TD Bank Group Reports Second Quarter 2020 Results

SECOND QUARTER FINANCIAL HIGHLIGHTS, compared with the second quarter last year:

• Reported diluted earnings per share were $0.80, compared with $1.70.
• Adjusted diluted earnings per share were $0.85, compared with $1.75.
• Reported net income was $1,515 million, compared with $3,172 million.
• Adjusted net income was $1,599 million, compared with $3,266 million.

YEAR-TO-DATE FINANCIAL HIGHLIGHTS, six months ended April 30, 2020, compared with the corresponding period last year:

• Reported diluted earnings per share were $2.42, compared with $2.97.
• Adjusted diluted earnings per share were $2.51, compared with $3.32.
• Reported net income was $4,504 million, compared with $5,582 million.
• Adjusted net income was $4,671 million, compared with $6,219 million.

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

• Amortization of intangibles of $68 million ($59 million after-tax or 3 cents per share), compared with $78 million ($66 million after-tax or 3 cents per share) in the second quarter last year.
• Charges associated with the acquisition of Greystone of $26 million ($25 million after-tax or 2 cents per share), compared with $30 million ($28 million after-tax or 2 cents per share) in the second quarter last year.

TORONTO, May 28, 2020 /CNW/ - TD Bank Group ("TD" or the "Bank") today announced its financial results for the second quarter ended April 30, 2020. Reported earnings were $1.5 billion, down 52% compared with the same quarter last year, and adjusted earnings were $1.6 billion, down 51%.

"COVID-19 has impacted the health and financial well-being of our customers and colleagues in very personal and unprecedented ways. Our thoughts are with those most deeply affected, and our focus is on helping them overcome the significant challenges they are facing," said Bharat Masrani, Group President and CEO, TD Bank Group. "For more than 165 years, we have built our Bank with purpose and dedication, with a focus on enriching the lives of our customers, colleagues and communities. That purpose guides us as we take the steps needed to support and protect the economy and those we serve."

"The last two months have shown the resilience and character of the Bank. Strengthened by the investments we have made over several years in our people, processes and technology, more than 90,000 TD bankers moved with speed and purpose to shift how we operate and adapt to ever-changing conditions, while dealing with significant disruptions and challenges in their personal lives. I want to thank each one of our colleagues for their dedication and deep commitment to our customers and the Bank," added Masrani.

"TD entered this operating environment from a position of strength, with a high quality balance sheet and strong liquidity and capital positions. Across our diversified business, and in every geography in which we operate, TD continues to support the banking needs of our 26 million customers. The Bank will continue to help our customers, colleagues and communities as we work to recover from the current crisis and work with governments, regulators and other stakeholders to rebuild our economies," said Masrani.

Canadian Retail
Canadian Retail reported net income was $1,172 million, down 37% from the second quarter last year. Adjusted net income was $1,197 million, a decrease of 36% compared with the same quarter in 2019. The decrease primarily reflects higher provisions for credit losses (PCL). Revenue rose 1% on higher loan and deposit volumes and increased activity in our wealth and insurance businesses, partially offset by margin pressure from lower interest rates. PCL increased $873 million compared with the second quarter last year, reflecting higher provisions for performing loans due to changes in the economic outlook.

Canadian Retail rapidly responded to the current crisis through multiple initiatives. By building new mobile and online tools, and leveraging TD's strong omni channel capabilities and existing programs like TD Helps, Canadian Retail helped customers access financial relief quickly and conveniently with over 500,000 loan concessions, insurance premium reductions and deferrals, and loans facilitated under the CEBA program. It also introduced enhanced self-serve capabilities, including online and over-the-phone mortgage renewals, which contributed to strong RESL originations in the quarter. Direct Investing saw the highest number of account openings and a significant increase in trading volumes as customers leveraged new and enhanced learning tools and resources to help guide their investment decisions in a volatile market from the comfort of their homes. TD Insurance grew premiums through traditional channels and through fully digital sales capabilities available with the new General Insurance Platform launched in the second quarter.

U.S. Retail
U.S. Retail net income was $336 million (US$261 million), a decrease of 73% (72% in U.S. dollars), compared with the same quarter last year. TD Ameritrade contributed $234 million (US$174 million) in earnings to the segment, a decrease of 9% (11% in U.S. dollars) compared to the same quarter last year, primarily reflecting reduced trading commissions and higher operating expenses, partially offset by increased trading volumes.

The U.S. Retail Bank, which excludes the Bank's investment in TD Ameritrade, contributed $102 million (US$87 million) in earnings, down 90% (88% in U.S dollars) from the same quarter last year. The decrease reflects higher PCL, lower revenue and higher expenses. Revenue declined in the quarter, as margin pressure and lower customer activity more than offset growth in loans and deposits. PCL increased $911 million (US$644 million) compared with the second quarter last year, reflecting higher provisions for performing loans due to changes in the economic outlook.

The U.S. Retail Bank responded quickly to the COVID-19 crisis and continued to transform how it serves customers. It rapidly built an end-to-end digital application to enable small business customers to access federal funding through the U.S. CARES Act Small Business Association Paycheck Protection Program under which it funded approximately 75,000 loans (approximately 28,000 as at quarter-end). The U.S. Retail Bank also expanded its TD Cares program, designed to offer customers immediate relief, including fee refunds and payment extensions. The U.S. Retail Bank continued to support customers with access to needed credit and liquidity during this difficult environment by providing them with more loans, with ending balances up 12% compared with the same quarter last year. In addition, the U.S. Retail Bank leveraged drive-thru ATMs at more than 80% of its stores and created a Virtual Queue to support physical distancing requirements. It also deployed AI capabilities to automate and accelerate the delivery of auto loan, mortgage, and home equity loan payment deferral programs for customers.

