TD Bank Group Reports Fourth Quarter and Fiscal 2023 Results

Earnings News Release • Three and Twelve months ended October 31, 2023

FOURTH QUARTER FINANCIAL HIGHLIGHTS, compared with the fourth quarter last year:

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

FULL YEAR FINANCIAL HIGHLIGHTS, compared with last year:

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

FOURTH QUARTER ADJUSTMENTS (ITEMS OF NOTE)

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

• Amortization of intangibles of $92 million ($83 million after-tax or 4 cents per share), compared with $57 million ($51 million after-tax or 3 cents per share) in the fourth quarter last year.
• Acquisition and integration charges related to the Schwab transaction of $31 million ($26 million after-tax or 1 cent per share), compared with $18 million ($16 million after-tax or 1 cent per share) in the fourth quarter last year.
• Share of restructuring charges from investment in Schwab of $35 million ($35 million after-tax or 2 cents per share).
• Restructuring charges of $363 million ($266 million after-tax or 15 cents per share).
• Acquisition and integration charges primarily related to the Cowen acquisition of $197 million ($161 million after-tax or 9 cents per share).
• Residual impact from the terminated First Horizon acquisition-related capital hedging strategy, net loss of $64 million ($48 million after-tax or 3 cents per share).

TORONTO, Nov. 30, 2023 /CNW/ - TD Bank Group ("TD" or the "Bank") today announced its financial results for the fourth quarter ended October 31, 2023. Reported earnings were $2.9 billion, down 57% compared with the fourth quarter last year, and adjusted earnings were $3.5 billion, down 14%.

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

Canadian Personal and Commercial Banking delivered a strong quarter supported by net interest margin expansion and volume growth

Canadian Personal and Commercial Banking net income was $1,679 million, a decline of 1% compared to the fourth quarter last year. The decrease primarily reflects higher provisions for credit losses (PCL) and expenses, partially offset by revenue growth. Revenue was $4,754 million, an increase of 7%, reflecting volume growth and higher margins. The segment delivered its tenth quarter of positive operating leverage in a row.

Canadian Personal and Commercial Banking continued to deliver growth, driven by a record quarter for New to Canada account openings. This quarter, TD launched a First Home Savings Account to enable customers to invest tax-free for a down payment on their first home. In addition, TD was recognized by Rewards Canada readers with more credit card and loyalty program awards than any other card issuer, with the Bank taking first place in four of seven categories¹.

The U.S. Retail Bank continued to show operating momentum in a challenging environment

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

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

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

During the quarter, TD Bank, America's Most Convenient Bank^® (TD AMCB) welcomed new customers and further strengthened its store network, opening six new stores, including one in a low- and moderate-income area. TD AMCB also introduced overdraft grace period alerts to help customers better manage their finances. For the seventh consecutive year, TD AMCB ranked #1 in its footprint by total number of approved U.S. Small Business Administration (SBA) loan units and ranked as the #2 National SBA Lender in 2023².

Wealth Management and Insurance delivered solid results

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

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

Challenging quarter for Wholesale Banking

Wholesale Banking reported net income for the quarter was $17 million, down $244 million or 93% compared to the fourth quarter last year. The results reflect higher non-interest expenses, which include acquisition and integration costs, partially offset by higher revenues. On an adjusted basis, net income was $178 million, a decrease of $97 million, or 35%. Revenue increased 28%, reflecting the benefits of the Cowen Inc. acquisition and growth in Global Markets and Corporate and Investment Banking in a challenging market.

This quarter, the Wholesale Bank continued to demonstrate its leadership in Environmental, Social, and Governance (ESG) and deepened the Bank's commitment to a low carbon economy. TD Securities agreed to purchase 27,500 metric tons of Direct Air Capture (DAC) carbon dioxide removal credits over a four-year period from STRATOS, 1PointFive's first DAC plant currently under construction in Texas, subject to STRATOS becoming operational. TD Securities also reached a significant TD Cowen integration milestone, combining its U.S. Institutional Equities and Convertibles businesses to deliver a full-service North American equities platform to clients.

Shaping the future of banking

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

Capital

TD's Common Equity Tier 1 Capital ratio was 14.4%.

