Forward with Confidence
2023 Annual Report
Table of Contents
OUR STRATEGY
Group President and CEO’s Message
Chair of the Board’s Message
Proven Business Model
Purpose-Driven
Sustainability
Forward-Focused
Board Committees
1
2
4
5
8
10
14
16
MANAGEMENT’S DISCUSSION AND ANALYSIS
Glossary
18
130
FINANCIAL RESULTS
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Ten-Year Statistical Review
Shareholder and Investor Information
132
144
222
225
See the TD Annual Report
online by visiting
www.td.com/ar2023/
For information on TD’s commitment to the community and our environment, visit
www.td.com/content/dam/tdcom/canada/about-td/pdf/esg/2022-esg-report.pdf
* 2023 Sustainability Report to be published in March 2024
Our
Strategy
Anchored in our proven
business model, we are guided
by our purpose to give our
customers, communities and
colleagues the opportunities
and confidence to thrive in a
changing world.
Our
Business
Every day, TD enriches the
lives of those we serve, while
delivering consistent earnings
growth for our shareholders.
We are accelerating our digital
transformation and using our
innovation ecosystem to shape
the future of banking.
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
95,000+
TD colleagues
6th
largest bank in
North America1
~28 million
customers served
around the globe
16.7 million
active digital
customers2
> 3,500
community organizations
received support in 2023
> $157 million3
contributed to
communities in 2023
(as at October 31, 2023)
1 By total assets, as at October 31, 2023. Source: Bloomberg.
2 Active digital users are users who have logged in online or via their mobile device at least once in the last 90 days.
3 Figures are disclosed in CAD Equivalent and include any donation commitments recognized as a legal obligation or a constructive obligation and
expensed in 2023 before they were paid out. Figure does not include donations made through TD Friends of the Environment Foundation.
TD BANK GROUP ANNUAL REPORT 2023 OUR STRATEGY
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GROUP PRESIDENT AND CEO’S MESSAGE
A diversified business delivers
for our stakeholders
Bharat Masrani
Group President and
Chief Executive Officer
“At TD, we believe
that banking serves
a higher purpose.
In times of significant
change, our customers
and clients turn to
us to help them
navigate complexity
and achieve their
financial goals.”
In 2023, TD demonstrated the benefits of its diversified business model. Our ability to
adapt and execute with speed and purpose allowed the Bank to drive progress and
deliver for our stakeholders.
We grew our customer base and invested in new capabilities to make us even
stronger and more competitive. We introduced leading customer-facing applications
and enhanced execution excellence with new technology and agile work models.
We remained focused on those we serve, extended our lead as Canada’s largest digital
bank, and surpassed 10 million customers at TD Bank, America’s Most Convenient
Bank. We also closed a strategic transaction and welcomed 1,700 TD Cowen
colleagues to TD Securities. Across the Bank, our businesses are well-positioned to
continue to serve our nearly 28 million customers and clients by delivering ease, value,
and trusted advice.
Amid an increasingly challenging environment, the Bank reported fiscal 2023
earnings of $10.8 billion ($15.1 billion on an adjusted basis). While this was down
38 per cent compared to 2022 (two per cent on an adjusted basis) reflecting the
decline in macroeconomic conditions and further credit normalization, our capital
position remained strong. We ended the year with a Common Equity Tier 1 Ratio
of 14.4 per cent, well above regulatory requirements.
Our performance and financial strength enabled TD to return value directly to
shareholders. We paid a higher dividend in 2023 and initiated the repurchase of up to
90 million common shares, after completing our previously announced repurchase of
30 million shares. Our confidence in the earnings power of our franchise enabled us to
declare a dividend increase of six per cent effective in the first quarter of fiscal 2024.
Supporting customers through change
It would be an understatement to call 2023 a period of change. We saw inflation
climb, and central banks rapidly raise interest rates in response. Households and
businesses faced new challenges. Economies, though somewhat resilient, began to
slow. Technology, including generative AI, disrupted at scale. Industries continued
to transform to meet new demands and needs. We continued to adapt to help our
customers navigate these fundamental changes to the environment.
At TD, we believe that banking serves a higher purpose. In times of significant
change, our customers and clients turn to us to help them navigate complexity and
achieve their financial goals. We take this responsibility seriously and work hard to earn
the trust of those we serve every day. We are engines of economic progress, providing
liquidity and credit to foster growth. We invest in communities, support those impacted
by economic uncertainty, and help advance a more sustainable and inclusive future.
The Canadian Personal Bank remains Canada’s leading banking franchise,
and in 2023 we sharpened our focus to drive growth in key areas critical to future
success. Our New-to-Canada program enabled thousands to establish themselves in
a new country with access to tailored products and services. Our credit card portfolio
delivered industry-leading offers to meet customers’ unique needs, backed by
relationships with top brands, including Aeroplan, Uber, Amazon, and Starbucks.
In Real Estate Secured Lending, we grew share in a challenging market by offering
proactive advice.
The Canadian Business Bank combined increased industry specialization with
a focus on customer experience to drive growth. Leveraging the reach and scale
of Canada’s leading branch network, we deployed business bankers across the country
and doubled the number of Senior Private Bankers co-located in our Commercial
Banking centres, advancing our OneTD strategies. We added sector specialists,
created a technology venture team, expanded our support for women entrepreneurs,
and launched the Black Entrepreneur Credit Access Program. We supported small
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business clients in advance of the upcoming Canada
Emergency Business Account (CEBA) repayment deadline
and drove record originations at TD Auto Finance.
In Wealth Management and Insurance, we widened our
leadership position and continued to disrupt the market.
We remain Canada’s largest institutional asset manager and
operate the country’s top-ranked digital brokerage platform.
We launched TD Active Trader to offer our customers
increased speed and flexibility. TD Insurance, Canada’s
number-one direct insurer, continued to reshape the market
with innovative digital capabilities and offers, such as small
business insurance. TD Insurance colleagues provided advice
and assistance to communities devastated by wildfires
and flooding.
With our growing competitive differentiation and deepening
customer connections, TD emerged as Canada’s most
valuable brand in 2023.
In the United States, TD Bank, America’s Most
Convenient Bank, continues to deliver on the promise of
its human-centric brand. When the banking crisis hit the
U.S. market in the spring, we offered our customers stability
and assurance. We continue to be well-positioned across our
Maine-to-Florida footprint, investing in new products and
services to meet the needs of customers across one of the
biggest banking markets in the world. For the seventh
consecutive year, we ranked number one in Small Business
Administration (SBA) lending in our footprint – and number
two in SBA loans nationally. Notwithstanding the progress
we have made in our U.S. business, it was disappointing
that some shortcomings in our anti-money laundering control
environment were identified during the year, which we are
working hard to address, and I am confident that in time
we will.
As announced earlier in the year, given the uncertainty of
the approval timeline, we mutually agreed with First Horizon
to terminate the previously announced transaction. Although
this was a difficult decision – and one not taken lightly –
it was the right one for the Bank under the circumstances.
In Wholesale, TD Securities continues to advance our
long-term growth strategy to build a fully integrated
North American dealer with global reach. We significantly
expanded the scope of our services and capabilities and are
winning new mandates and new clients. With the addition of
TD Cowen, we have added deep talent and complementary
capabilities that will deliver greater value for clients and
accelerate our growth strategy.
Strengthened the best team in banking
In 2023, we continued to invest in our colleagues to attract,
retain and develop the best talent for today and tomorrow.
TD’s culture, backed by Shared Commitments that unify
the efforts of our diverse workforce offers a significant
advantage as we build, serve, and focus on the future. TD
was recognized as a Best Workplace in both Canada and
the United States by Great Place to Work. The Bank was
also named a Top Company for Diversity by DiversityInc.,
Best Place to Work for Disability Inclusion, and one of
Forbes’ America’s Best Employers for Diversity.
Driving sustainable and inclusive growth
The Bank’s sustainability priorities are embedded in
our business strategy. We bring significant expertise,
resources, and financing to clients as they transition to
meet heightened market expectations and seize the
opportunities of a low carbon economy. Through products,
services, and trusted advice, we are helping businesses
contribute to a more sustainable future.
We also advanced our own efforts. This year, we launched
a new Sustainable and Decarbonization Finance Target to
support customers, clients, and the communities we serve
by mobilizing $500 billion by 2030 through financial activities
and the Bank’s own investments. In recognition of our
leadership, we were proud to be listed on the Dow Jones
Sustainability Index for the ninth consecutive year – the
only North American-based bank included on this year’s
World Index.
Through the TD Ready Commitment, we are supporting
the future prosperity of the communities in which we live
and work, as we invest in programs that create opportunities
for people to thrive in a changing world. We are making
progress toward our $1 billion 2030 target, with $157 million
contributed this year alone in support of community,
non-profit, and other organizations.
Looking forward with confidence
The Bank enters 2024 from a position of strength, with
proven resiliency, a powerful brand and a strong
capital position.
A dynamic economic and operating environment will
continue to shift in the year ahead. While an economic
downturn has not yet materialized, inflation, rising rates
and affordability challenges are already having an impact.
TD is well-positioned to pivot, adapt, and deliver as
circumstances change.
Our businesses are strong, and our customer relationships
continue to grow and deepen. We attract and retain the best
talent in the industry. Our disciplined financial management
will allow us to enhance our performance and serve the
evolving needs of our customers and clients. In addition, we
will continue to invest in our risk and control environment and
strengthen our capabilities, commensurate with a bank of
our size and risk profile.
I want to thank our more than 95,000 TD bankers around
the world for their commitment and dedication, our
customers and clients for their trust, and our shareholders
for their continued support as we build the Better Bank.
Bharat Masrani
Group President and Chief Executive Officer
TD BANK GROUP ANNUAL REPORT 2023 OUR STRATEGY
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CHAIR OF THE BOARD’S MESSAGE
Brian M. Levitt
Chair of the Board
“The Bank's
performance in a
year of change and
economic uncertainty
demonstrated the
advantages of its
diversified businesses
and conservative
risk appetite.”
TD ended 2023 a strong, well-capitalized Bank, focused on delivering for our nearly
28 million customers and clients. The Bank’s performance in a year of change and
economic uncertainty demonstrated the advantages of its diversified businesses
and conservative risk appetite.
TD’s 2023 reported earnings of $10.8 billion supported important investments in
new capabilities, which will improve the Bank's control environment and our
customers’ experience. Our performance and strong capital position also enabled
the Bank to pay consistent and higher dividends, and to initiate a significant share
buy-back to return value directly to shareholders.
The Bank continued to contribute its philanthropy and expertise to support a more
sustainable and inclusive future. Through the TD Ready Commitment, we invested
more than $157 million in 2023 in the communities in which we operate. TD also
established a new sustainable and decarbonization finance target to mobilize
$500 billion by 2030 through financial activities and the Bank’s own investments.
These outcomes were achieved through the dedication and commitment of TD’s
95,000 colleagues. During a period of economic uncertainty, they remained focused
on our customers and on the Bank’s success and I thank them for their hard work.
The Board of Directors would like to thank our Group President and CEO for his
continued stewardship of the Bank, and the Senior Executive Team for their
leadership. The Board also extends its thanks to our customers for the opportunity
to serve them, and to our shareholders for their ongoing confidence in the Bank.
As 2023 comes to a close, so does my tenure as Chair of the Board. It has been
a privilege to serve TD and our shareholders as a director since 2008 and as
Chair since 2011. It has also been very rewarding to work with my fellow directors
and the Bank’s management. I wish everyone at TD continued success for the future.
Brian M. Levitt
Chair of the Board
THE BOARD OF DIRECTORS
The Board of Directors, as of
November 30, 2023, is listed below.
A full list of its committees and key
committees’ responsibilities can be
found on page 16. Our Proxy Circular
for the 2024 Annual Meeting will set
out the director candidates proposed
for election at the meeting, as well as
additional information about each
candidate, including education, other
public board memberships, areas of
expertise, TD Committee memberships,
stock ownership and attendance at
Board and Committee meetings.
Cherie L. Brant
Partner, Borden
Ladner Gervais LLP,
Tyendinaga Mohawk
Territory, Ontario
Amy W. Brinkley
Consultant, AWB
Consulting, LLC,
Charlotte,
North Carolina
Brian C. Ferguson
Corporate Director,
and former President
& Chief Executive
Officer, Cenovus
Energy Inc.,
Calgary, Alberta
Colleen A. Goggins
Corporate Director,
and retired
Worldwide Chairman,
Consumer Group,
Johnson & Johnson,
Princeton, New Jersey
David E. Kepler
Corporate Director,
and retired Executive
Vice President,
The Dow Chemical
Company,
Sanford, Michigan
Brian M. Levitt
Board Chair,
The Toronto-
Dominion Bank,
Kingston, Ontario
Alan N. MacGibbon
Corporate Director,
and retired Managing
Partner and Chief
Executive, Deloitte
LLP (Canada),
Mississauga, Ontario
John B. MacIntyre
Partner, Birch Hill
Equity Partners,
Toronto, Ontario
Karen E. Maidment
Corporate Director,
and former
Chief Financial
and Administrative
Officer, BMO
Financial Group,
Cambridge, Ontario
Keith G. Martell
Corporate Director,
and former President
& Chief Executive
Officer, First Nations
Bank of Canada,
Eagle Ridge,
Saskatchewan
Bharat B. Masrani
Group President
and Chief Executive
Officer, The Toronto-
Dominion Bank,
Toronto, Ontario
Claude Mongeau
Corporate Director,
and former President
and Chief Executive
Officer, Canadian
National Railway
Company,
Montréal, Québec
S. Jane Rowe
Corporate Director,
and former Vice
Chair, Investments,
Ontario Teachers’
Pension Plan Board,
Toronto, Ontario
Nancy G. Tower
Corporate Director,
and former President
& Chief Executive
Officer, Tampa
Electric Company,
Halifax, Nova Scotia
Ajay K. Virmani
Chief Executive
Officer, Cargojet Inc.,
Oakville, Ontario
Mary A. Winston
Corporate Director,
and former public-
company Chief
Financial Officer,
Charlotte,
North Carolina
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OUR STRATEGY
Proven
Business
Model
We are deeply
committed to
sustaining the
trust of those
we serve.
Th
ree core principles
of our Risk Appetite
We have diversification, scale,
and a unique footprint
We take risks required to build
our business, but only if those risks:
1 Fit our business
strategy
and can be understood
and managed
2 Do not expose
the enterprise
to any significant single
loss events; we don’t
“bet the bank” on any
single acquisition,
business or product
3 Do not risk harming
the TD brand
$10.8 billion
2023 Reported Earnings
$15.1 billion
2023 Adjusted Earnings1
2,239
Retail locations in North America
39
Cities worldwide in which
TD Securities operates
778
Cities across North America
and 6 cities globally in which
TD Wealth is located
5%
14%
37%
44%
TD’ S PREMIUM RETAIL
EARNINGS MIX 2
Canadian Personal & Commercial Banking
U.S. Retail
Wealth Management & Insurance
Wholesale Banking
95% Retail*
5% Wholesale Banking
* Retail = Canadian Personal & Commercial
Banking, U.S. Retail, Wealth Management
& Insurance
1 Adjusted results are non-GAAP financial measures. Refer to “Non-GAAP and Other Financial Measures” in the “Financial Results Overview” section in the
2023 Management’s Discussion & Analysis (MD&A).
2 Reported basis excluding Corporate segment.
TD BANK GROUP ANNUAL REPORT 2023 OUR STRATEGY
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2023 Snapshot
Performance indicators focus effort, communicate our priorities,
and benchmark our results against key elements of our proven
business model.
We have a strong balance sheet
and capital position
(Financial information as at October 31, 2023)
$2.0 trillion
Assets
$1.2 trillion
Deposits
14.4%
CET1 Ratio1
130%
Liquidity Coverage Ratio1
1.88%
Return on Risk-Weighted Assets2
DIVIDEND HISTORY
TD Cowen adds strength
and reach to TD Securities
This year, we welcomed more than 1,700
colleagues and expanded our offerings and
reach through the acquisition of Cowen Inc.
This is a significant step toward TD Securities’
long-term growth strategy to be a fully
integrated North American Investment Bank
with global reach.
~10% Annualized Growth
3
$3.84
167-year
Continuous Dividend History
4.6%
2023 Dividend Yield2
5.6%
Total Shareholder Return2
(5-year CAGR4)
$0.33
1 These measures have been calculated in accordance with OSFI’s Capital Adequacy Requirements and Liquidity Adequacy Requirements guidelines.
2 For additional information about this metric, refer to the Glossary in the 2023 MD&A.
3 25-year CAGR is the compound annual growth rate calculated from 1998 to 2023.
4 5-year CAGR is the compound annual growth rate calculated from 2018 to 2023.
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TD BANK GROUP ANNUAL REPORT 2023 OUR STRATEGY
1.501.000.50 $4.002.503.502.000.003.00200319982008201320182023
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Championing our Brand
In a testament to the strength of our business and the goodwill of our brand,
TD earned the #1 spot in Brand Finance’s 2023 Canada 100 Report, which ranks
the 100 most valuable brands in Canada. Throughout the communities we serve,
the green TD shield shines bright.
Marked the opening of TD
Debuted the TD shield on the
Extended our sponsorship
Music Hall in Toronto’s historic
Massey Hall concert venue.
Toronto Blue Jays’ iconic jersey.
with TD Garden and the Boston
Bruins through to 2045.
PERFORMANCE INDICATORS 1
2023 RESULTS 1, 3 (on an adjusted basis)
• Deliver above-peer-average total shareholder return4, 5
• Grow medium-term adjusted EPS by 7 to 10%3,4
• Grow revenue2 faster than expenses
• -6.9% vs. Canadian peer average of -11.4%5
• -4.4% adjusted EPS growth3
• Revenue growth of 12.3% vs. expense growth of 12.6%
NET INCOME
available to common shareholders
(millions of Canadian dollars)
DILUTED EARNINGS
PER SHARE (EPS)
(Canadian dollars)
TD’s 5-year CAGR
-1.7% Reported
4.2% Adjusted3
TD’s 5-year CAGR
-1.4% Reported
4.3% Adjusted3
TD’s 2023 ROE
10.1% Reported
14.4% Adjusted3
1 Performance indicators that include an earnings component are based on TD’s full-year adjusted results (except as noted).
2 Revenue is net of insurance claims and related expenses.
3 Adjusted results are non-GAAP financial measures. Refer to “Non-GAAP and Other Financial Measures” in the “Financial Results Overview” section
in the 2023 MD&A.
4 For additional information about this metric, refer to the Glossary in the 2023 MD&A.
5 Canadian Peers – defined as the other four big banks (RY, BMO, BNS and CM). All Peers are based on fiscal 2023 results ended October 31, 2023,
closing stock prices as of October 31, 2023 and dividends paid in calendar 2023 to October 31 per Bloomberg.
TD BANK GROUP ANNUAL REPORT 2023 OUR STRATEGY
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201920182020202120222023Adjusted3Reported0$18,00012,0009,0006,0003,00015,000201920182020202120222023$1076543210Adjusted3Reported9818%6412108141602RETURN ON COMMON EQUITY4(percent)Adjusted3Reported201920182020202120222023
OUR STRATEGY
Purpose-Driven
Our customers are at the centre of everything we do: informing the
products and services we offer, how we serve our communities
and support our colleagues to help them deliver ease, value and
trusted advice in the channel of their choice.
Enhanced credit card lineup and benefits
Announced new specialized offerings
to meet evolving customer needs
Teamed up with Uber to deliver valuable discounts
to eligible TD cardholders in Canada.
Introduced TD Clear, a no-interest
credit card that charges a simple
monthly fee – the first of its kind in
the U.S. market – and TD FlexPay,
a credit card with increased
payment flexibility and balance
transfer offers.
Delivered faster for our customers
The Bank continued to maximize customer and colleague
benefit and speed to market through the Next Evolution
of Work (NEW). NEW creates common capabilities,
embeds agility and increases efficiency.
• NEW teams introduced an Activation on First Use
feature, which enabled Canadian customers to forego
calling a contact centre to activate their new credit
card. The result was 130,000 fewer calls over a 90-day
period for TD credit card holders.
• TD’s First Home Savings Account program was launched
nearly 40% faster than programs of a similar size and scale
thanks to NEW ways of working and collaboration.
In the U.S., we launched EasyApply to create a more seam-
less experience for customers opening an account online.
Paved the way for New Canadians
with unique banking services
Announced an exclusive two-year relationship with
CanadaVisa, a leading online source of Canadian
immigration information, to provide resources to help
newcomers build financial acumen.
Introduced an International Student Banking Package,
the first of its kind in Canada.
Launched TD Insurance for Business, a direct-to-
consumer service that offers insurance tailored to
small business owners.
TD Asset Management and TD Epoch launched a
new global identity that brings together their
combined asset management capabilities to the
global investing community.
Launched TD Active Trader, a next-generation
trading platform, designed for active traders.
This powerful platform, built from the ground up,
will deliver a truly legendary trading experience
and revolutionize the way our clients invest.
Introduced new services to facilitate
convenient access to banking
Added a preferred language option to our digital
appointment booking tool to allow Canadian customers
to select from among multiple languages when meeting
with a Personal Banker.
Collaborated with the Canadian Administrator of Video
Relay Services to launch a dedicated phone line
in Canada for customers who are Deaf and use sign
language to complete their remote banking needs.
Enhanced the TD Insurance Mobile App so customers
can manage their insurance policies and claims digitally.
MoneyTalk launched a Chinese-language webpage
and produced its first video conducted entirely in
Mandarin to provide investment content to more clients.
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Awards
Received the most awards of any
financial institution in MoneySense
magazine’s 2023 Canada’s Best
Awards, including in the best no-fee,
flat rate, and travel credit card
categories.
TD Auto Finance received the highest
score in the non-captive national –
prime segment in the J.D. Power 2020-
2023 U.S. Dealer Financing Satisfaction
Studies of dealers’ satisfaction with
automotive finance providers.1
TD AMCB was #1 for the seventh
consecutive year in total number
of approved U.S. Small Business
Administration (SBA) loans in our
Maine-to-Florida footprint for the
2023 fiscal year, and the #2 SBA
lender nationwide.
TD Direct Investing was recognized
as the #1 online brokerage in Canada
by The Globe and Mail.
TD Securities was recognized by
Environmental Finance as Lead
Manager of the Year, Social Bonds –
Sovereign, for its work as joint lead
manager for the Government of
Canada’s Ukraine Sovereignty Bond.
Expanded our reach to help more customers get the
support they need, where and when they need it
Launched Private Banking Direct, allowing clients in Canada to receive
trusted advice from Private Bankers remotely, in the way clients prefer.
Opened our 25th TD Insurance Auto Centre, a one-stop solution for
customers making car insurance claims.
TD Insurance Claims Advisors were on the ground supporting and advising
customers across the country this year during severe weather-related
events including those hardest hit by the Canadian wildfires.
Opened five locations in Charlotte,
North Carolina, including three
community-centred stores in low-to-
moderate income and majority-minority
communities, with dedicated space for
community leaders and organizations
to come together to host job training,
financial education workshops or
non-profit events at no cost.
Helped customers navigate home ownership in a
complex environment
Launched the First Home Savings Account to help buyers save for their
first home.
Introduced TD Mortgage Direct offering fast and easy access to personalized
advice from a Mortgage Specialist.
New TD branch in Tsuut’ina
Nation, Alberta is built
around Indigenous Peoples
Fully staffed by colleagues from the Indigenous
community, the Buffalo Run branch, located
southwest of Calgary, is the first TD branch on
First Nation land in Alberta.
The Bank collaborated with Tsuut’ina Nation
and the Taza Development team to ensure that
all details – from the materials used to the
architectural forms of the building – reflect
Tsuut’ina Nation’s connection to the land
and their respect for the environment.
Murals and artwork by artists from
Tsuut’ina Nation are prominently displayed
throughout the branch, and welcome
signage is in both Tsuut’ina and English.
1 Visit jdpower.com/awards for more details.
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Sustainability
We maintain a long-standing commitment to environmental and social
progress. It’s core to who we are. Guided by our purpose, we strive to
make a positive impact in the lives of our customers and colleagues,
and in our communities and the broader economies that rely on us.
Environmental
▪ TD achieved our $100 billion low carbon target ahead of
our 2030 deadline and introduced a new Sustainable &
Decarbonization Finance Target. Representing the next
step in our effort to advance the low carbon economy and
contribute to improving social outcomes, TD plans to
mobilize $500 billion by 2030 through lending, financing,
underwriting, advisory services, insurance and the Bank’s
own investments.
▪ TD published a Sustainable & Decarbonization Finance
Target Methodology document that outlines the Bank’s
approach to categorizing, assessing, and reporting on
progress toward this new target.
▪ We continued to make progress against our Climate
Action Plan and expanded our Scope 3 financed
emissions footprint reporting to include seven carbon-
intensive sectors and four Partnership for Carbon
Accounting Financials asset classes. We also published
an additional set of interim 2030 Scope 3 financed
emissions targets for the Automotive Manufacturing and
Aviation sectors and provided updates on our previously
announced targets for Energy and Power Generation.
A leader in sustainability
▪ TD Securities agreed to purchase 27,500 metric tons of
▪ TD was ranked among the top sustainability companies
Direct Air Capture (DAC) carbon dioxide removal credits
over a four-year period from STRATOS, 1PointFive’s first
DAC plant currently under construction in Texas, subject
to STRATOS becoming operational.
▪ TD Insurance initiated a national education campaign
to help increase homeowners’ resilience to basement
flooding and invested in the Institute for Catastrophic
Loss Reduction’s Showcase Homes program to retrofit
homes in Edmonton.
▪ TD Asset Management expanded its sustainability suite
with the launch of the TD North American Sustainability
Bond Fund, its first actively managed ESG-related fixed
income product.
in the Dow Jones Sustainability Index for the ninth
consecutive year – the only North American bank
currently included in the World Index.
▪ TD was named North America’s Best Bank for Corporate
Responsibility by Euromoney for its demonstrated
commitment to managing the environmental impact
of operations, promoting workforce development and
social mobility, and fostering diversity and inclusion.
10
TD BANK GROUP ANNUAL REPORT 2023 OUR STRATEGY
Social
Governance
▪ Building on our efforts to improve financial and economic inclusion for our
customers, communities and colleagues, TD took another step in our journey,
announcing TD Pathways to Economic Inclusion. This new social framework
unifies and focuses our efforts in three areas where the Bank seeks to
contribute to inclusive financial and economic outcomes: employment
access, financial access and housing access.
Employment access
▪ Together with AFOA Canada, TD announced the first 25 recipients of the
TD Scholarship for Indigenous Peoples.
▪ TD collaborated with the Executive Women’s Forum to help advance
careers and create a better workplace for women in information security,
information technology, risk management, and privacy.
▪ TD AMCB worked with The Honor Foundation to provide career support
to United States Navy SEALs transitioning into civilian roles.
Financial access
▪ Launched the Black Entrepreneur Credit Access Program in Canada
to provide more equitable access to credit, wealth management,
and specialized advice through a regionally based Black Customer
Experience team.
▪ Launched Offsite Account Opening in Canada to offer customers
greater flexibility when they open their account.
Housing access
▪ TD AMCB announced a three-year, US$2 billion voluntary Community
Reinvestment Act Agreement in coordination with the New Jersey Citizen
Action and the Housing & Community Development Network of New Jersey.
The agreement includes commitments for investments in affordable
housing, affordable mortgage lending, small business lending and other
community development projects that will have a significant economic
impact on low- and moderate-income communities and majority-minority
communities throughout New Jersey.
Announced support for key
housing and home ownership
initiatives in Philadelphia,
including a US$2.5 million
financial commitment to
Local Initiatives Support
Corporation’s Non-profit
Preservation Initiative
and CONVERGENCE
Philadelphia, a program
with the Mortgage Bankers
Association.
▪ TD continues to have strong corporate
governance practices and our
commitment to sustainability informs
our strong risk management culture.
▪ Key areas of focus include:
risk management, corporate
governance and integrity, human
rights, data security and privacy.
▪ We are also focused on building
our enterprise resilience by
embedding sustainability across
our organization, integrating these
considerations into our business
strategy, risk management and
decision-making. These dedicated
ESG roles are coordinated through
our ESG Centre of Expertise and
Target Operating Model.
TD BANK GROUP ANNUAL REPORT 2023 OUR STRATEGY
11
The TD Ready
Commitment
At TD, we know that we can only thrive when
the communities around us thrive, and that
building a more sustainable and inclusive future
is critical for our communities and our Bank.
In 2023, we contributed more than $157 million1
to communities, in part through the TD Ready
Commitment, which is a true embodiment of TD’s
purpose in action. Our TD Ready Commitment
is targeting a total of $1 billion by 2030 in
community giving and colleague engagement
in four areas: Financial Security, Vibrant Planet,
Connected Communities and Better Health.
TD Ready Challenge
The TD Ready Challenge is our annual North American initiative
offering ten $1 million grants to non-profit and community
organizations that are developing innovative, impactful and
measurable solutions for a changing world. In its sixth year, the 2023
TD Ready Challenge is seeking innovative solutions to help address
systemic barriers to affordable housing across the continuum
from transitional to permanent homes, and to help increase access
to affordable and stable housing for those that need it most.
TD pledged $5 million over five
years to the Future Generations
Foundation’s Beyond Reconciliation
Campaign to deliver programs
focused on culture, language, the
restoration of land-based traditional
knowledge, healing, reconciliation,
education and employment to
Indigenous Peoples, businesses,
organizations and communities.
TD Charitable
Foundation
TD Charitable Foundation, the
charitable giving arm of TD
AMCB, announced its first-ever
Mission Related Investment
of US$5 million to Innovate
Capital Growth Fund (ICGF).
ICGF is a new non-profit
sponsored small business
investment company that
provides growth equity to
minority and women-owned
businesses with a focus on the
Greater Philadelphia area.
1 Figures include any donation commitments recognized as a legal obligation or a constructive obligation and expensed in 2023 before they were paid out.
Figure does not include donations made through TD Friends of the Environment Foundation.
12
TD BANK GROUP ANNUAL REPORT 2023 OUR STRATEGY
Our Colleague
Promise
At TD, we’re committed to helping
our colleagues make a meaningful
impact and develop their careers,
within a caring environment.
Creating opportunities for
professional growth and impact
Launched FutureNow, a learning program
to provide colleagues with opportunities to
develop future-focused capabilities, such
as digital literacy and business acumen, to
support TD’s continued growth and deliver
better outcomes for customers during times
of change.
TD introduced a refreshed Gender Identity
and Expression learning course to help
provide welcoming and inclusive experiences
for colleagues and customers.
Colleague engagement on TD Thrive, the
Bank’s self-directed learning platform,
increased by 20% year-over-year.
O
U
R
S
T
R
A
T
E
G
Y
•
P
u
r
p
o
s
e
-
D
r
i
v
e
n
Caring for our colleagues by investing in their
well-being
Enhanced TD Time Away from Work policies to offer colleagues
paid time away from work for personal reasons, including religious
or cultural holidays and personal or family well-being.
Introduced a doula reimbursement benefit for U.S. colleagues to
support affordability and healthcare access.
Expanded Wellness Account expenses in Canada to include healers
from the Indigenous community, non-traditional healers, charitable
donations, and pet insurance.
Delivered our first North American colleague movement challenge
through our Canadian and U.S. well-being apps, with more than
570 teams participating.
Staying competitive as an employer of choice
Unveiled a new internal social collaboration platform to support
colleague engagement and productivity, enabling colleagues
to collaborate, join communities and stay up to date on what’s
happening across the Bank.
Held the Bank’s first TechCon, a four-day
conference to support ongoing learning
and technical skills development.
Continuing to foster a diverse
and inclusive workplace
To support the Bank’s efforts to drive
ongoing progress, TD introduced our
refreshed, multi-year Diversity and
Inclusion (D&I) strategy to activate
leadership accountability, amplify TD’s
voice on D&I and measure performance.
This year, TD hired more than 100 Obsidi
Academy graduates to full-time positions.
TD and the Black Professionals in Tech
Network launched the Obsidi Academy to
help Black-identifying individuals launch
careers in technology.
Awards
TD was recognized as one of Canada’s
Top 100 Employers in 2023 by
MediaCorp Canada Inc. for the 17th
consecutive year.
Forbes named TD AMCB one of
America’s Best Employers for
Diversity, moving to number two
out of 500 ranked companies.
TD AMCB received a top score of
100 in the 2023 Disability Equality
Index, a national workplace disability
inclusion assessment tool, for the
ninth consecutive year.
TD was certified as a Great Place to
Work in Canada and the U.S.
TD was recognized for the seventh
year in a row by the Bloomberg
Financial Services Gender-Equality
Index in 2023.
TD BANK GROUP ANNUAL REPORT 2023 OUR STRATEGY
13
OUR STRATEGY
Forward-Focused
We’re building additional capabilities, investing in
new technology, and innovating to drive legendary
customer and colleague experiences.
Innovating to help
customers stay on top
of their finances
Following the Canadian introduction
in 2022, TD added deposit balance
threshold alerts to the U.S.
mobile app, the first of several
self-serve alerts that will further
enhance customer convenience
and experience.
Protecting customers with new
and enhanced security capabilities
Introduced card lock/unlock functionality in the
mobile banking apps to provide additional security
for customers in Canada and the U.S.
Added multi-factor authentication for all in-branch
and remote transactions in Canada for enhanced
protection from fraud and identity theft.
TD Invent: Shaping the future of banking
In 2023, the Bank launched TD Invent, an enterprise approach to innovation
that supports its forward-focused business strategy. Three key areas of
focus guide us as we create inclusive products and services that make sense
for our customers, colleagues and communities:
• Colleague Ideation – A consistent and dynamic focus on harnessing the
collective power of all TD colleagues to identify what matters the most.
This year, we achieved record engagement with the submission of over
18,000 ideas to improve customer and colleague experiences.
• Human-Centred Experiences – A thoughtful approach to understanding
customer and colleague needs that informs why and how we innovate.
• Innovation Acceleration – A proven, repeatable model that focuses on
addressing tomorrow’s banking expectations and enables us to explore,
test and scale our solutions.
Introduced the TD Invent Virtual Reality Co-op and Intern Pilot Program,
a personalized, immersive space for colleagues to onboard to the Bank
and network with other participants and leaders, leading to higher
engagement and colleague satisfaction scores.
Redesigned our Canadian
and U.S. mobile banking
apps for easier access to
the information customers
need most.
Delivering convenience
for customers
Replaced more than 1,200
ATMs throughout North America
to modernize our machines
and increase availability for
our customers.
14
TD BANK GROUP ANNUAL REPORT 2023 OUR STRATEGY
Inclusive Innovation
in our DNA
In early 2023, TD launched an internal pilot of the
TD Accessibility Adapter, a browser extension that
allows users to personalize their online experience
according to their accessibility preferences.
Following impressive feedback from colleagues and
disability inclusion leaders, the tool was launched
to all 95,000 TD colleagues globally in June and to
the Canadian and American public, at no cost,
in September.
O
U
R
S
T
R
A
T
E
G
Y
•
F
o
w
a
r
d
-
F
o
c
u
s
e
d
Awards
Named Best Consumer Digital
Bank in North America for the third
consecutive year by Global Finance.
Recognized by J.D. Power as
Highest in Customer Satisfaction
for our Canadian mobile banking
app, earning top marks for speed
and content.1
Layer 6 won the ACM RecSys
Challenge, a leading global
competition that benchmarks
artificial intelligence capabilities
among major tech companies
and academic institutions.
The TD Equity Resource Hub was
recognized by the Business
Intelligence Group through the
2023 BIG Innovation Awards for
bringing new ideas to life in
innovative ways.
Created by TD Invent, the TD Accessibility Adapter has changed
what day one accommodation looks like at the Bank. By offering
the tool to the public, we hope to support communities and
organizations beyond the Bank to drive further inclusion in
their online experiences.
Since its launch in 2019, nearly 85,000 submissions
have been received through TD Invent iD8, a platform
for TD colleagues to crowdsource ideas, share insights
and provide feedback about how we can improve
the customer and colleague experience at the Bank.
1 Tied in 2023. For J.D. Power 2023 award information, visit jdpower.com/awards.
TD BANK GROUP ANNUAL REPORT 2023 OUR STRATEGY
15
Board Committees
COMMITTEE MEMBERS 1
KEY RESPONSIBILITIES 2
Corporate
Governance
Committee
Brian M. Levitt
(Chair)
Amy W. Brinkley
Karen E. Maidment
Alan N. MacGibbon
Human
Resources
Committee
Karen E. Maidment
(Chair)
Amy W. Brinkley
David E. Kepler
Brian M. Levitt
John B. MacIntyre
Claude Mongeau
Risk
Committee
Audit
Committee
Amy W. Brinkley
(Chair)
Cherie L. Brant
Colleen A. Goggins
David E. Kepler
Karen E. Maidment
Keith G. Martell
Nancy G. Tower
Ajay K. Virmani
Alan N. MacGibbon
(Chair)
Brian C. Ferguson
Keith G. Martell
S. Jane Rowe
Nancy G. Tower
Mary A. Winston
Responsible for corporate governance of the Bank:
•
Identify individuals qualified to become Board members, recommend to the Board the director
nominees for the next annual meeting of shareholders and recommend candidates to fill 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 alignment with its purpose and its strategy, performance and reporting on
corporate responsibility for environmental and social matters.
• Provide oversight of enterprise-wide conduct risk and enterprise-wide complaints, and act as the
conduct review committee for the Bank and certain of its Canadian subsidiaries that are federally
regulated financial institutions.
• Oversee the establishment and maintenance of policies in respect of the Bank’s compliance with the
consumer protection provisions of the Financial Consumer Protection Framework (FCPF).
• Oversee the evaluation of the Board and Committees.
Responsible for management’s performance evaluation, compensation and succession planning:
• Discharge, and assist the Board of Directors in discharging, the responsibility of the Board relating
to leadership, human capital management and compensation, as set out in this Charter.
• Set corporate goals and objectives for the CEO, and regularly measure the CEO’s performance
against these goals and objectives.
• Recommend compensation for the CEO to the Board of Directors for approval, and review and
approve compensation for certain senior officers.
• 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 officer 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.
• Oversee the strategy, design and management of the Bank’s employee pension, retirement
savings and benefit plans.
Supervise 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 profile and performance against Risk Appetite.
• Provide a forum for analysis of an enterprise view of risk, including consideration of trends, and
current and emerging risks.
Supervise the quality and integrity of the Bank’s financial reporting and compliance
requirements:
• Oversee reliable, accurate and clear financial reporting to shareholders.
• Oversee the effectiveness of internal control including internal control over financial 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 financial officer, chief auditor, chief compliance
officer, and chief anti-money laundering officer, 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.
• Act as the Audit Committee for certain subsidiaries of the Bank that are federally regulated
financial institutions.
1 Committee information as at October 31, 2023
2 Committee responsibilities as at October 31, 2023
16
TD BANK GROUP ANNUAL REPORT 2023 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 2023 Annual Report or the 2023 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 2023 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
Other Risks
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
27
28
29
30
31
32
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.
83-88, 92, 97,
99-101, 112-114
Describe and discuss top and emerging risks.
Outline plans to meet each new key regulatory ratio once applicable rules
are finalized.
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.
76-82
72, 109
84-87
83-84
Description of key risks that arise from the bank’s business models and activities.
71, 83, 88-116
Description of stress testing within the bank’s risk governance and
capital frameworks.
70, 87, 95, 112
Pillar 1 capital requirements and the impact for global systemically important banks.
67-69, 73, 219
Composition of capital and reconciliation of accounting balance sheet to the
regulatory balance sheet.
67
Flow statement of the movements in regulatory capital.
Discussion of capital planning within a more general discussion of management’s
strategic planning.
68-70, 112
Analysis of how RWA relate to business activities and related risks.
70-71
9-13
Analysis of capital requirements for each method used for calculating RWA.
89-92, 94-95
Tabulate credit risk in the banking book for Basel asset classes and major portfolios.
Flow statement reconciling the movements of RWA by risk type.
Discussion of Basel III back-testing requirements.
91, 95, 99
The bank’s management of liquidity needs and liquidity reserves.
101-103, 105-106
1-3, 6
1-3, 5
4
13
33-49, 57-61
16-17
75-77
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 significant trading and non-trading market risk factors.
Significant 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
profile, including any significant credit risk concentrations.
Description of the bank’s policies for identifying impaired loans.
104, 214
109-111
106-109
93
93, 96-97
94-97, 99
94-97
54-66, 88-92,
171-178, 187,
190-191, 217-218
62, 147-148,
154, 177
21-36
1-5, 13, 16, 18-77
Reconciliation of the opening and closing balances of impaired loans in the period
and the allowance for loan losses.
60, 174-176
25, 29
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.
91, 159, 181-183,
187, 190-191
91, 151, 159
Description of ‘other risk’ types based on management’s classifications and discuss
how each one is identified, governed, measured and managed.
97-100, 112-116
Discuss publicly known risk events related to other risks.
81-82, 212-213,
221
50-52, 62-66
17
TD BANK GROUP ANNUAL REPORT 2023 ENHANCED DISCLOSURE TASK FORCE
Management’s Discussion and Analysis
This Management’s Discussion and Analysis (MD&A) is presented to enable readers to assess material
changes in the financial condition and operating results of TD Bank Group (“TD” or the “Bank”) for the
year ended October 31, 2023, compared with the corresponding period in the prior year. This MD&A should
be read in conjunction with the audited Consolidated Financial Statements and related Notes for the year
ended October 31, 2023. This MD&A is dated November 29, 2023. 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
SIGNIFICANT AND SUBSEQUENT EVENTS
FINANCIAL RESULTS OVERVIEW
Net Income
Revenue
Provision for Credit Losses
Expenses
Taxes
Quarterly Financial Information
BUSINESS SEGMENT ANALYSIS
Business Focus
Canadian Personal and Commercial Banking
U.S. Retail
Wealth Management and Insurance
Wholesale Banking
Corporate
2022 FINANCIAL RESULTS OVERVIEW
Summary of 2022 Performance
GROUP FINANCIAL CONDITION
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
ACCOUNTING STANDARDS AND POLICIES
Critical Accounting Policies and Estimates
Current and Future Changes in Accounting Policies
Controls and Procedures
ADDITIONAL FINANCIAL INFORMATION
GLOSSARY
18
20
26
27
28
29
30
31
33
35
39
44
48
51
52
53
54
67
73
74
75
76
83
116
120
121
121
130
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 https://www.sedarplus.ca/,
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 (“2023 MD&A”) in the Bank’s 2023 Annual Report under the heading “Economic Summary
and Outlook”, under the headings “Key Priorities for 2024” and “Operating Environment and Outlook” for the Canadian Personal and Commercial Banking, U.S. Retail, Wealth
Management and Insurance, and Wholesale Banking segments, and under the heading “2023 Accomplishments and Focus for 2024” for the Corporate segment, and in other
statements regarding the Bank’s objectives and priorities for 2024 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: strategic, credit, market (including equity, commodity, foreign exchange, interest rate, and credit spreads),
operational (including technology, cyber security, and infrastructure), model, insurance, liquidity, capital adequacy, legal, regulatory compliance and conduct, reputational, environmental
and social, and other risks. Examples of such risk factors include general business and economic conditions in the regions in which the Bank operates; geopolitical risk; inflation, rising
rates and recession; regulatory oversight and compliance risk; the ability of the Bank to execute on long-term strategies, shorter-term key strategic priorities, including the successful
completion of acquisitions and dispositions and integration of acquisitions, the ability of the Bank to achieve its financial or strategic objectives with respect to its investments, business
retention plans, and other strategic plans; technology and cyber security risk (including cyber-attacks, data security breaches or technology failures) on the Bank’s technologies, systems
and networks, those of the Bank’s customers (including their own devices), and third parties providing services to the Bank; model risk; fraud activity; 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, and other risks arising from the Bank’s use of third parties; the impact of new
and changes to, or application of, current laws, rules and regulations, including without limitation tax laws, capital guidelines and liquidity regulatory guidance; increased competition
from incumbents and new entrants (including Fintechs and big technology competitors); shifts in consumer attitudes and disruptive technology; environmental and social risk (including
climate change); exposure related to significant litigation and regulatory matters; ability of the Bank to attract, develop, and retain key talent; changes to the Bank’s credit ratings;
changes in foreign exchange rates, interest rates, credit spreads and equity prices; the interconnectivity of Financial Institutions including existing and potential international debt crises;
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; the economic, financial, and other impacts of pandemics; 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 2023 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 heading “Significant and Subsequent Events” in the relevant MD&A, which
applicable releases may be found on www.td.com. All such factors, as well as other uncertainties and potential events, and the inherent uncertainty of forward-looking statements,
should be considered carefully when making decisions with respect to the Bank. 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 2023 MD&A under the heading “Economic Summary
and Outlook”, under the headings “Key Priorities for 2024” and “Operating Environment and Outlook” for the Canadian Personal and Commercial Banking, U.S. Retail, Wealth
Management and Insurance, and Wholesale Banking segments, and under the heading “2023 Accomplishments and Focus for 2024” for the Corporate segment, 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.
18
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS T A B L E
1
|
FINANCIAL HIGHLIGHTS
(millions of Canadian dollars, except where noted)
Results of operations
Total revenue – reported
Total revenue – adjusted1
Provision for (recovery of) credit losses
Insurance claims and related expenses
Non-interest expenses – reported
Non-interest expenses – adjusted1
Net income – reported
Net income – adjusted1
Financial positions (billions of Canadian dollars)
Total loans net of allowance for loan losses
Total assets
Total deposits
Total equity
Total risk-weighted assets2
Financial ratios
Return on common equity (ROE) – reported3
Return on common equity – adjusted1
Return on tangible common equity (ROTCE)1
Return on tangible common equity – adjusted1
Efficiency ratio – reported3
Efficiency ratio – adjusted1,3
Provision for (recovery of) credit losses as a % of net average loans and acceptances
Common share information – reported (Canadian dollars)
Per share earnings
Basic
Diluted
Dividends per share
Book value per share3
Closing share price4
Shares outstanding (millions)
Average basic
Average diluted
End of period
Market capitalization (billions of Canadian dollars)
Dividend yield3
Dividend payout ratio3
Price-earnings ratio3
Total shareholder return (1 year)3
Common share information – adjusted (Canadian dollars)1,3
Per share earnings
Basic
Diluted
Dividend payout ratio
Price-earnings ratio
Capital ratios2
Common Equity Tier 1 Capital ratio
Tier 1 Capital ratio
Total Capital ratio
Leverage ratio
Total Loss Absorbing Capacity (TLAC) ratio
TLAC Leverage ratio
2023
2022
$ 50,492
51,839
2,933
3,705
30,768
27,430
10,782
15,143
$ 895.9
1,957.0
1,198.2
112.1
571.2
$ 49,032
46,170
1,067
2,900
24,641
24,359
17,429
15,425
$ 831.0
1,917.5
1,230.0
111.4
517.0
10.1%
14.4
13.6
18.9
60.9
52.9
0.34
18.0%
15.9
24.3
21.2
50.3
52.8
0.14
$
5.61
5.60
3.84
56.58
77.46
1,822.5
1,824.4
1,790.7
$ 138.7
$
9.48
9.47
3.56
55.00
87.19
1,810.5
1,813.6
1,820.7
$ 158.7
$
4.6%
68.3
13.8
(6.9)
8.00
7.99
47.9%
9.7
14.4%
16.2
18.1
4.4
32.7
8.9
$
3.8%
37.5
9.2
0.9
8.38
8.36
42.5%
10.4
16.2%
18.3
20.7
4.9
35.2
9.4
1 The Toronto-Dominion Bank (“TD” or the “Bank”) prepares its Consolidated Financial
Statements in accordance with 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 such as
“adjusted” results and non-GAAP ratios to assess each of its businesses and to
measure overall Bank performance. To arrive at adjusted results, the Bank adjusts
reported results for “items of note”. Refer to the “Financial Results Overview”
section of this document for further explanation, a list of the items of note, and a
reconciliation of adjusted to reported results. Non-GAAP financial measures and
ratios used in this document are not defined terms under IFRS and, therefore, may
not be comparable to similar terms used by other issuers.
2 These measures have been included in this document in accordance with the Office
of the Superintendent of Financial Institutions Canada’s (OSFI’s) Capital Adequacy
Requirements (CAR), Leverage Requirements, and TLAC guidelines. Refer to the
“Capital Position” section of this document for further details.
3 For additional information about this metric, refer to the Glossary of this document.
4 Toronto Stock Exchange (TSX) closing market price.
19
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
SIGNIFICANT AND SUBSEQUENT EVENTS
a) Restructuring Charges
The Bank undertook certain measures in the fourth quarter of 2023 to
reduce its cost base and achieve greater efficiency. In connection with
these measures, the Bank incurred $363 million of restructuring charges
which primarily relate to employee severance and other personnel-related
costs, real estate optimization, and asset impairments. The Bank expects
to incur additional restructuring charges of a similar magnitude in the first
half of calendar 2024.
b) Acquisition of Cowen Inc.
On March 1, 2023, the Bank completed the acquisition of Cowen Inc.
(“Cowen”). The acquisition advances the Wholesale Banking segment’s
long-term growth strategy in the U.S. and adds complementary
products and services to the Bank’s existing businesses. The results
of the acquired business have been consolidated by the Bank from
the closing date and primarily reported in the Wholesale Banking
segment. Consideration included $1,500 million (US$1,100 million) in
cash for 100% of Cowen’s common shares outstanding, $253 million
(US$186 million) for the settlement of Cowen’s Series A Preferred
Stock, and $205 million (US$151 million) related to the replacement
of share-based payment awards.
The acquisition was accounted for as a business combination under
the purchase method. The purchase price allocation can be adjusted
during the measurement period, which shall not exceed one year
from the acquisition date, to reflect new information obtained about
facts and circumstances. The acquisition contributed $10,800 million
(US$7,933 million) of assets and $9,884 million (US$7,261 million) of
liabilities. The excess of accounting consideration over the fair value of
the tangible net assets acquired is allocated to other intangible assets of
$298 million (US$219 million) net of taxes, and goodwill of $744 million
(US$546 million).
c) Termination of the Merger Agreement with
First Horizon Corporation
On May 4, 2023, the Bank and First Horizon Corporation (“First Horizon”
or “FHN”) announced their mutual decision to terminate the previously
announced merger agreement for the Bank to acquire First Horizon. Under
the terms of the termination agreement, the Bank made a $306 million
(US$225 million) cash payment to First Horizon on May 5, 2023. The
termination payment was recognized in non-interest expenses in the third
quarter of fiscal 2023 and was reported in the Corporate segment.
In connection with the transaction, the Bank had invested
US$494 million in non-voting First Horizon preferred stock. During the
second quarter of fiscal 2023, the Bank recognized a valuation adjustment
loss of $199 million (US$147 million) on this investment, recorded in other
comprehensive income (OCI). On June 26, 2023, in accordance with the
terms of the preferred share purchase agreement, the preferred stock
converted into approximately 19.7 million common shares of First Horizon,
resulting in the Bank recognizing a loss of $166 million (US$126 million)
during the third quarter of fiscal 2023 in OCI based on First Horizon’s
common share price at the time of conversion.
The Bank had also implemented a strategy to mitigate the impact of
interest rate volatility to capital on closing of the acquisition. The Bank
determined that the fair value of First Horizon’s fixed rate financial assets
and liabilities and certain intangible assets would have been sensitive to
interest rate changes. The fair value of net assets would have determined
the amount of goodwill to be recognized on closing of the acquisition.
Increases in goodwill and intangibles would have negatively impacted
capital ratios because they are deducted from capital under OSFI Basel III
rules. In order to mitigate this volatility to closing capital, the Bank
de-designated certain interest rate swaps hedging fixed income
investments in fair value hedge accounting relationships.
As a result of the de-designation, mark-to-market gains (losses) on
these swaps were recognized in earnings, without any corresponding
offset from the previously hedged investments. Such gains (losses) would
have mitigated the capital impact from changes in the amount of goodwill
recognized on closing of the acquisition. The de-designation also triggered
the amortization of the investments’ basis adjustment to net interest
income over the remaining expected life of the investments.
20
Prior to the termination of the merger agreement on May 4, 2023,
for the year ended October 31, 2023, the Bank reported ($1,386) million
in non-interest income related to the mark-to-market on the swaps,
and $262 million in net interest income related to the basis adjustment
amortization. In addition, for the year ended October 31, 2023, the Bank
reported $585 million in non-interest income related to the net interest
earned on the swaps.
Following the announcement to terminate the merger agreement,
the Bank discontinued this strategy and reinstated hedge accounting on
the portfolio of fixed income investments using new swaps entered into
at higher market rates. Income recognized from this strategy will reverse
over time causing a decrease to net interest income. For the year ended
October 31, 2023, the decrease to net interest income was ($127) million,
recorded in the Corporate segment.
The Bank had also implemented a strategy to mitigate FX risk on
the expected USD cash consideration. Following the announcement to
terminate the merger agreement, the Bank discontinued this strategy.
Given the appreciation of the U.S. dollar during the life of the strategy,
the Bank was in a net gain position on the date of hedge termination
and cumulative net gains were recognized in accumulated other
comprehensive income (AOCI).
d) Implementation of the Canada Recovery Dividend and
Change in Corporate Tax Rate
On December 15, 2022, Bill C-32, Fall Economic Statement
Implementation Act, 2022, received Royal Assent. This bill enacted the
Canada Recovery Dividend (CRD) and increased the Canadian federal tax
rate for bank and life insurer groups by 1.5%.
The implementation of the CRD resulted in a provision for income taxes
of $553 million and a charge to OCI of $239 million, recognized in the
first quarter of 2023.
The increase in the Canadian federal tax rate of 1.5%, prorated for
the first taxation year that ends after April 7, 2022, resulted in a provision
for income taxes of $82 million and a tax benefit of $75 million in OCI
related to fiscal 2022, recognized in the first quarter of 2023. The Bank
also remeasured certain Canadian deferred tax assets and liabilities for the
increase in tax rate, which resulted in an increase in net deferred tax assets
of $50 million, which is recorded in provision for income taxes.
e) Stanford Litigation Settlement
In the US Rotstain v. Trustmark National Bank, et al. action, on
February 24, 2023, the Bank reached a settlement in principle (the
“settlement” or “agreement”) relating to litigation involving the Stanford
Financial Group (the “Stanford litigation”), pursuant to which the Bank
agreed to pay US$1.205 billion to the court-appointed receiver for the
Stanford Receivership Estate. Under the terms of the agreement, TD
has settled with the receiver, the Official Stanford Investors Committee,
and other plaintiffs in the litigation and these parties have agreed to
release and dismiss all current or future claims arising from or related to
the Stanford matter. As a result of this agreement, the Bank recorded a
provision of approximately $1.6 billion pre-tax ($1.2 billion after-tax) in
the first quarter of 2023. The Bank recognized a foreign exchange loss of
$39 million ($28 million after-tax) in the second quarter of 2023, reflecting
the impact of the difference between the foreign exchange rate used
for recording the provision (effective January 31, 2023) and the foreign
exchange rate at the time the settlement was reached.
f) Federal Deposit Insurance Corporation Special Assessment
On November 16, 2023, the Federal Deposit Insurance Corporation (FDIC)
announced a final rule that implements a special assessment to recover
the losses to the Deposit Insurance Fund arising from the protection of
uninsured depositors during the U.S. bank failures in Spring 2023 (the
“Special Assessment”). The Special Assessment is expected to result in the
recognition of a provision of approximately US$300 million pre-tax in the
first quarter of the Bank’s fiscal 2024.
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
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 sixth largest bank in
North America by assets and serves more than 27.5 million customers in
four key businesses operating in a number of locations in financial centres
around the globe: Canadian Personal and Commercial Banking, including
TD Canada Trust and TD Auto Finance Canada; U.S. Retail, including
TD Bank, America’s Most Convenient Bank®, TD Auto Finance U.S.,
TD Wealth (U.S.), and an investment in The Charles Schwab Corporation;
Wealth Management and Insurance, including TD Wealth (Canada),
TD Direct Investing, and TD Insurance; and Wholesale Banking, including
TD Securities and TD Cowen. TD also ranks among the world’s leading
online financial services firms, with more than 16 million active online and
mobile customers. TD had $1.96 trillion in assets on October 31, 2023.
The Toronto-Dominion Bank trades under the symbol “TD” on the Toronto
and New York Stock Exchanges.
ECONOMIC SUMMARY AND OUTLOOK
The global economy remains on track to slow in calendar 2023 and 2024,
but to a lesser extent than anticipated in the previous quarter. Inflation
has generally continued to cool across the G-7, and more central banks
have taken a pause on interest rate hikes. Central bankers will remain
vigilant on inflation and further rate hikes cannot be ruled out, but most
are fine-tuning interest rate adjustments at this stage. The lagged impact
of cumulative interest rate hikes is expected to be the primary influence
dampening economic growth and returning inflation closer to the target
ranges of the various regions by the end of calendar 2024.
The U.S. economy expanded by 4.9% annualized in the third calendar
quarter of 2023. Underlying domestic demand grew at an impressive
3.5% pace, as consumer spending accelerated from a soft performance in
the second calendar quarter. Government spending accelerated, driven by
an uptick in federal defence spending. Housing activity also increased for
the first time in over two years, reflecting lower mortgage rates earlier in
the year. However, business investment weakened, after a stronger-than-
expected performance in the first half of calendar 2023.
As of October, the U.S. job market was still tight with the
unemployment rate still historically low at 3.9%. However, there are signs
that demand for workers is cooling, as evidenced by both slower trend
growth in payrolls and a slight increase in the unemployment rate over
the prior six months. Although the downturn in total inflation has stalled
in recent months due to higher energy costs, core inflation measures have
continued to move lower. Underlying services prices continue to be a
source of persistent price pressure. Given that inflation remains well above
the U.S. Federal Reserve’s 2% target, the central bank remains highly
attentive to upside risks.
TD Economics continues to believe there is a chance the federal funds
rate may rise a further quarter point from its current range of 5.25-5.50%
early in calendar 2024. The economic environment remains fluid. If the
central bank sees evidence of further cooling in the labor market and
is increasingly confident that inflation is headed towards its 2% target,
it could opt to hold rates steady. Given the steep rise in interest rates
over the past year, the trend towards tighter U.S. credit and financial
conditions, and the likelihood of rolling periods of financial stress related
to risk factors, the probability of a recession stateside remains elevated.
The Canadian economy has been affected by numerous temporary
economic events, which have contributed to weakness in the
economic activity data. Real GDP was nearly unchanged in the second
calendar quarter of 2023, reflecting softer consumer spending and
ongoing weakness in housing activity. Business investment was one
bright spot, as investment in engineering structures and transportation
equipment increased.
Despite signs of slowing in the Canadian economy, progress on inflation
has stalled in recent months. The trend rate of job growth has slowed
below that of the labour force, pushing the unemployment rate higher.
TD Economics expects the unemployment rate to continue to move higher
in the months ahead, contributing to prolonged weakness in consumer
spending. Given the uncertainty surrounding the impact of substantial
interest rate hikes on highly indebted Canadian households, the risk of
recession also remains elevated in Canada.
The Bank of Canada has left the overnight interest rate unchanged at
5.00% since July. However, it has expressed concern about the persistence
of underlying inflation. TD Economics does not expect further interest
rate hikes, but the incoming economic data will determine whether more
will be required in Canada to bring inflation down to the 2% target. The
Canadian dollar is expected to hover in the 72 to 74 U.S. cent range over
the next few quarters.
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.
Non-GAAP and Other Financial Measures
In addition to reported results, the Bank also presents certain financial
measures, including non-GAAP financial measures that are historical, non-
GAAP ratios, supplementary financial measures and capital management
measures, to assess its results. Non-GAAP financial measures, such as
“adjusted” results, are utilized to assess the Bank’s businesses and to
measure the Bank’s overall performance. To arrive at adjusted results,
the Bank adjusts for “items of note”, from reported results. Items of note
are items which management does not believe are indicative of underlying
business performance and are disclosed in Table 3. Non-GAAP ratios
include a non-GAAP financial measure as one or more of its components.
Examples of non-GAAP ratios include adjusted basic and diluted earnings
per share (EPS), adjusted dividend payout ratio, adjusted efficiency ratio,
and adjusted effective income tax rate. The Bank believes that non-GAAP
financial measures and non-GAAP ratios provide the reader with a better
understanding of how management views the Bank’s performance. Non-
GAAP financial measures and non-GAAP ratios used in this document
are not defined terms under IFRS and, therefore, may not be comparable
to similar terms used by other issuers. Supplementary financial measures
depict the Bank’s financial performance and position, and capital
management measures depict the Bank’s capital position, and both are
explained in this document where they first appear.
U.S. Strategic Cards
The Bank’s U.S. strategic cards portfolio is comprised of agreements with
certain U.S. retailers pursuant to which TD is the U.S. issuer of private label
and co-branded consumer credit cards to their U.S. customers. Under the
terms of the individual agreements, the Bank and the retailers share in the
profits generated by the relevant portfolios after credit losses. Under IFRS,
TD is required to present the gross amount of revenue and provisions for
credit losses (PCL) related to these portfolios in the Bank’s Consolidated
Statement of Income. At the segment level, the retailer program partners’
share of revenues and credit losses is presented in the Corporate segment,
with an offsetting amount (representing the partners’ net share) recorded
in Non-interest expenses, resulting in no impact to Corporate’s reported
Net income (loss). The Net income (loss) included in the U.S. Retail
segment includes only the portion of revenue and credit losses attributable
to TD under the agreements.
Investment in The Charles Schwab Corporation and
IDA Agreement
On October 6, 2020, the Bank acquired an approximately 13.5%
stake in The Charles Schwab Corporation (“Schwab”) following the
completion of Schwab’s acquisition of TD Ameritrade Holding Corporation
(“TD Ameritrade”) of which the Bank was a major shareholder (the
“Schwab transaction”). On August 1, 2022, the Bank sold 28.4 million
non-voting common shares of Schwab, at a price of US$66.53 per share
for proceeds of $2.5 billion (US$1.9 billion), which reduced the Bank’s
ownership interest in Schwab to approximately 12.0%. The Bank
recognized $997 million as other income (net of $368 million loss from
AOCI reclassified to earnings), in the fourth quarter of fiscal 2022.
The Bank accounts for its investment in Schwab using the equity
method. The U.S. Retail segment reflects the Bank’s share of net income
from its investment in Schwab. The Corporate segment net income (loss)
includes amounts for amortization of acquired intangibles, the acquisition
and integration charges related to the Schwab transaction, and the Bank’s
share of restructuring charges incurred by Schwab. The Bank’s share
21
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
of Schwab’s earnings available to common shareholders is reported
with a one-month lag. For further details, refer to Note 12 of the 2023
Consolidated Financial Statements.
On November 25, 2019, the Bank and Schwab signed an insured
deposit account agreement (the “2019 Schwab IDA Agreement”), with
an initial expiration date of July 1, 2031. Under the 2019 Schwab IDA
Agreement, starting July 1, 2021, Schwab had the option to reduce the
deposits by up to US$10 billion per year (subject to certain limitations and
adjustments), with a floor of US$50 billion. In addition, Schwab requested
some further operational flexibility to allow for the sweep deposit balances
to fluctuate over time, under certain conditions and subject to certain
limitations. Refer to the “Related Party Transactions” section in the 2023
MD&A for further details.
On May 4, 2023, the Bank and Schwab entered into an amended
insured deposit account agreement (the “2023 Schwab IDA Agreement”
or the “Schwab IDA Agreement”), which replaced the 2019 Schwab IDA
Agreement. Pursuant to the 2023 Schwab IDA Agreement, the Bank
continues to make sweep deposit accounts available to clients of Schwab.
Schwab designates a portion of the deposits with the Bank as fixed-rate
obligation amounts (FROA). Remaining deposits over the minimum level
of FROA are designated as floating-rate obligations. In comparison to the
2019 Schwab IDA Agreement, the 2023 Schwab IDA Agreement extends
the initial expiration date by three years to July 1, 2034 and provides for
lower deposit balances in its first six years, followed by higher balances
in the later years. Specifically, until September 2025, the aggregate FROA
will serve as the floor. Thereafter, the floor will be set at US$60 billion.
In addition, Schwab has the option to buy down up to $6.8 billion
(US$5 billion) of FROA by paying the Bank certain fees in accordance with
the 2023 Schwab IDA Agreement, subject to certain limits.
During the year ended October 31, 2023, Schwab exercised its option
to buy down $6.1 billion (US$4.5 billion) of FROA and paid $305 million
(US$227 million) in termination fees to the Bank in accordance with the
2023 Schwab IDA Agreement. The fees are intended to compensate
the Bank for losses incurred this year from discontinuing certain hedging
relationships, as well as for lost revenues. The net impact is recorded in net
interest income.
The following table provides the operating results on a reported basis
for the Bank.
T A B L E 2
|
OPERATING RESULTS – Reported
(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 share of net income from investment in Schwab
Provision for (recovery of) income taxes
Share of net income from investment in Schwab
Net income – reported
Preferred dividends and distributions on other equity instruments
Net income available to common shareholders
2023
$ 29,944
20,548
2022
$ 27,353
21,679
50,492
2,933
3,705
30,768
13,086
3,168
864
10,782
563
49,032
1,067
2,900
24,641
20,424
3,986
991
17,429
259
$ 10,219
$ 17,170
22
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
The following table provides a reconciliation between the Bank’s adjusted
and reported results. For further details refer to the “Significant and
Subsequent Events” or “Financial Results Overview” sections.
T A B L E 3
|
NON-GAAP FINANCIAL MEASURES – Reconciliation of Adjusted to Reported Net Income
(millions of Canadian dollars)
Operating results – adjusted
Net interest income6
Non-interest income1,6
Total revenue
Provision for (recovery of) credit losses
Insurance claims and related expenses
Non-interest expenses2
Income before income taxes and share of net income from investment in Schwab
Provision for (recovery of) income taxes
Share of net income from investment in Schwab3
Net income – adjusted
Preferred dividends and distributions on other equity instruments
Net income available to common shareholders – adjusted
Pre-tax adjustments for items of note
Amortization of acquired intangibles4
Acquisition and integration charges related to the Schwab transaction5
Share of restructuring charges from investment in Schwab5
Restructuring charges2
Acquisition and integration-related charges2
Charges related to the terminated FHN acquisition2
Payment related to the termination of the FHN transaction2
Impact from the terminated FHN acquisition-related capital hedging strategy6
Impact of retroactive tax legislation on payment card clearing services1
Litigation (settlement)/recovery1,2
Gain on sale of Schwab shares1
Less: Impact of income taxes
Amortization of acquired intangibles
Acquisition and integration charges related to the Schwab transaction
Restructuring charges
Acquisition and integration-related charges
Charges related to the terminated FHN acquisition
Impact from the terminated FHN acquisition-related capital hedging strategy
Impact of retroactive tax legislation on payment card clearing services
Litigation (settlement)/recovery
CRD and federal tax rate increase for fiscal 20227
Total adjustments for items of note
Net income available to common shareholders – reported
2023
2022
$ 30,394
21,445
$ 27,307
18,863
51,839
2,933
3,705
27,430
17,771
3,701
1,073
15,143
563
14,580
(313)
(149)
(35)
(363)
(434)
(344)
(306)
(1,251)
(57)
(1,642)
–
(42)
(25)
(97)
(89)
(85)
(308)
(16)
(456)
585
46,170
1,067
2,900
24,359
17,844
3,595
1,176
15,425
259
15,166
(242)
(111)
–
–
(18)
(96)
–
1,641
–
224
997
(26)
(16)
–
(4)
(23)
405
–
55
–
(4,361)
2,004
$ 10,219
$ 17,170
1 Adjusted non-interest income excludes the following items of note:
4 Amortization of acquired intangibles relates to intangibles acquired as a result
i. Stanford litigation settlement – 2023: $39 million. This reflects the foreign
exchange loss and is reported in the Corporate segment;
ii. Settlement of TD Bank, N.A. v. Lloyd’s Underwriter et al., in Canada pursuant
to which the Bank recovered losses resulting from the previous resolution of
proceedings in the U.S. related to an alleged Ponzi scheme perpetrated by
Scott Rothstein – 2022: $224 million, reported in the U.S. Retail segment;
iii. Impact of retroactive tax legislation on payment card clearing services –
2023: $57 million, reported in the Corporate segment; and
iv. The Bank sold 28.4 million non-voting common shares of Schwab and recognized
a gain on the sale – 2022: $997 million, reported in the Corporate segment.
2 Adjusted non-interest expenses exclude the following items of note:
i. Amortization of acquired intangibles – 2023: $193 million, 2022: $106 million,
reported in the Corporate segment;
ii. The Bank’s own integration and acquisition costs related to the Schwab
transaction – 2023: $95 million, 2022: $62 million, reported in the
Corporate segment;
iii. Acquisition and integration-related charges – 2023: $434 million,
2022: $18 million, reported in the Wholesale Banking segment;
iv. Charges related to the terminated First Horizon acquisition – 2023: $344 million,
2022: $96 million, reported in the U.S. Retail segment;
v. Payment related to the termination of the First Horizon transaction –
2023: $306 million, reported in the Corporate segment;
vi. Stanford litigation settlement – 2023: $1,603 million, reported in the
Corporate segment; and
vii.Restructuring charges – 2023: $363 million, reported in the Corporate segment.
3 Adjusted share of net income from investment in Schwab excludes the following
items of note on an after-tax basis. The earnings impact of these items is reported in
the Corporate segment:
i. Amortization of Schwab-related acquired intangibles – 2023: $120 million,
2022: $136 million;
ii. The Bank’s share of acquisition and integration charges associated with Schwab’s
acquisition of TD Ameritrade – 2023: $54 million, 2022: $49 million; and
iii. The Bank’s share of restructuring charges incurred by Schwab –
2023: $35 million.
of asset acquisitions and business combinations, including the after-tax amounts
for amortization of acquired intangibles relating to the Share of net income from
investment in Schwab, reported in the Corporate segment. Refer to footnotes 2
and 3 for amounts.
5 Impact of charges related to the Schwab investment includes the following
components, reported in the Corporate segment: i) the Bank’s own integration and
acquisition costs related to the Schwab transaction, ii) the Bank’s share of acquisition
and integration charges associated with Schwab’s acquisition of TD Ameritrade on an
after-tax basis, and iii) the Bank’s share of restructuring charges incurred by Schwab
on an after-tax basis. Refer to footnotes 2 and 3 for amounts.
6 Prior to May 4, 2023, the impact shown covers periods before the termination of
the First Horizon transaction and includes the following components, reported in
the Corporate segment: i) mark-to-market gains (losses) on interest rate swaps
recorded in non-interest income – 2023: ($1,386) million, 2022: $1,487 million,
ii) basis adjustment amortization related to de-designated fair value hedge
accounting relationships, recorded in net interest income – 2023: $262 million,
2022: $154 million, and iii) interest income (expense) recognized on the interest rate
swaps, reclassified from non-interest income to net interest income with no impact
to total adjusted net income – 2023: $585 million, 2022: $108 million. After the
termination of the merger agreement, the residual impact of the strategy is reversed
through net interest income – 2023: ($127) million.
7 CRD and impact from increase in the Canadian federal tax rate for fiscal 2022
recognized in 2023, reported in the Corporate segment.
23
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 4
|
(Canadian dollars)
RECONCILIATION OF REPORTED TO ADJUSTED EARNINGS PER SHARE1
Basic earnings per share – reported
Adjustments for items of note
Basic earnings per share – adjusted
Diluted earnings per share – reported
Adjustments for items of note
Diluted earnings per share – adjusted
1 EPS is computed by dividing net income available to common shareholders by the
weighted-average number of shares outstanding during the period. Numbers may
not add due to rounding.
T A B L E 5
|
AMORTIZATION OF INTANGIBLES, NET OF INCOME TAXES
(millions of Canadian dollars)
Schwab1
Wholesale Banking related intangibles
Other
Included as items of note
Software and asset servicing rights
Amortization of intangibles, net of income taxes
1 Included in Share of net income from investment in Schwab.
2023
$ 5.61
2.39
$ 8.00
$ 5.60
2.39
$ 7.99
2022
$ 9.48
(1.11)
$ 8.38
$ 9.47
(1.10)
$ 8.36
2023
$ 120
117
34
271
365
2022
$ 136
24
56
216
385
$ 636
$ 601
RETURN ON COMMON EQUITY
The consolidated Bank ROE is calculated as reported net income available
to common shareholders as a percentage of average common equity.
The consolidated Bank adjusted ROE is calculated as adjusted net income
available to common shareholders as a percentage of average common
equity. Adjusted ROE is a non-GAAP ratio, and can be utilized in assessing
the Bank’s use of equity.
ROE for the business segments is calculated as the segment net income
available to common shareholders as a percentage of average allocated
capital. The Bank’s methodology for allocating capital to its business
segments is largely aligned with the common equity capital requirements
under Basel III. Capital allocated to the business segments increased to
11% of Common Equity Tier 1 (CET1) Capital effective in the first quarter
of 2023, compared with 10.5% in fiscal 2022.
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 taxes
Net income available to common shareholders – adjusted
Return on common equity – reported
Return on common equity – adjusted
2023
2022
$ 101,555
$ 95,326
10,219
4,361
17,170
(2,004)
$ 14,580
$ 15,166
10.1%
14.4
18.0%
15.9
RETURN ON TANGIBLE COMMON EQUITY
Tangible common equity (TCE) is calculated as common shareholders’
equity less goodwill, imputed goodwill and intangibles on the investments
in Schwab and other acquired intangible assets, net of related deferred
tax liabilities. ROTCE is calculated as reported net income available to
common shareholders after adjusting for the after-tax amortization of
acquired intangibles, which are treated as an item of note, as a percentage
of average TCE. Adjusted ROTCE is calculated using reported net income
available to common shareholders, adjusted for all items of note, as a
percentage of average TCE. TCE, ROTCE, and adjusted ROTCE can be
utilized in assessing the Bank’s use of equity. TCE is a non-GAAP financial
measure, and ROTCE and adjusted ROTCE are non-GAAP ratios.
24
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
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 investments in Schwab
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 taxes
Net income available to common shareholders adjusted for amortization of acquired intangibles, net of income taxes
Other items of note, net of income taxes
Net income available to common shareholders – adjusted
Return on tangible common equity
Return on tangible common equity – adjusted
1 Excludes intangibles relating to software and asset servicing rights.
2023
2022
$ 101,555
$ 95,326
17,919
6,127
584
(154)
77,079
10,219
271
10,490
4,090
16,803
6,515
492
(172)
71,688
17,170
216
17,386
(2,220)
$ 14,580
$ 15,166
13.6%
18.9
24.3%
21.2
IMPACT OF FOREIGN EXCHANGE RATE ON U.S. RETAIL
SEGMENT TRANSLATED EARNINGS
The following table reflects the estimated impact of foreign currency
translation on key U.S. Retail segment income statement items. The impact
is calculated as the difference in translated earnings using the average
U.S. to Canadian dollars exchange rates in the periods noted.
T A B L E 8
|
IMPACT OF FOREIGN EXCHANGE RATE ON U.S. RETAIL SEGMENT TRANSLATED EARNINGS
(millions of Canadian dollars, except as noted)
U.S. Retail Bank
Total revenue – reported
Total revenue – adjusted1
Non-interest expenses – reported
Non-interest expenses – adjusted1
Net income – reported, after-tax
Net income – adjusted, after-tax1
Share of net income from investment in Schwab and TD Ameritrade2
U.S. Retail segment net income – reported, after-tax
U.S. Retail segment net income – adjusted, after-tax1
Earnings per share (Canadian dollars)
Basic – reported
Basic – adjusted1
Diluted – reported
Diluted – adjusted1
2023 vs. 2022
Increase
(Decrease)
2022 vs. 2021
Increase
(Decrease)
$ 657
657
370
351
215
229
51
266
280
$ 0.15
0.15
0.15
0.15
$ 312
311
171
166
111
114
15
126
129
$ 0.07
0.07
0.07
0.07
1 For additional information about the Bank’s use of non-GAAP financial measures,
2 Share of net income from investment in Schwab and TD Ameritrade and the foreign
refer to “Non-GAAP and Other Financial Measures” in the “Financial Results
Overview” section of this document.
exchange impact are reported with a one-month lag.
Average foreign exchange rate (equivalent of CAD $1.00)
U.S. dollar
2023
0.741
2022
0.777
25
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL RESULTS OVERVIEW
Net Income
NET INCOME – REPORTED 1 BY BUSINESS SEGMENT
(as a percentage of total net income)
NET INCOME – ADJUSTED 1,2 BY BUSINESS SEGMENT
(as a percentage of total net income)
50%
40
30
20
10
0
50%
40
30
20
10
0
2022
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
2023
Canadian Personal and Commercial Banking
U.S. Retail
Wealth Management and Insurance
Wholesale Banking
Canadian Personal and Commercial Banking
U.S. Retail
Wealth Management and Insurance
Wholesale Banking
Reported net income for the year was $10,782 million, a decrease of
$6,647 million, or 38%, compared with last year. The decrease reflects
higher non-interest expenses, the impact of the terminated First Horizon
acquisition-related capital hedging strategy, and higher PCL, partially offset
by higher revenues. On an adjusted basis, net income for the year was
$15,143 million, a decrease of $282 million, or 2%, compared with last
year. The reported ROE for the year was 10.1%, compared with 18.0%
last year. The adjusted ROE for the year was 14.4%, compared with
15.9% last year.
By segment, the decrease in reported net income reflects a decrease
in the Corporate segment of $5,920 million, a decrease in Wholesale
Banking of $555 million, a decrease in Wealth Management and Insurance
of $277 million, and a decrease in U.S. Retail of $25 million, partially
offset by an increase in Canadian Personal and Commercial Banking of
$130 million.
Reported diluted EPS for the year was $5.60, a decrease of 41%,
compared with $9.47 last year. Adjusted diluted EPS for the year was
$7.99, a decrease of 4%, compared with $8.36 last year.
1 Amounts exclude Corporate segment.
2 For additional information about the Bank’s use of non-GAAP financial measures, refer to “Non-GAAP and Other Financial Measures” in the “Financial Results Overview” section
of this document.
26
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS FINANCIAL RESULTS OVERVIEW
Revenue
Reported revenue was $50,492 million, an increase of $1,460 million, or
3%, compared with last year. Adjusted revenue was $51,839 million, an
increase of $5,669 million, or 12%, compared with last year.
NET INTEREST INCOME
Reported net interest income for the year was $29,944 million, an increase
of $2,591 million, or 9%, compared with last year. The increase reflects
margin growth in the personal and commercial banking businesses and
the impact of foreign exchange translation, partially offset by lower net
interest income in Wholesale Banking and lower sweep and other deposit
volumes in U.S. Retail. Adjusted net interest income was $30,394 million,
an increase of $3,087 million, or 11%.
By segment, the increase in reported net interest income reflects an
increase in U.S. Retail of $2,433 million, an increase in Canadian Personal
and Commercial Banking of $1,796 million, and an increase in Wealth
Management and Insurance of $111 million, partially offset by a decrease
in Wholesale Banking of $1,399 million and a decrease in the Corporate
segment of $350 million.
NET INTEREST MARGIN
Net interest margin is calculated by dividing net interest income by average
interest-earning assets. This metric is an indicator of the profitability of
the Bank’s earning assets less the cost of funding. Net interest margin
increased by 5 basis points (bps) during the year to 1.74%, compared with
1.69% last year, driven by higher deposit margins reflecting rising interest
rates. Average interest earning assets used in the calculation is a non-
GAAP financial measure and net interest margin is a non-GAAP ratio. They
are not defined terms under IFRS and, therefore, may not be comparable
to similar terms used by other issuers.
NON-INTEREST INCOME
Reported non-interest income for the year was $20,548 million, a decrease
of $1,131 million, or 5%, compared with last year, primarily reflecting the
impact of the terminated First Horizon acquisition-related capital hedging
strategy and gain in the prior period on sale of Schwab shares. Adjusted
non-interest income was $21,445 million, an increase of $2,582 million,
T A B L E 9
|
NON-INTEREST INCOME
(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
Trading income (losses)
Service charges
Card services
Insurance revenue
Other income (loss)
Total
or 14%, primarily reflecting higher equity commissions, global transaction
banking revenue, advisory fees, and equity underwriting fees in Wholesale
Banking, including the acquisition of Cowen Inc., and an increase in the
fair value of investments supporting claims liabilities which resulted in a
similar increase in insurance claims, partially offset by lower fee-based
revenue in the personal and commercial banking and wealth businesses.
By segment, the decrease in reported non-interest income reflects
a decrease in the Corporate segment of $3,345 million, a decrease in
U.S. Retail of $416 million, and a decrease in Canadian Personal and
Commercial Banking of $65 million, partially offset by an increase
in Wholesale Banking of $2,386 million and an increase in Wealth
Management and Insurance of $309 million.
NET INTEREST INCOME 3
(millions of Canadian dollars)
$32,000
28,000
24,000
20,000
16,000
12,000
8,000
4,000
0
2022
2023
Reported
Adjusted
2023
2022
% change
2023 vs. 2022
$ 1,263
1,518
997
636
1,897
109
6,420
1,796
2,417
2,609
2,932
5,671
(1,297)
$ 1,009
1,489
558
651
2,057
105
5,869
1,615
(257)
2,871
2,890
5,380
3,311
$ 20,548
$ 21,679
25
2
79
(2)
(8)
4
9
11
1,040
(9)
1
5
(139)
(5)
27
3 For additional information about the Bank’s use of non-GAAP financial measures, refer to “Non-GAAP and Other Financial Measures” in the “Financial Results Overview”
section of this document.
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
TRADING-RELATED REVENUE
Trading-related revenue is the total of trading income (loss), net interest
income on trading positions, and income (loss) from financial instruments
designated at fair value through profit or loss (FVTPL) that are managed
within a trading portfolio. Trading income (loss) includes realized and
unrealized gains and losses on trading assets and liabilities. Net interest
income on trading positions 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-related revenue excludes underwriting fees and commissions
on securities transactions. Trading-related revenue is a non-GAAP financial
measure, which is not a defined term under IFRS and, therefore, may
not be comparable to similar terms used by other issuers. Management
believes that the trading-related revenue is an appropriate measure of
trading performance.
Trading-related revenue by product line depicts trading income for each
major trading category.
For the years ended October 31
2023
$ 2,417
435
(672)
$ 2,180
2022
$
(257)
1,963
690
$ 2,396
180
117
$ 2,360
$ 2,513
$ 821
860
679
$ 2,360
$ 782
1,009
722
$ 2,513
PROVISION FOR
CREDIT LOSSES
(millions of Canadian dollars)
$3,000
2,500
2,000
1,500
1,000
500
0
2022
2023
T A B L E 1 0
|
TRADING-RELATED REVENUE
(millions of Canadian dollars)
Trading income (loss)
Net interest income (loss)1
Other2
Total
Trading-related TEB adjustment
Total trading-related revenue (TEB)
By product
Interest rate and credit
Foreign exchange
Equity and other
Total trading-related revenue (TEB)
1 Excludes taxable equivalent basis (TEB).
2 Includes income (loss) from securities designated at FVTPL that are managed within
a trading portfolio of $(548) million (2022 – $518 million) reported in Other Income
(Loss) on the 2023 Consolidated Financial Statements and other adjustments.
FINANCIAL RESULTS OVERVIEW
Provision for Credit Losses
PCL for the year was $2,933 million, an increase of $1,866 million
compared with last year. PCL – impaired was $2,486 million, an increase of
$1,049 million, reflecting some normalization of credit performance. PCL –
performing was $447 million, compared with a recovery of $370 million
last year. This year’s performing provisions were largely recorded in the
Canadian Personal and Commercial Banking and Wholesale Banking
segments, reflecting credit conditions and volume growth. Total PCL as an
annualized percentage of credit volume was 0.34%.
By segment, PCL was higher in Canadian Personal and Commercial
Banking by $852 million, in U.S. Retail by $593 million, in the Corporate
segment by $332 million, and in Wholesale Banking by $89 million.
28
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL RESULTS OVERVIEW
Expenses
NON-INTEREST EXPENSES
Reported non-interest expenses for the year were $30,768 million,
an increase of $6,127 million, or 25%, compared with last year,
reflecting higher employee-related expenses, including the acquisition of
Cowen Inc., the Stanford litigation settlement, and higher acquisition and
integration-related charges, including charges related to the terminated
First Horizon acquisition. On an adjusted basis, non-interest expenses were
$27,430 million, an increase of $3,071 million, or 13%.
By segment, the increase in reported non-interest expenses reflects
an increase in the Corporate segment of $2,607 million, an increase
in Wholesale Banking of $1,727 million, an increase in U.S. Retail of
$1,271 million, an increase in Canadian Personal and Commercial Banking
of $524 million, and a decrease in Wealth Management and Insurance
of $2 million.
INSURANCE CLAIMS AND RELATED EXPENSES
Insurance claims and related expenses were $3,705 million, an increase of
$805 million, or 28%, compared with last year, reflecting the impact of
changes in the discount rate which resulted in a similar increase in the fair
value of investments supporting claims liabilities reported in non-interest
income, increased claims severity and more severe weather-related events.
EFFICIENCY RATIO
The efficiency ratio measures operating efficiency and is calculated by
dividing non-interest expenses by total revenue. A lower ratio indicates a
more efficient business operation. Adjusted efficiency ratio is calculated in
the same manner using adjusted non-interest expenses and total revenue.
The reported efficiency ratio was 60.9%, compared with 50.3% last
year. The adjusted efficiency ratio was 52.9%, compared with 52.8%
last year.
T A B L E 1 1 NON-INTEREST EXPENSES AND EFFICIENCY RATIO
|
(millions of Canadian dollars, except as noted)
Salaries and employee benefits
Salaries
Incentive compensation
Pension and other employee benefits
Total salaries and employee benefits
Occupancy
Depreciation and impairment losses
Rent and maintenance
Total occupancy
Technology and equipment
Equipment, data processing and licenses
Depreciation and impairment losses
Total technology and equipment
Amortization of other intangibles
Communication and marketing
Restructuring charges
Brokerage-related and sub-advisory fees
Professional, advisory and outside services
Other expenses
Total expenses
Efficiency ratio – reported
Efficiency ratio – adjusted1
1 For additional information about the Bank’s use of non-GAAP financial measures,
refer to “Non-GAAP and Other Financial Measures” in the “Financial Results
Overview” section of this document.
NON-INTEREST EXPENSES 4
(millions of Canadian dollars)
EFFICIENCY RATIO 4
(percent)
$35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
70%
60
50
40
30
20
10
0
2022
2023
2022
2023
Reported
Adjusted
Reported
Adjusted
2023
2022
% change
2023 vs. 2022
$ 9,559
4,065
2,129
15,753
$ 8,093
3,303
1,998
13,394
987
812
1,799
2,056
252
2,308
672
1,452
363
456
2,490
5,475
925
735
1,660
1,660
242
1,902
599
1,355
–
408
2,190
3,133
$ 30,768
$ 24,641
18
23
7
18
7
10
8
24
4
21
12
7
100
12
14
75
25
60.9%
52.9
50.3%
52.8
1,060 bps
10
4 For additional information about the Bank’s use of non-GAAP financial measures, refer to “Non-GAAP and Other Financial Measures” in the “Financial Results Overview”
section of this document.
29
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL RESULTS OVERVIEW
Taxes
Reported total income and other taxes decreased by $581 million, or
10.1%, compared with last year, reflecting a decrease in income tax
expense of $818 million, or 20.5%, partially offset by an increase in other
taxes of $237 million, or 13.2%. Adjusted total income and other taxes
increased by $343 million from last year, or 6.4%, reflecting an increase
in income tax expense of $106 million, or 2.9%, and an increase in other
taxes of $237 million, or 13.2%.
The Bank’s reported effective income tax rate was 24.2% for 2023,
compared with 19.5% last year. The year-over-year increase primarily
reflects the implementation of the Canada Recovery Dividend and the
1.5% Canadian federal tax rate increase beginning in 2022, the impact of
the terminated First Horizon transaction, and favourable tax impacts in the
prior year associated with the sale of Schwab shares, earnings mix and the
recognition of unused tax losses. For a reconciliation of the Bank’s effective
income tax rate with the Canadian statutory income tax rate, refer to
Note 24 of the 2023 Consolidated Financial Statements.
The Bank reported its investment in Schwab using the equity method
of accounting. Schwab’s tax expense (2023: $279 million; 2022:
$319 million) was not part of the Bank’s effective tax rate.
To allow for an after-tax calculation of adjusted income, the adjusted
provision for income taxes is calculated by adjusting the taxes for each
item of note using the applicable income tax rate of the relevant legal
entity. The adjusted effective income tax rate is calculated as the adjusted
provision for income taxes before other taxes as a percentage of adjusted
net income before taxes. The Bank’s adjusted effective income tax rate
for 2023 was 20.8%, compared with 20.1% last year. The year-over-year
increase primarily reflects the increased tax rate arising from the 2022
Canadian Federal budget as well as the favourable impacts in the prior
year associated with earnings mix and the recognition of unused tax
losses. Adjusted results are not defined terms under IFRS and, therefore,
may not be comparable to similar terms used by other issuers.
T A B L E 1 2
|
INCOME TAXES – 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 note
Provision for income taxes – adjusted
Other taxes
Payroll
Capital and premium
GST, HST, and provincial sales1
Municipal and business
Total other taxes
Total taxes – adjusted
Effective income tax rate – reported
Effective income tax rate – adjusted
1 Goods and services tax (GST) and Harmonized sales tax (HST).
Budgetary Tax Measures
The Canadian Federal budget presented on March 28, 2023 (“the
Budget”) proposed to introduce tax measures that could impact the Bank.
On June 22, 2023, Bill C-47, Budget Implementation Act, 2023, No. 1,
received Royal Assent. This bill enacted one of the proposed tax measures
by amending the definition of a “financial service” such that payment
card clearing services rendered by a payment card network operator are
subject to GST/HST. The legislation was retrospective and resulted
in a charge to non-interest income of $57 million, recognized in the
third quarter of 2023.
2023
$ 3,168
533
3,701
853
222
719
236
2022
$ 3,986
(391)
3,595
722
214
625
232
2,030
$ 5,731
24.2%
20.8
1,793
$ 5,388
19.5%
20.1
On August 4, 2023, draft legislative proposals were released for public
comment relating to other Budget measures, including a 2% tax on the
net value of share repurchases by public corporations in Canada and
draft legislative proposals relating to the implementation of a global
minimum tax initiated by the Organisation for Economic Co-operation and
Development (Pillar Two). The proposal is that the Pillar Two rules will take
effect for fiscal years that begin on or after December 31, 2023, which will
be November 1, 2024 for the Bank. On November 21, 2023, the federal
government issued its Fall Economic Statement in which it confirmed its
intention to proceed with previously announced tax measures, including
its proposal to deny the dividend received deduction in respect of
dividends received by financial institutions on shares that are mark-to-
market property, subject to a minor carve out for dividends on certain
preferred shares. On November 28, 2023, the government introduced
the Fall Economic Statement Implementation Act, 2023, which includes
legislation regarding the dividend received deduction and the 2% tax on
share repurchases. The Bank is participating actively in the public comment
process regarding tax proposals that may impact the Bank and the broader
Canadian economy.
30
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL RESULTS OVERVIEW
Quarterly Financial Information
FOURTH QUARTER 2023 PERFORMANCE SUMMARY
Reported net income for the quarter was $2,886 million, a decrease of
$3,785 million, or 57%, compared with the fourth quarter last year,
primarily reflecting the gain from the impact of the terminated First
Horizon acquisition-related capital hedging strategy, gain on sale of
Schwab shares in the prior period, and higher non-interest expenses,
partially offset by higher non-interest income. On an adjusted basis, net
income for the quarter was $3,505 million, a decrease of $560 million, or
14%. Reported diluted EPS for the quarter was $1.49, a decrease of 59%,
compared with $3.62 in the fourth quarter of last year. Adjusted diluted
EPS for the quarter was $1.83, a decrease of 16%, compared with $2.18
in the fourth quarter of last year.
Reported revenue for the quarter was $13,121 million, a decrease
of $2,442 million, or 16%, compared with the fourth quarter last year.
