TD Bank Group Reports Third Quarter 2018 Results

THIRD QUARTER FINANCIAL HIGHLIGHTS, compared with the third quarter last year:

• Reported diluted earnings per share were $1.65, compared with $1.46.
• Adjusted diluted earnings per share were $1.66, compared with $1.51.
• Reported net income was $3,105 million, compared with $2,769 million.
• Adjusted net income was $3,127 million, compared with $2,865 million.

YEAR-TO-DATE FINANCIAL HIGHLIGHTS, nine months ended July 31, 2018, compared with the corresponding period last year:

• Reported diluted earnings per share were $4.43, compared with $4.08.
• Adjusted diluted earnings per share were $4.84, compared with $4.18.
• Reported net income was $8,374 million, compared with $7,805 million.
• Adjusted net income was $9,135 million, compared with $7,984 million.

THIRD QUARTER ADJUSTMENTS (ITEMS OF NOTE)
The third quarter reported earnings figures included the following items of note:

• Amortization of intangibles of $77 million ($65 million after tax or 3 cents per share), compared with $74 million ($56 million after tax or 3 cents per share) in the third quarter last year.
• The Bank's share of charges associated with TD Ameritrade's acquisition of Scottrade of $18 million ($18 million after tax or 1 cent per share).
• Tax benefit of $61 million related to U.S. tax reform ($61 million after tax or 3 cents per share).

TORONTO, Aug. 30, 2018 /CNW/ - TD Bank Group ("TD" or the "Bank") today announced its financial results for the third quarter ended July 31, 2018. Third quarter reported earnings were $3.1 billion, up 12% on a reported basis and 9% on an adjusted basis, compared with the same quarter last year.

"We are pleased with our performance, as our diversified business and geographic mix continues to add to our strategic advantage. We delivered strong earnings this quarter, increased customer volumes on both sides of the border and continued to invest in our key priorities," said Bharat Masrani, Group President and Chief Executive Officer.

Canadian Retail
Canadian Retail reported net income of $1,852 million, an increase of 7% compared with the same quarter last year. Increased loan and deposit volumes, growth in wealth assets, and higher net interest margins, all contributed to a 9% growth in revenue this quarter. Canadian Retail also increased its market share in the real estate secured lending business, maintained industry leadership in personal deposit gathering, and positioned TD Asset Management to become Canada's largest money manager with the announced acquisition of Greystone Managed Investments Inc.

U.S. Retail
U.S. Retail reported net income was $1,143 million (US$877 million) and adjusted net income was $1,161 million (US$891 million), an increase of 27% (29% in U.S. dollars) on a reported basis and 29% (31% in U.S. dollars) on an adjusted basis, compared with the same quarter last year.

The U.S. Retail Bank, which excludes the Bank's investment in TD Ameritrade, reported net income of $918 million (US$703 million), up 17% (19% in U.S. dollars) from the same period last year. Earnings reflect loan and deposit volume growth, higher margins driven by a favourable rate environment, and benefits from U.S. tax reform.

TD Ameritrade contributed $225 million (US$174 million) in reported earnings to the segment and $243 million (US$188 million) in adjusted earnings.

Wholesale Banking
Wholesale Banking net income was $223 million this quarter, reflecting lower trading-related revenue, partially offset by higher advisory activity and fee income. The Wholesale Bank continued to invest in client-facing teams this quarter as it expands its U.S. dollar business.

Capital
TD's Common Equity Tier 1 Capital ratio on a Basel III fully phased-in basis was 11.7%.

Innovation
"We are building the bank of the future by investing in our capabilities and enhancing our digital platforms. These investments are paying off in significant ways, by helping us deepen relationships with our customers on both sides of the border and making it easier for them to bank with us," said Masrani. "In addition, our AI innovations continue to set new standards in the industry. In fact, Layer 6 recently won the prestigious 2018 Spotify RecSys Challenge, one of the world's leading AI forums, reinforcing TD's global leadership and ability to attract the best and brightest talent to the Bank."

