Shape tomorrow
2019 Annual Report
About TD
Every day, TD enriches the lives of millions of customers who rely on us for their
financial needs and to help make their dreams a reality.
OUR BUSINESS (as at October 31, 2019)
85,000+
TD colleagues
26 million+
customers served
around the globe
5th
largest bank in
North America1
2,300+
retail locations
across
North America
6,000+
ATMs
1 By branches
13 million+
active digital
customers
Table of Contents
OUR STRATEGY
Group President and CEO’s Message
Chair of the Board’s Message
Proven business model
Purpose-driven
Environmental Social Governance
The Ready Commitment
Forward-focused
Our omni-strategy
MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL RESULTS
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Ten-Year Statistical Review
Glossary
Board Committees
Shareholder and Investor Information
1
2
3
4
6
8
9
10
12
14
120
132
214
218
220
221
See the TD Annual Report
online by visiting
www.td.com/ar2019
For information on TD’s commitment to
the community and our environment
visit www.td.com/responsibility
Our strategy
As a top 5 North American bank, TD aims to stand out from its peers
by having a differentiated brand – anchored in our proven business model,
and rooted in a desire to give our customers, communities and colleagues
the confidence to thrive in a changing world.
Proven business model
Deliver consistent earnings
growth, underpinned
by a strong risk culture
Purpose-driven
Centre everything we do
on our vision, purpose and
shared commitments
Forward-focused
Shape the future
of banking in the
digital age
This is brought to life by the TD Framework, which embodies our culture and
guides our behaviour as we execute on our business strategy of being a
premier Canadian retail bank, a top U.S. retail bank, and a leading Wholesale
business aligned with our retail franchise.
Our vision
Be the better bank
Our purpose
Enrich the lives of our
customers, communities
and colleagues
TD Framework
Our shared commitments
Think like a customer;
provide legendary
experiences
and trusted advice
Act like an owner; lead
with integrity to drive
business results
and contribute to
communities
Execute with
speed and impact;
only take risks we
can understand
and manage
Innovate with
purpose; simplify
the way we work
Develop our
colleagues; embrace
diversity and respect
one another
TD BANK GROUP ANNUAL REP O RT 201 9 OUR STR ATEGY
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ExecuteInnovateOwnDevelopThink Customer Group President and
CEO’s Message
In 2019, TD advanced its strategy and delivered record earnings
through a period of growing economic uncertainty.
Earnings grew to $11.7 billion, revenue and market share
expanded across our retail businesses on both sides of the border,
and we continued to move our wholesale strategy forward in a
more volatile market.
Our shareholders benefited from this progress. Our dividend
increased by 11% on a full-year basis and TD delivered above
average Total Shareholder Return for the past three-, five- and
ten-year periods.
During the course of the year, we remained focused on building
the capabilities needed to successfully meet our customers'
changing expectations, and for TD to compete and grow well into
the future. We further sharpened our omni-channel strategy,
introduced new digital capabilities and invested in our branches
and stores to elevate advice and better meet the needs of those
we serve through legendary, personalized and connected
experiences. We also improved how we run the Bank – simplifying
processes, accelerating project delivery, and strengthening our
cybersecurity and platform resiliency.
TD ended 2019 as an even stronger and more competitive bank.
Extending our competitive advantage
We benefited from our diversified, retail-focused business model
and North American reach.
Customers turn to TD for advice when it matters most – buying
a home, saving and investing for the future, financing a business,
or protecting the things that matter most. In 2019, our focus on
elevating advice and providing legendary service helped us
expand our customer base and maintain the trust of millions of
individuals and businesses across our footprint. Importantly,
through a well-defined risk culture, we delivered this growth while
maintaining a strong balance sheet and capital position.
More recently, we announced our support for a transformative
transaction between TD Ameritrade (a publicly traded company
in which we are a major shareholder) and Charles Schwab, which
we believe will create value for all TD Ameritrade shareholders,
including TD. Through this transaction, TD will become the largest
shareholder of Schwab, a company with the scale and size
needed to drive continued growth in the U.S.
We remained anchored in our purpose, to enrich the lives of
our customers, communities and colleagues.
At TD, we know our customers don't live to bank, they bank to
live. Our investments in 2019 both simplified and enhanced their
interactions with us. To name a few examples, TD Wheels provided
our Canadian customers with new ways to buy and finance
automobiles, while our chatbot, TD Clari, accelerated the delivery
of real-time answers to everyday financial questions. TD GoalAssist
added industry-leading insights and online advice for Canadian
Direct Investing customers, and our U.S. mobile bill pay tool added
more flexible features to deliver a better experience for millions
of customers.
No company succeeds for the long term without recognizing the
integral role it plays in society. These aren't just words – at TD, they
are core to who we are and part of our purpose. In 2019, we
provided $126 million through TD's Ready Commitment across our
footprint. And through the TD Ready Commitment Network we
unlocked the talent and knowledge of thousands of our colleagues,
who contributed by volunteering in their communities.
People remain at the heart of our success and we made
significant investments in their future as well. More than 45,000
colleagues actively engaged in training and skills development
through TD Thrive – our new personalized training and
development platform – to help them succeed, grow and prepare
for tomorrow. We also launched new programs across TD to
generate and act on colleague-generated ideas to improve
operations and solve customer problems.
Throughout the year, building an inclusive bank – where every
colleague feels welcome, able to thrive and grow their career –
remained a key focus. These efforts allowed us to attract and retain
the best people in a highly competitive labour market and to create
a culture of empowerment that is critical to our continued success.
We continued to shape the future of banking.
From our branches and stores to our contact centres and across
online and digital platforms, our omni-channel strategy focused on
the customer and their needs, regardless of how they chose to
engage with us.
In 2019, we further leveraged the power of analytics and artificial
intelligence (AI) to transform data into insights and deepened our
knowledge of our customers to better meet their changing needs
and expectations. Through our work with a cross-section of experts
from across the private and public sectors, we also led a broad
industry-wide conversation on the responsible use of
AI in financial services.
With more than 26 million customers across North America, we
recognize the threats of cybersecurity and the risks they pose and
invested in new capabilities to help protect our customers from
existing and emerging threats. The recent opening of our new TD
Fusion Centre – a multi-disciplinary, agile workspace in Toronto –
improved our ability to detect and respond to cyber threats.
A look ahead
TD is a 164-year-old growth company. In 2019, we continued to
build for the future while delivering growth and value for our
shareholders. We achieved this by remaining true to our purpose –
supporting customers through life's journey, helping to open doors
to new opportunity in communities across North America, and
enabling thousands of colleagues to grow, succeed and thrive.
As a result, we are approaching the year ahead from a position
of strength, with a diverse and growing base of customers and
leading franchises in diversified markets. We have a brand that
stands apart, built over decades as we continue to earn and
preserve the trust of those we serve. Though we expect macro-
economic and interest rate uncertainty to remain, we will continue
to make the investments needed to shape tomorrow.
The commitment and dedication of more than 85,000 TD
colleagues shone through in 2019. Together, we made tremendous
progress. I thank them for their efforts, our customers for their trust,
and you, our shareholders, for your continued support.
Bharat Masrani
Group President and Chief Executive Officer
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TD BANK GROUP ANNUA L REPO RT 20 19 GROU P PR ESIDENT AN D CEO’ S M E SSAGE
Chair of the
Board’s Message
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors as at December 4, 2019, its committees and
key committees’ responsibilities are listed below. Our Proxy
Circular for the 2020 Annual Meeting will set out the director
candidates proposed for election at the meeting and additional
information about each candidate including education, other
public board memberships held in the past five years, areas of
expertise, TD Committee membership, stock ownership, and
attendance at Board and Committee meetings.
Jean-René Halde
Corporate Director and
retired President and
Chief Executive Officer,
Business Development
Bank of Canada,
Saint-Laurent, Québec
Karen E. Maidment
Corporate Director
and former Chief
Financial and
Administrative Officer,
BMO Financial Group,
Cambridge, Ontario
In 2019, TD demonstrated the strength of its business model by
posting strong financial results while delivering on its purpose –
to enrich the lives of its customers, communities and colleagues.
The Bank reported earnings of $11.7 billion. The common share
dividend was increased by 11%, 30 million shares were
repurchased and we continued to deliver above-peer average
Total Shareholder Return for the last three-, five- and ten-years.
This year our Annual Report also includes a new section
discussing the Bank's environmental, social and governance
(ESG) practices, illustrating our commitment to sustainability
and community involvement. As a purpose-driven organization,
we are making a meaningful and long-lasting impact in the
communities we serve.
In 2019, TD advanced a number of initiatives to prepare
the Bank for the future. We were named the most innovative
digital bank in North America by Global Finance and introduced
new capabilities in both Canada and the U.S. to further elevate
the customer experience. Combined with ongoing investments
in branches and stores, TD is delivering for our customers
across every channel. The Bank also continued to make
important investments in our colleagues, introducing new
training and development programs, remaining focused on
diversity and inclusion, and enhancing colleague engagement
across the Bank.
On behalf of the Board, I would like to thank our Group
President and CEO, Bharat Masrani, and his leadership
team, as well as each of our more than 85,000 colleagues
for their hard work and dedication throughout the year.
I also want to thank our shareholders for their ongoing support
and our customers for the opportunity to serve them. We look
forward to continuing to earn and sustain your trust in 2020.
William E. Bennett
Corporate Director and
former President and
Chief Executive Officer,
Draper & Kramer, Inc.,
Chicago, Illinois
Amy W. Brinkley
Consultant,
AWB Consulting, LLC,
Charlotte,
North Carolina
Brian C. Ferguson
Corporate Director and
former President and
Chief Executive Officer,
Cenovus Energy Inc.,
Calgary, Alberta
Colleen A. Goggins
Corporate Director
and retired
Worldwide Chairman,
Consumer Group,
Johnson & Johnson,
Princeton, New Jersey
Mary Jo Haddad
Corporate Director and
retired President and
Chief Executive Officer,
The Hospital for
Sick Children,
Oakville, Ontario
David E. Kepler
Corporate Director
and retired Executive
Vice President,
The Dow Chemical
Company,
Sanford, Michigan
Brian M. Levitt
Chair of the Board,
The Toronto-Dominion
Bank,
Kingston, Ontario
Alan N. MacGibbon
Corporate Director
and retired Managing
Partner and Chief
Executive of
Deloitte LLP (Canada),
Oakville, Ontario
Brian M. Levitt
Chair of the Board
COMMITTEES 1
Corporate Governance Committee
Responsibility for corporate governance
of the Bank
Human Resources Committee
Responsibility for management’s
performance evaluation, compensation
and succession planning
Risk Committee
Supervising the management of risk
of the Bank
Audit Committee
Supervising the quality and integrity
of the Bank’s financial reporting and
compliance requirements
Bharat B. Masrani
Group President and
Chief Executive Officer,
The Toronto-Dominion
Bank,
Toronto, Ontario
Irene R. Miller
Chief Executive Officer,
Akim, Inc.,
New York, New York
Nadir H. Mohamed
Corporate Director and
former President and
Chief Executive Officer,
Rogers
Communications Inc.,
Toronto, Ontario
Claude Mongeau
Corporate Director and
former President and
Chief Executive Officer,
Canadian National
Railway Company,
Montréal, Québec
MEMBERS
Brian M. Levitt (Chair)
William E. Bennett
Karen E. Maidment
Alan N. MacGibbon
Karen E. Maidment (Chair)
Amy W. Brinkley
Mary Jo Haddad
Brian M. Levitt
Nadir H. Mohamed
William E. Bennett (Chair)
Amy W. Brinkley
Colleen A. Goggins
David E. Kepler
Alan N. MacGibbon
Karen E. Maidment
Alan N. MacGibbon (Chair)
William E. Bennett
Brian C. Ferguson
Jean-René Halde
Irene R. Miller
Claude Mongeau
1 A full list of Committee Key Responsibilities is included on page 220.
TD BANK GROUP ANNUAL RE POR T 2 0 19 CHA IR OF TH E BOARD’S ME SSAG E
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OUR STRATEGY
Proven business model
Deliver consistent earnings growth, underpinned
by a strong risk culture
Our diversified, retail-focused business model and North American scale are powerful
enablers – delivering strong results today, while allowing us to reinvest in our competitive
advantages, as we build and transform our businesses to meet our needs today and in the
future. Our approach to managing risk is evident in strong balance sheet metrics and reflects
our commitment to sustaining the trust of those we serve.
TD'S PREMIUM RETAIL
EARNINGS MIX1
TD’s premium earnings mix reflects
our North American retail focus –
lower-risk businesses with stable,
consistent earnings
95% Retail
5% Wholesale
Record Reported Earnings of
$11.7 billion in 2019
Total Shareholder Return2
(5-year CAGR)
10.3%
$12.5 billion Adjusted earnings
7.7% Canadian peers
163-year
Continuous Dividend
History
11.3%
Dividend Growth3
(25-year CAGR)
3.9%
2019 Dividend Yield
1 Reported basis excluding Corporate segment.
2 5-year CAGR is the compound annual growth rate calculated from 2014 to 2019. Source: Bloomberg. Canadian peers include Bank of Montreal,
Canadian Imperial Bank of Commerce, Royal Bank of Canada, and Scotiabank.
3 25-year CAGR is the compound annual growth rate calculated from 1994 to 2019.
Refer to footnotes on page 15 for information on how the results on this page are calculated.
4
TD BANK GROU P AN NUAL REPO RT 20 19 OUR STRATEGY
55%40%5%Canadian RetailU.S. RetailWholesale1.501.000.50$ 3.502.503.002.000.00$0.2011.3% Annualized Growth$2.89199919942004200920142019DIVIDEND HISTORY
2019 Snapshot
TD’s 5-year CAGR
TD’s 5-year CAGR
TD’s 2019 ROE
8.4% Reported
9.2% Adjusted
8.6% Reported
9.4% Adjusted
14.5% Reported
15.6% Adjusted
Performance indicators communicate our priorities, focus effort and benchmark our
results against key elements of our proven business model.
2019 PERFORMANCE INDICATORS
RESULTS 1
• Deliver above-peer-average Total Shareholder Return
• Grow adjusted earnings per share (EPS) by 7 to 10%
• Grow revenue2 faster than expenses
• 7.1% vs. Canadian peer average of 8.7%
• 3.4% adjusted EPS growth
• Total revenue growth of 5% vs. total expense growth of 6%
Assets
$1.4 trillion
Up 6.0% YoY
Deposits
$0.9 trillion
Up 4.2% YoY
Return on Risk-Weighted Assets
2.73%
CET1 Ratio
12.1%
1 Performance indicators that include an earnings component are based on TD’s full-year adjusted results (except as noted) as explained on page 15.
2 Revenue is net of insurance claims and related expenses.
Refer to footnotes on page 15 for information on how the results on this page are calculated.
TD BANK GROUP ANNUAL REP O RT 201 9 OUR STR ATEGY
5
20152016201720182019NET INCOMEavailable to common shareholders(millions of Canadian dollars)AdjustedReported0$12,50010,0007,5005,0002,50020152016201720182019$76543210DILUTED EARNINGS PER SHARE(Canadian dollars)AdjustedReported2015201620172018201913.012.011.016.017.0%15.014.010.0RETURN ON COMMON EQUITY(percent)AdjustedReported
OUR STRATEGY
Purpose-driven
Centre everything we do on our vision, purpose
and shared commitments
Our customers are at the heart of everything we do. It’s our job to make it easy for them
to bank with us – when and how they want. To deliver on this, we’re focused on providing
them personalized, connected and seamless experiences; bringing the whole bank to them
with proactive advice and solutions that meet their needs and make them feel confident.
We are relentlessly focused on our customers
Making the digital experience seamless. We are making it easier
for customers by enhancing the digital experience to remove
irritants and hurdles. This led to an over three times increase
in completion rates for credit card applications and opening
chequing and savings accounts in Canada.
One-stop
service solution
From claims advice, to vehicle
repairs and car rentals, TD Insurance
Auto Centres offer customers a
unique and personalized one-stop
shop. With a total of 19 locations
coast-to-coast, the Auto Centres are
there for customers when it matters
most with a more convenient and
faster experience.
Evolving for the
future
TD Wealth continues to evolve to
reflect the changing needs of
our clients. In 2019, we launched
two new offerings within TD Direct
Investing – GoalAssist and
Learning Centre – both industry-
leading services developed
through a winning collaboration
with innovative Fintechs.
Advice grounded in insights
Our goal is to help clients achieve
financial confidence. The work
we’ve supported in behavioural
finance continues to help us
uncover insights into our clients’
wealth personalities and help them
make the right financial decisions.
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TD BANK GROUP ANNUA L REPO RT 20 19 OUR STR ATE GY
Delivering confidence
with TD Clari
TD’s new chatbot, TD Clari, is powering
personalized digital interactions with customers
through data and insights. By providing
answers to a variety of questions and real-time
information with a human-like charm, TD Clari
is helping customers feel more confident about
their finances.
We are invested in our communities
Analytics for
social good
We see the potential of data to serve
our customers better, and we’re
committed to using our expertise to
share the benefit with our communities
as well. TD Mindpower: Analytics
for Social Good, pairs non-profit
organizations with a dedicated team
of skilled TD volunteers to collaborate
on a range of projects to help non-profit
organizations leverage data to grow
their community impact.
Helping newcomers settle into life in Canada remains a
key area of focus for TD. Our “Banking for Newcomers”
hub on TD.com is helping to introduce new Canadians
to banking in Canada. The hub provides financial
advice and education in 14 languages to support
customers throughout their journey.
We are inspired by our unique and inclusive employee culture
We are investing in our people. The world is changing quickly and in big ways,
creating uncertainty and a fear of being left behind. At TD we are not standing
still – we are investing in our more than 85,000 people. We’re driven by a central
belief that together we can break down barriers and help build inclusive futures.
Our aim is to help our customers, communities and colleagues feel more
confident in this time of change.
TD Thrive, our self-serve learning
platform for colleagues has had
45,000 users with 260,000 learning
content items viewed in 2019.
This is complemented by specialized
programs such as the Digital
Marketing Intelligence program,
designed to deepen employees’
knowledge of digital marketing and
marketing technology to drive business
growth, customer acquisition and
elevate the customer experience.
We are the only bank in Canada to have
a dedicated Assistive Technology
(AT) research lab that verifies our AT
standards are up-to-date and offers the
most possible benefits to our employees
with disabilities.
In 2019, our AT department deployed
1,207 solutions to enable employees
to do their jobs. The team has deployed
close to 10,000 total solutions.
TD recognized by the Bloomberg Gender
Equality Index for the third consecutive year
TD Bank ranked a top company for
Diversity & Inclusion by DiversityInc.
Named one of Canada’s Best Workplaces
in 2019 by Great Place to Work
TD Bank named one of Forbes’
Best Employers for Diversity for 2019
TD BANK GROUP ANNUAL REP O RT 201 9 OUR STR ATEGY
7
OUR STRATEGY
Purpose-driven
Environmental | Social | Governance
As a purpose-driven organization, we understand the role of business to make a
meaningful and lasting positive impact in the communities we serve. We continue
to embed TD’s corporate citizenship approach across our business and work to improve
our ESG performance, focusing on both opportunities and risks.
Social
We provide our colleagues with work that matters,
opportunities beyond expectation and inspiring
leadership. Almost 50% of job opportunities are filled
by our own employees demonstrating TD's support
for career progression and growth.
89% of employees agreed that TD is doing the
right things to make a positive impact in the
communities in which we do business.
We are committed to helping customers achieve
their financial goals and listening to their feedback.
In 2019, over 1 million customers were contacted
in near real time to seek feedback regarding
their most recent interaction with us.
Governance
All eligible TD employees and Directors are required
to complete TD’s Code of Conduct and Ethics training,
a comprehensive course that contributes to the
successful customer relationships that set TD apart.
Our Global Chief Anti-Money Laundering (AML)
Officer is responsible to senior management
and the Board of Directors for establishing and
maintaining the Global AML Program, which
establishes requirements and minimum standards
across all TD businesses.
In 2019, climate risk was identified as a top and
emerging risk for the Bank and TD enhanced
its governance on Environmental and Social
(E&S) risk, including climate risk, through the
formalization of a new E&S risk function.
Environmental
TD contributed over $30 billion in low-carbon lending,
financing, asset management and internal corporate
programs – working towards a target of $100 billion
to help support a transition to the low-carbon economy
by 2030.
We are playing an integral role in the growth of the
green bond market, which is helping to direct capital
toward the transition to a low-carbon economy.
TD has participated in over $21 billion in green
bond underwriting since 2010.
TD actively participates in the global dialogue to
address climate change issues through the Canadian
Standards Association and UNEP FI groups focused
on climate risk in lending, investing and insurance.
TD Insurance convened a National Advisory Council
on Climate Change, comprised of experts across Canada,
to take meaningful action on climate.
TD’s 2019 ESG Report will be available publicly on td.com in March.
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TD BANK GROUP ANNUA L REPO RT 20 19 OUR STR ATE GY
OUR STRATEGY
Purpose-driven
The Ready Commitment
As part of The Ready Commitment at TD, we are investing in our communities,
targeting $1 billion in philanthropy by 2030. In 2019, TD provided $126 million
to support non-profit organizations across North America and the U.K.
The TD Ready Challenge is an annual North American initiative that has up to ten $1 million grants
available to support innovative solutions connected to The Ready Commitment. After two years,
TD has awarded $20 million for 20 impactful solutions that will help open doors for a more inclusive
and sustainable tomorrow.
Vibrant Planet
Financial Security
Elevate the quality of the environment so
that people and economies can thrive
TD is the first corporate sponsor of ALUS
Canada’s New Acre Project™, which helps farmers
transform uneconomic or sensitive portions of their
farmland into ecologically friendly projects, helping
to improve the environment and local communities.
20 U.S. and Canadian cities received 2019
TD Green Space Grants to help support green
infrastructure development and community
green space expansion in communities across
our North American footprint.
Improve access to tools and programs
to help people live their lives with greater
financial confidence
TD Mindpower initiative saw TD employees
volunteer over 1,500 hours in 2019 to lend their
business expertise to help community organizations
enhance their data and analytics capacity.
TD has worked with leading technology
education company Everfi to educate students
and adults to help them build stronger financial
habits through an online course.
Better Health
Connected Communities
Support more equitable health
outcomes for all
Create the opportunities people need
to connect with their community and
have a sense of belonging
TD launched an internal North American executive
task force on refugees which will build on TD’s work to
date providing access to financial services, employment
and financial education to new immigrants.
TD supports The Moncton Hospital in New Brunswick
and its Provincial Child and Adolescent Psychiatry
Program, helping to increase access to care for
adolescents struggling with mental illness.
TD is helping to improve access to health care by
supporting CoLab Philadelphia, which converted
a travel trailer into a mobile, multi-use platform to
directly connect Philadelphians with health services
by conducting free health screenings and providing
health education in public spaces.
TD provided a $1.5 million investment in a new arts
centre in New York City, The Shed, to fund
complimentary performance and exhibition tickets for
underserved communities, and to support the Open Call
program, which commissions works from artists who
have not yet received major institutional recognition.
TD BANK GROUP ANNUAL REP O RT 201 9 OUR STR ATEGY
9
OUR STRATEGY
Forward-focused
Shape the future of banking
in the digital age
Our goal is always to find a better way, adapting and re-inventing ourselves to add value for
our customers. We’re focused on re-imagining the banking experience and driving engagement
across our digital and physical platforms to meet our customers’ needs and expectations.
We are re-imagining the
banking experience
Through the Homeowners’
Journey we are building
deeper, more personalized
relationships with our
customers.
Whether it’s homeownership, a short-
term savings goal, or building for
a secure retirement, our mission is
to deliver elevated advice and build
confidence, no matter what
channel our customers choose
along their journey.
A first-in-Canada credit card control
feature allows TD consumer credit card-
holders to temporarily block their credit
cards from any international in-person
points-of-sale charges through our
mobile banking app. Customers can also
temporarily lock and unlock their credit
card if they can’t immediately locate it.
Leveraging the power of
artificial intelligence
TD will leverage the powerful predictive
capabilities of Layer 6’s artificial intelligence
systems to empower customers with personalized
experiences. By combining the power of artificial
intelligence with our mobile app, we can help
predict customers’ needs to provide the right
information at the right time – helping customers
feel more confident about their financial decisions.
We launched the Responsible AI in Financial Services
report that combined insights from a survey of Canadians
and an expert roundtable to continue exploring the
opportunities and risks of artificial intelligence, and how
companies adopting it can use it responsibly.
We are modernizing
our operations
We are modernizing, optimizing, and
simplifying our operations to transform
how we do business. We converted
Small Business online banking users to
the new U.S. digital platform and mobile
app, adding new functionality such as
single sign-on for Consumer and Small
Business accounts.
We are empowering customers to open
deposit accounts and apply for personal
loans when and where they want using
our online tool, EasyApply, simplifying the
experience and significantly saving time.
Through EasyApply, TD was the first big
five bank in Canada to offer customers an
end-to-end loan application.
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TD BANK GROU P AN NUAL REPO RT 20 19 OUR STR ATE GY
We are innovating
Developing a culture of innovation
Through our new employee ideation platform, iD8, we are changing the way ideas are realized at the
Bank. We understand that there’s no better source of impactful ideas than the ones that come from
our colleagues, so we’ve built a platform that provides a place to share ideas, big and small. Since its
launch in February 2019, iD8 has seen:
13,000+
ideas generated
2,000,000+
customers benefited
22,000+
colleagues benefited
The trust our customers place in us is central to our innovation strategy.
No matter which set of technologies we're exploring as we look to create
new and better experiences for our customers, our efforts will be informed
by our ongoing commitment to maintaining the highest regard for
customer privacy, data security, and financial stability.
Our commitment
to investing in
cybersecurity
Our new TD Fusion Centre in Toronto is an
agile workspace that brings together
colleagues from critical functions across
the Bank to increase our effectiveness in
protecting and responding to potential
cyber threats. The TD Fusion Centre is
another step forward in the Bank's ongoing
efforts to deliver meaningful innovations
that help protect assets and safeguard
customers' privacy, security and trust.
Putting customers in the
driver’s seat
The new TD Wheels mobile app elevates the
car-buying experience for Canadians by
offering a personalized digital experience
that gives them a view of their car-buying
options, including allowing users to get
pre-qualification for vehicle financing.
Delivering engaging
mobile solutions
for customers
TD is consistently ranked #1 among
top retail banking apps in Canada,
according to App Annie, Silicon
Valley-based mobile data and
analytics firm.
TD BANK GROUP ANNUAL REP O RT 201 9 OUR STR ATEGY
11
OUR STRATEGY
Forward-focused
Our omni-strategy
Delivering legendary, connected and personalized advice for today and tomorrow.
Across TD we continue to invest in personalized customer service while strengthening
our omni-channel strategy to allow our customers to move seamlessly across channels.
Putting our customers first
In the U.S., our customer-centric “Unexpectedly
Human” approach showcases our commitment to
making an impact in our local communities and
demonstrates our focus on how we do things
differently. From the extra conveniences we offer
our customers, to the ways we engage with them,
or the improvements to our distribution networks
and platforms. Each of these investments is making
banking faster and simpler for our customers
across every channel.
Focusing on what
really matters
We’re investing in our
branch colleagues and
their training, coaching
and accreditation
We’re hiring more front-line
colleagues and have created
new specialized roles like
Senior Financial Advisors
Just one year into our
journey – we’re seeing
terrific results.
Future Ready has:
Eliminated approximately
2 million annual emails and
1 million administrative activities
Delivered approximately
23 more hours of capacity
per branch per week
We‘ve hired more than
750 customer advisors
in the branch, and we
continue to add new mobile
mortgage specialists
Our Legendary Experience
Index – how we track our
customers’ experiences with TD
– has shown us delivering record
customer satisfaction results
As our journey continues into 2020, TD is doing more to help
our colleagues deepen relationships with our customers and
deliver legendary, connected and personalized omni-channel
experiences. By pairing exceptional in-person experiences with
seamless digital options, we continue to invest in our people, our
branches and new tools for our customers.
Elevating the personalized email experience for customers
Leveraging a platform to further personalize customer
emails in real time, when they are opened – based on
location, time, weather and other contextual data – allows
us to create compelling emails that increase engagement.
This has improved engagement by over 25%.
Being Future Ready
We are committed to providing our customers with
the best trusted advice to guide them through
life’s important financial decisions. This is what the
Canadian Personal Bank’s Future Ready strategy
is all about.
It’s about providing our customers with confidence
that is deeply rooted in our understanding of their
evolving needs, offering personalized advice to help
them reach their financial goals, and making sure
colleagues have the time they need to elevate the
advice they give.
TD is proud to have won
four J.D. Power awards
in 2019. These wins are
a testament to the value
of our omni-channel
approach and the power
of the One TD model.
TD Canada Trust won the
award for highest customer
satisfaction levels among
the big five banks1
TD Bank received the highest
customer satisfaction
with retail banking in the
Southeast3
TD Auto Finance Canada
ranked highest in dealer
satisfaction among
non-captive retail lenders2
TD Bank ranked highest in
small business banking in
the South Region4
1 TD Canada Trust won the award for highest customer satisfaction levels among the big five banks, ranking highest in overall satisfaction, convenience, and
channel activities.
2 TD Auto Finance Canada ranked highest in dealer satisfaction among non-captive retail lenders for the second year in a row.
3 TD Bank, America’s Most Convenient Bank®, received the highest customer satisfaction with retail banking in the Southeast, according to the J.D. Power 2019 U.S.
Retail Banking Study.
4 TD Bank ranked “Highest in Small Business Banking in the South Region” according to the J.D. Power Small Business Banking Satisfaction Study.
1212
TD BANK GROU P AN NUAL REPO RT 20 19 OUR STR ATE GY
TD BANK GROUP ANNUAL REPORT 2019 OUR STRATEGY ENHANCED DISCLOSURE TASK FORCE
The Enhanced Disclosure Task Force (EDTF) was established by the
Financial Stability Board in 2012 to identify fundamental disclosure
principles, recommendations, and leading practices to enhance risk
disclosures of banks. The index below includes the recommendations
(as published by the EDTF) and lists the location of the related EDTF
disclosures presented in the 2019 Annual Report or the 2019
fourth quarter Supplemental Financial Information (SFI), or
Supplemental Regulatory Disclosures (SRD). Information on
TD’s website, SFI, and SRD is not and should not be considered
incorporated herein by reference into the 2019 Annual Report,
Management’s Discussion and Analysis, or the Consolidated
Financial Statements.
Type of Risk
Topic
EDTF Disclosure
Annual Report
Page
SFI
SRD
General
Risk
Governance
and Risk
Management
and Business
Model
Capital
Adequacy
and Risk
Weighted
Assets
Liquidity
Funding
Market Risk
Credit Risk
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Present all related risk information together in any particular report.
Refer to below for location of disclosures
The bank’s risk terminology and risk measures and present key parameter
values used.
73-78, 83,
90-93, 103-105
Describe and discuss top and emerging risks.
Outline plans to meet each new key regulatory ratio once applicable rules
are fnalized.
Summarize the bank’s risk management organization, processes, and
key functions.
Description of the bank’s risk culture and procedures applied to support
the culture.
Description of key risks that arise from the bank’s business models
and activities.
Description of stress testing within the bank’s risk governance and
capital frameworks.
Pillar 1 capital requirements and the impact for global systemically
important banks.
68-73
63-64, 89, 97-98
74-77
73-74
62, 73, 78-105
61, 77, 86, 103
58-60, 64, 211
Composition of capital and reconciliation of accounting balance sheet to the
regulatory balance sheet.
58
Flow statement of the movements in regulatory capital.
Discussion of capital planning within a more general discussion of
management’s strategic planning.
Analysis of how RWA relate to business activities and related risks.
Analysis of capital requirements for each method used for calculating RWA.
Tabulate credit risk in the banking book for Basel asset classes and
major portfolios.
Flow statement reconciling the movements of RWA by risk type.
59-61, 103
61-62
79-81, 83,
85-86, 100
4-7
Discussion of Basel III back-testing requirements.
82, 86, 91-92
1-3, 6
1-3, 5
4
10
22-36, 40-45
11-12
58-60
The bank’s management of liquidity needs and liquidity reserves.
Encumbered and unencumbered assets in a table by balance sheet category.
Tabulate consolidated total assets, liabilities and off-balance sheet
commitments by remaining contractual maturity at the balance sheet date.
Discussion of the bank’s funding sources and the bank’s funding strategy.
Linkage of market risk measures for trading and non-trading portfolio and
balance sheet.
Breakdown of signifcant trading and non-trading market risk factors.
Signifcant market risk measurement model limitations and
validation procedures.
Primary risk management techniques beyond reported risk measures
and parameters.
Provide information that facilitates users’ understanding of the bank’s credit
risk profle, including any signifcant credit risk concentrations.
93-95
96, 205
100-102
99-100
84
84, 86-89
85-89, 91-92
85-89
45-58, 78-83,
164-169, 178,
181-182,
209-210
53, 136-137,
143-144, 168
15-31
1-5, 10-11,
13-60
27
Description of the bank’s policies for identifying impaired loans.
28
29
30
31
Other Risks
Reconciliation of the opening and closing balances of impaired loans in the
period and the allowance for loan losses.
50, 166-167
19, 23-24
Analysis of the bank’s counterparty credit risks that arises from
derivative transactions.
Discussion of credit risk mitigation, including collateral held for all sources
of credit risk.
81-82, 151,
174-175, 178,
181-182
82, 140, 151
Description of ‘other risk’ types based on management’s classifcations and
discuss how each one is identifed, governed, measured and managed.
90-92, 103-105
32
Discuss publicly known risk events related to other risks.
71-73, 203-205
37-39, 46-51
TD BANK GROUP ANNUAL RE POR T 2 0 19 ENH AN C ED DIS CLOSURE TASK FORCE
13
Management’s Discussion and Analysis
This Management’s Discussion and Analysis (MD&A) is presented to enable readers to assess material
changes in the fnancial condition and operating results of TD Bank Group (“TD” or the “Bank”) for the
year ended October 31, 2019, compared with the corresponding period in the prior years. This MD&A
should be read in conjunction with the audited Consolidated Financial Statements and related Notes for
the year ended October 31, 2019. This MD&A is dated December 4, 2019. Unless otherwise indicated, all
amounts are expressed in Canadian dollars and have been primarily derived from the Bank’s annual
Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards
(IFRS) as issued by the International Accounting Standards Board (IASB). Note that certain comparative
amounts have been revised to conform with the presentation adopted in the current period.
Caution Regarding Forward-Looking Statements
14 GROUP FINANCIAL CONDITION
FINANCIAL RESULTS OVERVIEW
Net Income
Revenue
Provision for Credit Losses
Expenses
Taxes
Quarterly Financial Information
BUSINESS SEGMENT ANALYSIS
Business Focus
Canadian Retail
U.S. Retail
Wholesale Banking
Corporate
20
21
22
23
24
24
Balance Sheet Review
Credit Portfolio Quality
Capital Position
Securitization and Off-Balance Sheet Arrangements
Related-Party Transactions
Financial Instruments
RISK FACTORS AND MANAGEMENT
Risk Factors That May Affect Future Results
Managing Risk
26
29 ACCOUNTING STANDARDS AND POLICIES
Critical Accounting Policies and Estimates
33
Current and Future Changes in Accounting Policies
37
Controls and Procedures
40
2018 FINANCIAL RESULTS OVERVIEW
Summary of 2018 Performance
2018 Financial Performance by Business Line
41
42
ADDITIONAL FINANCIAL INFORMATION
44
45
58
65
67
68
68
73
106
110
111
112
Additional information relating to the Bank, including the Bank’s Annual Information Form, is available on the Bank’s website at http://www.td.com, on SEDAR at
http://www.sedar.com, and on the U.S. Securities and Exchange Commission’s website at http://www.sec.gov (EDGAR filers section).
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 (“2019 MD&A”) in the Bank’s 2019 Annual
Report under the heading “Economic Summary and Outlook”, for the Canadian Retail, U.S. Retail, and Wholesale Banking segments under headings “Business Outlook
and Focus for 2020”, and for the Corporate segment, “Focus for 2020”, and in other statements regarding the Bank’s objectives and priorities for 2020 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”, “would”, “should”, “believe”, “expect”, “anticipate”, “intend”, “estimate”, “plan”, “goal”, “target”, “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,
interest rate, and credit spreads), liquidity, operational (including technology and infrastructure), model, 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; geopolitical
risk; the ability of the Bank to execute on long-term strategies and shorter-term key strategic priorities, including the successful completion of acquisitions and dispositions,
business retention plans, and strategic plans; the ability of the Bank 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; fraud or other criminal activity 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, capital guidelines and liquidity regulatory guidance and the bank
recapitalization “bail-in” regime; exposure related to significant litigation and regulatory matters; increased competition from incumbents and non-traditional competitors,
including Fintech and big technology 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; Interbank Offered Rate (IBOR) transition risk; critical accounting
estimates and changes to accounting standards, policies, and methods used by the Bank; existing and potential international debt crises; environmental and social risk; 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
2019 MD&A, as may be updated in subsequently filed quarterly reports to shareholders and news releases (as applicable) related to any events or transactions discussed
under the headings “Significant and Subsequent Events, and Pending Transactions” 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 2019 MD&A under the headings “Economic
Summary and Outlook”, for the Canadian Retail, U.S. Retail, and Wholesale Banking segments, “Business Outlook and Focus for 2020”, and for the Corporate segment,
“Focus for 2020”, 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.
14
TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
T A B L E 1
FINANCIAL HIGHLIGHTS1
(millions of Canadian dollars, except where noted)
Results of operations
Total revenues – reported
Total revenues – adjusted2
Provision for credit losses3
Insurance claims and related expenses
Non-interest expenses – reported
Non-interest expenses – adjusted2
Net income – reported
Net income – adjusted2
Financial positions (billions of Canadian dollars)
Total loans net of allowance for loan losses
Total assets
Total deposits
Total equity
Total Common Equity Tier 1 Capital risk-weighted assets4
Financial ratios
Return on common equity – reported
Return on common equity – adjusted2,5
Return on tangible common equity2,5
Return on tangible common equity – adjusted2,5
Effciency ratio – reported
Effciency ratio – adjusted2
Provision for credit losses as a % of net average loans and acceptances6
Common share information – reported (Canadian dollars)
Per share earnings
Basic
Diluted
Dividends per common share
Book value per share
Closing share price7
Shares outstanding (millions)
Average basic
Average diluted
End of period
Market capitalization (billions of Canadian dollars)
Dividend yield8
Dividend payout ratio
Price-earnings ratio
Total shareholder return (1-year)9
Common share information – adjusted (Canadian dollars)2
Per share earnings
Basic
Diluted
Dividend payout ratio
Price-earnings ratio
Capital ratios
Common Equity Tier 1 Capital ratio4
Tier 1 Capital ratio4
Total Capital ratio4
Leverage ratio
2019
2018
2017
$ 41,065
41,065
3,029
2,787
22,020
21,085
11,686
12,503
$ 684.6
1,415.3
887.0
87.7
456.0
$ 38,892
38,981
2,480
2,444
20,195
19,943
11,334
12,183
$ 646.4
1,334.9
851.4
80.0
435.6
$ 36,202
35,999
2,216
2,246
19,419
19,145
10,517
10,587
$ 612.6
1,279.0
832.8
75.2
435.8
14.5%
15.6
20.5
21.5
53.6
51.3
0.45
15.7%
16.9
22.7
23.9
51.9
51.2
0.39
14.9%
15.0
21.9
21.6
53.6
53.2
0.37
$
6.26
6.25
2.89
45.20
75.21
1,824.2
1,827.3
1,811.9
$ 136.3
$
6.02
6.01
2.61
40.50
73.03
1,835.4
1,839.5
1,828.3
$ 133.5
$
5.51
5.50
2.35
37.76
73.34
1,850.6
1,854.8
1,839.6
$ 134.9
$
3.9%
46.1
12.0
7.1
6.71
6.69
43.0%
11.2
12.1%
13.5
16.3
4.0
$
3.5%
43.3
12.2
3.1
6.48
6.47
40.2%
11.3
12.0%
13.7
16.2
4.2
$
3.6%
42.6
13.3
24.8
5.55
5.54
42.3%
13.2
10.7%
12.3
14.9
3.9
1 Certain comparative amounts have been recast to conform with the presentation
adopted in the current period.
2 The Toronto-Dominion Bank (“TD” or the “Bank”) prepares its Consolidated
Financial Statements in accordance with International Financial Reporting Standards
(IFRS), the current Generally Accepted Accounting Principles (GAAP), and refers to
results prepared in accordance with IFRS as the “reported” results. The Bank also
utilizes non-GAAP financial measures to arrive at “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. Refer to the
“Financial Results Overview” in 2019 Management’s Discussion and Analysis
(MD&A) for further explanation, a list of the items of note, and a reconciliation
of non-GAAP financial measures.
3 Effective November 1, 2017, amounts were prepared in accordance with IFRS 9,
Financial Instruments (IFRS 9). Prior period comparatives were prepared in
accordance with IAS 39, Financial Instruments: Recognition and Measurement
(IAS 39) and have not been restated.
4 Each 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 2019, the
scalars for inclusion of CVA for Common Equity Tier 1 (CET1), Tier 1, and Total
Capital RWA are all 100%. For fiscal 2018, the scalars were 80%, 83%, and 86%,
respectively. For fiscal 2017, the scalars were 72%, 77%, and 81%, respectively.
Prior to fiscal 2018, as the Bank was constrained by the Basel I regulatory floor, the
RWA as it relates to the regulatory floor was calculated based on the Basel I risk
weights which were the same for all capital ratios.
5 Metrics are non-GAAP financial measures. Refer to the “Return on Common
Equity” and “Return on Tangible Common Equity” sections of this document for
an explanation.
6 Excludes acquired credit-impaired (ACI) loans, debt securities classified as loans
(DSCL) under IAS 39, debt securities at amortized cost (DSAC), and debt securities
at fair value through other comprehensive income (DSOCI) under IFRS 9.
7 Toronto Stock Exchange (TSX) closing market price.
8 Dividend yield is calculated as the dividend per common share paid during the year
divided by the daily average closing stock price during the year.
9 Total shareholder return is calculated based on share price movement and
dividends reinvested over a trailing one-year period.
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
15
FINANCIAL RESULTS OVERVIEW
CORPORATE OVERVIEW
The Toronto-Dominion Bank and its subsidiaries are collectively known
as TD Bank Group (“TD” or the “Bank”). TD is the ffth largest bank
in North America by branches and serves over 26 million customers
in three key businesses operating in a number of locations in fnancial
centres around the globe: 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. TD also ranks among the world’s leading online fnancial
services frms, with more than 13 million active online and mobile
customers. TD had $1.4 trillion in assets on October 31, 2019,
and 89,031 average full-time equivalent employees in fscal 2019.
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 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 fnancial 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 defned terms under IFRS and, therefore, may not be comparable
to similar terms used by other issuers.
The Bank’s U.S. strategic cards portfolio is comprised of agreements
with certain U.S. retailers pursuant to which TD is the U.S. issuer of
private label and co-branded consumer credit cards to their U.S.
customers. Under the terms of the individual agreements, the Bank
and the retailers share in the profts generated by the relevant
portfolios after credit losses. Under IFRS, TD is required to present the
gross amount of revenue and provisions for credit losses related to
these portfolios in the Bank’s Consolidated Statement of Income.
At the segment level, the retailer program partners’ share of revenues
and credit losses is presented in the Corporate segment, with an
offsetting amount (representing the partners’ net share) recorded in
Non-interest expenses, resulting in no impact to Corporate’s reported
Net income (loss). The Net income (loss) included in the U.S. Retail
segment includes only the portion of revenue and credit losses
attributable to TD under the agreements.
Effective November 1, 2017, the Bank adopted IFRS 9, which replaced
the guidance in IAS 39. Refer to Note 2 of the 2019 Consolidated
Financial Statements for a summary of the Bank’s accounting policies
as it relates to IFRS 9. Under IFRS 9, the current period provision for
credit losses (PCL) for performing (Stage 1 and Stage 2) and impaired
(Stage 3) fnancial assets, loan commitments, and fnancial guarantees
is recorded within the respective segment. Under IAS 39 and prior
to November 1, 2017, the PCL related to the collectively assessed
allowance for incurred but not identifed credit losses that related to
the Canadian Retail and Wholesale Banking segments was recorded in
the Corporate segment. Prior period results have not been restated.
PCL on impaired fnancial assets includes Stage 3 PCL under IFRS 9 and
counterparty-specifc and individually insignifcant PCL under IAS 39.
PCL on performing fnancial assets, loan commitments, and fnancial
guarantees include Stage 1 and Stage 2 PCL under IFRS 9 and incurred
but not identifed losses under IAS 39.
IFRS 9 does not require restatement of comparative period fnancial
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 had made the decision not to
restate comparative period fnancial information and had recognized
any measurement differences between the previous carrying amount
and the new carrying amount on November 1, 2017 through an
adjustment to opening retained earnings. As such, fscal 2019 and
2018 results refect the adoption of IFRS 9, while fscal 2017 refects
results under IAS 39.
U.S. Tax Reform
On December 22, 2017, the U.S. government enacted comprehensive
tax legislation commonly referred to as the Tax Cuts and Jobs Act
(the “U.S. Tax Act”) which made broad and complex changes to the
U.S. tax code.
The reduction of the U.S. federal corporate tax rate enacted by the
U.S. Tax Act resulted in an adjustment during 2018 to the Bank’s U.S.
deferred tax assets and liabilities to the lower base rate of 21% as well
as an adjustment to the Bank’s carrying balances of certain tax credit-
related investments and its investment in TD Ameritrade. The Bank
fnalized its assessment of the implications of the U.S. Tax Act during
2018 and recorded a net charge to earnings of $392 million
(US$319 million) for the year ended October 31, 2018.
The lower corporate tax rate had and continues to have a positive
effect on TD’s current year and future earnings. The amount of the
beneft may vary due to, among other things, changes in
interpretations and assumptions the Bank has made and guidance that
may be issued by applicable regulatory authorities.
The following table provides the operating results on a reported basis
for the Bank.
T A B L E 2
OPERATING RESULTS – Reported 1
(millions of Canadian dollars)
Net interest income
Non-interest income
Total revenue
Provision for credit losses
Insurance claims and related expenses
Non-interest expenses
Income before income taxes and equity in net income of an investment in TD Ameritrade
Provision for income taxes
Equity in net income of an investment in TD Ameritrade
Net income – reported
Preferred dividends
Net income available to common shareholders and non-controlling interests in subsidiaries
Attributable to:
Common shareholders
Non-controlling interests
1 Certain comparative amounts have been recast to conform with the presentation
adopted in the current period.
16
TD B ANK GROUP ANNUAL REP ORT 2 019 MA NAGEM ENT’S DIS CUS SION AND A NA LY SIS
2019
$ 23,931
17,134
41,065
3,029
2,787
22,020
13,229
2,735
1,192
11,686
252
$ 11,434
2018
$ 22,239
16,653
38,892
2,480
2,444
20,195
13,773
3,182
743
11,334
214
$ 11,120
2017
$ 20,847
15,355
36,202
2,216
2,246
19,419
12,321
2,253
449
10,517
193
$ 10,324
$ 11,416
18
$ 11,048
72
$ 10,203
121
T A B L E 3
NON-GAAP FINANCIAL MEASURES – Reconciliation of Adjusted to Reported Net Income1
(millions of Canadian dollars)
2019
2018
2017
Operating results – adjusted
Net interest income
Non-interest income2
Total revenue
Provision for credit losses
Insurance claims and related expenses
Non-interest expenses3
Income before income taxes and equity in net income of an investment in TD Ameritrade
Provision for (recovery of) income taxes
Equity in net income of an investment in TD Ameritrade4
Net income – adjusted
Preferred dividends
Net income available to common shareholders and non-controlling interests in subsidiaries – adjusted
Attributable to:
Non-controlling interests in subsidiaries, net of income taxes
Net income available to common shareholders – adjusted
Pre-tax adjustments of items of note
Amortization of intangibles5
Charges related to the long-term loyalty agreement with Air Canada6
Charges associated with the acquisition of Greystone7
Charges associated with the Scottrade transaction8
Impact from U.S. tax reform9
Dilution gain on the Scottrade transaction10
11
Loss on sale of the Direct Investing business in Europe
Fair value of derivatives hedging the reclassifed available-for-sale securities portfolio12
Provision for (recovery of) income taxes for items of note
Amortization of intangibles5,13
Charges related to the long-term loyalty agreement with Air Canada6
Charges associated with the acquisition of Greystone7
Charges associated with the Scottrade transaction8
Impact from U.S. tax reform9
Dilution gain on the Scottrade transaction10
11
Loss on sale of the Direct Investing business in Europe
Fair value of derivatives hedging the reclassifed available-for-sale securities portfolio12
Total adjustments for items of note
Net income available to common shareholders – reported
$ 23,931
17,134
41,065
3,029
2,787
21,085
14,164
2,949
1,288
12,503
252
12,251
18
12,233
(307)
(607)
(117)
–
–
–
–
–
(48)
(161)
(5)
–
–
–
–
–
(817)
$ 11,416
$ 22,239
16,742
38,981
2,480
2,444
19,943
14,114
2,898
967
12,183
214
11,969
72
11,897
(324)
–
–
(193)
(48)
–
–
–
(55)
–
–
(5)
344
–
–
–
(849)
$ 11,048
$ 20,847
15,152
35,999
2,216
2,246
19,145
12,392
2,336
531
10,587
193
10,394
121
10,273
(310)
–
–
(46)
–
204
(42)
41
(78)
–
–
(10)
–
–
(2)
7
(70)
$ 10,203
1 Certain comparative amounts have been recast to conform with the presentation
adopted in the current period.
2 Adjusted non-interest income excludes the following items of note: Adjustment
to the carrying balances of certain tax credit-related investments as explained
in footnote 9 – 2018 – $(89) million. Dilution gain on the Scottrade transaction,
as explained in footnote 10 – 2017 – $204 million. Loss on sale of the Direct
Investing business in Europe, as explained in footnote 11 – 2017 – $42 million.
Gain on fair value of derivatives hedging the reclassified available-for-sale (AFS)
securities portfolio, as explained in footnote 12 – 2017 – $41 million. These
amounts were reported in the Corporate segment.
3 Adjusted non-interest expenses exclude the following items of note: Amortization
of intangibles, as explained in footnote 5 – 2019 – $211 million, 2018 –
$231 million, 2017 – $248 million, reported in the Corporate segment. Charges
related to the long-term loyalty agreement with Air Canada, as explained in
footnote 6 – 2019 – $607 million; this amount was reported in the Canadian
Retail segment. Charges associated with the acquisition of Greystone, as explained
in footnote 7 – 2019 – $117 million; this amount was reported in the Canadian
Retail segment. Charges associated with the Bank’s acquisition of Scottrade Bank,
as explained in footnote 8 – 2018 – $21 million and 2017 – $26 million, reported
in the U.S. Retail segment.
4 Adjusted equity in net income of an investment in TD Ameritrade excludes the
following items of note: Amortization of intangibles as explained in footnote 5 –
2019 – $96 million, 2018 – $93 million, 2017 – $62 million; and the Bank’s share
of TD Ameritrade’s deferred tax balances adjustment, as explained in footnote 9 –
2018 – $(41) million. The earnings impact of both of these items was reported
in the Corporate segment. The Bank’s share of charges associated with
TD Ameritrade’s acquisition of Scottrade Financial Services Inc. (Scottrade),
as explained in footnote 8 – 2018 – $172 million and 2017 – $20 million.
This item was reported in the U.S. Retail segment.
5 Amortization of intangibles relates to intangibles acquired as a result of asset
acquisitions and business combinations, including the after-tax amounts for
amortization of intangibles relating to the Equity in net income of the investment
in TD Ameritrade. Although the amortization of software and asset servicing rights
are recorded in amortization of intangibles, they are not included for purposes of
the items of note.
6 On January 10, 2019, the Bank’s long-term loyalty program agreement with
Air Canada became effective in conjunction with Air Canada completing its
acquisition of Aimia Canada Inc., which operates the Aeroplan loyalty business
(the “Transaction”). In connection with the Transaction, the Bank recognized an
expense of $607 million ($446 million after-tax) in the Canadian Retail segment.
7 On November 1, 2018, the Bank acquired Greystone Capital Management Inc.,
the parent company of Greystone Managed Investments Inc. (“Greystone”).
The Bank incurred acquisition related charges including compensation to employee
shareholders issued in common shares in respect of the purchase price, direct
transaction costs, and certain other acquisition related costs. These amounts
have been recorded as an adjustment to net income and were reported in the
Canadian Retail segment.
8 On September 18, 2017, the Bank acquired Scottrade Bank and TD Ameritrade
acquired Scottrade, together with the Bank’s purchase of TD Ameritrade shares
issued in connection with TD Ameritrade’s acquisition of Scottrade (the “Scottrade
transaction”). Scottrade Bank merged with TD Bank, N.A. The Bank and
TD Ameritrade incurred acquisition related charges including employee severance,
contract termination fees, direct transaction costs, and other one-time charges.
These amounts have been recorded as an adjustment to net income and include
charges associated with the Bank’s acquisition of Scottrade Bank and the after-tax
amounts for the Bank’s share of charges associated with TD Ameritrade’s
acquisition of Scottrade. These amounts were reported in the U.S. Retail segment.
9 The reduction of the U.S. federal corporate tax rate enacted by the U.S. Tax Act
resulted in a net charge to earnings during 2018 of $392 million, comprising a net
$48 million pre-tax charge related to the write-down of certain tax credit-related
investments, partially offset by the favourable impact of the Bank’s share of
TD Ameritrade’s remeasurement of its deferred income tax balances, and a net
$344 million income tax expense resulting from the remeasurement of the Bank’s
deferred tax assets and liabilities to the lower base rate of 21% and other related
tax adjustments. The earnings impact was reported in the Corporate segment.
10 In connection with TD Ameritrade’s acquisition of Scottrade on September 18, 2017,
TD Ameritrade issued 38.8 million shares, of which the Bank purchased 11.1 million
pursuant to its pre-emptive rights. As a result of the share issuances, the Bank’s
common stock ownership percentage in TD Ameritrade decreased and the Bank
realized a dilution gain of $204 million reported in the Corporate segment.
11 On June 2, 2017, the Bank completed the sale of its Direct Investing business in
Europe to Interactive Investor PLC. A loss of $40 million after tax was recorded in
the Corporate segment in other income (loss). The loss is not considered to be in
the normal course of business for the Bank.
12 The Bank changed its trading strategy with respect to certain trading debt
securities and reclassified these securities from trading to AFS under IAS 39
(classified as fair value through other comprehensive income (FVOCI) under IFRS 9)
effective August 1, 2008. These debt securities are economically hedged, primarily
with credit default swap (CDS) and interest rate swap contracts which are recorded
on a fair value basis with changes in fair value recorded in the period’s earnings.
As a result, the derivatives were accounted for on an accrual basis in Wholesale
Banking and the gains and losses related to the derivatives in excess of the accrued
amounts were reported in the Corporate segment. Adjusted results of the Bank in
prior periods exclude the gains and losses of the derivatives in excess of the accrued
amount. Effective February 1, 2017, the total gains and losses as a result of changes
in fair value of these derivatives are recorded in Wholesale Banking.
13 The amount reported in 2018 excludes $31 million relating to the one-time
adjustment of associated deferred tax liability balances as a result of the U.S. Tax
Act. The impact of this adjustment is included in the Impact from U.S. tax reform
item of note.
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
17
T A B L E 4
RECONCILIATION OF REPORTED TO ADJUSTED EARNINGS PER SHARE (EPS)1
(Canadian dollars)
Basic earnings per share – reported
Adjustments for items of note2
Basic earnings per share – adjusted
Diluted earnings per share – reported
Adjustments for items of note2
Diluted earnings per share – adjusted
2019
$ 6.26
0.45
$ 6.71
$ 6.25
0.44
$ 6.69
2018
$ 6.02
0.46
$ 6.48
$ 6.01
0.46
$ 6.47
2017
$ 5.51
0.04
$ 5.55
$ 5.50
0.04
$ 5.54
1 EPS is computed by dividing net income available to common shareholders by the
2 For explanations of items of note, refer to the “Non-GAAP Financial Measures –
weighted-average number of shares outstanding during the period.
Reconciliation of Adjusted to Reported Net Income” table in the “Financial Results
Overview” section of this document.
T A B L E 5
AMORTIZATION OF INTANGIBLES, NET OF INCOME TAXES1,2
(millions of Canadian dollars)
TD Bank, National Association (TD Bank, N.A.)
TD Ameritrade Holding Corporation (TD Ameritrade)3
MBNA Canada
Aeroplan
Other
Software and asset servicing rights
Amortization of intangibles, net of income taxes
2019
$
76
96
40
17
30
259
469
$ 728
2018
$
87
93
49
17
23
269
464
$ 733
2017
$ 91
62
42
17
20
232
351
$ 583
1 The amount reported in 2018 excludes $31 million relating to the one-time
adjustment of associated deferred tax liability balances as a result of the U.S. Tax
Act. The impact of this adjustment is included in the Impact from U.S. tax reform
item of note.
2 Amortization 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 “Financial Results Overview” section of this document.
3 Included in equity in net income of an investment in TD Ameritrade.
RETURN ON COMMON EQUITY
The Bank’s methodology for allocating capital to its business segments
is aligned with the common equity capital requirements under Basel III.
For fscal 2019, the capital allocated to the business segments is based
on 10% CET1 Capital. Capital allocated to the business segments was
based on 9% for fscal 2018 and 2017.
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 fnancial measure and is not a defned
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.
T A B L E 6
RETURN ON COMMON EQUITY
(millions of Canadian dollars, except as noted)
Average common equity
Net income available to common shareholders – reported
Items of note, net of income taxes1
Net income available to common shareholders – adjusted
Return on common equity – reported
Return on common equity – adjusted
1 For explanations of items of note, refer to the “Non-GAAP Financial Measures –
Reconciliation of Adjusted to Reported Net Income” table in the “Financial Results
Overview” section of this document.
2019
$ 78,638
11,416
817
$ 12,233
2018
$ 70,499
11,048
849
$ 11,897
2017
$ 68,349
10,203
70
$ 10,273
14.5%
15.6
15.7%
16.9
14.9%
15.0
RETURN ON TANGIBLE COMMON EQUITY
Tangible common equity (TCE) is calculated as common shareholders’
equity less goodwill, imputed goodwill and intangibles on an investment
in TD Ameritrade and other acquired intangible assets, net of related
deferred tax liabilities. Return on tangible common equity (ROTCE) is
calculated as reported net income available to common shareholders
after adjusting for the after-tax amortization of acquired intangibles,
which are treated as an item of note, as a percentage of average TCE.
Adjusted ROTCE is calculated using reported net income available to
common shareholders, adjusted for items of note, as a percentage
of average TCE. Adjusted ROTCE provides a useful measure of the
performance of the Bank’s income producing assets, independent of
whether or not they were acquired or developed internally. TCE, ROTCE,
and adjusted ROTCE are each non-GAAP fnancial measures and are not
defned terms under IFRS. Readers are cautioned that earnings and other
measures adjusted to a basis other than IFRS do not have standardized
meanings under IFRS and, therefore, may not be comparable to similar
terms used by other issuers.
18
TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
T A B L E 7
RETURN ON TANGIBLE COMMON EQUITY
(millions of Canadian dollars, except as noted)
Average common equity
Average goodwill
Average imputed goodwill and intangibles on an investment in TD Ameritrade
Average other acquired intangibles1
Average related deferred tax liabilities
Average tangible common equity
Net income available to common shareholders – reported
Amortization of acquired intangibles, net of income taxes2
Net income available to common shareholders after adjusting for
after-tax amortization of acquired intangibles
Other items of note, net of income taxes2
Net income available to common shareholders – adjusted
Return on tangible common equity
Return on tangible common equity – adjusted
2019
$ 78,638
17,070
4,146
662
(260)
57,020
11,416
259
11,675
558
$ 12,233
2018
$ 70,499
16,197
4,100
676
(240)
49,766
11,048
269
11,317
580
$ 11,897
2017
$ 68,349
16,335
3,899
917
(343)
47,541
10,203
232
10,435
(162)
$ 10,273
20.5%
21.5
22.7%
23.9
21.9%
21.6
1 Excludes intangibles relating to software and asset servicing rights.
2 For explanations of items of note, refer to the “Non-GAAP Financial Measures –
SIGNIFICANT AND SUBSEQUENT EVENTS, AND
PENDING TRANSACTIONS
Bank Supports Acquisition of TD Ameritrade Holding
Corporation by The Charles Schwab Corporation
On November 25, 2019, the Bank announced its support for the
acquisition of TD Ameritrade Holding Corporation (TD Ameritrade),
of which the Bank is a major shareholder, by The Charles Schwab
Corporation (Schwab), through a defnitive agreement announced
by those companies. Under the terms of the transaction, all
TD Ameritrade shareholders, including the Bank, would exchange
each TD Ameritrade share they own for 1.0837 shares of Schwab.
As a result, the Bank will exchange its approximate 43% in
TD Ameritrade for an approximate 13.4% stake in Schwab,
consisting of up to 9.9% voting common shares and the remainder
in non-voting common shares, convertible upon transfer to a third
party. TD expects to record a revaluation gain at closing.
The transaction is subject to certain closing conditions, including
majority approval by the shareholders of each of TD Ameritrade and
Schwab, and majority approval of TD Ameritrade’s shareholders other
than TD and certain other shareholders of TD Ameritrade that have
entered into voting agreements. In addition, the transaction is subject
to receipt of regulatory approvals. The transaction is expected to close
in the second half of calendar 2020, subject to all applicable closing
conditions having been satisfed.
If the transaction closes, it is expected to have minimal capital impact
on the Bank, and the Bank expects to account for its investment in
Schwab using the equity method of accounting. The Bank and Schwab
have entered into a new Stockholders’ Agreement that will become
effective upon closing, under which the Bank will have two seats on
Schwab’s Board of Directors, subject to the Bank meeting certain
conditions. Under the agreement, the Bank will be subject to customary
standstill and lockup restrictions. The Bank and Schwab have also
entered into a revised and extended long-term Insured Deposit Account
(IDA) agreement that will become effective upon closing and extends to
2031. Starting on July 1, 2021, IDA deposits, which were $142 billion
(US$108 billion) as at October 31, 2019, can be reduced at Schwab’s
option by up to US$10 billion a year, with a foor of US$50 billion. The
servicing fee under the revised IDA agreement will be set at 15 basis
points (bps) upon closing.
Reconciliation of Adjusted to Reported Net Income” table in the “Financial Results
Overview” section of this document.
Agreement for Air Canada Credit Card Loyalty Program
On January 10, 2019, the Bank’s long-term loyalty program agreement
(the “Loyalty Agreement”) with Air Canada became effective in
conjunction with Air Canada completing its acquisition of Aimia
Canada Inc., which operates the Aeroplan loyalty business (the
“Transaction”). Under the terms of the Loyalty Agreement, the Bank
will become the primary credit card issuer for Air Canada’s new loyalty
program when it launches in 2020 through to 2030. TD Aeroplan
cardholders will become members of Air Canada’s new loyalty
program and their miles will be transitioned when Air Canada’s new
loyalty program launches in 2020.
In connection with the Transaction, the Bank paid $622 million plus
applicable sales tax to Air Canada, of which $547 million ($446 million
after sales and income taxes) was recognized in non-interest expenses –
other in the Canadian Retail segment, and $75 million was recognized
as an intangible asset which will be amortized over the Loyalty
Agreement term. In addition, the Bank prepaid $308 million plus
applicable sales tax for the future purchase of loyalty points over a
ten-year period. The Bank also expects to incur additional pre-tax costs
of approximately $100 million over two years to build the functionality
required to facilitate the new program. The Transaction reduced
the Bank’s CET1 ratio by approximately 13 bps.
Acquisition of Greystone
On November 1, 2018, the Bank acquired 100% of the outstanding
equity of Greystone for consideration of $821 million, of which
$479 million was paid in cash and $342 million was paid in the Bank’s
common shares. The value of 4.7 million common shares issued as
consideration was based on the volume weighted-average market
price of the Bank’s common shares over the 10 trading day period
immediately preceding the ffth business day prior to the acquisition
date and was recorded based on market price at close. Common
shares of $167 million issued to employee shareholders in respect
of the purchase price are being held in escrow for two years post-
acquisition, subject to their continued employment, and are being
recorded as a compensation expense over the two-year escrow period.
The acquisition was accounted for as a business combination under
the purchase method. As at November 1, 2018, the acquisition
contributed $165 million of assets and $46 million of liabilities.
The excess of accounting consideration over the fair value of the
identifable net assets has been allocated to customer relationship
intangibles of $140 million, deferred tax liability of $37 million, and
goodwill of $432 million. Goodwill is not deductible for tax purposes.
The results of the acquisition have been consolidated from the
acquisition date and reported in the Canadian Retail segment.
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
19
NET INCOME – REPORTED BY BUSINESS SEGMENT
(as a percentage of total net income)
1
70%
60
50
40
30
20
10
0
2017 2018 2019
2017 2018 2019
2017 2018 2019
NET INCOME – ADJUSTED BY BUSINESS SEGMENT
(as a percentage of total net income)
1
70%
60
50
40
30
20
10
0
2017 2018 2019
2017 2018 2019
2017 2018 2019
Canadian Retail
U.S. Retail
Wholesale Banking
FINANCIAL RESULTS OVERVIEW
Net Income
Reported net income for the year was $11,686 million, an increase of
$352 million, or 3%, compared with last year. The increase refects
higher revenue, a higher contribution from TD Ameritrade, and the
impact from U.S. tax reform in the prior year, partially offset by higher
non-interest expenses, including charges related to the agreement
with Air Canada, higher provisions for credit losses (PCL), and higher
insurance claims. The reported ROE for the year was 14.5%, compared
with 15.7% last year. Adjusted net income of $12,503 million
increased $320 million, or 3%, compared with last year.
By segment, the increase in reported net income was due to an
increase in U.S. Retail of $793 million, or 19%, a lower net loss in
the Corporate segment of $325 million, or 30%, partially offset by
a decrease in Wholesale Banking of $446 million, or 42%, and a
decrease in Canadian Retail of $320 million, or 4%.
Reported diluted EPS for the year was $6.25, an increase of 4%,
compared with $6.01 last year. Adjusted diluted EPS for the year was
$6.69, a 3% increase, compared with $6.47 last year, below the low
end of the 7% to 10% medium-term adjusted EPS range previously
communicated for fscal 2019. After a challenging frst quarter for the
Wholesale Banking segment, we had strong adjusted EPS growth of
8% in each of the second and third quarters. However, fourth quarter
adjusted EPS declined 2% from the prior year refecting restructuring
charges, derivative valuation charges, and lower contribution from
Treasury and other.
Impact of Foreign Exchange Rate on U.S. Retail Segment
Translated Earnings
The following table refects the estimated impact of foreign currency
translation on key U.S. Retail segment income statement items.
T A B L E 8
IMPACT OF FOREIGN CURRENCY TRANSLATION
ON U.S. RETAIL SEGMENT EARNINGS
(millions of Canadian dollars, except as noted)
U.S. Retail Bank
Total revenue
Non-interest expenses – reported
Non-interest expenses – adjusted
Net income – reported, after tax
Net income – adjusted, after tax
Equity in net income of an investment
in TD Ameritrade – reported1
Equity in net income of an investment
in TD Ameritrade – adjusted1
U.S. Retail segment net income –
reported, after tax
U.S. Retail segment net income –
adjusted, after tax
Earnings per share (Canadian dollars)
Basic – reported
Basic – adjusted
Diluted – reported
Diluted – adjusted
2019
vs. 2018
Increase
(Decrease)
2018
vs. 2017
Increase
(Decrease)
$ 369
199
199
120
120
$ (173)
(94)
(93)
(57)
(58)
37
37
158
158
(12)
(10)
(68)
(68)
$ 0.09
0.09
0.09
0.09
$ (0.04)
(0.04)
(0.04)
(0.04)
1 Equity in net income of an investment in TD Ameritrade and the foreign exchange
impact are reported with a one-month lag.
Average foreign exchange rate
(equivalent of CAD $1.00)
U.S. dollar
2019
1.329
2018
1.287
2017
1.308
1 Amounts exclude Corporate segment.
20
TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN A LYSIS
FINANCIAL RESULTS OVERVIEW
Revenue
Reported revenue was $41,065 million, an increase of $2,173 million,
or 6%, compared with last year. Adjusted revenue was $41,065 million,
an increase of $2,084 million, or 5%, compared with last year.
revenue from treasury and balance sheet management activities in the
Corporate segment, and lower revenue in Wholesale Banking.
By segment, the increase in reported non-interest income was due
NET INTEREST INCOME
Net interest income for the year was $23,931 million, an increase of
$1,692 million, or 8%, compared with last year. The increase refects
loan and deposit volume growth and higher margins in the Canadian
and U.S. Retail segments, and the impact of foreign currency
translation, partially offset by lower revenue in Wholesale Banking
refecting challenging market conditions in the frst quarter of this year.
By segment, the increase in reported net interest income was
due to an increase in U.S. Retail of $775 million, or 9%, an increase
in Canadian Retail of $773 million, or 7%, and an increase in
the Corporate segment of $383 million, or 29%, partially offset
by a decrease in Wholesale Banking of $239 million, or 21%.
NET INTEREST MARGIN
Net interest margin increased by 1 basis point during the year to
1.96%, compared with 1.95% last year, primarily due to modest
increases in the Canadian and U.S. Retail segments, offset by changes
in non-retail product mix.
NON-INTEREST INCOME
Reported non-interest income for the year was $17,134 million,
an increase of $481 million, or 3%, compared with last year. The
increase refects higher fee-based revenue in the wealth and banking
businesses, higher revenue from the insurance business including
changes in the fair value of investments supporting claims liabilities,
which resulted in a similar increase to insurance claims, and the impact
of foreign currency translation. The increase is partially offset by lower
T A B L E 9
NON-INTEREST INCOME1
(millions of Canadian dollars, except as noted)
Investment and securities services
Broker dealer fees and commissions
Full-service brokerage and other securities services
Underwriting and advisory
Investment management fees
Mutual fund management
Trust fees
Total investment and securities services
Credit fees
Net securities gains (losses)
Trading income (losses)
Service charges
Card services
Insurance revenue
Other income (loss)
Total
1 Certain comparative amounts have been recast to conform with the presentation
adopted in the current period.
to an increase in Canadian Retail of $740 million, or 7%, and an
increase in U.S. Retail of $72 million, or 3%, partially offset by a
decrease in Corporate of $284 million, or 75%, and a decrease in
Wholesale Banking of $47 million, or 2%.
NET INTEREST INCOME
(millions of Canadian dollars)
$24,000
21,000
18,000
15,000
12,000
9,000
6,000
3,000
0
2017 2018 2019
2019
2018
2017
% change
2019 vs. 2018
$
637
1,191
520
629
1,768
127
4,872
1,289
78
1,047
2,885
2,465
4,282
216
$ 17,134
$
577
1,099
566
546
1,790
136
4,714
1,210
111
1,052
2,716
2,376
4,045
429
$ 16,653
$
493
1,013
589
534
1,738
145
4,512
1,130
128
303
2,648
2,388
3,760
486
$ 15,355
10
8
(8)
15
(1)
(7)
3
7
(30)
–
6
4
6
(50)
3
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
21
TRADING-RELATED INCOME
Trading-related income is the total of net interest income on trading
positions, trading income (loss), and income from fnancial instruments
designated at fair value through proft or loss that are managed within
a trading portfolio. Net interest income arises from interest and
dividends related to trading assets and liabilities and is reported net of
interest expense and income associated with funding these assets and
liabilities in the following table. Trading income (loss) includes realized
and unrealized gains and losses on trading assets and liabilities.
Trading-related income excludes underwriting fees and commissions
on securities transactions. Management believes that the total trading-
related income is the appropriate measure of trading performance.
Trading-related income by product line depicts trading income for
each major trading category.
T A B L E 1 0
TRADING-RELATED INCOME1
(millions of Canadian dollars)
Net interest income (loss)2
Trading income (loss)
Income (Loss) from fnancial instruments designated at fair value through proft or loss3
Total
By product
Interest rate and credit
Foreign exchange
Equity and other2
Total
For the years ended October 31
2019
$ 293
1,047
(10)
$ 1,330
$ 413
677
240
$ 1,330
2018
$ 495
1,052
10
$ 1,557
$ 545
680
332
$ 1,557
2017
$ 770
303
11
$ 1,084
$ 679
673
(268)
$ 1,084
1 Certain comparative amounts have been reclassified to conform with the
presentation adopted in the current period.
2 Excludes taxable equivalent basis (TEB).
3 Excludes amounts related to securities designated at fair value through profit
or loss that are not managed within a trading portfolio, but which have been
combined with derivatives to form economic hedging relationships.
FINANCIAL RESULTS OVERVIEW
Provision for Credit Losses
PCL for the year was $3,029 million, an increase of $549 million, or
22%, compared with the same period last year. PCL – impaired was
$2,630 million, an increase of $464 million, or 21%, refecting higher
provisions in the consumer and commercial lending portfolios and
volume growth. PCL – performing was $399 million, an increase of
$85 million, or 27%, refecting credit migration in the Canadian Retail
and Wholesale Banking segments, and volume growth, partially offset
by lower provisions in the U.S. strategic cards portfolio. Total PCL as
a percentage of credit volume was 0.45%.
By segment, the increase in PCL was due to an increase in Canadian
Retail of $308 million, or 31%, an increase in U.S. Retail of $165 million,
or 18%, an increase in Wholesale Banking of $41 million, and an
increase in the Corporate segment of $35 million, or 6%.
PROVISION FOR
CREDIT LOSSES
(millions of Canadian dollars)
$3,500
3,000
2,500
2,000
1,500
1,000
500
0
2017 2018 2019
22
TD BANK GROUP ANNUAL R EP ORT 2 0 19 MA NAGEM ENT’ S D ISCU SSION A ND A N ALYSIS
FINANCIAL RESULTS OVERVIEW
Expenses
NON-INTEREST EXPENSES
Reported non-interest expenses for the year were $22,020 million, which
included $154 million2 of restructuring charges. Non-interest expenses
increased $1,825 million, or 9%, compared with last year, primarily
refecting charges related to the agreement with Air Canada and the
acquisition of Greystone, higher employee related costs, additional
employees supporting business growth, investments in strategic
initiatives, volume growth, restructuring charges, and the impact of
foreign currency translation, partially offset by productivity savings.
By segment, the increase in non-interest expenses was due to an
increase in Canadian Retail of $1,262 million, or 13%, an increase in
U.S. Retail of $311 million, or 5%, an increase in Wholesale Banking
of $268 million, or 13%, partially offset by a decrease in the Corporate
segment of $16 million, or 1%.
Adjusted non-interest expenses were $21,085 million, an increase
of $1,142 million, or 6%, compared with last year.
INSURANCE CLAIMS AND RELATED EXPENSES
Insurance claims and related expenses were $2,787 million, an increase
of $343 million, or 14%, compared with last year. The increase refects
changes in the fair value of investments supporting claims liabilities
which resulted in a similar increase to non-interest income, higher
current year claims refecting business growth, and less favourable
prior years’ claims development, partially offset by fewer severe
weather-related events.
EFFICIENCY RATIO
The effciency ratio measures operating effciency and is calculated
by taking the non-interest expenses as a percentage of total revenue.
A lower ratio indicates a more effcient business operation.
T A B L E 1 1 NON-INTEREST EXPENSES AND EFFICIENCY RATIO1
(millions of Canadian dollars, except as noted)
Salaries and employee benefts
Salaries
Incentive compensation
Pension and other employee benefts
Total salaries and employee benefts
Occupancy
Rent
Depreciation and impairment losses
Other
Total occupancy
Equipment
Rent
Depreciation and impairment losses
Other
Total equipment
Amortization of other intangibles
Marketing and business development
Restructuring charges
Brokerage-related fees
Professional and advisory services
Other expenses
Total expenses
Effciency ratio – reported
Effciency ratio – adjusted2
The reported effciency ratio was 53.6%, compared with 51.9%
last year. The adjusted effciency ratio was 51.3%, compared with
51.2% last year.
NON-INTEREST EXPENSES
(millions of Canadian dollars)
EFFICIENCY RATIO
(percent)
$25,000
60%
20,000
15,000
10,000
5,000
0
50
40
30
20
10
0
2017
2018
2019
2017
2018
2019
Reported
Adjusted
Reported
Adjusted
2019
2018
2017
% change
2019 vs. 2018
$ 6,879
2,724
1,641
11,244
$ 6,162
2,592
1,623
10,377
944
405
486
1,835
245
200
720
1,165
800
769
175
336
1,322
4,374
$ 22,020
913
371
481
1,765
207
205
661
1,073
815
803
73
359
1,194
3,736
$ 20,195
$ 5,839
2,454
1,725
10,018
917
402
475
1,794
184
201
607
992
704
726
2
360
1,119
3,704
$ 19,419
12
5
1
8
3
9
1
4
18
(2)
9
9
(2)
(4)
140
(6)
11
17
9
53.6%
51.3
51.9%
51.2
53.6%
53.2
170 bps
10
1 Certain comparative amounts have been recast to conform with the presentation
2 For explanations of items of note, refer to the “Non-GAAP Financial Measures –
adopted in the current period.
Reconciliation of Adjusted to Reported Net Income” table in the “Financial Results
Overview” section of this document.
2 By segment, the restructuring charges in the fourth quarter of this year are
as follows: $68 million in U.S. Retail, $51 million in Corporate, $23 million
in Wholesale Banking, and $12 million in Canadian Retail.
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
23
FINANCIAL RESULTS OVERVIEW
Taxes
Reported total income and other taxes decreased by $181 million, or
3.9%, compared with last year, refecting a decrease in income tax
expense of $447 million, or 14.0%, and an increase in other taxes of
$266 million, or 18.9%. Adjusted total income and other taxes were
up $317 million from last year, or 7.4%, refecting an increase in
income tax expense of $51 million.
The Bank’s reported effective tax rate was 20.7% for 2019,
compared with 23.1% last year. The year-over-year decrease was
largely due to the impact of U.S. tax reform in 2018, partially offset
by business mix. For a reconciliation of the Bank’s effective income tax
rate with the Canadian statutory income tax rate, refer to Note 25
of the 2019 Consolidated Financial Statements.
The Bank’s adjusted effective income tax rate for 2019 was 20.8%,
compared with 20.5% last year. The year-over-year increase was
largely due to business mix.
The Bank reports its investment in TD Ameritrade using the equity
method of accounting. TD Ameritrade’s tax expense of $389 million
in 2019, compared with $206 million last year, was not part of
the Bank’s effective tax rate.
T A B L E 1 2 NON-GAAP FINANCIAL MEASURES – Reconciliation of Reported to Adjusted Provision for Income Taxes
(millions of Canadian dollars, except as noted)
Provision for income taxes – reported
Total adjustments for items of note1,2
Provision for income taxes – adjusted
Other taxes
Payroll
Capital and premium
GST, HST, and provincial sales3
Municipal and business
Total other taxes
Total taxes – adjusted
Effective income tax rate – reported
Effective income tax rate – adjusted4
2019
$ 2,735
214
2,949
587
168
678
243
1,676
$ 4,625
2018
$ 3,182
(284)
2,898
538
148
487
237
1,410
$ 4,308
2017
$ 2,253
83
2,336
517
136
462
202
1,317
$ 3,653
20.7%
20.8
23.1%
20.5
18.3%
18.9
1 For explanations of items of note, refer to the “Non-GAAP Financial Measures –
Reconciliation of Adjusted to Reported Net Income” table in the “Financial Results
Overview” section of this document.
3 Goods and services tax (GST) and Harmonized sales tax (HST).
4 Adjusted effective income tax rate is the adjusted provision for income taxes
before other taxes as a percentage of adjusted net income before taxes.
2 The tax effect for each item of note is calculated using the statutory income tax
rate of the applicable legal entity.
FINANCIAL RESULTS OVERVIEW
Quarterly Financial Information
FOURTH QUARTER 2019 PERFORMANCE SUMMARY
Reported net income for the quarter was $2,856 million, a decrease
of $104 million, or 4%, compared with fourth quarter last year.
The decrease refects higher PCL, and higher non-interest expenses,
including restructuring charges, partially offset by higher revenue,
and a higher contribution from TD Ameritrade. Adjusted net income
for the quarter was $2,946 million, a decrease of $102 million, or 3%,
compared with the fourth quarter last year. Reported diluted EPS for
the quarter was $1.54, a decrease of 3%, compared with $1.58 in the
fourth quarter of last year. Adjusted diluted EPS for the quarter was
$1.59, a decrease of 2%, compared with $1.63 in the fourth quarter
of last year.
Reported revenue for the quarter was $10,340 million, an increase
of $204 million, or 2%, compared with the fourth quarter last year.
Net interest income for the quarter was $6,175 million, an increase
of $419 million, or 7%, primarily due to loan and deposit volume
growth, partially offset by lower margins in the U.S. Retail segment.
By segment, the increase in reported net interest income was due
to an increase in the Corporate segment of $176 million, or 56%,
an increase in Canadian Retail of $151 million, or 5%, an increase
in U.S. Retail of $87 million, or 4%, and an increase in Wholesale
Banking of $5 million, or 2%. Adjusted net interest income for the
quarter was $6,175 million, an increase of $419 million, or 7%,
compared with the fourth quarter last year.
24
TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
Non-interest income for the quarter was $4,165 million, a decrease of
$215 million, or 5%, refecting lower revenue from treasury and balance
sheet management activities in the Corporate segment, and derivative
valuation charges, partially offset by an increase in revenues from the
insurance business and higher fee-based revenues in the wealth
business. By segment, the decrease in reported non-interest income was
due to a decrease in the Corporate segment of $261 million, or 146%,
a decrease in Wholesale Banking of $88 million, or 13%, partially offset
by an increase in Canadian Retail of $130 million, or 5%, and an
increase in U.S. Retail of $4 million, or 1%. Adjusted net interest income
for the quarter was $4,165 million, a decrease of $215 million, or 5%,
compared with the fourth quarter last year.
PCL for the quarter was $891 million, an increase of $221 million,
or 33%, compared with the fourth quarter last year. PCL – impaired
for the quarter was $739 million, an increase of $180 million, or 32%,
refecting higher provisions in the commercial portfolios, seasoning in
the U.S. auto and credit card portfolios, and volume growth. PCL –
performing for the quarter was $152 million, an increase of
$41 million, or 37%, primarily refecting credit migration in the
Canadian Retail and Wholesale Banking segments, partially offset by
lower provisions in the U.S. strategic cards portfolio, largely recognized
in the Corporate segment. Total PCL for the quarter as an annualized
percentage of credit volume was 0.51%.
By segment, the increase in PCL was due to an increase in Canadian
Retail of $137 million, or 52%, an increase in U.S. Retail of $51 million,
or 21%, and an increase in Wholesale Banking of $33 million.
Insurance claims and related expenses for the quarter were
$705 million, an increase of $21 million, or 3%, compared with the
fourth quarter last year, refecting higher current year claims related to
business growth, partially offset by more favourable prior years’ claims
development, and less severe weather-related events.
Reported non-interest expenses for the quarter were $5,543 million,
which included $154 million3 of restructuring charges. Non-interest
expenses increased $177 million, or 3%, compared with the fourth
quarter last year, primarily refecting higher employee related costs,
additional employees supporting business growth, and charges related
to the acquisition of Greystone, partially offset by lower spend related
to strategic initiatives and productivity savings. By segment, the
increase in reported non-interest expenses was due to an increase
in Canadian Retail of $107 million, or 4%, an increase in Wholesale
Banking of $49 million, or 9%, and an increase in U.S. Retail of
$32 million, or 2%, partially offset by a decrease in the Corporate
segment of $11 million, or 2%. Adjusted non-interest expenses for
the quarter were $5,463 million, an increase of $150 million, or 3%,
compared with the fourth quarter last year.
The Bank’s reported effective tax rate was 20.2% for the quarter,
consistent with 20.2% in the same quarter last year. The Bank’s
adjusted effective tax rate was 20.1% for the quarter, compared with
20.3% in the same quarter last year. The decrease was largely due to
lower income before taxes and business mix.
QUARTERLY TREND ANALYSIS
Subject to the impact of seasonal trends, items of note, and
restructuring charges, the Bank has increased reported earnings over
the past eight quarters refecting a consistent strategy, revenue
growth, expense discipline, and investments to support future growth.
The Bank’s earnings refect increasing revenue from loan and deposit
volumes in the Canadian and U.S. Retail segments, a higher
contribution from TD Ameritrade and asset growth in the wealth
business, partially offset by moderate expense growth. Wholesale
Banking’s contribution to earnings declined in 2019 mainly due to
challenging market conditions in the frst quarter of 2019. The Bank’s
quarterly earnings are impacted by seasonality, the number of days in
a quarter, the economic environment in Canada and the U.S., and
foreign currency translation.
T A B L E 1 3 QUARTERLY RESULTS1
(millions of Canadian dollars, except as noted)
Net interest income
Non-interest income
Total revenue
Provision for credit losses
Insurance claims and related expenses
Non-interest expenses
Provision for (recovery of) income taxes
Equity in net income of an investment in TD Ameritrade
Net income – reported
Pre-tax adjustments for items of note2
Amortization of intangibles
Charges related to the long-term loyalty agreement
with Air Canada
Charges associated with the acquisition
of Greystone
Charges associated with the Scottrade transaction
Impact from U.S. tax reform
Total pre-tax adjustments for items of note
Provision for (recovery of) income taxes items of note
Net income – adjusted
Preferred dividends
Net income available to common shareholders and
2019
For the three months ended
2018
Oct. 31
Jul. 31
Apr. 30
Jan. 31
Oct. 31
Jul. 31
Apr. 30
Jan. 31
$ 6,175
4,165
10,340
891
705
5,543
646
301
2,856
$ 6,024
4,475
10,499
655
712
5,374
813
303
3,248
$ 5,872
4,356
10,228
633
668
5,248
773
266
3,172
$ 5,860 $ 5,756
4,380
10,136
670
684
5,366
691
235
2,960
4,138
9,998
850
702
5,855
503
322
2,410
$ 5,655
4,244
9,899
561
627
5,131
705
230
3,105
$ 5,398
4,084
9,482
556
558
4,837
746
131
2,916
$ 5,430
3,945
9,375
693
575
4,861
1,040
147
2,353
74
–
30
–
–
104
14
2,946
68
75
–
26
–
–
101
11
3,338
62
78
–
30
–
–
108
14
3,266
62
80
607
31
–
–
718
175
2,953
60
76
–
–
25
–
101
13
3,048
51
77
–
–
18
–
95
73
3,127
59
86
–
–
77
–
163
17
3,062
52
85
–
–
73
48
206
(387)
2,946
52
non-controlling interests in subsidiaries – adjusted
$ 2,878
$ 3,276
$ 3,204
$ 2,893 $ 2,997
$ 3,068
$ 3,010
$ 2,894
Attributable to:
Common shareholders – adjusted
Non-controlling interests – adjusted
(Canadian dollars, except as noted)
Basic earnings per share
Reported
Adjusted
Diluted earnings per share
Reported
Adjusted
Return on common equity – reported
Return on common equity – adjusted
(billions of Canadian dollars, except as noted)
Average earning assets
Net interest margin as a percentage
$ 2,878
–
$ 3,276
–
$ 3,204
–
$ 2,875 $ 2,979
18
18
$ 3,050
18
$ 2,992
18
$ 2,876
18
$ 1.54
1.59
$ 1.75
1.79
$ 1.70
1.75
$ 1.27 $ 1.58
1.63
1.57
$ 1.65
1.67
$ 1.54
1.62
$ 1.24
1.56
1.54
1.59
13.6%
14.0
1.74
1.79
15.8%
16.2
1.70
1.75
16.5%
17.0
1.27
1.57
12.2%
15.0
1.58
1.63
15.8%
16.3
1.65
1.66
16.9%
17.1
1.54
1.62
16.8%
17.6
1.24
1.56
13.2%
16.6
$ 1,264
$ 1,240
$ 1,191
$ 1,200 $ 1,183
$ 1,152
$ 1,124
$ 1,116
1.94%
1.93%
2.02%
1.94%
1.93%
1.95%
1.97%
1.93%
1 Certain comparative amounts have been recast to conform with the presentation
2 For explanations of items of note, refer to the “Non-GAAP Financial Measures –
adopted in the current period.
Reconciliation of Adjusted to Reported Net Income” table in the “Financial Results
Overview” section of this document.
3 By segment, the restructuring charges are comprised of $68 million in U.S. Retail,
$51 million in Corporate, $23 million in Wholesale Banking, and $12 million in
Canadian Retail.
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
25
BUSINESS SEGMENT ANALYSIS
Business Focus
For management reporting purposes, the Bank’s operations and activities are organized around the
following three key business segments: Canadian Retail, U.S. Retail, and Wholesale Banking. The Bank’s
other activities are grouped into the Corporate segment.
Canadian Retail serves nearly 16 million customers in the Canadian
personal and commercial banking, wealth, and insurance businesses.
Personal Banking provides fnancial products and advice through its
network of 1,091 branches, 3,509 automated teller machines (ATM),
telephone, digital and mobile banking. The credit cards business
provides a comprehensive line-up of credit cards including proprietary,
co-branded, and affnity credit card programs. Auto Finance provides
fexible fnancing options to customers at point of sale for automotive
and recreational vehicle purchases. Business Banking offers customized
products and advice to help business owners meet their fnancing,
investment, cash management, international trade, and day-to-day
banking needs. Merchant Solutions provides point-of-sale payment
solutions for large and small businesses. The wealth business offers
wealth and asset management products and advice to retail and
institutional clients in Canada through the direct investing, advice-
based, and asset management businesses. The insurance business
offers property and casualty insurance, as well as life and health
insurance products to customers across Canada.
U.S. Retail comprises the Bank’s personal and business banking
operations under the brand TD Bank, America’s Most Convenient
Bank®, and wealth management in the U.S. Personal banking provides
a full range of fnancial products and services to over 9 million retail
customers through multiple delivery channels, including a network
of 1,241 stores located along the east coast from Maine to Florida,
mobile and internet banking, ATM, and telephone. Business
banking serves the needs of businesses, through a diversifed range
of products and services to meet their fnancing, investment, cash
management, international trade, and day-to-day banking needs.
Wealth management offers a range of wealth products and services
to retail and institutional clients. U.S. Retail works with TD Ameritrade
to refer mass affuent clients to TD Ameritrade for their direct investing
needs. The results of the Bank’s equity investment in TD Ameritrade
are included in U.S. Retail and reported as equity in net income of an
investment in TD Ameritrade.
Wholesale Banking offers a wide range of capital markets and
corporate and investment banking services, including underwriting and
distribution of new debt and equity issues, providing advice on strategic
acquisitions and divestitures, and meeting the daily trading, funding,
and investment needs of our clients. Operating under the TD Securities
brand, our clients include highly-rated corporates, governments, and
institutions in key fnancial markets around the world. Wholesale
Banking is an integrated part of TD’s strategy, providing market access
to TD’s wealth and retail operations, and providing wholesale banking
solutions to our partners and their customers.
The Bank’s other business activities are not considered reportable
segments and are, therefore, grouped in the Corporate segment.
Corporate segment is comprised of a number of service and control
groups such as technology solutions, shared services, treasury and
balance sheet management, marketing, human resources, fnance, risk
management, compliance, legal, anti-money laundering, and others.
Certain costs relating to these functions are allocated to operating
business segments. The basis of allocation and methodologies are
reviewed periodically to align with management’s evaluation of
the Bank’s business segments.
Results of each business segment refect 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. Net income for the
operating business segments is presented before any items of note not
attributed to the operating segments. For further details, refer to the
“How the Bank Reports” section of this document and Note 29 of the
2019 Consolidated Financial Statements. For information concerning
the Bank’s measure of ROE, which is a non-GAAP fnancial measure,
refer to the “Return on Common Equity” section.
Effective November 1, 2017, upon adoption of IFRS 9, the current
period PCL related to performing (Stage 1 and Stage 2) and impaired
(Stage 3) fnancial assets, loan commitments, and fnancial guarantees
is recorded within the respective segment. Under IAS 39 and prior to
November 1, 2017, the PCL related to the collectively assessed
allowance for incurred but not identifed credit losses that related to
Canadian Retail and Wholesale Banking segments was recorded in the
Corporate segment. Prior period results were not restated. PCL on
impaired fnancial assets includes Stage 3 PCL under IFRS 9 and
counterparty-specifc and individually insignifcant PCL under IAS 39.
PCL on performing fnancial assets, loan commitments, and fnancial
guarantees include Stage 1 and Stage 2 PCL under IFRS 9 and incurred
but not identifed credit losses under IAS 39.
The reduction of the U.S. federal corporate tax rate enacted by the
U.S. Tax Act resulted in an adjustment during 2018 to the Bank’s U.S.
deferred tax assets and liabilities to the lower base rate of 21% as well
as an adjustment to the Bank’s carrying balances of certain tax credit-
related investments and its investment in TD Ameritrade. The earnings
impact of these adjustments was reported in the Corporate segment.
The lower corporate tax rate had, and continues to have, a positive
effect on TD’s current and future earnings, which are and will be
refected in the results of the affected segments. The amount of the
beneft may vary due to, among other things, changes in
interpretations and assumptions the Bank has made and guidance that
may be issued by applicable regulatory authorities. For additional
details, refer to “How the Bank Reports” and “Non-GAAP Financial
Measures – Reconciliation of Adjusted to Reported Net Income” table
in the “Financial Results Overview” section of this document.
Net interest income within Wholesale Banking is calculated on a 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 refected in Wholesale Banking
results is reversed in the Corporate segment. The TEB adjustment for
the year was $127 million, compared with $176 million last year.
The “Business Outlook and Focus for 2019” section for each
business segment, provided on the following pages, is based on
the Bank’s views and the assumptions set out in the “Economic
Summary and Outlook” section and the actual outcome may be
materially different. For more information, refer to the “Caution
Regarding Forward-Looking Statements” section and the “Risk
Factors That May Affect Future Results” section.
26
TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
T A B L E 1 4
RESULTS BY SEGMENT1,2
(millions of Canadian dollars)
Net interest income (loss)
Non-interest income (loss)
Total revenue
Provision for (recovery of) credit losses –
impaired
Provision for (recovery of) credit losses –
performing
Total provision for (recovery of) credit losses
Insurance claims and related expenses
Non-interest expenses
Income (loss) before income taxes
Provision for (recovery of) income taxes
Equity in net income of an investment
in TD Ameritrade
Net income (loss) – reported
Pre-tax adjustments for items of note4
Amortization of intangibles
Charges related to the long-term loyalty
agreement with Air Canada
Charges associated with the acquisition
of Greystone
Charges associated with the
Scottrade transaction
Impact from U.S. tax reform
Total pre-tax adjustments for items of note
Provision for (recovery of) income taxes for
items of note
Canadian
Retail
U.S. Retail
2019
2018
2019
2018
$ 12,349 $ 11,576 $ 8,951 $ 8,176 $
11,877
24,226
11,137
22,713
2,840
11,791
2,768
10,944
Wholesale
Banking3
2018
2019
Corporate3
2018
2019
2019
Total
2018
911 $ 1,150 $ 1,720 $ 1,337 $ 23,931 $ 22,239
16,653
38,892
17,134
41,065
2,367
3,517
381
1,718
97
1,817
2,320
3,231
1,126
927
936
776
20
(8)
548
471
2,630
2,166
180
1,306
2,787
10,735
9,398
2,535
–
6,863
–
607
117
–
–
724
166
71
998
2,444
9,473
9,798
2,615
–
7,183
146
1,082
–
6,411
4,298
471
1,154
4,981
–
–
–
–
–
–
–
–
–
–
–
–
–
–
141
917
–
6,100
3,927
432
693
4,188
–
–
–
193
–
193
5
24
44
–
2,393
794
186
–
608
11
3
–
2,125
1,389
335
–
1,054
49
597
–
2,481
(1,261)
(457)
91
562
–
2,497
(1,341)
(200)
399
3,029
2,787
22,020
13,229
2,735
314
2,480
2,444
20,195
13,773
3,182
38
(766)
50
(1,091)
1,192
11,686
743
11,334
–
–
–
–
–
–
–
–
–
–
–
–
–
–
307
324
–
–
–
–
307
–
–
–
48
372
307
607
117
–
–
1,031
324
–
–
193
48
565
48
(507) $
(289)
(284)
214
(430) $ 12,503 $ 12,183
Net income (loss) – adjusted
$
7,421 $ 7,183 $ 4,981 $ 4,376 $
608 $ 1,054 $
Average common equity
CET1 Capital risk-weighted assets5
$ 17,776 $ 15,018 $ 39,464 $ 34,260 $ 7,320 $ 5,954 $ 14,078 $ 15,267 $ 78,638 $ 70,499
435,632
248,406
243,655
108,526
118,374
455,977
13,347
70,104
71,972
17,225
1 Certain comparative amounts have been recast to conform with the presentation
3 Net interest income within Wholesale Banking is calculated on a TEB. The TEB
adopted in the current period.
2 The retailer program partners’ share of revenues and credit losses is presented
in the Corporate segment, with an offsetting amount (representing the partners’
net share) recorded in Non-interest expenses, resulting in no impact to Corporate
reported Net income (loss). The Net income (loss) included in the U.S. Retail
segment includes only the portion of revenue and credit losses attributable to
the Bank under the agreements.
adjustment reflected in Wholesale Banking is reversed in the Corporate segment.
4 For explanations of items of note, refer to the “Non-GAAP Financial Measures −
Reconciliation of Adjusted to Reported Net Income” table in the “Financial Results
Overview” section of this document.
5 Each capital ratio has its own RWA measure due to OSFI-prescribed scalar for
inclusion of the CVA. For fiscal 2019 the scalars for inclusion of CVA for CET1,
Tier 1 and Total Capital RWA are all 100%. For fiscal 2018, the scalars were 80%,
83%, and 86%, respectively.
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
27
ECONOMIC SUMMARY AND OUTLOOK
For calendar year 2019, global economic growth is on track to record
the slowest pace in a decade at 2.8%, down from 3.7% in the 2018
calendar year. This below-trend pace has been largely due to a cyclical
downturn across advanced and emerging market economies, as well
as a more persistent moderation in China’s expansion. U.S. tariffs
and heightened policy uncertainty have exacerbated the slowdown in
global activity. Advanced economies continue to produce only modest
growth, with the euro area representing a notable weak spot. Central
banks have responded with additional monetary easing, while some
governments have also been motivated to undertake stimulus
spending. These actions are expected to stabilize global growth and
underpin a modest acceleration in calendar years 2020 and 2021.
The U.S. economy continues to perform well relative to its peers,
but growth has been decelerating. The U.S. Bureau of Economic
Analysis reported a 1.9% annualized gain in real gross domestic
product (GDP) over the July-September 2019 period. Resilient
consumer spending (+2.9%) was again the main contributor. Other
drivers included government spending and residential investment,
with the latter breaking a six-quarter streak of contraction. However,
non-residential investment remained weak, contracting in the
July-September period. In the near term, forward-looking indicators
suggest that this sector will remain soft.
The October 2019 meeting of the Federal Reserve Open Market
Committee saw members vote to reduce the key U.S. policy rate to a
range of 1.50% to 1.75%. The statement accompanying the decision
removed language around “act[ing] as appropriate to sustain the
expansion”, providing a signal that no further downward adjustment
in rates will be forthcoming in the absence of events that cause a
material reassessment of the Committee’s outlook. TD Economics
forecasts U.S. economic growth to ease to around 1.8% per year in
calendar years 2020 and 2021, slightly below the economy’s estimated
trend rate. Any signifcant reduction in trade and business climate
uncertainty would likely generate some upside to this view.
In Canada, net trade contributed to an impressive but unsustainable
3.7% (annualized) rebound in activity in the April-June 2019 period.
Several one-time factors contributed to this outcome, and subsequent
economic indicators point to a return to a more modest pace of
growth of around 1% annualized in the third calendar quarter.
TD Economics is projecting a real GDP gain of around 1.5% for
calendar year 2019.
Despite modest output trends, Canadian labour markets remain
strong outside of the Prairie provinces, as evidenced by rising
employment and accelerating wage gains. Within major housing
markets, activity has been gaining momentum since the summer.
These trends, however, have not translated into strong consumer
spending, which remains subdued relative to its fundamentals. This
likely refects high levels of household indebtedness, a low household
savings rate, and a lack of pent-up demand for big-ticket items such
as motor vehicles. Like the U.S., Canadian exports and non-residential
business investment remain challenged in the face of elevated global
uncertainty and soft commodity demand. These structural factors are
likely to limit Canada’s growth potential over the medium term.
TD Economics forecasts real economic growth to average 1.6% per
year over calendar years 2020 and 2021.
At its October 2019 rate decision, the Bank of Canada struck a more
cautious tone. The central bank is concerned that the drag on activity
from global uncertainty will spill into areas beyond investment and
trade. The Bank of Canada will be closely monitoring housing markets
and consumption in assessing whether monetary easing is warranted.
Another consideration is the potential for fscal stimulus from the
federal government, which may mitigate the need for the central bank
to act. Given the economic risks, TD Economics has not ruled out the
possibility of precautionary cuts to the policy rate in calendar year
2020. However, recent Bank of Canada communications focused on
Canadian household debt levels create the risk that the current 1.75%
level will be maintained for some time. The Canadian dollar is expected
to trade within the US76-79 cents range.
The balance of risks has improved slightly in recent months, but not
suffciently to alter the overall global outlook. Some recent progress in
U.S.-China trade talks needs to be assessed in the context of whether it
is suffcient to improve businesses’ outlook, particularly when it comes
to investment. The potential for re-escalation in the trade confict
between the two countries or with others remains a consideration,
and past tariffs remain largely in place. Beyond the U.S.-China situation,
the possibility of trade conficts between the U.S. and Europe, India,
Vietnam, or others cannot be dismissed. In all instances, the potential
exists for the further disruption of globally integrated supply chains.
Although a no-deal outcome on Brexit appears to have been avoided,
the future state of the United Kingdom (U.K.) economic relationship
with the European Union is still unclear. This outcome is now delayed
as the U.K. is preparing for a general election on December 12, 2019.
Lastly, ongoing tensions in the Middle East and the Korean Peninsula,
as well as populist threats to political and economic systems all remain
potential downside risks. These all keep global uncertainty elevated
and may drive periods of fnancial market volatility.
28
TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
BUSINESS SEGMENT ANALYSIS
Canadian Retail
Canadian Retail offers a full range of fnancial products and services to nearly 16 million customers in the
Canadian personal and commercial banking, wealth, and insurance businesses.
NET INCOME
(millions of Canadian dollars)
TOTAL REVENUE
(millions of Canadian dollars)
AVERAGE DEPOSITS
(billions of Canadian dollars)
$8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
$25,000
20,000
15,000
10,000
5,000
0
$350
300
250
200
150
100
50
0
2017
2018
2019
2017
2018
2019
2017
2018
2019
Reported
Adjusted
Personal
Business
Wealth
T A B L E 1 5
REVENUE
(millions of Canadian dollars)
Personal banking
Business banking
Wealth
Insurance
Total
2019
$ 12,076
3,184
4,432
4,534
$ 24,226
2018
$ 11,463
2,990
4,185
4,075
$ 22,713
2017
$ 10,706
2,702
3,838
3,816
$ 21,062
TD BANK GROUP ANNUAL REP O RT 20 1 9 M AN AGEM EN T’S D ISC US SION AND ANALY SIS
29
BUSINESS HIGHLIGHTS
• Continued to invest in our omni-channel, customer-centric
model, evolving our advisory focus as we continued to
progress our Future Ready strategy and enhance the value
proposition of our products, including our mortgage
concierge service which connects customers with mobile
mortgage specialists who are nearby and available.
• Maintained our focus on shaping the future of retail banking
by introducing new digital capabilities, including a new online
money transfer service allowing customers to quickly and
easily send money around the world from their TD personal
accounts, an industry-leading digital mortgage application in
the real estate secured lending business and frst-in-Canada
card controls for TD credit cardholders.
• Recognized as a leader in customer service, including:
– The award winner among the Big 5 Canadian Retail Banks4
for “Customer Service Excellence”5, “Value for Money”6 ,
“Values my Business”7, “Recommend to Friends & Family”8 ,
“Branch Service”9, “ATM Banking”10, and “Automated
Telephone Banking”11 by the 2019 Ipsos Customer Service
Index (CSI) study12 .
– The highest customer satisfaction among the Big Five Retail
Banks by J.D. Power13 .
• Acknowledged for our forward focus in digital banking
by multiple independent providers of industry market
data including:
– #1 in consumer demand, customer engagement, and
customer sentiment among top retail banking apps
in Canada according to mobile data and analytics frm
App Annie14;
– #1 in Canadian digital banking with the highest number
of digital unique visitors and the most digital engagement
according to comScore15; and
– #1 average digital reach of any bank in Canada and
amongst the leaders for average domestic digital reach
when compared to the leading banks in other major
developed markets, according to comScore15 .
• Continued to win the trust of new and existing customers as
evidenced by strong volume growth across key businesses:
– Strong retention rate across the portfolio, using newly
developed tools to engage and retain our customers;
– Personal chequing and savings deposit volume growth of 4%;
– Strong growth in credit cards with retail sales exceeding
$104 billion;
– Strong Business Banking loan volume growth of 9%; and
– Record accumulation of assets across our wealth businesses
including record assets under management in TD Asset
Management (TDAM) and record assets under administration
in TD Direct Investing and Advice businesses.
• Advanced our proven business model maintaining strong
market share16 positions across all businesses including:
– #1 market share in personal deposits, credit cards, and
Direct Investing;
– #2 market share in real estate secured lending, personal
loans, mutual funds, and Business Banking deposits
and loans;
– Largest direct distribution insurer17 and leader in the
affnity market17 in Canadian insurance; and
– Largest money manager in Canada (including TD Greystone
Asset Management)18 .
CHALLENGES IN 2019
• Competitive pressures and an inverted yield curve contributed
to lower margins on lending products.
• Households remained cautious to spend, partly refecting high
debt levels and elevated uncertainty in the macro environment.
• Strong competition for new and existing customers from the
major Canadian banks and non-bank competitors.
• Ongoing normalization of credit losses from prior year
low levels.
• Increased investment across all businesses to respond to
evolving customer needs, heightened regulatory expectations,
and intense competition.
INDUSTRY PROFILE
The personal and business banking environment in Canada comprises
large chartered banks with sizeable regional banks and a number of
niche competitors providing strong competition in specifc products
and markets. Continued success depends upon delivering a full suite
of competitively priced products, outstanding customer service and
convenience, maintaining disciplined risk management practices, and
prudent expense management. The Canadian wealth management
industry includes banks, insurance companies, independent mutual
fund companies, brokers, and independent asset management
companies. Market share growth in the wealth management industry
lies in the ability to differentiate by providing an integrated wealth
solution and keeping pace with technological changes and the
regulatory environment. This includes providing the right products,
and legendary and consistent relationship-focused client experiences to
serve the evolving needs and goals of our client base. The property and
casualty industry in Canada is fragmented and competitive, consisting
of personal and commercial line writers, whereas the life and health
insurance industry is comprised of several large competitors. Success
in the insurance business depends on offering a range of products that
provide protection at competitive prices that properly refect the level
of risk assumed. The above industries also include non-traditional
competitors ranging from start-ups to established non-fnancial
companies expanding into fnancial services.
4 Big 5 Canadian Retail Banks consist of Bank of Montreal, Canadian Imperial Bank
of Commerce, Royal Bank of Canada, Scotiabank, and The Toronto-Dominion Bank.
5 TD Canada Trust has shared in the award for Customer Service Excellence in the
syndicated Ipsos 2019 Customer Service Index Study (2019 Ipsos Study).
6 TD Canada Trust has shared in the award for Value for Money in the 2019
Ipsos Study.
7 TD Canada Trust has shared in the award for Values my Business in the 2019
Ipsos Study.
14 TD ranked first according to 2019 App Annie report, which measured smartphone
monthly active users, downloads, average sessions per user, average review score,
and time spent for last 12-month period ending September 2019.
15 Source: from comScore Mobile Metrix®, Financial Services – Banking (Mobile
Apps), Total Audience, 12-month average ending September 2019, Canada,
from comScore MMX® Multi-Platform, Financial Services – Banking, Total audience,
3-month average ending September 2019, Canada, United States, Spain, U.K.,
and France.
8 TD Canada Trust has shared in the award for Recommend to Friends & Family
16 Market share ranking is based on most current data available from OSFI for
in the 2019 Ipsos Study.
9 TD Canada Trust has shared in the award for the Branch Service Excellence in the
2019 Ipsos Study.
10 TD Canada Trust has shared in the ATM Banking Excellence award in the 2019
Ipsos Study.
11 TD Canada Trust has shared in the Automated Telephone Banking Excellence
award in the 2019 Ipsos Study.
12 Ipsos 2019 Financial Service Excellence Awards are based on continuous fielding
Customer Service Index (CSI) survey results. Sample size for the total 2019 CSI
program year ended with the September 2019 survey which yielded
47,746 financial institution ratings nationally. Leadership is defined as either
a statistically significant lead over the other Big 5 Canadian Retail Banks
(at a 95% confidence interval) or a statistically equal tie with one or more
of the Big 5 Canadian Retail Banks.
13 J.D. Power 2019 Canada Retail Banking Customer Satisfaction Survey.
personal deposits and loans as at August 2019, from The Nilson Report for credit
cards as at March 2019, from the Canadian Bankers Association for Real Estate
Secured Lending as at May 2019, from the Canadian Bankers Association for
business deposits and loans as at December 2018, from Strategic Insight for Direct
Investing asset, trades, and revenue metrics as at June 2019, and from Investment
Funds Institute of Canada for mutual funds when compared to the Big 6 Banks
as at September 2019. The Big 6 Banks consist of Bank of Montreal, Canadian
Imperial Bank of Canada, National Bank of Canada, Royal Bank of Canada,
Scotiabank, and The Toronto-Dominion Bank.
17 Based on Gross Written Premiums for Property and Casualty business. Ranks based
on data available from OSFI, insurers, Insurance Bureau of Canada, and provincial
regulators as at December 31, 2018.
18 Strategic Insight Managed Money Advisory Service – Canada (Spring 2019
report, AUM effective December 2018), Benefits Canada 2019 Top 40 Money
Managers report (May 2019 report, AUM effective December 2018); AUM as
of October 31, 2019 for Greystone.
30
TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
OVERALL BUSINESS STRATEGY
The strategy for Canadian Retail is to:
• Provide trusted advice to help our customers feel confdent about
their fnancial future.
• Consistently deliver legendary, personal, and connected customer
•
•
Execute with speed and impact, taking only those risks we can
understand and manage.
Innovate with purpose for our customers and colleagues, simplifying
to make it easier to get things done.
• Be recognized as an extraordinary place to work where diversity and
experiences across all channels.
inclusiveness are valued.
• Deepen customer relationships by delivering One TD and growing
• Contribute to the well-being of our communities.
in underrepresented products and markets.
T A B L E 1 6
CANADIAN RETAIL
(millions of Canadian dollars, except as noted)
Net interest income
Non-interest income
Total revenue
Provision for credit losses – impaired1
Provision for credit losses – performing2
Total provision for credit losses3
Insurance claims and related expenses
Non-interest expenses – reported
Non-interest expenses – adjusted4
Provision for (recovery of) income taxes – reported
Provision for (recovery of) income taxes – adjusted4
Net income – reported
Net income – adjusted4
Selected volumes and ratios
Return on common equity – reported5
Return on common equity – adjusted4,5
Net interest margin (including on securitized assets)
Effciency ratio – reported
Effciency ratio – adjusted4
Assets under administration (billions of Canadian dollars)
Assets under management (billions of Canadian dollars)
Number of Canadian retail branches
Average number of full-time equivalent staff
2019
$ 12,349
11,877
24,226
1,126
180
1,306
2,787
10,735
10,011
2,535
2,701
6,863
$ 7,421
2018
$ 11,576
11,137
22,713
927
71
998
2,444
9,473
9,473
2,615
2,615
7,183
$ 7,183
2017
$ 10,611
10,451
21,062
986
–
986
2,246
8,934
8,934
2,371
2,371
6,525
$ 6,525
38.6%
41.7
2.96
44.3
41.3
422
353
1,091
40,936
$
47.8%
47.8
2.91
41.7
41.7
389
289
1,098
38,560
$
45.2%
45.2
2.83
42.4
42.4
387
283
1,128
38,880
$
1 PCL − impaired represents Stage 3 PCL under IFRS 9 and counterparty-specific and
4 Adjusted non-interest expenses exclude the following items of note: Charges
individually insignificant PCL under IAS 39 on financial assets.
2 PCL − performing represents Stage 1 and Stage 2 PCL under IFRS 9 and incurred
but not identified PCL under IAS 39 on financial assets, loan commitments, and
financial guarantees.
3 Effective November 1, 2017, the PCL related to the allowances for credit losses for
all three stages are recorded within the respective segment. Under IAS 39 and prior
to November 1, 2017, the PCL related to the incurred but not identified allowance
for credit losses related to products in the Canadian Retail segment was recorded
in the Corporate segment.
related to the long-term loyalty agreement with Air Canada in 2019 – $607 million
($446 million after tax); and charges associated with the acquisition of Greystone
in 2019 – $117 million ($112 million after tax). 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.
5 Capital allocated to the business segment was based on 10% CET1 Capital in fiscal
2019, and 9% in fiscal 2018 and 2017.
REVIEW OF FINANCIAL PERFORMANCE
Canadian Retail reported net income for the year was $6,863 million, a
decrease of $320 million, or 4%, compared with last year. The decrease
in earnings refects charges related to the agreement with Air Canada
and the acquisition of Greystone, higher non-interest expenses,
insurance claims, and PCL, partially offset by revenue growth. On an
adjusted basis, net income for the year was $7,421 million, an increase
of $238 million, or 3%. The reported and adjusted annualized ROE for
the year was 38.6% and 41.7%, respectively, compared with 47.8%
last year.
Canadian Retail revenue is derived from Canadian personal and
commercial banking, wealth, and insurance businesses. Revenue for
the year was $24,226 million, an increase of $1,513 million, or 7%,
compared with last year.
Net interest income increased $773 million, or 7%, refecting
volume growth and higher margins. Average loan volumes increased
$21 billion, or 5%, refecting 5% growth in personal loans and
9% growth in business loans. Average deposit volumes increased
$11 billion, or 3%, refecting 4% growth in personal deposits and
2% growth in business deposits. Net interest margin was 2.96%,
or an increase of 5 bps, refecting higher interest rates, partially offset
by competitive pricing in loans.
Non-interest income increased $740 million, or 7%, refecting higher
revenue from the insurance business, the acquisition of Greystone,
higher asset levels in the wealth management business, and higher
fee-based revenue in the banking businesses. An increase in the fair
value of investments supporting claims liabilities, which resulted in
a similar increase to insurance claims, increased non-interest income
by $171 million.
Assets under administration (AUA) were $422 billion as at
October 31, 2019, an increase of $33 billion, or 8%, compared
with last year, refecting new asset growth and increases in market
value. Assets under management (AUM) were $353 billion as at
October 31, 2019, an increase of $64 billion, or 22%, compared with
last year, refecting the acquisition of Greystone and increases in
market value.
PCL for the year was $1,306 million, an increase of $308 million,
compared with last year. PCL – impaired was $1,126 million, an
increase of $199 million, or 21%, refecting low prior period provisions
in the commercial portfolio, higher losses in the other personal and
auto portfolios, and volume growth across all portfolios. PCL –
performing was $180 million, an increase of $109 million, refecting
credit migration in the consumer lending and commercial portfolios
and volume growth. Annualized PCL as a percentage of credit volume
was 0.31%, an increase of 6 bps.
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
31
Insurance claims and related expenses were $2,787 million, an
increase of $343 million, or 14%, compared with last year. The
increase refects changes in the fair value of investments supporting
claims liabilities, higher current year claims refecting business growth
and less favourable prior years’ claims development, partially offset
by fewer severe weather-related events.
Reported non-interest expenses for the year were $10,735 million,
an increase of $1,262 million, or 13%, compared with last year. The
increase refects charges related to the agreement with Air Canada and
the acquisition of Greystone, higher spend supporting business growth
including employee-related expenses, and investment in strategic
initiatives, partially offset by higher restructuring and promotion
costs last year. On an adjusted basis, non-interest expenses were
$10,011 million, an increase of $538 million, or 6%.
The reported and adjusted effciency ratio for the quarter was
44.3% and 41.3%, respectively, compared with 41.7% last year.
KEY PRODUCT GROUPS
Personal Banking
• Personal Deposits – offers a comprehensive line-up of chequing,
savings, and investment products to retail clients.
• Consumer Lending – offers a diverse range of unsecured fnancing
products to suit the needs of retail clients.
• Real Estate Secured Lending – offers homeowners a wide range
of lending products secured by residential properties.
• Credit Cards and Merchant Solutions – offers a variety of credit card
products including proprietary, co-branded, and affnity credit card
programs, as well as point-of-sale technology and payment solutions
for large and small businesses.
• Auto Finance – offers retail automotive and recreational vehicle
fnancing including promotional rate loans offered in cooperation
with large automotive manufacturers.
Business Banking
• Commercial Banking – serves the borrowing, deposit and cash
management needs of businesses across a wide range of
industries including real estate, agriculture, automotive, and
commercial mortgages.
• Small Business Banking – offers a wide range of fnancial products
and services to small businesses.
Wealth
• Direct Investing – offers resources to self-directed retail investors to
facilitate research, investment management and trading in a range
of investment products through online, phone and mobile channels.
• Wealth Advice – provides wealth management advice and fnancial
planning solutions to retail clients. The Wealth Advice business is
integrated with the personal and business banking businesses.
• Asset Management – provides investment management and
structuring services to retail and institutional clients. TD Mutual
Funds provides a diversifed range of mutual funds and
professionally managed portfolios.
Insurance
• Property and Casualty – offers home and auto insurance through
direct channels and to members of affnity groups such as
professional associations, universities and employer groups.
• Life and Health – offers credit protection to TD Canada Trust
borrowing customers. Other simple life and health insurance
products, credit card balance protection, and travel insurance
products, are distributed through direct channels.
BUSINESS OUTLOOK AND FOCUS FOR 2020
The pace of economic expansion in Canada is expected to
remain consistent with 2019, with the recent moderate upward
momentum in housing market activity expected to continue.
However, growth in 2020 could be impacted by the outcome of
geopolitical events. While many factors affect margins and they
will fuctuate from quarter-to-quarter, we expect to see
downward pressure on margins. We expect continued changes
in the regulatory environment, which combined with changing
customer expectations and the high level of competition,
including from market disruptors, will require continued
investment in our products, channels, and infrastructure. We
will maintain our disciplined approach to risk management, but
credit losses may be impacted by volume growth and ongoing
normalization of credit conditions. Overall, we expect to deliver
solid results in 2020.
Our key priorities for 2020 are as follows:
• Enhance end-to-end omni-channel capabilities to support
key customer journeys, enabling a seamless, intuitive and
legendary customer experience;
• Grow our market share by providing best-in-class products
and services, when and where our customers need them, with
an emphasis on underrepresented products and markets;
• Expand our advisory capabilities and leverage our deep
understanding of our customers to help them better
understand their fnancial needs and feel confdent about
their fnancial future;
• Accelerate growth and distribution capabilities in the
Wealth Advice channels, enrich the client offering in the
Direct Investing business, and innovate for leadership in
Asset Management;
• Continue to invest in our insurance products and services,
ensuring that they are competitive, easy to understand, and
provide the protection our clients need;
• Invest in our business and infrastructure to keep pace with
evolving customer expectations, regulatory requirements,
and cyber risks;
• Enhance application of artifcial intelligence, data and
advanced analytics to deliver best-in-class customer
experiences and drive high levels of engagement; and
• Continue to evolve our brand as an employer of choice,
where colleagues achieve their full potential and where
diversity and inclusiveness are valued.
32
TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
BUSINESS SEGMENT ANALYSIS
U.S. Retail
Operating under the brand name, TD Bank, America’s Most Convenient Bank®, the U.S. Retail Bank offers
a full range of fnancial products and services to over 9 million customers in the Bank’s U.S. personal
and business banking operations, including wealth management. U.S. Retail includes an equity investment
in TD Ameritrade.
NET INCOME
(millions of Canadian dollars)
TOTAL REVENUE
(millions of Canadian dollars)
EFFICIENCY RATIO
(percent)
$5,000
4,000
3,000
2,000
1,000
0
$12,000
10,000
8,000
6,000
4,000
2,000
0
58%
56
54
52
2017
2018
2019
2017
2018
2019
2017
2018
2019
Reported
Adjusted
Reported
Adjusted
T A B L E 1 7
REVENUE – Reported 1
(millions of dollars)
Personal Banking
Business Banking
Wealth
Other2
Total
1 Excludes equity in net income of an investment in TD Ameritrade.
2 Other revenue consists primarily of revenue from investing activities and
an IDA agreement with TD Ameritrade.
2019
$ 6,894
3,786
496
615
$ 11,791
Canadian dollars
2018
$ 6,140
3,527
511
766
$ 10,944
2017
$ 5,599
3,399
504
719
$ 10,221
2019
$ 5,189
2,850
373
464
$ 8,876
2018
$ 4,769
2,740
397
595
$ 8,501
U.S. dollars
2017
$ 4,283
2,600
386
549
$ 7,818
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
33
BUSINESS HIGHLIGHTS
• Record performance in:
– Reported earnings of US$3,750 million, an increase of 15%,
compared with last year;
– Reported effciency ratio of 54.4%, an improvement of
130 bps, compared with last year; and
– Reported contribution from TD Ameritrade of
US$869 million, an increase of 62% compared to last year.
• Continued to provide legendary customer service and
convenience:
– “Rated #1 in Customer Satisfaction for Retail Banking in the
Southeast by J.D. Power”19;
– “Ranked Highest in Customer Satisfaction with Small
Business Banking in the South Region by J.D. Power”20; and
– Launched “Unexpectedly Human” brand campaign,
showcasing the Bank’s customer-centric approach and
commitment to make an impact in local communities.
• Recognized as an extraordinary and inclusive place to work:
– Recognized as one of Philly.com’s 2019 Top Workplaces; and
– Recognized on DiversityInc.’s Top 50 List, with notable
mention towards the inclusive culture we continue to build.
• Continued to focus on enhancements to our core capabilities
and infrastructure, as well as building out digital capabilities:
– Converted Small Business customers to digital
Next-Generation Platform;
– Launched new eSignature capability, enabling retail and
wealth customers to open accounts digitally across multiple
products; and
– Launched new digital mortgage offering, to create a
simpler, faster, and easier mortgage application process.
CHALLENGES IN 2019
• Declining interest rate environment during the second
half of 2019.
• Continuing industry trend of assets under management
moving from active to passive investment strategies.
• Increased competition from U.S. banks and non-bank
competitors.
INDUSTRY PROFILE
The U.S. personal and business banking industry is highly competitive
and includes several very large fnancial institutions as well as regional
banks, small community and savings banks, fnance companies,
credit unions, and other providers of fnancial services. The wealth
management industry includes national and regional banks, insurance
companies, independent mutual fund companies, brokers, and
independent asset management companies. The personal and
business banking and wealth management industries also include
non-traditional competitors ranging from start-ups to established
non-fnancial companies expanding into fnancial services.
These industries serve individuals, businesses, and governments.
Products include deposit, lending, cash management, fnancial advice,
and asset management. These products may be distributed through
a single channel or an array of distribution channels such as physical
locations, digital, phone, and ATMs. Certain businesses also serve
customers through indirect channels.
