The Toronto-Dominion Bank (TD) 40-F 2021 FY Annual report (Canada)

Exhibit 99.2

MANAGEMENT’S DISCUSSION AND ANALYSIS

This Management’s Discussion and Analysis (MD&A) is presented to enable readers to assess material changes in the financial condition and operating results of TD Bank Group (“TD” or the “Bank”) for the year ended October 31, 2021, compared with the corresponding period in the prior years. This MD&A should be read in conjunction with the audited Consolidated Financial Statements and related Notes for the year ended October 31, 2021. This MD&A is dated December 1, 2021. Unless otherwise indicated, all amounts are expressed in Canadian dollars and have been primarily derived from the Bank’s annual Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Note that certain comparative amounts have been revised to conform with the presentation adopted in the current period.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS	1
Financial results overview
Net Income	8
Revenue	9
Provision for Credit Losses	10
Expenses	11
Taxes	12
Quarterly Financial Information	12
BUSINESS SEGMENT ANALYSIS
Business Focus	14
Canadian Retail	15
U.S. Retail	20
Wholesale Banking	23
Corporate	26
2020 FINANCIAL RESULTS OVERVIEW
Summary of 2020 Performance	27
2020 Financial Performance by Business Line	28

GROUP FINANCIAL CONDITION
Balance Sheet Review	30
Credit Portfolio Quality	31
Capital Position	42
Securitization and Off-Balance Sheet Arrangements	49
Related Party Transactions	51
Financial Instruments	52
RISK FACTORS AND MANAGEMENT
Risk Factors that May Affect Future Results	52
Managing Risk	59
ACCOUNTING STANDARDS AND POLICIES
Critical Accounting Policies and Estimates	91
Current and Future Changes in Accounting Policies	95
Controls and Procedures	96
ADDITIONAL FINANCIAL INFORMATION	97
GLOSSARY	104

Additional information relating to the Bank, including the Bank’s Annual Information Form, is available on the Bank’s website at

http://www.td.com

, on SEDAR at

http://www.sedar.com

, and on the U.S. Securities and Exchange Commission’s website at

http://www.sec.gov

(EDGAR filers section).

Caution Regarding Forward-Looking Statements

From time to time, the Bank (as defined in this document) makes written and/or oral forward-looking statements, including in this document, in other filings with Canadian regulators or the United States (U.S.) Securities and Exchange Commission (SEC), and in other communications. In addition, representatives of the Bank may make forward-looking statements orally to analysts, investors, the media and others. All such statements are made pursuant to the “safe harbour” provisions of, and are intended to be forward-looking statements under, applicable Canadian and U.S. securities legislation, including the

U.S. Private Securities Litigation Reform Act of 1995

. Forward-looking statements include, but are not limited to, statements made in this document, the Management’s Discussion and Analysis (“2021 MD&A”) in the Bank’s 2021 Annual Report under the headings “Economic Summary and Outlook” and “The Bank’s Response to

COVID-19”,

under the headings “Key Priorities for 2022” and “Operating Environment and Outlook” for the Canadian Retail, U.S. Retail, and Wholesale Banking segments, and under the heading “Focus for 2022” for the Corporate segment, and in other statements regarding the Bank’s objectives and priorities for 2022 and beyond and strategies to achieve them, the regulatory environment in which the Bank operates, the Bank’s anticipated financial performance, and the potential economic, financial and other impacts of the Coronavirus Disease 2019

(COVID-19).

Forward-looking statements are typically identified by words such as “will”, “would”, “should”, “believe”, “expect”, “anticipate”, “intend”, “estimate”, “plan”, “goal”, “target”, “may”, and “could”.

By their very nature, these forward-looking statements require the Bank to make assumptions and are subject to inherent risks and uncertainties, general and specific. Especially in light of the uncertainty related to the physical, financial, economic, political, and regulatory environments, such risks and uncertainties – many of which are beyond the Bank’s control and the effects of which can be difficult to predict – may cause actual results to differ materially from the expectations expressed in the forward-looking statements. Risk factors that could cause, individually or in the aggregate, such differences include: strategic, credit, market (including equity, commodity, foreign exchange, interest rate, and credit spreads), operational (including technology, cyber security, and infrastructure), model, insurance, liquidity, capital adequacy, legal, regulatory compliance and conduct, reputational, environmental and social, and other risks. Examples of such risk factors include the economic, financial, and other impacts of pandemics, including the

COVID-19

pandemic; general business and economic conditions in the regions in which the Bank operates; geopolitical risk; the ability of the Bank to execute on long-term strategies and shorter-term key strategic priorities, including the successful completion of acquisitions and dispositions, business retention plans, and strategic plans; technology and cyber security risk (including cyber-attacks or data security breaches) on the Bank’s information technology, internet, network access or other voice or data communications systems or services; model risk; fraud activity; the failure of third parties to comply with their obligations to the Bank or its affiliates, including relating to the care and control of information, and other risks arising from the Bank’s use of third-party service providers; the impact of new and changes to, or application of, current laws and regulations, including without limitation tax laws, capital guidelines and liquidity regulatory guidance and the bank recapitalization

“bail-in”

regime; regulatory oversight and compliance risk; increased competition from incumbents and new entrants (including Fintechs and big technology competitors); shifts in consumer attitudes and disruptive technology; exposure related to significant litigation and regulatory matters; ability of the Bank to attract, develop, and retain key talent; changes to the Bank’s credit ratings; changes in currency and interest rates (including the possibility of negative interest rates); increased funding costs and market volatility due to market illiquidity and competition for funding; Interbank Offered Rate (IBOR) transition risk; critical accounting estimates and changes to accounting standards, policies, and methods used by the Bank; existing and potential international debt crises; environmental and social risk (including climate change); and the occurrence of natural and unnatural catastrophic events and claims resulting from such events. The Bank cautions that the preceding list is not exhaustive of all possible risk factors and other factors could also adversely affect the Bank’s results. For more detailed information, please refer to the “Risk Factors and Management” section of the 2021 MD&A, as may be updated in subsequently filed quarterly reports to shareholders and news releases (as applicable) related to any events or transactions discussed under the heading “Significant Acquisitions” or “Significant and Subsequent Events and Pending Acquisitions” in the relevant MD&A, which applicable releases may be found on www.td.com. All such factors, as well as other uncertainties and potential events, and the inherent uncertainty of forward-looking statements, should be considered carefully when making decisions with respect to the Bank. The Bank cautions readers not to place undue reliance on the Bank’s forward-looking statements.

Material economic assumptions underlying the forward-looking statements contained in this document are set out in the 2021 MD&A under the headings “Economic Summary and Outlook” and “The Bank’s Response to

COVID-19”,

under the headings “Key Priorities for 2022” and “Operating Environment and Outlook” for the Canadian Retail, U.S. Retail, and Wholesale Banking segments, and under the heading “Focus for 2022” for the Corporate segment, each as may be updated in subsequently filed quarterly reports to shareholders.

Any forward-looking statements contained in this document represent the views of management only as of the date hereof and are presented for the purpose of assisting the Bank’s shareholders and analysts in understanding the Bank’s financial position, objectives and priorities and anticipated financial performance as at and for the periods ended on the dates presented, and may not be appropriate for other purposes. The Bank does not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time by or on its behalf, except as required under applicable securities legislation.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 1

TABLE 1: FINANCIAL HIGHLIGHTS

(millions of Canadian dollars, except where noted)		2021			2020			2019
Results of operations
Total revenue – reported	$	42,693		$	43,646		$	41,065
Total revenue – adjusted 1		42,693			42,225			41,065
Provision for (recovery of) credit losses		(224	)		7,242			3,029
Insurance claims and related expenses		2,707			2,886			2,787
Non-interest expenses – reported		23,076			21,604			22,020
Non-interest expenses – adjusted 1		22,909			21,338			21,085
Net income – reported		14,298			11,895			11,686
Net income – adjusted 1		14,649			9,968			12,503
Financial positions (billions of Canadian dollars)
Total loans net of allowance for loan losses	$	722.6		$	717.5		$	684.6
Total assets		1,728.7			1,715.9			1,415.3
Total deposits		1,125.1			1,135.3			887.0
Total equity		99.8			95.5			87.7
Total risk-weighted assets 2		460.3			478.9			456.0
Financial ratios
Return on common equity (ROE) – reported 3		15.5	%		13.6	%		14.5	%
Return on common equity – adjusted 1		15.9			11.4			15.6
Return on tangible common equity (ROTCE) 1		21.2			18.7			20.5
Return on tangible common equity – adjusted 1		21.4			15.3			21.5
Efficiency ratio – reported 3		54.1			49.5			53.6
Efficiency ratio – adjusted 1,3		53.7			50.5			51.3
Provision for (recovery of) credit losses as a % of net average loans and acceptances 4		(0.03	)		1.00			0.45
Common share information – reported (Canadian dollars)
Per share earnings
Basic	$	7.73		$	6.43		$	6.26
Diluted		7.72			6.43			6.25
Dividends per share		3.16			3.11			2.89
Book value per share 3		51.66			49.49			45.20
Closing share price 5		89.84			58.78			75.21
Shares outstanding (millions)
Average basic		1,817.7			1,807.3			1,824.2
Average diluted		1,820.2			1,808.8			1,827.3
End of period		1,822.0			1,815.6			1,811.9
Market capitalization (billions of Canadian dollars)	$	163.7		$	106.7		$	136.3
Dividend yield 3		3.9	%		4.8	%		3.9	%
Dividend payout ratio 3		40.9			48.3			46.1
Price-earnings ratio 3		11.6			9.2			12.0
Total shareholder return (1 year) 3		58.9			(17.9	)		7.1
Common share information – adjusted (Canadian dollars) 1,3
Per share earnings
Basic	$	7.92		$	5.37		$	6.71
Diluted		7.91			5.36			6.69
Dividend payout ratio		39.9	%		57.9	%		43.0	%
Price-earnings ratio		11.3			11.0			11.2
Capital ratios 2
Common Equity Tier 1 Capital ratio		15.2	%		13.1	%		12.1	%
Tier 1 Capital ratio		16.5			14.4			13.5
Total Capital ratio		19.1			16.7			16.3
Leverage ratio		4.8			4.5			4.0

1 The Toronto-Dominion Bank (“TD” or the “Bank”) prepares its Consolidated Financial Statements in accordance with IFRS, the current Generally Accepted Accounting Principles (GAAP), and refers to results prepared in accordance with IFRS as the “reported” results. The Bank also utilizes non-GAAP financial measures such as “adjusted” results and non-GAAP ratios to assess each of its businesses and to measure overall Bank performance. To arrive at adjusted results, the Bank adjusts for “items of note”, from reported results. Refer to the “Financial Results Overview” section of this document for further explanation, a list of the items of note, and a reconciliation of adjusted to reported results. Non-GAAP financial measures and ratios used in this document are not defined terms under IFRS and, therefore, may not be comparable to similar terms used by other issuers.

2 These measures have been included in this document in accordance with the Office of the Superintendent of Financial Institutions Canada’s (OSFI’s) Capital Adequacy Requirements and Leverage Requirements guidelines. Refer to the “Capital Position” section of this document for further details.

3 For additional information about this metric, refer to the Glossary of this document.

4 Excludes acquired credit-impaired (ACI) loans.

5 Toronto Stock Exchange (TSX) closing market price.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 2

FINANCIAL RESULTS OVERVIEW

CORPORATE OVERVIEW

The Toronto-Dominion Bank and its subsidiaries are collectively known as TD Bank Group (“TD” or the “Bank”). TD is the fifth largest bank in North America by assets and serves more than 26 million customers in three key businesses operating in a number of locations in financial centres around the globe: 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 The Charles Schwab Corporation (“Schwab”); and Wholesale Banking. TD also ranks among the world’s leading online financial services firms, with more than 15 million active online and mobile customers. TD had CDN$1.7 trillion in assets on October 31, 2021. The Toronto-Dominion Bank trades under the symbol “TD” on the Toronto and New York Stock Exchanges.

ECONOMIC SUMMARY AND OUTLOOK

The global economy’s recovery from the

COVID-19

pandemic continues. As public health restrictions are lifted, activity is resuming in higher-contact sectors. However, supply disruptions are increasingly constraining the pace of the recovery. Shortages of microchips have led to significant reductions in automobile production around the world, while the logistics industry is struggling with backlogs that are slowing the delivery of products to their final destination.

Disparities in vaccination rates are driving varying health outcomes, exacerbating supply constraints. Recent outbreaks of

COVID-19

in Asia have worsened input shortages and contributed to delays at ports. With containment measures continuing to interrupt workflows, global supply chains remain at risk of ongoing disruption, which could put upward pressure on prices and limit global economic growth.

The U.S. economy grew by an estimated 2% annualized in the third calendar quarter, down from 6.5% on average in the first half of the year. After unsustainable double-digit growth in each of the first two quarters, consumer spending slowed to an annualized rate of just 1.6% in the third quarter. Much of the pullback was due to a retreat in spending on durable goods. Motor vehicle sales, in particular, contracted by an annualized 54%, in part due to scarcity of available product. In contrast, spending on services continued to recover, but at a slower rate than in previous quarters, as concerns about the Delta variant weighed on the rebound in recreation, food services and accommodation sectors.

While U.S. GDP now exceeds its

pre-recession

level, the recovery has been highly imbalanced. As of the third calendar quarter, spending on goods was 7% above its

pre-pandemic

level, while spending on services – which comprise a much larger share of the economy – was still 1.6% below that threshold. The divergence has caused a widening in the trade deficit and contributed to supply shortages. A reorientation of activity back toward services should help alleviate some of these pressures, while high levels of savings should help households absorb higher prices and allow for continued growth in calendar 2022.

The recent slowdown in U.S. economic activity is less evident in the labour market. Job growth picked up in October, suggesting a

re-acceleration

in economic activity in the final quarter of the calendar year. Demand for workers is very strong – the rate of job openings hit a record high at the midpoint of the year and remains well above

pre-pandemic

levels – but it is taking longer for employers to fill positions. As of October, there were over three million fewer people in the U.S. labour force than prior to the pandemic. This shrinkage in the labour force is restraining job growth and helping push down the unemployment rate, which hit 4.6% in October.

The uneven nature of the recovery, alongside ongoing supply constraints, has led to elevated inflationary pressures. The consumer price index rose 5.4% year-over-year in September and has been above the 5% threshold since May of this year. Price pressures appear to be becoming more widespread, encompassing not just goods categories, such as food, energy and vehicles, but also services, including shelter. The latter have historically proven more persistent.

In November, the Federal Reserve took its first steps toward reducing monetary accommodation, announcing a reduction in its monthly asset purchases from the current rate of US$80 billion in Treasuries and US$40 billion in agency mortgage-backed securities. The central bank will reduce purchases of Treasuries by US$10 billion per month and purchases of mortgage-backed securities by US$5 billion per month, putting it on track to cease expanding its balance sheet by the middle of next year. After that point, TD Economics expects the Federal Reserve to raise the federal funds rate in 25 basis points (bps) increments twice in the second half of calendar 2022. The timing and magnitude of future rate increases may be altered should inflationary pressures fail to ease to the central bank’s satisfaction.

After a pullback in activity in the second calendar quarter, the Canadian economy returned to modest growth in the third quarter. Economic reopening has led to stronger growth in service areas of the economy, but drought conditions severely hampered agricultural output through the summer months, while supply chain shortages led to a pullback in manufacturing activity that has lasted through the fall. As these impacts fade, economic activity is expected to

re-accelerate.

While an uptick in virus cases poses a downside risk to the outlook, especially as the winter progresses, Canada’s high rates of vaccination and more consistent implementation of mitigating policies, including mask requirements and vaccine “green passes” for indoor activities, should reduce the likelihood of major disruptions to economic activity. Meanwhile, the large pool of excess savings should continue to support spending over the course of 2022.

One key advantage for the Canadian economy is the outperformance of the labour market, which has seen all of the jobs lost during the initial pandemic shock replaced, and the labour force return to its

pre-pandemic

size. Still, there is room for additional progress. Job growth has been concentrated in a handful of sectors, while employment in high-contact service industries, such as leisure and hospitality, remains well below

pre-COVID

levels. In contrast to the dynamic in the U.S., Canada’s strong labour force growth has limited the improvement in the unemployment rate, which sat at 6.7% in October. As in the United States, demand for labour is high and job growth is expected to remain healthy.

The Canadian housing market has remained resilient. After pulling back in the summer, resale activity has

re-accelerated

in recent months. Average home price growth has also picked up, reflecting tight market conditions across the country. Limited supply may support prices, but the rate of home price growth should slow given the erosion in affordability and an edging up of mortgage rates.

Consumer price inflation in Canada, while lower than in the U.S., has also picked up in recent months, reaching 4.4% in September, the fastest rate in thirteen years. Accelerating food price growth, along with rising energy and shelter costs, have pushed up inflation. Like the U.S. and other advanced economies, Canada is susceptible to further price pressures from prolonged global supply chain disruptions.

The Bank of Canada kept its overnight interest rate at 0.25% in October, but went one step further than the Federal Reserve in ending its asset purchase program outright. With a stronger labour market recovery, this puts the Bank of Canada in a position to begin raising interest rates earlier than the Federal Reserve. TD Economics expects the overnight rate to rise by 25 bps in the second calendar quarter of 2022, with two more 25 bps increases to come before the end of the calendar year. TD Economics expects the Canadian dollar to remain in a range of

79-81

U.S. cents over the next two years.

THE BANK’S RESPONSE TO

COVID-19

Efforts to contain the

COVID-19

pandemic continued to have a profound impact on economies around the world throughout fiscal 2021. In North America, the banking sector implemented a variety of measures in March and April of 2020 to ease the strain on consumers and businesses, some of which continued into 2021. Similarly, governments, crown corporations, central banks, and regulators introduced programs to mitigate the fallout of the crisis and support the effective functioning of financial markets, and some of those measures also remained in place in 2021. TD has been actively engaged in the ongoing effort to respond to the

COVID-19

pandemic, guided by the principles of supporting the

well-being

of its customers and colleagues and maintaining the Bank’s operational and financial resilience.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 3

Beginning in the second quarter of 2020, the Bank enabled substantially all of its employees to work from home. While most of the Bank’s branch and store employees were able to return to their workplaces before the 2021 fiscal year began, approximately 60,000 TD colleagues continued to work from home throughout the 2021 fiscal year, and these arrangements are expected to remain in place for some time. TD’s operations, including the Bank’s technology infrastructure, network capacity, enterprise cloud capabilities, and remote access systems have remained stable in the months since the onset of

COVID-19,

providing ongoing support for work from home arrangements and a continued high level of online and mobile customer traffic. The Bank continues to evaluate its medium- and long-term plans related to

COVID-19,

including the impact of the economic recovery and, for various ‘return to the workplace’ scenarios.

In fiscal 2020, the Bank offered several forms of direct financial assistance to customers experiencing financial hardship due to

COVID-19,

including deferral of loan payments. The bulk of this assistance has largely run its course, except for deferrals of real estate secured loans in the U.S., where the program allowed deferrals for up to 18 months. There have been few other customer requests for extensions. As of October 31, 2021, gross loan balances that remained subject to COVID-related deferral programs were approximately $0.04 billion in Canada, primarily reflecting Small Business Banking and Commercial Lending portfolios ($4.4 billion as at October 31, 2020, primarily reflecting Real Estate Secured Lending, Other Consumer Lending, Small Business Banking and Commercial Lending portfolios), and US$0.49 billion in the United States, primarily in the Real Estate Secured Lending portfolio (US$2.2 billion as at October 31, 2020, primarily reflecting Real Estate Secured Lending, Other Consumer Lending, Small Business Banking and Commercial Lending portfolios). Delinquency rates for customers that have exited deferral are higher than for the broader population but remain low in absolute terms, reflecting the continuation of government support and TD’s proactive outreach to clients. The Bank continues to provide advice and assistance to customers through its usual channels, TD Helps in Canada and TD Cares in the U.S. Any financial relief offered through these channels is not included in the balances disclosed above.

In addition to direct financial assistance, the Bank continued to support programs for individuals and businesses introduced by the Canadian and U.S. governments described below.

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 provided eligible business banking customers with an interest-free, partially forgivable loan of up to $60,000 until December 31, 2022. 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 application window for new CEBA loans and expansion requests closed on June 30, 2021. 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. As of October 31, 2021, the Bank had provided approximately 213,000 customers (October 31, 2020 – 184,000) with CEBA loans and had funded approximately $11.6 billion (October 31, 2020 – $7.3 billion) in loans under the program.

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 provided loans to small businesses to assist them in retaining workers, maintaining payroll, and covering other expenses. PPP loans have a

2-year

or

5-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 receives fees on PPP loans generally ranging from 1-5% of the loan’s value at origination. The fees are amortized over the life of the loan, with any unamortized amount upon forgiveness being recognized immediately as income. The Bank will be paid by the SBA for any portion of the loan that is forgiven. The application window for new PPP loans closed on May 31, 2021. As of October 31, 2021, the Bank had funded approximately 133,000 PPP loans (October 31, 2020 – 86,000) and had approximately 36,000 PPP loans outstanding (October 31, 2020 – 86,000) with a gross carrying amount of approximately US$3.1 billion (October 31, 2020 – US$8.2 billion). During the year ended October 31, 2021, approximately 47,000 new PPP loans (US$3.6 billion) were originated (October 31, 2020 – 86,000 new PPP loans, US$8.2 billion) and approximately 97,000 PPP loans (US$8.7 billion) were forgiven (October 31, 2020 – nil).

Other Programs

During 2021, the Bank continued to work with federal Crown Corporations, including EDC and the Business Development Bank of Canada (BDC) to deliver various other guarantee and

co-lending

programs for the Bank’s clients. This includes the Highly Affected Sectors Credit Availability Program (HASCAP) Guarantee, which launched in the second fiscal quarter, to provide support to Canadian businesses that have been highly affected by and are facing economic hardship as a result of the

COVID-19

pandemic. In addition, TD continued to work with Canada’s federal government to facilitate access to the Canada Recovery Benefit and Canada Emergency Wage Subsidy through Canada Revenue Agency direct deposit.

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.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 4

Investment in The Charles Schwab Corporation

On October 6, 2020, the Bank acquired an approximately 13.5% stake in 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”). For further details, refer to Note 12 of the 2021 Consolidated Financial Statements. The Bank’s share of Schwab’s earnings is reported with a one-month lag, and the Bank started recording its share of Schwab’s earnings on this basis in the first quarter of fiscal 2021. 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 and the acquisition and integration charges related to the Schwab transaction.

On November 25, 2019, the Bank and Schwab entered into an insured deposit account agreement (the “Schwab IDA Agreement”), which became effective upon closing of the Schwab transaction and has an initial expiration date of July 1, 2031. Refer to the “Related Party Transactions” section of this document for further details.

SIGNIFICANT ACQUISITIONS

The Bank completed two acquisitions during fiscal 2021:

Acquisition of Wells Fargo & Company’s Canadian Direct Equipment Finance Business

On May 1, 2021, the Bank acquired the Canadian Direct Equipment Finance business of Wells Fargo & Company. The results of the acquired business have been consolidated from the acquisition date and included in the Canadian Retail segment.

Acquisition of Headlands Tech Global Markets, LLC

On July 1, 2021, the Bank acquired Headlands Tech Global Markets, LLC, a Chicago based quantitative fixed income trading company. The results of the acquired business have been consolidated from the acquisition date and included in the Wholesale segment.

These acquisitions were accounted for as business combinations under the purchase method. The excess of accounting consideration over the fair value of tangible net assets acquired is allocated to other intangibles and goodwill.

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

TABLE 2: OPERATING RESULTS – Reported

1

(millions of Canadian dollars)		2021			2020		2019
Net interest income	$	24,131		$	24,497	$	23,821
Non-interest income		18,562			19,149		17,244
Total revenue		42,693			43,646		41,065
Provision for credit losses		(224	)		7,242		3,029
Insurance claims and related expenses		2,707			2,886		2,787
Non-interest expenses		23,076			21,604		22,020
Income before income taxes and share of net income from investment in Schwab and TD Ameritrade		17,134			11,914		13,229
Provision for (recovery of) income taxes		3,621			1,152		2,735
Share of net income from investment in Schwab and TD Ameritrade		785			1,133		1,192
Net income – reported		14,298			11,895		11,686
Preferred dividends and distributions on other equity instruments		249			267		252
Net income available to common shareholders and non-controlling interests in subsidiaries	$	14,049		$	11,628	$	11,434
Attributable to:
Common shareholders	$	14,049		$	11,628	$	11,416
Non-controlling interests		–			–		18

1 Certain comparative amounts have been reclassified to conform with the presentation adopted in the current period.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 5

TABLE

3:  NON-GAAP

FINANCIAL MEASURES – Reconciliation of Adjusted to Reported Net Income

1

(millions of Canadian dollars)		2021			2020			2019
Operating results – adjusted
Net interest income	$	24,131		$	24,497		$	23,821
Non-interest income 2		18,562			17,728			17,244
Total revenue		42,693			42,225			41,065
Provision for (recovery of) credit losses		(224	)		7,242			3,029
Insurance claims and related expenses		2,707			2,886			2,787
Non-interest expenses 3		22,909			21,338			21,085
Income before income taxes and share of net income from investment in Schwab and TD Ameritrade		17,301			10,759			14,164
Provision for income taxes		3,658			2,020			2,949
Share of net income from investment in Schwab and TD Ameritrade 4		1,006			1,229			1,288
Net income – adjusted		14,649			9,968			12,503
Preferred dividends and distributions on other equity instruments		249			267			252
Net income available to common shareholders and non-controlling interests in subsidiaries – adjusted		14,400			9,701			12,251
Attributable to:
Non-controlling interests in subsidiaries, net of income taxes		–			–			18
Net income available to common shareholders – adjusted		14,400			9,701			12,233
Pre-tax adjustments for items of note
Amortization of acquired intangibles 5		(285	)		(262	)		(307	)
Acquisition and integration charges related to the Schwab transaction 6		(103	)		–			–
Net gain on sale of the investment in TD Ameritrade 2		–			1,421			–
Charges associated with the acquisition of Greystone 3		–			(100	)		(117	)
Charges related to the long-term loyalty agreement with Air Canada 3		–			–			(607	)
Less: Impact of income taxes
Amortization of acquired intangibles		(32	)		(37	)		(48	)
Acquisition and integration charges related to the Schwab transaction 6		(5	)		–			–
Net gain on sale of the investment in TD Ameritrade		–			(829	)		–
Charges associated with the acquisition of Greystone		–			(2	)		(5	)
Charges related to the long-term loyalty agreement with Air Canada		–			–			(161	)
Total adjustments for items of note		(351	)		1,927			(817	)
Net income available to common shareholders – reported	$	14,049		$	11,628		$	11,416

1 Certain comparative amounts have been reclassified to conform with the presentation adopted in the current period.

2 Adjusted non-interest income excludes the following item of note related to the Bank’s own asset acquisitions and business combinations:

i. Net gain on sale of the investment in TD Ameritrade – 2020: $1,421 million. This amount was reported in the Corporate segment.

3 Adjusted non-interest expenses exclude the following items of note related to the Bank’s asset acquisitions and business combinations:

i. Amortization of acquired intangibles – 2021: $148 million; 2020: $166 million; 2019: $211 million. These charges are reported in the Corporate segment.

ii. The Bank’s own integration costs related to the Schwab transaction – 2021: $19 million. These costs are reported in the Corporate segment.

iii. Charges associated with the acquisition of Greystone – 2020: $100 million; 2019: $117 million. These charges were reported in the Canadian Retail segment.

iv. Charges related to the long-term loyalty agreement with Air Canada – 2019: $607 million; this amount was reported in the Canadian Retail segment.

4 Adjusted share of net income from investment in Schwab and TD Ameritrade excludes the following items of note on an after-tax basis. The earnings impact of both items is reported in the Corporate segment:

i. Amortization of Schwab and TD Ameritrade-related acquired intangibles – 2021: $137 million; 2020: $96 million; 2019: $96 million; and

ii. The Bank’s share of acquisition and integration charges associated with Schwab’s acquisition of TD Ameritrade – 2021: $84 million.

5 Amortization of acquired intangibles relates to intangibles acquired as a result of asset acquisitions and business combinations, including the after-tax amounts for amortization of acquired intangibles relating to the Share of net income from investment in Schwab and TD Ameritrade, both reported in the Corporate segment. Refer to footnotes 3 and 4 for amounts.

6 Acquisition and integration charges related to the Schwab transaction include the Bank’s own integration costs, as well as the Bank’s share of acquisition and integration charges associated with Schwab’s acquisition of TD Ameritrade on an after-tax basis, both reported in the Corporate segment. Refer to footnotes 3 and 4 for amounts.

TABLE 4:  RECONCILIATION OF REPORTED TO ADJUSTED EARNINGS PER SHARE

1

(Canadian dollars)		2021		2020			2019
Basic earnings per share – reported	$	7.73	$	6.43		$	6.26
Adjustments for items of note		0.19		(1.06	)		0.45
Basic earnings per share – adjusted	$	7.92	$	5.37		$	6.71
Diluted earnings per share – reported	$	7.72	$	6.43		$	6.25
Adjustments for items of note		0.19		(1.07	)		0.44
Diluted earnings per share – adjusted	$	7.91	$	5.36		$	6.69

1  EPS is computed by dividing net income available to common shareholders by the weighted-average number of shares outstanding during the period.

TABLE 5:  AMORTIZATION OF INTANGIBLES, NET OF INCOME TAXES

1,2

(millions of Canadian dollars)		2021		2020		2019
TD Bank, National Association (TD Bank, N.A.)	$	27	$	51	$	76
Schwab and TD Ameritrade		137		96		96
MBNA Canada		27		27		40
Aeroplan		23		17		17
Other		39		34		30
		253		225		259
Software and asset servicing rights		436		523		469
Amortization of intangibles, net of income taxes	$	689	$	748	$	728

1  Amortization of intangibles, with the exception of software and asset servicing rights, are included as items of note.

2  Included in Share of net income from investment in Schwab and TD Ameritrade.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 6

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 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.

TABLE 6:  RETURN ON COMMON EQUITY

(millions of Canadian dollars, except as noted)		2021			2020			2019
Average common equity	$	90,677		$	85,203		$	78,638
Net income available to common shareholders – reported		14,049			11,628			11,416
Items of note, net of income taxes		351			(1,927	)		817
Net income available to common shareholders – adjusted	$	14,400		$	9,701		$	12,233
Return on common equity – reported		15.5	%		13.6	%		14.5	%
Return on common equity – adjusted		15.9			11.4			15.6

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 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 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.

TABLE 7:  RETURN ON TANGIBLE COMMON EQUITY

(millions of Canadian dollars, except as noted)		2021			2020			2019
Average common equity	$	90,677		$	85,203		$	78,638
Average goodwill		16,404			17,261			17,070
Average imputed goodwill and intangibles on investments in Schwab and TD Ameritrade		6,667			4,369			4,146
Average other acquired intangibles 1		439			509			662
Average related deferred tax liabilities		(171	)		(255	)		(260	)
Average tangible common equity		67,338			63,319			57,020
Net income available to common shareholders – reported		14,049			11,628			11,416
Amortization of acquired intangibles, net of income taxes		253			225			259
Net income available to common shareholders adjusted for amortization of acquired intangibles, net of income taxes		14,302			11,853			11,675
Other items of note, net of income taxes		98			(2,152	)		558
Net income available to common shareholders – adjusted	$	14,400		$	9,701		$	12,233
Return on tangible common equity		21.2	%		18.7	%		20.5	%
Return on tangible common equity – adjusted		21.4			15.3			21.5

1 Excludes intangibles relating to software and asset servicing rights.

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 U.S. to Canadian dollars exchange rates in the periods noted.

TABLE 8:  IMPACT OF FOREIGN EXCHANGE RATE ON U.S. RETAIL SEGMENT TRANSLATED EARNINGS

(millions of Canadian dollars, except as noted)	2021 vs. 2020 Increase (Decrease)			2020 vs. 2019 Increase (Decrease)
U.S. Retail Bank
Total revenue	$	(752	)	$	138
Non-interest expenses		(443	)		83
Net income – after tax		(300	)		3
Share of net income from investment in Schwab and TD Ameritrade 1		(57	)		15
U.S. Retail segment net income – after tax		(357	)		18
Earnings per share (Canadian dollars)
Basic	$	(0.20	)	$	0.01
Diluted		(0.20	)		0.01

1 Share of net income from investment in Schwab and TD Ameritrade and the foreign exchange impact are reported with a one-month lag.

Average foreign exchange rate (equivalent of CAD $1.00)	2021	2020	2019
U.S. dollar	0.795	0.743	0.753

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 7

FINANCIAL RESULTS OVERVIEW

Net Income

Reported net income for the year was $14,298 million, an increase of $2,403 million, or 20%, compared with last year. The increase primarily reflects lower PCL, higher revenues in the Canadian Retail business, and lower insurance claims and related expenses, partially offset by a net gain on sale of the Bank’s investment in TD Ameritrade in the prior year, higher non-interest expenses, lower revenue in the U.S. Retail business and a lower contribution from the Bank’s investment in Schwab as compared with the contribution from the Bank’s investment in TD Ameritrade in the prior year. On an adjusted basis, net income for the year was $14,649 million, an increase of $4,681 million, or 47%, compared with last year. The reported ROE for the year was 15.5%, compared with 13.6% last year. The adjusted ROE for the year was 15.9%, compared with 11.4% last year. By segment, the increase in reported net income reflects an increase in Canadian Retail of $2,455 million, an increase in U.S. Retail of $1,959 million and an increase in Wholesale Banking of $152 million, partially offset by a decrease in the Corporate segment of $2,163 million. Reported diluted EPS for the year was $7.72, an increase of 20%, compared with $6.43 last year. Adjusted diluted EPS for the year was $7.91, a 48% increase, compared with $5.36 last year.

1  Amounts exclude Corporate segment

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 8

FINANCIAL RESULTS OVERVIEW

Revenue

Reported revenue was $42,693 million, a decrease of $953 million, or 2%, compared with last year. Adjusted revenue was $42,693 million, an increase of $468 million, or 1%, compared with last year.   NET INTEREST INCOME Net interest income for the year was $24,131 million, a decrease of $366 million, or 1%, compared with last year. The decrease reflects lower margins in the Canadian and U.S. Retail segments, and the impact of foreign exchange translation, partially offset by volume growth in the personal and commercial banking businesses, and higher trading net interest income. By segment, the decrease in reported net interest income reflects a decrease in U.S. Retail of $760 million, a decrease in the Corporate segment of $142 million, and a decrease in Canadian Retail of $104 million, partially offset by an increase in Wholesale Banking of $640 million.   NET INTEREST MARGIN Net interest margin is calculated by dividing net interest income by average interest-earning assets. This metric is an indicator of the profitability of the Bank’s earning assets less the cost of funding. Net interest margin decreased by 16 bps during the year to 1.56%, compared with 1.72% last year, primarily reflecting the impact of lower interest rates and higher deposit balances in the personal and commercial banking businesses. Average interest-earning assets used in the calculation is a non-GAAP financial measure and net interest margin is a non-GAAP ratio. They are not defined terms under IFRS and, therefore, may not be comparable to similar terms used by other issuers.   NON-INTEREST INCOME Reported non-interest income for the year was $18,562 million, a decrease of $587 million, or 3%, compared with last year reflecting the net gain on sale of the Bank’s investment in TD Ameritrade in the prior year. On an adjusted basis, non-interest income for the year was $18,562 million, an increase of $834 million, or 5%, compared with last year reflecting higher fee and transaction-based revenue in the wealth and banking businesses, insurance volumes, and higher revenue from treasury and balance sheet management activities. These were partially offset by lower wholesale trading revenue, and a decrease in the fair value of investments supporting claims liabilities which resulted in a similar decrease in insurance claims.

By segment, the decrease in reported

non-interest

income reflects a decrease in the Corporate segment of $1,212 million, and a decrease in Wholesale Banking of $898 million, partially offset by an increase in Canadian Retail of $1,277 million and an increase in U.S. Retail of $246 million.

TABLE

9:  NON-INTEREST

INCOME

1

(millions of Canadian dollars, except as noted)		2021 vs. 2020
		2021		2020		2019	% change
Investment and securities services
Broker dealer fees and commissions	$	1,095	$	865	$	637	27
Full-service brokerage and other securities services		1,453		1,224		1,191	19
Underwriting and advisory		816		717		520	14
Investment management fees		649		623		629	4
Mutual fund management		2,052		1,797		1,768	14
Trust fees		114		115		127	(1	)
Total investment and securities services		6,179		5,341		4,872	16
Credit fees		1,453		1,400		1,289	4
Net securities gains (losses)		14		40		78	(65	)
Trading income (losses)		313		1,404		1,047	(78	)
Service charges		2,655		2,593		2,885	2
Card services		2,435		2,154		2,465	13
Insurance revenue		4,877		4,565		4,282	7
Other income (loss)		636		1,652		326	(62	)
Total	$	18,562	$	19,149	$	17,244	(3	)

1  Certain comparative amounts have been reclassified to conform with the presentation adopted in the current period.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 9

TRADING-RELATED REVENUE

Trading-related revenue is the total of trading income (loss), net interest income on trading positions, and income (loss) from financial instruments designated at fair value through profit or loss (FVTPL) that are managed within a trading portfolio. Trading income (loss) includes realized and unrealized gains and losses on trading assets and liabilities. Net interest income on trading positions arises from interest and dividends related to trading assets and liabilities and is reported net of interest expense and income associated with funding these assets and liabilities in the following table. Trading-related revenue excludes underwriting fees and commissions on securities transactions. Trading-related revenue is a

non-GAAP

financial measure, which is not a defined term under IFRS and, therefore, may not be comparable to similar terms used by other issuers. Management believes that the trading-related revenue is an appropriate measure of trading performance.

Trading-related revenue by product line depicts trading income for each major trading category.

TABLE 10:  TRADING-RELATED REVENUE

(millions of Canadian dollars)		For the years ended October 31
		2021		2020		2019
Trading income (loss)	$	313	$	1,404	$	1,047
Net interest income (loss) 1		1,892		1,325		293
Income (Loss) from financial instruments designated at fair value through profit or loss 2		18		53		(10	)
Total	$	2,223	$	2,782	$	1,330
Trading-related TEB adjustment		122		159		127
Total trading-related revenue (TEB) 3	$	2,345	$	2,941	$	1,457
By product
Interest rate and credit	$	931	$	1,717	$	413
Foreign exchange		792		766		677
Equity and other		500		299		240
Total	$	2,223	$	2,782	$	1,330
Trading-related TEB adjustment		122		159		127
Total trading-related revenue (TEB) 3	$	2,345	$	2,941	$	1,457

1  Excludes taxable equivalent basis (TEB).

2  Excludes amounts related to securities designated at FVTPL that are not managed within a trading portfolio, but which have been combined with derivatives to form economic hedging relationships.

3  Includes Wholesale Banking trading-related revenue (TEB) of $2,279 million (2020 – $2,940 million, 2019 – $1,573 million). For additional information about TEB adjustment, refer to the “Business Focus” section of this document.

FINANCIAL RESULTS OVERVIEW

Provision for Credit Losses

PCL for the year was a recovery of $224 million, lower by $7,466 million, compared with last year. PCL – impaired was $1,309 million, a decrease of $1,654 million, or 56%, largely related to improved credit conditions and prior year credit migration in the Wholesale lending portfolio. PCL – performing was a recovery of $1,533 million, lower by $5,812 million, reflecting a performing allowance increase in the prior year, and allowance release this year largely related to improved credit conditions, including a more favourable economic outlook. Total PCL as a percentage of credit volume was -0.03%. By segment, PCL was lower by $3,175 million in U.S. Retail, by $2,488 million in Canadian Retail, by $1,177 million in the Corporate segment, and by $626 million in Wholesale Banking.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 10

FINANCIAL RESULTS OVERVIEW

Expenses

NON-INTEREST EXPENSES Reported non-interest expenses for the year were $23,076 million, an increase of $1,472 million, or 7%, reflecting an increase in the retailer program partners’ net share of the profits from the U.S. strategic cards portfolio, primarily as a result of lower PCL which accounted for approximately 5% of the increase. Non-interest expenses also reflect higher employee-related expenses and higher spend supporting business growth, partially offset by the impact of foreign exchange translation and prior year charges related to the Greystone acquisition, which collectively accounted for 2% of the increase. On an adjusted basis, non-interest expenses were $22,909 million, an increase of $1,571 million, or 7%. By segment, the increase in reported non-interest expenses reflects an increase in the Corporate segment of $881 million, an increase in Canadian Retail of $562 million and an increase in Wholesale Banking of $191 million, partially offset by a decrease in U.S. Retail of $162 million.

INSURANCE CLAIMS AND RELATED EXPENSES

Insurance claims and related expenses were $2,707 million, a decrease of $179 million, or 6%, compared with last year reflecting more favourable current year claims experience and a decrease in the fair value of investments supporting claims liabilities which resulted in a similar decrease in

non-interest

income, partially offset by higher current year claims from business growth.

EFFICIENCY RATIO

The efficiency ratio measures operating efficiency and is calculated by taking the

non-interest

expenses as a percentage of total revenue. A lower ratio indicates a more efficient business operation.

The reported efficiency ratio was 54.1%, compared with 49.5% last year. The adjusted efficiency ratio was 53.7%, compared with 50.5% last year.

TABLE

11:  NON-INTEREST

EXPENSES AND EFFICIENCY RATIO

1

(millions of Canadian dollars, except as noted)		2021 vs. 2020
		2021			2020			2019		% change
Salaries and employee benefits
Salaries	$	7,250		$	7,225		$	6,921		–
Incentive compensation		3,074			2,785			2,682		10
Pension and other employee benefits		2,054			1,883			1,653		9
Total salaries and employee benefits		12,378			11,893			11,256		4
Occupancy
Rent 2		274			349			944		(21	)
Depreciation and impairment losses		1,121			1,101			405		2
Other		487			540			486		(10	)
Total occupancy		1,882			1,990			1,835		(5	)
Technology and Equipment
Equipment, data processing and licenses 2		1,455			1,411			1,281		3
Depreciation and impairment losses		239			223			200		7
Total technology and equipment		1,694			1,634			1,481		4
Amortization of other intangibles		706			817			800		(14	)
Communication and marketing		1,203			1,187			1,202		1
Restructuring charges		47			(16	)		175		394
Brokerage-related and sub-advisory fees		427			362			336		18
Professional, advisory and outside services		1,620			1,451			1,666		12
Other expenses		3,119			2,286			3,269		36
Total expenses	$	23,076		$	21,604		$	22,020		7
Efficiency ratio – reported		54.1	%		49.5	%		53.6	%	460		bps
Efficiency ratio – adjusted		53.7			50.5			51.3		320

1 Certain comparative amounts have been reclassified to conform with the presentation adopted in the current period.

2 Upon adoption of IFRS 16, Leases (IFRS 16) interest expense is recognized on lease liabilities in Net interest income and depreciation expense is recognized on right-of-use (ROU) assets in Non-interest expense. Previously under IAS 17, Leases net rental expense on operating leases were recorded in Non-interest expense. Remaining rent expenses reflect the payments exempt from IFRS 16.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 11

FINANCIAL RESULTS OVERVIEW

Taxes

Reported total income and other taxes increased by $2,509 million, or 91.7%, compared with last year, reflecting an increase in income tax expense of $2,469 million, or 214.3%, and an increase in other taxes of $40 million, or 2.5%. Adjusted total income and other taxes increased by $1,678 million from last year, or 46.6%, reflecting an increase in income tax expense of $1,638 million, or 81.1%.

The Bank’s reported effective tax rate was 21.1% for 2021, compared with 9.7% last year. The year-over-year increase primarily reflects the impact of higher

pre-tax

income as well as the impact of the sale of the Bank’s investment in TD Ameritrade in the prior year. For a reconciliation of the Bank’s effective income tax rate with the Canadian statutory income tax rate, refer to Note 25 of the 2021 Consolidated Financial Statements.

The Bank reported its investments in Schwab and TD Ameritrade using the equity method of accounting. Schwab’s tax expense ($280 million in the current year) and TD Ameritrade’s tax expense ($378 million in the prior year) were not part of the Bank’s effective tax rate.

To allow for an

after-tax

calculation of adjusted income, the adjusted provision for income taxes is calculated by adjusting the taxes for each item of note using the statutory income tax rate of the applicable legal entity. The adjusted effective income tax rate is calculated as the adjusted provision for income taxes before other taxes as a percentage of adjusted net income before taxes. The Bank’s adjusted effective income tax rate for 2021 was 21.1%, compared with 18.8% last year. The year-over-year increase primarily reflects the impact of higher adjusted

pre-tax

income. Adjusted results are not defined terms under IFRS and, therefore, may not be comparable to similar terms used by other issuers.

TABLE 12:  INCOME TAXES – Reconciliation of Reported to Adjusted Provision for Income Taxes

(millions of Canadian dollars, except as noted)		2021			2020			2019
Provision for income taxes – reported	$	3,621		$	1,152		$	2,735
Total adjustments for items of note		37			868			214
Provision for income taxes – adjusted		3,658			2,020			2,949
Other taxes
Payroll		635			602			587
Capital and premium		201			186			168
GST, HST, and provincial sales 1		535			539			678
Municipal and business		253			257			243
Total other taxes		1,624			1,584			1,676
Total taxes – adjusted	$	5,282		$	3,604		$	4,625
Effective income tax rate – reported		21.1	%		9.7	%		20.7	%
Effective income tax rate – adjusted		21.1			18.8			20.8

1 Goods and services tax (GST) and Harmonized sales tax (HST).

FINANCIAL RESULTS OVERVIEW

Quarterly Financial Information

FOURTH QUARTER 2021 PERFORMANCE SUMMARY

Reported net income for the quarter was $3,781 million, a decrease of $1,362 million, or 26%, compared with the fourth quarter last year. The decrease reflects the net gain on sale of the Bank’s investment in TD Ameritrade in the prior year. On an adjusted basis, net income for the quarter was $3,866 million, an increase of $896 million, or 30%, compared with the fourth quarter last year, reflecting lower PCL and higher revenues, partially offset by higher

non-interest

expenses. Reported diluted EPS for the quarter was $2.04, a decrease of 27%, compared with $2.80 in the fourth quarter of last year. Adjusted diluted EPS for the quarter was $2.09, an increase of 31%, compared with $1.60 in the fourth quarter of last year.

Reported revenue for the quarter was $10,941 million, a decrease of $903 million, or 8%, compared with the fourth quarter last year. Adjusted revenue for the quarter was $10,941 million, an increase of $518 million, or 5%, compared with the fourth quarter last year.

Reported net interest income for the quarter was $6,262 million, an increase of $235 million, or 4%, primarily reflecting volume growth in the personal and commercial banking businesses, accelerated fee amortization from PPP loan forgiveness, and higher trading net interest income, partially offset by lower margins and the impact of foreign exchange translation. By segment, the increase in reported net interest income reflects an increase in Canadian Retail of $80 million, an increase in Wholesale Banking of $80 million, an increase in the Corporate segment of $43 million, and an increase in U.S. Retail of $32 million.

Reported

non-interest

income for the quarter was $4,679 million, a decrease of $1,138 million, or 20%, reflecting the net gain on sale of the Bank’s investment in TD Ameritrade in the prior year. Adjusted

non-interest

income for the quarter was $4,679 million, an increase of $283 million, or 6%, reflecting higher

fee-based

revenue in the wealth and personal and commercial banking businesses, higher insurance volumes, and higher underwriting and advisory fees, partially offset by lower wholesale trading revenue. By segment, the decrease in reported

non-interest

income reflects a decrease in the Corporate segment of $1,396 million, and a decrease in Wholesale Banking of $184 million, partially offset by an increase in Canadian Retail of $411 million, and an increase in U.S. Retail of $31 million.

PCL for the quarter was a recovery of $123 million, lower by $1,040 million compared with the fourth quarter last year. PCL – impaired for the quarter was $220 million, a decrease of $139 million, or 39%, largely related to improved credit conditions. PCL – performing for the quarter was a recovery of $343 million, lower by $901 million, reflecting a performing allowance increase in the prior year, and allowance release this quarter largely related to improved credit conditions. Total PCL for the quarter as an annualized percentage of credit volume was

-0.07%.

By segment, PCL was lower by $648 million in U.S. Retail, by $198 million in Canadian Retail, by $123 million in the Corporate segment and by $71 million in Wholesale Banking.

Insurance claims and related expenses for the quarter were $650 million, an increase of $20 million, or 3%, compared with the fourth quarter last year reflecting less favourable prior years’ claims development and higher current year claims from business growth, partially offset by improved current year claims experience and a decrease in the fair value of investments supporting claims liabilities which resulted in a similar decrease in

non-interest

income.

Reported

non-interest

expenses for the quarter were $5,947 million, an increase of $238 million, or 4%, compared with the fourth quarter last year reflecting higher employee-related expenses, higher spend supporting business growth, partially offset by lower corporate real estate optimization costs and the impact of foreign exchange translation, which collectively accounted for 2% of the increase.

Non-interest

expenses also reflect an increase in the retailer program partners’ net share of the profits from the U.S. strategic cards portfolio, primarily as a result of lower PCL, which accounted for approximately 2% of the increase. By segment, the increase in reported

non-interest

expenses reflects an increase in Canadian Retail of $228 million, and an increase in Wholesale Banking of $77 million, partially offset by a decrease in U.S. Retail of $43 million and a decrease in the Corporate segment of $24 million. Adjusted

non-interest

expenses for the quarter were $5,898 million, an increase of $252 million, or 4%, compared with the fourth quarter last year.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 12

The Bank’s reported effective tax rate was 20.4% for the quarter, compared with

-4.4%

in the same quarter last year. The year-over-year increase primarily reflects the impact of the sale of the Bank’s investment in TD Ameritrade in the prior year.

The Bank’s adjusted effective tax rate was 20.4% for the quarter, compared with 19.7% in the same quarter last year. The year-over-year increase primarily reflects the impact of higher adjusted

pre-tax

income, partially offset by changes to the estimated liability for uncertain tax positions.

QUARTERLY TREND ANALYSIS

The

COVID-19

pandemic continued to have a significant impact on TD’s financial performance in 2021. As the year progressed, earnings benefited from a more favourable economic outlook and improving credit conditions, resulting in significantly lower PCL, particularly in the second and third quarters. While low interest rates continued to pressure net interest margins, revenue increased on higher volumes and rising customer activity, primarily in the Canadian Retail business. Expenses were higher, reflecting employee-related expenses including variable compensation and investments in support of business growth. The Bank’s quarterly earnings were impacted by, among other things, seasonality, the number of days in a quarter, the economic environment in Canada and the U.S., and foreign currency translation.

TABLE 13:  QUARTERLY RESULTS

1

(millions of Canadian dollars, except as noted)													For the three months ended
	2021												2020
	Oct. 31			Jul. 31			Apr. 30			Jan. 31			Oct. 31			Jul. 31			Apr. 30			Jan. 31
Net interest income	$	6,262		$	6,004		$	5,835		$	6,030		$	6,027		$	6,101		$	6,200		$	6,169
Non-interest income		4,679			4,708			4,393			4,782			5,817			4,564			4,328			4,440
Total revenue		10,941			10,712			10,228			10,812			11,844			10,665			10,528			10,609
Provision for (recovery of) credit losses		(123	)		(37	)		(377	)		313			917			2,188			3,218			919
Insurance claims and related expenses		650			836			441			780			630			805			671			780
Non-interest expenses		5,947			5,616			5,729			5,784			5,709			5,307			5,121			5,467
Provision for (recovery of) income taxes		910			922			962			827			(202	)		445			250			659
Share of net income from investment in Schwab and TD Ameritrade		224			170			222			169			353			328			247			205
Net income – reported		3,781			3,545			3,695			3,277			5,143			2,248			1,515			2,989
Pre-tax adjustments for items of note 2
Amortization of acquired intangibles		74			68			69			74			61			63			68			70
Acquisition and integration charges related to the Schwab transaction		22			24			19			38			–			–			–			–
Net gain on sale of the investment in TD Ameritrade		–			–			–			–			(1,421	)		–			–			–
Charges associated with the acquisition of Greystone		–			–			–			–			25			25			26			24
Total pre-tax adjustments for items of note		96			92			88			112			(1,335	)		88			94			94
Less: Impact of income taxes 2		11			9			8			9			838			9			10			11
Net income – adjusted		3,866			3,628			3,775			3,380			2,970			2,327			1,599			3,072
Preferred dividends and distributions on other equity instruments		63			56			65			65			64			68			68			67
Net income available to common shareholders – adjusted	$	3,803		$	3,572		$	3,710		$	3,315		$	2,906		$	2,259		$	1,531		$	3,005
(Canadian dollars, except as noted)
Basic earnings per share
Reported	$	2.04		$	1.92		$	2.00		$	1.77		$	2.80		$	1.21		$	0.80		$	1.61
Adjusted		2.09			1.96			2.04			1.83			1.60			1.25			0.85			1.66
Diluted earnings per share
Reported		2.04			1.92			1.99			1.77			2.80			1.21			0.80			1.61
Adjusted		2.09			1.96			2.04			1.83			1.60			1.25			0.85			1.66
Return on common equity – reported		15.7	%		15.3	%		16.7	%		14.3	%		23.3	%		10.0	%		6.9	%		14.2	%
Return on common equity – adjusted		16.1			15.6			17.1			14.7			13.3			10.4			7.3			14.6
(billions of Canadian dollars, except as noted)
Average total assets	$	1,750		$	1,699		$	1,726		$	1,746		$	1,718		$	1,681		$	1,568		$	1,449
Average interest-earning assets 3		1,574			1,527			1,536			1,563			1,531			1,494			1,374			1,292
Net interest margin		1.58	%		1.56	%		1.56	%		1.53	%		1.57	%		1.62	%		1.83	%		1.90	%

1 Certain comparative amounts have been reclassified to conform with the presentation adopted in the current period.

2  For explanations of items of note, refer to the “Non-GAAP Financial Measures – Reconciliation of Adjusted to Reported Net Income” table in the “Financial Results Overview” section of this document.

3 Average interest-earning assets is a non-GAAP financial measure. Refer to “Non-GAAP and Other Financial Measures” in the “Financial Results Overview” section and the Glossary of this document for additional information about this metric.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 13

BUSINESS SEGMENT ANALYSIS

Business Focus

For management reporting purposes, the Bank’s operations and activities are organized around the following three key business segments:

Canadian Retail, U.S. Retail, and Wholesale Banking. The Bank’s other activities are grouped into the Corporate segment.

Canadian Retail

serves over 16 million customers in the Canadian personal and commercial banking, wealth, and insurance businesses. Personal Banking provides a comprehensive suite of deposit, payment and lending products and advice through a network of 1,061 branches, 3,381 automated teller machines (ATM), and telephone, mobile and internet banking services. Auto Finance provides flexible financing options to customers at point of sale for automotive and recreational vehicle purchases. Business Banking offers a broad range of customized products and services to help business owners meet their financing, investment, cash management, international trade, and

day-to-day

banking needs. Merchant Solutions provides

point-of-sale

payment solutions for large and small businesses. The wealth business offers wealth and asset management products and advice to retail and institutional clients in Canada through the direct investing, advice-based, and asset management businesses. The insurance business offers property and casualty insurance, as well as life and health insurance products to customers across Canada.

U.S. Retail

includes the Bank’s personal, business banking and wealth management operations in the U.S., as well as the Bank’s investment in Schwab. Operating under the TD Bank, America’s Most Convenient Bank

®

brand, the U.S. Retail Bank serves 9.6 million customers in stores along the U.S. eastern seaboard, and via auto dealerships and credit card partner business locations nationwide. Personal Banking provides a full range of financial products and services to customers mainly from Maine to Florida through a network of 1,148 stores, 2,701 ATMs, telephone, and mobile and internet banking services. Business Banking offers a diversified range of products and services to help businesses meet their financing, investment, cash management, international trade, and

day-to-day

banking needs. Wealth management provides wealth products and services to retail and institutional clients. The contribution from the Bank’s investment in Schwab is reported as equity in net income of an investment in Schwab with a

one-month

lag.

Wholesale Banking

serves over 12,000 corporate, government, and institutional clients in key financial markets around the world. Operating under the TD Securities brand, Wholesale Banking offers capital markets and corporate and investment banking services to external clients and provides market access and wholesale banking solutions for the Bank’s wealth and retail operations and their customers. Wholesale Banking’s expertise is global, supported by a presence across North America, Europe, and Asia-Pacific.

The Bank’s other business activities are grouped in the Corporate segment and consist of service and control groups, including technology solutions, shared services, treasury and balance sheet management, marketing, human resources, finance, risk management, compliance, legal, and anti-money laundering, among others. Certain costs relating to these functions are allocated to operating business segments. The basis of allocation and methodologies are reviewed periodically to align with management’s evaluation of the Bank’s business segments.

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 29 of the 2021 Consolidated Financial Statements.

Net interest income within Wholesale Banking is calculated on a 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 year was $152 million (October 31, 2020 – $159 million, October 31, 2019 – $127 million).

Share of net income from investment in Schwab is reported in the U.S. Retail segment. Amounts for amortization of acquired intangibles and the acquisition and integration charges related to the Schwab transaction are recorded in the Corporate segment.

The “Key Priorities for 2022” section for each business segment, provided on the following pages, is based on the Bank’s views and the assumptions set out in the “Economic Summary and Outlook” section and the actual outcome may be materially different. For more information, refer to the “Caution Regarding Forward-Looking Statements” section and the “Risk Factors That May Affect Future Results” section.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 14

TABLE 14:  RESULTS BY SEGMENT

1,2

(millions of Canadian dollars)		Canadian Retail					U.S. Retail						Wholesale Banking 3					Corporate 3						Total
		2021			2020		2021			2020			2021			2020		2021			2020			2021			2020
Net interest income (loss)	$	11,957		$	12,061	$	8,074		$	8,834		$	2,630		$	1,990	$	1,470		$	1,612		$	24,131		$	24,497
Non-interest income (loss)		13,549			12,272		2,684			2,438			2,070			2,968		259			1,471			18,562			19,149
Total revenue		25,506			24,333		10,758			11,272			4,700			4,958		1,729			3,083			42,693			43,646
Provision for (recovery of) credit losses – impaired		652			1,256		438			997			8			279		211			431			1,309			2,963
Provision for (recovery of) credit losses – performing		(394	)		1,490		(688	)		1,928			(126	)		229		(325	)		632			(1,533	)		4,279
Total provision for (recovery of) credit losses		258			2,746		(250	)		2,925			(118	)		508		(114	)		1,063			(224	)		7,242
Insurance claims and related expenses		2,707			2,886		–			–			–			–		–			–			2,707			2,886
Non-interest expenses		11,003			10,441		6,417			6,579			2,709			2,518		2,947			2,066			23,076			21,604
Income (loss) before income taxes		11,538			8,260		4,591			1,768			2,109			1,932		(1,104	)		(46	)		17,134			11,914
Provision for (recovery of) income taxes		3,057			2,234		504			(167	)		539			514		(479	)		(1,429	)		3,621			1,152
Share of net income from investment in Schwab and TD Ameritrade		–			–		898			1,091			–			–		(113	)		42			785			1,133
Net income (loss) – reported		8,481			6,026		4,985			3,026			1,570			1,418		(738	)		1,425			14,298			11,895
Pre-tax adjustments for items of note
Amortization of acquired intangibles		–			–		–			–			–			–		285			262			285			262
Acquisition and integration charges related to the Schwab transaction		–			–		–			–			–			–		103			–			103			–
Net gain on sale of the investment in TD Ameritrade		–			–		–			–			–			–		–			(1,421	)		–			(1,421	)
Charges associated with the acquisition of Greystone		–			100		–			–			–			–		–			–			–			100
Total pre-tax adjustments for items of note		–			100		–			–			–			–		388			(1,159	)		388			(1,059	)
Less: Impact of income taxes		–			2		–			–			–			–		37			866			37			868
Net income (loss) – adjusted 4	$	8,481		$	6,124	$	4,985		$	3,026		$	1,570		$	1,418	$	(387	)	$	(600	)	$	14,649		$	9,968
Average common equity 5	$	17,626		$	18,049	$	38,531		$	39,825		$	8,318		$	8,374	$	26,202		$	18,955		$	90,677		$	85,203
Risk-weighted assets		145,458			143,504		205,879			232,966			99,678			92,434		9,255			10,005			460,270			478,909

1 Certain comparative amounts have been reclassified to conform with the presentation adopted in the current period.

2 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 the Bank under the agreements.

3 Net interest income within Wholesale Banking is calculated on a TEB. The TEB adjustment reflected in Wholesale Banking is reversed in the Corporate segment.

4 For additional information about the Bank’s use of non-GAAP financial measures, refer to “Non-GAAP and Other Financial Measures” in the “Financial Results Overview” section of this document.

5 For additional information about this metric, refer to the Glossary of this document.

BUSINESS SEGMENT ANALYSIS

Canadian Retail

Canadian Retail offers a full range of financial products and services to over 16 million customers in the Canadian personal and commercial banking, wealth, and insurance businesses.

TABLE 15:  REVENUE

(millions of Canadian dollars)	2021		2020		2019
Personal banking	$	11,452	$	11,321	$	12,076
Business banking		3,465		3,383		3,184
Wealth		5,693		4,840		4,432
Insurance		4,896		4,789		4,534
Total	$	25,506	$	24,333	$	24,226

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 15

KEY PRODUCT GROUPS

Personal Banking

• Personal Deposits – comprehensive line-up of chequing, savings, and investment products for retail customers.

• Real Estate Secured Lending – wide range of lending products for homeowners secured by residential properties.

• Consumer Lending – diverse range of unsecured financing products for retail customers.

• Credit Cards & Payments – Visa debit, mobile wallets, digital money movement, installment plans and proprietary, co-branded, and affinity credit cards.

• Auto Finance – retail automotive and recreational vehicle financing, including promotional rate loans offered in cooperation with large automotive manufacturers.

Business Banking

• Commercial Banking – borrowing, deposit and cash management solutions for businesses across a range of industries, including real estate, agriculture and automotive.

• Small Business Banking – financial products and services for small businesses.

• Merchant Solutions – point-of-sale technology and payment solutions for large and small businesses.

• TD Equipment Finance – specialized financing options to support equipment purchases for businesses in a variety of industries

Wealth

• Direct Investing – resources for self-directed retail investors to facilitate research, investment management and trading in a range of investment products through online, phone and mobile channels.

• Wealth Advice – wealth management advice and financial planning solutions for mass affluent, high net worth and ultra high net worth clients, integrated with other Wealth businesses and the broader bank.

• Asset Management – public and private market investment management capabilities and structuring services for retail and institutional clients, including a diversified suite of mutual funds, ETFs, and professionally managed portfolios designed to provide better risk-adjusted returns.

Insurance

• Property and Casualty – home and auto insurance provided through direct channels and to members of affinity groups such as professional associations, universities and employer groups.

• Life and Health – credit protection for personal banking borrowing customers, other simple life and health insurance products, credit card balance protection, and travel insurance products, distributed through direct channels.