Adjusted revenue for the quarter was $13,185 million, an increase of
$938 million, or 8%, compared with the fourth quarter last year.
Reported net interest income for the quarter was $7,494 million, a
decrease of $136 million, or 2%, compared with the fourth quarter last
year, primarily reflecting lower net interest income in Wholesale Banking
and lower deposit volumes in U.S. Retail, partially offset by margin growth
in the personal and commercial banking businesses. Adjusted net interest
income for the quarter was $7,558 million, a decrease of $69 million, or
1%. By segment, the decrease in reported net interest income reflects
a decrease in Wholesale Banking of $438 million, a decrease in Wealth
Management and Insurance of $11 million, a decrease in the Corporate
segment of $2 million, and a decrease in U.S. Retail of $2 million, partially
offset by an increase in Canadian Personal and Commercial Banking of
$317 million.
Reported non-interest income for the quarter was $5,627 million, a
decrease of $2,306 million, or 29%, compared with the fourth quarter
last year, primarily reflecting the gain from the impact of the terminated
First Horizon acquisition-related capital hedging strategy and gain on
sale of Schwab shares in the prior period. Adjusted non-interest income
was $5,627 million, an increase of $1,007 million, or 22%, reflecting
higher equity commissions, underwriting fees, and advisory fees in
Wholesale Banking, including the acquisition of Cowen Inc., and higher
revenue in insurance. By segment, the decrease in reported non-interest
income reflects a decrease in the Corporate segment of $3,265 million,
a decrease in U.S. Retail of $35 million, and a decrease in Canadian
Personal and Commercial Banking of $17 million, partially offset by an
increase in Wholesale Banking of $767 million and an increase in Wealth
Management and Insurance of $244 million.
PCL for the quarter was $878 million, an increase of $261 million
compared with the fourth quarter last year. PCL – impaired was
$719 million, an increase of $265 million, or 58%, reflecting some
normalization of credit performance. PCL – performing was $159 million,
a decrease of $4 million. The performing provisions this quarter were
largely recorded in the Canadian Personal and Commercial Banking and
Wholesale Banking segments, reflecting current credit conditions and
volume growth. Total PCL for the quarter as an annualized percentage of
credit volume was 0.39%.
By segment, PCL was higher by $161 million in Canadian Personal
& Commercial Banking, by $64 million in U.S. Retail, by $31 million in
Wholesale Banking, and by $5 million in the Corporate segment.
Insurance claims and related expenses were $1,002 million, an increase
of $279 million, or 39%, compared with the fourth quarter last year,
reflecting increased claims severity, more severe weather-related events,
and the impact of changes in the discount rate which resulted in a similar
increase in the fair value of investments supporting claims liabilities
reported in non-interest income.
Reported non-interest expenses for the quarter were $7,883 million, an
increase of $1,338 million, or 20%, compared with the fourth quarter last
year reflecting higher employee-related expenses, including the acquisition
of Cowen Inc., restructuring charges, and acquisition and integration-
related charges related to the Cowen acquisition. Adjusted non-interest
expenses for the quarter were $7,243 million, an increase of $813 million,
or 13%, compared with the fourth quarter last year. By segment,
the increase in reported non-interest expenses reflects an increase in
Wholesale Banking of $639 million, an increase in the Corporate segment
of $508 million, an increase in Canadian Personal and Commercial
Banking of $118 million, and an increase in U.S. Retail of $90 million,
partially offset by a decrease in Wealth Management and Insurance of
$17 million.
The Bank’s reported effective tax rate was 18.7% for the quarter,
compared with 16.9% in the same quarter last year. The year-over-year
increase primarily reflects the increased tax rate arising from the 2022
Canadian Federal budget as well as the favourable tax impacts in the same
quarter last year associated with the sale of Schwab shares, earnings mix
and the recognition of unused tax losses.
The Bank’s adjusted effective tax rate was 19.5% for the quarter,
compared with 16.7% in the same quarter last year. The year-over-year
increase primarily reflects the increased tax rate arising from the 2022
Canadian Federal budget as well as the favourable tax impacts in the
same quarter last year associated with earnings mix and the recognition
of unused tax losses.
QUARTERLY TREND ANALYSIS
Subject to the impact of seasonal trends and items of note, the Bank’s
reported earnings were down 2% in 2023, reflecting a challenging
macroeconomic environment. As the year progressed, the Bank’s personal
and commercial banking businesses benefited from higher deposit
margins, reflecting a rising rate environment and higher market-related
revenues, inclusive of TD Cowen, in the Wholesale Banking segment.
Credit conditions continued to normalize throughout the year which
resulted in higher PCLs. Expenses were higher, inclusive of TD Cowen,
reflecting employee-related expenses including variable compensation and
investments in support of business growth. The Bank’s quarterly earnings
were impacted by, among other things, seasonality, the number of days in
a quarter, the economic environment in Canada and the U.S., and foreign
currency translation.
31
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 1 3
|
QUARTERLY RESULTS
(millions of Canadian dollars, except as noted)
Net interest income
Non-interest income
Total revenue
Provision for (recovery of) credit losses
Insurance claims and related expenses
Non-interest expenses
Provision for (recovery of) income taxes
Share of net income from investment in Schwab
Net income – reported
Pre-tax adjustments for items of note1
Amortization of acquired intangibles
Acquisition and integration charges related
to the Schwab transaction
Share of restructuring charges from investment
in Schwab
Restructuring charges
Acquisition and integration-related charges
Charges related to the terminated
FHN acquisition
Payment related to the termination of the
FHN transaction
Impact from the terminated FHN acquisition-
related capital hedging strategy
Impact of retroactive tax legislation on payment
card clearing services
Litigation settlement/(recovery)
Gain on sale of Schwab shares
Total pre-tax adjustments for items of note
Less: Impact of income taxes1,2
Net income – adjusted1
Preferred dividends and distributions on other
equity instruments
Net income available to common
shareholders – adjusted1
(Canadian dollars, except as noted)
Basic earnings per share
Reported
Adjusted1
Diluted earnings per share
Reported
Adjusted1
Return on common equity – reported
Return on common equity – adjusted1
(billions of Canadian dollars, except as noted)
Average total assets
Average interest-earning assets3
Net interest margin – reported
Net interest margin – adjusted1
Oct. 31
$ 7,494
5,627
13,121
878
1,002
7,883
628
156
2,886
Jul. 31
$ 7,289
5,490
12,779
766
923
7,582
727
182
2,963
Apr. 30
$ 7,428
4,938
12,366
599
804
6,987
866
241
3,351
92
31
35
363
197
–
–
64
–
–
–
782
163
88
54
–
–
143
84
306
177
57
–
–
909
141
79
30
–
–
73
154
–
134
–
39
–
509
108
3,505
3,731
3,752
For the three months ended
2023
Jan. 31
$ 7,733
4,493
12,226
690
976
8,316
947
285
1,582
54
34
–
–
21
106
–
Oct. 31
$ 7,630
7,933
15,563
617
723
6,545
1,297
290
6,671
Jul. 31
$ 7,044
3,881
10,925
351
829
6,096
703
268
3,214
Apr. 30
$ 6,377
4,886
11,263
27
592
6,033
1,002
202
3,811
57
18
–
–
18
67
–
58
23
–
–
–
29
–
876
(2,319)
678
–
1,603
–
2,694
121
4,155
–
–
(997)
(3,156)
(550)
4,065
–
–
–
788
189
60
20
–
–
–
–
–
–
–
(224)
–
(144)
(47)
2022
Jan. 31
$ 6,302
4,979
11,281
72
756
5,967
984
231
3,733
67
50
–
–
–
–
–
–
–
–
–
117
17
3,813
3,714
3,833
196
74
210
83
107
43
66
43
$ 3,309
$ 3,657
$ 3,542
$ 4,072
$ 3,958
$ 3,770
$ 3,648
$ 3,790
$ 1.49
1.83
$ 1.57
1.99
$ 1.72
1.94
$ 0.82
2.24
$ 3.62
2.18
$ 1.76
2.09
$ 2.08
2.02
$ 2.03
2.08
1.49
1.83
10.6%
13.0
1.57
1.99
11.2%
14.1
1.72
1.94
12.5%
14.1
0.82
2.23
5.9%
16.1
3.62
2.18
26.5%
16.0
1.75
2.09
13.5%
16.1
2.07
2.02
16.4%
15.9
2.02
2.08
15.3%
15.7
$ 1,911
1,715
$ 1,899
1,716
$ 1,946
1,728
$ 1,933
1,715
$ 1,893
1,677
$ 1,811
1,609
$ 1,778
1,595
$ 1,769
1,593
1.73%
1.75
1.69%
1.70
1.76%
1.81
1.79%
1.82
1.81%
1.80
1.74%
1.73
1.64%
1.64
1.57%
1.57
1 For explanations of items of note, refer to the “Non-GAAP Financial Measures –
3 Average interest-earning assets is a non-GAAP financial measure. Refer to
Reconciliation of Adjusted to Reported Net Income” table in the “Financial Results
Overview” section of this document.
2 Includes the CRD and impact from increase in the Canadian federal tax rate for
“Non-GAAP and Other Financial Measures” in the “Financial Results Overview”
section and the Glossary of this document for additional information about
this metric.
fiscal 2022.
32
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
BUSINESS SEGMENT ANALYSIS
Business Focus
For management reporting purposes, the Bank’s operations and activities are organized around the
following four key business segments: Canadian Personal and Commercial Banking, U.S. Retail,
Wealth Management and Insurance, and Wholesale Banking. The Bank’s other activities are grouped
into the Corporate segment.
Corporate segment is comprised of a number of service and control
groups, including technology solutions, shared services, treasury and
balance sheet management, marketing, human resources, finance, risk
management, compliance, anti-money laundering, legal, real estate, 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 reflect revenue, expenses, assets, and
liabilities generated by the businesses in that segment. Where applicable,
the Bank measures and evaluates the performance of each segment based
on adjusted results and ROE, and for those segments the Bank indicates
that the measure is adjusted. For further details, refer to Note 28 of the
2023 Consolidated Financial Statements.
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 reflected in Wholesale Banking results is
reversed in the Corporate segment. The TEB adjustment for the year was
$181 million (October 31, 2022 – $149 million).
Share of net income from investment in Schwab is reported in the
U.S. Retail segment. Amounts for amortization of acquired intangibles,
the Bank’s share of acquisition and integration charges associated with
Schwab’s acquisition of TD Ameritrade, and the Bank’s share of Schwab’s
restructuring charges are recorded in the Corporate segment.
The “Key Priorities for 2024” 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.
Canadian Personal and Commercial Banking serves over 15 million
customers in Canadian personal and business banking. Personal Banking
provides a comprehensive suite of deposit, saving, payment and lending
products and advice through a network of 1,062 branches, 3,438
automated teller machines (ATM), mobile specialized salesforce, and
telephone, mobile and internet banking services. Business Banking offers
a broad range of customized products and services to help business
owners meet their financing, investment, cash management, international
trade, and day-to-day banking needs through its network of commercial
branches and specialized customer centers. Auto Finance, through its
consumer channel, provides flexible financing options to customers
at point of sale for automotive and recreational vehicle purchases.
Merchant Solutions provides point-of-sale payment solutions for large
and small businesses.
U.S. Retail includes the Bank’s personal, business banking and wealth
management operations in the U.S., as well as the Bank’s investment in
Schwab. Operating under the TD Bank, America’s Most Convenient Bank®
brand, the U.S. Retail Bank serves over 10 million customers in stores
from Maine to Florida, and via auto dealerships and credit card partner
business locations nationwide. Personal Banking provides a full range of
financial products and services to customers from Maine to the Carolinas
and Florida through a network of 1,177 stores, 2,705 ATMs, telephone,
and mobile and internet banking services. Business Banking offers a
diversified range of products and services to help businesses meet their
financing, investment, cash management, international trade, and day-to-
day banking needs. Wealth management provides wealth products and
services to retail and institutional clients. The contribution from the Bank’s
investment in Schwab is reported as equity in net income of an investment
in Schwab.
Wealth Management and Insurance serves approximately 6 million
customers across the wealth and insurance businesses in Canada. Wealth
Management offers wealth and asset management products and advice
to retail clients in Canada through the direct investing, advice-based, and
asset management businesses. Wealth Management also offers asset
management products to institutional clients globally. Insurance offers
property and casualty insurance through direct response channels and to
members of affinity groups, as well as life and health insurance products
to customers across Canada.
Wholesale Banking serves over 17,000 corporate, government, and
institutional clients in key financial markets around the world. Operating
under the TD Securities brand, Wholesale Banking offers capital markets
and corporate and investment banking services to external clients and
provides market access and wholesale banking solutions for the Bank’s
wealth and retail operations and their customers. Wholesale Banking’s
expertise is supported by a presence across North America, Europe, and
Asia-Pacific.
33
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 1 4 RESULTS BY SEGMENT1
|
(millions of Canadian dollars)
Canadian Personal
and Commercial
Banking
U.S. Retail
Wealth Management
and Insurance
Wholesale Banking2
Corporate2
Net interest income (loss)
Non-interest income (loss)
$ 14,192
4,125
$ 12,396
4,190
$ 12,037
2,405
$ 9,604
2,821
$ 1,056
10,224
$
2023
2022
2023
2022
2023
2022
945
9,915
2023
2022
2023
2022
2023
$ 1,538
4,280
$ 2,937
1,894
$ 1,121
(486)
$ 1,471
2,859
$ 29,944
20,548
$ 27,353
21,679
Total revenue
18,317
16,586
14,442
12,425
11,280
10,860
5,818
4,831
635
4,330
50,492
49,032
Provision for (recovery of)
credit losses – impaired
Provision for (recovery of)
1,013
639
965
522
credit losses – performing
330
(148)
(37)
(187)
1,343
491
928
335
1
–
1
–
1
1
16
110
126
19
18
37
491
44
535
257
2,486
1,437
(54)
447
(370)
203
2,933
1,067
Total
2022
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
Share of net income from
investment in Schwab
Net income (loss) –
reported
Pre-tax adjustments for
items of note
Amortization of
acquired intangibles
Acquisition and integration
charges related to the
Schwab transaction
Share of restructuring
charges from investment
in Schwab
Restructuring charges
Acquisition and integration-
related charges
Charges related to
the terminated
FHN acquisition
Payment related to the
termination of the
FHN transaction
Impact from the terminated
FHN acquisition-related
capital hedging strategy
Impact of retroactive tax
legislation on payment
card clearing services
Litigation settlement/
(recovery)
Gain on sale of
Schwab shares
Total pre-tax adjustments
for items of note
Less: Impact of income taxes3
Net income (loss) –
adjusted4
–
7,700
–
7,176
–
8,191
–
6,920
3,705
4,709
2,900
4,711
–
4,760
–
3,033
–
5,408
–
2,801
3,705
30,768
2,900
24,641
9,274
8,919
5,323
5,170
2,865
3,248
932
1,761
(5,308)
1,326
13,086
20,424
2,586
2,361
–
–
667
939
625
747
853
162
436
(994)
(289)
3,168
3,986
1,075
–
–
–
–
(75)
(84)
864
991
6,688
6,558
5,595
5,620
2,118
2,395
770
1,325
(4,389)
1,531
10,782
17,429
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
344
96
–
–
–
–
–
344
85
–
–
–
(224)
–
(128)
(32)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
434
18
–
–
–
–
–
–
–
–
–
–
–
–
313
242
313
242
149
111
149
111
35
363
–
–
306
–
–
–
–
–
35
363
434
344
306
–
–
18
96
–
1,251
(1,641)
1,251
(1,641)
57
1,642
–
–
1,642
57
–
–
(997)
–
(224)
(997)
434
89
18
4
4,116
359
(2,285)
(363)
4,894
533
(2,395)
(391)
$ 6,688
$ 6,558
$ 5,854
$ 5,524
$ 2,118
$ 2,395
$ 1,115
$ 1,339
$
(632) $
(391) $ 15,143
$ 15,425
Average common equity5
Risk-weighted assets
$ 18,151
168,514
$ 15,513
145,583
$ 41,139
236,351
$ 39,495
223,827
$ 5,468
17,249
$ 5,123
14,834
$ 14,134
121,232
$ 11,645
119,793
$ 22,663
27,815
$ 23,550
13,011
$ 101,555
571,161
$ 95,326
517,048
1 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.
2 Net interest income within Wholesale Banking is calculated on a TEB. The TEB
adjustment reflected in Wholesale Banking is reversed in the Corporate segment.
3 Includes the CRD and impact from increase in the Canadian federal tax rate for
fiscal 2022.
4 For additional information about the Bank’s use of non-GAAP financial measures,
refer to “Non-GAAP and Other Financial Measures” in the “Financial Results
Overview” section of this document.
5 For additional information about this metric, refer to the Glossary of this document.
34
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
BUSINESS SEGMENT ANALYSIS
Canadian Personal and Commercial Banking
Canadian Personal and Commercial Banking offers a full range of financial products and services to over
15 million customers in the Bank’s personal and commercial banking businesses in Canada.
NET INCOME
(millions of Canadian dollars)
TOTAL REVENUE
(millions of Canadian dollars)
AVERAGE DEPOSITS
(billions of Canadian dollars)
$7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
$20,000
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
$450
400
350
300
250
200
150
100
50
0
2022
2023
2022
2023
2022
2023
Personal
Business
T A B L E 1 5
|
REVENUE
(millions of Canadian dollars)
Personal banking
Business banking
Total
2023
2022
$ 12,705
5,612
$ 18,317
$ 11,535
5,051
$ 16,586
35
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS INDUSTRY PROFILE
The personal and business banking industry in Canada is mature and
highly competitive, consisting of large chartered banks, sizeable regional
banks and credit unions, niche players competing in specific products
and geographies, and a variety of non-traditional competitors, ranging
from start-ups to established non-financial firms expanding into financial
services. These industries serve individuals and businesses and offer
products including borrowing, deposits, cash management and financing
solutions. Products are distributed through retail branches, commercial
banking centers, and other specialized distribution channels, as well as
by leveraging technology with a focus on customer experiences that are
integrated across channels. Market leadership and profitability depend
upon delivering a full suite of competitively priced products, proactive
advice that meets customers’ needs, outstanding service and convenience,
prudent risk management, and disciplined expense management.
KEY PRODUCT GROUPS
Personal Banking
• Personal Deposits – comprehensive line-up of chequing, savings, and
investment products for retail customers.
• Real Estate Secured Lending – competitive lending products for
homeowners secured by residential properties.
• Credit Cards and Payments – proprietary and co-branded credit cards,
debit, digital money movement, and payment plans.
• Consumer Lending – diverse range of unsecured financing products
for retail customers.
Business Banking
• Commercial Banking – borrowing, deposit and cash management
solutions for businesses across a range of industries, including
real estate, agriculture, and via specialized financing options,
including equipment finance.
• Small Business Banking – financial products and services for small
businesses.
• Auto Finance – offers financing solutions for the prime and
non-prime automotive markets, recreational and leisure vehicles,
and automotive floor plan financing.
• Merchant Solutions – point-of-sale technology and payment solutions
for large and small businesses.
STRATEGIC OBJECTIVES, ACCOMPLISHMENTS AND PRIORITIES
BUSINESS STRATEGY
BUSINESS HIGHLIGHTS IN 2023
Provide trusted advice to help
our customers feel confident
about their financial future
• Net customer acquisition reached its highest level in Personal Banking since 2017 with record New to Canada
acquisition, driven by strong banking packages tailored to meet new Canadians’ needs, preferred language
offerings in-branch, and strategic relationships such as CanadaVisa
Consistently deliver legendary,
personal, and connected
customer experiences across
all channels
• Launched First Home Savings Account (FHSA) helping customers save for their first home
• Launched TD Mortgage Direct allowing customers to connect with a specialist in minutes, driving business growth
and an enhanced customer experience
• Enhanced the value proposition of Canadian Personal and Commercial Banking products to drive strong Legendary
Experience Index (LEI) results across the businesses, increase frontline banker capacity and reduce customer friction
• Continue to explore areas of specialization in Business Banking through additions to teams in the technology and
innovation sector
• TD Canada Trust was recognized as a Financial Service Excellence shared award winner for “Automated Telephone
Banking Excellence”5 and “Live Agent Telephone Banking”6 among the Big 5 Banks7 in the 2023 Ipsos Customer
Service Index (CSI) study8
• TD Auto Finance ranked “Highest in Dealer Satisfaction among Non-Captive Non-Prime Lenders with Retail Credit”
for the sixth year in a row in the J.D. Power 2023 Canada Dealer Financing Satisfaction Study9
Deepen customer
relationships by delivering
One TD and growing across
underrepresented products
and markets
• Maintained strong market share10 positions and gained momentum across the businesses:
– #1 market share in Personal Non-Term deposits
– Highest year-over-year volume loan growth in real estate secured lending amongst peers11
– Record credit card spend, and organic loan growth driven by a diverse line-up and strong acquisition momentum
– Record auto finance originations
• The Bank continued to execute on its One TD strategies, more than doubling the number of Senior Private Bankers
co-located in our Commercial Banking Centers in the second half of the year
5 TD Canada Trust shared in the Automated Telephone Banking Excellence award in the 2023 Ipsos Study.
6 TD Canada Trust shared in the Live Agent Telephone Banking award in the 2023 Ipsos Study.
7 Big 5 Banks consist of Bank of Montreal, Canadian Imperial Bank of Commerce, Royal Bank of Canada, Scotiabank, and The Toronto-Dominion Bank.
8 Ipsos 2023 Financial Service Excellence Awards are based on ongoing quarterly Customer Service Index (CSI) survey results. Sample size for the total 2023 CSI program year ended
with the September 2023 survey wave was 47,922 completed surveys yielding 71,297 financial institution ratings nationally.
9 TD Auto Finance received the highest score in the retail non-captive segment (2018-2021), and the retail non-captive non-prime segment (2022-2023) in the J.D. Power Canada
Dealer Financing Satisfaction Studies, which measure Canadian auto dealers’ satisfaction with their auto finance providers. Visit jdpower.com/awards for more details.
10 Market share ranking is based on most current data available from OSFI for Personal Non-term deposits as of August 2023.
11 Based on absolute YTD spot volume growth in Q3 2023 Financial Disclosures from Big 5 Banks.
36
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
BUSINESS STRATEGY
BUSINESS HIGHLIGHTS IN 2023
Execute with speed and
impact, taking only those
risks we can understand
and manage
Innovate with purpose for our
customers and colleagues,
and shape the future of
banking in the digital age
Be recognized as an
extraordinary place to
work where diversity and
inclusiveness are valued
• Continued to transform the way TD works, automating processes and implementing other improvements to
increase speed and efficiency:
– Leveraging Next Evolution of Work (NEW), an agile operating model, designed to reduce complexity, streamline
decision making, improve customer experience, and reduce cycle times
• Continued to provide personalized payment experiences and rewards to customers through strategic credit card
relationships, including:
– Our relationship with Amazon that enabled customers to redeem TD Rewards points through Amazon Shop
with Points
– Expanding TD’s Loyalty ecosystem and providing additional value to customers through new relationships
with Starbucks
• Recognized as Best Consumer Digital Bank for Canada and North America by Global Finance Magazine for the
third consecutive year12:
– Won an industry-leading 6 categories in North America, including Best Product Offerings, Best Bill Payment
& Presentment, Best Information Security and Fraud Management, Best in Lending, Best Innovation and
Transformation and Best Open Banking APIs
• Continued to rank #1 for average digital reach of any bank in Canada and remained among the leaders for
domestic digital reach among major developed market banks according to ComScore13
• The TD banking mobile app continued to rank #1 for average smartphone monthly active users in Canada
according to data.ai for the tenth consecutive year14
• J.D. Power ranks TD #1 in Banking Mobile App customer satisfaction15
•
Implemented almost a two-fold increase to the number of customer-facing mobile features by modernizing TD’s
technology foundations including the adoption of public cloud, and by leveraging the NEW operating model:
– Features include the first phase of the redesigned mobile application with a simplified and modern customer
interface and experience
• Canadian Personal and Commercial Banking is committed to advancing diversity and inclusion across all dimensions
of its business:
– In Business Banking, the Women at TD – Power Leadership Development Circle continues to contribute to the
advancement of talented women into executive positions
• Personal Banking continued the Sponsorship in Action Program for underrepresented groups to support career
advancement, providing sponsorship opportunities from senior leaders, resulting in 66% of participants being
promoted or moving laterally to further develop critical experiences
Contribute to the well-being
of our communities
• TD opened the Buffalo Run branch celebrating two milestones: the first branch staffed entirely by colleagues from
Indigenous communities, and the first in Alberta located on the Tsuut’ina Nation
• To support diverse customer needs, branches can serve customers in over 80 languages and over 200 languages
through phone translation services
• Business Banking expanded TD’s Women in Enterprise, Indigenous Banking, Black Customer Experience and
2SLGBTQ+ teams to provide national coverage to meet the needs of diverse customer segments
12 Global Finance World’s Best Digital Bank 2023 Awards (October 17, 2023).
13 ComScore MMX® Multi-Platform, Financial Services – Banking, Total audience, 3-month average ending September 2023, Canada, United States, France, and U.K.
14 Data.ai- average monthly mobile active users for the 10-year period ending September 2023.
15 Tied in 2023. For J.D. Power 2023 award information, visit jdpower.com/awards.
37
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS KEY PRIORITIES FOR 2024
• Enhance end-to-end omni-channel distribution to provide seamless and
•
intuitive customer experiences that are integrated across channels
Improve speed, capacity, and efficiency by leveraging NEW to deliver
faster with better outcomes and operate at the intersection of digital,
data, technology, and customer experience
• Leverage One TD to deepen customer relationships and provide
customers with personalized advice that meets their unique needs
•
• Continue to attract and retain top talent, emphasize talent diversity,
and enable excellence through process simplification and learning
and development
In alignment with Environmental, Social and Governance (ESG)
enterprise strategy, Canadian Personal and Commercial Banking will
focus on enhancing financial inclusion and strengthening Financial
Health and Education for colleagues and customers
• Actively monitor the macroeconomic environment and key risk indicators
across the franchise, and focus on reducing risk where necessary
T A B L E 1 6 CANADIAN PERSONAL AND COMMERCIAL BANKING
|
2023
$ 14,192
4,125
18,317
1,013
330
1,343
7,700
2,586
2022
$ 12,396
4,190
16,586
639
(148)
491
7,176
2,361
$ 6,688
$ 6,558
36.8%
2.77
42.0
1,062
28,961
42.3%
2.56
43.3
1,060
28,478
Non-interest expenses for the year were $7,700 million, an increase
of $524 million, or 7%, compared with last year. The increase primarily
reflects higher technology spend and higher employee-related expenses
supporting business growth, and higher non-credit provisions.
The efficiency ratio for the year was 42.0%, compared with 43.3%
last year.
OPERATING ENVIRONMENT AND OUTLOOK
Slower growth is expected for Canada’s economy for the second
consecutive year in fiscal 2024 with recession risks remaining elevated.
The lagged effects of this year’s sharp interest rate hikes are expected
to weigh on consumer and business spending, thus constraining overall
revenue growth for Canadian Personal and Commercial Banking. Further
growth in the number of customers in large part due to strongly rising
immigration should provide ongoing support to revenue. However, this
positive impact on revenues is expected to be counterbalanced by both
a potential further adjustment in housing markets and interest-rate cuts.
PCL is expected to increase, reflecting continued normalization of credit
conditions and volume growth. Canadian Personal and Commercial
Banking will continue to manage expenses prudently, investing in
distribution capabilities to serve more customers and enhance their
experience, and continuing to invest in technology and platforms to
purposefully build for the future to meet evolving needs of customers,
colleagues and communities. We believe TD’s customer centric and
digitally enabled Canadian Personal and Commercial Banking franchise
is well-positioned to execute on its growth opportunities.
(millions of Canadian dollars, except as noted)
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
Non-interest expenses
Provision for (recovery of) income taxes
Net income
Selected volumes and ratios
Return on common equity1
Net interest margin (including on securitized assets)
Efficiency ratio
Number of Canadian Retail branches at period end
Average number of full-time equivalent staff
1 Capital allocated to the business segment was increased to 11% CET1 Capital
effective the first quarter of fiscal 2023 compared with 10.5% in the prior year.
REVIEW OF FINANCIAL PERFORMANCE
Canadian Personal and Commercial Banking net income for the year
was $6,688 million, an increase of $130 million, or 2%, compared with
last year, reflecting higher revenue, partially offset by higher PCL and
non-interest expenses. ROE for the year was 36.8%, compared with
42.3% last year.
Revenue for the year was $18,317 million, an increase of
$1,731 million, or 10%, compared with last year.
Net interest income was $14,192 million, an increase of $1,796 million,
or 14%, reflecting higher margins and volume growth. Average loan
volumes increased $32 billion, or 6%, reflecting 5% growth in personal
loans and 11% growth in business loans. Average deposit volumes
increased $9 billion, or 2%, reflecting 7% growth in personal deposits,
partially offset by 5% decline in business deposits. Net interest margin
was 2.77%, an increase of 21 bps from last year, primarily due to higher
margins on deposits reflecting rising interest rates, partially offset by lower
margins on loans.
Non-interest income was $4,125 million, a decrease of $65 million,
or 2%, compared with last year, reflecting a prior years’ adjustment and
lower fee revenue.
PCL for the year was $1,343 million, an increase of $852 million,
compared with last year. PCL – impaired was $1,013 million, an increase of
$374 million, or 59%, reflecting some normalization of credit performance
in the consumer lending portfolios and credit migration in the commercial
lending portfolios. PCL – performing was $330 million, compared with a
recovery of $148 million in the prior year. This year’s performing provisions
were largely recorded in the consumer lending portfolios, reflecting
current credit conditions and volume growth. Total PCL as an annualized
percentage of credit volume was 0.25%, an increase of 15 bps.
38
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
BUSINESS SEGMENT ANALYSIS
U.S. Retail
Operating under the TD Bank, America’s Most Convenient Bank® brand, the U.S. Retail Bank offers a
full range of financial products and services to over 10 million customers in the Bank’s U.S. personal and
business banking operations, including wealth management. U.S. Retail includes an investment in Schwab.
NET INCOME 16
(millions of U.S. dollars)
TOTAL REVENUE 16
(millions of U.S. dollars)
AVERAGE DEPOSITS
(billions of U.S. dollars)
$5,000
4,000
3,000
2,000
1,000
0
$12,000
10,000
8,000
6,000
4,000
2,000
0
$400
350
300
250
200
150
100
50
0
2022
2023
2022
2023
2022
2023
Reported
Adjusted
Reported
Adjusted
Personal
Business
Sweep
T A B L E 1 7
|
REVENUE1
(millions of dollars)
Personal Banking
Business Banking
Wealth
Other2
Total
1 Excludes equity in net income of an investment in Schwab.
2 Other revenue consists primarily of revenue from the Schwab IDA Agreement and
from investing activities, and in 2022, also an insurance recovery related to litigation.
Canadian dollars
U.S. dollars
2023
2022
2023
2022
$ 7,359
4,221
625
2,237
$ 14,442
$ 6,875
3,972
517
1,061
$ 12,425
$ 5,457
3,130
463
1,659
$ 10,709
$ 5,329
3,078
401
824
$ 9,632
16 For additional information about the Bank’s use of non-GAAP financial measures, refer to “Non-GAAP and Other Financial Measures” in the “Financial Results Overview”
section of this document.
39
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
INDUSTRY PROFILE
The U.S. personal and business banking industry is highly competitive and
includes several very large financial institutions, as well as regional banks,
small community and savings banks, finance companies, credit unions,
and other providers of financial 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-financial companies expanding into financial services.
These industries serve individuals, businesses, and governments and
offer products including deposits, lending, cash management, financial
advice, and asset management. Products may be distributed through a
single distribution channel or across multiple channels, including physical
locations, ATMs, and telephone and digital channels. 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 have gained
momentum and are increasingly collaborating with banks to develop new
products and services, and enhance the customer experience. The keys to
profitability continue to be attracting and retaining customer relationships
with legendary service and convenience, offering products and services
across multiple distribution channels to meet customers’ evolving needs,
optimizing funding sources and costs, investing strategically while
maintaining expense discipline, and managing risk prudently.
KEY PRODUCT GROUPS
Personal Banking
• Personal Deposits – full suite of chequing, savings, and Certificates of
Deposit products and payment solutions for retail customers offered
through multiple delivery channels.
• Consumer Lending – diverse range of financing products, including
residential mortgages, home equity and unsecured lending solutions for
retail customers.
• Credit Cards Services – TD-branded credit cards for retail customers,
private label and co-brand credit cards, and point-of-sale revolving and
instalment financing solutions for customers of leading U.S. retailers
delivered through nationwide partnerships.
• Retail Auto Finance – indirect retail financing through a network of
auto dealers, and real-time payment solutions for auto dealers.
Business Banking
• Commercial Banking – borrowing, deposit and cash management
solutions for U.S. businesses and governments across a wide range of
industries, including floorplan financing by TD Auto Finance throughout
the U.S.
• Small Business Banking – borrowing, deposit and cash management
solutions for small businesses including merchant services and
TD-branded credit cards.
Wealth
• Wealth Advice – wealth management advice, financial planning
solutions, estate and trust planning, and insurance and annuity
products for mass affluent, high net worth and institutional clients,
delivered by store-based financial advisors, a robo-advisory platform,
and a multi-custodial securities-based collateral lending platform.
• Asset Management – comprised of Epoch Investment Partners Inc. and
the U.S. arm of TD Asset Management’s (TDAM’s) investment business.
STRATEGIC OBJECTIVES, ACCOMPLISHMENTS AND PRIORITIES
BUSINESS STRATEGY
BUSINESS HIGHLIGHTS IN 2023
Transform Distribution
• Entered Charlotte, North Carolina, a new market for our retail distribution network, and opened 6 stores in the
low- and moderate-income areas in North Carolina and Florida to ensure more residents have neighbourhood
access to a bank and financial services
• Renovated 52 stores with refreshed exterior and interior as well as dedicated offices for financial advisors to amplify
our branding, facilitate deeper conversations around advice, education, and financial literacy to meet customers’
evolving needs, and maintained a focus on innovation
• Enhanced omni-channel capabilities including deploying new systems to streamline customer acquisition and
•
onboarding experience, equipping colleagues with tools to offer better advice and provide legendary customer
service, and launching new features and digital capabilities to provide customers with increased self-service options
Increased total mobile users by 8.5% year-over-year to 4.9 million, achieving 55.5% digital adoption, up 230 basis
points year-over-year, coupled with digital self-service transactions comprising 81.7% of all financial transactions,
up 170 basis points year-over-year
• Continued to scale and optimize our digital marketing spend to drive new, high-quality account acquisition and
modernize media buying data infrastructure
Drive Leading Customer
Acquisition and Engagement
• Surpassed 10 million customers for our personal banking, business banking, and wealth business, powered by
broad-based account growth in core franchise businesses and our commitment to customer satisfaction
• Launched new deposit products, implemented pricing actions, and enhanced customer primacy to retain existing
customers and add new customers
• Expanded overdraft policy changes including real-time balance threshold and online overdraft grace period alerts
to help customers better manage their financials, eliminated returned deposit items and certain fees for consumer
savings accounts, and updated transaction processing to help avoid additional overdraft fees due to timing
• TD Auto Finance ranked “Highest in Dealer Satisfaction among National Prime Credit Non-Captive Automotive
Finance Lenders” for the fourth year in a row in the J.D. Power 2023 U.S. Dealer Financing Satisfaction Study17
Scale & Evolve our Cards
Franchise
• Launched TD Clear and TD FlexPay, two innovative new cards that offer compelling value propositions
• Enhanced benefits to the popular TD Cash and Double Up credit cards
• Leveraged a product suite that is resonating with customers to deepen relationships and to drive strong customer
acquisition in our U.S. bankcard business
• Renewed agreement with Visa in the U.S., supporting investment in our cards business to accelerate growth
Improved card servicing and digital capabilities through investments in infrastructure to enhance customer
•
experience and power future growth
17 TD Auto Finance received the highest score in the non-captive national – prime segment (between 214,000 and 542,000 transactions) in the J.D. Power 2020-2023 U.S. Dealer
Financing Satisfaction Studies of dealers’ satisfaction with automotive finance providers. Visit jdpower.com/awards for more details.
40
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS BUSINESS STRATEGY
BUSINESS HIGHLIGHTS IN 2023
Become a Top US
Commercial Bank
• Delivered strong year-over-year volume growth in business loans, specifically in the middle market and specialty
lending areas, fueled by higher commercial loan line utilization, strong loan originations, and new customer growth
• Expanded certain business verticals in footprint and nationally and acquired new customers through
•
strategic initiatives
Implemented Small Business application enhancements that simplify the digital loan application experience
for customers and made significant upgrades to our cash management capabilities
• Ranked #1 in its footprint by total number of approved U.S. Small Business Administration (SBA) loan units for
the seventh consecutive year and ranked as the #2 national SBA lender18
Enable Wealth Offering
Across TD Bank, America’s
Most Convenient Bank®
• Continued to grow our wealth franchise – hired approximately 55 advisors in 2023 to help build critical mass in
attractive markets, deepening existing relationships and leveraging new opportunities from referrals
• Further strengthened One TD partnerships by integrating with retail and commercial partners:
– Increased wealth advisor coverage and co-located advisors in retail stores to better serve customers,
Enable World Class
Residential Mortgage Business
Key Enablers of Business
Strategy
deepening relationships
– Renovated stores to better facilitate wealth advice conversations with customers
– Generated substantial number of referrals to wealth from commercial deposit relationships, providing solutions
to commercial clients and retaining relationships within the Bank
• Enhanced collateral lending experience by delivering self-service capabilities, enabling clients to request a draw
on their line and similar requests without contacting their advisor
• Launched new capabilities to equip colleagues with tools for offering better advice and increasing sales effectiveness
• Accelerated balance growth in mortgage and home equity, driven by origination of high credit quality loans and
slower payment rates
• Delivered robust growth in mortgage and home equity originations to minority households across our footprint19
• Recognized for leadership in diversity and inclusion:
– a top score of 100 in the 2023 Disability Equality Index for the ninth consecutive year
– one of America’s Best Employers for Diversity by Forbes in 2023, moving up to the #2 spot, out of
500 companies ranked
– one of America’s Best Employers for Veterans by Forbes for the third consecutive year
• Announced a three-year, US$2 billion voluntary Community Reinvestment Act Agreement in coordination with
the New Jersey Citizen Action and Housing & Community Development Network of New Jersey. The agreement
includes commitments for investments in affordable housing, affordable mortgage lending, small business lending
and other community development projects that will have a significant economic impact on low- and moderate-
income communities and majority-minority communities throughout New Jersey
• Agreed to a 20-year extension of our agreement with Delaware North – keeping Boston’s landmark arena name
as “TD Garden” through 2045
• Continued improvements in operational efficiency to profitably scale our businesses
• Enhanced effectiveness and improved operational efficiency for store network optimization decisioning,
deposit account acquisition, credit risk modelling, and escalation of customer complaints by adopting Artificial
Intelligence capabilities to better understand customer behaviours and pain points, allowing us to deliver more
tailored customer experience
KEY PRIORITIES FOR 2024
•
Invest in our governance and controls infrastructure and enhance
governance and risk management practices
• Transform our distribution network by modernizing stores to better
serve local markets and facilitate deeper advice-based conversations
and promoting specialization across store staffing
• Advance digital and mobile leadership by enhancing infrastructure
capabilities and our marketing ecosystem
• Drive profitable deposit growth and enhance innovative product and
payment capabilities to meet evolving customer needs
• Continue to scale our cards business by uplifting and unifying cards
servicing infrastructure to enhance capabilities and customer service
experience as well as introducing enhanced digital experiences
• Grow our commercial banking franchise by expanding middle market
coverage within our footprint and better accommodating customers
in adjacent markets, enhancing loan servicing infrastructure to enable
future growth, and deepening collaboration with TD Securities to
deliver a full suite of One TD products and services
• Continue to scale our financial advisor coverage across existing
footprint to better serve our clients’ investment and retirement needs,
invest in wealth capabilities to deliver differentiated value proposition,
and partner with retail and commercial businesses to deliver One TD
• Focus relentlessly on talent by engaging colleagues in our
strategic ambitions
• Further streamline operations through automation, digitization and
process simplification for our colleagues and customers, driving
sustainable productivity
• Continue embedding ESG expertise to advance the development
of products and services and contribute to the social and economic
well-being of the communities TD serves
18 U.S. Small Business Administration (SBA) loan units in its Maine-to-Florida footprint for the SBA’s 2023 fiscal year.
19 2022 Home Mortgage Disclosure Act (HDMA) data published by the FFIEC.
41
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 1 8
|
U.S. RETAIL
(millions of dollars, except as noted)
Canadian Dollars
Net interest income
Non-interest income – reported
Non-interest income – adjusted1,2
Total revenue – reported
Total revenue – adjusted1
Provision for (recovery of) credit losses – impaired
Provision for (recovery of) credit losses – performing
Total provision for (recovery of) credit losses
Non-interest expenses – reported
Non-interest expenses – adjusted1,3
Provision for (recovery of) income taxes – reported
Provision for (recovery of) income taxes – adjusted1
U.S. Retail Bank net income – reported
U.S. Retail Bank net income – adjusted1
Share of net income from investment in Schwab4,5
Net income – reported
Net income – adjusted1
U.S. Dollars
Net interest income
Non-interest income – reported
Non-interest income – adjusted1,2
Total revenue – reported
Total revenue – adjusted1
Provision for (recovery of) credit losses – impaired
Provision for (recovery of) credit losses – performing
Total provision for (recovery of) credit losses
Non-interest expenses – reported
Non-interest expenses – adjusted1,3
Provision for (recovery of) income taxes – reported
Provision for (recovery of) income taxes – adjusted1
U.S. Retail Bank net income – reported
U.S. Retail Bank net income – adjusted1
Share of net income from investment in Schwab4,5
Net income – reported
Net income – adjusted1
Selected volumes and ratios
Return on common equity – reported6
Return on common equity – adjusted1,6
Net interest margin1,7
Efficiency ratio – reported
Efficiency ratio – adjusted1
Assets under administration (billions of U.S. dollars)8
Assets under management (billions of U.S. dollars)8
Number of U.S. retail stores
Average number of full-time equivalent staff
2023
2022
$ 12,037
2,405
2,405
14,442
14,442
965
(37)
928
8,191
7,847
667
752
4,656
4,915
939
$ 9,604
2,821
2,597
12,425
12,201
522
(187)
335
6,920
6,824
625
593
4,545
4,449
1,075
$ 5,595
5,854
$ 5,620
5,524
$ 8,925
1,784
1,784
10,709
10,709
715
(28)
687
6,071
5,817
495
557
3,456
3,648
695
$ 7,437
2,195
2,018
9,632
9,455
404
(150)
254
5,364
5,292
484
458
3,530
3,451
840
$ 4,151
4,343
$ 4,370
4,291
13.6%
14.2
3.15
56.7
54.3
37
33
$
14.2%
14.0
2.54
55.7
56.0
34
33
$
1,177
28,242
1,160
25,745
1 For additional information about the Bank’s use of non-GAAP financial measures,
6 Capital allocated to the business segment was 11% CET1 effective the first quarter
refer to “Non-GAAP and Other Financial Measures” in the “Financial Results
Overview” section of this document.
2 Adjusted non-interest income excludes an insurance recovery related to litigation –
2022: $224 million (US$177 million) or $169 million (US$133 million) after-tax.
3 Adjusted non-interest expenses exclude the charges related to the terminated
First Horizon acquisition – 2023: $344 million or US$254 million ($259 million
or US$192 million after-tax), 2022: $96 million or US$72 million ($73 million or
US$54 million after-tax).
4 The Bank’s share of Schwab’s earnings is reported with a one-month lag. Refer to
Note 12 of the 2023 Consolidated Financial Statements for further details.
5 The after-tax amounts for amortization of acquired intangibles, the Bank’s share
of acquisition and integration charges associated with Schwab’s acquisition of
TD Ameritrade, and the Bank’s share of Schwab’s restructuring charges are recorded
in the Corporate segment.
of fiscal 2023 compared with 10.5% in the prior year.
7 Net interest margin is calculated by dividing U.S. Retail segment’s net interest income
by average interest-earning assets excluding the impact related to sweep deposits
arrangements and the impact of intercompany deposits and cash collateral, which
management believes better reflects segment performance. In addition, the value of
tax-exempt interest income is adjusted to its equivalent before-tax value. Net interest
income and average interest-earning assets used in the calculation are non-GAAP
financial measures. For additional information about the Bank’s use of non-GAAP
financial measures, refer to “Non-GAAP and Other Financial Measures” in the
“Financial Results Overview” section of this document.
8 For additional information about this metric, refer to the Glossary of this document.
42
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
REVIEW OF FINANCIAL PERFORMANCE
U.S. Retail reported net income for the year was $5,595 million
(US$4,151 million), a decrease of $25 million (US$219 million), or relatively
flat (5% in U.S. dollars) compared with last year. On an adjusted basis, net
income was $5,854 million (US$4,343 million), an increase of $330 million
(US$52 million), or 6% (1% in U.S. dollars). The reported and adjusted
ROE for the year was 13.6% and 14.2%, respectively, compared with
14.2% and 14.0%, respectively, last year.
U.S. Retail net income includes contributions from the U.S. Retail Bank
and the Bank’s investment in Schwab. Reported net income for the year
from the Bank’s investment in Schwab was $939 million (US$695 million)
a decrease of $136 million (US$145 million), or 13% (17% in U.S. dollars),
reflecting lower bank deposit account fees and lower trading revenue as
well as higher expenses, partially offset by higher net interest revenue,
asset management and administration fees.
U.S. Retail Bank reported net income for the year was $4,656 million
(US$3,456 million), an increase of $111 million or 2% (a decrease of
US$74 million or 2%) compared with last year, reflecting higher revenue,
partially offset by higher non-interest expenses including acquisition and
integration-related charges for the terminated First Horizon transaction
and higher PCL. U.S. Retail Bank adjusted net income was $4,915 million
(US$3,648 million), an increase of $466 million (US$197 million), or 10%
(6% in U.S. dollars), reflecting higher revenue, partially offset by higher
non-interest expenses and higher PCL.
U.S. Retail Bank revenue is derived from personal and business banking,
and wealth management businesses. Reported revenue for the year was
US$10,709 million, an increase of US$1,077 million, or 11%, compared
with last year. On an adjusted basis, revenue increased US$1,254 million,
or 13%. Net interest income of US$8,925 million, increased
US$1,488 million, or 20%, driven by the benefit of higher deposit margins
from the rising rate environment, partially offset by lower deposit volumes.
Net interest margin was 3.15%, an increase of 61 bps, as higher margin
on deposits reflecting the rising interest rate environment was partially
offset by lower income from PPP loan forgiveness and lower margin on
loans. Reported non-interest income was US$1,784 million, a decrease
of US$411 million, or 19%, compared with last year, reflecting lower
overdraft fees and an insurance recovery related to litigation in the prior
year. On an adjusted basis, non-interest income decreased US$234 million,
or 12%, primarily reflecting lower overdraft fees.
Average loan volumes increased US$16 billion, or 10%, compared
with last year. Personal loans increased 11%, reflecting good originations
and slower payment rates across portfolios. Business loans increased
8%, reflecting good originations from new customer growth, higher
commercial line utilization, and slower payment rates, partially offset by
PPP loan forgiveness. Excluding PPP loans, business loans increased 10%.
Average deposit volumes decreased US$42 billion, or 11%, compared with
last year, reflecting a 3% decrease in personal deposits, a 5% decrease in
business deposits, and a 23% decrease in sweep deposits.
Assets under administration (AUA) were US$37 billion as at
October 31, 2023, an increase of US$3 billion, or 9%, compared with last
year, reflecting net asset growth. Assets under management (AUM) were
US$33 billion as at October 31, 2023, flat compared with last year.
PCL for the year was US$687 million, an increase of US$433 million
compared with last year. PCL – impaired was US$715 million, an
increase of US$311 million, or 77%, reflecting some normalization of
credit performance. PCL – performing was a recovery of US$28 million,
compared with a recovery of US$150 million in the prior year. U.S. Retail
PCL including only the Bank’s share of PCL in the U.S. strategic cards
portfolio, as an annualized percentage of credit volume was 0.38%, or an
increase of 22 bps.
Reported non-interest expenses for the year were US$6,071 million, an
increase of US$707 million, or 13%, compared with last year, reflecting
higher employee-related expenses, higher acquisition and integration-
related charges for the terminated First Horizon transaction, higher
FDIC assessment fees as a result of an increase to FDIC assessment rates
effective January 1, 2023, and higher investments in the business. On an
adjusted basis, excluding acquisition and integration-related charges for
the terminated First Horizon transaction, non-interest expenses increased
US$525 million, or 10%.
The reported and adjusted efficiency ratios for the year were 56.7%
and 54.3%, compared with 55.7% and 56.0%, respectively, last year.
OPERATING ENVIRONMENT AND OUTLOOK
Fiscal 2024 is expected to be a challenging year across the entire U.S.
banking industry, with potential rate cuts, an uncertain macroeconomic
outlook, as well as elevated regulatory expectations and new regulatory
requirements. We expect moderate revenue growth driven by loan volume
growth, recovering personal and business deposit volumes, continued new
customer acquisitions, and increased customer activity in certain areas. PCL
is expected to increase over the course of next year, reflecting an ongoing
credit normalization and volume growth. We will continue to optimize the
balance sheet and execute on programs to generate productivity savings
while enabling investments in governance and control, and strategic
growth, maintaining our expense management discipline, and enhancing
our profitability.
THE CHARLES SCHWAB CORPORATION
Refer to Note 12 of the 2023 Consolidated Financial Statements for
further information on Schwab.
43
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS BUSINESS SEGMENT ANALYSIS
Wealth Management and Insurance
Wealth Management and Insurance provides wealth solutions and insurance protection to approximately
6 million customers in Canada.
NET INCOME
(millions of Canadian dollars)
AUA/AUM 20
(billions of Canadian dollars)
INSURANCE PREMIUMS
(millions of Canadian dollars)
$3,000
2,000
1,000
0
$600
500
400
300
200
100
$6,000
5,000
4,000
3,000
2,000
1,000
0
2022
2023
2022
2023
2022
2023
AUA
AUM
T A B L E 1 9
|
REVENUE
(millions of Canadian dollars)
Wealth
Insurance
Total
2023
2022
$ 5,249
6,031
$ 11,280
$ 5,624
5,236
$ 10,860
20 Includes AUA administered by TD Investor Services, which is part of the Canadian Personal and Commercial Banking segment.
44
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
INDUSTRY PROFILE
The Canadian wealth management industry includes banks, insurance
companies, independent asset managers, direct-to-consumer providers,
independent financial advisors and planners, and full-service and discount
brokerages. Growth relies on the ability to provide differentiated and
integrated wealth solutions and holistic financial advice to retail and
institutional investors as well as keeping pace with technological change
and regulatory requirements. The property and casualty insurance industry
in Canada is fragmented and competitive, consisting of numerous
personal and commercial line writers offering products through broker,
captive agent and direct distribution channels, while the life and health
insurance industry is comprised of banks and several large life and health
insurers. Providing innovative digital capabilities and solutions will be a key
differentiator for customers buying and servicing their insurance policies
through direct channels.
KEY PRODUCT GROUPS
Wealth
• Direct Investing – platforms and resources for 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 – wealth management advice and financial planning
solutions for mass affluent, high net worth and ultra high net worth
clients, integrated with other Wealth businesses and the broader Bank.
• Asset Management – public and private market investment
management capabilities for retail and institutional clients, including a
diversified suite of investment solutions designed to provide attractive
risk-adjusted returns.
Insurance
• Property and Casualty – home, auto and small business insurance
provided through direct channels and to members of affinity groups
such as professional associations, universities and employer groups.
• Life and Health – credit protection for Canadian Personal and Business
Banking borrowing customers, life and health insurance products, credit
card balance protection, and travel insurance products, distributed
through direct channels and members of affinity groups.
STRATEGIC OBJECTIVES, ACCOMPLISHMENTS AND PRIORITIES
BUSINESS STRATEGY
BUSINESS HIGHLIGHTS IN 2023
Provide trusted advice to help
our customers feel confident
about their financial future
• Continued focus on distribution expansion across our advice businesses to meet growing demand and serve the
needs of unique client segments, adding over 450 advice professionals year-over-year
• Continued to build on TD Direct Investing’s commitment to client education by introducing a personalized
recommendation engine that will enable clients to select preferred topics and prompt tailored content
• MoneyTalk launched a Chinese-language webpage and produced its first video conducted entirely in Mandarin
to provide investment content to more clients
• TD Asset Management received FundGrade A+ rating on 12 TDAM managed mutual funds and ETFs for
outstanding performance in 202221
Deliver legendary customer
experiences through
customer-centric innovations
and digital leadership
• Continued to evolve distribution models to meet customer needs, resulting in record Legendary Experience Index
(LEI) results:
– TD Direct Investing was recognized as the #1 Online Broker in the Globe and Mail’s annual digital broker survey22
– Improved digital onboarding and self-serve capabilities, including enabling Direct Investing self-serve withdrawals
in TFSA/RSP/RESP accounts, simplifying new account opening for existing customers and introducing
Advice eSign capabilities
– Implemented multiple enhancements to the TD Easy Trade app, enabling One-Click ETF Portfolios to make it
easier to invest using ready-made portfolios
– Continued to expand direct channels and enhance service offerings enabling new and existing clients to contact
Financial Planning Direct representatives directly through the TD Mobile App
• TD Asset Management broadened its Alternative product shelf, launching the Greystone Alternative Plus Fund
and the TD Alternative Commodities Pool, as well as three new ETFs
• Launched TD Active Trader, offering a leading trading experience for advanced orders, complex options strategy
execution and cutting-edge charting capabilities
• TD Insurance expanded its network of one-stop claims Auto Centers, bringing our footprint to 25 locations
nationally
• Strengthened TD Insurance’s digital capabilities by enhancing self-serve features, including online quote and bind,
as well as coverage, billing and payment management online
21 The FundGrade A+® rating is used with permission from Fundata Canada Inc., all rights reserved. Fundata is a leading provider of market and investment funds data to the
Canadian financial services industry and business media. The Fund-Grade A+® rating identifies funds that have consistently demonstrated the best risk-adjusted returns
throughout an entire calendar year. For more information on the rating system, please visit www.Fundata.com/ProductsServices/FundGrade.aspx.
22 2023 Globe and Mail digital broker ranking: https://www.theglobeandmail.com/investing/article-canadas-top-digital-broker-is-td-direct-investing-with-an-assist-from/.
45
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS BUSINESS STRATEGY
BUSINESS HIGHLIGHTS IN 2023
Grow and deepen customer
relationships, leveraging
One TD to provide customers
with solutions that meet their
unique financial needs
• Maintained strong market share positions and gained momentum across our businesses:
– #1 market share in direct investing revenues, assets, trades and number of accounts23
– Largest Canadian institutional money manager and largest money manager in Canada for pension assets23
– #2 market share in mutual fund assets among the Big 5 Banks24,25 and exceeded $10 billion in ETF AUM
– Gained market share in Advice, with TD Wealth Financial Planning growing the fastest among the Big 5 Banks25
and TD Private Investment Advice ranking #1 among Big 5 Banks25 in net new asset growth26
– #1 Direct Distribution personal lines insurer and leader in the affinity market in Canada27
– #3 personal lines insurer in Canada27
• Launched TD Global Investment Solutions brand and website to leverage global expertise across TDAM and
TD Epoch, extending presence in jurisdictions in APAC
• Continued to work with partners to deliver One TD:
– Direct Investing continued to build strong relationships with Personal Banking partners through integration in
training programs and enhanced reporting to drive improved client engagement
– TDAM partnered with TD Securities to leverage their local presence, relationships and governance and control
protocol to expand TDAM’s institutional distribution globally
– Deepened customer relationships across the bank, by leveraging our market leading brand, to better protect
TD Real Estate Secured Lending customers with TD home insurance
– Leveraged our TD Insurance Private Client Advice offering to better protect high-net-worth TD Wealth customers
• Continued to transform the way we work, automating more of our operations and implementing other process
improvements to increase speed and efficiency
• TD Wealth has begun its transition to the Next Evolution of Work (NEW) operating model to simplify the way we
work through agile, customer-centric operating model changes
• TD Insurance has completed its transition to the NEW operating model
• As Direct Investing introduced targeted offers to increase client engagement and raise awareness of platform
capabilities and launched a pilot for fully-paid lending capability, allowing clients to earn income on hard-to-borrow
positions ahead of full launch set for fiscal 2024
• Remain committed to our efforts to build a more inclusive and diverse culture at TD, aligning to our purpose to
enrich the lives of our customers, colleagues, and communities:
– TD Insurance continued its Plastic Bumper Cover Recycling Program within its Auto Centres as part of an effort
to promote environmentally friendly practices
• TD Insurance was instrumental in developing and launching the TD Scholarship for Indigenous Peoples which aims
to support successful recipients with financial assistance and also provides recipients with a corporate summer
internship with TD
Innovate with purpose
to optimize processes
and enable our colleagues
to execute with speed
and impact
Be an extraordinary place
to work where diversity and
inclusiveness are valued, and
contribute to the well-being
of our communities
KEY PRIORITIES FOR 2024
• Widen market leadership position in TD Direct Investing by enhancing
platforms, features and functionalities valued by key customer segments
• Continue to focus on distribution expansion across our advice
• Establish digital leadership and enhance client and colleague experience
Improve speed, capacity and efficiency by leveraging data, advanced
•
analytics, automation and adapting to new ways of working
• Continue to position our brand as a diverse and inclusive employer of
businesses and accelerate new business strategies to meet growing
demand and serve the needs of unique client segments
• Extend institutional leadership position in asset management into retail
and global markets, leveraging breadth and depth of capabilities
• Further leverage One TD to deepen customer relationships and offer
more holistic financial and insurance advice
choice, enabling colleagues to achieve their full potential
• TD Insurance will expand the small business insurance offering to more
segments, leveraging digital capabilities and marketing to significantly
grow the business
23 Market share ranking is based on most current data available from Investor Economics, a division of ISS Market Intelligence, for TD Direct Investing revenue, asset, trades and
account metrics as at June 2023 and institutional money manager and pension assets money manager rankings as at June 2023.
24 Metric from Investment Funds Institute of Canada for market share in mutual fund assets as at October 2023 when compared to the Big 5 Banks.
25 The Big 5 Banks consist of Bank of Montreal, Canadian Imperial Bank of Commerce, Royal Bank of Canada, Scotiabank, and The Toronto-Dominion Bank.
26 Market share ranking is based on most current data available from Investor Economics, a division of ISS Market Intelligence, for TD Wealth Financial Planning asset under
administration (AUA) growth ranking from June 2022 to December 2022, TD Wealth Private Investment Advice net new assets as a % of beginning asset ranking from
December 2022 to March 2023 and March 2023 to June 2023.
27 Rankings based on data available from OSFI, Insurers, Insurance Bureau of Canada, and Provincial Regulators as at July 2023.
46
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 2 0 WEALTH MANAGEMENT AND INSURANCE
|
(millions of Canadian dollars, except as noted)
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
Provision for (recovery of) income taxes
Net income
Selected volumes and ratios
Return on common equity1
Efficiency ratio
Assets under administration (billions of Canadian dollars)2
Assets under management (billions of Canadian dollars)
Average number of full-time equivalent staff
2023
$ 1,056
10,224
11,280
1
–
1
3,705
4,709
747
$
2022
945
9,915
10,860
–
1
1
2,900
4,711
853
$ 2,118
$ 2,395
38.7%
41.7
46.7%
43.4
$
531
405
$
517
397
16,022
15,671
1 Capital allocated to the business segment was increased to 11% CET1 Capital
2 Includes AUA administer
ed by TD Investor Services, which is part of the Canadian
effective the first quarter of 2023 compared with 10.5% in the prior year.
Personal and Commercial Banking segment.
REVIEW OF FINANCIAL PERFORMANCE
Wealth Management and Insurance reported net income for the year was
$2,118 million, a decrease of $277 million, or 12%, compared with last
year, reflecting higher insurance claims and related expenses and lower
revenue in the wealth management business, partially offset by increased
revenue in the insurance business. The ROE for the year was 38.7%,
compared with 46.7% last year.
Revenue for the year was $11,280 million, an increase of $420 million,
or 4%, compared with last year. Non-interest income was $10,224 million,
an increase of $309 million, or 3%, reflecting higher insurance premiums
and an increase in the fair value of investments supporting claims liabilities
which resulted in a similar increase in insurance claims, partially offset
by lower transaction and fee-based revenue in the wealth management
business. Net interest income was $1,056 million, an increase of
$111 million, or 12%, compared with last year, reflecting higher
investment income in the insurance business, partially offset by lower
deposit volumes in the wealth management business.
AUA were $531 billion as at October 31, 2023, an increase of
$14 billion, or 3%, compared with last year, reflecting market appreciation
and net asset growth. AUM were $405 billion as at October 31, 2023, an
increase of $8 billion, or 2%, compared with last year, reflecting market
appreciation, partially offset by mutual fund redemptions.
Insurance claims and related expenses were $3,705 million, an increase
of $805 million, or 28%, compared with last year, reflecting the impact of
changes in the discount rate which resulted in a similar increase in the fair
value of investments supporting claims liabilities reported in non-interest
income, increased claims severity and more severe weather-related events.
Non-interest expenses for the year were $4,709 million, a decrease of
$2 million, compared with last year.
The efficiency ratio for the year was 41.7%, compared with 43.4%
last year.
OPERATING ENVIRONMENT AND OUTLOOK
Expected slowdown in economic growth and potential continued market
volatility in Canada and the U.S. may impact Wealth Management and
Insurance results in fiscal 2024. Notwithstanding these headwinds,
Wealth Management and Insurance’s diversified businesses should be
well-positioned to deliver against their strategic objectives. Our focus on
our strategic priorities and investments in leading digital platforms should
help offset headwinds from market volatility, pressure on fees from rising
competition and increases in insurance claims due to severe weather
events and claims severity. Our businesses will continue to deliver high-
quality advice, educational content and innovative financial products to
our customers while exercising disciplined expense management to help
navigate the challenging environment.
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
47
BUSINESS SEGMENT ANALYSIS
Wholesale Banking
Operating under the brand name TD Securities, Wholesale Banking offers capital markets and corporate
and investment banking services to corporate, government, and institutional clients in key global financial
centres across North America, Europe and Asia-Pacific.
NET INCOME 28
(millions of Canadian dollars)
TOTAL REVENUE
(millions of Canadian dollars)
AVERAGE GROSS
LENDING PORTFOLIO
(billions of Canadian dollars)
$1,500
1,200
900
600
300
0
$6,000
5,500
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
$100
95
90
85
80
75
70
65
60
55
50
45
40
35
30
25
2022
2023
2022
2023
2022
2023
Reported
Adjusted
T A B L E 2 1 REVENUE
|
(millions of Canadian dollars)
Global markets
Corporate and investment banking
Other
Total
LINES OF BUSINESS
• Global Markets – sales, trading and research, debt and equity
underwriting, client securitization, prime services, and
trade execution services29.
• Corporate and Investment Banking – corporate lending and
syndications, debt and equity underwriting, advisory services,
trade finance, cash management, investment portfolios, and
related activities29.
• Other – investment portfolios and other accounting adjustments.
2023
$ 3,265
2,618
(65)
$ 5,818
2022
$ 2,932
1,758
141
$ 4,831
INDUSTRY PROFILE
The wholesale banking sector is a mature, highly competitive market
comprised of banks, large global investment firms, and independent niche
dealers. Wholesale Banking provides capital markets and corporate and
investment banking services to corporate, government, and institutional
clients. Changing regulatory requirements continue to impact strategy and
returns for the sector. Firms are responding by shifting their focus to client-
driven trading revenue and fee income to reduce risk, preserve capital, and
are also investing in technology to support growing levels of electronic
trading across all markets. Competition is expected to remain intense for
transactions with high-quality clients. Longer term, wholesale banks with
a diversified client-focused business model, a full suite of products and
services, and the ability to manage costs and capital effectively will be
well-positioned to achieve attractive returns for shareholders.
28 For additional information about the Bank’s use of non-GAAP financial measures, refer to “Non-GAAP and Other Financial Measures” in the “Financial Results Overview”
section of this document.
29 Certain revenue streams are shared between Global Markets and Corporate and Investment Banking lines of business in accordance with an established agreement.
48
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
STRATEGIC OBJECTIVES, ACCOMPLISHMENTS AND PRIORITIES
BUSINESS STRATEGY
BUSINESS HIGHLIGHTS IN 2023
Continue to build an
integrated North American
Investment Bank with
global reach
• Completed acquisition of Cowen Inc., accelerating our U.S. dollar growth strategy by adding and expanding
capabilities in U.S. equities and global research, increasing depth in key growth verticals such as Healthcare,
and adding scale and high-quality talent
• Continued to strengthen our position as ESG capital markets advisors as demonstrated by a number of marquee
transactions and recognition including:
– Joint Bookrunner on the Government of Canada’s $500 million Ukraine Sovereignty Bond
– Active Bookrunner and Co-Sustainability Structuring Agent on Bacardi Ltd’s inaugural Green Bond and Green
Financing Framework, part of its US$1.5 billion three-part offering and the first U.S. green bond issued in the
alcoholic beverage sector
– Sustainability Structuring Agent for Bell Canada’s sustainability-linked securitization (SLS), the first SLS executed
at TD in a sole structuring role
– Joint Bookrunner on Ontario Teachers’ Finance Trust’s $1 billion 10-year Green Bond
– TD Securities agreed to purchase 27,500 metric tons of Direct Air Capture (DAC) carbon dioxide removal credits
over a four-year period from STRATOS, 1PointFive’s first DAC plant currently under construction, subject to
STRATOS becoming operational
– Named Lead Manager of the Year, Social Bonds – Sovereign by Environmental Finance’s 2023 Bond Awards
• Recognized as “Excellence in Trade (North America)” at the Trade, Treasury and Payments Awards 2023, presented
by Trade Finance Global in cooperation with BAFT (Bankers Association for Finance and Trade)
• Awarded Best FX Bank Data Management in the 2023 Euromoney FX Awards
• Ranked #1 Base Metals Dealer in the 2023 Energy Risk Commodity Rankings
In Canada, be a top-ranked
Investment Bank
• Delivered on several marquee and strategic acquisitions and led notable transactions in the Canadian market:
– Exclusive Financial Advisor to Shaw Communications on its $26 billion sale to Rogers Communications, which
In the U.S., deliver value
and trusted advice in
sectors where we have
competitive expertise
represented the largest acquisition in Canadian telecom history
– Financial Advisor to GIC, the Singapore sovereign wealth fund, and Dream Industrial REIT on their acquisition
of Summit Industrial Income REIT
– Financial Advisor to TC Energy on its minority interest sale in Columbia Gas and Columbia Gulf to Global
Infrastructure Partners for $5.3 billion. Active Bookrunner on a US$5.6 billion Senior Unsecured Notes offering
to recapitalize Columbia Pipeline entities following the merger and acquisition (M&A) announcement
• Demonstrated the strength of our combined TD Securities and TD Cowen franchises in the U.S.:
– Joint Bookrunner on a US$300 million Follow-on Equity Offering for Revolution Medicines, representing
TD Cowen’s sixth engagement with this issuer
– Sole Financial Advisor on a US$125 million Strategic Financing for Milestone Pharmaceuticals
– Joint Bookrunner on ACELYRIN Inc.’s US$621 million Initial Public Offering (IPO), the largest biotech
IPO to date in calendar 2023, demonstrating our leadership in the healthcare sector and strength in equity
capital markets execution
– Exclusive Financial Advisor to Penelope Bourbon LLC on its sale to MGP Ingredients Inc. for US$216 million
– TD Cowen acted as Financial Advisor to Autovista on its sale to J.D. Power
– Exclusive Financial Advisor to Basalt Infrastructure Partners on its acquisition of Fatbeam Holdings LLC, Basalt’s
first fibre-based network investment in North America
– Financial Advisor to The Williams Companies, Inc. on its acquisition of MountainWest Pipelines Holding
Company from Southwest Gas Holdings Inc. for US$1.5 billion
• Continued to operate as the market leader in electronic municipal bond trading30, launched a competitive new
issue municipal bond business that is ranked #5 by deal count31, tripled daily transactions in investment grade
corporate bonds compared to the prior year, and expanded trading capabilities in fixed income ETFs
• Added 33 new clients in Corporate Cash Management
• Continued to grow our Trade Finance business, adding 38 new clients
In Europe and Asia-Pacific,
leverage our global
capabilities to
build connected,
sustainable franchises
• Financial Advisor to France-based Vauban Infrastructure Partners on their acquisition of Trooli Ltd.
• Active bookrunner on Vodafone Group PLC’s US$1.2 billion debt securities offering
• Joint bookrunner on Allied Irish Banks’ €750 million green bond issuance, TDS’ first deal with an Irish bank
• Sole Lead Manager on the World Bank’s €100 million issuance of Digitally Native Notes, the first digital securities
to use Euroclear’s new Digital Financial Market Infrastructure platform based on distributed ledger technology
• Added equity capabilities with the acquisition of Cowen Inc.
Continue to grow with
and support our TD Retail
and Wealth partners
•
In partnership with other TD segments:
– Automation of foreign banknote inventory management, increasing customer accessibility to foreign cash
across TD Canada Trust branches
– Launched Secure Storage service, whereby TD customers can purchase precious metals with a new option
to store them in a secure, insured facility
– Achieved record-breaking Eid Mubarak Silver Round sales and launched the inaugural Canadian-sourced
TD gold bar
30 Source: Municipal Securities Rulemaking Board, as of October 31, 2023.
31 Source: Bloomberg, Municipal Competitive Long-Term Issuance as of October 31, 2023.
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
49
BUSINESS STRATEGY
BUSINESS HIGHLIGHTS IN 2023
Invest in an efficient
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
• Successfully transitioned USD London Interbank Offered Rate (LIBOR) to Secured Overnight Financing Rate (SOFR)
• Launched TDSX Private Room, allowing TD to better serve both institutional and retail clients by adding capabilities
to cross orders for U.S. shares in a secure, fully compliant, fully automated environment
• Achieved a significant TD Cowen integration milestone in combining portions of our U.S. Institutional Equities and
Convertibles businesses
• Raised $2.3 million for children’s charities through the annual Underwriting Hope campaign
• Awarded 12 scholarships to diverse and intersectional candidates through the annual TDS
Bridging the Gap Scholarship
• Multiple leaders across TD Securities recognized by Women in Capital Markets awards
KEY PRIORITIES FOR 2024
• Continue to integrate TD Cowen and leverage the strength of the
combined TD Securities and TD Cowen platform to expand and deepen
client relationships and deliver revenue synergies
• Continue to integrate and extend the TDS Automated Trading platform
• Continue to embed ESG capabilities throughout our business,
leveraging TD Cowen’s research expertise to support clients with their
transition to a lower carbon economy
• Continue to invest in technology, drive innovation and analytical
capabilities including:
– Low latency and algorithmic trading in fixed income, foreign
exchange, and equities
– A North American digital treasury ecosystem that provides flexible
and data-rich solutions to our clients
– End-to-end process efficiency and enhancing client value
T A B L E 2 2 WHOLESALE BANKING
|
1
(millions of Canadian dollars, except as noted)
Net interest income (TEB)
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
Non-interest expenses – reported
Non-interest expenses – adjusted2,3
Provision for (recovery of) income taxes (TEB) – reported
Provision for (recovery of) income taxes (TEB) – adjusted2
Net income – reported
Net income – adjusted2
Selected volumes and ratios
Trading-related revenue (TEB)4
Average gross lending portfolio (billions of Canadian dollars)5
Return on common equity – reported6
Return on common equity – adjusted2,6
Efficiency ratio – reported
Efficiency ratio – adjusted2
Average number of full-time equivalent staff
• Continue to invest alongside our retail, wealth, and commercial partners
to add products and enhance capabilities for our clients
• Maintain our focus on prudent risk management, continuing to make
risk and control enhancements, and drive returns through optimizing
capital, balance sheet, and liquidity
• Continue to be an extraordinary place to work and attract top talent
with a focus on partnership culture, inclusion and diversity
2023
$ 1,538
4,280
5,818
16
110
126
4,760
4,326
162
251
2022
$ 2,937
1,894
4,831
19
18
37
3,033
3,015
436
440
$ 770
1,115
$ 1,325
1,339
$ 2,360
94.7
5.4%
7.9
81.8
74.4
7,143
$ 2,513
70.1
11.4%
11.5
62.8
62.4
5,088
1 Wholesale Banking results for 2023 include the acquisition of Cowen Inc. effective
March 1, 2023.
2 For additional information about the Bank’s use of non-GAAP financial measures,
refer to “Non-GAAP and Other Financial Measures” in the “Financial Results
Overview” section of this document.
3 Adjusted non-interest expenses exclude the acquisition and integration-related
charges primarily for the Cowen acquisition – 2023: $434 million ($345 million
after-tax), 2022: $18 million ($14 million after-tax).
4 Includes net inter
est income TEB of $615 million (2022 – $2,080 million), and trading
income (loss) of $1,745 million (2022 – $433 million). Trading-related revenue (TEB) is
a non-GAAP financial measure. Refer to “Non-GAAP and Other Financial Measures”
in the “Financial Results Overview” section and the Glossary of this document for
additional information about this metric.
5 Includes gr
oss loans and bankers’ acceptances (BA) relating to Wholesale Banking,
excluding letters of credit, cash collateral, credit default swaps, and allowance for
credit losses.
6 Capital allocated to the business segment was increased to 11% CET1 Capital
effective the first quarter of 2023 compared with 10.5% in the prior year.
REVIEW OF FINANCIAL PERFORMANCE
Wholesale Banking reported net income for the year was $770 million, a
decrease of $555 million, or 42%, compared with the prior year, primarily
reflecting higher non-interest expenses partially offset by higher revenues.
On an adjusted basis, net income was $1,115 million, a decrease of
$224 million, or 17%.
Revenue for the period, including the acquisition of Cowen Inc., was
$5,818 million, an increase of $987 million, or 20%, compared with
the prior year, primarily reflecting higher equity commissions, global
transaction banking revenue, advisory fees, equity underwriting fees, and
markdowns in certain loan underwriting commitments in the prior year,
partially offset by lower trading-related and other revenue.
50
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
PCL was $126 million, an increase of $89 million compared with last
year. PCL – impaired was $16 million, a decrease of $3 million and PCL –
performing was $110 million, an increase of $92 million. The current year
performing provisions largely reflect credit migration and volume growth.
Reported non-interest expenses were $4,760 million, an increase of
$1,727 million, or 57%, compared with the prior year, primarily reflecting
the acquisition of Cowen Inc. and acquisition and integration-related costs,
continued investments in Wholesale Banking’s U.S. dollar strategy, including
the hiring of banking, sales and trading, and technology professionals, and
the impact of foreign exchange translation. On an adjusted basis, excluding
acquisition and integration-related costs, non-interest expenses were
$4,326 million, an increase of $1,311 million, or 43%.
OPERATING ENVIRONMENT AND OUTLOOK
The operating environment remains challenging, characterized by volatile
markets, economic uncertainty, geo-political and ESG considerations,
disruptive technologies, intensifying competition, and evolving capital and
regulatory requirements. These factors may affect corporate and investor
sentiment and market and business conditions in a positive or negative
manner which makes capital markets results difficult to forecast. The
addition of TD Cowen to our business enhances TD Securities’ capabilities
and competitive position, adding to an increasingly diversified and client-
focused business model that is expected to be well positioned to support
future growth.
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 3 CORPORATE
|
(millions of Canadian dollars)
Net income (loss) – reported
Adjustments for items of note
Amortization of acquired intangibles
Acquisition and integration charges related to the Schwab transaction
Share of restructuring charges from investment in Schwab
Restructuring charges
Payment related to the termination of the FHN transaction
Impact from the terminated FHN acquisition-related capital hedging strategy
Impact of retroactive tax legislation on payment card clearing services
Litigation (settlement)/recovery
Gain on sale of Schwab shares
Less: impact of income taxes
CRD and federal tax rate increase for fiscal 2022
Other items of note
Net income (loss) – adjusted1
Decomposition of items included in net income (loss) – adjusted
Net corporate expenses2
Other
Net income (loss) – adjusted1
Selected volumes
Average number of full-time equivalent staff
2023
2022
$ (4,389)
$ 1,531
313
149
35
363
306
1,251
57
1,642
–
(585)
944
242
111
–
–
–
(1,641)
–
–
(997)
–
(363)
$
(632)
$
(391)
$
(942)
310
$
(712)
321
$
(632)
$
(391)
22,889
19,885
1 For additional information about the Bank’s use of non-GAAP financial measures,
2 For additional information about this metric, refer to the Glossary of this document.
refer to “Non-GAAP and Other Financial Measures” 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, certain 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.
Corporate segment’s reported net loss for the year was $4,389 million,
compared with net income of $1,531 million last year. The year-over-year
decrease primarily reflects a net loss from the impact of the terminated
First Horizon acquisition-related capital hedging strategy and the payment
related to the termination of the transaction, the Stanford litigation
settlement, gain on sale of Schwab shares in the prior year, the recognition
of a provision for income taxes in connection with the CRD and increase
in the Canadian federal tax rate for fiscal 2022, and restructuring charges.
Net corporate expenses increased $230 million compared to the prior year,
mainly reflecting litigation expenses. The adjusted net loss for the year was
$632 million, compared with an adjusted net loss of $391 million last year.
2023 ACCOMPLISHMENTS AND FOCUS FOR 2024
•
In 2023, the Corporate segment continued to support the Bank’s
business segments by executing on enterprise and regulatory initiatives,
and managing the Bank’s balance sheet and funding activities.
In 2024, the Corporate segment’s service and control groups will
continue to proactively address the complexities and challenges arising
from the operating environment to respond to changing demands
and expectations of customers, communities, colleagues, governments
and regulators.
•
• Corporate segment will also maintain its focus on development and
implementation of processes, technologies, and regulatory controls to
enable the Bank’s businesses to operate efficiently and effectively and in
compliance with applicable regulatory requirements.
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
51
2022 FINANCIAL RESULTS OVERVIEW
Summary of 2022 Performance
NET INCOME
Reported net income for the year was $17,429 million, an increase of
$3,131 million, or 22%, compared with prior year. The increase reflects
higher revenues, a net gain from mitigation of interest rate volatility to
closing capital on First Horizon acquisition, and gain on sale of Schwab
shares, partially offset by higher non-interest expenses, and higher PCL.
On an adjusted basis, net income for the year was $15,425 million, an
increase of $776 million, or 5%, compared with prior year. The reported
ROE for the year was 18.0%, compared with 15.5% prior year. The
adjusted ROE for the year was 15.9%, compared with 15.9% prior year.
Reported diluted EPS for the year was $9.47, an increase of 23%,
compared with $7.72 prior year. Adjusted diluted EPS for the year was
$8.36, a 6% increase, compared with $7.91 prior year.
Reported revenue was $49,032 million, an increase of $6,339 million,
or 15%, compared with prior year. Adjusted revenue was $46,170 million,
an increase of $3,477 million, or 8%, compared with the prior year.
NET INTEREST INCOME
Reported net interest income for the year was $27,353 million, an increase
of $3,222 million, or 13%, compared with prior year. The increase
reflects volume and margin growth in the personal and commercial
banking businesses, the impact of foreign exchange translation, and
higher net interest income in Wholesale Banking, partially offset by lower
income from PPP loan forgiveness. Adjusted net interest income was
$27,307 million, an increase of $3,176 million, or 13%.
NON-INTEREST INCOME
Reported non-interest income for the year was $21,679 million, an
increase of $3,117 million, or 17%, compared with prior year, primarily
reflecting the net gain from mitigation of interest rate volatility to closing
capital on First Horizon acquisition, and gain on sale of Schwab shares.
Adjusted non-interest income was $18,863 million, an increase of
$301 million, or 2%, reflecting higher fee-based revenue in the banking
and wealth businesses, and higher insurance revenues reflecting prior year
premium rebates for customers, and volumes. These were partially offset
by lower transaction fees in the wealth business, a decrease in the fair
value of investments supporting claims liabilities which resulted in a similar
decrease in insurance claims, markdowns in certain loan underwriting
commitments from widening credit spreads in Wholesale Banking, and
lower underwriting revenue.
PROVISION FOR CREDIT LOSSES
PCL was $1,067 million, compared with a recovery of $224 million
in the prior year. PCL – impaired was $1,437 million, an increase of
$128 million, reflecting some normalization of credit performance. PCL –
performing was a recovery of $370 million, compared with a recovery
of $1,533 million prior year. The current year performing release reflects
improved credit conditions. Total PCL as an annualized percentage of
credit volume was 0.14%.
INSURANCE CLAIMS AND RELATED EXPENSES
Insurance claims and related expenses were $2,900 million, an increase
of $193 million, or 7%, compared with prior year, reflecting increased
driving activity, inflationary costs and more severe weather-related events,
partially offset by the impact of a higher discount rate which resulted in a
similar decrease in the fair value of investments supporting claims liabilities
reported in non-interest income and favourable prior years’ claims
development.
NON-INTEREST EXPENSES
Reported non-interest expenses for the year were $24,641 million, an
increase of $1,565 million, or 7%, compared with prior year, reflecting
higher employee-related expenses, higher spend supporting business
growth, and the impact of foreign exchange translation, partially offset
by prior year store optimization costs. On an adjusted basis, non-interest
expenses were $24,359 million, an increase of $1,450 million, or 6%.
PROVISION FOR INCOME TAXES
Reported total income and other taxes increased by $534 million, or
10.2%, compared with prior year, reflecting an increase in income tax
expense of $365 million, or 10.1%, and an increase in other taxes of
$169 million, or 10.4%. Adjusted total income and other taxes increased
by $106 million from prior year, or 2.0%, reflecting an increase in other
taxes of $169 million, or 10.4%, partially offset by a decrease in income
tax expense of $63 million, or 1.7%.
The Bank’s reported effective income tax rate was 19.5% for 2022,
compared with 21.1% prior year. The year-over-year decrease primarily
reflects the favourable tax impact of earnings mix, the sale of Schwab
shares, and the recognition of unused tax losses, partially offset by the
impact of higher pre-tax income. For a reconciliation of the Bank’s effective
income tax rate with the Canadian statutory income tax rate, refer to
Note 25 of the 2022 Consolidated Financial Statements.
The Bank reported its investments in Schwab using the equity
method of accounting. Schwab’s tax expense (2022: $319 million; 2021:
$280 million) was not part of the Bank’s effective tax rate.
BALANCE SHEET
Total assets were $1,918 billion as at October 31, 2022, an increase
of $189 billion, or 11%, from October 31, 2021. The impact of foreign
exchange translation from the depreciation in the Canadian dollar
increased total assets by $79 billion, or approximately 5%. The increase in
total assets reflects loans, net of allowances for loan losses of $108 billion,
debt securities at amortized cost (DSAC), net of allowance for credit losses
of $74 billion, derivatives of $49 billion, and non-trading financial assets at
FVTPL of $2 billion. The increase was partially offset by a decrease in cash
and interest-bearing deposits with banks of $20 billion, financial assets
at fair value through other comprehensive income (FVOCI) of $9 billion,
securities purchased under reverse repurchase agreements of $7 billion,
trading loans, securities, and other of $4 billion, investment in Schwab of
$3 billion, other assets of $1 billion.
Total liabilities were $1,806 billion as at October 31, 2022, an increase
of $177 billion, or 11%, from October 31, 2021. The impact of foreign
exchange translation from the depreciation in the Canadian dollar
increased total liabilities by $83 billion, or approximately 5%. The increase
in total liabilities reflects deposits of $105 billion, financial liabilities
designated at FVTPL of $49 billion, derivatives of $34 billion, other
liabilities of $4 billion and trading deposits of $1 billion. The increase was
partially offset by a decrease in obligations related to securities sold under
repurchase agreements of $16 billion.
Equity was $111 billion as at October 31, 2022, an increase of $12 billion
from October 31, 2021. The increase primarily reflects an increase in
retained earnings, and preferred shares and other equity instruments,
partially offset by a decrease in AOCI. The decrease in AOCI is primarily
driven by losses on cash flow hedges and from the Bank’s share of the
other comprehensive loss from the investment in Schwab, partially offset
by the impact of foreign exchange translation.
52
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
GROUP FINANCIAL CONDITION
Balance Sheet Review
T A B L E 2 4 CONDENSED CONSOLIDATED BALANCE SHEET ITEMS
|
(millions of Canadian dollars)
Assets
Cash and Interest-bearing deposits with banks
Trading loans, securities, and other
Non-trading financial assets at fair value through profit or loss
Derivatives
Financial assets designated at fair value through profit 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
Investment in Schwab
Other
Total assets
Liabilities
Trading deposits
Derivatives
Financial liabilities designated at fair value through profit or loss
Deposits
Obligations related to securities sold under repurchase agreements
Subordinated notes and debentures
Other
Total liabilities
Total equity
Total liabilities and equity
As at
October 31
2023
October 31
2022
$ 105,069
152,090
7,340
87,382
5,818
69,865
308,016
204,333
895,947
8,907
112,257
$ 145,850
143,726
10,946
103,873
5,039
69,675
342,774
160,167
831,043
8,088
96,347
$ 1,957,024
$ 1,917,528
$
30,980
71,640
192,130
1,198,190
166,854
9,620
175,503
$
23,805
91,133
162,786
1,229,970
128,024
11,290
159,137
1,844,917
1,806,145
112,107
111,383
$ 1,957,024
$ 1,917,528
Total assets were $1,957 billion as at October 31, 2023, an increase
of $39 billion, from October 31, 2022. The impact of foreign exchange
translation from the depreciation in the Canadian dollar increased total
assets by $16 billion.
The increase in total assets reflects an increase in loans, net of allowances
for loan losses of $65 billion, securities purchased under reverse
repurchase agreements of $44 billion, other assets of $16 billion, trading
loans, securities, and other of $8 billion, financial assets designated at
fair value through profit or loss of $1 billion and investment in Schwab
of $1 billion. The increase was partially offset by a decrease in cash and
interest-bearing deposits with banks of $41 billion, debt securities at
amortized cost of $35 billion, derivative assets of $16 billion, and non-
trading financial assets at fair value through profit or loss of $4 billion.
Financial assets designated at fair value through profit or loss
increased $1 billion primarily reflecting new issuances, partially offset
by maturities.
Debt securities at amortized cost, net of allowance for credit losses
decreased $35 billion primarily reflecting maturities and sales of
government securities, partially offset by new investments and the
impact of foreign exchange translation.
Securities purchased under reverse repurchase agreements increased
$44 billion primarily reflecting an increase in volume.
Loans, net of allowance for loan losses increased $65 billion reflecting
volume growth in residential real estate secured lending, and business and
government loans and the impact of foreign exchange translation.
Cash and interest-bearing deposits with banks decreased $41 billion
primarily reflecting cash management activities.
Investment in Schwab increased $1 billion primarily reflecting the impact
of the Bank’s share of Schwab’s net income.
Trading loans, securities, and other increased $8 billion primarily
in equity securities, trading loans, the impact of Cowen acquisition
and foreign exchange translation partially offset by commodities held
for trading.
Non-trading financial assets at fair value through profit or loss
decreased $4 billion primarily reflecting maturities and sales.
Derivative assets decreased $16 billion primarily reflecting changes in
mark-to-market values of foreign exchange and interest rate contracts.
Other assets increased $16 billion primarily reflecting increase in amounts
receivable from brokers, dealers and clients due to higher volumes of
pending trades, the acquired held for sale businesses, goodwill and
intangibles as a result of the Cowen acquisition, deferred tax assets and
accrued interest, partially offset by a decrease in customers’ liabilities
under acceptances and current income tax receivable.
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
53
Obligations related to securities sold under repurchase agreements
increased $39 billion primarily reflecting an increase in volume.
Subordinated notes and debentures decreased $2 billion primarily
reflecting redemptions.
Other liabilities increased $17 billion primarily reflecting increase in
amounts payable to brokers, dealers and clients due to higher volumes of
pending trades, increase in liabilities related to structured entities, accounts
payable, accrued expenses, and other items as a result of the Cowen
acquisition, accrued interest, and increase in provision for the Stanford
litigation settlement, partially offset by a decrease in acceptances.
Equity was $112 billion as at October 31, 2023, an increase of $1 billion
from October 31, 2022. The increase reflects common shares issued
with a 2% discount under the dividend reinvestment plan, net of share
repurchases, and gains in accumulated other comprehensive income,
partially offset by lower retained earnings. The increase in accumulated
other comprehensive is primarily driven by the impact of foreign currency
translation. The retained earnings decreased as the net income for the
year is offset by the dividends paid and the premium on the repurchase of
common shares.
The Bank’s business and government loan portfolio was 37% of
total loans net of Stage 3 allowances, down 1% from 2022. The largest
business and government sector concentrations in Canada were the
Real estate and Financial sectors, which comprised 6% and 2% of net
loans, respectively. Real estate and Financial sectors were the largest U.S.
sector concentrations in 2023, representing 4% and 2% of net loans,
respectively.
Geographically, the credit portfolio remained concentrated in Canada.
In 2023, the percentage of loans net of Stage 3 allowances held in Canada
was 66%, flat compared with 2022. The largest Canadian regional
exposure was in Ontario, which represented 39% of total loans net of
Stage 3 allowances for 2023, flat compared to the prior year.
The remaining credit portfolio was predominantly in the U.S., which
represented 33% of loans net of Stage 3 allowances, up 1% from 2022.
Exposures to acquired credit-impaired (ACI) loans, and other geographic
regions were relatively small. The largest U.S. regional exposures were in
New York, New England, and Florida which represented 6%, 5%, and 3%
of total loans net of Stage 3 allowances, respectively, and consistent with
the prior year.
Under IFRS 9, Financial Instruments (IFRS 9), the Bank calculates
allowances for expected credit losses (ECLs) on DSAC and debt securities
at FVOCI. The Bank has $374 billion in such debt securities of which
$374 billion are performing securities (Stage 1 and 2) and none are
impaired. The allowance for credit losses on DSAC and debt securities
at FVOCI was $2 million and $2 million, respectively.
Total liabilities were $1,845 billion as at October 31, 2023, an increase
of $39 billion from October 31, 2022. The impact of foreign exchange
translation from the depreciation in the Canadian dollar increased total
liabilities by $17 billion.
The increase in total liabilities reflects an increase in obligations related
to securities sold under repurchase agreements of $39 billion, financial
liabilities designated at fair value through profit or loss of $29 billion, other
liabilities of $17 billion and trading deposits of $7 billion. The increase was
partially offset by a decrease in deposits of $32 billion, derivative liabilities
of $19 billion and subordinated notes and debentures $2 billion.
Trading deposits increased $7 billion primarily reflecting new issuances,
partially offset by maturities.
Derivative liabilities decreased $19 billion primarily reflecting changes in
mark-to-market values of foreign exchange and interest rate contracts.
Financial liabilities designated at fair value through profit or loss
increased $29 billion primarily reflecting new issuances and the impact of
foreign exchange translation, partially offset by maturities.
Deposits decreased $32 billion reflecting lower volumes in personal
(including Schwab deposits) and bank deposits, partially offset by the
impact of foreign exchange translation and higher volumes in business and
government deposits.
GROUP FINANCIAL CONDITION
Credit Portfolio Quality
AT A GLANCE OVERVIEW
• Loans and acceptances, net of allowance for loan losses were
$914 billion, an increase of $61 billion compared with last year.
• Impaired loans net of Stage 3 allowances were $2,277 million,
an increase of $531 million compared with last year.
• Provision for credit losses was $2,933 million, compared with
$1,067 million last year.
• Total allowance for credit losses including off-balance sheet
positions increased by $823 million to $8,189 million.
LOAN PORTFOLIO
The Bank increased its loans and acceptances net of allowance for loan
losses by $61 billion, or 7%, from the prior year, primarily reflecting
volume growth in the real estate secured lending and business and
government portfolios, and the impact of foreign exchange.
While the majority of the Bank’s 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
financial instruments, as explained in Note 30 of the 2023 Consolidated
Financial Statements.