Wholesale
Wholesale Banking reported net income of $209 million this quarter, a decrease of 5%, compared to the same quarter last year, reflecting higher PCL, partially offset by higher revenue. Revenue for the quarter was $1,261 million, an increase of 42% compared with the second quarter last year, reflecting higher trading‑related revenue and debt underwriting fees. PCL increased $379 million compared with the second quarter last year, reflecting higher provisions for performing loans due to changes in the economic outlook. The Wholesale Bank supported its corporate, institutional and government clients during unprecedented market volatility by providing market liquidity, access to credit and trusted advice.

Capital
TD's Common Equity Tier 1 Capital ratio on a Basel III fully phased-in basis was 11.0%.

Conclusion
"One of the great hallmarks of TD is our ability to adapt and we will continue to do so in the months ahead," concluded Masrani. "With the strength of our business model, our purpose-driven culture and our focus on the future, I am confident we will weather the storm, be there for our customers and emerge stronger from this crisis."

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

ECONOMIC SUMMARY AND OUTLOOK
TD Economics has materially downgraded its outlook for global real gross domestic product (GDP) to reflect the impact of the COVID-19 pandemic, with global real GDP now expected to contract by 4.4% in calendar 2020. In contrast to typical recessions, which tend to be investment-driven, the current slowdown has been led primarily by a sudden drop in consumption related to government mandated social distancing measures. Industries that involve higher levels of personal interaction, such as personal services and hospitality, are being most impacted. Likewise, it is expected that the recovery phase will reflect considerable unevenness across industries and geographies. TD Economics anticipates that a partial resumption of economic activity in most advanced economies will commence late in the second calendar quarter and build momentum into the following quarter as governments gradually ease restrictions on firms and households. These assumptions are subject to considerable uncertainty related to health outcomes and government decisions.

Ending a streak of 23 consecutive quarters of growth, U.S. real GDP contracted by 4.8% (annualized) in the first calendar quarter of 2020. Households led the decline, cutting their spending by 7.6% and substantially increasing their savings rate. Measures to contain the pandemic and mitigate its economic impact began in earnest only in late March. Consequently, a much deeper economic contraction is anticipated in the second calendar quarter, marked by double-digit unemployment rates. Even with economic activity resuming in late spring, U.S. real GDP is not expected to return to pre-crisis levels until early calendar 2022 at the earliest.

In response to the pandemic, the U.S. Federal Reserve introduced unprecedented lending facility measures and asset purchases, following a rapid cut in the policy interest rate to the 0.00% to 0.25% range. This response, alongside that of other major central banks, has improved the functioning of markets and led to a reduction in measures of financial stress. The U.S. federal government has also delivered approximately $3 trillion in support to businesses and households to help cushion the near-term impact of losses in revenue and employment income. Given the scale of the economic shock, TD Economics anticipates that the Federal Reserve will maintain the policy interest rate at its effective lower level for a substantial period. The decision to raise interest rates will likely require convincing evidence of a sustained economic recovery and a significant reduction in labour market slack.

In Canada, the depth and duration of the shock is expected to be comparatively deeper than in the U.S. during the first half of calendar 2020. The Canadian economy entered the pandemic with weaker economic momentum, which was compounded by provincial governments, on balance, introducing more restrictive social distancing measures than their state counterparts. The economic erosion will be further worsened by the rapid, significant decline in oil prices, which is expected to create a persistent weight on investment. Together, these factors are likely to delay Canada's return to the pre-crisis level of economic activity by at least one quarter relative to the United States.

Canada's federal government has introduced significant income and lending support measures. Among these are the Canada Emergency Business Account (CEBA) and the Canada Emergency Wage Subsidy (CEWS). The latter is a temporary wage subsidy program for qualifying businesses impacted by COVID-19. It is designed to mitigate near-term job losses and maintain workers' attachment to their employers, to facilitate the economic recovery as containment measures are gradually lifted.

National trends are likely to mask large variations in regional and sectoral performances. Canada's oil industry is expected to face persistent challenges. Demand for oil is anticipated to slowly increase as the global economy recovers, but it will take several quarters to unwind the large stockpiles that have been built up nationally and internationally, limiting the improvement in price conditions.

Since March, the Bank of Canada has cut its policy interest rate to its effective lower bound of 0.25% and undertaken a number of liquidity and asset purchase programs. These include the purchase of federal and provincial debt, corporate debt, and other securities. With Canadian households already burdened by high debt levels and insolvencies beginning to rise, eventual rate increases present a significant challenge for the Bank of Canada. As with the U.S. policy rate, TD Economics expects the Bank of Canada to maintain the policy rate at its current level for an extended period to ensure economic slack is sufficiently absorbed and to create the conditions for stable inflation. The Canadian dollar is projected to remain in the 70-72 U.S. cent range over the remainder of calendar 2020.

Given the high degree of uncertainty related to the progress of the pandemic and its effects on the economy, the risks around the outlook are larger than usual. It is possible that as social distancing measures are lifted, economies may experience a second wave of COVID-19 infections that require renewed restrictions on economic activity. A more protracted period of disruption would further pressure the financial positions of households and businesses, leading to increased insolvency rates and negative feedback effects on the economy. Conversely, rapid ramping up of "test and trace" capabilities or the near-term discovery of an effective treatment or vaccine would markedly improve the medium-term economic outlook. From a longer-term perspective, the pandemic could create or accentuate trends that lower potential economic growth in Canada and the U.S., including heightened geopolitical tensions, reduced immigration rates, and a structural decline in business investment.