INDUSTRY PROFILE

The personal and business banking industry in Canada is mature and highly competitive, consisting of large chartered banks, sizeable regional banks, niche players competing in specific products and geographies, and a variety of

non-traditional

competitors, ranging from

start-ups

to established

non-financial

firms expanding into financial services. Market leadership and profitability depend upon delivering a full suite of competitively priced products, proactive advice that meets customers’ needs, outstanding service and convenience, prudent risk management, and disciplined expense management. The Canadian wealth management industry includes banks, insurance companies, independent asset managers, and full-service and discount brokerages. Market share growth relies on the ability to provide differentiated and integrated wealth solutions and keep pace with technological change and regulatory requirements. The property and casualty insurance industry in Canada is fragmented and competitive, consisting of numerous personal and commercial line writers, while the life and health insurance industry is comprised of several large competitors. Success in the insurance business depends upon offering a range of products that provide protection at competitive prices that properly reflect the level of risk assumed.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 16

STRATEGIC OBJECTIVES, ACCOMPLISHMENTS AND PRIORITIES

BUSINESS STRATEGY	BUSINESS HIGHLIGHTS IN 2021
Provide trusted advice to help our customers feel confident about their financial future	• Continued to deliver TD Ready Advice, our One TD approach to helping customers feel more confident about their financial futures through the delivery of personalized advice • Increased the number of advisors across our branch banking and wealth distribution channels, expanded training resources, and introduced tools to elevate our advice offering and provide a more consistent customer experience • Began creating a one-stop shop for insurance advice with the launch of a new Learning Centre on the TD Insurance public site to build consumer confidence and increase digital fluency
Consistently deliver legendary, personal, and connected customer experiences across all channels	• Enhanced the value proposition of our products and achieved higher Legendary Experience Index (LEI) results across our businesses –   TD Canada Trust was recognized as a Financial Service Excellence award winner for “Automated Telephone Banking Excellence” 2 among the Big 5 Canadian Retail Banks 3 and among all Financial Institutions in the 2021 Ipsos Customer Service Index (CSI) study 4 –   TD’s suite of credit cards received multiple awards, with TD Aeroplan Infinite named top airline card (Rewards Canada) and best travel rewards card (GreedyRates), and MBNA Rewards Platinum Plus named best rewards card for everyday spending (GreedyRates) and best no-fee travel rewards card (Rewards Canada) –   TD Auto Finance ranked “Highest in Dealer Satisfaction among Non-Captive Lenders with Retail Credit” for the fourth year in a row in the J.D. Power 2021 Canada Dealer Financing Satisfaction Study –   TD Wealth continued to optimize contact center service levels, introduce platform improvements, and invest in personalized, best-in-class education for investors –   TD Insurance expanded its network of one-stop auto claims centres, opening its 22nd location nationally
Deepen customer relationships by delivering One TD and growing across underrepresented products and markets	• Maintained strong market share 5 positions and gained momentum across our businesses: –   #1 market share in personal deposits, direct investing, Interac e-Transfer and Flash –   #2 market share in real estate secured lending, credit cards, auto and indirect loans, mutual funds, and business deposits and loans –   2 nd largest money manager in Canada for pension assets and largest institutional money manager 6 –   Largest direct distribution insurer 7 and leader in the affinity market in Canadian insurance –   Record real estate secured lending originations and credit card retail sales –   Record accumulation of assets across our wealth businesses –   Record General Insurance premiums • Entered into a strategic alliance with Canada Post to expand access to financial services for Canadians, particularly those in rural, remote and Indigenous communities • Closed the acquisition of Wells Fargo’s Canadian Direct Equipment Financing business, delivering scaled expertise in equipment leasing and finance • Created a Black Customer Experience team to provide customized advice and solutions for Black customers and communities across Canada
Execute with speed and impact, taking only those risks we can understand and manage	• Continued to transform the way we work, automating more of our operations and implementing other process improvements to increase speed and efficiency • Continued to provide personalized payment experiences and rewards to customers through strategic credit card relationships, including: –   Refreshed the TD Aeroplan credit card suite of four market leading travel credit cards –   Through our exclusive partnership with Amazon, enabled customers to redeem TD Rewards points though Amazon Shop with Points, with over 22 billion points redeemed and 1.5 million unique redemptions since launch in October 2020 –   Enhanced the application process for the Amazon / MBNA co-brand card –   Launched instant issuance allowing customers booking a flight on the Air Canada website to open a new TD Aeroplan credit card and instantly pay for that flight purchase

2  TD Canada Trust shared in the Automated Telephone Banking Excellence award in the 2021 Ipsos Study.

3  Big 5 Canadian Retail Banks consist of Bank of Montreal, Canadian Imperial Bank of Commerce, Royal Bank of Canada, Scotiabank, and The Toronto-Dominion Bank.

4  Ipsos 2021 Financial Service Excellence Awards are based on ongoing quarterly Customer Service Index (CSI) survey results. Sample size for the total 2021 CSI program year ended with the September 2021 survey wave was 47,977 completed surveys yielding 72,290 financial institution ratings nationally.

5  Market share ranking is based on most current data available from OSFI for personal deposits and loans as at August 2021, from Quarterly Supplemental Financial disclosures for credit cards as at July 2021, from the Canadian Bankers Association for Real Estate Secured Lending as at June 2021, from the Canadian Bankers Association for business deposits and loans as at March 2021, from the Canadian Bankers Association for Auto & Indirect loans as at April 2021, from Investor Economics, a division of ISS Market Intelligence, for Direct Investing asset, trades, and revenue metrics as at June 2021, and from Investment Funds Institute of Canada for mutual funds when compared to the Big 6 Banks as at September 2021. The Big 6 Banks consist of Bank of Montreal, Canadian Imperial Bank of Canada, National Bank of Canada, Royal Bank of Canada, Scotiabank, and The Toronto-Dominion Bank.

6  “Top 40 Money Managers (as of June 30, 2021)” Benefits Canada, November 2021; and “Managed Money Advisory Service (as of June 30, 2021)” Investor Economics, Fall 2021.

7  Based on Gross Written Premiums for Property and Casualty business. Rankings based on data available from OSFI, insurers, Insurance Bureau of Canada, and provincial regulators as at December 31, 2020.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 17

BUSINESS STRATEGY	BUSINESS HIGHLIGHTS IN 2021
Innovate with purpose for our customers and colleagues, and shape the future of banking in the digital age	• Recognized as Canada’s Best Consumer Digital Bank in North America by Global Finance Magazine –   Won an industry-leading 7 categories, including Best Mobile Banking App, Best Online Product Offering, Best Bill Payment & Presentment, Best Information Security and Fraud Management, Best in Lending, and Best Open Banking APIs –   TD was also recognized as Most Innovative Digital Bank for a third consecutive year • Recognized by the Business Intelligence Group for our AI-powered Customer Innovations 8 • Continued to lead in the number of Interac e-Transfer, Debit and Flash transactions 9 • Continued to rank #1 for average digital reach of any bank in Canada, remained among the leaders for domestic digital reach among major developed market banks 10 , and continued to have the top-ranked Canadian digital banking app with the highest number of unique visitors and the highest engagement according to Comscore 11 • #1 Financial Institution Patent Filer in Canada • Strengthened TD Insurance’s position to become a leading digital insurer in Canada through new enhanced self-serve capabilities, including same day online quote, bind and modify coverages on-line
Be recognized as an extraordinary place to work where diversity and inclusiveness are valued	• At TD, we remain devoted to advancing our Diversity & Inclusion strategy to build a more inclusive and diverse culture at the Bank. We’ve been bold about our commitments both inside and outside the organization and focused our efforts to align to our purpose to enrich the lives of our customers, colleagues and communities • Recognized by prestigious benchmarking companies in 2021 for being a best-in-class employer for diversity and inclusion, including Canada’s Best Diversity Employers; #14 on DiversityInc.’s Top Company for Diversity in 2021; named on the Bloomberg Financial Services Gender Equality Index (BFGEI); Canada’s Best Workplaces for Women from Great Place to Work
Contribute to the well-being of our communities	• Remained #1 for number of branches in urban locations and hours of operation • Committed $10 million over the next five years to the Black Opportunity Fund (BOF) to combat anti-Black racism and systemic discrimination in Canada • Launched 4 new Environment and Social Governance (ESG)-focused ETFs in 2021, including three Morningstar-partnered funds to advance our sustainable investing strategy and offer clients more ESG investment options • TD Asset Management Inc. (TDAM) joined the International Corporate Governance Network • Expanded services for new Canadians, including a New to Canada Booklet in 10 languages, a Financial Personal Quiz to help customers assess their financial knowledge, a new International Student pre-arrival GIC Program, and an enhanced banking package including 12 months of unlimited TD Global Money Transfer transactions

KEY PRIORITIES FOR 2022

• Continue to invest in TD Ready Advice and increase our advisory salesforce to help customers plan their financial futures

• Enhance end-to-end omni-channel capabilities to provide seamless, intuitive and personalized customer experiences

• Grow market share by deepening customer relationships with a focus on under-represented products and markets

• Grow Wealth Advice distribution capabilities, enrich the Direct Investing client offering, and innovate for leadership in Asset Management

• Continue to enhance our Insurance products and services, with a focus on ensuring they are competitive, easy to understand, and provide the protection clients need

• Improve speed, capacity and efficiency by leveraging data and advanced analytics, automation and adapting to new ways of working

• Continue to evolve our brand as a diverse and inclusive employer of choice, enabling colleagues to achieve their full potential

• Advance our ESG objectives by contributing to an inclusive and sustainable recovery and helping strengthen community resilience

8  Source: from Business Intelligence Group 2021 Artificial Intelligence Excellence Awards (March 29, 2021)

9  Source: INTERAC Issuer Executive Metric Summary – The Toronto-Dominion Bank, October 2021

10  Source: from Comscore MMX ® Multi-Platform, Financial Services – Banking, Total audience, 3-month average ending September 2021, Canada, United States, Spain, France and U.K.

11  Source: from Comscore Mobile Metrix ® , Financial Services – Banking (Mobile Apps), Total Audience, 3-month average ending September 2021, Canada.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 18

TABLE 16:  CANADIAN RETAIL

(millions of Canadian dollars, except as noted)	2021			2020			2019
Net interest income	$	11,957		$	12,061		$	12,349
Non-interest income		13,549			12,272			11,877
Total revenue		25,506			24,333			24,226
Provision for (recovery of) credit losses – impaired		652			1,256			1,126
Provision for (recovery of) credit losses – performing		(394	)		1,490			180
Total provision for (recovery of) credit losses		258			2,746			1,306
Insurance claims and related expenses		2,707			2,886			2,787
Non-interest expenses – reported		11,003			10,441			10,735
Non-interest expenses – adjusted 1		11,003			10,341			10,011
Provision for (recovery of) income taxes – reported		3,057			2,234			2,535
Provision for (recovery of) income taxes – adjusted 1		3,057			2,236			2,701
Net income – reported		8,481			6,026			6,863
Net income – adjusted 1	$	8,481		$	6,124		$	7,421
Selected volumes and ratios
Return on common equity – reported 2		48.1	%		33.4	%		38.6	%
Return on common equity – adjusted 1,2		48.1			33.9			41.7
Net interest margin (including on securitized assets)		2.61			2.79			2.96
Efficiency ratio – reported		43.1			42.9			44.3
Efficiency ratio – adjusted 1		43.1			42.5			41.3
Assets under administration (billions of Canadian dollars) 3	$	557		$	433		$	422
Assets under management (billions of Canadian dollars) 3		427			358			353
Number of Canadian retail branches		1,061			1,085			1,091
Average number of full-time equivalent staff		41,439			40,872			40,936

1 For additional information about the Bank’s use of non-GAAP financial measures, refer to “Non-GAAP and Other Financial Measures” in the “Financial Results Overview” section of this document.

2 Capital allocated to the business segment was reduced to 9% CET1 effective the second quarter of 2020 compared with 10.5% in the first quarter of 2020 and 10% in 2019.

3 For additional information about this metric, refer to the Glossary of this document.

REVIEW OF FINANCIAL PERFORMANCE

Canadian Retail reported net income for the year was $8,481 million, an increase of $2,455 million, or 41%, compared with last year, reflecting lower PCL, higher revenue, and lower insurance claims, partially offset by higher

non-interest

expenses. On an adjusted basis, net income increased $2,357 million, or 38%. The reported and adjusted ROE for the year was 48.1%, compared with 33.4% and 33.9%, respectively, last year.

Canadian Retail revenue is derived from the Canadian personal and commercial banking, wealth, and insurance businesses. Revenue for the year was $25,506 million, an increase of $1,173 million, or 5%, compared with last year.

Net interest income decreased $104 million, or 1%, reflecting lower deposit margins, partially offset by volume growth. Average loan volumes increased $27 billion, or 6%, reflecting 6% growth in personal loans and 6% growth in business loans. Average deposit volumes increased $61 billion, or 16%, reflecting 12% growth in personal deposits, 22% growth in business deposits, and 24% growth in wealth deposits. Net interest margin was 2.61%, or a decrease of 18 bps, reflecting the ongoing impact of the low interest rate environment and changes to balance sheet mix.

Non-interest

income increased $1,277 million, or 10%, reflecting higher transaction and

fee-based

revenue in the wealth and banking businesses and higher insurance volumes, partially offset by a decrease in the fair value of investments supporting claims liabilities which resulted in a similar decrease in insurance claims and the impact of premium rebates for customers in the insurance business.

Assets under administration(AUA) were $557 billion as at October 31, 2021, an increase of $124 billion, or 29%, and assets under management(AUM) were $427 billion as at October 31, 2021, an increase of $69 billion, or 19%, compared with last year, both reflecting market appreciation and new asset growth.

PCL was $258 million, a decrease of $2,488 million, compared with last year. PCL – impaired was $652 million, a decrease of $604 million, or 48%, largely related to improved credit conditions. PCL – performing was a recovery of $394 million, lower by $1,884 million, reflecting a performing allowance increase in the prior year, and allowance release this year largely related to improved credit conditions, including a more favourable economic outlook. Total PCL as an annualized percentage of credit volume was 0.06%, a decrease of 56 bps.

Insurance claims and related expenses were $2,707 million, a decrease of $179 million, or 6%, compared with last year, reflecting more favourable current year claims experience and a decrease in the fair value of investments supporting claims liabilities which resulted in a similar decrease in

non-interest

income, partially offset by higher current year claims from business growth.

Reported

non-interest

expenses for the year were $11,003 million, an increase of $562 million, or 5%, compared with last year. The increase primarily reflects higher spend supporting business growth, including volume-driven and employee-related expenses, and technology and marketing costs, partially offset by prior year charges related to the Greystone acquisition. On an adjusted basis,

non-interest

expenses increased $662 million, or 6%.

The reported and adjusted efficiency ratio for the year was 43.1%, compared with 42.9% and 42.5%, respectively, last year.

OPERATING ENVIRONMENT AND OUTLOOK

While

COVID-19

continues to pose risks to the outlook, economic activity in Canada is expected to accelerate in fiscal 2022, led by rising consumer spending and business investment. The improving economic environment is expected to support continued revenue growth in Canadian Retail, with increased customer activity and higher loan and deposit volumes and the prospect of rising interest rates helping offset anticipated pressure on fees from rising competition and expected moderation in resale housing activity and direct investing trading volumes. Provisions for credit losses are expected to increase throughout the year, reflecting volume growth and an ongoing normalization of credit conditions. Insurance claims are also expected to increase, as customer activity normalizes. Canadian Retail will maintain its disciplined approach to expense management, investing in products, channels and infrastructure to respond to changing customer expectations, meet evolving regulatory requirements and drive greater efficiency. While the quarterly trend in earnings may be uneven, we believe TD’s customer-focused and digitally-enabled Canadian Retail franchise is well-positioned to execute on its growth opportunities.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 19

BUSINESS SEGMENT ANALYSIS

U.S. Retail

Operating under the TD Bank, America’s Most Convenient Bank

®

brand, the U.S. Retail Bank offers a full range of financial products and services to over 9.6 million customers in the Bank’s U.S. personal and business banking operations, including wealth management. U.S. Retail includes an investment in Schwab.

TABLE 17:  REVENUE

1

(millions of dollars)		Canadian dollars						U.S. dollars
		2021		2020		2019		2021		2020		2019
Personal Banking	$	6,267	$	6,649	$	6,894	$	4,983	$	4,942	$	5,189
Business Banking		3,810		3,919		3,786		3,029		2,913		2,850
Wealth		468		447		496		372		332		373
Other 2		213		257		615		170		193		464
Total	$	10,758	$	11,272	$	11,791	$	8,554	$	8,380	$	8,876

1 Excludes equity in net income of an investment in Schwab and TD Ameritrade.

2 Other revenue consists primarily of revenue from investing activities, the TD Ameritrade Insured Deposit Account (IDA) Agreement and the Schwab IDA Agreement.

KEY PRODUCT GROUPS

Personal Banking

• Personal Deposits – full suite of chequing and savings products for retail customers offered through multiple delivery channels.

• Consumer Lending – diverse range of financing products, including residential mortgages, home equity and unsecured lending solutions for retail customers.

• Credit Cards Services – TD-branded credit cards for retail and small business customers, and private label and co-brand credit cards for customers of leading U.S. retailers delivered through nationwide partnerships.

• Auto Finance – indirect retail financing through a network of auto dealers, along with floorplan financing for automotive dealerships throughout the U.S.

Business Banking

• Commercial Banking – borrowing, deposit and cash management solutions for U.S. businesses and governments across a wide range of industries.

• Small Business Banking – financial products and services for small businesses including merchant services.

Wealth

• Wealth Advice – wealth management advice, financial planning solutions, estate and trust planning, and insurance and annuity products for mass affluent, high net worth and institutional clients, delivered by store-based advisors and through a robo-advisory platform.

• Asset Management – comprised of Epoch Investment Partners Inc. and the U.S. arm of TDAM’s investment business.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 20

INDUSTRY PROFILE

The U.S. personal and business banking industry is highly competitive and includes several very large financial institutions, as well as regional banks, small community and savings banks, finance companies, credit unions, and other providers of financial services. The wealth management industry includes national and regional banks, insurance companies, independent mutual fund companies, brokers, and independent asset management companies. The personal and business banking and wealth management industries also include

non-traditional

competitors, ranging from

start-ups

to established

non-financial

companies expanding into financial services. These industries serve individuals, businesses, and governments and offer products including deposits, lending, cash management, financial advice, and asset management. Products may be distributed through a single distribution channel or across multiple channels, including physical locations, ATMs, and telephone and digital channels. Certain businesses also serve customers through indirect channels. Traditional competitors are embracing new technologies and strengthening their focus on the customer experience.

Non-traditional

competitors have gained momentum and are increasingly collaborating with banks to develop new products and services and enhance the customer experience. The keys to profitability continue to be attracting and retaining customer relationships with legendary service and convenience, offering products and services across multiple distribution channels to meet customers’ evolving needs, investing strategically while maintaining expense discipline, and managing risk prudently.

STRATEGIC OBJECTIVES, ACCOMPLISHMENTS AND PRIORITIES

BUSINESS STRATEGY	BUSINESS HIGHLIGHTS IN 2021
Deliver legendary omni-channel service and convenience	• Named Most Trusted Bank by Investor’s Business Daily for 2021 12 • Ranked #1 in Security and Reputation in Insider Intelligence’s Digital Banking Trust Report 13 • Recognized as the #1 SBA lender by units in the Maine to Florida region (#5 nationally through September 2021) • TD Auto Finance received the highest ranking in the 2021 J.D. Power U.S. Dealer Finance Satisfaction Study 14 • TD Bank ranked #1 in the 2021 J.D. Power Small Business Banking Satisfaction Survey in the South Region. This is the third time TD Bank ranked highest in Customer Satisfaction with Small Business Banking in the South Region. 15
Grow and deepen customer relationships	• Delivered strong year-over-year volume growth, including: –   Personal and Business deposit growth of 19% and 22%, respectively –   Retail Card Services balance growth of 12% –   TD Auto Finance originations of US$1.3 billion, representing growth of 15% • Launched the Double Up Credit Card, an industry-leading cash back offering that enables customers to earn 1% on purchases and a bonus 1% when points are redeemed as cash into a TD deposit account • Merged the products, services and expertise of the Commercial and Corporate & Specialty Banking teams to provide a more comprehensive and scaled offering for commercial customers
Leverage our differentiated brand as the “human” bank	• Facilitated access to SBA PPP financing and subsequent loan forgiveness –   Ranked 7th nationwide for PPP financing, funding approximately 133,000 PPP loans since inception –   Facilitated forgiveness of approximately 97,000 loans with a gross carrying value of US$8.7 billion through October 31, 2021 • Extended 9,400 deferrals of real estate secured loans for customers experiencing financial hardship due to COVID-19, totaling US$2.1 billion since inception • Introduced TD Essential Banking, a low-cost, no-overdraft-fee deposit account, and announced overdraft policy changes to enhance access to mainstream financial services for underserved communities
Innovate with purpose to simplify processes and execute with speed and excellence	• Enhanced our digital capabilities, including the ability to book in-store appointments for retail, small business, and wealth customers in real-time, add debit and credit cards to digital wallets, and view credit card data online and via the app • Achieved a 9% year-over-year increase in digital active users and a 13% year-over-year increase in mobile active users, with total digital users exceeding 5 million, and total digital sales approaching 37% of total dollar sales • Launched robo-advisor (TD Automated Investing) and robo/hybrid (TD Automated Investing Plus) solutions, giving customers access to an affordable, digital platform to fulfil their investment needs • Entered into a data access agreement with Akoya, a U.S. open banking utility, designed to enable customers to share data with Fintechs and aggregators • Launched direct integration with Autobooks to support online banking for small business clients with invoicing and payments
Be a premier destination for top talent	• Recognized with the top score of 100% for the seventh consecutive year on the 2021 Disability Equality Index ® (DEI), a national benchmarking tool for corporate policies and practices related to disability inclusion and workplace equality • Recognized by Forbes as a Best Employer for Diversity in 2021 for the third consecutive year • Earned a Top Team Award and recognition for two executives in American Banker’s 2021 Most Powerful Women Program
Actively support the communities where we operate	• Established a US$100 million equity fund for minority-owned small businesses to provide opportunities in underserved communities and help combat racial inequities • Donated over US$23 million to support our communities through the TD Charitable Foundation and the Ready Challenge

KEY PRIORITIES FOR 2022

• Deepen customer engagement by delivering personalized and connected experiences and elevating our advice proposition across all channels

• Continue to invest in data, digitization and technology to understand and serve our customers better

• Increase efficiency, innovation and speed of delivery to unlock the colleague experience and deliver better customer outcomes

• Grow market share by deepening customer relationships and expanding into attractive markets

• Execute with speed through innovation, automation and process simplification for our colleagues and customers

• Prudently manage risk and meet regulatory expectations

• Be an ESG leader in driving climate and environment initiatives forward, with continued focus on diversity and inclusion

• Be a leader in colleague experience and a premier destination for diverse top talent

12  Ranked #1, per Investor’s Business Daily from a survey completed in July and August 2021

13  Ranked #1, per Insider Intelligence’s Digital Trust report as of Q1 2021

14  J.D. Power 2021 U.S. Dealer Financing Satisfaction Study of dealers’ satisfaction; among companies between 375,000 and 910,000 transactions

15  TD Bank ranked Highest in Customer Satisfaction with Small Business Banking in the South Region in the 2021 J.D. Power Small Business Banking Satisfaction Study

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 21

TABLE 18:  U.S. RETAIL

(millions of dollars, except as noted)
Canadian Dollars		2021			2020			2019
Net interest income	$	8,074		$	8,834		$	8,951
Non-interest income		2,684			2,438			2,840
Total revenue		10,758			11,272			11,791
Provision for (recovery of) credit losses – impaired		438			997			936
Provision for (recovery of) credit losses – performing		(688	)		1,928			146
Total provision for (recovery of) credit losses		(250	)		2,925			1,082
Non-interest expenses		6,417			6,579			6,411
Provision for (recovery of) income taxes		504			(167	)		471
U.S. Retail Bank net income		4,087			1,935			3,827
Share of net income from investment in Schwab and TD Ameritrade 1,2		898			1,091			1,154
Net income	$	4,985		$	3,026		$	4,981
U.S. Dollars
Net interest income	$	6,419		$	6,561		$	6,737
Non-interest income		2,135			1,819			2,139
Total revenue		8,554			8,380			8,876
Provision for (recovery of) credit losses – impaired		344			738			705
Provision for (recovery of) credit losses – performing		(550	)		1,407			109
Total provision for (recovery of) credit losses		(206	)		2,145			814
Non-interest expenses		5,101			4,887			4,826
Provision for (recovery of) income taxes		403			(119	)		355
U.S. Retail Bank net income		3,256			1,467			2,881
Share of net income from investment in Schwab and TD Ameritrade 1,2		711			811			869
Net income		3,967			2,278			3,750
Selected volumes and ratios
Return on common equity 3		13.0	%		7.7	%		12.6	%
Net interest margin 4		2.19			2.69			3.31
Efficiency ratio		59.6			58.3			54.4
Assets under administration (billions of U.S. dollars)	$	30		$	24		$	21
Assets under management (billions of U.S. dollars)		41			39			44
Number of U.S. retail stores		1,148			1,223			1,241
Average number of full-time equivalent staff		25,508			26,380			26,675

1 The Bank’s share of Schwab and TD Ameritrade’s earnings is reported with a one-month lag. Refer to Note 12 of the 2021 Consolidated Financial Statements for further details.

2 The after-tax amounts for amortization of acquired intangibles and the Bank’s share of acquisition and integration charges associated with Schwab’s acquisition of TD Ameritrade are recorded in the Corporate segment.

3 Capital allocated to the business segments was reduced to 9% CET1 effective the second quarter of 2020 compared with 10.5% in the first quarter of 2020 and 10% in 2019.

4 Net interest margin is calculated by dividing U.S. Retail segment’s net interest income by average interest-earning assets excluding the impact related to sweep deposits arrangements and the impact of intercompany deposits and cash collateral, which management believes better reflects segment performance. In addition, the value of tax-exempt interest income is adjusted to its equivalent before-tax value. Net interest income and average interest-earning assets used in the calculation are non-GAAP financial measures. For additional information about the Bank’s use of non-GAAP financial measures, refer to “Non-GAAP and Other Financial Measures” in the “Financial Results Overview” section of this document.

REVIEW OF FINANCIAL PERFORMANCE

U.S. Retail net income for the year was $4,985 million (US$3,967 million), an increase of $1,959 million (US$1,689 million), or 65% (74% in U.S. dollars), compared with last year. The ROE for the year was 13.0%, compared with 7.7%, in the prior year.

U.S. Retail net income includes contributions from the U.S. Retail Bank and the Bank’s investment in Schwab. Net income for the year from the U.S. Retail Bank and the Bank’s investment in Schwab were $4,087 million (US$3,256 million) and $898 million (US$711 million), respectively.

The contribution from the bank’s investment in Schwab of US$711 million decreased US$100 million, or 12%, compared with the contribution from the Bank’s investment in TD Ameritrade last year.

U.S. Retail Bank net income for the year was US$3,256 million, an increase of US$1,789 million, compared with last year primarily reflecting lower PCL and higher

non-interest

income, partially offset by higher expenses and lower net interest income.

U.S. Retail Bank revenue is derived from personal and business banking, and wealth management businesses. Revenue for the year was US$8,554 million, an increase of US$174 million, or 2%. Net interest income decreased US$142 million, or 2%, reflecting lower deposit margins, partially offset by growth in deposit volumes and accelerated fee amortization from PPP loan forgiveness. Net interest margin was 2.19%, a decrease of 50 bps primarily reflecting lower deposit margins slightly offset by PPP loan forgiveness.

Non-interest

income increased US$316 million, or 17%, reflecting fee income growth from increased customer activity, higher valuation of certain investments, and lower losses on

low-income

housing tax credit investments.

Average loan volumes decreased US$2 billion, or 1%, compared with last year, reflecting a 2% decline in business loans as paydowns and lower line usage on commercial loans more than offset the increase in PPP loans, and a 1% decrease in personal loans. Average deposit volumes increased US$55 billion, or 17%, compared with last year, reflecting a 22% increase in business deposit volumes, a 19% increase in personal deposit volumes, and a 13% increase in sweep deposits volumes.

AUA were US$30 billion as at October 31, 2021, an increase of US$6 billion, or 25%, compared with last year, reflecting loan and deposit growth. AUM were US$41 billion as at October 31, 2021, an increase of US$2 billion, or 5%, reflecting market appreciation, partially offset by net asset outflows.

PCL was a recovery of US$206 million, lower by US$2,351 million compared with last year. PCL – impaired was US$344 million, a decrease of US$394 million, or 53%, primarily reflected in the consumer lending portfolios, largely related to improved credit conditions. PCL – performing was a recovery of US$550 million, lower by US$1,957 million, reflecting a performing allowance increase in the prior year, and a release in the current year largely related to improved credit conditions, including a more favourable economic outlook. U.S. Retail PCL including only the Bank’s share of PCL in the U.S. strategic cards portfolio, as an annualized percentage of credit volume was

-0.12%,

a decrease of 142 bps.

Non-interest

expenses for the year were US$5,101 million, an increase of US$214 million, or 4%, compared with last year, primarily reflecting store optimization costs, higher incentive compensation costs, and investments in the business, partially offset by lower legal provisions and productivity savings.

Income taxes reflect a provision of US$403 million, compared to a recovery of US$119 million last year, higher by US$522 million, primarily reflecting higher

pre-tax

income.

The efficiency ratio for the year was 59.6%, compared with 58.3%, in the prior year.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 22

OPERATING ENVIRONMENT AND OUTLOOK

The outlook for U.S. Retail continues to reflect the lingering effects of the

COVID-19

pandemic, including low interest rates and high levels of customer liquidity, as well as labour shortages. Revenue growth from higher personal and commercial deposit volumes and rising customer activity is expected to be moderated by margin pressure including lower income from PPP loan forgiveness, and repatriation of sweep deposits. Provisions for credit losses are expected to increase over the course of the year, reflecting higher volumes and an ongoing normalization of credit conditions. U.S. Retail will maintain its disciplined approach to expense management, while continuing to invest strategically to support organic business growth and generate productivity savings. While earnings are likely to fluctuate from quarter to quarter, we believe that the U.S. Retail Bank is well-positioned to continue growing and deepening customer relationships, leveraging data and insights to deliver legendary experiences and meaningful advice across its distribution channels.

THE CHARLES SCHWAB CORPORATION AND TD AMERITRADE HOLDING CORPORATION

Refer to Note 12 of the 2021 Consolidated Financial Statements for further information on Schwab and TD Ameritrade.

BUSINESS SEGMENT ANALYSIS

Wholesale Banking

Operating under the brand name TD Securities, Wholesale Banking is a leading full-service investment bank offering a wide range of capital markets and corporate and investment banking services to corporate, government, and institutional clients in key global financial centres across North America, Europe and Asia-Pacific.

TABLE 19:  REVENUE

1

(millions of Canadian dollars)		2021		2020		2019
Global markets	$	3,174	$	3,658	$	2,155
Corporate and investment banking		1,457		1,162		1,035
Other		69		138		41
Total	$	4,700	$	4,958	$	3,231

1 Certain comparative amounts have been reclassified to conform with the presentation adopted in the current period.

LINES OF BUSINESS

• Global Markets – sales, trading and research, debt and equity underwriting, client securitization, trade finance, cash management, prime services, and trade execution services 16 .

• Corporate and Investment Banking – corporate lending and syndications, debt and equity underwriting, advisory services, and related activities 16 .

• Other – investment portfolios and other accounting adjustments.

INDUSTRY PROFILE

The wholesale banking sector is a mature, highly competitive market comprised of banks, large global investment firms, and independent niche dealers. Wholesale Banking provides capital markets and corporate and investment banking services to corporate, government, and institutional clients. Changing regulatory requirements continue to impact strategy and returns for the sector. Firms are responding by shifting their focus to client-driven trading revenue and fee income to reduce risk, preserve capital, and generate savings that can be invested in technology to support higher electronic trading. Competition is expected to remain intense for transactions with high-quality clients. Longer term, wholesale banks with a diversified client-focused business model, a full suite of products and services, and the ability to manage costs and capital effectively will be well-positioned to achieve attractive returns for shareholders.

16  Certain revenue streams are shared between Global Markets and Corporate and Investment Banking lines of business in accordance with an established agreement.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 23

STRATEGIC OBJECTIVES, ACCOMPLISHMENTS AND PRIORITIES

BUSINESS STRATEGY	BUSINESS HIGHLIGHTS IN 2021
Continue to build an integrated North American dealer franchise with global reach	• Recognized as a leader in capital markets for expertise and execution capabilities: –   Named Canada’s Best Investment Bank in the 2021 Euromoney Awards –   Named “Most Impressive SSA Coverage Team”, and “Most Impressive SSA House for Post-Libor Solutions” in the GlobalCapital Bond Awards –   Rated Global Outperformer in Cap Intro and Client Services in the 2020 Global Custodian Magazine Survey –   Ranked #1 by EnergyRisk in Base Metals for the second year in a row • Invested in the global expansion of our U.S. dollar strategy, including adding senior leaders in the Private Placement, Leveraged Finance, Communications, Media & Technology, and Sponsor sectors • Continued to strengthen our position as ESG capital markets advisors: –   Selected as one of two Structuring Advisors for the Government of Canada’s inaugural issuance of green bonds –   Served as Joint Lead Manager on the International Finance Facility for Immunization Company (IFFIm) Vaccine Bonds, which provided Gavi, the Vaccine Alliance, with immediately available funding to support routine immunization in lower-income countries –   Acted as one of 5 joint lead managers on the European Union’s EUR 12 billion inaugural green bond, the largest green bond ever issued –   Became the first Canadian dealer to launch ESG-linked structured notes –   Participated in 53 sustainability-linked loans with a total face value of US$116 billion, acting as a sustainability structuring agent on nine of these global transactions
In Canada, be the top-ranked investment dealer	• Maintained our leadership position in Canada: –   #1 in Canadian M&A announced and completed 17 , including several marquee and strategic acquisitions: o    Exclusive financial advisor to Shaw Communications on its $26 billion acquisition by Rogers Communications o    Financial advisor to Cenovus Energy on its $23.6 billion merger with Husky Energy o    Financial advisor to Inter Pipeline on its $16 billion sale to Brookfield Infrastructure o    Financial advisor to Brookfield Infrastructure on its US$4.1 billion sale of EnWave o    Financial advisor to Agnico Eagle on its pending merger with Kirkland Lake Gold for a combined market capitalization of US$24 billion. This represents the 2 nd largest gold M&A transaction ever and the largest gold merger of equals transaction –   #2 in government debt underwriting 18 –   Only Canadian bookrunner on Air Canada’s cross-border high yield issue, acting as Lead Left Bookrunner with sole investor coverage on the $2 billion tranche, the largest Canadian high yield offering ever completed, and a bookrunner on the US$1.2 billion tranche –   Lead Left Bookrunner on Softchoice’s $403 million IPO and joint bookrunner on its $150 million follow-on offering –   Recognized as #1 Canadian Foreign Exchange Services Quality Leader in the Greenwich Associates’ 2021 Canadian Foreign Exchange Services Study for the second year in a row –   Awarded top three ranking for equity research analysts in nine sectors by Brendan Wood International
In the U.S., deliver value and trusted advice in sectors where we have competitive expertise	• Continued to add to our U.S. advisory and execution capability: –   Advised Nasdaq on its acquisition of Verafin for US$2.8 billion –   Financial advisor to EQT Infrastructure on its US$5.3 billion acquisition of Covanta Holding Corporation, a global leader in sustainable disposal solutions that redirect waste from landfills –   Delivered record U.S. notes issuance exceeding US$4 billion –   Onboarded over 45 new clients in Corporate Cash Management and 27 new funds in TD Prime Services
In Europe and Asia-Pacific, leverage our global capabilities to build connected, sustainable franchises	• Launched our Dublin operations to support European clients • Acted as joint lead manager on a EUR 9 billion 15-year social bond for the European Union under its Support to mitigate Unemployment Risks in an Emergency (SURE) program
Continue to grow with and support our TD Retail and Wealth partners	• Launched sales of platinum and new precious metals gifts and collectibles including TD Silver Pride Round and Blue Jays Silver Rounds on the TD Precious Metals website • Added to our distribution channel for precious metals through Verified.Me • Launched trading in bitcoin ETFs for TD direct investing clients
Invest in an efficient and agile infrastructure, innovation and data capabilities, and adapt to industry and regulatory changes	• Accelerated TDS’ innovation and technology strategy and expanded the dealer’s fixed income e-trading capabilities through the acquisition of Headlands Tech Global Markets • Invested in data services and analytics using Bloomberg Enterprise Data • Launched an innovative tool that enables financial institution clients to manage intra-day liquidity • Launched TDS One Portal for research clients
Be an extraordinary and inclusive place to work by attracting, developing, and retaining the best talent	• Raised almost $2 million for children’s charities through the annual Underwriting Hope Campaign • Awarded 14 scholarships to diverse candidates through the annual TDS Bridging the Gap Scholarship • Received a score of 100% in the Human Rights Campaign Corporate Equality Index in the U.S. for the sixth year in a row

17  Source: Refinitiv:12 month trailing

18  Source: Bloomberg: calendar year-to-date, excludes self-led offerings, bonus credit to lead

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 24

KEY PRIORITIES FOR 2022

• Work together with our corporate, government and institutional clients to deliver integrated advice and solutions with the goal of long-term shared success

• Deepen our relationships with sponsor, institutional, prime services, and government clients globally

• Continue to develop ESG expertise and build on our leadership in this space as we support clients with their transition to a low-carbon economy

• Attain top market share in our Canadian franchise

• Continue to grow our U.S. dollar business in sectors where we are competitively positioned, adding new clients, deepening relationships by maturing our product and advice offerings, and investing in talent

• Leverage our North American franchise and global capabilities to grow our Europe and Asia-Pacific businesses

• Continue to invest alongside our Retail and Wealth partners to add products for our clients

• Drive innovation and build data and analytical capabilities to improve end-to-end process efficiency and enhance client value

• Maintain our focus on managing risk, capital, balance sheet, and liquidity

• Continue to be an extraordinary place to work with a focus on inclusion and diversity

TABLE 20:  WHOLESALE BANKING

(millions of Canadian dollars, except as noted)		2021			2020			2019
Net interest income (TEB)	$	2,630		$	1,990		$	911
Non-interest income		2,070			2,968			2,320
Total revenue		4,700			4,958			3,231
Provision for (recovery of) credit losses – impaired		8			279			20
Provision for (recovery of) credit losses – performing		(126	)		229			24
Total provision for (recovery of) credit losses		(118	)		508			44
Non-interest expenses		2,709			2,518			2,393
Provision for (recovery of) income taxes (TEB)		539			514			186
Net income	$	1,570		$	1,418		$	608
Selected volumes and ratios
Trading-related revenue (TEB) 1	$	2,279		$	2,940		$	1,573
Average gross lending portfolio (billions of Canadian dollars) 2		59.3			62.7			49.8
Return on common equity 3		18.9	%		16.9	%		8.3	%
Efficiency ratio		57.6			50.8			74.1
Average number of full-time equivalent staff		4,796			4,589			4,536

1  Trading-related revenue (TEB) is part of the total Bank’s trading-related revenue (TEB) disclosed in Table 10, and is a non-GAAP financial measure. Refer to “Non-GAAP and Other Financial Measures” in the “Financial Results Overview” section and the Glossary of this document for additional information about this metric.

2  Includes gross loans and bankers’ acceptances relating to Wholesale Banking, excluding letters of credit, cash collateral, credit default swaps (CDS), and allowance for credit losses.

3  Capital allocated to the business segment was reduced to 9% CET1 effective the second quarter of 2020 compared with 10.5% in the first quarter of 2020 and 10% in 2019.

REVIEW OF FINANCIAL PERFORMANCE

Wholesale Banking net income for the year was a record $1,570 million, an increase of $152 million, or 11%, compared with the prior year, reflecting lower PCL, partially offset by lower revenue and higher

non-interest

expenses.

Revenue for the year was $4,700 million, a decrease of $258 million, or 5%, compared with the prior year, reflecting lower trading-related revenue, partially offset by higher other and loan revenue and higher advisory and equity underwriting fees.

PCL for the year was a recovery of $118 million, lower by $626 million compared to the prior year. PCL – impaired was $8 million, a decrease of $271 million, primarily reflecting credit migration in the prior year. PCL – performing was a recovery of $126 million, lower by $355 million primarily reflecting a performing allowance increase in the prior year, and a release this year largely related to improved credit conditions, including a more favourable economic outlook.

Non-interest

expenses were $2,709 million, an increase of $191 million, or 8%, compared with the prior year, primarily reflecting higher employee-related costs from continued investment in Wholesale Banking’s U.S. dollar strategy and higher variable compensation.

OPERATING ENVIRONMENT AND OUTLOOK

Looking ahead, the operating environment remains complex, characterized by rising inflation and supply chain pressures, uncertainty over the pace and timing of future central bank rate hikes,

geo-political

and ESG considerations, intensifying competition, and evolving capital and regulatory requirements. These factors may affect corporate and investor sentiment and market and business conditions in a positive or negative manner which makes capital markets results difficult to forecast. We will continue to invest in the U.S. dollar businesses, including adding senior leaders in markets where TD Securities has competitive expertise, and expect to achieve further market share gains. We believe TD Securities’ increasingly diversified and client-focused business model is well positioned to support future growth.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 25

BUSINESS SEGMENT ANALYSIS

Corporate

Corporate segment is comprised of a number of service and control groups. Certain costs relating to these functions are allocated to operating business segments. The basis of allocation and methodologies are reviewed periodically to align with management’s evaluation of the Bank’s business segments.

TABLE 21:  CORPORATE

(millions of Canadian dollars)	2021			2020			2019
Net income (loss) – reported	$	(738	)	$	1,425		$	(766	)
Adjustments for items of note
Amortization of acquired intangibles before income taxes		285			262			307
Acquisition and integration charges related to the Schwab transaction		103			–			–
Net gain on sale of the investment in TD Ameritrade		–			(1,421	)		–
Less: impact of income taxes		37			866			48
Net income (loss) – adjusted 1	$	(387	)	$	(600	)	$	(507	)
Decomposition of items included in net income (loss) – adjusted
Net corporate expenses 2	$	(739	)	$	(833	)	$	(715	)
Other		352			233			190
Non-controlling interests		–			–			18
Net income (loss) – adjusted 1	$	(387	)	$	(600	)	$	(507	)
Selected volumes
Average number of full-time equivalent staff		17,721			17,757			16,884

1 For additional information about the Bank’s use of non-GAAP financial measures, refer to “Non-GAAP and Other Financial Measures” in the “Financial Results Overview” section of this document.

2 For additional information about this metric, refer to the Glossary of this document.

Corporate segment includes expenses related to a number of service and control functions, the impact of treasury and balance sheet management activities, certain tax items at an enterprise level, and intercompany adjustments such as elimination of TEB and the retailer program partners’ share relating to the U.S. strategic cards portfolio.

Corporate segment’s reported net loss for the year was $738 million, compared with reported net income of $1,425 million last year. The year-over-year decrease was primarily attributable to a net gain on sale of the Bank’s investment in TD Ameritrade of $1,421 million ($2,250 million

after-tax)

in the prior year, as well as acquisition and integration charges related to the Schwab transaction in the current year, partially offset by lower net corporate expenses and a higher contribution from other items in the current year. Net corporate expenses decreased $94 million compared to the prior year, largely reflecting $163 million ($121 million

after-tax)

in corporate real estate optimization costs in the prior year. Other items increased $119 million, largely reflecting higher revenue from treasury and balance sheet management activities. The adjusted net loss for the year was $387 million, compared with an adjusted net loss of $600 million last year.

FOCUS FOR 2022

In 2021, the Corporate segment continued to support the Bank’s business segments, execute enterprise and regulatory initiatives, and manage the Bank’s balance sheet and funding activities. In 2022, the Corporate segment’s service and control groups will continue to proactively address the complexities and challenges arising from the operating environment, including infrastructure to respond to changing demands and expectations of customers, communities, colleagues, governments and regulators. Corporate segment will also maintain its focus on the design, development, and implementation of processes, systems, technologies, enterprise and regulatory controls and initiatives to enable the Bank’s businesses to operate efficiently and effectively and in compliance with applicable regulatory requirements.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 26

2020 FINANCIAL RESULTS OVERVIEW

Summary of 2020 Performance

TABLE 22:  REVIEW OF 2020 FINANCIAL PERFORMANCE

1

(millions of Canadian dollars)	Canadian Retail		U.S. Retail			Wholesale Banking		Corporate			Total
Net interest income	$	12,061	$	8,834		$	1,990	$	1,612		$	24,497
Non-interest income		12,272		2,438			2,968		1,471			19,149
Total revenue		24,333		11,272			4,958		3,083			43,646
Provision for (recovery of) credit losses – impaired		1,256		997			279		431			2,963
Provision for (recovery of) credit losses – performing		1,490		1,928			229		632			4,279
Total provision for (recovery of) credit losses		2,746		2,925			508		1,063			7,242
Insurance claims and related expenses		2,886		–			–		–			2,886
Non-interest expenses		10,441		6,579			2,518		2,066			21,604
Net income (loss) before provision for income taxes		8,260		1,768			1,932		(46	)		11,914
Provision for (recovery of) income taxes		2,234		(167	)		514		(1,429	)		1,152
Share of net income from investment in Schwab and TD Ameritrade		–		1,091			–		42			1,133
Net income (loss) – reported		6,026		3,026			1,418		1,425			11,895
Adjustments for items of note, net of income taxes		98		–			–		(2,025	)		(1,927	)
Net income (loss) – adjusted 2	$	6,124	$	3,026		$	1,418	$	(600	)	$	9,968

1 Certain comparative amounts have been reclassified to conform with the presentation adopted in the current period.

2 For additional information about the Bank’s use of non-GAAP financial measures, refer to “Non-GAAP and Other Financial Measures” in the “Financial Results Overview” section of this document.

NET INCOME

Reported income for the year was $11,895 million, an increase of $209 million, or 2%, compared with the prior year. The increase reflects a net gain on sale of the Bank’s investment in TD Ameritrade and charges in the prior year related to the agreement with Air Canada. On an adjusted basis, income for the year was $9,968 million, a decrease of $2,535 million, or 20%, compared with the prior year, reflecting higher PCL, lower revenue in the personal and commercial banking businesses, and higher

non-interest

expenses, partially offset by higher revenue in Wholesale Banking and the wealth and insurance businesses. The reported ROE for the year was 13.6%, compared with 14.5% in the prior year. The adjusted ROE for the year was 11.4%, compared with 15.6% in the prior year.

By segment, the increase in reported net income reflects an increase in the Corporate segment of $2,191 million, and an increase in Wholesale Banking of $810 million, partially offset by a decrease in U.S. Retail of $1,955 million, and a decrease in Canadian Retail of $837 million.

Reported diluted EPS for the year was $6.43, an increase of 3%, compared with $6.25 in the prior year. Adjusted diluted EPS for the year was $5.36, a 20% decrease, compared with $6.69 in the prior year.

Reported revenue was $43,646 million, an increase of $2,581 million, or 6%, compared with the prior year. Adjusted revenue was $42,225 million, an increase of $1,160 million, or 3%, compared with the prior year.

NET INTEREST INCOME

Net interest income for the year was $24,497 million, an increase of $676 million, or 3%, compared with the prior year. The increase reflects higher trading-related net interest income, and volume growth in the personal and commercial banking businesses, partially offset by lower margins.

By segment, the increase in reported net interest income reflects an increase in Wholesale Banking of $1,079 million, and an increase in the Corporate segment of $2 million, partially offset by a decrease in Canadian Retail of $288 million, and a decrease in U.S. Retail of $117 million.

NON-INTEREST

INCOME

Reported

non-interest

income for the year was $19,149 million, an increase of $1,905 million, or 11%, compared with the prior year reflecting the net gain on sale of the Bank’s investment in TD Ameritrade, higher revenue in the wealth and insurance businesses, higher trading-related revenue and fee income in Wholesale Banking, partially offset by lower fee income in the personal and commercial banking businesses.

By segment, the increase in reported

non-interest

income reflects an increase in Corporate of $1,264 million, an increase in Wholesale Banking of $648 million, and an increase in Canadian Retail of $395 million, partially offset by a decrease in U.S. Retail of $402 million.

PROVISION FOR CREDIT LOSSES

PCL for the year was $7,242 million, an increase of $4,213 million, compared with the prior year. PCL – impaired was $2,963 million, an increase of $333 million, or 13%, reflecting credit migration in Wholesale Banking, and higher provisions in the Canadian Retail segment. PCL – performing was $4,279 million, an increase of $3,880 million, primarily related to a significant deterioration in the economic outlook, including the impact of credit migration. Total PCL as a percentage of credit volume was 1%, or an increase of 55 bps.

By segment, the increase in PCL reflects an increase in U.S. Retail of $1,843 million, an increase in Canadian Retail of $1,440 million, an increase in the Corporate segment of $466 million, and an increase in Wholesale Banking of $464 million.

INSURANCE CLAIMS AND RELATED EXPENSES

Insurance claims and related expenses were $2,886 million, an increase of $99 million, or 4%, compared with the prior year. The increase reflects the impact of business growth, an increase in certain current year claims reserves, less favourable prior years’ claims development and more severe weather-related events, partially offset by lower current year claims.

NON-INTEREST

EXPENSES

Reported

non-interest

expenses for the year were $21,604 million, a decrease of $416 million, or 2%, compared with the prior year primarily reflecting charges related to the agreement with Air Canada recorded in the prior year. On an adjusted basis,

non-interest

expenses were $21,338 million, an increase of $253 million, or 1%, reflecting higher spend supporting business initiatives, higher employee-related costs including colleague appreciation awards, corporate real estate optimization costs, and an increase in legal provisions, partially offset by a decline in the retailer program partners’ net share of the profits from the U.S. strategic cards portfolio, a reduction in discretionary spend, and restructuring charges in the prior year.

By segment, the decrease in reported

non-interest

expenses reflects a decrease in the Corporate segment of $415 million, and a decrease in Canadian Retail of $294 million, partially offset by an increase in U.S. Retail of $168 million, and an increase in Wholesale Banking of $125 million.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 27

PROVISION FOR INCOME TAXES

Reported total income and other taxes decreased by $1,675 million, or 38.0%, compared with the prior year, reflecting a decrease in income tax expense of $1,583 million, or 57.9%, and a decrease in other taxes of $92 million, or 5.5%. Adjusted total income and other taxes decreased by $1,021 million from the prior year, or 22.1%, reflecting a decrease in income tax expense of $929 million, or 31.5%.

The Bank’s reported effective tax rate was 9.7% for 2020, compared with 20.7% in the prior year. The year-over-year decrease primarily reflects the impact of the sale of the Bank’s investment in TD Ameritrade, including the

non-taxable

revaluation gain, the release of

non-taxable

cumulative currency translation gains from AOCI, a rate differential on the reclassification to earnings of taxes deferred in AOCI on the designated hedging items, and the release of a deferred tax liability. Other drivers of the lower effective tax rate are lower

pre-tax

income and business mix, partially offset by higher provisions related to changes in tax law. For a reconciliation of the Bank’s effective income tax rate with the Canadian statutory income tax rate, refer to Note 25 of the 2020 Consolidated Financial Statements.

The Bank’s adjusted effective income tax rate for 2020 was 18.8%, compared with 20.8% in the prior year. The year-over-year decrease primarily reflects lower

pre-tax

income and business mix, partially offset by higher provisions related to changes in tax law.

The Bank reported its investment in TD Ameritrade using the equity method of accounting. TD Ameritrade’s tax expense of $378 million in 2020, compared with $389 million in the prior year, was not part of the Bank’s effective tax rate.

BALANCE SHEET

Total assets

were $1,716 billion as at October 31, 2020, an increase of $301 billion, or 21%, from October 31, 2019. The increase reflects cash and interest-bearing deposits with banks of $140 billion, debt securities at amortized cost (DSAC), net of allowance for credit losses of $97 billion, loans net of allowances for loan losses of $33 billion, derivatives of $5 billion, securities purchased under reverse repurchase agreements of $3 billion, investment in Schwab and TD Ameritrade of $3 billion,

non-trading

financial assets at FVTPL of $2 billion, trading loans, securities and other of $2 billion, financial assets designated at FVTPL of $1 billion, and other assets of $23 billion. The increase was partially offset by a decrease in financial assets at fair value through other comprehensive income (FVOCI) of $8 billion. The depreciation in the Canadian dollar from the prior fiscal year end increased assets by $7 billion, or approximately 1%.

Total liabilities

were $1,620 billion as at October 31, 2020, an increase of $293 billion, or 22%, from October 31, 2019. The increase reflects deposits of $248 billion, obligations related to securities sold under repurchase agreements of $63 billion, derivatives of $3 billion, subordinated notes and debentures of $1 billion, and other liabilities of $31 billion. The increase was partially offset by a decrease in financial liabilities designated at FVTPL of $45 billion and trading deposits of $8 billion. The depreciation in the Canadian dollar from the prior fiscal year end increased liabilities by $8 billion, or approximately 1%.

Equity

was $96 billion as at October 31, 2020, an increase of $8 billion, or 9%, from October 31, 2019. The increase reflects growth in retained earnings, higher AOCI reflecting gains on derivatives designated as cash flow hedges, and the issuance of common shares.

2020 FINANCIAL RESULTS OVERVIEW

2020 Financial Performance by Business Line

Canadian Retail

reported net income for the year was $6,026 million, a decrease of $837 million, or 12%, compared with the prior year. The decrease in earnings reflects higher PCL and higher insurance claims, partially offset by revenue growth and higher

non-interest

expenses in the prior year related to the agreement with Air Canada and the acquisition of Greystone. On an adjusted basis, net income for the year was $6,124 million, a decrease of $1,297 million, or 17%. The reported and adjusted annualized ROE for the year was 33.4% and 33.9%, respectively, compared with 38.6% and 41.7%, respectively, in the prior year.

Canadian Retail revenue is derived from the Canadian personal and commercial banking, wealth, and insurance businesses. Revenue for the year was $24,333 million, an increase of $107 million, compared with the prior year reflecting strong growth in wealth and insurance revenue as well as volume driven growth in personal and commercial banking revenue, offset by margin compression from lower interest rates in the year.

Net interest income decreased $288 million, or 2%, reflecting lower margins, partially offset by volume growth. Average loan volumes increased $16 billion, or 4%, reflecting 3% growth in personal loans and 7% growth in business loans. Average deposit volumes increased $46 billion, or 14%, reflecting 11% growth in personal deposits, 15% growth in business deposits, and 28% growth in wealth deposits. Net interest margin was 2.79%, or a decrease of 17 bps, reflecting lower interest rates.

Non-interest

income increased $395 million, or 3%, reflecting higher transaction and

fee-based

revenue in the wealth business, higher insurance revenue, partially offset by lower

fee-based

revenue in the banking businesses reflecting lower customer activity.

AUA were $433 billion as at October 31, 2020, an increase of $11 billion, or 3%, compared with the prior year, reflecting new asset growth. AUM were $358 billion as at October 31, 2020, an increase of $5 billion, or 1%, compared with the prior year, reflecting market appreciation.

PCL for the year was $2,746 million, an increase of $1,440 million, compared with the prior year. PCL – impaired was $1,256 million, an increase of $130 million, or 12%, reflecting higher provisions in the commercial and consumer lending portfolios. PCL – performing was $1,490 million, compared with $180 million in the prior year, primarily related to a significant deterioration in the economic outlook, including the impact of credit migration, with the increase reflected in the consumer and commercial lending portfolios. Annualized PCL as a percentage of credit volume was 0.62%, an increase of 31 bps.

Insurance claims and related expenses were $2,886 million, an increase of $99 million, or 4%, compared with the prior year. The increase reflects the impact of business growth, an increase in certain current year claims reserves, less favourable prior years’ claims development and more severe weather-related events, partially offset by lower current year claims.

Reported

non-interest

expenses for the year were $10,441 million, a decrease of $294 million, or 3%, compared with the prior year. The decrease reflects charges related to the agreement with Air Canada and the acquisition of Greystone in the prior year. On an adjusted basis,

non-interest

expenses were $10,341 million, an increase of $330 million, or 3%, reflecting higher people-related costs including variable compensation, volume-driven expenses and technology investments, partially offset by a reduction in other discretionary spend.

The reported and adjusted efficiency ratio for the year was 42.9% and 42.5%, respectively, compared with 44.3% and 41.3%, respectively, in the prior year.

U.S. Retail

reported net income for the year was $3,026 million (US$2,278 million), a decrease of $1,955 million (US$1,472 million), or 39% (39% in U.S. dollars), compared with the prior year. The ROE for the year was 7.7%, compared with 12.6%, in the prior 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 year from the U.S. Retail Bank and the Bank’s investment in TD Ameritrade were $1,935 million (US$1,467 million) and $1,091 million (US$811 million), respectively.

The contribution from TD Ameritrade of US$811 million decreased US$58 million, or 7%, compared with the prior year, primarily reflecting reduced trading commissions, lower asset-based revenue, and higher operating expenses, partially offset by higher trading volumes.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 28

U.S. Retail Bank net income for the year was US$1,467 million, a decrease of US$1,414 million, or 49%, compared with the prior year, primarily reflecting higher PCL and lower revenue, partially offset by lower tax expense.

U.S. Retail Bank revenue is derived from personal and business banking, and wealth management. Revenue for the year was US$8,380 million, a decrease of US$496 million, or 6%. Net interest income decreased US$176 million, or 3%, as growth in loan and deposit volumes was more than offset by deposit margin compression in the low interest rate environment. Net interest margin was 2.69%, a decrease of 62 bps primarily reflecting lower deposit margins and balance sheet mix.

Non-interest

income decreased US$320 million, or 15%, reflecting lower deposit and credit card activity as well as higher losses on low income housing tax credit investments.

Average loan volumes increased US$12 billion, or 7%, compared with the prior year, reflecting growth in personal and business loans of 6% and 8%, respectively, with significant increases in business loans reflecting increased draws on commercial lines of credit and originations under the SBA PPP. Average deposit volumes increased US$53 billion, or 20%, compared with the prior year, reflecting a 26% increase in business deposit volumes, a 25% increase in sweep deposit volumes, and a 10% increase in personal deposit volumes.

AUA were US$24 billion as at October 31, 2020, an increase of US$3 billion, or 16%, compared with the prior year, reflecting loan and deposit growth. AUM were US$39 billion as at October 31, 2020, a decrease of US$5 billion, or 11%, reflecting net fund outflows.

PCL for the year was US$2,145 million, an increase of US$1,331 million, compared with the prior year. PCL – impaired was US$738 million, an increase of US$33 million, or 5%. PCL – performing was US$1,407 million, an increase of US$1,298 million, primarily related to a significant deterioration in the economic outlook, including the impact of credit migration, and predominantly 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 1.30%, or an increase of 78 bps.

Non-interest

expenses for the year were US$4,887 million, an increase of US$61 million, or 1%, compared with the prior year, primarily reflecting increases in legal provisions, employee-related expenses, and costs to support customers and employees during the

COVID-19

pandemic, partially offset by productivity savings and restructuring charges incurred in the prior year.

Income taxes reflect a recovery of US$119 million, compared to a provision of US$355 million in the prior year, a decrease of US$474 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 reported and adjusted efficiency ratios for the year were 58.3%, compared with 54.4%, in the prior year.

Wholesale Banking

net income for the year was a record $1,418 million, an increase of $810 million, compared with the prior year reflecting higher revenue, partially offset by higher PCL and higher

non-interest

expenses.

Revenue for the year was $4,958 million, an increase of $1,727 million, or 53%, compared with the prior year reflecting higher trading-related revenue, higher underwriting fees, and higher loan fees.

PCL for the year was $508 million, an increase of $464 million compared to the prior year. PCL – impaired was $279 million reflecting credit migration largely in the oil and gas sector. PCL – performing was $229 million, primarily related to a significant deterioration in the economic outlook, including the impact of credit migration.

Non-interest

expenses were $2,518 million, an increase of $125 million, or 5%, compared with the prior year. The increase reflects higher variable compensation, higher volume related expenses, and the impact of foreign exchange translation.

Corporate segment

reported net income for the year was $1,425 million, compared with a reported net loss of $766 million in the prior year. The year-over-year increase was primarily attributable to a net gain on sale of the Bank’s investment in TD Ameritrade of $1,421 million ($2,250 million

after-tax),

as well as a higher contribution from other items, partially offset by higher net corporate expenses in the current year and a contribution from

non-controlling

interests in the prior year. Other items increased reflecting the impact of legal provisions and the negative impact of tax items in the prior year, partially offset by lower contribution from treasury and balance sheet management activities. Net corporate expenses increased primarily reflecting the impact of corporate real estate optimization costs of $163 million in the current year, partially offset by restructuring charges of $51 million in the prior year. The adjusted net loss for the year was $600 million, compared with an adjusted net loss of $507 million in the prior year.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 29

GROUP FINANCIAL CONDITION

Balance Sheet Review

TABLE 23:  CONDENSED CONSOLIDATED BALANCE SHEET ITEMS

(millions of Canadian dollars)				As at
		October 31, 2021		October 31, 2020
Assets
Cash and Interest-bearing deposits with banks	$	165,893	$	170,594
Trading loans, securities, and other		147,590		148,318
Non-trading financial assets at fair value through profit or loss		9,390		8,548
Derivatives		54,427		54,242
Financial assets designated at fair value through profit or loss		4,564		4,739
Financial assets at fair value through other comprehensive income		79,066		103,285
Debt securities at amortized cost, net of allowance for credit losses		268,939		227,679
Securities purchased under reverse repurchase agreements		167,284		169,162
Loans, net of allowance for loan losses		722,622		717,523
Investment in Schwab		11,112		12,174
Other		97,785		99,601
Total assets	$	1,728,672	$	1,715,865
Liabilities
Trading deposits	$	22,891	$	19,177
Derivatives		57,122		53,203
Financial liabilities designated at fair value through profit or loss		113,988		59,665
Deposits		1,125,125		1,135,333
Obligations related to securities sold under repurchase agreements		144,097		188,876
Subordinated notes and debentures		11,230		11,477
Other		154,401		152,635
Total liabilities		1,628,854		1,620,366
Total equity		99,818		95,499
Total liabilities and equity	$	1,728,672	$	1,715,865

Total assets

were $1,729 billion as at October 31, 2021, an increase of $13 billion, or 1%, from October 31, 2020. The impact of foreign exchange translation from the appreciation in the Canadian dollar decreased total assets by $56 billion, or approximately 3%.

The increase in total assets reflects DSAC, net of allowance for credit losses of $41 billion, loans, net of allowances for loan losses of $5 billion and

non-trading

financial assets at FVTPL of $1 billion. The increase was partially offset by a decrease in financial assets at FVOCI of $24 billion, cash and interest-bearing deposits with banks of $5 billion, securities purchased under reverse repurchase agreements of $2 billion, trading loans, securities, and other of $1 billion, other assets of $1 billion and investment in Schwab of $1 billion.

Cash and interest-bearing deposits with banks

decreased $5 billion primarily reflecting the impact of foreign exchange translation and cash management activities.

Trading loans, securities, and other

decreased $1 billion primarily reflecting a decrease in government-related securities and the impact of foreign exchange translation, partially offset by an increase in equity securities.

Non-trading

financial assets at fair value through profit or loss

increased $1 billion reflecting new investments, partially offset by maturities.

Financial assets at fair value through other comprehensive income

decreased $24 billion reflecting maturities and the impact of foreign exchange translation, partially offset by new investments.

Debt securities at amortized cost, net of allowance for credit losses

increased $41 billion reflecting new investments, partially offset by maturities and the impact of foreign exchange translation.

Securities purchased under reverse repurchase agreements

decreased$2 billionreflecting the impact of foreign exchange translation, partially offset by an increase in volume.

Loans, net of allowance for loan losses

increased $5 billion primarily reflecting volume growth in real estate secured lending, partially offset by the impact of foreign exchange translation.

Investment in Schwab

decreased $1 billion primarily reflecting the impact of foreign exchange translation.

Other

assets decreased $1 billion primarily reflecting the impact of foreign exchange translation.

Total liabilities

were $1,629 billion as at October 31, 2021, an increase of $9 billion, or 1%, from October 31, 2020. The impact of foreign exchange translation from the appreciation in the Canadian dollar decreased total liabilities by $59 billion, or approximately 4%.

The increase in total liabilities reflects financial liabilities designated at FVTPL of $54 billion, derivatives of $4 billion, trading deposits of $4 billion

and other liabilities of $2 billion. The increase was partially offset by a decrease in obligations related to securities sold under repurchase agreements of $45 billion and deposits of $10 billion.