CONCENTRATION OF CREDIT RISK
The Bank’s loan portfolio continued to be concentrated in Canadian and
U.S. consumer lending, comprised of residential mortgages, consumer
instalment and other personal loans, and credit card loans, representing
63% of total loans net of Stage 3 allowances, flat compared with 2022.
During the year, these portfolios increased by $40 billion, or 8%, and
totalled $576 billion at year end. Residential mortgages represented 35%
of total loans net of Stage 3 allowances in 2023, up 1% from 2022.
Consumer instalment and other personal loans, and credit card loans
were 28% of total loans net of Stage 3 allowances in 2023, flat
compared with 2022.
54
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 2 5
|
LOANS AND ACCEPTANCES, NET OF STAGE 3 ALLOWANCE FOR LOAN LOSSES BY INDUSTRY SECTOR1,2
(millions of Canadian dollars, except as noted)
As at
Percentage of total
October 31
2023
October 31
2022
October 31
2023
October 31
2022
Stage 3
allowances
for
loan losses
impaired
Gross loans
Net loans
Net loans
$ 263,733
$ 24
$ 263,709
$ 246,185
28.7%
28.7%
117,618
28,786
18,587
18,815
447,539
27,784
24,849
52,633
9,893
9,402
18,873
3,078
829
4,198
9,871
5,701
2,415
2,307
8,299
5,744
4,613
4,085
4,294
3,606
6,376
31
65
39
69
228
2
29
31
1
18
–
19
–
8
49
94
15
19
–
28
49
15
–
4
31
117,587
28,721
18,548
18,746
447,311
27,782
24,820
52,602
9,892
9,384
18,873
3,059
829
4,190
9,822
5,607
2,400
2,288
8,299
5,716
4,564
4,070
4,294
3,602
6,345
113,319
27,139
18,418
17,323
422,384
27,138
22,512
49,650
9,221
7,067
18,018
3,012
635
3,703
9,114
5,407
2,182
2,403
6,275
5,217
4,216
4,268
4,149
3,427
6,128
12.8
3.1
2.0
2.0
48.6
3.0
2.7
5.7
1.1
1.0
2.1
0.3
0.1
0.5
1.1
0.6
0.3
0.2
0.9
0.6
0.5
0.4
0.5
0.4
0.7
13.2
3.2
2.1
2.0
49.2
3.2
2.6
5.8
1.1
0.8
2.1
0.4
0.1
0.4
1.1
0.6
0.3
0.3
0.7
0.6
0.5
0.5
0.5
0.4
0.7
156,217
$ 603,756
381
155,836
144,092
$ 609
$ 603,147
$ 566,476
17.0
65.6%
16.9
66.1%
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
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.
3 Home equity line of credit.
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
55
T A B L E 2 5 | LOANS AND ACCEPTANCES, NET OF STAGE 3 ALLOWANCE FOR LOAN LOSSES BY INDUSTRY SECTOR (continued) 1,2
(millions of Canadian dollars, except as noted)
As at
Percentage of total
October 31
2023
October 31
2022
October 31
2023
October 31
2022
Stage 3
allowances
for
loan losses
impaired
Gross loans
Net loans
Net loans
$ 56,548
$
33
$ 56,515
$ 47,611
6.1%
5.5%
10,585
41,051
901
19,839
128,924
11,958
28,537
40,495
1,173
10,843
22,292
4,396
746
17,018
16,205
2,414
1,854
1,599
7,831
17,526
6,320
10,524
9,190
5,083
2,750
178,259
307,183
19
10,024
10,043
920,982
91
91
19
39
4
243
338
2
23
25
–
–
–
–
–
1
5
1
1
5
–
8
2
8
15
–
4
75
413
–
–
–
10,566
41,012
897
19,596
9,867
36,359
862
18,474
128,586
113,173
11,956
28,514
40,470
1,173
10,843
22,292
4,396
746
17,017
16,200
2,413
1,853
1,594
7,831
17,518
6,318
10,516
9,175
5,083
2,746
178,184
306,770
19
10,024
10,043
10,668
25,637
36,305
1,158
7,779
22,480
3,643
519
15,829
15,703
1,912
1,862
1,148
5,923
14,689
5,496
8,376
9,106
5,277
3,090
160,295
273,468
23
18,722
18,745
1.2
4.5
0.1
2.1
14.0
1.2
3.0
4.2
0.1
1.2
2.4
0.5
0.1
1.8
1.8
0.3
0.2
0.2
0.9
1.9
0.7
1.1
1.0
0.6
0.3
19.3
33.3
–
1.1
1.1
1.2
4.3
0.1
2.2
13.3
1.2
2.9
4.1
0.1
0.9
2.6
0.4
0.1
1.8
1.8
0.2
0.2
0.1
0.7
1.7
0.6
1.0
1.1
0.6
0.4
18.4
31.7
–
2.2
2.2
1,022
919,960
858,689
100.0
100.0
6
6
85
85
111
111
–
–
–
–
$ 921,073
$ 1,028
$ 920,045
$ 858,800
100.0%
100.0%
6,108
5,671
$ 913,937
$ 853,129
7.1%
14.7%
7.1
14.9
United States
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
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
Acquired credit-impaired loans4
Total other loans
Total
Stage 1 and Stage 2 allowance for loan losses – performing
Personal, business and government
Total, net of allowance
Percentage change over previous year – loans and acceptances,
net of Stage 3 allowance for loan losses (impaired)
Percentage change over previous year – loans and acceptances,
net of allowance
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.
4 Includes FDIC covered loans and other ACI loans.
56
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 2 6
|
LOANS AND ACCEPTANCES, NET OF STAGE 3 ALLOWANCE FOR LOAN LOSSES BY GEOGRAPHY1,2
(millions of Canadian dollars, except as noted)
As at
Percentage of total
October 31
2023
October 31
2022
October 31
2023
October 31
2022
Canada
Atlantic provinces
British Columbia3
Ontario3
Prairies3
Québec
Total Canada
United States
Carolinas (North and South)
Florida
New England4
New Jersey
New York
Pennsylvania
Other5
Total United States
International
Europe
Other
Total international
Total excluding other loans
Other loans
Total
Stage 1 and Stage 2 allowances
Total, net of allowance
Percentage change over previous year –
loans and acceptances, net of Stage 3
allowances for loan losses (impaired)
Canada
United States
International
Other loans
Total
Stage 3
allowances
for loan
losses
impaired
$
14
38
452
60
45
609
18
42
36
28
83
16
190
413
–
–
–
1,022
6
Gross loans
$ 13,676
96,048
356,071
88,477
49,484
603,756
18,001
26,751
48,024
26,071
56,904
18,747
112,685
307,183
5,843
4,200
10,043
920,982
91
Net loans
Net loans
$ 13,662
96,010
355,619
88,417
49,439
$ 13,398
89,018
331,890
85,862
46,308
603,147
566,476
17,983
26,709
47,988
26,043
56,821
18,731
112,495
306,770
5,843
4,200
10,043
919,960
85
16,617
22,633
42,779
23,312
52,201
17,035
98,891
273,468
6,208
12,537
18,745
858,689
111
1.5%
1.6%
10.4
38.7
9.6
5.4
65.6
2.0
2.9
5.2
2.8
6.2
2.0
12.2
33.3
0.6
0.5
1.1
10.4
38.6
10.0
5.4
66.0
1.9
2.6
5.0
2.7
6.1
2.0
11.5
31.8
0.7
1.5
2.2
100.0
–
100.0
–
$ 921,073
$ 1,028
$ 920,045
$ 858,800
100.0%
100.0%
6,108
5,671
$ 913,937
$ 853,129
2023
6.5%
12.2
(46.4)
(23.4)
7.1%
2022
9.5%
23.9
82.7
(24.0)
14.9%
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
4 The states included in New England are as follows: Connecticut, Maine,
Massachusetts, New Hampshire, and Vermont.
5 Includes loans attributable to other states/regions including those outside TD’s core
is included in Ontario; and Northwest Territories is included in the Prairies region.
U.S. geographic footprint.
REAL ESTATE SECURED LENDING
Retail real estate secured lending includes mortgages and lines of credit
to North American consumers to satisfy financing needs including home
purchases and refinancing. While the Bank retains first lien on the majority
of properties held as security, there is a small portion of loans with second
liens, but most of these are behind a TD mortgage that is in first position.
In Canada, credit policies 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 may also purchase default insurance
on lower loan-to-value ratio loans. The insurance is provided by either
government-backed entities or approved private mortgage insurers. In the
U.S., for residential mortgage originations, mortgage insurance is usually
obtained from either government-backed entities or approved private
mortgage insurers when the loan-to-value exceeds 80% of the collateral
value at origination.
The Bank regularly performs stress tests on its real estate lending
portfolio as part of its overall stress testing program. This is done with a
view to determine the extent to which the portfolio would be vulnerable
to a severe downturn in economic conditions. The effect of severe changes
in house prices, interest rates, and unemployment levels are among
the factors considered when assessing the impact on credit losses and
the Bank’s overall profitability. A variety of portfolio segments, including
dwelling type and geographical regions, are examined during the exercise
to determine whether specific vulnerabilities exist.
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
57
T A B L E 2 7 CANADIAN REAL ESTATE SECURED LENDING1,2
|
(millions of Canadian dollars)
Total
Total
Residential
Mortgages
Home equity
lines of credit
Amortizing
Non-amortizing
Total amortizing
real estate
secured lending
Home equity
lines of credit
As at
Total real estate
secured lending
October 31, 2023
$ 263,733
$ 86,943
$ 350,676
$ 30,675
$ 381,351
$ 246,206
$ 81,689
$ 327,895
$ 31,657
$ 359,552
October 31, 2022
1 Excludes loans classified as trading as the Bank intends to sell the loans immediately or
in the near term, and loans designated at FVTPL for which no allowance is recorded.
2 Amortizing includes loans where the fixed contractual payments are no longer
sufficient to cover the interest based on the rates in effect at October 31, 2023.
T A B L E 2 8 REAL ESTATE SECURED LENDING1,2
|
(millions of Canadian dollars,
except as noted)
Residential mortgages
Home equity lines of credit
As at
Total
Insured3
Uninsured
Insured3
Uninsured
Insured3
Uninsured
October 31, 2023
Canada
Atlantic provinces
British Columbia4
Ontario4
Prairies4
Québec
Total Canada
United States
Total
Canada
Atlantic provinces
British Columbia4
Ontario4
Prairies4
Québec
Total Canada
United States
Total
$ 2,561
8,642
22,559
18,621
7,221
1.0% $
3.3
8.6
7.1
2.7
4,557
46,003
118,882
20,385
14,302
1.7%
17.4
45.1
7.7
5.4
$ 181
920
3,126
1,746
590
0.2% $
0.8
2.7
1.5
0.5
1,938
21,642
64,095
11,956
11,424
1.6% $ 2,742
9,562
25,685
20,367
7,811
18.4
54.4
10.2
9.7
0.7% $
2.5
6.8
5.3
2.0
6,495
67,645
182,977
32,341
25,726
1.7%
17.7
48.1
8.5
6.7
59,604
22.7% 204,129
77.3%
6,563
5.7% 111,055
94.3%
66,167
17.3% 315,184
82.7%
1,439
$ 61,043
55,169
$ 259,298
–
$ 6,563
10,591
$ 121,646
1,439
$ 67,606
65,760
$ 380,944
October 31, 2022
$ 2,713
8,897
23,146
19,259
7,670
1.1% $
3.6
9.4
7.8
3.1
4,117
41,612
106,940
18,391
13,461
1.7%
16.9
43.4
7.5
5.5
$ 227
1,265
4,619
2,107
735
0.2% $
1.1
4.1
1.9
0.6
1,697
20,386
60,357
11,734
10,219
1.5% $ 2,940
10,162
27,765
21,366
8,405
18.0
53.2
10.4
9.0
0.8% $
2.8
7.8
5.9
2.3
5,814
61,998
167,297
30,125
23,680
1.6%
17.2
46.6
8.4
6.6
61,685
25.0% 184,521
75.0%
8,953
7.9% 104,393
92.1%
70,638
19.6% 288,914
80.4%
1,127
$ 62,812
46,591
$ 231,112
–
$ 8,953
9,895
$ 114,288
1,127
$ 71,765
56,486
$ 345,400
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
4 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.
or in the near term, and loans designated at FVTPL for which no allowance is recorded.
3 Default insurance is contractual coverage for the life of eligible facilities whereby
the Bank’s exposure to real estate secured lending, all or in part, is protected against
potential losses caused by borrower default. It is provided by either government-
backed entities or other approved private mortgage insurers.
58
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
The following table provides a summary of the period over which
the Bank’s residential mortgages would be fully repaid based on the
amount of the most recent payment received. All figures are calculated
based on current customer payment amounts, including voluntary
payments larger than the original contractual amounts and/or other
voluntary prepayments. The most recent customer payment amount may
exceed the original contractual amount due.
Balances with a remaining amortization longer than 30 years primarily
reflect Canadian variable rate mortgages where interest rate increases
relative to current customer payment levels have resulted in a longer
current amortization period. At renewal, the amortization period for
Canadian mortgages reverts to the remaining contractual amortization,
which may require increased payments.
T A B L E 2 9
|
RESIDENTIAL MORTGAGES BY REMAINING AMORTIZATION1,2,3
<=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
0.8%
5.3
1.6%
0.8%
8.3
2.0%
2.7%
1.4
2.5%
2.7%
2.0
2.6%
5.7%
3.8
5.3%
5.4%
4.1
5.2%
14.1%
7.8
13.0%
13.5%
6.3
12.3%
31.5%
10.6
27.8%
29.5%
13.1
26.8%
24.6%
69.5
32.6%
19.2%
64.9
26.7%
1.4%
1.1
1.4%
3.7%
0.7
3.2%
October 31, 2023
19.2%
0.5
15.8%
100.0%
100.0
100.0%
October 31, 2022
25.2%
0.6
21.2%
100.0%
100.0
100.0%
Canada
United States
Total
Canada
United States
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 FVTPL for which no allowance is recorded.
2 Percentage based on outstanding balance.
3 $37.4 billion or 14% of the mortgage portfolio in Canada (October 31, 2022:
$39.6 billion or 16%) relates to mortgages in which the fixed contractual payments
are no longer sufficient to cover the interest based on the rates in effect at
October 31, 2023 and October 31, 2022, respectively.
T A B L E 3 0 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, 2023
For the 12 months ended
October 31, 2022
Residential
mortgages
Home equity
lines of credit4,5
Total
Residential
mortgages
Home equity
lines of credit4,5
Total
69%
62
65
70
72
66
74
68%
73%
66
68
73
73
69
62
68%
70%
64
66
71
73
67
71
68%
71%
66
66
74
71
67
71
68%
69%
63
63
71
71
65
64
65%
70%
65
65
73
71
66
69
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 FVTPL 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 borrower risk rating (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 ACI loans increased
$796 million, or 32%, compared with the prior year.
In Canada, impaired loans net of Stage 3 allowances increased
by $294 million, or 60% in 2023. Residential mortgages, consumer
instalment and other personal loans, and credit cards, had net impaired
loans of $376 million, an increase of $81 million, or 27%, reflecting some
further normalization of credit performance. Business and government
impaired loans net of Stage 3 allowances were $406 million, an increase
of $213 million, compared with $193 million in the prior year, reflecting
an increase in the commercial lending portfolios as new formations
outpaced resolutions.
In the U.S., net impaired loans increased by $237 million, or 19% in
2023. Residential mortgages, consumer instalment and other personal
loans, and credit cards, had net impaired loans of $985 million, a
decrease of $5 million, or 1%, compared with the prior year. Business
and government net impaired loans were $510 million, an increase of
$242 million, compared with $268 million in the prior year, reflecting an
increase in the commercial lending portfolios as new formations outpaced
resolutions, and the impact of foreign exchange.
Geographically, 34% of total net impaired loans were located in
Canada and 66% in the U.S. The largest regional concentration of net
impaired loans in Canada was in Ontario, representing 23% of total
net impaired loans, compared with 15% in the prior year. The largest
regional concentration of net impaired loans in the U.S. was in New York,
representing 21% of total net impaired loans, compared with 18% in
the prior year.
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
59
T A B L E 3 1 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
Classified as impaired during the period
Transferred to performing during the period
Net repayments
Disposals of loans
Amounts written off
Exchange and other movements
Impaired loans as at end of year
1 Includes customers’ liability under acceptances.
2 Excludes ACI loans.
3 Includes loans that are measured at FVOCI.
2023
2022
$ 2,503
5,885
(931)
(1,351)
–
(2,846)
39
$ 3,299
$ 2,411
4,339
(1,009)
(1,418)
(1)
(1,994)
175
$ 2,503
T A B L E 3 2
|
IMPAIRED LOANS NET OF STAGE 3 ALLOWANCE FOR LOAN LOSSES BY INDUSTRY SECTOR1,2,3,4
(millions of Canadian dollars, except as noted)
As at
Percentage of total
October 31
2023
October 31
2022
October 31
2023
October 31
2022
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
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 Includes customers’ liability under acceptances.
2 Primarily based on the geographic location of the customer’s address.
3 Includes loans that ar
4 Excludes ACI loans, debt securities classified as loans under IAS 39, Financial
e measured at FVOCI.
Instruments: Recognition and Measurement and DSAC and debt securities at
FVOCI under IFRS 9.
Stage 3
allowances
for loan
losses
impaired
Gross
impaired
loans
Net
impaired
loans
Net
impaired
loans
$ 186
$
24
$ 162
$ 151
7.1%
8.7%
148
95
60
115
604
8
91
99
14
32
3
38
2
12
151
106
30
20
–
52
110
29
13
20
56
787
31
65
39
69
228
2
29
31
1
18
–
19
–
8
49
94
15
19
–
28
49
15
–
4
31
381
117
30
21
46
376
6
62
68
13
14
3
19
2
4
102
12
15
1
–
24
61
14
13
16
25
406
67
26
16
35
295
2
20
22
9
6
–
7
1
4
32
8
19
11
–
17
39
4
3
5
6
193
$ 1,391
$ 609
$ 782
$ 488
5.1
1.4
0.9
2.0
16.5
0.3
2.7
3.0
0.5
0.6
0.1
0.8
0.1
0.2
4.5
0.5
0.7
–
–
1.1
2.7
0.6
0.6
0.7
1.1
3.8
1.5
0.9
2.0
16.9
0.1
1.2
1.3
0.5
0.3
–
0.4
0.1
0.2
1.8
0.5
1.1
0.6
–
1.0
2.2
0.2
0.2
0.3
0.3
17.8
34.3%
11.0
27.9%
5 Credit cards are considered impaired when they are 90 days past due and written off
at 180 days past due.
60
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 3 2 | IMPAIRED LOANS NET OF STAGE 3 ALLOWANCE FOR LOAN LOSSES BY INDUSTRY SECTOR (continued) 1,2,3,4
(millions of Canadian dollars, except as noted)
As at
Percentage of total
October 31
2023
October 31
2022
October 31
2023
October 31
2022
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
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
Stage 3
allowances
for loan
losses
impaired
Gross
impaired
loans
Net
impaired
loans
Net
impaired
loans
$ 432
$
33
$ 399
$ 433
17.5%
24.8%
232
254
6
399
1,323
81
226
307
3
3
1
3
–
3
40
19
1
6
–
60
29
56
33
6
15
585
1,908
–
19
39
4
243
338
2
23
25
–
–
–
–
–
1
5
1
1
5
–
8
2
8
15
–
4
75
413
–
213
215
2
156
985
79
203
282
3
3
1
3
–
2
35
18
–
1
–
52
27
48
18
6
11
260
187
3
107
990
18
44
62
1
5
2
4
–
3
25
20
3
1
–
42
42
38
5
10
5
510
1,495
–
268
1,258
–
9.4
9.4
0.1
6.9
43.3
3.5
8.9
12.4
0.1
0.1
–
0.1
–
0.1
1.6
0.8
–
–
–
2.3
1.2
2.1
0.8
0.3
0.5
22.4
65.7
–
14.9
10.7
0.2
6.1
56.7
1.0
2.5
3.5
0.1
0.3
0.1
0.2
–
0.2
1.4
1.1
0.2
0.1
–
2.4
2.4
2.2
0.3
0.6
0.3
15.4
72.1
–
$ 3,299
$ 1,022
$ 2,277
$ 1,746
100.0%
100.0%
Net impaired loans as a % of common equity
2.25%
1.74%
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, debt securities classified as loans under IAS 39, Financial
Instruments: Recognition and Measurement and DSAC and debt securities at
FVOCI 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 REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
61
T A B L E 3 3
|
IMPAIRED LOANS NET OF STAGE 3 ALLOWANCE FOR LOAN LOSSES BY GEOGRAPHY1,2,3,4,5
(millions of Canadian dollars, except as noted)
As at
Percentage of total
October 31
2023
October 31
2022
October 31
2023
October 31
2022
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
allowances
for loan
losses
impaired
$
14
38
452
60
45
609
18
42
36
28
83
16
190
413
Net impaired
loans
Net impaired
loans
$
22
59
533
128
40
782
74
206
177
150
486
56
346
$
11
53
257
132
35
488
71
134
207
159
322
77
288
1,495
1,258
1.0%
2.5
23.4
5.6
1.8
34.3
3.2
9.1
7.8
6.6
21.3
2.5
15.2
65.7
0.6%
3.0
14.7
7.6
2.0
27.9
4.1
7.7
11.9
9.1
18.4
4.4
16.5
72.1
$ 1,022
$ 2,277
$ 1,746
100.0%
100.0%
Gross
impaired
loans
$
36
97
985
188
85
1,391
92
248
213
178
569
72
536
1,908
$ 3,299
Net impaired loans as a % of net loans
0.25%
0.20%
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.
5 Credit cards are considered impaired when they are 90 days past due and written off
at 180 days past due.
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.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses including off-balance sheet positions
of $8,189 million as at October 31, 2023, was comprised of Stage 3
allowance for impaired loans of $1,036 million, Stage 2 allowance of
$4,000 million, and Stage 1 allowance of $3,149 million, and allowance
for debt securities of $4 million. The Stage 1 and 2 allowances are for
performing loans and off-balance sheet instruments.
Stage 3 allowances (impaired)
The Stage 3 allowance for loan losses increased $272 million, or
36%, compared with last year, reflecting some normalization of credit
performance, and the impact of foreign exchange.
Stage 1 and Stage 2 allowances (performing)
As at October 31, 2023, the performing allowance was $7,149 million,
up from $6,599 million as at October 31, 2022. The increase this year
largely reflected credit conditions, including some credit migration, volume
growth, and the impact of foreign exchange. The allowance increase
included $60 million attributable to the partners’ share of the U.S.
strategic cards portfolios. The performing allowance for debt securities
increased by $1 million compared with last year.
Forward-looking information, including macroeconomic variables
deemed to be predictive of ECLs based on the Bank’s experience, is
used to determine ECL scenarios and associated probability weights to
determine the probability-weighted ECLs. Each quarter, all base forecast
macroeconomic variables are refreshed, resulting in new upside and
downside macroeconomic scenarios. The probability weightings assigned
to each ECL scenario are also reviewed each quarter and updated as
required, as part of the Bank’s ECL governance process. As a result of
periodic reviews and quarterly updates, the allowance for credit losses
may be revised to reflect updates in loss estimates based on the Bank’s
recent loss experience and its forward-looking views. The Bank periodically
reviews the methodology and has performed certain additional quantitative
and qualitative portfolio and loan level assessments of significant increase
in credit risk. Refer to Note 3 of the Bank’s 2023 Consolidated Financial
Statements for further details on forward-looking information.
62
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
The probability-weighted allowance for credit losses reflects the Bank’s
forward-looking views. To the extent that certain anticipated effects
cannot be fully incorporated into quantitative models, management
continues to exercise expert credit judgment in determining the amount
of ECLs. Refer to Note 3 of the Bank’s 2023 Consolidated Financial
Statements for additional detail.
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
$811 million, an increase of $246 million, or 44%, compared to 2022
reflecting some normalization of credit performance. PCL – impaired
related to business and government loans was $199 million, an increase
of $102 million, compared to $97 million in the prior year, largely
reflecting credit migration.
In the U.S., PCL – impaired related to residential mortgages,
consumer instalment and other personal loans, and credit card loans
was $1,279 million, an increase of $536 million, or 72%, compared
to 2022, largely related to some normalization of credit performance
and the impact of foreign exchange. PCL – impaired related to business
and government loans was $197 million, an increase of $160 million,
compared to $37 million in the prior year, largely reflecting credit
migration and the impact of foreign exchange.
Geographically, the largest regional concentration of PCL – impaired
in Canada was in Ontario. The largest regional concentration of PCL –
impaired in the U.S. was in New York.
The following table provides a summary of provisions charged to the
Consolidated Statement of Income.
T A B L E 3 4
|
PROVISION FOR CREDIT LOSSES
(millions of Canadian dollars)
Provision for credit losses – Stage 3 (impaired)
Canadian Personal and Commercial Banking
U.S. Retail
Wealth Management and Insurance
Wholesale Banking
Corporate1
Total provision for credit losses – Stage 3
Provision for credit losses – Stage 1 and Stage 2 (performing)2
Canadian Personal and Commercial Banking
U.S. Retail
Wealth Management and Insurance
Wholesale Banking
Corporate1
Total provision for credit losses – Stage 1 and 2
Provision for credit losses
1 Includes PCL on the r
2 Includes PCL on financial assets, loan commitments, and financial guarantees.
etailer 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)
Stage 3 provision for credit losses (impaired)
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
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 ar
e measured at FVOCI.
2023
2022
$ 1,013
965
1
16
491
2,486
330
(37)
–
110
44
447
$ 639
522
–
19
257
1,437
(148)
(187)
1
18
(54)
(370)
$ 2,933
$ 1,067
For the years ended
Percentage of total
October 31
2023
October 31
2022
October 31
2023
October 31
2022
$
9
$
(4)
0.4%
(0.3)%
8
227
188
379
811
1
12
13
1
14
–
16
–
–
40
14
–
(1)
–
19
11
8
4
5
55
199
$ 1,010
12
156
128
273
565
–
16
16
(1)
(2)
–
1
–
–
3
18
9
(2)
–
24
14
–
–
7
10
97
0.3
9.1
7.6
15.2
32.6
–
0.5
0.5
–
0.6
–
0.6
–
–
1.6
0.6
–
–
–
0.8
0.4
0.3
0.2
0.2
2.2
8.0
0.8
10.9
8.9
19.0
39.3
–
1.1
1.1
(0.1)
(0.1)
–
0.1
–
–
0.2
1.2
0.6
(0.1)
–
1.7
1.0
–
–
0.5
0.7
6.8
$ 662
40.6%
46.1%
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
63
T A B L E 3 5 | PROVISION FOR CREDIT LOSSES BY INDUSTRY SECTOR (continued) 1,2
(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
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
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 excluding other loans
Other loans
Debt securities at amortized cost and FVOCI
Acquired credit-impaired loans3
Total other loans
For the years ended
Percentage of total
October 31
2023
October 31
2022
October 31
2023
October 31
2022
$
(2)
$
10
(0.1)%
0.7%
(2)
205
222
856
1,279
2
80
82
–
3
(2)
–
–
–
5
5
(1)
–
–
16
9
36
16
4
24
197
1,476
–
2,486
–
–
–
(12)
69
210
466
743
–
(5)
(5)
–
–
(1)
(1)
16
–
5
4
1
(2)
–
(1)
3
3
–
(2)
17
37
780
–
1,442
–
(5)
(5)
(0.1)
8.2
9.0
34.4
51.4
0.1
3.2
3.3
–
0.1
(0.1)
–
–
–
0.2
0.2
–
–
–
0.6
0.4
1.5
0.6
0.2
1.0
8.0
59.4
–
100.0
–
–
–
(0.8)
4.8
14.6
32.4
51.7
–
(0.3)
(0.3)
–
–
(0.1)
(0.1)
1.1
–
0.3
0.3
0.1
(0.1)
–
(0.1)
0.2
0.2
–
(0.1)
1.1
2.5
54.2
–
100.3
–
(0.3)
(0.3)
Total Stage 3 provision for credit losses (impaired)
$ 2,486
$ 1,437
100.0%
100.0%
Stage 1 and 2 provision for credit losses
Personal, business, and government
Debt securities at amortized cost and FVOCI
Total Stage 1 and 2 provision for credit losses
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.
$ 447
–
447
$
(364)
(6)
(370)
$ 2,933
$ 1,067
64
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 3 6
|
PROVISION FOR CREDIT LOSSES BY GEOGRAPHY1,2,3
(millions of Canadian dollars, except as noted)
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
International
Total excluding other loans
Other loans7
Total Stage 3 provision for credit losses (impaired)
Stage 1 and 2 provision for credit losses
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)
Stage 1 and 2 provision for credit losses
For the years ended
Percentage of total
October 31
2023
October 31
2022
October 31
2023
October 31
2022
$
49
116
551
203
91
1,010
68
173
135
109
262
53
676
1,476
–
2,486
–
2,486
447
$
38
92
288
159
85
662
36
70
92
73
119
32
358
780
–
1,442
(5)
1,437
(370)
1.7%
4.0
18.8
6.9
3.1
34.5
2.3
5.9
4.6
3.7
9.0
1.8
23.0
50.3
–
84.8
–
84.8
15.2
3.6%
8.6
27.0
14.9
8.0
62.1
3.4
6.6
8.6
6.8
11.2
3.0
33.5
73.1
–
135.2
(0.5)
134.7
(34.7)
$ 2,933
$ 1,067
100.0%
100.0%
October 31
2023
October 31
2022
–%
–%
0.46
0.12
0.17
–
1.96
0.13
0.54
–
0.28
–
0.28
0.05
0.34
0.07
0.12
0.02
1.26
0.03
0.34
–
0.18
100.00
0.18
(0.05)
0.14%
Total provision for credit losses as a % of average net loans and acceptances
0.34%
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 Includes PCL attributable to other states/regions including those outside TD’s core
U.S. geographic footprint.
7 Other loans include ACI.
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
65
SOVEREIGN RISK
The following table provides a summary of the Bank’s direct
credit exposures outside of Canada and the U.S. (Europe excludes
United Kingdom).
T A B L E 3 7
|
TOTAL NET EXPOSURE BY REGION AND COUNTERPARTY
(millions of Canadian dollars)
Region
Corporate
Sovereign
Financial
Total
Corporate
Sovereign
Financial
Total
Corporate
Sovereign
Financial
Total
Loans and commitments1
Derivatives, repos, and securities lending2
Trading and investment portfolio3
As at
Total
Exposure4
Europe
United Kingdom
Asia
Other5
$ 7,577
8,928
254
233
$
7
7,965
20
8
$ 5,324
2,131
2,167
517
$ 12,908
19,024
2,441
758
$ 3,763
2,759
262
233
$ 1,945
490
706
720
$ 6,736
13,431
2,640
2,883
$ 12,444
16,680
3,608
3,836
$ 777
491
325
209
$ 25,015
596
10,728
1,205
$ 2,001
257
830
3,443
October 31, 2023
$ 27,793 $ 53,145
37,048
17,932
9,451
1,344
11,883
4,857
Total
$ 16,992
$ 8,000
$ 10,139
$ 35,131
$ 7,017
$ 3,861
$ 25,690
$ 36,568
$ 1,802
$ 37,544
$ 6,531
$ 45,877 $ 117,576
Europe
United Kingdom
Asia
Other5
$ 6,037
7,563
55
487
$
–
27,176
17
43
$ 4,079
2,493
2,480
1,354
$ 10,116
37,232
2,552
1,884
$ 3,625
2,029
671
234
$ 2,205
828
682
341
$ 7,654
14,007
3,052
2,465
$ 13,484
16,864
4,405
3,040
$ 860
490
120
173
$ 26,899
384
11,055
1,202
$ 1,212
262
695
2,760
$ 28,971 $ 52,571
55,232
18,827
9,059
1,136
11,870
4,135
Total
$ 14,142
$ 27,236
$ 10,406
$ 51,784
$ 6,559
$ 4,056
$ 27,178
$ 37,793
$ 1,643
$ 39,540
$ 4,929
$ 46,112 $ 135,689
October 31, 2022
1 Exposures, including interest-bearing deposits with banks, are presented net of
impairment charges where applicable.
3 Trading exposures are net of eligible short positions.
4 In addition to the exposures identified above, the Bank also has $40.8 billion
2 Exposures are calculated on a fair value basis and presented net of collateral.
(October 31, 2022 – $43.0 billion) of exposure to supranational entities.
Derivatives are presented as net exposures where there is an International Swaps and
Derivatives Association master netting agreement.
5 Other regional exposure largely attributable to Australia.
66
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
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 flow hedge reserve
Shortfall of provisions to expected losses
Gains and losses due to changes in own credit risk on fair valued liabilities
Defined benefit pension fund net assets (net of related tax liability)
Investment in own shares
Non-significant investments in the capital of banking, financial, and insurance entities, net of eligible short positions
(amount above 10% threshold)
Significant investments in the common stock of banking, financial, and insurance entities that are outside the scope
of regulatory consolidation, net of eligible short positions (amount above 10% threshold)
Equity investments in funds subject to the fall-back approach
Other deductions or regulatory adjustments to CET1 as determined by OSFI1
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
Additional Tier 1 Capital instruments before regulatory adjustments
Additional Tier 1 Capital instruments regulatory adjustments
Non-significant investments in the capital of banking, financial, and insurance entities, net of eligible short positions
(amount above 10% threshold)
Significant investments in the capital of banking, financial, 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
Collective allowances
Tier 2 Capital before regulatory adjustments
Tier 2 regulatory adjustments
Investment in own Tier 2 instruments
Non-significant investments in the capital of banking, financial, and insurance entities, net of eligible short positions
(amount above 10% threshold)2
Non-significant investments in the other TLAC-eligible instruments issued by G-SIBs and Canadian D-SIBs,
where the institution does not own more than 10% of the issued common share capital of the entity:
amount previously designated for the 5% threshold but that no longer meets the conditions
Significant investments in the capital of banking, financial, and insurance entities that are outside the scope
of regulatory consolidation, net of eligible short positions
Total regulatory adjustments to Tier 2 Capital
Tier 2 Capital
Total Capital
Risk-weighted assets
Capital Ratios and Multiples
Common Equity Tier 1 Capital (as percentage of risk-weighted assets)
Tier 1 Capital (as percentage of risk-weighted assets)
Total Capital (as percentage of risk-weighted assets)
Leverage ratio3
2023
2022
$ 25,522
73,044
2,750
$ 24,449
73,698
1,988
101,316
100,135
(18,424)
(2,606)
(207)
5,571
–
(379)
(908)
(21)
(17,498)
(2,100)
(83)
5,783
–
(502)
(1,038)
(9)
(1,976)
(1,428)
–
(49)
–
(18,999)
82,317
10,791
10,791
(6)
(350)
(356)
10,435
92,752
9,424
1,964
11,388
–
(196)
(136)
(160)
(492)
–
–
411
(16,464)
83,671
11,248
11,248
(124)
(350)
(474)
10,774
94,445
11,090
2,018
13,108
–
(161)
(57)
(160)
(378)
10,896
12,730
$ 103,648
$ 107,175
$ 571,161
$ 517,048
14.4%
16.2
18.1
4.4
16.2%
18.3
20.7
4.9
1 Represents ECL transitional arrangements provided by OSFI. Refer to the “OSFI’s
3 The Leverage ratio is calculated as Tier 1 Capital divided by leverage exposure, as
Capital Requirements under Basel III” within the “Capital Position” section of this
document for additional details. Effective Q1, 2023, it is no longer applicable.
2 Includes other TLAC-eligible instruments issued by global systemically important
banks (G-SIBs) and Canadian domestic systemically important banks (D-SIBs) that are
outside the scope of regulatory consolidation, where the institution does not own
more than 10% of the issued common share capital of the entity.
defined in the “Regulatory Capital” section of this document.
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
67
THE BANK’S CAPITAL MANAGEMENT OBJECTIVES
The Bank’s capital management objectives are:
• To be an appropriately capitalized financial institution as determined by:
– the Bank’s Risk Appetite Statement (RAS);
– capital requirements defined by relevant regulatory authorities; and
– the Bank’s internal assessment of capital requirements, including
stress test analysis, consistent with the Bank’s risk profile and risk
tolerance levels.
• To have the most economic weighted-average cost of capital
achievable, while preserving the appropriate mix of capital elements
to meet targeted capitalization levels.
• Manage capital levels, in order to:
– insulate the Bank from unexpected loss events;
– support and facilitate business growth and/or acquisitions consistent
with the Bank’s strategy and risk appetite; and
– maintain stakeholder confidence in the Bank.
• To support strong external debt ratings, in order to manage the Bank’s
overall cost of funds and to maintain access 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, limited recourse capital noteholders, 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, on a consolidated basis, with oversight
provided by Asset/Liability and Capital Committee (ALCO). The Board of
Directors (the “Board”) oversees capital adequacy risk management.
The Bank continues to hold sufficient capital levels to ensure that
flexibility 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 internal assessment of
capital adequacy. The Economic capital framework assesses all material
risks of the Bank and determines the amount of risk-based capital required
to cover unexpected losses from the Bank’s business operations in a manner
consistent with the Bank’s capital management objectives. The Bank uses
internal models for this assessment and the characteristics of these models
are described in the “Managing Risk” section of this document.
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 (interest rate risk in the banking book), additional credit risk
due to concentration (commercial and wholesale portfolios) and risks
classified as “Other”, namely business risk, insurance risk, and risks
associated with the Bank’s significant investments. The framework also
captures diversification benefits 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 risk-weighted assets (RWA), inclusive
of any minimum requirements outlined under the regulatory floor. In
2015, Basel III introduced a non-risk sensitive leverage ratio to act as a
supplementary measure to the risk-sensitive capital requirements. The
leverage ratio is calculated by dividing Tier 1 Capital by leverage exposure
which is primarily comprised of on-balance sheet assets with adjustments
made to derivative and securities financing transaction exposures, and
credit equivalent amounts of off-balance sheet exposures. TD manages its
regulatory capital in accordance with OSFI’s implementation of the Basel III
Capital Framework.
OSFI’s Capital Requirements under Basel III
OSFI’s Capital Adequacy Requirements (CAR) and Leverage Requirements
(LR) guidelines detail how the Basel III capital rules apply to Canadian banks.
The Domestic Stability Buffer (DSB) level was increased to 3% as of
February 1, 2023. The 50 bps increase from the previous level of 2.5%
reflected OSFI’s assessment that systemic vulnerabilities remain elevated.
In addition, OSFI increased the DSB range from 0 to 4%, instead of
the previous 0 to 2.5% to allow the DSB to remain responsive to an
uncertain environment.
On February 1, 2023, OSFI implemented revised capital rules that
incorporate the Basel III reforms with adjustments to make them suitable
for domestic implementation. These revised rules include revisions to the
calculation of credit risk and operational risk requirements, and revisions
to the LR Guideline to include a requirement for D-SIBs to hold a leverage
ratio buffer of 0.50% in addition to the regulatory minimum requirement
of 3.0%. This buffer will also apply to the TLAC leverage ratio.
68
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
The table below summarizes OSFI’s published regulatory minimum capital
targets for the Bank effective October 31, 2023. The Bank is in compliance
with these minimum capital targets.
Regulatory Capital and TLAC Target Ratios
CET1
Tier 1
Total Capital
Leverage
TLAC
TLAC Leverage
Capital
Conservation
Buffer
D-SIB / G-SIB
Surcharge1
Pillar 1
Regulatory
Target2
Minimum
4.5%
6.0
8.0
3.0
18.0
6.75
2.5%
2.5
2.5
n/a
2.5
n/a
1.0%
1.0
1.0
0.5
1.0
0.50
8.0%
9.5
11.5
3.5
21.5
7.25
Pillar 1 & 2
Regulatory
Target
11.0%
12.5
14.5
3.5
24.5
7.25
DSB
3.0%
3.0
3.0
n/a
3.0
n/a
1 The higher of the D-SIB and G-SIB surcharge applies to risk weighted capital. The
2 The Bank’s countercyclical buffer requirement is 0% as of October 31, 2023.
D-SIB surcharge is currently equivalent to the Bank’s 1% G-SIB additional common
equity requirement for risk weighted capital. The G-SIB surcharge may increase above
1% if the Bank’s G-SIB score increases above certain thresholds to a maximum of
4.5%. OSFI’s LR Guideline includes a requirement for D-SIBs to hold a leverage ratio
buffer set at 50% of a D-SIB’s higher loss absorbency risk-weighted requirements,
effectively 0.50%. This buffer also applies to the TLAC Leverage ratio.
In fiscal 2020, OSFI introduced a number of measures to support D-SIBs’
ability to supply credit to the economy during an expected period of
disruption related to COVID-19 and market conditions. While most of
these measures have been unwound, some continue to be in effect during
the 2022 or 2023 reporting periods and are summarized below.
• On March 27, 2020, OSFI announced certain measures, including:
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 specifies methodologies for the measurement of credit, trading
market, and operational risks. The Bank uses the Internal Ratings-Based
approaches to credit risk for all material portfolios.
– Transitional arrangements for ECL provisioning available under the
Basel Framework would be introduced. The adjustment allowed a
portion of the increase in Stage 1 and Stage 2 allowances relative
to a baseline level to be included in CET1 Capital, rather than Tier 2
Capital, as the CAR guideline specifies. The baseline level is the sum
of Stage 1 and Stage 2 allowances as at the first quarter of 2020
(for October year-end deposit-taking institutions (DTIs)). This increase
is tax effected and is subject to a scaling factor. The scaling factor
remained at 25% in 2022, and was eliminated in 2023.
– The loan exposures in the Canada Emergency Business Account
(CEBA) Program, which was funded by the Government of Canada,
can be excluded from the risk-based capital ratios and from
leverage ratio calculations. For the Export Development Canada
Business Credit Availability Program, the government-guaranteed
portion of the loan is treated as a sovereign exposure, with the
remaining portion treated as a loan to the borrower. The entire
amount of the loan is included in leverage ratio calculations. As
of September 14, 2023, the repayment deadline for eligible CEBA
loan holders to qualify for partial loan forgiveness was extended to
January 18, 2024.
• On April 9, 2020, OSFI announced DTIs could temporarily exclude
exposures from central bank reserves and sovereign-issued securities
that qualify as High-Quality Liquid Assets (HQLA) under the Liquidity
Adequacy Requirements (LAR) Guideline from the leverage ratio
measures. The measure expired on April 1, 2023.
For accounting purposes, IFRS is followed for consolidation of
subsidiaries and joint ventures. For regulatory capital purposes, all
subsidiaries of the Bank are consolidated except for insurance subsidiaries
which are deconsolidated and follow prescribed treatment per OSFI’s CAR
guidelines. Insurance subsidiaries are subject to their own capital adequacy
reporting, such as OSFI’s Minimum Capital Test for General Insurance and
Life Insurance Capital Adequacy Test for Life and Health.
Some of the Bank’s subsidiaries are individually regulated by either
OSFI or other regulators. Many of these entities have minimum capital
requirements which may limit the Bank’s ability to extract capital or funds
for other uses.
As at October 31, 2023, the Bank’s CET1, Tier 1, and Total Capital
ratios were 14.4%, 16.2%, and 18.1%, respectively. The decrease in
the Bank’s CET1 Capital ratio from 16.2% as at October 31, 2022, was
primarily attributable to RWA growth across various segments (including
an increase in RWA as a result of the Cowen acquisition), the impact of
the terminated First Horizon acquisition-related capital hedging strategy,
the Stanford litigation settlement, common shares repurchased for
cancellation, and an increase in the goodwill and intangibles deduction
related to the Cowen acquisition. CET1 was also impacted by the CRD,
foreign exchange hedging of the First Horizon purchase price, and the
elimination of the scaling factor related to OSFI’s transition arrangements
for ECL provisioning. The impact of the foregoing items was partially
offset by organic growth, and the issuance of common shares pursuant to
the Bank’s dividend reinvestment plan.
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
69
As at October 31, 2023, the Bank’s leverage ratio was 4.4%. Compared
with the Bank’s leverage ratio of 4.9% at October 31, 2022, the decrease
was attributable primarily to increased leverage exposures across various
segments, largely driven by the expiration of the temporary exclusion
of central bank reserves in determining leverage exposure, common
shares repurchased for cancellation, and an increase in the goodwill and
intangibles deduction related to the Cowen acquisition, partially offset by
organic capital growth and the issuance of common shares pursuant to
the Bank’s dividend reinvestment plan.
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
treasury at an average market price based on the last five trading days
before the date of the dividend payment, with a discount of between
0% to 5% at the Bank’s discretion or purchased from the open market
at market price.
Common Equity Tier 1 Capital
CET1 Capital was $82.3 billion as at October 31, 2023. Earnings
contributed the majority of CET1 Capital growth in the year. Capital
management funding activities during the year included common
share issuance of $1.8 billion under the dividend reinvestment plan and
from stock option exercises, offset by common shares repurchased of
$4.3 billion.
Tier 1 and Tier 2 Capital
Tier 1 Capital was $92.8 billion as at October 31, 2023, consisting of CET1
Capital and Additional Tier 1 Capital of $82.3 billion and $10.4 billion,
respectively. The Bank’s Tier 1 Capital management activities during
the year consisted of the redemption of one Tier 1-qualifying capital
instrument as follows:
• On October 31, 2023, the bank redeemed all of its 16,000,000
outstanding Non-Cumulative 5-Year Rate Reset Class A First Preferred
Shares, Series 20 (the “Series 20 Shares”) at the price of $25.00 per
Series 20 Share for an aggregate total of approximately $400 million.
Tier 2 Capital was $10.9 billion as at October 31, 2023. Tier 2 Capital
management activities during the year consisted of the redemption of on
Tier 2-qualifying capital instrument as follows:
• On September 14, 2023, the bank redeemed all of its $1.75 billion
3.589% Non-Viability Contingent Capital (NVCC) subordinated
debentures due September 14, 2028 at a redemption price of
100 per cent of the principal amount, plus accrued and unpaid
interest to, but excluding, the redemption date.
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 capital adequacy requirements.
The ICAAP is led by TBSM and is supported by numerous functional
areas who collectively help assess the Bank’s internal capital adequacy.
This assessment evaluates the capacity to bear risk in congruence with
the Bank’s risk profile 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
On November 29, 2023, the Board approved a dividend in an amount
of one dollar and two cents ($1.02) per fully paid common share in the
capital stock of the Bank for the quarter ending January 31, 2024, payable
on and after January 31, 2024, to shareholders of record at the close of
business on January 10, 2024.
At October 31, 2023, the quarterly dividend was $0.96 per common
share. Common share cash dividends declared and paid during the year
totalled $3.84 per share (2022 – $3.56), representing a payout ratio
of 48%, consistent with the Bank’s target payout range of 40-50% of
adjusted earnings. For cash dividends payable on the Bank’s preferred
shares, refer to Note 20 of the 2023 Consolidated Financial Statements.
As at October 31, 2023, 1,791 million common shares were outstanding
(2022 – 1,821 million).
During the year ended October 31, 2023, under the dividend
reinvestment plan, the Bank issued 3.7 million common shares from
treasury with no discount and 16.8 million common shares with a
2% discount. During the year ended October 31, 2022, under the
dividend reinvestment plan, the Bank issued 2.5 million common shares
from treasury with no discount and 14.5 million common shares with
a 2% discount.
NORMAL COURSE ISSUER BID
On June 21, 2023, the Bank announced that the TSX and OSFI approved
the Bank’s previously announced normal course issuer bid (NCIB) to
repurchase for cancellation up to 30 million of its common shares
(June NCIB).
On August 28, 2023, the Bank announced that the TSX and OSFI had
approved the launch of a new NCIB to repurchase for cancellation up to
90 million of its common shares (August NCIB) upon completion of the
repurchase for cancellation of 30 million of its common shares under
the June NCIB. The June NCIB terminated on August 30, 2023 and the
August NCIB commenced on August 31, 2023.
During the year ended October 31, 2023, the Bank repurchased
52 million common shares under the June NCIB and the August NCIB, at
an average price of $82.356 per share for a total amount of $4.3 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 RISK-WEIGHTED ASSETS
|
(millions of Canadian dollars)
Credit risk
Retail
Residential secured
Qualifying revolving retail
Other retail
Non-retail
Corporate
Sovereign
Bank
Securitization exposures
Subordinated debt, equity, and other
capital instruments1
Other assets2
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 approaches2
Total credit risk
Market risk
Operational risk
Total
As at
October 31
2023
October 31
2022
$ 53,611
39,834
45,298
$ 37,654
36,151
37,981
211,479
13,656
14,080
16,652
34,655
37,867
467,132
n/a
n/a
467,132
16,952
87,077
195,775
4,263
11,436
17,205
30,910
n/a
371,375
20,847
38,118
430,340
22,913
63,795
$ 571,161
$ 517,048
1 Under Basel III, other capital instruments were included as part of Other assets.
2 Under Basel III, Other assets fall under the standardized approach. Under Basel III
Reforms, other assets do not fall under either the Standardized or IRB approach.
70
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
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, 2023. 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 Risk
64%
16%
13%
7%
TD Bank Group
CET1 RWA1
$ 467,132
Credit Risk
Trading Market Risk $ 16,952
$ 87,077
Operational Risk
Corporate
• Treasury and Balance
Sheet Management
• Other Control and
Service Functions
Economic Capital %
Credit Risk
Market Risk
Operational Risk
Other Risk
40%
23%
23%
14%
CET1 RWA1
Credit Risk
Trading Market Risk $
Operational Risk
$ 19,003
–
$ 8,812
Canadian Personal and
Commercial Banking
U.S. Retail
Wealth Management
and Insurance
Wholesale Banking
• Personal Deposits
• Real Estate Secured Lending
• Credit Cards & Payments
• Consumer Lending
• Commercial Banking
• Small Business Banking
• Auto Finance
• Merchant Solutions
• Personal Deposits
• Consumer Lending
• Credit Cards Services
• Retail Auto Finance
• Commercial Banking
• Small Business Banking
• Wealth Advice
• Asset Management
• Direct Investing
• Wealth Advice
• Asset Management
• Property and
Casualty Insurance
• Life and Health Insurance
• Global Markets
• Corporate and
Investment Banking
• Other
Economic Capital %
Credit Risk
Market Risk
Operational Risk
Other Risk
75%
7%
15%
3%
Credit Risk
Market Risk
Operational Risk
Other Risk
65%
21%
10%
4%
Credit Risk
Market Risk
Operational Risk
Other Risk
7%
–%
33%
60%
Credit Risk
Market Risk
Operational Risk
Other Risk
66%
20%
9%
5%
CET1 RWA1
Credit Risk
Trading Market Risk $
Operational Risk
$ 140,356
–
$ 28,158
Credit Risk
Trading Market Risk $
Operational Risk
$ 209,220
–
$ 27,131
Credit Risk
Trading Market Risk
Operational Risk
$ 7,609
$
–
$ 9,640
Credit Risk
$ 90,944
Trading Market Risk $ 16,952
$ 13,336
Operational Risk
1 Amounts are in millions of Canadian dollars
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
71
T A B L E 4 0
|
EQUITY AND OTHER SECURITIES1
(millions of shares/units and millions of Canadian dollars, except as noted)
Common shares outstanding
Treasury – common shares
Total common shares
Stock options
Vested
Non-vested
Preferred shares – Class A
Series 1
Series 3
Series 5
Series 7
Series 9
Series 16
Series 18
Series 202
Series 22
Series 24
Series 27
Series 28
Other equity instruments
Limited Recourse Capital Notes – Series 13
Limited Recourse Capital Notes – Series 23
Limited Recourse Capital Notes – Series 33,4
Treasury – preferred shares and other equity instruments
Total preferred shares and other equity instruments
As at
October 31, 2023
October 31, 2022
Number of
shares/units
1,791.4
(0.7)
1,790.7
Amount
$ 25,434
(64)
$ 25,370
Number of
shares/units
1,821.7
(1.0)
1,820.7
Amount
$ 24,363
(91)
$ 24,272
5.1
9.0
20.0
20.0
20.0
14.0
8.0
14.0
14.0
–
14.0
18.0
0.8
0.8
$
500
500
500
350
200
350
350
–
350
450
850
800
4.4
8.4
20.0
20.0
20.0
14.0
8.0
14.0
14.0
16.0
14.0
18.0
0.8
0.8
$
500
500
500
350
200
350
350
400
350
450
850
800
143.6
$ 5,200
159.6
$ 5,600
1.8
1.5
1.7
148.6
(0.1)
148.5
1,750
1,500
2,403
$ 10,853
(65)
$ 10,788
1.8
1.5
1.7
164.6
(0.1)
164.5
1,750
1,500
2,403
$ 11,253
(7)
$ 11,246
1 For further details, including the conversion and exchange features, and distributions,
3 For Limited Recourse Capital Notes (LRCNs), the number of shares/units represents
refer to Note 20 of the Bank’s 2023 Consolidated Financial Statements.
the number of notes issued.
2 On October 31, 2023, the Bank redeemed all of its 16 million outstanding Non-
Cumulative 5-Year Rate Reset Class A First Preferred Shares NVCC, Series 20
(“Series 20 Preferred Shares”), at a redemption price of $25.00 per Series 20
Preferred Share, for a total redemption cost of $400 million.
4 For LRCNs – Series 3, the amount represents the Canadian dollar equivalent of
the U.S. dollar notional amount. Refer to the “Preferred Shares and Other Equity
Instruments – Significant Terms and Conditions” table in Note 20 of the Bank’s 2023
Consolidated Financial Statements for further details.
NVCC Provision
If an NVCC trigger event were to occur, for all series of Class A First
Preferred Shares excluding the preferred shares issued with respect to
LRCNs, 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 1.0 billion
in aggregate.
The LRCNs, by virtue of the recourse to the preferred shares held in the
Limited Recourse Trust, include NVCC provisions. For LRCNs, if an NVCC
trigger were to occur, the maximum number of common shares that could
be issued, assuming there are no declared and unpaid dividends on the
preferred shares series issued in connection with such LRCNs, would be
1.1 billion in aggregate.
For NVCC subordinated notes and debentures, if an 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 2.7 billion in aggregate.
Future Regulatory Capital Developments
On January 31, 2022, OSFI announced revised capital, leverage, liquidity
and disclosure rules that incorporate the Basel III reforms with adjustments
to make them suitable for domestic implementation. Capital revisions
pertaining to the calculation of credit risk and operational risk were
implemented on February 1, 2023. Revisions pertaining to market risk
and credit valuation adjustment risk are effective November 1, 2023.
On November 7, 2022, OSFI announced a new Assurance on Capital,
Leverage and Liquidity Returns guideline. This guideline lays out OSFI’s
approach to enhancing and aligning assurance expectations over capital,
leverage and liquidity returns, including an external audit opinion on the
numerator and denominator of key regulatory ratios, senior management
attestation on regulatory returns, and an internal audit opinion on the
processes and controls followed in preparing these returns. The assurance
requirements for D-SIBs’ capital, liquidity and leverage returns for
internal audit commenced in fiscal 2023; the internal review and senior
management attestation requirements commence in fiscal 2024; and
the external audit assurance requirements commence in fiscal 2025.
On June 20, 2023, OSFI raised the DSB by 50 bps to 3.5% of total RWA,
effective November 1, 2023. As a result, the regulatory capital target for
CET1, Tier 1 Capital, and Total Capital will increase to 11.5%,13%, and
15%, respectively.
On September 12, 2023 OSFI published the final Parental Stand-Alone
(Solo) TLAC Framework for D-SIBs. The purpose of the Solo TLAC
framework is to ensure a non-viable D-SIB has sufficient loss absorbing
capacity on a stand-alone, or solo, legal entity basis to support its
resolution. D-SIBs are required to maintain a minimum Solo TLAC ratio
of 21.5%, effective November 1, 2023.
On October 20, 2023, OSFI released revisions to the Capital Adequacy
Requirements Guideline. The update includes requirements to address
risks associated with negatively amortizing mortgages, where payments
are not sufficient to cover the interest portion of the loans, among other
clarifications to the Guideline. This change is effective November 1, 2023.
72
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
Global Systemically Important Banks Designation
and Disclosures
The Financial Stability Board (FSB), in consultation with the BCBS and
national authorities, identifies G-SIBs. The G-SIB assessment methodology
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 Bank is required to publish the twelve indicators used in the
G-SIB indicator-based assessment framework. Public disclosure of
financial year-end data is required annually, no later than the date of
a bank’s first quarter public disclosure of shareholder financial data in
the following year.
Public communications on G-SIB status are issued annually each
November. On November 22, 2019, the Bank was designated as a G-SIB
by the FSB. The Bank continued to maintain its G-SIB status when the
FSB published the 2022 list of G-SIBs on November 21, 2022. As a result
of this designation, the Bank is 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 incremental 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. The G-SIB surcharge may increase
above 1% if the Bank’s G-SIB score increases above certain thresholds to a
maximum of 4.5%.
As a result of the Bank’s G-SIB designation, the U.S. Federal Reserve
requires TD Group US Holding LLC (TDGUS), as TD’s U.S. Intermediate
Holding Company (IHC), to maintain a minimum amount of TLAC and
long-term debt.
GROUP FINANCIAL CONDITION
Securitization and Off-Balance Sheet Arrangements
In the normal course of operations, the Bank engages in a variety
of financial 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 financial assets, to assist
TD’s clients in securitizing their financial assets, and to create investment
products for the Bank’s clients. Securitizations are an important part of
the financial markets, providing liquidity by facilitating investor access to
specific portfolios of assets and risks. Refer to Notes 2, 9, and 10 of the
2023 Consolidated Financial Statements for further information regarding
the Bank’s involvement with SEs.
Securitization of Bank-Originated Assets
The Bank securitizes residential mortgages, credit card loans, and business
and government 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 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
2023 Consolidated Financial Statements for further information.
Residential Mortgage Loans
The Bank securitizes residential mortgage loans through significant
unconsolidated SEs and Canadian non-SE third parties. Residential
mortgage loans securitized by the Bank may give rise to full derecognition
of the financial assets depending on the individual arrangement of each
transaction. In instances where the Bank fully derecognizes residential
mortgage loans, the Bank may be exposed to the risks of transferred
loans through retained interests. As at October 31, 2023, there were
$21.0 billion of securitized residential mortgage loans outstanding through
significant unconsolidated SEs (October 31, 2022 – $21.8 billion), and
$3.5 billion outstanding through non-SE third parties (October 31, 2022 –
$0.9 billion).
Credit Card Loans
The Bank securitizes credit card loans through an SE. The Bank
consolidates the SE as it serves as a financing 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, 2023, the Bank had $1.5 billion of securitized credit card
receivables outstanding (October 31, 2022 – $1.7 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 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 loans are all government insured. As at
October 31, 2023, the Bank had $401 million of securitized business and
government loans outstanding (October 31, 2022 – $591 million), with
carrying value of retained interests of $3 million (October 31, 2022 –
$5 million).
Securitization of Third-Party Originated Assets
Significant Unconsolidated Special Purpose Entities
Multi-Seller Conduits
The Bank securitizes third party-originated assets through Bank-
sponsored SEs, including its Canadian multi-seller conduits which are not
consolidated. These Canadian multi-seller conduits securitize Canadian
originated third-party assets. The Bank administers multi-seller conduits
and provides liquidity facilities as well as securities distribution services; it
may also provide credit enhancements. TD’s maximum potential exposure
to loss due to its ownership interest in commercial paper and through the
provision of liquidity facilities for multi-seller conduits was $13.3 billion
as at October 31, 2023 (October 31, 2022 – $10.8 billion). In addition, as
at October 31, 2023, the Bank had committed to provide an additional
$1.9 billion in liquidity facilities that can be used to support future asset-
backed commercial paper (ABCP) in the purchase of deal-specific assets
(October 31, 2022 – $2.1 billion).
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
73
T A B L E 4 1
|
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
Investment loans
Total exposure
October 31, 2023
October 31, 2022
As at
Exposure
and ratings
profile of
unconsolidated
SEs
AAA1
$ 8,221
4,266
102
64
609
$ 13,262
Expected
weighted-
average life
(years)2
Exposure and
ratings profile of
unconsolidated
SEs
AAA1
Expected
weighted-
average life
(years)2
2.4
2.3
0.3
4.4
2.0
2.3
$ 6,058
3,890
510
306
81
$ 10,845
3.3
2.6
2.8
1.2
4.4
3.0
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, 2023, the Bank held $2.2 billion of ABCP issued
by Bank-sponsored multi-seller conduits within the Trading loans,
securities, and other category on its 2023 Consolidated Balance Sheet
(October 31, 2022 – $1.8 billion).
OFF-BALANCE SHEET EXPOSURE TO THIRD-PARTY
SPONSORED CONDUITS
The Bank has off-balance sheet exposure to third-party sponsored conduits
arising from providing liquidity facilities and funding commitments of
$4.7 billion as at October 31, 2023 (October 31, 2022 – $3.1 billion). The
assets within these conduits are comprised of individual notes backed by
automotive loan receivables, credit card receivables, equipment receivables
and trade receivables. On-balance sheet exposure to third-party sponsored
conduits have been included in the financial statements.
COMMITMENTS
The Bank enters into various commitments to meet the financing needs
of the Bank’s clients, to earn fee income, and to lease premises and
equipment. Significant commitments of the Bank include financial and
performance standby letters of credit, documentary and commercial letters
of credit, commitments to extend credit, and obligations under long-
term non-cancellable leases for premises and equipment. 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 26 of
the 2023 Consolidated Financial Statements provides detailed information
about the Bank’s commitments including credit-related arrangements and
long-term commitments or leases.
GUARANTEES
In the normal course of business, the Bank enters into various guarantee
contracts to support its clients. The Bank’s significant types of guarantee
products are financial and performance standby letters of credit, credit
enhancements, and indemnification agreements. Certain guarantees
remain off-balance sheet. Refer to Note 26 of the 2023 Consolidated
Financial Statements for further information.
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 officers
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.
TRANSACTIONS WITH SUBSIDIARIES, SCHWAB, AND
SYMCOR INC.
Transactions between the Bank and its subsidiaries meet the definition
of related party transactions. If these transactions are eliminated on
consolidation, they are not disclosed as related party transactions.
Transactions between the Bank, Schwab, and Symcor Inc. (Symcor) also
qualify as related party transactions. There were no significant transactions
between the Bank, Schwab, and Symcor during the year ended
October 31, 2023, other than as described in the following sections
and in Note 12 of the 2023 Consolidated Financial Statements.
In addition, the Bank offers deferred share and other plans to non-
employee directors, executives, and certain other key employees. Refer to
Note 22 of the 2023 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.
i) TRANSACTIONS WITH SCHWAB
The Bank has significant influence over Schwab and accounts for
its investment in Schwab using the equity method. Pursuant to the
Stockholder Agreement in relation to the Bank’s equity investment in
Schwab, subject to certain conditions, the Bank has the right to designate
two members of Schwab’s Board of Directors and has representation on
two Board Committees. As of October 31, 2023, the Bank’s designated
directors were the Bank’s Group President and Chief Executive Officer and
the Bank’s Chair of the Board.
A description of significant transactions between the Bank and its affiliates
with Schwab is set forth below.
74
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
Insured Deposit Account Agreement
On November 25, 2019, the Bank and Schwab signed the 2019 Schwab
IDA Agreement, with an initial expiration date of July 1, 2031. Under the
2019 Schwab IDA Agreement, starting July 1, 2021, Schwab had the
option to reduce the deposits by up to US$10 billion per year (subject
to certain limitations and adjustments), with a floor of US$50 billion. In
addition, Schwab requested some further operational flexibility to allow
for the sweep deposit balances to fluctuate over time, under certain
conditions and subject to certain limitations.
On May 4, 2023, the Bank and Schwab entered into the 2023 Schwab
IDA Agreement, which replaced the 2019 Schwab IDA Agreement.
Pursuant to the 2023 Schwab IDA Agreement, the Bank continues to
make sweep deposit accounts available to clients of Schwab. Schwab
designates a portion of the deposits with the Bank as FROA. Remaining
deposits over the minimum level of FROA are designated as floating-rate
obligations. In comparison to the 2019 Schwab IDA Agreement, the
2023 Schwab IDA Agreement extends the initial expiration date by three
years to July 1, 2034 and provides for lower deposit balances in its first
six years, followed by higher balances in the later years. Specifically, until
September 2025, the aggregate FROA will serve as the floor. Thereafter,
the floor will be set at US$60 billion. In addition, Schwab has the option
to buy down up to $6.8 billion (US$5 billion) of FROA by paying the Bank
certain fees in accordance with the 2023 Schwab IDA Agreement, subject
to certain limits.
During the year ended October 31, 2023, Schwab exercised its option
to buy down $6.1 billion (US$4.5 billion) of FROA and paid $305 million
(US$227 million) in termination fees to the Bank in accordance with the
2023 Schwab IDA Agreement. The fees are intended to compensate
the Bank for losses incurred this year from discontinuing certain hedging
relationships, as well as for lost revenues. The net impact is recorded in net
interest income.
As at October 31, 2023, deposits under the Schwab IDA Agreement
were $133 billion (US$96 billion) (October 31, 2022 – $174 billion
(US$128 billion)). The Bank paid fees, net of the termination fees received
from Schwab, of $932 million during the year ended October 31, 2023
(October 31, 2022 – $1.7 billion) to Schwab related to sweep deposit
accounts. The amount paid by the Bank is based on the average insured
deposit balance of $147 billion for the year ended October 31, 2023
(October 31, 2022 – $182 billion) and yields based on agreed upon
market benchmarks, less the actual interest paid to clients of Schwab.
As at October 31, 2023, amounts receivable from Schwab were
$38 million (October 31, 2022 – $31 million). As at October 31, 2023,
amounts payable to Schwab were $24 million (October 31, 2022 –
$152 million).
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, 2023, the Bank paid $81 million (October 31, 2022 –
$77 million) for these services. As at October 31, 2023, the amount
payable to Symcor was $12 million (October 31, 2022 – $12 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, 2023, and October 31, 2022.
GROUP FINANCIAL CONDITION
Financial Instruments
As a financial institution, the Bank’s assets and liabilities are substantially
composed of financial 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 financial 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 financial 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 profit. Trading financial instruments include, but are not limited
to, trading securities, trading deposits, and trading derivatives. Non-
trading financial instruments include the majority of the Bank’s lending
portfolio, non-trading securities, hedging derivatives, and the majority of
the Bank’s financial liabilities. In accordance with accounting standards
related to financial instruments, financial assets or liabilities classified as
held-for-trading, non-trading FVTPL, designated at FVTPL, FVOCI, and all
derivatives are measured at fair value in the Bank’s 2023 Consolidated
Financial Statements. DSAC, most loans, and other liabilities are carried at
amortized cost using the effective interest rate (EIR) method. For details
on how fair values of financial instruments are determined, refer to the
“Accounting Judgments, Estimates, and Assumptions” – “Fair Value
Measurement” section of this document. The use of financial instruments
allows the Bank to earn profits 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.
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
75
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 difficult to predict, that could
cause the Bank’s results to differ significantly from the Bank’s 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 specific, which may cause the Bank’s
actual results to differ materially from the plan, objectives, estimates
or 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
The Bank 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
management is focused due to the potential magnitude or immediacy of
their impacts.
Risks are identified, discussed, and actioned by senior management and
reported quarterly to the Risk Committee and the Board. Specific plans
to mitigate top and emerging risks are prepared, monitored, and adjusted
as required.
General Business and Economic Conditions
The Bank 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 significantly
affected by the general business and economic conditions in these regions,
which could have an adverse impact on the Bank’s results, business,
financial condition or liquidity, and could result in changes to the way
the Bank operates. These conditions include short-term and long-term
interest rates, inflation, the decline in economic activity that could lead
to a recession, volatility in financial markets, and related market liquidity,
funding costs, real estate prices, employment levels, consumer spending
and debt levels, evolving consumer trends and related changes to business
models, business investment and overall business sentiment, government
policy including levels of government spending, monetary policy,
fiscal policy (including tax policy and rate changes), exchange rates,
sovereign debt risks.
Geopolitical Risk
Government policy, international trade and political relations across the
globe may impact overall market and economic stability, including in
the regions where the Bank operates, or where its customers operate.
While the nature and extent of risks may vary, they have the potential to
disrupt global economic growth, create volatility in financial markets that
may affect the Bank’s trading and non-trading activities, market liquidity,
funding costs, interest rates, foreign exchange, commodity prices, credit
spreads, fiscal policy, and directly and indirectly influence general business
and economic conditions in ways that may have an adverse impact on
the Bank and its customers. Geopolitical risks in 2023 included ongoing
global tensions resulting in sanctions and countersanctions and related
operational complexities, supply chain disruptions, being subjected
to heightened regulatory focus on climate change and transition to a
low-carbon economy, increased likelihood of critical public and private
infrastructure and networks to cyber-attacks, the Russia/Ukraine war,
and the resulting tensions between Russia and other nation states, social
unrest in the Middle East that have escalated due to the Israel/Hamas
war, political and economic turmoil, threats of terrorism and ongoing
protectionism measures due to a decline in global alignment.
Inflation, Rising Rates, and Recession
Interest rates are expected to remain at elevated levels and potentially
increase further as central banks continue their efforts to manage
inflation to target levels. Elevated interest rates and other macroeconomic
conditions could have adverse impacts on the Bank’s cost of funding,
result in increased loan delinquencies or impairments and higher credit
losses due to deterioration in the financial condition of the Bank’s
customers and may necessitate further increases in the Bank’s provision
for credit losses and net charge offs, all of which could negatively impact
the Bank’s business, financial condition, liquidity and results of operations.
In addition, actual stress levels experienced by the Bank’s borrowers may
differ from assumptions incorporated in estimates or models used by
the Bank. The elevated rate environment also increases concerns around
the probability of a recession in Canada, the U.S. and other regions
where the Bank and its customers operate and continues to impact the
macroeconomic and business environment. Such developments could have
an adverse impact on the Bank’s business, financial condition, liquidity and
results of operations.
Regulatory Oversight and Compliance Risk
The Bank and its businesses are subject to extensive regulation and
oversight by a number of different governments, regulators and self-
regulatory organizations (collectively, “Bank regulators”) around the
world. Regulatory and legislative changes and changes in Bank regulators’
expectations occur in all jurisdictions in which the Bank operates.
Bank regulators around the world have demonstrated an increased
focus on capital and liquidity risk management; consumer protection;
data control, use and security; conduct risk and internal risk and control
frameworks across the three lines of defence; and money laundering,
terrorist financing and economic sanctions risks and threats. There is
heightened scrutiny by Bank regulators globally on the impact of rising
interest rates and inflation on customers, as well as on the Bank’s
operations and its management and oversight of risks associated with
these matters. In addition, these risks continue to rapidly evolve, as a result
of new or emerging threats, including geopolitical and those associated
with use of new, emerging and interrelated technologies, artificial
intelligence, machine learning, models and decision-making tools.
The content and application of laws, rules and regulations affecting
financial services firms may sometimes vary according to factors such as
the size of the firm, the jurisdiction in which it is organized or operates,
and other criteria. There can also be significant differences in the ways
that similar regulatory initiatives affecting the financial services industry are
implemented in Canada, the United States and other countries and regions
in which the Bank does business. For example, when adopting rules
that are intended to implement a global regulatory standard, a national
regulator may introduce additional or more restrictive requirements.
Furthermore, some of the Bank’s regulators have the discretion to impose
additional standards or guidance regarding the Bank’s risk, capital and
liquidity management, or other matters within their regulatory scope, and
in some cases the Bank may be prohibited by law from publicly disclosing
such additional standards or guidance.
The Bank monitors and evaluates the potential impact of applicable
regulatory developments (including enacted and proposed rules,
standards, public enforcement actions, consent orders, 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 Bank regulator expectations, it is possible that:
(i) the Bank may not be able to accurately predict the impact of regulatory
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TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
developments, or the interpretation or focus of enforcement actions taken
by governments, regulators and courts, (ii) the Bank 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; or (iii) regulators and other
parties could challenge the Bank’s compliance. Also, it may be determined
that the Bank has not adequately, completely or timely addressed
regulatory developments or other regulatory actions, such as enforcement
actions, to which it is subject, in a manner which meets Bank regulator
expectations. The Bank has been subject to regulatory enforcement
proceedings and has entered into settlement arrangements with Bank
regulators, and the Bank may continue to face a greater number or wider
scope of investigations, enforcement actions, and litigation. This could
require the Bank to take further actions or incur more costs than expected
and may expose the Bank to litigation, enforcement and reputational risk.
Regulatory and legislative changes and changes in expectations will
continue to increase the Bank’s compliance and operational risks and costs.
In addition, legislative and regulatory initiatives could require the Bank to
make significant modifications to its operations in the relevant countries
or regions in order to comply with those requirements. This could result in
increased costs as well as adversely affect the Bank’s businesses and results
of operations. Furthermore, if governments or regulators take formal
enforcement action against the Bank, the Bank’s operations, business
strategies and product and service offerings may be adversely impacted,
therefore impacting financial results.
The Bank may incur greater than expected costs associated with
enhancing its compliance, or may incur fines, penalties or judgments not
in its favour associated with non-compliance, all of which could also lead
to negative impacts on the Bank’s financial performance, operational
changes including restrictions on offering certain products or services or
on operating in certain jurisdictions, and its reputation.
Executing on Long-Term Strategies, Shorter-Term Key Strategic
Priorities, Acquisitions and Investments
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; integrating recently acquired businesses
(e.g., Cowen); projects to meet new regulatory requirements; building
new platforms, technology, and omnichannel capabilities; and
enhancements to existing technology. Risk can be elevated due to the
size, scope, velocity, interdependency, and complexity of projects; limited
timeframes to complete projects; and competing priorities for limited
specialized resources.
The Bank regularly explores opportunities to acquire companies or
businesses, directly or indirectly, through the acquisition strategies of its
subsidiaries. In respect of acquisitions, the Bank undertakes transaction
assessments and due diligence before completing a merger or an
acquisition, ensures the transaction fits within the Bank’s Risk Appetite,
and closely monitors integration activities and performance post
acquisition close. However, the Bank’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.
While there is significant management attention on the governance,
oversight, methodology, tools, and resources needed to manage the Bank’s
strategies and priorities, the Bank’s ability to execute on them is dependent
on a number of assumptions and factors. These include those set out
in the “Economic Summary and Outlook”, “Key Priorities for 2024”,
“2023 Accomplishments and Focus for 2024”, “Operating Environment
and Outlook”, and “Managing Risk” sections of this document, as well
as disciplined resource and expense management and the Bank’s 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
difficult to predict.
The Bank may not achieve its financial or strategic objectives, including
anticipated cost savings or revenue synergies, following acquisition and
integration activities. In addition, from time to time, the Bank may invest
in companies without taking a controlling position in those companies,
which may subject the Bank to the operating and financial risks of
those companies, the risk that these companies may make decisions
that the Bank does not agree with, and the risk that the Bank may have
differing objectives than the companies in which the Bank has interests.
As at October 31, 2023, the Bank’s reported investment in Schwab was
approximately 12.4% of the outstanding voting and non-voting common
shares of Schwab, and the Bank is not permitted to own more than
9.9% of the voting common shares of Schwab. The value of the Bank’s
investment in Schwab and its contribution to the Bank’s financial results
are vulnerable to poor financial performance or other issues at Schwab
affecting its business. In addition, the Bank may be affected by actions
taken by Schwab, or if Schwab does not perform its obligations, pursuant
to the Schwab IDA agreement (as further described in the “Related
Party Transactions” section of this document). Further, the Bank relies on
Schwab for its financial results that are included in the Bank’s financial
statements. Although the Bank has director designation rights to the
Schwab board of directors and certain other rights under the Stockholder
Agreement with Schwab so long as it holds at least a 5% equity interest
in Schwab (and currently has designated two directors to serve on the
Schwab board), these rights may not mitigate the Bank’s exposure to poor
financial performance or other issues at Schwab that may affect the Bank’s
financial results.
If any of the Bank’s strategies, priorities, acquisition and integration
activities or investments are not successfully executed, or do not achieve
their financial or strategic objectives, there may be an impact on the Bank’s
operations and financial performance and the Bank’s earnings could grow
more slowly or decline.
Technology and Cyber Security Risk
Technology and cyber security risks for large financial institutions like
the Bank have increased in recent years, especially due to heightened
geopolitical tensions that increase the risk of cyber-attacks. The rising
likelihood of attacks on critical infrastructure and supply chains is due, in
part, to the proliferation, sophistication and constant evolution of new
technologies and attack methodologies used by threat actors, such as
organized criminals, nation states, sociopolitical entities and other internal
and external parties. The heightened risks are also a result of the Bank’s
size and scale of operations, geographic footprint, the complexity of its
technology infrastructure, its increasing reliance on internet capabilities,
cloud and telecommunications technologies to conduct financial
transactions, such as its continued development of mobile and internet
banking platforms as well as opportunistic threats by actors that have
accelerated exploitations of new weaknesses, misconfigurations,
or vulnerabilities.
The Bank’s technologies, systems and networks, those of the Bank’s
customers (including their own devices), and 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 (such
as loss or exposure of confidential information, including customer or
employee information), identity theft and corporate espionage, or other
compromises. The Bank has experienced service disruptions as a result of
technology failure at a third party and may be subject to such disruptions
in the future due to cyber-attacks and/or technology failure. The Bank’s
use of third-party service providers, which are subject to these potential
compromises, increases the risk of potential attack, breach or disruption
as the Bank has less immediate oversight and direct control over the third
parties’ technology infrastructure or information security.
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
77
Although the Bank has not experienced any material financial losses or
non-financial harm relating to technology failure, cyber-attacks, data
security or other breaches, the Bank may experience material loss or
damage in the future as a result of targeted and automated online attacks
on banking systems and applications, supply chain attacks, ransomware
attacks, introduction of malicious software, denial of service attacks,
malicious insider or service provider exfiltrating data, and phishing attacks,
among others. Any of these attacks could result in fraud, disclosure/
theft of data or funds, or the disruption of the Bank’s operations. Cyber-
attacks may include attempts by employees, agents or third-party service
providers of the Bank to disrupt operations, access or disclose sensitive
information or other data of the Bank, its customers or its employees. In
addition, attempts to illicitly or misleadingly induce employees, customers,
service providers, or other users of the Bank’s systems occur, and will
likely continue to occur, in an effort to obtain sensitive information, gain
access to the Bank’s or its customers’ or employees’ data or customer or
Bank funds, or to disrupt the Bank’s operations. In addition, the Bank’s
customers often use their own devices, such as computers, smartphones,
and tablets, which limits the Bank’s ability to mitigate certain risks
introduced through these personal devices.
The Bank regularly reviews external events and assesses and enhances
its controls and response capabilities as it considers necessary to mitigate
against the risk of cyber-attacks or data security or other breaches,
but these activities may not mitigate all risks, and the Bank may experience
loss or damage arising from such attacks. Cyber and technology-related
risks have become increasingly difficult to mitigate in totality mainly
because the tactics, techniques, and procedures used change frequently
and risks can originate from a wide variety of sources that have also
become increasingly sophisticated. As a result, the industry and the Bank
are susceptible to experiencing potential financial and non-financial loss
and/or harm from these attacks. The adoption of certain technologies,
such as cloud computing, artificial intelligence, machine learning,
robotics, and process automation call for continued focus and investment
to manage the Bank’s risks effectively. It is possible that the Bank, or
those with whom the Bank does business, have not anticipated or
implemented, or may not anticipate or implement effective measures
against all such cyber and technology-related risks, particularly because
the tactics, techniques, and procedures used change frequently and
risks can originate from a wide variety of sources that have also become
increasingly sophisticated.
Furthermore, cyber insurance providers are modifying their terms as a
result of increased global cyber activity causing pricing uncertainty and
coverage term changes across the industry. This has the potential to
impact the Bank’s cyber insurance purchased to mitigate risk and may
limit the amount of coverage available for financial losses. As such, with
any cyber-attack, disruption of services, data, security or other breaches
(including loss or exposure of confidential information), identity theft,
corporate espionage or other compromise of technology or information
systems, hardware or related processes, or any significant issues caused by
weakness in information technology infrastructure and systems, the Bank
may experience, among other things, financial loss; a loss of customers
or business opportunities; disruption to operations; misappropriation or
unauthorized release of confidential, financial 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 costs; increased costs to maintain and update the Bank’s
operational and security systems and infrastructure; and reputational
damage. If the Bank were to experience such an incident, it may take
a significant amount of time and resources to investigate the incident
to obtain full and reliable information necessary to assess the impact.
The Bank’s owned and operated applications, platforms, networks,
processes, products, and services could be subject to failures or disruptions
as a result of human error, natural disasters, utility or infrastructure
disruptions, pandemics or other public health emergencies, malicious
insiders or service providers, 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 financial loss.
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TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
Model Risk
Model uncertainty remains due to emerging risks (including high inflation,
rising interest rates and prolonged high interest rate environment), with
model reliability impacted across some business areas. Although short-
and long-term mitigants were identified and executed to help improve
resilience of models trained on historical data, that may become less
relevant under the current environment (e.g., in the case of IFRS 9 and
stress testing models). Management’s efforts to assess and update models
may not adequately or successfully improve the resilience of such models.
Fraud Activity
Fraud risk is the risk associated with acts designed to deceive others,
resulting in financial loss and harm to shareholder value, brand,
reputation, employee satisfaction and customers. Fraud Risk arises from
numerous sources, including potential or existing customers, agents,
third parties, contractors, employees and other internal or external
parties, including service providers to the Bank’s customers that store
bank account credentials and harvest data based on customers’ web
banking information and activities. 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 financial statements
and financial 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.
Misrepresentation of this information potentially exposes the Bank to
increased fraud events when transacting with customers or counterparties.
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.
The Bank has continued to see an increase in the volume of fraud
attacks through 2023. Fraud attacks have transitioned back to traditional
transaction level fraud, and away from attacking COVID-19 government
related programs. Attempts to illicitly or misleadingly induce employees,
customers, third-party service providers or other uses of the Bank’s
systems will continue, in an effort to obtain sensitive information and gain
access to the Bank’s or its customers’ or employees’ data or customer
or Bank funds.
Losses attributed to fraud during the 2023 fiscal year increased as a result
of several large dollar loss events, perpetrated against the Bank’s deposit
channels. Additionally TD, and the industry as a whole, has experienced
an increase in attack levels. Despite the Bank’s investments in fraud
prevention and detection programs, capabilities, measures and defences,
they have not, and in the future may not successfully mitigate against
all fraudulent activity which could result in financial loss or disruptions in
the Bank’s businesses. In addition to the risk of material loss (financial loss,
misappropriation of confidential information or other assets of the Bank or
its customers and counterparties) that could result from fraudulent activity,
the Bank could face legal action and customer and market confidence in
the Bank could be impacted.
Insider Risk
Insider risk is an increasing risk across all industries that can have
significant impact to organizations, including the Bank. The Bank closely
monitors the internal threat environment across all typologies (e.g. cyber,
third parties, fraud, workplace violence/harassment, etc.) and continues
to invest in TD’s insider risk management program. Notwithstanding,
the Bank continues to be exposed to adverse regulatory, financial,
operational and reputational impacts as a result of insider events.
Third-Party Risk
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 efficiencies. However, the Bank may become
dependent on third parties with respect to continuity, reliability, and
security, and their associated processes, people and facilities. As the
financial services industry and its supply chains become more complex, the
need for resilient, robust, holistic, and sophisticated controls, and ongoing
oversight increases.
The Bank also recognizes that the applications, platforms, networks,
processes, products, and services from third parties could be subject
to failures or disruptions impacting the delivery of services or products
to the Bank. These failures or disruptions could be because of human
error, natural disasters, utility or infrastructure disruptions, changes in
the financial condition of such third parties, other general business and
economic conditions which may impact such third parties, pandemics or
other public health emergencies, malicious insiders or service providers,
cyber-attacks or other criminal or terrorist acts, or non-compliance with
regulations. Such adverse effects could limit the Bank’s ability to deliver
products and services to customers, lead to disruptions in the Bank’s
businesses, expose the Bank to financial losses that the Bank is unable
to recover from such third parties, and expose the Bank to legal and
regulatory risks, including those outlined under the headings ‘Regulatory
Oversight and Compliance Risk’ and ‘Legal Proceedings’, and/or damage
the Bank’s reputation, which in turn could result in an adverse impact to
the Bank’s operations, earnings or financial condition.
Introduction of New and Changes to Current Laws
and Regulations
The financial services industry is highly regulated. The Bank’s operations,
profitability and reputation could be adversely affected by the introduction
of new laws and regulations, amendments to, or changes in interpretation
or application of current laws, rules and regulations, issuance of judicial
decisions, and changes in enforcement pace or activities. These adverse
effects could also result from the fiscal, economic, and monetary
policies of various central banks, regulatory agencies, self-regulatory
organizations and governments in Canada, the United States, the United
Kingdom, Ireland and other countries, and changes in the interpretation
or implementation of those policies. Such adverse effects may include
incurring additional costs and devoting additional 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
on the basis of 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, financial and
non-financial penalties, and changes including restrictions on offering
certain products or services or on operating in certain jurisdictions, that
could adversely impact its earnings, operations and reputation. See
also the risks described under the heading ‘Regulatory Oversight and
Compliance Risk’.
Anti-money laundering, anti-terrorist financing and economic sanctions
requirements continue to be a high priority globally, with an increasing
pace of regulatory change and evolving industry standards in all of the
jurisdictions in which the Bank operates.
The global data and privacy landscape is dynamic and regulatory
expectations continue to evolve. New and amended legislation is
anticipated in various jurisdictions in which the Bank does business.
Canadian, U.S. and global regulators have been increasingly focused on
conduct, operational resilience and consumer protection matters and
risks, which could lead to investigations, remediation requirements, and
higher compliance costs. While the Bank takes numerous steps to continue
to strengthen its conduct programs and its operational resilience, and
prevent and detect outcomes which could potentially harm customers,
colleagues or the integrity of the markets, such outcomes may not always
be prevented or detected.
Regulators have increased their focus on ESG matters, including the
impact of climate change, greenwashing, sustainable finance, financial
and economic inclusion and ESG-related policies and disclosure regarding
such matters, with significant new legislation and amended legislation
anticipated in some of the jurisdictions in which the Bank does business.
In addition, there may be changes in interpretation or application of
current laws and regulations to incorporate ESG matters in ways that were
not previously anticipated.
Despite the Bank’s monitoring and evaluation of the potential impact
of rules, proposals, public enforcement actions, consent orders and
regulatory guidance, unanticipated new regulations or regulatory
interpretations applicable to the Bank may be introduced by governments
and regulators around the world and the issuance of judicial decisions may
result in unanticipated consequences to the Bank.
Canada
The Canadian Securities Administrators have passed regulations with
operational impacts related to shortening the Canadian trade settlement
cycle from T+2 to T+1 to align with U.S. trade settlement and enhanced
client reporting of fund expenses, amongst others. The Bank is taking
steps to implement those regulations and is monitoring other regulatory
initiatives, all of which, when implemented, could result in increased
compliance costs that may impact the Bank’s businesses, operations
and results.
In Canada, there are a number of government and regulatory initiatives
underway that could impact financial institutions, including OSFI’s
expanded mandate, new Supervisory Framework, and initiatives with
respect to payments evolution and modernization, open banking,
consumer protection, protection of customer data, technology and
cyber security, climate risk management and disclosure, dealing with
vulnerable persons, and anti-money laundering. For example, OSFI
released a guideline related to technology and cyber risk management,
which will come into effect in 2024, and will require the Bank to assess its
governance and risk management framework, technology operations and
resilience, and cyber-security strategies and frameworks, and make any
necessary changes to mitigate technology and cyber risks in compliance
with the guideline, all of which could result in increased compliance
costs and impact the Bank’s organizational plans, policies, processes
and standards.
United States
In July 2023, the U.S. banking regulators proposed regulations modifying
U.S. capital rules to effectuate the Basel III standards (as well as other
changes), with phased implementation targeted to begin in July 2025.
The proposed rule is expected to increase capital requirements on large
banks with more than US$100 billion in total assets. The Federal Reserve
estimates relative capital requirements would increase approximately 14%
for the intermediate holding companies of foreign banking organizations.
These changes would impact the Bank’s intermediate holding company
and subsidiaries but would not have a direct impact on the Bank’s CET1
ratios, which are based on OFSI rules. The proposed rule would eliminate
the Accumulated Other Comprehensive Income opt-out following a three-
year transition period, which would require reflecting unrealized losses and
gains from Available-for-sale securities in regulatory capital.
In addition, the Federal Reserve has, as part of a separate proposed rule
on a G-SIB surcharge, proposed changes to the definition of the “cross-
jurisdictional activity” risk-based indicator. The proposed change would
include cross-jurisdictional derivatives exposures (which are currently
excluded) in the calculation of cross-jurisdictional activity. The Federal
Reserve estimates that this change in approach would substantially
increase the reported value of cross-jurisdictional activity in the combined
U.S. operations (CUSO) and intermediate holding companies of foreign
banking organizations. Exceeding US$75 billion in cross-jurisdictional
activity would result in treatment as a “Category II” institution under the
Federal Reserve’s regulatory framework. The Federal Reserve expects seven
large foreign banking organizations would move into Category II based on
this change in approach, and it is likely that the Bank would be impacted.
These proposed rules are at an early stage of the rule-making process.
There may be changes made to the proposal before the rules are finalized
and it is unclear what the substance of the final rules, the timing on
finalization of the rules, and the time frame for compliance, will be. It is
likely that the Bank will incur operational, capital, liquidity and compliance
costs resulting from the changes in these rules.
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
79
The current U.S. regulatory environment for banking organizations may
be further impacted by additional legislative or regulatory developments,
including resulting from changes in U.S. executive administration,
congressional leadership and/or agency leadership, and regulators
focusing on potential racial discrimination and economic inequity,
including fair lending and unfair, deceptive, or abuse acts or practices.
The U.S. banking regulators will likely pursue further changes to the
regulation and supervision of banks in response to bank failures in Spring
2023 and have identified changes to liquidity, interest rate risk and
incentive compensation as areas of focus. The ultimate outcome of these
developments and their impact on the Bank remain uncertain.
Europe
In Europe, there remain a number of uncertainties in connection with the
future of the United Kingdom – European Union relationship, 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 customers in the region.
Level of Competition, Shifts in Consumer Attitudes, 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 influenced by many factors, including the Bank’s reputation as well
as the pricing, market differentiation, and overall customer experience of
the Bank’s products and services.
Enhanced competition from incumbents and new entrants may impact
the Bank’s pricing of products and services and may cause it to lose
revenue and/or market share. Increased competition requires the Bank to
make additional short and long-term investments to remain competitive
and continue delivering differentiated value to its customers. 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 or big
technology competitors) of financial products and services. Non-depository
or non-financial institutions are often able to offer products and services
that were traditionally banking products and compete with banks in
offering digital financial solutions (primarily mobile or web-based services),
without facing the same regulatory requirements or oversight. These
competitors may also operate at much lower costs relative to revenue or
balances than traditional banks or offer financial services at a loss to drive
user growth or to support their other profitable businesses. These third
parties can seek to acquire customer relationships, react quickly to changes
in consumer behaviours, and disintermediate customers from their primary
financial institution, which can also increase fraud and privacy risks for
customers and financial institutions in general. The nature of disruption is
such that it can be difficult 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.
The Bank is advancing its artificial intelligence (AI) practice and capabilities
to augment the Bank’s business decisions and risk management, improve
customer experiences and drive operational efficiencies. This includes
studying generative AI, which has garnered significant public attention
and is already demonstrating the potential to further enhance customer
experience and outcomes for the Bank; however, all forms of AI may
not appropriately or sufficiently replicate certain outcomes or accurately
predict future events or exposures.
While TD pursues a comprehensive enterprise innovation approach
including colleague ideation, an incubator in TD Lab, acceleration activities
in agile pods, a patent portfolio, a human centered design practice and
certain relationships with Big Tech and Fin Tech, the Bank still may not
be able to remain competitive and deliver differentiated value to its
customers. In turn, this could adversely impact the Bank’s earnings.
Environmental and Social Risk (including Climate Risk)
As a financial institution, the Bank is subject to environmental and
social (E&S) risk.
