out an innovation strategy. Among the various initiatives are the "Canadian Infrastructure Bank" and "global skills strategy" that could help strengthen Canada's longer-term growth foundation.

In light of these generally supportive economic tailwinds, Canada's rate of expansion is expected to accelerate to 1.8% in the 2017 calendar year. However, beneath the headline figures lie diverging regional performances. The Alberta and Saskatchewan economies appear poised to begin expanding after two years of contraction. Conversely, Ontario and British Columbia, which continued to enjoy robust gains of nearly 3% in 2016, are likely to record somewhat more tempered gains closer to 2% this year. Elsewhere, economic growth is expected to remain modest but steady.

Against a backdrop of muted inflationary pressures, the Bank of Canada is expected to maintain its overnight rate through the end of calendar 2018. This is consistent with the Bank of Canada's most recent published forecast, which continues to show a degree of persistent economic slack. A rising U.S.-Canada short-term interest spread is expected to hold the Canadian dollar to an average of US74 - US75 cents this year, below its recent move to US77 cents.

In addition to risks surrounding the U.S. government policy landscape, there are other uncertainties that could knock the Canadian economy off its path of moderate growth. A number of upcoming elections in the Eurozone may result in increased global uncertainty and volatility. Domestically, the key risk is the potential for a disorderly correction in Canada's housing market that could set the stage for a significant deleveraging cycle.

 

Net Income

Quarterly comparison – Q1 2017 vs. Q1 2016

Reported net income for the quarter was $2,533 million, an increase of $310 million, or 14%, compared with the first quarter last year. The increase in reported net income was due to higher earnings across all segments. Wholesale Banking net income reflected higher revenue and a net recovery of credit losses, partially offset by higher non-interest expenses. Corporate segment net loss decreased primarily due to higher revenue from treasury and balance sheet management activities, and prior year items related to provisions for incurred but not identified credit losses, and negative tax items, partially offset by higher net corporate expenses this quarter. Canadian Retail net income increased due to revenue growth and lower insurance claims, partially offset by higher non-interest expenses and provision for credit losses (PCL). U.S. Retail net income reflected higher loan and deposit volumes and fee income growth, partially offset by higher expenses and PCL. Adjusted net income for the quarter was $2,558 million, an increase of $311 million, or 14%.

 

Quarterly comparison – Q1 2017 vs. Q4 2016

Reported net income for the quarter increased $230 million, or 10%, compared with the prior quarter. The increase in reported net income was due to higher earnings across all segments. U.S. Retail net income increased due to the impact of the interest rate increases, higher loan and deposit volumes, lower expenses, and the favourable impact of foreign currency translation, partially offset by higher PCL. Canadian Retail net income reflected revenue growth, lower non-interest expenses and lower insurance claims. Corporate segment experienced a lower net loss due to higher revenue from treasury and balance sheet management activities, and higher gains related to the fair value of derivatives hedging the reclassified available-for-sale securities portfolio reported as an item of note, partially offset by higher net corporate expenses and the impact of positive tax items in the prior quarter. Wholesale Banking net income increased due to higher revenue and a net recovery of credit losses, partially offset by higher non-interest expenses. Adjusted net income for the quarter increased $211 million, or 9%.

 

Net Interest Income

Quarterly comparison – Q1 2017 vs. Q1 2016

Net interest income for the quarter was $5,141 million, an increase of $94 million, or 2%, compared with the first quarter last year. Net interest income increased in the Canadian Retail and U.S. Retail segments, partially offset by a decrease in the Wholesale Banking and Corporate segments. Canadian Retail net interest income increased due to loan and deposit volume growth and favourable business mix. U.S. Retail net interest income increased primarily due to higher loan and deposit volumes, and higher deposit margins. Corporate segment net interest income decreased mainly due to treasury and balance sheet management activities this quarter, partially offset by higher contributions from the strategic cards portfolio. Wholesale Banking reflected lower trading net interest income.

 

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 7
 

 

Quarterly comparison – Q1 2017 vs. Q4 2016

Net interest income for the quarter increased $69 million, or 1%, compared with the prior quarter. Net interest income increased primarily in the Canadian Retail and U.S. Retail segments. Wholesale Banking and Corporate segments were relatively flat compared to last quarter. Canadian Retail net interest income increased primarily due to loan and deposit volume growth and higher margins. U.S. Retail net interest income increased primarily due to the favourable impact of foreign currency translation.

 

Non-Interest Income

Quarterly comparison – Q1 2017 vs. Q1 2016

Reported non-interest income for the quarter was $3,979 million, an increase of $416 million, or 12%, compared with the first quarter last year. All segments experienced increases in reported non-interest income. Wholesale Banking non-interest income reflected higher origination activity from debt and equity capital markets, and higher trading-related revenue. U.S. Retail non-interest income increased due to fee income growth in personal banking and wealth management and the favourable impact from balance sheet management activities. Canadian Retail non-interest income reflected higher fee-based revenue and wealth asset growth, partially offset by changes in the fair value of investments supporting claims liabilities, which resulted in a similar decrease to insurance claims and related expenses. Corporate segment non-interest income increased due to higher revenue from treasury and balance sheet management activities and a lower gain related to the fair value of derivatives hedging the reclassified available-for-sale securities portfolio reported as an item of note. Adjusted non-interest income for the quarter was $3,938 million, an increase of $421 million, or 12%.

 

Quarterly comparison – Q1 2017 vs. Q4 2016

Reported non-interest income for the quarter increased $306 million, or 8%, compared with the prior quarter. Non-interest income increased in the Wholesale Banking, Corporate and U.S. Retail segments, partially offset by a decrease in the Canadian Retail segment. Wholesale Banking non-interest income reflected higher origination activity in equity capital markets and higher trading-related revenue, partially offset by lower corporate lending fees. Corporate segment non-interest income increased primarily due to higher gains related to the fair value of derivatives hedging the reclassified available-for-sale securities portfolio reported as an item of note. U.S. Retail non-interest income increased due to fee income growth in wealth management, commercial banking, and credit cards, and the favourable impact from balance sheet management activities and foreign currency translation. Canadian Retail segment non-interest income decreased due to changes in the fair value of investments supporting claims liabilities, which resulted in a similar decrease to insurance claims and related expenses, partially offset by higher fee-based revenue. Adjusted non-interest income for the quarter increased $284 million, or 8%.

 

Provision for Credit Losses

Quarterly comparison – Q1 2017 vs. Q1 2016

PCL for the quarter was $633 million, a decrease of $9 million, or 1%, compared with the first quarter last year. PCL decreased in the Corporate and Wholesale Banking segments, partially offset by increases in the U.S. Retail and Canadian Retail segments. Corporate segment PCL decreased due to provisions for incurred but not identified credit losses in the prior year. Wholesale Banking PCL reflected the recovery of specific provisions in the oil and gas sector. U.S. Retail PCL increased due to higher provisions related to mix in auto lending and growth and seasoning in credit cards. Canadian Retail PCL increased reflecting the benefit in the prior year of the sale of charged-off accounts and higher provisions in the auto lending portfolio in the current quarter.

 

Quarterly comparison – Q1 2017 vs. Q4 2016

PCL for the quarter increased $85 million, or 16%, compared with the prior quarter, primarily in the U.S. Retail, Corporate, and Canadian Retail segments, partially offset by a decrease in the Wholesale Banking segment. U.S. Retail PCL increased due to seasonality in the auto lending and credit card portfolios, the benefit in the prior quarter related to the release of special reserves held for the South Carolina flood and certain legacy home equity loans, and the impact of foreign currency translation. Corporate segment PCL increased due to higher contributions from the strategic cards portfolio. Canadian Retail PCL increased primarily due to higher provisions in the auto lending portfolio in the current quarter. Wholesale Banking PCL decreased due to the recovery of specific provisions in the oil and gas sector.

 

 

TABLE 8: PROVISION FOR CREDIT LOSSES              
(millions of Canadian dollars) For the three months ended   
     January 31  October 31  January 31   
     2017  2016  2016   
Provision for credit losses – counterparty-specific and individually              
  insignificant              
Provision for credit losses – counterparty-specific $ (10) $ 19  $ 20   
Provision for credit losses – individually insignificant   676    620    613   
Recoveries   (164)   (137)   (169)  
Total provision for credit losses for counterparty-specific and individually              
  insignificant   502    502    464   
Provision for credit losses – incurred but not identified              
Canadian Retail and Wholesale Banking1    –    –    65   
U.S. Retail   102    18    85   
Corporate2    29    28    28   
Total provision for credit losses – incurred but not identified   131    46    178   
Provision for credit losses – reported $ 633  $ 548  $ 642   
1The incurred but not identified PCL is included in the Corporate segment results for management reporting.
2The retailer program partners' share of the U.S. strategic cards portfolio.

 

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 8
 

 

Insurance claims and related expenses

Quarterly comparison – Q1 2017 vs. Q1 2016

Insurance claims and related expenses for the quarter were $574 million, a decrease of $81 million, or 12%, compared with the first quarter last year, reflecting changes in the fair value of investments supporting claims liabilities, which resulted in a similar decrease in non-interest income, and lower current year claims.

 

Quarterly comparison – Q1 2017 vs. Q4 2016

Insurance claims and related expenses for the quarter decreased $11 million, or 2%, compared with the prior quarter, reflecting lower current year claims and changes in the fair value of investments supporting claims liabilities, which resulted in a similar decrease in non-interest income, partially offset by lower favourable prior years’ claims development.

 

Non-Interest Expenses and Efficiency Ratio

Quarterly comparison – Q1 2017 vs. Q1 2016

Reported non-interest expenses were $4,897 million, an increase of $244 million, or 5%, compared with the first quarter last year. Non-interest expenses increased in the Canadian Retail, Wholesale Banking, and U.S. Retail segments, partially offset by a decrease in the Corporate segment. Canadian Retail non-interest expenses increased due to higher investment in strategic technology initiatives, volume-driven expenses including revenue-based variable expenses, higher investments in front-line employees, and business growth, partially offset by productivity savings. Wholesale Banking non-interest expenses reflected higher variable compensation and operating expenses, and costs associated with the acquisition of Albert Fried & Company. U.S. Retail non-interest expenses increased largely due to higher spend for technology modernization, volume growth and additional front-line employees, partially offset by productivity savings. The decrease in the Corporate segment was primarily due to the impact of foreign currency translation and lower amortization of intangibles recorded as an item of note, partially offset by higher net corporate expenses due to ongoing investments in enterprise and regulatory projects. Adjusted non-interest expenses were $4,833 million, an increase of $254 million, or 6%. We expect the rate of growth in non-interest expenses to remain elevated in the first half of the fiscal year and to abate in the second half.

The Bank's reported efficiency ratio was 53.7%, compared with 54.0% in the first quarter last year. The Bank's adjusted efficiency ratio was 53.2%, compared with 53.5%.

 

Quarterly comparison – Q1 2017 vs. Q4 2016

Reported non-interest expenses for the quarter increased $49 million, or 1%, compared with the prior quarter. Reported non-interest expenses increased in the Wholesale Banking and Corporate segments, partially offset by decreases in the U.S. Retail and Canadian Retail segments. Wholesale Banking non-interest expenses increased due to higher variable compensation and operating expenses, and costs associated with the acquisition of Albert Fried & Company. Corporate non-interest expenses increased due to foreign currency translation, the timing of regulatory fees, and seasonality of certain other expenses. U.S. Retail non-interest expenses decreased due to store optimization and higher provisions in the prior quarter and an increase in productivity savings. Canadian Retail non-interest expenses decreased due to productivity savings and higher marketing and business initiatives in the prior quarter, partially offset by higher employee costs. Adjusted non-interest expenses increased $49 million, or 1%.

The Bank's reported efficiency ratio was 53.7%, compared with 55.4% in the prior quarter. The Bank's adjusted efficiency ratio was 53.2%, compared with 54.8%.

 

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 19.8% for the first quarter, compared with 20.5% in the first quarter last year and 20.1% in the prior quarter. The year-over-year and quarter-over-quarter decreases were largely due to higher tax exempt dividend income and the impact of one-time adjustments.

 

 

TABLE 9: INCOME TAXES  
(millions of Canadian dollars, except as noted) For the three months ended   
     January 31    October 31    January 31   
     2017    2016    2016   
Income taxes at Canadian statutory income tax rate   $ 798  26.5  % $ 732  26.5  % $ 704  26.5  %
Increase (decrease) resulting from:                        
Dividends received   (87) (2.9)     (57) (2.1)     (55) (2.1)  
Rate differentials on international operations   (129) (4.3)     (114) (4.1)     (115) (4.3)  
Other   14  0.5      (6) (0.2)     12  0.4   
Provision for income taxes and effective                        
  income tax rate – reported $ 596  19.8  % $ 555  20.1  % $ 546  20.5  %
Total adjustments for items of note1    14        17        20     
Provision for income taxes and effective                        
  income tax rate – adjusted2,3 $ 610  20.1  % $ 572  20.4  % $ 566  21.1  %
1For 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.
2The tax effect for each item of note is calculated using the statutory income tax rate of the applicable legal entity.
3Adjusted 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 20.1% for the quarter, lower than 21.1% in the first quarter last year and 20.4% in the prior quarter. The year-over-year and quarter-over-quarter decreases were largely due to higher tax exempt dividend income and the impact of one-time adjustments.

 

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 9
 

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; 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 2016 MD&A, and Note 30 of the Bank's Consolidated Financial Statements for the year ended October 31, 2016. 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.

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 $112 million, compared with $65 million in the first quarter last year, and $86 million in the prior quarter.

 

 

TABLE 10: CANADIAN RETAIL                  
(millions of Canadian dollars, except as noted) For the three months ended   
     January 31    October 31    January 31   
     2017    2016    2016   
Net interest income $ 2,613    $ 2,551    $ 2,491   
Non-interest income   2,590      2,599      2,540   
Total revenue   5,203      5,150      5,031   
Provision for credit losses   269      263      228   
Insurance claims and related expenses   574      585      655   
Non-interest expenses   2,225      2,250      2,079   
Net income $ 1,566    $ 1,502    $ 1,513   
                      
Selected volumes and ratios                  
Return on common equity   43.2  %   41.5  %   42.6  %
Margin on average earning assets (including securitized assets)   2.82      2.78      2.80   
Efficiency ratio   42.8      43.7      41.3   
Assets under administration (billions of Canadian dollars)1  $ 390    $ 379    $ 342   
Assets under management (billions of Canadian dollars)1    266      271      248   
Number of Canadian retail branches   1,154      1,156      1,157   
Average number of full-time equivalent staff   39,347      39,149      38,301   
1Effective the first quarter of 2017, the Bank changed the framework for classifying assets under administration (AUA) and assets under management (AUM). The primary change is to recognize mutual funds sold through the branch network as part of AUA. In addition, AUA has been updated to reflect a change in the measurement of certain business activities within Canadian Retail. Comparative amounts have been recast to conform with the revised presentation.

 

 

Quarterly comparison – Q1 2017 vs. Q1 2016

Canadian Retail net income for the quarter was $1,566 million, an increase of $53 million, or 4%, compared with the first quarter last year. The increase in earnings reflects revenue growth and lower insurance claims, partially offset by higher non-interest expenses and higher PCL. The annualized ROE for the quarter was 43.2%, compared with 42.6% in the first quarter last year.

Canadian Retail revenue is derived from the Canadian personal and commercial banking, wealth, and insurance businesses. Revenue for the quarter was $5,203 million, an increase of $172 million, or 3%, compared with the first quarter last year. Net interest income increased $122 million, or 5%, reflecting loan and deposit volume growth and favourable business mix. Non-interest income increased $50 million, or 2%, reflecting higher fee-based revenue and wealth asset growth, partially offset by changes in the fair value of investments supporting claims liabilities of $57 million which resulted in a similar reduction to insurance claims and related expenses. Margin on average earning assets was 2.82%, an increase of 2 basis points (bps), reflecting favourable business mix, partially offset by the low interest rate environment, competitive pricing, and treasury actions.

Average loan volumes increased $15 billion, or 4%, compared with the first quarter last year, reflecting 3% growth in personal loan volumes and 9% growth in business loan volumes. Average deposit volumes increased $31 billion, or 12%, compared with the first quarter last year, reflecting 8% growth in personal deposit volumes, 16% growth in business deposit volumes and 25% growth in wealth deposit volumes.

AUA were $390 billion as at January 31, 2017, an increase of $48 billion, or 14%, compared with the first quarter last year, reflecting new asset growth and increases in market value. AUM were $266 billion as at January 31, 2017, an increase of $18 billion, or 7%, compared with the first quarter last year, reflecting increases in market value and new asset growth.

PCL for the quarter was $269 million, an increase of $41 million, or 18%, compared with the first quarter last year. Personal banking PCL was $258 million, an increase of $33 million, or 15%. The increase reflects the benefit in the prior year of the sale of charged-off accounts and higher provisions in the auto lending portfolio in the current quarter. Business banking PCL was $11 million, an increase of $8 million. Annualized PCL as a percentage of credit volume was 0.29%, or an increase of 4 bps. Net impaired loans were $715 million, a decrease of $51 million, or 7%. Net impaired loans as a percentage of total loans were 0.19%, compared with 0.21% as at January 31, 2016.

Insurance claims and related expenses for the quarter were $574 million, a decrease of $81 million, or 12%, compared with the first quarter last year, reflecting changes in the fair value of investments supporting claims liabilities which resulted in a similar reduction to non-interest income, and lower current year claims.

Non-interest expenses for the quarter were $2,225 million, an increase of $146 million, or 7%, compared with the first quarter last year. The increase reflects higher investment in strategic technology initiatives including digitizing the customer experience and enhancing our product suite, volume-driven expenses including revenue-based variable expenses in the wealth business, higher investments in front-line employees and business growth, partially offset by productivity savings.

The efficiency ratio for the quarter was 42.8%, compared with 41.3% in the first quarter last year.

 

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 10
 

 

Quarterly comparison – Q1 2017 vs. Q4 2016

Canadian Retail net income for the quarter increased $64 million, or 4%, compared with the prior quarter. The increase in earnings reflects revenue growth, lower non-interest expenses and lower insurance claims. The annualized ROE for the quarter was 43.2%, compared with 41.5% in the prior quarter.

Revenue increased $53 million, or 1%, compared with the prior quarter. Net interest income increased $62 million, or 2%, reflecting loan and deposit volume growth, and improved margins. Non-interest income decreased $9 million reflecting changes in the fair value of investments supporting claims liabilities of $51 million which resulted in a similar reduction to insurance claims and related expenses, partially offset by higher fee-based revenue. Margin on average earning assets was 2.82%, or an increase of 4 bps, reflecting favourable business mix, treasury actions, and product re-pricing.

Average loan volumes increased $3 billion, or 1%, compared with the prior quarter, reflecting 1% growth in personal loan volumes and 2% growth in business loan volumes. Average deposit volumes increased $9 billion, or 3%, compared with the prior quarter, reflecting 2% growth in personal deposit volumes, 4% growth in business deposit volumes and 8% growth in wealth deposit volumes.

AUA increased $11 billion, or 3%, compared with the prior quarter, reflecting increases in market value and new asset growth. AUM decreased $5 billion, or 2%, compared with the prior quarter, reflecting decreases in market value, partially offset by new asset growth.

PCL for the quarter increased $6 million, or 2%, compared with the prior quarter. Personal banking PCL for the quarter increased $13 million, or 5%, reflecting higher provisions in the auto lending portfolio in the current quarter. Business banking PCL decreased $7 million. Annualized PCL as a percentage of credit volume was 0.29%, or an increase of 1 basis point. Net impaired loans increased $10 million, or 1%. Net impaired loans as a percentage of total loans were 0.19%, or flat, compared with October 31, 2016.

Insurance claims and related expenses for the quarter decreased $11 million, or 2%, compared with the prior quarter, reflecting lower current year claims and changes in the fair value of investments supporting claims liabilities which resulted in a similar reduction to non-interest income, partially offset by lower favourable prior years' claims development.

Non-interest expenses decreased $25 million, or 1%, reflecting productivity savings and higher marketing and business initiatives in the prior quarter, partially offset by higher employee costs.

The efficiency ratio for the quarter was 42.8%, compared with 43.7% in the prior quarter.

 

 

TABLE 11: U.S. RETAIL                  
(millions of dollars, except as noted) For the three months ended   
     January 31    October 31    January 31   
Canadian Dollars   2017      2016      2016   
Net interest income $  1,839    $  1,832    $  1,769   
Non-interest income    687       592       630   
Total revenue1     2,526       2,424       2,399   
Provision for credit losses    257       193       221   
Non-interest expenses    1,434       1,499       1,406   
U.S. Retail Bank net income    689       608       642   
Equity in net income of an investment in TD Ameritrade    111       93       109   
Net income $  800    $  701    $  751   
                      
U.S. Dollars                  
Net interest income $  1,381    $  1,396    $  1,288   
Non-interest income    517       452       459   
Total revenue1     1,898       1,848       1,747   
Provision for credit losses    193       146       160   
Non-interest expenses    1,077       1,142       1,022   
U.S. Retail Bank net income    518       465       470   
Equity in net income of an investment in TD Ameritrade    83       71       82   
Net income $  601    $  536    $  552   
                      
Selected volumes and ratios                  
Return on common equity      9.1  %    8.3  %    8.7  %
Margin on average earning assets1,2    3.03       3.13       3.11   
Efficiency ratio    56.7       61.8       58.6   
Assets under administration (billions of U.S. dollars)3  $  18    $  17    $  16   
Assets under management (billions of U.S. dollars)3     60       66       73   
Number of U.S. retail stores    1,257       1,278       1,264   
Average number of full-time equivalent staff    26,037       26,103       25,226   
1Effective the first quarter of 2017, the impact from certain treasury and balance sheet management activities relating to the U.S. Retail segment is recorded in the Corporate segment.
2The margin on average earning assets excludes the impact related to the TD Ameritrade insured deposit accounts (IDA) and the impact of intercompany deposits and cash collateral. In addition, the value of tax-exempt interest income is adjusted to its equivalent before-tax value.
3Effective the first quarter of 2017, the Bank changed the framework for classifying assets under administration (AUA) and assets under management (AUM). The primary change is to include a portion of the AUM balance administered by the Bank in AUA. Comparative amounts have been recast to conform with the revised presentation.

 

 

Quarterly comparison – Q1 2017 vs. Q1 2016

U.S. Retail net income for the quarter was $800 million (US$601 million), which included net income of $689 million (US$518 million) from the U.S. Retail Bank and $111 million (US$83 million) from the Bank's investment in TD Ameritrade. U.S. Retail earnings increased US$49 million, or 9%, compared with the first quarter last year. U.S. Retail Canadian dollar earnings were up $49 million, or 7%. The annualized ROE for the quarter was 9.1%, compared with 8.7% in the first quarter last year.

The contribution from TD Ameritrade of US$83 million was up US$1 million, or 1% compared with the first quarter last year, primarily due to higher trading volumes and asset-based revenue, partially offset by higher operating expenses.

U.S. Retail Bank net income for the quarter increased US$48 million, or 10%, compared with the first quarter last year, due to higher loan and deposit volumes and fee income growth, partially offset by higher expenses and PCL.

U.S. Retail Bank revenue is derived from personal and business banking, wealth management services, and investments. Revenue for the quarter was US$1,898 million, an increase of US$151 million, or 9%, compared with the first quarter last year. Net interest income increased US$93 million, or 7%, primarily due to higher loan and deposit volumes and higher deposit margins. Margin on average earning assets was 3.03%, an 8 bps decrease due to the accounting impact from balance sheet management activities, which was largely offset in Non-interest income. Excluding this impact, margin was down 3 bps, primarily due to balance sheet mix, offset by higher deposit margins. Non-interest income increased US$58 million, or 13%, reflecting fee income growth in personal banking and wealth management, and the favourable impact from balance sheet management activities, partially offset by a change in time order posting of customer transactions.

 

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 11
 

 

Average loan volumes increased US$10 billion, or 7%, compared with the first quarter last year due to growth in personal loans of 4% and business loans of 10%. Average deposit volumes increased US$24 billion, or 11%, reflecting 6% growth in business deposit volumes, 9% growth in personal deposit volumes, and a 16% increase in sweep deposit volume from TD Ameritrade.

AUA were US$18 billion as at January 31, 2017, an increase of US$1.3 billion, or 8%, compared with the first quarter last year, primarily due to higher private banking balances. AUM were US$60 billion as at January 31, 2017, a decrease of US$13 billion, or 18%, primarily due to the previously disclosed outflow from an institutional account, offset by the acquisition of a sub-advisory relationship.

PCL for the quarter was US$193 million, an increase of US$33 million, or 21%, compared with the first quarter last year. Personal banking PCL was US$150 million, an increase of US$31 million, or 26%, primarily due to higher provisions related to mix in auto lending, and growth and seasoning in credit cards. Business banking PCL was US$43 million, a US$3 million increase. Net impaired loans, excluding ACI loans and debt securities classified as loans, were US$1.5 billion, a decrease of US$205 million, or 12%. Net impaired loans, excluding ACI loans and debt securities classified as loans, as a percentage of total loans were 1.0% as at January 31, 2017, a decrease of 23 bps compared with last year.

Non-interest expenses for the quarter were US$1,077 million, an increase of US$55 million, or 5%, compared with the first quarter last year, reflecting higher spend for technology modernization, volume growth, and additional front-line employees, partially offset by productivity savings.

The efficiency ratio for the quarter was 56.7%, compared with 58.6% in the first quarter last year.

 

Quarterly comparison – Q1 2017 vs. Q4 2016

U.S. Retail earnings increased US$65 million, or 12%, compared with the prior quarter. U.S. Retail Canadian dollar earnings increased $99 million, or 14%. The annualized ROE for the quarter was 9.1%, compared to 8.3% in the prior quarter.

The contribution from TD Ameritrade increased US$12 million, or 17%, compared with the prior quarter, primarily due to lower operating expenses.

U.S. Retail Bank net income for the quarter increased US$53 million, or 11%, compared with the prior quarter, due to interest rate increases, higher loan and deposit volumes, and lower expenses, partially offset by higher PCL.

Revenue for the quarter increased US$50 million, or 3%, compared with the prior quarter. Net interest income decreased US$15 million, or 1%. Margin on average earning assets was 3.03%, a 10 bps decrease due to the accounting impact from balance sheet management activities, which was largely offset in Non-interest income. Excluding this impact, margin was up 1 basis point, primarily reflecting higher deposit margins, partially offset by lower accretion from the acquired credit-impaired loans. Non-interest income increased US$65 million, or 14%, primarily due to fee income growth in wealth management, commercial banking, and credit cards, as well as favourable impact from balance sheet management activities.

Average loan volumes increased US$3 billion, or 2%, compared with the prior quarter, due to growth in personal loans of 2% and business loans of 3%. Average deposit volumes increased US$8 billion, or 4%, reflecting 1% growth in business deposit volumes, 2% growth in personal deposit volumes, and a 6% increase in sweep deposit volume from TD Ameritrade.

AUA were US$18 billion as at January 31, 2017, an increase of US$0.5 billion, or 3%, compared with the prior quarter, primarily due to higher private banking balances. AUM were US$60 billion as at January 31, 2017, a decrease of US$6 billion, or 9%, primarily due to the previously disclosed outflow from an institutional account, offset by the acquisition of a sub-advisory relationship.

PCL for the quarter increased US$47 million, or 32%, compared with the prior quarter. Personal banking PCL was US$150 million, an increase of US$45 million, or 43%, reflecting seasonality in the auto lending and credit card portfolios, coupled with prior quarter benefits totaling US$20 million related to the release of special reserves held for the South Carolina flood and certain legacy home equity loans. Business banking PCL was US$43 million, an increase of US$3 million. Net impaired loans, excluding ACI loans and debt securities classified as loans, were US$1.5 billion, an increase of US$14 million, or 1%. Net impaired loans, excluding ACI loans and debt securities classified as loans, as a percentage of total loans were flat compared to the prior quarter.

Non-interest expenses for the quarter decreased US$65 million, or 6%, compared with the prior quarter, primarily reflecting store optimization and higher provisions in the prior quarter and an increase in productivity savings.

The efficiency ratio for the quarter was 56.7%, compared with 61.8% in the prior quarter.

 

TD AMERITRADE HOLDING CORPORATION

Refer to Note 8 of the Bank's Interim Consolidated Financial Statements for further information on TD Ameritrade.

 

 

TABLE 12: WHOLESALE BANKING                  
(millions of Canadian dollars, except as noted)   For the three months ended   
     January 31    October 31    January 31   
     2017    2016    2016   
Net interest income (TEB) $ 393    $ 396    $ 459   
Non-interest income   464      345      205   
Total revenue   857      741      664   
Provision for (recovery of) credit losses   (24)     1      12   
Non-interest expenses   524      432      429   
Net income $ 267    $ 238    $ 161   
                      
Selected volumes and ratios                  
Trading-related revenue $ 515    $ 380    $ 380   
Gross drawn (billions of Canadian dollars)1    18.6      20.7      18.0   
Return on common equity   17.5  %   16.1  %   10.6  %
Efficiency ratio   61.1      58.3      64.6   
Average number of full-time equivalent staff   3,929      3,893      3,712   
1Includes gross loans and bankers' acceptances, excluding letters of credit, cash collateral, credit default swaps, and reserves for the corporate lending business.

 

 

Quarterly comparison – Q1 2017 vs. Q1 2016

Wholesale Banking net income for the quarter was $267 million, an increase of $106 million, or 66%, compared with the first quarter last year reflecting higher revenue and a net recovery of credit losses, partially offset by higher non-interest expenses. The annualized ROE for the quarter was 17.5%, compared with 10.6% in the first quarter last year.

 

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 12
 

 

Wholesale Banking revenue is derived primarily from capital markets services and corporate lending. The capital markets businesses generate revenue from advisory, underwriting, trading, facilitation, and trade execution services. Revenue for the quarter was $857 million, an increase of $193 million, or 29%, compared with the first quarter last year reflecting higher origination activity in debt and equity capital markets and higher trading-related revenue.

PCL for the quarter was a net recovery of $24 million as compared with a charge of $12 million in the prior year, reflecting the recovery of specific provisions in the oil and gas sector.

Non-interest expenses were $524 million, an increase of $95 million, or 22%, compared with the first quarter last year, reflecting higher variable compensation, higher operating expenses and costs associated with the acquisition of Albert Fried & Company.

 

Quarterly comparison – Q1 2017 vs. Q4 2016

Wholesale Banking net income for the quarter increased $29 million, or 12%, compared with the prior quarter reflecting higher revenue and a net recovery of credit losses, partially offset by higher non-interest expenses. The annualized ROE for the quarter was 17.5%, compared with 16.1% in the prior quarter.

Revenue for the quarter increased $116 million, or 16%, compared with the prior quarter reflecting higher origination activity in equity capital markets and higher trading-related revenue, partially offset by lower corporate lending fees.

PCL for the quarter decreased $25 million compared with the prior quarter reflecting the recovery of specific provisions in the oil and gas sector.

Non-interest expenses for the quarter increased $92 million, or 21%, compared with the prior quarter reflecting higher variable compensation, higher operating expenses and costs associated with the acquisition of Albert Fried & Company.

 

 

 

TABLE 13: CORPORATE              
(millions of Canadian dollars) For the three months ended   
     January 31  October 31  January 31   
     2017  2016  2016   
Net income (loss) – reported1  $ (100) $ (138) $ (202)  
Pre-tax adjustments for items of note2               
Amortization of intangibles   80    80    90   
Fair value of derivatives hedging the reclassified available-for-sale                
  securities portfolio   (41)   (19)   (46)  
Total pre-tax adjustments for items of note   39    61    44   
Provision for (recovery of) income taxes for items of note   14    17    20   
Net income (loss) – adjusted $ (75) $ (94) $ (178)  
                  
Decomposition of items included in net income (loss) – adjusted              
Net corporate expenses $ (233) $ (215) $ (203)  
Other   129    92    (4)  
Non-controlling interests   29    29    29   
Net income (loss) – adjusted $ (75) $ (94) $ (178)  
                  
Selected volumes              
Average number of full-time equivalent staff   14,195    13,830    12,688   
1Effective the first quarter of 2017, the impact from certain treasury and balance sheet management activities relating to the U.S. Retail segment is recorded in the Corporate segment.
2For 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.

 

 

Quarterly comparison – Q1 2017 vs. Q1 2016

Corporate segment's reported net loss for the quarter was $100 million, compared with a reported net loss of $202 million in the first quarter last year. Reported net loss decreased due to higher contribution from Other Items, partially offset by higher net corporate expenses. Other items included higher revenue from treasury and balance sheet management activities this quarter, provisions for incurred but not identified credit losses in the first quarter last year, and impact of negative tax and other items recognized in the first quarter last year. Net corporate expenses increased due to timing of ongoing investments in enterprise and regulatory projects. Adjusted net loss was $75 million, compared with an adjusted net loss of $178 million in the first quarter last year.

 

Quarterly comparison – Q1 2017 vs. Q4 2016

 

Corporate segment's reported net loss for the quarter was $100 million, compared with a reported net loss of $138 million in the prior quarter. Reported net loss decreased primarily due to higher contribution from Other Items and gains related to the fair value of derivatives hedging the reclassified available-for-sale securities portfolio recognized in the current quarter reported as an item of note, partially offset by higher net corporate expenses. Other items included higher revenue from treasury and balance sheet management activities, partially offset by impact of positive tax-related items recognized in the prior quarter. Net corporate expenses increased due to timing of regulatory fees and seasonality of certain other expenses. Adjusted net loss was $75 million, compared with an adjusted net loss of $94 million in the prior quarter.

 

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 13
 

QUARTERLY RESULTS

 

The following table provides summary information related to the Bank's eight most recently completed quarters.

 

 

TABLE 14: QUARTERLY RESULTS                                                
(millions of Canadian dollars, except as noted)                   For the three months ended   
     2017                      2016                  2015   
     Jan. 31    Oct. 31    Jul. 31    Apr. 30    Jan. 31    Oct. 31    Jul. 31    Apr. 30   
Net interest income $ 5,141    $ 5,072    $ 4,924    $ 4,880    $ 5,047    $ 4,887    $ 4,697    $ 4,580   
Non-interest income   3,979      3,673      3,777      3,379      3,563      3,160      3,309      3,179   
Total revenue   9,120      8,745      8,701      8,259      8,610      8,047      8,006      7,759   
Provision for credit losses   633      548      556      584      642      509      437      375   
Insurance claims and related expenses   574      585      692      530      655      637      600      564   
Non-interest expenses     4,897      4,848      4,640      4,736      4,653      4,911      4,292      4,705   
Provision for (recovery of) income taxes   596      555      576      466      546      259      502      344   
Equity in net income of an investment in                                                
  TD Ameritrade   113      94      121      109      109      108      91      88   
Net income – reported   2,533      2,303      2,358      2,052      2,223      1,839      2,266      1,859   
Pre-tax adjustments for items of note                                                
Amortization of intangibles1    80      80      79      86      90      89      85      89   
Fair value of derivatives hedging the                                                  
  reclassified available-for-sale                                                  
  securities portfolio1    (41)     (19)     –      58      (46)     (24)     (21)     (17)  
Impairment of goodwill, non-financial assets,                                                
  and other charges2    –      –      –      111      –      –      –      –   
Restructuring charges3    –      –      –      –      –      349      –      337   
Charge related to the acquisition in U.S. strategic                                                
  cards portfolio and related integration costs4    –      –      –      –      –      82      –      –   
Litigation and litigation-related                                                  
  charge(s)/reserve(s)5    –      –      –      –      –      –      (39)     52   
Total pre-tax adjustments for items of note   39      61      79      255      44      496      25      461   
Provision for (recovery of) income taxes for                                                
  items of note   14      17      21      25      20      158      6      151   
Net income – adjusted   2,558      2,347      2,416      2,282      2,247      2,177      2,285      2,169   
Preferred dividends   48      43      36      37      25      26      25      24   
Net income available to common                                                
  shareholders and non-controlling                                                  
  interests in subsidiaries – adjusted   2,510      2,304      2,380      2,245      2,222      2,151      2,260      2,145   
Attributable to:                                                
  Common shareholders – adjusted   2,481      2,275      2,351      2,217      2,193      2,122      2,232      2,117   
  Non-controlling interests – adjusted $ 29    $ 29    $ 29    $ 28    $ 29    $ 29    $ 28    $ 28   
                                                    
(Canadian dollars, except as noted)                                                
Basic earnings per share                                                
Reported   $ 1.32    $ 1.20    $ 1.24    $ 1.07    $ 1.17    $ 0.96    $ 1.20    $ 0.98   
Adjusted   1.34      1.23      1.27      1.20      1.18      1.15      1.21      1.15   
Diluted earnings per share                                                
Reported     1.32      1.20      1.24      1.07      1.17      0.96      1.19      0.97   
Adjusted   1.33      1.22      1.27      1.20      1.18      1.14      1.20      1.14   
Return on common equity – reported   14.4  %   13.3  %   14.1  %   12.5  %   13.3  %   11.4  %   14.9  %   12.8  %
Return on common equity – adjusted   14.5      13.6      14.5      14.0      13.5      13.5      15.0      15.0   
                                                    
(billions of Canadian dollars, except as noted)                                                  
Average earning assets $ 1,041    $ 1,031    $ 989    $ 969    $ 975    $ 958    $ 925    $ 906   
Net interest margin as a percentage                                                  
  of average earning assets   1.96  %   1.96  %   1.98  %   2.05  %   2.06  %   2.02  %   2.01  %   2.07  %
1For explanations of items of note, refer to the "Non-GAAP Financial Measures – Reconciliation of Adjusted to Reported Net Income" table in "How we Performed" section of this document.
2In the second quarter of 2016, the Bank recorded impairment losses on goodwill, certain intangibles, other non-financial assets and deferred tax assets, as well as other charges relating to the Direct Investing business in Europe that has been experiencing continued losses. These amounts are reported in the Corporate segment.
3During 2015, the Bank commenced its restructuring review and recorded restructuring charges of $337 million ($228 million after tax) and $349 million ($243 million after tax) on a net basis, in the second quarter and fourth quarter of 2015, respectively. The restructuring initiatives were intended to reduce costs and manage expenses in a sustainable manner and to achieve greater operational efficiencies. These measures included process redesign and business restructuring, retail branch and real estate optimization, and organizational review. The restructuring charges have been recorded as an adjustment to net income within the Corporate segment.
4On October 1, 2015, the Bank acquired substantially all of Nordstrom's existing U.S. Visa and private label consumer credit card portfolio and became the primary issuer of Nordstrom credit cards in the U.S. The transaction was treated as an asset acquisition and the difference on the date of acquisition of the transaction price over the fair value of assets acquired has been recorded in Non-interest income. In addition, the Bank incurred set-up, conversion and other one-time costs related to integration of the acquired cards and related program agreement. These amounts are included as an item of note in the U.S. Retail segment.
5As a result of an adverse judgment and evaluation of certain other developments and exposures in the U.S. in 2015, the Bank took prudent steps to reassess its litigation provision. Having considered these factors, including related or analogous cases, the Bank determined, in accordance with applicable accounting standards, that an increase of $52 million ($32 million after tax) to the Bank’s litigation provision was required in the second quarter of 2015. During the third quarter of 2015, distributions of $39 million ($24 million after tax) were received by the Bank as a result of previous settlements reached on certain matters in the U.S., whereby the Bank was assigned the right to these distributions, if and when made available. The amount in the third quarter of 2015 reflects this recovery of previous settlements.