THE BANK'S RESPONSE TO COVID-19
Efforts to contain the COVID-19 pandemic have had a profound impact on economies around the world. In North America, the banking sector has implemented a variety of measures to ease the strain on consumers and businesses. Governments, together with crown corporations, central banks and regulators, have also introduced programs to mitigate the fallout of the crisis and support the effective functioning of financial markets. TD has been actively engaged in this collective effort with a focus on supporting the well-being of TD's colleagues and customers and maintaining the Bank's operational and financial resilience.

Supporting Customers
The Bank acted quickly to protect the well-being of its customers and colleagues, temporarily closing parts of its branch and store network and limiting hours in others. Extra precautions are being taken in locations that remain open, including adjusting staff levels, installing protective equipment, enhancing cleaning, and implementing physical distancing measures to reduce personal contact. As at April 30, 2020, approximately 60% of Canadian branches and 80% of U.S. stores remained in operation with reduced levels of service, and approximately 6,000 ATMs were fully operational.

With the branch and store network operating at reduced capacity, the Bank has enabled a substantial majority of its contact center staff to work from home to maintain service levels. A number of branch and store colleagues have been given training to respond to customer calls, and new digital capacity and self-serve capabilities have been introduced to provide customers with ongoing access to financial service and advice. The Bank has expanded its existing customer assistance programs – TD Helps in Canada and TD Cares in the U.S. – and redeployed colleagues across the organization to support these functions. In addition, new online and mobile applications have been launched to facilitate the delivery of direct and government-introduced financial assistance for households and businesses.

Direct financial assistance provided by TD to customers includes deferral of loan payments, deferred minimum payments on credit card balances, interest reductions, insurance premium deferrals and premium reductions. The key payment deferral measures are summarized in the graphic below, which is as at April 30, 2020. In addition, TD Insurance provided insurance premium reductions and deferrals to over 125,000 customers during the quarter, and TD's Wholesale Banking segment increased total gross lending exposures to corporate, institutional, and government clients by $23 billion.

In addition to direct financial assistance, the Bank is supporting programs for individuals and businesses introduced by the Canadian and U.S. governments.

Canada Emergency Business Account Program
Under the Canada Emergency Business Account (CEBA) Program, with funding provided by Her Majesty in Right of Canada (the "Government of Canada") and Export Development Canada (EDC) as the Government of Canada's agent, the Bank provides loans to its business banking customers. Under the CEBA Program, eligible businesses receive a $40,000 interest-free loan until December 31, 2022. If $30,000 is repaid on or before December 31, 2022, the remaining amount of the loan is eligible for complete forgiveness. If the loan is not repaid by December 31, 2022, it will be extended for an additional 3-year term bearing an interest rate of 5% per annum. The funding provided to the Bank by the Government of Canada in respect of the CEBA Program represents an obligation to pass-through collections on the CEBA loans and is otherwise non-recourse to the Bank. Accordingly, the Bank is required to remit all collections of principal and interest on the CEBA loans to the Government of Canada but is not required to repay amounts that its customers fail to pay or that have been forgiven. The Bank receives an administration fee to recover the costs to administer the program for the Government of Canada. Loans issued under the program are not recognized on the Bank's Interim Consolidated Balance Sheet, as the Bank transfers substantially all risks and rewards in respect of the loans to the Government of Canada. As of April 30, 2020, the Bank had provided 117,000 customers with CEBA loans and had funded $4.7 billion in loans under the program. As of May 18, 2020, the Bank had provided approximately 140,000 customers with CEBA loans and had funded $5.7 billion in loans.

U.S. Coronavirus Aid, Relief, and Economic Security Act, Paycheck Protection Program
Under the Paycheck Protection Program (PPP) established by the U.S. Coronavirus Aid, Relief, and Economic Security (CARES) Act and implemented by the Small Business Administration (SBA), the Bank provides loans up to US$10 million each to small businesses to assist them in retaining workers, maintaining payroll, and covering other expenses. PPP loans originated by the Bank have a 2-year term, bear an interest rate of 1% per annum, and are 100% guaranteed by the SBA. The full principal amount of the loan and any accrued interest are eligible for forgiveness if the loan is used for qualifying expenses. The Bank will be paid by the SBA for any portion of the loan that is forgiven. As of April 30, 2020, the Bank had funded approximately 28,000 PPP loans. The gross carrying amount of loans originated under the program on the Bank's Interim Consolidated Balance Sheet as at April 30, 2020 was approximately US$6 billion. As of May 18, 2020, the Bank had funded approximately 75,000 loans with a gross carrying amount of US$8.2 billion.

Other Programs
The Bank is also working with federal Crown Corporations, including EDC and the Business Development Bank of Canada (BDC), as well as provincial and state governments and central banks to deliver other guarantee and co-lending programs for the Bank's clients. In Canada, these programs include the EDC Business Credit Availability Program and the BDC Co-Lending Program, and in the U.S., the Federal Reserve's Main Street Lending Program. In addition, TD is working with Canada's federal government to facilitate access to the Canada Emergency Response Benefit (CERB) through Canada Revenue Agency direct deposit.

Supporting Colleagues
To support colleagues' well-being, the Bank has implemented physical distancing measures in all of its locations, including contact centres, trading floors and office towers. A reward and recognition program was introduced for colleagues whose jobs can only be performed on TD premises, and work from home and split‑site arrangements have been enabled for others. As at April 30, 2020, approximately 60,000 TD colleagues were working remotely. Where possible, colleagues are being provided with the flexibility to adapt work schedules and access additional paid leave to meet caregiving demands resulting from the disruption, and the Bank has introduced new health and wellness resources to support colleagues and their families. The Bank has also committed that there will be no job losses in 2020 as a result of COVID‑19.