Environmental risk is the risk of financial loss, harm, or reputational
damage resulting from environmental factors, including climate change
and nature loss (e.g., loss of biodiversity and deforestation).
Climate risk is the risk of reputational damage and/or financial loss arising
from materialized credit, market, operational or other risks resulting from
the physical and transition risks of climate change to the Bank, its clients,
or the communities the Bank operates in. This includes physical risks
arising from the consequences of a changing climate, including acute
physical risks stemming from extreme weather events happening with
increasing severity and frequency (e.g., wildfires, heat waves, and floods)
and chronic physical risks stemming from longer-term, progressive shifts
in climatic and environmental conditions (e.g., rising sea levels and global
warming). Transition risks arise from the process of shifting to a low-
carbon economy, influenced by new and emerging climate-related public
policies and regulations, changing societal demands and preferences,
technologies, stakeholder expectations, and legal developments.
Social risk is the risk of financial loss, harm, or reputational damage
resulting from social factors, including human rights (e.g., discrimination,
Indigenous Peoples’ rights, modern slavery, and human trafficking), the
social impacts of climate change (e.g., poverty, health, and economic and
physical displacement) and the health and wellbeing of employees (e.g.,
inclusion and diversity, pay equity, mental health, physical wellbeing, and
workplace safety). Organizations, including the Bank, are under increasing
scrutiny to address social and financial inequalities among racialized and
other marginalized groups and are subject to rules and regulations both
locally and internationally.
E&S risk is a transverse risk and implicates all of the Bank’s Major Risk
Categories. Drivers of E&S risk are often multi-faceted and can originate
from the Bank’s internal environment, including its operations, business
activities, E&S-related targets, commitments and disclosure, products,
clients, colleagues, or suppliers. Drivers of E&S risk can also originate from
the Bank’s external environment, including the communities in which
the Bank operates, as well as second-order impacts of physical risks and
the transition to a low-carbon economy.
E&S risks may have financial, reputational, and/or other implications for
both the Bank and its stakeholders (including its customers, suppliers,
and shareholders) over a range of timeframes. These risks may arise from
the Bank’s actual or perceived actions, or inaction, in relation to climate
change and other E&S issues, its progress against its E&S targets or
commitments, or its disclosures on these matters. These risks could also
result from E&S matters impacting the Bank’s stakeholders. The Bank’s
participation in external E&S-related organizations or commitments may
exacerbate these risks and subject the Bank to increased scrutiny from its
stakeholders. In addition, the Bank may be subject to legal and regulatory
risks relating to E&S matters, including regulatory orders, fines, and
enforcement actions; financial supervisory capital adequacy requirements;
and legal action by shareholders or other stakeholders, including the
risks described in the ‘Other Risk Factors – Legal Proceedings’ section.
Additionally, different stakeholder groups may have divergent views on
E&S-related matters. This divergence increases the risk that any action,
or inaction, will be perceived negatively by at least some stakeholders. In
the U.S., there has been increased legislative activity by state governments
that restricts the flow of capital and investment by financial institutions in
state governmental entities, including anti-ESG initiatives that are designed
to push back against corporate ESG policies. The Bank is monitoring
these trends and assessing their potential impact in the context of TD’s
ESG-related practices and policies.
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TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
Failure to successfully manage E&S-related expectations across various
divergent perspectives may negatively impact the Bank’s reputation and
financial results. “Greenwashing” and “social washing”, where claims
of E&S benefits are made in relation to products or services or corporate
performance that are false, or which give a misleading impression, have
accelerated in focus inside and outside the Bank, and public commitments,
new products and disclosures can potentially expose financial institutions
to the risk. Prosecution of greenwashing claims has occurred in
jurisdictions in which the Bank operates, including Canada, the United
States and Europe. The Bank continues to closely monitor trends in
E&S-related litigation.
OTHER RISK FACTORS
Legal Proceedings
Given the highly regulated and consumer-facing nature of the financial
services industry, the Bank is exposed to significant regulatory, quasi-
regulatory and self-regulatory investigations and enforcement proceedings
related to its business and operations. In addition, the Bank and 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 related to its businesses and operations. A single event involving
a potential violation of law or regulation may give rise to numerous and
overlapping investigations and proceedings by multiple federal, provincial,
state or local agencies and officials in Canada, the United States or other
jurisdictions. Furthermore, if another financial institution violates a law
or regulation relating to a particular business activity or practice, this will
often give rise to an investigation by regulators and other governmental
agencies of the same or similar activity or practice by the Bank.
Actions currently pending against the Bank, or in which the Bank is
otherwise involved, may result in judgments, settlements, fines, penalties,
disgorgements, injunctions, increased exposure to litigation, business
improvement orders, limitations or prohibitions from engaging in
business activities, changes to the operation or management of business
activities, or other results adverse to the Bank, which could materially
affect the Bank’s business, financial condition and operations, and/or
cause serious reputational harm to the Bank, which could also affect
the Bank’s future business prospects. 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 difficult to predict
or estimate, in some instances, until late in the proceedings, which may
last several years. Although the Bank establishes reserves for these matters
according to accounting requirements, the amount of loss ultimately
incurred in relation to those matters may be material and may be
substantially different from the amounts accrued. Furthermore, the Bank
may not establish reserves for matters where the outcome is uncertain.
Regulators and other government agencies examine the operations of
the Bank and its subsidiaries on both a routine- and targeted-exam basis,
and they may pursue regulatory settlements, criminal proceedings or
other enforcement actions against the Bank in the future. For additional
information relating to the Bank’s material legal proceedings, refer to
Note 26 of the 2023 Consolidated Financial Statements.
Ability to Attract, Develop, and Retain Key Talent
The Bank’s future performance is dependent on the availability of qualified
talent and the Bank’s ability to attract, develop, and retain key talent.
The Bank’s management understands that the competition for talent
continues across geographies, industries, and emerging capabilities
in a number of sectors including financial services. This competition is
expected to continue as a result of shifts in employee preferences, tight
labour market conditions, inflationary pressures and economic conditions,
and remote roles providing opportunities across geographic boundaries.
This could result in increased attrition particularly in areas where core
professional and specialized skills are required. Annually, the Bank
undertakes a 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, which supports the succession planning process.
The outcomes from the process inform plans at both the enterprise and
business levels to retain, develop, or acquire talent and the plans 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, the Bank may not be able to do so, and these actions may not
be sufficient to mitigate against attrition.
Foreign Exchange Rates, Interest Rates, Credit Spreads,
and Equity Prices
Foreign exchange rate, interest rate, credit spread, and equity price
movements in Canada, the United States, and other jurisdictions in
which the Bank does business impact the Bank’s financial position and
its future earnings. Changes in the value of the Canadian dollar relative
to the global foreign exchange rates may also affect the earnings of
the Bank’s small business, commercial, and corporate customers. A
change in the level of interest rates affects the interest spread between
the Bank’s deposits and other liabilities, and loans, and as a result, impacts
the Bank’s net interest income. In particular, rising interest rates would
increase the Bank’s interest income but could also have adverse impacts
on the Bank’s cost of funding for loans and may also result in the risks
outlined under the heading ‘Inflation, Rising Rates and Recession’.
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 and
could also result in significant losses if, to generate liquidity, the Bank has
to sell assets that have suffered a decline in value. A change in equity
prices impacts the Bank’s financial position and its future earnings, due
to unhedged positions the Bank holds in tradeable equity securities. The
trading and non-trading market risk frameworks and policies manage
the Bank’s risk appetite for known market risk, but such activities may not
be sufficient to mitigate against such market risk, and the Bank remains
exposed to unforeseen market risk.
Interconnectivity of Financial Institutions
The financial services industry is highly interconnected in that a significant
volume of transactions occur among the members of that industry. The
interconnectivity of multiple financial institutions with particular central
agents, exchanges and clearinghouses, and the increased centrality of
these entities, increase the risk that a financial or operational failure at
one institution or entity may cause an industry-wide failure that could
materially impact our ability to conduct business. Any such failure,
termination or constraint could adversely affect our ability to effect
transactions, service our clients, manage our exposure to risk or result in
financial loss or liability to our clients.
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
81
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 occur in
an appropriate and systematic manner. Significant accounting policies as
well as current and future changes in accounting policies are described in
Note 2 and Note 4, respectively, and significant accounting judgments,
estimates, and assumptions are described in Note 3 of the 2023
Consolidated Financial Statements.
Impact of Pandemics
Pandemics, epidemics or outbreaks of an infectious disease in Canada,
the U.S., or worldwide have had, and could continue to have, an adverse
impact on the Bank’s results, business, financial condition, liquidity
and results of operations, and could result in changes to the way
the Bank operates.
Pandemics, epidemics or outbreaks of an infectious disease may create,
operational and compliance risks, including the need to implement
and execute new programs and procedures for the Bank’s products
and services; provide enhanced safety measures for its employees and
customers; address the risk and increased incidence of attempted
fraudulent activity and cyber security threat behaviour; and protect the
integrity and functionality of the Bank’s systems, networks, and data
as a larger number of employees may be required to work in a hybrid
environment. The Bank remains exposed to human capital risks, risks
arising from mental wellness concerns for employees due to issues
related to health and safety matters, and increased levels of workforce
absenteeism with the possible emergence of new pandemics, epidemics
or outbreaks. Suppliers and other third parties upon which the Bank
relies have, and may continue to be exposed to similar and other risks
which in turn impact the Bank’s operations. Increased levels of workforce
absenteeism and disruption for the Bank and its suppliers and other
third parties upon which the Bank relies, may increase operational and
compliance risks for the Bank. Increased absenteeism and disruption
may also increase the Bank’s exposure to the other risks described in the
“Risk Factors and Management” section of this document.
Consumer behaviour may change in the event of new pandemics,
epidemics or outbreaks of an infectious disease. Changes in consumer
behaviour may impact the macroeconomic and business environment,
societal and business norms, and fiscal, tax and regulatory policy. Such
developments could have an adverse impact on the Bank’s business
operations, the quality and continuity of services provided to customers,
and the results of the Bank’s operations and financial condition, including
making the Bank’s longer-term business, balance sheet and budget
planning more difficult or costly.
The Bank may be criticized or face increased risk of litigation and
governmental and regulatory scrutiny, customer disputes, negative
publicity, or exposure to litigation (including class actions, or regulatory
and government actions and proceedings) as a result of the effects of
pandemics, epidemics or outbreaks on market and economic conditions,
including as a result of the Bank’s participation (directly or on behalf of
customers) in governmental assistance programs, the Bank’s deferral
and other types of customer assistance programs, and the impact or
effectiveness of the Bank’s health and safety measures on its customers
and employees.
Pandemics, epidemics or outbreaks of an infectious disease may result in
further increases in certain types of the risks outlined in the Risk Factors
and Management section of this document, including the Bank’s top
and emerging, strategic, credit, market, operational, model, insurance,
liquidity, capital adequacy, legal, regulatory compliance and conduct, and
reputational risks.
Additionally, the Bank routinely executes brokered deposit, securities,
trading, derivative and foreign exchange transactions with counterparties
in the financial services industry, including banks, investment banks,
governments, central banks, insurance companies and other financial
institutions. A rapid deterioration of such a counterparty, or of a significant
market participant that is not a counterparty of the Bank, could lead to
concerns about the creditworthiness of other borrowers or counterparties
in related or dependent industries, and can lead to substantial or
cascading disruption within the financial markets, and such conditions
could cause the Bank to incur significant losses or other adverse impacts
to the Bank’s financial condition, including its liquidity. For example, the
closures of Silicon Valley Bank and Signature Bank in March 2023 in the
U.S. and their placement into receivership led to liquidity risk and concerns
at many other financial institutions. In addition, there is no assurance
that bank regulators or governmental authorities will provide support in
the event of the failure or financial distress of other banks or financial
institutions, or that they would do so in a timely fashion.
Interbank Offered Rate (IBOR) Transition
Various interest rates and other indices that are deemed to be
“benchmarks” (including IBOR benchmarks such as the Canadian Dollar
Offered Rate (CDOR)) have been, and continue to be, the subject of
international regulatory guidance and proposals for reform. As a result
of the global benchmark reform initiative, efforts to transition away from
IBORs to alternative reference rates (ARRs) have either concluded or have
been continuing in various jurisdictions. Most notably, from June 30, 2023,
all USD LIBOR tenors have either ceased or are published only on a
synthetic basis for use in legacy contracts that have no other fallback
solution, while the CDOR transition is still in progress. The ongoing
transition to ARRs may result in market dislocation and have other
adverse consequences to the Bank, its customers, market participants,
and the financial services industry. In Canada specifically, the expected
discontinuation of the BA lending model, which is responsible for creating
the BA investment securities that are sold to money market investors,
might also have impacts to Bank’s investment portfolios holdings and
impact related earnings.
The Bank has significant contractual rights, obligations and exposures
referenced to various benchmarks and the discontinuance of, or changes
to, such benchmark rates could adversely affect the Bank’s business and
results of operations. The Bank has established an enterprise-wide, cross
functional initiative with senior executive oversight, to evaluate and
monitor the impact of the market, financial, 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, but
such actions may not be sufficient to mitigate against the impact of
all such risks.
In addition to operational challenges, market risks also 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. This could result in different financial
performance for previously booked transactions, require alternative
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 financial 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 its reputation. The Bank has
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TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
RISK FACTORS AND MANAGEMENT
Managing Risk
EXECUTIVE SUMMARY
Growing profitability in financial results based on balanced revenue,
expenses 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 significant emphasis on investing in its businesses to meet
its 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) how the Bank defines the types of
risk it is exposed to; (2) how the Bank determines the risks arising from
the Bank’s strategy and operations; (3) risk management governance and
organization; and (4) how the Bank manages risk through processes that
identify and assess, measure, control, 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 identification
assessment, control, measurement, monitoring, reporting, and disclosure
of TD’s risks. The Risk Inventory 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 to enhance shareholder value. In setting the
risk appetite, the Bank takes into account its vision, purpose, strategy,
shared commitments, and capacity to bear risk under both normal and
recessionary/stress conditions. 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 significant 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’s Risk Appetite Governance Framework (RAGF) describes
the assumptions, responsibilities, and processes established to define,
maintain, and govern TD’s risk appetite including RAS and all RAS
measures. 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 RAGF 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, thresholds,
and limits, as appropriate. RAS measures consider both normal and stress
scenarios and include those that can be monitored at the enterprise level
and cascaded to the segments.
Risk Management is responsible for establishing practices and processes
to formulate, monitor, and report on the Bank’s RAS measures. The Risk
Management function also monitors and evaluates the effectiveness
of these practices and processes, as well as the RAS measures.
Compliance with RAS principles and measures is reported regularly to
senior management, the Board, and the Risk Committee of the Board
(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
Risk culture is the attitudes and behaviours around taking and managing
risk in the Bank and is guided by our Shared Commitments and the TD
Culture Framework. Risk culture is one of the attributes that is integral
to the Bank’s overall organisational culture. The Risk Committee engages
with the Chief Risk Officer (CRO) who leads a diverse team of risk
professionals to drive a proactive risk culture. The central oversight for
organisational culture at TD is led by Human Resources (HR) in partnership
with Risk Management.
The Bank’s risk culture starts with the “tone at the top” set by the Board,
Chief Executive Officer (CEO), and the Senior Executive Team (SET), and is
supported by the Bank’s vision, purpose, shared commitments, the Bank’s
Code of Conduct and Ethics and risk appetite. These governing objectives
describe and drive the behaviours, decision making, and business
practices 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 risk culture embraces accountability and continuous
learning (especially from past experiences), and encourages open
communication and transparency on all aspects of risk taking. The Bank’s
employees are expected to challenge and escalate when they believe
the Bank is operating outside of its desired risk culture or risk appetite.
Ethical behaviour, integrity and conduct are pillars of TD’s culture and are
key components 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. 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 HR 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.
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
83
In addition, Oversight Functions operate independently from segments,
supported by an organizational structure that provides objective oversight
and independent challenge. Oversight Function heads, including the
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.
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 segments within
the Bank’s risk appetite. Risk Management, headed by the 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.
WHO MANAGES RISK
The Bank’s risk governance structure emphasizes and balances strong
independent oversight with clear ownership for risk across the Bank.
Under the Bank’s approach to risk governance, a “three lines of defence”
model is employed, in which the first line of defence is the risk owner,
the second line provides risk oversight, and the third line is internal audit.
The Bank has a 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 U.S. 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
Human Resources
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 (DC)
Enterprise Reputational
Risk Committee (ERRC)
Governance, Risk, and Oversight Functions
Internal
Audit
Canadian Personal and
Commercial Banking
U.S. Retail
Wealth Management
and Insurance
Wholesale Banking
Corporate
Internal
Audit
Business and Corporate Segments
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TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
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: Audit, Risk, HR, and
Corporate Governance. The Board reviews and approves the Bank’s RAS
and related RAS measures annually, and reviews the Bank’s risk profile and
performance relative to its risk appetite measures and principles.
The Audit Committee
The Audit Committee oversees financial reporting, the adequacy and
effectiveness of internal controls, including internal controls over financial
reporting, and the activities of Internal Audit, Finance, Regulatory
Compliance, and Anti-Money Laundering/Terrorist Financing/Economic
Sanctions/Anti-Bribery and Anti-Corruption.
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 profile and performance relative to its risk
appetite. In support of this oversight, the Committee reviews and approves
significant enterprise-wide risk management frameworks and policies
that are designed to help manage the Bank’s major risk exposures, and
monitors the management of risks, issues and trends.
The Human Resources Committee
The HR Committee, in addition to its other responsibilities, oversees the
management of the Bank’s culture. It also satisfies itself that HR risks are
appropriately identified, 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 principles, including the Bank’s
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. In addition, the
committee has oversight of the Bank’s alignment with its purpose and its
strategy, performance and reporting on corporate responsibility for E&S
matters, and oversees the establishment and maintenance of policies in
respect of the Bank’s compliance with the consumer protection provisions
of the Financial Consumer Protection Framework.
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 RAS. The SET members set the “tone at the top”
and manage risk in accordance with the Bank’s RAS while considering
the impact of current and emerging risks on the Bank’s strategy and
risk profile. This accountability includes identifying, understanding and
communicating significant risks to the Risk Committee.
Executive Committees
The CEO, in consultation with the CRO establishes the Bank’s executive
committee structure. These committees are chaired by SET members
and meet regularly to oversee governance, risk, and control activities
and to review and monitor risk strategies and associated risk activities
and practices.
The 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 specific major risks based on
the nature of the risk and related business activity:
• ALCO – chaired by the Chief Finance Officer (CFO), the ALCO oversees
directly and through its standing subcommittees (the Enterprise Capital
Committee and Global Liquidity and Funding (GLF) Committee), 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 CRO, the OROC oversees the identification,
monitoring, and control of key risks within the Bank’s operational
risk profile.
• DC – chaired by the CFO, the DC oversees that appropriate controls
and procedures are in place and operating to permit timely, accurate,
balanced, and compliant disclosure.
• ERRC – chaired by the CRO, the ERRC oversees the management of
reputational risk within the Bank’s risk appetite, provides a forum for
discussion, review, and escalation for non-traditional risks, and acts as
a decisioning body in cases where urgent risk assessment and decisions
are required for select high-risk cross-segment/enterprise changes and
where decision rights run across more than one group.
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 segments and other oversight
functions to establish policies, standards, and limits that align with
the Bank’s risk appetite and monitors and reports on current 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 identification and assessment
of top and emerging risks, including tail risk i.e., low probability events
that can result in extremely large quantifiable losses. In addition, the Bank
has clear procedures governing when and how risk events and issues are
communicated to senior management and the Risk Committee.
Business and Corporate Segments
Each business and corporate 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 segment.
Business and corporate management is responsible for setting the segment-
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 RAS and manage risk within approved risk limits.
The corporate segment includes service and control groups (e.g., Platforms
and Technology; Transformation, Enablement and Customer Experience;
HR and Finance) that, like business segments, are responsible for assessing
risk, designing and implementing controls and monitoring and reporting
their ongoing effectiveness to safeguard TD from exceeding its risk appetite.
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.
Global Compliance Department (Compliance)
Compliance is an independent regulatory compliance risk and associated
conduct risk management and oversight function for business conduct and
market conduct laws, rules and regulations. Compliance is also responsible
for the design and oversight of the Bank’s Regulatory Compliance
Management (RCM) program in accordance with the Enterprise RCM
Framework and related standards and supports the provision of the Chief
Compliance Officer’s opinion to the Audit Committee as to whether
the RCM controls are sufficiently robust in achieving compliance with
applicable laws, rules and regulatory requirements enterprise-wide.
Global Anti-Money Laundering (GAML)
GAML is responsible for the oversight of TD’s regulatory compliance
with Anti-Money Laundering (AML), Anti-Terrorist Financing, Economic
Sanctions, and Anti-Bribery/Anti-Corruption regulatory compliance and
broader prudential risk management across the Bank in alignment with
enterprise AML policies so that the money laundering, terrorist financing,
economic sanctions, and bribery and corruption risks are appropriately
identified and mitigated.
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
85
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.
• Promote ongoing initiatives to raise the profile of risk considerations and understand key risks impacting
•
the business.
Implement governance and control processes to promote risk awareness, clear risk ownership within
the business, and personal accountability.
• 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.
• Establish controls to help ensure that activities are compliant with applicable laws and regulations.
• Monitor and report on risk profile so that 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 first line through an effective objective assessment, that is
evidenced and documented where significant, including:
– Challenge the quality and sufficiency of the first 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 RAS.
• Monitor and report on compliance with the Bank’s RAS 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 first 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 first and second lines of defence in fulfilling their mandates and managing risk.
In support of a strong risk culture, the Bank applies the following principles
in governing how it manages risk:
• 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
to foster a sound strategic balance between risk mitigation and risk
enablement within TD’s risk appetite.
• Leadership Accountability – Leaders are accountable to demonstrate,
influence and drive the right risk behaviours and risk mindset with
colleagues and stakeholders.
APPROACH TO RISK MANAGEMENT PROCESSES
The Bank’s comprehensive and proactive approach to risk management
is comprised of four processes: risk identification and assessment,
measurement, control, and monitoring and reporting.
Risk Identification and Assessment
Risk identification and assessment is focused on recognizing and
understanding existing risks, risks that may arise from new or evolving
business initiatives, aggregate risks, tail risks, and emerging risks from the
changing environment. The Bank’s objective is to establish and maintain
integrated risk identification and assessment processes that enhance
the understanding of risk interdependencies, consider how risk types
intersect, and support the identification of emerging risks. 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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TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
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 notification metrics.
The Bank also requires segments and oversight functions to assess key risks
and internal controls through a structured Risk and Control Self-Assessment
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 significant risk issues as needed.
Risk Control
The Bank’s risk control processes are established and communicated
through the Risk Committee and management approved policies,
and associated management approved procedures, control limits, and
delegated authorities which reflect 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 significant changes to the Bank’s risk
profile. The Bank is developing 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.
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 financial planning processes. Stress testing at the Bank comprises
an annual enterprise-wide stress test featuring a range of scenarios,
prescribed regulatory stress tests in multiple jurisdictions, and various
ongoing and ad hoc stress tests and analysis. The results of these
stress tests and analysis enable management to assess the impact of
geopolitical events and changes to economic and other market factors on
the Bank’s financial condition and assist in the determination of capital
and liquidity adequacy and targets, risk appetite and other limits. These
exercises enable the identification and quantification of vulnerabilities, the
monitoring of changes in risk profile relative to risk appetite limits, and
evaluation of business plans.
The Bank utilizes a combination of quantitative modelling and qualitative
approaches to assess the impact of changes in the macroeconomic
environment on the Bank’s income statement, balance sheet, and capital
and liquidity position under hypothetical stress situations. Stress testing
engages senior management across the lines of business, Finance, TBSM,
Economics, and Risk Management. Stress test results are reviewed,
challenged and approved by senior management and executive oversight
committees. The Bank’s Risk Committee also reviews, challenges, and
discusses the results. The results 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 capital
and liquidity planning, strategic, and financial exercise that is a key
component of the Bank’s ICAAP framework. The EWST results are
considered in establishing the Bank’s capital and liquidity targets and risk
appetite limits, evaluating the Bank’s strategies and business plan, and
identifying actions that senior management could take to manage the
impact of stress events. In addition, the Bank conducts ad hoc stress tests
and analysis for assessing the impact of events deemed to be potentially
material or of concern in support of senior management’s response to an
uncertain or rapidly changing operating environment.
The program is subject to a well-defined governance structure that
facilitates executive oversight and engagement throughout the
organization. EWST methodologies and results are reviewed and
challenged by line of business, finance and risk teams. Stress testing results
are further reviewed by ERMC and are also shared with the Board and
regulators. The Bank’s EWST program involves the development, execution
and assessment of stress scenarios with varying features and degrees of
severity on the balance sheet, income statement, capital, liquidity, and
leverage. It enables management to identify and assess enterprise-wide
risks and understand potential vulnerabilities, and changes to the risk
profile of the Bank. Stress scenarios are developed with consideration
of the Bank’s key business activities, exposures, concentrations and
vulnerabilities. The scenarios are designed to be consistent with regulatory
stress testing frameworks and cover a wide variety of risk factors
meaningful to the Bank’s risk profiles in North America and globally
including changes to unemployment, gross domestic product, home
prices, and interest rates.
For the 2023 EWST program, the Bank developed and assessed scenarios
that explored emerging risks such as inflation, rising interest rates,
increased competition/market pressure on fees, Net Interest Margin
compression reflecting higher funding costs, and elevated fraud and
cyber security risk. The stress testing scenarios included, a plausible typical
recession scenario calibrated to historical recessions in Canada and the
U.S. and a low probability and highly severe stagflation scenario targeting
TD-specific risks and vulnerabilities in support of the ICAAP. Supplemental
analysis performed during 2023 explored the risk that non-bank financial
institutions and/or other non-traditional competitors disrupt the consumer
payment space and capital impacts due to Basel III Reforms (B3R) to
support senior management in assessing key risks.
Other Stress Tests and Analysis
Ongoing stress testing and scenario analyses within specific risk
types, such as market risk, liquidity risk, retail and wholesale credit
risk, operational risk, and insurance risk, supplement and support our
enterprise-wide analyses. Results from these risk-specific programs are
used in a variety of decision-making processes including risk limit setting,
portfolio composition evaluation, risk appetite articulation and business
strategy implementation. In addition, the Bank conducts ad hoc stress tests
and analysis for targeted portfolios, to evaluate potential vulnerabilities to
specific changes in economic and market conditions.
Stress tests are also conducted on certain legal entities and jurisdictions,
in line with prescribed regulatory requirements. The Bank’s U.S.- holding
company and operating bank subsidiaries’ capital planning process
including execution of stress tests are conducted in accordance with the
U.S. Dodd-Frank Act stress testing (DFAST) requirements. In addition,
certain Bank subsidiaries in Singapore, Ireland, and the United Kingdom
conduct stress testing exercises as part of their respective ICAAP. The Bank
undertakes other internal and regulatory based stress tests including
liquidity and market risk, which are detailed in the respective sections.
The Bank also conducts scenario and sensitivity analysis as part of the
Recovery and Resolution Planning program to assess potential mitigating
actions and contingency planning strategies, as required.
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
87
Strategic Risk
Strategic risk is the risk of sub-optimal outcomes (including financial loss
or reputational damage) arising from the Bank’s choice of strategies,
improper implementation of chosen strategies, inability to implement
chosen strategies, an inadequate response to disruption of the Bank’s
strategies, or exposure to tail risk (i.e., low probability events that can
result in extremely large quantifiable losses). Strategies include current
operations and 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, defines the overall
strategy, in consultation with, and subject to approval by, the Board. The
Enterprise Strategy group, under the leadership of the Chief Financial
Officer, is charged with developing the Bank’s long-term strategy and
shorter-term strategic objectives and 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 ensuring such
strategies are aligned with the Bank’s long-term strategy and short-term
strategic objectives and priorities, and are within the Bank’s 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 segment or corporate function’s strategies.
The CEO, SET members, and other senior executives report to the Board
on the implementation of the Bank’s strategies, identifying related risks,
and explaining how those risks are managed.
The ERMC oversees the identification and monitoring of significant and
emerging risks related to the Bank’s strategies so that mitigating actions
are taken where appropriate.
HOW TD MANAGES STRATEGIC RISK
The Bank’s enterprise-wide strategies and operating performance, and
those of significant business segments and corporate functions, are
assessed regularly by the CEO and members of the SET through an
integrated financial and strategic planning process, as well as operating
results reviews.
The Bank’s RAS establishes strategic risk limits at the enterprise and
business segment level. Limits include qualitative and quantitative
assessments and are established to monitor and control business
concentrations, strategic disruption, and E&S risks.
The Bank’s annual integrated planning process establishes plans at the
enterprise and segment levels. The plans include external market outlooks,
long and short-term strategies, target metrics, key risks / mitigants, and
alignment with the Bank’s strategy and Risk Appetite.
Operating results are reviewed periodically during the year to monitor
segment-level performance against the integrated financial and strategic
plan. These reviews include an evaluation of the long-term strategy and
short-term strategic priorities of each business segment, including the
operating environment, relative performance and competitive positioning
assessments, initiative execution status, and key business risks. The
frequency of operating results reviews depends on the risk profile and
size of the business segment or corporate function.
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 fit 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 specific 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, 2023 and 2022.
The Basel Framework
The objective of the Basel Framework is to improve the consistency of
capital requirements internationally and establish minimum regulatory
capital standards which adequately capture risks. The Basel Framework
sets different risk-sensitive approaches for calculating credit, market, and
operational RWA.
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 significant 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 financial 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 significant fluctuations 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.
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-specific policies, as required.
The Risk Committee oversees the management of credit risk and
annually approves certain significant 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 officers throughout the Bank for extending
lines of credit are centrally approved by Risk Management, and the Board
where applicable.
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 requirements) 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, but not limited to, income,
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
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TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS monitor and assess the performance of scoring models and decision
strategies to align with expected performance results. Retail credit
exposures approved within the credit centres are subject to ongoing Retail
Risk Management review to assess the effectiveness of credit decisions
and risk controls, as well as to 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 (BRR and FRR), quantify and monitor the level of risk, and to aid
in the Bank’s effective management of risk. 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 finance, 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 specific industry sectors.
The Bank monitors its concentration to any given industry to provide for
a diversified 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 reviews industry risk ratings to assess whether internal ratings properly
reflect 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 BRR. This exposure is monitored
on a regular basis.
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.
Credit Risk and the Basel Framework
The Bank uses the Basel IRB to calculate credit risk RWA for all material
portfolios. Based on exposure class, in accordance with the OSFI CAR
guidelines, either a foundation approach (Foundation Internal Ratings-
Based (FIRB)) or advanced approach (Advanced Internal Ratings-Based
(AIRB)) is applied.
The following risk parameters are used in credit risk RWA calculations and
may be subject to prescribed floors in some cases:
• 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 of the Bank’s exposure at the time of default,
including certain off-balance sheet items.
The FIRB approach primarily uses internally derived PD, while other
components such as LGD and EAD are prescribed. The AIRB approach
uses internally derived PD, LGD, and EAD.
To continue to qualify to use the IRB approaches 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 IRB Approaches
Banks that adopt the IRB approaches 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 2023 Consolidated Financial Statements. The Bank’s credit
risk exposures are divided into two main portfolios, retail and non-retail.
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, mortgages and HELOCs), qualifying revolving
retail (for example, 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 on the
internal default and loss performance history for each of the three retail
exposure sub-types. These parameters are also used in the calculation of
regulatory capital, economic capital, and allowance for credit losses.
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 defines default for
exposures as delinquency of 90 days or more for the majority of retail
credit portfolios. LGD estimates used in the RWA calculations reflect
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 reflect 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; 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 significant 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 pre-defined PD segments based on their
estimated long-run average one-year PD.
The 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 reflect 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 reflect the
observed lower recoveries for exposures defaulted during the 2008
to 2009 recession. For products secured by residential real estate,
such as mortgages and HELOCs, downturn LGD reflects the potential
impact of a severe housing downturn. EAD estimates similarly reflect
a downturn scenario.
89
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS 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-specific 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 IRB
approaches, CMHC-insured mortgages are considered sovereign risk and
are therefore classified as non-retail.
The Bank evaluates credit risk for non-retail exposures by using both a
BRR and FRR. The Bank uses this system for all corporate, sovereign, and
bank exposures. The Bank determines the risk ratings using industry and
sector-specific credit risk models that are based on internal historical data.
In Canada, for both the wholesale and commercial lending portfolios,
credit risk models are calibrated based on internal data beginning in
1994. In the U.S., credit risk models are calibrated based on internal data
beginning in 2007. 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 benchmark
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 reflects the PD of the borrower
using proprietary models and expert judgment. In assessing borrower
risk, the Bank reviews the borrower’s competitive position, financial
performance, economic, and industry trends, management quality, and
access to funds. Under the IRB approaches, borrowers are grouped
into BRR grades where a PD is calibrated for each BRR grade. 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 financial 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 financial 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 modified in some cases by
expert judgment, as prescribed within the Bank’s credit policies.
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 classified
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
AAA to AA-
A+ to A-
BBB+ to BBB-
BB+ to BB-
B+ to B-
Aaa to Aa3
A1 to A3
Baa1 to Baa3
Ba1 to Ba3
B1 to B3
6 to 8 CCC+ to CC and below
Caa1 to Ca and below
9A to 9B
Default
Default
Facility Risk Rating and LGD
The FRR maps to LGD, with different models used based on industry
and obligor size, and takes into account facility-specific characteristics
such as collateral, seniority ranking of debt, loan structure, and borrower
enterprise value.
Average LGD and the statistical uncertainty of LGD are estimated for
each FRR grade. In some FRR models, the scarcity of historical default
events requires the model to output a rank-ordering which is then mapped
through expert judgment to the quantitative LGD scale.
Under the FIRB approach, LGDs are prescribed whereas 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 reflect
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 first 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 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 (estimated UGD x undrawn) for AIRB exposure, or (prescribed UGD x
undrawn) for FIRB exposures.
BRR and drawn ratio up to one-year prior to default are predictors for
UGD under the AIRB approach. Consequently, the UGD estimates are
calibrated by BRR and drawn ratio, the latter representing the ratio of the
drawn to authorized amounts.
Historical UGD experience is studied for any downturn impacts, similar
to the LGD downturn analysis. The Bank has not found downturn UGD
to be significantly different from average UGD, therefore the UGDs under
AIRB are set at the average calibrated level, by drawn ratio and/or BRR,
plus an appropriate adjustment for statistical and model uncertainty.
UGDs under the FIRB approach are prescribed for relevant exposure classes.
Credit Risk Exposures Subject to the Standardized Approach (SA)
Currently the SA to credit risk is used for new portfolios, which are in
the process of transitioning to IRB approaches, or exempted portfolios
which are either immaterial or expected to wind down. The Bank
primarily applies SA to certain segments within both the Retail and
Non-retail portfolios. Under the SA, the exposure amounts are multiplied
by risk weights prescribed by OSFI, based on the OSFI Capital Adequacy
Requirements (CAR) guidelines, 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
90
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS Risk Management verifies 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 financial and
non-financial 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-financial and includes residential real estate, real estate
under development, commercial real estate, automobiles, and other
business assets, such as accounts receivable, inventory, and fixed 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, master netting agreements and central
clearing houses to mitigate derivative counterparty exposure. Security for
derivative exposures is primarily financial and includes cash and negotiable
securities issued by highly rated governments and investment grade
issuers. This approach includes pre-defined 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 IRB approaches,
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 financial 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 as well as valuations via automated valuation
models (AVMs) to support property values when adjudicating loans
collateralized by residential property. AVMs are computer-based tools
used to estimate or validate the market value of residential property and
uses 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 significantly from the average for the market
area. The Bank has specific risk management guidelines addressing the
circumstances when they may be used, and processes to periodically
validate AVMs including obtaining third-party appraisals.
uses external credit ratings, including Moody’s and S&P to determine the
appropriate risk weight for its exposures to sovereigns and central banks,
public sector entities (PSEs), banks (regulated DTIs and securities firms),
and corporates. The Bank applies SA to certain retail portfolios, including
Real Estate Secured Lending (RESL), where the assigned risk weight is
primarily based on the exposure’s Loan-to-Value ratio and whether the
exposure is categorized as income producing or general.
Lower risk weights apply where approved credit risk mitigants exist.
For off-balance sheet exposures, specified credit conversion factors
are used to convert the notional amount of the exposure into a credit
equivalent amount.
Derivative Exposures
Credit risk on derivative financial instruments, also known as counterparty
credit risk, is the risk of a financial loss occurring as a result of the
failure of a counterparty to meet its obligation to the Bank. Derivative-
related credit risks are subject to the same credit approval standards that
the Bank uses for assessing loans. These standards include evaluating
the creditworthiness of counterparties, measuring and monitoring
exposures, including wrong-way risk exposures, and managing the size,
diversification, and maturity structure of the portfolios.
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 under a range of adverse
scenarios. The Bank establishes various limits to manage business volumes
and concentrations. Risk Management independently measures and
monitors counterparty credit risk relative to established credit policies
and limits. As part of the credit risk monitoring process, management
periodically reviews all exposures, including exposures resulting from
derivative financial instruments to higher risk counterparties, and to assess
the valuation of underlying financial instruments and the impact evolving
market conditions may have on the Bank.
To reduce credit risk exposure, the Bank employs mitigation strategies
that include master netting agreements, collateral pledging, central
clearing houses and other credit risk mitigation techniques. Master netting
agreements allow the Bank to offset and arrive at a net obligation amount,
whereas collateral agreements allow the Bank to secure the Bank’s
exposure. By taking the opposite position to each trade, central clearing
houses also reduce bilateral credit risk.
There are two types of wrong-way risk exposures, namely general and
specific. General wrong-way risk arises when the PD of the counterparties
moves in the same direction as a given market risk factor. Specific 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
specific approval within the credit approval process. The Bank measures and
manages specific wrong-way risk exposures in the same manner as direct
loan obligations and controls them by way of approved credit facility limits.
The Bank uses the standardized approach for counterparty credit risk
to calculate the EAD amount, which is defined 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.
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 verify that 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 sufficient.
• Assumptions – Key assumptions underlying the development of the
model remain valid for the current portfolio and environment.
91
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS 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-specific provisions or write-offs. Gross credit risk
exposure does not reflect the effects of credit risk mitigation and includes
both on-balance sheet and off-balance sheet exposures. On-balance
sheet exposures consist primarily of outstanding loans, acceptances, non-
trading securities, derivatives, and certain other repo-style transactions.
Off-balance sheet exposures consist primarily of undrawn commitments,
guarantees, and certain other repo-style transactions.
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 2 GROSS CREDIT RISK EXPOSURES – Standardized and Internal Ratings-Based (IRB) Approaches
|
(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
1
As at
October 31, 2022
October 31, 2023
Standardized
IRB
Total
Standardized
IRB
Total
$ 4,815
810
3,368
$ 515,152
169,183
99,253
$ 519,967
169,993
102,621
$ 4,989
–
3,232
$ 477,898
166,722
92,925
$ 482,887
166,722
96,157
8,993
783,588
792,581
8,221
737,545
745,766
3,496
116
5,272
8,884
654,369
527,423
171,180
657,865
527,539
176,452
1,352,972
1,361,856
2,205
1
646
2,852
695,746
507,533
150,333
697,951
507,534
150,979
1,353,612
1,356,464
$ 17,877
$ 2,136,560
$ 2,154,437
$ 11,073
$ 2,091,157
$ 2,102,230
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 applies the standardized approach to calculate RWA on non-
trading equity exposures. Under the standardized approach, a 250% risk
weight is applied to equity holdings with the exception of speculative
unlisted equities that receive a 400% risk weight. Equity exposures to
sovereigns and holdings made under legislated programs continue to
follow the appropriate OSFI prescribed risk weights of 0%, 20% or 100%.
Securitization Exposures
Effective November 1, 2018, the Bank applies risk weights to all
securitization exposures under the revised securitization framework
published by OSFI. The revised securitization framework includes a
hierarchy of approaches to determine capital treatment, and transactions
that meet the simple, transparent, and comparable requirements that are
eligible for preferential capital treatment.
The Bank uses Internal Ratings-Based Approach (SEC-IRBA) for qualified
exposures. Under SEC-IRBA, risk weights are determined using a loss
coverage model that quantifies and monitors the level of risk. The SEC-
IRBA also considers credit enhancements available for loss protection.
For externally rated exposures that do not qualify for SEC-IRBA,
the Bank uses an External Ratings-Based Approach (SEC-ERBA). Risk
weights are assigned to exposures 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 do not qualify for SEC-IRBA or SEC-ERBA, 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 their 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 do not qualify for SEC-IRBA, SEC-ERBA or the
IAA, the Bank uses the SA (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 from financial instruments held in
trading portfolios 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 rates, credit
spreads, 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. The Bank is an
active participant in the market through its trading and investment
portfolios, seeking to realize returns for the Bank 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 executes with its customers.
The Bank complied with the Basel III market risk requirements as at
October 31, 2023, using the Internal Models Approach. Starting fiscal
2024, the Bank plans to comply with the revised Basel III market risk
requirements using the Standardized Approach.
92
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
–
–
–
–
–
–
–
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
MARKET RISK LINKAGE TO THE BALANCE SHEET
The following table provides a breakdown of the Bank’s balance sheet
into assets and liabilities exposed to trading and non-trading market risks.
Market risk of assets and liabilities included in the calculation of VaR and
other metrics used for regulatory market risk capital purposes is classified
as trading market risk.
T A B L E 4 3 MARKET RISK LINKAGE TO THE BALANCE SHEET
|
(millions of Canadian dollars)
Balance
sheet
Trading
market risk
Non-trading
market risk
Other
Balance
sheet
Trading
market risk
Non-trading
market risk
Other
October 31, 2023
October 31, 2022
Assets subject to market risk
Interest-bearing deposits with banks
Trading loans, securities, and other
Non-trading financial assets at fair value
through profit or loss
$
98,348
152,090
$
327 $
151,011
98,021
1,079
$
– $ 137,294
143,726
–
$
422 $ 136,872
1,432
142,294
$
7,340
–
7,340
Derivatives
87,382
81,526
5,856
Financial assets designated at fair value
through profit or loss
Financial assets at fair value through other
comprehensive income
5,818
69,865
–
–
5,818
69,865
–
–
–
–
10,946
–
10,946
103,873
98,305
5,568
5,039
69,675
–
–
5,039
69,675
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 Schwab
Other assets1
Assets not exposed to market risk
308,016
–
308,016
–
342,774
–
342,774
204,333
895,947
17,569
8,907
3,451
97,958
9,649
–
–
–
–
–
194,684
895,947
17,569
8,907
3,451
–
–
–
–
–
–
97,958
160,167
831,043
19,733
8,088
3,414
81,756
7,450
–
–
–
–
–
152,717
831,043
19,733
8,088
3,414
–
–
–
–
–
–
81,756
Total Assets
$ 1,957,024
$ 242,513 $ 1,616,553
$ 97,958 $ 1,917,528
$ 248,471 $ 1,587,301
$ 81,756
Liabilities subject to market risk
Trading deposits
Derivatives
$
30,980
71,640
$ 27,059 $
70,382
3,921
1,258
$
– $
–
23,805
91,133
$ 22,962 $
86,727
843
4,406
$
Securitization liabilities at fair value
Financial liabilities designated at fair value
through profit or loss
Deposits
14,422
14,422
–
192,130
1,198,190
2
–
192,128
1,198,190
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 liabilities1
17,569
44,661
166,854
12,710
9,620
28,821
–
43,993
12,641
–
–
–
17,569
668
154,213
12,710
9,620
28,821
–
–
–
–
–
–
–
–
–
12,612
12,612
–
162,786
1,229,970
3
–
162,783
1,229,970
19,733
45,505
–
44,427
19,733
1,078
128,024
15,072
11,290
23,291
9,509
–
–
–
118,515
15,072
11,290
23,291
–
–
–
–
–
–
–
–
–
–
–
Equity, 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
Liabilities and Equity not exposed
to market risk
169,427
–
–
169,427
154,307
–
–
154,307
Total Liabilities and Equity
$ 1,957,024
$ 168,499 $ 1,619,098
$ 169,427 $ 1,917,528
$ 176,240 $ 1,586,981
$ 154,307
1 Relates to retirement benefits, insurance, and structured entity liabilities.
93
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
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 efficient 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 review the market risk profile and trading results of the Bank’s trading
businesses. The committee is chaired by the Vice President, Head of
Market Risk, and includes Wholesale Banking senior management.
There were no significant reclassifications between trading and non-
trading books during the year ended October 31, 2023.
HOW TD MANAGES MARKET RISK IN TRADING ACTIVITIES
Market risk plays a key part in the assessment of trading business
strategies. The process for the Bank to launch new trading initiatives,
or expand existing ones, involves an assessment of risk with respect to
the Bank’s risk appetite and business expertise and an assessment of
the appropriate infrastructure required 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
structures, risk identification, risk measurement, and risk 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 specified 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 Specific Risk (IDSR) associated
with the Bank’s trading positions.
GMR is determined by creating a distribution of potential changes
to 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.
IDSR measures idiosyncratic (single-name) credit spread risk for credit
exposures in the trading portfolio using Monte Carlo simulation. The IDSR
model is based on the historical behaviour of five-year idiosyncratic credit
spreads. Similar to GMR, IDSR is computed as the threshold level that
portfolio losses are not expected to exceed more than one out of every
100 trading days. IDSR is measured for a ten-day holding period.
The following graph discloses daily one-day VaR usage and trading 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, 2023, there were 18 days of trading losses and trading
net revenue was positive for 93% of the trading days, reflecting 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 Revenue
Value-at-Risk
$50
40
30
20
10
0
(10)
(20)
(30)
(40)
(50)
(60)
(70)
(80)
94
2
2
0
2
/
1
/
1
1
2
2
0
2
/
8
/
1
1
2
2
0
2
/
5
1
/
1
1
2
2
0
2
/
2
2
/
1
1
2
2
0
2
/
9
2
/
1
1
2
2
0
2
/
6
/
2
1
2
2
0
2
/
3
1
/
2
1
2
2
0
2
/
0
2
/
2
1
2
2
0
2
/
7
2
/
2
1
3
2
0
2
/
3
/
1
3
2
0
2
/
0
1
/
1
3
2
0
2
/
7
1
/
1
3
2
0
2
/
4
2
/
1
3
2
0
2
/
1
3
/
1
3
2
0
2
/
7
/
2
3
2
0
2
/
4
1
/
2
3
2
0
2
/
1
2
/
2
3
2
0
2
/
8
2
/
2
3
2
0
2
/
7
/
3
3
2
0
2
/
4
1
/
3
3
2
0
2
/
1
2
/
3
3
2
0
2
/
8
2
/
3
3
2
0
2
/
4
/
4
3
2
0
2
/
1
1
/
4
3
2
0
2
/
8
1
/
4
3
2
0
2
/
5
2
/
4
3
2
0
2
/
2
/
5
3
2
0
2
/
9
/
5
3
2
0
2
/
6
1
/
5
3
2
0
2
/
3
2
/
5
3
2
0
2
/
0
3
/
5
3
2
0
2
/
6
/
6
3
2
0
2
/
3
1
/
6
3
2
0
2
/
0
2
/
6
3
2
0
2
/
7
2
/
6
3
2
0
2
/
4
/
7
3
2
0
2
/
1
1
/
7
3
2
0
2
/
8
1
/
7
3
2
0
2
/
5
2
/
7
3
2
0
2
/
1
/
8
3
2
0
2
/
8
/
8
3
2
0
2
/
5
1
/
8
3
2
0
2
/
2
2
/
8
3
2
0
2
/
9
2
/
8
3
2
0
2
/
5
/
9
3
2
0
2
/
2
1
/
9
3
2
0
2
/
9
1
/
9
3
2
0
2
/
6
2
/
9
3
2
0
2
/
3
/
0
1
3
2
0
2
/
0
1
/
0
1
3
2
0
2
/
7
1
/
0
1
3
2
0
2
/
4
2
/
0
1
3
2
0
2
/
1
3
/
0
1
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
VaR is a valuable risk measure but it should be used in the context of its
limitations, for example:
• VaR uses historical data to estimate future events, which limits its
•
•
forecasting abilities;
it does not provide information on losses beyond the selected
confidence level; and
it assumes that all positions can be liquidated during the holding period
used for VaR calculation.
The Bank continuously improves its VaR methodologies and incorporates
new risk measures in line with market conventions, industry practices, and
regulatory requirements. In 2023, the Bank implemented infrastructure
enhancements to adapt to the market wide Benchmark Rate Reforms.
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, and sensitivities
to various market risk factors.
Calculating Stressed VaR (SVaR)
In addition to VaR, the Bank also calculates Stressed VaR, which includes
Stressed GMR and Stressed IDSR. Stressed VaR is designed to measure
the adverse impact that potential changes in market rates and prices
could have on the value of a portfolio over a specified period of stressed
market conditions. Stressed VaR is determined using similar techniques
and assumptions as 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 fiscal 2023,
Stressed VaR was calculated using the one-year period that includes the
2008 financial crisis. The appropriate historical one-year period to use for
Stressed VaR is determined on a regular basis.
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% confidence level
to determine IRC, which is consistent with regulatory requirements. IRC is
based on a “constant level of risk” assumption, which requires banks to
assign a liquidity horizon to positions that are subject to IRC.
The following table presents the end of year, average, high, and low usage
of TD’s portfolio metrics.
T A B L E 4 4
|
PORTFOLIO MARKET RISK MEASURES
(millions of Canadian dollars)
Interest rate risk
Credit spread risk
Equity risk
Foreign exchange risk
Commodity risk
Idiosyncratic debt specific risk
Diversification effect1
Total Value-at-Risk (one-day)
Stressed Value-at-Risk (one-day)
Incremental Risk Capital Charge (one-year)
As at
Average
High
$ 21.1
31.5
6.0
2.1
2.9
28.4
(57.4)
34.6
85.5
162.0
$ 24.9
31.6
9.4
3.5
4.8
33.2
(62.6)
44.8
55.8
151.4
$ 44.2
41.9
15.8
9.7
11.7
57.2
n/m2
69.6
85.5
195.8
2023
Low
$ 12.2
22.5
5.7
1.0
2.3
20.3
n/m
30.1
41.5
121.7
As at
Average
High
$ 15.3
35.6
10.6
4.8
12.1
60.0
(69.4)
69.0
74.0
176.4
$ 21.2
23.0
12.8
2.4
5.8
36.8
(56.8)
45.2
77.5
260.3
$ 41.1
41.0
24.3
7.5
13.4
60.9
n/m
76.0
100.0
418.8
$
2022
Low
9.8
8.0
7.8
0.6
2.9
17.8
n/m
21.8
55.7
149.4
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 the
risk offsets resulting from portfolio diversification.
high and low may occur on different days for different risk types.
Market volatility subsided across most asset classes in 2023 however
concerns persist related to ongoing geopolitical tensions, elevated
inflationary pressure and further interest rate hikes in a prolonged high
rate environment.
The Bank has managed market risk by maintaining stable risk exposures,
with daily VaR remaining within approved limits during the year.
Average VaR was relatively stable year-over-year. Average Stressed
VaR decreased year-over-year due to position changes in fixed income
instruments, coupled with narrowing credit spreads.
Average IRC decreased year-over-year due to changes in bond positions.
Validation of VaR Model
The Bank uses a back-testing process to compare the actual and
theoretical profit and losses to VaR to verify that they are consistent with
the statistical results of the VaR model. The theoretical profit or loss is
generated using the daily price movements on the assumption that there is
no change in the composition of the portfolio. Validation of the IRC model
must follow a different approach since the one-year horizon and 99.9%
confidence level preclude standard back-testing techniques. Instead, key
parameters of the IRC model such as transition and correlation matrices
are subject to independent validation by benchmarking against external
study results or through analysis using internal or external data.
Management. Stress test are produced and reviewed regularly. The events
the Bank has modelled 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, the Brexit referendum of
June 2016, and the COVID-19 pandemic of 2020.
MARKET RISK IN OTHER WHOLESALE BANKING ACTIVITIES
The Bank is also exposed to market risk arising from its investment
portfolio and other non-trading portfolios. Risk Management reviews
and approves policies and procedures, which are established to monitor,
measure, and mitigate these risks.
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
Structural (Non-Trading) Market Risk
Structural (Non-Trading) Market Risk deals with managing the market risks
of TD’s traditional banking activities. This generally reflects the market
risks arising from personal and commercial banking products (loans and
deposits) as well as related funding, investments and HQLA. It does not
include exposures from TD’s Wholesale Banking or Insurance businesses.
Structural market risks primarily include interest rate risk and foreign
exchange risk.
95
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
WHO MANAGES STRUCTURAL (NON-TRADING) MARKET RISK
The TBSM group measures and manages the market risks of the Bank’s
non-trading banking activities outside of TD’s Wholesale Banking and
Insurance businesses, with oversight from the ALCO. The Market Risk
Control function provides independent oversight, governance, and control
over these market risks. The Risk Committee reviews and approves key
non-trading market risk policies, and monitors the Bank’s positions and
compliance with these policies through regular reporting and updates
from senior management.
HOW TD MANAGES STRUCTURAL (NON-TRADING)
MARKET RISK
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 profile that controls the impact of changes in interest
rates on the Bank’s net interest income and economic value to be
consistent with the Bank’s risk appetite.
Managing Structural 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 generate stable and predictable earnings over
time. The Bank has adopted a disciplined hedging approach to manage
the net interest income from its asset and liability positions. 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;
• Modelling the expected impact of customer behaviour on TD’s products
(e.g., how actively customers exercise embedded options, such as
prepaying a loan or redeeming a deposit before its maturity date);
• Assigning target-modelled maturity profiles for non-maturity assets,
liabilities, and equity;
• Measuring the margins of TD’s banking products on a fully-hedged
basis, including the impact of financial options 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 from “mismatched positions”
when asset and liability principal and interest cash flows have different
interest payment, repricing or maturity dates. The Bank measures this risk
based on an assessment of: contractual cash flows, product embedded
optionality, customer behaviour expectations and the modelled maturity
profiles for non-maturity products. To manage this risk, the Bank primarily
uses financial derivatives, wholesale investments, funding instruments, and
other capital market alternatives.
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.
Banking product optionality, whether from freestanding options such
as mortgage rate commitments or options embedded within loans and
deposits, expose the Bank to a significant financial 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 profile
based on historical experience. Customers’ propensity to fund, and their
preference for fixed or floating rate mortgage products, is influenced by
factors such as market mortgage rates, house prices, and seasonality.
• Asset Prepayment and other Embedded Options: The Bank models
its exposure to written options embedded in some of its products,
based on analyses of customer behaviour. Examples of this are the right
to prepay residential mortgage loans, and the right to early redeem
some term deposit products. For mortgages, 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. A similar
analysis is undertaken for other products with embedded optionality.
Structural Interest Rate Risk Measures
The primary measures for this risk are Economic Value of Shareholders’
Equity (EVE) Sensitivity and Net Interest Income Sensitivity (NIIS).
The EVE Sensitivity measures the impact of a specified interest rate
shock to the net present value of the Bank’s banking book assets,
liabilities, and certain off-balance sheet items. It reflects a measurement
of the potential present value impact on shareholders’ equity without an
assumed term profile for the management of the Bank’s own equity and
excludes product margins.
The NIIS measures the NII change over a twelve-month horizon for a
specified change in interest rates for banking book assets, liabilities, and
certain off-balance sheet items assuming a constant balance sheet over
the period.
The Bank’s Market Risk policy sets overall limits on the structural interest
rate risk measures. These limits are periodically reviewed and approved
by the Risk Committee. In addition to the Board policy limits, book-level
risk limits for the Bank’s management of non-trading interest rate risk
are set by Risk Management. Exposures against these limits are routinely
monitored and reported, and breaches of the Board limits, if any, are
escalated to both the ALCO and the Risk Committee.
The following table shows the potential before-tax impact of an immediate
and sustained 100 bps increase or decrease in interest rates on the Bank’s
EVE and NII. Interest rate floors are applied by currency to the decrease in
rates such that they do not exceed expected lower bounds, with the most
material currencies set to a floor of -25 bps.
T A B L E 4 5
|
STRUCTURAL INTEREST RATE SENSITIVITY MEASURES
(millions of Canadian dollars)
October 31, 2023
October 31, 2022
As at
Canada
U.S.
Total
Canada
U.S.
Total
Total
Total
EVE Sensitivity
NII Sensitivity1
EVE Sensitivity
NII Sensitivity1,2
Before-tax impact of
100 bps increase in rates
100 bps decrease in rates
$ (462)
368
$ (1,749)
1,231
$ (2,211)
1,599
$ 502
(530)
$ 418
(569)
$
920
(1,099)
$ (1,496)
1,102
$ 1,213
(1,381)
1 Represents the twelve-month NII exposure to an immediate and sustained shock
in rates.
2 Results are presented inclusive of the interest rate swaps de-designated from hedge
accounting relationships to mitigate the impacts of interest rate volatility to closing
capital of the First Horizon transaction. Since these swaps were pre-existing hedges
which economically hedge the Bank’s non-trading market risk, their inclusion had no
impact on the year-over-year results. This strategy was discontinued following the
announcement on May 4, 2023 by the Bank and First Horizon that they had entered
into a mutual agreement to terminate the previously announced merger agreement.
96
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
As at October 31, 2023, an immediate and sustained 100 bps increase
in interest rates would have had a negative impact to the Bank’s EVE of
$2,211 million, an increase of $715 million from last year, and a positive
impact to the Bank’s NII of $920 million, a decrease of $293 million from
last year. An immediate and sustained 100 bps decrease in interest rates
would have had a positive impact to the Bank’s EVE of $1,599 million,
an increase of $497 million from last year, and a negative impact to
the Bank’s NII of $1,099 million, a decrease of $282 million from last year.
The year-over-year increase in both up and down shock EVE Sensitivity is
due to an increase in the interest rate sensitivity of the Bank’s investment
portfolio in the U.S. Region, and the increased sensitivity of net assets
funded by equity. The year-over-year decrease in both up and down shock
NIIS is primarily due to deposit attrition, changes in deposit composition,
and Treasury hedging activity. As at October 31, 2023, reported EVE and
NII Sensitivities remain within the Bank’s risk appetite and established
Board limits.
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.
In order to minimize the impact of an adverse foreign exchange rate
change on certain capital ratios, the Bank’s net investments in foreign
operations are hedged so certain capital ratios change by no more than an
acceptable amount for a given change in foreign exchange rates. The Bank
does not generally hedge the earnings of foreign subsidiaries which results
in changes to the Bank’s consolidated earnings when relevant foreign
exchange rates change. As at October 31, 2022, the Bank executed
foreign exchange hedges to mitigate the impact of foreign exchange
volatility to closing capital of the First Horizon acquisition. These hedges
were unwound following the announcement on May 4, 2023 by the Bank
and First Horizon that they had entered into a mutual agreement to
terminate the previously announced merger agreement.
Other Non-trading Market Risks
Other structural 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 non-trading equity risk from
investment securities designated at FVOCI, equity-linked guaranteed
investment certificate product offerings and 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, and
changes in the Bank’s share price can impact non-interest expenses.
The Bank uses equity derivative instruments to manage its non-trading
equity price risk.
Managing Investment Portfolios
The Bank manages a securities portfolio that is integrated into the
overall asset and liability management process. The securities portfolio is
comprised of high-quality, low-risk securities and managed in a manner
appropriate to the attainment of the following goals: (1) to generate a
targeted credit of funds to deposit balances that are in excess of loan
balances; (2) to provide a sufficient pool of liquid assets to meet deposit
and loan fluctuations 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 profile of the
balance sheet. The Risk Committee reviews and approves the Enterprise
Investment Policy that sets out limits for the Bank’s investment portfolio.
In addition, the Wholesale Banking and Insurance businesses also hold
investments that are managed separately.
WHY NET INTEREST MARGIN FLUCTUATES OVER TIME
As previously noted, the Bank’s approach to structural (non-trading)
market risk is designed to generate stable and predictable earnings over
time, regardless of cash flow mismatches and the exercise of options
granted to customers. This approach also creates margin certainty on
loan and deposit profitability as they are booked. Despite this approach
however, the Bank’s NIM 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;
• Weighted-average margin impact from changes in business and
product mix;
• Changes in the basis between certain market indices;
• The lag in changing product prices in response to changes in market
interest rates, including rate-sensitive deposit pricing;
• Changes from the repricing of hedging strategies to manage the
investment profile of the Bank’s non-rate sensitive deposits; and
• Margin changes from the portion of the Bank’s deposits that are
non-rate sensitive but not expected to be longer term in nature,
resulting in a shorter term investment profile and higher sensitivity
to short-term rates.
The general level of interest rates will affect the return the Bank generates
on its modelled maturity profile for core non-rate sensitive deposits and
the investment profile for its net equity position as it evolves over time. The
general level of interest rates is also a key driver of some modelled 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.
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 definition 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
financial loss (direct or indirect), reputational harm, or regulatory censure
and penalties.
The Bank seeks to actively mitigate and manage operational risk in order
to create and sustain shareholder value, successfully execute the Bank’s
business strategies, operate efficiently, and provide reliable, secure, and
convenient access to financial 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 fiscal 2023, operational risk losses remained within the Bank’s
operational risk appetite. Refer to Note 26 of the 2023 Consolidated
Financial Statements for further information on material legal or
regulatory actions.
97
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS 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, assess, measure, control, monitor,
escalate, report, and communicate on operational risk. Operational Risk
Management is designed to provide appropriate monitoring and reporting
of the Bank’s operational risk profile 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 including
those that govern business continuity and crisis management, third-party
risk management, data risk management, financial crime and fraud risk
management, change governance, and technology and cyber security
risk 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, 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 specific 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:
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
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
identified, 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 financial institutions using information
acquired through recognized industry data providers.
Scenario Analysis
Scenario Analysis is a systematic and repeatable process of obtaining
expert business and risk opinion to derive assessments of the likelihood
and potential loss estimates of high impact operational events that are
unexpected and outside the normal course of business. 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 along with the Bank’s internal loss data and risk outlook that is
assessed considering the Bank’s operational risk profile and control
structure. The program raises awareness and educates business and
corporate segments regarding existing and emerging risks, which may
result in the identification and implementation of new scenarios and risk
mitigation action plans to minimize tail risk.
Risk Reporting
Risk Management regularly monitors risk-related measures and the risk
profile throughout the Bank to report to senior 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 satisfied. The management process includes
conducting regular in-depth risk and financial 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 financial rating requirements.
Technology and Cyber Security
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 technology and cyber security risks to support
adequate and proper day-to-day operations; and protect against
unauthorized access to the Bank’s technology, infrastructure, systems,
information, and data. To enable this, the Bank actively monitors,
manages, and continues to enhance its ability to mitigate these risks
through enterprise-wide programs and industry-accepted cyber threat
management practices to enable rapid detection and response.
The Bank’s Platforms and Technology Risk and Compliance Committee
provides senior executive oversight, direction and guidance regarding
management of risks relating to cyber security, including cyber terrorism/
activism, cyber fraud, cyber espionage, extortion, identity theft and data
theft. This Committee endorses actions and makes recommendations
to the CEO and the ERMC as appropriate, including in some instances,
supporting onward recommendations to the Risk Committee and the
Board of Directors. 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 technology
change management practices.
Data Management
The Bank’s data assets are governed and managed to preserve value and
support business objectives. Inconsistent or inadequate data governance
and management practices may compromise the Bank’s data and
information assets which could result in financial and reputational impacts.
The Bank’s Enterprise Data Governance Office, Corporate and Technology
partners develop and implement enterprise-wide standards and practices
that describe how data and information assets are created, used, or
maintained on behalf of the Bank.
98
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS 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 maintain resilience and facilitate the continuity
and recovery of business operations. This 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 products, services
or other business activities, functions or processes to or on behalf of
the Bank. While these relationships bring benefits 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 a level of risk
management and senior management oversight which is appropriate to
the size, risk, and criticality of the third-party arrangement.
Change and Delivery
The Bank has established a disciplined approach to delivering change
across the enterprise coordinated by the Enterprise Project Delivery
Excellence and Enterprise Portfolio Management and Governance groups.
This approach involves senior management governance and oversight
of the Bank’s change portfolio and leverages leading industry practices
to guide the Bank’s use of standardized delivery methodologies, defined
accountabilities and capabilities, and portfolio reporting and management
tools to support successful delivery.
Fraud Management
The Bank develops and implements enterprise-wide fraud management
strategies, policies, and practices that are designed to minimize the
number, size and scope of fraudulent activities perpetrated against it.
The Bank employs prevention, detection and monitoring capabilities
across the enterprise that are designed to help protect customers,
shareholders, and employees from increasingly sophisticated fraud
risk. Fraud risk is managed by communicating appropriate policies,
procedures, employee education in fraud risks, and monitoring activity
to help maintain adherence to the Fraud Risk Management Framework.
The Fraud Risk Management Framework describes the governance,
policies, and processes that the Bank’s businesses employ to proactively
manage and govern fraud risk within the Bank’s risk appetite which is
embedded in the Bank’s day to day operations and culture. The Bank has
also established an advocacy and advisory program to advocate for strong
fraud risk awareness and effective controls across the enterprise and a
dedicated fraud risk appetite measure within its operational risk appetite
to better monitor and assess fraud impacts across the enterprise.
Operational Risk Capital Measurement
The Bank’s operational risk capital is determined using the Basel III
Standardized Approach (SA) which is based on a Business Indicator
Component (BIC), a financial-statement-based proxy for operational risk
and an Internal Loss Multiplier (ILM), which is based on average historical
losses and the BIC. ILM is derived using operational risk losses, net of
recoveries, over the previous ten years, and BIC is derived using financial
information over the previous three years. The operational risk capital is
the product of the BIC and the ILM.
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 financial 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, and regulators
on the state of model risk at TD and alignment with the Bank’s Model
Risk Appetite. The Risk Committee 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 monitoring. The Bank’s Model
Risk Management Framework also captures key processes that may be
partially or wholly qualitative, or based on expert judgment.
Segments identify the need for a new model 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
their model risk rating. Once models are implemented, model owners
are responsible for ongoing 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 provides oversight, maintains a centralized
inventory of all models as defined in the Bank’s Model Risk Policy, validates
and approves new and existing models on a pre-determined schedule
depending on the model risk rating, sets model monitoring standards, and
provides 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 intrinsic risk, materiality
and criticality;
• the sensitivity of 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 identified as obsolete or no longer appropriate
for use, due to changes in industry practice, the business environment or
Bank strategies, are subject to decommissioning.
The Bank has policies and procedures in place designed to properly discern
models from non-models, and the level of independent challenge and
oversight corresponds to the materiality and complexity of models.
99
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS Insurance Risk
Insurance risk is the risk of financial loss due to actual experience emerging
differently from expectations in insurance product pricing and/or design,
underwriting, reinsurance protection, and claims or reserving either at
the inception of an insurance or reinsurance contract, during the lifecycle
of the claim or at the valuation date. Unfavourable experience could
emerge due to adverse fluctuations in timing, actual size, frequency of
claims (for example, driven by non-life premium risk, non-life reserving
risk, catastrophic risk, mortality risk, morbidity risk, and longevity risk),
or policyholder behaviour.
Insurance contracts provide financial 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 the Bank’s Risk Management Group.
The Bank’s Audit Committee and the Bank’s Corporate Governance
Committee respectively act as the Audit and Conduct review committees
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 independent
oversight and control of risk within the insurance business. The
TD Insurance Risk Committee and its subcommittees 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 personal automobile and home insurance and
small commercial insurance.
Insurance market cycles, as well as changes in insurance legislation, the
regulatory environment, judicial environment, trends in court awards,
climate patterns, pandemics or other applicable public health emergencies,
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.
Liquidity Risk
The risk of having insufficient cash or collateral to meet financial
obligations and an inability to, in a timely manner, raise funding or
monetize assets at a non-distressed price. Financial obligations can arise
from deposit withdrawals, debt maturities, commitments to provide
credit or liquidity support or the need to pledge additional collateral.
TD’S LIQUIDITY RISK APPETITE
The Bank applies an established set of practices and protocols for
managing its potential exposure to liquidity risk. The Bank targets a 90-day
survival horizon under a combined bank-specific and market-wide stress
scenario, and a minimum buffer over regulatory requirements prescribed
by the OSFI LAR guidelines. Under the LAR guidelines, Canadian banks are
required to maintain a Liquidity Coverage Ratio (LCR) at the minimum of
100% other than during periods of financial stress and 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 diversified 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 contingency funding
plan to enhance preparedness for recovery from potential liquidity stress
events. The Bank’s 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 Committee,
a subcommittee of the ALCO comprised of senior management from
Treasury, Risk Management and Wholesale Banking, identifies and
monitors the Bank’s liquidity risks. The management of liquidity risk is the
responsibility of the SET member responsible for Treasury, while oversight
and challenge is provided by the ALCO and independently by Risk
Management. The Risk Committee 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, as well as a 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.
100
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS The following areas are responsible for measuring, monitoring, and
managing liquidity risks for major business segments:
• Enterprise Liquidity Risk in Risk Management is responsible for
maintaining liquidity risk management and asset pledging policies,
along with associated limits, standards, and processes which are
established to ensure that consistent and efficient liquidity management
approaches are applied across all of the Bank’s operations. Risk
Management jointly owns the Liquidity Risk Management Framework
along with the SET member responsible for Treasury. Enterprise
Liquidity Risk provides oversight of liquidity risk across the enterprise
and provides independent risk assessment and effective challenge
of liquidity risk management. Capital Markets Risk Management is
responsible for independent liquidity risk metric reporting;
• Treasury Liquidity Management manages the liquidity position of the
Canadian Personal and Commercial Banking, Wealth Management and
Insurance, Corporate, Wholesale Banking, and U.S. Retail segments, as
well as the liquidity position of CUSO; and
• Other regional operations, including those within TD’s insurance
business, foreign branches, and/or subsidiaries are responsible for
managing their liquidity risk in compliance with their own policies, and
local regulatory requirements, while maintaining alignment with the
enterprise framework.
HOW TD MANAGES LIQUIDITY RISK
The Bank manages the liquidity profile of its businesses to be within
the defined 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 defined as the
amount of liquid assets the Bank needs to hold to be able to cover
expected future cash flow requirements, plus a prudent reserve against
potential cash outflows 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 confidence in the Bank’s ability to meet obligations as
they come due. In addition to this bank-specific event, the SCSS also
incorporates the impact of a stressed market-wide liquidity event that
results in a significant reduction in the availability of funding for all
institutions and a decrease in the marketability of assets. The Bank’s
liquidity risk management policies stipulate that the Bank must maintain
a sufficient level of liquid assets to support business growth, and to cover
identified stressed liquidity requirements under the SCSS, for a period of
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 ratings and adverse movement in reference rates for
derivative and securities financing 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
a minimum liquidity coverage of 100% over a 30-day stress period, the
NSFR requires that banks maintain available stable funding (ASF) in excess
of required stable funding (RSF) for periods up to one year (a minimum
NSFR of 100%), and the NCCF monitors the Bank’s detailed cash flow
gaps for various time bands. As a result, the Bank’s liquidity is managed to
the higher of its internal liquidity requirements and 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
banking businesses. Liquidity costs are reflective of the funding needs
and reserve requirements driven by the liquidity risk profile of the Bank’s
assets and liabilities. 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 identified
impediments to potential sale or pledging.
101
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS 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 as these are used to support insurance-
specific liabilities and capital requirements.
T A B L E 4 6
|
SUMMARY OF LIQUID ASSETS BY TYPE AND CURRENCY1,2
(millions of Canadian dollars, except as noted)
As at
Securities
received as
collateral from
securities
financing and
derivative
transactions
Bank-owned
liquid assets
Total liquid
assets
% of total
Encumbered
liquid assets
Unencumbered
liquid assets
Total non-Canadian dollar-denominated
408,299
182,652
Total
$ 561,580
$ 306,458
$ 868,038
100%
$ 326,374
$ 541,664
Cash and central bank reserves
Canadian government obligations
National Housing Act Mortgage-Backed Securities (NHA MBS)
Obligations of provincial governments, public sector entities and
multilateral development banks3
Corporate issuer obligations
Equities
Total Canadian dollar-denominated
Cash and central bank reserves
U.S. government obligations
U.S. federal agency obligations, including U.S. federal agency
mortgage-backed obligations
Obligations of other sovereigns, public sector entities and
multilateral development banks3
Corporate issuer obligations
Equities
Cash and central bank reserves
Canadian government obligations
NHA MBS
Obligations of provincial governments, public sector entities and
multilateral development banks3
Corporate issuer obligations
Equities
Total Canadian dollar-denominated
Cash and central bank reserves
U.S. government obligations
U.S. federal agency obligations, including U.S. federal agency
mortgage-backed obligations
Obligations of other sovereigns, public sector entities and
multilateral development banks3
Corporate issuer obligations
Equities
$ 28,548
15,214
38,760
$
–
94,000
–
$ 28,548
109,214
38,760
40,697
19,507
10,555
22,703
4,815
2,288
153,281
123,806
66,094
72,808
–
64,449
63,400
24,322
12,843
277,087
66,094
137,257
80,047
15,838
95,885
65,996
84,853
38,501
54,321
9,656
38,388
120,317
94,509
76,889
590,951
$ 48,965
17,133
28,650
$
–
88,511
157
$ 48,965
105,644
28,807
38,099
11,657
12,746
23,907
4,935
4,602
157,250
122,112
84,777
86,611
–
54,614
62,006
16,592
17,348
279,362
84,777
141,225
92,793
7,924
100,717
66,278
96,971
25,665
53,515
4,620
32,006
119,793
101,591
57,671
605,774
October 31, 2023
506
67,457
1,043
31,078
4,512
8,890
$ 28,042
41,757
37,717
32,322
19,810
3,953
113,486
163,601
180
63,688
65,914
73,569
29,487
66,398
56,652
15,228
47,653
63,665
79,281
29,236
212,888
378,063
3%
$
13
4
8
3
1
32
8
16
11
13
11
9
68
October 31, 2022
628
68,175
1,161
33,364
3,659
13,497
$ 48,337
37,469
27,646
28,642
12,933
3,851
120,484
158,878
–
47,518
84,777
93,707
21,660
79,057
48,079
11,378
42,347
71,714
90,213
15,324
170,982
434,792
6%
$
12
3
7
2
2
32
10
16
11
14
11
6
68
Total non-Canadian dollar-denominated
453,095
152,679
Total
$ 610,345
$ 274,791
$ 885,136
100%
$ 291,466
$ 593,670
1 Liquid assets include collateral received that can be re-hypothecated or
2 Positions stated include gross asset values pertaining to securities financing
otherwise redeployed.
transactions.
3 Includes debt obligations issued or guaranteed by these entities.
Total unencumbered liquid assets decreased by $52 billion from
October 31, 2022 largely as a result of lower deposit balances in
the U.S. Retail segment. Unencumbered 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 4 7
|
SUMMARY OF UNENCUMBERED LIQUID ASSETS BY BANK, SUBSIDIARIES, AND BRANCHES
(millions of Canadian dollars)
The Toronto-Dominion Bank (Parent)
Bank subsidiaries
Foreign branches
Total
102
October 31
2023
$ 205,408
291,915
44,341
As at
October 31
2022
$ 207,177
330,063
56,430
$ 541,664
$ 593,670
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
The Bank’s monthly average liquid assets (excluding those held in
insurance subsidiaries) for the years ended October 31, 2023, and
October 31, 2022, are summarized in the following table.
T A B L E 4 8
|
SUMMARY OF AVERAGE LIQUID ASSETS BY TYPE AND CURRENCY1,2
(millions of Canadian dollars, except as noted)
Average for the years ended
Securities
received as
collateral from
securities
financing and
derivative
transactions
Bank-owned
liquid assets
Total liquid
assets
% of Total
Encumbered
liquid assets
Unencumbered
liquid assets
Total non-Canadian dollar-denominated
434,538
168,482
Total
$ 593,604
$ 287,213
$ 880,817
100%
$ 306,991
$ 573,826
Cash and central bank reserves
Canadian government obligations
NHA MBS
Obligations of provincial governments, public sector entities and
multilateral development banks3
Corporate issuer obligations
Equities
Total Canadian dollar-denominated
Cash and central bank reserves
U.S. government obligations
U.S. federal agency obligations, including U.S. federal agency
mortgage-backed obligations
Obligations of other sovereigns, public sector entities and
multilateral development banks3
Corporate issuer obligations
Equities
Cash and central bank reserves
Canadian government obligations
NHA MBS
Obligations of provincial governments, public sector entities and
multilateral development banks3
Corporate issuer obligations
Equities
Total Canadian dollar-denominated
Cash and central bank reserves
U.S. government obligations
U.S. federal agency obligations, including U.S. federal agency
mortgage-backed obligations
Obligations of other sovereigns, public sector entities and
multilateral development banks3
Corporate issuer obligations
Equities
$ 38,189
16,560
37,020
$
–
86,037
4
$ 38,189
102,597
37,024
39,875
14,336
13,086
23,775
4,960
3,955
159,066
118,731
73,732
79,949
–
62,371
63,650
19,296
17,041
277,797
73,732
142,320
85,424
10,373
95,797
66,204
88,254
40,975
51,917
7,796
36,025
118,121
96,050
77,000
603,020
$ 53,826
17,724
25,225
$
–
91,620
53
$ 53,826
109,344
25,278
35,322
9,762
13,948
25,381
4,312
3,448
155,807
124,814
80,322
93,116
–
50,452
60,703
14,074
17,396
280,621
80,322
143,568
83,745
6,196
89,941
64,401
90,851
35,955
61,727
3,696
33,316
126,128
94,547
69,271
603,777
October 31, 2023
511
63,754
1,084
33,623
5,049
11,369
$ 37,678
38,843
35,940
30,027
14,247
5,672
115,390
162,407
255
60,605
73,477
81,715
24,174
71,623
50,904
13,544
42,119
67,217
82,506
34,881
191,601
411,419
5%
$
12
4
7
2
2
32
8
16
11
13
11
9
68
October 31, 2022
682
74,854
1,096
34,706
2,991
9,516
$ 53,144
34,490
24,182
25,997
11,083
7,880
123,845
156,776
957
46,576
79,365
96,992
18,955
70,986
57,880
10,663
40,253
68,248
83,884
29,018
175,284
428,493
6%
$
12
3
7
2
2
32
9
16
10
14
11
8
68
Total non-Canadian dollar-denominated
448,390
155,387
Total
$ 604,197
$ 280,201
$ 884,398
100%
$ 299,129
$ 585,269
1 Liquid assets include collateral received that can be re-hypothecated or
2 Positions stated include gross asset values pertaining to securities financing
otherwise redeployed.
transactions.
3 Includes debt obligations issued or guaranteed by these entities.
Average unencumbered 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 4 9
|
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
2023
$ 217,807
308,892
47,127
October 31
2022
$ 191,634
361,933
31,702
$ 573,826
$ 585,269
103
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
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 0
|
ENCUMBERED AND UNENCUMBERED ASSETS
(millions of Canadian dollars)
Total Assets
Encumbered1
Unencumbered
As at
Cash and due from banks
Interest-bearing deposits with banks
Securities, trading loans, and other7
Derivatives
Securities purchased under reverse
repurchase agreements8
Loans, net of allowance for loan losses9
Customers’ liabilities under acceptances
Other assets10
Bank-owned
assets
$
6,721
98,348
543,129
87,382
204,333
895,947
17,569
103,595
Securities
received as
collateral from
securities
financing and
derivative
transactions2
Total Assets
Pledged as
Collateral3
Other4
Available as
Collateral5
Other6
$
$
–
–
434,093
–
(204,333)
(14,442)
–
–
6,721
98,348
977,222
87,382
–
881,505
17,569
103,595
$
–
6,044
393,278
–
–
60,623
–
696
$
–
122
14,669
–
–
70,206
–
–
October 31, 2023
$
–
89,142
534,072
–
$
6,721
3,040
35,203
87,382
–
55,075
–
–
–
695,601
17,569
102,899
Total assets
$ 1,957,024
$ 215,318
$ 2,172,342
$ 460,641
$ 84,997
$ 678,289
$ 948,415
October 31, 2022
Total assets
$ 1,917,528
$ 192,081
$ 2,109,609
$ 423,346
$ 64,864
$ 710,237
$ 911,162
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.
6 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 or for pledging to central banks (for example, CMHC
insured mortgages that can be securitized into NHA MBS).
2 Assets received as collateral through off-balance sheet transactions such as reverse
7 Includes trading loans, securities, non-trading financial assets at FVTPL and other
repurchase agreements, securities borrowing, margin loans, and other client activity.
financial assets designated at FVTPL, financial assets at FVOCI, and DSAC.
3 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.
4 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.
5 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.
8 Assets reported in the “Bank-owned assets” column represent the value of the
loans extended and not the value of the collateral received. The loan value from
the reverse repurchase transactions is deducted from the “Securities received as
collateral from securities financing and derivative transactions” column to avoid
double-counting with the on-balance sheet assets.
9 The loan value from the margin loans/client activity is deducted from the “Securities
received as collateral from securities financing and derivative transactions” column
to avoid double-counting with the on-balance sheet assets.
10 Other assets include investment in Schwab, goodwill, other intangibles, land,
buildings, equipment, and other depreciable assets, deferred tax assets, amounts
receivable from brokers, dealers, and clients, and other assets on the balance sheet
not reported in the above categories.
CREDIT RATINGS
Credit ratings impact the Bank’s borrowing costs and ability to raise
funds. Rating downgrades could potentially result in higher financing
costs, increased requirements to pledge collateral, reduced access to
capital markets, and could also affect the Bank’s ability to enter into
derivative transactions.
Credit ratings and outlooks provided by rating agencies reflect their
views and are subject to change from time to time, based on a number of
factors including the Bank’s financial strength, competitive position, and
liquidity, as well as factors not entirely within the Bank’s control, including
the methodologies used by rating agencies and conditions affecting the
overall financial services industry.
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-specific
events and market-wide stress events designed to test the impact from
risk factors material to the Bank’s risk profile. 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 certain subsidiaries operating in foreign
jurisdictions (Regional CFPs). 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 identifies 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-specific stress events. The actions
and governance structure outlined in the Bank’s CFP are aligned with
the Bank’s Crisis Management Recovery Plan.
104
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 5 1 CREDIT RATINGS1
|
Deposits/Counterparty2
Legacy Senior Debt3
Senior Debt4
Covered Bonds
Subordinated Debt
Subordinated Debt – NVCC
Preferred Shares – NVCC
Limited Recourse Capital Notes – NVCC
Short-Term Debt (Deposits)
Outlook
Moody’s
Aa1
Aa2
A1
Aaa
A2
A2 (hyb)
Baa1 (hyb)
Baa1 (hyb)
P-1
Stable
S&P
AA-
AA-
A
–
A
A-
BBB
BBB
A-1+
Stable
As at
October 31, 2023
DBRS
AA (high)
AA (high)
AA
AAA
AA (low)
A
Pfd-2 (high)
A (low)
R-1 (high)
Stable
Fitch
AA
AA
AA-
AAA
A
A
BBB+
BBB+
F1+
Stable
1 The above ratings are for The Toronto-Dominion Bank legal entity. Subsidiaries’
2 Represents Moody’s Long-Term Deposits Rating 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, Fitch’s Long-Term Deposits 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.
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 downgrade in the Bank’s senior debt ratings. The following
table presents the additional collateral that could have been contractually
required to be posted to over-the-counter (OTC) 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 2 ADDITIONAL COLLATERAL REQUIREMENTS FOR RATING DOWNGRADES1
|
(millions of Canadian dollars)
One-notch downgrade
Two-notch downgrade
Three-notch downgrade
1 The above collateral requirements are based on each OTC trading counterparty’s
Credit Support Annex and the Bank’s credit rating across applicable rating agencies.
Average for the years ended
October 31
2023
October 31
2022
$ 124
192
913
$ 182
290
1,129
LIQUIDITY COVERAGE RATIO
The LCR is a Basel III metric calculated as the ratio of the stock of
unencumbered HQLA over the net cash outflow requirements in the next
30 days under a hypothetical liquidity stress event.
Other than during periods of financial stress, the Bank must maintain
the LCR above 100% 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 outflow and inflow rates. HQLA held
by the Bank that are eligible for the LCR calculation under the LAR are
primarily central bank reserves, sovereign-issued or sovereign-guaranteed
securities, and high-quality securities issued by non-financial entities.
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
105
The following table summarizes the Bank’s average daily LCR as of
the relevant dates.
T A B L E 5 3 AVERAGE BASEL III LIQUIDITY COVERAGE RATIO1
|
(millions of Canadian dollars, except as noted)
High-quality liquid assets
Total high-quality liquid assets
Cash outflows
Retail deposits and deposits from small business customers, of which:
Stable deposits5
Less stable deposits
Unsecured wholesale funding, of which:
Operational deposits (all counterparties) and deposits in networks of cooperative banks6
Non-operational deposits (all counterparties)
Unsecured debt
Secured wholesale funding
Additional requirements, of which:
Outflows related to derivative exposures and other collateral requirements
Outflows related to loss of funding on debt products
Credit and liquidity facilities
Other contractual funding obligations
Other contingent funding obligations7
Total cash outflows
Cash inflows
Secured lending
Inflows from fully performing exposures
Other cash inflows
Total cash inflows
Total high-quality liquid assets8
Total net cash outflows9
Liquidity coverage ratio
Average for the
three months ended
October 31, 2023
Total
unweighted
value
(average)2
Total
weighted
value
(average)3
$
n/a4
$ 325,142
$ 486,846
243,951
242,895
355,019
128,996
188,595
37,428
n/a
331,185
45,401
12,666
273,118
22,775
775,320
$ 32,105
7,319
24,786
179,636
30,399
111,809
37,428
32,978
93,945
30,529
12,666
50,750
14,231
11,974
$
n/a
$ 364,869
$ 230,377
20,672
67,824
$ 36,447
10,284
67,824
$ 318,873
$ 114,555
Average for the
three months ended
October 31
2023
Total
weighted
value
$ 325,142
250,314
July 31
2023
Total
weighted
value
$ 324,154
244,398
130%
133%
1 The LCR for the quarter ended October 31, 2023, is calculated as an average of the
7 Includes uncommitted credit and liquidity facilities, stable value money market mutual
62 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 the OSFI LAR guideline.
4 Not applicable as per the LCR common disclosure template.
5 As defined by the OSFI LAR guideline, stable deposits from retail and small- and
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 makes deposit withdrawal highly unlikely.
6 Operational deposits from non-SME business customers are deposits kept with
the Bank in order to facilitate their access and ability to conduct payment and
settlement activities. These activities include clearing, custody, or cash
management services.
The Bank’s average LCR of 130% for the quarter ended October 31, 2023
continues to meet the regulatory requirements.
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, 2023 was $325 billion (July 31, 2023 –
$324 billion), with Level 1 assets representing 82% (July 31, 2023 – 83%).
The Bank’s reported HQLA excludes excess HQLA from the U.S. Retail
operations, as required by the OSFI LAR guideline, to reflect liquidity
transfer considerations between U.S. Retail and its affiliates as a result
of the 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.
106
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
funds, outstanding debt securities with remaining maturity greater than 30 days,
and other contractual cash outflows. With respect to outstanding debt securities
with remaining maturity greater than 30 days, TD has no contractual obligation to
buy back these outstanding TD debt securities, and as a result, a 0% outflow rate is
applied under the OSFI LAR guideline.
8 Total HQLA includes both asset haircuts 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).
9 Total 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).
NET STABLE FUNDING RATIO
The NSFR is a Basel III metric calculated as the ratio of total ASF over total
RSF in accordance with OSFI’s LAR guideline. The Bank must maintain an
NSFR ratio equal to or above 100% in accordance with the LAR guideline.
The Bank’s ASF comprises the Bank’s liability and capital instruments
(including deposits and wholesale funding). The assets that require stable
funding are based on the Bank’s on and off-balance sheet activities and
a function of their liquidity characteristics and the requirements of OSFI’s
LAR guideline.
T A B L E 5 4 NET STABLE FUNDING RATIO
|
(millions of Canadian dollars, except as noted)
Available Stable Funding Item
Capital
Regulatory capital
Other capital instruments
Retail deposits and deposits from small business customers:
Stable deposits3
Less stable deposits
Wholesale funding:
Operational deposits4
Other wholesale funding
Liabilities with matching interdependent assets5
Other liabilities:
NSFR derivative liabilities
All other liabilities and equity not included in the above categories
Total Available Stable Funding
Required Stable Funding Item
Total NSFR high-quality liquid assets
Deposits held at other financial institutions for operational purposes
Performing loans and securities
Performing loans to financial institutions secured by Level 1 HQLA
Performing loans to financial institutions secured by non-Level 1 HQLA
and unsecured performing loans to financial institutions
Performing loans to non-financial corporate clients, loans to retail
and small business customers, and loans to sovereigns, central banks
and PSEs, of which:
With a risk weight of less than or equal to 35% under the Basel II
standardized approach for credit risk
Performing residential mortgages, of which:
With a risk weight of less than or equal to 35% under the Basel II
standardized approach for credit risk6
Securities that are not in default and do not qualify as HQLA, including
exchange-traded equities
Assets with matching interdependent liabilities5
Other assets:
Physical traded commodities, including gold
Assets posted as initial margin for derivative contracts and contributions
to default funds of CCPs
NSFR derivative assets
NSFR derivative liabilities before deduction of variation margin posted
All other assets not included in the above categories
Off-balance sheet items
Total Required Stable Funding
Net Stable Funding Ratio
Total Available Stable Funding
Total Required Stable Funding
Net Stable Funding Ratio
As at
October 31, 2023
Unweighted value by residential maturity
No maturity1
Less than
6 months
6 months
to less than
1 year
More than
1 year
Weighted
value2
$ 109,124
109,124
n/a
449,857
240,630
209,227
242,225
101,643
140,582
–
61,972
n/a
61,972
$
n/a
n/a
n/a
64,384
22,978
41,406
349,052
2,618
346,434
1,980
$
n/a
n/a
n/a
31,253
12,105
19,148
119,586
–
119,586
2,986
80,639
2,147
$
9,190
9,190
–
28,476
13,526
14,950
249,820
–
249,820
19,034
82,228
(2,410)
1,852
$ 118,314
118,314
–
532,708
275,454
257,254
469,869
52,130
417,739
–
2,925
2,925
$ 1,123,816
$
n/a
–
95,387
–
$
n/a
1,053
222,190
76,966
$
n/a
–
121,678
6,677
$
n/a
–
688,544
–
$
62,148
527
754,644
11,281
–
44,036
11,361
7,948
18,086
36,105
59,162
50,102
291,349
338,287
n/a
30,645
36,154
31,488
30,010
48,634
–
317,580
32,927
292,242
30,645
31,488
48,634
317,580
292,242
28,637
–
70,609
11,142
n/a
n/a
59,467
n/a
10,538
1,680
n/a
4,904
3,183
n/a
74,796
2,520
71,667
19,137
134,891
n/a
17,118
8,083
23,191
9,183
783,337
94,748
–
115,003
9,961
14,551
10,493
1,160
78,838
28,268
$ 960,590
117%
As at
October 31, 2022
$ 1,058,087
866,383
122%
1 Items in the “no maturity” time bucket do not have a stated maturity. These may
include, but are not limited to, items such as capital with perpetual maturity, non-
maturity deposits, short positions, open maturity positions, non-HQLA equities, and
physical traded commodities.
2 Weighted values are calculated after the application of respective NSFR weights, as
prescribed by the OSFI LAR guideline.
3 As defined by the OSFI LAR guideline, stable deposits from retail and 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 makes deposit
withdrawals highly unlikely.
4 Operational deposits from non-SME business customers are deposits kept with the Bank
in order to facilitate their access and ability to conduct payment and settlement
activities. These activities include clearing, custody, or cash management services.
5 Interdependent asset and liability items are deemed by OSFI to be interdependent
and have RSF and ASF risk factors adjusted to zero. Interdependent liabilities cannot
fall due while the asset is still on balance sheet, cannot be used to fund any other
assets and principal payments from the asset cannot be used for anything other
than repaying the liability. As such, the only interdependent assets and liabilities
that qualify for this treatment at the Bank are the liabilities arising from the Canada
Mortgage Bonds Program and their corresponding encumbered assets.