Conclusion
"As we enter the final quarter of fiscal 2018, we are operating from a position of strength and are focused on accelerating investment in strategic initiatives," said Masrani. "While we continue to see pockets of market uncertainty stemming from the geo-political climate, both the Canadian and U.S. economies continue to perform well and support a positive outlook for our diversified businesses across the Bank as we head into the final stretch of the year."

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

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.

HOW WE PERFORMED

How the Bank Reports
The Bank prepares its Interim Consolidated Financial Statements in accordance with IFRS, the current GAAP, and refers to results prepared in accordance with IFRS as "reported" results. The Bank also utilizes non-GAAP financial measures referred to as "adjusted" results to assess each of its businesses and to measure the Bank's overall performance. To arrive at adjusted results, the Bank removes "items of note", from reported results. The items of note relate to items which management does not believe are indicative of underlying business performance. The Bank believes that adjusted results provide the reader with a better understanding of how management views the Bank's performance. The items of note are disclosed in Table 3. As explained, adjusted results differ from reported results determined in accordance with IFRS. Adjusted results, items of note, and related terms used in this document are not defined terms under IFRS and, therefore, may not be comparable to similar terms used by other issuers.

The Bank's U.S. strategic cards portfolio comprises 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 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 reported Net income (loss). The Net income (loss) included in the U.S. Retail segment includes only the portion of revenue and credit losses attributable to TD under the agreements.

Effective November 1, 2017, the Bank adopted IFRS 9, which replaces the guidance in IAS 39. Refer to Note 2 of the Interim Consolidated Financial Statements for a summary of the Bank's accounting policies as it relates to IFRS 9. Under IFRS 9, the current period provision for credit losses (PCL) for performing (Stage 1 and Stage 2) and impaired (Stage 3) financial assets, loan commitments, and financial guarantees is recorded within the respective segment. Under IAS 39 and prior to November 1, 2017, the PCL related to the collectively assessed allowance for incurred but not identified credit losses that related to the Canadian Retail and Wholesale Banking segments was recorded in the Corporate segment. Prior period results have not been restated. PCL on impaired financial assets includes Stage 3 PCL under IFRS 9 and counterparty-specific and individually insignificant PCL under IAS 39. PCL on performing financial assets, loan commitments, and financial guarantees include Stage 1 and Stage 2 PCL under IFRS 9 and incurred but not identified losses under IAS 39.

IFRS 9 does not require restatement of comparative period financial statements except in limited circumstances related to aspects of hedge accounting. Entities are permitted to restate comparatives as long as hindsight is not applied. The Bank has made the decision not to restate comparative period financial information and has recognized any measurement differences between the previous carrying amount and the new carrying amount on November 1, 2017 through an adjustment to opening retained earnings. As such, fiscal 2018 results reflect the adoption of IFRS 9, while prior periods reflect results under IAS 39.

U.S. Tax Reform
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "U.S. Tax Act") which makes broad and complex changes to the U.S. tax code.

The reduction of the U.S. federal corporate tax rate enacted by the U.S. Tax Act resulted in a one-time adjustment during the first quarter of 2018 to the Bank's U.S. deferred tax assets and liabilities to the lower base rate of 21% as well as an adjustment to the Bank's carrying balances of certain tax credit-related investments and its investment in TD Ameritrade. Based on the Bank's previous assessment of the implications of the U.S. Tax Act, the Bank recorded a one-time net charge to earnings for the three months ended January 31, 2018, and the six months ended April 30, 2018, of $453 million (US$365 million). In the current quarter, the Bank updated its estimate, resulting in a net $61 million (US$46 million) deferred income tax benefit.

The lower corporate tax rate had and will have a positive effect on TD's current and future earnings. The amount of the benefit may vary due to, among other things, changes in interpretations and assumptions the Bank has made, guidance that may be issued by applicable regulatory authorities, and actions the Bank may take to reinvest some of the savings in its operations.