Conclusion

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

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

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

SIGNIFICANT AND SUBSEQUENT EVENTS

a) Restructuring Charges
The Bank undertook certain measures in the fourth quarter of 2023 to reduce its cost base and achieve greater efficiency. In connection with these measures, the Bank incurred $363 million of restructuring charges which primarily relate to employee severance and other personnel-related costs, real estate optimization, and asset impairments. The Bank expects to incur additional restructuring charges of a similar magnitude in the first half of calendar 2024.

b) Acquisition of Cowen Inc.
On March 1, 2023, the Bank completed the acquisition of Cowen Inc. ("Cowen"). The acquisition advances the Wholesale Banking segment's long-term growth strategy in the U.S. and adds complementary products and services to the Bank's existing businesses. The results of the acquired business have been consolidated by the Bank from the closing date and primarily reported in the Wholesale Banking segment. Consideration included $1,500 million (US$1,100 million) in cash for 100% of Cowen's common shares outstanding, $253 million (US$186 million) for the settlement of Cowen's Series A Preferred Stock, and $205 million (US$151 million) related to the replacement of share-based payment awards.

The acquisition was accounted for as a business combination under the purchase method. The purchase price allocation can be adjusted during the measurement period, which shall not exceed one year from the acquisition date, to reflect new information obtained about facts and circumstances. The acquisition contributed $10,800 million (US$7,933 million) of assets and $9,884 million (US$7,261 million) of liabilities. The excess of accounting consideration over the fair value of the tangible net assets acquired is allocated to other intangible assets of $298 million (US$219 million) net of taxes, and goodwill of $744 million (US$546 million).

c) Termination of the Merger Agreement with First Horizon Corporation
On May 4, 2023, the Bank and First Horizon Corporation ("First Horizon" or "FHN") announced their mutual decision to terminate the previously announced merger agreement for the Bank to acquire First Horizon. Under the terms of the termination agreement, the Bank made a $306 million (US$225 million) cash payment to First Horizon on May 5, 2023. The termination payment was recognized in non-interest expenses in the third quarter of fiscal 2023 and was reported in the Corporate segment.

In connection with the transaction, the Bank had invested US$494 million in non-voting First Horizon preferred stock. During the second quarter of fiscal 2023, the Bank recognized a valuation adjustment loss of $199 million (US$147 million) on this investment, recorded in other comprehensive income (OCI). On June 26, 2023, in accordance with the terms of the preferred share purchase agreement, the preferred stock converted into approximately 19.7 million common shares of First Horizon, resulting in the Bank recognizing a loss of $166 million (US$126 million) during the third quarter of fiscal 2023 in OCI based on First Horizon's common share price at the time of conversion.

The Bank had also implemented a strategy to mitigate the impact of interest rate volatility to capital on closing of the acquisition. The Bank determined that the fair value of First Horizon's fixed rate financial assets and liabilities and certain intangible assets would have been sensitive to interest rate changes. The fair value of net assets would have determined the amount of goodwill to be recognized on closing of the acquisition. Increases in goodwill and intangibles would have negatively impacted capital ratios because they are deducted from capital under OSFI Basel III rules. In order to mitigate this volatility to closing capital, the Bank de-designated certain interest rate swaps hedging fixed income investments in fair value hedge accounting relationships.

As a result of the de-designation, mark-to-market gains (losses) on these swaps were recognized in earnings, without any corresponding offset from the previously hedged investments. Such gains (losses) would have mitigated the capital impact from changes in the amount of goodwill recognized on closing of the acquisition. The de-designation also triggered the amortization of the investments' basis adjustment to net interest income over the remaining expected life of the investments.

Prior to the termination of the merger agreement on May 4, 2023, for the year ended October 31, 2023, the Bank reported ($1,386) million in non-interest income related to the mark-to-market on the swaps, and $262 million in net interest income related to the basis adjustment amortization. In addition, for the year ended October 31, 2023, the Bank reported $585 million in non-interest income related to the net interest earned on the swaps.

Following the announcement to terminate the merger agreement, the Bank discontinued this strategy and reinstated hedge accounting on the portfolio of fixed income investments using new swaps entered into at higher market rates. Income recognized from this strategy will reverse over time causing a decrease to net interest income. For the year ended October 31, 2023, the decrease to net interest income was ($127) million, recorded in the Corporate segment.

The Bank had also implemented a strategy to mitigate FX risk on the expected USD cash consideration. Following the announcement to terminate the merger agreement, the Bank discontinued this strategy. Given the appreciation of the U.S. dollar during the life of the strategy, the Bank was in a net gain position on the date of hedge termination and cumulative net gains were recognized in accumulated other comprehensive income (AOCI).

d) Implementation of the Canada Recovery Dividend and Change in Corporate Tax Rate
On December 15, 2022, Bill C-32, Fall Economic Statement Implementation Act, 2022, received Royal Assent. This bill enacted the Canada Recovery Dividend (CRD) and increased the Canadian federal tax rate for bank and life insurer groups by 1.5%.