6 Includes Residential Mortgages and HELOCs.
The Bank’s NSFR as at October 31, 2023 is 117% (October 31, 2022 –
122%), representing a surplus of $163 billion, adhering to regulatory
requirements. Decreases are attributable to changes in our funding
composition and lower deposit balance in the U.S. Bank.
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
107
FUNDING
The Bank has access to a variety of unsecured and secured funding
sources. The Bank’s funding activities are conducted in accordance with
liquidity risk management policies that require assets be funded to the
appropriate term and to a prudent diversification profile.
The Bank’s primary approach to managing funding activities is to
maximize the use of deposits raised through personal and commercial
banking channels. The following table illustrates the Bank’s base of
personal and commercial, wealth, and Schwab sweep deposits (collectively,
“P&C deposits”) that make up approximately 70% (2022 – 70%) of
the Bank’s total funding.
WHOLESALE FUNDING
The Bank maintains various registered external wholesale term (greater
than 1 year) funding programs to provide access to diversified funding
sources, including asset securitization, covered bonds, and unsecured
wholesale debt. The Bank raises term funding through Senior Notes,
NHA MBS, and notes backed by credit card receivables (Evergreen Credit
Card Trust) and HELOC (Genesis Trust II). The Bank’s wholesale funding
is diversified by geography, by currency, and by funding types. The Bank
raises short-term (1 year and less) funding using certificates of deposit,
commercial paper, and BA.
T A B L E 5 5
|
SUMMARY OF DEPOSIT FUNDING
(millions of Canadian dollars)
P&C deposits – Canadian
P&C deposits – U.S.1
Total
As at
October 31
2023
October 31
2022
$ 529,078
446,355
$ 525,294
493,223
$ 975,433
$ 1,018,517
1 P&C deposits in U.S. are presented on a Canadian equivalent basis and therefore
period-over-period movements reflect both underlying growth and changes in the
foreign exchange rate.
The following table summarizes the registered term funding and
capital programs by geography, with the related program size as at
October 31, 2023.
Canada
United States
Europe
Capital Securities Program ($20 billion)
Canadian Senior Medium-Term Linked Notes
Program ($5 billion)
HELOC ABS Program (Genesis Trust II)
($7 billion)
U.S. SEC (F-3) Registered Capital and
Debt Program (US$75 billion)
United Kingdom Listing Authority (UKLA)
Registered Legislative Covered Bond Program
($80 billion)
UKLA Registered European Medium-Term
Note Program (US$40 billion)
The following table presents a breakdown of the Bank’s term debt by
currency and funding type. Term funding as at October 31, 2023, was
$173.3 billion (October 31, 2022 – $150.5 billion).
Note that Table 56: Long-Term Funding and Table 57: Wholesale Funding
do not include any funding accessed via repurchase transactions or
securities financing.
T A B L E 5 6
|
LONG-TERM FUNDING1
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 securitization2
Term asset backed securities
Total
As at
October 31
2023
October 31
2022
27%
35
27
5
6
31%
43
20
3
3
100%
100%
61%
31
7
1
67%
22
10
1
100%
100%
1 The table includes funding issued to external investors only.
2 Mortgage securitization excludes the residential mortgage trading business.
108
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
The Bank maintains depositor concentration limits in respect of
short-term wholesale deposits so that it is not overly reliant on
individual depositors for funding. The Bank further limits short-term
wholesale funding maturity concentration in an effort to mitigate
refinancing risk during a stress event.
The following table represents the remaining maturity of various sources of
funding outstanding as at October 31, 2023, and October 31, 2022.
T A B L E 5 7 WHOLESALE FUNDING1
|
(millions of Canadian dollars)
Deposits from banks2
Bearer deposit notes
Certificates of deposit
Commercial paper
Covered bonds
Mortgage securitization 3
Legacy senior unsecured medium-term notes4
Senior unsecured medium-term notes5
Subordinated notes and debentures6
Term asset backed securitization
Other7
Less than
1 month
$ 30,016
69
13,463
8,560
–
2
–
–
–
–
34,039
1 to 3
months
$ 3,558
81
17,259
8,698
–
1,024
–
–
–
–
1,923
3 to 6
months
6 months
to 1 year
Up to 1
year
Over 1 to
2 years
Over 2
years
$ 3,279
463
27,241
6,712
6,324
700
1,010
10,602
–
–
3,833
$
5,627
1,191
55,259
16,545
4,266
3,381
1,935
8,736
–
1,476
1,828
$ 42,480
1,804
113,222
40,515
10,590
5,107
2,945
19,338
–
1,476
41,623
$
1
–
254
–
11,651
3,831
157
19,795
196
302
2,131
$
–
–
–
–
34,732
18,193
60
58,392
9,424
426
594
As at
October 31
2023
October 31
2022
Total
Total
$ 42,481
1,804
113,476
40,515
56,973
27,131
3,162
97,525
9,620
2,204
44,348
$ 31,833
1,275
98,574
62,906
33,978
27,684
13,631
84,956
11,290
1,826
32,603
Total
Of which:
Secured
Unsecured
Total
$ 86,149
$ 32,543
$ 60,164 $ 100,244
$ 279,100
$ 38,318
$ 121,821
$ 439,239
$ 400,556
$ 9,016
77,133
$ 1,024
31,519
$ 7,024
53,140
$
9,123
91,121
$ 26,187
252,913
$ 15,785
22,533
$ 53,356
68,465
$ 95,328
343,911
$ 63,496
337,060
$ 86,149
$ 32,543
$ 60,164 $ 100,244
$ 279,100
$ 38,318
$ 121,821
$ 439,239
$ 400,556
1 Excludes BA, which are disclosed in the Remaining Contractual Maturity table within
the “Managing Risk” section of this document.
2 Includes fixed-term deposits with banks.
3 Includes mortgaged backed securities issued to external investors and Wholesale
Banking residential mortgage trading business.
4 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.
5 Comprised of senior debt subject to conversion under the bank recapitalization “bail-
in” regime. Excludes $5.7 billion of structured notes subject to conversion under the
“bail-in” regime (October 31, 2022 – $2.3 billion).
6 Subordinated notes and debentures are not considered wholesale funding as they
may be raised primarily for capital management purposes.
7 Includes fixed-term deposits from non-bank institutions (unsecured) of $22.1 billion
(October 31, 2022 – $21.3 billion) and the remaining are non-term deposits.
Excluding the Wholesale Banking residential mortgage trading business,
the Bank’s total 2023 mortgage-backed securities issued to external
investors was $1.3 billion (2022 – $1.7 billion) and other asset-backed
securities issued was $0.4 billion (2022 – $0.3 billion). The Bank
also issued $27.6 billion of unsecured medium-term notes (2022 –
$44.6 billion) and $26.1 billion of covered bonds (2022 – $17.5 billion)
during the year ended October 31, 2023.
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 certain lease-related 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 significant 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.
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’s objective is to fund its assets appropriately
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.
Additionally, the Bank issues long-term funding in respect of such non-
trading assets and raises short-term funding primarily to finance trading
assets. The liquidity of trading assets under stressed market conditions is
considered when determining the appropriate term of the funding.
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
109
T A B L E 5 8 REMAINING CONTRACTUAL MATURITY
|
(millions of Canadian dollars)
As at
October 31, 2023
Assets
Cash and due from banks
Interest-bearing deposits with banks
Trading loans, securities, and other1
Non-trading financial assets at fair value
through profit or loss
Derivatives
Financial assets designated at fair value
through profit 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 Schwab
Goodwill3
Other intangibles3
Land, buildings, equipment,
other depreciable assets, and
right-of-use 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 profit or loss
Deposits4,5
Personal
Banks
Business and government
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 liabilities
Subordinated notes and debentures
Equity
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
No specific
maturity
Total
$
6,721
51,021
4,328
$
–
559
6,329
$
–
10,145
–
10,437
–
–
5,170
354
5,246
$
–
–
3,008
$
–
–
4,569
$
–
–
13,226
$
–
–
27,298
$
–
–
25,677
1,538
4,244
199
3,255
1,664
11,724
828
25,910
1,351
16,421
$
– $
46,768
62,485
1,406
–
6,721
98,348
152,090
7,340
87,382
374
745
496
375
695
324
838
1,470
1,246
–
5,818
2,190
1,200
5,085
2,223
9,117
15,946
29,845
3,514
69,865
1,221
4,020
4,073
16,218
3,480
22,339
116,165
140,502
(2)
308,016
96,372
23,939
25,127
5,082
4,148
3,539
1,083
43,281
1,762
204,333
1,603
2,616
5,860
10,575
14,181
57,254
168,475
59,733
44
320,341
894
–
37,656
40,153
–
40,153
14,804
–
–
–
–
–
1,580
–
10,058
14,254
–
2,334
–
13,850
22,044
–
3,830
–
14,886
29,291
–
5,974
–
16,964
27,166
–
42,460
85,487
–
96,952
34,183
–
67,190
56,106
38,660
26,512
217,554
38,660
326,528
37,119
126,880
350,914
161,106
121,322
903,083
–
–
–
–
(7,136)
(7,136)
14,254
22,044
29,291
37,119
126,880
350,914
161,106
114,186
895,947
2,760
–
–
–
8
–
5
–
–
–
6
–
–
–
–
–
8
–
30,181
5,282
–
1,877
–
5,627
–
215
–
–
–
–
14
–
–
202
–
–
–
–
79
–
–
155
–
–
–
–
573
–
–
157
–
–
–
–
3,153
–
–
64
–
8,907
18,602
2,771
5,593
3,960
235
15,926
17,569
8,907
18,602
2,771
9,434
3,960
30,416
29,505
$ 261,347
$ 66,869
$ 69,227
$ 65,384
$ 55,533
$ 189,561
$ 540,344
$ 422,646
$ 286,113 $ 1,957,024
$
1,272
9,068
2
$
1,684
9,236
498
$
5,278
4,560
345
$ 4,029
3,875
1,215
$
$ 4,153
2,559
391
6,510
8,345
1,651
$
6,712
16,589
6,945
$
1,342
17,408
3,375
$
–
–
–
$ 30,980
71,640
14,422
48,197
30,477
37,961
42,792
32,473
112
–
–
118
192,130
6,044
19,608
25,663
51,315
14,804
135
95,102
–
30,248
328
11,943
–
–
19,095
68
16,407
35,570
2,760
1,566
10,225
526
–
408
9,845
–
–
22,387
29
24,487
46,903
5
1,336
7,255
355
–
437
7,995
–
–
14,164
–
11,819
25,983
–
1,603
1,185
1,073
–
344
1,294
–
–
19,525
–
9,658
29,183
–
1,309
1,335
703
–
329
1,198
–
–
17,268
–
33,723
50,991
–
5,471
6,083
2,180
–
928
918
196
–
20,328
4
74,300
94,632
–
19,991
746
4,956
–
1,369
1,980
–
–
51
1
19,652
19,704
–
11,971
43,089
2,917
–
613
4,226
9,424
507,734
11,515
324,660
626,596
31,225
540,369
843,909
1,198,190
–
1,279
17,569
44,661
1,834
–
624
2,849
8,265
–
166,854
12,710
30,872
7,605
47,664
9,620
–
112,107
112,107
Total liabilities and equity
$ 262,414
$ 102,795
$ 112,430
$ 83,393
$ 73,633
$ 83,385
$ 153,920
$ 114,069
$ 970,985 $ 1,957,024
Off-balance sheet commitments
Credit and liquidity commitments6,7
Other commitments8
Unconsolidated structured
entity commitments
$ 22,242
109
$ 24,178
279
$ 26,399
214
$ 21,450
197
$ 22,088
204
$ 47,826
889
$ 166,891
1,364
$
5,265
424
$
1,487 $ 337,826
3,753
73
–
836
3
239
95
729
–
–
–
1,902
Total off-balance sheet commitments
$ 22,351
$ 25,293
$ 26,616
$ 21,886
$ 22,387
$ 49,444
$ 168,255
$
5,689
$
1,560 $ 343,481
1 Amount has been recorded according to the remaining contractual maturity of the
5 Includes $57 billion of covered bonds with remaining contractual maturities of
underlying security.
2 Certain contracts considered short-term are presented in ‘less than 1 month’ category.
3 Certain 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’.
$6 billion in ‘over 3 months to 6 months’, $3 billion in ‘over 6 months to 9 months’,
$1 billion in ‘over 9 months to 1 year’, $12 billion in ‘over 1 to 2 years’, $31 billion in
‘over 2 to 5 years’, and $4 billion in ‘over 5 years’.
6 Includes $573 million in commitments to extend credit to private equity investments.
7 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.
8 Includes various purchase commitments as well as commitments for leases not yet
commenced, and lease-related payments.
110
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 5 8 | REMAINING CONTRACTUAL MATURITY (continued)
(millions of Canadian dollars)
As at
October 31, 2022
Assets
Cash and due from banks
Interest-bearing deposits with banks
Trading loans, securities, and other1
Non-trading financial assets at fair value
through profit or loss
Derivatives
Financial assets designated at fair value
through profit 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 Schwab
Goodwill3
Other intangibles3
Land, buildings, equipment,
other depreciable assets, and
right-of-use 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 profit or loss
Deposits4,5
Personal
Banks
Business and government
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 liabilities
Subordinated notes and debentures
Equity
160,167
293,924
206,152
36,010
301,389
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
No specific
maturity
Total
$
8,556
135,855
4,601
$
–
197
4,876
$
–
143
5,310
$
–
–
4,477
$
–
–
4,055
$
–
–
12,910
$
–
–
23,057
$
– $
–
23,051
– $
1,099
61,389
8,556
137,294
143,726
111
14,436
–
16,306
222
7,870
685
5,155
–
4,575
4,071
10,622
2,475
26,319
2,133
18,590
1,249
–
10,946
103,873
229
777
235
391
243
610
1,345
1,209
–
5,039
2,117
2,401
1,531
3,367
1,712
6,415
20,091
28,721
3,320
69,675
2,333
3,607
7,082
14,706
4,678
29,069
106,919
174,381
(1)
342,774
113,845
15,050
17,977
9,745
3,240
310
–
–
672
2,327
5,585
9,122
9,115
34,909
181,763
50,431
–
–
543
–
33,836
35,051
–
35,051
16,002
–
–
–
–
–
1,027
–
7,398
10,752
–
2,480
–
10,693
18,758
–
4,002
–
10,854
23,978
–
3,430
–
14,245
26,790
–
19,635
–
33,366
88,071
–
89,367
30,056
–
68,078
56,908
36,010
33,552
87,910
359,201
148,565
126,470
837,475
–
–
–
(6,432)
(6,432)
10,752
18,758
23,978
26,790
87,910
359,201
148,565
120,038
831,043
3,712
–
–
–
–
–
16
–
–
–
2
–
3
–
–
–
2
–
–
–
–
–
2
–
19,719
4,726
41
1,262
–
6,537
–
232
–
274
–
–
–
–
36
–
–
74
–
–
–
–
525
–
–
57
–
–
–
–
3,462
–
–
72
–
8,088
17,656
2,303
5,371
2,193
–
12,068
19,733
8,088
17,656
2,303
9,400
2,193
19,760
25,302
$ 357,581
$ 58,981
$ 65,683
$ 62,741
$ 45,569
$ 152,027
$ 539,989
$ 400,184 $ 234,773 $ 1,917,528
$
4,038
12,560
36
$ 2,227
16,189
1,245
$ 4,390
8,764
216
$ 1,740
5,230
447
$ 1,758
3,531
899
$
4,181
9,413
2,357
$
4,136
18,116
4,675
$
1,335 $
17,330
2,737
– $
–
–
23,805
91,133
12,612
18,718
21,893
52,501
45,442
23,331
805
96
–
–
162,786
4,551
22,153
34,236
60,940
16,002
1,418
118,278
–
25,155
146
14,587
–
–
6,872
453
17,779
25,104
3,712
2,125
6,553
595
40
296
2,417
–
–
10,173
51
10,095
20,319
16
1,611
2,382
390
–
439
2,006
–
–
10,394
–
17,173
27,567
3
1,257
545
609
–
439
1,050
–
–
11,801
13
8,234
20,048
–
1,312
188
1,812
–
481
761
–
–
12,801
–
26,060
38,861
–
6,691
78
2,724
–
947
1,725
–
–
13,038
3
63,392
76,433
–
15,015
–
5,730
–
1,482
1,136
200
–
31
3
13,167
13,201
–
13,146
–
3,212
–
645
4,660
11,090
591,177
15,587
340,733
660,838
38,263
530,869
947,497
1,229,970
–
2,930
19,733
45,505
–
–
128,024
15,072
–
2,593
5,210
–
25,195
7,468
33,552
11,290
–
111,383
111,383
Total liabilities and equity
$ 271,878
$ 82,396
$ 93,034
$ 84,329
$ 54,121
$ 67,782
$ 127,019
$ 67,356 $ 1,069,613 $ 1,917,528
Off-balance sheet commitments
Credit and liquidity commitments6,7
Other commitments8
Unconsolidated structured
entity commitments
$ 19,249
87
$ 22,494
208
$ 22,536
177
$ 19,326
234
$ 18,060
205
$ 41,357
549
$ 140,699
1,316
$
4,882 $
365
1,461 $ 290,064
3,148
7
–
126
18
204
–
1,233
510
–
–
2,091
Total off-balance sheet commitments
$ 19,336
$ 22,828
$ 22,731
$ 19,764
$ 18,265
$ 43,139
$ 142,525
$
5,247 $
1,468 $ 295,303
1 Amount has been recorded according to the remaining contractual maturity of the
5 Includes $34 billion of covered bonds with remaining contractual maturities of
underlying security.
2 Certain contracts considered short-term are presented in ‘less than 1 month’ category.
3 Certain 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’.
$2 billion in ‘over 1 month to 3 months’, $5 billion in ‘over 3 months to 6 months’,
$1 billion in ‘over 6 months to 9 months’, $5 billion in ‘over 1 to 2 years’, $21 billion
in ‘over 2 to 5 years’.
6 Includes $502 million in commitments to extend credit to private equity investments.
7 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.
8 Includes various purchase commitments as well as commitments for leases not yet
commenced, and lease-related payments.
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
111
Capital Adequacy Risk
Capital adequacy risk is the risk of insufficient level and composition of
capital being available in relation to the amount of capital required to
carry out the Bank’s strategy and/or satisfy regulatory and internal capital
adequacy requirements under normal and stress conditions.
Capital is held to protect the viability of the Bank in the event of
unexpected financial 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 sufficient capital,
in normal and stress environments, to avoid the risk of breaching minimum
capital levels prescribed by regulators and internal Board limits.
WHO MANAGES CAPITAL ADEQUACY RISK
The Board oversees the Bank’s capital adequacy and capital management
by reviewing adherence to capital targets and approving the annual
capital plan and the Capital Adequacy Risk Management Policy. The Risk
Committee reviews and approves the Capital Adequacy Risk Management
Framework. The CRO and the CFO oversee that the Bank’s ICAAP is
effective in meeting capital adequacy requirements.
The ALCO recommends and maintains the Capital Adequacy Risk
Management Framework and the Capital Adequacy Risk Management
Policy, and sets additional capital targets and minimum requirements,
including the allocation of capital limits to business segments, to support
ongoing compliance with the Capital Adequacy Risk Management Policy.
The ALCO also reviews the ongoing adherence to established capital
targets in support of the effective and prudent management of the Bank’s
capital position and maintenance of adequate capital.
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 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 Foreign Banking
Organizations, applicable to U.S. Bank Holding Companies. Refer to the
sections on “Future Regulatory Capital Developments”, “Enterprise-Wide
Stress Testing”, and “Risk Factors That May Affect 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 defined by both internal and regulatory
capital requirements, so that it meets the higher of these requirements.
Regulatory capital requirements represent minimum capital levels.
Capital targets are established to provide a sufficient buffer so
that the Bank is able to continuously meet these minimum capital
requirements. The purpose of these capital targets is to reduce the risk
of a breach of minimum capital requirements, due to unexpected events,
allowing management the opportunity to react to declining capital levels
before minimum capital requirements are breached.
A 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 and capital risk appetite limits.
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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 confidence level so that
the Bank will be able to meet its obligations, even after absorbing severe
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-specific 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 or
when there are capital concerns from disruptive events or trends. 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 Bank’s failure to comply with applicable laws, rules,
regulations, prescribed practices, contractual obligations, the Bank’s Code
of Conduct and Ethics, or standards of fair business conduct or market
conduct, which can lead to fines, sanctions, liabilities, or reputational harm
that 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
financial condition. 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 businesses or jurisdictions. LRCC
risk exposure is inherent in the normal course of operating the Bank’s
businesses. Known LRCC risks continue to rapidly evolve as a result of
evolving regulatory expectations, as well as new or emerging threats,
including geopolitical and those associated with use of new, emerging and
interrelated technologies, artificial intelligence, machine learning, models
and decision-making tools.
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 its corporate
functions, business segments, its governance, risk, and oversight functions,
and its subsidiaries, and is aligned with the Bank’s ERF. All the Bank’s
businesses are accountable for operating their business in compliance with
LRCC requirements applicable to their jurisdiction and specific businesses.
Businesses are also accountable for the LRCC risk that they generate in
their operations, including LRCC risks that may arise in their dealings
with third-party vendors. These accountabilities involve assessing the risk,
designing and implementing controls, and monitoring and reporting on
their ongoing effectiveness to safeguard the businesses from operating
outside of the Bank’s risk appetite. Independent oversight functions (the
“Oversight Functions”) such as Compliance, GAML, Enterprise Conduct
Risk Management, and Regulatory Risk are designated and accountable for
RCM oversight and provide objective guidance, and oversight with respect
to managing LRCC risk. Legal and Regulatory Risk provide advice 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 Legal, Compliance, and GAML have established regular
meetings with and reporting to the Audit Committee, which oversees
the establishment and maintenance of policies and programs designed
to help achieve and maintain the Bank’s compliance with the applicable
laws and regulations. Senior management of the Compliance Department
and Enterprise Conduct Risk Management also report regularly to
the Corporate Governance Committee, which oversees conduct risk
management in the Bank, the establishment and maintenance of policies
in respect of the Bank’s compliance with the consumer protection
provisions of the Canadian Financial Consumer Protection Framework,
and in its capacity as the Bank’s conduct review committee, related party
transactions for the Bank and certain of its Canadian subsidiaries that are
federally-regulated financial institutions. In addition, senior management
of Regulatory Risk has established periodic reporting to the Board and
regular reporting to the Risk Committee.
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 significant decline in the Bank’s value, brand, liquidity
or customer base, or require costly measures to address.
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 identification
and assessment of LRCC risk, (b) objective guidance and advisory
services and/or independent challenge and oversight 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 effectively managing LRCC risk, each of the Oversight
Functions 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, Compliance performs the following functions: it acts as
an independent Regulatory Compliance oversight function to establish
enterprise standards for business and Oversight Functions in managing
LRCC risk; it fosters a culture of integrity, ethics and compliance across
the organization to manage and mitigate Regulatory Compliance Risks;
it assesses the adequacy of, adherence to, and effectiveness of the Bank’s
day-to-day RCM controls; it proactively manages regulatory change and
maintains a Regulatory Change Standard for Oversight Functions to do
the same; and it supports the Chief Compliance Officer in providing
an opinion to the Audit Committee as to whether the RCM controls
are sufficiently robust to achieve compliance with applicable
regulatory requirements.
Enterprise Conduct Risk Management is an oversight function that
works with key enterprise and segment stakeholders to mitigate conduct
risk across the organization. It works in partnership with Compliance,
Human Resources and Operational Risk Management to provide oversight
and challenge to the businesses in their management of conduct risk.
GAML 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 AML, Anti-Terrorist Financing, Sanctions, and Anti-Bribery/Anti-
Corruption programs (collectively, 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,
Compliance and GAML have developed methodologies and processes
to measure and aggregate regulatory compliance risks, AML program
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.
Legal acts as an independent provider of legal services and advice and
protects the Bank from unacceptable legal risk. Legal has also developed
methodologies for measuring litigation risk for adherence to the Bank’s
risk appetite.
Processes employed by Legal, Compliance, and GAML (including
policies and frameworks, training and education, and the Bank’s 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 departments
also create and facilitate communication with elected officials and
regulators, monitor legislation and regulations, support business
relationships with governments, coordinate regulatory examinations and
regulatory findings remediation, support regulatory discussions on new or
proposed products or business initiatives, and advance the public policy
objectives of the Bank.
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 ERRC 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
significant reputational risk profiles have been identified and escalated.
The ERRC also provides a forum for discussion, review, and escalation
for non-traditional risks.
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 the Bank’s 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 the Bank’s businesses to understand their risks and
developing the policies, processes, and controls required to manage these
risks appropriately and 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 significant 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 specific processes, which involve independent review from
oversight functions, and consideration of all aspects of a new product,
including reputational risk.
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113
Environmental and Social Risk
E&S risk is the risk of financial loss, reputational damage or other harm
resulting from the Bank’s inability to manage and respond to changing
environmental or social factors, including climate change, that impact or
are associated with the Bank’s operations, business activities, products,
clients, or the communities the Bank operates in.
Management of E&S risk is an enterprise-wide priority. Drivers of E&S
risk are often multi-faceted and can originate from the Bank’s internal
environment, including its operations, business activities, E&S-related
targets, commitments and disclosure, products, clients, colleagues, or
suppliers. Drivers of E&S risk can also originate from the Bank’s external
environment, including the communities in which the Bank operates as
well as second-order impacts of physical risks and the transition to a
low-carbon economy.
WHO MANAGES ENVIRONMENTAL AND SOCIAL RISK
E&S risk and the Bank’s sustainability strategy are managed within
a governance structure that balances broad engagement across the
organization with line-of-sight accountability. The Board and senior
executives oversee E&S risk and assess and manage potential impacts
on the Bank’s business strategies and financial performance. The Board
continues to oversee E&S risk as a top and emerging risk for the Bank
and receives regular updates on the Bank’s progress on E&S matters.
The Bank manages E&S risk through the Enterprise E&S Risk Framework
which sets the framework for how TD manages E&S risk. This Framework
is reinforced by risk-specific policies including the Enterprise E&S Risk
Policy which outlines the requirements and expectations for the effective
management of E&S risk at the Bank.
The Bank has policies and procedures which outline how E&S risk is
identified and managed within the Bank’s non-retail lending portfolio.
The Bank has also been a signatory of the Equator Principles (EP) since
2007 and has embedded the EP into its E&S risk process for applicable
project financing transactions. The EP are a voluntary set of minimum
due diligence standards to help financial institutions determine, assess,
manage, and report on E&S risks with respect to in-scope project
financing. EP signatories choose to voluntarily adopt and apply the EP
as part of their due diligence processes to help support responsible risk
decision-making.
The Bank continues to assess the impacts associated with material changes
made to TD products, services, projects, and initiatives by incorporating
an E&S risk assessment into the Bank’s Change Risk Management process.
Additionally, the Bank’s enterprise-wide Business Continuity and Crisis
Management Program continues to support management’s ability to
operate the Bank’s businesses and operations in the event of a business
disruption incident, including the incremental impact of climate change.
The Bank’s various business-specific and enterprise risk committees provide
oversight of, and support management accountability for, existing and
emerging E&S risks relevant to the Bank.
The ESG Senior Executive Team Forum, comprised of senior executives
from TD’s business and corporate segments, provides oversight of ESG and
related strategy development.
The Bank’s E&S metrics, targets and performance are publicly reported
within its annual Sustainability Report and its annual Climate Action Plan
(CAP): Report on Progress and Update on the Task Force on Climate-
Related Financial Disclosures (TCFD). Key performance measures are
reported in alignment with the Global Reporting Initiative (GRI), the
Sustainability Accounting Standards Board (SASB) and the FSB’s TCFD
recommendations, with select metrics that are independently assured.
The Senior Vice President, Sustainability and Corporate Citizenship holds
senior executive accountability for the Bank’s sustainability strategy and
engages leaders across the Bank to execute on the strategy. In particular,
the Enterprise Sustainable Finance and Enterprise Decarbonization teams
were established to support business opportunities, and execute on
achieving the Bank’s net zero target.
The Senior Vice President, ESG Risk Management, holds senior executive
accountability for E&S risk management and leads the Environmental &
Social Risk Management (ESRM) team, the ESG Credit Risk team, and
the ESG Central Office. The ESRM team establishes E&S risk frameworks,
policies, processes, governance and reporting structures to help segments
identify, assess, mitigate, monitor and report on E&S risks, including
climate risk. The ESG Credit Risk team develops and manages E&S risk
tools and programs for the Bank’s retail and non-retail lending activities,
at both the borrower and the portfolio levels. The ESG Central Office
leads the development and continued evolution of the Bank’s ESG/Climate
Target Operating Model (TOM) and related implementation plan.
The ESG Financial Reporting team within the Chief Accountant’s
Department was established to grow internal capabilities to facilitate the
integration of sustainability-related financial reporting requirements into
the Bank’s financial disclosures.
Internal polices and procedures require business and corporate segments
to consider the applicability and assessment of E&S risk in current and new
business activity. Internal policies also require business unit governance
and business processes to incorporate an assessment of E&S risk and apply
an appropriate level of governance and oversight consistent with their
business procedures.
HOW TD MANAGES ENVIRONMENTAL AND SOCIAL RISK
The Bank follows a disciplined approach to manage significant and/or
material E&S risks which may have a present or future impact on
the Bank’s competitive position, brand, or long-term shareholder value
creation. The Bank is focused on considering current and potential future
E&S risks – including climate change and social risks – in the strategies it
executes, as appropriate, by enabling informed decision-making based on
internal capabilities, industry practices, legal and regulatory obligations,
and shareholder expectations, as they continue to evolve.
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Climate Risk
Climate risk is the risk of reputational damage and/or financial loss arising
from materialized credit, market, operational or other risks resulting from
the physical and transition risks of climate change to the Bank, its clients
or the communities the Bank operates in. This includes physical risks
arising from the consequences of a changing climate, as well as transition
risks arising from the process of shifting to a low-carbon economy. In its
2022 CAP Report, the Bank highlighted the progress on its CAP, as well
as its efforts to assess and report climate-related risks and opportunities.
The Bank continues to work towards building its expertise and capabilities
for managing climate-related risks and opportunities.
The Bank continues to evolve its ESG/Climate TOM to support its work to
implement TD’s CAP and to manage climate risks through dedicated work
streams, including an enterprise climate risk strategy and scenario analysis
program. The ESG/Climate TOM outlines the Bank’s strategy establishing
Scope 3 financed emissions baselines and related reduction targets,
advancing climate risk identification and measurement processes, and
developing the Bank’s enterprise climate data strategy.
The Bank is developing methodologies and approaches, including building
related tools and capabilities for climate risk measurement. One such tool
is Climate Scenario Analysis, a key risk measurement tool that will help
the Bank better understand the impacts of climate-related risks. Climate
scenario analysis is a process for identifying and assessing the potential
implications of a range of plausible future states under conditions of
uncertainty. While scenarios are not designed to deliver precise outcomes
or forecasts, they provide a way for the Bank to consider potential risk
implications under various climate change pathways. The Bank’s continued
participation in scenario analysis pilots supports the development of tools
and capabilities regarding climate data and climate-related risk modelling.
Developing these capabilities supports the Bank’s understanding of the
transition and physical risks of climate change, which will help inform
the Bank’s approach to further integrate climate-related risk management
activities across the enterprise.
The Bank continues to refresh and enhance the scope of its Climate
Risk Heatmap, supported by an Industry Risk Review process, to support
physical and transition climate risk identification and assessment and to
refine its understanding of the industry sector and geographic location
sensitivities that climate risk may have on the Bank and its assets,
clients, and communities in which it operates. The Heatmap was initially
developed in 2021 by leveraging the Bank’s climate-related risk inventory
and includes risk definitions to facilitate internal reporting of climate risk
exposures and trends.
The Bank contributes to public consultations on emerging climate issues,
including disclosure frameworks proposed by regulators and standard
setters. The Bank also engages with environmental and community NGOs,
industry associations, rating agencies, Indigenous communities and
responsible investment organizations.
TD also participates in various North American working groups, and as
a member of the Partnership for Carbon Accounting Financials, helps
to develop and refine calculation methodologies for emerging climate
metrics. In 2020, the Bank announced a target to achieve net-zero
greenhouse gas (GHG) emissions associated with the Bank’s operations
and financing activities by 2050, in alignment with the associated
principles of the Paris Agreement. In 2021, the Bank joined the United
Nations Environment Program Finance Initiative’s Net-Zero Banking Alliance
(UNEP FI’s NZBA), a global, industry-led initiative to accelerate and support
efforts to address climate change and help facilitate the transition to a
low-carbon economy.
The Bank continues its membership in the Risk Management Association
Climate Risk Consortium, which focuses on bringing financial institutions
together to advance the awareness of and address the risks relevant to
climate change, by developing frameworks, and recommendations for
governance, disclosure, and risk management principles.
The Bank announced an interim target to achieve an absolute reduction in
GHG emissions from the Bank’s operations (Scope 1 and 2 GHG emissions)
by 25% by 2025, relative to a 2019 baseline. In 2022, the Bank disclosed
emissions associated with the Bank’s financing portfolio for two carbon-
intensive sectors (Energy and Power Generation) and set NZBA-aligned
interim (2030) Scope 3 financed emissions targets for these sectors. In
March 2023, the Bank expanded its Scope 3 financed emissions footprint
and set interim (2030) targets for two additional sectors – Automotive
Manufacturing and Aviation.
In March 2023, the Bank set a new $500 billion Sustainable &
Decarbonization Finance Target to support key environmental,
decarbonization, and social activities by 2030. A prior target set in 2017
of $100 billion in low-carbon lending, financing, asset management and
internal corporate programs by 2030 was achieved in 2022. This new
target represents the next step in the Bank’s efforts to help support its
customers and clients in the transition to a low-carbon economy and
help contribute to improving social outcomes. The eligible environmental,
decarbonization and social activities are focused on supporting progress
toward key sustainability objectives of TD such as climate change
mitigation and adaptation and economic inclusion.
The Bank monitors and assesses legal, policy, regulatory, economic,
technological and stakeholder developments regarding E&S matters,
including the transition to net zero, and how those developments may
affect its E&S metrics and targets. Accordingly, the Bank may adjust its
E&S metrics or targets to reflect these developments. In addition, E&S
methodologies or standards used by regulators, the financial sector,
industry groups or associations that the Bank participates in or belongs
to, or that the Bank or its clients use to measure and report on their
GHG emissions could result in TD amending or restating its baselines,
calculated results or targets, and may result in the Bank withdrawing from
or modifying its membership in certain groups or associations. Limitations
on the availability and reliability of data may also impact the Bank’s
ability to assess and evaluate E&S risks. These limitations are expected to
improve over time as the Bank continues to advance its data capabilities by
working with internal and external subject matter experts, leading to more
robust and reliable E&S risk monitoring, analysis, and reporting. The Bank
assesses, and will continue to assess, the potential impacts of climate
change and related risks on its operations, lending portfolios, investments,
and businesses.
TD Asset Management (TDAM)
Since 2008, TDAM has been a signatory to the United Nations Principles
for Responsible Investment (UN PRI). Under the UN PRI, investors commit
to incorporate six principles of responsible investing which include the
incorporation of financially material ESG issues into investment analysis
and decision-making processes, and active ownership or stewardship
practices, as well as promoting acceptance and effective implementation
of the principles. TDAM has a dedicated ESG Research and Engagement
team that supports TDAM’s Sustainable Investing approach, which includes
incorporating material ESG issues into certain investment processes, as
applicable, and its active ownership policies and practices (e.g. proxy
voting and engagement). TDAM monitors regulatory developments and
assesses the impact of emerging ESG regulatory rules and guidance to
ensure its Sustainable Investing approach and ESG related policies and
procedures continue to be aligned with regulatory requirements.
TD Securities (TDS)
In 2020, TDS created a dedicated ESG Solutions group, which focuses
on delivering integrated ESG solutions, primarily including activities
within sustainable finance such as arranging sustainability-linked loans,
underwriting green, social, sustainability, and sustainability linked (GSSS)
bonds and ESG advisory services through TDS’ investment banking
offerings. With the acquisition of TD Cowen in 2023, TDS has added an
equity research platform to support its client’s sustainability efforts.
TD Insurance (TDI)
Since 2014, TDI has been a signatory to the UNEP FI Principles for
Sustainable Insurance (PSI), which serve as the global framework for
insurance companies to develop an understanding of the opportunities to
address E&S risks, including climate risk. To further the integration of ESG
into its decision-making, TDI established the TDI Executive Sustainability
Governance Committee, comprised of leaders from across TDI who work
to embed the PSI and ESG considerations into its operational framework.
In 2019, TDI established its Advisory Board on Climate Change, comprised
of experts from Engineers Canada and six top Canadian universities
with expertise in fields related to climate change, severe weather and its
impact on people and the planet. The Advisory Board, together with TDI
executives, is focusing its efforts on key activities: addressing flood risk,
resilience, and homeowner education. Climate risk considerations are
embedded within TDI’s General Insurance Catastrophe and Reinsurance
Policy, and as part of its RAS, in 2022 TDI began considering the impact of
climate-related risks in the design of products and in assessment of pricing,
reserving and reinsurance protection purchase, and evaluates potential
impacts and recommends mitigation with respect to climate-related
insurance losses through a newly established TDI Climate Risk Appetite
Task Force. That same year, TDI began work with OSFI and the Bank
of Canada to conduct the first national flood systemic risk assessment
relating to mortgages and insurance coverage. TDI is providing data to
support the analysis, which is expected to lead to a greater understanding
of climate risks facing Canadians, in support of mitigation efforts.
Regulatory and Standard Setter Developments Concerning
E&S Risk (Including Climate)
On March 7, 2023, OSFI issued Guideline B-15: Climate Risk Management
(Guideline B-15), which sets out OSFI’s expectations related to the
management and disclosure of climate-related risks and opportunities.
Components of Guideline B-15 are initially effective for D-SIBs for fiscal
year-end 2024, and annual disclosures are required to be made publicly
available no later than 180 days after fiscal year-end. The Bank has
completed its initial assessment of Guideline B-15 and is working towards
implementing the requirements.
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On June 26, 2023, the International Sustainability Standards Board (ISSB)
under the IFRS Foundation, issued its first two sustainability standards,
IFRS S1 General Requirements for Disclosures of Sustainability-related
Financial Information and IFRS S2 Climate-related Disclosures. IFRS S1
sets out the disclosure requirements for financially material information
about sustainability-related risks and opportunities to meet investor
information needs, and IFRS S2 specifically sets the disclosure requirement
for Climate-related risks and opportunities. ISSB recommends an effective
date for annual reporting periods beginning on or after January 1, 2024,
and this is subject to Canadian jurisdiction’s endorsement. Early application
is permitted on or before the date of initial application of IFRS S1 and
IFRS S2. The International Organization of Securities Commissions (IOSCO)
has officially endorsed IFRS S1 and IFRS S2 on July 23, 2023 and is now
calling its member jurisdictions to consider ways they may adopt or apply
the ISSB standards. The Bank is currently assessing the impact of adopting
these standards.
Codes of Conduct and Human Rights
The Bank has several policies, including the Bank’s Code of Conduct
and Ethics, that reflect the Bank’s commitment to manage its business
responsibly and in compliance with applicable laws. For additional
information on the Code of Conduct and Ethics, refer to the “Legal,
Regulatory Compliance and Conduct Risk” section above. The Bank
first released a Statement on Human Rights in 2020, which reflects the
corporate responsibility to respect human rights as set out in the United
Nations Guiding Principles on Business and Human Rights (UNGP).
The Bank and its applicable subsidiaries also publish reports pursuant to
modern slavery legislation to which they are subject. The Bank’s current
modern slavery reporting can be found here: https://www.td.com/ca/en/
about-td/for-investors/policies-and-references.
In 2022, the Bank implemented changes to address the Canadian
federal Financial Consumer Protection Framework. The framework aims
to promote responsible conduct across Canadian banks and protect
financial services customers, including components related to promoting
transparency for customers to help them make informed decisions and
provisions related to fair and equitable dealings.
The Bank’s Supplier Code of Conduct also reflects its commitment to
respect human rights. The Bank requires all new suppliers and suppliers
with contracts that were renewed or amended after November 2019 to
attest that they operate in accordance with the expectations described in
the Bank’s Supplier Code of Conduct, which includes the protection of
human rights. In addition, the Bank’s North American Supplier Diversity
Program seeks to promote a level playing field and encourage the
inclusion of women, Indigenous Peoples, Black, minority and 2SLGBTQ+
communities, people with disabilities, veterans, refugee entrepreneurs
and other diverse suppliers in its procurement process. To reflect this goal,
in 2021, the Bank’s Chief Procurement Officer released a Statement on
Supplier Diversity, recognizing diversity and inclusion as both a core value
and a business imperative.
Social Framework
In 2023, the Bank established TD Pathways to Economic Inclusion, a
new social framework which focuses the Bank’s efforts on three areas
where the Bank believes it has the knowledge and resources to make a
meaningful impact: employment access, financial access, and housing
access. The framework will sustain and build upon the Bank’s longstanding
commitment to improve financial and economic inclusion, focus the Bank’s
efforts to further embed social factors into the Bank’s businesses, build
on an area that has long been a priority for the Bank – diversity and
inclusion – and strengthen the Bank’s commitment to help open doors for
all members of the communities it serves.
Since 2005, diversity and inclusion (D&I) has been embedded in the Bank’s
business strategy and framework. The Bank’s lines of business have
documented strategies and plans that align with and support the enterprise
D&I strategy. Teams dedicated to Indigenous Banking, Black Customer
Experience, Women in Enterprise and the 2SLGBTQ+ community work
closely with internal business partners to help provide a comprehensive
approach to serving customers from these diverse communities.
The Bank is devoted to advancing its diversity and inclusion strategy to
build a more inclusive and diverse culture at the Bank. The Bank’s third-
party racial equity assessment on its U.S. and Canadian employment
policies has been completed. It is in the process of reviewing key insights
and recommendations and working towards publication.
ACCOUNTING STANDARDS AND POLICIES
Critical Accounting Policies and Estimates
ACCOUNTING JUDGMENTS, ESTIMATES, AND ASSUMPTIONS
The estimates used in the Bank’s accounting policies are essential to
understanding its results of operations and financial 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.
ACCOUNTING POLICIES AND ESTIMATES
The Bank’s accounting policies and estimates are essential to
understanding its results of operations and financial condition. A
summary of the Bank’s significant accounting policies and estimates are
presented in the Notes of the 2023 Consolidated Financial Statements.
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 classification and
measurement of financial assets, accounting for impairments of financial
assets, accounting for leases, the determination of fair value of financial
instruments, accounting for derecognition, the valuation of goodwill
and other intangibles, accounting for employee benefits, accounting for
income taxes, accounting for provisions, accounting for insurance, the
consolidation of structured entities, and accounting for revenue from
contract with customers.
The Bank’s 2023 Consolidated Financial Statements have been
prepared in accordance with IFRS. For details of the Bank’s accounting
policies under IFRS, refer to Note 2 of the Bank’s 2023 Consolidated
Financial Statements.
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TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
CLASSIFICATION AND MEASUREMENT OF FINANCIAL ASSETS
Business Model Assessment
The Bank determines its business models based on the objective under
which its portfolios of financial assets are managed. Refer to Note 2
of the Bank’s 2023 Consolidated Financial Statements 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 portfolio of assets
and how these risks are managed;
• How the performance of the portfolio is evaluated and reported to
management; and
• The frequency and significance of financial 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
flows 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 flows if the sales are more than insignificant
in value or more than infrequent.
Solely Payments of Principal and Interest Test
In assessing whether contractual cash flows represent solely payments
of principal and interest (SPPI), the Bank considers the contractual terms
of the instrument. This includes assessing whether the financial asset
contains contractual terms that could change the timing or amount of
contractual cash flows 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 flows
of the instrument continue to meet the SPPI test:
• Performance-linked features;
• Terms that limit the Bank’s claim to cash flows from specified assets
(non-recourse terms);
• Prepayment and extension terms;
• Leverage features;
• Features that modify elements of the time value of money; and
• Sustainability-linked features.
IMPAIRMENT OF FINANCIAL ASSETS
Significant Increase in Credit Risk
For retail exposures, criteria for assessing significant increase in credit
risk are defined 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. Significant
increase in credit risk since initial recognition has occurred when one of
the criteria is met.
For non-retail exposures, BRR is determined on an individual borrower
basis using industry and sector specific credit risk models that are based
on historical data. Current and forward-looking information that is specific
to the borrower, industry, and sector is considered based on expert credit
judgment. Criteria for assessing significant increase in credit risk are
defined 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. Significant increase in credit
risk since initial recognition has occurred when one of the criteria is met.
Measurement of Expected Credit Loss
ECLs are recognized on the initial recognition of financial assets.
Allowance for credit losses represents management’s unbiased estimate
of the risk of default and ECLs on the financial assets, including any
off-balance sheet exposures, at the balance sheet date.
For retail exposures, ECLs are calculated as the product of PD, LGD, and
EAD at each time step over the remaining expected life of the financial
asset and discounted to the reporting date based on the EIR. PD estimates
represent the forward-looking 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 specific
to the borrower, and direct costs. Expected cash flows 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 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
flows and expected cash flows over the remaining expected life of the
financial instrument. Lifetime PD is determined by mapping the exposure’s
BRR to forward-looking PD over the expected life. LGD estimates are
determined by mapping the exposure’s FRR to expected LGD which takes
into account facility-specific characteristics such as collateral, seniority
ranking of debt, and loan structure. Relevant macroeconomic variables are
incorporated in determining expected PD and LGD. Expected cash flows are
determined by applying the PD and LGD estimates to the contractual cash
flows to calculate cash shortfalls over the expected life of the exposure.
Forward-Looking Information
In calculating ECLs, 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 specific 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
by considering the sources of uncertainty around the base forecast. All
macroeconomic 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 ECLs.
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 of the 2023 Consolidated Financial Statements for
further details on the macroeconomic variables and ECL sensitivity.
Expert Credit Judgment
Management’s expert credit judgment is used to determine 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.
There remains elevated economic uncertainty, and management
continues to exercise expert credit judgment in assessing if an exposure
has experienced significant increase in credit risk since initial recognition
and in determining the amount of ECLs at each reporting date. To the
extent that certain effects are not fully incorporated into the model
calculations, temporary quantitative and qualitative adjustments have
been applied.
LEASES
The Bank applies judgment in determining the appropriate lease term on
a lease-by-lease basis. All facts and circumstances that create an economic
incentive to exercise a renewal option or not to exercise a termination
option including investments in major leaseholds, branch performance and
past business practice are considered. The periods covered by renewal or
termination options are only included in the lease term if it is reasonably
certain that the Bank will exercise the options; management considers
“reasonably certain” to be a high threshold. Changes in the economic
environment or changes in the industry may impact the Bank’s assessment
of lease term, and any changes in the Bank’s estimate of lease terms may
have a material impact on the Bank’s Consolidated Balance Sheet and
Consolidated Statement of Income.
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
117
GOODWILL AND OTHER INTANGIBLES
The recoverable amount of the Bank’s cash-generating units (CGUs) is
determined from internally developed valuation models that consider
various factors and assumptions such as forecasted earnings, growth rates,
discount rates, and terminal growth rates. 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 influence
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 benefit obligation and expense related to the Bank’s pension
and post-retirement defined benefit plans are determined using multiple
assumptions that may significantly influence 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 significant impact on
the assumptions. The discount rate used to value the projected benefit
obligation is determined by reference to market yields on high-quality
corporate bonds with terms matching the plans’ specific cash flows. 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 remeasurement gains and losses
which are recognized in OCI 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 reflect
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, changes in these liabilities could result from
audits by the relevant taxing authorities.
Deferred tax assets are recognized only when it is probable that
sufficient taxable profit 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
significantly influenced by the Bank’s forecast of future profit generation,
which determines the extent to which it will be able to utilize the deferred
tax assets.
In determining the carrying amount of right-of-use (ROU) assets and
lease liabilities, the Bank is required to estimate the incremental borrowing
rate specific to each leased asset or portfolio of leased assets if the interest
rate implicit in the lease is not readily determinable. The Bank determines
the incremental borrowing rate of each leased asset or portfolio of leased
assets by incorporating the Bank’s creditworthiness, the security, term,
and value of the ROU asset, and the economic environment in which the
leased asset operates. The incremental borrowing rates are subject to
change mainly due to changes in the macroeconomic environment.
FAIR VALUE MEASUREMENTS
The fair value of financial instruments traded in active markets at the
balance sheet date is based on their quoted market prices. For all other
financial 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 modification 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 flow analysis, option pricing models, and
other valuation techniques commonly used by market participants.
For certain complex or illiquid financial instruments, fair value
is determined using valuation techniques in which current market
transactions or observable market inputs are not available. Judgment is
used when determining which valuation techniques to apply, 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 valuation adjustments to model fair
values to account for system limitations or measurement uncertainty, such
as when valuing complex and less actively traded financial instruments.
If the market for a complex financial instrument develops, the pricing for
this instrument may become more transparent, resulting in refinement of
valuation models. For example, CDOR cessation may also have an impact
on the fair value of products that reference or use valuation models with
CDOR inputs.
DERECOGNITION OF FINANCIAL ASSETS
Certain financial assets transferred may qualify for derecognition from
the Bank’s Consolidated Balance Sheet. To qualify for derecognition,
certain key determinations must be made, including whether the Bank’s
rights to receive cash flows from the financial assets have been retained or
transferred and the extent to which the risks and rewards of ownership of
the financial assets have been retained or transferred. If the Bank neither
transfers nor retains substantially all of the risks and rewards of ownership
of the financial assets, a decision must be made as to whether the Bank
has retained control of the financial assets.
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 financial assets received or financial liabilities
assumed, and any cumulative gains or losses allocated to the transferred
asset that had been recognized in AOCI. In determining the fair value
of any financial assets received, the Bank estimates future cash flows 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 flows. Actual cash flows may differ significantly
from those estimated by the Bank.
Retained interests are financial interests in transferred assets retained
by the Bank. They are classified 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 is determined by
estimating the present value of future expected cash flows. Differences
between the actual cash flows and the Bank’s estimated future cash flows
are recognized in trading income (loss). These assumptions are subject
to periodic reviews and may change due to significant changes in the
economic environment.
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TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
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
restructuring provisions.
INSURANCE
The assumptions used in establishing the Bank’s insurance claims and
policy benefit 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
into account all the uncertainties involved.
For life and health insurance, actuarial liabilities consider all future
policy cash flows, 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.
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 these cases, 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 significant variable returns from the
entity. If it is determined that the Bank has both decision-making power
and significant 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 significant
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
significant 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 power;
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 significant variable returns, unless an analysis of the
factors above indicates otherwise.
The decisions above are made with reference to the specific 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 satisfied over time
when the customer simultaneously receives and consumes the benefits
as the Bank performs the service. For performance obligations satisfied
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 satisfies 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 benefits 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 fulfil a
contract with customers.
INTEREST RATE BENCHMARK REFORM PHASE 2
Effective November 1, 2020, the Bank early adopted the Interest Rate
Benchmark Reform Phase 2 and no transitional adjustment was required.
Interest Rate Benchmark Reform Phase 2 addresses issues affecting
financial reporting when changes are made to contractual cash flows of
financial instruments or hedging relationships as a result of IBOR reform.
The amendments permit modification to financial assets, financial liabilities
and lessee lease liabilities required as a direct consequence of IBOR reform
and made on an economically equivalent basis to be accounted for by
updating the EIR prospectively. If the modification does not meet the
practical expedient requirements, existing IFRS requirements are applied.
Relief is also provided for an entity’s hedge accounting relationships in
circumstances where changes to hedged items and hedging instruments
arise as a result of IBOR reform. The amendments enable entities to amend
the formal designation and documentation of a hedging relationship
to reflect these changes without discontinuing the hedging relationship
or designating a new hedging relationship. Permitted changes include
redefining the hedged risk to reference an ARR (contractually or
non-contractually specified), amending the description of the hedged item
and hedging instrument to reflect the ARR, and amending the description
of how the entity will assess hedge effectiveness. Hedging relationships
within the scope of Interest Rate Benchmark Reform Phase 2 are the same
as those within the scope of Interest Rate Benchmark Reform Phase 1.
Interest Rate Benchmark Reform Phase 2 also amended IFRS 7, introducing
expanded qualitative and quantitative disclosures about the risks arising
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
119
from IBOR reform, how an entity is managing those risks, its progress in
completing the transition to ARRs, and how it is managing the transition.
The global benchmark rate reform initiative to transition from IBOR
benchmarks (such as CDOR to ARRs) may result in market dislocation
and have other adverse consequences to the Bank, its customers, market
participants, and the financial services industry. Market risks 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. This could result in different financial performance
for previously booked transactions, require alternative hedging strategies,
or affect the Bank’s capital and liquidity planning and management.
In Canada specifically, the expected discontinuation of the Bankers’
Acceptance (BA) lending model, which is responsible for creating the
BA investment securities that are sold to money market investors, might
also have impacts to the Bank’s investment portfolio holdings and impact
related earnings. In order to manage these risks, the Bank has established
an enterprise-wide, cross functional initiative with senior executive
oversight to evaluate and monitor the impact of the market, financial,
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, but such actions may not be sufficient to mitigate against the
impact of all such risks.
Following previous announcements by various regulators, the
publication has ceased for all sterling, Japanese yen, Swiss franc and euro
London Interbank Offered Rate (LIBOR) settings, as well as the one-week
and two-month USD LIBOR settings effective December 31, 2021. From
June 30, 2023, all remaining USD LIBOR tenors have either ceased or are
published only on a synthetic basis for the use in legacy contracts that
have no other fallback solution. Six-month and twelve-month CDOR
tenors ceased to be published effective May 17, 2021, while the remaining
tenors of CDOR (one-month, two-month, and three-month) will cease
following a final publication on June 28, 2024. In July 2023, the Canadian
Alternative Reference Rate working group introduced a “no new CDOR
or Banker’s Acceptance loan” milestone date of November 1, 2023 to
facilitate a tapered transition for the loan market by reducing the volume
of loans that need to be remediated ahead of CDOR’s cessation.
The Bank has incorporated these developments into its benchmark rate
reform plan. To ensure an orderly transition, the Bank continues to monitor
developments and incorporate global working groups’ and regulators’ best
practice guidance on transition activities. These activities include, but are
not limited to, making available new products referencing ARRs, preparing
to cease the issuance of the residual CDOR-based financial instruments,
transitioning legacy contracts by incorporating appropriate fallback
language and preparing for overall operational readiness. The Bank
continues to make progress on its CDOR transition plan.
ACCOUNTING STANDARDS AND POLICIES
Current and Future Changes in Accounting Policies
The Bank will transition to IFRS 17 by primarily applying the full
retrospective approach. This approach results in the measurement of
insurance contracts as if IFRS 17 had always applied to them. Under
IFRS 17, the measurement of insurance contracts includes a risk
adjustment, which represents the compensation the Bank requires for
bearing the uncertainty related to non-financial risk in its fulfilment of
insurance contracts. The risk adjustment replaces the provision for adverse
deviation under IFRS 4 and is expected to result in a lower valuation of
insurance liabilities. When onerous contract groups are identified, the
expected losses related to those contract groups shall be recorded in
income. This results in an earlier recognition of losses compared to IFRS 4.
The Bank estimates a decrease to insurance-related liabilities and an
increase to retained earnings of approximately $0.1 billion after-tax at
November 1, 2022.
IFRS 17 requires cash flows to be measured at their present value using a
discount factor that is reflective of the characteristics of the liability, the
discount factor is no longer tied to the yield of the securities supporting
insurance reserves. In adopting IFRS 17, the Bank will apply transitional
guidance to reclassify certain securities supporting insurance reserves from
financial assets designated at FVTPL to FVOCI and vice versa to minimize
accounting mismatches arising from the application of the new discount
factor under IFRS 17. The reclassification will be retrospectively applied
on November 1, 2023 and will result in the movement of cumulative
unrealized losses between accumulated other comprehensive income and
retained earnings.
The Bank’s adoption of IFRS 17 is supported by a robust governance
structure. The Executive Steering Committee includes representation from
the Insurance business, Finance, Actuaries, Risk, Technology, and project
management teams. Updates are also provided to the TD insurance
subsidiary boards, Risk Committee, and Audit Committee of the Bank.
CURRENT CHANGES IN ACCOUNTING POLICIES
The following amendments to an accounting standard have been adopted
by the Bank for the fiscal year ended October 31, 2023.
Amendments to IAS 12 – Income Taxes
On May 23, 2023, the IASB issued International Tax Reform – Pillar Two
Model Rules, which amends IAS 12, Income Taxes. The amendments
provide a temporary mandatory exception from the requirements to
recognize and disclose information about deferred taxes related to
the implementation of Pillar Two model rules. The Bank has applied
the temporary mandatory exception in jurisdictions in which the rules
have been substantively enacted, which is effective immediately and is
retrospective. The Bank has assessed that the retrospective application
has no current impact on the Bank’s consolidated results as at
October 31, 2023.
Effective for reporting periods beginning on or after November 1, 2023,
additional disclosure of current tax expense (recovery) and other
information related to Pillar Two income tax exposures are required.
FUTURE CHANGES IN ACCOUNTING POLICIES
The following standard has been issued but is not yet effective on the date
of issuance of the Bank’s Consolidated Financial Statements.
Insurance Contracts
The IASB issued IFRS 17, Insurance Contracts (IFRS 17) which replaces the
guidance in IFRS 4, Insurance Contracts (IFRS 4), and establishes principles
for recognition, measurement, presentation, and disclosure of insurance
contracts. Under IFRS 17, insurance contracts are aggregated into groups
which are measured at the risk adjusted present value of cash flows
in fulfilling the contracts. Revenue is recognized as insurance contract
services are provided over the coverage period. Losses are recognized
immediately if the contract group is expected to be onerous.
The standard is effective for annual reporting periods beginning on or after
January 1, 2023, which will be November 1, 2023, for the Bank. OSFI’s
related Advisory precludes early adoption. The Bank will apply the standard
retrospectively with restatement of comparatives, where it will recognize
the cumulative effect of adopting the standard as an adjustment to the
opening retained earnings balance as of November 1, 2022.
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TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
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
Officer and Chief Financial Officer, of the effectiveness of the Bank’s
disclosure controls and procedures, as defined in the rules of the SEC and
Canadian Securities Administrators, as of October 31, 2023. Based on that
evaluation, the Bank’s management, including the Chief Executive Officer
and Chief Financial Officer, concluded that the Bank’s disclosure controls
and procedures were effective as of October 31, 2023.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING
The Bank’s management is responsible for establishing and maintaining
adequate internal control over financial reporting for the Bank. The Bank’s
internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records, that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Bank; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of
financial 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 financial 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 Officer and Chief Financial
Officer, the effectiveness of the Bank’s internal control over financial
reporting. Based on this assessment management has concluded that as
at October 31, 2023, the Bank’s internal control over financial reporting
was effective based on the applicable criteria. The effectiveness of
the Bank’s internal control over financial reporting has been audited by the
independent auditors, Ernst & Young LLP, a registered public accounting
firm that has also audited the Consolidated Financial Statements of
the Bank as of, and for the year ended October 31, 2023. Their Report
on Internal Controls under Standards of the Public Company Accounting
Oversight Board (United States), included in the Consolidated Financial
Statements, expresses an unqualified opinion on the effectiveness of
the Bank’s internal control over financial reporting as of October 31, 2023.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the year and quarter ended October 31, 2023, there have been no
changes in the Bank’s policies and procedures and other processes that
comprise its internal control over financial reporting, that have materially
affected, or are reasonably likely to materially affect, the Bank’s internal
control over financial reporting.
ADDITIONAL FINANCIAL INFORMATION
Unless otherwise indicated, all amounts are expressed in Canadian dollars
and have been primarily derived from the Bank’s 2023 Consolidated
Financial Statements, prepared in accordance with IFRS as issued
by the IASB.
T A B L E 5 9
|
SELECT ANNUAL INFORMATON
(millions of Canadian dollars, except as noted)
Total revenue
Net income available to common shareholders
Basic earnings per share
Diluted earnings per share
Dividends declared per common share
Total Assets (billions of Canadian dollars)
Deposits (billions of Canadian dollars)
2023
2022
2021
$ 50,492
10,219
5.61
5.60
3.84
1,957.0
1,198.2
$ 49,032
17,170
9.48
9.47
3.56
1,917.5
1,230.0
$ 42,693
14,049
7.73
7.72
3.16
1,728.7
1,125.1
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
121
T A B L E 6 0
|
INVESTMENT PORTFOLIO – Securities Maturity Schedule1,2
(millions of Canadian dollars)
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
specific
maturity
Remaining terms to maturities3
As at
Total
Total
October 31
2023
October 31
2022
Securities at fair value through other
comprehensive income
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 CMO4
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
$ 1,704
1,701
$ 4,507
4,493
$ 1,367
1,363
$ 10,356
10,403
$
1.09%
1.03%
2.72%
2.91%
$
276
374
2.74%
1,447
1,450
3,426
3,419
3,808
3,802
10,947
10,972
2.89%
2.43%
2.68%
2.49%
312
310
3.71%
1,393
1,422
2,244
2,258
2.10%
1.58%
3,120
3,132
0.49%
163
163
0.36%
291
305
2.57%
1,090
1,113
1.72%
690
691
2.58%
6
6
4.40%
170
169
1.83%
–
–
–%
521
530
1,756
1,783
–%
4.22%
349
367
1.80%
539
542
1.92%
75
76
1.87%
–
–
–%
–
–
–%
2,370
2,537
4.57%
–
–
–%
–
–
–%
1,946
1,947
1.88%
272
278
2.54%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
166
172
6.15%
1,730
1,749
6.19%
–
–
–%
–
–
–%
1,241
1,247
2,532
2,570
2,105
2,112
1,753
1,746
1,259
1,269
2.93%
3.33%
3.03%
4.20%
6.09%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
1
–%
$ 18,210
18,334
$ 16,368
16,420
2.26%
1.89%
19,940
19,953
20,240
20,279
2.56%
2.19%
4,676
4,738
4,459
4,557
1.90%
1.93%
6,326
6,522
7,100
7,298
2.30%
1.74%
1,498
1,521
1,682
1,715
1.59%
1.80%
2,277
2,313
1,033
1,035
3.25%
3.76%
4,114
4,146
4,440
4,511
3.92%
3.87%
–
–
–%
–
–
–%
8,890
8,945
8,681
8,820
3.76%
3.50%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
3,170
3,190
3,170
3,190
2,221
2,191
4.07%
4.07%
0.65%
343
567
3.02%
343
567
3.02%
1,098
1,100
1.69%
Total securities at fair value through other
comprehensive income
Fair value
Amortized cost
Yield
$ 11,014
11,062
$ 14,883
14,966
$ 9,902
9,926
$ 24,185
24,278
$ 5,947
6,239
$ 3,513
3,758
$ 69,444
70,229
$ 67,322
67,926
1.62%
1.90%
3.01%
2.79%
5.18%
3.91%
2.72%
2.29%
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 There were no securities from a single issuer where the book value was greater than
10% as at October 31, 2023 and October 31, 2022.
3 Represents contractual maturities. Actual maturities may differ due to prepayment
privileges in the applicable contract.
4 Collateralized mortgage obligation.
122
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
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
specific
maturity
Remaining terms to maturities3
Total
Total
October 31
2023
October 31
2022
Debt securities at amortized cost
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
$ 6,554
6,728
$ 14,140
14,330
$ 2,079
2,098
$ 1,198
1,268
1.48%
4.10%
2.71%
0.04%
$ –
–
–%
$ 24,898
25,344
$ 19,634
19,753
3.07%
0.97%
$
927
920
3.58%
758
762
2.32%
2,411
2,462
3,091
3,146
11,018
11,091
1.31%
2.32%
2.49%
13
13
–%
16,032
16,466
8,222
9,055
24,741
26,328
4,580
4,812
11,811
11,752
0.69%
1.14%
1.04%
1.50%
2.14%
2,312
2,345
6,374
6,557
4,040
4,469
27,719
29,611
33,159
34,822
2.55%
2.41%
1.54%
1.87%
5.78%
7,201
6,931
18,610
19,870
11,052
11,431
2,918
3,037
1.05%
1.11%
1.60%
2.73%
–
–
–%
25
25
5.06%
4,893
5,046
9,851
10,352
6,822
7,057
17,028
17,408
1.53%
2.45%
4.97%
5.94%
–
–
–%
–
–
–%
–
–
–%
195
209
2.97%
15,584
16,582
3.01%
40
39
0.90%
1,599
1,736
1,501
1,571
1,201
1,206
2.08%
2.23%
2.66%
1,489
1,507
4,455
4,696
6,160
6,490
3,407
3,788
3.41%
2.62%
2.70%
2.95%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
–
–
–%
17,291
17,474
16,422
16,654
2.28%
2.17%
65,386
68,413
79,012
84,129
1.19%
1.09%
73,604
77,804
84,553
88,254
3.67%
2.74%
39,781
41,269
45,072
47,572
1.36%
1.10%
38,619
39,888
47,731
49,893
4.30%
3.12%
15,779
16,791
16,186
17,242
3.01%
2.92%
4,341
4,552
3,871
4,296
2.28%
2.10%
15,511
16,481
13,955
14,981
2.80%
1.99%
Total debt securities at amortized cost
Fair value
Amortized cost
Yield
$ 28,784
28,995
$ 53,118
56,150
$ 74,576
78,117
$ 59,939
62,909
$ 78,793
81,845
1.20%
1.51%
2.11%
2.45%
4.64%
$ –
–
–%
$ 295,210
308,016
$ 326,436
342,774
2.66%
2.00%
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 There were no securities from a single issuer where the book value was greater than
10% as at October 31, 2023 and October 31, 2022.
3 Represents contractual maturities. Actual maturities may differ due to prepayment
privileges in the applicable contract.
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
123
T A B L E 6 1
|
LOAN PORTFOLIO – Maturity Schedule
(millions of Canadian dollars)
Remaining term-to-maturity
Within
1 year
Over 1 to
5 years
Over 5 years
to 15 years
Over
15 years
Canada
Residential mortgages
Consumer instalment and other personal
$ 33,723
$ 227,604
$ 2,406
$
As at
Total
Total
October 31
2023
October 31
2022
$ 263,733
$ 246,206
117,618
28,786
18,587
18,815
447,539
27,784
24,849
52,633
156,217
603,756
113,346
27,187
18,448
17,375
422,562
27,139
22,529
49,668
144,400
566,962
–
–
–
–
–
–
–
–
–
41
41
47,190
756
17,104
18,815
70,358
14,494
651
–
117,588
313,107
13,003
12,629
25,632
96,138
10,646
9,146
19,792
50,778
70
13,536
832
–
16,844
4,135
3,074
7,209
9,260
213,726
363,885
26,104
1,111
664
1,923
52,850
56,548
47,646
8,255
413
282
19,839
29,900
2,007
4,871
6,878
44,144
74,044
19
6,181
6,200
–
2
2
88
23,088
616
–
24,456
4,897
15,964
20,861
85,459
109,915
–
2,291
2,291
–
12
12
755
17,550
3
–
20,231
4,666
6,735
11,401
40,632
60,863
–
1,552
1,552
–
52
52
1,487
–
–
–
10,585
41,051
901
19,839
9,887
36,385
865
18,629
54,337
128,924
113,412
388
967
1,355
8,024
62,361
–
–
–
–
25
25
11,958
28,537
40,495
178,259
307,183
19
10,024
10,043
–
91
91
10,669
25,641
36,310
160,327
273,739
23
18,722
18,745
–
115
115
$ 293,972
$ 476,103
$ 88,571
$ 62,427
$ 921,073
$ 859,561
October 31, 2023
As at
October 31, 2022
Over 1 to
5 years
$ 290,973
185,130
$ 476,103
Over 5 to
15 years
$ 69,964
18,607
$ 88,571
Over
15 years
$ 44,764
17,663
Over 1 to
5 years
$ 267,434
178,983
$ 62,427
$ 446,417
Over 5 to
15 years
$ 68,874
21,004
$ 89,878
Over
15 years
$ 40,340
11,504
$ 51,844
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 classified as loans
Acquired credit-impaired loans
Total other loans
Total loans
T A B L E 6 2
|
LOAN PORTFOLIO – Rate Sensitivity
(millions of Canadian dollars)
Fixed rate
Variable rate
Total
124
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
T A B L E 6 3 ALLOWANCE FOR LOAN LOSSES
|
(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 classified as loans
Acquired credit-impaired loans1,2
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
1 Includes all FDIC covered loans and other ACI loans.
2 Other adjustments are required as a result of the accounting for FDIC covered loans.
2023
$ 6,432
2,933
2022
$ 6,390
1,073
6
5
293
225
457
986
2
1
3
128
1,114
4
5
325
251
968
7
5
216
175
373
776
2
1
3
57
833
26
3
210
237
602
1,553
1,078
2
61
63
179
1,732
–
–
–
–
–
–
4
3
7
83
1,161
–
–
–
–
–
–
2,846
1,994
–
2
82
45
95
224
–
–
–
19
1
1
70
49
103
224
–
–
–
18
$ 243
$ 242
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
125
T A B L E 6 3 | ALLOWANCE FOR LOAN LOSSES (continued)
(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 classified as loans
Acquired credit-impaired loans1,2
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 positions3
Total allowance for loan losses, at end of period
Ratio of net write-offs in the period to average loans outstanding
2023
2022
$
3
$
30
4
134
31
193
365
1
1
2
26
391
–
–
–
–
1
1
6
140
27
188
391
1
2
3
31
422
–
–
–
–
3
3
635
(2,211)
–
100
7,254
118
667
(1,327)
–
371
6,507
75
$ 7,136
$ 6,432
0.25%
0.17%
1 Includes all FDIC covered loans and other ACI loans.
2 Other adjustments are required as a result of the accounting for FDIC covered loans.
3 The allowance for loan losses for off-balance sheet positions is recorded in Other
liabilities on the Consolidated Balance Sheet.
126
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
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 the other international
Non-interest-bearing demand deposits
Interest-bearing demand deposits
Notice deposits
Term deposits
Total deposits booked in other international
October 31, 2023
For the years ended
October 31, 2022
Average
balance
Total interest
expense
Average
rate paid
Average
balance
Total interest
expense
Average
rate paid
$
21,354
84,808
320,061
335,069
761,292
12,611
27,067
406,534
119,670
565,882
24
32
–
79,229
79,285
$
–
4,231
2,325
14,049
20,605
–
953
7,869
5,760
14,582
–
3
–
3,161
3,164
–% $
4.99
0.73
4.19
2.71
–
3.52
1.94
4.81
2.58
–
9.38
–
3.99
3.99
25,255
121,980
324,452
251,574
723,261
13,268
24,911
460,438
63,943
562,560
13
17
–
48,778
48,808
$
–
1,656
626
4,194
6,476
–
189
1,769
850
2,808
–
–
–
464
464
–%
1.36
0.19
1.67
0.90
–
0.76
0.38
1.33
0.50
–
–
–
0.95
0.95
Total average deposits
$ 1,406,459
$ 38,351
2.73% $ 1,334,629
$ 9,748
0.73%
1 As at October 31, 2023, deposits by foreign depositors in TD’s Canadian bank offices
amounted to $187 billion (October 31, 2022 – $191 billion).
T A B L E 6 5 DEPOSITS – Denominations of $100,000 or greater1
|
(millions of Canadian dollars)
Canada
United States2
Other international
Total
Canada
United States2
Other international
Total
Remaining term-to-maturity
Within 3
months
3 months to
6 months
6 months to
12 months
Over 12
months
As at
Total
$ 72,295
48,481
32,895
$ 153,671
$ 37,289
24,335
18,287
$ 79,911
$ 51,887
36,868
37,304
$ 126,059
$ 148,244
3,939
142
$ 152,325
$ 309,715
113,623
88,628
$ 511,966
October 31, 2023
$ 73,331
27,955
26,789
$ 33,772
23,946
13,163
$ 55,658
34,523
27,888
$ 115,765
2,653
656
$ 278,526
89,077
68,496
$ 128,075
$ 70,881
$ 118,069
$ 119,074
$ 436,099
October 31, 2022
1 Deposits in Canada, U.S., and Other international include wholesale and
2 Includes deposits based on denominations of US$250,000 or greater of
retail deposits.
$44.9 billion in ‘within 3 months’, $21.2 billion in ‘over 3 months to 6 months’,
$34.8 billion in ‘over 6 months to 12 months’, and $3.3 billion in ‘over 12 months’
(October 31, 2022 – $27.5 billion in ‘within 3 months’, $23.6 billion in ‘over
3 months to 6 months’, $34.2 billion in ‘over 6 months to 12 months’, $2.5 billion
in ‘over 12 months’).
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
127
T A B L E 6 6
|
NET INTEREST INCOME ON AVERAGE INTEREST-EARNING BALANCES1,2
Average
balance
Interest3
2023
Average
rate
Average
balance
Interest3
2022
Average
rate
$
40,932
58,220
$ 2,417
2,433
5.90% $
4.18
58,596
73,017
$
771
775
1.32%
1.06
(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 mortgages4
Canada
U.S.
Consumer instalment and other personal
Canada
U.S.
Credit card
Canada
U.S.
Business and government4
Canada
U.S.
International5
79,415
24,377
109,955
268,597
84,646
61,839
266,016
51,329
158,980
47,692
18,683
18,226
151,034
156,970
121,324
3,209
1,006
5,452
9,988
3,869
3,630
10,882
1,802
6,244
2,405
2,393
3,384
8,152
8,985
4,423
4.04
4.13
4.96
3.72
4.57
5.87
4.09
3.51
3.93
5.04
12.81
18.57
5.40
5.72
3.65
4.70
1.54
2.24
5.51
3.70
4.06
4.16
3.92
4.36
5.62
3.31
3.32
4.76
4.07
3.32
77,356
18,434
89,771
281,605
78,279
39,469
251,474
41,804
153,224
42,609
16,496
16,171
125,023
133,112
122,013
2,335
473
1,822
4,061
978
572
6,123
1,337
5,810
1,512
2,013
2,518
3,781
4,556
1,595
1,618,453
41,032
304,118
320,091
21,055
3,303
323,658
151,580
11,296
87,872
55,171
28,235
4,348
7,972
105,942
1,213
1,404
234
78
5,029
1,326
397
1,401
837
573
91
163
933
1,424,641
13,679
3.02
2.57
2.03
1.44
1.25
1.45
2.43
3.20
3.79
3.55
12.20
15.57
3.02
3.42
1.31
2.54
0.40
0.44
1.11
2.36
1.55
0.87
3.51
1.59
1.52
2.03
2.09
2.04
0.88
0.96
Total interest-earning assets6
1,718,235
80,674
Interest-bearing liabilities
Deposits
Personal7
Canada
U.S.
Banks8,9
Canada
U.S.
Business and government8,9
Canada
U.S.
Subordinated notes and debentures
Obligations related to securities sold short and under
repurchase agreements
Canada
U.S.
Securitization liabilities10
Other liabilities
Canada
U.S.
International8,9
314,227
283,287
19,939
25,486
360,857
175,719
11,112
83,935
78,421
27,629
3,796
17,162
127,126
4,852
6,335
1,098
942
14,655
7,305
436
3,662
4,408
915
126
817
5,179
Total interest-bearing liabilities6
1,528,696
50,730
Total interest-earning assets, net interest income,
and net interest margin
Add: non-interest earning assets
Total assets, net interest income and margin
$ 1,718,235
203,948
$ 1,922,183
$ 29,944
–
$ 29,944
1.74% $ 1,618,453
194,576
–
1.56% $ 1,813,029
$ 27,353
–
$ 27,353
1.69%
–
1.51%
7 Includes charges incurred on the Schwab IDA Agreement of $0.9 billion (2022 –
$1.7 billion).
8 Includes average trading deposits with a fair value of $26 billion (2022 – $20 billion).
9 Includes average deposits designated at FVTPL of $188 billion (2022 – $137 billion).
10 Includes average securitization liabilities at fair value of $13 billion (2022 –
$13 billion) and average securitization liabilities at amortized cost of $14 billion
(2022 – $15 billion).
1 Net interest income includes dividends on securities.
2 Geographic classification of assets and liabilities is based on the domicile of the
booking point of assets and liabilities.
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 (EIRM).
4 Includes average trading loans of $15 billion (2022 – $12 billion).
5 Comprised of interest-bearing deposits with Banks, securities, securities purchased
under reverse repurchase agreements, and business and government loans.
6 Average interest-earning assets and average interest-bearing liabilities are non-GAAP
financial measures that depict the Bank’s financial position, and are calculated using
daily balances. For additional information about the Bank’s use of non-GAAP financial
measures, refer to “Non-GAAP and Other Financial Measures” in the “Financial
Results Overview” section of this document.
128
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
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 7 ANALYSIS OF CHANGE IN NET INTEREST INCOME1,2
|
(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
2023 vs. 2022
Increase (decrease) due to changes in
Average
volume
Average
rate
Net change
$ (232)
(157)
$ 1,878
1,815
$ 1,646
1,658
62
152
410
(188)
80
324
354
305
218
181
267
320
787
817
84
812
381
3,220
6,115
2,811
2,734
4,405
160
216
712
113
546
3,584
3,612
2,744
874
533
3,630
5,927
2,891
3,058
4,759
465
434
893
380
866
4,371
4,429
2,828
3,784
35,858
39,642
40
(161)
(12)
525
578
211
(6)
(63)
353
(12)
(11)
188
217
3,599
5,092
876
339
9,048
5,768
45
2,324
3,218
354
46
466
4,029
3,639
4,931
864
864
9,626
5,979
39
2,261
3,571
342
35
654
4,246
1,847
35,204
37,051
$ 1,937
$
654
$ 2,591
1 Geographic classification of assets and liabilities is based on the domicile of the
2 Interest income includes loan fees earned by the Bank, which are recognized in net
booking point of assets and liabilities.
interest income over the life of the loan through the EIRM.
TD BANK GROUP ANNUAL REPORT 2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
129
GLOSSARY
Financial and Banking Terms
Adjusted Results: Non-GAAP financial measures used to assess each of
the Bank’s businesses and to measure the Bank’s overall performance. To arrive
at adjusted results, the Bank adjusts for “items of note”, from reported results.
The items of note relate to items which management does not believe are
indicative of underlying business performance.
Allowance for Credit Losses: Represent expected credit losses (ECLs) on financial
assets, including any off-balance sheet exposures, at the balance sheet date.
Allowance for credit losses consists of Stage 3 allowance for impaired financial
assets and Stage 2 and Stage 1 allowance for performing financial assets and
off-balance sheet instruments. The allowance is increased by the provision for
credit losses, decreased by write-offs net of recoveries and disposals, and impacted
by foreign exchange.
Amortized Cost: The amount at which a financial asset or financial 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 beneficially 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).
The majority of these assets are not reported on the Bank’s Consolidated
Balance Sheet.
Assets under Management (AUM): Assets that are beneficially 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 financial 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 specified
pool of underlying assets.
Average Common Equity: Average common equity for the business segments
reflects the average allocated capital. The Bank’s methodology for allocating
capital to its business segments is largely aligned with the common equity capital
requirements under Basel III.
Average Interest-Earning Assets: A non-GAAP financial measure that depicts
the Bank’s financial position, and is calculated as the average carrying value of
deposits with banks, loans and securities based on daily balances for the period
ending October 31 in each fiscal year.
Basic Earnings per Share (EPS): A performance measure calculated by dividing
net income attributable to common shareholders by the weighted average number
of common shares outstanding for the period. Adjusted basic EPS is calculated in
the same manner using adjusted net income.
Basis Points (bps): A unit equal to 1/100 of 1%. Thus, a 1% change is equal
to 100 basis points.
Book Value per Share: A measure calculated by dividing common shareholders’
equity by number of common shares at the end of the period.
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.
130
TD BANK GROUP ANNUAL REPORT 2023 GLOSSARY
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, financial, and insurance entities, deferred tax assets, defined benefit
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 a capital charge that
measures credit risk due to default of derivative counterparties. This charge
requires banks to capitalize for the potential changes in counterparty credit spread
for the derivative portfolios.
Diluted EPS: A performance measure calculated by dividing net income
attributable to common shareholders by the weighted average number of
common shares outstanding adjusting for the effect of all potentially dilutive
common shares. Adjusted diluted EPS is calculated in the same manner using
adjusted net income.
Dividend Payout Ratio: A ratio represents the percentage of Bank’s earnings
being paid to common shareholders in the form of dividends and is calculated
by dividing common dividends by net income available to common shareholders.
Adjusted dividend payout ratio is calculated in the same manner using adjusted
net income.
Dividend Yield: A ratio calculated as the dividend per common share for the year
divided by the daily average closing stock price during the year.
Effective Income Tax Rate: A rate and performance indicator calculated by
dividing the provision for income taxes as a percentage of net income before
taxes. Adjusted effective income tax rate is calculated in the same manner using
adjusted results.
Effective Interest Rate (EIR): The rate that discounts expected future cash
flows for the expected life of the financial 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 financial 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 inflows and outflows expected over the life of a financial instrument.
Efficiency Ratio: The efficiency ratio measures operating efficiency and is
calculated by taking the non-interest expenses as a percentage of total revenue.
A lower ratio indicates a more efficient business operation. Adjusted efficiency
ratio is calculated in the same manner using adjusted non-interest expenses and
total revenue.
Enhanced Disclosure Task Force (EDTF): Established by the Financial Stability
Board in May 2012, comprised of banks, analysts, investors, and auditors, with the
goal of enhancing the risk disclosures of banks and other financial institutions.
Expected Credit Losses (ECLs): ECLs are the probability-weighted present
value of expected cash shortfalls over the remaining expected life of the financial
instrument and considers 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.
Fair Value: The 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.
Fair value through other comprehensive income (FVOCI): Under IFRS 9, if
the asset passes the contractual cash flows test (named SPPI), the business model
assessment determines how the instrument is classified. If the instrument is being
held to collect contractual cash flows, that is, if it is not expected to be sold,
it is measured as amortized cost. If the business model for the instrument is to
both collect contractual cash flows and potentially sell the asset, it is measured
at FVOCI.
Fair value through profit or loss (FVTPL): Under IFRS 9, the classification is
dependent on two tests, a contractual cash flow 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 profit or loss.
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 financial
institutions for safety and soundness, performs certain consumer-protection
functions, and manages banks in receivership (failed banks).
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 fixed
price at a future date.
Futures: Exchange-traded contracts to buy or sell a security at a predetermined
price on a specified future date.
Hedging: A risk management technique intended to mitigate the Bank’s exposure
to fluctuations 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 reflects current market rates as at the
balance sheet date for financial 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 Corporate Expenses: Non-interest expenses related to corporate service and
control groups which are not allocated to a business segment.
Net Interest Margin: A non-GAAP ratio calculated as net interest income as
a percentage of average interest-earning assets to measure performance. This
metric is an indicator of the profitability of the Bank’s earning assets less the cost
of funding. Adjusted net interest margin is calculated in the same manner using
adjusted net interest income.
Non-Viability Contingent Capital (NVCC): Instruments (preferred shares and
subordinated debt) that contain a feature or a provision that allows the financial
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 financial
instruments are based.
Office of the Superintendent of Financial Institutions Canada (OSFI):
The regulator of Canadian federally chartered financial 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 financial instrument or commodity at a predetermined price at or
by a specified future date.
Price-Earnings Ratio: A ratio calculated by dividing the closing share price by
EPS based on a trailing four quarters to indicate market performance. Adjusted
price-earnings ratio is calculated in the same manner using adjusted EPS.
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 reflect
expected credit-related losses on its portfolio.
Return on Common Equity (ROE): The consolidated Bank ROE is calculated
as net income available to common shareholders as a percentage of average
common shareholders’ equity, utilized in assessing the Bank’s use of equity. ROE
for the business segments is calculated as the segment net income attributable to
common shareholders as a percentage of average allocated capital. Adjusted ROE
is calculated in the same manner using adjusted net income.
Return on Risk-weighted Assets: Net income available to common shareholders
as a percentage of average risk-weighted assets.
Return on Tangible Common Equity (ROTCE): A non-GAAP financial
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.
Adjusted ROTCE is calculated in the same manner using adjusted net income.
Both measures can be utilized in assessing the Bank’s use of 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 financial assets, mainly loans, are transferred
to structures, which normally issue 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 financial instrument to be classified at
amortized cost:
• The entity’s business model relates to managing financial assets (such as bank
trading activity), and, as such, an asset is held with the intention of collecting
its contractual cash flows; and
• An asset’s contractual cash flows represent SPPI.
Swaps: Contracts that involve the exchange of fixed and floating interest rate
payment obligations and currencies on a notional principal for a specified period
of time.
Tangible common equity (TCE): A non-GAAP financial measure calculated as
common shareholders’ equity less goodwill, imputed goodwill, and intangibles on
an investment in Schwab and TD Ameritrade and other acquired intangible assets,
net of related deferred tax liabilities. It can be utilized in assessing the Bank’s use
of equity.
Taxable Equivalent Basis (TEB): A calculation method (not defined in GAAP)
that increases revenues and the provision for income taxes 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 defined 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 total return earned on an investment
in TD’s common shares. The return measures the change in shareholder value,
assuming dividends paid are reinvested in additional shares.
Trading-Related Revenue: A non-GAAP financial measure that is the total of
trading income (loss), net interest income on trading positions, and income from
financial instruments designated at FVTPL that are managed within a trading
portfolio. Trading-related revenue (TEB) in the Wholesale Banking segment is also
a non-GAAP financial measure and is calculated in the same manner, including TEB
adjustments. Both are used for measuring trading performance.
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 specified period of time.
TD BANK GROUP ANNUAL REPORT 2023 GLOSSARY
131
FINANCIAL RESULTS
Consolidated Financial Statements
PAGE
Management’s Responsibility for Financial Information
133
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
134
136
138
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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE TOPIC
PAGE
NOTE TOPIC
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Nature of Operations
Summary of Significant Accounting Policies
Significant 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
Significant Transactions
Goodwill and Other Intangibles
Land, Buildings, Equipment, Other Depreciable Assets,
and Right-of-Use Assets
16
Other Assets
144
144
153
157
158
166
167
171
178
179
181
191
192
193
195
196
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
Deposits
Other Liabilities
Subordinated Notes and Debentures
Equity
Insurance
Share-Based Compensation
Employee Benefits
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
Information on Subsidiaries
Subsequent Events
PAGE
139
140
141
142
143
PAGE
196
197
198
198
201
203
205
210
212
212
214
215
217
217
219
220
221
132
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
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
financial 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 financial 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
qualified staff, the establishment of organizational structures providing a
well-defined 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 financial reporting as at October 31, 2023, 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, 2023, the Bank’s internal control over
financial 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 financial 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 financial
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 Office 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 (Canada),
having reference to the safety of the depositors, are being duly observed
and that the Bank is in sound financial 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 financial reporting as at October 31, 2023, in
addition to auditing the Bank’s Consolidated Financial Statements as of
the same date. Their reports, which expressed unqualified opinions, 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 financial reporting
and the adequacy of internal controls.
Bharat B. Masrani
Group President and
Chief Executive Officer
Kelvin Tran
Group Head and
Chief Financial Officer
Toronto, Canada
November 29, 2023
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
133
INDEPENDENT AUDITOR’S REPORT
To the Shareholders and Directors of
The Toronto-Dominion Bank
Opinion
We have audited the consolidated financial statements of The Toronto-
Dominion Bank and its subsidiaries (TD), which comprise the Consolidated
Balance Sheets as at October 31, 2023 and 2022, and the Consolidated
Statements of Income, Consolidated Statements of Comprehensive
Income, Consolidated Statements of Changes in Equity, and Consolidated
Statements of Cash Flows for the years then ended, and notes to the
consolidated financial statements, including a summary of significant
accounting policies (collectively referred to as the “consolidated
financial statements”).
In our opinion, the accompanying consolidated financial statements
present fairly, in all material respects, the consolidated financial position
of TD as at October 31, 2023 and 2022, and its consolidated financial
performance and its consolidated cash flows for the years then ended,
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 TD in accordance with the ethical requirements that are
relevant to our audit of the consolidated financial statements in Canada,
and we have fulfilled our other ethical responsibilities in accordance with
these requirements. We believe that the audit evidence we have obtained
is sufficient 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 significance in our audit of the consolidated financial
statements of the year ended October 31, 2023. These matters were
addressed in the context of our audit of the consolidated financial
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 fulfilled 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
financial 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 financial statements.
Allowance for credit losses
Key audit matter
TD describes its significant accounting judgments, estimates, and
assumptions in relation to the allowance for credit losses in Note 3 of
the consolidated financial statements. As disclosed in Note 8 to the
consolidated financial statements, TD recognized $8,189 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 financial 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. ECL allowances are measured
at amounts equal to either (i) 12-month ECL; or (ii) lifetime ECL for those
financial instruments that have experienced a significant increase in credit
risk (SICR) since initial recognition or when there is objective evidence
of impairment.
Auditing the allowance for credit losses was complex and required
the application of significant judgment and involvement of specialists
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 judgment 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 SICR; and
(iv) the assessment of 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 validation of models and selection of appropriate inputs
including economic forecasting, determination of non-retail borrower risk
ratings, 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 judgment.
To test the allowance for credit losses, our audit procedures included,
amongst others, involving our credit risk specialists to assess whether the
methodology and assumptions, including management’s SICR triggers,
used in significant models that estimate the ECL across various portfolios
are consistent with the requirements of IFRS. This included reperforming
the model validation procedures for a sample of models to evaluate
whether management’s conclusions were appropriate. With the assistance
of our economic specialists, we evaluated the models, methodology and
process used by management to develop the FLI variable forecasts for each
scenario and the scenario probability weights. For a sample of FLI variables,
we compared management’s FLI to independently derived forecasts and
publicly available information. On a sample basis, we recalculated the
ECL to test the mathematical accuracy of management’s models. We
tested the completeness and accuracy of data used in measuring the ECL
by agreeing to source documents and systems and evaluated a sample
of management’s non-retail borrower risk ratings against TD’s risk rating
policy. With the assistance of our credit risk specialists, we also evaluated
management’s methodology and governance over the application of
expert credit judgment by evaluating that the amounts recorded were
reflective of underlying credit quality and macroeconomic trends. We
also assessed the adequacy of disclosures related to the allowance for
credit losses.
Fair value measurement of derivatives
Key audit matter
TD describes its significant accounting judgments, estimates, and
assumptions in relation to the fair value measurement of derivatives in
Note 3 of the consolidated financial statements. As disclosed in Note 5
of the consolidated financial statements, TD has derivative assets of
$87,382 million and derivative liabilities of $71,640 million recorded
at fair value. Certain of these derivatives are complex and illiquid and
require valuation techniques that may include complex models and non-
observable inputs, requiring management’s estimation and judgment.
134
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
Auditing the valuation of certain derivatives required the application of
significant auditor judgment and involvement of valuation specialists
in assessing the complex models and non-observable inputs used,
including any significant 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 our audit addressed the key audit matter
We obtained an understanding, evaluated the design, and tested the
operating effectiveness of management’s controls, including the
associated controls over relevant IT systems, 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 significant inputs noted above, and
controls over the review of significant valuation adjustments applied.
To test the valuation of these derivatives, our audit procedures included,
amongst others, an evaluation of the methodologies and significant
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 significant inputs used to estimate the
fair value, which involved obtaining significant inputs from independent
external sources, where available. For a sample of valuation adjustments,
we utilized the assistance of our valuation specialists to evaluate the
methodology applied and performed a recalculation of these adjustments.
We also assessed the adequacy of the disclosures related to the fair value
measurement of derivatives.
Measurement of provision for uncertain tax positions
Key audit matter
TD describes its significant accounting judgments, estimates, and
assumptions in relation to income taxes in Note 3 and Note 24 of the
consolidated financial statements. As a financial 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 significant 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 provision.