Traditional competitors are embracing new technologies and
strengthening their focus on the customer experience. Non-traditional
competitors (such as Fintech) have continued to gain momentum and
are increasingly collaborating with banks to evolve customer products
and experience. The keys to proftability continue to be attracting
and retaining customer relationships with legendary service and
convenience, offering products and services through an array of
distribution channels that meet customers’ evolving needs, making
strategic investments while maintaining disciplined expense
management over operating costs, and prudent risk management.
OVERALL BUSINESS STRATEGY
The strategy for U.S. Retail is to:
• Deliver legendary omni-channel service and convenience.
• Grow and deepen customer relationships.
• Leverage our differentiated brand as the “human” bank.
• Innovate with purpose to simplify processes and execute with speed
and excellence.
• Be a premier destination for top talent.
• Maintain prudent risk management.
• Actively support the communities where we operate.
19 TD Bank received the highest score in the Southeast region of the J.D. Power
2019 U.S. Retail Banking Satisfaction Study of customers’ satisfaction with their
own retail bank. Visit jdpower.com.
20 J.D. Power Small Business Satisfaction Study ranking results based off of responses
from 2,554 small business owners or financial decision makers in the South.
34
TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
T A B L E 1 8 U.S. RETAIL
(millions of dollars, except as noted)
Canadian Dollars
Net interest income
Non-interest income1
Total revenue – reported
Provisions for credit losses – impaired2
Provisions for credit losses – performing3
Total provisions for credit losses
Non-interest expenses – reported
Non-interest expenses – adjusted4
Provisions for (recovery of) income taxes – reported1
Provisions for (recovery of) income taxes – adjusted1,4
U.S. Retail Bank net income – reported
U.S. Retail Bank net income – adjusted4
Equity in net income of an investment in TD Ameritrade – reported1,5
Equity in net income of an investment in TD Ameritrade – adjusted1,6
Net income – reported
Net income – adjusted
U.S. Dollars
Net interest income
Non-interest income1
Total revenue – reported
Provision for credit losses – impaired2
Provision for credit losses – performing3
Total provision for credit losses
Non-interest expenses – reported
Non-interest expenses – adjusted4
Provisions for (recovery of) income taxes – reported1
Provisions for (recovery of) income taxes – adjusted1,4
U.S. Retail Bank net income – reported
U.S. Retail Bank net income – adjusted4
Equity in net income of an investment in TD Ameritrade – reported1,5
Equity in net income of an investment in TD Ameritrade – adjusted1,6
Net income – reported
Net income – adjusted
Selected volumes and ratios
Return on common equity – reported7
Return on common equity – adjusted4,6,7
Net interest margin8
Effciency ratio – reported
Effciency ratio – adjusted4
Assets under administration (billions of U.S. dollars)
Assets under management (billions of U.S. dollars)
Number of U.S. retail stores
Average number of full-time equivalent staff
2019
2018
2017
$ 8,951
2,840
11,791
936
146
1,082
6,411
6,411
471
471
3,827
3,827
1,154
1,154
4,981
$ 4,981
$ 6,737
2,139
8,876
705
109
814
4,826
4,826
355
355
2,881
2,881
869
869
3,750
$ 3,750
$ 8,176
2,768
10,944
776
141
917
6,100
6,079
432
437
3,495
3,511
693
865
4,188
$ 4,376
$ 6,350
2,151
8,501
605
108
713
4,739
4,722
334
338
2,715
2,728
538
673
3,253
$ 3,401
$ 7,486
2,735
10,221
648
144
792
5,878
5,852
671
681
2,880
2,896
442
462
3,322
$ 3,358
$ 5,727
2,091
7,818
498
109
607
4,500
4,479
511
519
2,200
2,213
336
352
2,536
$ 2,565
12.6%
12.6
3.31
54.4
54.4
21
44
1,241
26,675
$
12.2%
12.8
3.29
55.7
55.5
19
52
1,257
26,594
$
9.7%
9.8
3.11
57.6
57.3
18
63
1,270
25,923
$
1 The reduction of the U.S. federal corporate tax rate enacted by the U.S. Tax Act
resulted in an adjustment during 2018 to the Bank’s U.S. deferred tax assets and
liabilities to the lower base rate of 21% as well as an adjustment to the Bank’s
carrying balances of certain tax credit-related investments and its investment in
TD Ameritrade. This earnings impact was reported in the Corporate segment. For
additional details, refer to the “Non-GAAP Financial Measures − Reconciliation of
Adjusted to Reported Net Income” table in the “Financial Results Overview”
section of this document.
2 PCL − impaired represents Stage 3 PCL under IFRS 9 and counterparty-specific and
individually insignificant PCL under IAS 39 on financial assets.
3 PCL − performing represents Stage 1 and Stage 2 PCL under IFRS 9 and incurred
but not identified PCL under IAS 39 on financial assets, loan commitments, and
financial guarantees.
For explanations of items of note, refer to the “Non-GAAP Financial Measures −
Reconciliation of Adjusted to Reported Net Income” table in the “Financial
Results Overview” section of this document.
5 The after-tax amounts for amortization of intangibles relating to the Equity in net
income of the investment in TD Ameritrade is recorded in the Corporate segment
with other acquired intangibles.
6 Adjusted equity in net income of an investment in TD Ameritrade excludes the
following item of note: The Bank’s share of charges associated with TD Ameritrade’s
acquisition of Scottrade in 2018 – $172 million or US$135 million after tax, 2017 –
$20 million or US$16 million after tax. For explanations of items of note, refer
to the “Non-GAAP Financial Measures − Reconciliation of Adjusted to Reported
Net Income” table in the “Financial Results Overview” section of this document.
7 Capital allocated to the business segments was based on 10% CET1 Capital in
4 Adjusted non-interest expense excludes the following items of note: Charges
fiscal 2019, and 9% in fiscal 2018 and 2017.
associated with the Bank’s acquisition of Scottrade Bank in 2018 – $21 million
($16 million after tax) or US$17 million (US$13 million after tax), 2017 –
$26 million ($16 million after tax) or US$21 million (US$13 million after tax).
8 Net interest margin excludes the impact related to the TD Ameritrade 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.
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
35
REVIEW OF FINANCIAL PERFORMANCE
U.S. Retail reported net income for the year was $4,981 million
(US$3,750 million), an increase of $793 million (US$497 million), or
19% (15% in U.S. dollars), compared with last year. On an adjusted
basis, net income for the year increased $605 million (US$349 million),
or 14% (10% in U.S. dollars). The reported and adjusted ROE for
the year was 12.6%, compared with 12.2%, and 12.8%, respectively,
in the prior year.
U.S. Retail net income includes contributions from the U.S. Retail
Bank and the Bank’s investment in TD Ameritrade. Net income
for the year from the U.S. Retail Bank and the Bank’s investment
in TD Ameritrade were $3,827 million (US$2,881 million) and
$1,154 million (US$869 million), respectively.
The reported contribution from TD Ameritrade of US$869 million
increased US$331 million, or 62%, compared with last year, primarily
due to higher asset-based revenue and charges associated with the
Scottrade transaction in the prior year. On an adjusted basis, the
contribution from TD Ameritrade increased US$196 million, or 29%.
U.S. Retail Bank reported net income for the year was
US$2,881 million, an increase of US$166 million, or 6%, compared
with last year, primarily due to higher revenue, partially offset by
higher expenses and PCL. U.S. Retail Bank adjusted net income
increased US$153 million, or 6%.
U.S. Retail Bank revenue is derived from personal and business
banking, and wealth management. Revenue for the year was
US$8,876 million, an increase of US$375 million, or 4%, compared
with last year. Net interest income increased US$387 million, or 6%,
refecting growth in loan and deposit volumes as well as higher deposit
margins. Net interest margin was 3.31%, a 2 bps increase primarily
due to higher deposit margins, partially offset by balance sheet mix.
Non-interest income decreased US$12 million, or 1%, as lower wealth
management fees and investment income were partially offset by
growth in personal banking fees.
Average loan volumes increased US$8 billion, or 5%, compared
with last year, due to growth in personal and business loans of 4%
and 6%, respectively. Average deposit volumes increased US$4 billion,
or 2%, compared with last year, due to growth in personal and
business deposit volumes of 4% and 5%, respectively, partially offset
by a 3% decrease in sweep deposit volume from TD Ameritrade.
AUA were US$21 billion as at October 31, 2019, relatively fat
compared with the prior year. AUM were US$44 billion as at
October 31, 2019, a decrease of US$8 billion, or 16%, refecting
net fund outfows including the impact of the strategic disposition
of U.S. money market funds in the frst quarter of this year.
PCL for the year was US$814 million, an increase of US$101 million,
or 14%, compared with last year. PCL – impaired was US$705 million,
an increase of US$100 million, or 17%, primarily refecting higher
provisions for commercial and auto portfolios. PCL – performing was
US$109 million, an increase of US$1 million, or 1%. U.S. Retail PCL
including only the Bank’s contractual portion of credit losses in the
U.S. strategic cards portfolio, as an annualized percentage of credit
volume was 0.52%, or an increase of 4 bps.
KEY PRODUCT GROUPS
Personal Banking
• Personal Deposits – offers a full suite of chequing and savings
products to retail customers through multiple delivery channels.
• Consumer Lending – offers a diverse range of fnancing products
to suit the needs of retail customers.
• Credit Cards Services – offers TD-branded credit cards for retail
and small business franchise customers. TD also offers private label
and co-brand credit cards through nationwide, retail partnerships
to provide credit card products to their U.S. customers.
• Auto Finance – offers indirect retail fnancing through a network
of auto dealers, along with foorplan fnancing to automotive
dealerships throughout the U.S.
Business Banking
• Small Business Banking – offers a range of fnancial products and
services to small businesses.
• Commercial Banking – serves the needs of U.S. businesses and
governments across a wide range of industries.
Wealth
• Advice-based Business – provides private banking, investment
advisory, and trust services to retail and institutional clients. The
advice-based business is integrated with the U.S. personal and
commercial banking businesses.
• Asset Management – the U.S. asset management business is
comprised of Epoch Investment Partners Inc. and the U.S. arm
of TDAM’s investment business.
BUSINESS OUTLOOK AND FOCUS FOR 2020
We anticipate the operating environment to remain relatively
stable in 2020, characterized by moderate economic growth,
ferce competition and lower average interest rates. As a result,
we expect modest loan and deposit growth, with declining net
interest margins on a full year basis. Volume growth, consumer
credit conditions, and economic uncertainties may contribute
to an increase in credit losses in 2020. We expect to maintain a
disciplined expense management approach, while continuing to
make strategic business investments. We expect our contribution
from TD Ameritrade to be lower following the elimination of
commissions for its online exchange-listed stock, exchange-traded
funds (ETF) (U.S. and Canadian), and option trades.
Our key priorities for 2020 are as follows:
• Deliver consistency and excellence in sales and service to
drive more meaningful interactions and better serve the
needs of our customers;
• Deepen customer engagement through delivering a
personalized and connected experience across all channels;
• Continue to invest in data and technology;
• Leverage our infrastructure and capabilities to simplify and
enhance the customer and employee experience;
• Grow our market share by deepening customer relationships
Reported non-interest expenses for the year were US$4,826 million,
and expanding into attractive markets;
which included US$52 million of restructuring charges. Non-interest
expense increased US$87 million, or 2%, compared with last year,
primarily refecting higher investments in business initiatives and
volume growth, higher employee-related costs, and restructuring
charges, partially offset by productivity savings, the elimination of
the Federal Deposit Insurance Corporation (FDIC) deposit insurance
surcharge, and recovery of a legal provision. On an adjusted basis,
non-interest expenses for the year increased US$104 million, or 2%.
The reported and adjusted effciency ratios for the year were 54.4%,
compared with 55.7% and 55.5%, respectively, in the prior year.
• Prudently manage risk and meet regulatory expectations;
• Continue to make progress on our talent strategy with a focus
on diversity and inclusion; and
• Continue to build capabilities to be digitally enabled.
TD AMERITRADE HOLDING CORPORATION
Refer to Note 12 of the 2019 Consolidated Financial Statements for
further information on TD Ameritrade.
36
TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
BUSINESS SEGMENT ANALYSIS
Wholesale Banking
Operating under the brand name TD Securities, Wholesale Banking offers a wide range of capital markets
and corporate and investment banking services to corporate, government, and institutional clients in key
global fnancial centres.
NET INCOME
(millions of Canadian dollars)
TOTAL REVENUE
(millions of Canadian dollars)
GROSS LENDING PORTFOLIO
(billions of Canadian dollars)
$1,200
1,000
800
600
400
200
0
$4,000
3,500
3,000
2,500
2,000
1,500
1,000
$55
50
45
40
35
30
25
2017
2018
2019
2017
2018
2019
2017
2018
2019
T A B L E 1 9
REVENUE1
(millions of Canadian dollars)
Global markets
Corporate and investment banking
Other
Total
1 Certain comparative amounts have been recast to conform with the presentation
adopted in the current period.
2019
$ 2,251
990
(10)
$ 3,231
2018
$ 2,440
996
81
$ 3,517
2017
$ 2,413
860
51
$ 3,324
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
37
BUSINESS HIGHLIGHTS
• Earnings of $608 million and a ROE of 8.3%.
• Lower revenue, refecting challenging market conditions,
reduced client activity and trading volatility in the frst
quarter of this year and the effects of a signifcant upgrade
to the derivative valuation system and related methodologies
in the fourth quarter of this year, partially offset by growth
in the U.S.
• Notable deals in the year:
– Advised on two of the largest Canadian mergers and
acquisitions (M&A) transactions of 2019 including; lead
fnancial advisor to Goldcorp (US$12.5 billion) on its
US$32 billion merger with Newmont (US$19.5 billion) to
create the world’s leading gold company, and fnancial
advisor for the $5.2 billion re-capitalization of Garda World
Security, the largest ever completed for a privately-owned
Canadian company;
– Active in the environmental, social and corporate
governance space (ESG) by participating in over 30 green
and sustainable bond transactions, including Landesbank
Baden-Württemberg’s (LBBW) US$750 million bond, which
was the frst-ever U.S. dollar covered green bond, and
African Development Bank’s US$100 million bond, which
was the frst Secured Overnight Financing Rate (SOFR)-
linked green bond; and
– Delivered on key mandates for both Canadian and U.S.
clients which demonstrated our capabilities and expertise in
U.S. markets. We onboarded over 60 new corporate clients
and 9 new TD Prime Services clients, executed 13 new
securitization programs, actively led 72 U.S. Investment
Grade Corporate bonds, up 29% year-over-year, and were
joint book-runners on over 20 asset-backed securities (ABS)
transactions, more than double the number in the prior year.
We were also an M&A advisor to Brookfeld Business
Partners and Caisse de dépôt et placement du Québec
(CDPQ) on their acquisition of Johnson Controls’ Power
Solutions and co-led the long-term debt fnancings.
• Focused investments supporting the global expansion of
Wholesale Banking’s U.S. dollar strategy, including adding
senior leaders to support our Technology, Power and Utilities
and Sponsor clients. In addition, we have invested in and are
building an effcient and agile infrastructure including a new
global foreign exchange system as well as a new derivative
valuation system both of which enhance our pricing, capacity
and risk management capabilities.
• Top-two dealer status in Canada (for the ten-month period
ended October 31, 2019)21:
– #2 in equity options block trading;
– #1 in syndicated loans (on a rolling twelve-month basis);
– #1 in M&A announced (on a rolling twelve-month basis);
– #1 in M&A completed (on a rolling twelve-month basis);
– #1 in government debt underwriting; and
– #2 in corporate debt underwriting.
• TD Securities was recognized for demonstrating our expertise
and execution capabilities within Capital Markets:
– For the second year in a row, TD Securities tied for #1 in
Overall Canadian Fixed Income as Greenwich Share Leader
and Greenwich Quality Leader;
– TD Securities Equity Research was awarded the most
StarMine Analyst Awards from Refnitiv of any Canadian
Broker, the ffth time within the last six years. These
awards celebrate the world’s top individual sell-side
analysts and sell-side frms;
– Recognized as the 2019 GlobalCapital Award winner for
“Canada Derivatives House of the Year” for the second year
in a row, as well as “Coming Force in SSA Bonds”; and
– Winner for “Precious Metals House of the Year” in the 2019
Energy Risk Awards.
CHALLENGES IN 2019
• Market volatility in the rates, credit and equity markets
resulted in a diffcult trading environment, particularly in the
frst quarter.
• Signifcantly reduced equity underwriting activity in Canada
and lower activity in energy sector.
• Geo-political environment, trade uncertainties, weak
economic growth, and changes to interest rate outlook
contributed to market uncertainty and reduced client activity.
• Continued structural changes to traditional order fow
trading from electronifcation and increased competition
impacting margins.
• Investments and capital required to meet continued regulatory
changes. Increasing cost structure for the industry overall.
INDUSTRY PROFILE
The wholesale banking sector is a mature, highly competitive market
with competition arising from banks, large global investment frms, and
independent niche dealers. Wholesale Banking provides services to
corporate, government, and institutional clients. Products include capital
markets and corporate and investment banking services. Regulatory
requirements for wholesale banking businesses have continued to
evolve, impacting strategy and returns for the sector. Overall, wholesale
banks have continued to shift their focus to client-driven trading
revenue and fee income to reduce risk and to preserve capital.
Competition is expected to remain intense for transactions with high-
quality counterparties, as securities frms focus on prudent risk and
capital management. Longer term, wholesale banks that have a
diversifed client-focused business model, offer a wide range of products
and services, and exhibit effective cost and capital management will be
well-positioned to achieve attractive returns for shareholders.
OVERALL BUSINESS STRATEGY
Continue to build an integrated North American dealer franchise with
global execution capabilities.
• In Canada, we will be the top-ranked investment dealer.
• In the U.S., we will grow client relationships by consistently
delivering value and trusted advice in sectors where we are
competitively positioned.
• We will continue to grow with and support our TD partners.
Invest in an effcient and agile infrastructure, innovation and data
capabilities, and adapt to industry and regulatory changes.
Be an extraordinary and inclusive place to work by attracting,
developing, and retaining the best talent.
21 Rankings reflect TD Securities’ position among Canadian peers in Canadian
product markets. Equity options block trading: block trades by number of
contracts on the Montreal Stock Exchange, Source: Montreal Exchange.
Syndicated loans: deal volume awarded equally between the book-runners,
Source: Bloomberg. M&A announced and completed: Canadian targets,
Source: Thomson Reuters. Government and corporate debt underwriting:
excludes self-led domestic bank deals and credit card deals, bonus credit
to lead, Source: Bloomberg.
38
TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
T A B L E 2 0 WHOLESALE BANKING1
(millions of Canadian dollars, except as noted)
Net interest income (TEB)
Non-interest income2,3
Total revenue
Provision for (recovery of) credit losses – impaired3,4
Provision for (recovery of) credit losses – performing5
Total provision for (recovery of) credit losses6
Non-interest expenses
Provision for (recovery of) income taxes (TEB)7
Net income
Selected volumes and ratios
Trading-related revenue (TEB)
Gross drawn (billions of Canadian dollars)8
Return on common equity9
Effciency ratio
Average number of full-time equivalent staff
2019
$ 911
2,320
3,231
20
24
44
2,393
186
$ 608
2018
$ 1,150
2,367
3,517
(8)
11
3
2,125
335
$ 1,054
2017
$ 1,804
1,520
3,324
(28)
–
(28)
1,982
331
$ 1,039
$ 1,573
24.1
8.3%
74.1
4,536
$ 1,749
23.9
17.7%
60.4
4,187
$ 1,714
20.3
17.4%
59.6
3,989
1 Certain comparative amounts have been recast to conform with the presentation
adopted in the current period.
2 Effective February 1, 2017, the total gains and losses on derivatives hedging the
reclassified securities portfolio (classified as FVOCI under IFRS 9 and AFS portfolio
under IAS 39) are recorded in Wholesale Banking, previously reported in the
Corporate segment and treated as an item of note. Refer to the “Non-GAAP
Financial Measures – Reconciliation of Adjusted to Reported Net Income” table
in the “Financial Results Overview” section of this document.
3 Effective November 1, 2017, the accrual costs related to CDS used to manage
Wholesale Banking’s corporate lending exposure are recorded in non-interest income,
previously reported as a component of PCL. The change in market value of the CDS,
in excess of the accrual cost, continues to be reported in the Corporate segment.
6 Effective November 1, 2017, the PCL related to the allowances for credit losses for
all three stages are recorded within the respective segment. Under IAS 39 and prior
to November 1, 2017, the PCL related to the incurred but not identified allowance
for credit losses related to products in Wholesale Banking was recorded in the
Corporate segment.
7 The reduction of the U.S. federal corporate tax rate enacted by the U.S. Tax Act
resulted in a one-time adjustment during 2018 to Wholesale Banking’s U.S.
deferred tax assets and liabilities to the lower base rate of 21%. The earnings
impact was reported in the Corporate segment. For additional details, refer to the
“Non-GAAP Financial Measures − Reconciliation of Adjusted to Reported Net
Income” table in the “Financial Results Overview” section of this document.
8 Includes gross loans and bankers’ acceptances, excluding letters of credit, cash
4 PCL − impaired represents Stage 3 PCL under IFRS 9 and counterparty-specific and
collateral, CDS, and reserves for the corporate lending business.
individually insignificant PCL under IAS 39 on financial assets.
9 Capital allocated to the business segments was based on 10% CET1 Capital
5 PCL − performing represents Stage 1 and Stage 2 PCL under IFRS 9 and incurred
but not identified PCL under IAS 39 on financial assets, loan commitments, and
financial guarantees.
in fiscal 2019, and 9% in fiscal 2018 and 2017.
REVIEW OF FINANCIAL PERFORMANCE
Wholesale Banking net income for the year was $608 million, a decrease
of $446 million, or 42%, compared with the prior year refecting lower
revenue, higher non-interest expenses, and higher PCL.
Revenue for the year was $3,231 million, a decrease of $286 million,
or 8%, compared with the prior year refecting challenging market
conditions in the frst quarter of this year and derivative valuation
charges of $96 million in the fourth quarter of this year.
PCL for the year was $44 million, compared to $3 million in the
prior year. PCL – impaired was $20 million refecting credit migration.
PCL – performing was $24 million refecting credit migration.
Non-interest expenses were $2,393 million, an increase of
$268 million, or 13%, compared with the prior year. The increase
refects restructuring charges of $23 million, a favourable revaluation
of certain liabilities for post-retirement benefts recognized in the prior
year, continued investments supporting the global expansion of
Wholesale Banking’s U.S. dollar strategy, higher initiative spend, and
the impact of foreign exchange translation, partially offset by lower
variable compensation.
LINES OF BUSINESS
• Global Markets includes sales, trading and research, debt and
equity underwriting, client securitization, trade fnance, cash
management, prime brokerage, and trade execution services22 .
• Corporate and Investment Banking includes corporate
lending and syndications, debt and equity underwriting, and
advisory services22 .
• Other includes the investment portfolio and other
accounting adjustments.
BUSINESS OUTLOOK AND FOCUS FOR 2020
We expect Wholesale Banking earnings to improve in 2020,
as we recover from a weak frst quarter in 2019 and as our U.S.
dollar businesses continue to mature. However, we remain alert
to market sentiment as a combination of global geo-political
and trade uncertainties, increased competition, and evolving
capital and regulatory requirements may continue to impact
industry activity and our business. While these factors may
affect corporate and investor sentiment in the near-term, we
expect that our increasingly diversifed, well-integrated, and
client-focused business model will deliver solid results and
support future growth.
Our key priorities for 2020 are as follows:
• Maintain top market share in our Canadian Franchise.
• Grow our U.S. dollar business, adding new clients and
deepening our relationship value by maturing our product
and advice offerings.
• Increase wallet share with real money, prime services and
government clients globally.
• Drive innovation and build data and analytical capabilities to
improve end-to-end process effciency and enhance client value.
• Permanently lower our cost structure to refect the reduced
margins and volumes in parts of our business.
• Maintain our focus on managing risk, capital, balance sheet,
and liquidity.
• Continue to be an extraordinary place to work with a focus
on inclusion and diversity.
22 Revenue is shared between Global Markets and Corporate and Investment
Banking lines of business in accordance with an established agreement.
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
39
BUSINESS SEGMENT ANALYSIS
Corporate
Corporate segment is comprised of a number of service and control groups. Certain costs relating to
these functions are allocated to operating business segments. The basis of allocation and methodologies
are reviewed periodically to align with management’s evaluation of the Bank’s business segments.
T A B L E 2 1
CORPORATE
(millions of Canadian dollars)
Net income (loss) – reported1,2,3
Pre-tax adjustments for items of note4
Amortization of intangibles
Impact from U.S. tax reform1
Dilution gain on the Scottrade transaction
Loss on sale of the Direct Investing business in Europe
Fair value of derivatives hedging the reclassifed available-for-sale securities portfolio2
Total pre-tax adjustments for items of note
Provision for (recovery of) income taxes for items of note1
Net income (loss) – adjusted
Decomposition of items included in net income (loss) – adjusted
Net corporate expenses
Other
Non-controlling interests
Net income (loss) – adjusted
Selected volumes
Average number of full-time equivalent staff
2019
2018
$ (766)
$ (1,091)
307
–
–
–
–
307
48
$ (507)
$ (715)
190
18
$ (507)
324
48
–
–
–
372
(289)
(430)
(822)
320
72
(430)
$
$
$
2017
$ (369)
310
–
(204)
42
(41)
107
73
$ (335)
$ (767)
311
121
$ (335)
16,884
15,042
14,368
1 The reduction of the U.S. federal corporate tax rate enacted by the U.S. Tax Act
resulted in a net charge to earnings during 2018 of $392 million, comprising a net
$48 million pre-tax charge related to the write-down of certain tax credit-related
investments, partially offset by the favourable impact of the Bank’s share of
TD Ameritrade’s remeasurement of its deferred income tax balances and a net
$344 million income tax expense resulting from the remeasurement of the Bank’s
deferred tax assets and liabilities to the lower base rate of 21% and other related
tax adjustments.
segment and treated as an item of note. Refer to the “Non-GAAP Financial
Measures – Reconciliation of Adjusted to Reported Net Income” table in the
“How We Performed” section of this document.
3 Effective November 1, 2017, the PCL related to the allowances for credit losses for
all three stages are recorded within the respective segment. Under IAS 39 and prior
to November 1, 2017, the PCL related to the incurred but not identified allowance
for credit losses related to products in the Canadian Retail and Wholesale Banking
segments were recorded in the Corporate segment.
2 Effective February 1, 2017, the total gains and losses on derivatives hedging the
4 For explanations of items of note, refer to the “Non-GAAP Financial Measures –
reclassified AFS securities portfolio (classified as FVOCI under IFRS 9 and AFS under
IAS 39) are recorded in Wholesale Banking, previously reported in the Corporate
Reconciliation of Adjusted to Reported Net Income” table in the “Financial Results
Overview” section of this document.
Corporate segment includes expenses related to a number of service
and control functions, the impact of treasury and balance sheet
management activities, tax items at an enterprise level, and
intercompany adjustments such as elimination of TEB and the retailer
program partners’ share relating to the U.S. strategic cards portfolio.
The Corporate segment reported net loss for the year was $766 million,
compared with a reported net loss of $1,091 million last year. The
year-over-year decrease in reported net loss was attributable to
the impact from U.S. tax reform last year and lower net corporate
expenses in the current year, partially offset by lower contribution
from other items and non-controlling interests. Other items decreased
refecting lower revenue from treasury and balance sheet management
activities and the impact of legal provisions in the current year. Net
corporate expenses decreased primarily refecting lower net pension
expenses in the current year, partially offset by restructuring charges
of $51 million. The adjusted net loss for the year was $507 million,
compared with an adjusted net loss of $430 million last year.
FOCUS FOR 2020
In 2020, service and control groups within the Corporate
segment will continue supporting our Business segments as well
as executing enterprise and regulatory initiatives and managing
the Bank’s balance sheet and funding activities. We will
continue to proactively address the complexities and challenges
from changing demands and expectations of our customers,
communities, colleagues, governments and regulators. We will
maintain focus on the design, development, and implementation
of processes, systems, technologies, enterprise and regulatory
controls and initiatives to enable the Bank’s key businesses to
operate effciently, effectively, and to be in compliance with all
applicable regulatory requirements.
40
TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
2018 FINANCIAL RESULTS OVERVIEW
Summary of 2018 Performance
T A B L E 2 2
REVIEW OF 2018 FINANCIAL PERFORMANCE1
(millions of Canadian dollars)
Net interest income
Non-interest income
Total revenue
Provision for (recovery of) credit losses – impaired
Provision for (recovery of) credit losses – performing
Total provision for (recovery of) credit losses
Insurance claims and related expenses
Non-interest expenses
Net income (loss) before provision for income taxes
Provision for (recovery of) income taxes
Equity in net income of an investment in TD Ameritrade
Net income (loss) – reported
Adjustments for items of note, net of income taxes
Net income (loss) – adjusted
1 Certain comparative amounts have been recast to conform with the presentation
adopted in the current period.
NET INCOME
Reported net income for the year was $11,334 million, an increase of
$817 million, or 8%, compared with the prior year. The increase refects
revenue growth and a higher contribution from TD Ameritrade, partially
offset by a higher PCL, refecting the Bank’s adoption of IFRS 9,
an increase in non-interest expenses, and a higher effective tax rate.
Reported diluted EPS for the year was $6.01, an increase of 9%,
compared with $5.50 in the prior year. Adjusted diluted EPS for the year
was $6.47, a 17% increase, compared with $5.54 in the prior year.
Reported revenue was $38,892 million, an increase of $2,690 million,
or 7%, compared with the prior year. Adjusted revenue was
$38,981 million, an increase of $2,982 million,
or 8%, compared with the prior year.
NET INTEREST INCOME
Net interest income for the year was $22,239 million, an increase of
$1,392 million, or 7%, compared with the prior year. The increase
refects loan and deposit volume growth and higher margins in the
Canadian and U.S. Retail segments, and the beneft of the Scottrade
transaction, partially offset by the impact of foreign currency translation.
By segment, the increase in reported net interest income was due to
an increase in Canadian Retail of $965 million, or 9%, an increase in
U.S. Retail of $690 million, or 9%, and an increase in the Corporate
segment of $391 million, or 41%, partially offset by a decrease in
Wholesale Banking of $654 million, or 36%.
NON-INTEREST INCOME
Reported non-interest income for the year was $16,653 million,
an increase of $1,298 million, or 8%, compared with the prior year.
The increase refects higher non-interest income in Wholesale Banking,
fee-based income in the Canadian and U.S. Retail segments, wealth
asset growth, an increase in revenues for the insurance business, and
higher trading volumes in the direct investing business in the Canadian
Retail segment. The increase was partially offset by the dilution gain
on the Scottrade transaction in the prior year and losses on certain tax
credit-related investments in the year. Adjusted non-interest income
for the year was $16,742 million, an increase of $1,590 million, or
10%, compared with the prior year.
By segment, the increase in reported non-interest income was due
to an increase in Wholesale Banking of $847 million, or 56%, an
increase in Canadian Retail of $686 million, or 7%, and an increase
in U.S. Retail of $33 million, or 1%, partially offset by a decrease in
Corporate of $268 million, or 41%.
Canadian
Retail
$ 11,576
11,137
22,713
927
71
998
2,444
9,473
9,798
2,615
–
7,183
–
$ 7,183
U.S.
Retail
$ 8,176
2,768
10,944
776
141
917
–
6,100
3,927
432
693
4,188
188
$ 4,376
Wholesale
Banking
Corporate
$ 1,150
2,367
3,517
(8)
11
3
–
2,125
1,389
335
–
1,054
–
$ 1,054
$ 1,337
381
1,718
471
91
562
–
2,497
(1,341)
(200)
50
(1,091)
661
(430)
$
Total
$ 22,239
16,653
38,892
2,166
314
2,480
2,444
20,195
13,773
3,182
743
11,334
849
$ 12,183
PROVISION FOR CREDIT LOSSES
PCL for the year was $2,480 million, an increase of $264 million,
or 12%, compared with the prior year. PCL – impaired was
$2,166 million, an increase of $176 million, or 9%, primarily refecting
U.S. credit card and U.S. auto portfolio volume growth, seasoning and
mix, partially offset by strong credit performance in Canadian Retail.
PCL – performing was $314 million, an increase of $88 million, or
39%, primarily refecting the impact of methodology changes related
to the adoption of IFRS 9 including where Stage 2 loans were
measured based on a lifetime expected credit loss (ECL). Total PCL year
to date as an annualized percentage of credit volume was 0.39%.
By segment, the increase in PCL was due to an increase in U.S.
Retail of $125 million, or 16%, an increase in the Corporate segment
of $96 million, or 21% (largely refecting PCL for the U.S. strategic
cards portfolio, which is offset in Corporate segment non-interest
expenses), an increase in Wholesale Banking of $31 million, and an
increase in Canadian Retail of $12 million, or 1%.
INSURANCE CLAIMS AND RELATED EXPENSES
Insurance claims and related expenses were $2,444 million, an increase
of $198 million, or 9%, compared with the prior year, refecting an
increase in reinsurance liabilities assumed, more severe weather-related
events, higher current year claims, and changes in the fair value of
investments supporting claims liabilities which resulted in a similar
increase to non-interest income, partially offset by more favourable
prior years’ claims development, and the impact of changes to
forward-looking actuarial assumptions.
NON-INTEREST EXPENSES
Reported non-interest expenses for the year were $20,195 million, an
increase of $776 million, or 4%, compared with the prior year. The
increase was primarily due to an increase in employee-related expenses
including revenue-based variable compensation expenses, business and
volume growth, and higher spend related to strategic initiatives,
partially offset by productivity savings.
By segment, the increase in non-interest expenses was due to an
increase in Canadian Retail of $539 million, or 6%, an increase in
U.S. Retail of $222 million, or 4%, an increase in Wholesale Banking
of $143 million, or 7%, partially offset by a decrease in the Corporate
segment of $128 million, or 5%.
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
41
PROVISION FOR INCOME TAXES
Reported total income and other taxes increased $1,022 million, or
28.6%, compared with last year, refecting an increase in income tax
expense of $929 million, or 41.2%, and an increase in other taxes
of $93 million, or 7.1%. Adjusted total income and other taxes were
up $655 million from last year, or 17.9%, refecting an increase in
income tax expense of $562 million.
The Bank’s reported effective tax rate was 23.1% for 2018,
compared with 18.3% last year. The year-over-year increase was
largely due to higher income before taxes, lower tax-exempt dividend
income, the impact of U.S. tax reform on U.S. deferred tax assets and
liabilities and a prior year non-taxable dilution gain on the Scottrade
transaction, partially offset by the lower U.S. federal tax rate
associated with U.S. tax reform. For a reconciliation of the Bank’s
effective income tax rate with the Canadian statutory income tax rate,
refer to Note 25 of the 2018 Consolidated Financial Statements.
The Bank’s adjusted effective income tax rate for 2018 was 20.5%,
compared with 18.9% last year. The year-over-year increase was
largely due to higher income before taxes and lower tax-exempt
dividend income, partially offset by the lower U.S. federal tax rate
associated with U.S. tax reform.
The Bank reports its investment in TD Ameritrade using the equity
method of accounting. TD Ameritrade’s tax expense of $206 million
in 2018, compared with $268 million last year, was not part of
the Bank’s effective tax rate.
BALANCE SHEET
Total assets were $1,335 billion as at October 31, 2018, an increase
of $56 billion, or 4%, from November 1, 2017. The increase was
primarily due to loans, net of allowance for loan losses of $43 billion,
debt securities at amortized cost, net of allowance for credit losses
of $31 billion, trading loans, securities, and other of $24 billion, and
derivatives of $1 billion. The increase was partially offset by decreases
in cash and interest-bearing deposits with banks of $20 billion,
fnancial assets at FVOCI of $13 billion, securities purchased under
reverse repurchase agreements of $7 billion, and non-trading fnancial
assets at fair value through proft and loss of $5 billion. The foreign
currency translation impact on total assets, primarily in the U.S. Retail
segment, was an increase of approximately $10 billion, or 1%.
Total liabilities were $1,255 billion as at October 31, 2018, an
increase of $51 billion, or 4%, from November 1, 2017. The increase
was primarily due to trading deposits of $35 billion, deposits of
$19 billion, and obligations related to securities sold under repurchase
agreements of $5 billion. The increase was partially offset by decreases
in derivatives of $3 billion, subordinated notes and debentures of
$1 billion, and other liabilities of $4 billion. The foreign currency
translation impact on total liabilities, primarily in the U.S. Retail
segment, was an increase of approximately $10 billion, or 1%.
Equity was $80 billion as at October 31, 2018, an increase of
$5 billion, or 6%, from November 1, 2017. The increase was primarily
due to higher retained earnings, partially offset by a decrease in other
comprehensive income due to losses on cash fow hedges.
2018 FINANCIAL RESULTS OVERVIEW
2018 Financial Performance by Business Line
Canadian Retail net income for the year was $7,183 million, an
increase of $658 million, or 10%, compared with last year. The
increase in earnings refects revenue growth, partially offset by higher
non-interest expenses, insurance claims, and PCL. The ROE for the
year was 47.8%, compared with 45.2% last year.
Canadian Retail revenue is derived from Canadian personal and
commercial banking, wealth, and insurance businesses. Revenue for
the year was $22,713 million, an increase of $1,651 million, or 8%,
compared with last year.
Net interest income increased $965 million, or 9%, refecting
volume growth and higher margins. Average loan volumes increased
$23 billion, or 6%, refecting 5% growth in personal loans and 10%
growth in business loans. Average deposit volumes increased
$15 billion, or 5%, refecting 4% growth in personal deposits and 8%
growth in business deposits. Net interest margin was 2.91%, or an
increase of 8 bps, refecting rising interest rates, partially offset by
competitive pricing in loans.
Non-interest income increased $686 million, or 7%, refecting
wealth asset growth, an increase in revenues from the insurance
business, higher fee-based revenue in the personal banking business,
and higher trading volumes in the direct investing business. An
increase in the fair value of investments supporting claims liabilities,
which resulted in a similar increase to insurance claims, increased
non-interest income by $41 million.
AUA were $389 billion as at October 31, 2018, an increase of
$2 billion, or 1%, compared with last year, refecting new asset
growth, partially offset by decreases in market value. AUM were
$289 billion as at October 31, 2018, an increase of $6 billion, or 2%,
compared with last year, refecting new asset growth.
PCL for the twelve months ended October 31, 2018 was $998 million,
an increase of $12 million, or 1% compared with last year. PCL –
impaired was $927 million, a decrease of $59 million, or 6%, refecting
strong credit performance across all business lines. PCL – performing
(recorded in the Corporate segment last year as incurred but not
identifed credit losses under IAS 39) was $71 million primarily
refecting the adoption of IFRS 9 including where Stage 2 loans are
measured on a lifetime ECL. Full year PCL as a percentage of credit
volume was 0.25%, a decrease of 1 basis point. Net impaired loans
were $664 million, an increase of $109 million, or 20%. Net impaired
loans as a percentage of total loans were 0.16%, compared with
0.15%, as at October 31, 2017.
Insurance claims and related expenses for the year were
$2,444 million, an increase of $198 million, or 9%, compared with
last year, refecting an increase in reinsurance liabilities assumed,
more severe weather-related events, higher current year claims, and
an increase in the fair value of investments supporting claims liabilities
which resulted in a similar increase to non-interest income, partially
offset by more favourable prior years’ claims development, and the
impact of changes to forward-looking actuarial assumptions.
Non-interest expenses for the year were $9,473 million, an increase
of $539 million, or 6%, compared with last year, refecting increased
employee-related expenses including revenue-based variable
compensation expenses in the wealth business, increased marketing
and promotion costs, increased spend related to strategic initiatives,
and restructuring costs across a number of businesses.
The effciency ratio was 41.7%, compared with 42.4% last year.
42
TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
U.S. Retail reported net income for the year was $4,188 million
(US$3,253 million), an increase of $866 million (US$717 million), or
26% (28% in U.S. dollars), compared with last year. On an adjusted
basis, net income for the year was $4,376 million (US$3,401 million),
an increase of $1,018 million (US$836 million), or 30% (33% in U.S.
dollars). The reported and adjusted ROE for the year was 12.2% and
12.8%, respectively, compared with 9.7%, and 9.8%, respectively,
in the prior year.
U.S. Retail net income includes contributions from the U.S. Retail
Bank and the Bank’s investment in TD Ameritrade. Reported net income
for the year from the U.S. Retail Bank and the Bank’s investment in
TD Ameritrade were $3,495 million (US$2,715 million) and $693 million
(US$538 million), respectively. On an adjusted basis for the year,
the U.S. Retail Bank and the Bank’s investment in TD Ameritrade
contributed net income of $3,511 million (US$2,728 million) and
$865 million (US$673 million), respectively.
The reported contribution from TD Ameritrade of US$538 million
increased US$202 million, or 60%, compared with last year, primarily
due to the beneft of the Scottrade transaction, higher interest rates,
increased trading volumes, and a lower corporate tax rate, partially
offset by higher operating expenses and charges associated with the
Scottrade transaction. On an adjusted basis, the contribution from
TD Ameritrade increased US$321 million, or 91%.
U.S. Retail Bank reported net income for the year was
US$2,715 million, an increase of US$515 million, or 23%, compared
with last year, primarily due to higher loan and deposit volumes,
higher deposit margins, fee income growth, the beneft of the
Scottrade transaction, and a lower corporate tax rate, partially offset
by higher expenses and PCL. U.S. Retail Bank adjusted net income
increased US$515 million, or 23%.
U.S. Retail Bank revenue is derived from personal and business
banking, and wealth management. Revenue for the year was
US$8,501 million, an increase of US$683 million, or 9%, compared
with last year. Net interest income increased US$623 million, or 11%,
primarily due to a more favourable interest rate environment, growth
in loan and deposit volumes, and the beneft of the Scottrade
transaction. Net interest margin was 3.29%, an 18 bps increase
primarily due to higher deposit margins and balance sheet mix.
Non-interest income increased US$60 million, or 3%, refecting fee
income growth in personal and commercial banking, partially offset
by losses on certain tax credit-related investments.
Average loan volumes increased US$6 billion, or 4%, compared with
last year, due to growth in personal and business loans of 6% and 3%,
respectively. Average deposit volumes increased US$19 billion, or 8%,
refecting 1% growth in business deposit volumes, 4% growth in
personal deposit volumes and a 15% increase in sweep deposit volume
primarily due to the Scottrade transaction.
AUA were US$19 billion as at October 31, 2018, relatively fat
compared with the prior year. AUM were US$52 billion as at
October 31, 2018, a decrease of 17%, refecting net fund outfows.
PCL was US$713 million, an increase of US$106 million, or 17%,
compared with last year. PCL – impaired was US$605 million, an
increase of US$107 million, or 21%, primarily refecting volume
growth, seasoning, and mix in the credit card and auto portfolios.
PCL – performing was US$108 million, relatively fat compared to
last year, primarily refecting lower provisions for the commercial
portfolios, offset by the impact of methodology changes related to the
adoption of IFRS 9 where Stage 2 loans are now measured based on
a lifetime ECL. U.S. Retail PCL including only the Bank’s contractual
portion of credit losses in the U.S. strategic cards portfolio, as an
annualized percentage of credit volume was 0.48%, or an increase of
6 bps. Net impaired loans, excluding ACI loans, were US$1.4 billion,
a decrease of US$45 million, or 3%. Excluding ACI loans, net impaired
loans as a percentage of total loans were 1% as at October 31, 2018.
Reported non-interest expenses for the year were US$4,739 million,
an increase of US$239 million, or 5%, compared with last year,
refecting higher investments in business initiatives, business and
volume growth, and employee-related costs, partially offset by
productivity savings. On an adjusted basis, non-interest expenses for
the year were US$4,722 million, an increase of US$243 million, or 5%.
The reported and adjusted effciency ratios for the year were
55.7% and 55.5%, respectively, compared with 57.6% and 57.3%,
respectively, last year.
Wholesale Banking net income for the year was $1,054 million, an
increase of $15 million, or 1%, compared with the prior year refecting
higher revenue, partially offset by higher non-interest expenses and PCL
for the year compared to a net recovery of PCL in the prior year. The
ROE for the year was 17.7%, compared with 17.4% in the prior year.
Revenue for the year was $3,517 million, an increase of $193 million,
or 6%, compared with the prior year refecting increased corporate
lending, advisory fees, and trading-related revenue.
PCL for the year was $3 million, compared with a net recovery of
$28 million in the prior year. PCL – impaired was a net recovery of
$8 million, compared with a net recovery of $28 million in the prior
year, refecting a lower recovery of provisions in the oil and gas sector.
PCL – performing (recorded in the Corporate segment last year as
incurred but not identifed credit losses under IAS 39) for the year was
$11 million primarily refecting the adoption of IFRS 9 including where
Stage 2 loans are measured on a lifetime ECL.
Non-interest expenses were $2,125 million, an increase of
$143 million, or 7%, compared with the prior year refecting
continued investments in employees supporting the global expansion
of Wholesale Banking’s U.S. dollar strategy, higher initiative spend to
enhance new product capabilities and higher variable compensation
commensurate with increased revenue, partially offset by the
revaluation of certain liabilities for post-retirement benefts.
Corporate segment reported net loss for the year was $1,091 million,
compared with a reported net loss of $369 million last year. The year-
over-year increase in reported net loss was attributable to the impact
from U.S. tax reform this year, the dilution gain on the Scottrade
transaction last year, increased net corporate expenses and decreased
non-controlling interests this year and the gain on fair value of
derivatives hedging the reclassifed AFS securities portfolio last year.
Net corporate expenses increased primarily due to the positive impact
of tax adjustments last year, the impact of the reduction of the U.S.
corporate tax rate on current year expenses and investments in
advanced analytic and artifcial intelligence capabilities in the current
year. The adjusted net loss for the year was $430 million, compared
with an adjusted net loss of $335 million last year.
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
43
GROUP FINANCIAL CONDITION
Balance Sheet Review
AT A GLANCE OVERVIEW
Total assets were $1,415 billion as at October 31, 2019, an
increase of $80 billion, or 6%, compared with October 31, 2018.
T A B L E 2 3
CONDENSED CONSOLIDATED BALANCE SHEET ITEMS1
(millions of Canadian dollars)
Assets
Cash and Interest-bearing deposits with banks
Trading loans, securities, and other
Non-trading fnancial assets at fair value through proft or loss
Derivatives
Financial assets designated at fair value through proft or loss
Financial assets at fair value through other comprehensive income
Debt securities at amortized cost, net of allowance for credit losses
Securities purchased under reverse repurchase agreements
Loans, net of allowance for loan losses
Other
Total assets
Liabilities
Trading deposits
Derivatives
Financial liabilities designated at fair value through proft or loss
Deposits
Obligations related to securities sold under repurchase agreements
Subordinated notes and debentures
Other
Total liabilities
Total equity
Total liabilities and equity
1 Certain comparative amounts have been reclassified to conform with the
presentation adopted in the current period.
Total assets were $1,415 billion as at October 31, 2019, an increase
of $80 billion, or 6%, from October 31, 2018. The increase refects
securities purchased under reverse repurchase agreements of
$39 billion, loans, net of allowance for loan losses of $38 billion,
debt securities at amortized cost, net of allowance for credit losses
of $23 billion, trading loans, securities, and other of $18 billion, and
non-trading fnancial assets at fair value through proft or loss of
$2 billion. The increase was partially offset by decreases in fnancial
assets at fair value through other comprehensive income of $19 billion,
derivatives of $8 billion, cash and interest-bearing deposits with banks
of $5 billion, and other assets of $8 billion.
Cash and interest-bearing deposits with banks decreased $5 billion
refecting cash management activities.
Trading loans, securities, and other increased by $18 billion
refecting an increase in trading volume.
Non-trading fnancial assets at fair value through proft or loss
increased $2 billion refecting new investments.
Derivatives decreased $8 billion refecting the impact of netting
positions, partially offset by higher mark-to-market values on
interest rate swaps.
Financial assets at fair value through other comprehensive
income decreased $19 billion refecting maturities and sales, partially
offset by new investments.
44
TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
October 31
2019
$
30,446
146,000
6,503
48,894
4,040
111,104
130,497
165,935
684,608
87,263
$ 1,415,290
$
26,885
50,051
105,131
886,977
125,856
10,725
121,964
1,327,589
87,701
$ 1,415,290
As at
October 31
2018
$
35,455
127,897
4,015
56,996
3,618
130,600
107,171
127,379
646,393
95,379
$ 1,334,903
$ 114,704
48,270
16
851,439
93,389
8,740
138,305
1,254,863
80,040
$ 1,334,903
Debt securities at amortized cost, net of allowance for credit
losses increased $23 billion refecting new investments, partially
offset by maturities.
Securities purchased under reverse repurchase agreements
increased $39 billion refecting an increase in trading volume and
fnancing activities.
Loans, net of allowance for loan losses increased $38 billion
refecting growth in business and government loans, residential
mortgages, and other personal loans.
Other assets decreased $8 billion refecting amounts receivable from
brokers, dealers and clients due to unsettled and pending trades.
Total liabilities were $1,328 billion as at October 31, 2019, an
increase of $72 billion, or 6%, from October 31, 2018. The increase
refects fnancial liabilities designated at fair value through proft or
loss of $105 billion, deposits of $35 billion, obligations related to
securities sold under repurchase agreements of $32 billion, derivatives
of $2 billion, and subordinated notes and debentures of $2 billion.
The increase was partially offset by decreases in trading deposits of
$88 billion, and other liabilities of $16 billion.
Trading deposits decreased $88 billion refecting maturing deposits,
partially offset by issuances of fnancial liabilities designated at fair
value through proft or loss.
Derivatives increased $2 billion refecting higher mark-to-market values
on interest rate swaps, partially offset by the impact of netting positions.
Financial liabilities designated at fair value through proft or loss
increased $105 billion refecting new issuances of funding instruments.
Deposits increased $35 billion refecting an increase in personal
deposits, and business and government deposits.
Obligations related to securities sold under repurchase
agreements increased $32 billion refecting an increase in trading
volume and fnancing activities.
Subordinated notes and debentures increased $2 billion
refecting the issuance of non-viability contingent capital (NVCC)
subordinated debentures.
Other liabilities decreased $16 billion refecting amounts payable
to brokers, dealers, and clients due to unsettled and pending trades,
and obligations related to securities sold short.
Equity was $88 billion as at October 31, 2019, an increase of
$8 billion, or 10%, from October 31, 2018. The increase refects
other comprehensive income from gains on cash fow hedges,
retained earnings, the issuance of Non-Cumulative 5-year Rate Reset
Preferred Shares, Series 22 and 24, and the issuance of common
shares due to the acquisition of Greystone, partially offset by the
redemption of the TD Capital Trust III securities.
GROUP FINANCIAL CONDITION
Credit Portfolio Quality
AT A GLANCE OVERVIEW
• Loans and acceptances net of allowance for loan losses were
$700 billion, an increase of $34 billion compared with last year.
• Impaired loans net of Stage 3 allowances were $2,298 million,
a decrease of $170 million compared with last year.
• Provision for credit losses was $3,029 million, compared with
$2,480 million last year.
• Total allowance for credit losses including off-balance sheet
positions increased by $378 million to $5,036 million.
Effective November 1, 2017, the Bank adopted IFRS 9, which replaces
the guidance in IAS 39. The Bank periodically reviews the methodology
for assessing signifcant increase in credit risk and ECLs. Refer to
Notes 2 and 3 of the 2019 Consolidated Financial Statements for a
summary of the Bank’s accounting policies and signifcant accounting
judgments, estimates, and assumptions. Forward-looking information
is incorporated as appropriate where macroeconomic scenarios and
associated probability weights are updated quarterly and incorporated
to determine the probability-weighted ECLs. As part of periodic review
and updates, certain revisions may be made to refect updates in
statistically derived loss estimates for the Bank’s recent loss experience
of its credit portfolios and forward-looking views, which may cause
a change to the allowance for ECLs. During the year, ordinary course
updates were made to the forward-looking estimates used to
determine the Bank’s probability-weighted ECLs. Certain refnements
were made to the methodology, the cumulative effect of which was
not material and included in the change during 2019. Allowance for
credit losses are further described in Note 8 of the 2019 Consolidated
Financial Statements.
LOAN PORTFOLIO
The Bank increased its credit portfolio net of allowance for loan losses
by $34 billion, or 5%, from the prior year, largely due to volume
growth in the business and government, residential mortgages and
consumer instalment and other personal portfolios.
While the majority of the credit risk exposure is related to loans and
acceptances, the Bank also engaged in activities that have off-balance
sheet credit risk. These include credit instruments and derivative
fnancial instruments, as explained in Note 31 of the 2019
Consolidated Financial Statements.
CONCENTRATION OF CREDIT RISK
The Bank’s loan portfolio continued to be concentrated in Canadian
and U.S. residential mortgages, consumer instalment and other
personal loans, and credit card loans, representing 64% of total loans
net of Stage 3 allowances, stable from 2018. During the year, these
portfolios increased by $20 billion, or 5%, and totalled $452 billion
at year end. Residential mortgages represented 33% of the total loans
net of Stage 3 allowances in 2019, down 1% from 2018. Consumer
instalment and other personal loans, and credit card loans were 31%
of total loans net of Stage 3 allowances in 2019, consistent with 2018.
The Bank’s business and government credit exposure was 36% of
total loans net of Stage 3 allowances, up 1% from 2018. The largest
business and government sector concentrations in Canada were the
Real estate and Financial sectors, which comprised 5% and 3%, of
net loans respectively. Real estate, Government, public sector entities
and education, and health and social services were the largest U.S.
sector concentrations in 2019 representing 5%, 2%, and 2% of net
loans, respectively.
Geographically, the credit portfolio remained concentrated in Canada.
In 2019, the percentage of loans net of Stage 3 allowances held in
Canada was 67%, consistent with 2018. The largest Canadian regional
exposure was in Ontario, which represented 39% of total loans net of
Stage 3 allowances for 2019, compared with 41% in the prior year.
The balance of the credit portfolio was predominantly in the U.S.,
which represented 33% of loans net of Stage 3 allowances, up 1%
from 2018. Exposures to ACI loans, and other geographic regions
were relatively small. The largest U.S. regional exposures were in
New England, New York, and New Jersey which represented 6%,
6%, and 5% of total loans net of Stage 3 allowances, respectively,
compared with 6%, 5% and 5%, respectively, in the prior year.
Under IFRS 9, the Bank now calculates allowances for expected
credit losses on debt securities measured at amortized cost and FVOCI.
The Bank has $237,638 million in such debt securities of which
$237,638 million are performing securities (Stage 1 and 2) and none
are impaired. The allowance for credit losses on debt securities at
amortized cost and debt securities at FVOCI was $1 million and
$3 million, respectively.
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
45
LOANS AND ACCEPTANCES, NET OF STAGE 3 ALLOWANCE FOR LOAN LOSSES (NET OF COUNTERPARTY-SPECIFIC
T A B L E 2 4 AND INDIVIDUALL
Y INSIGNIFICANT ALLOWANCES UNDER IAS 39) BY INDUSTRY SECTOR1,2
(millions of Canadian dollars,
except as noted)
October 31
2019
October 31
2018
October 31
2017
October 31
2019
October 31
2018
October 31
2017
As at
Percentage of total
Stage 3
allowances for
loan losses
impaired
Gross
loans
Net
loans
Net
loans
Net
loans
Canada
Residential mortgages
Consumer instalment and other personal
HELOC3
Indirect Auto
Other
Credit card
Total personal
Real estate
Residential
Non-residential
Total real estate
Agriculture
Automotive
Financial
Food, beverage, and tobacco
Forestry
Government, public sector
entities, and education
Health and social services
Industrial construction
and trade contractors
Metals and mining
Pipelines, oil, and gas
Power and utilities
Professional and other services
Retail sector
Sundry manufacturing and wholesale
Telecommunications, cable, and media
Transportation
Other
Total business and government
Total Canada
$ 200,952
$ 27
$ 200,925
$ 193,811
$ 190,308
28.5%
28.9%
30.1%
91,053
25,697
18,455
18,428
354,585
19,818
15,932
35,750
8,191
6,709
19,836
2,540
668
5,531
7,142
3,539
1,713
4,672
1,971
4,685
3,598
2,865
2,971
2,350
4,302
119,033
$ 473,618
13
53
42
70
205
6
–
6
2
6
–
1
–
–
8
39
10
18
–
11
6
16
6
6
6
141
$ 346
91,040
25,644
18,413
18,358
354,380
19,812
15,932
35,744
8,189
6,703
19,836
2,539
668
5,531
7,134
3,500
1,703
4,654
1,971
4,674
3,592
2,849
2,965
2,344
4,296
118,892
$ 473,272
86,147
24,170
18,540
17,969
340,637
18,358
13,633
31,991
7,459
6,918
19,313
2,330
544
4,177
6,664
3,170
1,740
3,901
2,897
4,474
3,200
2,925
3,134
1,860
4,371
111,068
$ 451,705
74,931
22,245
17,326
17,935
322,745
17,974
12,830
30,804
6,674
6,657
13,102
1,968
500
4,251
5,837
2,931
1,400
3,975
2,010
3,865
2,782
2,742
1,966
1,671
3,805
96,940
$ 419,685
12.9
3.6
2.6
2.6
50.2
2.8
2.3
5.1
1.2
1.0
2.8
0.4
0.1
0.8
1.0
0.5
0.2
0.7
0.3
0.7
0.5
0.4
0.4
0.3
0.6
17.0
67.2%
12.8
3.6
2.8
2.7
50.8
2.7
2.0
4.7
1.1
1.0
2.9
0.3
0.1
0.6
1.0
0.5
0.3
0.6
0.4
0.7
0.5
0.4
0.5
0.3
0.7
16.6
67.4%
11.8
3.5
2.8
2.8
51.0
2.8
2.0
4.8
1.1
1.1
2.1
0.3
0.1
0.7
0.9
0.5
0.2
0.6
0.3
0.6
0.4
0.4
0.3
0.3
0.6
15.3
66.3%
1 Primarily based on the geographic location of the customer’s address.
2 Includes loans that are measured at FVOCI.
3 Home Equity Line of Credit.
46
TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
T A B L E 2 4
LOANS AND ACCEPTANCES, NET OF STAGE 3 ALLOWANCE FOR LOAN LOSSES (NET OF COUNTERPARTY-SPECIFIC
AND INDIVIDUALL
Y INSIGNIFICANT ALLOWANCES UNDER IAS 39) BY INDUSTRY SECTOR (continued) 1,2
(millions of Canadian dollars,
except as noted)
October 31
2019
October 31
2018
October 31
2017
October 31
2019
October 31
2018
October 31
2017
As at
Percentage of total
United States
Residential mortgages
Consumer instalment and other personal
HELOC
Indirect Auto
Other
Credit card
Total personal
Real estate
Residential
Non-residential
Total real estate
Agriculture
Automotive
Financial
Food, beverage, and tobacco
Forestry
Government, public sector
entities, and education
Health and social services
Industrial construction
and trade contractors
Metals and mining
Pipelines, oil, and gas
Power and utilities
Professional and other services
Retail sector
Sundry manufacturing and wholesale
Telecommunications, cable, and media
Transportation
Other
Total business and government
Total United States
International
Personal
Business and government
Total international
Total excluding other loans
Other loans
Debt securities classifed as loans
Acquired credit-impaired loans4
Total other loans
Total
Stage 1 and Stage 2 allowance
for loan losses – performing
(incurred but not identifed
allowance under IAS 39)
Personal, business and government5
Debt securities classifed as loans
Total Stage 1 and Stage 2 allowance
for loan losses – performing
(incurred but not identifed
allowance under IAS 39)5
Total, net of allowance5
Percentage change over previous year –
loans and acceptances, net of Stage 3
allowance for loan losses (impaired)
(counterparty-specifc and individually
insignifcant under IAS 39)
Percentage change over previous year –
loans and acceptances, net of allowance
Stage 3
allowances for
loan losses
impaired
Gross
loans
Net
loans
Net
loans
Net
loans
$ 34,501
$ 26
$ 34,475
$ 31,099
$ 31,435
4.9%
4.6%
5.0%
11,526
32,454
1,113
18,129
97,723
8,863
24,150
33,013
673
6,696
5,688
3,591
688
12,449
13,177
2,217
1,877
4,543
3,046
11,730
5,872
8,733
4,755
10,031
2,439
131,218
228,941
12
1,789
1,801
704,360
37
26
2
252
343
5
6
11
–
–
–
1
–
2
2
6
–
–
–
7
6
2
1
1
6
45
388
–
–
–
734
11,489
32,428
1,111
17,877
97,380
8,858
24,144
33,002
673
6,696
5,688
3,590
688
12,447
13,175
2,211
1,877
4,543
3,046
11,723
5,866
8,731
4,754
10,030
2,433
131,173
228,553
12
1,789
1,801
703,626
12,275
29,845
872
16,700
90,791
8,045
22,419
30,464
705
5,750
7,698
3,415
637
12,451
12,422
2,058
1,922
2,663
2,833
10,920
5,374
7,713
4,896
9,976
2,150
124,047
214,838
14
2,258
2,272
668,815
12,382
29,162
843
14,730
88,552
7,309
22,153
29,462
710
7,332
7,130
3,189
567
12,428
11,408
1,846
1,674
2,070
3,221
10,384
4,909
7,019
3,799
9,995
2,137
119,280
207,832
14
1,579
1,593
629,110
n/a3
313
313
$ 704,673
n/a
12
12
$ 746
n/a
301
301
$ 703,927
n/a
435
435
$ 669,250
3,083
630
3,713
$ 632,823
1.6
4.7
0.2
2.5
13.9
1.3
3.4
4.7
0.1
1.0
0.8
0.5
0.1
1.8
1.9
0.3
0.3
0.6
0.4
1.7
0.8
1.2
0.7
1.4
0.3
18.6
32.5
–
0.3
0.3
100.0
–
–
–
100.0%
1.8
4.5
0.1
2.5
13.5
1.2
3.3
4.5
0.1
0.9
1.2
0.5
0.1
1.9
1.9
0.3
0.3
0.4
0.4
1.6
0.8
1.2
0.7
1.5
0.3
18.6
32.1
–
0.4
0.4
99.9
2.0
4.6
0.1
2.3
14.0
1.2
3.5
4.7
0.1
1.2
1.1
0.5
0.1
2.0
1.8
0.3
0.3
0.3
0.5
1.6
0.8
1.1
0.6
1.6
0.3
18.9
32.9
–
0.2
0.2
99.4
–
0.1
0.1
100.0%
0.5
0.1
0.6
100.0%
3,701
n/a
2,845
n/a
2,915
20
3,701
$ 700,226
2,845
$ 666,405
2,935
$ 629,888
5.2%
5.8%
4.7%
5.1
5.8
4.7
1 Primarily based on the geographic location of the customer’s address.
2 Includes loans that are measured at FVOCI.
3 Not applicable.
4 Includes all FDIC covered loans and other ACI loans.
5 In the fourth quarter of 2019, the Bank revised its allocation methodology for
the reporting of Allowance for Credit Losses for off-balance sheet instruments
for certain retail portfolios.
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
47
T A B L E 2 5
LOANS AND ACCEPTANCES, NET OF STAGE 3 ALLOWANCE FOR LOAN LOSSES (NET OF COUNTERPARTY-SPECIFIC
AND INDIVIDUALL
Y INSIGNIFICANT ALLOWANCES UNDER IAS 39) BY GEOGRAPHY1,2
(millions of Canadian dollars,
except as noted)
Canada
Atlantic provinces
British Columbia3
Ontario3
Prairies3
Québec
Total Canada
United States
Carolinas (North and South)
Florida
New England4
New Jersey
New York
Pennsylvania
Other
Total United States
International
Europe
Other
Total international
Total excluding other loans
Other loans
Total
Stage 1 and Stage 2 allowances
(incurred but not identifed
allowance under IAS 39)5
Total, net of allowance5
Percentage change over previous
year – loans and acceptances,
net of Stage 3 allowances
for loan losses (impaired)
(counterparty-specifc and
individually insignifcant
under IAS 39)
Canada
United States
International
Other loans
Total
October 31
2019
October 31
2018
October 31
2017
October 31
2019
October 31
2018
October 31
2017
As at
Percentage of total
Stage 3
allowances for
loan losses
impaired
Gross
loans
$ 12,735
67,446
277,859
76,007
39,571
473,618
12,703
18,190
42,482
31,488
39,602
13,015
71,461
228,941
1,022
779
1,801
704,360
313
$ 704,673
$ 13
31
204
75
23
346
15
27
48
32
47
18
201
388
–
–
–
734
12
$ 746
Net
loans
Net
loans
Net
loans
$ 12,722
67,415
277,655
75,932
39,548
473,272
$ 11,741
63,345
272,694
70,258
33,667
451,705
$ 11,378
57,924
249,508
68,879
31,996
419,685
12,688
18,163
42,434
31,456
39,555
12,997
71,260
228,553
1,022
779
1,801
703,626
301
$ 703,927
11,511
17,552
41,471
33,330
36,340
11,884
62,750
214,838
1,059
1,213
2,272
668,815
435
$ 669,250
10,813
15,806
38,564
34,024
35,118
11,594
61,913
207,832
678
915
1,593
629,110
3,713
$ 632,823
3,701
$ 700,226
2,845
$ 666,405
2,935
$ 629,888
1.8%
9.6
39.4
10.8
5.6
67.2
1.8
2.6
6.0
4.5
5.6
1.9
10.1
32.5
0.2
0.1
0.3
100.0
–
100.0%
1.8%
9.5
40.6
10.5
5.0
67.4
1.7
2.6
6.2
5.0
5.4
1.8
9.4
32.1
0.2
0.2
0.4
99.9
0.1
100.0%
1.8%
9.2
39.4
10.9
5.0
66.3
1.7
2.5
6.1
5.4
5.6
1.8
9.8
32.9
0.1
0.1
0.2
99.4
0.6
100.0%
2019
4.8%
6.4
(20.7)
(30.8)
5.1%
2018
7.6%
3.4
42.6
(88.3)
5.8%
2017
4.8%
3.9
4.2
56.0
4.7%
1 Primarily based on the geographic location of the customer’s address.
2 Includes loans that are measured at FVOCI.
3 The territories are included as follows: Yukon is included in British Columbia;
Nunavut is included in Ontario; and Northwest Territories is included in the
Prairies region.
4 The states included in New England are as follows: Connecticut, Maine,
Massachusetts, New Hampshire, and Vermont.
5 In the fourth quarter of 2019, the Bank revised its allocation methodology for
the reporting of Allowance for Credit Losses for off-balance sheet instruments
for certain retail portfolios.
REAL ESTATE SECURED LENDING
Retail real estate secured lending includes mortgages and lines of credit
to North American consumers to satisfy fnancing needs including home
purchases and refnancing. While the Bank retains frst 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 frst position. In Canada, credit policies are designed so 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 proftability. A variety of portfolio segments,
including dwelling type and geographical regions, are examined during
the exercise to determine whether specifc vulnerabilities exist. Based on
the Bank’s most recent reviews, potential losses on all real estate secured
lending exposures are considered manageable.
48
TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
T A B L E 2 6
CANADIAN REAL ESTATE SECURED LENDING1
(millions of Canadian dollars)
Total
Total
1 Excludes 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.
Total real estate
Amortizing Non-amortizing secured lending
As at
Residential
mortgages
Total amortizing
Home equity
real estate
lines of credit secured lending
Home equity
lines of credit
$ 200,952
$ 56,503
$ 257,455
$ 34,550
$ 292,005
October 31, 2019
$ 193,829
$ 50,554
$ 244,383
$ 35,605
$ 279,988
October 31, 2018
T A B L E 2 7
REAL ESTATE SECURED LENDING1,2,3
(millions of Canadian dollars,
except as noted)
Residential mortgages
Insured4
Uninsured
Home equity lines of credit
Insured4
Uninsured
As at
Total
Insured4
Uninsured
October 31, 2019
Canada
Atlantic provinces
British Columbia5
Ontario5
Prairies5
Québec
Total Canada
United States
Total
Canada
Atlantic provinces
British Columbia5
Ontario5
Prairies5
Québec
Total Canada
United States
Total
$ 3,340
10,944
31,299
22,283
8,823
76,689
938
$ 77,627
1.7% $ 2,861
26,395
5.4
69,399
15.6
16,062
11.1
9,546
4.4
38.2% 124,263
33,750
$ 158,013
$ 3,492
12,389
35,355
23,561
9,350
84,147
900
$ 85,047
1.8% $ 2,544
23,460
6.4
60,308
18.2
14,998
12.2
8,372
4.8
43.4% 109,682
30,462
$ 140,144
1.4% $
13.1
34.5
8.0
4.8
61.8%
363
1,872
6,650
3,008
1,149
13,042
–
$ 13,042
1.3% $
12.1
31.2
7.7
4.3
56.6%
424
1,981
7,052
3,408
1,105
13,970
1
$ 13,971
0.4% $ 1,297
15,302
2.1
43,970
7.3
11,125
3.3
6,317
1.3
78,011
14.4%
11,549
$ 89,560
16.8
48.3
12.2
6.9
85.6%
1.4% $ 3,703
12,816
37,949
25,291
9,972
89,731
938
$ 90,669
1.3% $ 4,158
41,697
4.4
113,369
13.0
27,187
8.7
15,863
3.4
30.8% 202,274
45,299
$ 247,573
1.4%
14.3
38.8
9.3
5.4
69.2%
October 31, 2018
0.5% $ 1,312
14,221
2.3
40,163
8.2
10,963
4.0
5,530
1.3
72,189
16.3%
12,367
$ 84,556
16.5
46.6
12.7
6.4
83.7%
1.5% $ 3,916
14,370
42,407
26,969
10,455
98,117
901
$ 99,018
1.4% $ 3,856
37,681
5.1
100,471
15.1
25,961
9.6
13,902
3.7
34.9% 181,871
42,829
$ 224,700
1.4%
13.5
35.9
9.3
5.0
65.1%
1 Certain comparative amounts have been restated to conform with the presentation
4 Default insurance is contractual coverage for the life of eligible facilities whereby
adopted in the current period.
2 Geographic location is based on the address of the property mortgaged.
3 Excludes 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.
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.
5 The 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 fgures are calculated
based on current customer payment behaviour in order to properly
refect 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.
T A B L E 2 8
RESIDENTIAL MORTGAGES BY REMAINING AMORTIZATION1,2
Canada
United States
Total
Canada
United States
Total
<5
years
5– <10
years
10– <15
years
15– <20
years
20– <25
years
25– <30
years
30– <35
years
>=35
years
As at
Total
1.0%
4.8
1.6%
3.6%
6.3
4.0%
6.5%
4.8
6.3%
16.2%
6.1
14.7%
44.2%
25.8
41.4%
27.8%
49.9
31.1%
0.7%
2.0
0.9%
–% 100.0%
0.3
100.0
–% 100.0%
October 31, 2019
1.0%
4.8
1.6%
3.8%
8.2
4.4%
6.7%
4.8
6.5%
15.1%
5.2
13.7%
42.7%
29.4
40.8%
30.1%
46.3
32.4%
0.6%
1.0
0.6%
–% 100.0%
0.3
100.0
–% 100.0%
October 31, 2018
1 Excludes 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.
2 Percentage based on outstanding balance.
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
49
T A B L E 2 9 UNINSURED AVERAGE LOAN-TO-VALUE – Newly Originated and Newly Acquired1,2,3
Canada
Atlantic provinces
British Columbia6
Ontario6
Prairies6
Québec
Total Canada
United States
Total
October 31, 2019
For the 12 months ended
October 31, 2018
Residential Home equity
mortgages
lines of credit4,5
Total
Residential
mortgages
Home equity
lines of credit4,5
Total
73%
66
68
73
73
69
70
69%
69%
62
65
70
72
66
62
65%
72%
65
67
72
73
68
68
68%
74%
66
67
73
73
68
69
68%
70%
62
65
71
73
66
61
65%
73%
64
67
72
73
67
65
67%
1 Geographic location is based on the address of the property mortgaged.
2 Excludes 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.
3 Based on house price at origination.
4 HELOC loan-to-value includes first position collateral mortgage if applicable.
5 HELOC fixed rate advantage option is included in loan-to-value calculation.
6 The 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.
IMPAIRED LOANS
A loan is considered impaired and migrates to Stage 3 when it is
90 days or more past due for retail exposures, rated BRR 9 for
non-retail exposures, or when there is objective evidence that there
has been a deterioration of credit quality to the extent that the Bank
no longer has reasonable assurance as to the timely collection of the
full amount of principal and interest. Gross impaired loans excluding
FDIC covered loans and other ACI loans decreased $122 million, or
4%, compared with the prior year.
In Canada, impaired loans net of Stage 3 allowances increased by
$92 million, or 14% in 2019. Residential mortgages, consumer
instalment and other personal loans, and credit cards, had net
impaired loans of $491 million, an increase of $37 million, or 8%,
compared with the prior year, with contribution from all of the
consumer lending portfolios. Business and government loans net
of Stage 3 allowances were $253 million, an increase of $55 million,
or 28%, compared with the prior year, largely due to new formations
in the Canadian Commercial portfolio.
In the U.S., net impaired loans decreased by $262 million, or 14% in
2019. Residential mortgages, consumer instalment and other personal
loans, and credit cards, had net impaired loans of $1,200 million, a
decrease of $274 million, or 19%, compared with the prior year largely
refecting resolutions outpacing formations in the U.S. HELOC
portfolio, including a reclassifcation to performing for certain clients
current with their payments. Business and government net impaired
loans were $354 million, an increase of $12 million, or 4%, compared
with the prior year.
Geographically, 32% of total net impaired loans were located in
Canada and 68% in the U.S. The largest regional concentration of net
impaired loans in Canada was in Ontario, increasing to 17% of total
net impaired loans, compared with 13% in the prior year. The largest
regional concentration of net impaired loans in the U.S. was in New
England representing 16% of total net impaired loans, down 2% from
the prior year.
T A B L E 3 0
CHANGES IN GROSS IMPAIRED LOANS AND ACCEPTANCES1,2,3
(millions of Canadian dollars)
Personal, Business and Government Loans
Impaired loans as at beginning of period
Classifed as impaired during the period4
Transferred to not impaired during the period
Net repayments
Disposals of loans
Amounts written off
Recoveries of loans and advances previously written off
Exchange and other movements
Impaired loans as at end of year
2019
2018
2017
$ 3,154
6,037
(1,272)
(1,492)
(292)
(3,175)
–
72
3,032
$
$ 3,085
5,012
(864)
(1,360)
(21)
(2,748)
–
50
$ 3,154
$ 3,509
4,724
(966)
(1,556)
–
(2,538)
–
(88)
$ 3,085
1 Includes customers’ liability under acceptances.
2 Excludes ACI loans, DSCL under IAS 39, and DSAC and DSOCI under IFRS 9.
3 Includes loans that are measured at FVOCI.
4 Under IFRS 9, loans are considered impaired and migrate to Stage 3 when they are
insured real estate personal loans), rated BRR 9 for non-retail exposures, or when
there is objective evidence that there has been a deterioration of credit quality to
the extent the Bank no longer has reasonable assurance as to the timely collection
of the full amount of principal and interest.
90 days or more past due for retail exposures (including Canadian government-
50
TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
T A B L E 3 1
IMPAIRED LOANS NET OF STAGE 3 ALLOWANCE FOR LOAN LOSSES (NET OF COUNTERPARTY-SPECIFIC AND
INDIVIDUALLY INSIGNIFICANT ALLOWANCES UNDER IAS 39) BY INDUSTRY SECTOR1,2,3,4
(millions of Canadian dollars,
except as noted)
Oct. 31
2019
Oct. 31
2018
Oct. 31
2017
Oct. 31
2016
Oct. 31 Oct. 31
2019
2015
Oct. 31
2018
Oct. 31
2017
Oct. 31
2016
Oct. 31
2015
As at
Percentage of total
Stage 3
allowances
for loan
losses
impaired
Gross
impaired
loans
Net
impaired
loans
Net
impaired
loans
Net
impaired
loans
Net
impaired
loans
Net
impaired
loans
Canada
Residential mortgages
Consumer instalment and
other personal
HELOC
Indirect Auto
Other
Credit card5
Total personal
Real estate
Residential
Non-residential
Total real estate
Agriculture
Automotive
Financial
Food, beverage, and tobacco
Forestry
Government, public sector
entities, and education
Health and social services
Industrial construction and
trade contractors
Metals and mining
Pipelines, oil, and gas
Power and utilities
Professional and other services
Retail sector
Sundry manufacturing
and wholesale
Telecommunications,
cable, and media
Transportation
Other
Total business and government
Total Canada
$ 280
$ 27
$ 253
$ 246
$ 279
$ 385
$ 378
11.0%
10.0%
11.6%
13.9%
14.2%
147
82
51
136
696
8
2
10
15
31
1
3
–
–
12
181
16
37
–
24
17
16
13
53
42
70
205
6
–
6
2
6
–
1
–
–
8
39
10
18
–
11
6
16
134
29
9
66
491
2
2
4
13
25
1
2
–
–
4
142
6
19
–
13
11
–
118
23
12
55
454
3
2
5
4
9
2
1
1
–
4
136
7
9
–
5
5
6
102
11
19
51
462
3
3
6
5
2
–
1
–
–
11
2
15
22
–
6
8
7
140
9
20
46
600
3
7
10
9
1
2
2
–
–
11
11
18
51
–
4
11
3
166
17
19
45
625
5.8
1.3
0.4
2.9
21.4
4.8
0.9
0.5
2.2
18.4
4.3
0.5
0.8
2.1
19.3
5.0
0.3
0.7
1.7
21.6
6.2
0.7
0.7
1.7
23.5
6
7
13
3
1
1
1
–
1
3
2
6
68
–
4
9
2
0.1
0.1
0.2
0.6
1.1
–
0.1
–
–
0.2
6.2
0.2
0.8
–
0.6
0.5
–
0.1
0.1
0.2
0.2
0.4
0.1
–
–
–
0.2
5.5
0.3
0.4
–
0.2
0.2
0.2
0.1
0.1
0.2
0.2
0.1
–
–
–
–
0.5
0.1
0.7
0.9
–
0.2
0.3
0.3
0.1
0.3
0.4
0.3
–
0.1
0.1
–
–
0.4
0.4
0.7
1.8
–
0.1
0.4
0.1
0.2
0.3
0.5
0.1
–
–
–
–
–
0.1
0.1
0.2
2.6
–
0.2
0.3
0.1
12
10
9
394
$ 1,090
6
6
6
141
$ 346
6
4
3
253
$ 744
1
2
1
198
$ 652
–
5
2
92
$ 554
–
–
4
137
$ 737
2
2
3
121
$ 746
0.2
0.2
0.1
11.0
32.4%
–
0.1
–
8.0
26.4%
–
0.2
0.1
3.8
23.1%
–
–
0.1
4.9
26.5%
0.1
0.1
0.1
4.5
28.0%
1 Includes customers’ liability under acceptances.
2 Primarily based on the geographic location of the customer’s address.
3 Includes loans that are measured at FVOCI.
4 Excludes ACI loans, DSCL under IAS 39, and DSAC and DSOCI under IFRS 9.
5 Credit cards are considered impaired when they are 90 days past due and written
off at 180 days past due.
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
51
T A B L E 3 1
IMPAIRED LOANS NET OF STAGE 3 ALLOWANCE FOR LOAN LOSSES (NET OF COUNTERPARTY-SPECIFIC AND
INDIVIDUALLY INSIGNIFICANT ALLOWANCES UNDER IAS 39) BY INDUSTRY SECTOR (continued) 1,2,3,4
(millions of Canadian dollars,
except as noted)
Oct. 31
2019
Oct. 31
2018
Oct. 31
2017
Oct. 31
2016
As at
Oct. 31
2015
Oct. 31
2019
Oct. 31
2018
Oct. 31
2017
Oct. 31
2016
Oct. 31
2015
Percentage of total
Stage 3
allowances
for loan
losses
impaired
Gross
impaired
loans
Net
impaired
loans
Net
impaired
loans
Net
impaired
loans
Net
impaired
loans
Net
impaired
loans
$
444
$ 26
$
418
$
416
$
429
$
418
$
361
18.2%
16.9%
17.9%
15.0%
13.6%
455
232
5
90
1,200
796
198
6
58
1,474
795
234
4
38
1,500
863
190
4
38
1,513
780
155
5
44
1,345
19.8
10.1
0.2
3.9
52.2
32.3
8.0
0.2
2.4
59.8
33.1
9.8
0.2
1.6
62.6
31.0
6.8
0.1
1.4
54.3
29.3
5.8
0.2
1.7
50.6
United States
Residential mortgages
Consumer instalment and
other personal
HELOC
Indirect Auto
Other
Credit card5
Total personal
Real estate
Residential
Non-residential
Total real estate
Agriculture
Automotive
Financial
Food, beverage, and tobacco
Forestry
Government, public sector
entities, and education
Health and social services
Industrial construction and
trade contractors
Metals and mining
Pipelines, oil, and gas
Power and utilities
Professional and other services
Retail sector
Sundry manufacturing
and wholesale
Telecommunications, cable,
and media
Transportation
Other
Total business and government
Total United States
International
Total
Net impaired loans as a %
of common equity
492
258
7
342
1,543
25
72
97
1
5
15
9
–
11
34
30
4
–
1
75
44
15
37
26
2
252
343
5
6
11
–
–
–
1
–
2
2
6
–
–
–
7
6
2
20
66
86
1
5
15
8
–
9
32
24
4
–
1
68
38
13
24
97
121
2
8
28
10
1
7
11
19
3
11
1
44
37
15
27
73
100
2
12
39
9
1
9
11
20
4
17
1
46
37
26
54
87
141
1
14
24
4
12
8
29
22
4
77
–
75
43
41
68
133
201
1
11
26
7
–
8
38
30
13
6
–
74
65
40
5
27
26
399
1,942
–
$ 3,032
1
1
6
45
388
–
$ 734
4
26
20
354
1,554
–
$ 2,298
3
15
6
342
1,816
–
$ 2,468
1
6
3
344
1,844
–
$ 2,398
9
25
6
535
2,048
–
$ 2,785
13
31
5
569
1,914
–
$ 2,660
2.81%
3.33%
3.45%
4.09%
4.24%
0.9
2.9
3.8
–
0.2
0.7
0.3
–
0.4
1.4
1.0
0.2
–
–
2.9
1.7
0.6
0.2
1.1
0.9
15.4
67.6
–
1.0
3.9
4.9
0.1
0.3
1.1
0.4
–
0.3
0.5
0.8
0.1
0.5
–
1.8
1.5
0.6
0.1
0.6
0.2
13.8
73.6
–
1.1
3.1
4.2
0.1
0.5
1.6
0.4
–
0.4
0.5
0.8
0.2
0.7
–
1.9
1.6
1.1
–
0.2
0.1
14.3
76.9
–
1.9
3.1
5.0
–
0.5
0.9
0.1
0.4
0.3
1.1
0.8
0.1
2.8
–
2.7
1.6
1.5
0.3
0.9
0.2
19.2
73.5
–
2.6
5.0
7.6
–
0.4
1.0
0.3
–
0.3
1.4
1.1
0.5
0.2
–
2.8
2.4
1.5
0.5
1.2
0.2
21.4
72.0
–
100.0%
100.0%
100.0%
100.0% 100.0%
1 Includes customers’ liability under acceptances.
2 Primarily based on the geographic location of the customer’s address.
3 Includes loans that are measured at FVOCI.
4 Excludes ACI loans, DSCL under IAS 39, and DSAC and DSOCI under IFRS 9.
5 Credit cards are considered impaired when they are 90 days past due and written
off at 180 days past due.
52
TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
T A B L E 3 2
IMPAIRED LOANS NET OF STAGE 3 ALLOWANCE FOR LOAN LOSSES (NET OF COUNTERPARTY-SPECIFIC AND
INDIVIDUALLY INSIGNIFICANT ALLOWANCES UNDER IAS 39) BY GEOGRAPHY1,2,3,4,5
(millions of Canadian dollars, except as noted)
As at
Percentage of total
October 31
2019
October 31
2018
October 31
2017
October 31
2019
October 31
2018
October 31
2017
Canada
Atlantic provinces
British Columbia6
Ontario6
Prairies6
Québec
Total Canada
United States
Carolinas (North and South)
Florida
New England7
New Jersey
New York
Pennsylvania
Other
Total United States
Total
Stage 3
Gross allowances for
loan losses
impaired
impaired
loans
Net
impaired
loans
Net
impaired
loans
Net
impaired
loans
$
37
102
586
286
79
1,090
119
168
415
251
371
102
516
1,942
$ 3,032
$ 13
31
204
75
23
346
15
27
48
32
47
18
201
388
$ 734
$
24
71
382
211
56
744
104
141
367
219
324
84
315
1,554
$ 2,298
$
30
52
315
177
78
652
108
156
442
333
354
113
310
1,816
$ 2,468
$
29
57
196
191
81
554
97
148
441
336
366
126
330
1,844
$ 2,398
1.1%
3.1
16.6
9.2
2.4
32.4
4.5
6.1
16.0
9.5
14.1
3.7
13.7
67.6
100.0%
1.2%
2.1
12.8
7.2
3.1
26.4
4.4
6.3
17.9
13.5
14.3
4.6
12.6
73.6
100.0%
1.2%
2.4
8.2
7.9
3.4
23.1
4.0
6.2
18.4
14.0
15.3
5.2
13.8
76.9
100.0%
Net impaired loans as a % of net loans
0.33%
0.37%
0.38%
1 Includes customers’ liability under acceptances.
2 Primarily based on the geographic location of the customer’s address.
3 Includes loans that are measured at FVOCI.
4 Excludes ACI loans, DSCL under IAS 39, and DSAC and DSOCI under IFRS 9.
5 Credit cards are considered impaired when they are 90 days past due and written
6 The 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.
7 The states included in New England are as follows: Connecticut, Maine,
Massachusetts, New Hampshire, and Vermont.
off at 180 days past due.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses including off-balance sheet positions
of $5,036 million as at October 31, 2019, was comprised of Stage 3
allowance for impaired loans of $761 million, Stage 2 allowance of
$1,856 million, and Stage 1 allowance of $2,415 million collectively
for performing loans and off-balance sheet positions and allowance
for debt securities of $4 million.
Stage 3 allowances (impaired)
The impaired allowance for loan losses increased $55 million, or 8%,
compared with last year, primarily refecting credit migration in the
Canadian Retail and Wholesale segments.
Stage 1 and Stage 2 allowances (performing)
As at October 31, 2019, the performing allowance was $4,271 million,
up from $3,872 million as at October 31, 2018. The increase was
primarily due to volume growth and credit migration.
The allowance for debt securities decreased by $76 million, or
95% compared with last year primarily refecting the sale of certain
debt securities.
PROVISION FOR CREDIT LOSSES
The PCL is the amount charged to income to bring the total allowance
for credit losses, including both Stage 1 and 2 allowances (performing)
and Stage 3 allowance (impaired), to a level that management
considers adequate to absorb expected and incurred credit-related
losses in the Bank’s loan portfolio. Provisions are reduced by any
recoveries in the year.
In Canada, PCL – impaired related to residential mortgages,
consumer instalment and other personal loans, and credit card loans
was $991 million, an increase of $111 million, or 13%, compared to
2018 refecting volume growth and credit migration. PCL – impaired
related to business and government loans was $148 million, an
increase of $103 million, compared with last year, primarily refecting
credit migration.
In the U.S., PCL – impaired related to residential mortgages,
consumer instalment and other personal loans, and credit card loans
was $1,390 million, an increase of $130 million, or 10%, compared
to 2018, primarily refecting volume growth, seasoning, and mix in
the credit card and auto portfolios. PCL – impaired related to business
and government loans was $120 million, an increase of $113 million
compared to 2018, primarily refecting higher provisions in the
commercial portfolios.
Geographically, 38% of PCL – impaired were attributed to Canada
and 49% to the U.S. including recoveries in the ACI loan portfolios.
The largest regional concentration of PCL – impaired in Canada was in
Ontario, which represented 16% of total PCL – impaired, up from
15% in 2018. The largest regional concentration of PCL – impaired in
the U.S. was in New York, representing 6% of total PCL – impaired,
remaining stable from the prior year.
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
53
The following table provides a summary of provisions charged to the
Consolidated Statement of Income.
T A B L E 3 3
PROVISION FOR CREDIT LOSSES UNDER IFRS 9
(millions of Canadian dollars)
2019
2018
Provision for credit losses – Stage 3 (impaired)
Canadian Retail
U.S. Retail
Wholesale Banking
Corporate1
Total provision for credit losses – Stage 3
Provision for credit losses –
Stage 1 and Stage 2 (performing)2
Canadian Retail
U.S. Retail
Wholesale Banking
Corporate1
Total provision for credit losses – Stage 1 and 2
Provision for credit losses
$ 1,126
936
20
548
2,630
$ 927
776
(8)
471
2,166
180
146
24
49
399
$ 3,029
71
141
11
91
314
$ 2,480
1 Includes PCL on the retailer program partners’ share of the U.S. strategic
cards portfolio.
2 Includes financial asset, loan commitments, and financial guarantees.
T A B L E 3 4
PROVISION FOR CREDIT LOSSES UNDER IAS 39
(millions of Canadian dollars)
Provision for credit losses – counterparty-specifc
and individually insignifcant
Counterparty-specifc
Individually insignifcant
Recoveries
Total provision for credit losses for counterparty-specifc
and individually insignifcant
Provision for credit losses – incurred but not identifed
Canadian Retail and Wholesale Banking1
U.S. Retail
Corporate2
Total provision for credit losses – incurred but not identifed
Provision for credit losses
2017
$
40
2,575
(625)
1,990
–
144
82
226
$ 2,216
1 The incurred but not identified PCL is included in the Corporate segment results
for management reporting.
2 The retailer program partners’ share of the U.S. strategic cards portfolio.
T A B L E 3 5
PROVISION FOR CREDIT LOSSES BY INDUSTRY SECTOR1,2
(millions of Canadian dollars, except as noted)
For the years ended
Percentage of total
October 31
2019
October 31
2018
October 31
2017
October 31
2019
October 31
2018
October 31
2017
Stage 3 provision for credit losses (impaired)
(Counterparty-specifc and individually insignifcant
provision under IAS 39)
Canada
Residential mortgages
Consumer instalment and other personal
HELOC
Indirect auto
Other
Credit card
Total personal
Real estate
Residential
Non-residential
Total real estate
Agriculture
Automotive
Financial
Food, beverage, and tobacco
Forestry
Government, public sector entities, and education
Health and social services
Industrial construction and trade contractors
Metals and mining
Pipelines, oil, and gas
Power and utilities
Professional and other services
Retail sector
Sundry manufacturing and wholesale
Telecommunications, cable, and media
Transportation
Other
Total business and government
Total Canada
1 Primarily based on the geographic location of the customer’s address.
2 Includes loans that are measured at FVOCI.
$
26
$ 15
$ 22
1.0%
0.7%
1.1%
11
238
227
489
991
1
1
2
2
8
–
3
–
–
7
48
9
8
–
15
15
5
7
8
11
148
$ 1,139
11
205
178
471
880
(2)
3
1
1
3
–
–
–
–
3
2
4
(2)
–
4
14
(2)
2
2
13
45
$ 925
7
245
172
485
931
–
1
1
–
–
–
–
1
–
4
9
5
(11)
–
6
11
1
1
2
5
35
$ 966
0.4
9.1
8.6
18.6
37.7
–
–
–
–
0.3
–
0.1
–
–
0.3
1.9
0.3
0.3
–
0.6
0.6
0.2
0.3
0.3
0.4
5.6
43.3%
0.5
9.5
8.2
21.7
40.6
(0.1)
0.1
–
–
0.1
–
–
–
–
0.1
0.1
0.2
(0.1)
–
0.2
0.7
(0.1)
0.1
0.1
0.7
2.1
42.7%
0.4
12.3
8.6
24.4
46.8
–
0.1
0.1
–
–
–
–
0.1
–
0.2
0.4
0.2
(0.5)
–
0.3
0.5
0.1
0.1
0.1
0.2
1.8
48.6%
54
TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
T A B L E 3 5
PROVISION FOR CREDIT LOSSES BY INDUSTRY SECTOR (continued) 1,2
(millions of Canadian dollars, except as noted)
For the years ended
Percentage of total
United States
Residential mortgages
Consumer instalment and other personal
HELOC
Indirect auto
Other
Credit card
Total personal
Real estate
Residential
Non-residential
Total real estate
Agriculture
Automotive
Financial
Food, beverage, and tobacco
Forestry
Government, public sector entities, and education
Health and social services
Industrial construction and trade contractors
Metals and mining
Pipelines, oil, and gas
Power and utilities
Professional and other services
Retail sector
Sundry manufacturing and wholesale
Telecommunications, cable, and media
Transportation
Other
Total business and government
Total United States
Total excluding other loans
Other loans
Debt securities classifed as loans
Debt securities at amortized cost and FVOCI
Acquired credit-impaired loans3
Total other loans
Total Stage 3 provision for credit losses (impaired)
(Counterparty-specifc and individually insignifcant
provision under IAS 39)
Stage 1 and 2 provision for credit losses
(Incurred but not identifed provision under IAS 39)
Personal, business, and government
Debt securities classifed as loans
Debt securities at amortized cost and FVOCI
Total Stage 1 and 2 provision for credit losses
(Incurred but not identifed provision under IAS 39)
Total provision for credit losses
1 Primarily based on the geographic location of the customer’s address.
2 Includes loans that are measured at FVOCI.
3 Includes all FDIC covered loans and other ACI loans.
October 31
2019
October 31
2018
October 31
2017
October 31
2019
October 31
2018
October 31
2017
$
10
$
13
$
7
0.4%
0.7%
0.4%
(12)
318
180
894
1,390
3
4
7
–
1
2
–
–
1
7
15
(1)
–
18
27
8
2
2
16
15
120
1,510
2,649
n/a
–
(19)
(19)
15
272
155
805
1,260
(2)
(4)
(6)
–
1
7
(1)
–
–
–
1
2
(7)
–
(1)
–
1
1
(4)
13
7
1,267
2,192
n/a
–
(26)
(26)
7
229
128
688
1,059
1
(3)
(2)
–
(1)
19
1
(7)
(2)
(6)
7
(1)
(15)
(1)
3
–
(6)
(1)
1
16
5
1,064
2,030
(2)
n/a
(38)
(40)
(0.4)
12.1
6.8
34.0
52.9
0.1
0.2
0.3
–
–
–
–
–
–
0.3
0.6
–
–
0.7
1.1
0.3
–
–
0.6
0.6
4.5
57.4
100.7
n/a
–
(0.7)
(0.7)
0.7
12.5
7.2
37.1
58.2
(0.1)
(0.2)
(0.3)
–
–
0.3
–
–
–
–
–
0.1
(0.3)
–
–
–
–
–
(0.2)
0.7
0.3
58.5
101.2
n/a
–
(1.2)
(1.2)
0.4
11.5
6.4
34.5
53.2
0.1
(0.2)
(0.1)
–
(0.1)
1.0
0.1
(0.4)
(0.1)
(0.3)
0.4
(0.1)
(0.8)
(0.1)
0.2
–
(0.3)
(0.1)
0.1
0.8
0.2
53.4
102.0
(0.1)
n/a
(1.9)
(2.0)
$ 2,630
$ 2,166
$ 1,990
100.0%
100.0%
100.0%
$
400
n/a
(1)
399
$ 3,029
$
306
n/a
8
314
$ 2,480
$
237
(11)
n/a
226
$ 2,216
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
55
T A B L E 3 6
PROVISION FOR CREDIT LOSSES BY GEOGRAPHY1,2,3
(millions of Canadian dollars, except as noted)
For the years ended
Percentage of total
October 31
2019
October 31
2018
October 31
2017
October 31
2019
October 31
2018
October 31
2017
Canada
Atlantic provinces
British Columbia4
Ontario4
Prairies4
Québec
Total Canada
United States
Carolinas (North and South)
Florida
New England5
New Jersey
New York
Pennsylvania
Other6
Total United States
Total excluding other loans
Other loans7
Total Stage 3 provision for credit losses (impaired)
(Counterparty-specifc and individually insignifcant
provision under IAS 39)
Stage 1 and 2 provision for credit losses
(incurred but not identifed provision under IAS 39)
Total provision for credit losses
Provision for credit losses as a % of average
net loans and acceptances6
Canada
Residential mortgages
Credit card, consumer instalment and other personal
Business and government
Total Canada
United States
Residential mortgages
Credit card, consumer instalment and other personal
Business and government
Total United States
International
Total excluding other loans
Other loans
Total Stage 3 provision for credit losses (impaired)
(Counterparty-specifc and individually insignifcant
provision under IAS 39)
Stage 1 and 2 provision for credit losses
(Incurred but not identifed provision under IAS 39)
Total provision for credit losses as a % of average
net loans and acceptances
$
80
120
490
302
147
1,139
63
112
161
128
174
61
811
1,510
2,649
(19)
$
74
106
361
262
122
925
54
93
148
107
142
51
672
1,267
2,192
(26)
$
75
109
374
258
150
966
42
77
112
95
143
52
543
1,064
2,030
(40)
2.6%
4.0
16.2
10.0
4.8
37.6
2.1
3.7
5.3
4.2
5.7
2.0
26.8
49.8
87.4
(0.6)
3.0%
4.3
14.5
10.6
4.9
37.3
2.2
3.7
6.0
4.3
5.7
2.1
27.1
51.1
88.4
(1.1)
3.4%
4.9
16.9
11.6
6.8
43.6
1.9
3.5
5.1
4.3
6.4
2.3
24.5
48.0
91.6
(1.8)
2,630
2,166
1,990
86.8
87.3
89.8
399
$ 3,029
314
$ 2,480
226
$ 2,216
13.2
100.0%
12.7
100.0%
10.2
100.0%
October 31
2019
October 31
2018
October 31
2017
0.01%
0.65
0.13
0.25
0.03
2.28
0.10
0.69
–
0.39
(5.29)
0.39
0.06
0.01%
0.63
0.04
0.21
0.04
2.18
0.01
0.63
–
0.34
(4.97)
0.34
0.05
0.01%
0.73
0.04
0.24
0.03
1.92
–
0.55
–
0.34
(1.47)
0.33
0.04
0.44%
0.39%
0.36%
1 Primarily based on the geographic location of the customer’s address.
2 Includes loans that are measured at FVOCI.
3 Includes customers’ liability under acceptances.
4 The territories are included as follows: Yukon is included in British Columbia; Nunavut
is included in Ontario; and Northwest Territories is included in the Prairies region.
5 The states included in New England are as follows: Connecticut, Maine,
Massachusetts, New Hampshire, and Vermont.
6 Other includes PCL attributable to other states/regions including those outside
TD’s core U.S. geographic footprint.
7 Other loans include DSCL, DSAC and FVOCI, and ACI.
56
TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
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).
T A B L E 3 7
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
Country
Corporate Sovereign
Financial
Total Corporate Sovereign
Financial
Total Corporate Sovereign
Financial
Total
Total Exposure6
GIIPS
Greece
Italy
Ireland
Portugal
Spain
Total GIIPS
Rest of Europe
Belgium
Finland
France
Germany
Netherlands
Norway
Sweden
Switzerland
United Kingdom
Other7
Total Rest of Europe
Total Europe
GIIPS
Greece
Italy
Ireland
Portugal
Spain
Total GIIPS
Rest of Europe
Belgium
Finland
France
Germany
Netherlands
Norway
Sweden
Switzerland
United Kingdom
Other7
Total Rest of Europe
Total Europe
$
– $
–
–
–
–
–
– $
–
–
–
36
36
– $
1
296
–
63
360
– $
1
296
–
99
396
– $
–
14
–
–
14
– $
–
–
56
–
56
– $
4
247
1
125
377
–
4
261
57
125
447
$
– $
13
–
2
25
40
– $
–
–
–
588
588
– $
6
1
–
56
63
– $
19
1
2
669
691
–
24
558
59
893
1,534
October 31, 2019
263
–
576
1,301
485
–
–
664
3,218
–
6,507
1,326
190
1,646
2,678
1,576
346
302
1,344
10,030
1,028
20,466
$ 6,507 $ 4,888 $ 1,144 $ 12,539 $ 3,771 $ 3,350 $ 13,792 $ 20,913
428
109
1,936
1,979
1,073
413
25
778
5,190
212
12,143
511
141
1,118
1,163
687
38
109
981
7,880
787
13,415
803
–
23
683
412
1
–
363
1,457
15
3,757
–
93
1,163
628
477
410
12
58
1,919
92
4,852
12
49
505
832
477
307
193
–
693
226
3,294
165
16
197
50
111
3
13
56
53
120
784
10
–
162
256
65
3
20
19
155
7
697
82
940
3,508
8,525
2,945
563
1,420
–
864
1,167
20,014
1,851
5
1,261
22
7,436
184
13,577
139
5,933
274
2,003
678
2,405
638
2,231
90
17,866
1,627
2,473
59
57,036
3,716
$ 737 $ 20,602 $ 3,779 $ 25,118 $ 58,570
97
962
3,854
8,920
3,284
1,244
2,078
109
2,646
1,233
24,427
$
– $
–
–
–
–
–
– $
178
–
–
30
208
– $
1
197
–
56
254
– $
179
197
–
86
462
– $
–
17
–
–
17
– $
–
–
139
–
139
– $
3
268
56
61
388
–
3
285
195
61
544
$
– $
– $
26
–
1
23
50
22
–
–
522
544
– $
5
–
–
–
5
– $
53
–
1
545
599
–
235
482
196
692
1,605
October 31, 2018
263
–
579
1,106
509
121
–
997
2,872
–
6,447
660
146
2,520
2,181
1,141
362
522
2,164
11,379
1,022
22,097
$ 6,447 $ 3,168 $ 1,330 $ 10,945 $ 2,604 $ 3,485 $ 16,552 $ 22,641
488
141
1,226
1,670
1,409
159
162
1,144
3,973
111
10,483
486
110
1,822
933
362
54
235
2,127
9,262
773
16,164
140
–
77
443
273
20
–
37
1,558
39
2,587
–
141
514
354
706
33
67
58
1,082
5
2,960
225
–
133
210
194
5
95
89
19
106
1,076
34
36
621
805
506
288
287
–
559
210
3,346
40
–
122
240
44
24
15
39
336
3
863
94
1,071
5,613
7,779
3,717
426
1,548
–
857
1,403
22,508
1,284
2
1,358
–
9,657
176
11,933
63
6,576
265
1,601
630
2,891
644
3,372
25
18,974
2,429
2,605
66
60,251
4,300
$ 913 $ 23,052 $ 4,305 $ 28,270 $ 61,856
136
1,071
5,911
8,082
4,026
1,080
2,207
64
3,622
1,472
27,671
1 Certain comparative amounts have been reclassified to conform with the
4 Trading and investment portfolio includes deposits. Trading exposures are net
presentation adopted in the current period.
of eligible short positions.
2 Exposures 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 October 31, 2019, or October 31, 2018.
5 The fair values of the GIIPS exposures in Level 3 in the trading and investment
portfolio were not significant as at October 31, 2019 and October 31, 2018.
6 The reported exposures do not include $26 million of protection the Bank
3 Exposures are calculated on a fair value basis and are net of collateral. Total market
value of pledged collateral is $1.1 billion (October 31, 2018 – $0.4 billion) for GIIPS
and $84.5 billion for the rest of Europe (October 31, 2018 – $66 billion).
Derivatives are presented as net exposures where there is an International Swaps
and Derivatives Association master netting agreement.
purchased through CDS (October 31, 2018 – $186 million).
7 Other European exposure is distributed across 10 countries (October 31, 2018 –
11 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 October 31, 2019.
Of the Bank’s European exposure, approximately 96%
(October 31, 2018 – 96%) is to counterparties in countries rated
either Aa3 or better by Moody’s Investor Services (Moody’s) or AA or
better by Standard & Poor’s (S&P), with the majority of this exposure
to the sovereigns themselves or 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 AA
or better, and cash. The Bank also takes a limited amount of exposure
to well rated corporate issuers in Europe where the Bank also does
business with their related entities in North America.
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
57
In addition to the European exposure identifed above, the Bank
also has $14 billion (October 31, 2018 – $11.2 billion) of exposure
to supranational entities with European sponsorship and $2.9 billion
(October 31, 2018 – $1 billion) of indirect exposure to 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.
GROUP FINANCIAL CONDITION
Capital Position
T A B L E 3 8
CAPITAL STRUCTURE AND RATIOS – Basel III
(millions of Canadian dollars, except as noted)
Common Equity Tier 1 Capital
Common shares plus related contributed surplus
Retained earnings
Accumulated other comprehensive income
Common Equity Tier 1 Capital before regulatory adjustments
Common Equity Tier 1 Capital regulatory adjustments
Goodwill (net of related tax liability)
Intangibles (net of related tax liability)
Deferred tax assets excluding those arising from temporary differences
Cash fow hedge reserve
Shortfall of provisions to expected losses
Gains and losses due to changes in own credit risk on fair valued liabilities
Defned beneft pension fund net assets (net of related tax liability)
Investment in own shares
Signifcant investments in the common stock of banking, fnancial, and insurance entities
that are outside the scope of regulatory consolidation, net of eligible short positions
(amount above 10% threshold)
Total regulatory adjustments to Common Equity Tier 1 Capital
Common Equity Tier 1 Capital
Additional Tier 1 Capital instruments
Directly issued qualifying Additional Tier 1 instruments plus stock surplus
Directly issued capital instruments subject to phase out from Additional Tier 1
Additional Tier 1 instruments issued by subsidiaries and held by third parties subject to phase out
Additional Tier 1 Capital instruments before regulatory adjustments
Additional Tier 1 Capital instruments regulatory adjustments
Signifcant investments in the capital of banking, fnancial, and insurance entities
that are outside the scope of regulatory consolidation, net of eligible short positions
Total regulatory adjustments to Additional Tier 1 Capital
Additional Tier 1 Capital
Tier 1 Capital
Tier 2 Capital instruments and provisions
Directly issued qualifying Tier 2 instruments plus related stock surplus
Directly issued capital instruments subject to phase out from Tier 2
Collective allowances
Tier 2 Capital before regulatory adjustments
Tier 2 regulatory adjustments
Signifcant investments in the capital of banking, fnancial, and insurance entities
that are outside consolidation, net of eligible short positions
Total regulatory adjustments to Tier 2 Capital
Tier 2 Capital
Total Capital
Risk-weighted assets1
Common Equity Tier 1 Capital
Tier 1 Capital
Total Capital
Capital Ratios and Multiples
Common Equity Tier 1 Capital (as percentage of CET1 Capital risk-weighted assets)
Tier 1 Capital (as percentage of Tier 1 Capital risk-weighted assets)
Total Capital (as percentage of Total Capital risk-weighted assets)
Leverage ratio2
1 Each capital ratio has its own RWA measure due to the OSFI-prescribed scalar for
inclusion of the CVA. For fiscal 2019, the scalars for inclusion of CVA for CET1,
Tier 1, and Total Capital RWA are all 100%. For fiscal 2018, the scalars were 80%,
83%, and 86%, respectively.
58
TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
2019
2018
$
21,828
49,497
10,581
81,906
$ 21,267
46,145
6,639
74,051
(19,712)
(2,389)
(245)
(1,389)
(1,148)
(132)
(13)
(22)
(1,814)
(26,864)
55,042
5,795
1,196
–
6,991
(350)
(350)
6,641
61,683
10,527
198
1,874
12,599
(19,285)
(2,236)
(317)
2,568
(953)
(115)
(113)
(123)
(1,088)
(21,662)
52,389
4,996
2,455
245
7,696
(350)
(350)
7,346
59,735
8,927
198
1,734
10,859
(160)
(160)
12,439
74,122
$
(160)
(160)
10,699
$ 70,434
$ 455,977
455,977
455,977
$ 435,632
435,780
435,927
12.1%
13.5
16.3
4.0
12.0%
13.7
16.2
4.2
2 The leverage ratio is calculated as Tier 1 Capital divided by leverage exposure,
as defined.
THE BANK’S CAPITAL MANAGEMENT OBJECTIVES
The Bank’s capital management objectives are:
• To be an appropriately capitalized fnancial institution as
determined by:
– the Bank’s Risk Appetite Statement (RAS);
– capital requirements defned by relevant regulatory
authorities; and
– the Bank’s internal assessment of capital requirements consistent
with the Bank’s risk profle and risk tolerance levels.
• To have the most economically achievable weighted-average cost
of capital, consistent with preserving the appropriate mix of capital
elements to meet targeted capitalization levels.
• To ensure ready access to sources of appropriate capital,
at reasonable cost, in order to:
– insulate the Bank from unexpected events; and
– support and facilitate business growth and/or acquisitions
consistent with the Bank’s strategy and risk appetite.
• To support strong external debt ratings, in order to manage
the Bank’s overall cost of funds and to maintain accessibility
to required funding.
These objectives are applied in a manner consistent with the Bank’s
overall objective of providing a satisfactory return on shareholders’ equity.
CAPITAL SOURCES
The Bank’s capital is primarily derived from common shareholders and
retained earnings. Other sources of capital include the Bank’s preferred
shareholders and holders of the Bank’s subordinated debt.
CAPITAL MANAGEMENT
The Treasury and Balance Sheet Management (TBSM) group manages
capital for the Bank and is responsible for forecasting and monitoring
compliance with capital targets. The Board of Directors (the “Board”)
oversees capital adequacy risk management.
The Bank continues to hold suffcient capital levels to ensure that
fexibility is maintained to grow operations, both organically and
through strategic acquisitions. The strong capital ratios are the result
of the Bank’s internal capital generation, management of the balance
sheet, and periodic issuance of capital securities.
ECONOMIC CAPITAL
Economic capital is the Bank’s internal measure of capital requirements
and is one of the key components in the Bank’s assessment of internal
capital adequacy. Economic capital is comprised of both risk-based
capital required to fund losses that could occur under extremely adverse
economic or operational conditions and investment capital utilized to
fund acquisitions or investments to support future earnings growth.
The Bank uses internal models to determine the amount of risk-
based capital required to support the risks resulting from the Bank’s
business operations. Characteristics of these models are described
in the “Managing Risk” section of this document. The objective of
the Bank’s economic capital framework is to hold risk-based capital
to cover unexpected losses in a manner consistent with the Bank’s
capital management objectives.
The Bank operates its capital regime under the Basel Capital
Framework. Consequently, in addition to addressing Pillar 1 risks
covering credit risk, market risk, and operational risk, the Bank’s
economic capital framework captures other material Pillar 2 risks
including non-trading market risk for the retail portfolio (interest rate
risk in the banking book), additional credit risk due to concentration
(commercial and wholesale portfolios) and risks classifed as “Other”,
namely business risk, insurance risk, and risks associated with
the Bank’s signifcant investments. The framework also captures
diversifcation benefts across risk types and business segments.
Please refer to the “Economic Capital and Risk-Weighted Assets by
Segment” section for a business segment breakdown of the Bank’s
economic capital.
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,
inclusive of any minimum requirements outlined under the regulatory
foor. 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 fnancing transaction exposures, and credit
equivalent amounts of off-balance sheet exposures.
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.
From fscal 2014 to 2018, the CVA capital charge was phased-in
based on a scalar approach. For fscal 2018, the scalars inclusion of
CVA for CET1, Tier 1, and Total Capital RWA were 80%, 83%, and
86%, respectively. For fscal 2019, the CVA has been fully phased-in.
Effective January 1, 2013, all newly issued non-common Tier 1 and
Tier 2 Capital instruments must include 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 defned
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.
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
59
In March 2013, OSFI designated the six major Canadian banks as
Effective in the second quarter of 2018, OSFI implemented a revised
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. On
November 22, 2019, the Bank was designated as a Global Systemically
Important Bank (G-SIB) by the Financial Stability Board (FSB). As a
result of the designation, the Bank would be subject to an additional
loss absorbency requirement (CET1 as a percentage of RWA) of 1%
under applicable FSB member authority requirements; however, in
accordance with OSFI’s CAR guideline, for Canadian banks designated
as a G-SIB, the higher of the D-SIB and G-SIB surcharges will apply.
As the D-SIB surcharge is currently equivalent to the 1% G-SIB
common equity ratio requirement, the Bank’s G-SIB designation
has no additional impact on the Bank’s minimum CET1 regulatory
requirements. For further detail please refer to the Global Systemically
Important Bank’s Designation and Disclosure section.
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 November 1, 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
was capped at 1.25% of total RWA in the frst quarter of 2017 and
increases each subsequent year by an additional 0.625%, to reach
its fnal maximum of 2.5% of total RWA in the frst quarter of 2019.
As at October 31, 2019, the CCB is only applicable to private sector
credit exposures located in France, Hong Kong, Sweden, Norway, and
the United Kingdom. Based on the allocation of exposures and buffers
currently in place in France, Hong Kong, Sweden, Norway, and the
United Kingdom, the Bank’s countercyclical buffer requirement is 0%
as at October 31, 2019.
On June 25, 2018, OSFI provided greater transparency related
to previously undisclosed Pillar 2 CET1 capital buffer through the
introduction of the public Domestic Stability Buffer (DSB). The DSB
is held by D-SIBs against Pillar 2 risks associated with systemic
vulnerabilities including, but not limited to: i) Canadian consumer
indebtedness; ii) asset imbalances in the Canadian market; and iii)
Canadian institutional indebtedness. The level of the buffer ranges
between 0% and 2.5% of total RWA and must be met with CET1
Capital. At a minimum, OSFI will review the buffer semi-annually
and any changes will be made public. The buffer was originally set
at 1.5%. In December 2018, OSFI announced that the DSB would
be increased to 1.75% as of April 30, 2019. In June 2019, OSFI
announced the DSB would be further increased by 25 bps to 2% as of
October 31, 2019, effectively raising the CET1 target to 10%, inclusive
of the DSB. A breach of the buffer will not automatically constrain
capital distributions; however, OSFI will require a remediation plan.
methodology for calculating the regulatory capital foor. The revised
foor is based on the Basel II standardized approach, with the foor
factor transitioned in over three quarters. The foor was fully
transitioned, to a factor of 75%, in the fourth quarter of fscal 2018.
The Bank is not constrained by the capital foor.
In the frst quarter of 2019, the Bank implemented the revised CAR
guidelines related to the domestic implementation of the standardized
approach for measuring counterparty credit risk (SA-CCR), capital
requirements for bank exposures to central counterparties, as well as
revisions to the securitization framework.
The leverage ratio is calculated as per OSFI’s Leverage Requirements
guideline and has a regulatory minimum requirement of 3%.
The Canadian Bail-in regime, including OSFI’s Total Loss Absorbing
Capacity (TLAC) guideline, came into effect on September 23, 2018.
Under this guideline, the Bank is required to meet target TLAC
requirements by November 1, 2021. The Bank is currently subject to
a target risk-based TLAC ratio of 23.50% of RWA and a TLAC leverage
ratio of 6.75%. There is no impact to the supervisory target risk-based
TLAC ratio or TLAC leverage ratio requirements as a result of the Bank’s
G-SIB designation.
Capital Position and Capital Ratios
The Basel framework allows qualifying banks to determine capital
levels consistent with the way they measure, manage, and mitigate
risks. It specifes methodologies for the measurement of credit, trading
market, and operational risks. The Bank uses the advanced approaches
for the majority of its portfolios. In the U.S. Retail segment, the Bank
calculates the majority of the retail portfolio’s, and certain other
portfolio’s, credit RWA using the Advanced Internal Ratings-Based
(AIRB) approach. The remaining assets in the U.S. Retail segment
continue to use the standardized approach for credit risk.
For accounting purposes, IFRS is followed for consolidation of
subsidiaries and joint ventures. For regulatory capital purposes,
insurance subsidiaries are deconsolidated and reported as a deduction
from capital. Insurance subsidiaries are subject to their own capital
adequacy reporting, such as OSFI’s Life Insurance Capital Adequacy
Test. Currently, for regulatory capital purposes, all the entities of
the Bank are either consolidated or deducted from capital and there
are no entities from which surplus capital is recognized.
Some of the Bank’s subsidiaries are individually regulated by
either OSFI or other regulators. Many of these entities have minimum
capital requirements which they must maintain and which may limit
the Bank’s ability to extract capital or funds for other uses.
As at October 31, 2019, the Bank’s CET1, Tier 1, and Total Capital
ratios were 12.1%, 13.5%, and 16.3%, respectively. Compared with
the Bank’s CET1 Capital ratio of 12.0% at October 31, 2018, the
CET1 Capital ratio, as at October 31, 2019, increased due to organic
capital growth, partially offset by common shares repurchased,
actuarial losses on employee beneft plans, the loyalty agreement
with Air Canada, and the acquisition of Greystone.
As at October 31, 2019, the Bank’s leverage ratio was 4.0%.
Compared with the Bank’s leverage ratio of 4.2% at October 31, 2018,
the leverage ratio, as at October 31, 2019, decreased due to common
shares repurchased, actuarial losses on employee beneft plans, an
increase in exposure resulting from the implementation of the SA-CCR
in the frst quarter of 2019, and business growth in all segments,
partially offset by organic capital growth.
60
TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
Common Equity Tier 1 Capital
CET1 Capital was $55 billion as at October 31, 2019. Earnings growth
contributed the majority of CET1 Capital growth in the year. Capital
management funding activities during the year included the common
share issuance of $482 million under the dividend reinvestment plan
and from stock option exercises.
Tier 1 and Tier 2 Capital
Tier 1 Capital was $62 billion as at October 31, 2019, consisting of
CET1 Capital and Additional Tier 1 Capital of $55 billion and $7 billion,
respectively. Tier 1 Capital management activities during the year
consisted of the issuance of $350 million non-cumulative Rate Reset
Preferred Shares, Series 22 and $450 million non-cumulative Rate
Reset Preferred Shares, Series 24, both of which included NVCC
Provisions to ensure loss absorbency at the point of non-viability.
On December 31, 2018, TD Capital Trust III, a subsidiary of the Bank,
redeemed all of the outstanding TD Capital Trust III Securities –
Series 2008 at a price of $1 billion plus the unpaid distribution
payable on the redemption date. On June 30, 2019, TD Capital Trust
IV redeemed all of the outstanding $550 million TD Capital Trust IV
Notes – Series 1 at a redemption price of 100% of the principal
amount plus any accrued and unpaid interest payable on the date
of redemption.
Tier 2 Capital was $12 billion as at October 31, 2019. Tier 2 Capital
management activities during the year consisted of the issuance of
$1.75 billion 3.06% subordinated debentures due January 26, 2032,
which included NVCC Provisions to ensure loss absorbency at the point
of non-viability.
INTERNAL CAPITAL ADEQUACY ASSESSMENT PROCESS
The Bank’s Internal Capital Adequacy Assessment Process (ICAAP) is an
integrated enterprise-wide process that encompasses the governance,
management, and control of risk and capital functions within the Bank.
It provides a framework for relating risks to capital requirements
through the Bank’s capital modelling and stress testing practices which
help inform the Bank’s overall CAR.
The ICAAP is led by TBSM and is supported by numerous functional
areas who together help assess the Bank’s internal capital adequacy.
This assessment ultimately represents the capacity to bear risk in
congruence with the Bank’s risk profle and RAS. TBSM assesses and
monitors the overall adequacy of the Bank’s available capital in relation
to both internal and regulatory capital requirements under normal and
stressed conditions.
DIVIDENDS
At October 31, 2019, the quarterly dividend was $0.74 per share,
consistent with the Bank’s current target payout range of 40% to 50%
of adjusted earnings. Cash dividends declared and paid during the year
totalled $2.89 per share (2018 – $2.61). For cash dividends payable on
the Bank’s preferred shares, refer to Note 21 of the 2019 Consolidated
Financial Statements. As at October 31, 2019, 1,812 million common
shares were outstanding (2018 – 1,828 million). The Bank’s ability to
pay dividends is subject to the requirements of the Bank Act and OSFI.
Refer to Note 21 of the 2019 Consolidated Financial Statements for
further information on dividend restrictions.
NORMAL COURSE ISSUER BID
On October 24, 2019, the Bank announced that, subject to the approval
of OSFI and the Toronto Stock Exchange (TSX), it intends to terminate
its current normal course issuer bid (Current NCIB) and launch a new
normal course issuer bid (New NCIB) to repurchase for cancellation up
to 30 million of its common shares. The Current NCIB to repurchase
up to 20 million common shares commenced on June 18, 2019 and
is scheduled to terminate on June 17, 2020 unless terminated earlier
in accordance with its terms. The Bank has repurchased all 20 million
of its common shares under the Current NCIB, at an average price of
$75.35 per share for a total amount of $1.5 billion.
During the year ended October 31, 2019, the Bank repurchased an
aggregate of 30 million common shares under the Current NCIB and a
prior NCIB, at an average price of $74.48 per share, for a total amount
of $2.2 billion.
During the year ended October 31, 2018, the Bank repurchased
20 million common shares under its then current NCIB at an average
price of $75.07 per share for a total amount of $1.5 billion.
RISK-WEIGHTED ASSETS
Based on Basel III, RWA are calculated for each of credit risk, market
risk, and operational risk. Details of the Bank’s RWA are included in
the following table.
T A B L E 3 9
COMMON EQUITY TIER 1 CAPITAL
RISK-WEIGHTED ASSETS1
(millions of Canadian dollars)
Credit risk
Retail
Residential secured
Qualifying revolving retail
Other retail
Non-retail
Corporate
Sovereign
Bank
Securitization exposures
Equity exposures
Exposures subject to standardized or
Internal Ratings-Based (IRB) approaches
Adjustment to IRB RWA for scaling factor
Other assets not included in standardized
or IRB approaches
Total credit risk
Market risk
Operational risk
Total
As at
October 31
2019
October 31
2018
$ 33,397 $ 31,280
29,276
44,564
35,693
44,885
191,753
8,997
8,540
11,533
4,775
182,685
8,370
9,001
13,142
1,173
339,573
11,062
319,491
10,189
37,536
388,171
12,200
55,606
40,364
370,044
13,213
52,375
$ 455,977 $ 435,632
1 Each capital ratio has its own RWA measure due to the OSFI-prescribed scalar for
inclusion of the CVA. For fiscal 2019, the scalars for inclusion of CVA for CET1,
Tier 1 and Total Capital RWA are all 100%. For fiscal 2018, the scalars were 80%,
83%, and 86%, respectively.
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
61
ECONOMIC CAPITAL AND RISK-WEIGHTED ASSETS BY SEGMENT
The following chart provides a breakdown of the Bank’s RWA and
economic capital as at October 31, 2019. RWA reflects capital
requirements assessed based on regulatory prescribed rules for credit
risk, trading market risk, and operational risk. Economic capital reflects
the Bank’s internal view of capital requirements for these risks as well
as risks not captured within the assessment of RWA as described in
the “Economic Capital” section of this document. The results shown
in the chart do not reflect attribution of goodwill and intangibles.
For additional information on the risks highlighted below, refer to the
“Managing Risk” section of this document.
