Mr. Bharat Masrani reports

TD BANK GROUP REPORTS FOURTH QUARTER AND FISCAL 2023 RESULTS

Toronto-Dominion Bank (TD Bank Group) has released its financial results for the fourth quarter ended Oct. 31, 2023. Reported earnings were $2.9-billion, down 57 per cent compared with the fourth quarter last year, and adjusted earnings were $3.5-billion, down 14 per cent.

Fourth quarter financial highlights, compared with the fourth quarter last year:

• Reported diluted earnings per share were $1.49, compared with $3.62;
• Adjusted diluted earnings per share were $1.83, compared with $2.18;
• Reported net income was $2,886-million, compared with $6,671-million;
• Adjusted net income was $3,505-million, compared with $4,065-million.

Full-year financial highlights, compared with last year:

• Reported diluted earnings per share were $5.60, compared with $9.47;
• Adjusted diluted earnings per share were $7.99, compared with $8.36;
• Reported net income was $10,782-million, compared with $17,429-million;
• Adjusted net income was $15,143-million, compared with $15,425-million.

Fourth quarter adjustments (items of note)

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

• Amortization of intangibles of $92-million ($83-million after-tax or four cents per share), compared with $57-million ($51-million after-tax or three cents per share) in the fourth quarter last year;
• Acquisition and integration charges related to The Charles Schwab Corp. transaction of $31-million ($26-million after-tax or one cent per share), compared with $18-million ($16-million after-tax or one cent per share) in the fourth quarter last year;
• Share of restructuring charges from investment in Schwab of $35-million ($35-million after-tax or two cents per share);
• Restructuring charges of $363-million ($266-million after-tax or 15 cents per share);
• Acquisition and integration charges primarily related to the Cowen Inc. acquisition of $197-million ($161-million after-tax or nine cents per share);
• Residual impact from the terminated First Horizon Corp. acquisition-related capital hedging strategy, net loss of $64-million ($48-million after-tax or three cents per share).

"TD delivered strong revenue growth this quarter, reflecting positive underlying business momentum and the benefits of our diversified business model," said Bharat Masrani, group president and chief executive officer, TD Bank Group. "In a complex operating environment, we continued to adapt, invest in new capabilities, and take important steps to deliver efficiencies and drive growth across the bank."

Canadian personal and commercial banking delivered a strong quarter supported by net interest margin expansion and volume growth

Canadian personal and commercial banking net income was $1,679-million, a decline of 1 per cent compared with the fourth quarter last year. The decrease primarily reflects higher provisions for credit losses (PCL) and expenses, partially offset by revenue growth. Revenue was $4,754-million, an increase of 7 per cent, reflecting volume growth and higher margins. The segment delivered its 10th quarter of positive operating leverage in a row.

Canadian personal and commercial banking continued to deliver growth, driven by a record quarter for new to Canada account openings. This quarter, TD launched a first home savings account to enable customers to invest tax-free for a down payment on their first home. In addition, TD was recognized by Rewards Canada readers with more credit card and loyalty program awards than any other card issuer, with the bank taking first place in four of seven categories.

The U.S. retail bank continued to show operating momentum in a challenging environment

U.S. retail reported net income of $1,280-million, a decrease of 17 per cent (19 per cent in U.S. dollars) compared with the fourth quarter last year. On an adjusted basis net income was $1,280-million, a decline of 19 per cent (21 per cent in U.S. dollars). Prior-year reported net income included charges for the terminated First Horizon transaction. TD Bank's investment in Schwab contributed $197-million in earnings, a decrease of 36 per cent (38 per cent in U.S. dollars) compared with the fourth quarter last year.

The U.S. retail bank, which excludes the bank's investment in Schwab, reported net income of $1,083-million ($800-million (U.S.)), a decrease of 12 per cent (14 per cent in U.S. dollars) from the fourth quarter last year, primarily reflecting higher non-interest expenses, higher PCL and lower revenue. On an adjusted basis net income was $1,083-million ($800-million (U.S.)), a decrease of 15 per cent (17 per cent in U.S. dollars) from the fourth quarter last year. Prior-year reported net income included charges for the terminated First Horizon transaction.

The U.S. retail bank continued its loan growth momentum, with total average loan balances up 10 per cent compared with the fourth quarter last year and up 2 per cent from last quarter. This reflects new customer acquisition, deepening relationships in core franchise businesses and slower payment rates in the high-interest-rate environment. Total personal and business deposit average balances were down 4 per cent compared with the fourth quarter last year amid competitive market conditions. Personal and business deposit average balances increased 1 per cent quarter-over-quarter, reflecting account acquisitions in term deposit and chequing products.