Auditing TD’s provision for uncertain tax positions involved the
application of judgment 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 TD’s provision
for uncertain tax positions. The controls we tested included, amongst
others, the 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, we assessed the technical
merits and the amount recorded for uncertain tax positions. Our audit
procedures included, amongst others, using our knowledge of, and
experience with, the application of tax laws by the relevant income tax
authorities to evaluate TD’s interpretations and assessment of tax laws
with respect to uncertain tax positions. 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
assessed the adequacy of the disclosures related to uncertain tax positions.
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 financial statements and
our auditor’s report thereon, in the 2023 Annual Report.
Our opinion on the consolidated financial 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 financial statements,
our responsibility is to read the other information, and in doing so,
consider whether the other information is materially inconsistent with the
consolidated financial statements or our knowledge obtained in the audit
or otherwise appears to be materially misstated.
We obtained Management’s Discussion and Analysis and the 2023 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 financial statements in accordance with IFRS, and for
such internal control as management determines is necessary to enable
the preparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is
responsible for assessing TD’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 TD or to cease operations, or has no realistic alternative but
to do so.
Those charged with governance are responsible for overseeing
TD’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated
Financial Statements
Our objectives are to obtain reasonable assurance about whether the
consolidated financial 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 influence the
economic decisions of users taken on the basis of these consolidated
financial 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 financial statements, whether due to fraud or error, design
and perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient 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.
• 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 TD’s internal control.
• 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 significant doubt on TD’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
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
135
related disclosures in the consolidated financial 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 TD to cease to
continue as a going concern.
• Evaluate the overall presentation, structure and content of the
consolidated financial statements, including the disclosures, and
whether the consolidated financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial
information of the entities or business activities within TD to express an
opinion on the consolidated financial statements. We are responsible
for the direction, supervision and performance of the group audit. We
remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among
other matters, the planned scope and timing of the audit and significant
audit findings, including any significant deficiencies in internal control that
we identify during our audit.
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 significance in the audit of the
consolidated financial statements of the current period and are therefore
the key audit matters. We describe these matters in our auditor’s 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
benefits of such communication.
The engagement partner on the audit resulting in this independent
auditor’s report is Helen Mitchell.
Chartered Professional Accountants
Licensed Public Accountants
Toronto, Canada
November 29, 2023
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 Sheets of
The Toronto-Dominion Bank (TD) as of October 31, 2023 and 2022, the
related Consolidated Statements of Income, Comprehensive Income,
Changes in Equity, and Cash Flows for the years then ended, and the
related notes (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements present
fairly, in all material respects, the consolidated financial position of TD as
at October 31, 2023 and 2022, its consolidated financial performance
and its consolidated cash flows for the years then ended, in conformity
with International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States) (PCAOB),
TD’s internal control over financial reporting as of October 31, 2023,
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
November 29, 2023, expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of TD’s
management. Our responsibility is to express an opinion on TD’s
consolidated financial statements based on our audits. We are a public
accounting firm 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 financial 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 financial 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 financial statements. Our audits
also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall
presentation of the consolidated financial 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 financial 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 financial 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 financial 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.
Allowance for credit losses
Description of the Matter
TD describes its significant accounting judgments, estimates, and
assumptions in relation to the allowance for credit losses in Note 3 of
the consolidated financial statements. As disclosed in Note 8 to the
consolidated financial statements, TD recognized $8,189 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 financial 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. ECL allowances are measured at amounts
equal to either (i) 12-month ECL; or (ii) lifetime ECL for those financial
instruments that have experienced a significant increase in credit risk (SICR)
since initial recognition or when there is objective evidence of impairment.
Auditing the allowance for credit losses was complex and required
the application of significant judgment and involvement of specialists
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 judgment include
evaluating: (i) the models and methodologies used for measuring both
the 12-month and lifetime expected credit losses; (ii) the assumptions
136
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
used in the ECL scenarios including forward-looking information (FLI)
and assigning probability weighting; (iii) the determination of 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 validation of models and selection of appropriate inputs
including economic forecasting, determination of non-retail borrower risk
ratings, 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 judgment.
To test the allowance for credit losses, our audit procedures included,
amongst others, involving our credit risk specialists to assess whether the
methodology and assumptions, including management’s SICR triggers,
used in significant models that estimate the ECL across various portfolios
are consistent with the requirements of IFRS. This included reperforming
the model validation procedures for a sample of models to evaluate
whether management’s conclusions were appropriate. With the assistance
of our economic specialists, we evaluated the models, methodology and
process used by management to develop the FLI variable forecasts for each
scenario and the scenario probability weights. For a sample of FLI variables,
we compared management’s FLI to independently derived forecasts and
publicly available information. On a sample basis, we recalculated the ECL
to test the mathematical accuracy of management’s models. We tested
the completeness and accuracy of data used in measuring the ECL by
agreeing to source documents and systems and evaluated a sample of
management’s non-retail borrower risk ratings against TD’s risk rating
policy. With the assistance of our credit risk specialists, we also evaluated
management’s methodology and governance over the application of expert
credit judgment by evaluating that the amounts recorded were reflective
of underlying credit quality and macroeconomic trends. We also assessed
the adequacy of disclosures related to the allowance for credit losses.
Fair value measurement of derivatives
Description of the Matter
TD describes its significant accounting judgments, estimates, and
assumptions in relation to the fair value measurement of derivatives in
Note 3 of the consolidated financial statements. As disclosed in Note 5
of the consolidated financial statements, TD has derivative assets of
$87,382 million and derivative liabilities of $71,640 million recorded
at fair value. Certain of these derivatives 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
significant auditor judgment and involvement of valuation specialists
in assessing the complex models and non-observable inputs used,
including any significant 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, including the
associated controls over relevant IT systems, 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 significant inputs noted above, and controls over
the review of significant valuation adjustments applied.
To test the valuation of these derivatives, our audit procedures included,
amongst others, an evaluation of the methodologies and significant
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 significant inputs used to estimate the
fair value, which involved obtaining significant inputs from independent
external sources, where available. For a sample of valuation adjustments,
we utilized the assistance of our valuation specialists to evaluate the
methodology applied and performed a recalculation of these adjustments.
We also assessed the adequacy of the disclosures related to the fair value
measurement of derivatives.
Measurement of provision for uncertain tax positions
Description of the Matter
TD describes its significant accounting judgments, estimates, and
assumptions in relation to income taxes in Note 3 and Note 24 of the
consolidated financial statements. As a financial 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 significant 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 provision.
Auditing TD’s provision for uncertain tax positions involved the application
of judgment 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 TD’s provision
for uncertain tax positions. The controls we tested included, amongst
others, the 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, we assessed the technical
merits and the amount recorded for uncertain tax positions. Our audit
procedures included, amongst others, using our knowledge of, and
experience with, the application of tax laws by the relevant income tax
authorities to evaluate TD’s interpretations and assessment of tax laws
with respect to uncertain tax positions. 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 assessed the adequacy of the disclosures related to uncertain
tax positions.
Chartered Professional Accountants
Licensed Public Accountants
We have served as TD’s sole auditor since 2006. Prior to 2006, we or
our predecessor firm have served as joint auditor with various other
firms since 1955.
Toronto, Canada
November 29, 2023
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
137
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
financial reporting as of October 31, 2023, 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 financial reporting as of October 31, 2023,
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 Sheets of TD as of October 31, 2023 and 2022, and
the Consolidated Statements of Income, Comprehensive Income, Changes
in Equity and Cash Flows for the years then ended, and the related notes,
and our report dated November 29, 2023, expressed an unqualified
opinion thereon.
Basis for Opinion
TD’s management is responsible for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of
internal control over financial 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
financial reporting based on our audit. We are a public accounting firm
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
financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over
financial 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 financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial 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 financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial 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 financial statements.
Because of its inherent limitations, internal control over financial
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
November 29, 2023
138
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
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 (Note 5)
Non-trading financial assets at fair value through profit or loss (Note 5)
Derivatives (Notes 5, 11)
Financial assets designated at fair value through profit or loss (Notes 5, 7)
Financial assets at fair value through other comprehensive income (Note 5)
Debt securities at amortized cost, net of allowance for credit losses (Notes 5, 7)
Securities purchased under reverse repurchase agreements (Note 6)
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 (Note 8)
Investment in Schwab (Note 12)
Goodwill (Note 14)
Other intangibles (Note 14)
Land, buildings, equipment, other depreciable assets, and right-of-use assets (Note 15)
Deferred tax assets (Note 24)
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 profit or loss (Notes 5, 17)
Deposits (Notes 5, 17)
Personal
Banks
Business and government
Other
Acceptances (Note 8)
Obligations related to securities sold short (Note 5)
Obligations related to securities sold under repurchase agreements (Note 6)
Securitization liabilities at amortized cost (Notes 5, 9)
Amounts payable to brokers, dealers, and clients
Insurance-related liabilities (Note 21)
Other liabilities (Note 18)
Subordinated notes and debentures (Notes 5, 19)
Total liabilities
EQUITY
Shareholders’ Equity
Common shares (Note 20)
Preferred shares and other equity instruments (Note 20)
Treasury – common shares (Note 20)
Treasury – preferred shares and other equity instruments (Note 20)
Contributed surplus
Retained earnings
Accumulated other comprehensive income (loss)
Total equity
Total liabilities and equity
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
October 31
2023
October 31
2022
$
6,721
98,348
$
105,069
152,090
7,340
87,382
5,818
69,865
322,495
308,016
204,333
320,341
217,554
38,660
326,528
903,083
(7,136)
895,947
17,569
8,907
18,602
2,771
9,434
3,960
30,416
29,505
8,556
137,294
145,850
143,726
10,946
103,873
5,039
69,675
333,259
342,774
160,167
293,924
206,152
36,010
301,389
837,475
(6,432)
831,043
19,733
8,088
17,656
2,303
9,400
2,193
19,760
25,302
121,164
104,435
$ 1,957,024
$ 1,917,528
$
30,980
71,640
14,422
192,130
309,172
626,596
31,225
540,369
$
23,805
91,133
12,612
162,786
290,336
660,838
38,263
530,869
1,198,190
1,229,970
17,569
44,661
166,854
12,710
30,872
7,605
47,664
327,935
9,620
19,733
45,505
128,024
15,072
25,195
7,468
33,552
274,549
11,290
1,844,917
1,806,145
25,434
10,853
(64)
(65)
155
73,044
2,750
24,363
11,253
(91)
(7)
179
73,698
1,988
112,107
111,383
$ 1,957,024
$ 1,917,528
Bharat B. Masrani
Group President and
Chief Executive Officer
Alan N. MacGibbon
Chair, Audit Committee
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
139
For the years ended October 31
2023
2022
$ 44,518
9,520
$ 27,721
1,945
19,029
2,289
5,318
80,674
38,351
915
436
10,083
945
50,730
29,944
6,420
1,796
2,417
2,609
2,932
5,671
(1,297)
20,548
50,492
2,933
3,705
15,753
1,799
2,308
672
1,452
363
456
2,490
5,475
30,768
13,086
3,168
864
10,782
563
7,928
1,822
1,616
41,032
9,748
573
397
2,706
255
13,679
27,353
5,869
1,615
(257)
2,871
2,890
5,380
3,311
21,679
49,032
1,067
2,900
13,394
1,660
1,902
599
1,355
–
408
2,190
3,133
24,641
20,424
3,986
991
17,429
259
$ 10,219
$ 17,170
$
5.61
5.60
3.84
$
9.48
9.47
3.56
Consolidated Statement of Income
(millions of Canadian dollars, except as noted)
Interest income1 (Note 29)
Loans
Reverse repurchase agreements
Securities
Interest
Dividends
Deposits with banks
Interest expense (Note 29)
Deposits
Securitization liabilities
Subordinated notes and debentures
Repurchase agreements and short sales
Other
Net interest income
Non-interest income
Investment and securities services
Credit fees
Trading income (loss)
Service charges
Card services
Insurance revenue (Note 21)
Other income (loss) (Notes 12, 13)
Total revenue
Provision for (recovery of) credit losses (Note 8)
Insurance claims and related expenses (Note 21)
Non-interest expenses
Salaries and employee benefits
Occupancy, including depreciation
Technology and equipment, including depreciation
Amortization of other intangibles
Communication and marketing
Restructuring charges (Note 26)
Brokerage-related and sub-advisory fees
Professional, advisory and outside services
Other (Notes 13, 26)
Income before income taxes and share of net income from investment in Schwab
Provision for (recovery of) income taxes (Note 24)
Share of net income from investment in Schwab (Note 12)
Net income
Preferred dividends and distributions on other equity instruments
Net income available to common shareholders
Earnings per share (Canadian dollars) (Note 25)
Basic
Diluted
Dividends per common share (Canadian dollars)
1 Includes $72,403 million for the year ended October 31, 2023 (October 31, 2022 –
$37,105 million), which has been calculated based on the effective interest rate
method (EIRM).
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
140
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
Consolidated Statement of Comprehensive Income
(millions of Canadian dollars)
Net income
Other comprehensive income (loss)
Items that will be subsequently reclassified to net income
Net change in unrealized gain/(loss) on financial assets at fair value through
other comprehensive income
Change in unrealized gain/(loss)
Reclassification to earnings of net loss/(gain)
Changes in allowance for credit losses recognized in earnings
Income taxes relating to:
Change in unrealized gain/(loss)
Reclassification to earnings of net loss/(gain)
Net change in unrealized foreign currency translation gain/(loss) on investments
in foreign operations, net of hedging activities
Unrealized gain/(loss)
Reclassification to earnings of net loss/(gain)
Net gain/(loss) on hedges
Reclassification to earnings of net loss/(gain) on hedges
Income taxes relating to:
Net gain/(loss) on hedges
Reclassification to earnings of net loss/(gain) on hedges
Net change in gain/(loss) on derivatives designated as cash flow hedges
Change in gain/(loss)
Reclassification to earnings of loss/(gain)
Income taxes relating to:
Change in gain/(loss)
Reclassification to earnings of loss/(gain)
Share of other comprehensive income (loss) from investment in Schwab
Items that will not be subsequently reclassified to net income
Remeasurement gain/(loss) on employee benefit plans
Gain/(loss)
Income taxes
Change in net unrealized gain/(loss) on equity securities designated at
fair value through other comprehensive income
Change in net unrealized gain/(loss)
Income taxes
Gain/(loss) from changes in fair value due to own credit risk on
financial liabilities designated at fair value through profit or loss
Gain/(loss)
Income taxes
Total other comprehensive income (loss)
Total comprehensive income (loss)
Attributable to:
Common shareholders
Preferred shareholders and other equity instrument holders
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
For the years ended October 31
2023
2022
$ 10,782
$ 17,429
96
(9)
–
(32)
8
63
2,233
11
(1,821)
(15)
217
4
629
(78)
238
137
(52)
245
91
(95)
9
(86)
(204)
54
(150)
(158)
42
(116)
676
(1,343)
2
(5)
360
–
(986)
9,230
50
(3,271)
(68)
859
18
6,818
(6,179)
(4,100)
1,660
972
(7,647)
(3,200)
1,105
(290)
815
(214)
56
(158)
87
(23)
64
(4,294)
$ 11,458
$ 13,135
$ 10,895
563
$ 12,876
259
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
141
Consolidated Statement of Changes in Equity
(millions of Canadian dollars)
Common shares (Note 20)
Balance at beginning of year
Proceeds from shares issued on exercise of stock options
Shares issued as a result of dividend reinvestment plan
Purchase of shares for cancellation and other
Balance at end of year
Preferred shares and other equity instruments (Note 20)
Balance at beginning of year
Issue of shares and other equity instruments
Redemption of shares and other equity instruments
Balance at end of year
Treasury – common shares (Note 20)
Balance at beginning of year
Purchase of shares
Sale of shares
Balance at end of year
Treasury – preferred shares and other equity instruments (Note 20)
Balance at beginning of year
Purchase of shares and other equity instruments
Sale of shares and other equity instruments
Balance at end of year
Contributed surplus
Balance at beginning of year
Net premium (discount) on sale of treasury instruments
Issuance of stock options, net of options exercised
Other
Balance at end of year
Retained earnings
Balance at beginning of year
Net income attributable to equity instrument holders
Common dividends
Preferred dividends and distributions on other equity instruments
Share and other equity instrument issue expenses
Net premium on repurchase of common shares and redemption of preferred shares and
other equity instruments (Note 20)
Remeasurement gain/(loss) on employee benefit plans
Realized gain/(loss) 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 financial assets at fair value through other comprehensive income:
Balance at beginning of year
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
Other comprehensive income (loss)
Reclassification of loss/(gain) to retained earnings
Balance at end of year
Gain/(loss) from changes in fair value due to own credit risk on financial liabilities designated at fair value through profit 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 flow hedges:
Balance at beginning of year
Other comprehensive income (loss)
Balance at end of year
Share of accumulated other comprehensive income (loss) from Investment in Schwab
Total accumulated other comprehensive income
Total equity
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
142
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
For the years ended October 31
2023
2022
$ 24,363
83
1,720
(732)
$ 23,066
120
1,442
(265)
25,434
24,363
11,253
–
(400)
10,853
(91)
(7,959)
7,986
(64)
(7)
(590)
532
(65)
179
(21)
27
(30)
155
73,698
10,782
(6,982)
(563)
–
(3,553)
(86)
(252)
73,044
(476)
63
–
(413)
23
(402)
252
(127)
78
(116)
(38)
12,048
629
12,677
(5,717)
245
(5,472)
(3,877)
2,750
5,700
5,553
–
11,253
(152)
(10,852)
10,913
(91)
(10)
(255)
258
(7)
173
(3)
18
(9)
179
63,944
17,429
(6,442)
(259)
(24)
(1,930)
815
165
73,698
510
(981)
(5)
(476)
181
7
(165)
23
14
64
78
5,230
6,818
12,048
1,930
(7,647)
(5,717)
(3,968)
1,988
$ 112,107
$ 111,383
Consolidated Statement of Cash Flows
(millions of Canadian dollars)
Cash flows from (used in) operating activities
Net income
Adjustments to determine net cash flows from (used in) operating activities
Provision for (recovery of) credit losses (Note 8)
Depreciation (Note 15)
Amortization of other intangibles (Note 14)
Net securities loss/(gain) (Note 7)
Share of net income from investment in Schwab (Note 12)
Gain on sale of Schwab shares (Note 12)
Deferred taxes (Note 24)
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, securities, and other
Loans net of securitization and sales
Deposits
Derivatives
Non-trading financial assets at fair value through profit or loss
Financial assets and liabilities designated at fair value through profit or loss
Securitization liabilities
Current taxes
Brokers, dealers, and clients amounts receivable and payable
Other, including unrealized foreign currency translation loss/(gain)
Net cash from (used in) operating activities
Cash flows from (used in) financing activities
Redemption or repurchase of subordinated notes and debentures (Note 19)
Common shares issued, net
Repurchase of common shares
Preferred shares and other equity instruments issued, net
Redemption of preferred shares and other equity instruments
Sale of treasury shares and other equity instruments (Note 20)
Purchase of treasury shares and other equity instruments (Note 20)
Dividends paid on shares and distributions paid on other equity instruments
Repayment of lease liabilities
Net cash from (used in) financing activities
Cash flows from (used in) investing activities
Interest-bearing deposits with banks
Activities in financial assets at fair value through other comprehensive income
Purchases
Proceeds from maturities
Proceeds from sales
Activities in debt securities at amortized cost
Purchases
Proceeds from maturities
Proceeds from sales
Net purchases of land, buildings, equipment, other depreciable assets, and other intangibles (Note 15)
Net cash acquired from (paid for) divestitures and acquisitions (Note 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 flows 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
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
For the years ended October 31
2023
2022
$ 10,782
$ 17,429
2,933
1,239
672
48
(864)
–
(1,256)
812
36,832
(41,873)
(2,722)
(5,332)
(67,766)
(25,487)
(2,341)
3,897
28,565
(552)
1,228
(5,128)
1,011
(65,302)
(1,716)
74
(4,285)
–
(400)
8,497
(8,549)
(5,825)
(643)
1,067
1,167
599
(60)
(991)
(997)
502
(412)
(16,073)
7,117
3,121
3,864
(109,463)
105,759
(15,435)
(1,556)
48,323
(1,083)
(4,100)
8,799
(8,628)
38,949
6
108
(2,195)
5,529
(1,000)
11,168
(11,107)
(6,665)
(663)
(12,847)
(4,819)
41,446
30,455
(24,336)
17,893
5,838
(26,987)
52,819
12,021
(1,844)
(624)
76,226
88
(1,835)
8,556
(31,135)
33,158
6,723
(149,560)
68,719
8,720
(1,454)
2,479
(31,895)
390
2,625
5,931
$ 6,721
$ 8,556
$ 3,036
48,179
76,646
2,247
$ 4,404
12,523
37,642
1,792
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
143
Notes to Consolidated Financial Statements
N O T E 1
|
NATURE OF OPERATIONS
CORPORATE INFORMATION
The Toronto-Dominion Bank is a bank chartered under the Bank Act
(Canada). 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 (Canada). The Toronto-Dominion Bank and its subsidiaries are
collectively known as TD Bank Group (“TD” or the“Bank”). The Bank was
formed through the amalgamation on February 1, 1955, of The Bank of
Toronto (chartered in 1855) and The Dominion Bank (chartered in 1869).
The Bank is incorporated and domiciled in Canada with its registered and
principal business offices located at 66 Wellington Street West, Toronto,
Ontario. TD serves customers in four business segments operating in a
number of locations in key financial centres around the globe: Canadian
Personal and Commercial Banking, U.S. Retail, Wealth Management and
Insurance, 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 Office of the Superintendent of Financial Institutions
Canada (OSFI). The Consolidated Financial Statements are presented in
Canadian dollars, unless otherwise indicated.
These Consolidated Financial Statements were prepared using the
accounting policies as described in Note 2. 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 judgments, estimates, and assumptions 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
confirming 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
November 29, 2023.
The risk management policies and procedures of the Bank are provided
in the Management’s Discussion and Analysis (MD&A). The shaded
sections of the “Managing Risk” section of the 2023 MD&A, relating
to market, liquidity, and insurance risks, are an integral part of these
Consolidated Financial Statements, as permitted by IFRS.
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 flows of the Bank and its subsidiaries including
certain structured entities which it controls.
• The Bank has the power to direct the activities of the structured entity
that have the most significant impact on the entity’s variable returns;
• The Bank is exposed to significant variable returns arising from the
entity; and
The Bank’s Consolidated Financial Statements have been prepared using
• The Bank has the ability to use its power to affect the variable returns
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.
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 created to accomplish a narrow and well-
defined 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. Structured entities are
consolidated when the substance of the relationship between the Bank
and the structured entity indicates that the Bank controls the entity.
When assessing whether the Bank has to consolidate a structured entity,
the Bank evaluates three primary criteria in order to conclude whether,
in substance:
144
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
to which it is exposed.
Consolidation conclusions are reassessed at the end of each financial
reporting period. The Bank’s policy is to consider the impact on
consolidation of all significant changes in circumstances, focusing on
the following:
• Substantive changes in ownership, such as the purchase or disposal of
more than an insignificant 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;
• Changes in the financing structure of an entity; and
• Changes in the rights to exercise power over an entity.
INVESTMENTS IN ASSOCIATES AND JOINT VENTURES
Entities over which the Bank has significant influence are associates and
entities over which the Bank has joint control are joint ventures. Significant
influence is the power to participate in the financial and operating policy
decisions of an investee, but is not control or joint control over these
entities. Significant influence is presumed to exist where the Bank holds
between 20% and 50% of the voting rights of an entity. Significant
influence may also exist where the Bank holds less than 20% of the
voting rights and has influence over financial and operating policy-making
processes, through board representation and significant commercial
arrangements. 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 profit or loss
of the associate or joint venture, capital transactions, including the receipt
of any dividends, and write-downs to reflect 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. The carrying amount of the investments also includes
the Bank’s share of the investee’s other comprehensive income or loss,
which is reported in the relevant section of the Consolidated Statement
of Comprehensive 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.
CASH AND DUE FROM BANKS
Cash and due from banks consist of cash and amounts due from banks
which are issued by investment grade financial 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 reflects 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 satisfied requires the use of judgment. Refer
to Note 3 for further details.
The Bank identifies contracts with customers subject to IFRS 15,
Revenue from Contracts with Customers, 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
reflect 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 significant 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 significant 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 significant financing 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 fulfilling the transfer of the services to the customer, having
discretion in establishing pricing of the services, or both.
Investment and securities services
Investment and securities services income includes 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 financing 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.
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.
FINANCIAL INSTRUMENTS
Interest Rate Benchmark Reform Phase 1
The Bank adopted Interest Rate Benchmark Reform, Amendments to
IFRS 9, Financial Instruments (IFRS 9), IAS 39, Financial Instruments:
Recognition and Measurement (IAS 39) and IFRS 7, Financial Instruments:
Disclosures (IFRS 7) (Interest Rate Benchmark Reform Phase 1), including
the applicable amendments to IFRS 7 relating to hedge accounting, in the
fourth quarter of 2019. Under these amendments, it is assumed that the
hedged interest rate benchmark is not altered and thus hedge accounting
continues through to the date of replacement of the existing interest
rate benchmark with its alternative reference rate (ARR). The Bank is not
required to discontinue hedge accounting if the actual results of the hedge
do not meet the effectiveness requirements as a result of interbank offered
rate (IBOR) reform. Refer to Note 11 for disclosures related to the Bank’s
hedge accounting relationships impacted by IBOR reform.
Refer to Note 3 for details of Interest Rate Benchmark Reform –
Phase 2, Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4, Insurance
Contracts (IFRS 4) and IFRS 16, Leases (IFRS 16) (Interest Rate Benchmark
Reform Phase 2), issued on August 27, 2020 and early adopted by
the Bank on November 1, 2020.
Classification and Measurement of Financial Assets
The Bank classifies its financial assets into the following categories:
• Amortized cost;
• Fair value through other comprehensive income (FVOCI);
• Held-for-trading;
• Non-trading fair value through profit or loss (FVTPL); and
• Designated as measured at FVTPL.
The Bank recognizes financial assets on a settlement date basis, except for
derivatives and securities, which are recognized on a trade date basis.
Debt Instruments
The classification and measurement for debt instruments is based
on the Bank’s business models for managing its financial assets and
whether the contractual cash flows represent solely payments of principal
and interest (SPPI). Refer to Note 3 for judgment with respect to the
determination of the Bank’s business models and whether contractual
cash flows represent SPPI.
The Bank has determined its business models as follows:
• Held-to-collect: the objective is to collect contractual cash flows;
• Held-to-collect-and-sell: the objective is both to collect contractual cash
flows and sell the financial assets; and
• Held-for-sale and other business models: the objective is neither of
the above.
The Bank performs the SPPI test for financial assets held within the held-
to-collect and held-to-collect-and-sell business models. If these financial
assets have contractual cash flows which are inconsistent with a basic
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
145
lending arrangement that do not pass the SPPI test, they are classified
as non-trading financial 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 profit 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 flows pass the SPPI test are measured at
amortized cost. The carrying amount of these financial 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. The effective interest rate (EIR) is the rate that discounts
expected future cash flows for the expected life of the financial 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. 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 financing placement unless the yield on any loan
retained by the Bank is less than that of other comparable lenders involved
in the financing 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 flows 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.
Interest income is recognized using EIRM. 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 financial asset is derecognized, the cumulative gain or loss previously
recognized in other comprehensive income is reclassified from equity
to income and recognized in other income (loss).
Financial Assets Held-for-Trading
The held-for-sale business model includes financial 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 identified financial instruments that are managed
together and for which there is evidence of short-term profit-taking.
Financial assets held within this business model consist of trading
securities, trading loans, as well as certain securities purchased under
reverse repurchase agreements.
Trading portfolio assets are accounted for at fair value with changes
in fair value 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 financial assets measured at FVTPL include financial 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 classified as non-trading financial assets
measured at FVTPL. Changes in fair value as well as any gains or losses
realized on disposal are recognized in other income (loss). 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 significantly reduce an
accounting mismatch that would otherwise arise from measuring these
financial assets on a different basis. The FVTPL designation is available
only for those financial instruments for which a reliable estimate of fair
value can be obtained. Once financial 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 other income (loss). Interest
income from these financial 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, 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 reclassified 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 trading and non-trading equity
investments measured at FVTPL are included in trading income (loss) and
other income (loss), respectively.
Classification and Measurement for Financial Liabilities
The Bank classifies its financial 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 identified financial instruments that are
managed together and for which there is evidence of a recent actual
pattern of short-term profit-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 in interest expense.
Financial Liabilities Designated at Fair Value through
Profit or Loss
Certain financial liabilities may be designated at FVTPL at initial
recognition. To be designated at FVTPL, financial liabilities must meet one
of the following criteria: (1) the designation eliminates or significantly
reduces a measurement or recognition inconsistency; (2) the financial
liabilities or a group of financial assets and financial liabilities are managed,
and their 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 significantly modify the cash flows 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 financial
instrument is prohibited. In addition, the FVTPL designation is available
only for those financial instruments for which a reliable estimate of fair
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TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
value can be obtained. Once financial 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 other income (loss), 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
reclassified to net income upon derecognition of the financial 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 flows using an all-in
discount curve reflecting both the interest rate benchmark curve and
the Bank’s own credit curve; and (ii) the period-over-period change in the
present value of the same expected cash flows using a discount curve
based solely on the interest rate benchmark curve.
For loan commitments and financial guarantee contracts that are
designated at FVTPL, the full change in fair value of the liability is
recognized in other income (loss).
Interest is recognized on an accrual basis in interest expense.
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.
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 Financial Liabilities
Financial assets and financial liabilities are not reclassified subsequent to
their initial recognition, except for financial assets for which the Bank
changes its business model for managing financial assets. Such
reclassifications of financial assets are expected to be rare in practice.
Impairment – Expected Credit Loss Model
The ECL model applies to financial assets, including loans and debt
securities measured at amortized cost, loans and debt securities measured
at FVOCI, loan commitments, and financial guarantees that are not
measured at FVTPL.
The ECL model consists of three stages: Stage 1 – Twelve-month ECLs
for performing financial assets, Stage 2 – Lifetime ECLs for financial
assets that have experienced a significant increase in credit risk since
initial recognition, and Stage 3 – Lifetime ECLs for financial assets that are
credit-impaired. ECLs are the difference between all the contractual cash
flows that are due to the Bank in accordance with the contract and all the
cash flows the Bank expects to receive, discounted at the original EIR. If
a significant 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 significant, the loss allowance reverts
to being measured based on twelve-month ECLs.
Significant Increase in Credit Risk
For retail exposures, significant 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 specific attributes and relevant
forward-looking macroeconomic variables.
For non-retail exposures, significant increase in credit risk is assessed
based on changes in the internal risk rating (borrower risk ratings (BRR))
since initial recognition. Refer to the shaded areas of the “Managing Risk”
section of the 2023 MD&A for further details on the Bank’s 21-point BRR
scale to risk levels.
For both retail and non-retail exposures, delinquency backstop when
contractual payments are more than 30 days past due is also used in
assessing significant increase in credit risk.
The Bank defines default as delinquency of 90 days or more for most
retail products and BRR of 9 for non-retail exposures. Exposures are
considered credit-impaired and migrate to Stage 3 when the definition
of default is met 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 assessing whether there has been a significant increase in credit
risk since the initial recognition of a financial 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 financial 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 financial instruments that include both a loan and an undrawn
commitment, and the Bank’s contractual ability to demand repayment and
cancel the undrawn commitment does not limit the Bank’s exposure to
credit losses to the contractual notice period, 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-specific attributes.
The Bank leverages its Advanced Internal Ratings-Based 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
significant 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 quantitative
models are incorporated by applying expert credit judgment in
determining the final ECLs. Refer to Note 3 for additional details.
Modified Loans
In cases where a borrower experiences financial difficulties, the Bank
may grant certain modifications to the terms and conditions of a loan.
Modifications may include payment deferrals, extension of amortization
periods, rate reductions, principal forgiveness, debt consolidation,
forbearance and other modifications 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 modification results in expiry of cash
flows, the original asset is derecognized and a new asset is recognized
based on the new contractual terms. Significant increase in credit risk is
assessed relative to the risk of default on the date of modification.
If the Bank determines that a modification does not result in
derecognition, significant increase in credit risk is assessed based on the
risk of default at initial recognition of the original asset. Expected cash
flows arising from the modified contractual terms are considered when
calculating ECLs for the modified asset. For loans that were modified
while having lifetime ECLs, the loans can revert to having twelve-month
ECLs after a period of performance and improvement in the borrower’s
financial condition.
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147
Allowance for Loan Losses, Excluding Acquired
Credit-Impaired 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, business and
government loans, and customers’ liability under acceptances, 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 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 on the
contractual amount outstanding of financial assets that are written off
varies from one jurisdiction to another and generally spans between less
than one year to five 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.
Acquired Performing Loans
Acquired performing loans are initially measured at fair value, which
considers incurred and expected future credit losses estimated at the
acquisition date and also reflects 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 performing loans, resulting in
the carrying amount being lower than fair value. Acquired performing loans
are subsequently accounted for at amortized cost based on their contractual
cash flows 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 performing loans with revolving terms.
Acquired Credit-Impaired Loans
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 acquired credit-impaired (ACI) loans, with no
ECLs recognized on acquisition. ACI loans are identified as impaired at
acquisition based on specific 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 flows
as opposed to their contractual cash flows. The Bank determines the fair
value of these loans at the acquisition date by discounting expected cash
flows at a discount rate that reflects factors a market participant would
use when determining fair value, including management assumptions
relating to default rates, loss severities, the amount and timing of
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TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
prepayments, and other factors that are reflective of current market
conditions. With respect to certain individually significant ACI loans,
accounting is applied individually at the loan level. The remaining ACI
loans are aggregated provided they are acquired in the same fiscal quarter
and have common risk characteristics. Aggregated loans are accounted
for as a single asset with aggregated cash flows and a single composite
interest rate. Subsequent to acquisition, the Bank regularly reassesses and
updates its cash flow estimates for changes to assumptions relating to
default rates, loss severities, the amount and timing of prepayments, and
other factors that are reflective of current market conditions. Probable
decreases in expected cash flows trigger the recognition of additional
impairment, which is measured based on the present value of the revised
expected cash flows discounted at the loan’s EIR 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 applying the credit-adjusted EIR to the
amortized cost of ACI loans.
SHARE CAPITAL AND OTHER EQUITY INSTRUMENTS
The Bank classifies financial instruments that it issues as either financial
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 classified 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 classified as equity when there is no contractual
obligation to transfer cash or other financial assets to redeem or convert
these instruments. Such instruments, if not mandatorily redeemable or
convertible into a variable number of the Bank’s common shares at the
holder’s option, are classified as equity on the Consolidated Balance Sheet.
Incremental costs directly attributable to the issue of equity instruments
are included in equity as a deduction from the proceeds, net of tax.
Dividends and distributions 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. The liability component is initially measured at fair value
with any residual amount assigned to the equity component. Issuance
costs are allocated proportionately to the liability and equity components.
Common shares, preferred shares, and other equity instruments issued
and held by the Bank are classified as treasury instruments in equity, and
the cost of these instruments is recorded as a reduction in equity. Upon the
sale of treasury instruments, the difference between the sale proceeds and
the cost of the instruments 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 the 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 definition 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 over-the-counter (OTC) credit derivative contracts designed
to transfer the credit risk in an underlying financial 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 financial or non-financial 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).
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,
Financial Instruments: Recognition and Measurement (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
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.
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 flows of the
hedged items. In order to be considered highly 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 throughout the
term of the hedging relationship. If a hedging relationship becomes
ineffective, it no longer qualifies 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 are recognized in Net interest
income or Non-interest income, as applicable, on the Consolidated
Statement of Income.
When derivatives are designated in hedge accounting relationships,
the Bank classifies them either as: (1) hedges of the changes in fair value
of recognized assets, liabilities or firm commitments (fair value hedges);
(2) hedges of the variability in highly probable future cash flows
attributable to recognized assets, liabilities or forecast transactions (cash
flow hedges); or (3) hedges of net investments in foreign operations
(net investment hedges).
Interest Rate Benchmark Reform
A hedging relationship is affected by IBOR reform if the reform gives rise
to uncertainties about (a) the interest rate benchmark (contractually or
non-contractually specified) designated as a hedged risk; and/or (b) the
timing or the amount of interest rate benchmark-based cash flows 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 flows (contractually or non-contractually
specified) are based is not altered as a result of IBOR 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 flows and/or the hedged risk (contractually or non-contractually
specified) are based, or the interest rate benchmark on which the cash
flows of the hedging instrument are based, is not altered as a result
of IBOR 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
IBOR reform; and
• For a hedge of a non-contractually specified benchmark portion
of interest rate risk, the requirement that the risk component is
separately identifiable 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 fixed-rate financial
instruments due to movements in market interest rates.
The change in the fair value of the derivative that is designated and
qualifies as a fair value hedge, as well as the change in the fair value of the
hedged item attributable to the hedged risk, is recognized in net interest
income to the extent that the hedging relationship is effective. 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 Net interest income on the
Consolidated Statement of 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 flows attributable to
interest rate, foreign exchange rate, and equity price risks. The amounts
and timing of future cash flows 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 qualifies as a cash flow 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) are
reclassified to Net interest income or Non-interest income, as applicable,
on the Consolidated Statement of Income in the same period during
which the hedged item affects income.
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 forecast
transaction impacts the Consolidated Statement of Income. When
a forecast transaction is no longer expected to occur, the cumulative
gain or loss that was reported in AOCI is immediately reclassified 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 flow 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 reclassified 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 financial liabilities or other host contracts.
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 definition of a derivative, and the
combined contract is not measured at fair value with changes in fair value
recognized in income, such as held-for-trading or designated at FVTPL.
These embedded derivatives, which are bifurcated from the host contract,
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
149
are recognized as Derivatives on the Consolidated Balance Sheet and
measured at fair value with subsequent changes in fair value 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 financial 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 first 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 the Bank’s investment in The Charles Schwab Corporation, 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 financial instrument on initial recognition is normally
the transaction price, as evidenced by the fair value of the consideration
given or received. The best evidence of fair value is quoted prices in active
markets. 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 instruments, without modification or repackaging, or
based on a valuation technique which maximizes the use of observable
market inputs.
When financial assets and liabilities have offsetting market risks or
credit risks, the Bank applies a measurement exception, as described in
Note 5 under Portfolio Exception. The value determined from application
of the portfolio exception must be allocated to the individual financial
instruments within the group to arrive at the fair value of an individual
financial instrument. Balance sheet offsetting presentation requirements,
as described above under the Offsetting of Financial Instruments section
of this Note, are then applied, if applicable.
Valuation adjustments reflect the Bank’s assessment of factors that
market participants would use in pricing the asset or liability. The Bank
recognizes various types of valuation adjustments including, but not
limited to, adjustments for bid-offer spreads, adjustments for the
unobservability of inputs used in pricing models, and adjustments for
assumptions about risk, such as the creditworthiness of either counterparty
and market implied unsecured funding costs and benefits
for OTC derivatives.
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 profit or loss. Inception profit or loss is recognized upon initial
recognition of the instrument only if the fair value is based on observable
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TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
inputs. When an instrument is measured using a valuation technique
that utilizes significant 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 financial asset measured at fair value becomes
negative, it is recognized as a financial liability until either its fair value
becomes positive, at which time it is recognized as a financial asset, or
until it is extinguished.
DERECOGNITION OF FINANCIAL INSTRUMENTS
Financial Assets
The Bank derecognizes a financial asset when the contractual rights to
that asset have expired. Derecognition may also be appropriate where the
contractual right to receive future cash flows from the asset have been
transferred, or where the Bank retains the rights to future cash flows
from the asset, but assumes an obligation to pay those cash flows to a
third party subject to certain criteria.
When the Bank transfers a financial 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 financial asset have been retained, the Bank continues
to recognize the financial asset and also recognizes a financial 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 financial asset have been transferred,
the Bank will derecognize the financial 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 flows before and after the transfer. If the variability in cash flows
does not change significantly 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 financial asset, the Bank derecognizes the
financial asset where it has relinquished control of the financial asset.
The Bank is considered to have relinquished control of the financial
asset where the transferee has the practical ability to sell the transferred
financial asset. Where the Bank has retained control of the financial asset,
it continues to recognize the financial asset to the extent of its continuing
involvement in the financial asset. Under these circumstances, the Bank
usually retains the rights to future cash flows relating to the asset through
a residual interest and is exposed to some degree of risk associated with
the financial 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 financial
assets in their entirety, when applicable. If transferring a part of an asset,
it must be a specifically identified cash flow, a fully proportionate share
of the asset, or a fully proportionate share of a specifically identified
cash flow.
Securitization
Securitization is the process by which financial assets are transformed
into securities. The Bank securitizes financial assets by transferring those
financial assets to a third party and as part of the securitization, certain
financial 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 qualifies for derecognition, a gain
or loss on sale of the financial assets is recognized immediately in other
income (loss) after considering the effect of hedge accounting on the
assets sold, if applicable. The amount of the gain or loss is calculated as
the difference between the carrying amount of the asset transferred and
the sum of any cash proceeds received, the fair value of any financial asset
received or financial liability assumed, and any cumulative gain or loss
allocated to the transferred asset that had been recognized in 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 flows using management’s best estimates
of key assumptions that market participants would use in determining
such fair value. Refer to Note 3 for assumptions used by management
in determining the fair value of retained interests. Retained interest is
classified as trading securities with subsequent changes in fair value
recorded in trading income (loss).
Where the Bank retains the servicing rights, the benefits of servicing
are assessed against market expectations. When the benefits of servicing
are more than adequate, a servicing asset is recognized. Similarly, when
the benefits 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 financial liability when the obligation under the
liability is discharged, cancelled, or expires. If an existing financial liability is
replaced by another financial liability from the same lender on substantially
different terms or where the terms of the existing liability are substantially
modified, 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 or may require counterparties to return the
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, except when they
are held-for-trading or are designated at FVTPL. 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. Changes
in fair value on reverse repurchase agreements and repurchase agreements
that are held-for-trading or are designated at FVTPL are included in Trading
income (loss) or in Other income (loss) on the Consolidated Statement
of Income.
In securities 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 Obligations 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. If securities are pledged as collateral, the securities 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 fixed 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 identifiable 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 benefit 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 identifiable group of assets that generates cash flows largely
independent of the cash inflows 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. If the composition of a CGU or group of CGUs to which
goodwill has been allocated changes as a result of the sale of a business,
restructuring or other changes, the goodwill is reallocated to the units
affected using a relative value approach, unless the Bank can demonstrate
that some other method better reflects the goodwill associated with the
units affected.
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 identifiable 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, software intangibles,
and other intangibles. Intangible assets are initially recognized at cost,
or at fair value if acquired through a business combination, and are
amortized over their estimated useful lives (4 to 15 years) proportionate to
their expected economic benefits, except for software which is amortized
over its estimated useful life (3 to 7 years) on a straight-line basis. In
respect of internally generated software, development costs are capitalized
only if the costs can be measured reliably, the asset is technically feasible,
future economic benefits are probable, and the Bank intends to and has
sufficient resources to complete development of the asset. Research costs
are expensed as incurred.
The Bank assesses its intangible assets for impairment indicators 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. If the CGU
is not impaired, the useful life of the intangible asset is assessed with any
changes applied on a prospective basis. An impairment loss is recognized
on the Consolidated Statement of Income in the period in which the
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
151
impairment is identified. 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.
date. For the Bank’s share options, this period is generally equal to five
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
LAND, BUILDINGS, EQUIPMENT, AND OTHER
DEPRECIABLE ASSETS
Land is recognized at cost. Buildings, computer equipment, furniture and
fixtures, other equipment, and leasehold improvements are recognized at
cost less accumulated depreciation and provisions for impairment, if any.
Gains or losses on disposal are included in Non-interest income on the
Consolidated Statement of Income.
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 reflect 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 fixtures
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 changes in useful life or
impairment on a quarterly basis. Where an impairment indicator exists
and the depreciable asset does not generate separate cash flows on
a stand-alone basis, impairment is assessed based on the recoverable
amount of the CGU to which the depreciable asset belongs. If the CGU is
not impaired, the useful life of the depreciable asset is assessed with any
changes applied on a prospective basis. Any impairment loss is recognized
on the Consolidated Statement of Income in the period in which the
impairment is identified. 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 classified 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 classified 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. Write-downs on premises related non-current assets
and write-downs on equipment on initial classification as held-for-sale
are included in Non-interest expenses on the Consolidated Statement
of Income. Subsequently, a non-current asset or disposal group that is
held-for-sale 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
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TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
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 on the
Consolidated Balance Sheet. 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 benefit obligation related to the Bank’s
defined benefit plans. In periods between actuarial valuations, an
extrapolation is performed based on the most recent valuation completed.
All remeasurement gains and losses are recognized immediately in other
comprehensive income, with cumulative gains and losses reclassified
to retained earnings. Pension and post-retirement defined benefit plan
expenses are determined based upon separate actuarial valuations using
the projected benefit 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’ specific cash flows. The expense recognized includes
the cost of benefits for employee service provided in the current year,
net interest expense or income on the net defined benefit 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 significant 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 benefits
provided under a defined benefit plan.
The fair value of plan assets and the present value of the projected
benefit obligation are measured as at October 31. The net defined
benefit asset or liability represents the difference between the cumulative
remeasurement gains and losses, expenses, and recognized contributions
and is reported in other assets or other liabilities.
Net defined benefit 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
deficit exists related to a defined benefit plan, the Bank is required to
record a liability equal to the present value of all future cash payments
required to eliminate that deficit.
Defined Contribution Plans
For defined contribution plans, annual pension expense is equal to
the Bank’s contributions to those plans.
INSURANCE
Premiums for short-duration insurance contracts are deferred as unearned
premiums and reported in Non-interest income on the Consolidated
Statement of 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 benefit
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 benefit 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 flows 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 outflow 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 reflects the
current market assessment of the time value of money and the risks
specific to the obligation.
INCOME TAXES
Income tax is comprised of current and deferred tax. Income tax is
recognized in the Provision for (recovery of) income taxes 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 sufficient taxable profit 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
in provision for (recovery of) income taxes in the period in which
management determines they are no longer required or as determined
by statute.
LEASES
An arrangement contains a lease if there is an identified asset and
the Bank has a right to control that asset for a period of time in exchange
for consideration. A right-of-use (ROU) asset and lease liability is
recognized for all leases except for short-term leases and low value leases,
as described below. At the lease commencement date, the lease liability is
initially recognized at the present value of the future lease payments over
the remaining lease term and is discounted using the Bank’s incremental
borrowing rate. The ROU asset is recognized at cost, comprising an
amount equal to the lease liability, subject to certain adjustments.
Subsequently, the ROU asset is measured at cost less accumulated
depreciation and impairment and adjusted for any remeasurement
of lease liabilities, while the lease liability is accreted using the Bank’s
incremental borrowing rate. The lease liability is remeasured when there is
a modification, a change in the lease term, a change in the lease payments
(e.g., changes to future payments resulting from a change in an index
or rate used to determine such lease payments) or changes in the Bank’s
assumptions or strategies relating to the exercise of purchase, extension,
or termination options.
The Bank’s leases consist primarily of real estate, equipment and other
asset leases. ROU assets are recorded in Land, buildings, equipment, other
depreciable assets, and right-of-use assets and lease liabilities are included
in Other liabilities on the Consolidated Balance Sheet. Interest expense
on lease liabilities is included in Net interest income and depreciation
expense on the ROU assets is recognized in Non-interest expenses on the
Consolidated Statement of Income.
Short-term leases, which have a lease term of twelve months or
less, and leases of low-value assets are exempt, and their payments
are recognized in Non-interest expenses on a straight-line basis within
the Bank’s Consolidated Statement of Income.
N O T E 3
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SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES, AND ASSUMPTIONS
The estimates used in the Bank’s accounting policies are essential to
understanding its results of operations and financial 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 financial 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 portfolio of assets
and how these risks are managed;
• How the performance of the portfolio is evaluated and reported to
management; and
• The frequency and significance of financial 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
flows 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 flows if the sales are more than insignificant
in value or more than infrequent.
Solely Payments of Principal and Interest Test
In assessing whether contractual cash flows represent SPPI, the Bank
considers the contractual terms of the instrument. This includes assessing
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
153
whether the financial asset contains contractual terms that could change
the timing or amount of contractual cash flows 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 flows of the instrument continue to meet the SPPI test:
• Performance-linked features;
• Terms that limit the Bank’s claim to cash flows from specified assets
(non-recourse terms);
• Prepayment and extension terms;
• Leverage features;
• Features that modify elements of the time value of money; and
• Sustainability-linked features.
IMPAIRMENT OF FINANCIAL ASSETS
Significant Increase in Credit Risk
For retail exposures, criteria for assessing significant increase in credit risk
are defined 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. Significant
increase in credit risk since initial recognition has occurred when one of
the criteria is met.
For non-retail exposures, BRR is determined on an individual borrower
basis using industry and sector specific credit risk models that are based
on historical data. Current and forward-looking information that is specific
to the borrower, industry, and sector is considered based on expert credit
judgment. Criteria for assessing significant increase in credit risk are
defined 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. Significant increase in credit
risk since initial recognition has occurred when one of the criteria is met.
Measurement of Expected Credit Loss
ECLs are recognized on the initial recognition of financial assets.
Allowance for credit losses represents management’s unbiased estimate
of the risk of default and ECLs on the financial assets, including any
off-balance sheet exposures, at the balance sheet date.
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 financial asset and discounted
to the reporting date based on the EIR. PD estimates represent the
forward-looking 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 specific to the
borrower, and direct costs. Expected cash flows 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 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
flows and expected cash flows over the remaining expected life of the
financial instrument. Lifetime PD is determined by mapping the exposure’s
BRR to forward-looking 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-specific characteristics
such as collateral, seniority ranking of debt, and loan structure. Relevant
macroeconomic variables are incorporated in determining expected PD
and LGD. Expected cash flows are determined by applying the PD and
LGD estimates to the contractual cash flows to calculate cash shortfalls
over the expected life of the exposure.
Forward-Looking Information
In calculating ECLs, 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 specific 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
by considering the sources of uncertainty around the base forecast.
All macroeconomic 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 ECLs.
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
Management’s expert credit judgment is used to determine 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.
There remains elevated economic uncertainty, and management
continues to exercise expert credit judgment in assessing if an exposure
has experienced significant increase in credit risk since initial recognition
and in determining the amount of ECLs at each reporting date. To the
extent that certain effects are not fully incorporated into the model
calculations, temporary quantitative and qualitative adjustments have
been applied.
LEASES
The Bank applies judgment in determining the appropriate lease term on
a lease-by-lease basis. All facts and circumstances that create an economic
incentive to exercise a renewal option or not to exercise a termination
option including investments in major leaseholds, branch performance and
past business practice are considered. The periods covered by renewal or
termination options are only included in the lease term if it is reasonably
certain that the Bank will exercise the options; management considers
“reasonably certain” to be a high threshold. Changes in the economic
environment or changes in the industry may impact the Bank’s assessment
of lease term, and any changes in the Bank’s estimate of lease terms may
have a material impact on the Bank’s Consolidated Balance Sheet and
Consolidated Statement of Income.
In determining the carrying amount of ROU assets and lease liabilities,
the Bank is required to estimate the incremental borrowing rate specific to
each leased asset or portfolio of leased assets if the interest rate implicit in
the lease is not readily determinable. The Bank determines the incremental
borrowing rate of each leased asset or portfolio of leased assets by
incorporating the Bank’s creditworthiness, the security, term, and value of
the ROU asset, and the economic environment in which the leased asset
operates. The incremental borrowing rates are subject to change mainly
due to changes in the macroeconomic environment.
FAIR VALUE MEASUREMENTS
The fair value of financial instruments traded in active markets at the
balance sheet date is based on their quoted market prices. For all other
financial instruments not traded in an active market, fair value may be
based on other observable current market transactions involving the same
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TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
or similar instruments, without modification 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 flow analysis, option pricing models, and
other valuation techniques commonly used by market participants.
For certain complex or illiquid financial instruments, fair value
is determined using valuation techniques in which current market
transactions or observable market inputs are not available. Judgment is
used when determining which valuation techniques to apply, 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 valuation adjustments to model fair
values to account for system limitations or measurement uncertainty, such
as when valuing complex and less actively traded financial instruments.
If the market for a complex financial instrument develops, the pricing for
this instrument may become more transparent, resulting in refinement
of valuation models. For example, Canadian Dollar Offered Rate (CDOR)
cessation may also have an impact on the fair value of products that
reference or use valuation models with CDOR inputs.
An analysis of the fair value of financial instruments and further details
as to how they are measured are provided in Note 5.
DERECOGNITION OF FINANCIAL ASSETS
Certain financial assets transferred may qualify for derecognition from
the Bank’s Consolidated Balance Sheet. To qualify for derecognition,
certain key determinations must be made, including whether the Bank’s
rights to receive cash flows from the financial asset have been retained or
transferred and the extent to which the risks and rewards of ownership of
the financial assets have been retained or transferred. If the Bank neither
transfers nor retains substantially all of the risks and rewards of ownership
of the financial asset, a decision must be made as to whether the Bank has
retained control of the financial 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 financial assets received or financial liabilities
assumed, and any cumulative gains or losses allocated to the transferred
asset that had been recognized in AOCI. In determining the fair value
of any financial assets received, the Bank estimates future cash flows 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 flows. Actual cash flows may differ significantly
from those estimated by the Bank.
Retained interests are financial interests in transferred assets retained
by the Bank. They are classified 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 is determined by
estimating the present value of future expected cash flows. Differences
between the actual cash flows and the Bank’s estimated future cash flows
are recognized in trading income (loss). These assumptions are subject
to periodic reviews and may change due to significant 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, discount rates, and terminal
growth rates. 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 influence 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 benefit obligation and expense related to the Bank’s pension
and post-retirement defined benefit plans are determined using multiple
assumptions that may significantly influence 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 significant impact on
the assumptions. The discount rate used to value the projected benefit
obligation is determined by reference to market yields on high-quality
corporate bonds with terms matching the plans’ specific cash flows. 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 remeasurement gains and losses
which are recognized in OCI 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 reflect
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, changes in these liabilities could result from
audits by the relevant taxing authorities.
Deferred tax assets are recognized only when it is probable that
sufficient taxable profit 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
significantly influenced by the Bank’s forecast of future profit 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
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
155
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
restructuring provisions.
INSURANCE
The assumptions used in establishing the Bank’s insurance claims and
policy benefit 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
into account all the uncertainties involved.
For life and health insurance, actuarial liabilities consider all future
policy cash flows, 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 21.
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 these cases, 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 significant variable returns from the
entity. If it is determined that the Bank has both decision-making power
and significant 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 significant
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
significant 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 power;
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 significant variable returns, unless an analysis of the
factors above indicates otherwise.
The decisions above are made with reference to the specific 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 satisfied over time
when the customer simultaneously receives and consumes the benefits
as the Bank performs the service. For performance obligations satisfied
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 satisfies 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 benefits 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 fulfil a
contract with customers.
INTEREST RATE BENCHMARK REFORM PHASE 2
Effective November 1, 2020, the Bank early adopted the Interest Rate
Benchmark Reform Phase 2 and no transitional adjustment was required.
Interest Rate Benchmark Reform Phase 2 addresses issues affecting
financial reporting when changes are made to contractual cash flows of
financial instruments or hedging relationships as a result of IBOR reform.
The amendments permit modification to financial assets, financial liabilities
and lessee lease liabilities required as a direct consequence of IBOR reform
and made on an economically equivalent basis to be accounted for by
updating the EIR prospectively. If the modification does not meet the
practical expedient requirements, existing IFRS requirements are applied.
Relief is also provided for an entity’s hedge accounting relationships in
circumstances where changes to hedged items and hedging instruments
arise as a result of IBOR reform. The amendments enable entities to amend
the formal designation and documentation of a hedging relationship
to reflect these changes without discontinuing the hedging relationship
or designating a new hedging relationship. Permitted changes include
redefining the hedged risk to reference an ARR (contractually or non-
contractually specified), amending the description of the hedged item
and hedging instrument to reflect the ARR, and amending the description
of how the entity will assess hedge effectiveness. Hedging relationships
within the scope of Interest Rate Benchmark Reform Phase 2 are the same
as those within the scope of Interest Rate Benchmark Reform Phase 1.
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TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
Interest Rate Benchmark Reform Phase 2 also amended IFRS 7, introducing
expanded qualitative and quantitative disclosures about the risks arising
from IBOR reform, how an entity is managing those risks, its progress in
completing the transition to ARRs, and how it is managing the transition.
The global benchmark rate reform initiative to transition from IBOR
benchmarks (such as CDOR to ARRs) may result in market dislocation
and have other adverse consequences to the Bank, its customers, market
participants, and the financial services industry. Market risks 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. This could result in different financial performance
for previously booked transactions, require alternative hedging strategies,
or affect the Bank’s capital and liquidity planning and management.
In Canada specifically, the expected discontinuation of the Bankers’
Acceptance (BA) lending model, which is responsible for creating the
BA investment securities that are sold to money market investors, might
also have impacts to the Bank’s investment portfolio holdings and impact
related earnings. In order to manage these risks, the Bank has established
an enterprise-wide, cross functional initiative with senior executive
oversight to evaluate and monitor the impact of the market, financial,
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, but such actions may not be sufficient to mitigate against the
impact of all such risks.
best practice guidance on transition activities. These activities include,
but are not limited to, making available new products referencing ARRs,
preparing to cease the issuance of the residual CDOR-based financial
instruments, transitioning legacy contracts by incorporating appropriate
fallback language and preparing for overall operational readiness.
The Bank continues to make progress on its CDOR transition plan.
The Bank’s exposure to non-derivative financial assets, non-derivative
financial liabilities, derivative notional amounts and off-balance sheet
commitments referencing USD LIBOR is no longer material to its financial
statements as at October 31, 2023 (October 31, 2022 – $89 billion,
$604 million, $4,387 billion and $71 billion, respectively). The following
table discloses the Bank’s exposure to financial instruments referencing
CDOR that have yet to transition to an ARR and mature after June 28, 2024.
Exposures to CDOR Subject to Reform1,2
(millions of Canadian dollars)
Non-derivative financial assets3
Non-derivative financial liabilities4
Derivative notional amounts
Off-balance sheet commitments5
As at
October 31
2023
October 31
2022
$
17,236
11,892
2,644,854
63,628
$
10,927
12,689
3,066,690
48,838
1 CDOR includes exposure to one-month, two-month, and three-month tenors for
CDOR and BA rates.
Following previous announcements by various regulators, the publication
2 Certain demand deposits with no specific maturity allow the Bank to change the
has ceased for all sterling, Japanese yen, Swiss franc and euro London
Interbank Offered Rate (LIBOR) settings, as well as the one-week and
two-month USD LIBOR settings effective December 31, 2021. From
June 30, 2023, all remaining USD LIBOR tenors have either ceased or
are published only on a synthetic basis for the use in legacy contracts
that have no other fallback solution. Six-month and twelve-month
CDOR tenors ceased to be published effective May 17, 2021, while the
remaining tenors of CDOR (one-month, two-month, and three-month)
will cease following a final publication on June 28, 2024. In July 2023, the
Canadian Alternative Reference Rate working group introduced a “no new
CDOR or Banker’s Acceptance loan” milestone date of November 1, 2023
to facilitate a tapered transition for the loan market by reducing the
volume of loans that need to be remediated ahead of CDOR’s cessation.
The Bank has incorporated these developments into its benchmark rate
reform plan. To ensure an orderly transition, the Bank continues to monitor
developments and incorporate global working groups’ and regulators’
benchmark reference rate at its sole discretion and are therefore excluded from the
table. As at October 31, 2023, the carrying amount of demand deposits with no
specific maturity was $7 billion (October 31, 2022 – $8 billion).
3 Loans reported under non-derivative financial assets represent the drawn amounts
and exclude allowance for loan losses. As at October 31, 2023, non-derivative
financial assets were $17 billion, of which $9 billion relates to Loans and $6 billion
relates to Debt securities at amortized cost. As at October 31, 2022, non-derivative
financial assets were $11 billion, of which $3 billion relates to Loans and $5 billion
relates to Debt securities at amortized cost.
4 As at October 31, 2023, non-derivative financial liabilities were $12 billion, of which
$7 billion relates to Subordinated notes and debentures. As at October 31, 2022,
non-derivative financial liabilities were $13 billion, of which $9 billion relates to
Subordinated notes and debentures.
5 Exposures reflect authorized and committed undrawn commitments. For multi-
currency facilities, the currency of borrowing is often the same as the facility
currency and therefore the Bank has assumed that the benchmark interest rate for
its undrawn credit and liquidity commitments is in the same facility currency as the
benchmark rate for that currency for the purpose of this disclosure. Off-balance sheet
commitments include drawn amounts of BA borrowings.
N O T E 4
|
CURRENT AND FUTURE CHANGES IN ACCOUNTING POLICIES
CURRENT CHANGES IN ACCOUNTING POLICIES
The following amendments to an accounting standard have been adopted
by the Bank for the fiscal year ended October 31, 2023.
FUTURE CHANGES IN ACCOUNTING POLICIES
The following standard has been issued but is not yet effective on the date
of issuance of the Bank’s Consolidated Financial Statements.
Amendments to IAS 12 – Income Taxes
On May 23, 2023, the IASB issued International Tax Reform – Pillar Two
Model Rules, which amends IAS 12, Income Taxes. The amendments
provide a temporary mandatory exception from the requirements to
recognize and disclose information about deferred taxes related to the
implementation of Pillar Two model rules. The Bank has applied the
temporary mandatory exception in jurisdictions in which the rules have been
substantively enacted, which is effective immediately and is retrospective.
The Bank has assessed that the retrospective application has no current
impact on the Bank’s consolidated results as at October 31, 2023.
Effective for reporting periods beginning on or after November 1, 2023,
additional disclosure of current tax expense (recovery) and other
information related to Pillar Two income tax exposures are required.
Insurance Contracts
The IASB issued IFRS 17, Insurance Contracts (IFRS 17) which replaces the
guidance in IFRS 4, Insurance Contracts (IFRS 4), and establishes principles
for recognition, measurement, presentation, and disclosure of insurance
contracts. Under IFRS 17, insurance contracts are aggregated into groups
which are measured at the risk adjusted present value of cash flows
in fulfilling the contracts. Revenue is recognized as insurance contract
services are provided over the coverage period. Losses are recognized
immediately if the contract group is expected to be onerous.
The standard is effective for annual reporting periods beginning on or after
January 1, 2023, which will be November 1, 2023, for the Bank. OSFI’s
related Advisory precludes early adoption. The Bank will apply the standard
retrospectively with restatement of comparatives, where it will recognize
the cumulative effect of adopting the standard as an adjustment to the
opening retained earnings balance as of November 1, 2022.
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
157
The Bank will transition to IFRS 17 by primarily applying the full
retrospective approach. This approach results in the measurement of
insurance contracts as if IFRS 17 had always applied to them. Under
IFRS 17, the measurement of insurance contracts includes a risk adjustment,
which represents the compensation the Bank requires for bearing the
uncertainty related to non-financial risk in its fulfilment of insurance
contracts. The risk adjustment replaces the provision for adverse deviation
under IFRS 4 and is expected to result in a lower valuation of insurance
liabilities. When onerous contract groups are identified, the expected
losses related to those contract groups shall be recorded in income. This
results in an earlier recognition of losses compared to IFRS 4.
IFRS 17 requires cash flows to be measured at their present value using a
discount factor that is reflective of the characteristics of the liability, the
discount factor is no longer tied to the yield of the securities supporting
insurance reserves. In adopting IFRS 17, the Bank will apply transitional
guidance to reclassify certain securities supporting insurance reserves from
financial assets designated at FVTPL to FVOCI and vice versa to minimize
accounting mismatches arising from the application of the new discount
factor under IFRS 17. The reclassification will be retrospectively applied
on November 1, 2023 and will result in the movement of cumulative
unrealized losses between accumulated other comprehensive income and
retained earnings.
The Bank estimates a decrease to insurance-related liabilities and an
increase to retained earnings of approximately $0.1 billion after-tax at
November 1, 2022.
The Bank’s adoption of IFRS 17 is supported by a robust governance
structure. The Executive Steering Committee includes representation from
the Insurance business, Finance, Actuaries, Risk, Technology, and project
management teams. Updates are also provided to the TD insurance
subsidiary boards, Risk Committee, and Audit Committee of the Bank.
N O T E 5
|
FAIR VALUE MEASUREMENTS
Certain assets and liabilities, primarily financial instruments, are carried on
the balance sheet at their fair value on a recurring basis. These financial
instruments include trading loans and securities, non-trading financial
assets at FVTPL, financial assets and liabilities designated at FVTPL,
financial assets at FVOCI, derivatives, certain securities purchased under
reverse repurchase agreements, trading deposits, securitization liabilities
at fair value, obligations related to securities sold short, and certain
obligations related to securities sold under repurchase agreements. All
other financial assets and financial liabilities are carried at amortized cost.
(a) 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 committees. Further, the Bank has a number of additional
controls in place, including an independent price verification process to
ensure the accuracy of fair value measurements reported in the financial
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.
(b) METHODS AND ASSUMPTIONS
The Bank calculates fair value 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 determined by
quoted prices in active markets, reference to recent transaction prices, or
third-party vendor prices. In cases where external and independent prices
are not readily available, alternate techniques utilizing the risk metrics
and unique characteristics of the security are used to support a prudent
valuation until acceptable external pricing becomes available.
The fair value of Canadian residential mortgage-backed securities (MBS)
is based on third-party vendor prices, reference to recent transaction
prices, or valuation techniques that utilize observable inputs such as
benchmark government bond prices, government bond yield curves,
quoted yield spreads and prepayment rate assumptions related to the
underlying collateral.
The fair value of U.S. government and agency debt securities is
determined by reference to recent transaction prices, broker quotes, or
third-party vendor prices. For U.S. agency MBS pricing, brokers or third-
party vendors may use a pool-specific valuation model to value these
securities, using observable market inputs.
The fair value of other Organisation for Economic Co-operation and
Development (OECD) government-guaranteed debt is based on broker
quotes and third-party vendor prices, or where external and independent
prices are not readily available, alternate techniques based on the risk
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TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
metrics and unique characteristics of the security are used to support a
prudent valuation until acceptable external pricing becomes available.
Other Debt Securities
The fair value of corporate and other debt securities is based on broker
quotes, third-party vendor prices, or alternate techniques utilizing the
risk metrics and unique characteristics of the security used to support a
prudent valuation until acceptable external pricing becomes available.
Asset-backed securities are primarily fair valued using third-party vendor
prices, including those generated by issue-specific valuation models using
observable market inputs.
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-ask spread, fair value is determined based on quoted market
prices for similar securities or through valuation techniques, including
discounted cash flow analysis, 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 reflect 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 classified 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 flows. Differences between
the actual cash flows and the Bank’s estimate of future cash flows are
recognized in income. These assumptions are subject to periodic review
and may change due to significant changes in the economic environment.
Loans
The estimated fair value of loans carried at amortized cost reflects changes
in market price that have occurred since the loans were originated
or purchased. For fixed-rate performing loans, estimated fair value is
determined by discounting the expected future cash flows related to these
loans at current market interest rates for loans with similar credit risks.
For floating-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 non-trading loans 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, or uses valuation techniques to determine fair value.
The fair value of loans carried at FVOCI is assumed to approximate
amortized cost as they are generally floating rate performing loans that are
short term in nature.
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 financial 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.
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 financial instruments is
based on quoted market prices. The fair value of OTC derivative financial
instruments is estimated using well established valuation techniques,
such as discounted cash flow 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
specific 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 valuation adjustment (CVA) is recognized against the model
value of OTC derivatives to account for the uncertainty that the
counterparty in a derivative transaction may not be able to fulfil its
obligations under the transaction to the Bank. In determining CVA,
the Bank takes into account master netting agreements and collateral,
and considers the creditworthiness of the counterparty, using market
observed or proxy credit spreads, in assessing potential future amounts
owed to 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 flows 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 unsecured
funding costs and benefits considered in the pricing and fair value
determination. 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 refine the methodology as market practices evolve.
Deposits
The estimated fair value of term deposits is determined by discounting the
contractual cash flows using interest rates currently offered for deposits
with similar terms.
For deposits with no defined 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 financial liabilities designated at FVTPL, fair value is determined
using discounted cash flow valuation techniques which maximize the use
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 certain bonds and equities purchased or sold with
an agreement to sell or repurchase them at a later date at a fixed price
are carried at fair value. The fair value of these agreements is based on
valuation techniques such as discounted cash flow 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.
Portfolio Exception
IFRS 13, Fair Value Measurement provides a measurement exception that
allows an entity to determine the fair value of a group of financial 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 financial
assets and financial liabilities, such as derivative assets and derivative
liabilities, on the basis of net exposure to a particular risk, or risks; 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. Refer to Note 2 for further
details on the use of the portfolio exception to establish fair value.
(c) FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
NOT CARRIED AT FAIR VALUE
The carrying value and fair value of financial assets and liabilities not
carried at fair value are disclosed in the table below. For these instruments,
fair values are calculated for disclosure purposes only, using the valuation
techniques used by the Bank. In addition, the Bank has determined that
the carrying value of certain financial assets and liabilities approximates
their fair value, which include: cash and due from banks, interest-bearing
deposits with banks, customers’ liability under acceptances, amounts
receivable from brokers, dealers, and clients, other assets, acceptances,
amounts payable to brokers, dealers, and clients, and other liabilities.
Substantially all securities purchased under reverse repurchase agreements
and obligations related to securities sold under repurchase agreements
are measured at amortized cost where the carrying value approximates
their fair value.
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
159
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 financial assets not carried at fair value
FINANCIAL LIABILITIES
Deposits
Securitization liabilities at amortized cost
Subordinated notes and debentures
Total financial liabilities not carried at fair value
1 This table excludes financial assets and liabilities where the carrying value
approximates their fair value.
October 31, 2023
October 31, 2022
Carrying
value
Fair
value
Carrying
value
Fair
value
As at
$ 232,093
75,923
$ 222,699
72,511
$ 256,362
86,412
$ 244,523
81,913
308,016
895,947
295,210
877,763
342,774
831,043
326,436
810,912
$ 1,203,963
$ 1,172,973
$ 1,173,817
$ 1,137,348
$ 1,198,190
12,710
9,620
$ 1,188,585
12,035
9,389
$ 1,229,970
15,072
11,290
$ 1,218,552
14,366
10,853
$ 1,220,520
$ 1,210,009
$ 1,256,332
$ 1,243,771
(d) 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
defined 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 significant to the fair value of
the assets or liabilities. Financial instruments classified 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 flow methodologies, or similar techniques.
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 financial assets and liabilities not carried at fair value
as at October 31, 2023 and October 31, 2022, but for which fair value
is disclosed.
Fair Value Hierarchy for Assets and Liabilities not carried at Fair Value1
(millions of Canadian dollars)
October 31, 2023
As at
October 31, 2022
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
$ –
–
$ 222,699 $
72,510
–
–
295,209
284,280
593,483
–
1
1
$ 222,699
72,511
$ –
–
$ 244,513 $
81,912
10 $ 244,523
81,913
1
295,210
877,763
–
–
326,425
11
261,618
549,294
326,436
810,912
Total assets with fair value disclosures
$ –
$ 579,489
$ 593,484 $ 1,172,973
$ –
$ 588,043
$ 549,305 $ 1,137,348
LIABILITIES
Deposits
Securitization liabilities at amortized cost
Subordinated notes and debentures
$ – $ 1,188,585 $
–
–
12,035
9,389
– $ 1,188,585
12,035
–
9,389
–
$ – $ 1,218,552 $
–
–
14,366
10,853
– $ 1,218,552
14,366
–
10,853
–
Total liabilities with fair value disclosures
$ – $ 1,210,009 $
– $ 1,210,009
$ – $ 1,243,771 $
– $ 1,243,771
1 This table excludes financial assets and liabilities where the carrying value
approximates their fair value.
160
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
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, 2023 and October 31, 2022.
Fair Value Hierarchy for Assets and Liabilities Measured at Fair Value on a Recurring Basis
(millions of Canadian dollars)
FINANCIAL ASSETS AND COMMODITIES
Trading loans, securities, and other1
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
Trading loans
Commodities
Retained interests
Non-trading financial assets at fair value
through profit or loss
Securities
Loans
Derivatives
Interest rate contracts
Foreign exchange contracts
Credit contracts
Equity contracts
Commodity contracts
Financial assets designated at fair value
through profit or loss
Securities1
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
Corporate and other debt
Equity securities
Loans
Securities purchased under reverse
repurchase agreements
October 31, 2023
As at
October 31, 2022
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
$ 9,073
7,445
$
–
–
$ 9,145
7,445
$
620
–
$ 9,042
7,706
$
$
72
–
2
–
–
–
–
54,186
–
7,620
–
61,880
269
–
269
17
26
–
58
306
407
–
–
–
–
–
–
–
–
–
1,133
–
1,133
24,325
8,811
1,698
6,067
14,553
41
17,261
791
3
90,068
2,596
3,495
6,091
22,893
57,380
54
4,839
1,787
86,953
5,818
5,818
18,210
19,940
11,002
1,498
2,277
4,114
8,863
3
421
66,328
67
–
–
5
60
10
–
–
–
24,394
8,811
1,698
6,072
14,613
54,237
17,261
8,411
3
142
152,090
2
–
–
–
–
44,424
–
16,084
–
61,130
980
–
980
–
7
–
–
15
22
–
–
–
–
–
–
–
–
27
2,377
–
2,404
3,845
3,495
7,340
22,910
57,413
54
4,897
2,108
87,382
5,818
5,818
18,210
19,940
11,002
1,498
2,277
4,114
8,890
3,513
421
69,865
228
–
228
167
35
–
4
634
840
–
–
–
–
–
–
–
–
–
840
–
840
23,466
8,341
2,109
6,604
12,344
32
11,749
1,149
5
82,547
6,608
3,265
9,873
23,699
72,006
56
4,303
2,919
102,983
5,039
5,039
16,368
20,240
11,559
1,682
1,033
4,440
8,621
2
2,353
66,298
–
–
–
–
–
–
49
–
–
–
–
49
845
–
845
–
5
–
–
45
50
–
–
–
–
–
–
–
–
60
2,477
–
2,537
$ 9,662
7,706
23,468
8,341
2,109
6,604
12,393
44,456
11,749
17,233
5
143,726
7,681
3,265
10,946
23,866
72,046
56
4,307
3,598
103,873
5,039
5,039
16,368
20,240
11,559
1,682
1,033
4,440
8,681
3,319
2,353
69,675
–
9,649
–
9,649
–
7,450
–
7,450
1 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 REPORT 2023 FINANCIAL RESULTS
161
Fair Value Hierarchy for Assets and Liabilities Measured at Fair Value on a Recurring Basis (continued)
(millions of Canadian dollars)
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
profit or loss
October 31, 2023
As at
October 31, 2022
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
$
–
$ 29,995
$ 985
$ 30,980
$
–
$ 23,389
$ 416
$ 23,805
16
19
–
7
248
290
–
–
21,064
44,841
172
3,251
1,846
71,174
14,422
126
13
–
21
16
176
–
21,206
44,873
172
3,279
2,110
71,640
14,422
192,108
22
192,130
112
23
–
–
234
369
–
–
19,010
62,378
152
5,804
3,186
90,530
12,612
156
1
–
59
18
234
–
19,278
62,402
152
5,863
3,438
91,133
12,612
162,742
44
162,786
Obligations related to securities sold short1
1,329
43,332
Obligations related to securities sold under
repurchase agreements
–
12,641
–
–
44,661
2,909
42,596
12,641
–
9,509
–
–
45,505
9,509
1 Balances reflect the reduction of securities owned (long positions) by the amount
of identical securities sold but not yet purchased (short positions).
(e) TRANSFERS BETWEEN FAIR VALUE HIERARCHY LEVELS
FOR ASSETS AND LIABILITIES MEASURED AT FAIR VALUE
ON A RECURRING BASIS
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 whether there is sufficient frequency and volume
in an active market. During the year ended October 31, 2023, there
were no significant transfers between Level 1 and Level 2. During the
year ended October 31, 2022, the Bank transferred $383 million of
FVOCI U.S. government debt from Level 1 to Level 2.
Movements of Level 3 instruments
Significant transfers into and out of Level 3 occur mainly due to the
following reasons:
• Transfers from Level 3 to Level 2 occur when techniques used for
valuing the instrument incorporate significant observable market inputs
or broker-dealer quotes which were previously not observable.
• Transfers from Level 2 to Level 3 occur when an instrument’s fair value,
which was previously determined using valuation techniques with
significant observable market inputs, is now determined using valuation
techniques with significant unobservable inputs.
Due to the unobservable nature of the inputs used to value Level 3
financial instruments, there may be uncertainty about the valuation of
these instruments. The fair value of Level 3 instruments may be drawn
from a range of reasonably possible alternatives. In determining the
appropriate levels for these unobservable inputs, parameters are chosen
so that they are consistent with prevailing market evidence and
management judgment.
There were no significant transfers between Level 2 and Level 3 during
the years ended October 31, 2023 and October 31, 2022.
There were no other significant changes to the unobservable inputs and
sensitivities for assets and liabilities classified as Level 3 during the years
ended October 31, 2023 and October 31, 2022.
(f) RECONCILIATION OF CHANGES IN FAIR VALUE FOR LEVEL 3
ASSETS AND LIABILITIES
The following tables reconcile changes in fair value of all assets and
liabilities measured at fair value using significant Level 3 unobservable
inputs for the years ended October 31, 2023 and October 31, 2022.
162
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
Reconciliation of Changes in Fair Value for Level 3 Assets and Liabilities
(millions of Canadian dollars)
Fair
value as at
November 1
2022
Total realized and
unrealized gains (losses)
Movements4
Included
in income1
Included
in OCI2,3
Purchases/
Issuances
Sales/
Settlements
Into
Level 3
Transfers
Out of
Level 3
Fair
value as at
October 31
2023
Change in
unrealized
gains
(losses) on
instruments
still held5
FINANCIAL ASSETS
Trading loans, securities, and other
Government and government-related
securities
Other debt securities
Equity securities
Non-trading financial assets at fair
value through profit or loss
Securities
Loans
Financial assets at fair value through
other comprehensive income
Other debt securities
Equity securities
FINANCIAL LIABILITIES
Trading deposits6
Derivatives7
Interest rate contracts
Foreign exchange contracts
Equity contracts
Commodity contracts
Financial liabilities designated at fair
value through profit or loss
Obligations related to securities
sold short
$
$
–
49
–
49
845
–
845
60
2,477
$ 2,537
$
–
7
(2)
5
4
–
4
–
–
–
$
–
–
–
–
–
–
–
$
33
111
41
185
187
–
187
$
–
(145)
(29)
(174)
$
34
95
–
129
$
–
(52)
–
(52)
$
(56)
–
(56)
–
–
–
67
65
10
142
980
–
980
$
–
1
2
3
(17)
–
(17)
(6)
(565)
22
2,473
(28)
(2,008)
$
(571)
$ 2,495
$
(2,036)
$
(21)
–
(21)
$
27
2,377
–
(382)
$ 2,404
$ (382)
–
–
–
–
–
–
$
(416)
$
(57)
$
(156)
4
(59)
27
(184)
(44)
–
(47)
(2)
35
24
10
(89)
–
–
–
–
–
–
–
–
–
$
(539)
$
30
$
(15)
$
12
$
(985)
$
(43)
–
–
26
–
26
77
(1)
(17)
(52)
7
(486)
597
–
–
–
(8)
(1)
–
(9)
–
–
–
1
(5)
–
(4)
–
–
(126)
(6)
(21)
(1)
(154)
25
2
24
(1)
50
(22)
(89)
–
–
1 Gains/losses on financial assets and liabilities are recognized within Non-interest
income on the Consolidated Statement of Income.
2 Other comprehensive 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 Consists of derivative assets of $22 million (October 31, 2022/November 1, 2022 –
$50 million; November 1, 2021 – $47 million) and derivative liabilities of $176 million
(October 31, 2022/November 1, 2022 – $234 million; November 1, 2021 –
$179 million), which have been netted in this table for presentation purposes only.
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
163
Reconciliation of Changes in Fair Value for Level 3 Assets and Liabilities (continued)
(millions of Canadian dollars)
Fair
value as at
November 1
2021
Total realized and
unrealized gains (losses)
Movements4
Transfers
Included
in income1
Included
in OCI2,3
Purchases/
Issuances
Sales/
Settlements
Into
Level 3
Out of
Level 3
Change in
unrealized
gains
(losses) on
instruments
still held5
Fair
value as at
October 31
2022
FINANCIAL ASSETS
Trading loans, securities, and other
Government and government-related
securities
Other debt securities
Equity securities
Non-trading financial assets at
fair value through profit or loss
Securities
Loans
Financial assets at fair value through
other comprehensive income
Other debt securities
Equity securities
FINANCIAL LIABILITIES
Trading deposits6
Derivatives7
Interest rate contracts
Foreign exchange contracts
Equity contracts
Commodity contracts
Financial liabilities designated at
fair value through profit or loss
Obligations related to securities
sold short
$
$
–
6
33
39
760
3
763
64
1,609
$ 1,673
$
–
1
–
1
95
–
95
–
–
–
$
$
–
–
–
–
–
–
–
–
5
24
29
193
–
193
–
636
$
–
(15)
(57)
(72)
(89)
(3)
(92)
$
$
–
57
–
57
$
–
(5)
–
(5)
(114)
–
(114)
–
–
–
–
–
–
$
–
49
–
49
845
–
845
–
–
–
–
8
–
8
–
78
78
4
86
90
$
$
636
$
(8)
146
138
$
–
–
–
$
60
2,477
$ 2,537
$
$
(141)
$
40 $
(88)
7
(82)
31
(132)
(93)
(4)
(5)
58
(44)
(76)
(238)
(9)
–
–
–
–
–
–
–
–
–
$
(324)
$
3
$
(11)
$
17
$
(416)
$
31
–
–
–
–
–
(337)
–
7
–
–
(62)
(55)
607
9
–
1
3
–
4
–
–
18
–
25
–
43
–
–
(156)
4
(59)
27
(184)
(52)
2
23
21
(6)
(44)
(238)
–
–
1 Gains/losses on financial assets and liabilities are recognized within Non-interest
income on the Consolidated Statement of Income.
2 Other comprehensive 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 Consists of derivative assets of $22 million (October 31, 2022/November 1, 2022 –
$50 million; November 1, 2021 – $47 million) and derivative liabilities of $176 million
(October 31, 2022/November 1, 2022 – $234 million; November 1, 2021 –
$179 million), which have been netted in this table for presentation purposes only.
(g) VALUATION OF ASSETS AND LIABILITIES CLASSIFIED
AS LEVEL 3
Significant unobservable inputs in Level 3 positions
The following section discusses the significant 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 financial 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. 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 significant 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 fixed/variable mortgage rate gap. An increase/
decrease in the funding ratio will increase/decrease loan commitment
liability values in relationship to prevailing interest rates.
Earnings Multiple, Discount Rate, and Liquidity Discount
Earnings multiple, discount rate, and liquidity discount are significant
inputs used when valuing certain equity securities. 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 flow forecasts to
reflect time value of money and the risks associated with the cash flows.
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.
164
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
Inflation Rate Swap Curve
The fair value of inflation rate swap contracts is a swap between the
interest rate curve and the inflation index. The inflation rate swap spread
is not observable and is determined using proxy inputs such as inflation
index rates. Generally, swap curves are observable; however, there may be
instances where certain specific swap curves are not observable.
Net Asset Value
The fair value of certain private funds is 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 classified as Level 3, together with the valuation techniques
used to measure fair value, the significant 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.
Valuation Techniques and Inputs Used in the Fair Value Measurement of Level 3 Assets and Liabilities
Valuation
technique
Significant
unobservable
inputs (Level 3)
Lower
range
Upper
range
Lower
range
Upper
range
October 31, 2023
October 31, 2022
As at
Unit
Government and
government-related
securities
Market comparable
Bond price equivalent
Other debt securities
Market comparable
Bond price equivalent
Equity securities2
Market comparable
Discounted cash flow
Market comparable
New issue price
Discount rate
Price equivalent
Non-trading financial
assets at fair value
through profit or loss
Derivatives
Interest rate contracts
Foreign exchange
contracts
Market comparable
Discounted cash flow
EBITDA multiple
Price-based
New issue price
Discount rates
Earnings multiple
Net Asset Value3
Discounted cash flow
Option model
Inflation rate swap curve
Funding ratio
Option model Currency-specific volatility
Equity contracts
Option model
Commodity contracts
Option model
Price correlation
Quanto correlation
Dividend yield
Equity volatility
Quanto correlation
Swaption correlation
Trading deposits
Financial liabilities
designated at fair
value through profit
or loss
Option model
Price correlation
Quanto correlation
Dividend yield
Equity volatility
Swaption model Currency-specific volatility
Option model
Funding ratio
Obligations related to
securities sold short
Market comparable
Market comparable
Bond Price Equivalent
New issue price
99
–
100
–
n/a
100
9
–
n/a
1
75
5
55
–
–
14
(67)
n/a
n/a
–
–
14
50
4
n/a
100
100
103
100
–
n/a
100
9
20.0
n/a
2
75
14
86
68
7
41
(47)
n/a
n/a
68
4
20
503
70
n/a
100
n/a1
–
100
–
128
100
9
–
n/a
–
65
8
–
–
–
13
(67)
n/a
n/a
n/a
–
99
55
6
n/a
n/a
n/a
points
102
100
–
145
100
9
20.0
n/a
3
75
17
95
68
7
76
(47)
n/a
n/a
n/a
5
99
821
65
n/a
n/a
points
%
%
%
%
%
times
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
points
%
1 Not applicable.
2 Common shares exclude the fair value of Federal Reserve stock and Federal Home
Loan Bank (FHLB) stock of $2.2 billion (October 31, 2022 – $1.7 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.
3 Net asset value information for private funds has not been disclosed due to the wide
range in prices for these instruments.
The following table summarizes the potential effect of using reasonably
possible alternative assumptions for financial assets and financial
liabilities held, that are classified in Level 3 of the fair value hierarchy as
at October 31. For non-trading securities at FVTPL and 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. For interest rate derivatives, the Bank
performed a sensitivity analysis on the mortgage spreads and unobservable
inflation curve. 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 financial liabilities designated at FVTPL, the sensitivity was calculated
based on an upward and downward shock of the funding ratio.
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
165
Sensitivity Analysis of Level 3 Financial Assets and Liabilities
(millions of Canadian dollars)
FINANCIAL ASSETS
Trading loans, securities, and other
Securities
Non-trading financial assets at fair value through profit or loss
Securities
Financial assets at fair value through other comprehensive income
Equity securities
FINANCIAL LIABILITIES
Trading deposits
Derivatives
Interest rate contracts
Equity contracts
Financial liabilities designated at fair value through profit or loss
October 31, 2023
October 31, 2022
Impact to net assets
Impact to net assets
Decrease in
fair value
Increase in
fair value
Decrease in
fair value
Increase in
fair value
As at
$
10
$
2
$
–
$
–
133
163
–
25
2
27
5
49
13
–
16
1
17
5
86
115
22
1
15
2
17
7
$
162
$
42
8
1
21
2
23
7
81
Total
$
338
$
For the years ended October 31, 2023 and 2022, 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 significant non-observable inputs at initial recognition were immaterial.
(h) FINANCIAL INSTRUMENTS 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 significantly 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.
In addition, certain debt securities have been designated at FVTPL
as they are economically hedged with derivatives and the designation
eliminates or significantly reduces an accounting mismatch.
Financial Liabilities Designated at Fair Value through
Profit or Loss
Certain deposits have been designated at FVTPL to reduce an accounting
mismatch from related economic hedges, and are included in Financial
liabilities designated at FVTPL on the Consolidated Balance Sheet. In
addition, certain obligations related to securities sold under repurchase
agreements have been designated at FVTPL as the instruments are part of
a portfolio that is managed on a fair value basis and have been included
in Obligations related to securities sold under repurchase agreements
on the Consolidated Balance Sheet. The fair value of obligations
related to securities sold under repurchase agreements designated at
FVTPL was $7,974 million as at October 31, 2023 (October 31, 2022 –
$5,014 million).
For financial liabilities designated at FVTPL, the estimated amount that
the Bank would be contractually required to pay at maturity, which is
based on notional amounts, was $2,897 million less than its fair value as
at October 31, 2023 (October 31, 2022 – $288 million).
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 transactions, 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 specifies the general terms of the agreement between
the counterparties, including information on the basis of the netting
calculation, types of collateral, and the definition 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 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.
166
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
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 presented 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 financial assets and
liabilities which are subject to enforceable master netting agreements
and similar arrangements, including amounts not otherwise set-off on
the Consolidated Balance Sheet, as well as financial collateral received
to mitigate credit exposures for these financial assets and liabilities. The
gross financial assets and liabilities are reconciled to net amounts and are
presented within the associated line on the Consolidated Balance Sheet,
after transactions with the same counterparties have been offset. 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)
Financial Assets
Derivatives
Securities purchased under reverse
repurchase agreements
Total
Financial Liabilities
Derivatives
Obligations related to securities sold under
repurchase agreements
As at
October 31, 2023
Amounts subject to an enforceable
master netting agreement
or similar arrangement
that are not offset in the
Consolidated Balance Sheet1,2
Gross amounts
of recognized
financial
instruments
before
balance sheet
netting
Gross amounts
of recognized
financial
instruments
offset in the
Consolidated
Balance Sheet
Net amount
of financial
instruments
presented in the
Consolidated
Balance Sheet
Amounts
subject to an
enforceable
master netting
agreement
Collateral
Net Amount
$ 93,867
$
6,485
$ 87,382
$ 47,300
$ 13,526
$ 26,556
232,211
326,078
27,878
34,363
204,333
291,715
12,291
59,591
188,510
202,036
3,532
30,088
78,125
6,485
71,640
47,300
14,279
10,061
194,732
27,878
166,854
12,291
153,090
1,473
Total
$ 272,857
$ 34,363
$ 238,494
$ 59,591
$ 167,369
$ 11,534
Financial Assets
Derivatives
Securities purchased under reverse
repurchase agreements
Total
Financial Liabilities
Derivatives
Obligations related to securities sold under
repurchase agreements
October 31, 2022
$ 121,791
$ 17,918
$ 103,873
$ 60,796
$ 18,887
$ 24,190
183,323
305,114
23,156
41,074
160,167
264,040
8,473
69,269
149,315
168,202
109,051
17,918
91,133
60,796
28,374
151,180
23,156
128,024
8,473
118,391
2,379
26,569
1,963
1,160
Total
$ 260,231
$ 41,074
$ 219,157
$ 69,269
$ 146,765
$
3,123
1 Excess collateral as a result of overcollateralization has not been reflected in the table.
2 Includes amounts where the contractual set-off rights are subject to uncertainty
under the laws of the relevant jurisdiction.
N O T E 7
|
SECURITIES
Securities are held by the Bank for both trading and non-trading activities.
Trading securities are included in Trading loans, securities, and other on
the Consolidated Balance Sheet. Non-trading securities are included in
Non-trading financial assets at FVTPL, Financial assets designated at FVTPL,
Financial assets at FVOCI, or Debt securities at amortized cost, net of
allowance for credit losses on the Consolidated Balance Sheet.
(a) 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.