Trading deposits

increased $4 billion reflecting new issuances, partially offset by maturities.

Derivative

liabilities increased $4 billion primarily reflecting mark-to-market losses on foreign exchange contracts and equity contracts, partially offset by mark-to-market gains on interest rate contracts and the impact of foreign exchange translation.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 30

Financial liabilities designated at fair value through profit or loss

increased $54 billion reflecting new issuances, partially offset by maturities.

Deposits

decreased $10 billion as the increase in total deposits was more than offset by the impact of foreign exchange translation.

Obligations related to securities sold under repurchase agreements

decreased $45 billion primarily reflecting a decrease in volume.

Other

liabilities increased $2 billion primarily reflecting an increase in obligations related to securities sold short, partially offset by the impact of foreign exchange translation.

Equity

was $100 billion as at October 31, 2021, an increase of $4 billion, or 5%, from October 31, 2020. The increase primarily reflects an increase in retained earnings, partially offset by the impact of foreign exchange translation.

GROUP FINANCIAL CONDITION

Credit Portfolio Quality

AT A GLANCE OVERVIEW

• Loans and acceptances, net of allowance for loan losses were $743 billion, an increase of $8 billion compared with last year.

• Impaired loans net of Stage 3 allowances were $1,782 million, a decrease of $541 million compared with last year.

• Provision for credit losses was a recovery of $224 million, compared with provisions of $7,242 million last year.

• Total allowance for credit losses including off-balance sheet positions decreased by $2,129 million to $7,255 million.

LOAN PORTFOLIO

The Bank increased its credit portfolio net of allowance for loan losses by $8 billion, or 1%, from the prior year, primarily reflecting volume growth in the Canadian portfolios, partially offset by the impact of foreign exchange, and repayments in the U.S. business and government portfolio, largely attributable to the PPP.

While the majority of the Bank’s credit risk exposure is related to loans and acceptances, the Bank also engaged in activities that have

off-balance

sheet credit risk. These include credit instruments and derivative financial instruments, as explained in Note 31 of the 2021 Consolidated Financial Statements.

CONCENTRATION OF CREDIT RISK

The Bank’s loan portfolio continued to be concentrated in Canadian and U.S. residential mortgages, consumer instalment and other personal loans, and credit card loans, representing 66% of total loans net of Stage 3 allowances, up 3% from 2020. During the year, these portfolios increased by $19 billion, or 4%, and totalled $488 billion at year end. Residential mortgages represented 36% of total loans net of Stage 3 allowances in 2021, up 2% from 2020. Consumer instalment and other personal loans, and credit card loans were 30% of total loans net of Stage 3 allowances in 2021, up 1% from 2020.

The Bank’s business and government credit exposure was 34% of total loans net of Stage 3 allowances, down 3% from 2020. The largest business and government sector concentrations in Canada were the Real estate and Financial sectors, which comprised 6% and 2% of net loans, respectively. Real estate and Financial sectors were the largest U.S. sector concentrations in 2021, representing 4% and 2% of net loans, respectively.

Geographically, the credit portfolio remained concentrated in Canada. In 2021, the percentage of loans net of Stage 3 allowances held in Canada was 69%, up 4% from 2020. The largest Canadian regional exposure was in Ontario, which represented 40% of total loans net of Stage 3 allowances for 2021, compared with 38% in the prior year.

The remaining credit portfolio was predominantly in the U.S., which represented 30% of loans net of Stage 3 allowances, down 4% from 2020. Exposures to ACI loans, and other geographic regions were relatively small. The largest U.S. regional exposures were in New York, New England, and New Jersey which represented 6%, 5%, and 4% of total loans net of Stage 3 allowances, respectively, compared with 6%, 6%, and 5% in the prior year.

Under IFRS 9,

Financial Instruments

(IFRS 9), the Bank calculates allowances for expected credit losses (ECLs) on DSAC and debt securities at FVOCI. The Bank has $341,806 million in such debt securities of which $341,806 million are performing securities (Stage 1 and 2) and none are impaired. The allowance for credit losses on DSAC and debt securities at FVOCI was $2 million and $7 million, respectively.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 31

TABLE 24:  LOANS AND ACCEPTANCES, NET OF STAGE 3 ALLOWANCE FOR LOAN LOSSES BY INDUSTRY SECTOR

1,2

(millions of Canadian dollars, except as noted)											As at			Percentage of total
					October 31 2021			October 31 2020			October 31 2019			October 31 2021			October 31 2020			October 31 2019
	Gross loans		Stage 3 allowances for loan losses impaired		Net loans			Net loans			Net loans
Canada
Residential mortgages	$	231,675	$	33	$	231,642		$	213,196		$	200,925			31.0	%		28.7	%		28.5	%
Consumer instalment and other personal
HELOC 3		101,933		20		101,913			94,814			91,040			13.6			12.8			12.9
Indirect Auto		27,580		39		27,541			27,311			25,644			3.7			3.7			3.6
Other		19,257		28		19,229			18,239			18,410			2.6			2.4			2.6
Credit card		15,149		49		15,100			15,479			18,358			2.0			2.1			2.6
Total personal		395,594		169		395,425			369,039			354,377			52.9			49.7			50.2
Real estate
Residential		24,716		1		24,715			22,697			19,795			3.3			3.1			2.8
Non-residential		18,841		1		18,840			17,513			15,827			2.5			2.4			2.2
Total real estate		43,557		2		43,555			40,210			35,622			5.8			5.5			5.0
Agriculture		9,060		2		9,058			8,652			8,126			1.2			1.2			1.2
Automotive		4,997		12		4,985			5,166			6,590			0.7			0.7			0.9
Financial		15,134		–		15,134			14,012			16,633			2.0			1.8			2.5
Food, beverage, and tobacco		2,583		1		2,582			2,282			2,424			0.3			0.3			0.3
Forestry		577		–		577			529			657			0.1			0.1			0.1
Government, public sector entities, and education		2,892		19		2,873			3,564			3,358			0.4			0.5			0.5
Health and social services		8,442		11		8,431			7,745			7,134			1.1			1.0			1.0
Industrial construction and trade contractors		4,615		74		4,541			3,488			3,478			0.6			0.5			0.5
Metals and mining		1,661		3		1,658			1,514			1,668			0.2			0.2			0.2
Pipelines, oil, and gas		3,882		22		3,860			4,933			4,641			0.5			0.7			0.7
Power and utilities		2,542		–		2,542			1,856			1,961			0.3			0.2			0.3
Professional and other services		4,375		15		4,360			5,299			4,674			0.6			0.7			0.7
Retail sector		3,705		66		3,639			3,452			3,592			0.5			0.5			0.5
Sundry manufacturing and wholesale		2,759		5		2,754			2,296			2,685			0.4			0.3			0.4
Telecommunications, cable, and media		2,694		2		2,692			2,996			2,852			0.4			0.4			0.4
Transportation		3,306		11		3,295			2,605			2,209			0.4			0.4			0.3
Other		5,321		7		5,314			4,606			4,156			0.7			0.6			0.6
Total business and government		122,102		252		121,850			115,205			112,460			16.2			15.6			16.1
Total Canada		517,696		421		517,275			484,244			466,837			69.1			65.3			66.3
United States
Residential mortgages		36,573		18		36,555			38,808			34,475			4.9			5.2			4.9
Consumer instalment and other personal
HELOC		8,726		26		8,700			10,893			11,489			1.2			1.5			1.6
Indirect Auto		31,550		23		31,527			33,048			32,428			4.3			4.4			4.6
Other		769		3		766			941			1,113			0.1			0.1			0.2
Credit card		15,584		89		15,495			16,646			17,877			2.1			2.3			2.6
Total personal		93,202		159		93,043			100,336			97,382			12.6			13.5			13.9
Real estate
Residential		9,242		4		9,238			10,195			8,875			1.2			1.3			1.3
Non-residential		21,522		9		21,513			25,217			24,249			2.8			3.3			3.4
Total real estate		30,764		13		30,751			35,412			33,124			4.0			4.6			4.7
Agriculture		737		–		737			899			736			0.1			0.1			0.1
Automotive		4,210		–		4,210			6,580			6,809			0.6			0.9			1.0
Financial		16,337		–		16,337			13,062			7,215			2.2			1.8			1.0
Food, beverage, and tobacco		3,017		3		3,014			3,461			3,705			0.4			0.5			0.5
Forestry		467		–		467			517			699			0.1			0.1			0.1
Government, public sector entities, and education		14,034		1		14,033			14,725			12,597			1.8			2.0			1.8
Health and social services		13,736		1		13,735			16,039			13,175			1.8			2.2			2.0
Industrial construction and trade contractors		2,366		4		2,362			3,611			2,234			0.3			0.5			0.3
Metals and mining		1,454		1		1,453			1,891			1,887			0.2			0.3			0.3
Pipelines, oil, and gas		1,893		7		1,886			4,502			4,554			0.3			0.6			0.6
Power and utilities		2,976		–		2,976			2,995			3,052			0.4			0.4			0.4
Professional and other services		11,671		6		11,665			14,308			11,723			1.6			1.9			1.7
Retail sector		5,367		8		5,359			7,616			5,866			0.7			1.0			0.8
Sundry manufacturing and wholesale		6,223		2		6,221			7,926			8,887			0.8			1.1			1.3
Telecommunications, cable, and media		3,212		–		3,212			3,707			4,755			0.4			0.5			0.7
Transportation		6,997		2		6,995			8,956			10,164			0.9			1.2			1.4
Other		2,290		1		2,289			2,184			2,432			0.3			0.3			0.3
Total business and government		127,751		49		127,702			148,391			133,614			16.9			20.0			19.0
Total United States		220,953		208		220,745			248,727			230,996			29.5			33.5			32.9
International
Personal		34		–		34			12			12			–			–			–
Business and government		10,227		–		10,227			9,206			5,781			1.4			1.2			0.8
Total international		10,261		–		10,261			9,218			5,793			1.4			1.2			0.8
Total excluding other loans		748,910		629		748,281			742,189			703,626			100.0			100.0			100.0
Other loans
Acquired credit-impaired loans 4		152		6		146			222			301			–			–			–
Total other loans		152		6		146			222			301			–			–			–
Total	$	749,062	$	635	$	748,427		$	742,411		$	703,927			100.0	%		100.0	%		100.0	%
Stage 1 and Stage 2 allowance for loan losses – performing
Personal, business and government						5,755			7,446			3,701
Total, net of allowance					$	742,672		$	734,965		$	700,226
Percentage change over previous year – loans and acceptances, net of Stage 3 allowance for loan losses (impaired)						0.8	%		5.5	%		5.2	%
Percentage change over previous year – loans and acceptances, net of allowance						1.0			5.0			5.1

1 Primarily based on the geographic location of the customer’s address.

2 Includes loans that are measured at FVOCI.

3  Home equity line of credit.

4 Includes Federal Deposit Insurance Corporation (FDIC) covered loans and other ACI loans.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 32

TABLE 25:  LOANS AND ACCEPTANCES, NET OF STAGE 3 ALLOWANCE FOR LOAN LOSSES BY GEOGRAPHY

1,2

(millions of Canadian dollars, except as noted)												As at		Percentage of total
						October 31 2021			October 31 2020			October 31 2019		October 31 2021		October 31 2020		October 31 2019
	Gross loans		Stage 3 allowances for loan losses impaired		Net loans			Net loans			Net loans
Canada
Atlantic provinces	$	12,875	$	7	$	12,868		$	12,767		$	12,722		1.7	%	1.7	%	1.8	%
British Columbia 3		78,461		26		78,435			70,245			67,415		10.5		9.5		9.6
Ontario 3		301,048		312		300,736			279,355			271,220		40.2		37.6		38.5
Prairies 3		83,009		58		82,951			81,203			75,932		11.1		10.9		10.8
Québec		42,303		18		42,285			40,674			39,548		5.6		5.6		5.6
Total Canada		517,696		421		517,275			484,244			466,837		69.1		65.3		66.3
United States
Carolinas (North and South)		12,600		13		12,587			13,483			12,711		1.7		1.8		1.8
Florida		18,672		19		18,653			20,314			18,181		2.5		2.7		2.6
New England 4		35,446		24		35,422			42,465			42,508		4.7		5.7		6.0
New Jersey		27,854		20		27,834			35,425			31,504		3.7		4.8		4.5
New York		43,330		33		43,297			46,154			40,382		5.8		6.2		5.7
Pennsylvania		12,973		11		12,962			15,267			12,999		1.7		2.1		1.9
Other		70,078		88		69,990			75,619			72,711		9.4		10.2		10.4
Total United States		220,953		208		220,745			248,727			230,996		29.5		33.5		32.9
International
Europe		4,212		–		4,212			3,229			2,634		0.6		0.4		0.4
Other		6,049		–		6,049			5,989			3,159		0.8		0.8		0.4
Total international		10,261		–		10,261			9,218			5,793		1.4		1.2		0.8
Total excluding other loans		748,910		629		748,281			742,189			703,626		100.0		100.0		100.0
Other loans		152		6		146			222			301		–		–		–
Total	$	749,062	$	635	$	748,427		$	742,411		$	703,927		100.0	%	100.0	%	100.0	%
Stage 1 and Stage 2 allowances						5,755			7,446			3,701
Total, net of allowance					$	742,672		$	734,965		$	700,226
Percentage change over previous year – loans and acceptances, net of Stage 3 allowances for loan losses (impaired)						2021			2020			2019
Canada						6.8	%		3.7	%		4.9	%
United States						(11.3	)		7.7			5.8
International						11.3			59.1			5.7
Other loans						(34.2	)		(26.3	)		(30.8	)
Total						1.0	%		5.0	%		5.1	%

1 Primarily based on the geographic location of the customer’s address.

2  Includes loans that are measured at FVOCI.

3  The territories are included as follows: Yukon is included in British Columbia; Nunavut is included in Ontario; and Northwest Territories is included in the Prairies region.

4  The states included in New England are as follows: Connecticut, Maine, Massachusetts, New Hampshire, and Vermont.

REAL ESTATE SECURED LENDING

Retail real estate secured lending includes mortgages and lines of credit to North American consumers to satisfy financing needs including home purchases and refinancing. While the Bank retains first lien on the majority of properties held as security, there is a small portion of loans with second liens, but most of these are behind a TD mortgage that is in first position. In Canada, credit policies are designed so that the combined exposure of all uninsured facilities on one property does not exceed 80% of the collateral value at origination. Lending at a higher loan-to-value ratio is permitted by legislation but requires default insurance. This insurance is contractual coverage for the life of eligible facilities and protects the Bank’s real estate secured lending portfolio against potential losses caused by borrowers’ default. The Bank may also purchase default insurance on lower loan-to-value ratio loans. The insurance is provided by either government-backed entities or approved private mortgage insurers. In the U.S., for residential mortgage originations, mortgage insurance is usually obtained from either government-backed entities or approved private mortgage insurers when the loan-to-value exceeds 80% of the collateral value at origination.

The Bank regularly performs stress tests on its real estate lending portfolio as part of its overall stress testing program. This is done with a view to determine the extent to which the portfolio would be vulnerable to a severe downturn in economic conditions. The effect of severe changes in house prices, interest rates, and unemployment levels are among the factors considered when assessing the impact on credit losses and the Bank’s overall profitability. A variety of portfolio segments, including dwelling type and geographical regions, are examined during the exercise to determine whether specific vulnerabilities exist.

Canadian minimum qualifying rate for uninsured and insured mortgages

On May 20, 2021, OSFI announced changes to the minimum qualifying rate for uninsured mortgages. In addition, the Department of Finance announced changes to the qualifying rate for insured mortgages. Effective June 1, 2021, the new benchmark rate is the greater of the mortgage contractual rate plus 2% or 5.25% for both uninsured and insured mortgages. The previous uninsured benchmark rate was the greater of the mortgage contractual rate plus 2% or the Bank of Canada five-year benchmark rate. The previous insured benchmark rate was the greater of the mortgage contractual rate or the Bank of Canada five-year benchmark rate.

TABLE 26:  CANADIAN REAL ESTATE SECURED LENDING

1

(millions of Canadian dollars)										As at
		Amortizing						Non-amortizing		Total real estate secured lending
		Residential Mortgages		Home equity lines of credit		Total amortizing real estate secured lending		Home equity lines of credit
										October 31, 2021
Total	$	231,675	$	71,016	$	302,691	$	30,917	$	333,608
										October 31, 2020
Total	$	213,239	$	61,790	$	275,029	$	33,048	$	308,077

1 Excludes loans classified as trading as the Bank intends to sell the loans immediately or in the near term, and loans designated at FVTPL for which no allowance is recorded.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 33

TABLE 27: REAL ESTATE SECURED LENDING

1,2

(millions of Canadian dollars, except as noted)																							As at
	Residential mortgages								Home equity lines of credit								Total
	Insured 3				Uninsured				Insured 3				Uninsured				Insured 3				Uninsured
																	October 31, 2021
Canada
Atlantic provinces	$	3,007	1.3	%	$	3,575	1.5	%	$	265	0.3	%	$	1,451	1.4	%	$	3,272	1.0	%	$	5,026		1.5	%
British Columbia 4		9,522	4.1			37,169	16.0			1,446	1.4			17,738	17.4			10,968	3.3			54,907		16.5
Ontario 4		25,603	11.1			94,913	41.1			5,173	5.1			52,977	52.0			30,776	9.1			147,890		44.3
Prairies 4		20,590	8.9			17,244	7.4			2,425	2.4			11,314	11.1			23,015	6.9			28,558		8.6
Québec		8,138	3.5			11,914	5.1			841	0.8			8,303	8.1			8,979	2.7			20,217		6.1
Total Canada		66,860	28.9	%		164,815	71.1	%		10,150	10.0	%		91,783	90.0	%		77,010	23.0	%		256,598		77.0	%
United States		868				35,797				–				8,736				868				44,533
Total	$	67,728			$	200,612			$	10,150			$	100,519			$	77,878			$	301,131
																							October 31, 2020
Canada
Atlantic provinces	$	3,218	1.5	%	$	3,108	1.5	%	$	316	0.3	%	$	1,337	1.4	%	$	3,534	1.1	%	$	4,445		1.4	%
British Columbia 4		10,142	4.8			30,416	14.3			1,670	1.8			16,192	17.1			11,812	3.8			46,608		15.1
Ontario 4		28,818	13.5			80,096	37.4			5,925	6.2			47,361	50.0			34,743	11.3			127,457		41.5
Prairies 4		21,741	10.2			16,750	7.9			2,726	2.9			11,260	11.9			24,467	7.9			28,010		9.1
Québec		8,520	4.0			10,430	4.9			993	1.0			7,058	7.4			9,513	3.1			17,488		5.7
Total Canada		72,439	34.0	%		140,800	66.0	%		11,630	12.2	%		83,208	87.8	%		84,069	27.2	%		224,008		72.8	%
United States		1,008				37,972				–				10,953				1,008				48,925
Total	$	73,447			$	178,772			$	11,630			$	94,161			$	85,077			$	272,933

1 Geographic location is based on the address of the property mortgaged.

2 Excludes loans classified as trading as the Bank intends to sell the loans immediately or in the near term, and loans designated at FVTPL for which no allowance is recorded.

3 Default insurance is contractual coverage for the life of eligible facilities whereby the Bank’s exposure to real estate secured lending, all or in part, is protected against potential losses caused by borrower default. It is provided by either government-backed entities or other approved private mortgage insurers.

4 The territories are included as follows: Yukon is included in British Columbia; Nunavut is included in Ontario; and the Northwest Territories is included in the Prairies region.

The following table provides a summary of the Bank’s residential mortgages by remaining amortization period. All figures are calculated based on current customer payment behaviour in order to properly reflect the propensity to prepay by borrowers. The current customer payment basis accounts for any accelerated payments made

to-date

and projects remaining amortization based on existing balance outstanding and current payment terms.

TABLE 28:  RESIDENTIAL MORTGAGES BY REMAINING AMORTIZATION

1,2

																	As at
	<5 years		5– <10 years		10– <15 years		15– <20 years		20– <25 years		25– <30 years		30– <35 years		>=35 years		Total
													October 31, 2021
Canada	0.9	%	3.1	%	6.6	%	19.0	%	41.9	%	28.2	%	0.3	%	–	%	100.0	%
United States	8.4		3.2		4.6		5.6		17.7		58.3		2.0		0.2		100.0
Total	1.9	%	3.2	%	6.3	%	17.2	%	38.4	%	32.4	%	0.6	%	–	%	100.0	%
													October 31, 2020
Canada	0.9	%	3.4	%	6.9	%	20.0	%	44.7	%	23.3	%	0.8	%	–	%	100.0	%
United States	5.3		4.5		4.6		6.0		20.8		56.3		2.3		0.2		100.0
Total	1.6	%	3.5	%	6.5	%	17.8	%	41.2	%	28.4	%	1.0	%	–	%	100.0	%

1 Excludes loans classified as trading as the Bank intends to sell the loans immediately or in the near term, and loans designated at FVTPL for which no allowance is recorded.

2 Percentage based on outstanding balance.

TABLE 29:  UNINSURED AVERAGE

LOAN-TO-VALUE

– Newly Originated and Newly Acquired

1,2,3

										For the 12 months ended
	October 31, 2021									October 31, 2020
	Residential mortgages			Home equity lines of credit 4,5			Total			Residential mortgages			Home equity lines of credit 4,5			Total
Canada
Atlantic provinces		73	%		71	%		72	%		74	%		71	%		73	%
British Columbia 6		68			65			67			68			63			66
Ontario 6		68			66			67			68			66			67
Prairies 6		74			71			73			74			71			72
Québec		73			72			72			73			72			73
Total Canada		69			67			68			69			66			68
United States		72			63			70			71			62			69
Total		69	%		66	%		68	%		69	%		66	%		68	%

1 Geographic location is based on the address of the property mortgaged.

2 Excludes loans classified as trading as the Bank intends to sell the loans immediately or in the near term, and loans designated at FVTPL for which no allowance is recorded.

3 Based on house price at origination.

4 HELOC loan-to-value includes first position collateral mortgage if applicable.

5 HELOC fixed rate advantage option is included in loan-to-value calculation.

6 The territories are included as follows: Yukon is included in British Columbia; Nunavut is included in Ontario; and the Northwest Territories is included in the Prairies region.

IMPAIRED LOANS

A loan is considered impaired and migrates to Stage 3 when it is 90 days or more past due for retail exposures, rated BRR 9 for

non-retail

exposures, or when there is objective evidence that there has been a deterioration of credit quality to the extent that the Bank no longer has reasonable assurance as to the timely collection of the full amount of principal and interest. Gross impaired loans excluding ACI loans decreased $746 million, or 24%, compared with the prior year.

In Canada, impaired loans net of Stage 3 allowances decreased by $318 million, or 38% in 2021. Residential mortgages, consumer instalment and other personal loans, and credit cards, had net impaired loans of $352 million, a decrease of $209 million, or 37%, impacted by improved credit conditions, and largely reflected in the residential mortgage and home equity line of credit portfolios. Business and government impaired loans net of Stage 3 allowances were $161 million, a decrease of $109 million, or 40%, compared with the prior year, largely reflecting resolutions outpacing new formations.

In the U.S., net impaired loans decreased by $223 million, or 15% in 2021. Residential mortgages, consumer instalment and other personal loans, and credit cards, had net impaired loans of $921 million, a decrease of $179 million, or 16%, compared with the prior year largely reflecting improvement in credit conditions

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 34

and the impact of foreign exchange. Business and government net impaired loans were $348 million, a decrease of $44 million, or 11%, compared with the prior year reflecting resolutions outpacing new formations, and the impact of foreign exchange.

Geographically, 29% of total net impaired loans were located in Canada and 71% in the U.S. The largest regional concentration of net impaired loans in Canada was in Ontario, representing 14% of total net impaired loans, compared with 18% in the prior year. The largest regional concentration of net impaired loans in the U.S. was in New York, representing 18% of total net impaired loans, compared with 14% in the prior year.

TABLE 30:  CHANGES IN GROSS IMPAIRED LOANS AND ACCEPTANCES

1,2,3

(millions of Canadian dollars)	2021			2020			2019
Personal, Business and Government Loans
Impaired loans as at beginning of period	$	3,157		$	3,032		$	3,154
Classified as impaired during the period		3,839			6,305			6,037
Transferred to performing during the period		(938	)		(1,138	)		(1,272	)
Net repayments		(1,322	)		(1,553	)		(1,492	)
Disposals of loans		(18	)		(67	)		(292	)
Amounts written off		(2,173	)		(3,436	)		(3,175	)
Exchange and other movements		(134	)		14			72
Impaired loans as at end of year	$	2,411		$	3,157		$	3,032

1  Includes customers’ liability under acceptances.

2  Excludes ACI loans.

3  Includes loans that are measured at FVOCI.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 35

TABLE 31:  IMPAIRED LOANS NET OF STAGE 3 ALLOWANCE FOR LOAN LOSSES BY INDUSTRY SECTOR

1,2,3,4

(millions of Canadian dollars, except as noted)																	As at			Percentage of total
	Oct. 31 2021							Oct. 31 2020			Oct. 31 2019			Oct. 31 2018			Oct. 31 2017			Oct. 31 2021			Oct. 31 2020			Oct. 31 2019			Oct. 31 2018			Oct. 31 2017
	Gross impaired loans		Stage 3 allowances for loan losses impaired		Net impaired loans			Net impaired loans			Net impaired loans			Net impaired loans			Net impaired loans
Canada
Residential mortgages	$	233	$	33	$	200		$	333		$	253		$	246		$	279			11.2	%		14.3	%		11.0	%		10.0	%		11.6	%
Consumer instalment and other personal
HELOC		121		20		101			177			134			118			102			5.7			7.6			5.8			4.8			4.3
Indirect Auto		51		39		12			21			29			23			11			0.7			0.9			1.3			0.9			0.5
Other		39		28		11			–			9			12			19			0.6			–			0.4			0.5			0.8
Credit card 5		77		49		28			30			66			55			51			1.6			1.3			2.9			2.2			2.1
Total personal		521		169		352			561			491			454			462			19.8			24.1			21.4			18.4			19.3
Real estate
Residential		2		1		1			7			2			3			3			0.1			0.3			0.1			0.1			0.1
Non-residential		3		1		2			6			2			2			3			0.1			0.3			0.1			0.1			0.1
Total real estate		5		2		3			13			4			5			6			0.2			0.6			0.2			0.2			0.2
Agriculture		10		2		8			16			13			4			5			0.4			0.7			0.6			0.2			0.2
Automotive		18		12		6			16			25			9			2			0.3			0.7			1.1			0.4			0.1
Financial		–		–		–			–			1			2			–			–			–			–			0.1			–
Food, beverage, and tobacco		5		1		4			5			2			1			1			0.2			0.2			0.1			–			–
Forestry		1		–		1			–			–			1			–			0.1			–			–			–			–
Government, public sector entities, and education		19		19		–			–			–			–			–			–			–			–			–			–
Health and social services		33		11		22			21			4			4			11			1.2			0.9			0.2			0.2			0.5
Industrial construction and trade contractors		101		74		27			71			142			136			2			1.5			3.0			6.2			5.5			0.1
Metals and mining		6		3		3			4			6			7			15			0.2			0.2			0.2			0.3			0.7
Pipelines, oil, and gas		39		22		17			25			19			9			22			1.0			1.1			0.8			0.4			0.9
Power and utilities		–		–		–			–			–			–			–			–			–			–			–			–
Professional and other services		25		15		10			7			13			5			6			0.5			0.3			0.6			0.2			0.2
Retail sector		118		66		52			54			11			5			8			2.9			2.3			0.5			0.2			0.3
Sundry manufacturing and wholesale		8		5		3			10			–			6			7			0.2			0.4			–			0.2			0.3
Telecommunications, cable, and media		5		2		3			19			6			1			–			0.2			0.8			0.2			–			–
Transportation		13		11		2			4			4			2			5			0.1			0.2			0.2			0.1			0.2
Other		7		7		–			5			3			1			2			–			0.2			0.1			–			0.1
Total business and government		413		252		161			270			253			198			92			9.0			11.6			11.0			8.0			3.8
Total Canada		934		421		513			831			744			652			554			28.8			35.7			32.4			26.4			23.1
United States
Residential mortgages		397		18		379			425			418			416			429			21.3			18.3			18.2			16.9			17.9
Consumer instalment and other personal
HELOC		336		26		310			386			455			796			795			17.4			16.6			19.8			32.3			33.1
Indirect Auto		194		23		171			210			232			198			234			9.6			9.0			10.1			8.0			9.8
Other		5		3		2			8			5			6			4			0.1			0.3			0.2			0.2			0.2
Credit card 5		148		89		59			71			90			58			38			3.3			3.1			3.9			2.4			1.6
Total personal		1,080		159		921			1,100			1,200			1,474			1,500			51.7			47.3			52.2			59.8			62.6
Real estate
Residential		50		4		46			45			20			24			27			2.5			1.9			0.9			1.0			1.1
Non-residential		100		9		91			87			66			97			73			5.1			3.8			2.9			3.9			3.1
Total real estate		150		13		137			132			86			121			100			7.6			5.7			3.8			4.9			4.2
Agriculture		1		–		1			1			1			2			2			0.1			–			–			0.1			0.1
Automotive		4		–		4			4			5			8			12			0.2			0.2			0.2			0.3			0.5
Financial		7		–		7			14			15			28			39			0.4			0.6			0.7			1.1			1.6
Food, beverage, and tobacco		11		3		8			8			8			10			9			0.4			0.4			0.3			0.4			0.4
Forestry		–		–		–			–			–			1			1			–			–			–			–			–
Government, public sector entities, and education		6		1		5			7			9			7			9			0.3			0.3			0.4			0.3			0.4
Health and social services		21		1		20			20			32			11			11			1.1			0.9			1.4			0.5			0.5
Industrial construction and trade contractors		18		4		14			13			24			19			20			0.8			0.6			1.0			0.8			0.8
Metals and mining		15		1		14			19			4			3			4			0.8			0.8			0.2			0.1			0.2
Pipelines, oil, and gas		8		7		1			1			–			11			17			0.1			–			–			0.5			0.7
Power and utilities		7		–		7			13			1			1			1			0.4			0.6			–			–			–
Professional and other services		59		6		53			52			68			44			46			3.0			2.2			2.9			1.8			1.9
Retail sector		37		8		29			38			38			37			37			1.6			1.6			1.7			1.5			1.6
Sundry manufacturing and wholesale		14		2		12			13			13			15			26			0.7			0.6			0.6			0.6			1.1
Telecommunications, cable, and media		6		–		6			6			4			3			1			0.3			0.3			0.2			0.1			–
Transportation		27		2		25			30			26			15			6			1.4			1.3			1.1			0.6			0.2
Other		6		1		5			21			20			6			3			0.3			0.9			0.9			0.2			0.1
Total business and government		397		49		348			392			354			342			344			19.5			17.0			15.4			13.8			14.3
Total United States		1,477		208		1,269			1,492			1,554			1,816			1,844			71.2			64.3			67.6			73.6			76.9
International		–		–		–			–			–			–			–			–			–			–			–			–
Total	$	2,411	$	629	$	1,782		$	2,323		$	2,298		$	2,468		$	2,398			100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Net impaired loans as a % of common equity						1.89	%		2.59	%		2.81	%		3.33	%		3.45	%

1 Includes customers’ liability under acceptances.

2 Primarily based on the geographic location of the customer’s address.

3  Includes loans that are measured at FVOCI.

4  Excludes ACI loans, debt securities classified as loans under IAS 39 , Financial Instruments: Recognition and Measurement (IAS 39) and DSAC and debt securities at FVOCI under IFRS 9.

5  Credit cards are considered impaired when they are 90 days past due and written off at 180 days past due.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 36

TABLE 32:  IMPAIRED LOANS NET OF STAGE 3 ALLOWANCE FOR LOAN LOSSES BY GEOGRAPHY

1,2,3,4,5

(millions of Canadian dollars, except as noted)												As at		Percentage of total
						October 31 2021			October 31 2020			October 31 2019		October 31 2021		October 31 2020		October 31 2019
	Gross impaired loans		Stage 3 allowances for loan losses impaired		Net impaired loans			Net impaired loans			Net impaired loans
Canada
Atlantic provinces	$	25	$	7	$	18		$	23		$	24		1.0	%	1.0	%	1.1	%
British Columbia 6		87		26		61			95			71		3.4		4.0		3.1
Ontario 6		556		312		244			415			382		13.7		17.9		16.6
Prairies 6		223		58		165			238			211		9.3		10.2		9.2
Québec		43		18		25			60			56		1.4		2.6		2.4
Total Canada		934		421		513			831			744		28.8		35.7		32.4
United States
Carolinas (North and South)		77		13		64			99			104		3.6		4.3		4.5
Florida		155		19		136			154			141		7.6		6.6		6.1
New England 7		259		24		235			299			367		13.2		12.9		16.0
New Jersey		177		20		157			192			219		8.8		8.3		9.5
New York		352		33		319			324			324		17.9		13.9		14.1
Pennsylvania		93		11		82			99			84		4.6		4.3		3.7
Other		364		88		276			325			315		15.5		14.0		13.7
Total United States		1,477		208		1,269			1,492			1,554		71.2		64.3		67.6
Total	$	2,411	$	629	$	1,782		$	2,323		$	2,298		100.0	%	100.0	%	100.0	%
Net impaired loans as a % of net loans						0.24	%		0.32	%		0.33	%

1  Includes customers’ liability under acceptances.

2  Primarily based on the geographic location of the customer’s address.

3  Includes loans that are measured at FVOCI.

4  Excludes ACI loans.

5 Credit cards are considered impaired when they are 90 days past due and written off at 180 days past due.

6  The territories are included as follows: Yukon is included in British Columbia; Nunavut is included in Ontario; and the Northwest Territories is included in the Prairies region.

7  The states included in New England are as follows: Connecticut, Maine, Massachusetts, New Hampshire, and Vermont.

ALLOWANCE FOR CREDIT LOSSES

The allowance for credit losses including

off-balance

sheet positions of $7,255 million as at October 31, 2021, was comprised of Stage 3 allowance for impaired loans of $638 million, Stage 2 allowance of $3,959 million, and Stage 1 allowance of $2,649 million, and allowance for debt securities of $9 million. The Stage 1 and 2 allowances are for performing loans and

off-balance

sheet instruments.

Stage 3 allowances (impaired)

The Stage 3 allowance for loan losses decreased $240 million, or 27%, compared with last year, reflecting resolutions of impaired loans in the Wholesale Banking portfolio, improved credit conditions, and the impact of foreign exchange.

Stage 1 and Stage 2 allowances (performing)

As at October 31, 2021, the performing allowance was $6,608 million, down from $8,499 million as at October 31, 2020. The decrease was largely related to releases this year reflecting improvement in credit conditions, including a more favourable economic outlook, and the impact of foreign exchange. The allowance decrease for consumer lending was reflected across all products and included $437 million attributable to the partners’ share of the U.S. strategic cards portfolios. The Business and Government allowance decrease was broadly reflected across various industries. The allowance for debt securities increased by $2 million compared with last year.

Forward-looking information, including macroeconomic variables deemed to be predictive of ECLs based on the Bank’s experience, is used to determine ECL scenarios and associated probability weights to determine the probability-weighted ECLs. Each quarter, all base forecast macroeconomic variables are refreshed, resulting in new upside and downside macroeconomic scenarios. The probability weightings assigned to each ECL scenario are also reviewed each quarter and updated as required, as part of the Bank’s ECL governance process. As a result of periodic reviews and quarterly updates, the allowance for credit losses may be revised to reflect updates in loss estimates based on the Bank’s recent loss experience and its forward-looking views, including the impact of

COVID-19.

The Bank periodically reviews the methodology and has performed certain additional qualitative portfolio and loan level assessments of significant increase in credit risk. Refer to Note 3 of the Bank’s 2021 Consolidated Financial Statements for further details on forward-looking information.

The probability-weighted allowance for credit losses reflects the Bank’s forward-looking views, including its estimate of the potential impact of

COVID-19.

The Bank continues to monitor the effects of

COVID-19.

To the extent that certain anticipated effects of

COVID-19

cannot be fully incorporated into quantitative models, management continues to exercise expert credit judgment in determining the amount of ECLs by considering reasonable and supportable information. There remains considerable uncertainty regarding the impact of the

COVID-19

pandemic, and as the situation unfolds, the allowance for credit losses will be refined in future quarters. Refer to Note 3 of the Bank’s 2021 Consolidated Financial Statements for additional detail.

PROVISION FOR CREDIT LOSSES

The PCL is the amount charged to income to bring the total allowance for credit losses, including both Stage 1 and 2 allowances (performing) and Stage 3 allowance (impaired), to a level that management considers adequate to absorb expected and incurred credit-related losses in the Bank’s loan portfolio. Provisions are reduced by any recoveries in the year.

In Canada, PCL – impaired related to residential mortgages, consumer instalment and other personal loans, and credit card loans was $553 million, a decrease of $468 million, or 46%, compared to 2020 largely related to improved credit conditions. PCL – impaired related to business and government loans was $102 million, a decrease of $178 million or 64%, compared with last year, largely related to improved credit conditions.

In the U.S., PCL – impaired related to residential mortgages, consumer instalment and other personal loans, and credit card loans was $589 million, a decrease of $712 million, or 55%, compared to 2020, largely related to improved credit conditions. PCL – impaired related to business and government loans was $73 million, a decrease of $298 million or 80%, compared with last year, largely related to improved credit conditions.

Geographically, the largest regional concentration of PCL – impaired in Canada was in Ontario. The largest regional concentration of PCL – impaired in the U.S. was in New York and New England.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 37

The following table provides a summary of provisions charged to the Consolidated Statement of Income.

TABLE 33:  PROVISION FOR CREDIT LOSSES

(millions of Canadian dollars)	2021			2020		2019
Provision for credit losses – Stage 3 (impaired)
Canadian Retail	$	652		$	1,256	$	1,126
U.S. Retail		438			997		936
Wholesale Banking		8			279		20
Corporate 1		211			431		548
Total provision for credit losses – Stage 3		1,309			2,963		2,630
Provision for credit losses – Stage 1 and Stage 2 (performing) 2
Canadian Retail		(394	)		1,490		180
U.S. Retail		(688	)		1,928		146
Wholesale Banking		(126	)		229		24
Corporate 1		(325	)		632		49
Total provision for credit losses – Stage 1 and 2		(1,533	)		4,279		399
Provision for credit losses	$	(224	)	$	7,242	$	3,029

1  Includes PCL on the retailer program partners’ share of the U.S. strategic cards portfolio.

2  Includes PCL on financial assets, loan commitments, and financial guarantees.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 38

TABLE 34:  PROVISION FOR CREDIT LOSSES BY INDUSTRY SECTOR

1,2

(millions of Canadian dollars, except as noted)	For the years ended									Percentage of total
	October 31 2021			October 31 2020			October 31 2019			October 31 2021			October 31 2020			October 31 2019
Stage 3 provision for credit losses (impaired)
Canada
Residential mortgages	$	–		$	27		$	26			–	%		0.9	%		1.0	%
Consumer instalment and other personal
HELOC		3			17			11			0.2			0.6			0.4
Indirect auto		151			221			238			11.5			7.5			9.1
Other		126			226			227			9.6			7.6			8.6
Credit card		273			530			489			20.9			17.9			18.6
Total personal		553			1,021			991			42.2			34.5			37.7
Real estate
Residential		1			(4	)		1			0.1			(0.1	)		–
Non-residential		–			1			1			–			–			–
Total real estate		1			(3	)		2			0.1			(0.1	)		–
Agriculture		(1	)		5			2			(0.1	)		0.2			–
Automotive		4			5			8			0.3			0.2			0.3
Financial		–			–			–			–			–			–
Food, beverage, and tobacco		2			–			3			0.2			–			0.1
Forestry		–			–			–			–			–			–
Government, public sector entities, and education		24			–			–			1.8			–			–
Health and social services		7			4			7			0.5			0.1			0.3
Industrial construction and trade contractors		24			52			48			1.8			1.7			1.9
Metals and mining		1			4			9			0.1			0.1			0.3
Pipelines, oil, and gas		8			17			8			0.6			0.6			0.3
Power and utilities		–			–			–			–			–			–
Professional and other services		13			20			15			1.0			0.7			0.6
Retail sector		9			99			15			0.7			3.3			0.6
Sundry manufacturing and wholesale		–			7			5			–			0.2			0.2
Telecommunications, cable, and media		–			42			7			–			1.4			0.3
Transportation		7			15			8			0.5			0.6			0.3
Other		3			13			11			0.3			0.4			0.4
Total business and government		102			280			148			7.8			9.4			5.6
Total Canada		655			1,301			1,139			50.0			43.9			43.3
United States
Residential mortgages		(4	)		9			10			(0.3	)		0.3			0.4
Consumer instalment and other personal
HELOC		(19	)		11			(12	)		(1.5	)		0.4			(0.4	)
Indirect auto		92			349			318			7.0			11.7			12.1
Other		140			171			180			10.7			5.8			6.8
Credit card		380			761			894			29.1			25.7			34.0
Total personal		589			1,301			1,390			45.0			43.9			52.9
Real estate
Residential		3			3			3			0.2			0.1			0.1
Non-residential		(4	)		16			4			(0.3	)		0.5			0.2
Total real estate		(1	)		19			7			(0.1	)		0.6			0.3
Agriculture		–			–			–			–			–			–
Automotive		–			–			1			–			–			–
Financial		5			1			2			0.4			–			–
Food, beverage, and tobacco		3			2			–			0.2			0.2			–
Government, public sector entities, and education		(1	)		–			1			(0.1	)		–			–
Health and social services		3			24			7			0.2			0.8			0.3
Industrial construction and trade contractors		4			(4	)		15			0.3			(0.1	)		0.6
Metals and mining		(1	)		5			(1	)		(0.1	)		0.3			–
Pipelines, oil, and gas		8			231			–			0.6			7.8			–
Power and utilities		3			7			18			0.2			0.2			0.7
Professional and other services		2			25			27			0.2			0.8			1.1
Retail sector		8			10			8			0.6			0.3			0.3
Sundry manufacturing and wholesale		2			6			2			0.2			0.2			–
Telecommunications, cable, and media		1			7			2			0.1			0.2			–
Transportation		10			7			16			0.8			0.2			0.6
Other		27			31			15			2.1			1.0			0.6
Total business and government		73			371			120			5.6			12.5			4.5
Total United States		662			1,672			1,510			50.6			56.4			57.4
International		–			2			–			–			0.1			–
Total excluding other loans		1,317			2,975			2,649			100.6			100.4			100.7
Other loans
Debt securities at amortized cost and FVOCI		–			–			–			–			–			–
Acquired credit-impaired loans 3		(8	)		(12	)		(19	)		(0.6	)		(0.4	)		(0.7	)
Total other loans		(8	)		(12	)		(19	)		(0.6	)		(0.4	)		(0.7	)
Total Stage 3 provision for credit losses (impaired)	$	1,309		$	2,963		$	2,630			100.0	%		100.0	%		100.0	%
Stage 1 and 2 provision for credit losses
Personal, business, and government	$	(1,534	)	$	4,276		$	400
Debt securities at amortized cost and FVOCI		1			3			(1	)
Total Stage 1 and 2 provision for credit losses		(1,533	)		4,279			399
Total provision for credit losses	$	(224	)	$	7,242		$	3,029

1 Primarily based on the geographic location of the customer’s address.

2 Includes loans that are measured at FVOCI.

3  Includes all FDIC covered loans and other ACI loans.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 39

TABLE 35:  PROVISION FOR CREDIT LOSSES BY GEOGRAPHY

1,2,3

(millions of Canadian dollars, except as noted)		For the years ended									Percentage of total
	October 31 2021			October 31 2020			October 31 2019			October 31 2021			October 31 2020			October 31 2019
Canada
Atlantic provinces	$	40		$	67		$	80			(17.9	)%		0.9	%		2.6	%
British Columbia 4		73			138			120			(32.6	)		1.9			4.0
Ontario 4		315			678			490			(140.6	)		9.4			16.2
Prairies 4		163			276			302			(72.8	)		3.8			10.0
Québec		64			142			147			(28.5	)		2.0			4.8
Total Canada		655			1,301			1,139			(292.4	)		18.0			37.6
United States
Carolinas (North and South)		35			68			63			(15.6	)		0.9			2.1
Florida		59			117			112			(26.3	)		1.6			3.7
New England 5		65			191			161			(29.0	)		2.6			5.3
New Jersey		52			107			128			(23.2	)		1.5			4.2
New York		101			180			174			(45.1	)		2.5			5.7
Pennsylvania		30			52			61			(13.4	)		0.7			2.0
Other 6		320			957			811			(142.9	)		13.2			26.8
Total United States		662			1,672			1,510			(295.5	)		23.0			49.8
International		–			2			–			–			–			–
Total excluding other loans		1,317			2,975			2,649			(587.9	)		41.0			87.4
Other loans 7		(8	)		(12	)		(19	)		3.5			(0.1	)		(0.6	)
Total Stage 3 provision for credit losses (impaired)		1,309			2,963			2,630			(584.4	)		40.9			86.8
Stage 1 and 2 provision for credit losses		(1,533	)		4,279			399			684.4			59.1			13.2
Total provision for credit losses	$	(224	)	$	7,242		$	3,029			100.0	%		100.0	%		100.0	%
Provision for credit losses as a % of average net loans and acceptances 6	October 31 2021			October 31 2020			October 31 2019
Canada
Residential mortgages		–	%		0.01	%		0.01	%
Credit card, consumer instalment and other personal		0.35			0.66			0.65
Business and government		0.08			0.22			0.13
Total Canada		0.03			0.27			0.25
United States
Residential mortgages		(0.01	)		0.03			0.03
Credit card, consumer instalment and other personal		1.08			2.10			2.28
Business and government		0.06			0.26			0.10
Total United States		(0.17	)		0.70			0.69
International		0.03			0.10			–
Total excluding other loans		0.18			0.41			0.39
Other loans		(61.54	)		(7.10	)		(5.29	)
Total Stage 3 provision for credit losses (impaired)		0.18			0.41			0.39
Stage 1 and 2 provision for credit losses		(0.21	)		0.59			0.06
Total provision for credit losses as a % of average net loans and acceptances		(0.03	)%		0.99	%		0.44	%

1  Primarily based on the geographic location of the customer’s address.

2  Includes loans that are measured at FVOCI.

3  Includes customers’ liability under acceptances.

4  The territories are included as follows: Yukon is included in British Columbia; Nunavut is included in Ontario; and Northwest Territories is included in the Prairies region.

5  The states included in New England are as follows: Connecticut, Maine, Massachusetts, New Hampshire, and Vermont.

6  Other includes PCL attributable to other states/regions including those outside TD’s core U.S. geographic footprint.

7  Other loans include ACI.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 40

SOVEREIGN RISK

The following table provides a summary of the Bank’s credit exposure to certain European countries, including Greece, Italy, Ireland, Portugal, and Spain (GIIPS).

TABLE 36:  EXPOSURE TO EUROPE – Total Net Exposure by Country and Counterparty

1

(millions of Canadian dollars)																										As at
		Loans and commitments 2								Derivatives, repos, and securities lending 3								Trading and investment portfolio 4,5								Total
		Corporate		Sovereign		Financial		Total		Corporate		Sovereign		Financial		Total		Corporate		Sovereign		Financial		Total		Exposure 6
Country																						October 31, 2021
GIIPS
Greece	$	–	$	–	$	–	$	–	$	–	$	–	$	–	$	–	$	–	$	–	$	–	$	–	$	–
Italy		–		–		9		9		–		–		20		20		15		4		48		67		96
Ireland		–		–		539		539		11		10		353		374		–		–		37		37		950
Portugal		–		–		–		–		–		118		61		179		3		–		–		3		182
Spain		–		–		100		100		–		12		124		136		21		1		57		79		315
Total GIIPS		–		–		648		648		11		140		558		709		39		5		142		186		1,543
Rest of Europe
Austria		–		–		17		17		7		90		31		128		–		1,418		11		1,429		1,574
Belgium		433		–		210		643		727		17		134		878		2		298		31		331		1,852
Finland		–		199		9		208		–		109		119		228		–		980		64		1,044		1,480
France		548		904		979		2,431		46		364		1,627		2,037		234		5,064		220		5,518		9,986
Germany		2,411		429		353		3,193		866		759		1,513		3,138		302		9,628		98		10,028		16,359
Netherlands		607		234		411		1,252		287		272		338		897		141		2,550		79		2,770		4,919
Norway		–		305		28		333		–		167		24		191		3		1,161		628		1,792		2,316
Sweden		–		–		56		56		–		73		94		167		10		1,833		662		2,505		2,728
Switzerland		1,014		74		311		1,399		578		32		1,302		1,912		72		–		87		159		3,470
United Kingdom		6,998		13,841		1,151		21,990		1,790		1,304		11,022		14,116		1,487		382		539		2,408		38,514
Other 7		–		162		119		281		–		224		372		596		6		460		11		477		1,354
Total Rest of Europe		12,011		16,148		3,644		31,803		4,301		3,411		16,576		24,288		2,257		23,774		2,430		28,461		84,552
Total Europe	$	12,011	$	16,148	$	4,292	$	32,451	$	4,312	$	3,551	$	17,134	$	24,997	$	2,296	$	23,779	$	2,572	$	28,647	$	86,095
Country																					October 31, 2020
GIIPS
Greece	$	–	$	–	$	–	$	–	$	–	$	–	$	–	$	–	$	–	$	–	$	–	$	–	$	–
Italy		–		–		10		10		–		–		3		3		17		–		17		34		47
Ireland		–		–		320		320		11		–		331		342		–		–		21		21		683
Portugal		–		–		–		–		–		86		24		110		13		–		–		13		123
Spain		–		–		89		89		–		–		86		86		4		715		38		757		932
Total GIIPS		–		–		419		419		11		86		444		541		34		715		76		825		1,785
Rest of Europe
Austria		–		–		18		18		3		122		33		158		5		1,266		9		1,280		1,456
Belgium		266		–		189		455		824		30		175		1,029		40		320		–		360		1,844
Finland		–		252		9		261		–		52		63		115		–		1,054		16		1,070		1,446
France		591		1,024		962		2,577		55		1,075		1,253		2,383		109		4,789		466		5,364		10,324
Germany		1,481		494		374		2,349		895		697		725		2,317		249		9,691		30		9,970		14,636
Netherlands		609		275		536		1,420		383		179		1,086		1,648		29		2,635		220		2,884		5,952
Norway		–		365		29		394		–		439		42		481		5		708		439		1,152		2,027
Sweden		–		–		67		67		–		109		174		283		4		1,784		781		2,569		2,919
Switzerland		1,163		151		331		1,645		327		19		856		1,202		16		–		162		178		3,025
United Kingdom		5,333		9,797		760		15,890		1,592		847		8,424		10,863		93		479		526		1,098		27,851
Other 7		–		273		109		382		9		203		699		911		–		430		40		470		1,763
Total Rest of Europe		9,443		12,631		3,384		25,458		4,088		3,772		13,530		21,390		550		23,156		2,689		26,395		73,243
Total Europe	$	9,443	$	12,631	$	3,803	$	25,877	$	4,099	$	3,858	$	13,974	$	21,931	$	584	$	23,871	$	2,765	$	27,220	$	75,028

1 Certain comparative amounts have been reclassified to conform with the presentation adopted in the current period.

2 Exposures include interest-bearing deposits with banks and are presented net of impairment charges where applicable. There were no impairment charges for European exposures as at October 31, 2021, or October 31, 2020.

3 Exposures are calculated on a fair value basis and are net of collateral. Total market value of pledged collateral is $1.9 billion (October 31, 2020 – $1.5 billion) for GIIPS and $78.0 billion for the rest of Europe (October 31, 2020 – $82.3 billion). Derivatives are presented as net exposures where there is an International Swaps and Derivatives Association (ISDA) master netting agreement.

4 Trading and investment portfolio includes deposits and trading exposures are net of eligible short positions.

5 The fair values of the GIIPS exposures in Level 3 in the trading and investment portfolio were nil as at October 31, 2021 and October 31, 2020.

6 The Bank had nil related notional protection purchased through CDS (October 31, 2020 – nil).

7 Other European exposure is distributed across 12 countries (October 31, 2020 – 12 countries), each of which has a net exposure including loans and commitments, derivatives, repos and securities lending, and trading and investment portfolio below $1 billion as at October 31, 2021.

Of the Bank’s European exposure, approximately 98% (October 31, 2020 – 97%) is to counterparties in countries rated either Aa3 or better by Moody’s Investor Services (Moody’s) or AA or better by Standard & Poor’s (S&P), with the majority of this exposure to the sovereigns themselves or to well rated, systemically important banks in these countries. Derivatives and securities repurchase transactions are completed on a collateralized basis. The vast majority of derivatives exposure is offset by cash collateral while the repurchase transactions are backed largely by government securities rated AA or better, and cash. The Bank also takes a limited amount of exposure to well rated corporate issuers in Europe where the Bank also does business with their related entities in North America.

In addition to the European exposure identified above, the Bank also has $13.6 billion (October 31, 2020 – $14.8 billion) of exposure to supranational entities with European sponsorship and $3.5 billion (October 31, 2020 – $6.2 billion) of indirect exposure to European collateral from

non-European

counterparties related to repurchase and securities lending transactions that are margined daily.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 41

GROUP FINANCIAL CONDITION

Capital Position

TABLE 37:  CAPITAL STRUCTURE AND RATIOS – Basel III

(millions of Canadian dollars, except as noted)		2021			2020
Common Equity Tier 1 Capital
Common shares plus related contributed surplus	$	23,086		$	22,570
Retained earnings		63,944			53,845
Accumulated other comprehensive income		7,097			13,437
Common Equity Tier 1 Capital before regulatory adjustments		94,127			89,852
Common Equity Tier 1 Capital regulatory adjustments
Goodwill (net of related tax liability)		(16,099	)		(17,019	)
Intangibles (net of related tax liability)		(2,006	)		(2,030	)
Deferred tax assets excluding those arising from temporary differences		(100	)		(177	)
Cash flow hedge reserve		(1,691	)		(3,720	)
Shortfall of provisions to expected losses		–			–
Gains and losses due to changes in own credit risk on fair valued liabilities		(124	)		(57	)
Defined benefit pension fund net assets (net of related tax liability)		(470	)		(9	)
Investment in own shares		(36	)		(36	)
Non-significant investments in the capital of banking, financial, and insurance entities, net of eligible short positions (amount above 10% threshold)		(4,486	)		(6,321	)
Significant investments in the common stock of banking, financial, and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions (amount above 10% threshold)		–			–
Other deductions or regulatory adjustments to CET1 as determined by OSFI 1		822			2,133
Total regulatory adjustments to Common Equity Tier 1 Capital		(24,190	)		(27,236	)
Common Equity Tier 1 Capital		69,937			62,616
Additional Tier 1 Capital instruments
Directly issued qualifying Additional Tier 1 instruments plus stock surplus		5,691			5,647
Directly issued capital instruments subject to phase out from Additional Tier 1		450			1,190
Additional Tier 1 instruments issued by subsidiaries and held by third parties		–			–
Additional Tier 1 Capital instruments before regulatory adjustments		6,141			6,837
Additional Tier 1 Capital instruments regulatory adjustments
Non-significant investments in the capital of banking, financial, and insurance entities, net of eligible short positions (amount above 10% threshold)		(12	)		(12	)
Significant investments in the capital of banking, financial, and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions		(350	)		(350	)
Total regulatory adjustments to Additional Tier 1 Capital		(362	)		(362	)
Additional Tier 1 Capital		5,779			6,475
Tier 1 Capital		75,716			69,091
Tier 2 Capital instruments and provisions
Directly issued qualifying Tier 2 instruments plus related stock surplus		11,030			11,277
Directly issued capital instruments subject to phase out from Tier 2		120			160
Collective allowances		1,665			509
Tier 2 Capital before regulatory adjustments		12,815			11,946
Tier 2 regulatory adjustments
Investment in own Tier 2 instruments		(8	)		–
Non-significant investments in the capital of banking, financial, and insurance entities, net of eligible short positions (amount above 10% threshold) 2		(308	)		(856	)
Non-significant investments in the other TLAC-eligible instruments issued by G-SIBs and Canadian D-SIBs, where the institution does not own more than 10% of the issued common share capital of the entity: amount previously designated for the 5% threshold but that no longer meets the conditions		(68	)		–
Significant investments in the capital of banking, financial, and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions		(160	)		(160	)
Total regulatory adjustments to Tier 2 Capital		(544	)		(1,016	)
Tier 2 Capital		12,271			10,930
Total Capital	$	87,987		$	80,021
Risk-weighted assets	$	460,270		$	478,909
Capital Ratios and Multiples 3
Common Equity Tier 1 Capital (as percentage of risk-weighted assets)		15.2	%		13.1	%
Tier 1 Capital (as percentage of risk-weighted assets)		16.5			14.4
Total Capital (as percentage of risk-weighted assets)		19.1			16.7
Leverage ratio 4		4.8			4.5

1 Represents ECL transitional arrangements provided by OSFI. Refer to the “OSFI’s Capital Requirements under Basel III” within the “Capital Position” section of this document for additional details.

2 Includes other TLAC-eligible instruments issued by global systemically important banks (G-SIBs) and Canadian domestic systemically important banks (D-SIBs) that are outside the scope of regulatory consolidation, where the institution does not own more than 10% of the issued common share capital of the entity.

3 The CET1, Tier 1, Total Capital and Leverage ratios excluding the ECL transitional arrangements are 15.0%, 16.3%, 19.1%, and 4.7%, respectively.

4 The Leverage ratio is calculated as Tier 1 Capital divided by leverage exposure, as defined in the “Regulatory Capital” section of this document.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 42

THE BANK’S CAPITAL MANAGEMENT OBJECTIVES

The Bank’s capital management objectives are:

• To be an appropriately capitalized financial institution as determined by:

– the Bank’s Risk Appetite Statement (RAS);

– capital requirements defined by relevant regulatory authorities; and

– the Bank’s internal assessment of capital requirements, including stress test analysis, consistent with the Bank’s risk profile and risk tolerance levels.

• To have the most economic weighted-average cost of capital achievable, while preserving the appropriate mix of capital elements to meet targeted capitalization levels.

• To ensure ready access to sources of appropriate capital, at reasonable cost, in order to:

– insulate the Bank from unexpected loss events; and

– support and facilitate business growth and/or acquisitions consistent with the Bank’s strategy and risk appetite.

• To support strong external debt ratings, in order to manage the Bank’s overall cost of funds and to maintain access to required funding.

These objectives are applied in a manner consistent with the Bank’s overall objective of providing a satisfactory return on shareholders’ equity.

CAPITAL SOURCES

The Bank’s capital is primarily derived from common shareholders and retained earnings. Other sources of capital include the Bank’s preferred shareholders, limited recourse capital noteholders, and holders of the Bank’s subordinated debt.

CAPITAL MANAGEMENT

The Treasury and Balance Sheet Management (TBSM) group manages capital for the Bank and is responsible for forecasting and monitoring compliance with capital targets, on a consolidated basis, with oversight provided by Asset/Liability and Capital Committee (ALCO). The Board of Directors (the “Board”) oversees capital adequacy risk management.

The Bank continues to hold sufficient capital levels to ensure that flexibility is maintained to grow operations, both organically and through strategic acquisitions. The strong capital ratios are the result of the Bank’s internal capital generation, OSFI’s expectation that financial institutions halt dividend increases and share buybacks as part of the response to COVID-19, management of the balance sheet, and periodic issuance of capital securities.

ECONOMIC CAPITAL

Economic capital is the Bank’s internal measure of capital requirements and is one of the key components in the Bank’s internal assessment of capital adequacy. Economic capital is comprised of both risk-based capital required to fund losses that could occur under extremely adverse economic or operational conditions and investment capital utilized to fund acquisitions or investments to support future earnings growth.

The Bank uses internal models to determine the amount of risk-based capital required to support the risks resulting from the Bank’s business operations. Characteristics of these models are described in the “Managing Risk” section of this document. The objective of the Bank’s economic capital framework is to hold risk-based capital to cover unexpected losses in a manner consistent with the Bank’s capital management objectives.

The Bank operates its capital regime under the Basel Capital Framework. Consequently, in addition to addressing Pillar 1 risks covering credit risk, market risk, and operational risk, the Bank’s economic capital framework captures other material Pillar 2 risks including

non-trading

market risk for the retail portfolio (interest rate risk in the banking book), additional credit risk due to concentration (commercial and wholesale portfolios) and risks classified as “Other”, namely business risk, insurance risk, and risks associated with the Bank’s significant investments. The framework also captures diversification benefits across risk types and business segments.

Please refer to the “Economic Capital and Risk-Weighted Assets by Segment” section for a business segment breakdown of the Bank’s economic capital.

REGULATORY CAPITAL

Capital requirements of the Basel Committee on Banking Supervision (BCBS) are commonly referred to as Basel III. Under Basel III, Total Capital consists of three components, namely CET1, Additional Tier 1, and Tier 2 Capital. Risk sensitive regulatory capital ratios are calculated by dividing CET1, Tier 1, and Total Capital by

risk-weighted

assets

(

RWA), inclusive of any minimum requirements outlined under the regulatory floor. In 2015, Basel III introduced a

non-risk

sensitive leverage ratio to act as a supplementary measure to the risk-sensitive capital requirements. The leverage ratio is calculated by dividing Tier 1 Capital by leverage exposure which is primarily comprised of

on-balance

sheet assets with adjustments made to derivative and securities financing transaction exposures, and credit equivalent amounts of

off-balance

sheet exposures. TD continued to manage its regulatory capital in accordance with the Basel III Capital Framework as discussed in the “Capital Position” section of this document.

OSFI’s Capital Requirements under Basel III

OSFI’s Capital Adequacy Requirements (CAR) guideline details how the Basel III capital rules apply to Canadian banks. Other requirements are noted below.

Effective January 1, 2013, all newly issued

non-common

Tier 1 and Tier 2 Capital instruments must include

non-viability

contingent capital (NVCC) provisions to qualify as regulatory capital. NVCC provisions require the conversion of

non-common

capital instruments into a variable number of common shares of the Bank upon the occurrence of a Trigger Event. A Trigger Event is defined as an event where OSFI determines that the Bank is, or is about to become,

non-viable

and that after conversion of all

non-common

capital instruments, the viability of the Bank is expected to be restored, or if the Bank has accepted or agreed to accept a capital injection or equivalent support from a federal or provincial government of Canada without which the Bank would have been determined by OSFI to be

non-viable.

Existing

non-common

Tier 1 and Tier 2 capital instruments which do not include NVCC provisions are

non-qualifying

capital instruments and are subject to a

phase-out

period which began in 2013 and ends in 2022.

The CAR guideline sets the minimum CET1, Tier 1, and Total Capital ratios at 4.5%, 6%, and 8%, respectively. OSFI also expects Canadian banks to include a capital conservation buffer of 2.5%. Additionally, the six Canadian banks designated as

D-SIBs,

including TD, are subject to a 1% common equity surcharge.

The Canadian Banks are also required to hold a countercyclical capital buffer (CCB), which may range from 0% to 2.5%, and be met with CET1 capital. The CCB is calculated using the weighted-average of the buffers deployed in Canada and across BCBS member jurisdictions and selected

non-member

jurisdictions to which the Bank has private sector credit exposures. Due to

COVID-19,

several foreign jurisdictions have released, reduced or delayed planned increases in their CCBs. Canada’s CCB remains unchanged at 0%. Based on the allocation of exposures and buffers currently in place, the Bank’s countercyclical buffer requirement is 0% as at October 31, 2021.