Economic Capital (%)
Credit Risk
Market Risk
Operational Risk
Other Risks
65%
9%
9%
17%
TD Bank Group
CET1 RWA1
Credit Risk
$ 388,171
Trading Market Risk $ 12,200
$ 55,606
Operational Risk
Corporate
Canadian Retail
U.S. Retail2
Wholesale Banking
• Global Markets
• Corporate and
Investment Banking
• Other
• Treasury and Balance
Sheet Management
• Other Control and
Service Functions
• Personal Deposits
• Consumer Lending
• Credit Cards Services
• Auto Finance
• Commercial Banking
• Small Business Banking
• Advice-based
Wealth Business
• Asset Management
• TD Ameritrade
• Personal Deposits
• Consumer Lending
• Real Estate Secured Lending
• Credit Cards and
Merchant Solutions
• Auto Finance
• Commercial Banking
• Small Business Banking
• Direct Investing
• Advice-based
Wealth Business
• Asset Management
• Property and
Casualty Insurance
• Life and Health Insurance
Economic Capital (%)
Credit Risk
Market Risk
Operational Risk
Other Risks
76%
4%
7%
13%
Credit Risk
Market Risk
Operational Risk
Other Risks
60%
6%
10%
24%
Credit Risk
Market Risk
Operational Risk
Other Risks
65%
19%
8%
8%
Credit Risk
Market Risk
Operational Risk
Other Risks
38%
30%
12%
20%
CET1 RWA1
Credit Risk
Trading Market Risk $
Operational Risk
$ 107,950
–
$ 10,424
Credit Risk
Trading Market Risk $
Operational Risk
$ 220,885
–
$ 27,521
Credit Risk
$ 51,883
Trading Market Risk $ 12,200
7,889
Operational Risk
$
Credit Risk
$
Trading Market Risk $
$
Operational Risk
7,453
–
9,772
1 Amounts are in millions of Canadian dollars
2 U.S. Retail includes TD Ameritrade in Other Risks for Economic Capital
62
TD BANK GROUP ANNUAL REPORT 2019 MANAGEMENT’S DISCUSSION AND ANALYSIS All series of preferred shares – Class A include NVCC provisions. If a
NVCC trigger event were to occur, the maximum number of common
shares that could be issued, assuming there are no declared and
unpaid dividends on the respective series of preferred shares at the
time of conversion, would be 1.2 billion in aggregate.
For NVCC subordinated notes and debentures, if a NVCC trigger
event were to occur, the maximum number of common shares that
could be issued, assuming there is no accrued and unpaid interest on
the respective subordinated notes and debentures, would be 3.1 billion
in aggregate. The following subordinated debentures contain NVCC
provisions: the 2.692% subordinated debentures due June 24, 2025,
2.982% subordinated debentures due September 30, 2025, 3.589%
subordinated debentures due September 14, 2028, 3.224%
subordinated debentures due July 25, 2029, 4.859% subordinated
debentures due March 4, 2031, 3.625% subordinated debentures due
September 15, 2031, and the 3.06% subordinated debentures due
January 26, 2032. Refer to Note 19 of the Bank’s 2019 Consolidated
Financial Statements for additional details.
Future Regulatory Capital Developments
In November 2019, BCBS published a consultation document which
proposes a set of targeted adjustments to the CVA risk framework that
was issued in December 2017. The revisions aim to align the revised
CVA risk framework with the minimum capital requirements for
market risk and the capital requirements for bank exposures to central
counterparties.
In November 2019, BCBS released a discussion paper on sovereign
disclosures. The BCBS is seeking views on three potential disclosure
templates, which would require banks to disclose their sovereign
exposures and RWA by jurisdictional breakdown, currency, and
accounting classifcation.
In November 2019, BCBS released a discussion paper on market
risk disclosures. The discussion paper proposes changes to the
January 1, 2022 version of the Pillar 3 market risk tables/templates
to refect changes from the new minimum capital requirements for
market risk, published in January 2019.
In October 2019, the U.S. Federal Reserve Board fnalized the
risk-based tailoring rule for domestic bank holding companies and
foreign banking organizations (FBOs). The rule further tailors the
regulatory framework for enhanced prudential standards and the
U.S. Basel III capital and liquidity requirements. The fnal rule classifes
institutions into different categories, and applies different regulatory
requirements, based on an assessment of fve risk-based indicators:
size, cross-jurisdictional activity, reliance on weighted short-term
wholesale funding, non-bank assets, and off-balance sheet exposures.
TD Group US Holding LLC (TDGUS) will be a category III institution,
effective December 31, 2019. As these are U.S. regulatory rules,
the Bank does not expect there to be an impact to capital at the
consolidated Bank level.
In July 2019, in consideration of the fnal Basel III revisions published
by the BCBS in December 2017, OSFI published guidance related to
the capital requirements for operational risk. Banks currently approved
to use the Advanced Measurement Approach (AMA) will be required
to use a revised Basel III standardized approach when the revised
requirements are implemented in Canada in the frst quarter of 2021.
To facilitate implementation of the revised requirements, OSFI is
providing a transition period for fscal 2020, during which time banks
currently reporting under AMA, should report operational risk capital
using the current standardized approach.
T A B L E 4 0
EQUITY AND OTHER SECURITIES1
(millions of shares/units, except as noted)
Common shares outstanding
Treasury shares – common
Total common shares
Stock options
Vested
Non-vested
Preferred shares – Class A
Series 12
Series 33
Series 5
Series 7
Series 9
Series 11
Series 12
Series 14
Series 16
Series 18
Series 20
Series 224
Series 245
Total preferred shares – equity
Treasury shares – preferred
Total preferred shares
Capital Trust Securities (thousands of shares)
Trust units issued by TD Capital Trust III:
TD Capital Trust III Securities – Series 20086
Debt issued by TD Capital Trust IV:
TD Capital Trust IV Notes – Series 17
TD Capital Trust IV Notes – Series 2
TD Capital Trust IV Notes – Series 3
As at
October 31
2019
October 31
2018
Number of
shares/units
Number of
shares/units
1,812.5
(0.6)
1,811.9
1,830.4
(2.1)
1,828.3
4.7
8.1
4.7
8.4
20.0
20.0
20.0
14.0
8.0
6.0
28.0
40.0
14.0
14.0
16.0
14.0
18.0
232.0
(0.3)
231.7
20.0
20.0
20.0
14.0
8.0
6.0
28.0
40.0
14.0
14.0
16.0
–
–
200.0
(0.3)
199.7
–
1,000.0
–
450.0
750.0
550.0
450.0
750.0
1 For further details, including the principal amount, conversion and exchange
features, and distributions, refer to Note 21 of the 2019 Consolidated
Financial Statements.
2 On October 16, 2019, the Bank announced that none of its 20 million
Non-Cumulative 5-Year Rate Reset Preferred Shares NVCC, Series 1 (the “Series 1
Shares”) would be converted on October 31, 2019, into Non-Cumulative Floating
Rate Preferred Shares NVCC, Series 2. As previously announced on October 1, 2019,
the dividend rate for the Series 1 Shares for the 5-year period from and including
October 31, 2019, but excluding October 31, 2024, will be 3.662%.
3 On July 18, 2019, the Bank announced that none of its 20 million Non-Cumulative
5-Year Rate Reset Preferred Shares NVCC, Series 3 (the “Series 3 Shares”) would
be converted on July 31, 2019, into Non-Cumulative Floating Rate Preferred Shares
NVCC, Series 4. As previously announced on July 2, 2019, the dividend rate for the
Series 3 Shares for the 5-year period from and including July 31, 2019, but
excluding July 31, 2024, will be 3.681%.
4 Non-Cumulative 5-Year Rate Reset Preferred Shares (NVCC), Series 22 (the
“Series 22 Shares”) issued by the Bank on January 28, 2019, at a price of $25 per
share, with quarterly non-cumulative cash dividends on these shares, if declared,
payable at a per annum rate of 5.20% for the initial period ending April 30, 2024.
Thereafter, the dividend rate will reset every five years equal to the then five-year
Government of Canada bond yield plus 3.27%. Holders of these shares will have
the right to convert their shares into non-cumulative NVCC Floating Rate Preferred
Shares, Series 23, subject to certain conditions, on April 30, 2024, and on April 30
every five years thereafter. Holders of the Series 23 Shares will be entitled to
receive quarterly floating rate dividends, if declared, at a rate equal to the three-
month Government of Canada Treasury Bill yield plus 3.27%. The Series 22 Shares
are redeemable by the Bank, subject to regulatory consent, at $25 per share on
April 30, 2024, and on April 30 every five years thereafter.
5 Non-Cumulative 5-Year Rate Reset Preferred Shares (NVCC), Series 24 (the
“Series 24 Shares”) issued by the Bank on June 4, 2019, at a price of $25 per
share, with quarterly non-cumulative cash dividends on these shares, if declared,
payable at a per annum rate of 5.10% for the initial period ending July 31, 2024.
Thereafter, the dividend rate will reset every five years equal to the then five-year
Government of Canada bond yield plus 3.56%. Holders of these shares will have
the right to convert their shares into non-cumulative NVCC Floating Rate Preferred
Shares, Series 25, subject to certain conditions, on July 31, 2024, and on July 31
every five years thereafter. Holders of the Series 25 Shares will be entitled to
receive quarterly floating rate dividends, if declared, at a rate equal to the three-
month Government of Canada Treasury Bill yield plus 3.56%. The Series 24 Shares
are redeemable by the Bank, subject to regulatory consent, at $25 per share on
July 31, 2024, and on July 31 every five years thereafter.
6 TD Capital Trust III redeemed all of the outstanding TD Capital Trust III Securities –
Series 2008 on December 31, 2018.
7 TD Capital Trust IV redeemed all of the outstanding TD Capital Trust IV Notes –
Series 1 on June 30, 2019.
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
63
In June 2019, BCBS published a revision to align the leverage
ratio measurement of client cleared derivatives with the measurement
defned per the SA-CCR as used for risk-based capital requirements.
This treatment will permit both cash and non-cash forms of
segregated initial margin and cash and non-cash variation margin
received from a client to offset the replacement cost and potential
future exposure for client cleared derivatives only. The revisions are
effective as of January 1, 2022.
In June 2019, BCBS published revisions to leverage ratio disclosure
requirements. The revisions set out additional requirements for banks
to disclose their leverage ratios based on quarter-end and on daily
average value of securities fnancing transactions. This change is
effective as of January 1, 2022.
In April 2019, OSFI published the fnal version of its guideline B-2:
Large Exposure Limits for D-SIBs. The guideline outlines practices for
the management of risk related to large exposures and provides
additional guidance on methods for identifying, measuring, managing,
and monitoring large exposures. The guideline introduces tighter limits
for exposures to both G-SIBs and to other Canadian D-SIBs, recognizes
eligible credit risk mitigation techniques by measuring exposure on
a net basis rather than a gross basis, and reduces the eligible capital
base from Total Capital to Tier 1 Capital. The guideline is effective
November 1, 2019.
In January 2019, BCBS published the fnal minimum capital
requirements for market risk standard. The key aspects of the standard
include: clarifcation on the scope; a refned standardized approach for
foreign exchange risk and index instruments; revised standardized risk
weights applicable to general interest rate risk, foreign exchange, and
certain other exposures; revisions to the assessment process relating
to internal models refecting the risks on individual trading desks; and
revisions related to identifcation of risk factors that are eligible for
internal modelling. The standard is effective January 1, 2022.
In December 2018, BCBS published the fnal “Pillar 3 disclosure
requirements – updated framework”. The framework includes
disclosure revisions and additions arising from the fnalization of the
Basel III reforms related to the following areas: credit risk, operational
risk, leverage ratio, CVA risk; RWA calculated by the Bank’s internal
models and under standardized approaches; and an overview of risk
management, RWA, and key prudential metrics. The framework also
contains new disclosure requirements related to asset encumbrance
and capital distribution constraints. These disclosure requirements,
together with the frst and second phase of the revised Pillar 3
disclosure requirements, issued in January 2015 and March 2017
respectively, complete the Pillar 3 framework. The disclosure
requirements related to Basel III reforms are effective January 1, 2022.
In August 2018, OSFI provided notifcation to the Bank setting a
supervisory target TLAC ratio at 23.0% of RWA, inclusive of the DSB,
and the minimum TLAC leverage ratio at 6.75%. This is pursuant to
the fnal guideline on TLAC issued by OSFI in April 2018. In June 2019,
OSFI announced the DSB would be 2% as of October 31, 2019,
effectively raising the supervisory TLAC target to 23.5%. Beginning the
frst quarter of 2022, D-SIBs will be expected to meet the supervisory
target TLAC requirements. Investments in TLAC issued by G-SIBs or
Canadian D-SIBs will be required to be deducted from capital.
In July 2018, OSFI released a discussion paper on the proposed
implementation of the Basel III reforms for public consultation.
The discussion paper sets out OSFI’s proposed policy direction and
timelines for domestic implementation. The BCBS issued the fnalized
Basel III reforms in December 2017. The reforms include: i) a revised
internal ratings-based approach for credit risk where the use of the
internal models are constrained by placing limits on certain inputs and
the option to use AIRB for certain asset classes has been removed;
ii) a revised standardized approach for credit risk that is more granular
and risk-sensitive; iii) replacement of the CVA framework with new
standardized and basic approaches; iv) streamlining the existing
operational risk framework to a risk-sensitive standardized approach
which will replace existing methodologies; v) revisions to the
measurement of the leverage ratio and introduction of a leverage ratio
buffer for G-SIBs; vi) the implementation of the adoption of the
minimum capital requirements for market risk (Fundamental Review of
the Trading Book); and vii) an aggregate output foor based on the
revised Basel III standardized approaches. The reforms are effective the
frst quarter of 2022, with the standardized output foor having an
added fve-year phased implementation period until 2027.
Global Systemically Important Banks Designation and Disclosures
The FSB, in consultation with the BCBS and national authorities, identifes
G-SIBs. In July 2013, the BCBS issued an update to the fnal rules on
G-SIBs and outlined the G-SIB assessment methodology which is based
on the submissions of the largest global banks. Twelve indicators are used
in the G-SIB assessment methodology to determine systemic importance.
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.
The public communications on G-SIB status is issued annually each
November. On November 22, 2019, the Bank was designated as a G-SIB
by the FSB. As a result of this designation, the Bank would be subject
to an additional loss absorbency requirement (CET1 as a percentage
of RWA) of 1% under applicable FSB member authority requirements;
however, in accordance with OSFI’s CAR guideline, for Canadian banks
designated as a G-SIB, the higher of the D-SIB and G-SIB surcharges
will apply. As the D-SIB surcharge is currently equivalent to the
1% G-SIB common equity ratio requirement, the Bank’s designation
has no additional impact on the Bank’s minimum CET1 regulatory
requirements. There is no impact to the supervisory target risk-based
TLAC ratio of 23.5% or TLAC leverage ratio of 6.75% as a result of
the Bank’s G-SIB designation. The Bank will be in discussions with
regulatory bodies regarding the G-SIB designation.
As a result of the Bank’s G-SIB designation, the U.S. Federal
Reserve requires TDGUS, as TD’s U.S. IHC, to maintain a minimum
amount of TLAC and long-term debt. From the date the Bank was
designated as a G-SIB, TDGUS has a three-year transitional period
to meet these requirements.
The Bank is required to publish the twelve indicators used in the
G-SIB indicator-based assessment framework. Public disclosure of
fnancial year-end data is required annually, no later than the date
of a bank’s frst quarter public disclosure of shareholder fnancial
data in the following year. TD’s 2019 fscal year indicators will be
disclosed by the Bank in the frst quarter of 2020.
In July 2018, BCBS issued a revised G-SIB framework; G-SIBs: revised
assessment methodology and the higher loss absorbency requirement.
The new assessment methodology introduces a trading volume indicator
and modifes the weights in the substitutability category, amends the
defnition of cross-jurisdictional indicators, extends the scope of
consolidation to insurance subsidiaries, and provides further guidance
on bucket migration and associated loss absorbency surcharges. The
revised methodology is expected to be implemented in 2021.
64
TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
GROUP FINANCIAL CONDITION
Securitization and Off-Balance Sheet Arrangements
In the normal course of operations, the Bank engages in a variety of
fnancial transactions that, under IFRS, are either not recorded on
the Bank’s Consolidated Balance Sheet or are recorded in amounts that
differ from the full contract or notional amounts. These off-balance
sheet arrangements involve, among other risks, varying elements of
market, credit, and liquidity risks which are discussed in the “Managing
Risk” section of this document. Off-balance sheet arrangements are
generally undertaken for risk management, capital management, and
funding management purposes and include securitizations, contractual
obligations, and certain commitments and guarantees.
STRUCTURED ENTITIES
TD carries out certain business activities through arrangements with
structured entities (SEs). The Bank uses SEs to raise capital, obtain
sources of liquidity by securitizing certain of the Bank’s fnancial assets,
to assist TD’s clients in securitizing their fnancial assets, and to create
investment products for the Bank’s clients. Securitizations are an
important part of the fnancial markets, providing liquidity by facilitating
investor access to specifc portfolios of assets and risks. Refer to Notes 2,
9, and 10 of the 2019 Consolidated Financial Statements for further
information regarding the Bank’s involvement with SEs.
Securitization of Bank-Originated Assets
The Bank securitizes residential mortgages, business and government
loans, credit card loans, and personal loans to enhance its liquidity
position, to diversify sources of funding, and to optimize the
management of the balance sheet.
The Bank securitizes residential mortgages under the National
Housing Act Mortgage-Backed Securities (NHA MBS) program
sponsored by the Canada Mortgage and Housing Corporation (CMHC).
The securitization of the residential mortgages with the CMHC does
not qualify for derecognition and the mortgages remain on the Bank’s
Consolidated Balance Sheet. Additionally, the Bank securitizes credit
card and personal loans by selling them to Bank-sponsored SEs that
are consolidated by the Bank. The Bank also securitizes U.S. residential
mortgages with U.S. government-sponsored entities which qualify for
derecognition and are removed from the Bank’s Consolidated Balance
Sheet. Refer to Notes 9 and 10 of the 2019 Consolidated Financial
Statements for further information.
T A B L E 4 1
EXPOSURES SECURITIZED BY THE BANK AS ORIGINATOR1
(millions of Canadian dollars)
Signifcant
unconsolidated SEs
Signifcant
consolidated
SEs
As at
Non-SE third-parties
Residential mortgage loans
Consumer instalment and other personal loans2
Credit card loans
Business and government loans
Total exposure
Residential mortgage loans
Consumer instalment and other personal loans2
Credit card loans
Business and government loans
Total exposure
Securitized
assets
$ 23,065
–
–
–
$ 23,065
$ 22,516
–
–
–
$ 22,516
Carrying
value of
retained
interests
Securitized
assets
Securitized
assets
Carrying
value of
retained
interests
$ –
–
–
–
$ –
$ –
–
–
–
–
$
$
–
750
5,113
–
$ 5,863
–
$
1,749
3,884
–
$ 5,633
October 31, 2019
$ 624
–
–
1,118
$ 1,742
$ –
–
–
19
$ 19
October 31, 2018
$ 818
–
–
1,206
$ 2,024
$ –
–
–
25
$ 25
1 Includes all assets securitized by the Bank, irrespective of whether they are
on-balance or off-balance sheet for accounting purposes, except for securitizations
through U.S. government-sponsored entities.
2 In 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 signifcant
unconsolidated SEs and Canadian non-SE third-parties. Residential
mortgage loans securitized by the Bank may give rise to full
derecognition of the fnancial 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.
Consumer Instalment and Other Personal Loans
The Bank securitizes consumer instalment and other personal
loans through a consolidated SE. The Bank consolidates the SE
as it serves as a fnancing vehicle for the Bank’s assets, the Bank
has power over the key economic decisions of the SE, and
the Bank is exposed to the majority of the residual risks of the SE.
As at October 31, 2019, the SE had $750 million of issued notes
outstanding (October 31, 2018 – $2 billion). As at October 31, 2019,
the Bank’s maximum potential exposure to loss for these conduits
was $750 million (October 31, 2018 – $2 billion) with a fair value
of $750 million (October 31, 2018 – $2 billion).
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
65
Credit Card Loans
The Bank securitizes credit card loans through an SE. The Bank
consolidates the SE as it serves as a fnancing vehicle for the Bank’s
assets, the Bank has power over the key economic decisions of the SE,
and the Bank is exposed to the majority of the residual risks of the SE.
As at October 31, 2019, the Bank had $5 billion of securitized credit
card receivables outstanding (October 31, 2018 – $4 billion). As at
October 31, 2019, the consolidated SE had US$3 billion variable rate
notes outstanding (October 31, 2018 – US$3 billion). The notes are
issued to third-party investors and have a fair value of US$3 billion as
at October 31, 2019 (October 31, 2018 – US$3 billion). Due to the
nature of the credit card receivables, their carrying amounts
approximate fair value.
Business and Government Loans
The Bank securitizes business and government loans through signifcant
unconsolidated SEs and Canadian non-SE 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 ECLs on
the retained interests of the securitized business and government loans
as the mortgages are all government insured.
Securitization of Third-Party Originated Assets
Significant Unconsolidated Structured 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 SEs, which are not consolidated by
the Bank. The Bank’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 $10.2 billion as at
October 31, 2019 (October 31, 2018 – $10.4 billion). Further, as at
October 31, 2019, the Bank had committed to provide an additional
$3.2 billion in liquidity facilities that can be used to support future
asset-backed commercial paper (ABCP) in the purchase of deal-specifc
assets (October 31, 2018 – $2.8 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.
T A B L E 4 2
EXPOSURE TO THIRD-PARTY ORIGINATED ASSETS SECURITIZED BY BANK-SPONSORED UNCONSOLIDATED CONDUITS
(millions of Canadian dollars, except as noted)
Residential mortgage loans
Automobile loans and leases
Equipment leases
Trade receivables
Total exposure
1 The Bank’s total liquidity facility exposure only relates to ‘AAA’ rated assets.
2 Expected 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 October 31, 2019, the Bank held $39.4 million of ABCP issued
by Bank-sponsored multi-seller conduits within the Trading loans,
securities, and other category on its Consolidated Balance Sheet
(October 31, 2018 – $344.7 million).
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 $3.8 billion as at October 31, 2019 (October 31, 2018 –
$3.0 billion). The assets within these conduits are comprised of individual
notes backed by automotive loan receivables, credit card receivables,
equipment receivables and trade receivables. As at October 31, 2019,
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 fnancial statements.
October 31, 2019
October 31, 2018
As at
Exposure and
ratings profle of
unconsolidated
SEs
AAA1
$ 5,569
4,002
451
143
$ 10,165
Expected
weighted-
average life
(years)2
2.3
1.8
2.4
1.6
2.0
Exposure and
ratings profle of
unconsolidated
SEs
AAA1
$ 6,002
3,803
413
143
$ 10,361
Expected
weighted-
average life
(years)2
2.9
1.5
1.5
2.5
2.3
COMMITMENTS
The Bank enters into various commitments to meet the fnancing needs
of the Bank’s clients and to earn fee income. Signifcant commitments
of the Bank include fnancial and performance standby letters of credit,
documentary and commercial letters of credit, and commitments to
extend credit. These products may expose the Bank to liquidity, credit,
and reputational risks. There are adequate risk management and
control processes in place to mitigate these risks. Certain commitments
still remain off-balance sheet. Note 27 of the 2019 Consolidated
Financial Statements provides detailed information about the maximum
amount of additional credit the Bank could be obligated to extend.
GUARANTEES
In the normal course of business, the Bank enters into various
guarantee contracts to support its clients. The Bank’s signifcant types
of guarantee products are fnancial and performance standby letters of
credit, credit enhancements, and indemnifcation agreements. Certain
guarantees remain off-balance sheet. Refer to Note 27 of the 2019
Consolidated Financial Statements for further information.
66
TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
GROUP FINANCIAL CONDITION
Related-Party Transactions
TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL, THEIR
CLOSE FAMILY MEMBERS, AND THEIR RELATED ENTITIES
Key management personnel are those persons having authority and
responsibility for planning, directing, and controlling the activities
of the Bank, directly or indirectly. The Bank considers certain of its
offcers and directors to be key management personnel. The Bank
makes loans to its key management personnel, their close family
members, and their related entities on market terms and conditions
with the exception of banking products and services for key
management personnel, which are subject to approved policy
guidelines that govern all employees.
In addition, the Bank offers deferred share and other plans to
non-employee directors, executives, and certain other key employees.
Refer to Note 23 of the 2019 Consolidated Financial Statements for
more details.
In the ordinary course of business, the Bank also provides various
banking services to associated and other related corporations on terms
similar to those offered to non-related parties.
TRANSACTIONS WITH SUBSIDIARIES, TD AMERITRADE,
AND SYMCOR INC.
Transactions between the Bank and its subsidiaries meet the defnition
of related-party transactions. If these transactions are eliminated on
consolidation, they are not disclosed as related-party transactions.
Transactions between the Bank, TD Ameritrade, and Symcor Inc.
(Symcor) also qualify as related-party transactions. There were no
signifcant transactions between the Bank, TD Ameritrade, and Symcor
during the year ended October 31, 2019, other than as described in
the following sections and in Note 12 of the 2019 Consolidated
Financial Statements.
Other Transactions with TD Ameritrade and Symcor
i) TD AMERITRADE HOLDING CORPORATION
The Bank has signifcant infuence over TD Ameritrade and accounts
for its investment in TD Ameritrade using the equity method. Pursuant
to the Stockholders Agreement in relation to the Bank’s equity
investment in TD Ameritrade, the Bank has the right to designate
fve of twelve members of TD Ameritrade’s Board of Directors.
The Bank’s designated directors include the Bank’s Group President
and Chief Executive Offcer and four independent directors of TD or
TD’s U.S. subsidiaries.
Insured Deposit Account Agreement
The Bank is party to an IDA agreement with TD Ameritrade, pursuant
to which the Bank makes available to clients of TD Ameritrade, FDIC-
insured money market deposit accounts as either designated sweep
vehicles or as non-sweep deposit accounts. TD Ameritrade provides
marketing and support services with respect to the IDA. The Bank paid
fees of $2.2 billion in 2019 (2018 – $1.9 billion; 2017 – $1.5 billion)
to TD Ameritrade related to deposit accounts. The amount paid
by the Bank is based on the average insured deposit balance of
$140 billion in 2019 (2018 – $140 billion; 2017 – $124 billion) with
a portion of the amount tied to the actual yield earned by the Bank
on the investments, less the actual interest paid to clients of
TD Ameritrade, with the balance tied to an agreed rate of return.
The Bank earns a servicing fee of 25 bps on the aggregate average
daily balance in the sweep accounts (subject to adjustment based
on a specifed formula).
As at October 31, 2019, amounts receivable from TD Ameritrade were
$41 million (October 31, 2018 – $137 million). As at October 31, 2019,
amounts payable to TD Ameritrade were $168 million (October 31, 2018 –
$174 million).
The Bank and other fnancial institutions provided TD Ameritrade
with unsecured revolving loan facilities. The total commitment
provided by the Bank was $291 million, which was undrawn as at
October 31, 2019 (October 31, 2018 – $338 million undrawn).
ii) TRANSACTIONS WITH SYMCOR
The Bank has one-third ownership in Symcor, a Canadian provider
of business process outsourcing services offering a diverse portfolio
of integrated solutions in item processing, statement processing
and production, and cash management services. The Bank accounts
for Symcor’s results using the equity method of accounting. During
the year ended October 31, 2019, the Bank paid $81 million
(October 31, 2018 – $86 million; October 31, 2017 – $93 million)
for these services. As at October 31, 2019, the amount payable to
Symcor was $12 million (October 31, 2018 – $14 million).
The Bank and two other shareholder banks have also provided a
$100 million unsecured loan facility to Symcor which was undrawn
as at October 31, 2019, and October 31, 2018.
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
67
GROUP FINANCIAL CONDITION
Financial Instruments
As a fnancial institution, the Bank’s assets and liabilities are substantially
composed of fnancial instruments. Financial assets of the Bank include,
but are not limited to, cash, interest-bearing deposits, securities,
loans, derivative instruments and securities purchased under reverse
repurchase agreements; while fnancial liabilities include, but are not
limited to, deposits, obligations related to securities sold short,
securitization liabilities, obligations related to securities sold under
repurchase agreements, derivative instruments, and subordinated debt.
The Bank uses fnancial instruments for both trading and
non-trading activities. The Bank typically engages in trading activities
by the purchase and sale of securities to provide liquidity and meet the
needs of clients and, less frequently, by taking trading positions with
the objective of earning a proft. Trading fnancial instruments include,
but are not limited to, trading securities, trading deposits, and trading
derivatives. Non-trading fnancial instruments include the majority
of the Bank’s lending portfolio, non-trading securities, hedging
derivatives, and fnancial liabilities. In accordance with accounting
standards related to fnancial instruments, fnancial assets or liabilities
classifed as trading, non-trading fnancial instruments at fair value
through proft or loss, fnancial instruments designated at fair value
through proft or loss, fnancial assets at FVOCI, and all derivatives
are measured at fair value in the Bank’s 2019 Consolidated Financial
Statements. DSAC, loans, and other liabilities are carried at amortized
cost using the effective interest rate method. For details on how
fair values of fnancial instruments are determined, refer to the
“Accounting Judgments, Estimates, and Assumptions” – “Fair Value
Measurement” section of this document. The use of fnancial
instruments allows the Bank to earn profts in trading, interest, and
fee income. Financial instruments also create a variety of risks which
the Bank manages with its extensive risk management policies and
procedures. The key risks include interest rate, credit, liquidity,
market, and foreign exchange risks. For a more detailed description
on how the Bank manages its risk, refer to the “Managing Risk”
section of this document.
RISK FACTORS AND MANAGEMENT
Risk Factors That May Affect Future Results
In addition to the risks described in the “Managing Risk” section, there
are numerous other risk factors, many of which are beyond the Bank’s
control and the effects of which can be diffcult to predict, that could
cause our results to differ signifcantly from our plans, objectives,
and estimates or could impact the Bank’s reputation or sustainability
of its business model. All forward-looking statements, including those
in this MD&A, are, by their very nature, subject to inherent risks and
uncertainties, general and specifc, which may cause the Bank’s actual
results to differ materially from the expectations expressed in the
forward-looking statements. Some of these factors are discussed
below and others are noted in the “Caution Regarding Forward-
Looking Statements” section of this document.
TOP AND EMERGING RISKS
TD considers it critical to regularly assess its operating environment
and highlight top and emerging risks. These are risks with a potential
to have a material effect on the Bank and where the attention of
senior leaders is focused due to the potential magnitude or immediacy
of their impact.
Risks are identifed, discussed, and actioned by senior leaders and
reported quarterly to the Risk Committee of the Board and the Board.
Specifc plans to mitigate top and emerging risks are prepared,
monitored, and adjusted as required.
General Business and Economic Conditions
TD and its customers operate in Canada, the U.S., and to a lesser
extent in other countries. As a result, the Bank’s earnings are
signifcantly affected by the general business and economic conditions
in these regions. These conditions include short-term and long-term
interest rates, infation, fuctuations in the debt, commodity and capital
markets, and related market liquidity, real estate prices, employment
levels, consumer spending and debt levels, evolving consumer trends
and business models, business investment, government spending,
exchange rates, sovereign debt risks, the strength of the economy,
threats of terrorism, civil unrest, reputational risk associated with
increased regulatory, public, and media focus, the effects of public
health emergencies, the effects of disruptions to public infrastructure,
natural disasters, and the level of business conducted in a specifc
region. Management maintains an ongoing awareness of the
macroeconomic environment in which it operates and incorporates
potential material changes into its business plans and strategies; it also
incorporates potential material changes into the portfolio stress tests
that are conducted. As a result, the Bank is better able to understand
the likely impact of many of these negative scenarios and better
manage the potential risks.
Geopolitical Risk
Risks related to government policy, international trade and political
relations across the global landscape may impact overall market and
economic stability in the regions in which the Bank operates. While
the nature and extent of these risks may vary depending upon the
circumstances involved, they may give rise to increased uncertainty
for global economic growth, market volatility in interest rates, foreign
exchange, commodity prices, credit spreads, and equities impacting
the Bank’s trading and non-trading activities, as well as direct and
indirect implications on general business and economic conditions that
could impact the Bank and its customers. Geopolitical risks evident
throughout 2019 include heightened trade tensions and an increase
in protectionist measures between international partners, increased
political fragmentation across Europe, including the ongoing resolution
associated with Brexit, and political unrest in the Asia-Pacifc and
Middle Eastern regions. Management maintains an ongoing awareness
of geopolitical risks to assess potential impacts to the Bank’s strategy
and operations and routinely incorporates these risks into stress
testing activities.
Executing on Long-Term Strategies and Shorter-Term Key
Strategic Priorities
The Bank has a number of strategies and priorities, including those
detailed in each segment’s “Business Segment Analysis” section of
this document, which may include large scale strategic or regulatory
initiatives that are at various stages of development or implementation.
Examples include organic growth strategies, new acquisitions,
integration of recently acquired businesses, projects to meet new
regulatory requirements, new platforms and new technology or
enhancement to existing technology. Risk can be elevated due to the
size, scope, velocity, interdependency, and complexity of projects,
the limited timeframes to complete the projects, and competing
priorities for limited specialized resources.
68
TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
In respect of acquisitions, the Bank undertakes deal assessments and
due diligence before completing a merger or an acquisition and closely
monitors integration activities and performance post acquisition.
However, there is no assurance that the Bank will achieve its objectives,
including anticipated cost savings or revenue synergies following
acquisitions and integration. In general, while signifcant management
attention is placed on the governance, oversight, methodology, tools,
and resources needed to manage our priorities and strategies, our
ability to execute on them is dependent on a number of assumptions
and factors. These include those set out in the “Business Outlook and
Focus for 2020”, “Focus for 2020”, and “Managing Risk” sections
of this document, as well as disciplined resource and expense
management and our ability to implement (and the costs associated
with the implementation of) enterprise-wide programs to comply with
new or enhanced regulations or regulator demands, all of which may
not be in the Bank’s control and are diffcult to predict.
If any of the Bank’s acquisitions, strategic plans or priorities are
not successfully executed, there could be an impact on the Bank’s
operations and fnancial performance and the Bank’s earnings could
grow more slowly or decline.
Technology and Cyber Security Risk
Technology and cyber security risks for large fnancial institutions
like the Bank have increased in recent years. This is due, in part,
to the proliferation, sophistication and constant evolution of new
technologies and attack methodologies used by sociopolitical entities,
organized criminals, malicious insiders, or service providers, nation
states, hackers and other internal or external parties. The increased
risks are also a factor of our size and scale of operations, our
geographic footprint, the complexity of our technology infrastructure,
and our use of internet and telecommunications technologies to
conduct fnancial transactions, such as our continued development
of mobile and internet banking platforms. The Bank’s technologies,
systems and networks, and those of our customers (including their
own devices) and the third parties providing services to the Bank,
continue to be subject to cyber-attacks, and may be subject to
disruption of services, data security or other breaches (including loss or
exposure of confdential information, including customer or employee
information), identity theft and corporate espionage, or other
compromises. The Bank’s use of third-party service providers, which
are subject to these potential compromises, increases our risk of
potential attack, breach or disruption as the Bank has less immediate
or continuous oversight over their technology infrastructure or
information security. Although the Bank has not experienced any
material fnancial losses relating to technology failure, cyber-attacks
or data security or other breaches, there is no assurance that the Bank
will not experience loss or damage in the future. These may include
cyber-attacks such as targeted and automated online attacks on
banking systems and applications, introduction of malicious software,
denial of service attacks, malicious insider or service provider
exfltrating data and phishing attacks, any of which could result in the
fraudulent use, disclosure or theft of data or amounts that customers
hold with the Bank. These may also include attempts by employees,
agents or third-party service providers of the Bank to access or disclose
sensitive information or other data of the Bank, its customers or its
employees. Attempts to illicitly or misleadingly induce employees,
customers, third-party service providers or other users of the Bank’s
systems will likely continue, in an effort to obtain sensitive information
and gain access to the Bank’s or its customers’ data or amounts that
the Bank holds or that its customers hold with the Bank. In addition,
the Bank’s customers often use their own devices, such as computers,
smart phones, and tablets, to make payments and manage their
accounts, and the Bank has limited ability to assure the safety and
security of its customers’ transactions with the Bank to the extent they
are using their own devices. The Bank actively monitors, manages,
and continues to enhance its ability to mitigate these technology and
cyber security risks through enterprise-wide programs, using industry
accepted practices, and industry accepted threat, and vulnerability
assessments and responses. The Bank continues to make investments
to mature its cyber defences in accordance with industry accepted
standards and practices to enable rapid detection and response to
internal and external cyber incidents and unauthorized access or
exfltration of the Bank’s data. The adoption of certain technologies,
such as cloud computing, artifcial intelligence and robotics, call for
continued focus and investment to manage our risks effectively. It is
possible that the Bank, or those with whom the Bank does business,
may not anticipate or implement effective measures against all such
cyber and technology-related risks, particularly because of the tactics,
techniques, and procedures used change frequently and risks can
originate from a wide variety of sources that have also become
increasingly sophisticated. The Bank’s cyber insurance purchased
to mitigate risk may not be suffcient to materially cover against all
fnancial losses. As such, with any cyber-attack, disruption of services,
data, security or other breaches (including loss or exposure of
confdential information), identity theft, corporate espionage or other
compromise of technology or information systems, hardware or related
processes, or any signifcant issues caused by weakness in information
technology infrastructure, the Bank may experience, among other
things, fnancial loss; a loss of customers or business opportunities;
disruption to operations; misappropriation or unauthorized release of
confdential, fnancial or personal information; damage to computers
or systems of the Bank and those of its customers and counterparties;
violations of applicable privacy and other laws; litigation; regulatory
penalties or intervention, remediation, investigation or restoration cost;
increased costs to maintain and update our operational and security
systems and infrastructure; and reputational damage. If the Bank were
to experience such an incident, it may take a signifcant amount of
time and effort to investigate the incident to obtain full and reliable
information necessary to assess the impact. The Bank’s owned and
operated applications, processes, products, and services could be
subject to failures or disruptions as a result of human error, natural
disasters, utility disruptions, cyber-attacks or other criminal or terrorist
acts, or non-compliance with regulations, which may impact
the Bank’s operations. Such adverse effects could limit the Bank’s
ability to deliver products and services to customers, and/or damage
the Bank’s reputation, which in turn could lead to disruptions to our
businesses and fnancial loss.
Fraud and Criminal Activity
As a fnancial institution, the Bank is inherently exposed to various
types of fraud and other fnancial crime. The sophistication, complexity,
and materiality of these crimes evolves quickly and these crimes can
arise from numerous sources, including potential or existing clients or
customers, agents, third parties, including suppliers, service providers
and outsourcers, other external parties, contractors or employees.
In deciding whether to extend credit or enter into other transactions
with customers or counterparties, the Bank may rely on information
furnished by or on behalf of such customers, counterparties or other
external parties including fnancial statements and fnancial information
and authentication information. The Bank may also rely on the
representations of customers, counterparties, and other external
parties as to the accuracy and completeness of such information.
In order to authenticate customers, whether through the Bank’s phone
or digital channels or in its branches and stores, the Bank may also rely
on certain authentication methods which could be subject to fraud. In
addition to the risk of material loss (fnancial loss, misappropriation of
confdential information or other assets of the Bank or its customers
and counterparties) that could result in the event of a fnancial crime,
the Bank could face legal action and client and market confdence in
the Bank could be impacted. The Bank has invested in a coordinated
approach to strengthen the Bank’s fraud defences and build upon
existing practices in Canada and the U.S. The Bank continues to
introduce new capabilities and defences to strengthen the Bank’s
control posture to combat more complex fraud, including cyber fraud.
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69
Third-Party Service Providers
The Bank recognizes the value of using third parties to support its
businesses, as they provide access to leading applications, processes,
products and services, specialized expertise, innovation, economies of
scale, and operational effciencies. However, they may also create
reliance upon the provider with respect to continuity, reliability, and
security of these relationships, and their associated processes, people
and facilities. As the fnancial services industry and its supply chain
become more complex, the need for robust, holistic, and sophisticated
controls and ongoing oversight increases. Just as the Bank’s owned and
operated applications, processes, products, and services could be subject
to failures or disruptions as a result of human error, natural disasters,
utility disruptions, cyber-attacks or other criminal or terrorist acts, or
non-compliance with regulations, each of its suppliers may be exposed
to similar risks which could in turn impact the Bank’s operations. Such
adverse effects could limit the Bank’s ability to deliver products and
services to customers, and/or damage the Bank’s reputation, which
in turn could lead to disruptions to our businesses and fnancial loss.
Consequently, the Bank has established expertise and resources
dedicated to third-party risk management, as well as policies and
procedures governing third-party relationships from the point of
selection through the life cycle of the business arrangement. The Bank
develops and tests robust business continuity management plans
which contemplate customer, employee, and operational implications,
including technology and other infrastructure contingencies.
Introduction of New and Changes to Current Laws
and Regulations
The fnancial services industry is highly regulated. TD’s operations,
proftability and reputation could be adversely affected by the
introduction of new laws and regulations, changes to, or changes
in interpretation or application of current laws and regulations, and
issuance of judicial decisions. These adverse effects could also result
from the fscal, economic, and monetary policies of various regulatory
agencies and governments in Canada, the U.S., the United Kingdom,
and other countries, and changes in the interpretation or
implementation of those policies. Such adverse effects may include
incurring additional costs and resources to address initial and ongoing
compliance; limiting the types or nature of products and services
the Bank can provide and fees it can charge; unfavourably impacting
the pricing and delivery of products and services the Bank provides;
increasing the ability of new and existing competitors to compete with
their pricing, products and services (including, in jurisdictions outside
Canada, the favouring of certain domestic institutions); and increasing
risks associated with potential non-compliance. In addition to the
adverse impacts described above, the Bank’s failure to comply with
applicable laws and regulations could result in sanctions and fnancial
penalties that could adversely impact its earnings and its operations
and damage its reputation. The global anti-money laundering and
economic sanctions landscape continues to experience regulatory
change, with signifcant, complex new laws and regulations that have,
or are anticipated to come into force in the short and medium-term in
many of the jurisdictions in which the Bank operates. In addition, the
global data and privacy landscape has and continues to experience
regulatory change, with signifcant new legislation that has been
passed and will be implemented in the near term in some of the
jurisdictions in which the Bank does business and additional new
legislation that is anticipated to come into force in the medium-term.
In addition, despite the Bank’s monitoring and evaluation of the
potential impact of rules, proposals, consent orders and regulatory
guidance, governments and regulators around the world may
introduce, and the issuance of judicial decisions may result in,
unanticipated new regulations that are applicable to the Bank. In
Europe, there are a number of uncertainties in connection with the
future of the United Kingdom and its relationship with the European
Union, and reforms implemented through the European Market
Infrastructure Regulation and the review of Markets in Financial
Instruments Directive and accompanying Regulation could result in
higher operational and system costs and potential changes in the types
of products and services the Bank can offer to clients in the region.
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TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
In addition, the Canadian Securities Administrators has proposed
regulations relating to over-the-counter derivatives reform. The Bank is
monitoring this regulatory initiative which, if implemented, could result
in increased compliance costs, and compliance with these standards
may impact the Bank’s businesses, operations and results. Finally, in
Canada, there are a number of government initiatives underway that
could impact fnancial institutions, including regulatory initiatives with
respect to payments evolution and modernization, open banking,
consumer protection, protection of customer data, and anti-money
laundering. In addition, changes relating to interchange in Canada,
which will become effective May 2020, may impact the Bank’s credit
card businesses.
Dodd-Frank Wall Street Reform and Consumer Protection Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank), a U.S. federal law enacted in 2010, required signifcant
structural reform to the U.S. fnancial services industry and affects every
banking organization operating in the U.S., including the Bank. In
general, in connection with Dodd-Frank the Bank could be negatively
impacted by loss of revenue, limitations on the products or services it
offers, and additional operational and compliance costs. Due to certain
aspects with extraterritorial effect, Dodd-Frank also impacts the Bank’s
operations outside the U.S., including in Canada. Many parts of
Dodd-Frank are in effect and others are in the implementation stage.
Certain rules under Dodd-Frank and other regulatory requirements
that impact the Bank include: the so-called “Volcker Rule”, which
generally restricts banking entities from engaging in proprietary
trading and from sponsoring or holding ownership interests in or
having certain relationships with certain hedge funds and private
equity funds; capital planning and stress testing requirements for our
top-tier U.S. intermediate holding company; stress testing requirement
for TD Bank, N.A.; and various “enhanced prudential standards” under
Federal Reserve regulations. The Bank has incurred, and will continue
to incur, operational, capital, liquidity, and compliance costs, and
compliance with these standards may impact the Bank’s businesses,
operations, and results in the U.S. and overall.
The current U.S. regulatory environment for banking organizations
may be impacted by recent and future legislative or regulatory
developments. For example, the recently enacted Economic Growth,
Regulatory Relief and Consumer Protection Act (Reform Act) included
modifcations to the stress testing and other aspects of Dodd-Frank.
In addition, the applicable U.S. Federal regulatory agencies have
proposed and in some cases, adopted regulatory amendments to certain
of these requirements, including with respect to the Volcker Rule
regulations and capital planning and stress testing requirements. In
October 2019, the Federal Reserve issued a fnal rule that implements
the Reform Act’s changes to the application of enhanced prudential
standards with respect to U.S. and non-U.S. banking organizations
(the “Tailoring Rule”). The Tailoring Rule delineates four categories
of enhanced prudential standards applicable to non-U.S. banking
organizations based on the risk profle of the organization, with most
enhanced prudential standards applying only to non-U.S. banking
organizations with combined U.S. assets of at least US$100 billion,
such as the Bank, or to U.S. intermediate holding companies of
non-U.S. banking organizations with total consolidated assets of at least
US$100 billion, such as our top-tier U.S. intermediate holding company.
The ultimate consequences of these developments and their impact
on the Bank remain uncertain and it remains unclear whether any
other legislative or regulatory proposals relating to these requirements
will be enacted or adopted.
Bank Recapitalization “Bail-In” Regime
In 2016, legislation to amend the Bank Act, the Canada Deposit
Insurance Corporation Act (the “CDIC Act”) and certain other
federal statutes pertaining to banks to create a bank recapitalization
or bail-in regime for D-SIBs, which include the Bank, was approved.
In April 2018, the Government of Canada (GOC) published regulations
under the CDIC Act and the Bank Act providing the fnal details of
conversion and issuance regimes for bail-in instruments issued by
D-SIBs (collectively, the Bail-in Regulations) which came into force
in September 2018.
Pursuant to the CDIC Act, if the Superintendent is of the opinion
that a D-SIB has ceased or is about to cease to be viable and its viability
cannot be restored through the exercise of the Superintendent’s
powers, the GOC can, among other things, appoint the Canada
Deposit Insurance Corporation (CDIC) as receiver of the Bank and
direct CDIC to convert certain shares (including preferred shares) and
liabilities of the Bank (including senior debt securities) into common
shares of the Bank or any of its affliates (a Bail-in Conversion).
However, under the CDIC Act, the conversion powers of CDIC
would not apply to shares and liabilities issued or originated before
September 23, 2018 (the date on which the Bail-in Regulations came
into force) unless, on or after such date, they are amended or in the
case of liabilities, their term is extended.
The Bail-in Regulations prescribe the types of shares and liabilities
that are subject to a Bail-in Conversion. In general, any senior debt
securities with an initial or amended term-to-maturity greater than
400 days that are unsecured or partially secured and have been assigned
a CUSIP, ISIN, or similar identifcation number are subject to a Bail-in
Conversion. Shares, other than common shares, and subordinated debt,
that are not NVCC instruments, are also subject to a Bail-in Conversion.
However, certain other debt obligations of the Bank such as structured
notes (as defned in the Bail-in Regulations), covered bonds, and certain
derivatives are not subject to a Bail-in Conversion.
The bail-in regime could adversely affect the Bank’s cost of funding.
Regulatory Oversight and Compliance Risk
Our businesses are subject to extensive regulation and oversight.
Regulatory change is occurring in all of the jurisdictions in which
the Bank operates. Governments and regulators around the world
have demonstrated an increased focus on conduct risk, data control,
use and security, and on money laundering and terrorist fnancing
risks and threats. As well, they have continued the trends towards
establishing new standards and best practice expectations and a
willingness to use public enforcement with fnes and penalties when
compliance breaches occur.
The Bank continually monitors and evaluates the potential impact
of applicable regulatory developments (including rules, proposed rules,
standards, and regulatory guidance). However, while the Bank devotes
substantial compliance, legal, and operational business resources to
facilitate compliance with these developments by their respective
effective dates, and also to the consideration of other governmental
and regulator expectations, it is possible that the Bank may not be
able to accurately predict the impact of fnal rules implementing such
developments, the interpretation or enforcement actions taken by
governments and regulators regarding such rules, or may not be able
to develop or enhance the platforms, technology, or operational
procedures and frameworks necessary to comply with, or adapt to,
such rules or expectations in advance of their effective dates. This
could require the Bank to take further actions or incur more costs than
expected, and may expose the Bank to enforcement and reputational
risk. Regulatory changes, as well as uncertainty surrounding the scope
and requirements of the fnal rules implementing such changes, will
continue to increase our compliance and operational risks and costs.
In addition, if governments or regulators take formal enforcement
action, rather than taking informal/supervisory actions, then, despite
the Bank’s risk management efforts, its operations, business strategies
and product and service offerings may be adversely impacted,
therefore impacting fnancial results.
Also, it may be determined that the Bank has not adequately,
completely or timely addressed regulatory developments or
enforcement actions to which it is subject, in a manner which meets
governmental or regulator expectations. As such, the Bank may
continue to face a greater number or wider scope of investigations,
enforcement actions, and litigation. In addition, public notifcations
of enforcement actions are becoming more prevalent which could
negatively impact the Bank’s reputation.
The Bank may incur greater than expected costs associated with
enhancing its compliance, or may incur fnes, penalties or judgments
not in its favour associated with non-compliance, all of which could
also lead to negative impacts on the Bank’s fnancial performance and
its reputation.
Level of Competition and Disruptive Technology
The Bank operates in a highly competitive industry and its performance
is impacted by the level of competition. Customer retention and
acquisition can be infuenced by many factors, including the Bank’s
reputation as well as the pricing, market differentiation, and overall
customer experience of our products and services. Enhanced
competition from incumbents and new entrants may impact the Bank’s
pricing of products and services and may cause us to lose revenue
and/or market share. Increased competition requires us to make
additional short and long-term investments to remain competitive and
continue delivering differentiated value to our customers, which may
increase expenses. In addition, the Bank operates in environments
where laws and regulations that apply to it may not universally apply
to its current and emerging competitors, which could include the
domestic institutions in jurisdictions outside of Canada or the U.S., or
non-traditional providers (such as Fintech, big technology competitors)
of fnancial products and services. Non-depository or non-fnancial
institutions are often able to offer products and services that were
traditionally banking products and compete with banks in offering
digital fnancial solutions (primarily mobile or web-based services),
without facing the same regulatory requirements or oversight.
These third parties can seek to acquire customer relationships and
disintermediate customers from their primary fnancial institution,
which can also increase fraud and privacy risks for customers and
fnancial institutions in general. The nature of disruption is such that
it can be diffcult to anticipate and/or respond to adequately or quickly,
representing inherent risks to certain Bank businesses, including
payments. As such, this type of competition could also adversely
impact the Bank’s earnings. To mitigate these effects and identify
how the changing landscape can enhance the Bank’s value
proposition, including delivering new revenue streams for the Bank
and greater value for customers, stakeholders across each of
the Bank’s business segments constantly seek to understand and
leverage emerging technologies and trends. This includes monitoring
the competitive environment in which they operate and reviewing or
amending their customer acquisition, management, and retention
strategies as appropriate and building optionality and fexibility into
the products and services offered to keep pace with evolving customer
expectations. The Bank is committed to investing in differentiated and
personalized experiences for its customers, putting a particular
emphasis on mobile technologies, enabling customers to transact
seamlessly across their preferred channels. The Bank is also advancing
artifcial intelligence (AI) capabilities, to help further inform our
business decisions and risk management practices. While the Bank is
seeking to drive adoption and use of AI in a responsible way, there is
no assurance that AI will appropriately or suffciently replicate certain
outcomes or accurately predict future events or exposures. The Bank
considers various options to accelerate innovation, including making
strategic investments in innovative companies, exploring partnership
opportunities, and experimenting with new technologies and concepts
internally. Legislative or regulatory action relating to such new
technologies could emerge and continue to evolve, potentially
increasing compliance costs and risks.
OTHER RISK FACTORS
Legal Proceedings
The Bank or its subsidiaries are from time to time named as defendants
or are otherwise involved in various class actions and other litigation
or disputes with third parties, including regulatory investigations and
enforcement proceedings, related to its businesses and operations.
The Bank manages and mitigates the risks associated with these
proceedings through a robust litigation management function.
The Bank’s material litigation and regulatory enforcement proceedings
are disclosed in its Consolidated Financial Statements. There is no
assurance that the volume of claims and the amount of damages and
penalties claimed in litigation, arbitration and regulatory proceedings
will not increase in the future. Actions currently pending against
the Bank may result in judgments, settlements, fnes, penalties,
disgorgements, injunctions, business improvement orders or other
results adverse to the Bank, which could materially adversely affect
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
71
the Bank’s business, fnancial condition, results of operations, cash
fows, capital and credit ratings; require material changes in the Bank’s
operations; result in loss of customers; or cause serious reputational
harm to the Bank. Moreover, some claims asserted against the Bank
may be highly complex, and include novel or untested legal theories.
The outcome of such proceedings may be diffcult to predict or
estimate until late in the proceedings, which may last several years. In
addition, settlement or other resolution of certain types of matters are
often subject to external approval, which may or may not be granted.
Although the Bank establishes reserves for these matters according to
accounting requirements, the amount of loss ultimately incurred in
relation to those matters may substantially differ from the amounts
accrued. As a participant in the fnancial services industry, the Bank
will likely continue to experience the possibility of signifcant litigation
and regulatory investigations and enforcement proceedings related to
its businesses and operations. Regulators and other government
agencies examine the operations of the Bank and its subsidiaries on
both a routine- and targeted-exam basis, and there is no assurance
that they will not pursue regulatory settlements or other enforcement
actions against the Bank in the future. For additional information
relating to the Bank’s material legal proceedings, refer to Note 27 of
the 2019 Consolidated Financial Statements.
Acquisitions
The Bank regularly explores opportunities to acquire other companies,
or parts of their businesses, directly or indirectly through the acquisition
strategies of its subsidiaries. The Bank undertakes due diligence before
completing an acquisition and closely monitors integration activities
and performance post acquisition. However, there is no assurance that
the Bank will achieve its fnancial or strategic objectives, including
anticipated cost savings or revenue synergies following acquisitions and
integration efforts. The Bank’s, or a subsidiary’s, ability to successfully
complete an acquisition is often subject to regulatory and other
approvals, and the Bank cannot be certain when or if, or on what terms
and conditions, any required approvals will be granted. If the Bank does
not achieve its fnancial or strategic objectives of an acquisition, or if
the Bank does not successfully complete an acquisition, there could be
an impact on the Bank’s fnancial performance and the Bank’s earnings
could grow more slowly or decline.
Ability to Attract, Develop, and Retain Key Executives
The Bank’s future performance is dependent on the availability of
qualifed talent and the Bank’s ability to attract, develop, and retain it.
The Bank’s management understands that the competition for talent
continues to increase across geographies, industries, and emerging
capabilities across a number of sectors including fnancial services. As
a result, the Bank undertakes an annual talent review process to assess
critical capability requirements for all areas of the business. Through
this process, an assessment of current executive leadership, technical
and core capabilities, as well as talent development opportunities is
completed against both near term and future business needs. The
outcomes from the process inform plans at both the enterprise and
business level to retain, develop, or acquire the talent which are then
actioned throughout the course of the year. Although it is the goal
of the Bank’s management resource policies and practices to attract,
develop, and retain key talent employed by the Bank or an entity
acquired by the Bank, there is no assurance that the Bank will be able
to do so.
Foreign Exchange Rates, Interest Rates, and Credit Spreads
Foreign exchange rate, interest rate, and credit spread movements
in Canada, the U.S., and other jurisdictions in which the Bank does
business impact the Bank’s fnancial position (as a result of foreign
currency translation adjustments) and its future earnings. Changes in
the value of the Canadian dollar relative to the U.S. dollar may also
affect the earnings of the Bank’s small business, commercial, and
corporate clients in Canada. A change in the level of interest rates,
negative interest rates or a prolonged low interest rate environment
affects the interest spread between the Bank’s deposits and loans, and
as a result, impacts the Bank’s net interest income. A change in the level
of credit spreads affects the relative valuation of assets and liabilities,
and as a result, impacts the Bank’s earnings. The Bank manages its
structural foreign exchange rate, interest rate, and credit spread risk
exposures in accordance with policies established by the Risk Committee
through its Asset Liability Management framework, which is further
discussed in the “Managing Risk” section of this document.
IBOR Transition
Various interest rates and other indices that are deemed to be
“benchmarks” (including IBOR benchmarks) have been, and continue
to be, the subject of international regulatory guidance and proposals
for reform. Following the announcement by the U.K. Financial Conduct
Authority (FCA) on July 27, 2017, indicating that the FCA would no
longer compel banks to submit rates for the calculation of London
Interbank Offered Rate post December 31, 2021, efforts to transition
away from IBORs to alternative reference rates have been continuing
in various jurisdictions. These developments, and the related
uncertainty over the potential variance in the timing and manner of
implementation in each jurisdiction, introduce risks that may have
adverse consequences on the Bank, its clients, and the fnancial
services industry. Moreover, the replacement of the IBORs or other
benchmark rates could result in market dislocation and have other
adverse consequences to market participants.
As the Bank has signifcant contractual rights, obligations and
exposures referenced to IBOR benchmarks, discontinuance of, or
changes to, benchmark rates could adversely affect our business and
results of operations. The Bank has established an enterprise-wide,
cross functional program to evaluate the impact of the market,
fnancial, operational, legal, technology and other risks on its products,
services, systems, models, documents, processes, and risk management
frameworks with the intention of managing the impact through
appropriate mitigating actions.
In addition to operational challenges, there are also market risks
that arise because the new reference rates are likely to differ from the
prior benchmark rates resulting in differences in the calculation of the
applicable interest rate or payment amount. The difference could result
in different fnancial performance for previously-booked transactions,
require different hedging strategies, or affect the Bank’s capital and
liquidity planning and management. Additionally, any adverse impacts
on the value of and return on existing instruments and contracts for
the Bank’s clients may present an increased risk of litigation, regulatory
intervention, and possible reputational damage.
Accounting Policies and Methods Used by the Bank
The Bank’s accounting policies and estimates are essential to
understanding its results of operations and fnancial condition. Some of
the Bank’s policies require subjective, complex judgments and estimates
as they relate to matters that are inherently uncertain. Changes in these
judgments or estimates and changes to accounting standards and
policies could have a materially adverse impact on the Bank’s
Consolidated Financial Statements, and therefore its reputation.
The Bank has established procedures designed to ensure that
accounting policies are applied consistently and that the processes for
changing methodologies, determining estimates and adopting new
accounting standards are well-controlled and occur in an appropriate
and systematic manner. Signifcant accounting policies as well as current
and future changes in accounting policies are described in Note 2 and
Note 4, respectively, of the 2019 Consolidated Financial Statements.
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TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
Environmental and Social Risk
Environmental risk is the possibility of loss of strategic, fnancial,
operational or reputational value resulting from the impact of
environmental issues or concerns, including climate change, and
related social risk within the scope of short-term and long-term cycles.
The Bank is exposed to environmental and social risks both through
its business and operations and through its clients and customers.
Environmental and social risks may lead to potential losses, resulting
from the Bank’s direct and indirect impact on the environment and
society, and the impact of environmental and social issues on TD
(including climate change). Direct risks are associated with the
ownership and operation of the Bank’s business, which include
management and operation of company-owned or managed real
estate, feet, business operations, and associated services. Indirect risks
are associated with environmental performance or environmental
events, such as changing climate patterns that may have an impact on
the Bank’s retail customers and clients to whom the Bank provides
fnancial services or in which the Bank invests. Environmental and
related social risks are managed under the Bank’s Environment Policy
and through related business segment level policies and procedures
across the enterprise. Additionally, emerging social risks are managed
through governance forums, including Reputational Risk Committees
(with the approach being reviewed, including at the policy level).
Climate change risk has emerged as one of the top environmental
risks for the Bank as extreme weather events, shifts in climate norms,
and the global transition to a low carbon economy risks increase and
evolve. Related impacts may include strategic, fnancial, operational,
legal, and reputational related risks for the Bank and its clients in
climate sensitive sectors. The Bank continues to assess the potential
impacts of climate change and related risks on its operations, lending
portfolios, investments, and businesses.
The Bank is developing standardized methodologies and approaches
for climate scenario analysis through participation in industry-wide
working groups and is working to embed the assessment of climate-
related risks and opportunities into relevant Bank processes.
RISK FACTORS AND MANAGEMENT
Managing Risk
EXECUTIVE SUMMARY
Growing proftability in fnancial results based on balanced revenue,
expense and capital growth services involves selectively taking and
managing risks within the Bank’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 signifcant emphasis on investing in its businesses
to meet its future strategic objectives.
The Bank’s Enterprise Risk Framework (ERF) reinforces the Bank’s
risk culture, which emphasizes transparency and accountability, and
supports a common understanding among stakeholders of how
the Bank manages risk. The ERF addresses: (1) the nature of risks to
the Bank’s strategy and operations; (2) how the Bank defnes the types
of risk it is exposed to; (3) risk management governance and
organization; and (4) how the Bank manages risk through processes
that identify and assess, measure, control, and monitor and report risk.
The Bank’s risk management resources and processes are designed to
both challenge and enable all its businesses to understand the risks
they face and to manage them within the Bank’s risk appetite.
RISKS INVOLVED IN TD’S BUSINESSES
The Bank’s Risk Inventory sets out the Bank’s major risk categories and
related subcategories to which the Bank’s businesses and operations
could be exposed. The Risk Inventory facilitates consistent risk
identifcation and is the starting point in developing risk management
strategies and processes. The Bank’s major risk categories are:
Strategic Risk; Credit Risk; Market Risk; Operational Risk; Model Risk;
Insurance Risk; Liquidity Risk; Capital Adequacy Risk; Legal, Regulatory
Compliance and Conduct Risk; and Reputational Risk.
Major Risk Categories
Strategic
Risk
Credit
Risk
Market
Risk
Operational
Risk
Model
Risk
Insurance
Risk
Liquidity
Risk
Capital
Adequacy
Risk
Legal,
Regulatory
Compliance
and Conduct
Risk
Reputational
Risk
RISK APPETITE
The Bank’s RAS is the primary means used to communicate how
the Bank views risk and determines the type and amount of risk it is
willing to take to deliver on its strategy and enhance shareholder value.
In defning its risk appetite, the Bank takes into account its vision,
purpose, strategy, shared commitments, risk philosophy, and capacity
to bear risk. The core risk principles for the Bank’s RAS are as follows:
The Bank 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 signifcant single loss events; TD
does not ‘bet the Bank’ on any single acquisition, business, or product.
3. Do not risk harming the TD brand.
The Bank considers current operating conditions and the impact of
emerging risks in developing and applying its risk appetite. Adherence
to enterprise risk appetite is managed and monitored across the Bank
and is informed by the RAS and a broad collection of principles,
policies, processes, and tools. The Bank’s RAS describes, by major risk
category, the Bank’s risk principles and establishes both qualitative and
quantitative measures with key indicators, thresholds, and limits, as
appropriate. RAS measures consider both normal and stress scenarios
and include those that can be aggregated at the enterprise level and
disaggregated at the business segment level.
Risk Management is responsible for establishing practices and
processes to formulate, monitor, and report on the Bank’s RAS
measures. The function also monitors and evaluates the effectiveness
of these practices and measures. Compliance with RAS principles and
measures is reported regularly to senior management, the Board, and
the Risk Committee; other measures are tracked on an ongoing basis
by management, and escalated to senior management and the Board,
as required. Risk Management regularly assesses management’s
performance against the Bank’s RAS measures.
RISK CULTURE
The Bank’s risk culture starts with the “tone at the top” set by the
Board, Chief Executive Offcer (CEO), and the Senior Executive Team
(SET), and is supported by its vision, purpose, and shared commitments.
These governing objectives describe the behaviours that the Bank seeks
to foster, among its employees, in building a culture where the only
risks taken are those that can be understood and managed. The Bank’s
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risk culture promotes accountability, learning from past experiences, and
encourages open communication and transparency on all aspects of risk
taking. The Bank’s employees are encouraged to challenge and escalate
when they believe the Bank is operating outside of its risk appetite.
Ethical behaviour is a key component of the Bank’s risk culture.
The Bank’s Code of Conduct and Ethics guides employees and
Directors to make decisions that meet the highest standards of
integrity, professionalism, and ethical behaviour. Every Bank employee
and Director is expected and required to assess business decisions and
actions on behalf of the organization in light of whether it is right,
legal, and fair. The Bank’s desired risk culture is reinforced by linking
compensation to management’s performance against the Bank’s risk
appetite. Performance against risk appetite is a key consideration in
determining compensation for executives, including adjustments to
incentive awards both at the time of award and again at maturity
for deferred compensation. An annual consolidated assessment of
management’s performance against the RAS is prepared by Risk
Management, reviewed by the Risk Committee, and is used by the
Human Resources Committee as a key input into compensation
decisions. All executives are individually assessed against objectives
that include consideration of risk and control behaviours. This
comprehensive approach allows the Bank to consider whether the
actions of executive management resulted in risk and control events
within their area of responsibility.
In addition, governance, risk, and oversight functions operate
independently from business segments supported by an organizational
structure that provides objective oversight and independent challenge.
Governance, risk, and oversight function heads, including the Chief
Risk Officer (CRO), have unfettered access to respective Board
Committees to raise risk, compliance, and other issues. Lastly,
awareness and communication of the Bank’s RAS and the ERF take
place across the organization through enterprise risk communication
programs, employee orientation and training, and participation
in internal risk management conferences. These activities further
strengthen the Bank’s risk culture by increasing the knowledge
and understanding of the Bank’s expectations for risk taking.
WHO MANAGES RISK
The Bank’s risk governance structure emphasizes and balances strong
independent oversight with clear ownership for risk control within
each business segment. Under the Bank’s approach to risk governance,
a “three lines of defence” model is employed, in which the first line of
defence are the risk owners, the second line provides risk oversight,
and the third line is internal audit.
The Bank’s risk governance model includes a senior management
committee structure that is designed to support transparent risk
reporting and discussions. The Bank’s overall risk and control oversight
is provided by the Board and its committees. The CEO and SET
determine the Bank’s long-term direction which is then carried out by
business segments within the Bank’s risk appetite. Risk Management,
headed by the Group Head and CRO, sets enterprise risk strategy and
policy and provides independent oversight to support a comprehensive
and proactive risk management approach. The CRO, who is also a
member of the SET, has unfettered access to the Risk Committee.
The Bank has a robust subsidiary governance framework to support
its overall risk governance structure, including boards of directors, and
committees for various subsidiary entities where appropriate. Within
the U.S. Retail business segment, risk and control oversight is provided
by a separate and distinct Board of Directors which includes a fully
independent Board Risk Committee and Board Audit Committee. The
U.S. Chief Risk Officer (U.S. CRO) has unfettered access to the Board
Risk Committee.
The following section provides an overview of the key roles and
responsibilities involved in risk management. The Bank’s risk
governance structure is illustrated in the following figure.
RISK GOVERNANCE STRUCTURE
Board of Directors
Corporate Governance Committee
Risk Committee
Audit Committee
Chief Executive Officer
Senior Executive Team
CRO
Executive Committees
Enterprise Risk Management Committee (ERMC)
Asset/Liability & Capital
Committee (ALCO)
Operational Risk Oversight
Committee (OROC)
Disclosure
Committee
Enterprise Reputational
Risk Committee (ERRC)
Governance, Risk and Oversight Functions
Internal
Audit
Canadian Retail
U.S. Retail
Wholesale Banking
Internal
Audit
Business Segments
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The Board of Directors
The Board oversees the Bank’s strategic direction, the implementation
of an effective risk culture, and the internal control framework across
the enterprise. It accomplishes its risk management mandate both
directly and indirectly through its four committees, the Audit, Risk,
Corporate Governance, and Human Resources Committees. The Board
reviews and approves the Bank’s RAS and related measures annually,
and monitors the Bank’s risk profle and performance against risk
appetite measures.
The Audit Committee
The Audit Committee oversees fnancial reporting, the adequacy and
effectiveness of internal controls, including internal controls over
fnancial reporting, and the activities of the Bank’s Global Anti-Money
Laundering (GAML) group, Compliance group, and Internal Audit.
The Risk Committee
The Risk Committee is responsible for reviewing and recommending
TD’s RAS for approval by the Board annually. The Risk Committee
oversees the management of TD’s risk profle and performance against
its risk appetite. In support of this oversight, the Committee reviews
and approves certain enterprise-wide risk management frameworks
and policies that support compliance with TD’s risk appetite, and
monitors the management of risks and risk trends.
The Human Resources Committee
The Human Resources Committee, in addition to its other
responsibilities, satisfes itself that Human Resources risks are
appropriately identifed, assessed, and managed in a manner
consistent with the risk programs within the Bank, and with the
sustainable achievement of the Bank’s business objectives.
The Corporate Governance Committee
The Corporate Governance Committee, in addition to its other
responsibilities, develops, and where appropriate, recommends to
the Board for approval corporate governance guidelines, including a
code of conduct and ethics, aimed at fostering a healthy governance
culture at the Bank, and also acts as the conduct review committee
for the Bank, including providing oversight of conduct risk.
Chief Executive Officer and Senior Executive Team
The CEO and the SET develop and recommend to the Board the Bank’s
long-term strategic direction and also develop and recommend for
Board approval TD’s risk appetite. The SET members set the “tone at
the top” and manage risk in accordance with the Bank’s risk appetite
while considering the impact of emerging risks on the Bank’s strategy
and risk profle. This accountability includes identifying and reporting
signifcant risks to the Risk Committee.
Executive Committees
The CEO, in consultation with the CRO determines the Bank’s
Executive Committees, which are chaired by SET members. The
committees meet regularly to oversee governance, risk, and control
activities and to review and monitor risk strategies and associated risk
activities and practices.
The Enterprise Risk Management Committee (ERMC), chaired by the
CEO, oversees the management of major enterprise governance, risk,
and control activities and promotes an integrated and effective risk
management culture. The following Executive Committees have been
established to manage specifc major risks based on the nature of the
risk and related business activity:
• ALCO – chaired by the Group Head and Chief Financial Offcer
(CFO), the Asset/Liability and Capital Committee (ALCO) oversees
directly and through its standing subcommittees (the Enterprise
Capital Committee (ECC) and Global Liquidity Forum (GLF)) the
management of the Bank’s consolidated non-trading market risk
and each of its consolidated liquidity, funding, investments, and
capital positions.
• OROC – chaired by the Group Head and CRO, the Operational Risk
Oversight Committee (OROC) oversees the identifcation, monitoring,
and control of key risks within the Bank’s operational risk profle.
• Disclosure Committee – chaired by the Group Head and CFO,
the Disclosure Committee oversees that appropriate controls and
procedures are in place and operating to permit timely, accurate,
balanced, and compliant disclosure to regulators with respect to
public disclosure, shareholders, and the market.
• ERRC – chaired by the Group Head and CRO, the Enterprise
Reputational Risk Committee (ERRC) oversees the management
of reputational risk within the Bank’s risk appetite.
Risk Management
The Risk Management function, headed by the CRO, provides
independent oversight of enterprise-wide risk management, risk
governance, and control including the setting of risk strategy and
policy to manage risk in alignment with the Bank’s risk appetite and
business strategy. Risk Management’s primary objective is to support
a comprehensive and proactive approach to risk management that
promotes a strong risk culture. Risk Management works with the
business segments and other corporate oversight functions to establish
policies, standards, and limits that align with the Bank’s risk appetite
and monitors and reports on existing and emerging risks and
compliance with the Bank’s risk appetite. The CRO leads and directs
a diverse team of risk management professionals organized to oversee
risks arising from each of the Bank’s major risk categories. There is an
established process in place for the identifcation and assessment of
top and emerging risks. In addition, the Bank has clear procedures
governing when and how risk events and issues are brought to the
attention of senior management and the Risk Committee.
Business Segments
Each business segment has a dedicated risk management function that
reports directly to a senior risk executive, who, in turn, reports to the
CRO. This structure supports an appropriate level of independent
oversight while emphasizing accountability for risk within the business
segment. Business management is responsible for setting the business-
level risk appetite and measures, which are reviewed and challenged
by Risk Management, endorsed by the ERMC, and approved by the
CEO, to align with the Bank’s risk appetite and manage risk within
approved risk limits.
Internal Audit
The Bank’s internal audit function provides independent and objective
assurance to the Board regarding the reliability and effectiveness of
key elements of the Bank’s risk management, internal control, and
governance processes.
Compliance
The Compliance Department is responsible for fostering a culture of
integrity, ethics, and compliance throughout the Bank; delivering
independent regulatory compliance and conduct risk management and
oversight throughout the Bank globally to protect its reputation and
operate within its risk appetite; and assessing the adequacy of,
adherence to, and effectiveness of the Bank’s Regulatory Compliance
Management controls, enterprise-wide.
Global Anti-Money Laundering
The GAML Department is responsible for Anti-Money Laundering,
Anti-Terrorist Financing, Economic Sanctions, and anti-bribery/anti-
corruption regulatory compliance and prudential risk management
across the Bank in alignment with enterprise policies so that the
money laundering, terrorist fnancing, economic sanctions, and bribery/
corruption risks are appropriately identifed and mitigated.
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Three Lines of Defence
In order to further the understanding of responsibilities for risk
management, the Bank employs the following “three lines of defence”
model that describes the respective accountabilities of each line of
defence in managing risk across the Bank.
THREE LINES OF DEFENCE
First Line
Risk Owner
Identify and Control
• Own, identify, manage, measure, and monitor current and emerging risks in day-to-day activities,
operations, products, and services.
• Design, implement, and maintain appropriate mitigating controls, and assess the design and
operating effectiveness of those controls.
Implement risk-based approval processes for all new products, activities, processes, and systems.
• Assess activities to maintain compliance with applicable laws and regulations.
• Monitor and report on risk profle to ensure activities are within TD’s risk appetite and policies.
•
• Escalate risk issues and develop and implement action plans in a timely manner.
• Deliver training, tools, and advice to support its accountabilities.
• Promote a strong risk management culture.
Second Line
Risk Oversight
Set Standards and Challenge
• Establish and communicate enterprise governance, risk, and control strategies, frameworks,
and policies.
• Provide oversight and independent challenge to the frst line through an effective objective
assessment, that is evidenced and documented where material, including:
– Challenge the quality and suffciency of the frst line’s risk activities;
– Identify and assess current and emerging risks and controls, using a risk-based approach,
as appropriate;
– Monitor the adequacy and effectiveness of internal control activities;
– Review and discuss assumptions, material risk decisions and outcomes; and
– Aggregate and share results across business lines and control areas to identify similar events,
patterns, or broad trends.
• Identify and assess, and communicate relevant regulatory changes.
• Develop and implement risk measurement tools so that activities are within TD’s Risk Appetite.
• Monitor and report on compliance with TD’s Risk Appetite and policies.
• Escalate risk issues in a timely manner.
• Report on the risks of the Bank on an enterprise-wide and disaggregated level to the Board and/or
Senior Management, independently of the business lines or operational management.
• Provide training, tools, and advice to support the frst line in carrying out its accountabilities.
• Promote a strong risk management culture.
Third Line
Internal Audit
Independent Assurance
• Verify independently that TD’s ERF is designed and operating effectively.
• Validate the effectiveness of the frst and second lines in fulflling their mandates and managing risk.
In support of a strong risk culture, the Bank applies the following
principles in governing how it manages risks:
• Enterprise-Wide in Scope – Risk Management will span all areas
of the Bank, including third-party alliances and joint venture
undertakings to the extent they may impact the Bank, and all
boundaries both geographic and regulatory.
• Transparent and Effective Communication – Matters relating to
risk will be communicated and escalated in a timely, accurate, and
forthright manner.
• Enhanced Accountability – Risks will be explicitly owned,
understood, and actively managed by business management and all
employees, individually and collectively.
• Independent Oversight – Risk policies, monitoring, and reporting
will be established and conducted independently and objectively.
• Integrated Risk and Control Culture – Risk management
disciplines will be integrated into the Bank’s daily routines, decision-
making, and strategy formulation.
• Strategic Balance – Risk will be managed to an acceptable
level of exposure, recognizing the need to protect and grow
shareholder value.
APPROACH TO RISK MANAGEMENT PROCESSES
The Bank’s comprehensive and proactive approach to risk management
is comprised of four processes: risk identifcation and assessment,
measurement, control, and monitoring and reporting.
Risk Identification and Assessment
Risk identifcation and assessment is focused on recognizing and
understanding existing risks, risks that may arise from new or evolving
business initiatives, aggregate risks, and emerging risks from the
changing environment. The Bank’s objective is to establish and
maintain integrated risk identifcation and assessment processes that
enhance the understanding of risk interdependencies, consider how
risk types intersect, and support the identifcation of emerging risk.
To that end, the Bank’s Enterprise-Wide Stress Testing (EWST) program
enables senior management, the Board, and its committees to identify
and articulate enterprise-wide risks and understand potential
vulnerabilities for the Bank.
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Risk Measurement
The ability to quantify risks is a key component of the Bank’s risk
management process. The Bank’s risk measurement process aligns
with regulatory requirements such as capital adequacy, leverage ratios,
liquidity measures, stress testing, and maximum credit exposure
guidelines established by its regulators. Additionally, the Bank has
a process in place to quantify risks to provide accurate and timely
measurements of the risks it assumes.
In quantifying risk, the Bank uses various risk measurement
methodologies, including Value-at-Risk (VaR) analysis, scenario analysis,
stress testing, and limits. Other examples of risk measurements include
credit exposures, PCL, peer comparisons, trending analysis, liquidity
coverage, leverage ratios, capital adequacy metrics, and operational risk
event notifcation metrics. The Bank also requires business segments and
corporate oversight functions to assess key risks and internal controls
through a structured Risk and Control Self-Assessment (RCSA) program.
Internal and external risk events are monitored to assess whether
the Bank’s internal controls are effective. This allows the Bank to
identify, escalate, and monitor signifcant risk issues as needed.
Risk Control
The Bank’s risk control processes are established and communicated
through Risk Committee and Management approved policies, and
associated management approved procedures, control limits, and
delegated authorities which refect its risk appetite and risk tolerances.
The Bank’s approach to risk control also includes risk and capital
assessments to appropriately capture key risks in its measurement and
management of capital adequacy. This involves the review, challenge,
and endorsement by senior management committees of the Bank’s
ICAAP and related economic capital practices. The Bank’s performance
is measured based on the allocation of risk-based capital to businesses
and the cost charged against that capital.
Risk Monitoring and Reporting
The Bank monitors and reports on risk levels on a regular basis against
its risk appetite and Risk Management reports on its risk monitoring
activities to senior management, the Board and its Committees, and
appropriate executive and management committees. Complementing
regular risk monitoring and reporting, ad hoc risk reporting is provided
to senior management, the Risk Committee, and the Board, as
appropriate, for new and emerging risks or any signifcant changes
to the Bank’s risk profle.
Stress Testing
Stress testing is an integral component of the Bank’s risk management
framework and serves as a key component of the Bank’s capital,
strategic and fnancial planning processes. Stress testing at the Bank
comprises of an annual enterprise-wide stress test, featuring a range of
severities, prescribed regulatory stress tests in multiple jurisdictions for
various legal entities and various ad-hoc stress tests. The results of these
stress tests enable management to assess the impact of geopolitical
events and changes to economic and other market factors on
the Bank’s fnancial condition including liquidity and capital adequacy.
These exercises also complement the identifcation and quantifcation
of vulnerabilities, the monitoring of changes in risk profle, the
establishment of risk appetite limits and assessing the impact of
strategic business decisions and potential management actions.
The Bank utilizes a combination of quantitative modelling and
qualitative approaches to estimate the impact on the Bank’s
performance under both potential and hypothetical stress
situations. Stress testing engages senior management across the
lines of business, Finance, TBSM, Economics, and Risk Management.
Oversight committees range from those at the individual segment/
business level to the Bank’s Risk Committee of the Board. The results
of stress tests are submitted, disclosed or shared with regulators as
required or requested.
Enterprise-Wide Stress Testing
The Bank conducts an annual EWST as part of a comprehensive
strategic, fnancial, and capital planning exercise that is a key
component of the ICAAP framework and assists in validating the risk
appetite of the Bank. The program is subject to a well-defned and
rigorous governance structure that facilitates oversight and
engagement throughout the organization. The Bank’s EWST program
involves the development, application, and assessment of severe, but
plausible, stress scenarios on the balance sheet, income statement,
capital, liquidity, and leverage. It enables management to identify and
articulate enterprise-wide risks and understand potential vulnerabilities
and changes to the risk profle of the Bank. Stress scenarios are
developed with consideration of the Bank’s key business activities,
exposures and vulnerabilities. The scenarios cover a wide variety of risk
factors meaningful to the Bank’s risk profle in both the North American
and global economies including unemployment, GDP, home prices,
and interest rates. As part of its 2019 program, the Bank developed
and assessed two internally generated macroeconomic stress scenarios.
One scenario was a repeatable scenario calibrated to historical
recessions in Canada and the U.S. and is used to evaluate downside
risks. The second scenario was an extremely high severity, low
probability scenario targeted towards stressing TD-specifc risks and
vulnerabilities in support of the ICAAP. The assessment of the scenarios
concluded that the Bank operates within risk appetite and has suffcient
capital to withstand severe, but plausible, stress conditions.
Other Stress Tests
Stress tests are also conducted on certain legal entities and jurisdictions,
in line with prescribed regulatory requirements. The Bank’s U.S.-based
operating bank subsidiaries’ capital planning process includes activities
and results from OCC Dodd-Frank Act stress testing requirements.
The Bank’s U.S. holding company capital planning process includes
the stress testing activities and results from the Federal Reserve Board’s
capital plan rule and related Comprehensive Capital Analysis and
Review (CCAR) requirements. In addition, certain Bank subsidiaries
in the Netherlands, Ireland, and the United Kingdom conduct stress
testing exercises as part of their respective Internal Capital Adequacy
Assessment programs. The Bank undertakes other internal and
regulatory based stress tests including but not limited to liquidity
and market, which are detailed in the respective sections.
The Bank also employs reverse stress testing as part of a
comprehensive Crisis Management Recovery Planning program
to assess potential mitigating actions and contingency planning
strategies, as required. In addition, the Bank conducts ad-hoc stress
tests, which include enterprise or targeted portfolio testing, to
evaluate potential vulnerabilities to specifc changes in economic
and market conditions.
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Strategic Risk
Strategic risk is the potential for fnancial loss or reputational damage
arising from the choice of sub-optimal or ineffective strategies,
the improper implementation of chosen strategies, choosing not
to pursue certain strategies, or a lack of responsiveness to changes
in the business environment. Strategies include merger and
acquisition activities.
WHO MANAGES STRATEGIC RISK
The CEO manages strategic risk supported by the members of the SET
and the ERMC. The CEO, together with the SET, defnes the overall
strategy, in consultation with, and subject to approval by the Board. The
Enterprise Strategy and Decision Support group, under the leadership of
the Group Head and CFO, is charged with developing the Bank’s overall
long-term strategy and shorter-term strategic priorities with input and
support from senior executives across the Bank.
Each member of the SET is responsible for establishing and
managing long-term strategy and shorter-term priorities for their areas
of responsibility (business segment or corporate function), and for
ensuring such strategies are aligned with the Bank’s overall long-term
strategy and short-term strategic priorities, and within the enterprise
risk appetite. Each SET member is also accountable to the CEO for
identifying, assessing, measuring, controlling, monitoring, and
reporting on the effectiveness and risks of their business strategies.
The CEO, SET members, and other senior executives report
to the Board on the implementation of the Bank’s strategies,
identifying the risks within those strategies, and explaining how
those risks are managed.
The ERMC oversees the identifcation and monitoring of signifcant
and emerging risks related to the Bank’s strategies and seeks to ensure
that mitigating actions are taken where appropriate.
HOW TD MANAGES STRATEGIC RISK
The Bank’s enterprise-wide strategies and operating performance,
and the strategies and operating performance of signifcant
business segments and corporate functions, are assessed regularly
by the CEO and the members of the SET through an integrated
fnancial and strategic planning process, operating results reviews
and strategic business plans.
The Bank’s RAS establishes strategic risk measures at the enterprise
and business segment-level.
The Bank’s annual integrated fnancial and strategic planning
process establishes enterprise and segment-level long-term and
shorter-term strategies that are within the risk appetite, and evaluates
concurrence among strategies.
Operating results reviews are conducted on a periodic basis during
the year to monitor segment-level performance against the integrated
fnancial and strategic plan. These reviews include an evaluation of the
long-term strategy and short-term strategic priorities of each business
segment, including but not limited to: the operating environment,
competitive position, performance assessment, initiatives for strategy
execution and key business risks. The frequency of the operating
results reviews depends on the risk profle and size of the business
segment or corporate function.
Strategic business plans are prepared at the business line-level;
business lines are subsets of business segments. The plans assess the
strategy for each business line, including but not limited to: vision,
current position, key operating trends, long-term strategy, target
metrics, key risks and mitigants, and alignment with enterprise strategy
and risk appetite. The frequency of preparation depends on the risk
profle and size of the business line.
The Bank’s strategic risk, and adherence to its risk appetite, is
reviewed by the ERMC in the normal course, as well as by the Board.
Additionally, material acquisitions are assessed for their ft with
the Bank’s strategy and risk appetite in accordance with the Bank’s
Due Diligence Policy. This assessment is reviewed by the SET and
Board as part of the decision process.
The shaded areas of this MD&A represent a discussion on risk
management policies and procedures relating to credit, market, and
liquidity risks as required under IFRS 7, Financial Instruments:
Disclosures, which permits these specifc disclosures to be included in
the MD&A. Therefore, the shaded areas which include Credit Risk,
Market Risk, and Liquidity Risk, form an integral part of the audited
Consolidated Financial Statements for the years ended October 31,
2019 and 2018. Effective November 1, 2017, the Bank adopted IFRS 9,
which replaced the guidance in IAS 39. Refer to Notes 2 and 3 of the
2019 Consolidated Financial Statements for a summary of the Bank’s
accounting policies and signifcant accounting judgments, estimates,
and assumptions as it relates to IFRS 9.
Credit Risk
Credit risk is the risk of loss if a borrower or counterparty in
a transaction fails to meet its agreed payment obligations.
Credit risk is one of the most signifcant and pervasive risks in
banking. Every loan, extension of credit, or transaction that involves
the transfer of payments between the Bank and other parties or
fnancial institutions exposes the Bank to some degree of credit risk.
The Bank’s primary objective is to be methodical in its credit risk
assessment so that the Bank can understand, select, and manage its
exposures to reduce signifcant fuctuations in earnings.
The Bank’s strategy is to include central oversight of credit risk in
each business, and reinforce a culture of transparency, accountability,
independence, and balance.
WHO MANAGES CREDIT RISK
The responsibility for credit risk management is enterprise-wide. To
reinforce ownership of credit risk, credit risk control functions are
integrated into each business, but also report to Risk Management to
ensure objectivity and accountability.
Each business segment’s credit risk control unit is responsible for its
credit decisions and must comply with established policies, exposure
guidelines, credit approval limits, and policy/limit exception procedures.
It must also adhere to established enterprise-wide standards of credit
assessment and obtain Risk Management’s approval for credit
decisions beyond its discretionary authority.
Risk Management is accountable for oversight of credit risk by
developing policies that govern and control portfolio risks, and
approval of product-specifc policies, as required.
The Risk Committee oversees the management of credit risk and
annually approves certain signifcant credit risk policies.
HOW TD MANAGES CREDIT RISK
The Bank’s Credit Risk Management Framework outlines the internal
risk and control structure to manage credit risk and includes risk
appetite, policies, processes, limits and governance. The Credit Risk
Management Framework is maintained by Risk Management and
supports alignment with the Bank’s risk appetite for credit risk.
Credit risk policies and credit decision-making strategies, as well as
the discretionary limits of offcers throughout the Bank for extending
lines of credit are centrally approved by Risk Management, and the
Board where applicable.
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Limits are established to monitor and control country, industry,
product, geographic, and group exposure risks in the portfolios in
accordance with enterprise-wide policies.
In the Bank’s Retail businesses, the Bank uses established
underwriting guidelines (which include collateral and loan-to-value
constraints) along with approved scoring techniques and standards
in extending, monitoring, and reporting personal credit. Credit scores
and decision strategies are used in the origination and ongoing
management of new and existing retail credit exposures. Scoring
models and decision strategies utilize a combination of borrower
attributes, including employment status, existing loan exposure and
performance, and size of total bank relationship, as well as external
data such as credit bureau information, to determine the amount
of credit the Bank is prepared to extend to retail customers and
to estimate future credit performance. Established policies and
procedures are in place to govern the use and ongoing monitoring
and assessment of the performance of scoring models and decision
strategies to ensure alignment with expected performance results.
Retail credit exposures approved within the regional credit centres
are subject to ongoing Retail Risk Management review to assess the
effectiveness of credit decisions and risk controls, as well as identify
emerging or systemic issues and trends. Material policy exceptions
are tracked and reported and larger dollar exposures and material
exceptions to policy are escalated to Retail Risk Management.
The Bank’s Commercial Banking and Wholesale Banking businesses
use credit risk models and policies to establish borrower and facility
risk ratings, quantify and monitor the level of risk, and facilitate the
associated risk management. Risk ratings are also used to determine
the amount of credit exposure the Bank is willing to extend to a
particular borrower. Management processes are used to monitor
country, industry, and borrower or counterparty risk ratings, which
include daily, monthly, quarterly, and annual review requirements for
credit exposures. The key parameters used in the Bank’s credit risk
models are monitored on an ongoing basis.
Unanticipated economic or political changes in a foreign country
could affect cross-border payments for goods and services, loans,
dividends, and trade-related fnance, as well as repatriation of
the Bank’s capital in that country. The Bank currently has credit
exposure in a number of countries, with the majority of the exposure
in North America. The Bank measures country risk using approved risk
rating models and qualitative factors that are also used to establish
country exposure limits covering all aspects of credit exposure across
all businesses. Country risk ratings are managed on an ongoing basis
and are subject to a detailed review at least annually.
As part of the Bank’s credit risk strategy, the Bank sets limits on the
amount of credit it is prepared to extend to specifc industry sectors.
The Bank monitors its concentration to any given industry to provide
for a diversifed loan portfolio and to reduce the risk of undue
concentration. The Bank manages this risk using limits based on an
internal risk rating score that combines TD’s industry risk rating model
and industry analysis, and regularly reviews industry risk ratings to
assess whether internal ratings properly refect the risk of the industry.
The Bank assigns a maximum exposure limit or a concentration limit
to each major industry segment which is a percentage of its total
wholesale and commercial private sector exposure.
The Bank may also set limits on the amount of credit it is prepared
to extend to a particular entity or group of entities, also referred to as
“entity risk”. All entity risk is approved by the appropriate decision-
making authority using limits based on the entity’s borrower risk rating
(BRR) and, for certain portfolios, the risk rating of the industry in which
the entity operates. This exposure is monitored on a regular basis.
The Bank may also use credit derivatives to mitigate borrower-
specifc exposure as part of its portfolio risk management techniques.
To determine the potential loss that could be incurred under a range
of adverse scenarios, the Bank subjects its credit portfolios to stress
tests. Stress tests assess vulnerability of the portfolios to the effects
of severe but plausible situations, such as an economic downturn or
a material market disruption.
The Basel Framework
The objective of the Basel Framework is to improve the consistency
of capital requirements internationally and make required regulatory
capital more risk-sensitive. The Basel Framework sets out several
options which represent increasingly more risk-sensitive approaches
for calculating credit, market, and operational RWA.
Credit Risk and the Basel Framework
The Bank received approval from OSFI to use the Basel AIRB Approach
for credit risk, effective November 1, 2007. The Bank uses the AIRB
Approach for all material portfolios, except in the following areas:
• TD has approved exemptions to use Standardized Approach (SA)
for some credit exposures in North America. Risk Management
reconfrms annually that this approach remains appropriate.
• Effective the third quarter of 2016, OSFI approved the Bank to
calculate the majority of the retail portfolio credit RWA in the U.S.
Retail segment using the AIRB Approach. The non-retail portfolio
in the U.S. Retail segment continues to use SA while working to
achieve regulatory approval to transition to the AIRB Approach.
To continue to qualify using the AIRB Approach for credit risk,
the Bank must meet the ongoing conditions and requirements
established by OSFI and the Basel Framework. The Bank regularly
assesses its compliance with these requirements.
Credit Risk Exposures Subject to the AIRB Approach
Banks that adopt the AIRB Approach to credit risk must report credit
risk exposures by counterparty type, each having different underlying
risk characteristics. These counterparty types may differ from the
presentation in the Bank’s 2019 Consolidated Financial Statements.
The Bank’s credit risk exposures are divided into two main portfolios,
retail and non-retail.
Risk Parameters
Under the AIRB Approach, credit risk is measured using the following
risk parameters:
• Probability of default (PD) – the likelihood that the borrower will
not be able to meet its scheduled repayments within a one year
time horizon.
• Loss given default (LGD) – the amount of loss the Bank would likely
incur when a borrower defaults on a loan, which is expressed as a
percentage of exposure at default (EAD).
• EAD – the total amount the Bank is exposed to at the time of default.
By applying these risk parameters, the Bank can measure and monitor
its credit risk to ensure it remains within pre-determined thresholds.
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
79
Retail Exposures
In the retail portfolio, including individuals and small businesses,
the Bank manages exposures on a pooled basis, using predictive
credit scoring techniques. There are three sub-types of retail
exposures: residential secured (for example, individual mortgages and
home equity lines of credit), qualifying revolving retail (for example,
individual credit cards, unsecured lines of credit, and overdraft
protection products), and other retail (for example, personal loans,
including secured automobile loans, student lines of credit, and small
business banking credit products).
The Bank calculates RWA for its retail exposures using the AIRB
Approach. All retail PD, LGD, and EAD parameter models are based
exclusively on the internal default and loss performance history for
each of the three retail exposure sub-types.
Account-level PD, LGD, and EAD models are built for each product
portfolio and calibrated based on the observed account-level default
and loss performance for the portfolio.
Consistent with the AIRB Approach, the Bank defnes default for
exposures as delinquency of 90 days or more for the majority of retail
credit portfolios. LGD estimates used in the RWA calculations refect
economic losses, such as, direct and indirect costs as well as any
appropriate discount to account for time between default and ultimate
recovery. EAD estimates refect the historically observed utilization of
credit limits at default. PD, LGD, and EAD models are calibrated using
established statistical methods, such as logistic and linear regression
techniques. Predictive attributes in the models may include account
attributes, such as loan size, interest rate, and collateral, where
applicable; an account’s previous history and current status; an
account’s age on book; a customer’s credit bureau attributes; and a
customer’s other holdings with the Bank, and macroeconomic inputs,
such as unemployment rate. For secured products such as residential
mortgages, property characteristics, loan-to-value ratios, and a
customer’s equity in the property, play a signifcant role in PD as well
as in LGD models.
All risk parameter estimates are updated on a quarterly basis based
on the refreshed model inputs. Parameter estimation is fully automated
based on approved formulas and is not subject to manual overrides.
Exposures are then assigned to one of nine pre-defned PD segments
based on their estimated long-run average one-year PD.
The risk discriminative and predictive power of the Bank’s retail credit
models is assessed against the most recently available one-year default
and loss performance on a quarterly basis. All models are also subject
to a comprehensive independent validation as outlined in the “Model
Risk Management” section of this disclosure.
Long-run PD estimates are generated by including key economic
indicators, such as interest rates and unemployment rates, and using
their long-run average over the credit cycle to estimate PD.
LGD estimates are required to refect a downturn scenario.
Downturn LGD estimates are generated by using macroeconomic
inputs, such as changes in housing prices and unemployment rates
expected in an appropriately severe downturn scenario.
For unsecured products, downturn LGD estimates refect the
observed lower recoveries for exposures defaulted during the 2008 to
2009 recession. For products secured by residential real estate, such as
mortgages and home equity lines of credit, downturn LGD refects the
potential impact of a severe housing downturn. EAD estimates similarly
refect a downturn scenario.
The following table maps PD ranges to risk levels:
Risk Assessment
Low Risk
Normal Risk
Medium Risk
High Risk
Default
PD Segment
PD Range
1
2
3
4
5
6
7
8
9
0.00 to 0.15%
0.16 to 0.41
0.42 to 1.10
1.11 to 2.93
2.94 to 4.74
4.75 to 7.59
7.60 to 18.24
18.25 to 99.99
100.00
Non-Retail Exposures
In the non-retail portfolio, the Bank manages exposures on an
individual borrower basis, using industry and sector-specifc credit risk
models, and expert judgment. The Bank has categorized non-retail
credit risk exposures according to the following Basel counterparty
types: corporate, including wholesale and commercial customers,
sovereign, and bank. Under the AIRB Approach, CMHC-insured
mortgages are considered sovereign risk and are therefore classifed
as non-retail.
The Bank evaluates credit risk for non-retail exposures by using both
a BRR and facility risk rating (FRR). The Bank uses this system for all
corporate, sovereign, and bank exposures. The Bank determines the risk
ratings using industry and sector-specifc credit risk models that are
based on internal historical data for the years of 1994–2018, covering
both wholesale and commercial lending experience. All borrowers and
facilities are assigned an internal risk rating that must be reviewed at
least once each year. External data such as rating agency default rates
or loss databases are used to validate the parameters.
Internal risk ratings (BRR and FRR) are key to portfolio monitoring
and management, and are used to set exposure limits and loan pricing.
Internal risk ratings are also used in the calculation of regulatory
capital, economic capital, and allowance for credit losses.
Borrower Risk Rating and PD
Each borrower is assigned a BRR that refects the PD of the borrower
using proprietary models and expert judgment. In assessing borrower
risk, the Bank reviews the borrower’s competitive position, fnancial
performance, economic, and industry trends, management quality, and
access to funds. Under the AIRB Approach, borrowers are grouped into
BRR grades that have similar PD. Use of projections for model implied
risk ratings is not permitted and BRRs may not incorporate a projected
reversal, stabilization of negative trends, or the acceleration of existing
positive trends. Historic fnancial results can however be sensitized to
account for events that have occurred, or are about to occur, such as
additional debt incurred by a borrower since the date of the last set
of fnancial statements. In conducting an assessment of the BRR, all
relevant and material information must be taken into account and the
information being used must be current. Quantitative rating models
are used to rank the expected through-the-cycle PD, and these models
are segmented into categories based on industry and borrower size.
The quantitative model output can be modifed in some cases by
expert judgment, as prescribed within the Bank’s credit policies.
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TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
To calibrate PDs for each BRR band, the Bank computes yearly transition
matrices based on annual cohorts and then estimates the average annual
PD for each BRR. The PD is set at the average estimation level plus an
appropriate adjustment to cover statistical and model uncertainty. The
calibration process for PD is a through-the-cycle approach. TD’s 21-point
BRR scale broadly aligns to external ratings as follows:
Description
Investment grade
Non-investment grade
Watch and classifed
Impaired/default
Rating Category
Standard & Poor’s
Moody’s Investor Services
0 to 1C
2A to 2C
3A to 3C
4A to 4C
5A to 5C
6 to 8
9A to 9B
AAA to AA-
A+ to A-
BBB+ to BBB-
BB+ to BB-
B+ to B-
CCC+ to CC and below
Default
Aaa to Aa3
A1 to A3
Baa1 to Baa3
Ba1 to Ba3
B1 to B3
Caa1 to Ca and below
Default
Facility Risk Rating and LGD
The FRR maps to LGD and takes into account facility-specifc
characteristics such as collateral, seniority ranking of debt, and
loan structure.
Different FRR models are used based on industry and obligor size.
Data considered in the calibration of the LGD model includes variables
such as collateral coverage, debt structure, and borrower enterprise
value. Average LGD and the statistical uncertainty of LGD are
estimated for each FRR grade. In some FRR models, lack of historical
data requires the model to output a rank-ordering which is then
mapped through expert judgment to the quantitative LGD scale.
The AIRB Approach stipulates the use of downturn LGD, where
the downturn period, as determined by internal and/or external
experience, suggests higher than average loss rates or lower than
average recovery. To refect this, calibrated LGDs take into account
both the statistical estimation uncertainty and the higher than average
LGDs experienced during downturn periods.
Exposure at Default
The Bank calculates non-retail EAD by frst measuring the drawn
amount of a facility and then adding a potential increased utilization
at default from the undrawn portion, if any. Usage Given Default
(UGD) is measured as the percentage of Committed Undrawn exposure
that would be expected to be drawn by a borrower defaulting in the
next year, in addition to the amount that already has been drawn
by the borrower. In the absence of credit mitigation effects or other
details, the EAD is set at the drawn amount plus (UGD x Committed
Undrawn), where UGD is a percentage between 0% and 100%.
BRR up to one-year prior to default remains a predictor for UGD.
Average UGD estimates are calibrated by BRR.
Historical UGD experience is studied for any downturn impacts,
similar to the LGD downturn analysis. The Bank has not found downturn
UGD to be signifcantly different than average UGD, therefore the UGDs
are set at the average calibrated level, by BRR, plus an appropriate
adjustment for statistical and model uncertainty.
Credit Risk Exposures Subject to the Standardized Approach
Currently SA to credit risk is used primarily for assets in the U.S.
non-retail credit portfolio. The Bank is currently in the process of
transitioning this portfolio to the AIRB Approach, subject to regulatory
approval. Under SA, the assets are multiplied by risk weights prescribed
by OSFI to determine RWA. These risk weights are assigned according
to certain factors including counterparty type, product type, and the
nature/extent of credit risk mitigation. The Bank uses external credit
ratings, including Moody’s and S&P to determine the appropriate risk
weight for its exposures to sovereigns (governments, central banks,
and certain public sector entities) and banks (regulated deposit-taking
institutions, securities frms, and certain public sector entities).
The Bank applies the following risk weights to on-balance sheet
exposures under SA:
Sovereign
Bank
Corporate
0%1
20%1
100%
1 The risk weight may vary according to the external risk rating.
Lower risk weights apply where approved credit risk mitigants exist.
Non-retail loans that are more than 90 days past due receive a risk
weight of 150%. For off-balance sheet exposures, specifed credit
conversion factors are used to convert the notional amount of the
exposure into a credit equivalent amount.
Derivative Exposures
Credit risk on derivative fnancial instruments, also known as
counterparty credit risk, is the risk of a fnancial loss occurring as a
result of the failure of a counterparty to meet its obligation to the Bank.
The Bank uses the SA-CCR to calculate the EAD amount, which is
defned by OSFI as a multiple of the summation of replacement cost and
potential future exposure, to estimate the risk and determine regulatory
capital requirements for derivative exposures. The Global Counterparty
Control group within Capital Markets Risk Management is responsible
for estimating and managing counterparty credit risk in accordance with
credit policies established by Risk Management.
The Bank uses various qualitative and quantitative methods to
measure and manage counterparty credit risk. These include statistical
methods to measure the current and future potential risk, as well as
ongoing stress testing to identify and quantify exposure to extreme
events. The Bank establishes various limits, including gross notional
limits, to manage business volumes and concentrations. It also
regularly assesses market conditions and the valuation of underlying
fnancial instruments. Counterparty credit risk may increase during
periods of receding market liquidity for certain instruments.
Capital Markets Risk Management meets regularly with Market and
Credit Risk Management and Trading businesses to discuss how
evolving market conditions may impact the Bank’s market risk and
counterparty credit risk.
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
81
The Bank actively engages in risk mitigation strategies through the
use of multi-product derivative master netting agreements, collateral
pledging and other credit risk mitigation techniques. The Bank also
executes certain derivatives through a central clearing house which
reduces counterparty credit risk due to the ability to net offsetting
positions amongst counterparty participants that settle within clearing
houses. Derivative-related credit risks are subject to the same credit
approval, limit, monitoring, and exposure guideline standards that
the Bank uses for managing other transactions that create credit risk
exposure. These standards include evaluating the creditworthiness of
counterparties, measuring and monitoring exposures, including wrong-
way risk exposures, and managing the size, diversifcation, and
maturity structure of the portfolios.
There are two types of wrong-way risk exposures, namely general
and specifc. General wrong-way risk arises when the PD of the
counterparties moves in the same direction as a given market risk
factor. Specifc wrong-way risk arises when the exposure to a
particular counterparty moves in the same direction as the PD of the
counterparty due to the nature of the transactions entered into with
that counterparty. These exposures require specifc approval within
the credit approval process. The Bank measures and manages specifc
wrong-way risk exposures in the same manner as direct loan
obligations and controls them by way of approved credit facility limits.
As part of the credit risk monitoring process, management meets on
a periodic basis to review all exposures, including exposures resulting
from derivative fnancial instruments to higher risk counterparties.
As at October 31, 2019, after taking into account risk mitigation
strategies, the Bank does not have material derivative exposure to any
counterparty considered higher risk as defned by the Bank’s credit
policies. In addition, the Bank does not have a material credit risk
valuation adjustment to any specifc counterparty.
Validation of the Credit Risk Rating System
Credit risk rating systems and methodologies are independently
validated on a regular basis to verify that they remain accurate
predictors of risk. The validation process includes the following
considerations:
• Risk parameter estimates – PDs, LGDs, and EADs are reviewed and
updated against actual loss experience to ensure estimates continue
to be reasonable predictors of potential loss.
• Model performance – Estimates continue to be discriminatory,
stable, and predictive.
• Data quality – Data used in the risk rating system is accurate,
appropriate, and suffcient.
• Assumptions – Key assumptions underlying the development of the
model remain valid for the current portfolio and environment.
Risk Management ensures that the credit risk rating system complies
with the Bank’s Model Risk Policy. At least annually, the Risk
Committee is informed of the performance of the credit risk rating
system. The Risk Committee must approve any material changes to
the Bank’s credit risk rating system.
Credit Risk Mitigation
The techniques the Bank uses to reduce or mitigate credit risk include
written policies and procedures to value and manage fnancial and
non-fnancial security (collateral) and to review and negotiate netting
agreements. The amount and type of collateral, and other credit risk
mitigation techniques required, are based on the Bank’s own
assessment of the borrower’s or counterparty’s credit quality and
capacity to pay.
In the retail and commercial banking businesses, security for loans
is primarily non-fnancial and includes residential real estate, real
estate under development, commercial real estate, automobiles,
and other business assets, such as accounts receivable, inventory,
and fxed assets. In the Wholesale Banking business, a large portion
of loans are to investment grade borrowers where no security is
pledged. Non-investment grade borrowers typically pledge business
assets in the same manner as commercial borrowers. Common
standards across the Bank are used to value collateral, determine
frequency of recalculation, and to document, register, perfect,
and monitor collateral.
The Bank also uses collateral and master netting agreements to
mitigate derivative counterparty exposure. Security for derivative
exposures is primarily fnancial and includes cash and negotiable
securities issued by highly rated governments and investment grade
issuers. This approach includes pre-defned discounts and procedures
for the receipt, safekeeping, and release of pledged securities.
In all but exceptional situations, the Bank secures collateral by taking
possession and controlling it in a jurisdiction where it can legally enforce
its collateral rights. In exceptional situations and when demanded
by the Bank’s counterparty, the Bank holds or pledges collateral with
an acceptable third-party custodian. The Bank documents all such
third-party arrangements with industry standard agreements.
Occasionally, the Bank may take guarantees to reduce the risk
in credit exposures. For credit risk exposures subject to the AIRB
approach, the Bank only recognizes irrevocable guarantees for
Commercial Banking and Wholesale Banking credit exposures that are
provided by entities with a better risk rating than that of the borrower
or counterparty to the transaction.
The Bank makes use of credit derivatives to mitigate credit risk.
The credit, legal, and other risks associated with these transactions
are controlled through well-established procedures. The Bank’s policy
is to enter into these transactions with investment grade fnancial
institutions and transact on a collateralized basis. Credit risk to these
counterparties is managed through the same approval, limit, and
monitoring processes the Bank uses for all counterparties for which
it has credit exposure.
The Bank uses appraisals and automated valuation models (AVMs)
to support property values when adjudicating loans collateralized
by residential real property. AVMs are computer-based tools used
to estimate or validate the market value of residential real property
using market comparables and price trends for local market areas.
The primary risk associated with the use of these tools is that the value
of an individual property may vary signifcantly from the average for
the market area. The Bank has specifc risk management guidelines
addressing the circumstances when they may be used, and processes
to periodically validate AVMs including obtaining third-party appraisals.
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TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
Gross Credit Risk Exposure
Gross credit risk exposure, also referred to as EAD, is the total amount
the Bank is exposed to at the time of default of a loan and is measured
before counterparty-specifc provisions or write-offs. Gross credit risk
exposure does not refect 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.
Gross credit risk exposures for the two approaches the Bank uses
to measure credit risk are included in the following table.
T A B L E 4 3 GROSS CREDIT RISK EXPOSURES – Standardized and Advanced Internal Ratings-Based Approaches1
(millions of Canadian dollars)
Retail
Residential secured
Qualifying revolving retail
Other retail
Total retail
Non-retail
Corporate
Sovereign
Bank
Total non-retail
Gross credit risk exposures
October 31, 2019
As at
October 31, 2018
Standardized
AIRB
Total
Standardized
AIRB
Total
$
4,380
–
8,015
12,395
$ 386,840
131,863
84,658
603,361
$ 391,220
131,863
92,673
615,756
135,283
104,412
18,165
257,860
$ 270,255
401,096
140,304
118,418
659,818
$ 1,263,179
536,379
244,716
136,583
917,678
$ 1,533,434
$
3,091
–
12,835
15,926
132,030
95,411
18,019
245,460
$ 261,386
$ 371,450
112,388
80,513
564,351
$ 374,541
112,388
93,348
580,277
346,751
136,951
110,295
593,997
$ 1,158,348
478,781
232,362
128,314
839,457
$ 1,419,734
1 Gross credit risk exposures represent EAD and are before the effects of credit risk
mitigation. This table excludes securitization, equity, and other credit RWA.
Other Credit Risk Exposures
Non-trading Equity Exposures
The Bank’s non-trading equity exposures are at a level that represents
less than 5% of the Bank’s combined Tier 1 and Tier 2 Capital. As a
result, the Bank uses OSFI-prescribed risk weights to calculate RWA on
non-trading equity exposures.
Securitization Exposures
Effective November 1, 2018, the Bank applies risk weights to all
securitization exposures under the revised securitization framework
published by the BCBS. The revised securitization framework includes
a revised hierarchy to determine capital treatment, and preferential
capital treatment for transactions that meet the simple, transparent,
and comparable requirements.
For externally rated exposures, the Bank uses an External Ratings
Based Approach (SEC-ERBA). Risk weights to exposures are assigned
using external ratings by external rating agencies, including Moody’s
and S&P. The SEC-ERBA also takes into account additional factors,
including the type of the rating (long-term or short-term), maturity,
and the seniority of the position.
For exposures that are not externally rated and are held by an ABCP
issuing conduit, the Bank uses the Internal Assessment Approach (IAA).
Under the IAA, the Bank considers all relevant risk factors in
assessing the credit quality of these exposures, including those
published by the Moody’s and S&P rating agencies. The Bank also
uses loss coverage models and policies to quantify and monitor the
level of risk, and facilitate its management. The Bank’s IAA process
includes an assessment of the extent by which the enhancement
available for loss protection provides coverage of expected losses.
The levels of stressed coverage the Bank requires for each internal
risk rating are consistent with the rating agencies’ published stressed
factor requirements for equivalent external ratings by asset class.
Under the IAA, exposures are multiplied by OSFI-prescribed risk
weights to calculate RWA for capital purposes.
For exposures that are not externally rated and are not held by
an ABCP-issuing conduit, the Bank uses the Standardized Approach
(SEC-SA). Under SEC-SA, the primary factors that determine the risk
weights include the asset class of the underlying loans, the seniority
of the position, the level of credit enhancements, and historical
delinquency rates.
Irrespective of the approach being used to determine the risk
weights, all exposures are assigned an internal risk rating based on
the Bank’s assessment, which must be reviewed at least annually.
The ratings scale TD uses corresponds to the long-term ratings scales
used by the rating agencies.
The Bank’s internal rating process is subject to all of the key
elements and principles of the Bank’s risk governance structure, and
is managed in the same way as outlined in this “Credit Risk” section.
The Bank uses the results of the internal rating in all aspects of its
credit risk management, including performance tracking, control
mechanisms, and management reporting.
Market Risk
Trading Market Risk is the risk of loss in fnancial instruments held in
trading positions due to adverse movements in market factors. These
market factors include interest rates, foreign exchange rates, equity
prices, commodity prices, credit spreads, and their respective volatilities.
Non-Trading Market Risk is the risk of loss on the balance sheet or
volatility in earnings from non-trading activities such as asset-liability
management or investments, due to adverse movements in market
factors. These market factors are predominantly interest rate, credit
spread, foreign exchange rates and equity prices.
The Bank is exposed to market risk in its trading and investment
portfolios, as well as through its non-trading activities. In the Bank’s
trading and investment portfolios, it is an active participant in the
market, seeking to realize returns for TD through careful management
of its positions and inventories. In the Bank’s non-trading activities, it is
exposed to market risk through the everyday banking transactions that
the Bank’s customers execute with TD.
The Bank complied with the Basel III market risk requirements as at
October 31, 2019, using the Internal Models Approach.
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
83
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 classifed as trading market risk.
–
–
–
–
–
–
–
As at
Non-trading market
risk – primary
risk sensitivity
Interest rate
Interest rate
Equity,
foreign exchange,
interest rate
Equity,
foreign exchange,
interest rate
Interest rate
Equity,
foreign exchange,
interest rate
Foreign exchange,
interest rate
Interest rate
Interest rate
Interest rate
Equity
Interest rate
–
–
–
–
–
–
–
–
–
–
–
Interest rate
Equity,
foreign exchange,
interest rate
Interest rate
Interest rate
Interest rate,
foreign exchange
Interest rate
Interest rate
Interest rate
Interest rate
Interest rate
Equity,
interest rate
T A B L E 4 4 MARKET RISK LINKAGE TO THE BALANCE SHEET1
(millions of Canadian dollars)
October 31, 2019
October 31, 2018
Balance
sheet
Trading
market risk
Non-trading
market risk
Other
Balance
sheet
Trading
market risk
Non-trading
market risk
Other
Assets subject to market risk
Interest-bearing deposits with banks
Trading loans, securities, and other
Non-trading fnancial assets at
fair value through proft or loss
$
25,583 $
215 $
146,000
143,342
25,368 $
2,658
– $
–
30,720 $
729 $
127,897 125,437
29,991 $
2,460
6,503
–
6,503
–
4,015
–
4,015
Derivatives
48,894
45,716
3,178
–
56,996
53,087
3,909
Financial assets designated at
fair value through proft or loss
Financial assets at fair value through
4,040
–
4,040
–
3,618
other comprehensive income
111,104
–
111,104
–
130,600
–
–
3,618
130,600
Debt securities at amortized cost,
net of allowance for credit losses
Securities purchased under
reverse repurchase agreements
Loans, net of allowance for loan losses
Customers’ liability under acceptances
Investment in TD Ameritrade
Other assets2
Assets not exposed to market risk
Total Assets
Liabilities subject to market risk
Trading deposits
Derivatives
130,497
–
130,497
–
107,171
–
107,171
4,843
165,935
684,608
13,494
9,316
1,774
67,542
161,092
684,608
13,494
9,316
1,774
–
$ 1,415,290 $ 194,116 $ 1,153,632
–
–
–
–
–
–
–
–
–
–
67,542
127,379
646,393
17,267
8,445
1,751
3,920
–
–
–
–
–
72,651
$ 67,542 $ 1,334,903
–
$ 183,173 $ 1,079,079
123,459
646,393
17,267
8,445
1,751
–
–
–
–
–
72,651
$ 72,651
$
26,885
50,051
$
10,182
45,361
$
16,703
4,690
$
$
–
–
114,704 $ 6,202 $ 108,502 $
48,270
44,119
4,151
Securitization liabilities at fair value
Financial liabilities designated at
fair value through proft or loss
Deposits
Acceptances
Obligations related to securities sold short
Obligations related to securities
sold under repurchase agreements
Securitization liabilities at amortized cost
Subordinated notes and debentures
Other liabilities2
13,058
13,058
–
–
12,618
12,618
–
105,131
886,977
13,494
29,656
125,856
14,086
10,725
17,597
9
–
–
28,419
2,973
–
–
–
105,122
886,977
13,494
1,237
122,883
14,086
10,725
17,597
–
–
–
–
–
–
–
–
16
851,439
2
–
14
851,439
17,269
39,478
–
37,323
93,389
14,683
8,740
16,134
3,797
–
–
–
17,269
2,155
89,592
14,683
8,740
16,134
Liabilities and Equity not exposed
to market risk
Total Liabilities and Equity
121,774
$ 1,415,290
–
–
$ 1,193,514
$ 100,002
121,774
$ 121,774
118,163
–
$ 1,334,903 $ 104,061
–
$ 1,112,679
118,163
$ 118,163
1 Certain comparative amounts have been reclassified to conform with the
presentation adopted in the current period.
2 Relates to retirement benefits, insurance, and structured entity liabilities.
84
TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
MARKET RISK IN TRADING ACTIVITIES
The overall objective of the Bank’s trading businesses is to provide
wholesale banking services, including facilitation and liquidity, to
clients of the Bank. The Bank must take on risk in order to provide
effective service in markets where its clients trade. In particular,
the Bank needs to hold inventory, act as principal to facilitate client
transactions, and underwrite new issues. The Bank also trades in order
to have in-depth knowledge of market conditions to provide the most
effcient and effective pricing and service to clients, while balancing
the risks inherent in its dealing activities.
WHO MANAGES MARKET RISK IN TRADING ACTIVITIES
Primary responsibility for managing market risk in trading activities
lies with Wholesale Banking, with oversight from Market Risk Control
within Risk Management. The Market Risk Control Committee meets
regularly to conduct a review of the market risk profle, trading
results of the Bank’s trading businesses as well as changes to market
risk policies. The committee is chaired by the Senior Vice President,
Market Risk and Model Development, and includes Wholesale Banking
senior management.
There were no signifcant reclassifcations between trading and
non-trading books during the year ended October 31, 2019.
HOW TD MANAGES MARKET RISK IN TRADING ACTIVITIES
Market risk plays a key part in the assessment of any trading business
strategy. The Bank launches new trading initiatives or expands existing
ones only if the risk has been thoroughly assessed, and is judged to
be within the Bank’s risk appetite and business expertise, and if the
appropriate infrastructure is in place to monitor, control, and manage
the risk. The Trading Market Risk Framework outlines the management
of trading market risk and incorporates risk appetite, risk governance
structure, risk identifcation, measurement, and control. The Trading
Market Risk Framework is maintained by Risk Management and supports
alignment with the Bank’s Risk Appetite for trading market risk.
Trading Limits
The Bank sets trading limits that are consistent with the approved
business strategy for each business and its tolerance for the associated
market risk, aligned to its market risk appetite. In setting limits, the Bank
takes into account market volatility, market liquidity, organizational
experience, and business strategy. Limits are prescribed at the Wholesale
Banking level in aggregate, as well as at more granular levels.
The core market risk limits are based on the key risk drivers in the
business and includes notional, credit spread, yield curve shift, price,
and volatility limits.
Another primary measure of trading limits is VaR, which the Bank
uses to monitor and control overall risk levels and to calculate the
regulatory capital required for market risk in trading activities. VaR
measures the adverse impact that potential changes in market rates
and prices could have on the value of a portfolio over a specifed
period of time.
At the end of each day, risk positions are compared with risk limits,
and any excesses are reported in accordance with established market
risk policies and procedures.
Calculating VaR
The Bank computes total VaR on a daily basis by combining the
General Market Risk (GMR) and Idiosyncratic Debt Specifc Risk (IDSR)
associated with its 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 fve-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 net
revenue, reported on a TEB, within Wholesale Banking. Trading net
revenue includes trading income and net interest income related to
positions within the Bank’s market risk capital trading books. For the
year ending October 31, 2019, there were 20 days of trading losses
and trading net revenue was positive for 92% of the trading days,
refecting normal trading activity. Losses in the year did not exceed VaR
on any trading day.
TOTAL VALUE-AT-RISK AND TRADING NET REVENUE
(millions of Canadian dollars)
Trading Net Revenue
Value-at-Risk
$40
30
20
10
0
(10)
(20)
(30)
(40)
8
1
0
2
/
1
/
1
1
8
1
0
2
/
8
/
1
1
8
1
0
2
/
5
1
/
1
1
8
1
0
2
/
2
2
/
1
1
8
1
0
2
/
9
2
/
1
1
8
1
0
2
/
6
/
2
1
8
1
0
2
/
3
1
/
2
1
8
1
0
2
/
0
2
/
2
1
8
1
0
2
/
8
2
/
2
1
9
1
0
2
/
7
/
1
9
1
0
2
/
4
1
/
1
9
1
0
2
/
1
2
/
1
9
1
0
2
/
8
2
/
1
9
1
0
2
/
4
/
2
9
1
0
2
/
1
1
/
2
9
1
0
2
/
8
1
/
2
9
1
0
2
/
5
2
/
2
9
1
0
2
/
4
/
3
9
1
0
2
/
1
1
/
3
9
1
0
2
/
8
1
/
3
9
1
0
2
/
5
2
/
3
9
1
0
2
/
1
/
4
9
1
0
2
/
8
/
4
9
1
0
2
/
5
1
/
4
9
1
0
2
/
2
2
/
4
9
1
0
2
/
9
2
/
4
9
1
0
2
/
6
/
5
9
1
0
2
/
3
1
/
5
9
1
0
2
/
0
2
/
5
9
1
0
2
/
7
2
/
5
9
1
0
2
/
3
/
6
9
1
0
2
/
0
1
/
6
9
1
0
2
/
7
1
/
6
9
1
0
2
/
4
2
/
6
9
1
0
2
/
1
/
7
9
1
0
2
/
8
/
7
9
1
0
2
/
5
1
/
7
9
1
0
2
/
2
2
/
7
9
1
0
2
/
9
2
/
7
9
1
0
2
/
5
/
8
9
1
0
2
/
2
1
/
8
9
1
0
2
/
9
1
/
8
9
1
0
2
/
6
2
/
8
9
1
0
2
/
2
/
9
9
1
0
2
/
9
/
9
9
1
0
2
/
6
1
/
9
9
1
0
2
/
3
2
/
9
9
1
0
2
/
0
3
/
9
9
1
0
2
/
7
/
0
1
9
1
0
2
/
4
1
/
0
1
9
1
0
2
/
1
2
/
0
1
9
1
0
2
/
8
2
/
0
1
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
85
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
confdence 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. In 2019, the Bank implemented
a modifcation to improve historical equity volatility data used in
VaR calculations.
To mitigate some of the shortcomings of VaR, the Bank uses
additional metrics designed for risk management and capital purposes.
These include Stressed VaR, Incremental Risk Charge (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 specifed
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 fourth
quarter of fscal 2019, 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. The Bank applies
a Monte Carlo simulation with a one-year horizon and a 99.9%
confdence 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.
The following table presents the end of year, average, high, and low
usage of TD’s portfolio metrics.
T A B L E 4 5
PORTFOLIO MARKET RISK MEASURES
(millions of Canadian dollars)
Interest rate risk
Credit spread risk
Equity risk
Foreign exchange risk
Commodity risk
Idiosyncratic debt specifc risk
Diversifcation effect1
Total Value-at-Risk (one-day)
Stressed Value-at-Risk (one-day)
Incremental Risk Capital Charge (one-year)
As at
Average
$
8.6
13.8
7.1
4.3
2.2
16.5
(32.1)
20.4
51.5
230.7
$
9.4
13.2
6.5
4.7
2.1
15.6
(30.3)
21.2
47.9
225.0
$
High
17.2
22.5
11.5
10.2
4.8
23.5
n/m2
31.8
84.4
279.6
$
2019
Low
4.3
7.5
3.6
1.0
1.0
10.6
n/m
13.6
33.4
173.1
As at
Average
High
$
14.2
17.2
6.1
8.7
3.0
17.2
(41.9)
24.5
54.2
237.1
$
14.0
11.8
7.2
4.4
2.6
16.5
(32.7)
23.8
49.8
205.8
$
25.7
18.2
12.9
8.7
6.8
22.4
n/m
33.1
84.8
269.8
2018
Low
$ 5.3
7.7
4.0
2.2
1.3
11.3
n/m
16.9
28.8
156.2
1 The aggregate VaR is less than the sum of the VaR of the different risk types due to
2 Not meaningful. It is not meaningful to compute a diversification effect because
risk offsets resulting from portfolio diversification.
the high and low may occur on different days for different risk types.