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
167
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
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
specific
maturity
Total
Total
Remaining terms to maturities1
As at
October 31
2023
October 31
2022
$ 2,275
1,245
$ 2,427
1,673
$ 2,008
791
$ 1,414
1,492
$ 1,021
2,244
$
6,843
6,920
485
45
4,606
829
727
41
17,813
10,303
895
3,023
3,918
2,174
5,996
8,170
–
–
–
–
–
–
–
1
3,493
515
267
64
7,138
1,120
3,445
4,565
–
–
–
2
3,521
335
5
64
5,931
212
–
–
6,831
9,408
1,110
1,788
2,898
773
359
1,132
–
–
–
–
–
–
–
–
54,204
33
54,237
–
–
–
–
–
–
–
–
–
2
2
$ 9,145
7,445
$ 9,662
7,706
24,394
8,811
1,484
214
23,468
8,341
1,886
223
51,493
51,286
6,072
14,613
20,685
54,204
33
54,237
3
6,604
12,393
18,997
44,423
33
44,456
5
$ 21,731
$ 18,474
$ 11,705
$ 9,729
$ 10,540
$ 54,239
$ 126,418
$ 114,744
Non-trading financial assets at fair value
through profit or loss
Government and government-related
securities
U.S. federal, state, municipal governments,
and agencies debt
$
10 $
Other debt securities
Canadian issuers
Asset-backed securities
Other issuers
Equity securities
Common shares
Preferred shares
10
–
–
1
1
–
–
–
$
–
–
$
–
–
42
557
–
599
–
–
–
201
564
–
765
–
–
–
–
–
23
657
–
680
–
–
–
$
278 $
278
–
107
–
107
–
–
–
–
–
484
–
47
531
816
58
874
$
288 $
288
750
1,885
48
2,683
816
58
874
287
287
710
5,900
35
6,645
698
51
749
Total non-trading financial assets at fair
value through profit or loss
$
11 $
599 $
765 $
680 $
385
$ 1,405
$ 3,845
$ 7,681
Financial assets designated at fair value
through profit 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
$
$
484
934
–
279
1,697
539
27
566
$
–
8
8
77
93
1,045
347
1,392
$
–
–
–
55
55
626
143
769
$
–
874
–
–
874
367
4
371
Total financial assets designated at fair
value through profit or loss
$ 2,263
$ 1,485
$
824
$ 1,245
$
1 Represents contractual maturities. Actual maturities may differ due to prepayment
privileges in the applicable contract.
–
–
–
–
–
–
–
–
–
$
$
–
1
–
–
1
–
–
–
1
$
484
1,817
$
203
1,636
8
411
2,720
2,577
521
3,098
8
575
2,422
2,335
282
2,617
$ 5,818
$ 5,039
168
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
Securities Maturity Schedule (continued)
(millions of Canadian dollars)
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
Corporate and other debt
Equity securities
Common shares
Preferred shares
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
specific
maturity
Total
Total
Remaining terms to maturities1
As at
October 31
2023
October 31
2022
$ 1,704
1,447
$ 4,507
3,426
$
1,367
3,808
$ 10,356
10,947
$
276
312
$
4,513
163
–
7,827
1,946
1,241
3,187
–
–
–
2,535
1,090
521
12,079
272
2,532
2,804
–
–
–
696
170
1,756
7,797
–
2,105
2,105
–
–
–
888
75
–
22,266
166
1,753
1,919
–
–
–
2,370
–
–
2,958
1,730
1,259
2,989
–
–
–
–
–
–
–
–
–
–
–
–
$ 18,210
19,940
$ 16,368
20,240
11,002
1,498
2,277
52,927
4,114
8,890
11,559
1,682
1,033
50,882
4,440
8,681
13,004
13,121
3,170
343
3,513
3,170
343
3,513
2,221
1,098
3,319
Total securities at fair value through other
comprehensive income
$ 11,014
$ 14,883
$
9,902
$ 24,185
$ 5,947
$ 3,513
$ 69,444
$ 67,322
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
$
920
762
$ 6,728
2,462
$ 14,330
3,146
$ 2,098
11,091
$ 1,268
13
$
18,811
6,931
27,424
15,612
19,870
44,672
30,797
11,431
59,704
34,423
3,037
50,649
46,574
–
47,855
25
5,046
10,352
7,057
17,408
–
39
1,507
1,571
–
1,736
4,696
–
1,571
6,490
209
1,206
3,788
11,478
18,413
12,260
16,582
–
–
33,990
Total debt securities at amortized cost,
net of allowance for credit losses
28,995
56,150
78,117
62,909
81,845
–
–
–
–
–
–
–
–
–
–
–
$ 25,344
17,474
$ 19,753
16,654
146,217
41,269
230,304
172,383
47,572
256,362
39,888
49,893
16,791
4,552
16,481
77,712
17,242
4,296
14,981
86,412
308,016
342,774
Total securities
$ 64,014
$ 91,591
$ 101,313
$ 98,748
$ 98,717
$ 59,158
$ 513,541
$ 537,560
1 Represents contractual maturities. Actual maturities may differ due to prepayment
privileges in the applicable contract.
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
169
(b) UNREALIZED SECURITIES GAINS (LOSSES)
The following table summarizes the unrealized gains and losses as at
October 31, 2023 and October 31, 2022.
Unrealized Securities Gains (Losses) for Securities at Fair Value Through Other Comprehensive Income
(millions of Canadian dollars)
October 31, 2023
As at
October 31, 2022
Cost/
amortized
cost1
Gross
unrealized
gains
Gross
unrealized
(losses)
Fair
value
Cost/
amortized
cost1
Gross
unrealized
gains
Gross
unrealized
(losses)
Fair
value
Government and government-
related securities
Canadian government debt
Federal
Provinces
$ 18,335
19,953
$ 45
105
$
(170)
(118)
$ 18,210
19,940
$ 16,420
20,279
$ 69
99
$ (121)
(138)
$ 16,368
20,240
U.S. federal, state, municipal
governments, and agencies debt
11,260
Other OECD government-
guaranteed debt
Mortgage-backed securities
Other debt securities
Asset-backed securities
Corporate and other debt
Total debt securities
Equity securities
Common shares
Preferred shares
Total securities at fair value
through other comprehensive
income
1,521
2,313
53,382
4,146
8,946
13,092
66,474
3,191
566
3,757
17
1
–
168
–
43
43
211
95
1
96
(275)
11,002
11,855
(24)
(36)
(623)
(32)
(99)
(131)
(754)
(116)
(224)
(340)
1,498
2,277
52,927
4,114
8,890
13,004
65,931
3,170
343
3,513
1,715
1,035
51,304
4,511
8,820
13,331
64,635
2,191
1,100
3,291
22
1
1
192
–
23
23
215
63
71
134
(318)
11,559
(34)
(3)
(614)
(71)
(162)
(233)
(847)
(33)
(73)
(106)
1,682
1,033
50,882
4,440
8,681
13,121
64,003
2,221
1,098
3,319
$ 70,231
$ 307
$ (1,094)
$ 69,444
$ 67,926
$ 349
$ (953)
$ 67,322
1 Includes the foreign exchange translation of amortized cost balances at the
period-end spot rate.
(c) EQUITY SECURITIES DESIGNATED AT FAIR VALUE
THROUGH OTHER COMPREHENSIVE INCOME
The Bank designated certain equity securities at FVOCI. The following
table summarizes the fair value and dividend income recognized on
equity securities designated at FVOCI as at and for the years ended
October 31, 2023 and October 31, 2022.
Equity Securities Designated at Fair Value Through Other Comprehensive Income
(millions of Canadian dollars)
Common shares
Preferred shares
Total
October 31, 2023
October 31, 2022
October 31, 2023
October 31, 2022
As at
For the years ended
$ 3,170
343
$ 3,513
Fair value
$ 2,221
1,098
$ 3,319
Dividend income recognized
$ 476
136
$ 612
$ 171
42
$ 213
The Bank disposed of certain equity securities in line with the Bank’s
investment strategy and disposed of FHLB stocks in accordance with
FHLB member stockholding requirements, as follows:
Equity Securities Net Realized Gains (Losses)
(millions of Canadian dollars)
Equity Securities
Fair value
Cumulative realized gain/(loss)
FHLB Stock
Fair value
Cumulative realized gain/(loss)
For the years ended
October 31
2023
October 31
2022
$ 230
(18)
$ 2,345
224
(d) DEBT SECURITIES NET REALIZED GAINS (LOSSES)
The Bank disposed of certain debt securities measured at amortized
cost and FVOCI during the year. The following table summarizes the net
realized gains and losses on securities disposed of during the years ended
October 31, 2023 and October 31, 2022, which are included in Other
income (loss) on the Consolidated Statement of Income.
Debt Securities Net Realized Gains (Losses)
(millions of Canadian dollars)
For the years ended
October 31
2023
October 31
2022
$ (57)
$ 62
9
$ (48)
(2)
$ 60
1,575
–
48
–
Debt securities at amortized cost
Debt securities at fair value through other
comprehensive income
Total
170
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
(e) 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 2023 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. Refer to the “Allowance for Credit Losses” table in Note 8
for details regarding the allowance and provision for credit losses on
debt securities.
Debt Securities by Risk Ratings
(millions of Canadian dollars)
October 31, 2023
As at
October 31, 2022
Stage1
Stage 2
Stage 3
Total
Stage1
Stage 2
Stage 3
Total
Debt securities1
Investment grade
Non-investment grade
Watch and classified
Default
Total debt securities
Allowance for credit losses on debt
securities at amortized cost
$ 373,317
519
n/a
n/a
373,836
2
$
–
–
113
n/a
113
–
Total debt securities, net of allowance
$ 373,834
$ 113
$
1 Includes debt securities backed by government-guaranteed loans of $104 million
(October 31, 2022 – $192 million), which are reported in Non-investment grade or
a lower risk rating based on the issuer’s credit risk.
$ n/a
n/a
n/a
–
$ 373,317
519
113
–
$ 404,620
1,964
n/a
n/a
373,949
406,584
2
1
–
–
–
$
–
155
39
n/a
194
–
$ 373,947
$ 406,583
$ 194
$
$ n/a
n/a
n/a
–
–
–
–
$ 404,620
2,119
39
–
406,778
1
$ 406,777
As at October 31, 2023, total debt securities, net of allowance, in the
table above, include debt securities measured at amortized cost, net of
allowance, of $308,016 million (October 31, 2022 – $342,774 million),
and debt securities measured at FVOCI of $65,931 million
(October 31, 2022 – $64,003 million).
The difference between probability-weighted ECLs and base
ECLs on debt securities at FVOCI and at amortized cost as at both
October 31, 2023 and October 31, 2022, was insignificant.
Refer to Note 3 for further details.
N O T E 8
|
LOANS, IMPAIRED LOANS, AND ALLOWANCE FOR CREDIT LOSSES
(a) LOANS AND ACCEPTANCES
The following table provides details regarding the Bank’s loans and
acceptances as at October 31, 2023 and October 31, 2022.
Loans and Acceptances
(millions of Canadian dollars)
Residential mortgages
Consumer instalment and other personal
Credit card
Business and government
Customers’ liability under acceptances
Loans at FVOCI (Note 5)
Total loans and acceptances
Total allowance for loan losses
Total loans and acceptances,
net of allowance
As at October 31
2023
2022
$ 320,341
217,554
38,660
326,528
$ 293,924
206,152
36,010
301,389
903,083
837,475
17,569
421
19,733
2,353
921,073
859,561
7,136
6,432
$ 913,937
$ 853,129
Business and government loans (including loans at FVOCI) and customers’
liability under acceptances are grouped together as reflected below for
presentation in the “Loans and Acceptances by Risk Ratings” table.
Loans and Acceptances – Business and Government
(millions of Canadian dollars)
Loans at amortized cost
Customers’ liability under acceptances
Loans at FVOCI (Note 5)
Loans and acceptances
Allowance for loan losses
As at October 31
2023
2022
$ 326,528
17,569
421
$ 301,389
19,733
2,353
344,518
323,475
2,990
2,739
Loans and acceptances, net of allowance
$ 341,528
$ 320,736
(b) 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 reflects the PD of the borrower using proprietary industry and sector
specific risk models and expert judgment. Refer to the shaded areas of
the “Managing Risk” section of the 2023 MD&A for further details,
including the mapping of PD ranges to risk levels for retail exposures as
well as the Bank’s 21-point BRR scale to risk levels and external ratings
for non-retail exposures.
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
171
The following tables provide the gross carrying amounts of loans,
acceptances, and credit risk exposures on loan commitments and financial
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 and Acceptances by Risk Ratings
(millions of Canadian dollars)
Residential mortgages1,2,3
Low Risk
Normal Risk
Medium Risk
High Risk
Default
Total loans
Allowance for loan losses
Loans, net of allowance
Consumer instalment and other personal4
Low Risk
Normal Risk
Medium Risk
High Risk
Default
Total loans
Allowance for loan losses
Loans, net of allowance
Credit card
Low Risk
Normal Risk
Medium Risk
High Risk
Default
Total loans
Allowance for loan losses
Loans, net of allowance
Business and government1,2,3,5
Investment grade or Low/Normal Risk
Non-investment grade or Medium Risk
Watch and classified or High Risk
Default
Total loans and acceptances
Allowance for loan losses
Loans and acceptances, net of allowance
Total loans and acceptances6
Total allowance for loan losses6,7
Total loans and acceptances,
net of allowance6
October 31, 2023
As at
October 31, 2022
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
$ 225,596
70,423
110
10
n/a
296,139
154
$
46
11,324
9,581
2,573
n/a
23,524
192
295,985
23,332
100,102
60,613
24,705
4,122
n/a
189,542
653
2,278
13,410
5,816
5,700
n/a
27,204
959
188,889
26,245
6,499
11,171
12,311
2,567
n/a
32,548
709
31,839
159,477
161,651
604
n/a
321,732
1,157
320,575
839,961
2,673
12
134
1,163
4,289
n/a
5,598
913
4,685
101
10,278
11,017
n/a
21,396
1,371
20,025
77,722
3,435
$
n/a
n/a
n/a
325
353
678
57
621
n/a
n/a
n/a
323
485
808
197
611
n/a
n/a
n/a
401
113
514
312
202
n/a
n/a
75
1,315
1,390
462
928
3,390
1,028
$
$ 225,642
81,747
9,691
2,908
353
$ 208,450
67,280
418
10
n/a
$
59
6,767
8,132
2,096
n/a
320,341
276,158
17,054
403
127
140
319,938
276,031
16,914
102,380
74,023
30,521
10,145
485
217,554
1,809
92,653
61,508
21,990
2,202
n/a
178,353
619
2,127
13,799
6,350
4,793
n/a
27,069
850
215,745
177,734
26,219
6,511
11,305
13,474
7,257
113
38,660
1,934
36,726
159,578
171,929
11,696
1,315
344,518
2,990
341,528
921,073
7,136
6,532
10,760
10,794
2,590
n/a
30,676
685
29,991
144,994
156,749
507
n/a
302,250
1,091
301,159
787,437
2,522
11
137
1,184
3,653
n/a
4,985
855
4,130
596
10,057
9,745
n/a
20,398
1,304
19,094
69,506
3,149
n/a
n/a
n/a
350
362
712
56
656
n/a
n/a
n/a
335
395
730
154
576
n/a
n/a
n/a
265
84
349
207
142
n/a
n/a
83
744
827
344
483
2,618
761
$ 208,509
74,047
8,550
2,456
362
293,924
323
293,601
94,780
75,307
28,340
7,330
395
206,152
1,623
204,529
6,543
10,897
11,978
6,508
84
36,010
1,747
34,263
145,590
166,806
10,335
744
323,475
2,739
320,736
859,561
6,432
$ 837,288
$ 74,287
$ 2,362
$ 913,937
$ 784,915
$ 66,357
$ 1,857
$ 853,129
1 Includes impaired loans with a balance of $271 million (October 31, 2022 –
$110 million) which did not have a related allowance for loan losses as the realizable
value of the collateral exceeded the loan amount.
2 Excludes trading loans and non-trading loans at FVTPL with a fair value of
$17 billion (October 31, 2022 – $12 billion) and $3 billion (October 31, 2022 –
$3 billion), respectively.
3 Includes insured mortgages of $74 billion (October 31, 2022 – $77 billion).
4 Includes Canadian government-insured real estate personal loans of $7 billion
5 Includes loans guaranteed by government agencies of $26 billion (October 31, 2022
– $28 billion), which are primarily reported in non-investment grade or a lower risk
rating based on the borrowers’ credit risk.
6 Stage 3 includes ACI loans of $91 million (October 31, 2022 – $115 million) and
a related allowance for loan losses of $6 million (October 31, 2022 – $4 million),
which have been included in the “Default” risk rating category as they were impaired
at acquisition.
7 Includes allowance for loan losses related to loans that are measured at FVOCI of nil
(October 31, 2022 – $9 billion).
(October 31, 2022 – nil).
172
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
Loans and Acceptances by Risk Ratings (continued) – Off-Balance Sheet Credit Instruments1
(millions of Canadian dollars)
October 31, 2023
As at
October 31, 2022
Retail Exposures2
Low Risk
Normal Risk
Medium Risk
High Risk
Default
Non-Retail Exposures3
Investment grade
Non-investment grade
Watch and classified
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
$ 254,231
91,474
19,774
1,209
n/a
264,029
98,068
218
n/a
729,003
$
1,093
1,112
1,079
1,198
n/a
–
4,396
4,158
n/a
13,036
$
n/a
n/a
n/a
–
–
n/a
n/a
–
107
107
$
$ 255,324
92,586
20,853
2,407
–
$ 240,203
87,113
21,914
1,272
n/a
264,029
102,464
4,376
107
742,146
229,592
84,301
237
n/a
664,632
1,174
1,178
1,015
1,374
n/a
–
3,642
4,265
n/a
12,648
$
n/a
n/a
n/a
–
–
n/a
n/a
–
116
116
$ 241,377
88,291
22,929
2,646
–
229,592
87,943
4,502
116
677,396
476
565
8
1,049
433
495
3
931
net of allowance
$ 728,527
$ 12,471
$
99
$ 741,097
$ 664,199 $ 12,153
$
113
$ 676,465
3 Includes $62 billion (October 31, 2022 – $51 billion) of the undrawn component
of uncommitted credit and liquidity facilities.
1 Exclude mortgage commitments.
2 Includes $369 billion (October 31, 2022 – $352 billion) of personal lines of credit
and credit card lines, which are unconditionally cancellable at the Bank’s discretion
at any time.
(c) IMPAIRED LOANS
The following table presents information related to the Bank’s impaired
loans as at October 31, 2023 and October 31, 2022.
Impaired Loans1
(millions of Canadian dollars)
Residential mortgages
Consumer instalment and other personal
Credit card
Business and government
Unpaid
principal
balance2
Carrying
value
$
665 $
849
514
1,473
618
795
514
1,372
October 31, 2023
Related
allowance
for credit
losses
Average
gross
impaired
loans
Unpaid
principal
balance2
$
57 $
197
312
456
618 $ 688
736
735
349
425
849
1,034
Total
$ 3,501
$ 3,299
$ 1,022
$ 2,812
$ 2,622
1 Balances exclude ACI loans.
2 Represents contractual amount of principal owed.
As at
October 31, 2022
Related
allowance
for credit
losses
$ 56
154
207
340
$ 757
Average
gross
impaired
loans
$ 656
733
277
775
$ 2,441
Carrying
value
$ 640
713
349
801
$ 2,503
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
173
(d) ALLOWANCE FOR CREDIT LOSSES
The following table provides details on the Bank’s allowance for
credit losses as at and for the years ended October 31, 2023 and
October 31, 2022, including allowance for off-balance sheet
instruments in the applicable categories.
Allowance for Credit Losses
(millions of Canadian dollars)
Residential mortgages
Consumer instalment and
other personal
Credit card
Business and government
Total allowance for loan
losses, including off-
balance sheet instruments
Debt securities at
amortized cost
Debt securities at FVOCI
Total allowance for credit
losses on debt securities
Total allowance for
credit losses
Comprising:
Balance at
beginning
of year
Provision
for credit
losses
Write-offs,
net of
recoveries
Foreign
exchange,
disposals,
and other
adjustments
Balance
at end of
year
Balance at
beginning
of year
Provision
for credit
losses
Write-offs,
net of
recoveries
Foreign
exchange,
disposals,
and other
adjustments
Balance
at end of
year
2023
For the years ended October 31
2022
$
323
$
85
$
(7)
$
2 $
403
$
261
$
56
$
(2)
$
8
$ 323
1,704
2,352
2,984
988
1,327
533
(806)
(1,137)
(261)
9
35
54
1,895
2,577
3,310
1,649
2,314
3,022
549
582
(114)
(553)
(684)
(88)
59
140
164
1,704
2,352
2,984
7,363
2,933
(2,211)
100
8,185
7,246
1,073
(1,327)
371
7,363
1
2
3
–
–
–
–
–
–
1
–
1
2
2
4
2
7
9
(1)
(5)
(6)
–
–
–
–
–
–
1
2
3
$ 7,366
$ 2,933
$ (2,211)
$ 101 $ 8,189
$ 7,255
$ 1,067
$ (1,327)
$ 371
$ 7,366
Allowance for credit losses
on loans at amortized cost
$ 6,432
Allowance for credit losses
on loans at FVOCI
Allowance for loan losses
Allowance for off-balance
sheet instruments
Allowance for credit losses
on debt securities
–
6,432
931
3
$ 7,136
$ 6,390
–
7,136
–
6,390
1,049
856
4
9
$ 6,432
–
6,432
931
3
174
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
(e) ALLOWANCE FOR LOAN LOSSES BY STAGE
The following table provides details on the Bank’s allowance for loan
losses by stage as at and for the years ended October 31, 2023 and
October 31, 2022.
Allowance for Loan Losses by Stage
(millions of Canadian dollars)
Residential Mortgages
Balance at beginning of period
Provision for credit losses
Transfer to Stage 12
Transfer to Stage 2
Transfer to Stage 3
Net remeasurement due to transfers into stage3
New originations or purchases4
Net repayments5
Derecognition of financial assets (excluding disposals
and write-offs)6
Changes to risk, parameters, and models7
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 12
Transfer to Stage 2
Transfer to Stage 3
Net remeasurement due to transfers into stage3
New originations or purchases4
Net repayments5
Derecognition of financial assets (excluding disposals
and write-offs)6
Changes to risk, parameters, and models7
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 instruments8
Balance at end of period
Credit Card9
Balance, including off-balance sheet instruments,
at beginning of period
Provision for credit losses
Transfer to Stage 12
Transfer to Stage 2
Transfer to Stage 3
Net remeasurement due to transfers into stage3
New originations or purchases4
Net repayments5
Derecognition of financial assets (excluding disposals
and write-offs)6
Changes to risk, parameters, and models7
Disposals
Write-offs
Recoveries
Foreign exchange and other adjustments
Balance, including off-balance sheet instruments,
at end of period
Stage 1
Stage 2
Stage 31
For the years ended October 31
2023
Total
Stage 1
Stage 2
Stage 31
2022
Total
$
127
$
140
$
56
$
323
$
35
$ 175
$
51
$ 261
123
(30)
(2)
(23)
49
(4)
(9)
(78)
–
–
–
1
154
(120)
47
(23)
18
n/a
(3)
(23)
156
–
–
–
–
192
$
$
(3)
(17)
25
–
n/a
–
(14)
16
–
(10)
3
1
57
–
–
–
(5)
49
(7)
(46)
94
–
(10)
3
2
403
109
(23)
(2)
(18)
40
(4)
(7)
(7)
–
–
–
4
127
(106)
34
(15)
13
n/a
(4)
(19)
59
–
–
–
3
$ 140
$
$
$
(3)
(11)
17
1
n/a
–
(28)
30
–
(33)
31
1
56
–
–
–
(4)
40
(8)
(54)
82
–
(33)
31
8
$ 323
$
$
654
$
896
$
154
$ 1,704
$
550
$ 960
$
139
$ 1,649
594
(207)
(9)
(208)
415
(63)
(76)
(416)
–
–
–
4
688
35
653
$
(589)
276
(197)
223
n/a
(81)
(97)
575
–
–
–
4
(5)
(69)
206
9
n/a
(12)
(51)
770
–
(1,104)
298
1
–
–
–
24
415
(156)
(224)
929
–
(1,104)
298
9
1,010
51
959
$
197
–
197
$
1,895
86
$ 1,809
$
613
(188)
(9)
(167)
330
(74)
(93)
(329)
–
–
–
21
654
35
619
(603)
248
(203)
178
n/a
(78)
(167)
528
–
–
–
33
896
46
$ 850
$
(10)
(60)
212
8
n/a
(13)
(52)
478
–
(846)
293
5
154
–
154
–
–
–
19
330
(165)
(312)
677
–
(846)
293
59
1,704
81
$ 1,623
$
954
$ 1,191
$
207
$ 2,352
$
878
$ 1,298
$
138
$ 2,314
1,134
(317)
(19)
(513)
194
74
(43)
(489)
–
–
–
13
988
279
709
(1,108)
375
(715)
476
n/a
7
(75)
1,111
–
–
–
15
(26)
(58)
734
21
n/a
57
(264)
771
–
(1,425)
288
7
–
–
–
(16)
194
138
(382)
1,393
–
(1,425)
288
35
1,277
364
913
$
312
–
312
$
2,577
643
$ 1,934
$
1,208
(310)
(19)
(367)
207
2
(56)
(647)
–
–
–
58
954
269
685
(1,189)
350
(623)
474
n/a
4
(118)
927
–
–
–
68
1,191
336
$ 855
$
(19)
(40)
642
19
n/a
26
(171)
282
–
(975)
291
14
207
–
207
–
–
–
126
207
32
(345)
562
–
(975)
291
140
2,352
605
$ 1,747
Less: Allowance for off-balance sheet instruments8
Balance at end of period
$
1 Includes allowance for loan losses related to ACI loans.
2 Transfers represent stage transfer movements prior to ECL remeasurement.
3 Represents the mechanical remeasurement between twelve-month (i.e., Stage 1)
and lifetime ECLs (i.e., Stage 2 or 3) due to stage transfers necessitated by credit risk
migration, as described in the “Significant Increase in Credit Risk” section of Note 2
and Note 3, holding all other factors impacting the change in ECLs constant.
4 Represents the increase in the allowance resulting from loans that were newly
originated, purchased, or renewed.
6 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.
7 Represents the changes in the allowance related to current period changes in risk
(e.g., PD) caused by changes to macroeconomic factors, level of risk, parameters,
and/or models, subsequent to stage migration. Refer to the “Measurement of
Expected Credit Losses”, “Forward-Looking Information” and “Expert Credit
Judgment” sections of Note 2 and Note 3 for further details.
8 The allowance for loan losses for off-balance sheet instruments is recorded in
5 Represents the changes in the allowance related to cash flow changes associated
Other liabilities on the Consolidated Balance Sheet.
with new draws or repayments on loans outstanding.
9 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.
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
175
Allowance for Loan Losses by Stage (continued)
(millions of Canadian dollars)
Business and Government2
Balance, including off-balance sheet instruments,
as beginning of period
Provision for credit losses
Transfer to Stage 13
Transfer to Stage 2
Transfer to Stage 3
Net remeasurement due to transfers into stage3
New originations or purchases3
Net repayments3
Derecognition of financial assets (excluding
disposals and write-offs)3
Changes to risk, parameters, and models3
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 instruments4
Balance at end of period
Total Allowance, including off-balance sheet
instruments, at end of period
Less: Total Allowance for off-balance sheet
instruments4
Total Allowance for Loan Losses at end of period
Stage 1
Stage 2
Stage 31
For the years ended October 31
2023
Total
Stage 1
Stage 2
Stage 31
2022
Total
$ 1,220
$ 1,417
$
347
$ 2,984
$ 1,186
$ 1,526
$
310
$ 3,022
346
(570)
(11)
(102)
1,258
41
(715)
(178)
–
–
–
30
1,319
162
1,157
(344)
583
(208)
115
n/a
(76)
(587)
585
–
–
–
36
1,521
150
1,371
(2)
(13)
219
2
n/a
(100)
(398)
688
–
(307)
46
(12)
470
8
462
–
–
–
15
1,258
(135)
(1,700)
1,095
–
(307)
46
54
3,310
320
2,990
359
(409)
(7)
(83)
1,098
20
(773)
(250)
–
–
–
79
1,220
129
1,091
(352)
423
(99)
93
n/a
(33)
(624)
394
–
–
–
89
1,417
113
1,304
3,149
4,000
1,036
8,185
2,955
3,644
476
$ 2,673
565
$ 3,435
8
$ 1,028
1,049
$ 7,136
433
$ 2,522
495
$ 3,149
$
(7)
(14)
106
–
n/a
(49)
(386)
479
–
(140)
52
(4)
347
3
344
764
3
761
–
–
–
10
1,098
(62)
(1,783)
623
–
(140)
52
164
2,984
245
2,739
7,363
931
$ 6,432
1 Includes allowance for loan losses related to ACI loans.
2 Includes allowance for loan losses related to customers’ liability under acceptances.
3 For explanations regarding this line item, refer to the “Allowance for Loan Losses
by Stage” table on the previous page in this Note.
The allowance for credit losses on all remaining financial assets is
not significant.
(f) FORWARD-LOOKING INFORMATION
Relevant macroeconomic factors are incorporated in risk parameters as
appropriate. Additional risk factors that are industry or segment specific
are also incorporated, where relevant. The key macroeconomic variables
used in determining ECLs include regional unemployment rates for all retail
exposures and regional housing price indices for residential mortgages
and home equity lines of credit. For business and government loans,
the key macroeconomic variables include gross domestic product (GDP),
unemployment rates, interest rates, and credit spreads. Refer to Note 3
for a discussion of how forward-looking information is generated and
considered in determining whether there has been a significant increase in
credit risk and in measuring ECLs.
Macroeconomic Variables
4 The allowance for loan losses for off-balance sheet instruments is recorded in
Other liabilities on the Consolidated Balance Sheet.
Macroeconomic Variables
Select macroeconomic variables are projected over the forecast period.
The following table represents the average values of the macroeconomic
variables over the four calendar quarters starting with the current quarter,
and the remaining 4-year forecast period for the base forecast and
upside and downside scenarios used in determining the Bank’s ECLs as
at October 31, 2023. 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. Restrictive monetary policy is
contributing to elevated economic uncertainty and is likely to lead to a
near-term deceleration in economic growth and a modest increase in
the unemployment rate.
Base Forecast
Upside Scenario
Downside Scenario
Average
Q4 2023-
Q3 20241
Remaining
4-year
period1
Average
Q4 2023-
Q3 20241
Remaining
4-year
period1
Average
Q4 2023-
Q3 20241
Remaining
4-year
period1
As at
October 31, 2023
Unemployment rate
Canada
United States
Real GDP
Canada
United States
Home prices
Canada (average existing price)2
United States (CoreLogic HPI)3
Central bank policy interest rate
Canada
United States
U.S. 10-year treasury yield
U.S. 10-year BBB spread (%-pts)
Exchange rate (U.S. dollar/Canadian dollar)
1 The numbers represent average values for the quoted periods, and average of
year-on-year growth for real GDP and home prices.
176
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
6.2%
4.0
6.2%
4.1
5.6%
3.7
5.8%
3.9
7.0%
5.0
7.1%
5.2
0.7
1.5
0.1
2.5
4.63
5.25
3.89
2.18
0.72
$
1.7
1.7
3.7
1.6
2.39
2.94
3.22
1.81
0.79
$
0.9
2.2
3.1
3.5
5.00
5.50
4.21
1.94
0.77
$
1.7
1.8
3.0
2.1
2.45
2.95
3.32
1.78
0.81
$
(0.8)
(0.1)
(9.7)
(8.1)
3.75
4.25
3.46
2.67
0.71
$
1.9
2.0
6.7
4.8
1.88
2.38
3.17
2.05
0.74
$
2 The average home price is the average transacted sale price of homes sold via the
Multiple Listing Service; data is collected by the Canadian Real Estate Association.
3 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.
Macroeconomic Variables (continued)
Unemployment rate
Canada
United States
Real GDP
Canada
United States
Home prices
Canada (average existing price)2
United States (CoreLogic HPI)3
Central bank policy interest rate
Canada
United States
U.S. 10-year treasury yield
U.S. 10-year BBB spread (%-pts)
Exchange rate (U.S. dollar/Canadian dollar)
As at
October 31, 2022
Base Forecast
Upside Scenario
Downside Scenario
Average
Q4 2022-
Q3 20231
Remaining
4-year
period1
Average
Q4 2022-
Q3 20231
Remaining
4-year
period1
Average
Q4 2022-
Q3 20231
Remaining
4-year
period1
5.9%
4.0
1.3
0.5
(14.1)
(2.1)
4.00
4.00
3.45
1.96
0.77
$
6.2%
4.5
5.6%
3.7
5.8%
3.9
7.5%
5.7
6.7%
5.1
1.4
1.5
4.1
1.7
2.23
2.38
2.77
1.80
0.79
$
2.3
1.5
(6.1)
4.1
4.25
4.50
3.68
1.82
0.79
$
1.4
1.5
3.0
1.8
3.92
4.17
3.11
1.65
0.80
$
(1.0)
(2.0)
(30.0)
(17.4)
3.44
3.44
2.72
2.48
0.72
$
2.0
2.1
9.1
6.6
1.61
1.72
2.66
1.77
0.76
$
1 The numbers represent average values for the quoted periods, and average of
3 The CoreLogic home price index (HPI) is a repeat-sales index which tracks increases
year-on-year growth for real GDP and home prices.
and decreases in the same home’s sales price over time.
2 The average home price is the average transacted sale price of homes sold via the
Multiple Listing Service; data is collected by the Canadian Real Estate Association.
(g) SENSITIVITY OF ALLOWANCE FOR CREDIT LOSSES
ECLs are sensitive to the inputs used in internally developed models, the
macroeconomic variables in the forward-looking forecasts and respective
probability weightings in determining the probability-weighted ECLs,
and other factors considered when applying expert credit judgment.
Changes in these inputs, assumptions, models, and judgments would
affect the assessment of significant increase in credit risk and the
measurement of ECLs.
The following table presents the base ECL scenario compared to the
probability-weighted ECLs, with the latter derived from three ECL scenarios
for performing loans and off-balance sheet instruments. The difference
reflects the impact of deriving multiple scenarios around the base ECLs
and resultant change in ECLs due to non-linearity and sensitivity to using
macroeconomic forecasts.
Change from Base to Probability-Weighted ECLs
(millions of Canadian dollars,
except as noted)
Probability-weighted ECLs
Base ECLs
Difference – in amount
Difference – in percentage
October 31, 2023 October 31, 2022
As at
$ 7,149
6,658
$ 491
$ 6,599
6,095
$ 504
7.4%
8.3%
ECLs for performing loans and off-balance sheet instruments consist of
an aggregate amount of Stage 1 and Stage 2 probability-weighted ECLs
which are twelve-month ECLs and lifetime ECLs, respectively. Transfers
from Stage 1 to Stage 2 ECLs result from a significant increase in credit
risk since initial recognition of the loan. The following table shows the
estimated impact of staging on ECLs by presenting all performing loans
and off-balance sheet instruments calculated using twelve-month ECLs
compared to the current aggregate probability-weighted ECLs, holding all
risk profiles constant.
Incremental Lifetime ECLs Impact
(millions of Canadian dollars)
Probability-weighted ECLs
All performing loans and off-balance
sheet instruments using 12-month ECLs
Incremental lifetime ECLs impact
As at
October 31, 2023 October 31, 2022
$ 7,149
$ 6,599
5,295
$ 1,854
4,819
$ 1,780
(h) FORECLOSED ASSETS
Foreclosed assets are repossessed non-financial assets where the Bank
gains title, ownership, or possession of individual properties, such as real
estate properties, which are managed for sale in an orderly manner with
the proceeds used to reduce or repay any outstanding debt. The Bank
does not generally occupy foreclosed properties for its business use.
The Bank predominantly relies on third-party appraisals to determine the
carrying value of foreclosed assets. Foreclosed assets held for sale were
$59 million as at October 31, 2023 (October 31, 2022 – $51 million), and
were recorded in Other assets on the Consolidated Balance Sheet.
(i) LOANS PAST DUE BUT NOT IMPAIRED
A loan is classified as past due when a borrower has failed to make a
payment by the contractual due date. The following table summarizes
loans that are past due but not impaired. Loans less than 31 days
contractually past due are excluded as they do not generally reflect a
borrower’s ability to meet their payment obligations.
Loans Past Due but not Impaired1
(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.
October 31, 2023
As at
October 31, 2022
$
31-60
days
286
870
359
264
$
$ 1,779
$
61-89
days
81
287
242
103
713
$
Total
367
1,157
601
367
$
31-60
days
230
668
271
654
$
$ 2,492
$ 1,823
$
61-89
days
69
204
172
162
607
$
Total
299
872
443
816
$ 2,430
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
177
(j) MODIFIED FINANCIAL ASSETS
The amortized cost of financial assets with lifetime allowance that were
modified during the year ended October 31, 2023, was $389 million
(October 31, 2022 – $296 million) before modification, with insignificant
modification gain or loss. The gross carrying amount of modified financial
assets for which the loss allowance changed from lifetime to twelve-
month ECLs during the year ended October 31, 2023 was $144 million
(October 31, 2022 – $686 million).
(k) COLLATERAL
As at October 31, 2023, the collateral held against total gross impaired
loans represents 77% (October 31, 2022 – 78%) of total gross impaired
loans. The fair value of non-financial collateral is determined at the
origination date of the loan. A revaluation of non-financial collateral
is performed if there has been a significant change in the terms
and conditions of the loan and/or the loan is considered impaired.
Management considers the nature of the collateral, seniority ranking of
the debt, and loan structure in assessing the value of collateral. These
estimated cash flows are reviewed at least annually, or more frequently
when new information indicates a change in the timing or amount
expected to be received.
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 financial assets and has not
transferred substantially all of the risk and rewards of ownership of the
securitized assets. Where loans do not qualify for derecognition, they are
not derecognized from the Bank’s Consolidated 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 commingled 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 business and government loans to entities
which may be structured entities. These securitizations may give rise
to derecognition of the financial assets depending on the individual
arrangement of each transaction.
In addition, the Bank transfers credit card receivables to structured
entities that the Bank consolidates. Refer to Note 10 for further details.
The following table summarizes the securitized asset types that did
not qualify for derecognition, along with their associated securitization
liabilities as at October 31, 2023 and October 31, 2022.
Financial Assets Not Qualifying for Derecognition Treatment as Part of the Bank’s Securitization Programs
(millions of Canadian dollars)
Nature of transaction
Securitization of residential mortgage loans
Other financial assets transferred related to securitization1
Total
Associated liabilities2
October 31, 2023
October 31, 2022
Fair
value
Carrying
amount
Fair
value
Carrying
amount
As at
$ 23,835
3,554
27,389
$ 24,433
3,571
28,004
$ 22,043
5,199
27,242
$ 22,684
5,285
27,969
$ 26,457
$ 27,131
$ 26,978
$ 27,684
1 Includes asset-backed securities, asset-backed commercial paper (ABCP), cash,
2 Includes securitization liabilities carried at amortized cost of $13 billion as at
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.
October 31, 2023 (October 31, 2022 – $15 billion), and securitization liabilities
carried at fair value of $14 billion as at October 31, 2023 (October 31, 2022 –
$13 billion).
Other Financial Assets Not Qualifying for Derecognition
The Bank enters into certain transactions where it transfers previously
recognized commodities and financial assets, such as debt and equity
securities, but retains substantially all of the risks and rewards of those
assets. These transferred assets are not derecognized and the transfers are
accounted for as financing transactions. The most common transactions of
this nature are repurchase agreements and securities lending agreements,
in which the Bank retains substantially all of the associated credit,
price, interest rate, and foreign exchange risks and rewards associated
with the assets.
The following table summarizes the carrying amount of financial assets
and the associated transactions that did not qualify for derecognition,
as well as their associated financial liabilities as at October 31, 2023 and
October 31, 2022.
178
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
Other Financial Assets Not Qualifying for Derecognition
(millions of Canadian dollars)
Carrying amount of assets
Nature of transaction
Repurchase agreements1,2
Securities lending agreements
Total
As at
October 31
2023
October 31
2022
$ 27,782
40,333
68,115
$ 26,281
45,667
71,948
Carrying amount of associated liabilities2
$ 28,037
$ 26,785
1 Includes $3.6 billion, as at October 31, 2023 (October 31, 2022 – $3.5 billion) of
assets related to repurchase agreements or swaps that are collateralized by physical
precious metals.
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 financial 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, 2023, the fair value of retained interests was $3 million
(October 31, 2022 – $5 million). A gain or loss on sale of the loans is
recognized immediately in other income (loss) 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.
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, 2023, the carrying value of these servicing rights
was $92 million (October 31, 2022 – $103 million) and the fair value was
$150 million (October 31, 2022 – $155 million). A gain or loss on sale of
the loans is recognized immediately in other income (loss). The gain (loss)
on sale of the loans for the year ended October 31, 2023 was ($40) million
(October 31, 2022 – ($68) million).
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 specified risks to clients; (2) as financing vehicles
for itself or for clients; or (3) to segregate assets on behalf of investors.
The Bank is typically restricted from accessing the assets of the structured
entity under the relevant arrangements.
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, asset manager,
or loan servicer. Sponsorship of a structured entity may indicate that
the Bank had power over the entity at inception; however, this is not
sufficient to determine if the Bank consolidates the entity. Regardless of
whether or not the Bank sponsors an entity, consolidation is determined
on a case-by-case basis.
(a) 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 sponsors both single-seller and multi-seller securitization
conduits. Depending on the specifics of the entity, the variable returns
absorbed through ABCP may be significantly mitigated by variable returns
retained by the sellers. The Bank provides liquidity facilities to certain
conduits for the benefit of ABCP investors which are structured as loan
facilities between the Bank, as the sole liquidity lender, and the Bank-
sponsored entity. If an entity experiences difficulty issuing ABCP due to
illiquidity in the commercial market, the entity may draw on the loan
facility, and use the proceeds to pay maturing ABCP. The ABCP issued by
each multi-seller conduit is in the conduit’s own name with recourse to the
financial assets owned by the multi-seller conduit, and is non-recourse to
the Bank except through our participation in liquidity facilities. 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 through the provision of first loss
protection, 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 sellers with alternate sources of financing
through the securitization of their assets. These conduits are similar to
single-seller conduits except that financial assets are purchased from
more than one seller and commingled into a single portfolio of assets.
Each transaction is structured with transaction-specific first loss protection
provided by the third-party seller. This enhancement can take various
forms, including but not limited to overcollateralization, excess spread,
subordinated classes of financial assets, guarantees or letters of credit.
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. Where
the Bank has power over multi-seller conduits, but is not exposed to
significant variable returns it does not consolidate such entities. Where
the Bank is exposed to variable returns of a multi-seller conduit from
provision of certain types of liquidity facilities, together with power over
the entity as well as the ability to use its power to influence significant
variable returns, the Bank consolidates the conduit.
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 diversified exposure to different risk profiles, 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 specified 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
specific strategy and risk profile, 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 significant
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.
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
179
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 significant 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 financing its operations, including raising capital or obtaining funding.
These structured entities include TD Covered Bond (Legislative) Guarantor
Limited Partnership (the “Covered Bond Entity”).
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 insufficient 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.
(b) 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 programs of government-
sponsored structured entities, including the CMHC, a Crown corporation
of the Government of Canada, and similar U.S. government-sponsored
entities. CMHC guarantees both NHA MBS and CMB which are 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 significant variable
returns from these agencies and does not have power over the
key economic activities of these 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 financing
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 significant variable returns
due to financing 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
significant 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.
(c) INVOLVEMENT WITH CONSOLIDATED STRUCTURED ENTITIES
Securitizations
The Bank securitizes credit card receivables 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 financial 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 significant obligations to
absorb losses before other holders of securitization issuances.
Other Consolidated Structured Entities
Depending on the specific facts and circumstances of the Bank’s
involvement with structured entities, the Bank may consolidate asset
management entities, financing 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
financial support to these consolidated structured entities.
(d) 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 mainly 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.
180
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
Carrying Amount and Maximum Exposure to Unconsolidated Structured Entities
(millions of Canadian dollars)
Securitizations
Investment
funds and
trusts
Other
Total
Securitizations
Investment
funds and
trusts
October 31, 2023
As at
October 31, 2022
Other
Total
FINANCIAL ASSETS
Trading loans, securities, and other
Non-trading financial assets at fair value
through profit or loss
Derivatives1
Financial assets designated at fair value
through profit 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
Deposits
Derivatives1
Obligations related to securities
sold short
Total liabilities
Off-balance sheet exposure2
Maximum exposure to loss from
involvement with unconsolidated
structured entities
Size of sponsored unconsolidated
structured entities3
$
7,190
$
930
$
–
$
8,120 $ 10,046
$
976
$
–
$ 11,022
2,163
–
–
738
401
268
25,956
3,714
134,503
4,560
5
174,377
–
–
4,126
4,126
19,904
1,153
4
107
7,315
–
50
333
383
107
–
–
7
–
–
4,657
4,771
839
–
–
839
3,008
401
268
6,167
–
–
806
608
18
29,677
23,795
3,667
135,656
4,564
4,769
186,463
155,178
4,550
5
199,741
839
50
4,459
5,348
–
–
2,172
2,172
568
4
–
6,647
–
270
332
602
51
–
–
–
–
–
3,488
3,539
–
–
–
–
7,024
608
18
27,462
155,746
4,554
3,493
209,927
–
270
2,504
2,774
3,965
2,294
26,163
16,083
4,983
1,972
23,038
$ 190,155
$ 10,897
$ 6,226
$ 207,278
$ 213,652
$ 11,028
$ 5,511
$ 230,191
$ 14,032
$ 33,744
$
39
$ 47,815
$ 11,515
$ 33,800
$
–
$ 45,315
1 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.
2 For the purposes of this disclosure, off-balance sheet exposure represents the notional
3 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.
value of liquidity facilities, guarantees, or other off-balance sheet commitments
without considering the effect of collateral or other credit enhancements.
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 significant 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 $2.1 billion
(October 31, 2022 − $2.3 billion) from its involvement with these asset
management entities for the year ended October 31, 2023, of which
$1.9 billion (October 31, 2022 − $2.0 billion) was received directly from
these entities. The total AUM in these entities as at October 31, 2023 was
$253.1 billion (October 31, 2022 − $251.7 billion). Any assets transferred
by the Bank during the period are commingled with assets obtained from
third parties in the market. Except as previously disclosed, the Bank has no
contractual or non-contractual arrangements to provide financial support
to unconsolidated structured entities.
N O T E 1 1 DERIVATIVES
|
(a) 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
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, and other structural
market risk 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.
Where hedge accounting is applied, only specific 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 flows attributable to these risk
components can be reliably measured for hedged items. 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.
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
181
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 fixed rates, when contractual coupons of the fixed rate
hedged items are designated;
• Differences in the discounting factors, when hedging derivatives
are collateralized;
• CVA on the hedging derivatives; and
• Mismatch in critical terms such as tenor and timing of cash flows
between hedging instruments and hedged items.
To mitigate a portion of the ineffectiveness, the Bank designates the
benchmark risk component of contractual cash flows 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 flows over a period of time based on rates applied to
a specified notional amount. This includes interest rate swaps that are
transacted and settled through a clearing house which acts as a central
counterparty. A typical interest rate swap would require one counterparty
to pay a fixed market interest rate in exchange for a variable market
interest rate determined from time to time, with both calculated on a
specified notional amount. No exchange of principal amount takes place.
Forward rate agreements are OTC contracts that effectively fix 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 specified 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 specified future date or series of future dates or within a
specified time, a specified financial instrument at a contracted price. The
underlying financial 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 transacted on an
exchange, with interest bearing instruments as the underlying reference
assets. 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 forecast assets and liabilities, including funding and
investment activities. These swaps are designated in either fair value
hedges against fixed rate assets/liabilities or cash flow hedges against
floating rate assets/liabilities. For fair value hedges, the Bank assesses and
measures the hedge effectiveness based on the change in the fair value
or cash flows of the derivative hedging instrument relative to the change
in the fair value or cash flows of the hedged item. For cash flow hedges,
the Bank uses a 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 flows of the hedged item.
Foreign Exchange Derivatives
Foreign exchange forwards are OTC contracts in which one counterparty
contracts with another to exchange a specified amount of one currency for
a specified 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 flows in different currencies over a period of time. These contracts
are used to manage currency and/or interest rate exposures.
182
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
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.
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 flow hedges. For net investment hedges, the Bank assesses and
measures the hedge effectiveness based on the change in the fair value of
the hedging instrument relative to the translation gains and losses on the
net investment in the foreign operation. For cash flow 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
flows of the foreign currency denominated asset/liability attributable to
foreign exchange risk, using the hypothetical derivative method.
Credit Derivatives
The Bank uses credit derivatives such as credit default swaps (CDS) and
total return swaps to manage risks in the Bank’s corporate loan portfolio
and other cash instruments, as well as managing counterparty credit risk
on derivatives. 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-specific
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 financial 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 financial instrument (usually termed as a reference asset)
from one counterparty to another. The most common credit derivatives
are CDS, which include contracts transacted through clearing houses, and
total return swaps. In CDS contracts, the CDS purchaser acquires credit
protection on a reference asset or group of assets from a writer of CDS
in exchange for a premium. The purchaser may pay the agreed premium
at inception or over a period of time. The credit protection compensates
the 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 specified credit rating or credit index. Settlement may be
cash based or physical, requiring the delivery of the reference asset to
the CDS writer. In total return 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
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 a 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
specified future date. There is no actual delivery of stocks that comprise
the underlying index. These contracts are in standard amounts with
standard settlement dates.
Equity forwards are OTC contracts in which one counterparty contracts
with another to buy or sell a single stock or stock index, or to settle the
contract in cash based on changes in the value of a reference asset, at a
future date.
Commodity contracts include commodity forwards, futures, swaps, and
options, such as precious metals and energy-related products in both OTC
and exchange markets.
The Bank applies hedge accounting on certain equity forwards and/or
total return swaps to hedge exposure to equity price risk. These derivatives
are designated as cash flow 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 flows 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 contracts1
Forward rate agreements
Swaps
Options written
Options purchased
Total interest rate contracts
Foreign exchange contracts1
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
1 The fair values of interest rate futures and foreign exchange futures are immaterial
and therefore excluded from this table.
October 31, 2023
Fair value as at
balance sheet date
October 31, 2022
Fair value as at
balance sheet date
Positive
Negative
Positive
Negative
$
464
$
88
$
359
$
16,041
–
2,265
18,770
1,968
20,123
28,902
–
503
51,496
11
42
53
4,350
2,108
6,458
12,667
2,204
–
14,959
1,836
17,806
22,990
619
–
43,251
122
5
127
2,846
2,110
4,956
17,535
–
1,840
19,734
1,455
32,931
30,242
–
531
65,159
8
45
53
3,140
3,599
6,739
57
11,200
1,941
–
13,198
3,625
28,794
25,841
610
–
58,870
66
7
73
4,702
3,439
8,141
76,777
63,293
91,685
80,282
2
4,131
–
7
4,140
821
31
5,065
5,917
1
1
547
547
10,605
1
6,246
–
–
6,247
503
3
1,116
1,622
45
45
433
433
8,347
4
4,126
–
2
4,132
2,559
16
4,315
6,890
3
3
–
6,080
–
–
6,080
202
10
3,320
3,532
78
78
1,163
1,163
12,188
1,161
1,161
10,851
$ 87,382
$ 71,640
$ 103,873
$ 91,133
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
183
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, 2023 and
October 31, 2022.
Fair Value of Non-Trading Derivatives1
(millions of Canadian dollars)
Derivative Assets
Derivatives in qualifying
hedging relationships
Fair
value
Cash
flow
Net
investment
Derivatives
not in
qualifying
hedging
relationships
Derivatives in qualifying
hedging relationships
Total
Fair
value
Cash
flow
Net
investment
As at
October 31, 2023
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
$ 2,049
–
–
–
$ 2,049
$
33
5,754
–
434
$ 6,221
Derivatives held or issued for
non-trading purposes
Interest rate contracts
Foreign exchange contracts
Credit derivative contracts
Other contracts
Fair value – non-trading
$ 1,676
–
–
–
$ 1,676
$
(95)
6,310
–
702
$ 6,917
$ –
–
–
–
$ –
$ –
–
–
–
$ –
1 Certain derivative assets qualify to be offset with certain derivative liabilities on
the Consolidated Balance Sheet. Refer to Note 6 for further details.
$ 2,058 $ 4,140
5,917
1
547
$ 2,335 $ 10,605
163
1
113
$ 1,195
–
–
–
$ 1,195
$ 2,629
1,597
–
190
$ 4,416
$ 2,551
580
3
461
$ 3,595
$ 4,132
6,890
3
1,163
$ 12,188
$ 1,092
–
–
–
$ 1,092
$ 2,572
3,482
–
44
$ 6,098
$ –
–
–
–
$ –
$ –
–
–
–
$ –
$ 2,423 $ 6,247
1,622
45
433
$ 2,736 $ 8,347
25
45
243
October 31, 2022
$ 2,416 $ 6,080
3,532
78
1,161
$ 3,661 $ 10,851
50
78
1,117
184
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
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)
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
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
Hedge
ineffectiveness
For the years ended or as at October 31
2023
Accumulated
amount of fair
value hedge
adjustments
on hedged
items1,2
Accumulated
amount of fair
value hedge
adjustments on
de-designated
hedged items
Carrying
amounts
for hedged
items
$
(4,408)
$
4,381
$ (27)
$ 105,672
$ (18,332)
$
(3,378)
(785)
(798)
(5,991)
1,383
76
7
1,466
807
800
5,988
(1,417)
(79)
(7)
(1,503)
22
2
(3)
(34)
(3)
–
(37)
$
(4,525)
$
4,485
$ (40)
43,249
54,482
(4,230)
(2,322)
(68)
9
203,403
(24,884)
(3,437)
118,308
2,124
1,026
121,458
(8,641)
(65)
(101)
(8,807)
(102)
–
(32)
(134)
2022
$ (19,268)
$ 19,346
$ 78
$ 85,654
$ (14,684)
$
(3,102)
(3,236)
(1,843)
(24,347)
11,492
51
102
11,645
3,236
1,828
24,410
(11,526)
(51)
(101)
(11,678)
–
(15)
63
(34)
–
1
(33)
40,990
23,863
(3,459)
(1,270)
(56)
23
150,507
(19,413)
(3,135)
127,396
1,549
1,230
130,175
(10,532)
39
(110)
(10,603)
(84)
–
(8)
(92)
$ (12,702)
$ 12,732
$ 30
1 The Bank has portfolios of fixed rate financial assets and liabilities whereby the principal
amount changes frequently due to originations, issuances, maturities and prepayments.
The interest rate risk hedges on these portfolios are rebalanced dynamically.
2 Reported balances represent adjustments to the carrying values of hedged items as
included in the “Carrying amounts for hedged items” column in this table.
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
185
Cash Flow Hedges and Net Investment Hedges
The following table presents the effects of cash flow 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
2023
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
comprehensive
income1
Amount
reclassified from
accumulated
other
comprehensive
income (loss)
to earnings1
Net change
in other
comprehensive
income (loss)1
Cash flow hedges2
Interest rate risk3
Foreign exchange risk4,5,6
Equity price risk
Total cash flow hedges
$ 1,260
(4,417)
374
$ (2,783)
$ (1,261)
4,414
(374)
$ 2,779
Net investment hedges
$ 1,821
$ (1,821)
Cash flow hedges2
Interest rate risk3
Foreign exchange risk4,5,6
Equity price risk
Total cash flow hedges
$ 8,023
(2,129)
(56)
$ 5,838
$ (8,032)
2,123
56
$ (5,853)
$
$
$
$
(1)
(3)
–
(4)
–
(9)
(6)
–
$
(15)
$ (3,528)
3,824
(374)
$
(78)
$ (3,069)
3,168
(337)
$
(238)
$
(459)
656
(37)
$
160
$ (1,821)
$
15
$ (1,836)
$ (7,842)
1,607
56
$ (6,179)
2022
$
(8,354)
(1,870)
(55)
$
512
3,477
111
$ 4,100
$ (10,279)
Net investment hedges
$ 3,271
$ (3,271)
$
–
$ (3,271)
$
68
$
(3,339)
1 Effects on OCI are presented on a pre-tax basis.
2 During the years ended October 31, 2023 and October 31, 2022, there were
no instances where forecast hedged transactions failed to occur.
3 Hedged items include forecast interest cash flows on loans, deposits, and
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.
5 Cross-currency swaps may be used to hedge 1) foreign exchange risk, or
2) a combination of interest rate risk and foreign exchange risk in a single hedge
relationship. Cross-currency swaps in both types of hedge relationships are
disclosed in the above risk category (foreign exchange risk).
6 Hedged items include principal and interest cash flows on foreign denominated
securities, loans, deposits, other liabilities, and subordinated notes and debentures.
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
2023
Accumulated other
comprehensive
income (loss) on
de-designated
hedges
$ (5,982)
(1,747)
16
$ (7,713)
$
(459)
656
(37)
$
160
$ (6,441)
(1,091)
(21)
$ (7,553)
$ (3,463)
(1,091)
(21)
$ (4,575)
$ (2,978)
–
–
$ (2,978)
$ (4,516)
$ (1,836)
$ (6,352)
$ (6,352)
$
–
$ 2,372
123
71
$ 2,566
$ (8,354)
(1,870)
(55)
$ (10,279)
$ (5,982)
(1,747)
16
$ (7,713)
$ (4,843)
(1,747)
16
$ (6,574)
2022
$ (1,139)
–
–
$ (1,139)
$ (1,177)
$ (3,339)
$ (4,516)
$ (4,516)
$
–
Cash flow hedges
Interest rate risk
Foreign exchange risk
Equity price risk
Total cash flow hedges
Net investment hedges
Foreign translation risk
Cash flow hedges
Interest rate risk
Foreign exchange risk
Equity price risk
Total cash flow hedges
Net investment hedges
Foreign translation risk
1 Presented on a pre-tax basis.
186
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
(b) 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 flows 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 financial instruments.
The following table discloses the notional amount of OTC and exchange-
traded derivatives.
Over-the-Counter and Exchange-Traded Derivatives
(millions of Canadian dollars)
As at
October 31
2023
October 31
2022
Trading
Notional
Interest rate contracts
Futures
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
Total
Over-the-Counter1
Clearing
house2
Non
clearing
house
Exchange-
traded
Total
Non-
trading3
Total
Total
$
–
608,369
14,410,944
–
–
15,019,313
$
–
19,585
368,038
97,396
118,737
603,756
$ 1,377,932
–
–
14,280
17,650
$ 1,377,932
627,954
14,778,982
111,676
136,387
$
–
462
2,195,575
58
4,050
$ 1,377,932
628,416
16,974,557
111,734
140,437
$ 1,191,392
536,831
16,530,539
196,960
209,225
1,409,862
17,032,931
2,200,145
19,233,076
18,664,947
22
570
–
–
–
592
9,595
2,348
11,943
–
166
166
207,914
2,016,703
1,315,669
51,176
36,958
3,628,420
370
187
557
–
–
–
40
1
41
–
–
–
84,190
73,909
158,099
104,819
90,095
194,914
207,936
2,017,273
1,315,669
51,216
36,959
3,629,053
9,965
2,535
12,500
189,009
164,170
353,179
23,665
4,059
133,190
–
–
160,914
2,191
–
2,191
32,256
–
32,256
231,601
2,021,332
1,448,859
51,216
36,959
3,789,967
12,156
2,535
14,691
221,265
164,170
385,435
264,309
1,915,885
1,204,209
35,585
26,569
3,446,557
13,204
3,054
16,258
191,474
135,157
326,631
$ 15,032,014
$ 4,390,832
$ 1,604,817
$ 21,027,663
$ 2,395,506
$ 23,423,169
$ 22,454,393
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 reduce 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 Includes $1,970 billion of OTC derivatives that are transacted with clearing houses
(October 31, 2022 – $1,772 billion) and $426 billion of OTC derivatives that are
transacted with non-clearing houses (October 31, 2022 – $352 billion). There were
no exchange-traded derivatives both as at October 31, 2023 and October 31, 2022.
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
187
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
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 OTC
derivatives and exchange-traded derivatives based on their contractual
terms to maturity.
Derivatives by Remaining Term-to-Maturity
(millions of Canadian dollars)
Derivatives in qualifying hedging relationships
Cash
flow1
Net
Investment1
Fair
value
$ 372,214
–
–
–
$ 372,214
$ 298,328
144,485
–
2,241
$ 445,054
$ 324,283
–
–
–
$ 296,017
123,986
–
1,793
$ 324,283
$ 421,796
$ –
–
–
–
$ –
$ –
–
–
–
$ –
As at
October 31, 2023
Derivatives
not in
qualifying
hedging
relationships
$ 1,529,603
16,429
2,191
30,015
$ 1,578,238
Total
$ 2,200,145
160,914
2,191
32,256
$ 2,395,506
October 31, 2022
$ 1,336,841
12,613
3,378
25,827
$ 1,957,141
136,599
3,378
27,620
$ 1,378,659
$ 2,124,738
October 31
2023
As at
October 31
2022
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
Over 1 year
to 5 years
Over
5 years
Total
Total
$ 1,216,853
587,097
5,709,984
57,925
68,909
$
161,079
37,685
7,805,585
49,922
63,906
7,640,768
8,118,177
$
–
3,634
3,458,988
3,887
7,622
3,474,131
$ 1,377,932
628,416
16,974,557
111,734
140,437
$ 1,191,392
536,831
16,530,539
196,960
209,225
19,233,076
18,664,947
–
212,749
1,970,612
303,435
47,078
32,091
2,565,965
1,455
222
1,677
147,064
134,842
281,906
–
16,914
49,521
838,950
4,138
4,868
914,391
5,077
1,441
6,518
73,149
28,483
101,632
–
1,938
1,199
306,474
–
–
309,611
5,624
872
6,496
1,052
845
1,897
–
231,601
2,021,332
1,448,859
51,216
36,959
3,789,967
12,156
2,535
14,691
221,265
164,170
385,435
–
264,309
1,915,885
1,204,209
35,585
26,569
3,446,557
13,204
3,054
16,258
191,474
135,157
326,631
$ 10,490,316
$ 9,140,718
$ 3,792,135
$ 23,423,169
$ 22,454,393
188
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
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 swaps
Notional – pay fixed
Average fixed interest rate %
Notional – received fixed
Average fixed interest rate %
Total notional – interest rate risk
Foreign exchange risk1
Forward contracts
Notional – USD/CAD
Average FX forward rate
Notional – EUR/CAD
Average FX forward rate
Notional – other
Cross-currency swaps2,3
Notional – USD/CAD
Average FX rate
Notional – EUR/CAD
Average FX rate
Notional – GBP/CAD
Average FX rate
Notional – other currency pairs4
Total notional – foreign exchange risk
Equity Price Risk
Notional – equity contracts
Total notional
1 Foreign currency denominated deposit liabilities are also used to hedge foreign
exchange risk. Includes $67.2 billion (October 31, 2022 – $30.5 billion) of the
carrying value of these non-derivative hedging instruments designated under
net investment hedges.
2 Cross-currency swaps may be used to hedge 1) foreign exchange risk, or
2) a combination of interest rate risk and foreign exchange risk in a single hedge
relationship. Cross-currency swaps in both types of hedge relationships are disclosed
in the above risk category (foreign exchange risk).
Interest Rate Benchmark Reform
The Bank’s hedging relationships no longer have exposure to USD LIBOR,
but continue to have exposure to CDOR benchmark rates. As a result of
IBOR reform, CDOR benchmark rates are subject to discontinuance, or
may become illiquid after the adoption of ARRs as established benchmark
rates. Judgment may be required in determining whether certain hedging
relationships that involve hedging changes in fair value or variability of
cash flows attributable to interest rate or foreign exchange risk continue
to qualify for hedge accounting.
Impacted hedging relationships will continue to be monitored for all
remaining benchmark rates still subject to ARR transition. As the new
ARRs will differ from the prior benchmark rates, new or revised hedging
strategies may be required to better align derivative hedging instruments
with hedged items. Given ongoing market developments, the assessment
of the impact on the Bank’s hedging strategies and its mitigation plans
is progressing.
As at
October 31
2023
October 31
2022
Within
1 year
Over 1 year
to 5 years
Over 5
years
Total
Total
$ 14,849
3.90
95,965
4.05
$ 107,972
3.31
140,720
2.86
$ 115,651
2.22
17,113
3.34
$ 238,472
$ 175,561
253,798
291,098
110,814
248,692
132,764
492,270
466,659
1,396
1.33
3,636
1.65
86
9,094
1.31
8,120
1.50
–
3,062
25,394
6,622
1.30
10,240
1.57
86
34,833
1.31
29,527
1.43
5,391
1.65
12,696
99,395
49
1.34
788
1.55
–
7,570
1.28
9,971
1.42
332
1.71
986
19,696
8,067
6,653
14,664
13,637
172
162
51,497
53,029
47,618
31,731
5,723
4,215
16,744
144,485
14,561
123,988
2,241
–
–
2,241
1,793
$ 138,449
$ 348,087
$ 152,460
$ 638,996
$ 592,440
3 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 $178.3 billion as at October 31, 2023 (October 31, 2022 –
$153.6 billion).
4 Includes derivatives executed to manage non-trading foreign currency exposures,
when more than one currency is involved prior to hedging to the Canadian dollar,
or when the currency pair is not a significant exposure for the Bank.
As at October 31, 2023, the Bank has transitioned all derivative
instruments designated in qualifying hedge accounting relationships
referencing USD LIBOR to an ARR and it no longer has exposure to
any residual USD LIBOR derivative notional amounts (October 31, 2022 –
$148 billion).
The following table discloses the notional amount of derivative
instruments designated in qualifying hedge accounting relationships
referencing CDOR that have yet to transition to an ARR and mature after
June 28, 2024.
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
189
Derivative Instruments Designated in Qualifying
Hedge Accounting Relationships1
(millions of Canadian dollars)
As at
Notional
Interest rate risk
Interest rate swaps
Foreign exchange risk
Interest rate swaps
Cross-currency swaps2
Total
October 31, 2023 October 31, 2022
Hedging derivatives maturing after
June 28, 2024 (for CDOR)
$ 137,624
$ 135,732
70,929
75,127
54,810
56,335
$ 283,680
$ 246,877
1 CDOR transitioning to Canadian Overnight Repo Rate Average.
2 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.
(c) 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.
Credit Risk
Credit risk on derivatives, also known as counterparty credit risk, is the risk
of a financial loss occurring as a result of the failure of a counterparty to
meet its obligation to the Bank.
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, diversification
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 current replacement cost
and credit equivalent amount shown in the following table are based
on the standardized approach for counterparty credit risk. According to
this approach, the current replacement cost accounts for the fair value
of the positions, posted and received collateral, and master netting
agreement clauses. The credit equivalent amount is the sum of the current
replacement cost and the potential future exposure, which is calculated by
applying factors determined by OSFI to the notional principal amount of
the derivatives. The risk-weighted amount is determined by applying the
adequate risk weights to the credit equivalent amount.
Credit Exposure of Derivatives
(millions of Canadian dollars)
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
Other contracts
Credit derivatives
Equity contracts
Commodity contracts
Total other contracts
Total derivatives
Qualifying Central Counterparty Contracts
Total
October 31, 2023
Current
replacement
cost
Credit
equivalent
amount
Risk-
weighted
amount
Current
replacement
cost
$
32
6,436
3
27
6,498
1,514
4,184
5,668
27
64
11,457
4
762
829
1,595
19,550
6,494
$
$
141
13,423
92
140
13,796
4,732
19,252
18,249
306
252
42,791
278
8,147
4,980
13,405
69,992
27,211
70
1,142
27
39
1,278
968
2,863
1,767
71
93
5,762
50
2,577
1,102
3,729
10,769
969
$
21
7,328
4
20
7,373
1,467
5,583
6,372
35
102
13,559
1
513
1,104
1,618
22,550
7,468
As at
October 31, 2022
Credit
equivalent
amount
$
90
14,424
84
101
14,699
4,446
19,930
18,019
349
271
43,015
449
7,456
5,101
13,006
70,720
28,230
Risk-
weighted
amount
$
30
920
18
40
1,008
695
2,265
1,599
183
135
4,877
83
1,662
1,055
2,800
8,685
941
$ 26,044
$ 97,203
$ 11,738
$ 30,018
$ 98,950
$ 9,626
190
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
Current Replacement Cost of Derivatives
(millions of Canadian dollars, except as noted)
By sector
Financial
Government
Other
Canada1
United States1
Other international1
As at
Total
October 31
2023
October 31
2022
October 31
2023
October 31
2022
October 31
2023
October 31
2022
October 31
2023
October 31
2022
$ 5,636 $
23 $
$ 5,132
5,441
1,508
6,185
1,940
19 $
66
737
234 $
4,455
1,913
551
5,388
2,028
$ 5,389
10,085
4,075
$ 6,206
11,639
4,705
189
654
866
Total current replacement cost
$ 12,081
$ 13,761
$
By location of risk
Canada
United States
Other international
United Kingdom
Europe – other
Other
Total Other international
Total current replacement cost
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, 2023, the aggregate net liability
position of those contracts would require: (1) the posting of collateral
or other acceptable remedy totalling $407 million (October 31, 2022 –
$392 million) in the event of a one-notch or two-notch downgrade
in the Bank’s senior debt rating; and (2) funding totalling nil
(October 31, 2022 – nil) 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
$
822
$ 6,602
$ 7,967
$ 19,549
$ 22,550
October 31
2023
October 31
2022
$ 3,720
$ 4,411
7,108
8,036
October 31
2023
% mix
October 31
2022
% mix
19.0%
36.4
19.6%
35.6
883
3,164
4,674
8,721
1,224
4,257
4,622
10,103
4.5
16.2
23.9
44.6
5.4
18.9
20.5
44.8
$ 19,549
$ 22,550
100.0%
100.0%
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, 2023, the fair value of all derivative instruments with credit
risk related contingent features in a net liability position was $16 billion
(October 31, 2022 – $19 billion). The Bank has posted $16 billion
(October 31, 2022 – $18 billion) of collateral for this exposure in the
normal course of business. As at October 31, 2023, 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, 2022 – $174 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 $223 million (October 31, 2022 – $269 million) of collateral
to that posted in the normal course of business.
INVESTMENT IN THE CHARLES SCHWAB CORPORATION
The Bank has significant influence over The Charles Schwab Corporation
(“Schwab”) and the ability to participate in the financial and operating
policy-making decisions of Schwab through a combination of the Bank’s
ownership, board representation and the insured deposit account
agreement between the Bank and Schwab (the “Schwab IDA Agreement”).
As such, the Bank accounts for its investment in Schwab using the equity
method. The Bank’s share of Schwab’s earnings available to common
shareholders is reported with a one-month lag. The Bank takes into
account changes in the one-month lag period that would significantly
affect the results.
On August 1, 2022, in order to provide the capital required for the
acquisition of Cowen Inc. (“Cowen”), the Bank sold 28.4 million non-
voting common shares of Schwab at a price of US$66.53 per share for
proceeds of $2.5 billion (US$1.9 billion). The Bank recognized $997 million
as other income (net of $368 million loss from AOCI reclassified to
earnings), in the fourth quarter of fiscal 2022.
As at October 31, 2023, the Bank’s reported investment in Schwab
was approximately 12.4% (October 31, 2022 – 12.1%), consisting of
9.8% of the outstanding voting common shares and the remainder in
non-voting common shares of Schwab with a fair value of $16 billion
(US$12 billion) (October 31, 2022 – $24 billion (US$18 billion)) based
on the closing price of US$52.04 (October 31, 2022 – US$79.67) on
the New York Stock Exchange.
The Bank and Schwab are party to a stockholder agreement (the
“Stockholder Agreement”) under which the Bank has the right to
designate two members of Schwab’s Board of Directors and has
representation on two Board Committees, subject to the Bank meeting
certain conditions. The Bank’s designated directors currently are the Bank’s
Group President and Chief Executive Officer and the Bank’s Chair of the
Board. Under the Stockholder Agreement, the Bank is not permitted to
own more than 9.9% voting common shares of Schwab, and the Bank
is subject to customary standstill restrictions and, subject to certain
exceptions, transfer restrictions.
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
191
The carrying value of the Bank’s investment in Schwab of $8.9 billion
On May 4, 2023, the Bank and Schwab entered into an amended
as at October 31, 2023 (October 31, 2022 – $8.1 billion) represents
the Bank’s share of Schwab’s stockholders’ equity, adjusted for goodwill,
other intangibles, and cumulative translation adjustment. The Bank’s share
of net income from its investment in Schwab of $864 million during the
year ended October 31, 2023 (October 31, 2022 – $991 million), reflects
net income after adjustments for amortization of certain intangibles net
of tax. The following tables represent the gross amount of Schwab’s
total assets, liabilities, net revenues, net income available to common
stockholders, other comprehensive income (loss), and comprehensive
income (loss).
Summarized Financial Information
(millions of Canadian dollars)
Total assets
Total liabilities
September 30
2023
$ 644,139
592,923
As at
September 30
2022
$ 797,759
746,596
(millions of Canadian dollars)
For the years ended September 30
Total net revenues
Total net Income available to
common stockholders
Total other comprehensive
income (loss)
Total comprehensive income (loss)
2023
2022
$ 26,811
$ 25,533
7,483
3,247
10,730
8,014
(31,223)
(23,209)
Insured Deposit Account (“IDA”) Agreement
On November 25, 2019, the Bank and Schwab signed an insured deposit
account agreement (the “2019 Schwab IDA Agreement”), with an initial
expiration date of July 1, 2031. Under the 2019 Schwab IDA Agreement,
starting July 1, 2021, Schwab had the option to reduce the deposits by up
to US$10 billion per year (subject to certain limitations and adjustments),
with a floor of US$50 billion. In addition, Schwab requested some further
operational flexibility to allow for the sweep deposit balances to fluctuate
over time, under certain conditions and subject to certain limitations.
N O T E 1 3 SIGNIFICANT TRANSACTIONS
|
insured deposit account agreement (the “2023 Schwab IDA Agreement”),
which replaced the 2019 Schwab IDA Agreement. Pursuant to the 2023
Schwab IDA Agreement, the Bank continues to make sweep deposit
accounts available to clients of Schwab. Schwab designates a portion
of the deposits with the Bank as fixed-rate obligation amounts (FROA).
Remaining deposits over the minimum level of FROA are designated
as floating-rate obligations. In comparison to the 2019 Schwab IDA
Agreement, the 2023 Schwab IDA Agreement extends the initial expiration
date by three years to July 1, 2034 and provides for lower deposit
balances in its first six years, followed by higher balances in the later years.
Specifically, until September 2025, the aggregate FROA will serve as the
floor. Thereafter, the floor will be set at US$60 billion. In addition, Schwab
has the option to buy down up to $6.8 billion (US$5 billion) of FROA by
paying the Bank certain fees in accordance with the 2023 Schwab IDA
Agreement, subject to certain limits.
During the year ended October 31, 2023, Schwab exercised its option
to buy down $6.1 billion (US$4.5 billion) of FROA and paid $305 million
(US$227 million) in termination fees to the Bank in accordance with the
2023 Schwab IDA Agreement. The fees are intended to compensate
the Bank for losses incurred this year from discontinuing certain hedging
relationships, as well as for lost revenues. The net impact is recorded in
net interest income.
INVESTMENT IN OTHER ASSOCIATES OR JOINT VENTURES
Except for Schwab as disclosed above, the Bank did not have investments
in associates or joint ventures which were individually material as
of October 31, 2023, or October 31, 2022. The carrying amount of
the Bank’s investment in other associates and joint ventures as at
October 31, 2023 was $4.2 billion (October 31, 2022 – $3.8 billion).
Other associates and joint ventures consisted predominantly of
investments in private funds or partnerships that make equity investments,
provide debt financing 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.
(a) Acquisition of Cowen Inc.
On March 1, 2023, the Bank completed the acquisition of Cowen. The
acquisition advances the Wholesale Banking segment’s long-term growth
strategy in the U.S. and adds complementary products and services
to the Bank’s existing businesses. The results of the acquired business
have been consolidated by the Bank from the closing date and primarily
reported in the Wholesale Banking segment. Consideration included
$1,500 million (US$1,100 million) in cash for 100% of Cowen’s common
shares outstanding, $253 million (US$186 million) for the settlement
of Cowen’s Series A Preferred Stock, and $205 million (US$151 million)
related to the replacement of share-based payment awards.
The acquisition was accounted for as a business combination under
the purchase method. The purchase price allocation can be adjusted
during the measurement period, which shall not exceed one year
from the acquisition date, to reflect new information obtained about
facts and circumstances. The acquisition contributed $10,800 million
(US$7,933 million) of assets and $9,884 million (US$7,261 million) of
liabilities. The excess of accounting consideration over the fair value
of the tangible net assets acquired is allocated to other intangible
assets of $298 million (US$219 million) net of taxes, and goodwill of
$744 million (US$546 million). Goodwill is not deductible for tax purposes.
Since the acquisition date, the contribution of Cowen to the Bank’s
revenue and net income was not significant, nor would it have been
significant if the acquisition had occurred as of November 1, 2022.
The Bank plans to dispose of certain non-core businesses that were
acquired in connection with the Cowen acquisition. These non-core
businesses are disposal groups which meet the criteria to be classified
as held for sale and are measured at the lower of their carrying amount
and fair value less costs to sell. The assets and liabilities of these disposal
groups are recorded in Other assets and Other liabilities, respectively, on
192
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
the Consolidated Balance Sheet. During the year ended October 31, 2023,
the Bank disposed of a reinsurance subsidiary that was classified as held
for sale. As at October 31, 2023, assets of $1,958 million and liabilities of
$1,291 million were classified as held for sale.
(b) Termination of the Merger Agreement with
First Horizon Corporation
On May 4, 2023, the Bank and First Horizon Corporation (“First Horizon”)
announced their mutual decision to terminate the previously announced
merger agreement for the Bank to acquire First Horizon. Under the
terms of the termination agreement, the Bank made a $306 million
(US$225 million) cash payment to First Horizon on May 5, 2023. The
termination payment was recognized in non-interest expenses in the
third quarter of fiscal 2023 and was reported in the Corporate segment.
In connection with the transaction, the Bank had invested
US$494 million in non-voting First Horizon preferred stock. During
the second quarter of fiscal 2023, the Bank recognized a valuation
adjustment loss of $199 million (US$147 million) on this investment,
recorded in OCI. On June 26, 2023, in accordance with the terms of the
preferred share purchase agreement, the preferred stock converted into
approximately 19.7 million common shares of First Horizon, resulting in
the Bank recognizing a loss of $166 million (US$126 million) during the
third quarter of fiscal 2023 in OCI based on First Horizon’s common share
price at the time of conversion. Upon conversion, the losses recognized to
date, including the impact of foreign exchange, were reclassified directly
to retained earnings. The Bank has elected to record subsequent fair value
changes on the common shares in OCI.
The Bank had also implemented a strategy to mitigate the impact of
interest rate volatility to capital on closing of the acquisition. The Bank
determined that the fair value of First Horizon’s fixed rate financial assets
and liabilities and certain intangible assets would have been sensitive to
interest rate changes. The fair value of net assets would have determined
the amount of goodwill to be recognized on closing of the acquisition.
Increases in goodwill and intangibles would have negatively impacted
capital ratios because they are deducted from capital under OSFI Basel III
rules. In order to mitigate this volatility to closing capital, the Bank de-
designated certain interest rate swaps hedging fixed income investments
in fair value hedge accounting relationships.
As a result of the de-designation, mark-to-market gains (losses) on
these swaps were recognized in earnings, without any corresponding
offset from the previously hedged investments. Such gains (losses) would
have mitigated the capital impact from changes in the amount of goodwill
recognized on closing of the acquisition. The de-designation also triggered
the amortization of the investments’ basis adjustment to net interest
income over the remaining expected life of the investments.
Prior to the termination of the merger agreement on May 4, 2023,
for the year ended October 31, 2023, the Bank reported ($1,386) million
(October 31, 2022 – $1,487 million) in non-interest income related to
the mark-to-market on the swaps, and $262 million (October 31, 2022 –
$154 million) in net interest income related to the basis adjustment
amortization. In addition, for the year ended October 31, 2023, the Bank
reported $585 million (October 31, 2022 – $121 million) in non-interest
income related to the net interest earned on the swaps.
Following the announcement to terminate the merger agreement,
the Bank discontinued this strategy and reinstated hedge accounting
on the portfolio of fixed income investments using new swaps entered
into at higher market rates. The impact from the higher swap rates and
the basis adjustment amortization discussed above is reported in net
interest income.
N O T E 1 4 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, discount rates, and terminal
growth rates. 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 influence 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).
As at the date of the last impairment test, the amount of capital not
directly attributable to the CGUs and held within the Corporate segment
was approximately $25.2 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 flows 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 reflect current market assessments of the
risks specific to each group of CGUs and are dependent on the risk profile
and capital requirements of each group of CGUs.
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 flows over the next five years. Beyond the Bank’s
internal forecast, cash flows 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 inflation and ranged from 2.0% to
4.1% (2022 – 2.0% to 3.9%).
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.
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
193
Goodwill by Segment
(millions of Canadian dollars)
Carrying amount of goodwill as at November 1, 2021
Additions (disposals)
Foreign currency translation adjustments and other
Carrying amount of goodwill as at October 31, 20222
Additions (disposals)
Foreign currency translation adjustments and other
Canadian
Personal and
Commercial
Banking
$
$
900
–
2
902
–
–
U.S.
Retail1
Wealth
Management
and Insurance
Wholesale
Banking
$ 13,134
–
1,329
$ 14,463
–
259
$ 1,924
–
80
$ 2,004
–
16
$
$
274
–
13
287
744
(73)
Total
$ 16,232
–
1,424
$ 17,656
744
202
Carrying amount of goodwill as at October 31, 20232
$
902
$ 14,722
$ 2,020
$
958
$ 18,602
Pre-tax discount rates
2022
2023
1 Goodwill predominantly relates to U.S. personal and commercial banking.
2 Accumulated impairment as at October 31, 2023 and October 31, 2022 was nil.
OTHER INTANGIBLES
The following table presents details of other intangibles as at
October 31, 2023 and October 31, 2022.
9.7%
9.7–10.0%
9.7–9.9
10.0–11.3
9.6–11.0%
9.6–11.0
13.3%
13.9
Other Intangibles
(millions of Canadian dollars)
Cost
As at November 1, 2021
Additions
Disposals
Fully amortized intangibles
Foreign currency translation adjustments and other
As at October 31, 2022
Additions
Disposals
Fully amortized intangibles
Foreign currency translation adjustments and other1
Core deposit
intangibles
Credit card
related
intangibles
Internally
generated
software
Other
software
Other
intangibles
$ 2,420
–
–
–
244
$ 2,664
–
–
–
48
$
$
834
–
–
–
14
848
–
–
–
2
$ 2,625
651
–
(448)
90
$ 2,918
846
(1)
(582)
(78)
$
245
62
–
(72)
(2)
$
233
52
(2)
(37)
(10)
$ 1,059
17
–
8
81
$ 1,165
395
–
–
(4)
Total
$ 7,183
730
–
(512)
427
$ 7,828
1,293
(3)
(619)
(42)
As at October 31, 2023
$ 2,712
$
850
$ 3,103
$
236
$ 1,556
$ 8,457
Amortization and impairment
As at November 1, 2021
Disposals
Impairment losses (reversals)
Amortization charge for the year
Fully amortized intangibles
Foreign currency translation adjustments and other
As at October 31, 2022
Disposals
Impairment losses (reversals)
Amortization charge for the year
Fully amortized intangibles
Foreign currency translation adjustments and other1
As at October 31, 2023
Net Book Value:
As at October 31, 2022
As at October 31, 2023
1 Includes amounts related to restructuring. Refer to Note 26 for further details.
$ 2,408
–
–
10
–
244
$ 2,662
–
–
2
48
$
$
740
–
–
17
–
14
771
–
–
11
3
$ 1,207
(1)
–
443
(446)
53
$ 1,256
–
–
443
(582)
10
$
$
165
–
(1)
50
(72)
11
$
153
$
–
–
36
(37)
11
$ 2,712
$
785
$ 1,127
$
163
$
2
–
$
77
65
$ 1,662
1,976
$
80
73
$
$
540
–
–
79
3
61
683
–
–
180
–
36
899
482
657
$ 5,060
(1)
(1)
599
(515)
383
$ 5,525
–
–
672
(619)
108
$ 5,686
$ 2,303
2,771
194
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS N O T E 1 5
|
LAND, BUILDINGS, EQUIPMENT, OTHER DEPRECIABLE ASSETS, AND RIGHT-OF-USE ASSETS
The following table presents details of the Bank’s land, buildings,
equipment, and other depreciable assets as at October 31, 2023 and
October 31, 2022.
Land, Buildings, Equipment, and Other Depreciable Assets
(millions of Canadian dollars)
Cost
As at November 1, 2021
Additions
Disposals1
Fully depreciated assets
Foreign currency translation adjustments and other2
As at October 31, 2022
Additions
Disposals1
Fully depreciated assets
Foreign currency translation adjustments and other2
Land
Buildings
Computer
equipment
$
876
1
(1)
–
73
949
1
(13)
–
(18)
$ 2,354
136
(44)
(28)
146
2,564
172
(11)
(18)
(152)
$
818
168
(18)
(167)
16
817
227
(15)
(109)
(3)
Furniture,
fixtures,
and other
depreciable
assets
$ 1,342
152
(23)
(114)
58
1,415
244
(53)
(112)
17
Leasehold
improvements
$ 3,157
316
(8)
(178)
174
3,461
401
(21)
(199)
37
Total
$ 8,547
773
(94)
(487)
467
9,206
1,045
(113)
(438)
(119)
As at October 31, 2023
$
919
$ 2,555
$
917
$ 1,511
$ 3,679
$ 9,581
Accumulated depreciation and impairment losses
As at November 1, 2021
Depreciation charge for the year
Disposals1
Impairment losses
Fully depreciated assets
Foreign currency translation adjustments and other2
As at October 31, 2022
Depreciation charge for the year
Disposals1
Impairment losses
Fully depreciated assets
Foreign currency translation adjustments and other2
As at October 31, 2023
Net Book Value Excluding Right-of-Use Assets:
As at October 31, 2022
As at October 31, 2023
$
$
$
–
–
–
–
–
–
–
–
–
–
–
–
–
$
907
80
(38)
1
(28)
61
983
84
(8)
1
(18)
(50)
$
375
160
(14)
3
(167)
8
365
175
(15)
1
(109)
1
$
721
151
(23)
–
(114)
50
785
152
(53)
5
(112)
10
$ 1,533
256
(5)
–
(178)
96
1,702
274
(20)
4
(199)
31
$ 3,536
647
(80)
4
(487)
215
3,835
685
(96)
11
(438)
(8)
$
992
$
418
$
787
$ 1,792
$ 3,989
949
919
$ 1,581
1,563
$
452
499
$
630
724
$ 1,759
1,887
$ 5,371
5,592
1 Cash received from disposals was $57 million for the year ended October 31, 2023
2 Includes amounts related to restructuring and adjustments to reclassify held-for-sale
(October 31, 2022 – $30 million).
items to other assets. Refer to Note 26 for further details.
The following table presents details of the Bank’s ROU assets as recorded
in accordance with IFRS 16, Leases. Refer to Note 18 and Note 26 for
the related lease liabilities details.
Right-of-Use Assets Net Book Value
(millions of Canadian dollars)
As at November 1, 2021
Additions
Depreciation
Reassessments, modifications, and variable lease payment adjustments
Terminations and impairment
Foreign currency translation adjustments and other
As at October 31, 2022
Additions
Depreciation
Reassessments, modifications, and variable lease payment adjustments
Terminations and impairment
Foreign currency translation adjustments and other
As at October 31, 2023
$
709
$ 3,101
$
Land
Buildings
Computer
equipment
$
$
$
$
780
–
(89)
13
–
73
777
5
(91)
6
–
12
$ 3,336
132
(424)
(6)
11
159
$ 3,208
238
(439)
70
–
24
54
5
(14)
(1)
–
–
44
–
(13)
–
–
1
32
Total
$ 4,170
137
(527)
6
11
232
$ 4,029
243
(543)
76
–
37
$ 3,842
195
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS Total Land, Buildings, Equipment, Other Depreciable Assets, and Right-of-Use Assets Net Book Value
(millions of Canadian dollars)
As at October 31, 2022
As at October 31, 2023
Land
$ 1,726
1,628
Buildings
$ 4,789
4,664
Computer
equipment
$ 496
531
Furniture,
fixtures,
and other
depreciable
assets
$ 630
724
Leasehold
improvements
$ 1,759
1,887
Total
$ 9,400
9,434
N O T E 1 6 OTHER ASSETS
|
Other Assets
(millions of Canadian dollars)
Accounts receivable and other items1
Accrued interest
Current income tax receivable
Defined benefit asset (Note 23)
Insurance-related assets, excluding investments
Prepaid expenses
Total
1 Includes assets related to disposal groups classified as held-for-sale in connection with
the Cowen acquisition. Refer to Note 13 for further details.
N O T E 1 7 DEPOSITS
|
As at
October 31
2023
October 31
2022
$ 13,893
5,504
4,814
1,254
2,197
1,843
$ 29,505
$ 10,769
3,765
6,031
1,406
2,008
1,323
$ 25,302
Demand deposits are those for which the Bank does not have the right to
require notice prior to withdrawal and are in general chequing accounts.
Notice deposits are those for which the Bank can legally require notice
prior to withdrawal and are in general savings accounts. Term deposits are
payable on a given date of maturity and are purchased by customers to
earn interest over a fixed period, with terms ranging from one day to ten
years and generally include fixed term deposits, guaranteed investment
certificates, senior debt, and similar instruments. The aggregate amount of
term deposits in denominations of $100,000 or more as at October 31, 2023
was $512 billion (October 31, 2022 – $436 billion).
Deposits
(millions of Canadian dollars)
Personal
Banks
Business and government2
Trading
Designated at fair value through
profit or loss3
Total
Non-interest-bearing deposits
included above4
Canada
United States
International
Interest-bearing deposits
included above4
Canada
United States5
International
Total2,6
By Type
By Country
October 31
2023
October 31
2022
As at
Demand
$ 16,268
11,205
131,167
Notice
$ 491,466
310
193,493
158,640
685,269
–
–
–
–
Term1
Canada United States
International
Total
Total
$ 118,862
19,710
215,709
354,281
30,980
$ 321,737
19,120
376,857
717,714
21,794
$ 304,859
10,002
159,779
474,640
2,715
$
–
2,103
3,733
5,836
6,471
$ 626,596
31,225
540,369
$ 660,838
38,263
530,869
1,198,190
1,229,970
30,980
23,805
191,988
34,356
81,268
76,364
191,988
162,645
$ 158,640
$ 685,269
$ 577,249
$ 773,864
$ 558,623
$ 88,671
$ 1,421,158
$ 1,416,420
$
61,581
76,376
23
$
76,551
91,152
23
712,283
482,247
88,648
686,518
493,617
68,559
$ 1,421,158
$ 1,416,420
1 Includes $103.3 billion (October 31, 2022 – $89.4 billion) 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 $57 billion relating to covered bondholders (October 31, 2022 – $34 billion).
3 Financial liabilities designated at FVTPL on the Consolidated Balance Sheet also
includes $142.3 million (October 31, 2022 – $140.5 million) of loan commitments
and financial guarantees designated at FVTPL.
4 The geographical splits of the deposits are based on the point of origin of the deposits.
5 Includes $13.9 billion (October 31, 2022 – $9.5 billion) of U.S. federal funds deposited
and $9.0 billion (October 31, 2022 – nil) of deposits and advances with the FHLB.
6 Includes deposits of $779.9 billion (October 31, 2022 – $814.9 billion) denominated
in U.S. dollars and $115 billion (October 31, 2022 – $84.4 billion) denominated in
other foreign currencies.
196
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
Term Deposits by Remaining Term-to-Maturity
(millions of Canadian dollars)
Personal
Banks
Business and government
Trading
Designated at fair value through
profit or loss
Total
Term Deposits due within a Year
(millions of Canadian dollars)
Within
1 year
$ 81,215
19,705
88,034
16,416
Over
1 year to
2 years
$ 17,268
–
33,723
6,510
Over
2 years to
3 years
$ 10,131
–
32,026
3,118
Over
3 years to
4 years
$ 5,742
–
25,716
1,502
Over
4 years to
5 years
$ 4,455
4
16,558
2,092
$
Over
5 years
51
1
19,652
1,342
191,876
112
–
–
–
–
191,988
162,645
$ 397,246
$ 57,613
$ 45,275
$ 32,960
$ 23,109
$ 21,046
$ 577,249
$ 468,923
As at
October 31
2023
October 31
2022
Total
Total
$ 118,862
19,710
215,709
30,980
$ 69,661
22,676
190,136
23,805
Personal
Banks
Business and government
Trading
Designated at fair value through profit or loss
Total
N O T E 1 8 OTHER LIABILITIES
|
Other Liabilities
(millions of Canadian dollars)
Accounts payable, accrued expenses, and other items1
Accrued interest
Accrued salaries and employee benefits
Cheques and other items in transit
Current income tax payable
Deferred tax liabilities
Defined benefit liability (Note 23)
Lease liabilities2
Liabilities related to structured entities
Provisions (Note 26)
Total
1 Includes liabilities related to disposal groups classified as held-for-sale in connection
with the Cowen acquisition. Refer to Note 13 for further details.