 

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 14
 

BALANCE SHEET REVIEW

 

 

TABLE 15: CONDENSED CONSOLIDATED BALANCE SHEET    
(millions of Canadian dollars)       As at  
  January 31, 2017   October 31, 2016    
Assets          
Interest-bearing deposits with banks $ 54,438  $ 53,714   
Trading loans, securities, and other   110,261    99,257   
Derivatives   60,640    72,242   
Available-for-sale securities   113,275    107,571   
Held-to-maturity securities   77,981    84,395   
Securities purchased under reverse repurchase agreements   96,389    86,052   
Loans, net of allowance for loan losses   584,658    585,656   
Other   89,241    88,080   
Total assets $ 1,186,883  $ 1,176,967   
Liabilities          
Trading deposits $ 91,485  $ 79,786   
Derivatives   57,936    65,425   
Deposits   774,534    773,660   
Obligations related to securities sold under repurchase agreements   59,338    48,973   
Subordinated notes and debentures   8,394    10,891   
Other   121,894    124,018   
Total liabilities   1,113,581    1,102,753   
Total equity   73,302    74,214   
Total liabilities and equity $ 1,186,883  $ 1,176,967   

 

 

Total assets were $1,187 billion as at January 31, 2017, an increase of $10 billion, or 1%, from October 31, 2016. The increase was primarily due to an increase in trading loans, securities, and other of $11 billion, securities purchased under reverse repurchase agreements of $10 billion, available-for-sale securities of $6 billion, amounts receivable from brokers, dealers, and clients of $5 billion, partially offset by a decrease in derivatives of $12 billion, held-to-maturity securities of $6 billion, and customers’ liabilities under acceptances of $4 billion. The foreign currency translation impact on total assets, primarily in the U.S. Retail segment, was $14 billion, or 1%.

 

Trading loans, securities, and other increased $11 billion primarily in Wholesale Banking.

 

Securities purchased under reverse repurchase agreements increased $10 billion primarily due to an increase in trade volumes and the impact of the acquisition of Albert Fried & Company.

 

Available-for-sale securities increased $6 billion primarily due to new investments, net of maturities and foreign currency translation.

 

Amounts received from brokers, dealers and clients increased $5 billion primarily due to unsettled and pending trades.

 

Derivatives decreased $12 billion primarily due to the current interest rate and foreign exchange environment, partially offset by netting of positions.

 

Held-to-maturity securities decreased $6 billion primarily due to maturities and foreign currency translation, partially offset by new investments.

 

Customers’ liabilities under acceptances decreased $4 billion primarily due to lower bankers’ acceptances.

 

Loans (net of allowance for loan losses) decreased $1 billion primarily due to the impact of foreign currency translation in U.S. Retail, partially offset by increases in personal, business, and government loans in all segments.

 

Total liabilities were $1,114 billion as at January 31, 2017, an increase of $11 billion, or 1%, from October 31, 2016. The increase was primarily due to an increase in trading deposits of $12 billion, obligations related to securities sold under repurchase agreements of $10 billion, and amounts payable to brokers, dealers and clients of $7 billion, partially offset by a decrease in derivatives of $7 billion, acceptances of $4 billion, obligations related to securities sold short of $3 billion, and subordinated notes and debentures of $3 billion. The foreign currency translation impact on total liabilities, primarily in the U.S. Retail segment, was $14 billion, or 1%.

 

Trading deposits increased $12 billion primarily due to higher issuance of certificates of deposits.

 

Obligations related to securities sold under repurchase agreements increased $10 billion primarily due to the acquisition of Albert Fried & Company and higher trading volumes.

 

Amounts payable to brokers, dealers and clients increased $7 billion primarily due to unsettled trades.

 

Derivatives decreased $7 billion primarily due to the current interest rate environment, partially offset by netting of positions.

 

Acceptances decreased $4 billion primarily due to lower bankers’ acceptances volumes.

 

Obligations related to securities sold short decreased $3 billion primarily due to a decrease in trade volumes.

 

Subordinated notes and debentures decreased $3 billion primarily due to a redemption of subordinated debt.

 

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 15
 

 

Deposits increased $1 billion primarily due to increases in business and government deposits in the Canadian Retail and U.S. Retail segments, partially offset by the impact of foreign currency translation and decreases in Wholesale Banking.

 

Equity was $73 billion as at January 31, 2017, a decrease of $1 billion, or 1%, from October 31, 2016. The decrease was primarily due to a decrease in accumulated other comprehensive income reflecting losses on cash flow hedges and foreign currency translation, partially offset by higher retained earnings.

 

 

 

CREDIT PORTFOLIO QUALITY

 

Quarterly comparison – Q1 2017 vs. Q1 2016

Gross impaired loans excluding debt securities classified as loans, Federal Deposit Insurance Corporation (FDIC) covered loans, and other ACI loans were $3,399 million as at January 31, 2017, a decrease of $400 million, or 11%, compared with the first quarter last year. U.S. Retail gross impaired loans decreased $394 million, or 15%, compared with the first quarter last year, driven by resolutions outpacing new credit impaired formations in the U.S. home equity line of credit portfolio and the impact of foreign exchange. Canadian Retail gross impaired loans decreased $40 million, or 4%, compared with the first quarter last year. Wholesale gross impaired loans increased $34 million, or 87%, compared with the first quarter last year due to new credit impaired formations throughout 2016 in the oil and gas sector. Net impaired loans were $2,690 million as at January 31, 2017, a decrease of $453 million, or 14%, compared with the first quarter last year, primarily due to resolutions outpacing new credit impaired formations in the U.S. home equity line of credit portfolio and the impact of foreign exchange.

The allowance for credit losses of $4,331 million as at January 31, 2017, was composed of a counterparty-specific allowance of $296 million, a collectively assessed allowance for individually insignificant impaired loans of $609 million, and an allowance for incurred but not identified credit losses of $3,426 million.

The counterparty-specific allowance decreased $100 million, or 25%, compared with the first quarter last year primarily due to a decrease in the debt securities classified as loans portfolio and the impact of foreign exchange. The collectively assessed allowance for individually insignificant impaired loans increased $41 million, or 7%, compared with the first quarter last year primarily due to increases in the U.S. credit card and Canadian indirect auto portfolios offset by the impact of foreign exchange. The allowance for incurred but not identified credit losses increased $252 million, or 8%, compared with the first quarter last year primarily due to increases in the Canadian and U.S. business and government portfolios, the U.S. credit card portfolio and offset by the impact of foreign exchange.

The allowance for incurred but not identified credit losses is established to recognize losses that management estimates to have occurred at the portfolio level as at the balance sheet date for loans not yet specifically identified as impaired. The Bank periodically reviews the methodology for calculating the allowance for incurred but not identified credit losses. As part of this review, certain revisions may be made to reflect updates in statistically derived loss estimates for the Bank's recent loss experience of its credit portfolios, which may cause the Bank to provide or release amounts from the allowance for incurred but not identified losses. During the first quarter of 2017, certain refinements were made to the methodology, the cumulative effect of which was not material and which was included in the change for the quarter.

 

Quarterly comparison – Q1 2017 vs. Q4 2016

Gross impaired loans excluding debt securities classified as loans, FDIC covered loans, and other ACI loans decreased $110 million, or 3%, compared with the prior quarter. Impaired loans net of allowance decreased $95 million, or 3%, compared with the prior quarter.

The counterparty-specific allowance decreased $103 million, or 26%, compared with the prior quarter due to a decrease in the debt securities classified as loans portfolio and the impact of foreign exchange. The collectively assessed allowance for individually insignificant impaired loans increased $16 million, or 3%, compared with the prior quarter. The allowance for incurred but not identified credit losses increased $45 million, or 1%, compared with the prior quarter.

 

 

TABLE 16: CHANGES IN GROSS IMPAIRED LOANS AND ACCEPTANCES   
(millions of Canadian dollars) For the three months ended    
     January 31  October 31  January 31    
     2017  2016  2016    
Personal, Business, and Government Loans1,2               
Impaired loans as at beginning of period $ 3,509  $ 3,467  $ 3,244    
Classified as impaired during the period   1,281    1,227    1,717    
Transferred to not impaired during the period   (220)   (274)   (370)   
Net repayments   (474)   (354)   (399)   
Disposals of loans   –    (1)   –    
Amounts written off   (623)   (620)   (559)   
Recoveries of loans and advances previously written off   –    –    –    
Exchange and other movements   (74)   64    166    
Impaired loans as at end of period $ 3,399  $ 3,509  $ 3,799    
1Excludes debt securities classified as loans. For additional information refer to the "Exposure to Non-Agency Collateralized Mortgage Obligations" section of this document and Note 5 of the Interim Consolidated Financial Statements.
2Excludes FDIC covered loans and other ACI loans. For additional information refer to the "Exposure to Acquired Credit-Impaired Loans" discussion and table in this section of the document and Note 5 of the Interim Consolidated Financial Statements.

 

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 16
 

 

TABLE 17: ALLOWANCE FOR CREDIT LOSSES                    
(millions of Canadian dollars, except as noted)               As at     
     January 31    October 31    January 31     
     2017    2016    2016     
Allowance for loan losses for on-balance sheet loans                    
Counterparty-specific   $ 296    $ 399    $ 396     
Individually insignificant     609      593      568     
Incurred but not identified credit losses   2,910      2,881      2,762     
Total allowance for loan losses for on-balance sheet loans   3,815      3,873      3,726     
Allowance for off-balance sheet positions                    
Incurred but not identified credit losses   516      500      412     
Total allowance for off-balance sheet positions   516      500      412     
Allowance for credit losses $ 4,331    $ 4,373    $ 4,138     
Impaired loans, net of allowance1,2 $ 2,690    $ 2,785    $ 3,143     
Net impaired loans as a percentage of net loans1,2   0.45  %   0.46  %   0.54  %  
Provision for credit losses as a percentage of net average loans and acceptances   0.42      0.37      0.44     
1Excludes debt securities classified as loans. For additional information refer to the "Exposure to Non-Agency Collateralized Mortgage Obligations" section of this document and Note 5 of the Interim Consolidated Financial Statements.
2Excludes FDIC covered loans and other ACI loans. For additional information refer to the "Exposure to Acquired Credit-Impaired Loans" discussion and table in this section of the document and Note 5 of the Interim Consolidated Financial Statements.

 

 

 

Oil and Gas Exposure

From the beginning of fiscal 2015, West Texas Intermediate crude oil prices fell from approximately US$80 per barrel to US$40 in August, 2016 and have since risen to US$53 as at January 31, 2017. Within the Commercial and Wholesale portfolios, TD had $3.2 billion of drawn exposure to oil and gas producers and services as at January 31, 2017, representing less than 1% of the Bank's total gross loans and acceptances outstanding. Of the $3.2 billion drawn exposure, $1.0 billion is to investment grade borrowers and $2.2 billion to non-investment grade borrowers based on the Bank's internal rating system. The portfolio of oil and gas exposure is broadly diversified and consistent with TD's North American strategy. For certain producers, a borrowing base re-determination is performed on a semi-annual basis, the results of which are used to determine exposure levels and credit terms. Within the retail credit portfolios, TD had $62.4 billion of consumer and small business outstanding exposure in Alberta, Saskatchewan, and Newfoundland and Labrador as at January 31, 2017, the regions most impacted by lower oil prices. Excluding real estate secured lending, consumer and small business banking drawn exposure represents 2% of the Bank's total gross loans and acceptances outstanding. The Bank regularly conducts stress testing on its credit portfolios in light of current market conditions. The Bank's portfolios continue to perform within expectations given the current level and near term outlook for commodity prices in this sector.

 

Real Estate Secured Lending

Retail real estate secured lending includes mortgages and lines of credit to North American consumers to satisfy financing needs including home purchases and refinancing. While the Bank retains first lien on the majority of properties held as security, there is a small portion of loans with second liens, but most of these are behind a TD mortgage that is in first position. In Canada, credit policies ensure that the combined exposure of all uninsured facilities on one property does not exceed 80% of the collateral value at origination. Lending at a higher loan-to-value ratio is permitted by legislation but requires default insurance. This insurance is contractual coverage for the life of eligible facilities and protects the Bank's real estate secured lending portfolio against potential losses caused by borrowers' default. The Bank also purchases default insurance on lower loan-to-value ratio loans. The insurance is provided by either government-backed entities or approved private mortgage insurers. In the U.S., for residential mortgage originations, mortgage insurance is usually obtained from either government-backed entities or approved private mortgage insurers when the loan-to-value exceeds 80% of the collateral value at origination.

The Bank regularly performs stress tests on its real estate lending portfolio as part of its overall stress testing program. This is done with a view to determine the extent to which the portfolio would be vulnerable to a severe downturn in economic conditions. The effect of severe changes in house prices, interest rates, and unemployment levels are among the factors considered when assessing the impact on credit losses and the Bank's overall profitability. A variety of portfolio segments, including dwelling type and geographical regions, are examined during the exercise to determine whether specific vulnerabilities exist. Based on the Bank's most recent reviews, potential losses on all real estate secured lending exposures are considered manageable.

 

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 17
 

 

 

TABLE 18: REAL ESTATE SECURED LENDING1,2                                  
(millions of Canadian dollars, except as noted)       As at   
  Residential mortgages    Home equity lines of credit    Total   
  Insured3    Uninsured    Insured3    Uninsured    Insured3    Uninsured   
                                January 31, 2017   
Canada                                                  
Atlantic provinces $ 3,957  2.1  % $ 1,988  1.1  % $ 503  0.8  % $ 1,070  1.6  % $ 4,460  1.8  % $ 3,058  1.2  %
British Columbia4    16,510  8.8      17,184  9.1      2,548  3.9      9,421  14.3      19,058  7.5      26,605  10.5   
Ontario4    46,518  24.7      43,687  23.2      8,739  13.3      26,059  39.5      55,257  21.7      69,746  27.5   
Prairies4    26,813  14.2      13,170  7.0      3,995  6.1      8,530  12.9      30,808  12.1      21,700  8.5   
Québec   11,460  6.1      7,021  3.7      1,549  2.3      3,520  5.3      13,009  5.1      10,541  4.1   
Total Canada   105,258  55.9  %   83,050  44.1  %   17,334  26.4  %   48,600  73.6  %   122,592  48.2  %   131,650  51.8  %
United States   876        26,474        10        12,785        886        39,259     
Total $ 106,134      $ 109,524      $ 17,344      $ 61,385      $ 123,478      $ 170,909     
                                                 
                                October 31, 2016   
Canada
Atlantic provinces $ 4,007  2.1  % $ 1,940  1.0  % $ 515  0.8  % $ 1,052  1.6  % $ 4,522  1.8  % $ 2,992  1.2  %
British Columbia4    17,134  9.1      16,789  8.9      2,639  4.1      9,211  14.2      19,773  7.8      26,000  10.2   
Ontario4    48,307  25.5      42,234  22.3      9,053  13.9      25,181  38.6      57,360  22.6      67,415  26.4   
Prairies4    27,236  14.4      12,999  6.9      4,100  6.3      8,321  12.8      31,336  12.3      21,320  8.4   
Québec   11,750  6.2      6,903  3.6      1,595  2.5      3,401  5.2      13,345  5.2      10,304  4.1   
Total Canada   108,434  57.3  %   80,865  42.7  %   17,902  27.6  %   47,166  72.4  %   126,336  49.7  %   128,031  50.3  %
United States   917        27,120        10        13,280        927        40,400     
Total $ 109,351      $ 107,985      $ 17,912      $ 60,446      $ 127,263      $ 168,431     

1Geographic location is based on the address of the property mortgaged.
2Excludes loans classified as trading as the Bank intends to sell the loans immediately or in the near term, and loans designated at fair value through profit or loss for which no allowance is recorded.
3Default insurance is contractual coverage for the life of eligible facilities whereby the Bank's exposure to real estate secured lending, all or in part, is protected against potential losses caused by borrower default. It is provided by either government-backed entities or other approved private mortgage insurers.
4The territories are included as follows: Yukon is included in British Columbia; Nunavut is included in Ontario; and the Northwest Territories is included in the Prairies region.

 

 

 

The following table provides a summary of the Bank's residential mortgages by remaining amortization period. All figures are calculated based on current customer payment behaviour in order to properly reflect the propensity to prepay by borrowers. The current customer payment basis accounts for any accelerated payments made to date and projects remaining amortization based on existing balance outstanding and current payment terms.

 

 

TABLE 19: RESIDENTIAL MORTGAGES BY REMAINING AMORTIZATION1,2                    
                                      As at   
     <5    5– <10    10– <15    15– <20     20– <25    25– <30    30– <35    >=35       
     years    years    years    years     years    years    years    years    Total   
                            January 31, 2017   
Canada   1.1  % 4.1  % 7.6  % 14.6  % 39.8  % 31.5  % 1.3  % –  % 100  %
United States 4.2    5.5    11.1    4.5     15.8    57.9    0.7    0.3    100   
Total 1.5  % 4.3  % 8.1  % 13.3  % 36.6  % 34.9  % 1.3  % –  % 100  %
                                         
                            October 31, 2016   
Canada   1.1  % 4.2  % 7.7  % 14.3  % 39.4  % 31.7  % 1.6  % –  % 100  %
United States 3.7    4.8    12.1    4.7     14.7    58.5    1.2    0.3    100   
Total 1.5  % 4.2  % 8.2  % 13.1  % 36.3  % 35.2  % 1.5  % –  % 100  %
1Excludes loans classified as trading as the Bank intends to sell the loans immediately or in the near term, and loans designated at fair value through profit or loss for which no allowance is recorded.
2Percentage based on outstanding balance.

 

 

TABLE 20: UNINSURED AVERAGE LOAN-TO-VALUE – Newly Originated and Newly Acquired1,2,3        
   For the three months ended     
     Residential    Home equity        Residential    Home equity         
     mortgages    lines of credit4,5   Total    mortgages    lines of credit4,5   Total     
         January 31, 2017        October 31, 2016     
Canada                              
Atlantic provinces 73  % 69  % 72  % 73  % 69  % 72  %  
British Columbia6  67    60    63    66    61    64     
Ontario6  69    65    67    68    64    66     
Prairies6  73    70    72    73    69    72     
Québec 73    72    73    73    72    72     
Total Canada 69    65    67    69    65    67     
United States 65    61    63    67    62    65     
Total 68  % 64  % 67  % 68  % 64  % 67  %  
1Geographic location is based on the address of the property mortgaged.
2Excludes loans classified as trading as the Bank intends to sell the loans immediately or in the near term, and loans designated at fair value through profit or loss for which no allowance is recorded.
3Based on house price at origination.
4Home equity lines of credit loan-to-value includes first position collateral mortgage if applicable.
5Home equity lines of credit fixed rate advantage option is included in loan-to-value calculation.
6The territories are included as follows: Yukon is included in British Columbia; Nunavut is included in Ontario; and the Northwest Territories is included in the Prairies region.

 

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 18
 

 

Non-Prime Loans

As at January 31, 2017, the Bank had approximately $2.5 billion (October 31, 2016 – $2.6 billion) gross exposure to non-prime loans, which primarily consists of automotive loans originated in Canada. The credit loss rate, defined as the total PCL of the quarter divided by the average month-end loan balance, was approximately 6.62% on an annual basis (October 31, 2016 – 6.79%). PCL provisions are primarily attributed to individually insignificant impaired loans, reflecting continued consumer weakness in oil and gas impacted regions during the initial stages of the slow economic recovery. These loans are recorded at amortized cost.

 

 

Sovereign Risk

The following table provides a summary of the Bank's credit exposure to certain European countries, including Greece, Italy, Ireland, Portugal, and Spain (GIIPS).

 

 

TABLE 21: EXPOSURE TO EUROPE – Total Net Exposure by Country and Counterparty1   
(millions of Canadian dollars)                                                        As at   
       Loans and commitments2    Derivatives, repos, and securities lending3      Trading and investment portfolio4,5     Total   
     Corporate  Sovereign  Financial    Total    Corporate  Sovereign  Financial    Total    Corporate  Sovereign Financial    Total    Exposure   
Country                                               January 31, 2017   
GIIPS  
Greece $ –  $ –  $ –  $ –    $ –  $ –  $ –  $ –    $ –  $ –  $ –  $ –    $ –   
Italy   –    163    6    169      –    –    4    4      8    167    13    188      361   
Ireland   –    –    –    –      8    –    233    241      –    –    –    –      241   
Portugal   –    –    –    –      –    –    26    26      1    –    –    1      27   
Spain   –    66    48    114      –    –    59    59      11    100    –    111      284   
Total GIIPS   –    229    54    283      8    –    322    330      20    267    13    300      913   
Rest of Europe                                                                 
Finland   7    51    14    72      –    17    –    17      –    1,214    –    1,214      1,303   
France   434    728    147    1,309      90    411    1,690    2,191      77    6,732    247    7,056      10,556   
Germany   1,882    868    44    2,794      466    723    933    2,122      214    6,966    18    7,198      12,114   
Netherlands   582    500    189    1,271      571    775    329    1,675      36    4,160    383    4,579      7,525   
Sweden   –    119    208    327      –    275    269    544      5    1,123    541    1,669      2,540   
Switzerland   1,111    58    81    1,250      47    –    953    1,000      27    –    166    193      2,443   
United Kingdom   1,728    2,930    34    4,692      1,053    600    5,822    7,475      185    4,360    3,302    7,847      20,014   
Other7    260    14    5    279      386    410    425    1,221      48    1,488    378    1,914      3,414   
Total Rest of Europe    6,004    5,268    722    11,994      2,613    3,211    10,421    16,245      592    26,043    5,035    31,670      59,909   
Total Europe $ 6,004  $ 5,497  $ 776  $ 12,277    $ 2,621  $ 3,211  $ 10,743  $ 16,575    $ 612  $ 26,310  $ 5,048  $ 31,970    $ 60,822   
                                                                    
Country                                                 October 31, 2016   
GIIPS  
Greece $ –  $ –  $ –  $ –    $ –  $ –  $ –  $ –    $ –  $ –  $ –  $ –    $ –   
Italy   –    168    6    174      –    –    9    9      22    36    1    59      242   
Ireland   –    –    –    –      45    –    592    637      –    –    –    –      637   
Portugal   –    –    –    –      –    –    26    26      1    –    –    1      27   
Spain   –    105    48    153      –    –    52    52      2    –    –    2      207   
Total GIIPS   –    273    54    327      45    –    679    724      25    36    1    62      1,113   
Rest of Europe                                                                 
Finland   7    64    13    84      –    21    100    121      –    1,379    –    1,379      1,584   
France   437    765    169    1,371      96    863    1,582    2,541      108    6,734    262    7,104      11,016   
Germany   1,037    644    55    1,736      464    738    709    1,911      186    10,779    19    10,984      14,631   
Netherlands   588    555    271    1,414      604    240    367    1,211      16    4,271    506    4,793      7,418   
Sweden   –    64    222    286      –    247    76    323      7    1,359    451    1,817      2,426   
Switzerland   1,125    58    125    1,308      75    –    802    877      51    –    168    219      2,404   
United Kingdom   1,787    3,009    37    4,833      1,000    550    4,823    6,373      158    1,765    3,429    5,352      16,558   
Other7    268    4    12    284      226    362    704    1,292      12    1,460    571    2,043      3,619   
Total Rest of Europe    5,249    5,163    904    11,316      2,465    3,021    9,163    14,649      538    27,747    5,406    33,691      59,656   
Total Europe $ 5,249  $ 5,436  $ 958  $ 11,643    $ 2,510  $ 3,021  $ 9,842  $ 15,373    $ 563  $ 27,783  $ 5,407  $ 33,753    $ 60,769   

1Certain comparative amounts have been reclassified to conform with the presentation adopted in the current period.
2Exposures include interest-bearing deposits with banks and are presented net of impairment charges where applicable. There were no impairment charges for European exposures as at January 31, 2017, or October 31, 2016.

3Exposures are calculated on a fair value basis and are net of collateral. Total market value of pledged collateral is $0.1 billion for GIIPS (October 31, 2016 – $6.9 billion) and $43.1 billion for the rest of Europe (October 31, 2016 – $24.7 billion). Derivatives are presented as net exposures where there is an International Swaps and Derivatives Association (ISDA) master netting agreement.
4Trading Portfolio exposures are net of eligible short positions. Deposits of $1.1 billion (October 31, 2016 – $1.3 billion) are included in the trading and investment portfolio.
5The fair values of the GIIPS exposures in Level 3 in the Trading and Investment Portfolio were not significant as at January 31, 2017, and October 31, 2016.
6The reported exposures do not include $0.2 billion of protection the Bank purchased through credit default swaps (October 31, 2016 – $0.3 billion).
7Other European exposure is distributed across 13 countries (October 31, 2016 – 10 countries), each of which has a net exposure including loans and commitments, derivatives, repos and securities lending, and trading and investment portfolio below $1 billion as at January 31, 2017, and October 31, 2016.

 

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 19
 

 

 

 

TABLE 22: EXPOSURE TO EUROPE – Gross European Lending Exposure by Country1       
(millions of Canadian dollars)                           As at   
       Loans and commitments    Loans and commitments   
       Direct2  Indirect3    Total    Direct2  Indirect3    Total   
Country   January 31, 2017    October 31, 2016   
GIIPS                              
Greece $ –  $ –  $ –  $ –  $ –  $ –   
Italy   165    4    169    170    4    174   
Ireland   –    –    –    –    –    –   
Portugal   –    –    –    –    –    –   
Spain   66    48    114    –    153    153   
Total GIIPS   231    52    283    170    157    327   
Rest of Europe                               
Finland   58    14    72    71    13    84   
France   815    494    1,309    830    541    1,371   
Germany   1,053    1,741    2,794    788    948    1,736   
Netherlands   835    436    1,271    970    444    1,414   
Sweden   323    4    327    282    4    286   
Switzerland   412    838    1,250    562    746    1,308   
United Kingdom   3,018    1,674    4,692    3,117    1,716    4,833   
Other4    14    265    279    5    279    284   
Total Rest of Europe    6,528    5,466    11,994    6,625    4,691    11,316   
Total Europe $ 6,759  $ 5,518  $ 12,277  $ 6,795  $ 4,848  $ 11,643   
1Certain comparative amounts have been reclassified to conform with the presentation adopted in the current period.
2Includes interest-bearing deposits with banks, funded loans, and banker's acceptances.
3Includes undrawn commitments and letters of credit.
4Other European exposure is distributed across 13 countries (October 31, 2016 – 10 countries), each of which has a net exposure including loans and commitments, derivatives, repos and securities lending, and trading and investment portfolio below $1 billion as at January 31, 2017, and October 31, 2016.

 

 

Of the Bank's European exposure, approximately 98% (October 31, 2016 – 98%) is to counterparties in countries rated AA or better by either Moody's Investor Services (Moody's) or Standard & Poor's (S&P), with the majority of this exposure to the sovereigns themselves and to well-rated, systemically important banks in these countries. Derivatives and securities repurchase transactions are completed on a collateralized basis. The vast majority of derivatives exposure is offset by cash collateral while the repurchase transactions are backed largely by government securities rated A+ or better by either Moody's or S&P, and cash. Additionally, the Bank has exposure to well-rated corporate issuers in Europe where the Bank also does business with their related entities in North America.

In addition to the European exposure identified above, the Bank also has $9.1 billion (October 31, 2016 – $8.9 billion) of direct exposure to supranational entities with European sponsorship and indirect exposure including $0.3 billion (October 31, 2016 – $0.2 billion) of European collateral from non-European counterparties related to repurchase and securities lending transactions that are margined daily.

As part of the Bank's usual credit risk and exposure monitoring processes, all exposures are reviewed on a regular basis. European exposures are reviewed monthly or more frequently as circumstances dictate and are periodically stress tested to identify and understand any potential vulnerabilities. Based on the most recent reviews, all European exposures are considered manageable.

 

Exposure to ACQUIRED CREDIT-IMPAIRED LOANS

ACI loans are generally loans with evidence of incurred credit loss where it is probable at the purchase date that the Bank will be unable to collect all contractually required principal and interest payments. Evidence of credit quality deterioration as of the acquisition date may include statistics such as past due status and credit scores. ACI loans are initially recorded at fair value and, as a result, no allowance for credit losses is recorded on the date of acquisition.

ACI loans originated from FDIC-assisted transactions, including covered loans subject to loss sharing agreements with the FDIC and the South Financial acquisition. The following table presents the unpaid principal balance, carrying value, counterparty-specific allowance, allowance for individually insignificant impaired loans, and the net carrying value as a percentage of the unpaid principal balance for ACI loans.

 

 

TABLE 23: ACQUIRED CREDIT-IMPAIRED LOAN PORTFOLIO1           
(millions of Canadian dollars, except as noted)                        As at   
               Allowance for         
       Unpaid    Counterparty-    individually    Carrying  Percentage of   
       principal  Carrying  specific    insignificant  value net of  unpaid principal   
         balance2    value    allowance3  impaired loans3  allowances    balance   
       January 31, 2017   
FDIC-assisted acquisitions4    $ 461  $ 435  $ 1  $ 33  $ 401    87.0  %
South Financial       470    437    3    24    410    87.2   
Total ACI loan portfolio   $ 931  $ 872  $ 4  $ 57  $ 811    87.1  %
                                   
       October 31, 2016   
FDIC-assisted acquisitions4    $ 508  $ 480  $ 1  $ 35  $ 444    87.4  %
South Financial       529    494    3    23    468    88.5   
Total ACI loan portfolio   $ 1,037  $ 974  $ 4  $ 58  $ 912    87.9  %
1Certain comparative amounts have been reclassified to conform with the presentation adopted in the current period.
2Represents contractual amount owed net of charge-offs since acquisition of the loan.
3Management concluded as part of the Bank's assessment of the ACI loans that it was probable that higher than estimated principal credit losses would result in a decrease in expected cash flows subsequent to acquisition. As a result, counterparty-specific and individually insignificant allowances have been recognized.
4Carrying value does not include the effect of the FDIC loss sharing agreement.

 

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 20
 

 


During the three months ended January 31, 2017, the Bank recorded a recovery of $3 million in PCL on ACI loans (three months ended January 31, 2016 – $7 million). The following table provides key credit statistics by past due contractual status and geographic concentrations based on ACI loans unpaid principal balance.

 

 

TABLE 24: ACQUIRED CREDIT-IMPAIRED LOANS – Key Credit Statistics1   
(millions of Canadian dollars, except as noted)                As at   
      January 31, 2017    October 31, 2016   
      Unpaid principal balance2    Unpaid principal balance2   
Past due contractual status                    
Current and less than 30 days past due   $ 794  85.3  % $ 912  88.0  %
30-89 days past due     38  4.1      24  2.3   
90 or more days past due     99  10.6      101  9.7   
Total ACI loans     931  100.0      1,037  100.0   
                       
Geographic region                    
Florida     629  67.6      691  66.6   
South Carolina     224  24.1      260  25.1   
North Carolina     75  8.0      83  8.0   
Other U.S. and Canada     3  0.3      3  0.3   
Total ACI loans   $ 931  100.0  % $ 1,037  100.0  %
1Certain comparative amounts have been reclassified to conform with the presentation adopted in the current period.
2Represents contractual amount owed net of charge-offs since acquisition of the loan.

 

 

Exposure to Non-Agency Collateralized Mortgage Obligations

As a result of the acquisition of Commerce Bancorp Inc., the Bank has exposure to non-agency CMOs collateralized primarily by Alt-A and Prime Jumbo mortgages, most of which are pre-payable fixed-rate mortgages without rate reset features. At the time of acquisition, the portfolio was recorded at fair value, which became the new cost basis for this portfolio. Refer to the "Exposure to Non-Agency Collateralized Mortgage Obligations" section of the 2016 Annual Report for further details on CMOs.

The allowance for losses that are incurred but not identified as at January 31, 2017, was US$26 million (October 31, 2016 – US$41 million).

The following table presents the par value, carrying value, allowance for loan losses, and the net carrying value as a percentage of the par value for the non-agency CMO portfolio as at January 31, 2017, and October 31, 2016. As at January 31, 2017, the balance of the remaining acquisition-related incurred loss was US$119 million (October 31, 2016 – US$160 million). This amount is reflected in the following table as a component of the discount from par to carrying value.

 

 

TABLE 25: NON-AGENCY CMO LOANS PORTFOLIO  
(millions of U.S. dollars, except as noted)                 As at   
          Allowance  Carrying  Percentage   
    Par  Carrying  for loan  value net of  of par   
    value  value  losses  allowance  value   
                  January 31, 2017   
Non-Agency CMOs $ 708  $ 625  $ 129  $ 496    70.1  %
                         
                  October 31, 2016   
Non-Agency CMOs $ 1,158  $ 1,020  $ 195  $ 825    71.2  %

 

 

During the second quarter of 2009, the Bank re-securitized a portion of the non-agency CMO portfolio. As part of the on-balance sheet re-securitization, new credit ratings were obtained for the re-securitized securities that better reflected the discount on acquisition and the Bank's risk inherent on the entire portfolio, resulting in a net capital benefit. The net capital benefit expired on October 31, 2016. During the first quarter of 2017, the Bank unwound the re-securitizations and sold a portion of the non-agency CMO portfolio resulting in a gain on sale, recognized in other income within the Corporate segment. The impact of the sale on the portfolio and related allowance for loan losses is reflected in the table above.

