Earnings News Release • Three and nine months ended July 31, 2024
This quarterly Earnings News Release should be read in conjunction with the Bank's unaudited third quarter 2024 Report to Shareholders for the three and nine months ended July 31, 2024, prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), which is available on our website at http://www.td.com/investor/. This analysis is dated August 21, 2024. Unless otherwise indicated, all amounts are expressed in Canadian dollars, and have been primarily derived from the Bank's Annual or Interim Consolidated Financial Statements prepared in accordance with IFRS. Certain comparative amounts have been revised to conform with the presentation adopted in the current period. Additional information relating to the Bank is available on the Bank's website at http://www.td.com, as well as on SEDAR+ at http://www.sedarplus.ca and on the U.S. Securities and Exchange Commission's (SEC) website at http://www.sec.gov (EDGAR filers section).
Reported results conform with generally accepted accounting principles (GAAP), in accordance with IFRS. Adjusted results are non-GAAP financial measures. For additional information about the Bank's use of non-GAAP financial measures, refer to "Significant and Subsequent Events" and "Non-GAAP and Other Financial Measures" in the "How We Performed" section of this document.
THIRD QUARTER FINANCIAL HIGHLIGHTS, compared with the third quarter last year:
Reported diluted earnings (loss) per share were $(0.14), compared with $1.53.
Adjusted diluted earnings per share were $2.05, compared with $1.95.
Reported net income (loss) was $(181) million, compared with $2,881 million.
Adjusted net income was $3,646 million, compared with $3,649 million.
YEAR-TO-DATE FINANCIAL HIGHLIGHTS, nine months ended July 31, 2024, compared with the corresponding period last year:
Reported diluted earnings per share were $2.76, compared with $4.04.
Adjusted diluted earnings per share were $6.09, compared with $6.09.
Reported net income was $5,207 million, compared with $7,768 million.
Adjusted net income was $11,072 million, compared with $11,510 million.
THIRD QUARTER ADJUSTMENTS (ITEMS OF NOTE) The third quarter reported earnings figures included the following items of note:
Amortization of acquired intangibles of $64 million ($56 million after-tax or 3 cents per share), compared with $88 million ($75 million after-tax or 4 cents per share) in the third quarter last year.
Acquisition and integration charges related to the Schwab transaction of $21 million ($18 million after-tax or 1 cent per share), compared with $54 million ($44 million after-tax or 2 cents per share) in the third quarter last year.
Restructuring charges of $110 million ($81 million after-tax or 5 cents per share).
Acquisition and integration charges related to the Cowen acquisition of $78 million ($60 million after-tax or 3 cents per share), compared with $143 million ($105 million after-tax or 6 cents per share) in the third quarter last year.
Impact from the terminated First Horizon Corporation (FHN) acquisition-related capital hedging strategy of $62 million ($46 million after-tax or 3 cents per share), compared with $177 million ($134 million after-tax or 8 cents per share) in the third quarter last year.
Provision for investigations related to the Bank's AML program of $3,566 million ($3,566 million after-tax or $2.04 per share).
TORONTO, Aug. 22, 2024 /CNW/ - TD Bank Group ("TD" or the "Bank") today announced its financial results for the third quarter ended July 31, 2024. Reported earnings were a loss of $181 million, compared with reported earnings of $2,881 million in the third quarter last year, and adjusted earnings were $3.6 billion, relatively flat.
The Bank's reported results include the impact of the US$2,600 million provision for investigations related to the Bank's anti-money laundering (AML) program, which, together with the provision taken last quarter in connection with this matter, reflects the Bank's current estimate of the total fines related to this matter.
"TD delivered record revenue and net income in Canadian Personal and Commercial Banking, continued operating momentum in the U.S., and strong results across our markets-driven businesses," said Bharat Masrani, Group President and CEO, TD Bank Group. "We continued to invest in new and innovative capabilities and expanded our product offerings to better serve our customers and clients."
Canadian Personal and Commercial Banking delivered record net income and revenue supported by continued volume growth and strong operating leverage Canadian Personal and Commercial Banking net income was $1,872 million, an increase of 13% compared to the third quarter last year, reflecting higher revenue, partially offset by higher non-interest expenses and provisions for credit losses. The segment delivered record revenue of $5,003 million, an increase of 9%, primarily reflecting volume growth and margin expansion.