The implementation of the CRD resulted in a provision for income taxes of $553 million and a charge to OCI of $239 million, recognized in the first quarter of 2023.

The increase in the Canadian federal tax rate of 1.5%, prorated for the first taxation year that ends after April 7, 2022, resulted in a provision for income taxes of $82 million and a tax benefit of $75 million in OCI related to fiscal 2022, recognized in the first quarter of 2023. The Bank also remeasured certain Canadian deferred tax assets and liabilities for the increase in tax rate, which resulted in an increase in net deferred tax assets of $50 million, which is recorded in provision for income taxes.

e) Stanford Litigation Settlement
In the US Rotstain v. Trustmark National Bank, et al. action, on February 24, 2023, the Bank reached a settlement in principle (the "settlement" or "agreement") relating to litigation involving the Stanford Financial Group (the "Stanford litigation"), pursuant to which the Bank agreed to pay US$1.205 billion to the court-appointed receiver for the Stanford Receivership Estate. Under the terms of the agreement, TD has settled with the receiver, the Official Stanford Investors Committee, and other plaintiffs in the litigation and these parties have agreed to release and dismiss all current or future claims arising from or related to the Stanford matter. As a result of this agreement, the Bank recorded a provision of approximately $1.6 billion pre-tax ($1.2 billion after-tax) in the first quarter of 2023. The Bank recognized a foreign exchange loss of $39 million ($28 million after-tax) in the second quarter of 2023, reflecting the impact of the difference between the foreign exchange rate used for recording the provision (effective January 31, 2023) and the foreign exchange rate at the time the settlement was reached.

f) Federal Deposit Insurance Corporation Special Assessment
On November 16, 2023, the Federal Deposit Insurance Corporation (FDIC) announced a final rule that implements a special assessment to recover the losses to the Deposit Insurance Fund arising from the protection of uninsured depositors during the U.S. bank failures in Spring 2023 (the "Special Assessment"). The Special Assessment is expected to result in the recognition of a provision of approximately US$300 million pre-tax in the first quarter of the Bank's fiscal 2024.

HOW WE PERFORMED

Economic Summary and Outlook
The global economy remains on track to slow in calendar 2023 and 2024, but to a lesser extent than anticipated in the previous quarter. Inflation has generally continued to cool across the G-7, and more central banks have taken a pause on interest rate hikes. Central bankers will remain vigilant on inflation and further rate hikes cannot be ruled out, but most are fine-tuning interest rate adjustments at this stage. The lagged impact of cumulative interest rate hikes is expected to be the primary influence dampening economic growth and returning inflation closer to the target ranges of the various regions by the end of calendar 2024.

The U.S. economy expanded by 4.9% annualized in the third calendar quarter of 2023. Underlying domestic demand grew at an impressive 3.5% pace, as consumer spending accelerated from a soft performance in the second calendar quarter. Government spending accelerated, driven by an uptick in federal defence spending. Housing activity also increased for the first time in over two years, reflecting lower mortgage rates earlier in the year. However, business investment weakened, after a stronger-than-expected performance in the first half of calendar 2023.

As of October, the U.S. job market was still tight with the unemployment rate still historically low at 3.9%. However, there are signs that demand for workers is cooling, as evidenced by both slower trend growth in payrolls and a slight increase in the unemployment rate over the prior six months. Although the downturn in total inflation has stalled in recent months due to higher energy costs, core inflation measures have continued to move lower. Underlying services prices continue to be a source of persistent price pressure. Given that inflation remains well above the U.S. Federal Reserve's 2% target, the central bank remains highly attentive to upside risks.

TD Economics continues to believe there is a chance the federal funds rate may rise a further quarter point from its current range of 5.25-5.50% early in calendar 2024. The economic environment remains fluid. If the central bank sees evidence of further cooling in the labor market and is increasingly confident that inflation is headed towards its 2% target, it could opt to hold rates steady. Given the steep rise in interest rates over the past year, the trend towards tighter U.S. credit and financial conditions, and the likelihood of rolling periods of financial stress related to risk factors, the probability of a recession stateside remains elevated.

The Canadian economy has been affected by numerous temporary economic events, which have contributed to weakness in the economic activity data. Real GDP was nearly unchanged in the second calendar quarter of 2023, reflecting softer consumer spending and ongoing weakness in housing activity. Business investment was one bright spot, as investment in engineering structures and transportation equipment increased.