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

Return on Common Equity
The Bank's methodology for allocating capital to its business segments is aligned with the common equity capital requirements under Basel III. The capital allocated to the business segments is based on 9% CET1 Capital.

Adjusted ROE is adjusted net income available to common shareholders as a percentage of average common equity.

Adjusted ROE is a non-GAAP financial measure as it is not a defined term under IFRS. Readers are cautioned that earnings and other measures adjusted to a basis other than IFRS do not have standardized meanings under IFRS and, therefore, may not be comparable to similar terms used by other issuers.

SIGNIFICANT EVENTS AND PENDING ACQUISITIONS

Announced Agreement in Principle for the Acquisition of Aimia's Aeroplan Loyalty Business
On August 21, 2018, Air Canada, the Bank, Canadian Imperial Bank of Commerce, and Visa Canada Corporation (collectively, the "Consortium") and Aimia Inc. (Aimia) announced that they have entered into an agreement in principle for the acquisition of Aimia's Aeroplan loyalty business. The purchase price consists of $450 million in cash and the assumption of approximately $1.9 billion of Aeroplan Miles liability. The transaction is subject to the satisfactory conclusion of definitive transaction documents, Aimia shareholder approval, and certain other conditions, including due diligence, receipt of customary regulatory approvals, and completion by the Consortium of credit card loyalty program and network agreements for future participation in Air Canada's new loyalty program. If definitive transaction documents are entered into, completion is expected in the fall of 2018.

Announced Acquisition of Greystone Managed Investments Inc.
On July 10, 2018, the Bank announced an agreement to acquire Greystone Capital Management Inc., the parent company of Greystone Managed Investments Inc. (Greystone) for a net purchase price of $792 million, subject to certain adjustments, to be paid with a combination of TD common shares and cash. As at July 31, 2018, Greystone's reported assets under management (AUM) were $36 billion. Subject to the receipt of regulatory approvals and satisfaction of other customary closing conditions, the transaction is expected to close in the second half of the 2018 calendar year. The results of the acquired business will be consolidated from the date of close and will be included in the Canadian Retail segment.

HOW OUR BUSINESSES PERFORMED

For management reporting purposes, the Bank reports its results under three key business segments: Canadian Retail, which includes the results of the Canadian personal and commercial banking, wealth, and insurance businesses; U.S. Retail, which includes the results of the U.S. personal and business banking operations, wealth management services, and the Bank's investment in TD Ameritrade; and Wholesale Banking. The Bank's other activities are grouped into the Corporate segment.

Results of each business segment reflect revenue, expenses, assets, and liabilities generated by the businesses in that segment. Where applicable, the Bank measures and evaluates the performance of each segment based on adjusted results and ROE, and for those segments the Bank indicates that the measure is adjusted. For further details, refer to the "How the Bank Reports" section of this document, the "Business Focus" section in the Bank's 2017 MD&A, and Note 29 Segmented Information of the Bank's Consolidated Financial Statements for the year ended October 31, 2017. For information concerning the Bank's measure of ROE, which is a non-GAAP financial measure, refer to the "How We Performed" section of this document.

Upon adoption of IFRS 9, the current period PCL related to performing (Stage 1 and Stage 2) and impaired (Stage 3) financial assets, loan commitments, and financial guarantees is recorded within the respective segment. Under IAS 39 and prior to November 1, 2017, the PCL related to the collectively assessed allowance for incurred but not identified credit losses that related to Canadian Retail and Wholesale Banking segments was recorded in the Corporate segment. Prior period results have not been restated. PCL on impaired financial assets includes Stage 3 PCL under IFRS 9 and counterparty-specific and individually insignificant PCL under IAS 39. PCL on performing financial assets, loan commitments, and financial guarantees include Stage 1 and Stage 2 PCL under IFRS 9 and incurred but not identified credit losses under IAS 39.