On June 25, 2018, OSFI provided greater transparency related to a previously undisclosed Pillar 2 CET1 capital buffer through the introduction of the public Domestic Stability Buffer (DSB) held by

D-SIBs

against Pillar 2 risks associated with systemic vulnerabilities. The level of the buffer ranges between 0% and 2.5% of total RWA and must be met with CET1 Capital. At a minimum, OSFI will review the buffer semi-annually and any changes will be made public. On March 13, 2020, as part of its

COVID-19

response, OSFI announced that the DSB, previously set to increase to 2.25% effective April 30, 2020, was being lowered to 1.00% effective immediately. On June 17, 2021, OSFI announced that the DSB would increase to 2.50% of total risk-weighted assets, effective October 31, 2021.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 43

Effective in the second quarter of 2018, OSFI implemented a revised methodology for calculating the regulatory capital floor. The revised floor is based on the Basel II standardized approach with a factor applied. The floor factor was lowered to 70%, from 75%, effective April 9, 2020. The Bank is not currently constrained by the capital floor.

The table below summarizes OSFI’s current regulatory minimum capital ratios for the Bank.

REGULATORY CAPITAL TARGET RATIOS

	Minimum			Capital Conservation Buffer			D-SIB / G-SIB 1 Surcharge			Pillar 1 2 Regulatory target			DSB 3			Pillar 1 & 2 regulatory target
CET1		4.5	%		2.5	%		1.0	%		8.0	%		2.5	%		10.5	%
Tier 1		6.0			2.5			1.0			9.5			2.5			12.0
Total Capital		8.0			2.5			1.0			11.5			2.5			14.0

1 The higher of the D-SIB and G-SIB surcharge applies. The D-SIB surcharge is currently equivalent to the Bank’s 1% G-SIB additional common equity requirement. The G-SIB surcharge may increase above 1% if the Bank’s G-SIB score increases above certain thresholds to a maximum of 4.5%.

2 The Bank’s countercyclical buffer requirement is 0% as of July 31, 2021.

3 The DSB increased to 2.5%, from 1.0%, of total RWA effective October 31, 2021.

The Bank’s Leverage Ratio is calculated as per OSFI’s Leverage Requirements guideline and has a regulatory minimum requirement of 3%.

On September 23, 2018, the Canadian

Bail-in

regime came into effect, including OSFI’s Total Loss Absorbing Capacity (TLAC) guideline. Under this guideline, the Bank is required to meet supervisory risk-based TLAC and TLAC leverage ratio targets by November 1, 2021. As of September 2018, the targets were 23.0% of RWA for the risk-based TLAC ratio, inclusive of the 1.50% DSB effective at that time, and 6.75% for the TLAC leverage ratio. As a result of the June 17, 2021 OSFI announcement related to the increase in the DSB, the Bank will be required to meet a risk-based TLAC target ratio of 24.0% of RWA, inclusive of the 2.50% DSB, by November 1, 2021. Any further changes to the DSB will result in corresponding changes to the risk-based TLAC target ratio.

In July 2019, in consideration of the final Basel III revisions published by the BCBS in December 2017, OSFI published guidance related to the capital requirements for operational risk. Banks currently approved to use the Advanced Measurement Approach (AMA) will be required to use a revised Basel III standardized approach when the revised requirements are implemented in Canada. OSFI provided a transition period for fiscal 2020 through to 2022, during which time banks currently approved to use AMA are required to report operational risk capital using the current standardized approach.

On November 22, 2019, the Bank was designated as a Global Systemically Important Bank

(G-SIB)

by the Financial Stability Board (FSB). The public communications on G-SIB status is issued annually each November. The Bank continued to maintain its

G-SIB

status when the FSB published the 2021 list of

G-SIBs

on November 23, 2021. As a result of the designation, the Bank continues to be subject to an additional loss absorbency requirement (CET1 as a percentage of RWA) of 1%. In accordance with OSFI’s CAR guideline, for Canadian banks designated as a

G-SIB,

the higher of the

D-SIB

and

G-SIB

surcharges will apply. As the

D-SIB

surcharge is currently equivalent to the 1%

G-SIB

requirement, the Bank’s

G-SIB

designation has no additional impact on the Bank’s minimum CET1 regulatory requirements. For further detail, please refer to the “Global Systemically Important Banks Designation and Disclosures” section of the Bank’s 2021 Annual Report.

In fiscal 2020, OSFI introduced a number of measures to support

D-SIBs’

ability to supply credit to the economy during an expected period of disruption related to

COVID-19

and market conditions. These measures, that were immediately effective, and subsequent guidance issued by OSFI, are summarized below.

• On March 13, 2020, as noted above, OSFI lowered the DSB to 1.00%, and set the expectation for all federally regulated financial institutions that dividend increases and share buybacks should be halted. On June 17, 2021, OSFI announced that the DSB would increase to 2.50% of total risk-weighted assets, effective October 31, 2021. On November 4, 2021, OSFI lifted the temporary expectation that financial institutions not increase regular dividends or undertake share repurchases, effective immediately.

• On March 27, 2020, OSFI announced the following additional measures:

– Bank loans subject to payment deferrals, such as mortgage loans, small business loans, retail loans and mid market commercial loans continued to be treated as performing loans under the CAR Guideline. This temporary capital treatment remained in place for the duration of the payment deferral, up to a maximum of 6 months. On August 31, 2020 OSFI published guidance on the phase out of the capital treatment of loans subject to payment deferrals. Loans granted payment deferrals after September 30, 2020, are not eligible for special capital treatment.

– OSFI announced that transitional arrangements for ECL provisioning available under the Basel Framework would be introduced. The adjustment allowed a portion of the increase in Stage 1 and Stage 2 allowances relative to a baseline level to be included in CET1 capital, rather than Tier 2 Capital, as the CAR guideline specifies. The baseline level is the sum of Stage 1 and Stage 2 allowances as at the first quarter of 2020 (for October year-end deposit-taking institutions (DTIs)). This increase is tax effected and is subject to a scaling factor, which was set at 70% in fiscal 2020, 50% in fiscal 2021, and 25% in fiscal 2022.

– Institutions subject to market risk capital requirements and using internal models were permitted to reduce the stressed Value-at-Risk (VaR) multiplier, that they were subject to at the end of the first quarter of 2020, by two. On March 16, 2021, OSFI announced the expiration, effective May 1, 2021, of the temporary reduction in the stressed VaR multiplier.

– Institutions are expected to remove hedges of Funding Valuation Adjustment (FVA) from the calculation of market risk capital to address the asymmetry in the rule where these hedges of FVA were included, while the underlying exposures to FVA were not. This removal was made effective at the beginning of the second fiscal quarter of 2020.

– OSFI issued guidance on the capital treatment for exposures acquired through new Government of Canada programs referenced in “The Bank’s Response to COVID-19” section of this document. The new CEBA Program is funded by the Government of Canada, and the loan exposures within this program can be excluded from the risk-based capital ratios and from the leverage ratio calculation. For the EDC Business Credit Availability Program, the government-guaranteed portion of the loan is treated as a sovereign exposure, with the remaining portion treated as a loan to the borrower. The entire amount of the loan is included in the leverage ratio calculation.

• On April 9, 2020, OSFI announced DTIs could temporarily exclude exposures from central bank reserves and sovereign-issued securities that qualify as High-Quality Liquid Assets (HQLA) under the Liquidity Adequacy Requirements (LAR) Guideline from the leverage ratio measure. On August 12, 2021, OSFI confirmed that the exclusion of sovereign-issued securities will not extend past December 31, 2021. Central bank reserves will continue to be excluded from the leverage ratio exposure measure until further notice.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 44

• On April 23, 2020, OSFI clarified that PPP loans pledged under the Boston Federal Reserve’s PPP Lending Facility can be excluded from the risk-based capital and leverage ratios.

On January 27, 2021, OSFI published guidance on the treatment of new loans to businesses through the Government of Canada’s HASCAP, announced on January 26, 2021. HASCAP loans are treated as sovereign exposures based on the BDC guarantee and the relevant risk weight applied under OSFI’s CAR guideline. The entire amount of the loan is included in the lender’s leverage ratio calculation. The Bank began originating loans under the HASCAP program in the second quarter of 2021.

Capital Position and Capital Ratios

The Basel framework allows qualifying banks to determine capital levels consistent with the way they measure, manage, and mitigate risks. It specifies methodologies for the measurement of credit, trading market, and operational risks. The Bank uses the Advanced Internal Ratings-Based (AIRB) approach to credit risk for all material portfolios. In the third quarter of 2020, OSFI approved the Bank to calculate the

non-retail

portfolio credit RWA in the U.S. Retail segment using the AIRB approach.

During the third quarter of 2020, the Bank transitioned the U.S.

non-retail

portfolios from the Standardized Approach to the AIRB Approach for measuring credit risk RWA. As a result of this transition, the increase in Stage 1 and Stage 2 allowances allocated to the AIRB approach relative to the Q1 2020 baseline amount was capped at the total increase in Stage 1 and Stage 2 allowances reported by the Bank, for the purpose of the OSFI ECL provisioning transitional adjustment to CET1 capital that would otherwise be included in Tier 2 capital.

For accounting purposes, IFRS is followed for consolidation of subsidiaries and joint ventures. For regulatory capital purposes, all the subsidiaries of the Bank are consolidated except for insurance subsidiaries which are deconsolidated and follow prescribed treatment per OSFI’s CAR guidelines. Insurance subsidiaries are subject to their own capital adequacy reporting, such as OSFI’s Life Insurance Capital Adequacy Test.

Some of the Bank’s subsidiaries are individually regulated by either OSFI or other regulators. Many of these subsidiaries have minimum capital requirements which may limit the Bank’s ability to extract capital or funds for other uses.

As at October 31, 2021, the Bank’s CET1, Tier 1, and Total Capital ratios were 15.2%, 16.5%, and 19.1%, respectively. The increase in the Bank’s CET1 Capital ratio from 13.1% as at October 31, 2020 was attributable primarily to organic capital growth, actuarial gains on employee benefit plans (net), a decrease in the adjustment related to the

non-significant

investments in the capital of banking, financial, and insurance entities, and a decrease in RWA mainly in the U.S. Retail segment. These favourable items were offset by the reduction in the scaling factor related to OSFI’s transition arrangement for ECL provisioning, from 70% in fiscal 2020 to 50% in fiscal 2021.

As at October 31, 2021, the Bank’s leverage ratio was 4.8%. Compared with the Bank’s leverage ratio of 4.5% at October 31, 2020, the leverage ratio increased due primarily to organic capital growth, partially offset by exposure growth primarily in the Canadian Retail and Wholesale Banking segments.

Common Equity Tier 1 Capital

CET1 Capital was $70 billion as at October 31, 2021. Earnings contributed the majority of CET1 Capital growth in the year. Capital management funding activities during the year included common share issuance of $579 million under the dividend reinvestment plan and from stock option exercises.

Tier 1 and Tier 2 Capital

Tier 1 Capital was $75.7 billion as at October 31, 2021, consisting of CET1 Capital and Additional Tier 1 Capital of $69.9 billion and $5.8 billion, respectively. The Bank’s Tier 1 Capital management activities during the year consisted of the redemption of (or announced intention to redeem) four Tier

1-qualifying

capital instruments and the issuance of one Tier

1-qualifying

capital instrument. On April 30, 2021, the Bank redeemed all of its 28 million outstanding

Non-Cumulative

5-Year

Rate Reset Class A First Preferred Shares NVCC, Series 12 (“Series 12 Preferred Shares”), at a redemption price of $25.00 per Series 12 Preferred Share, for a total redemption cost of $700 million. On October 31, 2021, the Bank redeemed all of its 40 million outstanding

Non-Cumulative

5-Year

Rate Reset Class A First Preferred Shares NVCC, Series 14 (“Series 14 Preferred Shares”), at a redemption price of $25.00 per Series 14 Preferred Share, for a total redemption cost of $1 billion. The Bank also redeemed (or announced intention to redeem) two Series of Tier

1-qualifying

capital instruments issued through TD Capital Trust IV (“Trust IV”) which as of November 1, 2021 will no longer be recognized as regulatory capital under Basel III. On June 30, 2021, Trust IV redeemed all of the outstanding TD Capital Trust IV Notes – Series 3 (TD CaTS IV – 3). On September 23, 2021, Trust IV announced its intention to redeem all of the outstanding TD Capital Trust IV Notes – Series 2 (TD CaTS IV – 2) and subsequently redeemed all of the outstanding TD CaTS IV – 2 on November 1, 2021. On July 29, 2021, the Bank issued $1,750 million of Limited Recourse Capital Notes NVCC, Series 1 (the “LRCNs”) with recourse limited to assets held in a trust consolidated by the Bank.

Tier 2 Capital was $12.3 billion as at October 31, 2021. There were no Tier 2 Capital management activities during the year.

INTERNAL CAPITAL ADEQUACY ASSESSMENT PROCESS

The Bank’s Internal Capital Adequacy Assessment Process (ICAAP) is an integrated enterprise-wide process that encompasses the governance, management, and control of risk and capital functions within the Bank. It provides a framework for relating risks to capital requirements through the Bank’s capital modelling and stress testing practices which help inform the Bank’s overall capital adequacy requirements.

The ICAAP is led by TBSM and is supported by numerous functional areas who together help assess the Bank’s internal capital adequacy. This assessment evaluates the capacity to bear risk in congruence with the Bank’s risk profile and RAS. TBSM assesses and monitors the overall adequacy of the Bank’s available capital in relation to both internal and regulatory capital requirements under normal and stressed conditions.

DIVIDEND RESTRICTIONS

The Bank’s ability to pay dividends is subject to the requirements of the

Bank Act

and OSFI. Refer to Note 21 of the 2021 Consolidated Financial Statements for further information on dividend restrictions.

On March 13, 2020, OSFI issued a news release announcing a series of measures to support the resilience of financial institutions in response to challenges posed by COVID-19. These measures included the expectation that all federally regulated financial institutions halt dividend increases and share buybacks. On November 4, 2021, OSFI lifted the temporary expectation that financial institutions not increase regular dividends or undertake share repurchases, effective immediately.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 45

DIVIDENDS

On December 1, 2021, the Board approved a dividend in an amount of eighty-nine cents (89 cents) per fully paid common share in the capital stock of the Bank for the quarter ending January 31, 2022, payable on and after January 31, 2022, to shareholders of record at the close of business on January 10, 2022.

DIVIDEND REINVESTMENT PLAN

The Bank offers a dividend reinvestment plan for its common shareholders. Participation in the plan is optional and under the terms of the plan, cash dividends on common shares are used to purchase additional common shares. At the option of the Bank, the common shares may be issued from the Bank’s treasury at an average market price based on the last five trading days before the date of the dividend payment, with a discount of between 0% to 5% at the Bank’s discretion, or purchased in the open market at market price.

During the year ended October 31, 2021, all 5.1 million common shares issued from the Bank’s treasury, under the dividend reinvestment plan, were issued with no discount. During the year ended October 31, 2020, 4.1 million common shares were issued from the Bank’s treasury with no discount and 10.0 million common shares were issued from the Bank’s treasury with a 2% discount under the dividend reinvestment plan.

NORMAL COURSE ISSUER BID

On December 1, 2021, the Board approved the initiation of a normal course issuer bid for up to 50 million of the Bank’s common shares, subject to the approval of OSFI and the Toronto Stock Exchange. The timing and amount of any purchases under the program are subject to regulatory approvals and management discretion based on factors such as market conditions and capital adequacy.

RISK-WEIGHTED ASSETS

Based on Basel III, RWA are calculated for each of credit risk, market risk, and operational risk. Details of the Bank’s RWA are included in the following table.

TABLE 38:  RISK-WEIGHTED ASSETS

(millions of Canadian dollars)			As at
	October 31, 2021		October 31, 2020
Credit risk
Retail
Residential secured	$	29,736	$	33,372
Qualifying revolving retail		31,453		36,448
Other retail		34,460		42,182
Non-retail
Corporate		174,416		184,326
Sovereign		3,747		3,419
Bank		9,083		8,551
Securitization exposures		12,222		12,527
Equity exposures		33,936		26,970
Exposures subject to standardized or Internal Ratings-Based (IRB) approaches		329,053		347,795
Adjustment to IRB RWA for scaling factor		18,609		19,839
Other assets not included in standardized or IRB approaches		34,699		35,802
Total credit risk		382,361		403,436
Market risk		17,045		16,758
Operational risk		60,864		58,715
Total	$	460,270	$	478,909

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 46

ECONOMIC CAPITAL AND RISK-WEIGHTED ASSETS BY SEGMENT

The following chart provides a breakdown of the Bank’s RWA and economic capital as at October 31, 2021. RWA reflects capital requirements assessed based on regulatory prescribed rules for credit risk, trading market risk, and operational risk. Economic capital reflects the Bank’s internal view of capital requirements for these risks as well as risks not captured within the assessment of RWA as described in the “Economic Capital” section of this document. The results shown in the chart do not reflect attribution of goodwill and intangibles. For additional information on the risks highlighted below, refer to the “Managing Risk” section of this document.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 47

TABLE 39:  EQUITY AND OTHER SECURITIES

1

(millions of shares/units and millions of Canadian dollars, except as noted)						As at
	October 31, 2021					October 31, 2020
	Number of shares/units			Amount		Number of shares/units			Amount
Common shares outstanding	1,823.9		$	23,066		1,816.1		$	22,487
Treasury – common shares	(1.9	)		(152	)	(0.5	)		(37	)
Total common shares	1,822.0		$	22,914		1,815.6		$	22,450
Stock options
Vested	4.4					5.4
Non-vested	7.8					7.7
Preferred shares – Class A
Series 1	20.0		$	500		20.0		$	500
Series 3	20.0			500		20.0			500
Series 5	20.0			500		20.0			500
Series 7	14.0			350		14.0			350
Series 9	8.0			200		8.0			200
Series 12 2	–			–		28.0			700
Series 14 3	–			–		40.0			1,000
Series 16	14.0			350		14.0			350
Series 18	14.0			350		14.0			350
Series 20	16.0			400		16.0			400
Series 22	14.0			350		14.0			350
Series 24	18.0			450		18.0			450
	158.0		$	3,950		226.0		$	5,650
Other equity instruments
Limited Recourse Capital Notes Series 1 4	1.8			1,750		–			–
	159.8		$	5,700		226.0		$	5,650
Treasury – preferred shares and other equity instruments	(0.1	)		(10	)	(0.1	)		(4	)
Total preferred shares and other equity instruments	159.7		$	5,690		225.9		$	5,646
Debt issued by TD Capital Trust IV:
(thousands of units)
TD Capital Trust IV Notes – Series 2 5	450.0			450		450.0			450
TD Capital Trust IV Notes – Series 3 6	–			–		750.0			750

1 For further details, including the conversion and exchange features, and distributions, refer to Note 21 of the 2021 Consolidated Financial Statements.

2 On April 30, 2021, the Bank redeemed all of its 28 million outstanding Series 12 Preferred Shares, at a redemption price of $25.00 per Series 12 Preferred Share, for a total redemption cost of $700 million.

3 On October 31, 2021, the Bank redeemed all of its 40 million outstanding Series 14 Preferred Shares, at a redemption price of $25.00 per Series 14 Preferred Share, for a total redemption cost of $1 billion.

4 For Limited Recourse Capital Notes, the number of shares/units represents the number of notes issued.

5 On November 1, 2021, Trust IV redeemed all of the outstanding TD CaTS IV – 2.

6 On June 30, 2021, Trust IV redeemed all of the outstanding TD CaTS IV – 3.

Limited Recourse Capital Notes

On July 29, 2021, the Bank issued $1,750 million of Limited Recourse Capital Notes NVCC, Series 1 (the “LRCNs”) with recourse limited to assets held in a trust consolidated by the Bank (the “Limited Recourse Trust”). The Limited Recourse Trust’s assets consist of $1,750 million of the Bank’s

Non-Cumulative

5-Year

Fixed Rate Reset Preferred Shares NVCC, Series 26 (“Preferred Shares Series 26”) at a price of $1,000 per share, issued concurrently with the LRCNs. The Preferred Shares Series 26 are eliminated on the Bank’s consolidated financial statements.

The LRCNs bear interest at a fixed rate of 3.6% per annum, payable semi-annually, until October 31, 2026 and thereafter at a rate per annum, reset every five years, equal to the prevailing

5-year

Government of Canada Yield plus 2.747% until maturity on October 31, 2081. The Bank may redeem the LRCNs, in whole or in part, during the period from October 1 to and including October 31, commencing in 2026 and every five years thereafter, with the prior written approval of OSFI. In the event of

(i) non-payment

of interest following any interest payment date,

(ii) non-payment

of the redemption price in case of a redemption of the LRCNs,

(iii) non-payment

of principal plus accrued and unpaid interest at the maturity of the LRCNs, (iv) an event of default on the LRCNs, or (v) a Trigger Event, the recourse of each LRCN holder will be limited to that holder’s pro rata share of the Limited Recourse Trust’s assets.

The LRCNs, by virtue of the recourse to the Preferred Shares Series 26, include standard NVCC provisions necessary for them to qualify as Additional Tier 1 Capital under OSFI’s CAR guideline. NVCC provisions require the conversion of the instrument into a variable number of common shares upon the occurrence of a Trigger Event. In such an event, each Preferred Share Series 26 held in the Limited Recourse Trust will automatically and immediately be converted into a variable number of common shares which will be delivered to LRCN holders in satisfaction of the principal amount of, and accrued and unpaid interest on, the LRCNs. The number of common shares issued will be determined based on the conversion formula set out in the terms of the Preferred Shares Series 26.

The LRCNs are compound instruments with both equity and liability features as payments of interest and principal in cash are made at the Bank’s discretion.

Non-payment

of interest and principal in cash does not constitute an event of default and will trigger the delivery of Preferred Shares Series 26. The liability component has a nominal value and, therefore, the proceeds received upon issuance have been presented as equity, and any interest payments are accounted for as distributions on other equity instruments.

NVCC Provision

All series of preferred shares – Class A include NVCC provisions. If a NVCC trigger event were to occur and excluding the Preferred Shares Series 26 issued with respect to LRCNs, the maximum number of common shares that could be issued, assuming there are no declared and unpaid dividends on the respective series of preferred shares at the time of conversion, would be 790 million in aggregate.

The LRCNs, by virtue of the recourse to the Preferred Shares Series 26, include NVCC provisions. For LRCNs, if a NVCC trigger were to occur, the maximum number of common shares that could be issued, assuming there are no declared and unpaid dividends on the Preferred Shares Series 26, would be 350 million.

For NVCC subordinated notes and debentures, if a NVCC trigger event were to occur, the maximum number of common shares that could be issued, assuming there is no accrued and unpaid interest on the respective subordinated notes and debentures, would be 3.2 billion in aggregate. Refer to Note 21 of the Bank’s 2021 Annual Consolidated Financial Statements for additional details.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 48

Future Regulatory Capital Developments

On April 9, 2020, OSFI announced that in line with the BCBS decision, OSFI is extending the deadline for the implementation of the final two phases of the initial margin requirements for

non-centrally

cleared derivatives outlined in OSFI’s Guideline

E-22,

by one year. With this extension, the final implementation phase will take place on September 1, 2022, at which point covered entities with an aggregate average notional amount (AANA) of

non-centrally

cleared derivatives greater than CAD $12 billion will be subject to the requirements. As an intermediate step, beginning September 1, 2021, covered entities with an AANA of

non-centrally

cleared derivatives greater than CAD $75 billion are subject to the requirements. As part of the third phase of implementation, the Bank has been subject to the initial margin requirements for non-centrally cleared derivatives since September 1, 2018.

On November 26, 2020, the BCBS published a technical amendment for capital requirements for

non-performing

loan securitizations. The amendment includes removal of the option to use the foundation internal risk-based parameters as inputs for the internal ratings-based approach

(SEC-IRBA),

a 100% risk weight floor for exposures to securitizations that are risk weighted under

SEC-IRBA

or the standardized approach, and guidance on risk weights for certain senior tranches of securitizations. At the time of the announcement, the amendment is scheduled to be implemented no later than January 1, 2023.

On March 11, 2021, OSFI released a public consultation on proposed regulatory changes for the final round of Basel III reforms to its capital, leverage, and related disclosure guidelines for banks. OSFI’s proposals are largely in line with the international standards set by the BCBS adapted to reflect domestic market considerations. On June 18, 2021, OSFI published a public consultation on the proposed management of operational risk capital data for institutions required to use the Basel III Standardized Approach for Operational Risk capital. Also, on June 18, 2021, OSFI launched a consultation on proposed changes to the treatment of credit valuation adjustments and market risk hedges of other valuation adjustments of

over-the-counter

(OTC) derivatives. These two proposed regulatory changes are a continuation of OSFI’s public consultation on the Basel III reforms. On November 29, 2021, OSFI announced details of its final policy positions on a series of key topics associated with the Basel III reforms. As part of the announcement, OSFI announced a deferral in the timing for the domestic implementation of the Basel III reforms by one quarter from the first quarter of 2023 to the second quarter of 2023. The implementation date for revisions to OSFI’s market risk and credit valuation adjustment risk frameworks remains the first quarter of 2024.

On August 13, 2021, OSFI published final revisions to its Advisory on

G-SIBs

– Public Disclosure Requirements. The revised advisory addresses changes to the disclosure requirements included in the updated

G-SIBs

assessment methodology that was published by the BCBS in July 2018 and takes effect for the 2022

G-SIB

assessment exercise.

Global Systemically Important Banks Designation and Disclosures

The FSB, in consultation with the BCBS and national authorities, identifies

G-SIBs.

In July 2013, the BCBS issued an update to the final rules on

G-SIBs

and outlined the

G-SIB

assessment methodology which is based on the submissions of the largest global banks. Twelve indicators are used in the

G-SIB

assessment methodology to determine systemic importance. The score for a particular indicator is calculated by dividing the individual bank value by the aggregate amount for the indicator summed across all banks included in the assessment. Accordingly, an individual bank’s ranking is reliant on the results and submissions of other global banks. The update also provided clarity on the public disclosure requirements of the twelve indicators used in the assessment methodology.

The Bank is required to publish the twelve indicators used in the

G-SIB

indicator-based assessment framework. Public disclosure of financial

year-end

data is required annually, no later than the date of a bank’s first quarter public disclosure of shareholder financial data in the following year.

The public communications on

G-SIB

status is issued annually each November. On November 22, 2019, the Bank was designated as a

G-SIB

by the FSB. The Bank continued to maintain its

G-SIB

status when the FSB published the 2021 list of

G-SIBs

on November 23, 2021. As a result of this designation, the Bank would be subject to an additional loss absorbency requirement (CET1 as a percentage of RWA) of 1% under applicable FSB member authority requirements; however, in accordance with OSFI’s CAR guideline, for Canadian banks designated as a

G-SIB,

the higher of the

D-SIB

and

G-SIB

surcharges will apply. As the

D-SIB

surcharge is currently equivalent to the incremental 1%

G-SIB

common equity ratio requirement, the Bank’s G-SIB designation has no additional impact on the Bank’s minimum CET1 regulatory requirements. There is also currently no impact to the supervisory target risk-based TLAC ratio of 24.0% or TLAC leverage ratio of 6.75% as a result of the Bank’s G SIB requirements. The G-SIB surcharge may increase above 1% if the Bank’s G-SIB score increases above certain thresholds to a maximum of 4.5%.

As a result of the Bank’s

G-SIB

designation, the U.S. Federal Reserve requires TD Group US Holding LLC (TDGUS), as TD’s U.S. Intermediate Holding Company (IHC), to maintain a minimum amount of TLAC and long-term debt. From the date the Bank was designated as a

G-SIB,

TDGUS has a three-year transitional period to meet these requirements.

In July 2018, BCBS issued a revised

G-SIB

framework;

G-SIBs:

revised assessment methodology and the higher loss absorbency requirement. The new assessment methodology introduces a trading volume indicator and modifies the weights in the substitutability category, amends the definition of cross-jurisdictional indicators, extends the scope of consolidation to insurance subsidiaries, and provides further guidance on bucket migration and associated loss absorbency surcharges. The revised methodology is expected to be implemented in 2022, using the 2021

year-end

data.

GROUP FINANCIAL CONDITION

Securitization and

Off-Balance

Sheet Arrangements

In the normal course of operations, the Bank engages in a variety of financial transactions that, under IFRS, are either not recorded on the Bank’s Consolidated Balance Sheet or are recorded in amounts that differ from the full contract or notional amounts. These

off-balance

sheet arrangements involve, among other risks, varying elements of market, credit, and liquidity risks which are discussed in the “Managing Risk” section of this document.

Off-balance

sheet arrangements are generally undertaken for risk management, capital management, and funding management purposes and include securitizations, contractual obligations, and certain commitments and guarantees.

STRUCTURED ENTITIES

TD carries out certain business activities through arrangements with structured entities (SEs). The Bank uses SEs to raise capital, obtain sources of liquidity by securitizing certain of the Bank’s financial assets, to assist TD’s clients in securitizing their financial assets, and to create investment products for the Bank’s clients. Securitizations are an important part of the financial markets, providing liquidity by facilitating investor access to specific portfolios of assets and risks. Refer to Notes 2, 9, and 10 of the 2021 Consolidated Financial Statements for further information regarding the Bank’s involvement with SEs.

Securitization of Bank-Originated Assets

The Bank securitizes residential mortgages, business and government loans, credit card loans, and personal loans to enhance its liquidity position, to diversify sources of funding, and to optimize the management of the balance sheet.

The Bank securitizes residential mortgages under the National Housing Act Mortgage-Backed Securities (NHA MBS) program sponsored by the Canada Mortgage and Housing Corporation (CMHC). The securitization of the residential mortgages with the CMHC does not qualify for derecognition and the mortgages remain on the Bank’s Consolidated Balance Sheet. Additionally, the Bank securitizes credit card and personal loans by selling them to

Bank-sponsored

SEs that are consolidated by the Bank. The Bank also securitizes U.S. residential mortgages with U.S. government-sponsored entities which qualify for derecognition and are removed from the Bank’s Consolidated Balance Sheet. Refer to Notes 9 and 10 of the 2021 Consolidated Financial Statements for further information.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 49

TABLE 40:  EXPOSURES SECURITIZED BY THE BANK AS ORIGINATOR

1

(millions of Canadian dollars)										As at
		Significant unconsolidated SEs				Significant consolidated SEs		Non-SE third-parties
		Securitized assets		Carrying value of retained interests		Securitized assets		Securitized assets		Carrying value of retained interests
								October 31, 2021
Residential mortgage loans	$	23,232	$	–	$	–	$	1,135	$	–
Consumer instalment and other personal loans 2		–		–		–		–		–
Credit card loans		–		–		1,810		–		–
Business and government loans		–		–		–		763		9
Total exposure	$	23,232	$	–	$	1,810	$	1,898	$	9
								October 31, 2020
Residential mortgage loans	$	23,583	$	–	$	–	$	1,688	$	–
Consumer instalment and other personal loans 2		–		–		2,862		–		–
Credit card loans		–		–		4,173		–		–
Business and government loans		–		–		–		1,004		14
Total exposure	$	23,583	$	–	$	7,035	$	2,692	$	14

1 Includes all assets securitized by the Bank, irrespective of whether they are on-balance or off-balance sheet for accounting purposes, except for securitizations through U.S. government-sponsored entities.

2 In securitization transactions that the Bank has undertaken for its own assets it has acted as an originating bank and retained securitization exposure from a capital perspective.

Residential Mortgage Loans

The Bank securitizes residential mortgage loans through significant unconsolidated SEs and Canadian

non-SE

third-parties. Residential mortgage loans securitized by the Bank may give rise to full derecognition of the financial assets depending on the individual arrangement of each transaction. In instances where the Bank fully derecognizes residential mortgage loans, the Bank may be exposed to the risks of transferred loans through retained interests.

Consumer Instalment and Other Personal Loans

The Bank securitizes consumer instalment and other personal loans through a consolidated SE. The Bank consolidates the SE as it serves as a financing vehicle for the Bank’s assets, the Bank has power over the key economic decisions of the SE, and the Bank is exposed to the majority of the residual risks of the SE. As at October 31, 2021, the SE did not have any notes outstanding (October 31, 2020 – $2.9 billion). As at October 31, 2021, the Bank’s maximum potential exposure to loss for this conduit was nil (October 31, 2020 – $2.9 billion) with a fair value of nil (October 31, 2020 – $2.9 billion).

Credit Card Loans

The Bank securitizes credit card loans through an SE. The Bank consolidates the SE as it serves as a financing vehicle for the Bank’s assets, the Bank has power over the key economic decisions of the SE, and the Bank is exposed to the majority of the residual risks of the SE. As at October 31, 2021, the Bank had $2 billion of securitized credit card receivables outstanding (October 31, 2020 – $4 billion). Due to the nature of the credit card receivables, their carrying amounts approximate fair value.

Business and Government Loans

The Bank securitizes business and government loans through significant unconsolidated SEs and Canadian

non-SE

third-parties. Business and government loans securitized by the Bank may be derecognized from the Bank’s balance sheet depending on the individual arrangement of each transaction. In instances where the Bank fully derecognizes business and government loans, the Bank may be exposed to the risks of transferred loans through retained interests.

Securitization of Third-Party Originated Assets

Significant Unconsolidated Structured Entities

Multi-Seller Conduits

The Bank administers multi-seller conduits and provides liquidity facilities as well as securities distribution services; it may also provide credit enhancements. Third-party originated assets are securitized through Bank-sponsored SEs, which are not consolidated by the Bank. The Bank’s maximum potential exposure to loss due to its ownership interest in commercial paper and through the provision of liquidity facilities for multi-seller conduits was $10.5 billion as at October 31, 2021 (October 31, 2020 – $10.9 billion). Further, as at October 31, 2021, the Bank had committed to provide an additional $2.1 billion in liquidity facilities that can be used to support future asset-backed commercial paper (ABCP) in the purchase of deal-specific assets (October 31, 2020 – $3.2 billion).

All third-party assets securitized by the Bank’s unconsolidated multi-seller conduits were originated in Canada and sold to Canadian securitization structures. Details of the Bank-administered multi-seller ABCP conduits are included in the following table.

TABLE 41:  EXPOSURE TO THIRD-PARTY ORIGINATED ASSETS SECURITIZED BY BANK-SPONSORED UNCONSOLIDATED CONDUITS

(millions of Canadian dollars, except as noted)					As at
		October 31, 2021			October 31, 2020
		Exposure and ratings profile of unconsolidated SEs AAA 1	Expected weighted- average life (years) 2		Exposure and ratings profile of unconsolidated SEs AAA 1	Expected weighted- average life (years) 2
Residential mortgage loans	$	5,395	3.5	$	6,411	3.5
Automobile loans and leases		4,349	2.5		3,802	1.8
Equipment leases		408	2.6		381	1.4
Trade receivables		306	1.5		306	1.5
Total exposure	$	10,458	3.0	$	10,900	2.7

1 The Bank’s total liquidity facility exposure only relates to ‘AAA’ rated assets.

2 Expected weighted-average life for each asset type is based upon each of the conduit’s remaining purchase commitment for revolving pools and the expected weighted-average life of the assets for amortizing pools.

As at October 31, 2021, the Bank held $1.7 billion of ABCP issued by Bank-sponsored multi-seller conduits within the Trading loans, securities, and other category on its Consolidated Balance Sheet (October 31, 2020 – $1.8 billion).

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 50

OFF-BALANCE

SHEET EXPOSURE TO THIRD-PARTY SPONSORED CONDUITS

The Bank has

off-balance

sheet exposure to third-party sponsored conduits arising from providing liquidity facilities and funding commitments of $2.5 billion as at October 31, 2021 (October 31, 2020 – $4.0 billion). The assets within these conduits are comprised of individual notes backed by automotive loan receivables, credit card receivables, equipment receivables and trade receivables. As at October 31, 2021, these assets have maintained ratings from various credit rating agencies, with a minimum rating of A.

On-balance

sheet exposure to third-party sponsored conduits have been included in the financial statements.

COMMITMENTS

The Bank enters into various commitments to meet the financing needs of the Bank’s clients, to earn fee income, and to lease premises and equipment. Significant commitments of the Bank include financial and performance standby letters of credit, documentary and commercial letters of credit, commitments to extend credit, and obligations under long-term

non-cancellable

leases for premises and equipment. These products may expose the Bank to liquidity, credit, and reputational risks. There are adequate risk management and control processes in place to mitigate these risks. Certain commitments still remain

off-balance

sheet. Note 27 of the 2021 Consolidated Financial Statements provides detailed information about the Bank’s commitments including credit-related arrangements and long-term commitments or leases.

GUARANTEES

In the normal course of business, the Bank enters into various guarantee contracts to support its clients. The Bank’s significant types of guarantee products are financial and performance standby letters of credit, credit enhancements, and indemnification agreements. Certain guarantees remain

off-balance

sheet. Refer to Note 27 of the 2021 Consolidated Financial Statements for further information.

GROUP FINANCIAL CONDITION

Related Party Transactions

TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL, THEIR CLOSE FAMILY MEMBERS, AND THEIR RELATED ENTITIES

Key management personnel are those persons having authority and responsibility for planning, directing, and controlling the activities of the Bank, directly or indirectly. The Bank considers certain of its officers and directors to be key management personnel. The Bank makes loans to its key management personnel, their close family members, and their related entities on market terms and conditions with the exception of banking products and services for key management personnel, which are subject to approved policy guidelines that govern all employees.

In addition, the Bank offers deferred share and other plans to

non-employee

directors, executives, and certain other key employees. Refer to Note 23 of the 2021 Consolidated Financial Statements for more details.

In the ordinary course of business, the Bank also provides various banking services to associated and other related corporations on terms similar to those offered to

non-related

parties.

TRANSACTIONS WITH SUBSIDIARIES, SCHWAB, TD AMERITRADE, AND SYMCOR INC.

Transactions between the Bank and its subsidiaries meet the definition of related party transactions. If these transactions are eliminated on consolidation, they are not disclosed as related party transactions.

Transactions between the Bank, Schwab, TD Ameritrade, and Symcor Inc. (Symcor) also qualify as related party transactions. There were no significant transactions between the Bank, Schwab, TD Ameritrade, and Symcor during the year ended October 31, 2021, other than as described in the following sections and in Note 12 of the 2021 Consolidated Financial Statements.

i) TRANSACTIONS WITH SCHWAB AND TD AMERITRADE

The Bank has significant influence over Schwab and accounts for its investment in Schwab using the equity method. Pursuant to the Stockholder Agreement in relation to the Bank’s equity investment in Schwab, subject to certain conditions, the Bank has the right to designate two members of Schwab’s Board of Directors and has representation on two Board Committees. As of October 31, 2021, the Bank’s designated directors were the Bank’s Group President and Chief Executive Officer and the Bank’s Chair of the Board.

A description of significant transactions between the Bank and its affiliates with Schwab and TD Ameritrade is set forth below.

Insured Deposit Account Agreement

The Bank is party to the Schwab IDA Agreement which became effective on the completion of the Schwab transaction on October 6, 2020 and has an initial expiration date of July 1, 2031. Pursuant to the Schwab IDA Agreement, the Bank makes FDIC-insured (up to specified limits) deposit accounts available to clients of Schwab. Schwab provides recordkeeping and support services with respect to the Schwab IDA Agreement. The servicing fee under the Schwab IDA Agreement is set at 15 bps per annum on the aggregate average daily balance in the sweep accounts. Starting on July 1, 2021, deposits under the Schwab IDA Agreement, which were $176 billion (US$142 billion) as at October 31, 2021, can be reduced at Schwab’s option by up to US$10 billion in a year (subject to certain adjustments), with a floor of US$50 billion. The Bank paid fees of $1.6 billion during the year ended October 31, 2021 to Schwab related to sweep deposit accounts (for the period from October 6, 2020 to October 31, 2020 – $136 million). The amount paid by the Bank is based on the average insured deposit balance of $186 billion for the year ended October 31, 2021 (for the period from October 6, 2020 to October 31, 2020 – $194 billion) and yields based on agreed upon market benchmarks, less the actual interest paid to clients of Schwab.

Prior to the Schwab IDA Agreement becoming effective on completion of the Schwab transaction, the Bank was party to an insured deposit account agreement with TD Ameritrade (the “TD Ameritrade IDA Agreement”). Pursuant to the TD Ameritrade IDA Agreement, the Bank made FDIC-insured (up to specified limits) deposit accounts available to clients of TD Ameritrade as either designated sweep vehicles or as

non-sweep

deposit accounts. TD Ameritrade provided marketing and support services with respect to the TD Ameritrade IDA Agreement. The Bank earned a servicing fee of 25 bps per annum on the aggregate average daily balance in the sweep accounts (subject to adjustment based on a specified formula). The Bank paid fees of $1.9 billion during the year ended October 31, 2020 prior to completion of the Schwab transaction (October 31, 2019 – $2.2 billion) to TD Ameritrade related to sweep deposit accounts. The amount paid by the Bank was based on the average insured deposit balance of $176 billion for the year ended October 31, 2020 prior to completion of the Schwab transaction (October 31, 2019 – $140 billion) and yields based on agreed upon market benchmarks, less the actual interest paid to clients of TD Ameritrade.

As at October 31, 2021, amounts receivable from Schwab were $26 million (October 31, 2020 – $75 million). As at October 31, 2021, amounts payable to Schwab were $195 million (October 31, 2020 – $344 million).

The Bank and other financial institutions provided Schwab and its subsidiaries with unsecured revolving loan facilities. The total commitment provided by the Bank was $95 million, which was undrawn as at October 31, 2021 (October 31, 2020 – $305 million undrawn).

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 51

ii) TRANSACTIONS WITH SYMCOR

The Bank has

one-third

ownership in Symcor, a Canadian provider of business process outsourcing services offering a diverse portfolio of integrated solutions in item processing, statement processing and production, and cash management services. The Bank accounts for Symcor’s results using the equity method of accounting. During the year ended October 31, 2021, the Bank paid $76 million (October 31, 2020 – $78 million; October 31, 2019 – $81 million) for these services. As at October 31, 2021, the amount payable to Symcor was $12 million (October 31, 2020 – $12 million).

The Bank and two other shareholder banks have also provided a $100 million unsecured loan facility to Symcor which was undrawn as at October 31, 2021, and October 31, 2020.

GROUP FINANCIAL CONDITION

Financial Instruments

As a financial institution, the Bank’s assets and liabilities are substantially composed of financial instruments. Financial assets of the Bank include, but are not limited to, cash, interest-bearing deposits, securities, loans, derivative instruments and securities purchased under reverse repurchase agreements; while financial liabilities include, but are not limited to, deposits, obligations related to securities sold short, securitization liabilities, obligations related to securities sold under repurchase agreements, derivative instruments, and subordinated debt.

The Bank uses financial instruments for both trading and

non-trading

activities. The Bank typically engages in trading activities by the purchase and sale of securities to provide liquidity and meet the needs of clients and, less frequently, by taking trading positions with the objective of earning a profit. Trading financial instruments include, but are not limited to, trading securities, trading deposits, and trading derivatives.

Non-trading

financial instruments include the majority of the Bank’s lending portfolio,

non-trading

securities, hedging derivatives, and the majority of the Bank’s financial liabilities. In accordance with accounting standards related to financial instruments, financial assets or liabilities classified as held-for-trading,

non-trading

FVTPL, designated at FVTPL, FVOCI, and all derivatives are measured at fair value in the Bank’s 2021 Consolidated Financial Statements. DSAC, most loans, and other liabilities are carried at amortized cost using the effective interest rate (EIR) method. For details on how fair values of financial instruments are determined, refer to the “Accounting Judgments, Estimates, and Assumptions” – “Fair Value Measurement” section of this document. The use of financial instruments allows the Bank to earn profits in trading, interest, and fee income. Financial instruments also create a variety of risks which the Bank manages with its extensive risk management policies and procedures. The key risks include interest rate, credit, liquidity, market, and foreign exchange risks. For a more detailed description on how the Bank manages its risk, refer to the “Managing Risk” section of this document.

RISK FACTORS AND MANAGEMENT

Risk Factors That May Affect Future Results

In addition to the risks described in the “Managing Risk” section, there are numerous other risk factors, many of which are beyond the Bank’s control and the effects of which can be difficult to predict, that could cause the Bank’s results to differ significantly from the Bank’s plans, objectives, and estimates or could impact the Bank’s reputation or sustainability of its business model. All forward-looking statements, including those in this MD&A, are, by their very nature, subject to inherent risks and uncertainties, general and specific, which may cause the Bank’s actual results to differ materially from the plan, objectives, estimates or expectations expressed in the forward-looking statements. Some of these factors are discussed below and others are noted in the “Caution Regarding Forward-Looking Statements” section of this document.

TOP AND EMERGING RISKS

TD considers it critical to regularly assess its operating environment and highlight top and emerging risks. These are risks with a potential to have a material effect on the Bank and where the attention of senior leaders is focused due to the potential magnitude or immediacy of their impacts.

Risks are identified, discussed, and actioned by senior leaders and reported quarterly to the Risk Committee and the Board. Specific plans to mitigate top and emerging risks are prepared, monitored, and adjusted as required.

General Business and Economic Conditions

TD and its customers operate in Canada, the U.S., and to a lesser extent in other countries. As a result, the Bank’s earnings are significantly affected by the general business and economic conditions in these regions, which could have an adverse impact on the Bank’s results, business, financial condition or liquidity, and could result in changes to the way the Bank operates. These conditions include short-term and long-term interest rates, inflation, fluctuations in financial markets, and related market liquidity, real estate prices, employment levels, consumer spending and debt levels, evolving consumer trends and business models, business investment, government spending, fiscal policy (including tax policy and rate changes), exchange rates, sovereign debt risks, the strength of the economy, threats of terrorism, civil unrest, natural disasters, extreme weather, reputational risk associated with increased regulatory, public, and media focus, pandemics or other public health emergencies, disruptions to public infrastructure, governmental policy, international trade and political relations, and the amount of business activities conducted in a specific region.

Geopolitical Risk

Government policy, international trade and political relations across the globe may impact overall market and economic stability in the regions where the Bank operates. While the nature and extent of risks may vary, they have the potential to disrupt global economic growth, create volatility in financial markets, interest rates, foreign exchange, commodity prices, credit spreads, fiscal policy and equities that may affect the Bank’s trading and

non-trading

activities, and directly and indirectly influence general business and economic conditions in ways that may have an adverse impact on the Bank and its customers. Geopolitical risks in 2021 included ongoing global tensions resulting in sanctions and countersanctions and related operational complexities, uncertainty related to the post-Brexit relationship between the United Kingdom and European Union, policy changes by the U.S. administration, shifting global dynamics, protectionist measures in response to the

COVID-19

pandemic, increasing instability in the Middle Eastern regions and Afghanistan, and record debt levels in emerging economies.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 52

Impact of pandemics, including the

COVID-19

pandemic

Pandemics, epidemics or outbreaks of an infectious disease in Canada or worldwide have had, and could continue to have, an adverse impact on the Bank’s results, business, financial condition or liquidity, and could result in changes to the way the Bank operates.

The

COVID-19

pandemic has negatively impacted Canadian, U.S., and global economies; disrupted Canadian, United States, and global supply chains; disrupted financial markets; contributed to a decrease in interest rates and yields on Canadian and U.S. treasury securities; resulted in ratings downgrades; forced the closure of many businesses, leading to loss of revenues, increased unemployment necessitated the imposition of quarantines, physical distancing, business closures, travel restrictions, and

sheltering-in-place

requirements in Canada, the United States, and other countries; heightened concerns over household debt levels; and reduced customer spending and consumer confidence. The

COVID-19

pandemic has also disproportionately impacted certain communities, including racialized and other marginalized groups, highlighting underlying societal issues and disparities in financial stability.

The extent to which the

COVID-19

pandemic continues to impact the Bank’s results, business, financial condition or liquidity will depend on future developments in Canada, the U.S. and globally, including the widespread availability, uptake and efficacy of vaccines. Adverse effects to the Bank’s business and operational results may include, decreased demand for products and services; increased vulnerability of the Bank’s customers to negative or unexpected events; increased loan delinquencies; lower asset management fees; lower advisory and underwriting revenue; increased risk of impairment recognition on securities or other assets and potential reductions in income; increased

non-interest

expenses; downgrades to credit ratings; and higher credit losses due to deterioration in the financial condition of borrowers, which may necessitate further increases in provision for credit losses and net charge-offs. In addition, actual stress levels experienced by the Bank’s borrowers may differ from assumptions incorporated in estimates or models used by the Bank during or prior to the pandemic.

Governmental and regulatory authorities implemented significant measures to provide economic assistance to individual households and businesses, stabilize the financial markets, and support economic growth. While, in the short-term, these measures have mitigated some effects of the crisis, over the long-term, they may not be sufficient to fully offset its negative impact or avert continued recessionary conditions. In addition, upon cessation of these measures, the Bank may see an increase in borrower delinquencies or impairments, which could negatively impact its business, financial condition, liquidity and results of operations. Furthermore, the Bank’s participation in these assistance programs has exposed the Bank to heightened risk of fraudulent behaviour by persons purporting to be eligible for such programs. Finally, it is unclear what impact, if any, the cost of implementing these programs will have on future fiscal, tax and regulatory policy, and the implications this may have for the Bank, its customers, and the financial services industry.

The pandemic has created additional operational and compliance risks, including the need to implement and execute new programs and procedures for the Bank’s products and services; provide enhanced safety measures for its employees and customers; comply with changing regulatory guidance; address the risk and increased incidence of attempted fraudulent activity and cybersecurity threat behaviour; and protect the integrity and functionality of the Bank’s systems, networks, and data as a larger number of employees work remotely. The Bank is also exposed to human capital risks, and risks arising from mental wellness concerns for employees due to issues related to health and safety matters, and other environmental stressors as a result of measures implemented in response to the

COVID-19

pandemic. Just as the Bank is subject to additional operational and compliance risks, including those listed above, its suppliers and other third parties upon which the Bank relies, have and may continue to be exposed to similar and other risks which could in turn impact the Bank’s operations.

The

COVID-19

pandemic has resulted in, and may continue to result in, disruptions to the way in which the Bank conducts business, including the closure of certain branches and stores, changes in the availability of products and services that customers can access

in-person,

work from home arrangements for certain or a significant portion of staff, as well as disruptions to key suppliers of the Bank’s goods and services. In addition, consumer behaviour has changed during the

COVID-19

pandemic (and may remain so changed even as economic conditions rebound and

COVID-19

restrictions are lifted), and it is unclear how the macroeconomic and business environment, societal and business norms, and fiscal, tax and regulatory policy may change after the pandemic. Such developments could have an adverse impact on the Bank’s business operations, the quality and continuity of services provided to customers, results of operations and financial condition, including making the Bank’s longer-term business, balance sheet and budget planning more difficult or costly. The Bank has experienced, and may continue to experience, increased or different competitive and other challenges. To the extent that the Bank is not able to adapt or compete effectively, it could experience loss of business and its results of operations and financial condition could suffer.

The Bank may be criticized or face increased risk of litigation and governmental and regulatory scrutiny, customer disputes, negative publicity, or exposure to litigation (including class actions, or regulatory and government actions and proceedings) as a result of the effects of the

COVID-19

pandemic on market and economic conditions, including as a result of the Bank’s participation (directly or on behalf of customers) in governmental assistance programs, the Bank’s deferral and other types of customer assistance programs, and the impact or effectiveness of the Bank’s health and safety measures on its customers and employees. The Bank has also received formal and informal inquiries from governmental and regulatory agencies regarding its participation in governmental assistance programs. These risks could increase the Bank’s operational, legal and compliance costs, expose it to financial judgments and fines, and damage its reputation.

The

COVID-19

pandemic has resulted in an increase, and may result in further increases, in certain of the risks outlined in the Risk Factors and Management section of this document, including the Bank’s top and emerging, strategic, credit, market, operational, model, insurance, liquidity, capital adequacy, legal, regulatory compliance and conduct, and reputational risks.

Executing on Long-Term Strategies, Shorter-Term Key Strategic Priorities, and Acquisitions

The Bank has a number of strategies and priorities, including those detailed in each segment’s “Business Segment Analysis” section of this document, which may include large scale strategic or regulatory initiatives that are at various stages of development or implementation. Examples include organic growth strategies, new acquisitions, integration of recently acquired businesses, projects to meet new regulatory requirements, new platforms and technology, and enhancements to existing technology. Risk can be elevated due to the size, scope, velocity, interdependency, and complexity of projects; the limited timeframes to complete the projects; and competing priorities for limited specialized resources.

The Bank regularly explores opportunities to acquire companies or businesses, directly or indirectly through the acquisition strategies of its subsidiaries. In respect of acquisitions, the Bank undertakes transaction assessments and due diligence before completing a merger or an acquisition and closely monitors integration activities and performance post acquisition. However, the Bank’s ability to successfully complete an acquisition is often subject to regulatory and other approvals, and the Bank cannot be certain when or if, or on what terms and conditions, any required approvals will be granted.

While there is significant management attention on the governance, oversight, methodology, tools, and resources needed to manage the Bank’s strategies and priorities, the Bank’s ability to execute on them is dependent on a number of assumptions and factors. These include those set out in the “Key Priorities for 2022”, “Focus for 2022”, “Operating Environment and Outlook”, and “Managing Risk” sections of this document, as well as disciplined resource and expense management

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 53

and the Bank’s ability to implement (and the costs associated with the implementation of) enterprise-wide programs to comply with new or enhanced regulations or regulator demands, all of which may not be in the Bank’s control and are difficult to predict.

The Bank may not achieve its financial or strategic objectives, including anticipated cost savings or revenue synergies, following acquisition and integration activities. In addition, from time to time, the Bank may invest in companies without taking a controlling position in those companies, which may subject the Bank to the operating and financial risks of those companies’, the risk that these companies may make decisions that the Bank does not agree with, and the risk that the Bank may have differing objectives than the companies in which the Bank has interests.

As at October 31, 2021, the Bank’s reported investment in Schwab was 13.41% of the outstanding voting and

non-voting

common shares of Schwab, and the Bank is not permitted to own more than 9.9% voting common shares of Schwab. The value of the Bank’s investment in Schwab and its contribution to the Bank’s financial results are vulnerable to poor financial performance or other issues at Schwab affecting its business. In addition, the Bank relies on Schwab for its financial results that are included in the Bank’s financial statements. Although the Bank has director designation rights to the Schwab board of directors and certain other rights under the Stockholder Agreement with Schwab so long as it holds at least a 5% equity interest in Schwab (and currently has designated two directors to serve on the Schwab board), these rights may not mitigate the Bank’s exposure to poor financial performance or other issues at Schwab that may affect the Bank’s financial results.

If any of the Bank’s strategies, priorities, or acquisitions and integration activities are not successfully executed, or do not achieve their financial or strategic objectives, there may be an impact on the Bank’s operations and financial performance and the Bank’s earnings could grow more slowly or decline.

Technology and Cyber Security Risk

Technology and cyber security risks for large financial institutions like the Bank have increased in recent years. This is due, in part, to the proliferation, sophistication and constant evolution of new technologies and attack methodologies used by sociopolitical entities, organized criminals, malicious insiders, or service providers, nation states, hackers and other internal or external parties. The increased risks are also a factor of the Bank’s size and scale of operations, geographic footprint, the complexity of its technology infrastructure, and the Bank’s use of internet and telecommunications technologies to conduct financial transactions, such as its continued development of mobile and internet banking platforms as well as opportunistic threats by actors seeking to exploit the

COVID-19

pandemic via phishing campaigns and cyber espionage.

The Bank’s technologies, systems and networks, and those of the Bank’s customers (including their own devices) and third parties providing services to the Bank, continue to be subject to cyber-attacks, and may be subject to disruption of services, data security or other breaches (including loss or exposure of confidential information, including customer or employee information), identity theft and corporate espionage, or other compromises. While the Bank has not experienced a material service disruption, it has experienced a minimal number of limited service disruptions as a result of cyber-attacks in the past. The Bank’s use of third-party service providers, which are subject to these potential compromises, increases the Bank’s risk of potential attack, breach or disruption as the Bank has less immediate oversight and direct control over their technology infrastructure or information security.

Although the Bank has not experienced any material financial losses relating to technology failure, cyber-attacks or data security or other breaches, the Bank may experience material loss or damage in the future including from cyber-attacks such as targeted and automated online attacks on banking systems and applications, supply chain attacks, ransomware attacks, introduction of malicious software, denial of service attacks, malicious insider or service provider exfiltrating data and phishing attacksany of which could result in the fraudulent use, disclosure or theft of data or customer or Bank funds. These may include attempts by employees, agents or third-party service providers of the Bank to access or disclose sensitive information or other data of the Bank, its customers or its employees. Attempts to illicitly or misleadingly induce employees, customers, third-party service providers or other users of the Bank’s systems will likely continue, in an effort to obtain sensitive information and gain access to the Bank’s or its customers’ or employees’ data or customer or Bank funds. In addition, the Bank’s customers often use their own devices, such as computers, smartphones, and tablets, which limits the Bank’s ability to mitigate certain risks introduced through these personal devices. The Bank may experience loss or damage arising from technology or cyber security threats.

The Bank regularly reviews external events and regularly assesses its controls and response capabilities to cyber-attacks or data security or other breaches, but these activities may not mitigate all risks, and the Bank may experience loss or damage arising from such attacks. Cyber and technology-related risks have become increasingly difficult to mitigate in totality mainly because the tactics, techniques, and procedures used change frequently and risks can originate from a wide variety of sources that have also become increasingly sophisticated. As a result, the industry and the Bank are susceptible to experiencing potential loss or damage from these attacks. The adoption of certain technologies, such as cloud computing, artificial intelligence, machine learning, robotics, and process automation call for continued focus and investment to manage the Bank’s risks effectively. It is possible that the Bank, or those with whom the Bank does business, have not anticipated or implemented, or may not anticipate or implement effective measures against all such cyber and technology-related risks, particularly because the tactics, techniques, and procedures used change frequently and risks can originate from a wide variety of sources that have also become increasingly sophisticated. Furthermore, cyber insurance providers are modifying their terms as a result of increased global cyber activity causing pricing uncertainty and coverage term changes across the industry. This has the potential to impact the Bank’s cyber insurance purchased to mitigate risk and may limit the amount of coverage available for financial losses. As such, with any cyber-attack, disruption of services, data, security or other breaches (including loss or exposure of confidential information), identity theft, corporate espionage or other compromise of technology or information systems, hardware or related processes, or any significant issues caused by weakness in information technology infrastructure and systems, the Bank may experience, among other things, financial loss; a loss of customers or business opportunities; disruption to operations; misappropriation or unauthorized release of confidential, financial or personal information; damage to computers or systems of the Bank and those of its customers and counterparties; violations of applicable privacy and other laws; litigation; regulatory penalties or intervention, remediation, investigation or restoration costs; increased costs to maintain and update the Bank’s operational and security systems and infrastructure; and reputational damage. If the Bank were to experience such an incident, it may take a significant amount of time and resources to investigate the incident to obtain full and reliable information necessary to assess the impact. The Bank’s owned and operated applications, processes, products, and services could be subject to failures or disruptions as a result of human error, natural disasters, utility disruptions, pandemics or other public health emergencies, malicious insiders, cyber-attacks or other criminal or terrorist acts, or

non-compliance

with regulations, which may impact the Bank’s operations. Such adverse effects could limit the Bank’s ability to deliver products and services to customers, and/or damage the Bank’s reputation, which in turn could lead to disruptions to its businesses and financial loss.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 54

Model Risk

The pandemic and the associated governmental assistance program have introduced a heightened level of uncertainty in models and impacted model reliability across various business areas. Models impacted by the low interest rate environment were redeveloped. Additionally, appropriate short- and long-term mitigants were identified and executed to improve resilience of models trained on historical data that may become less relevant under the current environment (e.g., IFRS 9 and stress testing models). New model limitations could emerge post-pandemic, and management will continue to reassess whether the identified

COVID-19

related limitations remain relevant and the corresponding mitigants remain appropriate, although such reassessments may not adequately or successfully improve the resilience of such models.

Fraud Activity

Fraud risk is the risk associated with acts designed to deceive others, resulting in loss and/or harm to shareholder value, brand, reputation, employee satisfaction and customers. Fraud Risk arises from numerous sources, including potential or existing customers, agents, third parties, contractors, employees and other internal or external parties, including service providers to the Bank’s customers that store bank account credentials and harvest data based on customers’ web banking information and activities. In deciding whether to extend credit or enter into other transactions with customers or counterparties, the Bank may rely on information furnished by or on behalf of such customers, counterparties or other external parties, including financial statements and financial information and authentication information. The Bank may also rely on the representations of customers, counterparties, and other external parties as to the accuracy and completeness of such information. In order to authenticate customers, whether through the Bank’s phone or digital channels or in its branches and stores, the Bank may also rely on certain authentication methods which could be subject to fraud. The Bank has seen an increase in more complex fraud, including cyber fraud and ongoing

COVID-19

related fraud schemes. The Bank has seen an increase in the threat environment emanating from the

COVID-19

pandemic against both customers and the Bank. Despite the Bank’s investments in fraud prevention and detection programs, capabilities, measures and defences, they have not, and in the future may not successfully mitigate against all fraudulent activity which could result in financial loss or disruptions in the Bank’s businesses. In addition to the risk of material loss (financial loss, misappropriation of confidential information or other assets of the Bank or its customers and counterparties) that could result from fraudulent activity, the Bank could face legal action and customer and market confidence in the Bank could be impacted.

Third-Party Service Providers

The Bank recognizes the value of using third parties to support its businesses, as they provide access to leading applications, processes, products and services, specialized expertise, innovation, economies of scale, and operational efficiencies. However, they may also create reliance upon the provider with respect to continuity, reliability, and security, and their associated processes, people and facilities. As the financial services industry and its supply chain become more complex, the need for robust, holistic, and sophisticated controls and ongoing oversight increases.

The Bank also recognizes that the applications, processes, products, and services of its providers could be subject to failures or disruptions as a result of human error, natural disasters, utility disruptions, pandemics or other public health emergencies, malicious insiders, cyber-attacks or other criminal or terrorist acts, or

non-compliance

with regulations, which could in turn impact the Bank’s operations. Such adverse effects could limit the Bank’s ability to deliver products and services to customers, and/or damage the Bank’s reputation, which in turn could lead to disruptions to its businesses and financial loss.

Introduction of New and Changes to Current Laws and Regulations

The financial services industry is highly regulated. TD’s operations, profitability and reputation could be adversely affected by the introduction of new laws and regulations, changes to, or changes in interpretation or application of current laws and regulations, issuance of judicial decisions, and changes in enforcement pace or activities. These adverse effects could also result from the fiscal, economic, and monetary policies of various central banks, regulatory agencies and governments in Canada, the United States, the United Kingdom, and other countries, and changes in the interpretation or implementation of those policies. Such adverse effects may include incurring additional costs and resources to address initial and ongoing compliance; limiting the types or nature of products and services the Bank can provide and fees it can charge; unfavourably impacting the pricing and delivery of products and services the Bank provides; increasing the ability of new and existing competitors to compete on the basis of pricing, products and services (including, in jurisdictions outside Canada, the favouring of certain domestic institutions); and increasing risks associated with potential

non-compliance.

In addition to the adverse impacts described above, the Bank’s failure to comply with applicable laws and regulations could result in sanctions, financial penalties, and changes including restrictions on offering certain products or services or on operating in certain jurisdictions, that could adversely impact its earnings, operations, and damage its reputation.

The global anti-money laundering and economic sanctions landscape continues to experience regulatory change, with significant, complex new laws and regulations that have, or are anticipated to, come into force in the short and medium-term in many of the jurisdictions in which the Bank operates.

The global data and privacy landscape is dynamic and regulatory expectations continue to evolve. New and amended legislation is anticipated in various jurisdictions in which the Bank does business.

Canadian, U.S. and global regulators have been increasingly focused on conduct and operational resilience matters and risks, and heightened expectations generally from regulators could lead to investigations, remediation requirements, and higher compliance costs. While the Bank takes numerous steps to continue to strengthen its conduct programs and its operational resilience, and prevent and detect outcomes which could potentially harm customers, colleagues or the integrity of the markets, such outcomes may not always be prevented or detected.