Despite signs of slowing in the Canadian economy, progress on inflation has stalled in recent months. The trend rate of job growth has slowed below that of the labour force, pushing the unemployment rate higher. TD Economics expects the unemployment rate to continue to move higher in the months ahead, contributing to prolonged weakness in consumer spending. Given the uncertainty surrounding the impact of substantial interest rate hikes on highly indebted Canadian households, the risk of recession also remains elevated in Canada.

The Bank of Canada has left the overnight interest rate unchanged at 5.00% since July. However, it has expressed concern about the persistence of underlying inflation. TD Economics does not expect further interest rate hikes, but the incoming economic data will determine whether more will be required in Canada to bring inflation down to the 2% target. The Canadian dollar is expected to hover in the 72 to 74 U.S. cent range over the next few quarters.

HOW THE BANK REPORTS
The Bank prepares its Consolidated Financial Statements in accordance with IFRS, the current GAAP, and refers to results prepared in accordance with IFRS as "reported" results.

Non-GAAP and Other Financial Measures
In addition to reported results, the Bank also presents certain financial measures, including non-GAAP financial measures that are historical, non-GAAP ratios, supplementary financial measures and capital management measures, to assess its results. Non-GAAP financial measures, such as "adjusted" results, are utilized to assess the Bank's businesses and to measure the Bank's overall performance. To arrive at adjusted results, the Bank adjusts for "items of note", from reported results. Items of note are items which management does not believe are indicative of underlying business performance and are disclosed in Table 3. Non-GAAP ratios include a non-GAAP financial measure as one or more of its components. Examples of non-GAAP ratios include adjusted basic and diluted earnings per share (EPS), adjusted dividend payout ratio, adjusted efficiency ratio, and adjusted effective income tax rate. The Bank believes that non-GAAP financial measures and non-GAAP ratios provide the reader with a better understanding of how management views the Bank's performance. Non-GAAP financial measures and non-GAAP ratios used in this document are not defined terms under IFRS and, therefore, may not be comparable to similar terms used by other issuers. Supplementary financial measures depict the Bank's financial performance and position, and capital management measures depict the Bank's capital position, and both are explained in this document where they first appear.

U.S. Strategic Cards
The Bank's U.S. strategic cards portfolio is comprised of agreements with certain U.S. retailers pursuant to which TD is the U.S. issuer of private label and co-branded consumer credit cards to their U.S. customers. Under the terms of the individual agreements, the Bank and the retailers share in the profits generated by the relevant portfolios after credit losses. Under IFRS, TD is required to present the gross amount of revenue and provisions for credit losses (PCL) related to these portfolios in the Bank's Consolidated Statement of Income. At the segment level, the retailer program partners' share of revenues and credit losses is presented in the Corporate segment, with an offsetting amount (representing the partners' net share) recorded in Non-interest expenses, resulting in no impact to Corporate's reported Net income (loss). The Net income (loss) included in the U.S. Retail segment includes only the portion of revenue and credit losses attributable to TD under the agreements.

Investment in The Charles Schwab Corporation and IDA Agreement
On October 6, 2020, the Bank acquired an approximately 13.5% stake in The Charles Schwab Corporation ("Schwab") following the completion of Schwab's acquisition of TD Ameritrade Holding Corporation ("TD Ameritrade") of which the Bank was a major shareholder (the "Schwab transaction"). On August 1, 2022, the Bank sold 28.4 million non-voting common shares of Schwab, at a price of US$66.53 per share for proceeds of $2.5 billion (US$1.9 billion), which reduced the Bank's ownership interest in Schwab to approximately 12.0%. The Bank recognized $997 million as other income (net of $368 million loss from AOCI reclassified to earnings), in the fourth quarter of fiscal 2022.

The Bank accounts for its investment in Schwab using the equity method. The U.S. Retail segment reflects the Bank's share of net income from its investment in Schwab. The Corporate segment net income (loss) includes amounts for amortization of acquired intangibles, the acquisition and integration charges related to the Schwab transaction, and the Bank's share of restructuring charges incurred by Schwab. The Bank's share of Schwab's earnings available to common shareholders is reported with a one-month lag. For further details, refer to Note 12 of the 2023 Consolidated Financial Statements.