Maintaining the Bank's Operational and Financial Resilience
The Bank invoked its crisis management protocols early in the quarter as the virus took root in the various jurisdictions in which TD operates. Business continuity management plans were activated, and an executive crisis management team was appointed to lead the response effort. The Bank has also worked with its third‑party suppliers to maintain critical functions and services throughout the disruption.

The rapid implementation of split-site and work from home arrangements was made possible by prior and current quarter investments in the Bank's core technology infrastructure, network capacity, and enterprise cloud strategy. Together with the new lending platforms, end-to-end customer journeys, and digitization and automation capabilities introduced in recent years, these investments enabled the Bank to manage a surge in online and mobile traffic, including double-digit increases in Canadian and U.S. mobile banking downloads and digital usage, and up to a three-fold increase in direct investing trading volumes at the peak of market volatility. These capabilities also facilitated the rapid activation and support of government relief programs.

The Bank has been monitoring credit risk as it continues to support its customers' borrowing needs, incorporating both the deterioration in the economic outlook, as well as the impact of new government relief programs and regulatory measures, as set forth in more detail below. Market risk has also been well managed amidst significant market volatility. The Bank's liquidity and funding positions remain strong, reflecting its 90-day liquidity risk management paradigm and actions the Bank took early in the quarter to draw on new central bank liquidity facilities and raise wholesale funding.

Response from Regulators and Central Banks
In response to the challenges created by COVID-19 and current market conditions, OSFI took a number of actions during the quarter designed to build resilience of federally regulated financial institutions and improve the stability of the Canadian financial system and economy. Among these actions were adjustments to certain regulatory requirements, including the following measures which are relevant to the Bank:

• Adjusting capital and liquidity measures so they are suited to the current unprecedented circumstances;
• Delaying implementation of the remaining measures of the Basel III international capital standards until 2023;
• Delaying implementation of the final two phases of the initial margin requirements for non-centrally cleared derivatives by one year;
• To assist banks in responding to customers managing through hardship caused by current circumstances, specifying that bank loans subject to payment deferrals will continue to be treated as performing loans under regulatory capital requirements;
• Providing guidance on applying IFRS 9, Financial Instruments (IFRS 9) during this extraordinary period; and
• Providing direction on capital treatment in respect of loans to small and medium sized enterprises under recently announced government programs including the CEBA Program, the EDC Business Credit Availability Program, and the BDC Co-Lending Program.

OSFI expects the banks to maintain capital and liquidity buffers so they can be used to provide additional flexibility during periods of stress. During the quarter, OSFI lowered the Domestic Stability Buffer (DSB) by 1.25% of risk-weighted assets to 1.00% in order to support Domestic Systemically Important Banks' (D‑SIBs) ability to supply credit to the economy during an expected period of disruption related to COVID-19 and market conditions. OSFI expects that banks will use the additional lending capacity to support Canadian households and businesses, and has set the expectation for all federally regulated financial institutions that dividend increases and share buybacks should be halted for the time being.

The Bank of Canada has taken a number of actions to help Canadians bridge this difficult period by making credit affordable and available, including lowering interest rates to support economic activity and keep inflation low and stable. The Bank of Canada has also set up or expanded numerous programs which involve acquiring financial assets and lending to financial institutions to support the proper functioning of the financial system and the ability of financial institutions to continue lending. The Bank has used certain of these programs including the Term Repo Operations, the Standing Term Liquidity Facility, the Bankers' Acceptance Purchase Facility, and the Commercial Paper Purchase Facility.

Canada Mortgage and Housing Corporation (CMHC) has launched a revised Insured Mortgage Purchase Program (IMPP) as part of Canada's COVID-19 Economic Response Plan. Under the IMPP, CMHC purchases insured mortgage pools to provide stable funding to banks and mortgage lenders to ensure continued lending to Canadians. The Bank has used the IMPP.

Globally, central banks and governments have significantly lowered interest rates and made available similar asset purchase and lending programs to support market liquidity. Where appropriate, the Bank has accessed certain of these programs.

For additional information on OSFI's capital measures, refer to the "OSFI's Capital Requirements under Basel III", "Regulatory Capital Developments in Response to COVID-19", and "Future Regulatory Capital Developments" sections of the "Capital Position" section of this document. For additional information on OSFI's liquidity measures, refer to the "Regulatory Developments Concerning Liquidity and Funding" section of the "Managing Risk" section of this document.

Impact on Current Quarter Financial Performance
Notwithstanding the large-scale response from governments, central banks, regulators and industry, efforts to contain the crisis have profoundly altered the economic landscape and significantly affected the Bank's financial performance this quarter.

Revenue
Net interest income increased on strong loan and deposit volume growth and higher trading-related revenue, which more than offset sharply lower net interest margins in the retail businesses. The decline in margins reflects the 150 basis points of interest rate cuts implemented by each of the Bank of Canada and the Federal Reserve during the quarter to cushion the impact of the COVID-19 containment effort and the sharp drop in oil prices. Non-interest income in the retail banking businesses declined, reflecting reduced customer spending and payment activity as government-mandated closures took effect, partially offset by higher direct investing revenues on heightened trading activity. Capital markets revenues were robust, with strong trading-related revenue and higher debt underwriting activity.

Volumes
Loan volumes (excluding credit cards) and deposit volumes increased substantially during the quarter. Business loans and deposits surged midway through the quarter, as commercial and corporate clients drew on credit lines and obtained new facilities to shore up their balance sheet and retained the funds on deposit. As market conditions stabilized, some credit lines were repaid, but end of period business deposit balances remained elevated.

In the retail portfolios, real estate secured lending volumes were solid, supported by a strong pipeline at the start of the quarter, as well as lower interest rates, which spurred refinancing activity. Consumer unsecured volumes moderated as the quarter progressed, with notable weakness in credit card volumes reflecting reduced activity levels. Personal deposits increased as customers curtailed spending, benefited from government assistance programs, and responded to market volatility by increasing holdings of cash.