Local, national and international regulators have increased their focus on environmental, social and governance (ESG) matters, including the impact of climate change and financial and economic inclusion, with significant new and amendments to existing legislation anticipated in some of the jurisdictions in which the Bank does business.

In addition, there may be changes in interpretation or application of current laws and regulations to incorporate environmental, social and governance matters in ways that were not previously anticipated.

Despite the Bank’s monitoring and evaluation of the potential impact of rules, proposals, consent orders and regulatory guidance, governments and regulators around the world may introduce, and the issuance of judicial decisions may result in, unanticipated new regulations that are applicable to the Bank.

Canada

The Canadian Securities Administrators (CSA) has proposed regulations relating to

over-the-counter

derivatives reform. The Bank is monitoring this regulatory initiative which, if implemented, could result in increased compliance costs, and compliance with these standards may impact the Bank’s businesses, operations and results.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 55

The CSA also introduced regulatory reforms to enhance the client-registrant relationship, referred to as Client Focused Reforms. Enhanced requirements under the Client Focused Reforms create a higher standard of conduct across all categories of registered dealers and advisors. This will result in new training, operational and systems costs, as well as changes in the types of products and services that are offered through the Bank’s registered affiliates.

In Canada, there are a number of government initiatives underway that could impact financial institutions, including regulatory initiatives with respect to payments evolution and modernization, open banking, consumer protection, protection of customer data, dealing with vulnerable persons, and anti-money laundering. In particular, new legislation related to consumer protection in the banking industry will come into effect in June 2022, and the Bank continues to work towards being compliant by the effective date.

The Government of Canada’s

bail-in

regime, which became effective in September 2018, was implemented through regulations published under the Canada Deposit Insurance Corporation Act (the “CDIC Act”) and the Bank Act, providing the final details of conversion and issuance regimes for

bail-in

instruments issued by

D-SIBs

including the Bank (collectively, the

Bail-in

Regulations). Further amendments were introduced to the CDIC Act in 2021 through Bill

C-30

that would support and clarify the scope of the cross-border enforceability of the stay provisions applicable to eligible financial contracts as well as clarify how investors, creditors and other participants may be compensated as a result of actions taken by financial sector authorities to sell, wind-down or restore to viability a failing bank, among other things. The

bail-in

regime could adversely affect the Bank’s cost of funding.

United States

The 2018 U.S.

Economic Growth, Regulatory Relief and Consumer Protection Act

(Reform Act) included modifications to aspects of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), including stress testing. In addition, the applicable U.S. Federal regulatory agencies have adopted regulatory amendments to some of these requirements. In October 2019, the Federal Reserve issued a final rule that implemented the Reform Act’s changes to the application of enhanced prudential standards with respect to U.S. and

non-U.S.

banking organizations (the “Tailoring Rule”) based on the risk profile of the organization. The Bank has incurred, and will continue to incur, operational, capital, liquidity, and compliance costs resulting from these standards. In addition, as a result of the Bank’s designation as a

G-SIB

by the Financial Stability Board, the Bank’s U.S. operations will be subject to certain additional long-term debt and “total loss-absorbing capacity” capital requirements, effective in 2023.

The current U.S. regulatory environment for banking organizations may be further impacted by additional legislative or regulatory developments, including resulting from changes in U.S. executive administration, congressional leadership and/or agency leadership, and regulators focusing on potential racial discrimination and economic inequity, including fair lending. The ultimate consequences of these developments and their impact on the Bank remain uncertain and it remains unclear whether any other legislative or regulatory proposals relating to these requirements will be enacted or adopted.

Europe

In Europe, there remains a number of uncertainties in connection with the future of the United Kingdom – European Union relationship, and reforms implemented through the European Market Infrastructure Regulation and the review of Markets in Financial Instruments Directive and accompanying Regulation could result in higher operational and system costs and potential changes in the types of products and services the Bank can offer to customers in the region.

Regulatory Oversight and Compliance Risk

The Bank and its businesses are subject to extensive regulation and oversight by a number of different regulators and self-regulatory organizations around the world. Regulatory change and changes in regulator expectations occur in all jurisdictions in which the Bank operates. Governments and regulators around the world have demonstrated an increased focus on conduct risk, consumer protection, data control, use and security, capital and liquidity management, internal control frameworks, and money laundering and terrorist financing risks and threats. There is heightened scrutiny by regulators globally on the impact of

COVID-19

on customers as well as the Bank’s operations and its management and oversight of risks associated with the pandemic.

The Bank monitors and evaluates the potential impact of applicable regulatory developments (including enacted and proposed rules, standards, and regulatory guidance). However, while the Bank devotes substantial compliance, legal, and operational business resources to facilitate compliance with these developments by their respective effective dates, and also to the consideration of other governmental and regulator expectations, it is possible that: (i) the Bank may not be able to accurately predict the impact of final rules implementing such developments, the interpretation or enforcement actions taken by governments, regulators and courts regarding such rules, (ii) the Bank may not be able to develop or enhance the platforms, technology, or operational procedures and frameworks necessary to comply with, or adapt to, such rules or expectations in advance of their effective dates, or (iii) regulators and other parties could challenge the Bank’s compliance. This could require the Bank to take further actions or incur more costs than expected and may expose the Bank to enforcement and reputational risk. Regulatory change will continue to increase the Bank’s compliance and operational risks and costs. In addition, if governments or regulators take formal enforcement action against the Bank, the Bank’s operations, business strategies and product and service offerings may be adversely impacted, therefore impacting financial results.

Also, it may be determined that the Bank has not adequately, completely or timely addressed regulatory developments or enforcement actions to which it is subject, in a manner which meets governmental or regulator expectations. The Bank has been subject to regulatory enforcement proceedings and has entered into settlement arrangements with regulators and self-regulatory organizations, and the Bank may continue to face a greater number or wider scope of investigations, enforcement actions, and litigation. In addition, public notifications of enforcement actions are becoming more prevalent which could negatively impact the Bank’s reputation.

The Bank may incur greater than expected costs associated with enhancing its compliance, or may incur fines, penalties or judgments not in its favour associated with

non-compliance,

all of which could also lead to negative impacts on the Bank’s financial performance, operational changes including restrictions on offering certain products or services or on operating in certain jurisdictions, and its reputation.

Level of Competition, Shifts in Consumer Attitudes, and Disruptive Technology

The Bank operates in a highly competitive industry and its performance is impacted by the level of competition. Customer retention and acquisition can be influenced by many factors, including the Bank’s reputation as well as the pricing, market differentiation, and overall customer experience of the Bank’s products and services.

Enhanced competition from incumbents and new entrants may impact the Bank’s pricing of products and services and may cause it to lose revenue and/or market share. Increased competition requires the Bank to make additional short and long-term investments to remain competitive and continue delivering differentiated value to its customers, which may increase expenses. In addition, the Bank operates in environments where laws and regulations that apply to it may not universally apply to its current and emerging competitors, which could include the domestic institutions in jurisdictions outside of Canada or the U.S., or

non-

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 56

traditional providers (such as Fintech or big technology competitors) of financial products and services.

Non-depository

or

non-financial

institutions are often able to offer products and services that were traditionally banking products and compete with banks in offering digital financial solutions (primarily mobile or

web-based

services), without facing the same regulatory requirements or oversight. These competitors may also operate at much lower costs relative to revenue or balances than traditional banks. These third parties can seek to acquire customer relationships, react quickly to changes in consumer attitudes, and disintermediate customers from their primary financial institution, which can also increase fraud and privacy risks for customers and financial institutions in general. The nature of disruption is such that it can be difficult to anticipate and/or respond to adequately or quickly, representing inherent risks to certain Bank businesses, including payments. As such, this type of competition could also adversely impact the Bank’s earnings.

The Bank is advancing its artificial intelligence (AI) capabilities, to help further inform the Bank’s business decisions and risk management practices as well as improve customer experiences and efficiency of business operations. AI may not appropriately or sufficiently replicate certain outcomes or accurately predict future events or exposures.

The Bank is also looking at emerging trends, some accelerated by the disruption caused by the

COVID-19

pandemic, that may disrupt traditional interfaces, interaction preferences, or customer expectations. The Bank considers various options to accelerate innovation, including making strategic investments in innovative companies, exploring partnership opportunities, and experimenting with new technologies and concepts internally, but these investments and activities may not be successful. Legislative or regulatory action relating to such new technologies could emerge and continue to evolve, potentially increasing compliance costs and risks.

Environmental and Social Risk (including Climate Change)

As a financial institution, TD is subject to environmental risk and social risk. Environmental risk is the risk of financial loss or reputational damage resulting from environmental factors, including climate change and other environmental degradation (e.g., pollution, resource scarcity, contamination, biodiversity loss and deforestation).

Social risk is the risk of loss, harm, or reputational damage resulting from social issues such as financing relationships with socially sensitive sectors, human rights issues (e.g., discrimination including racial inequality, modern slavery, access to banking, Indigenous Peoples’ rights), and perceptions of our customers, employees, investors and other stakeholders. Organizations, including TD, are under increasing scrutiny to address social and financial inequalities among racialized and other marginalized groups.

Climate risk is the risk of financial loss or reputational damage from materialized credit, market, operational or other risks resulting from the physical and transition risks of climate change to the Bank, its customers or the communities the Bank operates in. This includes physical risks related to the impacts of a changing climate, including changes in frequency or severity of extreme weather events, rising sea levels and temperatures, and transition risks related to impacts associated with legal, regulatory, technological or behavioural changes resulting from the transition to a lower-carbon economy.

The Bank has joined industry and governmental working groups and committees focused on developing or enhancing ESG performance and sustainable finance, and has aligned itself with certain

ESG-focused

initiatives. Among others, in 2020, TD announced its global Climate Action Plan, which includes a target to achieve

net-zero

GHG emissions associated with its operations and financing activities by 2050, aligned to the objectives of the Paris Agreement. In October 2021, the Bank pledged to join the Net-Zero Banking Alliance, a global, industry-led initiative to accelerate and support efforts to address climate change. The Bank also announced a prohibition on providing new project-specific financial services for activities that are directly related to the exploration, development or production of oil and gas within the Arctic Circle. TD supports the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures (TCFD) recommendations and has implemented new tools at both the borrower and transaction levels to enhance the Bank’s assessment of environmental and social risks, including climate change. TD is also participating in industry-wide working groups relating to the development of methodologies and approaches for climate scenario analysis.

Environmental and social risks may have financial implications for both the Bank and its stakeholders (i.e., customers, suppliers, shareholders). Strategic, reputational, business, legal and regulatory risks could arise from the Bank’s actual or perceived actions, or inaction, in relation to climate change and other environmental and social risk issues, progress against its environmental or social commitments, or our disclosures on these matters. These risks could also result from environmental and social matters impacting our stakeholders. TD’s participation in ESG memberships or commitments may further bolster these risks, and subject the Bank to increased scrutiny from its stakeholders. Furthermore, the Bank may be subject to liability risk as a result of regulatory orders and/or fines, enforcement of securities disclosure and financial supervisory capital adequacy requirements, and legal action by shareholders and other stakeholders.

OTHER RISK FACTORS

Legal Proceedings

The Bank and its subsidiaries are from time to time named as defendants or are otherwise involved in various class actions and other litigation or disputes with third parties, including regulatory investigations and enforcement proceedings, related to its businesses and operations. The Bank manages the risks associated with these proceedings through a litigation management function. The volume of claims and the amount of damages and penalties claimed in litigation, arbitration and regulatory proceedings may increase in the future. Actions currently pending against the Bank may result in judgments, settlements, fines, penalties, disgorgements, injunctions, business improvement orders, limitations or prohibitions from engaging in business activities, or other results adverse to the Bank, which could materially affect the Bank’s business, financial condition, results of operations, cash flows, capital and credit ratings; require material changes in the Bank’s operations; result in loss of customers; or cause serious reputational harm to the Bank, which could also affect the Bank’s future business prospects. Moreover, some claims asserted against the Bank may be highly complex and include novel or untested legal theories. The outcome of such proceedings may be difficult to predict or estimate, in some instances, until late in the proceedings, which may last several years. In addition, settlement or other resolution of certain types of matters are often subject to external approval, which may or may not be granted. Although the Bank establishes reserves for these matters according to accounting requirements, the amount of loss ultimately incurred in relation to those matters may substantially differ from the amounts accrued. As a participant in the financial services industry, the Bank will likely continue to experience the possibility of significant litigation and regulatory investigations and enforcement proceedings related to its businesses and operations. Regulators and other government agencies examine the operations of the Bank and its subsidiaries on both a routine- and targeted-exam basis, and they may pursue regulatory settlements or other enforcement actions against the Bank in the future. For additional information relating to the Bank’s material legal proceedings, refer to Note 27 of the 2021 Consolidated Financial Statements.

Ability to Attract, Develop, and Retain Key Talent

The Bank’s future performance is dependent on the availability of qualified talent and the Bank’s ability to attract, develop, and retain key talent. The Bank’s management understands that the competition for talent continues to increase across geographies, industries, and emerging capabilities across a number of sectors including financial services. This competition has intensified and is expected to continue to intensify as a result of the impact of

COVID-19,

including as a result of remote work opportunities and relaxing geographic boundaries. Annually, the Bank undertakes a talent review process to assess critical capability

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 57

requirements for all areas of the business. Through this process, an assessment of current executive leadership, technical and core capabilities, as well as talent development opportunities is completed against both near term and future business needs. The outcomes from the process inform plans at both the enterprise and business level to retain, develop, or acquire the talent which are then actioned throughout the course of the year. Although it is the goal of the Bank’s management resource policies and practices to attract, develop, and retain key talent employed by the Bank or an entity acquired by the Bank, the Bank may not be able to do so. The Bank continues to rely on the Bank’s annual talent review program as well as the Bank’s regular, effective management practices to proactively assess and address retention and recruitment risk and emphasize

on-going

communication with talent to ensure appropriate responses on a

case-by-case

basis.

Foreign Exchange Rates, Interest Rates, Credit Spreads, and Equity Prices

Foreign exchange rate, interest rate, credit spread, and equity price movements in Canada, the United States, and other jurisdictions in which the Bank does business impact the Bank’s financial position and its future earnings. Changes in the value of the Canadian dollar relative to the global foreign exchange rates may also affect the earnings of the Bank’s small business, commercial, and corporate customers. A change in the level of interest rates, negative interest rates or a prolonged low interest rate environment affects the interest spread between the Bank’s deposits and other liabilities, and loans, and as a result, impacts the Bank’s net interest income. A change in the level of credit spreads affects the relative valuation of assets and liabilities, and as a result, impacts the Bank’s earnings. A change in equity prices impacts the Bank’s financial position and its future earnings, due to unhedged positions the Bank holds in tradeable equity securities. The Framework and policies manage the Bank’s risk appetite for known market risk.

Interbank Offered Rate (IBOR) Transition

Various interest rates and other indices that are deemed to be “benchmarks” (including IBOR benchmarks) have been, and continue to be, the subject of international regulatory guidance and proposals for reform. As a result of the global benchmark reform initiative, efforts to transition away from IBORs to alternative reference rates (“ARR”) have been continuing in various jurisdictions. The transition from IBORs to ARRs may result in market dislocation and have other adverse consequences to the Bank, its customers, market participants, and the financial services industry.

The Bank has significant contractual rights, obligations and exposures referenced to IBOR benchmarks as such discontinuance of, or changes to, benchmark rates could adversely affect the Bank’s business and results of operations. The Bank has established an enterprise-wide, cross functional initiative with senior management and Board oversight to evaluate and monitor the impact of the market, financial, operational, legal, technology and other risks on its products, services, systems, models, documents, processes, and risk management frameworks with the intention of managing the impact through appropriate mitigating actions. The Bank continues to monitor industry and regulatory developments regarding the orderly wind-down of LIBOR and is incorporating global working group and regulator best practice guidance on transition activities.

In addition to operational challenges, market risks also arise because the new reference rates are likely to differ from the prior benchmark rates resulting in differences in the calculation of the applicable interest rate or payment amount. This could result in different financial performance for previously booked transactions, require alternative hedging strategies, or affect the Bank’s capital and liquidity planning and management. Additionally, any adverse impacts on the value of and return on existing instruments and contracts for the Bank’s clients may present an increased risk of litigation, regulatory intervention, and possible reputational damage.

Accounting Policies and Methods Used by the Bank

The Bank’s accounting policies and estimates are essential to understanding its results of operations and financial condition. Some of the Bank’s policies require subjective, complex judgments and estimates as they relate to matters that are inherently uncertain. Changes in these judgments or estimates and changes to accounting standards and policies could have a materially adverse impact on the Bank’s Consolidated Financial Statements, and its reputation. The Bank has established procedures designed to ensure that accounting policies are applied consistently and that the processes for changing methodologies, determining estimates and adopting new accounting standards are controlled and occur in an appropriate and systematic manner. Significant accounting policies as well as current and future changes in accounting policies are described in Note 2 and Note 4, respectively, and significant accounting judgments, estimates, and assumptions are described in Note 3 of the 2021 Consolidated Financial Statements.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 58

RISK FACTORS AND MANAGEMENT

Managing Risk

EXECUTIVE SUMMARY

Growing profitability in financial results based on balanced revenue, expenses and capital growth services involves selectively taking and managing risks within the Bank’s risk appetite. The Bank’s goal is to earn a stable and sustainable rate of return for every dollar of risk it takes, while putting significant emphasis on investing in its businesses to meet its strategic objectives.

The Bank’s Enterprise Risk Framework (ERF) reinforces the Bank’s risk culture, which emphasizes transparency and accountability, and supports a common understanding among stakeholders of how the Bank manages risk. The ERF addresses: (1) determining the risks arising from the Bank’s strategy and operations; (2) how the Bank defines the types of risk to which it is exposed; (3) risk management governance and organization; and (4) how the Bank manages risk through processes that identify and assess, measure, control, monitor and report risk. The Bank’s risk management resources and processes are designed to both challenge and enable all its businesses to understand the risks they face and to manage them within the Bank’s risk appetite.

RISKS INVOLVED IN TD’S BUSINESSES

The Bank’s Risk Inventory sets out the Bank’s major risk categories and related subcategories to which the Bank’s businesses and operations could be exposed. The Risk Inventory facilitates consistent risk identification and is the starting point in developing risk management strategies and processes. The Bank’s major risk categories are: Strategic Risk; Credit Risk; Market Risk; Operational Risk; Model Risk; Insurance Risk; Liquidity Risk; Capital Adequacy Risk; Legal, Regulatory Compliance and Conduct Risk; and Reputational Risk.

RISK APPETITE

The Bank’s RAS is the primary means used to communicate how the Bank views risk and determines the type and amount of risk it is willing to take to deliver on its strategy and enhance shareholder value. In defining its risk appetite, the Bank takes into account its vision, purpose, strategy, shared commitments, and capacity to bear risk under both normal and recessionary conditions. The core risk principles for the Bank’s RAS are as follows:

The Bank takes risks required to build its business, but only if those risks:

1. Fit the business strategy, and can be understood and managed.

2. Do not expose the enterprise to any significant single loss events; TD does not ‘bet the Bank’ on any single acquisition, business, or product.

3. Do not risk harming the TD brand.

The Bank’s Risk Appetite Governance Framework describes the assumptions, responsibilities, and processes established to define, maintain, and govern TD’s risk appetite. The Bank considers current operating conditions and the impact of emerging risks in developing and applying its risk appetite. Adherence to enterprise risk appetite is managed and monitored across the Bank and is informed by the RAS and a broad collection of principles, policies, processes, and tools.

The Bank’s RAS describes, by major risk category, the Bank’s risk principles and establishes both qualitative and quantitative measures, thresholds, and limits, as appropriate. RAS measures consider both normal and stress scenarios and include those that can be aggregated at the enterprise level and disaggregated at the business segment level.

Risk Management is responsible for establishing practices and processes to formulate, monitor, and report on the Bank’s RAS measures. The Risk Management function also monitors and evaluates the effectiveness of these practices and processes, as well as the RAS measures. Compliance with RAS principles and measures is reported regularly to senior management, the Board, and the Risk Committee; other measures are tracked on an ongoing basis by management, and escalated to senior management and the Board, as required. Risk Management regularly assesses management’s performance against the Bank’s RAS measures.

RISK CULTURE

Risk culture is one of the attributes that is integral to TD’s overall organizational culture. It forms part of and is guided by the TD Culture Framework. The central oversight for culture at TD is led by Human Resources (HR) in partnership with Risk Management and Global Compliance. The Risk Committee engages with the Chief Risk Officer (CRO) who leads a diverse team of risk professionals to drive a proactive risk culture.

The Bank’s risk culture starts with the “tone at the top” set by the Board, Chief Executive Officer (CEO), and the Senior Executive Team (SET), and is supported by the Bank’s vision, purpose, and shared commitments. These governing objectives describe the behaviours that the Bank seeks to foster, among its employees, in building a culture where the only risks taken are those that can be understood and managed. The Bank’s risk culture embraces accountability, learning from past experiences, and encourages open communication and transparency on all aspects of risk taking. The Bank’s employees are encouraged to challenge and escalate when they believe the Bank is operating outside of its risk appetite.

Ethical behaviour is a key component of the Bank’s risk culture. The Bank’s Code of Conduct and Ethics guides employees and Directors to make decisions that meet the highest standards of integrity, professionalism, and ethical behaviour. Every Bank employee and Director is expected and required to assess business decisions and actions on behalf of the organization in light of whether it is right, legal, and fair. The Bank’s desired risk culture is reinforced by linking compensation to management’s performance against the Bank’s Risk Appetite and shared behaviours. Performance against risk appetite is a key consideration in determining compensation for executives, including adjustments to incentive awards both at the time of award and again at maturity for deferred compensation. An

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annual consolidated assessment of management’s performance against the RAS is prepared by Risk Management, reviewed by the Risk Committee, and is used by the HR Committee as a key input into compensation decisions. All executives are individually assessed against objectives that include consideration of risk and control behaviours. This comprehensive approach allows the Bank to consider whether the actions of executive management resulted in risk and control events within their area of responsibility.

In addition, governance, risk, and oversight functions operate independently from business segments supported by an organizational structure that provides objective oversight and independent challenge. Governance, risk, and oversight function heads, including the CRO, have unfettered access to respective Board committees to raise risk, compliance, and other issues. Lastly, awareness and communication of the Bank’s RAS and the ERF take place across the organization through enterprise risk communication programs, employee orientation and training, and participation in internal risk management conferences. These activities further strengthen the Bank’s risk culture by increasing the knowledge and understanding of the Bank’s expectations for risk taking.

WHO MANAGES RISK

The Bank’s risk governance structure emphasizes and balances independent oversight with clear ownership for risk control within each business segment. Under the Bank’s approach to risk governance, a “three lines of defence” model is employed, in which the first line of defence is the risk owner, the second line provides risk oversight, and the third line is internal audit.

The Bank’s risk governance model includes a senior management committee structure that is designed to support transparent risk reporting and discussions. The Bank’s overall risk and control oversight is provided by the Board and its committees. The CEO and SET determine the Bank’s long-term direction which is then carried out by business segments within the Bank’s risk appetite. Risk Management, headed by the Group Head and CRO, sets enterprise risk strategy and policy and provides independent oversight to support a comprehensive and proactive risk management approach. The CRO, who is also a member of the SET, has unfettered access to the Risk Committee.

The Bank has a subsidiary governance framework to support its overall risk governance structure, including boards of directors, and committees for various subsidiary entities where appropriate. Within the U.S. Retail business segment, risk and control oversight is provided by a separate and distinct Board of Directors which includes a fully independent Board Risk Committee and Board Audit Committee. The U.S. Chief Risk Officer (U.S. CRO) has unfettered access to the Board Risk Committee.

The following section provides an overview of the key roles and responsibilities involved in risk management. The Bank’s risk governance structure is illustrated in the following figure.

RISK GOVERNANCE STRUCTURE

The Board of Directors

The Board oversees the Bank’s strategic direction, the implementation of an effective risk culture, and the internal control framework across the enterprise. It accomplishes its risk management mandate both directly and indirectly through its four committees, the Audit, Risk, Corporate Governance, and HR committees. The Board reviews and approves the Bank’s RAS and related measures annually, and monitors the Bank’s risk profile and performance against risk appetite measures.

The Audit Committee

The Audit Committee oversees financial reporting, the adequacy and effectiveness of internal controls, including internal controls over financial reporting, and the activities of the Bank’s Global Anti-Money Laundering (GAML) group, Compliance group, and Internal Audit.

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The Risk Committee

The Risk Committee is responsible for reviewing and recommending TD’s RAS for approval by the Board annually. The Risk Committee oversees the management of TD’s risk profile and performance against its risk appetite. In support of this oversight, the committee reviews and approves certain enterprise-wide risk management frameworks and policies that support compliance with TD’s risk appetite, and monitors the management of risks and risk trends.

The Human Resources Committee

The HR Committee is responsible for overseeing the management of the Bank’s culture. In addition to its other responsibilities, it satisfies itself that HR risks are appropriately identified, assessed, and managed in a manner consistent with the risk programs within the Bank, and with the sustainable achievement of the Bank’s business objectives.

The Corporate Governance Committee

The Corporate Governance Committee, in addition to its other responsibilities, develops, and where appropriate, recommends to the Board for approval corporate governance principles, including a code of conduct and ethics, aimed at fostering a healthy governance culture at the Bank, and also acts as the conduct review committee for the Bank, including providing oversight of conduct risk. The committee also has oversight of the Bank’s alignment with its purpose and its strategy, performance and reporting on corporate responsibility for environmental and social matters.

Chief Executive Officer and Senior Executive Team

The CEO and the SET develop and recommend to the Board the Bank’s long-term strategic direction and also develop and recommend for Board approval TD’s risk appetite. The SET members set the “tone at the top” and manage risk in accordance with the Bank’s risk appetite while considering the impact of emerging risks on the Bank’s strategy and risk profile. This accountability includes identifying and reporting significant risks to the Risk Committee.

Executive Committees

The CEO, in consultation with the CRO determines the Bank’s executive committees, which are chaired by SET members. The committees meet regularly to oversee governance, risk, and control activities and to review and monitor risk strategies and associated risk activities and practices.

The Enterprise Risk Management Committee (ERMC), chaired by the CEO, oversees the management of major enterprise governance, risk, and control activities and promotes an integrated and effective risk management culture. The following executive committees have been established to manage specific major risks based on the nature of the risk and related business activity:

• ALCO – chaired by the SET member responsible for Treasury and Balance Sheet Management (TBSM), the Asset/Liability and Capital Committee (ALCO) oversees directly and through its standing subcommittees (the Enterprise Capital Committee (ECC) and Global Liquidity and Funding Forum (GLF)), the management of the Bank’s consolidated non-trading market risk and each of its consolidated liquidity, funding, investments, and capital positions.

• OROC – chaired by the Group Head and CRO, the Operational Risk Oversight Committee (OROC) oversees the identification, monitoring, and control of key risks within the Bank’s operational risk profile.

• Disclosure Committee – chaired by the CFO, the Disclosure Committee oversees that appropriate controls and procedures are in place and operating to permit timely, accurate, balanced, and compliant disclosure to regulators with respect to public disclosure, shareholders, and the market.

• ERRC – chaired by the Group Head and CRO, the Enterprise Reputational Risk Committee (ERRC) oversees the management of reputational risk within the Bank’s risk appetite, and also provides a forum for discussion, review, and escalation for non-traditional risks.

Risk Management

The Risk Management function, headed by the CRO, provides independent oversight of enterprise-wide risk management, risk governance, and control including the setting of risk strategy and policy to manage risk in alignment with the Bank’s risk appetite and business strategy. Risk Management’s primary objective is to support a comprehensive and proactive approach to risk management that promotes a strong risk culture. Risk Management works with the business segments and other corporate oversight functions to establish policies, standards, and limits that align with the Bank’s risk appetite and monitors and reports on existing and emerging risks and compliance with the Bank’s risk appetite. The CRO leads and directs a diverse team of risk management professionals organized to oversee risks arising from each of the Bank’s major risk categories. There is an established process in place for the identification and assessment of top and emerging risks. In addition, the Bank has clear procedures governing when and how risk events and issues are brought to the attention of senior management and the Risk Committee.

Business Segments

Each business segment has a dedicated risk management function that reports directly to a senior risk executive who, in turn, reports to the CRO. This structure supports an appropriate level of independent oversight while emphasizing accountability for risk within the business segment. Business management is responsible for setting the business-level risk appetite and measures, which are reviewed and challenged by Risk Management, endorsed by the ERMC, and approved by the CEO, to align with the Bank’s risk appetite and manage risk within approved risk limits.

Internal Audit

The Bank’s Internal Audit function provides independent and objective assurance to the Board regarding the reliability and effectiveness of key elements of the Bank’s risk management, internal control, and governance processes.

Compliance

The Compliance Department is responsible for fostering a culture of int

e

grity, ethics, and compliance throughout the Bank; delivering independent regulatory compliance and conduct risk management and oversight throughout the Bank; and, providing reliable and objective guidance and reporting to senior leadership and the Board on the state of regulatory compliance and conduct risk, based on independent monitoring and testing conducted and advising whether the Regulatory Compliance Management controls are sufficiently robust to achieve compliance with applicable regulatory requirements enterprise-wide.

Global Anti-Money Laundering

The GAML Department is responsible for regulatory compliance with Anti-Money Laundering (AML), Anti-Terrorist Financing, Economic Sanctions, and anti-bribery/anti-corruption regulatory compliance and broader prudential risk management across the Bank in alignment with enterprise AML policies so that the money laundering, terrorist financing, economic sanctions, and bribery and corruption risks are appropriately identified and mitigated.

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Three Lines of Defence

In order to further the understanding of responsibilities for risk management, the Bank employs the following “three lines of defence” model that describes the respective accountabilities of each line of defence in managing risk across the Bank.

THREE LINES OF DEFENCE
FIRST LINE	RISK OWNER
IDENTIFY AND CONTROL	• Own, identify, manage, measure, and monitor current and emerging risks in day-to-day activities, operations, products, and services. • Design, implement, and maintain appropriate mitigating controls, and assess the design and operating effectiveness of those controls. • Assess activities to maintain compliance with applicable laws and regulations. • Monitor and report on risk profile so that activities are within TD’s risk appetite and policies. • Implement risk-based approval processes for all new products, activities, processes, and systems. • Escalate risk issues and develop and implement action plans in a timely manner. • Deliver training, tools, and advice to support its accountabilities. • Promote a strong risk management culture.
SECOND LINE	RISK OVERSIGHT
SET STANDARDS AND CHALLENGE	• Establish and communicate enterprise governance, risk, and control strategies, frameworks, and policies. • Provide oversight and independent challenge to the first line through an effective objective assessment, that is evidenced and documented where material, including: –  Challenge the quality and sufficiency of the first line’s risk activities; –  Identify and assess current and emerging risks and controls, using a risk-based approach, as appropriate; –  Monitor the adequacy and effectiveness of internal control activities; –  Review and discuss assumptions, material risk decisions and outcomes; –  Aggregate and share results across business lines and control areas to identify similar events, patterns, or broad trends; –  Identify and assess, and communicate relevant regulatory changes; –  Develop and implement risk measurement tools so that activities are within TD’s RAS; –  Monitor and report on compliance with TD’s RAS and policies; and –  Escalate risk issues in a timely manner. • Report on the risks of the Bank on an enterprise-wide and disaggregated level to the Board and/or senior management, independently of the business lines or operational management. • Provide training, tools, and advice to support the first line in carrying out its accountabilities. • Promote a strong risk management culture.
THIRD LINE	INTERNAL AUDIT
INDEPENDENT ASSURANCE	• Verify independently that TD’s ERF is designed and operating effectively. • Validate the effectiveness of the first and second lines in fulfilling their mandates and managing risk.

In support of a strong risk culture, the Bank applies the following principles in governing how it manages risk:

Enterprise-Wide in Scope

– Risk Management will span all areas of the Bank, including third-party alliances and joint venture undertakings to the extent they may impact the Bank, and all boundaries both geographic and regulatory.

Transparent and Effective Communication

– Matters relating to risk will be communicated and escalated in a timely, accurate, and forthright manner.

Enhanced Accountability

– Risks will be explicitly owned, understood, and actively managed by business management and all employees, individually and collectively.

Independent Oversight

– Risk policies, monitoring, and reporting will be established and conducted independently and objectively.

Integrated Risk and Control Culture

– Risk Management disciplines will be integrated into the Bank’s daily routines, decision-making, and strategy formulation.

Strategic Balance

– Risk will be managed to an acceptable level of exposure, recognizing the need to protect and grow shareholder value.

APPROACH TO RISK MANAGEMENT PROCESSES

The Bank’s comprehensive and proactive approach to risk management is comprised of four processes: risk identification and assessment, measurement, control, and monitoring and reporting.

Risk Identification and Assessment

Risk identification and assessment is focused on recognizing and understanding existing risks, risks that may arise from new or evolving business initiatives, aggregate risks, and

non-traditional

or emerging risks from the changing environment. The Bank’s objective is to establish and maintain integrated risk identification and assessment processes that enhance the understanding of risk interdependencies, consider how risk types intersect, and support the identification of emerging risk. To that end, the Bank’s Enterprise-Wide Stress Testing (EWST) program enables senior management, the Board, and its committees to identify and articulate enterprise-wide risks and understand potential vulnerabilities for the Bank.

Risk Measurement

The ability to quantify risks is a key component of the Bank’s risk management process. The Bank’s risk measurement process aligns with regulatory requirements such as capital adequacy, leverage ratios, liquidity measures, stress testing, and maximum credit exposure guidelines established by its regulators. Additionally, the Bank has a process in place to quantify risks to provide accurate and timely measurements of the risks it assumes.

In quantifying risk, the Bank uses various risk measurement methodologies, including

Value-at-Risk

(VaR) analysis, scenario analysis, stress testing, and limits. Other examples of risk measurements include credit exposures, PCL, peer comparisons, trending analysis, liquidity coverage, leverage ratios, capital adequacy metrics, and operational risk event notification metrics. The Bank also requires business segments and corporate oversight functions to assess key risks and internal controls through a structured Risk and Control Self-Assessment program. Internal and external risk events are monitored to assess whether the Bank’s internal controls are effective. This allows the Bank to identify, escalate, and monitor significant risk issues as needed.

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Risk Control

The Bank’s risk control processes are established and communicated through Risk Committee and management approved policies, and associated management approved procedures, control limits, and delegated authorities which reflect its risk appetite and risk tolerances.

The Bank’s approach to risk control also includes risk and capital assessments to appropriately capture key risks in its measurement and management of capital adequacy. This involves the review, challenge, and endorsement by senior management committees of the Bank’s Internal Capital Adequacy Assessment Programs (ICAAP) and related economic capital practices. The Bank’s performance is measured based on the allocation of risk-based capital to businesses and the cost charged against that capital.

Risk Monitoring and Reporting

The Bank monitors and reports on risk levels on a regular basis against its risk appetite and Risk Management reports on its risk monitoring activities to senior management, the Board and its committees, and appropriate executive and management committees. Complementing regular risk monitoring and reporting, ad hoc risk reporting is provided to senior management, the Risk Committee, and the Board, as appropriate, for new and emerging risks or any significant changes to the Bank’s risk profile. The Bank is developing methodologies and approaches for climate scenario analysis through participation in industry-wide working groups and is working to embed the assessment of climate-related risks and opportunities into relevant Bank processes.

Stress Testing

Stress testing is an integral component of the Bank’s risk management framework and serves as a key component of the Bank’s capital, strategic and financial planning processes. Stress testing at the Bank comprises an annual enterprise-wide stress test featuring a range of severities, prescribed regulatory stress tests in multiple jurisdictions for various legal entities, and various ad hoc stress tests. The results of these stress tests enable management to assess the impact of geopolitical events and changes to economic and other market factors on the Bank’s financial condition and assist in the determination of capital targets, capital risk appetite limits and liquidity adequacy. These exercises also complement the identification and quantification of vulnerabilities, the monitoring of changes in risk profile, the establishment of risk appetite limits and the assessment of the impact of strategic business decisions and potential management actions.

The Bank utilizes a combination of quantitative modelling and qualitative approaches to estimate the impact on the Bank’s performance under hypothetical stress situations. Stress testing engages senior management across the lines of business, Finance, TBSM, Economics, and Risk Management. Stress test results are reviewed, challenged and approved by senior management, governance councils and executive oversight committees. The Bank’s Risk Committee also reviews, challenges and discusses results. The results are submitted, disclosed or shared with regulators as required or requested.

Enterprise-Wide Stress Testing

The Bank conducts an annual EWST as part of a comprehensive capital planning, strategic, and financial exercise that is a key component of the ICAAP framework. The EWST results are considered in establishing the Bank’s capital targets and risk appetite limits. The program is subject to a well-defined governance structure that facilitates oversight and engagement throughout the organization. The Bank’s EWST program involves the development, application, and assessment of severe, but plausible, stress scenarios on the balance sheet, income statement, capital, liquidity, and leverage. It enables management to identify and articulate enterprise-wide risks and understand potential vulnerabilities, and changes to the risk profile of the Bank. Stress scenarios are developed with consideration of the Bank’s key business activities, exposures, concentrations and vulnerabilities. The scenarios cover a wide variety of risk factors meaningful to the Bank’s risk profile in both the North American and global economies including, but not limited to, changes to unemployment, gross domestic product, home prices, and interest rates.

Typical EWSTs feature two scenarios. One is a plausible scenario calibrated to historical recessions in Canada and the U.S. and is used to evaluate downside risks. The other is an extremely high severity, low probability scenario targeted towards stressing

TD-specific

risks and vulnerabilities in support of the ICAAP.

For the 2021 EWST program, the Bank determined that the recession scenario was no longer effective to allow it to evaluate the downside risks given the

COVID-19

pandemic environment. As such, the 2021 EWST program assessed a single scenario with extremely high severity, which featured further economic deterioration with a prolonged recovery driven by ineffective vaccines, more stringent lockdown measures and lack of progress on long-term fiscal plans. The assessment of the scenario concluded that the Bank had sufficient capital to withstand the extremely severe and prolonged stress conditions.

Other Stress Tests

Stress tests are also conducted on certain legal entities and jurisdictions, in line with prescribed regulatory requirements. The Bank’s U.S.-based operating bank subsidiaries’ capital planning process includes activities and results from the Office of the Comptroller of the Currency’s (OCC) Dodd-Frank Act stress testing (DFAST) requirements. The Bank’s U.S. holding company capital planning process includes the stress testing activities and results from the Federal Reserve Board’s capital plan rule and related Comprehensive Capital Analysis and Review (CCAR) requirements. In addition, certain Bank subsidiaries in Singapore, Ireland, and the United Kingdom conduct stress testing exercises as part of their respective ICAAP. The Bank undertakes other internal and regulatory based stress tests including, but not limited to, liquidity and market risk, which are detailed in the respective sections.

The Bank also conducts scenario and sensitivity analysis as part of the Recovery and Resolution Planning program to assess potential mitigating actions and contingency planning strategies, as required. In addition, the Bank conducts ad hoc stress tests, which include enterprise or targeted portfolio testing, to evaluate potential vulnerabilities to specific changes in economic and market conditions.

Strategic Risk

Strategic risk is the risk of

sub-optimal

outcomes (including financial loss or reputational damage) arising from the Bank

’s

choice of strategies, the improper implementation of chosen strategies, the inability to implement chosen strategies, an inadequate response to disruption to the Bank’s strategies or the taking of tail risk (i.e., low probability events that can result in extremely large quantifiable losses). Strategies include current operations and merger and acquisition activities.

WHO MANAGES STRATEGIC RISK

The CEO manages Strategic Risk supported by the members of the SET and the ERMC. The CEO, together with the SET, defines the overall strategy, in consultation with, and subject to approval by the Board. The Enterprise Strategy and Decision Support group, under the leadership of the Chief Financial Officer (CFO), is charged with developing the Bank’s overall long-term strategy and shorter-term strategic priorities with input and support from senior executives across the Bank.

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Each member of the SET is responsible for establishing and managing long-term strategy and shorter-term priorities for their areas of responsibility (business segment or corporate function), and that such strategies are aligned with the Bank’s overall long-term strategy and short-term strategic priorities, and within the

enterprise risk appetite. Each SET member is also accountable to the CEO for identifying, assessing, measuring, controlling, monitoring, and reporting on the effectiveness and risks of their business strategies.

The CEO, SET members, and other senior executives report to the Board on the implementation of the Bank’s strategies, identifying related risks, and explaining how those risks are managed.

The ERMC oversees the identification and monitoring of significant and emerging risks related to the Bank’s strategies so that mitigating actions are taken where appropriate.

HOW TD MANAGES STRATEGIC RISK

The Bank’s enterprise-wide strategies and operating performance, and those of significant business segments and corporate functions, are assessed regularly by the CEO and the members of the SET through an integrated financial and strategic planning process, as well as operating results reviews.

The Bank’s RAS establishes strategic risk limits at the enterprise and business segment-level. Limits include qualitative and quantitative assessments and are established to monitor and control business concentrations, strategic disruption, and environmental and social risks.

The Bank’s annual integrated planning process establishes plans at the enterprise, segment, and strategic business line-levels (subsets of business segments). The plans include key operating trends, long-term strategy, shorter-term strategies, target metrics, key risks and mitigants, ESG considerations, and alignment with enterprise strategy and risk appetite.

Operating results are reviewed on a periodic basis during the year to monitor segment-level performance against the integrated financial and strategic plan. These reviews include an evaluation of the long-term strategy and short-term strategic priorities of each business segment, including the operating environment, competitive position, performance assessment, initiatives for strategy execution and key business risks. The frequency of the operating results reviews depends on the risk profile and size of the business segment or corporate function.

The Bank’s strategic risk, and adherence to its risk appetite, is reviewed by the ERMC in the normal course, as well as by the Board. Additionally, material acquisitions are assessed for their fit with the Bank’s strategy and risk appetite in accordance with the Bank’s Due Diligence Policy. This assessment is reviewed by the SET and Board as part of the decision process.

The shaded areas of this MD&A represent a discussion on risk management policies and procedures relating to credit, market, and liquidity risks as required under IFRS 7,

Financial Instruments: Disclosures

, which permits these specific disclosures to be included in the MD&A. Therefore, the shaded areas which include Credit Risk, Market Risk, and Liquidity Risk, form an integral part of the audited Consolidated Financial Statements for the years ended October 31, 2021 and 2020.

Credit Risk

Credit risk is the risk of loss if a borrower or counterparty in a transaction fails to meet its agreed payment obligations.

Credit risk is one of the most significant and pervasive risks in banking. Every loan, extension of credit, or transaction that involves the transfer of payments between the Bank and other parties or financial institutions exposes the Bank to some degree of credit risk.

The Bank’s primary objective is to be methodical in its credit risk assessment so that the Bank can understand, select, and manage its exposures to reduce significant fluctuations in earnings.

The Bank’s strategy is to include central oversight of credit risk in each business, and reinforce a culture of transparency, accountability, independence, and balance.

WHO MANAGES CREDIT RISK

The responsibility for credit risk management is enterprise-wide. To reinforce ownership of credit risk, credit risk control functions are integrated into each business, but also report to Risk Management.

Each business segment’s credit risk control unit is responsible for its credit decisions and must comply with established policies, exposure guidelines, credit approval limits, and policy/limit exception procedures. It must also adhere to established enterprise-wide standards of credit assessment and obtain Risk Management’s approval for credit decisions beyond its discretionary authority.

Risk Management is accountable for oversight of credit risk by developing policies that govern and control portfolio risks, and approval of product-specific policies, as required.

The Risk Committee oversees the management of credit risk and annually approves certain significant credit risk policies.

HOW TD MANAGES CREDIT RISK

The Bank’s Credit Risk Management Framework outlines the internal risk and control structure to manage credit risk and includes risk appetite, policies, processes, limits and governance. The Credit Risk Management Framework is maintained by Risk Management and supports alignment with the Bank’s risk appetite for credit risk.

Credit risk policies and credit decision-making strategies, as well as the discretionary limits of officers throughout the Bank for extending lines of credit are centrally approved by Risk Management, and the Board where applicable.

Limits are established to monitor and control country, industry, product, geographic, and group exposure risks in the portfolios in accordance with enterprise-wide policies.

In the Bank’s Retail businesses, the Bank uses established underwriting guidelines (which include collateral and

loan-to-value

constraints) along with approved scoring techniques and standards in extending, monitoring, and reporting personal credit. Credit scores and decision strategies are used in the origination and ongoing management of new and existing retail credit exposures. Scoring models and decision strategies utilize a combination of borrower attributes, including employment status, existing loan exposure and performance, and size of total bank relationship, as well as external data such as credit bureau information, to determine the amount of credit the Bank is prepared to extend to retail customers and to estimate future credit performance. Established policies and procedures are in place to govern the use, and monitor and assess the performance of scoring models and decision strategies to align with expected performance results. Retail credit exposures approved within the regional credit centres are subject to ongoing Retail Risk Management review to assess the effectiveness of credit decisions and risk controls, as well as identify emerging or systemic issues and trends. Material policy exceptions are tracked and reported and larger dollar exposures and material exceptions to policy are escalated to Retail Risk Management.

The Bank’s Commercial Banking and Wholesale Banking businesses use credit risk models and policies to establish borrower and facility risk ratings (BRR and FRR), quantify and monitor the level of risk, and facilitate the associated risk management. Risk ratings are also used to determine the amount of credit exposure the Bank is willing to extend to a particular borrower. Management processes are used to monitor country, industry, and borrower or counterparty risk ratings, which include daily, monthly, quarterly, and annual review requirements for credit exposures. The key parameters used in the Bank’s credit risk models are monitored on an ongoing basis.

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Unanticipated economic or political changes in a foreign country could affect cross-border payments for goods and services, loans, dividends, and

trade-related

finance, as well as repatriation of the Bank’s capital in that country. The Bank currently has credit exposure in a number of countries, with the majority of the exposure in North America. The Bank measures country risk using approved risk rating models and qualitative factors that are also used to establish country exposure limits covering all aspects of credit exposure across all businesses. Country risk ratings are managed on an ongoing basis and are subject to a detailed review at least annually.

As part of the Bank’s credit risk strategy, the Bank sets limits on the amount of credit it is prepared to extend to specific industry sectors. The Bank monitors its concentration to any given industry to provide for a diversified loan portfolio and to reduce the risk of undue concentration. The Bank manages this risk using limits based on an internal risk rating score that combines TD’s industry risk rating model and industry analysis, and regularly reviews industry risk ratings to assess whether internal ratings properly reflect the risk of the industry. The Bank assigns a maximum exposure limit or a concentration limit to each major industry segment which is a percentage of its total wholesale and commercial private sector exposure.

The Bank may also set limits on the amount of credit it is prepared to extend to a particular entity or group of entities, also referred to as “entity risk”. All entity risk is approved by the appropriate decision-making authority using limits based on the entity’s BRR and, for certain portfolios, the risk rating of the industry in which the entity operates. This exposure is monitored on a regular basis.

To determine the potential loss that could be incurred under a range of adverse scenarios, the Bank subjects its credit portfolios to stress tests. Stress tests assess vulnerability of the portfolios to the effects of severe but plausible situations, such as an economic downturn or a material market disruption.

The Basel Framework

The objective of the Basel Framework is to improve the consistency of capital requirements internationally and make required regulatory capital more

risk-sensitive.

The Basel Framework sets out several options which represent increasingly more risk-sensitive approaches for calculating credit, market, and operational RWA.

Credit Risk and the Basel Framework

The Bank received approval from OSFI to use the Basel AIRB Approach for credit risk, effective November 1, 2007, with certain exemptions. Effective the third quarter of 2020, OSFI approved the use of the AIRB approach for the

non-retail

portfolio in the U.S. Retail segment. With this approval, the Bank now uses the AIRB approach for all material portfolios.

To continue to qualify using the AIRB Approach for credit risk, the Bank must meet the ongoing conditions and requirements established by OSFI and the Basel Framework. The Bank regularly assesses its compliance with these requirements.

Credit Risk Exposures Subject to the AIRB Approach

Banks that adopt the AIRB Approach to credit risk must report credit risk exposures by counterparty type, each having different underlying risk characteristics. These counterparty types may differ from the presentation in the Bank’s 2021 Consolidated Financial Statements. The Bank’s credit risk exposures are divided into two main portfolios, retail and

non-retail.

Risk Parameters

Under the AIRB Approach, credit risk is measured using the following risk parameters:

• Probability of default (PD) – the likelihood that the borrower will not be able to meet its scheduled repayments within a one-year time horizon.

• Loss given default (LGD) – the amount of loss the Bank would likely incur when a borrower defaults on a loan, which is expressed as a percentage of exposure at default (EAD).

• EAD – the total amount the Bank is exposed to at the time of default.

By applying these risk parameters, the Bank can measure and monitor its credit risk to verify that it remains within

pre-determined

thresholds.

Retail Exposures

In the retail portfolio, including individuals and small businesses, the Bank manages exposures on a pooled basis, using predictive credit scoring techniques. There are three

sub-types

of retail exposures: residential secured (for example, individual mortgages and home equity lines of credit), qualifying revolving retail (for example, individual credit cards, unsecured lines of credit, and overdraft protection products), and other retail (for example, personal loans, including secured automobile loans, student lines of credit, and small business banking credit products).

The Bank calculates RWA for its retail exposures using the AIRB Approach. All retail PD, LGD, and EAD parameter models are based exclusively on the internal default and loss performance history for each of the three retail exposure

sub-types.

Account-level PD, LGD, and EAD models are built for each product portfolio and calibrated based on the observed account-level default and loss performance for the portfolio.

Consistent with the AIRB Approach, the Bank defines default for exposures as delinquency of 90 days or more for the majority of retail credit portfolios. LGD estimates used in the RWA calculations reflect economic losses, such as, direct and indirect costs as well as any appropriate discount to account for time between default and ultimate recovery. EAD estimates reflect the historically observed utilization of credit limits at default. PD, LGD, and EAD models are calibrated using established statistical methods, such as logistic and linear regression techniques. Predictive attributes in the models may include account attributes, such as loan size, interest rate, and collateral, where applicable; an account’s previous history and current status; an account’s age on book; a customer’s credit bureau attributes; and a customer’s other holdings with the Bank, and macroeconomic inputs, such as unemployment rate. For secured products such as residential mortgages, property characteristics,

loan-to-value

ratios, and a customer’s equity in the property, play a significant role in PD as well as in LGD models.

All risk parameter estimates are updated on a quarterly basis based on the refreshed model inputs. Parameter estimation is fully automated based on approved formulas and is not subject to manual overrides.

Exposures are then assigned to one of nine

pre-defined

PD segments based on their estimated

long-run

average

one-year

PD.

The predictive power of the Bank’s retail credit models is assessed against the most recently available

one-year

default and loss performance on a quarterly basis. All models are also subject to a comprehensive independent validation as outlined in the “Model Risk Management” section of this disclosure.

Long-run

PD estimates are generated by including key economic indicators, such as interest rates and unemployment rates, and using their

long-run

average over the credit cycle to estimate PD.

LGD estimates are required to reflect a downturn scenario. Downturn LGD estimates are generated by using macroeconomic inputs, such as changes in housing prices and unemployment rates expected in an appropriately severe downturn scenario.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 65

For unsecured products, downturn LGD estimates reflect the observed lower recoveries for exposures defaulted during the 2008 to 2009 recession. For products secured by residential real estate, such as mortgages and home equity lines of credit, downturn LGD reflects the potential impact of a severe housing downturn. EAD estimates similarly reflect a downturn scenario.

The following table maps PD ranges to risk levels:

Risk Assessment	PD Segment	PD Range
Low Risk	1	0.00 to 0.15%
Normal Risk	2 3	0.16 to 0.41 0.42 to 1.10
Medium Risk	4 5	1.11 to 2.93 2.94 to 4.74
High Risk	6 7 8	4.75 to 7.59 7.60 to 18.24 18.25 to 99.99
Default	9	100.00

Non-Retail

Exposures

In the

non-retail

portfolio, the Bank manages exposures on an individual borrower basis, using industry and sector-specific credit risk models, and expert judgment. The Bank has categorized

non-retail

credit risk exposures according to the following Basel counterparty types: corporate, including wholesale and commercial customers, sovereign, and bank. Under the AIRB Approach, CMHC-insured mortgages are considered sovereign risk and are therefore classified as

non-retail.

The Bank evaluates credit risk for

non-retail

exposures by using both a BRR and FRR. The Bank uses this system for all corporate, sovereign, and bank exposures. The Bank determines the risk ratings using industry and sector-specific credit risk models that are based on internal historical data. In Canada, for both the wholesale and commercial lending portfolios, credit risk models are calibrated based on internal data beginning in 1994. In the U.S., credit risk models are calibrated based on internal data beginning in 2007. All borrowers and facilities are assigned an internal risk rating that must be reviewed at least once each year. External data such as rating agency default rates or loss databases are used to validate the parameters.

Internal risk ratings (BRR and FRR) are key to portfolio monitoring and management, and are used to set exposure limits and loan pricing. Internal risk ratings are also used in the calculation of regulatory capital, economic capital, and allowance for credit losses

.

Borrower Risk Rating and PD

Each borrower is assigned a BRR that reflects the PD of the borrower using proprietary models and expert judgment. In assessing borrower risk, the Bank reviews the borrower’s competitive position, financial performance, economic, and industry trends, management quality, and access to f

u

nds. Under the AIRB Approach, borrowers are grouped into BRR grades that have similar PD. Use of projections for model implied risk ratings is not permitted and BRRs may not incorporate a projected reversal, stabilization of negative trends, or the acceleration of existing positive trends. Historic financial results can however be sensitized to account for events that have occurred, or are about to occur, such as additional debt incurred by a borrower since the date of the last set of financial statements. In conducting an assessment of the BRR, all relevant and material information must be taken into account and the information being used must be current. Quantitative rating models are used to rank the

 expected

through-the-cycle

PD, and these models are segmented into categories based on industry and borrower size. The quantitative model output can be modified in some cases by expert judgment, as prescribed within the Bank’s credit policies.

To calibrate PDs for each BRR band, the Bank computes yearly transition matrices based on annual cohorts and then estimates the average annual PD for each BRR. The PD is set at the average estimation level plus an appropriate adjustment to cover statistical and model uncertainty. The calibration process for PD is

a

 through-the-cycle

approach. TD’s

21-point

BRR scale broadly aligns to external ratings as follows:

Description	Rating Category	Standard & Poor’s	Moody’s Investor Services
Investment grade	0 to 1C	AAA to AA-	Aaa to Aa3
	2A to 2C	A+ to A-	A1 to A3
	3A to 3C	BBB+ to BBB-	Baa1 to Baa3
Non-investment grade	4A to 4C	BB+ to BB-	Ba1 to Ba3
	5A to 5C	B+ to B-	B1 to B3
Watch and classified	6 to 8	CCC+ to CC and below	Caa1 to Ca and below
Impaired/default	9A to 9B	Default	Default

Facility Risk Rating and LGD

The FRR maps to LGD and takes into account facility-specific characteristics such as collateral, seniority ranking of debt, and loan structure.

Different FRR models are used based on industry and obligor size. Data considered in the calibration of the LGD model includes variables such as collateral coverage, debt structure, and borrower enterprise value. Average LGD and the statistical uncertainty of LGD are estimated for each FRR grade. In some FRR models, lack of historical data requires the model to output a rank-ordering which is then mapped through expert judgment to the quantitative LGD scale.

The AIRB Approach stipulates the use of downturn LGD, where the downturn period, as determined by internal and/or external experience, suggests higher than average loss rates or lower than average recovery. To reflect this, calibrated LGDs take into account both the statistical estimation uncertainty and the higher than average LGDs experienced during downturn periods.

Exposure at Default

The Bank calculates

non-retail

EAD by first measuring the drawn amount of a facility and then adding a potential increased utilization at default from the undrawn portion, if any. Usage Given Default (UGD) is measured as the percentage of Committed Undrawn exposure that would be expected to be drawn by a borrower defaulting in the next year, in addition to the amount that already has been drawn by the borrower. In the absence of credit mitigation effects or other details, the EAD is set at the drawn amount plus (UGD x Committed Undrawn), where UGD is a percentage between 0% and 100%.

BRR and drawn ratio up to

one-year

prior to default are predictors for UGD. Consequently, the UGD estimates are calibrated by BRR and drawn ratio, the latter representing the ratio of the drawn to authorized amounts.

TD BANK GROUP   •   2021 ANNUAL REPORT   •   MANAGEMENT’S DISCUSSION & ANALYSIS Page 66

Historical UGD experience is studied for any downturn impacts, similar to the LGD downturn analysis. The Bank has not found downturn UGD to be significantly different from average UGD, therefore the UGDs are set at the average calibrated level, by drawn ratio and/or BRR, plus an appropriate adjustment for statistical and model uncertainty.

Credit Risk Exposures Subject to the Standardized Approach (SA)

Currently SA to credit risk is used on exempted portfolios which are either immaterial or expected to wind down. Under SA, the assets are multiplied by risk weights prescribed by OSFI to determine RWA. These risk weights are assigned according to certain factors including counterparty type, product type, and the nature/extent of credit risk mitigation. The Bank uses external credit ratings, including Moody’s and S&P to determine the appropriate risk weight for its exposures to sovereigns (governments, central banks, and certain public sector entities) and banks (regulated deposit-taking institutions, securities firms, and certain public sector entities).

The Bank applies the following risk weights to

on-balance

sheet exposures under SA:

Sovereign	0	% 1
Bank	20	% 1
Corporate	100	%

1 The risk weight may vary according to the external risk rating.

Lower risk weights apply where approved credit risk mitigants exist.

Non-retail

loans that are more than 90 days past due receive a risk weight of 150%. For

off-balance

sheet exposures, specified credit conversion factors are used to convert the notional amount of the exposure into a credit equivalent amount.

Derivative Exposures

Credit risk on derivative financial instruments, also known as counterparty credit risk, is the risk of a financial loss occurring as a result of the failure of a counterparty to meet its obligation to the Bank. Derivative-related credit risks are subject to the same credit approval standards that the Bank uses for assessing loans. These standards include evaluating the creditworthiness of counterparties, measuring and monitoring exposures, including

wrong-way

risk exposures, and managing the size, diversification, and maturity structure of the portfolios.

The Bank uses various qualitative and quantitative methods to measure and manage counterparty credit risk. These include statistical methods to measure the current and future potential risk, as well as ongoing stress testing to identify and quantify exposure under a range of adverse scenarios. The Bank establishes various limits to manage business volumes and concentrations. Risk Management independently measures and monitors counterparty credit risk relative to established credit policies and limits. As part of the credit risk monitoring process, management periodically reviews all exposures, including exposures resulting from derivative financial instruments to higher risk counterparties, and to assess the valuation of underlying financial instruments and the impact evolving market conditions may have on the Bank.

To reduce credit risk exposure, the Bank employs mitigation strategies that include master netting agreements, collateral pledging, central clearing houses and other credit risk mitigation techniques. Master netting agreements allow the Bank to offset and arrive at a net obligation amount, whereas collateral agreements allow the Bank to secure the Bank’s exposure. By taking the opposite position to each trade, central clearing houses also reduce bilateral credit risk.

There are two types of

wrong-way

risk exposures, namely general and specific. General

wrong-way

risk arises when the PD of the counterparties moves in the same direction as a given market risk factor. Specific

wrong-way

risk arises when the exposure to a particular counterparty moves in the same direction as the PD of the counterparty due to the nature of the transactions entered into with that counterparty. These exposures require specific approval within the credit approval process. The Bank measures and manages specific

wrong-way

risk exposures in the same manner as direct loan obligations and controls them by way of approved credit facility limits.

The Bank uses the standardized approach for counterparty credit risk to calculate the EAD amount, which is defined by OSFI as a multiple of the summation of replacement cost and potential future exposure, to

e

stimate the risk and determine regulatory capital requirements for derivative exposures.

Validation of the Credit Risk Rating System

Credit risk rating systems and methodologies are independently validated on a regular basis to verify that they remain accurate predictors of risk. The validation process includes the following considerations:

• Risk parameter estimates – PDs, LGDs, and EADs are reviewed and updated against actual loss experience to verify that estimates continue to be reasonable predictors of potential loss.

• Model performance – Estimates continue to be discriminatory, stable, and predictive.

• Data quality – Data used in the risk rating system is accurate, appropriate, and sufficient.

• Assumptions – Key assumptions underlying the development of the model remain valid for the current portfolio and environment.

Risk Management verifies that the credit risk rating system complies with the Bank’s Model Risk Policy. At least annually, the Risk Committee is informed of the performance of the credit risk rating system. The Risk Committee must approve any material changes to the Bank’s credit risk rating system.

Credit Risk Mitigation

The techniques the Bank uses to reduce or mitigate credit risk include written policies and procedures to value and manage financial and

non-financial

security (collateral) and to review and negotiate netting agreements. The amount and type of collateral, and other credit risk mitigation techniques required, are based on the Bank’s own assessment of the borrower’s or counterparty’s credit quality and capacity to pay.

In the Retail and Commercial banking businesses, security for loans is primarily

non-financial

and includes residential real estate, real estate under development, commercial real estate, automobiles, and other business assets, such as accounts receivable, inventory, and fixed assets. In the Wholesale Banking business, a large portion of loans are to investment grade borrowers where no security is pledged.

Non-investment

grade borrowers typically pledge business assets in the same manner as commercial borrowers. Common standards across the Bank are used to value collateral, determine frequency of recalculation, and to document, register, perfect, and monitor collateral.

The Bank also uses collateral, master netting agreements and central clearing houses to mitigate derivative counterparty exposure. Security for derivative exposures is primarily financial and includes cash and negotiable securities issued by highly rated governments and investment grade issuers. This approach includes

pre-defined

discounts and procedures for the receipt, safekeeping, and release of pledged

securities.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 67

In all but exceptional situations, the Bank secures collateral by taking possession and controlling it in a jurisdiction where it can legally enforce its collateral rights. In exceptional situations and when demanded by the Bank’s counterparty, the Bank holds or pledges collateral with an acceptable third-party custodian. The Bank documents all such

third-party

arrangements with industry standard agreements.

Occasionally, the Bank may take guarantees to reduce the risk in credit exposures. For credit risk exposures subject to the AIRB approach, the Bank only recognizes irrevocable guarantees for Commercial Banking and Wholesale Banking credit exposures that are provided by entities with a better risk rating than that of the borrower or counterparty to the transaction.

The Bank makes use of credit derivatives to mitigate credit risk. The credit, legal, and other risks associated with these transactions are controlled through well-established procedures. The Bank’s policy is to enter into these transactions with investment grade financial institutions and transact on a collateralized basis. Credit risk to these counterparties is managed through the same approval, limit, and monitoring processes the Bank uses for all counterparties for which it has credit exposure.

The Bank uses appraisals and automated valuation models (AVMs) to support property values when adjudicating loans collateralized by residential real property. AVMs are computer-based tools used to estimate or validate the market value of residential real property using market comparables and price trends for local market areas. The primary risk associated with the use of these tools is that the value of an individual property may vary significantly from the average for the market area. The Bank has specific risk management guidelines addressing the circumstances when they may be used, and processes to periodically validate AVMs including obtaining third-party appraisals.

Gross Credit Risk Exposure

Gross credit risk exposure, also referred to as EAD, is the total amount the Bank is exposed to at the time of default of a loan and is measured before counterparty-specific provisions or write-offs. Gross credit risk exposure does not reflect the effects of credit risk mitigation and includes both

on-balance

sheet and

off-balance

sheet exposures.

On-balance

sheet exposures consist primarily of outstanding loans, acceptances,

non-trading

securities, derivatives, and certain other repo-style transactions.

Off-balance

sheet exposures consist primarily of undrawn commitments, guarantees, and certain other

repo-style

transactions.

Gross credit risk exposures for the two approaches the Bank uses to measure credit risk are included in the following table.