Canadian Personal and Commercial Banking grew its leading deposit franchise with another strong quarter for account openings. TD further expanded its market-leading credit card business to reach a milestone of more than 8 million active accounts and delivered market share gains in Real Estate Secured Lending while supporting its growing customer base. This quarter, TD added more value for New to Canada customers, including offers for both TD Direct Investing and the TD Cash Back Visa Card. The Bank also enhanced its TD Student Line of Credit offering, supporting Canada's next generation of doctors, dentists, and veterinarians. In addition, Business Banking launched TD Innovation Partners, a full-service banking and financing solutions platform for technology and innovation companies.
The U.S. Retail Bank delivered operating momentum in a challenging environment U.S. Retail reported net loss for the quarter was $2,275 million (US$1,658 million), compared with reported net income of $1,305 million (US$977 million) in the third quarter last year. On an adjusted basis, net income was $1,291 million (US$942 million), a decrease of $77 million (US$83 million). Reported net income for the quarter from the Bank's investment in The Charles Schwab Corporation ("Schwab") was $178 million (US$129 million), a decrease of $13 million (US$13 million).
The U.S. Retail Bank, which excludes the Bank's investment in Schwab, reported net loss was $2,453 million (US$1,787 million), compared with reported net income of $1,114 million (US$835 million) in the third quarter last year, primarily reflecting the impact of the provision for investigations related to the Bank's AML program. On an adjusted basis net income was $1,113 million, a decrease of $64 million from the third quarter last year, primarily reflecting higher PCL and higher non-interest expenses, partially offset by higher revenue. In U.S. dollars, adjusted net income was US$813 million, a decrease of US$70 million, reflecting higher PCL and lower revenue.
This quarter, the U.S. Retail Bank continued to deliver strong operating momentum with stable deposits excluding Schwab sweep deposits, and year-over-year peer-leading loan growth. The Commercial Banking Middle Market loan balances and lending fees grew 18% and 9% respectively year-over-year. In addition, TD Bank, America's Most Convenient Bank® ranked highest among national banks in the J.D. Power 2024 U.S. Online Banking Satisfaction Study[1], reflecting investments in digital banking and continued enhancements to customer experience. For the fifth year in a row, TD Auto Finance ranked #1 in Dealer Satisfaction among Non-Captive National Prime Automotive Finance Lenders in the J.D. Power 2024 U.S. Dealer Financing Satisfaction Study[2].
Wealth Management and Insurance delivered record revenue while net income reflects impact from severe weather events Wealth Management and Insurance net income was $430 million, relatively flat compared with the third quarter last year. Driven by strong business fundamentals, Wealth Management and Insurance delivered record revenues of $3,349 million reflecting higher insurance premiums, asset growth, higher deposit margins, and increased trades per day in the Direct Investing business. TD Insurance reported higher claims costs due to severe weather events in the Greater Toronto Area and wildfires in Alberta, in addition to increased claims severity.
Wealth Management and Insurance continued to invest in client-centric innovation this quarter. TD Direct Investing was the first bank-owned brokerage in Canada to launch partial shares trading, enabling investors to buy and sell a fraction of stocks and exchange-traded funds. TD Insurance supported customers and communities in their moments of need by providing advice and assistance to those impacted by severe weather-related events this quarter.
Wholesale Banking continued its growth, with revenues up on broader and stronger capabilities Wholesale Banking reported net income for the quarter was $317 million, an increase of $45 million compared with the third quarter last year, primarily reflecting higher revenues, partially offset by higher PCL and non-interest expenses. On an adjusted basis, net income was $377 million, flat compared to the third quarter last year. Revenue for the quarter was $1,795 million, an increase of $227 million, or 14%, compared with the third quarter last year, reflecting higher trading-related revenue, lending revenue, advisory and underwriting fees.
This quarter, Wholesale Banking continued to gain momentum across its banking and markets businesses. In June, TD Securities colleagues across North America participated in the annual TD Securities Underwriting Hope Campaign, which raised more than $2.1 million in support of children and youth-related charities.
Update on TD's AML remediation program TD is undertaking a remediation of its U.S. AML Program. As part of this work, the Bank has been making investments in its risk and control infrastructure, including onboarding leadership with deep subject matter expertise supported by increased staffing resources, implementing new cross-functional procedures for preventing, detecting and reporting suspicious activity; and investing in data and technology, training and process design to enable improved transaction monitoring and data analytics capabilities.