 

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 21
 

 

 

TABLE 26: NON-AGENCY ALT-A AND PRIME JUMBO CMO PORTFOLIO BY VINTAGE YEAR          
(millions of U.S. dollars)                       As at   
     Alt-A  Prime Jumbo  Total   
     Amortized    Fair  Amortized  Fair  Amortized  Fair   
       cost  value    cost  value    cost  value   
                       January 31, 2017   
2003  $ 18  $ 21  $ 18  $ 20  $ 36  $ 41   
2004    46    52    15    16    61    68   
2005    57    78    8    8    65    86   
2006    106    125    38    43    144    168   
2007    178    207    38    45    216    252   
Total portfolio net of counterparty-specific                            
  and individually insignificant credit losses $ 405  $ 483  $ 117  $ 132  $ 522  $ 615   
Less: allowance for incurred but not identified credit losses                   26       
Total                   $ 496       
                              
                     October 31, 2016   
2003  $ 20  $ 23  $ 20  $ 21  $ 40  $ 44   
2004    49    55    15    17    64    72   
2005    204    248    14    16    218    264   
2006    157    187    73    84    230    271   
2007    226    270    88    99    314    369   
Total portfolio net of counterparty-specific                            
  and individually insignificant credit losses $ 656  $ 783  $ 210  $ 237  $ 866  $ 1,020   
Less: allowance for incurred but not identified credit losses                   41       
Total                   $ 825       

 

 

 

CAPITAL POSITION

 

REGULATORY CAPITAL

Capital requirements of the Basel Committee on Banking Supervision (BCBS) are commonly referred to as Basel III. Under Basel III, Total Capital consists of three components, namely CET1, Additional Tier 1, and Tier 2 Capital. Risk sensitive regulatory capital ratios are calculated by dividing CET1, Tier 1, and Total Capital by their respective RWA. In 2015, Basel III implemented a non-risk sensitive leverage ratio to act as a supplementary measure to the risk-sensitive capital requirements. The objective of the leverage ratio is to constrain the build-up of excess leverage in the banking sector. The leverage ratio is calculated by dividing Tier 1 Capital by leverage exposure which is primarily comprised of on-balance sheet assets with adjustments made to derivative and securities financing transaction exposures, and credit equivalent amounts of off-balance sheet exposures. TD continues to manage its regulatory capital in accordance with the Basel III Capital Framework as discussed in the "Capital Position" section of the 2016 Annual Report.

 

OSFI's Capital Requirements under Basel III

OSFI's Capital Adequacy Requirements (CAR) guideline details how the Basel III capital rules apply to Canadian banks.

Effective January 1, 2014, the CVA capital charge is to be phased in over a five year period based on a scalar approach. For fiscal 2017, the scalars for inclusion of the CVA for CET1, Tier 1, and Total Capital RWA are 72%, 77%, and 81%. This scalar increases to 80% in 2018 and 100% in 2019 for the CET1 calculation. A similar set of scalar phase-in percentages apply to the Tier 1 and Total Capital ratio calculations.

Effective January 1, 2013, all newly issued non-common Tier 1 and Tier 2 Capital instruments must include non-viability contingent capital (NVCC) provisions to qualify as regulatory capital. NVCC provisions require the conversion of non-common capital instruments into a variable number of common shares of the Bank upon the occurrence of a trigger event as defined in the guidance. Existing non-common Tier 1 and Tier 2 capital instruments which do not include NVCC provisions are non-qualifying capital instruments and are subject to a phase-out period which began in 2013 and ends in 2022.

The CAR guideline contains two methodologies for capital ratio calculation: (1) the "transitional" method; and (2) the "all-in" method. The minimum CET1, Tier 1, and Total Capital ratios, based on the "all-in" method, are 4.5%, 6%, and 8%, respectively. OSFI expects Canadian banks to include an additional capital conservation buffer of 2.5%, effectively raising the CET1, Tier 1 Capital, and Total Capital ratio minimum requirements to 7%, 8.5%, and 10.5%, respectively.

In March 2013, OSFI designated the six major Canadian banks as domestic systemically important banks (D-SIBs), for which a 1% common equity capital surcharge is in effect from January 1, 2016. As a result, the six Canadian banks designated as D-SIBs, including TD, are required to meet an "all-in" Pillar 1 target CET1, Tier 1, and Total Capital ratios of 8%, 9.5%, and 11.5%, respectively.

At the discretion of OSFI, a common equity countercyclical capital buffer (CCB) within a range of 0% to 2.5% may be imposed. The primary objective of the CCB is to protect the banking sector against future potential losses resulting from periods of excess aggregate credit growth that have often been associated with the build-up of system-wide risk. The CCB is an extension of the capital conservation buffer and must be met with CET1 capital. The CCB is calculated using the weighted average of the buffers deployed in Canada and across BCBS member jurisdictions and selected non-member jurisdictions to which the bank has private sector credit exposures.

Effective the first quarter of 2017, OSFI required D-SIBs and foreign bank subsidiaries in Canada to comply with the CCB regime, phased-in according to the transitional arrangements. As a result, the maximum countercyclical buffer relating to foreign private sector credit exposures will be capped at 1.25% of total RWAs in the first quarter of 2017 and increase each subsequent year by an additional 0.625%, to reach its final maximum of 2.5% of total RWAs in the first quarter of 2019.

As at January 31, 2017, the CCB is only applicable to private sector credit exposures located in Hong Kong SAR, Sweden, and Norway. Based on the allocation of exposures and buffers currently in place in Hong Kong SAR, Sweden, and Norway, the Bank's countercyclical buffer requirement is 0% as at January 31, 2017.

The leverage ratio is calculated as per OSFI's Leverage Requirements guideline and has a regulatory minimum requirement of 3%.

 

Global Systemically Important Banks Disclosures

In July 2013, the BCBS issued an update to the final rules on Global Systemically Important Banks (G-SIBs) and outlined the G-SIB assessment methodology which is based on the submissions of the largest global banks. The score for a particular indicator is calculated by dividing the individual bank value by the aggregate amount for the indicator summed across all banks included in the assessment. Accordingly, an individual bank's ranking is reliant on the results and submissions of other global banks. The update also provided clarity on the public disclosure requirements of the twelve indicators used in the assessment methodology. As per OSFI's revised Advisory issued September 2015, the six Canadian banks that have been designated as D-SIBs are also required by OSFI to publish, at a minimum, the twelve indicators used in the G-SIB indicator-based assessment framework. Public disclosure of financial year-end data is required annually, no later than the date of a bank's first quarter public disclosure of shareholder financial data in the following year.

 

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 22
 

 

The indicator based measurement approach divides the twelve indicators into five categories, with each category yielding a 20% weight to a bank's total score on the G-SIB scale as per the following table.

 

 

Category (and weighting) Individual indicator (and weighting) Category background
Cross-jurisdictional activity (20%)

1. Cross-jurisdictional claims (10%)

2. Cross-jurisdictional liabilities (10%)

 This category measures the importance of the bank's activities outside its home jurisdiction, relative to overall activity of other banks. The two indicators account for an understanding that the international impact of a bank's distress or failure would vary in line with its share of cross-jurisdictional assets and liabilities.
Size (20%)

3. Total exposures as defined for use in the Basel III leverage ratio (20%)

 This category measures the size of the bank. The larger the bank, the more difficult it is for its activities to be quickly replaced by other banks and therefore the greater the chance that its distress or failure would cause disruption to the financial markets in which it operates. The distress or failure of a large bank is also more likely to damage confidence in the financial system as a whole. Size is therefore a key measure of systemic importance.
Interconnectedness (20%)

4. Intra-financial system assets (6.67%)

5. Intra-financial system liabilities (6.67%)

6. Securities outstanding (6.67%)

 This category measures the magnitude of dependence amongst banks. Given the network of contractual obligations in which the banks operate, financial distress at one institution can materially increase the likelihood of distress at other institutions. A bank's systemic impact is likely to be positively related to its interconnectedness vis-à-vis other financial institutions.
Substitutability / financial institution infrastructure (20%)

7. Assets under custody (6.67%)

8. Payments activity (6.67%)

9. Underwritten transactions in debt and equity markets (6.67%)

 This category measures the extent to which other institutions could provide the same service (such as availability of substitutes) of the failed bank. The three indicators also measures the bank's dominance in the financial institution infrastructure in which it operates. The greater a bank's role in a particular business line, or as a service provider in underlying market infrastructure (for example, payment systems), the larger the disruption will likely be following its failure, in terms of both service gaps and reduced flow of market and infrastructure liquidity. At the same time, the cost to the failed bank's customers in having to seek the same service from another institution is likely to be higher for a failed bank with relatively greater market share in providing the service.
Complexity (20%)

10. Notional amount of over-the-counter (OTC) derivatives (6.67%)

11. Trading and available-for-sale securities (6.67%)

12. Level 3 assets (6.67%)

 

 This category measures the complexity of the bank. The systemic impact of a bank's distress or failure is expected to be positively related to its overall complexity – that is, its business, structural, and operational complexity. The more complex a bank is, the greater are the costs and time needed to resolve the bank.

 

The Bank's fiscal 2016 G-SIB score has not yet been determined, however for fiscal year 2015, the Bank was below the G-SIB bucket thresholds. The increase in underwritten transactions in debt and equity markets from 2015 is due to foreign exchange fluctuations and larger deals. The increase in notional amount of OTC derivatives is due to increased exposures to interest rate swaps and foreign exchange forwards. The increase in trading and available-for-sale securities reflects an increase in available-for-sale government and government-related securities. The following table provides the results of the twelve indicators for the Bank.

 

 

TABLE 27: G-SIB INDICATORS1             
(millions of Canadian dollars)          As at   
       October 31    October 31   
         2016      2015   
                  
Category (and weighting) Individual Indicator            
Cross-jurisdictional activity (20%) Cross-jurisdictional claims $ 525,276    $ 482,419   
    Cross-jurisdictional liabilities   430,191      414,920   
Size (20%) Total exposures as defined for use in the Basel III leverage ratio   1,244,414      1,186,459   
Interconnectedness (20%) Intra-financial system assets   81,716      90,528   
    Intra-financial system liabilities   41,040      38,338   
    Securities outstanding   296,359      272,595   
Substitutability / financial institution Assets under custody   400,885      361,632   
  infrastructure (20%) Payments activity   24,526,857      23,301,397   
    Underwritten transactions in debt and equity markets   133,495      104,571   
Complexity (20%) Notional amount of OTC derivatives   8,590,066      6,448,672   
    Trading and available-for-sale securities   72,298      44,680   
    Level 3 assets   3,264      3,685   
1Certain comparative amounts have been restated to conform with the presentation adopted in the current period.

 

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 23
 

 

 

The following table provides details of TD's regulatory capital position.

 

 

TABLE 28: REGULATORY CAPITAL POSITION                     
(millions of Canadian dollars, except as noted)                 As at   
   January 31    October 31    January 31   
     2017      2016      2016   
Capital                     
Common Equity Tier 1 Capital $ 43,721    $ 42,328    $ 39,597   
Tier 1 Capital   50,644      49,397      45,688   
Total Capital   60,670      61,816      55,172   
Common Equity Tier 1 Capital risk-weighted assets for:                     
Credit risk1,2   334,483      340,296      345,589   
Market risk   13,587      12,211      11,808   
Operational risk3    48,796      48,001      42,220   
Regulatory floor   5,302      5,336      –   
Total $ 402,168    $ 405,844    $ 399,617   
Capital and leverage ratios                     
Common Equity Tier 1 Capital ratio1    10.9  %   10.4  %   9.9  %
Tier 1 Capital ratio1    12.6      12.2      11.4   
Total Capital ratio1    15.1      15.2      13.7   
Leverage ratio   4.0      4.0      3.7   
1Each capital ratio has its own RWA measure due to the OSFI-prescribed scalar for inclusion of the CVA. For fiscal 2016, the scalars for inclusion of CVA for Common Equity Tier 1 (CET1), Tier 1, and Total Capital RWA were 64%, 71%, and 77%, respectively. For fiscal 2017, the scalars are 72%, 77%, and 81%.
2Effective the third quarter of 2016, OSFI approved the Bank to calculate the majority of retail portfolio credit RWAs in the U.S. Retail segment using the Advanced Internal Ratings Based (AIRB) approach.
3Effective the third quarter of 2016, OSFI approved the Bank to use Advanced Measurement Approach (AMA).

 

 

As at January 31, 2017, the Bank's CET1, Tier 1, and Total Capital ratios were 10.9%, 12.6%, and 15.1%, respectively. Compared with the Bank's CET1 Capital ratio of 10.4% at October 31, 2016, the CET1 Capital ratio, as at January 31, 2017, increased due to organic capital growth and actuarial gains on employee benefit plans, primarily due to an increase in long term interest rates, partially offset by RWA growth in the Wholesale and U.S. Retail segments.

 

As at January 31, 2017, the Bank's leverage ratio was 4.0%, flat compared to prior quarter, as capital generation was offset by business growth in all segments.

 

Future Regulatory Capital Developments

Refer to the "Future Changes in Basel" section of the 2016 Annual Report. There were no material regulatory capital developments during the quarter ended January 31, 2017.

 

Normal Course Issuer Bid

On December 9, 2015, the Bank announced that the Toronto Stock Exchange (TSX) and OSFI approved the Bank's normal course issuer bid (NCIB) to repurchase for cancellation up to 9.5 million of the Bank's common shares. During the three months ended January 31, 2016, the Bank completed its share repurchase under the NCIB and repurchased 9.5 million common shares at an average price of $51.23 per share for a total amount of $487 million.

As approved by the Board on March 1, 2017, the Bank announced its intention to initiate an NCIB for up to 15 million of its common shares, subject to the approval of OSFI and the TSX. The timing and amount of any purchases under the program are subject to regulatory approvals and to management discretion based on factors such as market conditions and capital adequacy.

 

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 24
 

 

 

TABLE 29: OUTSTANDING EQUITY AND SECURITIES EXCHANGEABLE/CONVERTIBLE INTO EQUITY1   
(millions of shares/units, except as noted)   As at   
     January 31, 2017  October 31, 2016   
     Number of  Number of   
     shares/units  shares/units   
Common shares outstanding 1,859.7  1,857.6   
Treasury shares – common (3.3) (0.4)  
Total common shares 1,856.4  1,857.2   
Stock options       
Vested 7.3  5.5   
Non-vested 9.0  9.9   
Series S 5.4  5.4   
Series T 4.6  4.6   
Series Y 5.5  5.5   
Series Z 4.5  4.5   
Series 12  20.0  20.0   
Series 32  20.0  20.0   
Series 52  20.0  20.0   
Series 72  14.0  14.0   
Series 92  8.0  8.0   
Series 112  6.0  6.0   
Series 122  28.0  28.0   
Series 142  40.0  40.0   
Total preferred shares – equity 176.0  176.0   
Treasury shares – preferred (0.2) (0.2)  
Total preferred shares 175.8  175.8   
Capital Trust Securities (thousands of shares)      
Trust units issued by TD Capital Trust III:      
  TD Capital Trust III Securities – Series 2008 1,000.0  1,000.0   
Debt issued by TD Capital Trust IV:      
  TD Capital Trust IV Notes – Series 1 550.0  550.0   
  TD Capital Trust IV Notes – Series 2 450.0  450.0   
  TD Capital Trust IV Notes – Series 3 750.0  750.0   
1For further details, including the principal amount, conversion and exchange features, and distributions, refer to Note 14 of the Interim Consolidated Financial Statements.
2NVCC Series 1, 3, 5, 7, 9, 11, 12, and 14 Preferred Shares qualify as regulatory capital under OSFI's CAR guideline. If a NVCC conversion were to occur in accordance with the NVCC Provisions, the maximum number of common shares that could be issued based on the formula for conversion set out in the respective terms and conditions applicable to each Series of shares, assuming there are no declared and unpaid dividends on the respective Series of shares at the time of conversion, as applicable, would be 100 million, 100 million, 100 million, 70 million, 40 million, 30 million, 140 million, and 200 million, respectively.

 

 

TABLE 30: FLOW STATEMENT FOR RISK-WEIGHTED ASSETS – Disclosure for Non-Counterparty Credit Risk and Counterparty Credit Risk  
   Risk-Weighted Assets Movement by Key Driver                     
(millions of Canadian dollars)                For the three months ended   
    January 31, 2017      October 31, 2016   
    Non-counterparty    Counterparty    Non-counterparty    Counterparty   
    credit risk    credit risk    credit risk    credit risk   
Common Equity Tier 1 Capital RWA, balance at                          
  beginning of period $ 324,335    $ 15,961    $ 312,964    $ 15,887   
Book size   (3,034)     (1,167)     5,768      (182)  
Book quality   (676)     (4)     191      1   
Model updates   –      –      –      –   
Methodology and policy   4,948      578      –      –   
Acquisitions and disposals   –      –      (318)     –   
Foreign exchange movements   (6,441)     (408)     5,480      255   
Other   391      –      250      –   
Total RWA movement   (4,812)     (1,001)     11,371      74   
Common Equity Tier 1 Capital RWA, balance at                          
  end of period $ 319,523    $ 14,960    $ 324,335    $ 15,961   

 

 

Counterparty credit risk is comprised of over-the-counter (OTC) derivatives, repo-style transactions, trades cleared through central counterparties, and CVA RWA which is phased in at 64% for fiscal 2016 and 72% for fiscal 2017.

Non-counterparty credit risk includes loans and advances to individuals and small business retail customers, wholesale and commercial corporate customers, and banks and governments, as well as holdings of debt, equity securities, and other assets including prepaid expenses, deferred income taxes, land, building, equipment, and other depreciable property.

The Book size category consists of organic changes in book size and composition (including new business and maturing loans) and, for the first quarter of 2017, decreased mainly due to sales of securitization exposures in the U.S. Retail segment partly offset by growth in the commercial portfolio in U.S. Retail and Canadian Retail segments.

The Book quality category includes quality of book changes caused by experience such as underlying customer behaviour or demographics, including changes through model calibrations/realignments.

The Model updates category relates to model implementation, changes in model scope, or any changes to address model malfunctions.

The Methodology and policy category impacts reflect newly adopted methodology changes to the calculations driven by regulatory policy changes, such as new regulations and, for the first quarter of 2017, increased mainly due to a change in treatment for certain securitization exposures in the U.S. Retail segment.

Foreign exchange movements are mainly due to a change in the U.S. dollar foreign exchange rate for the U.S. portfolios in the U.S. Retail and Wholesale Banking segments.

The Other category consists of items not described in the above categories, including changes in exposures not included under advanced or standardized methodologies, such as prepaid expenses, deferred income taxes, land, building, equipment and other depreciable property, and other assets. 

 

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 25
 

 

TABLE 31: FLOW STATEMENT FOR RISK-WEIGHTED ASSETS – Disclosure for Market Risk  
Risk-Weighted Assets Movement by Key Driver      
(millions of Canadian dollars)   For the three months ended   
  January 31, 2017  October 31, 2016   
RWA, balance at beginning of period $ 12,211  $ 12,456   
Movement in risk levels   1,376    (245)  
Model updates   –    –   
Methodology and policy   –    –   
Acquisitions and disposals   –    –   
Foreign exchange movements and other   n/m1    n/m1   
Total RWA movement   1,376    (245)  
RWA, balance at end of period $ 13,587  $ 12,211   
1Not meaningful.

 

 

The Movement in risk levels category reflects changes in risk due to position changes and market movements. Increases in interest rate risk drove the increase in RWA. The Model updates category reflects updates to the model to reflect recent experience and change in model scope. The Methodology and policy category reflects newly adopted methodology changes to the calculations driven by regulatory policy changes. Foreign exchange movements and other are deemed not meaningful since RWA exposure measures are calculated in Canadian dollars. Therefore, no foreign exchange translation is required.

 

 

TABLE 32: FLOW STATEMENT FOR RISK-WEIGHTED ASSETS – Disclosure for Operational Risk  
      Risk-Weighted Assets Movement by Key Driver  
(millions of Canadian dollars)   For the three months ended   
  January 31, 2017  October 31, 2016   
RWA, balance at beginning of period $ 48,001  $ 46,936   
Revenue generation   157    121   
Movement in risk levels   638    944   
Model updates   –    –   
Methodology and policy   –    –   
Acquisitions and disposals   –    –   
RWA, balance at end of period $ 48,796  $ 48,001   

 

 

The movement in the Revenue generation category is due to a change in gross income. The Movement in risk levels category primarily reflects changes in risk due to operational loss experience, business environment and internal control factors, scenario analysis and movements in foreign exchange. The Model updates category relates to model implementation, changes in model scope, or any changes to address model malfunctions. The Methodology and policy category reflects newly adopted methodology changes to the calculations driven by regulatory policy changes.

 

 

MANAGING RISK

 

EXECUTIVE SUMMARY

Growing profitability in financial services involves selectively taking and managing risks within TD's risk appetite. The Bank's goal is to earn a stable and sustainable rate of return for every dollar of risk it takes, while putting significant emphasis on investing in TD's businesses to ensure it can meet its future strategic objectives.

TD's businesses and operations are exposed to a broad number of risks that have been identified and defined in the Enterprise Risk Framework. The Bank's tolerance to those risks is defined in the Enterprise Risk Appetite which has been developed within a comprehensive framework that takes into consideration current conditions in which the Bank operates and the impact that emerging risks will have on TD's strategy and risk profile. The Bank's risk appetite states that it takes risks required to build its business, but only if those risks: (1) fit the business strategy, and can be understood and managed; (2) do not expose the enterprise to any significant single loss events; TD does not 'bet the bank' on any single acquisition, business, or product; and (3) do not risk harming the TD brand. Each business is responsible for setting and aligning its individual risk appetites with that of the enterprise based on a thorough examination of the specific risks to which it is exposed.

TD considers it critical to assess regularly the operating environment and highlight top and emerging risks within the individual business and enterprise that could have a significant impact on the Bank. These risks can be internal or external, impacting the financial results, reputation, or sustainability of the business. They may also represent exposures or potential events which may or may not materialize. These risks are identified, discussed, and actioned by senior risk leaders and reported quarterly to the Risk Committee of the Board. Specific plans to mitigate top and emerging risks are prepared, monitored, and adjusted as required.

 

The Bank's risk governance structure and risk management approach have not substantially changed from that described in the 2016 MD&A. Additional information on risk factors can be found in the 2016 MD&A under the heading "Risk Factors and Management". For a complete discussion of the risk governance structure and the risk management approach, refer to the "Managing Risk" section in the 2016 MD&A.

 

The shaded sections of this MD&A represent a discussion relating to market and liquidity risks and form an integral part of the Interim Consolidated Financial Statements for the period ended January 31, 2017.

 

CREDIT RISK

Gross credit risk exposure, also referred to as exposure at default (EAD), is the total amount the Bank is exposed to at the time of default of a loan and is measured before counterparty-specific provisions or write-offs. Gross credit risk exposure does not reflect the effects of credit risk mitigation and includes both on-balance sheet and off-balance sheet exposures. On-balance sheet exposures consist primarily of outstanding loans, acceptances, non-trading securities, derivatives, and certain other repo-style transactions. Off-balance sheet exposures consist primarily of undrawn commitments, guarantees, and certain other repo-style transactions.

 

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 26
 

 

Gross credit risk exposures for the two approaches the Bank uses to measure credit risk are included in the following table.

 

 

TABLE 33: GROSS CREDIT RISK EXPOSURES – Standardized and Advanced Internal Ratings Based (AIRB) Approaches1   
(millions of Canadian dollars)                   As at   
         January 31, 2017    October 31, 2016   
   Standardized  AIRB  Total  Standardized  AIRB  Total   
Retail                           
Residential secured $ 1,355  $ 335,389  $ 336,744  $ 1,334  $ 334,878  $ 336,212   
Qualifying revolving retail   –    91,856    91,856    –    90,778    90,778   
Other retail   19,217    71,026    90,243    18,894    71,940    90,834   
Total retail   20,572    498,271    518,843    20,228    497,596    517,824   
Non-retail                           
Corporate   123,975    263,759    387,734    127,399    252,616    380,015   
Sovereign   84,259    139,754    224,013    77,166    139,367    216,533   
Bank   17,423    84,199    101,622    17,721    66,432    84,153   
Total non-retail   225,657    487,712    713,369    222,286    458,415    680,701   
Gross credit risk exposures $ 246,229  $ 985,983  $ 1,232,212  $ 242,514  $ 956,011  $ 1,198,525   
1Gross credit risk exposures represent EAD and are before the effects of credit risk mitigation. This table excludes securitization, equity, and other credit RWA.

 

 

MARKET RISK

Market risk capital is calculated using internal models and comprises three components: (1) Value-at-Risk (VaR); (2) Stressed VaR; and (3) Incremental Risk Charge (IRC). In addition, the Bank calculates market risk capital using the Standardized approach for a limited number of portfolios.

 

 

 

Market Risk Linkage to the Balance Sheet

The following table provides a breakdown of the Bank's balance sheet into assets and liabilities exposed to trading and non-trading market risks. Market risk of assets and liabilities included in the calculation of VaR and other metrics used for regulatory market risk capital purposes is classified as trading market risk.

 

 

TABLE 34: MARKET RISK LINKAGE TO THE BALANCE SHEET
(millions of Canadian dollars)        As at   
              January 31, 2017        October 31, 2016     
                                Non-trading market   
       Balance  Trading  Non-trading  Balance  Trading  Non-trading  risk – primary risk   
       sheet  market risk  market risk  sheet  market risk  market risk  sensitivity   
Assets subject to market risk                             
Interest-bearing deposits with banks $ 54,438  $ 316  $ 54,122  $ 53,714  $ 258  $ 53,456  Interest rate  
Trading loans, securities, and other   110,261    104,006    6,255    99,257    92,282    6,975  Interest rate  
Derivatives   60,640    54,702    5,938    72,242    63,931    8,311  Equity, foreign exchange,  
                                interest rate  
Financial assets designated at fair value                             
  through profit or loss   4,594    –    4,594    4,283    –    4,283  Interest rate  
Available-for-sale securities   113,275    –    113,275    107,571    –    107,571  Foreign exchange, interest rate  
Held-to-maturity securities   77,981    –    77,981    84,395    –    84,395  Foreign exchange, interest rate  
Securities purchased under reverse                             
  repurchase agreements   96,389    1,699    94,690    86,052    1,728    84,324  Interest rate  
Loans   588,473    –    588,473    589,529    –    589,529  Interest rate  
Customers' liability under acceptances   11,741    –    11,741    15,706    –    15,706  Interest rate  
Investment in TD Ameritrade   6,883    –    6,883    7,091    –    7,091  Equity  
Other assets1    1,704    –    1,704    1,769    –    1,769  Interest rate  
Assets not exposed to market risk   60,504            55,358             
Total Assets   1,186,883    160,723    965,656    1,176,967    158,199    963,410     
                                   
Liabilities subject to market risk                             
Trading deposits   91,485    3,910    87,575    79,786    3,876    75,910  Interest rate  
Derivatives   57,936    52,117    5,819    65,425    60,221    5,204  Foreign exchange, interest rate  
Securitization liabilities at fair value   12,537    12,537    –    12,490    12,490    –  Interest rate  
Other financial liabilities designated at fair                             
  value through profit or loss   24    13    11    190    177    13  Interest rate  
Deposits   774,534    –    774,534    773,660    –    773,660  Equity, interest rate  
Acceptances   11,741    –    11,741    15,706    –    15,706  Interest rate  
Obligations related to securities sold short   30,532    28,903    1,629    33,115    29,973    3,142  Interest rate  
Obligations related to securities sold under                             
  repurchase agreements   59,338    3,672    55,666    48,973    3,657    45,316  Interest rate  
Securitization liabilities at amortized cost   17,183    –    17,183    17,918    –    17,918  Interest rate  
Subordinated notes and debentures   8,394    –    8,394    10,891    –    10,891  Interest rate  
Other liabilities1    15,289    –    15,289    15,526    –    15,526  Interest rate  
Liabilities and Equity not exposed to                             
  market risk   107,890            103,287             
Total Liabilities and Equity $ 1,186,883  $ 101,152  $ 977,841  $ 1,176,967  $ 110,394  $ 963,286     
1Relates to retirement benefits, insurance, and structured entity liabilities.

 

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 27
 

 

 

Calculating VaR

TD computes total VaR on a daily basis by combining the General Market Risk (GMR) and Idiosyncratic Debt Specific Risk (IDSR) associated with the Bank's trading positions.

GMR is determined by creating a distribution of potential changes in the market value of the current portfolio using historical simulation. The Bank values the current portfolio using the market price and rate changes of the most recent 259 trading days for equity, interest rate, foreign exchange, credit, and commodity products. GMR is computed as the threshold level that portfolio losses are not expected to exceed more than one out of every 100 trading days. A one-day holding period is used for GMR calculation, which is scaled up to ten days for regulatory capital calculation purposes.

IDSR measures idiosyncratic (single-name) credit spread risk for credit exposures in the trading portfolio using Monte Carlo simulation. The IDSR model is based on the historical behaviour of five-year idiosyncratic credit spreads. Similar to GMR, IDSR is computed as the threshold level that portfolio losses are not expected to exceed more than one out of every 100 trading days. IDSR is measured for a ten-day holding period.

 

The following graph discloses daily one-day VaR usage and trading-related revenue within Wholesale Banking. Trading-related revenue is the total of trading income reported in non-interest income and the net interest income on trading positions reported in net interest income, and is reported on a TEB. For the quarter ended January 31, 2017, there were 4 days of trading losses and trading-related revenue was positive for 94% of the trading days, reflecting normal trading activity. Losses in the quarter did not exceed VaR on any trading day.

 

 

 

 

VaR is a valuable risk measure but it should be used in the context of its limitations, for example:

 •VaR uses historical data to estimate future events, which limits its forecasting abilities;
 •it does not provide information on losses beyond the selected confidence level; and
  •it assumes that all positions can be liquidated during the holding period used for VaR calculation.

 

The Bank continuously improves its VaR methodologies and incorporates new risk measures in line with market conventions, industry best practices, and regulatory requirements.

To mitigate some of the shortcomings of VaR, the Bank uses additional metrics designed for risk management and capital purposes. These include Stressed VaR, IRC, Stress Testing Framework, as well as limits based on the sensitivity to various market risk factors.

 

Calculating Stressed VaR

In addition to VaR, the Bank also calculates Stressed VaR, which includes Stressed GMR and Stressed IDSR. Stressed VaR is designed to measure the adverse impact that potential changes in market rates and prices could have on the value of a portfolio over a specified period of stressed market conditions. Stressed VaR is determined using similar techniques and assumptions in GMR and IDSR VaR. However, instead of using the most recent 259 trading days (one year), the Bank uses a selected year of stressed market conditions. In the first quarter of 2017, Stressed VaR was calculated using the one-year period that began on February 1, 2008. The appropriate historical one-year period to use for Stressed VaR is determined on a quarterly basis. Stressed VaR is a part of regulatory capital requirements.

 

Calculating the Incremental Risk Charge

The IRC is applied to all instruments in the trading book subject to migration and default risk. Migration risk represents the risk of changes in the credit ratings of the Bank's exposures. TD applies a Monte Carlo simulation with a one-year horizon and a 99.9% confidence level to determine IRC, which is consistent with regulatory requirements. IRC is based on a "constant level of risk" assumption, which requires banks to assign a liquidity horizon to positions that are subject to IRC. IRC is a part of regulatory capital requirements.

 

 

  

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 28
 

 

The following table presents the end of quarter, average, high, and low usage of TD's portfolio metrics.

 

  TABLE 35: PORTFOLIO MARKET RISK MEASURES                      
  (millions of Canadian dollars)   For the three months ended     
       January 31  October 31  January 31     
                      2017  2016  2016     
       As at  Average  High  Low  Average  Average     
  Interest rate risk $ 14.8  $ 14.8  $ 25.1  $ 9.4  $ 11.7  $ 13.5     
  Credit spread risk   9.4    8.0    10.4    6.0    7.4    9.4     
  Equity risk   9.1    7.7    9.3    5.8    7.6    9.6     
  Foreign exchange risk   3.8    3.7    6.0    2.2    2.8    3.7     
  Commodity risk   1.2    1.5    2.5    1.0    1.8    1.8     
  Idiosyncratic debt specific risk   13.2    13.1    16.2    10.3    11.0    12.3     
  Diversification effect1    (32.1)   (27.3)   n/m2    n/m2    (24.2)   (26.6)    
  Total Value-at-Risk (one-day)   19.4    21.5    31.9    16.3    18.1    23.7     
  Stressed Value-at-Risk (one-day)   35.5    36.5    44.9    28.9    33.9    29.9     
  Incremental Risk Capital Charge                              
    (one-year) $ 225.5  $ 260.9  $ 327.6  $ 172.4  $ 186.7  $ 211.5     
  1The aggregate VaR is less than the sum of the VaR of the different risk types due to risk offsets resulting from portfolio diversification.
  2Not meaningful. It is not meaningful to compute a diversification effect because the high and low may occur on different days for different risk types.

 

 

Average VaR increased over the quarter driven by changes in interest rate risk positions and declined compared to the prior year due to reductions in equity risk positions. The increase in average Stressed VaR quarter-over-quarter and year-over-year was driven by increases in bond positions.

 

Average IRC increased quarter-over-quarter and year-over-year driven by U.S. Agency positions.

 

Validation of VaR Model

The Bank uses a back-testing process to compare the actual and theoretical profit and losses to VaR to ensure that they are consistent with the statistical results of the VaR model. The theoretical profit or loss is generated using the daily price movements on the assumption that there is no change in the composition of the portfolio. Validation of the IRC model must follow a different approach since the one-year horizon and 99.9% confidence level preclude standard back-testing techniques. Instead, key parameters of the IRC model such as transition and correlation matrices are subject to independent validation by benchmarking against external study results or through analysis using internal or external data.

 

Interest Rate Risk

The following graph2 shows the Bank's interest rate risk exposure (as measured by Economic Value at Risk (EVaR)) on all non-trading assets, liabilities, and derivative instruments used for interest rate risk management. EVaR is defined as the difference between the change in the present value of the Bank's asset portfolio and the change in the present value of the Bank's liability portfolio, including off-balance sheet instruments and assumed profiles for non-rate sensitive products, resulting from an immediate and sustained 100 bps unfavourable interest rate shock. EVaR measures the relative sensitivity of asset and liability cash flow mismatches to changes in long-term interest rates. Closely matching asset and liability cash flows reduces EVaR and mitigates the risk of volatility in future net interest income.

 

 

_________________________________

2 The footnotes included in Table 36 are also applicable to this graph.

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 29
 

 

The Bank uses derivative financial instruments, wholesale investments, funding instruments, other capital market alternatives, and, less frequently, product pricing strategies to manage interest rate risk. As at January 31, 2017, an immediate and sustained 100 bps increase in interest rates would have decreased the economic value of shareholders' equity by $183 million (October 31, 2016 – $234 million) after tax. An immediate and sustained 100 bps decrease in interest rates is typically used to determine the reduction in the economic value of shareholders' equity. However, due to the low rate environment in both Canada and in the U.S. at the end of the quarter, it was only possible to shock Canadian and U.S. rates by 75 bps respectively, while maintaining a floor at 0%. The impact of these scenarios would have reduced the economic value of shareholders' equity by $57 million (October 31, 2016 – $103 million) after tax.

 

The interest risk exposure, or EVaR, in the insurance business is not included in the above graph. Interest rate risk is managed using defined exposure limits and processes, as set and governed by the insurance Board of Directors.

 

The following table shows the sensitivity of the economic value of shareholders' equity (after tax) by currency for those currencies where TD has material exposure.

 

 

  TABLE 36: SENSITIVITY OF AFTER-TAX ECONOMIC VALUE AT RISK BY CURRENCY1,2    
  (millions of Canadian dollars)             As at       
       January 31, 2017    October 31, 2016    January 31, 2016       
       100 bps    100 bps    100 bps    100 bps    100 bps    100 bps       
     increase  decrease  increase  decrease  increase  decrease       
  Canadian dollar $ 1  $ (47)3  $ 8  $ (64)3  $ (10) $ (13)3     
  U.S. dollar   (184)   (10)4    (242)   (39)4    (115)   (96)4     
     $ (183) $ (57)  $ (234) $ (103)  $ (125) $ (109)     
  1Effective the second quarter of 2016, unfunded pension and benefit liabilities are included in EVaR sensitivity.
  2Effective the third quarter of 2016, the Bank enhanced the methodology used to stabilize product margins over time.
  3Due to the low rate environment EVaR sensitivity has been measured using a 75 bps rate decline for Canadian interest rates for the quarter ended January 31, 2017, a 75 bps decline for the quarter ended October 31, 2016, and a 50 bps decline for the quarter ended January 31, 2016, corresponding to an interest rate environment that is floored at 0%.  
  4Due to the low rate environment EVaR sensitivity has been measured using a 75 bps rate decline for U.S. interest rates for the quarter ended January 31, 2017, 50 bps decline for the quarter ended October 31, 2016, and a 50 bps decline for the quarter ended January 31, 2016. All rate shocks are floored at 0%.  