Average VaR decreased year-over-year driven by changes in exposures
to interest rate risk. Average Stressed VaR decreased year-over-year
from changes in government and fnancial bond positions.
Average IRC increased year-over-year due to positions in Canadian
banks and provinces.
Validation of VaR Model
The Bank uses a back-testing process to compare the actual and
theoretical proft and losses to VaR to verify that they are consistent
with the statistical results of the VaR model. The theoretical proft 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% confdence 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.
Stress Testing
The Bank’s trading business is subject to an overall global stress test
limit. In addition, global businesses have stress test limits, and each
broad risk class has an overall stress test threshold. Stress scenarios
are designed to model extreme economic events, replicate worst-case
historical experiences, or introduce severe, but plausible, hypothetical
changes in key market risk factors. The stress testing program includes
scenarios developed using actual historical market data during periods
of market disruption, in addition to hypothetical scenarios developed
by Risk Management. The events the Bank has modeled include the
1987 equity market crash, the 1998 Russian debt default crisis, the
aftermath of September 11, 2001, the 2007 ABCP crisis, the credit
crisis of Fall 2008, and the Brexit referendum of June 2016.
Stress tests are produced and reviewed regularly with the Market
Risk Control Committee.
86
TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
MARKET RISK IN OTHER WHOLESALE BANKING ACTIVITIES
The Bank is also exposed to market risk arising from a legacy portfolio
of bonds and preferred shares held in TD Securities and in its
remaining merchant banking investments. Risk Management reviews
and approves policies and procedures, which are established to
monitor, measure, and mitigate these risks.
Asset/Liability Management
Asset/liability management deals with managing the market risks of
TD’s traditional banking activities. This generally refects the market
risks arising from personal and commercial banking products (loans
and deposits) as well as related funding, investments and high-quality
liquid assets (HQLA). Such structural market risks primarily include
interest rate risk and foreign exchange risk.
WHO IS RESPONSIBLE FOR ASSET/LIABILITY MANAGEMENT
The TBSM group measures and manages the market risks of the Bank’s
non-trading banking activities, with oversight from the ALCO, which
is chaired by the Group Head and CFO, and includes other senior
executives. The Market Risk Control function provides independent
oversight, governance, and control over these market risks. The Risk
Committee periodically reviews and approves key asset/liability
management and non-trading market risk policies and receives reports
on compliance with approved risk limits.
HOW TD MANAGES ITS ASSET AND LIABILITY POSITIONS
Non-trading interest rate risk is viewed as a non-productive risk
as it has the potential to increase earnings volatility and generate
losses without providing long run expected value. As a result,
TBSM’s mandate is to structure the asset and liability positions of
the balance sheet in order to achieve a target profle that controls
the impact of changes in interest rates on the Bank’s net interest
income and economic value that is consistent with the Bank’s RAS.
Managing Interest Rate Risk
Interest rate risk is the impact that changes in interest rates could
have on the Bank’s margins, earnings, and economic value. Interest
rate risk management is designed to ensure that earnings are stable
and predictable over time. The Bank has adopted a disciplined hedging
approach to manage the net interest income contribution from its
asset and liability positions, including an assigned target-modeled
maturity profle for non-rate sensitive assets, liabilities, and equity.
Key aspects of this approach are:
• Evaluating and managing the impact of rising or falling interest rates
on net interest income and economic value, and developing
strategies to manage overall sensitivity to rates across varying
interest rate scenarios;
• Measuring the contribution of each TD product on a risk-adjusted,
fully-hedged basis, including the impact of fnancial options such
as mortgage commitments that are granted to customers; and
• Developing and implementing strategies to stabilize net interest
income from all retail and commercial banking products.
The Bank is exposed to interest rate risk when asset and liability
principal and interest cash fows, determined using contractual
cash-fows and the target-modeled maturity profle for non-maturity
products, have different interest payment or maturity dates. These are
called “mismatched positions” and impact the Bank’s earnings when
its interest-sensitive assets and liabilities reprice as interest rates
change and when there are: fnal maturities, normal amortizations,
or option exercises (such as prepayment, redemption, or conversion).
The Bank’s exposure to interest rate risk depends on the size and
direction of interest rate changes, and on the size and maturity of
the mismatched positions. It is also affected by new business volumes,
renewals of loans or deposits, and how actively customers exercise
embedded options, such as prepaying a loan or redeeming a deposit
before its maturity date.
Interest rate risk exposure, after economic hedging activities, is
measured using various interest rate “shock” scenarios. Two of the
measures used are Net Interest Income Sensitivity (NIIS) and Economic
Value at Risk (EVaR). NIIS is defned as the change in net interest
income over the next twelve months resulting from mismatched
positions for an immediate and sustained 100 bps interest rate shock.
NIIS measures the extent to which the maturing and repricing asset
and liability cash fows are matched over the next twelve-month period
and refects how the Bank’s net interest income will change over that
period from the effect of the interest rate shock on the mismatched
positions. EVaR is defned 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 profles 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 fow mismatches to changes in long-term interest rates.
Closely matching asset and liability cash fows reduces EVaR and
mitigates the risk of volatility in future net interest income.
To the extent that interest rates are suffciently low and in cases
where it is not feasible to measure the impact of a 100 bps decline in
interest rates, EVaR and NIIS exposures will be calculated by measuring
the impact of a decline in interest rates where the resultant rates do
not become negative.
The methodology used to calculate NIIS and EVaR captures the
impact of changes to assumed customer behaviours, such as interest
rate sensitive mortgage prepayments, but does not assume any
balance sheet growth, change in business mix, product pricing, or
management actions in response to changes in market conditions.
The Bank policy as approved by the Risk Committee sets overall
limits on EVaR and NIIS which are linked to capital and net interest
income, respectively. These limits are consistent with the Bank’s
enterprise risk appetite and are periodically reviewed and approved
by the Risk Committee. Exposures against Board limits are routinely
monitored and reported, and breaches of these Board limits, if any,
are escalated to both the ALCO and the Risk Committee of the Board.
In addition to Board policy limits, book-level risk limits are set
for TBSM’s management of non-trading interest rate risk by Risk
Management. These book-level risk limits are set at a more granular
level than Board policy limits for NIIS and EVaR, and developed to
be consistent with the overall Board Market Risk policy. Breaches
of these book-level risk limits, if any, are escalated to the ALCO in
a timely manner.
The interest rate risk and other exposures from products with closed
(non-optioned) fxed-rate cash fows are measured and managed
separately from products that offer customers prepayment options.
The Bank projects future cash fows by looking at the impact of:
• A target interest sensitivity profle for its non-maturity assets
and liabilities;
• A target investment profle on its net equity position; and
• Liquidation assumptions on mortgages other than from embedded
prepayment options.
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
87
The Bank also measures its exposure to non-maturity liabilities, such
as core deposits, by assessing interest rate elasticity and balance
permanence using historical data and business judgment. Fluctuations
of non-maturity deposits can occur because of factors such as interest
rate movements, equity market movements, and changes to customer
liquidity preferences.
The objective of portfolio management within the closed-cash-fow
book is to eliminate cash fow mismatches to the extent practically
possible, so that net interest income becomes more predictable.
Product options, whether they are freestanding options such as
mortgage rate commitments or embedded in loans and deposits,
expose the Bank to a signifcant fnancial risk. To manage these
exposures the Bank purchases options or uses a dynamic hedging
process designed to replicate the payoff of a purchased option.
• Rate Commitments: The Bank measures its exposure from
freestanding mortgage rate commitment options using an expected
funding profle based on historical experience. Customers’
propensity to fund, and their preference for fxed or foating rate
mortgage products, is infuenced by factors such as market
mortgage rates, house prices, and seasonality.
• Asset Prepayment: The Bank models its exposure to written
options embedded in other products, such as the right to prepay
residential mortgage loans, based on analysis of customer
behaviour. Econometric models are used to model prepayments and
the effects of prepayment behaviour to the Bank. In general
mortgage prepayments are also affected by factors, such as
mortgage age, house prices, and GDP growth. The combined
impacts from these parameters are also assessed to determine a
core liquidation speed which is independent of market incentives.
Interest Rate Risk
The following graph shows the Bank’s interest rate risk exposure (as
measured by EVaR) on all non-trading assets, liabilities, and derivative
instruments used for structural interest rate management. This refects
the interest rate risk from personal and commercial banking products
(loans and deposits) as well as related funding, investments, and
HQLA. EVaR is defned 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 profles 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 fow mismatches to changes in interest rates. Closely
matching asset and liability cash fows reduces EVaR and mitigates the
risk of volatility in future net interest income.
ALL INSTRUMENTS PORTFOLIO
Economic Value at Risk After Tax –
October 31, 2019 and October 31, 2018
(millions of Canadian dollars)
October 31, 2018
October 31, 2019
)
s
n
o
i
l
l
i
m
(
e
u
a
v
l
t
n
e
s
e
r
p
n
i
e
g
n
a
h
C
$150
50
(50)
(150)
(250)
(350)
(450)
(550)
October 31, 2018: $(238)
October 31, 2019: $(418)
(2.0)
(1.5)
(1.0)
(0.5)
0
0.5
1.0
1.5
2.0
Parallel interest rate shock percentage
The Bank uses derivative fnancial instruments, wholesale investments,
funding instruments, other capital market alternatives, and, less
frequently, product pricing strategies to manage interest rate risk. As
at October 31, 2019, an immediate and sustained 100 bps increase in
interest rates would have decreased the economic value of shareholders’
equity by $413 million (October 31, 2018 – $238 million decrease) after
tax. An immediate and sustained 100 bps decrease in interest rates
would have decreased the economic value of shareholders’ equity by
$418 million (October 31, 2018 – $2 million increase) after tax.
The interest rate exposure, or EVaR, in the insurance business is not
included in the above graph. Interest rate risk in the insurance business
is managed using defned 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
the Bank has material exposure.
T A B L E 4 6
SENSITIVITY OF AFTER-TAX ECONOMIC VALUE AT RISK BY CURRENCY
(millions of Canadian dollars)
Currency
Canadian dollar
U.S. dollar
October 31, 2019
October 31, 2018
100 bps
increase
$
(39)
(374)
$ (413)
100 bps
decrease
$
(43)
(375)
$ (418)
100 bps
increase
$
(41)
(197)
$ (238)
100 bps
decrease
$ (17)
19
$ 2
For the NIIS measure (not shown on the graph), a 100 bps increase in
interest rates on October 31, 2019, would have decreased pre-tax net
interest income by $171 million (October 31, 2018 – $73 million
decrease) in the next twelve months due to the mismatched positions.
A 100 bps decrease in interest rates on October 31, 2019, would have
decreased pre-tax net interest income by $73 million (October 31, 2018 –
$114 million decrease) in the next twelve months due to the mismatched
positions. Reported NIIS remains consistent with the Bank’s risk appetite
and within established Board limits.
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TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
The following table shows the sensitivity of net interest income (pre-tax)
by currency for those currencies where the Bank has material exposure.
T A B L E 4 7
SENSITIVITY OF PRE-TAX NET INTEREST INCOME SENSITIVITY BY CURRENCY
October 31, 2019
October 31, 2018
100 bps
increase
$ (103)
(68)
$ (171)
100 bps
decrease
$ 103
(176)
(73)
$
100 bps
increase
$ (49)
(24)
$ (73)
100 bps
decrease
$ 49
(163)
$ (114)
Managing Investment Portfolios
The Bank manages a securities portfolio that is integrated into the
overall asset and liability management process. The securities portfolio
is managed using high-quality, low-risk securities in a manner
appropriate to the attainment of the following goals: (1) to generate
a targeted credit of funds to deposits balances that are in excess
of loan balances; (2) to provide a suffcient pool of liquid assets to
meet deposit and loan fuctuations and overall liquidity management
objectives; (3) to provide eligible securities to meet collateral and
cash management requirements; and (4) to manage the target interest
rate risk profle of the balance sheet. The Risk Committee reviews
and approves the Enterprise Investment Policy that sets out limits for
the Bank’s investment portfolio.
WHY NET INTEREST MARGIN FLUCTUATES OVER TIME
As previously noted, the Bank’s approach to asset/liability management
is to ensure that earnings are stable and predictable over time,
regardless of cash fow mismatches and the exercise of options
granted to customers. This approach also creates margin certainty on
fxed rate loans and deposits as they are booked. Despite this approach
however, the Bank’s net interest margin on average earning assets is
subject to change over time for the following reasons (among others):
• Differences in margins earned on new and renewing products
relative to the margin previously earned on matured products;
• The weighted-average margin on average earning assets will shift
as the mix of business changes;
• Changes in the basis between the Prime Rate and the Bankers’
Acceptance rate, or the Prime Rate and the London Interbank
Offered Rate; and/or
• The lag in changing product prices in response to changes in
wholesale rates.
The general level of interest rates will affect the return the Bank
generates on its modeled maturity profle for core deposits and the
investment profle for its net equity position as it evolves over time.
The general level of interest rates is also a key driver of some modeled
option exposures, and will affect the cost of hedging such exposures.
The Bank’s approach to managing these factors tends to moderate
their impact over time, resulting in a more stable and predictable
earnings stream.
(millions of Canadian dollars)
Currency
Canadian dollar
U.S. dollar
Future Changes in Interest Rate Risk Measures
In April 2016, the BCBS published a new Standard on Interest Rate
Risk in the Banking Book (IRRBB) as an update to the Committee’s
2004 publication, to refect changes in market, methodology and
supervisory practices regarding the measurement of IRRBB. OSFI issued
a revised Interest Rate Risk Management Guideline (B-12) in May 2019
that largely aligns with the BCBS Standard. The new regulatory
guideline prescribes IRRBB measures, standardized stress scenarios,
and enhancements to governance and modelling. The Bank will adopt
these new standards by January 1, 2020 for reporting in the frst
quarter of 2020.
As a result, the currently reported EVaR measure will be replaced
by an Economic Value of Equity (EVE) measure. The primary difference
will be the exclusion of an assumed equity profle. In addition, the Bank’s
reported NIIS measurement approach will be modifed to align with
IRRBB requirements and refect the Bank’s earnings risk from
fuctuations in interest rates.
Managing Non-trading Foreign Exchange Risk
Foreign exchange risk refers to losses that could result from changes
in foreign-currency exchange rates. Assets and liabilities that are
denominated in foreign currencies create foreign exchange risk.
The Bank is exposed to non-trading foreign exchange risk primarily
from its investments in foreign operations. When the Bank’s foreign
currency assets are greater or less than its liabilities in that currency,
they create a foreign currency open position. An adverse change in
foreign exchange rates can impact the Bank’s reported net income
and shareholders’ equity, and also its capital ratios.
Minimizing the impact of an adverse foreign exchange rate change
on reported equity will cause some variability in capital ratios, due
to the amount of RWA denominated in a foreign currency. If the
Canadian dollar weakens, the Canadian dollar equivalent of the Bank’s
RWA in a foreign currency increases, thereby increasing the Bank’s
capital requirement. For this reason, the foreign exchange risk arising
from the Bank’s net investments in foreign operations is hedged to the
point where certain capital ratios change by no more than an
acceptable amount for a given change in foreign exchange rates.
Other Non-trading Market Risks
Other market risks monitored on a regular basis include:
• Basis Risk – The Bank is exposed to risks related to the difference
in various market indices.
• Equity Risk – The Bank is exposed to equity risk through its equity-
linked guaranteed investment certifcate product offering. The
exposure is managed by purchasing options to replicate the equity
payoff. The Bank is also exposed to non-trading equity price risk
primarily from its share-based compensation plans where certain
employees are awarded share units equivalent to the Bank’s
common shares as compensation for services provided to the Bank.
These share units are recorded as a liability over the vesting
period and revalued at each reporting period until settled in cash.
Changes in the Bank’s share price can impact non-interest expenses.
The Bank uses derivative instruments to manage its non-trading
equity price risk.
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
89
Governance and Policy
Management reporting and organizational structures emphasize
accountability, ownership, and effective oversight of each business
unit and each corporate area’s operational risk exposures. In addition,
the expectations of the Risk Committee and senior management
for managing operational risk are set out by enterprise-wide policies
and practices.
Risk and Control Self-Assessment
Internal controls are one of the primary methods of safeguarding
the Bank’s employees, customers, assets, and information, and in
preventing and detecting errors and fraud. Management undertakes
comprehensive assessments of key risk exposures and the internal
controls in place to reduce or offset these risks. Senior management
reviews the results of these evaluations to determine that risk
management and internal controls are effective, appropriate, and
compliant with the Bank’s policies.
Operational Risk Event Monitoring
In order to reduce the Bank’s exposure to future loss, it is critical
that the Bank remains aware of and responds to its own and industry
operational risks. The Bank’s policies and processes require that
operational risk events be identifed, tracked, and reported to the
appropriate level of management to facilitate the Bank’s analysis
and management of its risks and inform the assessment of suitable
corrective and preventative action. The Bank also reviews, analyzes,
and benchmarks itself against operational risk losses that have
occurred at other fnancial institutions using information acquired
through recognized industry data providers.
Scenario Analysis
Scenario Analysis is a systematic and repeatable process used to
assess the likelihood and loss impact for signifcant and infrequent
operational risk events (tail risks). The Bank applies this practice
to meet risk measurement and risk management objectives. The
process includes the use of relevant external operational loss event
data that is assessed considering the Bank’s operational risk profle
and control structure. The program raises awareness and educates
business owners regarding existing and emerging risks, which may
result in the identifcation and implementation of new scenarios
and risk mitigation action plans to minimize tail risk.
Risk Reporting
Risk Management, in partnership with senior management, regularly
monitors risk-related measures and the risk profle throughout the Bank
to report to senior business management and the Risk Committee.
Operational risk measures are systematically tracked, assessed, and
reported to promote management accountability and direct the
appropriate level of attention to current and emerging issues.
Insurance
TD’s Corporate Insurance team, with oversight from TD Risk
Management, utilizes insurance and other risk transfer arrangements
to mitigate and reduce potential future losses related to operational
risk. Risk Management includes oversight of the effective use of
insurance aligned with the Bank’s risk management strategy and risk
appetite. Insurance terms and provisions, including types and amounts
of coverage, are regularly assessed so that the Bank’s tolerance for
risk and, where applicable, statutory requirements are satisfed. The
management process includes conducting regular in-depth risk and
fnancial analysis and identifying opportunities to transfer elements
of the Bank’s risk to third parties where appropriate. The Bank
transacts with external insurers that satisfy its minimum fnancial
rating requirements.
Operational Risk
Operational risk is the risk of loss resulting from inadequate or failed
internal processes or technology or from human activities or from
external events. This defnition includes legal risk but excludes strategic
and reputational risk.
Operational risk is inherent in all of the Bank’s business activities,
including the practices and controls used to manage other risks such
as credit, market, and liquidity risk. Failure to manage operational risk
can result in fnancial loss (direct or indirect), reputational harm, or
regulatory censure and penalties.
The Bank actively mitigates and manages operational risk in order
to create and sustain shareholder value, successfully execute the Bank’s
business strategies, operate effciently, and provide reliable, secure,
and convenient access to fnancial services. The Bank maintains a
formal enterprise-wide operational risk management framework that
emphasizes a strong risk management and internal control culture
throughout TD.
In fscal 2019, operational risk losses remain within the Bank’s
risk appetite. Refer to Note 27 of the 2019 Consolidated
Financial Statements for further information on material legal
or regulatory actions.
WHO MANAGES OPERATIONAL RISK
Operational Risk Management is an independent function that owns
and maintains the Bank’s Operational Risk Management Framework.
This framework sets out the enterprise-wide governance processes,
policies, and practices to identify and assess, measure, control,
monitor, escalate, and report operational risk. Operational Risk
Management is designed to ensure that there is appropriate
monitoring and reporting of the Bank’s operational risk profle and
exposures to senior management through the OROC, the ERMC, and
the Risk Committee.
In addition to the framework, Operational Risk Management owns
and maintains, or has oversight of the Bank’s operational risk policies.
These policies govern the activities of the corporate areas responsible
for the management and appropriate oversight of business continuity
and crisis management, third-party management, data management,
fnancial crime and fraud management, project management, and
technology and cyber security management. Examples of operational
risks that are owned and maintained by another function, but over
which Operational Risk Management has oversight, include fraud risk
management, third-party management, and project management.
The senior management of individual business units and corporate
areas is responsible for the day-to-day management of operational
risk following the Bank’s established operational risk management
framework and policies and the three lines of defence model. An
independent risk management oversight function supports each
business segment and corporate area, and monitors and challenges the
implementation and use of the operational risk management framework
programs according to the nature and scope of the operational risks
inherent in the area. The senior executives in each business unit and
corporate area participate in a Risk Management Committee that
oversees operational risk management issues and initiatives.
Ultimately, every employee has a role to play in managing
operational risk. In addition to policies and procedures guiding
employee activities, training is available to all staff regarding specifc
types of operational risks and their role in helping to protect the
interests and assets of the Bank.
HOW TD MANAGES OPERATIONAL RISK
The Operational Risk Management Framework outlines the internal
risk and control structure to manage operational risk and includes
the operational risk appetite, governance processes, and policies.
The Operational Risk Management Framework supports alignment
with the Bank’s ERF and risk appetite. The framework incorporates
sound industry practices and meets regulatory requirements. Key
components of the framework include:
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TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
Technology and Cyber Security
Virtually all aspects of the Bank’s business and operations use
technology and information to create and support new markets,
competitive products, delivery channels, as well as other business
operations and opportunities. The Bank manages these risks to support
adequate and proper day-to-day operations; and protect against
unauthorized access of the Bank’s technology, infrastructure, systems,
information, or data. To achieve this, the Bank actively monitors,
manages, and continues to enhance its ability to mitigate these
technology and cyber security risks through enterprise-wide programs
and industry-accepted cyber threat management practices to enable
rapid detection and response. The Bank’s Cybersecurity Subcommittee
provides dedicated senior executive oversight, direction and guidance
regarding managing of risk relating to cybersecurity, including cyber
terrorism and activism, cyber fraud, extortion and theft, as well as,
identity and data theft. The Cybersecurity Subcommittee endorses
actions and makes recommendations to the CEO and the ERMC
as appropriate, including in some instances, supporting onward
recommendations to the Risk Committee. Together with the Bank’s
operational risk management framework, technology and cyber
security programs also include enhanced resiliency planning and
testing, as well as disciplined change management practices.
Data Management
The Bank’s data is a strategic asset that is governed and managed
to preserve value and support business objectives. Inconsistent data
governance and management practices may compromise the Bank’s
data and information assets which could result in fnancial and
reputational impacts. The Bank’s Offce of the Chief Data Offcer
(OCDO), Corporate and Technology partners develop and implement
enterprise wide standards and practices that describe how data and
information assets are managed, governed, used, and protected.
Business Continuity and Crisis Management
The Bank maintains an enterprise-wide Business Continuity and Crisis
Management Program that supports management’s ability to operate
the Bank’s businesses and operations (including providing customers
access to products and services) in the event of a business disruption
incident. All areas of the Bank are required to maintain and regularly
test business continuity plans to facilitate the continuity and recovery
of business operations. The Bank’s Program is supported by formal
crisis management measures so that the appropriate level of
leadership, oversight and management is applied to incidents
affecting the Bank.
Third-Party Management
A third-party supplier/vendor is an entity that supplies a particular
product or service to or on behalf of the Bank. While these
relationships bring benefts to the Bank’s businesses and customers,
the Bank also needs to manage and minimize any risks related to
the activity. The Bank does this through an enterprise third-party
risk management program that is designed to manage third-party
activities throughout the life cycle of an arrangement and provide
an appropriate level of risk management and senior management
oversight which is appropriate to the size, risk, and criticality of the
third-party arrangement.
Project Management
The Bank has established a disciplined approach to project
management across the enterprise coordinated by the Bank’s
Enterprise Project Delivery Excellence Group. This approach involves
senior management governance and oversight of the Bank’s project
portfolio and leverages leading industry practices to guide the Bank’s
use of standardized project management methodology, defned project
management accountabilities and capabilities, and project portfolio
reporting and management tools to support successful project delivery.
Financial Crime and Fraud Management
The Bank develops and implements enterprise-wide fnancial crime
and fraud management strategies, policies, and practices. The Bank
employs prevention, detection and monitoring capabilities to
strengthen the Bank’s defences and enhance governance, oversight,
and collaboration across the enterprise to protect customers,
shareholders, and employees from increasingly sophisticated fnancial
crimes and fraud.
Operational Risk Capital Measurement
The Bank’s operational risk capital is determined using the AMA,
a risk-sensitive capital model, along with the standardized approach
(TSA). OSFI approved the Bank to use AMA in the third quarter of
2016. Entities not reported under AMA, use TSA methodology.
Effective the frst quarter of 2019, all entities are reported under AMA.
The Bank’s AMA Capital Model uses a Loss Distribution Approach
(LDA) and incorporates Internal Loss Data and Scenario Analysis results.
External Loss Data is indirectly considered through the identifcation
and assessment of Scenario Analysis estimations. Business,
Environment and Internal Control Factors (BEICF) are used as a post-
model adjustment to capital estimates to refect forward-looking
indicators of risk exposure.
The Bank’s AMA model includes the incorporation of a diversifcation
beneft, which considers correlations across risk types and business
lines as extreme loss events may not occur simultaneously across all
categories. The capital is estimated at the 99.9% confdence level.
Although the Bank manages a comprehensive portfolio of insurance
and other risk mitigating arrangements to provide additional protection
from loss, the Bank’s AMA model does not consider risk mitigation
through insurance.
Model Risk
Model risk is the potential for adverse consequences arising from
decisions based on incorrect or misused models and other estimation
approaches and their outputs. It can lead to fnancial loss, reputational
risk, or incorrect business and strategic decisions.
WHO MANAGES MODEL RISK
Primary accountability for the management of model risk resides with
the senior management of individual businesses with respect to the
models they use. The Model Risk Governance Committee provides
oversight of governance, risk, and control matters, by providing a
platform to guide, challenge, and advise decision makers and model
owners in model risk related matters. Model Risk Management monitors
and reports on existing and emerging model risks, and provides periodic
assessments to senior management, Risk Management, the Risk
Committee of the Board, and regulators on the state of model risk
at TD and alignment with the Bank’s Model Risk Appetite. The Risk
Committee of the Board approves the Bank’s Model Risk Management
Framework and Model Risk Policy.
HOW TD MANAGES MODEL RISK
The Bank manages model risk in accordance with management
approved model risk policies and supervisory guidance which encompass
the life cycle of a model, including proof of concept, development,
validation, implementation, usage, and ongoing model performance
monitoring. The Bank’s Model Risk Management Framework also
captures key processes that may be partially or wholly qualitative,
or based on expert judgment.
Business segments identify the need for a new model or process and
are responsible for model development and documentation according to
the Bank’s policies and standards. During model development, controls
with respect to code generation, acceptance testing, and usage are
established and documented to a level of detail and comprehensiveness
matching the materiality and complexity of the model. Once models are
implemented, business owners are responsible for ongoing performance
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
91
monitoring and usage in accordance with the Bank’s Model Risk
Policy. In cases where a model is deemed obsolete or unsuitable for
its originally intended purposes, it is decommissioned in accordance
with the Bank’s policies.
Model Risk Management and Model Validation provide oversight,
maintain a centralized inventory of all models as defned in the Bank’s
Model Risk Policy, validate and approve new and existing models on a
pre-determined schedule depending on model complexity, materiality
and criticality, set model performance monitoring standards, and
provide training to all stakeholders. The validation process varies in
rigour, depending on the model risk rating, but at a minimum contains
a detailed determination of:
• the conceptual soundness of model methodologies and underlying
quantitative and qualitative assumptions;
• the risk associated with a model based on complexity, materiality
and criticality;
• the sensitivity of a model to model assumptions and changes
in data inputs including stress testing; and
• the limitations of a model and the compensating risk mitigation
mechanisms in place to address the limitations.
When appropriate, validation includes a benchmarking exercise which
may include the building of an independent model based on an
alternative modelling approach. The results of the benchmark
model are compared to the model being assessed to validate the
appropriateness of the model’s methodology and its use. As with
traditional model approaches, machine-learning models are also
subject to the same rigorous standards and risk management practices.
At the conclusion of the validation process, a model will either be
approved for use or will be rejected and require redevelopment or
other courses of action. Models identifed as obsolete or no longer
appropriate for use through changes in industry practice, the business
environment, or Bank strategies are subject to decommissioning.
Model risk exists on a continuum from the most complex and material
models to analytical tools (also broadly referred to as non-models)
that may still expose the Bank to risk based on their incorrect use
or inaccurate outputs. The Bank has policies and procedures in place
designed to ensure that the level of independent challenge and
oversight corresponds to the materiality and complexity of both models
and non-models.
Insurance Risk
Insurance risk is the risk of fnancial loss due to actual experience
emerging differently from expectations in insurance product pricing
and/or design, underwriting, claims or reserving than expected at the
inception of an insurance contract. Unfavourable experience could
emerge due to adverse fuctuations in timing, actual size, and/or
frequency of claims (for example, driven by non-life premium risk,
non-life reserving risk, catastrophic risk, mortality risk, morbidity risk,
and longevity risk), policyholder behaviour, or associated expenses.
Insurance contracts provide fnancial protection by transferring
insured risks to the issuer in exchange for premiums. The Bank is
engaged in insurance businesses relating to property and casualty
insurance, life and health insurance, and reinsurance, through various
subsidiaries; it is through these businesses that the Bank is exposed
to insurance risk.
WHO MANAGES INSURANCE RISK
Senior management within the insurance business units has primary
responsibility for managing insurance risk with oversight by the
CRO for Insurance, who reports into Risk Management. The Audit
Committee of the Board acts as the Audit and Conduct Review
Committee for the Canadian insurance company subsidiaries. The
insurance company subsidiaries also have their own Boards of Directors
who provide additional risk management oversight.
HOW TD MANAGES INSURANCE RISK
The Bank’s risk governance practices are designed to support strong
independent oversight and control of risk within the insurance
business. The TD Insurance Risk Committee and its sub committees
provide critical oversight of the risk management activities within
the insurance business and monitor compliance with insurance risk
policies. The Bank’s Insurance Risk Management Framework and
Insurance Risk Policy collectively outline the internal risk and control
structure to manage insurance risk and include risk appetite, policies,
processes, as well as limits and governance. These documents are
maintained by Risk Management and support alignment with
the Bank’s risk appetite for insurance risk.
The assessment of policy (premium and claims) liabilities is central
to the insurance operation. The Bank establishes reserves to cover
estimated future payments (including loss adjustment expenses) on all
claims or terminations/surrenders of premium arising from insurance
contracts underwritten. The reserves cannot be established with
complete certainty, and represent management’s best estimate for
future payments. As such, the Bank regularly monitors estimates
against actual and emerging experience and adjusts reserves as
appropriate if experience emerges differently than anticipated. Claim
and premium liabilities are governed by the Bank’s general insurance
and life and health reserving policies.
Sound product design is an essential element of managing risk.
The Bank’s exposure to insurance risk is mostly short-term in nature
as the principal underwriting risk relates to automobile and home
insurance for individuals.
Insurance market cycles, as well as changes in insurance legislation,
the regulatory environment, judicial environment, trends in court
awards, climate patterns, and the economic environment may impact
the performance of the insurance business. Consistent pricing policies
and underwriting standards are maintained.
There is also exposure to concentration risk associated with general
insurance and life and health coverage. Exposure to insurance risk
concentration is managed through established underwriting guidelines,
limits, and authorization levels that govern the acceptance of risk.
Concentration of insurance risk is also mitigated through the purchase
of reinsurance. The insurance business’ reinsurance programs are
governed by catastrophe and reinsurance risk management policies.
Strategies are in place to manage the risk to the Bank’s reinsurance
business. Underwriting risk on business assumed is managed through
a policy that limits exposure to certain types of business and countries.
The vast majority of reinsurance treaties are annually renewable,
which minimizes long-term risk. Pandemic exposure is reviewed and
estimated annually within the reinsurance business to manage
concentration risk.
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TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
Liquidity Risk
The risk of having insuffcient cash or collateral to meet fnancial
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-specifc 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%
and beginning January 2020 will be required to maintain a Net Stable
Funding Ratio (NSFR) at the minimum of 100%. The Bank’s funding
program emphasizes maximizing deposits as a core source of funding,
and having ready access to wholesale funding markets across
diversifed terms, funding types, and currencies that is designed 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 is designed to ensure low
exposure to liquidity risk and compliance with regulatory requirements.
LIQUIDITY RISK MANAGEMENT RESPONSIBILITY
The Bank’s ALCO oversees the Bank’s liquidity risk management
program. It ensures there are effective management structures and
practices in place to properly measure and manage liquidity risk. The
GLF, a subcommittee of the ALCO comprised of senior management
from TBSM, Risk Management and Wholesale Banking, identifes and
monitors the Bank’s liquidity risks. The management of liquidity risk 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 Liquidity Risk Management Framework
bi-annually and the related policies annually.
The Bank has established TDGUS, as TD’s U.S. IHC, and a Combined
U.S. Operations (CUSO) reporting unit 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 following areas are responsible for measuring, monitoring, and
managing liquidity risks for major business segments:
• Risk Management is responsible for maintaining the liquidity risk
management policy and asset pledging policy, along with associated
limits, standards, and processes which are established to ensure
that consistent and effcient liquidity management approaches are
applied across all of the Bank’s operations. Risk Management jointly
owns the liquidity risk management framework, along with the
Chief Financial Offcer. Enterprise Market Risk Control provides
oversight of liquidity risk across the enterprise and provides
independent risk assessment and effective challenge of liquidity risk.
Capital Markets Risk Management is responsible for independent
liquidity risk metric reporting.
• TBSM Liquidity Management manages the liquidity position of
the Canadian Retail (including wealth businesses), Corporate, the
Wholesale Banking, and U.S. Retail businesses, as well as the
liquidity position of CUSO.
• Other regional operations, including those within TD’s insurance,
foreign branches, and/or subsidiaries are responsible for
managing their liquidity risk in compliance with their own policies,
local regulatory requirements and are in alignment with the
enterprise framework.
HOW TD MANAGES LIQUIDITY RISK
The Bank manages the liquidity profle of its businesses to be within
the defned liquidity risk appetite, and maintains target requirements
for liquidity survivability using a combination of internal and regulatory
measures. The Bank’s overall liquidity requirement is defned as the
amount of liquid assets the Bank needs to hold to be able to cover
expected future cash fow requirements, plus a prudent reserve against
potential cash outfows in the event of a capital markets disruption
or other events that could affect the Bank’s access to funding or
destabilize its deposit base.
The Bank maintains an internal view for measuring and managing
liquidity that uses an assumed Severe Combined Stress Scenario
(SCSS). The SCSS considers potential liquidity requirements during a
crisis resulting from a loss of confdence in the Bank’s ability to meet
obligations as they come due. In addition to this bank-specifc event,
the SCSS also incorporates the impact of a stressed market-wide
liquidity event that results in a signifcant reduction in the availability
of funding for all institutions and a decrease in the marketability
of assets. The Bank’s liquidity policy stipulates that the Bank must
maintain a suffcient level of liquid assets to support business growth,
and to cover identifed stressed liquidity requirements under the SCSS
up to 90 days. The Bank calculates stressed liquidity requirements for
the SCSS related to the following conditions:
• wholesale funding maturing in the next 90 days (assumes maturing
debt will be repaid instead of rolled over);
• accelerated attrition or “run-off” of deposit balances;
• increased utilization of available credit and liquidity facilities; and
• increased collateral requirements associated with downgrades in
the Bank’s credit rating and adverse movement in reference rates
for derivative and securities fnancing transactions.
The Bank also manages its liquidity to comply with the regulatory
liquidity requirements in the OSFI LAR (the LCR, the NSFR, and the Net
Cumulative Cash Flow (NCCF) monitoring tool). The LCR requires that
banks maintain minimum liquidity coverage of 100% over a 30-day
stress period, the NSFR requires that banks maintain available stable
funding in excess of required stable funding starting January 2020 (a
minimum NSFR of 100%), and the NCCF monitors the Bank’s detailed
cash fow gaps for various time bands. As a result, the Bank’s liquidity
is managed to the higher of its internal liquidity requirements and the
target buffers over the regulatory minimums.
The Bank considers potential regulatory restrictions on liquidity
transferability in the calculation of enterprise liquidity positions.
Accordingly, surplus liquidity domiciled in regulated subsidiaries may
be excluded from consolidated liquidity positions as appropriate.
The Bank’s Funds Transfer Pricing process considers liquidity risk as a
key determinant of the cost or credit of funds to the retail and wholesale
bank businesses. Liquidity costs applied to loans and trading assets are
determined based on the cash fow or stressed liquidity profle, while
deposits are assessed based on the required liquidity reserves and
balance stability. Liquidity costs are also applied to other contingent
obligations like undrawn lines of credit provided to customers.
LIQUID ASSETS
The unencumbered liquid assets the Bank holds to meet 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. The liquidity value of unencumbered liquid assets
considers estimated market or trading depths, settlement timing,
and/or other identifed 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.
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
93
Assets held by the Bank to meet 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.
T A B L E 4 8
SUMMARY OF LIQUID ASSETS BY TYPE AND CURRENCY1,2
(millions of Canadian dollars, except as noted)
As at
Cash and due from banks
Canadian government obligations
NHA MBS
Provincial government obligations
Corporate issuer obligations
Equities
Other marketable securities and/or loans
Total Canadian dollar-denominated
Cash and due from banks
U.S. government obligations
U.S. federal agency obligations, including U.S.
federal agency mortgage-backed obligations
Other sovereign obligations
Corporate issuer obligations
Equities
Other marketable securities and/or loans
Total non-Canadian dollar-denominated
Total
Cash and due from banks
Canadian government obligations
NHA MBS
Provincial government obligations
Corporate issuer obligations
Equities
Other marketable securities and/or loans
Total Canadian dollar-denominated
Cash and due from banks
U.S. government obligations
U.S. federal agency obligations, including U.S.
federal agency mortgage-backed obligations
Other sovereign obligations
Corporate issuer obligations
Equities
Other marketable securities and/or loans
Total non-Canadian dollar-denominated
Total
Securities
received as
collateral from
securities
fnancing and
derivative
transactions
$
–
77,275
15
25,151
3,623
2,770
311
109,145
–
47,803
11,873
49,304
1,856
34,607
667
146,110
$ 255,255
$
–
63,463
42
19,241
3,767
1,637
349
88,499
–
37,691
927
45,912
1,576
37,666
4
123,776
$ 212,275
Bank-owned
liquid assets
$
5,140
13,872
38,138
15,679
11,149
13,636
2,512
100,126
19,225
34,103
58,222
47,854
84,835
40,550
4,658
289,447
$ 389,573
$
3,002
18,256
39,649
12,720
6,622
10,554
2,655
93,458
24,046
30,163
47,150
56,034
78,160
33,514
4,786
273,853
$ 367,311
Total
liquid assets
% of total
Encumbered
liquid assets
Unencumbered
liquid assets
October 31, 2019
$
5,140
91,147
38,153
40,830
14,772
16,406
2,823
209,271
19,225
81,906
70,095
97,158
86,691
75,157
5,325
435,557
$ 644,828
$
3,002
81,719
39,691
31,961
10,389
12,191
3,004
181,957
24,046
67,854
48,077
101,946
79,736
71,180
4,790
397,629
$ 579,586
1%
$
14
6
6
2
3
–
32
3
13
566
56,337
3,816
31,287
3,882
11,225
1,078
108,191
33
37,367
11
15
13
12
1
68
100%
20,939
39,500
7,070
39,403
712
145,024
$ 253,215
1%
$
14
6
5
2
2
1
31
4
12
1,098
47,572
3,057
23,651
3,769
6,028
277
85,452
28
32,918
8
18
14
12
1
69
100%
7,522
41,993
7,234
32,206
191
122,092
$ 207,544
$
4,574
34,810
34,337
9,543
10,890
5,181
1,745
101,080
19,192
44,539
49,156
57,658
79,621
35,754
4,613
290,533
$ 391,613
October 31, 2018
$
1,904
34,147
36,634
8,310
6,620
6,163
2,727
96,505
24,018
34,936
40,555
59,953
72,502
38,974
4,599
275,537
$ 372,042
1 Positions stated include gross asset values pertaining to securities
2 Liquid assets include collateral received that can be re-hypothecated or
financing transactions.
otherwise redeployed.
The increase of $18 billion in total unencumbered liquid assets from
October 31, 2018, was mainly due to regular wholesale business
activity and deposit volume growth in the Canadian Retail and U.S.
Retail segments. Liquid assets are held in The Toronto-Dominion Bank
and multiple domestic and foreign subsidiaries and branches and are
summarized in the following table.
T A B L E 4 9
SUMMARY OF UNENCUMBERED LIQUID ASSETS BY BANK, SUBSIDIARIES, AND BRANCHES
(millions of Canadian dollars)
The Toronto-Dominion Bank (Parent)
Bank subsidiaries
Foreign branches
Total
October 31
2019
$ 139,550
228,978
23,085
$ 391,613
As at
October 31
2018
$ 136,544
217,565
17,933
$ 372,042
94
TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
The Bank’s monthly average liquid assets (excluding those held in
insurance subsidiaries) for the years ended October 31, 2019, and
October 31, 2018, are summarized in the following table.
T A B L E 5 0
SUMMARY OF AVERAGE LIQUID ASSETS BY TYPE AND CURRENCY1,2
(millions of Canadian dollars, except as noted)
Average for the years ended
Cash and due from banks
Canadian government obligations
NHA MBS
Provincial government obligations
Corporate issuer obligations
Equities
Other marketable securities and/or loans
Total Canadian dollar-denominated
Cash and due from banks
U.S. government obligations
U.S. federal agency obligations, including U.S.
federal agency mortgage-backed obligations
Other sovereign obligations
Corporate issuer obligations
Equities
Other marketable securities and/or loans
Total non-Canadian dollar-denominated
Total
Cash and due from banks
Canadian government obligations
NHA MBS
Provincial government obligations
Corporate issuer obligations
Equities
Other marketable securities and/or loans
Total Canadian dollar-denominated
Cash and due from banks
U.S. government obligations
U.S. federal agency obligations, including U.S.
federal agency mortgage-backed obligations
Other sovereign obligations
Corporate issuer obligations
Equities
Other marketable securities and/or loans
Total non-Canadian dollar-denominated
Total
Securities
received as
collateral from
securities
fnancing and
derivative
transactions
$
–
69,160
32
23,145
3,907
3,876
397
100,517
–
44,473
7,139
45,645
2,391
36,572
770
136,990
$ 237,507
$
–
54,782
48
17,390
3,729
2,279
348
78,576
–
40,533
677
55,008
1,579
30,034
14
127,845
$ 206,421
Bank-owned
liquid assets
$
3,404
13,779
41,436
14,042
8,311
10,742
3,130
94,844
27,019
32,168
51,854
51,841
80,482
37,818
4,680
285,862
$ 380,706
$
3,115
15,548
41,365
11,160
6,347
10,360
2,216
90,111
34,805
30,349
44,929
53,068
71,142
29,341
4,977
268,611
$ 358,722
Total
liquid assets
% of total
Encumbered
liquid assets
Unencumbered
liquid assets
October 31, 2019
$
3,404
82,939
41,468
37,187
12,218
14,618
3,527
195,361
27,019
76,641
58,993
97,486
82,873
74,390
5,450
422,852
$ 618,213
$
3,115
70,330
41,413
28,550
10,076
12,639
2,564
168,687
34,805
70,882
45,606
108,076
72,721
59,375
4,991
396,456
$ 565,143
1%
$
13
7
6
2
2
1
32
4
12
457
49,895
3,607
27,559
4,038
9,540
566
95,662
34
37,573
10
16
13
12
1
68
100%
16,393
36,818
7,028
39,191
955
137,992
$ 233,654
1%
$
12
7
5
2
2
1
30
6
13
573
42,407
4,517
21,266
2,018
4,965
278
76,024
127
38,668
8
19
13
10
1
70
100%
8,731
38,663
5,864
24,974
557
117,584
$ 193,608
$
2,947
33,044
37,861
9,628
8,180
5,078
2,961
99,699
26,985
39,068
42,600
60,668
75,845
35,199
4,495
284,860
$ 384,559
October 31, 2018
$
2,542
27,923
36,896
7,284
8,058
7,674
2,286
92,663
34,678
32,214
36,875
69,413
66,857
34,401
4,434
278,872
$ 371,535
1 Positions stated include gross asset values pertaining to securities
2 Liquid assets include collateral received that can be re-hypothecated or
financing transactions.
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.
T A B L E 5 1
SUMMARY OF AVERAGE UNENCUMBERED LIQUID ASSETS BY BANK, SUBSIDIARIES, AND BRANCHES
(millions of Canadian dollars)
The Toronto-Dominion Bank (Parent)
Bank subsidiaries
Foreign branches
Total
Average for the years ended
October 31
2019
$ 140,192
224,533
19,834
$ 384,559
October 31
2018
$ 124,181
217,036
30,318
$ 371,535
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
95
ASSET ENCUMBRANCE
In the course of the Bank’s day-to-day operations, assets are pledged
to obtain funding, support trading and brokerage businesses, and
participate in clearing and/or settlement systems. A summary of
encumbered and unencumbered assets (excluding assets held in
insurance subsidiaries) is presented in the following table to identify
assets that are used or available for potential funding needs.
T A B L E 5 2
ENCUMBERED AND UNENCUMBERED ASSETS
(millions of Canadian dollars, except as noted)
Cash and due from banks
Interest-bearing deposits with banks
Securities, trading loans, and other6
Derivatives
Securities purchased under reverse repurchase agreements7
Loans, net of allowance for loan losses
Customers’ liability under acceptances
Investment in TD Ameritrade
Goodwill
Other intangibles
Land, buildings, equipment, and other depreciable assets
Deferred tax assets
Other assets8
Total on-balance sheet assets
Off-balance sheet items9
Securities purchased under reverse repurchase agreements
Securities borrowing and collateral received
Margin loans and other client activity
Total off-balance sheet items
Total
Encumbered1
Unencumbered
Pledged as
collateral2
185
$
5,394
73,165
–
–
25,851
–
–
–
–
–
–
580
$ 105,175
143,664
60,941
8,900
213,505
$ 318,680
$
Other3
–
90
12,342
–
–
61,633
–
–
–
–
–
–
–
$ 74,065
–
3,707
–
3,707
$ 77,772
Available as
collateral4
–
$
17,798
283,384
–
–
83,598
–
–
–
–
–
–
–
$ 384,780
32,397
17,328
20,439
70,164
$ 454,944
$
Other5
4,678
2,301
29,253
48,894
165,935
513,526
13,494
9,316
16,976
2,503
5,513
1,799
37,082
$ 851,270
(165,935)
–
(14,149)
(180,084)
$ 671,186
As at
October 31, 2019
Total
assets
Encumbered
assets as a %
of total assets
$
4,863
25,583
398,144
48,894
165,935
684,608
13,494
9,316
16,976
2,503
5,513
1,799
37,662
$ 1,415,290
–%
0.5
6.0
–
–
6.2
–
–
–
–
–
–
–
12.7%
Total on-balance sheet assets
Total off-balance sheet items
Total
$ 100,719
185,323
$ 286,042
$ 72,086
559
$ 72,645
$ 377,068
57,845
$ 434,913
$ 785,030
(142,072)
$ 642,958
October 31, 2018
$ 1,334,903
12.9%
1 Asset 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.
2 Represents assets that have been posted externally to support the Bank’s day-to-
day operations, including securities financing transactions, clearing and payments,
and derivative transactions. Also includes assets that have been pledged supporting
Federal Home Loan Bank (FHLB) activity.
3 Assets 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.
4 Assets 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 DSAC that are available for collateral purposes however
not regularly utilized in practice.
5 Assets 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, CMHC insured mortgages that can be
securitized into NHA MBS).
6 Securities include trading loans, securities, non-trading financial assets at fair value
through profit or loss and other financial assets designated at fair value through
profit or loss, securities at FVOCI, and DSAC.
7 Assets reported in Securities purchased under reverse repurchase agreements
represent the value of the loans extended and not the value of the collateral received.
8 Other assets include amounts receivable from brokers, dealers, and clients.
9 Off-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.
96
TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
LIQUIDITY STRESS TESTING AND CONTINGENCY
FUNDING PLANS
In addition to the SCSS, the Bank performs liquidity stress testing on
multiple alternate scenarios. These scenarios are a mix of TD-specifc
events and market-wide stress events designed to test the impact from
risk factors material to the Bank’s risk profle. Liquidity assessments are
also part of the Bank’s EWST program.
The Bank has liquidity contingency funding plans (CFP) in place at
the overall Bank level and for subsidiaries operating in the foreign
jurisdictions (“Regional CFP”). The Bank’s 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 levels based on the severity
and duration of the liquidity situation, and identifes recovery actions
appropriate for each level. For each recovery action, it provides key
operational steps required to execute the action. Regional CFPs identify
recovery actions to address region-specifc stress events. The actions
and governance structure outlined in the Bank’s CFP are aligned with
the Bank’s Crisis Management Recovery Plan.
CREDIT RATINGS
Credit ratings impact the Bank’s borrowing costs and ability to raise
funds. Rating downgrades could potentially result in higher fnancing
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 refect their
views and are subject to change from time-to-time, based on a
number of factors including the Bank’s fnancial 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 fnancial services industry.
T A B L E 5 3
CREDIT RATINGS1
Deposits/Counterparty2
Legacy Senior Debt3
Senior Debt4
Covered Bonds
Subordinated Debt
Subordinated Debt – NVCC
Preferred Shares – NVCC
Short-Term Debt (Deposits)
Outlook
Moody’s
Aa1
Aa1
Aa3
Aaa
A2
A2 (hyb)
Baa1 (hyb)
P-1
Stable
As at
October 31, 2019
S&P
AA-
AA-
A
–
A
A-
BBB
A-1+
Stable
DBRS
AA (high)
AA (high)
AA
AAA
AA (low)
A
Pfd-2 (high)
R-1 (high)
Stable
1 The above ratings are for The Toronto-Dominion Bank legal entity. Subsidiaries’
2 Represents Moody’s Long-Term Deposits Ratings and Counterparty Risk Rating,
ratings are 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 in as much 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.
S&P’s Issuer Credit Rating, and DBRS’ Long-Term Issuer Rating.
3 Includes a) Senior debt issued prior to September 23, 2018; and b) Senior debt
issued on or after September 23, 2018 which is excluded from the bank
recapitalization “bail-in” regime, including debt with an original term-to-maturity
of less than 400 days and most structured notes.
4 Subject to conversion under the bank recapitalization “bail-in” regime.
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 it is able to provide
additional collateral required by trading counterparties in the event of
a three-notch downgrades in the Bank’s legacy senior debt ratings.
The following table presents the additional collateral that could have
been contractually required to be posted to the derivative counterparties
as of the reporting date in the event of one, two, and three-notch
downgrades of the Bank’s credit ratings.
T A B L E 5 4
ADDITIONAL COLLATERAL REQUIREMENTS
FOR RA
TING DOWNGRADES1
(millions of Canadian dollars)
One-notch downgrade
Two-notch downgrade
Three-notch downgrade
Average for the years ended
October 31
2019
October 31
2018
$ 98
118
648
$ 92
120
462
1 The above collateral requirements are based on trading counterparty Credit
Support Annex (CSA) and the Bank’s credit rating across applicable rating agencies.
LIQUIDITY COVERAGE RATIO
The LCR is a Basel III metric calculated as the ratio of the stock of
unencumbered HQLA over the net cash outfow requirements in the
next 30 days under a hypothetical liquidity stress event.
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 LAR guideline, including prescribed HQLA eligibility criteria and
haircuts, deposit run-off rates, and other outfow and infow rates.
HQLA held by the Bank that are eligible for the LCR calculation under
the LAR are primarily central bank reserves, sovereign issued or
guaranteed securities, high-quality securities or equities issued by
non-fnancial entities, and certain covered bonds.
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
97
The following table summarizes the Bank’s daily LCR position for the
fourth quarter of 2019.
T A B L E 5 5
AVERAGE BASEL III LIQUIDITY COVERAGE RATIO1
(millions of Canadian dollars, except as noted)
High-quality liquid assets
Total high-quality liquid assets
Cash outfows
Retail deposits and deposits from small business customers, of which:
Stable deposits4
Less stable deposits
Unsecured wholesale funding, of which:
Operational deposits (all counterparties) and deposits in networks of cooperative banks5
Non-operational deposits (all counterparties)
Unsecured debt
Secured wholesale funding
Additional requirements, of which:
Outfows related to derivative exposures and other collateral requirements
Outfows related to loss of funding on debt products
Credit and liquidity facilities
Other contractual funding obligations
Other contingent funding obligations6
Total cash outfows
Cash infows
Secured lending
Infows from fully performing exposures
Other cash infows
Total cash infows
Total high-quality liquid assets7
Total net cash outfows8
Liquidity coverage ratio
Average for the three months ended
October 31, 2019
Total
unweighted
value
(average)2
Total
weighted
value
(average)3
$
n/a
$ 228,860
$ 486,895
201,722
285,173
252,326
96,617
112,943
42,766
n/a
207,875
29,191
5,786
172,898
16,112
588,405
n/a
$
$ 34,569
6,052
28,517
129,771
23,001
64,004
42,766
20,466
59,827
21,757
5,786
32,284
10,221
9,223
$ 264,077
$ 206,652
16,882
56,864
$ 280,398
$ 27,156
8,000
56,864
$ 92,020
Average for the three months ended
October 31
2019
July 31
2019
Total adjusted
value
Total adjusted
value
$ 228,860
172,057
$ 220,622
166,520
133%
132%
1 The LCR for the quarter ended October 31, 2019, is calculated as an average
6 Includes uncommitted credit and liquidity facilities, stable value money market
of the 60 daily data points in the quarter.
2 Unweighted inflow and outflow values are outstanding balances maturing or
callable within 30 days.
3 Weighted values are calculated after the application of respective HQLA haircuts
or inflow and outflow rates, as prescribed by OSFI LAR guideline.
4 As 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.
5 Operational deposits from non-SME business customers are deposits kept with
the Bank in order to facilitate their access and ability to conduct activities such
as clearing, custody, or cash management services.
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.
7 Adjusted HQLA includes both asset haircut and applicable caps, as prescribed by
the OSFI LAR guideline (HQLA assets after haircuts are capped at 40% for Level 2
and 15% for Level 2B).
8 Adjusted Net Cash Outflows include both inflow and outflow rates and
applicable caps, as prescribed by the OSFI LAR guideline (inflows are capped
at 75% of outflows).
The Bank’s average LCR of 133% for the quarter ended
October 31, 2019, continues to meet the regulatory requirement.
The Bank holds a variety of liquid assets commensurate with
the liquidity needs of the organization. Many of these assets qualify
as HQLA under the OSFI LAR guideline. The average HQLA of
the Bank for the quarter ended October 31, 2019, was $229 billion
(July 31, 2019 – $221 billion), with Level 1 assets representing 81%
(July 31, 2019 – 82%). The Bank’s reported HQLA excludes excess
HQLA from the U.S. Retail operations, as required by the OSFI LAR
guideline, to refect liquidity transfer considerations between
U.S. Retail and its affliates 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.
98
TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
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 diversifcation profle.
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 70% of
the Bank’s total funding.
WHOLESALE FUNDING
The Bank actively maintains various registered external wholesale term
(greater than 1 year) funding programs to provide access to diversifed
funding sources, including asset securitization, covered bonds, and
unsecured wholesale debt. The Bank raises term funding through
Senior Notes, NHA MBS, Canada Mortgage Bonds, and notes backed
by credit card receivables (Evergreen Credit Card Trust). The Bank’s
wholesale funding is diversifed by geography, by currency, and by
funding types. The Bank raises short-term (1 year and less) funding
using certifcates of deposit and commercial paper.
T A B L E 5 6
SUMMARY OF DEPOSIT FUNDING
(millions of Canadian dollars)
P&C deposits – Canadian Retail
P&C deposits – U.S. Retail
Other deposits
Total
As at
October 31
2019
October 31
2018
$ 382,252 $ 359,473
346,624
36
$ 743,036 $ 706,133
360,761
23
The following table summarizes the registered term funding programs
by geography, with the related program size.
Canada
United States
Europe
Capital Securities Program ($10 billion)
Canadian Senior Medium Term Linked
Notes Program ($4 billion)
HELOC ABS Program (Genesis Trust II)
($7 billion)
U.S. SEC (F-3) Registered Capital and
Debt Program (US$45 billion)
United Kingdom Listing Authority (UKLA)
Registered Legislative Covered Bond
Program ($55 billion)
UKLA Registered European Medium Term
Note Program (US$20 billion)
The Bank 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 as at October 31, 2019,
was $129.8 billion (October 31, 2018 – $127.7 billion).
The Bank maintains depositor concentration limits in respect of
short-term wholesale deposits so that it is not over-dependent on
individual depositors for funding. The Bank also limits short-term
wholesale funding maturity concentration in an effort to mitigate
exposures to refnancing risk during a stress event.
T A B L E 5 7
LONG-TERM FUNDING
Long-term funding by currency
Canadian dollar
U.S. dollar
Euro
British pound
Other
Total
Long-term funding by type
Senior unsecured medium-term notes
Covered bonds
Mortgage securitization1
Term asset backed securities
Total
As at
October 31
2019
October 31
2018
32%
37
21
6
4
100%
54%
31
11
4
100%
32%
39
19
7
3
100%
55%
29
12
4
100%
1 Mortgage securitization excludes the residential mortgage trading business.
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
99
The following table represents the remaining maturity of various sources
of funding outstanding as at October 31, 2019, and October 31, 2018.
T A B L E 5 8 WHOLESALE FUNDING
(millions of Canadian dollars)
Deposits from banks1
Bearer deposit note
Certifcates of deposit
Commercial paper
Covered bonds
Mortgage securitization
Legacy senior unsecured medium-term notes2
Senior unsecured medium-term notes3
Subordinated notes and debentures4
Term asset backed securitization
Other5
Total
Of which:
Secured
Unsecured
Total
Less than
1 month
1 to 3
months
3 to 6
months
6 months
to 1 year
Up to
1 year
Over 1 to
2 years
Over
2 years
Total
Total
As at
October 31
2019
October 31
2018
104 $ 11,893 $
359
6,839
18,227
907
–
2,305
–
–
–
6,774
$ 6,931 $ 3,378 $ 1,480 $
939
13,572
11,606
–
1,181
13
–
–
–
1,500
– $ 11,893 $ 14,176
3,872
–
51,401
–
55,570
–
36,284
21,122
27,301
18,944
69,518
16,595
–
12,762
8,740
10,725
5,626
1,222
6,534
2,082
$ 42,342 $ 32,189 $ 27,038 $ 66,878 $ 168,447 $ 40,758 $ 83,452 $ 292,657 $ 279,022
– $
–
357
–
13,713
3,754
18,046
1,645
–
2,901
342
5,442
61,995
48,872
39,873
27,144
55,277
14,407
10,725
5,857
11,172
2,624
29,620
13,567
1,835
1,579
16,219
–
–
986
344
5,442
61,638
48,872
5,038
4,446
20,636
–
–
1,734
8,748
1,520
11,607
5,472
2,296
1,686
2,099
–
–
748
130
$
41,435
907 $ 1,181 $ 4,730 $ 4,400 $ 11,218 $ 20,368 $ 41,298 $ 72,884 $ 69,225
209,797
157,229
$ 42,342 $ 32,189 $ 27,038 $ 66,878 $ 168,447 $ 40,758 $ 83,452 $ 292,657 $ 279,022
219,773
22,308
62,478
20,390
42,154
31,008
1 Includes fixed-term deposits with banks.
2 Includes a) senior debt issued prior to September 23, 2018; and b) senior debt
issued on or after September 23, 2018 which is excluded from the bank
recapitalization “bail-in” regime, including debt with an original term-to-maturity
of less than 400 days.
Excluding the Wholesale Banking mortgage aggregation business, the
Bank’s total 2019 mortgage-backed securities issuance was $2.3 billion
(2018 – $2.6 billion), and other asset-backed securities was $2.7 billion
(2018 – $1.8 billion). The Bank also issued $19.3 billion of unsecured
medium-term notes (2018 – $29.1 billion) and $8.9 billion of covered
bonds (2018 – $9.9 billion), in various currencies and markets during
the year ended October 31, 2019.
REGULATORY DEVELOPMENTS CONCERNING LIQUIDITY
AND FUNDING
In July 2019, OSFI published proposed changes to Guideline B-6:
Liquidity Principles for public consultation. The changes proposed aim
to ensure that this guideline remains relevant and current, and include
additional clarity with respect to OSFI’s expectations regarding
institutions’ liquidity risk management practices. OSFI has targeted
an implementation date of January 2020.
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 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 such instruments
be fully drawn or utilized. Since a signifcant portion of guarantees
and commitments are expected to expire without being drawn upon,
the total of the contractual amounts is not representative of expected
future liquidity requirements. These contractual obligations have an
impact on the Bank’s short-term and long-term liquidity and capital
resource needs.
3 Comprised of senior debt subject to conversion under the bank recapitalization
“bail-in” regime. Excludes $2.2 billion of structured notes subject to conversion
under the “bail-in” regime (October 31, 2018 – nil).
4 Subordinated notes and debentures are not considered wholesale funding as they
may be raised primarily for capital management purposes.
5 Includes fixed-term deposits from non-bank institutions (unsecured) of $11.2 billion
(October 31, 2018 – $6.5 billion).
In April 2019, OSFI published its fnal guidelines for Canadian
application of NSFR as part of its LAR. 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 suffcient stable sources of
funding and lower reliance on funding maturing in less than one year
to support their businesses. OSFI implementation of NSFR for D-SIBs
will be in January 2020 and the public disclosure requirement will
begin in January 2021.
In April 2019, OSFI also published changes to the LAR guideline with
an implementation date of January 2020. The changes increase reserve
requirements on certain retail deposit types that, in the view of OSFI,
may have higher risk of withdrawals in periods of stress. The regulation
also introduces new liquidity monitoring requirements.
The maturity analysis presented does not depict the degree of
the Bank’s 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
non-maturity deposits (chequing and savings accounts) and term
deposits as the primary source of long-term funding for the Bank’s
non-trading assets including personal and business term loans and the
stable balance of revolving lines of credit. The Bank issues long-term
funding based primarily on the projected net growth of non-trading
assets and raises short term funding primarily to fnance trading assets.
The liquidity of trading assets under stressed market conditions is
considered when determining the appropriate term of the funding.
100 TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
T A B L E 5 9
REMAINING CONTRACTUAL MATURITY
(millions of Canadian dollars)
Less than
1 month
1 to 3
months
3 to 6
months
6 to 9
months
9 months
to 1 year
Over 1 to
2 years
Over 2 to
5 years
Over
5 years
As at
October 31, 2019
No
specifc
maturity
Total
Assets
Cash and due from banks
Interest-bearing deposits with banks
Trading loans, securities, and other1
Non-trading fnancial assets at fair value
through proft or loss
Derivatives
Financial assets designated at fair value
through proft or loss
Financial assets at fair value through
other comprehensive income
Debt securities at amortized cost,
net of allowance for credit losses
Securities purchased under reverse
repurchase agreements2
Loans
Residential mortgages
Consumer instalment and other personal
Credit card
Business and government
Total loans
Allowance for loan losses
Loans, net of allowance for loan losses
Customers’ liability under acceptances
Investment in TD Ameritrade
Goodwill3
Other intangibles3
Land, buildings, equipment, and other
depreciable assets3
Deferred tax assets
Amounts receivable from brokers,
dealers, and clients
Other assets
Total assets
Liabilities
Trading deposits
Derivatives
Securitization liabilities at fair value
Financial liabilities designated at
fair value through proft or loss
Deposits4,5
Personal
Banks
Business and government6
Total deposits
Acceptances
Obligations related to securities sold short1
Obligations related to securities
sold under repurchase agreements2
Securitization liabilities at amortized cost
Amounts payable to brokers,
dealers, and clients
Insurance-related liabilities
Other liabilities7
Subordinated notes and debentures
Equity
Total liabilities and equity
Off-balance sheet commitments
Credit and liquidity commitments8,9
Operating lease commitments10
Other purchase obligations
Unconsolidated structured
entity commitments
Total off-balance sheet commitments
$ 4,857 $
19,892
1,197
147
5,786
6 $
– $
1,137
3,990
2
8,472
77
3,916
37
3,255
– $
–
3,171
– $
–
2,873
– $
–
15,672
– $
–
25,939
– $
–
19,014
– $
4,477
70,228
4,863
25,583
146,000
668
2,109
314
2,222
1,301
5,610
1,803
8,652
1,488
12,788
743
–
6,503
48,894
195
696
156
82
83
404
1,725
699
–
4,040
1,431
3,818
4,161
6,339
6,426
18,205
40,289
28,594
1,841
111,104
1,878
5,233
2,254
1,050
764
8,791
45,127
65,401
(1)
130,497
98,904
34,839
24,000
6,331
1,765
44
52
–
–
165,935
2,006
850
–
29,460
32,316
–
32,316
11,127
–
–
–
5,595
1,819
–
5,573
12,987
–
12,987
2,211
–
–
–
8,013
3,170
–
7,970
19,153
–
19,153
152
–
–
–
9,832
3,620
–
9,496
22,948
–
22,948
4
–
–
–
11,719
3,544
–
8,830
24,093
–
24,093
–
–
–
–
34,029
17,256
–
21,078
72,363
–
72,363
–
–
–
–
101,591
61,736
–
71,071
234,398
–
234,398
–
–
–
–
62,855
28,236
–
61,266
152,357
–
152,357
–
–
–
–
–
60,103
36,564
21,773
118,440
(4,447)
113,993
–
9,316
16,976
2,503
235,640
180,334
36,564
236,517
689,055
(4,447)
684,608
13,494
9,316
16,976
2,503
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,513
1,799
5,513
1,799
20,575
2,548
20,575
17,087
$ 200,853 $ 74,782 $ 59,991 $ 42,870 $ 38,643 $ 122,559 $ 358,142 $ 280,438 $ 237,012 $ 1,415,290
–
1,391
–
2,830
–
9,624
–
168
–
103
–
169
–
157
–
97
$ 5,837 $ 3,025 $ 4,166 $ 2,606 $ 3,185 $ 2,430 $ 4,014 $ 1,622 $
7,180
–
7,968
668
3,603
412
2,062
494
1,763
387
5,546
1,656
8,148
7,499
13,781
1,942
– $
–
–
26,885
50,051
13,058
22,193
25,370
15,799
20,496
20,907
356
1
9
–
105,131
5,218
6,771
18,576
30,565
11,127
384
8,990
1,459
10,049
20,498
2,211
654
9,459
150
7,569
17,178
152
398
7,691
1
10,482
18,174
4
819
7,583
6
10,670
18,259
–
1,171
9,374
–
34,130
43,504
–
3,351
9,670
3
46,188
55,861
–
9,882
21
7
7,594
7,622
–
12,115
445,424
8,354
221,538
675,316
–
882
503,430
16,751
366,796
886,977
13,494
29,656
101,856
–
20,224
513
2,993
1,274
694
355
30
342
47
2,098
12
6,586
–
2,918
–
–
125,856
14,086
23,746
190
2,845
–
–
23,746
6,920
21,004
10,725
87,701
$ 205,923 $ 84,588 $ 47,697 $ 47,327 $ 47,003 $ 63,267 $ 95,278 $ 51,746 $ 772,461 $ 1,415,290
–
874
138
10,725
–
–
1,953
6,609
–
87,701
–
388
1,334
–
–
–
1,612
1,663
–
–
–
315
3,142
–
–
–
330
1,293
–
–
–
940
3,339
–
–
–
318
641
–
–
$ 19,388 $ 21,652 $ 18,391 $ 13,537 $ 12,034 $ 27,207 $ 111,281 $ 5,856 $ 1,294 $ 230,640
7,621
3,172
2,332
1,031
3,365
556
250
185
165
182
247
206
244
177
936
753
82
82
–
–
408
3,200
$ 19,960 $ 22,792 $ 20,186 $ 14,451 $ 12,552 $ 28,977 $ 114,644 $ 9,777 $ 1,294 $ 244,633
1,360
793
461
97
81
–
–
–
1 Amount has been recorded according to the remaining contractual maturity of the
underlying security.
2 Certain contracts considered short-term are presented in ‘less than 1 month’ category.
3 For the purposes of this table, non-financial assets have been recorded as having
‘no specific maturity’.
4 As 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’.
5 Includes $40 billion of covered bonds with remaining contractual maturities
of $1 billion in ‘less than 1 month’, $2 billion in ‘over 3 months to 6 months’,
$2 billion in ‘over 6 months to 9 months’, $14 billion in ‘over 1 to 2 years’,
$18 billion in ‘over 2 to 5 years’, and $3 billion in ‘over 5 years’.
6 On June 30, 2019, TD Capital Trust IV redeemed all of the outstanding $550 million
TD Capital Trust IV Notes – Series 1 at a redemption price of 100% of the principal
amount plus any accrued and unpaid interest payable on the date of redemption.
7 Includes $83 million of capital lease commitments with remaining contractual maturities
of $2 million in ‘less than 1 month’, $4 million in ‘1 month to 3 months’, $5 million in
‘3 months to 6 months’, $5 million in ‘6 months to 9 months’, $5 million in ‘9 months
to 1 year’, $22 million in ‘over 1 to 2 years’, $39 million in ‘over 2 to 5 years’, and
$1 million in ‘over 5 years’.
8 Includes $374 million in commitments to extend credit to private equity investments.
9 Commitments to extend credit exclude personal lines of credit and credit card lines,
which are unconditionally cancellable at the Bank’s discretion at any time.
10 Includes rental payments, related taxes, and estimated operating expenses.
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
101
T A B L E 5 9
REMAINING CONTRACTUAL MATURITY (continued) 1
(millions of Canadian dollars)
Less than
1 month
1 to 3
months
3 to 6
months
6 to 9
months
9 months
to 1 year
Over 1 to
2 years
Over 2 to
5 years
Over
5 years
As at
October 31, 2018
No
specifc
maturity
Total
Assets
Cash and due from banks
Interest-bearing deposits with banks
Trading loans, securities, and other2
Non-trading fnancial assets at fair value
through proft or loss
Derivatives
Financial assets designated at fair value
through proft or loss
Financial assets at fair value through
other comprehensive income
Debt securities at amortized cost,
net of allowance for credit losses
Securities purchased under
reverse repurchase agreements3
Loans
Residential mortgages
Consumer instalment and other personal
Credit card
Business and government
Total loans
Allowance for loan losses
Loans, net of allowance for loan losses
Customers’ liability under acceptances
Investment in TD Ameritrade
Goodwill4
Other intangibles4
Land, buildings, equipment, and
other depreciable assets4
Deferred tax assets
Amounts receivable from brokers,
dealers, and clients
Other assets
Total assets
Liabilities
Trading deposits
Derivatives
Securitization liabilities at fair value
Financial liabilities designated at
fair value through proft or loss
Deposits5,6
Personal
Banks
Business and government
Total deposits
Acceptances
Obligations related to securities sold short2
Obligations related to securities sold
under repurchase agreements3
Securitization liabilities at amortized cost
Amounts payable to brokers,
dealers, and clients
Insurance-related liabilities
Other liabilities7
Subordinated notes and debentures
Equity
Total liabilities and equity
Off-balance sheet commitments
Credit and liquidity commitments8,9
Operating lease commitments10
Other purchase obligations
Unconsolidated structured
entity commitments
$ 4,733 $
28,332
1,971
–
7,343
2 $
– $
924
5,244
12
9,263
154
2,111
99
5,275
–
21
3,653
460
3,276
$
– $
16
3,998
906
2,321
– $
–
9,683
– $
–
25,772
– $
–
25,895
– $
1,273
49,570
4,735
30,720
127,897
227
7,130
841
12,436
848
9,952
622
–
4,015
56,996
30
95
535
243
90
297
1,532
796
–
3,618
1,111
4,214
4,150
5,354
3,962
19,777
57,922
31,936
2,174
130,600
881
2,577
3,010
3,594
4,059
8,103
34,032
50,990
(75)
107,171
77,612
30,047
14,426
3,807
1,458
29
–
–
–
127,379
908
753
–
23,052
24,713
–
24,713
14,984
–
–
–
–
–
3,234
1,332
–
4,320
8,886
–
8,886
2,145
–
–
–
–
–
6,614
2,628
–
5,539
14,781
–
14,781
132
–
–
–
11,166
3,724
–
7,131
22,021
–
22,021
6
–
–
–
11,061
4,131
–
9,269
24,461
–
24,461
–
–
–
–
43,063
14,313
–
19,637
77,013
–
77,013
–
–
–
–
113,852
56,632
–
67,922
238,406
–
238,406
–
–
–
–
35,293
26,321
–
59,251
120,865
–
120,865
–
–
–
–
–
62,245
35,018
21,533
118,796
(3,549)
115,247
–
8,445
16,536
2,459
225,191
172,079
35,018
217,654
649,942
(3,549)
646,393
17,267
8,445
16,536
2,459
–
–
–
–
–
–
–
–
–
–
–
–
5,324
2,812
5,324
2,812
26,940
3,432
26,940
15,596
$ 192,082 $ 64,263 $ 46,599 $ 42,555 $ 41,413 $ 122,395 $ 371,242 $ 241,372 $ 212,982 $ 1,334,903
–
1,926
–
8,595
–
854
–
120
–
142
–
136
–
301
–
90
$ 16,145 $ 37,337 $ 31,081 $ 12,954 $ 11,739 $
4,230
194
2,263
272
6,195
–
8,684
981
3,103
661
1,183 $
5,510
1,822
3,260 $
9,282
6,719
1,005 $
9,003
1,969
– $ 114,704
48,270
–
12,618
–
10
5
–
–
–
–
–
1
–
16
4,330
6,499
18,840
29,669
14,986
2,621
7,094
1,941
19,337
28,372
2,145
3,679
7,541
255
7,033
14,829
132
1,500
6,245
24
9,984
16,253
6
387
7,718
54
11,299
19,071
–
904
10,222
–
21,345
31,567
–
4,330
9,876
3
54,780
64,659
–
13,771
38
8
8,000
8,046
–
11,474
424,580
7,928
206,465
638,973
–
812
477,644
16,712
357,083
851,439
17,269
39,478
73,759
22
15,508
1,240
3,516
625
428
503
108
575
43
2,496
27
6,232
–
2,990
–
–
93,389
14,683
28,385
213
2,916
–
–
28,385
6,698
19,174
8,740
80,040
$ 174,921 $100,876 $ 56,998 $ 35,930 $ 36,636 $ 50,093 $ 107,882 $ 44,283 $ 727,284 $ 1,334,903
–
1,755
5,704
–
80,040
–
310
1,394
–
–
–
1,624
2,308
–
–
–
294
2,631
–
–
–
309
1,326
–
–
–
937
2,205
–
–
–
903
152
8,740
–
–
353
538
–
–
Total off-balance sheet commitments
$ 18,484 $ 18,151 $ 18,571 $ 13,830 $ 9,558 $ 27,220 $ 104,887 $
$ 18,341 $ 16,732 $ 17,222 $ 13,105 $ 9,159 $ 25,720 $ 101,210 $
79
64
159
181
–
1,079
240
169
940
237
159
329
233
166
–
902
591
2,188
1,081
7
408
5,260 $ 1,293 $ 208,042
7,267
–
3,229
2,960
–
549
–
2,763
9,038 $ 1,293 $ 221,032
–
1 Certain comparative amounts have been recast to conform with the presentation adopted
in the current period.
2 Amount has been recorded according to the remaining contractual maturity of the
underlying security.
3 Certain contracts considered short-term are presented in ‘less than 1 month’ category.
4 For the purposes of this table, non-financial assets have been recorded as having
‘no specific maturity’.
5 As 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’.
6 Includes $36 billion of covered bonds with remaining contractual maturities of $1 billion
in ‘3 months to 6 months’, $3 billion in ‘6 months to 9 months’, $2 billion in ‘9 months
to 1 year’, $5 billion in ‘over 1 to 2 years’, $22 billion in ‘over 2 to 5 years’, and $3 billion
in ‘over 5 years’.
102 TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
7 Includes $60 million of capital lease commitments with remaining contractual maturities
of $2 million in ‘less than 1 month’, $5 million in ‘1 month to 3 months’, $7 million in
‘3 months to 6 months’, $6 million in ‘6 months to 9 months’, $6 million in ‘9 months
to 1 year’, $12 million in ‘over 1 to 2 years’, $17 million in ‘over 2 to 5 years’, and
$5 million in ‘over 5 years’.
8 Includes $205 million in commitments to extend credit to private equity investments.
9 Commitments to extend credit exclude personal lines of credit and credit card lines,
which are unconditionally cancellable at the Bank’s discretion at any time.
10 Includes rental payments, related taxes, and estimated operating expenses.
Capital Adequacy Risk
Capital adequacy risk is the risk of insuffcient capital being available
in relation to the amount of capital required to carry out the Bank’s
strategy and/or satisfy regulatory and internal CAR.
Capital is held to protect the viability of the Bank in the event of
unexpected fnancial losses. Capital represents the loss-absorbing
funding required to provide a cushion to protect depositors and other
creditors from unexpected losses.
Managing capital levels requires that the Bank holds suffcient
capital, in normal and stress environments, to avoid the risk
of breaching minimum capital levels prescribed by regulators.
WHO MANAGES CAPITAL ADEQUACY RISK
The Board reviews the adherence to capital targets and approves
the annual capital plan and the Global Capital Management Policy.
The Risk Committee reviews and approves the Capital Adequacy Risk
Management Framework and oversees management’s actions to
maintain an appropriate ICAAP framework, commensurate with
the Bank’s risk profle. The CRO and CFO oversee that the Bank’s
ICAAP is effective in meeting CAR.
The ALCO recommends and maintains the Capital Adequacy Risk
Management Framework and the Global Capital Management Policy
for effective and prudent management of the Bank’s capital position
and supports maintenance of adequate capital. It oversees the
allocation of capital limits for business segments and reviews
adherence to capital targets.
TBSM is responsible for forecasting and monitoring compliance with
capital targets, on a consolidated basis, with oversight provided by
ALCO. TBSM updates the capital forecast, including appropriate
changes to capital issuance, repurchase and redemption. The capital
forecast is reviewed by ALCO. TBSM also leads the ICAAP and EWST
processes. The Bank’s business segments are responsible for managing
to the allocated capital limits.
Additionally, regulated subsidiaries of the Bank, including certain
insurance subsidiaries and subsidiaries in the U.S. and other jurisdictions,
manage their capital adequacy risk in accordance with applicable
regulatory requirements. Capital management policies and procedures
of these subsidiaries are also required to conform with those of
the Bank. U.S.-regulated subsidiaries of the Bank are required to
follow several regulatory guidelines, rules and expectations related to
capital planning and stress testing including the U.S. Federal Reserve
Board’s Regulation YY establishing Enhanced Prudential Standards
for FBOs and the stress test rule and capital plan rule both applicable
to U.S. Bank Holding Companies. Refer to the sections on “Future
Regulatory Capital Developments”, “EWST”, and “Top and Emerging
Risks That May Affect the Bank and Future Results” for further details.
HOW TD MANAGES CAPITAL ADEQUACY RISK
Capital resources are managed in a manner designed so that the Bank’s
capital position can support business strategies under both current
and future business operating environments. The Bank manages its
operations within the capital constraints defned by both internal and
regulatory capital requirements, so that it meets the higher of these
requirements.
Regulatory capital requirements represent minimum capital levels.
The Board approves capital targets that provide a suffcient buffer
so that the Bank meets minimum capital requirements under stress
conditions. The purpose of these capital targets is to reduce the risk
of a breach of minimum capital requirements, due to an unexpected
stress event, allowing management the opportunity to react to
declining capital levels before minimum capital requirements are
breached. Capital targets are defned in the Global Capital
Management Policy.
A comprehensive periodic monitoring process is undertaken to plan
and forecast capital requirements. As part of the annual planning
process, business segments are allocated individual RWA and Leverage
exposure limits. Capital generation and usage are monitored and
reported to the ALCO.
The Bank assesses the sensitivity of its forecast capital requirements
and new capital formations to various economic conditions through its
EWST process. The results of the EWST are considered in the
determination of capital targets.
The Bank also determines its internal capital requirements through
the ICAAP process using models to measure the risk-based capital
required based on its own tolerance for the risk of unexpected losses.
This risk tolerance is calibrated to the required confdence level so that
the Bank will be able to meet its obligations, even after absorbing
worst-case unexpected losses over a one-year period.
In addition, the Bank has a Capital Contingency Plan that is designed
to prepare management to maintain capital adequacy through periods
of bank-specifc or systemic market stress. The Capital Contingency
Plan outlines the governance and procedures to be followed if
the Bank’s consolidated capital levels are forecast to fall below capital
targets. It also outlines potential management actions that may be
taken to prevent such a breach from occurring.
Legal, Regulatory Compliance and Conduct Risk
Legal, Regulatory Compliance and Conduct (LRCC) risk is the risk
associated with the failure to meet the Bank’s legal obligations from
legislative, regulatory or contractual perspectives, obligations under
the Bank’s Code of Conduct and Ethics, or requirements of fair
business conduct or market conduct practices. This includes risks
associated with the failure to identify, communicate, and comply with
current and changing laws, regulations, rules, regulatory guidance
or self-regulatory organization standards, and codes, including the
prudential risk management of Money Laundering, Terrorist Financing,
Economic Sanctions, and Bribery and Corruption risk (the “LRCC
Requirements”). Potential consequences of failing to mitigate LRCC
risk include fnancial loss, regulatory sanctions, and loss of reputation,
which could be material to the Bank.
The Bank is exposed to LRCC risk in virtually all of its activities.
Failure to mitigate LRCC risk and meet regulatory and legal requirements
can impact the Bank’s ability to meet strategic objectives, poses a risk
of censure or penalty, may lead to litigation, and puts the Bank’s
reputation at risk. Financial penalties, reputational damage, and other
costs associated with legal proceedings, and unfavourable judicial
or regulatory determinations may also adversely affect the Bank’s
business, results of operations and fnancial condition. LRCC risk
differs from other banking risks, such as credit risk or market risk,
in that it is typically not a risk actively or deliberately assumed by
management in expectation of a return and also because LRCC risk
generally cannot be effectively mitigated by trying to limit its impact to
any one business or jurisdiction, as realized LRCC risk may adversely
impact unrelated business or jurisdictions. LRCC risk is inherent in the
normal course of operating the Bank’s businesses.
WHO MANAGES LEGAL, REGULATORY COMPLIANCE, AND
CONDUCT RISK
The proactive and effective management of LRCC risk is complex given
the breadth and pervasiveness of exposure. The LRCC Risk Management
Framework applies enterprise-wide to the Bank and to all of its
corporate functions, business segments, its governance, risk, and
oversight functions. Each of the Bank’s businesses is responsible for
compliance with LRCC requirements applicable to their jurisdiction and
specifc business requirements, and for adhering to LRCC requirements
in their business operations, including setting the appropriate tone for
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
103
legal, regulatory compliance, and conduct risk management. This
accountability involves assessing the risk, designing and implementing
controls, and monitoring and reporting their ongoing effectiveness to
safeguard the businesses from operating outside of the Bank’s risk
appetite. The Legal, Compliance, and Global Anti-Money Laundering
departments, together with the Regulatory Risk and Regulatory
Relationships and Government Affairs groups, provide objective
guidance, advice, and oversight with respect to managing LRCC risk.
Representatives of these groups interact regularly with senior executives
of the Bank’s businesses. Also, the senior management of the Legal,
Compliance, and GAML departments have established regular meetings
with and reporting to the Audit Committee, which oversees the
establishment and maintenance of policies and programs that are
reasonably designed to achieve and maintain the Bank’s compliance
with the laws and regulations that apply to it. Senior management of
the Compliance Department also reports regularly to the Corporate
Governance Committee, which oversees conduct risk management in
the Bank. In addition, senior management of the Regulatory Risk group
has established periodic reporting to the Board and its committees.
HOW TD MANAGES LEGAL, REGULATORY COMPLIANCE
AND CONDUCT RISK
Effective management of LRCC risk is a result of enterprise-wide
collaboration and requires (a) independent and objective identifcation
and assessment of LRCC risk, (b) objective guidance and advisory
services to identify, assess, control, and monitor LRCC risk, and
(c) an approved set of frameworks, policies, procedures, guidelines,
and practices. While each business line is accountable for operating
in compliance with applicable laws and regulations and for effectively
managing LRCC risk. Each of the Legal, Compliance, and GAML
departments plays a critical role in the management of LRCC risk at
the Bank. Depending on the circumstances, they play different roles
at different times: ‘trusted advisor’, provider of objective guidance,
independent challenge, and oversight and control (including
‘gatekeeper’ or approver).
In particular, the Compliance department performs the following
functions: it acts as an independent regulatory compliance and conduct
risk management oversight function; it assesses the adequacy of,
adherence to, and effectiveness of the Bank’s Regulatory Compliance
Management (RCM) controls; it is accountable for leading the enterprise
conduct risk governance and reporting framework; and it supports
the Chief Compliance Offcer in providing an opinion to the Audit
Committee as to whether the RCM controls are suffciently robust in
achieving compliance with applicable regulatory requirements. The
Compliance department works in partnership with Human Resources
and Operational Risk Management to provide oversight and challenge
to the businesses in their management of conduct risk.
The GAML department: acts as an independent regulatory
compliance and risk management oversight function and is responsible
for regulatory compliance and the broader prudential risk management
components of the GAML, Anti-Terrorist Financing, Sanctions, and
Anti-Bribery/Anti-Corruption programs (the “GAML Programs”),
including their design, content, and enterprise-wide implementation;
develops standards, monitors, evaluates, and reports on GAML
program controls, design, and execution; and reports on the overall
adequacy and effectiveness of the GAML Programs, including program
design and operation. In addition, the Compliance and GAML
departments have developed methodologies and processes to measure
and aggregate regulatory compliance risks and conduct risks on an
ongoing basis as a baseline to assess whether the Bank’s internal
controls are effective in adequately mitigating such risks and determine
whether individual or aggregate business activities are conducted
within the Bank’s risk appetite.
The Legal department acts as an independent provider of legal
services and advice, and protects the Bank from unacceptable legal
risk. The Legal department has also developed methodologies for
measuring litigation risk for adherence to the Bank’s risk appetite.
Processes employed by the Legal, Compliance, and GAML
departments (including policies and frameworks, training and
education, and the Code of Conduct and Ethics) support the
responsibility of each business to adhere to LRCC requirements.
Finally, the Bank’s Regulatory Risk and Government Affairs groups
also create and facilitate communication with elected offcials and
regulators, monitor legislation and regulations, support business
relationships with governments, coordinate regulatory examinations
and regulatory fndings remediation, support regulatory discussions on
new or proposed products or business initiatives, and advance the
public policy objectives of the Bank.
Reputational Risk
Reputational risk is the potential that stakeholder perceptions, whether
true or not, regarding the Bank’s business practices, actions or
inactions, will or may cause a signifcant decline in TD’s value, brand,
liquidity or customer base, or require costly measures to address.
A company’s reputation is a valuable business asset that is essential
to optimizing shareholder value and therefore, is constantly at risk.
Reputational risk can arise as a consequence of negative perceptions
about the Bank’s business practices involving any aspect of the Bank’s
operations and usually involves concerns about business ethics and
integrity, competence, or the quality or suitability of products and
services. Since all risk categories can have an impact on a company’s
reputation, reputational risk is not managed in isolation from
the Bank’s other major risk categories and can ultimately impact
its brand, earnings, and capital.
WHO MANAGES REPUTATIONAL RISK
Responsibility for managing risks to the Bank’s reputation ultimately lies
with the SET and the executive committees that examine reputational
risk as part of their regular mandate. The ERRC is the most senior
executive committee for the review of reputational risk matters at TD.
The mandate of the RRC is to oversee the management of reputational
risk within the Bank’s risk appetite. Its main accountability is to review
and assess business and corporate initiatives and activities where
signifcant reputational risk profles have been identifed and escalated.
At the same time, every employee and representative of the Bank has
a responsibility to contribute in a positive way to the Bank’s reputation
and the management of reputational risk. This means that every Bank
employee is responsible for following ethical practices at all times,
complying with applicable policies, legislation, and regulations and
are also supporting positive interactions with the Bank’s stakeholders.
Reputational risk is most effectively managed when everyone at
the Bank works continuously to protect and enhance its reputation.
HOW TD MANAGES REPUTATIONAL RISK
The Bank’s approach to the management of reputational risk combines
the experience and knowledge of individual business segments,
corporate shared service areas and governance, risk and oversight
functions. It is based on enabling TD’s businesses to understand their
risks and developing the policies, processes, and controls required to
manage these risks appropriately in line with the Bank’s strategy and
reputational risk appetite. The Bank’s Reputational Risk Management
Framework provides a comprehensive overview of its approach to the
management of this risk. Amongst other signifcant policies, the Bank’s
Enterprise Reputational Risk Management Policy is approved by the
Group Head and CRO and sets out the requirements under which
business segments and corporate shared services are required to
manage reputational risk. These requirements include implementing
procedures and designating a business-level committee (where
required by the Policy) to review and assess reputational risks and
escalation to the ERRC as appropriate.
The Bank also has an enterprise-wide New Business and Product
Approval (NBPA) Policy that is approved by the CRO and establishes
standard practices to support consistent processes for approving new
businesses, products, and services across the Bank. The policy is
supported by business segment specifc processes, which involve
independent review from oversight functions, and consider all aspects
of a new product, including reputational risk.
104 TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
Environmental Risk
Environmental risk is the possibility of loss of strategic, fnancial,
operational or reputational value resulting from the impact of
environmental issues or concerns, including climate change, and
related social risk within the scope of short-term and long-term cycles.
Management of environmental risk is an enterprise-wide priority.
Key environmental risks include: (1) direct risks associated with the
ownership and operation of the Bank’s business, which include
management and operation of company-owned or managed real
estate, business operations, and associated services; (2) indirect risks
associated with environmental performance or environmental events,
such as changing climate patterns that may impact the Bank’s
customers and clients to whom TD provides fnancing or in which TD
invests, as well as social risks; (3) identifcation and management of
new or emerging environmental regulatory issues; and (4) failure to
understand and appropriately leverage environment-related trends to
meet customer and consumer demands for products and services.
WHO MANAGES ENVIRONMENTAL RISK
The Executive Vice President and Chief Marketing Offcer holds senior
executive accountability for environmental management. The Executive
Vice President is supported by the Vice President of Global Corporate
Citizenship who provides management oversight, and the Head of
Environment who has management responsibility and leads the
Corporate Environmental Affairs team. The Corporate Environmental
Affairs team is responsible for developing environmental strategy,
setting environmental performance standards and targets, and
reporting on performance. In addition, the Bank’s Risk Management
group has environment risk oversight accountabilities, including for
establishing risk policies, processes and governance to monitor and
report on these risks at the Bank. The Bank’s various business-specifc
and enterprise risk committees are also involved in monitoring material
risks and acting as governance bodies for escalation of material
environmental and social risk issues.
HOW TD MANAGES ENVIRONMENTAL RISK
The Bank manages environmental risks through an Environmental
Policy, which is supported with several business segment level policies
and procedures across the Bank. The Bank’s Environmental Policy
refects the global scope of its activities.
The Bank’s environmental metrics, targets, and performance are
publicly reported within its annual ESG Report. Key performance
measures are reported according to the Global Reporting Initiative
(GRI) and is independently assured.
The Bank applies its Environmental and Social Credit Risk
Management Procedures to credit and lending in the wholesale and
commercial businesses. These procedures include assessment of
TD’s clients’ policies, procedures, and performance on material
environmental and related social issues, such as air, land, and water
risk, biodiversity, stakeholder engagement, and free prior and
informed consent (FPIC) of Indigenous Peoples. Within Wholesale and
Commercial Banking, sector-specifc guidelines have been developed
for environmentally-sensitive sectors. The Bank has been a signatory
to the Equator Principles since 2007 and reports on Equator Principle
projects within its annual ESG Report.
The Bank reports on climate-related risk in its ESG Report. In the
2018 ESG Report, the Bank provided disclosure on its alignment with
the recommendations of the Financial Stability Board’s Task Force on
Climate-related Financial Disclosures (TCFD) which seek to provide a
more consistent approach in assessing and reporting climate-related
risks and opportunities. The Bank is a member of the United Nations
Environment Programme Finance Initiative (UNEP-FI) and is participating
in TCFD pilot studies led by UNEP-FI that seek to develop harmonized
industry-wide approaches for climate scenario analysis in bank lending,
investments, and insurance portfolios.
TDAM is a signatory to the United Nations Principles for Responsible
Investment (UNPRI). Under the UNPRI, investors commit to incorporate
ESG issues into investment analysis and decision-making. TDAM has
adopted its Sustainable Investing Policy across its operations since
2009. The Policy provides a high level overview of how TDAM fulfls
its commitment to the six guiding principles set out by the UNPRI.
In 2015, TD Insurance became a signatory to the UNEP-FI Principles
for Sustainable Insurance, which provides a global framework for
managing ESG risks within the insurance industry.
The Bank proactively monitors and assesses policy and legislative
developments, and maintains an ‘open door’ approach with
environmental and community organizations, industry associations,
and responsible investment organizations.
Additional information on TD’s environmental policy, management
and performance is included in the ESG Report, which is available on
the Bank’s website.
TD Ameritrade
HOW RISK IS MANAGED AT TD AMERITRADE
TD Ameritrade’s management is primarily responsible for managing
risk at TD Ameritrade under the oversight of TD Ameritrade’s Board,
particularly through the latter’s Risk and Audit Committees. TD
monitors the risk management process at TD Ameritrade through
management governance, protocols and interaction guidelines and
also participates in TD Ameritrade’s Board.
The terms of the Stockholders Agreement provide for certain
information sharing rights in favour of TD to the extent the Bank
requires such information from TD Ameritrade to appropriately manage
and evaluate its investment and to comply with its legal and regulatory
obligations. Accordingly, management processes, protocols and
guidelines between the Bank and TD Ameritrade are designed to
coordinate necessary intercompany information fow. The Bank has
designated the Group Head and Chief Financial Offcer to have
responsibility for the TD Ameritrade investment. The Group President
and Chief Executive Offcer and the Group Head and Chief Financial
Offcer have regular meetings with TD Ameritrade’s Chief Executive
Offcer and Chief Financial Offcer. In addition to regular communication
at the Chief Executive Offcer and Chief Financial Offcer level, regular
operating reviews with TD Ameritrade permit TD to examine and discuss
TD Ameritrade’s operating results and key risks. In addition, certain
functions including Internal Audit, Treasury, Finance, and Compliance
have relationship protocols that allow for access to and the sharing of
information on risk and control issues. TD evaluates risk factors, vendor
matters, and business issues as part of TD’s oversight of its investment
in TD Ameritrade. As with other material risk issues, where required,
material risk issues associated with TD Ameritrade are reported up to
TD’s Board or an appropriate Board committee.
As required pursuant to the Federal Reserve Board’s “enhanced
prudential standards” under Regulation YY, TD’s investment in
TD Ameritrade is held by TDGUS, the IHC. The activities and
interactions described above are inclusive of those that fulfl TDGUS’
risk management responsibilities under Regulation YY.
Pursuant to the Stockholders Agreement in relation to the Bank’s
equity investment in TD Ameritrade, the Bank has the right to designate
fve 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 Offcer and four independent directors
of TD or TD’s U.S. subsidiaries. TD Ameritrade’s bylaws, which state
that the Chief Executive Offcer’s appointment requires approval of
two-thirds of the Board, ensure the selection of TD Ameritrade’s Chief
Executive Offcer attains the broad support of the TD Ameritrade Board,
which currently would require the approval of at least one director
designated by TD. The Stockholders Agreement stipulates that the Board
committees of TD Ameritrade must include at least two TD designated
directors, subject to TD’s percentage ownership in TD Ameritrade and
certain other exceptions. Currently, the directors the Bank designates
serve as members on a number of TD Ameritrade Board committees,
including chairing the Audit Committee and the Human Resources and
Compensation Committee, as well as serving on the Risk Committee
and Corporate Governance Committee.
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
105
ACCOUNTING STANDARDS AND POLICIES
Critical Accounting Policies and Estimates
The Bank’s accounting policies and estimates are essential to
understanding its results of operations and fnancial condition.
A summary of the Bank’s signifcant accounting policies and estimates
are presented in the Notes of the 2019 Consolidated Financial
Statements. Some of the Bank’s policies require subjective, complex
judgments and estimates as they relate to matters that are inherently
uncertain. Changes in these judgments or estimates and changes to
accounting standards and policies could have a materially adverse
impact on the Bank’s Consolidated Financial Statements. The Bank has
established procedures to ensure that accounting policies are applied
consistently and that the processes for changing methodologies,
determining estimates, and adopting new accounting standards are
well-controlled and occur in an appropriate and systematic manner.
In addition, the Bank’s critical accounting policies are reviewed with
the Audit Committee on a periodic basis. Critical accounting policies
that require management’s judgment and estimates include the
classifcation and measurement of fnancial assets, accounting for
impairments of fnancial assets, the determination of fair value of
fnancial instruments, accounting for derecognition, the valuation
of goodwill and other intangibles, accounting for employee benefts,
accounting for income taxes, accounting for provisions, accounting
for insurance, the consolidation of structured entities, and accounting
for revenue from contract with customers.
ACCOUNTING POLICIES AND ESTIMATES
The Bank’s 2019 Consolidated Financial Statements have been prepared
in accordance with IFRS. For details of the Bank’s accounting policies
and signifcant judgments, estimates, and assumptions under IFRS, refer
to Notes 2 and 3 of the Bank’s 2019 Consolidated Financial Statements.
ACCOUNTING JUDGMENTS, ESTIMATES, AND ASSUMPTIONS
The estimates used in the Bank’s accounting policies are essential to
understanding its results of operations and fnancial condition. Some
of the Bank’s policies require subjective, complex judgments and
estimates as they relate to matters that are inherently uncertain.
Changes in these judgments or estimates and changes to accounting
standards and policies could have a materially adverse impact on
the Bank’s Consolidated Financial Statements. The Bank has
established procedures to ensure that accounting policies are applied
consistently and that the processes for changing methodologies,
determining estimates, and adopting new accounting standards are
well-controlled and occur in an appropriate and systematic manner.
CLASSIFICATION AND MEASUREMENT OF FINANCIAL ASSETS
Business Model Assessment
The Bank determines its business models based on the objective under
which its portfolios of fnancial assets are managed. Refer to Note 2
for details on the Bank’s business models. In determining its business
models, the Bank considers the following:
• Management’s intent and strategic objectives and the operation of
the stated policies in practice;
• The primary risks that affect the performance of the business model
and how these risks are managed;
• How the performance of the portfolio is evaluated and reported to
management; and
• The frequency and signifcance of fnancial asset sales in prior periods,
the reasons for such sales and the expected future sales activities.
Sales in themselves do not determine the business model and are not
considered in isolation. Instead, sales provide evidence about how cash
fows are realized. A held-to-collect business model will be reassessed
by the Bank to determine whether any sales are consistent with an
objective of collecting contractual cash fows if the sales are more than
insignifcant in value or infrequent.
Solely Payments of Principal and Interest Test
In assessing whether contractual cash fows are solely payments of
principal and interest (SPPI), the Bank considers the contractual terms
of the instrument. This includes assessing whether the fnancial asset
contains a contractual term that could change the timing or amount
of contractual cash fows such that they would not be consistent with
a basic lending arrangement. In making the assessment, the Bank
considers the primary terms as follows and assesses if the contractual
cash fows of the instruments continue to meet the SPPI test:
• Performance-linked features;
• Terms that limit the Bank’s claim to cash fows from specifed assets
(non-recourse terms);
• Prepayment and extension terms;
• Leverage features; and
• Features that modify elements of the time value of money.
IMPAIRMENT OF FINANCIAL ASSETS
Significant Increase in Credit Risk
For retail exposures, criteria for assessing signifcant increase in credit
risk are defned at the appropriate product or portfolio level and vary
based on the exposure’s credit risk at origination. The criteria include
relative changes in PD, absolute PD backstop, and delinquency
backstop when contractual payments are more than 30 days past due.
Credit risk has increased signifcantly since initial recognition when
one of the criteria is met.
For non-retail exposures, BRR is determined on an individual
borrower basis using industry and sector-specifc credit risk models
that are based on historical data. Current and forward-looking
information that is specifc to the borrower, industry, and sector is
considered based on expert credit judgment. Criteria for assessing
signifcant increase in credit risk are defned at the appropriate
segmentation level and vary based on the BRR of the exposure at
origination. Criteria include relative changes in BRR, absolute BRR
backstop, and delinquency backstop when contractual payments are
more than 30 days past due. Credit risk has increased signifcantly
since initial recognition when one of the criteria is met.
Measurement of Expected Credit Loss
For retail exposures, ECLs are 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 fnancial asset and discounted
to the reporting date at the effective interest rate. PD estimates
represent the point-in-time PD, updated quarterly based on the Bank’s
historical experience, current conditions, and relevant forward-looking
expectations over the expected life of the exposure to determine the
lifetime PD curve. LGD estimates are determined based on historical
charge-off events and recovery payments, current information about
attributes specifc to the borrower, and direct costs. Expected cash
fows from collateral, guarantees, and other credit enhancements are
incorporated in LGD if integral to the contractual terms. Relevant
macroeconomic variables are incorporated in determining expected
LGD. EAD represents the expected balance at default across the
remaining expected life of the exposure. EAD incorporates forward-
looking expectations about repayments of drawn balances and
expectations about future draws where applicable.
106 TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
For non-retail exposures, ECLs are calculated based on the present
value of cash shortfalls determined as the difference between
contractual cash fows and expected cash fows over the remaining
expected life of the fnancial instrument. Lifetime PD is determined by
mapping the exposure’s BRR to point-in-time PD over the expected life.
LGD estimates are determined by mapping the exposure’s facility risk
rating (FRR) to expected LGD which takes into account facility-specifc
characteristics such as collateral, seniority ranking of debt, and
loan structure. Relevant macroeconomic variables are incorporated
in determining expected PD and LGD. Expected cash fows are
determined by applying the expected LGD to the contractual cash
fows to calculate cash shortfalls over the expected life of the exposure.
Forward-Looking Information
In calculating the ECL, the Bank employs internally developed models
that utilize parameters for PD, LGD, and EAD. Forward-looking
macroeconomic factors including at the regional level are incorporated
in the risk parameters as relevant. Additional risk factors that are
industry or segment specifc are also incorporated, where relevant.
Three forward-looking macroeconomic forecasts are generated
by TD Economics as part of the ECL process: A base forecast, an
upside forecast, and a downside forecast. The base forecast is
updated quarterly. Upside and downside forecasts are generated
quarterly using realistically possible outcomes that are statistically
derived relative to the base forecast based on historical distribution.
TD Economics will apply judgment to recommend probability weights
to each forecast on a quarterly basis. The proposed macroeconomic
forecasts and probability weightings are subject to robust management
review and challenge process by a cross-functional committee that
includes representation from TD Economics, Risk Management,
Finance, and the Business. ECLs calculated under each of the three
forecasts are applied against the respective probability weightings
to determine the probability-weighted ECLs. Refer to Note 8 of the
Consolidated Financial Statements for further details on the
macroeconomic variables and ECL sensitivity.
Expert Credit Judgment
ECLs are recognized on initial recognition of the fnancial assets.
Allowance for credit losses represents management’s best estimate
of risk of default and ECLs on the fnancial assets, including any
off-balance sheet exposures, at the balance sheet date. Management
exercises expert credit judgment in assessing if an exposure has
experienced signifcant increase in credit risk since initial recognition
and in determining the amount of ECLs at each reporting date by
considering reasonable and supportable information that is not already
included in the quantitative models.
Management’s judgment is used to determine the point within
the range that is the best estimate for the qualitative component
contributing to ECLs, based on an assessment of business and economic
conditions, historical loss experience, loan portfolio composition, and
other relevant indicators and forward-looking information that are
not fully incorporated into the model calculation. Changes in these
assumptions would have a direct impact on the provision for credit
losses and may result in a change in the allowance for credit losses.
FAIR VALUE MEASUREMENTS
The fair value of fnancial instruments traded in active markets at the
balance sheet date is based on their quoted market prices. For all other
fnancial instruments not traded in an active market, fair value may be
based on other observable current market transactions involving the
same or similar instruments, without modifcation or repackaging, or is
based on a valuation technique which maximizes the use of observable
market inputs. Observable market inputs may include interest rate
yield curves, foreign exchange rates, and option volatilities. Valuation
techniques include comparisons with similar instruments where
observable market prices exist, discounted cash fow analysis, option
pricing models, and other valuation techniques commonly used by
market participants.
For certain complex or illiquid fnancial instruments, fair value
is determined using valuation techniques in which current market
transactions or observable market inputs are not available. Determining
which valuation technique to apply requires judgment. The valuation
techniques themselves also involve some level of estimation and
judgment. The judgments include liquidity considerations and model
inputs such as volatilities, correlations, spreads, discount rates,
pre-payment rates, and prices of underlying instruments. Any
imprecision in these estimates can affect the resulting fair value.
Judgment is also used in recording fair value adjustments to
model valuations to account for measurement uncertainty when
valuing complex and less actively traded fnancial instruments. If the
market for a complex fnancial instrument develops, the pricing for
this instrument may become more transparent, resulting in refnement
of valuation models. For example, IBOR reform may also have an
impact on the fair value of products that reference or use valuation
models with IBOR inputs.
An analysis of fair values of fnancial instruments and further details
as to how they are measured are provided in Note 5 of the Bank’s
2019 Consolidated Financial Statements.
DERECOGNITION
Certain assets transferred may qualify for derecognition from
the Bank’s Consolidated Balance Sheet. To qualify for derecognition
certain key determinations must be made. A decision must be made
as to whether the rights to receive cash fows from the fnancial assets
have been retained or transferred and the extent to which the risks
and rewards of ownership of the fnancial assets have been retained
or transferred. If the Bank neither transfers nor retains substantially all
of the risks and rewards of ownership of the fnancial asset, a decision
must be made as to whether the Bank has retained control of the
fnancial asset. Upon derecognition, the Bank will record a gain or loss
on sale of those assets which is calculated as the difference between
the carrying amount of the asset transferred and the sum of any cash
proceeds received, including any fnancial asset received or fnancial
liability assumed, and any cumulative gain or loss allocated to the
transferred asset that had been recognized in AOCI. In determining
the fair value of any fnancial asset received, the Bank estimates future
cash fows by relying on estimates of the amount of interest that will
be collected on the securitized assets, the yield to be paid to investors,
the portion of the securitized assets that will be prepaid before their
scheduled maturity, ECLs, the cost of servicing the assets, and the rate
at which to discount these expected future cash fows. Actual cash
fows may differ signifcantly from those estimated by the Bank.
Retained interests are classifed as trading securities and are initially
recognized at relative fair value on the Bank’s Consolidated Balance
Sheet. Subsequently, the fair value of retained interests recognized
by the Bank is determined by estimating the present value of future
expected cash fows. Differences between the actual cash fows and
the Bank’s estimate of future cash fows are recognized in trading
income. These assumptions are subject to periodic review and may
change due to signifcant changes in the economic environment.
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
107
GOODWILL AND OTHER INTANGIBLES
The recoverable amount of the Bank’s cash-generating units (CGU) is
determined from internally developed valuation models that consider
various factors and assumptions such as forecasted earnings, growth
rates, price-earnings multiples, discount rates and terminal multiples.
Management is required to use judgment in estimating the recoverable
amount of CGUs, and the use of different assumptions and estimates
in the calculations could infuence the determination of the existence
of impairment and the valuation of goodwill. Management believes that
the assumptions and estimates used are reasonable and supportable.
Where possible, assumptions generated internally are compared to
relevant market information. The carrying amounts of the Bank’s CGUs
are determined by management using risk based capital models to
adjust net assets and liabilities by CGU. These models consider various
factors including market risk, credit risk, and operational risk, including
investment capital (comprised of goodwill and other intangibles). Any
capital not directly attributable to the CGUs is held within the Corporate
segment. The Bank’s capital oversight committees provide oversight to
the Bank’s capital allocation methodologies.
EMPLOYEE BENEFITS
The projected beneft obligation and expense related to the Bank’s
pension and non-pension post-retirement beneft plans are determined
using multiple assumptions that may signifcantly infuence the value
of these amounts. Actuarial assumptions including discount rates,
compensation increases, health care cost trend rates, and mortality
rates are management’s best estimates and are reviewed annually with
the Bank’s actuaries. The Bank develops each assumption using
relevant historical experience of the Bank in conjunction with market-
related data and considers if the market-related data indicates there is
any prolonged or signifcant impact on the assumptions. The discount
rate used to value liabilities is determined by reference to market
yields on high-quality corporate bonds with terms matching the
plans’ specifc cash fows. The other assumptions are also long-term
estimates. All assumptions are subject to a degree of uncertainty.
Differences between actual experiences and the assumptions, as
well as changes in the assumptions resulting from changes in future
expectations, result in actuarial gains and losses which are recognized
in other comprehensive income during the year and also impact
expenses in future periods.
INCOME TAXES
The Bank is subject to taxation in numerous jurisdictions. There are
many transactions and calculations in the ordinary course of business for
which the ultimate tax determination is uncertain. The Bank maintains
provisions for uncertain tax positions that it believes appropriately
refect the risk of tax positions under discussion, audit, dispute, or
appeal with tax authorities, or which are otherwise considered to involve
uncertainty. These provisions are made using the Bank’s best estimate of
the amount expected to be paid based on an assessment of all relevant
factors, which are reviewed at the end of each reporting period.
However, it is possible that at some future date, an additional liability
could result from audits by the relevant taxing authorities.
Deferred tax assets are recognized only when it is probable that
suffcient taxable proft will be available in future periods against
which deductible temporary differences may be utilized. The amount
of the deferred tax asset recognized and considered realizable could,
however, be reduced if projected income is not achieved due to
various factors, such as unfavourable business conditions. If projected
income is not expected to be achieved, the Bank would decrease its
deferred tax assets to the amount that it believes can be realized. The
magnitude of the decrease is signifcantly infuenced by the Bank’s
forecast of future proft generation, which determines the extent to
which it will be able to utilize the deferred tax assets.
PROVISIONS
Provisions arise when there is some uncertainty in the timing or amount
of a loss in the future. Provisions are based on the Bank’s best estimate
of all expenditures required to settle its present obligations, considering
all relevant risks and uncertainties, as well as, when material, the effect
of the time value of money.
Many of the Bank’s provisions relate to various legal actions that
the Bank is involved in during the ordinary course of business. Legal
provisions require the involvement of both the Bank’s management
and legal counsel when assessing the probability of a loss and
estimating any monetary impact. Throughout the life of a provision,
the Bank’s management or legal counsel may learn of additional
information that may impact its assessments about the probability
of loss or about the estimates of amounts involved. Changes in
these assessments may lead to changes in the amount recorded for
provisions. In addition, the actual costs of resolving these claims
may be substantially higher or lower than the amounts recognized.
The Bank reviews its legal provisions on a case-by-case basis after
considering, among other factors, the progress of each case,
the Bank’s experience, the experience of others in similar cases,
and the opinions and views of legal counsel.
Certain of the Bank’s provisions relate to restructuring initiatives
initiated by the Bank. Restructuring provisions require management’s
best estimate, including forecasts of economic conditions. Throughout
the life of a provision, the Bank may become aware of additional
information that may impact the assessment of amounts to be
incurred. Changes in these assessments may lead to changes in the
amount recorded for provisions.
INSURANCE
The assumptions used in establishing the Bank’s insurance claims and
policy beneft liabilities are based on best estimates of possible outcomes.
For property and casualty insurance, the ultimate cost of claims
liabilities is estimated using a range of standard actuarial claims
projection techniques in accordance with Canadian accepted actuarial
practices. Additional qualitative judgment is used to assess the extent
to which past trends may or may not apply in the future, in order to
arrive at the estimated ultimate claims cost that present the most likely
outcome taking account of all the uncertainties involved.
For life and health insurance, actuarial liabilities consider all future
policy cash fows, including premiums, claims, and expenses required
to administer the policies. Critical assumptions used in the
measurement of life and health insurance contract liabilities are
determined by the appointed actuary.
Further information on insurance risk assumptions is provided
in Note 22.
CONSOLIDATION OF STRUCTURED ENTITIES
Management judgment is required when assessing whether the Bank
should consolidate an entity. For instance, it may not be feasible to
determine if the Bank controls an entity solely through an assessment
of voting rights for certain structured entities. In this case, judgment is
required to establish whether the Bank has decision-making power over
the key relevant activities of the entity and whether the Bank has the
ability to use that power to absorb signifcant variable returns from the
entity. If it is determined that the Bank has both decision-making power
and signifcant variable returns from the entity, judgment is also used to
determine whether any such power is exercised by the Bank as principal,
on its own behalf, or as agent, on behalf of another counterparty.
108 TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
Assessing whether the Bank has decision-making power includes
understanding the purpose and design of the entity in order to
determine its key economic activities. In this context, an entity’s
key economic activities are those which predominantly impact the
economic performance of the entity. When the Bank has the current
ability to direct the entity’s key economic activities, it is considered
to have decision-making power over the entity.
The Bank also evaluates its exposure to the variable returns of
a structured entity in order to determine if it absorbs a signifcant
proportion of the variable returns the entity is designed to create.
As part of this evaluation, the Bank considers the purpose and design
of the entity in order to determine whether it absorbs variable returns
from the structured entity through its contractual holdings, which may
take the form of securities issued by the entity, derivatives with the
entity, or other arrangements such as guarantees, liquidity facilities,
or lending commitments.
If the Bank has decision-making power over the entity and absorbs
signifcant variable returns from the entity, it then determines if it
is acting as principal or agent when exercising its decision-making
power. Key factors considered include the scope of its decision-making
powers; the rights of other parties involved with the entity, including
any rights to remove the Bank as decision-maker or rights to
participate in key decisions; whether the rights of other parties are
exercisable in practice; and the variable returns absorbed by the Bank
and by other parties involved with the entity. When assessing
consolidation, a presumption exists that the Bank exercises decision-
making power as principal if it is also exposed to signifcant variable
returns, unless an analysis of the factors above indicates otherwise.
The decisions above are made with reference to the specifc facts
and circumstances relevant for the structured entity and related
transaction(s) under consideration.
REVENUE FROM CONTRACTS WITH CUSTOMERS
The Bank applies judgment to determine the timing of satisfaction
of performance obligations which affects the timing of revenue
recognition, by evaluating the pattern in which the Bank transfers
control of services promised to the customer. A performance
obligation is satisfed over time when the customer simultaneously
receives and consumes the benefts as the Bank performs the service.
For performance obligations satisfed over time, revenue is generally
recognized using the time-elapsed method which is based on time
elapsed in proportion to the period over which the service is provided,
for example, personal deposit account bundle fees. The time-elapsed
method is a faithful depiction of the transfer of control for these
services as control is transferred evenly to the customer when the Bank
provides a stand-ready service or effort is expended evenly by the Bank
to provide a service over the contract period. In contracts where
the Bank has a right to consideration from a customer in an amount
that corresponds directly with the value to the customer of the Bank’s
performance completed to date, the Bank recognizes revenue in the
amount to which it has a right to invoice.
The Bank satisfes a performance obligation at a point in time if
the customer obtains control of the promised services at that date.
Determining when control is transferred requires the use of judgment.
For transaction-based services, the Bank determines that control is
transferred to the customer at a point in time when the customer
obtains substantially all of the benefts from the service rendered and
the Bank has a present right to payment, which generally coincides
with the moment the transaction is executed.
The Bank exercises judgment in determining whether costs incurred
in connection with acquiring new revenue contracts would meet the
requirement to be capitalized as incremental costs to obtain or fulfl
a contract with customers.
IMPAIRMENT OF FINANCIAL ASSETS PRIOR TO
NOVEMBER 1, 2017 UNDER IAS 39
The following is applicable to periods prior to November 1, 2017 for
fnancial instruments accounted for under IAS 39.
Available-for-Sale Securities
Impairment losses were recognized on AFS securities if there was
objective evidence of impairment as a result of one or more events
that occurred after initial recognition and the loss event(s) resulted in
a decrease in the estimated cash fows of the instrument. The Bank
individually reviewed these securities at least quarterly for the presence
of these conditions. For AFS equity securities, a signifcant or prolonged
decline in fair value below cost was considered objective evidence of
impairment. For AFS debt securities, a deterioration of credit quality
was considered objective evidence of impairment. Other factors
considered in the impairment assessment included fnancial position
and key fnancial indicators of the issuer of the instrument, signifcant
past and continued losses of the issuer, as well as breaches of contract,
including default or delinquency in interest payments and loan
covenant violations.
Held-to-Maturity Securities
Impairment losses were recognized on held-to-maturity securities if
there was objective evidence of impairment as a result of one or more
events that occurred after initial recognition and the loss event(s)
resulted in a decrease in the estimated cash fows of the instrument.
The Bank reviewed these securities at least quarterly for impairment
at the counterparty-specifc level. If there was no objective evidence
of impairment at the counterparty-specifc level then the security
was grouped with other held-to-maturity securities with similar credit
risk characteristics and collectively assessed for impairment, which
considered losses incurred but not identifed. A deterioration of credit
quality was considered objective evidence of impairment. Other factors
considered in the impairment assessment included the fnancial
position and key fnancial indicators of the issuer, signifcant past
and continued losses of the issuer, as well as breaches of contract,
including default or delinquency in interest payments and loan
covenant violations.
Loans
A loan, including a debt security classifed as a loan, was considered
impaired when there was objective evidence that there had been a
deterioration of credit quality subsequent to the initial recognition of
the loan to the extent the Bank no longer had reasonable assurance
as to the timely collection of the full amount of principal and interest.
The Bank assessed loans for objective evidence of impairment
individually for loans that were individually signifcant, and collectively
for loans that were not individually signifcant. The allowance for credit
losses represented management’s best estimate of impairment
incurred in the lending portfolios, including any off-balance sheet
exposures, at the balance sheet date. Management exercised judgment
as to the timing of designating a loan as impaired, the amount of the
allowance required, and the amount that would be recovered once the
borrower defaulted. Changes in the amount that management
expected to recover would have a direct impact on the provision for
credit losses and may have resulted in a change in the allowance for
credit losses.
If there was no objective evidence of impairment for an individual
loan, whether signifcant or not, the loan was included in a group of
assets with similar credit risk characteristics and collectively assessed
for impairment for losses incurred but not identifed. In calculating
the probable range of allowance for incurred but not identifed credit
losses, the Bank employed internally developed models that utilized
parameters for PD, LGD, and EAD. Management’s judgment was used
to determine the point within the range that was the best estimate of
losses, based on an assessment of business and economic conditions,
historical loss experience, loan portfolio composition, and other
relevant indicators that were not fully incorporated into the model
calculation. Changes in these assumptions would have a direct impact
on the provision for credit losses and may have resulted in a change in
the incurred but not identifed allowance for credit losses.
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
109
ACCOUNTING STANDARDS AND POLICIES
Current and Future Changes in Accounting Policies
CURRENT CHANGES IN ACCOUNTING POLICIES
The following new and amended standards have been adopted
by the Bank.
IBOR Reform and its Effects on Financial Reporting
As a result of the effects of Interbank Offered Rates (IBOR) reform, on
September 26, 2019, the IASB issued Interest Rate Benchmark Reform,
Amendments to IFRS 9, IAS 39, and IFRS 7, of which the Bank adopted
the applicable amendments to IFRS 7 relating to hedge accounting
and will apply the remaining amendments related to IAS 39 as and
when applicable to the Bank’s hedging relationships. The amendments
provide temporary exceptions from applying specifc hedge accounting
requirements to all hedging relationships directly affected by interest
rate benchmark reform. Under the amendments, entities would apply
hedge accounting requirements assuming that the interest rate
benchmark is not altered, thereby enabling hedge accounting to
continue during the period of uncertainty prior to the replacement of
an existing interest rate benchmark with an alternative benchmark
rate. The amendments also provide an exception from the requirement
to discontinue hedge accounting if the actual results of the hedge do
not meet the effectiveness requirements as a result of interest rate
benchmark reform. Amendments were also made to IFRS 7 introducing
additional disclosures related to amended IAS 39. Refer to Notes 2 and
11 for further details.
Revenue from Contracts with Customers
On November 1, 2018, the Bank adopted IFRS 15, Revenue from
Contracts with Customers (IFRS 15), which establishes the principles for
recognizing revenue and cash fows arising from contracts with
customers and prescribes the application of a fve-step recognition and
measurement model. The standard excludes from its scope, revenue
arising from items such as fnancial instruments, insurance contracts,
and leases. The Bank adopted the standard on a modifed retrospective
basis, recognizing the cumulative effect of initially applying the
standard as an adjustment to opening retained earnings without
restating comparative period fnancial information.
The adoption of IFRS 15 resulted in a reduction to Shareholders’
Equity of $41 million related to certain expenses not eligible for
deferral under IFRS 15. The presentation of certain revenue and
expense items is changed due to IFRS 15 and reclassifed prospectively.
These presentation changes are not signifcant and do not have an
impact on net income.
In addition to the above changes related to the adoption of IFRS 15,
the Bank also changed its accounting policy on securities lending and
borrowing transactions. Where securities are received or pledged as
collateral, securities lending income and securities borrowing fees are
recorded in Non-interest income and Non-interest expenses,
respectively, on the Consolidated Statement of Income. This change
has been applied retrospectively.
Share-based Payment
In June 2016, the IASB published amendments to IFRS 2, Share-based
Payment (IFRS 2), which provide additional guidance on the
classifcation 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
classifcation of share-based payment transactions with net settlement
features for withholding tax obligations, and the accounting for
modifcations 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 was
November 1, 2018 for the Bank. These amendments have been applied
prospectively and did not have a signifcant impact on the Bank.
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 Consolidated Financial Statements.
The Bank is currently assessing the impact of the application of these
standards on the Consolidated Financial Statements and will adopt
these standards when they become effective.
Leases
In January 2016, the IASB issued IFRS 16, Leases (IFRS 16), which will
replace IAS 17, Leases, introducing a single lessee accounting model for
all leases by eliminating the distinction between operating and fnancing
leases. IFRS 16 requires lessees to recognize right-of-use assets and
lease liabilities for most leases on the balance sheet. Lessees will also
recognize depreciation expense on the right-of-use asset, interest
expense on the lease liability, and a shift in the timing of expense
recognition in the statement of income. Short-term leases, which
are defned as those that have a lease term of twelve 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. The Bank will adopt the new standard using the modifed
retrospective approach by recognizing the cumulative effect of the
transitional impact in opening retained earnings within the Consolidated
Balance Sheet at November 1, 2019, with no restatement of the
comparative periods. The Bank’s IFRS 16 program is governed by a
formal multi-functional enterprise-wide governance structure and
project delivery plan. Additional processes and internal controls over
fnancial reporting have also been developed.
In adopting IFRS 16, the Bank will apply certain practical expedients
as permitted by IFRS 16, including: using hindsight to determine the
lease term where lease contracts contain options to extend or terminate
a lease, measuring the right-of-use asset retrospectively on a selection
of leases, not reassessing under IFRS 16, contracts that were previously
identifed as leases under the previous accounting standards (IAS 17,
Leases, and IFRIC 4, Determining whether an arrangement contains a
lease), and applying the exemption for short-term leases to be expensed.