On November 25, 2019, the Bank and Schwab signed an insured deposit account agreement (the "2019 Schwab IDA Agreement"), with an initial expiration date of July 1, 2031. Under the 2019 Schwab IDA Agreement, starting July 1, 2021, Schwab had the option to reduce the deposits by up to US$10 billion per year (subject to certain limitations and adjustments), with a floor of US$50 billion. In addition, Schwab requested some further operational flexibility to allow for the sweep deposit balances to fluctuate over time, under certain conditions and subject to certain limitations. Refer to the "Related Party Transactions" section in the 2023 MD&A for further details.

On May 4, 2023, the Bank and Schwab entered into an amended insured deposit account agreement (the "2023 Schwab IDA Agreement" or the "Schwab IDA Agreement"), which replaced the 2019 Schwab IDA Agreement. Pursuant to the 2023 Schwab IDA Agreement, the Bank continues to make sweep deposit accounts available to clients of Schwab. Schwab designates a portion of the deposits with the Bank as fixed-rate obligation amounts (FROA). Remaining deposits over the minimum level of FROA are designated as floating-rate obligations. In comparison to the 2019 Schwab IDA Agreement, the 2023 Schwab IDA Agreement extends the initial expiration date by three years to July 1, 2034 and provides for lower deposit balances in its first six years, followed by higher balances in the later years. Specifically, until September 2025, the aggregate FROA will serve as the floor. Thereafter, the floor will be set at US$60 billion. In addition, Schwab has the option to buy down up to $6.8 billion (US$5 billion) of FROA by paying the Bank certain fees in accordance with the 2023 Schwab IDA Agreement, subject to certain limits.

During the year ended October 31, 2023, Schwab exercised its option to buy down $6.1 billion (US$4.5 billion) of FROA and paid $305 million (US$227 million) in termination fees to the Bank in accordance with the 2023 Schwab IDA Agreement. The fees are intended to compensate the Bank for losses incurred this year from discontinuing certain hedging relationships, as well as for lost revenues. The net impact is recorded in net interest income.

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

The following table provides a reconciliation between the Bank's adjusted and reported results. For further details refer to the "Significant and Subsequent Events" or "How the Bank Reports" sections.

RETURN ON COMMON EQUITY

The consolidated Bank ROE is calculated as reported net income available to common shareholders as a percentage of average common equity. The consolidated Bank adjusted ROE is calculated as adjusted net income available to common shareholders as a percentage of average common equity. Adjusted ROE is a non-GAAP ratio, and can be utilized in assessing the Bank's use of equity.

ROE for the business segments is calculated as the segment net income attributable to common shareholders as a percentage of average allocated capital. The Bank's methodology for allocating capital to its business segments is largely aligned with the common equity capital requirements under Basel III. Capital allocated to the business segments increased to 11% Common Equity Tier 1 (CET1) Capital effective the first quarter of 2023 compared with 10.5% in fiscal 2022.

RETURN ON TANGIBLE COMMON EQUITY
Tangible common equity (TCE) is calculated as common shareholders' equity less goodwill, imputed goodwill and intangibles on the investments in Schwab and other acquired intangible assets, net of related deferred tax liabilities. ROTCE is calculated as reported net income available to common shareholders after adjusting for the after-tax amortization of acquired intangibles, which are treated as an item of note, as a percentage of average TCE. Adjusted ROTCE is calculated using reported net income available to common shareholders, adjusted for all items of note, as a percentage of average TCE. TCE, ROTCE, and adjusted ROTCE can be utilized in assessing the Bank's use of equity. TCE is a non-GAAP financial measure, and ROTCE and adjusted ROTCE are non-GAAP ratios.

IMPACT OF FOREIGN EXCHANGE RATE ON U.S. RETAIL SEGMENT TRANSLATED EARNINGS
The following table reflects the estimated impact of foreign currency translation on key U.S. Retail segment income statement items. The impact is calculated as the difference in translated earnings using the average US to Canadian dollars exchange rates in the periods noted.

HOW OUR BUSINESSES PERFORMED

For management reporting purposes, the Bank's operations and activities are organized around the following four key business segments: Canadian Personal and Commercial Banking, U.S. Retail, Wealth Management and Insurance, and Wholesale Banking. The Bank's other activities are grouped into the Corporate segment.

Results of each business segment reflect revenue, expenses, assets, and liabilities generated by the businesses in that segment. Where applicable, the Bank measures and evaluates the performance of each segment based on adjusted results and ROE, and for those segments the Bank indicates that the measure is adjusted. For further details, refer to Note 28 of the Bank's Consolidated Financial Statements for the year ended October 31, 2023.