 

 

Liquidity Risk

The risk of having insufficient cash or collateral to meet financial obligations and an inability to, in a timely manner, raise funding or monetize assets at a non-distressed price. Financial obligations can arise from deposit withdrawals, debt maturities, commitments to provide credit or liquidity support or the need to pledge additional collateral.

 

TD’S LIQUIDITY RISK APPETITE

The Bank maintains a prudent and disciplined approach to managing its potential exposure to liquidity risk. The Bank targets a 90-day survival horizon under a combined Bank-specific and market-wide stress scenario, and a minimum buffer over regulatory requirements prescribed by the OSFI Liquidity Adequacy Requirements (LAR) guidelines. Under the LAR guidelines, Canadian banks are required to maintain a Liquidity Coverage Ratio (LCR) at the minimum of 100%. The Bank operates under a prudent funding paradigm with an emphasis on maximizing deposits as a core source of funding, and having a ready access to wholesale funding markets across diversified terms, funding types, and currencies so as to ensure low exposure to a sudden contraction of wholesale funding capacity and to minimize structural liquidity gaps. The Bank also maintains a comprehensive contingency funding plan to enhance preparedness for recovery from potential liquidity stress events. The resultant management strategies and actions comprise an integrated liquidity risk management program that ensures low exposure to identified sources of liquidity risk and compliance with regulatory requirements.

 

LIQUIDITY RISK MANAGEMENT RESPONSIBILITY

The Bank's Asset/Liability & Capital Committee (ALCO) oversees the Bank's liquidity risk management program. It ensures there are effective management structures and policies in place to properly measure and manage liquidity risk. The Global Liquidity Forum (GLF), a subcommittee of the ALCO comprised of senior management from Treasury and Balance Sheet Management (TBSM), Risk Management, Finance, and Wholesale Banking, identifies and monitors TD's liquidity risks. The management of liquidity risk globally is the responsibility of the Head of TBSM, while oversight and challenge is provided by the ALCO and independently by Risk Management. The Risk Committee of the Board regularly reviews the Bank's liquidity position and approves the Bank's Global Liquidity Risk Management Framework and Policies annually. TD's regional operations are responsible for managing their liquidity risk in compliance with the local regulatory requirements and their own regional policies established in alignment with the global policies. In U.S. TD has established TD Group US Holding LLC (TDGUS), as TD's U.S. Intermediate Holding Company (IHC), and a Combined U.S. Operations (CUSO) that consists of the IHC and TD's U.S. branch and agency network. Both TDGUS and CUSO are managed to the U.S. Enhanced Prudential Standards liquidity requirements in addition to the Bank's liquidity management framework.

The Bank's liquidity risk appetite and liquidity risk management approach have not substantially changed from that described in the 2016 Annual Report. For a complete discussion of liquidity risk, refer to the "Liquidity Risk" section in the 2016 Annual report.

 

Liquid assets

The unencumbered liquid assets TD holds to satisfy its liquidity requirements must be high quality securities that the Bank believes can be monetized quickly in stress conditions with minimum loss in market value. Unencumbered liquid assets are represented in a cumulative liquidity gap framework with adjustments made for estimated market or trading depths, settlement timing, and/or other identified impediments to potential sale or pledging. Overall, the Bank expects any reduction in market value of its liquid asset portfolio to be modest given the underlying high credit quality and demonstrated liquidity.

Although TD has access to the Bank of Canada's Emergency Lending Assistance Program, the Federal Reserve Bank Discount Window in the U.S., and the European Central Bank standby facilities, TD generally does not consider borrowing capacity at central banks under these types of programs as a source of available liquidity when assessing liquidity positions.

Assets held by TD to satisfy liquidity requirements are summarized in the following tables. The tables do not include assets held within the Bank's insurance businesses due to investment restrictions.

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 30
 

 

 

 

  TABLE 37: SUMMARY OF LIQUID ASSETS BY TYPE AND CURRENCY1          
  (millions of Canadian dollars)                         As at    
        Securities                       
          received as                       
          collateral from                       
        securities                   
        financing and                   
      Bank-owned  derivative  Total    Encumbered  Unencumbered     
      liquid assets  transactions2  liquid assets    liquid assets  liquid assets2     
    January 31, 2017     
  Cash and due from banks $ 2,148  $ –  $ 2,148  –  % $ 296  $ 1,852     
  Canadian government obligations   15,815    35,335    51,150  10      26,036    25,114     
  National Housing Act Mortgage-Backed Securities (NHA MBS)   38,658    478    39,136  8      3,781    35,355     
  Provincial government obligations   9,936    13,540    23,476  5      13,502    9,974     
  Corporate issuer obligations   8,953    3,667    12,620  2      1,185    11,435     
  Equities   20,735    3,743    24,478  5      8,463    16,015     
  Other marketable securities and/or loans   2,936    370    3,306  1      299    3,007     
  Total Canadian dollar-denominated   99,181    57,133    156,314  31      53,562    102,752     
  Cash and due from banks   49,412    –    49,412  10      17    49,395     
  U.S. government obligations   28,447    36,856    65,303  13      31,489    33,814     
  U.S. federal agency obligations, including U.S.   32,491    701    33,192  7      10,502    22,690     
    federal agency mortgage-backed obligations                               
  Other sovereign obligations   52,614    34,976    87,590  17      22,878    64,712     
  Corporate issuer obligations   58,263    696    58,959  12      4,295    54,664     
  Equities   17,758    12,290    30,048  6      8,204    21,844     
  Other marketable securities and/or loans   4,512    14,505    19,017  4      9,429    9,588     
  Total non-Canadian dollar-denominated   243,497    100,024    343,521  69      86,814    256,707     
  Total $ 342,678  $ 157,157  $ 499,835  100  % $ 140,376  $ 359,459     
                                  
    October 31, 2016     
  Cash and due from banks $ 3,147  $ –  $ 3,147  1  % $ 349  $ 2,798     
  Canadian government obligations   15,860    39,156    55,016  12      23,360    31,656     
  NHA MBS   35,134    211    35,345  8      3,183    32,162     
  Provincial government obligations   9,230    10,255    19,485  4      10,450    9,035     
  Corporate issuer obligations   5,279    3,699    8,978  2      1,617    7,361     
  Equities   22,304    6,049    28,353  6      8,514    19,839     
  Other marketable securities and/or loans   4,179    1,037    5,216  1      963    4,253     
  Total Canadian dollar-denominated   95,133    60,407    155,540  34      48,436    107,104     
  Cash and due from banks   46,035    –    46,035  10      1,093    44,942     
  U.S. government obligations   26,242    32,914    59,156  13      29,214    29,942     
  U.S. federal agency obligations, including U.S.                               
    federal agency mortgage-backed obligations   33,492    6,091    39,583  8      15,460    24,123     
  Other sovereign obligations   53,218    20,027    73,245  16      12,979    60,266     
  Corporate issuer obligations   57,441    9,192    66,633  14      13,046    53,587     
  Equities   6,828    8,787    15,615  3      3,202    12,413     
  Other marketable securities and/or loans   6,325    1,027    7,352  2      –    7,352     
  Total non-Canadian dollar-denominated   229,581    78,038    307,619  66      74,994    232,625     
  Total $ 324,714  $ 138,445  $ 463,159  100  % $ 123,430  $ 339,729     
  1Positions stated include gross asset values pertaining to secured borrowing/lending and reverse-repurchase/repurchase businesses.
  2Liquid assets include collateral received that can be re-hypothecated or otherwise redeployed.

 

 

The increase of $19.7 billion in total unencumbered liquid assets from October 31, 2016, was primarily due to normal balance sheet growth. Liquid assets are held in The Toronto-Dominion Bank and multiple domestic and foreign subsidiaries and branches and are summarized in the following table.

 

 

  TABLE 38: SUMMARY OF UNENCUMBERED LIQUID ASSETS BY BANK, SUBSIDIARIES, AND BRANCHES        
  (millions of Canadian dollars)   As at     
    January 31  October 31     
    2017  2016     
  The Toronto-Dominion Bank (Parent) $ 125,851  $ 115,816     
  Bank subsidiaries   203,445    201,945     
  Foreign branches   30,163    21,968     
  Total $ 359,459  $ 339,729     
               

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 31
 

 

The Bank’s monthly average liquid assets (excluding those held in insurance subsidiaries) for the quarters ended January 31, 2017, and October 31, 2016, are summarized in the following table.

 

 

TABLE 39: SUMMARY OF AVERAGE LIQUID ASSETS BY TYPE AND CURRENCY1   
(millions of Canadian dollars)       Average for the three months ended  
      Securities                     
        received as                     
        collateral from                     
      securities                 
      financing and                 
    Bank-owned derivative   Total   Encumbered Unencumbered    
    liquid assets transactions2  liquid assets   liquid assets liquid assets2   
  January 31, 2017    
Cash and due from banks $ 2,226  $ –  $ 2,226  –  % $ 339  $ 1,887   
Canadian government obligations   14,695    37,360    52,055  10      21,588    30,467   
NHA MBS   37,262    470    37,732  8      3,526    34,206   
Provincial government obligations   9,501    11,809    21,310  4      12,190    9,120   
Corporate issuer obligations   7,258    3,615    10,873  2      1,394    9,479   
Equities   19,806    4,171    23,977  5      8,540    15,437   
Other marketable securities and/or loans   3,011    343    3,354  1      300    3,054   
Total Canadian dollar-denominated   93,759    57,768    151,527  30      47,877    103,650   
Cash and due from banks   46,484    –    46,484  9      25    46,459   
U.S. government obligations   27,336    42,822    70,158  14      36,148    34,010   
U.S. federal agency obligations, including U.S.   33,260    557    33,817  7      10,686    23,131   
  federal agency mortgage-backed obligations                            
Other sovereign obligations   52,924    34,313    87,237  18      21,011    66,226   
Corporate issuer obligations   60,576    1,066    61,642  13      4,686    56,956   
Equities   16,827    9,733    26,560  5      5,030    21,530   
Other marketable securities and/or loans   5,229    14,397    19,626  4      10,021    9,605   
Total non-Canadian dollar-denominated   242,636    102,888    345,524  70      87,607    257,917   
Total $ 336,395  $ 160,656  $ 497,051  100  % $ 135,484  $ 361,567   
                             
  October 31, 2016    
Cash and due from banks $ 2,879  $ –  $ 2,879  1  % $ 331  $ 2,548   
Canadian government obligations   13,905    38,636    52,541  11      21,393    31,148   
NHA MBS   34,772    258    35,030  7      3,098    31,932   
Provincial government obligations   9,008    10,509    19,517  4      10,671    8,846   
Corporate issuer obligations   5,596    3,916    9,512  2      1,573    7,939   
Equities   19,686    6,039    25,725  6      8,737    16,988   
Other marketable securities and/or loans   4,094    1,020    5,114  1      1,127    3,987   
Total Canadian dollar-denominated   89,940    60,378    150,318  32      46,930    103,388   
Cash and due from banks   48,113    –    48,113  10      1,123    46,990   
U.S. government obligations   24,836    36,415    61,251  13      29,534    31,717   
U.S. federal agency obligations, including U.S.                            
  federal agency mortgage-backed obligations   33,307    5,768    39,075  8      15,587    23,488   
Other sovereign obligations   52,739    25,448    78,187  17      16,102    62,085   
Corporate issuer obligations   56,581    10,858    67,439  15      13,601    53,838   
Equities   6,140    8,689    14,829  3      3,152    11,677   
Other marketable securities and/or loans   6,370    898    7,268  2      –    7,268   
Total non-Canadian dollar-denominated   228,086    88,076    316,162  68      79,099    237,063   
Total $ 318,026  $ 148,454  $ 466,480  100  % $ 126,029  $ 340,451   
1Positions stated include gross asset values pertaining to secured borrowing/lending and reverse-repurchase/repurchase businesses.
2Liquid assets include collateral received that can be re-hypothecated or otherwise redeployed.

 

 

Average liquid assets held in The Toronto-Dominion Bank and multiple domestic and foreign subsidiaries (excluding insurance subsidiaries) and branches are summarized in the following table.

 

 

TABLE 40: SUMMARY OF AVERAGE UNENCUMBERED LIQUID ASSETS BY BANK, SUBSIDIARIES, AND BRANCHES  
(millions of Canadian dollars) Average for the three months ended   
  January 31  October 31   
  2017  2016   
The Toronto-Dominion Bank (Parent)  $ 122,377  $ 116,541   
Bank subsidiaries   208,345    200,966   
Foreign branches   30,845    22,944   
Total $ 361,567  $ 340,451   
           

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 32
 

 

Asset Encumbrance

In the course of the Bank’s day-to-day operations, securities and other assets are pledged to obtain funding, support trading and prime brokerage business, and participate in clearing and settlement systems. In addition to liquid assets, a summary of encumbered and unencumbered assets is presented in the following table to identify assets that are used or available for potential funding needs.

 

 

TABLE 41: ENCUMBERED AND UNENCUMBERED ASSETS1         
(millions of Canadian dollars) As at  
       Encumbered2      Unencumbered        
                               Encumbered  
     Pledged as          Available as        Total assets as a %  
     collateral3    Other4      collateral5    Other6    assets of total assets  
                             January 31, 2017  
Cash and due from banks $ –  $ –    $ –  $ 3,748  $ 3,748  –  %
Interest-bearing deposits with banks   2,880    366      46,820    4,372    54,438  0.3   
Securities, trading loans, and other7    57,271    12,223      227,644    8,973    306,111  5.9   
Derivatives   –    –      –    60,640    60,640  –   
Securities purchased under reverse                              
  repurchase agreements8    –    –      –    96,389    96,389  –   
Loans, net of allowance for loan losses   23,226    55,400      73,569    432,463    584,658  6.6   
Customers' liability under acceptances     –    –      –    11,741    11,741  –   
Investment in TD Ameritrade   –    –      –    6,883    6,883  –   
Goodwill   –    –      –    16,222    16,222  –   
Other intangibles   –    –      –    2,661    2,661  –   
Land, buildings, equipment, and other                              
  depreciable assets   –    –      –    5,355    5,355  –   
Deferred tax assets   –    –      –    2,295    2,295  –   
Other assets9    545    –      –    35,197    35,742  –   
Total on-balance sheet assets $ 83,922  $ 67,989    $ 348,033  $ 686,939  $ 1,186,883  12.8  %
Off-balance sheet items10                               
Securities purchased under reverse                              
  repurchase agreements   87,940    –      19,988    (96,389)        
Securities borrowing and collateral received   33,939    703      23,307    4         
Margin loans and other client activity   2,750    –      19,422    (10,990)        
Total off-balance sheet items   124,629    703      62,717    (107,375)        
Total $ 208,551  $ 68,692    $ 410,750  $ 579,564         
                             October 31, 2016  
Total on-balance sheet assets $ 81,045  $ 66,329    $ 336,619  $ 692,974  $ 1,176,967  12.5  %
Total off-balance sheet items   106,080    569      56,179    (94,799)        
Total $ 187,125  $ 66,898    $ 392,798  $ 598,175         
1Certain comparative amounts have been restated to conform with the presentation adopted in the current period.
2Asset encumbrance has been analyzed on an individual asset basis. Where a particular asset has been encumbered and TD has holdings of the asset both on-balance sheet and off- balance sheet, for the purpose of this disclosure, the on and off-balance sheet holdings are encumbered in alignment with the business practice.
3Represents assets that have been posted externally to support the Bank's obligations in day-to-day operations, including securities related to repurchase agreements, securities lending, clearing and payment systems, and assets pledged for derivative transactions. Also includes assets that have been pledged supporting Federal Home Loan Bank (FHLB) activity.
4Assets supporting TD's long-term funding activities, assets pledged against securitization liabilities, and assets held by consolidated securitization vehicles or in pools for covered bond issuance.
5Assets that are considered readily available in their current legal form to generate funding or support collateral needs. This category includes reported FHLB assets that remain unutilized and held-to-maturity securities that are available for collateral purposes however not regularly utilized in practice.
6Assets that cannot be used to support funding or collateral requirements in their current form. This category includes those assets that are potentially eligible as funding program collateral (for example, Canada Mortgage and Housing Corporation (CMHC) insured mortgages that can be securitized into NHA MBS).
7Securities include trading loans, securities, and other financial assets designated at fair value through profit or loss, available-for-sale securities, and held-to-maturity securities.
8Assets reported in Securities purchased under reverse repurchase agreements represent the value of the loans extended and not the value of the collateral received.
9Other assets include amounts receivable from brokers, dealers, and clients.
10Off-balance sheet items include the collateral value from the securities received under reverse repurchase agreements, securities borrowing, margin loans, and other client activity. The loan value from the reverse repurchase transactions and margin loans/client activity is deducted from the on-balance sheet Unencumbered – Other category.

 

 

LIQUIDITY Stress Testing and Contingency Funding Plans

In addition to the "Severe Combined Stress" scenario, TD also performs liquidity stress testing on multiple alternate scenarios. These scenarios are a mix of TD-specific events, global macroeconomic stress events, and/or regional/subsidiary specific events designed to test the impact from unique drivers. Liquidity assessments are also part of the Bank's enterprise-wide stress testing program. Results from these stress event scenarios are used to inform the establishment of or make enhancements to policy limits and contingency funding plan actions.

The Bank has liquidity contingency funding plans (CFP) in place at the enterprise level ("Enterprise CFP") and for subsidiaries operating in both domestic and foreign jurisdictions ("Regional CFP"). The Enterprise CFP provides a documented framework for managing unexpected liquidity situations and thus is an integral component of the Bank's overall liquidity risk management program. It outlines different contingency stages based on the severity and duration of the liquidity situation, and identifies recovery actions appropriate for each stage. For each recovery action, it provides key operational steps required to execute the action. Regional CFP recovery actions are aligned to support the Enterprise CFP as well as any identified local liquidity needs during stress. The actions and governance structure proposed in the Enterprise CFP are aligned with the Bank's Crisis Management Recovery Plan.

 

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 33
 

 

Credit Ratings

Credit ratings impact TD's borrowing costs and ability to raise funds. Rating downgrades could potentially result in higher financing costs, increased requirement to pledge collateral, reduced access to capital markets, and could also affect the Bank's ability to enter into derivative transactions.

Credit ratings and outlooks provided by rating agencies reflect their views and are subject to change from time-to-time, based on a number of factors including the Bank's financial strength, competitive position, and liquidity, as well as factors not entirely within the Bank's control, including the methodologies used by rating agencies and conditions affecting the overall financial services industry.

 

 

TABLE 42: CREDIT RATINGS1   
             As at    
             January 31, 2017    
    Short-term     Senior long-term       
Rating agency   debt rating     debt rating   Outlook    
Moody's   P-1   Aa1   Negative  
S&P   A-1+   AA-   Stable  
DBRS   R-1 (high)   AA   Negative  
1The above ratings are for The Toronto-Dominion Bank legal entity. A more extensive listing, including subsidiaries' ratings, is available on the Bank's website at http://www.td.com/investor/credit.jsp. Credit ratings are not recommendations to purchase, sell, or hold a financial obligation inasmuch as they do not comment on market price or suitability for a particular investor. Ratings are subject to revision or withdrawal at any time by the rating organization.

 

 

The Bank regularly reviews the level of increased collateral its trading counterparties would require in the event of a downgrade of TD’s credit rating. The Bank holds liquid assets to ensure TD is able to provide additional collateral required by trading counterparties in the event of a one-notch downgrade in the Bank's senior long-term credit ratings. A multi-notch downgrade could have an impact on liquidity requirements by requiring the Bank to post additional collateral for the benefit of the Bank's trading counterparties. The following table presents the additional collateral required as of the reporting date in the event of one, two, and three-notch downgrades of the Bank's credit ratings.

 

 

TABLE 43: ADDITIONAL COLLATERAL REQUIREMENTS FOR RATING DOWNGRADES   
(millions of Canadian dollars) Average for the three months ended    
    January 31    October 31    
  2017  2016    
One-notch downgrade $ 125  $ 107    
Two-notch downgrade   132    116    
Three-notch downgrade   406    361    
             

 

 

LIQUIDITY COVERAGE RATIO

The Liquidity Coverage Ratio (LCR) is a Basel III metric calculated as the ratio of the stock of unencumbered high quality liquid assets (HQLA) over the net cash outflow requirements in the next 30 days under a hypothetical liquidity stress event. The stress event incorporates a number of idiosyncratic and market-wide shocks, including deposit run-offs, loss of wholesale funding, additional collateral requirements due to credit rating downgrades and market volatility, increases in usage of credit and liquidity facilities provided to the Bank's clients, and other obligations the Bank expects to honour during stress to mitigate reputational risk.

The Bank must maintain the LCR above 100% under normal operating conditions in accordance with the OSFI LAR requirement. The Bank’s LCR is calculated according to the scenario parameters in the OSFI LAR guideline, including prescribed HQLA eligibility criteria and haircuts, deposit run-off rates, and other outflow and inflow rates. HQLA eligible for the LCR calculation under the OSFI LAR are primarily central bank reserves, sovereign issued or guaranteed securities, and high quality securities issued by non-financial entities.

The following table summarizes the Bank's average daily LCR position for the quarter ended January 31, 2017.

 

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 34
 

 

TABLE 44: AVERAGE BASEL III LIQUIDITY COVERAGE RATIO1   
(millions of Canadian dollars)          January 31, 2017  
         Total unweighted   Total weighted  
         value (average)2    value (average)3   
                      
High-quality liquid assets              
Total high-quality liquid assets   n/a4    $ 208,549   
                      
Cash outflows              
Retail deposits and deposits from small business customers, of which: $ 413,651    $ 29,152   
  Stable deposits5    174,485      5,235   
  Less stable deposits   239,166      23,917   
Unsecured wholesale funding, of which:   227,018      107,013   
  Operational deposits (all counterparties) and deposits in networks of cooperative banks6    93,340      21,971   
  Non-operational deposits (all counterparties)   105,590      56,954   
  Unsecured debt   28,088      28,088   
Secured wholesale funding   n/a4      6,748   
Additional requirements, of which:   165,939      41,515   
  Outflows related to derivative exposures and other collateral requirements   25,959      6,909   
  Outflows related to loss of funding on debt products   7,444      7,444   
  Credit and liquidity facilities   132,536      27,162   
Other contractual funding obligations   9,558      4,423   
Other contingent funding obligations7    517,402      7,729   
Total cash outflows   n/a4      196,580   
                      
Cash inflows              
Secured lending   $ 122,294    $ 13,625   
Inflows from fully performing exposures   13,024      7,319   
Other cash inflows   7,427      7,427   
Total cash inflows $ 142,745    $ 28,371   
                      
             
         January 31, 2017     October 31, 2016    
         Total adjusted     Total adjusted    
         value     value    
Total high-quality liquid assets8  $ 208,549    $ 200,328   
Total net cash outflows9    168,209      154,322   
Liquidity coverage ratio    124  %   130  %

1Effective the first quarter of 2017, OSFI requires Canadian banks to disclose the LCR based on an average of the daily positions during the quarter. The LCR for the quarter ended January 31, 2017, is calculated as an average of the 62 daily data points in the quarter. Previously, the disclosed LCR was calculated as the simple average of the three month-end LCR percentages for the quarter.
2Unweighted inflow and outflow values are outstanding balances maturing or callable within 30 days.
3Weighted values are calculated after the application of respective HQLA haircuts or inflow and outflow rates, as prescribed by the OSFI LAR guidelines.
4Not applicable.
5As defined by OSFI LAR, stable deposits from retail and small medium-sized enterprise (SME) customers are deposits that are insured, and are either held in transactional accounts or the depositors have an established relationship with the Bank that make deposit withdrawal highly unlikely.
6Operational deposits from non-SME business customers are deposits kept with the Bank in order to facilitate their access and ability to conduct payment and settlement activities. These activities include clearing, custody, or cash management services.
7Includes uncommitted credit and liquidity facilities, stable value money market mutual funds, outstanding debt securities with remaining maturity greater than 30 days, and other contractual cash outflows. TD has no contractual obligation to buyback these outstanding TD debt securities, and as a result, a 0% outflow rate is applied under the OSFI LAR guideline.
8Adjusted HQLA includes both asset haircut and applicable caps, as prescribed by the OSFI LAR (HQLA assets after haircuts are capped at 40% for Level 2 and 15% for Level 2B).
9Adjusted Net Cash Outflows include both inflow and outflow rates and applicable caps, as prescribed by the OSFI LAR (inflows are capped at 75% of outflows).

 

 

The Bank’s average LCR of 124% for quarter ended January 31, 2017, continues to meet the regulatory requirement. The 6% change over the prior quarter's LCR was mainly due to normal balance sheet growth and optimization of the Bank’s surplus liquidity.

The Bank holds a variety of liquid assets commensurate with liquidity needs in the organization. Many of these assets qualify as HQLA under the OSFI LAR guidelines. The average HQLA of the Bank for the quarter ended January 31, 2017, was $208.5 billion (October 31, 2016 – $200.3 billion), with Level 1 assets representing 83% (October 31, 2016 – 84%). The Bank’s reported HQLA excludes excess HQLA from the U.S. Retail operations, as required by the OSFI LAR, to reflect liquidity transfer considerations between U.S. Retail and its affiliates in the Bank as a result of U.S. Federal Reserve Board's regulations. By excluding excess HQLA, the U.S. Retail LCR is effectively capped at 100% prior to total Bank consolidation.

The Bank manages its LCR position with a target minimum that reflects management's liquidity risk tolerances. As described in the "How TD Manages Liquidity Risk" section of the 2016 Annual Report, the Bank manages its HQLA and other liquidity buffers to the higher of TD's 90-day surplus requirement and the target buffers over regulatory requirements from the LCR and the Net Cumulative Cash Flow (NCCF) metrics. As a result, the total stock of HQLA is subject to ongoing rebalancing against the projected liquidity requirements.

 

  

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 35
 

 

FUNDING

The Bank has access to a variety of unsecured and secured funding sources. The Bank’s funding activities are conducted in accordance with the liquidity management policy that requires assets be funded to the appropriate term and to a prudent diversification profile.

The Bank's primary approach to managing funding activities is to maximize the use of deposits raised through personal and commercial banking channels. The following table illustrates the Bank’s large base of personal and commercial, wealth, and TD Ameritrade sweep deposits (collectively, "P&C deposits") that make up over 73% of total funding excluding securitization.

 

 

  TABLE 45: SUMMARY OF DEPOSIT FUNDING             
  (millions of Canadian dollars)       As at      
       January 31    October 31      
     2017  2016      
  P&C deposits – Canadian Retail $ 329,463  $ 324,606      
  P&C deposits – U.S. Retail   315,512    318,503      
  Other deposits   719    795      
  Total $ 645,694  $ 643,904      

 

 

The Bank actively maintains various external wholesale term (greater than 1 year) funding programs to provide access to diversified funding sources, including asset securitization, covered bonds, and unsecured wholesale debt. The Bank's wholesale funding is diversified by geography, by currency, and by funding channel. The Bank also utilizes certificates of deposit and commercial paper as short term (1 year and less) funding.

 

The following table summarizes by geography the term funding programs, with the related program size. The Bank also maintains Evergreen Credit Card Trust to issue notes securitized by credit card receivables.

 

Canada United States Europe/Australia

Capital Securities Program ($10 billion)

 

Senior Medium Term Linked Notes Program

($2 billion)

U.S. SEC (F-3) Registered Senior Debt, Capital Securities and Notes Program

(US$40 billion)

United Kingdom Listing Authority (UKLA) Registered Legislative Covered Bond Program ($40 billion)

 

UKLA Registered European Medium Term Note Program (US$20 billion)

 

Australian Debt Issuance Program (A$5 billion)

 

 

TD regularly evaluates opportunities to diversify its funding into new markets and to new investors in order to manage funding risk and cost. The following table presents a breakdown of the Bank's term debt by currency and funding type. Term funding for the quarter ended January 31, 2017, was $112.9 billion (October 31, 2016 – $112.4 billion).

 

 

TABLE 46: LONG-TERM FUNDING            
         As at     
   January 31      October 31     
Long-term funding by currency 2017      2016     
Canadian dollar 39  %   40  %  
U.S. dollar 43      41     
Euro 13      13     
British pound 3      3     
Other 2      3     
Total 100  %   100  %  
              
              
              
Long-term funding by type            
Senior unsecured medium term notes 53  %   53  %  
Covered bonds 27      26     
Mortgage securitization1  15      16     
Term asset backed securities 5      5     
Total 100  %   100  %  
1Mortgage securitization excludes the residential mortgage trading business.

 

The Bank maintains depositor concentration limits against short-term wholesale deposits so that it does not depend on one or small groups of depositors for funding. The Bank further limits short-term wholesale funding that can mature in a given time period in an effort to mitigate exposures to refinancing risk during a stress event.

 

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 36
 

 

The following table represents the remaining maturity of various sources of funding outstanding as at January 31, 2017, and October 31, 2016.

 

 

TABLE 47: WHOLESALE FUNDING                                  
(millions of Canadian dollars) As at   
                       January 31  October 31   
                         2017  2016   
   Less than    1 to 3    3 to 6  6 months  Over 1 to    Over           
   1 month    months    months  to 1 year    2 years    2 years    Total    Total   
Deposits from banks1  $ 6,403  $ 5,045  $ 1,260  $ 254  $ 7  $ 1  $ 12,970  $ 13,133   
Bearer deposit note   304    1,340    648    773    –    –    3,065    2,814   
Certificates of deposit   12,263    22,217    12,374    21,696    204    –    68,754    54,544   
Commercial paper   3,965    11,476    4,535    1,819    –    –    21,795    21,411   
Asset backed commercial paper2    –    –    –    –    –    –    –    –   
Covered bonds   –    3,903    –    1,474    819    23,938    30,134    28,855   
Mortgage securitization   16    823    1,321    3,319    6,123    18,117    29,719    30,406   
Senior unsecured medium term notes   11    501    5,481    2,317    19,391    31,347    59,048    60,259   
Subordinated notes and debentures3    –    –    –    –    –    8,394    8,394    10,891   
Term asset backed securitization   923    –    –    –    2,702    2,401    6,026    5,469   
Other4    1,908    1,123    918    437    20    17    4,423    3,566   
Total $ 25,793  $ 46,428  $ 26,537  $ 32,089  $ 29,266  $ 84,215  $ 244,328  $ 231,348   
                                    
Of which:                                  
Secured $ 939  $ 4,726  $ 1,321  $ 4,793  $ 9,650  $ 44,468  $ 65,897  $ 64,749   
Unsecured   24,854    41,702    25,216    27,296    19,616    39,747    178,431    166,599   
Total $ 25,793  $ 46,428  $ 26,537  $ 32,089  $ 29,266  $ 84,215  $ 244,328  $ 231,348   
1Includes fixed-term deposits from banks.
2Represents asset-backed commercial paper (ABCP) issued by consolidated bank-sponsored structured entities.
3Subordinated notes and debentures are not considered wholesale funding as they may be raised primarily for capital management purposes.
4Includes fixed-term deposits from non-bank institutions (unsecured) of $4.4 billion (October 31, 2016 – $3.5 billion).

 

 

Excluding the Wholesale Banking mortgage aggregation business, the Bank's total mortgage-backed securities issuance for the three months ended

January 31, 2017, was $0.5 billion (three months ended January 31, 2016 – $0.4 billion). Other asset backed securities issuance for the three months ended

January 31, 2017, was $0.7 billion (three months ended January 31, 2016 – nil). The Bank also issued $2.6 billion of unsecured medium-term notes for the three months ended January 31, 2017 (three months ended January 31, 2016 – $4.7 billion) in various currencies and markets. The total covered bonds issuance for the three months ended January 31, 2017, was $2.3 billion (three months ended January 31, 2016 – $2.3 billion).

 

REGULATORY DEVELOPMENTS CONCERNING LIQUIDITY AND FUNDING

On March 22, 2016, the Government of Canada in its 2016 federal budget, proposed to introduce framework legislation for the bail-in regime along with accompanying enhancements to Canada’s bank resolution toolkit. The regime will provide the Canada Deposit Insurance Corporation (CDIC) with a new statutory power to convert specified eligible liabilities of D-SIBs into common shares in the unlikely event such banks become non-viable. The Budget Implementation Act, providing amendments to the CDIC Act, Bank Act and other statutes to allow for bail-in, was passed in June 2016. TD is monitoring the bail-in developments and expects further details to be included in the regulations and an implementation timeline to be clarified in the near future.

In October 2014, the BCBS released the final standard for "Basel III: the net stable funding ratio." The NSFR requires that the ratio of available stable funding over required stable funding be greater than 100%. The NSFR is designed to reduce structural funding risk by requiring banks to have sufficient stable sources of funding and lower reliance on funding maturing in one year to support their businesses. In June 2015, the BCBS released the final requirements for the "Net Stable Funding Ratio Disclosure Standards". The standard defines a common public disclosure framework for the NSFR calculated in accordance to the guidelines published by BCBS in October 2014. BCBS expects the NSFR and its public disclosure requirements to become minimum standards starting January 2018.

MATURITY ANALYSIS OF ASSETS, LIABILITIES, AND OFF-bALANCE SHEET COMMITMENTS

The following table summarizes on-balance sheet and off-balance sheet categories by remaining contractual maturity. Off-balance sheet commitments include contractual obligations to make future payments on operating and capital lease commitments, certain purchase obligations and other liabilities. The values of credit instruments reported in the following table represent the maximum amount of additional credit that the Bank could be obligated to extend should contracts be fully utilized. Since a significant portion of guarantees and commitments are expected to expire without being drawn upon, the total of the contractual amounts is not representative of future liquidity requirements. These contractual obligations have an impact on the Bank’s short-term and long-term liquidity and capital resource needs.

The maturity analysis presented does not depict the Bank’s degree of maturity transformation or the Bank’s exposure to interest rate and liquidity risk. The Bank ensures that assets are appropriately funded to protect against borrowing cost volatility and potential reductions to funding market availability. The Bank utilizes stable P&C non-specific maturity deposits (chequing and savings accounts) and P&C term deposits as the primary source of long-term funding for the Bank’s non-trading assets. The Bank also funds the stable balance of revolving lines of credit with long-term funding sources. The Bank conducts long-term funding activities based on the projected net growth for non-trading assets after considering such items as new business volumes, renewals of both term loans and term deposits, and how customers exercise options to prepay loans and pre-redeem deposits. The Bank also raises shorter-term unsecured wholesale deposits to fund trading assets based on its internal estimates of liquidity of these assets under stressed market conditions.