The Bank’s real estate leases, previously classifed as operating leases,
will be impacted the most by the adoption of IFRS 16. The Bank also
leases certain equipment and other assets under similar payment terms.
On November 1, 2019, the Bank estimates increases of $4.4 billion of
new right-of-use assets, $5.5 billion of lease liabilities, and other balance
sheet adjustments and reclassifcations of $0.6 billion. The decrease of
retained earnings is approximately $0.5 billion after tax. Based on the
current regulatory requirements, the expected impact to Common Equity
Tier 1 (CET1) capital is a decrease of 24 basis points (bps).
Insurance Contracts
In May 2017, the IASB issued IFRS 17, Insurance Contracts (IFRS 17),
which replaces the guidance in IFRS 4, Insurance Contracts and
establishes principles for recognition, measurement, presentation,
and disclosure of insurance contracts. IFRS 17 is currently effective for
the Bank’s annual reporting period beginning November 1, 2021. In
June 2019, the IASB issued an Exposure Draft which proposes targeted
amendments to IFRS 17 including, amongst other matters, a deferral
of the effective date by one year. It is expected that the IASB will
fnalize the amendments to the standard in mid-2020. Any change
to the Bank’s effective date is subject to updates of OSFI’s related
Advisory. The Bank is currently in the fnal stages of its planning
activities, which includes developing the project plan based on results
from business impact assessments, reviewing resource requirements
to support this approach, and monitoring the impact of IASB changes
to the IFRS 17 standard.
110 TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
Uncertainty over Income Tax Treatments
In June 2017, the IASB issued IFRIC Interpretation 23, Uncertainty over
Income Tax Treatments, which clarifes application of recognition and
measurement requirements in IAS 12, Income Taxes, when there is
uncertainty over income tax treatments. The interpretation is effective
for annual periods beginning on or after January 1, 2019, which will
be November 1, 2019 for the Bank. The interpretation can be applied
using either full retrospective application or modifed retrospective
application without restatement of comparatives and is not expected
to have a signifcant impact on the Bank.
Conceptual Framework for Financial Reporting
In March 2018, the IASB issued the revised Conceptual Framework
for Financial Reporting (Revised Conceptual Framework), which
provides a set of concepts to assist the IASB in developing standards
and to help preparers consistently apply accounting policies where
specifc accounting standards do not exist. The framework is not an
accounting standard and does not override the requirements that exist
in other IFRS standards. The Revised Conceptual Framework describes
that fnancial information must be relevant and faithfully represented
to be useful, provides revised defnitions and recognition criteria for
assets and liabilities, and confrms that different measurement bases
are useful and permitted. The Revised Conceptual Framework is
effective for annual periods beginning on or after January 1, 2020,
which will be November 1, 2020 for the Bank, with early adoption
permitted. The Bank is currently assessing the impact of adopting the
revised framework.
Business Combinations
In October 2018, the IASB issued a narrow-scope amendment to
IFRS 3, Business Combinations (IFRS 3). The amendments provide
additional guidance on the defnition of a business which determines
whether an acquisition is of a business or a group of assets. An
acquirer recognizes goodwill only when acquiring a business, not when
acquiring a group of assets. The amendments to IFRS 3 are effective
for annual reporting periods beginning on or after January 1, 2020,
which will be November 1, 2020 for the Bank, with early adoption
permitted and is to be applied prospectively. The Bank will assess the
impact of the amendments on future acquisitions.
Presentation of Financial Statements and Accounting Policies,
Changes in Accounting Estimates and Errors
In October 2018, the IASB issued amendments to IAS 1, Presentation
of Financial Statements and IAS 8, Accounting Policies, Changes in
Accounting Estimates and Errors, which clarify the defnition of
“material”. Specifcally, the amendments clarify that information
is material if omitting, misstating, or obscuring it could reasonably
be expected to infuence the decisions that the primary users of
general purpose fnancial statements make on the basis of those
fnancial statements. Accompanying explanations to the defnition
have also been clarifed. The amendments are effective for annual
periods beginning on or after January 1, 2020, which will be
November 1, 2020 for the Bank, and are to be applied prospectively
with early application permitted. The Bank is currently assessing the
impact of adopting these amendments.
ACCOUNTING STANDARDS AND POLICIES
Controls and Procedures
DISCLOSURE CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the
participation of the Bank’s management, including the Chief Executive
Offcer and Chief Financial Offcer, of the effectiveness of the Bank’s
disclosure controls and procedures, as defned in the rules of the SEC and
Canadian Securities Administrators, as of October 31, 2019. Based on
that evaluation, the Bank’s management, including the Chief Executive
Offcer and Chief Financial Offcer, concluded that the Bank’s disclosure
controls and procedures were effective as of October 31, 2019.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING
The Bank’s management is responsible for establishing and maintaining
adequate internal control over fnancial reporting for the Bank. The
Bank’s internal control over fnancial reporting includes those policies
and procedures that (1) pertain to the maintenance of records, that,
in reasonable detail, accurately and fairly refect the transactions and
dispositions of the assets of the Bank; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of
fnancial statements in accordance with IFRS, and that receipts and
expenditures of the Bank are being made only in accordance with
authorizations of the Bank’s management and directors; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the Bank’s assets that
could have a material effect on the fnancial statements.
The Bank’s management has used the criteria established in the 2013
Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission to assess, with
the participation of the Chief Executive Offcer and Chief Financial
Offcer, the effectiveness of the Bank’s internal control over fnancial
reporting. Based on this assessment, management has concluded that as
at October 31, 2019, the Bank’s internal control over fnancial reporting
was effective based on the applicable criteria. The effectiveness of
the Bank’s internal control over fnancial reporting has been audited
by the independent auditors, Ernst & Young LLP, a registered public
accounting frm that has also audited the Consolidated Financial
Statements of the Bank as of, and for the year ended October 31, 2019.
Their Report on Internal Controls under Standards of the Public
Company Accounting Oversight Board (United States), included in the
Consolidated Financial Statements, expresses an unqualifed opinion
on the effectiveness of the Bank’s internal control over fnancial
reporting as of October 31, 2019.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the year and quarter ended October 31, 2019, there have
been no changes in the Bank’s policies and procedures and other
processes that comprise its internal control over fnancial reporting,
that have materially affected, or are reasonably likely to materially
affect, the Bank’s internal control over fnancial reporting.
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
111
ADDITIONAL FINANCIAL INFORMATION
Unless otherwise indicated, all amounts are expressed in Canadian
dollars and have been primarily derived from the Bank’s annual
Consolidated Financial Statements, prepared in accordance with IFRS
as issued by the IASB.
T A B L E 6 0
INVESTMENT PORTFOLIO – Securities Maturity Schedule1,2
(millions of Canadian dollars)
As at
Within
1 year
Over 1
year to
3 years
Over 3
years to
5 years
Over 5
years to
10 years
Over 10
years
With no
specifc
maturity
Remaining terms to maturities3
Total
Total
October 31
2019
October 31
2018
October 31
2017
Securities at fair value through other comprehensive
income (available-for-sale securities under IAS 39)
Government and government-related securities
Canadian government debt
Federal
Fair value
Amortized cost
Yield
Provinces
Fair value
Amortized cost
Yield
U.S. federal government debt
Fair value
Amortized cost
Yield
U.S. states, municipalities, and agencies
Fair value
Amortized cost
Yield
Other OECD government-guaranteed debt
Fair value
Amortized cost
Yield
Canadian mortgage-backed securities
Fair value
Amortized cost
Yield
Other debt securities
Asset-backed securities
Fair value
Amortized cost
Yield
Non-agency CMO
Fair value
Amortized cost
Yield
Corporate and other debt
Fair value
Amortized cost
Yield
Equity securities
Common shares
Fair value
Amortized cost
Yield
Preferred shares
Fair value
Amortized cost
Yield
Debt securities reclassifed from trading
Fair value
Amortized cost
Yield
Total securities at fair value through other
comprehensive income (available-for-sale
securities under IAS 39)
Fair value
Amortized cost
Yield
$ 4,165 $ 4,104 $
4,163
4,090
1.95%
2.18%
283 $
282
2.58%
607 $
605
2.65%
$
504
463
2.70%
1,168
1,166
2,255
2,239
2,199
2,181
7,091
7,089
2.19%
2.64%
3.37%
3.52%
214
215
2.27%
3,618
3,615
17,904
17,893
1,352
1,355
2,302
2,303
1.12%
1.76%
2.10%
1.57%
–
–
–%
4,180
4,161
1,629
1,619
1,836
1,842
2.20%
2.47%
2.19%
5,162
5,161
8,524
8,508
1.05%
2.00%
907
901
1.41%
4,370
4,347
1.65%
250
250
2.04%
160
159
2.18%
700
694
2.43%
471
475
2.55%
–
–
–%
7,216
7,221
2.39%
–
–
–%
–
–
–%
61
61
2.19%
4,188
4,189
4,490
4,476
2,490
2,487
4,659
4,677
1.93%
2.12%
2.42%
2.65%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
1,021
1,020
4,016
3,995
2.14%
2.55%
895
894
2.92%
1,879
1,893
2.66%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
247
247
2.52%
23
30
2.30%
–
–
–%
–
–
–%
$ 9,663
9,603
$ 12,731 $ 16,225
16,200
12,740
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
2.15%
2.12%
1.91%
12,927
12,890
3.20%
9,507
9,443
3.12%
7,922
7,859
2.71%
25,176
25,166
1.67%
27,060
26,898
1.58%
27,258
27,087
1.58%
15,561
15,537
18,706
18,959
21,022
20,995
2.33%
2.44%
2.17%
14,407
14,394
20,096
20,034
21,122
21,067
1.68%
1.53%
1.35%
5,437
5,407
6,633
6,575
8,812
8,757
1.63%
1.67%
1.72%
15,888
15,890
2.27%
21,969
21,901
2.37%
29,981
29,879
1.85%
247
247
2.52%
472
471
3.06%
1,715
1,706
2.51%
7,834
7,832
8,507
8,534
9,790
9,753
2.56%
2.82%
2.48%
1,598
1,594
3.07%
1,598
1,594
1,804
1,725
1,922
1,821
3.07%
3.43%
2.88%
242
302
4.07%
242
302
4.07%
370
376
4.17%
365
313
4.44%
277
250
5.51%
n/a
n/a
n/a%
n/a
n/a
n/a%
n/a
n/a
n/a%
n/a
n/a
n/a%
n/a
n/a
n/a%
n/a
n/a
n/a%
n/a
n/a
n/a%
n/a
n/a
n/a%
$ 20,282
20,248
$ 46,990
46,880
$ 11,465
11,439
$ 15,540
15,546
$ 12,863
12,853
1.62%
1.98%
2.44%
2.84%
2.50%
$ 1,840
$ 108,980
1,896
3.23%
108,862
2.17%
$ 127,855
$ 146,411
127,656 145,687
2.13%
1.88%
1 Yields represent the weighted-average yield of each security owned at the end of
the period. The effective yield includes the contractual interest or stated dividend
rate and is adjusted for the amortization of premiums and discounts; the effect of
related hedging activities is excluded.
2 As at October 31, 2019, includes securities issued by Government of Japan of
$9.6 billion (as at October 31, 2018, includes securities issued by Government of
Japan of $9.5 billion), where the book value was greater than 10% of the
shareholders’ equity.
3 Represents contractual maturities. Actual maturities may differ due to prepayment
privileges in the applicable contract.
112 TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
T A B L E 6 0
INVESTMENT PORTFOLIO – Securities Maturity Schedule (continued) 1,2
(millions of Canadian dollars)
As at
Within
1 year
Over 1
year to
3 years
Over 3
years to
5 years
Over 5
years to
10 years
Over 10
years
With no
specifc
maturity
Remaining terms to maturities3
Total
Total
October 31
2019
October 31
2018
October 31
2017
Debt securities at amortized cost (held-to-maturity securities under IAS 39)
Government and government-related securities
Canadian government debt
Federal
Fair value
Amortized cost
Yield
Provinces
Fair value
Amortized cost
Yield
U.S. federal government and agencies debt
Fair value
Amortized cost
Yield
U.S. states, municipalities, and agencies
Fair value
Amortized cost
Yield
Other OECD government-guaranteed debt
Fair value
Amortized cost
Yield
Other debt securities
Asset-backed securities
Fair value
Amortized cost
Yield
Non-agency CMO
Fair value
Amortized cost
Yield
Canadian issuers
Fair value
Amortized cost
Yield
Other issuers
Fair value
Amortized cost
Yield
Total debt securities at amortized cost
(held-to-maturity securities under IAS 39)
Fair value
Amortized cost
Yield
$
992 $
992
1.60%
515 $
515
1.84%
871 $
872
2.45%
422 $ 1,959
435
1,957
2.23%
2.47%
–
–
–%
16
16
1.83%
40
40
2.76%
69
67
1.54%
766
766
3.16%
1,241
1,243
4.07%
221
222
5.93%
1,040
1,039
1,684
1,684
1.63%
1.70%
–
–
–%
1,347
1,349
3,686
3,677
8,305
8,247
10,395
10,489
16,616
16,646
1.99%
2.35%
2.25%
2.84%
2.28%
7,165
7,161
10,197
10,138
9,574
9,512
1,254
1,208
0.08%
0.60%
1.10%
0.49%
–
–
–%
11
11
2.27%
5,052
5,053
8,945
8,950
4,045
4,049
10,645
10,700
2.50%
2.69%
2.78%
2.74%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
1,653
1,649
2,472
2,454
2,629
2,601
1.21%
0.91%
1.25%
–
–
–%
16,384
16,236
2.83%
99
99
2.56%
433
418
0.27%
–
–
–%
2
2
5.80%
$ 11,184 $ 22,031 $ 32,130 $ 19,573 $ 45,827
45,763
31,987
21,944
19,625
11,178
0.62%
1.40%
1.96%
2.59%
2.61%
$ – $ 4,759 $ 4,914 $
4,771
4,922
2.19%
1.97%
2,268
2,271
3.92%
2,809
2,806
1.67%
783
782
3.07%
111
114
0.03%
661
661
1.87%
n/a
n/a
n/a%
–
–
–%
40,349
40,408
28,372
29,034
22,417
22,531
2.42%
2.47%
2.15%
28,190
28,019
25,768
25,683
22,629
22,431
0.63%
0.72%
0.43%
28,698
28,763
23,728
23,709
2.69%
2.91%
16,384
16,236
15,525
15,867
2.83%
2.85%
99
99
2.56%
–
–
–%
7,189
7,124
7,064
7,060
1.07%
1.17%
n/a
n/a
n/a%
n/a
n/a
n/a%
n/a
n/a
n/a%
n/a
n/a
n/a%
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–%
$ – $ 130,745 $ 106,265 $ 71,426
71,363
107,171
130,497
2.07%
2.09%
1.59%
1 Yields represent the weighted-average yield of each security owned at the end of
the period. The effective yield includes the contractual interest or stated dividend
rate and is adjusted for the amortization of premiums and discounts; the effect
of related hedging activities is excluded.
2 As at October 31, 2019, includes securities issued by Government of Japan of
$9.6 billion (as at October 31, 2018, includes securities issued by Government of
Japan of $9.5 billion), where the book value was greater than 10% of the
shareholders’ equity.
3 Represents contractual maturities. Actual maturities may differ due to prepayment
privileges in the applicable contract.
113
TD BANK GROUP ANNUAL REPORT 2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 6 1
LOAN PORTFOLIO – Maturity Schedule
(millions of Canadian dollars)
Canada
Residential mortgages
Consumer instalment and other personal
HELOC
Indirect Auto
Other
Credit card
Total personal
Real estate
Residential
Non-residential
Total real estate
Total business and government
(including real estate)
Total loans – Canada
United States
Residential mortgages
Consumer instalment and other personal
HELOC
Indirect Auto
Other
Credit card
Total personal
Real estate
Residential
Non-residential
Total real estate
Total business and government
(including real estate)
Total loans – United States
Other International
Personal
Business and government
Total loans – Other international
Other loans
Debt securities classifed as loans
Acquired credit-impaired loans
Total other loans
Total loans
Remaining term-to-maturity
Under
1 year
1 to 5
years
Over
5 years
Total
As at
Total
October 31 October 31
2018
2019
October 31
2017
October 31
2016
October 31
2015
$ 37,363 $ 157,902 $
5,687 $ 200,952 $ 193,829 $ 190,325 $
189,299 $ 185,009
45,530
574
16,612
18,428
118,507
45,509
13,180
921
–
217,512
14
11,943
922
–
18,566
91,053
25,697
18,455
18,428
354,585
86,159
24,216
18,574
18,046
340,824
74,937
22,282
17,355
18,028
322,927
65,068
20,577
16,456
18,226
309,626
61,317
19,038
16,075
17,941
299,380
8,299
9,214
17,513
7,621
3,881
11,502
3,898
2,837
6,735
19,818
15,932
35,750
18,364
13,635
31,999
17,981
12,832
30,813
16,001
12,780
28,781
14,862
11,330
26,192
76,712
195,219
32,094
249,606
10,227
28,793
119,033
473,618
111,145
451,969
97,033
419,960
91,054
400,680
84,155
383,535
716
168
33,617
34,501
31,128
31,460
27,662
26,922
9,924
352
166
18,129
29,287
1,641
2,937
4,578
7
18,329
932
–
19,436
3,199
11,705
14,904
1,595
13,773
15
–
49,000
4,023
9,508
13,531
11,526
32,454
1,113
18,129
97,723
8,863
24,150
33,013
12,334
29,870
874
16,964
91,170
8,050
22,426
30,476
12,434
29,182
846
14,972
88,894
7,316
22,163
29,479
13,208
28,370
745
13,680
83,665
6,852
21,675
28,527
13,334
24,862
693
12,274
78,085
5,691
18,317
24,008
24,201
53,488
58,463
77,899
48,554
97,554
131,218
228,941
124,090
215,260
119,350
208,244
116,713
200,378
97,217
175,302
12
924
936
–
789
789
–
76
76
12
1,789
1,801
14
2,258
2,272
14
1,579
1,593
16
1,513
1,529
5
1,978
1,983
n/a
7
7
$ 249,650
n/a
40
40
$ 328,334
n/a
266
266
2,187
1,414
3,601
$ 126,689 $ 704,673 $ 669,954 $ 633,671 $ 605,235 $ 564,421
3,209
665
3,874
1,674
974
2,648
n/a
453
453
n/a
313
313
T A B L E 6 2
LOAN PORTFOLIO – Rate Sensitivity
(millions of Canadian dollars)
As at
October 31, 2019
October 31, 2018
October 31, 2017
October 31, 2016
October 31, 2015
1 to
5 years
Over
5 years
1 to
5 years
Over 5
years
1 to
5 years
Over 5
years
1 to
5 years
Over 5
years
1 to
5 years
Over 5
years
Fixed rate
Variable rate
Total
$ 228,904 $ 91,698 $ 218,098 $ 84,450 $ 197,483 $ 84,080 $ 212,257 $ 82,507 $ 176,316 $ 66,949
32,208
$ 276,930 $ 120,173 $ 297,396 $ 116,767 $ 248,979 $ 99,157
95,861
$ 328,334 $ 126,689 $ 313,959
34,018
$ 118,468
34,260
72,663
79,447
85,139
36,093
99,430
34,991
114 TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
The changes in the Bank’s allowance for credit losses for the years
ended October 31 are shown in the following table.
T A B L E 6 3 ALLOWANCE FOR LOAN LOSSES1
(millions of Canadian dollars, except as noted)
Allowance for loan losses – Balance at beginning of year
Provision for credit losses
Write-offs
Canada
Residential mortgages
Consumer instalment and other personal
HELOC
Indirect Auto
Other
Credit card
Total personal
Real estate
Residential
Non-residential
Total real estate
Total business and government (including real estate)
Total Canada
United States
Residential mortgages
Consumer instalment and other personal
HELOC
Indirect Auto
Other
Credit card
Total personal
Real estate
Residential
Non-residential
Total real estate
Total business and government (including real estate)
Total United States
Other International
Personal
Business and government
Total other international
Other loans
Debt securities classifed as loans
Acquired credit-impaired loans2,3
Total other loans
Total write-offs against portfolio
Recoveries
Canada
Residential mortgages
Consumer instalment and other personal
HELOC
Indirect Auto
Other
Credit card
Total personal
Real estate
Residential
Non-residential
Total real estate
Total business and government (including real estate)
Total Canada
2019
$ 3,549
3,030
2018
$ 3,475
2,472
2017
$ 3,873
2,216
2016
$ 3,434
2,330
2015
$ 3,028
1,683
17
11
284
256
585
1,153
2
1
3
96
1,249
14
15
450
204
1,114
1,797
2
7
9
129
1,926
–
–
–
n/a
3
3
3,178
–
–
54
36
87
177
–
–
–
20
197
$
15
8
251
216
557
1,047
2
1
3
75
1,122
16
22
387
192
958
1,575
1
10
11
79
1,654
–
–
–
n/a
2
2
2,778
1
1
58
37
87
184
22
11
337
216
595
1,181
1
2
3
75
1,256
19
39
315
152
777
1,302
3
6
9
91
1,393
–
–
–
9
1
10
2,659
2
1
90
41
98
232
18
11
334
221
623
1,207
3
2
5
107
1,314
22
38
232
121
530
943
3
11
14
76
1,019
–
–
–
14
4
18
2,351
1
–
91
52
118
262
–
–
–
17
$ 201
1
–
1
20
$ 252
1
3
4
27
$ 289
23
13
224
218
638
1,116
4
3
7
74
1,190
16
47
206
101
454
824
5
22
27
124
948
–
–
–
13
6
19
2,157
1
2
78
58
124
263
1
1
2
33
$ 296
1 Opening balance of allowance for loan losses effective November 1, 2017
was booked in accordance with IFRS 9. Allowance for loan losses prior to
November 1, 2017 was booked in accordance with IAS 39.
2 Includes all FDIC covered loans and other ACI loans.
3 Other adjustments are required as a result of the accounting for FDIC
covered loans.
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
115
T A B L E 6 3 ALLOWANCE FOR LOAN LOSSES (continued) 1
(millions of Canadian dollars, except as noted)
United States
Residential mortgages
Consumer instalment and other personal
HELOC
Indirect Auto
Other
Credit card
Total personal
Real estate
Residential
Non-residential
Total real estate
Total business and government (including real estate)
Total United States
Other International
Personal
Business and government
Total other international
Other loans
Debt securities classifed as loans
Acquired credit-impaired loans2,3
Total other loans
Total recoveries on portfolio
Net write-offs
Disposals
Foreign exchange and other adjustments
Total allowance for loan losses, including off-balance sheet positions
Less: Change in allowance for off-balance sheet positions4,5
Total allowance for loan losses, at end of period5
Ratio of net write-offs in the period to average loans outstanding
2019
2018
2017
2016
2015
$
1
$
2
$
4
$
9
$
11
4
132
26
210
373
2
2
4
23
396
–
–
–
4
116
35
173
330
2
7
9
42
372
–
–
–
11
100
24
154
293
2
8
10
58
351
–
–
–
5
85
26
114
239
4
4
8
54
293
–
–
–
5
83
23
113
235
9
9
18
50
285
–
1
1
n/a
16
16
609
(2,569)
(3)
(4)
4,003
(444)
$ 4,447
n/a
16
16
589
(2,189)
(46)
49
3,761
212
$ 3,549
–
22
22
625
(2,034)
(83)
(122)
3,850
67
$ 3,783
–
20
20
602
(1,749)
(2)
47
4,060
187
$ 3,873
–
19
19
601
(1,556)
(3)
321
3,473
39
$ 3,434
0.38%
0.34%
0.33%
0.30%
0.30%
1 Opening balance of allowance for loan losses effective November 1, 2017
was booked in accordance with IFRS 9. Allowance for loan losses prior to
November 1, 2017 was booked in accordance with IAS 39.
4 The allowance for loan losses for off-balance sheet positions is recorded in Other
liabilities on the Consolidated Balance Sheet.
5 In the fourth quarter of 2019, the Bank revised its allocation methodology for the
2 Includes all FDIC covered loans and other ACI loans.
3 Other adjustments are required as a result of the accounting for FDIC covered loans.
reporting of Allowance for Credit Losses for off-balance sheet instruments for
certain retail portfolios.
T A B L E 6 4 AVERAGE DEPOSITS
(millions of Canadian dollars, except as noted)
Deposits booked in Canada1
Non-interest-bearing demand deposits
Interest-bearing demand deposits
Notice deposits
Term deposits
Total deposits booked in Canada
Deposits booked in the United States
Non-interest-bearing demand deposits
Interest-bearing demand deposits
Notice deposits
Term deposits
Total deposits booked in the United States
Deposits booked in other international
Non-interest-bearing demand deposits
Interest-bearing demand deposits
Notice deposits
Term deposits
Total deposits booked in other international
Total average deposits
For the years ended
October 31, 2017
October 31, 2019
Average
balance
Total
interest
expense
Average
rate paid
October 31, 2018
Total
interest
expense
Average
rate paid
Average
balance
$
$
14,058
75,709
222,249
246,078
558,094
9,745
5,147
330,301
59,534
404,727
–
1,579
786
5,609
7,974
1
43
3,795
1,435
5,274
–%
2.09
0.35
2.28
1.43
0.01
0.84
1.15
2.41
1.30
$
$
13,156
57,030
222,394
223,295
515,875
10,037
2,859
317,218
52,461
382,575
–
1,094
567
4,215
5,876
–
16
3,233
958
4,207
–%
$
1.92
0.25
1.89
1.14
–
0.56
1.02
1.83
1.10
Average
balance
11,201
57,521
209,939
176,345
455,006
10,405
3,152
298,639
79,090
391,286
Total
interest
expense
$
–
648
321
2,730
3,699
–
11
1,695
973
2,679
162
627
–
26,449
27,238
–
1
–
426
427
$ 990,059 $ 13,675
–
0.16
–
1.61
1.57
1.38%
155
1,025
–
37,435
38,615
–
1
–
405
406
$ 937,065 $ 10,489
–
0.10
–
1.08
1.05
1.12%
(7)
1,442
–
28,153
29,588
$ 875,880
–
3
–
234
237
$ 6,615
Average
rate paid
–%
1.13
0.15
1.55
0.81
–
0.35
0.57
1.23
0.68
–
0.21
–
0.83
0.80
0.76%
1 As at October 31, 2019, deposits by foreign depositors in TD’s Canadian
bank offices amounted to $152 billion (October 31, 2018 – $152 billion,
October 31, 2017 – $100 billion).
116 TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
T A B L E 6 5 DEPOSITS – Denominations of $100,000 or greater1
(millions of Canadian dollars)
Canada
United States
Other international
Total
Canada
United States
Other international
Total
Canada
United States
Other international
Total
Within 3
months
3 months to
6 months
6 months to
12 months
Over 12
months
Remaining term-to-maturity
As at
Total
$ 64,039
19,616
17,234
$ 100,889
$ 65,253
20,203
20,225
$ 105,681
$ 41,862
34,955
20,037
$ 96,854
$ 17,069
12,220
2,880
$ 32,169
$ 22,761
16,547
2,016
$ 41,324
$ 19,392
15,607
9,058
$ 44,057
$ 43,559
28,143
3,601
$ 75,303
$ 37,652
11,654
2,787
$ 52,093
$ 20,623
11,821
3,714
$ 36,158
October 31, 2019
$ 97,659
2,755
–
$ 100,414
$ 222,326
62,734
23,715
$ 308,775
October 31, 2018
$ 92,105
2,166
–
$ 94,271
$ 217,771
50,570
25,028
$ 293,369
October 31, 2017
$ 79,649
1,390
–
$ 81,039
$ 161,526
63,773
32,809
$ 258,108
1 Deposits in Canada, U.S., and Other international include wholesale and retail deposits.
T A B L E 6 6
SHORT-TERM BORROWINGS
(millions of Canadian dollars, except as noted)
Obligations related to securities sold under repurchase agreements
Balance at year-end
Average balance during the year
Maximum month-end balance
Weighted-average rate at October 31
Weighted-average rate during the year
October 31
2019
October 31
2018
As at
October 31
2017
$ 125,856
119,782
126,115
1.54%
1.98
$ 93,389
95,286
98,539
1.63%
1.65
$ 88,591
76,136
88,986
0.87%
0.92
TD BANK GROUP ANNUAL RE POR T 2 0 19 MA N A GEMENT’ S D ISCU SSION AND ANALYSI S
117
T A B L E 6 7 NET INTEREST INCOME ON AVERAGE EARNING BALANCES1,2,3
(millions of Canadian dollars, except as noted)
Interest-earning assets
Interest-bearing deposits with banks
Canada
U.S.
Securities
Trading
Canada
U.S.
Non-trading
Canada
U.S.
Securities purchased under reverse
repurchase agreements
Canada
U.S.
Loans
Residential mortgages5
Canada
U.S.
Consumer instalment and other personal
Canada
U.S.
Credit card
Canada
U.S.
Business and government5
Canada
U.S.
International
Total interest-earning assets
Interest-bearing liabilities
Deposits
Personal6
Canada
U.S.
Banks7,8
Canada
U.S.
Business and government7,8
Canada
U.S.
Subordinated notes and debentures
Obligations related to securities sold short
and under repurchase agreements
Canada
U.S.
Securitization liabilities9
Other liabilities
Canada
U.S.
International7,8
Total interest-bearing liabilities
Total net interest income on average
Average
balance
Interest4
2019
Average
rate
Average
balance
Interest4
2018
Average
rate
Average
balance
Interest4
2017
Average
rate
$
6,846 $
24,078
128
532
1.87% $
2.21
5,204 $
34,424
102
592
1.96% $
1.72
5,629 $
42,899
21
405
0.37%
0.94
62,433
20,254
46,854
169,275
1,973
506
1,387
4,641
66,015
45,423
1,250
1,381
207,289
32,821
130,719
43,372
19,197
17,679
6,133
1,253
5,762
2,015
2,422
2,913
100,408
125,914
105,401
1,223,978
3,506
4,800
1,397
41,999
224,374
246,986
1,634
3,179
11,414
2,346
279,571
101,874
9,589
60,173
57,028
27,023
5,669
35
67,833
1,093,915
169
44
6,171
2,051
395
1,281
1,602
524
154
4
860
18,068
3.16
2.50
2.96
2.74
1.89
3.04
2.96
3.82
4.41
4.65
12.62
16.48
3.49
3.81
1.33
3.43
0.73
1.29
1.48
1.88
2.21
2.01
4.12
2.13
2.81
1.94
2.72
11.43
1.27
1.65
55,519
20,496
47,761
155,892
1,684
517
1,219
3,719
41,518
44,238
665
1,020
201,772
29,514
120,273
41,762
18,708
15,853
5,656
1,110
5,215
1,711
2,323
2,550
92,348
115,147
102,855
1,143,284
2,943
4,203
1,193
36,422
215,320
238,005
1,228
2,788
11,612
7,214
248,013
84,575
7,946
46,981
57,384
27,805
5,706
34
68,074
1,018,669
135
135
4,513
1,284
337
1,091
1,274
586
132
4
676
14,183
3.03
2.52
2.55
2.39
1.60
2.31
2.80
3.76
4.34
4.10
12.42
16.09
3.19
3.65
1.16
3.19
0.57
1.17
1.16
1.87
1.82
1.52
4.24
2.32
2.22
2.11
2.31
11.76
0.99
1.39
47,985
20,186
48,109
130,611
1,332
403
949
2,378
33,725
43,087
371
496
200,251
27,982
106,614
41,263
18,571
13,771
4,916
1,041
4,704
1,455
2,270
2,213
80,673
112,416
88,963
1,062,735
2,187
3,795
896
29,832
208,027
221,560
983
1,426
10,686
9,460
199,236
108,078
9,045
34,719
56,587
29,761
5,306
34
48,787
941,286
71
115
2,645
1,138
391
540
696
472
92
4
412
8,985
2.78
2.00
1.97
1.82
1.10
1.15
2.45
3.72
4.41
3.53
12.22
16.07
2.71
3.38
1.01
2.81
0.47
0.64
0.66
1.22
1.33
1.05
4.32
1.56
1.23
1.59
1.73
11.76
0.84
0.95
earning assets
$ 1,223,978 $ 23,931
1.96% $ 1,143,284 $ 22,239
1.95% $ 1,062,735 $ 20,847
1.96%
1 Certain comparative amounts have been reclassified to conform with the
6 Includes charges incurred on the TD Ameritrade IDA of $2.2 billion
presentation adopted in the current period.
2 Net interest income includes dividends on securities.
3 Geographic classification of assets and liabilities is based on the domicile of the
booking point of assets and liabilities.
(2018 – $1.9 billion, 2017 – $1.5 billion).
7 Includes average trading deposits with a fair value of $61 billion
(2018 – $102 billion, 2017 – $87 billion).
8 Includes average deposit designated at fair value through profit or loss
4 Interest income includes loan fees earned by the Bank, which are recognized in net
interest income over the life of the loan through the effective interest rate method.
5 Includes average trading loans of $12 billion (2018 – $11 billion, 2017 – $12 billion).
of $59 billion.
9 Includes average securitization liabilities at fair value of $13 billion
(2018 – $12 billion, 2017 – $13 billion) and average securitization liabilities
at amortized cost of $14 billion (2018 – $16 billion, 2017 – $17 billion).
118 TD BANK GROU P AN NUAL REPO RT 20 19 MAN AGEM ENT’ S D ISCUS SION AND AN ALYSIS
The following table presents an analysis of the change in net interest
income of volume and interest rate changes. In this analysis, changes
due to volume/interest rate variance have been allocated to average
interest rate.
T A B L E 6 8 ANALYSIS OF CHANGE IN NET INTEREST INCOME1,2,3
(millions of Canadian dollars)
Interest-earning assets
Interest-bearing deposits with banks
Canada
U.S.
Securities
Trading
Canada
U.S.
Non-trading
Canada
U.S.
Securities purchased under reverse
repurchase agreements
Canada
U.S.
Loans
Residential mortgages
Canada
U.S.
Consumer instalment and other personal
Canada
U.S.
Credit card
Canada
U.S.
Business and government
Canada
U.S.
International
Total interest income
Interest-bearing liabilities
Deposits
Personal
Canada
U.S.
Banks
Canada
U.S.
Business and government
Canada
U.S.
Subordinated notes and debentures
Obligations related to securities sold
short and under repurchase agreements
Canada
U.S.
Securitization liabilities
Other liabilities
Canada
U.S.
International
Total interest expense
Net interest income
2019 vs. 2018
2018 vs. 2017
Increase (decrease) due to changes in
Increase (decrease) due to changes in
Average
volume
Average
rate
Net
change
Average
volume
Average
rate
Net
change
$
32
(178)
$
(6) $
118
26
(60)
$
(2)
(80)
$
83
267
$
81
187
210
(6)
(23)
319
392
27
154
124
453
66
60
294
79
(5)
191
603
193
334
323
19
94
238
39
69
289
(11)
168
922
585
361
477
143
547
304
99
363
210
6
(7)
460
86
13
38
57
603
17
17
334
142
108
277
881
208
511
702
12
(92)
239
36
3
352
114
270
1,341
294
524
740
69
511
256
53
337
257
393
112
2,686
306
204
92
2,891
563
597
204
5,577
316
92
182
2,342
440
316
115
4,248
756
408
297
6,590
52
106
(2)
(92)
574
263
70
306
(7)
(17)
354
285
36
1
406
391
34
(91)
1,084
504
(12)
1,658
767
58
34
106
6
(27)
211
1,256
245
1,362
58
47
64
20
648
(247)
(48)
1,220
393
(6)
1,868
146
(54)
(116)
335
(45)
190
328
(62)
191
9
(31)
360
569
145
551
578
114
(1)
–
(15)
1,237
$ 1,449
23
–
199
2,648
$ 243
22
–
184
3,885
$ 1,692
7
–
195
843
$ 1,499
33
–
69
4,355
40
–
264
5,198
$ (107) $ 1,392
1 Certain comparative amounts have been reclassified to conform with the
presentation adopted in the current period.
3 Interest income includes loan fees earned by the Bank, which are recognized in net
interest income over the life of the loan through the effective interest rate method.
2 Geographic classification of assets and liabilities is based on the domicile of the
booking point of assets and liabilities.
119
TD BANK GROUP ANNUAL REPORT 2019 MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL RESULTS
Consolidated Financial Statements
PAGE
Management’s Responsibility for Financial Information
121
Independent Auditor’s Report – Canadian Generally
Accepted Auditing Standards
Report of Independent Registered Public Accounting
Firm – Public Company Accounting Oversight Board
Standards (United States)
Report of Independent Registered Public Accounting
Firm – Internal Control over Financial Reporting
122
124
126
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements
Consolidated Balance Sheet
Consolidated Statement of Income
Consolidated Statement of Comprehensive Income
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
NOTE TOPIC
PAGE
NOTE TOPIC
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
Nature of Operations
Summary of Signifcant Accounting Policies
Signifcant Accounting Judgments, Estimates,
and Assumptions
Current and Future Changes in Accounting Policies
Fair Value Measurements
Offsetting Financial Assets and Financial Liabilities
Securities
Loans, Impaired Loans, and Allowance for Credit Losses
Transfers of Financial Assets
Structured Entities
Derivatives
Investment in Associates and Joint Ventures
Signifcant Acquisitions and Disposals
Goodwill and Other Intangibles
Land, Buildings, Equipment, and Other
Depreciable Assets
Other Assets
Deposits
Other Liabilities
132
132
144
148
150
159
161
164
169
171
174
182
184
184
186
186
186
188
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
Subordinated Notes and Debentures
Capital Trust Securities
Equity
Insurance
Share-Based Compensation
Employee Benefts
Income Taxes
Earnings Per Share
Provisions, Contingent Liabilities, Commitments,
Guarantees, Pledged Assets, and Collateral
Related Party Transactions
Segmented Information
Interest Income and Expense
Credit Risk
Regulatory Capital
Risk Management
Information on Subsidiaries
Signifcant and Subsequent Events, and
Pending Transactions
PAGE
127
128
129
130
131
PAGE
188
189
189
192
194
196
200
202
203
206
207
209
209
211
212
212
213
120 TD BANK GROU P AN NUAL REPO RT 20 19 FINAN CIAL RES ULTS
MANAGEMENT’S RESPONSIBILITY FOR
FINANCIAL INFORMATION
The management of The Toronto-Dominion Bank and its subsidiaries
(the “Bank”) is responsible for the integrity, consistency, objectivity,
and reliability of the Consolidated Financial Statements of the Bank
and related fnancial information as presented. International Financial
Reporting Standards as issued by the International Accounting Standards
Board, as well as the requirements of the Bank Act (Canada), and
related regulations have been applied and management has exercised
its judgment and made best estimates where appropriate.
The Bank’s accounting system and related internal controls
are designed, and supporting procedures maintained, to provide
reasonable assurance that fnancial records are complete and accurate,
and that assets are safeguarded against loss from unauthorized use or
disposition. These supporting procedures include the careful selection
and training of qualifed staff, the establishment of organizational
structures providing a well-defned division of responsibilities and
accountability for performance, and the communication of policies
and guidelines of business conduct throughout the Bank.
Management has assessed the effectiveness of the Bank’s internal
control over fnancial reporting as at October 31, 2019, using the
framework found in Internal Control – Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission 2013 Framework. Based upon this assessment,
management has concluded that as at October 31, 2019, the Bank’s
internal control over fnancial reporting is effective.
The Bank’s Board of Directors, acting through the Audit Committee
which is composed entirely of independent directors, oversees
management’s responsibilities for fnancial reporting. The Audit
Committee reviews the Consolidated Financial Statements and
recommends them to the Board for approval. Other responsibilities
of the Audit Committee include monitoring the Bank’s system of
internal control over the fnancial reporting process and making
recommendations to the Board and shareholders regarding the
appointment of the external auditor.
The Bank’s Chief Auditor, who has full and free access to the
Audit Committee, conducts an extensive program of audits. This
program supports the system of internal control and is carried out
by a professional staff of auditors.
The Offce of the Superintendent of Financial Institutions Canada,
makes such examination and enquiry into the affairs of the Bank
as deemed necessary to ensure that the provisions of the Bank Act,
having reference to the safety of the depositors, are being duly
observed and that the Bank is in sound fnancial condition.
Ernst & Young LLP, the independent auditors appointed by the
shareholders of the Bank, have audited the effectiveness of the Bank’s
internal control over fnancial reporting as at October 31, 2019, in
addition to auditing the Bank’s Consolidated Financial Statements
as of the same date. Their reports, which expressed an unqualifed
opinion, can be found on the following pages of the Consolidated
Financial Statements. Ernst & Young LLP have full and free access to,
and meet periodically with, the Audit Committee to discuss their
audit and matters arising therefrom, such as, comments they may
have on the fairness of fnancial reporting and the adequacy of
internal controls.
Bharat B. Masrani
Group President and
Chief Executive Offcer
Riaz Ahmed
Group Head and
Chief Financial Offcer
Toronto, Canada
December 4, 2019
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
121
INDEPENDENT AUDITOR’S REPORT
To the Shareholders and Directors of
The Toronto-Dominion Bank
Opinion
We have audited the consolidated fnancial statements of The Toronto-
Dominion Bank and its subsidiaries (“TD” or the “Group”), which
comprise the Consolidated Balance Sheet as at October 31, 2019
and 2018, and the Consolidated Statement of Income, Consolidated
Statement of Comprehensive Income, Consolidated Statement of
Changes in Equity, and Consolidated Statement of Cash Flows for each
of the years in the three-year period ended October 31, 2019, and
notes to the consolidated fnancial statements, including a summary
of signifcant accounting policies (collectively referred to as the
“consolidated fnancial statements”). In our opinion, the accompanying
consolidated fnancial statements present fairly, in all material
respects, the consolidated fnancial position of the Group as at
October 31, 2019 and 2018, and its consolidated fnancial
performance and its consolidated cash fows for each of the years
in the three-year period ended October 31, 2019, in accordance with
International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board.
Basis for Opinion
We conducted our audit in accordance with Canadian generally
accepted auditing standards. Our responsibilities under those
standards are further described in the Auditor’s Responsibilities for
the Audit of the Consolidated Financial Statements section of our
report. We are independent of the Group in accordance with the
ethical requirements that are relevant to our audit of the consolidated
fnancial statements in Canada, and we have fulflled our other ethical
responsibilities in accordance with these requirements. We believe that
the audit evidence we have obtained is suffcient and appropriate to
provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment,
were of most signifcance in our audit of the consolidated fnancial
statements of the year ended October 31, 2019. These matters were
addressed in the context of our audit of the consolidated fnancial
statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters. For each matter
below, our description of how our audit addressed the matter is
provided in that context.
We have fulflled the responsibilities described in the Auditor’s
Responsibilities for the Audit of the Consolidated Financial Statements
section of our report, including in relation to these matters.
Accordingly, our audit included the performance of procedures
designed to respond to our assessment of the risks of material
misstatement of the consolidated fnancial statements. The results of
our audit procedures, including the procedures performed to address
the matters below, provide the basis for our audit opinion on the
accompanying consolidated fnancial statements.
Allowance for credit losses
Key audit matter
TD describes its signifcant accounting judgments, estimates, and
assumptions in relation to the allowance for credit losses in Note 3
of the consolidated fnancial statements. As disclosed in Note 7
and Note 8 to the consolidated fnancial statements, TD recognized
$5,036 million in allowances for credit losses on its consolidated
balance sheet using an expected credit loss model (ECL). The ECL is
an unbiased and probability-weighted estimate of credit losses
expected to occur in the future, which is based on the probability of
default (PD), loss given default (LGD) and exposure at default (EAD)
or the expected cash shortfall relating to the underlying fnancial asset.
The ECL is determined by evaluating a range of possible outcomes
incorporating the time value of money and reasonable and supportable
information about past events, current conditions, and future
economic forecasts.
122 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
Auditing the allowance for credit losses was complex and required the
application of signifcant judgement because of the sophistication of
the models, the forward-looking nature of the key assumptions, and
the inherent interrelationship of the critical variables used in measuring
the ECL. Key areas of judgement include evaluating: (i) the models and
methodologies used for measuring both the 12-month and lifetime
expected credit losses; (ii) the assumptions used in the ECL scenarios
including forward-looking information (FLI) and assigning probability
weighting; (iii) the determination of signifcant increase in credit risk
(SICR); and (iv) the qualitative component applied to the modelled
ECL based on management’s expert credit judgment.
How our audit addressed the key audit matter
We obtained an understanding, evaluated the design, and tested the
operating effectiveness of management’s controls over the allowance
for credit losses. The controls we tested included, amongst others, the
development and review of inputs and models used to calculate ECL,
the integrity of the data used including the associated controls over
relevant information technology (IT) systems, and the governance
and oversight over the modelled results and the use of expert
credit judgement.
To test the allowance for credit losses, our audit procedures included,
among others, involving our credit risk modelling specialists to assess
the methodology and assumptions used in signifcant models that
estimate the ECL across various portfolios and to assess management’s
SICR triggers. With the assistance of our economic specialists, we
evaluated the process used by management to develop forward-
looking information and determine the ECL scenario probability
weights. On a sample basis, we independently recalculated the ECL.
We also evaluated management’s methodology and governance over
the qualitative components contributing to the ECL based on the
application of expert credit judgment.
Fair value measurement of derivatives
Key audit matter
TD describes its signifcant accounting judgements, estimates, and
assumptions in relation to the fair value measurement of derivatives in
Note 3 of the consolidated fnancial statements. As disclosed in Note 5
of the consolidated fnancial statements, TD has derivatives assets of
$48,894 million and derivative liabilities of $50,051 million recorded at
fair value. Of these derivatives, certain trades are complex and illiquid
and require valuation techniques that may include complex models
and non-observable inputs, requiring management’s estimation
and judgment.
Auditing the valuation of certain derivatives required the application of
signifcant auditor judgement and involvement of valuation specialists
in assessing the complex models and non-observable inputs used,
including any signifcant valuation adjustments. Certain valuation
inputs used to determine fair value that may be non-observable include
volatilities, correlations, and credit spreads. The valuation of certain
derivatives is sensitive to these inputs as they are forward-looking and
could be affected by future economic and market conditions.
How our audit addressed the key audit matter
We obtained an understanding, evaluated the design, and tested
the operating effectiveness of management’s controls over the
valuation of TD’s derivative portfolio. The controls we tested included,
amongst others, the controls over the suitability and mechanical
accuracy of models used in the valuation of derivatives, controls over
management’s independent assessment of fair values, including the
integrity of data used in the valuation such as the signifcant inputs
noted above, controls over relevant IT systems, and the review of
signifcant valuation adjustments applied.
To test the valuation of these derivatives, our audit procedures
included, among others, an evaluation of the methodologies and
signifcant inputs used by TD. With the assistance of our valuation
specialists, we performed an independent valuation for a sample
of derivatives to assess the modelling assumptions and signifcant
inputs used to estimate the fair value, which involved independently
obtaining signifcant inputs from external sources. We also evaluated
the methodology applied and governance over the calculation of
material derivative valuation adjustments and recalculated a sample
of these adjustments.
Valuation of provision for unpaid claims
Key audit matter
TD describes its signifcant accounting judgements, estimates, and
assumptions in relation to the valuation of provisions for unpaid claims
in Note 3 of the consolidated fnancial statements. As disclosed in
Note 22 to the consolidated fnancial statements, TD has recognized
$6,920 million in insurance-related liabilities on its consolidated
balance sheet. The insurance-related liabilities include a provision
for unpaid claims, which is determined in accordance with accepted
actuarial practices. It also considers variables such as past loss
experience, current claim trends, and changes in the prevailing social,
economic, and legal environment.
Auditing the provision for unpaid claims involves the application of
models and methodologies that require signifcant judgment. The main
assumption underlying the claims liability estimates is the amount
and timing related to incurred insured events including those not yet
reported by the claimants. Other assumptions which are subject to
signifcant judgment include the discount rate, margin for adverse
deviation, and trends in severity and frequency.
How our audit addressed the key audit matter
We obtained an understanding, evaluated the design, and tested the
operating effectiveness of management’s controls over the valuation
of the provision for unpaid claims. The controls we tested included,
amongst others, the controls related to TD’s claims and actuarial
processes including over the completeness and accuracy of data fow
through the claims administration systems, and the periodic review
of the provision for unpaid claims by management.
To test the valuation for unpaid claims, our audit procedures included,
among others, involving our actuarial specialists to independently
calculate material components of the provision for unpaid claims. This
included assessing the accuracy of TD’s data, and benchmarking the
assumptions against industry trends and regulatory developments.
We involved our actuarial specialists in assessing TD’s actuary’s
methodologies and signifcant assumptions, including the rationale for
the judgments applied. We also tested a sample of incurred claims,
paid claims, and earned premiums used in the estimation of the
provision for unpaid claims.
Measurement of provision for uncertain tax positions
Key audit matter
TD describes its signifcant accounting judgements, estimates, and
assumptions in relation to income taxes in Note 3 of the consolidated
fnancial statements. As a fnancial institution operating in multiple
jurisdictions, TD is subject to complex and constantly evolving tax
legislation. Uncertainty in a tax position may arise as tax laws are
subject to interpretation. TD uses signifcant judgment in i) determining
whether it is probable that TD will have to make a payment to tax
authorities upon their examination of certain uncertain tax positions,
and ii) measuring the amount of the liability, where probable.
Auditing the recognition and measurement of TD’s provision for
uncertain tax positions involves the application of judgement and is
based on interpretation of tax legislation and jurisprudence.
How our audit addressed the key audit matter
We obtained an understanding, evaluated the design, and tested the
operating effectiveness of management’s controls over the recognition
and measurement of TD’s provision for uncertain tax positions. This
includes controls over the assessment of the technical merits of tax
positions and management’s process to measure the provision for
uncertain tax positions.
With the assistance of our tax professionals our audit procedures
included, among others, assessing the technical merits and the
amount recorded for uncertain tax positions. This included using
our knowledge of, and experience with, the application of tax laws
by the relevant income tax authorities and through discussions with
management. We assessed the implications of correspondence
received by TD from the relevant tax authorities and evaluated income
tax opinions or other third-party advice obtained. We also evaluated
TD’s income tax disclosures included in Note 25 of the consolidated
fnancial statements in relation to these matters.
Other Information
Management is responsible for the other information. The other
information comprises:
• Management’s Discussion and Analysis; and
• The information, other than the consolidated fnancial statements
and our auditor’s report thereon, in the 2019 Annual Report.
Our opinion on the consolidated fnancial statements does not cover
the other information and we do not express any form of assurance
conclusion thereon.
In connection with our audit of the consolidated fnancial statements,
our responsibility is to read the other information, and in doing so,
consider whether the other information is materially inconsistent with
the consolidated fnancial statements or our knowledge obtained in
the audit or otherwise appears to be materially misstated.
We obtained Management’s Discussion and Analysis and the 2019
Annual Report prior to the date of this auditor’s report. If, based on
the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report that
fact in this auditor’s report. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with
Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation
of the consolidated fnancial statements in accordance with IFRS, and
for such internal control as management determines is necessary to
enable the preparation of consolidated fnancial statements that are
free from material misstatement, whether due to fraud or error.
In preparing the consolidated fnancial statements, management is
responsible for assessing the Group’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern
and using the going concern basis of accounting unless management
either intends to liquidate the Group or to cease operations, or has
no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the
Group’s fnancial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated
Financial Statements
Our objectives are to obtain reasonable assurance about whether the
consolidated fnancial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that an audit conducted in
accordance with Canadian generally accepted auditing standards will
always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to
infuence the economic decisions of users taken on the basis of these
consolidated fnancial statements.
As part of an audit in accordance with Canadian generally accepted
auditing standards, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the
consolidated fnancial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks,
and obtain audit evidence that is suffcient and appropriate to
provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control.
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
123
• Obtain an understanding of internal control relevant to the audit
in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the Group’s internal control.
We communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit
and signifcant audit fndings, including any signifcant defciencies
in internal control that we identify during our audit.
• Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures
made by management.
• Conclude on the appropriateness of management’s use of the
going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events
or conditions that may cast signifcant doubt on the Group’s ability
to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the consolidated fnancial
statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence
obtained up to the date of our auditor’s report. However, future
events or conditions may cause the Group to cease to continue
as a going concern.
• Evaluate the overall presentation, structure and content of the
consolidated fnancial statements, including the disclosures, and
whether the consolidated fnancial statements represent the
underlying transactions and events in a manner that achieves
fair presentation.
• Obtain suffcient appropriate audit evidence regarding the fnancial
information of the entities or business activities within the Group to
express an opinion on the consolidated fnancial statements. We are
responsible for the direction, supervision and performance of the
Group audit. We remain solely responsible for our audit opinion.
We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships
and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance,
we determine those matters that were of most signifcance in the audit
of the consolidated fnancial statements of the current period and
are therefore the key audit matters. We describe these matters in our
auditors report unless law or regulation precludes public disclosure
about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report
because the adverse consequences of doing so would reasonably
be expected to outweigh the public interest benefts of such
communication.
Chartered Professional Accountants
Licensed Public Accountants
Toronto, Canada
December 4, 2019
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Shareholders and Directors of
The Toronto-Dominion Bank
Opinion on the Consolidated Financial Statements
We have audited the accompanying Consolidated Balance Sheet of
The Toronto-Dominion Bank (TD) as of October 31, 2019 and 2018,
the related Consolidated Statement of Income, Comprehensive
Income, Changes in Equity, and Cash Flows for each of the years in
the three-year period ended October 31, 2019, and the related notes
(collectively referred to as the “consolidated fnancial statements”).
In our opinion, the consolidated fnancial statements present fairly,
in all material respects, the consolidated fnancial position of TD as at
October 31, 2019 and 2018, and the results of its operations and its
consolidated cash fows for each of the years in the three-year period
ended October 31, 2019, in conformity with International Financial
Reporting Standards (IFRS) as issued by the International Accounting
Standards Board.
Adoption of IFRS 9
As discussed in Note 2 to the consolidated fnancial statements,
TD changed its method of accounting for the classifcation and
measurement of fnancial instruments in 2018 due to the adoption of
IFRS 9, Financial Instruments. Our opinion is not qualifed with respect
to this matter.
Report on Internal Control over Financial Reporting
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States) (PCAOB), TD’s
internal control over fnancial reporting as of October 31, 2019, based
on the criteria established in Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) and our report dated December 4, 2019,
expressed an unqualifed opinion thereon.
Basis for Opinion
These consolidated fnancial statements are the responsibility of
TD’s management. Our responsibility is to express an opinion on
TD’s consolidated fnancial statements based on our audits. We
are a public accounting frm registered with the PCAOB and are
required to be independent with respect to TD in accordance with
U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the fnancial statements
are free of material misstatement, whether due to error or fraud. Our
audits included performing procedures to assess the risks of material
misstatement of the fnancial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the consolidated fnancial statements.
Our audits also included evaluating the accounting principles used
and signifcant estimates made by management, as well as evaluating
the overall presentation of the consolidated fnancial statements.
We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising
from the current period audit of the consolidated fnancial statements
that were communicated or required to be communicated to the
audit committee and that: (1) relate to accounts or disclosures that
are material to the consolidated fnancial statements, and (2) involved
our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our
opinion on the consolidated fnancial statements, taken as a whole,
and we are not, by communicating the critical audit matters below,
providing separate opinions on the critical audit matters or on the
accounts or disclosures to which they relate.
124 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
Allowance for credit losses
Description of the Matter
TD describes its signifcant accounting judgments, estimates, and
assumptions in relation to the allowance for credit losses in Note
3 of the consolidated fnancial statements. As disclosed in Note 7
and Note 8 to the consolidated fnancial statements, TD recognized
$5,036 million in allowances for credit losses on its consolidated
balance sheet using an expected credit loss model (ECL). The ECL is an
unbiased and probability-weighted estimate of credit losses expected
to occur in the future, which is based on the probability of default
(PD), loss given default (LGD) and exposure at default (EAD) or the
expected cash shortfall relating to the underlying fnancial asset.
The ECL is determined by evaluating a range of possible outcomes
incorporating the time value of money and reasonable and supportable
information about past events, current conditions, and future
economic forecasts.
Auditing the allowance for credit losses was complex and required the
application of signifcant judgement because of the sophistication of
the models, the forward-looking nature of the key assumptions, and
the inherent interrelationship of the critical variables used in measuring
the ECL. Key areas of judgement include evaluating: (i) the models and
methodologies used for measuring both the 12-month and lifetime
expected credit losses; (ii) the assumptions used in the ECL scenarios
including forward-looking information (FLI) and assigning probability
weighting; (iii) the determination of signifcant increase in credit risk
(SICR); and (iv) the assessment of the qualitative component applied
to the modelled ECL based on management’s expert credit judgment.
How We Addressed the Matter in Our Audit
We obtained an understanding, evaluated the design, and tested the
operating effectiveness of management’s controls over the allowance
for credit losses. The controls we tested included, amongst others, the
development and review of inputs and models used to calculate ECL,
the integrity of the data used including the associated controls over
relevant information technology (IT) systems, and the governance and
oversight over the modelled results and the use of expert
credit judgement.
To test the allowance for credit losses, our audit procedures included,
among others, involving our credit risk modelling specialists to assess
the methodology and assumptions used in signifcant models that
estimate the ECL across various portfolios and to assess management’s
SICR triggers. With the assistance of our economic specialists, we
evaluated the process used by management to develop forward-
looking information and determine the ECL scenario probability
weights. On a sample basis, we independently recalculated the ECL.
We also evaluated management’s methodology and governance over
the qualitative components contributing to the ECL based on the
application of expert credit judgment.
Fair value measurement of derivatives
Description of the Matter
TD describes its signifcant accounting judgements, estimates, and
assumptions in relation to the fair value measurement of derivatives in
Note 3 of the consolidated fnancial statements. As disclosed in Note 5
of the consolidated fnancial statements, TD has derivatives assets of
$48,894 million and derivative liabilities of $50,051 million recorded at
fair value. Of these derivatives, certain trades are complex and illiquid
and require valuation techniques that may include complex models
and non-observable inputs, requiring management’s estimation
and judgment.
Auditing the valuation of certain derivatives required the application
of signifcant auditor judgement and involvement of valuation
specialists in assessing the complex models and non-observable
inputs used, including any signifcant valuation adjustments applied.
Certain valuation inputs used to determine fair value that may be
non-observable include volatilities, correlations, and credit spreads.
The valuation of certain derivatives is sensitive to these inputs as they
are forward-looking and could be affected by future economic and
market conditions.
How We Addressed the Matter in Our Audit
We obtained an understanding, evaluated the design, and tested
the operating effectiveness of management’s controls over the
valuation of TD’s derivative portfolio. The controls we tested included,
amongst others, the controls over the suitability and mechanical
accuracy of models used in the valuation of derivatives, controls over
management’s independent assessment of fair values, including the
integrity of data used in the valuation such as the signifcant inputs
noted above, controls over relevant IT systems, and the review of
signifcant valuation adjustments applied.
To test the valuation of these derivatives, our audit procedures
included, among others, an evaluation of the methodologies and
signifcant inputs used by TD. With the assistance of our valuation
specialists, we performed an independent valuation for a sample
of derivatives to assess the modelling assumptions and signifcant
inputs used to estimate the fair value, which involved independently
obtaining signifcant inputs from external sources. We also evaluated
the methodology applied and governance over the calculation of
material derivative valuation adjustments and recalculated a sample
of these adjustments.
Valuation of provision for unpaid claims
Description of the Matter
TD describes its signifcant accounting judgements, estimates, and
assumptions in relation to the valuation of provisions for unpaid claims
in Note 3 of the consolidated fnancial statements. As disclosed in
Note 22 to the consolidated fnancial statements, TD has recognized
$6,920 million in insurance-related liabilities on its consolidated
balance sheet. The insurance-related liabilities include a provision
for unpaid claims, which is determined in accordance with accepted
actuarial practices. It also considers variables such as past loss
experience, current claim trends and changes in the prevailing social,
economic and legal environment.
Auditing the provision for unpaid claims involves the application of
models and methodologies that require signifcant judgment. The main
assumption underlying the claims liability estimates is the amount
and timing related to incurred insured events including those not yet
reported by the claimants. Other assumptions which are subject to
signifcant judgment include the discount rate, margin for adverse
deviation, and trends in severity and frequency.
How We Addressed the Matter in Our Audit
We obtained an understanding, evaluated the design, and tested the
operating effectiveness of management’s controls over the valuation
of the provision for unpaid claims. The controls we tested included,
amongst others, the controls related to TD’s claims and actuarial
processes including over the completeness and accuracy of data fow
through the claims administration systems, and the periodic review of
the provision for unpaid claims by management.
To test the valuation for unpaid claims, our audit procedures included,
among others, involving our actuarial specialists to independently
calculate material components of the provision for unpaid claims. This
included assessing the accuracy of TD’s data, and benchmarking the
assumptions against industry trends and regulatory developments.
We involved our actuarial specialists in assessing TD’s actuary’s
methodologies and signifcant assumptions, including the rationale for
the judgments applied. We also tested a sample of incurred claims,
paid claims, and earned premiums used in the estimation of the
provision for unpaid claims.
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
125
Measurement of provision for uncertain tax positions
Description of the Matter
TD describes its signifcant accounting judgements, estimates, and
assumptions in relation to income taxes in Note 3 of the consolidated
fnancial statements. As a fnancial institution operating in multiple
jurisdictions, TD is subject to complex and constantly evolving
tax legislation. Uncertainty in a tax position may arise as tax laws
are subject to interpretation. TD uses signifcant judgment in
i) determining whether it is probable that TD will have to make
a payment to tax authorities upon their examination of certain
uncertain tax positions and ii) measuring the amount of the liability,
where probable.
Auditing the recognition and measurement of TD’s provision for
uncertain tax positions involves the application of judgement and is
based on interpretation of tax legislation and jurisprudence.
How We Addressed the Matter in Our Audit
We obtained an understanding, evaluated the design, and tested the
operating effectiveness of management’s controls over the recognition
and measurement of TD’s provision for uncertain tax positions. This
includes controls over the assessment of the technical merits of tax
positions and management’s process to measure the provision for
uncertain tax positions.
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Shareholders and Directors of
The Toronto-Dominion Bank
Opinion on Internal Control over Financial Reporting
We have audited The Toronto-Dominion Bank’s (TD) internal control
over fnancial reporting as of October 31, 2019, based on criteria
established in Internal Control – Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (the “COSO criteria”). In our opinion,
TD maintained, in all material respects, effective internal control
over fnancial reporting as of October 31, 2019, based on the
COSO criteria.
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States) (PCAOB), the
Consolidated Balance Sheet of TD as at October 31, 2019 and 2018,
and the Consolidated Statements of Income, Comprehensive Income,
Changes in Equity, and Cash Flows for each of the years in the
three-year period ended October 31, 2019, and the related notes,
and our report dated December 4, 2019, expressed an unqualifed
opinion thereon.
Basis for Opinion
TD’s management is responsible for maintaining effective internal
control over fnancial reporting, and for its assessment of the
effectiveness of internal control over fnancial reporting included in
the accompanying Management’s Report on Internal Control over
Financial Reporting contained in the accompanying Management’s
Discussion and Analysis. Our responsibility is to express an opinion
on TD’s internal control over fnancial reporting based on our audit.
We are a public accounting frm registered with the PCAOB and are
required to be independent with respect to TD in accordance with the
U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal
control over fnancial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control
126 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
With the assistance of our tax professionals our audit procedures
included, among others, assessing the technical merits and the
amount recorded for uncertain tax positions. This included using
our knowledge of, and experience with, the application of tax laws
by the relevant income tax authorities and through discussions with
management. We assessed the implications of correspondence
received by TD from the relevant tax authorities and evaluated
income tax opinions or other third-party advice obtained. We also
evaluated the TD’s income tax disclosures included in Note 25 of the
consolidated fnancial statements in relation to these matters.
We have served as TD’s sole auditor since 2006. Prior to 2006, we or
our predecessor frm have served as joint auditor with various other
frms since 1955.
Chartered Professional Accountants
Licensed Public Accountants
Toronto, Canada
December 4, 2019
over fnancial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over
Financial Reporting
A company’s internal control over fnancial reporting is a process
designed to provide reasonable assurance regarding the reliability of
fnancial reporting and the preparation of fnancial statements for
external purposes in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board.
A company’s internal control over fnancial reporting includes those
policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly refect the transactions
and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of fnancial statements in accordance with International
Financial Reporting Standards as issued by the International
Accounting Standards Board, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have
a material effect on the fnancial statements.
Because of its inherent limitations, internal control over fnancial
reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Chartered Professional Accountants
Licensed Public Accountants
Toronto, Canada
December 4, 2019
Consolidated Balance Sheet
(As at and in millions of Canadian dollars)
ASSETS
Cash and due from banks
Interest-bearing deposits with banks
Trading loans, securities, and other (Notes 5, 7)
Non-trading fnancial assets at fair value through proft or loss (Notes 5, 7)
Derivatives (Notes 5, 11)
Financial assets designated at fair value through proft or loss (Notes 5, 7)
Financial assets at fair value through other comprehensive income (Notes 5, 7, 8)
Debt securities at amortized cost, net of allowance for credit losses (Notes 5, 7)
Securities purchased under reverse repurchase agreements (Note 5)
Loans (Notes 5, 8)
Residential mortgages
Consumer instalment and other personal
Credit card
Business and government
Allowance for loan losses (Note 8)
Loans, net of allowance for loan losses
Other
Customers’ liability under acceptances
Investment in TD Ameritrade (Note 12)
Goodwill (Note 14)
Other intangibles (Note 14)
Land, buildings, equipment, and other depreciable assets (Note 15)
Deferred tax assets (Note 25)
Amounts receivable from brokers, dealers, and clients
Other assets (Note 16)
Total assets
LIABILITIES
Trading deposits (Notes 5, 17)
Derivatives (Notes 5, 11)
Securitization liabilities at fair value (Notes 5, 9)
Financial liabilities designated at fair value through proft or loss (Notes 5, 17)
Deposits (Notes 5, 17)
Personal
Banks
Business and government
Other
Acceptances
Obligations related to securities sold short (Note 5)
Obligations related to securities sold under repurchase agreements (Note 5)
Securitization liabilities at amortized cost (Notes 5, 9)
Amounts payable to brokers, dealers, and clients
Insurance-related liabilities (Note 22)
Other liabilities (Note 18)
Subordinated notes and debentures (Notes 5, 19)
Total liabilities
EQUITY
Shareholders’ Equity
Common shares (Note 21)
Preferred shares (Note 21)
Treasury shares – common (Note 21)
Treasury shares – preferred (Note 21)
Contributed surplus
Retained earnings
Accumulated other comprehensive income (loss)
Non-controlling interests in subsidiaries (Note 21)
Total equity
Total liabilities and equity
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
Certain comparative amounts have been reclassified to conform with the
presentation adopted in the current period.
October 31
2019
October 31
2018
$
4,863
25,583
30,446
146,000
6,503
48,894
4,040
111,104
316,541
130,497
165,935
235,640
180,334
36,564
236,517
689,055
(4,447)
684,608
13,494
9,316
16,976
2,503
5,513
1,799
20,575
17,087
87,263
$ 1,415,290
$
26,885
50,051
13,058
105,131
195,125
503,430
16,751
366,796
886,977
13,494
29,656
125,856
14,086
23,746
6,920
21,004
234,762
10,725
1,327,589
21,713
5,800
(41)
(6)
157
49,497
10,581
87,701
–
87,701
$ 1,415,290
$
4,735
30,720
35,455
127,897
4,015
56,996
3,618
130,600
323,126
107,171
127,379
225,191
172,079
35,018
217,654
649,942
(3,549)
646,393
17,267
8,445
16,536
2,459
5,324
2,812
26,940
15,596
95,379
$ 1,334,903
$ 114,704
48,270
12,618
16
175,608
477,644
16,712
357,083
851,439
17,269
39,478
93,389
14,683
28,385
6,698
19,174
219,076
8,740
1,254,863
21,221
5,000
(144)
(7)
193
46,145
6,639
79,047
993
80,040
$ 1,334,903
Bharat B. Masrani
Group President and
Chief Executive Offcer
Alan N. MacGibbon
Chair, Audit Committee
T D B A N K G R O U P A N N U A L R E P O R T 2 0 1 9 F I N A N C I A L R E S U L T S
127
Consolidated Statement of Income
(millions of Canadian dollars, except as noted)
Interest income1
Loans
Securities
Interest
Dividends
Deposits with banks
Interest expense (Note 30)
Deposits
Securitization liabilities
Subordinated notes and debentures
Other
Net interest income
Non-interest income
Investment and securities services
Credit fees
Net securities gain (loss) (Note 7)
Trading income (loss)
Income (loss) from non-trading fnancial instruments at fair value through proft or loss
Income (loss) from fnancial instruments designated at fair value through proft or loss
Service charges
Card services
Insurance revenue (Note 22)
Other income (loss)
Total revenue
Provision for credit losses (Note 8)
Insurance claims and related expenses (Note 22)
Non-interest expenses
Salaries and employee benefts (Note 24)
Occupancy, including depreciation
Equipment, including depreciation
Amortization of other intangibles
Marketing and business development
Restructuring charges (recovery)
Brokerage-related and sub-advisory fees
Professional and advisory services
Other
Income before income taxes and equity in net income of an investment in TD Ameritrade
Provision for (recovery of) income taxes (Note 25)
Equity in net income of an investment in TD Ameritrade (Note 12)
Net income
Preferred dividends
Net income available to common shareholders and non-controlling interests in subsidiaries
Attributable to:
Common shareholders
Non-controlling interests in subsidiaries
Earnings per share (Canadian dollars) (Note 26)
Basic
Diluted
Dividends per common share (Canadian dollars)
For the years ended October 31
2019
2018
2017
$ 31,925
$ 27,790
$ 23,663
7,843
1,548
683
41,999
13,675
524
395
3,474
18,068
23,931
4,872
1,289
78
1,047
121
8
2,885
2,465
4,282
87
17,134
41,065
3,029
2,787
11,244
1,835
1,165
800
769
175
336
1,322
4,374
22,020
13,229
2,735
1,192
11,686
252
$ 11,434
$ 11,416
18
$
6.26
6.25
2.89
6,685
1,234
713
36,422
10,489
586
337
2,771
14,183
22,239
4,714
1,210
111
1,052
48
(170)
2,716
2,376
4,045
551
16,653
38,892
2,480
2,444
10,377
1,765
1,073
815
803
73
359
1,194
3,736
20,195
13,773
3,182
743
11,334
214
$ 11,120
$ 11,048
72
$
6.02
6.01
2.61
4,595
1,128
446
29,832
6,615
472
391
1,507
8,985
20,847
4,512
1,130
128
303
n/a2
(254)
2,648
2,388
3,760
740
15,355
36,202
2,216
2,246
10,018
1,794
992
704
726
2
360
1,119
3,704
19,419
12,321
2,253
449
10,517
193
$ 10,324
$ 10,203
121
$
5.51
5.50
2.35
1 Includes $34,828 million, for the year ended October 31, 2019 (October 31, 2018
– $30,639 million), which has been calculated based on the effective interest rate
method (EIRM). Refer to Note 30.
2 Not applicable.
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
Certain comparative amounts have been recast to conform with the
presentation adopted in the current period.
128 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
Consolidated Statement of Comprehensive Income1
(millions of Canadian dollars)
Net income
Other comprehensive income (loss), net of income taxes
Items that will be subsequently reclassifed to net income
Net change in unrealized gains (losses) on fnancial assets at fair value through other
comprehensive income (available-for-sale securities under IAS 392)
Change in unrealized gains (losses) on available-for-sale securities
Change in unrealized gains (losses) on debt securities at fair value through other comprehensive income
Reclassifcation to earnings of net losses (gains) in respect of available-for-sale securities
Reclassifcation to earnings of net losses (gains) in respect of debt securities at fair value through
other comprehensive income
Reclassifcation to earnings of changes in allowance for credit losses on debt securities at fair value
through other comprehensive income
Net change in unrealized foreign currency translation gains (losses) on
Investments in foreign operations, net of hedging activities
Unrealized gains (losses) on investments in foreign operations
Reclassifcation to earnings of net losses (gains) on investment in foreign operations
Net gains (losses) on hedges of investments in foreign operations
Reclassifcation to earnings of net losses (gains) on hedges of investments in foreign operations
Net change in gains (losses) on derivatives designated as cash fow hedges
Change in gains (losses) on derivatives designated as cash fow hedges
Reclassifcation to earnings of losses (gains) on cash fow hedges
Items that will not be subsequently reclassifed to net income
Actuarial gains (losses) on employee beneft plans
Change in net unrealized gains (losses) on equity securities designated at fair value through other
comprehensive income
Change in fair value due to credit risk on fnancial liabilities designated at fair value through
proft or loss
Total other comprehensive income (loss), net of income taxes
Total comprehensive income (loss), net of income taxes
Attributable to:
Common shareholders
Preferred shareholders
Non-controlling interests in subsidiaries
1 The amounts are net of income tax provisions (recoveries) presented in the
following table.
2 IAS 39, Financial Instruments: Recognition and Measurement (IAS 39).
Income Tax Provisions (Recoveries) in the Consolidated Statement of Comprehensive Income
(millions of Canadian dollars)
Change in unrealized gains (losses) on available-for-sale securities
Change in unrealized gains (losses) on debt securities at fair value through
other comprehensive income
Less: Reclassifcation to earnings of net losses (gains) in respect of available-for-sale securities
Less: Reclassifcation to earnings of net losses (gains) in respect of debt securities at fair value
through other comprehensive income
Less: Reclassifcation to earnings of changes in allowance for credit losses on debt securities at fair value
through other comprehensive income
Unrealized gains (losses) on investments in foreign operations
Less: Reclassifcation to earnings of net losses (gains) on investment in foreign operations
Net gains (losses) on hedges of investments in foreign operations
Less: Reclassifcation to earnings of net losses (gains) on hedges of investments in foreign operations
Change in gains (losses) on derivatives designated as cash fow hedges
Less: Reclassifcation to earnings of losses (gains) on cash fow hedges
Actuarial gains (losses) on employee beneft plans
Change in net unrealized gains (losses) on equity securities designated at fair value through
other comprehensive income
Change in fair value due to credit risk on fnancial liabilities designated at fair value through
proft or loss
Total income taxes
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
2019
$ 11,686
For the years ended October 31
2018
$ 11,334
2017
$ 10,517
n/a
110
n/a
(31)
(1)
78
(165)
–
132
–
(33)
3,459
519
3,978
(921)
(95)
14
(1,002)
3,021
n/a
(261)
n/a
(22)
(1)
(284)
1,323
–
(288)
–
1,035
(1,624)
(455)
(2,079)
622
38
–
660
(668)
$ 14,707
$ 10,666
$
467
n/a
(143)
n/a
n/a
324
(2,534)
(17)
659
4
(1,888)
(1,454)
(810)
(2,264)
325
n/a
n/a
325
(3,503)
7,014
$ 14,437
252
18
$ 10,380
214
72
$ 6,700
193
121
For the years ended October 31
2019
2018
$
n/a
$
n/a
2017
$
150
21
n/a
(1)
–
–
–
48
–
1,235
(157)
(324)
(35)
(139)
n/a
13
–
–
–
(104)
–
(473)
283
243
20
n/a
(36)
n/a
n/a
–
–
237
(1)
(789)
258
129
n/a
4
$ 1,107
–
(749)
$
n/a
(494)
$
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
129
Consolidated Statement of Changes in Equity
(millions of Canadian dollars)
Common shares (Note 21)
Balance at beginning of year
Proceeds from shares issued on exercise of stock options
Shares issued as a result of dividend reinvestment plan
Shares issued in connection with acquisitions (Notes 13)
Purchase of shares for cancellation and other
Balance at end of year
Preferred shares (Note 21)
Balance at beginning of year
Issue of shares
Redemption of shares
Balance at end of year
Treasury shares – common (Note 21)
Balance at beginning of year
Purchase of shares
Sale of shares
Balance at end of year
Treasury shares – preferred (Note 21)
Balance at beginning of year
Purchase of shares
Sale of shares
Balance at end of year
Contributed surplus
Balance at beginning of year
Net premium (discount) on sale of treasury shares
Issuance of stock options, net of options exercised (Note 23)
Other
Balance at end of year
Retained earnings
Balance at beginning of year
Impact on adoption of IFRS 151
Impact on adoption of IFRS 92
Net income attributable to shareholders
Common dividends
Preferred dividends
Share issue expenses and others
Net premium on repurchase of common shares, redemption of preferred shares, and other
Actuarial gains (losses) on employee beneft plans
Realized gains (losses) on equity securities designated at fair value through other comprehensive income
Balance at end of year
Accumulated other comprehensive income (loss)
Net unrealized gain (loss) on debt securities at fair value through other comprehensive income:
Balance at beginning of year
Impact on adoption of IFRS 9
Other comprehensive income (loss)
Allowance for credit losses
Balance at end of year
Net unrealized gain (loss) on equity securities designated at fair value through other comprehensive income:
Balance at beginning of year
Impact on adoption of IFRS 9
Other comprehensive income (loss)
Reclassifcation of loss (gain) to retained earnings
Balance at end of year
Net unrealized gain (loss) on available-for-sale securities:
Balance at beginning of year
Other comprehensive income (loss)
Balance at end of year
Change in fair value due to credit risk on fnancial liabilities designated at fair value through proft or loss:
Balance at beginning of year
Other comprehensive income (loss)
Balance at end of year
Net unrealized foreign currency translation gain (loss) on investments in foreign operations, net of hedging activities:
Balance at beginning of year
Other comprehensive income (loss)
Balance at end of year
Net gain (loss) on derivatives designated as cash fow hedges:
Balance at beginning of year
Other comprehensive income (loss)
Balance at end of year
Total accumulated other comprehensive income
Total shareholders’ equity
Non-controlling interests in subsidiaries (Note 21)
Balance at beginning of year
Net income attributable to non-controlling interests in subsidiaries
Redemption of non-controlling interests in subsidiaries
Other
Balance at end of year
Total equity
For the years ended October 31
2019
2018
2017
$ 21,221
124
357
366
(355)
21,713
$ 20,931
152
366
–
(228)
21,221
$ 20,711
148
329
–
(257)
20,931
5,000
800
–
5,800
(144)
(9,782)
9,885
(41)
(7)
(151)
152
(6)
193
(22)
(8)
(6)
157
46,145
(41)
–
11,668
(5,262)
(252)
(9)
(1,880)
(921)
49
49,497
245
–
79
(1)
323
55
–
(46)
(49)
(40)
n/a
n/a
n/a
–
14
14
8,826
(33)
8,793
(2,487)
3,978
1,491
10,581
87,701
993
18
(1,000)
(11)
–
$ 87,701
4,750
750
(500)
5,000
(176)
(8,295)
8,327
(144)
(7)
(129)
129
(7)
214
(2)
(12)
(7)
193
40,489
n/a
53
11,262
(4,786)
(214)
(10)
(1,273)
622
2
46,145
510
19
(283)
(1)
245
113
(96)
40
(2)
55
n/a
n/a
n/a
–
–
–
7,791
1,035
8,826
(408)
(2,079)
(2,487)
6,639
79,047
983
72
–
(62)
993
$ 80,040
4,400
350
–
4,750
(31)
(9,654)
9,509
(176)
(5)
(175)
173
(7)
203
23
(8)
(4)
214
35,452
n/a
n/a
10,396
(4,347)
(193)
(4)
(1,140)
325
n/a
40,489
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
299
324
623
n/a
n/a
n/a
9,679
(1,888)
7,791
1,856
(2,264)
(408)
8,006
74,207
1,650
121
(617)
(171)
983
$ 75,190
1 IFRS 15, Revenue from Contracts with Customers (IFRS 15).
2 IFRS 9, Financial Instruments (IFRS 9).
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
130
TD BANK GROU P AN NUAL REPO RT 20 19 FINAN CIAL RES ULTS
Consolidated Statement of Cash Flows
(millions of Canadian dollars)
Cash fows from (used in) operating activities
Net income before income taxes, including equity in net income of an investment in TD Ameritrade
Adjustments to determine net cash fows from (used in) operating activities
For the years ended October 31
2019
2018
2017
$ 14,421
$ 14,516
$ 12,770
Provision for credit losses (Note 8)
Depreciation (Note 15)
Amortization of other intangibles
Net securities losses (gains) (Note 7)
Equity in net income of an investment in TD Ameritrade (Note 12)
Dilution gain (Note 12)
Deferred taxes (Note 25)
Changes in operating assets and liabilities
Interest receivable and payable (Notes 16, 18)
Securities sold under repurchase agreements
Securities purchased under reverse repurchase agreements
Securities sold short
Trading loans and securities
Loans net of securitization and sales
Deposits
Derivatives
Non-trading fnancial assets at fair value through proft or loss
Financial assets and liabilities designated at fair value through proft or loss
Securitization liabilities
Current taxes
Brokers, dealers, and clients amounts receivable and payable
Other
Net cash from (used in) operating activities
Cash fows from (used in) fnancing activities
Issuance of subordinated notes and debentures (Note 19)
Redemption or repurchase of subordinated notes and debentures (Note 19)
Common shares issued (Note 21)
Preferred shares issued (Note 21)
Repurchase of common shares (Note 21)
Redemption of preferred shares (Note 21)
Redemption of non-controlling interests in subsidiaries (Note 21)
Sale of treasury shares (Note 21)
Purchase of treasury shares (Note 21)
Dividends paid
Distributions to non-controlling interests in subsidiaries
Net cash from (used in) fnancing activities
Cash fows from (used in) investing activities
Interest-bearing deposits with banks
Activities in fnancial assets at fair value through other comprehensive income (Note 7)
Purchases
Proceeds from maturities
Proceeds from sales
Activities in available-for-sale securities (Note 7)
Purchases
Proceeds from maturities
Proceeds from sales
Activities in debt securities at amortized cost (Note 7)
Purchases
Proceeds from maturities
Proceeds from sales
Activities in held-to-maturity securities (Note 7)
Purchases
Proceeds from maturities
Proceeds from sales
Activities in debt securities classifed as loans
Purchases
Proceeds from maturities
Proceeds from sales
Net purchases of land, buildings, equipment, and other depreciable assets
Net cash acquired from (paid for) divestitures, acquisitions, and the purchase of
TD Ameritrade shares (Notes 12, 13)
Net cash from (used in) investing activities
Effect of exchange rate changes on cash and due from banks
Net increase (decrease) in cash and due from banks
Cash and due from banks at beginning of year
Cash and due from banks at end of year
Supplementary disclosure of cash fows from operating activities
Amount of income taxes paid (refunded) during the year
Amount of interest paid during the year
Amount of interest received during the year
Amount of dividends received during the year
3,029
605
800
(78)
(1,192)
–
(33)
(26)
32,467
(38,556)
(9,822)
(18,103)
(41,693)
(52,281)
9,883
(2,397)
104,693
(157)
(771)
1,726
(2,244)
271
1,749
24
105
791
(2,235)
–
(1,000)
10,015
(9,933)
(5,157)
(11)
(5,652)
2,480
576
815
(111)
(743)
–
385
(104)
4,798
7,050
3,996
(24,065)
(45,620)
53,379
(3,745)
5,257
(460)
(1,532)
(780)
(1,435)
(8,964)
5,693
1,750
(2,468)
128
740
(1,501)
(500)
–
8,454
(8,424)
(4,634)
(72)
(6,527)
2,216
603
704
(128)
(449)
(204)
175
(283)
39,618
(48,377)
2,367
(4,661)
(22,332)
40,150
1,836
n/a
245
(1,575)
(419)
2,459
1,412
26,127
1,500
(2,536)
125
346
(1,397)
–
(626)
9,705
(9,829)
(4,211)
(112)
(7,035)
5,137
20,465
2,529
(24,898)
37,835
10,158
n/a
n/a
n/a
(51,202)
28,392
1,418
n/a
n/a
n/a
n/a
n/a
n/a
(794)
(540)
5,506
3
128
4,735
$ 4,863
$ 3,589
17,958
40,315
1,584
(20,269)
30,101
2,731
n/a
n/a
n/a
(51,663)
20,101
670
n/a
n/a
n/a
n/a
n/a
n/a
(587)
–
1,549
49
764
3,971
$ 4,735
$ 3,535
13,888
34,789
1,202
n/a
n/a
n/a
(63,339)
30,775
4,977
n/a
n/a
n/a
(17,807)
27,729
452
(2,471)
337
447
(434)
(2,129)
(18,934)
(94)
64
3,907
$ 3,971
$ 2,866
8,957
28,393
1,153
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
Certain comparative amounts have been reclassified to conform with the
presentation adopted in the current period.
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
131
Notes to Consolidated Financial Statements
These Consolidated Financial Statements were prepared using the
accounting policies as described in Notes 2 and 4. Certain comparative
amounts have been revised to conform with the presentation adopted
in the current period.
The preparation of the 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. Accordingly, actual results may differ from
estimated amounts as future confrming events occur.
The accompanying Consolidated Financial Statements of the Bank
were approved and authorized for issue by the Bank’s Board of
Directors, in accordance with a recommendation of the Audit
Committee, on December 4, 2019.
Certain disclosures are included in the shaded sections of the
“Managing Risk” section of the accompanying 2019 Management’s
Discussion and Analysis (MD&A), as permitted by IFRS, and form
an integral part of the Consolidated Financial Statements. The
Consolidated Financial Statements were prepared under a historical
cost basis, except for certain items carried at fair value as discussed
in Note 2.
The Bank may consolidate certain subsidiaries where it owns 50%
or less of the voting rights. Most of those subsidiaries are structured
entities as described in the following section.
Structured Entities
Structured entities are entities that are created to accomplish a narrow
and well-defned objective. Structured entities may take the form
of a corporation, trust, partnership, or unincorporated entity. They
are often created with legal arrangements that impose limits on
the decision-making powers of their governing board, trustee, or
management over the operations of the entity. Typically, structured
entities may not be controlled directly through holding more than half
of the voting power of the entity as the ownership of voting rights
may not be aligned with the variable returns absorbed from the entity.
As a result, structured entities are consolidated when the substance of
the relationship between the Bank and the structured entity indicates
that the entity is controlled by the Bank. When assessing whether the
Bank has to consolidate a structured entity, the Bank evaluates three
primary criteria in order to conclude whether, in substance:
• The Bank has the power to direct the activities of the structured
entity that have the most signifcant impact on the entity’s risks and/
or returns;
• The Bank is exposed to signifcant variable returns arising from the
entity; and
• The Bank has the ability to use its power to affect the risks and/or
returns to which it is exposed.
N O T E 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 offces located at
66 Wellington Street West, Toronto, Ontario. TD serves customers in
three business segments operating in a number of locations in key
fnancial centres around the globe: Canadian Retail, U.S. Retail, and
Wholesale Banking.
BASIS OF PREPARATION
The accompanying 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 Offce of the Superintendent of Financial
Institutions Canada (OSFI). The Consolidated Financial Statements are
presented in Canadian dollars, unless otherwise indicated.
N O T E 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The Consolidated Financial Statements include the assets, liabilities,
results of operations, and cash fows of the Bank and its subsidiaries
including certain structured entities which it controls. The Bank
controls an entity when (1) it has the power to direct the activities of
the entity which have the most signifcant impact on the entity’s risks
and/or returns; (2) it is exposed to signifcant risks and/or returns
arising from the entity; and (3) it is able to use its power to affect the
risks and/or returns to which it is exposed.
The Bank’s 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.
Subsidiaries
Subsidiaries are corporations or other legal entities controlled by
the Bank, generally through directly holding more than half of the
voting power of the entity. Control of subsidiaries is determined based
on the power exercisable through ownership of voting rights and is
generally aligned with the risks and/or returns (collectively referred to
as “variable returns”) absorbed from subsidiaries through those voting
rights. As a result, the Bank controls and consolidates subsidiaries
when it holds the majority of the voting rights of the subsidiary, unless
there is evidence that another investor has control over the subsidiary.
The existence and effect of potential voting rights that are currently
exercisable or convertible are considered in assessing whether the Bank
controls an entity. Subsidiaries are consolidated from the date the
Bank obtains control and continue to be consolidated until the date
when control ceases to exist.
132 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
Consolidation conclusions are reassessed at the end of each fnancial
reporting period. The Bank’s policy is to consider the impact on
consolidation of all signifcant changes in circumstances, focusing
on the following:
• Substantive changes in ownership, such as the purchase or disposal
of more than an insignifcant additional interest in an entity;
• Changes in contractual or governance arrangements of an entity;
• Additional activities undertaken, such as providing a liquidity facility
beyond the original terms or entering into a transaction not
originally contemplated; or
• Changes in the fnancing structure of an entity.
Investments in Associates and Joint Ventures
Entities over which the Bank has signifcant infuence are associates
and entities over which the Bank has joint control are joint ventures.
Signifcant infuence is the power to participate in the fnancial and
operating policy decisions of an investee, but is not control or joint
control over these entities. Associates and joint ventures are accounted
for using the equity method of accounting. Investments in associates
and joint ventures are carried on the Consolidated Balance Sheet
initially at cost and increased or decreased to recognize the Bank’s
share of the proft or loss of the associate or joint venture, capital
transactions, including the receipt of any dividends, and write-downs
to refect any impairment in the value of such entities. These increases
or decreases, together with any gains and losses realized on
disposition, are reported on the Consolidated Statement of Income.
At each balance sheet date, the Bank assesses whether there is any
objective evidence that the investment in an associate or joint venture
is impaired. The Bank calculates the amount of impairment as the
difference between the higher of fair value or value-in-use and its
carrying value.
Non-controlling Interests
When the Bank does not own all of the equity of a consolidated entity,
the minority shareholders’ interest is presented on the Consolidated
Balance Sheet as Non-controlling interests in subsidiaries as a
component of total equity, separate from the equity of the Bank’s
shareholders. The income attributable to the minority interest holders,
net of tax, is presented as a separate line item on the Consolidated
Statement of Income.
CASH AND DUE FROM BANKS
Cash and due from banks consist of cash and amounts due from
banks which are issued by investment grade fnancial institutions.
These amounts are due on demand or have an original maturity
of three months or less.
REVENUE RECOGNITION
Revenue is recognized at an amount that refects the consideration
the Bank expects to be entitled to in exchange for transferring services
to a customer, excluding amounts collected on behalf of third parties.
The Bank recognizes revenue when it transfers control of a good
or a service to a customer at a point in time or over time. The
determination of when performance obligations are satisfed requires
the use of judgment. Refer to Note 3 for further details.
The Bank identifes contracts with customers subject to IFRS 15,
which create enforceable rights and obligations. The Bank determines
the performance obligations based on distinct services promised to
the customers in the contracts. The Bank’s contracts generally have
a term of one year or less, consist of a single performance obligation,
and the performance obligations generally refect services.
For each contract, the Bank determines the transaction price,
which includes estimating variable consideration and assessing
whether the price is constrained. Variable consideration is included
in the transaction price to the extent that it is highly probable that
a signifcant reversal of the amount will not occur when the
uncertainty associated with the amount of variable consideration
is subsequently resolved. As such, the estimate of the variable
consideration is constrained until the end of the invoicing period.
The uncertainty is generally resolved at the end of the reporting period
and as such, no signifcant judgment is required when recognizing
variable consideration in revenues.
The Bank’s receipt of payment from customers generally occurs
subsequent to the satisfaction of performance obligations or a short
time thereafter. As such, the Bank has not recognized any material
contract assets (unbilled receivables) or contract liabilities (deferred
revenues) and there is no signifcant fnancing component associated
with the consideration due to the Bank.
When another party is involved in the transfer of services to a
customer, an assessment is made to evaluate whether the Bank is
the principal such that revenues are reported on a gross basis or the
agent such that revenues are reported on a net basis. The Bank is the
principal when it controls the services in the contract promised to
the customer before they are transferred. Control is demonstrated by
the Bank being primarily responsible for fulflling the transfer of the
services to the customer, having discretion in establishing pricing of
the services, or both.
Interest from interest-bearing assets and liabilities not measured
at fair value through proft or loss is recognized as net interest income
using the effective interest rate (EIR). EIR is the rate that discounts
expected future cash fows for the expected life of the fnancial
instrument to its carrying value. The calculation takes into account
the contractual interest rate, along with any fees or incremental
costs that are directly attributable to the instrument and all other
premiums or discounts.
Investment and securities services
Investment and securities services income include asset management
fees, administration and commission fees, and investment banking
fees. The Bank recognizes asset management and administration fees
based on time elapsed, which depicts the rendering of investment
management and related services over time. The fees are primarily
calculated based on average daily or point in time assets under
management (AUM) or assets under administration (AUA) depending
on the investment mandate.
Commission fees include sales, trailer and brokerage commissions.
Sales and brokerage commissions are generally recognized at a point
in time when the transaction is executed. Trailer commissions are
recognized over time and are generally calculated based on the
average daily net asset value of the fund during the period.
Investment banking fees include advisory fees and underwriting
fees and are generally recognized at a point in time upon successful
completion of the engagement.
Credit fees
Credit fees include liquidity fees, restructuring fees, letter of credit
fees, and loan syndication fees. Liquidity, restructuring, and letter
of credit fees are recognized in income over the period in which the
service is provided. Loan syndication fees are generally recognized
at a point in time upon completion of the fnancing placement.
Service charges
Service charges income is earned on personal and commercial deposit
accounts and consists of account fees and transaction-based service
charges. Account fees relate to account maintenance activities and are
recognized in income over the period in which the service is provided.
Transaction-based service charges are recognized as earned at a point
in time when the transaction is complete.
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
133
Card services
Card services income includes interchange income as well as card
fees such as annual and transactional fees. Interchange income is
recognized at a point in time when the transaction is authorized
and funded. Card fees are recognized as earned at the transaction
date with the exception of annual fees, which are recognized over
a twelve-month period.
IFRS 9 FINANCIAL INSTRUMENTS
On November 1, 2017, the Bank adopted IFRS 9, Financial Instruments
(IFRS 9), which replaces the guidance in IAS 39, Financial Instruments:
Recognition and Measurement (IAS 39). IFRS 9 includes requirements
on: (1) Classifcation and measurement of fnancial assets and
liabilities; (2) Impairment of fnancial 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
and complies with the revised annual hedge accounting disclosures as
required by the related amendments to IFRS 7, Financial Instruments:
Disclosures (IFRS 7).
Various interest rates and other indices that are deemed to be
“benchmarks” (including Interbank Offered Rate (IBOR) benchmarks)
have been, and continue to be, the subject of international regulatory
guidance and proposals for reform. Following the announcement
by the U.K. Financial Conduct Authority (FCA) on July 27, 2017
indicating that the FCA would no longer compel banks to submit
rates for the calculation of London Interbank Offered Rate (LIBOR)
post December 31, 2021, efforts to transition away from IBORs to
alternative reference rates have been continuing in various jurisdictions.
These developments, and the related uncertainty over the potential
variance in the timing and manner of implementation in each
jurisdiction, introduce risks that may have adverse consequences
on the Bank, its clients and the fnancial services industry. Moreover,
the replacement of the IBORs or other benchmark rates could result
in market dislocation and have other adverse consequences for
market participants.
As a result of the effects of IBOR reform, on September 26, 2019,
the IASB issued Interest Rate Benchmark Reform, Amendments to
IFRS 9, IAS 39 and IFRS 7 (“Interest Rate Benchmark Reform”); of
which the Bank adopted the applicable amendments to IFRS 7 relating
to hedge accounting and will apply the remaining amendments related
to IAS 39 as and when applicable to the Bank’s hedging relationships.
Refer to Note 4 for further details.
Classification and Measurement of Financial Assets
The Bank classifes its fnancial assets into the following categories:
• Amortized cost;
• Fair value through other comprehensive income (FVOCI);
• Held-for-trading;
• Non-trading fair value through proft or loss (FVTPL); and
• Designated at FVTPL.
The Bank recognizes fnancial assets on a settlement date basis,
except for derivatives and securities, which are recognized on a trade
date basis.
Debt Instruments
The classifcation and measurement for debt instruments is based
on the Bank’s business models for managing its fnancial assets and
whether the contractual cash fows represent solely payments of
principal and interest (SPPI). Refer to Note 3 for judgment with respect
to business models and SPPI.
The Bank has determined its business models as follows:
• Held-to-collect: the objective is to collect contractual cash fows;
• Held-to-collect-and-sell: the objective is both to collect contractual
cash fows and sell the fnancial assets; and
• Held-for-sale and other business models: the objective is neither
of the above.
The Bank performs the SPPI test for fnancial assets held within the
held-to-collect and held-to-collect-and-sell business models. If these
fnancial assets have contractual cash fows which are inconsistent
with a basic lending arrangement, they are classifed as non-trading
fnancial assets measured at FVTPL. In a basic lending arrangement,
interest includes only consideration for time value of money, credit
risk, other basic lending risks, and a reasonable proft margin.
Debt Securities and Loans Measured at Amortized Cost
Debt securities and loans held within a held-to-collect business model
where their contractual cash fows pass the SPPI test are measured
at amortized cost. The carrying amount of these fnancial assets is
adjusted by an allowance for credit losses recognized and measured
as described in the Impairment – Expected Credit Loss Model section
of this Note, as well as any write-offs and unearned income which
includes prepaid interest, loan origination fees and costs, commitment
fees, loan syndication fees, and unamortized discounts or premiums.
Interest income is recognized using EIRM. Loan origination fees and
costs are considered to be adjustments to the loan yield and are
recognized in interest income over the term of the loan. Commitment
fees are recognized in credit fees over the commitment period when
it is unlikely that the commitment will be called upon; otherwise, they
are recognized in interest income over the term of the resulting loan.
Loan syndication fees are recognized in credit fees upon completion
of the fnancing placement unless the yield on any loan retained by
the Bank is less than that of other comparable lenders involved in the
fnancing syndicate. In such cases, an appropriate portion of the fee
is recognized as a yield adjustment in interest income over the term
of the loan.
Debt Securities and Loans Measured at Fair Value through
Other Comprehensive Income
Debt securities and loans held within a held-to-collect-and-sell business
model where their contractual cash fows pass the SPPI test are
measured at FVOCI. Fair value changes are recognized in other
comprehensive income, except for impairment gains or losses, interest
income and foreign exchange gains and losses on the instrument’s
amortized cost, which are recognized in the Consolidated Statement
of Income. The expected credit loss (ECL) allowance is recognized and
measured as described in the Impairment – Expected Credit Loss Model
section of this Note. When the fnancial asset is derecognized, the
cumulative gain or loss previously recognized in other comprehensive
income is reclassifed from equity to income and recognized in net
securities gain (loss). Interest income from these fnancial assets is
included in interest income using EIRM.
Financial Assets Held-for-Trading
This held-for-sale business model includes fnancial assets held within
a trading portfolio, which have been originated, acquired, or incurred
principally for the purpose of selling in the near term, or if they form
part of a portfolio of identifed fnancial instruments that are managed
together and for which there is evidence of short-term proft-taking.
Financial assets held within this business model consist of trading
securities, trading loans, as well as certain debt securities and
fnancing-type physical commodities that are recorded as securities
purchased under reverse repurchase agreements on the Consolidated
Balance Sheet.
134 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
Trading portfolio assets are accounted for at fair value, with
changes in fair value as well as any gains or losses realized on disposal
recognized in trading income (loss). Transaction costs are expensed as
incurred. Dividends are recognized on the ex-dividend date and
interest is recognized on an accrual basis. Both dividends and interest
are included in interest income.
Non-Trading Financial Assets Measured at Fair Value through
Profit or Loss
Non-trading fnancial assets measured at FVTPL include fnancial assets
held within the held-for-sale and other business models, for example
debt securities and loans managed on a fair value basis. Financial
assets held within the held-to-collect or held-to-collect-and-sell
business models that do not pass the SPPI test are also classifed as
non-trading fnancial assets measured at FVTPL. Changes in fair value
as well as any gains or losses realized on disposal are recognized in
income (loss) from non-trading fnancial instruments at FVTPL. Interest
income from debt instruments is included in interest income on an
accrual basis.
Financial Assets Designated at Fair Value through Profit or Loss
Debt instruments in a held-to-collect or held-to-collect-and-sell
business model can be designated at initial recognition as measured at
FVTPL, provided the designation can eliminate or signifcantly reduce
an accounting mismatch that would otherwise arise from measuring
these fnancial assets on a different basis. The FVTPL designation is
available only for those fnancial instruments for which a reliable
estimate of fair value can be obtained. Once fnancial assets are
designated at FVTPL, the designation is irrevocable. Changes in fair
value as well as any gains or losses realized on disposal are recognized
in income (loss) from fnancial instruments designated at FVTPL.
Interest income from these fnancial assets is included in interest
income on an accrual basis.
Customers’ Liability under Acceptances
Acceptances represent a form of negotiable short-term debt issued by
customers, which the Bank guarantees for a fee. Revenue is recognized
on an accrual basis. The potential obligation of the Bank is reported as
a liability under Acceptances on the Consolidated Balance Sheet. The
Bank’s recourse against the customer in the event of a call on any of
these commitments is reported as an asset of the same amount.
Equity Instruments
Equity investments are required to be measured at FVTPL (classifed
as non-trading fnancial assets measured at FVTPL), except where the
Bank has elected at initial recognition to irrevocably designate an
equity investment, held for purposes other than trading, at FVOCI.
If such an election is made, the fair value changes, including any
associated foreign exchange gains or losses, are recognized in other
comprehensive income and are not subsequently reclassifed to net
income, including upon disposal. Realized gains and losses are
transferred directly to retained earnings upon disposal. Consequently,
there is no review required for impairment. Dividends will normally be
recognized in interest income unless the dividends represent a recovery
of part of the cost of the investment. Gains and losses on non-trading
equity investments measured at FVTPL are included in income (loss)
from non-trading fnancial instruments at FVTPL.
Classification and Measurement for Financial Liabilities
The Bank classifes its fnancial liabilities into the following categories:
• Held-for-trading;
• Designated at FVTPL; and
• Other liabilities.
Financial Liabilities Held-for-Trading
Financial liabilities are held within a trading portfolio if they have been
incurred principally for the purpose of repurchasing in the near term,
or form part of a portfolio of identifed fnancial instruments that are
managed together and for which there is evidence of a recent actual
pattern of short-term proft-taking. Financial liabilities held-for-trading
are primarily trading deposits, securitization liabilities at fair value,
obligations related to securities sold short and certain obligations
related to securities sold under repurchase agreements.
Trading portfolio liabilities are accounted for at fair value, with
changes in fair value as well as any gains or losses realized on disposal
recognized in trading income (loss). Transaction costs are expensed as
incurred. Interest is recognized on an accrual basis and included in
interest expense.
Financial Liabilities Designated at Fair Value through
Profit or Loss
Certain fnancial liabilities may be designated at FVTPL at initial
recognition. To be designated at FVTPL, fnancial liabilities must meet
one of the following criteria: (1) the designation eliminates or
signifcantly reduces a measurement or recognition inconsistency;
(2) a group of fnancial liabilities is managed and its performance is
evaluated on a fair value basis in accordance with a documented risk
management or investment strategy; or (3) the instrument contains
one or more embedded derivatives unless a) the embedded derivative
does not signifcantly modify the cash fows that otherwise would be
required by the contract, or b) it is clear with little or no analysis that
separation of the embedded derivative from the fnancial instrument
is prohibited. In addition, the FVTPL designation is available only for
those fnancial instruments for which a reliable estimate of fair value
can be obtained. Once fnancial liabilities are designated at FVTPL,
the designation is irrevocable.
Financial liabilities designated at FVTPL are carried at fair value on
the Consolidated Balance Sheet, with changes in fair value as well as
any gains or losses realized on disposal recognized in income (loss)
from fnancial instruments designated at FVTPL, except for the amount
of change in fair value attributable to changes in the Bank’s own credit
risk, which is presented in other comprehensive income. Amounts
recognized in other comprehensive income are not subsequently
reclassifed to net income upon derecognition of the fnancial liability;
instead, they are transferred directly to retained earnings.
Changes in fair value attributable to changes in the Bank’s
own credit risk are measured as the difference between: (i) the
period-over-period change in the present value of the expected cash
fows using an all-in discount curve refecting both the interest
rate benchmark curve and the Bank’s own credit risk; and (ii) the
period-over-period change in the present value of the same expected
cash fows using a discount curve based solely on the interest rate
benchmark curve.
For loan commitments and fnancial guarantee contracts that are
designated at FVTPL, the full change in fair value of the liability is
recognized in income (loss) from fnancial instruments designated
at FVTPL.
Interest is included in interest expense on an accrual basis.
Other Financial Liabilities
Deposits
Deposits, other than deposits included in a trading portfolio and
deposits designated at FVTPL, are accounted for at amortized cost.
Accrued interest on deposits is included in Other liabilities on the
Consolidated Balance Sheet. Interest, including capitalized transaction
costs, is recognized on an accrual basis using EIRM as Interest expense
on the Consolidated Statement of Income.
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
135
Subordinated Notes and Debentures
Subordinated notes and debentures are accounted for at amortized
cost. Accrued interest on subordinated notes and debentures is
included in Other liabilities on the Consolidated Balance Sheet.
Interest, including capitalized transaction costs, is recognized on an
accrual basis using EIRM as Interest expense on the Consolidated
Statement of Income.
Reclassification of Financial Assets and Liabilities
Financial assets and fnancial liabilities are not reclassifed subsequent
to their initial recognition, except for fnancial assets for which the
Bank changes its business model for managing fnancial assets. Such
reclassifcations of fnancial assets are expected to be rare in practice.
Impairment – Expected Credit Loss Model
The ECL model applies to fnancial assets, including loans and debt
securities measured at amortized cost, loans and debt securities
measured at FVOCI, loan commitments, and fnancial guarantees that
are not measured at FVTPL.
The ECL model consists of three stages: Stage 1 – twelve-month
ECLs for performing fnancial assets, Stage 2 – Lifetime ECLs for
fnancial assets that have experienced a signifcant increase in credit
risk since initial recognition, and Stage 3 – Lifetime ECLs for fnancial
assets that are impaired. ECLs are the difference between all
contractual cash fows that are due to the Bank in accordance with the
contract and all the cash fows the Bank expects to receive, discounted
at the original effective interest rate. If a signifcant increase in credit
risk has occurred since initial recognition, impairment is measured as
lifetime ECLs. Otherwise, impairment is measured as twelve-month
ECLs which represent the portion of lifetime ECLs that are expected to
occur based on default events that are possible within twelve months
after the reporting date. If credit quality improves in a subsequent
period such that the increase in credit risk since initial recognition is no
longer considered signifcant, the loss allowance reverts back to being
measured based on twelve-month ECLs.
Significant Increase in Credit Risk
For retail exposures, signifcant increase in credit risk is assessed
based on changes in the twelve-month probability of default (PD) since
initial recognition, using a combination of individual and collective
information that incorporates borrower and account specifc attributes
and relevant forward-looking macroeconomic variables.
For non-retail exposures, signifcant increase in credit risk is assessed
based on changes in the internal risk rating (borrower risk ratings
(BRR)) since initial recognition.
The Bank defnes default as delinquency of 90 days or more for
most retail products and BRR 9 for non-retail exposures. Exposures are
considered impaired and migrate to Stage 3 when they are 90 days
or more past due for retail exposures, rated BRR 9 for non-retail
exposures, or when there is objective evidence that there has been
a deterioration of credit quality to the extent the Bank no longer has
reasonable assurance as to the timely collection of the full amount
of principal and interest.
When determining whether there has been a signifcant increase
in credit risk since initial recognition of a fnancial asset, the Bank
considers all reasonable and supportable information that is available
without undue cost or effort about past events, current conditions,
and forecast of future economic conditions. Refer to Note 3 for
additional details.
Measurement of Expected Credit Losses
ECLs are measured as the probability-weighted present value of
expected cash shortfalls over the remaining expected life of the
fnancial instrument and 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 fnancial
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, ECLs are measured over the
period the Bank is exposed to credit risk. For example, ECLs for credit
cards are measured over the borrowers’ expected behavioural life,
incorporating survivorship assumptions and borrower-specifc attributes.
The Bank leverages its Advanced Internal Ratings-Based (AIRB)
models used for regulatory capital purposes and incorporates
adjustments where appropriate to calculate ECLs.
Forward-Looking Information and Expert Credit Judgment
Forward-looking information is considered when determining
signifcant increase in credit risk and measuring ECLs. Forward-looking
macroeconomic factors are incorporated in the risk parameters
as relevant.
Qualitative factors that are not already considered in the modelling
are incorporated by exercising expert credit judgment in determining
the fnal ECL. Refer to Note 3 for additional details.
Modified Loans
In cases where a borrower experiences fnancial diffculties, the Bank
may grant certain concessionary modifcations to the terms and
conditions of a loan. Modifcations may include payment deferrals,
extension of amortization periods, rate reductions, principal
forgiveness, debt consolidation, forbearance and other modifcations
intended to minimize the economic loss and to avoid foreclosure or
repossession of collateral. The Bank has policies in place to determine
the appropriate remediation strategy based on the individual borrower.
If the Bank determines that a modifcation results in expiry of cash
fows, the original asset is derecognized while a new asset is recognized
based on the new contractual terms. Signifcant increase in credit risk
is assessed relative to the risk of default on the date of modifcation.
If the Bank determines that a modifcation does not result in
derecognition, signifcant increase in credit risk is assessed based on
the risk of default at initial recognition of the original asset. Expected
cash fows arising from the modifed contractual terms are considered
when calculating the ECL for the modifed asset. For loans that were
modifed while having lifetime ECLs, the loans can revert to having
twelve-month ECLs after a period of performance and improvement
in the borrower’s fnancial condition.
Allowance for Loan Losses, Excluding Acquired Credit-Impaired
(ACI) Loans
The allowance for loan losses represents management’s calculation
of probability-weighted ECLs in the lending portfolios, including any
off-balance sheet exposures, at the balance sheet date. The allowance
for loan losses for lending portfolios reported on the Consolidated
Balance Sheet, which includes credit-related allowances for residential
mortgages, consumer instalment and other personal, credit card, and
business and government loans, is deducted from Loans on the
Consolidated Balance Sheet. The allowance for loan losses for loans
measured at FVOCI is presented on the Consolidated Statement of
Changes in Equity. The allowance for loan losses for off-balance sheet
instruments, which relates to certain guarantees, letters of credit, and
undrawn lines of credit, is recognized in Other liabilities on the
Consolidated Balance Sheet. Allowances for lending portfolios
reported on the balance sheet and off-balance sheet exposures are
calculated using the same methodology. The allowance is increased
by the provision for credit losses and decreased by write-offs net of
recoveries and disposals. Each quarter, allowances are reassessed and
adjusted based on any changes in management’s estimate of ECLs.
Loan losses on impaired loans in Stage 3 continue to be recognized
by means of an allowance for loan losses until a loan is written off.
A loan is written off against the related allowance for loan losses
when there is no realistic prospect of recovery. Non-retail loans are
generally written off when all reasonable collection efforts have been
exhausted, such as when a loan is sold, when all security has been
realized, or when all security has been resolved with the receiver or
136 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
bankruptcy court. Non-real estate retail loans are generally written off
when contractual payments are 180 days past due, or when a loan is
sold. Real-estate secured retail loans are generally written off when the
security is realized. The time period over which the Bank performs
collection activities of the contractual amount outstanding of fnancial
assets that are written off varies from one jurisdiction to another and
generally spans between less than one year to fve years.
Allowance for Credit Losses on Debt Securities
The allowance for credit losses on debt securities represents
management’s calculation of probability-weighted ECLs. Debt
securities measured at amortized cost are presented net of the
allowance for credit losses on the Consolidated Balance Sheet. The
allowance for credit losses on debt securities measured at FVOCI
are presented on the Consolidated Statement of Changes in Equity.
The allowance for credit losses is increased by the provision for credit
losses and decreased by write-offs net of recoveries and disposals.
Each quarter, allowances are reassessed and adjusted based on any
changes in management’s estimate of ECLs.
Acquired Loans
Acquired loans are initially measured at fair value, which considers
incurred and expected future credit losses estimated at the acquisition
date and also refects adjustments based on the acquired loan’s
interest rate in comparison to current market rates. On acquisition,
twelve-month ECLs are recognized on the acquired loans, resulting in
the carrying amount for acquired loans to be lower than fair value.
When loans are acquired 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, they are
generally considered to be ACI loans, with no ECLs recognized on
acquisition. Acquired performing loans are subsequently accounted for
at amortized cost based on their contractual cash fows and any
acquisition related discount or premium, including credit-related
discounts, is considered to be an adjustment to the loan yield and is
recognized in interest income using EIRM over the term of the loan, or
the expected life of the loan for acquired loans with revolving terms.
Acquired Credit-Impaired Loans
ACI loans are identifed as impaired at acquisition based on specifc risk
characteristics of the loans, including past due status, performance
history, and recent borrower credit scores. ACI loans are accounted for
based on the present value of expected cash fows as opposed to their
contractual cash fows. The Bank determines the fair value of these
loans at the acquisition date by discounting expected cash fows at a
discount rate that refects factors a market participant would use when
determining fair value including management assumptions relating to
default rates, loss severities, the amount and timing of prepayments,
and other factors that are refective of current market conditions. With
respect to certain individually signifcant ACI loans, accounting is
applied individually at the loan level. The remaining ACI loans are
aggregated provided they are acquired in the same fscal quarter and
have common risk characteristics. Aggregated loans are accounted for
as a single asset with aggregated cash fows and a single composite
interest rate. Subsequent to acquisition, the Bank regularly reassesses
and updates its cash fow estimates for changes to assumptions
relating to default rates, loss severities, the amount and timing of
prepayments, and other factors that are refective of current market
conditions. Probable decreases in expected cash fows trigger the
recognition of additional impairment, which is measured based on the
present value of the revised expected cash fows discounted at the
loan’s effective interest rate as compared to the carrying value of the
loan. The ECL in excess of the initial credit-related discount is recorded
through the provision for credit losses. Interest income on ACI loans is
calculated by multiplying the credit-adjusted effective interest rate to
the amortized cost of ACI loans.
SHARE CAPITAL
The Bank classifes fnancial instruments that it issues as either fnancial
liabilities, equity instruments, or compound instruments.
Issued instruments that are mandatorily redeemable or convertible
into a variable number of the Bank’s common shares at the holder’s
option are classifed as liabilities on the Consolidated Balance Sheet.
Dividend or interest payments on these instruments are recognized
in Interest expense on the Consolidated Statement of Income.
Issued instruments are classifed as equity when there is no
contractual obligation to transfer cash or other fnancial assets.
Further, issued instruments that are not mandatorily redeemable or
that are not convertible into a variable number of the Bank’s common
shares at the holder’s option, are classifed as equity and presented in
share capital. Incremental costs directly attributable to the issue of
equity instruments are included in equity as a deduction from the
proceeds, net of tax. Dividend payments on these instruments are
recognized as a reduction in equity.
Compound instruments are comprised of both liability and equity
components in accordance with the substance of the contractual
arrangement. At inception, the fair value of the liability component is
initially measured with any residual amount assigned to the equity
component. Transaction costs are allocated proportionately to the
liability and equity components.
Common or preferred shares held by the Bank are classifed as
treasury shares in equity, and the cost of these shares is recorded as a
reduction in equity. Upon the sale of treasury shares, the difference
between the sale proceeds and the cost of the shares is recorded in or
against contributed surplus.
GUARANTEES
The Bank issues guarantee contracts that require payments to be
made to guaranteed parties based on: (1) changes in the underlying
economic characteristics relating to an asset or liability of the
guaranteed party; (2) failure of another party to perform under an
obligating agreement; or (3) failure of another third party to pay its
indebtedness when due. Guarantees are initially measured and
recorded at their fair value. The fair value of a guarantee liability at
initial recognition is normally equal to the present value of the
guarantee fees received over the life of contract. The Bank’s release
from risk is recognized over the term of the guarantee using a
systematic and rational amortization method.
If a guarantee meets the defnition of a derivative, it is carried at fair
value on the Consolidated Balance Sheet and reported as a derivative
asset or derivative liability at fair value. Guarantees that are considered
derivatives are a type of credit derivative contracts which are over-the-
counter (OTC) contracts designed to transfer the credit risk in an
underlying fnancial instrument from one counterparty to another.
DERIVATIVES
Derivatives are instruments that derive their value from changes in
underlying interest rates, foreign exchange rates, credit spreads,
commodity prices, equities, or other fnancial or non-fnancial
measures. Such instruments include interest rate, foreign exchange,
equity, commodity, and credit derivative contracts. The Bank uses
these instruments for trading and non-trading purposes. Derivatives
are carried at their fair value on the Consolidated Balance Sheet.
Derivatives Held-for-Trading Purposes
The Bank enters into trading derivative contracts to meet the needs of
its customers, to provide liquidity and market-making related activities,
and in certain cases, to manage risks related to its trading portfolios.
The realized and unrealized gains or losses on trading derivatives are
recognized in trading income (loss).
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
137
Derivatives Held for Non-trading Purposes
Non-trading derivatives are primarily used to manage interest rate,
foreign exchange, and other market risks of the Bank’s traditional
banking activities. When derivatives are held for non-trading purposes
and when the transactions meet the hedge accounting requirements
of IAS 39, they are presented as non-trading derivatives and receive
hedge accounting treatment, as appropriate. Certain derivative
instruments that are held for economic hedging purposes, and do not
meet the hedge accounting requirements of IAS 39, are also presented
as non-trading derivatives with the change in fair value of these
derivatives recognized in non-interest income.
Hedging Relationships
Hedge Accounting
At the inception of a hedging relationship, the Bank documents the
relationship between the hedging instrument and the hedged item, its
risk management objective, and its strategy for undertaking the hedge.
The Bank also requires a documented assessment, both at hedge
inception and on an ongoing basis, of whether or not the derivatives
that are used in hedging relationships are highly effective in offsetting
the changes attributable to the hedged risks in the fair values or cash
fows of the hedged items. In order to be considered effective, the
hedging instrument and the hedged item must be highly and inversely
correlated such that the changes in the fair value of the hedging
instrument will substantially offset the effects of the hedged exposure
to the Bank throughout the term of the hedging relationship. If a
hedging relationship becomes ineffective, it no longer qualifes for
hedge accounting and any subsequent change in the fair value of the
hedging instrument is recognized in Non-interest income on the
Consolidated Statement of Income.
Changes in fair value relating to the derivative component excluded
from the assessment of hedge effectiveness, is recognized in
Non-interest income on the Consolidated Statement of Income.
When derivatives are designated as hedges, the Bank classifes them
either as: (1) hedges of the changes in fair value of recognized assets
or liabilities or frm commitments (fair value hedges); (2) hedges of
the variability in highly probable future cash fows attributable to a
recognized asset or liability, or a forecasted transaction (cash fow
hedges); or (3) hedges of net investments in a foreign operation
(net investment hedges).
Interest Rate Benchmark Reform
A hedging relationship is affected by interest rate benchmark reform
if it gives rise to uncertainties about (a) the interest rate benchmark
(contractually or non-contractually specifed) designated as a hedged
risk; and/or (b) the timing or the amount of interest rate benchmark-
based cash fows of the hedged item or of the hedging instrument.
For such hedging relationships, the following temporary exceptions
apply during the period of uncertainty:
• when assessing whether a forecast transaction is highly probable
or expected to occur, it is assumed that the interest rate benchmark
on which the hedged cash fows (contractually or noncontractually
specifed) are based is not altered as a result of interest rate
benchmark reform;
• when assessing whether a hedge is expected to be highly effective,
it is assumed that the interest rate benchmark on which the hedged
cash fows and/or the hedged risk (contractually or noncontractually
specifed) are based, or the interest rate benchmark on which the
cash fows of the hedging instrument are based, is not altered as
a result of interest rate benchmark reform;
• a hedge is not required to be discontinued if the actual results of
the hedge are outside of a range of 80–125 per cent as a result
of interest rate benchmark reform;
• for a hedge of a non-contractually specifed benchmark portion
of interest rate risk, the requirement that the risk component is
separately identifable need only be met at the inception of the
hedging relationship.
Fair Value Hedges
The Bank’s fair value hedges principally consist of interest rate
swaps that are used to protect against changes in the fair value
of fxed-rate long-term fnancial instruments due to movements
in market interest rates.
Changes in the fair value of derivatives that are designated and
qualify as fair value hedging instruments are recognized in Non-interest
income on the Consolidated Statement of Income, along with changes
in the fair value of the assets, liabilities, or group thereof that are
attributable to the hedged risk. Any change in fair value relating to
the ineffective portion of the hedging relationship is recognized
immediately in non-interest income.
The cumulative adjustment to the carrying amount of the hedged
item (the basis adjustment) is amortized to the Consolidated Statement
of Income in Net interest income based on a recalculated EIR over
the remaining expected life of the hedged item, with amortization
beginning no later than when the hedged item ceases to be adjusted
for changes in its fair value attributable to the hedged risk. Where
the hedged item has been derecognized, the basis adjustment is
immediately released to Net interest income or Non-interest income,
as applicable, on the Consolidated Statement of Income.
Cash Flow Hedges
The Bank is exposed to variability in future cash fows attributable
to interest rate, foreign exchange rate, and equity price risks. The
amounts and timing of future cash fows are projected for each
hedged exposure on the basis of their contractual terms and other
relevant factors, including estimates of prepayments and defaults.
The effective portion of the change in the fair value of the derivative
that is designated and qualifes as a cash fow hedge is initially
recognized in other comprehensive income. The change in fair value
of the derivative relating to the ineffective portion is recognized
immediately in non-interest income.
Amounts in accumulated other comprehensive income (AOCI)
attributable to interest rate, foreign exchange rate, and equity price
components, as applicable, are reclassifed to Net interest income or
Non-interest income on the Consolidated Statement of Income in
the period in which the hedged item affects income, and are reported
in the same income statement line as the hedged item.
When a hedging instrument expires or is sold, or when a hedge no
longer meets the criteria for hedge accounting, any cumulative gain or
loss existing in AOCI at that time remains in AOCI until the forecasted
transaction impacts the Consolidated Statement of Income. When a
forecasted transaction is no longer expected to occur, the cumulative
gain or loss that was reported in AOCI is immediately reclassifed to
Net interest income or Non-interest income, as applicable, on the
Consolidated Statement of Income.
Net Investment Hedges
Hedges of net investments in foreign operations are accounted for
similar to cash fow hedges. The change in fair value on the hedging
instrument relating to the effective portion is recognized in other
comprehensive income. The change in fair value of the hedging
instrument relating to the ineffective portion is recognized immediately
in non-interest income. Gains and losses in AOCI are reclassifed
to the Consolidated Statement of Income upon the disposal or partial
disposal of the investment in the foreign operation. The Bank
designates derivatives and non-derivatives (such as foreign currency
deposit liabilities) as hedging instruments in net investment hedges.
Embedded Derivatives
Derivatives may be embedded in certain instruments, including
fnancial liabilities (the host instrument). Embedded derivatives are
treated as separate derivatives when their economic characteristics and
risks are not closely related to those of the host instrument, a separate
instrument with the same terms as the embedded derivative would
meet the defnition of a derivative, and the combined contract is not
held-for-trading or designated at FVTPL. These embedded derivatives,
138 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
which are bifurcated from the host contract, are recognized on the
Consolidated Balance Sheet as Derivatives and measured at fair value
with subsequent changes recognized in Non-interest income on the
Consolidated Statement of Income.
TRANSLATION AND PRESENTATION OF FOREIGN CURRENCIES
The Bank’s Consolidated Financial Statements are presented in
Canadian dollars. Items included in the fnancial statements of each
of the Bank’s entities are measured using their functional currency,
which is the currency of the primary economic environment in which
they operate.
Monetary assets and liabilities denominated in a currency that
differs from an entity’s functional currency are translated into the
functional currency of the entity at exchange rates prevailing at the
balance sheet date. Non-monetary assets and liabilities are translated
at historical exchange rates. Income and expenses are translated
into an entity’s functional currency at average exchange rates for
the period. Translation gains and losses are included in non-interest
income except for equity investments designated at FVOCI where
unrealized translation gains and losses are recorded in other
comprehensive income.