TABLE 42: GROSS CREDIT RISK EXPOSURES – Standardized and Advanced Internal Ratings-Based Approaches

1

(millions of Canadian dollars)										As at
			October 31, 2021				��			October 31, 2020
	Standardized		AIRB		Total			Standardized		AIRB		Total
Retail
Residential secured	$	4,323	$	433,144	$	437,467		$	3,594	$	409,564	$	413,158
Qualifying revolving retail		–		151,006		151,006			–		153,820		153,820
Other retail		3,368		88,894		92,262			3,135		88,185		91,320
Total retail		7,691		673,044		680,735			6,729		651,569		658,298
Non-retail
Corporate		6,066		625,640		631,706			11,774		588,331		600,105
Sovereign		1		470,671		470,672			1		528,598		528,599
Bank		519		136,004		136,523			446		149,117		149,563
Total non-retail		6,586		1,232,315		1,238,901			12,221		1,266,046		1,278,267
Gross credit risk exposures	$	14,277	$	1,905,359	$	1,919,636		$	18,950	$	1,917,615	$	1,936,565

1  Gross credit risk exposures represent EAD and are before the effects of credit risk mitigation. This table excludes securitization, equity, and other credit RWA.

Other Credit Risk Exposures

Non-trading

Equity Exposures

The Bank applies the simple risk weight method under the market-based approach to calculate RWA on the

non-trading

equity exposures. Under the simple risk weight method, a 300% risk weight is applied to equity holdings that are publicly traded and a 400% risk weight is applied to all other equity holdings. Equity exposures to sovereigns and holdings made under legislated programs continue to follow the appropriate OSFI prescribed risk weights of 0%, 20% or 100%.

Securitization Exposures

Effective November 1, 2018, the Bank applies risk weights to all securitization exposures under the revised securitization framework published by OSFI. The revised securitization framework includes a hierarchy of approaches to determine capital treatment, and transactions that meet the simple, transparent, and comparable requirements that are eligible for preferential capital treatment.

Effective the second quarter of 2021, the Bank began using the

SEC-IRBA

for qualified exposures. Under

SEC-IRBA,

risk weights are determined using a loss coverage model that quantifies and monitors the level of risk. The

SEC-IRBA

also considers credit enhancements available for loss protection.

For externally rated exposures that do not qualify for

SEC-IRBA,

the Bank uses an External Ratings-Based Approach

(SEC-ERBA).

Risk weights are assigned to exposures using external ratings by external rating agencies, including Moody’s and S&P. The

SEC-ERBA

also takes into account additional factors, including the type of the rating (long-term or short-term), maturity, and the seniority of the position.

For exposures that do not qualify for

SEC-IRBA

or

SEC-ERBA,

and are held by an ABCP issuing conduit, the Bank uses the Internal Assessment Approach (IAA).

Under the IAA, the Bank considers all relevant risk factors in assessing the credit quality of these exposures, including those published by the Moody’s and S&P rating agencies. The Bank also uses loss coverage models and policies to quantify and monitor the level of risk, and facilitate its management. The Bank’s IAA process includes an assessment of the extent by which the enhancement available for loss protection provides coverage of expected losses. The levels of stressed coverage the Bank requires for each internal risk rating are consistent with the rating agencies’ published stressed factor requirements for equivalent external ratings by asset class. Under the IAA, exposures are multiplied by OSFI prescribed risk weights to calculate RWA for capital purposes.

For exposures that do not qualify for

SEC-IRBA,

SEC-ERBA

or the IAA , the Bank uses the Standardized Approach

(SEC-SA).

Under

SEC-SA,

the primary factors that determine the risk weights include the asset class of the underlying loans, the seniority of the position, the level of credit enhancements, and historical delinquency rates.

Irrespective of the approach being used to determine the risk weights, all exposures are assigned an internal risk rating based on the Bank’s assessment, which must be reviewed at least annually. The ratings scale TD uses corresponds to the long-term ratings scales used by the rating agencies.

The Bank’s internal rating process is subject to all of the key elements and principles of the Bank’s risk governance structure, and is managed in the same way as outlined in this “Credit Risk” section.

The Bank uses the results of the internal rating in all aspects of its credit risk management, including performance tracking, control mechanisms, and management reporting.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 68

Market Risk

Trading Market Risk is the risk of loss in financial instruments held in trading positions due to adverse movements in market factors. These market factors include interest rates, foreign exchange rates, equity prices, commodity prices, credit spreads, and their respective volatilities.

Non-Trading

Market Risk is the risk of loss on the balance sheet or volatility in earnings from

non-trading

activities such as asset-liability management or investments, due to adverse movements in market factors. These market factors are predominantly interest rates, credit spreads, foreign exchange rates and equity prices.

The Bank is exposed to market risk in its trading and investment portfolios, as well as through its

non-trading

activities. The Bank is an active participant in the market through its trading and investment portfolios, seeking to realize returns for TD through careful management of its positions and inventories. In the Bank’s

non-trading

activities, it is exposed to market risk through the everyday banking transactions that the Bank’s customers execute with TD.

The Bank complied with the Basel III market risk requirements as at October 31, 2021, using the Internal Models Approach.

MARKET RISK LINKAGE TO THE BALANCE SHEET

The following table provides a breakdown of the Bank’s balance sheet into assets and liabilities exposed to trading and

non-trading

market risks. Market risk of assets and liabilities included in the calculation of VaR and other metrics used for regulatory market risk capital purposes is classified as trading market risk.

TABLE 43:  MARKET RISK LINKAGE TO THE BALANCE SHEET

1

(millions of Canadian dollars)																	As at
	October 31, 2021								October 31, 2020
	Balance sheet		Trading market risk		Non-trading market risk		Other		Balance sheet		Trading market risk		Non-trading market risk		Other		Non-trading market risk – primary risk sensitivity
Assets subject to market risk
Interest-bearing deposits with banks	$	159,962	$	423	$	159,539	$	–	$	164,149	$	435	$	163,714	$	–	Interest rate
Trading loans, securities, and other		147,590		138,701		8,889		–		148,318		143,381		4,937		–	Interest rate
Non-trading financial assets at fair value through profit or loss		9,390		–		9,390		–		8,548		–		8,548		–	Equity, foreign exchange, interest rate
Derivatives		54,427		52,352		2,075		–		54,242		51,722		2,520		–	Equity, foreign exchange, interest rate
Financial assets designated at fair value through profit or loss		4,564		–		4,564		–		4,739		–		4,739		–	Interest rate
Financial assets at fair value through other comprehensive income		79,066		–		79,066		–		103,285		–		103,285		–	Equity, foreign exchange, interest rate
Debt securities at amortized cost, net of allowance for credit losses		268,939		–		268,939		–		227,679		–		227,679		–	Foreign exchange, interest rate
Securities purchased under reverse repurchase agreements		167,284		7,992		159,292		–		169,162		7,395		161,767		–	Interest rate
Loans, net of allowance for loan losses		722,622		–		722,622		–		717,523		–		717,523		–	Interest rate
Customers’ liability under acceptances		18,448		–		18,448		–		14,941		–		14,941		–	Interest rate
Investment in Schwab		11,112		–		11,112		–		12,174		–		12,174		–	Equity
Other assets 2		2,677		–		2,677		–		2,277		–		2,277		–	Interest rate
Assets not exposed to market risk		82,591		–		–		82,591		88,828		–		–		88,828
Total Assets	$	1,728,672	$	199,468	$	1,446,613	$	82,591	$	1,715,865	$	202,933	$	1,424,104	$	88,828
Liabilities subject to market risk
Trading deposits	$	22,891	$	22,731	$	160	$	–	$	19,177	$	18,089	$	1,088	$	–	Equity, interest rate
Derivatives		57,122		51,817		5,305		–		53,203		50,237		2,966		–	Equity, foreign exchange, interest rate
Securitization liabilities at fair value		13,505		13,505		–		–		13,718		13,718		–		–	Interest rate
Financial liabilities designated at fair value through profit or loss		113,988		7		113,981		–		59,665		15		59,650		–	Interest rate
Deposits		1,125,125		–		1,125,125		–		1,135,333		–		1,135,333		–	Interest rate, foreign exchange
Acceptances		18,448		–		18,448		–		14,941		–		14,941		–	Interest rate
Obligations related to securities sold short		42,384		41,242		1,142		–		34,999		34,307		692		–	Interest rate
Obligations related to securities sold under repurchase agreements		144,097		5,126		138,971		–		188,876		3,675		185,201		–	Interest rate
Securitization liabilities at amortized cost		15,262		–		15,262		–		15,768		–		15,768		–	Interest rate
Subordinated notes and debentures		11,230		–		11,230		–		11,477		–		11,477		–	Interest rate
Other liabilities 2		16,144		–		16,144		–		18,431		–		18,431		–	Equity, interest rate
Liabilities and Equity not exposed to market risk		148,476		–		–		148,476		150,277		–		–		150,277
Total Liabilities and Equity	$	1,728,672	$	134,428	$	1,445,768	$	148,476	$	1,715,865	$	120,041	$	1,445,547	$	150,277

1   Certain comparative amounts have been reclassified to conform with the presentation adopted in in the current period.

2   Relates to retirement benefits, insurance, and structured entity liabilities.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 69

MARKET RISK IN TRADING ACTIVITIES

The overall objective of the Bank’s trading businesses is to provide wholesale banking services, including facilitation and liquidity, to clients of the Bank. The Bank must take on risk in order to provide effective service in markets where its clients trade. In particular, the Bank needs to hold inventory, act as principal to facilitate client transactions, and underwrite new issues. The Bank also trades in order to have

in-depth

knowledge of market conditions to provide the most efficient and effective pricing and service to clients, while balancing the risks inherent in its dealing activities.

WHO MANAGES MARKET RISK IN TRADING ACTIVITIES

Primary responsibility for managing market risk in trading activities lies with Wholesale Banking, with oversight from Market Risk Control within Risk Management. The Market Risk Control Committee meets regularly to conduct a review of the market risk profile, trading results of the Bank’s trading businesses as well as changes to market risk policies. The committee is chaired by the Senior Vice President, Market Risk and Model Development, and includes Wholesale Banking senior management.

There were no significant reclassifications between trading and

non-trading

books during the year ended October 31, 2021.

HOW TD MANAGES MARKET RISK IN TRADING ACTIVITIES

Market risk plays a key part in the assessment of any trading business strategy. The Bank launches new trading initiatives or expands existing ones only if the risk has been thoroughly assessed, and is judged to be within the Bank’s risk appetite and business expertise, and if the appropriate infrastructure is in place to monitor, control, and manage the risk. The Trading Market Risk Framework outlines the management of trading market risk and incorporates risk appetite, risk governance structure, risk identification, measurement, and control. The Trading Market Risk Framework is maintained by Risk Management and supports alignment with the Bank’s Risk Appetite for trading market risk.

Trading Limits

The Bank sets trading limits that are consistent with the approved business strategy for each business and its tolerance for the associated market risk, aligned to its market risk appetite. In setting limits, the Bank takes into account market volatility, market liquidity, organizational experience, and business strategy. Limits are prescribed at the Wholesale Banking level in aggregate, as well as at more granular levels.

The core market risk limits are based on the key risk drivers in the business and includes notional, credit spread, yield curve shift, price, and volatility limits.

Another primary measure of trading limits is VaR, which the Bank uses to monitor and control overall risk levels and to calculate the regulatory capital required for market risk in trading activities. VaR measures the adverse impact that potential changes in market rates and prices could have on the value of a portfolio over a specified period of time.

At the end of each day, risk positions are compared with risk limits, and any excesses are reported in accordance with established market risk policies and procedures.

Calculating VaR

The Bank computes total VaR on a daily basis by combining the General Market Risk (GMR) and Idiosyncratic Debt Specific Risk (IDSR) associated with the Bank’s trading positions.

GMR is determined by creating a distribution of potential changes in the market value of the current portfolio using historical simulation. The Bank values the current portfolio using the market price and rate changes of the most recent 259 trading days for equity, interest rate, foreign exchange, credit, and commodity products. GMR is computed as the threshold level that portfolio losses are not expected to exceed more than one out of every 100 trading days. A

one-day

holding period is used for GMR calculation, which is scaled up to ten days for regulatory capital calculation purposes.

IDSR measures idiosyncratic (single-name) credit spread risk for credit exposures in the trading portfolio using Monte Carlo simulation. The IDSR model is based on the historical behaviour of five-year idiosyncratic credit spreads. Similar to GMR, IDSR is computed as the threshold level that portfolio losses are not expected to exceed more than one out of every 100 trading days. IDSR is measured for a

ten-day

holding period.

The following graph discloses daily

one-day

VaR usage and trading net revenue, reported on a taxable equivalent basis, within Wholesale Banking. Trading net revenue includes trading income and net interest income related to positions within the Bank’s market risk capital trading books. For the year ending October 31, 2021, there were 16 days of trading losses and trading net revenue was positive for 94% of the trading days, reflecting normal trading activity. Losses in the year did not exceedVaR on any trading day.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 70

VaR is a valuable risk measure but it should be used in the context of its limitations, for example:

• VaR uses historical data to estimate future events, which limits its forecasting abilities;

• it does not provide information on losses beyond the selected confidence level; and

• it assumes that all positions can be liquidated during the holding period used for VaR calculation.

The Bank continuously improves its VaR methodologies and incorporates new risk measures in line with market conventions, industry best practices, and regulatory requirements. In 2021, the Bank implemented infrastructure enhancements to its interest rate VaR modelling.

To mitigate some of the shortcomings of VaR, the Bank uses additional metrics designed for risk management and capital purposes. These include Stressed VaR, Incremental Risk Charge (IRC), Stress Testing Framework, as well as limits based on the sensitivity to various market risk factors.

Calculating Stressed VaR (SVaR)

In addition to VaR, the Bank also calculates Stressed VaR, which includes Stressed GMR and Stressed IDSR. Stressed VaR is designed to measure the adverse impact that potential changes in market rates and prices could have on the value of a portfolio over a specified period of stressed market conditions. Stressed VaR is determined using similar techniques and assumptions in GMR and IDSR VaR. However, instead of using the most recent 259 trading days (one year), the Bank uses a selected year of stressed market conditions. In the fourth quarter of fiscal 2021, Stressed VaR was calculated using the

one-year

period that includes the 2008 financial crisis. The appropriate historical

one-year

period to use for Stressed VaR is determined on a quarterly basis. Stressed VaR is a part of regulatory capital requirements.

Calculating the Incremental Risk Charge

The IRC is applied to all instruments in the trading book subject to migration and default risk. Migration risk represents the risk of changes in the credit ratings of the Bank’s exposures. The Bank applies a Monte Carlo simulation with a

one-year

horizon and a 99.9% confidence level to determine IRC, which is consistent with regulatory requirements. IRC is based on a “constant level of risk” assumption, which requires banks to assign a liquidity horizon to positions that are subject to IRC. IRC is a part of regulatory capital requirements.

The following table presents the end of year, average, high, and low usage of TD’s portfolio metrics

.

 TABLE 44:  PORTFOLIO MARKET RISK MEASURES

(millions of Canadian dollars)		2021										2020
	As at			Average			High		Low		As at			Average			High		Low
Interest rate risk	$	11.9		$	15.7		$	33.5	$	6.8	$	20.6		$	19.1		$	36.8	$	7.6
Credit spread risk		9.0			14.7			37.2		5.4		37.3			35.1			109.3		6.9
Equity risk		9.2			9.5			14.1		6.0		12.0			12.7			42.8		3.5
Foreign exchange risk		1.8			1.9			5.3		0.4		4.0			3.9			10.4		0.9
Commodity risk		4.7			4.7			9.4		1.9		3.8			3.7			7.9		1.2
Idiosyncratic debt specific risk		19.4			26.2			41.9		16.5		48.9			37.0			69.5		10.9
Diversification effect 1		(32.9	)		(42.8	)		n/m 2		n/m		(75.2	)		(64.9	)		n/m		n/m
Total Value-at-Risk (one-day)		23.1			29.9			44.7		20.6		51.4			46.6			118.8		15.1
Stressed Value-at-Risk (one-day)		63.9			39.5			63.9		28.5		49.5			57.4			126.9		31.3
Incremental Risk Capital Charge (one-year)		338.3			349.5			424.3		265.1		301.6			325.2			482.9		164.8

    1   The aggregate VaR is less than the sum of the VaR of the different risk types due to risk offsets resulting from portfolio diversification.

    2   Not meaningful. It is not meaningful to compute a diversification effect because the high and low may occur on different days for different risk types.

Global

roll-out

of

COVID-19

vaccines, gradual relaxation of lockdowns and continued support from regulators resulted in the stabilization of global markets in 2021 and decreased market risk due to decreases in price volatility experienced across all asset classes. Key factors impacting VaR models during the period were credit spread narrowing and new scenario shocks rolling out of the most recent

259-day

trading window. As a result of these factors, VaR gradually decreased and stabilized after the second quarter of 2021.

The Bank has effectively managed market risk by maintaining stable risk exposures, with daily VaR remaining well within approved limits during the year.

Average VaR decreased year over year due to markets stabilizing and

COVID-19

related VaR scenarios dropping out of the

one-year

range of the historical VaR period. Average Stressed VaR decreased year over year driven by credit spread tightening and lower volatility in equity markets, as well as changes in risk exposures.

Average IRC increased year over year driven by widening credit spreads impacting Government and Corporate bond positions.

Validation of VaR Model

The Bank uses a back-testing process to compare the actual and theoretical profit and losses to VaR to verify that they are consistent with the statistical results of the VaR model. The theoretical profit or loss is generated using the daily price movements on the assumption that there is no change in the composition of the portfolio. Validation of the IRC model must follow a different approach since the

one-year

horizon and 99.9% confidence level preclude standard back-testing techniques. Instead, key parameters of the IRC model such as transition and correlation matrices are subject to independent validation by benchmarking against external study results or through analysis using internal or external data.

Stress Testing

The Bank’s trading business is subject to an overall global stress test limit. In addition, global businesses have stress test limits, and each broad risk class has an overall stress test threshold. Stress scenarios are designed to model extreme economic events, replicate worst-case historical experiences, or introduce severe, but plausible, hypothetical changes in key market risk factors. The stress testing program includes scenarios developed using actual historical market data during periods of market disruption, in addition to hypothetical scenarios developed by Risk Management. The events the Bank has modelled include the 1987 equity market crash, the 1998 Russian debt default crisis, the aftermath of September 11, 2001, the 2007 ABCP crisis, the credit crisis of Fall 2008, the Brexit referendum of June 2016, and the

COVID-19

pandemic of 2020.

Stress tests are produced and reviewed regularly with the Market Risk Control Committee.

MARKET RISK IN OTHER WHOLESALE BANKING ACTIVITIES

The Bank is also exposed to market risk arising from its investment portfolio and other

non-trading

portfolios. Risk Management reviews and approves policies and procedures, which are established to monitor, measure, and mitigate these risks.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 7 1

Structural

(Non-Trading)

Market Risk

Structural

(Non-Trading)

Market Risk deals with managing the market risks of TD’s traditional banking activities. This generally reflects the market risks arising from personal and commercial banking products (loans and deposits) as well as related funding, investments and high-quality liquid assets (HQLA). It does not include exposures from TD’s Wholesale Banking or Insurance businesses. Structural market risks primarily include interest rate risk and foreign exchange risk.

WHO MANAGES STRUCTURAL

(NON-TRADING)

MARKET RISK

The TBSM group measures and manages the market risks of the Bank’s

non-trading

banking activities outside of Wholesale Banking, with oversight from the ALCO. The Market Risk Control function provides independent oversight, governance, and control over these market risks. The Risk Committee periodically reviews and approves key

non-trading

market risk policies and receives reports on compliance with approved risk limits.

HOW TD MANAGES STRUCTURAL

(NON-TRADING)

MARKET RISK

Non-trading

interest rate risk is viewed as a

non-productive

risk as it has the potential to increase earnings volatility and generate losses without providing long run expected value. As a result, TBSM’s mandate is to structure the asset and liability positions of the balance sheet in order to achieve a target profile that controls the impact of changes in interest rates on the Bank’s net interest income and economic value to be consistent with the Bank’s risk appetite.

Managing Structural Interest Rate Risk

Interest rate risk is the impact that changes in interest rates could have on the Bank’s margins, earnings, and economic value. Interest rate risk management is designed to generate stable and predictable earnings over time. The Bank has adopted a disciplined hedging approach to manage the net interest income from its asset and liability positions. Key aspects of this approach are:

• Evaluating and managing the impact of rising or falling interest rates on net interest income and economic value, and developing strategies to manage overall sensitivity to rates across varying interest rate scenarios;

• Modelling the expected impact of customer behaviour on TD’s products (e.g., how actively customers exercise embedded options, such as prepaying a loan or redeeming a deposit before its maturity date);

• Assigning target-modelled maturity profiles for non-maturity assets, liabilities, and equity;

• Measuring the margins of TD’s banking products on a fully-hedged basis, including the impact of financial options that are granted to customers; and

• Developing and implementing strategies to stabilize net interest income from all retail and commercial banking products.

The Bank is exposed to interest rate risk from “mismatched positions” when asset and liability principal and interest cash flows have different interest payment, repricing or maturity dates. The Bank measures this risk based on an assessment of: contractual cash flows, product embedded optionality, customer behaviour expectations and the modelled maturity profiles for

non-maturity

products. To manage this risk, the Bank primarily uses financial derivatives, wholesale investments, funding instruments, and other capital market alternatives.

The Bank also measures its exposure to

non-maturity

liabilities, such as core deposits, by assessing interest rate elasticity and balance permanence using historical data and business judgment. Fluctuations of

non-maturity

deposits can occur because of factors such as interest rate movements, equity market movements, and changes to customer liquidity preferences.

Banking product optionality, whether from freestanding options such as mortgage rate commitments or options embedded within loans and deposits, expose the Bank to a significant financial risk. To manage these exposures, the Bank purchases options or uses a dynamic hedging process designed to replicate the payoff of a purchased option.

• Rate Commitments : The Bank measures its exposure from freestanding mortgage rate commitment options using an expected funding profile based on historical experience. Customers’ propensity to fund, and their preference for fixed or floating rate mortgage products, is influenced by factors such as market mortgage rates, house prices, and seasonality.

• Asset Prepayment and other Embedded Options : The Bank models its exposure to written options embedded in other products, such as the right to prepay residential mortgage loans, based on analysis of customer behaviour. Econometric models are used to model prepayments and the effects of prepayment behaviour to the Bank. In general mortgage prepayments are also affected by factors, such as mortgage age, house prices, and GDP growth. The combined impacts from these parameters are also assessed to determine a core liquidation speed which is independent of market incentives. A similar analysis is undertaken for other products with embedded optionality.

Structural Interest Rate Risk Measures

The primary measures for this risk are Economic Value of Shareholders’ Equity (EVE) Sensitivity and Net Interest Income Sensitivity (NIIS).

The EVE Sensitivity measures the impact of a specified interest rate shock to the net present value of the Bank’s banking book assets, liabilities, and certain

off-balance

sheet items. It reflects a measurement of the potential present value impact on shareholders’ equity without an assumed term profile for the management of the Bank’s own equity and excludes product margins.

The NIIS measures the NII change over a twelve-month horizon for a specified change in interest rates for banking book assets, liabilities, and certain

off-balance

sheet items assuming a constant balance sheet over the period.

The Bank’s Market Risk policy sets overall limits on the structural interest rate risk measures. These limits are periodically reviewed and approved by the Risk Committee. In addition to the Board policy limits, book-level risk limits for the Bank’s management of

non-trading

interest rate risk are set by Risk Management. Exposures against these limits are routinely monitored and reported, and breaches of the Board limits, if any, are escalated to both the ALCO and the Risk Committee.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 7 2

The following table shows the potential

before-tax

impact of an immediate and sustained 100 bps increase or decrease in interest rates on the Bank’s EVE and NII. Interest rate floors are applied by currency to the decrease in rates such that they do not exceed expected lower bounds, with the most material currencies set to a floor of

-25

bps.

TABLE 45:  STRUCTURAL INTEREST RATE SENSITIVITY MEASURES

(millions of Canadian dollars)																				As at
		October 31, 2021																		October 31, 2020
		EVE Sensitivity									NII 1 Sensitivity									EVE Sensitivity			NII Sensitivity
	Canada			U.S.			Total			Canada			U.S.			Total			Total			Total
Before-tax impact of
100 bps increase in rates	$	75		$	(1,443	)	$	(1,368	)	$	872		$	985		$	1,857		$	(1,876	)	$	1,926
100 bps decrease in rates		(189	)		527			338			(663	)		(438	)		(1,101	)		277			(872	)

1   Represents the twelve-month NII exposure to an immediate and sustained shock in rates.

As at October 31, 2021, an immediate and sustained 100 bps increase in interest rates would have had a negative impact to the Bank’s EVE of $1,368 million, a decrease of $508 million from last year, and a positive impact to the Bank’s NII of $1,857 million, a decrease of $69 million from last year. An immediate and sustained 100 bps decrease in interest rates would have had a positive impact to the Bank’s EVE of $338 million, an increase of $61 million from last year, and a negative impact to the Bank’s NII of $1,101 million, an increase of $229 million from last year. The year-over-year decrease in up shock EVE Sensitivity is primarily due to decreased sensitivity from loan optionality in the U.S. region and a positive impact from foreign currency translation. The year-over-year increase in down shock NIIS is primarily due to an increase in the effective shock given the increased level of interest rates and the measurement using a

-25

bps floor. This change was also partially offset by deposit hedging activities. As at October 31, 2021, reported EVE and NII Sensitivities remain within the Bank’s risk appetite and established Board limits.

Managing

Non-trading

Foreign Exchange Risk

Foreign exchange risk refers to losses that could result from changes in foreign-currency exchange rates. Assets and liabilities that are denominated in foreign currencies create foreign exchange risk.

The Bank is exposed to

non-trading

foreign exchange risk primarily from its investments in foreign operations. When the Bank’s foreign currency assets are greater or less than its liabilities in that currency, they create a foreign currency open position. An adverse change in foreign exchange rates can impact the Bank’s reported net income and shareholders’ equity, and also its capital ratios.

In order to minimize the impact of an adverse foreign exchange rate change on certain capital ratios, the Bank’s net investments in foreign operations are hedged so certain capital ratios change by no more than an acceptable amount for a given change in foreign exchange rates. The Bank does not generally hedge the earnings of foreign subsidiaries which results in changes to the Bank’s consolidated earnings when relevant foreign exchange rates change.

Other

Non-Trading

Market Risks

Other structural market risks monitored on a regular basis include:

• Basis Risk – The Bank is exposed to risks related to the difference in various market indices.

• Equity Risk – The Bank is exposed to equity risk through its equity-linked guaranteed investment certificate product offering. The exposure is managed by purchasing options to replicate the equity payoff. The Bank is also exposed to non-trading equity price risk primarily from its share-based compensation plans where certain employees are awarded share units equivalent to the Bank’s common shares as compensation for services provided to the Bank. These share units are recorded as a liability over the vesting period and revalued at each reporting period until settled in cash. Changes in the Bank’s share price can impact non-interest expenses. The Bank uses derivative instruments to manage its non-trading equity price risk. In addition, the Bank is exposed to equity risk from investment securities designated at FVOCI.

Managing Investment Portfolios

The Bank manages a securities portfolio that is integrated into the overall asset and liability management process. The securities portfolio is comprised of high-quality,

low-risk

securities and managed in a manner appropriate to the attainment of the following goals: (1) to generate a targeted credit of funds to deposits balances that are in excess of loan balances; (2) to provide a sufficient pool of liquid assets to meet deposit and loan fluctuations and overall liquidity management objectives; (3) to provide eligible securities to meet collateral and cash management requirements; and (4) to manage the target interest rate risk profile of the balance sheet. The Risk Committee reviews and approves the Enterprise Investment Policy that sets out limits for the Bank’s investment portfolio. In addition, the Wholesale Banking and Insurance businesses also hold investments that are managed separately.

WHY NET INTEREST MARGIN FLUCTUATES OVER TIME

As previously noted, the Bank’s approach to structural

(non-trading)

market risk is designed to generate stable and predictable earnings over time, regardless of cash flow mismatches and the exercise of options granted to customers. This approach also creates margin certainty on loan and deposit profitability as they are booked. Despite this approach however, the Bank’s NIM is subject to change over time for the following reasons (among others):

• Differences in margins earned on new and renewing products relative to the margin previously earned on matured products;

• The weighted-average margin will shift as the mix of business changes;

• Changes in the basis between various benchmark rates (e.g. Prime, CDOR, or LIBOR);

• The lag in changing product prices in response to changes in wholesale interest rates;

• Changes from the repricing of hedging strategies to manage the investment profile of the Bank’s non-rate sensitive deposits; and

• Margin changes from the portion of the Bank’s deposits that are non-rate sensitive but not expected to be longer term in nature, resulting in a shorter term investment profile and higher sensitivity to short term rates.

The general level of interest rates will affect the return the Bank generates on its modelled maturity profile for core

non-rate

sensitive deposits and the investment profile for its net equity position as it evolves over time. The general level of interest rates is also a key driver of some modelled option exposures, and will affect the cost of hedging such exposures. The Bank’s approach to managing these factors tends to moderate their impact over time, resulting in a more stable and predictable earnings stream.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 7 3

Operational Risk

Operational risk is the risk of loss resulting from inadequate or failed internal processes or technology or from human activities or from external events. This definition includes legal risk but excludes strategic and reputational risk.

Operational risk is inherent in all of the Bank’s business activities, including the practices and controls used to manage other risks such as credit, market, and liquidity risk. Failure to manage operational risk can result in financial loss (direct or indirect), reputational harm, or regulatory censure and penalties.

The Bank seeks to actively mitigate and manage operational risk in order to create and sustain shareholder value, successfully execute the Bank’s business strategies, operate efficiently, and provide reliable, secure, and convenient access to financial services. The Bank maintains a formal enterprise-wide operational risk management framework that emphasizes a strong risk management and internal control culture throughout TD.

In fiscal 2021, operational risk losses remained within the Bank’s risk appetite. Refer to Note 27 of the 2021 Consolidated Financial Statements for further information on material legal or regulatory actions.

WHO MANAGES OPERATIONAL RISK

Operational Risk Management is an independent function that owns and maintains the Bank’s Operational Risk Management Framework. This framework sets out the enterprise-wide gov

e

rnance processes, policies, and practices to identify and assess, measure, control, monitor, escalate, report, and communicate on operational risk. Operational Risk Management is designed to provide appropriate monitoring and reporting of the Bank’s operational risk profile and exposures to senior management through the OROC, the ERMC, and the Risk Committee.

In addition to the framework, Operational Risk Management owns and maintains, or has oversight of the Bank’s operational risk policies including those that govern business continuity and crisis management, third-party management, data management, financial crime and fraud management, project management, and technology and cyber security management.

The senior management of individual business units and corporate areas is responsible for the

day-to-day

management of operational risk following the Bank’s established operational risk management framework and policies and the three lines of defence model. An independent risk management oversight function supports each business segment and corporate area, and monitors and challenges the implementation and use of the operational risk management framework programs according to the nature and scope of the operational risks inherent in the area. The senior executives in each business unit and corporate area participate in a Risk Management Committee that oversees operational risk management issues and initiatives.

Ultimately, every employee has a role to play in managing operational risk. In addition to policies and procedures guiding employee activities, training is available to all staff regarding specific types of operational risks and their role in helping to protect the interests and assets of the Bank.

HOW TD MANAGES OPERATIONAL RISK

The Operational Risk Management Framework outlines the internal risk and control structure to manage operational risk and includes the operational risk appetite, governance processes, and policies. The Operational Risk Management Framework supports alignment with the Bank’s ERF and risk appetite. The framework incorporates sound industry practices and m

e

ets regulatory requirements. Key components of the framework include:

Governance and Policy

Management reporting and organizational structures emphasize accountability, ownership, and effective oversight of each business unit and each corporate area’s operational risk exposures. In addition, the expectations of the Risk Committee and senior management for managing operational risk are set out by enterprise-wide policies and practices.

Risk and Control Self-Assessment

Internal controls are one of the primary methods of safeguarding the Bank’s employees, customers, assets, and information, and in preventing and detecting errors and fraud. Management undertakes comprehensive assessments of key risk exposures and the internal controls in place to reduce or offset these risks. Senior management reviews the results of these evaluations to determine that risk management and internal controls are effective, appropriate, and compliant with the Bank’s policies.

Operational Risk Event Monitoring

In order to reduce the Bank’s exposure to future loss, it is critical that the Bank remains aware of and responds to its own and industry operational risks. The Bank’s policies and processes require that operational risk events be identified, tracked, and reported to the appropriate level of management to facilitate the Bank’s analysis and management of its risks and inform the assessment of suitable corrective and preventative action. The Bank also reviews, analyzes, and benchmarks itself against operational risk losses that have occurred at other financial institutions using information acquired through recognized industry data providers.

Scenario Analysis

Scenario Analysis is a systematic and repeatable process of obtaining expert business and risk opinion to derive assessments of the likelihood and potential loss estimates of high impact operational events that are unexpected and outside the normal course of business. The Bank applies this practice to meet risk measurement and risk management objectives. The process includes the use of relevant external operational loss event data that is assessed considering the Bank’s operational risk profile and control structure. The program raises awareness and educates business owners regarding existing and emerging risks, which may result in the identification and implementation of new scenarios and risk mitigation action plans to minimize tail risk.

Risk Reporting

Risk Management, in partnership with senior management, regularly monitors risk-related measures and the risk profile throughout the Bank to report to senior business management and the Risk Committee. Operational risk measures are systematically tracked, assessed, and reported to promote management accountability and direct the appropriate level of attention to current and emerging issues.

Insurance

TD’s Corporate Insurance team, with oversight from TD Risk Management, utilizes insurance and other risk transfer arrangements to mitigate and reduce potential future losses related to operational risk. Risk Management includes oversight of the effective use of insurance aligned with the Bank’s risk

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 7 4

management strategy and risk appetite. Insurance terms and provisions, including types and amounts of coverage, are regularly assessed so that the Bank’s tolerance for risk and, where applicable, statutory requirements are satisfied. The management process includes conducting regular

in-depth

risk and financial analysis and identifying opportunities to transfer elements of the Bank’s risk to third parties where appropriate. The Bank transacts with external insurers that satisfy its minimum financial rating requirements.

Technology and Cyber Security

Virtually all aspects of the Bank’s business and operations use technology and information to create and support new markets, competitive products, delivery channels, as well as other business operations and opportunities.

The Bank manages these risks to support adequate and proper

day-to-day

op

e

rations; and protect against unauthorized access of the Bank’s technology, infrastructure, systems, information, or data. To enable this, the Bank actively monitors, manages, and continues to enhance its ability to mitigate these technology and cyber security risks through enterprise-wide programs and industry-accepted cyber threat management practices to enable rapid detection and response.

The Bank’s Cybersecurity Subcommittee provides dedicated senior executive oversight, direction and guidance regarding management of risks relating to cybersecurity, including cyber terrorism and activism, cyber fraud, cyber espionage, ransomware extortion, identity theft and data theft. The Cybersecurity Subcommittee endorses actions and makes recommendations to the CEO and the ERMC as appropriate, including in some instances, supporting onward recommendations to the Risk Committee. Together with the Bank’s operational risk management framework, technology and cyber security programs also include enhanced resiliency planning and testing, as well as disciplined change management practices.

Data Management

The Bank’s data assets are governed and managed to preserve value and support business objectives. Inconsistent or inadequate data governance and management practices may compromise the Bank’s data and information assets which could result in financial and reputational impacts. The Bank’s Enterprise Data Governance Office, Corporate and Technology partners develop and implement enterprise-wide standards and practices that describe how data and information assets are created, used, or maintained on behalf of the Bank.

Business Continuity and Crisis Management

The Bank maintains an enterprise-wide Business Continuity and Crisis Management Program that supports management’s ability to operate the Bank’s businesses and operations (including providing customers access to products and services) in the event of a business disruption incident. All areas of the Bank are required to maintain and regularly test business continuity plans to maintain resilience and facilitate the continuity and recovery of business operations. The Bank’s Program is supported by formal crisis management measures so that the appropriate level of leadership, oversight and management is applied to incidents affecting the Bank.

Third-Party Management

A third-party supplier/vendor is an entity that supplies products, services or other business activities, functions or processes to or on behalf of the Bank. While these relationships bring benefits to the Bank’s businesses and customers, the Bank also needs to manage and minimize any risks related to the activity. The Bank does this through an enterprise third-party risk management program that is designed to manage third-party activities throughout the life cycle of an arrangement and provide a level of risk management and senior management oversight which is appropriate to the size, risk, and criticality of the third-party arrangement.

Change Delivery/Project Management

The Bank has established a disciplined approach to delivering change across the enterprise coordinated by the Enterprise Project Delivery Excellence group. This approach involves senior management governance and oversight of the Bank’s change portfolio and leverages leading industry practices to guide the Bank’s use of a standardized delivery methodology, defined accountabilities and capabilities, and portfolio reporting and management tools to support successful delivery.

Fraud Management

The Bank develops and implements enterprise-wide fraud management strategies, policies, and practices that are designed to minimize the number, size and scope of fraudulent activities perpetrated against it. The Bank employs prevention, detection and monitoring capabilities across the enterprise that are designed to help protect customers, shareholders, and employees from increasingly sophisticated fraud risk. Fraud risk is managed by establishing and communicating appropriate policies, procedures, employee education in fraud risks, and monitoring activity to help maintain adherence to the Fraud Risk Management Framework. The Fraud Risk Framework describes the governance, policies, and processes that TD’s businesses employ to proactively manage and govern fraud risk within TD’s risk appetite which is embedded in the Bank’s day to day operations and culture.

Operational Risk Capital Measurement

The Bank’s operational risk capital is determined using the Basel II Standardized Approach (TSA). Under this approach, the Bank applies prescribed factors to a three-year average of annual gross income for each of eight different business lines representing the different activities of the institution such as Retail Banking, Commercial Banking, and Asset Management.

Model Risk

Model risk is the potential for adverse consequences arising from decisions based on incorrect or misused models and other estimation approaches and their outputs. It can lead to financial loss, reputational risk, or incorrect business and strategic decisions.

WHO MANAGES MODEL RISK

Primary accountability for the management of model risk resides with the senior management of individual businesses with respect to the models they use. The Model Risk Governance Committee provides oversight of governance, risk, and control matters, by providing a platform to guide, challenge, and advise decision makers and model owners in model risk related matters. Model Risk Management monitors and reports on existing and emerging model risks, and provides periodic assessments to senior management, Risk Management, the Risk Committee, and regulators on the state of model risk at TD and alignment with the Bank’s Model Risk Appetite. The Risk Committee approves the Bank’s Model Risk Management Framework and Model Risk Policy.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 7 5

HOW TD MANAGES MODEL RISK

The Bank manages model risk in accordance with management approved model risk policies and supervisory guidance which encompass the life cycle of a model, including proof of concept, development, validation, implementation, usage, and ongoing model monitoring. The Bank’s Model Risk Management Framework also captures key processes that may be partially or wholly qualitative, or based on expert judgment.

Business segments identify the need for a new model or process and are responsible for model development and documentation according to the Bank’s policies and standards. During model development, controls with respect to code generation, acceptance testing, and usage are established and documented to a level of detail and comprehensiveness matching the materiality and complexity of the model. Once models are implemented, business owners are responsible for ongoing monitoring and usage in accordance with the Bank’s Model Risk Policy. In cases where a model is deemed obsolete or unsuitable for its originally intended purposes, it is decommissioned in accordance with the Bank’s policies.

Model Risk Management and Model Validation provide oversight, maintain a centralized inventory of all models as defined in the Bank’s Model Risk Policy, validate and approve new and existing models on a

pre-determined

schedule depending on model complexity, materiality and criticality, set model monitoring standards, and provide training to all stakeholders. The validation process varies in rigour, depending on the model risk rating, but at a minimum contains a detailed determination of:

• the conceptual soundness of model methodologies and underlying quantitative and qualitative assumptions;

• the risk associated with a model based on complexity, materiality and criticality;

• the sensitivity of a model to model assumptions and changes in data inputs including stress testing; and

• the limitations of a model and the compensating risk mitigation mechanisms in place to address the limitations.

When appropriate, validation includes a benchmarking exercise which may include the building of an independent model based on an alternative modelling approach. The results of the benchmark model are compared to the model being assessed to validate the appropriateness of the model’s methodology and its use. As with traditional model approaches, machine-learning models are also subject to the same rigorous standards and risk management practices.

At the conclusion of the validation process, a model will either be approved for use or will be rejected and require redevelopment or other courses of action. Models identified as obsolete or no longer appropriate for use through changes in industry practice, the business environment, or Bank strategies are subject to decommissioning.

The Bank has policies and procedures in place designed to properly discern models from

non-models

so that the level of independent challenge and oversight corresponds to the materiality and complexity of models.

Insurance Risk

Insurance risk is the risk of financial loss due to actual experience emerging differently from expectations in insurance product pricing and/or design, underwriting and, claims or reserving either at the inception of an insurance contract, during the lifecycle of the claim or at the valuation date. Unfavourable experience could emerge due to adverse fluctuations in timing, actual size, and/or frequency of claims (for example, driven by

non-life

premium risk,

non-life

reserving risk, catastrophic risk, mortality risk, morbidity risk, and longevity risk), policyholder behaviour, or associated expenses.

Insurance contracts provide financial protection by transferring insured risks to the issuer in exchange for premiums. The Bank is engaged in insurance businesses relating to property and casualty insurance, life and health insurance, and reinsurance, through various subsidiaries; it is through these businesses that the Bank is exposed to insurance risk.

WHO MANAGES INSURANCE RISK

Senior management within the insurance business units has primary responsibility for managing insurance risk with oversight by the CRO for Insurance, who reports into Risk Management. The Audit Committee acts as the Audit and Conduct Review Committee for the Canadian insurance company subsidiaries. The insurance company subsidiaries also have their own boards of directors who provide additional risk management oversight.

HOW TD MANAGES INSURANCE RISK

The Bank’s risk governance practices are designed to support independent oversight and control of risk within the insurance business. The TD Insurance Risk Committee and its subcommittees provide critical oversight of the risk management activities within the insurance business and monitor compliance with insurance risk policies. The Bank’s Insurance Risk Management Framework and Insurance Risk Policy collectively outline the internal risk and control structure to manage insurance risk and include risk appetite, policies, processes, as well as limits and governance. These documents are maintained by Risk Management and support alignment with the Bank’s risk appetite for insurance risk.

The assessment of policy (premium and claims) liabilities is central to the insurance operation. The Bank establishes reserves to cover estimated future payments (including loss adjustment expenses) on all claims or terminations/surrenders of premium arising from insurance contracts underwritten. The reserves cannot be established with complete certainty, and represent management’s best estimate for future payments. As such, the Bank regularly monitors estimates against actual and emerging experience and adjusts reserves as appropriate if experience emerges differently than anticipated. Claim and premium liabilities are governed by the Bank’s general insurance and life and health reserving policies.

Sound product design is an essential element of managing risk. The Bank’s exposure to insurance risk is mostly short-term in nature as the principal underwriting risk relates to automobile and home insurance for individuals.

Insurance market cycles, as well as changes in insurance legislation, the regulatory environment, judicial environment, trends in court awards, climate patterns, pandemics or other applicable public health emergencies, and the economic environment may impact the performance of the insurance business. Consistent pricing policies and underwriting standards are maintained.

There is also exposure to concentration risk associated with general insurance and life and health coverage. Exposure to insurance risk concentration is managed through established underwriting guidelines, limits, and authorization levels that govern the acceptance of risk. Concentration of insurance risk is also mitigated through the purchase of reinsurance. The insurance business’ reinsurance programs are governed by catastrophe and reinsurance risk management policies.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 7 6

Strategies are in place to manage the risk to the Bank’s reinsurance business. Underwriting risk on business assumed is managed through a policy that limits exposure to certain types of business and countries. The vast majority of reinsurance treaties are annually renewable, which minimizes long-term risk. Pandemic exposure is reviewed and estimated annually within the reinsurance business to manage concentration risk.

Liquidity Risk

The risk of having insufficient cash or collateral to meet financial obligations and an inability to, in a timely manner, raise funding or monetize assets at a

non-distressed

price. Financial obligations can arise from deposit withdrawals, debt maturities, commitments to provide credit or liquidity support or the need to pledge additional collateral.

TD’S LIQUIDITY RISK APPETITE

The Bank maintains a prudent and disciplined approach to managing its potential exposure to liquidity risk. The Bank targets a

90-day

survival horizon under a combined bank-specific and market-wide stress scenario, and a minimum buffer over regulatory requirements prescribed by the OSFI LAR guidelines. Under the LAR guidelines, Canadian banks are required to maintain a Liquidity Coverage Ratio (LCR) at the minimum of 100% other than during periods of financial stress and to maintain a Net Stable Funding Ratio (NSFR) at the minimum of 100%. The Bank’s funding program emphasizes maximizing deposits as a core source of funding, and having ready access to wholesale funding markets across diversified terms, funding types, and currencies that is designed to ensure low exposure to a sudden contraction of wholesale funding capacity and to minimize structural liquidity gaps. The Bank also maintains a contingency funding plan to enhance preparedness for recovery from potential liquidity stress events. The Bank’s strategies and actions comprise an integrated liquidity risk management program that is designed to ensure low exposure to liquidity risk and compliance with regulatory requirements.

LIQUIDITY RISK MANAGEMENT RESPONSIBILITY

The Bank’s ALCO oversees the Bank’s liquidity risk management program. It ensures there are effective management structures and practices in place to properly measure and manage liquidity risk. The GLF, a subcommittee of the ALCO comprised of senior management from TBSM, Risk Management and Wholesale Banking, identifies and monitors the Bank’s liquidity risks. The management of liquidity risk is the responsibility of the SET member responsible for TBSM, while oversight and challenge is provided by the ALCO and independently by Risk Management. The Risk Committee regularly reviews the Bank’s liquidity position and approves the Bank’s Liquidity Risk Management Framework

bi-annually

and the related policies annually.

The Bank has established TDGUS as TD’s U.S. Intermediate Holding Company (IHC), as well as a Combined U.S. Operations (CUSO) reporting unit that consists of the IHC and TD’s U.S. branch and agency network. Both TDGUS and CUSO are managed to the U.S. Enhanced Prudential Standards liquidity requirements in addition to the Bank’s liquidity management framework.

The following areas are responsible for measuring, monitoring, and managing liquidity risks for major business segments:

• Risk Management is responsible for maintaining the liquidity risk management policy and asset pledging policy, along with associated limits, standards, and processes which are established to ensure that consistent and efficient liquidity management approaches are applied across all of the Bank’s operations. Risk Management jointly owns the liquidity risk management framework along with the SET member responsible for TBSM. Enterprise Market Risk Control provides oversight of liquidity risk across the enterprise and provides independent risk assessment and effective challenge of liquidity risk management. Capital Markets Risk Management is responsible for independent liquidity risk metric reporting;

• TBSM Liquidity Management manages the liquidity position of the Canadian Retail (including wealth businesses), Corporate, Wholesale Banking, and U.S. Retail segments, as well as the liquidity position of CUSO; and

• Other regional operations, including those within TD’s insurance business, foreign branches, and/or subsidiaries are responsible for managing their liquidity risk in compliance with their own policies, and local regulatory requirements, while maintaining alignment with the enterprise framework.

HOW TD MANAGES LIQUIDITY RISK

The Bank manages the liquidity profile of its businesses to be within the defined liquidity risk appetite, and maintains target requirements for liquidity survivability using a combination of internal and regulatory measures. The Bank’s overall liquidity requirement is defined as the amount of liquid assets the Bank needs to hold to be able to cover expected future cash flow requirements, plus a prudent reserve against potential cash outflows in the event of a capital markets disruption or other events that could affect the Bank’s access to funding or destabilize its deposit base.

The Bank maintains an internal view for measuring and managing liquidity that uses an assumed Severe Combined Stress Scenario (SCSS). The SCSS considers potential liquidity requirements during a crisis resulting from a loss of confidence in the Bank’s ability to meet obligations as they come due. In addition to this bank-specific event, the SCSS also incorporates the impact of a stressed market-wide liquidity event that results in a significant reduction in the availability of funding for all institutions and a decrease in the marketability of assets. The Bank’s liquidity policy stipulates that the Bank must maintain a sufficient level of liquid assets to support business growth, and to cover identified stressed liquidity requirements under the SCSS, for a period of up to 90 days. The Bank calculates stressed liquidity requirements for the SCSS related to the following conditions:

• wholesale funding maturing in the next 90 days (assumes maturing debt will be repaid instead of rolled over);

• accelerated attrition or “run-off” of deposit balances;

• increased utilization of available credit and liquidity facilities; and

• increased collateral requirements associated with downgrades in the Bank’s credit ratings and adverse movement in reference rates for derivative and securities financing transactions.

The Bank also manages its liquidity to comply with the regulatory liquidity requirements in the OSFI LAR (the LCR, the NSFR, and the Net Cumulative Cash Flow (NCCF) monitoring tool). The LCR requires that banks maintain a minimum liquidity coverage of 100% over a

30-day

stress period, the NSFR requires that banks maintain available stable funding in excess of required stable funding for periods up to one year (a minimum NSFR of 100%), and the NCCF monitors the Bank’s detailed cash flow gaps for various time bands. As a result, the Bank’s liquidity is managed to the higher of its internal liquidity requirements and target buffers over the regulatory minimums.

The Bank considers potential regulatory restrictions on liquidity transferability in the calculation of enterprise liquidity positions. Accordingly, surplus liquidity domiciled in regulated subsidiaries may be excluded from consolidated liquidity positions as appropriate.

The Bank’s Funds Transfer Pricing process considers liquidity risk as a key determinant of the cost or credit of funds to the retail and wholesale banking businesses. Liquidity costs applied to loans and trading assets are determined based on the cash flow or stressed liquidity profile, while deposits are assessed based on the required liquidity reserves and balance stability. Liquidity costs are also applied to other contingent obligations like undrawn lines of credit provided to customers.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 7 7

LIQUID ASSETS

The unencumbered liquid assets the Bank holds to meet its liquidity requirements must be high-quality securities that the Bank believes can be monetized quickly in stress conditions with minimum loss in market value. The liquidity value of unencumbered liquid assets considers estimated market or trading depths, settlement timing, and/or other identified impediments to potential sale or pledging. Overall, the Bank expects any reduction in market value of its liquid asset portfolio to be modest given the underlying high credit quality and demonstrated liquidity.

Assets held by the Bank to meet liquidity requirements are summarized in the following tables. The tables do not include assets held within the Bank’s insurance businesses as these are used to support insurance-specific liabilities and capital requirements.

TABLE 46:  SUMMARY OF LIQUID ASSETS BY TYPE AND CURRENCY

1,2,3

(millions of Canadian dollars, except as noted)												As at
	Bank-owned liquid assets		Securities received as collateral from securities financing and derivative transactions		Total liquid assets		% of total			Encumbered liquid assets		Unencumbered liquid assets
	October 31, 2021
Cash and central bank reserves	$	70,271	$	–	$	70,271		8	%	$	798	$	69,473
Canadian government obligations		26,176		92,825		119,001		14			83,456		35,545
National Housing Act Mortgage-Backed Securities (NHA MBS)		23,615		2		23,617		3			1,104		22,513
Obligations of provincial governments, public sector entities and multilateral development banks 4		30,213		24,808		55,021		6			37,142		17,879
Corporate issuer obligations		9,062		3,775		12,837		1			2,542		10,295
Equities		14,558		3,589		18,147		2			9,110		9,037
Total Canadian dollar-denominated		173,895		124,999		298,894		34			134,152		164,742
Cash and central bank reserves		84,956		–		84,956		10			120		84,836
U.S. government obligations		83,386		44,924		128,310		15			34,903		93,407
U.S. federal agency obligations, including U.S. federal agency mortgage-backed obligations		74,898		5,082		79,980		9			18,949		61,031
Obligations of other sovereigns, public sector entities and multilateral development banks 4		63,400		60,623		124,023		14			57,530		66,493
Corporate issuer obligations		79,108		3,143		82,251		9			10,268		71,983
Equities		41,961		33,280		75,241		9			38,077		37,164
Total non-Canadian dollar-denominated		427,709	$	147,052	$	574,761		66	%	$	159,847	$	414,914
Total	$	601,604	$	272,051	$	873,655		100	%	$	293,999	$	579,656
	October 31, 2020
Cash and central bank reserves	$	94,640	$	–	$	94,640		11	%	$	1,689	$	92,951
Canadian government obligations		39,008		83,258		122,266		14			80,934		41,332
NHA MBS		30,763		23		30,786		3			2,294		28,492
Obligations of provincial governments, public sector entities and multilateral development banks 4		22,999		24,441		47,440		6			34,990		12,450
Corporate issuer obligations		11,310		2,841		14,151		1			2,331		11,820
Equities		13,146		2,618		15,764		2			8,248		7,516
Total Canadian dollar-denominated		211,866		113,181		325,047		37			130,486		194,561
Cash and central bank reserves		69,183		–		69,183		8			51		69,132
U.S. government obligations		82,701		53,755		136,456		15			53,585		82,871
U.S. federal agency obligations, including U.S. federal agency mortgage-backed obligations		74,131		9,566		83,697		9			21,495		62,202
Obligations of other sovereigns, public sector entities and multilateral development banks 4		61,171		55,449		116,620		14			49,771		66,849
Corporate issuer obligations		78,238		2,108		80,346		9			8,297		72,049
Equities		31,258		38,684		69,942		8			36,716		33,226
Total non-Canadian dollar-denominated		396,682		159,562		556,244		63			169,915		386,329
Total	$	608,548	$	272,743	$	881,291		100	%	$	300,401	$	580,890

    1   Certain comparative amounts have been reclassified to conform with the presentation adopted in the current period.

     2    Positions stated include gross asset values pertaining to securities financing transactions.

    3   Liquid assets include collateral received that can be re-hypothecated or otherwise redeployed.

    4   Includes debt obligations issued or guaranteed by these entities.

Total unencumbered liquid assets declined $1.2

billion from October 31, 2020, without any material shifts in the liquid assets portfolio year-over-year. Unencumbered liquid assets are held in The Toronto-Dominion Bank and multiple domestic and foreign subsidiaries and branches and are summarized in the following table.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 7 8

TABLE 47:  SUMMARY OF UNENCUMBERED LIQUID ASSETS BY BANK, SUBSIDIARIES, AND BRANCHES

(millions of Canadian dollars)			As at
	October 31 2021		October 31 2020
The Toronto-Dominion Bank (Parent)	$	204,543	$	230,369
Bank subsidiaries		360,569		334,308
Foreign branches		14,544		16,213
Total	$	579,656	$	580,890

The Bank’s monthly average liquid assets (excluding those held in insurance subsidiaries) for the years ended October 31, 2021, and October 31, 2020, are summarized in the following table.

TABLE 48:  SUMMARY OF AVERAGE LIQUID ASSETS BY TYPE AND CURRENCY

1,2,3

(millions of Canadian dollars, except as noted)	Average for the years ended
	Bank-owned liquid assets		Securities received as collateral from securities financing and derivative transactions		Total liquid assets		% of Total			Encumbered liquid assets		Unencumbered liquid assets
			October 31, 2021
Cash and central bank reserves	$	82,308	$	–	$	82,308		10	%	$	1,204	$	81,104
Canadian government obligations		30,023		83,729		113,752		13			76,942		36,810
NHA MBS		26,657		8		26,665		3			2,048		24,617
Obligations of provincial governments, public sector entities and multilateral development banks 4		26,500		24,188		50,688		6			34,820		15,868
Corporate issuer obligations		8,392		3,373		11,765		1			2,658		9,107
Equities		14,575		3,795		18,370		2			10,449		7,921
Total Canadian dollar-denominated		188,455		115,093		303,548		35			128,121		175,427
Cash and central bank reserves		103,436		–		103,436		12			30		103,406
U.S. government obligations		67,427		49,317		116,744		13			45,680		71,064
U.S. federal agency obligations, including U.S. federal agency mortgage-backed obligations		71,426		5,304		76,730		9			17,032		59,698
Obligations of other sovereigns, public sector entities and multilateral development banks 4		63,312		58,483		121,795		14			54,825		66,970
Corporate issuer obligations		74,911		2,755		77,666		9			9,325		68,341
Equities		42,260		34,726		76,986		8			36,517		40,469
Total non-Canadian dollar-denominated		422,772		150,585		573,357		65			163,409		409,948
Total	$	611,227	$	265,678	$	876,905		100	%	$	291,530	$	585,375
			October 31, 2020
Cash and central bank reserves	$	51,894	$	–	$	51,894		7	%	$	1,755	$	50,139
Canadian government obligations		27,938		80,484		108,422		14			66,335		42,087
NHA MBS		36,761		15		36,776		4			2,207		34,569
Obligations of provincial governments, public sector entities and multilateral development banks 4		20,495		25,586		46,081		6			34,365		11,716
Corporate issuer obligations		11,537		3,646		15,183		2			3,249		11,934
Equities		11,566		3,259		14,825		2			10,014		4,811
Total Canadian dollar-denominated		160,191		112,990		273,181		35			117,925		155,256
Cash and central bank reserves		63,235		–		63,235		8			40		63,195
U.S. government obligations		55,676		50,406		106,082		13			49,734		56,348
U.S. federal agency obligations, including U.S. federal agency mortgage-backed obligations		69,063		9,950		79,013		10			21,202		57,811
Obligations of other sovereigns, public sector entities and multilateral development banks 4		56,316		50,072		106,388		14			43,621		62,767
Corporate issuer obligations		83,132		2,005		85,137		11			7,520		77,617
Equities		35,914		35,264		71,178		9			37,253		33,925
Total non-Canadian dollar-denominated		363,336		147,697		511,033		65			159,370		351,663
Total	$	523,527	$	260,687	$	784,214		100	%	$	277,295	$	506,919

1 Certain comparative amounts have been reclassified to conform with the presentation adopted in the current period.

2 Liquid assets include collateral received that can be re-hypothecated or otherwise redeployed.

3 Positions stated include gross asset values pertaining to securities financing transactions.

4 Includes debt obligations issued or guaranteed by these entities.

Average unencumbered liquid assets held in The Toronto-Dominion Bank and multiple domestic and foreign subsidiaries (excluding insurance subsidiaries) and branches are summarized in the following table.

TABLE 49:  SUMMARY OF AVERAGE UNENCUMBERED LIQUID ASSETS BY BANK, SUBSIDIARIES, AND BRANCHES

(millions of Canadian dollars)	Average for the years ended
	October 31, 2021		October 31, 2020
The Toronto-Dominion Bank (Parent)	$	213,662	$	194,726
Bank subsidiaries		347,779		290,573
Foreign branches		23,934		21,620
Total	$	585,375	$	506,919

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page  79

ASSET ENCUMBRANCE

In the course of the Bank’s

day-to-day

operations, assets are pledged to obtain funding, support trading and brokerage businesses, and participate in clearing and/or settlement systems. A summary of encumbered and unencumbered assets (excluding assets held in insurance subsidiaries) is presented in the following table to identify assets that are used or available for potential funding needs.

TABLE 50:  ENCUMBERED AND UNENCUMBERED ASSETS

1

(millions of Canadian dollars)														As at
	Total Assets							Encumbered 2				Unencumbered
	Bank-owned assets		Securities received as collateral from securities financing and derivative transactions 3			Total Assets		Pledged as Collateral 4		Other 5		Available as Collateral 6		Other 7
	October 31, 2021
Cash and due from banks	$	5,931	$	–		$	5,931	$	223	$	–	$	–	$	5,708
Interest-bearing deposits with banks		159,962		–			159,962		6,478		102		150,262		3,120
Securities, trading loans, and other 8		509,549		354,874			864,423		355,391		12,433		474,164		22,435
Derivatives		54,427		–			54,427		–		–		–		54,427
Securities purchased under reverse repurchase agreements 9		167,284		(167,284	)		–		–		–		–		–
Loans, net of allowance for loan losses 10		722,622		(17,337	)		705,285		37,935		47,763		56,810		562,777
Customers’ liabilities under acceptances		18,448		–			18,448		–		–		–		18,448
Other assets 11		90,449		–			90,449		475		–		–		89,974
Total assets	$	1,728,672	$	170,253		$	1,898,925	$	400,502	$	60,298	$	681,236	$	756,889
												October 31, 2020
Total assets	$	1,715,865	$	151,950		$	1,867,815	$	393,439	$	74,188	$	686,464	$	713,724

1 Certain comparative amounts have been restated to conform with the presentation adopted in the current period.

2 Asset encumbrance has been analyzed on an individual asset basis. Where a particular asset has been encumbered and TD has holdings of the asset both on-balance sheet and off-balance sheet, for the purpose of this disclosure, the on- and off-balance sheet holdings are encumbered in alignment with the business practice.

3 Assets received as collateral through off-balance transactions such as reverse repurchase agreements, securities borrowing, margin loans, and other client activity.

4 Represents assets that have been posted externally to support the Bank’s day-to-day operations, including securities financing transactions, clearing and payments, and derivative transactions. Also includes assets that have been pledged supporting Federal Home Loan Bank (FHLB) activity.

5 Assets supporting TD’s long-term funding activities, assets pledged against securitization liabilities, and assets held by consolidated securitization vehicles or in pools for covered bond issuance.

6 Assets that are considered readily available in their current legal form to generate f u nding or support collateral needs. This category includes reported FHLB assets that remain unutilized and DSAC that are available for collateral purposes however not regularly utilized in practice.

7 Assets that cannot be used to support funding or collateral requirements in their current form. This category includes those assets that are potentially eligible as funding program collateral or for pledging to central banks (for example, CMHC insured mortgages that can be securitized into NHA MBS).

8 Securities include trading loans, securities, non-trading financial assets at FVTPL and other financial assets designated at FVTPL, securities at FVOCI, and DSAC.

9 Assets reported in the “Bank-owned assets” column represent the value of the loans extended and not the value of the collateral received. The loan value from the reverse repurchase transactions is deducted from the “Securities received as collateral from securities financing and derivative transactions” column to avoid double-counting with the on-balance sheet assets.

10 The loan value from the margin loans/client activity is deducted from the “Securities received as collateral from securities financing and derivative transactions” column to avoid double-counting with the on-balance sheet assets.

11 Other assets include investment in Schwab, goodwill, other intangibles, land, buildings, equipment, and other depreciable assets, deferred tax assets, amounts receivable from brokers, dealers, and clients, and other assets on the balance sheet not reported in the above categories.

LIQUIDITY STRESS TESTING AND CONTINGENCY FUNDING PLANS

In addition to the SCSS, the Bank performs liquidity stress testing on multiple alternate scenarios. These scenarios are a mix of

TD-specific

events and market-wide stress events designed to test the impact from risk factors material to the Bank’s risk profile. Liquidity assessments are also part of the Bank’s EWST program.

The Bank has liquidity contingency funding plans (CFP) in place at the overall Bank level and for subsidiaries operating in foreign jurisdictions (“Regional CFPs”). The Bank’s CFP provides a documented framework for managing unexpected liquidity situations and thus is an integral component of the Bank’s overall liquidity risk management program. It outlines different contingency levels based on the severity and duration of the liquidity situation, and identifies recovery actions appropriate for each level. For each recovery action, it provides key operational steps required to execute the action. Regional CFPs identify recovery actions to address region-specific stress events. The actions and governance structure outlined in the Bank’s CFP are aligned with the Bank’s Crisis Management Recovery Plan.

CREDIT RATINGS

Credit ratings impact the Bank’s borrowing costs and ability to raise funds. Rating downgrades could potentially result in higher financing costs, increased requirements to pledge collateral, reduced access to capital markets, and could also affect the Bank’s ability to enter into derivative transactions.