Capital TD's Common Equity Tier 1 Capital ratio was 12.8%.
Conclusion "Looking ahead, TD is strong and well-positioned to navigate the macroeconomic environment, invest in both our AML remediation program and our business, and continue to deepen our relationships with our nearly 28 million customers and clients," added Masrani. "I want to thank TD bankers around the globe for their hard work and commitment to the Bank and those we serve."
The foregoing contains forward-looking statements. Please refer to the "Caution Regarding Forward-Looking Statements" on page 3.
1
TD Bank received the highest score among national banks (>$200B in deposits) in the J.D. Power 2024 U.S. Banking Online Satisfaction Study, which measures customer satisfaction with financial institutions' online experience for banking account management. Visit jdpower.com/awards for more details.
2
TD Auto Finance received the highest score in the non-captive national – prime segment in the J.D. Power 2020-2024 U.S. Dealer Financing Satisfaction Studies of auto dealers' satisfaction with automotive finance providers. Visit jdpower.com/awards for more details.
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 can be identified by words such as "anticipate", "believe", "could", "estimate", "expect", "forecast", "goal", "intend", "may", "outlook", "plan", "possible", "potential", "predict", "project", "should", "target", "will", and "would" and similar expressions or variations thereof, or the negative thereof, but these terms are not the exclusive means of identifying such statements. 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; insider risk; 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 Events" or "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 law.
This document was reviewed by the Bank's Audit Committee and was approved by the Bank's Board of Directors, on the Audit Committee's recommendation, prior to its release.
TABLE 1: FINANCIAL HIGHLIGHTS
(millions of Canadian dollars, except as noted)
For the three months ended
For the nine months ended
July 31
April 30
July 31
July 31
July 31
2024
2024
2023
2024
2023
Results of operations
Total revenue – reported1
$
14,176
$
13,819
$
12,914
$
41,709
$
37,512
Total revenue – adjusted1,2
14,238
13,883
13,148
41,892
38,795
Provision for (recovery of) credit losses
1,072
1,071
766
3,144
2,055
Insurance service expenses (ISE)1
1,669
1,248
1,386
4,283
3,668
Non-interest expenses – reported1
11,012
8,401
7,359
27,443
22,227
Non-interest expenses – adjusted1,2
7,208
7,084
6,730
21,417
19,529
Net income (loss) – reported1
(181)
2,564
2,881
5,207
7,768
Net income – adjusted1,2
3,646
3,789
3,649
11,072
11,510
Financial position (billions of Canadian dollars)
Total loans net of allowance for loan losses
$
938.3
$
928.1
$
867.8
$
938.3
$
867.8
Total assets
1,967.2
1,966.7
1,885.2
1,967.2
1,885.2
Total deposits
1,220.6
1,203.8
1,159.5
1,220.6
1,159.5
Total equity
111.6
112.0
112.6
111.6
112.6
Total risk-weighted assets3
610.5
602.8
544.9
610.5
544.9
Financial ratios
Return on common equity (ROE) – reported1,4
(1.0)
%
9.5
%
10.8
%
6.5
%
9.7
%
Return on common equity – adjusted1,2
14.1
14.5
13.8
14.3
14.6
Return on tangible common equity (ROTCE)1,2,4
(1.0)
13.0
14.6
8.9
13.1
Return on tangible common equity – adjusted1,2
18.8
19.2
18.2
18.9
19.2
Efficiency ratio – reported1,4
77.7
60.8
57.0
65.8
59.3
Efficiency ratio – adjusted, net of ISE1,2,4,5
57.3
56.1
57.2
56.9
55.6
Provision for (recovery of) credit losses as a % of net
average loans and acceptances
0.46
0.47
0.35
0.46
0.32
Common share information – reported (Canadian dollars)
Per share earnings (loss)1
Basic
$
(0.14)
$
1.35
$
1.53
$
2.77
$
4.05
Diluted
(0.14)
1.35
1.53
2.76
4.04
Dividends per share
1.02
1.02
0.96
3.06
2.88
Book value per share4
57.61
57.69
55.49
57.61
55.49
Closing share price6
81.53
81.67
86.96
81.53
86.96
Shares outstanding (millions)
Average basic
1,747.8
1,762.8
1,834.8
1,762.4
1,827.9
Average diluted
1,748.6
1,764.1
1,836.3
1,763.6
1,829.9
End of period
1,747.9
1,759.3
1,827.5
1,747.9
1,827.5
Market capitalization (billions of Canadian dollars)
$
142.5
$
143.7
$
158.9
$
142.5
$
158.9
Dividend yield4
5.3
%
5.1
%
4.7
%
5.1
%
4.5
%
Dividend payout ratio4
n/m7
75.6
62.6
110.4
71.0
Price-earnings ratio1,4
19.2
13.8
11.4
19.2
11.4
Total shareholder return (1 year)4
(1.4)
4.5
9.4
(1.4)
9.4
Common share information – adjusted (Canadian dollars)1,2