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 37
 

 

 

  TABLE 48: REMAINING CONTRACTUAL MATURITY            
  (millions of Canadian dollars)                             As at     
                                   January 31, 2017     
                             No         
       Less than  1 to 3  3 to 6  6 to 9  9 months  Over 1 to  Over 2 to  Over  specific         
       1 month  months  months  months  to 1 year  2 years  5 years  5 years  maturity    Total     
  Assets                                            
  Cash and due from banks $ 3,748  $ –  $ –  $ –  $ –  $ –  $ –  $ –  $ –  $ 3,748     
  Interest-bearing deposits with banks   53,010    676    327    –    1    –    –    –    424    54,438     
  Trading loans, securities, and other1    2,385    2,918    4,656    2,999    4,530    6,865    21,056    16,643    48,209    110,261     
  Derivatives   5,950    6,590    4,830    3,133    2,693    8,864    14,830    13,750    –    60,640     
  Financial assets designated at fair value through                                              
    profit or loss   254    663    407    160    153    584    1,299    903    171    4,594     
  Available-for-sale securities   108    804    2,615    1,519    1,944    11,169    59,568    33,385    2,163    113,275     
  Held-to-maturity securities   1,795    2,315    3,661    1,088    797    10,130    31,961    26,234    –    77,981     
  Securities purchased under reverse repurchase agreements   56,146    28,269    8,416    1,605    1,936    17    –    –    –    96,389     
  Loans                                            
    Residential mortgages     495    1,991    7,667    9,282    8,961    51,185    106,632    29,445    –    215,658     
      Consumer instalment and other personal   475    1,144    2,510    3,164    3,027    14,442    36,412    22,955    60,236    144,365     
      Credit card   –    –    –    –    –    –    –    –    31,814    31,814     
      Business and government     24,650    4,187    5,741    5,630    7,111    15,470    58,461    58,364    15,986    195,600     
      Debt securities classified as loans   8    8    27    10    16    26    92    849    –    1,036     
  Total loans   25,628    7,330    15,945    18,086    19,115    81,123    201,597    111,613    108,036    588,473     
  Allowance for loan losses   –    –    –    –    –    –    –    –    (3,815)   (3,815)    
  Loans, net of allowance for loan losses   25,628    7,330    15,945    18,086    19,115    81,123    201,597    111,613    104,221    584,658     
  Customers' liability under acceptances     9,735    1,876    102    1    27    –    –    –    –    11,741     
  Investment in TD Ameritrade   –    –    –    –    –    –    –    –    6,883    6,883     
  Goodwill2    –    –    –    –    –    –    –    –    16,222    16,222     
  Other intangibles2    –    –    –    –    –    –    –    –    2,661    2,661     
  Land, buildings, equipment, and other depreciable assets2    –    –    –    –    –    –    –    –    5,355    5,355     
  Deferred tax assets   –    –    –    –    –    –    –    –    2,295    2,295     
  Amounts receivable from brokers, dealers, and clients   22,666    –    –    –    –    –    –    –    –    22,666     
  Other assets   2,695    1,139    279    99    109    151    294    137    8,173    13,076     
  Total assets $ 184,120  $ 52,580  $ 41,238  $ 28,690  $ 31,305  $ 118,903  $ 330,605  $ 202,665  $ 196,777  $ 1,186,883     
  Liabilities                                            
  Trading deposits $ 12,736  $ 31,700  $ 18,581  $ 16,879  $ 8,926  $ 611  $ 1,275  $ 777  $ –  $ 91,485     
  Derivatives   7,213    6,820    3,976    2,436    2,598    8,455    13,460    12,978    –    57,936     
  Securitization liabilities at fair value   4    311    671    217    981    1,563    5,246    3,544    –    12,537     
  Other financial liabilities designated at fair value through                                              
    profit or loss   17    6    1    –    –    –    –    –    –    24     
  Deposits3,4                                            
    Personal   4,521    8,019    6,687    5,195    5,089    9,448    11,142    116    392,377    442,594     
      Banks   6,541    5,150    112    10    17    6    –    12    8,595    20,443     
      Business and government   16,928    16,675    9,154    2,806    3,401    21,272    48,554    9,855    182,852    311,497     
  Total deposits   27,990    29,844    15,953    8,011    8,507    30,726    59,696    9,983    583,824    774,534     
  Acceptances   9,735    1,876    102    1    27    –    –    –    –    11,741     
  Obligations related to securities sold short1    400    419    510    277    1,003    3,714    11,844    11,286    1,079    30,532     
  Obligations related to securities sold under repurchase                                              
    agreements   50,157    6,709    1,281    658    443    44    46    –    –    59,338     
  Securitization liabilities at amortized cost   11    512    651    1,209    913    4,560    6,631    2,696    –    17,183     
  Amounts payable to brokers, dealers, and clients   24,494    –    –    –    –    –    –    –    –    24,494     
  Insurance-related liabilities   146    214    311    376    371    985    1,839    1,045    1,636    6,923     
  Other liabilities5    3,939    1,127    466    251    756    3,172    2,312    797    5,640    18,460     
  Subordinated notes and debentures     –    –    –    –    –    –    –    8,394    –    8,394     
  Equity   –    –    –    –    –    –    –    –    73,302    73,302     
  Total liabilities and equity $ 136,842  $ 79,538  $ 42,503  $ 30,315  $ 24,525  $ 53,830  $ 102,349  $ 51,500  $ 665,481  $ 1,186,883     
  Off-balance sheet commitments                                            
  Purchase obligations                                            
    Operating lease commitments $ 79  $ 158  $ 236  $ 233  $ 230  $ 885  $ 2,131  $ 3,755  $ –  $ 7,707     
    Network service agreements   –    –    –    –    –    –    –    –    –    –     
    Automated teller machines   11    23    14    6    6    26    16    –    –    102     
    Contact center technology   3    5    8    8    9    20    –    –    –    53     
    Software licensing and equipment maintenance   77    25    48    37    97    185    210    –    –    679     
  Credit and liquidity commitments                                            
    Financial and performance standby letters of credit   203    1,150    2,922    1,909    3,081    4,455    8,743    120    –    22,583     
    Documentary and commercial letters of credit   86    61    42    18    56    13    65    –    –    341     
    Commitments to extend credit and liquidity6,7   14,348    16,025    12,650    5,666    9,148    16,619    71,743    2,560    2,315    151,074     
  Unconsolidated structured entity commitments                                            
    Commitments to liquidity facilities for ABCP   –    2,044    31    –    918    270    –    –    –    3,263     
 1Amount has been recorded according to the remaining contractual maturity of the underlying security. 
 2For the purposes of this table, non-financial assets have been recorded as having 'no specific maturity'.
 3As the timing of demand deposits and notice deposits is non-specific and callable by the depositor, obligations have been included as having 'no specific maturity'.
 4Includes $30 billion of covered bonds with remaining contractual maturities of $4 billion in ‘over 3 months to 6 months’, $1 billion in ‘over 9 months to 1 year’, $1 billion in 'over 1 to 2 years', $21 billion in 'over 2 to 5 years', and $3 billion in 'over 5 years'.  
 5Includes $107 million of capital lease commitments with remaining contractual maturities of $1 million in 'less than 1 month', $5 million in '1 month to 3 months', $7 million in '3 months to 6 months', $7 million in '6 months to 9 months', $7 million in '9 months to 1 year', $28 million in 'over 1 to 2 years', $40 million in 'over 2 to 5 years', and $12 million in 'over 5 years'.  
 6Includes $128 million in commitments to extend credit to private equity investments.
 7Commitments to extend credit exclude personal lines of credit and credit card lines, which are unconditionally cancellable at the Bank's discretion at any time.

 

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 38
 

 

 

 

 

  TABLE 48: REMAINING CONTRACTUAL MATURITY (continued)            
  (millions of Canadian dollars)                                 As at     
                                   October 31, 2016     
                             No         
       Less than  1 to 3  3 to 6  6 to 9  9 months  Over 1 to  Over 2 to  Over  specific         
       1 month  months  months  months  to 1 year  2 years  5 years  5 years  maturity    Total     
  Assets                                            
  Cash and due from banks $ 3,907  $ –  $ –  $ –  $ –  $ –  $ –  $ –  $ –  $ 3,907     
  Interest-bearing deposits with banks   52,081    617    236    199    –    –    –    –    581    53,714     
  Trading loans, securities, and other1    843    2,466    6,685    5,211    3,421    8,069    19,671    15,589    37,302    99,257     
  Derivatives   5,577    6,938    5,001    3,821    2,680    10,103    19,780    18,342    –    72,242     
  Financial assets designated at fair value through                                            
    profit or loss   41    83    801    353    159    415    1,333    915    183    4,283     
  Available-for-sale securities   200    1,976    995    1,757    1,593    10,175    48,890    39,916    2,069    107,571     
  Held-to-maturity securities   560    5,791    3,290    1,065    1,172    8,360    37,182    26,975    –    84,395     
  Securities purchased under reverse repurchase agreements   56,641    21,541    5,855    1,777    238    –    –    –    –    86,052     
  Loans                                            
    Residential mortgages   772    2,252    4,483    8,598    9,786    52,123    108,256    31,066    –    217,336     
    Consumer instalment and other personal   438    881    1,934    2,734    3,401    14,724    35,505    24,058    60,856    144,531     
    Credit card   –    –    –    –    –    –    –    –    31,914    31,914     
    Business and government   21,293    4,574    7,006    6,581    5,153    16,402    59,765    59,006    14,294    194,074     
    Debt securities classified as loans   –    68    16    27    10    66    78    1,409    –    1,674     
  Total loans   22,503    7,775    13,439    17,940    18,350    83,315    203,604    115,539    107,064    589,529     
  Allowance for loan losses   –    –    –    –    –    –    –    –    (3,873)   (3,873)    
  Loans, net of allowance for loan losses   22,503    7,775    13,439    17,940    18,350    83,315    203,604    115,539    103,191    585,656     
  Customers' liability under acceptances   13,589    2,046    67    3    1    –    –    –    –    15,706     
  Investment in TD Ameritrade   –    –    –    –    –    –    –    –    7,091    7,091     
  Goodwill2    –    –    –    –    –    –    –    –    16,662    16,662     
  Other intangibles2    –    –    –    –    –    –    –    –    2,639    2,639     
  Land, buildings, equipment, and other depreciable assets2    –    –    –    –    –    –    –    –    5,482    5,482     
  Deferred tax assets   –    –    –    –    –    –    –    –    2,084    2,084     
  Amounts receivable from brokers, dealers, and clients   17,436    –    –    –    –    –    –    –    –    17,436     
  Other assets   2,488    518    686    128    97    150    269    153    8,301    12,790     
  Total assets $ 175,866  $ 49,751  $ 37,055  $ 32,254  $ 27,711  $ 120,587  $ 330,729  $ 217,429  $ 185,585  $ 1,176,967     
  Liabilities                                            
  Trading deposits $ 13,002  $ 14,604  $ 23,930  $ 13,070  $ 12,071  $ 1,103  $ 1,226  $ 780  $ –  $ 79,786     
  Derivatives   5,526    6,623    4,890    3,066    1,962    8,106    17,779    17,473    –    65,425     
  Securitization liabilities at fair value   –    594    334    678    226    1,944    4,989    3,725    –    12,490     
  Other financial liabilities designated at fair value through                                            
    profit or loss   73    41    13    25    37    –    –    1    –    190     
  Deposits3,4                                            
    Personal   3,846    6,024    7,794    6,038    5,195    9,236    11,915    132    389,052    439,232     
    Banks   5,741    3,056    231    77    10    3    3    12    8,068    17,201     
    Business and government   14,654    15,307    8,064    7,563    2,623    19,927    46,952    12,492    189,645    317,227     
  Total deposits   24,241    24,387    16,089    13,678    7,828    29,166    58,870    12,636    586,765    773,660     
  Acceptances   13,589    2,046    67    3    1    –    –    –    –    15,706     
  Obligations related to securities sold short1    1,066    1,118    1,127    1,311    883    3,406    11,239    11,869    1,096    33,115     
  Obligations related to securities sold under repurchase                                            
    agreements   39,986    5,315    2,545    540    507    40    40    –    –    48,973     
  Securitization liabilities at amortized cost   –    141    481    570    1,108    3,989    8,597    3,032    –    17,918     
  Amounts payable to brokers, dealers, and clients   17,857    –    –    –    –    –    –    –    –    17,857     
  Insurance-related liabilities   145    216    313    378    372    974    1,891    1,057    1,700    7,046     
  Other liabilities5    2,960    2,247    1,734    276    196    2,535    2,551    808    6,389    19,696     
  Subordinated notes and debentures   –    –    –    –    –    –    –    10,891    –    10,891     
  Equity   –    –    –    –    –    –    –    –    74,214    74,214     
  Total liabilities and equity $ 118,445  $ 57,332  $ 51,523  $ 33,595  $ 25,191  $ 51,263  $ 107,182  $ 62,272  $ 670,164  $ 1,176,967     
  Off-balance sheet commitments                                            
  Purchase obligations                                            
    Operating lease commitments $ 80  $ 159  $ 237  $ 235  $ 232  $ 896  $ 2,173  $ 3,943  $ –  $ 7,955     
    Network service agreements   –    –    –    –    –    –    –    –    –    –     
    Automated teller machines   13    26    23    6    6    24    20    –    –    118     
    Contact center technology   3    5    8    8    8    29    –    –    –    61     
    Software licensing and equipment maintenance   15    85    30    47    36    127    103    –    –    443     
  Credit and liquidity commitments                                            
    Financial and performance standby letters of credit   841    1,386    3,159    3,006    1,856    3,951    8,405    142    –    22,746     
    Documentary and commercial letters of credit   24    21    217    68    9    30    67    –    –    436     
    Commitments to extend credit and liquidity6,7   16,582    15,349    9,217    6,405    5,544    15,116    73,544    3,342    2,271    147,370     
  Unconsolidated structured entity commitments                                            
    Commitments to liquidity facilities for ABCP   –    1,180    830    395    923    212    –    –    –    3,540     
  1Amount has been recorded according to the remaining contractual maturity of the underlying security.
  2For the purposes of this table, non-financial assets have been recorded as having 'no specific maturity'.
  3As the timing of demand deposits and notice deposits is non-specific and callable by the depositor, obligations have been included as having 'no specific maturity'.
  4Includes $29 billion of covered bonds with remaining contractual maturities of $4 billion in 'over 3 months to 6 months', $2 billion in 'over 1 to 2 years', $20 billion in 'over 2 to 5 years', and $3 billion in 'over 5 years'.
  5Includes $115 million of capital lease commitments with remaining contractual maturities of $1 million in 'less than 1 month', $5 million in '1 month to 3 months', $7 million in '3 months to 6 months', $7 million in '6 months to 9 months', $7 million in '9 months to 1 year', $28 million in 'over 1 to 2 years', $46 million in 'over 2 to 5 years', and $14 million in 'over 5 years'.  
  6Includes $131 million in commitments to extend credit to private equity investments.
  7Commitments to extend credit exclude personal lines of credit and credit card lines, which are unconditionally cancellable at the Bank's discretion at any time.

 

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 39
 

securitization and off-balance sheet arrangements

 

TD carries out certain business activities through arrangements with structured entities, including special purpose entities (SPEs). Refer to Note 7 of the Bank's Interim Consolidated Financial Statements and the "Structured Entities" section of the 2016 Annual Report for further details regarding the Bank's involvement with SPEs.

 

Securitization of Bank-Originated Assets

The Bank securitizes residential mortgages, business and government loans, credit cards, and personal loans to enhance its liquidity position, to diversify sources of funding, and to optimize the management of the balance sheet. Refer to Note 6 and Note 7 of the Interim Consolidated Financial Statements and the "Securitization of Bank-Originated Assets" section of the 2016 Annual Report for further details.

 

 

TABLE 49: EXPOSURES SECURITIZED BY THE BANK AS ORIGINATOR1       
(millions of Canadian dollars)                    As at  
             Significant            
     Significant  consolidated       
     unconsolidated SPEs  SPEs    Non-SPE third-parties   
         Carrying           Carrying   
         value of           value of   
     Securitized  retained  Securitized  Securitized  retained   
     assets  interests  assets  assets  interests   
                   January 31, 2017   
Residential mortgage loans $ 22,934  $ –  $ –  $ 3,848  $ –   
Consumer instalment and other personal loans2    –    –    3,642    –    –   
Credit card loans   –    –    2,602    –    –   
Business and government loans   –    –    –    1,636    29   
Total exposure $ 22,934  $ –  $ 6,244  $ 5,484  $ 29   
                           
                   October 31, 2016   
Residential mortgage loans $ 23,081  $ –  $ –  $ 3,661  $ –   
Consumer instalment and other personal loans2    –    –    3,642    –    –   
Credit card loans   –    –    2,012    –    –   
Business and government loans   –    –    –    1,664    31   
Total exposure $ 23,081  $ –  $ 5,654  $ 5,325  $ 31   
1Includes all assets securitized by the Bank, irrespective of whether they are on-balance sheet or off-balance sheet for accounting purposes, except for securitizations through U.S. government-sponsored entities.
2In securitization transactions that the Bank has undertaken for its own assets it has acted as an originating bank and retained securitization exposure from a capital perspective.

 

 

Residential Mortgage Loans

The Bank securitizes residential mortgage loans through significant unconsolidated SPEs and Canadian non-SPE third-parties. Residential mortgage loans securitized by the Bank may give rise to full derecognition of the financial assets depending on the individual arrangement of each transaction. In instances where the Bank fully derecognizes residential mortgage loans, the Bank may be exposed to the risks of transferred loans through retained interests. As at January 31, 2017, the Bank has not recognized any retained interests due to the securitization of residential mortgage loans on the Interim Consolidated Balance Sheet.

 

Consumer Instalment and Other Personal Loans

The Bank securitizes consumer instalment and other personal loans through a SPE. The Bank consolidates the SPE as it serves as a financing vehicle for the Bank's assets, the Bank has power over the key economic decisions of the SPE, and the Bank is exposed to the majority of the residual risks of the SPE. As at January 31, 2017, the SPE had $4 billion of issued notes outstanding (October 31, 2016 – $4 billion) with a fair value of $4 billion (October 31, 2016 – $4 billion).

 

Credit Card Loans

The Bank securitizes credit card loans through a SPE. The Bank consolidates the SPE as it serves as a financing vehicle for the Bank’s assets, the Bank has power over the key economic decisions of the SPE, and the Bank is exposed to the majority of the residual risks of the SPE. As at January 31, 2017, the Bank securitized $3 billion of credit card receivables and the consolidated SPE issued the US$2 billion variable rate notes to third party investors (October 31, 2016 – US$1.5 billion). The fair value of the notes was US$2 billion as at January 31, 2017 (October 31, 2016 – US$1.5 billion).

 

Business and Government Loans

The Bank securitizes business and government loans through significant unconsolidated SPEs and Canadian non-SPE third parties. Business and government loans securitized by the Bank may be derecognized from the Bank's balance sheet depending on the individual arrangement of each transaction. In instances where the Bank fully derecognizes business and government loans, the Bank may be exposed to the risks of transferred loans through retained interests. There are no expected credit losses on the retained interests of the securitized business and government loans as the mortgages are all government insured.

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 40
 

 

Securitization of Third Party-Originated Assets

Significant Unconsolidated Special Purpose Entities

Multi-Seller Conduits

The Bank administers multi-seller conduits and provides liquidity facilities as well as securities distribution services; it may also provide credit enhancements. Third party-originated assets are securitized through Bank-sponsored SPEs, which are not consolidated by the Bank. TD's maximum potential exposure to loss due to its ownership interest in commercial paper and through the provision of liquidity facilities for multi-seller conduits was $14.8 billion as at January 31, 2017 (October 31, 2016 – $14.5 billion). Further, as at January 31, 2017, the Bank had committed to provide an additional $3.3 billion in liquidity facilities that can be used to support future ABCP in the purchase of deal-specific assets (October 31, 2016 – $3.5 billion).

All third-party assets securitized by the Bank's unconsolidated multi-seller conduits were originated in Canada and sold to Canadian securitization structures. Details of the Bank-administered multi-seller ABCP conduits are included in the following table.

 

 

TABLE 50: EXPOSURE TO THIRD PARTY-ORIGINATED ASSETS SECURITIZED BY BANK-SPONSORED UNCONSOLIDATED CONDUITS  
(millions of Canadian dollars, except as noted)              As at   
  January 31, 2017  October 31, 2016   
  Exposure and  Expected    Exposure and  Expected   
  ratings profile of  weighted-  ratings profile of  weighted-   
  unconsolidated SPEs  average life  unconsolidated SPEs  average life   
    AAA1  (years)2  AAA1  (years)2   
Residential mortgage loans $ 9,761  2.8  $ 9,826  3.0   
Automobile loans and leases   3,096  1.5    2,637  1.3   
Equipment leases   25  1.8    –  –   
Trade receivables   1,989  2.0    1,989  2.3   
Total exposure $ 14,871  2.4  $ 14,452  2.6   
1The Bank's total liquidity facility exposure only relates to 'AAA' rated assets.
2Expected weighted-average life for each asset type is based upon each of the conduit's remaining purchase commitment for revolving pools and the expected weighted-average life of the assets for amortizing pools.

 

 

As at January 31, 2017, the Bank held $1.0 billion of ABCP issued by Bank-sponsored multi-seller conduits within the Available-for-sale securities and Trading loans, securities, and other categories on the Bank's Interim Consolidated Balance Sheet (October 31, 2016 – $1.1 billion).

 

Off-Balance Sheet Exposure to Third Party-Sponsored Conduits

The Bank has off-balance sheet exposure to third party-sponsored conduits arising from providing liquidity facilities and funding commitments of $2.7 billion as at January 31, 2017 (October 31, 2016 – $1.8 billion). The assets within these conduits are comprised of individual notes backed by automotive loan receivables, credit card receivables, and trade receivables. As at January 31, 2017, these assets have maintained ratings from various credit rating agencies, with a minimum rating of A. On-balance sheet exposure to third party-sponsored conduits have been included in the financial statements.

 

Leveraged Finance Credit Commitments

Leveraged finance credit commitments are included in "Commitments to extend credit and liquidity" of Table 48 of this document. Leveraged finance credit commitments are agreements that provide funding to a borrower with higher leverage ratio, relative to the industry in which it operates, and for the purposes of acquisitions, buyouts or capital distributions. As at January 31, 2017, the Bank's exposure to leveraged finance credit commitments, including funded and unfunded amounts, was $24.4 billion (October 31, 2016 – $24.9 billion).

 

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 41
 

 

ACCOUNTING POLICIES AND ESTIMATES

 

The Bank's unaudited Interim Consolidated Financial Statements have been prepared in accordance with IFRS. For details of the Bank's accounting policies under IFRS, refer to Note 2 of the Bank's 2016 Annual Consolidated Financial Statements. For details of the Bank's significant accounting judgments, estimates, and assumptions under IFRS, refer to Note 3 of the Bank's 2016 Annual Consolidated Financial Statements.

 

FUTURE CHANGES IN ACCOUNTING POLICIES

The following standards have been issued, but are not yet effective on the date of issuance of the Bank's Interim Consolidated Financial Statements. The Bank is currently assessing the impact of the application of these standards on the Interim Consolidated Financial Statements and will adopt these standards when they become effective.

 

Financial Instruments

In July 2014, the IASB issued the final version of IFRS 9, Financial Instruments (IFRS 9), which replaces the guidance in IAS 39. This final version includes requirements on: (1) Classification and measurement of financial assets and liabilities; (2) Impairment of financial assets; and (3) General hedge accounting. IFRS 9 is effective for annual periods beginning on or after January 1, 2018 and is to be applied retrospectively with certain exceptions. IFRS 9 does not require restatement of comparative period financial statements except in limited circumstances related to aspects of hedge accounting. Entities are permitted to restate comparatives as long as hindsight is not applied. The Bank has made the decision not to restate comparative period financial information and will recognize any measurement difference between the previous carrying amount and the new carrying amount on November 1, 2017 through an adjustment to opening retained earnings, In January 2015, OSFI issued the final version of the Advisory titled "Early adoption of IFRS 9 Financial Instruments for Domestic Systemically Important Banks". All D-SIBs, including the Bank, are required to early adopt IFRS 9 for the annual period beginning on November 1, 2017. Consequential amendments were made to IFRS 7, Financial Instruments: Disclosures (IFRS 7) introducing expanded qualitative and quantitative disclosures related to IFRS 9, which are required to be adopted for the annual period beginning on November 1, 2017, when the Bank first applies IFRS 9. In December 2015, the BCBS issued "Guidance on credit risk and accounting for expected credit losses" which sets out supervisory guidance on sound credit risk practices associated with the implementation and ongoing application of expected credit loss accounting frameworks. In June 2016, OSFI issued the guideline, "IFRS 9 Financial Instruments and Disclosures", which provides guidance to Federally Regulated Entities on the application of IFRS 9 that is consistent with the BCBS guidance. This guideline, which is effective for the Bank upon adoption of IFRS 9, replaces certain guidelines that were in effect under IAS 39.

The adoption of IFRS 9 is a significant initiative for the Bank supported by a formal governance framework and a robust implementation plan. An Executive Steering Committee has been formed with joint leadership from Finance and Risk and with representation from Technology, Internal Audit, and project management teams. A communication plan including progress reporting protocols has been established with regular updates provided to the Executive Steering Committee on key decisions. IFRS 9 overview sessions have been held at various levels within the Bank, including the Audit and Risk Committees of the Board.

The Bank has enhanced its governance framework and has established a dedicated committee to review, challenge, and approve key areas of judgment and assumptions used in forecasting multiple economic scenarios and associated probabilities upon adoption of IFRS 9. The committee will include representation from Risk, Finance and Economics.

The key responsibilities of the project include defining IFRS 9 risk methodology and accounting policy, identifying data and system requirements, and developing an appropriate operating model and governance framework. The Bank's implementation plan includes the following phases: (a) Initiation and Planning; (b) Detailed Assessment; (c) Design and Solution Development; and (d) Implementation, with work streams focused on each of the three required sections of IFRS 9 noted above as well as Reporting and Disclosures. The Bank is on track with its project timelines. The Solution Development and Implementation phases are in progress.

 

The following is a summary of the new accounting concepts and project status under IFRS 9:

 

Classification and Measurement

Financial assets will be classified based on the Bank's business model for managing its financial assets and the contractual cash flow characteristics of the financial asset. Financial assets are classified into one of the following three categories, which determine how it is measured subsequent to initial recognition: amortized cost, fair value through other comprehensive income (FVOCI), and fair value through profit or loss. An election may be made to hold certain equity securities at FVOCI, with no subsequent recycling of gains and losses into net income. In addition to the classification tests described above, IFRS 9 also includes an option to irrevocably designate a financial asset as measured at fair value through profit or loss if doing so eliminates or significantly reduces an accounting mismatch.

The classification and measurement of financial liabilities remain largely unchanged under IFRS 9, except for financial liabilities measured at fair value through profit or loss when classified as held for trading or designated using the fair value option. When the fair value option is elected, the Bank will be required to recognize the change in the fair value of the financial liability arising from changes in the Bank's own credit risk in other comprehensive income.

The Bank has defined its significant business models and is in the process of assessing the cash flow characteristics for all financial assets under the scope of IFRS 9. Potential classification and measurement changes include the reclassification of certain debt securities that are currently measured at FVOCI to an amortized cost category under IFRS 9 as a result of the business model assessment.

 

Impairment

Expected Credit Loss Model

IFRS 9 introduces a new impairment model based on expected credit losses (ECL) which will replace the existing incurred loss model under IAS 39. Currently, impairment losses are recognized when there is objective evidence of credit quality deterioration to the extent that the Bank no longer has reasonable assurance as to the timely collection of the full amount of principal and interest. If there is no objective evidence of impairment for an individual loan, the loan is included in a group of assets with similar credit risk characteristics and collectively assessed for impairment losses incurred but not identified. Under IFRS 9, ECL will be recognized in profit or loss before a loss event has occurred, which could result in earlier recognition of credit losses compared to the current model.

The expected credit loss model requires the recognition of impairment at an amount equal to the probability-weighted 12-month ECL or lifetime ECL depending on whether there has been a significant increase in credit risk since initial recognition of the financial instrument. If a significant increase in credit risk has occurred since initial recognition, then impairment is measured as lifetime ECL otherwise 12-month ECL are measured, which represent the portion of lifetime ECL that are expected to occur based on default events that are possible within 12 months after the reporting date. IFRS 9 introduces the rebuttable presumption that credit risk has increased significantly since initial recognition when contractual payments are more than 30 days past due. The Bank does not expect to rebut this presumption. If credit quality improves in a subsequent period such that the increase in credit risk since initial recognition is no longer considered significant, the loss allowance will revert back to being measured based on 12-month ECL. The movement between 12-month and lifetime ECL and incorporation of forward-looking information may increase the volatility of provisions across the product groups, under IFRS 9 compared to IAS 39. The IFRS 9 model breaks down into three stages: Stage 1 – 12-month ECL for performing instruments, Stage 2 – Lifetime ECL for performing instruments that have experienced a significant increase in credit risk, and Stage 3 – Lifetime ECL for non-performing financial assets. The Stage 3 population is expected to largely align with the impaired population under IAS 39 and the write-off policy is expected to remain the same.

 

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 42
 

  

Measurement of Expected Credit Losses

ECL will be measured as the probability-weighted present value of expected cash shortfalls over the remaining expected life of the financial instrument and will consider reasonable and supportable information about past events, current conditions and forecasts of future events and economic conditions that impact the Bank's credit risk assessment. Expected life is the maximum contractual period the Bank is exposed to credit risk, including extension options for which the borrower has unilateral right to exercise. For certain financial instruments that include both a loan and an undrawn commitment and the Bank's contractual ability to demand repayment and cancel the undrawn commitment does not limit the Bank's exposure to credit losses to the contractual notice period, ECL will be measured over the period the Bank is exposed to credit risk. Forward-looking macroeconomic factors are incorporated in the risk parameters as relevant. Examples of relevant macroeconomic factors include unemployment rates, housing price index, interest rates, and gross domestic product.

Probability-weighted multiple scenarios will be considered when determining stage allocation and measuring ECL. IFRS 9 requires ECL to be recognized in a way that reflects an unbiased and probability-weighted amount determined by evaluating a range of possible outcomes. While entities are not expected to consider every possible scenario, the scenarios considered should reflect a representative sample of possible outcomes. When there is a non-linear relationship between the different forward-looking scenarios and the associated change in ECL, using a single forward-looking scenario will not meet the objectives of IFRS 9. Economic forecasts must consider internal and external information and be consistent with the forward-looking information used for other purposes such as budgeting and forecasting. The scenarios must be representative and not biased to extreme scenarios. Parameter coherence is considered in each scenario so that it is realistic. The scenarios considered must take into account key drivers of ECL, particularly non-linearity and asymmetric sensitivities within portfolios to estimate effects of changes in parameters on ECL.

 

Assessment of Significant Increase in Credit Risk

For retail exposures, significant increase in credit risk will be assessed based on changes in the probability of default (PD) since initial recognition, using a combination of individual and collective information that incorporates borrower and account specific attributes and relevant forward-looking macroeconomic variables. ECL will be calculated as the product of PD, loss given default (LGD), and exposure at default (EAD) at each time step over the remaining expected life of the financial instrument and discounted to the reporting date.

For non-retail exposures, significant increase in credit risk will be assessed based on changes in the internal risk rating since initial recognition, incorporating relevant forward-looking macroeconomic information. ECL will be calculated based on the present value of cash shortfalls determined as the difference between contractual cash flows and expected cash flows over the remaining expected life of the financial instrument. Similar to IAS 39, ECL for significant non-retail impaired exposures will be measured individually.

 

Comparison of Regulatory Expected Loss Model and IFRS 9 Expected Credit Loss Model

The IFRS 9 expected credit loss calculation will leverage where appropriate the Bank’s existing expected loss model parameters used for regulatory capital purposes including PD, LGD and EAD with adjustments as required to comply with the IFRS 9 requirements. The main differences are summarized in the following chart:

 

  Regulatory Capital IFRS 9
PD Through-the-cycle 12-month PD based on the long run average of a full economic cycle. The default backstop is generally 90 days past due. Point-in-time 12-month or lifetime PD based on historical experience, current conditions and relevant forward-looking expectations. The default backstop will generally be 90 days past due.
LGD Downturn LGD based on losses that would be expected in an economic downturn and subject to certain regulatory floors. Both direct and indirect collection costs are considered. Expected LGD based on historical charge-off events and recovery payments, current information about attributes specific to borrower, and direct costs. Macroeconomic variables and expected cash flows from credit enhancements will be incorporated as appropriate and excludes undue conservatism and floors.
EAD Based on the drawn balance plus expected utilization of any undrawn portion prior to default, and cannot be lower than the drawn balance. EAD represents the expected balance at default across the lifetime horizon and conditional on forward-looking expectations.
Other   Expected credit losses are discounted from the default date to the reporting date.

 

Capital Impact

Based on the current regulatory requirements, a negative impact from potential increases in the balance sheet allowances under IFRS 9 on CET1 capital could be partially mitigated by reductions in negative regulatory capital adjustments related to any shortfall of allowances to regulatory expected losses in the CET1 calculation. Similarly, a positive impact from potential decreases in accounting allowances under IFRS 9 could be partially offset by increases in the deduction from CET1 capital through an increase in the shortfall of allowances to regulatory expected losses. In October 2016, the BCBS issued a consultative document, "Regulatory treatment of accounting provisions – interim approach and transitional arrangements" and a discussion paper, "Regulatory treatment of accounting provisions". The consultative document sets out the BCBS' proposal to retain, for an interim period, the current regulatory treatment of accounting provisions under the standardized and internal ratings-based approaches and also provides potential transitional arrangements. The discussion paper provides policy options for long-term regulatory treatment of provisions.

 

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 43
 

 

Scope

The new impairment model will apply to all financial assets measured at amortized cost or fair value through other comprehensive income with the most significant impact expected to be on loan assets. The model will also apply to loan commitments and financial guarantees that are not measured at fair value through profit or loss.

 

IFRS 9 Impairment Program

The Bank has defined the functional requirements for the calculation of ECL and is currently developing and integrating the end-to-end technology solution for tracking credit migration under the new ECL model as well as the impact to forecasting economic variables, risk parameters, and credit risk modelling processes. For the remainder of the year, the Bank will continue to focus on the development, testing and validation of the new impairment models and related processes and controls and assess the quantitative impact of applying an ECL approach by the end of 2017. The Bank is in the process of updating its accounting and risk policies, implementing changes to financial reporting systems and processes, and developing and implementing financial and regulatory disclosures related to IFRS 9.

 

General Hedge Accounting

IFRS 9 introduces a new general hedge accounting model which better aligns accounting with risk management activities. The new standard permits a wider range of qualifying hedged items and hedged risks as well as types of hedging instruments. Effectiveness testing will have an increased focus on establishing an economic relationship, achieving a target hedge ratio and monitoring credit risk exposures. Voluntary discontinuation of hedging relationships is no longer permitted except in limited circumstances based on the risk management objectives of hedge strategies. The Bank has an accounting policy choice to adopt the new general hedge accounting model under IFRS 9 or continue to apply the hedge accounting requirements under IAS 39. The Bank has made the decision to continue applying the IAS 39 hedge accounting requirements at this time and will comply with the revised hedge accounting disclosures as required by the related amendments to IFRS 7.

 

Revenue from Contracts with Customers

In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers (IFRS 15), which establishes the principles for recognizing revenue and cash flows arising from contracts with customers and prescribes the application of a five-step recognition and measurement model. The standard excludes from its scope revenue arising from items such as financial instruments, insurance contracts, and leases. The standard also requires additional qualitative and quantitative disclosures. In July 2015, the IASB confirmed a one-year deferral of the effective date to annual periods beginning on or after January 1, 2018, which will be November 1, 2018 for the Bank, and is to be applied retrospectively. In April 2016, the IASB issued amendments to IFRS 15, which provided additional guidance on the identification of performance obligations, on assessing principal versus agent considerations and on licensing revenue. The amendments also provided additional transitional relief upon initial adoption of IFRS 15 and have the same effective date as the IFRS 15 standard. The Bank is currently assessing the impact of adopting this standard.

 

Leases

In January 2016, the IASB issued IFRS 16, Leases (IFRS 16), which will replace IAS 17, introducing a single lessee accounting model for all leases by eliminating the distinction between operating and financing leases. IFRS 16 requires lessees to recognize right-of-use assets and lease liabilities for most leases. Lessees will also recognize depreciation expense on the right-of-use asset and interest expense on the lease liability in the statement of income. Short-term leases, which are defined as those that have a lease term of 12 months or less and leases of low-value assets are exempt. Lessor accounting remains substantially unchanged. IFRS 16 is effective for annual periods beginning on or after January 1, 2019, which will be November 1, 2019 for the Bank, and is to be applied retrospectively. Early adoption is permitted only if aligned with or after the adoption of IFRS 15. The Bank is currently assessing the impact of adopting IFRS 16.

 

Share-based Payment

In June 2016, the IASB published amendments to IFRS 2, Share-based Payment, which provide additional guidance on the classification and measurement of share-based payment transactions. The amendments clarify the accounting for cash-settled share-based payment transactions that include a performance condition, the classification of share-based payment transactions with net settlement features for withholding tax obligations, and the accounting for modifications of share-based payment transactions from cash-settled to equity-settled. The amendments to IFRS 2 are effective for annual periods beginning on or after January 1, 2018, which will be November 1, 2018 for the Bank, and is to be applied prospectively; however, retrospective application is permitted in certain instances. Early adoption is permitted. The amendments to IFRS 2 are not expected to have a material impact on the Bank.

 

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

During the most recent interim period, there have been no changes in the Bank's policies and procedures and other processes that comprise its internal control over financial reporting, that have materially affected, or are reasonably likely to materially affect, the Bank's internal control over financial reporting.