The reduction of the U.S. federal corporate tax rate enacted by the U.S. Tax Act resulted in a one-time adjustment during the first quarter of 2018, and updated during the current quarter, to the Bank's U.S. deferred tax assets and liabilities to the lower base rate of 21% as well as an adjustment to the Bank's carrying balances of certain tax credit-related investments and its investment in TD Ameritrade. The earnings impact of these adjustments was reported in the Corporate segment. The lower corporate tax rate had and will have a positive effect on TD's current and future earnings, which are and will be reflected in the results of the affected segments. The amount of the benefit may vary due to, among other things, changes in interpretations and assumptions the Bank has made, guidance that may be issued by applicable regulatory authorities, and actions the Bank may take to reinvest some of the savings in its operations. The effective tax rate for the U.S. Retail Bank declined in proportion to the reduction in the federal rate and is expected to remain near this level for the balance of 2018. For additional details, refer to "How the Bank Reports" and "Non-GAAP Financial Measures – Reconciliation of Adjusted to Reported Net Income" table in the "How We Performed" section of this document.

Net interest income within Wholesale Banking is calculated on a taxable equivalent basis (TEB), which means that the value of non-taxable or tax-exempt income, including certain dividends, is adjusted to its equivalent before-tax value. Using TEB allows the Bank to measure income from all securities and loans consistently and makes for a more meaningful comparison of net interest income with similar institutions. The TEB increase to net interest income and provision for income taxes reflected in Wholesale Banking's results are reversed in the Corporate segment. The TEB adjustment for the quarter was $26 million, compared with $59 million in the third quarter last year and $17 million in the prior quarter.

Quarterly comparison – Q3 2018 vs. Q3 2017
Canadian Retail net income for the quarter was $1,852 million, an increase of $127 million, or 7%, compared with the third quarter last year. The increase in earnings reflects revenue growth, partially offset by higher insurance claims and non-interest expenses. The annualized ROE for the quarter was 48.6%, compared with 46.9% in the third quarter last year.

Canadian Retail revenue is derived from Canadian personal and commercial banking, wealth, and insurance businesses. Revenue for the quarter was $5,799 million, an increase of $470 million, or 9%, compared with the third quarter last year.

Net interest income increased $256 million, or 10%, reflecting volume growth and higher margins. Average loan volumes increased $24 billion, or 6%, reflecting 11% growth in business loans and 5% growth in personal loans. Average deposit volumes increased $12 billion, or 4%, reflecting 6% growth in business deposits and 3% growth in personal deposits. Net interest margin was 2.93%, an increase of 9 basis points (bps), reflecting rising interest rates, partially offset by competitive pricing in loans.

Non-interest income increased $214 million, or 8%. Excluding changes in the fair value of investments supporting claims liabilities, which resulted in a similar increase to insurance claims, non-interest income increased $148 million, or 5%, reflecting wealth asset growth, an increase in revenues from the insurance business and higher fee-based revenue in the banking businesses.

Assets under administration (AUA) were $403 billion as at July 31, 2018, an increase of $33 billion, or 9%, reflecting new asset growth and increases in market value. AUM were $297 billion as at July 31, 2018, an increase of $25 billion, or 9%, compared with the third quarter last year, reflecting increases in market value and new asset growth.

PCL was $246 million, an increase of $8 million, or 3%, compared with the third quarter last year. PCL – impaired for the quarter was $226 million, a decrease of $12 million, or 5%, reflecting strong credit performance. PCL – performing (recorded in the Corporate segment in the third quarter last year as incurred but not identified credit losses under IAS 39) was $20 million, reflecting volume growth. Total PCL as an annualized percentage of credit volume was 0.24% or a decrease of 1 basis point, remaining at cyclical lows. Net impaired loans decreased $49 million, or 9%. Net impaired loans as a percentage of total loans was 0.13%, compared with 0.15%, in the third quarter last year.

Insurance claims and related expenses for the quarter were $627 million, an increase of $108 million, or 21%, compared with the third quarter last year reflecting changes in the fair value of investments supporting claims liabilities, which resulted in a similar increase to non-interest income, increased reinsurance claims assumed and more severe weather-related events, partially offset by lower current year claims and the impact of changes to forward-looking actuarial assumptions.