During the quarter, TD Bank, America's Most Convenient Bank (TD AMCB), welcomed new customers and further strengthened its store network, opening six new stores, including one in a low- and moderate-income area. TD AMCB also introduced overdraft grace period alerts to help customers better manage their finances. For the seventh consecutive year, TD AMCB ranked No. 1 in its footprint by total number of approved U.S. Small Business Administration (SBA) loan units and ranked as the No. 2 national SBA lender in 2023.

Wealth management and insurance delivered solid results

Wealth management and insurance net income was $501-million, a decrease of 3 per cent compared with the fourth quarter last year, primarily reflecting higher insurance claims and related expenses, partially offset by higher revenues. This quarter's revenue growth of 9 per cent highlighted the strength of the segment's diversified business model as higher insurance premiums and fee-based revenue offset the impact of lower transaction revenue. Insurance claims and related expenses rose 39 per cent, mainly reflecting increased severe weather-related events, inflation and automobile thefts.

With continued focus on client-centric innovation, TD Direct Investing launched TD Active Trader, the bank's redesigned platform for active traders, offering extensive order customization with speed and reliability. TD Active Trader joins the bank's suite of leading trading platforms. TD Private Wealth Management continues to accelerate the expansion of its advice teams while deepening relationships with existing TD clients, which translated into market share growth. TD Insurance introduced a new digital quoter for small business insurance to better serve small business owners in their channel of choice.

Challenging quarter for wholesale banking

Wholesale banking reported net income for the quarter was $17-million, down $244-million or 93 per cent compared with the fourth quarter last year. The results reflect higher non-interest expenses, which include acquisition and integration costs, partially offset by higher revenues. On an adjusted basis, net income was $178-million, a decrease of $97-million or 35 per cent. Revenue increased 28 per cent, reflecting the benefits of the Cowen acquisition and growth in global markets and corporate and investment banking in a challenging market.

This quarter, the wholesale bank continued to demonstrate its leadership in environmental, social and governance (ESG) and deepened the bank's commitment to a low-carbon economy. TD Securities agreed to purchase 27,500 metric tonnes of 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 Securities also reached a significant TD Cowen integration milestone, combining its U.S. institutional equities and convertibles businesses to deliver a full-service North American equities platform to clients.

Shaping the future of banking

This quarter, the bank launched TD Invent, an enterprise approach to innovation that supports its forward-focused business strategy and delivers new products and services for customers. This integration of innovation and business strategies combined with the bank's Next Evolution of Work agile operating model powered the recent redesign of TD's mobile banking app. Leveraging its North American scale, TD introduced the redesigned app in both the United States and Canada, strengthening digital capabilities for more than 12 million North American mobile users. The bank was also recognized by Global Finance as best consumer digital bank in North America for the third year in a row.

Capital

TD's common equity Tier 1 capital ratio was 14.4 per cent.

Conclusion

For fiscal 2024, it will be challenging for the bank to meet its medium-term adjusted EPS growth target range of 7 to 10 per cent and return on equity target of over 16 per cent as it navigates a complex macroeconomic environment, expected further normalization in PCLs and critical business investments.

"We enter 2024 from a position of strength, with proven resiliency, a powerful brand and a strong capital position," said Mr. Masrani. "I want to thank our more than 95,000 colleagues across the globe who bring TD's purpose to life every day."

Significant and subsequent events

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.

Acquisition of Cowen

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 ($1,100-million (U.S.)) in cash for 100 per cent of Cowen's common shares outstanding, $253-million ($186-million (U.S.)) for the settlement of Cowen's Series A preferred stock and $205-million ($151-million (U.S.)) 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 ($7,933-million (U.S.)) of assets and $9,884-million ($7,261-million (U.S.)) 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 ($219-million (U.S.)) net of taxes, and goodwill of $744-million ($546-million (U.S.)).

Termination of the merger agreement with First Horizon

On May 4, 2023, the bank and First Horizon (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 ($225-million (U.S.)) 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 $494-million (U.S.) in non-voting First Horizon preferred stock. During the second quarter of fiscal 2023, the bank recognized a valuation adjustment loss of $199-million ($147-million (U.S.)) 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 ($126-million (U.S.)) 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 dedesignated certain interest rate swaps hedging fixed-income investments in fair value hedge accounting relationships.

As a result of the dedesignation, 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 dedesignation 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 Oct. 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 Oct.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 Oct. 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 U.S.-dollar 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).