Provisions for credit losses
Provisions for credit losses (PCL) increased substantially reflecting the significant deterioration in the economic outlook. A portion of the increase reflects the retailer program partners' share of the U.S. strategic card portfolio program, which is offset in Corporate non-interest expenses, resulting in no impact on Corporate segment or total bank net income. The Bank continues to monitor all of its credit risk exposures closely. Expected credit losses (ECLs) reflect management's best estimates and consider reasonable and supportable information, including the impact of the COVID-19 pandemic and related customer assistance programs, as appropriate. To the extent that certain effects cannot be fully incorporated into model calculations, management continues to exercise expert credit judgment in determining the amount of ECLs by considering reasonable and supportable information not already included in the quantitative models. Refer to Note 3, Significant Accounting Judgments, Estimates and Assumptions of the Bank's second quarter 2020 Interim Consolidated Financial Statements and 2019 Annual Consolidated Financial Statements for additional details on the application of estimates and judgment in the assessment of ECLs.

Expenses
The Bank incurred direct costs of approximately $75 million related to COVID-19, including reconfiguring physical facilities, enhancing cleaning, compensating front‑line staff, purchasing additional equipment and setting up government assistance programs. In addition, significant internal resources were diverted to the Bank's response effort, which is ongoing.

Capital and liquidity
Capital and liquidity measures remain well above regulatory minimums, in part reflecting the benefits of the regulatory and central bank measures noted above.

Impact on Financial Performance in Future Quarters
The Bank's outlook for the remainder of 2020 and beyond should be viewed against the backdrop of the significant global economic downturn caused by the COVID-19 pandemic, which has adversely affected, and is expected to continue to adversely affect, the Bank's business and results of operations. The factors and assumptions used to develop the Bank's previously communicated performance expectations and targets regarding its business and results of operations were made on the basis that the Bank would be operating in the normal course of business. The extent of the COVID-19 pandemic, including its interruption of the Canadian, U.S., and global economies, the governmental measures put into place to contain the risk of transmission, financial market volatility, client and customer activity levels and measures the Bank has been taking to support the safety and well-being of its customers, colleagues, and communities are matters that were not anticipated when assumptions were formulated for 2020. Therefore, at this time, the Bank is suspending all of its previously-communicated assumptions and performance targets and expectations regarding its business and results of operations, including with respect to medium-term and short-term earnings expectations, expense and investment growth rate, net interest margin, PCL and, return on equity, at both the consolidated Bank and segment level, including, without limitation, assumptions and forward-looking statements set out in the 2019 MD&A under the headings "Economic Summary and Outlook", for the Canadian Retail, U.S. Retail, and Wholesale Banking segments, "Business Outlook and Focus for 2020", and for the Corporate segment, "Focus for 2020", and as updated in the Bank's quarterly MD&A for the quarter ended January 31, 2020.

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.

The following table provides the operating results on a reported basis for the Bank.

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. Capital allocated to the business segments was decreased to 9% Common Equity Tier 1 (CET1) Capital effective the second quarter of 2020 compared with 10.5% in the first quarter of 2020, and 10% in fiscal 2019.

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.

Return on Tangible Common Equity
Tangible common equity (TCE) is calculated as common shareholders' equity less goodwill, imputed goodwill and intangibles on an investment in TD Ameritrade and other acquired intangible assets, net of related deferred tax liabilities. ROTCE is calculated as reported net income available to common shareholders after adjusting for the after‑tax amortization of acquired intangibles, which are treated as an item of note, as a percentage of average TCE. Adjusted ROTCE is calculated using reported net income available to common shareholders, adjusted for items of note, as a percentage of average TCE. Adjusted ROTCE provides a useful measure of the performance of the Bank's income producing assets, independent of whether they were acquired or developed internally. TCE, ROTCE, and adjusted ROTCE are each non-GAAP financial measures and are not defined terms under IFRS. Readers are cautioned that earnings and other measures adjusted to a basis other than IFRS do not have standardized meanings under IFRS and, therefore, may not be comparable to similar terms used by other issuers.

SIGNIFICANT EVENTS AND PENDING TRANSACTIONS

TD Ameritrade Holding Corporation and The Charles Schwab Corporation
On November 25, 2019, the Bank announced its support for the acquisition of TD Ameritrade, of which the Bank is a major shareholder, by The Charles Schwab Corporation, through a definitive agreement announced by those companies. The transaction is expected to close in the second half of calendar 2020, subject to all applicable closing conditions having been satisfied. Refer to the "Financial Results Overview – Significant and Subsequent Events, and Pending Transactions" section of the Bank's 2019 MD&A for a discussion of the announced transaction.

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 personal and commercial banking, wealth, and insurance businesses; U.S. Retail, which includes the results of the 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 including the Bank's response to COVID-19, the "Business Focus" section in the Bank's 2019 MD&A, and Note 29 Segmented Information of the Bank's Consolidated Financial Statements for the year ended October 31, 2019. 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.

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.

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 $30 million, compared with $38 million in the prior quarter and $33 million in the second quarter last year.

Quarterly comparison – Q2 2020 vs. Q2 2019
Canadian Retail reported net income for the quarter was $1,172 million, a decrease of $677 million, or 37%, compared with the second quarter last year, reflecting higher PCL and non-interest expenses, partially offset by revenue growth. On an adjusted basis, net income for the quarter was $1,197 million, a decrease of $680 million, or 36%. The reported and adjusted annualized ROE for the quarter was 27.2% and 27.8%, respectively, compared with 43.2% and 43.9%, respectively, in the second quarter last year.