 

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 44
 

 

 

 

 

INTERIM CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
INTERIM CONSOLIDATED BALANCE SHEET (unaudited)          
(millions of Canadian dollars) As at   
     January 31  October 31   
       2017    2016   
ASSETS      
Cash and due from banks $ 3,748  $ 3,907   
Interest-bearing deposits with banks   54,438    53,714   
       58,186    57,621   
Trading loans, securities, and other (Note 3)   110,261    99,257   
Derivatives (Note 3)   60,640     72,242   
Financial assets designated at fair value through profit or loss (Note 3)   4,594     4,283   
Available-for-sale securities (Notes 3, 4)   113,275     107,571   
     288,770    283,353   
Held-to-maturity securities (Note 4)   77,981    84,395   
Securities purchased under reverse repurchase agreements   96,389    86,052   
Loans (Note 5)          
Residential mortgages   215,658     217,336   
Consumer instalment and other personal   144,365    144,531   
Credit card   31,814     31,914   
Business and government   195,600     194,074   
Debt securities classified as loans   1,036     1,674   
       588,473    589,529   
Allowance for loan losses (Note 5)   (3,815)   (3,873)  
Loans, net of allowance for loan losses   584,658    585,656   
Other          
Customers' liability under acceptances     11,741     15,706   
Investment in TD Ameritrade (Note 8)   6,883     7,091   
Goodwill (Note 9)   16,222     16,662   
Other intangibles     2,661     2,639   
Land, buildings, equipment, and other depreciable assets   5,355     5,482   
Deferred tax assets     2,295     2,084   
Amounts receivable from brokers, dealers, and clients     22,666     17,436   
Other assets (Note 10)   13,076     12,790   
       80,899    79,890   
Total assets $ 1,186,883  $ 1,176,967   
LIABILITIES          
Trading deposits (Notes 3, 11) $ 91,485  $  79,786   
Derivatives (Note 3)   57,936     65,425   
Securitization liabilities at fair value (Note 3)   12,537     12,490   
Other financial liabilities designated at fair value through profit or loss (Note 3)   24     190   
       161,982     157,891   
Deposits (Note 11)          
Personal   442,594    439,232   
Banks   20,443     17,201   
Business and government   311,497     317,227   
       774,534     773,660   
Other          
Acceptances     11,741     15,706   
Obligations related to securities sold short (Note 3)   30,532     33,115   
Obligations related to securities sold under repurchase agreements (Note 3)   59,338     48,973   
Securitization liabilities at amortized cost     17,183     17,918   
Amounts payable to brokers, dealers, and clients (Note 3)   24,494     17,857   
Insurance-related liabilities   6,923     7,046   
Other liabilities (Note 12)   18,460     19,696   
       168,671     160,311   
Subordinated notes and debentures (Note 13)   8,394     10,891   
Total liabilities   1,113,581     1,102,753   
EQUITY          
Common shares (Note 14)   20,836     20,711   
Preferred shares (Note 14)   4,400     4,400   
Treasury shares – common (Note 14)   (218)    (31)  
Treasury shares – preferred (Note 14)   (5)   (5)  
Contributed surplus   206     203   
Retained earnings   37,330     35,452   
Accumulated other comprehensive income (loss)     9,131     11,834   
       71,680     72,564   
Non-controlling interests in subsidiaries   1,622     1,650   
Total equity   73,302     74,214   
Total liabilities and equity $ 1,186,883  $  1,176,967   

The accompanying Notes are an integral part of these Interim Consolidated Financial Statements.

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 45
 
INTERIM CONSOLIDATED STATEMENT OF INCOME (unaudited)          
(millions of Canadian dollars, except as noted)   For the three months ended   
       January 31    January 31   
   2017  2016   
Interest income          
Loans $ 5,705  $ 5,432   
Securities          
  Interest   1,066    905   
  Dividends   281    245   
Deposits with banks   75    37   
     7,127    6,619   
Interest expense          
Deposits   1,475    1,098   
Securitization liabilities   111    124   
Subordinated notes and debentures   100    88   
Other   300    262   
     1,986    1,572   
Net interest income   5,141    5,047   
Non-interest income          
Investment and securities services   1,113    982   
Credit fees   264    251   
Net securities gain (loss) (Note 4)   14    (12)  
Trading income (loss)   213    41   
Service charges   663    643   
Card services   624    596   
Insurance revenue     952    968   
Other income (loss)     136    94   
     3,979    3,563   
Total revenue   9,120    8,610   
Provision for credit losses (Note 5)   633    642   
Insurance claims and related expenses   574    655   
Non-interest expenses          
Salaries and employee benefits (Note 16)   2,586    2,328   
Occupancy, including depreciation   451    459   
Equipment, including depreciation   242    226   
Amortization of other intangibles     170    175   
Marketing and business development   166    173   
Restructuring charges   (5)   (2)  
Brokerage-related fees   82    81   
Professional and advisory services   289    271   
Other     916    942   
     4,897    4,653   
Income before income taxes and equity in net income of an investment            
  in TD Ameritrade   3,016    2,660   
Provision for (recovery of) income taxes     596    546   
Equity in net income of an investment in TD Ameritrade (Note 8)   113    109   
Net income     2,533    2,223   
Preferred dividends   48    25   
Net income available to common shareholders and non-controlling            
  interests in subsidiaries $ 2,485  $ 2,198   
Attributable to:          
  Common shareholders   $ 2,456  $ 2,169   
  Non-controlling interests in subsidiaries   29    29   
Earnings per share (dollars) (Note 17)          
Basic $ 1.32  $ 1.17   
Diluted   1.32    1.17   
Dividends per share (dollars)   0.55    0.51   

The accompanying Notes are an integral part of these Interim Consolidated Financial Statements.

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 46
 
INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (unaudited)      
(millions of Canadian dollars) For the three months ended   
    January 31  January 31   
    2017  2016   
Net income $ 2,533  $ 2,223   
Other comprehensive income (loss), net of income taxes
Items that will be subsequently reclassified to net income
Change in unrealized gains (losses) on available-for-sale securities1  120    (263)  
Reclassification to earnings of net losses (gains) in respect of available-for-sale securities2  (27)   18   
Net change in unrealized foreign currency translation gains (losses) on investments in foreign operations (1,907)   4,053   
Reclassification to earnings of net losses (gains) on investment in foreign operations3  17    –   
Net foreign currency translation gains (losses) from hedging activities in foreign operations4  480    (1,119)  
Reclassification to earnings of net losses (gains) on hedges of investments in foreign operations5  (13)   –   
Change in net gains (losses) on derivatives designated as cash flow hedges6  (1,214)   1,929   
Reclassification to earnings of net losses (gains) on cash flow hedges7  (159)   (1,360)  
Items that will not be subsequently reclassified to net income
Actuarial gains (losses) on employee benefit plans8  443    (302)  
  (2,260)   2,956   
Comprehensive income (loss) for the period $ 273  $ 5,179   
Attributable to:
Common shareholders $ 196  $ 5,125   
  Preferred shareholders   48    25   
  Non-controlling interests in subsidiaries 29    29   
1Net of income tax provision of $52 million for the three months ended January 31, 2017 (three months ended January 31, 2016 – net of income tax recovery of $56 million).
2Net of income tax recovery of $18 million for the three months ended January 31, 2017 (three months ended January 31, 2016 – net of income tax provision of $25 million).
3Net of income tax provision of nil for the three months ended January 31, 2017 (three months ended January 31, 2016 – net of income tax provision of nil).
4Net of income tax provision of $173 million for the three months ended January 31, 2017 (three months ended January 31, 2016 – net of income tax recovery of $403 million).
5Net of income tax provision of $5 million for the three months ended January 31, 2017 (three months ended January 31, 2016 – net of income tax provision of nil).
6Net of income tax recovery of $676 million for the three months ended January 31, 2017 (three months ended January 31, 2016 – net of income tax provision of $1,391 million).
7Net of income tax recovery of $23 million for the three months ended January 31, 2017 (three months ended January 31, 2016 – net of income tax provision of $1,104 million).
8Net of income tax provision of $160 million for the three months ended January 31, 2017 (three months ended January 31, 2016 – net of income tax recovery of $110 million).

 

The accompanying Notes are an integral part of these Interim Consolidated Financial Statements.

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 47
 

INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (unaudited)          
(millions of Canadian dollars) For the three months ended   
     January 31    January 31   
     2017    2016   
Common shares (Note 14)          
Balance at beginning of period $ 20,711  $ 20,294   
Proceeds from shares issued on exercise of stock options   47    124   
Shares issued as a result of dividend reinvestment plan   78    81   
Purchase of shares for cancellation   –    (104)  
Balance at end of period   20,836    20,395   
Preferred shares (Note 14)          
Balance at beginning of period   4,400    2,700   
Issue of shares   –    700   
Balance at end of period   4,400    3,400   
Treasury shares – common (Note 14)          
Balance at beginning of period   (31)   (49)  
Purchase of shares   (2,478)   (1,614)  
Sale of shares   2,291    1,612   
Balance at end of period   (218)   (51)  
Treasury shares – preferred (Note 14)          
Balance at beginning of period   (5)   (3)  
Purchase of shares   (50)   (17)  
Sale of shares   50    16   
Balance at end of period   (5)   (4)  
Contributed surplus          
Balance at beginning of period   203    214   
Net premium (discount) on sale of treasury shares   7    5   
Issuance of stock options, net of options exercised   (3)   (22)  
Other   (1)   1   
Balance at end of period   206    198   
Retained earnings          
Balance at beginning of period   35,452    32,053   
Net income attributable to shareholders     2,504    2,194   
Common dividends   (1,021)   (946)  
Preferred dividends   (48)   (25)  
Share issue expenses and others   –    (6)  
Net premium on repurchase of common shares and redemption of preferred shares   –    (383)  
Actuarial gains (losses) on employee benefit plans   443    (302)  
Balance at end of period   37,330    32,585   
Accumulated other comprehensive income (loss)            
Net unrealized gain (loss) on available-for-sale securities:            
Balance at beginning of period   299    81   
Other comprehensive income (loss)   93    (245)  
Balance at end of period     392    (164)  
Net unrealized foreign currency translation gain (loss) on investments in foreign            
  operations, net of hedging activities:          
Balance at beginning of period   9,679    8,355   
Other comprehensive income (loss)   (1,423)   2,934   
Balance at end of period     8,256    11,289   
Net gain (loss) on derivatives designated as cash flow hedges:            
Balance at beginning of period   1,856    1,773   
Other comprehensive income (loss)   (1,373)   569   
Balance at end of period     483    2,342   
Total   9,131    13,467   
Non-controlling interests in subsidiaries          
Balance at beginning of period   1,650    1,610   
Net income attributable to non-controlling interests in subsidiaries   29    29   
Other   (57)   45   
Balance at end of period   1,622    1,684   
Total equity   $ 73,302  $ 71,674   

The accompanying Notes are an integral part of these Interim Consolidated Financial Statements.

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 48
 
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)          
(millions of Canadian dollars) For the three months ended   
       January 31    January 31   
     2017  2016   
Cash flows from (used in) operating activities          
Net income before income taxes, including equity in net income of an investment in TD Ameritrade $ 3,129  $ 2,769   
Adjustments to determine net cash flows from (used in) operating activities          
  Provision for credit losses (Note 5)   633    642   
  Depreciation     148    149   
  Amortization of other intangibles     170    175   
  Net securities losses (gains) (Note 4)   (14)   12   
  Equity in net income of an investment in TD Ameritrade (Note 8)   (113)   (109)  
  Deferred taxes     219    (121)  
Changes in operating assets and liabilities          
  Interest receivable and payable (Notes 10, 12)   (74)   (155)  
  Securities sold short   (2,583)   3,073   
  Trading loans and securities   (11,004)   (6,203)  
  Loans net of securitization and sales   (491)   (23,175)  
  Deposits   12,409    49,990   
  Derivatives   4,113    (2,410)  
  Financial assets and liabilities designated at fair value through profit or loss   (313)   (156)  
  Securitization liabilities   (688)   (1,303)  
  Other   2,411    (6,977)  
Net cash from (used in) operating activities   7,952    16,201   
Cash flows from (used in) financing activities          
Change in securities sold under repurchase agreements   10,365    (1,719)  
Redemption of subordinated notes and debentures (Note 13)   (2,250)   (1,000)  
Common shares issued (Note 14)   39    103   
Preferred shares issued (Note 14)   –    694   
Repurchase of common shares (Note 14)   –    (487)  
Sale of treasury shares (Note 14)   2,348    1,633   
Purchase of treasury shares (Note 14)   (2,528)   (1,631)  
Dividends paid   (991)   (890)  
Distributions to non-controlling interests in subsidiaries   (29)   (29)  
Net cash from (used in) financing activities   6,954    (3,326)  
Cash flows from (used in) investing activities          
Interest-bearing deposits with banks   (724)   (6,256)  
Activities in available-for-sale securities (Note 4)          
  Purchases   (16,326)   (10,130)  
  Proceeds from maturities   7,580    8,008   
  Proceeds from sales   1,009    188   
Activities in held-to-maturity securities (Note 4)          
  Purchases   (7,045)   (3,751)  
  Proceeds from maturities   9,820     2,829   
  Proceeds from sales   452    –   
Activities in debt securities classified as loans          
  Purchases   (13)   (9)  
  Proceeds from maturities   166    126   
  Proceeds from sales   450    1   
Net purchases of land, building, equipment, and other depreciable assets   (21)   (392)  
Changes in securities purchased under reverse repurchase agreements   (10,337)   (3,577)  
Net cash from (used in) investing activities   (14,989)   (12,963)  
Effect of exchange rate changes on cash and due from banks   (76)   138   
Net increase (decrease) in cash and due from banks   (159)   50   
Cash and due from banks at beginning of period   3,907    3,154   
Cash and due from banks at end of period $ 3,748  $ 3,204   
Supplementary disclosure of cash flows from operating activities          
Amount of income taxes paid (refunded) during the period $ 780  $ 285   
Amount of interest paid during the period   2,060    1,642   
Amount of interest received during the period   6,855    6,289   
Amount of dividends received during the period   240    274   

The accompanying Notes are an integral part of these Interim Consolidated Financial Statements.

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 49
 

 

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

 

NOTE 1: NATURE OF OPERATIONS  

 

CORPORATE INFORMATION

The Toronto-Dominion Bank is a bank chartered under the Bank Act. The shareholders of a bank are not, as shareholders, liable for any liability, act, or default of the bank except as otherwise provided under the Bank Act. The Toronto-Dominion Bank and its subsidiaries are collectively known as TD Bank Group ("TD" or the "Bank"). The Bank was formed through the amalgamation on February 1, 1955, of The Bank of Toronto (chartered in 1855) and The Dominion Bank (chartered in 1869). The Bank is incorporated and domiciled in Canada with its registered and principal business offices located at 66 Wellington Street West, Toronto, Ontario. TD serves customers in three business segments operating in a number of locations in key financial centres around the globe: Canadian Retail, U.S. Retail, and Wholesale Banking.

 

BASIS OF PREPARATION

The accompanying Interim Consolidated Financial Statements and accounting principles followed by the Bank have been prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB), including the accounting requirements of the Office of the Superintendent of Financial Institutions Canada (OSFI). The Interim Consolidated Financial Statements are presented in Canadian dollars, unless otherwise indicated.

These Interim Consolidated Financial Statements were prepared on a condensed basis in accordance with International Accounting Standard 34, Interim Financial Reporting (IAS 34) using the accounting policies as described in Note 2 of the Bank's 2016 Annual Consolidated Financial Statements. Certain comparative amounts have been restated/reclassified to conform with the presentation adopted in the current period.

The preparation of consolidated financial statements requires that management make estimates, assumptions, and judgments regarding the reported amount of assets, liabilities, revenue and expenses, and disclosure of contingent assets and liabilities, as further described in Note 3 of the Bank's 2016 Annual Consolidated Financial Statements. Accordingly, actual results may differ from estimated amounts as future confirming events occur.

The Bank's Interim Consolidated Financial Statements have been prepared using uniform accounting policies for like transactions and events in similar circumstances. All intercompany transactions, balances, and unrealized gains and losses on transactions are eliminated on consolidation.

The Interim Consolidated Financial Statements for the three months ended January 31, 2017, were approved and authorized for issue by the Bank's Board of Directors, in accordance with a recommendation of the Audit Committee, on March 1, 2017.

As the Interim Consolidated Financial Statements do not include all of the disclosures normally provided in the Annual Consolidated Financial Statements, it should be read in conjunction with the 2016 Annual Consolidated Financial Statements and the accompanying Notes, and the shaded sections of the 2016 Management's Discussion and Analysis (MD&A). Certain disclosures are included in the shaded sections of the "Managing Risk" section of the MD&A in this report, as permitted by IFRS, and form an integral part of the Interim Consolidated Financial Statements. The Interim Consolidated Financial Statements were prepared under a historical cost basis, except for certain items carried at fair value as discussed in Note 2 of the Bank's 2016 Annual Consolidated Financial Statements.

 

 

NOTE 2: CURRENT AND FUTURE CHANGES IN ACCOUNTING POLICIES  

 

FUTURE CHANGES IN ACCOUNTING POLICIES

The following standards have been issued, but are not yet effective on the date of issuance of the Bank's Interim Consolidated Financial Statements. The Bank is currently assessing the impact of the application of these standards on the Interim Consolidated Financial Statements and will adopt these standards when they become effective.

 

Financial Instruments

In July 2014, the IASB issued the final version of IFRS 9, Financial Instruments (IFRS 9), which replaces the guidance in IAS 39. This final version includes requirements on: (1) Classification and measurement of financial assets and liabilities; (2) Impairment of financial assets; and (3) General hedge accounting. Accounting for macro hedging has been decoupled from IFRS 9. The Bank has an accounting policy choice to apply the hedge accounting requirements of IFRS 9 or IAS 39. The Bank has made the decision to continue applying the IAS 39 hedge accounting requirements at this time and will comply with the revised hedge accounting disclosures as required by the related amendments to IFRS 7, Financial Instruments: Disclosures (IFRS 7).

IFRS 9 is effective for annual periods beginning on or after January 1, 2018, and is to be applied retrospectively with certain exceptions. IFRS 9 does not require restatement of comparative period financial statements except in limited circumstances related to aspects of hedge accounting. Entities are permitted to restate comparatives as long as hindsight is not applied. The Bank has made the decision not to restate comparative period financial information and will recognize any measurement difference between the previous carrying amount and the new carrying amount on November 1, 2017, through an adjustment to opening retained earnings. In January 2015, OSFI issued the final version of the Advisory titled "Early adoption of IFRS 9 Financial Instruments for Domestic Systemically Important Banks". All domestic systemically important banks (D-SIBs), including the Bank, are required to early adopt IFRS 9 for the annual period beginning on November 1, 2017. Consequential amendments were made to IFRS 7 introducing expanded qualitative and quantitative disclosures related to IFRS 9, which are required to be adopted for the annual period beginning on November 1, 2017, when the Bank first applies IFRS 9.

In December 2015, the Basel Committee on Banking Supervision (BCBS) issued "Guidance on credit risk and accounting for expected credit losses" which sets out supervisory guidance on sound credit risk practices associated with the implementation and ongoing application of expected credit loss accounting frameworks. In June 2016, OSFI issued the guideline, "IFRS 9 Financial Instruments and Disclosures", which provides guidance to Federally Regulated Entities on the application of IFRS 9 that is consistent with the BCBS guidance. This guideline, which is effective for the Bank upon adoption of IFRS 9, replaces certain guidelines that were in effect under IAS 39. The adoption of IFRS 9 is a significant initiative for the Bank supported by a formal governance framework and a robust implementation plan.

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 50
 

 

Revenue from Contracts with Customers

In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers (IFRS 15), which establishes the principles for recognizing revenue and cash flows arising from contracts with customers and prescribes the application of a five-step recognition and measurement model. The standard excludes from its scope revenue arising from items such as financial instruments, insurance contracts, and leases. The standard also requires additional qualitative and quantitative disclosures. In July 2015, the IASB confirmed a one-year deferral of the effective date to annual periods beginning on or after January 1, 2018, which will be November 1, 2018 for the Bank, and is to be applied retrospectively. In April 2016, the IASB issued amendments to IFRS 15, which provided additional guidance on the identification of performance obligations, on assessing principal versus agent considerations and on licensing revenue. The amendments also provided additional transitional relief upon initial adoption of IFRS 15 and have the same effective date as the IFRS 15 standard. The Bank is currently assessing the impact of adopting this standard.

 

Leases

In January 2016, the IASB issued IFRS 16, Leases (IFRS 16), which will replace IAS 17, introducing a single lessee accounting model for all leases by eliminating the distinction between operating and financing leases. IFRS 16 requires lessees to recognize right-of-use assets and lease liabilities for most leases. Lessees will also recognize depreciation expense on the right-of-use asset and interest expense on the lease liability in the statement of income. Short-term leases, which are defined as those that have a lease term of 12 months or less and leases of low-value assets are exempt. Lessor accounting remains substantially unchanged. IFRS 16 is effective for annual periods beginning on or after January 1, 2019, which will be November 1, 2019 for the Bank, and is to be applied retrospectively. Early adoption is permitted only if aligned with or after the adoption of IFRS 15. The Bank is currently assessing the impact of adopting IFRS 16.

 

Share-based Payment

In June 2016, the IASB published amendments to IFRS 2, Share-based Payment, which provide additional guidance on the classification and measurement of share-based payment transactions. The amendments clarify the accounting for cash-settled share-based payment transactions that include a performance condition, the classification of share-based payment transactions with net settlement features for withholding tax obligations, and the accounting for modifications of share-based payment transactions from cash-settled to equity-settled. The amendments to IFRS 2 are effective for annual periods beginning on or after January 1, 2018, which will be November 1, 2018 for the Bank, and is to be applied prospectively; however, retrospective application is permitted in certain instances. Early adoption is permitted. The amendments to IFRS 2 are not expected to have a material impact on the Bank.

 

 

NOTE 3: FAIR VALUE MEASUREMENTS  

 

Certain assets and liabilities, primarily financial instruments, are carried on the balance sheet at their fair value on a recurring basis. These financial instruments include trading loans and securities, assets and liabilities designated at fair value through profit or loss, instruments classified as available-for-sale, derivatives, certain securities purchased under reverse repurchase agreements, certain deposits classified as trading, securitization liabilities at fair value, obligations related to securities sold short, and certain obligations related to securities sold under repurchase agreements. All other financial assets and financial liabilities are carried at amortized cost. The fair value of assets and liabilities subsequently not measured at fair value include most loans, deposits, certain securitization liabilities, certain securities purchased under reverse repurchase agreements, obligations relating to securities sold under repurchase agreements, and subordinated notes and debentures. There have been no significant changes to the Bank's approach and methodologies used to determine fair value measurements during the three months ended January 31, 2017. Refer to Note 5 of the 2016 Annual Consolidated Financial Statements for a description of the valuation techniques and inputs used in the fair value measurement of the Bank's financial instruments.

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 51
 

 

Carrying Value and Fair Value of Financial Instruments not carried at Fair Value

The fair values in the following table exclude the value of assets that are not financial instruments, such as land, buildings and equipment, as well as goodwill and other intangible assets, including customer relationships, which are of significant value to the Bank.

 

Financial Assets and Liabilities not carried at Fair Value
(millions of Canadian dollars) As at   
    January 31, 2017    October 31, 2016   
    Carrying  Fair  Carrying  Fair   
    value  value  value  value   
FINANCIAL ASSETS
Cash and due from banks $ 3,748  $ 3,748  $ 3,907  $ 3,907   
Interest-bearing deposits with banks 54,438    54,438    53,714    53,714   
Held-to-maturity securities1 
Government and government-related securities 48,257    48,415    51,290    51,855   
  Other debt securities 29,724    29,590    33,105    33,135   
Total held-to-maturity securities 77,981    78,005    84,395    84,990   
Securities purchased under reverse repurchase agreements 94,690    94,690    84,324    84,324   
Loans 583,790    585,937    584,243    589,080   
Debt securities classified as loans 868    1,020    1,413    1,678   
Total loans 584,658    586,957    585,656    590,758   
Other
Customers' liability under acceptances 11,741    11,741    15,706    15,706   
  Amounts receivable from brokers, dealers, and clients 22,666    22,666    17,436    17,436   
  Other assets 4,612    4,612    4,352    4,352   
Total assets not carried at fair value $ 854,534  $ 856,857  $ 849,490  $ 855,187   
   
FINANCIAL LIABILITIES
Deposits $ 774,534  $ 775,582  $ 773,660    776,161   
Acceptances 11,741    11,741    15,706    15,706   
Obligations related to securities sold under repurchase agreements 55,666    55,666    45,316    45,316   
Securitization liabilities at amortized cost 17,183    17,407    17,918    18,276   
Amounts payable to brokers, dealers, and clients 24,494    24,494    17,857    17,857   
Other liabilities 9,432    9,473    9,229    9,288   
Subordinated notes and debentures   8,394    8,909    10,891    11,331   
Total liabilities not carried at fair value $ 901,444  $ 903,272  $ 890,577  $ 893,935   

1Includes debt securities reclassified from available-for-sale to held-to-maturity. Refer to Note 4 for carrying value and fair value of the reclassified debt securities.

 

Fair Value Hierarchy and Valuation of Assets and Liabilities Classified as Level 3

IFRS requires disclosure of a three-level hierarchy for fair value measurements based upon the observability of inputs to the valuation of an asset or liability as of the measurement date. Refer to Note 5 of the 2016 Annual Consolidated Financial Statements for a description of the three levels.

 

There have been no significant changes to these valuation techniques, unobservable inputs, and sensitivities during the three months ended January 31, 2017. The significant valuation techniques and significant unobservable inputs used in the fair value measurements of Level 3 financial assets and financial liabilities are described and quantified within the "Valuation of Assets and Liabilities Classified as Level 3" section in Note 5 of the 2016 Annual Consolidated Financial Statements. 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 52
 

 

The following table presents the levels within the fair value hierarchy for each of the assets and liabilities measured at fair value on a recurring basis as at January 31, 2017, and October 31, 2016.

 

 

Fair Value Hierarchy for Assets and Liabilities Measured at Fair Value on a Recurring Basis1 
(millions of Canadian dollars) As at 
January 31, 2017  October 31, 2016 
Level 1  Level 2  Level 3  Total2  Level 1  Level 2  Level 3  Total2 
FINANCIAL ASSETS AND COMMODITIES
Trading loans, securities, and other3 
Government and government-related securities
Canadian government debt
Federal $ 377  $ 9,521  $ 26  $ 9,924  $ 70  $ 9,978  $ 34  $ 10,082 
Provinces –    6,502    –    6,502  –    5,678    –    5,678 
U.S. federal, state, municipal governments,
 and agencies debt 7    15,705    –    15,712  724    17,246    –    17,970 
Other OECD government guaranteed debt –    4,951    64    5,015  –    4,424    73    4,497 
Mortgage-backed securities –    1,765    –    1,765  –    1,472    –    1,472 
Other debt securities
Canadian issuers –    3,706    21    3,727  –    2,697    15    2,712 
Other issuers –    7,239    128    7,367  –    7,572    148    7,720 
Equity securities
Common shares 38,073    385    48    38,506  29,054    96    65    29,215 
Preferred shares 29    –    –    29  27    –    –    27 
Trading loans –    11,836    –    11,836  –    11,606    –    11,606 
Commodities 9,674    175    –    9,849  8,071    176    –    8,247 
Retained interests –    –    29    29  –    –    31    31 
  48,160    61,785    316    110,261  37,946    60,945    366    99,257 
Derivatives
Interest rate contracts 8    18,298    –    18,306  4    27,364    –    27,368 
Foreign exchange contracts 60    39,363    7    39,430  44    41,828    9    41,881 
Credit contracts –    9    –    9  –    –    –    – 
Equity contracts 1    1,126    831    1,958  –    1,391    729    2,120 
Commodity contracts 85    846    6    937  51    816    6    873 
154    59,642    844    60,640  99    71,399    744    72,242 
Financial assets designated at
fair value through profit or loss
Securities3  170    4,284    140    4,594  80    4,046    157    4,283 
170    4,284    140    4,594  80    4,046    157    4,283 
Available-for-sale securities
Government and government-related securities
Canadian government debt
Federal –    14,785    –    14,785  –    14,717    –    14,717 
Provinces –    7,732    –    7,732  –    7,851    –    7,851 
U.S. federal, state, municipal governments,
 and agencies debt –    36,800    –    36,800  –    34,473    –    34,473 
Other OECD government guaranteed debt –    16,492    6    16,498  –    15,503    6    15,509 
Mortgage-backed securities –    6,917    –    6,917  –    4,949    –    4,949 
Other debt securities
Asset-backed securities –    19,340    –    19,340  –    18,593    –    18,593 
Non-agency collateralized mortgage obligation portfolio –    684    –    684  –    625    –    625 
Corporate and other debt –    7,875    20    7,895  –    8,266    20    8,286 
Equity securities
Common shares4,5 255    235    1,573    2,063  231    223    1,594    2,048 
Preferred shares 163    –    107    270  88    –    98    186 
Debt securities reclassified from trading –    30    255    285  –    49    279    328 
  418    110,890    1,961    113,269  319    105,249    1,997    107,565 
Securities purchased under reverse
repurchase agreements –    1,699    –    1,699  –    1,728    –    1,728 
FINANCIAL LIABILITIES
Trading deposits $ –  $ 89,220  $ 2,265  $ 91,485  $ –  $ 77,572  $ 2,214  $ 79,786 
Derivatives
Interest rate contracts 9    15,225    77    15,311  3    22,092    95    22,190 
Foreign exchange contracts 34    37,974    3    38,011  16    39,535    5    39,556 
Credit contracts –    246    –    246  –    257    –    257 
Equity contracts –    1,884    1,641    3,525  –    1,351    1,408    2,759 
Commodity contracts 87    751    5    843  75    587    1    663 
   130    56,080    1,726    57,936  94    63,822    1,509    65,425 
Securitization liabilities at fair value –    12,537    –    12,537  –    12,490    –    12,490 
Other financial liabilities designated
at fair value through profit or loss –    13    11    24  –    177    13    190 
Obligations related to securities sold short 3  1,187    29,320    25    30,532  1,396    31,705    14    33,115 
Obligations related to securities sold
under repurchase agreements –    3,672    –    3,672  –    3,657    –    3,657 
1Certain comparative amounts have been restated to conform with the presentation adopted in the current period.
2Fair value is the same as carrying value.
3Balances reflect the reduction of securities owned (long positions) by the amount of identical securities sold but not yet purchased (short positions).
4As at January 31, 2017, the carrying values of certain available-for-sale equity securities of $6 million (October 31, 2016 – $6 million) are assumed to approximate fair value in the absence of quoted market prices in an active market.
5As at January 31, 2017, common shares include the fair value of Federal Reserve Stock and Federal Home Loan Bank stock of $1.3 billion (October 31, 2016 – $1.3 billion) which are redeemable by the issuer at cost for which cost approximates fair value. These securities cannot be traded in the market; hence, these securities have not been subject to sensitivity analysis of Level 3 financial assets and liabilities.
TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 53
 

 

The Bank's policy is to record transfers of assets and liabilities between the different levels of the fair value hierarchy using the fair values as at the end of each reporting period. Assets are transferred between Level 1 and Level 2 depending on if there is sufficient frequency and volume in an active market.

 

There were no significant transfers between Level 1 and Level 2 during the three months ended January 31, 2017 and January 31, 2016.

Movements of Level 3 instruments

Significant transfers into and out of Level 3 occur mainly due to the following reasons:

·Transfers from Level 3 to Level 2 occur when techniques used for valuing the instrument incorporate significant observable market inputs or broker-dealer quotes which were previously not observable.
·Transfers from Level 2 to Level 3 occur when an instrument's fair value, which was previously determined using valuation techniques with significant observable market inputs, is now determined using valuation techniques with significant non-observable inputs.

 

Due to the unobservable nature of the inputs used to value Level 3 financial instruments there may be uncertainty about the valuation of these instruments. The fair value of Level 3 instruments may be drawn from a range of reasonably possible alternatives. In determining the appropriate levels for these unobservable inputs, parameters are chosen so that they are consistent with prevailing market evidence and management judgment.

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 54
 

 

The following tables reconcile changes in fair value of all assets and liabilities measured at fair value using significant Level 3 non-observable inputs for the three months ended January 31, 2017.

 

Reconciliation of Changes in Fair Value for Level 3 Assets and Liabilities1
(millions of Canadian dollars) Total realized and Change in
Fair unrealized gains Fair unrealized
value (losses) Movements Transfers value gains
as at Included as at (losses) on
November 1 in Included Into Out of January 31 instruments
2016 income2 in OCI3 Purchases Issuances Other4 Level 3 Level 3 2017 still held5
FINANCIAL ASSETS    
Trading loans, securities,    
and other    
Government and government-    
related securities    
Canadian government debt    
Federal $ 34  $ (3) $ –  $ 3  $ –  $ (8) $ –  $ –  $ 26  $ (3)
Provinces –    –  –  –    –    –  –    –    –    – 
Other OECD government    
guaranteed debt 73    3  –  13    –    (17) –    (8)   64    (2)
Other debt securities    
Canadian issuers 15    (1) –  9    –    –  –    (2)   21    (1)
Other issuers 148    2  –  57    –    (102) 39    (16)   128    (7)
Equity securities    
Common shares 65    –  –  48    –    (65) –    –    48    – 
Preferred shares –    –  –  –    –    –  –    –    –    – 
Trading loans –    –  –  –    –    –  –    –    –    – 
Commodities –    –  –  –    –    –  –    –    –    – 
Retained interests 31    –  –  –    –    (2) –    –    29    – 
    366    1  –  130    –    (194) 39    (26)   316    (13)
Financial assets designated    
at fair value through    
profit or loss    
Securities 157    (3) –  3    –    (17) –    –    140    (6)
Loans –    –  –  –    –    –  –    –    –    – 
     157    (3) –  3    –    (17) –    –    140    (6)
Available-for-sale securities    
Government and government-    
related securities    
Other OECD government    
  guaranteed debt 6    –  –  –    –    –  –    –    6    – 
Other debt securities    
Asset-backed securities –    –  –  –    –    –  –    –    –    – 
Corporate and other debt   20    –  –  –    –    –  –    –    20    – 
Equity securities    
Common shares 1,594    6  7  23    –    (57) –    –    1,573    7 
Preferred shares 98    –  9  –    –    –  –    –    107    10 
Debt securities reclassified    
from trading 279    (10) (11) –    –    (2) –    (1)   255    (11)
  $ 1,997  $ (4) $ 5  $ 23  $ –  $ (59) $ –  $ (1) $ 1,961  $ 6 
                   
Total realized and Change in
Fair unrealized losses Fair unrealized
value (gains) Movements Transfers value gains
as at Included as at (losses) on
November 1 in Included Into Out of January 31 instruments
2016 income2 in OCI3 Purchases Issuances Other4 Level 3 Level 3 2017 still held
FINANCIAL LIABILITIES    
Trading deposits6  $ 2,214  $ 68  $ –  $ (351) $ 426  $ (125) $ 33  $ –  $ 2,265  $ 69 
Derivatives7     
Interest rate contracts   95    (17) –  –    –    (1) –    –    77    (12)
Foreign exchange contracts (4)   1  –  –    –    –  (1)   –    (4)   – 
Credit contracts –    –  –  –    –    –  –    –    –    – 
Equity contracts 679    152  –  (21)   48    (48) –    –    810    152 
Commodity contracts (5)   1  –  –    –    2  –    1    (1)   1 
  765    137  –  (21)   48    (47) (1)   1    882    141 
Other financial liabilities    
designated at fair value    
through profit or loss   13    30  –  –    25    (57) –    –    11    15 
Obligations related to    
securities sold short $ 14  $ –  $ –  $  (14) $ –  $ 25  $ –  $ –  $ 25  $ – 
1Certain comparative amounts have been restated to conform with the presentation adopted in the current period.
2Gains (losses) on financial assets and liabilities are recognized in Net securities gains (losses), Trading income (loss), and Other income (loss) on the Interim Consolidated Statement of Income.
3Other comprehensive income (OCI).
4Consists of sales, settlements, and foreign exchange.
5Changes in unrealized gains (losses) on available-for-sale securities are recognized in accumulated other comprehensive income (AOCI).
6Issuances and repurchases of trading deposits are reported on a gross basis.
7As at January 31, 2017, consists of derivative assets of $0.8 billion (November 1, 2016 – $0.7 billion) and derivative liabilities of $1.7 billion (November 1, 2016 – $1.5 billion), which have been netted on this table for presentation purposes only.
TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 55
 

 

Reconciliation of Changes in Fair Value for Level 3 Assets and Liabilities    
(millions of Canadian dollars) Total realized and Change in
Fair unrealized gains Fair unrealized
value (losses) Movements Transfers   value gains
as at Included as at (losses) on
November 1 in Included Into Out of January 31 instruments
2015 income1 in OCI Purchases Issuances Other2 Level 3 Level 3 2016 still held3
FINANCIAL ASSETS
Trading loans, securities,
and other
Government and government-
related securities
Canadian government debt
Provinces $ 24  $ 1  $ –  $ 38  $ –  $ 1  $ –  $ –  $ 64  $ 2 
Other OECD government   
guaranteed debt 5    –  –  1    –    –  –    (5)   1    – 
Other debt securities   
Canadian issuers 57    –  –  8    –    (42) –    (1)   22    (2)
Other issuers 191    3  –  32    –    (34) 113    (44)   261    8 
Equity securities   
Common shares 186    –  –  3    –    (186) –    –    3    – 
Preferred shares 5    –  –  26    –    (5) –    –    26    – 
Retained interests 38    –  –  –    –    (2) –    –    36    1 
    506    4  –  108    –    (268) 113    (50)   413    9 
Financial assets designated   
at fair value through   
profit or loss   
Securities –    –  –  90    –    –  –    –    90    – 
     –    –  –  90    –    –  –    –    90    – 
Available-for-sale securities   
Government and government-   
related securities   
Other OECD government   
  guaranteed debt 7    –  –  –    –    –  –    –    7    – 
Other debt securities   
Asset-backed securities 501    –  –  –    –    (501) –    –    –    – 
Corporate and other debt   147    1  6  –    –    (3) –    (73)   78    2 
Equity securities   
Common shares 1,575    24  (21) 26    –    52  –    –    1,656    (13)
Preferred shares 94    (16) 4  –    –    –  –    –    82    4 
Debt securities reclassified   
from trading 282    8  15  –    –    (2) –    (16)   287    14 
  $ 2,606  $ 17  $ 4  $ 26  $ –  $ (454) $ –  $ (89) $ 2,110  $ 7 
                   
Total realized and Change in
Fair unrealized losses Fair unrealized
value (gains) Movements Transfers value gains
as at Included as at (losses) on
November 1 in Included Into Out of January 31 instruments
2015 income1 in OCI Purchases Issuances Other2 Level 3 Level 3 2016 still held3
FINANCIAL LIABILITIES
Trading deposits4  $ 1,880  $ (32) $ –  $ (66) $ 242  $ (55) $ (12) $ –  $ 1,957  $ (33)
Derivatives5    
Interest rate contracts   88    (3) –  –    –    1  –    –    86    1 
Foreign exchange contracts (1)   (7) –  –    –    (2) –    –    (10)   (8)
Credit contracts (4)   3  –  –    –    1  –    –    –    4 
Equity contracts 397    (16) –  (26)   55    (47) –    –    363    (16)
Commodity contracts 3    5  –  –    –    (6) (1)   –    1    2 
  483    (18) –  (26)   55    (53) (1)   –    440    (17)
Other financial liabilities   
designated at fair value   
through profit or loss   13    (18) –  –    21    (11) –    –    5    (13)
Obligations related to   
securities sold short $ 59  $ –  $ –  $ (59) $ –  $ 18  $ –  $ –  $ 18  $ – 
1Gains (losses) on financial assets and liabilities are recognized in Net securities gains (losses), Trading income (loss), and Other income (loss) on the Interim Consolidated Statement of Income.
2Consists of sales, settlements, and foreign exchange.
3Changes in unrealized gains (losses) on available-for-sale securities are recognized in AOCI.
4Beginning February 1, 2016, issuances and repurchases of trading deposits are reported on a gross basis.
5As at January 31, 2016, consists of derivative assets of $0.5 billion (November 1, 2015 – $0.6 billion) and derivative liabilities of $1.0 billion (November 1, 2015 – $1.1 billion), which have been netted on this table for presentation purposes only.
TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 56
 

 

FINANCIAL ASSETS AND LIABILITIES Designated at Fair Value

Securities Designated at Fair Value through Profit or Loss

Certain securities supporting insurance reserves within the Bank's insurance underwriting subsidiaries have been designated at fair value through profit or loss. The actuarial valuation of the insurance reserve is measured using a discount factor which is based on the yield of the supporting invested assets, with changes in the discount factor being recognized on the Interim Consolidated Statement of Income. The unrealized gain or loss on securities designated at fair value through profit or loss is recognized on the Interim Consolidated Statement of Income in the same period as gains or losses resulting from changes to the discount rate used to value the insurance liabilities.