Implementation of the Canada recovery dividend and change in corporate tax rate

On Dec. 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 per cent.

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 per cent, 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.

Stanford litigation settlement

In the U.S. Rotstain v. Trustmark National Bank et al. action, on Feb. 24, 2023, the bank reached a settlement in principle relating to litigation involving the Stanford Financial Group, pursuant to which the bank agreed to pay $1,205-million (U.S.) 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 pretax ($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 Jan. 31, 2023) and the foreign exchange rate at the time the settlement was reached.

Federal Deposit Insurance Corp. special assessment

On Nov. 16, 2023, the Federal Deposit Insurance (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 is expected to result in the recognition of a provision of approximately $300-million (U.S.) pretax in the first quarter of the bank's fiscal 2024.

Investment in Schwab and IDA agreement

On Oct. 6, 2020, the bank acquired an approximately 13.5-per-cent stake in Schwab following the completion of Schwab's acquisition of TD Ameritrade Holding Corp. of which the bank was a major shareholder. On Aug. 1, 2022, the bank sold 28.4 million non-voting common shares of Schwab, at a price of $66.53 (U.S.) per share for proceeds of $2.5-billion ($1.9-billion (U.S.)), which reduced the bank's ownership interest in Schwab to approximately 12 per cent. 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 of Schwab's earnings available to common shareholders is reported with a one-month lag.

On Nov. 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 $10-billion (U.S.) per year (subject to certain limitations and adjustments), with a floor of $50-billion (U.S.). In addition, Schwab requested some further operational flexibility to allow for the sweep deposit balances to fluctuate over time, under certain conditions and subject to certain limitations.

On May 4, 2023, the bank and Schwab entered into an amended insured deposit account agreement (the 2023 Schwab IDA agreement), which replaced the 2019 Schwab IDA agreement. Pursuant to the 2023 Schwab IDA agreement, the bank continues to make sweep deposit accounts available to clients of Schwab. Schwab designates a portion of the deposits with the bank as fixed-rate obligation amounts (FROA). Remaining deposits over the minimum level of FROA are designated as floating-rate obligations. In comparison with 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 $60-billion (U.S.). In addition, Schwab has the option to buy down up to $6.8-billion ($5-billion (U.S.)) of FROA by paying the bank certain fees in accordance with the 2023 Schwab IDA agreement, subject to certain limits.

During the year ended Oct. 31, 2023, Schwab exercised its option to buy down $6.1-billion ($4.5-billion (U.S.)) of FROA and paid $305-million ($227-million (U.S.)) 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.

Annual report on Form 40-F (U.S.)

A copy of the bank's annual report on Form 40-F for fiscal 2023 will be filed with the Securities and Exchange Commission later today and will be available on the TD website. You may obtain a printed copy of the bank's annual report on Form 40-F for fiscal 2023 free of charge upon request to TD shareholder relations at 416-944-6367 or 1-866-756-8936 or e-mail tdshinfo@td.com.

Access to quarterly results materials

Interested investors, the media and others may view this fourth quarter earnings news release, results slides, supplementary financial information, supplemental regulatory disclosure, and the 2023 consolidated financial statements and MD&A documents on the TD website.

Quarterly earnings conference call

TD Bank Group will host an earnings conference call in Toronto, Ont., on Nov. 30, 2023. The call will be available live via the TD website at 1:30 p.m. ET. The call and audio webcast will feature presentations by TD executives on the bank's financial results for the fourth quarter, followed by a question-and-answer period with analysts. The presentation material referenced during the call will be available on the TD website on Dec. 1, 2023, before 1:30 p.m. ET. A listen-only telephone line is available at 416-641-6150 or 1-866-696-5894 (toll-free) and the passcode is 2727354 followed by the pound key.

The audio webcast and presentations will be archived the TD website. Replay of the teleconference will be available from 5 p.m. ET on Nov.30, 2023, until 11:59 p.m. ET on Dec. 15, 2023, by calling 905-694-9451 or 1-800-408-3053 (toll-free). The passcode is 7300743 followed by the pound key.

Annual meeting

Thursday, April 18, 2024

Toronto, Ont.

Record date for notice and voting: Feb. 20, 2024

About Toronto-Dominion Bank

Toronto-Dominion Bank and its subsidiaries are collectively known as TD Bank Group. TD is the sixth-largest bank in North America by assets and serves over 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 Schwab; 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 on-line financial services firms, with more than 16 million active on-line and mobile customers. TD had $1.96-trillion in assets on Oct. 31, 2023. The bank trades under the symbol TD on the Toronto and New York stock exchanges.

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