Canadian Retail revenue is derived from the personal and commercial banking, wealth, and insurance businesses. Revenue for the quarter was $6,023 million, an increase of $64 million, or 1%, compared with the second quarter last year.

Net interest income was $3,002 million, a decrease of $8 million compared with the second quarter last year, reflecting lower margins, partially offset by volume growth and an additional calendar day this quarter. Average loan volumes increased $20 billion, or 5%, reflecting 4% growth in personal loans and 9% growth in business loans. Average deposit volumes increased $33 billion, or 10%, reflecting 8% growth in personal deposits, 10% growth in business deposits, and 22% growth in wealth deposits. Net interest margin was 2.83%, a decrease of 16 bps, reflecting lower interest rates and competitive pricing in term deposits.

Non-interest income was $3,021 million, an increase of $72 million, or 2%, reflecting higher transaction and fee-based revenue in the wealth business and strong premiums growth in the insurance business, partially offset by lower fee income reflecting reduced customer activity, particularly in the credit cards business, as well as a $38 million decline in the fair value of investments supporting claims liabilities, which resulted in a similar decrease to insurance claims.

Assets under administration (AUA) were $406 billion as at April 30, 2020, a decrease of $15 billion, or 4%, compared with the second quarter last year, reflecting the decline in markets, partially offset by new asset growth. Assets under management (AUM) were $346 billion as at April 30, 2020, a decrease of $3 billion, or 1%, compared with the second quarter last year, reflecting the decline in markets and net outflows.

PCL was $1,153 million, an increase of $873 million, compared with the second quarter last year. PCL – impaired for the quarter was $365 million, an increase of $109 million, or 43%, reflecting higher provisions in the commercial and consumer lending portfolios, and volume growth. PCL – performing was $788 million, compared with $24 million last year, primarily related to a significant deterioration in the economic outlook, including its impact to credit migration, with the increase reflected in the commercial and consumer lending portfolios. Total PCL as an annualized percentage of credit volume was 1.07%, an increase of 80 bps.

Insurance claims and related expenses for the quarter were $671 million, relatively flat compared with the second quarter last year. Higher current year claims reflecting business growth and higher provisions recognized for trip cancellation and balance protection claims were largely offset by better claims experience, changes in the fair value of investments supporting claims liabilities, and less severe weather-related events.

Reported non-interest expenses for the quarter were $2,588 million, an increase of $107 million, or 4%, compared with the second quarter last year, reflecting higher spend supporting business growth including investment in front-line staff, changes in pension costs, and volume-driven expenses. On an adjusted basis, non-interest expenses were $2,562 million, an increase of $111 million, or 5%.

The reported and adjusted efficiency ratios for the quarter were 43.0% and 42.5%, respectively, compared with 41.6% and 41.1%, respectively, in the second quarter last year.

Quarterly comparison – Q2 2020 vs. Q1 2020
Canadian Retail reported net income for the quarter decreased $617 million, or 34%, compared with the prior quarter, reflecting higher PCL and lower revenue, partially offset by lower insurance claims and non-interest expenses. On an adjusted basis, net income decreased $616 million, or 34%. The reported and adjusted annualized ROE for the quarter was 27.2% and 27.8%, respectively, compared with 37.1% and 37.6%, respectively, in the prior quarter.

Revenue decreased $232 million, or 4%, compared with the prior quarter. Net interest income decreased $165 million, or 5%, reflecting lower margins and the effect of fewer days in the second quarter, partially offset by volume growth. Average loan volumes increased $3 billion, reflecting 4% growth in business loans as a result of increased draws on commercial lines of credit and originations. Average deposit volumes increased $11 billion, reflecting 2% growth in personal deposits, 16% growth in wealth deposits, and 1% growth in business deposits. Net interest margin was 2.83%, a decrease of 11 bps, reflecting lower interest rates.

Non-interest income decreased $67 million, or 2%, reflecting lower fee income reflecting reduced customer activity, particularly in the credit cards business, lower asset levels in the wealth management business, and a $10 million decline in the fair value of investments supporting claims liabilities, which resulted in a similar decrease to insurance claims, partially offset by higher transaction revenue in the wealth business.

AUA decreased $33 billion, or 8%, compared with the prior quarter, reflecting the decline in markets, partially offset by new asset growth. AUM decreased $19 billion, or 5%, compared with the prior quarter, reflecting the decline in markets.

PCL increased $762 million, compared with the prior quarter. PCL – impaired increased by $45 million, or 14%, reflecting higher provisions in the commercial and consumer lending portfolios. PCL – performing was $788 million, compared with $71 million in the prior quarter, primarily related to a significant deterioration in the economic outlook, including its impact to credit migration, with the increase reflected in the commercial and consumer lending portfolios. Total PCL as an annualized percentage of credit volume was 1.07%, an increase of 71 bps.

Insurance claims and related expenses for the quarter decreased $109 million, or 14%, compared with the prior quarter. The decrease reflects better claims experience, more favourable prior years' claims development, less severe weather-related events, and changes in the fair value of investments supporting claims liabilities, partially offset by higher provisions recognized for trip cancellation and balance protection claims.

Reported non-interest expenses decreased $48 million, or 2%, compared with the prior quarter, reflecting a reduction in variable compensation and lower discretionary spend, partially offset by increased spend on strategic initiatives. On an adjusted basis, non-interest expenses decreased $50 million, or 2%, compared to the prior quarter.

The reported and adjusted efficiency ratios for the quarter were 43.0% and 42.5%, respectively, compared with 42.1% and 41.8%, respectively, in the prior quarter.