Credit ratings and outlooks provided by rating agencies reflect their views and are subject to change from

time-to-time,

based on a number of factors including the Bank’s financial strength, competitive position, and liquidity, as well as factors not entirely within the Bank’s control, including the methodologies used by rating agencies and conditions affecting the overall financial services industry.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 80

TABLE 51:  CREDIT RATINGS

1

						As at
	October 31, 2021
	Moody’s		S&P			DBRS
Deposits/Counterparty 2		Aa1		AA-			AA (high)
Legacy Senior Debt 3		Aa2		AA-			AA (high)
Senior Debt 4		A1		A			AA
Covered Bonds		Aaa		–			AAA
Subordinated Debt		A2		A			AA (low)
Subordinated Debt – NVCC		A2 (hyb)		A-			A
Preferred Shares – NVCC		Baa1 (hyb)		BBB			Pfd-2 (high)
Limited Recourse Capital Notes – NVCC		Baa1 (hyb)		BBB			A (low)
Short-Term Debt (Deposits)		P-1		A-1+			R-1 (high)
Outlook		Stable		Stable	��		Stable

1 The above ratings are for The Toronto-Dominion Bank legal entity. Subsidiaries’ ratings are available on the Bank’s website at http://www.td.com/investor/credit.jsp. Credit ratings are not recommendations to purchase, sell, or hold a financial obligation in as much as they do not comment on market price or suitability for a particular investor. Ratings are subject to revision or withdrawal at any time by the rating organization.

2 Represents Moody’s Long-Term Deposits Ratings and Counterparty Risk Rating, S&P’s Issuer Credit Rating, and DBRS’ Long-Term Issuer Rating.

3 Includes (a) Senior debt issued prior to September 23, 2018; and (b) Senior debt issued on or after September 23, 2018 which is excluded from the bank recapitalization “bail-in” regime, including debt with an original term-to-maturity of less than 400 days and most structured notes.

4 Subject to conversion under the bank recapitalization “bail-in” regime.

The Bank regularly reviews the level of increased collateral its trading counterparties would require in the event of a downgrade of TD’s credit rating. The Bank holds liquid assets to ensure it is able to provide additional collateral required by trading counterparties in the event of a three-notch downgrade in the Bank’s legacy senior debt ratings. The following table presents the additional collateral that could have been contractually required to be posted to OTC derivative counterparties as of the reporting date in the event of one, two, and three-notch downgrades of the Bank’s credit ratings.

TABLE 52:  ADDITIONAL COLLATERAL REQUIREMENTS FOR RATING DOWNGRADES

1

(millions of Canadian dollars)	Average for the years ended
	October 31, 2021		October 31, 2020
One-notch downgrade	$	206	$	212
Two-notch downgrade		264		275
Three-notch downgrade		1,037		1,013

1   The above collateral requirements are based on each OTC trading counterparty’s Credit Support Annex and the Bank’s credit rating across applicable rating agencies.

LIQUIDITY COVERAGE RATIO

The LCR is a Basel III metric calculated as the ratio of the stock of unencumbered HQLA over the net cash outflow requirements in the next 30 days under a hypothetical liquidity stress event.

Other than during periods of financial stress, the Bank must maintain the LCR above 100% in accordance with the OSFI LAR requirement. The Bank’s LCR is calculated according to the scenario parameters in the LAR guideline, including prescribed HQLA eligibility criteria and haircuts, deposit

run-off

rates, and other outflow and inflow rates. HQLA held by the Bank that are eligible for the LCR calculation under the LAR are primarily central bank reserves, sovereign-issued or sovereign-guaranteed securities, and high-quality securities issued by

non-financial

entities.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 81

The following table summarizes the Bank’s average daily LCR as of the relevant dates.

TABLE 53:  AVERAGE BASEL III LIQUIDITY COVERAGE RATIO

1

(millions of Canadian dollars, except as noted)	Average for the three months ended
	October 31, 2021
	Total unweighted value (average) 2			Total weighted value (average) 3
High-quality liquid assets
Total high-quality liquid assets	$	n/a	4	$	334,370
Cash outflows
Retail deposits and deposits from small business customers, of which:	$	665,403		$	78,420
Stable deposits 5		251,668			7,550
Less stable deposits		413,735			70,870
Unsecured wholesale funding, of which:		346,992			157,528
Operational deposits (all counterparties) and deposits in networks of cooperative banks 6		165,202			39,819
Non-operational deposits (all counterparties)		142,198			78,117
Unsecured debt		39,592			39,592
Secured wholesale funding		n/a			19,373
Additional requirements, of which:		259,446			70,541
Outflows related to derivative exposures and other collateral requirements		32,035			21,647
Outflows related to loss of funding on debt products		7,332			7,332
Credit and liquidity facilities		220,079			41,562
Other contractual funding obligations		16,459			10,406
Other contingent funding obligations 7		592,439			10,223
Total cash outflows	$	n/a		$	346,491
Cash inflows
Secured lending	$	204,784		$	21,477
Inflows from fully performing exposures		14,308			6,654
Other cash inflows		52,402			52,402
Total cash inflows	$	271,494		$	80,533
	Average for the three months ended
	October 31, 2021			July 31, 2021
	Total adjusted value			Total adjusted value
Total high-quality liquid assets 8	$	334,370		$	329,875
Total net cash outflows 9		265,958			265,517
Liquidity coverage ratio		126	%		124	%

1 The LCR for the quarter ended October 31, 2021, is calculated as an average of the 61 daily data points in the quarter.

2 Unweighted inflow and outflow values are outstanding balances maturing or callable within 30 days.

3 Weighted values are calculated after the application of respective HQLA haircuts or inflow and outflow rates, as prescribed by the OSFI LAR guideline.

4 Not applicable as per the LCR common disclosure template.

5   As defined by the OSFI LAR guideline, stable deposits from retail and small and medium-sized enterprise (SME) customers are deposits that are insured, and are either held in transactional accounts or the depositors have an established relationship with the Bank that makes deposit withdrawal highly unlikely.

6 Operational deposits from non-SME business customers are deposits kept with the Bank in order to facilitate their access and ability to conduct payment and settlement activities. These activities include clearing, custody, or cash management services.

7 Includes uncommitted credit and liquidity facilities, stable value money market mutual funds, outstanding debt securities with remaining maturity greater than 30 days, and other contractual cash outflows. With respect to outstanding debt securities with remaining maturity greater than 30 days, TD has no contractual obligation to buyback these outstanding TD debt securities, and as a result, a 0% outflow rate is applied under the OSFI LAR guideline.

8 Adjusted Total HQLA includes both asset haircuts and applicable caps, as prescribed by the OSFI LAR guideline (HQLA assets after haircuts are capped at 40% for Level 2 and 15% for Level 2B).

9   Adjusted Total Net Cash Outflows include both inflow and outflow rates and applicable caps, as prescribed by the OSFI LAR guideline (inflows are capped at 75% of outflows).

The Bank’s average LCR of 126% for the quarter ended October 31, 2021 continues to meet the regulatory requirements.

The Bank holds a variety of liquid assets commensurate with the liquidity needs of the organization. Many of these assets qualify as HQLA under the OSFI LAR guideline. The average HQLA of the Bank for the quarter ended October 31, 2021 was $334 billion (July 31, 2021 – $330 billion), with Level 1 assets representing 86% (July 31, 2021 – 86%). The Bank’s reported HQLA excludes excess HQLA from the U.S. Retail operations, as required by the OSFI LAR guideline, to reflect liquidity transfer considerations between U.S. Retail and its affiliates as a result of the U.S. Federal Reserve Board’s regulations. By excluding excess HQLA, the U.S. Retail LCR is effectively capped at 100% prior to total Bank consolidation.

NET STABLE FUNDING RATIO

The NSFR is a Basel III metric calculated as the ratio of total available stable funding (ASF) over total required stable funding (RSF) in accordance with OSFI’s LAR guideline. The Bank must maintain an NSFR ratio equal to or above 100% in accordance with the LAR guideline. The Bank’s ASF comprises the Bank’s liability and capital instruments (including but not limited to deposits and wholesale funding). The Bank’s RSF comprises the Bank’s assets and

off-balance

sheet activities and is a function of the liquidity characteristics and maturity profile of these assets.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 82

TABLE 54:  NET STABLE FUNDING RATIO

(millions of Canadian dollars, except as noted)	As at
	October 31, 2021
	Unweighted value by residential maturity
	No maturity 1		Less than 6 months		6 months to less than 1 year		More than 1 year		Weighted value 2
Available Stable Funding Item
Capital	$	96,948	$	n/a	$	n/a	$	10,894	$	107,841
Regulatory capital		96,948		n/a		n/a		10,894		107,841
Other capital instruments		n/a		n/a		n/a		–		–
Retail deposits and deposits from small business customers:		655,111		29,603		9,935		15,185		583,070
Stable deposits 3		257,963		9,989		4,919		8,079		267,305
Less stable deposits		397,148		19,614		5,016		7,106		315,765
Wholesale funding:		263,853		253,362		54,612		85,529		264,750
Operational deposits 4		139,051		2,304		–		–		70,677
Other wholesale funding		124,802		251,058		54,612		85,529		194,073
Liabilities with matching interdependent assets 5		–		2,105		1,634		20,696		–
Other liabilities:		55,515						67,117		2,565
NSFR derivative liabilities		n/a						3,453		n/a
All other liabilities and equity not included in the above categories		55,515		60,052		2,093		1,519		2,565
Total Available Stable Funding									$	958,226
Required Stable Funding Item
Total NSFR high-quality liquid assets	$	n/a	$	n/a	$	n/a	$	n/a	$	53,325
Deposits held at other financial institutions for operational purposes		–		34		–		–		17
Performing loans and securities		84,982		175,344		102,164		562,673		606,455
Performing loans to financial institutions secured by Level 1 HQLA		–		57,545		19,736		–		18,565
Performing loans to financial institutions secured by non-Level 1
HQLA and unsecured performing loans to financial institutions		–		41,428		2,961		3,055		8,944
Performing loans to non-financial corporate clients, loans to retail and small business customers, and loans to sovereigns, central banks and PSEs, of which:		30,659		40,475		32,548		231,451		262,935
With a risk weight of less than or equal to 35% under the Basel II standardized approach for credit risk		n/a		24,685		17,577		167		21,560
Performing residential mortgages, of which:		30,826		26,083		38,271		260,451		228,378
With a risk weight of less than or equal to 35% under the Basel II standardized approach for credit risk 6		30,826		26,083		38,271		260,451		228,378
Securities that are not in default and do not qualify as HQLA, including exchange-traded equities		23,497		9,813		8,648		67,716		87,633
Assets with matching interdependent liabilities 5		–		1,840		2,199		20,397		–
Other assets:		62,252						96,243		81,845
Physical traded commodities, including gold		15,045		n/a		n/a		n/a		13,078
Assets posted as initial margin for derivative contracts and contributions to default funds of CCPs		n/a						10,568		8,982
NSFR derivative assets		n/a						6,773		3,320
NSFR derivative liabilities before deduction of variation margin posted		n/a						16,417		821
All other assets not included in the above categories		47,207		56,234		1,457		4,794		55,644
Off-balance sheet items		n/a						634,590		22,158
Total Required Stable Funding									$	763,800
Net Stable Funding Ratio										125	%
									As at
									July 31, 2021
Total Available Stable Funding									$	947,741
Total Required Stable Funding									$	752,494
Net Stable Funding Ratio										126	%

1 Items in the “no maturity” time bucket do not have a stated maturity. These may include, but are not limited to, items such as capital with perpetual maturity, non-maturity deposits, short positions, open maturity positions, non-HQLA equities, and physical traded commodities.

2 Weighted values are calculated after the application of respective NSFR weights, as prescribed by the OSFI LAR guideline.

3 As defined by the OSFI LAR guideline, stable deposits from retail and SME customers are deposits that are insured and are either held in transactional accounts or the depositors have an established relationship with the Bank that makes deposit withdrawals highly unlikely.

4 Operational deposits from non-SME business customers are deposits kept with the Bank in order to facilitate their access and ability to conduct payment and settlement activities. These activities include clearing, custody, or cash management services.

5 Interdependent asset and liability items are deemed by OSFI to be interdependent and have RSF and ASF risk factors adjusted to zero. Interdependent liabilities cannot fall due while the asset is still on balance sheet, cannot be used to fund any other assets and principal payments from the asset cannot be used for anything other than repaying the liability. As such, the only interdependent assets and liabilities that qualify for this treatment at the Bank are the liabilities arising from the Canada Mortgage Bonds (CMB) Program and their corresponding encumbered assets.

6 Includes Residential Mortgages and HELOCs.

The Bank’s NSFR for the quarter ended October 31, 2021 is at 125% (July 31, 2021 – 126%) and has met the regulatory requirements. The NSFR changes quarter-to-quarter based on a number of factors including deposit and loan growth, changes in capital levels, wholesale funding issuance and maturities, and changes in the maturity profile of wholesale funding.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 8 3

FUNDING

The Bank has access to a variety of unsecured and secured funding sources. The Bank’s funding activities are conducted in accordance with the liquidity management policy that requires assets be funded to the appropriate term and to a prudent diversification profile.

The Bank’s primary approach to managing funding activities is to maximize the use of deposits raised through personal and commercial banking channels. The following table illustrates the Bank’s large base of personal and commercial, wealth, and Schwab sweep deposits (collectively, “P&C deposits”) that make up over 75% of the Bank’s total funding.

TABLE 55:  SUMMARY OF DEPOSIT FUNDING

(millions of Canadian dollars)		As at
		October 31, 2021		October 31, 2020
P&C deposits – Canadian Retail	$	519,466	$	471,543
P&C deposits – U.S. Retail 1		472,742		477,738
Total	$	992,208	$	949,281

1   P&C deposits in U.S. Retail are presented on a CAD equivalent basis and therefore period-over-period movements reflect both underlying growth and changes in the foreign exchange rate.

WHOLESALE FUNDING

The Bank actively maintains various registered external wholesale term (greater than 1 year) funding programs to provide access to diversified funding sources, including asset securitization, covered bonds, and unsecured wholesale debt. The Bank raises term funding through Senior Notes, NHA MBS, CMBs, and notes backed by credit card receivables (Evergreen Credit Card Trust) and home equity lines of credit (Genesis Trust II). The Bank’s wholesale funding is diversified by geography, by currency, and by funding types. The Bank raises short-term (1 year and less) funding using certificates of deposit, commercial paper and bankers’ acceptances.

The following table summarizes the registered term funding and capital programs by geography, with the related program size.

Canada	United States	Europe
Capital Securities Program ($15 billion) Canadian Senior Medium-Term Linked Notes Program ($4 billion) HELOC ABS Program (Genesis Trust II) ($7 billion)	U.S. SEC (F-3) Registered Capital and Debt Program (US$45 billion)	United Kingdom Listing Authority (UKLA) Registered Legislative Covered Bond Program ($80 billion) UKLA Registered European Medium-Term Note Program (US$20 billion)

The following table presents a breakdown of the Bank’s term debt by currency and funding type. Term funding as at October 31, 2021, was $100.7 billion (October 31, 2020 – $121.1 billion).

Note that Table 56: Long-Term Funding and Table 57: Wholesale Funding do not include any funding accessed via repurchase transactions or securities financing.

TABLE 56:  LONG-TERM FUNDING

	As at
Long-term funding by currency	October 31, 2021			October 31, 2020
Canadian dollar		37	%		32	%
U.S. dollar		38			40
Euro		18			20
British pound		4			4
Other		3			4
Total		100	%		100	%
Long-term funding by type
Senior unsecured medium-term notes		59	%		50	%
Covered bonds		24			33
Mortgage securitization 1		15			13
Term asset backed securities		2			4
Total		100	%		100	%

1 Mortgage securitization excludes the residential mortgage trading business.

The Bank maintains depositor concentration limits in respect of short-term wholesale deposits so that it is not overly reliant on individual depositors for funding. The Bank further limits short-term wholesale funding maturity concentration in an effort to mitigate refinancing risk during a stress event.​​​​​​​

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 84

The following table represents the remaining maturity of various sources of funding outstanding as at October 31, 2021, and October 31, 2020.

TABLE 57:  WHOLESALE FUNDING

1

(millions of Canadian dollars)	As at
															October 31 2021		October 31 2020
	Less than 1 month		1 to 3 months		3 to 6 months		6 months to 1 year		Up to 1 year		Over 1 to 2 years		Over 2 years		Total		Total
Deposits from banks 2	$	11,428	$	2,794	$	2,947	$	1,321	$	18,490	$	–	$	13	$	18,503	$	18,013
Bearer deposit notes		139		234		218		9		600		–		–		600		1,595
Certificates of deposit		6,860		8,757		12,193		24,142		51,952		1,127		–		53,079		41,923
Commercial paper		12,754		5,958		20,091		18,671		57,474		–		–		57,474		48,367
Covered bonds		–		2,586		1,788		3,851		8,225		7,938		8,923		25,086		40,537
Mortgage securitization 3		–		882		1,428		1,693		4,003		6,262		18,502		28,767		29,486
Legacy senior unsecured medium-term notes 4		–		2,252		3,729		–		5,981		8,784		2,194		16,959		35,925
Senior unsecured medium-term notes 5		–		–		–		–		–		11,679		30,030		41,709		25,006
Subordinated notes and debentures 6		–		–		–		–		–		–		11,230		11,230		11,477
Term asset backed securitization		–		–		–		530		530		618		661		1,809		4,171
Other 7		8,235		419		2,839		1,061		12,554		192		1,832		14,578		13,912
Total	$	39,416	$	23,882	$	45,233	$	51,278	$	159,809	$	36,600	$	73,385	$	269,794	$	270,412
Of which:
Secured	$	–	$	3,468	$	3,216	$	6,074	$	12,758	$	14,820	$	28,092	$	55,670	$	74,203
Unsecured		39,416		20,414		42,017		45,204		147,051		21,780		45,293		214,124		196,209
Total	$	39,416	$	23,882	$	45,233	$	51,278	$	159,809	$	36,600	$	73,385	$	269,794	$	270,412

1   Excludes Bankers’ acceptances, which are disclosed in the Remaining Contractual Maturity table within the “Managing Risk” section of this document.

2   Includes fixed-term deposits with banks.

3   Includes mortgaged backed securities issued to external investors and Wholesale Banking residential mortgage trading business.

4   Includes a) senior debt issued prior to September 23, 2018; and b) senior debt issued on or after September 23, 2018 which is excluded from the bank recapitalization “bail-in” regime, including debt with an original term-to-maturity of less than 400 days.

5   Comprised of senior debt subject to conversion under the bank recapitalization “bail-in” regime. Excludes $1.4 billion of structured notes subject to conversion under the “bail-in” regime (October 31, 2020 – $2.6 billion).

6   Subordinated notes and debentures are not considered wholesale funding as they may be raised primarily for capital management purposes.

7 Includes fixed-term deposits from non-bank institutions (unsecured) of $14.6 billion (October 31, 2020 – $13.9 billion).

Excluding the Wholesale Banking residential mortgage trading business, the Bank’s total 2021 mortgage-backed securities issued to external investors was $1.8 billion (2020 – $4.0 billion), and other asset-backed securities issued was $0.7 billion (2020 – nil). The Bank also issued $20.5 billion of unsecured medium-term notes (2020 – $11.1 billion) and nil covered bonds (2020 – $4.4 billion), in vari

o

us currencies and markets during the year ended October 31, 2021.

REGULATORY DEVELOPMENTS CONCERNING LIQUIDITY AND FUNDING

In March 2021, OSFI launched a public consultation on the domestic implementation of Basel III requirements. As part of this work, OSFI has also proposed changes to the LAR. The primary changes proposed to the LAR involve enhancements to the Net Cumulative Cash Flow supervisory tool to improve the risk sensitivity of the metric. In November 2021, OSFI provided updated guidance to the calibration of the proposal, pursuant to the feedback received as part of the consultation process. Significant proposed changes include the addition of contingencies for undrawn loan commitments, the removal of certain loan cash inflows, and the adjustment of deposit runoff factors. OSFI expects to publish a finalized rule in January 202

2

, and the effective date of the changes will be April 2023.

MATURITY ANALYSIS OF ASSETS, LIABILITIES, AND

OFF-BALANCE

SHEET COMMITMENTS

The following table summarizes

on-balance

sheet and

off-balance

sheet categories by remaining contractual maturity.

Off-balance

sheet commitments include contractual obligations to make future payments on certain lease-related commitments, certain purchase obligations, and other liabilities. The values of credit instruments reported in the following table represent the maximum amount of additional credit that the Bank could be obligated to extend should such instruments be fully drawn or utilized. Since a significant portion of guarantees and commitments are expected to expire without being drawn upon, the total of the contractual amounts is not representative of expected future liquidity requirements. These contractual obligations have an impact on the Bank’s short-term and long-term liquidity and capital resource needs.

The maturity analysis presented does not depict the degree of the Bank’s maturity transformation or the Bank’s exposure to interest rate and liquidity risk. The Bank ensures that assets are appropriately funded to protect against borrowing cost volatility and potential reductions to funding market availability. The Bank utilizes stable

non-maturity

deposits (chequing and savings accounts) and term deposits as the primary source of long-term funding for the Bank’s

non-trading

assets including personal and business term loans and the stable balance of revolving lines of credit. The Bank issues long-term funding based primarily on the projected net growth of

non-trading

assets and raises short term funding primarily to finance trading assets. The liquidity of trading assets under stressed market conditions is considered when determining the appropriate term of the funding.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 8 5

TABLE 58:   REMAINING CONTRACTUAL MATURITY

(millions of Canadian dollars)	As at
	October 31, 2021
	Less than 1 month		1 to 3 months		3 to 6 months		6 to 9 months		9 months to 1 year		Over 1 to 2 years		Over 2 to 5 years		Over 5 years		No specific maturity			Total
Assets
Cash and due from banks	$	5,931	$	–	$	–	$	–	$	–	$	–	$	–	$	–	$	–		$	5,931
Interest-bearing deposits with banks		158,039		373		185		–		–		–		–		–		1,365			159,962
Trading loans, securities, and other 1		2,020		4,382		5,059		2,275		2,874		12,293		21,299		23,119		74,269			147,590
Non-trading financial assets at fair value through profit or loss		58		3		543		1,250		53		745		3,803		1,931		1,004			9,390
Derivatives		6,146		9,393		5,289		2,885		1,818		7,172		10,895		10,829		–			54,427
Financial assets designated at fair value through profit or loss		441		311		187		167		363		851		624		1,620		–			4,564
Financial assets at fair value through other comprehensive income		1,030		6,532		11,881		3,381		2,914		4,089		21,983		22,658		4,598			79,066
Debt securities at amortized cost, net of allowance for credit losses		1,235		6,567		8,180		4,889		4,030		27,819		79,375		136,846		(2	)		268,939
Securities purchased under reverse repurchase agreements 2		92,356		30,580		22,332		14,191		7,441		140		244		–		–			167,284
Loans
Residential mortgages		930		2,389		5,050		10,061		10,077		34,004		166,855		38,974		–			268,340
Consumer instalment and other personal		641		987		2,029		4,049		3,254		14,333		81,413		27,126		56,032			189,864
Credit card		–		–		–		–		–		–		–		–		30,738			30,738
Business and government		27,691		5,390		6,707	��	10,533		8,503		23,332		71,025		61,647		25,242			240,070
Total loans		29,262		8,766		13,786		24,643		21,834		71,669		319,293		127,747		112,012			729,012
Allowance for loan losses		–		–		–		–		–		–		–		–		(6,390	)		(6,390	)
Loans, net of allowance for loan losses		29,262		8,766		13,786		24,643		21,834		71,669		319,293		127,747		105,622			722,622
Customers’ liability under acceptances		16,039		2,327		76		2		4		–		–		–		–			18,448
Investment in Schwab		–		–		–		–		–		–		–		–		11,112			11,112
Goodwill 3		–		–		–		–		–		–		–		–		16,232			16,232
Other intangibles 3		–		–		–		–		–		–		–		–		2,123			2,123
Land, buildings, equipment, and other depreciable assets 3		–		3		10		4		4		19		466		3,664		5,011			9,181
Deferred tax assets		–		–		–		–		–		–		–		–		2,265			2,265
Amounts receivable from brokers, dealers, and clients		32,357		–		–		–		–		–		–		–		–			32,357
Other assets		3,100		1,049		2,204		159		150		74		112		73		10,258			17,179
Total assets	$	348,014	$	70,286	$	69,732	$	53,846	$	41,485	$	124,871	$	458,094	$	328,487	$	233,857		$	1,728,672
Liabilities
Trading deposits	$	1,697	$	5,373	$	4,867	$	2,953	$	1,196	$	2,135	$	3,516	$	1,154	$	–		$	22,891
Derivatives		7,387		9,392		4,581		2,969		2,244		7,403		10,792		12,354		–			57,122
Securitization liabilities at fair value		–		538		1,013		514		301		2,814		5,737		2,588		–			13,505
Financial liabilities designated at fair value through profit or loss		23,923		12,526		33,712		28,017		14,678		1,127		1		4		–			113,988
Deposits 4,5
Personal		5,799		9,750		8,491		5,999		6,148		7,611		7,254		29		582,417			633,498
Banks		8,903		338		135		25		–		2		2		4		11,508			20,917
Business and government		15,795		12,080		8,268		5,433		1,311		28,880		37,255		6,079		355,609			470,710
Total deposits		30,497		22,168		16,894		11,457		7,459		36,493		44,511		6,112		949,534			1,125,125
Acceptances		16,039		2,327		76		2		4		–		–		–		–			18,448
Obligations related to securities sold short 1		1,096		729		1,753		1,648		432		4,574		12,640		17,505		2,007			42,384
Obligations related to securities sold under repurchase agreements 2		120,938		13,904		7,255		1,700		272		28		–		–		–			144,097
Securitization liabilities at amortized cost		–		344		414		475		403		3,448		7,043		3,135		–			15,262
Amounts payable to brokers, dealers, and clients		28,993		–		–		–		–		–		–		–		–			28,993
Insurance-related liabilities		158		273		405		405		425		982		1,673		872		2,483			7,676
Other liabilities		9,008		3,106		925		228		767		1,522		1,796		4,815		5,966			28,133
Subordinated notes and debentures		–		–		–		–		–		–		200		11,030		–			11,230
Equity		–		–		–		–		–		–		–		–		99,818			99,818
Total liabilities and equity	$	239,736	$	70,680	$	71,895	$	50,368	$	28,181	$	60,526	$	87,909	$	59,569	$	1,059,808		$	1,728,672
Off-balance sheet commitments
Credit and liquidity commitments 6,7	$	14,788	$	24,189	$	23,482	$	19,887	$	15,616	$	38,639	$	115,624	$	3,789	$	1,327		$	257,341
Other commitments 8		59		170		185		244		170		591		1,303		541		–			3,263
Unconsolidated structured entity commitments		–		859		20		557		–		127		510		0		–			2,073
Total off-balance sheet commitments	$	14,847	$	25,218	$	23,687	$	20,688	$	15,786	$	39,357	$	117,437	$	4,330	$	1,327		$	262,677
1 Amount has been recorded according to the remaining contractual maturity of the underlying security. 2    Certain contracts considered short-term are presented in ‘less than 1 month’ category. 3    Certain non-financial assets have been recorded as having ‘no specific maturity’. 4    As the timing of demand deposits and notice deposits is non-specific and callable by the depositor, obligations have been included as having ‘no specific maturity’. 5    Includes $25 billion of covered bonds with remaining contractual maturities of $2 billion in ‘over 1 months to 3 months’, $2 billion in ‘over 3 months to 6 months’, $4 billion in ‘over 6 months to 9 months’, $8 billion in ‘over 1 to 2 years’, $7 billion in ‘over 2 to 5 years’, and $2 billion in ‘over 5 years’. 6   Includes $326 million in commitments to extend credit to private equity investments. 7 Commitments to extend credit exclude personal lines of credit and credit card lines, which are unconditionally cancellable at the Bank’s discretion at any time. 8 Includes various purchase commitments as well as commitments for leases not yet commenced, and lease-related payments.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 8 6

TABLE 58:  REMAINING CONTRACTUAL MATURITY

(continued)

(millions of Canadian dollars)	As at
	October 31, 2020
	Less than 1month		1 to 3 months		3 to 6 months		6 to 9 months		9 months to 1 year		Over 1 to 2years		Over 2 to 5years		Over 5years		No specific maturity			Total
Assets
Cash and due from banks	$	6,437	$	8	$	0	$	0	$	0	$	0	$	0	$	0	$	0		$	6,445
Interest-bearing deposits with banks		161,326		656		0		0		0		0		0		0		2,167			164,149
Trading loans, securities, and other 1		4,363		6,920		7,866		6,913		3,867		9,732		23,624		27,554		57,479			148,318
Non-trading financial assets at fair value through profit or loss		80		0		600		2,271		69		1,430		1,425		1,879		794			8,548
Derivatives		5,299		7,167		4,554		2,810		2,525		6,314		10,004		15,569		0			54,242
Financial assets designated at fair value through profit or loss		820		183		631		234		107		930		1,253		581		0			4,739
Financial assets at fair value through other comprehensive income		2,501		2,799		8,490		6,101		4,886		25,305		23,667		26,957		2,579			103,285
Debt securities at amortized cost, net of allowance for credit losses		6,444		23,449		16,052		5,855		5,498		12,386		62,145		95,852		(2	)		227,679
Securities purchased under reverse repurchase agreements 2		98,721		30,246		23,879		11,776		4,204		29		307		0		0			169,162
Loans
Residential mortgages		472		2,845		7,286		9,994		10,481		38,182		138,912		44,047		0			252,219
Consumer instalment and other personal		706		1,423		3,437		3,941		3,893		14,594		68,961		28,038		60,467			185,460
Credit card		0		0		0		0		0		0		0		0		32,334			32,334
Business and government		27,193		4,938		8,973		11,653		8,672		35,439		70,478		65,144		23,309			255,799
Total loans		28,371		9,206		19,696		25,588		23,046		88,215		278,351		137,229		116,110			725,812
Allowance for loan losses		0		0		0		0		0		0		0		0		(8,289	)		(8,289	)
Loans, net of allowance for loan losses		28,371		9,206		19,696		25,588		23,046		88,215		278,351		137,229		107,821			717,523
Customers’ liability under acceptances		12,699		2,036		204		2		0		0		0		0		0			14,941
Investment in Schwab		0		0		0		0		0		0		0		0		12,174			12,174
Goodwill 3		0		0		0		0		0		0		0		0		17,148			17,148
Other intangibles 3		0		0		0		0		0		0		0		0		2,125			2,125
Land, buildings, equipment, and other depreciable assets 3,4		0		1		6		91		9		29		299		4,384		5,317			10,136
Deferred tax assets		0		0		0		0		0		0		0		0		2,444			2,444
Amounts receivable from brokers, dealers, and clients		33,951		0		0		0		0		0		0		0		0			33,951
Other assets		3,521		1,060		643		2,783		470		150		125		171		9,933			18,856
Total assets	$	364,533	$	83,731	$	82,621	$	64,424	$	44,681	$	144,520	$	401,200	$	310,176	$	219,979		$	1,715,865
Liabilities
Trading deposits	$	1,802	$	2,429	$	2,065	$	3,057	$	1,639	$	3,510	$	3,455	$	1,220	$	0		$	19,177
Derivatives		4,718		6,783		3,997		1,917		2,012		5,438		11,084		17,254		0			53,203
Securitization liabilities at fair value		0		608		243		652		345		2,495		6,706		2,669		0			13,718
Financial liabilities designated at fair value through profit or loss		18,654		7,290		12,563		15,892		5,251		0		4		11		0			59,665
Deposits 5,6
Personal		6,240		8,996		9,139		9,550		7,288		10,095		7,923		37		565,932			625,200
Banks		12,870		1,592		313		56		28		0		4		5		14,101			28,969
Business and government		25,387		24,703		24,841		15,274		7,214		14,378		52,852		3,386		313,129			481,164
Total deposits		44,497		35,291		34,293		24,880		14,530		24,473		60,779		3,428		893,162			1,135,333
Acceptances		12,699		2,036		204		2		0		0		0		0		0			14,941
Obligations related to securities sold short 1		698		1,095		993		823		707		4,888		9,789		14,986		1,020			34,999
Obligations related to securities sold under repurchase agreements 2		122,433		23,944		30,879		1,791		4,952		4,873		4		0		0			188,876
Securitization liabilities at amortized cost		0		1,055		221		422		404		1,642		8,799		3,225		0			15,768
Amounts payable to brokers, dealers, and clients		35,143		0		0		0		0		0		0		0		0			35,143
Insurance-related liabilities		306		350		382		316		305		963		1,676		1,033		2,259			7,590
Other liabilities 4		7,672		3,630		1,744		701		1,048		1,304		1,402		5,633		7,342			30,476
Subordinated notes and debentures		0		0		0		0		0		0		200		11,277		0			11,477
Equity		0		0		0		0		0		0		0		0		95,499			95,499
Total liabilities and equity	$	248,622	$	84,511	$	87,584	$	50,453	$	31,193	$	49,586	$	103,898	$	60,736	$	999,282		$	1,715,865
Off-balance sheet commitments
Credit and liquidity commitments 7,8	$	19,568	$	23,526	$	25,918	$	20,089	$	14,289	$	43,760	$	107,951	$	4,343	$	1,309		$	260,753
Other commitments 9		77		169		183		188		165		657		875		553		0			2,867
Unconsolidated structured entity commitments		903		342		1,367		227		408		0		0		0		0			3,247
Total off-balance sheet commitments	$	20,548	$	24,037	$	27,468	$	20,504	$	14,862	$	44,417	$	108,826	$	4,896	$	1,309		$	266,867

1 Amount has been recorded according to the remaining contractual maturity of the underlying security.

2 Certain contracts considered short-term are presented in ‘less than 1 month’ category.

3 Certain non-financial assets have been recorded as having ‘no specific maturity’.

4 Upon adoption of IFRS 16, ROU assets recognized are included in ‘Land, buildings, equipment, and other depreciable assets’ and lease liabilities recognized are included in ‘Other liabilities’.

5 As the timing of demand deposits and notice deposits is non-specific and callable by the depositor, obligations have been included as having ‘no specific maturity’.

6 Includes $41 billion of covered bonds with remaining contractual maturities of $2 billion in ‘over 1 months to 3 months’, $3 billion in ‘over 3 months to 6 months’, $5 billion in ‘over 6 months to 9 months’, $4 billion in ‘over 9 months to 1 year’, $9 billion in ‘over 1 to 2 years’, $16 billion in ‘over 2 to 5 years’, and $2 billion in ‘over 5 years’.

7 Includes $290 million in commitments to extend credit to private equity investments.

8 Commitments to extend credit exclude personal lines of credit and credit card lines, which are unconditionally cancellable at the Bank’s discretion at any time.

9 Includes various purchase commitments as well as commitments for leases not yet commenced, and lease-related payments.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 8 7

Capital Adequacy Risk

Capital adequacy risk is the risk of insufficient level and composition of capital being available in relation to the amount of capital required to carry out the Bank’s strategy and/or satisfy regulatory and internal capital adequacy requirements under normal and stress conditions.

Capital is held to protect the viability of the Bank in the event of unexpected financial losses. Capital represents the loss-absorbing funding required to provide a cushion to protect depositors and other creditors from unexpected losses.

Managing capital levels requires that the Bank holds sufficient capital, in normal and stress environments, to avoid the risk of breaching minimum capital levels prescribed by regulators and internal Board limits.

WHO MANAGES CAPITAL ADEQUACY RISK

The Board oversees the Bank’s capital adequacy and capital management by reviewing adherence to capital targets and approving the annual capital plan and the Global Capital Management Policy. The Risk Committee reviews and approves the Capital Adequacy Risk Management Framework. The CRO and the SET member responsible for TBSM oversee that the Bank’s ICAAP is effective in meeting capital adequacy requirements.

The ALCO recommends and maintains the Capital Adequacy Risk Management Framework and the Global Capital Management Policy in support of the effective and prudent management of the Bank’s capital position and maintenance of adequate capital. It oversees the allocation of capital limits for business segments and reviews adherence to capital targets.

TBSM is responsible for forecasting and monitoring compliance with capital targets, on a consolidated basis, with oversight provided by ALCO. TBSM updates the capital forecast, including appropriate changes to capital issuance, repurchase and redemption. The capital forecast is reviewed by ALCO. TBSM also leads the ICAAP and EWST processes. The Bank’s business segments are responsible for managing to the allocated capital limits.

Additionally, regulated subsidiaries of the Bank, including certain insurance subsidiaries and subsidiaries in the U.S. and other jurisdictions, manage their capital adequacy risk in accordance with applicable regulatory requirements. Capital management policies and procedures of subsidiaries are also required to conform with those of the Bank. U.S. regulated subsidiaries of the Bank are required to follow several regulatory guidelines, rules and expectations related to capital planning and stress testing including the U.S. Federal Reserve Board’s Regulation YY establishing Enhanced Prudential Standards for Foreign Banking Organizations, applicable to U.S. Bank Holding Companies. Refer to the sections on “Future Regulatory Capital Developments”, “Enterprise-Wide Stress Testing”, and “Risk Factors That May Affect Future Results” for further details.

HOW TD MANAGES CAPITAL ADEQUACY RISK

Capital resources are managed in a manner designed so that the Bank’s capital position can support business strategies under both current and future business operating environments. The Bank manages its operations within the capital constraints defined by both internal and regulatory capital requirements, so that it meets the higher of these requirements.

Regulatory capital requirements represent minimum capital levels. The Board approves capital targets that provide a sufficient buffer so that the Bank meets minimum capital requirements under stress conditions. The purpose of these capital targets is to reduce the risk of a breach of minimum capital requirements, due to an unexpected stress event, allowing management the opportunity to react to declining capital levels before minimum capital requirements are breached. Capital targets are defined in the Global Capital Management Policy.

A periodic monitoring process is undertaken to plan and forecast capital requirements. As part of the annual planning process, business segments are allocated individual RWA and Leverage exposure limits. Capital generation and usage are monitored and reported to the ALCO.

The Bank assesses the sensitivity of its forecast capital requirements and new capital formations to various economic conditions through its EWST process. The results of the EWST are considered in the determination of capital targets and capital risk appetite limits.

The Bank also determines its internal capital requirements through the ICAAP process using models to measure the risk-based capital required based on its own tolerance for the risk of unexpected losses. This risk tolerance is calibrated to the required confidence level so that the Bank will be able to meet its obligations, even after absorbing severe unexpected losses over a

one-year

period.

In addition, the Bank has a Capital Contingency Plan that is designed to prepare management to maintain capital adequacy through periods of bank-specific or systemic market stress. The Capital Contingency Plan outlines the governance and procedures to be followed if the Bank’s consolidated capital levels are forecast to fall below capital targets or when there are capital concerns from disruptive events or trends. It also outlines potential management actions that may be taken to prevent such a breach from occurring.

Legal, Regulatory Compliance and Conduct Risk

Legal, Regulatory Compliance and Conduct (LRCC) risk is the risk associated with the Bank’s failure to comply with applicable laws, rules, regulations, regulatory guidance, contractual obligations, TD’s Code of Conduct and Ethics, or standards of fair business conduct or market conduct, which can lead to financial loss, fines, sanctions, liabilities, or reputational harm that could be material to the Bank.

The Bank is exposed to LRCC risk in virtually all of its activities. Failure to mitigate LRCC risk and meet regulatory and legal requirements can impact the Bank’s ability to meet strategic objectives, poses a risk of censure or penalty, may lead to litigation, and puts the Bank’s reputation at risk. Financial penalties, reputational damage, and other costs associated with legal proceedings, and unfavourable judicial or regulatory determinations may also adversely affect the Bank’s business, results of operations and financial condition. LRCC risk differs from other banking risks, such as credit risk or market risk, in that it is typically not a risk actively or deliberately assumed by management in expectation of a return and also because LRCC risk generally cannot be effectively mitigated by trying to limit its impact to any one business or jurisdiction, as realized LRCC risk may adversely impact unrelated business or jurisdictions. LRCC risk is inherent in the normal course of operating the Bank’s businesses.

WHO MANAGES LEGAL, REGULATORY COMPLIANCE, AND CONDUCT RISK

The proactive and effective management of LRCC risk is complex given the breadth and pervasiveness of exposure. The LRCC Risk Management Framework applies enterprise-wide to the Bank and to all its corporate functions, business segments, its governance, risk, and oversight functions, and to its subsidiaries. All the Bank’s businesses are responsible for operating their business in compliance with LRCC Requirements applicable to their jurisdiction and specific business requirements, and for adhering to LRCC requirements in their business operations, including setting the appropriate tone for LRCC risk management. This accountability involves assessing the risk, designing and implementing controls, and monitoring and reporting on their ongoing effectiveness to safeguard the businesses from operating outside of the Bank’s risk appetite. The Compliance, GAML and Regulatory Risk Departments provide objective guidance, and oversight with respect to managing LRCC risk. The Legal and Regulatory Relationships and Government Affairs groups provide advice with respect to managing LRCC risk. Representatives of these groups interact regularly with senior executives of the Bank’s businesses. Also, the senior management of the Legal, Compliance, and GAML Departments have established regular meetings with and reporting to the Audit Committee, which oversees the establishment and maintenance of policies and programs reasonably designed to achieve and maintain the Bank’s compliance with the applicable laws and regulations. Senior

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 88

management of the Compliance Department also reports regularly to the Corporate Governance Committee, which oversees conduct risk management in the Bank. In addition, senior management of the Regulatory Risk group has established periodic reporting to the Board and its committees.

HOW TD MANAGES LEGAL, REGULATORY COMPLIANCE AND CONDUCT RISK

Effective management of LRCC risk is a result of enterprise-wide collaboration and requires (a) independent and objective identification and assessment of LRCC risk, (b) objective guidance and advisory services and/or independent challenge and oversight to identify, assess, control, and monitor LRCC risk, and (c) an approved set of frameworks, policies, procedures, guidelines, and practices. While each business line is accountable for operating in compliance with applicable laws and regulations and for effectively managing LRCC risk, each of the Legal, Compliance, GAML, and Regulatory Risk Departments plays a critical role in the management of LRCC risk at the Bank. Depending on the circumstances, they play different roles at different times: ‘trusted advisor’, provider of objective guidance, independent challenge, and oversight and control (including ‘gatekeeper’ or approver).

In particular, the Compliance Department performs the following functions: it acts as an independent Regulatory Compliance and Conduct Risk management oversight function; it fosters a culture of integrity, ethics and compliance across the organization to manage and mitigate Regulatory Compliance and Conduct Risks; it assesses the adequacy of, adherence to, and effectiveness of the Bank’s

day-to-day

Regulatory Compliance Management (RCM) controls; it is accountable for leading the enterprise Conduct Risk governance and oversight; and it supports the Global Chief Compliance Officer in providing an opinion to the Audit Committee as to whether the RCM controls are sufficiently robust in achieving compliance with applicable regulatory requirements. The Compliance Department works in partnership with Human Resources and Operational Risk Management to provide oversight and challenge to the businesses in their management of conduct risk.

The GAML Department acts as an independent regulatory compliance and risk management oversight function and is responsible for regulatory compliance and the broader prudential risk management components of the AML, Anti-Terrorist Financing, Sanctions, and Anti-Bribery/Anti-Corruption programs (collectively, the “GAML Programs”), including their design, content, and enterprise-wide implementation; develops standards, monitors, evaluates, and reports on GAML program controls, design, and execution; and reports on the overall adequacy and effectiveness of the GAML Programs, including program design and operation. In addition, the Compliance and GAML Departments have developed methodologies and processes to measure and aggregate regulatory compliance risks and conduct risks on an ongoing basis as a baseline to assess whether the Bank’s internal controls are effective in adequately mitigating such risks and determine whether individual or aggregate business activities are conducted within the Bank’s risk appetite.

The Legal Department acts as an independent provider of legal services and advice and protects the Bank from unacceptable legal risk. The Legal Department has also developed methodologies for measuring litigation risk for adherence to the Bank’s risk appetite.

Processes employed by the Legal, Compliance, and GAML Departments (including policies and frameworks, training and education, and the Code of Conduct and Ethics) support the responsibility of each business to adhere to LRCC Requirements.

Finally, the Bank’s Regulatory Risk and Government Affairs groups also create and facilitate communication with elected officials and regulators, monitor legislation and regulations, support business relationships with governments, coordinate regulatory examinations and regulatory findings remediation, support regulatory discussions on new or proposed products or business initiatives, and advance the public policy objectives of the Bank.

Reputational Risk

Reputational risk is the potential that stakeholder perceptions, whether true or not, regarding the Bank’s business practices, actions or inactions, will or may cause a significant decline in the Bank’s value, brand, liquidity or customer base, or require costly measures to address.

A company’s reputation is a valuable business asset that is essential to optimizing shareholder value and therefore, is constantly at risk. Reputational risk can arise as a consequence of negative perceptions about the Bank’s business practices involving any aspect of the Bank’s operations and usually involves concerns about business ethics and integrity, competence, or the quality or suitability of products and services. Since all risk categories can have an impact on a company’s reputation, reputational risk is not managed in isolation from the Bank’s other major risk categories and can ultimately impact its brand, earnings, and capital.

WHO MANAGES REPUTATIONAL RISK

Responsibility for managing risks to the Bank’s reputation ultimately lies with the SET and the executive committees that examine reputational risk as part of their regular mandate. The ERRC is the most senior executive committee for the review of reputational risk matters at TD. The mandate of the ERRC is to oversee the management of reputational risk within the Bank’s risk appetite. Its main accountability is to review and assess business and corporate initiatives and activities where significant reputational risk profiles have been identified and escalated. The ERRC also provides a forum for discussion, review, and escalation for

non-traditional

risks.

At the same time, every employee and representative of the Bank has a responsibility to contribute in a positive way to the Bank’s reputation and the management of reputational risk. This means that every Bank employee is responsible for following ethical practices at all times, complying with applicable policies, legislation, and regulations and are also supporting positive interactions with the Bank’s stakeholders. Reputational risk is most effectively managed when everyone at the Bank works continuously to protect and enhance the Bank’s reputation.

HOW TD MANAGES REPUTATIONAL RISK

The Bank’s approach to the management of reputational risk combines the experience and knowledge of individual business segments, corporate shared service areas and governance, risk and oversight functions. It is based on enabling the Bank’s businesses to understand their risks and developing the policies, processes, and controls required to manage these risks appropriately and in line with the Bank’s strategy and reputational risk appetite. The Bank’s Reputational Risk Management Framework provides a comprehensive overview of its approach to the management of this risk. Amongst other significant policies, the Bank’s Enterprise Reputational Risk Management Policy is approved by the Group Head and CRO and sets out the requirements under which business segments and corporate shared services are required to manage reputational risk. These requirements include implementing procedures and designating a business-level committee (where required by the Policy) to review and assess reputational risks and escalation to the ERRC as appropriate.

The Bank also has an enterprise-wide New Business and Product Approval (NBPA) Policy that is approved by the CRO and establishes standard practices to support consistent processes for approving new businesses, products, and services across the Bank. The policy is supported by business segment specific processes, which involve independent review from oversight functions, and consideration of all aspects of a new product, including reputational risk.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 89

Environmental and Social Risk

Environmental and social risk is the risk of financial loss or reputational damage resulting from the Bank’s inability to adapt to changing environmental or social issues, including climate change, that impact or are associated with the Bank’s operations, business activities, products, clients or the communities the Bank operates in.

Management of environmental and social (E&S) risk is an enterprise-wide priority. Key E&S risks include: (1) direct risks associated with the ownership and operation of the Bank’s businesses, which include management and operation of company-owned or managed real estate, business operations, and associated services; (2) indirect risks associated with environmental and social issues or events (including climate change) that may impact the Bank’s customers and clients, or the communities in which the Bank operates; (3) identification and management of new or emerging environmental and social regulatory issues; and (4) failure to understand and appropriately leverage environmental or social-related trends to meet customer and consumer demands for products and services.

WHO MANAGES ENVIRONMENTAL AND SOCIAL RISK

The Bank integrates environmental and social risk management capabilities into each business to reinforce ownership and support of the business in assessing, reporting and escalating these risks. The ESG strategy and E&S risks are managed within a governance structure that balances broad engagement across the organization while also providing

line-of-sight

accountability. The Senior Vice President, Sustainability and Corporate Citizenship and the Senior Vice President, Enterprise and Operational Risk Management hold senior executive accountability for environmental and social strategy and risk management, respectively. In addition, the Global Head, Diversity and Inclusion is consulted on emerging social risks related to diversity and inclusion. The Sustainability and Corporate Citizenship team supports the development of the Bank’s environmental, social and related governance strategy, performance standards and targets, and reports on performance. The Bank’s Environmental and Social Risk Management group, operating under Operational Risk Management, has environmental and social risk oversight accountabilities, including establishing risk frameworks, policies, processes and governance to identify, assess, control, monitor and report on environmental and social risks, including climate-related risks, to the Bank. The ESG Credit Risk team under Credit Risk Management is focused on applying enterprise-level environmental and social risk frameworks and associated monitoring and control activities to the Bank’s lending portfolio. The Bank’s various business-specific and enterprise risk committees are also involved in monitoring material risks and acting as governance bodies for escalation and oversight of emerging environmental and social risk issues.

HOW TD MANAGES ENVIRONMENTAL AND SOCIAL RISK

The Bank manages E&S risks through an enterprise-wide Environmental and Social Risk Framework which is supported by business segment level policies and procedures across the Bank, and is aligned with the Bank’s risk appetite for environmental and social risk.

The Bank’s environmental and social metrics, targets, and performance are publicly reported within its annual ESG Report. Key performance measures are reported according to the Global Reporting Initiative (GRI), with select metrics that are independently assured.

TD’s Environmental and Social Credit Risk Process for

Non-Retail

Credit Business Lines contains a set of due diligence tools that are applied to all material

non-retail

lending activities, which include general-corporate-purpose, project and fixed asset financing. This process includes assessment of the Bank’s clients’ policies, procedures, and performance on significant environmental and social issues, such as air, land and water risk, biodiversity, stakeholder engagement, and the free, prior and informed consent (FPIC) of Indigenous Peoples. The Bank also assesses borrower activities against a list of prohibited business activities and transactions based on environmental and social risks. In addition, within Wholesale and Commercial Banking, sector-specific guidelines are in place to assess clients within environmentally sensitive sectors. In the area of project finance, the Bank has been a signatory to the Equator Principles since 2007 and reports on Equator Principles projects within its annual ESG Report. The Equator Principles help financial institutions determine, assess, manage and report environmental and social risk in respect of projects that are in scope of the Equator Principles. The Bank uses a comprehensive set of tools and guidance documents to identify and categorize Equator Principle deals appropriately.

Climate Risk

Climate risk is the risk of financial loss or reputational damage from materialized credit, market, operational or other risks resulting from the physical and transition risks of climate change to the Bank, its clients or the communities in which the Bank operates. In its 2020 Managing Climate-Related Risks and Opportunities: Update on TCFD report, the Bank disclosed its alignment with the Financial Stability Board’s TCFD recommendations which seek to provide a more consistent approach for assessing and reporting climate-related risks, including physical and transition risks and opportunities. TD is developing methodologies and approaches, including building related tools and capabilities for quantitative measurement for climate scenario analysis, through participation in industry-wide working groups. The Bank is a member of the United Nations Environment Programme Finance Initiative (UNEP FI) and is participating in TCFD pilot studies led by UNEP FI that seek to develop harmonized industry-wide approaches for climate scenario analysis in bank lending, investments, and insurance portfolios.

TD Asset Management (TDAM) is a signatory to the United Nations Principles for Responsible Investment (UN PRI). Under the UN PRI, investors commit to incorporate ESG issues into investment analysis and decision-making. TDAM has adopted its Sustainable Investing Policy across its operations since 2009. The Policy provides a high-level overview of how TDAM fulfils its commitment to the six guiding principles set out by the UN PRI. In 2015, TD Insurance became a signatory to the UNEP FI Principles for Sustainable Insurance, which provides a global framework for managing ESG risks within the insurance industry.

Codes of Conduct and Human Rights

The Bank has several policies, including the Bank’s Code of Conduct and Ethics that reflect the Bank’s commitment to manage its business responsibly and in compliance with applicable laws. For additional information on the Code of Conduct and Ethics, refer to the “Legal, Regulatory Compliance and Conduct Risk” section above. The Bank has a Statement on Human Rights that reflects TD’s commitment to manage its business responsibly and in accordance with its corporate responsibility to respect human rights as set out in the United Nations Guiding Principles on Business and Human Rights.

In addition, when registering suppliers, the Bank requests that suppliers confirm that they operate in accordance with the expectations described in TD’s Supplier Code of Conduct, which includes the protection of human rights. The Bank may apply enhanced due diligence to sourcing products and services when social, ethical, environmental and geographical factors suggest higher risk. The Bank’s North American Supplier Diversity Program seeks to promote a level playing field and encourage the inclusion of women, Black, Indigenous and other minorities, the LGBTQ2+ community, people with disabilities, veterans and other diverse groups in its procurement process. To reflect this goal, in 2021, TD’s Chief Procurement Officer released a Statement on Supplier Diversity recognizing diversity and inclusion as both a core value and a business imperative.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 90

The Bank also has policies and practices in place to address the risk of slavery and human trafficking in our business activities. TD publicly reports under section 54(1) of the

United Kingdom Modern Slavery Act 2015

through the Bank’s annual Slavery and Human Trafficking Statement, and the Bank’s Supplier Code of Conduct reflects our commitment to respect human rights.

The Bank proactively monitors and assesses industry, regulatory and legislative developments and assesses the potential impacts of climate change and related risks on its operations, lending portfolios, investments, and businesses. TD also maintains an ‘open door’ approach with environmental and community organizations, industry associations, and responsible investment organizations.

Additional information on TD’s environmental and social risk management and performance is included in the Bank’s ESG Report, which is available on the Bank’s website.

ACCOUNTING STANDARDS AND POLICIES

Critical Accounting Policies and Estimates

ACCOUNTING POLICIES AND ESTIMATES

The Bank’s accounting policies and estimates are essential to understanding its results of operations and financial condition. A summary of the Bank’s significant accounting policies and estimates are presented in the Notes of the 2021 Consolidated Financial Statements. The Bank’s critical accounting policies are reviewed with the Audit Committee on a periodic basis. Critical accounting policies that require management’s judgment and estimates include the classification and measurement of financial assets, accounting for impairments of financial assets, accounting for leases, the determination of fair value of financial instruments, accounting for derecognition, the valuation of goodwill and other intangibles, accounting for employee benefits, accounting for income taxes, accounting for provisions, accounting for insurance, the consolidation of structured entities, and accounting for revenue from contract with customers.

The Bank’s 2021 Consolidated Financial Statements have been prepared in accordance with IFRS. For details of the Bank’s accounting policies under IFRS, refer to Note 2 of the Bank’s 2021 Consolidated Financial Statements.

ACCOUNTING JUDGMENTS, ESTIMATES, AND ASSUMPTIONS

The estimates used in the Bank’s accounting policies are essential to understanding its results of operations and financial condition. Some of the Bank’s policies require subjective, complex judgments and estimates as they relate to matters that are inherently uncertain. Changes in these judgments or estimates and changes to accounting standards and policies could have a materially adverse impact on the Bank’s Consolidated Financial Statements. The Bank has established procedures to ensure that accounting policies are applied consistently and that the processes for changing methodologies, determining estimates, and adopting new accounting standards are well-controlled and occur in an appropriate and systematic manner.

CLASSIFICATION AND MEASUREMENT OF FINANCIAL ASSETS

Business Model Assessment

The Bank determines its business models based on the objective under which its portfolios of financial assets are managed. Refer to Note 2 of the Bank’s 2021 Consolidated Financial Statements for details on the Bank’s business models. In determining its business models, the Bank considers the following:

• Management’s intent and strategic objectives and the operation of the stated policies in practice;

• The primary risks that affect the performance of the business model and how these risks are managed;

• How the performance of the portfolio is evaluated and reported to management; and

• The frequency and significance of financial asset sales in prior periods, the reasons for such sales and the expected future sales activities.

Sales in themselves do not determine the business model and are not considered in isolation. Instead, sales provide evidence about how cash flows are realized. A

held-to-collect

business model will be reassessed by the Bank to determine whether any sales are consistent with an objective of collecting contractual cash flows if the sales are more than insignificant in value or more than infrequent.

Solely Payments of Principal and Interest Test

In assessing whether contractual cash flows represent solely payments of principal and interest (SPPI), the Bank considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that they would not be consistent with a basic lending arrangement. In making the assessment, the Bank considers the primary terms as follows and assesses if the contractual cash flows of the instruments continue to meet the SPPI test:

• Performance-linked features;

• Terms that limit the Bank’s claim to cash flows from specified assets (non-recourse terms);

• Prepayment and extension terms;

• Leverage features; and

• Features that modify elements of the time value of money.

IMPAIRMENT OF FINANCIAL ASSETS

Significant Increase in Credit Risk

For retail exposures, criteria for assessing significant increase in credit risk are defined at the appropriate product or portfolio level and vary based on the exposure’s credit risk at origination. The criteria include relative changes in PD, absolute PD backstop, and delinquency backstop when contractual payments are more than 30 days past due. Significant increase in credit risk since initial recognition has occurred when one of the criteria is met.

For

non-retail

exposures, BRR is determined on an individual borrower basis using industry and sector specific credit risk models that are based on historical data. Current and forward-looking information that is specific to the borrower, industry, and sector is considered based on expert credit judgment. Criteria for assessing significant increase in credit risk are defined at the appropriate segmentation level and vary based on the BRR of the exposure at origination. Criteria include relative changes in BRR, absolute BRR backstop, and delinquency backstop when contractual payments are more than 30 days past due. Significant increase in credit risk since initial recognition has occurred when one of the criteria is met. Refer to the “Impact of

COVID-19”

section of this document for considerations as a result of

COVID-19.

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Measurement of Expected Credit Loss

For retail exposures, ECLs are calculated as the product of PD, LGD, and EAD at each time step over the remaining expected life of the financial asset and discounted to the reporting date based on the EIR. PD estimates represent the forward-looking PD, updated quarterly based on the Bank’s historical experience, current conditions, and relevant forward-looking expectations over the expected life of the exposure to determine the lifetime PD curve. LGD estimates are determined based on historical

charge-off

events and recovery payments, current information about attributes specific to the borrower, and direct costs. Expected cash flows from collateral, guarantees, and other credit enhancements are incorporated in LGD if integral to the contractual terms. Relevant macroeconomic variables are incorporated in determining expected LGD. EAD represents the expected balance at default across the remaining expected life of the exposure. EAD incorporates forward-looking expectations about repayments of drawn balances and expectations about future draws where applicable.

For non-retail exposures, ECLs are calculated based on the present value of cash shortfalls determined as the difference between contractual cash flows and expected cash flows over the remaining expected life of the financial instrument. Lifetime PD is determined by mapping the exposure’s BRR to forward-looking PD over the expected life. LGD estimates are determined by mapping the exposure’s FRR to expected LGD which takes into account facility-specific characteristics such as collateral, seniority ranking of debt, and loan structure. Relevant macroeconomic variables are incorporated in determining expected PD and LGD. Expected cash flows are determined by applying the expected LGD to the contractual cash flows to calculate cash shortfalls over the expected life of the exposure.

Forward-Looking Information

In calculating ECLs, the Bank employs internally developed models that utilize parameters for PD, LGD, and EAD. Forward-looking macroeconomic factors including at the regional level are incorporated in the risk parameters as relevant. Additional risk factors that are industry or segment specific are also incorporated, where relevant. Forward-looking macroeconomic forecasts are generated by TD Economics as part of the ECL process: A base economic forecast is accompanied with upside and downside estimates of possible economic conditions by considering the sources of uncertainty around the base forecast. All macroeconomic forecasts are updated quarterly for each variable on a regional basis where applicable and incorporated as relevant into the quarterly modelling of base, upside and downside risk parameters used in the calculation of ECL scenarios and probability weighted ECLs. TD Economics will apply judgment to recommend probability weights to each forecast on a quarterly basis. The proposed macroeconomic forecasts and probability weightings are subject to robust management review and challenge process by a cross-functional committee that includes representation from TD Economics, Risk, Finance, and Business. ECLs calculated under each of the three forecasts are applied against the respective probability-weightings to determine the probability-weighted ECLs. Refer to the “Impact of

COVID-19”

section of this document for considerations as a result of

COVID-19

and Note 8 of the Consolidated Financial Statements for further details on the macroeconomic variables and ECL sensitivity.

Expert Credit Judgment

ECLs are recognized on the initial recognition of financial assets. Allowance for credit losses represents management’s best estimate of the risk of default and ECLs on the financial assets, including any

off-balance

sheet exposures, at the balance sheet date. Management exercises expert credit judgment in assessing if an exposure has experienced significant increase in credit risk since initial recognition and in determining the amount of ECLs at each reporting date by considering reasonable and supportable information that is not already included in the quantitative models. Refer to the “Impact of

COVID-19”

section of this document for considerations as a result of

COVID-19.

Management’s judgment is used to determine the point within the range that is the best estimate for the qualitative component contributing to ECLs, based on an assessment of business and economic conditions, historical loss experience, loan portfolio composition, and other relevant indicators and forward-looking information that are not fully incorporated into the model calculation. Changes in these assumptions would have a direct impact on the provision for credit losses and may result in a change in the allowance for credit losses.

Impact of

COVID-19

The Bank introduced relief programs in 2020 that allowed borrowers to temporarily defer payments of principal and/or interest on their loans and supported various government-assistance programs which reduced the Bank’s exposure to expected losses. Under these relief programs and notwithstanding any other changes in credit risk, opting into a payment deferral program did not in and of itself trigger a significant increase in credit risk since initial recognition (which would result in stage migration) and did not result in additional days past due. The majority of these relief programs have now ended.

As a result of

COVID-19,

there is a higher degree of uncertainty in determining reasonable and supportable forward-looking information. Management exercises expert credit judgment in assessing if an exposure has experienced significant increase in credit risk since initial recognition and in determining the amount of ECLs at each reporting date, by considering reasonable and supportable information that is not already included in the quantitative models. The current environment is subject to rapid change and to the extent that certain effects of

COVID-19 are not

fully incorporated into the model calculations, increased temporary quantitative and qualitative adjustments have been applied. This includes borrower credit scores, industry and geography specific

COVID-19

impacts, payment support initiatives introduced by the Bank and governments, and the persistence of the economic shutdown, the effects of which are not yet fully reflected in the quantitative models. The Bank has performed certain additional qualitative portfolio and loan level assessments of significant increase in credit risk.

LEASES

The Bank applies judgment in determining the appropriate lease term on a

lease-by-lease

basis. All facts and circumstances that create an economic incentive to exercise a renewal option or not to exercise a termination option including investments in major leaseholds, branch performance and past business practice are considered. The periods covered by renewal or termination options are only included in the lease term if it is reasonably certain that the Bank will exercise the options; management considers “reasonably certain” to be a high threshold. Changes in the economic environment or changes in the industry may impact the

Bank’s assessment of lease term, and any changes in the Bank’s estimate of lease terms may have a material impact on the Bank’s Consolidated Balance Sheet and Consolidated Statement of Income.

In determining the carrying amount of ROU assets and lease liabilities, the Bank is required to estimate the incremental borrowing rate specific to each leased asset or portfolio of leased assets if the interest rate implicit in the lease is not readily determinable. The Bank determines the incremental borrowing rate of each leased asset or portfolio of leased assets by incorporating the Bank’s creditworthiness, the security, term, and value of the ROU asset, and the economic environment in which the leased asset operates. The incremental borrowing rates are subject to change mainly due to changes in the macroeconomic environment.

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FAIR VALUE MEASUREMENTS

The fair value of financial instruments traded in active markets at the balance sheet date is based on their quoted market prices. For all other financial instruments not traded in an active market, fair value may be based on other observable current market transactions involving the same or similar instruments, without modification or repackaging, or is based on a valuation technique which maximizes the use of observable market inputs. Observable market inputs may include interest rate yield curves, foreign exchange rates, and option volatilities. Valuation techniques include comparisons with similar instruments where observable market prices exist, discounted cash flow analysis, option pricing models, and other valuation techniques commonly used by market participants.