Per share earnings1
Basic
$
2.05
$
2.04
$
1.95
$
6.09
$
6.10
Diluted
2.05
2.04
1.95
6.09
6.09
Dividend payout ratio
49.7
%
49.9
%
49.2
%
50.1
%
47.2
%
Price-earnings ratio1
10.3
10.5
10.5
10.3
10.5
Capital ratios3
Common Equity Tier 1 Capital ratio
12.8
%
13.4
%
15.2
%
12.8
%
15.2
%
Tier 1 Capital ratio
14.6
15.1
17.2
14.6
17.2
Total Capital ratio
16.3
17.1
19.6
16.3
19.6
Leverage ratio
4.1
4.3
4.6
4.1
4.6
TLAC ratio
29.1
30.6
35.0
29.1
35.0
TLAC Leverage ratio
8.3
8.7
9.3
8.3
9.3
1
For the three and nine months ended July 31, 2023, certain amounts have been restated for the adoption of IFRS 17, Insurance Contracts (IFRS 17). Refer to Note 2 of the Bank's third quarter 2024 Interim Consolidated Financial Statements for further details.
2
The Toronto-Dominion Bank ("TD" or the "Bank") prepares its Interim Consolidated Financial Statements in accordance with IFRS, the current GAAP, and refers to results prepared in accordance with IFRS as 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 "Significant and Subsequent Events" and "How We Performed" sections 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.
3
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, Leverage Requirements, and Total Loss Absorbing Capacity (TLAC) guidelines. Refer to the "Capital Position" section in the third quarter of 2024 MD&A for further details.
4
For additional information about this metric, refer to the Glossary in the third quarter of 2024 MD&A, which is incorporated by reference.
5
Efficiency ratio – adjusted, net of ISE is calculated by dividing adjusted non‑interest expenses by adjusted total revenue, net of ISE. Adjusted total revenue, net of ISE – Q3 2024: $12,569 million, Q2 2024: $12,635 million, Q3 2023: $11,762 million, 2024 YTD: $37,609 million, 2023 YTD: $35,127 million. Effective the first quarter of 2024, the composition of this non-GAAP ratio and the comparative amounts have been revised.
6
Toronto Stock Exchange closing market price.
7
Not meaningful.
SIGNIFICANT AND SUBSEQUENT EVENTS
a) Investigations Related to the Bank's AML Program The Bank continues to actively pursue a global resolution of the civil and criminal investigations into its U.S. Bank Secrecy Act (BSA)/AML program (the "AML Program") by its U.S. prudential regulators, the Financial Crimes Enforcement Network (FinCEN), and the U.S. Department of Justice (DOJ). For additional information about these matters, including provisions recorded in connection with such investigations, refer to Note 19 of the Bank's third quarter 2024 Interim Consolidated Financial Statements.
As previously disclosed, the Bank is undertaking a remediation of its AML Program. This is a cross-functional undertaking, spanning business lines and control functions, and is a priority for the Bank. As part of this work, the Bank has been making investments in its risk and controls infrastructure, including: (i) onboarding leadership with deep subject matter expertise supported by increased staffing resources; (ii) implementing new cross-functional procedures for preventing, detecting, and reporting suspicious activity; (iii) investing in training and process design; and (iv) investing in data and technology to enable improved transaction monitoring and data analytics capabilities. The Bank has established a dedicated program management infrastructure to monitor execution against the remediation program. This work is being overseen by an Interim AML/BSA Committee of the U.S. subsidiary boards and is expected to be a multi-year endeavour, involving additional investments.
b) Restructuring Charges The Bank continued to undertake certain measures in the third quarter of 2024 to reduce its cost base and achieve greater efficiency. In connection with these measures, the Bank incurred $110 million and $566 million, respectively, of restructuring charges for the three and nine months ended July 31, 2024, which primarily relate to employee severance and other personnel-related costs and real estate optimization. The restructuring program has concluded.
c) Federal Deposit Insurance Corporation Special Assessment On November 16, 2023, the 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 the spring of 2023. The special assessment resulted in the recognition of $411 million (US$300 million) pre-tax in non-interest expenses in the first quarter of the Bank's fiscal 2024.