Foreign operations are those with a functional currency other than
Canadian dollars. For the purpose of translation into the Bank’s
presentation currency, all assets and liabilities are frst measured in
the functional currency of the foreign operation and subsequently,
translated at exchange rates prevailing at the balance sheet date.
Income and expenses are translated at average exchange rates for the
period. Unrealized translation gains and losses relating to these foreign
operations, net of gains or losses arising from net investment hedges
and applicable income taxes, are included in other comprehensive
income. Translation gains and losses in AOCI are recognized on the
Consolidated Statement of Income upon the disposal or partial
disposal of the foreign operation. The investment balance of foreign
entities accounted for by the equity method, including TD Ameritrade,
is translated into Canadian dollars using exchange rates prevailing at
the balance sheet date with exchange gains or losses recognized in
other comprehensive income.
OFFSETTING OF FINANCIAL INSTRUMENTS
Financial assets and liabilities are offset, with the net amount
presented on the Consolidated Balance Sheet, only if the Bank
currently has a legally enforceable right to set off the recognized
amounts, and intends either to settle on a net basis or to realize the
asset and settle the liability simultaneously. In all other situations,
assets and liabilities are presented on a gross basis.
DETERMINATION OF FAIR VALUE
The fair value of a fnancial instrument on initial recognition is normally
the transaction price, such as the fair value of the consideration given
or received. The best evidence of fair value is quoted prices in active
markets. When fnancial assets and liabilities have offsetting market
risks or credit risks, the Bank applies the portfolio exception, as
described in Note 5, and uses mid-market prices as a basis for
establishing fair values for the offsetting risk positions and applies the
most representative price within the bid-ask spread to the net open
position, as appropriate. When there is no active market for the
instrument, the fair value may be based on other observable current
market transactions involving the same or similar instrument, without
modifcation or repackaging, or is based on a valuation technique
which maximizes the use of observable market inputs.
The Bank recognizes various types of valuation adjustments to
account for factors that market participants would use in determining
fair value which are not included in valuation techniques due to system
limitations or measurement uncertainty. Valuation adjustments refect
the Bank’s assessment of factors that market participants would use in
pricing the asset or liability. These include, but are not limited to, the
unobservability of inputs used in the pricing model, or assumptions
about risk, such as creditworthiness of each counterparty and risk
premiums that market participants would require given the inherent
risk in the pricing model.
If there is a difference between the initial transaction price and the
value based on a valuation technique, the difference is referred to
as inception proft or loss. Inception proft or loss is recognized upon
initial recognition of the instrument only if the fair value is based on
observable inputs. When an instrument is measured using a valuation
technique that utilizes signifcant non-observable inputs, it is initially
valued at the transaction price, which is considered the best estimate
of fair value. Subsequent to initial recognition, any difference between
the transaction price and the value determined by the valuation
technique at initial recognition is recognized as non-observable inputs
become observable.
If the fair value of a fnancial asset measured at fair value becomes
negative, it is recognized as a fnancial liability until either its fair value
becomes positive, at which time it is recognized as a fnancial asset,
or until it is extinguished.
DERECOGNITION OF FINANCIAL INSTRUMENTS
Financial Assets
The Bank derecognizes a fnancial asset when the contractual rights
to that asset have expired. Derecognition may also be appropriate
where the contractual right to receive future cash fows from the asset
have been transferred, or where the Bank retains the rights to future
cash fows from the asset, but assumes an obligation to pay those cash
fows to a third party subject to certain criteria.
When the Bank transfers a fnancial asset, it is necessary to assess
the extent to which the Bank has retained the risks and rewards of
ownership of the transferred asset. If substantially all the risks and
rewards of ownership of the fnancial asset have been retained,
the Bank continues to recognize the fnancial asset and also recognizes
a fnancial liability for the consideration received. Certain transaction
costs incurred are also capitalized and amortized using EIRM. If
substantially all the risks and rewards of ownership of the fnancial
asset have been transferred, the Bank will derecognize the fnancial
asset and recognize separately as assets or liabilities any rights and
obligations created or retained in the transfer. The Bank determines
whether substantially all the risks and rewards have been transferred
by quantitatively comparing the variability in cash fows before
and after the transfer. If the variability in cash fows does not change
signifcantly as a result of the transfer, the Bank has retained
substantially all of the risks and rewards of ownership.
If the Bank neither transfers nor retains substantially all the risks
and rewards of ownership of the fnancial asset, the Bank derecognizes
the fnancial asset where it has relinquished control of the fnancial
asset. The Bank is considered to have relinquished control of the
fnancial asset where the transferee has the practical ability to sell the
transferred fnancial asset. Where the Bank has retained control of
the fnancial asset, it continues to recognize the fnancial asset to the
extent of its continuing involvement in the fnancial asset. Under these
circumstances, the Bank usually retains the rights to future cash fows
relating to the asset through a residual interest and is exposed to
some degree of risk associated with the fnancial asset.
The derecognition criteria are also applied to the transfer of part
of an asset, rather than the asset as a whole, or to a group of similar
fnancial assets in their entirety, when applicable. If transferring a
part of an asset, it must be a specifcally identifed cash fow, a fully
proportionate share of the asset, or a fully proportionate share of
a specifcally identifed cash fow.
Securitization
Securitization is the process by which fnancial assets are transformed
into securities. The Bank securitizes fnancial assets by transferring
those fnancial assets to a third party and as part of the securitization,
certain fnancial assets may be retained and may consist of an
interest-only strip and, in some cases, a cash reserve account
(collectively referred to as “retained interests”). If the transfer qualifes
for derecognition, a gain or loss is recognized immediately in other
income after the effects of hedges on the assets sold, if applicable.
The amount of the gain or loss is calculated as the difference between
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
139
the carrying amount of the asset transferred and the sum of any
cash proceeds received, including any fnancial asset received or
fnancial liability assumed, and any cumulative gain or loss allocated
to the transferred asset that had been recognized AOCI. To determine
the value of the retained interest initially recorded, the previous
carrying value of the transferred asset is allocated between the
amount derecognized from the balance sheet and the retained interest
recorded, in proportion to their relative fair values on the date of
transfer. Subsequent to initial recognition, as market prices are
generally not available for retained interests, fair value is determined
by estimating the present value of future expected cash fows using
management’s best estimates of key assumptions that market
participants would use in determining fair value. Refer to Note 3 for
assumptions used by management in determining the fair value of
retained interests. Retained interest is classifed as trading securities
with subsequent changes in fair value recorded in trading income.
Where the Bank retains the servicing rights, the benefts of servicing
are assessed against market expectations. When the benefts of
servicing are more than adequate, a servicing asset is recognized.
Similarly, when the benefts of servicing are less than adequate, a
servicing liability is recognized. Servicing assets and servicing liabilities
are initially recognized at fair value and subsequently carried at
amortized cost.
Financial Liabilities
The Bank derecognizes a fnancial liability when the obligation under
the liability is discharged, cancelled, or expires. If an existing fnancial
liability is replaced by another fnancial liability from the same lender
on substantially different terms or where the terms of the existing
liability are substantially modifed, the original liability is derecognized
and a new liability is recognized with the difference in the respective
carrying amounts recognized on the Consolidated Statement
of Income.
Securities Purchased Under Reverse Repurchase Agreements,
Securities Sold Under Repurchase Agreements, and Securities
Borrowing and Lending
Securities purchased under reverse repurchase agreements involve
the purchase of securities by the Bank under agreements to resell
the securities at a future date. These agreements are treated as
collateralized lending transactions whereby the Bank takes possession
of the purchased securities, but does not acquire the risks and rewards
of ownership. The Bank monitors the market value of the purchased
securities relative to the amounts due under the reverse repurchase
agreements, and when necessary, requires transfer of additional
collateral. In the event of counterparty default, the agreements provide
the Bank with the right to liquidate the collateral held and offset the
proceeds against the amount owing from the counterparty.
Obligations related to securities sold under repurchase agreements
involve the sale of securities by the Bank to counterparties under
agreements to repurchase the securities at a future date. These
agreements do not result in the risks and rewards of ownership being
relinquished and are treated as collateralized borrowing transactions.
The Bank monitors the market value of the securities sold relative
to the amounts due under the repurchase agreements, and when
necessary, transfers additional collateral and may require counterparties
to return collateral pledged. Certain transactions that do not meet
derecognition criteria are also included in obligations related to
securities sold under repurchase agreements. Refer to Note 9 for
further details.
Securities purchased under reverse repurchase agreements and
obligations related to securities sold under repurchase agreements are
initially recorded on the Consolidated Balance Sheet at the respective
prices at which the securities were originally acquired or sold, plus
accrued interest. Subsequently, the agreements are measured at
amortized cost on the Consolidated Balance Sheet, plus accrued
interest. Interest earned on reverse repurchase agreements and interest
incurred on repurchase agreements is determined using EIRM and is
included in Interest income and Interest expense, respectively, on the
Consolidated Statement of Income.
140 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
In security lending transactions, the Bank lends securities to a
counterparty and receives collateral in the form of cash or securities.
If cash collateral is received, the Bank records the cash along with an
obligation to return the cash as an obligation related to Securities
sold under repurchase agreements on the Consolidated Balance Sheet.
Where securities are received as collateral, the Bank does not record
the collateral on the Consolidated Balance Sheet.
In securities borrowing transactions, the Bank borrows securities
from a counterparty and pledges either cash or securities as collateral.
If cash is pledged as collateral, the Bank records the transaction as
securities purchased under reverse repurchase agreements on the
Consolidated Balance Sheet. Securities pledged as collateral remain
on the Bank’s Consolidated Balance Sheet.
Where securities are pledged or received as collateral, security
borrowing fees and security lending income are recorded in
Non-interest income on the Consolidated Statement of Income over
the term of the transaction. Where cash is pledged or received as
collateral, interest received or incurred is included in Interest income
and Interest expense, respectively, on the Consolidated Statement
of Income.
Physical commodities purchased or sold with an agreement to sell
or repurchase the physical commodities at a later date at a fxed price,
are also included in securities purchased under reverse repurchase
agreements and obligations related to securities sold under repurchase
agreements, respectively, if the derecognition criteria are not met.
These instruments are measured at fair value.
GOODWILL
Goodwill represents the excess purchase price paid over the net fair
value of identifable assets and liabilities acquired in a business
combination. Goodwill is carried at its initial cost less accumulated
impairment losses.
Goodwill is allocated to a cash-generating unit (CGU) or a group
of CGUs that is expected to beneft from the synergies of the business
combination, regardless of whether any assets acquired and liabilities
assumed are assigned to the CGU or group of CGUs. A CGU is the
smallest identifable group of assets that generates cash fows largely
independent of the cash infows from other assets or groups of assets.
Each CGU or group of CGUs, to which goodwill is allocated, represents
the lowest level within the Bank at which the goodwill is monitored
for internal management purposes and is not larger than an
operating segment.
Goodwill is assessed for impairment at least annually and when an
event or change in circumstances indicates that the carrying amount
may be impaired. When impairment indicators are present, the
recoverable amount of the CGU or group of CGUs, which is the higher
of its estimated fair value less costs of disposal and its value-in-use, is
determined. If the carrying amount of the CGU or group of CGUs is
higher than its recoverable amount, an impairment loss exists. The
impairment loss is recognized on the Consolidated Statement of
Income and cannot be reversed in future periods.
INTANGIBLE ASSETS
Intangible assets represent identifable non-monetary assets and
are acquired either separately or through a business combination,
or internally generated software. The Bank’s intangible assets consist
primarily of core deposit intangibles, credit card related intangibles,
and software intangibles. Intangible assets are initially recognized
at fair value and are amortized over their estimated useful lives
(3 to 20 years) proportionate to their expected economic benefts,
except for software which is amortized over its estimated useful
life (3 to 7 years) on a straight-line basis.
The Bank assesses its intangible assets for impairment on a quarterly
basis. When impairment indicators are present, the recoverable
amount of the asset, which is the higher of its estimated fair value
less costs of disposal and its value-in-use, is determined. If the carrying
amount of the asset is higher than its recoverable amount, the asset
is written down to its recoverable amount. Where it is not possible
to estimate the recoverable amount of an individual asset, the Bank
estimates the recoverable amount of the CGU to which the asset
belongs. An impairment loss is recognized on the Consolidated
Statement of Income in the period in which the impairment is
identifed. Impairment losses recognized previously are assessed and
reversed if the circumstances leading to the impairment are no longer
present. Reversal of any impairment loss will not exceed the carrying
amount of the intangible asset that would have been determined had
no impairment loss been recognized for the asset in prior periods.
LAND, BUILDINGS, EQUIPMENT, AND OTHER
DEPRECIABLE ASSETS
Land is recognized at cost. Buildings, computer equipment, furniture
and fxtures, other equipment, and leasehold improvements are
recognized at cost less accumulated depreciation and provisions
for impairment, if any. Gains and losses on disposal are included
in Non-interest income on the Consolidated Statement of Income.
Assets leased under a fnance lease are capitalized as assets and
depreciated on a straight-line basis over the lesser of the lease term
and the estimated useful life of the asset.
The Bank records the obligation associated with the retirement of
a long-lived asset at fair value in the period in which it is incurred and
can be reasonably estimated, and records a corresponding increase
to the carrying amount of the asset. The asset is depreciated on a
straight-line basis over its remaining useful life while the liability is
accreted to refect the passage of time until the eventual settlement
of the obligation.
Depreciation is recognized on a straight-line basis over the useful
lives of the assets estimated by asset category, as follows:
Asset
Buildings
Computer equipment
Furniture and fxtures
Other equipment
Leasehold improvements
Useful Life
15 to 40 years
2 to 8 years
3 to 15 years
5 to 15 years
Lesser of the remaining lease term and
the remaining useful life of the asset
The Bank assesses its depreciable assets for impairment on a quarterly
basis. When impairment indicators are present, the recoverable
amount of the asset, which is the higher of its estimated fair value less
costs to sell and its value-in-use, is determined. If the carrying value
of the asset is higher than its recoverable amount, the asset is written
down to its recoverable amount. Where it is not possible to estimate
the recoverable amount of an individual asset, the Bank estimates
the recoverable amount of the CGU to which the asset belongs.
An impairment loss is recognized on the Consolidated Statement of
Income in the period in which the impairment is identifed. Impairment
losses previously recognized are assessed and reversed if the
circumstances leading to their impairment are no longer present.
Reversal of any impairment loss will not exceed the carrying amount
of the depreciable asset that would have been determined had no
impairment loss been recognized for the asset in prior periods.
NON-CURRENT ASSETS HELD-FOR-SALE
Individual non-current assets or disposal groups are classifed as
held-for-sale if they are available for immediate sale in their present
condition subject only to terms that are usual and customary for
sales of such assets or disposal groups, and their sale must be highly
probable to occur within one year. For a sale to be highly probable,
management must be committed to a sales plan and initiate an active
program to market the sale of the non-current assets or disposal
groups. Non-current assets or disposal groups classifed as held-for-sale
are measured at the lower of their carrying amount and fair value
less costs to sell on the Consolidated Balance Sheet. Subsequent to
its initial classifcation as held-for-sale, a non-current asset or disposal
group is no longer depreciated or amortized, and any subsequent
write-downs in fair value less costs to sell or such increases not in
excess of cumulative write-downs, are recognized in Other income
on the Consolidated Statement of Income.
SHARE-BASED COMPENSATION
The Bank grants share options to certain employees as compensation
for services provided to the Bank. The Bank uses a binomial tree-based
valuation option pricing model to estimate fair value for all share
option compensation awards. The cost of the share options is based
on the fair value estimated at the grant date and is recognized as
compensation expense and contributed surplus over the service period
required for employees to become fully entitled to the awards. This
period is generally equal to the vesting period in addition to a period
prior to the grant date. For the Bank’s share options, this period is
generally equal to fve years. When options are exercised, the amount
initially recognized in the contributed surplus balance is reduced, with
a corresponding increase in common shares.
The Bank has various other share-based compensation plans where
certain employees are awarded share units equivalent to the Bank’s
common shares as compensation for services provided to the Bank.
The obligation related to share units is included in other liabilities.
Compensation expense is recognized based on the fair value of the
share units at the grant date adjusted for changes in fair value
between the grant date and the vesting date, net of hedging activities,
over the service period required for employees to become fully entitled
to the awards. This period is generally equal to the vesting period, in
addition to a period prior to the grant date. For the Bank’s share units,
this period is generally equal to four years.
EMPLOYEE BENEFITS
Defined Benefit Plans
Actuarial valuations are prepared at least every three years to determine
the present value of the projected beneft obligation related to
the Bank’s principal pension and non-pension post-retirement beneft
plans. In periods between actuarial valuations, an extrapolation is
performed based on the most recent valuation completed. All actuarial
gains and losses are recognized immediately in other comprehensive
income, with cumulative gains and losses reclassifed to retained
earnings. Pension and non-pension post-retirement beneft expenses
are determined based upon separate actuarial valuations using the
projected beneft method pro-rated on service and management’s
best estimates of discount rate, compensation increases, health care
cost trend rate, and mortality rates, which are reviewed annually with
the Bank’s actuaries. The discount rate used to value liabilities is
determined by reference to market yields on high-quality corporate
bonds with terms matching the plans’ specifc cash fows. The expense
recognized includes the cost of benefts for employee service provided
in the current year, net interest expense or income on the net defned
beneft liability or asset, past service costs related to plan amendments,
curtailments or settlements, and administrative costs. Plan amendment
costs are recognized in the period of a plan amendment, irrespective
of its vested status. Curtailments and settlements are recognized by
the Bank when the curtailment or settlement occurs. A curtailment
occurs when there is a signifcant reduction in the number of employees
covered by the plan. A settlement occurs when the Bank enters into
a transaction that eliminates all further legal or constructive obligation
for part or all of the benefts provided under a defned beneft plan.
The fair value of plan assets and the present value of the projected
beneft obligation are measured as at October 31. The net defned
beneft asset or liability represents the difference between the
cumulative actuarial gains and losses, expenses, and recognized
contributions and is reported in other assets or other liabilities.
Net defned beneft assets recognized by the Bank are subject
to a ceiling which limits the asset recognized on the Consolidated
Balance Sheet to the amount that is recoverable through refunds
of contributions or future contribution holidays. In addition, where
a regulatory funding defcit exists related to a defned beneft plan,
the Bank is required to record a liability equal to the present value
of all future cash payments required to eliminate that defcit.
Defined Contribution Plans
For defned contribution plans, annual pension expense is equal to
the Bank’s contributions to those plans.
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141
INSURANCE
Premiums for short-duration insurance contracts are deferred as
unearned premiums and reported in non-interest income on a
straight-line basis over the contractual term of the underlying policies,
usually twelve months. Such premiums are recognized net of amounts
ceded for reinsurance and apply primarily to property and casualty
contracts. Unearned premiums are reported in insurance-related
liabilities, gross of premiums ceded to reinsurers which are recognized
in other assets. Premiums from life and health insurance policies are
recognized as income when earned in insurance revenue.
For property and casualty insurance, insurance claims and policy
beneft liabilities represent current claims and estimates for future
claims related to insurable events occurring at or before the
Consolidated Balance Sheet date. These are determined by the
appointed actuary in accordance with accepted actuarial practices and
are reported as other liabilities. Expected claims and policy beneft
liabilities are determined on a case-by-case basis and consider such
variables as past loss experience, current claims trends and changes in
the prevailing social, economic, and legal environment. These liabilities
are continually reviewed, and as experience develops and new
information becomes known, the liabilities are adjusted as necessary.
In addition to reported claims information, the liabilities recognized
by the Bank include a provision to account for the future development
of insurance claims, including insurance claims incurred but not
reported by policyholders (IBNR). IBNR liabilities are evaluated based on
historical development trends and actuarial methodologies for groups
of claims with similar attributes. For life and health insurance, actuarial
liabilities represent the present values of future policy cash fows as
determined using standard actuarial valuation practices. Actuarial
liabilities are reported in insurance-related liabilities with changes
reported in insurance claims and related expenses.
PROVISIONS
Provisions are recognized when the Bank has a present obligation
(legal or constructive) as a result of a past event, the amount of which
can be reliably estimated, and it is probable that an outfow of
resources will be required to settle the obligation.
Provisions are measured based on management’s best estimate of
the consideration required to settle the obligation at the end of the
reporting period, taking into account the risks and uncertainties
surrounding the obligation. If the effect of the time value of money
is material, provisions are measured at the present value of the
expenditure expected to be required to settle the obligation, using a
discount rate that refects the current market assessment of the time
value of money and the risks specifc to the obligation.
INCOME TAXES
Income tax is comprised of current and deferred tax. Income tax
is recognized on the Consolidated Statement of Income, except to
the extent that it relates to items recognized in other comprehensive
income or directly in equity, in which case the related taxes are
also recognized in other comprehensive income or directly in
equity, respectively.
Deferred tax is recognized on temporary differences between the
carrying amounts of assets and liabilities on the Consolidated Balance
Sheet and the amounts attributed to such assets and liabilities for
tax purposes. Deferred tax assets and liabilities are determined based
on the tax rates that are expected to apply when the assets or liabilities
are reported for tax purposes. Deferred tax assets are recognized
only when it is probable that suffcient taxable proft will be available
in future periods against which deductible temporary differences
may be utilized. Deferred tax liabilities are not recognized on
temporary differences arising on investments in subsidiaries, branches,
and associates, and interests in joint ventures if the Bank controls
the timing of the reversal of the temporary difference and it is
probable that the temporary difference will not reverse in the
foreseeable future.
The Bank records a provision for uncertain tax positions if it is
probable that the Bank will have to make a payment to tax authorities
upon their examination of a tax position. This provision is measured at
the Bank’s best estimate of the amount expected to be paid. Provisions
are reversed to income in provision for (recovery of) income taxes in
the period in which management determines they are no longer
required or as determined by statute.
FINANCIAL INSTRUMENTS OTHER THAN DERIVATIVES PRIOR
TO NOVEMBER 1, 2017 UNDER IAS 39
The following is applicable to periods prior to November 1, 2017 for
fnancial instruments accounted for under IAS 39, to the extent not
already discussed earlier in this Note.
Classification and Measurement of Financial Assets and
Financial Liabilities
Available-for-Sale (AFS) Securities
Financial assets not classifed as trading, designated at FVTPL,
held-to-maturity or loans, were classifed as AFS and included equity
securities and debt securities.
AFS securities were recognized on a trade date basis and were
generally carried at fair value on the Consolidated Balance Sheet with
changes in fair value recognized in other comprehensive income.
Gains and losses realized on disposal of fnancial assets classifed
as AFS were calculated on a weighted-average cost basis and were
recognized in net securities gains (losses) in non-interest income.
Dividends were recognized on the ex-dividend date and interest
income was recognized on an accrual basis using EIRM. Both dividends
and interest were included in Interest income on the Consolidated
Statement of Income.
Impairment losses were recognized if there was objective evidence
of impairment as a result of one or more events that occurred (a
‘loss event’) and the loss event(s) resulted in a decrease in the
estimated future cash fows of the instrument. A signifcant or
prolonged decline in fair value below cost was considered objective
evidence of impairment for AFS equity securities. A deterioration in
credit quality was considered objective evidence of impairment for
AFS debt securities. Qualitative factors were also considered when
assessing impairment for AFS securities. When impairment was
identifed, the cumulative net loss previously recognized in other
comprehensive income, less any impairment loss previously recognized
on the Consolidated Statement of Income, was removed from other
comprehensive income and recognized in Net securities gains (losses)
in Non-interest income on the Consolidated Statement of Income.
If the fair value of a previously impaired equity security subsequently
increased, the impairment loss was not reversed through the
Consolidated Statement of Income. Subsequent increases in fair value
were recognized in other comprehensive income. If the fair value of
a previously impaired debt security subsequently increased and the
increase could be objectively related to an event occurring after the
impairment was recognized on the Consolidated Statement of Income,
then the impairment loss was reversed through the Consolidated
Statement of Income. An increase in fair value in excess of impairment
recognized previously on the Consolidated Statement of Income was
recognized in other comprehensive income.
Held-to-Maturity Securities
Debt securities with fxed or determinable payments and fxed maturity
dates, that did not meet the defnition of loans and receivables, and
that the Bank intended and had the ability to hold to maturity were
classifed as held-to-maturity and were carried at amortized cost, net
of impairment losses. Securities classifed as held-to-maturity were
assessed for objective evidence of impairment at the counterparty-
specifc level. If there was no objective evidence of impairment at the
counterparty-specifc level then the security was grouped with other
held-to-maturity securities with similar credit risk characteristics and
was collectively assessed for impairment, which considered losses
incurred but not identifed. Interest income was recognized using
EIRM and was included in Interest income on the Consolidated
Statement of Income.
142 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
Financial Assets and Liabilities Designated at Fair Value
through Profit or Loss
Certain fnancial assets and fnancial liabilities that did not meet the
defnition of trading could be designated at FVTPL on initial
recognition. To be designated at FVTPL, fnancial assets and fnancial
liabilities had to meet one of the following criteria: (1) the designation
eliminated or signifcantly reduced a measurement or recognition
inconsistency (also referred to as “an accounting mismatch”); (2) a
group of fnancial assets, fnancial liabilities, or both, was managed
and its performance was evaluated on a fair value basis in accordance
with a documented risk management or investment strategy; or (3) the
instrument contained one or more embedded derivatives unless a) the
embedded derivative did not signifcantly modify the cash fows that
otherwise would be required by the contract, or b) it was clear with
little or no analysis that separation of the embedded derivative from
the fnancial instrument was prohibited. In addition, the FVTPL
designation was available only for those fnancial instruments for
which a reliable estimate of fair value could be obtained. Once
fnancial assets and fnancial liabilities were designated at FVTPL,
the designation was irrevocable.
Financial assets and fnancial liabilities designated at FVTPL were
carried at fair value on the Consolidated Balance Sheet, with changes
in fair value as well as any gains or losses realized on disposal
recognized in income (loss) from fnancial instruments designated at
fair value at proft or loss. Interest was recognized on an accrual basis
and was included in interest income or interest expense.
Embedded Derivatives
Derivatives that were embedded in fnancial assets and liabilities were
separated from their host instruments and treated as separate
derivatives when their characteristics and risks were not closely related
to those of the host instrument, a separate instrument with the same
terms as the embedded derivative met the defnition of a derivative,
and the combined contract was not held-for-trading or designated at
fair value through proft or loss. These embedded derivatives, which
were bifurcated from the host contract, were recognized on the
Consolidated Balance Sheet as Derivatives and measured at fair value
with subsequent changes recognized in Non-interest income on the
Consolidated Statement of Income.
Impairment – Allowance for Credit Losses
Loan Impairment, Excluding Acquired Credit-Impaired Loans
A loan, including a debt security classifed as a loan, was considered
impaired when there was objective evidence that there had been a
deterioration of credit quality subsequent to the initial recognition of
the loan to the extent the Bank no longer had reasonable assurance
as to the timely collection of the full amount of principal and interest.
Indicators of impairment could include, but were not limited to, one
or more of the following:
• Signifcant fnancial diffculty of the issuer or obligor;
• A breach of contract, such as a default or delinquency in interest
or principal payments;
• Increased probability that the borrower would enter bankruptcy
or other fnancial reorganization; or
• The disappearance of an active market for that fnancial asset.
A loan was reclassifed back to performing status when it had been
determined that there was reasonable assurance of full and timely
repayment of interest and principal in accordance with the original
or revised contractual conditions of the loan and all criteria for the
impaired classifcation had been remedied. For gross impaired debt
securities classifed as loans, subsequent to any recorded impairment,
interest income continued to be recognized using EIRM which was
used to discount the future cash fows for the purpose of measuring
the credit loss.
Renegotiated Loans
In cases where a borrower experienced fnancial diffculties the Bank
may have granted certain concessionary modifcations to the terms
and conditions of a loan. Modifcations may have included payment
deferrals, extension of amortization periods, rate reductions, principal
forgiveness, debt consolidation, forbearance and other modifcations
intended to minimize the economic loss and to avoid foreclosure or
repossession of collateral. The Bank had policies in place to determine
the appropriate remediation strategy based on the individual borrower.
Once modifed, additional impairment was recorded where the Bank
identifed a decrease in the modifed loan’s estimated realizable value
as a result of the modifcation. Modifed loans were assessed for
impairment, consistent with the Bank’s policies for impairment.
Allowance for Credit Losses, Excluding Acquired
Credit-Impaired Loans
The allowance for credit losses represented management’s best
estimate of impairment incurred in the lending portfolios, including
any off-balance sheet exposures, at the balance sheet date. The
allowance for loan losses, which included credit-related allowances for
residential mortgages, consumer instalment and other personal, credit
card, business and government loans, and debt securities classifed as
loans, was deducted from Loans on the Consolidated Balance Sheet.
The allowance for credit losses for off-balance sheet instruments,
which related to certain guarantees, letters of credit, and undrawn
lines of credit, was recognized in Other liabilities on the Consolidated
Balance Sheet. Allowances for lending portfolios reported on the
balance sheet and off-balance sheet exposures were calculated using
the same methodology. The allowance was increased by the provision
for credit losses and decreased by write-offs net of recoveries and
disposals. The Bank maintained both counterparty-specifc and
collectively assessed allowances. Each quarter, allowances were
reassessed and adjusted based on any changes in management’s
estimate of the future cash fows estimated to be recovered. Credit
losses on impaired loans were recognized by means of an allowance
for credit losses until a loan was written off.
A loan was written off against the related allowance for credit losses
when there was no realistic prospect of recovery. Non-retail loans were
generally written off when all reasonable collection efforts had been
exhausted, such as when a loan was sold, when all security had been
realized, or when all security had been resolved with the receiver or
bankruptcy court. Non-real estate secured retail loans were generally
written off when contractual payments were 180 days past due, or
when a loan was sold. Real-estate secured retail loans were generally
written off when the security was realized.
Counterparty-Specific Allowance
Individually signifcant loans, such as the Bank’s medium-sized business
and government loans and debt securities classifed as loans, were
assessed for impairment at the counterparty-specifc level. The
impairment assessment was based on the counterparty’s credit ratings,
overall fnancial condition, and where applicable, the realizable value
of the collateral. Collateral was reviewed at least annually and when
conditions arose indicating an earlier review was necessary. An
allowance, if applicable, was measured as the difference between the
carrying amount of the loan and the estimated recoverable amount.
The estimated recoverable amount was the present value of the
estimated future cash fows, discounted using the loan’s original EIR.
Collectively Assessed Allowance for Individually Insignificant
Impaired Loans
Individually insignifcant impaired loans, such as the Bank’s personal
and small business loans and credit cards, were collectively assessed
for impairment. Allowances were calculated using a formula that
incorporated recent loss experience, historical default rates which
were delinquency levels in interest or principal payments that indicated
impairment, other applicable observable data, and the type of
collateral pledged.
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
143
Collectively Assessed Allowance for Incurred but Not Identified
Credit Losses
If there was no objective evidence of impairment for an individual loan,
whether signifcant or not, the loan was included in a group of assets
with similar credit risk characteristics and collectively assessed for
impairment for losses incurred but not identifed. This allowance was
referred to as the allowance for incurred but not identifed credit
losses. The level of the allowance for each group depended upon
an assessment of business and economic conditions, historical loss
experience, loan portfolio composition, and other relevant indicators.
Historical loss experience was adjusted based on observable data
to refect the effects of conditions which existed at the time. The
allowance for incurred but not identifed credit losses was calculated
using credit risk models that considered probability of default (loss
frequency), loss given credit default (loss severity), and exposure at
default (EAD). For purposes of measuring the collectively assessed
allowance for incurred but not identifed credit losses, default was
defned as delinquency levels in interest or principal payments that
would indicate impairment.
Acquired Loans
Acquired loans were initially measured at fair value which considered
incurred and expected future credit losses estimated at the acquisition
date and also refected adjustments based on the acquired loan’s
interest rate in comparison to market rates. As a result, no allowance
for credit losses was recorded on the date of acquisition. When loans
were acquired with evidence of incurred credit loss where it was
probable at the purchase date that the Bank would be unable to
collect all contractually required principal and interest payments,
they were generally considered to be ACI loans.
Acquired performing loans were subsequently accounted for
at amortized cost based on their contractual cash fows and any
acquisition-related discount or premium was considered to be an
adjustment to the loan yield and recognized in interest income using
EIRM over the term of the loan, or the expected life of the loan for
acquired loans with revolving terms. Credit-related discounts relating
to incurred losses for acquired loans were not accreted. Acquired loans
were subject to impairment assessments under the Bank’s credit loss
framework similar to the Bank’s originated loan portfolio.
Acquired Credit-Impaired Loans
ACI loans were identifed as impaired at acquisition based on specifc
risk characteristics of the loans, including past due status, performance
history and recent borrower credit scores.
ACI loans were accounted for based on the present value of
expected cash fows as opposed to their contractual cash fows. The
Bank determined the fair value of these loans at the acquisition date
by discounting expected cash fows at a discount rate that refected
factors a market participant would use when determining fair value
including management assumptions relating to default rates, loss
severities, the amount and timing of prepayments, and other factors
that were refective of market conditions. With respect to certain
individually signifcant ACI loans, accounting was applied individually
at the loan level. The remaining ACI loans were aggregated provided
that they were acquired in the same fscal quarter and had common
risk characteristics. Aggregated loans were accounted for as a single
asset with aggregated cash fows and a single composite interest rate.
Subsequent to acquisition, the Bank regularly reassessed and
updated its cash fow estimates for changes to assumptions relating to
default rates, loss severities, the amount and timing of prepayments,
and other factors that were refective of market conditions. Probable
decreases in expected cash fows triggered the recognition of
additional impairment, which was measured based on the present
value of the revised expected cash fows discounted at the loan’s EIR as
compared to the carrying value of the loan. Impairment was recorded
through the provision for credit losses.
Probable and signifcant increases in expected cash fows would frst
reverse any previously taken impairment with any remaining increase
recognized in income immediately as interest income. In addition,
for fxed-rate ACI loans the timing of expected cash fows may have
increased or decreased which may have resulted in adjustments
through interest income to the carrying value in order to maintain
the inception yield of the ACI loan.
If the timing and/or amounts of expected cash fows on ACI
loans were determined not to be reasonably estimable, no interest
was recognized.
N O T E 3
SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES, AND ASSUMPTIONS
The estimates used in the Bank’s accounting policies are essential to
understanding its results of operations and fnancial condition. Some
of the Bank’s policies require subjective, complex judgments and
estimates as they relate to matters that are inherently uncertain.
Changes in these judgments or estimates and changes to accounting
standards and policies could have a materially adverse impact on the
Bank’s Consolidated Financial Statements. The Bank has established
procedures to ensure that accounting policies are applied consistently
and that the processes for changing methodologies, determining
estimates, and adopting new accounting standards are well-controlled
and occur in an appropriate and systematic manner.
CLASSIFICATION AND MEASUREMENT OF FINANCIAL ASSETS
Business Model Assessment
The Bank determines its business models based on the objective under
which its portfolios of fnancial assets are managed. Refer to Note 2
for details on the Bank’s business models. In determining its business
models, the Bank considers the following:
• Management’s intent and strategic objectives and the operation
of the stated policies in practice;
• The primary risks that affect the performance of the business model
and how these risks are managed;
• How the performance of the portfolio is evaluated and reported
to management; and
• The frequency and signifcance of fnancial asset sales in prior
periods, the reasons for such sales and the expected future
sales activities.
Sales in themselves do not determine the business model and are not
considered in isolation. Instead, sales provide evidence about how cash
fows are realized. A held-to-collect business model will be reassessed
by the Bank to determine whether any sales are consistent with an
objective of collecting contractual cash fows if the sales are more than
insignifcant in value or infrequent.
Solely Payments of Principal and Interest Test
In assessing whether contractual cash fows are SPPI, the Bank considers
the contractual terms of the instrument. This includes assessing
whether the fnancial asset contains a contractual term that could
change the timing or amount of contractual cash fows such that they
would not be consistent with a basic lending arrangement. In making
the assessment, the Bank considers the primary terms as follows
and assesses if the contractual cash fows of the instruments continue
to meet the SPPI test:
• Performance-linked features;
• Terms that limit the Bank’s claim to cash fows from specifed assets
(non-recourse terms);
144 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
• Prepayment and extension terms;
• Leverage features; and
• Features that modify elements of the time value of money.
IMPAIRMENT OF FINANCIAL ASSETS
Significant Increase in Credit Risk
For retail exposures, criteria for assessing signifcant increase in credit
risk are defned at the appropriate product or portfolio level and vary
based on the exposure’s credit risk at origination. The criteria include
relative changes in PD, absolute PD backstop, and delinquency
backstop when contractual payments are more than 30 days past due.
Credit risk has increased signifcantly since initial recognition when one
of the criteria is met.
For non-retail exposures, BRR is determined on an individual
borrower basis using industry and sector-specifc credit risk models
that are based on historical data. Current and forward-looking
information that is specifc to the borrower, industry, and sector is
considered based on expert credit judgment. Criteria for assessing
signifcant increase in credit risk are defned at the appropriate
segmentation level and vary based on the BRR of the exposure at
origination. Criteria include relative changes in BRR, absolute BRR
backstop, and delinquency backstop when contractual payments are
more than 30 days past due. Credit risk has increased signifcantly
since initial recognition when one of the criteria is met.
Measurement of Expected Credit Loss
For retail exposures, ECLs are calculated as the product of PD,
loss given default (LGD), and EAD at each time step over the remaining
expected life of the fnancial asset and discounted to the reporting
date at the effective interest rate. PD estimates represent the
point-in-time PD, updated quarterly based on the Bank’s historical
experience, current conditions, and relevant forward-looking
expectations over the expected life of the exposure to determine the
lifetime PD curve. LGD estimates are determined based on historical
charge-off events and recovery payments, current information about
attributes specifc to the borrower, and direct costs. Expected cash
fows from collateral, guarantees, and other credit enhancements are
incorporated in LGD if integral to the contractual terms. Relevant
macroeconomic variables are incorporated in determining expected
LGD. EAD represents the expected balance at default across
the remaining expected life of the exposure. EAD incorporates
forward-looking expectations about repayments of drawn balances
and expectations about future draws where applicable.
For non-retail exposures, ECLs are calculated based on the present
value of cash shortfalls determined as the difference between
contractual cash fows and expected cash fows over the remaining
expected life of the fnancial instrument. Lifetime PD is determined
by mapping the exposure’s BRR to point-in-time PD over the expected
life. LGD estimates are determined by mapping the exposure’s
facility risk rating (FRR) to expected LGD which takes into account
facility-specifc characteristics such as collateral, seniority ranking
of debt, and loan structure. Relevant macroeconomic variables
are incorporated in determining expected PD and LGD. Expected
cash fows are determined by applying the expected LGD to the
contractual cash fows to calculate cash shortfalls over the expected
life of the exposure.
Forward-Looking Information
In calculating the ECL, the Bank employs internally developed models
that utilize parameters for PD, LGD, and EAD. Forward-looking
macroeconomic factors including at the regional level are incorporated
in the risk parameters as relevant. Additional risk factors that are
industry or segment-specifc are also incorporated, where relevant.
Forward-looking macroeconomic forecasts are generated by
TD Economics as part of the ECL process: A base economic forecast
is accompanied with upside and downside estimates of realistically
possible economic conditions. All economic forecasts are updated
quarterly for each variable on a regional basis where applicable
and incorporated as relevant into the quarterly modelling of base,
upside and downside risk parameters used in the calculation of
ECL scenarios and probability-weighted ECL. The macroeconomic
variable estimations are statistically derived relative to the base forecast
based on the historical distribution of each variable. TD Economics
will apply judgment to recommend probability weights to each
forecast on a quarterly basis. The proposed macroeconomic forecasts
and probability weightings are subject to robust management review
and challenge process by a cross-functional committee that includes
representation from TD Economics, Risk, Finance, and Business. ECLs
calculated under each of the three forecasts are applied against the
respective probability weightings to determine the probability-weighted
ECLs. Refer to Note 8 for further details on the macroeconomic
variables and ECL sensitivity.
Expert Credit Judgment
ECLs are recognized on initial recognition of the fnancial assets.
Allowance for credit losses represents management’s best estimate of
the risk of default and ECLs on the fnancial assets, including any
off-balance sheet exposures, at the balance sheet date. Management
exercises expert credit judgment in assessing if an exposure has
experienced signifcant increase in credit risk since initial recognition
and in determining the amount of ECLs at each reporting date by
considering reasonable and supportable information that is not already
included in the quantitative models.
Management’s judgment is used to determine the point within the
range that is the best estimate for the qualitative component
contributing to ECLs, based on an assessment of business and
economic conditions, historical loss experience, loan portfolio
composition, and other relevant indicators and forward-looking
information that are not fully incorporated into the model calculation.
Changes in these assumptions would have a direct impact on the
provision for credit losses and may result in a change in the allowance
for credit losses.
FAIR VALUE MEASUREMENTS
The fair value of fnancial instruments traded in active markets at the
balance sheet date is based on their quoted market prices. For all other
fnancial instruments not traded in an active market, fair value may be
based on other observable current market transactions involving the
same or similar instruments, without modifcation or repackaging, or is
based on a valuation technique which maximizes the use of observable
market inputs. Observable market inputs may include interest rate
yield curves, foreign exchange rates, and option volatilities. Valuation
techniques include comparisons with similar instruments where
observable market prices exist, discounted cash fow analysis, option
pricing models, and other valuation techniques commonly used by
market participants.
For certain complex or illiquid fnancial instruments, fair value is
determined using valuation techniques in which current market
transactions or observable market inputs are not available. Determining
which valuation technique to apply requires judgment. The valuation
techniques themselves also involve some level of estimation and
judgment. The judgments include liquidity considerations and model
inputs such as volatilities, correlations, spreads, discount rates,
pre-payment rates, and prices of underlying instruments. Any
imprecision in these estimates can affect the resulting fair value.
Judgment is also used in recording fair value adjustments to model
valuations to account for measurement uncertainty when valuing
complex and less actively traded fnancial instruments. If the market for
a complex fnancial instrument develops, the pricing for this instrument
may become more transparent, resulting in refnement of valuation
models. For example, IBOR reform may also have an impact on the
fair value of products that reference or use valuation models with
IBOR inputs.
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
145
An analysis of fair values of fnancial instruments and further details
as to how they are measured are provided in Note 5.
DERECOGNITION
Certain assets transferred may qualify for derecognition from the
Bank’s Consolidated Balance Sheet. To qualify for derecognition
certain key determinations must be made. A decision must be made
as to whether the rights to receive cash fows from the fnancial assets
have been retained or transferred and the extent to which the risks
and rewards of ownership of the fnancial assets have been retained or
transferred. If the Bank neither transfers nor retains substantially all of
the risks and rewards of ownership of the fnancial asset, a decision
must be made as to whether the Bank has retained control of the
fnancial asset. Upon derecognition, the Bank will record a gain or loss
on sale of those assets which is calculated as the difference between
the carrying amount of the asset transferred and the sum of any cash
proceeds received, including any fnancial asset received or fnancial
liability assumed, and any cumulative gain or loss allocated to the
transferred asset that had been recognized in AOCI. In determining the
fair value of any fnancial asset received, the Bank estimates future
cash fows by relying on estimates of the amount of interest that will
be collected on the securitized assets, the yield to be paid to investors,
the portion of the securitized assets that will be prepaid before their
scheduled maturity, ECLs, the cost of servicing the assets, and the rate
at which to discount these expected future cash fows. Actual cash
fows may differ signifcantly from those estimated by the Bank.
Retained interests are classifed as trading securities and are initially
recognized at relative fair value on the Bank’s Consolidated Balance
Sheet. Subsequently, the fair value of retained interests recognized by
the Bank is determined by estimating the present value of future
expected cash fows. Differences between the actual cash fows and
the Bank’s estimate of future cash fows are recognized in trading
income. These assumptions are subject to periodic review and may
change due to signifcant changes in the economic environment.
GOODWILL AND OTHER INTANGIBLES
The recoverable amount of the Bank’s CGUs is determined from
internally developed valuation models that consider various factors and
assumptions such as forecasted earnings, growth rates, price-earnings
multiples, discount rates, and terminal multiples. Management is
required to use judgment in estimating the recoverable amount of
CGUs, and the use of different assumptions and estimates in the
calculations could infuence the determination of the existence of
impairment and the valuation of goodwill. Management believes that
the assumptions and estimates used are reasonable and supportable.
Where possible, assumptions generated internally are compared to
relevant market information. The carrying amounts of the Bank’s CGUs
are determined by management using risk based capital models to
adjust net assets and liabilities by CGU. These models consider various
factors including market risk, credit risk, and operational risk, including
investment capital (comprised of goodwill and other intangibles). Any
capital not directly attributable to the CGUs is held within the
Corporate segment. The Bank’s capital oversight committees provide
oversight to the Bank’s capital allocation methodologies.
EMPLOYEE BENEFITS
The projected beneft obligation and expense related to the Bank’s
pension and non-pension post-retirement beneft plans are determined
using multiple assumptions that may signifcantly infuence the value
of these amounts. Actuarial assumptions including discount rates,
compensation increases, health care cost trend rates, and mortality
rates are management’s best estimates and are reviewed annually
with the Bank’s actuaries. The Bank develops each assumption
using relevant historical experience of the Bank in conjunction
with market-related data and considers if the market-related data
indicates there is any prolonged or signifcant impact on the
assumptions. The discount rate used to value liabilities is determined
by reference to market yields on high-quality corporate bonds with
terms matching the plans’ specifc cash fows. The other assumptions
are also long-term estimates. All assumptions are subject to a degree
of uncertainty. Differences between actual experiences and the
assumptions, as well as changes in the assumptions resulting from
changes in future expectations, result in actuarial gains and losses
which are recognized in other comprehensive income during the year
and also impact expenses in future periods.
INCOME TAXES
The Bank is subject to taxation in numerous jurisdictions. There are
many transactions and calculations in the ordinary course of business
for which the ultimate tax determination is uncertain. The Bank
maintains provisions for uncertain tax positions that it believes
appropriately refect the risk of tax positions under discussion, audit,
dispute, or appeal with tax authorities, or which are otherwise
considered to involve uncertainty. These provisions are made using
the Bank’s best estimate of the amount expected to be paid based on
an assessment of all relevant factors, which are reviewed at the end
of each reporting period. However, it is possible that at some future
date, an additional liability could result from audits by the relevant
taxing authorities.
Deferred tax assets are recognized only when it is probable that
suffcient taxable proft will be available in future periods against
which deductible temporary differences may be utilized. The amount
of the deferred tax asset recognized and considered realizable could,
however, be reduced if projected income is not achieved due to
various factors, such as unfavourable business conditions. If projected
income is not expected to be achieved, the Bank would decrease its
deferred tax assets to the amount that it believes can be realized. The
magnitude of the decrease is signifcantly infuenced by the Bank’s
forecast of future proft generation, which determines the extent to
which it will be able to utilize the deferred tax assets.
PROVISIONS
Provisions arise when there is some uncertainty in the timing or
amount of a loss in the future. Provisions are based on the Bank’s best
estimate of all expenditures required to settle its present obligations,
considering all relevant risks and uncertainties, as well as, when
material, the effect of the time value of money.
Many of the Bank’s provisions relate to various legal actions that
the Bank is involved in during the ordinary course of business. Legal
provisions require the involvement of both the Bank’s management
and legal counsel when assessing the probability of a loss and
estimating any monetary impact. Throughout the life of a provision,
the Bank’s management or legal counsel may learn of additional
information that may impact its assessments about the probability
of loss or about the estimates of amounts involved. Changes in
these assessments may lead to changes in the amount recorded
for provisions. In addition, the actual costs of resolving these claims
may be substantially higher or lower than the amounts recognized.
The Bank reviews its legal provisions on a case-by-case basis after
considering, among other factors, the progress of each case, the
Bank’s experience, the experience of others in similar cases, and the
opinions and views of legal counsel.
Certain of the Bank’s provisions relate to restructuring initiatives
initiated by the Bank. Restructuring provisions require management’s
best estimate, including forecasts of economic conditions. Throughout
the life of a provision, the Bank may become aware of additional
information that may impact the assessment of amounts to be
incurred. Changes in these assessments may lead to changes in the
amount recorded for provisions.
INSURANCE
The assumptions used in establishing the Bank’s insurance claims
and policy beneft liabilities are based on best estimates of
possible outcomes.
146 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
For property and casualty insurance, the ultimate cost of claims
liabilities is estimated using a range of standard actuarial claims
projection techniques in accordance with Canadian accepted actuarial
practices. Additional qualitative judgment is used to assess the extent
to which past trends may or may not apply in the future, in order to
arrive at the estimated ultimate claims cost that present the most likely
outcome taking account of all the uncertainties involved.
For life and health insurance, actuarial liabilities consider all future
policy cash fows, including premiums, claims, and expenses required
to administer the policies. Critical assumptions used in the
measurement of life and health insurance contract liabilities are
determined by the appointed actuary.
Further information on insurance risk assumptions is provided in
Note 22.
CONSOLIDATION OF STRUCTURED ENTITIES
Management judgment is required when assessing whether the Bank
should consolidate an entity. For instance, it may not be feasible to
determine if the Bank controls an entity solely through an assessment
of voting rights for certain structured entities. In this case, judgment is
required to establish whether the Bank has decision-making power
over the key relevant activities of the entity and whether the Bank has
the ability to use that power to absorb signifcant variable returns from
the entity. If it is determined that the Bank has both decision-making
power and signifcant variable returns from the entity, judgment is
also used to determine whether any such power is exercised by
the Bank as principal, on its own behalf, or as agent, on behalf of
another counterparty.
Assessing whether the Bank has decision-making power includes
understanding the purpose and design of the entity in order to
determine its key economic activities. In this context, an entity’s key
economic activities are those which predominantly impact the
economic performance of the entity. When the Bank has the current
ability to direct the entity’s key economic activities, it is considered to
have decision-making power over the entity.
The Bank also evaluates its exposure to the variable returns of
a structured entity in order to determine if it absorbs a signifcant
proportion of the variable returns the entity is designed to create.
As part of this evaluation, the Bank considers the purpose and design
of the entity in order to determine whether it absorbs variable returns
from the structured entity through its contractual holdings, which
may take the form of securities issued by the entity, derivatives with
the entity, or other arrangements such as guarantees, liquidity
facilities, or lending commitments.
If the Bank has decision-making power over the entity and absorbs
signifcant variable returns from the entity, it then determines if it is
acting as principal or agent when exercising its decision-making
power. Key factors considered include the scope of its decision-making
powers; the rights of other parties involved with the entity, including
any rights to remove the Bank as decision-maker or rights to
participate in key decisions; whether the rights of other parties are
exercisable in practice; and the variable returns absorbed by the Bank
and by other parties involved with the entity. When assessing
consolidation, a presumption exists that the Bank exercises decision-
making power as principal if it is also exposed to signifcant variable
returns, unless an analysis of the factors above indicates otherwise.
The decisions above are made with reference to the specifc facts
and circumstances relevant for the structured entity and related
transaction(s) under consideration.
REVENUE FROM CONTRACTS WITH CUSTOMERS
The Bank applies judgment to determine the timing of satisfaction
of performance obligations which affects the timing of revenue
recognition, by evaluating the pattern in which the Bank transfers
control of services promised to the customer. A performance
obligation is satisfed over time when the customer simultaneously
receives and consumes the benefts as the Bank performs the service.
For performance obligations satisfed over time, revenue is generally
recognized using the time-elapsed method which is based on time
elapsed in proportion to the period over which the service is provided,
for example, personal deposit account bundle fees. The time-elapsed
method is a faithful depiction of the transfer of control for these
services as control is transferred evenly to the customer when the Bank
provides a stand-ready service or effort is expended evenly by the Bank
to provide a service over the contract period. In contracts where the
Bank has a right to consideration from a customer in an amount that
corresponds directly with the value to the customer of the Bank’s
performance completed to date, the Bank recognizes revenue in the
amount to which it has a right to invoice.
The Bank satisfes a performance obligation at a point in time if
the customer obtains control of the promised services at that date.
Determining when control is transferred requires the use of judgment.
For transaction-based services, the Bank determines that control is
transferred to the customer at a point in time when the customer
obtains substantially all of the benefts from the service rendered and
the Bank has a present right to payment, which generally coincides
with the moment the transaction is executed.
The Bank exercises judgment in determining whether costs incurred
in connection with acquiring new revenue contracts would meet the
requirement to be capitalized as incremental costs to obtain or fulfl
a contract with customers.
IMPAIRMENT OF FINANCIAL ASSETS PRIOR TO
NOVEMBER 1, 2017 UNDER IAS 39
The following is applicable to periods prior to November 1, 2017 for
fnancial instruments accounted for under IAS 39.
Available-for-Sale Securities
Impairment losses were recognized on AFS securities if there was
objective evidence of impairment as a result of one or more events
that occurred after initial recognition and the loss event(s) resulted in
a decrease in the estimated cash fows of the instrument. The Bank
individually reviewed these securities at least quarterly for the presence
of these conditions. For AFS equity securities, a signifcant or prolonged
decline in fair value below cost was considered objective evidence
of impairment. For AFS debt securities, a deterioration of credit quality
was considered objective evidence of impairment. Other factors
considered in the impairment assessment included fnancial position
and key fnancial indicators of the issuer of the instrument, signifcant
past and continued losses of the issuer, as well as breaches of contract,
including default or delinquency in interest payments and loan
covenant violations.
Held-to-Maturity Securities
Impairment losses were recognized on held-to-maturity securities if
there was objective evidence of impairment as a result of one or more
events that occurred after initial recognition and the loss event(s)
resulted in a decrease in the estimated cash fows of the instrument.
The Bank reviewed these securities at least quarterly for impairment
at the counterparty-specifc level. If there was no objective evidence
of impairment at the counterparty-specifc level then the security
was grouped with other held-to-maturity securities with similar credit
risk characteristics and collectively assessed for impairment, which
considered losses incurred but not identifed. A deterioration of credit
quality was considered objective evidence of impairment. Other factors
considered in the impairment assessment included the fnancial
position and key fnancial indicators of the issuer, signifcant past
and continued losses of the issuer, as well as breaches of contract,
including default or delinquency in interest payments and loan
covenant violations.
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
147
Loans
A loan, including a debt security classifed as a loan, was considered
impaired when there was objective evidence that there had been a
deterioration of credit quality subsequent to the initial recognition of
the loan to the extent the Bank no longer had reasonable assurance
as to the timely collection of the full amount of principal and interest.
The Bank assessed loans for objective evidence of impairment
individually for loans that were individually signifcant, and collectively
for loans that were not individually signifcant. The allowance for
credit losses represented management’s best estimate of impairment
incurred in the lending portfolios, including any off-balance sheet
exposures, at the balance sheet date. Management exercised judgment
as to the timing of designating a loan as impaired, the amount of the
allowance required, and the amount that would be recovered once
the borrower defaulted. Changes in the amount that management
expected to recover would have a direct impact on the provision for
credit losses and may have resulted in a change in the allowance
for credit losses.
If there was no objective evidence of impairment for an individual
loan, whether signifcant or not, the loan was included in a group of
assets with similar credit risk characteristics and collectively assessed
for impairment for losses incurred but not identifed. In calculating the
probable range of allowance for incurred but not identifed credit
losses, the Bank employed internally developed models that utilized
parameters for PD, LGD, and EAD. Management’s judgment was used
to determine the point within the range that was the best estimate of
losses, based on an assessment of business and economic conditions,
historical loss experience, loan portfolio composition, and other
relevant indicators that were not fully incorporated into the model
calculation. Changes in these assumptions would have a direct impact
on the provision for credit losses and may have resulted in a change
in the incurred but not identifed allowance for credit losses.
N O T E 4
CURRENT AND FUTURE CHANGES IN ACCOUNTING POLICIES
CURRENT CHANGES IN ACCOUNTING POLICIES
The following new and amended standards have been adopted
by the Bank.
IBOR Reform and its Effects on Financial Reporting
As a result of the effects of Interbank Offered Rates (IBOR) reform, on
September 26, 2019, the IASB issued Interest Rate Benchmark Reform,
Amendments to IFRS 9, IAS 39, and IFRS 7, of which the Bank adopted
the applicable amendments to IFRS 7 relating to hedge accounting
and will apply the remaining amendments related to IAS 39 as and
when applicable to the Bank’s hedging relationships. The amendments
provide temporary exceptions from applying specifc hedge accounting
requirements to all hedging relationships directly affected by interest
rate benchmark reform. Under the amendments, entities would apply
hedge accounting requirements assuming that the interest rate
benchmark is not altered, thereby enabling hedge accounting to
continue during the period of uncertainty prior to the replacement
of an existing interest rate benchmark with an alternative benchmark
rate. The amendments also provide an exception from the requirement
to discontinue hedge accounting if the actual results of the hedge do
not meet the effectiveness requirements as a result of interest rate
benchmark reform. Amendments were also made to IFRS 7 introducing
additional disclosures related to amended IAS 39. Refer to Notes 2
and 11 for further details.
Revenue from Contracts with Customers
On November 1, 2018, the Bank adopted IFRS 15, Revenue from
Contracts with Customers (IFRS 15), which establishes the principles
for recognizing revenue and cash fows arising from contracts with
customers and prescribes the application of a fve-step recognition and
measurement model. The standard excludes from its scope, revenue
arising from items such as fnancial instruments, insurance contracts,
and leases. The Bank adopted the standard on a modifed retrospective
basis, recognizing the cumulative effect of initially applying the
standard as an adjustment to opening retained earnings without
restating comparative period fnancial information.
The adoption of IFRS 15 resulted in a reduction to Shareholders’
Equity of $41 million related to certain expenses not eligible for
deferral under IFRS 15. The presentation of certain revenue and
expense items is changed due to IFRS 15 and reclassifed prospectively.
These presentation changes are not signifcant and do not have an
impact on net income.
In addition to the above changes related to the adoption of IFRS 15,
the Bank also changed its accounting policy on securities lending and
borrowing transactions. Where securities are received or pledged
as collateral, securities lending income and securities borrowing fees
are recorded in Non-interest income and Non-interest expenses,
respectively, on the Consolidated Statement of Income. This change
has been applied retrospectively.
Share-based Payment
In June 2016, the IASB published amendments to IFRS 2, Share-based
Payment (IFRS 2), which provide additional guidance on the
classifcation 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
classifcation of share-based payment transactions with net settlement
features for withholding tax obligations, and the accounting for
modifcations 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 was
November 1, 2018 for the Bank. These amendments have been applied
prospectively and did not have a signifcant impact on the Bank.
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 Consolidated Financial Statements.
The Bank is currently assessing the impact of the application of these
standards on the Consolidated Financial Statements and will adopt
these standards when they become effective.
Leases
In January 2016, the IASB issued IFRS 16, Leases (IFRS 16), which will
replace IAS 17, Leases, introducing a single lessee accounting model
for all leases by eliminating the distinction between operating and
fnancing leases. IFRS 16 requires lessees to recognize right-of-use
assets and lease liabilities for most leases on the balance sheet. Lessees
will also recognize depreciation expense on the right-of-use asset,
interest expense on the lease liability, and a shift in the timing of
expense recognition in the statement of income. Short-term leases,
which are defned as those that have a lease term of twelve 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. The Bank will adopt the new standard using the modifed
148 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
retrospective approach by recognizing the cumulative effect of
the transitional impact in opening retained earnings within the
Consolidated Balance Sheet at November 1, 2019, with no restatement
of the comparative periods. The Bank’s IFRS 16 program is governed
by a formal multi-functional enterprise-wide governance structure and
project delivery plan. Additional processes and internal controls over
fnancial reporting have also been developed.
In adopting IFRS 16, the Bank will apply certain practical expedients
as permitted by IFRS 16, including: using hindsight to determine the
lease term where lease contracts contain options to extend or terminate
a lease, measuring the right-of-use asset retrospectively on a selection
of leases, not reassessing under IFRS 16, contracts that were previously
identifed as leases under the previous accounting standards (IAS 17,
Leases, and IFRIC 4, Determining whether an arrangement contains
a lease), and applying the exemption for short-term leases to
be expensed.
The Bank’s real estate leases, previously classifed as operating
leases, will be impacted the most by the adoption of IFRS 16. The Bank
also leases certain equipment and other assets under similar payment
terms. On November 1, 2019, the Bank estimates increases of
$4.4 billion of new right-of-use assets, $5.5 billion of lease liabilities,
and other balance sheet adjustments and reclassifcations of
$0.6 billion. The decrease of retained earnings is approximately
$0.5 billion after tax. Based on the current regulatory requirements,
the expected impact to Common Equity Tier 1 (CET1) capital is a
decrease of 24 basis points (bps).
Insurance Contracts
In May 2017, the IASB issued IFRS 17, Insurance Contracts (IFRS 17),
which replaces the guidance in IFRS 4, Insurance Contracts and
establishes principles for recognition, measurement, presentation,
and disclosure of insurance contracts. IFRS 17 is currently effective for
the Bank’s annual reporting period beginning November 1, 2021. In
June 2019, the IASB issued an Exposure Draft which proposes targeted
amendments to IFRS 17 including, amongst other matters, a deferral
of the effective date by one year. It is expected that the IASB will
fnalize the amendments to the standard in mid-2020. Any change
to the Bank’s effective date is subject to updates of OSFI’s related
Advisory. The Bank is currently in the fnal stages of its planning
activities, which includes developing the project plan based on results
from business impact assessments, reviewing resource requirements
to support this approach, and monitoring the impact of IASB changes
to the IFRS 17 standard.
Uncertainty over Income Tax Treatments
In June 2017, the IASB issued IFRIC Interpretation 23, Uncertainty over
Income Tax Treatments, which clarifes application of recognition and
measurement requirements in IAS 12, Income Taxes, when there is
uncertainty over income tax treatments. The interpretation is effective
for annual periods beginning on or after January 1, 2019, which will
be November 1, 2019 for the Bank. The interpretation can be applied
using either full retrospective application or modifed retrospective
application without restatement of comparatives and is not expected
to have a signifcant impact on the Bank.
Conceptual Framework for Financial Reporting
In March 2018, the IASB issued the revised Conceptual Framework
for Financial Reporting (Revised Conceptual Framework), which
provides a set of concepts to assist the IASB in developing standards
and to help preparers consistently apply accounting policies where
specifc accounting standards do not exist. The framework is not an
accounting standard and does not override the requirements that exist
in other IFRS standards. The Revised Conceptual Framework describes
that fnancial information must be relevant and faithfully represented
to be useful, provides revised defnitions and recognition criteria for
assets and liabilities, and confrms that different measurement bases
are useful and permitted. The Revised Conceptual Framework is
effective for annual periods beginning on or after January 1, 2020,
which will be November 1, 2020 for the Bank, with early adoption
permitted. The Bank is currently assessing the impact of adopting the
revised framework.
Business Combinations
In October 2018, the IASB issued a narrow-scope amendment to IFRS 3,
Business Combinations (IFRS 3). The amendments provide additional
guidance on the defnition of a business which determines whether
an acquisition is of a business or a group of assets. An acquirer
recognizes goodwill only when acquiring a business, not when
acquiring a group of assets. The amendments to IFRS 3 are effective
for annual reporting periods beginning on or after January 1, 2020,
which will be November 1, 2020 for the Bank, with early adoption
permitted and is to be applied prospectively. The Bank will assess the
impact of the amendments on future acquisitions.
Presentation of Financial Statements and Accounting Policies,
Changes in Accounting Estimates and Errors
In October 2018, the IASB issued amendments to IAS 1, Presentation
of Financial Statements and IAS 8, Accounting Policies, Changes in
Accounting Estimates and Errors, which clarify the defnition of
“material”. Specifcally, the amendments clarify that information is
material if omitting, misstating, or obscuring it could reasonably be
expected to infuence the decisions that the primary users of general
purpose fnancial statements make on the basis of those fnancial
statements. Accompanying explanations to the defnition have also
been clarifed. The amendments are effective for annual periods
beginning on or after January 1, 2020, which will be November 1, 2020
for the Bank, and are to be applied prospectively with early application
permitted. The Bank is currently assessing the impact of adopting
these amendments.
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
149
N O T E 5
FAIR VALUE MEASUREMENTS
Certain assets and liabilities, primarily fnancial instruments, are
carried on the balance sheet at their fair value on a recurring basis.
These fnancial instruments include trading loans and securities,
non-trading fnancial assets at FVTPL, assets and liabilities designated
at FVTPL, fnancial assets at FVOCI, derivatives, certain securities
purchased under reverse repurchase agreements, certain deposits
classifed 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 fnancial assets
and fnancial liabilities are carried at amortized cost.
VALUATION GOVERNANCE
Valuation processes are guided by policies and procedures that are
approved by senior management and subject matter experts. Senior
Executive oversight over the valuation process is provided through
various valuation-related committees. Further, the Bank has a number
of additional controls in place, including an independent price
verifcation process to ensure the accuracy of fair value measurements
reported in the fnancial statements. The sources used for independent
pricing comply with the standards set out in the approved valuation-
related policies, which include consideration of the reliability,
relevancy, and timeliness of data.
METHODS AND ASSUMPTIONS
The Bank calculates fair values for measurement and disclosure purposes
based on the following methods of valuation and assumptions:
Government and Government-Related Securities
The fair value of Canadian government debt securities is based on
quoted prices in active markets, where available. Where quoted prices
are not available, valuation techniques such as discounted cash fow
models may be used, which maximize the use of observable inputs
such as government bond yield curves.
The fair value of U.S. federal and state government, as well as
agency debt securities, is determined by reference to recent
transaction prices, broker quotes, or third-party vendor prices. Brokers
or third-party vendors may use a pool-specifc valuation model to
value these securities. Observable market inputs to the model include
to-be-announced market prices, the applicable indices, and metrics
such as the coupon, maturity, and weighted-average maturity of the
pool. Market inputs used in the valuation model include, but are not
limited to, indexed yield curves and trading spreads.
The fair value of residential mortgage-backed securities (MBS) is
based on broker quotes, third-party vendor prices, or other valuation
techniques, such as the use of option-adjusted spread models which
include inputs such as prepayment rate assumptions related to the
underlying collateral. Observable inputs include, but are not limited to,
indexed yield curves and bid-ask spreads. Other inputs may include
volatility assumptions derived using Monte Carlo simulations and take
into account factors such as counterparty credit quality and liquidity.
Other Debt Securities
The fair value of corporate and other debt securities is based on broker
quotes, third-party vendor prices, or other valuation techniques, such
as discounted cash fow techniques. Market inputs used in the other
valuation techniques or underlying third-party vendor prices or broker
quotes include benchmark and government bond yield curves, credit
spreads, and trade execution data.
Asset-backed securities are primarily fair valued using third-party
vendor prices. The third-party vendor employs a valuation model which
maximizes the use of observable inputs such as benchmark yield curves
and bid-ask spreads. The model also takes into account relevant data
about the underlying collateral, such as weighted-average terms to
maturity and prepayment rate assumptions.
Equity Securities
The fair value of equity securities is based on quoted prices in active
markets, where available. Where quoted prices in active markets are
not readily available, such as for private equity securities, or where
there is a wide bid-offer spread, fair value is determined based on
quoted market prices for similar securities or through valuation
techniques, including discounted cash fow analysis, and multiples
of earnings before taxes, depreciation and amortization, and other
relevant valuation techniques.
If there are trading restrictions on the equity security held, a valuation
adjustment is recognized against available prices to refect the nature of
the restriction. However, restrictions that are not part of the security
held and represent a separate contractual arrangement that has been
entered into by the Bank and a third party do not impact the fair value
of the original instrument.
Retained Interests
Retained interests are classifed as trading securities and are initially
recognized at their relative fair market value. Subsequently, the fair
value of retained interests recognized by the Bank is determined by
estimating the present value of future expected cash fows. Differences
between the actual cash fows and the Bank’s estimate of future cash
fows are recognized in income. These assumptions are subject to
periodic review and may change due to signifcant changes in the
economic environment.
Loans
The estimated fair value of loans carried at amortized cost refects
changes in market price that have occurred since the loans were
originated or purchased. For fxed-rate performing loans, estimated
fair value is determined by discounting the expected future cash fows
related to these loans at current market interest rates for loans with
similar credit risks. For foating-rate performing loans, changes in
interest rates have minimal impact on fair value since loans reprice to
market frequently. On that basis, fair value is assumed to approximate
carrying value. The fair value of loans is not adjusted for the value of
any credit protection the Bank has purchased to mitigate credit risk.
The fair value of loans carried at FVTPL, which includes trading loans
and loans designated at FVTPL, is determined using observable market
prices, where available. Where the Bank is a market maker for loans
traded in the secondary market, fair value is determined using
executed prices, or prices for comparable trades. For those loans where
the Bank is not a market maker, the Bank obtains broker quotes from
other reputable dealers, and corroborates this information using
valuation techniques or by obtaining consensus or composite prices
from pricing services.
The fair value of loans carried at FVOCI is assumed to approximate
amortized cost as they are generally foating rate performing loans that
are short term in nature.
150 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
Commodities
The fair value of commodities is based on quoted prices in active
markets, where available. The Bank also transacts commodity
derivative contracts which can be traded on an exchange or in
OTC markets.
Derivative Financial Instruments
The fair value of exchange-traded derivative fnancial instruments
is based on quoted market prices. The fair value of OTC derivative
fnancial instruments is estimated using well established valuation
techniques, such as discounted cash fow techniques, the Black-Scholes
model, and Monte Carlo simulation. The valuation models incorporate
inputs that are observable in the market or can be derived from
observable market data.
Prices derived by using models are recognized net of valuation
adjustments. The inputs used in the valuation models depend on the
type of derivative and the nature of the underlying instrument and are
specifc to the instrument being valued. Inputs can include, but are not
limited to, interest rate yield curves, foreign exchange rates, dividend
yield projections, commodity spot and forward prices, recovery rates,
volatilities, spot prices, and correlation.
A credit risk valuation adjustment (CRVA) is recognized against the
model value of OTC derivatives to account for the uncertainty that
either counterparty in a derivative transaction may not be able to fulfl
its obligations under the transaction. In determining CRVA, the Bank
takes into account master netting agreements and collateral, and
considers the creditworthiness of the counterparty and the Bank itself,
in assessing potential future amounts owed to, or by the Bank.
The fair value of a derivative is partly a function of collateralization.
The Bank uses the relevant overnight index swap curve to discount the
cash fows for collateralized derivatives as most collateral is posted in
cash and can be funded at the overnight rate.
A funding valuation adjustment (FVA) is recognized against the
model value of OTC derivatives to recognize the market implied
funding costs and benefts considered in the pricing and fair valuation
of uncollateralized derivatives. Some of the key drivers of FVA include
the market implied funding spread and the expected average exposure
by counterparty.
The Bank will continue to monitor industry practice on valuation
adjustments and may refne the methodology as market practices evolve.
Deposits
The estimated fair value of term deposits is determined by discounting
the contractual cash fows using interest rates currently offered for
deposits with similar terms.
For deposits with no defned maturities, the Bank considers fair
value to equal carrying value, which is equivalent to the amount
payable on the balance sheet date.
For trading deposits and deposits designated at FVTPL, which
is included in fnancial liabilities designated at FVTPL, fair value is
determined using discounted cash fow valuation techniques which
maximize the use of observable market inputs such as benchmark yield
curves and foreign exchange rates. The Bank considers the impact of
its own creditworthiness in the valuation of these deposits by reference
to observable market inputs.
Securitization Liabilities
The fair value of securitization liabilities is based on quoted market
prices or quoted market prices for similar fnancial instruments,
where available. Where quoted prices are not available, fair value
is determined using valuation techniques, which maximize the use
of observable inputs, such as Canada Mortgage Bond (CMB) curves
and MBS curves.
Obligations Related to Securities Sold Short
The fair value of these obligations is based on the fair value of the
underlying securities, which can include equity or debt securities. As
these obligations are fully collateralized, the method used to determine
fair value would be the same as that of the relevant underlying equity
or debt securities.
Securities Purchased Under Reverse Repurchase Agreements
and Obligations Related to Securities Sold Under
Repurchase Agreements
Commodities and bonds purchased or sold with an agreement to
sell or repurchase them at a later date at a fxed price are carried at
fair value. The fair value of these agreements is based on valuation
techniques such as discounted cash fow models which maximize the
use of observable market inputs such as interest rate swap curves
and commodity forward prices.
Subordinated Notes and Debentures
The fair value of subordinated notes and debentures are based on
quoted market prices for similar issues or current rates offered to the
Bank for debt of equivalent credit quality and remaining maturity.
Portfolio Exception
IFRS 13, Fair Value Measurement provides a measurement exception
that allows an entity to determine the fair value of a group of fnancial
assets and liabilities with offsetting risks based on the sale or transfer
of its net exposure to a particular risk or risks. The Bank manages
certain fnancial assets and fnancial liabilities, such as derivative assets
and derivative liabilities on the basis of net exposure and applies the
portfolio exception when determining the fair value of these fnancial
assets and fnancial liabilities.
Fair Value of Assets and Liabilities not carried at Fair Value
The fair value of assets and liabilities subsequently not carried at
fair value include most loans, most deposits, certain securitization
liabilities, most securities purchased under reverse repurchase
agreements, most obligations relating to securities sold under
repurchase agreements, and subordinated notes and debentures.
For these instruments, fair values are calculated for disclosure purposes
only, and the valuation techniques are disclosed above. In addition,
the Bank has determined that the carrying value approximates the fair
value for the following assets and liabilities as they are usually liquid
foating rate fnancial instruments and are generally short term in
nature: cash and due from banks, interest-bearing deposits with
banks, securities purchased under reverse repurchase agreements,
customers’ liability under acceptances, amounts receivable from
brokers, dealers, and clients, other assets, acceptances, obligations
related to securities sold under repurchase agreements, amounts
payable to brokers, dealers, and clients, and other liabilities.
Carrying Value and Fair Value of Financial Instruments not
carried at Fair Value
The fair values in the following table exclude assets that are
not fnancial instruments, such as land, buildings and equipment,
as well as goodwill and other intangible assets, including customer
relationships, which are of signifcant value to the Bank.
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
151
Financial Assets and Liabilities not carried at Fair Value1
(millions of Canadian dollars)
FINANCIAL ASSETS
Debt securities at amortized cost, net of allowance for credit losses
Government and government-related securities
Other debt securities
Total debt securities at amortized cost, net of allowance for credit losses
Total loans, net of allowance for loan losses
Total fnancial assets not carried at fair value
FINANCIAL LIABILITIES
Deposits
Securitization liabilities at amortized cost
Subordinated notes and debentures
Total fnancial liabilities not carried at fair value
1 This table excludes financial assets and liabilities where the carrying amount is
a reasonable approximation of fair value.
October 31, 2019
October 31, 2018
Carrying value
Fair value
Carrying value
Fair value
As at
$ 78,275
52,222
130,497
684,608
$ 815,105
$ 78,374
52,370
130,744
688,154
$ 818,898
$ 60,535
46,636
107,171
646,393
$ 753,564
$ 59,948
46,316
106,264
642,542
$ 748,806
$ 886,977
14,086
10,725
$ 911,788
$ 892,597
14,258
11,323
$ 918,178
$ 851,439
14,683
8,740
$ 874,862
$ 846,148
14,654
9,027
$ 869,829
Fair Value Hierarchy
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. The three levels
are defned as follows:
Level 1: Fair value is based on quoted market prices for identical
assets or liabilities that are traded in an active exchange market or
highly liquid and actively traded in OTC markets.
Level 2: Fair value is based on observable inputs other than Level 1
prices, such as quoted market prices for similar (but not identical)
assets or liabilities in active markets, quoted market prices for identical
assets or liabilities in markets that are not active, and other inputs that
are observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities. Level 2 assets and
liabilities include debt securities with quoted prices that are traded less
frequently than exchange-traded instruments and derivative contracts
whose value is determined using valuation techniques with inputs that
are observable in the market or can be derived principally from or
corroborated by observable market data.
Level 3: Fair value is based on non-observable inputs that are
supported by little or no market activity and that are signifcant to the
fair value of the assets or liabilities. Financial instruments classifed
within Level 3 of the fair value hierarchy are initially recognized at their
transaction price, which is considered the best estimate of fair value.
After initial measurement, the fair value of Level 3 assets and liabilities
is determined using valuation models, discounted cash fow
methodologies, or similar techniques.
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 October 31.
152 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
Fair Value Hierarchy for Assets and Liabilities Measured at Fair Value on a Recurring Basis
(millions of Canadian dollars)
Level 1
Level 2
October 31, 2019
Total1
Level 3
Level 1
Level 2
As at
October 31, 2018
Total1
Level 3
FINANCIAL ASSETS AND COMMODITIES
Trading loans, securities, and other2
Government and government-related securities
Canadian government debt
Federal
Provinces
U.S. federal, state, municipal governments, and agencies debt
Other OECD government guaranteed debt
Mortgage-backed securities
Other debt securities
Canadian issuers
Other issuers
Equity securities
Common shares
Preferred shares
Trading loans
Commodities
Retained interests
Non-trading fnancial assets at fair value
through proft or loss
Securities
Loans
Derivatives
Interest rate contracts
Foreign exchange contracts
Credit contracts
Equity contracts
Commodity contracts
Financial assets designated at fair value through
proft or loss
Securities2
Financial assets at fair value through other
comprehensive income
Government and government-related securities
Canadian government debt
Federal
Provinces
U.S. federal, state, municipal governments, and agencies debt
Other OECD government guaranteed debt
Mortgage-backed securities
Other debt securities
Asset-backed securities
Non-agency collateralized mortgage obligation portfolio
Corporate and other debt
Equity securities
Common shares
Preferred shares
Loans
Securities purchased under reverse repurchase agreements
FINANCIAL LIABILITIES
Trading deposits
Derivatives
Interest rate contracts
Foreign exchange contracts
Credit contracts
Equity contracts
Commodity contracts
Securitization liabilities at fair value
Financial liabilities designated at fair value
through proft or loss
Obligations related to securities sold short2
Obligations related to securities sold under
repurchase agreements
$
$
395 $ 10,521
8,510
19,133
4,132
1,746
–
–
–
–
$
–
8
–
–
–
$ 10,916
8,518
19,133
4,132
1,746
127 $ 14,335
7,535
19,732
3,324
2,029
–
–
–
–
$
–
3
–
–
–
$ 14,462
7,538
19,732
3,324
2,029
–
–
5,129
13,547
3
1
5,132
13,548
–
–
5,630
14,459
1
16
5,631
14,475
56,058
57
–
13,761
–
70,271
61
–
12,482
437
19
75,717
–
–
–
–
–
12
56,119
57
12,482
14,198
19
146,000
43,699
33
–
5,540
–
49,399
53
26
10,990
340
25
78,478
–
–
–
–
–
20
43,752
59
10,990
5,880
25
127,897
229
–
229
22
24
–
1
266
313
–
–
–
–
–
–
–
–
–
–
3,985
1,791
5,776
14,794
30,623
16
1,298
1,246
47,977
4,040
4,040
9,663
12,927
40,737
14,407
5,437
15,888
247
7,810
493
5
498
–
3
–
589
12
604
–
–
–
–
–
–
–
–
–
24
4,707
1,796
6,503
14,816
30,650
16
1,888
1,524
48,894
4,040
4,040
9,663
12,927
40,737
14,407
5,437
15,888
247
7,834
176
–
176
33
24
–
–
144
201
2,095
1,317
3,412
12,365
39,647
9
3,170
1,112
56,303
408
19
427
–
4
–
453
35
492
2,679
1,336
4,015
12,398
39,675
9
3,623
1,291
56,996
–
–
–
–
–
–
–
–
–
–
3,618
3,618
–
–
3,618
3,618
12,731
9,507
45,766
19,896
6,633
21,407
472
8,483
–
–
–
200
–
562
–
24
12,731
9,507
45,766
20,096
6,633
21,969
472
8,507
89
198
–
287
–
2
–
2,124
109,242
4,843
1,507
44
–
1,575
–
1,598
242
2,124
111,104
4,843
309
235
–
544
–
3
–
2,745
127,643
3,920
1,492
135
–
2,413
–
1,804
370
2,745
130,600
3,920
–
22,793
4,092
26,885
–
111,680
3,024
114,704
19
21
–
–
266
306
–
14,404
29,374
420
2,877
1,040
48,115
13,058
83
4
–
1,514
29
1,630
–
14,506
29,399
420
4,391
1,335
50,051
13,058
24
18
–
–
134
176
–
9,646
34,897
386
1,319
695
46,943
12,618
63
3
–
1,077
8
1,151
–
9,733
34,918
386
2,396
837
48,270
12,618
–
878
105,110
28,778
21
–
105,131
29,656
–
1,142
2
38,336
14
–
16
39,478
–
2,973
–
2,973
–
3,797
–
3,797
1 Fair value is the same as carrying value.
2 Balances reflect the reduction of securities owned (long positions) by the amount
of identical securities sold but not yet purchased (short positions).
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
153
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 suffcient frequency and
volume in an active market.
• Transfers from Level 2 to Level 3 occur when an instrument’s fair
value, which was previously determined using valuation techniques
with signifcant observable market inputs, is now determined using
valuation techniques with signifcant non-observable inputs.
There were no signifcant transfers between Level 1 and Level 2
during the year ended October 31, 2019. During the year ended
October 31, 2018, the Bank transferred $20 million in securities
from Non-trading fnancial assets at FVTPL from Level 1 to Level 2.
Movements of Level 3 instruments
Signifcant 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 signifcant observable
market inputs or broker-dealer quotes which were previously
not observable.
Due to the unobservable nature of the inputs used to value Level 3
fnancial 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.
The following tables reconcile changes in fair value of all assets
and liabilities measured at fair value using signifcant Level 3
non-observable inputs for the years ended October 31.
Reconciliation of Changes in Fair Value for Level 3 Assets and Liabilities
(millions of Canadian dollars)
Total realized and
unrealized gains (losses)
Movements
Transfers
Fair value
as at
November 1
2018
Included
in income1
Included
in OCI2,3
Purchases/
Issuances
Sales/
Settlements4
Into
Level 3
Out of
Level 3
Change in
unrealized
gain
(losses) on
instruments
still held5
Fair value
as at
October 31
2019
FINANCIAL ASSETS
Trading loans, securities, and other
Government and government-related securities
Canadian government debt
Provinces
Other debt securities
Canadian issuers
Other issuers
Non-trading fnancial assets at
fair value through proft or loss
Securities
Loans
Financial assets at fair value through
other comprehensive income
Government and government-related securities
Other OECD government guaranteed debt
Other debt securities
Asset-backed securities
Corporate and other debt
Equity securities
Common shares
Preferred shares
FINANCIAL LIABILITIES
Trading deposits6
Derivatives7
Interest rate contracts
Foreign exchange contracts
Equity contracts
Commodity contracts
Financial liabilities designated at fair value
through proft or loss
Obligations related to securities sold short
$
3
$
1
16
20
408
19
427
200
562
24
–
–
1
1
97
4
101
24
–
–
–
–
–
–
–
–
–
–
–
$
– $
–
$
(50)
$ 55
$
–
$
8
$
1
2
3
(2)
(24)
(76)
4
20
79
(1)
(14)
(15)
–
–
–
–
20
1
21
–
–
–
3
1
12
493
5
498
–
–
24
–
–
–
–
–
–
–
–
–
–
(562)
–
317
5
322
(329)
(23)
(352)
(224)
–
–
–
–
–
31
1
32
1,492
135
$ 2,413
–
–
$ 24
(3)
(16)
$ (19) $
(13)
(75)
$ (312)
–
–
$ –
–
(1)
1,507
44
$ (563) $ 1,575
(4)
(23)
(27)
$
$ (3,024)
$ (380)
$
–
$ (2,030)
$ 1,342
$ –
$
–
$ (4,092)
$ (243)
(63)
1
(624)
27
(659)
(14)
–
(22)
–
(472)
(33)
(527)
104
–
–
–
–
–
–
–
–
–
–
(127)
–
(127)
(187)
1
6
–
298
(11)
293
76
–
(4)
(5)
–
–
(9)
–
–
–
3
–
–
3
–
(1)
(83)
(1)
(925)
(17)
(1,026)
(32)
(1)
(460)
(20)
(513)
(21)
–
65
–
1 Gains (losses) on financial assets and liabilities are recognized within Non-interest
5 Changes in unrealized gains (losses) on financial assets at FVOCI are recognized
income on the Consolidated Statement of Income.
in AOCI.
2 Other comprehensive income.
3 Includes realized gains/losses transferred to retained earnings on disposal of
6 Issuances and repurchases of trading deposits are reported on a gross basis.
7 As at October 31, 2019, consists of derivative assets of $0.6 billion
equities designated at FVOCI. Refer to Note 7 for further details.
4 Includes foreign exchange.
(November 1, 2018 – $0.5 billion) and derivative liabilities of $1.6 billion
(November 1, 2018 – $1.2 billion), which have been netted on this table for
presentation purposes only.
154 TD BANK GROU P AN NUAL REPO RT 20 19 FINAN CIAL RES ULTS
Reconciliation of Changes in Fair Value for Level 3 Assets and Liabilities1
(millions of Canadian dollars)
Total realized and
unrealized gains (losses)
Movements
Transfers
Fair value
as at
November 1
2017
Included
in income2
Included
in OCI3
Purchases/
Issuances
Sales/
Settlements4
Into
Level 3
Out of
Level 3
Change in
unrealized
gain
(losses) on
instruments
still held5
Fair value
as at
October 31
2018
FINANCIAL ASSETS
Trading loans, securities, and other
Government and government-related securities
Canadian government debt
Provinces
Other debt securities
Canadian issuers
Other issuers
Non-trading fnancial assets at
fair value through proft or loss
Securities
Loans
Financial assets at fair value through other
comprehensive income
Government and government-related securities
Other OECD government guaranteed debt
Other debt securities
Asset-backed securities
Corporate and other debt
Equity securities
Common shares
Preferred shares
FINANCIAL LIABILITIES
Trading deposits6
Derivatives7
Interest rate contracts
Foreign exchange contracts
Equity contracts
Commodity contracts
Financial liabilities designated at fair value
through proft or loss
Obligations related to securities sold short
$
–
$ –
$ – $
1
$
–
$
2
$
– $
3
$
–
6
8
14
305
15
320
203
553
95
1,469
108
$ 2,428
–
(5)
(5)
60
(4)
56
15
–
12
–
–
$ 27
–
–
–
–
46
47
–
–
–
(18)
(2)
2
(5)
27
$ 4 $
54
8
62
–
–
–
23
–
23
$
(4)
(31)
(35)
(11)
–
(11)
–
11
(85)
5
–
(69)
1
172
175
(2)
(174)
(176)
1
16
20
(1)
(2)
(3)
–
–
–
–
–
–
–
–
–
$
–
–
–
–
–
–
408
19
427
200
562
24
51
(4)
47
(18)
(2)
2
1,492
–
–
135
– $ 2,413
(7)
26
$ 1
$
$ (2,521)
$ 78
$ –
$ (1,729)
$ 1,128
$ (46)
$ 66
$ (3,024)
$ 122
(70)
1
(893)
2
(960)
(7)
–
10
–
131
43
184
(14)
–
–
–
–
–
–
–
–
–
–
(121)
–
(121)
(117)
–
(3)
1
260
(18)
240
124
4
–
–
–
–
–
–
(4)
–
(1)
(1)
–
(2)
–
–
(63)
1
(624)
27
(659)
(14)
–
6
3
125
26
160
(11)
–
1 Certain comparative amounts have been reclassified to conform with the
presentation adopted in the current period. The presentation of Financial
Liabilities has also been revised to conform with the current period presentation.
2 Gains (losses) on financial assets and liabilities are recognized within Non-interest
income on the Consolidated Statement of Income.
3 Includes realized gains/losses transferred to retained earnings on disposal of
equities designated at FVOCI. Refer to Note 7 for further details.
4 Includes foreign exchange.
5 Changes in unrealized gains (losses) on financial assets at FVOCI are recognized
in AOCI.
6 Issuances and repurchases of trading deposits are reported on a gross basis.
7 As at October 31, 2018, consists of derivative assets of $0.5 billion
(November 1, 2017 – $0.9 billion) and derivative liabilities of $1.2 billion
(November 1, 2017 – $1.9 billion), which have been netted on this table for
presentation purposes only.
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
155
VALUATION OF ASSETS AND LIABILITIES CLASSIFIED AS LEVEL 3
Significant unobservable inputs in Level 3 positions
The following section discusses the signifcant unobservable inputs
for Level 3 positions and assesses the potential effect that a change
in each unobservable input may have on the fair value measurement.
Price Equivalent
Certain fnancial instruments, mainly debt and equity securities, are
valued using price equivalents when market prices are not available,
with fair value measured by comparison with observable pricing data
from instruments with similar characteristics. For debt securities, the
price equivalent is expressed in ‘points’, and represents a percentage
of the par amount, and prices at the lower end of the range are
generally a result of securities that are written down. For equity
securities, the price equivalent is based on a percentage of a proxy
price. There may be wide ranges depending on the liquidity of the
securities. New issuances of debt and equity securities are priced at
100% of the issue price.
Correlation
The movements of inputs are not necessarily independent from other
inputs. Such relationships, where material to the fair value of a
given instrument, are captured via correlation inputs into the pricing
models. The Bank includes correlation between the asset class,
as well as across asset classes. For example, price correlation is the
relationship between prices of equity securities in equity basket
derivatives, and quanto correlation is the relationship between
instruments which settle in one currency and the underlying securities
which are denominated in another currency.
Implied Volatility
Implied volatility is the value of the volatility of the underlying
instrument which, when input in an option pricing model, such as
Black-Scholes, will return a theoretical value equal to the current
market price of the option. Implied volatility is a forward-looking and
subjective measure, and differs from historical volatility because the
latter is calculated from known past returns of a security.
Funding Ratio
The funding ratio is a signifcant unobservable input required to value
loan commitments issued by the Bank. The funding ratio represents an
estimate of the percentage of commitments that are ultimately funded
by the Bank. The funding ratio is based on a number of factors such
as observed historical funding percentages within the various lending
channels and the future economic outlook, considering factors
including, but not limited to, competitive pricing and fxed/variable
mortgage rate gap. An increase/decrease in funding ratio will increase/
decrease the value of the lending commitment in relationship to
prevailing interest rates.
Earnings Multiple, Discount Rate, and Liquidity Discount
Earnings multiple, discount rate, and liquidity discount are signifcant
inputs used when valuing certain equity securities and certain retained
interests. Earnings multiples are selected based on comparable entities
and a higher multiple will result in a higher fair value. Discount rates
are applied to cash fow forecasts to refect time value of money
and the risks associated with the cash fows. A higher discount rate
will result in a lower fair value. Liquidity discounts may be applied
as a result of the difference in liquidity between the comparable entity
and the equity securities being valued.
Currency-Specific Swap Curve
The fair value of foreign exchange contracts is determined using inputs
such as foreign exchange spot rates and swap curves. Generally,
swap curves are observable, but there may be certain durations
or currency-specifc foreign exchange spot and currency-specifc
swap curves that are not observable.
Dividend Yield
Dividend yield is a key input for valuing equity contracts and is
generally expressed as a percentage of the current price of the stock.
Dividend yields can be derived from the repo or forward price of
the actual stock being fair valued. Spot dividend yields can also be
obtained from pricing sources, if it can be demonstrated that spot
yields are a good indication of future dividends.
Inflation Rate Swap Curve
The fair value of infation rate swap contracts is a swap between the
interest rate curve and the infation index. The infation rate swap
spread is not observable and is determined using proxy inputs such
as infation index rates and Consumer Price Index (CPI) bond yields.
Generally, swap curves are observable; however, there may be
instances where certain specifc swap curves are not observable.
Net Asset Value
The fair value of certain private funds are based on the net asset value
determined by the fund managers based on valuation methodologies,
as there are no observable prices for these instruments.
Valuation techniques and inputs used in the fair value
measurement of Level 3 assets and liabilities
The following table presents the Bank’s assets and liabilities recognized
at fair value and classifed as Level 3, together with the valuation
techniques used to measure fair value, the signifcant inputs used in
the valuation technique that are considered unobservable, and a range
of values for those unobservable inputs. The range of values represents
the highest and lowest inputs used in calculating the fair value.
156 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
Valuation Techniques and Inputs Used in the Fair Value Measurement of Level 3 Assets and Liabilities
Valuation
technique
Signifcant
unobservable
inputs (Level 3)
Government and government-
related securities
Market comparable
Bond price equivalent
Other debt securities
Market comparable
Bond price equivalent
Equity securities1
Market comparable
Discounted cash fow
EBITDA multiple
Market comparable
New issue price
Discount rate
Earnings multiple
Price equivalent
Non-trading fnancial assets
at fair value through
proft or loss
Derivatives
Interest rate contracts
Market comparable
Discounted cash fow
EBITDA multiple
Market comparable
Price-based
New issue price
Discount rates
Earnings multiple
Liquidity Discount
Net Asset Value2
Swaption model
Discounted cash fow
Option model
Currency-specifc volatility
Infation rate swap curve
Funding ratio
Foreign exchange contracts
Option model
Currency-specifc volatility
Equity contracts
Option model
Commodity contracts
Option model
Market comparable
Trading deposits
Option model
Swaption model
Price correlation
Quanto correlation
Dividend yield
Equity volatility
New issue price
Quanto correlation
Swaption correlation
Price correlation
Quanto correlation
Dividend yield
Equity volatility
Currency-specifc volatility
October 31, 2019
October 31, 2018
As at
Lower
range
Upper
range
Lower
range
Upper
range
Unit
101
–
100
9
3.5
79
100
8
1.1
–
n/a
27
1
60
4
(19)
10
–
7
100
(66)
44
(19)
(43)
–
7
25
158
113
100
9
3.5
80
100
20
6.7
–
n/a
325
2
75
12
97
68
8
124
100
(46)
56
97
68
16
96
325
76
–
n/a
6
5.0
84
100
8
0.3
50
n/a
15
1
65
7
1
(65)
–
10
100
(66)
n/a
1
(85)
–
8
15
172
points
104
points
n/a
9
20.5
117
%
%
times
%
100
40
5.3
50
n/a
346
2
75
14
96
68
8
105
100
(46)
n/a
96
68
13
131
346
%
%
times
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
Financial liabilities designated
at fair value through proft or loss
Option model
Funding ratio
2
70
2
70
1 As at October 31, 2019, common shares exclude the fair value of Federal Reserve
2 Net asset value information for private funds has not been disclosed due to the
stock and Federal Home Loan Bank stock of $1.5 billion (October 31, 2018 –
$1.4 billion) which are redeemable by the issuer at cost which approximates fair
value. These securities cannot be traded in the market, hence, these securities
have not been subjected to the sensitivity analysis.
wide range in prices for these instruments.
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
157
The following table summarizes the potential effect of using
reasonably possible alternative assumptions for fnancial assets and
fnancial liabilities held, that are classifed in Level 3 of the fair value
hierarchy as at October 31. For interest rate derivatives, the Bank
performed a sensitivity analysis on the unobservable implied volatility.
For equity derivatives, the sensitivity was calculated by using
reasonably possible alternative assumptions by shocking dividends,
correlation, or the price and volatility of the underlying equity
instrument. For equity securities at FVOCI, the sensitivity was
calculated based on an upward and downward shock of the fair
value reported. For trading deposits, the sensitivity was calculated
by varying unobservable inputs which may include volatility,
credit spreads, and correlation.
Sensitivity Analysis of Level 3 Financial Assets and Liabilities
(millions of Canadian dollars)
FINANCIAL ASSETS
Non-trading fnancial assets at fair value through proft or loss
Securities
Loans
Derivatives
Equity contracts
Commodity contracts
Financial assets at fair value through other comprehensive income
Other debt securities
Asset-backed securities
Corporate and other debt
Equity securities
Common shares
Preferred shares
FINANCIAL LIABILITIES
Trading deposits
Derivatives
Interest rate contracts
Equity contracts
Financial liabilities designated at fair value through proft or loss
Total
October 31, 2019
Impact to net assets
As at
October 31, 2018
Impact to net assets
Decrease in
fair value
Increase in
fair value
Decrease in
fair value
Increase in
fair value
$ 49
1
50
$ 23
1
24
$ 46
2
48
14
–
14
–
2
6
10
18
17
–
17
–
2
3
4
9
23
32
20
41
61
2
$ 168
14
35
49
2
$ 133
16
1
17
40
2
4
26
72
18
15
45
60
2
$ 217
$ 26
2
28
21
1
22
40
2
2
7
51
26
12
36
48
2
$ 177
The best evidence of a fnancial instrument’s fair value at initial
recognition is its transaction price unless the fair value of the
instrument is evidenced by comparison with other observable current
market transactions in the same instrument (that is, without
modifcation or repackaging) or based on a valuation technique whose
variables include only data from observable markets. Consequently,
the difference between the fair value using other observable current
market transactions or a valuation technique using observable inputs
and the transaction price results in an unrealized gain or loss at
initial recognition.
The difference between the transaction price at initial recognition
and the value determined at that date using a valuation technique
with signifcant non-observable inputs is not recognized in income
until the signifcant non-observable inputs in the valuation technique
used to value the instruments become observable. The following table
summarizes the aggregate difference yet to be recognized in net
income due to the difference between the transaction price and the
amount determined using valuation techniques with signifcant
non-observable inputs at initial recognition.
(millions of Canadian dollars)
For the years ended October 31
Balance as at beginning of year
New transactions
Recognized in the Consolidated Statement
of Income during the year
Balance as at end of year
2019
$ 14
38
(37)
$ 15
2018
$ 19
25
(30)
$ 14
158 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
FINANCIAL ASSETS 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 FVTPL to
eliminate or signifcantly reduce an accounting mismatch. The actuarial
valuation of the insurance reserve is measured using a discount factor
which is based on the yield of the supporting invested assets, which
includes the securities designated at FVTPL, with changes in the
discount factor being recognized on the Consolidated Statement of
Income. The unrealized gains or losses on securities designated at
FVTPL are recognized on the 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.
Fair Value Hierarchy for Assets and Liabilities not carried at Fair Value1
(millions of Canadian dollars)
In addition, certain debt securities have been designated at FVTPL
as they are economically hedged with derivatives and the designation
eliminates or signifcantly reduces an accounting mismatch. The
derivatives are carried at fair value, with the change in fair value
recognized in non-interest income.
Fair Value Hierarchy for Assets and Liabilities not carried
at Fair Value
The following table presents the levels within the fair value hierarchy
for each of the fnancial assets and liabilities not carried at fair value as
at October 31, but for which fair value is disclosed.
October 31, 2019
As at
October 31, 2018
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
ASSETS
Debt securities at amortized cost, net of allowance for
credit losses
Government and government-related securities
Other debt securities
Total debt securities at amortized cost, net of allowance
for credit losses
Total loans, net of allowance for loan losses
Total assets with fair value disclosures
LIABILITIES
Deposits
Securitization liabilities at amortized cost
Subordinated notes and debentures
Total liabilities with fair value disclosures
$ 169
–
$ 78,195 $
52,368
10 $ 78,374
52,370
2
$ 119
–
$ 59,828
43,826
$
1 $ 59,948
46,316
2,490
169
–
$ 169
130,563
221,405
130,744
12
688,154
466,749
$ 351,968 $ 466,761 $ 818,898
119
–
$ 119
103,654
208,794
$ 312,448
2,491
433,748
106,264
642,542
$ 436,239 $ 748,806
$
$
–
–
–
–
$ 892,597 $
14,258
11,323
$ 918,178 $
– $ 892,597
14,258
–
–
11,323
– $ 918,178
$
$
–
–
–
–
$ 846,148
14,654
9,027
$ 869,829
$
$
– $ 846,148
14,654
–
–
9,027
– $ 869,829
1 This table excludes financial assets and liabilities where the carrying amount
is a reasonable approximation of fair value.
N O T E 6
OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES
The Bank enters into netting agreements with counterparties (such as
clearing houses) to manage the credit risks associated primarily with
repurchase and reverse repurchase transactions, securities borrowing
and lending, and OTC and exchange-traded derivatives. These netting
agreements and similar arrangements generally allow the counterparties
to set-off liabilities against available assets received. The right to
set-off is a legal right to settle or otherwise eliminate all or a portion of
an amount due by applying against that amount an amount receivable
from the other party. These agreements effectively reduce the Bank’s
credit exposure by what it would have been if those same
counterparties were liable for the gross exposure on the same
underlying contracts.
Netting arrangements are typically constituted by a master netting
agreement which specifes the general terms of the agreement
between the counterparties, including information on the basis of
the netting calculation, types of collateral, and the defnition of
default and other termination events for transactions executed under
the agreement. The master netting agreements contain the terms
and conditions by which all (or as many as possible) relevant
transactions between the counterparties are governed. Multiple
individual transactions are subsumed under this general master netting
agreement, forming a single legal contract under which the
counterparties conduct their relevant mutual business. In addition
to the mitigation of credit risk, placing individual transactions under
a single master netting agreement that provides for netting of
transactions in scope also helps to mitigate settlement risks associated
with transacting in multiple jurisdictions or across multiple
contracts. These arrangements include clearing agreements, global
master repurchase agreements, and global master securities
lending agreements.
In the normal course of business, the Bank enters into numerous
contracts to buy and sell goods and services from various suppliers.
Some of these contracts may have netting provisions that allow for the
offset of various trade payables and receivables in the event of default
of one of the parties. While these are not disclosed in the following
table, the gross amount of all payables and receivables to and from the
Bank’s vendors is disclosed in Note 16 in Accounts receivable and
other items, and in Note 18 in Accounts payable, accrued expenses,
and other items.
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
159
The Bank also enters into regular way purchases and sales of stocks
and bonds. Some of these transactions may have netting provisions
that allow for the offset of broker payables and broker receivables
related to these purchases and sales. While these are not disclosed in
the following table, the amount of receivables are disclosed in
Amounts receivable from brokers, dealers, and clients and payables are
disclosed in Amounts payable to brokers, dealers, and clients.
The following table provides a summary of the fnancial assets and
liabilities which are subject to enforceable master netting agreements
and similar arrangements, including amounts not otherwise set off in
the Consolidated Balance Sheet, as well as fnancial collateral received
to mitigate credit exposures for these fnancial assets and liabilities.
The gross fnancial assets and liabilities are reconciled to the net
amounts presented within the associated line in the Consolidated
Balance Sheet, after giving effect to transactions with the same
counterparties that have been offset in the Consolidated Balance
Sheet. Related amounts and collateral received that are not offset
on the Consolidated Balance Sheet, but are otherwise subject to the
same enforceable netting agreements and similar arrangements,
are then presented to arrive at a net amount.
Offsetting Financial Assets and Financial Liabilities
(millions of Canadian dollars)
As at
October 31, 2019
Amounts subject to an enforceable
master netting arrangement or similar
agreement that are not offset in
the Consolidated Balance Sheet1,2
Gross amounts
of recognized
fnancial
instruments
before
balance sheet
netting
Gross amounts
of recognized
fnancial
instruments
offset in the
Consolidated
Balance Sheet
Net amount
of fnancial
instruments
presented in the
Consolidated
Balance Sheet
Amounts
subject to an
enforceable
master netting
agreement
Collateral
Net Amount
Financial Assets
Derivatives
Securities purchased under
reverse repurchase agreements
Total
Financial Liabilities
Derivatives
Obligations related to securities sold
under repurchase agreements
Total
Financial Assets
Derivatives
Securities purchased under
reverse repurchase agreements
Total
Financial Liabilities
Derivatives
Obligations related to securities sold
under repurchase agreements
Total
$ 55,973
$ 7,079
$ 48,894
$ 32,664
$
8,840
$ 7,390
180,054
236,027
14,119
21,198
165,935
214,829
57,130
7,079
50,051
139,975
$ 197,105
14,119
$ 21,198
125,856
$ 175,907
14,430
47,094
32,664
14,430
$ 47,094
141,903
150,743
9,602
16,992
17,387
110,995
$ 128,382
–
431
431
$
October 31, 2018
$ 59,661
$ 2,665
$ 56,996
$ 34,205
$ 11,678
$ 11,113
157,832
217,493
30,453
33,118
127,379
184,375
50,935
2,665
48,270
123,842
$ 174,777
30,453
$ 33,118
93,389
$ 141,659
7,452
41,657
34,205
7,452
$ 41,657
119,797
131,475
130
11,243
12,127
1,938
85,793
$ 97 ,920
144
$ 2,082
1 Excess collateral as a result of overcollateralization has not been reflected
2 Includes amounts where the contractual set-off rights are subject to uncertainty
in the table.
under the laws of the relevant jurisdiction.
160 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
N O T E 7
SECURITIES
Remaining Terms to Maturities of Securities
The remaining terms to contractual maturities of the securities held
by the Bank are shown on the following table.
Securities Maturity Schedule
(millions of Canadian dollars)
Trading securities
Government and government-related securities
Canadian government debt
Federal
Provinces
U.S. federal, state, municipal governments, and agencies debt
Other OECD government-guaranteed debt
Mortgage-backed securities
Residential
Commercial
Other debt securities
Canadian issuers
Other issuers
Equity securities
Common shares
Preferred shares
Retained interests
Total trading securities
Financial assets designated at fair value through proft or loss
Government and government-related securities
Canadian government debt
Federal
Provinces
U.S. federal, state, municipal governments, and agencies debt
Other OECD government-guaranteed debt
Other debt securities
Canadian issuers
Other issuers
Total fnancial assets designated at fair value through
proft or loss
Securities at fair value through other comprehensive income
Government and government-related securities
Canadian government debt
Federal
Provinces
U.S. federal, state, municipal governments, and agencies debt
Other OECD government-guaranteed debt
Mortgage-backed securities
Other debt securities
Asset-backed securities
Non-agency collateralized mortgage obligation portfolio
Corporate and other debt
Equity securities
Common shares
Preferred shares
Total securities at fair value through other
comprehensive income
1 Represents contractual maturities. Actual maturities may differ due to
prepayment privileges in the applicable contract.
Within
1 year
Over 1
year to
3 years
Over 3
years to
5 years
Remaining terms to maturities1
With no
Over 5
specifc
years maturity
years to Over 10
10 years
Total
Total
As at
October 31
2019
October 31
2018
$ 4,159 $ 3,212 $ 1,219 $ 1,519 $
807 $
1,979
2,417
1,202
474
24
10,255
694
3,010
3,704
982
8,140
794
676
–
13,804
1,177
5,926
7,103
1,017
3,105
961
453
50
6,805
1,412
2,909
4,321
1,381
2,085
868
–
69
5,922
1,190
1,273
2,463
3,159
3,386
307
–
–
7,659
659
430
1,089
– $ 10,916 $ 14, 462
7,538
–
19,732
–
3,324
–
8,518
19,133
4,132
–
–
–
–
–
–
1,603
143
44,445
5,132
13,548
18,680
1,946
83
47,085
5,631
14,475
20,106
–
–
–
–
–
–
–
3
–
–
–
8
–
–
–
8
56,119
57
56,119
–
–
57
– 56,176 56,176
19
–
–
43,752
59
43,811
25
$ 13,959 $ 20,910 $ 11,134 $ 8,393 $ 8,748 $ 56,176 $ 119,320 $ 111,027
– $
– $
$
148 $
143
–
697
988
– $
6
67
9
82
107
–
88
195
24
200
224
564
285
849
764
239
1,003
33
–
–
33
529
15
544
16 $
99
–
–
115
– $
–
–
–
–
164 $
388
67
794
1,413
7
–
7
–
–
–
1,888
739
2,627
45
454
127
771
1,397
1,609
612
2,221
$ 1,212 $
931 $ 1,198 $
577 $
122 $
– $ 4,040 $ 3,618
$ 4,165 $ 4,104 $
283 $
607 $
1,168
7,798
5,162
907
19,200
61
–
1,021
1,082
–
–
–
2,255
19,533
8,524
4,370
38,786
4,188
–
4,016
8,204
–
–
–
2,199
3,188
250
160
6,080
4,490
–
895
5,385
–
–
–
7,091
3,002
471
–
11,171
2,490
–
1,879
4,369
–
–
–
504 $
214
7,216
–
–
7,934
4,659
247
23
4,929
–
–
–
1,598
242
1,840
– $ 9,663 $ 12,731
–
9,507
45,766
–
20,096
–
6,633
–
94,733
–
12,927
40,737
14,407
5,437
83,171
–
–
–
–
15,888
247
7,834
23,969
1,598
242
1,840
21,969
472
8,507
30,948
1,804
370
2,174
$ 20,282 $ 46,990 $ 11,465 $ 15,540 $ 12,863 $ 1,840 $ 108,980 $ 127,855
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
161
Securities Maturity Schedule (continued)
(millions of Canadian dollars)
Debt securities at amortized cost, net of allowance
for credit losses
Government and government-related securities
Canadian government debt
Federal
Provinces
U.S. federal, state, municipal governments, and agencies debt
Other OECD government guaranteed debt
Other debt securities
Asset-backed securities
Non-agency collateralized mortgage obligation portfolio
Canadian issuers
Other issuers
Total debt securities at amortized cost, net of
allowance for credit losses
Total securities
Within
1 year
Over 1
year to
3 years
Over 3
years to
5 years
Remaining terms to maturities1
With no
Over 5
specifc
years maturity
years to Over 10
10 years
Total
Total
As at
October 31
2019
October 31
2018
515 $
435 $ 1,957 $
$
992 $
–
1,365
7,161
9,518
11
–
–
1,649
1,660
40
3,744
10,138
14,437
5,053
–
–
2,454
7,507
872 $
766
9,286
9,512
20,436
1,243
12,173
1,208
15,059
8,950
–
–
2,601
11,551
4,049
–
99
418
4,566
222
16,646
–
18,825
10,700
16,236
–
2
26,938
– $ 4,771 $ 4,922
782
–
29,148
–
25,683
–
60,535
–
2,271
43,214
28,019
78,275
–
–
–
–
–
28,763
16,236
99
7,124
52,222
23,709
15,867
–
7,060
46,636
11,178
–
$ 46,631 $ 90,775 $ 55,784 $ 44,135 $ 67,496 $ 58,016
31,987
19,625
45,763
21,944
130,497
107,171
$ 362,837 $ 349,671
1 Represents contractual maturities. Actual maturities may differ due to prepayment
privileges in the applicable contract.
Unrealized Securities Gains (Losses)
The following table summarizes the unrealized gains and losses as
at October 31.
Unrealized Securities Gains (Losses) for Securities at Fair Value Through Other Comprehensive Income
(millions of Canadian dollars)
October 31, 2019
As at
October 31, 2018
Cost/
Gross
amortized unrealized unrealized
(losses)
Gross
gains
cost1
Cost/
Gross
Fair amortized unrealized unrealized
(losses)
Gross
cost1
gains
value
Fair
value
$
$ 9,603
12,890
40,703
14,394
5,407
82,997
15,890
247
7,832
23,969
106,966
1,594
302
1,896
$ 62
77
86
21
31
277
29
–
27
56
333
31
4
35
(2) $ 9,663 $ 12,740
9,443
45,857
20,034
6,575
94,649
12,927
40,737
14,407
5,437
83,171
(40)
(52)
(8)
(1)
(103)
(31)
–
(25)
(56)
15,888
247
7,834
23,969
(159) 107,140
21,901
471
8,534
30,906
125,555
(27)
(64)
(91)
1,598
242
1,840
1,725
376
2,101
$ 38
75
265
65
59
502
$
(47) $ 12,731
9,507
(11)
45,766
(356)
20,096
(3)
6,633
(1)
94,733
(418)
87
1
31
119
621
118
20
138
(19)
–
(58)
(77)
21,969
472
8,507
30,948
(495) 125,681
(39)
(26)
(65)
1,804
370
2,174
$ 108,862
$ 368
$ (250) $ 108,980 $ 127,656
$ 759
$ (560) $ 127,855
Securities at Fair Value Through Other
Comprehensive Income
Government and government-related securities
Canadian government debt
Federal
Provinces
U.S. federal, state, municipal governments, and agencies debt
Other OECD government-guaranteed debt
Mortgage-backed securities
Other debt securities
Asset-backed securities
Non-agency collateralized mortgage obligation portfolio
Corporate and other debt
Total debt securities
Equity securities
Common shares
Preferred shares
Total securities at fair value through other
comprehensive income
1 Includes the foreign exchange translation of amortized cost balances
at the period-end spot rate.
162 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
Equity Securities Designated at Fair Value Through Other
Comprehensive Income
The Bank designated certain equity securities shown in the following
table as equity securities at FVOCI. The designation was made because
the investments are held for purposes other than trading.
Equity Securities Designated at Fair Value Through Other Comprehensive Income
(millions of Canadian dollars)
As at
Common shares
Preferred shares
Total
October 31, 2019
October 31, 2018
October 31, 2019
$ 1,598
242
$ 1,840
Fair
value
$ 1,804
370
$ 2,174
$ 64
15
$ 79
For the year ended
October 31, 2018
Dividend income
recognized
$ 71
16
$ 87
The Bank disposed of certain equity securities in line with the Bank’s
investment strategy with a fair value of $323 million during the year
ended October 31, 2019 (October 31, 2018 – $22 million). The Bank
realized a cumulative gain (loss) of $68 million during the year ended
October 31, 2019 (October 31, 2018 – $2 million), on disposal of these
equity securities and recognized dividend income of $3 million during
the year ended October 31, 2019 (October 31, 2018 – nil).
Credit Quality of Debt Securities
The Bank evaluates non-retail credit risk on an individual borrower
basis, using both a BRR and FRR, as detailed in the shaded area of the
“Managing Risk” section of the 2019 MD&A. This system is used to
assess all non-retail exposures, including debt securities.
The following table provides the gross carrying amounts of debt
securities measured at amortized cost and debt securities at FVOCI by
internal risk ratings for credit risk management purposes, presenting
separately those debt securities that are subject to Stage 1, Stage 2,
and Stage 3 allowances.
For the year ended
October 31
2019
October 31
2018
$ 49
$ 76
29
$ 78
35
$ 111
Net Securities Gains (Losses)
(millions of Canadian dollars)
Debt securities at amortized cost
Net realized gains (losses)
Debt securities at fair value through other
comprehensive income
Net realized gains (losses)
Total
Debt Securities by Risk Ratings
(millions of Canadian dollars)
Debt securities
Investment grade
Non-Investment grade
Watch and classifed
Default
Total debt securities
Allowance for credit losses on debt securities
at amortized cost
Debt securities, net of allowance
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
October 31, 2019
As at
October 31, 2018
$ 235,475
2,109
n/a
n/a
237,584
$
–
54
–
n/a
54
$ n/a $ 235,475 $ 230,488
2,140
2,163
n/a
–
n/a
–
232,628
237,638
n/a
n/a
–
–
1
$ 237,583
–
$ 54
–
1
– $ 237,637
1
$ 232,627
$
$ –
54
11
n/a
65
4
$ 61
$ n/a $ 230,488
2,194
11
234
232,927
n/a
n/a
234
234
70
75
$ 164 $ 232,852
As at October 31, 2019, the allowance for credit losses on debt
securities was $4 million (October 31, 2018 – $80 million), comprised
of $1 million (October 31, 2018 – $75 million) for debt securities at
amortized cost (DSAC) and $3 million (October 31, 2018 – $5 million)
for debt securities at FVOCI. For the year ended October 31, 2019,
the Bank reported a provision (recovery) for credit losses of $1 million
(October 31, 2018 – provision (recovery) of credit losses of $(2) million)
on DSAC. For the year ended October 31, 2019, the Bank reported a
provision (recovery) of credit losses of $(2) million (October 31, 2018
– provision (recovery) for credit losses of $10 million) on debt securities
at FVOCI.
The difference between probability-weighted ECL and base ECL
on debt securities at FVOCI and at amortized cost as at both
October 31, 2019 and October 31, 2018, was insignifcant. Refer to
Note 3 for further details.
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
163
N O T E 8
LOANS, IMPAIRED LOANS, AND ALLOWANCE FOR CREDIT LOSSES
Credit Quality of Loans
In the retail portfolio, including individuals and small businesses, the
Bank manages exposures on a pooled basis, using predictive credit
scoring techniques. For non-retail exposures, each borrower is assigned
a BRR that refects the PD of the borrower using proprietary industry
and sector-specifc risk models and expert judgment. Refer to the
shaded areas of the “Managing Risk” section of the 2019 MD&A for
further details, as well as the mapping of PD ranges to risk levels for
retail exposures and the Bank’s 21-point BRR scale to risk levels and
external ratings for non-retail exposures.
The following tables provide the gross carrying amounts of loans and
credit risk exposures on loan commitments and fnancial guarantee
contracts by internal risk ratings for credit risk management purposes,
presenting separately those that are subject to Stage 1, Stage 2, and
Stage 3 allowances.
Loans by Risk Ratings1
(millions of Canadian dollars)
Residential mortgages2,3,4
Low Risk
Normal Risk
Medium Risk
High Risk
Default
Total
Allowance for loan losses
Loans, net of allowance
Consumer instalment and other personal5
Low Risk
Normal Risk
Medium Risk
High Risk
Default
Total
Allowance for loan losses
Loans, net of allowance
Credit card
Low Risk
Normal Risk
Medium Risk
High Risk
Default
Total
Allowance for loan losses
Loans, net of allowance
Business and government2,3,4,6
Investment grade or Low/Normal Risk
Non-Investment grade or Medium Risk
Watch and classifed or High Risk
Default
Total
Allowance for loan losses
Loans, net of allowance
Total loans6,7
Total Allowance for loan losses7
Total loans, net of allowance6,7
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
October 31, 2019
As at
October 31, 2018
$
$ 181,748
43,988
5,817
964
n/a
232,517
28
232,489
92,601
46,878
27,576
6,971
n/a
174,026
690
173,336
7,188
10,807
11,218
4,798
n/a
34,011
732
33,279
77
248
433
1,454
n/a
2,212
26
2,186
953
973
879
2,435
n/a
5,240
384
4,856
48
82
275
1,670
n/a
2,075
521
1,554
120,940
119,256
951
n/a
241,147
672
240,475
681,701
2,122
$ 679,579
153
5,298
4,649
n/a
10,100
648
9,452
19,627
1,579
$ 18,048
$
$ n/a $ 181,825 $ 168,690
47,821
44,236
5,106
6,250
892
2,784
545
n/a
222,509
235,640
24
110
222,485
235,530
n/a
n/a
366
545
911
56
855
n/a
n/a
n/a
618
450
1,068
175
893
n/a
n/a
n/a
355
123
478
322
156
93,554
47,851
28,455
10,024
450
180,334
1,249
179,085
7,236
10,889
11,493
6,823
123
36,564
1,575
34,989
87,906
48,008
23,008
6,158
n/a
165,080
574
164,506
7,234
9,780
11,347
4,435
n/a
32,796
379
32,417
32
176
267
1,264
n/a
1,739
34
1,705
983
1,190
1,063
2,386
n/a
5,622
349
5,273
11
66
246
1,445
n/a
1,768
283
1,485
$
n/a $ 168,722
47,997
n/a
5,373
n/a
2,473
317
626
626
225,191
943
110
52
225,081
891
n/a
n/a
n/a
817
560
1,377
180
1,197
n/a
n/a
n/a
333
121
454
341
113
88,889
49,198
24,071
9,361
560
172,079
1,103
170,976
7,245
9,846
11,593
6,213
121
35,018
1,003
34,015
n/a
n/a
158
730
888
193
695
3,345
746
118,414
108,678
666
n/a
227,758
651
227,107
648,143
1,628
$ 2,599 $ 700,226 $ 646,515
121,093
124,554
5,758
730
252,135
1,513
250,622
704,673
4,447
57
5,272
3,746
n/a
9,075
551
8,524
18,204
1,217
$ 16,987
n/a
n/a
97
736
833
131
702
3,607
704
118,471
113,950
4,509
736
237,666
1,333
236,333
669,954
3,549
$ 2,903 $ 666,405
1 Certain comparative amounts have been reclassified to conform with the
5 As at October 31, 2019, includes Canadian government-insured real estate
presentation adopted in the current period.
2 As at October 31, 2019, impaired loans with a balance of $127 million
(October 31, 2018 – $124 million) did not have a related allowance for loan
losses. An allowance was not required for these loans as the balance relates to
loans where the realizable value of the collateral exceeded the loan amount.
3 As at October 31, 2019, excludes trading loans and non-trading loans at FVTPL
with a fair value of $12 billion (October 31, 2018 – $11 billion) and $2 billion
(October 31, 2018 – $1 billion), respectively.
4 As at October 31, 2019, includes insured mortgages of $88 billion
(October 31, 2018 – $95 billion).
personal loans of $13 billion (October 31, 2018 – $14 billion).
6 As at October 31, 2019, includes loans that are measured at FVOCI of $2 billion
(October 31, 2018 – $3 billion) and customers’ liability under acceptances of
$13 billion (October 31, 2018 – $17 billion).
7 As at October 31, 2019, Stage 3 includes ACI loans of $313 million
(October 31, 2018 – $453 million) and a related allowance for loan losses of
$12 million (October 31, 2018 – $18 million), which have been included in the
“Default” risk rating category as they were impaired at acquisition.
164 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
Loans by Risk Ratings – Off-Balance Sheet Credit Instruments1,2
(millions of Canadian dollars)
October 31, 2019
As at
October 31, 2018
Retail Exposures3
Low Risk
Normal Risk
Medium Risk
High Risk
Default
Non-Retail Exposures4
Investment grade
Non-Investment grade
Watch and classifed
Default
Total off-balance sheet credit instruments
Allowance for off-balance sheet credit instruments
Total off-balance sheet credit instruments,
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
$ 227,757
67,245
13,204
1,869
n/a
179,650
64,553
2
n/a
554,280
293
$ 732
570
277
854
n/a
–
3,397
2,126
n/a
7,956
277
$ n/a $ 228,489 $ 236,456
50,116
67,815
12,005
13,481
1,423
2,723
n/a
–
n/a
n/a
–
–
$ 1,007
654
349
986
n/a
$ n/a $ 237,463
50,770
12,354
2,409
–
n/a
n/a
–
–
n/a
n/a
–
108
108
15
179,650
67,950
2,128
108
562,344
585
166,769
61,763
–
n/a
528,532
550
–
1,957
2,004
n/a
6,957
477
n/a
n/a
–
96
96
2
166,769
63,720
2,004
96
535,585
1,029
net of allowance
$ 553,987
$ 7,679
$ 93 $ 561,759 $ 527,982
$ 6,480
$ 94 $ 534,556
1 Certain comparative amounts have been recast to conform with the presentation
adopted in the current period.
2 Exclude mortgage commitments.
3 As at October 31, 2019, includes $311 billion (October 31, 2018 – $302 billion) of
personal lines of credit and credit card lines, which are unconditionally cancellable
at the Bank’s discretion at any time.
4 As at October 31, 2019, includes $41 billion (October 31, 2018 – $37 billion) of
the undrawn component of uncommitted credit and liquidity facilities.
The following table presents information related to the Bank’s
impaired loans as at October 31.
Impaired Loans1
(millions of Canadian dollars)
Residential mortgages
Consumer instalment and
other personal
Credit card
Business and government
Total
Unpaid
principal
balance2
$ 788
1,159
478
870
$ 3,295
Carrying
value
$ 724
1,037
478
793
$ 3,032
October 31, 2019
Related
allowance
for credit
losses
$ 53
173
322
186
$ 734
Average
gross
impaired
loans
$ 698
1,160
465
906
$ 3,229
Unpaid
principal
balance2
$ 776
1,465
454
726
$ 3,421
Carrying
value
$ 709
1,331
454
660
$ 3,154
As at
October 31, 2018
Related
allowance
for credit
losses
$ 47
178
341
120
$ 686
Average
gross
impaired
loans
$ 726
1,325
422
580
$ 3,053
1 Balances exclude ACI loans.
2 Represents contractual amount of principal owed.
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
165
The changes to the Bank’s allowance for loan losses, as at and for the
year ended October 31 are shown in the following tables.