Non-interest expenses for the quarter were $2,400 million, an increase of $181 million, or 8%, compared with the third quarter last year, reflecting increased employee-related expenses and higher spend related to strategic initiatives, marketing and promotion.

The efficiency ratio for the quarter was 41.4%, compared with 41.6% in the third quarter last year.

Quarterly comparison – Q3 2018 vs. Q2 2018
Canadian Retail net income for the quarter increased $19 million, or 1%, compared with the prior quarter. The increase in earnings reflects higher revenue due to the effect of three additional days in the quarter, partially offset by higher non-interest expenses. The annualized ROE for the quarter was 48.6%, compared with 50.6% in the prior quarter.

Revenue increased $287 million, or 5%, compared with the prior quarter. Net interest income increased $167 million, or 6%, reflecting the effect of three additional days in the third quarter and volume growth. Average loan volumes increased $7 billion, or 2%, reflecting 3% growth in business loans and 2% growth in personal loans. Average deposit volumes increased $3 billion, or 1%, reflecting 2% growth in business deposits and 1% growth in personal deposits. Net interest margin was 2.93%, or an increase of 2 bps, reflecting rising interest rates.

Non-interest income increased $120 million, or 4%. Excluding changes in the fair value of investments supporting claims liabilities which resulted in a similar increase to insurance claims, non-interest income increased $97 million or 4%, reflecting the effect of three additional days in the third quarter, higher fee-based revenue in the banking businesses, higher asset levels, and increased revenues from the insurance business.

AUA increased $11 billion, or 3%, compared with the prior quarter, reflecting increases in market value and new asset growth. AUM increased $8 billion, or 3%, reflecting increases in market value.

PCL increased by $27 million, or 12%, compared with the prior quarter. PCL – impaired increased by $7 million, or 3%, reflecting loan volume growth. PCL – performing increased by $20 million over prior quarter, reflecting volume growth. Total PCL as an annualized percentage of credit volume was 0.24%, or an increase of 1 basis point over prior quarter. Net impaired loans increased $8 million, or 2%. Net impaired loans as a percentage of total loans was 0.13%, compared with 0.13%, in the prior quarter.

Insurance claims and related expenses for the quarter increased $69 million, or 12%, compared with the prior quarter reflecting changes in the fair value of investments supporting claims liabilities which resulted in a similar increase to non-interest income, less favourable prior years' claims development, the seasonality of claims, and more severe weather-related events, partially offset by a decrease in reinsurance claims assumed and the impact of changes to forward-looking actuarial assumptions.

Non-interest expenses increased $168 million, or 8%, compared with the prior quarter, reflecting higher employee-related expenses and higher spend related to strategic initiatives, marketing and promotion.

The efficiency ratio for the quarter was 41.4%, compared with 40.5% in the prior quarter.

Year-to-date comparison – Q3 2018 vs. Q3 2017
Canadian Retail net income for the nine months ended July 31, 2018, was $5,442 million, an increase of $581 million, or 12%, compared with the same period last year. The increase in earnings reflects revenue growth, partially offset by higher non-interest expenses and insurance claims. The annualized ROE for the period was 48.8%, compared with 45.0% in the same period last year.

Revenue for the period was $16,861 million, an increase of $1,197 million, or 8%, compared with the same period last year. Net interest income increased $716 million, or 9%, reflecting volume growth and higher margins. Average loan volumes increased $23 billion, or 6%, reflecting 10% growth in business loans and 5% growth in personal loans. Average deposit volumes increased $17 billion, or 5%, reflecting 9% growth in business deposits and 4% growth in personal deposits. Net interest margin was 2.90%, an increase of 8 bps, reflecting rising interest rates, partially offset by competitive pricing in loans.

Non-interest income increased $481 million, or 6%. Excluding changes in the fair value of investments supporting claims liabilities, which resulted in a similar increase to insurance claims, non-interest income increased $422 million, or 5%, reflecting wealth asset growth, an increase in revenues from the insurance business, higher fee-based revenue in the personal banking business, and higher trading volumes in the direct investing business.