In addition, certain debt securities are managed on a fair value basis, or are economically hedged with derivatives as doing so eliminates or significantly reduces an accounting mismatch. As a result, these debt securities have been designated at fair value through profit or loss. The derivatives are carried at fair value, with the change in fair value recognized in non-interest income.

 

Other Liabilities Designated at Fair Value through Profit or Loss

Certain deposits and loan commitments issued to customers to provide a mortgage at a fixed rate have been designated at fair value through profit or loss. These deposits and commitments are economically hedged with derivatives and other financial instruments where the changes in fair value are recognized in non-interest income. The designation of these deposits and loan commitments at fair value through profit or loss eliminates an accounting mismatch that would otherwise arise.

The contractual maturity amounts for the deposits designated at fair value through profit or loss were not significantly more than the respective carrying amounts as at January 31, 2017 and October 31, 2016. As at January 31, 2017 and October 31, 2016, the respective fair value of deposits designated at fair value through profit or loss include insignificant amounts of the Bank's own credit risk. Due to the short-term nature of the loan commitments, changes in the Bank's own credit do not have a significant impact on the determination of fair value.

 

Income (Loss) from Changes in Fair Value of Financial Assets and Liabilities Designated at Fair Value through Profit or Loss

During the three months ended January 31, 2017, the income (loss) representing net changes in the fair value of financial assets and liabilities designated at fair value through profit or loss was $(112) million (three months ended January 31, 2016 – $(5) million).

 

 

NOTE 4: SECURITIES  

 

RECLASSIFICATION OF CERTAIN DEBT SECURITIES – TRADING TO AVAILABLE-FOR-SALE

During 2008, the Bank changed its trading strategy with respect to certain debt securities as a result of deterioration in markets and severe dislocation in the credit market. These debt securities were initially recorded as trading securities measured at fair value with any changes in fair value as well as any gains or losses realized on disposal recognized in trading income. Since the Bank no longer intended to actively trade in these debt securities, the Bank reclassified these debt securities from trading to available-for-sale effective August 1, 2008.

The fair value of the reclassified debt securities was $285 million as at January 31, 2017 (October 31, 2016 – $328 million). For the three months ended January 31, 2017, net interest income of $3 million after tax (three months ended January 31, 2016 – $6 million after tax) was recorded relating to the reclassified debt securities. The decrease in fair value of these securities during the three months ended January 31, 2017, of $13 million after tax (three months ended January 31, 2016 – decrease of $23 million after tax) was recorded in OCI. Had the Bank not reclassified these debt securities, the change in the fair value of these debt securities would have been included as part of trading income, the impact of which would have resulted in a decrease in net income for the three months ended January 31, 2017, of $13 million after tax (three months ended January 31, 2016 – decrease in net income of $23 million after tax). During the three months ended January 31, 2017, reclassified debt securities with a fair value of $19 million (three months ended January 31, 2016 – $47 million) were sold or matured, and $0.3 million after tax was recorded in net securities gains during the three months ended January 31, 2017 (three months ended January 31, 2016 – $0.4 million).

 

RECLASSIFICATIONS OF CERTAIN DEBT SECURITIES – AVAILABLE-FOR-SALE TO HELD-TO-MATURITY

The Bank has reclassified certain debt securities from available-for-sale to held-to-maturity. For these debt securities, the Bank's strategy is to earn the yield to maturity to aid in prudent capital management under Basel III. These debt securities were previously recorded at fair value, with changes in fair value recognized in OCI. Subsequent to the date of reclassification, the net unrealized gain or loss recognized in AOCI is amortized to interest income over the remaining life of the reclassified debt securities using the effective interest rate method (EIRM). The reclassifications are non-cash transactions that are excluded from the Interim Consolidated Statement of Cash Flows.

 

The Bank has completed the following reclassifications.

 

Reclassifications from Available-for-Sale to Held-to-Maturity Securities  
(millions of Canadian dollars, except as noted)                      
    January 31, 2017 October 31, 2016 As at the reclassification date  
                    Weighted-Average     Undiscounted  
    Amount   Fair   Carrying   Fair   Carrying effective interest     recoverable  
Reclassification Date reclassified   value   value   value   value rate     cash flows  
March 1, 2013 $ 11,084  $ 1,402  $ 1,395  $ 1,618  $ 1,605  1.8  % $ 11,341   
September 23, 2013 9,854    6,394    6,361    7,022    6,934  1.9      10,742   
November 1, 2013 21,597    16,619    16,637    20,339    20,401  1.1      24,519   
Other reclassifications1  8,342    7,895    7,990    8,607    8,577  2.5      9,490   
1Represents reclassifications completed during the years ended October 31, 2016 and October 31, 2015.
TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 57
 

 

Had the Bank not reclassified these debt securities, the change in the fair value recognized in OCI for these debt securities would have been a decrease of $126 million during the three months ended January 31, 2017 (three months ended January 31, 2016 – a decrease of $2 million). After the reclassification, the debt securities contributed the following amounts to net income.

 

(millions of Canadian dollars) For the three months ended  
   January 31, 2017   January 31, 2016  
Net interest income1  $ 152    $ 157   
Provision for (recovery of) income taxes   59      59   
Net income $ 93    $ 98   
1Includes amortization of net unrealized loss of $2 million during the three months ended January 31, 2017 (three months ended January 31, 2016 – net unrealized gains of $9 million), associated with these reclassified held-to-maturity securities that is presented as reclassification to earnings of net losses in respect of available-for-sale securities on the Interim Consolidated Statement of Comprehensive Income. The impact of this amortization on net interest income is offset by the amortization of the corresponding net reclassification premium on these debt securities.

 

Unrealized Securities Gains (Losses)

The following table summarizes the unrealized gains and losses as at January 31, 2017, and October 31, 2016.

 

Unrealized Securities Gains (Losses) for Available-for-Sale Securities
(millions of Canadian dollars) As at 
January 31, 2017  October 31, 2016 
Cost/  Gross    Gross      Cost/  Gross    Gross     
amortized  unrealized  unrealized    Fair  amortized  unrealized  unrealized    Fair 
cost1  gains    (losses)    value2  cost1  gains    (losses)    value2 
Available-for-sale securities
Government and government-related
securities
Canadian government debt
Federal $ 14,763  $ 45  $ (23) $ 14,785  $ 14,671  $ 62  $ (16) $ 14,717 
Provinces 7,753  23    (44)   7,732  7,871  29    (49)   7,851 
U.S. federal, state, municipal governments, and
 agencies debt 36,640  228    (68)   36,800  34,377  176    (80)   34,473 
Other OECD government guaranteed debt 16,525  29    (56)   16,498  15,574  13    (78)   15,509 
Mortgage-backed securities 6,893  32    (8)   6,917  4,916  37    (4)   4,949 
82,574  357    (199)   82,732  77,409  317    (227)   77,499 
Other debt securities
Asset-backed securities 19,350  71    (81)   19,340  18,665  57    (129)   18,593 
Non-agency collateralized mortgage obligation
 portfolio 681  3    –    684  624  1    –    625 
Corporate and other debt 7,847  69    (21)   7,895  8,229  83    (26)   8,286 
27,878  143    (102)   27,919  27,518  141    (155)   27,504 
Equity securities
Common shares 1,917  167    (15)   2,069  1,934  134    (14)   2,054 
Preferred shares 232  38    –    270  168  18    –    186 
2,149  205    (15)   2,339  2,102  152    (14)   2,240 
Debt securities reclassified from trading 271  14    –    285  301  27    –    328 
Total available-for-sale securities $ 112,872  $ 719  $ (316) $ 113,275  $ 107,330  $ 637  $ (396) $ 107,571 
1Includes the foreign exchange translation of amortized cost balances at the period-end spot rate.
2As at January 31, 2017, the carrying values of certain available-for-sale equity securities of $6 million (October 31, 2016 – $6 million) are carried at cost in the absence of quoted market prices in an active market and are included in the table above.

 

Securities Gains (Losses)

During the three months ended January 31, 2017, the net realized gains (losses) on available-for-sale securities were $22 million (three months ended January 31, 2016 – $9 million) and on held-to-maturity securities were $(8) million (three months ended January 31, 2016 – nil). During the first quarter of 2017, the Bank sold certain held-to-maturity securities, with an amortized cost of $460 million, due to significant external credit ratings deterioration, resulting in a significant increase in the Bank's risk-weighted assets. Impairment losses on available-for-sale securities for the three months ended January 31, 2017, were nil (three months ended January 31, 2016 – $21 million). None of these impairment losses related to debt securities in the reclassified portfolio as described in the Reclassification of Certain Debt Securities – Trading to Available-For-Sale section of this Note.

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 58
 
NOTE 5: LOANS, IMPAIRED LOANS, AND ALLOWANCE FOR CREDIT LOSSES  

 

The following table presents the Bank's loans, impaired loans, and related allowance for loan losses.

 

Loans, Impaired Loans, and Allowance for Loan Losses
(millions of Canadian dollars) As at   
  January 31, 2017   
  Gross loans    Allowance for loan losses1 
Neither          Individually Incurred    Total 
past due  Past due      Counter-  insignificant but not  allowance
nor  but not      party  impaired  identified  for loan  Net   
  impaired  impaired  Impaired2  Total  specific  loans  loan losses    losses  loans   
Residential mortgages3,4,5 $ 212,002  $ 2,463  $ 843  $ 215,308  $ –  $ 47  $ 43  $ 90  $ 215,218   
Consumer instalment and other personal6  136,778    6,094    1,405  144,277    –    163    655    818  143,459   
Credit card 29,663    1,753    398  31,814    –    312    960    1,272  30,542   
Business and government3,4,5 192,432    1,981    753  195,166    157    30    1,219    1,406  193,760   
  $ 570,875  $ 12,291  $ 3,399  $ 586,565  $ 157  $ 552  $ 2,877  $ 3,586  $ 582,979   
Debt securities classified as loans 1,036    135    –    33    168  868   
Acquired credit-impaired loans 872    4    57    –    61  811   
Total             $ 588,473  $ 296  $ 609  $ 2,910  $ 3,815  $ 584,658   
 
   October 31, 2016   
Residential mortgages3,4,5 $ 213,586  $ 2,523  $ 852  $ 216,961  $ –  $ 49  $ 48  $ 97  $ 216,864   
Consumer instalment and other personal6  136,650    6,390    1,392  144,432    –    166    656    822  143,610   
Credit card 29,715    1,825    374  31,914    –    290    924    1,214  30,700   
Business and government3,4,5 191,229    1,454    891  193,574    189    30    1,198    1,417  192,157   
  $ 571,180  $ 12,192  $ 3,509  $ 586,881  $ 189  $ 535  $ 2,826  $ 3,550  $ 583,331   
Debt securities classified as loans 1,674    206    –    55    261  1,413   
Acquired credit-impaired loans 974    4    58    –    62  912   
Total             $ 589,529  $ 399  $ 593  $ 2,881  $ 3,873  $ 585,656   
1Excludes allowance for off-balance sheet positions.
2As at January 31, 2017, impaired loans exclude $0.6 billion (October 31, 2016 – $1.1 billion) of gross impaired debt securities classified as loans.
3Excludes trading loans with a fair value of $12 billion as at January 31, 2017 (October 31, 2016 – $12 billion), and amortized cost of $11 billion as at January 31, 2017 (October 31, 2016 – $11 billion).
4Includes insured mortgages of $115 billion as at January 31, 2017 (October 31, 2016 – $118 billion).
5As at January 31, 2017, impaired loans with a balance of $172 million did not have a related allowance for loan losses (October 31, 2016 – $448 million). An allowance was not required for these loans as the balance relates to loans that are insured or loans where the realizable value of the collateral exceeded the loan amount.
6Includes Canadian government-insured real estate personal loans of $17 billion as at January 31, 2017 (October 31, 2016 – $18 billion).

 

FORECLOSED ASSETS

Foreclosed assets are repossessed non-financial assets where the Bank gains title, ownership, or possession of individual properties, such as real estate properties, which are managed for sale in an orderly manner with the proceeds used to reduce or repay any outstanding debt. The Bank does not generally occupy foreclosed properties for its business use. The Bank predominantly relies on third-party appraisals to determine the carrying value of foreclosed assets. Foreclosed assets held for sale were $106 million as at January 31, 2017 (October 31, 2016 – $106 million), and were recorded in Other assets on the Interim Consolidated Balance Sheet.

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 59
 

 

The changes to the Bank's allowance for credit losses, as at and for the three months ended January 31, are shown in the following tables.

 

Allowance for Credit Losses
(millions of Canadian dollars)                   Foreign 
Balance as at  Provision            exchange  Balance as at 
    November 1  for credit        and other  January 31 
    2016  losses  Write-offs  Recoveries  Disposals  adjustments  2017 
Counterparty-specific allowance
Business and government $ 189  $ (36) $ (8) $ 16  $ –  $ (4) $ 157 
Debt securities classified as loans 206    –    (3)   –    (63)   (5) 135 
Total counterparty-specific allowance excluding
acquired credit-impaired loans 395    (36)   (11)   16    (63)   (9) 292 
Acquired credit-impaired loans1,2 4    (1)   –    11    –    (10) 4 
Total counterparty-specific allowance   399    (37)   (11)   27    (63)   (19) 296 
Collectively assessed allowance for
individually insignificant impaired loans
Residential mortgages 49    6    (10)   4    –    (2) 47 
Consumer instalment and other personal 166    214    (282)   68    –    (3) 163 
Credit card 290    306    (333)   56    –    (7) 312 
Business and government 30    15    (23)   8    –    –  30 
Total collectively assessed allowance for
individually insignificant impaired loans
excluding acquired credit-impaired loans 535    541    (648)   136    –    (12) 552 
Acquired credit-impaired loans1,2 58    (2)   (1)   1    –    1  57 
Total collectively assessed allowance for
individually insignificant impaired loans 593    539    (649)   137    –    (11) 609 
Collectively assessed allowance for incurred
but not identified credit losses
Residential mortgages 48    (4)   –    –    –    (1) 43 
Consumer instalment and other personal 685    11    –    –    –    (10) 686 
Credit card 1,169    60    –    –    –    (22) 1,207 
Business and government 1,424    63    –    –    –    (30) 1,457 
Debt securities classified as loans 55    1    –    –    (20)   (3) 33 
Total collectively assessed allowance for
incurred but not identified credit losses 3,381    131    –    –    (20)   (66) 3,426 
Allowance for credit losses
Residential mortgages 97    2    (10)   4    –    (3) 90 
Consumer instalment and other personal 851    225    (282)   68    –    (13) 849 
Credit card 1,459    366    (333)   56    –    (29) 1,519 
Business and government 1,643    42    (31)   24    –    (34) 1,644 
Debt securities classified as loans 261    1    (3)   –    (83)   (8) 168 
Total allowance for credit losses excluding
 acquired credit-impaired loans 4,311    636    (659)   152    (83)   (87) 4,270 
Acquired credit-impaired loans1,2 62    (3)   (1)   12    –    (9) 61 
Total allowance for credit losses 4,373    633    (660)   164    (83)   (96) 4,331 
Less: Allowance for off-balance sheet positions3  500    25    –    –    –    (9) 516 
Allowance for loan losses $ 3,873  $ 608  $ (660) $ 164  $ (83) $ (87) $ 3,815 
1Includes all Federal Deposit Insurance Corporation (FDIC) covered loans and other acquired credit-impaired (ACI) loans.
2Other adjustments are required as a result of the accounting for FDIC covered loans. For additional information, refer to the "FDIC Covered Loans" section in this Note.
3The allowance for credit losses for off-balance sheet positions is recorded in Other liabilities on the Interim Consolidated Balance Sheet.

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 60
 

 

Allowance for Credit Losses
(millions of Canadian dollars)                   Foreign     
  Balance as at  Provision            exchange  Balance as at 
  November 1  for credit        and other    January 31 
  2015  losses  Write-offs  Recoveries  Disposals  adjustments    2016 
Counterparty-specific allowance
Business and government $ 156  $ 4  $ (6) $ 9  $ –  $ 5  $ 168 
Debt securities classified as loans 207    5    (4)   –    –    14    222 
Total counterparty-specific allowance excluding
   acquired credit-impaired loans 363    9    (10)   9    –    19    390 
Acquired credit-impaired loans1,2 6    (2)   –    4    –    (2)   6 
Total counterparty-specific allowance   369    7    (10)   13    –    17    396 
Collectively assessed allowance for
   individually insignificant impaired loans
Residential mortgages 47    (5)   (10)   3    –    2    37 
Consumer instalment and other personal 136    175    (241)   69    –    4    143 
Credit card 217    276    (294)   71    –    7    277 
Business and government 28    16    (25)   10    –    2    31 
Total collectively assessed allowance for
   individually insignificant impaired loans
   excluding acquired credit-impaired loans 428    462    (570)   153    –    15    488 
Acquired credit-impaired loans1,2 77    (5)   (1)   3    –    6    80 
Total collectively assessed allowance for
   individually insignificant impaired loans 505    457    (571)   156    –    21    568 
Collectively assessed allowance for incurred
   but not identified credit losses
Residential mortgages 58    12    –    –    –    3    73 
Consumer instalment and other personal 657    25    –    –    –    26    708 
Credit card 1,029    48    –    –    –    40    1,117 
Business and government 1,072    97    –    –    –    50    1,219 
Debt securities classified as loans 57    (4)   –    –    –    4    57 
Total collectively assessed allowance for
   incurred but not identified credit losses 2,873    178    –    –    –    123    3,174 
Allowance for credit losses
Residential mortgages 105    7    (10)   3    –    5    110 
Consumer instalment and other personal 793    200    (241)   69    –    30    851 
Credit card 1,246    324    (294)   71    –    47    1,394 
Business and government 1,256    117    (31)   19    –    57    1,418 
Debt securities classified as loans 264    1    (4)   –    –    18    279 
Total allowance for credit losses excluding
   acquired credit-impaired loans 3,664    649    (580)   162    –    157    4,052 
Acquired credit-impaired loans1,2 83    (7)   (1)   7    –    4    86 
Total allowance for credit losses 3,747    642    (581)   169    –    161    4,138 
Less: Allowance for off-balance sheet positions3  313    88    –    –    –    11    412 
Allowance for loan losses $ 3,434  $ 554  $ (581) $ 169  $ –  $ 150  $ 3,726 
1Includes all FDIC covered loans and other ACI loans.
2Other adjustments are required as a result of the accounting for FDIC covered loans. For additional information, refer to the "FDIC Covered Loans" section in this Note.
3The allowance for credit losses for off-balance sheet positions is recorded in Other liabilities on the Interim Consolidated Balance Sheet.

 

LOANS PAST DUE BUT NOT IMPAIRED

A loan is classified as past due when a borrower has failed to make a payment by the contractual due date. The following table summarizes loans that are contractually past due but not impaired as at January 31, 2017, and October 31, 2016.

 

Loans Past Due but not Impaired1 
(millions of Canadian dollars) As at   
  January 31, 2017    October 31, 2016   
  1-30    31-60    61-89        1-30    31-60    61-89       
  days  days  days  Total  days  days  days  Total   
Residential mortgages $  1,833  $  453  $  177  $  2,463  $ 1,876  $ 486  $ 161  $ 2,523   
Consumer instalment and other personal  5,133     738     223     6,094    5,364    812    214    6,390   
Credit card  1,260     306     187     1,753    1,340    303    182    1,825   
Business and government  1,797     110     74     1,981    1,270    138    46    1,454   
Total $  10,023  $  1,607  $  661  $  12,291  $ 9,850  $ 1,739  $ 603  $ 12,192   
1Excludes all ACI loans and debt securities classified as loans.
TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 61
 

 

COLLATERAL

As at January 31, 2017, the fair value of financial collateral held against loans that were past due but not impaired was $362 million (October 31, 2016 – $455 million). In addition, the Bank also holds non-financial collateral as security for loans. The fair value of non-financial collateral is determined at the origination date of the loan. A revaluation of non-financial collateral is performed if there has been a significant change in the terms and conditions of the loan and/or the loan is considered impaired. Management considers the nature of the collateral, seniority ranking of the debt, and loan structure in assessing the value of collateral. These estimated cash flows are reviewed at least annually, or more frequently when new information indicates a change in the timing or amount expected to be received.

 

ACQUIRED CREDIT-IMPAIRED LOANS

ACI loans contain commercial, retail, and FDIC covered loans originating from the South Financial and FDIC-assisted acquisitions. Outstanding unpaid principal balances were $6.3 billion and $2.1 billion and related fair values at acquisition date were $5.6 billion and $1.9 billion, respectively.

 

Acquired Credit-Impaired Loans1 
(millions of Canadian dollars) As at   
  January 31  October 31   
  2017  2016   
FDIC-assisted acquisitions
Unpaid principal balance2  $ 461  $ 508   
Credit related fair value adjustments3  (10)   (11)  
Interest rate and other related premium/(discount) (16)   (17)  
Carrying value 435    480   
Counterparty-specific allowance4  (1)   (1)  
Allowance for individually insignificant impaired loans4  (33)   (35)  
Carrying value net of related allowance – FDIC-assisted acquisitions5  401    444   
South Financial
Unpaid principal balance2    470    529   
Credit related fair value adjustments3  (14)   (15)  
Interest rate and other related premium/(discount) (19)   (20)  
Carrying value 437    494   
Counterparty-specific allowance4  (3)   (3)  
Allowance for individually insignificant impaired loans4  (24)   (23)  
Carrying value net of related allowance – South Financial 410    468   
Total carrying value net of related allowance – Acquired credit-impaired loans $ 811  $ 912   
1Certain comparative amounts have been reclassified to conform with the presentation adopted in the current period.
2Represents contractual amount owed net of charge-offs since the acquisition of the loan.
3Credit related fair value adjustments include incurred credit losses on acquisition and are not accreted to interest income.
4Management concluded as part of the Bank's assessment of the ACI loans that it was probable that higher than estimated principal credit losses would result in a decrease in expected cash flows subsequent to acquisition. As a result, counterparty-specific and individually insignificant allowances have been recognized.
5Carrying value does not include the effect of the FDIC loss sharing agreement.

 

FDIC COVERED LOANS

As at January 31, 2017, the balance of FDIC covered loans was $435 million (October 31, 2016 – $480 million) and was recorded in Loans on the Interim Consolidated Balance Sheet. As at January 31, 2017, the balance of indemnification assets was $20 million (October 31, 2016 – $22 million) and was recorded in Other assets on the Interim Consolidated Balance Sheet.

 

 

NOTE 6: TRANSFERS OF FINANCIAL ASSETS  

 

LOAN SECURITIZATIONS

The Bank securitizes loans through structured entity or non-structured entity third parties. Most loan securitizations do not qualify for derecognition since in certain circumstances, the Bank continues to be exposed to substantially all of the prepayment, interest rate, and/or credit risk associated with the securitized financial assets and has not transferred substantially all of the risk and rewards of ownership of the securitized assets. Where loans do not qualify for derecognition, they are not derecognized from the balance sheet, retained interests are not recognized, and a securitization liability is recognized for the cash proceeds received. Certain transaction costs incurred are also capitalized and amortized using the EIRM.

The Bank securitizes insured residential mortgages under the National Housing Act Mortgage-Backed Securities (NHA MBS) program sponsored by the Canada Mortgage and Housing Corporation (CMHC). The MBS that are created through the NHA MBS program are sold to the Canada Housing Trust (CHT) as part of the Canada Mortgage Bonds (CMB) program, sold to third-party investors, or are held by the Bank. The CHT issues CMB to third-party investors and uses resulting proceeds to purchase NHA MBS from the Bank and other mortgage issuers in the Canadian market. Assets purchased by the CHT are comingled in a single trust from which CMB are issued. The Bank continues to be exposed to substantially all of the risks of the underlying mortgages, through the retention of a seller swap which transfers principal and interest payment risk on the NHA MBS back to the Bank in return for coupon paid on the CMB issuance and as such, the sales do not qualify for derecognition.

The Bank securitizes U.S. originated residential mortgages with U.S. government agencies which qualify for derecognition from the Bank's Interim Consolidated Balance Sheet. As part of the securitization, the Bank retains the right to service the transferred mortgage loans. The MBS that are created through the securitization are typically sold to third-party investors.

The Bank also securitizes personal loans and business and government loans to entities which may be structured entities. These securitizations may give rise to derecognition of the financial assets depending on the individual arrangement of each transaction.

The Bank transfers credit card receivables, consumer instalment and other personal loans to structured entities that the Bank consolidates. Refer to Note 7 for further details.

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 62
 

 

The following table summarizes the securitized asset types that did not qualify for derecognition, along with their associated securitization liabilities.

 

Financial Assets Not Qualifying for Derecognition Treatment as Part of the Bank's Securitization Programs  
(millions of Canadian dollars) As at   
  January 31, 2017  October 31, 2016   
  Fair  Carrying  Fair  Carrying   
  value  amount  value  amount   
Nature of transaction
Securitization of residential mortgage loans $  26,896  $  26,782  $ 26,930  $ 26,742   
Other financial assets transferred related to securitization1   3,089     3,089    3,342    3,342   
Total    29,985     29,871     30,272     30,084   
Associated liabilities2  $  (29,944) $  (29,720) $  (30,766) $  (30,407)  
1Includes asset-backed securities, asset-backed commercial paper, cash, repurchase agreements, and Government of Canada securities used to fulfill funding requirements of the Bank's securitization structures after the initial securitization of mortgage loans.
2Includes securitization liabilities carried at amortized cost of $17 billion as at January 31, 2017 (October 31, 2016 – $18 billion), and securitization liabilities carried at fair value of $13 billion as at January 31, 2017 (October 31, 2016 – $12 billion).

 

Other Financial Assets Not Qualifying for Derecognition

The Bank enters into certain transactions where it transfers previously recognized commodities and financial assets, such as, debt and equity securities, but retains substantially all of the risks and rewards of those assets. These transferred assets are not derecognized and the transfers are accounted for as financing transactions. The most common transactions of this nature are repurchase agreements and securities lending agreements, in which the Bank retains substantially all of the associated credit, price, interest rate, and foreign exchange risks and rewards associated with the assets.

 

The following table summarizes the carrying amount of financial assets and the associated transactions that did not qualify for derecognition, as well as their associated financial liabilities.

 

Other Financial Assets Not Qualifying for Derecognition1           
(millions of Canadian dollars)   As at   
   January 31  October 31   
   2017  2016   
Carrying amount of assets          
Nature of transaction          
Repurchase agreements2,3 $ 17,308  $ 18,449   
Securities lending agreements   21,298    15,887   
Total     38,606    34,336   
Carrying amount of associated liabilities3  $ 16,992  $ 17,700   
1Certain comparative amounts have been restated to conform with the presentation adopted in the current period.
2Includes $3.7 billion, as at January 31, 2017 (October 31, 2016 – $3.7 billion), of assets related to repurchase agreements or swaps that are collateralized by physical precious metals.
3Associated liabilities are all related to repurchase agreements.

 

TRANSFERS OF FINANCIAL ASSETS QUALIFYING FOR DERECOGNITION

Transferred financial assets that are derecognized in their entirety where the Bank has a continuing involvement

Continuing involvement may arise if the Bank retains any contractual rights or obligations subsequent to the transfer of financial assets. Certain business and government loans securitized by the Bank are derecognized from the Bank's Interim Consolidated Balance Sheet. In instances where the Bank fully derecognizes business and government loans, the Bank may be exposed to the risks of transferred loans through a retained interest. As at January 31, 2017, the fair value of retained interests was $29 million (October 31, 2016 – $31 million). There are no expected credit losses on the retained interests of the securitized business and government loans as the underlying mortgages are all government insured. A gain or loss on sale of the loans is recognized immediately in other income after considering the effect of hedge accounting on the assets sold, if applicable. The amount of the gain or loss recognized depends on the previous carrying values of the loans involved in the transfer, allocated between the assets sold and the retained interests based on their relative fair values at the date of transfer. For the three months ended January 31, 2017, the trading income recognized on the retained interest was nil (three months ended January 31, 2016 – $1 million).

Certain portfolios of U.S. residential mortgages originated by the Bank are sold and derecognized from the Bank's Interim Consolidated Balance Sheet. In certain instances, the Bank has a continuing involvement to service those loans. As at January 31, 2017, the carrying value of these servicing rights was $26 million (October 31, 2016 – $25 million) and the fair value was $35 million (October 31, 2016 – $28 million). A gain or loss on sale of the loans is recognized immediately in other income. The gain (loss) on sale of the loans for the three months ended January 31, 2017, was $6 million (three months ended January 31, 2016 – $3 million).

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 63
 

 

NOTE 7: STRUCTURED ENTITIES  

 

A structured entity is typically created to accomplish a narrow, well-defined objective and may take the form of a corporation, trust, partnership, or unincorporated entity. The Bank uses structured entities for a variety of purposes including: (1) to facilitate the transfer of specified risks to clients; (2) as financing vehicles for itself or for clients; or (3) to segregate assets on behalf of investors. The Bank is typically restricted from accessing the assets of the structured entity under the relevant arrangements.

Legal restrictions often impose limits on the decision-making power that the entity's governing board, trustee, or management have over the economic activities of the entity. Control over structured entities is not typically determined on the basis of voting rights as any such voting rights may not confer substantive power over the key economic activities of the entity. As a result, structured entities are consolidated when the substance of the relationship between the Bank and the entity indicates that the entity is controlled by the Bank, in accordance with the Bank's accounting policy.

The Bank is involved with structured entities that it sponsors as well as entities sponsored by third-parties. Sponsorship of a structured entity may indicate that the Bank had power over the entity at inception; however, this is not sufficient to determine if the Bank consolidates the entity. Regardless of whether or not the Bank sponsors an entity, consolidation is determined on a case-by-case basis.

As disclosed in Note 18, the TD Mortgage Fund (the "Fund") was discontinued and merged with another mutual fund managed by the Bank on April 22, 2016. Other than the discontinuation of the Fund, the Bank's involvement with key sponsored structured entities and third-party structured entities has not changed from that described in the Bank's 2016 Annual Report. Refer to Note 10 of the Bank's 2016 Annual Consolidated Financial Statements for further discussion.

 

 

NOTE 8: INVESTMENT IN TD AMERITRADE HOLDING CORPORATION  

 

The Bank has significant influence over TD Ameritrade Holding Corporation (TD Ameritrade) and accounts for its investment in TD Ameritrade using the equity method. The Bank's equity share in TD Ameritrade's earnings, excluding dividends, is reported on a one-month lag basis. The Bank takes into account changes in the subsequent period that would significantly affect the results.

As at January 31, 2017, the Bank's reported investment in TD Ameritrade was 42.23% (October 31, 2016 – 42.38%) of the outstanding shares of TD Ameritrade with a fair value of $13 billion (US$10 billion) (October 31, 2016 – $10 billion (US$8 billion)) based on the closing price of US$46.15 (October 31, 2016 – US$34.21) on the New York Stock Exchange.

During the three months ended January 31, 2017, TD Ameritrade repurchased nil shares (for the year ended October 31, 2016 – 12.0 million shares). Pursuant to the Stockholders Agreement in relation to the Bank's equity investment in TD Ameritrade, if stock repurchases by TD Ameritrade cause the Bank's ownership percentage to exceed 45%, the Bank is required to use reasonable efforts to sell or dispose of such excess stock, subject to the Bank's commercial judgment as to the optimal timing, amount, and method of sales with a view to maximizing proceeds from such sales. However, in the event that stock repurchases by TD Ameritrade cause the Bank's ownership percentage to exceed 45%, the Bank has no absolute obligation to reduce its ownership percentage to 45%. In addition, stock repurchases by TD Ameritrade cannot result in the Bank's ownership percentage exceeding 47%.

Pursuant to the Stockholders Agreement in relation to the Bank's equity investment in TD Ameritrade, the Bank has the right to designate five of twelve members of TD Ameritrade's Board of Directors. The Bank's designated directors currently include the Bank's Group President and Chief Executive Officer and four independent directors of TD or TD's U.S. subsidiaries.

TD Ameritrade has no significant contingent liabilities to which the Bank is exposed. During the three months ended January 31, 2017, and January 31, 2016, TD Ameritrade did not experience any significant restrictions to transfer funds in the form of cash dividends, or repayment of loans or advances.

Pursuant to its pre-emptive rights and subject to any required regulatory approval, the Bank intends to purchase US$400 million in new common equity from TD Ameritrade in connection with TD Ameritrade's acquisition of Scottrade Financial Services, Inc. (Scottrade). As a result, the Bank's anticipated pro forma common stock ownership in TD Ameritrade is expected to be approximately 41.4%. Refer to the "Financial Results Overview – Significant Events in 2016" section of the 2016 MD&A for a discussion of the announced acquisition of Scottrade Bank.

 

The condensed financial statements of TD Ameritrade, based on its consolidated financial statements, are included in the following tables.