For certain complex or illiquid financial instruments, fair value is determined using valuation techniques in which current market transactions or observable market inputs are not available. Determining which valuation technique to apply requires judgment. The valuation techniques themselves also involve some level of estimation and judgment. The judgments include liquidity considerations and model inputs such as volatilities, correlations, spreads, discount rates,

pre-payment

rates, and prices of underlying instruments. Any imprecision in these estimates can affect the resulting fair value.

Judgment is used in recording valuation adjustments to model fair values to account for system limitations or measurement uncertainty, such as when valuing complex and less actively traded financial instruments. Valuation adjustments reflect the Bank’s assessment of factors that market participants would use in pricing the asset or liability. The Bank recognizes various types of valuation adjustments including, but not limited to, adjustments for

bid-offer

spreads, adjustments for the unobservability of inputs used in pricing models, and adjustments for assumptions about risk, such as the creditworthiness of either counterparty and market implied unsecured funding costs and benefits for OTC derivatives. If the market for a complex financial instrument develops, the pricing for this instrument may become more transparent, resulting in refinement of valuation models. For example, IBOR reform may also have an impact on the fair value of products that reference or use valuation models with IBOR inputs.

The Bank recognized valuation adjustments of $226 million as at October 31, 2021 (October 31, 2020 – $543 million) against the fair value of financial instruments, related mainly to credit risk, funding risk, and

bid-offer

spreads on derivatives.

An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 5 of the Bank’s 2021 Consolidated Financial Statements.

DERECOGNITION OF FINANCIAL INSTRUMENTS

Certain assets transferred may qualify for derecognition from the Bank’s Consolidated Balance Sheet. To qualify for derecognition certain key determinations must be made. A decision must be made as to whether the rights to receive cash flows from the financial assets have been retained or transferred and the extent to which the risks and rewards of ownership of the financial assets have been retained or transferred. If the Bank neither transfers nor retains substantially all of the risks and rewards of ownership of the financial asset, a decision must be made as to whether the Bank has retained control of the financial asset. Upon derecognition, the Bank will record a gain or loss on sale of those assets which is calculated as the difference between the carrying amount of the asset transferred and the sum of any cash proceeds received, including any financial asset received or financial liability assumed, and any cumulative gain or loss allocated to the transferred asset that had been recognized in AOCI. In determining the fair value of any financial asset received, the Bank estimates future cash flows by relying on estimates of the amount of interest that will be collected on the securitized assets, the yield to be paid to investors, the portion of the securitized assets that will be prepaid before their scheduled maturity, ECLs, the cost of servicing the assets, and the rate at which to discount these expected future cash flows. Actual cash flows may differ significantly from those estimated by the Bank. Retained interests are classified as trading securities and are initially recognized at relative fair value on the Bank’s Consolidated Balance Sheet. Subsequently, the fair value of retained interests recognized by the Bank is determined by estimating the present value of future expected cash flows. Differences between the actual cash flows and the Bank’s estimate of future cash flows are recognized in trading income. These assumptions are subject to periodic review and may change due to significant changes in the economic environment.

GOODWILL AND OTHER INTANGIBLES

The recoverable amount of the Bank’s CGUs is determined from internally developed valuation models that consider various factors and assumptions such as forecasted earnings, growth rates, discount rates, and terminal growth rates. Management is required to use judgment in estimating the recoverable amount of CGUs, and the use of different assumptions and estimates in the calculations could influence the determination of the existence of impairment and the valuation of goodwill. Management believes that the assumptions and estimates used are reasonable and supportable. Where possible, assumptions generated internally are compared to relevant market information. The carrying amounts of the Bank’s CGUs are determined by management using risk-based capital models to adjust net assets and liabilities by CGU. These models consider various factors including market risk, credit risk, and operational risk, including investment capital (comprised of goodwill and other intangibles). Any capital not directly attributable to the CGUs is held within the Corporate segment. The Bank’s capital oversight committees provide oversight to the Bank’s capital allocation methodologies.

EMPLOYEE BENEFITS

The projected benefit obligation and expense related to the Bank’s pension and post-retirement defined benefit plans are determined using multiple assumptions that may significantly influence the value of these amounts. Actuarial assumptions including discount rates, compensation increases, health care cost trend rates, and mortality rates are management’s best estimates and are reviewed annually with the Bank’s actuaries. The Bank develops each assumption using relevant historical experience of the Bank in conjunction with market-related data and considers if the market-related data indicates there is any prolonged or significant impact on the assumptions. The discount rate used to value the projected benefit obligation is determined by reference to market yields on high-quality corporate bonds with terms matching the plans’ specific cash flows. The other assumptions are also long-term estimates. All assumptions are subject to a degree of uncertainty. Differences between actual experiences and the assumptions, as well as changes in the assumptions resulting from changes in future expectations, result in actuarial gains and losses which are recognized in other comprehensive income during the year and also impact expenses in future periods.

INCOME TAXES

The Bank is subject to taxation in numerous jurisdictions. There are many transactions and calculations in the ordinary course of business for which the ultimate tax determination is uncertain. The Bank maintains provisions for uncertain tax positions that it believes appropriately reflect the risk of tax positions under discussion, audit, dispute, or appeal with tax authorities, or which are otherwise considered to involve uncertainty. These provisions are made using the Bank’s best estimate of the amount expected to be paid based on an assessment of all relevant factors, which are reviewed at the end of each reporting period. However, it is possible that at some future date, an additional liability could result from audits by the relevant taxing authorities.

Deferred tax assets are recognized only when it is probable that sufficient taxable profit will be available in future periods against which deductible temporary differences may be utilized. The amount of the deferred tax asset recognized and considered realizable could, however, be reduced if projected income is not achieved due to various factors, such as unfavourable business conditions. If projected income is not expected to be achieved, the Bank would decrease its deferred tax assets to the amount that it believes can be realized. The magnitude of the decrease is significantly influenced by the Bank’s forecast of future profit generation, which determines the extent to which it will be able to utilize the deferred tax assets.

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PROVISIONS

Provisions arise when there is some uncertainty in the timing or amount of a loss in the future. Provisions are based on the Bank’s best estimate of all expenditures required to settle its present obligations, considering all relevant risks and uncertainties, as well as, when material, the effect of the time value of money.

Many of the Bank’s provisions relate to various legal actions that the Bank is involved in during the ordinary course of business. Legal provisions require the involvement of both the Bank’s management and legal counsel when assessing the probability of a loss and estimating any monetary impact. Throughout the life of a provision, the Bank’s management or legal counsel may learn of additional information that may impact its assessments about the probability of loss or about the estimates of amounts involved. Changes in these assessments may lead to changes in the amount recorded for provisions. In addition, the actual costs of resolving these claims may be substantially higher or lower than the amounts recognized. The Bank reviews its legal provisions on a

case-by-case

basis after considering, among other factors, the progress of each case, the Bank’s experience, the experience of others in similar cases, and the opinions and views of legal counsel.

Certain of the Bank’s provisions relate to restructuring initiatives initiated by the Bank. Restructuring provisions require management’s best estimate, including forecasts of economic conditions. Throughout the life of a provision, the Bank may become aware of additional information that may impact the assessment of amounts to be incurred. Changes in these assessments may lead to changes in the amount recorded for provisions.

INSURANCE

The assumptions used in establishing the Bank’s insurance claims and policy benefit liabilities are based on best estimates of possible outcomes.

For property and casualty insurance, the ultimate cost of claims liabilities is estimated using a range of standard actuarial claims projection techniques in accordance with Canadian accepted actuarial practices. Additional qualitative judgment is used to assess the extent to which past trends may or may not apply in the future, in order to arrive at the estimated ultimate claims cost that present the most likely outcome taking into account all the uncertainties involved.

For life and health insurance, actuarial liabilities consider all future policy cash flows, including premiums, claims, and expenses required to administer the policies. Critical assumptions used in the measurement of life and health insurance contract liabilities are determined by the appointed actuary.

Further information on insurance risk assumptions is provided in Note 22 of the 2021 Consolidated Financial Statements.

CONSOLIDATION OF STRUCTURED ENTITIES

Management judgment is required when assessing whether the Bank should consolidate an entity. For instance, it may not be feasible to determine if the Bank controls an entity solely through an assessment of voting rights for certain structured entities. In this case, judgment is required to establish whether the Bank has decision-making power over the key relevant activities of the entity and whether the Bank has the ability to use that power to absorb significant variable returns from the entity. If it is determined that the Bank has both decision-making power and significant variable returns from the entity, judgment is also used to determine whether any such power is exercised by the Bank as principal, on its own behalf, or as agent, on behalf of another counterparty.

Assessing whether the Bank has decision-making power includes understanding the purpose and design of the entity in order to determine its key economic activities. In this context, an entity’s key economic activities are those which predominantly impact the economic performance of the entity. When the Bank has the current ability to direct the entity’s key economic activities, it is considered to have decision-making power over the entity.

The Bank also evaluates its exposure to the variable returns of a structured entity in order to determine if it absorbs a significant proportion of the variable returns the entity is designed to create. As part of this evaluation, the Bank considers the purpose and design of the entity in order to determine whether it absorbs variable returns from the structured entity through its contractual holdings, which may take the form of securities issued by the entity, derivatives with the entity, or other arrangements such as guarantees, liquidity facilities, or lending commitments.

If the Bank has decision-making power over the entity and absorbs significant variable returns from the entity, it then determines if it is acting as principal or agent when exercising its decision-making power. Key factors considered include the scope of its decision-making powers; the rights of other parties involved with the entity, including any rights to remove the Bank as decision-maker or rights to participate in key decisions; whether the rights of other parties are exercisable in practice; and the variable returns absorbed by the Bank and by other parties involved with the entity. When assessing consolidation, a presumption exists that the Bank exercises decision-making power as principal if it is also exposed to significant variable returns, unless an analysis of the factors above indicates otherwise.

The decisions above are made with reference to the specific facts and circumstances relevant for the structured entity and related transaction(s) under consideration.

REVENUE FROM CONTRACTS WITH CUSTOMERS

The Bank applies judgment to determine the timing of satisfaction of performance obligations which affects the timing of revenue recognition, by evaluating the pattern in which the Bank transfers control of services promised to the customer. A performance obligation is satisfied over time when the customer simultaneously receives and consumes the benefits as the Bank performs the service. For performance obligations satisfied over time, revenue is generally recognized using the time-elapsed method which is based on time elapsed in proportion to the period over which the service is provided, for example, personal deposit account bundle fees. The time-elapsed method is a faithful depiction of the transfer of control for these services as control is transferred evenly to the customer when the Bank provides a stand-ready service or effort is expended evenly by the Bank to provide a service over the contract period. In contracts where the Bank has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the Bank’s performance completed to date, the Bank recognizes revenue in the amount to which it has a right to invoice.

The Bank satisfies a performance obligation at a point in time if the customer obtains control of the promised services at that date. Determining when control is transferred requires the use of judgment. For transaction-based services, the Bank determines that control is transferred to the customer at a point in time when the customer obtains substantially all of the benefits from the service rendered and the Bank has a present right to payment, which generally coincides with the moment the transaction is executed.

The Bank exercises judgment in determining whether costs incurred in connection with acquiring new revenue contracts would meet the requirement to be capitalized as incremental costs to obtain or fulfil a contract with customers.

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ACCOUNTING STANDARDS AND POLICIES

Current and Future Changes in Accounting Policies

CURRENT CHANGES IN ACCOUNTING POLICY

The following new standards and changes in accounting policies have been adopted by the Bank on November 1, 2020.

Interest Rate Benchmark Reform Phase 2

On August 27, 2020, the IASB issued

Interest Rate Benchmark Reform – Phase 2, Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16

(Interest Rate Benchmark Reform Phase 2). The amendments are effective for annual periods beginning on or after January 1, 2021, with early adoption permitted. The Bank early adopted these amendments on November 1, 2020 and no transition adjustment was required.

Interest Rate Benchmark Reform Phase 2 addresses issues affecting financial reporting when changes are made to contractual cash flows of financial instruments or hedging relationships as a result of IBOR reform. The amendments permit modification to financial assets, financial liabilities and lessee lease liabilities required as a direct consequence of IBOR reform and made on an economically equivalent basis to be accounted for by updating the EIR prospectively. If the modification does not meet the practical expedient requirements, existing IFRS requirements are applied. Reliefs are also provided for an entity’s hedge accounting relationships in circumstances where changes to hedged items and hedging instruments arise as a result of IBOR reform. The amendments enable entities to amend the formal designation and documentation of a hedging relationship to reflect these changes without discontinuing the hedging relationship or designating a new hedging relationship. Permitted changes include redefining the hedged risk to reference an ARR (contractually or

non-contractually

specified), amending the description of the hedged item and hedging instrument to reflect the ARR, and amending the description of how the entity will assess hedge effectiveness. Hedging relationships within the scope of Interest Rate Benchmark Reform Phase 2 are the same as those within the scope of Interest Rate Benchmark Reform Phase 1. Interest Rate Benchmark Reform Phase 2 also amended IFRS 7, introducing expanded qualitative and quantitative disclosures about the risks arising from IBOR reform, how an entity is managing those risks, its progress in completing the transition to ARRs, and how it is managing the transition.

The global benchmark rate reform initiative to transition from IBORs to ARRs may result in market dislocation and have other adverse consequences to the Bank, its customers, market participants, and the financial services industry. Market risks arise because the new reference rates are likely to differ from the existing benchmark rates which could result in different financial performance for previously booked transactions, require alternative hedging strategies, or affect the Bank’s capital and liquidity planning and management. In order to manage these risks, the Bank has established an enterprise-wide, cross functional initiative with senior management and Board oversight to evaluate and monitor the impact of the market, financial, operational, legal, technology and other risks on its products, services, systems, models, documents, processes, and risk management frameworks with the intention of managing the impact through appropriate mitigating actions.

The Bank is progressing on its transition plan and continues to monitor industry and regulatory developments while incorporating global working group and regulator best practice guidance on transition activities. Details related to certain market developments are noted below:

• To help support the transition of legacy derivative contracts, the Bank’s registered swap dealer and four additional Bank affiliates have adhered to the International Swaps and Derivatives Association IBOR Fallbacks Protocol (ISDA Protocol). The ISDA Protocol, which took effect on January 25, 2021, provides an efficient transition mechanism for mutually adhering counterparties to incorporate prescribed fallback rates into legacy derivative contracts.

• London Clearing House and the Chicago Mercantile Exchange (CME) Group have established a process with market participants to convert outstanding London Inter-Bank Offered Rate (LIBOR) swaps into corresponding market standard ARR-based contracts.

• In July 2021, the Alternative Reference Rates Committee formally recommended CME Group’s forward-looking Secured Overnight Financing Rate (SOFR) term rates, following completion of a key change in interdealer trading conventions on July 26, 2021 under the SOFR First initiative.

In March 2021, the ICE Benchmark Administration (IBA) announced that the publication of LIBOR settings will cease immediately after December 31, 2021 for all sterling, Japanese yen, Swiss franc, and euro settings as well as the

1-week

and

2-month

US LIBOR settings. The remaining US LIBOR settings will cease to be published immediately after June 30, 2023. In September 2021, the U.K. Financial Conduct Authority (FCA) confirmed that they will require the IBA to publish certain settings of sterling and Japanese yen LIBOR on a

non-representative

synthetic basis after December 31, 2021 to support an orderly wind down of legacy exposures in the marketplace. To support the global regulatory objective to transition away from LIBOR benchmarks, global regulators have issued guidance and policy statements to supervised institutions restricting the use of US LIBOR as a reference rate in new contracts written after December 31, 2021, subject to limited exceptions.

Hedging Relationships

On November 1, 2020, the Bank changed its accounting policy on a retrospective basis for the presentation of fair value changes on hedging instruments designated in certain fair value hedge accounting relationships, reclassifying the component excluded from the assessment of hedge effectiveness from

non-interest

income to net interest income. With the reclassification, changes in the fair value of the hedged item and related hedging instrument (excluding hedge ineffectiveness) are presented in the same lines on the Consolidated Statement of Income. For the comparative years ended October 31, 2020 and October 31, 2019, the Bank reclassified losses of $1,114 million and $110 million, respectively, from

Non-interest

income to Net interest income on the Consolidated Statement of Income to conform with the presentation adopted in the current year.

Business Combinations

In October 2018, the IASB issued narrow-scope amendments to IFRS 3,

Business Combinations

. The amendments provide additional guidance on the definition of a business which determines whether an acquisition is of a business or a group of assets. An acquirer recognizes goodwill only when acquiring a business, not when acquiring a group of assets. The Bank adopted these amendments on November 1, 2020 prospectively and they did not have a significant impact on the Bank.

Revised Conceptual Framework for Financial Reporting

In March 2018, the IASB issued the revised Conceptual Framework for Financial Reporting (Revised Conceptual Framework), which provides a set of concepts to assist the IASB in developing standards and to help preparers consistently apply accounting policies where specific accounting standards do not exist. The framework is not an accounting standard and does not override the requirements that exist in other IFRS standards. The Revised Conceptual Framework describes that financial information must be relevant and faithfully represented to be useful, provides revised definitions and recognition criteria for assets and liabilities, and confirms that different measurement bases are useful and permitted. The Bank adopted the Revised Conceptual Framework prospectively on November 1, 2020 and it did not have a significant impact on the Bank.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 95

FUTURE CHANGES IN ACCOUNTING POLICIES

The following standard has been issued, but is not yet effective on the date of issuance of the Bank’s Consolidated Financial Statements. The Bank is currently assessing the impact of applying the standard on the Consolidated Financial Statements and will adopt the standard when it becomes effective.

Insurance Contracts

The IASB issued IFRS 17,

Insurance Contracts

(IFRS 17) which replaces the guidance in IFRS 4,

Insurance Contracts,

and establishes principles for recognition, measurement, presentation, and disclosure of insurance contracts. Insurance contracts are aggregated into groups which are measured at the risk adjusted present value of cash flows in fulfilling the contracts. Revenue is recognized as insurance contract services are provided over the coverage period. Losses are recognized immediately if the contract group is expected to be onerous.

The standard is effective for annual reporting periods beginning on or after January 1, 2023, which will be November 1, 2023 for the Bank. OSFI’s related Advisory precludes early adoption. The standard will be applied retrospectively with restatement of comparatives unless impracticable.

The adoption of IFRS 17 is a significant initiative for the Bank and is supported by a robust governance structure. The Executive Steering Committee includes representation from the Insurance business, Finance, Actuaries, Risk, Technology, and project management teams. Updates are also provided to the TD insurance subsidiary boards, Risk Committee and Audit Committee of the Bank.

The Bank is proceeding with implementation of the software solution, including data preparation, system testing and configuration. In addition, the Bank is participating in industry consultations, including OSFI’s draft regulatory capital requirements.

ACCOUNTING STANDARDS AND POLICIES

Controls and Procedures

DISCLOSURE CONTROLS AND PROCEDURES

An evaluation was performed under the supervision and with the participation of the Bank’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Bank’s disclosure controls and procedures, as defined in the rules of the SEC and Canadian Securities Administrators, as of October 31, 2021. Based on that evaluation, the Bank’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Bank’s disclosure controls and procedures were effective as of October 31, 2021.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The Bank’s management is responsible for establishing and maintaining adequate internal control over financial reporting for the Bank. The Bank’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records, that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Bank; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that receipts and expenditures of the Bank are being made only in accordance with authorizations of the Bank’s management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Bank’s assets that could have a material effect on the financial statements.

The Bank’s management has used the criteria established in the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission to assess, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of the Bank’s internal control over financial reporting. Based on this assessment, management has concluded that as at October 31, 2021, the Bank’s internal control over financial reporting was effective based on the applicable criteria. The effectiveness of the Bank’s internal control over financial reporting has been audited by the independent auditors, Ernst & Young LLP, a registered public accounting firm that has also audited the Consolidated Financial Statements of the Bank as of, and for the year ended October 31, 2021. Their Report on Internal Controls under Standards of the Public Company Accounting Oversight Board (United States), included in the Consolidated Financial Statements, expresses an unqualified opinion on the effectiveness of the Bank’s internal control over financial reporting as of October 31, 2021.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

During the year and quarter ended October 31, 2021, there have been no changes in the Bank’s policies and procedures and other processes that comprise its internal control over financial reporting, that have materially affected, or are reasonably likely to materially affect, the Bank’s internal control over financial reporting.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 96

Additional Financial Information

Unless otherwise indicated, all amounts are expressed in Canadian dollars and have been primarily derived from the Bank’s annual Consolidated Financial Statements, prepared in accordance with IFRS as issued by the IASB.

TABLE 59:  INVESTMENT PORTFOLIO – Securities Maturity Schedule

1,2

(millions of Canadian dollars)																									As at
	Remaining terms to maturities 3
	Within 1 year			Over 1 year to 3 years			Over 3 years to 5 years			Over 5 years to 10 years			Over 10 years			With no specific maturity			Total						Total
																			October 31 2021			October 31 2020			October 31 2019
Securities at fair value through other comprehensive income
Government and government-related securities
Canadian government debt
Federal
Fair value	$	2,596		$	2,005		$	4,811		$	2,684		$	423		$	–		$	12,519		$	14,126		$	9,663
Amortized cost		2,592			1,990			4,763			2,663			420			–			12,428			13,967			9,603
Yield		1.88	%		1.09	%		1.06	%		1.45	%		2.72	%		–	%		1.37	%		1.79	%		2.15	%
Provinces
Fair value		1,120			2,596			3,635			9,940			852			–			18,143			16,502			12,927
Amortized cost		1,118			2,570			3,559			9,839			849			–			17,935			16,342			12,890
Yield		2.18	%		2.02	%		1.90	%		2.11	%		1.95	%		–	%		2.05	%		2.95	%		3.20	%
U.S. federal government debt
Fair value		8,344			1,313			2,206			–			–			–			11,863			22,168			25,176
Amortized cost		8,340			1,299			2,196			–			–			–			11,835			22,074			25,166
Yield		1.83	%		2.05	%		1.64	%		–	%		–	%		–	%		1.82	%		1.75	%		1.67	%
U.S. states, municipalities, and agencies
Fair value		2,151			1,383			419			13			3,471			–			7,437			10,866			15,561
Amortized cost		2,150			1,382			414			13			3,438			–			7,397			10,801			15,537
Yield		1.38	%		2.18	%		2.52	%		0.89	%		1.07	%		–	%		1.45	%		1.54	%		2.33	%
Other OECD government-guaranteed debt
Fair value		5,302			286			784			192			–			–			6,564			10,756			14,407
Amortized cost		5,296			285			780			190			–			–			6,551			10,720			14,394
Yield		1.60	%		1.89	%		1.55	%		2.13	%		–	%		–	%		1.62	%		1.58	%		1.68	%
Canadian mortgage-backed securities
Fair value		1,161			93			–			–			–			–			1,254			3,865			5,437
Amortized cost		1,159			92			–			–			–			–			1,251			3,855			5,407
Yield		1.66	%		1.67	%		–	%		–	%		–	%		–	%		1.66	%		1.57	%		1.63	%
Other debt securities
Asset-backed securities
Fair value		1,682			538			1,432			684			2,645			–			6,981			10,006			15,888
Amortized cost		1,683			538			1,425			683			2,628			–			6,957			10,051			15,890
Yield		0.34	%		1.92	%		2.31	%		1.87	%		0.83	%		–	%		1.20	%		1.57	%		2.27	%
Non-agency CMO 4
Fair value		–			–			–			–			–			–			–			–			247
Amortized cost		–			–			–			–			–			–			–			–			247
Yield		–	%		–	%		–	%		–	%		–	%		–	%		–	%		–	%		2.52	%
Corporate and other debt
Fair value		1,825			2,386			2,146			1,723			24			–			8,104			9,895			7,834
Amortized cost		1,820			2,358			2,135			1,711			30			–			8,054			9,853			7,832
Yield		2.42	%		1.90	%		1.70	%		1.94	%		0.60	%		–	%		1.97	%		2.58	%		2.56	%
Equity securities
Common shares
Fair value		–			–			–			–			–			4,117			4,117			2,387			1,598
Amortized cost		–			–			–			–			–			3,887			3,887			2,641			1,594
Yield		–	%		–	%		–	%		–	%		–	%		3.34	%		3.34	%		2.03	%		3.07	%
Preferred shares
Fair value		–			–			–			–			–			482			482			212			242
Amortized cost		–			–			–			–			–			470			470			303			302
Yield		–	%		–	%		–	%		–	%		–	%		5.04	%		5.04	%		3.38	%		4.07	%
Total securities at fair value through other comprehensive income
Fair value	$	24,181		$	10,600		$	15,433		$	15,236		$	7,415		$	4,599		$	77,464		$	100,783		$	108,980
Amortized cost		24,158			10,514			15,272			15,099			7,365			4,357			76,765			100,607			108,862
Yield		1.69	%		1.83	%		1.61	%		1.96	%		1.18	%		3.52	%		1.80	%		1.98	%		2.17	%

1  Yields represent the weighted-average yield of each security owned at the end of the period. The effective yield includes the contractual interest or stated dividend rate and is adjusted for the amortization of premiums and discounts; the effect of related hedging activities is excluded.

2  There were no securities from a single issuer where the book value was greater than 10% as at October 31, 2021 and October 31, 2020.

3  Represents contractual maturities. Actual maturities may differ due to prepayment privileges in the applicable contract.

4  Collateralized mortgage obligation (CMO).

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 97

TABLE 59:  INVESTMENT PORTFOLIO – Securities Maturity Schedule

(continued)

1,2

(millions of Canadian dollars)																									As at
	Remaining terms to maturities 3
	Within 1 year			Over 1 year to 3 years			Over 3 years to 5 years			Over 5 years to 10 years			Over 10 years			With no specific maturity			Total						Total
																			October 31 2021			October 31 2020			October 31 2019
Debt securities at amortized cost
Government and government-related securities
Canadian government debt
Federal
Fair value	$	13,070		$	1,082		$	5,435		$	1,278		$	1,787		$	–		$	22,652		$	17,989		$	4,759
Amortized cost		13,060			1,079			5,392			1,288			1,774			–			22,593			17,981			4,771
Yield		0.24	%		2.11	%		1.21	%		1.55	%		2.94	%		–	%		0.85	%		0.48	%		2.19	%
Provinces
Fair value		65			925			2,502			7,435			22			–			10,949			5,666			2,268
Amortized cost		65			923			2,492			7,428			22			–			10,930			5,627			2,271
Yield		1.84	%		2.21	%		1.27	%		1.69	%		2.19	%		–	%		1.64	%		3.05	%		3.92	%
U.S. federal government and agencies debt
Fair value		1,007			25,131			7,287			24,450			14,862			–			72,737			53,574			2,809
Amortized cost		1,007			24,680			7,462			24,708			14,993			–			72,850			53,420			2,806
Yield		0.12	%		0.39	%		0.67	%		1.04	%		2.07	%		–	%		0.98	%		0.30	%		1.67	%
U.S. states, municipalities, and agencies
Fair value		583			6,245			11,034			22,318			22,381			–			62,561			60,755			40,349
Amortized cost		579			6,127			10,990			22,458			22,299			–			62,453			60,425			40,408
Yield		2.28	%		2.27	%		2.64	%		1.39	%		0.51	%		–	%		1.39	%		1.37	%		2.42	%
Other OECD government-guaranteed debt
Fair value		7,489			14,757			13,467			3,315			–			–			39,028			37,518			28,190
Amortized cost		7,483			15,754			13,123			3,373			–			–			39,733			37,140			28,019
Yield		0.12	%		0.45	%		0.41	%		0.66	%		–	%		–	%		0.39	%		0.47	%		0.63	%
Other debt securities
Asset-backed securities
Fair value		654			4,994			8,200			6,504			12,854			–			33,206			27,126			28,698
Amortized cost		654			4,989			8,204			6,512			12,813			–			33,172			27,197			28,763
Yield		0.10	%		1.15	%		1.39	%		1.46	%		0.93	%		–	%		1.17	%		1.86	%		2.69	%
Non-agency CMO
Fair value		–			–			–			–			16,376			–			16,376			17,310			16,384
Amortized cost		–			–			–			–			16,214			–			16,214			16,992			16,236
Yield		–	%		–	%		–	%		–	%		2.77	%		–	%		2.77	%		2.85	%		2.83	%
Canadian issuers
Fair value		–			89			1,101			934			4			–			2,128			889			99
Amortized cost		–			88			1,110			931			4			–			2,133			887			99
Yield		–	%		0.83	%		1.25	%		1.58	%		–	%		–	%		1.37	%		2.79	%		2.56	%
Other issuers
Fair value		1,941			2,997			1,841			2,036			–			–			8,815			8,046			7,189
Amortized cost		1,938			2,993			1,867			2,063			–			–			8,861			8,010			7,124
Yield		0.61	%		0.76	%		0.32	%		1.21	%		–	%		–	%		0.74	%		0.69	%		1.07	%
Total debt securities at amortized cost
Fair value	$	24,809		$	56,220		$	50,867		$	68,270		$	68,286		$	–		$	268,452		$	228,873		$	130,745
Amortized cost		24,786			56,633			50,640			68,761			68,119			–			268,939			227,679			130,497
Yield		0.28	%		0.76	%		1.23	%		1.27	%		1.54	%		–	%		1.13	%		1.10	%		2.07	%

1 Yields represent the weighted-average yield of each security owned at the end of the period. The effective yield includes the contractual interest or stated dividend rate and is adjusted for the amortization of premiums and discounts; the effect of related hedging activities is excluded.

2 There were no securities from a single issuer where the book value was greater than 10% as at October 31, 2021 and October 31, 2020.

3 Represents contractual maturities. Actual maturities may differ due to prepayment privileges in the applicable contract.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 98

TABLE 60: LOAN PORTFOLIO – Maturity Schedule

(millions of Canadian dollars)																As at
		Remaining term-to-maturity
		Under 1 year		1 to 5 years		Over 5 years		Total								Total
							October 31 2021		October 31 2020		October 31 2019		October 31 2018		October 31 2017
Canada
Residential mortgages	$	27,056	$	200,688	$	3,931	$	231,675	$	213,239	$	200,952	$	193,829	$	190,325
Consumer instalment and other personal
HELOC		40,139		61,757		37		101,933		94,838		91,053		86,159		74,937
Indirect Auto		846		13,492		13,242		27,580		27,350		25,697		24,216		22,282
Other		17,753		889		615		19,257		18,277		18,453		18,570		17,347
Credit card		15,149		–		–		15,149		15,552		18,428		18,046		18,028
Total personal		100,943		276,826		17,825		395,594		369,256		354,583		340,820		322,919
Real estate
Residential		9,211		9,314		6,191		24,716		22,698		19,801		18,336		17,951
Non-residential		9,360		5,949		3,532		18,841		17,514		15,827		13,540		12,721
Total real estate		18,571		15,263		9,723		43,557		40,212		35,628		31,876		30,672
Total business and government (including real estate)		70,572		36,725		14,805		122,102		115,472		112,600		104,501		90,793
Total loans – Canada		171,515		313,551		32,630		517,696		484,728		467,183		445,321		413,712
United States
Residential mortgages		1,350		293		34,930		36,573		38,832		34,501		31,128		31,460
Consumer instalment and other personal
HELOC		7,714		49		963		8,726		10,937		11,526		12,334		12,434
Indirect Auto		338		18,933		12,279		31,550		33,087		32,454		29,870		29,182
Other		180		585		4		769		943		1,115		878		854
Credit card		15,584		–		–		15,584		16,777		18,129		16,964		14,972
Total personal		25,166		19,860		48,176		93,202		100,576		97,725		91,174		88,902
Real estate
Residential		1,712		3,129		4,401		9,242		10,200		8,880		8,078		7,346
Non-residential		3,599		10,823		7,100		21,522		25,229		24,255		22,521		22,274
Total real estate		5,311		13,952		11,501		30,764		35,429		33,135		30,599		29,620
Total business and government (including real estate)		29,383		54,854		43,514		127,751		148,501		133,659		127,523		122,691
Total loans – United States		54,549		74,714		91,690		220,953		249,077		231,384		218,697		211,593
Other International
Personal		34		–		–		34		12		12		14		14
Business and government		8,573		1,654		–		10,227		9,206		5,781		5,469		4,478
Total loans – Other international		8,607		1,654		–		10,261		9,218		5,793		5,483		4,492
Other loans
Debt securities classified as loans		n/a		n/a		n/a		n/a		n/a		n/a		n/a		3,209
Acquired credit-impaired loans		6		19		127		152		232		313		453		665
Total other loans		6		19		127		152		232		313		453		3,874
Total loans	$	234,677	$	389,938	$	124,447	$	749,062	$	743,255	$	704,673	$	669,954	$	633,671

TABLE 61: LOAN PORTFOLIO – Rate Sensitivity

(millions of Canadian dollars)																				As at
		October 31, 2021				October 31, 2020				October 31, 2019				October 31, 2018				October 31, 2017
	1 to 5 years		Over 5 years		1 to 5 years		Over 5 years		1 to 5 years		Over 5 years		1 to 5 years		Over 5 years		1 to 5 years		Over 5 years
Fixed rate	$	277,593	$	94,752	$	269,533	$	97,698	$	228,904	$	91,698	$	218,098	$	84,450	$	197,483	$	84,080
Variable rate		112,345		29,695		97,391		35,943		99,430		34,991		95,861		34,018		79,447		36,093
Total	$	389,938	$	124,447	$	366,924	$	133,641	$	328,334	$	126,689	$	313,959	$	118,468	$	276,930	$	120,173

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 99

The changes in the Bank’s allowance for loan losses for the years ended October 31 are shown in the following table.

TABLE 62:  ALLOWANCE FOR LOAN LOSSES

1

(millions of Canadian dollars, except as noted)		2021			2020			2019			2018			2017
Allowance for loan losses – Balance at beginning of year	$	8,290		$	4,447		$	3,549		$	3,475		$	3,873
Provision for credit losses		(225	)		7,239			3,030			2,472			2,216
Write-offs
Canada
Residential mortgages		13			13			17			15			22
Consumer instalment and other personal
HELOC		8			9			11			8			11
Indirect Auto		207			303			284			251			337
Other		186			267			256			216			216
Credit card		402			620			585			557			595
Total personal		816			1,212			1,153			1,047			1,181
Real estate
Residential		–			2			2			2			1
Non-residential		1			1			1			1			2
Total real estate		1			3			3			3			3
Total business and government (including real estate)		144			127			96			75			75
Total Canada		960			1,339			1,249			1,122			1,256
United States
Residential mortgages		3			13			14			16			19
Consumer instalment and other personal
HELOC		1			9			15			22			39
Indirect Auto		285			476			450			387			315
Other		161			197			204			192			152
Credit card		609			1,100			1,114			958			777
Total personal		1,059			1,795			1,797			1,575			1,302
Real estate
Residential		5			5			2			1			3
Non-residential		3			11			7			10			6
Total real estate		8			16			9			11			9
Total business and government (including real estate)		154			302			129			79			91
Total United States		1,213			2,097			1,926			1,654			1,393
Other International
Personal		–			–			–			–			–
Business and government		–			–			–			–			–
Total other international		–			–			–			–			–
Other loans
Debt securities classified as loans		n/a			n/a			n/a			n/a			9
Acquired credit-impaired loans 2,3		–			1			3			2			1
Total other loans		–			1			3			2			10
Total write-offs against portfolio		2,173			3,437			3,178			2,778			2,659
Recoveries
Canada
Residential mortgages		1			1			–			1			2
Consumer instalment and other personal
HELOC		1			–			–			1			1
Indirect Auto		55			68			54			58			90
Other		49			39			36			37			41
Credit card		97			91			87			87			98
Total personal		203			199			177			184			232
Real estate
Residential		–			–			–			–			1
Non-residential		–			1			–			–			–
Total real estate		–			1			–			–			1
Total business and government (including real estate)		18			15			20			17			20
Total Canada		221			214			197			201			252
United States
Residential mortgages		5			2			1			2			4
Consumer instalment and other personal
HELOC		7			5			4			4			11
Indirect Auto		182			141			132			116			100
Other		23			25			26			35			24
Credit card		206			216			210			173			154
Total personal		423			389			373			330			293
Real estate
Residential		1			2			2			2			2
Non-residential		4			2			2			7			8
Total real estate		5			4			4			9			10
Total business and government (including real estate)		26			28			23			42			58
Total United States		449			417			396			372			351
Other International
Personal		–			–			–			–			–
Business and government		–			–			–			–			–
Total other international		–			–			–			–			–
Other loans
Debt securities classified as loans		n/a			n/a			n/a			n/a			–
Acquired credit-impaired loans 2,3		5			9			16			16			22
Total other loans		5			9			16			16			22
Total recoveries on portfolio		675			640			609			589			625
Net write-offs		(1,498	)		(2,797	)		(2,569	)		(2,189	)		(2,034	)
Disposals		(4	)		(22	)		(3	)		(46	)		(83	)
Foreign exchange and other adjustments		(404	)		(75	)		(4	)		49			(122	)
Total allowance for loan losses, including off-balance sheet positions		6,159			8,792			4,003			3,761			3,850
Less: Change in allowance for off-balance sheet positions 4,5		(231	)		502			(444	)		212			67
Total allowance for loan losses, at end of period 5	$	6,390		$	8,290		$	4,447		$	3,549		$	3,783
Ratio of net write-offs in the period to average loans outstanding		0.20	%		0.41	%		0.38	%		0.34	%		0.33	%

1 Opening balance of allowance for loan losses effective November 1, 2017 was booked in accordance with IFRS 9. Allowance for loan losses prior to November 1, 2017 was booked in accordance with IAS 39.

2 Includes all FDIC covered loans and other ACI loans.

3 Other adjustments are required as a result of the accounting for FDIC covered loans.

4 The allowance for loan losses for off-balance sheet positions is recorded in Other liabilities on the Consolidated Balance Sheet.

5 In the fourth quarter of 2019, the Bank revised its allocation methodology for the reporting of Allowance for Credit Losses for off-balance sheet instruments for certain retail portfolios.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 100

TABLE 63:  AVERAGE DEPOSITS

1

(millions of Canadian dollars, except as noted)										For the years ended
		October 31, 2021						October 31, 2020						October 31, 2019
		Average balance		Total interest expense	Average rate paid			Average balance		Total interest expense	Average rate paid			Average balance		Total interest expense	Average rate paid
Deposits booked in Canada 2
Non-interest-bearing demand deposits	$	21,994	$	–	–	%	$	17,331	$	–	–	%	$	14,058	$	–	–	%
Interest-bearing demand deposits		115,541		820	0.71			95,184		1,057	1.11			75,709		1,579	2.09
Notice deposits		307,910		175	0.06			256,708		384	0.15			222,249		786	0.35
Term deposits		232,258		2,152	0.93			251,314		4,189	1.67			246,078		5,598	2.27
Total deposits booked in Canada		677,703		3,147	0.46			620,537		5,630	0.91			558,094		7,963	1.43
Deposits booked in the United States
Non-interest-bearing demand deposits		12,276		–	–			10,899		–	–			9,745		1	0.01
Interest-bearing demand deposits		21,524		42	0.20			10,075		50	0.50			5,147		43	0.84
Notice deposits		444,995		330	0.07			405,965		1,678	0.41			330,301		3,862	1.17
Term deposits		48,200		162	0.34			64,182		837	1.30			59,534		1,435	2.41
Total deposits booked in the United States		526,995		534	0.10			491,121		2,565	0.52			404,727		5,341	1.32
Deposits booked in the other international
Non-interest-bearing demand deposits		25		–	–			14		–	–			162		–	–
Interest-bearing demand deposits		38		–	–			2,415		4	0.17			627		1	0.16
Notice deposits		–		–	–			–		–	–			–		–	–
Term deposits		28,474		61	0.21			25,280		248	0.98			26,449		427	1.61
Total deposits booked in other international		28,537		61	0.21			27,709		252	0.91			27,238		428	1.57
Total average deposits	$	1,233,235	$	3,742	0.30	%	$	1,139,367	$	8,447	0.74	%	$	990,059	$	13,732	1.39	%

1  Certain comparative amounts have been reclassified to conform with the presentation adopted in the current period.

2  As at October 31, 2021, deposits by foreign depositors in TD’s Canadian bank offices amounted to $147 billion (October 31, 2020 – $154 billion, October 31, 2019 – $152 billion).

TABLE 64:  DEPOSITS – Denominations of $100,000 or greater

1

(millions of Canadian dollars)											As at
			Remaining term-to-maturity
			Within 3 months		3 months to 6 months		6 months to 12 months		Over 12 months		Total
			October 31, 2021
Canada		$	62,340	$	32,675	$	30,006	$	81,021	$	206,042
United States			12,023		9,857		18,219		2,895		42,994
Other international			15,177		8,300		10,908		–		34,385
Total		$	89,540	$	50,832	$	59,133	$	83,916	$	283,421
			October 31, 2020
Canada		$	72,278	$	30,196	$	36,774	$	79,758	$	219,006
United States			19,326		9,577		17,495		3,288		49,686
Other international			11,261		4,135		3,039		–		18,435
Total		$	102,865	$	43,908	$	57,308	$	83,046	$	287,127
			October 31, 2019
Canada		$	64,039	$	17,069	$	43,559	$	97,659	$	222,326
United States	��		19,616		12,220		28,143		2,755		62,734
Other international			17,234		2,880		3,601		–		23,715
Total		$	100,889	$	32,169	$	75,303	$	100,414	$	308,775

1 Deposits in Canada, U.S., and Other international include wholesale and retail deposits.

TABLE 65:  SHORT-TERM BORROWINGS

(millions of Canadian dollars, except as noted)								As at
		October 31 2021			October 31 2020			October 31 2019
Obligations related to securities sold under repurchase agreements
Balance at year-end	$	144,097		$	188,876		$	125,856
Average balance during the year		181,950			165,653			119,782
Maximum month-end balance		182,144			198,705			126,115
Weighted-average rate at October 31		0.23	%		0.27	%		1.54	%
Weighted-average rate during the year		0.18			0.72			1.98

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 101

TABLE 66:  NET INTEREST INCOME ON AVERAGE INTEREST-EARNING BALANCES

1,2,3

(millions of Canadian dollars, except as noted)					2021						2020						2019
		Average balance		Interest 4	Average rate			Average balance		Interest 4	Average rate			Average balance		Interest 4	Average rate
Interest-earning assets
Interest-bearing deposits with Banks
Canada	$	86,745	$	191	0.22	%	$	50,740	$	142	0.28	%	$	6,846	$	128	1.87	%
U.S.		90,459		108	0.12			55,810		194	0.35			24,078		532	2.21
Securities
Trading
Canada		82,474		1,734	2.10			70,972		1,985	2.80			62,433		1,973	3.16
U.S.		16,135		232	1.44			22,997		386	1.68			20,254		506	2.50
Non-trading
Canada		76,788		840	1.09			64,357		1,257	1.95			46,854		1,387	2.96
U.S.		227,702		1,877	0.82			199,395		2,948	1.48			169,275		4,641	2.74
Securities purchased under reverse repurchase agreements
Canada		76,690		214	0.28			76,533		752	0.98			66,015		1,250	1.89
U.S.		40,788		124	0.30			47,797		592	1.24			45,423		1,381	3.04
Loans
Residential mortgages 5
Canada		234,147		5,022	2.14			217,734		5,622	2.58			207,289		6,089	2.94
U.S.		36,641		1,200	3.28			37,871		1,374	3.63			32,821		1,253	3.82
Consumer instalment and other personal
Canada		142,990		5,319	3.72			135,265		5,450	4.03			130,719		5,762	4.41
U.S.		40,819		1,498	3.67			44,886		1,934	4.31			43,372		2,004	4.62
Credit card
Canada		15,338		1,926	12.56			17,512		2,245	12.82			19,197		2,422	12.62
U.S.		14,559		2,234	15.34			16,976		2,764	16.28			17,679		2,913	16.48
Business and government 5
Canada		112,195		2,461	2.19			116,263		2,975	2.56			100,408		3,506	3.49
U.S.		129,583		3,882	3.00			141,387		4,352	3.08			125,914		4,800	3.81
International 6		126,147		719	0.57			106,613		861	0.81			105,401		1,397	1.33
Total interest-earning assets 7		1,550,200		29,581	1.91			1,423,108		35,833	2.52			1,223,978		41,944	3.43
Interest-bearing liabilities
Deposits
Personal 8
Canada		283,118		564	0.20			252,704		1,167	0.46			224,374		1,624	0.72
U.S.		314,428		129	0.04			297,021		1,318	0.44			246,986		3,246	1.31
Banks 9,10
Canada		16,526		19	0.11			14,376		77	0.54			11,414		169	1.48
U.S.		544		1	0.18			1,424		3	0.21			2,346		44	1.88
Business and government 9,10
Canada		313,980		2,564	0.82			303,449		4,386	1.45			279,571		6,170	2.21
U.S.		134,326		404	0.30			127,150		1,244	0.98			101,874		2,051	2.01
Subordinated notes and debentures		11,372		374	3.29			11,922		426	3.57			9,589		395	4.12
Obligations related to securities sold short and under repurchase agreements
Canada		105,769		592	0.56			95,110		1,044	1.10			60,173		1,281	2.13
U.S.		56,450		168	0.30			61,484		583	0.95			57,028		1,602	2.81
Securitization liabilities 11		29,105		343	1.18			28,220		379	1.34			27,023		522	1.93
Other liabilities
Canada		4,920		97	1.97			7,267		173	2.38			5,669		154	2.72
U.S.		5,706		92	1.61			3,047		99	3.25			35		4	11.43
International 9,10		86,877		103	0.12			70,007		437	0.62			67,833		861	1.27
Total interest-bearing liabilities 7		1,363,121		5,450	0.40			1,273,181		11,336	0.89			1,093,915		18,123	1.66
Total interest-earning assets, net interest income, and net interest margin	$	1,550,200	$	24,131	1.56	%	$	1,423,108	$	24,497	1.72	%	$	1,223,978	$	23,821	1.95	%
Add: non-interest earning assets		180,360		–	–			181,000		–	–			165,884		–	–
Total assets, net interest income and margin	$	1,730,560	$	24,131	1.39	%	$	1,604,108	$	24,497	1.53	%	$	1,389,862	$	23,821	1.71	%

1  Certain comparative amounts have been reclassified to conform with the presentation adopted in the current period.

2  Net interest income includes dividends on securities.

3  Geographic classification of assets and liabilities is based on the domicile of the booking point of assets and liabilities.

4  Interest income includes loan fees earned by the Bank, which are recognized in net interest income over the life of the loan through the effective interest rate method (EIRM).

5  Includes average trading loans of $13 billion (2020 – $13 billion, 2019 – $12 billion).

6  Comprised of interest-bearing deposits with Banks, securities, securities purchased under reverse repurchase agreements, and business and government loans.

7 Average interest-earning assets and average interest-bearing liabilities are non-GAAP financial measures that depict the Bank’s financial position, and are calculated using daily balances. For additional information about the Bank’s use of non-GAAP financial measures, refer to “Non-GAAP and Other Financial Measures” in the “Financial Results Overview” section of this document.

8 Includes charges incurred on the Schwab IDA Agreement of $1.6 billion (2020 – charge on the TD Ameritrade IDA agreement – $1.9 billion and Schwab IDA Agreement – $136 million, 2019 – charges on TD Ameritrade IDA Agreement – $2.2 billion).

9  Includes average trading deposits with a fair value of $34 billion (2020 – $24 billion, 2019 – $61 billion).

10  Includes average deposit designated at FVTPL of $76 billion (2020 – $95 billion, 2019 – $59 billion).

11  Includes average securitization liabilities at fair value of $14 billion (2020 – $13 billion, 2019 – $13 billion) and average securitization liabilities at amortized cost of $15 billion (2020 – $15 billion, 2019 – $14 billion).

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 102

The following table presents an analysis of the change in net interest income of volume and interest rate changes. In this analysis, changes due to volume/ interest rate variance have been allocated to average interest rate.

TABLE 67:  ANALYSIS OF CHANGE IN NET INTEREST INCOME

1,2,3

(millions of Canadian dollars)		2021 vs. 2020									2020 vs. 2019
		Increase (decrease) due to changes in									Increase (decrease) due to changes in
		Average volume			Average rate			Net change			Average volume			Average rate			Net change
Interest-earning assets
Interest-bearing deposits with banks
Canada	$	102		$	(53	)	$	49		$	823		$	(809	)	$	14
U.S.		121			(207	)		(86	)		702			(1,040	)		(338	)
Securities
Trading
Canada		321			(572	)		(251	)		270			(258	)		12
U.S.		(115	)		(39	)		(154	)		69			(189	)		(120	)
Non-trading
Canada		243			(660	)		(417	)		518			(648	)		(130	)
U.S.		418			(1,489	)		(1,071	)		826			(2,519	)		(1,693	)
Securities purchased under reverse repurchase agreements
Canada		2			(540	)		(538	)		199			(697	)		(498	)
U.S.		(87	)		(381	)		(468	)		72			(861	)		(789	)
Loans
Residential mortgages
Canada		424			(1,024	)		(600	)		307			(774	)		(467	)
U.S.		(45	)		(129	)		(174	)		193			(72	)		121
Consumer instalment and other personal
Canada		311			(442	)		(131	)		200			(512	)		(312	)
U.S.		(175	)		(261	)		(436	)		70			(140	)		(70	)
Credit card
Canada		(279	)		(40	)		(319	)		(212	)		35			(177	)
U.S.		(394	)		(136	)		(530	)		(116	)		(33	)		(149	)
Business and government
Canada		(104	)		(410	)		(514	)		554			(1,085	)		(531	)
U.S.		(364	)		(106	)		(470	)		590			(1,038	)		(448	)
International		104			(246	)		(142	)		(41	)		(495	)		(536	)
Total interest income		483			(6,735	)		(6,252	)		5,024			(11,135	)		(6,111	)
Interest-bearing liabilities
Deposits
Personal
Canada		140			(743	)		(603	)		205			(662	)		(457	)
U.S.		77			(1,266	)		(1,189	)		658			(2,586	)		(1,928	)
Banks
Canada		11			(69	)		(58	)		44			(136	)		(92	)
U.S.		(2	)		–			(2	)		(17	)		(24	)		(41	)
Business and government
Canada		152			(1,974	)		(1,822	)		527			(2,311	)		(1,784	)
U.S.		70			(910	)		(840	)		509			(1,316	)		(807	)
Subordinated notes and debentures		(20	)		(32	)		(52	)		97			(66	)		31
Obligations related to securities sold short and under repurchase agreements
Canada		117			(569	)		(452	)		744			(981	)		(237	)
U.S.		(48	)		(367	)		(415	)		125			(1,144	)		(1,019	)
Securitization liabilities		12			(48	)		(36	)		23			(166	)		(143	)
Other liabilities
Canada		(56	)		(20	)		(76	)		43			(24	)		19
U.S.		87			(94	)		(7	)		366			(271	)		95
International		79			(413	)		(334	)		20			(444	)		(424	)
Total interest expense		619			(6,505	)		(5,886	)		3,344			(10,131	)		(6,787	)
Net interest income	$	(136	)	$	(230	)	$	(366	)	$	1,680		$	(1,004	)	$	676

1 Certain comparative amounts have been reclassified to conform with the presentation adopted in the current period.

2 Geographic classification of assets and liabilities is based on the domicile of the booking point of assets and liabilities.

3  Interest income includes loan fees earned by the Bank, which are recognized in net interest income over the life of the loan through the EIRM.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 103

GLOSSARY

Financial and Banking Terms

Adjusted Results:

Non-GAAP

financial measures used to assess each of 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. The items of note relate to items which management does not believe are indicative of underlying business performance.

Allowance for Credit Losses:

Represent expected credit losses (ECLs) on financial assets, including any

off-balance

sheet exposures, at the balance sheet date. Allowance for credit losses consists of Stage 3 allowance for impaired financial assets and Stage 2 and Stage 1 allowance for performing financial assets and

off-balance

sheet instruments. The allowance is increased by the provision for credit losses, decreased by write-offs net of recoveries and disposals, and impacted by foreign exchange.

Amortized Cost:

The amount at which a financial asset or financial liability is measured at initial recognition minus principal repayments, plus or minus the cumulative amortization, using EIRM, of any differences between the initial amount and the maturity amount, and minus any reduction for impairment.

Assets under Administration (AUA):

Assets that are beneficially owned by customers where the Bank provides services of an administrative nature, such as the collection of investment income and the placing of trades on behalf of the clients (where the client has made his or her own investment selection). The majority of these assets are not reported on the Bank’s Consolidated Balance Sheet.

Assets under Management (AUM):

Assets that are beneficially owned by customers, managed by the Bank, where the Bank has discretion to make investment selections on behalf of the client (in accordance with an investment policy). In addition to the TD family of mutual funds, the Bank manages assets on behalf of individuals, pension funds, corporations, institutions, endowments and foundations. These assets are not reported on the Bank’s Consolidated Balance Sheet. Some assets under management that are also administered by the Bank are included in assets under administration.

Asset-Backed Commercial Paper (ABCP):

A form of commercial paper that is collateralized by other financial assets. Institutional investors usually purchase such instruments in order to diversify their assets and generate short-term gains.

Asset-Backed Securities (ABS):

A security whose value and income payments are derived from and collateralized (or “backed”) by a specified pool of underlying assets.

Average Common Equity:

Average common equity for the business segments reflects the 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.

Average Interest

-Earning

Assets:

A

non-GAAP

financial measure that depicts the Bank’s financial position, and is calculated as the average carrying value of deposits with banks, loans and securities based on daily balances for the period ending October 31 in each fiscal year.

Basic Earnings per Share (EPS)

: A performance measure calculated by dividing net income attributable to common shareholders by the weighted average number of common shares outstanding for the period. Adjusted basic EPS is calculated in the same manner using adjusted net income.

Basis Points (bps):

A unit equal to 1/100 of 1%. Thus, a 1% change is equal to 100 basis points.

Book Value per Share:

A measure calculated by dividing common shareholders’ equity by number of common shares at the end of the period.

Carrying Value:

The value at which an asset or liability is carried at on the Consolidated Balance Sheet.

Collateralized Mortgage Obligation (CMO):

They are collateralized debt obligations consisting of mortgage-backed securities that are separated and issued as different classes of mortgage pass-through securities with different terms, interest rates, and risks. CMOs by private issuers are collectively referred to as

non-agency

CMOs.

Common Equity Tier 1 (CET1) Capital:

This is a primary Basel III capital measure comprised mainly of common equity, retained earnings and qualifying

non-controlling

interest in subsidiaries. Regulatory deductions made to arrive at the CET1 Capital include goodwill and intangibles, unconsolidated investments in banking, financial, and insurance entities, deferred tax assets, defined benefit pension fund assets, and shortfalls in allowances.

Common Equity Tier 1 (CET1) Capital Ratio:

CET1 Capital ratio represents the predominant measure of capital adequacy under Basel III and equals CET1 Capital divided by RWA.

Compound Annual Growth Rate (CAGR):

A measure of growth over multiple time periods from the initial investment value to the ending investment value assuming that the investment has been compounding over the time period.

Credit Valuation Adjustment (CVA):

CVA represents a capital charge that measures credit risk due to default of derivative counterparties. This charge requires banks to capitalize for the potential changes in counterparty credit spread for the derivative portfolios.

Diluted EPS

: A performance measure calculated by dividing net income attributable to common shareholders by the weighted average number of common shares outstanding adjusting for the effect of all potentially dilutive common shares. Adjusted diluted EPS is calculated in the same manner using adjusted net income.

Dividend Payout Ratio

: A ratio represents the percentage of Bank’s earnings being paid to common shareholders in the form of dividends and is calculated by dividing common dividends by net income available to common shareholders. Adjusted dividend payout ratio is calculated in the same manner using adjusted net income.

Dividend Yield:

A ratio calculated as the dividend per common share for the year divided by the daily average closing stock price during the year.

Effective Income Tax Rate:

A rate and performance indicator calculated by dividing the provision for income taxes as a percentage of net income before taxes. Adjusted effective income tax rate is calculated in the same manner using adjusted results.

Effective Interest Rate (EIR):

The rate that discounts expected future cash flows for the expected life of the financial instrument to its carrying value. The calculation takes into account the contractual interest rate, along with any fees or incremental costs that are directly attributable to the instrument and all other premiums or discounts.

Effective Interest Rate Method (EIRM):

A technique for calculating the actual interest rate in a period based on the amount of a financial instrument’s book value at the beginning of the accounting period. Under EIRM, the effective interest rate, which is a key component of the calculation, discounts the expected future cash inflows and outflows expected over the life of a financial instrument.

Efficiency Ratio:

The efficiency ratio measures operating efficiency and is calculated by taking the

non-interest

expenses as a percentage of total revenue. A lower ratio indicates a more efficient business operation. Adjusted efficiency ratio is calculated in the same manner using adjusted

non-interest

expenses and total revenue.

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Enhanced Disclosure Task Force (EDTF):

Established by the Financial Stability Board in May 2012, comprised of banks, analysts, investors, and auditors, with the goal of enhancing the risk disclosures of banks and other financial institutions.

Expected Credit Losses (ECLs):

ECLs are the probability-weighted present value of expected cash shortfalls over the remaining expected life of the financial instrument and considers reasonable and supportable information about past events, current conditions, and forecasts of future events and economic conditions that impact the Bank’s credit risk assessment.

Fair Value:

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions.

Fair value through other comprehensive income (FVOCI):

Under IFRS 9, if the asset passes the contractual cash flows test (named SPPI), the business model assessment determines how the instrument is classified. If the instrument is being held to collect contractual cash flows, that is, if it is not expected to be sold, it is measured as amortized cost. If the business model for the instrument is to both collect contractual cash flows and potentially sell the asset, it is measured at FVOCI.

Fair value through profit or loss (FVTPL):

Under IFRS 9, the classification is dependent on two tests, a contractual cash flow test (named SPPI) and a business model assessment. Unless the asset meets the requirements of both tests, it is measured at fair value with all changes in fair value reported in profit or loss.

Federal Deposit Insurance Corporation (FDIC):

A U.S. government corporation which provides deposit insurance guaranteeing the safety of a depositor’s accounts in member banks. The FDIC also examines and supervises certain financial institutions for safety and soundness, performs certain consumer-protection functions, and manages banks in receiverships (failed banks).

Forward Contracts:

Over-the-counter

contracts between two parties that oblige one party to the contract to buy and the other party to sell an asset for a fixed price at a future date.

Futures:

Exchange-traded contracts to buy or sell a security at a predetermined price on a specified future date.

Hedging:

A risk management technique intended to mitigate the Bank’s exposure to fluctuations in interest rates, foreign currency exchange rates, or other market factors. The elimination or reduction of such exposure is accomplished by engaging in capital markets activities to establish offsetting positions.

Impaired Loans:

Loans where, in management’s opinion, there has been a deterioration of credit quality to the extent that the Bank no longer has reasonable assurance as to the timely collection of the full amount of principal and interest.

Loss Given Default (LGD):

It is the amount of the loss the Bank would likely incur when a borrower defaults on a loan, which is expressed as a percentage of exposure at default.

Mark-to-Market

(MTM):

A valuation that reflects current market rates as at the balance sheet date for financial instruments that are carried at fair value.

Master Netting Agreements:

Legal agreements between two parties that have multiple derivative contracts with each other that provide for the net settlement of all contracts through a single payment, in a single currency, in the event of default or termination of any one contract.

Net Corporate Expenses:

Non-interest

expenses related to corporate service and control groups which are not allocated to a business segment.

Net Interest Margin:

A

non-GAAP

ratio calculated as net interest income as a percentage of average interest-earning assets to measure performance. This metric is an indicator of the profitability of the Bank’s earning assets less the cost of funding.

Non-Viability

Contingent Capital (NVCC):

Instruments (preferred shares and subordinated debt) that contain a feature or a provision that allows the financial institution to either permanently convert these instruments into common shares or fully write-down the instrument, in the event that the institution is no longer viable.

Notional:

A reference amount on which payments for derivative financial instruments are based.

Office of the Superintendent of Financial Institutions Canada (OSFI):

The regulator of Canadian federally chartered financial institutions and federally administered pension plans.

Options:

Contracts in which the writer of the option grants the buyer the future right, but not the obligation, to buy or to sell a security, exchange rate, interest rate, or other financial instrument or commodity at a predetermined price at or by a specified future date.

Price-Earnings Ratio

: A ratio calculated by dividing the closing share price by EPS based on a trailing four quarters to indicate market performance. Adjusted price-earnings ratio is calculated in the same manner using adjusted EPS.

Probability of Default (PD):

It is the likelihood that a borrower will not be able to meet its scheduled repayments.

Provision for Credit Losses (PCL):

Amount added to the allowance for credit losses to bring it to a level that management considers adequate to reflect expected credit-related losses on its portfolio.

Return on Common Equity (ROE):

The consolidated Bank ROE is calculated as net income available to common shareholders as a percentage of average common shareholders’ equity, 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. Adjusted ROE is calculated in the same manner using adjusted net income.

Return on Risk-weighted Assets:

Net income available to common shareholders as a percentage of average risk-weighted assets.

Return on Tangible Common Equity (ROTCE):

A

non-GAAP

financial measure 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 Tangible common equity. Adjusted ROTCE is calculated in the same manner using adjusted net income. Both measures can be utilized in assessing the Bank’s use of equity.

Risk-Weighted Assets (RWA):

Assets calculated by applying a regulatory risk-weight factor to on and

off-balance

sheet exposures. The risk-weight factors are established by the OSFI to convert on and

off-balance

sheet exposures to a comparable risk level.

Securitization:

The process by which financial assets, mainly loans, are transferred to structures, which normally issue a series of asset-backed securities to investors to fund the purchase of loans.

Solely Payments of Principal and Interest (SPPI):

IFRS 9 requires that the following criteria be met in order for a financial instrument to be classified at amortized cost:

• The entity’s business model relates to managing financial assets (such as bank trading activity), and, as such, an asset is held with the intention of collecting its contractual cash flows; and

• An asset’s contractual cash flows represent SPPI.

TD BANK GROUP • 2021 ANNUAL REPORT • MANAGEMENT’S DISCUSSION & ANALYSIS Page 105

Swaps:

Contracts that involve the exchange of fixed and floating interest rate payment obligations and currencies on a notional principal for a specified period of time.

Tangible common equity (TCE):

A

non-GAAP

financial measure calculated as common shareholders’ equity less goodwill, imputed goodwill, and intangibles on an investment in Schwab and TD Ameritrade and other acquired intangible assets, net of related deferred tax liabilities. It can be utilized in assessing the Bank’s use of equity.

Taxable Equivalent Basis (TEB):

A calculation method (not defined in GAAP) that increases revenues and the provision for income taxes on certain

tax-exempt

securities to an equivalent

before-tax

basis to facilitate comparison of net interest income from both taxable and

tax-exempt

sources.

Tier 1 Capital Ratio:

Tier 1 Capital represents the more permanent forms of capital, consisting primarily of common shareholders’ equity, retained earnings, preferred shares and innovative instruments. Tier 1 Capital ratio is calculated as Tier 1 Capital divided by RWA.

Total Capital Ratio:

Total Capital is defined as the total of net Tier 1 and Tier 2 Capital. Total Capital ratio is calculated as Total Capital divided by RWA.

Total Shareholder Return (TSR):

The change in market price plus dividends paid during the year as a percentage of the prior year’s closing market price per common share.

Trading-Related Revenue:

A

non-GAAP

financial measure that is the total of trading income (loss), net interest income on trading positions, and income from financial instruments designated at FVTPL that are managed within a trading portfolio. Trading-related revenue (TEB) in the Wholesale Banking segment, which is part of the total Bank’s trading-related revenue, is also a

non-GAAP

financial measure and is calculated in the same manner, including TEB adjustments. Both are used for measuring trading performance.

Value-at-Risk

(VaR):

A metric used to monitor and control overall risk levels and to calculate the regulatory capital required for market risk in trading activities. VaR measures the adverse impact that potential changes in market rates and prices could have on the value of a portfolio over a specified period of time.

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