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 dividends, is adjusted to its equivalent before-tax value. Using TEB allows the Bank to measure income from all securities and loans consistently and makes for a more meaningful comparison of net interest income with similar institutions. The TEB increase to net interest income and provision for income taxes reflected in Wholesale Banking results is reversed in the Corporate segment. The TEB adjustment for the quarter was $44 million, compared with $36 million in the fourth quarter last year, and $40 million in the prior quarter.

Share of net income from investment in Schwab is reported in the U.S. Retail segment. Amounts for amortization of acquired intangibles, the Bank's share of acquisition and integration charges associated with Schwab's acquisition of TD Ameritrade, and the Bank's share of Schwab's restructuring charges are recorded in the Corporate segment.

Quarterly comparison – Q4 2023 vs. Q4 2022

Canadian Personal and Commercial Banking net income for the quarter was $1,679 million, a decrease of $15 million, or 1%, compared with the fourth quarter last year, reflecting higher PCL and non-interest expenses, partially offset by revenue growth. The annualized ROE for the quarter was 35.1%, compared with 41.9%, in the fourth quarter last year.

Revenue for the quarter was $4,754 million, an increase of $300 million, or 7%, compared with the fourth quarter last year.

Net interest income was $3,705 million, an increase of $317 million, or 9%, reflecting volume growth and higher margins. Average loan volumes increased $33 billion, or 6%, reflecting 6% growth in personal loans and 9% growth in business loans. Average deposit volumes increased $9 billion, or 2%, reflecting 5% growth in personal deposits, partially offset by 3% decline in business deposits. Net interest margin was 2.78%, an increase of 8 basis points (bps), primarily due to higher margins on deposits reflecting rising interest rates, partially offset by lower margin on loans.

Non-interest income was $1,049 million, a decrease of $17 million, or 2%, compared with the fourth quarter last year, reflecting lower fee revenue.

PCL for the quarter was $390 million, an increase of $161 million, compared with the fourth quarter last year. PCL – impaired was $274 million, an increase of $90 million, or 49%, reflecting some normalization of credit performance. PCL – performing was $116 million, an increase of $71 million. The performing provisions this quarter largely reflect credit conditions, including some normalization of credit performance in the consumer lending portfolios, credit migration in the commercial lending portfolios, and volume growth. Total PCL as an annualized percentage of credit volume was 0.28%, an increase of 11 bps compared with the fourth quarter last year.

Non-interest expenses for the quarter were $2,039 million, an increase of $118 million, or 6%, compared with the fourth quarter last year, primarily reflecting higher technology spend supporting business growth and higher non-credit provisions.

The efficiency ratio for the quarter was 42.9%, compared with 43.1% in the fourth quarter last year.

Quarterly comparison – Q4 2023 vs. Q3 2023

Canadian Personal and Commercial Banking net income for the quarter was $1,679 million, an increase of $24 million, or 1%, compared with the prior quarter, reflecting higher revenue, partially offset by higher non-interest expenses and PCL. The annualized ROE for the quarter was 35.1%, compared with 35.4% in the prior quarter.

Revenue increased $184 million, or 4%, compared with the prior quarter. Net interest income increased $134 million, or 4%, reflecting volume growth and higher margins. Average loan volumes increased $13 billion, or 2%, reflecting 3% growth in personal loans and 2% growth in business loans. Average deposit volumes increased $5 billion, or 1%, reflecting 1% growth in both personal deposits and business deposits. Net interest margin was 2.78%, an increase of 4 bps, due to higher margins on deposits reflecting tractor maturities, partially offset by lower margin on loans.

Non-interest income increased $50 million, or 5%, compared with the prior quarter, primarily reflecting a prior years' adjustment in the prior quarter, partially offset by lower fee revenue.

PCL for the quarter was $390 million, increased by $11 million compared with the prior quarter. PCL – impaired was $274 million, a decrease of $11 million, or 4%. PCL – performing was $116 million, an increase of $22 million. The performing provisions this quarter largely reflect credit conditions including some normalization of credit performance in the consumer lending portfolios, credit migration in the commercial lending portfolios, and volume growth. Total PCL as an annualized percentage of credit volume was 0.28%, flat compared with the prior quarter.

Non-interest expenses increased $144 million, or 8%, compared with the prior quarter, primarily reflecting higher non-credit provisions, higher marketing and technology spend supporting business growth, and higher employee-related expenses.

The efficiency ratio for the quarter was 42.9%, compared with 41.5% in the prior quarter.