Year-to-date comparison – Q2 2020 vs. Q2 2019
Canadian Retail reported net income for the six months ended April 30, 2020, was $2,961 million, a decrease of $267 million, or 8%, compared with same period last year. The decrease in earnings reflects higher PCL and insurance claims, partially offset by charges related to the agreement with Air Canada and the acquisition of Greystone in the prior year, and revenue growth. On an adjusted basis, net income for the period was $3,010 million, a decrease of $722 million, or 19%. The reported and adjusted annualized ROE for the period was 32.4% and 33.0%, respectively, compared with 37.4% and 43.2%, respectively, in the same period last year.

Revenue for the period was $12,278 million, an increase of $331 million, or 3%, compared with same period last year. Net interest income increased $115 million, or 2%, reflecting volume growth and an additional calendar day this period, partially offset by lower margins. Average loan volumes increased $19 billion, or 5%, reflecting 4% growth in personal loans and 9% growth in business loans. Average deposit volumes increased $28 billion, or 9%, reflecting 8% growth in both personal and business deposits, and 15% growth in wealth deposits. Net interest margin was 2.88%, a decrease of 9 bps, reflecting lower interest rates and competitive pricing in term deposits.

Non-interest income increased $216 million, or 4%, reflecting higher transaction and fee-based revenue in the wealth business and strong premiums growth in the insurance business, partially offset by lower fee income reflecting reduced customer activity, particularly in the credit cards business, and a $48 million decline in the fair value of investments supporting claims liabilities, which resulted in a similar decrease to insurance claims.

PCL was $1,544 million, an increase of $954 million, compared with the same period last year. PCL – impaired was $685 million, an increase of $165 million, or 32%, reflecting higher provisions in the commercial and consumer lending portfolios, and volume growth. PCL – performing was $859 million, compared to $70 million for the same period last year, primarily related to a significant deterioration in the economic outlook, including its impact to credit migration, with the increase reflected in the commercial and consumer lending portfolios. Total PCL as an annualized percentage of credit volume was 0.71%, an increase of 43 bps.

Insurance claims and related expenses were $1,451 million, an increase of $81 million, or 6%, compared with the same period last year. The increase reflects higher claims from business growth, higher provisions for trip cancellation and balance protection, and the prior year impact of changes to forward-looking actuarial assumptions, partially offset by better claims experience and changes in the fair value of investments supporting claims liabilities.

Reported non-interest expenses were $5,224 million, a decrease of $341 million, or 6%, compared with the same period last year. The decrease primarily reflects prior year charges related to the agreement with Air Canada. On an adjusted basis, non-interest expenses were $5,174 million, an increase of $277 million, or 6%, reflecting higher spend supporting business growth including investment in front-line staff, volume-driven expenses, and changes in pension costs.

The reported and adjusted efficiency ratios for the period were 42.5% and 42.1%, respectively, compared with 46.6% and 41.0%, respectively, for the same period last year.

Quarterly comparison – Q2 2020 vs. Q2 2019
U.S. Retail net income for the quarter was $336 million (US$261 million), a decrease of $927 million (US$687 million), or 73% (72% in U.S. dollars), compared with the second quarter last year. The annualized ROE for the quarter was 3.7%, compared with 13.2%, in the second 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 and the Bank's investment in TD Ameritrade were $102 million (US$87 million) and $234 million (US$174 million), respectively.

The contribution from TD Ameritrade was US$174 million, a decrease of US$21 million, or 11%, compared with the second quarter last year, primarily reflecting reduced trading commissions and higher operating expenses, partially offset by increased trading volumes.

U.S. Retail Bank net income of US$87 million for the quarter decreased US$666 million, or 88%, reflecting higher PCL, lower revenue, and higher expenses.

U.S. Retail Bank revenue is derived from the personal and business banking, and wealth management businesses. Revenue for the quarter was US$2,037 million, a decrease of US$146 million, or 7%, compared with the second quarter last year. Net interest income increased US$3 million, reflecting higher loan and deposit volumes, including higher sweep deposit volumes from TD Ameritrade, partially offset by lower deposit margins. Net interest margin was 2.93%, a decrease of 45 bps, primarily reflecting lower deposit margins and balance sheet mix. Non-interest income decreased US$149 million, or 29%, primarily reflecting lower customer activity, valuation of certain investments, and investment income.

Average loan volumes increased US$11 billion, or 7%, compared with the second quarter last year reflecting growth in personal and business loans of 9% and 6%, respectively, with significant increases in business loans in the latter part of the quarter reflecting increased draws on commercial lines of credit and originations under the SBA PPP. Average deposit volumes increased US$41 billion, or 15%, reflecting a 24% increase in sweep deposit volumes, a 16% increase in business deposit volumes, and a 5% increase in personal deposit volumes.

AUA were US$21 billion as at April 30, 2020, an increase of US$1 billion, or 5%, compared with the second quarter last year. AUM were US$38 billion as at April 30, 2020, a decrease of US$9 billion, or 19%, compared with the second quarter last year, reflecting declining market valuations and net outflows.

PCL for the quarter was US$814 million, an increase of US$644 million, compared with the second quarter last year. PCL – impaired was US$208 million, an increase of US$58 million, or 39%, primarily reflecting higher provisions in the consumer lending portfolios. PCL – performing was US$606 million, compared to US$20 million in the second quarter last year, primarily related to a significant deterioration in the economic outlook, including its impact to credit migration, with the increase reflected in the commercial, credit card, and auto lending 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 2.03%, an increase of 158 bps, compared with the second quarter last year.

Non-interest expenses for the quarter were US$1,218 million, an increase of US$70 million, or 6%, compared with the second quarter last year, reflecting increases in legal provisions, partially offset by productivity savings.

Income taxes reflect a recovery of US$82 million, compared to a provision of US$112 million in the second quarter last year, a decrease of US$194 million, primarily reflecting lower pre-tax income, partially offset by higher provisions related to changes in tax law.