Allowance for Loan Losses1
(millions of Canadian dollars)
Residential Mortgages
Balance at beginning of period
Provision for credit losses
Transfer to Stage 13
Transfer to Stage 2
Transfer to Stage 3
Net remeasurement due to transfers4
New originations or purchases5
Net repayments6
Derecognition of fnancial assets (excluding
disposals and write-offs)7
Changes to risk, parameters, and models8
Disposals
Write-offs
Recoveries
Foreign exchange and other adjustments
Balance at end of period
Consumer Instalment and Other Personal
Balance, including off-balance sheet instruments,
at beginning of period
Provision for credit losses
Transfer to Stage 13
Transfer to Stage 2
Transfer to Stage 3
Net remeasurement due to transfers4
New originations or purchases5
Net repayments6
Derecognition of fnancial assets (excluding
disposals and write-offs)7
Changes to risk, parameters, and models8
Disposals
Write-offs
Recoveries
Foreign exchange and other adjustments
Balance, including off-balance sheet instruments,
at end of period
Less: Allowance for off-balance sheet instruments9
Balance at end of period
Credit Card10
Balance, including off-balance sheet instruments,
at beginning of period
Provision for credit losses
Transfer to Stage 13
Transfer to Stage 2
Transfer to Stage 3
Net remeasurement due to transfers4
New originations or purchases5
Net repayments6
Derecognition of fnancial assets (excluding
disposals and write-offs)7
Changes to risk, parameters, and models8
Disposals
Write-offs
Recoveries
Foreign exchange and other adjustments
Balance, including off-balance sheet instruments,
at end of period
Less: Allowance for off-balance sheet instruments9
Balance at end of period
Stage 1
Stage 2
Stage 32
For the years ended October 31
2019
Total
Stage 1
Stage 2
Stage 32
2018
Total
$ 24
$ 34
$
52
$
110
$
24
$ 26
$
57
$
107
35
(5)
(2)
(16)
14
–
(4)
(18)
–
–
–
–
$ 28
(33)
13
(8)
6
n/a
(1)
(5)
20
–
–
–
–
$ 26
(2)
(8)
10
–
n/a
–
(17)
49
–
(31)
1
2
56
$
–
–
–
(10)
14
(1)
(26)
51
–
(31)
1
2
110
24
(4)
–
(14)
14
(1)
(3)
(16)
–
–
–
–
24
$
$
(23)
8
(9)
6
n/a
(1)
(2)
29
–
–
–
–
$ 34
(1)
(4)
9
–
n/a
(5)
(4)
24
–
(31)
3
4
52
$
–
–
–
(8)
14
(7)
(9)
37
–
(31)
3
4
110
$
$ 599
$ 392
$ 180
$ 1,171
$ 529
$ 355
$ 171
$ 1,055
352
(121)
(15)
(149)
326
(88)
(81)
(105)
–
–
–
(1)
(333)
164
(164)
160
n/a
(30)
(71)
298
–
–
–
1
(19)
(43)
179
11
n/a
(12)
(49)
893
–
(1,220)
254
1
–
–
–
22
326
(130)
(201)
1,086
–
(1,220)
254
1
303
(114)
(21)
(125)
322
(49)
(126)
(127)
–
–
–
7
(285)
152
(172)
139
n/a
(24)
(97)
321
–
–
–
3
(18)
(38)
193
11
n/a
(15)
(45)
744
–
(1,077)
253
1
–
–
–
25
322
(88)
(268)
938
–
(1,077)
253
11
717
27
$ 690
417
33
$ 384
175
–
$ 175
1,309
60
$ 1,249
599
25
$ 574
392
43
$ 349
180
–
$ 180
1,171
68
$ 1,103
$ 819
$ 580
$ 341
$ 1,740
$ 763
$ 521
$ 321
$ 1,605
705
(224)
(30)
(240)
144
92
(96)
(236)
–
–
–
–
(623)
288
(563)
314
n/a
3
(107)
781
–
–
–
–
(82)
(64)
593
41
n/a
(22)
(439)
1,356
–
(1,699)
297
–
–
–
–
115
144
73
(642)
1,901
–
(1,699)
297
–
590
(192)
(38)
(209)
171
125
(102)
(276)
(21)
–
–
8
(521)
259
(475)
249
n/a
(51)
(106)
705
(12)
–
–
11
(69)
(67)
513
63
n/a
39
(371)
1,168
(8)
(1,515)
260
7
934
202
$ 732
673
152
$ 521
322
–
$ 322
1,929
354
$ 1,575
819
440
$ 379
580
297
$ 283
341
–
$ 341
–
–
–
103
171
113
(579)
1,597
(41)
(1,515)
260
26
1,740
737
$ 1,003
1 Certain comparative amounts have been reclassified to conform with the
presentation adopted in the current period.
2 Includes allowance for loan losses related to ACI loans.
3 Transfers represent stage transfer movements prior to ECL remeasurement.
4 Represents the remeasurement between twelve-month and lifetime ECLs due
to stage transfers, excluding the change to risk, parameters, and models.
7 Represents the decrease in the allowance resulting from loans that were fully
repaid and excludes the decrease associated with loans that were disposed or
fully written off.
8 Represents the change in the allowance related to changes in risk including
changes to macroeconomic factors, level of risk, associated parameters,
and models.
5 Represents the increase in the allowance resulting from loans that were newly
9 The allowance for loan losses for off-balance sheet instruments is recorded
originated, purchased, or renewed.
6 Represents the changes in the allowance related to cash flow changes associated
with new draws or repayments on loans outstanding.
in Other liabilities on the Consolidated Balance Sheet.
10 Credit cards are considered impaired and migrate to Stage 3 when they are
90 days past due and written off at 180 days past due. Refer to Note 2 for
further details.
166 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
Allowance for Loan Losses (continued)1,2
(millions of Canadian dollars)
Business and Government
Balance, including off-balance sheet instruments,
as beginning of period
Provision for credit losses
Transfer to Stage 14
Transfer to Stage 2
Transfer to Stage 3
Net remeasurement due to transfers4
New originations or purchases4
Net repayments4
Derecognition of fnancial assets (excluding
disposals and write-offs)4
Changes to risk, parameters, and models4
Disposals
Write-offs
Recoveries
Foreign exchange and other adjustments
Balance, including off-balance sheet instruments,
at end of period
Less: Allowance for off-balance sheet instruments5
Balance at end of period
Total Allowance for Loan Losses at end of period
Stage 1
Stage 2
Stage 33
For the years ended October 31
2019
Total
Stage 1
Stage 2
Stage 33
2018
Total
$
736
$
688
$ 133
$ 1,557
$ 706
$ 627
$ 192
$ 1,525
214
(127)
(18)
(89)
451
(9)
(340)
(83)
–
–
–
1
(210)
138
(136)
115
n/a
(35)
(382)
564
(3)
–
–
1
736
64
672
$ 2,122
740
92
648
$ 1,579
(4)
(11)
154
2
n/a
(42)
(85)
241
–
(228)
57
(9)
208
15
193
$ 746
–
–
–
28
451
(86)
(807)
722
(3)
(228)
57
(7)
133
(106)
(6)
(38)
467
(4)
(338)
(89)
–
–
–
11
(129)
114
(56)
68
n/a
(26)
(365)
447
–
–
–
8
(4)
(8)
62
5
n/a
(27)
(57)
68
(5)
(155)
73
(11)
–
–
–
35
467
(57)
(760)
426
(5)
(155)
73
8
1,684
171
1,513
$ 4,447
736
85
651
$ 1,628
688
137
551
$ 1,217
133
2
131
$ 704
1,557
224
1,333
$ 3,549
1 Certain comparative amounts have been reclassified to conform with the
4 For explanations regarding this line item, refer to the “Allowance for Loan Losses”
presentation adopted in the current period.
table on the previous page in this Note.
2 Includes the allowance for loan losses related to customers’ liability under
5 The allowance for loan losses for off-balance sheet instruments is recorded in
acceptances.
3 Includes allowance for loan losses related to ACI loans.
Other liabilities on the Consolidated Balance Sheet.
The allowance for credit losses on all remaining fnancial assets is
not signifcant.
FORWARD-LOOKING INFORMATION
Relevant macroeconomic factors are incorporated in the risk
parameters as appropriate. Additional macroeconomic factors that
are industry-specifc or segment-specifc are also incorporated where
relevant. The key macroeconomic variables that are incorporated in
determining ECLs include regional unemployment rates for all retail
exposures and regional housing price index for residential mortgages
and home equity lines of credit. For business and government loans,
the key macroeconomic variables include gross domestic product,
unemployment rates, interest rates, and credit spreads. Refer to
Note 2 for a discussion on how forward-looking information is
considered in determining whether there has been a signifcant
increase in credit risk and in the measurement of ECLs.
Forward-looking macroeconomic forecasts are generated by
TD Economics as part of the ECL process: A base economic forecast
is accompanied with upside and downside estimates of realistically
possible economic conditions. All economic forecasts are updated
quarterly for each variable on a regional basis where applicable and
incorporated as relevant into the quarterly modelling of base, upside
and downside risk parameters used in the calculation of ECL scenarios
and probability-weighted ECL. The macroeconomic variable estimations
are statistically derived relative to the base forecast based on the
historical distribution of each variable.
Select macroeconomic variables are projected over the forecast period,
and they could have a material impact in determining ECLs. As the
forecast period increases, information about the future becomes less
readily available and projections are anchored on assumptions around
structural relationships between economic parameters that are
inherently much less certain. The following table represents the
average values of the macroeconomic variables over the next twelve
months and the remaining 4-year forecast period for the base, upside,
and downside forecasts.
167
TD BANK GROUP ANNUAL REPORT 2019 FINANCIAL RESULTS
Macroeconomic Variables
Unemployment rate
Canada
United States
Real gross domestic product (GDP)2
Canada
United States
Home prices2
Canada (average home price)3
United States (CoreLogic HPI)4
Central bank policy interest rate
Canada
United States
U.S. 10-year treasury yield
U.S. 10-year BBB spread
Exchange rate (U.S. dollar/Canadian dollar)
Unemployment rate
Canada
United States
Real gross domestic product (GDP)2
Canada
United States
Home prices2
Canada (average home price)3
United States (CoreLogic HPI)4
Central bank policy interest rate
Canada
United States
U.S. 10-year treasury yield
U.S. 10-year BBB spread
Exchange rate (U.S. dollar/Canadian dollar)
As at
October 31, 2019
Base Forecasts
Next 12
months1
Remaining
4-year
period1
Upside
Remaining
4-year
period1
Next 12
months1
Downside
Remaining
4-year
period1
Next 12
months1
5.8%
3.8
1.6
1.9
7.1
3.6
5.8%
4.1
1.8
1.8
2.7
3.6
5.7%
3.6
1.8
2.0
8.9
4.4
5.2%
3.5
2.2
2.1
5.9
5.0
6.8%
4.9
0.6
0.7
2.7
2.4
8.0%
6.1
0.3
0.2
(3.5)
1.7
1.31
1.75
1.76
1.80
$ 0.76
1.53
2.20
2.50
1.80
$ 0.77
1.75
2.00
2.25
1.73
$ 0.78
2.16
2.86
3.44
1.59
$ 0.83
0.75
1.06
1.32
1.96
$ 0.74
0.63
1.00
1.79
2.19
$ 0.69
October 31, 2018
6.0%
3.7
6.0%
3.9
5.8%
3.6
5.5%
3.4
6.7%
4.3
2.3
2.9
3.4
5.1
1.88
2.88
3.20
1.80
$ 0.79
1.7
1.8
3.4
4.0
2.47
2.97
3.13
1.80
$ 0.80
2.6
3.1
4.5
5.4
2.00
3.31
4.46
1.71
$ 0.80
2.2
2.1
5.0
4.8
3.00
3.75
4.43
1.55
$ 0.86
1.6
2.6
0.9
4.1
1.69
2.38
2.71
1.87
$ 0.77
7.6%
6.1
1.0
1.0
0.2
2.4
1.75
2.22
2.31
2.06
$ 0.75
1 The numbers represent average values for the quoted periods.
2 The numbers represent annual % change.
3 The average home price is the average transacted sale price of homes sold via
the Multiple Listing Service (MLS); data is collected by the Canadian Real Estate
Association (CREA).
SENSITIVITY OF ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is sensitive to the inputs used
in internally developed models, macroeconomic variables in the
forward-looking forecasts and respective probability weightings
in determining the probability-weighted ECL, and other factors
considered when applying expert credit judgment. Changes in
these inputs, assumptions, models, and judgments would have
an impact on the assessment for signifcant increase in credit risk
and the measurement of ECLs.
The following table presents the base ECL scenario compared to the
probability-weighted ECL derived from using three ECL scenarios for
performing loans and off-balance sheet instruments. The difference
refects the impact of deriving multiple scenarios around the base ECL
and resultant change in ECL due to non-linearity and sensitivity to
using macroeconomic forecasts.
Change from Base to Probability-Weighted ECL1
(millions of Canadian dollars,
except as noted)
Probability-weighted ECL
Base ECL
Difference – in amount
Difference – in percentage
$ 4,271
4,104
$ 167
3.9%
As at
$ 3,872
3,772
$ 100
2.6%
October 31, 2019 October 31, 2018
1 Certain comparative amounts have been reclassified to conform with the
presentation adopted in the current period.
The allowance for credit losses for performing loans and off-balance
sheet instruments consists of an aggregate amount of Stage 1 and
Stage 2 probability-weighted ECL which are twelve-month ECLs and
168 TD BANK GROUP ANNUAL RE PO RT 201 9 FIN ANC IAL R ESU LTS
4 The CoreLogic home price index (HPI) is a repeat-sales index which tracks increases
and decreases in the same home’s sales price over time.
lifetime ECLs, respectively. Transfers from Stage 1 to Stage 2 ACLs
result from a signifcant increase in credit risk since initial recognition
of the loan. The following table presents the estimated impact of
staging on ACL for performing loans and off-balance sheet instruments
if they were all calculated using twelve-month ECLs compared to
the current aggregate probability-weighted ECL, holding all risk
profles constant.
Incremental Lifetime ECL Impact1
(millions of Canadian dollars)
Aggregate Stage 1 and 2
probability-weighted ECL
All performing loans and off-balance
sheet instruments using 12-month ECL
Incremental lifetime ECL impact
October 31, 2019 October 31, 2018
As at
$ 4,271
$ 3,872
3,672
$ 599
3,438
$ 434
1 Certain comparative amounts have been reclassified to conform with the
presentation adopted in the current period.
FORECLOSED ASSETS
Foreclosed assets are repossessed non-fnancial 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 $121 million as at October 31, 2019
(October 31, 2018 – $81 million), and were recorded in Other assets
on the Consolidated Balance Sheet.
LOANS PAST DUE BUT NOT IMPAIRED
A loan is classifed 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 October 31.
Loans Past Due but not Impaired1,2
(millions of Canadian dollars)
Residential mortgages
Consumer instalment and other personal
Credit card
Business and government
Total
1 Includes loans that are measured at FVOCI.
2 Balances exclude ACI loans.
1-30
days
$ 1,709
6,038
1,401
1,096
$ 10,244
31-60
days
$ 404
845
351
858
$ 2,458
October 31, 2019
61-89
days
Total
$ 111 $ 2,224
7,149
1,981
2,014
$ 666 $ 13,368
266
229
60
1-30
days
$ 1,471
5,988
1,403
1,314
$10,176
31-60
days
$ 358
811
340
444
$ 1,953
As at
October 31, 2018
61-89
days
Total
$ 101 $ 1,930
7,040
1,956
1,786
$ 583 $ 12,712
241
213
28
MODIFIED FINANCIAL ASSETS
The amortized cost of fnancial assets with lifetime allowance that
were modifed during the year ended October 31, 2019 was
$407 million (October 31, 2018 – $408 million) before modifcation,
with insignifcant modifcation gain or loss. The gross carrying amount
of modifed fnancial assets for which the loss allowance changed
from lifetime to twelve-month ECLs during the year ended
October 31, 2019 was $243 million (October 31, 2018 – nil).
COLLATERAL
As at October 31, 2019, the collateral held against total gross impaired
loans represents 77% (October 31, 2018 – 81%) of total gross
impaired loans. The fair value of non-fnancial collateral is determined
at the origination date of the loan. A revaluation of non-fnancial
collateral is performed if there has been a signifcant 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 fows are reviewed at least annually,
or more frequently when new information indicates a change in the
timing or amount expected to be received.
N O T E 9
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 most circumstances, the Bank continues to be
exposed to substantially all of the prepayment, interest rate, and/or
credit risk associated with the securitized fnancial 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 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 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 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 fnancial assets
depending on the individual arrangement of each transaction.
In addition, the Bank transfers credit card receivables, consumer
instalment and other personal loans to structured entities that the
Bank consolidates. Refer to Note 10 for further details.
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
169
The following table summarizes the securitized asset types that did not
qualify for derecognition, along with their associated securitization
liabilities as at October 31.
Financial Assets Not Qualifying for Derecognition Treatment as Part of the Bank’s Securitization Programs
(millions of Canadian dollars)
As at
Nature of transaction
Securitization of residential mortgage loans
Other fnancial assets transferred related to securitization1
Total
Associated liabilities2
October 31, 2019
October 31, 2018
Fair
value
Carrying
amount
Fair
value
Carrying
amount
$ 23,705
3,525
27,230
$ 27,316
$ 23,689
3,524
27,213
$ 27,144
$ 23,124
4,230
27,354
$ 27,272
$ 23,334
4,235
27,569
$ 27,301
1 Includes asset-backed securities, asset-backed commercial paper (ABCP), cash,
repurchase agreements, and Government of Canada securities used to fulfil
funding requirements of the Bank’s securitization structures after the initial
securitization of mortgage loans.
2 Includes securitization liabilities carried at amortized cost of $14 billion
as at October 31, 2019 (October 31, 2018 – $15 billion), and securitization
liabilities carried at fair value of $13 billion as at October 31, 2019
(October 31, 2018 – $13 billion).
Other Financial Assets Not Qualifying for Derecognition
The Bank enters into certain transactions where it transfers previously
recognized commodities and fnancial 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 fnancing 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 fnancial assets
and the associated transactions that did not qualify for derecognition,
as well as their associated fnancial liabilities as at October 31.
Other Financial Assets Not Qualifying for Derecognition
(millions of Canadian dollars)
As at
Carrying amount of assets
Nature of transaction
Repurchase agreements1,2
Securities lending agreements
Total
Carrying amount of associated liabilities2
October 31
2019
October 31
2018
38,338
55,328
$ 16,990 $ 24,333
27,124
51,457
$ 17,428 $ 24,701
1 Includes $1.3 billion, as at October 31, 2019, of assets related to repurchase
agreements or swaps that are collateralized by physical precious metals
(October 31, 2018 – $2.0 billion).
2 Associated 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 fnancial assets.
Certain business and government loans securitized by the Bank are
derecognized from the Bank’s 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 October 31, 2019, the fair value of retained
interests was $19 million (October 31, 2018 – $25 million). There are
no ECLs 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 year
ended October 31, 2019, the trading income recognized on the
retained interest was $1 million (October 31, 2018 – nil).
Certain portfolios of U.S. residential mortgages originated by
the Bank are sold and derecognized from the Bank’s Consolidated
Balance Sheet. In certain instances, the Bank has a continuing
involvement to service those loans. As at October 31, 2019,
the carrying value of these servicing rights was $52 million
(October 31, 2018 – $39 million) and the fair value was $51 million
(October 31, 2018 – $57 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 year ended October 31, 2019 was $14 million
(October 31, 2018 – $18 million).
170 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
N O T E 1 0
STRUCTURED ENTITIES
The Bank uses structured entities for a variety of purposes including:
(1) to facilitate the transfer of specifed risks to clients; (2) as fnancing
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.
The Bank is involved with structured entities that it sponsors, as
well as entities sponsored by third parties. Factors assessed when
determining if the Bank is the sponsor of a structured entity include
whether the Bank is the predominant user of the entity; whether the
entity’s branding or marketing identity is linked with the Bank; and
whether the Bank provides an implicit or explicit guarantee of the
entity’s performance to investors or other third parties. The Bank is
not considered to be the sponsor of a structured entity if it only
provides arm’s-length services to the entity, for example, by acting as
administrator, distributor, custodian, or loan servicer. Sponsorship of a
structured entity may indicate that the Bank had power over the entity
at inception; however, this is not suffcient 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.
SPONSORED STRUCTURED ENTITIES
The following section outlines the Bank’s involvement with key
sponsored structured entities.
Securitizations
The Bank securitizes its own assets and facilitates the securitization of
client assets through structured entities, such as conduits, which issue
ABCP or other securitization entities which issue longer-dated term
securities. Securitizations are an important source of liquidity for
the Bank, allowing it to diversify its funding sources and to optimize
its balance sheet management approach. The Bank has no rights
to the assets as they are owned by the securitization entity.
The Bank sponsors both single-seller and multi-seller securitization
conduits. Depending on the specifcs of the entity, the variable returns
absorbed through ABCP may be signifcantly mitigated by variable
returns retained by the sellers. The Bank provides liquidity facilities to
certain single-seller and multi-seller conduits for the beneft of ABCP
investors which are structured as loan facilities between the Bank, as
the sole liquidity lender, and the Bank-sponsored trusts. If a trust
experiences diffculty issuing ABCP due to illiquidity in the commercial
market, the trust may draw on the loan facility, and use the proceeds
to pay maturing ABCP. The liquidity facilities can only be drawn if
preconditions are met ensuring that the Bank does not provide credit
enhancement through the loan facilities to the conduit. The Bank’s
exposure to the variable returns of these conduits from its provision
of liquidity facilities and any related commitments is mitigated by the
sellers’ continued exposure to variable returns, as described below.
The Bank provides administration and securities distribution services
to its sponsored securitization conduits, which may result in it holding
an investment in the ABCP issued by these entities. In some cases,
the Bank may also provide credit enhancements or may transact
derivatives with securitization conduits. The Bank earns fees from the
conduits which are recognized when earned.
The Bank sells assets to single-seller conduits which it controls and
consolidates. Control results from the Bank’s power over the entity’s
key economic decisions, predominantly, the mix of assets sold into the
conduit and exposure to the variable returns of the transferred assets,
usually through a derivative or the provision of credit mitigation in the
form of cash reserves, over-collateralization, or guarantees over the
performance of the entity’s portfolio of assets.
Multi-seller conduits provide customers with alternate sources of
fnancing through the securitization of their assets. These conduits are
similar to single-seller conduits except that assets are received from
more than one seller and comingled into a single portfolio of assets.
The Bank is typically deemed to have power over the entity’s key
economic decisions, namely, the selection of sellers and related assets
sold as well as other decisions related to the management of risk in the
vehicle. Sellers of assets in multi-seller conduits typically continue to be
exposed to the variable returns of their portion of transferred assets,
through derivatives or the provision of credit mitigation. The Bank’s
exposure to the variable returns of multi-seller conduits from its
provision of liquidity facilities and any related commitments is
mitigated by the sellers’ continued exposure to variable returns from
the entity. While the Bank may have power over multi-seller conduits,
it is not exposed to signifcant variable returns and does not
consolidate such entities.
Investment Funds and Other Asset Management Entities
As part of its asset management business, the Bank creates investment
funds and trusts (including mutual funds), enabling it to provide its
clients with a broad range of diversifed exposure to different risk
profles, in accordance with the client’s risk appetite. Such entities
may be actively managed or may be passively directed, for example,
through the tracking of a specifed index, depending on the entity’s
investment strategy. Financing for these entities is obtained through
the issuance of securities to investors, typically in the form of fund
units. Based on each entity’s specifc strategy and risk profle, the
proceeds from this issuance are used by the entity to purchase a
portfolio of assets. An entity’s portfolio may contain investments in
securities, derivatives, or other assets, including cash. At the inception
of a new investment fund or trust, the Bank will typically invest
an amount of seed capital in the entity, allowing it to establish
a performance history in the market. Over time, the Bank sells its
seed capital holdings to third-party investors, as the entity’s AUM
increases. As a result, the Bank’s holding of seed capital investment
in its own sponsored investment funds and trusts is typically not
signifcant to the Consolidated Financial Statements. Aside from any
seed capital investments, the Bank’s interest in these entities is
generally limited to fees earned for the provision of asset management
services. The Bank does not typically provide guarantees over the
performance of these funds.
The Bank is typically considered to have power over the key
economic decisions of sponsored asset management entities;
however, it does not consolidate an entity unless it is also exposed
to signifcant variable returns of the entity. This determination is
made on a case-by-case basis, in accordance with the Bank’s
consolidation policy.
Financing Vehicles
The Bank may use structured entities to provide a cost-effective means
of fnancing its operations, including raising capital or obtaining
funding. These structured entities include: (1) TD Capital Trust III
(Trust III) and TD Capital Trust IV (Trust IV) (together the “CaTS
Entities”), and (2) TD Covered Bond (Legislative) Guarantor Limited
Partnership (the “Covered Bond Entity”). On December 31, 2018,
Trust III, a subsidiary of the Bank, redeemed all of the outstanding
TD Capital Trust III Securities – Series 2008 (TD CaTS III) at a price of
$1 billion plus the unpaid distribution payable on the redemption
date. Trust III was consolidated by the Bank and the TD CaTS III were
included in Non-controlling interests in subsidiaries on the Bank’s
Consolidated Balance Sheet. On June 30, 2019, Trust IV redeemed all
of the outstanding $550 million TD Capital Trust IV Notes – Series 1.
Refer to Note 20 for additional details.
The CaTS Entities issued innovative capital securities which count
as Tier 1 Capital of the Bank, but, under Basel III, are considered
non-qualifying capital instruments and are subject to the Basel III
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
171
phase-out rules. The proceeds from these issuances were invested
in assets purchased from the Bank which generate income for
distribution to investors. The Bank is considered to have decision-
making power over the key economic activities of the CaTS Entities;
however, it does not consolidate an entity unless it is also exposed
to signifcant variable returns of the entity. The Bank was exposed
to the risks and returns from Trust III as it held the residual risks
through retaining all the voting securities of the entity. The Bank was
considered to be exposed to signifcant variable returns of Trust III’s
portfolio of assets and therefore consolidated the entity. Trust IV holds
assets which are only exposed to the Bank’s own credit risk. As a
result, the Bank does not absorb signifcant variable returns of the
entity as it is ultimately exposed only to its own credit risk, and
therefore does not consolidate the entity. Refer to Note 20 for
further details.
The Bank issues, or has issued, debt under its covered bond program
where the principal and interest payments of the notes are guaranteed
by the Covered Bond Entity. The Bank sold a portfolio of assets to the
Covered Bond Entity and provided a loan to the Covered Bond Entity
to facilitate the purchase. The Bank is restricted from accessing the
Covered Bond Entity’s assets under the relevant agreement. Investors
in the Bank’s covered bonds may have recourse to the Bank should the
assets of the Covered Bond Entity be insuffcient to satisfy the covered
bond liabilities. The Bank consolidates the Covered Bond Entity as it
has power over the key economic activities and retains all the variable
returns in this entity.
THIRD-PARTY SPONSORED STRUCTURED ENTITIES
In addition to structured entities sponsored by the Bank, the Bank is
also involved with structured entities sponsored by third parties. Key
involvement with third-party sponsored structured entities is described
in the following section.
Third-party Sponsored Securitization Programs
The Bank participates in the securitization program of government-
sponsored structured entities, including the CMHC, a Crown corporation
of the Government of Canada, and similar U.S. government-sponsored
entities. The CMHC guarantees CMB issued through the CHT.
The Bank is exposed to the variable returns in the CHT, through
its retention of seller swaps resulting from its participation in the
CHT program. The Bank does not have power over the CHT as its key
economic activities are controlled by the Government of Canada.
The Bank’s exposure to the CHT is included in the balance of
residential mortgage loans as noted in Note 9, and is not disclosed
in the table accompanying this Note.
The Bank participates in the securitization programs sponsored
by U.S. government agencies. The Bank is not exposed to signifcant
variable returns from these agencies and does not have power over
the key economic activities of the agencies, which are controlled
by the U.S. government.
Investment Holdings and Derivatives
The Bank may hold interests in third-party structured entities,
predominantly in the form of direct investments in securities or
partnership interests issued by those structured entities, or through
derivatives transacted with counterparties which are structured
entities. Investments in, and derivatives with, structured entities are
recognized on the Bank’s Consolidated Balance Sheet. The Bank
does not typically consolidate third-party structured entities where
its involvement is limited to investment holdings and/or derivatives
as the Bank would not generally have power over the key economic
decisions of these entities.
Financing Transactions
In the normal course of business, the Bank may enter into fnancing
transactions with third-party structured entities including commercial
loans, reverse repurchase agreements, prime brokerage margin
lending, and similar collateralized lending transactions. While such
transactions expose the Bank to the structured entities’ counterparty
credit risk, this exposure is mitigated by the collateral related to these
transactions. The Bank typically has neither power nor signifcant
variable returns due to fnancing transactions with structured entities
and would not generally consolidate such entities. Financing
transactions with third-party sponsored structured entities are included
on the Bank’s Consolidated Financial Statements and have not been
included in the table accompanying this Note.
Arm’s-length Servicing Relationships
In addition to the involvement outlined above, the Bank may also
provide services to structured entities on an arm’s-length basis, for
example as sub-advisor to an investment fund or asset servicer.
Similarly, the Bank’s asset management services provided to institutional
investors may include transactions with structured entities. As a
consequence of providing these services, the Bank may be exposed to
variable returns from these structured entities, for example, through
the receipt of fees or short-term exposure to the structured entity’s
securities. Any such exposure is typically mitigated by collateral or
some other contractual arrangement with the structured entity or its
sponsor. The Bank generally has neither power nor signifcant variable
returns from the provision of arm’s-length services to a structured
entity and, consequently does not consolidate such entities. Fees
and other exposures through servicing relationships are included on
the Bank’s Consolidated Financial Statements and have not been
included in the table accompanying this Note.
INVOLVEMENT WITH CONSOLIDATED STRUCTURED ENTITIES
Securitizations
The Bank securitizes consumer instalment, and other personal loans
through securitization entities, predominantly single-seller conduits.
These conduits are consolidated by the Bank based on the factors
described above. Aside from the exposure resulting from its involvement
as seller and sponsor of consolidated securitization conduits described
above, including the liquidity facilities provided, the Bank has no
contractual or non-contractual arrangements to provide fnancial
support to consolidated securitization conduits. The Bank’s interests in
securitization conduits generally rank senior to interests held by other
parties, in accordance with the Bank’s investment and risk policies.
As a result, the Bank has no signifcant obligations to absorb losses
before other holders of securitization issuances.
Other Structured Consolidated Structured Entities
Depending on the specifc facts and circumstances of the Bank’s
involvement with structured entities, the Bank may consolidate asset
management entities, fnancing vehicles, or third-party sponsored
structured entities, based on the factors described above. Aside from
its exposure resulting from its involvement as sponsor or investor in the
structured entities as previously discussed, the Bank does not typically
have other contractual or non-contractual arrangements to provide
fnancial support to these consolidated structured entities.
INVOLVEMENT WITH UNCONSOLIDATED STRUCTURED ENTITIES
The following table presents information related to the Bank’s
unconsolidated structured entities. Unconsolidated structured entities
include both TD and third-party sponsored entities. Securitizations
include holdings in TD-sponsored multi-seller conduits, as well as
third-party sponsored mortgage and asset-backed securitizations,
including government-sponsored agency securities such as CMBs,
and U.S. government agency issuances. Investment Funds and Trusts
include holdings in third-party funds and trusts, as well as holdings in
TD-sponsored asset management funds and trusts and commitments
to certain U.S. municipal funds. Amounts in Other are predominantly
related to investments in community-based U.S. tax-advantage entities
described in Note 12. These holdings do not result in the consolidation
of these entities as TD does not have power over these entities.
172 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
Carrying Amount and Maximum Exposure to Unconsolidated Structured Entities1
(millions of Canadian dollars)
Securitizations
Investment
funds and
trusts
Other
Total
Securitizations
October 31, 2019
Investment
funds and
trusts
As at
October 31, 2018
Other
Total
FINANCIAL ASSETS
Trading loans, securities,
and other
$ 8,450
$ 1,096
$
$
9,546
$ 9,460
$
719
$
11
$ 10,190
Non-trading fnancial assets at
fair value through proft or loss
Derivatives2
Financial assets designated at
fair value through proft or loss
Financial assets at fair value through
other comprehensive income
Debt securities at amortized cost,
net of allowance for credit losses
Loans
Other
Total assets
FINANCIAL LIABILITIES
Derivatives2
Obligations related to securities
sold short
Total liabilities
Off-balance sheet exposure3
Maximum exposure to loss from
involvement with unconsolidated
structured entities
Size of sponsored unconsolidated
structured entities4
3,649
–
–
34,451
85,456
1,314
6
133,326
–
3,164
3,164
17,233
–
–
6
–
9
4,137
70
4
1,810
–
–
36,010
47,575
–
–
3,027
3,042
85,456
1,319
3,033
139,575
68,736
2,438
6
130,025
–
395
–
–
–
1,222
3,667
4,062
22,689
2,937
2,937
16,172
488
64
4
1,550
–
5
–
3,207
395
503
898
4,234
367
826
3
1,262
–
–
–
3,177
59
629
688
3,450
–
–
–
–
–
–
2,897
2,908
–
–
–
1,164
2,177
826
3
48,837
68,736
2,438
2,903
136,110
59
3,566
3,625
20,786
$ 147,395
$ 6,543
$ 4,264
$ 158,202
$ 143,260
$ 5,939
$ 4,072
$ 153,271
$ 10,068
$ 37,638
$ 1,200
$ 48,906
$ 10,216
$ 35,897
$ 1,750
$ 47,863
1 Certain comparative amounts have been restated to conform with the presentation
adopted in the current period.
2 Derivatives primarily subject to vanilla interest rate or foreign exchange risk are
not included in these amounts as those derivatives are designed to align the
structured entity’s cash flows with risks absorbed by investors and are not
predominantly designed to expose the Bank to variable returns created by
the entity.
3 For the purposes of this disclosure, off-balance sheet exposure represents
the notional value of liquidity facilities, guarantees, or other off-balance
sheet commitments without considering the effect of collateral or other
credit enhancements.
4 The size of sponsored unconsolidated structured entities is provided based on
the most appropriate measure of size for the type of entity: (1) The par value of
notes issued by securitization conduits and similar liability issuers; (2) the total
AUM of investment funds and trusts; and (3) the total fair value of partnership
or equity shares in issue for partnerships and similar equity issuers.
Sponsored Unconsolidated Structured Entities in which the Bank
has no Significant Investment at the End of the Period
Sponsored unconsolidated structured entities in which the Bank has
no signifcant investment at the end of the period are predominantly
investment funds and trusts created for the asset management
business. The Bank would not typically hold investments, with the
exception of seed capital, in these structured entities. However, the
Bank continues to earn fees from asset management services provided
to these entities, some of which could be based on the performance
of the fund. Fees payable are generally senior in the entity’s priority
of payment and would also be backed by collateral, limiting the Bank’s
exposure to loss from these entities. The Bank earned non-interest
income of $2.0 billion (October 31, 2018 − $1.9 billion) from its
involvement with these asset management entities for the year ended
October 31, 2019, of which $1.8 billion (October 31, 2018 −
$1.8 billion) was received directly from these entities. The total AUM
in these entities as at October 31, 2019 was $233.9 billion
(October 31, 2018 − $196.1 billion). Any assets transferred by the
Bank during the period are co-mingled with assets obtained from
third parties in the market. Except as previously disclosed, the Bank
has no contractual or non-contractual arrangements to provide
fnancial support to unconsolidated structured entities.
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
173
N O T E 1 1 DERIVATIVES
DERIVATIVE PRODUCT TYPES AND RISK EXPOSURES
The majority of the Bank’s derivative contracts are OTC transactions
that are bilaterally negotiated between the Bank and the counterparty
to the contract. The remainder are exchange-traded contracts
transacted through organized and regulated exchanges and consist
primarily of certain options and futures.
The Bank’s derivative transactions relate to trading and non-trading
activities. The purpose of derivatives held for non-trading activities is
primarily for managing interest rate, foreign exchange, and equity
risk related to the Bank’s funding, lending, investment activities, and
other asset/liability management activities. The Bank’s risk management
strategy for these risks is discussed in shaded sections of the
“Managing Risk” section of the MD&A. The Bank also enters into
derivative transactions to economically hedge certain exposures that
do not otherwise qualify for hedge accounting, or where hedge
accounting is not considered feasible.
Where hedge accounting is applied, only a specifc or a combination
of risk components are hedged, including benchmark interest rate,
foreign exchange rate, and equity price components. All these risk
components are observable in the relevant market environment and
the change in the fair value or the variability in cash fows attributable
to these risk components can be reliably measured for hedged items.
Where the derivatives are in hedge relationships, the main sources
of ineffectiveness can be attributed to differences between hedging
instruments and hedged items:
• Differences in fxed rates, when contractual coupons of the fxed
rate hedged items are designated;
• Differences in the discounting factors, when hedging derivatives
are collateralized and discounted using Overnight Indexed Swaps
(OIS) curves, which are not applied to the fxed rate hedged items;
• CRVA on the hedging derivatives; and
• Mismatch in critical terms such as tenor and timing of cash fows
between hedging instruments and hedged items.
To mitigate a portion of the ineffectiveness, the Bank designates the
benchmark risk component of contractual cash fows of hedged items
and executes hedging derivatives with high-quality counterparties.
The majority of the Bank’s hedging derivatives are collateralized.
Interest Rate Derivatives
Interest rate swaps are OTC contracts in which two counterparties
agree to exchange cash fows over a period of time based on rates
applied to a specifed notional amount. A typical interest rate swap
would require one counterparty to pay a fxed market interest rate
in exchange for a variable market interest rate determined from time
to time, with both calculated on a specifed notional amount. No
exchange of principal amount takes place. Certain interest rate swaps
are transacted and settled through a clearing house which acts as
a central counterparty.
Forward rate agreements are OTC contracts that effectively fx
a future interest rate for a period of time. A typical forward rate
agreement provides that at a pre-determined future date, a cash
settlement will be made between the counterparties based upon the
difference between a contracted rate and a market rate to be
determined in the future, calculated on a specifed notional amount.
No exchange of principal amount takes place.
Interest rate options are contracts in which one party (the purchaser
of an option) acquires from another party (the writer of an option), in
exchange for a premium, the right, but not the obligation, either to
buy or sell, on a specifed future date or series of future dates or
within a specifed time, a specifed fnancial instrument at a contracted
price. The underlying fnancial instrument will have a market price
which varies in response to changes in interest rates. In managing the
Bank’s interest rate exposure, the Bank acts as both a writer and
purchaser of these options. Options are transacted both OTC and
through exchanges. Interest rate futures are standardized contracts
174 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
transacted on an exchange. They are based upon an agreement to buy
or sell a specifed quantity of a fnancial instrument on a specifed
future date, at a contracted price. These contracts differ from forward
rate agreements in that they are in standard amounts with standard
settlement dates and are transacted on an exchange.
The Bank uses interest rate swaps to hedge its exposure to
benchmark interest rate risk by modifying the repricing or maturity
characteristics of existing and/or forecasted assets and liabilities,
including funding and investment activities. These swaps are
designated in either fair value hedge against fxed rate asset/liability
or cash fow hedge against foating rate asset/liability. For fair value
hedges, the Bank assesses and measures the hedge effectiveness based
on the change in the fair value or cash fows of the derivative hedging
instrument relative to the change in the fair value or cash fows of the
hedged item attributable to benchmark interest rate risk. For cash fow
hedges, the Bank uses the hypothetical derivative having terms that
identically match the critical terms of the hedged item as the proxy for
measuring the change in fair value or cash fows of the hedged item.
Foreign Exchange Derivatives
Foreign exchange forwards are OTC contracts in which one counterparty
contracts with another to exchange a specifed amount of one
currency for a specifed amount of a second currency, at a future date
or range of dates.
Swap contracts comprise foreign exchange swaps and cross-currency
interest rate swaps. Foreign exchange swaps are transactions in which
a foreign currency is simultaneously purchased in the spot market and
sold in the forward market, or vice-versa. Cross-currency interest rate
swaps are transactions in which counterparties exchange principal and
interest cash fows in different currencies over a period of time. These
contracts are used to manage currency and/or interest rate exposures.
Foreign exchange futures contracts are similar to foreign exchange
forward contracts but differ in that they are in standard currency
amounts with standard settlement dates and are transacted on
an exchange.
Where hedge accounting is applied, the Bank assesses and measures
the hedge effectiveness based on the change in the fair value of the
hedging instrument relative to translation gains and losses of net
investment in foreign operations or the change in cash fows of the
foreign currency denominated asset/liability attributable to foreign
exchange risk, using the hypothetical derivative method.
The Bank uses non-derivative instruments such as foreign currency
deposit liabilities and derivative instruments such as cross-currency swaps
and foreign exchange forwards to hedge its foreign currency exposure.
These hedging instruments are designated in either net investment
hedges or cash fow hedges.
Credit Derivatives
The Bank uses credit derivatives such as credit default swaps (CDS)
and total return swaps in managing risks of the Bank’s corporate loan
portfolio and other cash instruments. Credit risk is the risk of loss
if a borrower or counterparty in a transaction fails to meet its agreed
payment obligations. The Bank uses credit derivatives to mitigate
industry concentration and borrower-specifc exposure as part of
the Bank’s portfolio risk management techniques. The credit, legal,
and other risks associated with these transactions are controlled
through well established procedures. The Bank’s policy is to enter into
these transactions with investment grade fnancial institutions. Credit
risk to these counterparties is managed through the same approval,
limit, and monitoring processes that is used for all counterparties to
which the Bank has credit exposure.
Credit derivatives are OTC contracts designed to transfer the credit
risk in an underlying fnancial instrument (usually termed as a
reference asset) from one counterparty to another. The most
common credit derivatives are CDS (referred to as option contracts)
and total return swaps (referred to as swap contracts). In option
contracts, an option purchaser acquires credit protection on a
reference asset or group of assets from an option writer in exchange
for a premium. The option purchaser may pay the agreed premium at
inception or over a period of time. The credit protection compensates
the option purchaser for deterioration in value of the reference asset
or group of assets upon the occurrence of certain credit events such
as bankruptcy, or changes in specifed credit rating or credit index.
Settlement may be cash based or physical, requiring the delivery of
the reference asset to the option writer. In swap contracts, one
counterparty agrees to pay or receive from the other cash amounts
based on changes in the value of a reference asset or group of assets,
including any returns such as interest earned on these assets in
exchange for amounts that are based on prevailing market funding
rates. These cash settlements are made regardless of whether there
is a credit event.
Other Derivatives
The Bank also transacts in equity and commodity derivatives in both
the exchange and OTC markets.
Equity swaps are OTC contracts in which one counterparty agrees
to pay, or receive from the other, cash amounts based on changes in
the value of a stock index, a basket of stocks or a single stock. These
contracts sometimes include a payment in respect of dividends.
Equity options give the purchaser of the option, for a premium,
the right, but not the obligation, to buy from or sell to the writer
of an option, an underlying stock index, basket of stocks or single
stock at a contracted price. Options are transacted both OTC and
through exchanges.
Equity index futures are standardized contracts transacted on an
exchange. They are based on an agreement to pay or receive a cash
amount based on the difference between the contracted price level
of an underlying stock index and its corresponding market price
level at a specifed future date. There is no actual delivery of stocks
that comprise the underlying index. These contracts are in standard
amounts with standard settlement dates.
Commodity contracts include commodity forwards, futures, swaps,
and options, such as precious metals and energy-related products in
both OTC and exchange markets.
Where hedge accounting is applied, the Bank uses equity forwards
and/or total return swaps to hedge its exposure to equity price risk.
These derivatives are designated as cash fow hedges. The Bank
assesses and measures the hedge effectiveness based on the change in
the fair value of the hedging instrument relative to the change in the
cash fows of the hedged item attributable to movement in equity
price, using the hypothetical derivative method.
Fair Value of Derivatives
(millions of Canadian dollars)
Derivatives held or issued for trading purposes
Interest rate contracts
Forward rate agreements
Swaps
Options written
Options purchased
Total interest rate contracts
Foreign exchange contracts
Forward contracts
Swaps
Cross-currency interest rate swaps
Options written
Options purchased
Total foreign exchange contracts
Credit derivative contracts
Credit default swaps – protection purchased
Credit default swaps – protection sold
Total credit derivative contracts
Other contracts
Equity contracts
Commodity contracts
Total other contracts
Fair value – trading
Derivatives held or issued for non-trading purposes
Interest rate contracts
Forward rate agreements
Swaps
Options written
Options purchased
Total interest rate contracts
Foreign exchange contracts
Forward contracts
Swaps
Cross-currency interest rate swaps
Total foreign exchange contracts
Credit derivative contracts
Credit default swaps – protection purchased
Total credit derivative contracts
Other contracts
Equity contracts
Total other contracts
Fair value – non-trading
Total fair value
October 31, 2019
Fair value as at
balance sheet date
October 31, 2018
Fair value as at
balance sheet date
Positive
Negative
Positive
Negative
$
24
11,244
–
1,168
12,436
$
149
11,952
1,099
–
13,200
713
12,734
14,721
–
289
28,457
–
16
16
748
1,524
2,272
43,181
–
2,365
–
15
2,380
660
2
1,531
2,193
–
–
1,540
12,613
12,913
302
–
27,368
241
–
241
2,942
1,335
4,277
45,086
2
1,303
1
–
1,306
90
22
1,919
2,031
179
179
$
37
9,931
–
516
10,484
17,638
–
18,489
–
486
36,613
–
9
9
2,537
1,291
3,828
50,934
2
1,893
–
19
1,914
333
–
2,729
3,062
–
–
$
39
7,229
566
–
7,834
15,943
–
15,692
543
–
32,178
230
1
231
1,362
837
2,199
42,442
–
1,898
1
–
1,899
327
–
2,413
2,740
155
155
1,140
1,140
5,713
$ 48,894
1,449
1,449
4,965
$ 50,051
1,086
1,086
6,062
$ 56,996
1,034
1,034
5,828
$ 48,270
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
175
The following table distinguishes derivatives held or issued for
non-trading purposes between those that have been designated in
qualifying hedge accounting relationships and those which have
not been designated in qualifying hedge accounting relationships as
at October 31.
Fair Value of Non-Trading Derivatives1
(millions of Canadian dollars)
Derivative Assets
Derivatives in
qualifying
hedging
relationships
Fair
value
Cash
fow
Net
investment
Derivatives
not in
qualifying
hedging
relationships
Derivatives in
qualifying
hedging
relationships
Total
Fair
value
Cash
fow
Net
investment
As at
October 31, 2019
Derivative Liabilities
Derivatives
not in
qualifying
hedging
relationships
Total
Derivatives held or issued for
non-trading purposes
Interest rate contracts
Foreign exchange contracts
Credit derivative contracts
Other contracts
Fair value – non-trading
$ 882
–
–
–
$ 882
$ 804
2,175
–
531
$ 3,510
Derivatives held or issued for
non-trading purposes
Interest rate contracts
Foreign exchange contracts
Credit derivative contracts
Other contracts
Fair value – non-trading
$ 1,050
–
–
–
$ 1,050
$
(62)
2,948
–
594
$ 3,480
$ –
2
–
–
$ 2
$ 4
4
–
–
$ 8
$ 694
16
–
609
$ 1,319
$ 2,380
2,193
–
1,140
$ 5,713
$ 786
–
–
–
$ 786
(46)
$
1,910
–
–
$ 1,864
–
$
58
–
–
$ 58
$ 566
63
179
1,449
$ 2,257
$ 1,306
2,031
179
1,449
$ 4,965
October 31, 2018
$ 922
110
–
492
$ 1,524
$ 1,914
3,062
–
1,086
$ 6,062
$ 858
–
–
–
$ 858
$ 187
2,399
–
–
$ 2,586
$
–
314
–
–
$ 314
$ 854
27
155
1,034
$ 2,070
$ 1,899
2,740
155
1,034
$ 5,828
1 Certain derivatives assets qualify to be offset with certain derivative liabilities on
the Consolidated Balance Sheet. Refer to Note 6 for further details.
Fair Value Hedges
The following table presents the effects of fair value hedges on the
Consolidated Balance Sheet and the Consolidated Statement of Income.
Fair Value Hedges
(millions of Canadian dollars)
Change in
value of hedged
items for
ineffectiveness
measurement
Change in fair
value of hedging
instruments for
ineffectiveness
measurement
Carrying
amounts
for hedged
items
Accumulated
amount of fair
value hedge
adjustments on
hedged items1
Hedge
ineffectiveness
2019
Accumulated
amount of fair
value hedge
adjustments on
de-designated
hedged items
For the years ended or as at October 31
Assets
Interest rate risk
Debt securities at amortized cost
Financial assets at fair value through other
comprehensive income
Loans
Total assets
Liabilities
Interest rate risk
Deposits
Securitization liabilities at amortized cost
Subordinated notes and debentures
Total liabilities
Total
$ 2,144
$ (2,160)
$ (16)
$ 46,888
$ 1,502
$
–
3,286
1,440
6,870
(4,566)
(149)
(189)
(4,904)
$ 1,966
(3,299)
(1,458)
(6,917)
4,584
151
190
4,925
$ (1,992)
(13)
(18)
(47)
78,688
59,270
184,846
18
2
1
21
$ (26)
125,602
5,481
5,071
136,154
580
741
2,823
2,214
82
(28)
2,268
(119)
(6)
(125)
(11)
–
(135)
(146)
1 The Bank has portfolios of fixed rate financial assets and liabilities whereby the
notional amount changes frequently due to originations, issuances, maturities
and prepayments. The interest rate risk hedges on these portfolios are
rebalanced dynamically.
176 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
Fair Value Hedges (continued)
(millions of Canadian dollars)
For the years ended or as at October 31
Assets
Interest rate risk
Debt securities at amortized cost
Financial assets at fair value through other
comprehensive income
Loans
Total assets
Liabilities
Interest rate risk
Deposits
Securitization liabilities at amortized cost
Subordinated notes and debentures
Total liabilities
Total
Change in
value of hedged
items for
ineffectiveness
measurement
Change in fair
value of hedging
instruments for
ineffectiveness
measurement
Carrying
amounts
for hedged
items
Accumulated
amount of fair
value hedge
adjustments on
hedged items1
Hedge
ineffectiveness
2018
Accumulated
amount of fair
value hedge
adjustments on
de-designated
hedged items
$
(501)
$ 507
$ 6
$ 30,032
$
(618)
$
–
(1,874)
(792)
(3,167)
2,182
71
112
2,365
(802)
$
1,869
792
3,168
(2,179)
(73)
(112)
(2,364)
$ 804
(5)
–
1
86,804
45,157
161,993
3
(2)
–
1
$ 2
93,150
4,960
4,027
102,137
(2,699)
(726)
(4,043)
(2,301)
(52)
(230)
(2,583)
(172)
(8)
(180)
(4)
–
(143)
(147)
2017
Total
$
(933)
$ 914
$ (19)
1 The Bank has portfolios of fixed rate financial assets and liabilities whereby the
notional amount changes frequently due to originations, issuances, maturities
and prepayments. The interest rate risk hedges on these portfolios are
rebalanced dynamically.
Cash Flow Hedges and Net Investment Hedges
The following table presents the effects of cash fow hedges and net
investment hedges on the Bank’s Consolidated Statement of Income
and the Consolidated Statement of Comprehensive Income.
Cash Flow and Net Investment Hedges
(millions of Canadian dollars)
For the years ended October 31
2019
Change in
value of hedged
items for
ineffectiveness
measurement
Change in fair
value of hedging
instruments for
ineffectiveness
measurement
Hedge
ineffectiveness
Hedging
gains (losses)
recognized
in other
comprehensive
income1
Amount
reclassifed from
accumulated other
comprehensive
income (loss)
to earnings1
Net change
in other
comprehensive
income (loss)1
$ (5,087)
251
(122)
$ (4,958)
$ 5,089
(250)
122
$ 4,961
$ 2
1
–
$ 3
$ 5,041
(466)
122
$ 4,697
$ (218)
(572)
117
$ (673)
$ 5,259
106
5
$ 5,370
Cash fow hedges2
Interest rate risk3
Foreign exchange risk4,5,6
Equity price risk
Total cash fow hedges
Net investment hedges
$
(180)
$
180
$ –
$
180
$
–
$
180
Cash fow hedges2
Interest rate risk3
Foreign exchange risk4,5,6
Equity price risk
Total cash fow hedges
$ 2,585
(449)
(66)
$ 2,070
$ (2,587)
449
66
$ (2,072)
$
$
(2)
–
–
(2)
$ (2,528)
362
66
$ (2,100)
$ 335
306
97
$ 738
2018
$ (2,863)
56
(31)
$ (2,838)
Net investment hedges
$ 392
$
(392)
$ –
$
(392)
$
–
$
(392)
Total cash fow hedges2
Net investment hedges
$
(2)
–
$ (2,229)
890
$ 1,077
(8)
2017
1 Effects on other comprehensive income are presented on a pre-tax basis.
2 During the years ended October 31, 2019, October 31, 2018, and October 31, 2017,
there were no instances where forecasted hedged transactions failed to occur.
3 Hedged items include forecasted interest cash flows on loans, deposits, and
5 Cross-currency swaps may be used to hedge foreign exchange risk or a
combination of interest rate risk and foreign exchange risk in a single hedging
relationship. These hedges are disclosed in the above risk category (foreign
exchange risk).
securitization liabilities.
4 For non-derivative instruments designated as hedging foreign exchange risk,
fair value change is measured as the gains and losses due to spot foreign
exchange movements.
6 Hedged items include principal and interest cash flows on foreign denominated
securities, loans, deposits, other liabilities, and subordinated notes and debentures.
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
177
Reconciliation of Accumulated Other Comprehensive Income (Loss)1
(millions of Canadian dollars)
For the years ended October 31
Accumulated other
comprehensive
income (loss) at
beginning of year
Net changes
in other
comprehensive
income (loss)
Accumulated
other
comprehensive
income (loss)
at end of year
Accumulated
other
comprehensive
income (loss) on
designated hedges
$ (3,656)
247
20
$ (3,389)
$ 5,259
106
5
$ 5,370
$ 1,603
353
25
$ 1,981
$ 1,226
353
25
$ 1,604
$ (5,689)
$
180
$ (5,509)
$ (5,509)
$
$
(793)
191
51
(551)
$ (2,863)
56
(31)
$ (2,838)
$ (3,656)
247
20
$ (3,389)
$ (2,245)
247
20
$ (1,978)
2019
Accumulated
other
comprehensive
income (loss) on
de-designated
hedges
$
$
$
377
–
–
377
–
2018
$ (1,411)
–
–
$ (1,411)
$ (5,297)
$
(392)
$ (5,689)
$ (5,689)
$
–
Cash fow hedges
Interest rate risk
Foreign exchange risk
Equity price risk
Total cash fow hedges
Net investment hedges
Foreign translation risk
Cash fow hedges
Interest rate risk
Foreign exchange risk
Equity price risk
Total cash fow hedges
Net investment hedges
Foreign translation risk
1 Presented on a pre-tax basis and excludes the Bank’s equity in the AOCI of an
investment in TD Ameritrade.
NOTIONAL AMOUNTS
The notional amounts are not recorded as assets or liabilities as they
represent the face amount of the contract to which a rate or price is
applied to determine the amount of cash fows to be exchanged.
Notional amounts do not represent the potential gain or loss
associated with the market risk nor are they indicative of the credit risk
associated with derivative fnancial instruments.
The following table discloses the notional amount of over-the-counter
and exchange-traded derivatives.
Over-the-Counter and Exchange-Traded Derivatives
(millions of Canadian dollars)
October 31
2019
As at
October 31
2018
Trading
Exchange-
traded
Total
Non-
trading3
Total
Total
$ 884,565 $
–
–
136,264
187,260
1,208,089
884,565
1,846,060
9,770,263
245,796
309,419
13,056,103
$
– $
884,565 $
867
1,642,583
472
5,374
1,649,296
1,846,927
11,412,846
246,268
314,793
14,705,399
16
–
–
–
15
2
33
–
–
–
16
169,992
1,747,596
757,780
27,654
27,295
2,730,333
9,471
1,112
10,583
–
20,473
1,955
100,921
–
–
123,349
3,199
–
3,199
16
190,465
1,749,551
858,701
27,654
27,295
2,853,682
12,670
1,112
13,782
12,612
1,122
13,734
575,825
970,904
9,442,704
200,948
227,775
11,418,156
24
1,825,682
6
785,946
34,090
32,655
2,678,403
Over-the-Counter1
Non
clearing
house
Clearing
house2
$
– $
1,817,528
9,380,140
–
–
11,197,668
–
–
–
–
–
–
–
–
28,532
390,123
109,532
122,159
650,346
–
169,992
1,747,596
757,780
27,639
27,293
2,730,300
9,222
956
10,178
249
156
405
–
100
100
92,327
46,885
139,212
$ 11,207,946 $ 3,520,263
66,590
49,702
116,292
158,917
96,687
255,604
$ 1,324,414 $ 16,052,623
29,454
–
29,454
145,327
73,193
218,520
$ 1,805,298 $ 17,857,921 $ 14,328,813
188,371
96,687
285,058
Notional
Interest rate contracts
Futures
Forward rate agreements
Swaps
Options written
Options purchased
Total interest rate contracts
Foreign exchange contracts
Futures
Forward contracts
Swaps
Cross-currency interest rate swaps
Options written
Options purchased
Total foreign exchange contracts
Credit derivative contracts
Credit default swaps – protection purchased
Credit default swaps – protection sold
Total credit derivative contracts
Other contracts
Equity contracts
Commodity contracts
Total other contracts
Total
1 Collateral held under a Credit Support Annex to help reduce counterparty credit
risk is in the form of high-quality and liquid assets such as cash and high-quality
government securities. Acceptable collateral is governed by the Collateralized
Trading Policy.
2 Derivatives executed through a central clearing house reduces settlement risk due
to the ability to net settle offsetting positions for capital purposes and therefore
receive preferential capital treatment compared to those settled with non-central
clearing house counterparties.
3 As at October 31, 2019, includes $1,454 billion of OTC derivatives that are
transacted with clearing houses (October 31, 2018 – $1,244 billion) and
$352 billion of OTC derivatives that are transacted with non-clearing houses
(October 31, 2018 – $337 billion). There were no exchange-traded derivatives
both as at October 31, 2019 and October 31, 2018.
178 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
The following table distinguishes the notional amount of derivatives
held or issued for non-trading purposes between those that have been
designated in qualifying hedge accounting relationships and those
which have not been designated in qualifying hedge accounting
relationships.
Notional of Non-Trading Derivatives
(millions of Canadian dollars)
Derivatives held or issued for hedging (non-trading) purposes
Interest rate contracts
Foreign exchange contracts
Credit derivative contracts
Other contracts
Total notional non-trading
Interest rate contracts
Foreign exchange contracts
Credit derivative contracts
Other contracts
Total notional non-trading
Derivatives in qualifying hedging relationships
Fair
value
$ 337,374
–
–
–
$ 337,374
$ 282,718
–
–
–
$ 282,718
Cash
fow1
$ 234,134
117,532
–
2,079
$ 353,745
$ 214,969
113,183
–
2,058
$ 330,210
$
Net
investment1
–
1,292
–
–
$ 1,292
$ 1,646
1,249
–
–
$ 2,895
As at
October 31, 2019
Derivatives not in
qualifying hedging
relationships
$ 1,077,788
4,525
3,199
27,375
$ 1,112,887
Total
$ 1,649,296
123,349
3,199
29,454
$ 1,805,298
October 31, 2018
$ 922,323
11,674
2,745
28,372
$ 965,114
$ 1,421,656
126,106
2,745
30,430
$ 1,580,937
1 Certain cross-currency swaps are executed using multiple derivatives, including
interest rate swaps. These derivatives are used to hedge foreign exchange rate
risk in cash flow hedges and net investment hedges.
The following table discloses the notional principal amount of
over-the-counter derivatives and exchange-traded derivatives based
on their contractual terms to maturity.
Derivatives by Remaining Term-to-Maturity
(millions of Canadian dollars)
Notional Principal
Interest rate contracts
Futures
Forward rate agreements
Swaps
Options written
Options purchased
Total interest rate contracts
Foreign exchange contracts
Futures
Forward contracts
Swaps
Cross-currency interest rate swaps
Options written
Options purchased
Total foreign exchange contracts
Credit derivative contracts
Credit default swaps – protection purchased
Credit default swaps – protection sold
Total credit derivative contracts
Other contracts
Equity contracts
Commodity contracts
Total other contracts
Total
Within
1 year
$ 672,570
1,793,862
4,455,050
183,359
230,502
7,335,343
16
177,645
1,714,371
260,392
23,596
23,195
2,199,215
2,066
133
2,199
Over
1 year to
5 years
$ 211,995
53,065
5,042,224
50,575
72,996
5,430,855
–
12,719
32,812
442,131
3,788
3,823
495,273
4,316
704
5,020
Over
5 years
$
–
–
1,915,572
12,334
11,295
1,939,201
–
101
2,368
156,178
270
277
159,194
6,288
275
6,563
October 31
2019
As at
October 31
2018
Total
Total
$
884,565
1,846,927
11,412,846
246,268
314,793
14,705,399
$
575,825
970,904
9,442,704
200,948
227,775
11,418,156
16
190,465
1,749,551
858,701
27,654
27,295
2,853,682
12,670
1,112
13,782
24
1,825,682
6
785,946
34,090
32,655
2,678,403
12,612
1,122
13,734
146,954
79,394
226,348
$ 9,763,105
41,404
16,460
57,864
$ 5,989,012
13
833
846
$ 2,105,804
188,371
96,687
285,058
$ 17,857,921
145,327
73,193
218,520
$ 14,328,813
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
179
Interest Rate Benchmark Reform
The replacement of existing IBORs with alternative nearly risk-free rates
(RFRs) is at different stages, and is progressing at different speeds,
globally. Uncertainty exists related to timing and methods of transition
for fnancial instruments affected by these changes, and also on
whether some existing benchmarks will continue to be supported.
The Bank’s hedging relationships have signifcant exposure to
US LIBOR, EURIBOR and GBP LIBOR benchmark rates. Under IBOR
reform, these benchmark rates may be subject to discontinuance,
changes in methodology, or become illiquid when the adoption of
RFRs as established benchmark rates increase.
As a result of these developments, signifcant judgment is required
in determining whether certain hedging relationships that hedge the
variability of cash fows and interest rate or foreign exchange risk due
to changes in IBORs continue to qualify for hedge accounting. As a
result of the effects of IBOR reform, on September 26, 2019, the
IASB issued Interest Rate Benchmark Reform, Amendments to IFRS 9,
IAS 39 and IFRS 7 (“Interest Rate Benchmark Reform”); of which the
Bank adopted the applicable amendments to IFRS 7 relating to hedge
accounting and will apply the remaining amendments related to IAS 39
as and when applicable, to the Bank’s hedging relationships. Refer to
Note 2 and Note 4 for more details.
Impacted hedging relationships will continue to be monitored for
each signifcant benchmark rate subject to potential RFR transition. As
the new RFRs are likely to differ from the prior benchmark rates, new
or revised hedging strategies may be required to better align derivative
hedging instruments with hedged items. However, given the market
uncertainty, the assessment of the impact on the Bank’s hedging
strategies and its mitigation plans is in the early stages.
The following table discloses the notional amount and average
price of derivative instruments designated in qualifying hedge
accounting relationships.
Hedging Instruments by Remaining Term-to-Maturity
(millions of Canadian dollars, except as noted)
Notional
Interest rate risk
Interest rate swaps1
Notional – pay fxed
Average fxed interest rate %
Notional – received fxed
Average fxed interest rate %
Total notional – interest rate risk
Foreign exchange risk2
Forward contracts
Notional – USD/CAD
Average FX forward rate
Notional – EUR/CAD
Average FX forward rate
Notional – other
Cross-currency swaps3,4
Notional – USD/CAD
Average FX rate
Notional – EUR/CAD
Average FX rate
Notional – GBP/CAD
Average FX rate
Notional – other currency pairs5
Total notional – foreign exchange risk
Equity Price Risk
Notional – equity forward contracts
Total notional
Within
1 year
Over
1 year to
5 years
$ 43,299
1.72
32,511
1.92
75,810
$ 118,366
1.85
162,263
2.19
280,629
784
1.31
3,001
1.52
1,292
12,149
1.26
5,509
1.48
341
1.74
8,718
31,794
279
1.32
12,434
1.62
–
35,023
1.30
14,660
1.50
4,692
1.70
12,423
79,511
Over
5 years
$ 40,213
2.21
54,005
1.69
94,218
–
–
1,574
1.75
–
2,283
1.32
3,305
1.48
–
–
327
7,489
October 31
2019
As at
October 31
2018
Total
Total
$ 201,878
$ 181,544
248,779
212,013
450,657
393,557
1,063
17,009
1,292
49,455
23,474
5,033
1,610
17,283
1,249
49,487
17,049
3,954
21,468
118,794
23,799
114,431
2,092
$ 109,696
–
$ 360,140
–
$ 101,707
2,092
$ 571,543
2,058
$ 510,046
1 The notional amount of interest rate swaps indexed to US LIBOR, EURIBOR, or
GBP LIBOR, with a maturity date beyond December 31, 2021, is $173.5 billion as
at October 31, 2019. These instruments are being monitored for the impact of
IBOR reform.
2 Foreign currency denominated deposit liabilities are also used to hedge foreign
exchange risk. As at October 31, 2019, the carrying value of these non-derivative
hedging instruments was $23.9 billion (October 31, 2018 – $15.3 billion)
designated under net investment hedges.
3 Cross-currency swaps may be used to hedge foreign exchange risk or a
combination of interest rate risk and foreign exchange risk in a single hedge
relationship. Both these types of hedges are disclosed under the Foreign
exchange risk as the risk category.
4 Certain cross-currency swaps are executed using multiple derivatives, including
interest rate swaps. The notional amount of these interest rate swaps, excluded
from the above, is $120.9 billion as at October 31, 2019 (October 31, 2018 –
$105.8 billion). As at October 31, 2019, the notional amount of cross-currency
swaps and interest rate swaps indexed to US LIBOR, EURIBOR, or GBP LIBOR, with
a maturity date beyond December 31, 2021, are $39.5 billion and $26.8 billion,
respectively, and are being monitored for the impact of IBOR reform.
5 Includes derivatives executed to manage non-trading foreign currency exposures,
when more than one currency is involved prior to hedging to the Canadian dollar,
when the functional currency of the entity is not the Canadian dollar, or when
the currency pair is not a significant exposure for the Bank.
180 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
DERIVATIVE-RELATED RISKS
Market Risk
Derivatives, in the absence of any compensating upfront cash
payments, generally have no market value at inception. They obtain
value, positive or negative, as relevant interest rates, foreign exchange
rates, equity, commodity or credit prices or indices change, such that
the previously contracted terms of the derivative transactions have
become more or less favourable than what can be negotiated under
current market conditions for contracts with the same terms and the
same remaining period to expiry.
The potential for derivatives to increase or decrease in value as
a result of the foregoing factors is generally referred to as market
risk. This market risk is managed by senior offcers responsible for
the Bank’s trading and non-trading businesses and is monitored
independently by the Bank’s Risk Management group.
Credit Risk
Credit risk on derivatives, also known as counterparty credit risk,
is the risk of a fnancial loss occurring as a result of the failure
of a counterparty to meet its obligation to the Bank. The Capital
Markets Risk Management group is responsible for implementing
and ensuring compliance with credit policies established by the Bank
for the management of derivative credit exposures.
Credit Exposure of Derivatives1
(millions of Canadian dollars)
Derivative-related credit risks are subject to the same credit
approval, limit and monitoring standards that are used for managing
other transactions that create credit exposure. This includes evaluating
the creditworthiness of counterparties, and managing the size,
diversifcation and maturity structure of the portfolios. The Bank
actively engages in risk mitigation strategies through the use of
multi-product derivative master netting agreements, collateral and
other risk mitigation techniques. Master netting agreements reduce
risk to the Bank by allowing the Bank to close out and net transactions
with counterparties subject to such agreements upon the occurrence
of certain events. The effect of these master netting agreements
is refected in the following table. Also shown in this table, is the
current replacement cost, which is the positive fair value of all
outstanding derivatives. The credit equivalent amount is the sum
of the current replacement cost and the potential future exposure,
which is calculated by applying factors supplied by OSFI to the notional
principal amount of the derivatives. The risk-weighted amount is
determined by applying standard measures of counterparty credit risk
to the credit equivalent amount.
Interest rate contracts
Forward rate agreements
Swaps
Options purchased
Total interest rate contracts
Foreign exchange contracts
Forward contracts
Swaps
Cross-currency interest rate swaps
Options purchased
Total foreign exchange contracts
Other contracts
Credit derivatives
Equity contracts
Commodity contracts
Total other contracts
Total derivatives
Less: impact of master netting agreements
Total derivatives after netting
Less: impact of collateral
Net derivatives
Qualifying Central Counterparty (QCCP) Contracts
Total
October 31, 2019
Current
replacement
cost
Credit
equivalent
amount
Risk-
weighted
amount
Current
replacement
cost
$
31
3,210
133
3,374
434
1,961
1,812
48
4,255
6
151
383
540
8,169
n/a
8,169
n/a
8,169
3,085
$ 11,254
$
536
9,635
459
10,630
2,555
14,286
10,288
363
27,492
634
5,706
3,083
9,423
47,545
n/a
47,545
n/a
47,545
12,967
$ 60,512
$ 449
1,809
102
2,360
375
1,635
1,183
83
3,276
149
667
627
1,443
7,079
n/a
7,079
n/a
7,079
349
$ 7,428
$
21
11,630
508
12,159
17,605
–
21,218
486
39,309
3
3,043
1,101
4,147
55,615
34,205
21,410
8,884
12,526
155
$ 12,681
1 Effective November 1, 2018, the Bank implemented the standardized approach
for counterparty credit risk (SA-CCR) in determining the calculation of current
replacement costs, credit equivalent amount and RWA which includes the impact
of master netting agreements and collateral. Prior period comparatives are based
on previous methodology, under which these impacts were presented separately.
As at
October 31, 2018
Credit
equivalent
amount
$
56
15,557
776
16,389
35,543
–
40,942
1,029
77,514
358
7,383
2,546
10,287
104,190
54,039
50,151
9,602
40,549
14,332
$ 54,881
Risk-
weighted
amount
$
15
4,193
299
4,507
4,247
–
7,012
212
11,471
145
920
514
1,579
17,557
11,464
6,093
1,173
4,920
2,058
$ 6,978
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
181
Current Replacement Cost of Derivatives
(millions of Canadian dollars,
except as noted)
By sector
Financial
Government
Other
Current replacement cost
Less: impact of master netting
agreements and collateral
Total current replacement cost
October 31
2019
$ 2,416
1,836
1,279
$ 5,531
By location of risk
Canada
United States
Other international
United Kingdom
Europe – other
Other
Total Other international
Total current replacement cost
Canada1
October 31
2018
$ 29,608
9,737
1,995
$ 41,340
October 31
2019
$
80
43
1,531
$ 1,654
United States1
October 31
2018
Other international1
October 31
2018
October 31
2019
$ 930
102
359
$ 1,391
$ 245
221
518
$ 984
$ 7,104
4,704
1,076
$ 12,884
October 31
2019
$ 2,768
2,936
501
1,211
753
2,465
$ 8,169
October 31
2018
$ 3,898
4,887
487
2,183
1,071
3,741
$ 12,526
As at
Total
October 31
2018
$ 37,642
14,543
3,430
$ 55,615
43,089
$ 12,526
October 31
2018
% mix
October 31
2019
$ 2,741
2,100
3,328
$ 8,169
n/a
$ 8,169
October 31
2019
% mix
33.9%
36.0
6.1
14.8
9.2
30.1
100.0%
31.1%
39.0
3.9
17.4
8.6
29.9
100.0%
1 Based on geographic location of unit responsible for recording revenue.
Certain of the Bank’s derivative contracts are governed by master
derivative agreements having provisions that may permit the Bank’s
counterparties to require, upon the occurrence of a certain contingent
event: (1) the posting of collateral or other acceptable remedy such as
assignment of the affected contracts to an acceptable counterparty;
or (2) settlement of outstanding derivative contracts. Most often, these
contingent events are in the form of a downgrade of the senior debt
rating of the Bank, either as counterparty or as guarantor of one
of the Bank’s subsidiaries. At October 31, 2019, the aggregate net
liability position of those contracts would require: (1) the posting
of collateral or other acceptable remedy totalling $102 million
(October 31, 2018 – $300 million) in the event of a one-notch
or two-notch downgrade in the Bank’s senior debt rating; and
(2) funding totalling $0.5 million (October 31, 2018 – $10 million)
following the termination and settlement of outstanding derivative
contracts in the event of a one-notch or two-notch downgrade in
the Bank’s senior debt rating.
N O T E 1 2
INVESTMENT IN ASSOCIATES AND JOINT VENTURES
Certain of the Bank’s derivative contracts are governed by master
derivative agreements having credit support provisions that permit
the Bank’s counterparties to call for collateral depending on the net
mark-to-market exposure position of all derivative contracts governed
by that master derivative agreement. Some of these agreements may
permit the Bank’s counterparties to require, upon the downgrade
of the credit rating of the Bank, to post additional collateral. As at
October 31, 2019, the fair value of all derivative instruments with
credit risk related contingent features in a net liability position was
$11 billion (October 31, 2018 – $8 billion). The Bank has posted
$13 billion (October 31, 2018 – $10 billion) of collateral for this
exposure in the normal course of business. As at October 31, 2019,
the impact of a one-notch downgrade in the Bank’s credit rating
would require the Bank to post an additional $147 million
(October 31, 2018 – $38 million) of collateral to that posted in the
normal course of business. A two-notch downgrade in the Bank’s
credit rating would require the Bank to post an additional $192 million
(October 31, 2018 – $44 million) of collateral to that posted in the
normal course of business.
INVESTMENT IN TD AMERITRADE HOLDING CORPORATION
The Bank has signifcant infuence 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 signifcantly affect the results.
As at October 31, 2019, the Bank’s reported investment in
TD Ameritrade was 43.19% (October 31, 2018 – 41.61%) of the
outstanding shares of TD Ameritrade with a fair value of $12 billion
(US$9 billion) (October 31, 2018 – $16 billion (US$12 billion)) based
on the closing price of US$38.38 (October 31, 2018 – US$51.72)
on the New York Stock Exchange.
During the year ended October 31, 2019, TD Ameritrade
repurchased 21.5 million shares (for the year ended October 31, 2018 –
5.5 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%.
In connection with TD Ameritrade’s acquisition of Scottrade
Financial Services, Inc. (Scottrade) on September 18, 2017,
TD Ameritrade issued 38.8 million shares, of which the Bank purchased
11.1 million pursuant to its pre-emptive rights. The Bank purchased
the shares at a price of US$36.12. As a result of the share issuance,
the Bank’s common stock ownership percentage in TD Ameritrade
decreased and the Bank realized a dilution gain of $204 million
recorded in Other Income on the Consolidated Statement of Income.
Refer to Note 13 for a discussion on the acquisition of Scottrade Bank.
182 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
Pursuant to the Stockholders Agreement in relation to the Bank’s
equity investment in TD Ameritrade, the Bank has the right to
designate fve 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 Offcer and four independent
directors of TD or TD’s U.S. subsidiaries.
TD Ameritrade has no signifcant contingent liabilities to which
the Bank is exposed. During the years ended October 31, 2019, and
October 31, 2018, TD Ameritrade did not experience any signifcant
restrictions to transfer funds in the form of cash dividends, or
repayment of loans or advances.
The condensed fnancial statements of TD Ameritrade, based on its
consolidated fnancial statements, are included in the following tables.
Condensed Consolidated Balance Sheets1
(millions of Canadian dollars)
Assets
Receivables from brokers, dealers, and clearing organizations
Receivables from clients, net
Other assets, net
Total assets
Liabilities
Payable to brokers, dealers, and clearing organizations
Payable to clients
Other liabilities
Total liabilities
Stockholders’ equity2
Total liabilities and stockholders’ equity
As at
September 30
2019
September 30
2018
$ 3,212
27,156
27,303
$ 57,671
$ 4,357
35,650
6,205
46,212
11,459
$ 57,671
$ 1,809
29,773
17,811
$ 49,393
$ 3,923
30,126
4,809
38,858
10,535
$ 49,393
1 Customers’ securities are reported on a settlement date basis whereas
2 The difference between the carrying value of the Bank’s investment in
the Bank reports customers’ securities on a trade date basis.
TD Ameritrade and the Bank’s share of TD Ameritrade’s stockholders’ equity
is comprised of goodwill, other intangibles, and the cumulative
translation adjustment.
Condensed Consolidated Statements of Income
(millions of Canadian dollars, except as noted)
Revenues
Net interest revenue
Fee-based and other revenue
Total revenues
Operating expenses
Employee compensation and benefts
Other
Total operating expenses
Other expense (income)
Pre-tax income
Provision for income taxes
Net income1,2
Earnings per share – basic (Canadian dollars)
Earnings per share – diluted (Canadian dollars)
For the years ended September 30
2019
2018
2017
$ 2,036
5,947
7,983
1,756
2,245
4,001
94
3,888
957
$ 2,931
$ 5.27
5.26
$ 1,635
5,365
7,000
1,992
2,434
4,426
142
2,432
535
$ 1,897
$ 3.34
3.32
$ 903
3,923
4,826
1,260
1,639
2,899
95
1,832
686
$ 1,146
$ 2.17
2.16
1 The Bank’s equity share of net income of TD Ameritrade is based on the published
consolidated financial statements of TD Ameritrade after converting into
Canadian dollars and is subject to adjustments relating to the amortization
of certain intangibles.
2 The Bank’s equity share in TD Ameritrade earnings for the year ended
October 31, 2018 includes a net favourable adjustment of $41 million
(US$32 million) primarily representing the Bank’s share of TD Ameritrade
remeasurement of its deferred income tax balances as a result of the
reduction in the U.S. federal corporate income tax rate.
’s
INVESTMENT IN IMMATERIAL ASSOCIATES OR JOINT VENTURES
Except for TD Ameritrade as disclosed above, no associate or joint
venture was individually material to the Bank as of October 31, 2019,
or October 31, 2018. The carrying amount of the Bank’s investment in
individually immaterial associates and joint ventures during the period
was $3.2 billion (October 31, 2018 – $3.0 billion).
Individually immaterial associates and joint ventures consisted
predominantly of investments in private funds or partnerships that
make equity investments, provide debt fnancing or support
community-based tax-advantaged investments. The investments in
these entities generate a return primarily through the realization of
U.S. federal and state income tax credits, including Low Income
Housing Tax Credits, New Markets Tax Credits, and Historic Tax Credits.
The Bank recorded an impairment loss during the year ended
October 31, 2018 of $89 million representing the immediate impact
of lower future tax deductions on Low Income Housing Tax Credit
(LIHTC) investments as a result of the reduction in the U.S. federal
corporate tax rate, which was recorded in Other income (loss) on the
Consolidated Statement of Income. This impairment loss does not
include losses taken upon tax credit-related investments including
LIHTC on a normal course basis. Refer to Note 25 for further details
on the reduction of the U.S. federal corporate tax rate.
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
183
N O T E 1 3
SIGNIFICANT ACQUISITIONS AND DISPOSALS
Agreement for Air Canada Credit Card Loyalty Program
On January 10, 2019, the Bank’s long-term loyalty program agreement
(the “Loyalty Agreement”) with Air Canada became effective in
conjunction with Air Canada completing its acquisition of Aimia
Canada Inc., which operates the Aeroplan loyalty business (the
“Transaction”). Under the terms of the Loyalty Agreement, the Bank
will become the primary credit card issuer for Air Canada’s new loyalty
program when it launches in 2020 through to 2030. TD Aeroplan
cardholders will become members of Air Canada’s new loyalty
program and their miles will be transitioned when Air Canada’s new
loyalty program launches in 2020.
In connection with the Transaction, the Bank paid $622 million plus
applicable sales tax to Air Canada, of which $547 million ($446 million
after sales and income taxes) was recognized in Non-interest expenses –
Other on the Consolidated Statement of Income, and $75 million was
recognized as an intangible asset which will be amortized over the
Loyalty Agreement term. In addition, the Bank prepaid $308 million
plus applicable sales tax for the future purchase of loyalty points over
a ten-year period.
Acquisition of Greystone Managed Investments Inc.
On November 1, 2018, the Bank acquired 100% of the outstanding
equity of Greystone Capital Management Inc., the parent company of
Greystone Managed Investments Inc. (“Greystone”) for consideration
of $821 million, of which $479 million was paid in cash and
$342 million was paid in the Bank’s common shares. The value of
4.7 million common shares issued as consideration was based on the
volume weighted-average market price of the Bank’s common shares
over the 10 trading day period immediately preceding the ffth
business day prior to the acquisition date and was recorded based on
market price at close. Common shares of $167 million issued to
employee shareholders in respect of the purchase price are being held
in escrow for two years post-acquisition, subject to their continued
employment, and are being recorded as a compensation expense over
the two-year escrow period.
The acquisition was accounted for as a business combination under
the purchase method. As at November 1, 2018, the acquisition
contributed $165 million of assets and $46 million of liabilities. The
excess of accounting consideration over the fair value of the
identifable net assets has been allocated to customer relationship
intangibles of $140 million, deferred tax liability of $37 million, and
N O T E 1 4 GOODWILL AND OTHER INTANGIBLES
goodwill of $432 million. Goodwill is not deductible for tax purposes.
The results of the acquisition have been consolidated from the
acquisition date and reported in the Canadian Retail segment. For
the year ended October 31, 2019, the contribution of Greystone to
the Bank’s revenue and net income was not signifcant.
Acquisition of Scottrade Bank
On September 18, 2017, the Bank acquired 100% of the outstanding
equity of Scottrade Bank, a federal savings bank wholly-owned by
Scottrade, for cash consideration of approximately $1.6 billion
(US$1.4 billion). Scottrade Bank merged with TD Bank, N.A. In
connection with the acquisition, TD agreed to accept sweep deposits
from Scottrade clients, expanding the Bank’s existing sweep deposit
activities. The acquisition is consistent with the Bank’s U.S. strategy.
The acquisition was accounted for as a business combination under
the purchase method. Goodwill of $34 million refects the excess of
the consideration paid over the fair value of the identifable net assets.
Goodwill is deductible for tax purposes. The results of the acquisition
have been consolidated with the Bank’s results and are reported in
the U.S. Retail segment. For the year ended October 31, 2017, the
contribution of Scottrade Bank to the Bank’s revenue and net income
was not signifcant nor would it have been signifcant if the acquisition
had occurred as of November 1, 2016.
The following table presents the estimated fair values of the assets and
liabilities acquired as of the date of acquisition.
Fair Value of Identifiable Net Assets Acquired
(millions of Canadian dollars)
Assets acquired
Cash and due from banks
Securities
Loans
Other assets
Less: Liabilities assumed
Deposits
Other liabilities
Fair value of identifable net assets acquired
Goodwill
Total purchase consideration
Amount
750
$
14,474
5,284
149
20,657
18,992
57
1,608
34
$ 1,642
The recoverable amount of the Bank’s CGUs is determined from
internally developed valuation models that consider various factors and
assumptions such as forecasted earnings, growth rates, price-earnings
multiples, discount rates and terminal multiples. Management is
required to use judgment in estimating the recoverable amount of
CGUs, and the use of different assumptions and estimates in the
calculations could infuence the determination of the existence of
impairment and the valuation of goodwill. Management believes that
the assumptions and estimates used are reasonable and supportable.
Where possible, assumptions generated internally are compared to
relevant market information. The carrying amounts of the Bank’s CGUs
are determined by management using risk based capital models to
adjust net assets and liabilities by CGU. These models consider various
factors including market risk, credit risk, and operational risk, including
investment capital (comprised of goodwill and other intangibles).
Any capital not directly attributable to the CGUs is held within the
Corporate segment. As at the date of the last impairment test, the
amount of capital was approximately $14.6 billion and primarily
related to treasury assets and excess capital managed within the
Corporate segment. The Bank’s capital oversight committees provide
oversight to the Bank’s capital allocation methodologies.
Key Assumptions
The recoverable amount of each CGU or group of CGUs has been
determined based on its estimated value-in-use. In assessing
value-in-use, estimated future cash fows based on the Bank’s internal
forecast are discounted using an appropriate pre-tax discount rate.
The following were the key assumptions applied in the goodwill
impairment testing:
Discount Rate
The pre-tax discount rates used refect current market assessments
of the risks specifc to each group of CGUs and are dependent on the
risk profle and capital requirements of each group of CGUs.
184 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
Terminal Value
The earnings included in the goodwill impairment testing for each
operating segment were based on the Bank’s internal forecast, which
projects expected cash fows over the next fve years. Beyond the
Bank’s internal forecast, cash fows were assumed to grow at a steady
terminal growth rate. Terminal growth rates were based on the
expected long-term growth of gross domestic product and infation
and ranged from 2.0% to 4.0% (2018 – 2.0% to 4.0%). The pre-tax
terminal multiples for the period after the Bank’s internal forecast
were consistent with observable multiples of comparable fnancial
institutions and ranged from 9 times to 13 times (2018 – 9 times to
14 times).
In considering the sensitivity of the key assumptions discussed above,
management determined that a reasonable change in any of the above
would not result in the recoverable amount of any of the groups of
CGUs to be less than their carrying amount.
Goodwill by Segment
(millions of Canadian dollars)
Carrying amount of goodwill as at November 1, 2017
Additions
Foreign currency translation adjustments and other
Carrying amount of goodwill as at October 31, 2018
Additions
Foreign currency translation adjustments and other
Carrying amount of goodwill as at October 31, 20192
Pre-tax discount rates
2018
2019
1 Goodwill predominantly relates to U.S. personal and commercial banking.
2 Accumulated impairment as at October 31, 2019 was nil (October 31, 2018 – nil).
OTHER INTANGIBLES
The following table presents details of other intangibles as at October 31.
Canadian
Retail
$ 2,303
82
18
$ 2,403
432
1
$ 2,836
U.S.
Retail1
$ 13,693
–
280
$ 13,973
–
7
$ 13,980
Wholesale
Banking
$ 160
–
–
$ 160
–
–
$ 160
Total
$ 16,156
82
298
$ 16,536
432
8
$ 16,976
9.7–10.7%
9.7–11.0
10.1–11.8%
9.6–11.8
12.2%
12.7
Core deposit
intangibles
Credit card
related
intangibles
Internally
generated
software
Other
software
Other
intangibles
Other Intangibles
(millions of Canadian dollars)
Cost
As at November 1, 2017
Additions
Disposals
Fully amortized intangibles
Foreign currency translation adjustments and other
As at October 31, 2018
Additions
Disposals
Fully amortized intangibles
Foreign currency translation adjustments and other
As at October 31, 2019
Amortization and impairment
As at November 1, 2017
Disposals
Impairment losses
Amortization charge for the year
Fully amortized intangibles
Foreign currency translation adjustments and other
As at October 31, 2018
Disposals
Impairment losses
Amortization charge for the year
Fully amortized intangibles
Foreign currency translation adjustments and other
As at October 31, 2019
Net Book Value:
As at October 31, 2018
As at October 31, 2019
$ 2,523
–
–
–
52
$ 2,575
–
–
–
1
$ 2,576
$ 2,260
–
–
96
–
48
$ 2,404
–
–
76
–
1
$ 2,481
$ 171
95
$ 756
–
–
–
3
$ 759
83
–
–
–
$ 842
$ 442
–
–
98
–
2
$ 542
–
–
86
–
–
$ 628
$ 217
214
$ 2,549
567
(82)
(275)
1
$ 2,760
541
(40)
(322)
(12)
$ 2,927
$ 888
(11)
–
423
(275)
6
$ 1,031
(14)
4
474
(322)
(6)
$ 1,167
$ 308
87
(2)
(89)
(4)
$ 300
63
–
(79)
11
$ 295
$ 180
(2)
5
78
(89)
12
$ 184
–
–
82
(79)
4
$ 191
$ 565
14
–
–
7
$ 586
163
–
–
(6)
$ 743
$ 313
–
–
44
–
3
$ 360
–
1
58
–
(6)
$ 413
Total
$ 6,701
668
(84)
(364)
59
$ 6,980
850
(40)
(401)
(6)
$ 7,383
$ 4,083
(13)
5
739
(364)
71
$ 4,521
(14)
5
776
(401)
(7)
$ 4,880
$ 1,729
1,760
$ 116
104
$ 226
330
$ 2,459
2,503
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
185
N O T E 1 5
LAND, BUILDINGS, EQUIPMENT, AND OTHER DEPRECIABLE ASSETS
The following table presents details of the Bank’s land, buildings,
equipment, and other depreciable assets as at October 31.
Land, Buildings, Equipment, and Other Depreciable Assets
(millions of Canadian dollars)
Cost
As at November 1, 2017
Additions
Disposals
Fully depreciated assets
Foreign currency translation adjustments and other
As at October 31, 2018
Additions
Acquisitions through business combinations
Disposals
Fully depreciated assets
Foreign currency translation adjustments and other
As at October 31, 2019
Accumulated depreciation and impairment/losses
As at November 1, 2017
Depreciation charge for the year
Disposals
Fully depreciated assets
Foreign currency translation adjustments and other
As at October 31, 2018
Depreciation charge for the year
Disposals
Fully depreciated assets
Foreign currency translation adjustments and other
As at October 31, 2019
Net Book Value:
As at October 31, 2018
As at October 31, 2019
N O T E 1 6 OTHER ASSETS
Other Assets
(millions of Canadian dollars)
Accounts receivable and other items
Accrued interest
Current income tax receivable
Defned beneft asset
Insurance-related assets, excluding investments
Prepaid expenses
Total
N O T E 1 7 DEPOSITS
Land
Buildings
Computer
equipment
Furniture,
fxtures,
and other
depreciable
assets
Leasehold
improvements
$ 969
2
(5)
–
5
$ 971
30
–
(2)
–
(12)
$ 987
$
$
$
–
–
–
–
–
–
–
–
–
–
–
$ 3,315
164
(37)
(90)
26
$ 3,378
194
–
(29)
(45)
(10)
$ 3,488
$ 1,151
120
(14)
(90)
6
$ 1,173
120
(19)
(45)
(11)
$ 1,218
$ 853
141
(13)
(143)
(9)
$ 829
259
–
(119)
(156)
–
$ 813
$ 433
170
(13)
(143)
2
$ 449
168
(85)
(156)
1
$ 377
$ 1,285
134
(44)
(69)
9
$ 1,315
147
1
(35)
(63)
(14)
$ 1,351
$ 552
128
(22)
(69)
16
$ 605
138
(31)
(63)
(1)
$ 648
$ 1,884
160
(33)
(57)
39
$ 1,993
227
2
(48)
(53)
18
$ 2,139
$ 857
158
(32)
(57)
9
$ 935
179
(38)
(53)
(1)
$ 1,022
Total
$ 8,306
601
(132)
(359)
70
$ 8,486
857
3
(233)
(317)
(18)
$ 8,778
$ 2,993
576
(81)
(359)
33
$ 3,162
605
(173)
(317)
(12)
$ 3,265
$ 971
987
$ 2,205
2,270
$ 380
436
$ 710
703
$ 1,058
1,117
$ 5,324
5,513
October 31
2019
$
9,069
2,479
2,468
13
1,761
1,297
$ 17,087
As at
October 31
2018
$ 8,938
2,343
1,614
113
1,638
950
$ 15,596
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 fxed date of maturity
purchased by customers to earn interest over a fxed period. The
terms are from one day to ten years. The deposits are generally term
deposits, guaranteed investment certifcates, senior debt, and similar
instruments. The aggregate amount of term deposits in denominations
of $100,000 or more as at October 31, 2019 was $309 billion
(October 31, 2018 – $293 billion).
Certain deposit liabilities are classifed as Trading deposits on
the Consolidated Balance Sheet and accounted for at fair value with
the change in fair value recognized on the Consolidated Statement
of Income.
186 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
Certain deposits have been designated at FVTPL on the Consolidated
Balance Sheet to reduce an accounting mismatch from related economic
hedges. These deposits are accounted for at fair value with the change
in fair value recognized on the Consolidated Statement of Income,
except for the amount of change in fair value attributable to changes
in the Bank’s own credit risk, which is recognized on the Consolidated
Statement of Comprehensive Income.
For deposits designated at FVTPL, the estimated amount that
the Bank would be contractually required to pay at maturity, which
is based on notional amounts, was $328 million less than its fair
value as at October 31, 2019.
Deposits
(millions of Canadian dollars)
Personal
Banks2
Business and government3,4
Trading2
Designated at fair value through proft or loss2,5
Total
Non-interest-bearing deposits included above
In domestic offces
In foreign offces
Interest-bearing deposits included above
In domestic offces
In foreign offces
U.S. federal funds deposited2
Total3,6
Demand
$ 14,105
7,969
81,913
–
–
$ 103,987
Notice
$ 431,319
385
139,625
–
–
$ 571,329
By Type
Term1
$ 58,006
8,397
145,258
26,885
105,100
$ 343,646
By Country
October 31 October 31
2018
2019
As at
Canada United States
$ 269,128
95
96,357
2,120
52,890
$ 420,590
$ 234,278
11,919
267,193
16,817
44,288
$ 574,495
Total
International
$ 503,430
24
$
16,751
4,737
366,796
3,246
26,885
7,948
105,100
7,922
$ 23,877 $ 1,018,962
Total
$ 477,644
16,712
357,083
114,704
–
$ 966,143
$
43,887
53,381
$ 42,402
54,488
530,608
391,076
10
$ 1,018,962
505,295
362,890
1,068
$ 966,143
1 Includes $16,589 million (October 31, 2018 – $53 million) of senior debt which is
subject to the bank recapitalization “bail-in” regime. This regime provides certain
statutory powers to the Canada Deposit Insurance Corporation, including the
ability to convert specified eligible shares and liabilities into common shares in the
event that the Bank becomes non-viable.
2 Includes deposits and advances with the Federal Home Loan Bank.
3 As at October 31, 2019, includes $40 billion relating to covered bondholders
(October 31, 2018 – $36 billion) and $1 billion (October 31, 2018 – $2 billion)
due to Trust IV.
4 Trust IV redeemed all of the outstanding TD Capital Trust IV Notes – Series 1
on June 30, 2019.
5 Financial liabilities designated at FVTPL consist of deposits designated at FVTPL
and $31 million (October 31, 2018 – $16 million) of loan commitments and
financial guarantees designated at FVTPL.
6 As at October 31, 2019, includes deposits of $580 billion (October 31, 2018 –
$548 billion) denominated in U.S. dollars and $52 billion (October 31, 2018 –
$55 billion) denominated in other foreign currencies.
Term Deposits by Remaining Term-to-Maturity
(millions of Canadian dollars)
As at
October 31
2019
October 31
2018
Personal
Banks
Business and government
Trading
Designated at fair value through proft or loss
Total
Term Deposits due within a Year
(millions of Canadian dollars)
Personal
Banks
Business and government
Trading
Designated at fair value through proft or loss
Total
Within
1 year
$ 38,941
8,387
57,346
18,819
104,744
$ 228,237
Over
1 year to
2 years
$ 9,374
–
34,130
2,430
356
$ 46,290
Over
2 years to
3 years
Over
3 years to
4 years
$ 6,168
–
14,190
2,073
–
$ 22,431
$ 1,863
3
15,939
851
–
$ 18,656
Over
4 years to
5 years
$ 1,639
–
16,059
1,090
–
$ 18,788
Over
5 years
Total
Total
$
21
7
7,594
1,622
–
$ 9,244
$ 58,006
8,397
145,258
26,885
105,100
$ 343,646
$ 53,064
8,784
150,618
114,704
–
$ 327,170
Over 3
months to
6 months
Over 6
months to
12 months
October 31
2019
As at
October 31
2018
Total
Total
$ 9,459
150
7,569
4,166
15,798
$ 15,274
7
21,152
5,791
41,403
$ 38,941
8,387
57,346
18,819
104,744
$ 32,928
8,773
66,492
109,256
–
Within
3 months
$ 14,208
8,230
28,625
8,862
47,543
$ 107,468
$ 37,142
$ 83,627
$ 228,237
$ 217,449
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
187
N O T E 1 8 OTHER LIABILITIES
Other Liabilities1
(millions of Canadian dollars)
Accounts payable, accrued expenses, and other items
Accrued interest
Accrued salaries and employee benefts
Cheques and other items in transit
Current income tax payable
Deferred tax liabilities
Defned beneft liability
Liabilities related to structured entities
Provisions
Total
1 Certain comparative amounts have been reclassified to conform with the
presentation adopted in the current period.
N O T E 1 9
SUBORDINATED NOTES AND DEBENTURES
October 31
2019
$ 5,229
1,393
3,245
1,042
169
193
2,781
5,857
1,095
$ 21,004
As at
October 31
2018
$ 4,958
1,283
3,344
454
84
175
1,747
5,627
1,502
$ 19,174
Subordinated notes and debentures are direct unsecured obligations
of the Bank or its subsidiaries and are subordinated in right of payment
to the claims of depositors and certain other creditors. Redemptions,
cancellations, exchanges, and modifcations of subordinated debentures
qualifying as regulatory capital are subject to the consent and approval
of OSFI.
Subordinated Notes and Debentures
(millions of Canadian dollars, except as noted)
Maturity date
May 26, 2025
June 24, 20252
September 30, 20252
September 14, 20282
July 25, 20292
March 4, 20312
September 15, 20312
January 26, 20322
Total
1 Interest rate is for the period to but excluding the earliest par redemption date,
and thereafter, it will be reset at a rate of 3-month Bankers’ Acceptance rate plus
the reset spread noted.
2 Non-viability contingent capital (NVCC). The subordinated notes and debentures
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 prospectus supplements,
assuming there is no declared and unpaid interest on the respective subordinated
notes, would be 450 million for the 2.692% subordinated debentures due
June 24, 2025, 300 million for the 2.982% subordinated debentures due
September 30, 2025, 525 million for the 3.589% subordinated debentures due
September 14, 2028, 450 million for the 3.224% subordinated debentures
due July 25, 2029, 375 million for the 4.859% subordinated debentures due
March 4, 2031, 450 million for the 3.625% subordinated debentures due
Interest
rate (%)
Reset
spread (%)
Earliest par
redemption
date
October 31
2019
October 31
2018
As at
9.150
2.6921
2.9821
3.5891
3.2241
4.8591
3.6253
3.0601
n/a
1.2101
1.8301
1.0601
1.2501
3.4901
2.2053
1.3301
–
June 24, 2020
September 30, 2020
September 14, 2023
July 25, 2024
March 4, 2026
September 15, 2026
January 26, 20274
$
198
1,496
996
1,738
1,509
1,206
1,842
1,740
$ 10,725
$
198
1,474
982
1,711
1,427
1,124
1,824
–
$ 8,740
September 15, 2031 (assuming a Canadian to U.S. dollar exchange rate of 1.00),
and 525 million for the 3.060% subordinated debentures due January 26, 2032.
3 Interest rate is for the period to but excluding the earliest par redemption date,
and thereafter, it will be reset at a rate of 5-year Mid-Swap Rate plus the reset
spread noted.
4 On June 25, 2019, the Bank issued $1.75 billion of NVCC medium-term notes
constituting subordinated indebtedness of the Bank (the “Notes”). The Notes will
bear interest at a fixed rate of 3.060% per annum (paid semi-annually) until
January 26, 2027, and at the three-month Bankers’ Acceptance rate plus 1.33%
thereafter (paid quarterly) until maturity on January 26, 2032. With the prior
approval of OSFI, the Bank may, at its option, redeem the Notes on or after
January 26, 2027, in whole or in part, at par plus accrued and unpaid interest.
Not more than 60 nor less than 30 days’ notice is required to be given to the
Notes’ holders for such redemptions.
The total change in subordinated notes and debentures for the year
ended October 31, 2019 primarily relates to the issuance and
redemption of subordinated debentures, foreign exchange translation,
and the basis adjustment for fair value hedges.
REPAYMENT SCHEDULE
The aggregate remaining maturities of the Bank’s subordinated notes
and debentures are as follows:
Maturities
(millions of Canadian dollars)
Within 1 year
Over 1 year to 3 years
Over 3 years to 4 years
Over 4 years to 5 years
Over 5 years
Total
As at
October 31
2019
October 31
2018
$
–
–
–
–
10,725
$ 10,725
$
–
–
–
–
8,740
$ 8,740
188 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
N O T E 2 0
CAPITAL TRUST SECURITIES
The Bank issued innovative capital securities through two structured
entities: Trust III and Trust IV.
TD CAPITAL TRUST III SECURITIES – SERIES 2008
On September 17, 2008, Trust III, a closed-end trust, issued TD CaTS III.
The proceeds from the issuance were invested in trust assets purchased
from the Bank. On December 31, 2018, Trust III redeemed all of
the outstanding TD CaTS III at a price of $1 billion plus the unpaid
distribution payable on the redemption date. TD CaTS III were
reported on the Consolidated Balance Sheet as Non-controlling
interests in subsidiaries.
TD CAPITAL TRUST IV NOTES – SERIES 1 TO 3
On January 26, 2009, Trust IV issued TD Capital Trust IV Notes –
Series 1 due June 30, 2108 (TD CaTS IV − 1) and TD Capital Trust IV
Notes – Series 2 due June 30, 2108 (TD CaTS IV − 2) and on
September 15, 2009, issued TD Capital Trust IV Notes – Series 3 due
June 30, 2108 (TD CaTS IV − 3, and collectively TD CaTS IV Notes).
The proceeds from the issuances were invested in bank deposit
notes. On June 30, 2019, Trust IV redeemed all of the outstanding
TD CaTS IV – 1. Each TD CaTS IV − 2 may be automatically exchanged
into non-cumulative Class A First Preferred Shares, Series A10 of
the Bank and each TD CaTS IV − 3 may be automatically exchanged
into non-cumulative Class A First Preferred Shares, Series A11 of
the Bank, in each case, without the consent of the holders, on the
occurrence of certain events. On each interest payment date in respect
of which certain events have occurred, holders of TD CaTS IV Notes
will be required to invest interest paid on such TD CaTS IV Notes
in a new series of non-cumulative Class A First Preferred Shares of
the Bank. The Bank does not consolidate Trust IV because it does not
absorb signifcant returns of Trust IV as it is ultimately exposed only
to its own credit risk. Therefore, TD CaTS IV Notes are not reported
on the Bank’s Consolidated Balance Sheet but the deposit notes
issued to Trust IV are reported in Deposits on the Consolidated
Balance Sheet. Refer to Notes 10 and 17 for further details.
TD announced on February 7, 2011, that, based on OSFI’s
February 4, 2011 Advisory which outlined OSFI’s expectations
regarding the use of redemption rights triggered by regulatory event
clauses in non-qualifying capital instruments, it expects to exercise
a regulatory event redemption right only in 2022 in respect of the
TD Capital Trust IV Notes – Series 2 outstanding at that time.
Capital Trust Securities
(millions of Canadian dollars, except as noted)
Included in Non-controlling interests in subsidiaries
on the Consolidated Balance Sheet
TD Capital Trust III Securities – Series 2008
TD CaTS IV Notes issued by Trust IV
TD Capital Trust IV Notes – Series 1
TD Capital Trust IV Notes – Series 2
TD Capital Trust IV Notes – Series 3
Thousands
of units
Distribution/Interest
payment dates
Annual
yield
At the option
of the issuer
October 31
2019
October 31
2018
Redemption
date
As at
1,000
June 30, Dec. 31
7.243%1
Dec. 31, 20132
$
–
$ 993
550
450
750
1,750
June 30, Dec. 31
June 30, Dec. 31
June 30, Dec. 31
9.523%3
10.000%5
6.631%7
June 30, 20144
June 30, 20146
Dec. 31, 20146
–
450
750
$ 1,200
550
450
750
$ 1,750
1 From and including September 17, 2008, to but excluding December 31, 2018,
and thereafter at a rate of one half of the sum of 6-month Bankers’ Acceptance
rate plus 4.30%.
5 From and including January 26, 2009, to but excluding June 30, 2039. Starting on
June 30, 2039, and on every fifth anniversary thereafter, the interest rate will reset
to equal the then 5-year Government of Canada yield plus 9.735%.
2 On December 31, 2018, Trust III, a subsidiary of the Bank, redeemed all of the
6 On or after the redemption date, Trust IV may, with regulatory approval, redeem
outstanding TD CaTS III at a price of $1 billion plus the unpaid distribution
payable on the redemption date.
3 From and including January 26, 2009, to but excluding June 30, 2019. Starting
on June 30, 2019, and on every fifth anniversary thereafter, the interest rate will
reset to equal the then 5-year Government of Canada yield plus 10.125%.
4 On June 30, 2019, Trust IV redeemed all of the outstanding $550 million
TD CaTS IV – 1 at a redemption price of 100% of the principal amount plus any
accrued and unpaid interest payable on the date of redemption.
the TD CaTS IV – 2 or TD CaTS IV – 3, respectively, in whole or in part, without the
consent of the holders. Due to the phase-out of non-qualifying instruments under
OSFI’s CAR guideline, the Bank expects to exercise a regulatory event redemption
right in 2022 in respect of the TD CaTS IV – 2 outstanding at that time.
7 From and including September 15, 2009, to but excluding June 30, 2021. Starting
on June 30, 2021, and on every fifth anniversary thereafter, the interest rate will
reset to equal the then 5-year Government of Canada yield plus 4.0%.
N O T E 2 1
EQUITY
COMMON SHARES
The Bank is authorized by its shareholders to issue an unlimited number
of common shares, without par value, for unlimited consideration. The
common shares are not redeemable or convertible. Dividends are
typically declared by the Board of Directors of the Bank on a quarterly
basis and the amount may vary from quarter to quarter.
PREFERRED SHARES
The Bank is authorized by its shareholders to issue, in one or more
series, an unlimited number of Class A First Preferred Shares, without
nominal or par value. Non-cumulative preferential dividends are
payable quarterly, as and when declared by the Board of Directors
of the Bank. All preferred shares include NVCC Provisions, necessary
for the preferred shares to qualify as regulatory capital under OSFI’s
CAR guideline. NVCC Provisions require the conversion of the
preferred shares into a variable number of common shares of the Bank
if OSFI determines that the Bank is, or is about to become, non-viable
and that after conversion of all non-common capital instruments, the
viability of the Bank is expected to be restored, or if the Bank has
accepted or agreed to accept a capital injection or equivalent support
from a federal or provincial government without which the Bank
would have been determined by OSFI to be non-viable.
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
189
The following table summarizes the shares issued and outstanding
and treasury shares held as at October 31.
Common and Preferred Shares Issued and Outstanding and Treasury Shares Held
(millions of shares and millions of Canadian dollars)
October 31, 2019
October 31, 2018
Common Shares
Balance as at beginning of year
Proceeds from shares issued on exercise of stock options
Shares issued as a result of dividend reinvestment plan
Shares issued in connection with acquisitions1
Purchase of shares for cancellation and other
Balance as at end of year – common shares
Preferred Shares – Class A2
Series 1
Series 3
Series 5
Series 7
Series 9
Series 11
Series 12
Series 14
Series 16
Series 18
Series 20
Series 22
Series 24
Balance as at end of year – preferred shares
Treasury shares – common3
Balance as at beginning of year
Purchase of shares
Sale of shares
Balance as at end of year – treasury shares – common
Treasury shares – preferred3
Balance as at beginning of year
Purchase of shares
Sale of shares
Balance as at end of year – treasury shares – preferred
Number
of shares
1,830.4
2.3
4.8
5.0
(30.0)
1,812.5
20.0
20.0
20.0
14.0
8.0
6.0
28.0
40.0
14.0
14.0
16.0
14.0
18.0
232.0
2.1
132.3
(133.8)
0.6
0.3
7.0
(7.0)
0.3
Amount
$ 21,221
124
357
366
(355)
$ 21,713
$
500
500
500
350
200
150
700
1,000
350
350
400
350
450
$ 5,800
$
$
$
$
(144)
(9,782)
9,885
(41)
(7)
(151)
152
(6)
Number
of shares
1,842.5
2.9
5.0
–
(20.0)
1,830.4
20.0
20.0
20.0
14.0
8.0
6.0
28.0
40.0
14.0
14.0
16.0
–
–
200.0
2.9
110.6
(111.4)
2.1
0.3
5.2
(5.2)
0.3
Amount
$ 20,931
152
366
–
(228)
$ 21,221
$
500
500
500
350
200
150
700
1,000
350
350
400
–
–
$ 5,000
$
$
$
$
(176)
(8,295)
8,327
(144)
(7)
(129)
129
(7)
1 Includes 4.7 million shares issued for $342 million that form part of the
consideration paid for Greystone, as well as 0.3 million shares issued for
$24 million as share-based compensation to replace share-based payment awards
of Greystone. Refer to Note 13 for a discussion on the acquisition of Greystone.
2 All series of preferred shares – Class A include NVCC Provisions and 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 for Series 1, 100 million for
Series 3, 100 million for Series 5, 70 million for Series 7, 40 million for Series 9,
30 million for Series 11, 140 million for Series 12, 200 million for Series 14,
70 million for Series 16, 70 million for Series 18, 80 million for Series 20,
70 million for Series 22, and 90 million for Series 24.
3 When 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.
190 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
Preferred Shares Terms and Conditions
NVCC Fixed Rate Preferred Shares
Series 11
NVCC Rate Reset Preferred Shares3
Series 14
Series 35
Series 5
Series 7
Series 9
Series 12
Series 14
Series 16
Series 18
Series 20
Series 22
Series 24
Issue date
Annual
yield (%)1
Reset
spread (%)1
Next redemption/
conversion date1
Convertible
into1
July 21, 2015
June 4, 2014
July 31, 2014
December 16, 2014
March 10, 2015
April 24, 2015
January 14, 2016
September 8, 2016
July 14, 2017
March 14, 2018
September 13, 2018
January 28, 2019
June 4, 2019
4.9
3.662
3.681
3.75
3.6
3.7
5.5
4.85
4.50
4.70
4.75
5.20
5.10
n/a
October 31, 20202
n/a
2.24
2.27
2.25
2.79
2.87
4.66
4.12
3.01
2.70
2.59
3.27
3.56
October 31, 2024
July 31, 2024
January 31, 2020
July 31, 2020
October 31, 2020
April 30, 2021
October 31, 2021
October 31, 2022
April 30, 2023
October 31, 2023
April 30, 2024
July 31, 2024
Series 2
Series 4
Series 6
Series 8
Series 10
Series 13
Series 15
Series 17
Series 19
Series 21
Series 23
Series 25
1 Non-cumulative preferred dividends for each Series are payable quarterly, as and
4 On October 16, 2019, the Bank announced that none of its 20 million Non-
when declared by the Board of Directors. The dividend rate of the Rate Reset
Preferred Shares will reset on the next redemption/conversion date and every
5 years thereafter to equal the then 5-year Government of Canada bond yield
plus the reset spread noted. Rate Reset Preferred Shares are convertible to the
corresponding Series of Floating Rate Preferred Shares, and vice versa. If converted
into a Series of Floating Rate Preferred Shares, the dividend rate for the quarterly
period will be equal to the then 90-day Government of Canada Treasury bill yield
plus the reset spread noted.
2 Subject to regulatory consent, redeemable on or after October 31, 2020, at
a redemption price of $26, and thereafter, at a declining redemption price.
3 Subject to regulatory consent, redeemable on the redemption date noted and every
5 years thereafter, at $25 per share. Convertible on the conversion date noted and
every 5 years thereafter if not redeemed. If converted, the holders have the option
to convert back to the original Series of preferred shares every 5 years.
NORMAL COURSE ISSUER BID
On October 24, 2019, the Bank announced that, subject to the
approval of OSFI and the Toronto Stock Exchange (TSX), it intends
to terminate its current normal course issuer bid (Current NCIB) and
launch a new normal course issuer bid (New NCIB) to repurchase
for cancellation up to 30 million of its common shares. The Current
NCIB to repurchase up to 20 million common shares commenced
on June 18, 2019 and is scheduled to terminate on June 17, 2020
unless terminated earlier in accordance with its terms. The Bank has
repurchased all 20 million of its common shares under the Current
NCIB, at an average price of $75.35 per share for a total amount
of $1.5 billion.
During the year ended October 31, 2019, the Bank repurchased an
aggregate of 30 million common shares under the Current NCIB and
a prior NCIB, at an average price of $74.48 per share, for a total
amount of $2.2 billion.
During the year ended October 31, 2018, the Bank repurchased
20 million common shares under its then current NCIB at an average
price of $75.07 per share for a total amount of $1.5 billion.
DIVIDEND REINVESTMENT PLAN
The Bank offers a dividend reinvestment plan for its common
shareholders. Participation in the plan is optional and under the terms
of the plan, cash dividends on common shares are used to purchase
additional common shares. At the option of the Bank, the common
shares may be issued from the Bank’s treasury at an average market
price based on the last fve trading days before the date of the
dividend payment, with a discount of between 0% to 5% at
the Bank’s discretion, or from the open market at market price.
During the year, 4.8 million common shares at a discount of 0%
were issued from the Bank’s treasury (2018 – 5.0 million common
shares at a discount of 0%) under the dividend reinvestment plan.
Cumulative 5-Year Rate Reset Preferred Shares NVCC, Series 1 (the “Series 1
Shares”) would be converted on October 31, 2019, into Non-Cumulative Floating
Rate Preferred Shares NVCC, Series 2. As previously announced on October 1, 2019,
the dividend rate for the Series 1 Shares for the 5-year period from and including
October 31, 2019, but excluding October 31, 2024, will be 3.662%.
5 On July 18, 2019, the Bank announced that none of its 20 million Non-Cumulative
5-Year Rate Reset Preferred Shares NVCC, Series 3 (the “Series 3 Shares”) would
be converted on July 31, 2019, into Non-Cumulative Floating Rate Preferred Shares
NVCC, Series 4. As previously announced on July 2, 2019, the dividend rate for
the Series 3 Shares for the 5-year period from and including July 31, 2019, but
excluding July 31, 2024, will be 3.681%.
DIVIDEND RESTRICTIONS
The Bank is prohibited by the Bank Act from declaring dividends
on its preferred or common shares if there are reasonable grounds
for believing that the Bank is, or the payment would cause the Bank to
be, in contravention of the capital adequacy and liquidity regulations
of the Bank Act or directions of OSFI. The Bank does not anticipate
that this condition will restrict it from paying dividends in the normal
course of business.
The Bank is also restricted from paying dividends in the event that
Trust IV fails to pay interest in full to holders of its trust securities,
TD CaTS IV Notes. In addition, the ability to pay dividends on common
shares without the approval of the holders of the outstanding
preferred shares is restricted unless all dividends on the preferred
shares have been declared and paid or set apart for payment.
Currently, these limitations do not restrict the payment of dividends
on common shares or preferred shares.
NON-CONTROLLING INTERESTS IN SUBSIDIARIES
The following are included in non-controlling interests in subsidiaries
of the Bank.
(millions of Canadian dollars)
TD Capital Trust III Securities – Series 20081
Total
As at
October 31
2019
October 31
2018
$
$
–
–
$ 993
$ 993
1 On December 31, 2018, Trust III, a subsidiary of the Bank, redeemed all of the
outstanding TD CaTS III at a price of $1 billion plus the unpaid distribution payable
on the redemption date.
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
191
N O T E 2 2
INSURANCE
INSURANCE REVENUE AND EXPENSES
Insurance revenue and expenses are presented on the Consolidated
Statement of Income under insurance revenue and insurance claims
and related expenses, respectively, net of impact of reinsurance.
This includes the results of property and casualty insurance, life and
health insurance, as well as reinsurance assumed and ceded in Canada
and internationally.
Insurance Revenue and Insurance Claims and Related Expenses
(millions of Canadian dollars)
Insurance Revenue
Earned Premiums
Gross
Reinsurance ceded
Net earned premiums
Fee income and other revenue1
Insurance Revenue
Insurance Claims and Related Expenses
Gross
Reinsurance ceded
Insurance Claims and Related Expenses
1 Ceding commissions received and paid are included within fee income and other
revenue. Ceding commissions paid and netted against fee income in 2019 were
$123 million (2018 – $130 million; 2017 – $127 million).
For the years ended October 31
2019
2018
2017
$ 4,632
915
3,717
565
4,282
2,987
200
$ 2,787
$ 4,398
915
3,483
562
4,045
2,676
232
$ 2,444
$ 4,132
915
3,217
543
3,760
2,381
135
$ 2,246
RECONCILIATION OF CHANGES IN INSURANCE LIABILITIES
Insurance-related liabilities are comprised of provision for unpaid
claims (section (a) below), unearned premiums (section (b) below) and
other liabilities (section (c) below).
(a) Movement in Provision for Unpaid Claims
The following table presents movements in the property and casualty
insurance provision for unpaid claims during the year.
Movement in Provision for Unpaid Claims
(millions of Canadian dollars)
Balance as at beginning of year
Claims costs for current accident year
Prior accident years claims development
(favourable) unfavourable
Increase (decrease) due to changes in assumptions:
Discount rate
Provision for adverse deviation
Claims and related expenses
Claims paid during the year for:
Current accident year
Prior accident years
Increase (decrease) in reinsurance/other recoverables
Balance as at end of year
October 31, 2019
October 31, 2018
Reinsurance/
Other
recoverable
$ 160
–
(2)
1
(1)
(2)
–
(26)
(26)
9
$ 141
Gross
$ 4,812
2,727
(410)
95
(7)
2,405
(1,239)
(1,147)
(2,386)
9
$ 4,840
Net
$ 4,652
2,727
Gross
$ 4,965
2,673
(408)
(460)
94
(6)
2,407
(1,239)
(1,121)
(2,360)
–
$ 4,699
(78)
(19)
2,116
(1,238)
(1,023)
(2,261)
(8)
$ 4,812
Reinsurance/
Other
recoverable
$ 192
42
(6)
–
(1)
35
(15)
(44)
(59)
(8)
$ 160
Net
$ 4,773
2,631
(454)
(78)
(18)
2,081
(1,223)
(979)
(2,202)
–
$ 4,652
(b) Movement in Unearned Premiums
The following table presents movements in the property and casualty
insurance unearned premiums during the year.
Movement in Provision for Unearned Premiums
(millions of Canadian dollars)
Balance as at beginning of year
Written premiums
Earned premiums
Balance as at end of year
October 31, 2019
October 31, 2018
Gross
Reinsurance
Net
Gross
Reinsurance
$ 1,674
3,528
(3,333)
$ 1,869
$ 19
105
(107)
$ 17
$ 1,655
3,423
(3,226)
$ 1,852
$ 1,581
3,185
(3,092)
$ 1,674
$
–
114
(95)
$ 19
Net
$ 1,581
3,071
(2,997)
$ 1,655
192 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
(c) Other Movements in Insurance Liabilities
Other insurance liabilities, which include actuarial liabilities on life
and health insurance and other contractual liabilities related
to insurance contracts, were $211 million as at October 31, 2019
(October 31, 2018 – $212 million).
PROPERTY AND CASUALTY CLAIMS DEVELOPMENT
The following table shows the estimates of cumulative claims incurred,
including IBNR, with subsequent developments during the periods
and together with cumulative payments to date. The original reserve
estimates are evaluated monthly for redundancy or defciency. The
evaluation is based on actual payments in full or partial settlement of
claims and current estimates of claims liabilities for claims still open
or claims still unreported.
Incurred Claims by Accident Year
(millions of Canadian dollars)
Net ultimate claims cost at
end of accident year
Revised estimates
One year later
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Current estimates of cumulative claims
Cumulative payments to date
Net undiscounted provision
for unpaid claims
Effect of discounting
Provision for adverse deviation
Net provision for unpaid claims
2010
and prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
Total
Accident year
$ 3,998
$ 1,724
$ 1,830
$ 2,245
$ 2,465
$ 2,409
$ 2,438
$ 2,425
$ 2,631 $ 2,727
4,119
4,368
4,584
4,560
4,603
4,537
4,488
4,473
4,431
4,431
(4,290)
1,728
1,823
1,779
1,768
1,739
1,702
1,696
1,675
–
1,675
(1,633)
1,930
1,922
1,885
1,860
1,818
1,793
1,761
–
–
1,761
(1,680)
2,227
2,191
2,158
2,097
2,047
2,004
–
–
–
2,004
(1,882)
2,334
2,280
2,225
2,147
2,084
–
–
–
–
2,084
(1,867)
2,367
2,310
2,234
2,162
–
–
–
–
–
2,162
(1,794)
2,421 2,307 2,615
–
2,334 2,258
–
–
2,264
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,615
(1,710)
2,264
(1,708)
2,258
(1,569)
–
–
–
–
–
–
–
–
–
2,727
(1,239)
141
42
81
122
217
368
556
689
905
1,488 $ 4,609
(318)
408
$ 4,699
SENSITIVITY TO INSURANCE RISK
A variety of assumptions are made related to the future level of
claims, policyholder behaviour, expenses and sales levels when
products are designed and priced, as well as when actuarial liabilities
are determined. Such assumptions require a signifcant amount of
professional judgment. The insurance claims provision is sensitive to
certain assumptions. It has not been possible to quantify the sensitivity
of certain assumptions such as legislative changes or uncertainty in
the estimation process. Actual experience may differ from the
assumptions made by the Bank.
For property and casualty insurance, the main assumption underlying
the claims liability estimates is that past claims development experience
can be used to project future claims development and hence ultimate
claims costs. As such, these methods extrapolate the development of
paid and incurred losses, average costs per claim, and claim numbers
based on the observed development of earlier years and expected loss
ratios. Claims liabilities estimates are based on various quantitative and
qualitative factors including the discount rate, the margin for adverse
deviation, reinsurance, trends in claims severity and frequency, and
other external drivers.
Qualitative and other unforeseen factors could negatively impact
the Bank’s ability to accurately assess the risk of the insurance policies
that the Bank underwrites. In addition, there may be signifcant lags
between the occurrence of an insured event and the time it is actually
reported to the Bank and additional lags between the time of
reporting and fnal settlements of claims.
The following table outlines the sensitivity of the Bank’s property
and casualty insurance claims liabilities to reasonably possible
movements in the discount rate, the margin for adverse deviation, and
the frequency and severity of claims, with all other assumptions held
constant. Movements in the assumptions may be non-linear.
Sensitivity of Critical Assumptions – Property and Casualty Insurance Contract Liabilities
(millions of Canadian dollars)
Impact of a 1% change in key assumptions
Discount rate
Increase in assumption
Decrease in assumption
Margin for adverse deviation
Increase in assumption
Decrease in assumption
Impact of a 5% change in key assumptions
Frequency of claims
Increase in assumption
Decrease in assumption
Severity of claims
Increase in assumption
Decrease in assumption
October 31, 2019
Impact on net
income (loss)
before
income taxes
Impact on
equity
$ 122
(131)
(45)
45
$ (52)
52
(220)
220
$ 89
(96)
(33)
33
$ (38)
38
(161)
161
As at
October 31, 2018
Impact on net
income (loss)
before
income taxes
Impact on
equity
$ 121
(129)
(45)
45
$ (41)
41
(210)
210
$ 88
(95)
(33)
33
$ (30)
30
(153)
153
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
193
For life and health insurance, the processes used to determine critical
assumptions are as follows:
• Mortality, morbidity, and lapse assumptions are based on industry
and historical company data.
turn largely achieved through diversifcation by line of business and
geographical areas. For automobile insurance, legislation is in place at
a provincial level and this creates differences in the benefts provided
among the provinces.
• Expense assumptions are based on an annually updated expense
As at October 31, 2019, for the property and casualty insurance
study that is used to determine expected expenses for future years.
• Asset reinvestment rates are based on projected earned rates,
and liabilities are calculated using the Canadian Asset Liability
Method (CALM).