2 Refer to Note 26 for lease liability maturity and lease payment details.
Within
3 months
$ 25,139
19,676
42,070
2,956
78,652
$ 168,493
Over 3
months to
6 months
$ 22,387
29
24,487
5,278
37,959
$ 90,140
Over 6
months to
12 months
$ 33,689
–
21,477
8,182
75,265
$ 138,613
As at
October 31
2023
October 31
2022
Total
Total
$ 81,215
19,705
88,034
16,416
191,876
$ 397,246
$ 43,791
22,670
87,517
14,153
161,745
$ 329,876
As at
October 31
2023
October 31
2022
$ 8,408
4,421
4,993
2,241
162
204
1,244
5,050
17,520
3,421
$ 47,664
$ 5,040
1,870
4,100
2,116
151
236
1,286
5,313
12,120
1,320
$ 33,552
197
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
N O T E 1 9 SUBORDINATED NOTES AND DEBENTURES
|
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 modifications 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
September 14, 20281
July 25, 20291
April 22, 2030¹
March 4, 20311
September 15, 20311
January 26, 20321
Total
Interest
rate (%)
Reset
spread (%)
9.150
3.5892,3
3.2242
3.1052
4.8592
3.6254
3.0602
n/a
1.0602
1.2502
2.1602
3.4902
2.2054
1.3302
Earliest par
redemption
date
October 31
2023
October 31
2022
As at
–
September 14, 2023
July 25, 2024
April 22, 2025
March 4, 2026
September 15, 2026
January 26, 2027
$
196
–
1,513
3,005
1,246
2,018
1,642
$
200
1,750
1,505
3,001
1,247
1,940
1,647
$ 9,620
$ 11,290
1 The subordinated notes and debentures include non-viability contingent capital
(NVCC) provisions and qualify as regulatory capital under OSFI’s Capital Adequacy
Requirements (CAR) guideline. Refer to Note 20 for further details.
2 Interest rate is for the period to but excluding the earliest par redemption date, and
thereafter, it will be reset at a rate of three-month BA rate (as such term is defined
in the applicable offering document) plus the reset spread noted.
3 On September 14, 2023, the Bank redeemed all of its outstanding $1.75 billion
3.589% medium-term notes due September 14, 2028, at a redemption price of
100 per cent of the principal amount, plus accrued and unpaid interest to, but
excluding, the redemption date.
4 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.
The total change in subordinated notes and debentures for the year ended
October 31, 2023 primarily relates to the redemption of 3.589% medium-
term notes by the Bank on September 14, 2023, foreign exchange
translation and the basis adjustment for fair value hedges.
N O T E 2 0 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 AND OTHER EQUITY INSTRUMENTS
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 either
quarterly or semi-annually in accordance with applicable terms, as and
when declared by the Board of Directors of the Bank. All preferred
shares issued by the Bank currently 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 impacted
instruments into a variable number of common shares upon the
occurrence of a Trigger Event. A Trigger Event is currently defined in
the CAR Guideline as an event where OSFI determines that the Bank
is, or is about to become, non-viable and that after conversion of all
non-common capital instruments and consideration of any other relevant
factors or circumstances, the viability of the Bank is expected to be
restored, or where the Bank has accepted or agreed to accept a capital
injection or equivalent support from a federal or provincial government
of Canada without which the Bank would have been determined by
OSFI to be non-viable.
Limited Recourse Capital Notes
The Bank has issued Limited Recourse Capital Notes (the “LRCNs”)
with recourse limited to assets held in a trust consolidated by the Bank
(the “Limited Recourse Trust”). The Limited Recourse Trust’s assets
consist of Class A First Preferred Shares of the Bank, each series which
is issued concurrently with the LRCNs (the “LRCN Preferred Shares”).
The LRCN Preferred Shares are eliminated on the Bank’s consolidated
financial statements.
In the event of (i) non-payment of interest following any interest
payment date, (ii) non-payment of the redemption price in case of a
redemption of the LRCNs, (iii) non-payment of principal plus accrued
and unpaid interest at the maturity of the LRCNs, (iv) an event of default
on the LRCNs, or (v) a Trigger Event, the recourse of each LRCN holder
will be limited to that holder’s pro rata share of the Limited Recourse
Trust’s assets.
The LRCNs, by virtue of the recourse to the LRCN Preferred Shares,
include standard NVCC provisions necessary for them to qualify as
Additional Tier 1 Capital under OSFI’s CAR guideline. NVCC provisions
require the conversion of the instrument into a variable number of
common shares upon the occurrence of a Trigger Event. In such an
event, each LRCN Preferred Share will automatically and immediately
be converted into a variable number of common shares which will be
delivered to LRCN holders in satisfaction of the principal amount of, and
accrued and unpaid interest on, the LRCNs. The number of common
shares issued will be determined based on the conversion formula set
out in the terms of the respective series of LRCN Preferred Shares.
198
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
The LRCNs are compound instruments with both equity and liability
features. Non-payment of interest and principal in cash does not constitute
an event of default and will trigger the delivery of the LRCN Preferred
Shares. The liability component has a nominal value and, therefore,
the proceeds received upon issuance have been presented as equity,
and any interest payments are accounted for as distributions on other
equity instruments.
The following table summarizes the changes to the shares and other
equity instruments issued and outstanding and treasury instruments held
as at and for the years ended October 31, 2023 and October 31, 2022.
Shares and Other Equity Instruments Issued and Outstanding and Treasury Instruments Held
(millions of shares or other equity instruments and millions of Canadian dollars)
October 31, 2023
October 31, 2022
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
Purchase of shares for cancellation and other
Balance as at end of year – common shares
Preferred Shares and Other Equity Instruments
Preferred Shares – Class A
Series 1
Series 3
Series 5
Series 7
Series 9
Series 16
Series 18
Series 201
Series 22
Series 24
Series 27
Series 28
Other Equity Instruments2
Limited Recourse Capital Notes – Series 1
Limited Recourse Capital Notes – Series 2
Limited Recourse Capital Notes – Series 33
Number
of shares
1,821.7
1.2
20.5
(52.0)
1,791.4
20.0
20.0
20.0
14.0
8.0
14.0
14.0
–
14.0
18.0
0.8
0.8
Amount
$ 24,363
83
1,720
(732)
$ 25,434
$
500
500
500
350
200
350
350
–
350
450
850
800
Number
of shares
1,823.9
1.8
17.0
(21.0)
1,821.7
20.0
20.0
20.0
14.0
8.0
14.0
14.0
16.0
14.0
18.0
0.8
0.8
Amount
$ 23,066
120
1,442
(265)
$ 24,363
$
500
500
500
350
200
350
350
400
350
450
850
800
143.6
$ 5,200
159.6
$ 5,600
1.8
1.5
1.7
5.0
$ 1,750
1,500
2,403
5,653
1.8
1.5
1.7
5.0
$ 1,750
1,500
2,403
5,653
Balance as at end of year – preferred shares and other equity instruments
148.6
$ 10,853
164.6
$ 11,253
Treasury – common shares4
Balance as at beginning of year
Purchase of shares
Sale of shares
Balance as at end of year – treasury – common shares
Treasury – preferred shares and other equity instruments4
Balance as at beginning of year
Purchase of shares and other equity instruments
Sale of shares and other equity instruments
Balance as at end of year – treasury – preferred shares and other equity instruments
1.0
94.9
(95.2)
0.7
0.1
3.7
(3.7)
0.1
$
(91)
(7,959)
7,986
$
(64)
$
(7)
(590)
532
$
(65)
1.9
116.6
(117.5)
1.0
0.1
3.0
(3.0)
0.1
$
(152)
(10,852)
10,913
$
(91)
$
(10)
(255)
258
$
(7)
1 On October 31, 2023, the Bank redeemed all of its 16 million outstanding
Non-Cumulative 5-Year Rate Reset Class A First Preferred Shares NVCC,
Series 20 (“Series 20 Preferred Shares”), at a redemption price of $25.00 per
Series 20 Preferred Share, for a total redemption cost of $400 million.
2 For LRCNs, the number of shares represents the number of notes issued.
3 For LRCNs – Series 3, the amount represents the Canadian dollar equivalent of the
U.S. dollar notional amount. Refer to “Preferred Shares and Other Equity Instruments –
Significant Terms and Conditions” table for further details.
4 When the Bank purchases its own equity instruments as part of its trading business,
they are classified as treasury instruments and the cost of these instruments is
recorded as a reduction in equity.
199
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
Preferred Shares and Other Equity Instruments – Significant Terms and Conditions
(millions of Canadian dollars)
NVCC Rate Reset Preferred Shares
Series 1
Series 3
Series 5
Series 7
Series 9
Series 16
Series 183
Series 22
Series 24
Series 27
Series 28
Other Equity Instruments
NVCC Limited Recourse Capital Notes4,5
Series 1
Series 2
Series 36
Issue date
Annual
yield (%)1
Dividend
frequency1
Reset
spread (%)1
Next redemption/
conversion date1,2
Convertible
into1,2
June 4, 2014
July 31, 2014
December 16, 2014
March 10, 2015
April 24, 2015
July 14, 2017
March 14, 2018
January 28, 2019
June 4, 2019
April 4, 2022
July 25, 2022
3.662
3.681
3.876
3.201
3.242
6.301
5.747
5.20
5.10
5.75
7.232
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Semi-annual
Semi-annual
2.24
2.27
2.25
2.79
2.87
3.01
2.70
3.27
3.56
3.317
4.20
October 31, 2024
July 31, 2024
January 31, 2025
July 31, 2025
October 31, 2025
October 31, 2027
April 30, 2028
April 30, 2024
July 31, 2024
October 31, 2027
October 31, 2027
Series 2
Series 4
Series 6
Series 8
Series 10
Series 17
Series 19
Series 23
Series 25
–
–
Issue date
Annual
yield (%)
Coupon
frequency
Reset
spread (%)
Next redemption
date
Recourse to
Preferred Shares4
July 29, 2021
September 14, 2022
October 17, 2022
3.6
7.283
8.125
Semi-annual
Semi-annual
Quarterly
2.747
4.10
4.08
October 31, 2026
October 31, 2027
October 31, 2027
Series 26
Series 29
Series 30
1 Non-cumulative preferred dividends for each series are payable as and when declared
by the Board of Directors. The dividend rate of the Rate Reset Preferred Shares will
reset on the next earliest optional redemption/conversion date and every 5 years
thereafter to equal the then 5-year Government of Canada bond yield plus the noted
reset spread. 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 noted reset spread unless otherwise stated.
2 Subject to regulatory consent and unless otherwise stated, preferred shares are
redeemable on the next earliest optional redemption date as noted and every 5 years
thereafter. Preferred Shares, except Series 27 and Series 28, are convertible into the
corresponding series of floating rate preferred shares 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.
NVCC, Series 19 (“Series 19 Shares”). As had been previously announced on
March 31, 2023, the dividend rate for the Series 18 Shares for the 5-year period from
and including April 30, 2023 to but excluding April 30, 2028, if declared, is payable
at a per annum rate of 5.747%.
4 LRCN Preferred Share Series 26 and Series 29 were issued at a price of $1,000 per share
and LRCN Preferred Share Series 30 was issued at a price of US$1,000 per share.
The LRCN Preferred Shares are eliminated on the Bank’s consolidated balance sheet.
5 LRCNs may be redeemed at the option of the Bank, with the prior written approval
of OSFI, in whole or in part on prior notice by the Bank as of the earliest redemption
date and each optional redemption date thereafter. Unless otherwise stated, the
interest rate on the LRCNs will reset on the next earliest optional redemption date
and every 5 years thereafter to equal the then 5-year Government of Canada bond
yield plus the noted reset spread.
3 On April 18, 2023, the Bank announced that none of its 14 million Non-Cumulative
5-Year Rate Reset Preferred Shares NVCC, Series 18 (“Series 18 Shares”) would be
converted on April 30, 2023 into Non-Cumulative Floating Rate Preferred Shares
6 LRCN Series 3 is denominated in U.S. dollars. The interest rate on LRCN Series 3 will
reset on the next interest reset date and every 5 years thereafter to equal the then
5-year U.S. Treasury yield plus the noted reset spread.
NVCC Provision
If an NVCC trigger event were to occur, for all series of Class A First
Preferred Shares excluding the preferred shares issued with respect to
LRCNs, 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 1.0 billion
in aggregate.
The LRCNs, by virtue of the recourse to the preferred shares held in the
Limited Recourse Trust, include NVCC provisions. For LRCNs, if an NVCC
trigger were to occur, the maximum number of common shares that could
be issued, assuming there are no declared and unpaid dividends on the
preferred shares series issued in connection with such LRCNs, would be
1.1 billion in aggregate.
For NVCC subordinated notes and debentures, if an 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 2.7 billion in aggregate.
DIVIDEND RESTRICTIONS
The Bank is prohibited by the Bank Act (Canada) 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 (Canada) or directions of OSFI. The Bank does not anticipate
that this condition will restrict it from paying dividends in the normal
course of business. 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.
DIVIDENDS
On November 29, 2023, the Board approved a dividend in an amount
of one dollar and two cents ($1.02) per fully paid common share in the
capital stock of the Bank for the quarter ending January 31, 2024, payable
on and after January 31, 2024, to shareholders of record at the close of
business on January 10, 2024.
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 treasury at an average market price based on the last five trading
days before the date of the dividend payment, with a discount of between
0% to 5% at the Bank’s discretion or purchased from the open market
at market price.
During the year ended October 31, 2023, under the dividend
reinvestment plan, the Bank issued 3.7 million common shares from
treasury with no discount and 16.8 million common shares with a 2%
discount. During the year ended October 31, 2022, under the dividend
reinvestment plan, the Bank issued 2.5 million common shares from
treasury with no discount and 14.5 million common shares with a
2% discount.
NORMAL COURSE ISSUER BID
On June 21, 2023, the Bank announced that the Toronto Stock Exchange
(TSX) and OSFI approved the Bank’s previously announced normal course
issuer bid (NCIB) to repurchase for cancellation up to 30 million of its
common shares (June NCIB).
200
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
On August 28, 2023, the Bank announced that the TSX and OSFI had
approved the launch of a new NCIB to repurchase for cancellation up to
90 million of its common shares (August NCIB) upon completion of the
repurchase for cancellation of 30 million of its common shares under
the June NCIB. The June NCIB terminated on August 30, 2023 and the
August NCIB commenced on August 31, 2023.
During the year ended October 31, 2023, the Bank repurchased
52 million common shares under the June NCIB and the August NCIB,
at an average price of $82.356 per share for a total amount of
$4.3 billion.
N O T E 2 1
|
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
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 2023 were
$94 million (2022 – $97 million).
the results of property and casualty insurance, life and health insurance,
as well as reinsurance assumed and ceded in Canada and internationally.
For the years ended October 31
2023
2022
$ 6,041
753
$ 5,740
713
5,288
383
5,671
3,953
248
5,027
353
5,380
3,094
194
$ 3,705
$ 2,900
RECONCILIATION OF CHANGES IN INSURANCE LIABILITIES
Insurance-related liabilities are comprised of gross amounts related to
provision for unpaid claims (section (a) below), unearned premiums
(section (b) below) and other insurance 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)
October 31, 2023
October 31, 2022
Reinsurance/
Other
recoverable
Gross
Net
Gross
Reinsurance/
Other
recoverable
Net
Balance as at beginning of year
$ 4,879
$
193
$ 4,686
$ 5,096
$
217
$ 4,879
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
3,807
(458)
(15)
(39)
3,295
(1,799)
(1,550)
(3,349)
(1)
–
45
2
(3)
44
–
(103)
(103)
(1)
3,807
(503)
(17)
(36)
3,251
(1,799)
(1,447)
(3,246)
–
3,292
(446)
(340)
(35)
2,471
(1,449)
(1,218)
(2,667)
(21)
50
44
(5)
–
89
–
(92)
(92)
(21)
3,242
(490)
(335)
(35)
2,382
(1,449)
(1,126)
(2,575)
–
Balance as at end of year
$ 4,824
$
133
$ 4,691
$ 4,879
$
193
$ 4,686
201
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
(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)
October 31, 2023
October 31, 2022
Gross
Reinsurance
Net
Gross
Reinsurance
Net
Balance as at beginning of year
$ 2,484
$
31
$ 2,453
$ 2,343
$
25
$ 2,318
Written premiums
Earned premiums
Balance as at end of year
4,936
(4,669)
181
(183)
4,755
(4,486)
4,517
(4,376)
171
(165)
4,346
(4,211)
$ 2,751
$
29
$ 2,722
$ 2,484
$
31
$ 2,453
(c) Movements in other insurance liabilities
Other insurance liabilities were $30 million as at October 31, 2023
(October 31, 2022 – $105 million). The decrease of $75 million (2022 –
decrease of $132 million) was mainly driven by actuarial assumption
changes in the life and health business.
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 deficiency. 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
2014
and prior
2015
2016
2017
2018
2019
2020
2021
2022
2023
Total
Accident Year
$ 6,077
$ 2,409
$ 2,438
$ 2,425
$ 2,631
$ 2,727
$ 2,646
$ 2,529
$ 3,242
$ 3,807
5,902
5,696
5,452
5,279
5,077
4,981
4,974
4,943
4,931
2,367
2,310
2,234
2,162
2,115
2,100
2,086
2,085
2,421
2,334
2,264
2,200
2,159
2,143
2,134
2,307
2,258
2,201
2,151
2,108
2,086
2,615
2,573
2,522
2,465
2,408
2,684
2,654
2,575
2,498
2,499
2,412
2,284
2,367
2,258
3,150
4,931
2,085
2,134
2,086
2,408
2,498
2,284
2,258
3,150
3,807
(4,784)
(2,015)
(2,035)
(1,967)
(2,194)
(2,143)
(1,847)
(1,691)
(2,201)
(1,799)
147
70
99
119
214
355
437
567
949
2,008
$ 4,965
(630)
356
$ 4,691
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 significant 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 risk adjustment, 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 significant 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 final
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.
202
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
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, 2023
October 31, 2022
Impact on net
income (loss)
before
income taxes
Impact on net
income (loss)
before
income taxes
Impact on
equity
Impact on
equity
As at
$
96
(102)
$
(44)
44
(58)
58
(219)
219
$
$
72
(77)
(33)
33
(44)
44
(165)
165
$
101
(107)
$
(44)
44
(64)
64
(222)
222
$
$
75
(79)
(33)
33
(47)
47
(165)
165
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.
• Expense assumptions are based on the annual Finance expense study.
A sensitivity analysis for possible movements in the life and health
insurance business assumptions was performed and the impact is not
significant 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 turn largely
achieved through diversification by line of business and geographical
areas. For automobile insurance, legislation is in place at a provincial level
and this creates differences in the benefits provided among the provinces.
As at October 31, 2023, for the property and casualty insurance
business, 67.3% of net written premiums were derived from automobile
policies (October 31, 2022 – 68.1%) followed by residential with
32.4% (October 31, 2022 – 31.6%). The distribution by provinces show
that business is mostly concentrated in Ontario with 50.8% of net
written premiums (October 31, 2022 – 51.2%). The Western provinces
represented 31.5% (October 31, 2022 – 31.7%), followed by the Atlantic
provinces with 10.9% (October 31, 2022 – 10.8%), and Québec at 6.8%
(October 31, 2022 – 6.3%).
Concentration risk is not a major concern for the life and health
insurance business as it does not have a material level of regional
specific 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 diversification 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 2 SHARE-BASED COMPENSATION
|
STOCK OPTION PLAN
The Bank maintains a stock option program for certain key employees.
Options on common shares are 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 fixed price equal to the closing market price of the shares
on the TSX on the day prior to the date the options were issued. The
outstanding options expire on various dates to December 12, 2032. The
following table summarizes the Bank’s stock option activity and related
information, adjusted to reflect the impact of the 2014 stock dividend
on a retrospective basis, for the years ended October 31, 2023 and
October 31, 2022.
Stock Option Activity
(millions of shares and Canadian dollars)
Number outstanding, beginning of year
Granted
Exercised
Forfeited/expired
Number outstanding, end of year
Exercisable, end of year
Available for grant
The weighted-average share price for the options exercised in 2023 was
$85.53 (2022 – $95.47).
2023
Number
of shares
Weighted-
average
exercise price
Number
of shares
12.8
2.5
(1.2)
–
14.1
5.1
7.4
$ 72.05
90.55
58.32
79.27
$ 76.58
$ 64.18
12.2
2.5
(1.8)
(0.1)
12.8
4.4
9.9
2022
Weighted-
average
exercise price
$ 65.36
95.33
57.65
80.75
$ 72.05
$ 60.16
203
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
The following table summarizes information relating to stock options
outstanding and exercisable as at October 31, 2023.
Range of Exercise Prices
(millions of shares and Canadian dollars)
$47.59 – $53.15
$65.75 – $69.39
$71.88 – $72.84
$90.55
$95.33
For the year ended October 31, 2023, the Bank recognized compensation
expense for stock option awards of $35.1 million (October 31, 2022 –
$30.5 million). For the year ended October 31, 2023, 2.5 million
(October 31, 2022 – 2.5 million) options were granted by the Bank at
a weighted-average fair value of $14.70 per option (2022 – $12.41
per option) estimated using a binomial tree-based valuation option
pricing model.
The following table summarizes the assumptions used for estimating
the fair value of options for the years ended October 31, 2023 and
October 31, 2022.
Assumptions Used for Estimating the Fair Value of Options
(in Canadian dollars, except as noted)
Risk-free interest rate
Option contractual life
Expected volatility
Expected dividend yield
Exercise price/share price
2023
2.87%
2022
1.47%
10 years
10 years
18.43%
3.69%
17.89%
3.66%
$ 90.55
$ 95.33
The risk-free interest rate is based on Government of Canada benchmark
bond yields as at the grant date. Expected volatility is calculated based
on the historical average daily volatility and expected dividend yield is
based on dividend payouts in the last fiscal year. These assumptions are
measured over a period corresponding to the option contractual 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 final 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 Canadian financial institutions. For the
year ended October 31, 2023, the Bank awarded 9.1 million of such share
units at a weighted-average price of $88.75 (2022 – 6.9 million units at
a weighted-average price of $95.07). The number of such share units
outstanding under these plans as at October 31, 2023 was 25.8 million
(October 31, 2022 – 21.6 million).
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
1.6
2.5
5.1
2.5
2.4
1.4
4.3
6.0
9.0
8.0
52.13
68.13
72.40
90.55
95.33
1.6
2.5
1.1
–
–
52.13
68.13
72.64
–
–
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. For the year ended October 31, 2023, the Bank
awarded 0.2 million deferred share units at a weighted-average price of
$89.88 (2022 – 0.2 million units at a weighted-average price of $94.80).
As at October 31, 2023, 7.0 million deferred share units were outstanding
(October 31, 2022 – 6.8 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, 2023, the Bank recognized compensation expense for
these plans of $870 million (2022 – $657 million). This expense
includes losses from derivatives used to manage the volatility of share-
based compensation of $337 million (2022 – $111 million gains).
The carrying amount of the liability relating to these plans, based
on the closing share price, was $2.4 billion at October 31, 2023
(October 31, 2022 – $2.3 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 up to 10% of their annual eligible
earnings (net of source deductions) to the Employee Ownership Plan.
For participating employees below the level of Vice President, the Bank
matches 100% of the first $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
first. The Bank’s contributions vest once an employee has completed
two years of continuous service with the Bank. For the year ended
October 31, 2023, the Bank’s contributions totalled $89 million (2022 –
$85 million) and were expensed as salaries and employee benefits.
As at October 31, 2023, an aggregate of 24 million (October 31, 2022 –
23 million) common shares were held under the Employee Ownership
Plan. 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.
204
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
N O T E 2 3 EMPLOYEE BENEFITS
|
PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS
The Bank sponsors a number of pension and post-retirement benefit plans
for current eligible and former employees. Pension arrangements include
defined benefit pension plans, defined contribution pension plans and
supplementary arrangements that provide pension benefits in excess of
statutory limits. The Bank also provides certain post-retirement benefits.
The Bank’s principal defined benefit pension plans, consisting of The
Pension Fund Society of The Toronto-Dominion Bank (the “Society”)
and the defined benefit portion of the TD Pension Plan (Canada) (the
“TDPP DB”), are for eligible Canadian Bank employees who elected to
join the Society or the TDPP DB. The Society was closed to new members
on January 30, 2009, and the TDPP DB commenced on March 1, 2009.
Effective December 31, 2018, the TDPP DB 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 defined contribution
portion of the TDPP (the “TDPP DC”) after one year of service. Benefits
under the principal defined benefit pension plans are determined
based upon the period of plan participation and the average salary of
the member in the best consecutive five years in the last ten years of
combined plan membership. Benefits under the TDPP DC are funded
from the balance of the accumulated contributions of the member and
the Bank plus the member’s investment earnings. Annual expense for
the TDPP DC is equal to the Bank’s contributions to the plan.
Funding for the Bank’s principal defined benefit pension plans is
provided by contributions from the Bank and members of the plans
through a separate trust. 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. Any deficits determined in the
funding valuations must generally be funded over a period not exceeding
fifteen years. The Bank’s funding policy is to make at least the minimum
annual contributions required by legislation. Any contributions in excess
of the minimum requirements are discretionary. The principal defined
benefit pension plans are registered with OSFI and the Canada Revenue
Agency and are subject to the acts and regulations that govern federally
regulated pension plans. The 2023 and 2022 contributions were made
in accordance with the actuarial valuation reports for funding purposes
as at October 31, 2022 and October 31, 2021, respectively. Valuations
for funding purposes are being prepared as of October 31, 2023 for the
Society and no later than October 31, 2025 for the TDPP DB.
Post-retirement defined benefit plans are unfunded and, where offered,
generally include health care and dental benefits or, to assist with the cost,
a benefits subsidy to be used to reduce the cost of coverage. Employees
must meet certain age and service requirements to be eligible for post-
retirement benefits and are generally required to pay a portion of the cost
of the benefits. Effective June 1, 2017, the Bank’s principal post-retirement
defined benefit plan, covering eligible Canadian employees, was closed
to new employees hired on or after that date.
(a) INVESTMENT STRATEGY AND ASSET ALLOCATION
The principal defined benefit pension plans are expected to each achieve
a rate of return that meets or exceeds the change in value of the plan’s
respective liabilities over rolling five-year periods. The investments
are managed with the primary objective of providing reasonable rates
of return, consistent with available market opportunities, economic
conditions, consideration of plan liabilities, prudent portfolio management,
and the target risk profiles for the plans.
The asset allocations by asset category for the principal defined benefit
pension plans are as follows:
Plan Asset Allocation
(millions of Canadian dollars
except as noted)
As at October 31, 2023
Debt
Equity
Alternative investments2
Other3
Total
As at October 31, 2022
Debt
Equity
Alternative investments2
Other3
Total
Target
range
60-90%
0-21
0-29
n/a
50-80%
0-25
6-35
n/a
Society1
Fair value
Quoted
Unquoted
$
–
72
–
–
$ 72
$
–
171
–
–
$ 171
$ 4,513
153
1,351
(668)
$ 5,349
$ 4,039
318
1,513
(335)
$ 5,535
% of
total
74%
4
22
n/a
100%
67%
8
25
n/a
100%
Target
range
55-75%
0-30
5-38
n/a
55-75%
0-30
5-38
n/a
TDPP DB1
Fair value
Quoted
Unquoted
$
–
79
–
–
$ 79
$
–
126
–
–
$ 126
$ 2,549
166
734
(729)
$ 2,720
$ 2,814
212
641
(1,018)
$ 2,649
% of
total
72%
7
21
n/a
100%
74%
9
17
n/a
100%
1 The principal defined benefit pension plans invest in investment vehicles which may
3 Consists mainly of amounts due to and due from brokers for securities traded but
hold shares or debt issued by the Bank.
2 The principal defined benefit pension plans’ alternative investments are primarily
private equity, infrastructure, and real estate funds.
not yet settled, bond repurchase agreements, interest and dividends receivable, and
Pension Enhancement Account assets, which are invested at the members’ discretion
in certain mutual and pooled funds.
205
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
Public debt instruments of the Bank’s principal defined benefit pension
plans must meet or exceed a credit rating of BBB- at the time of purchase.
The equity portfolios of the principal defined benefit pension plans
are broadly diversified primarily across small to large capitalization quality
companies with no individual holding exceeding 10% of the equity
portfolio or 10% of the outstanding shares of any one company. Foreign
equities are included to further diversify the portfolio. A maximum of 10%
of the equity portfolio can be invested in emerging market equities.
Derivatives can be utilized by the principal defined benefit pension plans
provided they are not used to create financial leverage, unless the financial
leverage is for risk management purposes. The principal defined benefit
pension plans are permitted to invest in alternative investments, such as
private equity, infrastructure equity, and real estate.
(c) OTHER SIGNIFICANT PENSION AND POST-RETIREMENT
BENEFIT PLANS
Canada Trust (CT) Pension Plan
As a result of the acquisition of CT Financial Services Inc., the Bank
sponsors a defined benefit pension plan, which is closed to new members,
but for which active members continue to accrue benefits. Funding for the
plan is provided by contributions from the Bank and members of the plan.
TD Insurance Pension Plan
As a result of the acquisition of Meloche Monnex Inc., the Bank sponsors
a defined benefit pension plan, which is closed to new members, but for
which active members continue to accrue benefits. Funding for the plan is
provided by contributions from the Bank.
(b) RISK MANAGEMENT PRACTICES
The Bank’s principal defined benefit 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 fiduciary capacity.
Strategic, material plan changes require the approval of the Bank’s Board
of Directors.
The principal defined benefit pension plans’ investments include
financial instruments which are exposed to various risks. These risks
include market risk (including foreign currency, interest rate, inflation,
equity price, and credit spread risks), credit risk, and liquidity risk. Key
material risks faced by defined benefit plans are a decline in interest rates
or credit spreads, which could increase the present value of the projected
benefit obligation by more than the change in the value of plan assets,
and from longevity risk (that is, lower mortality rates).
Asset-liability matching strategies are employed to focus on obtaining
an appropriate balance between earning an adequate return and having
changes in liability values hedged by changes in asset values.
The principal defined benefit pension plans manage these financial risks
in accordance with the Pension Benefits Standards Act, 1985, applicable
regulations, as well as the plans’ written investment policies. Specific risk
management practices monitored for the principal defined benefit pension
plans include performance, credit exposure, and asset mix.
TD Bank, N.A. Retirement Plans
TD Bank, N.A. and its subsidiaries maintain a defined contribution 401(k)
plan covering all employees. Annual expense is equal to the Bank’s
contributions to the plan. TD Bank, N.A. also has frozen defined benefit
pension plans covering certain legacy TD Banknorth and TD Auto Finance
(legacy Chrysler Financial) employees.
Government Pension Plans
The Bank also makes contributions to government pension plans, including
the Canada Pension Plan, Quebec Pension Plan and Social Security under
the U.S. Federal Insurance Contributions Act.
(d) DEFINED CONTRIBUTION PLAN EXPENSE
The following table summarizes expenses for the Bank’s defined
contribution plans.
Defined Contribution Plan Expenses
(millions of Canadian dollars)
For the years ended October 31
Defined contribution pension plans1
Government pension plans2
Total
2023
250
502
752
$
$
2022
195
412
607
$
$
1 Includes the TDPP DC and the TD Bank, N.A. defined contribution 401(k) plan.
2 Includes Canada Pension Plan, Quebec Pension Plan, and Social Security under the
U.S. Federal Insurance Contributions Act.
(e) DEFINED BENEFIT PLAN FINANCIAL INFORMATION
The following table presents the financial position of the Bank’s
principal pension and post-retirement defined benefit plans and
the Bank’s other material defined benefit pension plans for the years
ended October 31, 2023 and October 31, 2022. Other employee
defined benefit plans operated by the Bank and certain of its subsidiaries
are not considered material for disclosure purposes.
206
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
Employee Defined Benefit Plans’ Obligations, Assets, Funded Status, and Expense
(millions of Canadian dollars, except as noted)
Principal pension plans
Principal
post-retirement
benefit plan1
Other
pension plans2
2023
2022
2023
2022
2023
2022
$ 6,763
$ 8,788
$
372
$
466
$ 2,339
$ 2,930
Change in projected benefit obligation
Projected benefit obligation at beginning of year
Obligations included due to the TD Auto Finance (Canada)
plan merger3
Service cost – benefits earned
Interest cost on projected benefit obligation
Remeasurement (gain) loss – financial
Remeasurement (gain) loss – demographic
Remeasurement (gain) loss – experience
Members’ contributions
Benefits paid
Change in foreign currency exchange rate
Projected benefit obligation as at October 31
Wholly or partially funded projected benefit obligation
Unfunded projected benefit obligation
Total projected benefit obligation as at October 31
Change in plan assets
Plan assets at fair value at beginning of year
Assets included due to the TD Auto Finance (Canada) plan merger3
Interest income on plan assets
Remeasurement gain (loss) – return on plan assets
less interest income
Members’ contributions
Employer’s contributions
Benefits paid
Change in foreign currency exchange rate
Defined benefit administrative expenses
Plan assets at fair value as at October 31
Excess (deficit) of plan assets at fair value over projected
benefit obligation
Effect of asset limitation and minimum funding requirement
Net defined benefit asset (liability)
Recorded in
Other assets in the Bank’s Consolidated Balance Sheet
Other liabilities in the Bank’s Consolidated Balance Sheet
Net defined benefit asset (liability)
Annual expense
Net employee benefits expense includes the following:
Service cost – benefits earned
Net interest cost (income) on net defined benefit liability (asset)
Interest cost on asset limitation and minimum funding requirement
Defined benefit administrative expenses
–
247
353
(487)
–
151
113
(307)
–
6,833
6,833
–
6,833
8,481
–
453
(698)
113
187
(307)
–
(9)
8,220
1,387
(195)
1,192
1,192
–
1,192
247
(100)
21
10
Total
$
178
$
Actuarial assumptions used to determine the annual expense
Weighted-average discount rate for projected benefit obligation
Weighted-average rate of compensation increase
Assumed life expectancy at age 65, in years
Male aged 65
Female aged 65
Male aged 45
Female aged 45
Actuarial assumptions used to determine the projected benefit
obligation as at October 31
Weighted-average discount rate for projected benefit obligation
Weighted-average rate of compensation increase
Assumed life expectancy at age 65, in years
Male aged 65
Female aged 65
Male aged 45
Female aged 45
5.44%
2.88%
23.2
24.3
24.1
25.2
5.66%
2.78%
23.2
24.3
24.1
25.2
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 post-retirement defined benefit
plan is 3.24%. The rate is assumed to decrease gradually to 0.89% by the year 2040
and remain at that level thereafter (2022 – 2.99% grading to 1.08% by the year
2040 and remain at that level thereafter).
2 Includes Canada Trust defined benefit pension plan, TD Banknorth defined benefit
pension plan, TD Auto Finance defined benefit pension plan, TD Insurance defined
benefit pension plan, and supplemental executive defined benefit pension plans.
–
417
252
(2,610)
25
194
108
(411)
–
6,763
6,763
–
6,763
9,342
–
276
(1,200)
108
375
(411)
–
(9)
8,481
1,718
(384)
1,334
1,334
–
1,334
417
(24)
–
9
402
3.50%
2.46%
23.5
24.2
24.4
25.1
5.44%
2.88%
23.2
24.3
24.1
25.2
–
6
19
(9)
(18)
2
–
(20)
–
352
–
352
352
–
–
–
–
–
20
(20)
–
–
–
(352)
–
(352)
–
(352)
(352)
6
19
–
–
25
5.45%
3.25%
23.2
24.3
24.1
25.2
5.71%
3.05%
23.2
24.3
24.1
25.2
$
–
8
13
(105)
6
(1)
–
(15)
–
372
–
372
372
–
–
–
–
–
15
(15)
–
–
–
(372)
–
(372)
–
(372)
(372)
8
13
–
–
21
3.43%
2.80%
23.5
24.2
24.4
25.1
5.45%
3.25%
23.2
24.3
24.1
25.2
$
–
17
122
(97)
–
11
–
(149)
21
2,264
1,711
553
2,264
1,894
–
99
(76)
–
33
(149)
21
(6)
43
24
76
(770)
(9)
37
–
(147)
155
2,339
1,768
571
2,339
2,335
48
58
(609)
–
49
(147)
163
(3)
1,816
1,894
$
(448)
(53)
(501)
62
(563)
(501)
17
23
4
5
49
5.56%
1.42%
21.9
23.4
22.6
24.2
5.95%
1.35%
21.9
23.4
22.6
24.3
$
(445)
(61)
(506)
72
(578)
(506)
24
18
–
4
46
3.08%
1.22%
21.9
23.3
22.6
24.1
5.56%
1.42%
21.9
23.4
22.6
24.2
3 During 2022, the TD Auto Finance (Canada) pension plan (“TDAF Canada”) was
deemed to be merged with the CT defined benefit pension plan and previously
undisclosed obligations and assets of TDAF Canada are now included in the fiscal
2022 disclosure.
207
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
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 defined benefit pension plans
Other defined benefit pension plans
Total
Other liabilities
Principal post-retirement defined benefit plan
Other defined benefit pension plans
Other employee benefit plans1
Total
Net amount recognized
1 Consists of other pension and other post-retirement benefit plans operated by
the Bank and its subsidiaries that are not considered material for disclosure purposes.
The following table summarizes the remeasurements recognized in OCI for
the Bank’s principal pension and post-retirement defined benefit plans and
the Bank’s other defined benefit pension plans.
October 31
2023
$ 1,192
62
1,254
352
563
329
1,244
$
10
As at
October 31
2022
$ 1,334
72
1,406
372
578
336
1,286
$
120
Amounts Recognized in Other Comprehensive Income for Remeasurement of Defined Benefit Plans1,2
(millions of Canadian dollars)
Principal
pension plans
Principal
post-retirement
benefit plan
Other
pension plans
For the years ended October 31
Remeasurement gains (losses) – financial
Remeasurement gains (losses) – demographic
Remeasurement gains (losses) – experience
Remeasurement gains (losses) – return on plan assets
less interest income
Changes in asset limitation and minimum funding requirement
$
2023
487
–
(151)
(697)
210
2022
2023
$
$ 2,610
(25)
(194)
(1,200)
(384)
9
18
(2)
–
–
25
$
$
2022
105
(6)
1
–
–
$
100
$
2023
97
–
(11)
(77)
12
21
$
2022
770
9
(37)
(608)
(49)
$
85
Total
$
(151)
$
807
$
1 Amounts are presented on a pre-tax basis.
2 Excludes net remeasurement gains (losses) recognized in OCI in respect of
other employee defined benefit plans operated by the Bank and certain of its
subsidiaries not considered material for disclosure purposes totaling $10 million
(2022 – $113 million).
(f) CASH FLOWS
During the year ended October 31, 2024, the Bank expects to contribute
nil to its principal defined benefit pension plans, $20 million to its principal
post-retirement defined benefit plan, and $62 million to its other defined
benefit pension plans. Future contribution amounts may change upon
the Bank’s review of its contribution levels during the year.
The following table summarizes the expected future benefit payments
for the next 10 years.
Expected Future Benefit Payments
(millions of Canadian dollars)
Benefit payments expected to be paid in:
2024
2025
2026
2027
2028
2029-2033
Total
208
Principal
pension plans
Principal
post-retirement
benefit plan
Other
pension plans
$ 355
374
397
418
441
2,479
$ 4,464
$
20
21
22
23
24
129
$ 239
$ 161
164
167
169
170
843
$ 1,674
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
(g) MATURITY PROFILE
The breakdown of the projected benefit obligations between active,
deferred, and retired members is as follows:
Disaggregation of Projected Benefit Obligation
(millions of Canadian dollars)
Active members
Deferred members
Retired members
Total
Principal
pension plans
Principal
post-retirement
benefit plan
Other
pension plans
As at October 31
2023
$ 4,459
452
1,922
$ 6,833
2022
$ 4,427
466
1,870
$ 6,763
2023
135
–
217
352
$
$
2022
143
–
229
372
$
$
$
2023
448
362
1,454
$
2022
451
371
1,517
$ 2,264
$ 2,339
The weighted-average duration of the projected benefit obligations
is as follows:
Duration of Projected Benefit Obligation
(number of years)
Principal
pension plans
Principal
post-retirement
benefit plan
Other
pension plans
As at October 31
Weighted-average duration
2023
13
2022
14
2023
12
2022
12
2023
10
2022
11
(h) SENSITIVITY ANALYSIS
The following table provides the sensitivity of the projected benefit
obligation for the Bank’s principal defined benefit pension plans,
the principal post-retirement defined benefit plan, and the Bank’s
significant other defined benefit pension plans to actuarial assumptions
considered significant by the Bank. These include discount rate, rates of
compensation increase, life expectancy, and health care cost initial trend
rates, as applicable. The sensitivity analysis provided in the table should
be used with caution, as it is hypothetical and the impact of changes in
each significant assumption may not be linear. For each sensitivity test,
the impact of a reasonably possible change in a single factor is shown
with other assumptions left unchanged. Actual experience may result
in simultaneous changes in a number of key assumptions, which could
magnify or diminish certain sensitivities.
Sensitivity of Significant Defined Benefit Plan Actuarial Assumptions
(millions of Canadian dollars, except as noted)
Impact of an absolute change in significant 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.
As at
October 31, 2023
Obligation Increase (Decrease)
Principal
pension plans
Principal
post-retirement
benefit plan
Other
pension plans
$ 953
(794)
$
44
(36)
$ 250
(209)
(192)
175
(114)
110
n/a
n/a
–1
–1
(8)
8
(6)
7
(16)
19
(67)
65
n/a
n/a
209
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
N O T E 2 4
|
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 (recovery of) 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 other1
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 (recovery of) income taxes – Consolidated Statement of Income
Provision for (recovery of) income taxes – Statement of Other Comprehensive Income
Current income taxes
Deferred income taxes
Total provision for (recovery of) income taxes – Statement of Other Comprehensive Income
Income taxes – other 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
1 Includes the $585 million impact to provision for income taxes as discussed in the
Implementation of the Canada Recovery Dividend and Change in Corporate Tax Rate
section below.
The Bank’s statutory and effective tax rate is outlined in the following table.
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 – net1
For the years ended October 31
2023
2022
$ 3,244
1,180
4,424
$ 3,793
(309)
3,484
(606)
(74)
(576)
(1,256)
3,168
65
(452)
(387)
(188)
(91)
(279)
2,502
2,099
1,380
822
4,301
(766)
(453)
(580)
(1,799)
$ 2,502
213
43
246
502
3,986
(3,189)
(423)
(3,612)
31
(15)
16
390
(129)
(36)
491
326
395
263
(594)
64
$
390
2023
$ 3,631
27.7%
$ 5,363
(109)
(952)
598
(0.8)
(7.3)
4.6
(123)
(1,117)
(137)
2022
26.3%
(0.6)
(5.5)
(0.7)
Provision for income taxes and effective income tax rate
$ 3,168
24.2%
$ 3,986
19.5%
1 Includes the $585 million impact to provision for income taxes as discussed in the
Implementation of the Canada Recovery Dividend and Change in Corporate Tax Rate
section below.
Implementation of the Canada Recovery Dividend and
Change in Corporate Tax Rate
On December 15, 2022, Bill C-32, Fall Economic Statement
Implementation Act, 2022, received Royal Assent. This bill enacted the
Canada Recovery Dividend (CRD) and increased the Canadian federal
tax rate for bank and life insurer groups by 1.5%.
The implementation of the CRD resulted in a provision for income taxes
of $553 million and a charge to OCI of $239 million, recognized in the
first quarter of 2023.
210
The increase in the Canadian federal tax rate of 1.5%, prorated for
the first taxation year that ends after April 7, 2022, resulted in a provision
for income taxes of $82 million and a tax benefit of $75 million in OCI
related to fiscal 2022, recognized in the first quarter of 2023. The Bank
also remeasured certain Canadian deferred tax assets and liabilities for the
increase in tax rate, which resulted in an increase in net deferred tax assets
of $50 million, which is recorded in provision for income taxes.
Other Tax Matters
The Canada Revenue Agency (CRA), Revenu Québec Agency (RQA) and
Alberta Tax and Revenue Administration (ATRA) are denying certain
dividend and interest deductions claimed by the Bank. During the year
ended October 31, 2023, the CRA reassessed the Bank for $15 million
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
of additional income tax and interest in respect of its 2018 taxation year,
the RQA reassessed the Bank for $17 million of additional income tax
and interest in respect of its 2016 and 2017 taxation years, and the ATRA
reassessed the Bank for $17 million of additional income tax and interest
in respect of its 2017 and 2018 taxation years. As at October 31, 2023,
the CRA has reassessed the Bank for $1,661 million for the years 2011
to 2018, the RQA has reassessed the Bank for $51 million for the years
2011 to 2017, and the ATRA has reassessed the Bank for $71 million
for the years 2011 to 2018. In total, the Bank has been reassessed for
$1,783 million of income tax and interest. The Bank expects to continue
to be reassessed for open years. The Bank is of the view that its tax filing
positions were appropriate and filed a Notice of Appeal with the Tax
Court of Canada on March 21, 2023.
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
Trading loans
Employee benefits
Losses available for carry forward
Tax credits
Land, buildings, equipment, other depreciable assets, and right-of-use assets
Securities
Other1
Total deferred tax assets
Deferred tax liabilities
Securities
Pensions
Deferred (income) expense
Intangibles
Goodwill
Total deferred tax liabilities
Net deferred tax assets
Reflected on the Consolidated Balance Sheet as follows:
Deferred tax assets
Deferred tax liabilities2
Net deferred tax assets
As at
October 31
2023
October 31
2022
$ 1,466
30
867
127
46
471
314
1,015
4,336
–
158
238
10
174
580
$ 1,339
28
757
62
41
280
–
257
2,764
195
184
227
47
154
807
3,756
1,957
3,960
204
2,193
236
$ 3,756
$ 1,957
1 Includes the deferred tax impact of the Stanford litigation provision. Refer to Note 26
2 Included in Other liabilities on the Consolidated Balance Sheet.
for further details.
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 $663 million as at October 31, 2023 (October 31, 2022 –
$594 million), of which $11 million (October 31, 2022 – $9 million) is
scheduled to expire within five 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, 2023. The total amount of these temporary differences was
$88 billion as at October 31, 2023 (October 31, 2022 – $75 billion).
The movement in the net deferred tax asset for the years ended
October 31, 2023 and October 31, 2022, was as follows:
Deferred Income Tax Expense (Recovery)
(millions of Canadian dollars)
Consolidated
statement of
income
Other
comprehensive
income
Business
combinations
and other
$
(127)
(2)
(9)
(53)
(5)
(194)
(704)
(66)
(5)
11
(122)
20
$
–
–
12
–
–
–
–
(443)
(21)
–
–
–
$
–
–
(113)
(12)
–
3
(54)
–
–
–
85
–
Deferred income tax expense
(recovery)
Allowance for credit losses
Trading loans
Employee benefits
Losses available for carry forward
Tax credits
Land, buildings, equipment,
other depreciable assets,
and right-of-use assets
Other deferred tax assets
Securities
Pensions
Deferred (income) expense
Intangibles
Goodwill
Total deferred income tax
expense (recovery)
For the years ended October 31
$
2023
Total
(127)
(2)
(110)
(65)
(5)
(191)
(758)
(509)
(26)
11
(37)
20
Consolidated
statement of
income
Other
comprehensive
income
Business
combinations
and other
$
32
7
55
7
(6)
(134)
(12)
251
(130)
179
229
24
$
–
–
51
–
–
–
–
(713)
239
–
–
–
$
–
–
–
–
–
–
(15)
–
–
–
–
–
$
2022
Total
32
7
106
7
(6)
(134)
(27)
(462)
109
179
229
24
$ (1,256)
$
(452)
$
(91)
$ (1,799)
$
502
$
(423)
$
(15)
$
64
211
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
N O T E 2 5 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.
income attributable to common shareholders and the weighted-average
number of shares outstanding for the effects of all dilutive potential
common shares that are assumed to be issued by the Bank.
Diluted earnings per share is calculated using the same method as
basic earnings per share except that certain adjustments are made to net
The following table presents the Bank’s basic and diluted earnings per
share for the years ended October 31, 2023 and October 31, 2022.
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
For the years ended October 31
2023
2022
$ 10,219
1,822.5
$
5.61
$ 10,219
10,219
1,822.5
1.9
1,824.4
$
5.60
$ 17,170
1,810.5
$
9.48
$ 17,170
17,170
1,810.5
3.1
1,813.6
$
9.47
1 For the year ended October 31, 2023, the computation of diluted earnings per share
excluded average options outstanding of 4.6 million with an exercise price of $93.09
as the option price was greater than the average market price of the Bank’s common
shares. For the year ended October 31, 2022, the computation of diluted earnings
per share excluded average options outstanding of 2.1 million with an exercise
price of $95.33, as the option price was greater than the average market price of
the Bank’s common shares.
N O T E 2 6 PROVISIONS, CONTINGENT LIABILITIES, COMMITMENTS, GUARANTEES, PLEDGED ASSETS, AND COLLATERAL
|
(a) PROVISIONS
The following table summarizes the Bank’s provisions recorded in
other liabilities.
Provisions
(millions of Canadian dollars)
Balance as at November 1, 2022
Additions
Amounts used
Release of unused amounts
Foreign currency translation adjustments and other
Restructuring
$
7
363
(174)
–
(4)
Litigation
and Other
$
382
1,928
(171)
(78)
119
$
Total
389
2,291
(345)
(78)
115
Balance as at October 31, 2023, before allowance for credit losses for off-balance sheet instruments
$
192
$ 2,180
$ 2,372
Add: Allowance for credit losses for off-balance sheet instruments1
Balance as at October 31, 2023
1 Refer to Note 8 for further details.
1,049
$ 3,421
Restructuring – The Bank undertook certain measures in the fourth
quarter of 2023 to reduce its cost base and achieve greater efficiency.
In connection with these measures, the Bank incurred $363 million of
restructuring charges in the fourth quarter of 2023. The restructuring costs
primarily relate to: (i) employee severance and other personnel-related
costs recorded as provisions, (ii) real estate optimization mainly recorded
as a reduction to land and buildings (refer to Note15), and (iii) asset
impairments on internally generated software (refer to Note 14).
(b) LEGAL AND REGULATORY MATTERS
In the ordinary course of business, the Bank and its subsidiaries are
involved in various legal and regulatory actions, including but not limited
to civil claims and lawsuits, regulatory examinations, investigations,
audits, and requests for information by governmental, regulatory, and
self-regulatory agencies and law enforcement authorities in various
jurisdictions, in respect of our businesses and compliance programs.
The Bank establishes 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, 2023, the Bank’s RPL
is from zero to approximately $1.44 billion (October 31, 2022 – from zero
to approximately $1.26 billion). The Bank’s provisions and RPL represent
the Bank’s best estimates based upon currently available information
for actions for which estimates can be made, but there are a number of
factors that could cause the Bank’s provisions and/or RPL to be significantly
212
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
different from its actual or RPL. For example, the Bank’s estimates involve
significant 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.
The Bank has been responding to formal and informal inquiries from
regulatory authorities and law enforcement concerning its Bank Secrecy
Act/anti-money laundering compliance program, both generally and
in connection with specific clients, counterparties, or incidents in the
U.S., including in connection with an investigation by the United States
Department of Justice. The Bank is cooperating with such authorities and
is pursuing efforts to enhance its Bank Secrecy Act/anti-money laundering
compliance program. While the ultimate outcomes of these inquiries and
investigations are unknown at this time, the Bank anticipates monetary
and/or non-monetary penalties to be imposed.
In management’s opinion, based on its current knowledge and after
consultation with counsel, the ultimate disposition of these actions,
individually or in the aggregate, will not have a material adverse effect
on the consolidated financial condition or the consolidated cash flows
of the Bank. However, because of the factors listed above, as well as
other uncertainties inherent in litigation and regulatory matters, there is a
possibility that the ultimate resolution of 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 certificates of deposit. The Bank provided certain correspondent
banking services to SIBL. Plaintiffs allege that the Bank and four other
banks aided and abetted Mr. Stanford and that the bank defendants
received fraudulent transfers from SIBL by collecting fees for providing
certain services.
The Official 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.
On November 7, 2017, the Court issued a decision denying plaintiffs’
motion to certify a class of investors in SIBL issued certificates of deposit.
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 1, 2019, a group of plaintiffs (comprising 1,286 investors)
filed a petition in Texas state court against the Bank and other bank
defendants, captioned Smith v. Independent Bank, et al., alleging claims
similar to those alleged in the Rotstain v. Trustmark National Bank,
et al. action.
On February 24, 2023, the Bank reached a settlement in principle
pursuant to which the Bank has agreed to pay US$1.205 billion to the
U.S. Receiver to resolve all claims against the Bank arising from or related
to Stanford, including the claims asserted in the Rotstain et al. v. Trustmark
National Bank et al. and Smith et al. v. Independent Bank actions. As a
result of this agreement, the Bank recorded a provision of approximately
$1.6 billion pre-tax ($1.2 billion after-tax) in the first quarter of 2023.
Under the terms of the agreement, all involved parties have agreed to
a bar order dismissing and releasing all current or future claims arising
from or related to Stanford.
On March 7, 2023, the parties finalized their settlement agreement, and
on March 8, 2023, the plaintiffs filed a motion to approve the settlement
in the multi-district litigation court in the Northern District of Texas. On
March 14, 2023, that Court preliminarily found that the terms of the
settlement agreement are adequate, fair, reasonable, and equitable. On
August 8, 2023, the Court granted the plaintiffs’ motion to approve the
settlement and issued the bar order.
On August 22, 2023, R. Allen Stanford filed an appeal of the order
approving the settlement. The U.S. Receiver moved to dismiss the appeal
as frivolous on August 29, 2023. On September 18, 2023, the U.S. Court
of Appeals for the Fifth Circuit dismissed the appeal. On November 7,
2023, the Supreme Court of the United States granted R. Allen Stanford’s
petition to extend the time to file a petition for a writ of certiorari from
December 17, 2023, to February 15, 2024. On November 8, 2023, the
U.S. Receiver requested that the Supreme Court of the United States
vacate the November 7, 2023, order and enter an order denying the
requested extension of time. The bar order and settlement approval
remain subject to further appellate review.
The Bank was also a defendant in two cases filed in the Ontario
Superior Court of Justice: (1) McDonald v. The Toronto-Dominion Bank,
an action filed 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 filed by five investors in
certificates of deposits sold by SIBL. The suits asserted that the Bank acted
negligently and provided knowing assistance to SIBL’s fraud. The trial
of both actions took place from January 11, 2021, to April 29, 2021.
On June 8, 2021, the Superior Court rendered judgment dismissing
both actions.
On July 8, 2021, the Joint Liquidators filed an appeal of their action in
the Court of Appeal for Ontario and the hearing of the appeal took place
on April 20-21, 2022. There is no appeal in the Dynasty Furniture action.
On November 17, 2022, the Court of Appeal for Ontario issued a
unanimous written decision which dismissed the appeal and affirmed
the trial decision. On January 16, 2023, the Joint Liquidators filed an
application for leave to appeal to the Supreme Court of Canada. On
July 20, 2023, the Supreme Court of Canada dismissed an application
for leave to appeal by the Joint Liquidators. As a result, the Canadian
proceeding has now ended.
Customer Class Actions – The Bank, along with several other Canadian
financial institutions, is a defendant in a number of matters brought
by customers alleging provincial claims in connection with various fees,
interest rate calculations, and credit decisions. The cases are in various
stages of maturity.
(c) 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 financing 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-
financial guarantees as payment does not depend on the occurrence
of a credit event and is generally related to a non-financial trigger event.
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 specific 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.
213
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
Credit Instruments
(millions of Canadian dollars)
the Bank from making a reasonable estimate of the maximum potential
amount that the Bank would be required to pay such counterparties.
As at
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
October 31
2023
October 31
2022
$ 39,310
$ 35,675
167
193
69,686
230,565
56,700
199,588
$ 339,728
$ 292,156
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, 2023, the Bank is committed to
fund $554 million (October 31, 2022 – $502 million) of private
equity investments.
Long-term Commitments or Leases
The Bank has obligations under long-term non-cancellable leases for
premises and equipment. The maturity profile for undiscounted lease
liabilities is $45 million for 2024, $102 million for 2025, $191 million
for 2026, $364 million for 2027, $347 million for 2028, $5,871 million
for 2029 and thereafter. Total lease payments, including $10 million
(October 31, 2022 – $9 million) paid for short-term and low-value
asset leases, for the year ended October 31, 2023, were $780 million
(October 31, 2022 – $798 million).
(d) 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.
(e) GUARANTEES
In addition to financial 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 insufficient.
Indemnification Agreements
In the normal course of operations, the Bank provides indemnification
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 indemnification agreements prevent
N O T E 2 7 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 significant influence over the
other party in making financial 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 benefit plans for the Bank’s employees.
The Bank also indemnifies directors, officers, 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.
(f) 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)
Sources of pledged assets and collateral
Bank assets
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
As at
October 31
2023
October 31
2022
$
6,166
130,829
219,282
696
356,973
$
8,916
95,961
107,916
1,032
213,825
432,212
(130,472)
301,740
658,713
369,414
(95,029)
274,385
488,210
14,696
19,815
192,394
119,077
39,439
29,135
55,719
11,863
109,878
86,512
153,069
131,068
41,555
28,278
36,425
11,201
934
65,865
Total
$ 658,713
$ 488,210
1 Includes collateral received from reverse repurchase agreements, securities borrowing,
margin loans, and other client activity.
2 Includes $52.3 billion of on-balance sheet assets that the Bank has pledged and
that the counterparty can subsequently repledge as at October 31, 2023
(October 31, 2022 – $56.1 billion).
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 officers
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.
214
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
As at October 31, 2023, $105 million (October 31, 2022 – $112 million)
of related party loans were outstanding from key management personnel,
their close family members, and their related entities. This amount also
includes balances from certain retired key management personnel.
COMPENSATION
The remuneration of key management personnel was as follows:
Compensation
(millions of Canadian dollars)
For the years ended October 31
Short-term employee benefits
Post-employment benefits
Share-based payments
Total
2023
2022
$
$
33
1
38
72
$
$
40
1
40
81
In addition, the Bank offers deferred share and other plans to non-
employee directors, executives, and certain other key employees.
Refer to Note 22 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, SCHWAB,
AND SYMCOR INC.
Transactions between the Bank and its subsidiaries meet the definition
of related party transactions. If these transactions are eliminated on
consolidation, they are not disclosed as related party transactions.
Transactions between the Bank, Schwab, and Symcor Inc. (Symcor)
also qualify as related party transactions. There were no significant
transactions between the Bank, Schwab, and Symcor during the year
ended October 31, 2023, other than as described in the following
sections and in Note 12.
i) TRANSACTIONS WITH SCHWAB
A description of significant transactions between the Bank and its affiliates
with Schwab is set forth below.
Insured Deposit Account Agreement
On November 25, 2019, the Bank and Schwab signed the 2019 Schwab
IDA Agreement, with an initial expiration date of July 1, 2031. Under the
2019 Schwab IDA Agreement, starting July 1, 2021, Schwab had the
option to reduce the deposits by up to US$10 billion per year (subject
to certain limitations and adjustments), with a floor of US$50 billion. In
addition, Schwab requested some further operational flexibility to allow
for the sweep deposit balances to fluctuate over time, under certain
conditions and subject to certain limitations.
On May 4, 2023, the Bank and Schwab entered into the 2023 Schwab
IDA Agreement, which replaced the 2019 Schwab IDA Agreement.
Pursuant to the 2023 Schwab IDA Agreement, the Bank continues to
make sweep deposit accounts available to clients of Schwab. Schwab
designates a portion of the deposits with the Bank as FROA. Remaining
deposits over the minimum level of FROA are designated as floating-rate
obligations. In comparison to the 2019 Schwab IDA Agreement, the
2023 Schwab IDA Agreement extends the initial expiration date by three
years to July 1, 2034 and provides for lower deposit balances in its first
six years, followed by higher balances in the later years. Specifically, until
September 2025, the aggregate FROA will serve as the floor. Thereafter,
the floor will be set at US$60 billion. In addition, Schwab has the option
to buy down up to $6.8 billion (US$5 billion) of FROA by paying the Bank
certain fees in accordance with the 2023 Schwab IDA Agreement, subject
to certain limits.
During the year ended October 31, 2023, Schwab exercised its option
to buy down $6.1 billion (US$4.5 billion) of FROA and paid $305 million
(US$227 million) in termination fees to the Bank in accordance with the
2023 Schwab IDA Agreement. The fees are intended to compensate
the Bank for losses incurred this year from discontinuing certain hedging
relationships, as well as for lost revenues. The net impact is recorded in
net interest income.
As at October 31, 2023, deposits under the Schwab IDA Agreement
were $133 billion (US$96 billion) (October 31, 2022 – $174 billion
(US$128 billion)). The Bank paid fees, net of the termination fees received
from Schwab, of $932 million during the year ended October 31, 2023
(October 31, 2022 – $1.7 billion) to Schwab related to sweep deposit
accounts. The amount paid by the Bank is based on the average insured
deposit balance of $147 billion for the year ended October 31, 2023
(October 31, 2022 – $182 billion) and yields based on agreed upon market
benchmarks, less the actual interest paid to clients of Schwab.
As at October 31, 2023, amounts receivable from Schwab were
$38 million (October 31, 2022 – $31 million). As at October 31, 2023,
amounts payable to Schwab were $24 million (October 31, 2022 –
$152 million).
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, 2023, the Bank paid $81 million (October 31, 2022 –
$77 million) for these services. As at October 31, 2023, the amount
payable to Symcor was $12 million (October 31, 2022 – $12 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, 2023, and October 31, 2022.
N O T E 2 8 SEGMENTED INFORMATION
|
For management reporting purposes, the Bank reports its results under
four key business segments: Canadian Personal and Commercial Banking,
U.S. Retail, Wealth Management and Insurance, and Wholesale Banking.
The Bank’s other activities are grouped into the Corporate segment.
Canadian Personal and Commercial Banking provides financial products
and services to personal, small business and commercial customers, and
includes TD Auto Finance Canada. U.S. Retail is comprised of personal
and business banking 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, TD Auto Finance U.S., and the U.S. wealth
business, including Epoch and the Bank’s equity investment in Schwab.
Wealth Management and Insurance includes the Canadian wealth
business which provides investment products and services to institutional
and retail investors, and the insurance business which provides property
and casualty insurance, as well as life and health insurance products to
customers across Canada. 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 Corporate segment includes the effects of certain asset
securitization programs, treasury management, elimination of taxable
equivalent adjustments and other management reclassifications,
corporate level tax items, and residual unallocated revenue and expenses.
The results of each business segment reflect 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
215
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
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. Intersegment
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 Wealth Management and
Insurance segment. Revenues from credit fees are primarily earned in
the Wholesale Banking and Canadian Personal and Commercial Banking
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 Personal and Commercial Banking segments. Insurance revenue
is earned in the Wealth Management and Insurance 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, primarily 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 reflected
in Wholesale Banking is reversed in the Corporate segment.
The following table summarizes the segment results for the years ended
October 31, 2023 and October 31, 2022.
Results by Business Segment1
(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 and share of net income
from investment in Schwab
Provision for (recovery of) income taxes
Share of net income from investment in Schwab3,4
Canadian
Personal and
Commercial
Banking
$ 14,192
4,125
18,317
1,343
–
7,700
9,274
2,586
–
U.S.
Retail
Wealth
Management
and Insurance
$ 12,037
2,405
14,442
$ 1,056
10,224
11,280
928
–
8,191
5,323
667
939
1
3,705
4,709
2,865
747
–
Net income (loss)
$ 6,688
$ 5,595
$ 2,118
$
For the years ended October 31
2023
Wholesale
Banking2
$ 1,538
4,280
Corporate2
$ 1,121
(486)
Total
$ 29,944
20,548
5,818
126
–
4,760
932
162
–
770
635
535
–
5,408
(5,308)
(994)
(75)
50,492
2,933
3,705
30,768
13,086
3,168
864
$ (4,389)
$ 10,782
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 and share of net income
from investment in Schwab
Provision for (recovery of) income taxes
Share of net income from investment in Schwab3,4
$ 12,396
4,190
16,586
$ 9,604
2,821
12,425
$
945
9,915
10,860
491
–
7,176
8,919
2,361
–
335
–
6,920
5,170
625
1,075
1
2,900
4,711
3,248
853
–
$ 2,937
1,894
$ 1,471
2,859
4,831
37
–
3,033
1,761
436
–
4,330
203
–
2,801
1,326
(289)
(84)
2022
$ 27,353
21,679
49,032
1,067
2,900
24,641
20,424
3,986
991
Net income (loss)
$ 6,558
$ 5,620
$ 2,395
$ 1,325
$ 1,531
$ 17,429
1 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.
2 Net interest income within Wholesale Banking is calculated on a TEB. The TEB
adjustment reflected in Wholesale Banking is reversed in the Corporate segment.
3 The after-tax amounts for amortization of acquired intangibles, the Bank’s share
of acquisition and integration charges associated with Schwab’s acquisition of
TD Ameritrade, and the Bank’s share of Schwab’s restructuring charges are recorded
in the Corporate segment.
4 The Bank’s share of Schwab’s earnings is reported with a one-month lag. Refer to
Note 12 for further details.
Total Assets by Business Segment
(millions of Canadian dollars)
Total assets
Total assets
216
Canadian
Personal and
Commercial
Banking
Wealth
Management
and Insurance
U.S. Retail
Wholesale
Banking
Corporate
Total
As at October 31, 2023
$ 560,303
$ 561,189
$ 23,574
$ 673,398
$ 138,560
$ 1,957,024
$ 526,374
$ 585,297
$ 23,721
$ 635,094
$ 147,042
$ 1,917,528
As at October 31, 2022
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
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.
Results by Geography
(millions of Canadian dollars)
Canada
United States
Other international
Total
Canada
United States
Other international
Total
N O T E 2 9
|
INTEREST INCOME AND EXPENSE
The following tables present interest income and interest expense by basis
of accounting measurement.
Interest Income
(millions of Canadian dollars)
Measured at amortized cost1
Measured at FVOCI – Debt instruments1
Measured or designated at FVTPL
Measured at FVOCI – Equity instruments
Total
1 Interest income is calculated using EIRM.
Interest Expense
(millions of Canadian dollars)
Measured at amortized cost1,2
Measured or designated at FVTPL
Total
1 Interest expense is calculated using EIRM.
2 Includes interest expense on lease liabilities for the year ended October 31, 2023
of $135 million (October 31, 2022 – $135 million).
N O T E 3 0 CREDIT RISK
|
For the years ended
October 31
2023
Total revenue
$ 32,514
17,754
224
$ 50,492
2022
$ 29,244
18,442
1,346
$ 49,032
As at
October 31
2023
Total assets
$ 1,045,532
763,332
148,160
$ 1,957,024
2022
$ 1,014,344
760,700
142,484
$ 1,917,528
For the years ended October 31
2023
$ 69,088
3,315
72,403
7,980
291
2022
$ 35,982
1,123
37,105
3,707
220
$ 80,674
$ 41,032
For the years ended October 31
2023
$ 41,059
9,671
$ 50,730
2022
$ 11,478
2,201
$ 13,679
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.
217
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
Concentration of Credit Risk
(millions of Canadian dollars,
except as noted)
Canada
United States
United Kingdom
Europe – other
Other international
Total
Loans and customers’ liability
under acceptances1,2
Credit Instruments3,4
As at
Derivative financial
instruments5,6
October 31
2023
October 31
2022
October 31
2023
October 31
2022
October 31
2023
October 31
2022
66%
33
–
–
1
66%
32
–
–
2
30%
65
2
2
1
32%
64
1
2
1
26%
33
9
21
11
22%
33
11
21
13
100%
100%
100%
100%
100%
100%
$ 913,937
$ 853,129
$ 339,728
$ 292,156
$ 82,761
$ 96,795
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, 2023 was real estate 10% (October 31, 2022 – 10%).
2 Includes loans that are measured at FVOCI.
3 As at October 31, 2023, the Bank had commitments and contingent liability
contracts in the amount of $340 billion (October 31, 2022 – $292 billion). Included
are commitments to extend credit totalling $300 billion (October 31, 2022 –
$256 billion), of which the credit risk is dispersed as detailed in the table above.
and other services 7% (October 31, 2022 – 8%); sundry manufacturing
and wholesale 7% (October 31, 2022 – 7%); non-residential real estate 6%
(October 31, 2022 – 7%).
5 As at October 31, 2023, the current replacement cost of derivative financial
instruments, excluding the impact of master netting agreements and collateral,
amounted to $83 billion (October 31, 2022 – $97 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, 2023:
financial institutions 17% (October 31, 2022 – 22%); power and utilities 10%
(October 31, 2022 – 10%); government, public sector entities and education 8%
(October 31, 2022 – 4%); automotive 8% (October 31, 2022 – 8%); professional
(including non-banking financial institutions), which accounted for 60% of the total as
at October 31, 2023 (October 31, 2022 – 63%). The second largest concentration was
with governments, which accounted for 32% of the total as at October 31, 2023
(October 31, 2022 – 30%). No other industry segment exceeded 5% of the total.
The following table presents the maximum exposure to credit risk of
financial instruments, before taking account of any collateral held or other
credit enhancements.
Gross Maximum Credit Risk Exposure
(millions of Canadian dollars)
Cash and due from banks
Interest-bearing deposits with banks
Securities1
Financial assets designated at fair value through profit 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 profit 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
Derivatives2
Loans
Residential mortgages
Consumer instalment and other personal
Credit card
Business and government
Trading loans
Non-trading loans at fair value through profit 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 instruments3
Unconditionally cancellable commitments to extend credit
Total credit exposure
October 31
2023
$
6,721
98,348
As at
October 31
2022
$
8,556
137,294
2,720
3,098
51,493
20,685
3
288
2,683
52,927
13,004
230,304
77,712
204,333
87,382
319,938
215,745
36,726
323,538
17,261
3,495
421
17,569
30,416
12,504
2,422
2,617
51,285
18,997
5
287
6,644
50,882
13,121
256,362
86,412
160,167
103,873
293,601
204,529
34,263
298,650
11,749
3,265
2,353
19,733
19,760
8,461
1,829,314
339,728
430,163
1,795,288
292,156
403,477
$ 2,599,205
$ 2,490,921
1 Excludes equity securities.
2 The carrying amount of the derivative assets represents the maximum credit risk
exposure related to derivative contracts.
3 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 26
for further details.
218
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
N O T E 3 1 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 financial institution as determined by:
– the Bank’s Risk Appetite Statement;
– capital requirements defined by relevant regulatory authorities; and
– the Bank’s internal assessment of capital requirements, including
stress test analysis, consistent with the Bank’s risk profile and risk
tolerance levels.
• To have the most economic weighted-average cost of capital
achievable, while 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 loss 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 access 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 are
commonly referred to as Basel III. Under Basel III, Total Capital consists of
three components, namely Common Equity Tier 1 (CET1), Additional Tier 1,
and Tier 2 Capital. Risk sensitive regulatory capital ratios are calculated
by dividing CET1, Tier 1, and Total Capital by risk-weighted assets (RWA),
inclusive of any minimum requirements outlined under the regulatory floor.
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
financing 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 specifies methodologies for the measurement of credit, trading
market, and operational risks. The Bank uses the Internal Ratings-Based
approaches to credit risk for all material portfolios.
For accounting purposes, IFRS is followed for consolidation of
subsidiaries and joint ventures. For regulatory capital purposes, all
subsidiaries of the Bank are consolidated except for insurance subsidiaries
which are deconsolidated and follow prescribed treatment per OSFI’s CAR
guidelines. Insurance subsidiaries are subject to their own capital adequacy
reporting, such as OSFI’s Minimum Capital Test for General Insurance and
Life Insurance Capital Adequacy Test for Life and Health.
Some of the Bank’s subsidiaries are individually regulated by either
OSFI or other regulators. Many of these entities have minimum capital
requirements which may limit the Bank’s ability to extract capital or funds
for other uses.
Canadian banks designated as domestic systemically important bank
(D-SIBs) are required to comply with OSFI’s minimum targets for risk-based
and leverage ratios. The minimum targets include a D-SIB surcharge
and Domestic Stability Buffer (DSB) for CET1, Tier 1, Total Capital and
risk-based Total Loss Absorbing Capacity (TLAC) ratios. The DSB level
was increased to 3% as of February 1, 2023, which sets these minimum
target ratios at 11%, 12.5%, 14.5% and 24.5%, respectively. Also on
February 1, 2023, OSFI announced revisions to the Leverage Requirements
Guideline to introduce a requirement for D-SIBs to hold a leverage ratio
buffer of 0.50% in addition to the existing minimum requirement. This
sets the minimum targets for leverage and TLAC leverage ratios at 3.5%
and 7.25%, respectively.
OSFI announced that the DSB level will be set at 3.5%, effective
November 1, 2023. The minimum target will increase commensurately to
applicable ratios.
The Bank complied with all minimum risk-based and leverage ratios
requirements set by OSFI in the 2023 fiscal year.
The following table summarizes the Bank’s regulatory capital position as at
October 31, 2023 and October 31, 2022.
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 ratios
Capital and leverage ratios
Common Equity Tier 1 Capital ratio
Tier 1 Capital ratio
Total Capital ratio
Leverage ratio
TLAC Ratio
TLAC Leverage Ratio
As at
October 31
2023
October 31
2022
$ 82,317
92,752
103,648
$ 83,671
94,445
107,175
571,161
517,048
14.4%
16.2
18.1
4.4
32.7
8.9
16.2%
18.3
20.7
4.9
35.2
9.4
219
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
N O T E 3 2
|
INFORMATION ON SUBSIDIARIES
The following is a list of the directly or indirectly held significant subsidiaries.
SIGNIFICANT SUBSIDIARIES1
(millions of Canadian dollars)
North America
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 Wealth Holdings Canada Limited
TD Asset Management Inc.
GMI Servicing Inc.
TD Waterhouse Private Investment Counsel Inc.
TD Waterhouse Canada Inc.
TD Auto Finance (Canada) Inc.
TD Group US Holdings LLC
Toronto Dominion Holdings (U.S.A.), Inc.
Cowen Inc.
Cowen Structured Holdings LLC
Cowen Structured Holdings Inc.
ATM Execution LLC
RCG LV Pearl, LLC
Cowen Financial Products LLC
Cowen Holdings, Inc.
Cowen and Company, LLC
Cowen CV Acquisition LLC
Cowen Execution Holdco LLC
Westminster Research Associates LLC
RCG Insurance Company
TD Prime Services LLC
TD Securities Automated Trading 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.
TD Bank USA, National Association
TD Bank, National Association
TD Equipment Finance, Inc.
TD Private Client Wealth LLC
TD Public Finance LLC
TD Wealth Management Services Inc.
TD Investment Services Inc.
TD Life Insurance Company
TD Mortgage Corporation
TD Pacific Mortgage Corporation
The Canada Trust Company
TD Securities Inc.
TD Vermillion Holdings Limited
TD Financial International Ltd.
TD Reinsurance (Barbados) Inc.
Address of Head
or Principal Office2
Montreal, Québec
Montreal, Québec
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Winnipeg, Manitoba
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
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
Chicago, Illinois
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
Cherry Hill, New Jersey
Cherry Hill, New Jersey
Mt. Laurel, New Jersey
New York, New York
New York, New York
Mt. Laurel, New Jersey
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Vancouver, British Columbia
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Hamilton, Bermuda
St. James, Barbados
October 31, 2023
Carrying value of shares
owned by the Bank3
$ 2,350
8,114
4,027
78,167
47
268
12,447
2,855
29,891
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.
3 Carrying amounts are prepared for purposes of meeting the disclosure requirements
of Section 308 (3)(a)(ii) of the Bank Act (Canada). Intercompany transactions may be
included herein which are eliminated for consolidated financial reporting purposes.
220
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
SIGNIFICANT SUBSIDIARIES1 (continued)
(millions of Canadian dollars)
International
Cowen Malta Holdings Limited
Cowen Insurance Company Ltd
Ramius Enterprise Luxembourg Holdco S.à.r.l.
Cowen Reinsurance S.A.
TD Ireland Unlimited Company
TD Global Finance Unlimited Company
TD Securities (Japan) Co. Ltd.
Toronto Dominion Australia Limited
TD Bank Europe Limited
Toronto Dominion International Pte. Ltd.
Cowen International Limited
Cowen Execution Services Limited
Cowen Asia Limited
Cowen and Company (Asia) Limited
Toronto Dominion (South East Asia) Limited
Address of Head
or Principal Office2
Bikirkara, Malta
Bikirkara, Malta
Luxembourg, Luxembourg
Luxembourg, Luxembourg
Dublin, Ireland
Dublin, Ireland
Tokyo, Japan
Sydney, Australia
London, England
Singapore, Singapore
London, England
London, England
Central, Hong Kong
Central, Hong Kong
Singapore, Singapore
October 31, 2023
Carrying value of shares
owned by the Bank3
$
27
227
2,741
11
97
1,187
123
1,440
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.
SUBSIDIARIES WITH RESTRICTIONS TO TRANSFER FUNDS
Certain of the Bank’s subsidiaries have regulatory requirements to fulfil,
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, 2023, the net assets of subsidiaries subject to regulatory
or CAR was approximately $103 billion (October 31, 2022 – $97 billion),
before intercompany eliminations.
N O T E 3 3 SUBSEQUENT EVENTS
|
2 Each subsidiary is incorporated or organized in the country in which its head or
principal office is located.
3 Carrying amounts are prepared for purposes of meeting the disclosure requirements
of Section 308 (3)(a)(ii) of the Bank Act (Canada). Intercompany transactions may be
included herein which are eliminated for consolidated financial reporting purposes.
In addition to regulatory requirements outlined above, the Bank may
be subject to significant 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 financing 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 26.
FEDERAL DEPOSIT INSURANCE CORPORATION
SPECIAL ASSESSMENT
On November 16, 2023, the Federal Deposit Insurance Corporation
announced a final rule that implements a special assessment to recover
the losses to the Deposit Insurance Fund arising from the protection of
uninsured depositors during the U.S. bank failures in Spring 2023 (the
“Special Assessment”). The Special Assessment is expected to result in
the recognition of a provision of approximately US$300 million pre-tax
in the first quarter of the Bank’s fiscal 2024.
221
TD BANK GROUP ANNUAL REPORT 2023 FINANCIAL RESULTS
Ten-year Statistical Review – IFRS
Condensed Consolidated Balance Sheet
(millions of Canadian dollars)
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
ASSETS
Cash resources and other
Trading loans, securities, and other1
Non-trading financial assets at
fair value through profit 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 profit or loss
Deposits
Other
Subordinated notes and debentures
Total liabilities
EQUITY
Shareholders’ Equity
Common shares
Preferred shares and other
equity instruments
Treasury shares and other
equity instruments
Contributed surplus
Retained earnings
Accumulated other comprehensive
income (loss)
Non-controlling interests
in subsidiaries
Total equity
Total liabilities and equity
$ 105,069
227,773
$ 145,850
218,440
$ 165,893
231,220
$ 170,594
256,342
$
30,446
261,144
$
35,455
262,115
$
55,156
254,361
$
57,621
211,111
$
45,637
188,317
$
46,554
168,926
7,340
87,382
308,016
n/a
204,333
895,947
121,164
10,946
103,873
342,774
n/a
160,167
831,043
104,435
9,390
54,427
268,939
n/a
167,284
722,622
108,897
8,548
54,242
227,679
n/a
169,162
717,523
111,775
6,503
48,894
130,497
n/a
165,935
684,608
87,263
4,015
56,996
107,171
n/a
127,379
646,393
95,379
n/a
56,195
n/a
71,363
134,429
612,591
94,900
n/a
72,242
n/a
84,395
86,052
585,656
79,890
n/a
69,438
n/a
74,450
97,364
544,341
84,826
n/a
55,796
n/a
56,977
82,556
478,909
70,793
$ 1,957,024
$ 1,917,528
$ 1,728,672
$ 1,715,865
$ 1,415,290
$ 1,334,903
$ 1,278,995
$ 1,176,967
$ 1,104,373
$ 960,511
$
$
30,980
71,640
23,805
91,133
$
22,891
57,122
$
$
19,177
53,203
26,885
50,051
$ 114,704
48,270
$
79,940
51,214
$
79,786
65,425
$
74,759
57,218
$
59,334
51,209
192,130
1,198,190
342,357
9,620
162,786
1,229,970
287,161
11,290
113,988
1,125,125
298,498
11,230
59,665
1,135,333
341,511
11,477
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
1,844,917
1,806,145
1,628,854
1,620,366
1,327,589
1,254,863
1,203,805
1,102,753
1,037,345
904,280
25,434
24,363
23,066
22,487
21,713
21,221
20,931
20,711
20,294
19,811
10,853
11,253
5,700
5,650
5,800
5,000
4,750
4,400
2,700
2,200
(129)
155
73,044
(98)
179
73,698
2,750
1,988
112,107
111,383
(162)
173
63,944
7,097
99,818
(41)
121
53,845
13,437
95,499
(47)
157
49,497
10,581
87,701
(151)
193
46,145
6,639
79,047
(183)
214
40,489
8,006
74,207
–
–
–
–
–
993
983
112,107
111,383
99,818
95,499
87,701
80,040
75,190
(36)
203
35,452
11,834
72,564
1,650
74,214
(52)
214
32,053
10,209
65,418
1,610
67,028
(55)
205
27,585
4,936
54,682
1,549
56,231
$ 1,957,024
$ 1,917,528
$ 1,728,672
$ 1,715,865
$ 1,415,290
$ 1,334,903
$ 1,278,995
$ 1,176,967
$ 1,104,373
$ 960,511
1 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).
222
TD BANK GROUP ANNUAL REPORT 2023 TEN-YEAR STATISTICAL REVIEW
Ten-year Statistical Review – IFRS (continued)
Condensed Consolidated Statement of Income – Reported
(millions of Canadian dollars)
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
Net interest income
Non-interest income
$ 29,944
20,548
$ 27,353
21,679
$ 24,131
18,562
$ 24,497
19,149
$ 23,821
17,244
$ 22,239
16,653
$ 20,847
15,355
$ 19,923
14,392
$ 18,724
12,702
$ 17,584
12,377
Total revenue
Provision for (recovery of) credit losses
Insurance claims and related expenses
Non-interest expenses
Income before income taxes
and share of net income from
investment in Schwab and
TD Ameritrade
Provision for (recovery of) income taxes
Share of net income from investment
in Schwab and TD Ameritrade
Net income
Preferred dividends and distributions
on other equity instruments
Net income available to common
shareholders and non-controlling
interests in subsidiaries
Attributable to:
Common shareholders
Non-controlling interests
in subsidiaries
50,492
2,933
3,705
30,768
49,032
1,067
2,900
24,641
42,693
(224)
2,707
23,076
13,086
3,168
20,424
3,986
17,134
3,621
864
991
785
10,782
17,429
14,298
43,646
7,242
2,886
21,604
11,914
1,152
1,133
11,895
41,065
3,029
2,787
22,020
13,229
2,735
1,192
11,686
38,892
2,480
2,444
20,195
36,202
2,216
2,246
19,419
13,773
3,182
12,321
2,253
743
449
11,334
10,517
34,315
2,330
2,462
18,877
10,646
2,143
433
8,936
31,426
1,683
2,500
18,073
29,961
1,557
2,833
16,496
9,170
1,523
377
8,024
9,075
1,512
320
7,883
563
259
249
267
252
214
193
141
99
143
$ 10,219
$ 17,170
$ 14,049
$ 11,628
$ 11,434
$ 11,120
$ 10,324
$ 8,795
$ 7,925
$ 7,740
$ 10,219
$ 17,170
$ 14,049
$ 11,628
$ 11,416
$ 11,048
$ 10,203
$ 8,680
$ 7,813
$ 7,633
–
–
–
–
18
72
121
115
112
107
Condensed Consolidated Statement of Changes in Equity – Reported
(millions of Canadian dollars)
Shareholders’ Equity
Common shares
Preferred shares and other
equity instruments
Treasury shares and other
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
$ 25,434
$ 24,363
$ 23,066
$ 22,487
$ 21,713
$ 21,221
$ 20,931
$ 20,711
$ 20,294
$ 19,811
10,853
11,253
5,700
5,650
5,800
5,000
4,750
4,400
2,700
2,200
equity instruments
Contributed surplus
Retained earnings
Accumulated other comprehensive
income (loss)
Total
(129)
155
73,044
(98)
179
73,698
2,750
1,988
112,107
111,383
Non-controlling interests in subsidiaries
–
–
(162)
173
63,944
7,097
99,818
–
(41)
121
53,845
13,437
95,499
–
(47)
157
49,497
10,581
87,701
–
(151)
193
46,145
6,639
79,047
993
(183)
214
40,489
8,006
74,207
983
(36)
203
35,452
11,834
72,564
1,650
(52)
214
32,053
10,209
65,418
1,610
(55)
205
27,585
4,936
54,682
1,549
Total equity
$ 112,107
$ 111,383
$ 99,818
$ 95,499
$ 87,701
$ 80,040
$ 75,190
$ 74,214
$ 67,028
$ 56,231
223
TD BANK GROUP ANNUAL REPORT 2023 TEN-YEAR STATISTICAL REVIEW
Ten-year Statistical Review
Other Statistics – IFRS Reported
1
2
3
4
5
6
7
8
9
10
Per common shares
Basic earnings
Diluted earnings
Dividends
Book value
Closing market price
Closing market price to
book value
Closing market price
appreciation
Total shareholder return
(1-year)
Performance ratios
Return on common equity
Return on Common
Equity Tier 1 Capital
risk-weighted assets
1,2
11
Efficiency ratio
12 Net interest margin
13 Dividend payout ratio
14 Dividend yield
15
Price-earnings ratio
Asset quality
16 Net impaired loans as
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
$
5.61
5.60
3.84
56.58
77.46
$ 9.48
9.47
3.56
55.00
87.19
$
7.73
7.72
3.16
51.66
89.84
$
6.43
6.43
3.11
49.49
58.78
$
6.26
6.25
2.89
45.20
75.21
$
6.02
6.01
2.61
40.50
73.03
$
5.51
5.50
2.35
37.76
73.34
$
4.68
4.67
2.16
36.71
60.86
$
4.22
4.21
2.00
33.81
53.68
$
4.15
4.14
1.84
28.45
55.47
1.37
1.59
1.74
1.19
1.66
1.80
1.94
1.66
1.59
1.95
(11.20)%
(3.0)%
52.8%
(21.8)%
3.0%
(0.4)%
20.5%
13.4%
(3.2)%
16.0%
(6.90)
0.9
58.9
(17.9)
7.1
3.1
24.8
17.9
0.4
20.1
10.1%
18.0%
15.5%
13.6%
14.5%
15.7%
14.9%
13.3%
13.4%
15.4%
1.88
60.9
1.74
68.3
4.6
13.8
3.53
50.3
1.69
37.5
3.8
9.2
3.02
54.1
1.56
40.9
3.9
11.6
2.41
49.5
1.72
48.3
4.8
9.2
2.55
53.6
1.95
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
a % of net loans
and acceptances
17 Net impaired loans as a %
of common equity
3,4
3,4
18
Provision for credit losses
as a % of net average
loans and acceptances
3,4
Capital ratios1
19 Common Equity Tier 1
Capital ratio2,5
20
21
Tier 1 Capital ratio1,2
Total Capital ratio1,2
Other
22 Common equity to
total assets
23 Number of common shares
0.25%
0.20%
0.24%
0.32%
0.33%
0.37%
0.38%
0.46%
0.48%
0.46%
2.25
1.74
1.89
2.59
2.81
3.33
3.45
4.09
4.24
4.28
0.34
0.14
(0.03)
1.00
0.45
0.39
0.37
0.41
0.34
0.34
14.4%
16.2
18.1
16.2%
18.3
20.7
15.2%
16.5
19.1
13.1%
14.4
16.7
12.1%
13.5
16.3
12.0%
13.7
16.2
10.7%
12.3
14.9
10.4%
12.2
15.2
9.9%
9.4%
11.3
14.0
10.9
13.4
5.2
5.2
5.4
5.2
5.8
5.5
5.4
5.8
5.7
5.5
outstanding (millions)
1,790.7
1,820.7
1,822.0
1,815.6
1,811.9
1,828.3
1,839.6
1,857.2
1,855.1
1,844.6
24 Market capitalization
(millions of
Canadian dollars)
25
Average number of full-time
equivalent staff
26 Number of retail outlets6
27 Number of retail
$ 138,706
$158,743
$163,686
$106,719
$136,274
$133,519
$134,915
$113,028
$ 99,584
$102,322
103,257
2,293
94,867
2,274
89,464
2,260
89,598
2,358
89,031
2,380
84,383
2,411
83,160
2,446
81,233
2,476
81,483
2,514
81,137
2,534
brokerage offices
85
85
86
87
113
109
109
111
108
111
28 Number of automated
banking machines
6,149
6,100
6,089
6,233
6,302
5,587
5,322
5,263
5,171
4,833
1 These measures have been included in this document in accordance with the
Office of the Superintendent of Financial Institutions Canada’s Capital Adequacy
Requirements. Amounts are calculated in accordance with the Basel III regulatory
framework and are presented based on the “all-in” methodology.
2 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 effective 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.
3 Includes customers’ liability under acceptances.
4 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.
5 The Bank reports the measures, CET1 and CET1 Capital ratio, in accordance with
the “all-in” methodology.
6 Includes retail bank outlets, private client centre branches, and estate and
trust branches.
224
TD BANK GROUP ANNUAL REPORT 2023 TEN-YEAR STATISTICAL REVIEW
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 listed 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 2023
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. Beneficial 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 fifth business day after the record
date, or as otherwise advised by the Bank. Beneficial
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 certificate)
Missing dividends, lost share certificates, estate
questions, address changes to the share register,
dividend bank account changes, the dividend
reinvestment plan, eliminating duplicate mailings
of shareholder materials or stopping (or resuming)
receiving annual and quarterly reports
Hold your TD shares through the Direct Registration
System in the United States
Missing dividends, lost share certificates, estate
questions, address changes to the share register,
eliminating duplicate mailings of shareholder
materials or stopping (or resuming) receiving
annual and quarterly reports
Transfer Agent:
TSX Trust Company
301-100 Adelaide Street West
Toronto, ON M5H 4H1
1-800-387-0825 (Canada and U.S. only)
or 416-682-3860
Facsimile: 1-888-249-6189
shareholderinquiries@tmx.com or
http://www.tsxtrust.com
Co-Transfer Agent and Registrar:
Computershare Trust Company, N.A.
P.O. Box 43006
Providence, RI 02940-3006
or
Computershare Trust Company, N.A.150 Royall Street
Canton, MA 02021
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
Email inquiries: web.queries@computershare.com
www.computershare.com/investor
www.computershare.com/investoror
Beneficially own TD shares that are held in the
name of an intermediary, such as a bank, a trust
company, a securities broker or other nominee
Your TD shares, including questions regarding
the dividend reinvestment plan and mailings
of shareholder materials
Your intermediary
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
HEAD OFFICE
The Toronto-Dominion Bank
P.O. Box 1
Toronto-Dominion Centre
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
ANNUAL MEETING
Thursday, April 18, 2024, 9:30 a.m. (Eastern)
Record Date for Notice & Voting: February 20, 2024
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
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.
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)
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TD BANK GROUP ANNUAL REPORT 2023 SHAREHOLDER AND INVESTOR INFORMATION
225
® The TD logo and other trademarks are the property of
The Toronto-Dominion Bank or its subsidiaries.