PCL for the nine months ended July 31, 2018 was $735 million, a decrease of $7 million, or 1% compared to the same period last year. PCL – impaired was $682 million, a decrease of $60 million, or 8%, reflecting strong credit performance. PCL – performing was $53 million. Annualized PCL as a percentage of credit volume was 0.25%, or a decrease of 1 basis point.

Insurance claims and related expenses were $1,760 million, an increase of $129 million, or 8%, compared with the same period last year, reflecting changes in the fair value of investments supporting claims liabilities which resulted in a similar increase to non-interest income, an increase in reinsurance claims assumed, higher current year claims, and more severe weather-related events, partially offset by more favourable prior years' claims development and the impact of changes to forward-looking actuarial assumptions.

Non-interest expenses were $6,943 million, an increase of $281 million, or 4%, compared with the same period last year. The increase reflects higher employee-related expenses including revenue-based variable expenses in the wealth business, restructuring costs across a number of businesses, and higher spend related to strategic initiatives, marketing and promotion.

The efficiency ratio for the period was 41.2%, compared with 42.5% for the same period last year.

Quarterly comparison – Q3 2018 vs. Q3 2017
U.S. Retail reported net income for the quarter was $1,143 million (US$877 million), an increase of $242 million (US$199 million), or 27% (29% in U.S. dollars), compared with the third quarter last year. On an adjusted basis, net income for the quarter was $1,161 million (US$891 million), an increase of $260 million (US$213 million), or 29% (31% in U.S. dollars). The reported and adjusted annualized ROE for the quarter was 13.1% and 13.3%, respectively, compared with 10.3% in the third quarter last year.

U.S. Retail net income includes contributions from the U.S. Retail Bank and the Bank's investment in TD Ameritrade. Net income for the quarter from the U.S. Retail Bank was $918 million (US$703 million). Reported and adjusted net income for the quarter from the Bank's investment in TD Ameritrade was $225 million (US$174 million) and $243 million (US$188 million), respectively.

The reported contribution from TD Ameritrade of US$174 million increased US$86 million, or 98%, compared with the third quarter last year, primarily due to the Scottrade transaction, higher interest rates, increased trading volumes, and a lower corporate income tax rate, partially offset by charges associated with the Scottrade transaction and higher operating expenses. Adjusted contribution from TD Ameritrade was US$188 million, an increase of US$100 million.

U.S. Retail Bank net income of US$703 million for the quarter increased US$113 million, or 19%, due to higher deposit margins, loan and deposit volume growth, the benefit of the Scottrade transaction, and a lower corporate income tax rate, partially offset by higher non-interest expenses and PCL.

U.S. Retail Bank revenue is derived from personal and business banking, and wealth management. Revenue for the quarter was US$2,156 million, an increase of US$157 million, or 8%, compared with the third quarter last year. Net interest income increased US$163 million, or 11%, due to higher deposit margins, loan and deposit volume growth, and the benefit of the Scottrade transaction. Net interest margin was 3.33%, an increase of 19 bps, primarily due to higher deposit margins and balance sheet mix. Non-interest income decreased US$6 million, or 1%, as fee income growth in personal and commercial banking, and wealth management was more than offset by losses on certain tax credit-related investments.

Average loan volumes increased US$6 billion, or 4%, compared with the third quarter last year due to growth in business and personal loans of 2% and 7%, respectively. Average deposit volumes increased US$22 billion, or 9%, reflecting a 19% increase in sweep deposit volume primarily due to the Scottrade transaction, 4% growth in personal deposit volumes, and 1% growth in business deposit volumes.

AUA were US$19 billion as at July 31, 2018, relatively flat compared with the third quarter last year. AUM were US$58 billion as at July 31, 2018, a decrease of $3 billion, or 5%, compared with the third quarter last year, reflecting net fund outflows, partially offset by market appreciation.