A sensitivity analysis for possible movements in the life and health
insurance business assumptions was performed and the impact is not
signifcant to the Bank’s Consolidated Financial Statements.
CONCENTRATION OF INSURANCE RISK
Concentration risk is the risk resulting from large exposures to similar
risks that are positively correlated.
Risk associated with automobile, residential and other products may
vary in relation to the geographical area of the risk insured. Exposure
to concentrations of insurance risk, by type of risk, is mitigated by
ceding these risks through reinsurance contracts, as well as careful
selection and implementation of underwriting strategies, which is in
business, 66.0% of net written premiums were derived from
automobile policies (October 31, 2018 – 66.2%) followed by
residential with 33.5% (October 31, 2018 – 33.3%). The distribution
by provinces show that business is mostly concentrated in Ontario with
53.9% of net written premiums (October 31, 2018 – 55.0%). The
Western provinces represented 31.2% (October 31, 2018 – 30.4%),
followed by the Atlantic provinces with 8.8% (October 31, 2018
– 8.5%), and Québec at 6.1% (October 31, 2018 – 6.0%).
Concentration risk is not a major concern for the life and health
insurance business as it does not have a material level of regional
specifc characteristics like those exhibited in the property and casualty
insurance business. Reinsurance is used to limit the liability on a single
claim. Concentration risk is further limited by diversifcation across
uncorrelated risks. This limits the impact of a regional pandemic and
other concentration risks. To improve understanding of exposure to
this risk, a pandemic scenario is tested annually.
N O T E 2 3
SHARE-BASED COMPENSATION
STOCK OPTION PLAN
The Bank maintains a stock option program for certain key employees.
Options on common shares are periodically granted to eligible
employees of the Bank under the plan for terms of ten years and vest
over a four-year period. These options provide holders with the right
to purchase common shares of the Bank at a fxed price equal to the
closing market price of the shares on the day prior to the date the
options were issued. Under this plan, 16 million common shares have
been reserved for future issuance (October 31, 2018 – 18 million). The
outstanding options expire on various dates to December 12, 2028.
The following table summarizes the Bank’s stock option activity and
related information, adjusted to refect the impact of the stock
dividend on a retrospective basis, for the years ended October 31.
Stock Option Activity
(millions of shares and Canadian dollars)
Number outstanding, beginning of year
Granted
Exercised
Forfeited/cancelled
Number outstanding, end of year
Exercisable, end of year
2019
Weighted-
average
of shares exercise price
Number
13.1
2.2
(2.3)
(0.2)
12.8
4.7
$ 53.12
69.39
44.07
66.59
$ 57.35
$ 44.77
2018
Weighted-
average
exercise price
$ 48.17
72.64
41.21
60.46
$ 53.12
$ 40.61
Number
of shares
14.3
1.9
(3.0)
(0.1)
13.1
4.7
2017
Weighted-
average
exercise price
$ 44.18
65.75
38.59
54.58
$ 48.17
$ 38.00
Number
of shares
15.4
2.0
(3.0)
(0.1)
14.3
5.4
The weighted-average share price for the options exercised in 2019
was $74.15 (2018 – $74.99; 2017 – $67.79).
The following table summarizes information relating to stock options
outstanding and exercisable as at October 31, 2019.
Range of Exercise Prices
(millions of shar
es and Canadian dollars)
$32.99 – $36.64
$40.54 – $47.59
$52.46 – $53.15
$65.75 – $69.39
$72.64
Options outstanding
Options exercisable
Number of
shares
outstanding
Weighted-
average
remaining
contractual
life (years)
Weighted-
average
exercise price
Number of
shares
exercisable
Weighted-
average
exercise price
1.2
2.1
3.7
4.0
1.8
1.7
3.5
5.6
8.1
8.0
36.58
44.22
52.88
67.67
72.64
1.2
2.1
1.4
–
–
36.58
44.22
52.46
–
–
194 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
For the year ended October 31, 2019, the Bank recognized
compensation expense for stock option awards of $11.1 million
(October 31, 2018 – $11.5 million; October 31, 2017 – $14.8 million).
For the year ended October 31, 2019, 2.2 million (October 31, 2018 –
1.9 million; October 31, 2017 – 2.0 million) options were granted
by the Bank at a weighted-average fair value of $5.64 per option
(2018 – $6.28 per option; 2017 – $5.81 per option).
The following table summarizes the assumptions used for estimating
the fair value of options for the twelve months ended October 31.
Assumptions Used for Estimating the Fair Value of Options
(in Canadian dollars, except as noted)
2019
2018
2017
Risk-free interest rate
Expected option life
Expected volatility1
Expected dividend yield
Exercise price/share price
2.03%
1.71%
1.24%
6.3 years
6.3 years
6.3 years
12.64%
3.48%
13.91%
3.50%
14.92%
3.47%
$ 69.39
$ 72.64
$ 65.75
1 Expected volatility is calculated based on the average daily volatility measured over
a historical period corresponding to the expected option life.
OTHER SHARE-BASED COMPENSATION PLANS
The Bank operates restricted share unit and performance share unit
plans which are offered to certain employees of the Bank. Under these
plans, participants are awarded share units equivalent to the Bank’s
common shares that generally vest over three years. During the vesting
period, dividend equivalents accrue to the participants in the form of
additional share units. At the maturity date, the participant receives
cash representing the value of the share units. The fnal number
of performance share units will typically vary from 80% to 120%
of the number of units outstanding at maturity (consisting of initial
units awarded plus additional units in lieu of dividends) based on
the Bank’s total shareholder return relative to the average of a peer
group of large fnancial institutions. The number of such share
units outstanding under these plans as at October 31, 2019 was
22 million (2018 – 23 million).
The Bank also offers deferred share unit plans to eligible employees
and non-employee directors. Under these plans, a portion of the
participant’s annual incentive award may be deferred, or in the case of
non-employee directors, a portion of their annual compensation may
be delivered as share units equivalent to the Bank’s common shares.
The deferred share units are not redeemable by the participant until
termination of employment or directorship. Once these conditions are
met, the deferred share units must be redeemed for cash no later than
the end of the next calendar year. Dividend equivalents accrue to the
participants in the form of additional units. As at October 31, 2019,
6.6 million deferred share units were outstanding (October 31, 2018 –
6.6 million).
Compensation expense for these plans is recorded in the year
the incentive award is earned by the plan participant. Changes
in the value of these plans are recorded, net of the effects of related
hedges, on the Consolidated Statement of Income. For the year
ended October 31, 2019, the Bank recognized compensation
expense, net of the effects of hedges, for these plans of $546 million
(2018 – $509 million; 2017 – $490 million). The compensation
expense recognized before the effects of hedges was $662 million
(2018 – $607 million; 2017 – $917 million). The carrying amount of
the liability relating to these plans, based on the closing share price,
was $2.0 billion at October 31, 2019 (October 31, 2018 – $2.1 billion),
and is reported in Other liabilities on the Consolidated Balance Sheet.
EMPLOYEE OWNERSHIP PLAN
The Bank also operates a share purchase plan available to Canadian
employees. Employees can contribute any amount of their eligible
earnings (net of source deductions), subject to an annual cap of
10% of salary to the Employee Ownership Plan. For participating
employees below the level of Vice President, the Bank matches
100% of the frst $250 of employee contributions each year and the
remainder of employee contributions at 50% to an overall maximum
of 3.5% of the employee’s eligible earnings or $2,250, whichever
comes frst. The Bank’s contributions vest once an employee has
completed two years of continuous service with the Bank. For the year
ended October 31, 2019, the Bank’s contributions totalled $74 million
(2018 – $72 million; 2017 – $70 million) and were expensed as salaries
and employee benefts. As at October 31, 2019, an aggregate of
20 million common shares were held under the Employee Ownership
Plan (October 31, 2018 – 20 million). The shares in the Employee
Ownership Plan are purchased in the open market and are considered
outstanding for computing the Bank’s basic and diluted earnings per
share. Dividends earned on the Bank’s common shares held by the
Employee Ownership Plan are used to purchase additional common
shares for the Employee Ownership Plan in the open market.
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
195
N O T E 2 4
EMPLOYEE BENEFITS
DEFINED BENEFIT PENSION AND OTHER POST-EMPLOYMENT
BENEFIT (OPEB) PLANS
The Bank’s principal pension plans, consisting of The Pension Fund
Society of The Toronto-Dominion Bank (the “Society”) and the
TD Pension Plan (Canada) (TDPP), are defned beneft plans for
Canadian Bank employees. The Society was closed to new members
on January 30, 2009, and the TDPP commenced on March 1, 2009.
Benefts under the principal pension plans are determined based upon
the period of plan participation and the average salary of the member
in the best consecutive fve years in the last ten years of combined
plan membership. Effective December 31, 2018, the defned beneft
portion of the TDPP was closed to new employees hired after that
date. All new permanent employees hired in Canada on or after
January 1, 2019 are eligible to join the defned contribution portion
of the TDPP after one year of service.
Funding for the Bank’s principal pension plans is provided by
contributions from the Bank and members of the plans. In accordance
with legislation, the Bank contributes amounts, as determined
on an actuarial basis, to the plans and has the ultimate responsibility
for ensuring that the liabilities of the plans are adequately funded
over time. The Bank’s contributions to the principal pension plans
during 2019 were $352 million (2018 – $355 million). The 2019 and
2018 contributions were made in accordance with the actuarial
valuation reports for funding purposes as at October 31, 2018 and
October 31, 2017, respectively, for both of the principal pension
plans. For both of the principal pension plans, a valuation for funding
purposes is being prepared as of October 31, 2019.
The Bank also provides certain post-retirement benefts, which are
generally unfunded. Post-retirement beneft plans, where offered,
generally include health care and dental benefts or an annual discount
amount to be used to reduce the cost of coverage. Employees must
meet certain age and service requirements to be eligible for post-
retirement benefts and are generally required to pay a portion of the
cost of the benefts. Effective June 1, 2017, the Bank’s principal
non-pension post-retirement beneft plan was closed to new
employees hired on or after that date.
INVESTMENT STRATEGY AND ASSET ALLOCATION
The primary objective of each of the Society and the TDPP is to achieve
a rate of return that meets or exceeds the change in value of the plan’s
respective liabilities over rolling fve-year periods. The investments
of the Society and the TDPP are managed with the primary objective of
providing reasonable rates of return, consistent with available market
opportunities, consideration of plan liabilities, prudent portfolio
management, and levels of risk commensurate with the return
expectations and asset mix policy as set out by the risk budget of 6%
and 14% surplus volatility, respectively. The investment policies for the
principal pension plans generally do not apply to the Pension
Enhancement Account (PEA) assets, which are invested at the
members’ discretion in certain mutual and pooled funds.
The asset allocations by asset category for the principal pension plans
are as follows:
Plan Asset Allocation
(millions of Canadian dollars,
except as noted)
As at October 31, 2019
Debt
Equity
Alternative investments2
Other3
Total
As at October 31, 2018
Debt
Equity
Alternative investments2
Other3
Total
As at October 31, 2017
Debt
Equity
Alternative investments2
Other3
Total
Target
range
40-70%
24-42
6-35
n/a
40-70%
24-42
6-35
n/a
40-70%
24-42
0-35
n/a
% of
total
55%
32
13
n/a
100%
55%
34
11
n/a
100%
57%
35
8
n/a
100%
Quoted
$
–
1,002
–
–
$ 1,002
$
–
897
–
–
$ 897
$
–
1,248
42
–
$ 1,290
Society1
Fair value
Unquoted
$ 3,374
976
760
(276)
$ 4,834
$ 2,885
869
551
(107)
$ 4,198
$ 2,903
511
376
46
$ 3,836
Target
range
25-50%
30-70
5-35
n/a
25-50%
30-65
3-25
n/a
25-56%
30-65
0-20
n/a
% of
total
34%
54
12
n/a
100%
34%
58
8
n/a
100%
36%
59
5
n/a
100%
TDPP1
Fair value
Quoted
Unquoted
$
–
504
–
–
$ 504
$
–
396
–
–
$ 396
$
–
324
–
–
$ 324
$ 634
503
229
111
$ 1,477
$ 497
470
122
63
$ 1,152
$ 484
478
68
56
$ 1,086
1 The principal pension plans invest in investment vehicles which may hold shares
3 Consists mainly of amounts due to and due from brokers for securities traded
or debt issued by the Bank.
but not yet settled, PEA assets, and interest and dividends receivable.
2 The principal pension plans’ alternative investments primarily include private equity,
infrastructure, and real estate funds.
196 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
Public debt instruments of both the Society and the TDPP must meet
or exceed a credit rating of BBB- at the time of purchase. There are no
limitations on the maximum amount allocated to each credit rating
above BBB+ for the total public debt portfolio.
Asset-liability matching strategies are focused on obtaining an
appropriate balance between earning an adequate return and having
changes in liability values being hedged by changes in asset values.
The principal pension plans manage these fnancial risks in
With respect to the Society’s public debt portfolio, up to 15%
of the total fund can be invested in a bond mandate subject to the
following constraints:
• Debt instruments rated BBB+ to BBB- must not exceed 25% of
the mandate in total;
• Asset-backed securities must have a minimum credit rating of
AAA and not exceed 25% of the mandate in total;
• Debt instruments of non-government entities must not exceed
80% in total;
• Debt instruments of foreign government entities must not exceed
accordance with the Pension Benefts Standards Act, 1985, applicable
regulations, as well as both the principal pension plans’ Statement
of Investment Policies and Procedures (SIPP) and the Management
Operating Policies and Procedures (MOPP). The following are some
specifc risk management practices employed by the principal
pension plans:
• Monitoring credit exposure of issuers;
• Monitoring adherence to asset allocation guidelines;
• Monitoring asset class performance against benchmarks; and
• Monitoring the return on the plans’ assets relative to the
20% in total;
plans’ liabilities.
• Debt instruments of either a single non-government or single
foreign government entity must not exceed 10%; and
• Debt instruments issued by the Government of Canada, provinces
of Canada, or municipalities must in total not exceed 100%, 75%,
or 10%, respectively.
Also with respect to the Society’s public debt portfolio, up to a further
10% of the total fund can be invested in a bond mandate subject to
the following constraints:
• Debt instruments rated BBB+ to BBB- must not exceed 50% of
the mandate in total;
• Asset-backed securities must have a minimum credit rating of
AAA and not exceed 25% of the mandate in total; and
• Limitation of 10% for any one issuer.
The remainder of the Society’s public debt portfolio is not permitted
to invest in the debt instruments of foreign or non-government entities.
With respect to the TDPP’s public debt portfolio, up to 15% of
the total fund can be invested in a passively managed bond mandate
that is based on an index entirely comprised of investment-grade debt
instruments issued by the Government of Canada, provinces of Canada,
Canadian municipalities, and Canadian non-government entities.
The remainder of the TDPP’s public debt portfolio is not permitted
to invest in the debt instruments of foreign or non-government entities.
The equity portfolios of both the Society and the TDPP are broadly
diversifed primarily across small to large capitalization quality
companies and income trusts with no individual holding exceeding
10% of the equity portfolio or 10% of the outstanding securities of
any one company or income trust at any time. Foreign equities are
permitted to be included to further diversify the portfolio. A maximum
of 10% of a total fund may be invested in emerging market equities.
For both the Society and the TDPP, derivatives can be utilized,
provided they are not used to create fnancial leverage, but rather for
risk management purposes. Both the Society and the TDPP are also
permitted to invest in other alternative investments, such as private
equity, infrastructure equity, and real estate.
RISK MANAGEMENT PRACTICES
The principal pension plans’ investments include fnancial instruments
which are exposed to various risks. These risks include market risk
(including foreign currency, interest rate, infation, price, credit spread
risks), credit risk, and liquidity risk. Key material risks faced by all plans
are a decline in interest rates or credit spreads, which could increase
the defned beneft obligation by more than the change in the value
of plan assets, or from longevity risk (that is, lower mortality rates).
The Bank’s principal pension plans are overseen by a single retirement
governance structure established by the Human Resources Committee
of the Bank’s Board of Directors. The governance structure utilizes
retirement governance committees who have responsibility to oversee
plan operations and investments, acting in a fduciary capacity.
Strategic, material plan changes require the approval of the Bank’s
Board of Directors.
OTHER PENSION AND RETIREMENT PLANS
CT Pension Plan
As a result of the acquisition of CT Financial Services Inc. (CT),
the Bank sponsors a defned beneft pension plan. The defned beneft
plan was closed to new members after May 31, 1987. However, plan
members were permitted to continue in the plan for future service.
Funding for the plan is provided by contributions from the Bank
and members of the plan.
TD Bank, N.A. Retirement Plans
TD Bank, N.A. and its subsidiaries maintain a defned contribution
401(k) plan covering all employees. The contributions to the
plan for the year ended October 31, 2019 were $146 million
(October 31, 2018 – $134 million; October 31, 2017 – $124 million).
Annual expense is equal to the Bank’s contributions to the plan.
TD Bank, N.A. also has frozen defned beneft retirement plans
covering certain legacy TD Banknorth and TD Auto Finance (legacy
Chrysler Financial) employees. TD Bank, N.A. also has closed
post-retirement beneft plans, which include limited medical coverage
and life insurance benefts, covering certain groups of employees
from legacy organizations.
Supplemental Employee Retirement Plans
Supplemental employee retirement plans for eligible employees are
not funded by the Bank.
Government Pension Plans
The Bank also makes contributions to government pension plans,
including the Canada Pension Plan, Quebec Pension Plan and U.S.
Federal Insurance Contribution Act. The contributions to government
pension plans for the year ended October 31, 2019 were $324 million
(October 31, 2018 – $293 million; October 31, 2017 – $277 million).
The following table presents the fnancial position of the Bank’s
principal pension plans, the principal non-pension post-retirement
beneft plan, and the Bank’s signifcant other pension and retirement
plans. Other employee beneft plans operated by the Bank and certain
of its subsidiaries are not considered material for disclosure purposes.
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
197
Employee Benefit Plans’ Obligations, Assets and Funded Status
(millions of Canadian dollars, except as noted)
Principal
pension plans
2019
2018
2017
2019
Principal non-pension
post-retirement
beneft plan1
2017
2018
Other pension and
retirement plans2
2017
2018
2019
$ 6,539
$ 7,082
$ 6,805
$ 535
$ 558
$ 568
$ 2,569
$ 2,750
$ 2,863
Change in projected beneft obligation
Projected beneft obligation at beginning of year
Obligations included due to The Retirement
Beneft Plan merger3
Service cost – benefts earned
Interest cost on projected beneft obligation
Remeasurement (gain) loss – fnancial
Remeasurement (gain) loss – demographic
Remeasurement (gain) loss – experience
Members’ contributions
Benefts paid
Change in foreign currency exchange rate
Past service cost (credit)4
Projected beneft obligation as at October 31
Change in plan assets
Plan assets at fair value at beginning of year
Assets included due to The Retirement
Beneft Plan merger3
Interest income on plan assets
Remeasurement gain (loss) – return on plan assets
less interest income
Members’ contributions
Employer’s contributions
Benefts paid
Change in foreign currency exchange rate
Defned beneft administrative expenses
Plan assets at fair value as at October 31
Excess (defcit) of plan assets at fair value over
projected beneft obligation
Effect of asset limitation and minimum
funding requirement
Net defned beneft asset (liability)
Annual expense
Net employee benefts expense includes the following:
Service cost – benefts earned
Net interest cost (income) on net defned beneft
liability (asset)
Past service cost (credit)4
Defned beneft administrative expenses
Total expense
Actuarial assumptions used to determine the
projected beneft obligation as at
October 31 (percentage)
Weighted-average discount rate for projected beneft
obligation
Weighted-average rate of compensation increase
–
14
20
92
(26)
–
–
(15)
–
–
620
–
–
–
–
–
15
(15)
–
–
–
–
15
18
(42)
–
2
–
(16)
–
–
535
–
–
–
–
–
16
(16)
–
–
–
–
16
17
–
(42)
15
–
(16)
–
–
558
–
–
–
–
–
16
(16)
–
–
–
–
9
106
430
2
6
–
(143)
(1)
(30)
2,948
–
10
96
(190)
(8)
14
–
(137)
31
3
2,569
–
11
95
(27)
13
1
–
(138)
(68)
–
2,750
1,733
1,855
1,895
–
73
205
–
96
(143)
(1)
(4)
1,959
–
66
(109)
–
37
(137)
27
(6)
1,733
–
64
59
–
37
(138)
(58)
(4)
1,855
–
326
240
1,565
–
83
107
(303)
–
1
8,558
6
407
217
(969)
–
22
104
(330)
–
–
6,539
–
439
196
(148)
25
(15)
80
(291)
–
(9)
7,082
6,643
6,536
5,823
–
174
195
80
565
(291)
–
(10)
6,536
–
253
773
107
352
(303)
–
(8)
7,817
(741)
–
(741)
10
209
(231)
104
355
(330)
–
(10)
6,643
104
–
104
(546)
(620)
(535)
(558)
(989)
(836)
(895)
–
(546)
–
(620)
–
(535)
–
(558)
(13)
(1,002)
(13)
(849)
–
(895)
326
407
439
14
15
16
(13)
1
10
$ 324
8
–
10
$ 425
22
(9)
10
$ 462
20
–
–
$ 34
18
–
–
$ 33
17
–
–
$ 33
$
9
33
(30)
6
18
$
10
30
3
4
47
$
11
31
–
4
46
3.08%
2.57
4.10%
2.54
3.60%
2.54
3.07%
3.00
4.10%
3.00
3.60%
3.00
3.12%
1.00
4.37%
1.03
3.74%
1.14
1 The rate of increase for health care costs for the next year used to measure the
expected cost of benefits covered for the principal non-pension post-retirement
benefit plan is 4.18%. The rate is assumed to decrease gradually to 2.42% by
the year 2040 and remain at that level thereafter.
2 Includes CT defined benefit pension plan, TD Banknorth defined benefit pension
plan, TD Auto Finance retirement plans, and supplemental employee retirement
plans. 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.
3 During 2018, The Retirement Benefit Plan of The Toronto-Dominion Bank
(the “RBP”) was deemed to be merged with the Society and previously
undisclosed obligations and assets of the RBP are now included in fiscal 2018.
4 Includes a gain of $33 million related to the TD Auto Finance post-retirement
benefit plan that was amended during fiscal 2019.
During the year ended October 31, 2020, the Bank expects to
contribute $342 million to its principal pension plans, $18 million to its
principal non-pension post-retirement beneft plan, and $39 million
to its other pension and retirement plans. Future contribution amounts
may change upon the Bank’s review of its contribution levels during
the year.
Assumptions related to future mortality which have been used to
determine the defned beneft obligation and net beneft cost are
as follows:
198 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
Assumed Life Expectancy at Age 65
(number of years)
Principal
pension plans
Principal non-pension
post-retirement
beneft plan
Male aged 65 at measurement date
Female aged 65 at measurement date
Male aged 40 at measurement date
Female aged 40 at measurement date
2019
23.4
24.1
24.5
25.3
2018
23.3
24.1
24.5
25.2
2017
23.2
24.0
24.5
25.2
2019
23.4
24.1
24.5
25.3
2018
23.3
24.1
24.5
25.2
2017
23.2
24.0
24.5
25.2
2019
22.1
23.7
22.9
24.8
Other pension and
retirement plans
As at October 31
2018
22.1
23.7
23.0
24.8
2017
21.8
23.4
22.9
25.1
The weighted-average duration of the defned beneft obligation for
the Bank’s principal pension plans, principal non-pension post-retirement
beneft plan, and other pension and retirement plans at the end of
the reporting period are 16 years (2018 – 15 years, 2017 – 15 years),
18 years (2018 – 17 years, 2017 – 18 years), and 13 years (2018
– 12 years, 2017 – 13 years), respectively.
The following table provides the sensitivity of the projected beneft
obligation for the Bank’s principal pension plans, the principal
non-pension post-retirement beneft plan, and the Bank’s signifcant
other pension and retirement plans to actuarial assumptions
considered signifcant by the Bank. These include discount rate, life
expectancy, rates of compensation increase, and health care cost initial
trend rates, as applicable. For each sensitivity test, the impact of
a reasonably possible change in a single factor is shown with other
assumptions left unchanged.
Sensitivity of Significant Actuarial Assumptions
(millions of Canadian dollars, except as noted)
Impact of an absolute change in signifcant actuarial assumptions
Discount rate
1% decrease in assumption
1% increase in assumption
Rates of compensation increase
1% decrease in assumption
1% increase in assumption
Life expectancy
1 year decrease in assumption
1 year increase in assumption
Health care cost initial trend rate
1% decrease in assumption
1% increase in assumption
1 An absolute change in this assumption is immaterial.
The Bank recognized the following amounts on the Consolidated
Balance Sheet.
Amounts Recognized in the Consolidated Balance Sheet
(millions of Canadian dollars)
Other assets
Principal pension plans
Other pension and retirement plans
Other employee beneft plans1
Total other assets
Other liabilities
Principal pension plans
Principal non-pension post-retirement beneft plan
Other pension and retirement plans
Other employee beneft plans1
Total other liabilities
Net amount recognized
1 Consists of other defined benefit pension and other post-employment benefit
plans operated by the Bank and its subsidiaries that are not considered material
for disclosure purposes.
As at
October 31, 2019
Obligation Increase (Decrease)
Principal
non-pension
post-
retirement
beneft plan
Other
pension
and
retirement
plans
Principal
pension
plans
$ 1,520
(1,163)
$ 116
(90)
$ 409
(333)
(313)
305
(179)
177
n/a
n/a
1–
1–
(21)
21
(89)
113
1–
1–
(94)
93
n/a
n/a
October 31
2019
October 31
2018
$
–
6
7
13
$
104
3
6
113
741
620
1,008
412
2,781
$ (2,768)
–
535
852
360
1,747
$ (1,634)
As at
October 31
2017
$
–
7
6
13
546
558
902
457
2,463
$ (2,450)
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
199
The Bank recognized the following amounts in the Consolidated
Statement of Other Comprehensive Income.
Amounts Recognized in the Consolidated Statement of Other Comprehensive Income1
(millions of Canadian dollars)
Actuarial gains (losses) recognized in Other Comprehensive Income
Principal pension plans
Principal non-pension post-retirement beneft plan
Other pension and retirement plans
Other employee beneft plans2
Total actuarial gains (losses) recognized in Other Comprehensive Income
1 Amounts are presented on pre-tax basis.
2 Consists of other defined benefit pension and other post-employment benefit
plans operated by the Bank and its subsidiaries that are not considered material
for disclosure purposes.
N O T E 2 5
INCOME TAXES
The provision for (recovery of) income taxes is comprised of the following:
Provision for (Recovery of) Income Taxes
(millions of Canadian dollars)
Provision for income taxes – Consolidated Statement of Income
Current income taxes
Provision for (recovery of) income taxes for the current period
Adjustments in respect of prior years and other
Total current income taxes
Deferred income taxes
Provision for (recovery of) deferred income taxes related to the origination
and reversal of temporary differences
Effect of changes in tax rates
Adjustments in respect of prior years and other
Total deferred income taxes
Total provision for income taxes – Consolidated Statement of Income
Provision for (recovery of) income taxes – Statement of Other Comprehensive Income
Current income taxes
Deferred income taxes
Income taxes – other non-income related items including business
combinations and other adjustments
Current income taxes
Deferred income taxes
Total provision for (recovery of) income taxes
Current income taxes
Federal
Provincial
Foreign
Deferred income taxes
Federal
Provincial
Foreign
Total provision for (recovery of) income taxes
For the years ended
October 31
2019
October 31
2018
October 31
2017
$
(873)
(66)
(231)
(75)
$ (1,245)
$ 720
40
60
45
$ 865
$ 333
27
72
22
$ 454
For the years ended October 31
2019
2018
2017
$ 2,675
93
2,768
$ 2,873
(76)
2,797
$ 2,073
5
2,078
54
10
(97)
(33)
2,735
37
1,070
1,107
(7)
(6)
(13)
3,829
1,256
891
651
2,798
76
302
7
385
3,182
(48)
(701)
(749)
(3)
(2)
(5)
2,428
1,491
1,055
200
2,746
215
13
(53)
175
2,253
261
(755)
(494)
29
–
29
1,788
1,115
797
456
2,368
127
87
817
1,031
$ 3,829
(244)
(160)
86
(318)
$ 2,428
(233)
(156)
(191)
(580)
$ 1,788
200 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
On December 22, 2017, the U.S. government enacted comprehensive
tax legislation commonly referred to as the Tax Cuts and Jobs Act
(the “U.S. Tax Act”), which made broad and complex changes to
the U.S. tax code.
The reduction of the U.S. federal corporate tax rate enacted by the
U.S. Tax Act resulted in an adjustment during 2018 to the Bank’s U.S.
deferred tax assets and liabilities to the lower base rate of 21%. The
impact for the year ended October 31, 2018 was a reduction in the
value of the Bank’s net deferred tax assets resulting in a $366 million
The Bank’s statutory and effective tax rate is outlined in the
following table.
income tax expense recorded in the Provision for (recovery of) income
taxes on the Consolidated Statement of Income, a $22 million deferred
income tax beneft recorded in OCI and a $12 million deferred income
tax expense recorded in retained earnings.
The impact of the U.S. Tax Act on the Bank’s statutory and effective
tax rate is outlined in the following table as part of the Rate
differentials on international operations.
Reconciliation to Statutory Income Tax Rate
(millions of Canadian dollars, except as noted)
Income taxes at Canadian statutory income tax rate
Increase (decrease) resulting from:
Dividends received
Rate differentials on international operations
Other – net
Provision for income taxes and effective income tax rate
$ 3,502
(104)
(728)
65
$ 2,735
2019
26.5%
(0.8)
(5.5)
0.5
20.7%
$ 3,648
(142)
(343)
19
$ 3,182
2018
26.5%
(1.0)
(2.5)
0.1
23.1%
$ 3,262
(498)
(515)
4
$ 2,253
2017
26.5%
(4.0)
(4.2)
–
18.3%
The Canada Revenue Agency (CRA), Revenu Québec Agency (RQA) and
Alberta Tax and Revenue Administration (ATRA) are denying certain
dividend deductions claimed by the Bank. During fscal 2019, the CRA
reassessed the Bank for $255 million of additional income tax and
interest in respect of its 2014 taxation year, and the RQA reassessed
the Bank for $6 million of additional income tax and interest in respect
of its 2013 taxation year. To date, the CRA, RQA, and ATRA have
reassessed the Bank for approximately $814 million of income tax and
interest for the years 2011 to 2014. The Bank expects the CRA, RQA,
and ATRA to reassess subsequent years on the same basis. The Bank
is of the view that its tax fling positions were appropriate and intends
to challenge all reassessments.
Deferred tax assets and liabilities comprise of the following:
Deferred Tax Assets and Liabilities
(millions of Canadian dollars)
Deferred tax assets
Allowance for credit losses
Securities
Trading loans
Employee benefts
Pensions
Losses available for carry forward
Tax credits
Other
Total deferred tax assets
Deferred tax liabilities
Securities
Land, buildings, equipment, and other depreciable assets
Deferred (income) expense
Intangibles
Goodwill
Total deferred tax liabilities
Net deferred tax assets
Refected on the Consolidated Balance Sheet as follows:
Deferred tax assets
Deferred tax liabilities1
Net deferred tax assets
1 Included in Other liabilities on the Consolidated Balance Sheet.
October 31
2019
As at
October 31
2018
$ 965
–
50
844
344
95
228
88
2,614
527
242
91
40
108
1,008
1,606
$ 845
920
54
739
59
94
326
92
3,129
–
223
12
163
94
492
2,637
1,799
193
$ 1,606
2,812
175
$ 2,637
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
201
The amount of temporary differences, unused tax losses, and
unused tax credits for which no deferred tax asset is recognized
on the Consolidated Balance Sheet was $461 million as at
October 31, 2019 (October 31, 2018 – $806 million), of which
$3 million (October 31, 2018 – $2 million) is scheduled to expire
within fve years.
Certain taxable temporary differences associated with the Bank’s
investments in subsidiaries, branches and associates, and interests in
joint ventures did not result in the recognition of deferred tax liabilities
as at October 31, 2019. The total amount of these temporary
differences was $71 billion as at October 31, 2019 (October 31, 2018
– $61 billion).
The movement in the net deferred tax asset for the years ended
October 31 was as follows:
Deferred Income Tax Expense (Recovery)
(millions of Canadian dollars)
Consolidated
statement of
income
Other
comprehensive
income
Business
combinations
and other
Deferred income tax expense
(recovery)
Allowance for credit losses
Trading loans
Employee benefts
Pensions
Losses available for carry forward
Tax credits
Other deferred tax assets
Securities
Land, buildings, equipment,
and other depreciable assets
Deferred (income) expense
Intangibles
Goodwill
Total deferred income tax
expense (recovery)
$ (120)
4
(87)
19
(1)
98
7
56
19
79
(123)
16
$
–
–
(18)
(303)
–
–
–
1,391
–
–
–
–
$ –
–
–
–
–
–
(4)
–
–
–
–
(2)
2019
Total
$ (120)
4
(105)
(284)
(1)
98
3
1,447
19
79
(123)
14
Consolidated
statement of
income
Other
comprehensive
income
Business
combinations
and other
$ 79
36
61
(20)
37
(304)
54
240
216
95
(81)
(28)
$
–
–
14
230
–
–
–
(945)
–
–
–
–
$ –
–
–
–
–
–
(2)
–
–
–
–
–
2018
Total
$ 79
36
75
210
37
(304)
52
(705)
216
95
(81)
(28)
$ (33)
$ 1,070
$ (6)
$ 1,031
$ 385
$ (701)
$
(2)
$ (318)
N O T E 2 6
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.
weighted-average number of shares outstanding for the effects of
all dilutive potential common shares that are assumed to be issued
by the Bank.
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
The following table presents the Bank’s basic and diluted earnings per
share for the years ended October 31.
Basic and Diluted Earnings Per Share
(millions of Canadian dollars, except as noted)
Basic earnings per share
Net income attributable to common shareholders
Weighted-average number of common shares outstanding (millions)
Basic earnings per share (Canadian dollars)
Diluted earnings per share
Net income attributable to common shareholders
Net income available to common shareholders including impact of dilutive securities
Weighted-average number of common shares outstanding (millions)
Effect of dilutive securities
Stock options potentially exercisable (millions)1
Weighted-average number of common shares outstanding – diluted (millions)
Diluted earnings per share (Canadian dollars)1
1 For the years ended October 31, 2019, October 31, 2018, and October 31, 2017,
no outstanding options were excluded from the computation of diluted earnings
per share.
For the years ended October 31
2019
2018
2017
$ 11,416
1,824.2
6.26
$
$ 11,048
1,835.4
6.02
$
$ 10,203
1,850.6
5.51
$
$ 11,416
11,416
1,824.2
3.1
1,827.3
6.25
$
$ 11,048
11,048
1,835.4
4.1
1,839.5
6.01
$
$ 10,203
10,203
1,850.6
4.2
1,854.8
5.50
$
202 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
N O T E 2 7
PROVISIONS, CONTINGENT LIABILITIES, COMMITMENTS, GUARANTEES, PLEDGED ASSETS, AND COLLATERAL
PROVISIONS
The following table summarizes the Bank’s provisions.
Provisions
(millions of Canadian dollars)
Balance as at November 1, 2018
Additions
Amounts used
Release of unused amounts
Foreign currency translation adjustments and other
Balance as at October 31, 2019, before allowance for
credit losses for off-balance sheet instruments
Add: allowance for credit losses for off-balance sheet instruments2
Balance as at October 31, 2019
1 Includes provisions for onerous lease contracts.
2 Refer to Note 8 for further details.
Restructuring1
$ 121
184
(53)
(9)
(2)
Litigation
and Other
$ 352
222
(219)
(78)
(8)
$ 241
$ 269
Total
$ 473
406
(272)
(87)
(10)
510
585
$ 1,095
LITIGATION
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 October 31, 2019, the Bank’s
RPL is from zero to approximately $606 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 signifcantly different from its actual or reasonably
possible losses. For example, the Bank’s estimates involve signifcant
judgment due to the varying stages of the proceedings, the existence
of multiple defendants in many 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 actions 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 fnancial condition or the consolidated cash fows
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 legal or regulatory actions
may be material to the Bank’s consolidated results of operations for
any particular reporting period.
Stanford Litigation – The Bank was named as a defendant in
Rotstain v. Trustmark National Bank, et al., a putative class action
lawsuit in the United States District Court for the Northern District
of Texas related to a US$7.2 billion Ponzi scheme perpetrated by
R. Allen Stanford, the owner of Stanford International Bank, Limited
(SIBL), an offshore bank based in Antigua. Plaintiffs purport to
represent a class of investors in SIBL issued certifcates of deposit.
The Bank provided certain correspondent banking services to SIBL.
Plaintiffs allege that the Bank and four other banks aided and abetted
or conspired with Mr. Stanford to commit fraud and that the bank
defendants received fraudulent transfers from SIBL by collecting fees
for providing certain services.
The Offcial Stanford Investors Committee (OSIC), a court-approved
committee representing investors, received permission to intervene
in the lawsuit and has brought similar claims against all the bank
defendants. The court denied in part and granted in part the Bank’s
motion to dismiss the lawsuit on April 21, 2015. The court also
entered a class certifcation scheduling order requiring the parties to
conduct discovery and submit briefng regarding class certifcation. The
class certifcation motion was fully submitted on October 26, 2015.
The class plaintiffs fled an amended complaint asserting certain
additional state law claims against the Bank on June 23, 2015. The
Bank’s motion to dismiss the newly amended complaint in its entirety
was fully submitted on August 18, 2015. On April 22, 2016, the Bank
fled a motion to reconsider the court’s April 2015 dismissal decision
with respect to certain claims by OSIC under the Texas Uniform
Fraudulent Transfer Act based on an intervening change in the law
announced by the Texas Supreme Court on April 1, 2016. On
July 28, 2016, the court issued a decision denying defendants’ motions
to dismiss the class plaintiffs’ complaint and to reconsider with respect
to OSIC’s complaint. The Bank fled its answer to the class plaintiffs’
complaint on August 26, 2016. OSIC fled an amended intervenor
complaint against the Bank on November 4, 2016 and the Bank fled
its answer to this amended complaint on December 19, 2016.
On November 7, 2017, the Court issued a decision denying the class
certifcation motion. The court found that the plaintiffs failed to show
that common issues of fact would predominate given the varying sales
presentations they allegedly received.
On November 21, 2017, the class plaintiffs fled a Rule 23(f) petition
seeking permission to appeal the District Court’s denial of class
certifcation to the United States Court of Appeals for the Fifth Circuit.
The Bank fled an opposition to the class plaintiffs’ petition on
December 4, 2017. The Fifth Circuit denied the class plaintiffs’ petition
on April 20, 2018.
On February 28, 2019, the Bank, along with the other bank
defendants, fled a motion for judgment on the pleadings in OSIC’s
case seeking dismissal of three claims (aiding and abetting fraud,
aiding and abetting conversion, and aiding and abetting breach of
fduciary duty). The motion was fully briefed as of April 4, 2019.
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
203
On May 3, 2019, two groups of plaintiffs comprising more than
950 investors in certifcates of deposit issued by SIBL fled motions
to intervene in OSIC ‘s case against the Bank and the other bank
defendants. On September 18, 2019, the Court denied the motions to
intervene. On October 14, 2019, one group of plaintiffs (comprising
147 investors) fled a notice of appeal to the Fifth Circuit.
On September 10, 2019, OSIC fled a motion for leave to amend
its complaint against the Bank and the other bank defendants to insert
additional fact allegations. The motion was fully briefed as of
October 15, 2019.
On November 1, 2019, a second group of plaintiffs (comprising
1,286 investors) fled a petition in Texas state court against the Bank
and other bank defendants alleging claims similar to those alleged
in the Rotstain v. Trustmark National Bank, et al. action. Discovery
against the bank defendants is ongoing, and the Court has set a
ready-for-trial date of January 11, 2021.
The Bank is also a defendant in two cases fled in the Ontario
Superior Court of Justice: (1) Wide & Dickson v. The Toronto-Dominion
Bank, an action fled by the Joint Liquidators of SIBL appointed by
the Eastern Caribbean Supreme Court, and (2) Dynasty Furniture
Manufacturing Ltd., et al. v. The Toronto-Dominion Bank, an action
fled by fve investors in certifcates of deposits sold by Stanford.
The suits assert that the Bank acted negligently and provided knowing
assistance to SIBL’s fraud. The court denied the Bank’s motion for
summary judgment in the Joint Liquidators case to dismiss the action
based on the applicable statute of limitations on November 9, 2015,
and designated the limitations issues to be addressed as part of a
future trial on the merits. The two cases fled in the Ontario Superior
Court of Justice are being managed jointly. A trial date has been
scheduled for January 11, 2021.
Overdraft Litigation – TD Bank, N.A. was named as a defendant in
eleven putative nationwide class actions challenging the overdraft
practices of TD Bank, N.A. from August 16, 2010 to the present and
the overdraft practices of Carolina First Bank prior to its merger into
TD Bank, N.A. in September 2010. These actions were consolidated
for pretrial proceedings as MDL 2613 in the United States District
Court for the District of South Carolina: In re TD Bank, N.A. Debit
Card Overdraft Fee Litigation, No. 6:15-MN-02613 (D.S.C.). On
December 10, 2015, TD Bank, N.A.’s motion to dismiss the consolidated
amended class action complaint was granted in part and denied in
part. Discovery, briefng, and a hearing on class certifcation were
complete as of May 24, 2017.
On January 5, 2017, TD Bank, N.A. was named as a defendant in
a twelfth class action complaint (Dorsey) challenging an overdraft
practice that was already the subject of the consolidated amended
class action complaint. The Dorsey action was consolidated into
MDL 2613, and dismissed by the Court. The Dorsey plaintiff appealed
the dismissal to the United States Court of Appeals for the
Fourth Circuit.
On December 5, 2017, TD Bank, N.A. was named as a defendant in
a thirteenth class action complaint (Lawrence) challenging the Bank’s
overdraft practices. The Lawrence action, which was also transferred
to MDL 2613, concerns the Bank’s treatment of certain transactions
as “recurring” for overdraft purposes. The Bank moved to dismiss
the claims.
On February 22, 2018, the Court issued an order certifying a class as
to certain claims in the consolidated amended class action complaint
and denying certifcation as to others. The Fourth Circuit denied the
Bank’s 23(f) petition seeking permission to appeal certain portions of
the district court’s order.
On February 1, 2019, the parties fled a Joint Notice of Settlement
of all claims consolidated in MDL 2613 on a class-wide basis. In
response to the Notice of Settlement, on February 4, 2019, the Court
issued an order suspending all deadlines. On June 26, 2019, the Court
issued an order preliminarily approving settlement of all claims
consolidated in MDL 2613 on a class-wide basis and directing notice
to settlement class members. A fnal approval hearing is scheduled for
January 8, 2020. The Fourth Circuit suspended appeal proceedings in
Dorsey pending the district court’s review of the proposed settlement.
In addition, the district court dismissed the Bank’s motion to dismiss
the Lawrence complaint without prejudice to refle pending its review
of the settlement.
Credit Card Fees – Between 2011 and 2013, seven proposed class
actions were commenced, fve of which remain in British Columbia,
Alberta, Saskatchewan, Ontario and Québec: Coburn and Watson’s
Metropolitan Home v. Bank of America Corporation, et al.; Macaronies
Hair Club v. BOFA Canada Bank, et al.; Hello Baby Equipment Inc.
v. BOFA Canada Bank, et al.; Bancroft-Snell, et al. v. Visa Canada
Corporation, et al.; and 9085-4886 Québec Inc. v. Visa Canada
Corporation, et al. Subject to court approval of certain settlements,
the remaining defendants in each action are the Bank and several
other fnancial institutions. The plaintiff class members are Canadian
merchants who accept payment for products and services by Visa
Canada Corporation (Visa) and/or MasterCard International Incorporated
(MasterCard) (collectively, the “Networks”). While there is some
variance, in most of the actions it is alleged that, from March 2001
to the present, the Networks conspired with their issuing banks and
acquirers to fx excessive fees and that certain rules have the effect of
increasing the merchant fees.
The fve actions that remain include claims of civil conspiracy, breach
of the Competition Act, interference with economic relations, and
unjust enrichment. Plaintiffs seek general and punitive damages. In
the lead case proceeding in British Columbia, the decision to partially
certify the action as a class proceeding was released on March 27, 2014.
The certifcation decision was appealed by both plaintiff class
representatives and defendants. The appeal hearing took place in
December 2014 and the decision was released on August 19, 2015.
While both the plaintiffs and defendants succeeded in part on their
respective appeals, the class period for the plaintiffs’ key claims was
shortened signifcantly. At a hearing in October 2016, the plaintiffs
sought to amend their claims to reinstate the extended class period.
The plaintiffs’ motion to amend their claims to reinstate the extended
class period was denied by the motions judge and subsequently by
the B.C. Court of Appeal. The plaintiffs have sought and were refused
leave to appeal to the Supreme Court of Canada. The trial of the
British Columbia action is currently scheduled to proceed in
October 2020. In Québec, the motion for authorization proceeded on
November 6-7, 2017 and the matter was authorized on similar
grounds and for a similar period as in British Columbia. The plaintiffs
appealed this decision. On July 25, 2019, the Quebec Court of Appeal
granted the plaintiff’s appeal, thereby reinstating the extended class
period for the Quebec proceeding.
Consumer Class Actions – The Bank, along with several other
Canadian fnancial institutions, is a defendant in a number of matters
brought by consumers alleging provincial and/or national class claims
in connection with various fees, interest rate calculations, and credit
decisions. The cases are in various stages of maturity. The one matter
where the Bank is the sole defendant has been settled in principle
with approval pending.
204 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
COMMITMENTS
Credit-related Arrangements
In the normal course of business, the Bank enters into various
commitments and contingent liability contracts. The primary purpose
of these contracts is to make funds available for the fnancing needs
of customers. The Bank’s policy for requiring collateral security with
respect to these contracts and the types of collateral security held is
generally the same as for loans made by the Bank.
Financial and performance standby letters of credit represent
irrevocable assurances that the Bank will make payments in the event
that a customer cannot meet its obligations to third parties and they
carry the same credit risk, recourse, and collateral security requirements
as loans extended to customers. Performance standby letters of credit
are considered non-fnancial guarantees as payment does not depend
on the occurrence of a credit event and is generally related to a
non-fnancial trigger event. Refer to the Guarantees section in this
Note for further details.
Documentary and commercial letters of credit are instruments issued
on behalf of a customer authorizing a third party to draw drafts on
the Bank up to a certain amount subject to specifc terms and conditions.
The Bank is at risk for any drafts drawn that are not ultimately settled
by the customer, and the amounts are collateralized by the assets to
which they relate.
Commitments to extend credit represent unutilized portions of
authorizations to extend credit in the form of loans and customers’
liability under acceptances. A discussion on the types of liquidity
facilities the Bank provides to its securitization conduits is included
in Note 10.
The values of credit instruments reported as follows represent the
maximum amount of additional credit that the Bank could be obligated
to extend should contracts be fully utilized.
Credit Instruments
(millions of Canadian dollars)
Financial and performance standby
letters of credit
Documentary and commercial letters of credit
Commitments to extend credit1
Original term-to-maturity of one year or less
Original term-to-maturity of more than one year
Total
As at
October 31
2019
October 31
2018
$ 26,887 $ 26,431
197
107
56,676
150,170
50,028
134,148
$ 233,840 $ 210,804
1 Commitments to extend credit exclude personal lines of credit and credit card lines,
which are unconditionally cancellable at the Bank’s discretion at any time.
In addition, as at October 31, 2019, the Bank is committed to
fund $374 million (October 31, 2018 – $205 million) of private
equity investments.
Long-term Commitments or Leases
The Bank has obligations under long-term non-cancellable leases
for premises and equipment. Future minimum operating lease
commitments including rental payments, related taxes and estimated
operating expenses for premises and equipment, where the annual
payment is in excess of $100 thousand, is estimated at $988 million
for 2020, $936 million for 2021, $884 million for 2022, $790 million
for 2023, $658 million for 2024, $3,365 million for 2025,
and thereafter.
Future minimum fnance lease commitments where the annual
payment is in excess of $100 thousand, is estimated at $21 million for
2020, $22 million for 2021, $20 million for 2022, $15 million
for 2023, $4 million for 2024, $1 million for 2025, and thereafter.
The premises and equipment net rental expense, included under
Non-interest expenses in the Consolidated Statement of Income, was
$1.2 billion for the year ended October 31, 2019 (October 31, 2018
– $1.1 billion; October 31, 2017 – $1.1 billion).
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 Collateral
(millions of Canadian dollars)
As at
Sources of pledged assets and collateral
Bank assets
Cash and due from banks
Interest-bearing deposits with banks
Loans
Securities
Other assets
Third-party assets1
Collateral received and available
for sale or repledging
Less: Collateral not repledged
Uses of pledged assets and collateral2
Derivatives
Obligations related to securities sold under
repurchase agreements
Securities borrowing and lending
Obligations related to securities sold short
Securitization
Covered bond
Clearing systems, payment systems, and depositories
Foreign governments and central banks
Other
Total
October 31
2019
October 31
2018
$
820 $ 1,219
3,301
83,637
83,370
1,278
172,805
4,918
87,415
85,237
850
179,240
274,765
(61,260)
213,505
392,745
243,168
(57,845)
185,323
358,128
11,468
8,083
120,352
107,587
27,575
32,024
41,937
8,338
1,167
42,297
105,665
85,544
39,007
32,067
38,033
7,540
1,390
40,799
$ 392,745 $ 358,128
1 Includes collateral received from reverse repurchase agreements, securities
borrowing, margin loans, and other client activity.
2 Includes $45.6 billion of on-balance sheet assets that the Bank has pledged and
that the counterparty can subsequently repledge as at October 31, 2019
(October 31, 2018 – $43.9 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.
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
205
GUARANTEES
In addition to fnancial and performance standby letters of credit, the
following types of transactions represent the principal guarantees that
the Bank has entered into.
Credit Enhancements
The Bank guarantees payments to counterparties in the event that
third-party credit enhancements supporting asset pools are insuffcient.
Indemnification Agreements
In the normal course of operations, the Bank provides indemnifcation
agreements to various counterparties in transactions such as service
agreements, leasing transactions, and agreements relating to
acquisitions and dispositions. Under these agreements, the Bank
is required to compensate counterparties for costs incurred as a result
of various contingencies such as changes in laws and regulations
and litigation claims. The nature of certain indemnifcation agreements
prevent the Bank from making a reasonable estimate of the
maximum potential amount that the Bank would be required to
pay such counterparties.
The Bank also indemnifes directors, offcers, and other persons, to
the extent permitted by law, against certain claims that may be made
against them as a result of their services to the Bank or, at the Bank’s
request, to another entity.
N O T E 2 8
RELATED PARTY TRANSACTIONS
Parties are considered to be related if one party has the ability to
directly or indirectly control the other party or exercise signifcant
infuence over the other party in making fnancial or operational
decisions. The Bank’s related parties include key management
personnel, their close family members and their related entities,
subsidiaries, associates, joint ventures, and post-employment
beneft plans for the Bank’s employees.
TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL, THEIR
CLOSE FAMILY MEMBERS, AND THEIR RELATED ENTITIES
Key management personnel are those persons having authority and
responsibility for planning, directing, and controlling the activities
of the Bank, directly or indirectly. The Bank considers certain of its
offcers and directors to be key management personnel. The Bank
makes loans to its key management personnel, their close family
members, and their related entities on market terms and conditions
with the exception of banking products and services for key
management personnel, which are subject to approved policy
guidelines that govern all employees.
As at October 31, 2019, $121 million (October 31, 2018
– $149 million) of related party loans were outstanding from key
management personnel, their close family members, and their
related entities.
COMPENSATION
The remuneration of key management personnel was as follows:
Compensation
(millions of Canadian dollars)
Short-term employee benefts
Post-employment benefts
Share-based payments
Total
2019
$ 33
2
35
$ 70
2018
$ 34
3
37
$ 74
2017
$ 33
3
32
$ 68
In addition, the Bank offers deferred share and other plans to
non-employee directors, executives, and certain other key employees.
Refer to Note 23 for further details.
In the ordinary course of business, the Bank also provides various
banking services to associated and other related corporations on
terms similar to those offered to non-related parties.
TRANSACTIONS WITH SUBSIDIARIES, TD AMERITRADE,
AND SYMCOR INC.
Transactions between the Bank and its subsidiaries meet the defnition
of related party transactions. If these transactions are eliminated on
consolidation, they are not disclosed as related party transactions.
206 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
Transactions between the Bank, TD Ameritrade, and Symcor Inc.
(Symcor) also qualify as related party transactions. There were no
signifcant transactions between the Bank, TD Ameritrade, and Symcor
during the year ended October 31, 2019, other than as described in
the following sections and in Note 12.
Other Transactions with TD Ameritrade and Symcor
i) TD AMERITRADE HOLDING CORPORATION
A description of signifcant transactions of the Bank and its affliates
with TD Ameritrade is set forth below.
Insured Deposit Account Agreement
The Bank is party to an insured deposit account (IDA) agreement with
TD Ameritrade, pursuant to which the Bank makes available to clients
of TD Ameritrade, FDIC-insured money market deposit accounts as
either designated sweep vehicles or as non-sweep deposit accounts.
TD Ameritrade provides marketing and support services with respect
to the IDA. The Bank paid fees of $2.2 billion during the year ended
October 31, 2019 (October 31, 2018 – $1.9 billion; October 31, 2017
– $1.5 billion) to TD Ameritrade related to deposit accounts. The
amount paid by the Bank is based on the average insured deposit
balance of $140 billion for the year ended October 31, 2019
(October 31, 2018 – $140 billion; October 31, 2017 – $124 billion)
with a portion of the amount tied to the actual yield earned by the
Bank on the investments, less the actual interest paid to clients of
TD Ameritrade, and the balance tied to an agreed rate of return.
The Bank earns a servicing fee of 25 bps on the aggregate average
daily balance in the sweep accounts (subject to adjustment based
on a specifed formula).
were $41 million (October 31, 2018 – $137 million). As at
October 31, 2019, amounts payable to TD Ameritrade were
$168 million (October 31, 2018 – $174 million).
The Bank and other fnancial institutions provided TD Ameritrade
with unsecured revolving loan facilities. The total commitment
provided by the Bank was $291 million, which was undrawn as at
October 31, 2019 (October 31, 2018 – $338 million undrawn).
ii) TRANSACTIONS WITH SYMCOR
The Bank has one-third ownership in Symcor, a Canadian provider
of business process outsourcing services offering a diverse portfolio
of integrated solutions in item processing, statement processing
and production, and cash management services. The Bank accounts
for Symcor’s results using the equity method of accounting. During
the year ended October 31, 2019, the Bank paid $81 million
(October 31, 2018 – $86 million; October 31, 2017 – $93 million) for
these services. As at October 31, 2019, the amount payable to Symcor
was $12 million (October 31, 2018 – $14 million).
The Bank and two other shareholder banks have also provided a
$100 million unsecured loan facility to Symcor which was undrawn
as at October 31, 2019, and October 31, 2018.
For the years ended October 31
As at October 31, 2019, amounts receivable from TD Ameritrade
N O T E 2 9
SEGMENTED INFORMATION
For management reporting purposes, the Bank reports its results under
three key business segments: Canadian Retail, which includes the
results of the Canadian personal and commercial banking businesses,
Canadian credit cards, TD Auto Finance Canada, and Canadian wealth
and insurance businesses; U.S. Retail, which includes the results of
the U.S. personal and business banking operations, U.S. credit cards,
TD Auto Finance U.S., U.S. wealth business, and the Bank’s investment
in TD Ameritrade; and Wholesale Banking. The Bank’s other activities
are grouped into the Corporate segment.
Canadian Retail is comprised of Canadian personal and commercial
banking, which provides fnancial products and services to personal,
small business, and commercial customers, TD Auto Finance Canada,
the Canadian credit card business, the Canadian wealth business,
which provides investment products and services to institutional and
retail investors, and the insurance business. U.S. Retail is comprised of
the personal and business banking operations in the U.S. operating
under the brand TD Bank, America’s Most Convenient Bank®, primarily
in the Northeast and Mid-Atlantic regions and Florida, and the U.S.
wealth business, including Epoch and the Bank’s equity investment in
TD Ameritrade. Wholesale Banking provides a wide range of capital
markets, investment banking, and corporate banking products
and services, including underwriting and distribution of new debt
and equity issues, providing advice on strategic acquisitions and
divestitures, and meeting the daily trading, funding, and investment
needs of the Bank’s clients. The Bank’s other activities are grouped
into the Corporate segment. The Corporate segment includes the
effects of certain asset securitization programs, treasury management,
the collectively assessed allowance for incurred but not identifed
credit losses in Canadian Retail and Wholesale Banking, elimination
of taxable equivalent adjustments and other management
reclassifcations, corporate level tax items, and residual unallocated
revenue and expenses.
The results of each business segment refect revenue, expenses, and
assets generated by the businesses in that segment. Due to the
complexity of the Bank, its management reporting model uses various
estimates, assumptions, allocations, and risk-based methodologies
for funds transfer pricing, inter-segment revenue, income tax rates,
capital, indirect expenses and cost transfers to measure business
segment results. The basis of allocation and methodologies are reviewed
periodically to align with management’s evaluation of the Bank’s
business segments. Transfer pricing of funds is generally applied at
market rates. Inter-segment revenue is negotiated between each
business segment and approximates the fair value of the services
provided. Income tax provision or recovery is generally applied to each
segment based on a statutory tax rate and may be adjusted for items
and activities unique to each segment. Amortization of intangibles
acquired as a result of business combinations is included in the
Corporate segment. Accordingly, net income for business segments
is presented before amortization of these intangibles.
Non-interest income is earned by the Bank primarily through
investment and securities services, credit fees, trading income, service
charges, card services, and insurance revenues. Revenues from
investment and securities services are earned predominantly in the
Canadian Retail segment with the remainder earned in Wholesale
Banking and U.S. Retail. Revenues from credit fees are primarily earned
in the Wholesale Banking and Canadian Retail segments. Trading
income is earned within Wholesale Banking. Both service charges
and card services revenue are mainly earned in the U.S. Retail and
Canadian Retail segments. Insurance revenue is earned in the
Canadian Retail segment.
Net interest income within Wholesale Banking is calculated on a
taxable equivalent basis (TEB), which means that the value of
non-taxable or tax-exempt income, including dividends, is adjusted
to its equivalent before-tax value. Using TEB allows the Bank to
measure income from all securities and loans consistently and makes
for a more meaningful comparison of net interest income with similar
institutions. The TEB adjustment refected in Wholesale Banking is
reversed in the Corporate segment.
The Bank purchases CDS to hedge the credit risk in Wholesale
Banking’s corporate lending portfolio. These CDS do not qualify for
hedge accounting treatment and are measured at fair value with
changes in fair value recognized in current period’s earnings. The
related loans are accounted for at amortized cost. Management
believes that this asymmetry in the accounting treatment between
CDS and loans would result in periodic proft and loss volatility which
is not indicative of the economics of the corporate loan portfolio
or the underlying business performance in Wholesale Banking. As a
result, these CDS are accounted for on an accrual basis in Wholesale
Banking and the gains and losses on these CDS, in excess of the
accrued cost, are reported in the Corporate segment.
The Bank changed its trading strategy with respect to certain
trading debt securities and reclassifed these securities from trading to
the AFS category under IAS 39 (classifed as FVOCI under IFRS 9)
effective August 1, 2008. These debt securities are economically
hedged, primarily with CDS and interest rate swap contracts which are
recorded on a fair value basis with changes in fair value recorded in
the period’s earnings. As a result, the derivatives were accounted for
on an accrual basis in Wholesale Banking and the gains and losses
related to the derivatives in excess of the accrued amounts were
reported in the Corporate segment. Adjusted results of the Bank in
prior periods exclude the gains and losses of the derivatives in excess
of the accrued amount. Effective February 1, 2017, the total gains and
losses as a result of changes in fair value of these derivatives are
recorded in Wholesale Banking.
Upon adoption of IFRS 9, the current period provision for credit
losses related to performing (Stage 1 and Stage 2) and impaired
(Stage 3) fnancial assets, loan commitments, and fnancial guarantees
are recorded within the respective segment. Under IAS 39, and prior
to November 1, 2017, the provision for credit losses related to the
collectively assessed allowance for incurred but not identifed credit
losses that related to Canadian Retail and Wholesale Banking
segments was recorded in the Corporate segment.
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
207
The following table summarizes the segment results for the years
ended October 31.
Results by Business Segment1,2
(millions of Canadian dollars)
Net interest income (loss)
Non-interest income (loss)
Total revenue
Provision for (recovery of) credit losses
Insurance claims and related expenses
Non-interest expenses
Income (loss) before income taxes
Provision for (recovery of) income taxes
Equity in net income of an investment in TD Ameritrade
Net income (loss)
For the years ended October 31
Canadian
Retail
$ 12,349
11,877
24,226
1,306
2,787
10,735
9,398
2,535
–
6,863
$
U.S.
Retail
8,951
2,840
11,791
1,082
–
6,411
4,298
471
1,154
4,981
$
$
Wholesale
Banking3,4
$
$
911
2,320
3,231
44
–
2,393
794
186
–
608
Corporate3,4
$ 1,720
97
1,817
597
–
2,481
(1,261)
(457)
38
(766)
$
$
$
2019
Total
23,931
17,134
41,065
3,029
2,787
22,020
13,229
2,735
1,192
11,686
Total assets as at October 31
$ 452,163
$ 436,086
$ 458,420
$ 68,621
$ 1,415,290
Net interest income (loss)
Non-interest income (loss)
Total revenue
Provision for (recovery of) credit losses
Insurance claims and related expenses
Non-interest expenses
Income (loss) before income taxes
Provision for (recovery of) income taxes
Equity in net income of an investment in TD Ameritrade
Net income (loss)
$ 11,576
11,137
22,713
998
2,444
9,473
9,798
2,615
–
7,183
$
$
$
8,176
2,768
10,944
917
–
6,100
3,927
432
693
4,188
$
$
1,150
2,367
3,517
3
–
2,125
1,389
335
–
1,054
$ 1,337
381
1,718
562
–
2,497
(1,341)
(200)
50
$ (1,091)
$
$
2018
22,239
16,653
38,892
2,480
2,444
20,195
13,773
3,182
743
11,334
Total assets as at October 31
$ 433,960
$ 417,292
$ 425,909
$ 57,742
$ 1,334,903
Net interest income (loss)
Non-interest income (loss)
Total revenue
Provision for (recovery of) credit losses
Insurance claims and related expenses
Non-interest expenses
Income (loss) before income taxes
Provision for (recovery of) income taxes
Equity in net income of an investment in TD Ameritrade
Net income (loss)
$ 10,611
10,451
21,062
986
2,246
8,934
8,896
2,371
–
6,525
$
$
$
7,486
2,735
10,221
792
–
5,878
3,551
671
442
3,322
$
$
1,804
1,520
3,324
(28)
–
1,982
1,370
331
–
1,039
$
$
946
649
1,595
466
–
2,625
(1,496)
(1,120)
7
(369)
$
$
2017
20,847
15,355
36,202
2,216
2,246
19,419
12,321
2,253
449
10,517
Total assets as at October 31
$ 404,444
$ 403,937
$ 406,138
$ 64,476
$ 1,278,995
1 Certain comparative amounts have been recast to conform with the presentation
3 Net interest income within Wholesale Banking is calculated on a TEB. The TEB
adopted in the current period.
2 The retailer program partners’ share of revenues and credit losses is presented in
the Corporate segment, with an offsetting amount (representing the partners’
net share) recorded in Non-interest expenses, resulting in no impact to Corporate
reported Net income (loss). The Net income (loss) included in the U.S. Retail
segment includes only the portion of revenue and credit losses attributable to
the Bank under the agreements.
adjustment reflected in Wholesale Banking is reversed in the Corporate segment.
4 Effective February 1, 2017, the total gains and losses as a result of changes in fair
value of the CDS and interest rate swap contracts hedging the reclassified financial
assets at FVOCI (AFS securities under IAS 39) portfolio are recorded in Wholesale
Banking. Previously, these derivatives were accounted for on an accrual basis in
Wholesale Banking and the gains and losses related to the derivatives, in excess of
the accrued costs were reported in Corporate segment.
208 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
RESULTS BY GEOGRAPHY
For reporting of geographic results, segments are grouped into
Canada, United States, and Other international. Transactions are
primarily recorded in the location responsible for recording the revenue
or assets. This location frequently corresponds with the location of the
legal entity through which the business is conducted and the location
of the customer.
(millions of Canadian dollars)
Canada
United States
Other international
Total
Canada
United States
Other international
Total
Canada
United States
Other international
Total
1 Certain comparative amounts have been recast to conform with the presentation
adopted in the current period.
N O T E 3 0
INTEREST INCOME AND EXPENSE
The following table presents interest income and interest expense by
basis of accounting measurement. Please refer to Note 2 for the type
of instruments measured at amortized cost and FVOCI.
Interest Income and Expense1
(millions of Canadian dollars)
Measured at amortized cost
Measured at FVOCI
Not measured at amortized cost or FVOCI2
Total
For the years ended October 31
As at October 31
2019
2019
Total revenue1
$ 23,599
15,557
1,909
$ 41,065
$ 23,332
13,751
1,809
$ 38,892
$ 20,911
13,371
1,920
$ 36,202
Income before
income taxes
Net income
$ 7,237
4,827
1,165
$ 13,229
$ 8,886
3,768
1,119
$ 13,773
$ 7,250
3,677
1,394
$ 12,321
$ 5,208
4,180
2,298
$ 11,686
2018
$ 6,523
2,993
1,818
$ 11,334
2017
$ 5,660
3,075
1,782
$ 10,517
Total assets
$ 769,314
524,397
121,579
$ 1,415,290
2018
$ 713,677
514,263
106,963
$ 1,334,903
2017
$ 648,924
515,478
114,593
$ 1,278,995
October 31, 2019
For the years ended
October 31, 2018
Interest income
Interest expense
Interest income
Interest expense
$ 31,663
3,165
34,828
7,171
$ 41,999
$ 11,294
–
11,294
6,774
$ 18,068
$ 27,693
2,946
30,639
5,783
$ 9,286
–
9,286
4,897
$ 36,422
$ 14,183
1 Certain comparative amounts have been reclassified to conform with the
2 Includes interest income, interest expense, and dividend income for financial
presentation adopted in the current period.
instruments that are measured or designated at FVTPL and equities designated
at FVOCI.
N O T E 3 1
CREDIT RISK
Concentration of credit risk exists where a number of borrowers
or counterparties are engaged in similar activities, are located in the
same geographic area or have comparable economic characteristics.
Their ability to meet contractual obligations may be similarly affected
by changing economic, political or other conditions. The Bank’s
portfolio could be sensitive to changing conditions in particular
geographic regions.
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
209
Concentration of Credit Risk
(millions of Canadian dollars, except as noted)
Canada
United States
United Kingdom
Europe – other
Other international
Total
As at
Derivative fnancial
Loans and customers’ liability
under acceptances1,2
October 31
2018
October 31
2019
Credit instruments3,4
October 31
2019
October 31
2018
October 31
2019
67%
32
–
–
1
100%
67%
32
–
–
1
100%
38%
58
1
2
1
100%
40%
57
1
1
1
100%
25%
31
17
20
7
100%
$ 700,226
$ 666,405
$ 233,840
$ 210,804
$ 46,829
instruments5,6
October 31
2018
24%
31
15
24
6
100%
$ 55,615
1 Of the total loans and customers’ liability under acceptances, the only industry
segment which equalled or exceeded 5% of the total concentration as at
October 31, 2019 was real estate 10% (October 31, 2018 – 9%).
(October 31, 2018 – 7%); professional and other services 6% (October 31, 2018
– 6%); non-residential real estate development 6% (October 31, 2018 – 5%);
telecommunications, cable, and media 6% (October 31, 2018 – 7%).
2 Includes loans that are measured at FVOCI.
3 As at October 31, 2019, the Bank had commitments and contingent liability
contracts in the amount of $234 billion (October 31, 2018 – $211 billion).
Included are commitments to extend credit totalling $207 billion (October 31, 2018
– $184 billion), of which the credit risk is dispersed as detailed in the table above.
5 As at October 31, 2019, the current replacement cost of derivative financial
instruments amounted to $47 billion (October 31, 2018 – $56 billion). Based
on the location of the ultimate counterparty, the credit risk was allocated as
detailed in the table above. The table excludes the fair value of exchange
traded derivatives.
4 Of the commitments to extend credit, industry segments which equalled or
6 The largest concentration by counterparty type was with financial institutions
exceeded 5% of the total concentration were as follows as at October 31, 2019:
financial institutions 22% (October 31, 2018 – 19%); pipelines, oil and gas 9%
(October 31, 2018 – 10%); automotive 9% (October 31, 2018 – 9%); power and
utilities 8% (October 31, 2018 – 9%); sundry manufacturing and wholesale 7%
(including non-banking financial institutions), which accounted for 69% of the
total as at October 31, 2019 (October 31, 2018 – 68%). The second largest
concentration was with governments, which accounted for 22% of the total
as at October 31, 2019 (October 31, 2018 – 26%). No other industry segment
exceeded 5% of the total.
The following table presents the maximum exposure to credit risk of
fnancial instruments, before taking account of any collateral held or
other credit enhancements.
Gross Maximum Credit Risk Exposure1
(millions of Canadian dollars)
Cash and due from banks
Interest-bearing deposits with banks
Securities2
Financial assets designated at fair value through proft or loss
Government and government-insured securities
Other debt securities
Trading
Government and government-insured securities
Other debt securities
Retained interest
Non-trading securities at fair value through proft or loss
Government and government-insured securities
Other debt securities
Securities at fair value through other comprehensive income
Government and government-insured securities
Other debt securities
Debt securities at amortized cost
Government and government-insured securities
Other debt securities
Securities purchased under reverse purchase agreements
Derivatives3
Loans
Residential mortgages
Consumer instalment and other personal
Credit card
Business and government
Trading loans
Non-trading loans at fair value through proft or loss
Loans at fair value through other comprehensive income
Customers’ liability under acceptances
Amounts receivable from brokers, dealers, and clients
Other assets
Total assets
Credit instruments4
Unconditionally cancellable commitments to extend credit
relating to personal lines of credit and credit card lines
Total credit exposure
October 31
2019
As at
October 31
2018
$
4,863
25,583
$
4,735
30,720
1,413
2,627
44,445
18,680
19
319
4,081
83,171
23,969
78,275
52,222
165,935
48,894
235,530
179,085
34,989
235,004
12,482
1,796
2,124
13,494
20,575
5,913
1,295,488
233,840
1,397
2,221
47,085
20,106
25
–
2,340
94,733
30,948
60,535
46,636
127,379
56,996
225,081
170,976
34,015
216,321
10,990
1,336
2,745
17,267
26,940
5,886
1,237,413
210,804
311,138
$ 1,840,466
301,752
$ 1,749,969
1 Certain comparative amounts have been recast to conform with the presentation
adopted in the current period.
2 Excludes equity securities.
3 The carrying amount of the derivative assets represents the maximum credit risk
exposure related to derivative contracts.
4 The balance represents the maximum amount of additional funds that the Bank
could be obligated to extend should the contracts be fully utilized. The actual
maximum exposure may differ from the amount reported above. Refer to Note 27
for further details.
210 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
N O T E 3 2
REGULATORY CAPITAL
The Bank manages its capital under guidelines established by OSFI.
The regulatory capital guidelines measure capital in relation to credit,
trading market, and operational risks. The Bank has various capital
policies, procedures, and controls which it utilizes to achieve its goals
and objectives.
The Bank’s capital management objectives are:
• To be an appropriately capitalized fnancial institution as
determined by:
– the Bank’s Risk Appetite Statement;
– capital requirements defned by relevant regulatory
authorities; and
– the Bank’s internal assessment of capital requirements consistent
with the Bank’s risk profle and risk tolerance levels.
• To have the most economically achievable weighted-average cost
of capital, consistent with preserving the appropriate mix of capital
elements to meet targeted capitalization levels.
• To ensure ready access to sources of appropriate capital,
at reasonable cost, in order to:
– insulate the Bank from unexpected events; and
– support and facilitate business growth and/or acquisitions
consistent with the Bank’s strategy and risk appetite.
• To support strong external debt ratings, in order to manage
the Bank’s overall cost of funds and to maintain accessibility to
required funding.
These objectives are applied in a manner consistent with
the Bank’s overall objective of providing a satisfactory return on
shareholders’ equity.
Basel III Capital Framework
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 Common Equity Tier 1,
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 risk-weighted assets (RWA), inclusive of any minimum
requirements outlined under the regulatory foor. In 2015, Basel III
also 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 fnancing transaction exposures, and credit
equivalent amounts of off-balance sheet exposures.
Capital Position and Capital Ratios
The Basel framework allows qualifying banks to determine capital
levels consistent with the way they measure, manage, and mitigate
risks. It specifes methodologies for the measurement of credit, trading
market, and operational risks. The Bank uses the advanced approaches
for the majority of its portfolios. In the U.S. Retail segment, the Bank
calculates the majority of the retail portfolio’s, and certain other
portfolio’s, credit RWA using the AIRB approach. The remaining assets
in the U.S. Retail segment continue to use the standardized approach
for credit risk.
For accounting purposes, IFRS is followed for consolidation of
subsidiaries and joint ventures. For regulatory capital purposes,
insurance subsidiaries are deconsolidated and reported as a deduction
from capital. Insurance subsidiaries are subject to their own capital
adequacy reporting, such as OSFI’s Life Insurance Capital Adequacy
Test. Currently, for regulatory capital purposes, all the entities of
the Bank are either consolidated or deducted from capital and there
are no entities from which surplus capital is recognized.
Some of the Bank’s subsidiaries are individually regulated by either
OSFI or other regulators. Many of these entities have minimum
capital requirements which they must maintain and which may limit
the Bank’s ability to extract capital or funds for other uses.
During the year ended October 31, 2019, the Bank complied with
the OSFI Basel III guidelines related to capital ratios and the leverage
ratio. Effective January 1, 2016, OSFI’s target CET1, Tier 1, and Total
Capital ratios for Canadian banks designated as domestic systemically
important banks (D-SIBs) includes a 1% common equity capital
surcharge bringing the targets to 8%, 9.5%, and 11.5%, respectively.
In addition, on June 25, 2018, OSFI provided greater transparency
related to previously undisclosed Pillar 2 CET1 capital buffers through
the introduction of the public Domestic Stability Buffer (DSB) which is
held by D-SIBs against Pillar 2 risks. The current buffer is set at 2% of
total risk-weighted assets (RWA) and must be met with CET1 Capital,
effectively raising the CET1 target to 10%.
OSFI has provided IFRS transitional provisions for the leverage ratio,
which allows for the exclusion of assets securitized and sold through
CMHC-sponsored programs prior to March 31, 2010, from the
calculation.
The following table summarizes the Bank’s regulatory capital position
as at October 31.
Regulatory Capital Position
(millions of Canadian dollars, except as noted)
Capital
Common Equity Tier 1 Capital
Tier 1 Capital
Total Capital
Risk-weighted assets used in the
calculation of capital ratios1
Common Equity Tier 1 Capital
Tier 1 Capital
Total Capital
Capital and leverage ratios
Common Equity Tier 1 Capital ratio1
Tier 1 Capital ratio1
Total Capital ratio1
Leverage ratio
As at
October 31
2019
October 31
2018
$
55,042
$ 52,389
61,683 59,735
74,122 70,434
$ 455,977
$ 435,632
455,977 435,780
455,977 435,927
12.1%
13.5
16.3
4.0
12.0%
13.7
16.2
4.2
1 In accordance with the final CAR guideline, the Credit Valuation Adjustment
(CVA) capital charge has been phased in until the first quarter of 2019. Each
capital ratio has its own RWA measure due to the OSFI prescribed scalar for
inclusion of the CVA. For fiscal 2019, the scalars for inclusion of CVA for CET1,
Tier 1, and Total Capital RWA are all 100%. For fiscal 2018, the scalars were
80%, 83%, and 86%, respectively.
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
211
N O T E 3 3
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 credit, market, liquidity, and insurance risks are
an integral part of the 2019 Consolidated Financial Statements.
N O T E 3 4
INFORMATION ON SUBSIDIARIES
The following is a list of the directly or indirectly held
signifcant subsidiaries.
Significant Subsidiaries1
(millions of Canadian dollars)
North America
Greystone Capital Management Inc.
Greystone Managed Investments Inc.
GMI Serving Inc.
Meloche Monnex Inc.
Security National Insurance Company
Primmum Insurance Company
TD Direct Insurance Inc.
TD General Insurance Company
TD Home and Auto Insurance Company
TD Asset Management Inc.
TD Waterhouse Private Investment Counsel Inc.
TD Auto Finance (Canada) Inc.
TD Auto Finance Services Inc.
TD Group US Holdings LLC
Toronto Dominion Holdings (U.S.A.), Inc.
TD Prime Services LLC
TD Securities (USA) LLC
Toronto Dominion (Texas) LLC
Toronto Dominion (New York) LLC
Toronto Dominion Capital (U.S.A.), Inc.
Toronto Dominion Investments, Inc.
TD Bank US Holding Company
Epoch Investment Partners, Inc.
TDAM USA Inc.
TD Bank USA, National Association
TD Bank, National Association
TD Auto Finance LLC
TD Equipment Finance, Inc.
TD Private Client Wealth LLC
TD Wealth Management Services Inc.
TD Luxembourg International Holdings
TD Ameritrade Holding Corporation4
TD Investment Services Inc.
TD Life Insurance Company
TD Mortgage Corporation
TD Pacifc Mortgage Corporation
The Canada Trust Company
TD Securities Inc.
TD Vermillion Holdings Limited
TD Financial International Ltd.
TD Reinsurance (Barbados) Inc.
TD Waterhouse Canada Inc.
Address of Head
or Principal Offce2
Regina, Saskatchewan
Regina, Saskatchewan
Regina, Saskatchewan
Montreal, Québec
Montreal, Québec
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Wilmington, Delaware
New York, New York
New York, New York
New York, New York
New York, New York
New York, New York
New York, New York
New York, New York
Cherry Hill, New Jersey
New York, New York
New York, New York
Cherry Hill, New Jersey
Cherry Hill, New Jersey
Farmington Hills, Michigan
Cherry Hill, New Jersey
New York, New York
Cherry Hill, New Jersey
Luxembourg, Luxembourg
Omaha, Nebraska
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Vancouver, British Columbia
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Hamilton, Bermuda
St. James, Barbados
Toronto, Ontario
As at October 31, 2019
Carrying value of shares
owned by the Bank3
$ 714
Description
Holding Company
Securities Dealer
Mortgage Servicing Entity
Holding Company
Insurance Company
Insurance Company
Insurance Company
Insurance Company
Insurance Company
Investment Counselling and Portfolio Management
Investment Counselling and Portfolio Management
Automotive Finance Entity
Automotive Finance Entity
Holding Company
Holding Company
Securities Dealer
Securities Dealer
Financial Services Entity
Financial Services Entity
Small Business Investment Company
Merchant Banking and Investments
Holding Company
Investment Counselling and Portfolio Management
Investment Counselling and Portfolio Management
U.S. National Bank
U.S. National Bank
Automotive Finance Entity
Financial Services Entity
Broker-dealer and Registered Investment Advisor
Insurance Agency
Holding Company
Securities Dealer
Mutual Fund Dealer
Insurance Company
Deposit-Taking Entity
Deposit-Taking Entity
Trust, Loans, and Deposit-Taking Entity
Investment Dealer and Broker
Holding Company
Holding Company
Reinsurance Company
Investment Dealer
1,595
365
2,619
1,370
67,117
52
85
9,775
2,231
26,880
2,442
1 Unless otherwise noted, The Toronto-Dominion Bank, either directly or through its
subsidiaries, owns 100% of the entity and/or 100% of any issued and outstanding
voting securities and non-voting securities of the entities listed.
included herein which are eliminated for consolidated financial reporting purposes.
Certain amounts have been adjusted to conform with the presentation adopted
in the current period.
2 Each subsidiary is incorporated or organized in the country in which its head or
principal office is located, with the exception of Toronto Dominion Investments
B.V., a company incorporated in The Netherlands, but with its principal office in
the United Kingdom.
3 Carrying amounts are prepared for purposes of meeting the disclosure requirements
of Section 308 (3)(a)(ii) of the Bank Act. Intercompany transactions may be
4 As at October 31, 2019, the Bank’s reported investment in TD Ameritrade Holding
Corporation was 43.19% (October 31, 2018 – 41.61%) of the outstanding shares
of TD Ameritrade Holding Corporation. TD Luxembourg International Holdings
and its ownership of TD Ameritrade Holding Corporation is included given the
significance of the Bank’s investment in TD Ameritrade Holding Corporation.
212 TD BANK GROUP ANNU AL REP ORT 2 019 FINA NCIAL RES ULTS
Significant Subsidiaries (continued)1
(millions of Canadian dollars)
International
TD Bank N.V.
TD Ireland Unlimited Company
TD Global Finance Unlimited Company
TD Securities (Japan) Co. Ltd.
Toronto Dominion Australia Limited
Toronto Dominion Investments B.V.
TD Bank Europe Limited
Toronto Dominion Holdings (U.K.) Limited
TD Securities Limited
Toronto Dominion (South East Asia) Limited
Address of Head
or Principal Offce2
Amsterdam, The Netherlands
Dublin, Ireland
Dublin, Ireland
Tokyo, Japan
Sydney, Australia
London, England
London, England
London, England
London, England
Singapore, Singapore
Description
Dutch Bank
Holding Company
Securities Dealer
Securities Dealer
Securities Dealer
Holding Company
UK Bank
Holding Company
Securities Dealer
Financial Institution
As at October 31, 2019
Carrying value of shares
owned by the Bank3
$ 632
894
12
97
1,114
931
1 Unless otherwise noted, The Toronto-Dominion Bank, either directly or through its
subsidiaries, owns 100% of the entity and/or 100% of any issued and outstanding
voting securities and non-voting securities of the entities listed.
2 Each subsidiary is incorporated or organized in the country in which its head or
principal office is located, with the exception of Toronto Dominion Investments
B.V., a company incorporated in The Netherlands, but with its principal office in
the United Kingdom.
3 Carrying amounts are prepared for purposes of meeting the disclosure requirements
of Section 308 (3)(a)(ii) of the Bank Act. Intercompany transactions may be
included herein which are eliminated for consolidated financial reporting purposes.
Certain amounts have been adjusted to conform with the presentation adopted
in the current period.
SUBSIDIARIES WITH RESTRICTIONS TO TRANSFER FUNDS
Certain of the Bank’s subsidiaries have regulatory requirements to
fulfl, in accordance with applicable law, in order to transfer funds,
including paying dividends to, repaying loans to, or redeeming
subordinated debentures issued to, the Bank. These customary
requirements include, but are not limited to:
• Local regulatory capital and/or surplus adequacy requirements;
• Basel requirements under Pillar 1 and Pillar 2;
• Local regulatory approval requirements; and
• Local corporate and/or securities laws.
As at October 31, 2019, the net assets of subsidiaries subject to
regulatory or CAR was $86.3 billion (October 31, 2018 – $79.8 billion),
before intercompany eliminations.
In addition to regulatory requirements outlined above, the Bank
may be subject to signifcant restrictions on its ability to use the assets
or settle the liabilities of members of its group. Key contractual
restrictions may arise from the provision of collateral to third parties in
the normal course of business, for example through secured fnancing
transactions; assets securitized which are not subsequently available
for transfer by the Bank; and assets transferred into other consolidated
and unconsolidated structured entities. The impact of these restrictions
has been disclosed in Notes 9 and 27.
Aside from non-controlling interests disclosed in Note 21, there
were no signifcant restrictions on the ability of the Bank to access or
use the assets or settle the liabilities of subsidiaries within the group
as a result of protective rights of non-controlling interests.
N O T E 3 5
SIGNIFICANT AND SUBSEQUENT EVENTS, AND PENDING TRANSACTIONS
Bank Supports Acquisition of TD Ameritrade Holding
Corporation by The Charles Schwab Corporation
On November 25, 2019, the Bank announced its support for the
acquisition of TD Ameritrade, of which the Bank is a major
shareholder, by The Charles Schwab Corporation (Schwab), through
a defnitive agreement announced by those companies. Under the
terms of the transaction, all TD Ameritrade shareholders, including
the Bank, would exchange each TD Ameritrade share they own for
1.0837 shares of Schwab. As a result, the Bank will exchange its
approximate 43% ownership in TD Ameritrade for an approximate
13.4% stake in Schwab, consisting of up to 9.9% voting common
shares and the remainder in non-voting common shares, convertible
upon transfer to a third party. TD expects to record a revaluation
gain at closing.
The transaction is subject to certain closing conditions, including
majority approval by the shareholders of each of TD Ameritrade and
Schwab, and majority approval of TD Ameritrade’s shareholders other
than TD and certain other shareholders of TD Ameritrade that have
entered into voting agreements. In addition, the transaction is subject
to receipt of regulatory approvals. The transaction is expected to close
in the second half of calendar 2020, subject to all applicable closing
conditions having been satisfed.
If the transaction closes, it is expected to have minimal capital
impact on the Bank, and the Bank expects to account for its
investment in Schwab using the equity method of accounting.
The Bank and Schwab have entered into a new Stockholders’
Agreement that will become effective upon closing, under which
the Bank will have two seats on Schwab’s Board of Directors, subject
to the Bank meeting certain conditions. Under the agreement,
the Bank will be subject to customary standstill and lockup restrictions.
The Bank and Schwab have also entered into a revised and extended
long-term IDA agreement that will become effective upon closing and
extends to 2031. Starting on July 1, 2021, IDA deposits, which were
$142 billion (US$108 billion) as at October 31, 2019, can be reduced
at Schwab’s option by up to US$10 billion a year, with a foor of
US$50 billion. The servicing fee under the revised IDA agreement will
be set at 15 bps upon closing.
TD BANK GROUP ANNUAL RE POR T 2 0 19 FI NANCIAL R ESULTS
213
ASSETS
Cash resources and other
Trading loans, securities, and other2
Non-trading fnancial assets at fair value
through proft or loss
Derivatives
Debt securities at amortized cost,
net of allowance for credit losses
Held-to-maturity securities
Securities purchased under reverse
repurchase agreements
Loans, net of allowance for loan losses
Other
Total assets
LIABILITIES
Trading deposits
Derivatives
Financial liabilities designated at
fair value through proft or loss
Deposits
Other
Subordinated notes and debentures
Total liabilities
EQUITY
Shareholders’ Equity
Common shares
Preferred shares
Treasury shares
Contributed surplus
Retained earnings
Accumulated other comprehensive
income (loss)
Non-controlling interests in subsidiaries
Ten-year Statistical Review – IFRS
Condensed Consolidated Balance Sheet1
(millions of Canadian dollars)
2019
2018
2017
2016
2015
2014
2013
2012
2011
$
30,446 $
35,455 $
55,156 $
57,621 $
261,144
262,115
254,361
211,111
45,637
188,317
$ 46,554
168,926
$ 32,164
188,016
$ 25,128
199,280
$ 24,112
171,109
6,503
48,894
4,015
56,996
130,497
n/a
107,171
n/a
n/a
56,195
n/a
71,363
n/a
72,242
n/a
84,395
n/a
69,438
n/a
74,450
n/a
55,796
n/a
56,977
n/a
49,461
n/a
29,961
n/a
60,919
n/a
59,845
n/a
–
n/a
–
165,935
684,608
87,263
127,379
646,393
95,379
134,429
612,591
94,900
86,052
585,656
79,890
97,364
544,341
84,826
82,556
478,909
70,793
64,283
444,922
53,214
69,198
408,848
47,680
56,981
377,187
46,259
$ 1,415,290
$ 1,334,903 $ 1,278,995 $ 1,176,967 $ 1,104,373
$ 960,511
$ 862,021
$ 811,053
$ 735,493
$
26,885 $ 114,704 $
50,051
48,270
79,940 $
51,214
79,786 $
65,425
74,759
57,218
$ 59,334
51,209
$ 50,967
49,471
$ 38,774
64,997
$ 29,613
61,715
105,131
886,977
247,820
10,725
16
851,439
231,694
8,740
8
832,824
230,291
9,528
190
773,660
172,801
10,891
1,415
695,576
199,740
8,637
3,250
600,716
181,986
7,785
12
541,605
160,601
7,982
17
487,754
160,088
11,318
32
449,428
139,158
11,543
1,327,589
1,254,863
1,203,805
1,102,753
1,037,345
904,280
810,638
762,948
691,489
21,713
5,800
(47)
157
49,497
10,581
87,701
–
21,221
5,000
(151)
193
46,145
6,639
79,047
993
20,931
4,750
(183)
214
40,489
8,006
74,207
983
20,711
4,400
(36)
203
35,452
11,834
72,564
1,650
74,214
20,294
2,700
(52)
214
32,053
10,209
65,418
1,610
67,028
19,811
2,200
(55)
205
27,585
4,936
54,682
1,549
56,231
19,316
3,395
(147)
170
23,982
3,159
49,875
1,508
51,383
18,691
3,395
(167)
196
20,868
3,645
46,628
1,477
48,105
17,491
3,395
(116)
212
18,213
3,326
42,521
1,483
44,004
Total equity
87,701
80,040
75,190
Total liabilities and equity
$ 1,415,290 $ 1,334,903 $ 1,278,995
$ 1,176,967 $ 1,104,373
$ 960,511
$ 862,021
$ 811,053
$ 735,493
Condensed Consolidated Statement of Income – Reported2
(millions of Canadian dollars)
2019
Net interest income
Non-interest income
$
23,931 $
17,134
Total revenue
Provision for credit losses
Insurance claims and related expenses
Non-interest expenses
Income before income taxes and equity
in net income of an investment
in TD Ameritrade
Provision for (recovery of) income taxes
Equity in net income of an investment
in TD Ameritrade
Net income
Preferred dividends
41,065
3,029
2,787
22,020
13,229
2,735
1,192
11,686
252
2018
22,239
16,653
38,892
2,480
2,444
20,195
13,773
3,182
743
11,334
214
2017
$
20,847 $
15,355
36,202
2,216
2,246
19,419
12,321
2,253
449
10,517
193
2016
19,923
14,392
34,315
2,330
2,462
18,877
10,646
2,143
433
8,936
141
2015
2014
2013
2012
2011
$
18,724
12,702
$ 17,584
12,377
$ 16,074
11,185
$ 15,026
10,520
$ 13,661
10,179
31,426
1,683
2,500
18,073
29,961
1,557
2,833
16,496
27,259
1,631
3,056
15,069
25,546
1,795
2,424
14,016
23,840
1,490
2,178
13,047
9,170
1,523
377
8,024
99
9,075
1,512
320
7,883
143
7,503
1,135
272
6,640
185
7,311
1,085
234
6,460
196
7,125
1,326
246
6,045
180
Net income available to common
shareholders and non-controlling
interests in subsidiaries
Attributable to:
$
11,434 $
11,120 $
10,324 $
8,795 $
7,925
$
7,740
$
6,455
$
6,264
$
5,865
Common shareholders
Non-controlling interests in subsidiaries
$
11,416 $
18
11,048 $
72
10,203 $
121
8,680 $
115
7,813
112
$
7,633
107
$
6,350
105
$
6,160
104
$
5,761
104
Condensed Consolidated Statement of Changes in Equity
(millions of Canadian dollars)
2019
2018
2017
2016
2015
2014
2013
2012
2011
Shareholders’ Equity
Common shares
Preferred shares
Treasury shares
Contributed surplus
Retained earnings
Accumulated other comprehensive
income (loss)
Total
$
$
$
$
21,713
5,800
(47)
157
49,497
10,581
87,701
21,221
5,000
(151)
193
46,145
6,639
79,047
20,931
4,750
(183)
214
40,489
8,006
74,207
Non-controlling interests in subsidiaries
–
993
983
$
20,711
4,400
(36)
203
35,452
11,834
72,564
1,650
20,294
2,700
(52)
214
32,053
10,209
65,418
1,610
$ 19,811
2,200
(55)
205
27,585
$ 19,316
3,395
(147)
170
23,982
$ 18,691
3,395
(167)
196
20,868
$ 17,491
3,395
(116)
212
18,213
4,936
54,682
1,549
3,159
49,875
1,508
3,645
46,628
1,477
3,326
42,521
1,483
Total equity
$
87,701
$
80,040 $
75,190
$
74,214
$
67,028
$ 56,231
$ 51,383
$ 48,105
$ 44,004
1 Certain comparative amounts have been recast to conform with the presentation
adopted in the current period.
2 Includes financial assets designated at fair value through profit or loss
and financial assets at fair value through other comprehensive income
(available-for-sale securities under IAS 39).
214
TD BANK GROUP ANNUAL REPORT 2019 TEN-YEAR STATISTICAL REVIEW
Ten-year Statistical Review – Canadian GAAP
Condensed Consolidated Balance Sheet
(millions of Canadian dollars)
ASSETS
Cash resources and other
Securities
Securities purchased under reverse repurchase agreements
Loans, net of allowance for loan losses
Other
Total assets
LIABILITIES
Deposits
Other
Subordinated notes and debentures
Liabilities for preferred shares and capital trust securities
Non-controlling interests in subsidiaries
EQUITY
Common shares
Preferred shares
Treasury shares
Contributed surplus
Retained earnings
Accumulated other comprehensive income (loss)
2011
2010
$ 24,111
192,538
53,599
303,495
112,617
$ 686,360
$ 481,114
145,209
11,670
32
1,483
$ 21,710
171,612
50,658
269,853
105,712
$ 619,545
$ 429,971
132,691
12,506
582
1,493
639,508
577,243
18,417
3,395
(116)
281
24,339
536
46,852
16,730
3,395
(92)
305
20,959
1,005
42,302
Total liabilities and shareholders’ equity
$ 686,360
$ 619,545
Condensed Consolidated Statement of Income – Reported
(millions of Canadian dollars)
Net interest income
Non-interest income
Total revenue
Provision for credit losses
Non-interest expenses
Income before income taxes, non-controlling interests in subsidiaries
and equity in net income of an associated company
Provision for (recovery of) income taxes
Non-controlling interests in subsidiaries, net of income taxes
Equity in net income of an associated company, net of income taxes
Net income
Preferred dividends
2011
$ 12,831
8,763
21,594
1,465
13,083
7,046
1,299
104
246
5,889
180
2010
$ 11,543
8,022
19,565
1,625
12,163
5,777
1,262
106
235
4,644
194
Net income available to common shareholders
$
5,709
$
4,450
Condensed Consolidated Statement of Changes in Equity
(millions of Canadian dollars)
Common shares
Preferred shares
Treasury shares
Contributed surplus
Retained earnings
Accumulated other comprehensive income (loss)
Total equity
2011
$ 18,417
3,395
(116)
281
24,339
536
$ 46,852
2010
$ 16,730
3,395
(92)
305
20,959
1,005
$ 42,302
215
TD BANK GROUP ANNUAL REPORT 2019 TEN-YEAR STATISTICAL REVIEW
Ten-year Statistical Review
Other Statistics – IFRS Reported
Per common
share
2019
2018
2017
2016
2015
2014
2013
$
1 Basic earnings
2 Diluted earnings
3 Dividends
4 Book value
5 Closing market price
6 Closing market price to book value
7 Closing market price appreciation
8 Total shareholder return (1-year)1
6.26 $
6.25
2.89
45.20
75.21
1.66
3.0%
7.1
6.02 $
6.01
2.61
40.50
73.03
1.80
(0.4)%
3.1
5.51 $
5.50
2.35
37.76
73.34
1.94
20.5%
24.8
4.68 $
4.67
2.16
36.71
60.86
1.66
13.4%
17.9
4.22 $
4.21
2.00
33.81
53.68
1.59
(3.2)%
0.4
4.15 $
4.14
1.84
28.45
55.47
1.95
16.0%
20.1
$
3.46
3.44
1.62
25.33
47.82
1.89
17.7%
22.3
2012
3.40
3.38
1.45
23.60
40.62
1.72
$
2011
3.25
3.21
1.31
21.72
37.62
1.73
8.0%
11.9
2.4%
5.7
Performance
9 Return on common equity
14.5%
15.7%
14.9%
13.3%
13.4%
15.4%
14.2%
15.0%
16.2%
ratios
10 Return on Common Equity Tier 1
Capital risk-weighted assets2,3
11 Effciency ratio
12 Net interest margin
13 Common dividend payout ratio
14 Dividend yield4
15 Price-earnings ratio5
2.55
53.6
1.96
46.1
3.9
12.0
2.56
51.9
1.95
43.3
3.5
12.2
2.46
53.6
1.96
42.6
3.6
13.3
2.21
55.0
2.01
46.1
3.9
13.0
2.20
57.5
2.05
47.4
3.7
12.8
2.45
55.1
2.18
44.3
3.5
13.4
2.32
55.3
2.20
46.9
3.8
13.9
2.58
54.9
2.23
42.5
3.7
12.0
2.78
60.2
2.30
40.2
3.4
11.7
Asset quality
16 Net impaired loans as a %
of net loans6,7
17 Net impaired loans as a %
of common equity6,7
0.33%
0.37%
0.38%
0.46%
0.48%
0.46%
0.50%
0.52%
0.56%
2.81
3.33
3.45
4.09
4.24
4.28
4.83
4.86
5.27
Capital ratios
Other
18 Provision for credit losses as a % of
net average loans and acceptances6,7
0.45
19 Common Equity Tier 1 Capital ratio3,8
20 Tier 1 Capital ratio2,3
21 Total Capital ratio2,3
22 Common equity to total assets
23 Number of common shares
12.1%
13.5
16.3
5.8
0.39
12.0%
13.7
16.2
5.5
0.37
0.41
0.34
0.34
0.38
0.43
0.39
10.7%
12.3
14.9
10.4%
12.2
15.2
5.4
5.8
9.9%
11.3
14.0
5.7
9.4%
10.9
13.4
5.5
9.0%
n/a%
n/a%
11.0
14.2
5.4
12.6
15.7
5.3
13.0
16.0
5.3
outstanding (millions)
1,811.9
1,828.3
1,839.6
1,857.2
1,855.1
1,844.6
1,835.0
1,832.3
1,802.0
24 Market capitalization
(millions of Canadian dollars)
$ 136,274 $ 133,519 $ 134,915 $ 113,028 $ 99,584 $ 102,322 $ 87,748
$ 74,417
$ 67,782
25 Average number of
full-time equivalent staff9
26 Number of retail outlets10
27 Number of retail brokerage offces
28 Number of automated
89,031
2,380
113
84,383
2,411
109
83,160
2,446
109
81,233
2,476
111
81,483
2,514
108
81,137
2,534
111
78,748
2,547
110
78,397
2,535
112
75,631
2,483
108
banking machines
6,302
5,587
5,322
5,263
5,171
4,833
4,734
4,739
4,650
1 Total shareholder return is calculated based on share price movement and
4 Dividend yield is calculated as the dividend per common share paid during the year
dividends reinvested over a trailing one-year period.
divided by the daily average closing stock price during the year.
2 Effective fiscal 2013, amounts are calculated in accordance with the Basel III
5 The price-earnings ratio is computed using diluted net income per common share
regulatory framework, and are presented based on the “all-in” methodology.
Prior to fiscal 2013, amounts were calculated in accordance with the Basel II
regulatory framework. Prior to 2012, amounts were calculated based on
Canadian GAAP.
3 Effective fiscal 2014, the CVA has been implemented based on a phase-in
approach until the first quarter of 2019. Effective the third quarter of 2014,
the scalars for inclusion of CVA for CET1, Tier 1, and Total Capital RWA
were 57%, 65% and 77%, respectively. For fiscal 2015 and 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 corresponding scalars were 72%,
77%, and 81%, respectively, for fiscal 2018, were 80%, 83%, and 86%,
respectively, and for fiscal 2019, the corresponding scalars are all 100%.
Prior to the second quarter of 2018, the RWA as it relates to the regulatory
floor was calculated based on the Basel I risk weights which are the same
for all capital ratios.
over the trailing 4 quarters.
6 Includes customers’ liability under acceptances.
7 Excludes acquired credit-impaired loans, and prior to November 1, 2017, certain
debt securities classified as loans (DSCL). DSCL are now classified as debt securities
at amortized cost under IFRS 9.
8 Effective fiscal 2013, the Bank implemented the Basel III regulatory framework.
As a result, the Bank began reporting the measures, CET1 and CET1 Capital ratio,
in accordance with the “all-in” methodology. Accordingly, amounts for years
prior to fiscal 2013 are not applicable (n/a).
9 In fiscal 2014, the Bank conformed to a standardized definition of full-time
equivalent staff across all segments. The definition includes, among other things,
hours for overtime and contractors as part of its calculations. Comparatives
for years prior to fiscal 2014 have not been restated.
10 Includes retail bank outlets, private client centre branches, and estate and
trust branches.
216
TD BANK GROUP ANNUAL REPORT 2019 TEN-YEAR STATISTICAL REVIEW
Ten-year Statistical Review (continued)
Other Statistics – Canadian GAAP Reported
Per common share 1 Basic earnings
2 Diluted earnings
3 Dividends
4 Book value
5 Closing market price
6 Closing market price to book value
7 Closing market price appreciation
8 Total shareholder return on common shareholders’ investment1
Performance
9 Return on common equity
ratios
10 Return on risk-weighted assets
11 Effciency ratio2
12 Net interest margin
13 Common dividend payout ratio
14 Dividend yield3
15 Price-earnings ratio4
Asset quality
Impaired loans net of specifc allowance as a % of net loans5
16
17 Net impaired loans as a % of common equity5
18 Provision for credit losses as a % of net average loans5
Capital ratios
19 Tier 1 Capital ratio
20 Total Capital ratio
Other
21 Common equity to total assets
22 Number of common shares outstanding (millions)
23 Market capitalization (millions of Canadian dollars)
24 Average number of full-time equivalent staff
25 Number of retail outlets6
26 Number of retail brokerage offces
27 Number of automated banking machines
$
2011
3.23
3.21
1.31
24.12
37.62
1.56
2.4%
5.7
14.5%
2.78
60.6
2.37
40.6
3.4
11.7
0.59%
4.07
0.48
13.0%
16.0
$
2010
2.57
2.55
1.22
22.15
36.73
1.66
19.1%
23.4
12.1%
2.33
62.2
2.35
47.6
3.5
14.4
0.65%
4.41
0.63
12.2%
15.5
6.3
1,802.0
$ 67,782
75,631
2,483
108
4,650
6.3
1,757.0
$ 64,526
68,725
2,449
105
4,550
1 Return is calculated based on share price movement and dividends reinvested
4 The price-earnings ratio is computed using diluted net income per common
over the trailing twelve-month period.
share over the trailing 4 quarters.
2 The efficiency ratio under Canadian GAAP is based on the presentation of
insurance revenue being reported net of claims and expenses.
5 Excludes acquired credit-impaired loans and certain DSCL.
6 Includes retail bank outlets, private client centre branches, and estate and
3 Dividend yield is calculated as the dividend per common share paid during the
trust branches.
year divided by the daily average closing stock price during the year.
217
TD BANK GROUP ANNUAL REPORT 2019 TEN-YEAR STATISTICAL REVIEW
GLOSSARY
Financial and Banking Terms
Adjusted Results: A non-GAAP fnancial measure used to assess
each of the Bank’s businesses and to measure the Bank’s overall
performance.
Allowance for Credit Losses: Total allowance for credit losses
consists of counterparty-specifc, collectively assessed allowance for
individually insignifcant impaired loans, and collectively assessed
allowance for incurred but not identifed credit losses. The allowance
is increased by the provision for credit losses, and decreased by
write-offs net of recoveries and disposals. The Bank maintains the
allowance at levels that management believes are adequate to
absorb incurred credit-related losses in the lending portfolio.
Alt-A Mortgages: A classifcation of mortgages where borrowers
have a clean credit history consistent with prime lending criteria.
However, characteristics about the mortgage such as loan to value
(LTV), loan documentation, occupancy status or property type,
etc., may cause the mortgage not to qualify under standard
underwriting programs.
Amortized Cost: The amount at which a fnancial asset or fnancial
liability is measured at initial recognition minus principal repayments,
plus or minus the cumulative amortization, using EIRM, of any
differences between the initial amount and the maturity amount,
and minus any reduction for impairment.
Assets under Administration (AUA): Assets that are benefcially
owned by customers where the Bank provides services of an
administrative nature, such as the collection of investment income
and the placing of trades on behalf of the clients (where the client
has made his or her own investment selection). These assets are
not reported on the Bank’s Consolidated Balance Sheet.
Assets under Management (AUM): Assets that are benefcially
owned by customers, managed by the Bank, where the Bank has
discretion to make investment selections on behalf of the client (in
accordance with an investment policy). In addition to the TD family
of mutual funds, the Bank manages assets on behalf of individuals,
pension funds, corporations, institutions, endowments and foundations.
These assets are not reported on the Bank’s Consolidated Balance
Sheet. Some assets under management that are also administered by
the Bank are included in assets under administration.
Asset-backed Commercial Paper (ABCP): A form of commercial
paper that is collateralized by other fnancial assets. Institutional
investors usually purchase such instruments in order to diversify their
assets and generate short-term gains.
Asset-backed Securities (ABS): A security whose value and income
payments are derived from and collateralized (or “backed”) by a
specifed pool of underlying assets.
Average Common Equity: Average common equity is the equity
cost of capital calculated using the capital asset pricing model.
Average Earning Assets: The average carrying value of deposits with
banks, loans and securities based on daily balances for the period
ending October 31 in each fscal year.
Basis Points (bps): A unit equal to 1/100 of 1%. Thus, a 1% change
is equal to 100 basis points.
Carrying Value: The value at which an asset or liability is carried
at on the Consolidated Balance Sheet.
Collateralized Mortgage Obligation (CMO): They are collateralized
debt obligations consisting of mortgage-backed securities that are
separated and issued as different classes of mortgage pass-through
securities with different terms, interest rates, and risks. CMOs by
private issuers are collectively referred to as non-agency CMOs.
218
Common Equity Tier 1 (CET1) Capital: This is a primary Basel III
capital measure comprised mainly of common equity, retained
earnings and qualifying non-controlling interest in subsidiaries.
Regulatory deductions made to arrive at the CET1 Capital include
goodwill and intangibles, unconsolidated investments in banking,
fnancial, and insurance entities, deferred tax assets, defned beneft
pension fund assets, and shortfalls in allowances.
Common Equity Tier 1 (CET1) Capital Ratio: CET1 Capital ratio
represents the predominant measure of capital adequacy under
Basel III and equals CET1 Capital divided by RWA.
Compound Annual Growth Rate (CAGR): A measure of growth over
multiple time periods from the initial investment value to the ending
investment value assuming that the investment has been compounding
over the time period.
Credit Valuation Adjustment (CVA): CVA represents an add-on
capital charge that measures credit risk due to default of derivative
counterparties. This add on charge requires banks to capitalize for
the potential changes in counterparty credit spread for the derivative
portfolios. As per OSFI’s CAR guideline, CVA capital add-on charge
was effective January 1, 2014.
Dividend Yield: Dividends paid during the year divided by average
of high and low common share prices for the year.
Effective Interest Rate (EIR): The rate that discounts expected future
cash fows for the expected life of the fnancial instrument to its
carrying value. The calculation takes into account the contractual
interest rate, along with any fees or incremental costs that are directly
attributable to the instrument and all other premiums or discounts.
Effective Interest Rate Method (EIRM): A technique for calculating
the actual interest rate in a period based on the amount of a fnancial
instrument’s book value at the beginning of the accounting period.
Under EIRM, the effective interest rate, which is a key component of
the calculation, discounts the expected future cash infows and
outfows expected over the life of a fnancial instrument.
Effciency Ratio: Non-interest expenses as a percentage of
total revenue; the effciency ratio measures the effciency
of the Bank’s operations.
Enhanced Disclosure Task Force (EDTF): Established by the Financial
Stability Board in May 2012 with the goal of improving the risk
disclosures of the banks and other fnancial institutions.
Expected Credit Loss (ECL): Is a calculation of the present
value of the amount expected to be lost on a fnancial asset,
for fnancial reporting purposes. It is calculated as:
ECL = PD (probability of default) x EAD (exposure at default) x LGD
(loss given default) x Discount Factor. Discount Factor is based on
the expected date of default.
Fair Value: price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants
at the measurement date, under current market conditions.
Federal Deposit Insurance Corporation (FDIC): A U.S. government
corporation which provides deposit insurance guaranteeing the safety
of a depositor’s accounts in member banks. The FDIC also examines
and supervises certain fnancial institutions for safety and soundness,
performs certain consumer-protection functions, and manages banks
in receiverships (failed banks).
Fair value reported in proft and loss (FVPL): Under IFRS 9, the
classifcation is dependent on two tests, a contractual cash fow test
(named SPPI) and a business model assessment. Unless the asset
meets the requirements of both tests, it is measured at fair value with
all changes in fair value reported in proft and loss.
TD BANK GROUP ANNUAL REPORT 2019 GLOSSARY
GLOSSARY (continued)
Fair value through other comprehensive income (FVOCI): Under
IFRS 9, if the asset passes the contractual cash fows test (named SPPI),
the business model assessment determines how the instrument is
classifed. If the instrument is being held to collect contractual cash
fows, that is, if it is not expected to be sold, it is classifed as
amortized cost. If the business model for the instrument is to both
collect contractual cash fows and potentially sell the asset, it is
reported at FVOCI.
Forward Contracts: Over-the-counter contracts between two parties
that oblige one party to the contract to buy and the other party to sell
an asset for a fxed price at a future date.
Futures: Exchange-traded contracts to buy or sell a security at a
predetermined price on a specifed future date.
Hedging: A risk management technique intended to mitigate the
Bank’s exposure to fuctuations in interest rates, foreign currency
exchange rates, or other market factors. The elimination or reduction
of such exposure is accomplished by engaging in capital markets
activities to establish offsetting positions.
Impaired Loans: Loans where, in management’s opinion, there has
been a deterioration of credit quality to the extent that the Bank no
longer has reasonable assurance as to the timely collection of the full
amount of principal and interest.
Loss Given Default (LGD): It is the amount of the loss the Bank
would likely incur when a borrower defaults on a loan, which is
expressed as a percentage of exposure at default.
Mark-to-Market (MTM): A valuation that refects current market
rates as at the balance sheet date for fnancial instruments that are
carried at fair value.
Master Netting Agreements: Legal agreements between two parties
that have multiple derivative contracts with each other that provide
for the net settlement of all contracts through a single payment,
in a single currency, in the event of default or termination of any
one contract.
Net Interest Margin: Net interest income as a percentage of average
earning assets.
Non-Viability Contingent Capital (NVCC): Instruments (preferred
shares and subordinated debt) that contain a feature or a provision
that allows the fnancial institution to either permanently convert these
instruments into common shares or fully write-down the instrument,
in the event that the institution is no longer viable.
Notional: A reference amount on which payments for derivative
fnancial instruments are based.
Offce of the Superintendent of Financial Institutions Canada
(OSFI): The regulator of Canadian federally chartered fnancial
institutions and federally administered pension plans.
Options: Contracts in which the writer of the option grants the buyer
the future right, but not the obligation, to buy or to sell a security,
exchange rate, interest rate, or other fnancial instrument or
commodity at a predetermined price at or by a specifed future date.
Prime Jumbo Mortgages: A classifcation of mortgages where
borrowers have a clean credit history consistent with prime lending
criteria and standard mortgage characteristics. However, the size of
the mortgage exceeds the maximum size allowed under government
sponsored mortgage entity programs.
Probability of Default (PD): It is the likelihood that a borrower will
not be able to meet its scheduled repayments.
Provision for Credit Losses (PCL): Amount added to the allowance
for credit losses to bring it to a level that management considers
adequate to absorb all incurred credit-related losses in its portfolio.
Return on Common Equity Tier 1 (CET1) Capital Risk-Weighted
Assets: Net income available to common shareholders as a percentage
of average CET1 Capital risk-weighted assets.
Return on Common Equity (ROE): Net income available to common
shareholders as a percentage of average common shareholders’ equity.
A broad measurement of a bank’s effectiveness in employing
shareholders’ funds.
Return on Tangible Common Equity (ROTCE): A non-GAAP
fnancial measure calculated as reported net income available to
common shareholders after adjusting for the after tax amortization
of acquired intangibles, which are treated as an item of note, as a
percentage of average Tangible common equity.
Risk-Weighted Assets (RWA): Assets calculated by applying a
regulatory risk-weight factor to on and off-balance sheet exposures.
The risk-weight factors are established by the OSFI to convert on
and off-balance sheet exposures to a comparable risk level.
Securitization: The process by which fnancial assets, mainly
loans, are transferred to a trust, which normally issues a series of
asset-backed securities to investors to fund the purchase of loans.
Solely Payments of Principal and Interest (SPPI): IFRS 9 requires
that the following criteria be met in order for a fnancial instrument
to be classifed at amortized cost:
• The entity’s business model relates to managing fnancial assets
(such as bank trading activity), and, as such, an asset is held with
the intention of collecting its contractual cash fows; and
• An asset’s contractual cash fows represent SPPI.
Swaps: Contracts that involve the exchange of fxed and foating
interest rate payment obligations and currencies on a notional principal
for a specifed period of time.
Tangible common equity (TCE): A non-GAAP fnancial measure
calculated as common shareholders’ equity less goodwill, imputed
goodwill, and intangibles on an investment in TD Ameritrade and other
acquired intangible assets, net of related deferred tax liabilities.
Taxable Equivalent Basis (TEB): A non-GAAP fnancial measure that
increases revenues and the provision for income taxes by an amount
that would increase revenues on certain tax-exempt securities to an
equivalent before-tax basis to facilitate comparison of net interest
income from both taxable and tax-exempt sources.
Tier 1 Capital Ratio: Tier 1 Capital represents the more permanent
forms of capital, consisting primarily of common shareholders’ equity,
retained earnings, preferred shares and innovative instruments.
Tier 1 Capital ratio is calculated as Tier 1 Capital divided by RWA.
Total Capital Ratio: Total Capital is defned as the total of net Tier 1
and Tier 2 Capital. Total Capital ratio is calculated as Total Capital
divided by RWA.
Total Shareholder Return (TSR): The change in market price plus
dividends paid during the year as a percentage of the prior year’s
closing market price per common share.
Value-at-Risk (VaR): A metric used to monitor and control overall
risk levels and to calculate the regulatory capital required for market
risk in trading activities. VaR measures the adverse impact that
potential changes in market rates and prices could have on the value
of a portfolio over a specifed period of time.
219
TD BANK GROUP ANNUAL REPORT 2019 GLOSSARY
Board Committees
COMMITTEE
MEMBERS1
KEY RESPONSIBILITIES1
Corporate
Governance
Committee
Brian M. Levitt
(Chair)
William E. Bennett
Karen E. Maidment
Alan N. MacGibbon
Responsibility for corporate governance of the Bank:
•
Identify individuals qualifed to become Board members and recommend to the Board the director
nominees for the next annual meeting of shareholders and recommend candidates to fll vacancies
on the Board that occur between meetings of the shareholders;
Develop and recommend to the Board a set of corporate governance principles, including a code
of conduct and ethics, aimed at fostering a healthy governance culture at the Bank;
•
• Satisfy itself that the Bank communicates effectively, both proactively and responsively, with its
shareholders, other interested parties, and the public;
• Oversee the Bank’s strategy and reporting on corporate responsibility for environmental and
social matters;
• Act as the conduct review committee for the Bank and certain of its Canadian subsidiaries that
are federally-regulated fnancial institutions, including providing oversight of conduct risk; and
• Oversee the evaluation of the Board and Committees.
Human Resources
Committee
Karen E. Maidment
(Chair)
Amy W. Brinkley
Mary Jo Haddad
Brian M. Levitt
Nadir H. Mohamed
Responsibility for management’s performance evaluation, compensation and
succession planning:
• Discharge, and assist the Board in discharging, the responsibility of the Board relating to leadership,
human resource planning and compensation, as set out in this Committee’s charter;
• Set performance objectives for the Chief Executive Offcer (CEO), which encourage the Bank’s
long-term fnancial success and regularly measure the CEO’s performance against these objectives;
• Recommend compensation for the CEO to the Board for approval, and review and approve
compensation for certain senior offcers;
• Monitor the Bank’s compensation strategy, plans, policies, and practices for alignment to the Financial
Stability Board Principles for Sound Compensation Practices and Implementation Standards, including
the appropriate consideration of risk;
• Oversee a robust talent planning and development process, including review and approval of the
succession plans for the senior offcer positions and heads of control functions;
• Review and recommend the CEO succession plan to the Board of Directors for approval;
• Produce a report on compensation which is published in the Bank’s annual proxy circular, and review,
as appropriate, any other related major public disclosures concerning compensation; and
• Oversee strategy, design and management of the Bank’s employee pension, retirement savings, and
beneft plans.
Risk Committee
William E. Bennett
(Chair)
Amy W. Brinkley
Colleen A. Goggins
David E. Kepler
Alan N. MacGibbon
Karen E. Maidment
Supervising the management of risk of the Bank:
• Approve the Enterprise Risk Framework (ERF) and related risk category frameworks and policies that
establish the appropriate approval levels for decisions and other measures to manage risk to which
the Bank is exposed;
• Review and recommend the Bank’s Enterprise Risk Appetite Statement for approval by the Board and
oversee the Bank’s major risks as set out in the ERF;
• Review the Bank’s risk profle against Risk Appetite of the Bank; and
• Provide a forum for “big-picture” analysis of an enterprise view of risk including considering trends
and current and emerging risks.
Audit Committee
Alan N. MacGibbon2
(Chair)
William E. Bennett2
Brian C. Ferguson2
Jean-René Halde
Irene R. Miller2
Claude Mongeau2
Supervising the quality and integrity of the Bank’s fnancial reporting and
compliance requirements:
• Oversee reliable, accurate, and clear fnancial reporting to shareholders;
• Oversee effectiveness of internal controls, including internal controls over fnancial reporting;
• Directly responsible for the selection, compensation, retention and oversight of the work of the
shareholders’ auditor – the shareholders’ auditor reports directly to the Committee;
• Receive reports from the shareholders’ auditor, chief fnancial offcer, chief auditor, chief compliance
offcer, global chief anti-money laundering offcer, and evaluate the effectiveness and independence
of each;
• Oversee the establishment and maintenance of policies and programs reasonably designed to achieve
and maintain the Bank’s compliance with the laws and regulations that apply to it; and
• Act as the Audit Committee for certain subsidiaries of the Bank that are federally regulated
fnancial institutions.
Additional information relating to the responsibilities of the Audit Committee in respect of the
appointment and oversight of the shareholder’s independent external auditor is included in the Bank’s
2019 Annual Information Form.
1 As at December 4, 2019
2 Designated Audit Committee Financial Expert
220 TD BANK GROU P AN NUAL REPO RT 20 19 BOA RD C OMMIT TEE S
Shareholder and Investor Information
MARKET LISTINGS
The common shares of The Toronto-Dominion
Bank are listed for trading on the Toronto Stock
Exchange and the New York Stock Exchange
under the symbol “TD”. The Toronto-Dominion
Bank preferred shares are listed on the Toronto
Stock Exchange.
Further information regarding the Bank’s
listed securities, including ticker symbols and
CUSIP numbers, is available on our website at
www.td.com under Investor Relations/Share
Information or by calling TD Shareholder
Relations at 1-866-756-8936 or 416-944-6367
or by e-mailing tdshinfo@td.com.
AUDITORS FOR FISCAL 2019
Ernst & Young LLP
DIVIDENDS
Direct dividend depositing: Registered
shareholders may have their dividends deposited
directly to any bank account in Canada or the U.S.
For this service, please contact the Bank’s transfer
agent at the address below. Benefcial shareholders
should contact their intermediary.
U.S. dollar dividends: For registered shareholders,
dividend payments sent to U.S. addresses or made
directly to U.S. bank accounts will be made in U.S.
funds unless a shareholder otherwise instructs
the Bank’s transfer agent. Registered shareholders
whose dividends are sent to non-U.S. addresses
can also request dividend payments in U.S. funds
by contacting the Bank’s transfer agent. Dividends
will be exchanged into U.S. funds at the Bank
of Canada daily average exchange rate published
at 16:30 (Eastern) on the ffth business day
after the record date, or as otherwise advised
by the Bank. Benefcial shareholders should
contact their intermediary.
Dividend information is available at www.td.com
under Investor Relations/Share Information.
Dividends, including the amounts and dates,
are subject to declaration by the Board of
Directors of the Bank.
DIVIDEND REINVESTMENT PLAN
For information regarding the Bank’s dividend
reinvestment plan, please contact our transfer
agent or visit our website at www.td.com under
Investor Relations/Share Information/Dividends.
IF YOU
AND YOUR INQUIRY RELATES TO
PLEASE CONTACT
Are a registered shareholder (your name
appears on your TD share certifcate)
Missing dividends, lost share certifcates, estate
questions, address changes to the share register,
dividend bank account changes, the dividend
reinvestment plan, eliminating duplicate mailings
of shareholder materials or stopping (or resuming)
receiving annual and quarterly reports
Hold your TD shares through the Direct
Registration System in the United States
Missing dividends, lost share certifcates, estate
questions, address changes to the share register,
eliminating duplicate mailings of shareholder
materials or stopping (or resuming) receiving
annual and quarterly reports
Transfer Agent:
AST Trust Company (Canada)
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@astfnancial.com or
www.astfnancial.com/ca-en
Co-Transfer Agent and Registrar:
Computershare
P.O. Box 505000
Louisville, KY 40233 or
462 South 4th Street, Suite 1600
Louisville, KY 40202
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/investor
Benefcially 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
TD SHAREHOLDER RELATIONS
For all other shareholder inquiries, please contact
TD Shareholder Relations at 416-944-6367 or
1-866-756-8936 or e-mail 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.
Shareholders may communicate directly with
the independent directors through the
Chair of the Board, by writing to:
Chair of the Board
The Toronto-Dominion Bank
P.O. Box 1
Toronto-Dominion Centre
Toronto, Ontario M5K 1A2
or you may send an e-mail c/o TD Shareholder
Relations at tdshinfo@td.com. E-mails addressed
to the Chair received from shareholders and
expressing an interest to communicate directly
with the independent directors via the Chair will
be provided to Mr. Levitt.
HEAD OFFICE
The Toronto-Dominion Bank
P.O. Box 1
Toronto-Dominion Centre
King St. W. and Bay St.
Toronto, Ontario M5K 1A2
Product and service information 24 hours a day,
seven days a week:
In Canada contact TD Canada Trust
1-866-222-3456
In the U.S. contact TD Bank,
America’s Most Convenient Bank®
1-888-751-9000
French: 1-800-895-4463
Cantonese/Mandarin: 1-800-387-2828
Telephone device for the hearing
impaired (TTY): 1-800-361-1180
Website: In Canada: www.td.com
In the U.S.: www.tdbank.com
E-mail: customer.service@td.com
(Canada only; U.S. customers can e-mail
customer service via www.tdbank.com)
ANNUAL MEETING
Thursday, April 2, 2020
9:30 a.m. (Eastern)
Design Exchange
Toronto, Ontario
SUBORDINATED NOTES SERVICES
Trustee for subordinated notes:
Computershare Trust Company of Canada
Attention: Manager,
Corporate Trust Services
100 University Avenue, 11th Floor
Toronto, Ontario M5J 2Y1
Vous pouvez vous procurer des exemplaires en
français du rapport annuel au service suivant :
Affaires internes et publiques
La Banque Toronto-Dominion
P.O. Box 1, Toronto-Dominion Centre
Toronto (Ontario) M5K 1A2
TD BANK GROUP ANNUAL REP O RT 20 1 9 SH A REH OLD ER A N D IN VESTOR INFORMATION 221
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