On February 23, 2024, the FDIC notified all institutions subject to the special assessment that its estimate of total losses increased compared to the amount communicated with the final rule in November 2023. Accordingly, the Bank recognized an additional expense for the special assessment of $103 million (US$75 million) in the second quarter of the Bank's fiscal 2024. The final amount of the Bank's special assessment may be further updated as the FDIC determines the actual losses to the Deposit Insurance Fund.
d) Sale of Schwab Common Shares On August 21, 2024, the Bank announced that it had sold 40.5 million shares of common stock of Schwab. The shares are sold for proceeds of approximately $3.4 billion (US$2.5 billion). The share sale will reduce the Bank's ownership interest in Schwab from 12.3% to 10.1%. The Bank is expected to recognize approximately $1.0 billion (US$0.7 billion) as other income (net of $0.5 billion (US$0.4 billion) loss from accumulated other comprehensive income (AOCI) reclassified to earnings), in the fourth quarter of fiscal 2024.
HOW WE PERFORMED
HOW THE BANK REPORTS The Bank prepares its Interim Consolidated Financial Statements in accordance with IFRS 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, net of ISE, 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 PCL related to these portfolios in the Bank's Interim 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, which reduced the Bank's ownership interest in Schwab to approximately 12.0%.
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 and other charges incurred by Schwab. The Bank's share of Schwab's earnings available to common shareholders is reported with a one-month lag. For further details, refer to Note 7 of the Bank's third quarter 2024 Interim 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.
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 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. Refer to the "Related Party Transactions" section in the 2023 MD&A for further details.
During the first quarter of 2024, Schwab exercised its option to buy down the remaining $0.7 billion (US$0.5 billion) of the US$5 billion FROA buydown allowance and paid $32 million (US$23 million) in termination fees to the Bank in accordance with the 2023 Schwab IDA Agreement. By the end of the first quarter of 2024, Schwab had completed its buy down of the full US$5 billion FROA buydown allowance and had paid a total of $337 million (US$250 million) in termination fees to the Bank. The fees were intended to compensate the Bank for losses incurred from discontinuing certain hedging relationships and for lost revenues. The net impact was recorded in net interest income.
The following table provides the operating results on a reported basis for the Bank.
TABLE 2: OPERATING RESULTS – Reported
(millions of Canadian dollars)
For the three months ended
For the nine months ended
July 31
April 30
July 31
July 31
July 31
2024
2024
2023
2024
2023
Net interest income
$
7,579
$
7,465
$
7,289
$
22,532
$
22,450
Non-interest income1
6,597
6,354
5,625
19,177
15,062
Total revenue1
14,176
13,819
12,914
41,709
37,512
Provision for (recovery of) credit losses
1,072
1,071
766
3,144
2,055
Insurance service expenses1
1,669
1,248
1,386
4,283
3,668
Non-interest expenses1
11,012
8,401
7,359
27,443
22,227
Income before income taxes and share of net income from
investment in Schwab1
423
3,099
3,403
6,839
9,562
Provision for (recovery of) income taxes1
794
729
704
2,157
2,502
Share of net income from investment in Schwab
190
194
182
525
708
Net income (loss) – reported1
(181)
2,564
2,881
5,207
7,768
Preferred dividends and distributions on other equity instruments
69
190
74
333
367
Net income (loss) attributable to common shareholders1
$
(250)
$
2,374
$
2,807
$
4,874
$
7,401
1
For the three and nine months ended July 31, 2023, certain amounts have been restated for the adoption of IFRS 17. Refer to Note 2 of the Bank's third quarter 2024 Interim Consolidated Financial Statements for further details.
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 "How We Performed" sections.
TABLE 3: NON-GAAP FINANCIAL MEASURES – Reconciliation of Adjusted to Reported Net Income
(millions of Canadian dollars)
For the three months ended
For the nine months ended
July 31
April 30
July 31
July 31
July 31
2024
2024
2023
2024
2023
Operating results – adjusted
Net interest income1
$
7,641
$
7,529
$
7,364
$