PCL for the quarter was US$170 million, an increase of US$33 million, or 24%, compared with the third quarter last year. PCL – impaired was US$142 million, an increase of US$8 million, or 6%, primarily reflecting volume growth, seasoning, and mix in the credit card and auto portfolios. PCL – performing was US$28 million, an increase of US$25 million, reflecting the impact of methodology changes related to the adoption of IFRS 9 where Stage 2 loans are now measured based on a lifetime expected credit loss (ECL). U.S. Retail PCL including only the Bank's contractual portion of credit losses in the U.S. strategic cards portfolio, as an annualized percentage of credit volume was 0.46%, or an increase of 8 bps. Net impaired loans, excluding ACI loans, were US$1.3 billion, a decrease of US$49 million, or 4%. Excluding ACI loans, net impaired loans as a percentage of total loans were 1% as at July 31, 2018.

Non-interest expenses for the quarter were US$1,172 million, an increase of US$59 million, or 5%, compared with the third quarter last year, reflecting higher investments in business initiatives, business volume growth, and higher employee related costs, partially offset by productivity savings.

The efficiency ratio for the quarter was 54.4%, compared with 55.7%, in the third quarter last year.

Quarterly comparison – Q3 2018 vs. Q2 2018
U.S. Retail reported net income of $1,143 million (US$877 million) increased $164 million (US$107 million), or 17% (14% in U.S. dollars), compared with the prior quarter, while adjusted net income of $1,161 million (US$891 million) increased $109 million (US$64 million), or 10% (8% in U.S. dollars). The reported and adjusted annualized ROE for the quarter was 13.1% and 13.3% respectively, compared to 11.9% and 12.7% in the prior quarter.

The reported contribution from TD Ameritrade of US$174 million increased US$67 million, or 63%, compared with the prior quarter, primarily due to reduced operating expenses and lower charges associated with the Scottrade transaction. Adjusted contribution from TD Ameritrade was US$188 million, an increase of US$34 million, or 22%.

U.S. Retail Bank net income for the quarter was US$703 million. Reported net income increased US$40 million, or 6%, compared with the prior quarter, primarily due to higher deposit margins and fee income growth, partially offset by higher expenses and PCL. On an adjusted basis, net income increased US$30 million, or 4%.

Revenue for the quarter increased US$92 million, or 4%, compared with the prior quarter. Net interest income increased US$69 million, or 4%, due to higher deposit margins and the effect of three additional days in the quarter. Net interest margin was 3.33%, an increase of 10 bps, primarily due to higher deposit margins and balance sheet mix. Non-interest income increased US$23 million, or 4%, primarily reflecting fee income growth in personal banking and the effect of three additional days in the quarter.

Average loan volumes in business and personal loans were relatively flat compared with the prior quarter. Average deposit volumes decreased US$2 billion, or 1%, due to declines in business and sweep deposit volumes.

AUA were US$19 billion as at July 31, 2018, relatively flat compared with the prior quarter. AUM were US$58 billion as at July 31, 2018, a decrease of $1 billion, or 2%, reflecting net fund outflows, partially offset by market appreciation.

PCL for the quarter increased US$9 million, or 6%, compared with the prior quarter. PCL – impaired was US$142 million, a decrease of US$16 million, or 10%, primarily reflecting improved credit performance in the credit card and auto portfolios. PCL – performing was US$28 million, an increase of US$25 million, primarily reflecting a prior quarter benefit due to lower commercial volume growth, and a provision for trade related uncertainty. U.S. Retail PCL including only the Bank's contractual portion of credit losses in the U.S. strategic cards portfolio, as an annualized percentage of credit volume was 0.46%, or an increase of 1 basis point. Net impaired loans, excluding ACI loans, were US$1.3 billion, a decrease of US$31 million, or 2%. Excluding ACI loans, net impaired loans as a percentage of total loans were 1% as at July 31, 2018.

Non-interest expenses for the quarter were US$1,172 million, an increase of US$5 million on a reported basis, compared with the prior quarter, primarily reflecting store optimization and the effect of three additional days in the quarter, partially offset by timing of initiative spend and charges associated with the Scottrade transaction in the prior quarter. On an adjusted basis, non-interest expenses increased US$18 million, or 2%.