 

Condensed Consolidated Balance Sheets1 
(millions of Canadian dollars) As at   
  December 31  September 30   
  2016      2016   
Assets
Receivables from brokers, dealers, and clearing organizations $ 1,248    $ 1,596   
Receivables from clients, net 15,665      16,014   
Other assets, net 20,606      21,038   
Total assets $ 37,519    $ 38,648   
Liabilities
Payable to brokers, dealers, and clearing organizations $ 2,639    $ 2,736   
Payable to clients 24,803      25,555   
Other liabilities 3,312      3,583   
Total liabilities 30,754      31,874   
Stockholders' equity2  6,765      6,774   
Total liabilities and stockholders' equity $ 37,519    $ 38,648   
1Customers' securities are reported on a settlement date basis whereas the Bank reports customers' securities on a trade date basis.
2The difference between the carrying value of the Bank's investment in TD Ameritrade and the Bank's share of TD Ameritrade's stockholders' equity is comprised of goodwill, other intangibles, and the cumulative translation adjustment.

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 64
 

 

Condensed Consolidated Statements of Income
(millions of Canadian dollars, except as noted) For the three months ended   
  December 31  December 31   
  2016  2015   
Revenues
Net interest revenue $ 201    $ 206   
Fee-based and other revenue 945      878   
Total revenues 1,146      1,084   
Operating expenses
Employee compensation and benefits 285      268   
Other 390      358   
Total operating expenses 675      626   
Other expense (income) 19      16   
Pre-tax income 452      442   
Provision for income taxes 164      159   
Net income1  $ 288    $ 283   
Earnings per share – basic (dollars) $ 0.55    $ 0.53   
Earnings per share – diluted (dollars)   0.54      0.52   
1The Bank's equity share of net income of TD Ameritrade is subject to adjustments relating to amortization of intangibles, which are not included.

 

 

NOTE 9: GOODWILL  

 

Goodwill by Segment
(millions of Canadian dollars) Canadian     Wholesale       
  Retail  U.S. Retail1  Banking    Total   
Carrying amount of goodwill as at November 1, 2015 $ 2,369  $ 13,818  $ 150  $ 16,337   
Impairment losses (52) –  –    (52)  
Foreign currency translation adjustments and other 20  357  –    377   
Carrying amount of goodwill as at October 31, 2016 2,337  14,175  150    16,662   
Arising during the period –  –  10    10   
Impairment losses –  –  –    –   
Foreign currency translation adjustments and other (26) (424) –    (450)  
Carrying amount of goodwill as at January 31, 2017 $ 2,311  $ 13,751  $ 160  $ 16,222   
1Goodwill predominantly relates to U.S. personal and commercial banking.

 

 

NOTE 10: OTHER ASSETS  

 

Other Assets
(millions of Canadian dollars) As at     
  January 31    October 31     
  2017    2016     
Accounts receivable and other items $ 8,244  $ 8,092   
Accrued interest 1,634    1,634   
Current income tax receivable 594    389   
Defined benefit asset   11    11   
Insurance-related assets, excluding investments 1,693    1,758   
Prepaid expenses 900    906   
Total $ 13,076  $ 12,790   

 

 

NOTE 11: DEPOSITS  

 

Demand deposits are those for which the Bank does not have the right to require notice prior to withdrawal. These deposits are in general chequing accounts.

Notice deposits are those for which the Bank can legally require notice prior to withdrawal. These deposits are in general savings accounts.

Term deposits are those payable on a fixed date of maturity purchased by customers to earn interest over a fixed period. The terms are from one day to ten years. Accrued interest on deposits, calculated using the EIRM, is included in Other liabilities on the Interim Consolidated Balance Sheet. The deposits are generally term deposits, guaranteed investment certificates, senior debt, and similar instruments. The aggregate amount of term deposits in denominations of $100,000 or more as at January 31, 2017, was $247 billion (October 31, 2016 – $231 billion).

Certain deposit liabilities are classified as Trading deposits on the Interim Consolidated Balance Sheet and accounted for at fair value with the change in fair value recognized on the Interim Consolidated Statement of Income.

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 65
 

 

Deposits
(millions of Canadian dollars) As at   
    January 31  October 31   
    By Type    By Country     2017  2016   
    Demand  Notice    Term      Canada United States International     Total    Total   
Personal $ 15,072  $ 377,305  $ 50,217    $ 207,644  $ 233,719  $ 1,231    $ 442,594  $ 439,232   
Banks1  8,527    68    11,848      12,567    1,589    6,287      20,443    17,201   
Business and government2  70,725    112,127    128,645      218,008    90,177    3,312      311,497    317,227   
Designated at fair value
through profit or loss3  –    –    12      12    –    –      12    176   
Trading1  –    –    91,485      6,967    64,344    20,174      91,485    79,786   
Total $ 94,324  $ 489,500  $ 282,207    $ 445,198  $ 389,829  $ 31,004    $ 866,031  $ 853,622   
Non-interest-bearing deposits
included above
In domestic offices                       $ 37,515  $ 35,401   
In foreign offices 50,783    53,089   
Interest-bearing deposits                                
  included above
In domestic offices                         407,683    409,657   
In foreign offices                         367,950    355,456   
U.S. federal funds deposited1                          2,100    19   
Total2,4                           $ 866,031  $ 853,622   
1Includes deposits and advances with the Federal Home Loan Bank.
2As at January 31, 2017, includes $30 billion in Deposits on the Interim Consolidated Balance Sheet relating to covered bondholders (October 31, 2016 – $29 billion) and $2 billion (October 31, 2016 – $2 billion) due to TD Capital Trust lV.
3Included in Other financial liabilities designated at fair value through profit or loss on the Interim Consolidated Balance Sheet.
4As at January 31, 2017, includes deposits of $493 billion (October 31, 2016 – $474 billion) denominated in U.S. dollars and $40 billion (October 31, 2016 – $48 billion) denominated in other foreign currencies.

 

 

NOTE 12: OTHER LIABILITIES  

 

Other Liabilities
(millions of Canadian dollars) As at   
  January 31  October 31   
  2017    2016   
Accounts payable, accrued expenses, and other items $ 4,414  $ 4,401   
Accrued interest 886    960   
Accrued salaries and employee benefits 2,070    2,829   
Cheques and other items in transit 1,346    1,598   
Current income tax payable 71    58   
Deferred tax liabilities 344    345   
Defined benefit liability 2,341    3,011   
Liabilities related to structured entities 6,025    5,469   
Provisions 963    1,025   
Total $ 18,460  $ 19,696   

 

 

NOTE 13: SUBORDINATED NOTES AND DEBENTURES  

 

Issues and Redemptions

 

On December 14, 2016 (the "Redemption Date"), the Bank redeemed all of its outstanding $2.25 billion 4.779% subordinated debentures due December 14, 2105, at a redemption price of 100% of the principal amount. Interest on the debentures ceased to accrue on and after the Redemption Date.

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 66
 
NOTE 14: SHARE CAPITAL  

 

The following table summarizes the shares issued and outstanding and treasury shares held as at January 31, 2017, and October 31, 2016.

 

Common and Preferred Shares Issued and Outstanding and Treasury Shares Held
(millions of shares and millions of Canadian dollars) January 31, 2017   October 31, 2016  
  Number       Number      
  of shares   Amount   of shares   Amount  
Common Shares
Balance as at beginning of year 1,857.6  $ 20,711    1,856.2  $ 20,294   
Proceeds from shares issued on exercise of stock options 1.0    47    4.9    186   
Shares issued as a result of dividend reinvestment plan 1.1    78    6.0    335   
Purchase of shares for cancellation –    –    (9.5)   (104)  
Balance as at end of period – common shares 1,859.7  $ 20,836    1,857.6  $ 20,711   
Preferred Shares – Class A
Series S 5.4  $ 135    5.4  $ 135   
Series T 4.6    115    4.6    115   
Series Y 5.5    137    5.5    137   
Series Z 4.5    113    4.5    113   
Series 11  20.0    500    20.0    500   
Series 31  20.0    500    20.0    500   
Series 51  20.0    500    20.0    500   
Series 71  14.0    350    14.0    350   
Series 91  8.0    200    8.0    200   
Series 111  6.0    150    6.0    150   
Series 121  28.0    700    28.0    700   
Series 141  40.0    1,000    40.0    1,000   
Balance as at end of period – preferred shares 176.0  $ 4,400    176.0  $ 4,400   
Treasury shares – common2 
Balance as at beginning of year 0.4  $ (31)   1.1  $ (49)  
Purchase of shares 38.9    (2,478)   104.9    (5,769)  
Sale of shares (36.0)   2,291    (105.6)   5,787   
Balance as at end of period – treasury shares – common 3.3  $ (218)   0.4  $ (31)  
Treasury shares – preferred2 
Balance as at beginning of year 0.2  $ (5)   0.1  $ (3)  
Purchase of shares 2.2    (50)   5.1    (115)  
Sale of shares (2.2)   50    (5.0)   113   
Balance as at end of period – treasury shares – preferred 0.2  $ (5)   0.2  $ (5)  
1Non-viability contingent capital (NVCC) Series 1, 3, 5, 7, 9, 11, 12, and 14 Preferred Shares qualify as regulatory capital under OSFI's capital adequacy requirements (CAR) guideline. If a NVCC conversion were to occur in accordance with the NVCC Provisions, the maximum number of common shares that could be issued based on the formula for conversion set out in the respective terms and conditions applicable to each Series of shares, assuming there are no declared and unpaid dividends on the respective Series of shares at the time of conversion, as applicable, would be 100 million, 100 million, 100 million, 70 million, 40 million, 30 million, 140 million, and 200 million, respectively.
2When the Bank purchases its own shares as part of its trading business, they are classified as treasury shares and the cost of these shares is recorded as a reduction in equity.

 

Normal Course Issuer Bid

On December 9, 2015, the Bank announced that the Toronto Stock Exchange (TSX) and OSFI approved the Bank's normal course issuer bid (NCIB) to repurchase for cancellation up to 9.5 million of the Bank's common shares. During the three months ended January 31, 2016, the Bank completed its share repurchase under the NCIB and repurchased 9.5 million common shares at an average price of $51.23 per share for a total amount of $487 million.

 

 

NOTE 15: SHARE-BASED COMPENSATION  

 

For the three months ended January 31, 2017, the net compensation expense for stock option awards was $5.0 million (three months ended January 31, 2016 – $(1.3) million).

During the three months ended January 31, 2017, 2.0 million stock options were granted by the Bank (three months ended January 31, 2016 – 2.5 million) with a weighted-average fair value of $5.81 per stock option (January 31, 2016 – $4.93 per stock option).

 

The following table summarizes the assumptions used for estimating the fair value of options for the three months ended January 31.

 

Assumptions Used for Estimating the Fair Value of Options
(in Canadian dollars, except as noted) For the three months ended   
  January 31    January 31   
  2017    2016   
Risk-free interest rate 1.24  %   1.00  %
Expected option life 6.3 years     6.3 years  
Expected volatility1  14.92  %   15.82  %
Expected dividend yield 3.47  %   3.45  %
Exercise price/share price $ 65.75    $ 53.15   
1Expected volatility is calculated based on the average daily volatility measured over a historical period corresponding to the expected option life.

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 67

 

 

NOTE 16: EMPLOYEE BENEFITS  

 

The following table summarizes expenses for the Bank's principal pension and non-pension post-retirement benefit plans and the Bank's significant other pension and retirement plans, for the three months ended January 31.

 

Employee Benefit Plans' Expenses                
(millions of Canadian dollars) Principal non-pension         
    post-retirement  Other pension and 
Principal pension plans  benefit plan  retirement plans1 
For the three months ended 
Jan. 31    Jan. 31    Jan. 31    Jan. 31    Jan. 31    Jan. 31 
2017    2016    2017    2016    2017    2016 
Net employee benefits expense
Service cost – benefits earned $ 110  $ 83  $ 4  $ 5  $ 3  $ 2 
Net interest cost (income) on net defined benefit liability (asset) 6    (1)   4    5    8    8 
Past service cost (credit)2  –    –    –    –    –    (12)
Defined benefit administrative expenses 2    2    –    –    1    2 
Total expense $ 118  $ 84  $ 8  $ 10  $ 12  $ – 
1Includes CT defined benefit pension plan, TD Banknorth defined benefit pension plan, certain TD Auto Finance retirement plans, and supplemental employee retirement plans. Other employee benefit plans operated by the Bank and certain of its subsidiaries are not considered material for disclosure purposes. The TD Banknorth defined benefit pension plan was frozen as of December 31, 2008, and no service credits can be earned after that date. Certain TD Auto Finance defined benefit pension plans were frozen as of April 1, 2012, and no service credits can be earned after March 31, 2012.
2Includes a portion of certain defined benefit pension plans that were settled during the period.

 

CASH FLOWS

The following table summarizes the Bank's contributions to its principal pension and non-pension post-retirement benefit plans and the Bank's significant other pension and retirement plans during the three months ended January 31.

 

Plan Contributions
(millions of Canadian dollars) For the three months ended   
  January 31  January 31   
  2017  2016   
Principal pension plans $ 186  $ 87   
Principal non-pension post-retirement benefit plan 3    3   
Other pension and retirement plans1  8    9   
Total $ 197  $ 99   
1Includes CT defined benefit pension plan, TD Banknorth defined benefit pension plan, certain TD Auto Finance retirement plans, and supplemental employee retirement plans. Other employee benefit plans operated by the Bank and certain of its subsidiaries are not considered material for disclosure purposes.

 

As at January 31, 2017, the Bank expects to contribute an additional $262 million to its principal pension plans, $13 million to its principal non-pension post-retirement benefit plan, and $30 million to its other pension and retirement plans by the end of the fiscal year. However, future contribution amounts may change upon the Bank's review of current contribution levels during fiscal 2017.

 

 

NOTE 17: EARNINGS PER SHARE  

 

Basic earnings per share is calculated by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding for the period.

Diluted earnings per share is calculated using the same method as basic earnings per share except that certain adjustments are made to net income attributable to common shareholders and the weighted-average number of shares outstanding for the effects of all dilutive potential common shares that are assumed to be issued by the Bank.

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 68
 

 

The following table presents the Bank's basic and diluted earnings per share for the three months ended January 31, 2017, and January 31, 2016, and the twelve months ended October 31, 2016.

 

Basic and Diluted Earnings Per Share
(millions of Canadian dollars, except as noted) For the three  For the twelve   
    months ended  months ended   
    January 31    January 31    October 31   
  2017  2016  2016   
Basic earnings per share
Net income attributable to common shareholders $ 2,456  $ 2,169  $ 8,680   
Weighted-average number of common shares outstanding (millions) 1,855.8    1,854.1    1,853.4   
Basic earnings per share (dollars) $ 1.32  $ 1.17  $ 4.68   
Diluted earnings per share
Net income attributable to common shareholders $ 2,456  $ 2,169  $ 8,680   
Net income available to common shareholders including  impact of dilutive securities 2,456    2,169    8,680   
Weighted-average number of common shares outstanding (millions) 1,855.8    1,854.1    1,853.4   
Effect of dilutive securities
Stock options potentially exercisable (millions)1  4.5    3.4    3.4   
Weighted-average number of common shares outstanding – diluted (millions) 1,860.3    1,857.5    1,856.8   
Diluted earnings per share (dollars)1  $ 1.32  $ 1.17  $ 4.67   
1For the three months ended January 31, 2017, the computation of diluted earnings per share excluded weighted-average options outstanding of 996 thousand with a weighted-average exercise price of $65.75 as the option price was greater than the average market price of the Bank’s common shares. For the three months ended January 31, 2016, and the twelve months ended October 31, 2016, the computation of diluted earnings per share did not include any weighted-average options where the option price was greater than the average market price of the Bank's common shares.

 

 

NOTE 18: PROVISIONS, CONTINGENT LIABILITIES, PLEDGED ASSETS, AND COLLATERAL  

 

PROVISIONS

The following table summarizes the Bank's provisions.

 

Provisions
(millions of Canadian dollars)     Litigation and 
Restructuring1  Other  Total   
Balance as at November 1, 2016 $ 198  $ 327  $ 525   
  Additions 1  24  25   
  Amounts used (47) (38) (85)  
  Release of unused amounts (6) (6) (12)  
  Foreign currency translation adjustments and other (3) (3) (6)  
Balance as at January 31, 2017, before allowance for
credit losses for off-balance sheet instruments $ 143  $ 304  $ 447   
Add: allowance for credit losses for off-balance sheet instruments2        516   
Balance as at January 31, 2017 $ 963   
1Includes provisions for onerous lease contracts.
2Refer to Note 5 for further details.

 

LITIGATION AND OTHER

Litigation and other primarily include provisions relating to legal reserves. In the ordinary course of business, the Bank and its subsidiaries are involved in various legal and regulatory actions. The Bank establishes legal provisions when it becomes probable that the Bank will incur a loss and the amount can be reliably estimated. The Bank also estimates the aggregate range of reasonably possible losses (RPL) in its legal and regulatory actions (that is, those which are neither probable nor remote), in excess of provisions. As at January 31, 2017, the Bank's RPL is from zero to approximately $460 million. The Bank's provisions and RPL represent the Bank's best estimates based upon currently available information for actions for which estimates can be made, but there are a number of factors that could cause the Bank's provisions and/or RPL to be significantly different from its actual or reasonably possible losses. For example, the Bank’s estimates involve significant judgment due to the varying stages of the proceedings, the existence of multiple defendants in many of such proceedings whose share of liability has yet to be determined, the numerous yet-unresolved issues in many of the proceedings, some of which are beyond the Bank’s control and/or involve novel legal theories and interpretations, the attendant uncertainty of the various potential outcomes of such proceedings, and the fact that the underlying matters will change from time to time. In addition, some matters seek very large or indeterminate damages.

In management’s opinion, based on its current knowledge and after consultation with counsel, the ultimate disposition of these actions, individually or in the aggregate, will not have a material adverse effect on the consolidated financial condition or the consolidated cash flows of the Bank. However, because of the factors listed above, as well as other uncertainties inherent in litigation and regulatory matters, there is a possibility that the ultimate resolution of those legal or regulatory actions may be material to the Bank’s consolidated results of operations for any particular reporting period.

 

Other than as described below, there have been no material developments in the matters identified in Note 28 of the 2016 Annual Consolidated Financial Statements, and no new matters have arisen requiring disclosure since the issuance of the 2016 Annual Consolidated Financial Statements.

 

Stanford Litigation ─ The Official Stanford Investors Committee filed an amended intervenor complaint against the Bank on November 4, 2016, and the Bank filed its answer to this amended complaint on December 19, 2016. The two cases filed in the Ontario Superior Court of Justice are being managed together and have moved to the document discovery phase. 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 69

 

  

Overdraft Litigation ─ The parties' briefing of class certification issues has been completed. 

 

Credit Card Fees ─ The plaintiffs' motion to amend their claims to reinstate the extended class period was unsuccessful and the plaintiffs are appealing to the B.C. Court of Appeal.

 

PLEDGED ASSETS AND COLLATERAL

In the ordinary course of business, securities and other assets are pledged against liabilities or contingent liabilities, including repurchase agreements, securitization liabilities, covered bonds, obligations related to securities sold short, and securities borrowing transactions. Assets are also deposited for the purposes of participation in clearing and payment systems and depositories or to have access to the facilities of central banks in foreign jurisdictions, or as security for contract settlements with derivative exchanges or other derivative counterparties.

 

Details of assets pledged against liabilities and collateral assets held or repledged are shown in the following table:

 

Sources and Uses of Pledged Assets and Collateral1 
(millions of Canadian dollars) As at
  January 31 October 31
2017 2016
Sources of pledged assets and collateral
Bank assets        
Cash and due from banks $ 313  $ 187 
Interest-bearing deposits with banks  2,950     6,106 
Loans  78,608     76,150 
Securities  69,258     64,183 
Other assets  782    751 
 151,911     147,377 
Third-party assets2 
Collateral received and available for sale or repledging  187,345     160,543 
Less: Collateral not repledged  (62,716)    (54,464)
 124,629     106,079 
 276,540     253,456 
Uses of pledged assets and collateral3 
Derivatives  9,617     12,595 
Obligations related to securities sold under repurchase agreements  72,986     63,401 
Securities borrowing and lending  54,078     40,368 
Obligations related to securities sold short  28,670     29,961 
Securitization  34,660     34,601 
Covered bond  31,099     28,668 
Clearing systems, payment systems, and depositories  4,583     4,521 
Foreign governments and central banks  1,404     1,480 
Other  39,443     37,861 
Total $  276,540  $  253,456 
1Certain comparative amounts have been restated to conform with the presentation adopted in the current period.
2Includes collateral received from reverse repurchase agreements, securities borrowing, margin loans, and other client activity.
3Includes $34.2 billion of on-balance sheet assets that the Bank has pledged and that the counterparty can subsequently repledge as at January 31, 2017 (October 31, 2016 – $29.7 billion).

 

ASSETS SOLD WITH RECOURSE

In connection with its securitization activities, the Bank typically makes customary representations and warranties about the underlying assets which may result in an obligation to repurchase the assets. These representations and warranties attest that the Bank, as the seller, has executed the sale of assets in good faith, and in compliance with relevant laws and contractual requirements. In the event that they do not meet these criteria, the loans may be required to be repurchased by the Bank.

 

ASSETS SOLD WITH CONTINGENT REPURCHASE OBLIGATIONS

The Bank sells mortgage loans, which it continues to service, to the TD Mortgage Fund (the "Fund"), a mutual fund managed by the Bank. As part of its responsibilities, the Bank has an obligation to repurchase mortgage loans when they default or if the Fund experiences a liquidity event such that it does not have sufficient cash to honour unit-holder redemptions. On April 22, 2016, the Fund was discontinued and merged with another mutual fund managed by the Bank. The mortgages held by the Fund were not merged into the other mutual fund and as a result of the Fund's discontinuation, the mortgages were repurchased from the Fund at a fair value of $155 million. During the three months ended January 31, 2016, the fair value of the mortgages repurchased from the Fund as a result of a liquidity event was $7 million.

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 70
 

 

NOTE 19: 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, 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; and Wholesale Banking. The Bank's other activities are grouped into the Corporate segment.

 

The following table summarizes the segment results for the three months ended January 31.

 

Results by Business Segment1 
(millions of Canadian dollars, except as noted)
Canadian Retail  U.S. Retail  Wholesale Banking  Corporate  Total   
    For the three months ended   
    Jan. 31  Jan. 31  Jan. 31  Jan. 31  Jan. 31  Jan. 31  Jan. 31  Jan. 31  Jan. 31  Jan. 31   
    2017    2016    2017  2016  2017    2016    2017  2016  2017    2016   
Net interest income (loss) $ 2,613  $ 2,491  $ 1,839  $ 1,769  $ 393  $ 459  $ 296  $ 328  $ 5,141  $ 5,047   
Non-interest income (loss) 2,590    2,540    687  630  464    205    238  188  3,979    3,563   
Total revenue2  5,203    5,031    2,526  2,399     857    664    534  516     9,120    8,610   
Provision for (recovery of)
credit losses 269    228    257  221  (24)   12    131  181  633    642   
Insurance claims and related
expenses 574    655    –  –  –    –    –  –  574    655   
Non-interest expenses 2,225    2,079    1,434  1,406  524    429    714  739  4,897    4,653   
Income (loss) before income taxes 2,135    2,069    835  772  357    223    (311) (404) 3,016    2,660   
Provision for (recovery of)
income taxes 569    556    146  130  90    62    (209) (202) 596    546   
Equity in net income of an
investment in TD Ameritrade –    –    111  109  –    –    2  –  113    109   
Net income (loss) $ 1,566  $ 1,513  $ 800  $ 751  $ 267  $ 161  $ (100) $ (202) $ 2,533  $ 2,223   
   
Total assets $ 384,182  $ 366,296  $ 380,383  $ 382,361  $ 361,872  $ 368,722  $ 60,446  $ 56,205  $ 1,186,883  $ 1,173,584   
1The presentation of the U.S. strategic cards portfolio revenues, provision for credit losses, and expenses in the U.S. Retail segment includes only the Bank's agreed portion of the U.S. strategic cards portfolio, while the Corporate segment includes the retailer program partners' share.
2Effective the first quarter of 2017, the impact from certain treasury and balance sheet management activities relating to the U.S. Retail segment is recorded in the Corporate segment.

 

 

NOTE 20: REGULATORY CAPITAL  

 

The Bank manages its capital under guidelines established by OSFI. The regulatory capital guidelines measure capital in relation to credit, market, and operational risks. The Bank has various capital policies, procedures, and controls which it utilizes to achieve its goals and objectives.

During the three months ended January 31, 2017, the Bank complied with the OSFI Basel III guideline related to capital ratios and the leverage ratio. Effective January 1, 2016, OSFI's target Common Equity Tier 1 (CET1), Tier 1, and Total Capital ratios for Canadian banks designated as D-SIBs includes a 1% common equity capital surcharge bringing the targets to 8%, 9.5%, and 11.5%, respectively.

The following table summarizes the Bank's regulatory capital positions as at January 31, 2017, and October 31, 2016.

 

Regulatory Capital Position
(millions of Canadian dollars, except as noted) As at 
January 31  October 31 
  2017  2016 
Capital
Common Equity Tier 1 Capital $ 43,721  $ 42,328 
Tier 1 Capital   50,644    49,397 
Total Capital   60,670    61,816 
Risk-weighted assets used in the calculation of capital ratios1 
Common Equity Tier 1 Capital $ 402,168  $ 405,844 
Tier 1 Capital 402,168  405,844 
Total Capital 402,168  405,844 
Capital and leverage ratios
Common Equity Tier 1 Capital ratio1    10.9  %   10.4  %
Tier 1 Capital ratio1  12.6      12.2   
Total Capital ratio1  15.1      15.2   
Leverage ratio 4.0  4.0 
1In accordance with the final CAR guideline, the Credit Valuation Adjustment (CVA) capital charge is being phased in until the first quarter of 2019. Each capital ratio has its own risk-weighted assets (RWA) measure due to the OSFI prescribed scalar for inclusion of the CVA. For fiscal 2016, the scalars for inclusion of CVA for CET1, Tier 1, and Total Capital RWA were 64%, 71%, and 77%, respectively. For fiscal 2017, the scalars are 72%, 77%, and 81%, respectively.

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 71
 

 

NOTE 21: RISK MANAGEMENT  

 

The risk management policies and procedures of the Bank are provided in the MD&A. The shaded sections of the "Managing Risk" section of the MD&A relating to market, liquidity, and insurance risks are an integral part of the Interim Consolidated Financial Statements.

 

 

NOTE 22: SUBSEQUENT EVENT  

 

Normal Course Issuer Bid

As approved by the Board on March 1, 2017, the Bank announced its intention to initiate an NCIB for up to 15 million of its common shares, subject to the approval of OSFI and the TSX. The timing and amount of any purchases under the program are subject to regulatory approvals and to management discretion based on factors such as market conditions and capital adequacy.

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 72
 

SHAREHOLDER AND INVESTOR INFORMATION

 

Shareholder Services

If you: And your inquiry relates to: Please contact:
Are a registered shareholder (your name appears on your TD share certificate) Missing dividends, lost share certificates, estate questions, address changes to the share register, dividend bank account changes, the dividend reinvestment plan, eliminating duplicate mailings of shareholder materials or stopping (and resuming) receiving annual and quarterly reports

Transfer Agent:

CST Trust Company
P.O. Box 700, Station B

Montréal, Québec H3B 3K3

1-800-387-0825 (Canada and U.S. only)

or 416-682-3860

Facsimile: 1-888-249-6189

inquiries@canstockta.com or www.canstockta.com

Hold your TD shares through the

Direct Registration System

in the United States

 Missing dividends, lost share certificates, estate questions, address changes to the share register, eliminating duplicate mailings of shareholder materials or stopping (and resuming) receiving annual and quarterly reports

Co-Transfer Agent and Registrar

Computershare
P.O. Box 30170

College Station, TX 77842-3170, or

 

Computershare

211 Quality Circle, Suite 210

College Station, TX 77845

1-866-233-4836

TDD for hearing impaired: 1-800-231-5469

Shareholders outside of U.S.: 201-680-6578

TDD shareholders outside of U.S.: 201-680-6610
www.computershare.com

Beneficially own TD shares that are held in the name of an intermediary, such as a bank, a trust company, a securities broker or other nominee Your TD shares, including questions regarding the dividend reinvestment plan and mailings of shareholder materials Your intermediary

 

For all other shareholder inquiries, please contact TD Shareholder Relations at 416-944-6367 or 1-866-756-8936 or email tdshinfo@td.com.
Please note that by leaving us an e-mail or voicemail message, you are providing your consent for us to forward your inquiry to the appropriate party for response.

 

General Information

Contact Corporate & Public Affairs: 416-982-8578

 

Products and services: Contact TD Canada Trust, 24 hours a day, seven days a week: 1-866-567-8888

French: 1-866-233-2323

Cantonese/Mandarin: 1-800-328-3698

Telephone device for the hearing impaired (TTY): 1-800-361-1180

 

Website: www.td.com

Email: customer.service@td.com

 

Quarterly Earnings Conference Call

TD Bank Group will host an earnings conference call in Toronto, Ontario on March 2, 2017. The call will be audio webcast live through TD's website at 3 p.m. ET. The call and audio webcast will feature presentations by TD executives on the Bank's financial results for the first quarter, discussions of related disclosures, and will be 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/qr_2017.jsp on March 2, 2017, by approximately 12 p.m. ET. A listen-only telephone line is available at 647-794-1827 or 1-800-274-0251 (toll free) and the passcode is 6587007.

 

The audio webcast and presentations will be archived at www.td.com/investor/qr_2017.jsp. Replay of the teleconference will be available from 6 p.m. ET on March 2, 2017, until 6 p.m. ET on March 31, 2017, by calling 647-436-0148 or 1-888-203-1112 (toll free). The passcode is 6587007.

 

Annual Meeting

Thursday, March 30, 2017

Design Exchange

Toronto, Ontario

 

 

 

 

 

 

 

TD BANK GROUP • FIRST QUARTER 2017 • REPORT TO SHAREHOLDERSPage 73

 

 

 

 EX-99.2 3 ex992.htm EARNINGS COVERAGE

Exhibit 99.2

 

 

THE TORONTO-DOMINION BANK

EARNINGS COVERAGE ON SUBORDINATED NOTES AND DEBENTURES,

PREFERRED SHARES CLASSIFIED AS EQUITY, AND LIABILITIES FOR

PREFERRED SHARES AND CAPITAL TRUST SECURITIES

FOR THE TWELVE MONTHS ENDED JANUARY 31, 2017

 

TD Bank Group ("TD" or the "Bank") dividend requirements on all its outstanding preferred shares in respect of the twelve months ended January 31, 2017 and adjusted to a before-tax equivalent using an effective tax rate of 19.8% for the twelve months ended January 31, 2017, amounted to $203.6 million for the twelve months ended January 31, 2017. The Bank’s interest and dividend requirements on all subordinated notes and debentures, preferred shares and liabilities for preferred shares and capital trust securities, after adjustment for new issues and retirement, amounted to $893.8 million for the twelve months ended January 31, 2017. The Bank’s reported net income, before interest on subordinated debt and liabilities for preferred shares and capital trust securities and income taxes was $11,413 million for the twelve months ended January 31, 2017, which was 12.8 times the Bank’s aggregate dividend and interest requirement for this period.

On an adjusted basis, the Bank’s net income before interest on subordinated debt and liabilities for preferred shares and capital trust securities and income taxes for the twelve months ended January 31, 2017, was $11,782 million, which was 13.2 times the Bank’s aggregate dividend and interest requirement for this period.

The Bank’s financial results are prepared in accordance with International Financial Reporting Standards (IFRS), the current generally accepted accounting principles (GAAP). The Bank 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 overall Bank 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. As explained, adjusted results are different from reported results determined in accordance with IFRS. Adjusted results, items of note, and related terms used herein are not defined terms under IFRS, and, therefore, may not be comparable to similar terms used by other issuers. Please refer to the "Financial Results Overview – How the Bank Reports" section of the Bank’s 2016 Management's Discussion and Analysis (MD&A) and the "How We Performed – How the Bank Reports" section of the Bank's first quarter 2017 MD&A for a reconciliation between the Bank’s reported and adjusted results.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 EX-99.3 4 ex993.htm RETURN ON ASSETS, DIVIDEND PAYOUTS, AND EQUITY TO ASSETS RATIOS

 

Exhibit 99.3

 

 

RETURN ON ASSETS, DIVIDEND PAYOUTS, AND EQUITY TO ASSETS RATIOS1,2      
  For the three months ended     For the year ended     
  January 31, 2017  October 31, 2016     October 31, 2016     
Return on Assets – reported3  0.81  % 0.75  % 0.76  %  
Return on Assets – adjusted4  0.82    0.77     0.79     
Dividend Payout Ratio – reported5  41.6    45.7     46.1     
Dividend Payout Ratio – adjusted6  41.1    44.9     44.3     
Equity to Asset Ratio7  6.1    6.0     6.1     
1Calculated pursuant to the U.S. Securities and Exchange Commission Industry Guide 3.
2TD Bank Group ("TD" or the "Bank") financial results prepared in accordance with International Financial Reporting Standards (IFRS), the current generally accepted accounting principles (GAAP), are referred to as "reported" results. The Bank also utilizes non-GAAP financial measures referred to as "adjusted" results (reported results excluding "items of note", net of income taxes) to assess each of its businesses and measure overall Bank performance. Refer to the "How We Performed" section in the Bank's first quarter 2017 Report to Shareholders (www.td.com/investor) for further explanation, reported basis results, a list of the items of note, and a reconciliation of non-GAAP measures.
3Calculated as reported net income available to common shareholders and non-controlling interests (NCI) in subsidiaries divided by average total assets.
4Calculated as adjusted net income available to common shareholders and NCI in subsidiaries divided by average total assets.
5Calculated as dividends declared per common share divided by reported basic earnings per share.
6Calculated as dividends declared per common share divided by adjusted basic earnings per share.
7Calculated as average total equity (including NCI in subsidiaries) divided by average total assets.

 

 EX-99.4 5 ex994.htm RATIO OF EARNINGS TO FIXED CHARGES

 

Exhibit 99.4

 

 

RATIO OF EARNINGS TO FIXED CHARGES                        
(millions of Canadian dollars, except as noted)   For the three                    
      months ended   For the year ended 
       January 31   October 31   October 31   October 31   October 31   October 31
     2017 2016 2015 2014 2013 2012
Excluding interest on deposits fixed charges:                        
Interest expense (excluding deposits) $ 528  $ 1,959  $ 1,950  $ 2,060  $ 1,938  $ 2,323 
Estimated interest within rental expense   22    127    109    106    102    108 
Preferred stock dividend requirements of consolidated                        
  subsidiaries   9    35    32    28    42    41 
Total fixed charges   559    2,121    2,091    2,194    2,082    2,472 
Preferred stock dividend requirements of parent entity   60    176    119    172    218    230 
Total fixed charges and preferred dividends   619    2,297    2,210    2,366    2,300    2,702 
Earnings                        
Net Income before income taxes   3,264    11,404    9,794    9,734    8,009    7,578 
Less: income/(loss) from equity investees   113    433    377    320    272    234 
Add: fixed charges   559    2,121    2,091    2,194    2,082    2,472 
Total earnings $ 3,710  $ 13,092  $ 11,508  $ 11,608  $ 9,819  $ 9,816 
                            
Ratio of earnings to fixed charges   6.64    6.17    5.50    5.29    4.72    3.97 
Ratio of earnings to fixed charges and preferred                        
  dividends   5.99    5.70    5.21    4.91    4.27    3.63 
                            
Including interest on deposits fixed charges:                        
Interest expense (including deposits) $ 2,003  $ 6,717  $ 6,192  $ 6,373  $ 6,399  $ 6,993 
Estimated interest within rental expense   22    127    109    106    102    108 
Preferred stock dividend requirements of consolidated                        
  subsidiaries   9    35    32    28    42    41 
Total fixed charges   2,034    6,879    6,333    6,507    6,543    7,142 
Preferred stock dividend requirements of parent entity   60    176    119    172    218    230 
Total fixed charges and preferred dividends   2,094    7,055    6,452    6,679    6,761    7,372 
Earnings                        
Net Income before income taxes   3,264    11,404    9,794    9,734    8,009    7,578 
Less: income/(loss) from equity investees   113    433    377    320    272    234 
Add: fixed charges   2,034    6,879    6,333    6,507    6,543    7,142 
Total earnings $ 5,185  $ 17,850  $ 15,750  $ 15,921  $ 14,280  $ 14,486 
                            
Ratio of earnings to fixed charges   2.55    2.59    2.49    2.45    2.18    2.03 
Ratio of earnings to fixed charges and preferred                        
  dividends   2.48    2.53    2.44    2.38    2.11    1.97 

 

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