The efficiency ratio for the quarter was 59.8%, compared with 52.6%, in the second quarter last year.

Quarterly comparison – Q2 2020 vs. Q1 2020
U.S. Retail net income of $336 million (US$261 million) decreased $810 million (US$608 million), or 71% (70% in U.S. dollars), compared with the prior quarter. The annualized ROE for the quarter was 3.7%, compared with 11.1% in the prior quarter.

The contribution from TD Ameritrade increased US$22 million, or 14%, compared with the prior quarter, primarily reflecting increased trading volumes, partially offset by higher operating expenses.

U.S. Retail Bank net income for the quarter was US$87 million, a decrease of US$630 million, or 88%, compared with the prior quarter, reflecting higher PCL and lower revenue.

Revenue for the quarter decreased US$167 million, or 8%, compared with the prior quarter. Net interest income increased US$11 million, or 1%, primarily reflecting higher deposit volumes, partially offset by lower deposit margins. Net interest margin was 2.93%, a decrease of 14 bps, primarily reflecting lower deposit margins. Non-interest income decreased US$178 million, or 33%, primarily reflecting lower customer activity, valuation of certain investments, and investment income.

Average loan volumes increased US$4 billion, or 3%, compared with the prior quarter, reflecting growth in business loans of 5%, with significant increases in business loans in the latter part of the quarter reflecting increased draws on commercial lines of credit and originations under the SBA PPP. Average deposit volumes increased US$27 billion, or 9%, reflecting a 17% increase in sweep deposit volumes, a 6% increase in business deposit volumes, and a 3% increase in personal deposit volumes.

AUA were US$21 billion as at April 30, 2020, a decrease of US$1 billion, or 5%, compared with the prior quarter. AUM were US$38 billion as at April 30, 2020, a decrease of US$6 billion, or 14%, compared with the prior quarter, reflecting declining market valuations.

PCL for the quarter increased US$571 million, compared with the prior quarter. PCL – impaired was flat to the prior quarter. PCL – performing was US$606 million compared to US$35 million in the prior quarter, primarily related to a significant deterioration in the economic outlook, including its impact to credit migration, with the increase reflected in the commercial, credit card, and auto lending 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 2.03%, an increase of 144 bps.

Non-interest expenses for the quarter were US$1,218 million, an increase of US$8 million, or 1%, compared with the prior quarter, primarily reflecting increases in legal provisions, partially offset by fewer days in the quarter and the timing of certain expenses across quarters.

Income taxes reflect a recovery of US$82 million, compared to a provision of US$34 million in the prior quarter, a decrease of US$116 million, primarily reflecting lower pre-tax income, partially offset by higher provisions related to changes in tax law and changes to the estimated liability for uncertain tax positions in the prior quarter.

The efficiency ratio for the quarter was 59.8%, compared with 54.9% in the prior quarter.

Year-to-date comparison – Q2 2020 vs. Q2 2019,
U.S. Retail net income for the six months ended April 30, 2020, was $1,482 million (US$1,130 million), a decrease of $1,021 million (US$753 million), or 41% (40% in U.S. dollars), compared with the same period last year. The annualized ROE for the period was 7.6%, compared with 12.9%, in the same period last year.

Net income for the period from the U.S. Retail Bank and the Bank's investment in TD Ameritrade was $1,047 million (US$804 million) and $435 million (US$326 million), respectively.

The contribution from TD Ameritrade was US$326 million, a decrease of US$104 million, or 24%, compared with the same period last year, primarily reflecting reduced trading commissions and higher operating expenses, partially offset by increased trading volumes.

U.S. Retail Bank net income for the period was US$804 million, a decrease of US$649 million, or 45%, compared with the same period last year, primarily reflecting higher PCL and lower revenue, partially offset by lower taxes.

Revenue for the period was US$4,241 million, a decrease of US$158 million, or 4%, compared with same period last year. Net interest income decreased US$17 million, or 1%, as lower deposit margins were partially offset by growth in loan and deposit volumes. Net interest margin was 3.00%, a decrease of 40 bps, primarily reflecting lower deposit margins and balance sheet mix. Non-interest income decreased US$141 million, or 14%, reflecting lower customer activity, valuation of certain investments, and investment income.

Average loan volumes increased US$9 billion, or 6%, compared with the same period last year, reflecting growth in personal and business loans of 8% and 4%, respectively, with significant increases in business loans in the latter part of the quarter, reflecting increased draws on commercial lines of credit and originations under the SBA PPP. Average deposit volumes increased US$27 billion, or 10%, reflecting a 13% increase in sweep deposit volumes, a 13% increase in business deposit volumes, and a 5% increase in personal deposit volumes.

PCL was US$1,057 million, an increase of US$657 million, compared with the same period last year. PCL – impaired was US$416 million, an increase of US$52 million, or 14%, primarily reflecting higher provisions in the consumer lending portfolios. PCL – performing was US$641 million, compared to US$36 million in the same period last year, primarily related to a significant deterioration in the economic outlook, including its impact to credit migration, with the increase reflected in the commercial, credit card, and auto lending 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 1.33%, an increase of 81 bps.

Non-interest expenses for the period were US$2,428 million, an increase of US$71 million, or 3%, compared with the same period last year, reflecting increases in legal provisions, partially offset by productivity savings.

Income taxes reflect a recovery of US$48 million, compared to a provision of US$189 million in the same period last year, a decrease of US$237 million, primarily reflecting lower pre-tax income and changes to the estimated liability for uncertain tax positions, partially offset by higher provisions related to changes in tax law.

The efficiency ratio for the period was 57.3%, compared with 53.6%, for the same period last year.