The efficiency ratio for the quarter was 54.4%, compared with 56.5% and 55.9% on a reported and adjusted basis, respectively, in the prior quarter.

Year-to-date comparison – Q3 2018 vs. Q3 2017
U.S. Retail reported net income for the nine months ended July 31, 2018, was $3,074 million (US$2,398 million), an increase of $528 million (US$483 million), or 21% (25% in U.S. dollars), compared with the same period last year. On an adjusted basis, net income for the period was $3,237 million (US$2,527 million), an increase of $691 million (US$612 million), or 27% (32% in U.S. dollars). The reported and adjusted annualized ROE for the period was 12.0% and 12.7%, respectively, compared with 9.8% in the same period last year.

Reported net income for the period from the U.S. Retail Bank and the Bank's investment in TD Ameritrade was $2,609 million (US$2,035 million) and $465 million (US$363 million), respectively. On an adjusted basis for the period, the U.S. Retail Bank and the Bank's investment in TD Ameritrade contributed net income of $2,625 million (US$2,048 million) and $612 million (US$479 million), respectively.

The reported contribution from TD Ameritrade of US$363 million increased US$110 million, or 43%, compared with the same period last year, primarily due to the Scottrade transaction, higher interest rates, increased trading volumes, and a lower corporate income tax rate, partially offset by charges associated with the Scottrade transaction and higher operating expenses. Adjusted contribution from TD Ameritrade was US$479 million, an increase of US$226 million, or 89%.

U.S. Retail Bank reported net income for the period was US$2,035 million, an increase of US$373 million, or 22%, compared with the same period last year, primarily due to higher loan and deposit volumes, higher deposit margins, fee income growth, the benefit of the Scottrade transaction, and a lower corporate income tax rate, partially offset by higher expenses and PCL. U.S. Retail Bank adjusted net income of US$2,048 million increased US$386 million, or 23%.

Revenue for the period was US$6,308 million, an increase of US$522 million, or 9%, compared with same period last year. Net interest income increased US$475 million, or 11%, primarily due to higher deposit margins, growth in loan and deposit volumes, and the benefit of the Scottrade transaction. Net interest margin was 3.25%, an increase of 18 bps, primarily due to higher deposit margins and balance sheet mix. Non-interest income increased US$47 million, or 3%, reflecting fee income growth in personal and commercial banking, and wealth management, partially offset by losses on certain tax credit-related investments.

Average loan volumes increased US$7 billion, or 5%, compared with the same period last year, due to growth in personal loans of 7% and business loans of 3%. Average deposit volumes increased US$20 billion, or 8%, reflecting 5% growth in personal deposits, 1% growth in business deposits, and a 17% increase in sweep deposit volume primarily due to the Scottrade transaction.

PCL was US$526 million, an increase of US$82 million, or 18%, compared with the same period last year. PCL – impaired was US$448 million, an increase of US$110 million, or 33%, primarily reflecting volume growth, seasoning, and mix in the credit card and auto portfolios, coupled with favourable parameter changes to the retail portfolio in the prior year. PCL – performing was US$78 million, a decrease of US$28 million, or 26%, primarily reflecting lower volume growth in the commercial portfolios. U.S. Retail PCL including only the Bank's contractual portion of credit losses in the U.S. strategic cards portfolio, as an annualized percentage of credit volume, was 0.48%, or an increase of 6 bps.

Reported non-interest expenses for the period were US$3,483 million, an increase of US$205 million, or 6%, compared with same period last year, reflecting higher investments in business initiatives, business and volume growth, higher employee related costs, and charges associated with the Scottrade transaction, partially offset by productivity savings. On an adjusted basis, non-interest expenses increased US$188 million, or 6%.

The reported and adjusted efficiency ratios for the period were 55.2% and 54.9% respectively, compared with 56.7%, for the same period last year.